Build-cost inflation and flat sales nibble at Taylor Wimpey’s profits

Higher build costs, a lagging market in London and the Southeast and political uncertainty have all taken their toll on the housebuilder.

Taylor Wimpey’s profit before tax and exceptional items decreased by 4.1% to £821.6 million, from £856.8 million in 2018. Gross profit dipped 2.8% to £1,044.1 million, from £1,074.5 million in 2018

However, group revenue increased by 6.4% to £4,341.3 million in 2019 from £4,082.0 in 2018. This growth was driven by increased completions in the UK, up 4.7% to 15,520 and an improvement in the average UK selling price, up 1.8% to £268.6k from £263.9k in 2018, primarily the result of an increase in the average size per completion of 1.3%.

Average build cost per unit in the UK increased to £156.6k (2018: £147.4k), driven by the impact of build cost inflation and continued investment in “build quality and customer experience”. Underlying annual build cost inflation was c.4.5% year on year (2018: c.3.5%).

Direct selling expenses per unit decreased marginally to £5.7k (2018: £5.9k), due to further sales efficiencies achieved in the year.

Basic earnings per share was 20.6 pence (2018: 20.1 pence), an increase of 2.5%. The adjusted basic earnings per share was 20.3 pence (2018: 21.3 pence), a reduction of 4.7%.

Pete Redfern, Chief Executive, said: “The Group delivered a good performance in 2019, with a record sales rate and home completions increasing by 5%. During the year, we continued to strengthen our business and build a sustainable advantage, improving our core customer proposition and business flexibility through investments in customer service, quality, build capacity and direct labour. These investments will strengthen the business for the long term.

“In 2020, we will focus on further embedding and leveraging these improvements across the business while increasing our focus on cost discipline and process simplification.”

Group financial highlights:

• 2019 results in line with expectations with clear progress against strategic priorities
• 5% increase in Group completions to 16,042 (2018: 15,275) including joint ventures
• Revenue increased by 6.4% to £4,341.3 million (2018: £4,082.0 million)
• Operating profit* of £850.5 million (2018: £880.2 million), reflecting strong volume growth offset by rising build costs and flat house prices, delivering an operating profit margin of 19.6% (2018: 21.6%)
• Profit before tax and exceptional items of £821.6 million (2018: £856.8 million)
• Profit for the year of £673.9 million (2018: £656.6 million)
• Basic earnings per share of 20.6 pence (2018: 20.1 pence)
• Net cash^‡of £545.7 million (2018: £644.1 million)
• £599.7 million paid in total dividends in 2019 (2018: £499.5 million)
• c.£610 million in total dividends proposed for 2020, subject to shareholder approval, as previously announced

“During a period of wider macro-economic uncertainty, the new build market has proved to be resilient and house prices have remained stable,” Redfern said. “As we look ahead, we see the removal of Help to Buy as a continued risk, but having had visibility of, and time to plan for, the changes, we consider it as one that can be managed. We remain supportive of Government plans to introduce an independent ombudsman service to the new build sector to provide impartial rulings on unresolved customer issues and to help raise standards in the wider industry.

“Whilst we recognise that the ongoing trade discussions with the European Union may create some volatility in sentiment in the housing market in the near term, we see the clearer political outlook as providing a longer period of stability for our customers. We are mindful of the changing regulatory environment for the sector in the short to medium term and will continue to monitor this closely to ensure we are able to respond.”