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Grenfell provision barely impacts on Taylor Wimpey’s profits

27 Feb 19 House-builder Taylor Wimpey has posted a near-20% rise in profits on 3% growth in revenue.

Taylor Wimpey chief executive Pete Redfern
Taylor Wimpey chief executive Pete Redfern

For the year to 31st December 2018 Taylor Wimpey made a pre-tax profit of £810.7m (2017: £682m) on revenue of £4,082m (2017: £3,965m).

2018’s bottom line includes a £30m provision for post-Grenfell cladding replacement; 2017’s bottom line was impaired by a £130m provision in respect of leasehold review.

Like for like, operating profit for 2018 was up 4.3% to £880.2m. Group completions were up 2.9% to 15,275 units (2017: 14,842) including joint ventures. Of these, 14,933 were in the UK, with the balance in Spain.

It expects to maintain volumes at a similar level in 2019 and for underlying build cost increases this year to be at a similar level to 2018, at around 3-4%.

A key focus for the company has been to try and improve the quality of the houses its builds and its customer service. It says it has “seen material improvements across a number of metrics” over the past four years. 76% of Taylor Wimpey customers said they would recommend the company’s new homes, when asked nine months after moving in.

Chief executive Pete Redfern said: "2018 was another strong year for Taylor Wimpey with good progress against our strategic priorities. We delivered in line with our expectations, achieving a strong sales rate and record revenues. Despite ongoing macroeconomic and political uncertainty, we have made a very positive start to 2019 and are encouraged to see continued strong demand for our homes. We enter the year with a strong order book and a clear strategy in place to deliver long term value for shareholders.

“We are very pleased with how our business is adapting to our customer-centred strategy. We are enhancing every step of our customers' buying and aftercare service so that we become the first choice homebuilder in all market conditions."

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Taylor Wimpey allocated £30m in its 2018 accounts to replacing aluminium composite materials (ACM) cladding that has been exposed as dangerous since the Grenfell Tower fire in London in 2017.

It its statement of accounts, Taylor Wimpey says: “Following the tragic fire at Grenfell Tower, the group conducted a detailed review into all legacy and current buildings with ACM cladding and worked with building owners, management companies, and the Fire Service to implement government advice on interim mitigation measures, where applicable. Whilst each situation is different, and this is an exceptionally complex issue, the group has in a number of cases, having regard to all of the relevant facts and circumstances, agreed to support our customers both financially and practically with removal and replacement of ACM cladding, even though the buildings concerned met the requirements of building regulations at the time construction was formally approved. This decision was taken for buildings recently constructed by the group because management believe that it is morally right, not because it is legally required. At the year end, replacement works had been completed on one development and were underway on another. Since the year end we have started work on a further development.

“Uncertainty over the remediation costs will remain until all the works are fully designed and contracted. Following the creation of the exceptional provision, the government issued further guidance which the group considered as part of its ongoing review. As at 31 December 2018, £30.0 million continues to represent management's best estimate of the cost of replacing the cladding at all buildings identified.”

Certain other developers, including Barratt, Mace, Legal & General and Peabody, have also stepped up to the plate and footed the bill for ACM cladding replacement even though legal liability has yet to be established. Like Taylor Wimpey, they took the view that it was more important to do what was ‘morally right’ and just get on with making people safe.

Others, such as Lendlease and Ballymore, have so far seen no such reason to step up.

More than 500 residents at New Providence Wharf (NPW) in Poplar each face having to pay out an average of £4,000 after freeholder Landor Residential, part of the Ballymore group, refused to cover the cost. According to reports, a spokesman for Ballymore said the development “met building regulations and legislation of the time”.

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