Taylor Wimpey – half year results 2018

Taylor Wimpey has announced its 2018 half year results.

Pete Redfern, Chief Executive, commented:

“As employment prospects remain positive and mortgage availability is good, customer demand for our homes has been strong in spite of some wider macroeconomic uncertainty. With a strong order book in place, we are confident in our prospects for the remainder of the year and looking further ahead.

“We have been very pleased to see further improvement in our customer satisfaction scores which is the result of our increased investment in this area over the last three years.

“We have a great platform in place as we roll out our new strategy for customer centred growth, which means taking a proactive approach to every aspect of our operations and becoming a more agile, focused and innovative business.

“Improving the efficient use of our land, and improving all key processes over the next five years, will enable us to deliver more homes and a high-quality product and service to our customers and communities and increased value for shareholders.

“We remain on track to deliver the Board’s expectations for 2018.”

Delivering high-quality returns now whilst investing to create a customer-centric growth business for the future.

  • Completed a Group total of 6,497 homes (H1 2017: 6,648), excluding joint ventures
  • Increase in UK private average selling price to £295k (H1 2017: £287k)
  • Achieved 90% customer recommendation rate in H1 2018 (H1 2017: 88%)
  • Strong UK order book as at 1 July 2018 representing 9,241 homes (2 July 2017: 8,741 homes), with a value of £2,175 million (2 July 2017: £2,111 million), excluding joint ventures
  • Adjusted operating profit* of £344.3 million (H1 2017: £350.5 million)
  • Profit before tax of £301 million (H1 2017: £205 million)
  • Contributed £192 million in the first half of 2018 to local communities via planning obligations – and over £1.8 billion since the start of 2013
  • Exceptional provision of £30.0 million to replace Aluminium Composite Material (ACM) cladding, providing support to customers on certain developments following a detailed review
  • Increased net cash of £525.1 million as at 1 July 2018 (2 July 2017: £429.0 million)
  • Interim ordinary dividend of 2.44 pence per share (H1 2017: 2.30 pence per share) to be paid in November 2018, bringing 2018 total dividends to c.£500 million or 15.28 pence per share 

Reconfirmation of enhanced returns to shareholders from 2019

  • Special dividend of £350 million (c.10.7p pence per share) to be paid in July 2019 subject to shareholder approval (£340 million and 10.4 pence per share paid in July 2018)
  • From 2019, increased Ordinary Dividend Policy of approximately 7.5% of Group net assets and at least £250 million per annum through the cycle (up from 5% and at least £150 million per annum), bringing 2019 total dividends to c.£600 million or c.18.3 pence per share (2018: c. £500 million)
  • Based on our current five-year expectations, and in current market conditions, we expect special dividend payments to remain comparable to the 2018 and 2019 payments

Group financials

 H1 2018H1 2017ChangeFY 2017
Revenue £m1,719.81,727.5(0.4)%3,965.2
Adjusted operating profit £m344.3350.5(1.8)%844.1
Operating profit margin20.0%20.3%(0.3)ppt21.3%
Profit before tax and exceptional items £m331.0335.0(1.2)%812.0
Profit before tax £m301.0205.046.8%682.0
Earnings for the period before exceptional items £m269.1271.1(0.7)%660.3
Earnings for the period £m244.5165.747.6%555.3
Adjusted basic earnings per share pence8.28.3(1.2)%20.2
Basic earnings per share pence7.55.147.1%17.0
Tangible net asset value per share pence100.394.06.7%95.7
Net cash £m525.1429.022.4%511.8
Return on net operating assets30.9%30.9%0.0ppt32.5%

UK current trading and outlook

During the first half of 2018, the housing market has been stable across all our core geographies, including London. Customers continue to benefit from a competitive mortgage environment, low interest rates and the Help to Buy scheme. Despite some wider uncertainty in the UK economy and the ongoing Brexit negotiations, we have seen no material impact on customers’ ability or desire to purchase a new home with Taylor Wimpey in 2018. We continue to monitor the potential risk of a future change in customer confidence. We are committed to broadening our routes to market and increasing the accessibility of our homes to as many potential customers as possible, as a key part of our new strategy, which we set out in May 2018.

We are focused on building a new and better business for the long term, while delivering improvements in the short term. We are committed to becoming a truly customer-centric homebuilder and improving the efficiency of our landbank, as we look to deliver more homes to a greater number and wider range of people. We continue to be active in the land market, which remains positive as we work together with our partners and communities to progress new acquisitions. We target locations where we can create and add to communities in which our customers want to live, now and in the future, and which will provide new homes for years to come. We continue to acquire land at similar high investment margins and returns to those in 2017.

The net private sales rate for H1 2018 at 0.83, across our 280 outlets, remained at a healthy level and, with the exception of H1 2017, is the strongest H1 sales rate recorded for Taylor Wimpey (H1 2017: 0.87 sales per site per week and 292 outlets). Our larger sites (namely those with a scope of more than 750 homes) are already delivering increased sales rates in excess of 1.5. The cancellation rate for H1 2018 remains low at 13% (H1 2017: 11%). The net private sales rate for the year to date (w/e 22 July 2018) stands at 0.82 (2017 equivalent period: 0.86).

As at 22 July 2018, we were c.87% forward sold for private completions for 2018, with a total order book value of £2,269 million (2017 equivalent period: £2,224 million), excluding joint ventures, with some homes reserved into 2020. This order book represents 9,612 homes (2017 equivalent period: 9,141). In Central London c.78% of private completions for 2018 are forward sold, as at 22 July 2018 (2017 equivalent period: 77%). Our affordable order book stands at 4,034 homes as at 22 July 2018 (2017 equivalent period: 3,287).

As previously announced, the very poor weather in the first quarter of 2018 means the proportion of FY 2018 forecast completions that have been delivered in the first half is slightly lower than last year, which has also impacted H1 2018 revenue. This means we expect 2018 to be more second half weighted than normal. The catch up in construction has progressed well and we remain on track to deliver in line with our FY 2018 guidance.

We also confirm our prior guidance for build cost increases in 2018 of c.3-4%.

It is positive that all major political parties understand the importance of, and the very real need for, more good-quality homebuilding in the UK. We welcome the draft analysis of the Letwin independent review into build out rates published in June 2018 and the clear conclusion that major homebuilders do not engage in speculative landbanking. The focus of our strategy is already on maximising our output on larger sites through developing differentiated and sought-after homes for a wide range of customers.

We reconfirm today a special dividend for 2019 of £350 million which, alongside the ordinary dividend, will take total dividends to be paid in 2019 to c.£600 million, an increase of 20% on 2018. Based on our current five-year expectations, and in current market conditions, we expect special dividend payments to remain comparable to the 2018 and 2019 payments.

In an environment where we believe underlying demand will continue to be above supply into the foreseeable future, we are confident that we can deliver significant benefits to our customers in all market conditions and deliver further financial value to our shareholders. With our high-quality landbank and skills, we are well placed to deliver an increase in much-needed homes across the country.