Good morning. It's good to see you all here today. I know it's a busy reporting day, thank you very much for calling in a little early. I think you'll recognize our agenda. I'll make a few comments and highlights on the first half. Chris will then take you through the detailed financials, and then I'll update you on how we're seeing the market, which I know will be a focus for you all, and importantly, how we're driving performance in today's environment. There are four key things I'd like to draw to your attention this morning.
First, completions are slightly ahead of expectations in the first half at 5,120, despite the mixed market and the challenges, of course, of rising interest rates for our customers. Second, we've delivered a strong operational performance, driving best-in-class execution and tight cost discipline. Our sales rate of 0.71 compares well to the market. This is driven, I believe, by our quality site locations and continuing to realize value from recent investments, such as our CRM system, our strong customer proposition, and our experienced sales teams. It's worth saying that this performance has been achieved with minimal bulks and without giving away price, in line with our value over volume approach.
We moved early to align build to sales rates, reduced overheads, and have taken a highly selective approach to land acquisitions. This is a choice open to us because of our strong land bank of around 83,000 plots, benefiting from the conversion of 6,000 plots from our strategic pipeline, and the strategic pipeline now stands at 140,000 potential plots. Third, against an uncertain macroeconomic backdrop, the value of our differentiated ordinary dividend policy is clear and remains a key focus and priority for us. Today, we've announced an interim dividend of 4.79 pence per share, amounting to GBP 169 million.
Four, we continue to manage the business for the long term as we make further progress on build quality and customer service and ensuring that we are future fit. This includes continuing to progress our Net Zero program and the Future Homes trials at Sudbury, which I know many of you have visited. In summary, we're very pleased with our half year performance, and I'll now hand over to Chris.
Thanks, Jenny. Good morning, everyone, and thanks for joining us again today. I would echo what Jenny said. You know, we're very pleased with results in the half, which demonstrate how well the business is performing despite the macroeconomic challenges. We ground out a very good sales rate, meaning completions were ahead of our guidance of 45% in the first half, and that, combined with disciplined build and cost control, resulted in a gross profit, profit margin of 21.6% and an annualized return on net operating assets of just under 20%. Lower volumes and margins meant that the that the profit before tax was reduced by over 40% year-on-year. After allowing for tax and paying the ordinary dividend, we still maintained the tangible net asset value per share at the 2022 closing level.
I'll move the slide on this time. The reduction in UK volume is mainly a function of the lower order book we entered the year with. Sales in the period from the start of the year through the spring selling season were actually quite encouraging, before higher mortgage rates in recent months weighed on affordability for customers, impacting demand. Despite these changing conditions, both the private and affordable average selling prices landed in line with the guidance we provided back in March. Private pricing was up 8.6% year-on-year. This was driven by a greater mix of completions from our higher quality locations throughout the country and from London, as well as underlying price improvements. In contrast, affordable pricing was slightly lower due to mix, with fewer homes from London than the first half of last year.
As we guided, affordable mix was 23%, 1% higher than last year. In half two, I'm expecting the affordable mix to be slightly higher than the 20.5% we reported in half two last year. Excuse me. At the bottom of the slide, you can see the reduction in the gross and operating margins for the UK business, excluding Spain. I'll break these down on the next slide. Let me talk you through the moving parts on margin. Underlying inflation on selling prices compared to the first half of last year was 4% on average. Inflation on bill costs was 9% in the first half, consistent with the annualized rate of cost inflation on new tenders that we communicated through half two last year.
Overall, the net impact from price and cost inflation reduced gross margin by 2.7 percentage points year on year. The absence of land sales, together with higher marketing costs, contributed a further 1.2 percentage point decrease to gross margin. inevitably, lower volumes meant lower recovery of fixed costs, seen in the 2 percentage point reduction relating to net operating expenses. As you'll recall, we took decisive early action with our cost base in the second half of last year, and made further changes at the start of this year to optimize efficiency across our operations, positioning, sorry, the business for more challenging market conditions. These changes incurred GBP 8 million of one-time costs in H1 operating expenses, which alone reduced our H1 operating margin by close to 50 basis points.
After allowing for the GBP 19 million of annualized savings from those changes, our run rate on UK fixed costs is now around GBP 320 million a year, with roughly 30% of those in cost of sales. Looking forward to H2, we expect further impact to our margin, following the recent increases to mortgage rates and as a result of ongoing build cost inflation. This, however, is moderating. The prevailing annualized rate of build cost inflation on new tenders is 6%, and I'm expecting that to reduce to low single digits by the end of this year. We ended the half with a very strong balance sheet, and this demonstrates our resilience and how well we've adapted to the changing market conditions.
The value of our landholdings has reduced by GBP 274 million over the last 12 months, as our highly selective approach meant that we approved the purchase of very little land. Nonetheless, we remain in a strong position, with 7 years of supply in our short-term land bank based on current output. The increase in work in progress year-over-year reflects the high levels of build cost inflation, the weighting of completions to the second half, and a bit more infrastructure spend as we move forward with opening new outlets. Last year, we implemented increased controls over both plot and infrastructure investment to match the build rate in every location to the corresponding sales rate, and this remains an area of sharp focus.
Land creditors have continued to reduce and remain less in total than our net cash balance. This demonstrates our capacity to thrive when conditions improve and our continued ability to pay the ordinary dividend. The largest component of the provisions balance relates to fire safety. We are constantly reviewing and updating our expectations for remediation costs on a building-by-building basis. The existing provisions remain our best estimate of the cost of the works. Net cash ended GBP 13 million higher than it was at the same point last year. That is down to the focus across the business on cash and our controls over costs, land, and WIP spend. Net land spend was GBP 323 million during the period, mainly related to paying down land creditors.
Even so, those payments still exceeded land recoveries, hence the GBP 80 million net investment in land on the chart. The net investment in WIP is a function of build cost inflation and the other factors I referenced on the previous slide. Tax paid reflects a full half of the Residential Property Developer Tax and the increase in corporation tax from April. We paid GBP 10 million in total against our provisions in the first half, GBP 7 million of which related to fire safety, and I'm expecting that to pick up to around about GBP 40 million in half 2, including reimbursement of the Building Safety Fund. There's absolutely no change to our capital allocation priorities, so I'm expecting this to sound reassuringly familiar. Our first priority will always be maintaining a strong balance sheet.
Where there are good opportunities in the land market, we will look to take advantage of those. Of late, good opportunities have been few and far between. That's because land prices haven't adjusted, despite house prices being 3% below the peak, build costs increasing period on period, and sales rates being slower. We can bide our time because we have a strong land position, and we retain the skills, experience, and capital to respond swiftly when the situation changes. Our ordinary dividend policy, to pay 7.5% of net assets, is measured and prudent and provides investors with certainty. We've stated our intention to pay the ordinary dividend through the cycle and in the event of a normal downturn.
We've also gone beyond that and noted that the policy could withstand a reduction of 30% in volumes and 20% in price from the peak. The middle of our updated volume guidance for this year would represent a 26% reduction on 2021 volumes. Pricing has been pretty resilient, and to date has only fallen 3% from the peak 12 months ago. Today, we are proposing an interim dividend for 2023 of GBP 169 million, or 4.79 pence per share, in line with our policy, which will be paid in November. We remain committed to returning excess capital to shareholders, we recognize that despite the good news on inflation from a couple of weeks ago, mortgage rates are likely to remain high for some time, and there's still lots of uncertainty.
It's therefore right to retain maximum strength and flexibility, so the board is not proposing any return of excess capital at the moment, but we will continue to keep that position under review. On guidance, given our better than expected sales rate in half one, we have narrowed the range of our volume guidance for this year to 10-10.5 thousand UK completions at the top of the range we previously communicated. While there are more moving parts than we would normally be experiencing at this point in the year, we wanted to try and be as helpful as possible. We are expecting group operating profit, including joint ventures, in the range from GBP 440 million-GBP 470 million, depending on volumes.
Similarly, we are providing a range for year-end net cash, which is also based on the volume range. There's no change to our approach on land. We are only approving a small number of sites where the risk return profiles are compelling. One small benefit of the increase in interest rates is that we are now earning more income on our cash balances, and we reported GBP 2 million of net finance income in the first half. We've updated our guidance on net finance charges to switch to a GBP 3 million net interest income for the year. This guidance incorporates allowance for new rates on both our EUR 100 million private placement loan and our revolving credit facility, both of which have recently been renewed. Meaning that we've extended our average maturity across those facilities to 5.3 years. Our JV guidance is unchanged.
In summary, a strong first half performance, partly due to better trading conditions in Q1 than we expected, but also due to the actions that we took last year and at the beginning of this year, to reduce costs and improve efficiency without losing capacity for future growth.
Thanks. Okay, thank you, Chris. In terms of customer demand, we know that underlying interest is there, but high mortgage rates and the cost of living generally are biting, particularly for first time buyers. You'll be well versed in these stats by now, but with the five-year fix at 6.54% and the average two-year fix at 6.88%, based on a 75% loan to value, versus last year's 3.43% and 3.48% respectively, it's not hard to see why affordability is tight. The good news is that lenders remain keen to lend into the new homes market, and we've seen some reductions in the last couple of weeks.
Overall, customer confidence is low. With employment remaining high, strong wage growth and supply of housing remaining tight, pricing has remained resilient. Moving to the medium to longer term, there's a lot of reasons to be positive about the outlook. The desire for home ownership remains high, the supply and demand imbalance is widening, and pent-up demand is likely to increase given the rising population and falling industry volumes, given the planning environment. Our latest sales figures are for the four weeks to the 30th of July, a traditionally quieter period for the sector. We've seen a trending down of sales rates as mortgage rates increased and consumer confidence weakened. The sales rate of 0.47, which doesn't include any bulks, won't come as a big surprise.
This compares to 0.62 for the first half, excluding bulks. As I've said previously, we are not doing an especially large number of bulks, but they do tend to stand out, given that sales rates are lower. In the interests of transparency, we've separated them out here for you. As at July, 30th of July, the order book stood at 7,900 homes, with a value of GBP 2.2 billion, and we were 91% forward sold for private completions for 2023. Well set. Net pricing continues to be resilient, down 3% from the peak in quarter three, 2022. We continue to develop and evolve our customer offering, ensuring that an appropriate balance is made between sales rate and price.
We have a strong customer proposition with a quality product and locations, which I do believe differentiates us, and an improved and effective sales effort to deliver it. We have said from the outset that we don't intend to lead the market down. We will, however, continue to monitor the market, and we'll respond to market pricing as it evolves on a site-by-site basis. Incentives are around 5%. The most popular ones continue to be mortgage contribution, deposit paid, and option upgrades. Down valuations, which do tend to be an early sign of future pricing pressures, have remained low. Customers have been willing to transact despite the interest rate environment. However, today's market is about those who can affect that demand.
Of reservations taken in July, 69% came from prospects first registered from the 1st of May onwards. Our proactive approach to marketing, which I'll come on to talk to you about, has driven customer inquiries and, while no doubt reflecting the macroeconomic environment, are above 2019 levels. Appointments are holding up well, also supported by walk-ins. Understanding and supporting our customers has been a key focus in our response to the changing market conditions, and I want to share some of that color with you. The chart on the left-hand side shows the shift in reservations by buyer type, particularly highlighting the changes in first-time buyers, reducing substantially to 30% from 40% in half 1, 2021, and down from 37% just 12 months ago.
The data on the right-hand side comes from our IFA. I, I do want to caution that this is representative rather than complete. I know you like data, and there's lots of it here, but a key takeaway for us is that while the market is constrained by affordability, our customers and their lenders are adapting. For example, increasing the length of mortgage terms has become more normal, with 27% of first-time buyers now taking a 36-year plus term, versus only 7% in 2021. For second-time buyers, the 31-35 and 36-year plus terms have increased this year, up to 42% versus 28% in 2021. A few of you have asked previously, at what mortgage rates are customers unable to buy?
It's one that we've been working to understand better. It's not straightforward, though, given that single income purchasers are now in the minority. Of customers requiring a mortgage, 68% buy with two applicants, and with the majority of those having a joint income of between GBP 50,000 and GBP 100,000, and 18% with a joint income of over GBP 100,000. As I've said, the sales team are driving real value from the investments that we made in recent years in our CRM system, and the ability to leverage that is a real differentiator. We can't change the market, but we can make sure that we are capturing the demand that's there, and that we're supporting our customers along their buying journey.
Our CRM system gives us more insight at individual customer and site level than ever before, and is driving real value for our business. Enquiries drive our database, marketing efforts are targeted to drive relevancy and quality. From there, enquiries are filtered and categorized using the CRM, ensuring our experienced sales teams are following the highest quality leads and prospects. When I've been to sales centers, I continue to be impressed by the skill and focus of our sales executives in their engagement with our customers, all of which are logged. A significant benefit given the longer periods we are now engaged with our customers before commitment. I've even listened in in a few of the mystery shops, and heard for myself how our teams on the ground support our customers through their buying decisions.
We are proud to be a five-star builder. I do believe that we can still do better. We've been working across our business to improve our customer responsiveness internally, and by engagement with and improving the performance of our supply chain. We've talked about how our customers are responding, but what have we been doing? We continue to be proactive and take a sort of dynamic approach to the prevailing market conditions. This isn't a single action, but a continuous series of actions. We pulled levers quickly, as Chris pointed out, but we aren't just sitting back. We continue to be very focused on operational performance, increased cost control across all of our departments, increased management controls and sign-off of levels of WIP, and ensuring our sales teams have the tools to operate in a tougher market.
The land market hasn't changed since we updated you in April, and prices are not reflective of the increased level of risk that we are seeing in the sales market. We therefore do remain cautious. We only approved around 1,400 plots in the first half. Land decisions are carefully considered, having regard to local market conditions, planning risk, and the quality of the key metrics, but remembering that uncertainty does bring opportunity. We continue to target savings in procurement through standardization, and this helps to offset build cost increases, as well as the consolidation of stock, resulting in savings, efficiency, and installation, and increasing economies of scale. There are a number of small incremental changes across our operations, too, that are driving meaningful efficiencies.
This is a constant focus for us as we work to offset inflation and regulatory cost. I'll give you a few small examples. We've revised and improved our scope of works to increase consistency, reduce day works and variations, we've upgraded our management systems, tracking commercial variances, excesses, et cetera, across our commercial activities. This supports earlier management intervention, too, where necessary. We've adopted a reusable stairwell system, which improves safety, reduces timber waste, and delivers efficiencies. Finally, we launched a new standard suburban apartment range at the beginning of May, which will drive savings over the next 3 or 4 years.
Like our standard house type range, these, I think, will also result in improved quality, a more consistent customer offer, more efficient use of land, and better planning outcomes. I just want to take a step back and try to put the planning challenges that we've talked about for some time into perspective. This slide shows the HBF Quarter One 2023 housing pipeline report showing that both plots and projects achieving planning approval, and it gives you a relatively long-run view. It shows that the downward trend in approvals we talked about during 2022 continue into quarter one of this year.
At around 3,000, the number of housing projects granted planning permission in the first quarter fell by 11% from quarter four, and the number of units approved at 71,000 was 24% lower than the same time last year. It's worth pointing out here that the decline in approvals during the first quarter was widespread. Large private and social housing projects and smaller sized sites all declined. I know I need to be careful because I could talk about this for a very long time, and time is short this morning. Let me boil the complex issues down into two main areas. Firstly, local authority resources, with local planning authorities seeking a reduction or seeing a reduction in their funding by 55% since 2009-2010.
Secondly, only 42% of local planning authorities had a fully up-to-date local plan as at March 2022. Though repetitive, I think it is important to call these out, because these are the challenges that affect the overall delivery of housing in our country and directly affect the opening of outlets for Taylor Wimpey and right across the sector. As you know, the National Planning Policy Framework in 2012 led to improvements that benefited land supply right up to 2018. During this period, it certainly wasn't easy, but plans were progressing, and visibility was good, with the Presumption in Favor of Sustainable Development as a backstop. The graph, I think, clearly shows that the last few years have been much more problematic.
Lichfields, the, the planning consultant, has estimated that an additional 4-5 medium-sized sites of about 50-250 homes are required per district, per year, in order to achieve government targets. Something that simply not supported by the current state of our planning system. Of course, it wouldn't be a planning slide at the moment without mentioning nutrient neutrality. The issues continue to affect 74 councils and an estimated 145,000 plots, placing further pressure on delivery. For us, the focus remains ensuring that we're progressing planning and driving the most value from our assets, it's frustrating and slow.
We continue to engage with government on all of these issues, and as you might expect, we're actively engaged across all of the key political parties and of course, at local authority level. We have 26,000 plots, representing 133 sites in planning for first principle determination. With the average length of time taken to determine, continuing to extend, I think we really do need this level in the hopper. Having painted that rather stark picture, just let me give you some reassurance that we own and control all of our land for 2024 completions, almost all of it with detailed planning, so we are in a really good position. Given the land market, the frustrations in the regulatory process, the length of our land bank is, I believe, a benefit.
I spoke to you previously about the way we measure our land bank at our capital markets last year. I talked about the 5 main ways that we look at it: length, weight, shape, efficiency, and quality. Look, I, I won't go through all of these again. You might remember that I also told you that at different times in the cycle and operating conditions, we would prize some of those measures over others. Key strengths of Taylor Wimpey is the quality and the length of our land bank.
The land decisions that we've made in respect of land acquisitions in recent years have set us up with a strong land bank, which has given us choices, and it has allowed us to be disciplined in our approach to land acquisition in these uncertain times. We're also differentiated by the scale, maturity, and distribution of our strategic land position, standing at 140,000 potential plots and converting 6,000 plots in the period. This is an excellent result and provides support to our short-term land bank. In this environment, the quality of our land bank is a key component to our customer proposition, and I think that you can see this reflected in our strong sales rates relative to the market.
To remind you, we grade all our land, right from the very start of the selection process, against the macro and micro locations, with 85% of our plots in A or B locations. This is really important, as in tougher markets, locations, I think, are even more important, and I am sure that this is supporting our sales rate and firm pricing. We remain committed to opening our outlets through the system as quickly as possible, and I would say we are solutions focused in doing so. The previous stats outline the challenges that the sector is facing. Like I said, this does present a real challenge across the sector. In the first half, we operated from 244 average outlets and ended the period in 235 outlets.
You'll note that we've already started on 21 outlets due to open in the second half. A lot of you have heard about how we're setting ourselves up in the current market, but as a team, we are constantly thinking about the longer term, how our actions today can ensure that we are a thriving and sustainable business in the future. This year we've been working hard to communicate and implement our net zero plans across the business, and this is a key priority. Again, we were delighted that so many of you in the room were able to join us and visit our site in Sudbury, where we have five homes testing a different combination of fabric and technology solutions to deliver zero carbon homes.
The goal is to find solutions to enable Taylor Wimpey to build high quality, zero carbon-ready homes that our customers will enjoy living in and which will be deliverable at scale. Importantly, these homes were completed on a live development by Taylor Wimpey employees and our subcontractor partners, rather than in controlled conditions, and I think this allows us to better capture the lessons to be learned. We'll continue to monitor the performance of the properties following sale, and this will allow us to collect valuable data and customer feedback. Just to recap, whilst we continue to await the government's consultation, and we won't know the outcome of that potentially until the summer 2024.
We are, I think, well placed, having worked through the transition into Part L and Part F, and the trials such as that at Sudbury. I think we're actively working towards the Future Homes 2025 regulations. I think it is important to state, particularly with the backdrop of discussions in the last few weeks, that though Future Homes is part of a solution to the government's target of net zero carbon by 2050, it doesn't stand on its own, and wider government commitment is required for consumers to benefit. We're also progressing our timber frame factory, which is currently being fitted out, with production due to commence later in the year and the first kits to be delivered to site early next year.
We continue to seek further cost efficiencies in central procurement through our strategy of standardization and simplification, and by leveraging Taylor Wimpey Logistics wherever possible. We're nearly there. Turning to the priorities I set out this year, we're making good progress in all of these areas. As you've heard today, we're getting the customer offering right. I think this is key. Our teams remain focused on tight cost management and WIP control. We're building as strong an order book as possible to allow us to optimize price going into 2024, and we remain committed to Net Zero and investing in the areas that matter and will drive most value in the future. Just pulling that together, we're performing well in a challenging market, and we continue to work hard to drive performance.
We run the business for the long term. Given our strong position and our priority to drive value by optimizing price over volume in the face of inconsistent market demand, we're driving performance, we're leveraging our assets as effectively and efficiently as possible, pursuing operational excellence and discipline across all our activities. We're well positioned with a strong balance sheet, a differentiated dividend policy, where the ordinary dividend is a clear priority to provide visibility to our investors, an excellent land bank, and experienced teams right throughout the business. In conclusion, we're well placed, we are a resilient business, performing well in the current market, firmly focused on execution, controlling what we can, while continuing to prudently invest in the future to ensure that we can come out of this stronger.
Thank you, for your attention this morning, and, Chris and I will be happy to, ask your questions. Answer your questions even.
Thank you. Will Jones from Redburn. I'll start with 3, please, if I can. The first, just thinking, I guess tactically in the second half, it seems like you're moving the focus to building that year-end order book for price optimization into next year. What kind of sales rate do you think you need to achieve in the second half to get there? Do you think the -3 price experience today is sufficient for that, and perhaps how the bulk sales will, will come into that picture as well? Second one around the land bank. I think you said you approved only 1,000 or so plots in the half, but I think the land bank was sequentially pretty steady in plot terms because of a couple of quite big strategic transfers.
Can you just talk us through those, and that you're happy that they reflected prevailing, market conditions? Then the last one was just a clarification, actually, on mortgage terms for customers. You... Am I right in interpreting that slide 17, you're saying that the average mortgage term of your customers is 36 years, or is it just a proportion or above 35? Any sense on how that number has changed over the last few years? Thanks.
Okay. I'll pass over to Chris, just on the order book. Essentially, look, I think this is a week-to-week, month-to-month trading environment. You know, I've set out, I think, quite clearly what we're doing to support our customers. There's no doubt that the sort of wider macroeconomic backdrop and how that's playing through to mortgage interest rates has, has affected demand. The order book is a real focus, and we've taken that into account in our assessment of that volume range that we've narrowed in on today. You know, pricing has been pretty resilient.
you know, we consider that there's a number of factors playing through here, the sheer level of demand that there that there is, but, but also, you know, the really high sort of employment levels that we're retaining, that we are seeing wage growth. Although sentiment, you know, is, is weak, there is still a level driving sort of that affordability. Just on bulk sales, look, I think we're striking the right balance, we're striking the balance that we need at the moment. It's a tool, and certainly something that, you know, we have good partners that we have worked with over time.
We do tend to look at these things on a project-by-project basis and the quality of the proposal ahead of us. Keep in mind that value over volume sort of balance that we're seeking to achieve. On the land, 1,400 approvals, you're absolutely right. The 6,000 strategic land transfers is what's holding sort of our land bank at that sort of stable 83,000. They are good quality. I mean, one of the benefits of strategic land, well, that, you know, and we've talked about in the past is, of course, you know, and I tend to do this when I'm talking about it, you know, we, we call our strategic land in over a period.
It's been very frustrating with the planning environment, but we get to check and recheck the quality of the metrics of those sites on their way on their way through. I'm quite, you know, I'm quite pleased with those. You know, in terms of the mortgage terms, you know, I, I would again stress that, you know, this comes from our IFA, so is, you know, a relatively small sample versus the overall market. I think it's directional. We are seeing, particularly first-time buyers, you know, have moved to that 36 year plus, and I think the number was 27%. You know, I would caution around the size of the data capture.
Chris, is there anything that you want to add just on the order book point?
I... Well, I'd just say that, you know, the, the sales rate for the last four weeks in the statement, you know, 0.47, we're now at the start of August. That has, you know, historically been a pretty quiet sort of period. There's, I guess, a little bit of further uncertainty. You've got a bank decision tomorrow that's finally balanced, I think, between 25 and 50 bps. You know, the volume range for this year reflects a reasonably wide range of sales rate outcomes for sales in August and September, as you would expect. Really, you know, sales in the last quarter are what builds the order book for the, you know, for the year end.
It's, it's really hard to absolutely pinpoint at this point in time based on, you know, what I've just said, exactly what the market's gonna be like. But we will be targeting to build as strong as order book as we can, as we can possibly get to go into next year. Typically, you know, we would target to be, 35% forward sold. I'm not, I'm not suggesting that we will get there, but, that would-
Yeah
... that would, in normal market circumstances, be, be the target.
Excellent.
Thank you. Rajesh Patki from JP Morgan.
Morning, Rajesh.
I've got 3 as well, please. First one, could you give us some color on the discount, on the bulk sales? Is it diluting the overall margin profile of the group? Second one is on sales outlets. How are you thinking about, those heading into next year? Last one is, any initial remark on 2024? Are you thinking about a volume recovery next year? Thank you.
Okay, if I take the 2024 ones, Chris, if you pick up the discount query. I, I, in terms of outlets, you know, we've identified that there's 21 that we've already sort of actively working on. I describe it as a chunk more with detailed planning that we've yet to start for, for 2023, that will certainly support 2024. You know, I've said on just how well set we are for our sort of delivery in 2024, with all sort of those sites with, with detailed planning and, you know, strong ownership and control profiles on them.
We, we don't give guidance on outlet opening, as you know, and given everything that I've said about planning, you know, hopefully you've got a degree of sympathy for why that's so difficult in the current environment. But I think that we're in a really good place in terms of control and forward planning for 2024. I mean, given what we said, Rajesh, about, you know, trading week to week, month to month, you know, in this half, it's very hard for us to, you know, predict what 2024 is. But, you know, we'll talk to you later in the later in the year about that. And just on that discount point, Chris?
Yeah. I mean, that 0.47 sales rate for the last weeks doesn't have any bulks, as we haven't done any bulks in, in, in that period. I think we gave a, you know, sort of reasonable commentary back at the prelims about, you know, I think the, the majority of the bulks, certainly the, the larger ones that we would've done this year, actually have been pre-planned for quite a long time on sites. You know, I know that you would hear in the market that typically a bulk deal at this, the, this point in time might have a 10% discount.
That's certainly not our experience with the bulks that we've done year to date, because, most of those, like I say, were, sort of already baked into, our, site assumptions, and therefore, they were in negotiation over an extended period. you know, what that looks like going forward, I don't know.
Morning, Glynis Johnson, Jefferies. I'm gonna edge up to 4, if I may. The first one, just in terms of the land market. Your ASP, plot cost ASP in the back of the pack actually looks very low, obviously on a relatively few number of sites. Given what's happened in terms of build cost, given what's happened in terms of selling rates, what actually is a good plot cost to ASP in this environment? 'Cause clearly it needs to be lower to make it look interesting. The second question, just in terms of, again, back of the pack, the website hits look like with the media push, actually look like they, they might have improved a little bit.
You know, is there underlying interest, and it's just the customers are sitting on their hands waiting for the best deal, but they still could transact, they're just looking, sitting and waiting just to see if it gets any better, or is there something else in there? The fact you haven't taken out any substantial costs, where we've seen a couple of your peers be a little bit more dynamic, how should we read that in terms of your ambitions from a volume perspective? When do you think you're going to get back to previous volumes? How quickly can you return there? Then lastly, government interaction. We obviously saw some stats in terms of Gove's interactions with the house builders over the last quarter. That was in the paper over the weekend. He did mention that further down the chain, there'd been some interactions.
What are government saying to you in terms of, particularly support for the first-time buyer, but also planning nutrient neutrality? Can they sidestep it with presumption of water treatment? Anything there?
Okay, thanks for that, Glynis. I mean, the land market is, you know, we describe our market, but obviously it's multiple markets, across a wide, sort of wide geography and also, sort of a wide range of site sizes, types, costs. Just addressing the figure in approvals, I think it's 12, 12.9, sorry, 13, 13%. There's some strategic land in there. There's definitely some very good deals in there. There's also a reflection of the geographical mix and the level of work commitment and infrastructure. There's quite a few things that at play, but it is a small, it's a small number of, of, of, of sites to be making sort of broad, broad assumptions, on.
You know, in terms of, well, what does a good plot cost look like in this market? I'd have to give you the same answer. It's highly variable. Planning risk, technical risk, overall market risk are the things that, that, that we would be considering, though, if that's helpful. On, on the website hits, you know, organic traffic in the website has fallen. You know, it's, it's down, you know, sort of around the sort of 30% level, sort of consistently over the last year. We have been supplementing that with paid media. Our teams, our sales and marketing teams are really targeted.
I talked about that targeted, sort of, and channels specifically, to, to ensure that we're, we're capturing good quality, sort of interest. That's been very important for us. The underlying levels of interest, you know, are good, and I sort of made a reference to you. They're still, you know, look pretty good against 2019 comparators. There's a level of sentiment and affordability with the mortgage interest rates. You know, probably a dollop of concern around prices falling a little bit further and wider, sort of economic issues. Stability, I think, you know, whether that's in the interest rate environment, and the economic environment, and sort of will, will support recovery and customer, customer sentiment.
Just on the sort of substantial costs, I mean, we obviously, you know, moved quite quickly earlier in the year. Although it's always disappointing, to, you know, have to make redundancies, I do think that that was the right decision to make, and particularly as the year unfolded. We retain a structure that's capable of supporting, you know, that sort of 16, 17 unit output. You know, our function of recovery to those volumes is going to be, you know, a combination of the macroeconomic environment easing and affordability, and importantly, the overall sort of easing up of that sclerotic planning sort of system that we've talked about.
Look, we remain sort of ambitious overall for the business. I think that we're really well positioned, Glynis, and, you know, we're poised. You know, and if the indicators were right, then we would start sort of moving the business in that direction. Then finally, on government interaction, look, there's a, there's a lot of interaction. We're, you know, both Taylor Wimpey, you know, in our sort of as our own business entity, but also with the HBF and some of the other sort of umbrella groups. You know, they have been mostly focused around planning. Supply side has, you know, been a big part of those discussions, but there have been some demand-side conversations. They're probably getting a bit old now.
They were really in the, in the spring, around the, the spring budget. But we would expect some of those conversations to start again now as we head into the autumn, and the autumn budget. Then Nutrient Neutrality. You know, we're getting more positive signals from government, but it does seem to be, you know, quite a legal knot that has been, been woven around it. We're looking quite hopeful at, at one point, but it seems to have, have gone a little bit quiet. It's a very complex issue, as you know, but probably more optimistic, but, but I'd say on a very measured basis than I would, than I was earlier in the spring.
Can I ask how many sites you have tied up with nutrient neutrality?
It's a difficult question to answer, Glynis, because we have, we have a number that are stuck because of the requirement for assessment, but that there are solutions. Those solutions are part, what we can do on site, part, what we can do. For example, in Teesside, we've recently bid, successfully bid for and acquired some of the credits from from Natural England. It's, it's continually dynamic. We're taking a cautious approach about the way that we're sort of plugging those into our forecasts and plans in the in the future.
Thanks. Sorry. Aynsley Lammin from Investec. Just two questions from me. Coming back to the last four weeks of trading, and obviously, aware it's a very short period, but, you know, the cancellation rate's gone up to 24%. What should we read into that? Is that more indicative of a weaker market, higher interest rates having their effects, as opposed to the kind of seasonal slowdown? Just interested to hear your thoughts around that increase. Just on cost inflation, I think, Chris, you mentioned current tender prices, inflation's around 6%. You expect it to go to 3%. Just a bit more color around what's driving that trend, labor, materials, and any other color you can give. Thanks.
Yeah, I mean, just on, on the four weeks and, you know, 24%, you know, it sounds high, but you need to look at it in terms of the overall, the gross sales, versus the cancellation. In absolute terms, you know, numbers on the order book, it's not that great. It's just that the overall, sort of sales number, is low. Then I'm going to pass cost inflation to you, Chris.
Yeah, no, that's, that's fine. I mean, the main driver of cost inflation in terms of the 6% obviously has been materials. Energy intensive categories, anything sort of cement-based, over the last 12 months have shown increases. We aren't anticipating any further pressure at this point from energy. You know, we'd be looking, hopefully, to get some reductions as hedges expire, you know, if the energy prices stay where they are. You know, that would be one element of the reduction down to low single digits, hopefully by the end of this year. On labor, yeah, there's been less pressure from labor in the 6%. Sites across the industry, obviously, have become less busy over the course of the year. That is mitigating the pressure on w- wages.
Most recently, we've had, you know, the most success with, you know, negotiating on labor only trades, 'cause it, it's just so much more transparent. and so yeah, you know, I suppose I'm, I'm assuming that that's really quite flattish by the time we get to the end of the year, within that low single digit. really, that's, that's sort of weighted towards materials.
Thanks. Just, just 1 follow-up. On the cancellation rates, I mean, how does it compare to the kind of autumn period last year in terms of what you're seeing?
Yeah, I mean, I think, last autumn, we got up to about 29% over a, you know, a sort of one of the discrete periods, of cancellations. But it was the same, you know, it was the same balance. You know, gross sales were down, therefore, the cancellations have a more meaningful, more meaningful impact. I think if we looked at absolute numbers, and, you know, Chris, you'll correct me if I'm wrong, there's nothing that stands out. Aynsley, if that gives you any. You know, it, it doesn't look like, you know, a particular run, for example, on, on sentiment. It's just the math.
Yeah, that's right.
Marcus Cole, UBS. Two questions for Chris on the cash flow. I just wondered if you could help us out with the moving parts in H2, and then I just wondered, where you get to land creditors by the year end?
Yeah. I guess, you know, you've got the guidance, GBP 500 million-GBP 650 million for the year-end cash. That is based, you know, the range is based on the volume range. It assumes round about GBP 650 million of net land spend. I think we did GBP 323 million, is what we just said in for the first half, so round about the same amount again for the second half. Exceptional provisions in total, round about GBP 50 million. Pensions for the year, GBP 7 million.
Land creditors, I would expect to see them, you know, to continue to increase as we, as we move through the year, if, you know, if we remain in the same position on land, which I would expect us to.
Thanks very much. Charlie Campbell at Liberum. Lots of questions are answered already, so just, just one really from me. I'm intrigued to see the, the joint income stat that you showed. I think 66% was it, from memory. Just seems a high number, and, and just wondered how that compares to, to normal periods in the, in the past, or whether that's just a function of first-time buyers being so low. Just wondered if you could help us with that, 'cause that, that, that would be a higher number than I would have expected to be.
Yeah, look, it's a good question. I'm going to again, put our health warning, that, you know, that this is a, sort of data that's called from our IFA, because we don't hold this data, ourselves. The. I'd say, Charlie, that we were surprised by some of the data, so we rechecked it. There's, you know, there's definitely a, a, a sense that, first of all, the, that double income, it's very hard to map, when, you know, when incomes come together, what the, what, what the outcome's going to be. I, I can't, really give you very much more other than, that's the data that we had. We, we rechecked it because it was surprising.
We even looked at it on a geographical basis, and actually, that, that didn't explain it. You know, it, it is what it is.
Yeah, thank you.
Ami?
Yeah. Thanks. Ami Galla from Citi. Just a couple of follow-ups from me. One on planning. Beyond the broader sector challenges around planning, what, what proportion of local elections played a role in the sort of planning delays in the first half? Incrementally, do you see that improving as we got into the second half in that respect? Also, on the plot spending planning that you gave us, that was quite helpful, do you have any color of what that number looked like last year at this time? The second one, really, in terms of, I mean, on the cash side, the last follow-up really, was on the work in progress. I mean, we've seen infrastructure investment on the back of site openings in the first half.
When I kind of look historically, the level of work in progress is at a pretty elevated level versus, say, revenue. Is that the new normal, or do we expect that to normalize in the future years? As we kind of think about site openings and maybe if the average outlet levels remain similar to... next year, they remain similar to this year, do we need further investments on infrastructure?
Okay, on planning, look, I, I think you've, you've got to, to the heart of one of the issues, which is, you know, planning is determined at a local level, at least in the first instance, and our preference as a business has always been to drive sort of mutual outcomes at local levels. Local elections do have an impact. Planning committees go into purdah, so there's, you know, sort of a gap in decision-making. If there's a meaningful change, and there has been in quite a number of councils this year, it takes time for planning committees to reconstitute. Planning officers and chief planning officers might decide to take less controversial or, you know, sort of significant schemes to the first committee just to help them bed bed in.
There's absolutely no doubt in my own mind that years where there's meaningful local government elections, that we do suffer delays in decision making. I think, you know, history will show that we get there, but it's we get there in the end, as opposed to on our original timescales. Over the years, though, we have sort of increasingly in our operational businesses, they do map local government elections. You know, we, we, we do take local political movements into account, so, you know, they don't come as a surprise, but, but it does have a, have an effect.
In terms of, sort of plots for last year, actually, we don't have the data from last year because we've, we really only tend to do it at, at full year end, if you remember, sort of almost like a little census. We've been tracking it more closely because of the scale of opportunity, that is, that, that is in there. I would say, that last year, it would have been a little bit lower than it's sitting now, and, as we've put in, sort of schemes, we were building up through, that land acquisition, activity that we had in 2021 and 2022, going into, into applications. We've got a little bit of, you know, ins and outs, now, happening.
I think, at the prelims, we were at around 25,000, now we're at 26,000, and I think that that's a pattern that unless we see, you know, a real sort of change in local decision making, that that's probably going to stay there, which is, you know, my comment about I think we need a hopper of that size in order to pull pull through. You know, outlets wise, I've given you as much color as I think I can give you, Ami. You know, we are, we are sort of well set for sort of more outlet openings at this half. 2024, we're in a really strong position, as I said, in terms of, you know, planning control, ownership control for our 2024 plots.
Then it's a factor of where we go on land acquisition, you know, planning, you know, how, how much improvement, if any, we see through, see through that process. Then I'm going to throw the WIP it, Chris.
Yeah, I mean, we, we started the year with WIP on the balance sheet at GBP 1.7 billion. We have managed WIP spend very, very tightly all the way through the year. Given that we're over 90% forward sold and the volume is weighted towards the second half, and you've got build cost inflation, that's why the balance, you know, is GBP 1.9 billion at the half. I think it, it's, it's just worth reflecting, you know, in terms of the question about, you know, all right, is it reset? If you look at cumulative build cost inflation, actually over the last three, four years, actually it's, it's more material than you might think it is.
I think, you know, for, for years we had, you know, build cost inflation around about, what, 3%. You sort of, at that level, it's in the noise, and you sort of forget about it, but it's just been more elevated of late, and that does sort of cause you to reset on nominal values, actually, what, what is a, a, a sensible level.
Thank you.
Sorry. Go ahead.
Thanks. John Fraser-Andrews . three for me, please. firstly, incentives, the, the 5%-, can we, can you just recap the journey of those from last year, where, what the base level was before the mini budget and, and how those have oscillated, in, in half one, in the sort of better trading period in Q1, then the deterioration?
Mm-hmm. Yep.
Secondly, sites, the reduction from December, is that purely planning or any strategic choice on your part? Is it strategy to grow sites, average outlets open from here on? Finally, in Spain, seems to be remarkably, it's a resilient market, compared to the UK in terms of completions, pricing, margins, everything looks pretty stable. Perhaps you could elaborate, if that is the case, and the outlook there. Thank you.
Okay. In terms of incentive journey, I'd say the first half of 2022, incentives were very, very low. If you can remember back that long, you know, we were really sort of pushing value and price. Through the sort of last quarter of last year, I think the incentive usage went up, and we exited the year at about 4% or 5%. Overall, incentives for 2022 were about 2%. At the start of the year, I think, you know, we were closer to 5%.
There, there was a period where the sales rate started to pick up, where we, we did observe a ticking down of incentives, so probably falling sort of in the mid-4% range, but it's ticked back, ticked back up again. So, you know, that's the journey. It sort of oscillates with sort of confidence in the in the market. In terms of site reductions, look, you know, it's very much planning. It's not a strategic decision. I can absolutely state that we are on every site that planning allows us to be on. We were focused. One of our sort of business internal priorities is to, you know, continue to liberate our, our outlets.
We, you know, see little benefit in holding outlets back. We do need to look at them in terms of the WIP, you know, the sort of the opening structure of the outlet, but, you know, we will continue to sort of open all of our outlets. To the point on Spain, it is, you know, we can see that, you know, demand has remained, you know, really robust there. Obviously, it's predominantly second-hand homes, or sorry, second homes, so, you know, it's a different kind of buyer that we have in our Spanish business. You know, pricing has been holding. There has been some inflationary pressures there, but they're coming in, you know, quite well.
The outlook remains quite quite favorable in our Spanish business.
Thank you.
Yeah. Pass the parcel.
Thank you. Sam Cullen from Peel Hunt. Just 2, if possible, and thanks for the-
Thanks for waiting, Sam.
Ah, that's all right. Stuff, thanks for the mortgage stuff on slide 17. Just one step further, I guess. If, if you've given the 69% of people that, kind of, that you've reserved in July, first interest in, in May, have you seen a tick-up, just looking at the percentage of second steppers have increased in people porting their mortgage and a reduction of people sort of playing in the spot market, if you like, in terms of refinancing at 5.5% or 6%? Or are they taking a 2% fix they had in 2021 and moving that over to a TW product?
I mean, it's hard for us to see that visibility, but, but in discussions with our sort of sales and marketing team, until customers go to, you know, the our brokers that, that probably are a bit more informed, very few customers are actually aware of their ability to port mortgages. That's certainly one of the myth-busting, you know, actions that we tend to, to take. You know, I know I can see Ian Drummond, you know, here, our divisional chair in that covers Scotland, and, and they've had quite a lot of success, for example, on, you know, having IFA and brokers on site to talk to customers about some of those some of those tools.
We did see a little bit more taking variable rates towards the end of last year and early this year. That seems to have changed, and the customer seems to be valuing certainty in their sort of in their mortgage insofar as we can see.
Thank you. The second one was on, you answered Glynis's question about chats with the current government. Given planning looks like it's probably gonna get worse before it gets any better, as we kind of run into the next year's election, how much talk have you had with the other side of the aisle on potential changes?
Yeah, I mean, it's. We're, we're in a pre-election, sort of period, and, and so we, we are engaging. We're engaging, across all the political parties and have, had quite a, quite a good level of engagement with Labour as well as with the, with the government.
Thank you. Arnaud Marion from Bank of America. Just a final one from me, maybe more for Chris. On the outlook for net operating costs, can you remind us of how much of the cost savings have been realized this year? How much is gonna be in next year? Is that enough to offset the other inflation you're seeing in that fixed cost basket? Not to push you on 2024 guidance, but, you know, how should we think about that evolving, you know, over H2 and into next year?
Yeah. Okay. Net operating expenses, I think, GBP 118 million in the first half. I would suggest that, you know, if you doubled that and took off a little bit, that's probably close to where we'd be for the full year. The sort of the reasons for that, you know, the savings that we that we expect this year were probably around about 85% of the full annualized run rate. You remember that when we announced those changes, we were targeting GBP 19 million of savings. There was a cost of GBP 8 million in the first half. In the first half, we achieved GBP 7 million of savings, 5 of them in net operating expenses, 2 of them in cost of sales.
Obviously, that run rate will increase in the second half, so you'll have, I think, sort of in net operating expenses, a benefit of GBP 2 million from the increased run rate in the savings and a benefit of not having GBP 8 million of change costs in there. There's like a GBP 10 million benefit in the second half in net operating expenses, but that is partially offset by wage inflation, and the opening of the new timber frame factory, and also, just general inflation as well. That's why I say double it and take a bit off. Yep.
Great. Thank you.
Thanks. Okay, then just to close, thank you for all your questions. I think we've performed well, given the backdrop. We're in a great position. I think we're well prepared for whatever the market throws at us, and look forward to speaking to you in the autumn. Thank you.