Taylor Wimpey operating & net profit down but good recovery in the second half of the year

Taylor Wimpey

Taylor Wimpey plc (LON:TW) has announced its full year results for the year ended 31 December 2020.

Pete Redfern, Chief Executive, commented:

“2020 was a very challenging year, during which our priority has continued to be the health and safety of our colleagues, customers, suppliers and subcontractors. Operating performance has bounced back strongly in the second half of 2020, with build capacity returning to near normal levels and strong sales.

We are confident in the medium term performance of the housing market and therefore accelerated our land purchases from May 2020 as high-quality land became available at attractive rates. We are now focusing on driving efficiencies across the business, the roll out of our new house type range and implementing our ambitious new environmental strategy.

The UK housing market has been resilient and continues to reinforce our confidence in our outlook. We are a cash generative business with a strong balance sheet, and we are pleased to announce today that we will reinstate our ordinary dividend in line with our aim of providing a reliable income stream to our shareholders.

As part of today’s results, we are also announcing help for building owners, with £125 million in funding to support fire safety improvement works to bring Taylor Wimpey apartment buildings constructed in the last 20 years up to the recently updated current RICS EWS1 guidance. We have taken this decision in order to provide certainty for customers and leaseholders and to avoid them bearing the cost of investment to ensure their buildings are safe.”

 Group financial highlights:

·   2020 results in line with expectations, with good recovery in the second half of the year as build capacity returned to near normal levels

·   38.9% decrease in Group completions to 9,799 (2019: 16,042) including joint ventures, primarily due to Q2 site shutdown with revenue of £2,790.2 million (2019: £4,341.3 million)

·    Operating profit* of £300.3 million (2019: £850.5 million), reflecting reduced volumes, delivering an operating profit margin of 10.8% (2019: 19.6%) 

·    Profit for the year of £217.0 million (2019: £673.9 million)

·    Net cash of £719.4 million (2019: £545.7 million)

·    Resumed Ordinary Dividend Policy to pay out c.7.5% of net assets, starting with a proposed 2020 final dividend of c.£151 million (4.14 pence per share), subject to shareholder approval

·    Raised £510 million of net funds in an equity placing in June 2020, to pursue additional near-term land acquisition opportunities

·   Agreed terms on and authorised c.£1.3 billion of gross land purchases by 31 December 2020, since re-entering the land market

·    Announced today £125 million in funding to support fire safety improvement works for leaseholders in Taylor Wimpey apartment buildings (including those below 18 metres), built over the last 20 years, to ensure they meet current RICS EWS1 guidance

Operational highlights:

·  Operating sites in a COVID-secure way, increased build capacity in H2 to near normal operating levels

·   Record UK forward order book of 10,685 homes as at 31 December 2020 (31 December 2019: 9,725), valued at £2,684 million (31 December 2019: £2,176 million)

·    Healthy sales rate for the year of 0.76 (2019: 0.96) despite constrained build capacity and remote sales

·    Overall average selling price increased to £288k (2019: £269k), driven mostly by change in mix

·    Focused on cost saving and simplification with annual savings of £16 million from 2021

·    Launched new house type range for roll out in 2021

Responsible, sustainable business:

·    Launching new environmental strategy with ambitious targets including:

o  Science-based targets approved by the Science Based Target Initiative to reduce our operational carbon emissions intensity by 36% by 2025 and to reduce carbon emissions intensity from our supply chain and customer homes by 24% by 2030

o  Making it easier for close to 40,000 customers to work from home and enabling more sustainable transport choices through 36,000 Electric Vehicle (EV) charging points and 3,000 additional bike stands by 2025

·  First homebuilder to achieve Carbon Trust Standard for our overall approach to carbon management

Prioritising sustainability and stakeholders through COVID-19:

· Excellent response from our employees during lockdown to volunteer in their communities and donate to the NHS and care homes

·  Strong take up of NHS and care workers discount scheme providing 5% discount to over 3,000 NHS and care workers at a total value of c.£46 million

·  Named in the Glassdoor top 50 places to work in the UK for 2021, as voted for by employees, for the fourth consecutive year and rated in the top 10 UK firms for work-life balance during COVID-19

·   Supported our workforce on full base pay through the shutdown and furlough with all funds received under the Coronavirus Job Retention Scheme returned to the UK Government

· Supported our subcontractors through our Pay It Forward Scheme, building trust with our key partners

· Continued to lead the volume housebuilders in build quality, with a National House-Building Council (NHBC) Construction Quality Review (CQR) score of 4.45 out of 6 (2019: 4.13 out of 6)

·  Achieved a 5 star customer rating for 2020 in the Home Builders Federation survey

Financial summary

 20202019Change
Revenue £m2,790.24,341.3(35.7)%
Operating profit £m300.3850.5(64.7)%
Operating profit margin %10.8%19.6%(8.8)ppt
Profit before tax £m264.4835.9(68.4)%
Profit before tax and exceptional items £m274.4821.6(66.6)%
Profit for the year £m217.0673.9(67.8)%
Basic earnings per share pence6.320.6(69.4)%
Adjusted basic earnings per share pence††6.520.3(68.0)%
Tangible net assets value per share pence110.0100.59.5%
Net cash £m719.4545.731.8%

Summary

After an unusual and volatile year, our 2020 results are in line with market expectations. Our teams and partners responded with dedication and professionalism to the pandemic and their resolve to continue to deliver high quality homes and exceptional service for our customers was outstanding. The UK housing market has remained resilient, despite the shutdown period in the second quarter.

Total UK home completions (including joint ventures) decreased by 38.9% to 9,609 in 2020 (2019: 15,719), due primarily to the impact on production capacity during the second quarter shutdown. Average selling prices on private completions increased by 5.9% to £323k (2019: £305k), with the overall average selling price increasing to £288k (2019: £269k), driven mostly by change in mix. 

In the year, we raised net proceeds of £510 million of new equity for investment in land to support future growth. Between re-entering the land market and 31 December 2020, we had agreed terms on and authorised c.£1.3 billion of gross land purchases across our business that are in line with our operating margin targets of 21-22% with an average return on capital employed of c.34%, comprising 93 sites and c.22,600 plots, significantly ahead of our normal rate of acquisition. We have continued to progress land buying this year, as land market conditions have begun to normalise and competition has returned in most areas. 

In the year, we made a number of changes to improve the efficiency of our business and drive future margin improvement. These changes will generate annual cost savings of £16 million from 2021 and cost £12.1 million to implement, which was borne in 2020. Operating profit in 2020 was £300.3 million (2019: £850.5 million), with an operating profit margin of 10.8% (2019: 19.6%). Profit for the year was £217.0 million (2019: £673.9 million), down 67.8% on 2019 and included a post-tax exceptional charge of £8.3 million (2019: positive post-tax exceptional contribution of £11.6 million). We have a strong balance sheet and ended the year with net cash of £719.4 million (2019: £545.7 million). We are today announcing our intention to resume ordinary dividend payments by returning c.£151 million as a 2020 final dividend (of 4.14 pence per share), to be paid in May 2021, subject to shareholder approval.

We run our business for the long term and so sustainability in the widest sense has always been a key element of our culture and way of doing business. In 2021, we will implement our new environmental strategy, which strengthens our environmental, social and governance framework which is well integrated into the business. The environmental strategy focuses on both our macro impact on issues like climate change and carbon footprint, and also aims to enhance our local engagement on issues like biodiversity and customer environmental engagement. In the social sphere, building on the lessons learnt through the pandemic, we are also aiming to strengthen our engagement and relationship with the local communities in which we operate.

Doing the right thing for our customers is a key priority for the Group. Today we are announcing our intention to support building owners and leaseholders with fire safety investment to ensure their apartment buildings are safe and meet current EWS1 (External Wall Fire Review) requirements. This applies to Taylor Wimpey apartment buildings constructed over the last 20 years, including apartment buildings below 18 metres. We are making an additional £125 million provision, to be booked in 2021, to cover this cost.

This is a complex and exceptional situation, but Taylor Wimpey is focused on doing the right thing for its customers. The Board has determined that we will fund and oversee the improvement works of apartment buildings in our ownership, regardless of eligibility for the UK Government Building Safety Fund, to make them safe and mortgageable by achieving EWS1 certification. If Taylor Wimpey no longer owns the building and it is not eligible for the Building Safety Fund, or similar support that may be announced in the future, where a freeholder produces a fair and proportionate plan for fire safety improvement works following EWS1 assessment, we will contribute funding to bring those buildings up to the standards required by current RICS EWS1 guidance. Whilst the legal responsibility continues to rest with the building owner, we will also provide advice and other assistance where appropriate.

UK current trading and outlook

The 2021 selling season has started well, following on from the stronger than expected recovery of the housing market in the second half of 2020 and reflecting the underlying strength of demand, underpinned by low interest rates and stable mortgage lending. The net private sales rate for the year to date (w/e 21 February 2021) was 0.89 (2020: 0.94).

We started the year over 50% sold for 2021 private completions and have continued to grow our order book. As at 21 February 2021, our total order book excluding joint ventures was £2,793 million (2020 equivalent period: £2,584 million), comprising 11,013 homes (2020 equivalent period: 10,880). Our order book includes a healthy profile of sales extending into the second quarter and beyond when the Stamp Duty Land Tax holiday is due to end and into the next phase of Help to Buy. With the benefit of a strong order book, we have tested sales pricing across our developments, and have achieved selling price growth in the first two months of the year.

We are mindful of the changing regulatory environment for the sector in the short to medium term and have put the steps in place to enable us to respond appropriately. While Brexit related friction and the ongoing implications of COVID-19 may cause some disruption in housing market sentiment in the near term, with the process now agreed, we expect the clearer political outlook to provide a longer period of stability for our customers. 

We are focused on the performance objectives of reducing underlying costs, process simplification and driving value across the business, with operating profit margin the primary financial measure for the Group. We continued to prioritise opening new outlets throughout 2020 and remain focused on developing our new land acquisitions through the planning system and opening new outlets efficiently. In 2021, assuming the market remains broadly stable, we expect to deliver 85-90% of 2019 volumes and make further progress towards our medium term operating margin target of c.21-22%. 

We expect to record a smaller proportion of affordable homes than usual in 2021,​ (c.17%), influenced by site mix and a revision to the way we contract land sold to Housing Associations, with revenue and profit realised slightly later. The private / affordable mix will return to more normal historic levels from 2022​. At this stage, we anticipate overall build cost inflation in 2021 to be marginally lower than in 2020, (c.2-3%), though this is dependent on industry-wide production levels as well as the strength of the housing market.  

As our completion volumes recover, we expect 2021 operating margin to increase to between 18.5% and 19%. At this stage we anticipate 2021 year end net cash of broadly £500 million, subject to timing of land acquisitions and payments.

Having approved significant incremental new land in the past nine months we expect new land approvals to revert to a more normal replacement level. Between re-entering the land market in 2020 and 26 February 2021, we agreed terms on and authorised gross land purchases comprising 30,956 plots and expect our short term landbank to grow by over 10k plots over the next 12-18 months.

The Group has a robust balance sheet and a growing high-quality landbank, which will enable us to grow the business whilst generating compelling returns. The actions we have taken in 2020, and the strong embedded margin in the landbank, underpin our confidence in achieving our medium term target to deliver operating profit margins of c.21-22%. Our focus on retaining momentum in outlet openings and our incremental land acquisitions leave us well positioned to deliver strong volume growth in the medium term. With a continued focus on costs and efficiency, the Board believes the Group is well positioned for strong progress and to deliver enhanced shareholder value in the years ahead.

* Operating profit is defined as profit on ordinary activities before net finance costs, exceptional items and tax, after share of results of joint ventures.

** Return on net operating assets (RONOA) is defined as rolling 12-month operating profit divided by the average of the opening and closing net operating assets, which is defined as net assets less net cash, excluding net taxation balances and accrued dividends.

*** Operating cash flow is defined as cash generated by operations (which is before taxes paid, interest paid and payments related to exceptional charges).

*Net operating asset turn is defined as 12-month rolling total revenue divided by the average of opening and closing net operating assets.

†* Return on capital employed (ROCE) is defined as 12-month rolling operating profit divided by average capital employed calculated on a monthly basis over the period.

 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 cash / (debt) is defined as total cash less total borrowings.

‡‡ Cash conversion is defined as operating cash flow divided by operating profit 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.

The Group uses Alternative Performance Measures (APMs) as key financial performance indicators to assess underlying performance of the Group. The APMs used are widely used industry measures and form the measurement basis of the key strategic KPIs (return on net operating assets, operating profit margin and cash conversion). A portion of executive remuneration is also directly linked to some of the APMs. Definitions and reconciliations to the equivalent statutory measures are included in note 12 of the financial statements.

A presentation to analysts will be hosted by Taylor Wimpey’s Chief Executive Pete Redfern, Group Finance Director Chris Carney and Group Operations Director Jennie Daly, at 8.30am on Tuesday 2 March 2021. This presentation will be webcast live on our website: www.taylorwimpey.co.uk/corporate 

An archived version of the webcast will be available on our website in the afternoon of 2 March 2021.

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