By Aby Jose Koilparambil

(Reuters) – Britain’s third-largest homebuilder Taylor Wimpey reported a strong start to the year on Tuesday and forecast a recovery in sales and margins in 2021 after a slump in 2020.

The group also earmarked 125 million pounds ($174 million) for fire safety work on its developments amid a nationwide drive to improve building safety following a deadly tower block fire in London in 2017.

The FTSE 100 firm said it expected to develop fewer affordable homes than usual this year, with a higher proportion of more profitable private homes, which would help improve its operating margin.

Its shares were trading 2.2% higher at 1000 GMT.

“The key news is that they are talking better on the operating margin for 2021, recent trade has been resilient … and all looks in pretty good shape,” said Canaccord Genuity analyst Aynsley Lammin.

Taylor Wimpey said it expected 2021 operating margin to rise to between 18.5% and 19% after it tumbled to 10.8% in 2020 from 19.6% a year earlier.

Britain is expected to extend a tax break on home purchases by three months and unveil a mortgage guarantee scheme in Wednesday’s budget, moves that could bolster the housebuilding sector after Prime Minister Boris Johnson unveiled an exit plan from coronavirus lockdowns.

Taylor Wimpey, which has operations in Britain and Spain, joined rivals Barratt and Persimmon in setting aside funds to meet new fire safety regulations introduced after a deadly fire at London’s Grenfell Tower in 2017.

The group made pretax profit of 264.4 million pounds ($367 million) last year, down 68.4% from a year earlier and just below analysts’ average forecast of 267 million in a company-provided poll. Revenue fell about 37% to 2.79 billion pounds.

It resumed dividend payments, with a final payout of 4.14 pence per share.

($1 = 0.7202 pounds)

(Reporting by Aby Jose Koilparambil in Bengaluru. Editing by Tomasz Janowski and Mark Potter)