Good morning, welcome to the Taylor Wimpey PLC trading update call. Today's conference call will be hosted by Taylor Wimpey Chief Executive, Pete Redfern, and Group Finance Director, Chris Carney, followed by a Q&A. I would now like to turn the conference over to Pete Redfern, Chief Executive. Please go ahead, sir.
Thank you. Thank you, everybody, for joining us, and apologies for the short notice. We've got a lot of people on the call, so hopefully, most have managed to get here. There's quite a lot to go through, probably slightly more than the usual trading update for 2020. It's been an unusual year. As you all know, it's about three and a half months since our July half year results, quite a lot to update you on. I'll take a fairly traditional approach to the order. I do think start with the housing market, then our trading, then construction and how we're coping with current COVID conditions, and probably there also pick up what's happening through this second lockdown.
On costs, including the restructuring that you will have seen in the statement, land buy and touch on customer care, come back to the guidance and let Chris pick up anything that I've managed to miss on the way through. I'm confident there will be something on this occasion because there is a lot, as I say, to cover. I think on the housing market overall, it won't surprise you. You've seen it from most commentators that the housing market has generally performed pretty well over the last few months. It's returned to something like normal more quickly than I think most of us imagined. As you know, through the conversations that we had through the capital raise and subsequently, we were confident about the underlying condition of the housing market.
I don't think we would have called quite how positive it's been over the last few months. I do think, though, we should get that in context, so that I think it can easily be overplayed. We've not seen the market race away in price or volume terms. I think we've seen it come back to something like normal pretty quickly, and probably with more strength and resilience than we've seen for a while in the upper end of the market. I don't mean GBP 1 million plus houses, I mean areas that are very important to us, good quality, good locations, detached housing, family housing which has been relatively slow over the last few years compared to a strong first time buyer market. We've seen some real strength in that. Our view of price is that we've seen price move about 2% net for us.
That's an underlying movement. Probably a little bit better if we excluded our care home and NHS worker discount, which is still in our current sales. That would probably have been about 3%. That's our view of underlying market price movement over the last six months or so. I think our average selling price has moved by more than that. The average selling price in the order book, even if we remove slight positive distortion from our central London business, the average selling price in the order book has moved about 5%. As I say, only about 2% of that is underlying price movement and in fact forward view of margins. Our trading through that has been robust. You can see in the statement we've tried to be pretty detailed about what of that you've seen. Cancellation rates aren't quite normal, they're materially lower than they were.
Last couple of weeks have been around 19%. We would see normal as anything around 14%-15%. Not something there that concerns us, probably unsurprising given the amount of change going on in people's lives at the moment. Has remained stable, and I think I'll come back a bit to the second lockdown. All the comments I make about the market overall haven't changed in the last week or so. We've seen our customers generally come back to us and say, "No, we want to get on with it. We haven't changed our view." We had one or two over the weekend who said, "We don't think we need to do a physical visit, but we're absolutely proceeding with the purchase." We haven't seen any kind of sea change in confidence over the last few days. I think I should spend some time on our sales rate.
We've quoted it in a way which is directly comparable. There is a slight distorting effect of Help to Buy. There are no new Help to Buy sales within that sales rate. We expect to be able to use the new scheme for formal reservations from the 16th of December. We have, as many have, engaged individually with customers. There is no commitment on that because we can't commit, and they can't commit and take a formal reservation. We have about 380 informal holds, specific customers against specific plots built up over the last six or seven weeks that relates to that Help to Buy 2 scheme.
You can see from that sales rate, and you know that we are selling well ahead, that we are selling well into the second quarter when the stamp duty changes will have reversed and when that Help to Buy 2 scheme will be effective, Help to Buy 1 will not, but we're still maintaining sales rates into that period. I think in some ways, in terms of market signal, that's the most important piece in here. Our sales rate for last week, for instance, included 0.23 sales per week that are for the second half of last year and 0.43 for next week, the majority of which will be in quarter two. We're still seeing really good forward confidence into next year.
Our estimate, if Help to Buy 2 was operating today, given the specific level of plots we have available and customer interest of where our sales rates will be if we booked Help to Buy 2 sales, will be more like low 0.9, so 0.9 to 0.95. That is a very broad brush estimate. It's hard to be specific because obviously people who want that scheme don't want to reserve with us at the moment, so it holds it back. I think it gives us real confidence for next year in terms of the underlying depth of demand, and I'll come back to that a little bit when we talk about guidance. Excuse me. I think if I move on to construction, probably the biggest direct impact on our confidence in 2021 delivery is where we've moved on construction.
When we talked to you at the end of July, we said we were operating at 80% or a bit better on average across our sites, and that it was important to bear in mind that we'd only just gone back on site in Scotland and that some of the sites in London were still hampered. We have gradually plugged away over the last few months, and as of today, I would say our average level of production is very similar to where it was in sort of first quarter of this year and what we would see as normal. There are exceptions. There are sites that are particularly constrained, and there are some sites that are running ahead of normal. Overall, we don't see that construction output on a daily basis at the moment being a limiting factor.
We still have to catch up, and we are starting to now catch up, and that will still impact on next year's overall volume. That's built into that guidance. We have also not had to constrain our construction during this second lockdown. We went very closely through the rules, but we've maintained the rules that we were operating to as we came back on site in May. Actually, the rules that we have to operate to do today will probably be slightly lighter than that. We still feel we're operating in a safe, responsible manner well within the rules, but able to deliver construction which is pretty much in line with normal levels. On costs, we haven't particularly touched in the statement on underlying build costs because there wasn't a lot new to say. We're still seeing very little upward build pressure.
I think even given the stronger market, we've still not got production for the sector as a whole up at normal levels. There still are resources out there. We're not making a call yet on next year simply because we don't have any particularly new data. I'm sure we will come back to that in February. At the moment, very flat build costs. Specific cost actions that are within our own gift. We've talked for a while about taking some of the additional resource out of customer service and other areas where we've made changes out of over the last few years as we get to deliver the level of performance and quality that we want to make sure that having got over the hump, we are then returning to an efficient model.
We've seen some of that happen over the course of the last few weeks. More significantly, we've made a series of overhead restructuring changes which total an annual rate of about GBP 15 million at a cost of about GBP 10. Those are principally around head office and our London structure and effectively what we're doing in London, and we're in consultation at the moment, so it's not fully finalized. What we are looking at is merging our central and East London business and focusing more on Greater London than the central London price points. I should say, and it's not stated in the statement because it's not changed, but our performance on our existing central London schemes continues to be good. We have no concerns about land write-downs in that market and no issues with particular schemes.
It's more a strategic view of where planning policy is and where we want the future positioning of the business to be. Those restructuring savings are in process at the moment. Most of them started two or three weeks ago, they'll have been announced this morning, they're not yet completed as we go through that consultation process. We obviously have to be clear on what basis we're talking about them, we expect on that GBP 15 million, pretty much a full year's annualized savings in 2021, because most of them we expect to be in effect by the end of the year. Very importantly, on land buying, we were very clear, I think, with the capital raise that we had already reentered the land market and that even without the capital raise, we would have been active in land. We got good early momentum.
We had a lot of schemes that we were looking at at that point in time. Many of those have now come through the process and been either approved or contracted or both. We have, and we summarized it today, the total level of approvals in that period after we've returned to the land market late on in the shutdown. That is about GBP 830 million of gross land acquisition, about 70 schemes. I'm very pleased with the mix of those schemes. They are slightly more weighted than normal to smaller schemes. I want to be very clear, we are not pulling away from large schemes and there are a handful of larger schemes in there. Those continue to be real assets for us.
We want a slightly different mix, and we've been saying that since the beginning of the year, and this has given the opportunity to accelerate that sort of mix shift. We expect those schemes to give us outlets through late 2022 and through 2023 and to give us real engine room for volume growth in 2023 and 2024. There is nothing that we said through the capital raise on that we are changing. I think in terms of the underlying metrics and where the land market sits, we have seen materially less competition through the course of the last few months. I think that was particularly true through June, July, August, and early September. With a stronger market, we have seen more people return to the land market, at least in part, as the autumn has gone on.
I don't think that should surprise anybody given the relative strength of housing. We were able to take some good opportunities early on. There's a significant mix of different sites in there. There are sites that came new to us completely because of the shutdown and because we were there ready to do a deal and having the capital to do it. Those we saw material discounts. There are some more normal schemes that have come through our strategic land bank that show normal discounts but not additional discounts. There's quite a big mix. Overall, with our existing land bank and those acquisitions, it really underpins our confidence in returning to that 21%-22% operating margin range that we've talked about. I do want to pick up customer care.
I'm pleased that we're past the end now of the customer care year, although still returns are coming in. We are confident of being at the five-star level. I think more importantly, I'm really pleased with the level of performance on those surveys and the nine-month surveys and customer feedback for customers who've moved in either through the lockdown or subsequent to that. I think it's a real testament to how people have handled their communication with customers and their delivery, and the fact that the quality of plots has continued to improve even whilst we've been going through all of this change. Coming to guidance, obviously from a market point of view, the key change is pretty material upgrades to guidance for next year and a smaller upgrade for this year. This year is a bit about those higher selling price points.
It's not about an underlying price movement because we have most of our order book in line for this year. It's more about the mix of plots that are coming through, and that gives us more of a sense of upside against our sort of base level forecast than we saw. Yeah, as we've always said, we had sold the majority of our plots for this year, so the impact of that on this year will be small. I think that and some small cost efficiencies, and we expect in our guidance to absorb those GBP 10 million of redundancy costs as well. The underlying cost movement is probably a bit better than it looks on the surface.
More importantly for next year, where our focus has been, I think the key thing is we're able to take out the low end of our guidance at this point, both based on where construction progress sits and based on where underlying market has gone to. The fact that we are so well sold for next year, far better than usual, we are selling well into the second quarter and even the second half at this point and still selling well even without some of the government incentives in place. We are not assuming next year's sales rates are at the 2019 levels. Strategically, we said at the beginning of the year, even before COVID, that we'd like to edge off those a little, and that is still the case. We're also building in a little bit of caution beyond that.
Based on where we think we would be today with Help to Buy 2 in place is a reasonable view of what we expect our sales rates to be next year. That gives us some flex. I think that has let us change our guidance from 80%-90% of normal volumes to 85%-90% and take the bottom end of the range out. I think whereas generally perceptions have gone towards the 80% of that range, we would say that is a reasonable range. We're not saying that we expect to be at the bottom end. There's a broad range around that. I think with the cost savings coming in, a little bit of selling price coming through, we can also be more positive on our margin expectations for next year as that volume adds to top line and therefore to overhead efficiency.
All of that put together leads us to our upgraded guidance to materially above the top end of the range. An operating profit of materially above the GBP 626 million that's currently the top end of the range. I know you will ask many questions on this, and I'm not going to apologize too strongly. I do still think it is right at this point to have a range of expectations out there, both on volumes and margins. This is not about everything's racing ahead. It's about a return to normality more quickly than we expected. It's about self-help on construction and particularly on overhead costs. It's about the underlying resilience of the land bank.
I do think it's appropriate to still maintain relatively wide guidance on where volumes and margin sits for next year because there are still plenty of risks and plenty of upsides against the numbers that we are giving you. Hopefully that guidance against the overall bottom line gives you confidence in where we expect to be overall, and we're happy to try and fill in some of the gaps, but please understand that there are still uncertainties and if we put in everything that could happen on the positive side, then inevitably end up with guidance that's overly stretched. Chris, I am pretty confident I've missed a few things in there. What have I missed?
Well, not very much, Pete. I'd just probably add that our cash guidance, we think we'll be towards the upper end of the guidance, which was GBP 550 million-GBP 750 million for the year-end. Obviously, it just depends on how much we spend on land in between now and then. Apart from that, Pete, I think you've covered everything.
No, thanks. I probably should, and it ties into that cash guidance and into land. Probably the only area I think myself I meant to cover and I didn't is that link between land and timing. Yeah, we don't normally quote land on an approvals basis, but because we are re-entering the market and with real momentum, we thought it was important to give you a sense of that. There are a sizable number of those schemes that are fully contracted, but some of them are not, and are still very much working through the process and the pipeline. We expect to continue land activity at a higher than normal level. It might slow down a bit, but we're not sort of, all right, that capital spent, we will now stop. I think we do see opportunities out there, so we expect to continue to drive momentum.
It will take time for that to flow through on the balance sheet. When Chris talks about land spend, he's talking about cash spend. We do expect land creditors to be a bit higher at the end of this year than they were, and that's really the timing of those approvals as they come through. We do feel in this uncertain environment, we absolutely need to have a capital base there to be able to make both land credit commitments and provisional land bank commitments. The cash will take time to flow through, but the commitments you'll see come through some in December and some through the first half of next year. Should we open up for questions?
Okay, sir. Ladies and gentlemen, we will now begin the question- and- answer session. As a reminder, if you wish to ask a question, please press star and one on your telephone keypad and wait for your name to be announced. Once again, star and one if you wish to ask a question. We have a couple of questions that came through, sir. The first question comes from Aynsley Lammin. Your line is now open. Please go ahead.
Hi. Thanks. Morning, everybody. Wondered if you could just elaborate a bit more on your comment that the lending market's holding up well, just to provide a bit more color there on what you're seeing from the kind of mortgage market. Secondly, just again, a bit more color. Sounds like it's all holding up well, but as we're going into this lockdown, any regional differences, kind of sales rates, cancellation rates changing early into the second lockdown? It sounds as though it's held up remarkably well, but interested in your view there. Thirdly, maybe one for Chris, if you could quantify what your expectation is for how much high land creditors might be this year. Thanks.
Thanks. If I sort of pick up the first two and then obviously leave that one to you, Chris. I think on the lending market, that and underlying interest rates have always been the key questions. Underlying interest rates obviously have been helpful. I think on the lending market, I'd say it's never quite normalized, but it's been as close to normal as we could ever reasonably have wanted. You've seen sort of the odd lender withdraw deals, and then actually relatively quickly reintroduce them on higher lender values. I think one or two lenders have been concerned that their lending books have got too big, so they've increased the pricing on deals. It's acted as a slight balancing act to a market that probably could have been slightly stronger. I see that as healthy.
We still see most of the mainstream lenders in the market with a broad range of deals. Most importantly of all, our customers have a choice of pretty low interest rate mortgage deals with a range of fixed rate terms. It's been supportive. As I say, I think there is an overall sense of the market racing away sometimes when you see press coverage, and I think that's overstated. It's normalized, but with some upsides at the upper end of the market in terms of those kind of move-up customers. In terms of the second lockdown, I think we saw, and I'm talking about the weekend before last, we saw a reduction over that weekend in terms of immediate website interest.
I think before it was clear the housing market was going to stay open, we had our customers saying, "Are you open or not?" Particularly the most common question was, "My house that I thought I was going to move into in late November, December, you are still going to finish it. I am still going to be able to move in before Christmas, aren't I?" Rather than, "Oh, do I really want to go ahead?" I think that's been true across all regions. Obviously, the sort of structure of lockdowns are very different in Wales. We did in Wales go to a virtual model only for the course of their short fire break shutdown. We saw sales rates reduce a bit during that, but we didn't see any kind of shift in customer confidence from people who are already kind of connected.
I think obviously we're now going into a period before Christmas when we'd expect things in terms of sales rates to slow down a bit and people are focused on moving in. At the moment, everything we see in terms of the feedback in every region, both from prospective customers and currently reserved customers, is around, I want to get on with this. Sort of they're looking for more reassurance that we're not going to have to change things much than they are suddenly extremely nervous. I think this is true of the stock market to a degree as well. I think people have almost taken comfort from the fact that we can have a second lockdown and actually it doesn't necessarily feel, unless you're in certain key sectors which are very directly affected, it doesn't feel like it has that much sort of impact for many.
I think people have taken confidence from that. If you can continue to build, then I can continue to buy. I think there is, and I touched on it, but it is quite a complex dynamic, so I'll probably expand on it a little. This point about Help to Buy 2. I don't know, and you would have to ask them yourselves if anybody has booked reservations in their sales rate or order book so far. We haven't, and we think that's right because we haven't taken a deposit from people. We haven't got any kind of contractual commitments. We have a person who says, "I'd like to buy that house at that price," and it will probably have that theme on it. We say, "We're going to hold that house." That's what we mean when we say a hold.
I do think that's likely. It's holding back sales rates at the moment, but is likely to artificially boost sales rates during December, but probably more likely January. We don't book those sales until they've gone right through the first round of processing. Then we think there'll be a bit of a backlog there. I actually think what you see in our sales rates at the moment is probably artificially held back, and it will probably get an artificial boost in January. I think we'll be disposing for you in February what we think the actual underlying rate is, because I think that will be quite important. That is quite important in understanding our views about where the market sits at the moment and its impact on next year.
On land creditors then, Aynsley, they were at GBP 631 million at the end of June, and I'd expect to see them to grow in excess of GBP 800 million by the end of the year. Could be less depending on the timing of when land deals complete, more likely to be at or above GBP 800 million. Still, they'll remain less than 30% of the gross land balance. Even with land creditors at those levels, adjusted gearing will still be pretty low because of the cash on hand.
Great. Thank you very much.
Thank you. The next question comes from Chris Millington.
Thank you. Morning, Pete. Morning, Chris.
Hi, Chris.
Yeah, the rudimentarily three, if I may, please. Can I firstly just ask about the weighting of FY 2021 profits between H1 and H2? I presume we're going to see a more even profile there, but I'd love some comments around that. Second one. I understand it's probably not really the forum, but I'm going to ask it anyway, but dividends. I just wonder if you could update us on where your thinking is there. What are your key considerations when thinking about the policy, particularly around specials as we look forward? The final one I wanted to ask is outlet numbers. At what point do you see the balance tip and you start to grow them in light of that higher land spend?
Excuse me. In terms of first half, second half weighting next year, yes, we expect to see a much more balanced business between the first half and the second half. I can't resist the temptation to add thank God on the end of that. Yes, that is kind of where we expect to be. I think inevitably there's a first quarter skew because of both volume production catch-up and because of stamp duty. I do think the key question from a market point of view is around, well, okay, how will second quarter and beyond go? We're seeing some early signs that are encouraging on that. Yeah, we do very much expect to see a much more even split. It will be our focus, obviously subject to growth. In a year of growth, you naturally expect more half two weighting.
Subject to that, to maintain that sort of balance as we go through the next few years. On dividends, we haven't changed our view. We do expect, as we said before, we do expect to pay what we consider a normal ordinary dividend next year. I have, I think, been pretty consistently clear on calls that we see that as normal dividend per share, as in, therefore more in total as per the capital rates. We are not about to get into discussions at this stage on quantum of special. We still think it's likely that the special dividend will resume the following year. I think, this is not a signal about the special dividend for the following year, it's about how I see next year.
I still feel the resilience we've seen in the market, where I think interest rates are now likely to sit for the long term and tapping into new areas of demand that we've always known were there, but have been fairly quiescent through the last few years gives us more confidence than I've had for a few years about the underlying resilience of where house prices are. When we're able to buy sites at mid-30s return on capital and 20% plus operating margins, then I think I see more of an investment opportunity there than I did. I also don't think the planning environment is going to get materially easier. I think our weighting is a little bit more towards investment than it was.
That is not about moving away from special dividends, but it is about actually seeing that as an opportunity and making sure that we have the capital to continue investment where that investment adds value. That has been a shift over the last 12 months. COVID has given us some really good opportunities, but I think it's also underlined where the underlying market sits, and it has made it much more likely that interest rates will sit lower for longer. I think the last thing I'd add to that is the very fact that at the Conservative Party conference, they were starting to talk about how they helped first time buyers out longer term past the end of Help to Buy should give us confidence that government is aware and feels a responsibility to how they help first time buyers get on the housing ladder.
That might not be Help to Buy, that might be some different structure, but I think all of those are broad positives for medium-term market. In terms of outlet numbers, I think the one thing that has remained challenging through the last few months is getting the right level of interaction with local authorities. That's not a criticism necessarily of the IT systems that we've got, and they've always been resource stretched. We are still opening outlets. We still expect to, but it's definitely slowed down. Not because we're holding them back, but because the resources aren't there on the other side. We are opening outlets as fast as we reasonably can, and we expect to continue to do so. I think these new sites that we're buying, we've always said, it isn't going to be 2021 that they start to open.
It's 2022 and it's 2023, and that hasn't changed. I think that we probably have more momentum on that than we've had in several years. It's still a battle, so we're going to have to keep pushing it. As we've made some of the restructuring changes, one of the drivers has been to simplify some of the other areas of the business so that our teams, our MDs, and our [divisional chairmen] can really focus on not just buying sites, but getting them through the system at pace. Our budget conversations over the last week are partly about delivery over the next year or two. Actually the bigger focus is how we get those sites open at pace.
Just to be clear there, Pete, are you referring really to maybe just a slight erosion as we go through next year, then it picks up with the new land in 2022 or stable-ish next year? Sorry to push you a bit further.
No, it's all right. I think you've just described the bookends, if I'm honest, Chris. There's a chance of slight erosion just because of that pace of opening the new outlets, and then picking up. I think our forecast and our thought is to keep them stable through next year and then build. I think if you look at it from a, excuse, volume point of view, actually the outlets are already open, so it's not about volume risk. It's about when we can start to pick up volume growth after that's the swing factor.
Understood. That's really clear. Thanks so much.
Thank you. The next one comes from Will Jones. Your line is now open. Please go ahead.
Thank you. Morning. A few from me, please, if I could. I think the first one might have a couple of sub-parts, but it's really around land and working capital. Just lots of obviously helpful data in the statement and the intro. When I think about the 15 or so thousand plots bought since Q2, and you compare that to the 78,000 land bank, would you have a rough idea of how many of those will be represented in the 78? Just to park those. Obviously, as a follow-on to that, I think in the statement you talk about the 78 potentially growing by 10 over the next year or two.
Sorry, do you have a feel for how much land buying you might need, say, through calendar 2021 versus replacement to obviously grow that land bank net of what you've kind of approved already? Sorry, within that as well, just because I'm trying, I guess, to get to a view on working capital needs across the whole business for 2021. Would you highlight anything else outside of land and non-creditors to be aware of for next year? Obviously, I guess WIP. There might be a normalization, maybe of WIP ratios, but anything you'd potentially do for 2021 working capital outside land. Then this is kind of two and three, hopefully a bit more simple, and perhaps this one you've kind of touched on it with Chris's questions then. Should we read, obviously, you've got your jump in volumes next year.
You've been clear about accelerating volume growth in 2023. Is the balancing item in 2022 there, is that looking like it might be more stable or could there still be some slight growth? I guess the order book normalization process might take a couple of years, so we can take our views on sales rates and sites, but obviously you will have quite a high-looking order book probably still by, I imagine, Christmas 2021 as well. The final one, sorry, just if you could comment around the leasehold investigation with the CMA, please. Obviously, I think the formal side of that has come to light since you last spoke and to yourselves and other companies, but anything you've learned since then would be really helpful on that. Thank you.
Yeah. Let me pick up that last one first, Will. Chris, I will probably need you or you, Will, to nudge me because I've not managed to get most of those things down. Just on the leasehold investigation. There's not really a lot new that we can say. We're obviously fully cooperating with that investigation, providing information. There's no new questions in there that we're aware of at this point that haven't been broadly discussed with you before. There's not some new kind of piece that suddenly come into the picture. Not really a lot to add. I think in terms of the land, I can't simply because I don't have the data points, tell you the answer to how many of those plots are already in that land bank. I'm tempted to hazard a guess that it's 3,000-4,000.
It's that sort of order, because I know how many sites have been contracted and would have mostly made it there. I don't know the plot mix, it's probably that sort of order. What I want to go back to is when we went through the capital raise, I'm pretty sure we talked about this as a range of numbers at the half year as well. What we said was, we did see this GBP 500 million as being incremental land spend. That was against a baseline which would have been slightly lower than normal because of the pandemic anyway. Through to the end of 2021, that we expected to commit, including that GBP 500 million, about GBP 1.7 billion worth of capital. That equated to that growth in plot numbers of about 10,000.
We still believe those are perfectly reasonable bookends. We talked about GBP 500 million equating to roughly 50 sites at roughly an average of GBP 10 million per site, which is smaller than our average site size. I think we've got GBP 829 million over 70 sites. That's because there are one or two larger strategic ones in there, so it's slightly bigger than average. Those smaller sites are all in there. Hopefully that gives you enough to kind of start to work through the working capital dynamics. Though, Chris, you may be able to add some more specific things that help, Will.
Yeah. In general, Will, operating assets obviously are going to increase over the next 12-18 months as that new land comes onto the balance sheet and continue to make significant further investments. By the end of 2021, you'll see most of the incremental investment reflected in the balance sheet. As Pete said, it will deliver incremental outputs in 2022, completion growth in 2023. I would expect to see that balance sheet reach a mature position a year or two after that. On WIP, at the end of June, we were at GBP 1.7 billion due to the delayed Q2 completions. That will probably drop back a bit by the end of this year as we start getting back to a more normal pattern of completions. It's still going to be ahead of last year, which I think was GBP 1.46 billion.
Somewhere maybe around the GBP 1.6 billion mark, depending on obviously weather and COVID and bottlenecks and stuff. I'm expecting that WIP balance to be broadly stable as we go through 2021 because we'll be delivering a smoother profile of completions, as Pete touched on, than in the past. Since some of the current inefficiency that is persisting from those COVID delays is going to be replaced by WIP investment from incremental
We'll sort of go back to the middle part of your sort of questions and then you'll need to fill in what bits of the bits we've missed because as I'm heading down. You asked about whether there is any potential for volume growth in 2022, I think. The answer is yes, there is potential, definitely. I go back to, we are not with this story steering you to next year being a fully normal year. Our view about what normal should look like for this business has not changed. Again, through the capital raise, we talked about seeing 2021 as being a recovery year and 2022 as looking pretty normal.
Yeah.
I think that's how we see it, and that applies to volumes and other things as well. Obviously some of the cost savings that we've sort of specifically taken help that a little bit, and obviously there is still plenty of risk. If you're asking about potential, yes, there is potential.
Yeah
for continued volume recovery through 2022. That's slightly different to my views of outlet driven volume growth, which I really do see as being 2023, 2024, if you see what I mean. What's our view of ordinary underlying sales rates in a normal world? Not quite as strong as 2019, but it's not a long way behind 2019. We still have good size sites that are delivering really well for us on sales and margins. I don't think any of those longer term bits of guidance have materially changed.
Got you. Very clear. Thanks a lot.
Thank you. The next one comes from Arnaud Lehmann.
Thank you very much. Good morning, Pete. Good morning, Chris. A couple of follow-ups on my side. First, Pete, I'm trying to understand your comments about Help to Buy 2.0. What sort of evidence do you have at this stage that the second-time buyers who were able to use Help to Buy are not going to be able to use it anymore are still in the market? Also for these houses that are above the caps, are you still seeing the first-time buyers going for them in your early assessments? I guess without the support of Help to Buy. That's my first question. Just also on your comment about 2021 profits, and thank you for the guidance at such an early stage.
I'm just trying to understand some of the moving parts, but basically to keep it simple, is it a reasonable assessment to assume that your gross margins or your operating margins in 2021 would be very close to 2019 levels to get to your kind of 10% above the top end of the current consensus? Thank you.
Yeah. On sort of Help to Buy 2, I think there's a few bits. Our sales rates for last week, and I'm picking one week because it's simpler statistically, but I don't think it's misleading. Our sales rates for the last week included 0.23. Possibly a quarter of a normal sales rate than in the second half of next year. That doesn't include any Help to Buy sales in it at all, and that's selling sort of well ahead. That's not been unusual over the last few weeks. That gives confidence that there are buyers out there who don't expect to use Help to Buy 2, and they're prepared to commit regardless of stamp duty or anything else.
Pete, we can just about hear you, but you've gone a bit thin.
Sorry. Could you hear enough of that for it to be clear, or should I repeat it?
I wouldn't mind if you can repeat it, please.
Yeah. If you look at sort of our sales over the last couple of weeks, and I'm picking out the statistic from last week, but it is representative. We had 0.23 sales a week over last week that were for the second half of next year. By definition, those won't be using Help to Buy 2 at all, and there'll be a mix of first time buyers and move-up buyers. I don't know this for a fact, but my guess is the vast majority of them will be people who would not expect to want to or be able to use Help to Buy anyway. That gives you some sense of the resilience of that market.
I think the other thing I'd point to is the number of informal holds that we are taking, and we're not pushing them, we're not actively selling them, and some of our businesses are not using them. This is a sort of lowball number actually would also give you a component of about 0.23 of a sales rate on Help to Buy 2, just on people who would like to be able to commit and identify a plot. That gives you confidence that first time buyers who can use the scheme are using it and aren't too offset by the price caps.
I think the last statistic I would give, and a natural consequence of Help to Buy 1 coming to an end and Help to Buy 2 not being in place, our usage of Help to Buy over the last couple of weeks has dropped to about 20% of sales from the high 40s, and yet we're still maintaining that sort of 0.65 - 0.7 sales rate. All of the customer groups are still moving forward, broadly in the same sort of level as they have been. None of it's perfect in the sense that none of it gives you absolute certainty, I think, until we're actually selling with that scheme, until we're actually selling at those price points without them, we won't know for sure. Those early indicators are all quite positive.
[crosstalk].
Oh, no. Sorry, go on.
I think on a question on margins.
Yeah. Do you want to pick that one up, Chris?
Yeah. Whether the guidance was assuming that the growth and the operating margin was back in line with 2019. No, that's not the assumption. It's certainly closer to 2019 than 2020. I think if you apply the revised volume guidance for 2021 of between 85% and 90% of 2019 output, and also the reasonably specific guidance that we've given on operating profit, I think you actually find that it sort of ends up between where 2021 consensus currently sits and where 2019 was.
Makes sense. Thank you very much.
Thank you. The next one comes from Glynis Johnson. Your line is now open. Please go ahead.
Thank you. Morning, everyone. I have three, if I may, but actually two of them are just hopefully quick clarifying ones. You say your guidance is based on continuation of current selling rates, but you've given us a number with Help to Buy and a number without Help to Buy. Just which number are you basing your guidance on? Second one is just about, really sort of going back to Chris' question, actually. Land cash outs. How much of the cash outs for land are already in the cash number that you've given us, and how much is still to come? Lastly, in terms of the order book, selling six months ahead is really quite a long way forward compared to what you and others in the industry have been doing over the past few years.
Are you going to look to try and bring back that order book just to make sure that you have all the benefits of being more accurate in terms of delivery and so on? Or is it about de-risking and keeping that order book at that five to six months and as long as possible?
No, thanks, Glynis. I think when we talk about continuation of sales rates, broadly, we're talking about very sensible assumption of Help to Buy 2 being in the numbers. Not getting back to 2019 levels, but not getting back to where we would have expected 2020 to have been if there'd been a pandemic, but some way towards it. Give or take 0.9, which I think if we'd got Help to Buy 2 at the moment, even with the informal hold we've got, is a reasonable view of where we are at the moment. I think I'll leave the land cash question to Chris. That also relates to the last question on the order book. We don't expect the order book to stay this long.
We expect the order book to reduce slightly in size during the course of 2021, we'd be slightly uncomfortable if it didn't, for exactly the reason that you set out. Our construction is catching up. It will probably have mostly caught up on current projections by the time it gets to the half year. It should definitely have caught up by the time we get to the end of next year, we're sort of back in balance. That does give us protection against the short term sort of movements in sales rates. If we do see a bit of weakness as we move from quarter one to quarter two, then it gives us protection for that. I still don't think it's quite the right place for us to be long term.
I think I would say our construction forecasting and construction delivery has got significantly better over the last two or three years. Some of the concerns that we did have around being able to forecast delivery properly and deliver properly to customers are reduced, but I wouldn't say they've gone away. I still think there's a right length of order book, and we're probably above that upper end through these sort of strange circumstances. With that customer service piece, I was nervous that some of the completions that happened during the sort of post-lockdown, we'd get worse customer service scores because simply plots have been delayed. In reality, that hasn't happened. We worked really hard on the communication and on the timing of that delivery and being very open with customers about where each site sits and where their plot sits, and that's actually worked very well.
I think that's reinforced our ability to communicate that compared to three or four years ago when it was a real challenge. I still think the order book will naturally come back in terms of length and scale over the course of the next kind of six to nine months. Chris, do you want to pick up the land cash out question?
I can't give you an absolutely specific to the question, Glynis. There's a number of deals there, and the timing of is variable. What I can do is give you a feel for the basis on which the year-end guidance is based. Looking at the balance of the year, November and December, I'm expecting land spend would be somewhere between GBP 200 million and GBP 300 million in that period.
Glynis, can I just go back on the order book? This is sort of giving you an extra bit of data because I think it's useful. It may help others as well just to understand that dynamic and the scale, because it's significant, but it's not total kilter. We would normally say a sort of perfect order book going into any given year is about 35% of that year's sales. Obviously, it depends on the nature of the plots and varies a bit business unit to business unit, but that would be our normal kind of benchmark. Until relatively recent years, businesses have struggled to get there and then more increasingly have. We expect our order book going into next year order of magnitude to be 50% of next year's business. The risk then that we face market-wise is significantly reduced.
It's why my comment earlier about we're not particularly dependent next year on the outlet openings that we're looking at at the moment. It's about driving momentum for the following year, and it's the same with the order book and the sales rate. We have to manage that carefully with customers and communicate it well. It does help us manage risk.
Thank you.
Thank you. The next question comes from Gavin Jago. Your line is now open. Please go ahead.
Yeah. Thanks. Morning, Pete. Morning, Chris. Just a couple of quick things. The first one's just around, I guess Q1. I guess the bottleneck for the industry was in terms of construction, but I guess all the other businesses that you're reliant upon to get completions through, just how you're kind of managing that risk and any concerns you might have around that. I just wanted to clarify with you a little on your comments about the upper end of the market. Stamp duty has clearly been helping, but are you saying now that you're pretty comfortable that you're taking still pretty strong levels of reservations kind of beyond stamp duty holiday ending? Are you seeing kind of a shift in consumer patterns? I guess kind of a sub one to that is just any comments you've got around how the London market has been performing as well, please.
Thank you.
I think we are saying that we are taking reservations beyond the stamp duty window ending, and we're not seeing a dramatic shift in customer behavior because of that. Obviously, people would like to take advantage of that window if they can. We're not seeing it as being the deciding factor, and I wouldn't have expected it to be. The upper end of the market for us does not get into the highest reaches of stamp duty. The impact is not negligible. When people see an overall confidence in the housing market, it's a factor, but not a dominant one. I'm sorry, could you repeat the other question?
Yeah. The other one was just around, I guess the bottleneck that you might be seeing-
Yeah
in March for construction, I guess all the other conveyancing, white goods, and all the rest of it you need to be operating well to get your completions through.
Yeah. I think there are bottlenecks there. I think we see at a granular level on individual sites, shortage of a kitchen unit here and some element of white. It really is like that. It's very, very specific. Supply chain is not fully back to normal. We're not seeing any systemic risk, but it is definitely taking more of our site management team's time to make sure they've got every last element that they need. I think our overall take is it's manageable. We've used the term friction a few times in the last sort of six or eight months as we've gone back to site. Some of the bigger concerns about would the dry lining factories be on fast enough to deliver demand, and those things have reduced significantly. It is the smaller finishing items.
I think one of the things we were slightly concerned about a week or so ago as the second lockdown was announced, was it's fine for there to have been announcements about construction and the housing market staying open, but if valuers aren't going out, and if we're not able to do customer service roles in people's homes, then actually that creates quite a lot of friction. Actually what we've seen is the messaging that's gone out and how people have then behaved is that side of life is going on more or less as normal. It's an extra job to manage, but it's not at the moment causing a risk that I think threatens anything we've said today.
Okay, great. Thank you. On London, anything to note there?
Sorry, I missed the end of that. Was there an additional question there?
Yeah. Just London. Any comments around how the London market has been performing?
Yeah. I think everything we said about the country as a whole broadly applies to London. We've not seen marked weakness in London. We are continuing, as I touched on, to sell well within our three remaining central London schemes. I think the price point piece is slightly different, whereas we're definitely seeing in the wider Southeast upside in higher price points. I don't think that's as marked in London. London, it's stable and it's positive, but it's not seeing that sort of upside growth, and I guess you would expect that. I still think you've got slightly more of a headwind in London around the impact of Brexit. I don't think that's impacting people's decisions outside London very much at all, but I think it still is in London to some degree.
I think if you looked at our sales rates, our relative price movements, the level of confidence, the kind of customers still buying, you would not see a marked difference between our London schemes, either the more expensive ones or the more normal schemes and the rest of the country.
Excellent. That's very useful. Thanks, gents.
No problem.
Thank you. The next one comes from Marcus Cole. Your line is now open. Please go ahead.
Yes, good morning, guys. Hope you're both well. I've got three questions. I was just wondering what your price assumptions are for your FY 2021 guidance. What needs to be in place for the 2021 special dividend to be paid? You've made comments of accelerating growth beyond 2023. I just wondered what you saw overall capacity was for the group now.
Okay. All right. I'm just making sure I note them down this time, so that after I've answered the first one, I've completely forgot what the others are. In terms of price, our broad assumption is that prices are stable where they are today. We're certainly not assuming further price growth from today, nor are we assuming that prices go backwards. I would say, though, and I touched on earlier, that we do think it's right to have a slightly wider range, sort of a more contingency in our assumptions today than we would in any normal year. We're not deeply sensitive to small movements in prices, what I'm trying to say. You asked about the 2021 special dividend. I am still of the view that it is unlikely we will pay a cash special dividend in 2021.
It is far more likely to be 2022. That's something we've said fairly consistently for the last five months and hasn't changed. We expect to pay an ordinary dividend next year, and it is likely we will pay a special dividend the following year. It's quite likely that we will announce that special dividend for the following year, sometime next year. That view hasn't changed. In terms of growth, it always depends a little bit on how you get there, mix of sites and everything else, but in the order of 18,000. We could probably manage 19, but we'd have to land pretty closely on things. It's about having the sites. We can flex the capacity in individual businesses at a relatively low cost investment. It's about having the right land opportunities and not chasing volume of land in any given market.
Okay. Yeah. Thanks very much.
Thank you. The next question comes from Jon Bell. Your line is now open. Please go ahead.
Yeah. Morning, Pete. Morning, Chris. I think various of my questions have been already asked, actually, but a couple that I can ask. The first one just on stamp duty. Is it your working assumption that the stamp duty holiday comes to an end at the end of March? Is there any possibility that you could see that extended? Secondly, perhaps you could just quickly comment on Spain. Thank you.
Yeah. Thanks, Jon. On stamp duty, our working assumption and what's behind our kind of guidance is that it isn't extended. I do think it's a perfectly reasonable view that it might be. I just think it would be wrong for us to make our assumptions based on that, because I think it's not likely to be something that's decided imminently. I think, and I've had this view about Help to Buy for a while, it will depend on the strength of the market. The stronger the market, the less likely something like that is to be extended if this second lockdown shows real weakness in the broader economy. I'd note that the government won't necessarily want to see a negative risk for the housing market at the end of the first quarter before we're through the other side of this. It is a swing factor.
It will remain a swing factor. I see it more as a balance of risk than something we should rely on. Spain in many ways has had the same sort of impacts from a country point of view and the wider economy to the U.K. of COVID. The impacts on house building and our business in particular have been subtly different. In many ways, the construction impact has been a bit less because of the way the rules were implemented from early on and the nature of our schemes. The sales impacts, because we're essentially a second home business, have been slightly greater because strangely enough, when people can't travel to Spain, they're much less likely to make a reservation on a new house in Spain.
I think because of that, we do expect to deliver a decent profit in Spain this year and next year because the order book and the construction pipeline is longer, but it will be materially less than 2019. It does mean that the performance won't probably be quite so volatile as the U.K., but 2021 won't return to normal as quickly, and 2022 is the first year when it will look much more normal because we think we'll get a sales season in the summer next year. We've got good telephone interest from people. We haven't seen prices move materially or anything like that. We think it will be when people can go back out and visit through next summer that we start to see sales get back to normal, and then that starts to drive a much more normal P&L for business in 2022.
Very clear. Thank you.
Thank you. The next question comes from Shane Carberry. Your line is now open. Please go ahead.
Morning, guys. Thanks for that. That was all very helpful. There's actually only one question that I have left, if I may. I'm just interested in getting a bit more color, I suppose, on the competitive environment for the smaller sites that you're seeing in the land markets. Should we take this as, I suppose, evidence of some distressed smaller players out there, and could that lead to potential M&A opportunities? Thanks, guys.
Yeah. I think our view on those smaller sites and those smaller players is broadly the same as it was six months ago. In a broader sense, we expected our largest competitors to be back in the land market by the end of this summer. That's more or less what we saw, although still, and I think this is consistent with their comments, their pace of being back in the land market is less than it was. They have been more tentative than we have. I think with the smaller competitors. There is a wide range. We've seen a small number who are quite active, particularly privately funded ones, and we've seen most who are not very active at all as balance sheets get repaired, and they get some certainty back.
I think distress in terms of survival distress, I think is much less likely with the housing market getting back to normal, people can get lines of credit. Most in the sector, including private companies, are better funded than they were before. They might not be active in land today. That doesn't necessarily mean they're going to be distressed in an existential sense. I think our view of acquisition opportunity remains. If we can buy land in the market without the encumbrances and uncertainty of an acquisition, if we can do the diligence on a piece of land and acquire the sites that we want, then looking actively at acquisitions, they have to be very much value-led opportunities, and I don't think we're in conditions where that's likely to make sense. I certainly think for us, I don't think acquisitions are likely.
I've had that view for a number of years, but it inevitably reflects a land market that is working for us.
Very clear. Thanks, guys.
Thank you. The next question comes from Clyde Lewis. Your line's now open. Please go ahead.
Morning, Pete. Morning, Chris. Just the one from me, if I may. Pete, I think you referred to the land market. You don't expect it to get any easier. Is that a view on what you think might or might not come out of the white paper on planning at all?
Yeah. I think it's a mix of different things, Clyde. Now, I probably see that more clearly than three months ago. It's interesting. I think we've seen a slight climate shift. I mean in land rather than in the climate, in the Southeast that is positive. If you look at our land buying in those 14,500 plots, you will find a slightly bigger bias. Yeah, actually, probably more than slightly compared to normal terms towards the Southeast, but not Central London. You can see that a little bit in the average price per plot. They're more shorter-term sites, less strategic, and they're more Southeast weighted. Some of that is actually, I think, in a very general sense, there are more of the markets around London where planners are a bit more open for business and actually a bit more open to the need for growth.
I think in the North, and it's shades of gray in different markets across the country, but in the North, a combination of the economics of land, putting things like Part L and Part F costs, which are broadly the same per plot in the North to where they are in the South for the same house. Putting those on the value of land in the North has a much bigger proportional impact and much harder to absorb. We've been looking for superior returns from the acquisitions we've made. We've got them, but that's definitely been easier in the South as we've reflected some of those additional costs than it is in the North where it's just harder for landowners to accept.
I think we see in the Northeast and in the Northwest, for instance, some reasonably meaningful hold-ups in the spatial planning system, and we see that less than we have done in the Southeast. I do think there's a bit of a switch there about where the opportunities are. I think if you put all that together, I think change in the planning system does not immediately tend to lead to a positive immediate result in terms of availability. You put the economics and that change together, and I think there'll be a couple of years as we go into 2022 and 2023 where we'll be glad of the sites that we've got secured and moving well through the system because I think it could easily be a bit harder.
Okay. Thank you. The other one I had was actually on the government comment that you made. Again, the support from the government. In terms of how that dialogue with the various government bodies has evolved over the last 3- 6 months in particular, what would you point to, again, to reinforce the comments that you made about that support being there?
I think that the most important thing, which is not actually really to do with market support, is to do with how we have managed through the COVID period. I think the industry has done a far, far better job of getting its actual behavior in the right place, its communication with government in the right place. You can see that in government's positive desire to let us remain open. Clearly that's partly about economy. Actually, I think that the industry has done a good job of that. I think our conversations with government around that as an industry are much more mutual and positive than I've seen in the past.
It's not that they've ever been particularly hostile, but there's more trust I think that's grown up through that because I think the industry has generally behaved and performed pretty well and delivered what it was supposed to deliver. I think we can see that in detail. I think the particular bit I was referring to was the Prime Minister coming out at the conference and talking about what's a fairly speculative post Help to Buy scheme. The very fact that he sees it as appropriate to talk about that this far in advance, I think we should take as a positive. I still think there is not a huge desire in government, particularly in the Treasury, to prolong Help to Buy past the end of 2023.
What it showed fairly clearly was that they need to have a think about, well, what are our contingency options?
Okay. Great. Thank you very much.
No problem. If there's one last sort of question, very happy to take them. Yeah, it feels like we've covered most of the main things. Dave, if we perhaps take one final sort of question and then wrap up.
Okay, sir. The next one comes from Andy Murphy. Your line is now open. Please go ahead.
Hi, Andy.
Andy, your line is now open. Please go ahead and ask your question. Seems like there's no response from Andy. Would you like me to move to the next one, sir?
Yeah, if there is somebody else, then let's take that.
Yes, sir. It comes from Ami Galla. Your line is now open. Please go ahead.
Yeah, Morning, guys. Just a quick last one from me. With the delays in processing contracts, how should we think about that risk in the reservations which are penciled in for Q1 deliveries next year?
When we touched on delays in processing contracts, those are around Help to Buy 2. Those would be reservations that by definition would happen in April at the earliest. We expect to be able to process those contracts from the 16th of December. It might impact on when those reservations get booked as when they're actually taken as reservations. There's quite a big window sort of then through to when we would expect the completion to be. I don't see that as a material risk to completion timing next year.
Can I have a follow-up? In terms of excluding Help to Buy 2, in the wider mortgage market, I think there's a general still delay. Is that not really impacting the reservations and the processing of your?
Yeah. That is fair. That has been. It's one of the reasons why we've been sort of reserved about our views until this week. We went through with our teams in detail their outturn for sort of this year and next, last week. To be honest, we expected to have far more sensitivity over the timing of exchanges. Actually, the pretty consistent feedback was, yeah, it had lags, but actually sort of it wasn't a huge problem today. They were generally getting things sort of fully exchanged and contracted on the original completion date or the adjusted completion date post-COVID. It wasn't actually impacting, and that we were sort of starting to catch up.
Okay, thank you. That's helpful.
No problem. Thank you. Well, if we wrap up there, because it feels like we've dealt with most of the key areas, sort of, and gone through most of the questions. Obviously, we are available over the next few hours, the next few days if there are supplemental questions or if people want to make sure that they've understood one element of what we talked about, because I am conscious that ideally sort of we'd have been stood in front of you, I think, because there's quite a lot in this particular update, and there's been a lot of moving parts. We're very much available for further questions and discussion where needed. All that remains is to thank you for joining us this morning and look forward to the next update around the end of the year. Cheers. Bye-bye.
Yes, sir. Thank you. That concludes our conference for today. Thank you for joining Wimpey PLC Trading Update Call. This call has been recorded and will be available to listen later today. Thank you.