Annual Report and Accounts 2007

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• Business Review
  • Chairman's Statement
  • Group Chief Executive's Review
  • UK Housing
  • North America Housing
  • Spain and Gibraltar Housing
  • Construction
  • Group Financial Review
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Delivering strong progress

UK Housing strategy

• Goal to be the leading homebuilder in the UK
• Current priority is relative margin improvement, followed by volume growth from increasing outlet numbers

UK relative margin improvement opportunities

• Strong landbank and potential for increased conversion of strategic land
• Roll out of build cost best practice and procurement efficiencies
• Tighter control of sales incentives and strong forward selling

UK housing market

The UK housing market continues to exhibit a structural undersupply of new housing against Government projections of household formation, providing support to the market in the long term.

After a first half of solid market conditions in the UK, the market was subdued in the normally strong Autumn selling season as a result of a combination of factors:

• Availability of credit and lender restrictions
• Adverse media coverage of the housing market
• Loss of consumer confidence

Despite these more subdued conditions, pricing has remained stable during the second half of 2007. We have not experienced any significant geographic differentials, although the Midlands and North experienced the downturn earliest.

The UK's new Prime Minister has made housing one of his key priorities. Taylor Wimpey supports the Government's objectives on housing provision as set out in the Housing Green Paper and the focus on affordability, supply, sustainability and design.

• Affordability: This is a priority issue. We are developing a business called G2, solely aimed at giving first time buyers a foothold on the property ladder and continue George Wimpey's strong support for English Partnerships' First Time Buyer Initiative. We are working to develop shared equity products and have invested in a strong affordable housing specialist team, dedicated to delivering high quality affordable housing for all tenures.
• Supply: We are committed to playing our role in delivering the Government's housing targets. When suitable planning consent is available we will commence development at an appropriate rate to enable safe development of quality homes.
• Sustainability: We have a proven track record of moving sustainability forward via innovative developments, such as Oxley Woods in Milton Keynes, and are actively seeking industry-wide solutions to deliver sustainable homes.
• Design: We have a dedicated design team in place to work with external bodies and leading architects to continue to improve the design of our homes and communities.

We expect the Government's objectives to be challenging, particularly given an uncertain economic outlook, although we believe them to be achievable provided that all stakeholders work in partnership.

Strategy and integration

We have already made excellent progress on improving our UK Housing margin. We have achieved pro forma operating margin** growth of 2.4 percentage points to 15.2%, exceeding the 14% target set for the combined UK business for 2007 at our Interim Results in July. The key drivers of this margin improvement are changes in land strategy, a focus on reducing costs and the impact of an improved sales strategy.

The business has a strong land base, with a good mix of both short term and long term land. Over the last six months, we have reviewed the combined landbank in detail, and sold a number of sites that did not meet our ongoing requirements. These sales include sites where the two businesses had duplicate holdings, or where the nature of the site did not meet our ongoing strategy.

We have also focused on our outlet opening programme, which is key to driving sales volumes without damaging pricing.

UK Housing private development price points

We are extremely pleased that we have achieved our stretch target of 500 active outlets at the year end, including over 100 new outlets which were opened in the fourth quarter of 2007.

Synergy savings as a result of the merger will result in lower overhead costs per home sold, and we also have significant opportunities to reduce build costs over time. Our work comparing standard housetypes from the two historic product ranges suggests that savings of as much as £8,000 per home could be achievable. The first of these savings will start to come through in 2008.

Prior to the merger, George Wimpey announced a target of £25 million of build cost savings to be achieved in 2007. This target, which is in addition to the synergy savings outlined above, has been exceeded during the year.

We have successfully implemented a revised sales strategy to complement our focus on margin improvement, rather than driving volume. As a result, we have been able to manage sales incentives tightly during the more subdued market conditions of the second half of 2007.

We continue to make excellent progress on our internal integration targets. The UK Housing management team and their direct reports were in place on the date of completion of the merger and the majority of head office staff are now based at our office in High Wycombe.

The four regional offices identified for closure at the time of the merger have now been closed, with the responsibility for all of their sites transferred to neighbouring regions. Following the merger, we are now operating through 34 regions across the UK, with a further five satellite regions providing additional geographic coverage.

Wherever possible we sought to redeploy staff following the merger. However, a total of 593 roles will be removed from the business due to duplication. 323 roles were removed by the end of 2007.

We have been able to accelerate our progress on achieving synergies in both build and overhead costs. Against an overall target exit rate of £70 million for the UK by the end of 2009, we have already identified specific savings in excess of this, and expect around £50 million of synergies to flow through in 2008.

* Profit on ordinary activities before finance costs, exceptional items and amortisation of brands.
** The basis of preparation of pro forma financial information is set out in Additional Pro Forma Unaudited Financial Information for Continuing Operations.