Earnings Transcript for TWODF - Q4 Fiscal Year 2020

Operator: Good morning, and welcome to the Taylor Wimpey plc Full Year Results 2020 Presentation. Today's conference call will be hosted by Taylor Wimpey Chief Executive, Pete Redfern; Group Finance Director, Chris Carney; and Group Operations Director, Jennie Daly, followed by a Q&A. I will now turn the conference over to Pete Redfern, Chief Executive. Please go ahead.

Peter Redfern: Good morning, everybody. Thank you for that. Thanks for joining us. So we are making some advances because you can see me this time, but I can't see you. I think that's worse for me. But quite a lot to cover this morning, so I'll get into it. You have 3 presenters, as you heard, sort of Chris, Jennie and myself. Bulk of my presentation is upfront. So I'll cover some key underlying issues, the summary pieces, hand over to Jennie on the operational side, Chris the finance pieces, and then I'll finish just with an overall quick summary on the outlook before we lead into Q&As. Now I'm already struggling to move on the slide. So Victoria, can we move on to first of my slides, my proper slides, please? Thank you. So some overview issues. I think if I stand back from 2020, we came into the year with some pretty clear priorities and pretty simple

Jennifer Daly: Thanks, Pete, and good morning, all. So this morning, I'll take you through the U.K. operational overview for 2020 with a summary of market performance, an update on some of our procurement activities, an introduction to our new house type range and a look at operational outcomes for the year. During 2020, we continued our focus on further embedding and leveraging our strategic objectives of cost discipline and process simplification through all areas of the business. And as I go through the slides, I'll highlight some of that activity for you. The U.K. housing market remained resilient despite the shutdown period in the second quarter of 2020, and we continue to prioritize opening new outlets, opening 73 in the year. We traded on an average of 240 outlets and entered 2021 with 239 outlets. The net private reservation rate for the year was 0.76 despite strain in both capacity and remote sales. Average selling prices on private completions increased to £320,000, and the overall average selling price increased to £288,000, driven mostly by change in mix. Cancellation rates for the full year were above normal levels at 20%, but did normalize in the final quarter at around 16%. With demand for our homes remaining strong, we ended the year 50% forward sold for 2021. And as we commented on the 21st of February, we had an order book of just over 11,000 homes. Our order book in claims includes a healthy profile of sales extending into the second quarter and beyond the Stamp Duty holiday and when the next phase of Help to Buy is due to commence. During 2020, approximately 46% of total sales in the U.K. used the Help to Buy scheme. The new Help to Buy scheme opened on the 16th of December for reservations for completions from April 2021. And as after recommencing the 21st of February, we've taken approximately 1,100 net reservations. So during 2020, our sales and marketing teams responded well to the challenging lockdown environment, including remote selling and transitioning sales centers to visitors on an appointment only basis. Our website and the retentions throughout lockdown, our sales teams with specific development site knowledge ensured we established a solid pipeline of customer interest, which as sales centers and show homes reopened, ensure we were well placed as the market recovered strongly in the second half. The 2021 selling season has started well, reflecting the underlying strength of demand, underpinned by low interest rates and stable mortgage lending. Given this good start and our strong order book, we are mindful of balancing sales rates against sales price. Private net sales for the year-to-date is 0.89. Overall website traffic year-to-date continues at strong levels, up in 2020 and 2019. Leads and inquiry levels are also healthy. And our appointment book continues at high levels. So overall, a positive start to the year. So considerable progress and momentum has already been achieved within our procurement functions in terms of cost and efficiency, and we are well placed to take these forward in the our next phase of growth and the release of the new house type range. The cost and efficiency program involves multiple work streams that have introduced automated sourcing and tendering processes, enhanced forecasting tools, workflow and system improvement targeting and efficiencies. And these actions are already delivered savings, with further benefits expected in the year. During the period of site closure, we communicated transparently with our suppliers and subcontractors on a weekly basis and continue to do so through the various stages of subsequent national and local restrictions. All this has served to strengthen Taylor Wimpey's relationships with its partners and the attractiveness of working with us in the future. With a divisional hat on, whilst there has been some friction in parts of the supply chain during remobilization. The investment in those relationships has tangible benefits, including an ease of resolution of supply chain issues and subcontractor loyalty to working Taylor Wimpey sites. So throughout 2020, not surprisingly, a significant area of focus was on Brexit planning and mitigation and coordinating material supplies to support site remobilization. To date, we see little direct Brexit-related disruption, although this is, of course, been closely monitored. We took a view fairly early on in the pandemic that the future sustainability of our build programs were reliant on the sustainability of our partners, particularly the predominantly self-employed subcontract base. And as a result, we process payments quickly and introduce and pay it forward team to help support those subcontractors feeling pressure in initial stages of lockdown. Our approach to COVID secure protocols has enabled us to accommodate subsequent restrictions without meaningful disruption to production plans and thereby maintaining the continuity of work for our subcontractor base. The team priorities for 2021 continues to be a cost and efficiency focus, aiming to take cost out and further reduce skew count as we improve standardization support technical compliance, quality and production efficiency. This work will also ensure the effective and efficient delivery of our new house type range, which I'll come on to in the next few slides. At this stage, we anticipate overall build cost inflation in 2021 to be in the order of 2% to 3%, marginally lower than in 2020, subject to production ramp-ups and the strength of the housing market. So Pete has challenged me not to take too long on these slides, but I'm very pleased this morning to be introducing you to our new house type range. The objective was to produce a customer-focused range of houses with great curb appeal and livability. That provides the business with an efficient tool to buy land and gain planning consent, while being simple, cost-effective and safe to build. The range also, of course, contributes to the delivery of our purpose, to build great homes and create thriving communities. So the three main drivers to bring forward the house type range are changing customer needs, the expected pace of change in planning and building regulations, including energy considerations; and of course, our own focus on enhancing business performance and efficiency. The range comprises a focused group of 28 new house types. And as a result, the range itself will be more efficient to maintain. It's expected that the simplification of designs will decrease cost, increase build efficiency, reduce customer issues and increase build quality. So it all starts with land and land buying and, therefore, land efficiencies were carefully considered. The new range can achieve greater coverage by improved plotting efficiency and early consideration of parking arrangements. From a planning perspective, the range is being designed as a complementary set, allowing most houses to be used together to create and harmonious street scenes. There's a greater range of design den, options, including, reform , window styles, DRP features for example, which will allow greater flexibility, enabling us to respond to the design agenda for creating places, but without losing cost control. The range will meet our customers' changing needs. We designed, in light of detailed customer insights gathered over the last few years, including engagement with our customers about their homes during the pandemic. The brief included the features desired by customers, spaces that flow, a feeling of light and space and opportunities for inside and outside living. The importance of suitable spaces to work and study in the home has never been better highlighted than by the pandemic. We have, therefore, identified, in all our homes, even the smallest in the range, at least 1 good-quality study pace that does not affect the other functionality of the home, utilizing minimal spaces to full advantage and planning in plenty of sockets. With the kitchen being the prime living space in many of our homes today, removing laundry from the kitchen enhances its attractiveness and usability as a living space. This has been a feature, of course, of a number of our larger homes for a long time, but the new range extends this principle to all homes, no matter how small. The range has been designed to be cost-effective and efficient to build. It is more concise, less complex and designed and external options will ensure the need for -- or less need for the bespoke non-standard house sets. Supply chain has worked closely with the design team throughout to exploit opportunities for standardization and to reduce product complexity as well as ensure that new components are fully sourced to ease the implementation phase. The range applies learning from the construction quality reviews and customer care feedback and will contribute to improved build quality and customer satisfaction. So by way of example, bathrooms, which are both a design statement important to our customer, and an area where we sometimes experience build quality issues, has been a focus. To exploit the first and address the second, we have standardized bathrooms throughout the range. The range is future-facing. It is being developed to be build-agnostic and is also capable of serving our businesses in Scotland and Wales. The simplicity of build standardization of details and components, improved production information will help improve build quality and build time. We've designed with the forthcoming changes in building regulations in mind, we expect it to meet the standards of Part L and F whilst also future-proofing the range based on available information for the future home standard in 2025. And finally, the electronic working drawing packages have been significantly improved and the use of dynamic blocks mean we will quickly adapt elevation to suit individual site needs whilst working within the standard design parameters, bringing resource efficiencies to busy design teams, reducing redrawing and maximizing the use of those design components, but without increasing design workload. So moving on then, the challenges of the year sharpened our focus and highlighted additional opportunities for operational improvements by leveraging a range of previous investments, including in IT, training and development. The increased plotting of standard house types enabled increased material standardization with cost and efficiency benefits. Quality managers, which were recruited across the business in 2019, are now working closely with production teams to review performance, address quality issues and ease implementation of new processes. And during my time in the division, their positive effect is evident in continually improving build quality, build efficiency and increase in customer satisfaction. Previous IT investment enabled the continuing effectiveness of our remote and dispersed workforce and deliver additionality by enabling our office and site teams to engage in training on a range of quality and skills-focused topics through our lockdown and after. We were able to quickly adapt our sales process, which is now digitized from reservation to completion, and we also launched the TW virtual public consultation platform, which enabled our local teams to continue to fulfill our commitment to community and stakeholder engagements throughout the restrictions and allowed our teams to continue to progress sites through planning and through outlet opening. Health and safety is our #1 priority. And during 2020, we worked in partnership with our subcontractors to develop sustainable COVID protocols. And in accordance with our principles and responsible leadership, we gifted all of our programs to secure health and safety documentation to SMEs to support their safe remobilization. So despite the unusual nature of 2020, we've seen some significant improvements in our operational performance across a range of measures. We continue to lead the volume price builders in build quality as measured by the NHBC CPR score. And in 2020, we scored an average of 4.5 from a score of 6. This compares to an industry average of 4.32. We also continue to embed further our quality assurance processes at every build stage. We are, as Pete mentioned earlier, particularly pleased that the customer feedback and recommend scores during and after lockdown continue to be very positive. For the survey year, we achieved 92% for the 8-week a 5-star customer rating and 78% on the 9-month would you recommend scores. Our consistent quality approach guidelines, which ensure site managers, subcontractors, production and customer services all have a consistent understanding of the finishing standards we expect of our home was rolled out on the 4th of January this year in a customer-facing format so it is clear for customers what they can expect from us. This is an important step in our preparation for the imminent launch of the New Homes Ombudsman. We are pleased that our annual injury incident rate has reduced further on to 151, well below the HBF and the HSE averages. And finally, from me this morning, it is very pleasing, particularly given the nature of the year, to have been recognized by our employees by via Glassdoor for leadership during the pandemic, and have once again, secured a place in the top 50 places to work. Many thanks, and I'll now pass over to Chris.

Chris Carney: Thanks, Jennie, and good morning, everyone. The 2020 results are in line with expectations with £2.8 billion of revenue, £300 million of operating profit and an operating profit margin of 10.8%. Profit before tax reduced to 1/3 of what was delivered in 2019, reflecting the financial impact of the lost volume and revenue resulting from the pandemic. We are, however, very confident in the business' ability to recover quickly, which is evidenced by the improvement in the financial performance in the second half of the year, and we expect that improvement to continue in 2021. And I'll come back to explain what's driving that on some of the later slides. The increase in tangible net asset value per share is, of course, due to both the equity raise and the profits generated in the period. Total U.K. volume fell by 39% in 2020 as a result of the production delays associated with site closures in the second quarter. Increases in both the private and affordable average selling prices, along with a slightly lower mix of affordable units at 20% of the total, delivered a 7% increase in overall selling prices. The increase in private selling prices at 6% was principally driven by mix, with slightly larger homes, slightly more weighted towards the south and with an improved mix of site quality. So more from the grade A and B locations, and there was also some underlying price inflation, which you'll see on the next slide. Looking forward, our guidance for 2021 volumes is unchanged at 85% to 90% of 2019 levels, but with affordable making up about 17%. The reduction in affordable is influenced both by the mix of sites and a revision to the way we contract land sold to housing associations, where revenue and profit will now be realized slightly later. There's no change to the overall cash or profit from those contracts, just timing of recognition, and the change means we'll report about 350 fewer affordable completions in 2020 -- 2021 than we otherwise would have done. But the affordable mix from 2022 is expected to return to around 20%. The output from our joint ventures, both in terms of completions and profit, was very similar year-on-year, and we expect that to reduce in 2021 before picking up again in 2022. Now this is the usual slide we present every 6 months to show the main elements of the movement in U.K. operating margin year-on-year. I'm not going to go into the detail of the reconciliation, but I do think an understanding of the movements in 2020 is helpful in appreciating some of the drivers for margin recovery in 2021. The first colored box includes costs that won't repeat in 2021, such as the £63 million of COVID costs and the £12 million of restructuring costs, so you should expect to see those reversing on this slide next year. The second box includes the impact of the volume reduction. And as volumes increase in 2021, the efficiency of fixed cost recovery will improve, and most of those elements will also reverse. In addition to the reversal of 2020 costs and the increase in volumes, there are other factors supporting the margin improvement in 2021, and they include the £16 million of savings from the restructuring we undertook at the end of last year, together with our increased focus in 2020 on the balance between price and sales rate, which will unwind from the order book into the income statement in 2021. Now I'd expect you to be even more interested in the medium-term outlook for margin, which is on the next slide. So as you have heard very consistently in all of our recent update, Pete, Jennie and I are all confident in the business' ability to achieve our medium-term operating margin target of 21% to 22%, assuming market conditions remain stable. And this slide is intended to provide clarity on where our collective confidence comes from. And to aid comparison from the previous iteration of the slide and to reflect our normal volume delivery, I have started from the 2019 operating margin of 19.6%. You may recall that Pete first presented this slide 12 months ago when the range of outcomes was 21% to 22.5%. So what's changed since then? Well, as we all know, quite a lot. We've undertaken the equity raise, which means our medium-term volume growth expectations are higher. We've also undertaken a more significant cost restructuring exercise that we would have anticipated, removing 1 tier of operational management, rationalizing our London structure and a series of other overhead reductions across the business. So the higher volumes and the efficiency savings have shifted the potential range a bit higher and support our confidence in achieving the medium-term 21% to 22% target. But we're also a fairly cautious bunch. And although we've been buying land within the 21% to 22% range and making allowances for the latest changes to Part L and F of the building regs, we've adjusted the landbank evolution target down very slightly to reflect the risks associated with those changes. Jennie has already covered the new house type range and procurement opportunities it brings, and I'll cover the benefits of our new CRM system on the next slide. But one very important point to note, however, before I leave this slide, is this bridge does not yet reflect the impact of the government's gateway 2 levy or its U.K. residential property development tax. We're expecting more details on both of those at tomorrow's budget. And the outcome of that, of course, may require us to make adjustments to these numbers. Now as you know, we've been investing in the business over recent years, and now volumes are recovering. We're starting to see some return from that investment. And one example is our new customer relationship management system that we are currently rolling out throughout the business. The system spans the whole of the customer journey from the initial marketing and contact through sales and legal processes all the way through to And I'll quickly touch on 3 of the areas where we think the system can drive value for us. Firstly, the system gives us much better visibility of exactly which media channels deliver the leads that convert to sales. And as a consequence, we can optimize our media mix by using the most effective channels and reducing spend in the others. For example, in the year-to-date, our web traffic is up 9% on 20% less media spend. The system also registers customer interactions, whether that is their use of the website, a call, a visit, when they open one of our e-mails or when they download the brochure. And not only does that mean we have a very good idea of what they're looking for before they call us or visit us, but it also allows us to prioritize those customers who are closer to market. And lastly, the data allows our sales executives to filter customers interested in particular development by the number of bedrooms they're looking for, the price they can afford and their financial status, such as if they already have a mortgage approved in principle. And that very quickly creates a prospect pool of customers for each individual plot, which can be prioritized on their financial position. For example, a cash buyer who doesn't need an incentive or a discount would typically be the most profitable type of lead and the quickest to progress to completion. So in summary, the investment in this system brings significant improvements to our processes in these areas. It will allow us to be more efficient in how we work, reduce complexity and cost and also help us to maximize our sales, both in terms of volume and price. And all of that will support the margin as we go forward. You can see that across land, with land creditors there's been a net investment of £392 million over the course of 2020, and that is a mixture of new land investment coming on to the balance sheet following the equity raise, continuing investment in opening new outlets, as Pete mentioned, and the delay of Q4 completions into 2021. The provision we announced today to help resolve fire safety risks for leaseholders in our apartment buildings that aren't covered by the government fund will be booked in 2021, so it is not included in this balance sheet. I anticipate the cash spend from that provision to be spread over a number of years because of the complexity of the technical assessments that need to be undertaken on a building-by-building basis. As such, we don't expect it to have any impact on the ordinary dividend or a material impact on any excess capital returns. We certainly won't be dragging our feet on this, but the reality is that they just aren't sufficient chartered fire engineers with professional indemnity insurance to contend with the number of assessments that are required. Now even when taking that 2021 provision into account, you can see that we have a strong balance sheet which is primed for further investment in land as the deals that we have agreed since the equity raise continue to work their way through into the numbers. Again, on the cash flow, you can see that, that net investment in land and WIP, which was evident in the balance sheet, the other significant outflow in the period is tax, where due to the change in the corporation tax regime, we made 6 payments in 2020, 2 final installment payments relating to 2019 and full payments in 2020, representing all of 2020's tax liability. Now today, as expected, we have announced the resumption of our ordinary dividend in line with our existing ordinary dividend policy of paying approximately 7.5% of net assets. And this will commence with the final dividend for 2020 of £151 million or 4.14p per share, which will be paid in May, subject to approval at the AGM. As previously communicated, we are not proposing to return excess capital in 2021, We expect to review the excess capital generated in 2021 at the time of the 2021 full year results in February '22 for payment in July '22, and the method of returning that capital, either by way of special dividend or share buyback, will be kept under regular review. Our previous practice has been to announce special dividends at the half year results, 1 year in advance of the payment, the following July. This changed to announcing excess capital returns in February fits better into the communication time line and shouldn't change the timing or quantum of any potential return. And then looking forward to 2021, as I said earlier, our U.K. volume guidance is unchanged at between 85% to 90% of 2019 volumes. We expect the affordable mix to be lower at 17%, getting back up to around 20% in 2022. And based on current market conditions continuing for the balance of the year, we are expecting to deliver an operating margin in 2021 of between 18.5% and 19%. The main factors contributing to that margin growth year-on-year, are the absence of COVID and restructuring costs, the increase in volumes, the benefits of cost efficiencies and a greater focus on price over sales rate. At this stage, forecasting year-end net cash is quite tricky due to the variability and timing of land spend. And obviously, that's going to be a bigger number than normal this year due to the deals we've approved and contracted over recent months. So the £500 million guidance is provided in that context. And obviously, we'll give you an update on that when we get to the half year. So in summary, we started the year with a strong order book and WIP position. The completions that were delayed from Q4 last year are flowing through nicely, meaning that we're tracking ahead of where we were at this time last year. The margin is recovering well, and we have secured a lot of high-quality land over the course of the last 8 months, which will drive our growth in 2023 and underpin our ability to get back to that 21% to 22% operating margin target. And I'll hand over to Pete.

Peter Redfern: Thanks, Chris, and finally my slides on now, sort of which with one slide ago isn't particularly useful. I promise we're nearly done, and then we can open up for questions. I'm not going to repeat what Chris said. It's a positive environment. We got confidence that 2021. I do think that selling price movement, which isn't about 2021 results predominantly because of how far ahead we are sold, but it's good to see that sort of come through. We can see underlying prices moving last year, but we've seen a meaningful step up January and February. And good to cost inflation remains more benign. As I said, sort of in our previous call, I think, on a relative basis, we feel probably in a stronger place, having had a challenging 2019 on cost and a lot of the work. But Jennie and Chris highlights been working on just gives us sort of more sense of our control over those overall dynamics. Yes, I think the land dynamics, as I touched on, are definitely returning to normal. We are slightly concerned about the activity of planning sort of offices and local authorities through the lockdown. We were just not able to sustain same activity of -- that we would expect to see, but we have a lot more choices of outlets coming through than we have had over the recent years and that we think the sector generally has. So that puts us, I think, in a good place and strengthens our position. I think we are conscious that sort of been a lot of change over the last couple of years. And so we do expect later in the year to bring together all the different threats of strategy, not a relaunch of strategy, but just kind of setting it out for you very clearly. But just to be clear, we don't expect that to change our views on operating margin targets, sort of growth related to the capital raise, ordinary or special dividends. And -- but it's good to announce the return to ordinary dividends and to sort of be looking towards special dividends next year. So if we can go for questions, please?

Operator: [Operator Instructions]. Your first question comes from the line of Aynsley Lammin.

Aynsley Lammin: All right. Just two for me actually. First of all, just wondered if you could remind us of your definition of excess capital when we start to think about what the special dividend might be? Obviously, the ordinary you've reverted back to what it was before. And just a bit more information on the special? And then secondly, just on the kind of I guess, a bit more color on the level of friction you're still seeing or not seeing on site in terms of materials availability, labor availability, the build rates. You used to get to 85% to 90%. Is it just the site numbers that's the kind of constraint rather than any friction on site due to the pandemic or potential material shortages in certain areas? Any color on that would be great.

Peter Redfern: Thanks, Aynsley. I think one for Chris on the capital and one for Jennie on the friction on site?

Chris Carney: Yes. So Aynsley, our policy is unchanged. It's return capital in excess of that needed by the group to fund land investment or working capital, taxation and other cash requirements of the business and, obviously, after the ordinary dividend has been met. Obviously, the significant moving part in that over the next couple of years as the land on the balance sheet, and we then start to invest into WIP on the new outlets. So yes, no change at all in the policy.

Peter Redfern: And Jennie on the friction on...

Jennifer Daly: Okay, just picking up on that point. Yes, just picking up on that point. In terms of materials, we did quite a lot of work through site remobilization with our supply chain. And once there have been some issues, they've been readily managed by both the local and the central procurement team. Labor availability has remained good. We can see some tensions, particularly just in the last weeks now heading to the end of Stamp Duty and Help to Buy around availability, but it hasn't been affecting our build rates, which are near-normal levels.

Peter Redfern: Thanks, Jennie. I'm not going to sort of add on lots of bits to the answers. But I do think that you can see in our level of WIP at the end of the year, that we didn't finish the end of the year, sort of having strange rate of completing over the line. So overall, I think our build teams are in a slightly better than usual position rather than the worst one, which obviously impacts on that last piece.

Operator: The next question comes from the line of Will Jones.

William Jones: Three, if I could, please. So there might be a couple of subparts to 1 or 2. But the first is around volumes. If we look at the landbank size at the end of the year and your comment that the net size should grow by over 10,000 over the next while, and we highlight that with your landbank length target of 4 to 4.5 lengths. Clearly, it's very simple math, but it might imply somewhere around the 20,000 mark or maybe even slightly higher. Is that fair? And I suppose, how would you look at that in the context of your capacity? I think you talked in the past about, if you went beyond 18, you'd need to open new divisions such as the squaring up to as it were. The second then just around house price inflation, the 3% number year-to-date, obviously, pretty positive, but also quite surprising. I mean, if you -- big picture, do you think that's an industry trend? Or do you think you're doing some stuff more specific to Taylor Wimpey around there? Or any catch-up in there? And I guess would you be drawn on what the averages might be for the 2021 P&L? Because obviously, there are some quite major timing issues going on here. And then the last was more of a conceptual point, but obviously, the industry is going to be facing quite a significantly high tax burden over the next few years from cladding and the corporation tax in all likelihood. I mean, how do you -- land buying in the past has always been done on a pretax basis. Do you think it will continue to be done that way? Is there any scope you think for the industry to think about the post-tax basis and trying to recoup some of that effect through your land acquisitions?

Peter Redfern: Thanks, Will. I'm sort of disappointed. I was hoping to farm up most of the questions, but I think I need to start myself most of those. The volumes related to plans , I mean we said at the point of the capital raise, we expected about 10,000 plots directly related to that capital and that sort of leading to about 2,000 units a year sort of getting to a sort of full run rate in 2024, but seeing some signs of it in 2023. That hasn't changed, but we are also investing additional capital ourselves. I think we have to be slightly careful because I touched on a couple of times the fact that, in those 31,000 are a couple of particularly big strategic land sites. They were there in the sort of -- they weren't significant in the sort of initial capital raise numbers to the end of the year, but there's one in particular that just pushes those numbers up. And that doesn't affect the balance sheet because it's paid for over a long period of time. It does affect the land bank length. So you do have to slightly adjust. So when I said we would come back later in the year and just sort of wrap things up for you and update you, I think that includes particularly the landbank length space. We're not saying that we need to hold a lot more pay for land, but that balance of strategic sites. And I've said multiple times, we still like large sites. We still think they have a value. We still think they underpin the business, but we like a mix. So the one part of the kind of target structure we set out in 2018 that we want to really look at and think about with a changing land environment disinvestment is that landbank length. I don't think it's going to change massively, but it's probably going to push to the upper end of that range. And I think, particularly as we go through a change in the planning system over the next couple of years in government pushing although there may be upside at the end of that, we sort of take a cautious approach on the way through that any change tends to bring disruptions. So we certainly wouldn't want to be cutting it fine. So it's the only one. So I think we will -- we're absolutely committed to the 2,000 additional kind of completions a year. But over and above that, there may well be potential for that we'll update you on as we get further into those land deals and into that planning system. On the selling price movement, is it an industry change? Really hard to know, isn't it sort of -- we feel we've done well. We always feel we've done well, sort of on things like that. I think we can see a meaningful change. We did set out the year as we did last year with the goal of seeing that. There is a little bit in there that is the reversal of the care worker discount. As I touched on earlier, that was a real discount, and it probably had a 1% impact on the average sort of reservation selling price last year. So you could -- and that discount on reservations finished at the end of last year, which is what we always planned. It's not completely -- it's not completely offset in there. So -- but that's probably the more meaningful change, but I do think it's a real movement. And impact this year, it isn't massive because, as I say, very well forward sold, sort of it's right at the back end of the year. And it's embodied in our kind of overall year guidance, sort of we've got to absorb sort of cost movements as well. We're flagging inflation on the bell cost side at 2% to 3%, more benign, but we've still got to absorb that. So sort of really hard to split it all out. But as I say, I think we see that input impact included in our upgraded guidance, but it's a whole mix of small moving parts. And I will give Jennie commented on the tax burden, but I would say at this point it's really hard to know because a lot of it depends on state of the land market, as whether it's passed back to land and how it's structured, more likely to be structured in if it's not structured as a tax per se, but as sort of a contribution that go through viability, but even then it depends how challenging the land market is. Jennie?

Jennifer Daly: Yes. I mean, I think that we're seeing that the land market is starting to be pricing the Part L and Part F costs, and that is driving some sites to sort of clear viability stream, particularly in the northern businesses. So there -- which I think, there is some opportunities to look to land, I don't think it's going to be any answer across the market.

Peter Redfern: Yes. I think, Will, and this is not just about the tax and about Part L and F costs and margins generally and selling prices. Yes. I don't know if you remember that the slide that Chris used as sort of a bridge to forward-looking margins, which, as he said, sort of our first use sort of last year. At the point that I first used it, we specifically commented that the one thing that we really had to sort of take under advisement and not sort of specifically account for was the Part L and Part F costs. We're not saying that today, and by which I mean we've sort of now -- we know what the regulation is and when it comes in. We factored that in. Some of it is in land, some of it is not but that is a cost that we're then offsetting with those selling price movements, whereas before we were flagging it as a future risk rather than something that was kind of factored in.

Operator: And the next question comes from the line of Glynis Johnson.

Glynis Johnson: I think you get [indiscernible] one for today, so Pete I think you -- the first one, just in terms of build WIP. I'm wondering if you could just give some sort of color on where you see the necessary build WIP that you need to build a couple of units if you go into the year or relative to forward sale with that you made within the year? Second one in terms of just if you could just clarify particularly you went through the presentation and in great pace. How much of the land has been approved is already on the balance sheet? What will be the cash rate for land this year and there will be a tail end as we go into '22? And then just in terms of the housing type. Can you just give us a little bit of background on how many housing types did you have before so we could put where you're going into some sort of perspective? And just how long have you been planning or tried and tested? Or is this an evolution? Just a little bit more color.

Chris Carney: So if I take -- I think -- I didn't quite hear 1/3 of those questions, Glyn. But if I have a good crack at the build and the build WIP in the land, so we came into 2021 with £1.66 billion of WIP reflecting sort of continued investment in opening new outlets during 2020, as Pete said. And obviously, the delay of Q4 completions into 2021. And actually expecting WIP to be broadly stable in 2021. Some of the sort of 2020 overhang that I think you're referring to will work its way out, to be replaced investment in new outlets. It's not going to go back to £1.46 billion level that you saw at the end of 2019 because we want to grow the volumes and at the same time hang on to that smoother profile of completion. In terms of the land, at the year-end, we had agreed on £1.3 billion of land since the equity raise. And that run rate, obviously more than accounts for a level of normal activity plus the incremental investment from the equity raise itself. And if you were sort of roughly breaking that down at the year-end, there was probably about £250 million of that, that was cash spend, about £150 million in land creditors, £300 million that was conditionally exchanged. And the balance of that was then still to exchange. And so it's a gradual process, isn't it, to see that land come through onto the balance sheet. But you do see it. So the land balance at the end of 2020 was £2.9 billion, which was up from £2.7 billion at the end of 2019. And by the end of January, it was up to £3 billion. I think in terms of the question on land spend levels for this year. Clearly, that dynamic sort of gives you an idea that the £646 million, which was our land spend, cash land spend in 2020, it's going to be considerably more than that. It will be over £1 billion in 2021. And I'm sorry, I didn't catch the -- my line wasn't that raised on the third question.

Jennifer Daly: Yes. I think I've got that one, Chris. If I've heard you correctly, Glynis is sort of interested in the new house type range, how many we've had in the past, how we tested it through, and I think the evolution. If I've got any of those wrong, catch me. So we've been taking incremental steps sort of in preparation for the delivery of our new house type range for some time. Back in sort of 2016, we had quite a large house type range, we were achieving about 65% plotting of the standard house type range. We reduced the number in 2018 to what we call the consolidated range of about 47 house types. Those have been plotting really quite well. The businesses have been moving increasingly to standardization. And as you picked up from my slides, we're at about 86% of houses now being plotted from that standard range. So this is sort of the next evolutionary step really in tightening up the range even further. We've been working on it for quite a number of years. Our customer engagement, customer insights been running sort of annually over a 4-year period, and then we stepped that up through last year, particularly engaging with our customers during the pandemic and sort of the livability of their homes during that time. So we've got quite a lot of information to support sort of the customer and to their desire points. Costing is being tested quite rigorously to the business. We utilized some of those new systems that we talked about from our procurement and commercial teams, the BOP system. And I think we're quite confident now on cost and cost base. We're running some prototypes through the at the moment, and we would expect those to be coming up for completion towards the midpoint in the year. The plans are being released to the basis pretty much as we speak. We expect the first plotting from a plotting perspective by midyear. First completion is to be calling out first half of next year. And then, usually, because of the Part L and F, we are likely to see a boost in the uptick of the new house type range. So it's likely to land in an accelerated format compared to what we would normally see through landbank evolution. So expect to see some meaningful numbers by the end of 2023.

Operator: And the next question comes from the line of Gavin Jago. I think Gavin has withdrawn the question, sir. The next one comes from Clyde Lewis.

Clyde Lewis: Apologies. I missed the very start. I wasn't sure if you made any comments about the possible MIGS product that we might be getting from the government. I was wondering, Pete, what your initial views on that are and how that, I suppose, might sort of -- start to sort of change your thinking a little bit, whether it's on sort of, I suppose, product type and sort of affordability issues, I suppose, around that. The second one I had was on your planning comments, I suppose. I mean you flagged again sort of lockdown issues and pressures with regards to cancel availability on planning. And I'm just wondering whether you've seen anything improve on that front or whether it's still getting worse and, I suppose, how you think that might play through for 2021. And the last one I had was around, I suppose, regional differences. I'm thinking, in particular, around London. London has clearly sort of been on a very sort of different sort of path to a lot of the other regions around the U.K., and I'm just wondering what you've seen over the last 6 months in particular.

Peter Redfern: Yes. So I'll pick up the first and the last. And Jennie, I'll leave the planning availability one to you. I think we did touch briefly on the mortgage guarantee scheme possibility, but in lots of detailed, Clyde, many times on these calls that I always worry about the scale of Help to Buy, sort of its sustainability. And so it's why we've never lobbied to be grown or massively extended. And so to me, I see the main benefit of the mortgage guarantee scheme is that it just helps smooth out that sort of cliff at risk in 2023. I mean we were sanguine about the first stage of change to Help to Buy that we're kind of now but largely through. And I think, sort of the current performance would tend to show we were right to be. Well, I've never been sanguine about its complete removal. And if we have a less deep but broader mortgage guarantee scheme, that isn't just new build is the secondhand market, I see that as a healthy help to the sector. It's been uncomfortable over the last few years to see the low transaction volumes in the secondhand market. I'm not all concerned that any helps in the secondhand market makes our job easier, I'm more interested in the overall sustainability sort of resilience to the market as a whole, and that includes secondhand. So I think, assuming it happens and that it's broadly rational and big enough to cover sort of enough lenders and offer enough standard and enough products to enough homebuyers, I think it's a meaningful positive in helping manage that risk, and it probably helps the underlying resilience of the market through sort of the next 12 months or so as well. So positive. No scheme is perfect. There never are. There will always be people who don't like them. But to me, it's a far more sort of sustainable potential scheme than Help to Buy necessarily sort of has been. And on regional differences, I don't think we see major regional difference. Because all the sort of trends, the broad ones I talked about the slightly more detail ones that Jennie talked about, they apply pretty much everywhere. There are, and we touched on it through the last 9 months, there have been some slightly different dynamics in London, perhaps a slightly sort of bigger weighting of people who are looking outside London. And certainly, the pandemic has helped to get the top end. And I mean, our top end of the market, rather than the top end of the market as a whole, moving a bit more fluidly as the secondhand market move, particularly during last year, rather than in the last 2 or 3 months. Sort of -- and the planning changes are probably more acute in London than elsewhere. But that aside, I think, our comments apply to pretty much all of the regions that we operate in and even in London, albeit maybe to a different level. Jennie, the planning availability question.

Jennifer Daly: Yes. I mean, I think I'll probably take that in 2 parts and split out the sort of strategic development plan processes versus the development management, planning applications running. We have seen a slowdown in local authorities determining planning applications and less around details, the reserve matters, conditions discharge tend to be running pretty well, but more large scale and principle positions have undoubtedly been slowed down. And the appeal system is running considerably slower than it has been in previous years, particularly after some improvements in 2019. I think it's probably very important to recognize that, actually, there are some authorities that are performing extremely well in these circumstances. And we have, for example, one of the largest and first virtual planning determinations in our London business at Coronation Square. So it's a bit of a mixed bag, and we are seeing some authorities performing extremely well even under some difficult circumstances. The development plans is probably more concerning. As Pete mentioned, the white paper, lots to be positive about within the white paper, but inherently tend to slow down local authority decision-making. And if they are constrained with resources, they tend to divert them elsewhere while they're waiting for those uncertainties to slow down. So we're seeing a combination of the white paper and the changes in the standard methodology meaningfully slowing down the development plan process. And whilst that's not going to have an immediate effect in the very short term, certainly, by the outlook of sort of years 2 and 3, that could have an impact on the amount of approved land coming through the system.

Peter Redfern: Yes. Thank you. I mean, I go back -- I do thanks, Clyde. I do go back to -- when you look at the outcome of that, it doesn't cause us to change any of our kind of comments or guidance and particularly related to the equity base. It does to be pleased to have not just the equity raise related sites, but the higher level of underlying land buying to give us more choices. And it's why our focus on those January, February sort of progress because often bringing land on balance sheet is tied to the planning process. And so seeing that still running at pace even with that sort of backdrop is important. Our focus from May onwards on this was it felt inevitable that the overall sector outlets will drop and away the drop in completions in 2020 is uncomfortable as a short-term thing. Once your outlets start to drop, it gets harder and harder to get it back. So having the choices to bring them through to underpin the next few months until we have stability. We've flagged sort of in January, we probably see the outlets dipped slightly. That hasn't happened yet. I'd still flag today. We see outlets sort of drop to a slightly lower point during this year, but not much, and then they can start to build again. And that I think is a far better place than we would have been without that active landing buying sort of process.

Operator: And the next question comes from Gregor Kuglitsch.

Gregor Kuglitsch: A few questions. So just maybe -- obviously, I guess, maybe it's a very short-term question, but your best guess what you think the levy will be for cladding? Is it -- do you think it's essentially going to be 3%, 4% of kind of effective corporation tax? I appreciate the accounting is a bit unclear whether it will be in operating profit or in tax. But is that roughly what you're expecting into tomorrow? The second question is on your -- I think you've now spelled out specific 2023 targets. And they also include the margins unchanged at '21, '22, as you said before, that you're also adding return on net assets, I think, 35%, which, according to my spread sheet, at least, would be an all-time high. I don't think you've ever achieved 35%. So can you just flesh out perhaps your conviction around that side because that's quite -- well, in my mind, that's a very, very bullish statement. And then maybe one briefly on trading year-to-date. If you just remind us or maybe give us some color what's the mix of Help to Buy in the reservations that you're taking or have taken in the last couple of months. Because I assume -- I mean, I appreciate the technical extension. But in reality, I guess, you're only selling on the new scheme, right? So is it down kind of half to what it used to be? Maybe just some color would be helpful.

Peter Redfern: Yes. So on the planning tax, Gregor, I don't think we know anything that you don't know yourself. We haven't particularly engaged with government on it because it didn't seem it's necessary or particularly helpful. I think we're clear that we're meeting the vast majority of the direct costs. And we would hope that, that and the others in the industry have made various different steps as well, and I suspect will continue to, and we think may end up where we are today being the endgame for most, we will see. But that may actually affect the sort of the final conclusions. But we don't have a number anymore than you do. So the speculation that you saw around sort of the announcement on, I think, the 10th of February, sort of is the best guess that we have as well. I think on the sort of return on capital, it's a very fair question. And we have focused sort of in how we have described our immediate targets and plans very much on the sort of operating margin target. That obviously underpins the return on capital. And it will be something that we'll be reviewing in more detail, but I don't expect it to change by much. Our acquisitions -- and we've quoted the sort of return on capital on acquisition over the course of sort of the last 9 months. And you've seen it's about 33%, 34%. So sort of the range might be 30% to 35%, you might be right, but 35% as an absolute target might be ambitious, but it's not fundamentally different from that. And we still believe we can get back to the 30s, which is where we did peak, and stay there, which we think is what's important. Chris, you can talk a bit on the mix of Help to Buy question.

Chris Carney: Yes, of course. And just to add to that, Gregor, remember that, in 2018, when our margin was 21.6% and the return on net operating assets was 33.4%, I think that's the peak. So it's in that context. But yes, in terms of Help to Buy, as we noted in January, we took 650 reservations on the new Help to Buy scheme in December. Since then, we've taken a further 452 sales on that scheme in the first 7 weeks of the year. And I think that is just over 30% of year-to-date net sales.

Operator: The next question comes from Shane Carberry.

Shane Carberry: Look, it's just one left for me, if that's okay. Just looking for a little bit more color around cost. I think, Pete, you were saying it's been a bit more of a benign backdrop than you originally expected, which is quite comforting given kind of what others -- what some other kind of building materials players have noted in regards to inflation running ahead of expectations. So a little bit more color on that would be helpful. And if you wouldn't mind, also just kind of touching on maybe the availability of labor as well. And I know Jennie mentioned kind of the word loyalty when talking about the kind of subcontractor base, given they're likely to Pay It Forward scheme, et cetera, which, I guess, a lot of the smaller players wouldn't have been able to do through COVID. So just how that's kind of impacted on the availability for labor for you would be great.

Peter Redfern: Yes. No, I think on sort of material costs, we stand by the sort of 2% to 3%. I think the reason -- you always have to be slightly careful because you always have to be very specific about what time period we're talking about. So we're talking about the movements and the average cost of material on the 1st of January through to the average cost of material on the 31st of December in any period. We see exactly that number come through the P&L because of lag factors and regulatory changes. But our underlying inflationary cost, we see it 2% to 3%, which is sort of below where we've been running. We were running at, I think, 4% to 5% in 2019, which was a peak year. And yes, you see pressure and you pick that up from building material suppliers on certain commodities. Certainly, we saw pressure back end of last year or early this year on timber, which I don't think surprises anybody given overall kind of usage and availability data. But generally, we've had savings in some areas. And I do think a piece of that comes down, as I've said, the work that Jennie and Chris and their different teams are looking at different aspects of it. Chris looking at the sort of commercial control and the processing of that and how we manage our costs. And Jennie looking at the supply chain and how we get our materials and how we negotiate and how we reduce numbers and get those efficiencies. They're not massive numbers, but they make a big difference sort of on the direction of that sort of build costs. And on labor availability, similar story. I think labor availability in our sector hasn't been easy at any point apart from through sort of the major downturn of 2008. And believe me, we don't want to go back there. So we're always working at it. So it would be wrong to give you a sense of how we can just click our fingers and fill a site with good-quality teams. But we have good stability. Those sort of relationship things, Pay It Forward, but our general attitude to our subcontract base, both through the pandemic and generally, do help us. We haven't seen a big exodus of sort of people who work on our sites who might originally have sort of come here through different stages of boom and bust. We haven't seen a big reduction in those numbers. And it remains reasonably stable. There is inflation, but it's manageable inflation. Does that answer your question, Shane?

Shane Carberry: Yes, perfect. That's really helpful.

Peter Redfern: No problem. Thank you.

Operator: And the next question comes from Gavin Jago.

Gavin Jago: Can you hear me this time?

Peter Redfern: We can, Gavin, yes.

Gavin Jago: Excellent. Now we go, I actually get the technology to work. Okay. Just a few if I could, please. The first one is just on outlet guidance. hard numbers on how you expect those to grow over the next kind of 2 to 3 years. I think the second one, Pete, I think back in January, in the trading update, you said that 2022 is when -- is the first year when that margin range would be feasible at 21% to 22%. I guess, as we sit here today, how is your thinking on that change, if at all? Or your confidence in that? And then the final one is just on the 9-month customer service survey. What do you see as kind of the main problems coming through? Obviously, there's a gap between the 8 weeks and 9 months. You've got 78% of people certainly recommend. What are the main issues you kind of see when people aren't recommending you?

Peter Redfern: Yes. So if I pick up the last one -- and Chris, sort of being his comment on the guidance points on volume and margin. So I think it's important to understand that the 9-month survey and the 8-weeks survey will never be the same number. So they measure different things and not just at a different point in time. There is part of that and we sort of -- we've seen the 9-month survey number slowly tick up. Today, they are already higher and the highest they've ever been actually, sort of the 77, 76, I think it was that we saw last year. Some of that is the things that we've done that affect the 8-week survey just take longer to come through into the impact on the 9-month survey results. So some of it is just time. But they ask a different range of questions. The 9-month survey is more related -- and it covers some of the same things, but it's also related to people's sense of satisfaction with the site, with parking, with those sorts of things. So you have to deal with the different range of issues to get the right score. And we don't aspire to have to completely close that gap. We do aspire to see both general improvements in the 9-month survey to close the gap a bit, but most importantly of all, to make sure that the weakest performance on the 9-month survey sort of pulls up, which is what we've seen as a trend in the 8-week survey. I mean, on the 8-week survey, we now have sort of every one of our 5 divisions for last year, hitting an A and 5-star score which is a great place to be. The biggest challenge when we really had a bigger challenges with customer service going back sort of 4 years or so when the industry did was the great, the good was okay. It was a handful of the small number of sites or business units. At the bottom, we're really quite poor. We don't have that anymore. So -- and we can see that trend happening on the 9-month survey. So the short answer is, some of it's time, but they will never be quite the same, and they measure different things, and we shouldn't be expecting the same score because statistically they are different measures. Chris?

Gavin Jago: Okay. And then just a quick follow-up on that. In terms of where you stack up versus, I guess, others in the sector? Is it kind of a similar pattern, kind of a 10% to 15% gap between the 8-week and the 9-month?

Peter Redfern: There is a very similar gap. I'd say from our most recent survey -- I mean, we don't get the same level of data because of the industry-wide focus, and we've sort of majored on the 9-month survey more than others and talking about it. Because we think it is important. It's important to understand it's different, and you shouldn't expect the same score, but it's also important because I think, in some ways, it gives a better more rounded view of satisfaction rather than your immediate kind of interaction with the customer after completion. So there is generally a gap. It's a similar sort of level. I couldn't tell you at any one point in time exactly where it sits because we don't get quite the same data. But as I say, we see the progress we've made on that 9-month survey over the last sort of 8 or 9 months actually puts us in a very strong position on that relative to our peers.

Chris Carney: And then on margin guidance, Gavin. Our guidance for 2021 operating margin, including joint ventures, has been upgraded today. So we're saying for 2021, it's 18.5% to 19%. And I think referring back to what we said in January on margins going further forward than that, we said that in '22 we'd be getting back to a normal-ish sort of margin. So what do I mean by normal-ish? Probably something similar to 2019 levels, which is about 100 bps up on our 2021 guidance. But as Pete said at the time, we're targeting at the top end of that range, something to start with the two. And then when you get into 2023 and that additional volume starts coming through, that's when, really, that's the first year when we would expect to be heading back into that 21% to 22% operating margin target range.

Gavin Jago: That's great. And just on the outlook, I guess, over that time period as well, is there any -- sort of is it going to be flat this year, where do you need to be driving the outlet numbers to?

Peter Redfern: Yes. So we wouldn't normally give numerical guidance, Gavin, but I stand by sort of what I've said before, sort of probably flat at the end of this year and then starting to build, particularly in the second half of next year as the numerical additional outlets come through and the recent acquisitions. So sort of late '22 and 2023, we'll see the outlet numbers start to grow. I'm not going to give you a number. I think we stand by the completions numbers that we've talked about in 2023 and 2024. But giving very specific outlet guidance when you're dependent on the planning system is never particularly comfortable. So some meaningful growth starting to happen in 2023 and '24, but starting in the end of 2022.

Operator: That concludes our Q&A session for today. I will now hand over back to Pete Redfern for the closing remarks. Please go ahead, sir.

Peter Redfern: Great. Thank you. Thank you, everybody, for joining us today and for your questions. I'd like to think that the next time we do this with the half year, we'll all be in the same place and we can see you as well as you're seeing us. Take care. Bye-bye.