Taylor Wimpey warns of squeezed profit margin for 2020
Flat house prices amid 2019’s prolonged Brexit uncertainty hurt Taylor Wimpey’s profit margin last year, with no recovery expected in 2020, it revealed today.
The figures
Taylor Wimpey’s profit before tax climbed 3.1 per cent year on year to £835.9m in 2019. But weak house price growth and building costs knocked the firm’s operating profit margin down two percentage points to 19.6 per cent.
And a post-tax £11.6m “exceptional contribution” flattered the firm’s bottom line. Without it adjusted profit before tax fell 4.1 per cent to £821.6m.
Basic earnings per share grew 2.5 per cent to 20.6p, but fell almost five per cent on an adjusted basis to 20.3p.
Revenue rose 6.4 per cent year on year to £4.34bn, but Taylor Wimpey lost almost £100 from its cash pile to be left with net cash of £545.7m.
Meanwhile, Taylor Wimpey’s adjusted net debt doubled from £94.5m in 2018 to £183.5m in 2019.
The housebuilder also outlined a £610m special dividend in 2020, up on 2019 returns of £599.7m.
Why it’s interesting
Taylor Wimpey’s share price sank 3.9 per cent to 210.4p in early trading as investors reacted to the housebuilder’s shrinking profit margin.
“In an environment where the political and economic outlook has been uncertain, average sales prices remained flat, while build cost inflation increased,” Taylor Wimpey said today, adding that its long term business investment plan also dented margins.
It also admitted its profit margin would remain flat for 2020, warning it “will show pressure from 2019 build cost inflation and selling prices and long term investment in quality and business improvement”.
But Taylor Wimpey said that while the 2022 end of the government’s controversial Help to Buy scheme remained a risk, it is a manageable one.
It also welcomed an end to Brexit uncertainty after Prime Minister Boris Johnson secured a deal in time for the UK to leave at the end of January.
“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,” the company said.
What Taylor Wimpey said
Chief executive Pete Redfern said:
The group delivered a good performance in 2019, with a record sales rate and home completions increasing by five per cent. 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.
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