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Taylor Wimpey expects full-year profits to halve amid housing gloom
Global Banking & Finance Review®
Company
By Suban Abdulla and Aby Jose Koilparambil
LONDON (Reuters) -Taylor Wimpey’s pledge to build more homes than previously forecast boosted the British housebuilder’s shares on Wednesday even though it expects annual operating profits to halve in its current year amid wider housing market stress.
Britain’s housing market has recorded a drop in house prices and softer buyer demand after the Bank of England sought to tame stubborn inflation by hiking interest rates.
But unlike its bigger rival Barratt Developments, Taylor Wimpey, Britain’s third largest housebuilder by market value, said it would not reduce the number of houses it plans to build this year, despite higher costs and wary buyers weighing on profitability.
The group said it planned to build 10,000 to 10,500 homes in the current financial year, compared with the 9,000-10,500 units forecast in March and 14,154 built in 2022.
The news sent its shares up as much as 4.3% to 119.40 pence in early trading, making the stock the top gainer on the housing sector index, after they fell by 7% in the last 3 months.
“This update from Taylor Wimpey constitutes a clear case of ‘it could have been worse’, as a weakening property market and high operational costs having combined to put huge pressure on the construction sector during H1 2023,” Andy Murphy, Director at investment research and consultancy Edison Group, said.
Taylor Wimpey expects operating profit, including joint ventures, to be in the range of 440 million pounds ($562.10 million) to 470 million pounds, in line with market expectations of 444 million pounds.
The low end of that range would mark a 52% drop from 2022, after lower completions and higher costs knocked its first-half profit margin down to 14.4% from 20.4% in the same period last year.
Taylor Wimpey’s order book – a key measure that gauges future sales performance – stood at 2.14 billion pounds as of July. 2, down from 2.80 billion pounds a year earlier.
Its cancellation rate stood at 24% during the four weeks to July 30, up from 19% year ago.
($1 = 0.7828 pounds)
(Reporting by Suban Abdulla in London and Aby Jose Koilparambil in Bengaluru; Editing by Subhranshu Sahu, Kate Holton and Jane Merriman)
Operating profit is the profit a company makes from its normal business operations, excluding any income derived from non-operational activities. It is calculated by subtracting operating expenses from gross profit.
The housing market refers to the supply and demand for residential properties. It encompasses the buying, selling, and renting of homes and is influenced by factors like interest rates and economic conditions.
Interest rates are the amount charged by lenders to borrowers for the use of money, expressed as a percentage of the principal. They can influence borrowing costs and economic activity.
The cancellation rate is the percentage of orders or contracts that are canceled before completion. It is an important metric for businesses to assess customer satisfaction and demand.
Profit margin is a financial metric that shows the percentage of revenue that exceeds the costs of goods sold. It indicates how efficiently a company is managing its expenses relative to its sales.
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