Half year results for the period ended 2 July 2017

Managing through the cycle - Group strategy and returns

We operate in a cyclical market where factors such as customer confidence and mortgage cost inevitably have a direct impact on the short term outlook. We believe that a long term view and a proactive and flexible approach is needed to manage through the cycle.  Our strategy is built on this and so seeks to protect shareholder value whilst mitigating future downside risk and affords us the flexibility to take advantage of opportunities and drive further value from the business.

Whilst we have not yet seen any impact on our business we recognise that political and macro uncertainty have both increased in recent months, and we are alert as to the impact this could have on consumer confidence.  Should political or economic developments impact upon market conditions we are confident that the business is positioned appropriately to protect shareholder value while also capitalising on opportunities.

We reiterate the medium term targets announced in May 2016 and are pleased with the progress we continue to make:

·     An average annual return on net operating assets** of 30%

·     An average operating profit* margin of c.22%

·     A total of £1.3 billion of dividends to be paid in cash to shareholders over the period

Whilst the targets are stretching we believe these to be the best medium term measure of performance for our business, and they remain appropriate goals for the three-year period to the end of 2018.

With the announcement today of the 2018 special dividend the total dividends announced now meet the £1.3 billion total dividend target for the 2016-18 period. The return on net operating assets** at 30.8% for H1 2017 also shows that we are at the necessary run rate to meet or exceed the RONOA target. We continue to deliver improvements in the operating profit* margin, as shown in both the H1 2017 and FY 2016 results, although this remains the most challenging of the three targets that we set.

The Group is rated investment grade by all three major credit rating agencies, which we believe provides further vindication of our financial strength and operational strategy.

Returns to shareholders

Our Dividend Policy, as an output of our strategy, is inherently linked to the cyclical environment in which we operate.  It comprises an ordinary dividend to be paid through all stages of the cycle and a special dividend to be paid at appropriate times in the cycle. We remain confident that we can continue to be significantly cash generative. This will enable us to sustain a significant ordinary dividend to shareholders on an annual basis through all stages of the cycle, including through a 'normal downturn'.

Accordingly, from 2017, and as previously announced in May 2016, subject to shareholder approval each year, the Company will pay an ordinary dividend of approximately 5% of Group net assets and which will be at least £150 million per annum. This Ordinary Dividend Policy was, prior to its announcement, the subject of prudent and comprehensive stress testing against various downside scenarios, which also included a reduction of 20% in prices and a 30% reduction in volumes. This Ordinary Dividend Policy is intended to provide a minimum annual return to shareholders throughout the cycle.

The payment of ordinary dividends will also continue to be supplemented by additional significant special dividends at appropriate times in the cycle. Since commencing the payment of special dividends in 2014, we have returned c.£900 million of special dividends to shareholders, including £301 million paid to shareholders in July 2017. Our Special Dividend Policy will pay out to shareholders the free cash generated by the Group after land investment, all working capital, taxation and other cash requirements of the business in executing our strategy in the near term, and once the Group's ordinary dividend has been met.

In 2017, shareholders will receive total dividends (including ordinary and special dividends) of c.£451 million or 13.8 pence per share.

We announce today, subject to approval at the 2018 AGM, that we intend to pay £340 million to shareholders in July 2018 by way of a special dividend.  As such, in 2018 shareholders will receive a total dividend of c.£500 million (c.15.3 pence per share), comprising an ordinary dividend of c.£160 million (c.4.9 pence per share) and the special dividend (c.10.4 pence per share).

We confirm our intention to make further material capital returns to shareholders in 2019 and beyond and will provide an update on the future approach to capital returns at the next Strategy Day in H1 2018.   The Board will keep the mechanics of how the Company will return capital to shareholders, including the merits of undertaking a share buyback at some point in the future should it become appropriate to do so, under regular review.

Operational review

Taylor Wimpey plc is a UK-focused residential developer which also has operations in Spain. Our operational review is for the UK only as the majority of metrics do not apply to our Spanish business. A short summary of the Spanish business follows. The financial analysis is presented at Group level, which includes Spain, unless otherwise indicated.

Joint ventures are excluded from the operational review and Group financial review, unless stated otherwise. For the purpose of clarity, joint ventures are separated out in the Group financial review.

Our key performance metrics

Sales, completions and pricing

The UK housing market was very positive in the first six months of 2017, with strong sales rates and modest house price growth. Overall, we estimate that market led house price growth for our regional mix was c.3-4% in the 12 months to 2 July 2017.

Whilst there were some regional variations, we saw a generally positive market across all geographies. Approximately 6% of our outlets are located inside the M25 which continued to have strong underlying fundamentals, particularly at the mid-market price points and below. Trading in central London was stable, with improving confidence, while the outer London market remained robust.

In the first half of 2017, total home completions (excluding joint ventures) increased by 9.3% to 6,580 (H1 2016: 6,019). During the first half of 2017, we delivered 1,361 affordable homes (H1 2016: 1,184), equating to 20.7% of total completions (H1 2016: 19.7%). Our net private reservation rate for the first half of the year was 0.87 homes per outlet per week (H1 2016: 0.78). Cancellation rates remained low at 11% (H1 2016: 12%). Average selling prices on private completions increased by 7.9% to £287k (H1 2016: £266k), once again benefiting from our focus on better quality locations. Our total average selling price increased by 6.3% to £253k (H1 2016: £238k).

First time buyers accounted for 42% of total sales (H1 2016: 41%) in the first half of 2017. Investor sales continued to be at a very low level at 4% (H1 2016: 4%).

During the first half of 2017 approximately 45% of total sales used the Help to Buy scheme, as we worked with 3,470 households to take the first step to home ownership or to move up the housing ladder (H1 2016: c.42% and 3,005). Approximately 77% of sales through Help to Buy in the first half of 2017 were to first time buyers (H1 2016: 78%).

As at 2 July 2017 our order book represented 8,741 homes (3 July 2016: 8,683 homes) and has reduced in value by 2.1% to £2,111 million (3 July 2016: £2,156 million), excluding joint ventures. The Central London order book is 261 homes (3 July 2016: 407 homes), at a value of £232 million (3 July 2016: £390 million). 

During the first half of 2017 we opened 63 new outlets (H1 2016: 59). As at 2 July 2017 we had 296 outlets (3 July 2016: 287) located in high-quality locations.

Customers

During the first half of 2017 we achieved a customer satisfaction score of 87.2% (H1 2016: 84.9%), as we saw our improvement plans start to impact on performance. Last year we introduced a number of changes to our customer service approach, including the appointment of a newly created and boosted role of Head of Customer Service in each of our 24 regional businesses and the Home Quality Inspection (HQI) process on all of our sites. As we are continuing to instil our new customer approach across our business operations we are encouraged to see positive feedback from both customers and employees, but we also recognise that it will take time to fully embed.  Customer service will remain a key priority for Taylor Wimpey on an ongoing basis.

Within the AGM trading update in April we published the conclusions of our leasehold review, and announced that we would make a provision, before tax, of £130 million in the first half accounts, which we continue to believe is an appropriate estimate. We expect the cash outflow to be spread over a number of years.  The process of negotiation with the owners of the freeholds to these leasehold properties is on-going, and is proceeding in line with our expectations, and we continue to keep customers updated on the progress of these discussions.

Land and planning

Our short term landbank stands at 76,503 plots, equating to c.5.3 years of supply at current completion levels. We have been broadly operating on a replacement basis in the short term landbank for a number of years and have had an extremely selective and targeted approach to further land investment. The land market remains fundamentally attractive and we have continued to acquire land at compelling investment margins in the period.  We remain focused on only pursuing the opportunities that are both in high quality locations and meet our investment criteria.

In the short term owned landbank the average cost of land as a proportion of average selling price remains very low at 15.1%, affording significant value upside and protection (H1 2016: 16.3%).

In the first half of 2017 we acquired 2,828 plots in the short term land market (H1 2016: 3,110 plots), focused on where we can add value and seek to maximise the returns from our investments. In the period, we achieved a 0.9% upside to acquisition margins on completions from land acquired since 2009.

The average selling price in the UK short term owned landbank in the first half of 2017 increased by 5.1% to £267k (H1 2016: £254k), driven by the quality of additions and the improvement in the housing market.

We have one of the largest strategic pipelines in the sector which stood at c.105k potential plots as at 2 July 2017 (3 July 2016: c.104k potential plots). During the first six months of 2017 we converted a further 5,166 plots from the strategic pipeline to the short term landbank (H1 2016: 5,782 plots).

In the period, 53% of our completions were sourced from the strategic pipeline (H1 2016: 53%).

Build costs, efficiency and product

During the first half of 2017 build cost per unit increased to £137.4k (H1 2016: £129.4k). In the period build cost increases (excluding house type mix impact) stood at c.3-4% year on year (H1 2016: c.3-4%). Cost pressures are generally more weighted towards labour, with the decent availability of building materials largely keeping cost inflation under control. Looking forward, and in line with our previous estimates, we anticipate underlying build costs will increase by c.3-4% overall in 2017.

We have improved our UK net operating asset turn^†* to 1.45 times (H1 2016: 1.25 times), benefitting from work in progress efficiency, revenue growth, and a low land cost as a percentage of average selling price in the short term owned landbank of 15.1% (H1 2016: 16.3%), as a result of higher margin short term landbuying and increased strategic conversion. The higher proportion of strategic land conversion results in higher work in progress spend due to these sites generally requiring greater infrastructure investment. Good progress continues to be made on our medium term target of 30% average annual return on net operating assets** as set out in May 2016.

Health and safety

The health and safety of individuals on our sites will always be our number one priority and continues to be the first item discussed at every plc Board, Group Management Team and regional board meeting.  We are committed to providing a safe place in which our employees and subcontractors can work and our customers can live, and we will not compromise on ensuring that everyone leaves our sites safe and well. We have a comprehensive Health, Safety and Environmental (HSE) Strategy and a fully integrated HSE Management System in place which is regularly reviewed at all levels.

Following the tragic fire at Grenfell Tower in London we have been conducting our own internal reviews into our current and historic developments, including working with building owners and managing agents.  All of our developments have robust fire safety strategies in place and each apartment block has an individual fire safety strategy that has been carefully developed during the design stage.  All Taylor Wimpey homes are built to comply with the relevant Building Regulations, the Regulatory Reform Fire Safety Order, and British Standards and codes of practice.  We will continue to review and remain in contact with current building owners and managers as the causes and implications of the Grenfell Tower fire become better understood.

Our Annual Injury Incidence Rate^†** (AIIR) for reportable injuries per 100,000 employees and contractors was 81 in the first half of 2017, against 108 in the first half of 2016, back in line with our very strong performance in 2015. Our AIIR for major injuries per 100,000 employees and contractors was 32 in the first half of 2017 (H1 2016: 36). Although our AIIR remains well below industry levels, we are committed to reducing it further.

People and skills

Individually, and by working together, our employees are crucial to driving our success.  We aim to be the employer of choice in the housebuilding industry, attracting and retaining the best people to establish a culture that gives all individuals the opportunity and support to develop their full potential, regardless of market conditions or their background.

During the first half of 2017 we directly employed, on average, 4,883 people across the UK (H1 2016: 4,622). Our rolling 12 months voluntary employee turnover rate was 14.5% (H1 2016: 13.3%).  This is well below historic norms and gives us a significant competitive advantage and additional stability in an extremely competitive environment for skills.

We continue to invest in the skills and development of our employees across the business and to ensure that Taylor Wimpey attracts and retains the best people in the industry through the cycle. Last year we introduced a new flexible benefit package for all employees and a new approach to flexible working, with maternity, paternity and adoption policies significantly enhanced.

We are pleased to report that Taylor Wimpey achieved a total of 62 Quality Awards (2016: 57) in the National House-Building Council's (NHBC) Pride in the Job Awards 2017.

Local communities and sustainability 

We aim to balance the long term economic stability and growth of the Company with our responsibilities to the environment, society and the economies in which we operate.

In the first half of 2017, we contributed over £173 million to the local communities in which we build across the UK via planning obligations, providing, for example, local infrastructure, affordable homes, public transport and education facilities (H1 2016: £147 million).

Spain

We completed 68 homes in the first half of 2017 (H1 2016: 53) at an average selling price of €394k (H1 2016: €342k). The total order book as at 2 July 2017 was 406 homes (3 July 2016: 399 homes).  The Spanish business delivered an operating profit* of £2.8 million for the first half of 2017 (H1 2016: £0.3 million) and an operating profit* margin of 11.4% (H1 2016: 2.0%). 

Total plots in the landbank stand at 2,834 (FY 2016: 2,140), with net operating assets at £57.2 million (FY 2016: £46.8 million).

Looking ahead, we remain cautiously optimistic about trading and performance for 2017 and beyond.

Group financial review of operations

Performance of the Group is monitored internally using a variety of statutory and alternative performance measures as outlined below.  Alternative performance measures are used where they are considered to be more indicative of underlying trading or in monitoring performance against strategy. Definitions of the alternative performance measures discussed below and reconciliations to the equivalent statutory measures are detailed on pages 34 to 37.

Income statement

Group revenue increased by 18.5% to £1,727.5 million in the first half of 2017 (H1 2016: £1,457.2 million) from 6,648 completions (H1 2016: 6,072). The increase was driven by improved selling prices in the UK, up 6.3% to £253k (H1 2016: £238k), and UK volume growth of 9.3% to 6,580 completions (H1 2016: 6,019). Average selling prices on private completions increased by 7.9% to £287k (H1 2016: £266k) in the UK, with this increase being a result of both our underlying shift to better quality locations and by capturing market sales price increases.

The UK land cost per unit sold, at £43.7k, was slightly higher than the prior year (H1 2016: £40.3k), due to trading from a greater proportion of higher quality sites. Total UK land cost per completion as a percentage of selling prices was 17.3% (H1 2016: 16.9%).

Build cost per unit in the UK increased to £137.4k (H1 2016: £129.4k), driven by marginal build cost inflation, the impact of higher infrastructure costs due to a higher proportion of strategic sites and mix and specification improvements. Other direct costs and selling expenses per unit decreased to £6.5k (H1 2016: £6.8k), due to volume growth and sales efficiencies.

UK contribution per completion increased by 9.7% to £65.5k for the period (H1 2016: £59.7k), continuing to benefit from improved land mix from completions and improved sales prices partially offset by build cost increases.

Group gross profit, of £444.0 million (H1 2016: £366.0 million), increased by 21.3% and included a positive contribution of £11.8 million (H1 2016: £4.4 million), driven mostly from sales of legacy sites in the period. Positive contribution represents previously written down inventory allocated to a plot which has subsequently resulted in a gross profit on completion. This can be due to revenue outperformance, cost efficiencies or product mix improvements. These amounts are stated before the allocation of overheads which are excluded from the Group's net realisable value exercise.

In the first half of 2017, 5% (H1 2016: 4%) of the Group's UK completions were from sites that had been previously impaired. In Spain, 16 plots (H1 2016: 11) were completed that had previously been impaired. The Group anticipates that c.5% of UK 2017 completions will come from sites that have been previously impaired.  

During the period, completions from joint ventures were 87 (H1 2016: 25). The total order book value of joint ventures as at 2 July 2017 was £18 million (3 July 2016: £62 million), representing 32 homes (3 July 2016: 126). Our share of results of joint ventures in the period was a profit of £4.4 million (H1 2016: £0.1 million loss).

Operating profit* increased to £349.0 million (H1 2016: £279.1 million), delivering an operating profit* margin of 20.2% (H1 2016: 19.2%).

Net finance costs for the period were £14.0 million (H1 2016: £12.5 million). Interest on overdraft, bank and other loans decreased by £2.6 million year on year, following the repayment of the term loan in 2016.

Pre-exceptional profit before tax for the period from operations increased by 25.7% to £335.0 million (H1 2016: £266.6 million). The pre-exceptional tax charge was £63.9 million (H1 2016: £53.3 million) with an underlying tax rate of 19.1% (H1 2016: 20.0%) that largely reflects the statutory tax rate in the UK. Profit before tax for the period from operations decreased by 23.7% to £205.0 million as a result of the exceptional provision.

This resulted in a profit, before exceptional items, for the half year of £271.1 million (H1 2016: £213.3 million), 27.1% up on the prior year.

Earnings for the period were £165.7 million, down 23.0% on H1 2016, as a result of the exceptional charge relating to the leasehold review.  We continue to view the provision, before tax, of £130 million as an appropriate estimate.

Basic earnings per share was 5.1 pence (H1 2016: 6.6 pence). The adjusted basic earnings per share^†† was 8.3 pence (H1 2016: 6.5 pence), up 27.7%.

Balance sheet

Net operating assets as at 2 July 2017 were £2,646.1 million (31 December 2016: £2,539.6 million), reflecting a net investment of £137.2 million (3 July 2016: £351.0 million) year on year in land and work in progress, funded by increased profitability. Return on net operating assets** increased by 560 basis points to 30.8% (H1 2016: 25.2%), reflecting growth and improved profitability while maintaining balance sheet discipline.

Group net operating asset turn^†* increased to 1.46 times (H1 2016: 1.25 times, FY 2016: 1.48 times). Asset turn has benefited from the combination of on-going improvement in land acquisition terms, revenue growth and cost control.   

Net assets at 2 July 2017 stood at £2,778.9 million (3 July 2016 £2,592.2 million, 31 December 2016 £2,900.3 million).  The net asset decrease from 31 December 2016 was driven by profitability in the period and lower pension deficit offset by the ordinary dividend paid and the accrual of the special dividend, paid on 14 July 2017.

As at the balance sheet date, the Group held certain land and work in progress that had been written down to net realisable value of £119.6 million (31 December 2016: £138.3 million) of which the balance in the UK was £101.2 million (31 December 2016: £119.6 million). As at 2 July 2017, the associated write-downs were £115.9 million (31 December 2016: £147.0 million) of which the balance in the UK was £68.2 million and principally related to 13 locations.

As at 2 July 2017, in the UK, 2.5% of our short term owned and controlled land was impaired (31 December 2016: 3%), with 82% of the short term owned and controlled landbank purchased after 2009, 71% of which was sourced through our strategic pipeline, resulting in a land cost to average selling price in the short term owned landbank of 15.1% (31 December 2016: 15.4%).

The review of land and work in progress net realisable values did not result in any movement in the provision.

We continue to use land creditors as a way of funding land acquisitions where this makes the most commercial sense and is value-enhancing for the business. Land creditors reduced to £526.1 million (31 December 2016: £599.8 million) and, combined with net cash, resulted in adjusted gearing of 3.5% (31 December 2016: 8.1%). Included within the land creditor balance is £124.5 million of UK land overage commitments (31 December 2016: £130 million). £267.8 million of Group land creditors are expected to be paid within 12 months and £159.4 million between one and two years from balance sheet date.

The mortgage debtor balance was £71.3 million at 2 July 2017 (31 December 2016: £78.0 million), with the decrease due to redemption receipts of £8.3 million and interest income of £1.6 million.

Our net deferred tax asset relates principally to our pension deficit and decreased to £40.5 million in the period (31 December 2016: £57.4 million). £8.4 million of this asset relates to the temporary differences of our Spanish business, including brought forward trading losses.  

Pensions

Retirement benefit obligations of £130.2 million at 2 July 2017 (31 December 2016: £234.1 million) comprise a defined benefit pension liability of £129.0 million (31 December 2016: £232.7 million) and a post-retirement healthcare liability of £1.2 million (31 December 2016: £1.4 million). The pension deficit decreased by £103.7 million in H1 2017 to £129.0 million. This is due to asset outperformance partially offset by a small decrease of 0.05% in the discount rate. The volatility of the deficit remains low due to the c.£200 million buy-in completed in 2014 (c.10% of the liabilities) combined with c.75% liability hedging against interest rates and inflation risk exposure. In the first half of 2017 we contributed £14.1 million in pension contributions.

The triennial valuation of the pension scheme as at 31 December 2016 is expected to be concluded in early 2018.

Cash flow

Net cash increased to £429.0 million at 2 July 2017 from £116.7 million at 3 July 2016, despite returning £392.3 million to shareholders by way of dividends in the 12-month period to 2 July 2017. This improvement in net cash is largely as a result of strong performance in underlying trading and maintaining balance sheet discipline, as well as the timing of potential land acquisitions.

Net land spend, including the payment of land creditors, was £295.3 million (H1 2016: £361.7 million).

The sum of £1,088.3  million has been invested in work in progress in the period (H1 2016: £1,067.4  million). In the first half of 2017, we paid £2.8 million in interest costs (H1 2016: £4.1 million) and £74.8 million in dividends (H1 2016: £38.5  million).

In the period the Group paid £61.4 million in tax (H1 2016: £0.7 million, FY 2016 £71.0 million), with the increase due to the historic operational losses brought forward being exhausted in H1 2016.

In the 12 months to 2 July 2017 we converted 104% of operating profit* into operating cash flow*** (H1 2016 rolling 12 months: 55%).

Financing structure

Our committed borrowing facilities are currently £638 million with an average maturity of 3.1 years.  The £550 million revolving credit facility is undrawn. Average net cash for the half year was £223.8 million (H1 2016: £2.7 million net cash; FY 2016: £87.4 million net debt).

Dividends

We have today provided a further update on our special dividend payment for 2018, as well as the 2017 interim dividend.

The Board has declared that a 2017 interim dividend of 2.3 pence per share is to be paid on 3 November 2017 to shareholders on the register at the close of business on 22 September 2017 (H1 2016 interim dividend: 0.53 pence per share). This has been set in line with the Ordinary Dividend Policy of approximately 5% of net assets per annum.

This dividend will be paid as a cash dividend, and shareholders are once again being offered the opportunity to reinvest all of their dividend under the Dividend Re-Investment Plan (DRIP), details of which are available from our Registrar and on our website. Elections to join the Plan must reach the Registrar by 9 October 2017 in order to be effective for this dividend. Further details can be found on our website www.taylorwimpey.co.uk

In addition, on 14 July 2017, we returned £301 million to shareholders by way of a special dividend, equating to 9.20 pence per share.

We remain fully committed to the enhancements to the Dividend Policy we announced in May 2016.

From 2017, subject to shareholder approval, the Company will pay an ordinary dividend of approximately 5% of Group net assets and which will be at least £150 million per annum. This is intended to provide a minimum annual return to shareholders throughout the cycle, including through a 'normal downturn'. This ordinary dividend will be paid equally as a final dividend in May and as an interim dividend in November each year.

We have announced today that we intend to return £340 million to shareholders in July 2018, equating to c.10.4 pence per ordinary share, subject to shareholder approval at the 2018 AGM.

We confirm our intention to make further material capital returns to shareholders in 2019 and beyond and will provide an update on the future approach to capital returns at the next Strategy Day in H1 2018.   The Board will keep the mechanics of how the Company will return capital to shareholders, including the merits of undertaking a share buyback at some point in the future should it become appropriate to do so, under regular review.

Principal risks and uncertainties

As with any business, Taylor Wimpey faces a number of risks and uncertainties in the course of its day to day operations. It is only by identifying and managing these risks and uncertainties that we are able to deliver on our medium term targets of average operating profit* margin of c.22%, an average annual return on net operating assets** of 30% and a total of £1.3 billion of dividends to be paid in cash to shareholders over the period.   

The key business risks and uncertainties are in line with those outlined in the 2016 Annual Report.  In addition to the principal industry related risks, we also closely monitor a number of other key internal and external factors. These include the impact on the Group from the result of the EU Referendum, the impact from a successful cyber-attack and those factors likely to affect our reputation.  The key business risks, not listed in order of importance, now include:

·     Impact of market environment on mortgage availability and affordability and housing demand - The majority of the homes that we build are sold to individual purchasers who take on mortgages to finance their purchases.  A change in business confidence, employment opportunities or significant changes in the base rate may impact on the demand for housing.  The cost of servicing a mortgage continues to be at historic lows. However, sustained growth in interest rates and low wage inflation could challenge mortgage affordability, leading to lower selling prices as a result of falling demand. Although the Government has extended the Help to Buy equity loan to 2021, there is uncertainty around the impact to consumers and the housing market after this point.

Loss of business and consumer confidence as a result of the changes from leaving the EU, may impact on demand for new build housing and the sales price.  This may be tempered to some extent by the current imbalance between demand and supply. However, future decisions made by the Government around homebuyer initiatives, new legislation, stamp duty and by the Bank of England around interest rates, is likely to create both risks and opportunities for homebuilders and their customers. 

·     Government regulations, planning policy and political pressures - The NPPF and Localism Act are well established, although have yet to facilitate the delivery of greater housing availability for the UK against Government targets.  The Housing and Planning Act 2016 aims to address the disparity between demand and supply for housing in the UK, by seeking changes to the planning system. The Neighbourhood Planning Act, aims to address delays caused by pre-commencement planning conditions, streamline the Compulsory Purchase Order process and strengthen neighbourhood planning.  The Housing White Paper published in February 2017, is being consulted upon and, in totality, is helpful to progress housing delivery of all tenures.  Recent legislature and changes could have a disruptive effect on the planning system, sales rate, site mixes and customer behaviour.       

·     Materials and subcontractors cost pressures - Increased housing production could reduce the availability of materials and subcontractors and put pressure on utility firms to keep up with the pace of production. Further, leaving the EU could impact on the availability of skilled workers.  Together this could result in build programme delays and unexpected cost increase. 

·     Ability to attract, motivate and retain key skills - In a buoyant housebuilding market, there is a risk of increased staff turnover in certain trades and professions, often as a result of poaching by competitors. This could lead to business disruption, process failure and knowledge drain, in addition to the cost of staff replacement.

·     Site and customer safety - Building sites are inherently dangerous places. Unsafe practices by our employees or subcontractors can, if not managed properly, have the potential to cause death or serious injury.

·     Land availability and cost - The purchase of land of poor quality, at too high a price, or the incorrect timing of land purchases relative to the economic cycle could impact the Group's future profitability. 

Further detail can be found on pages 44 to 47 of the 2016 Annual Report and Accounts.

Cautionary note concerning forward looking statements

This report contains certain forward looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report, and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying such forward looking information.