Trading Update

Nov 13, 2018

Earnings release

Good morning, and welcome to the Taylor Wimpey Plc Trading Update Call. Today's conference will be hosted by Taylor Wimpey, Chief Executive Tish Redfern And Group Finance Director, Chris Carney, followed by a Q And A. At this time, I would like to turn the conference over to Redford, Chief Executive. Please go ahead, sir. Thank you. Good morning everybody and thank you for joining as usual, just a sort of few opening comments to give you a flavor of what I think are the main elements of the statement and then we'll open up for questions. Just so you know, Chris and I are in different venues. So we'll have to sort of be clear over the phone who's taking which bits of which questions overall, I think if I spend the most time on the market, which is probably where people are most interested in terms of the short term, In 2018, you can see a very stable environment still. I'm sure the number that you would have picked out most is the sales rate in the second half of twenty eighteen. About 8.5% ahead of 2017. That shows you that the market is fine. I think it shows you that we have the right sites in the right places and we've been working hard to make sure product and positioning and pricing and everything else is in the right place. Which I think we're very pleased with that performance in the context of the wider market, which is more flat. I think you can see from our statement and where surprise you from others comments. Southeast generally quieter, but not massively different. I think generally overall, a pretty stable market. And overall pricing in that it roughly flat with April May and the pricing in the order book flat probably or marginally from April May just because of the the follow through of previous increases, but in the market today, sort of very little movement either way. And those sort of sales rates have not been achieved with material incentives or anything like that, sort of I'm talking about net pricing with all incentives in view. Obviously, 2019 is be hard to call. We're not looking at it, feeling deeply worries, but it's felt, and we said this before that you should be sensibly cautious with all the wider uncertainty. I think going into 2019 with as strong an order book as possible has probably been our most important target for 2018 and those strong sales rates are sort of testimony to that. I think we've always felt that sort of in more uncertain markets, that's when a longer order book really pays off and making sure that sort of we've kept the focus on that has been, sort of at the forefront of that mind. And probably the slight disappointment in the numbers is that outlook is slightly down. The single biggest reason for that is planning. It felt cheap to me just to put planning down there because as ever with these things, there's always sort of a long list of things. And so it's always easy to turn around and blame just planning. It is a more general sort of issue. But if you look at those high sales rates inevitably high sales rates, something you close out was slightly quicker and that's also a factor. And I think just generally what you have planning, as we've said many times, getting sites open through pre commencement conditions in the early stage of infrastructure takes longer than you would like. We do expect outlooks to increase during 2019. But I would say, you know, when it goes back to our strategy conversations in April of May, there is undoubtedly some elements of our sales rates outperformance that is down to that strategy, and we do see that as being a balancing position with the outlet numbers. So whilst we see growth, we also see the potential for us to manage sales rates in a different way historically and maybe how we can see it that gives us a balance. So I still would not want you to be too focused on an outlet number as being the only driver of volumes in the market. The land environment has remained benign. I would say actually, and we haven't put it in sort of black and white terms in the statement because it's sort of anecdotal, but I would say generally land environment is even easier than we have seen over the last couple of years. I think we see it definitely see less competition from land promoters and some sales from land promoters sort of the existing stocks sort of competing in the strategic land environment. We have pushed our past returns now hurdle rates, yes, just kind of with a view of the overall environment and because of the land that's available. And as we look ahead at the next 18 months to 2 years, we see a very good supply of large sites coming through our strategic land bank that give us quite a lot of choices So sort of a combination of those 2 things has led us to push hurdle rates up a little more. I'll come back to sort of outlook and margins and impacts of that and timing towards the end. I think just touching briefly on policy And first of all, obviously, the Help to Buy decision, whilst we're all nervous about the withdrawal of Help to Buy on some levels, our view is four and a half year. View of how long the incentive will last gives us the opportunity to form our own plans for to a certain extent the mortgage market adjust and probably most importantly, it's out for us to factor into our planning decisions and our land acquisitions. And that has been one factor in our view of pushing sort of longer term hurdle rates. I think more broadly on politics, sort of the focus for the last few weeks and they never next few months is likely to be away from sort of specific sector policy, sort of which is probably from our sector's point of view not such a path then. Think the land environment continues to improve. The planning changes continue to be positive. And that gives us a good environment in which pursue our strategy overall. And coming on to full guidance, we've been very explicit in the statement that 2019 volumes are expected to be flat That's not a particularly meaningful change. I don't think we ever expected much growth in 2019 as we came to the end of our sort of previous strategy. Yes, we might have expected 1% to 2% growth but not much more than that. I think as we look at 2020 2021, particularly as we see those strategic sites coming through, hopefully, a post Brexit sort of, kind of bouncing the market. And even without that, we have the potential for growth coming from our land banks that we see coming through. And that's more meaningful growth than we've seen during 2018 2019, which is always going to be for us relatively flat in volume terms. I think looking at where the balance of cost and price sits, we haven't and we wouldn't normally give you cost guidance into 2019. We've touched on in the statements that 3% to 4% in 2018 are still being a pretty reliable number. I would say on costs, the risk is probably, on the positive side going into 2019, but I'm not going to put a number quite yet, but hopefully a little bit better than that 3% to 4%. On selling prices, I think at the moment, our kind of base case is pretty flat. I mean, sort of as we come out of the year and aren't pushing the order book quite so hard there is potential, but I think we the sort of sensible position at the moment is to see pricing as has overall flat. I think the underlying prices, the mix, sort of effective prices for us for go against 2019 are probably 1% to 2% up from mix and regional changes, but not very much. So the margin impact yes, sort of a pricing flat, sort of then the impact on underlying average selling price is about 1% to 2%. I think as we look longer term, we do see potential for margin improvement from the quality of land purchases over the last couple of years. But coming in sort of 2020 and 50, 2021 rather than in 2019. Chris, is there anything you would like to add? No, no, nothing to that peak. Thank you. You. Hi, good morning. And yes, just on the, I guess, a bit of clarification, you said it a lot, but just on 2019, reading into what you just said, are we right to kind of assume a little bit of margin pressure? So at this point, when you look at consensus PBT, kind of flat at best for 2019. Is that what you're saying? And I think consensus PBT for FY 2018 is about 860. Then secondly, just maybe a bit more color on the comments around that you've seen a bit more caution if you've talked regionally, what does that mean in terms of prices being chipped away out a bit in London Southeast? Is there a particular price point? Is it $600,000 where you're seeing that caution? Just a bit more color there would be helpful. Yes. No, I think on sort of the first comment, yes, I think that's pretty fair. A little bit of margin pressure, but I really wouldn't over play it. So obviously, if you still got some cost inflation, probably a bit less than 3 to 4 and flat selling prices, except for the kind of carry through sort of the price inflation. That results in a little bit of pressure. Is it 0.5% within that sort of order? And I think, yes, if you do the math on what we talked about on and selling prices, you probably set up a little bit more. But I think we're still then benefiting from the high margin land purchases of 20 sort of late 2016 through to, 2018 starting to give us a boost, which gets a bit stronger in 2021. So that the more of a shorter term pressure. So yes, now a little bit of margin pressure, but fairly small. And then sort of color on the market, it's I'm happy to talk about it. I would it's quite hard to talk about the sort of the quite portion of the marketplace. Again, the sales rate that takes spent up because actually if you looked at most of the statistics, if you looked at cancellation rates, even if you look at things like conversion times, they all look fine. So it's more about the conversations with individual customers, sort of slide shapes in the mix of customers, overall crisis flat, but that might be, but again, somewhere a bit of incentive somewhere else as things moving along. So there isn't one sort of overall pattern, I would say generally you are seeing some more softness in higher price points and therefore particularly in London and the Southeast still, not the new trends, but sort of still that same trend. But I wouldn't say it's dramatic different. I think it's just the sense of London the Southeast is really tough and everywhere else is really easy completely overstates what we're seeing. We're having to really focus and to get the sales rates that we're getting. And I risk you reading that as we're having to reduce prices hence the sort of, the firmness that no prices are, flat. We're having to make sure that we've got our sales people on some, the products and the positioning of each side, really in the right place. And it's been a relatively sales environment for quite a number of years and we've been very conscious throughout 2018. We're making sure all the old disciplines are in place and people are really sharp. It's important. So I think for us, if we look internally, we see that as being the biggest change from the first half of twenty eighteen to the second half, if you feel the main is that actually some of the work we were doing early on in the year, just to get people really sort of sharply focused is paying off rather than that it reflects the underlying market. Great. Thanks very much, Peter. We will now take our next question from Gavin Jago from Peel Hunt. Please go ahead. Yes, good morning gents. Just a couple from me, please. First one was just around kind of the mix within the forward order book just in terms of private versus forward. Was there any kind of real change in there? And just if you could give us an update on kind of build your build catch up from earlier in the year, once you have some delays, where are you and how confident are you of in terms of that catch up at this stage? Yes, I think on the sort of build catch up, as we said, in September, sort of the weather delays kind of the last course of over, the summer. So, feel reasonably comfortable with where that sits. In terms of mix shift in the order book, there is a slight shift that was affordable, which was particularly low at the end of 18, if you remember, it was sort of a recent year post, but the balance hasn't particularly sort of shifted in a significant way. Okay, that's useful. Thank you. I think probably the 1, the one note, which does affect the average selling prices, and it's been a trend for the last 18 months and nothing new. But the central our central London business is coming to the end of its sort of size that were bought before the sort of market started to change. And the newer sites that we bought like Mount Pleasant are now selling and selling well, but sort of where to replace the order book. So the mix of Central London and the order book is lower, And the contribution we expect from Central London in 2019 is, sort of less, but that's kind of what we would have expected 8 months ago, so it's not new, but yeah, that definitely just changes the mix of selling price in the order book slightly. We will now take our next question from Gregor Kushlich from UBS. Please go ahead. Hi. Thanks for taking my question. My question is just can I push you a little bit on the hurdle rate comment on the land? So if you can kind of give us a sense, what you've kind of increased by And I guess specifically, I think you were alluding to the fact that you're kind of integrating the end help to buy. I obviously appreciate that's now 5 years or so out. But be interested to know how you think about the impact of, Help to Buy on the sort of margins and therefore, as a result, how you think about bidding for new land as we sit here today? But I'd exercise caution on the first one because we're seeing a set of land environment conditions that sort of whether there's probably more caution, from the wider land market than we see, sort of in sales and customers. So we're making sure that we take the maximum of that of that and pushing it a bit harder. So as I have said before, I wouldn't necessarily see those margins as being sustainable land purchase margins than the right point in time. So probably and that's probably 1% to 2% higher than we were looking at. 3 to, 3 to 4 months ago, so in the 22 plus range. I think in terms of the impact of how devices sort of we obviously can see the impact. I'm sure you've asked others about what we in fact we think the regional caps have I think probably about 15% of that helped by sales would be impacted by those, regional caps. But I think we would feel reasonably comfortable that those 15% were the 15% that we're more likely to be able to happen without Help to Buy anyway. Both more about at that level in terms of the 2 year extension, I think it's more about making sure that you have the right product focused on the right parts of the market if you're assuming customers are going to use Help to Buy in those 2 years. So I think we feel that 2 year extension is a real to your extension and the impact of the cats apart from on the odd high value side in, sort of some of the reasons with lower cows. Where those are the choices that you can take anyway that the impact of the sort of price caps is very manageable. I think what is interesting is that kind of longer term piece that sort of 4.5 years out, we've always argued that health wise shouldn't be around forever. So sort of we can't really complain when it's not around forever. And I think sort of some of the things we were talking about back in April of May, we've now got time to really look at. We've got a sort of a real time scale on the end and help to buy and making sure that we adjust our product mix, make sure the sites that we buy that are heavily sort of helped by the pence at the moment to go out faster than that we've reflected that either in product or in pricing. And I think the particular areas where I think you need to be careful, not the least expensive products or the most expensive products. It's the mid ground where people tending to be buying further up in the market, a bigger home or a better location than they would otherwise afford it. I think those are the ones we need to be careful of. We have pushed up hurdle rates specifically in those areas on those sorts of products, but I think over the course of the few months will really be working out what that means for the product positioning strategy for 5 years out. I don't think now is right time to talk about it, but whether through the prelims or the half year probably a bit of both, then I'm happy to give you our views in a bit more detail. We will now take our next question from John Bell from Barclays. Your line is open. Please go ahead. Good morning, Pete. Good morning, Chris. A couple from me. Firstly, I think you just hinted that Mount Pleasant sales have been progressing quite well. Just wondering whether you could give us some extra color around that one. And then secondly, apologies if I missed this. I was slightly late dialing into the call, but on your 2019 volume guidance, being broadly flat. Is that the result of the open site numbers that you're currently operating at? Or are you building in a degree of caution about how the start of the next calendar year Hey, Charles. I sort of decided before you asked the question, John, if I possibly could, I should get Chris to answer it because we've sat in different places. So Chris, do you have to take them out pleasant, well, and maybe talk about the 2019 volumes as well? Yes, yes, absolutely. So, we started on-site, I think, back at the end of July, Mount Pleasant, and we launched, in September. And we've seen really a very pleasing start, both in terms of the volume, both sales and also the pricing. I think one of the previous questions touched on, the overall number of sales that we have at different price bands. And even with that, that good start at, at Mount Pleasant, the we're still only talking that 3% of our sales, either in the first half or in the preceding period, have been around about 3% or above GBP 600,000. But yes, in terms of terms of Mount Pleasant, we're really, really pleased with where we are with that. In terms of the volumes then, I think, we've approached, the view for next year based on current market conditions, it's pretty difficult to to take a view of all the politics at the moment and what that might bring. So it's purely based on the dynamics of both the order book and the outlets and the sales rate that we think we will drive, in the current environment. Yes. Okay. Thank you. We will take our next question from Amy Gala from Citi. Please go ahead. Thank you. Just two questions from me. 1, I just wanted to understand a bit around the underlying run rate on inflation? I mean, to what extent, and I think that's reflective to the overall market, but if you can give a bit more regional color across your side of the sort of inflation that you've seen in the sales that you've taken in the autumn selling season. As well as just a follow-up on the inflation aspect is, have you seen lenders pushback on pricing over the last 2 to 3 months? Has there been more caution in their lending practices that you've experienced? Thank you. I think from selling price inflation, I think we've been reasonably clear on the overall piece over the last few months, there's been negligible net price inflation, flat price year prices are very flat and that reflects small ups and small downs, not big regional differences, but there'll always be variations in there, but they're not huge. I think on lenders, no, I don't think we're seeing any pattern of sort of either high value, yes, great valuation issues or changes in lenders, rates that are on offer or more caution kind of creeping in through the backlog with lenders. I think lenders are in the same place. And I think that's a combination of sort of lenders, wanting and needing mortgage volumes in a flat secondhand market and new bill being sort of the place where those mortgage volumes are available. And I think a genuine view that sort of lending on UK House sort of houses is still a good place to be from those lenders. So I think that makes it feel reasonably sustainable that it's a mix of both of those. So, yeah, flat pricing and no sort of error caution, particularly from lenders. Thank you. We will now take our next question from Andy Murphy from Merrill Lynch. Morning, Peter. Good morning, Chris. Can you just perhaps just give us a bit of a flavor around the sales rates? You've obviously kind of give us the overall sales rates, but can you strip out of that the private sales rates for the year to date and and Q3? Please. Yes, no, I'm, unfortunately, because I then have the split in front of me. I can tell you that that sort of overall trend is similar if you look at private sales, right? I don't know if you happen to hand Chris. I mean, the, the private sales rates for the year to date across all three divisions are remarkably consistent compared to the same periods last year. I think at the half year, the, the southern, 2 divisions were running slightly behind what we what were very strong comparables, which means that if the year to date is sort of now falling back in line that tells you that the period since the half year, those 2 Southern divisions have sort of caught up, which is, which is obviously very pleasing. And that Q3 specifically, that's the picture. There's been very solid trading across all three divisions. Yes. Sorry, Andy. And then Chris sort of gave me a chance to think that I didn't give you the obvious because I wanted to check it. So I didn't give you a view and then don't feel really stupid. Those are private sales rates, in the statement. The 0.81 is the private, the private sales rate. So if you took affordable sales rates, they would be higher. And I think I'll be reasonably confident because I know sort of that the affordable order book was a reasonable low point this time last year and is in a better place now, the affordable rate will be the difference would be greater. Okay, cool. Thanks very much. We will now take our next question from Kevin Kamak from Venikos. Your line is open. Please go ahead. Morning guys. Just can I just follow-up the sales rate thing? Obviously, in the statement, you're pointing to 0.77 achieved in the second half. 9% growth and a fantastic number really. But essentially, you're selling off pretty much the same site. You're not really dual branding. If anything, the underlying market back proppers, has been sort of similar, maybe a touch tougher in certain areas. And you've said today that the average selling price broadly unchanged. And I'm just sort of wondering how you've managed to get that increase in sales, right, through the second half and whether that is whether we should take that as more indicative of what you can achieve through 'nineteen? Kevin, I mean, I think it's a fair question. I've tried to answer it, but I understand that it's sort of Yes, the answer isn't, sort of, easy and black and white. If you go back to May and, sort of strategy launch, in a sense, this is another of what we were saying, that we believed that with the mix of sites that we have coming through, if we really thought about, our delivery pipeline from a construction point of view and opened up our own people's eyes to what could be done, from a sales point of view rather than people seeing it as tied to some historic norm in a very different environment with very different quality of sites and locations and with very different levels of local competition. Then there was meaningful upside per site on those larger sites on sales rates. And in a sense, that's one of the key components that you see here. And probably the biggest one terms of the difference year on year. So we could see it at that point already in some of our businesses in particularly the Southwest and Midland regions. And will you spend some time really analyzing it, trying to work out sort of whether that was like specific, how replicable it was, what we could assume as being reasonable norms going forward. If we dealt with those historic limitations on the construction side, I think what you see in the sales rates and what Chris and I have seen over the last sort of week or so in terms of our own businesses volume forecast going into 2021, is a growing belief that actually that can be done. Not on every site, because some sites have real local absorption issues, but in a more general sense. And so some of it is sort of very specific work on sales skills and sales tools. Some of it is making sure that what I think the historic building of patients are reduced at least so that we're able to sell to a greater sort of capacity here we've said for years, but our main limitation on sales rate has been our ability to build in our products. We've not sold all those, those problems overnight. We wouldn't pretend that we have, but there isn't significant components coming through in these sales rates and in our views of particularly 20202021. I think 2019 is difficult partly because we're in a transitional year. We would definitely expect sales rates to be higher, given what we're doing than we would have done if it would have been fumbling around with our previous strategy, but exactly where the base level will be is quite difficult to call because of the market. So that makes us a bit more cautious. I think as we go into 2020 2021, we have the potential for outlets to be building and place higher sales rates sort of so it makes it a little bit easier for us to be confident. So I know that doesn't quite answer your question, but it does relate it very back to what we were saying in May, the biggest limitation we've seen, over the last few years, has been how we planned out our sites and how we set things up to be able to access the market that's there. And what you see in this is as changing that and making sure that the sales skills and the sales processes, are as on song as they possibly could be. Make the most of the opportunities that are there. Right. So to be clear from your perspective, there has been no no change in the incentives that you've given either to your sales, your own salespeople or indeed to the to the customers? No, that's absolutely true. I think it's absolutely categorically true in every case in terms of our own people, think for customers, you win from here, you lose from there, but that's always the case, but no overall change. No problem. Unfortunately, we have now run out of time for questions. I will now hand the call back to Tish Redfern for his closing remarks. Thank you, and thanks everybody for the time today. I mean, clearly, an interesting year at the moment. Very pleased with 2018 sales performance particularly. And I think the goal that we set out go into next year with the best order book we can. And with a strong balance sheet and strong land positions, we're well on track for. So look forward to catching up again early on in 2019. Thank you for joining the Taylor Wimby, Pia Trading Update Call. This call has been recorded and will be available to listen on demand on Taylor Wimpey's website later today.