Behind the spin

THE DILEMMA

by
Last Updated: 09 Oct 2013

Is it all going pear-shaped for Britain's biggest housebuilder? Poor old Taylor Wimpey had to suspend the £750m share buyback programme that it set up when its two component companies, Taylor Woodrow and George Wimpey, merged last July. And now it has been elbowed out of the FTSE 100. Nasty brickbats for a well-run international company that chalked up pre-tax profits of nearly £410m in 2006. Even last year, pre-tax profits in the UK rose 14% to £608.5m, despite a market slowdown. Yet the group as a whole made a £19.5m loss. How? Well, it was the housing meltdown in the US. Taylor Wimpey wrote off £283m on its land bank and building projects there - it sold 25% fewer homes in the US in 2007 - and a further £6m in Spain, where expatriate demand for new homes slowed.

THE SPIN

Shareholders will have to wait for any large sums to be returned to them. Indeed, the share price fell 4% on the announcement on 29 February that the UK order book was a fifth down on 2007. 'We can't be sure this is it as far as the US writedowns are concerned,' admitted CEO Peter Redfern. 'The recovery will be a gradual one.' But the US will remain an important market for the firm in the long term. As to the British market, 'interest rates and mortgage availability will be the key determinants of customer confidence'.

THE STRAIGHT TALK

The fortunes of construction firms will always be at the mercy of the property cycle, but despite sales down 3.7% at home, Taylor Wimpey still improved margins to over 15%. Simon Brown, an analyst at Landsbanki, told the Independent: 'It has been a surprisingly good performance in the UK, considering the market. The US figures were in line with expectations.' But conditions will get tougher. Halifax statistics show house prices falling this year - even as building costs rise. The Mirror reported that the firm is to axe a further 170 UK jobs after cutting more than 700 in 2007.

THE VERDICT

The company acknowledges that 'current conditions in the US require us to focus ... on cost reductions and cash management'. It has halved its exposure to the region, which now accounts for 15% of its land bank, and is not making any more land purchases in the US while it works on selling existing sites. Reining in its ambition is the first step to recovery. Last year's merger was more logical than most, and Taylor Wimpey has a healthy 50-50 balance in its post-marital management structure. Unlocking those synergies will help it win the battle for cost-savings.

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