Taylor Wimpey plc (LON:TW) has announced its half year results for the period ended 4 July 2021.
Financial highlights:
· Group completions of 7,303 homes (H1 2020: 2,771) excluding joint ventures, a record first half performance, partly due to the delayed Q4 2020 completions
· Strong margin performance with first half Group operating profit margin of 19.3% (H1 2020: (2.1)%; H1 2019: 18.0%), as a result of our strong cost and price discipline throughout the business and benefiting from increased completions
· Net cash‡ of £906.5 million, due to timing of land payments
· Acted decisively in March 2021, to announce a new cladding fire safety provision of £125 million to make apartment buildings safe and mortgageable up to EWS1 (External Wall Fire Review) guidance
· 2021 interim dividend of 4.14 pence per share (c.£151 million in total) in line with our Ordinary Dividend Policy to return c.7.5% of net assets to shareholders annually in two equal payments
Group financial highlights
| H1 2021 | H1 2020 | Change | FY 2020 | |
| Revenue £m | 2,196.3 | 754.6 | 191.1% | 2,790.2 |
| Operating profit / (loss)* £m | 424.0 | (16.1) | n/a | 300.3 |
| Operating profit margin | 19.3% | (2.1)% | 21.4ppt | 10.8% |
| Profit / (loss) before tax and exceptional items £m | 412.5 | (29.8) | n/a | 274.4 |
| Profit / (loss) before tax £m | 287.5 | (39.8) | n/a | 264.4 |
| Basic earnings / (loss) per share pence | 6.5 | (1.0) | n/a | 6.3 |
| Adjusted basic earnings / (loss) per share pence†† | 9.3 | (0.7) | n/a | 6.5 |
| Tangible net asset value per share pence† | 113.3 | 102.8 | 10.2% | 110.0 |
| Net cash £m | 906.5 | 497.3 | 82.3% | 719.4 |
| Return on net operating assets** | 23.0% | 16.8% | 6.2ppt | 9.9% |
UK operational highlights
· Positive momentum in the first half:
o H1 2021 net private sales rate of 0.97 (H1 2020: 0.70)
o Average outlets during the period of 228 (H1 2020: 237)
o Opened 37 new outlets in the period (H1 2020: 39)
o We expect to grow our outlet numbers by around 50 over the next 24 months
· Strong UK total order book representing 10,344 homes with a value of £2,608 million as at 4 July 2021 (28 June 2020: 11,686 homes, £2,904 million), excluding joint ventures
· At the half year, 97% forward sold for 2021 completions (H1 2020: 91%; H1 2019: 82%)
· c.14.5k plots approved during the first half (H1 2020: c.5.2k) at attractive margins and return on capital employed*** (ROCE)
· Strong growth in short term landbank by c.5k plots to c.82k plots (H1 2020: c.77k)
· Significant additions to the strategic land pipeline which stood at c.147k potential plots as at 4 July 2021 (31 December 2020: c.139k)
· Further improvement in average Construction Quality Review score to 4.65 (H1 2020: 4.31)
· 4 out of 5 star rating on Trustpilot and 92% of customers would recommend us in H1 2021 according to the Home Builders Federation 8-week customer survey
· Excellent employee survey results:
o Health and safety continued to be the top scoring area at 97%
o Overall employee engagement score of 91%
o 95% of employees are proud to work for Taylor Wimpey
o 96% of employees feel they can be their authentic self at work
· Recently included in the Financial Times inaugural list of Europe’s Climate Leaders and rated by ISS ESG with prime status for our performance in ESG, the highest among the construction sector organisations it rates
First half performance overview
The UK housing market has continued to perform strongly across all our geographies in the first half of the year. Having entered 2021 with an excellent order book we have delivered a strong first half performance, benefiting, as anticipated, from delayed Q4 2020 completions and the continuing strength in the housing market. We are particularly pleased with our Group operating margin performance which was 19.3% as a result of our strong cost discipline, a slightly higher weighting of completions in the first half and our focus on optimising price and driving margin performance.
Total UK home completions (excluding joint ventures) increased to 7,219 in the first half (H1 2020: 2,713), with the comparator heavily impacted by the COVID-19 shutdown. Group revenue increased to £2,196.3 million (H1 2020: £754.6 million). Group operating profit increased to £424.0 million (H1 2020: £16.1 million loss) with operating profit margin increasing to 19.3% (H1 2020: (2.1)%).
Today we announce a 2021 interim dividend to be paid in November 2021 of 4.14 pence per share amounting to c.£151 million in total in line with our Ordinary Dividend Policy to return c.7.5% of net assets to shareholders annually in two equal payments.
UK current trading
During the first half of 2021 we have seen strong demand for homes in the UK underpinned by low interest rates, good mortgage availability and Government support for customers in the form of Help to Buy. We have continued to see high levels of demand for our homes and have built a strong forward sales position.
Our sales rate for the first half was 0.97 (H1 2020: 0.70), due to strong customer demand. There have been healthy levels of customer interest in reservations extending well beyond the end of the Stamp Duty Land Tax holiday. Cancellation numbers have remained at normal levels throughout H1 2021. The cancellation rate for H1 2021 was 14% (H1 2020: 21%; H1 2019: 14%).
Forward indicators remain robust and as at 1 August 2021, our order book value was £2,712 million (2020 equivalent period: £3,022 million), excluding joint ventures, representing 10,589 homes (2020 equivalent period: 12,014 homes). As at 1 August 2021, we were c.99% forward sold for private completions for 2021 (2020 equivalent period: c.97%; 2019 equivalent period: c.87%).
The sector has seen increased build cost and supply chain pressure in relation to some materials in the first half of 2021, however this is being fully offset by healthy levels of house price growth.
Outlook
The UK housing market remains strong, underpinned by low interest rates, good mortgage availability and Government support for customers.
We anticipate full year 2021 completions for the UK, excluding joint ventures, will be towards the upper end of our guidance range of 13,200 to 14,000 homes. We continue to expect to end 2021 on a similar number of outlets to those at the beginning of the year.
We now expect 2021 full year Group operating profit to be c.£820 million, above the top end of consensus1.
Our 2021 year end net cash balance is anticipated to be around £700 million, subject to the timing of certain land transactions.
Looking further ahead, we have excellent momentum going into the medium term and are well positioned for accelerated volume growth from 2023. In the past 12 months we have approved a record c.32k plots in line with our medium term operating margin target of c.21-22% and at a ROCE of over 30%, taking timely advantage of the lack of competition in the land market last year. We are focused on working with our partners and local communities to progress this additional land through the planning system and expect to grow our outlets by around 50 over the next 24 months, leading to a significant increase in completions of much needed new homes from 2023. Assuming normal market conditions, the additional land we have approved over the last year will enable us to deliver volumes of 17-18k in the medium term.
Our first priority remains driving improvement in our operating profit margin, followed by this outlet driven growth. We remain focused on value, execution and driving operating margin to achieve our c.21-22% operating margin target in the medium term. We also continue to build on the long term sustainability of the business, delivering value for all our stakeholders.
1As published on 3 August 2021, the Company compiled consensus expectation for full year 2021 is for operating profit of £779 million with a range of £756 million to £808 million.
Alternative performance measures and other key performance indicators
* Operating profit or loss is defined as profit or loss on ordinary activities before net finance costs, exceptional items and tax, after share of results of joint ventures.
*† Operating margin is defined as operating profit or loss divided by revenue.
** Return on net operating assets (RONOA) is defined as rolling 12 months operating profit or loss divided by the average of the opening and closing net operating assets of the 12 month period, which is defined as net assets less net cash, excluding net taxation balances and accrued dividends.
*** Return on capital employed (ROCE) is defined as rolling 12 months operating profit or loss divided by the average capital employed calculated on a monthly basis over the period.
**** Operating cash flow is defined as cash generated by operations (which is before income taxes paid, interest paid and payments related to exceptional charges).
† Tangible net assets per share is defined as net assets before any accrued dividends excluding goodwill and intangible assets divided by the number of ordinary shares in issue at the end of the period.
†† Adjusted basic earnings per share represents earnings attributed to the shareholders of the parent, excluding exceptional items and tax on exceptional items, divided by the weighted average number of shares in issue during the period.
†* Net operating asset turn is defined as 12 months rolling total revenue divided by the average of opening and closing net operating assets of the 12 month period .
†*** The Injury Incidence Rate (IIR) is defined as the number of incidents per 100,000 employees and contractors, calculated on a rolling 12 month basis, where the number of employees and contractors is calculated using a monthly average over the same period.
‡ Net cash is defined as total cash less total borrowings .
‡‡ Cash conversion is defined as operating cash flow divided by operating profit or loss on a rolling 12 month basis.
‡‡‡‡ Adjusted gearing is defined as adjusted net debt divided by net assets. Adjusted net debt is defined as net cash less land creditors.
A reconciliation of alternative performance measures to statutory measures is disclosed in note 18 of the financial statements.
Pete Redfern, Taylor Wimpey Chief Executive, commented:
“We have delivered a record first half performance and a strong operating profit margin*† performance of 19.3%, which reflects tight cost discipline as well as higher completions in the period.
Our focus remains on driving further improvement in our operating profit margin and accelerated outlet-driven volume growth from 2023.
Backed by last year’s equity raise we stepped up our activity in the land market before competition returned and we successfully increased our land pipeline with high-quality sites that will deliver a strong financial performance. We are progressing this land through the planning stages as expected, providing excellent momentum for growth, enhanced returns for our stakeholders and increased numbers of new homes.
We have a clear purpose to deliver high-quality homes and create thriving communities and a strategy to ensure the long term sustainability of the business. We now expect to deliver 2021 full year Group operating profit* of c.£820 million, above the top end of consensus1, with UK completions (excluding joint ventures) expected to be towards the upper end of our guidance range of 13,200 to 14,000.”
