Bellway p.l.c. (BWY) Earnings Call Transcript

Thank you. Good morning, and welcome to Bellway's full year results. As usual, I'm joined by Shane and Simon with a number of our senior management team also with us today. If I could take you to first slide. Bellway delivered a strong full year performance, and I was particularly pleased with cash generation, and that's despite a softer selling period for much of the year. Volumes increased by almost 11% to 9,700 homes. Operating profit increased by 5.6% to GBP 321 million. Operating margin of 10.1% was 80 basis points lower than FY '25. Operating cash increased by 36% to almost GBP 870 million. As you are aware, trading across the past 6 months has been affected by the prolonged conflict in the Middle East and the subsequent increase in mortgage rates. And the impact of those elevated borrowing costs continues to be more pronounced in the south of England, whereas other parts of the U.K. are proving to be more resilient. Outlook is still uncertain, but it is reasonable to assume that higher mortgage rates and the lower order book will lead to a lower output this year, and we are targeting volumes of between 9,000 and 9,400 homes. That said, it is still my intention to drive volumes to drive operating cash and continue with our dual approach to capital allocation. We are both investing in the right land for growth and extending our buyback with a further GBP 150 million this year. And that takes total dividends and buybacks to GBP 450 million across FY '26 and '27. Given the market backdrop, we are taking action to be more efficient and to position ourselves for growth. And you can see from the slide, Bellway has a strong platform to deliver higher returns in the future, underpinned by a strong balance sheet, continued investment in land, operational efficiencies that I will refer to later, and government support for first-time buyers. The average age of a first-time buyer is now 34 years old. Your first home is clearly the right thing to do for young people. And set up right, it can also deliver growth. And Bellway are well placed to capture growing demand for first-time buyers. And based upon our past experience with Help to Buy, the new scheme has the potential to boost volumes by around 10%. And with the market recovery, provide a path back to at least 10,000 homes a year and a return on equity of 15%. I'll provide an update on operations later, but first, our financial results from Shane.

Thank you, Jason, and good morning, everyone. As Jason said, we delivered a robust performance in FY '26 despite the challenging market backdrop. That was supported by our opening order book and a strong contribution from bulk completions. Total volumes increased by 10.8% to 9,695 homes. We delivered double-digit growth in both private and social housing output with social homes accounting for around 21% of completions, in line with the prior year. Bulk completions more than doubled to 615 homes and that represented around 6% of our output, with a strong pipeline of bulk opportunities, and we expect bulk completions to increase to over 10% of our output in FY '27. The average selling price increased by 2.5% to just over GBP 324,000 and that entirely reflected geographic and product mix with no underlying house price inflation. Strong growth in volumes and revenue drove a 9% increase in underlying gross profit to GBP 498 million. The underlying gross margin was 70 basis points lower at 15.7%, and I'll provide more detail on that shortly. Administrative expenses increased to GBP 173 million, and that was in line with our previous guidance. The increase reflects annual pay awards, targeted investment in important areas of the business, which included our timber frame factory and strengthened IT, commercial and finance functions. This investment provides the infrastructure and expertise required to support our long-term growth ambitions. Against a prolonged challenging market backdrop, we are obviously reviewing the group's overhead cost base to ensure that our resources remain aligned with our strategic priorities and are deployed as efficiently as possible. This includes normal areas of opportunity, use of technology and AI to simplify processes, whilst retaining the expertise and capacity needed to respond as market conditions improve, and Jason will cover that review in more detail later. Admin expenses will increase in FY '27, although it's important to add that, that will be materially lower than in FY '26, and primarily reflects annual pay awards. We'll provide more specific guidance on that once our overhead review is completed. As market conditions and volumes recover, we expect to generate operating leverage from investments already made and the management actions now underway as we progress back towards, as Jason said, delivering more than 10,000 homes a year. Turning to underlying operating profit. This increased by 5.6% to GBP 321 million. It implies the reduction in gross margin and higher overhead cost base resulted in an 80 basis point reduction in underlying operating margin to 10.1%. Underlying profit before tax increased by 5.7% to GBP 306 million. I'm pleased to report that the proposed total dividend has increased by 7% to 75.0p per share. The figures on the slides are presented on an underlying basis and adjusting items primarily relate to build safety and they're set out in the income statement in Appendix 1. Turning now to our gross margin. We thought it was helpful to show an underlying gross margin bridge, which shows the 3 principal drivers of the movement in underlying gross margin, which reduced by 70 basis points to 15.7%. Firstly, as previously guided, the evolution of the land bank provided a 100 basis point benefit as newer higher-margin land contributed to completions. Secondly, net pricing and targeted sales incentives reduced margin by 50 basis points. Importantly, these measures supported sales and volume delivery in what's been a challenging market. And finally, build cost inflation, net of procurement savings and operational efficiencies reduced margin by 110 basis points, with mix accounting for the remaining 10 basis point reduction. Overall, the 100 basis point benefit from land bank evolution was more than offset by pricing incentives and build cost inflation. Whilst these pressures will continue into FY '27, the next slide, which we think is critical in the context of the strategy that we outlined previously, shows why the margin embedded in the land bank supports recovery in future years. And as you can see from the slide, the embedded gross margin in the land bank with detailed planning permission is currently around 17%. And of these, plus 70% of those have margin above 15% and including 53% above 18%, which is obviously well above the current gross margin trajectory that we have on our forward order book. We do expect gross margin to reduce further in FY '27, and that reflects current market conditions. The continued flow-through of build cost inflation, including costs already embedded in WIP and a higher proportion of bulk completions. Whilst bulk completions typically carry a lower margin, they support volume delivery, asset turn and critically cash generation and thus value creation for our shareholders. From FY '28, we expect margin to begin recovering as higher-margin land contributes a greater share of completions, although, of course, that pace will depend on market conditions, particularly around where interest rates are for our customers at that point. Continued discipline in land acquisition and our strategic land pipeline provide further opportunities to improve land mix and support longer-term volume growth. Turning to operating cash generation. And I guess we're conscious of the fact that operating has been difficult, 1 thing myself, Jason, Simon are keen to emphasize is that we are consistent in terms of the strategy we outlined, and we prove by doing, and I think this operating cash generation slide shows that we generated very strong adjusted operating cash flow in FY '26. And the bridge demonstrates the benefit of our focus on capital efficiency and how that cash has been allocated, whilst maintaining a healthy year-end net cash position and also a very strong balance sheet in terms of land and the level of WIP that we have invested. Turning to the key movements. In line with our strategy, there was a GBP 72 million reduction in total WIP. Land utilized through cost of sales was GBP 564 million, which exceeded land investment in the year. Together with the movement in land creditors, this resulted in a GBP 152 million reduction in land held on the balance sheet. After the working capital movements of tax, adjusted operating cash flow increased by 36% to GBP 869 million. This cash generation provides the capacity to both invest in future growth and deliver enhanced returns to shareholders. During the year, we invested GBP 496 million in land, including the settlement of land creditors and returned GBP 224 million to our shareholders through dividends and share buybacks. Due to the share buybacks, this was significantly up on the GBP 70 million returned in the prior year to shareholders. After GBP 33 million of build safety expenditure, we ended the year with net cash of GBP 158 million after those returns and the investments that we made in land in that period. And we have a very robust and well-capitalized balance sheet, and this is underpinned by our investment in land and WIP. Both remain important areas of focus as we seek to improve capital efficiency and generate further cash in the years ahead. And turning now to the key balance sheet movements. As highlighted earlier, the land balance reduced by GBP 152 million to GBP 2.35 billion. During the year, we entered into new land contracts on fair terms, totaling around GBP 177 million and made land creditor payments of around GBP 252 million. As a result, land creditors reduced to GBP 265 million at year-end, and that's equivalent to around 11% of the overall land balance. As we said before, over the medium term, we intend to increase the use of deferred payments towards 15% to 20% of land value. And that's broadly in line with historical levels. And that obviously forms part of our ongoing move to a more capital-efficient operating model, whilst maintaining discipline over the terms and overall cost of land acquisition, and Jason will discuss that land bank in more detail later. Total WIP reduced to GBP 2.26 billion, with the main movements coming from site WIP. Breaking down those movements, site WIP reduced by GBP 103 million to just over GBP 2 billion. And that demonstrates our continued progress in aligning build activity more closely with sales and improving capital efficiency and drove a decent uptick in our WIP during the course of the year. Part exchange properties increased by GBP 32 million, and that reflected the greater use of this incentive in a slower housing market and the balance of that at the year-end was GBP 58 million. And finally, show homes were broadly unchanged at GBP 143 million. Turning to build safety. The overall provision remained broadly stable at GBP 520 million. We have now started our completed works on 59% of the relevant buildings, and we're increasing our focus on recoveries from the supply chain. And we have a significant number of claims that we're pursuing. We expect cash expenditure of at least GBP 100 million in FY '27 with further detail on build legacy safety provided in Appendix 8. To finish, adjusted gearing, including land creditors reduced by 530 basis points to 3% and the accretive effect of the share buyback supported a 4.2% increase in net asset value per share to just over GBP 31 per share. Underlying return on capital and pretax return on equity both increased by 50 basis points to 9.2% and 8.7%, respectively. Turning to capital allocation and in line with my previous comment around consistency of our strategy and delivery, I just want to remind people what we outlined in terms of our capital allocation strategy. It starts with our balance sheet. That provides the foundation for a flexible approach, balancing disciplined investment for growth with attractive shareholder returns. We will maintain financial strength, continue to invest selectively in land and strategic initiatives and drive greater capital efficiency, particularly through improved WIP turn. And the resulting cash generation will support our ordinary dividend and multiyear share buyback program. The next slide demonstrates the strong progress we have made in executing this framework. The 36% increase in adjusted operating cash flow to GBP 869 million, that's equivalent to 2.7x underlying operating profit. This is well ahead of our target to maintain conversion of at least 2x over the 3 years to FY '28, which we laid out last October when we spoke to you and that reflects the higher volume and improved land and WIP turn. Driving greater WIP efficiency remains a key priority across all 20 operating divisions. And whilst we've made good progress in FY '26, we see further opportunity to reduce average WIP and improve asset turn by FY '28, whilst retaining the capacity to invest in land and support there for future growth. The stronger cash generation also provides the platform to deliver enhanced shareholder returns. In addition to maintaining ordinary dividend cover of 2.5x underlying earnings, we've commenced a further GBP 150 million share buyback for FY '27. And together, dividends and share buybacks are expected to total, as Jason said, around GBP 450 million across FY '26 and '27, and I think that demonstrates very clearly our commitment to long-term creation of shareholder value. To conclude my section, I'll summarize our guidance for FY '27. Clearly, we recognize the continuing risks to inflation, interest rates and customer confidence from the geopolitical and current macroeconomic uncertainty. Against this backdrop, we remain focused on volume delivery, driving efficiency, and cash generation, whilst retaining the capacity to respond as market conditions improve. For FY '27, we expect volume output of between 9,000 and 9,400 homes with a higher contribution from bulk completions and social housing representing around 20% of our total volume. An overall average selling price of around GBP 325,000, and that's broadly in line with FY '26, but margins will be lower. Build safety expenditure of at least GBP 100 million and land spend of around GBP 500 million, and that's consistent with our replacement-led strategy, and that will all be underpinned by cash dividends and share buybacks of around GBP 225 million. I think it's important to reemphasize looking through the near-term headwinds with our management actions and the return of supported market conditions, we see a clear pathway back towards an underlying operating margin and return on equity of 15%. That's very much our longer-term strategy. We're very committed to it, and it will be underpinned by stronger cash generation, which hopefully you'll see this morning in terms of what we've articulated and driving shareholder returns over time. I'll now hand back to Jason, who will cover the operational review and outlook.

Thank you, Shane. I will start with trading. In FY '26, we achieved a private sales rate of 0.55, including a good contribution from bulk sales of around 10%. And you will recall that we enjoyed a strong first 3 months to the calendar year post budget and pre-Middle East where the sales rate climbed to almost 0.7 per outlet. And you can see from the slide how the sales rate has fallen as mortgage rates increased in April and across the summer period. And to put that into context, Mortgage rates for an 80% LTV were below 4% at the start of the year and are now above 5%. Repayments on a GBP 250,000 mortgage have gone up by almost GBP 2,000 per year. Looking at this financial year, those affordability pressures continue to weigh upon customer demand. In the first 9 weeks, since the 1st of August, we have achieved a private sales rate of 0.5%, with September showing a modest improvement from August sales and bulk sales made a contribution of around 10%. A point to note is the geographical performance with Scotland, Northeast and Northwest, all enjoying sales rates of up to 0.6, whereas some divisions in the South have been lower than 0.4. And these regional differences are reflected in headline house prices with the north generally holding firm, but downward pressure on some sites in the South of England. Overall, incentives average around 5% and part exchange has increased to 10% in FY '26 and may increase further to support volume this year. A similar story with bulk sales. We have a strong pipeline of opportunities. Last year, we delivered, around 600 homes from bulk. And this year, I would expect that figure to double to around 1,200 homes, supporting both volume and cash generation. And finally, order book. As at the 2nd of October, our order book is around 5,000 homes and GBP 1.4 billion. Moving on to land bank. A total of 95,000 plots and evenly split between owned and controlled and strategic, similar size to last year, reflecting our land replacement policy. And importantly, those newer plots are at higher margins. Overall, an owned and controlled land bank of around 4.5 to 5 years, that's enough to support growth without tying up excess capital. That said, I am targeting around 30,000 plots in the DPP land bank to give me at least 3 years of output as we aim to get back to 10,000 homes per year. And I plan to top up those consented plots through higher-margin land from both the open market and our strategic land bank. We are still active in the land market. Last year, we contracted on 8,600 plots with 80% of those in the better-selling areas of the Midlands, the North and Scotland. Our investment is forecast to be around GBP 500 million this year, but we have the firepower to invest more if conditions improve. And we have strong land buying controls in place. Every acquisition is approved by either Simon or myself and the regional chairs. And that approach ensures our capital is invested in land that drives better returns. Moving on to planning. The planning environment has improved slightly, but progress is slow. limited local authority resources and too many consultes. And that's highlighted in strategic land, not coming through the system as quickly as we would like. That's not an impact on cash, but it is a near-term drag on outlet openings. Despite this, strategic land offers significant opportunity in the years ahead with over half of our plots attracting a positive planning status and around 80 planning applications running in the system. Ultimately, it will benefit margin and outlet growth. To put that into context, we expect around 15% of our completions to generate from strategic from both this year and next year, and that will likely grow to around 10% -- sorry, 20% in FY '29. Average outlet numbers will be around 230 this year, down from 238 last year. And from FY '28, we are well positioned to grow outlets again given our land investment and that strategic pull-through. Turning now to costs. Overall, build cost inflation is running at around 3% and largely driven by energy surcharges with building materials accounting for most of that increase. As I mentioned in my introduction, operational efficiencies, cost savings and overheads are our key priorities. And I will highlight how and where we are taking action. Firstly, operational efficiencies, and our program is well advanced. Timber frame factory is complete. output is expanding quickly. House type redesign is complete. The new Bellway collection is fully optimized for timber frame, and we can improve build times by up to 6 weeks per house. Brand refresh is complete, more cost effective, easier for the customer, digital first in approach. It's modern, it looks great and provides the platform for extra revenue opportunities. The final piece of work on the new platform is to deliver a step change in our additions and upgrades program by offering customers more choice, and that will be up and running in the second half of this year. Cost savings, a few examples. Since energy costs spiked in April, we have taken a robust approach to subcontractor requests for cost increases. Any application for additional costs as a result of the Middle East is controlled by head office to ensure we take a consistent approach to any surcharge. Since April, we have had requests for energy-related costs of over GBP 22 million. We have authorized just GBP 3 million. Most contractors value the relationship with Bellway, the good payment terms and the promise of future work above any short-term gain or benefit. And this centralized approach has saved Bellway around GBP 20 million or 1% of BCI. Another example of cost saving is the introduction of our 3-tier specification following the launch of our new house type range. Our new base specification is still a great offer and expected to save GBP 5 million in costs in FY '27, a saving of almost GBP 1,300 on a 4-bed home, yet the customer still has the opportunity to upgrade through our additions platform. Overhead costs. As Shane has mentioned, our operational cost base is under review. 20 U.K. trading divisions gives us the right balance between a nationwide footprint and the platform for growth. I don't want to cut into that muscle. That's Bellway's strength, but a broad review of overheads is underway. The next 2 slides look at our positioning within the market. The first slide highlights our broad product range, accessible price point and all based upon larger 2-story or 2-story housing. The second slide highlights Bellway's balanced national land bank and how it supports medium-term margin recovery. And you can also see we have the second lowest ASP in the sector with a good exposure to the first-time buyer market. And if you go back to 2022, the last year of Help to Buy, 42% of completions came from first-time buyers, and that drove higher volumes. Finally, outlook. We are targeting completions of between 9,000 and 9,400 homes. And Shane has mentioned there will be margin pressure in FY '27. But the challenges in FY '27 give way to opportunity in '28 and beyond. Your first home could drive volumes back to 10,000 homes and as early as FY '28. Capital efficiency has markedly improved. We have a strong balance sheet with net cash and a strong track record on delivery. I hope you can see that we are taking action to make the business more resilient, more structurally efficient, and we have the capability to respond to stronger demand. Thank you. Happy to take questions.

Aynsley Lammin from Investec. Just 2 for me, please. Just on the recent trading, I wonder if you could comment if you've actually seen any cancellations from first-time buyers as they await the new scheme to come in? Or is it mainly just the kind of higher interest rates? And then the second question on the kind of your first home scheme, have you had any discussions with government? What's your kind of fear that could go wrong with that in terms of the detail at the end of budget? Are you confident that they understand what's necessary around price gaps, the funding scale, et cetera?

Thanks, Aynsley. I'll take both, if I may. From the first-time buyer, it's early, Aynsley. There's a little bit of cancellation in the south of England, but not that we can see in the north, which you'd probably expect, but nothing significant. In terms of the your first home. I don't see problems. I see opportunity. My view on it is that your first home, Aynsley, is going to underpin volumes, but it won't supercharge profits. And the reason I think that is because I'm quite relaxed about the income caps, the regional caps, but there are more guardrails in place than the old system. And I think the funding for the first round of your first home will be -- let's see how it develops before it's funded beyond that. So I think it will support volumes. I think it's the right thing to do for young people, but I think it will be fairly measured. And sorry, you did ask me, are we engaging with the government? We do directly, I do, and HBF do it on behalf of the sector.

Zaim Beekawa, JPMorgan. Two questions from me. The first is just on stamp duty. I think that was a comment in the prelims, but it seems like there's no comment on that in today's statement. Is that something that you feel like is off the cards now? And then also to come back to your first home, obviously, there will be a developers' contribution, but what's your appetite to provide further incentives, cash or noncash beyond that?

In terms of SDLT, I'm a big ad supporting young people, but I think you need an SDLT cut to improve affordability in the whole market. I think it's probably be optimistic or naive of me to ask government for both at the same time. So we'll see how the market unfolds in '27. But I won't be shy in going back if we need to encourage the market because it's affordability pressures. In terms of your question on your first home, I think it's a good one. I've made the point quite clearly, and I'm relaxed about income caps, regional caps. The bits I don't know are developer fees, yes, and the amount of money in the pot to fund the first round of your first home. I've made it quite clear that there is going to be strong appetite for your first home, both from developers and from first-time buyers. So if the scheme rules don't work, that's a political problem, not appetite problem. I think they get that message, but we won't know the answer until October, the budget day. Do you mind asking some questions?

No, I think they're much better than me.

I think I've got one for you. Lewis Roxburgh, Goodbody. Just one on cash flow. Do you have any targets that you're thinking about in terms of a specific conversion rate or level or looking at it another way, a target land bank or WIP or asset turn just to help us from that perspective. Secondly, just what you're seeing in terms of land prices, particularly in the North, where we've seen obviously stronger pricing there. And lastly, sorry, again, your first home scheme. How quickly do you think the uptake will take to sort of reach that 10% of your expectations just based on the volume guide? I think that's probably more gradual, but just some color there.

I'll do -- yes.

Cash flow targets. Yes, Lewis, it's very -- I guess you probably picked it up from the presentation. We're trying to be as consistent as we can. So the capital allocation strategy that we outlined was very much low levels of gearing on the balance sheet. That doesn't change. And the opportunity that we identified was WIP turn was at about 1.3 when we started the cycle, get that above 2 in this market. That's going to take a few years to do that. And in a tougher market, obviously, it's harder to do that. And we'd be very comfortable with that as a measure. So I think the comfort that people can take is a lot of the WIP -- a lot of the operating cash flow opportunity is coming from WIP. So we made an important strategic decision, and this is aligned to the supply chain challenges that we have, like we and the sector saw a unit output go from 11,000 in our case down to 7,000 overnight. We made a very, I think, wise strategic decision then that we weren't going to reduce our WIP exponentially, like you would have been reducing your WIP spend to probably GBP 1.5 billion or GBP 1.4 billion from GBP 2 billion a year. The disruption that would have on your sites and everything else would be significant. So when we turn and we talk around -- talk to our supply chain partners now around BCI and working with us, they believe us when we talk about our pipeline because that's Bellway and that what we've done. And it's worked out well for us because we're now monetizing that WIP. We're going after that opportunity. And I think you can see that like we got a 20 basis point improvement in WIP turn in the year, went from about 1.3% up to over 1.5. And that will -- again, we're on a good track to get that up to 2. And we're doing that, and we're buying back our shares at a discount. So that's a good timing piece for us in a world where trading is very difficult. So low levels of leverage, a very strong land bank. So we are net replacement on land. And you can see from our balance sheet, we've got 3% gearing, including land creditors at the moment. So if Simon and Jason turn around and say that they want to buy more land, we absolutely have the firepower to do that. But the 3 of us are very much committed to net replacement on land broadly, and that gives the guys plenty of firepower, I think, to go after the opportunities that are there.

I think on your land question, I think it's a good question. I think the answer may surprise some. But the land market in the north is quite competitive. I was only talking to Clyde earlier because his note -- his recent note was quite accurate. But land prices are holding up quite strongly in the North of England for 2 reasons. One, because -- the planning environment is slow. And the second reason is there's an appetite from developers for outlets in better selling areas. Most are well funded. So there's more cash being focused in those better selling areas of the north where it's a bit softer down the south.

William Jones from Rothschild, Redburn. First one is just around margins. Helpful bridge for the year finished. When we look forward, I think you've guided to 3% to 4% build cost inflation. Can we assume land mix will be similar again at 100 bps? And pricing-wise, if we stay the same sequentially, where are we at the moment in terms of what might be the price effect on margin for the year ahead? Second one was just maybe on that land point. I know you've slightly tweaked the way you consider new land to IRR as opposed to just necessarily gross margin and ROCE, but perhaps you can just update us on what you're asking new land acquisitions to clear? And then the last one, just around your first home. Are you hearing anything on the price caps and how they might be struck? Clearly, we exited Help to Buy with price caps. Do you think they'll be similar or more restrictive against those? Or maybe we just don't know yet.

You do margins, I'll do...

So on the margin bridge, I do want to answer the question as best I can. We're not guiding on margins this morning because it's just so difficult in this market as you'll understand. But I think the one thing that 3 of us are very comfortable talking about is that land margin uptick. And I think it's important that we give that assurance in a world where margin is under pressure. And it's all well and good for us to talk about an aspiration to get to a 15% return on capital employed. But to do that, you need margin progression. So we're very comfortable that, that margin upside exists in terms of the land mix and we'll continue to do so for the next number of years. There's decent margin progression in our DPP land bank all the way to the 20% plus that you have on Strat land. So clearly, as your penetration rate goes up on Strat and you trade your way through the forward order book, you will get that margin progression. BCI is roughly, our build cost is roughly half your ASP. So if you divide that by 2, you're probably getting to about 1.5%. So the big unknown that we have at the moment is how hard are we going to need to trade incentives in this market. Bulk doesn't have a dilutive impact on margin as you would think. It's probably around 50 basis points in overall terms, but the cash generation that you get from that is significant. So the unknown for us is just the extent to which we'll need to drive incentives and base pricing over the next 12 months. But margin will be going downward this year. But I would caveat that by saying you will get margin progression in future years. And when we give guidance around what our land bank looks like, we're doing that mark-to-market at the moment in terms of what current levels of BCI and HPI look like in overall terms. In terms of our land hurdle rates, our hurdle rate is typically 20% on both ROCE and on margin. And particularly in the North, we might look at certain deals where the margin is lower than that if there's a strong ROCE in that and where it's competitive because it makes sense to do that in those situations. But in general, they're the hurdle rates that we have. And I think, Simon, they work generally for us in terms of what we're trying to.

What we're finding in the North is whilst value Jason mentioned a little bit lower if it's a quality site. The strength of our balance sheet allows us to agree with deferred terms on the back of that approach.

I think the land market reflects slower sales rate. Shane was ahead of his time with capital efficiency because the land market today, whilst prices haven't softened, payment terms have. They understand that we're selling slower than we was a few years ago. That's good. Can I just touch on price caps, Will? The reason I'm more relaxed on price caps than I am on developer fees and the PAS is because in my one-to-one discussions with the minister, I pointed out quite clearly that the Scottish Help to Buy product that was launched in June has only sold 1 home in 4 months because of the scheme rules and the price caps. I've pointed out, Will, that the Welsh government are writing to me saying, Jason, would you like to increase the price cap to 375 because we recognize 300 is not working. They understand the detail. And I think that, that will be accommodated in the regional caps or the local authority caps that they're thinking about. It won't all be perfect, nothing ever will. But I don't think you're going to go back to the price caps of Help to Buy. Some of those we can't even build a house for those figures, let alone sell a home. So I think they get it. I think they get it.

It's Harry Goad at Berenberg. I've got 2, please. So just extending the point about gross margin contribution from land, how many years does it take before we get to sort of fully reinvested land bank, if that makes sense? And over that period, is it fair to assume everything else being equal, about 100 basis points of contribution per annum? And then the second question is just the point around capital efficiency. Is there -- just as a reminder, is there an implicit assumption there that what you feel in terms of long-term required landholdings will be less in the future than it was in the past because of regulatory change?

Just the first part of your question there, just I get a bit about margin progression, just so I understand exactly what you're asking, just the first part.

Effectively, how many years does it take before you have a fully reinvested?

20% gross.

To date. Well, look, I think in terms of -- there is a kind of a gross margin improvement coming through of 1% per annum. We're always careful in terms of how we articulate at the moment because the industry itself is flagging headwinds at the moment, and it's a double, whammy in terms of BCI and HPI. So that 1% progression is real. My own view for what it's worth because we can all crystal ball gaze, is that we've been long on cost challenges over the last number of years. You've seen the HBF report yourself, I'm sure, which talks about a 75% increase -- 75,000 increase in build costs over the last 4 to 5 years. And there's been pretty much no HBI. So that's all baked in our margin now. And the question obviously is at what point do you get a little uptick in your HBI to provide at the very least that the neutralizing impacts of that 1% comes through. But then 1% margin progression is only 3000 -- about 3,000 to 4,000 per home in terms of a beat on HBI versus BCI. So it's not a whole lot. It's just in this market, it hasn't really existed for the last number of years. So I would say there's probably an inherent 1% uplift that you'll get off where margin lands this year. And then it's just a case of how that whole HBI, BCI dynamic lands. But you'd have to be somewhat optimistic in so far so we're all sitting here, and there's been a series of questions around a first home scheme with a 2.5% underpin in terms of what the deposit required is by first-time buyers. I think if I was in this room 6 months ago and I said that, that was a potential, I don't think anyone would have believed it. So you'd have to -- and I think if you even look at press coverage, like the dynamic is changing in terms of the industry. I think we're doing a better job explaining some of the cost of capital challenges that we have in terms of viability. And I think there's a lot more focus now coming around what macro support can be provided for housebuilders who are actually as well invested as we are in terms of providing much needed homes.

The second question, Harry?

Second one was around your point of capital efficiency. Is there an implied assumption there that you just will in the future [indiscernible] relative to [indiscernible]

Yes. I'm a bit cautious on that. We've been improving the planning system, Harry, since I left school 40 years ago. So I think you're probably always going to need a 4.5- to 5-year land bank to compensate for that environment. You can get closer to 4%, I guess, in a better market when it's turning, but I'd be cautious with that at the moment.