Earnings at Taylor Wimpey nearly halved last year as rising building costs and a slump in new housing completions ate into profitability.
Underlying pre-tax profits of £473.8 million, down 48% from the previous year, were at the top end of expectations but failed to halt a slide in the FTSE 100 company's share price during yesterday's trading. Revenues slumped by more than a fifth to £3.5 billion as higher interest rates and lower consumer confidence weighed on buyer demand.
Taylor Wimpey finished construction on 10,848 properties last year, 23% fewer than in 2022. It also forecast a further decline in completions in the current year, which are expected to come in at between 9,500 and 10,000.
READ MORE: Taylor Wimpey profits halved amid industry's economic storm
While the average selling price of a Taylor Wimpey home rose by 5.1% to £370,000, this was outpaced by building cost inflation of more than 8%.
But while the Buckinghamshire-based group expects to construct fewer properties in 2024, chief executive Jennie Daly said there have been signs of improvement.
"It is still early in the year and the macroeconomic backdrop remains uncertain, however it is encouraging to see some signs of improvement in the market, with reduced mortgage rates positively impacting affordability and customer confidence," she said.
"While the planning environment remains challenging, we have a high-quality, well-invested landbank and a strong financial position which underpins our ability to provide investors with a reliable income stream via our differentiated ordinary dividend policy. Looking ahead we are well-positioned in an attractive market, with significant underlying demand for our quality homes and are poised for growth from 2025, assuming supportive market conditions.”
READ MORE: Watchdog calls for 'significant intervention' in UK housebuilding market
The group's results came just two days after the Competition and Markets Authority (CMA) revealed it is investigating eight of the UK's biggest housebuilders – including Taylor Wimpey – after uncovering evidence suggesting that some builders were sharing non-public information such as sales prices and details of buyer incentives with their competitors. The watchdog said this behaviour could influence decisions around pricing levels, as well as the rate at which companies build new homes.
Taylor Wimpey said in its annual results that it would “cooperate fully” with the investigation. Others under investigation by the CMA include include Barratt, Bellway, Berkeley, Bloor Homes, Persimmon, Redrow, and Vistry.
The CMA announced the new inquiry as it published a 12-month study into the UK's housing market which blamed the shortage of new homes on a "complex and unpredictable" planning system, as well as the limitations of private speculative development.
"Any reforms to the current system would likely be a tailwind that benefits the whole sector," said Aarin Chiekrie, an equity analyst at Hargreaves Lansdown.
He added that Taylor Wimpey put in a "relatively resilient showing" last year given the difficult market conditions, and is now enjoying an uplift in sales rates on the back of improving affordability and increasing consumer confidence.
READ MORE: Vindication and reprobation as housebuilders come under competitive spotlight
The group’s full-year report shows the weekly private sales rate edged up to 0.67 per outlet so far in 2024 from 0.62 a year earlier, while the cancellation rate fell to 12% from 17% a year ago. However, the company added that buyers are still taking longer to decide on sales.
As of February 25, the company's order book stood at £1.95bn and 7,042 homes, compared to £2.15bn and 8,078 homes at the same point last year.
Oli Creasey, property analyst at Quilter Cheviot, said Taylor Wimpey has started 2024 on a "reasonable footing" but the guidance on completions implies a further 10% decline in sales volumes versus 2023.
"The story is similar for house prices," he said. "Overall prices [including joint ventures] rose 3.5% in 2023, but comments from management suggest that the profit margin will be lower in 2024, at least in [the first half] as the forward order book has been sold at slightly lower prices than 2023.
"On the plus side, build cost inflation has effectively disappeared, with the prevailing rate of 1% effectively reduced to zero by...efficiency measures."
Shares in Taylor Wimpey closed yesterday's trading 6.7p lower at 133.85p, a decline of nearly 4.8%.
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