Good morning, welcome to the Taylor Wimpey Plc trading update call. Today's conference call will be hosted by Taylor Wimpey's Chief Executive, Pete Redfern, and Group Finance Director, Chris Carney, followed by a Q&A. I would now like to hand the conference over to Pete Redfern, Chief Executive. Please go ahead, sir.
Thank you. Good morning, everybody, and thanks for joining us. I will focus almost entirely on today's statements. I don't plan, unless it's particularly relevant, to go back over the sort of statements we've made during this crisis over the last two or three weeks. Although, obviously, given we haven't done a conference call with most of them, very happy if you want to ask questions, but I won't bore you by repeating them. Just a couple of broad comments before I start. Two things we're not doing today. We're not reinstating guidance for this year. I think you would be surprised if we were, and slightly concerned. We do think we're able to map out a plan which is largely within our own control, but obviously there are still plenty of variables.
Very much our focus is on making sure we have options, both options if conditions give us opportunities and options if conditions get tougher than they are today. It doesn't feel the time to set out significant guidance. I am not trying to draw you away from asking the natural questions that I know you will all want to ask. Some we won't be able to answer, but we'll do our best, particularly where it is giving you a view on what is happening at the moment and how we see it. Obviously, where you start to want to translate that into what numbers might look like, then we will probably resist, but very happy to discuss how we see the environment at the moment. The other thing that we are not doing today is we are not calling the market.
I think, again, recognize that any decision to start build, which I'll spend some time on, absolutely connects into a view about the market, but we're not saying that there is no future market risk, that we're not saying that COVID-19 will not have an impact on the housing market. I think what we are saying, which I will come back to, is the early signs are perhaps a bit more positive than people would expect, but also that there's certainly no inevitability to material downside in the market, with the exception, obviously, of volume in quarter two and probably into quarter three. We'll come back to those, but I don't want you to go away from it thinking we have a suddenly buoyant view of the market.
We think there's a range of outcomes and that our plan allows us to deal properly with all of that possible range. The thing I will spend the most time on is the decision to restart construction activity on site today, what's behind that, and some of the implications, and certainly the philosophy of our view as to why now is the right time. I will then touch on the sales stats, and Chris probably open up, give you a chance to talk about the movements in cash since our previous statement. I think since we closed sites, and you will well remember that we were the first to take that decision and that it was our decision rather than government imposed.
We've been working hard to work out how best to open up sites, particularly from a safety point of view, putting in place method statements and protocols to be confident that safe distancing particularly can be operated on our normal construction sites. Also looking at the changing environment, changing perceptions, how our own people feel about it, and what the environment is like, and the process. I'm sure you will ask questions and we'll try and cover off some of those in advance on how we feel the supply chain will respond, whether we feel subcontractors will be there, which are obviously key parts of the decision.
I think the reason we're making this announcement today, and we've been working on it closely over the last few weeks, is we now feel we do have the systems and processes and, if necessary, the equipment in place to be able to actively start work on site. We think that process is best handled in a staged and managed way. One element of that decision is behavioral. What was very clear, if you go back to the 20th, 21st of March, is that ordinary subcontractors are not that different to the average person in the population and did not immediately naturally feel that safe distancing applied to them. Trying to make that behavioral change stick overnight with the number of people we would have on site would have been difficult, arguably impossible.
Whereas now, once people have got used to that more, are used to it in their daily lives, actually, we feel as well as having the systems and the processes that we can set up, there's also a much better behavioral balance with our subcontractors. I think the strong action of stopping sites but then supporting subcontractors gives us the moral high ground to say to them, "These are the rules. We're doing it to protect you. We want you to do it to protect us." We think that gives us a position that makes it much easier to be confident that our site managers have a realistic task to make sure that these procedures are adhered to. I'll talk a little bit about the phasing, and the main reason I'm talking about it is because it gives you a sense of how we're setting it out.
Obviously, I know that you will try to draw numerical conclusions from it. It is quite difficult to do that, and our focus is on getting it right, getting activity back, getting activity back in the right way, rather than it is on how quickly can we get back and get to completions and cash back. I'll touch on that in a second, more directly. The first step of the phasing is our own site management teams, which tends to be about four people per site, arriving on site on the 4th of May, and they will spend that week, and on some of the more complex sites a little bit longer, preparing the site for return to work from subcontractors.
Preparing the site means changing layouts of toilets, canteens, putting up signage, changing where appropriate and necessary some of the traffic management routes to make them wider or put in passing places. Where it's an option and where it's necessary, putting in additional car parking spaces to reduce or remove completely the need to use public transport. Also going through training themselves in the new methodologies, so that when the first subcontractors arrive, during the week commencing the 11th of May, in relatively small numbers at first, they're lined up, they're very confident, and we have hit the ground running in the right way. That first week, number of subcontractors will be focused towards finishing trades. This is important, because I said I would touch on our views on the cash dynamics. We are not chasing nearly complete plots.
That first week, the reason we're bringing in finishing trades is partly from a customer point of view, because we have customers in the order book whose homes are nearly complete who now want to complete, but it's also because we think it's the best way to do it. It gives us a longer lead time with our suppliers, particularly the heavy side suppliers on bricks and plasterboard and the like, to be certain now of the dates, which is one reason for announcing it so strongly today. They've got time to plan and prepare and know exactly what we want. As we speak, buyers in individual regions are converting their plans into orders, and that gives a timeline that we think is realistic. It's more focused on that than we want to pepper pot and just try and grab immediate plots.
We don't, as you can see, and Chris will come back to, have a near-term challenge with liquidity at all, so it's more about making sure we manage value. If we steal the easy plots, and don't continue to build our pipeline for the future, then I think we hit a bigger problem further down the line. We have a long-term view of this. Our focus is not on 2020 completions and absolute performance. It's actually on how we make sure the business is set up very well, particularly as we get to late this year and exit this year, so that 2021 can be as strong and as normal as it could possibly be, subject obviously to market conditions, which we'll come back to. I think that may be a difference between us and others.
If you are more cash-starved, or to be honest, if you have a more short-term mentality, you're more likely to take those short-term plots. We will be focused on starting to do work on new outlets, whether that be planning work. We already have planning permissions coming through over the course of the last few weeks, or whether that be early infrastructure work. We'll be disciplined about the amount of infrastructure, but it is not a case of stopping the future pipeline. I think even with that, with the pause and the slowdown, it inevitably will have an impact on future outlets, but making that as limited as possible is a key part of the objective, and again, I go back to, that may be different to what you hear from others, but we feel very strongly that's the right balance for us.
Going back to the plan, week three, we start to bring on more trades. Week four, and we're into late May, early June, we're getting towards, and certainly by early June we're at, what we see as a new normal operating capacity while social distancing rules are in place. We're not calling whether that's going to be another month, six months to the end of the year, but a level at which we think we can sustain the business profitably. The level of inefficiency is low and is very much weighted towards the extra supervision costs rather than having natural inbuilt efficiency because of the slower throughput. We feel at a level of somewhere around 80% for our normal sites.
I don't want that to get too closely focused into mathematical models, because at this point it's an estimate and it will vary from site to site, but it gives you an indication of what we think is realistic. Somewhere around 80% of normal capacity, we feel we can operate these sorts of restrictions and rules. I think it is also worth saying that we have designed this process and this approach so it's sustainable, not just in the way that I talked about because we are continuing to build forward on future plots, but also that it is sustainable because we can adapt and control it if lockdown rules change. One of the things we've wanted to avoid is a rush back to site and the risk that then actually you have to then shut down again in six weeks' time because the rules have changed.
We feel this is adaptable and the clear sign from government, and they have been very supportive last night and this morning on this decision and the communication of it, the clear sign from government is this is what they want to see happen, so they will try to avoid putting any accidental roadblocks in our way. Of course, making it clear, and this is absolutely where we have started from, that our people support this, our subcontractors support this, our site managers support this. We are not forcing anybody back to work that doesn't want to go. We are very focused on making sure that anybody who is sheltering somebody who is vulnerable or who actually isn't ready yet themselves because they are fearful or they have family constraints, that those things have to take priority.
To be honest, with this phased startup, we think that will be something we can naturally manage anyway. We definitely start from those principles. If this goes to plan, we therefore see by early to mid-June, we're up to that new normal capacity. These sort of plans don't at the moment imply in Scotland. We hope that as we set out ways of working and are clear on them, that will be one factor in the Scottish Government becoming more relaxed with construction activity starting up. It's early days to form that judgment. I think in London there are more likely to be more constraints, just the nature of sites. I don't think there are many sites, if any, that we would expect not to open.
With the constraints about public travel, the constraints on the size of car parks you can build, and the sheer density of sites, it is harder. I think on average it's unlikely that that 80% level is going to apply to certainly Central London sites. I think Greater London is slightly more like the country as a whole. Hopefully that gives you a clear view of the sort of structure we are accepting. Coming onto the supply chain, you can imagine on the subcontract side, people, the response to this is very positive. People are keen to get back to work. They are very positive about the decisions that we have taken so far, both the decision to exit sites in the first place, and also the support that we've given them through early payments and the Pay It Forward scheme.
Relationships and communication are very strong. I think on the material supply chain, relationships and communication are also very strong, and I think we have clear indications on all the key elements that this announcement will be one of the key steps in them regearing. You've seen other comments, we've seen them come out today, other comments of other parts of the supply chain starting to think about mobilization. People, to a certain extent, need a lead to jump off, I think, and we think this will provide it. That doesn't mean there won't be friction, but we see that as friction rather than any one roadblock that means that the whole process halts because we cannot get hold of a particular material, or because there's another element of our broader supply chain, like the valuation process or service connections that sort of isn't available.
None of those things will be totally straightforward and will run totally smoothly, but we have tested all of them, and we do believe that all of them can be managed, and we can get to a process at a slower rate of delivering sort of build completions and then their sales completions as well. I think that's the main things I want to say on the mobilization process. I think on the sales side, sort of around mobilization, it doesn't feel tenable to us, the point when most non-essential shops are closed to open our sales centers. It is an area our employees tend to be more sensitive about because they're not confident that, sort of if somebody comes in off the street, that they will necessarily adhere to the same rules. That will be slower.
I have to say, in my view, the construction limitations will take longer to unwind for simply practical reasons. Actually being able to get that mobilization underway, sort of, and look to a not too far away partial remobilization of a physical sales presence, I think feels right anyway. I'll come onto the stats on that gives us confidence that we have the customers there for the production that we will engage in over the first few weeks or months anyway. I've seen others refer to, and debates go around, well, will you focus on sites that have a strong forward order book? Will you focus on those plots? I think I've made it clear on plots that we will focus across the site. We don't have a site that doesn't have a strong order book.
I guess the answer is yes, but that still means that if we can manage the site safely, we will be developing on it. I have not seen all the way through the financial crisis, for instance, an environment where sales were so bad that you shouldn't actually have every site open that you wanted to. You might, although you possibly could. You might run them at a slightly slower pace, depending on the sales environment, but you would still choose to have every outlet open that was an option. I don't see anything in this that is going to be worse than that from a sales perspective. I think moving on to sales more directly. We are not, as I say, calling what the housing market is going to do.
We have been pleased both by the performance of our own teams and our own systems, sort of on the sales side. We have kept more salespeople on furlough than most of our competitors. We have a salesperson who came from each site who is still responsible for that site. They stay in regular contact with every customer in the order book. I know others in the sector have gone to more sales management teams doing that, but we feel it's important to have somebody who knows the site deep in depth. Actually, so the customer has the confidence of talking to somebody they probably met before. Certainly, if it wasn't the main salesperson that they spoke to, it was somebody who sat next to them and who knows the ins and outs of the site.
We think that's pretty important and helps, and that also gives us a good read across of confidence. We have not seen our customers sort of looking to exit. Now, we all know that if prices fell as we go through the next few months, then that's the sort of thing that would trigger more meaningful cancellations. At the moment, that's not what those customers are expecting or want to happen. They will wait and see to a degree, but one of the elements that we think will come from starting a construction process is even more confidence in that sort of environment. You can see from the stats, cancellations have been, I think, surprisingly low. We've quoted it as a percentage of the full order book, which I think is a fair way of doing it.
Some have pointed out perfectly validly that we should perhaps quote it as a percentage of the private order book, which is a fair point. If we did that, it would be something like 1.4%. I think it still tells you the same story. Just as an aside, we've also quoted the level of exchange as a percentage of the whole order book, but it would still be pretty close to 50% if you go to the private order book. It is something like 44% or 45% from memory of the private order book. The level of exchanges is strong, and we have continued to make exchanges. On cancellations, the level of cancellations, and this sort of statistic that Chris used in the phone call last night, and I hadn't quite made this comparison, but I think it's quite powerful.
The number of cancellations we've had in the last three weeks has been lower than the number of cancellations we had in the same three weeks a year ago. It does give you a sense that, yes, forward reservations are slower than normal, but cancellations have not suddenly spiked. On those forward reservations, we've taken, I think, 285 new forward reservations since we shut our sales sites, and those have happened by Microsoft Teams, by other video conferencing methods, and by phone. The majority of them are people who had already visited the site and aware of it. Although it is important to remember that the vast majority of our customers anyway come from so close to our sites for their current homes, that they're used to the sites and know them anyway.
We have also taken sort of reservations which have been totally new from people who haven't visited the site before. We haven't, this is a trading update we're on the call, we haven't put up our usual charts looking at forward sales activity. I think the most significant one is probably website visits, because it just gives you the simple snapshot of level of interest and activity. That is down year-on-year, but it's down from, I think, 540,000 hits to about 495,000 hits. It's down about 8% or 9%. I think if you said to me, you had to physically close all your sales offices and everybody's going to be staying at home from a pandemic, and you're still going to make net sales and have 90% of the same level of interest, then I would be pretty surprised.
As I say, none of that says, oh, everything's fine with the market, it'll all be okay. It does give you a sense that there is a natural resilience out there. I think as we open up sites from a construction point of view, that will give our salespeople a strong lead to talk to both existing customers and new ones and start to let us complete on some of the near-term plots in the order book. Which, as I say, is more for us about getting the customer service right than it is about an immediate need for cash, because very much the focus is on a normal, stable, steady return to work inasmuch as it can be managed in this environment. As I say, I won't dwell on many of the other issues.
Chris, do you want to talk about cash and probably pick up anything else that I've missed?
Yeah, of course. Good morning, everyone. The GBP 836 million gross cash position as of yesterday translates to GBP 198 million of net cash, which is GBP 33 million more than the GBP 165 million of net cash we reported at the time of our last update a month ago. We've taken nearly 900 legal completions over that period, with the majority in week 13, the last week of Q1, which is typically a busy week and also happened to be the week where we were closing our sites up. Some of those 900 completions also took place during April, where customers expressed a desire to move into homes that were already fully build complete. Contracted land payments during the period since that last update have been relatively modest at GBP 16 million. We have not skimped at all on payments to subcontractors and suppliers.
In fact, we've sought to make payments as fast as we can process them because we strongly believe that that's the right thing to do. That has resulted in payments to suppliers and subcontractors in excess of GBP 200 million over that period. Looking at the future liquidity and the cash outflows associated with, I suppose, the remaining unwind of our trade creditor position, our existing land commitments, and our ongoing operating costs. We are very confident that even in a scenario where our sites were to stay closed all the way through to the end of the year, which obviously, on the basis of today's announcement, looks very, very unlikely, we'd be very confident that we have enough liquidity to see us through that. Having said that, and as you will have seen from our previous announcements, we're taking the preservation of liquidity very seriously.
We've stopped discretionary land spend, we've canceled the dividend, we've drawn down the RCF and management have obviously voluntarily reduced remuneration as well. Although we've demonstrated, I think that we've taken all the right actions to preserve liquidity, we don't anticipate our sites remaining closed, as you can see from today's announcement. Our balance sheet remains strong, our focus on cash and liquidity is geared much more towards opportunity rather than survival, and I think that's a really important point to stress. The only other thing that I'd pick up on, and it is probably a very obvious point for those of you who are close to the company, but one I think that's worth emphasizing. We have a huge amount of experience across the whole of the group management team.
Within the operational roles, I think I clocked up the least time in the industry at 14 years, and all of my colleagues have significantly more time under their respective belts. That combined experience of both the good times and the bad really matters at times like these, I think to all stakeholders, especially employees, but subcontractors, government, and shareholders too. Hopefully you can see that in the way that we're communicating and I think the different approach that we're taking compared to, say, 2008.
Thank you, Chris. I think, Sarah, if we could open up for questions now.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star and one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Once again, star and one to ask any questions. Our first question comes from the line of Brijesh Siya from HSBC. Please ask your question. Your line is now open.
Thank you. Thank you for the call. I have two questions, if I may. The first one is on the supply side. You talk about the supply side is aligned to your plan. How confident are you about these big supplies, which takes obviously a couple of weeks to fire up the kiln and start producing again. I'm trying to look at your inventory, and how much supply is with you, and how long it can last before the supply chain is fully streamlined. The second question is related to, obviously, on the pricing front. You talked about the pricing being in line with Q1 over the small 200 units which you have taken reservation. Have you seen any kind of price negotiation people are trying to entering into? Any color on that would be great.
Yep. If we take bricks as an example, and you can imagine, we have had very detailed conversations over the last week with all of our main suppliers. We know what stocks there are, we know where they sit, we know sort of to what extent they are allocated, either specifically to us or potentially on call off for us. If you take bricks specifically, we actually went into this crisis as a country with more than usual stocks of bricks. Some of the excess stocking that we had talked around sort of through last year over the Brexit process was still in underlying brick supplies. Actually, the level of capacity in the first quarter in the industry as a whole ran ahead of what the demand actually was.
I don't think the step-up in volume was quite as big as has been estimated by brick manufacturers. That means for mainstream ordinary bricks, the vast majority of our sort of requirements, actually stock levels are good and we are confident they are enough to buffer that sort of initial startup period. Some brick manufacturers have also kept some of their kilns running, which is at least partly to do with the nature of the kilns and their age and sort of what's most efficient for them. I think what you cannot rule out, and this will be true to some extent, is there will be exceptions. If you're looking for a very specific soft mud brick on a bespoke site, and that kiln has been turned off and stocks have been worked out on that, so there will be exceptions.
That's why I think, actually, you'll see prices arguably on materials go both ways. You'll see in some places where suppliers actually need cash and there isn't the level of demand or activity in the early weeks, and you'll see some areas where relatively short stocks are in short supply. Yeah, you'll see both movements there, I think, and it will be quite specifically related to individual items. You can sort of extrapolate that same thought process across quite a lot of the supply chain. We have thought through the timing, and whilst we think the phasing of the timing that we're talking about is absolutely right from a safety point of view, we also think it's right from a supply chain point of view.
We know when we are going to need plasterboard and in what quantities, and we know how that ties into suppliers' plans. You'll probably hear the word friction a lot, but friction rather than sudden stoppages. I think that does make it hard for us to be absolutely clear on we'll be doing X. We are not setting volume targets for our sites because we want to be very clear they do it right. We're going into this not expecting that suddenly a site will have to stop for two weeks because we cannot get critical materials. A lot of planning has gone in to make sure that we understand those limitations, some tweaks to exactly what materials are used in specific circumstances. Overall, we think the supply chain will be there.
It's just the one or two specifics on individual plots that are slightly more specialist that probably lead to friction. Just going on to the second question on pricing. First of all, a lot of it depends on how we go into it, and we have not gone into sales in this period chasing sales. Our primary role for our salespeople has been maintaining contact with customers. We have, to a certain extent, deliberately driven website traffic, we have seen sort of what comes out of that in terms of potential new sales. We have not been looking to sell at a discount, and we haven't been selling at a discount. We haven't had significant pushback from those customers on that.
In any environment, you always get one person who comes and says, "I think I should have a discount of X," that is very much the exception rather than norm. There is no sort of underlying expectation there that we're going to sell at a discount in the near future. In fact, if you looked at the prices today, and this is obviously consistent with them being at the same level we were selling at in the first quarter, they are still ahead of the price that we were selling at in the fourth quarter of last year, having pushed up our prices at the beginning of 2020. We haven't gone backwards from that position. I think, if you are trying to reconstruct a 2020 P&L, it's very tough.
We will tell you when we report if we're seeing pressure on prices, and at the moment, we're not seeing that.
Thank you.
Thank you. Your next question comes from the line of Aynsley Lammin from Canaccord. Please ask your question. Your line is open.
All right. Thanks very much. Two from me as well, please. Firstly, obviously, looking at all the supply chain issues and with the exception of Brexit, fairly comfortable there. When you look at the whole kind of infrastructure around building, selling a house, whether it's NHBC inspectors, the mortgage providers, solicitors, are you comfortable that enough of that will be in place to kind of get to the 80% capacity you were kind of thinking about? The second question, on the subcontractors. Presumably with social distancing in place and you get to 80% of normal capacity, what do you do in terms of pricing for the subcontractors? Do you kind of adjust prices downwards because there's less productivity? Are they paid kind of by the job rather than hour, et cetera? Interested in your thoughts about how pricing for subs changes? Thanks.
Thank you. I think on the wider sorts of questions, I built this into the whole supply chain answer to a degree. Yeah, the NHBC is still operational, although it has furloughed a large number of staff. We are confident talking to them that they will respond to demand. Again, the timeline we set out, let's just say we're going to want this level of inspection sort of in two weeks' time. If we suddenly clicked our fingers and said we want those tomorrow, they're ready, then that would be tough, but we think we can give them. What we are picking up is the timing is right. As long as people can look at it and say, "Yep, we understand the rules, we understand how that fits in," people want to make that step.
All of those bodies, and this is true not just of the NHBC, it's true on sorts of connections, it's true on valuations, it's true on conveyancing. Conveyancing process can generally be done totally remotely, I think. We saw some wobbles with it at the end of March and early April because I think because it's a series of small businesses, they were less set up to cover working from home and the like, but we've seen that then stabilize. From a bank lending point of view, which is obviously key, we have information on this, but so do you. As you put it together, you get a consistent picture of banks starting to normalize their lending.
Sort of not quite back to normal yet, so definitely a focus towards Help to Buy and therefore new build, but starting to get back to a more normal loans to value. Because of the strength of the order book, and because of the fact that the action they took on extending mortgage offers sort of means we have some time for that to fully normalize. Of course, you then having an estimate about what's a reasonable expectation as we get on to completions needing to come from new reservations and therefore new sorts of mortgages. Again, if we tried to get up to 80% tomorrow across the board, I think it would be challenging. But as we see it staged through, we think that's a realistic balance. You are starting to see a real sea change in our will to get things done.
Again, setting it out strongly with government support, sort of actually gives something for others to base their plans off.
Just on the subcontractor costs, any change?
Sorry, it's harder. Now, to be honest, it's one I probably will slightly duck because it will come back to relationship with individual subcontractors and the circumstances. The vast majority of our subcontractors, as in the large firms, will come back to site. I doubt there will be very many, because they know that we will have put the rules in place, and that gives them the credibility with their own people. I don't think there'll be many who won't. We won't really know until we get into that whether there are any shortages in different areas. I think there is more likely to be, if we get this right, more people proportionally relative to the work we're doing than there was before. That will, in the end, lead to downward pressure on prices.
I wouldn't want to give you a sense that we're going to be going out there aggressively on day one and saying, "You can come back to site, but you've got to do it for 20% less." We will feel our way through that in a way that is sort of, if I can put it, as commercially sound, but sensitive and let it find its natural balance over the course of the next few weeks. It's probably one to give you a better update on at the half year rather than now.
Sure. It's all very clear. Thanks very much.
Thank you. Your next question comes from the line of Arnaud Lehmann from Bank of America Merrill Lynch. Your line is now open.
Thank you very much, and good morning to everybody. A couple of questions on my side. Firstly, could you give us an indication of your monthly cash burn? Whether you give it before any cost-cutting initiative or including the following. When you said that even if nothing happens between now and the end of the year, you would still be in a comfortable situation. Could we have a feel what's your cash expenses on a monthly basis, in the current environment? That's my first question. My second question is just on your financing. You said you've drawn down on your credit facilities. Is there a significant cost associated with that? I mean, what's the overall cost of the debt right now? Thank you.
Can I hand both of those straight to you, Chris?
Yeah, absolutely. Dealing with them in reverse order. Yes, we drew down. Is there a cost? Yes. Clearly it's not a significant one. As you'll appreciate, relatively low. Obviously the amount of that cost depends entirely on the duration of the drawdown. We will monitor that as the sites get underway and we start to generate inflows. I think in terms of monthly cash burn, yes, we've done detailed analysis and, as I said in the intro, we're very confident that we have more than enough liquidity to get us through, certainly to the end of this year. That's in a scenario where sites are completely closed down. I think to be honest, with today's announcement and moving towards opening sites, I think that starts to become s lightly irrelevant question. Just in the context of moving forward and having the ability, hopefully soon, to start to liquidate the work in progress positions that are on our sites.
Okay, fair enough. Thank you very much.
Thank you. Your next question comes from the line of Clyde Lewis from Peel Hunt. Please ask your question, your line is open.
Thank you. Morning, Pete. Morning, Chris.
Morning, Clyde.
A couple, if I may. Obviously, the government's last advice really was not to move home. How are you getting on in that, and where are you, I suppose, with discussing with the government with regards to what's going on? There's been quite a mixed message. On one hand they're saying, "Don't go to work if you don't have to," and the other hand they're saying, "Construction is still fine," and then obviously throwing in that moving home issue. That was the sort of first question. I suppose the second one was on, you talked about the wider infrastructure, and I think, Pete, you referred to some planning being granted in the period and attached to that, I suppose, if you can tell us exactly how that process is going within local government.
Again, I'm sure there are some sort of technical issues as well as legal issues about taking decisions, not on council sites, council properties, et cetera, and where your thinking is on new sites. Clearly, you're going to be completing sites more slowly than you might have done, but are you at all tempted to open up any new sites in the next few months at all?
Yeah. In terms of the moving home process and government communication, I find it difficult to be too critical of government on their communication overall, because I think it's easy for us all to be armchair pundits and not really reflect whether we'd be able to do a better job on consistency of communication if we were sat in the same place through this. Yes, there is inconsistency there, and that did kind of make that sort of week to 10 days kind of difficult to get the balance right. Actually, it's a fast-moving piece, and I think their position is reasonably clear.
They would like to see construction activity. We took our own decision on sales, my judgment would be if we'd have said we were opening sales offices, that wouldn't have felt right from a government point of view, or for the person in the street. I think that the environment is right for an opening of construction sites. I think when it comes to the moving home process, it's a bit like many of the other sorts of things that are going on out there. You have to be careful and real and sensitive about how it is performed, whether you do it through a lockbox handover of keys or some independent drop-off.
For most of them, actually, our salespeople have, from a distance of far more than 2 meters, welcomed customers into their home, but without any physical contact. It is possible. We have deep clean processes that mean that any home handover has had an extra level of almost surgical clean. There's all sorts of things like that around the process that I think are really important. Again, I go to, if tomorrow we were trying to operate at 100% of capacity, or even if tomorrow we were trying to operate at 80% of capacity, I think those things would be a limitation. I think to start and build up, we get to a better place starting early and building up steadily than if we wait longer and then try and do it in a rush. We know that can happen.
Whilst government did say It was three weeks or so ago, they were specific about moving home, actually they have actively moved towards encouraging some of the opening up of bank lending and the other things that support moving home. Yeah, I think life has already moved on and we've had feedback both directly and publicly. In fact, my letter to Alok Sharma , he read out at the select committee today is a good example, in terms of our remobilization of industry as taking a moral position, but also returning to activity. You can see there is a level of support, and you have to have confidence, I think then, that subject to the challenges of communicating consistently at this time, that actually the support will be there.
When you look at some of the obvious questions, which we can't answer today, but what will happen to Help to Buy? Will there be a stamp duty holiday or change? Which are obviously things that are being talked about. It is early to judge, but we are not holding bated breath and depending on that, because I think the level of activity will be slow to start with. I go to the signs we see are more positive than perhaps you might expect, but we will be reviewing those pretty carefully as we go through the next weeks and months. I think on new sites, land planning process, et cetera. We have, I think, three planning applications that have received approval in a remote sense, including the first one, which was reasonably significant. The planning system is not operating normally. You would be amazed if it was.
It's starting to operate. They have changed the rules to allow remote meetings to be held. How long that will last and whether that will ever be the consistent norm over the next few months across different councils. Some councils have the resources and the energy to do that, some do not. It is piecemeal. I think, would we consider opening new sites in the next three to four months? Absolutely. In a sense, I think I've already said that. There is no equivocation there. If we have a site that we have a planning permission on, where the level of infrastructure is not ridiculous.
Inevitably, always in uncertain times, you're less likely to start a brand-new large high-rise scheme. If on a normal housing site, generally, I go back to, I've never seen an environment where you wouldn't rather have the outlet open, even if you are more cautious in an uncertain environment about the scale of WIP and therefore the scale of years of sales rates that you assume. I have a similar but slightly further off view on land. The land market does not tend to adjust immediately. You always have a very small number of desperate fire sellers whose timing is just unfortunate for them. Broadly, I don't see a normal land market resuming over the course of the next few weeks.
Over the next few months, it may, and there, we want to be in a position to take advantage of opportunities.
Okay. Thank you very much. There was one quick follow-on I wondered, I suppose, is whether or not you will extend out either side your working hours on site. I suspect there are probably local council rules that might limit that. Would you like to start at six and finish at seven or something? Is that something that's possible for you guys over the next four to six months?
We would. Particularly staggering. That enables us to stagger canteen facilities, but particularly signing in books and the like. Our working practices do aim for that. It will be one of the specific actions of next week before we get back to site, and the following week when our site manager's on site to work that through site by site. We think local authorities will broadly be supportive of that, but we do want to be even more aware and careful with our neighbors on site than we would ever normally be. We normally try and be pretty careful and pretty courteous, but actually making sure that if they are at home, that we are aware that they are at home, and that actually their awareness of site activity is therefore greater.
Particularly thinking about issues like subcontractors parking on existing occupied streets, which is a continual battle for us anyway. We're always kind of warning our subcontractors off that. You can imagine this particular set of circumstances, that is particularly important. There's a few things there where we're well aware that we're going to have to manage it carefully, and working hours is one of them. We would like to extend working hours so that we can stagger people and have less individuals on site at any one time. I think a lot of councils will be supportive. I doubt they all will, because that's the way these things tend to be.
Perfect. Thank you very much.
No problem.
Thank you. Your next question comes from the line of Will Jones from Redburn. Please ask your question. Your line is now open.
Morning. Hope everyone is well. Three if I could.
It's afternoon, Will. Sorry.
Okay. Three minutes past midday. Apology. Used to saying 8:00 A.M . You caught me out.
Yeah.
Yeah. Three, if I could. The first is just on build rates. It was very helpful that you gave a broad number around potentially getting back to 80% of the capacity, but clearly heavily caveated. I guess then the question becomes what was your capacity? I know obviously last year you sold at around one site per week. This year you're going to be that back to 0.9. Presumably last year you built something similar to the one, and you made a big virtue of building up the factories and the build teams and stuff over the last couple of years. How would you encourage us to think about what the capacity of the business might be from a build rate perspective?
Yeah
I think I would start from the sales rate for this year. To be honest, the 80% isn't scientific enough for you to get to a materially wrong answer if you start from the slightly higher sales and build capacity of last year. The difference is not great enough. I think you lose it in the roundings. If you think of 80% of that level on average, that's essentially what we're talking about.
Understood. That's great. Thank you.
I'm sorry, Will, you asked another question, and I didn't make a note of it.
No, I haven't got around to it. The second one was on sales rates. You said that how that might have the ability potentially to bounce back more quickly than build rates. I guess just big picture, to what extent would that potential be curbed by the fact that you're not able to reopen show homes and sales centers and have all your staff back on site? You mentioned, I think, in the release about being governed more there around the government's non-essential retail advice. Any kind of hints on when that might change? Just to be clear as well, presumably buyers can't visit the site at the moment or can they? Is there any physical visiting really for the handover of homes?
I don't know, just any color on that, because it would all feel like that there are reasonably big constraints on the ability to sell. Although obviously your last three weeks have been reasonably encouraging in that context. The last one was just really a mechanical one. Can you remind us when buyers do come in, the reservation fee, is that just a few hundred quids? It's quite small, isn't it, from memory. Then deposits these days when you exchange contract, obviously with Help to Buy in mind and stuff, is that more the 5% mark than 10%? That would be great.
Yeah. No, no problem. I'm not sure I captured all of that, but let me work backwards through it. Yes, reservation fee, sort of a few hundred quid. Exchange fee, aim for 10%. We do sometimes accept 5% on Help to Buy, for obvious reasons, given the deposit constraints. I think the initial question and the core question, yeah, I probably just need to make my comments clearer. The way we thought about starting up sites, and it's the same with starting up sales, is from a T-zero concept. We haven't spent the last month agonizing about when lockdown will end because it feels like a fairly fruitless exercise.
You have a date in mind, and for us, effectively, that T-zero is now the 4th of May, so we have now fixed that. We know what we think is the right platform from that date and what the right build-up profile is. What I'm saying on sales is once you get to that T-zero date, which I do think is slightly more dependent on government advice than the construction date, given where government advice was on construction. When you get to that T-zero, our practical ability to return to normal from our point of view, from a sales perspective, is much quicker. We don't need a month's phasing on the sales side to get back. We don't have many people on the site.
It's much simpler and clearer what the rules are, when you have a small and it's simple things like not sales execs, not showing customers around show homes. We have far more ability than we did even five or six weeks ago to do things remotely anyway. There's a whole series of things that we can do. I think, say, and this is totally speculative, so please don't place any store in the date. Say the return to relative normal of the first retail outlets but with social distancing in place happens at the beginning of June, a month after our site managers arrived on site. I'm not saying that suddenly sales rates will get back to normal, but I am saying that we'd absolutely be in a place very quickly to do our part of the sales process at an almost 100% level very quickly.
We respond to the market. On site, those social distancing rules are more complex and take longer to put in, and they'll have more of a constraint. Does that make sense?
Yeah, very clear. Thanks a lot.
Thanks. I think there was another small question about customers visiting sites. I think technically, I think it would be hard to classify it as an essential operation. I think technically people couldn't, albeit you do start to see just more people using their daily exercise for slightly more varied trips, don't you? I think technically at the moment, that would be hard to do and we certainly wouldn't be encouraging customers to visit sites. I do think most expectations, and this is true for the retail outlets are that a month from now, it won't be back to normal, but if it hasn't already been released to a reasonable degree, we'll at least have a clarity on when it might be, if that makes sense?
Yeah. Great. Thank you.
Thank you. Your next question comes from the line of Gregor Kuglitsch from UBS. Please ask your question. Your line is open.
Hi. Couple of questions just from me. The first one is just in terms of the speed of taking legal completions. I know you don't want to give forecasts, but under the scenario that you've painted in terms of getting everything going by mid-June, or mid-May, and then obviously full operational or whatever you called it, normalized by early June. What's actually realistic in terms of how quickly can you say, I don't know, if we take till the end of June, how many completions do you think is even realistic in terms of conversion of the order book? Just if you can give us a broad sense. I don't want to pin you down to a specific number. The second question is on the operational inefficiency.
In a scenario where I guess we are at social distancing, say, for the remainder of the year, and you operate at that 80% level, what's your best estimate in terms of some margin drag, everything else equal? Assuming obviously pricing and so on is stable, but just in terms of the OpEx inefficiency loss that you get as a result of running 20% below normal, just so we can at least have a bit of a reference point for that. Then obviously we can take our own assumptions in the macro?
Yeah. I'm quite pleased that we've got this far into the conversation before we've got to questions that I have to say, I can't really answer. Of course, we can guess, but at this point on both of those, it would be a guess. I think we are clear that the process we're talking about can get us to a point by the middle of June where we can operate an individual site in a sufficiently efficient way that we feel it is worthwhile. Otherwise, clearly we wouldn't be doing it. I think if we start guesstimating, and we genuinely don't have an estimate of how many completions by the end of June, because that's not the focus.
Actually I want us, and to be honest, I want you to be pretty relaxed about whether a completion comes in in the end of June or the beginning of July, because it starts everything off on the wrong foot if people are immediately chasing for a six-week completion target in this sort of environment. It's the wrong priority. I'm afraid I'm just not going to put a number on that one at all. On the efficiency one, I can't put a quantification on it. We obviously have some estimates. I think we don't see a huge amount of additional cost. There might be a bit of extra supervision cost, but effectively our sites tend to now run with more supervision than. We're certainly not saying, well, we reduce the number of site managers on the site.
If they run at 80% of the production level, we'd probably keep more or less the same staff. That's just on our site management teams. As we talked about, there's some upside on subcontract costs as well as some downsides. I don't think apart from obviously for the first two or three weeks, I think once we get into June and certainly July, I think the level of cost efficiency drag that we see on a site-by-site basis is not particularly material. Because the timing of where we are with the half year, I think if we get into trying to guesstimate what half year numbers are, then I think we'll not be focusing on the right things internally or externally.
Thank you very much.
Thank you. Your next question comes from the line of Chris Fremantle from Morgan Stanley. Please ask your question. Your line is now open.
Hi, good afternoon. Most of my question's been answered, but just on the cash and the revolving credit facility, just wanted to ask there, can you give us as much detail as you can, please, just on the covenants attaching to the revolving credit facility? I appreciate what you said about restarting activity. I appreciate that you're on the front foot as opposed to in defense mode, but just so that we can understand in a downside case how those covenants might limit your room for maneuver. As much detail as you can, please, on the covenants attaching to the RCF, please?
Chris. You are quite right, Chris. We've not disclosed details of our banking arrangements, I can say that we have a syndicate of familiar high street banks and financial covenants that are typical for our sector, such as maximum gearing, minimum tangible net worth and minimum interest cover. They all had substantial headroom, at the start of the year, as you would expect. Our next test date is the end of June on a 12-month rolling basis, we fully expect to remain in compliance with those.
Would you expect, in a downside case that you were describing where we had very limited activity for the remainder of the year? Appreciate that's not what you're saying in the base case, but would you face an interest cover problem in that scenario?
Yeah, it's difficult to say. I think you're describing a scenario where sites are locked down for the rest of the year, and also, on top of that, we can't take any more revenue whatsoever. Yeah?
Yeah
interest cover works is if you're not generating profit, and in that scenario you wouldn't be able to, you start to sort of come under pressure in that perspective. Even if we didn't take another legal between now and the end of June, I'm very confident that that would not be a problem at the test at the end of June. December, obviously, that would be a very extreme scenario on the basis of what we're-
Yeah
sort of announcing today in terms of the remobilization.
Yeah.
Yes, simply, there would definitely be more pressure on interest cover in that scenario.
Okay. That's still helpful in terms of trying to understand the downside. Thank you.
Thank you. Your next question comes from the line of John Messenger from Redburn. Please ask your question. Your line is open.
Hi. Good afternoon, guys, and hope everyone is fitting well on the call. Two if I could, Pete. One is just on coming back to the point about protocols and how you're actually building. Can I just understand where are the biggest challenges? I'm just thinking about the whole social distancing. Would it be fair to say that it's things like dry lining and those areas where there is a bigger bottleneck or an issue in terms of trying to actually do what you want to do? How are you getting around that? The second one was just on the supply chain. Is your view on supplied materials based around effectively direct supply from manufacturers, or are you relying on some opening up of the merchanting system in the next few weeks for that date in May?
I guess you may have insights on that given your other position, obviously inside one of the well-known merchants. Those are the two, if I could please?
Yeah. I think, sort of in terms of site activity, we talked about one of the bigger areas, and I'll talk about another. One of the biggest areas is, and I've got to use a catchall kind of piece for it, but it's the generalized site interaction. Actually, not when people are doing their active job, so not when bricklayers are laying bricks or painters are painting. It is relatively easy for us to segregate, for instance, any of the finishing trades in a house, and we've had discussions about and we will review, is that one person per floor or one person per house? It's quite easy for us to set up signage in the same way, if you think about it, with electricity connections. If an electrician is working on a house, they have a padlock that isolates the unit.
We have a similar sort of system with signage that says that somebody working in that house, don't come in. That's relatively easy to do. Similarly with bricklayers, you've got to think through, which is what we've been doing, things like loading out, because naturally, bricklayers would have juniors loading out for them. People don't carry hobs anymore. You load bricks out by forklift. Actually loading out in advance and having stage work, it's pretty straightforward to do. The first category is those generalized interactions, and it tends to be in the kind of loosely social areas. Toilets, canteens, sort of signing in areas where everybody passes through. That's where staggering site times, sort of taking meetings and things like that, and site managers being held outside rather than inside.
Signing in books being outside, because we've tended to favor signing in books being in the site manager's office. He naturally sees first thing in the morning who's arriving on site.
Yeah.
Sort of, and obviously in this circumstance, sort of different set of priorities, so we're moving them outside.
The other area which was difficult, where I think we struggled slightly with the Construction Leadership Council rules, where we think there is a need for specific PPE, as in visors and mouth masks, is there are a certain number of jobs which are inherently two-person. Largely due to carrying a certain weight, they have been designed for two people. You cause a whole series of other issues if you then try to move lintels or heavy windows or a set of stairs with one person. You're kidding yourself if you think they're not going to come within 2 meters of each other, and that's where we think PPE has a place. That actually those specific parts of the job which can only be done by two people working in close proximity, we'll be aiming for PPE to be there as people start.
Got you.
I think there was another question, John. Sorry.
Yeah. It's on the supply chain in terms of obviously for getting materials on site.
Yes.
Are you really thinking direct? Because of your role at Travis, is there a view that actually the merchanting guys are going to slightly flex their existing policies with the view to that date on the 9th of March, that will bring in the smaller items and the infill product that you're going to need to actively do what you do?
I obviously can't, in this context, comment specifically on Travis. It wouldn't be appropriate except to say what I would know publicly, which is that they have said they're starting to look at how they open up for click and collect orders for general builders as well as emergency supplies. They haven't yet put a date on that, but I think they're well on with them. Our plans are largely based on direct supply because that is predominantly how we work. It tends to be our subcontractors who then buy through merchants rather than us directly. We do start to see, in the same way as in other areas, we do start to see a slow but gradual opening up of the merchant sector.
If you look at the moment, you can see things starting to move, and again, I don't want to point to anything too specific because it's commercially sensitive to them. I do think that will start to move.
Brilliant. Best of luck, keep safe, everyone. Thanks.
Thank you. You too.
Thank you. Your next question comes from the line of Marcus Cole from Liberum. Please ask your question. Your line is open.
Hello. Good afternoon all. I was just wondering if you could answer a quick question on the dividend. I was wondering what level of activity you need to see before readdressing dividend policy?
I think it's not so much, Marcus, the level of activity, and it's too early, I think, to make comments about what the main drivers would be. It's more about underlying certainty of environment, and so, yeah, I don't think it's we need to get to 80% and see it. Obviously, it will depend on confidence in the sales market. It will also, I think, depend on being sure that we've dealt with the health side of this crisis, which clearly we're not at the end of at this point. We need to see those things not wholly resolved, but certainly to be moved along much further than they are at the moment. I don't see that as being a near-term thing.
I think the thing I could say is people should absolutely not get themselves up to expect us to comment on that in a meaningful way at the half year, and beyond that, we will just have to see. It's more about the broad environment than it is about any specific measure or trigger of activity.
Okay. Understood. Thank you very much.
Thank you. Your last question is from the line of Ami Galla from Citi. Please ask your question. Your line is open.
Thank you. Just a couple from me. My first question is really a follow-up on planning. I'm wondering, what sort of flexibility do you have on your existing permissions? If you have a larger site which you choose not to proceed with, or you materially change the phasing of a larger site, does that impact your existing permission? My second question is on Help to Buy. If it does get extended in the second half, should we be assuming that there could be some level of upside to the initial intake land margin on plots?
I think on the first question, relatively easy to answer. Generally, the phasing is within our control. Generally, there is no direct contractual link within planning permission, the timing of the phasing. The exceptions tend to fall into two different categories. One, on a new site, particularly with large infrastructure, there can be infrastructure which we are required to put in before completions can go past a certain level. Now, we looked at those at the moment, so I don't think there's anything that you would need to model in to take account of that. It does not have a big enough and broad enough effect. It's a handful of larger sites.
Generally, we would expect in the same way as we would expect, it is highly likely that planning permissions will be extended, which is not a particularly big issue for us because we're normally well on with planning permissions well before they come to the end of the day. For smaller developers, that's quite important. We expect them to be extended anyway. In the same way, I would expect local authorities to be quite lenient with some of those timings under this kind of circumstance.
Sure.
I'm sorry, could you just repeat the second question, Ami?
The second one was really on Help to Buy. If the taper does get pushed forward to later years, does that really mean that what you had budgeted in terms of sales trade on potentially plots that you were acquiring, there's probably an implied upside to the initial margin?
I think I'd have to be brave to couch it in those terms, though technically you are right. I think we see Help to Buy in a sense as a balancing position in this. If the market is more challenged, I think there is a much greater likelihood that it is extended. Rather than a big upside to what our original assumptions would have been. Now, of course, there's a scenario where what you've just said out is true, but I think you'd be optimistic to say that house prices will be higher in, say, 18 months' time, than they would have been anyway because of the effect of Help to Buy. I do think there is a much stronger argument that actually this is another factor that extends the current cycle in a way that is actually quite beneficial for us.
Because in some sectors, there will be the element of a cyclical correction in this. If there is government support that actually supports the housing market and underlying supply-demand characteristics are obviously in our favor, I do think, again, you have another set of circumstances which means that interest rate increases are probably pushed further back. I think the positive piece from a market point of view is if we get through the next few months and confidence is intact and redundancies and unemployment are not a significant problem, then I think you could look to a longer run of a stable market. I would struggle to look for outperformance on sites we'd already done on the basis of price off the back of this, I think.
Okay.
Too many things would have to go right and nothing would have to go wrong for that to be the right balance of judgment at this point.
Sure. That's helpful. Thank you.
Thank you.
Great.
That concludes our Q&A session for today. I will now hand over back to Pete Redfern for your closing remarks.
Thank you, Sarah, and thank you, everybody, for the time today. I hope, as John said, that everybody is well and stays well, and so are the ones that are close to you. Take care, and we will look forward to catching up with you properly at the half year. This does seem to be an environment where there's an announcement a week, so it may be before that. Take care, and see you soon.
Thank you for joining the Taylor Wimpey Plc trading update call. This call has been recorded and will be available to listen on demand on Taylor Wimpey's website later today. You may now all disconnect.