Taylor Wimpey plc Good progress in the first half

Pete Redfern, Chief Executive, commented:

“We have made good progress in the first half against our long term strategy, underpinned by our continued commitment to our customers, build quality and employee engagement. We delivered a record sales rate in the first half as we saw strong customer demand for our homes in a stable market and the success of our strategy to build more homes on our larger sites coming through more quickly than anticipated. 

Despite wider political uncertainty, conditions for the housing market continue to be supportive with good affordability and access to finance. We have not seen any meaningful change in customer confidence, with positive underlying metrics and forward indicators. We expect full year results for 2019 to be in line with expectations.

Taylor Wimpey has a customer first strategy and I am particularly proud of the commitment from our highly motivated and engaged teams, and the positive improvement we are seeing in our build quality measures. We are investing for the long term in customer service and in the quality and skills of our business, particularly in apprenticeships and early talent. It remains our goal to deliver high-quality homes, right first time, and create thriving communities in places our customers want to live. This strategy will position us to be the customer’s first choice homebuilder in all market conditions whilst providing enhanced returns for shareholders.”

Group financial highlights:

• Completed a Group total of 6,541 homes (H1 2018: 6,497), excluding joint ventures

• Operating profit* of £311.9 million (H1 2018: £344.3 million), reflecting higher build costs and geographic mix, partly offset by higher volumes, delivering an operating profit margin of 18.0% (H1 2018: 20.0%)

• Profit before tax of £299.8 million (H1 2018: £301.0 million)

• Net cash^‡ of £392.0 million as at 30 June 2019 (1 July 2018: £525.1 million), due to timing of land payments and investment in work in progress, reflecting the increased order book

• 2019 full year results expected to be in line with expectations

UK operational highlights:

• Record H1 net private sales rate at 1.00 across an average of 257 outlets, driven by customer demand and continued success of our strategy (H1 2018: 0.83 across 280 outlets)

• Strong order book as at 30 June 2019 representing 10,137 homes (1 July 2018: 9,241 homes), up 10%, with a value of £2,366 million (1 July 2018: £2,175 million), up 9%, excluding joint ventures

• Progress implementing measures to improve right first time build quality, with the start of the roll out of Quality Managers across each of our regional businesses

• Apprenticeship Manager and / or Master Crafts role now operating in around half of our regional businesses

• Commitment to investing in long term skills, direct labour and apprentices with 821 people employed in key trades (1 July 2018: 640)

• Achieved 89% recommend score as measured by the National House-Building Council (NHBC) survey on behalf of the Home Builders Federation (HBF) (H1 2018: 90%)

• Improved our average Construction Quality Review score to 4.05, once again in the top quartile of large homebuilders (H1 2018: 4.01)

• Contributed £196 million in the first half of 2019 to local communities via planning obligations (H1 2018: £192 million)

• High employee engagement of 93% and low employee turnover of 12.9% (H1 2018: 14.6%)

Dividends

• Interim ordinary dividend of 3.84 pence per share (H1 2018: 2.44 pence per share) to be paid in November 2019, bringing 2019 total dividends in the year to c.£600 million or c.18.34 pence per share (2018 total: £500 million)

• 2020 special dividend announced of £360 million (c.11.0 pence per share) to be paid in July 2020 subject to shareholder approval (2019: c.£350 million or 10.7 pence per share)

– 2020 total dividends expected to be c.£610 million or c.18.6 pence per share

Group financials

	H1 2019	H1 2018	Change	FY 2018
Revenue £m	1,732.7	1,719.8	0.8%	4,082.0
Operating profit £m	311.9	344.3	(9.4%)	880.2
Operating profit margin	18.0%	20.0%	(2.0)ppt	21.6%
Profit before tax and exceptional items £m	299.8	331.0	(9.4)%	856.8
Profit before tax £m	299.8	301.0	(0.4)%	810.7
Profit for the period before exceptional items £m	242.0	269.1	(10.1)%	694.5
Profit for the period £m	242.0	244.5	(1.0)%	656.6
Adjusted basic earnings per share pence††	7.4	8.2	(9.8)%	21.3
Basic earnings per share pence	7.4	7.5	(1.3)%	20.1
Tangible net asset value per share pence†	102.2	100.3	1.9%	98.3
Net cash £m	392.0	525.1	(25.3)%	644.1
Return on net operating assets**	29.4%	30.9%	(1.5)ppt	33.4%

UK current trading

During the first half of 2019 the UK housing market was stable, with robust demand. The south east remained generally more challenging, particularly at higher price points. Pricing was flat overall in the first six months. Whilst there remains a high degree of uncertainty regarding the UK’s exit from the EU, we have not seen any meaningful change in customer confidence or sentiment in 2019 to date. Our customers’ decisions to purchase a home continue to be primarily driven by aspiration and the affordability of, and access to, mortgage finance. There remains a competitive mortgage environment across a wide range of loan to value ratios and Help to Buy continues to be a differentiator for new build customers.

We achieved a very strong net private sales rate for H1 2019 of 1.00, across our 257 outlets (H1 2018: 0.83 sales per outlet per week and 280 outlets), a record for Taylor Wimpey. The cancellation rate for H1 2019 remains low at 14% (H1 2018: 13%). The net private sales rate for the year to date (w/e 28 July 2019) stands at 0.99 (2018 equivalent period: 0.82). 

As at 28 July 2019 we were c.87% forward sold for private completions for 2019 (2018 equivalent period: 86%) and are  building our order book for 2020. Our total order book value stands at £2,516 million (2018 equivalent period: £2,257 million), excluding joint ventures. This order book represents 10,558 homes (2018 equivalent period: 9,623). Our affordable order book stands at 4,353 homes (2018 equivalent period: 4,085).

The land market continues to be stable with good opportunities. We continue to be able to acquire land in quality locations at attractive investment margins and returns.

At the time of our Annual General Meeting (AGM), we reported that we were experiencing higher than expected cost inflation, driven primarily by underlying cumulative inflation, exchange rates impact on the cost base of suppliers, and a higher than expected demand in the short term which has impacted operating profit margin. We anticipate that build cost inflation will be c.5% for 2019 (FY 2018: 3.5%).

We announce today that, subject to shareholder approval, it is our intention to pay a special dividend for 2020 of £360 million which, alongside the ordinary dividend, will take total dividends to be paid in 2020 to c.£610 million reflecting our ongoing confidence in the business and our prospects (2019 total: c.£600 million). 

Outlook and guidance

We remain committed to providing our customers with a high-quality home and experience. There is a cost to long term quality and sustainable growth. It requires early investment of time and resources and a consistent approach. Over the last five years our focus has been on targeting investment in a number of key areas, from employee development, and apprenticeship and early talent programmes, to ensuring we have the processes and resources to deliver a quality home for our customers which is right first time. We are now focused on ensuring these changes are embedded and consistently delivered across our regional businesses. We are confident that in the long term this will become an increasing point of differentiation and a key part of our value proposition, not just for customers and communities but for investors and other stakeholders and will help us to deliver on our customer-centric strategy. Whilst this strategy, and our strategic goals, are deliberately set for the long term, we are pleased to see progress more quickly than anticipated in some areas. We are benefiting from the investments we have made in our onsite resources and processes, and this has allowed us to respond more quickly to the opportunity to scale up our build teams on larger sites to meet underlying market demand. This has driven a significantly higher sales rate year on year, outperforming the sector, without compromising on quality and without having to choose to put volume ahead of achieving price. The buy-in from our employees is key. 96% of employees agree that Taylor Wimpey aims to deliver the best customer experience in the homebuilding industry, as measured by our recent employee survey.

We anticipate that full year 2019 results will be in line with expectations. As previously guided, we expect full year volumes to be slightly higher than 2018 as we have seen results from our strategic approach to large sites impact more quickly than expected. In this environment where pricing is flat, and there is increased build cost pressure, our margins will be lower in 2019 than in 2018. 

We continue to closely monitor the market for any changes and customer trends and manage the business cautiously, particularly against the backdrop of the ongoing political and macro-uncertainty. We are well positioned with a strong order book and balance sheet and as a network of local businesses, most of our materials are UK-sourced. We have been working with our suppliers to understand and mitigate the risk in their supply chains from an uncertain Brexit outcome and utilising our internal logistics arm, Taylor Wimpey Logistics, which provides additional visibility, control and flexibility in managing our supply chain. As a part of our long term planning and strategy, we have been adapting and growing our apprenticeship, early talent management and direct labour schemes to ensure we have the right skills in place for the future.

We remain focused on building a resilient, high-quality business by putting the customer at the centre of our decision making. It remains our goal to build high-quality homes, which are right first time, and create thriving communities in places our customers want to live, now and in the future. This will position the business to be the customer’s first choice in all market conditions, including a post Help to Buy environment, which will in turn provide enhanced returns to shareholders and will benefit all stakeholders.

* 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-months 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.

*** Return on capital employed is defined as rolling 12-months operating profit 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 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.

^†** WIP turn is defined as total revenue divided by the average of opening and closing work in progress.

^†*** 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.  Previous rates disclosed for the half year were calculated using the number of incidents in the six month period, and the monthly average number of employees and contractors over the same six month period.

^‡ Net cash is defined as total cash less total financing.

^‡‡ Cash conversion is defined as operating cash flow divided by operating profit on a rolling 12-month basis.

^‡‡‡ Contribution margin is defined as revenue less direct build costs, less gross land costs and less direct selling expenses. Contribution margin excludes the impact of supplier rebates, land provision utilisation and discounting of deferred land commitments.

^‡‡‡‡ 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 16 of the financial statements.