Good morning, ladies and gentlemen. Thank you for joining the call this morning. You'll have seen the statement that we issued to the market this morning, so I'll just give a brief backdrop to that and some additional commentary, and then we'll leave it open for analysts' questions. So you'll recall when we set out our expectations for the full year at our at at our half year presentation, we were requiring a sales rate for H2 of 0.5, 0.5 SPO rate. The early part of this period, we were seeing sales at or around that level, perhaps just below, but within striking distance of that. What we have seen over recent weeks, particularly the last six or seven weeks, has been a, a declining sales-
Please hold.
Actually, in recent weeks, quite a significant reduction in, in sales rates, such that with around six weeks left of the sales potential for this financial year, it's, it's important that we recognize that those sales rates we've achieved in the last six or seven weeks are going to mean that our profit outturn for the year will be significantly lower than market expectations. Additionally, we've incurred further censures on our brownfield regeneration projects in, in the center of Farnham, and again, that will impact the full year 2023 result. Management is taking a number of actions to both mitigate 2023 and also to put us in a better position for 2024 and beyond. First of those is, is around looking at our overall cost structure. We set out a growth strategy in October 2021.
We're looking to grow into three divisions. The first of those was in Yorkshire. We still intend to operate our Yorkshire division, albeit at a slower trajectory of growth than we originally set out. The second was in East Anglia, where we set up a new independent business division earlier this year. We are now going to continue to participate in East Anglia, but through our existing Eastern division, which in the future will operate with revised boundaries, with the Kent part of that business now moving to our South division. That does leave us the optionality in the future to break out a separate East Anglia division, but that will only happen when market conditions allow. Of course, as you would expect, we will also be looking at our wider overall organizational structure and cost base. We're looking at some bulk sales.
Bulk sales are not as a direct result of this market, of these market conditions. It has been part of our strategy for some time, and that's something that is normal course of business, but does offer particularly support for 2024 and 2025. Just in, in concluding, I think it's really important to explain that this is a cyclical market. The, the supply and demand imbalance means that it is a strong sector to be in, and we do expect in, in time for interest rates to, to start to move back down again, and we expect to see stronger market conditions as we move through the second half of 2024 and into 2025. We're well placed to meet that demand side improvement when, when that eventually comes.
We have been buying some fantastic assets in the earlier part of this year. We've got those into the planning system early. The planning system is slow, relatively dysfunctional, but we've got those assets into the system, more timeously, and we'll be in a better position to have those assets available for sale when those market conditions do improve, as they inevitably will. Duncan, anything further before we move on to Q&A?
No, I think basically just go to Q&A.
Thank you. If we can just move on to Q&A then, please.
If you'd like to ask a question, please just unmute yourself and just tell us your name and your company. Thank you.
Hi, Peter. It's, it's Clyde at, at Peel Hunt. I've got a few questions, if I, if I can. Firstly, have you, have you seen a, a jump in cancellation rates at all, over the last six, eight weeks at all? Because obviously it's sort of a fairly material sort of change in, in, in that SPO rate. I mean, normally you would expect a slower period over July and August. It's probably the second period after Christmas in terms of sort of slow sales rates. I'm sure that wasn't a, wasn't a surprise. Has there been something else in cancellation rates, maybe, that, that's changed expectations?
It's, it's a bit of both with, with that one, Clyde. as you would imagine, if you're looking at just as a percentage, it obviously looks. It, it looks worse. in terms of absolute numbers, it's not extraordinarily high, but when expressed as a % of a lower number, it obviously is, it's high on that basis.
In terms of sort of pricing, I mean, you haven't said anything on, on pricing in the statement or today. Has that got worse? If so, can you give us some sort of idea of the, the quantum?
Yeah, we haven't said anything specific, but at the start of the year, I said that I thought that the best case that we were gonna get this year is flat pricing. The worst case would probably be minus 5%, and that it would be more likely to be volumes that take the strain rather than price. I think you can imply that the overall pricing is somewhere between those two numbers, and pretty consistent with what you would have seen and heard from our competitors. There's nothing unusual going on in terms of our pricing when compared to the overall market.
Okay, thank you. The last one I had was around writedowns. Is your GBP 50 million guidance now, does that include anything for asset writedowns at all, or is that just very much a lower volume, sort of really driving along with the Farnham hit, sort of driving the change?
Clyde, it's Duncan. No, it doesn't, it doesn't include any further provision for any asset writedowns. Depending on your view of where you think pricing might go, which is the, is the general determinant for, for doing that, and obviously, build cost movements, the obvious site where you get an immediate drop through is, is Farnham, because it's an NRV site. If anything, actually, we're seeing good pricing performance at, at Farnham as a, as a scheme individually. And other, and other sites that would come into the jaws of that, would need to see a fairly material pricing deterioration between now and the end of the year, which, which we don't anticipate.
I think the other point I'd just like to build on Peter's point, which I think is worth sort of getting across to everyone at the outset. It, you know, back to that point around the sales rate and the cancellation rate, the reason for announcing today is also as well, a function of, and crystallizing our forecast, is also a function of where our year end falls, in the sense that, we really only have about another four weeks of live operational trading, before then, a kind of credible six-week runway that we get customers from reservation exchange, legal completion, and in the books at the end of October.
In some respects, what we're seeing and experiencing in the market at the moment, you know, we, we don't have the luxury of seeing whether that improves and comes back in later in the year, or whether we can get other compensating sales to sort of offset those cancellations in the early autumn and later autumn. That's why we have to take a view, as we've done on, the, on the demand environment.
Okay, perfect. Thank you, Duncan.
Hi, morning, Aynsley Lammin from Investec.
Morning, Aynsley.
Morning, Aynsley.
Morning. Just three questions, please. First of all, on the guidance, if you could give a bit more color there in terms of to get to the GBP 50 million of PBT, what you're kind of, you know, assuming or expecting on, on volumes, and presumably there's a quite a bit of margin fall in there as well, but, any more color on the volume guidance that underpins that GBP 50 million? Second question, just on, the land spends kind of, you know, your financial year to date, and, any kind of moving parts in the cash flow that might be different to what you, you suggested at the kind of results.
Then thirdly, just on the overheads with the kind of efficiencies and changes you're making, what would you expect, you know, operating expenses to be for FY 2024, post all the changes and, costs cuts that you're making? Thanks.
If I just pick up very briefly the second and third, and then I'll ask Duncan to break down the guidance for you. I mean, just in terms of overhead, we haven't given a specific number, but obviously we're looking quite closely at the overall cost base in the organization, including overhead, and it does go beyond just what we would be doing, by not having the separate division in East Anglia and reducing the pace of growth in Yorkshire. I mean, to try and be helpful, I think we would be starting at looking at an overhead number that's lower than this year and absorbing any inflation within that.
I mean, on land spend, we, we haven't given any particular number on that for this year, and, and we're not going to. There, there's nothing new to, to see in terms of land spend. We already indicated that we had done most of our land buying early in the first half of the financial year and would naturally be tailing off as we went through the year and into 2024. Some of that, of course, still implies land creditor pay down, so cash is not necessarily directly related to, to activity in the period. There's nothing new in relation to, to that. That, that had already been communicated that we expected less land activity in H2, and less again, as we went into 2024. Duncan, just, just on the guidance.
Aynsley, on the GBP 50 million PBT look, I mean, I think, you know, the lion share of that, of that bridge down is, is down to that poorer sales rate that we're referring to in terms of the year-end position. There's naturally a sense of wanting to create some provisions for some further build cost inflation, other items as well, in relation to coming through and deriving the year-end view and the restructure or the sort of overhead piece that Peter alludes to, also needs some reflection of some potential cost to change before the end of the year, which is also factored into that and just on, I think I've got GBP 60 million for operating expenses for FY23. Is that a, a good number to look at going forward? As you say, FY24 lower, is that where I should be starting?
Look, I wouldn't, want to be drawn on that at this stage in the sense that I think we will, we will aim to give a lot more clarity on that in terms of the detail in the November trading update, which is, which is not far away. I think, you know, I'd go back to the comments we made on our feet, actually, at prelims, which is we talked about cost and then the investments necessary to, support the growth strategy. Equally, we're very clear with people that if market conditions deteriorated, we would act decisively in recognizing that, and, and, and, and against a, you know, declining profit number, which is what we're talking about today.
You know, we will, we will, you know, set to that task in, in the right way and give some further color in November.
Okay. Thank you very much.
If anyone else has any other questions, please unmute yourselves.
Yeah, hello. My name is Roger Lewis from Hermes. I've got a question about.
Hi, sorry.
Yeah. Hi, I've got a question about... Can you hear me? Hello?
Yes.
Yeah.
Yes, we can hear you.
I've got a question about the bulk sales. Yeah, hi. I've got a question about the bulk sales. You say that your current sales per outlet are down to 0.25, and you expect through 2024, 2025 to pick up some of the slack with, with bulk sales. I'm assuming you mean build-to-rent funds. If it's such a high % of picking up the slack, do you see any sort of conflict with the residential private brand and such a large number of build-to-rent properties actually on developments that are subject to private sales outlets, as it were?
no-
In terms of the specifications that come from.
No, no, there's no conflict at all, Roger. In fact, as I alluded to, it is a normal part of our, of, of our strategy. We expect to see somewhere around 20% of our normal volume coming through bulk. We select the right trading partners who produce a quality environment for professional buy-to-let. They tend to be on larger sites where the buy-to-let element is not, it, it, it doesn't dominate disproportionately the, the, the, the sites, and there is that mixed community that we would expect. We're not looking at 0.25 as being a normal sales rate. That is the sales rate that we're seeing at the moment in difficult market conditions during the summer, which is historically quite low.
I wouldn't do a straight read across and saying, "Well, slack will be taken up by, by bulk sales." That, that's just part of our strategy as we go into 2024 and 2025.
Okay. As a, as a follow-up on that, you gave a guide of the worst-case scenario, perhaps being a 5% coming off the top, top of the headline price, as it were. Incentives have come into the market. They're running at about 5%. For an enhanced level of bulk sales during the period of market difficulty, would you expect to be the statement just that says a commercial level of thing? Is that commercial level significantly above, say, a 10% worst-case scenario for the private sale discount, as it were?
Look, I'll try and be helpful here. The comment around 0%-5% being the range on private sales, that's the net price. That's not a grossed up price, less incentives. That is off the net realizable price. In terms of bulk, I'd reiterate what we've told people before, that we think that the typical range of discount tends to be in the 7%-10% of the gross price. I don't think that has changed very much. It might be towards the higher end of that range rather than the lower end, but that seems to be the sensible sort of range that people engage at.
Okay, I understand. Thanks very much.
Thank you.
Hi, it's Chris from Numis. Can I ask a couple, please?
Sure. Chris.
Thank you. Cheers, guys. Sorry, I didn't know if I was on mute or not. First one's just about, can you give us a comp for the sales rate at 0.25? Sorry, if you said it, and I've missed it. Perhaps you could just mention also kind of where the exit rate was, because you talk about progressively deteriorating trends. That's number one. Just wondered if you'd give us a bit of a feel where you think build cost inflation is trending at the moment. I also, the line was a bit poor before, but I didn't pick up, Duncan, if you'd said you're changing your kind of net cash guide for the end of this year. I just wondered if there's, you know, lower land spend, but lower profits kind of broadly offset one another.
Yeah, if Duncan picks up the third one. I mean, in terms of the sales rate, if you look at trends historically, you would see that there is typically a tail off between the spring. You get somewhere around the sort of 10%-15% reduction in sales rate during the summer. It picks up again in the autumn, and you get very little sales as you get just before Christmas and in the early part of January. That seasonality had gone away over the last two or three years because there were special factors with lockdowns, coming out of lockdowns, et cetera, which impacted those normal sales rates. You expect to see lower sales rates during the summer.
That sales rate, we're talking about, about 0.25, is still far lower than a normal summer, where you might typically see in, in decent market conditions, perhaps double that. We're not-- We haven't broken that down specifically week by week, other than to say that it's been on a reducing trend across the period. In terms of build cost inflation, I mean, general build cost inflation, I think we're, actually starting to see that more or less level off. Doesn't mean to say there aren't always going to be the odd cost movements on, on site. You know, that, that could be related to preliminaries, it could be related to design changes, things go wrong, specifications, upsides and downsides.
There's always going to be some build cost movements, but in terms of true, build cost inflation, I think we've, actually started to see that, that, that level off now. Duncan, on, on, on cash?
Chris, yeah, I didn't, I didn't say anything on net, net cash, unless you were, you were leading me into the question, which is fine anyway. Look, all things being equal, of course, at the end of this year, given, given that, that, that cash receipts component and inflow, that, that, that relates to the SPO rate, all things being equal, we will be at a lower level of net cash at the end of this year. We might have a little bit of upside on our original thinking versus the timing of some of our fire remediation cash outflows.
But ultimately, they've still got to go out and would then be, would go out in 2024 instead. In part, that's why we, you know, we're also making. I made the point around the land, buying as well, because as we look into next year, but all things being equal, at the end of this year, we'll be lower.
Sorry, just a quick follow-up, Duncan. We'll be going sub 100 this year, and then maybe just a line for that. Is it still the right thing to be holding the divvy, just in light of those comments you've talked about?
Well, two parts to that, Chris challenge. I think, look, yes, I think as we sit here today, sub 100, right? Sorry, the line's a bit crackly, would be a sensible place. The actual cash difference between that and applying 2.5 times cover on the divvy for the end of this year is not material or discernible, ultimately, in our view. I think, you know, we've made that commitment, and also I think, you know, back to Peter's point, we look out into, you know, 2024 and 2025 and still have lots of causes for optimism around the market recovery and also us having, you know, strong assets in place.
I think the, you know, the, sort of commitment on that is felt like a, a sensible and, and proportionate thing to do.
Understood. Thanks for your answers, gentlemen.
Can I-[cross talk]
Are there any more questions?
John from Deutsche Bank. Can I ask a question?
Yeah, sure, John. Hi, go ahead. Thank you.
Good morning, Peter and Duncan and Jenny. A couple from me.
Good morning, John.
Morning. When you look at sales rates across your various divisions, are there any... Is the, is the fall pretty broad-based, pretty uniform across the piece, or are there any themes you can pick out in terms of location? The second one is just on part exchange. Could you just update us on the extent to which you have used it this period? Thank you.
Yeah, on, the first one, I mean, obviously, with, with five divisions that are actively selling, four of them in the South and 1, 1 in the Midlands, it doesn't really create a, a, a trend. Certainly the South is, the South is tougher because average selling prices are, are so much higher. I mean, on PX, this is something we manage very, very carefully, because what we don't want to do is to take a load of sales on, on new homes and, and then find that we have, a balance sheet problem or, a lot of PX properties that we, we then can't sell. That's managed very tightly, and there is nothing new going on as far as PX is concerned.
We, we make sure that we, we are continuing to turn everything that we, we take in.
Okay, thank you.
Thanks, John. Are there any more questions? Please unmute yourself if there is... I think we can wrap the call up.
Okay.
Okay. Thank you very much. If you've got any follow-up questions, please, contact me. Thank you.