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Good morning, and thank you for joining us. I'll just say, as usual, a few words at the beginning before diving into the script.
And look, 2022 was a great year for Persimmon. Of course, 2023 will be a challenging year. But as 2022 shows, Persimmon is a great business with a fantastic team, and I'm completely confident about our prospects for longer-term success, which I'll say more on that later. But let me start with 2022, which saw us produce a very strong performance. We've combined industry-leading financial results with five-star quality for the first time in our history.
And I'm really proud of the hard work of my colleagues across the business to achieve this. Our completions were at the higher end of expectations, up 15% in the second half of the year. Average selling prices were 5% higher. Crucially, we've achieved this whilst maintaining a five-star rating for the first time on history and are on course to retain it for a second year. Our build rates were also excellent.
Maintaining our focus on building right first time every time they were up to 8% in the year and an impressive 15% in the second half. This helped drive such a strong profit performance with underlying operating profit of over £1 billion. Our net sales outlet figure increased by 16% in the year, a real achievement in the current planning environment and reflecting our disciplined land investment and the enhancements we've made to our planning process. Our cash generation remains strong, and we paid £750 million in dividends during the year. We continue to invest in our capabilities, including progressing a new state-of-the-art timber frame factory.
This will allow us to build more, build faster and build better and also enable innovations such as wall systems that will enhance our efficiency in the future. Our performance in 2022 demonstrates our progress against the five priorities I set out over two years ago. On build quality, our ambition continues to grow and is to become trusted to deliver five-star homes consistently. And it's pleasing our HBC construction quality review score is up to 9% year-on-year. Building right first time every time is good for customers, improves build efficiency, and reduces remediation costs, achieving a five-star rating also helps with our strong market positioning.
Being trusted to deliver quality, affordable homes in these times is a real strength. And I'm pleased that our Trust pilot score is also up 30% during the year. We've continued our disciplined investment in new land, bringing 14,670 plots in across 66 sites, the four slowing new approvals in the fourth quarter of the year. Our underlying housing margin and profit performance demonstrates our industry-leading financial performance. And we continue to make good progress on our sustainable communities agenda, including our carbon reduction commitments.
So, it's been a year of strong performance and good progress in key areas. I'll now hand over to Jason to take you through the numbers in more detail.
Thank you, Dean, and good morning, everybody. Let me start by pulling out the financial highlights for the year. As Dean mentioned in his opening remarks, we were pleased with the performance of the business overall in 2022, but we did see considerable changes in trading during the course of the year. The business delivered an excellent full-year result in challenging conditions. Volumes were up 2% in the year with 14,868 new home completions.
And following lower first-half completions, momentum was regained in the second half with completions up 15% as the business executed well on build programs and benefited from the strong sales rate in the first half. Dean will talk more about the sales trends during the course of '22 and our more recent trading. The overall increase in volumes, combined with a 5% increase in the group's average selling price led to a 7% growth in housing revenue, a gross margin of 31%, and an underlying operating profit up by 4% to just over £1 billion. The final point I'll make on this slide is our industry-leading ROE, which was 30.4% in 2022. This is reduced mainly owing to the investment we've made in land and work in progress, increasing capital employed by just over £260 million.
Moving on to the next slide. We'll look at the movement in operating profit. Operating profit was up by £40 million to just over £1 billion, and the operating margin remained strong at 27.2%. Higher volumes and a 5% increase in average selling price benefited profits by £77 million. This was offset by build cost inflation and a higher proportion of affordable housing in our sales mix.
We've made some investments, mainly in people to improve our build quality and customer service, which is all about strengthening the business platform for the future. With some inflation too, this led to an increase in net operating expenses of £19 million. We have been able to successfully mitigate build costs somewhat despite ongoing inflation and labor market tightness. This has required forward planning, strong supplier relationships, and driving the benefits of our vertically integrated brick tile and timber frame manufacturing capabilities, whilst also improving our build efficiency on site. The business excels at cost control, and we'll continue to ensure that Persimmon retains its strong track record of financial discipline.
I'll now walk through the key drivers behind the movement in revenue and then on to costs. So, starting with revenue, which increased by 7% to £3.7 billion. Volumes are up by 2% overall with private up 1% and our housing association completions up by 6%. Sales rates were strong across the board in the first half, but there was a sharp slowdown by the end of Q3. With a now well-known deterioration in the fourth quarter as higher interest rates, political uncertainty, and inflation, all impacted consumer confidence.
October was the last month for reservations using Help to Buy within England. In the year, we sold 12,174 private homes at an average selling price of just over 272,000, which is up 5% year-on-year, aided by the strong demand in the first half. We continue to differentiate ourselves through being the most affordable major house builder. The price of our homes was over 20% below the U.K. national average for new build during '22.
Overall in the year, 42% of our private completions were the first-time buyers and 24% of customers used Help to Buy. Partnership revenue was up 14% to £383 million, with completions and average selling price up strongly in the year as our investment in the core partnerships being paid off with great results. Now, on to costs and margins. In '22, the gross margin was 30.9%, which is a small 50 basis point decrease over '21, reflecting the slightly higher weight into affordable homes and build cost inflation in the year, but was still a really strong result. The margin is underpinned by the quality and value of our land holdings, the expertise of our land and planning teams, and the efficiency of our build.
As just mentioned, with service and quality investment to maintain our five-star customer rating, operating costs per plot increased by 16%. The ratio of land cost to revenue was 12%, which is 120 basis points lower than in 2021, which is mainly due to higher house prices. Overall, we generated £67,700 of profit per plot, which is up 2% year-on-year. Moving on to the next slide. We've invested significantly in high-quality new land.
In total, we added 14,670 new plots to our consented land holdings during the year, which is a replacement rate of almost 100% compared to the completions in the year. 36% of these additions came from the conversion of our strategic land holdings. The investment was made while maintaining our strict hurdle rates and will help our growth and profitability into the future. In total, we have just over 71,000 of owned plots. This is equivalent to around five-year supply at '22 volumes and frankly, more than that with the reduction of volumes expected in the current financial year.
So, we have a good platform to grow the number of outlets within the business, and Dean will talk more about that in a moment. Of our total 87,190 plots owned and under controlled, 41% are owned with detailed consent, and a further 40% owned with outstanding planning conditions. We're working hard on progressing planning across the country to allow us to grow our outlet network. Overall, the expected land cost as a proportion of assumed revenue for the portfolio of owned and controlled plots is a very competitive 11.7%. This assumes no change in house prices.
On the next slide, I'll show you the strong embedded margins in our land portfolio. So, on this slide, we've again analyzed the group's land portfolio to show the breakdown of the embedded margin. The margin of the owned portfolio would be 32% overall based on current revenue and cost expectations. The chart demonstrates the existing quality of our land holdings with only 6% of plots owned, having an embedded margin of less than 20% at December 31. 70% of our own plots have an embedded margin in excess of 30%.
Our land portfolio overall is relatively low risk of impairment. If house prices were to fall 10% from December '22, all other things being equal, we estimate only a £4 million impairment. So, while there are risks, we believe our land portfolio is well-positioned and provides us with a good platform for future growth. I'd now like to take you through the cash flow for the year. The group ended the year with a very strong cash position of just under £1.25 billion.
The strong performance in '22 resulted in the delivery of pre-exceptional operating profit of £1 billion, and we invested strongly in land in the first half of the year, which then slowed in the second half as we carefully considered the new market conditions. In total, we made an investment of £736 million in new land in '22, and we utilized £442 million of land assets in the period. So, the net increase in land was just under £300 million for the year. WIP increased by £210 million in the period. This reflects inflation and a great amount of investment in infrastructure on some of our exciting new sites.
At the end of '22, cash was £862 million, with the group generating £365 million of net free cash before capital returns to shareholders, which was £750 million paid out in the calendar year 2020 relating to the financial year 2021. For 2023, we do expect to have lower cash balances, reflecting reduced cash flow from lower volumes, the continued investment in land and WIP, and our fire safety cash spend. We've gone from cash. I'll now cover some of the other elements of the balance sheet. The group has a robust balance sheet with net assets of £3.4 billion, which is £10.77 per share.
We increased land and by £504 million in the period, and we ended the year with around 3,900 equivalent units of homes constructed. At the 31st of December, we had £473 million of land creditors. This is up £65 million at the start of the year. Around 85% of those creditors are due to be settled over the next two years, with approximately £270 million to be repaid over the course of 2023. Part Exchange stock at 31st of December is £36 million higher at £61 million.
We continue to sell pilot exchange properties promptly with minimal aged stock. We've seen good interest in part exchange in the early part of 2023. In terms of liquidity, we have an undrawn £300 million bank facility, and we may increase this facility during the year to further improve our financial flexibility. Return on equity based on underlying profit after tax was in line with the prior year at 22%. Now, a quick update on the legacy buildings' work and the provision.
As we announced in December -- sorry, in November and with the Delek contract now in a grid form and about to be signed, we now have a better understanding of costs, which includes significant amounts for non-cladding, fire-related build defects. Since November, we've identified two more developments, and we've completed work on a total of 33, which is also two more than in November. So, the total provided for is £350 million, as we previously indicated. The increase arose from the broader scope required by government additions to the number of eligible buildings and a background of significant cost inflation. Most importantly, we're making good progress with getting on with the remediation works.
Of the 40 developments remaining to be remediated, we're on-site on nine of those with the aim to be on site on the remaining 31 developments by the end of 2023. And in the meantime, safety assessments have been undertaken on every building and mitigating measures have been implemented. At the 31st of December, we had £333 million of the £350 million total remaining on the balance sheet with the expectation that work will be largely completed over the next three years. So, I'd like to finish on the topic of capital allocation. As you all know, the Company had a long-standing capital return program that was set up in 2012 and grew considerably from its initial objectives.
We announced the conclusion of that program last year. Much has changed over the last 10 years. Most recently, of course, the macroeconomic environment with higher interest rates and inflation, the removal of Help to Buy, and the recent increase in taxation. Our new policy is to pay a sustainable dividend from the Company's earnings, balancing payouts with capital retained and recognizing the cyclicality inherent in our business. The Board is proposing a dividend for the financial year 2022 of £60 per share, and this will be paid shortly after the AGM.
For 2023 and beyond, we expect to at least maintain or grow the dividend, and we will start to pay interim dividends from the second half of 2023. The level we pay out in the future will be guided by the average earnings over the cycle. So, in practice, this means we'll have a higher payout ratio in years with lower profits and a lower payout ratio in years with higher profits. We will return to shareholders any excess capital above and beyond the dividend through a share buyback or a special development. We will retain sufficient capital in the business to ensure we can sustainably grow sales in the future.
We're anticipating lower sales rates for outlet, and hence, we need to grow the number of outlets. This will require capital. The oversight and balance of that deployment will continue to be very tightly managed, focusing on margin and cash payback of our investments. And we believe this new level of dividend strikes the right balance in the current trading environment. I'd now like to hand back to Dean, who will cover the outlook for the business in more detail.
Thank you.
Thank you, Jason. As I said at the start, 2022 was a great year. We demonstrated that when the demand is there, we can match it with record bill rates five-star quality, and industry-leading profitability. Because of the political instability we saw at the end of last year and the ending of Help to Buy, 2023 is clearly going to be a much more challenging year. We controlled well what we can control.
This is why I'm excited about the longer term. So, I want to emphasize the strength of our key capabilities, how we've been enhancing them, and how they are central to our recent and future performance. Before I hand it over to Jason, I highlighted our five priorities and the progress we've made on them. Our second-half performance was especially strong on build rates, completions, and profit. Our cash generation was strong, leaving us with a strong balance sheet at the year-end.
It's worth pausing to recognize the excellent work of my colleagues to achieve this. They manage the supply chain problems, labor shortages, and inflation amongst other challenges as the year went on. There was also the rapid decline in sales rates in the fourth quarter as we saw the impact of political instability, interest rate increases, reduced mortgage availability and a Help to Buy ending. We managed all of this while increasing our output, build rates, and profit and achieving a five-star rating. We also responded rapidly with enhanced controls as the market turned.
As Jason said, we've maintained our disciplined approach to both land additions and investing to drive future performance. Our land holdings retain industry-leading embedded margins. We've enhanced build efficiency and have exciting plans for more to come, for example, through the new timber frame factory. And we're strengthening our unique position in the market. The latest HBF research shows new homes will save on average over £3,000 in energy costs from April compared to older homes and they're cheaper to maintain.
Our enhanced five-star quality, energy-efficient homes, which are over 20% below the market average in price, our key credentials in a market where affordability is the key challenge. And it's to the market I'll now turn. As you're aware, Help to Buy ended during 2022, and this will clearly impact our 2023 performance. As you can see, our sales rates are down, and this is reflected in our forward sales position. After the mini-budget, our net private sales rates was 0.19 for the last seven weeks of the year compared to $0.61 the year before.
The fourth quarter is when the selling season for this year essentially started. So, these rates have meant that our private forward sales volume is down 55% year-on-year. We responded and launched a Boxing Day marketing campaign, offering up to 10 months mortgage-free or 105% par exchange. The graph shows the significant increase in website visitors this generated. This has helped drive the improved sales rates in the first eight weeks of the year, and our sales rate is currently 0.52.
Selling prices are holding firm. Incentives are being used in a targeted and disciplined way currently running at around 3% of the sales price. As a table on the left shows, when comparing revenues at the 1st of January against the first eight weeks of the year, there has been a relative improvement. It's too early to assess the sales rate for the year as a whole, but was this rate of 0.52 to continue for the full 12 months? The current outlet network would imply 8,000 to 9,000 legal completions for 2023.
That said, on current market conditions and projections, we believe that 2023 will be a floor for volumes. This fall in volumes will also impact margins, and I want to break this out in more detail. This slide demonstrates how various factors influence our margin. 2022's performance is illustrated on the slide, showing we delivered a gross margin of around 31% and an operating margin of 27%. You can see that 8% inflation on all build costs and operating expenses with no mitigating house price inflation would impact our margins by around 500 basis points.
By example, our fall in volumes to 8,500 would lead to a further 500 basis point reduction in the margin as the group's operational gearing falls. Persimmon already operates from a lean cost base. We believe that 2023 will be a floor for volumes, and we must maintain the right infrastructure team to ensure we can respond to an upturn in market conditions. We're working harder to drive sales rates. Whilst targeted and disciplined, our incentives and sales and marketing campaigns may impact margins by around 300 basis points as seen on the far left.
But also note that margins can recover quickly as this slide shows. A 7% increase in our average selling prices were then mitigated 8% build cost inflation and operating expenses inflation, 9% house price inflation would improve it by 200 basis points. And as well, our margins will grow as we increase completions in the years ahead. Whilst these are only examples to illustrate the various factors that influence our margin, it also demonstrates why I'm confident that we will rebuild our margins as we grow. This confidence also comes from the fact that at Persimmon, we will always be disciplined in managing our cash and cost position.
Here, we're building on some of Persimmon's great strengths. Persimmon is renowned for its tight cost control and investment discipline. Our teams, especially senior management, have deep experience across many housing cycles. We acted quickly in the fourth quarter last year. We adopted a highly selective approach to new land investment, slowing down land approvals.
Extra controls were put in place to give an even greater assurance that WIP investment matched build programs to local demand. Another great strength of Persimmon is our operational efficiency. Our cost base was already lean. We're making greater use of central procurement to drive further efficiency alongside consistency in material quality and assurance on availability. An example here is that last year, we set time limits on new contracts with contractors, providing the opportunity to review them in the early parts of this year to make sure higher-than-necessary inflationary rises were not baked in.
A hiring freeze is in place, except for business-critical roles. Whilst cost discipline is crucial, we want to make sure our teams retain staff and capabilities to respond to market improvements. Our budgets are under constant review and £40 million of efficiencies were identified in the 2023 operating budget, meaning that our combined overhead costs on an underlying basis are holding broadly flat year-on-year. Against the backdrop of inflation currently running at 8%, this is a real achievement and demonstrates our discipline. Our vertical integration continues to serve us well.
Our timber frame, brick, and tile factories all contributed more year-on-year. And we're investing further in our factories in our sales teams and our build programs to ensure we're responding to the market with high-quality homes at attractive prices and growing our position in the market. Our watchword remains disciplined. Our approach to land highlights this very well. I presented an earlier version of this slide at the half-year.
Then we were acting to replace the underinvestment of previous years. The 14,670 plots were brought into the business across the country, maintained our strict investment criteria, and have strengthened our industry-leading land holdings. As this graph shows, we reacted quickly as the market changed. We were even more selective in the fourth quarter and approval slowed. We're now only targeting exceptional deals and the majority of land spent this year will be to creditors.
This is one example of our swift response and careful discipline management. We've also enhanced our product position and marketing. Our mission is to build homes our customers can rely on a price they can afford. The combination of quality, energy-efficient, affordable home is a key credential when affordability is a defining issue in the market. We have a nationwide network of outlets to sell from.
Our improved and well-placed product is a strength, and we've stepped up our sales and marketing to promote it more effectively. Our sales advisers have received new training programs, including all being mystery shop to identify gaps in areas for improvement. I've mentioned our marketing campaign launched on Boxing Day. We've also stepped up our targeted local marketing, and we are using digital tools to make them more effective. The week-on-week sales rates improvement demonstrates the early success we're having.
We're being proactive in responding to the market, responding with discipline and cost controls where needed, but also targeting our investment to make sure we're enhancing our capabilities that will serve in the longer term. We want to maximize our capabilities to respond nimbly and efficiently as market conditions improve. The early weeks of the year have seen key indicators moving in the right direction, albeit from challenging highs or lows. As this graph shows, mortgage availability is improving. Fabry's product availability is almost doubled, and October is low.
And this graph shows mortgage rates are improving as well, albeit they are still higher than at the same time last year. As we say on the slide, improving but still a challenge, and this is true for first-time buyers in particular. This graph shows how mortgage costs as a proportion of take-one pay for first-time buyers really jumped at the end of last year, not least as Help to Buy was withdrawn. With rates declining further, this position should hopefully improve. Analysis recently projected that mortgage costs will be lower than the cost of renting again.
With projections for inflation earnings and mortgage rates improving, while rents are going up, this trend is likely to improve. In tempted to ask whether we've reached a turning point, but we'll see. While the mortgage market is more encouraging, the planning environment continues to be a challenge. Our recent report by Litchfield shows this graphically. National planning permissions in the first three quarters of 2022 were 10% lower than five years previously, and the trend is clear.
Litchfield's analysis also shows a steady decline, especially in the last four years of local plants coming forward. Indeed, 2022 was a historic low. This matters as these plans are key to setting out how local areas will meet their housing need and provide the framework for us to operate in. Nutrient neutrality also represents a challenge. The government has identified a solution from 2030, but there are still an estimated 120,000 homes held up in the planning system.
The HBF wrote the office for budget responsibility last year, setting out how the government reforms threaten the building of 100,000 new homes a year. It's encouraging that in this context, we managed to increase our active outlets by a net 16% last year. Nonetheless, the politics continues to be challenging. Planning, of course, has been an issue of significant debate within the government, the conservative party, and the media. The proposals in the leveling-up bill are concerning because they remove key measures that enable development.
As the government has bound to pressure for some back benches, it's essentially given those local authorities that want to resist new development more tools to do so. But there are significant conservative voices worrying about what this means for their future electrical prospects. We'll know in two weeks whether the chance will respond to them in the budget. Labor, on the other hand, has set our homeownership as a key policy. It's also notable that the labor government in Wales has extended Help to Buy to 2025.
Less trapped by Nimbi politics, it's encouraging that labor sea's planning is crucial to delivering their principal policy goal of economic growth alongside their homeownership target. From their stated positions, there appears to be an important policy difference on planning between the two main parties. As we get close to the general election, it will be interesting to see whether first-time buyers become a political battleground, history would suggest they will. But my ambition for the Company doesn't rely on any such interventions. While they may serve to increase sales rates, we have opportunities ourselves to power a new phase of growth.
While I outlined the planning challenge, we're not simply accepting it. We have responded with a new approach that is showing encouraging results. I spoke about our placemaking framework at our half-year results. This provides a design excellence toolkit to meet the current design agenda while maintaining Persimmons' master planning efficiency. We've invested in new tools, including visualization packages to demonstrate to planes and local authorities and increasingly customers, the well-designed, well-planned developments we're proposing, but also proposing more.
We're presenting our plans in a more astute manner sensitive to local priorities. Persimmon's old approach was probably best described as focusing on compliance with planning laws and requirements. Essentially, we're saying there aren't any legitimate reasons you can say no to this. We now have a different approach. We've mapped over 2,000 stakeholders across the country, the key decision makers in our key authorities.
We're using this intelligence to present our plans as a means to deliver the priorities of those local decision-makers. In short, we've moved from minimizing the chances of saying no to trying to maximize the chance of saying, yes. And we're seeing the benefits coming through. Applications previously stalled by offices have been unblocked by politicians asking for them to be brought to a committee. There have been three recent cases like this in our Wales and Southwest division alone.
In the Scottish Authority, the Chair gave the casting vote on a split decision where in the past, our planning team would have typically lost. An application in a sort after Northern town that has looked to block most planning permissions passed with the 92 majorities. The 16% increase in outlets last year also shows the progress we're making, as has the fact we progressed 18,500 plots through at least one key stage of planning last year. We're confident this success will keep growing and as we apply this new approach to every application. Fundamentally, it's a better approach and it's more efficient.
We'll bring more outlets into production, quicker enhancing returns. Our land portfolio has industry-embedded margins. Our cost to anticipated revenue is 11.4% on land we own. Our landholdings already provide a strong platform, so we're able to complement this with disciplined targeted selective land investment in new opportunities at the right time. My ambition is to rebuild volumes to be ahead of pre-COVID levels over the longer term.
Expanding our outlet network in this disciplined way is key to achieving that as is deploying our enhanced operational capabilities. Our teams are always looking to secure and build efficiencies whilst maintaining our commitment to quality and the customer. We've been investing further to support them in this. Our brick and tile work factories have both contributed more during the year, providing cost-efficient materials with greater security of supply. Our new state-of-the-art timber frame factory will represent another leap forward.
We submitted our plans last year to the local authority, and I hope it will start contributing from 2026. The factory will deliver capacity to another 7,000 timber frames a year as well as innovative products such as new wall systems. Timber frame is typically seven weeks passes to build around a 20% efficiency improvement, demonstrating the benefit. By building more of it, we will enhance our efficiency and our speed. Equally, this will only be strengthened by the innovations in the wall systems we'll be able to use.
We're always looking for other efficiencies and cost-effective enhancements to our capabilities. We'll invest in a disciplined and targeted way to secure them. And now, I'll turn to our outlook. 2022 was a very strong year. 2023 will be more challenging for volumes, margin, and profit.
However, I am optimistic about our prospects for growth after this year. The long-term fundamentals of the housing market are strong. Reports last week in last week have shown the U.K.'s housing stock is millions of homes below that of comparable European countries. Consumer confidence is stabilizing, and there are some encouraging signs in the mortgage market compared to the end of last year. We've been investing in our key capabilities to enhance Persimmon's strengths.
That's helped drive our 2012 performance and will also help drive our next phase of growth. Our industry-leading land portfolio provides a strong nationwide platform from which to grow. We're working hard and in new ways to bring more through the planning system and we'll complement this with selective targeted investment at the right time. This focused, disciplined approach will drive our next growth phase, rebuilding our outlet position and deliver volumes ahead of Prego levels. Combining an expanded outlet network of our industry industry-leading land holdings with our strong market positioning and enhanced capabilities is an exciting prospect.
Great value, cheap to heat, and fast our homes are a real selling point in a market where affordability is key. Our vertical integration and plans for our new state-of-the-art timber frame factory, shows the opportunity to further build efficiencies to come. Underpinning all of this is our strong balance sheet, providing options and flexibility in the future. We've been dealt a hand that's not of our making. Nevertheless, we have controlled that which we can.
What I hope for her on you today is how we can rebuild back ahead of pre-COVID volumes in the future, growing margin and profit. It's how we'll drive the next phase of our growth, a growth that will deliver the opportunity of a new home to more customers and return to our shareholders for the year to come. I started the presentation saying I was completely confident about our long-term prospects. This next phase of growth is how we'll deliver industry-leading financial performance across the cycle.
Thank you very much, and we'll now take questions.
Thanks. Will Jones from Redburn. I'll start with three, if I could, please. First, just exploring trading besides the new year, whether you draw out any differences between February and January, either the year-on-year decline in sales rates or absolute numbers? Anything to be aware of there?
And then two and three, really just explore the potential for margin contraction this year, which obviously you've been helpful on. But the 500, I think or so basis points that could be the price of 8% build cost inflation. I appreciate there's WIP positions and there's contracts, but would you not expect that 8% number, which I think I'm right interpreting as the kind of today's year-on-year rate correct me if I'm wrong, would you not expect that to be trending lower as we go through the year? And then when we go into the order book and look at things like the private average selling price, which I think was up 11% at December, still up 11% today, higher actually at the end of Feb than the start of January, which is slightly surprising. But would there not be some benefit in the mix from that to think of that the other way?
Thanks.
Yes. Good morning. Look, yes, Look, I'm sure that Jason and I are going to be far from loved for pointing out the downside, but we have taken the conscious decision that we want to tell you this is how tough it could be. However, we do think that this is the floor, and there are opportunities for bettering it. And clearly, from '24 onwards, it will be back on the growth path. And look, we are in an incredibly difficult position as it is in everybody else.
If I go back to Armageddon, we were looking at otherwise known as a trusted government. We were looking at a 70% decline in sales rates. When we started this year, we were 40% down on sales rates compared to the prior year. If I look at the last two weeks, we're 25% down on sales rates compared to last year. I don't know what we're going to be next week.
What is clear is that -- and what is completely clear is that the interest is unabated. What customers are struggling with is affordability and product availability. It really struck me that our core bankers Nationwide, Halifax, and Santander for our customers. And last year, as typically they do, they amounted to about 50% of product that goes to customer for mortgages. They're currently at 5%.
And it's the small and mid-tier that have filled in the gap. So, what's that say? Well, I think there's clearly conservatism. I get it, they're worried about house price falling, as you pointed out, actually, it's not. But they're clearly worried about negative equity, and what's going to go on in the secondhand market as we roll through the year as people have to come off fixed rates and go on to new rates, none of us in this room really know because they're going to be facing a sizable increase in costs and none of us really know what that's going to do to house pricing in the second-hand market, which is bound to impact our market.
So, there's a huge number of variables out there. But I'm pleased to say it's getting better and better. I think look, build cost inflation at the moment is 7% to 8%. And that is a complicated picture. I'll go into a long speech now, but the short answer is, I suspect it will get better during the course of the year.
But how much, I don't know. The position at the moment is still volatile. There is no clear downward trend. There is no clear pattern across regions or across trades. Subcontractors are still relatively busy.
The ones I speak to, by and large, I would say, have taken the view that the slowdown is somewhat helpful because they're better able to manage their business compared to the chaos we were all facing at the tail end of last year. However, also compared to this time last year, your price was your price, and we had to pay it. At least subcontractors now will negotiate. And what we're also seeing is some small evidence that there is a greater willingness to absorb price increases and not pass those on to us where they're suffering material increases. We're seeing some evidence of that.
Sporadically, we're seeing some costs coming down. So, if you take brick is up in the Northeast, cost per hour has come down 7% this year. That is not a pattern across the country, but it's what's going on in the Northeast. Where we're seeing price increases, we are retendering and sometimes that is paying dividends. But I would say, amongst the trades, there's no panic yet.
Probably things are a bit better than they thought they were going to be at the end of last year, and they've held their nerve. We're seeing brick, block, plasterboard, tiles, and anything driven by energy still going up. So, it is a very mixed picture at the moment. I think things are more stable, but they're not coming down. If you look at BIC, BIC is predicting that it will moderate and soften during the course of the year.
But we'll have to see. I don't know. So look, I'm sorry, that's a long answer, but that's how we're seeing it at the moment.
Thanks. It's John Fraser-Andrews, HSBC. Can we explore the selling price, please, Dean? You've said in the presentation, incentives are currently running at 3% of sales prices. If I remember well, in January, you'd introduce your Boxing Day initiatives.
You'd said that incentives on the pre-mini-budget price, and gross price had risen before the mini budget up to 5% to 6% for I remember well. So, it seems you're not -- if it's the same gross price, you're not using all of that boxing day budget at the moment. So, perhaps you could elaborate what's been happening on that? Are you holding your gross prices into this year and how you envisage those incentives playing out? And then the second question, I appreciate there's a couple within the first.
But the second, back on build costs, it was a helpful answer there. We can take our own view on labor, but materials. Can you tell us what you've locked in, what prices you've locked in? How much on the volumes that you projected, so we can have an idea as to sort of what current levels of build cost inflation are? And how much you're committed to?
Thank you.
So, yes, you're right. Look, we are holding firm on price on selling price. And probably going into the tail end of last year, we were looking at about 2.5%. In some places, more than that, we were thinking we'd have to go up to 5%. We're around 3%.
There's a mixed geographical picture. So, where it's toughest to sell, which is clearly in the Southeastern pockets of the Southwest, we probably are at 5%. Elsewhere, we're not. And we're not giving much away to talk. We don't have to give much away at all.
And I think it's quite interesting if you look through the picture of our customers. I'll just take public sector workers as an example, their per grades don't change very much across the country through regional factors. Our product is still affordable and very attractive to nurses, doctors, teachers, policeman up in the Northeast, in the Midlands, parts sales elsewhere. So, we're attracted to customers in those types of customers in the Southeast and Southwest, but they can't afford it. There, we are seeing the use of first homes, particularly for those workers.
And I know that as a product, the government are very keen on, and we're doing everything we can to assist with that. So, that's also a feature of ourselves at the moment. So look, I pointed to the growing sales rates. We just got to be very nimble and try and manage it as best we can and work hard and well on the market. We did -- as I alluded to in my speech, we did a heck of a lot of work last year when we saw this coming on our sales advisers and also the presentation of our product.
It's much harder to sell something that's not built. It's much harder to sell something because the site is looking entirely or if the entrance to the site isn't what it should be. So, we're working very hard on that. We work through every single one of our sales advisers in the country and no disrespect to the reality is, they will all take us. That's what they were.
And so, we're focusing on making them skilled salespeople. So we've done a lot of work in the last six months on that. And we're beginning to see that paying dividends. On build costs, our materials, as I said again in my speech, we are fixing for six months and not beyond it because of the anticipation that prices will fall. So, that's broadly where we are.
Just the level of inflation you've locked in on those materials?
Well, it is the numbers, is the average 8%.
That's on the materials side?
Yes. I will come to this side. Sorry, I'll just... I'll move over to look at that side, too. Sorry.
Thanks. AynsleyLammin from Investec. Just I think three actually. Firstly, just on what you said about the margin. And so, obviously, you've given the risk that it could fall to around 14%. Is there anything structured in there in terms of adjusting?
Or is it purely market-driven? And when you go back to that margin improvement chart, are you essentially saying that structurally, when you look at the land bank, the cost structure, the product, you'd expect Persimmon in the medium term still to be earned in the kind of high 20% margins and that premium to this sector as it was historically? Secondly, just on Partex, think it's gone up to 25%, has that increased through the last eight weeks? Is that supporting sales rates? What's the turn?
How quickly are you turning that from the balance sheet, selling on those properties? And then just thirdly, just on the dividend, I think the 60p, is that the 60p for the full year you'd expect to maintain? That's not just the kind of fine will there be an additional interim bit? And again, just interpreting that you'll be paying that from the balance sheet. There's no -- I guess, why hasn't it been an explicit kind of earnings cover base type policy?
Thanks.
Okay. Great. There's a question for Jason. There's nothing structural in the margin. It's, look, we've taken -- as I alluded to, in answering Will's question earlier, it would have been easy for us to slash and burn and react and panic to the 70% volume reduction, but I also would have been the wrong thing to do.
And so we expect the market is going to recover relatively quickly. Will it get back to 15,000 next year our data very much, but I expect it will recover relatively quickly over the pace of the next couple of years. And who knows what's going to happen with political intervention? None of us can be blind to the fact that next year is going to be an election year. And even the conservative party might, we are re-waiting their love for house ownership.
So, no, there's nothing structural, and it is just a function of holding that fixed cost. There is a leverage in our operations that it is what it is, but we want to hold on to that talent because the lesson of the business last time around is when people shed all the labor, it was generally hard to get it back again. So, no, there's nothing structural. Yes, I mean, look, Partex is once again proving to be a very attractive part of the business. I think I've mentioned before back in the day, the full Help-to-Buy existed, it was 35%, 40% of the business.
It's not at that yet. And I'm very happy to say that we are turning this product quickly, which is good. We are very alert to that as a problem. David?
So, on the divi, so the 60p is the entire dividend related to financial year 2022. We paid -- we'll put it to the AGM, and it will be paid shortly thereafter. May the 5th is the expectation. So, that gets us up with events, if you like, '22 into '23. So for '23, obviously, an undeclared amount.
What we're indicating is an interim for '23 will be paid in the second half. They typically interims 1/4 to 1/3 of the 60. So, without being more precise, you can work that out. And so, that will be a cash flow that you should expect in the second half. Following the interims, we'll give an announcement, and we'll pay that sometime in Q4 probably.
And in terms of the structure of the dividend, obviously, we're going through quite a sharp change. I mean the cover ratio on 60p versus underlying for 2022 is the not for 4x. So, we're probably not breaking too many confidences in FCA rules. As I said, it's going to be one point something probably for 2023. So, we're sort of balancing these high cover ratios in good times and very low cover ratios in '23.
So, what I said is that we're going to look across the cycle and at the cover ratio across the cycle, and hence to sort of cut through that, we've given you a base amount of 60p, and we'll look to maintain or grow that in the coming years.
Thank you. Gregor Kuglitsch from UBS. I want to go back to the margins. So, in one of the slides you talk about sort of the land bank margin, which you're kind of holding, I think, at '32 or so. I guess that's a position at the end of last year.
And obviously, since then, things have moved on a little bit. But I guess my question is -- and to answer is earlier point, yes, there's the overhead leverage point, which can recover, but the price/cost element effectively in incentives plus the build cost inflation, lack of ASP, I mean, unless house prices recover, is basically structural, right? So, the question is, is that, in fact, a lower number as things trade today, even if you go back to a sort of 14,000, 15,000 unit business? And the second question to that is, how do you actually look at hurdle rates now? I mean there's one slide on obviously, planning is coming down.
It just going to become more difficult. I guess I struggle with the idea that you can maintain that and actually win any bids in the market, considering the fact that the supply of land is going to come down, incentives are up, costs are up. So, are you kind of trying to stick with that? And do you run the risk of simply not being able to buy any land and therefore, your ambition to recover volumes is impaired? Or -- I mean, I guess the question is at what point do you make that trade-off where you say, you know what, actually, I'm happy to run a business at a 25% growth, but at least I make 15,000 units, right, rather than doing a low number at a higher margin, if you see what I mean.
Well, obviously, the historic cost of the land is baked in, and it is what it is. It builds cost inflation will be what it will be. And you're right. I mean with those slides are backward there is the current price, at the current ASP and it is the current build cost. So, where we just bought land, it will bake in the 8% inflation we've seen at the moment.
But you're right, I mean, obviously, that will get compressed. But then what happens at the end of the year when conversely, you've run through the inflationary cycle, Powai costs are going to be flat, down a bit and probably you will start getting ASP back in there. So, that margin will recover in the land bank. And I think the point of the slide was to really to relay any concerns that there's a lot of well on our back, and there's not going to be a big write-off as best we can see at the moment. Look, we will do what we always do and use our common sense on exercise our common sense when buying land.
I'm not going to tell you what we're going to do on the hurdle rate because that's the debate that we're going to run through on the business through the business. But I am confident seeing what I've got coming through to me at the moment through to us as a team at the moment. That good land has continued to come through. We'll exercise caution and discipline and we'll always be looking ultimately to protect our margin. But I do believe we can protect our margin and grow the business.
Hi. Sam Cullen from Peel Hunt. I've got, it's kind of 2.5 questions on one topic, really. But it's back on land. If you look at the plots of detailed planning consent, they're down, I think, about 25% or 20% versus 2019, and the proportion of those within your total land bank is down by a similar quantum.
With the planning backdrop presumably only continuing to get tougher, notwithstanding all the political conemationations over the next 12, 18 months. How do you square that with your ability to get back to prior kind of peak COVID volumes and maintain the margin kind of on Gregor's question? I guess the correction is what ROE premium are you willing to give up to get back to those volume numbers?
I think you're slightly comparing apples with pears there because back in the day, we always bought only on detail over the last two years, we've been buying on outline. So that inevitably is going to change that ratio.
Can you put it -- how quickly can you pull it for you to detail... That Yes, it might be a 32% embedded gross margin theoretically, but if you can't build and sell it at 0?
Yes. So, as we said, it's planning has got a lot tougher, and getting those commissions has got a lot tougher. And on average over the course of the last few years I've been there, it's gone out from really probably nine months to two years to get planning consent. However, that's why I pointed out the length in my speech to what we're doing to self-help. So it's not all about the system.
It's about what we're doing on our place-making framework to make ourselves more attractive. Our development is more attractive and more appealing and playing the politics smarter, and we've seen early signs of success. It's going to be tough. There's no denying that it's going to be tough, but we have, nevertheless, despite it being tough last year, we still got 18,500 plots through consent, which is obviously 3,500 more than we built last year and sold last year. And it's also about self-help, isn't it, which is why I kept banging on about the factory.
The new factory will significantly increase our capacity to build at some point from the land we own. It will, in fact, provide a step change. The seven weeks speed advantage of timber frame is broadly the same cost now, is a significant feature for Persimmon. And we're really the only true as close as it can be vertically integrated developer and our bet is we're doubling down on that. We're doubling down on that through more than doubling our timber frame capability within the Company.
And we're further doubling down on that to panel the innovations we're working through, both on our closed system panelized products, which means dolls and windows coming in, coming out of the factory on-site, that saves time, but also the cladding systems we're working on as well. We're not achieved this overnight, but I'm super excited about what that opportunity could bring to Persimmon. We band on that length rightly so, about how hateful the planning system is because it is. But at long last, I feel the politicians are listening. The laborers have completely got it and it's going to be a key feature of their future.
And I believe there are very clearly wings of the conservative party that get it as well. For instance, nutrients, for instance, beginning to understand exactly what they're proposing up in the leveling up bill and what the consequences of that are going to be if they don't do something about it. So, it's been horrendously tough, but I think the politicians are waking up to it, and we are also not dependent on it because we're helping ourselves.
Thank you. Glynis Johnson at Jefferies. Three, if I may, but two of them actually probably for Jason. The first one, which is two parts. You talked about returning excess capital.
Can you remind us what your definition of excess capital is and the payout coverage are you -- can you confirm it will never go below one. Obviously, the lower the earnings, the lower the coverage, but what's the bottom? Second of all, just in terms of that land bank margin of approximately 32%, what is the volume assumption in there? Is it the around 15, is it 1800 you give us in the growth scenario for the margins? And then lastly, thinking about the operational leverage, can you talk to us about Space for Brickworks, Space 47,000 units?
Can you use 7,000 units worth of space for timber front this year? Brickworks, I think that's about 5,000 units. Can you actually use concrete bricks on that number? Or is there quite a lot of operational leverage issue, if I rate it that way, in that vertical integration this year?
Okay. So, on the excess capital, we haven't set a formal amount of cash capital that we would expect to retain. I think let me calibrate your expectations. We don't expect of excess capital for the foreseeable future. We've got -- we set a dividend policy, we expect lower volumes, and we've got 300-plus of cash spend on fire safety.
So, it would be wrong to think that we're going to have that. In fact, what I said, and I'll repeat it, is we do expect lower cash balances through the course of '23 and into '24. So, there are various data points that we look at pretty closely, obviously, total cash, cash through the year, which is seasonal. And then the net cash figure, which is EUR 389 million at the end of December, I'd quite like to keep that in a positive territory, certainly at the year-end. So, we think about that as a guide, but we are getting used to this level of completions going forward.
In terms of payout cover ratio, we've not set a formal number. Clearly, we get uncomfortable if we got down to the one level. But we're trying to sort of go through that during the course of 2023. As I said a minute ago, one point something would be my expectation for this year and we expect that to build going to '24 and beyond. I didn't quite get the point on the 32%
I think the answer on the margin, if I may, is, I think the reality is that what's in that bank is the assumption, the individual assumptions side by side on sales rates. And you're right to allude to the fact that there's going to be in some -- compared to the idea of 70%, those assumptions are clearly overstated. They don't look quite so overstated this morning when sales rates are down at 25%. The implication of it, clearly, there's a leverage on overhead in that margin that impacts it. Where do you pitch it?
All I would say to you that -- and we monitor it very closely week-on-week, as you'd expect, on every single sales we compared to what's in that land bank we are trading ahead on ASP on every single plot we've made this year, we sold this year. So, just to make that point clear. Of course, you're right. We're not going to build 7,000 timber frame this year. The factor is not built this year.
We didn't use 7,000 timeframes last year. We've got the capacity to do 7,000 timber frame, but it will be a smaller number than that. And likewise, on bricks. But the capacity is there. What we've done to respond to market downturn is just take a shift off.
We were running a three-shift system in the brick-and-works. We're now on to two.
Ami Galla from Citi. Just a few from me. The first one, sorry to come back on the margin point again. But in terms of the calculation of your land bank embedded gross margin, do you include incentives and marketing costs? And as a ballpark, what's the level that you factored in on a normalized basis versus what are you currently spending?
The second one is a question around overheads and the scope for more rationalization on overhead. We hear you in terms of you expect '23 volumes to be a trough and you expect a market recovery next year. What sort of sales rates -- what needs to happen to say, autumn sales rate for you to actually go forward with more material overhead reductions. And on the sort of $40 million of efficiency benefits, where are they coming from? And as we think about '24 and beyond, is there scope for further such efficiencies?
Thank you.
Look, again, it's a similar answer to a limit. In terms of what's in the land bank is an assessment of ASP at that time. And that's why I emphasized the point that I'm just repeating the point I just made that every single clock we sold this year from that land bank, our actual selling price is ahead of the selling prices in that land bank. So, we're clearly beating it. Look, I'm not going to speculate on or try and tie in with what we might do in the autumn.
We need to see how the market adapts. We operate from a lean overhead base anyway. It was very stretching at the end of last year to deliver the near 15,000 units we delivered. And probably the truth is the business was overheating as a consequence of it. So, we needed -- we would have needed to do any -- something to respond to that if volumes were going to push on forward.
So, I'm just going to reserve my position on that and see how the market develops. The efficiency benefits we're talking about is really build speed. If we can get 20% more product when volumes recover in year because we can build them faster, thanks to timber frame and thanks to all the work we're doing on our own build programs. We learned a lot about our build programs last year regardless of timber frame, which brings efficiency because we're better able to forecast and predict what we need, when we need it and it reduces waste. The work on build programs is an ongoing project.
But there is, I think, the enormous scope within Persimmon to improve what we learn from each of the regions and cross-bred that across the region, even on track, there's probably an eight-week delta between the porous trap-performer in the business and the best trap-performer in the business. Some of that will be down to local market forces, but not all of it. And that's what we've got to do. We've got to isolate the commonality parts of it and drive those efficiencies into the business. And look at what we were able to do at the end of the last year, 15% increase in build rates, building them at five star, and a higher ROI count than we've ever achieved in the past, so we can do it.
Thank you. Arnaud Lehmann, Bank of America. Three, if I may. Just coming back on Slide 18 and the margin outlook. Are there any mix effects to consider there?
Mix effects in the sense of the market is difficult, '23. It's kind of a last year, let's develop the less profitable sites and keep the good ones for the recovery. So, is there any gross margin mix effect embedded in your estimates? Secondly, just coming back on the EUR 40 million of what you call budget efficiencies, what are those? And because I don't think they are cost-cutting per se.
And are they included also in your margin outlook? And lastly, on the building safety remediation, the 350 million, could you give us an idea of the phasing? Is it 1/3 per year? Or is there an upfront in 2023? Thank you.
Do you mind if I answer in reverse? So BASF, yes, will be a big slug this year, probably £125 million, £130 million this year, and we certainly hope the bulk of that will be -- we want to crack on with this, and it's commercially in our interest to crack on with it and get it done because there's a hell of a lot of build cost inflation associated with this cladding, for reasons that I can't possibly imagine. So, we want to crack on and get it done. All sites will be tendered and begin this year. There will be a spillover, I think, into '25 inevitably because we've got a couple of really big bankers out there that is going to take a while to fix.
But we're cracking on with it as best we can. The £40 million savings is -- and that's again, I said in the speech, look, there are cost savings in there because if they weren't, then our overhead would have gone up £40 million this year. Why are those cost savings? Well, you're looking at a couple of them, we've had no PAYE increase this year on the 1st of January, the senior management team has had no PAYE increase. Our regional Chairman leadership team reduced from seven to five.
So, we had seven super regions within the business last year. We've now got five, so we're driving efficiency there. We pegged back bonus payments. We paid back PSP payments within the business as well. We have clearly rationalized volumetrically on some sites as the volume has pared down.
That is also applied across to the building inspector team as we've sized down. So, there are real cost savings within that £40 million. It's not an illusion. The cost base would have been much higher if we had not actioned. And we got you coming at it from the context that we were probably looking at a 10% inflation there if we'd have done nothing.
The margin is assumed to -- the mix is soon to be constant. I mean you are dead right? We are not going to be selling our crown jaws in these tightened markets. So, we will manage that extremely carefully during the course of the year. I can't predict how that will play out, but we are going to be very careful about how we play out in the business.
Thank you. Chris Millington at Numis. Can I just ask the first question about the weighting of completions to Q4? It got to be quite a heavy weight in 2022. Any issues there on quality, or sign-offs of CML?
And maybe you can comment on the nine-month HBF score in relation to that. So, that's the first one. The second one, Jason, you mentioned earlier about obviously cash outflow this year. I wonder if you could just touch on that. But on a slightly higher level.
If I look back to when you used to do 150-odd units, you were running off 370, 380 outlets maybe 1/3 higher than we are now. I understand there's planning delays holding you back. But I mean how much more capital to get back to those sorts of numbers in the environment we're ever in at the moment, would it take? And then just a checking question at the end there. I think you mentioned, Dean, that sales rates are down about 25% over the last couple of weeks.
I mean, would that configure to about 0.7% private sales rate, something in that region What impact did it have? Well, it probably took about 25 years off of my life. And the scars are still there? Members of the team would probably say it talk even more years of their life.
But I checked on Ray here this morning, actually, and I'm happy to say it's bang-up-to-date information because the questionnaires and e-mails are dropping now for those December plots. So, I'm very happy to say that as of this morning, the Persimmon's, eight weeks as you said nine months, I think you meant eight week. I can't tell you what nine months are because nine months are not gone. I can tell you what nine months was back in history.
It was you expect a commensurate improvement in the nine months --
Yes, we would. But the eight-week score for those Christmas plots as we speak this morning, 91.4% against a benchmark of 90.8%. Now, it's quite curious to me because in my now over 2.5 years here, I've never managed to achieve Persimmon's performance ahead of benchmark on the eight-week, never. And oddly enough, in the last six weeks, we have tracked ahead of the benchmark. So, the burgers must be listening to me.
Cash flow. So, as I said, we do expect cash to reduce just sort of wrestle through the key elements of it. The dividend, £175 million; planning spend, £130 million, the Eagle line might have spotted, it's £136 million as a current liability. So, give you a sense of what we expect for this year. Creditors, £270 million.
Land spend on top of that I don't know, 150 to 200 million. We've said the majority, we'll gauge that depending on how we trade and what the opportunities are during the course of the year. So, that's quite a lot before we've actually sold any houses of cash going out of the door. In terms of outlet growth, I mean, to get back to that number, you're looking at closer to 40%, if not a 50% increase on top of where we are today to go from 250 to 375. It's quite a big step up.
As we think about it, it's probably £5 million to £10 million on average more in the south than the north obviously, depending on land cost, but if you have an outlet of 150 million times 30,000 a lot, I mean that's -- you can do the math as well as I can, plus some infrastructure spend. So, the peak WIP that we think about peak whip. So you probably sort of double that almost is before you start to get any payback. So that will give you a calibration of how much it would cost us to do that. So getting back to that number, that's a three- to five-year program.
That is not a near-term thing will take us an amount of time. And that's why we're spending that much on land just to try and grow that position over that time frame.
And I guess that's why you're asking me about sales rate because it's all tied up. So look, we're doing a hell of a lot on trying to re-elevate our sales rates, but it's also why -- yes, it has risen in the last couple of weeks as you observed. But it's also why we're doubling down on the vertical integration of the new factory because if we can get a 20% uplift in what we absolutely knew last year is if we could have built them, we could have sold them. So, I'm very focused on improving our build rate, both through the new factory through the panelization I'm talking about through the clouding I'm talking about and through just our internal build programs, there's efficiencies to be had there that we really want to go after, which in time could equalize the impact on ROCCAT, assuming there isn't then any form of political intervention. And you know we can always speculate on that.
Can I just quickly follow-up, Jason, did you mention WIP in your cash flow there just about what you expect?
Not explicitly. We've obviously built during the back end of the year, a bit of inflation and that's not gone through P&L. There's -- we came in with 3,900 units. And that's a reasonable amount of spend going into the year. We've also invested quite a bit in infrastructure in new sites.
I sort of mentioned that when I spoke. So, I wouldn't expect a big release from WIP if that's sort of behind your question.
Well, what's going on is Jason's points to, I mean, it's just interesting. We are -- this time last year, on average, we were building 258 units a week. This year, we're building 157 units a week. So we are very carefully managing WIP sales. But then, of course, you've got cost inflation coming in.
Clyde Lewis at Peel Hunt. Just one, if I may. Just really following on a little bit from that debate around outlets and growing back to the $375 million. And obviously, I don't think any of us in here today expect sort of sales rates to get back to the 0.9% that we were at. So, getting back to that sort of 15,000 number, as Jason sort of alluded to, it's probably a three- to a five-year program in terms of sort of what's coming through.
The question I had really was 31 regional outlets against a number that's going to be comfortably below 15,000 for, let's say, four years. That's a very low average sort of completion number. And obviously, it sort of is an overhead recovery. I appreciate you don't want to lose the staff. But ultimately, you're going to be carrying an awful lot of excess overheads.
And I'm surprised you're not looking to trim harder and take that 31% down to maybe 25% and rationalize a bigger proportion of your overhead base in the shorter to medium term.
They're hard to come back. That's the truth of it. That's the experience. I mean we took a couple of organizations out last year. I mean, you're right.
Look, and it's something we'll keep -- we'll monitor very closely over the course of the year. But frankly, there isn't the size of the overhead saving at that level that you think there is, and these are very local markets.
Thank you. Just a supplementary. Just coming back to Glynis' point about those, I think it was 58 million bricks and the 7,000, you clarified, -- are you intending to use all of those in the business or sell some externally or production falling? And then the other one was on underlying staff wage inflation, is that implied in the flat. You've done some trimming but that's mitigating pay rises for most of the staff?
Perhaps you could say what that's going up by.
Yes. So we did pay rises last July. So, it's a July anniversary for the staff. It's January for the senior management team. The senior management team didn't get anything in January.
So that as reflected in that. The staff, I think it was around, on average, about 5%. So, that is flowing through. And I'm sorry, I didn't quite grasp the question on --
First one would Glynis raised the point about some potential reductions in volume. I think that was her inference. I read it, and that's what I'm inquiring about in the integrated material supply businesses that you have, so the bricks and--
People want to buy our product?
Yes. Will you sell that externally or...
If they want to buy our product. We're a bit leery about selling it to them. We're looking at selling cars at the moment. We're in yes, of course, we will. If there's a market there for and it doesn't impact our demand.
But culturally, last year, we needed every brick, every timber frame, every time we could get hold of. It's quite hard for us to move at the moment to thinking...
You may be benefiting from 8% sales price increase in that, if you sell those. So yes, that's what I'm asking. Is that plan to maintain -- we're looking at production and sell externally what you don't use.
Yes. We're looking at that.
Cedar Ekblom from Morgan Stanley. One follow-up question on excess capital. How do we think about land purchases in that equation because often land purchases could be a bit more cyclical in nature. So, when you're making more money, you have the excess capital, maybe there's more opportunity in the land market, just to try and understand how we think about the trade-off between special dividends or buybacks in an upswing. And then just a question when it comes to the political backdrop.
We all understand the issues on long-term and supply of affordable housing in the U.K. And at the same time, you are selling these homes because demand is not there, but there is a way to solve that problem, and that is increase your incentives or adjust house prices. When we think about government support for the industry, do we need to think about that coming through at the same time as house price adjustments? Is there a quick protocol there to some extent? Thank you.
Well, on land, I think the Company's actions last year show that buying land is a priority to returning capital. Why? Because the return on that is good. It's really good. The IRRs are what over 20% on the stuff that we buy.
So, if we can find that in the right places and we can develop it under a reasonable time frame, the land side will win. So, we've constrained ourselves with a dividend, and we will continue to try and feed the business with more capital because of the reasons we've discussed in the meeting today, we do need to grow the number of outlets. But we won't be just buying land because we've got a desperation to grow the organization. It will be under the sort of constraints that we've talked about, clearly, the overhead loading for this year is -- would change that equation. But actually, we've got to think about it over five, six, seven years and how do we actually trade.
So, we need to make sure that we remain competitive back to one of the earlier points around how do we think about margin is it's over that time horizon. We need to sort of recalibrate slightly how we recover our costs. But as I said in the answer to the question on cash flow, we still expect to buy a considerable amount of land in 2023.
On politics. Well, really, what you're getting out there is exactly what First Homes is seeking to address, which is a government intervention to support key workers, which are essentially public sector workers, in buying their first homes. I mean I wouldn't be at all surprised to see that grow in importance, both within the conservative party and in the labor party over the course of the coming years. I expect any future labor government would see an increase in social housing to be also a very important part of their agenda. So yes, I think you're right to highlight it.
And it's -- I think First Home is an encouraging first start of that. One more question over here, please.
Sorry, everybody. One more from Chris Millington. What about M&A to plug the volume hold? It does feel like if it's a three- to five-year build back, why not go out and buy someone who's got the outlets there and you're not having that lag effect between going up and buying London, putting it through the planning system.
And that's not off the agenda. It's not off the agenda. We'll capital case. We'll run the benchmark against it. But as far as we're concerned, anything is on the table over the course over the next few years, I think I'm genuinely excited about the next few years.
I think there's all sorts of opportunities, both in-house and externally for us in what this new era that we find ourselves in. I definitely think there will be opportunities coming to market because particularly for, I think, the small- and medium-sized builder. It's incredibly tough out there. There's an ever-growing burden of taxation, regulation, they can't cope with the planning system. They're just running out money, and it's very, very challenging for them.
So, yes, I mean, there could be some really exciting opportunities for us over the course of the next few years, and we'll need to get all of them.
Are we -- any more questions?
Sure you don't want to ask another 13 questions on the margin side. Well, look, thanks for listening to us this morning. Sorry to be the bearer of bad news, but 2023 was going to be a tough year. I think 2022 just showed what this team is capable of, particularly in the second half. And I genuinely I'm super excited about the next few years, both in terms of -- the question I just answered in terms of the opportunities that might be out there for us as well as our own in-house competencies.
We're building a better and better product. We are getting better and better at navigating the planning system. And I think our vertical integration, we're doubling down on that, could give us a step change in performance. So thank you very much for your time this morning.