Taylor Wimpey PLC (OTCPK:TWODF) Q1 2017 Earnings Conference Call April 27, 2017 3:30 AM ET
Peter Redfern - Group Chief Executive and Director
Ryan Mangold - Group Finance Director and Director
Aynsley Lammin - Canaccord Genuity Limited
Christopher Millington - Numis Securities
Kevin Cammack - Cenkos Securities
Christopher Fremantle - Morgan Stanley
William Jones - Redburn
Jonathan Bell - Barclays PLC
Gregor Kuglitsch - UBS Investment Bank
Welcome to the Taylor Wimpey plc Trading Update Call. Today's conference call will be hosted by Taylor Wimpey Chief Executive, Pete Redfern; and Group Finance Director, Ryan Mangold, followed by a Q&A. At this time, I would like to turn the conference over to Pete Redfern, Chief Executive. Please go ahead, sir.
Thank you. Good morning, everybody and thank you for joining us. As ever, I'll sort of cover the headlines from the statement and then sort of give Ryan a chance to cover anything I've missed and open up for questions.
Clearly, there are 2 main areas to cover on this statement. If I deal with the leasehold issue first and give you more detail than we were able to give you in February and a view of the decision that we've taken and announced today and then move on to trading.
On leases, as we talked about in February, this is really a historic issue with 2 main components, issues in the market around leasehold practices, generally in leasehold houses and more specifically for us, the historic contracts that we used on sites starting between 2007 and 2011 with doubling ground rents.
It's clearly an uncomfortable issue, but we've had a number of months now to really get under the skin of it to understand the history, to understand to what extent these leases do have impact for customers and work out what's the best way to reduce the reputation issue for the group, but also most importantly of all, to make sure that our customers have a product that they're not worried about, in terms of profitability and salability. And that's been the key driver for us over the course of the last sort of few weeks and months of review.
What we've announced today is that we will do a Deed of Variation for those customers which requires a negotiation between us and the freeholder which we're undertaking on the customers' behalf.
We're reasonably advanced with those negotiations with the major freeholders. There's a reasonably long tail where the numbers are low, but the fact that we've advanced the negotiations with the major ones gives us, I think, a good level of confidence in the cost of that process.
And the way that we've arrived at the GBP 130 million gross provision that we plan to make in the first half is based on that information and also based on our own independent valuations of the leases, because there are other routes to this process. The customers themselves have legal rights and so there are other ways at arriving at a valuation. So we're not sort of -- just got 1 lever to pull with those freeholder conversations.
I think probably the most important comment in that, is that those conversations have from the beginning, when we first contacted freeholders, been quite reasonable and quite grown up. And it's -- I think they see it as an issue that is our responsibility to solve, but which they have some vested interest in making sure that we get right from their own reputational point of view which I think helps.
We're happy to go into the detail of the mechanics of the process, to a reasonable degree, to the extent that you have questions to make sure that you understand it. And, obviously we'll be having those conversations with those customers that raised issues with us over the matter.
We're not releasing a number and therefore, a cost for lease of the actual provision, it includes the costs of the process and we think is calculated on a very prudent basis.
We're not releasing a number because if it is still a commercial negotiation and we think it's important -- because every discussion will be slightly different for each individual lease, depending on timing for each individual freeholder and so think it's important from a commercial negotiating position to maintain that confidentiality.
But we're happy to be as open as we can about the process and why we feel confident about the overall numbers.
In terms of timing, we don't expect this to result in a significant near sort of immediate cash payment from the group. We think it will be spread over a number of years.
But I think most importantly, we're confident that this does not impact our ability to follow through on our dividend plans to potentially increase our dividends in 2018, that we will announce in 2017 and to follow through on the land investment plans that the group has.
We still have, we think, cash upside over and above this, but that isn't yet factored in. So overall, it's not an issue that we're entirely comfortable about. It's something that we think is the right thing to do, both for the group and for our customers. And we think, through the last sort of 6 months of reviewing it, we got good information and can take a proper decision today and communicate it clearly to you.
If I then move on to our underlying trading. It has continued to be a surprisingly strong 2017. We did not expect, when we spoke to you in February, sales rates to continue to be mid- to high teens ahead of last year. To be 16% year-to-date was not sort of a level that we expected.
That continues to lead the sector, we believe. We still believe the biggest single driver is the quality in our sites and our sales processes. And sort of that positive trend has carried through to today. Prices in that environment are slightly up. The movement is still not huge and our guidance still remains for, yes, sort of price increases for the year in the 2% to 3% range, more or less in line, perhaps slightly ahead of underlying inflation.
The cost environment also remains sort of very similar to what we've planned 2 months ago. And we expect a 3% to 4% overall cost increase over the course of 2017. But other sort of areas that we talked about in terms of general savings, the land environment, specific trading around sort of London, remain very similar to the set of conditions that we set out with our full year statement.
I think, clearly, we have had a General Election announced in the last few weeks. We haven't seen any impact of that as yet. And if you go back to the last 2 general elections, there has not tended to be a discernible impact on trading, at most 1 week to 2 weeks before a slightly quieter period compensated for afterwards. But with the strength of order book and sales performance that we start from, we go into that environment feeling pretty confident and pretty relaxed about underlying trading conditions.
So overall, a very strong trading set of conditions;a historic leasehold issue that we think it is right to deal with but important to do and get right in one hit which is what we believe this is. And Ryan, what have I missed?
I don't think so. You haven't missed anything, Peter. I think the quality and strength of the balance sheet is still a focus and our strategy remains clear. And we have the capacity and strength and ability in the business to deliver against that.
Can we open up for questions, please?
[Operator Instructions]. We're now going to take our first question from Will Jones from the company, Redburn.
Just in terms of the questions, 2 or 3 from me, please. I guess, the first one just coming on to the leasehold issue and you've been quite clear there about the process relating to the GBP 130 million. Can I just get a sense of your confidence that this is a -- an isolated issue relating to doubling of ground rents so that there won't be more to kind of think about further down the trap with regard to just simply the, I don't know, the sale of leasehold on houses themselves, irrespective of the doubling of terms. Is this something that could grow as an issue, not just for you, but for others, do you think?
Or do you think this is just a one-off and that this news essentially deals with it? And then, I guess, coming on to the more trading side of things, in terms of, I guess the strategy really for the rest of the year, like you said, you didn't expect to be up mid-teens and you haven't really been in the game of pushing the sales rates up by that much over the last few years. So is there a kind of temptation now within the group to step back on that deliberately over the next few months and start to push a bit more on price? Or is it not really a market that would allow you to push that price a little bit more? And I guess related to that, can you just give us a sense, I think you talked about 2% to 3%, Pete, in terms of prices. I think that's an average comment for '16, like to '17, like-for-like on '16. But just a sense of where you think point-to-point prices might move, either January to today or January to December, through '17?
No problem. In terms of other lease issues, I mean as we set out with the prelims, there were 2 distinct issues. And this issue was one that we were specifically concerned about because of this particular lease structure. You'll be aware there's lots of noise around leases more generally. But our own use of leases on houses, for instance, is lower than many in the sector. And also, what stands out about this is the scale and the fairness. What's interesting in terms of whether it becomes a wider issue which we think is unlikely, is that we haven't had a single legal claim, including on these doubling ground rent provisions. Because people did have independent legal advice, the contract is very clear, this isn't a case.
And we might feel differently about it if the lease terms were hidden, sort of split between 3 clauses and really difficult to understand. They're not, they're very straightforward. So technically, this isn't compensation. And it's splitting hairs, but it matters in assessing the risk. We're doing this because we think it's fair. There's clearly a reputational element here which is important to us. But it's also genuinely, when we look at it, we think it's fair for to us to do this. When we look at RPI leases and the sale of leases on houses historically, people knew they were buying a leasehold house.
An RPI is a reasonable measure of the inflation of a cost. We're taking this step and that's why we think this is different. That's why we think this is the key cost. It doesn't mean there won't be some noise for everybody in the sector about those issues. But to us, when we spent the time going under the skin of it, this does stand out as unusual. And the other elements actually, sort of -- people knew they were buying a leasehold house. And RPI's a reasonable way of setting cost inflation.
Yes, great. And then sorry, just linked to that, separately to the GBP 130 million, you've now stopped leasehold terms on houses. What -- do you have a scale of what the contribution to profit was last year, say or the year before, from that -- the normal leasehold terms on houses and that -- could you guide on margins anyway for 2017 onwards. But within the PBT last year is it a notable number that you're essentially foregoing? Or can you then get that back in price the other way?
For us, it's not. I mean we do think you get some of it back in price. And Ryan can give you probably a precise number for last year. But I think the important thing is, it's never been particularly significant for us, it's not been a big driver of -- ground rent sales generally haven't been a big driver of profitability over the last 10 years for us and leasehold houses specifically haven't.
Yes and Will, the houses are just really isolated, that I've mentioned, in the North West where we see a traditional selling of houses, it's not like a national issue. This really is negligible on the income gained. And as Pete noted, we should in theory get it back on pricing because freehold should be more valuable than a leasehold house to the customer.
Is it 1 million, is it 1.5 million in total -- it's, you know, you're in that sort of...
Small bit, yes.
Exactly. Moving on to the strategy and tactics question. We haven't fundamentally changed our strategy, albeit, you know we said before when we commented in February, we always start the year trying to make sure we get ahead even of our own internal forecast on volumes. And that -- and you've heard me say it many times, that lets us take good quality choices later in the year. Depending on the environment, that can be not to sell as fast if the market is softer or it can be to move price if the market is firmer.
Clearly with the general election, having that kind of good sales order book under your belt, is a strong place to be. I think the only element of it which is in any sense, a tactical shift and I don't want to overplay this, so it's one part of the process, it's not the driver of the number, is -- as we have said to you over the course of the last sort of 12 to 18 months, yes, we do have more larger sites and we're not pushing out lot openings and double-heading outlets in the way that we have historically and some of our competitors tend to do.
But we still view that those larger sites should run at a high volume level for the balance of capital efficiency and price. And so some of that you see, we should have a structurally high sales rate than somebody who has a much higher number of double-headed outlets or somebody who brands to sell broadly the same mix as we're on a site. So that will be an element and it's one reason why we're fairly sanguine about our outlook numbers compared to the historics. So, yes, it's a natural consequence of that.
I don't think it particularly drives the year-on-year comparison.
Yes, because that's been a trend over the course of the last 3 to 4 years, that we have moved that way. We just think it's a better way of running the business. But it's definitely a factor when you're making comparisons on sales rates across our direct peers.
Yes, great. And then I think it's just repricing kind of expectations through '17?
Sorry. Yes and I think because we've seen now over 12 months, probably across, if you include kind of the London movement and take the average, yes, probably across the last sort of 18 months, sales price increases in that sort of level. It was really back to 2015 where we saw sales price movements of more than that, kind of between 2% and 4% range, say. Then the answer for the point-to-point from 1st of January to 31st of December 2017 isn't fundamentally different than the year-on-year comparison. It could be around the 3% mark. And obviously, it's slightly harder to forecast, because for the first number we've got quite lot of the data that impacts and for this number, we don't know what will happen in the autumn. But I think our sort of sense is the market demand for new build, particularly with Help to Buy in place, is still very healthy. And I think we still expect to see probably a positive price trend in the second half of the year.
We're now going to take our next question from Gregor Kuglitsch from UBS.
I've got two questions. The first one, can you just update us on what's happening in land? I think you mentioned in the statement, intake margins are sort of broadly similar. But if you could provide any extra color in terms of the opportunity of the overall environment? Second question is on margins, can you just update us where you see your margin landing, sort of in broad terms, this year? And whether your view on your multiyear targets have changed at all or whether they're still pretty consistent with what you said in -- with the full year? And then finally, just come back on the sales rate, with the sort of change in mix, larger sites, what do you think is sort of a normal sales rate now for your business? And you can sort of best guess, I guess, with the current mix of sites. Is it a little bit higher than the sort of 0.7 that, perhaps, one would have thought prior?
No problem. I mean on land, as you will remember, we pushed up our hurdles immediately after the referendum last summer. And we then, during the back end of last year, sort of reduced back a bit as conditions became normal, but still at a high level. And we remain at that level today. So we're slightly ahead of where we were a year ago, but not in a massively different place. And we do think, as we've touched on in the past, that purely from a land vendors sort of point of view, that the opportunity to push hurdle rates and returns on capital and particularly, the hurdle rates much further than where we're at the moment, systematically across the board, is limited. So we think, yes, it's a very, very healthy place for us to be, but we don't see a lot of future upside on that, still, sort of return on capital improvements, to flow through, as we've touched on over the course of the last couple of years.
I wouldn't say we've seen any major change in the land environment during the course of this year, availability is still good, but every site is still a negotiation and there's still competition for most decent sites. I think what we can see, we've been talking about it recently is, if we were prepared to compromise on the quality of sites that we bought, then we could buy more land and probably on paper at higher sort of hurdle rates than the land that we're buying today. We just don't feel that, that's the right balance of decision for us to take at this point in the cycle. We think that we've been pretty clear on our strategy around the quality of locations; when the environment is very good, the performance of a good site against a mediocre site, yes, the difference is not huge. When the environment softens, that gap becomes much, much wider.
So we remain very focused on quality over quantity. But staying in that environment probably does mean we can't push -- sort of take margins much higher than where they are at the moment. Looking at margin update for the year. No new news. I mean clearly, we've only moved on 2 months, nothing has fundamentally changed from where we were a couple of months ago. So our sort of target still remains the same. I would still say that our operating margin target is the most challenging of the 3 targets that we've set. And -- but we're pretty comfortable with where consensus is for this year overall. We don't see a lot of upside to that. But that's -- it's not a big strategic thing for us, but it remains operationally one of the areas where we're very focused on.
And in terms of sales rates, what's the new normal? I think it is ahead of the 0.7 we'd have tended to guide people to. And again, it's a combination of market environment and not just a short term view of market environment, but how it feels like it will probably be for a while to come. But it's also that strategy around quality of locations and size of sites doesn't actually mean that the balance of sales rate can be and should be higher without it being sort of at the expense of price. And so if the -- what we would see as the new normal 0.75 or 0.8, it's in that range. I don't think it's the 0.9 or so we've been at this year. But I could be wrong on that, because I think there's perhaps upside against where we see fit. Because we've seen that as being a real underlying trend and it's something that we're achieving without having to either compromise on price or introduce huge new marketing initiatives. It's happening very naturally. So that inevitably means we might be on the cautious end of how we see that going forward.
We're now taking our next questions from Christopher Fremantle from Morgan Stanley.
I just wanted to ask you a quick further question on the leasehold review. I know you've said that you didn't want to give any detail on the number of homes that this relates to. But can I just ask you, what assumptions are you making within that GBP 130 million provision on the level of takeup? Are you assuming that everyone responds to your offer? Or is it a proportion that you're -- is it sort of a proportion of the total number that you're assuming will take up? And then secondly, can you just give a little bit more color on how you think the market in London, specifically Central London, is shaping up from what your latest thoughts are for the full year, please?
Yes. We're assuming in our calculations that everyone who -- is the original purchaser and remains the owner of their home today, takes it up. And that's probably the most cautious assumption that we've made overall is, sort of that we have 100% takeup from that group. And that probably gives us the most confidence that if we've estimated slightly wrongly on cost or other elements, that we've got quite a lot of coverage. In terms of Central London, it hasn't changed fundamentally during the course of the last 2 or 3 months. I think as we saw at the back end of 2016, we've seen market conditions stabilize and normalize. It clearly get significantly less press coverage today than it did during the course of 2016 which is largely helpful in terms of, sort of the fear factor that was there.
And so we're very much into the environment I think we expected, where if you've got good sites, you've got good product on those sites, you've got your price right, then you'll make sales and you'll make them at slower rates than you did at the peak of the market but at a reasonable rate? And as we touched on before, yes, with our generally smaller sites, with our particularly ambitious sales volumes target this year, we remain reasonably comfortable. But it's very site-specific. There's lots of local competition, then it's more challenging. It's about just buying the land well in the first place and are you making sensible assumptions about how you can sell it and have you got the right product on it?
We're now taking our next question from Jon Bell from Barclays.
Two from me, I think. Firstly, on the leases, could you just wind back the clock to 2007, I guess and give us some color really into why these leasehold arrangements came in, in the first place? Was it part of a wider market trend? Just a bit more color about how they came into place. And then secondly, on the dividends, I think in your preamble, Pete, you referred to, at some stage, potentially increasing your dividends in 2018. Could you just give us some insights into possible timing or when we might hear news on that front in the fullness of time?
I mean, second one's sort of a very straightforward question. We'll announce the 2018 special dividend in July this year as we were planning to, so you'll get a number at that point. But you have my comment correctly. The first question, as you can imagine, is harder to answer because there's not one, sort of one single decision point or one single answer. But let me try and paint you briefly a little bit of a picture. So yes, sort of historically through '90s and early 2000s, there was a massive -- what I'm going to say is, I think we understand now, with hindsight and after 6 months of review, if you'd have asked me that 6 months ago, I wouldn't have been able to start an answer.
I wasn't sort of aware of the decision at the time. But if you trace back sort of the history through the 2000s, there was a very wide variety of leases used across the industry and not just by new build, a very wide variety of leases on all sorts of structures, sort of in place. And in fact, the structure we're talking about was in existence at that point and particularly used in and around London and the South East. And you still see more -- generally more expensive and more varied lease terms in London today. The pattern across the rest of the country's a bit more normal. Our guys, around the time of the merger operationally, sort of both before and afterwards, looked at consolidating a number of different things, including leases and they chose three different lease structures which were then used by different businesses and this is one of them.
So it doesn't cover anything like all of our leases used in that 2007 to 2011 period. And they didn't look forward clearly enough on what would happen in a lower-inflationary environment to the capital values of those sorts of leases. And they looked at it with a kind of a view of, well 50 years out is 50 years out and discounting has a big impact. But that feels very differently when you're a customer and you're 10 years into that first 50 years and when discount rates were as low as they are. So they were used at that point but once that decision had been taken and I have to say, if you go back, they're not sitting there thinking, this is going to be a problem in 5 years' time, they just didn't see that pitfall. They were then used without really much of a sort of a deep underlying review until we went through detailed processes post-U.S. sale, post refinancings in 2011.
And we stopped using them and really consolidated, as at the time, so did most of the industry, on a fairly standard RPI structure. But there've been kind of an explosion in different lease terms, much more interest in ground rents as a class and an asset from investors which you can understand, as you'll understand the impact of yield and it's change over the course of the last sort of 5 to 10 years. So if you look back 10 years ago, genuinely it was a different position, I still think if we'd have done a really good diligent job, we should have seen the issues at that point in time. But we didn't. But we're looking back now with the benefit of hindsight in a different world.
[Operator Instructions]. We're now taking our next question from Aynsley Lammin from Canaccord.
I just firstly wondered if you'd seen any beneficial impact from the mortgage market? I think that's become a bit more competitive recently. I just wondered what your view was on that? Whether that's contributed to the kind of positive sales trends you've seen? And then secondly, just on build and material costs, obviously you're reiterating 3% to 4% increase. But if you've seen anything kind of different to what you may have expected as the cost inflation comes through, should we expect a bit more to come through later on in the year? And just anything on that really.
Yes. I think on inflation, we haven't seen anything fundamentally different. We're still in a world where it does depend very much on the individual sort of product and to a certain extent, the supplier. So we had one commodity -- commodity is probably a slight stretch, but one fairly mootable product that we were looking at pricing for yesterday that came down 20% because of competition in that particular sector. But you've still got a general trend where cost inflation is upwards. We're not expecting that there is a big bow way ph to hit in the second half because of sort of historic exchange rate movements or whatever. You can never guarantee it will remain at 3% to 4%, but the sort of downside risk is 5% or sort of 8% or 9%, if you see what I mean.
So I think we're seeing more or less what we expected to see, but each individual negotiation is slightly different and there is a range depending on the competitive pressure. I think on mortgages, you're right, there is more competition for mortgages and particularly with a much quieter secondhand market, with both less sellers and less buyers. That means that, that competition is happening in a very focused way on new build. And that's bringing down costs still for our buyers. And I'm absolutely sure that's one of the things that's driving the scale of health in the market. I don't think the cost has changed dramatically for our buyers, in terms of reducing dramatically over the last 2 or 3 months, but it certainly is at an all-time low and it's clearly sort of one of the things that's making a big difference to the marketplace.
We're now taking our next question from Kevin Cammack from Cenkos.
Such a rosy outlook on the trading that you can't expect me to ask anything other than something on the leases. I'm just wondering, if you -- wearing your political hat, Pete, is this something which you've done and others in the industry hopefully do, to sort of preempt government taking this on board and sort of championing the homeowners' cause? Or do you think there is any possibility that government may do something which actually, in a sense, questions your provision that you've made? And I suppose the cheeky question which I totally understand if you don't want to answer it, but, do you know whether the GBP 130 million provision you're making is actually more or less than the proceeds you would have received over the period for selling the ground rents?
It's not that cheeky a question, Kevin and you know I'll answer a question if it's reasonable to do so. The only time I don't is when I think it's a commercial piece. It's clearly more. And it has to be more if you think through the logic that I've talked about. Our guys in creating them and selling them, didn't understand the potential future impact. And that means they didn't understand the potential future cost, if you see what I mean, so it's clearly more. I don't know whether that's more or less uncomfortable, to be honest, but it's a fact. I think politically, it's clearly -- and I think it's, in many ways, the more important question and it is an important question. It's impossible to be sure.
I think it's clearly had a reasonable amount of political coverage. But we think there is a very clear difference between something that can be improved and sort of communication in this whole area can definitely be improved and something that isn't really quite fair. And we think this specific lease class, with hindsight, isn't quite fair. That's why we're putting it right. I don't actually think it's that likely that government will take retrospective action on that. And clearly, if we thought that was imminent or likely to happen, we wouldn't be making this announcement today. We'd wait and see what that is. But how we read that situation is, that is unlikely. There may be forward-looking leasehold reform and that's not something we fear or would particularly argue with.
Having spent a lot of time looking at it in detail, there are definitely areas and I'm talking about just new build, leasehold and I'm certainly not talking about our processes. There are definitely areas where you think, you know, actually that could be clearer and better. But I think the chances of government retrospectively looking at a specific lease clause like this, is slim. It's not nonexistent, but it's slim. And it would have affected our decision and our timing if we thought differently to that.
And if you had to hazard a guess at the actual -- let's assume for a minute that the GBP 130 million is -- proves to be exactly the right number, just hazard any sort of guess as to the pace at which that cash goes out?
I think it is a guess, but it goes back a bit to the question, we're assuming 100% take-up. And that kind of leads you to -- there'll be probably a material take-up this year and next and then a long slow tail. What's really harder, to work out, how big those 2 are. But I think clearly, if we were writing a check for GBP 130 million tomorrow, then it impacts on our forecast for this year. I actually think, with all the information we've got today, including this, our cash -- yes, our view of the cash for the end of this year, is the same as it was two months ago, in fact, probably slightly better. So sort of in the context of our cash flows, I don't think that it's likely to have a particularly measurable impact on this year or next year. But it is hard to know, but I don't -- the book ends are fairly clear and even if it's faster than that, I don't think it still impacts on dividend policy or the strength of business. We have more cash than we would have expected and planned to have.
[Operator Instructions]. We're now going to take our next question from Chris Millington from Numis.
I just wanted to just ask a quick question about your ability to accelerate the build rate in light of this higher sales rate you've talked about. And potentially, kind of higher than what you've previously seen as the norm. And similarly, maybe just a comment around labor availability and just what's going on there at the moment?
Yes, I think our ability to accelerate the build rate over the course of 3 or 4 months is fairly limited. We've talked a lot recently about customer service and getting that right. And I think when you try and accelerate, particularly at a local site level, in a material way in the short term, that's when you tend to get it wrong. Our ability to increase the build rate for 2018, say, seeing a strength of order book going into that year, sort of is much greater. And it's something that we're looking at, at the moment. And again, it goes back to those large sites and how they sort of operate. It takes time to get the resources in place and to plan it.
And what we tend to find later on is when you try to do that in the course of a sort of planning period and make a material change. So I think we tend to view it and again, you go back a bit to outlooks. Our internal forecast will tend to show outlooks increasing during the course of this year, sort of probably more than we expected at this point last year, but we're always cautious about that. And so what we're looking at, at the moment is making sure we can increase the build rates on individual sites sort of for next year because of the strong order book. If the outlook numbers happen as well, we've got a lot more volume potential growth. If they don't, we've got a good cover. And so our guidance for volume isn't really changing, but it definitely gives us an extra place to go in a healthy way and upside if -- sort of the outlook numbers do increase.
I mean probably the -- the only material concern we have about the general election is the inevitable sort of short term hiatus in planning positions that you get between now and early June. Because it's a short term election with a snap announcement, that risk is probably a little bit more muted than usual. But it's still -- it's almost inevitable that you get decisions delayed and the odd rejection you wouldn't otherwise have got. So we have a bit more outlook upside, but also we probably need that because of that risk. And for volume per site is a good lever that we can use into 2018 to balance that.
And just perhaps, just a quick follow-on from that. I mean, with regard to kind of normalized volumes or what your optimal volume level is, does that change at all under the scenario as well? Rather than just the speed to get there?
Yes, it changes but in the way that we have talked about over the course of the last 12 months. So sort of, I think, yes, we do see, as we talked about, volume upside over and above the 14,000 units. But I don't think it changes significantly how much upside that is. It's got -- what we're seeing in a way is sort of what we talked about 12 months ago happening in sales, that with a smaller number of larger sites with what we think is sites set up very well in the right places with good products, sort of the ability to sort of sell them. And the exact pace at which we deliver them sort of will depend a little bit on outlet numbers, a little bit on the depth of the market, a little bit on build constraints.
And then probably the one bit I didn't cover was availability of labor. It's not the bottleneck that it was sort of, say, 3 years ago, but still at a local level, it will be a bottleneck in specific instances. So it's not a completely free and easy market where you can just click your fingers and get the right quality of labor at the right price instantly. But it is something that we can manage and it isn't an absolute constraint today in the way that it has been over the course of the last 2 or 3 years. And if you look at what we've done on our own build processes and how that ties into our customer service processes, if you look at the build we're expecting to deliver in June and December this year, the extent to which we're progressed in that and our ability to tweak it and see any issues coming is significantly better than it's ever been before.
We're -- it's very much under a tight level of control. Our information systems are better. The management focus on a detailed level is better. And that means -- that always means you've got a bit more upside if you really need it, but our focus has gone on using that to make sure that we get the quality right and the consistency right. We're loath to change that in the short term. But as you say, as we look into next year, then it gives us the opportunity to do that.
As there are no more questions that will now conclude our Q&A session for today and I will now hand over back to Peter Redfern for his closing remark.
Thank you, everybody, for the time and for the questions this morning. And I look forward to catching up with you again at the half year point. Thank you.
Thank you for joining the Taylor Wimpey plc Trading Update Call. This call has been recorded and will be available to listen on demand on Taylor Wimpey's website later on today. Thank you very much.
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