Business Review

Group Chief Executive's Review

Taking tough decisions to deliver future benefits

Pete Redfern, Group Chief Executive

Pete Redfern Group Chief Executive

Following the merger in July 2007, Taylor Wimpey entered 2008 having made excellent progress on integrating the two legacy businesses in both the UK and North America. The strength of our business has been severely tested by the downturn in the UK housing market and the exceptional events in the global economy over the last 12 months.

Adjusting to adverse market conditions

We have taken difficult decisions during the year to ensure that our businesses are well placed to face the challenges of current market conditions. Relentless cash management and cost control have been key priorities across the whole Group. In North America, where the market had been weak throughout 2006 and 2007, build costs and overhead costs remain under constant review. In the UK, we suspended new land purchase commitments in late 2007. When UK housing sales volumes fell dramatically in April 2008, we reacted quickly, restructuring our UK operations, adjusting our pricing and incentives to deliver competitive offers in each local market, limiting new site openings and levels of work in progress, and targeting additional build cost reductions.

Although the different markets that we operate in experienced the impact of the worldwide economic downturn at different times, we now have a consistent operating strategy across all of our businesses. Our employees recognise the need to take tough and appropriate measures in order to protect our business and have been kept fully informed through consultation processes and our internal communications.

Moving forward

With the amendment to our debt facilities now complete, the Group can focus fully on delivering value over the medium term, and the opportunities that the current downturn and future recovery will provide.

In the UK, there was a structural undersupply of new housing even before the reduction in volumes in 2007 and 2008. Latest forecasts indicate average household formations of 252,000 per annum for England alone. This compares against 200,697 new homes built in the UK in 2007 and 106,894 in 2008 (source: National House-Building Council). As homebuilders across the UK continue to delay new site starts and scale back their operations, we expect this figure to fall further in 2009. The underlying demand for new housing remains strong, but many of those looking to buy homes remain unable to obtain an appropriate mortgage or choose to delay their purchase due to the uncertain economic environment. When mortgage availability increases and consumer confidence returns, we will see an even greater imbalance between demand and supply, creating the potential for a significant recovery in house prices in the future.

In North America, the housing market downturn has been ongoing in some markets since the fourth quarter of 2005. The slowdown, which originated as a result of oversupply has been exacerbated by the 'credit crunch' and is now being prolonged by the increased number of repossessions and the wider economic uncertainty. In many areas the market has overcorrected, falling well below both long term price and volume levels. The first signs of industry consolidation have appeared in recent weeks, suggesting that the market may be close to stabilising.

The overriding priority for the business is to build on our strong base to take advantage of the opportunities that stabilisation and future upturns in our markets will provide.

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