Share Name Share Symbol Market Type Share ISIN Share Description
Taylor Wimpey LSE:TW. London Ordinary Share GB0008782301 ORD 1P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  -0.10p -0.05% 185.90p 185.80p 186.00p 186.90p 184.80p 186.50p 13,602,480 16:35:22
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Household Goods & Home Construction 3,676.2 732.9 18.1 10.3 6,082.62

Taylor Wimpey PLC Full year results for the year ended 31 Dec 2016

28/02/2017 7:01am

UK Regulatory (RNS & others)


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Taylor Wimpey PLC

28 February 2017

28 February 2017

Taylor Wimpey plc

Full year results for the year ended 31 December 2016

Pete Redfern, Chief Executive, commented:

"In 2016 we delivered an excellent performance set against an uncertain political and economic environment that stabilised in the final quarter. The outlook for 2017 is for ongoing stability and incremental price growth, which is a healthy backdrop for our business and our customers."

Good progress made towards all medium term targets for the period 2016-2018

-- Target total of GBP1.3 billion of dividends to be paid in cash to shareholders over the period

- GBP355.9 million paid in 2016 (2015: GBP308.4 million)

- c.GBP450 million declared for 2017 (subject to shareholder approval)

   --     Target average annual return on net operating assets** of 30% 

- 30.7% in 2016 (2015: 27.1%)

   --     Target average operating profit* margin of c.22% 

- 20.8% in 2016 (2015: 20.3%)

2016 Group financials

-- Completed a total of 14,112 homes, including Spain, up 4.8% (2015: 13,470), excluding joint ventures

-- 10.9% increase in UK total average selling price to GBP255k (2015: GBP230k), excluding joint ventures

 
                                         2016      2015   Change 
-----------------------------------  --------  --------  ------- 
 Revenue GBPm                         3,676.2   3,139.8    17.1% 
-----------------------------------  --------  --------  ------- 
 Operating profit* GBPm                 764.3     637.0    20.0% 
-----------------------------------  --------  --------  ------- 
 Profit before tax and exceptional 
  items GBPm                            733.4     603.8    21.5% 
-----------------------------------  --------  --------  ------- 
 Profit for the year GBPm               589.3     489.8    20.3% 
-----------------------------------  --------  --------  ------- 
 Adjusted basic earnings 
  per share pence                        18.1      14.9    21.5% 
-----------------------------------  --------  --------  ------- 
 Basic earnings per share 
  pence                                  18.1      15.1    19.9% 
-----------------------------------  --------  --------  ------- 
 Tangible net asset value 
  per share pence                        88.6      83.5     6.1% 
-----------------------------------  --------  --------  ------- 
 Net cash GBPm                          364.7     223.3    63.3% 
-----------------------------------  --------  --------  ------- 
 

UK current trading and outlook

We have made a very good start to 2017 and are encouraged by robust trading and levels of demand. The UK housing market fundamentals remain good with strong customer confidence in our core geographies.

The market is underpinned by a competitive mortgage market and low interest rates. Customer interest remains high, with website visits solid and customers continuing to register interest in forthcoming developments and progress their home purchase plans. Whilst the wider London market remains robust, prime central London is softer, as previously highlighted, however, house prices are stable, and there are good levels of underlying demand.

The net private sales rate for the year to date (w/e 19 February 2017) has increased to a very strong 0.91 (2016 equivalent period: 0.77).

We continue to focus on building a strong order book for the future. As at 19 February 2017, we were c.49% forward sold for private completions for 2017, with a total order book value of GBP1,978 million (2016 equivalent period: GBP2,030 million), excluding joint ventures. This order book represents 8,573 homes (2016 equivalent period: 8,409). 58% of Central London private completions for 2017 are forward sold, as at 19 February 2017 (2016 equivalent period: 76%).

We expect underlying build cost increases during 2017 to be at a similar level to 2016, at around 3-4%.

The publication of the Housing White Paper in February 2017 recognises the importance of housing to the UK and the part all housebuilders can play in the economy. Whilst some of the detail is of course to be finalised, we welcome the measures set out in the White Paper which are balanced and aim to sustainably increase the delivery of much needed homes.

The early signs of stability and resilience of the market following the EU Referendum, which were encouraging, continued and we believe the risk of material impact from this in the short term has significantly reduced. In line with our strategy, we will continue to closely monitor market risks, particularly around long term mortgage cost. However we believe that a cautiously regulated market and low interest rate environment is likely to prolong the period of stability that we are seeing in the UK housing market.

We have a clear strategy and a strong focus on where we can add further value to the business. In this way, we are confident that we can adapt to all market conditions from a position of strength and perform well, underpinning our value proposition to shareholders and other stakeholders. We remain fully committed to the Dividend Policy set out in May 2016 and our objective to provide a consistent and reliable income stream for investors. Our focus remains on adding value and steady, sustainable growth as we maximise efficiency through operational excellence and discipline on our sites and throughout our business.

* Operating profit is defined as profit on ordinary activities before net finance costs, exceptional items and tax, after share of results of joint ventures.

** Return on net operating assets is defined as 12-month rolling operating profit divided by the average of the opening and closing net operating assets, which is defined as net assets less net cash less net tax balances, excluding any accrued dividends.

*** Return on capital employed is defined as a 12-month rolling operating profit divided by the average of the opening and closing capital employed.

**** Operating cash flow is defined as cash generated by operations before tax, interest paid, and exceptional cash flows on a rolling 12-month basis.

Tangible net assets per share is defined as net assets before any accrued dividends excluding goodwill and intangible assets divided by the number of ordinary shares in issue at the end of the period.

Adjusted basic earnings per share represents earnings attributed to the shareholders of the parent, excluding exceptional items and tax on exceptional items, divided by the number of shares in issue during the period.

* Net operating asset turn is defined as total revenue divided by the average of opening and closing net operating assets. Based on rolling 12-months.

Note: Performance of the Group is monitored internally using a variety of statutory and alternative performance measures. Alternative performance measures are used where they are considered to provide more clarity of underlying trading or in monitoring performance against strategy. Definitions of the alternative performance measures and a reconciliation to the equivalent statutory measure are detailed on page 41.

   -        Ends      - 

A presentation to analysts will be hosted by Chief Executive Pete Redfern and Group Finance Director Ryan Mangold at 9am on Tuesday 28 February 2017. This presentation will be webcast live on our website: www.taylorwimpey.co.uk/corporate

An archived version of the webcast will be available on our website in the afternoon of 28 February 2017.

For further information please contact:

Taylor Wimpey plc Tel: +44 (0) 7826 874461

Tel: +44 (0) 7823 419000

Pete Redfern, Chief Executive

Ryan Mangold, Group Finance Director

Debbie Sempie, Investor Relations

Finsbury Tel: +44 (0) 20 7251 3801

Faeth Birch

Anjali Unnikrishnan

Notes to editors:

Taylor Wimpey plc is a UK-focused residential developer, operating at a local level from 24 regional businesses across the UK. We also have operations in Spain.

For further information please visit the Group's website: www.taylorwimpey.co.uk/corporate

Follow us on Twitter @TaylorWimpeyplc

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 advantages of opportunities and drive further value from the business.

Our ability to buy good-quality land, at the right time in the cycle, enhance it through planning, and realise value through building and selling homes, remains the biggest value driver for the business, despite the relatively positive land market of the last six years. We have been very successful in this area - building and optimising a short term landbank of 76,234 plots, of which 65% is strategically sourced. This has given us the flexibility to be very selective when purchasing land and focus on delivery through increased cash generation.

During 2016, we reviewed our strategy as part of a wider process and confirmed that it remains the right one for the future. Given the strength of the business, we believe we can deliver further continual improvement in every area of the business, particularly in long term value added programmes - from employee recruitment, development and engagement through to investment in research and development, customer service and product quality.

We are confident that because of this strategy, alongside a strong, well-capitalised balance sheet and strategic land pipeline, Taylor Wimpey is optimally positioned for the future, enabling us to perform well through all market conditions and take advantage of opportunities as they arise.

Medium term targets

We are pleased to report good progress against each of the enhanced medium term targets announced in May 2016 in their first year of operation. These targets sit within our long term strategy, ensuring we are focused on operational efficiency as well as strategic investments. Whilst the targets are stretching, we believe these to be the best medium term measures of performance for our business, and they remain appropriate management goals, targeting further improvement across three key areas in the period from 2016 to 2018.

 
 Medium term targets (2016-2018)    2016 actual   2016-2018 
                                                     target 
---------------------------------  ------------  ---------- 
 An average annual return on 
  net operating assets**                  30.7%         30% 
---------------------------------  ------------  ---------- 
 An average operating profit*             20.8%       c.22% 
  margin 
---------------------------------  ------------  ---------- 
 Total dividends to be paid           GBP355.9m    GBP1.3bn 
  in cash to shareholders over 
  the period 
---------------------------------  ------------  ---------- 
 

Dividends

A key part of our investment proposition is our commitment to a reliable dividend stream for our investors through the cycle. We remain confident that we can continue to be significantly cash generative, enabling shareholders to benefit from the success of our strategy in all stages of the cycle by sustaining a significant ordinary dividend to shareholders on an annual basis, including through a 'normal downturn', and an additional special dividend to be paid at appropriate times in the cycle.

During 2016 we significantly enhanced our ordinary dividend and announced further special dividends. Therefore, 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 GBP150 million per annum. This is intended to provide a reliable minimum annual return to shareholders throughout the cycle. This Ordinary Dividend Policy was subject to prudent and comprehensive stress testing against various downside scenarios, which also included a reduction of 20% in average selling prices and a 30% reduction in volumes. After the economic uncertainty of the latter half of 2016, we remain very confident in this policy.

The payment of ordinary dividends will continue to be supplemented by additional significant special dividends at appropriate times in the cycle. 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 medium term, and once the Group's ordinary dividends have been met.

In 2016 shareholders received total dividends (including ordinary and special dividends) of GBP355.9 million (or 10.91 pence per share).

As previously announced, and subject to shareholder approval at the 2017 Annual General Meeting, we intend to pay c.GBP300 million to shareholders in July 2017 by way of a special dividend.

Accordingly, subject to shareholder approval at the 2017 Annual General Meeting, in 2017 shareholders will receive a total dividend of c.GBP450 million (c.13.8 pence per share), comprising an ordinary dividend of c.GBP150 million (c.4.6 pence per share) and a special dividend of c.GBP300 million (9.2 pence per share).

 
 Target of GBP1.3bn in     2016 actual   2017 announced 
  the period 2016-18 (A)          paid              (B) 
------------------------  ------------  --------------- 
 Ordinary dividend GBPm           55.8          c.150.0 
------------------------  ------------  --------------- 
 Special dividend GBPm           300.1          c.300.0 
------------------------  ------------  --------------- 
 Total dividend GBPm             355.9          c.450.0 
------------------------  ------------  --------------- 
 

(A) All ordinary and special dividends are subject to shareholder approval

(B) In line with previously announced Policy

The Board confirms its intention to keep the mechanics of how the Company will pay special dividends, 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 are not comparable in 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 indicators (KPIs)

 
 UK                                       2016     2015     Change 
-------------------------------------  -------  -------  --------- 
 Contribution per legal completion 
  GBPk                                    65.5     59.4      10.3% 
-------------------------------------  -------  -------  --------- 
 Forward order book as a % 
  of completions (as at 31 
  December)                              54.8%    56.6%   (1.8)ppt 
-------------------------------------  -------  -------  --------- 
 Owned and controlled plots 
  with planning or resolution 
  to grant                              76,234   75,710       0.7% 
-------------------------------------  -------  -------  --------- 
 Strategic land pipeline conversion 
  plots                                  9,519    8,660       9.9% 
-------------------------------------  -------  -------  --------- 
 % of completions from strategically 
  sourced land                             51%      47%     4.0ppt 
-------------------------------------  -------  -------  --------- 
 Customer satisfaction %                   85%      86%   (1.0)ppt 
-------------------------------------  -------  -------  --------- 
 Health and Safety Annual 
  Injury Incidence Rate (per 
  100,000 employees and contractors)       211    175        20.6% 
-------------------------------------  -------  -------  --------- 
 Employee turnover % (voluntary)         13.9%    13.3%    0.6ppt 
-------------------------------------  -------  -------  --------- 
 

Sales, completions and pricing

Despite the wider uncertainty following the UK's vote to leave the EU, there was strong demand throughout 2016 in our core geographies and the UK housing market remained resilient.

As previously highlighted, whilst the wider London market remained robust and in line with the rest of the UK, the central London market slowed during 2016 at the upper end of the market, with prices softening slightly in the second half of the year. We traded on an average of eight Central London schemes in 2016, of which the average size was 126 plots.

In 2016, total UK home completions (excluding joint ventures) increased by 4.5% to 13,808 (2015: 13,219). During 2016, we delivered 2,663 affordable homes (2015: 2,509), equating to 19.3% of total completions (2015: 19.0%). Our net private reservation rate for the year was 0.72 homes per outlet per week (2015: 0.73).

Whilst we saw a small increase in the average cancellation rate immediately following the EU Referendum, this remained low compared to long term historic norms and quickly returned to pre-Referendum levels. Overall cancellation rates for the year as a whole remained low at 13% (2015: 12%).

Average selling prices on private completions increased by 12.6% to GBP286k (2015: GBP254k), once again benefiting from our focus on better quality locations and the improvement of specification in line with product and location. Our total average selling price increased by 10.9% to GBP255k (2015: GBP230k). We estimate that market-led house price growth for our regional mix was c.5% in the 12 months to 31 December 2016 (2015: 6%).

First time buyers accounted for 38% of total sales in 2016 (2015: 36%). Investor sales continued to be at a very low level versus historic norms at 3% (2015: 7%).

Help to Buy continued to be a differentiator for new build housing, and remained popular with our customers. During 2016 approximately c.39% of total sales used the Help to Buy scheme, and we worked with c.5,393 households to take the first step to home ownership or to move up the housing ladder (2015: c.37% and c.5,200). Approximately 77% of sales through Help to Buy in 2016 were to first time buyers (2015: 77%). During the year c.14% of sales in the London market used Help to Buy London, which launched in February 2016.

We believe that quality of location is a key determinant of a home purchase and that this remains true through all market conditions. During 2016 we opened 105 new high-quality outlets (2015: 123) in locations in villages, towns and cities where people want to live, and which are supported by strong demographics and local economies. As at 31 December 2016 we were operating from 285 outlets (31 December 2015: 297).

As at 31 December 2016 our order book represented 7,567 homes (31 December 2015: 7,484 homes) with a value of GBP1,682 million (31 December 2015: GBP1,779 million), excluding joint ventures.

Brand

As part of our strategy review process, we took the opportunity to challenge our thinking on brand strategy to ensure it fully reflects our culture today as well as aspirations for the future.

During 2016 we worked with employees across the business, customers and other stakeholders to determine our new vision of: 'Working together to build your dreams'. We believe that this resonates strongly with our customers as it recognises that we are building them more than just a house or apartment; we are building them a home. This Working Together approach is fully aligned to our strategy and underpinned by our values as it challenges us to drive continual improvement in all of our business areas by creating great places which inspire and delight. Importantly, it also addresses our key stakeholders. We believe this approach will continue to strengthen Taylor Wimpey's reputation as a company which people want to buy a home from, work for, partner with and invest in.

Customers

We have continued to make good progress in rolling out our new customer approach across the business. During 2016 we introduced a number of customer service related changes throughout the business, including the appointment of a newly created role of Head of Customer Service in each of our 24 regional businesses and the introduction of our new Home Quality Inspection (HQI) process on all of our sites. Our new customer service approach is an area that will take time to fully embed and will continue to remain a priority as we focus on delivering a consistent standard, engaging contractors and suppliers and managing customer expectations. To date we have received good feedback from customers and employees on our new approach and we have seen a positive trend in customer satisfaction scores during the year.

During 2016 we achieved a customer satisfaction score of 85% (2015: 86%), reflecting the number of customers who were satisfied with the quality of their Taylor Wimpey home, based on the Home Builders Federation (HBF) survey. The survey is conducted by the National House-Building Council (NHBC) at eight weeks after completion to monitor our performance and identify areas for improvement.

We have a number of further customer improvements planned for 2017 including a pilot of our new online Customer Portal, which will guide customers through their Taylor Wimpey Customer Journey. It will provide personalised information for each customer about their new home, inform them of build progress and enable them to select options for their home. Our customers will also be able to use the portal to log any issues or concerns, enabling us to deliver a more personalised service and be more responsive to our customers' individual needs.

Reflecting the success of our academy based approach in other key areas of the business, our new Academy of Customer Excellence (ACE) will be launched in 2017. It aims to build the skills of our Customer Service, Production and Sales Teams and develop further their knowledge of our product range, ensuring consistent customer service delivery across our regional businesses.

In the final quarter of 2016, concern was expressed by some customers about certain leasehold houses and apartments which are subject to leases with doubling ground rent clauses used on some of our developments started between 2007 and 2011. Whilst the clauses are clearly outlined in the lease and customers received independent legal advice, we note the reports of the potential impact of these clauses for our customers. We are therefore in the process of reviewing this matter and working with these customers.

Land and planning

The land that we acquire, together with the planning potential that we work with local authorities and communities to create, is key to defining products, locations, target customer base and prices and underpins our confidence in our future financial performance.

Our short term landbank stands at c.76k plots, equating to c.5.5 years of supply at current completion levels as at 31 December 2016. Given the strength and quality of the landbank, we are focused on delivering value and maximising returns from our investments. We have been operating on a broadly replacement basis in the short term landbank for approximately two years and are extremely selective with a targeted approach to further land investment, and a preference for 'land light' structures and active management as we continue to drive a higher return on capital employed***.

During 2016 we acquired 6,355 plots (2015: 6,971 plots) at anticipated contribution margins of around 26% and return on capital employed*** of c.31%.

In the year we achieved a 2.5 percentage points margin upside on completions from land acquired since 2009, compared with the expected margin at the point of acquisition.

The average cost of land as a proportion of average selling price within the short term owned landbank remains low at 15.4% (2015: 16.3%). The average selling price in the short term owned landbank in 2016 increased by 5.7% to GBP259k (2015: GBP245k).

A key strength for Taylor Wimpey is our strategic pipeline. This land, which has no residential planning permission at the time we take a commercial interest, affords significant protection of future returns with a high embedded margin and, importantly, enhances our short term landbank when converted. We have the largest strategic pipeline in the sector which stood at c.108k potential plots as at 31 December 2016 (31 December 2015: c.107k potential plots). During 2016 we converted a further 9,519 plots from the strategic pipeline to the short term landbank (2015: 8,660 plots). With a significantly lower cost and greater control over the planning permissions we create, we continue to seek new opportunities and added a net 10.8k new potential plots to the strategic pipeline in 2016 (2015: 5.8k). In the year, a record 51% of our completions were sourced from the strategic pipeline (2015: 47%).

Build costs, efficiency and product

During 2016 underlying build cost per unit increased to GBP137.2k (2015: GBP121.9k), reflecting the change in mix of product, higher proportion of homes delivered from strategically sourced sites with higher related infrastructure costs, and changes we have made in specification during 2016. In the period the improved market resulted in underlying build cost increases (excluding house type mix impact) of c.4% year on year (2015: c.5%), with the majority of cost pressures coming from labour. The availability of materials has largely kept pace with the growth of the industry. Whilst we expect to see some impact on input prices from the weaker sterling exchange rate following the EU Referendum result, we do not expect this to be significant due to the low level of direct imports.

During 2016 we achieved an average annual return on net operating assets** of 30.7% (2015: 27.1%) which is ahead of our medium term target of 30% as set out in May 2016.

We have improved our UK net operating asset turn * to 1.46 times (2015: 1.34 times), benefitting from a low land cost as a percentage of average selling price in the short term owned landbank, as a result of higher margin land acquired in recent years and increased strategic conversion, particularly in our Central and South West Division. The higher proportion of strategic land conversion results in higher work in progress spend, due to these sites generally requiring greater infrastructure investment.

Following a detailed review of our standard product specification, during 2016 we introduced a number of changes to our base specification in order to reflect our customer lifestyles and expectations and the quality locations in which we are building. Whilst this resulted in a small increase in build cost, this was offset by a higher average selling price achieved on completions. We also extended our standard house type range in 2016 to include a number of options for larger houses.

Following the success of our standard house type range, which is in place on over 70% of Taylor Wimpey sites, we will be introducing a range of standard apartment types to planning applications in 2017.

During 2016 we launched an open design competition with the Royal Institute of British Architects (RIBA), as part of our long term initiative, Project 2020. Project 2020 aims to explore and evaluate the potential trends of future homes. The competition attracted 120 entries from 14 countries. The winning team, which has now been selected, will work with us to enhance and improve the existing typology, helping to build a prototype.

We strengthened our quality assurance processes during 2016 to ensure we consistently achieve a high-quality build and get things right first time for our customers. It is expected that this will increase customer satisfaction and save time and money for the business in getting the home delivery right first time. There are also sustainability benefits associated with achieving high-quality standards, including greater durability, less waste and fewer resources used for repairs and maintenance.

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 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 in 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.

Our Annual Injury Incidence Rate (AIIR) for reportable injuries per 100,000 employees and contractors was 211 in 2016, against a record low of 175 in 2015, with the rate in the second half of the year at a similar level to 2015. Our AIIR for major injuries per 100,000 employees and contractors was 53 in 2016 (2015: 18). Whilst our AIIR has increased, it remains below both the HBF Home Builder Average and Health and Safety Executive Construction Industry Average, and 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 to their full potential, regardless of market conditions or their background.

During 2016 we directly employed, on average, 4,697 people across the UK (2015: 4,299) and provided opportunities for a further 12,390 operatives on our sites. Our voluntary employee turnover rate remained low at 13.9% (2015: 13.3%).

We have made a significant investment in, and commitment to, the recruitment of our next generation of future leaders, including extending our trainee schemes and investing in the skills and development of our employees across the business, to ensure that Taylor Wimpey attracts and retains the best people in the industry through the cycle. During 2016, we recruited 147 apprentices (including 54 site management apprentices), 30 management trainees and 20 graduates, whilst improving our apprenticeship and trainee schemes across a number of areas (2015 total: 139).

We want to ensure that all staff are recognised and rewarded for their contribution and commitment. Following feedback in 2016, we introduced an improved flexible benefits package for all employees and a new approach to flexible working, with maternity, paternity and adoption policies significantly enhanced.

In April 2016, our Senior Management Team presented an update on our business strategy via a series of roadshow sessions across the country, available to all of our employees. Over 4,200 employees attended the sessions, which provided an update on our strategy, progress made and priorities for the future, particularly our commitment to discipline in all market conditions and driving continuous business improvement. These presentations also had an emphasis on how everyone can play a part in our future success.

We are pleased to report that Taylor Wimpey was once again recognised in the National House-Building Council's (NHBC) Pride in the Job Awards, achieving a total of 57 Quality Awards (2015: 63), 16 Seals of Excellence Awards (2015: 20) and two Regional Awards in 2016 (2015: three). Our West Scotland Site Manager, Paul Cunningham was also named the runner-up in the large builder category at the Supreme Awards, the final stage of the Pride in the Job Awards 2016.

Management changes

After 28 years of outstanding service to the company, Fergus McConnell, Divisional Chairman North, retired from the business at the end of 2016. Fergus has been replaced by Daniel McGowan, previously Divisional Managing Director (DMD) of the Midlands. Daniel joined the company in 1999 as Sales and Marketing Director, before moving into a strategic role at Head Office. Daniel was then promoted to the role of Managing Director (MD) at our North Midlands regional business, a position he held for two years, before the role of DMD.

We would like to take the opportunity to thank Fergus for his commitment and contribution to the North Division over the years, as well as his contribution to the wider business.

Ingrid Osborne, MD of our Central London regional business, was also promoted to the new post of DMD for Central and East London in 2017.

Local communities

We aim to be the industry leader in all aspects of planning and to secure the right planning consents that enable us to respond to a changing market, reflect the desires of our customer base and deliver the quality homes we want to build, whilst meeting our financial objectives.

Whilst we have a national presence, we are proud to operate as a local homebuilder with 24 regional businesses across the country. We continually explore ways in which we can work more closely with local communities. We are committed to working with local people and other stakeholders throughout the planning process and seek to engage, consult and work in partnership with communities and all interested stakeholders, both before we submit a planning application and throughout the life of our developments. In this way we can listen to their concerns and, where possible, incorporate these within our plans.

In 2016, we contributed GBP363 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 (2015: GBP335 million).

Sustainability

We are committed to being a responsible homebuilder and are continuing to integrate sustainability into our business practices. This helps us to create better homes and communities and a stronger business for the long term.

We strive to be an open, transparent and responsive company for all our stakeholders and to work with them to understand and address the wider social, economic and environmental impacts resulting from our operations. During 2016 we carried out a materiality assessment to review the current social, economic and environmental priorities both for our business and our stakeholders, to help us better understand stakeholder views on key topics and to identify emerging risks and opportunities. This has shown us that we are largely focused on the right issues but there are also opportunities to do more in key areas and to continue to play an active part in addressing major challenges like access to housing and climate change. We will be using the materiality assessment findings to review and strengthen our approach to sustainability during 2017.

As previously highlighted, during 2015 we reviewed our charity policy to ensure that it is fully aligned to our values as a business and that we continue to make a difference to the charities that we work with by actively contributing financially, with our time, energy or through leadership. In 2016 we continued to support selected charities at both a national and regional level with a focus on projects which promote aspiration and education in disadvantaged areas and intervening to help tackle homelessness for economically disadvantaged groups in the UK. At the end of 2016 we introduced a new framework which provides employees with two full days or four half-days paid time off to support our network of charities or local community projects as volunteers. This will benefit our charity partners and provide development opportunities for our people.

During 2016, we continued our partnership with our national charities as well as local charity partners across the UK. Our six national charities include the Youth Adventure Trust, End Youth Homelessness, Crisis, Crash, St Mungo's and Foundations Independent Living Trust. Our national charity partners are selected by our Charity Committee, with regional charities selected by our regional businesses.

In total, during 2016 we donated and fundraised over GBP875k for registered charities (2015: over GBP746k), in addition to c.GBP159k for other organisations, such as scout groups and other local community causes (2015: c.GBP112k). More information about our local sponsorships and charity partnerships can be found within our Sustainability Report, which will be published on our website www.taylorwimpey.com/corporate in March 2017.

Spain

The Spanish housing market remained positive throughout 2016. Whilst the weak sterling exchange rate has impacted British buyers, with a diverse customer base we continued to achieve a healthy private sales rate through 2016. We completed 304 homes in 2016 (2015: 251) at an average selling price of EUR358k (2015: EUR315k). The total order book as at 31 December 2016 was 293 homes (31 December 2015: 270 homes).

The Spanish business delivered a significantly improved operating profit* of GBP20.6 million for 2016 (2015: GBP10.0 million) and an operating profit* margin of 22.0% (2015: 17.2%). Looking ahead, we remain cautiously optimistic, whilst conscious of the potential implications of the wider macro European economic environment.

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 provide more clarity of underlying trading or in monitoring performance against strategy. Definitions of the alternative performance measures discussed below and a reconciliation to the equivalent statutory measure are detailed on page 41.

Income statement

Group revenue increased by 17.1% to GBP3,676.2 million in 2016 (2015: GBP3,139.8 million) from 14,112 completions (2015: 13,470). The increase was driven by improved selling prices in the UK, up 10.9% to GBP255k (2015: GBP230k), and UK volume growth of 4.5% to 13,808 completions (2015: 13,219). Average selling prices on private completions increased by 12.6% to GBP286k (2015: GBP254k) 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 GBP45.4k, is higher than the prior year (2015: GBP42.4k) due to the continued shift to better quality locations and a higher relative proportion of private sales from the London and South East region where the land cost per plot is higher. Total UK land cost per completion as a percentage of selling prices was 17.8% (2015: 18.4%).

Underlying build cost per unit in the UK increased to GBP137.2k (2015: GBP121.9k), driven by marginal build cost inflation, the impact of higher infrastructure costs due to a higher proportion of strategic sites and specification improvements. Other direct costs and selling expenses per unit increased marginally to GBP6.2k (2015: GBP6.0k), but at 2.4% of total revenue (2015: 2.6%) resulted in better recovery of selling expenses in the year.

UK contribution per completion increased by 10.3% to GBP65.5k for the period (2015: GBP59.4k), continuing to benefit from improved land mix from completions in the period and improved sales prices partially offset by build cost increases.

Gross profit of GBP939.9 million (2015: GBP787.4 million), increased by 19.4% and included positive contribution of GBP13.1 million (2015: GBP8.9 million) and an exceptional charge of GBP0.5 million (2015: GBP0.6 million). 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 2016, 5% (2015: 6%) of the Group's UK completions were from sites that had been previously impaired. In Spain, 65 plots (2015: 53) were completed that had previously been impaired. The Group anticipates that c.4% of UK 2017 completions will come from sites that have been previously impaired.

During the year, completions from joint ventures were 73 (2015: 122). The total order book value of joint ventures as at 31 December 2016 was GBP52 million (31 December 2015: GBP60 million), representing 100 homes (31 December 2015: 118). Our share of results of joint ventures in the period was GBP1.2 million (2015: GBP4.9 million), which declined mainly due to the timing of the East London schemes.

Operating profit* increased by 20.0% to GBP764.3 million (2015: GBP637.0 million), delivering an operating profit* margin of 20.8% (2015: 20.3%), which includes c.GBP10 million charge recognised in the first half of the year as additional one-off remedial costs in relation to certain legacy sites.

On a divisional basis the three UK operating divisions delivered a combined increase of 16.3% in operating profit* to GBP811.1 million (2015: GBP697.4 million). The North Division generated an 11.6% increase in operating profit* to GBP280.0 million (2015: GBP251.0 million), delivering a return on net operating assets** of 34.4%, 260 basis points above prior year (2015: 31.8%). The Central and South West Division increased operating profit* by 15.4% to GBP280.7 million (2015: GBP243.2 million), improving the return on net operating assets** by 500 basis points to 39.1% (2015: 34.1%). The London and South East Division saw strong operating profit* growth of 23.2% to GBP250.4 million (2015: GBP203.2 million), delivering growth of 230 basis points in return on net operating assets** to 24.7% (2015: 22.4%).

Net finance costs for the period were GBP30.9 million (2015: GBP33.2 million). Interest on overdraft, bank and other loans decreased by GBP0.7 million year on year and benefitted from lower average net debt of GBP87.4 million (2015: GBP94.8 million) and the impact of the early redemption of the GBP100 million loan notes in November 2016. Unwind of the discount on land creditors was GBP17.7 million (2015: GBP15.9 million) with the movement due to higher average land creditors year on year. The notional interest on the pension deficit of GBP6.1 million (2015: GBP6.0 million) stayed broadly flat year on year.

Pre-exceptional profit before tax for the year from operations increased by 21.5% to GBP733.4 million (2015: GBP603.8 million). The pre-exceptional tax charge was GBP143.7 million (2015: GBP121.5 million) with an underlying tax rate of 19.6% (2015: 20.1%) that largely reflects the statutory tax rate in the UK.

This resulted in a profit, before exceptional items, for the year of GBP589.7 million (2015: GBP482.3 million), 22.3% up on the prior year due to the improvement in the operational result and lower net finance costs.

The review of land and work in progress net realisable values resulted in a net charge of GBP0.5 million against previously impaired sites. This has been recognised as an exceptional item in the period.

Basic earnings per share was 18.1 pence (2015: 15.1 pence). The adjusted basic earnings per share was 18.1 pence (2015: 14.9 pence), up 21.5%.

Balance sheet

Net operating assets were GBP2,539.6 million (31 December 2015: GBP2,442.6 million), reflecting a net investment of GBP113.3 million (2015: GBP269.1 million) year on year in land and work in progress, funded mostly by increased profitability. Return on net operating assets** increased by 360 basis points to 30.7% (2015: 27.1%), reflecting improved profitability while maintaining balance sheet discipline. Net operating asset turn * increased to 1.48 times (2015: 1.33 times).

As at 31 December 2016, the UK held short term owned land valued at GBP2.3 billion (2015: GBP2.4 billion), representing 57,287 plots (2015: 61,186). The total controlled short term landbank represented 18,947 plots (31 December 2015: 14,524). The value of long term owned land increased by 22.7% to GBP135 million (2015: GBP110 million), representing 27,826 plots (2015: 28,118), with a total controlled strategic pipeline of 80,190 plots (31 December 2015: 78,582). Total potential revenue in the landbank increased to GBP42 billion in the period (31 December 2015: GBP40 billion).

Average work in progress (WIP) per UK outlet at 31 December 2016 increased by 21.6% to GBP4.5 million (2015: GBP3.7 million), reflecting the high proportion of strategic land conversions which require a greater level of infrastructure investment, combined with build cost inflation, and our focus on delivering a consistent standard to our customers that has added, on average, two weeks to our production programmes. UK WIP turn reduced marginally to 3.00 times (2015: 3.10 times).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 GBP138.3 million (31 December 2015: GBP175.9 million) of which the balance in the UK was GBP119.6 million (31 December 2015: GBP151.6 million). As at 31 December 2016, the associated write-downs were GBP147.0 million (31 December 2015: GBP167.7 million) of which the balance in the UK was GBP96.8 million (31 December 2015: GBP124.2 million) and principally related to 14 locations.

As at 31 December 2016, in the UK, 3% of our short term owned and controlled land was impaired (31 December 2015: 4%), with 82% of the short term owned and controlled landbank purchased after 2009, 65% of which was sourced through our strategic pipeline, resulting in a land cost to average selling price in the short term owned landbank of 15.4% (31 December 2015: 16.3%).

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 decreased to GBP599.8 million (31 December 2015: GBP629.8 million) and, combined with net cash, resulted in adjusted gearing of 8.1% (31 December 2015: 14.9%). GBP286.4 million is expected to be paid within 12 months and GBP178.7 million between one and two years from balance sheet date. Included within the land creditor balance is GBP130 million of UK land overage commitments (31 December 2015: GBP109 million).

The mortgage debtor balance was GBP78.0 million at 31 December 2016 (31 December 2015: GBP94.6 million), with the decrease due to redemption receipts of GBP21.1 million (31 December 2015: GBP11.3 million), offset by gains (including fair value adjustment) of GBP0.8 million and interest income of GBP3.7 million.

Our net deferred tax asset relates principally to our pension deficit and increased to GBP57.4 million in the period (31 December 2015: GBP55.7 million). GBP8.2 million of this asset relates to the temporary differences of our Spanish business, including brought forward trading losses.

Net assets at 31 December 2016 increased by 19.6% to GBP3,256.2 million, before dividends paid in the period and by 6.5% overall year on year to GBP2,900.3 million (31 December 2015: GBP2,723.3 million). The net asset increase from 31 December 2015 was driven by profitability in the period offset by the GBP355.9 million dividend paid in the year and the pension actuarial assumptions increasing the pension deficit year on year.

Pensions

Retirement benefit obligations of GBP234.1 million at 31 December 2016 (31 December 2015: GBP178.4 million) comprise a defined benefit pension liability of GBP232.7 million (31 December 2015: GBP177.1 million) and a post-retirement healthcare liability of GBP1.4 million (31 December 2015: GBP1.3 million). The GBP200 million buy-in completed at the end of 2014, coupled with c.75% liability hedging against interest rates and inflation risk exposure, reduced the volatility of the scheme liabilities over the period. The main drivers for the movement in the deficit since 31 December 2015 were contributions in the period more than offset by actuarial assumptions, most notably a reduction in the discount rate and an increase in inflation. In 2016 we contributed GBP23.1 million in pension contributions (2015: GBP23.1 million).

We will be engaging with the Pension Trustees on the next triennial valuation of the pension scheme with an effective date of 31 December 2016 over the coming months. The triennial valuation is expected to be concluded during 2017.

Cash flow

Net cash increased to GBP364.7 million at 31 December 2016 from GBP223.3 million at 31 December 2015, despite returning GBP355.9 million to shareholders by way of dividends in the year. This improvement in net cash is largely as a result of strong performance in underlying trading and maintaining balance sheet discipline.

Net land spend, net of movement in land creditors, was GBP583.2 million (2015: GBP556.3 million).

The sum of GBP2,269.8 million has been invested in work in progress in the period (2015: GBP2,006.4 million). In 2016, we paid GBP13.5 million in interest costs (2015: GBP14.5 million) and GBP355.9 million in dividends (2015: GBP308.4 million). GBP10.6 million was spent during the year to acquire shares for satisfying future share scheme awards (31 December 2015: GBP2.0 million).

In the 12 months to 31 December 2016 we converted 81.4% of operating profit* into operating cash flow**** (2015: 67.0%).

Financing structure

Our committed borrowing facilities are currently GBP635.5 million with an average maturity of 3.6 years. Average net debt for 2016 was GBP87.4 million (2015: GBP94.8 million).

On 28 June 2016 we completed a Private Placement of EUR100 million loan notes fixed at 2.02% for seven years, which is used to hedge the investment in our Spanish business. In November 2016 we prepaid our GBP100 million term loan that was originally due to be repaid in instalments by 2020. As a result, we expect to reduce our financing interest costs in 2017 by at least GBP4 million.

Dividends

We remain fully committed to the enhancements to the Dividend Policy we announced on 17 May 2016. From 2017, subject to shareholder approval at the AGM, to be held on 27 April 2017, the Company will pay an ordinary dividend of approximately 5% of Group net assets and which will be at least GBP150 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.

Subject to shareholder approval the 2016 final ordinary dividend of 2.29 pence per share will be paid on 19 May 2017 to shareholders on the register at the close of business on 18 April 2017 (2015 final dividend: 1.18 pence per share). In combination with the interim dividend of 0.53 pence per share (2015 interim dividend: 0.49 pence per share) this gives a total ordinary dividend for the year of 2.82 pence (2015 total dividend: 1.67 pence per share).

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 24 April 2017 in order to be effective for this dividend. Further details can be found on our website www.taylorwimpey.co.uk/corporate

In addition, on 15 July 2016, we returned GBP300.1 million to shareholders by way of a special dividend, equating to 9.20 pence per ordinary share. As previously announced in May 2016, we intend to return c.GBP300 million to shareholders in July 2017, equating to 9.20 pence per ordinary share, subject to shareholder approval at the 2017 AGM. This is proposed to be paid on 14 July 2017 as a cash dividend to all shareholders on the register at close of business on 2 June 2017. Shareholders will be offered the opportunity to reinvest all of their 2017 cash dividend under the DRIP, for which elections to join the Plan must reach the Registrar by 19 June 2017.

Future special dividends will be announced on an annual basis at the half year results and will be paid in the following July, subject to shareholder approval. The next update will therefore be at our 2017 half year results on 1 August 2017 for the 2018 special dividend.

The Board confirms its intention to keep the mechanics of how the Company will pay special dividends, including the merits of undertaking a share buyback at some point in the future should it become appropriate to do so, under regular review.

Going concern

The Directors remain of the view that the Group's financing arrangements and balance sheet strength provide both the necessary facilities and covenant headroom to enable the Group to conduct its business for at least the next 12 months. Accordingly, the consolidated financial statements are prepared on a going concern basis.

Viability statement

In accordance with provision C2.2 of the 2014 revision of the UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the 12 months required by the 'Going Concern' provision. The Board conducted their review for a period of three years. The Company operates in a market which is prone to cyclicality, tending to follow the UK economic cycle. It is impacted by Government policy, planning regulation and the mortgage market. However, the Board considers that the Company has clear visibility over a three year time horizon. This period aligns with the average build out time for a development phase with implementable planning permission and all pre-commencement conditions discharged. This period is also in line with the Group's medium term targets and its operational planning and risk management review periods.

This operational plan, including the Group's income statement, balance sheet, cash flows, KPIs and debt covenants, considers the potential impacts which may arise from the Principal Risks of the business as described on pages 19 to 23. It includes macroeconomic and industry wide projections as well as matters specific to the Group.

To mitigate the risks inherent in forward-looking projections, the operational plan is subject to sensitivity analysis on a series of realistically possible changes to principal assumptions, as outlined on page 5. This sensitivity analysis flexed a number of principal assumptions to model a downside scenario, which reflected the potential impact of declining customer confidence and disposable incomes, as may be experienced as a secondary impact to the Group from the UK leaving the EU. Based on the results of this analysis, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period of their assessment.

Shareholder information

The Company's 2017 Annual General Meeting (AGM) will be held at 11am on 27 April 2017 at the British Medical Association, BMA House, Tavistock Square, London WC1H 9JP.

Copies of the 2016 Annual Report and Accounts will be available from 17 March 2017 on the Company's website www.taylorwimpey.co.uk/corporate Hard copy documents will be posted to shareholders who have elected to receive them and will also be available from our registered office at Gate House, Turnpike Road, High Wycombe, Buckinghamshire, HP12 3NR from 20 March 2017.

A copy of the 2016 Annual Report and Accounts will be submitted to the National Storage Mechanism and will be available for inspection at: www.Hemscott.com/nsm.do

Directors' responsibilities

The responsibility statement below has been prepared in connection with the Company's full Annual Report and Accounts for the year ended 31 December 2016. Certain parts thereof are not included within this announcement.

We confirm to the best of our knowledge that:

-- the financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

-- the management report, which is incorporated into the Strategic Report and Directors' Report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.

This responsibility statement was approved by the Board of Directors on 27 February 2017 and is signed on its behalf by:

Kevin Beeston, Chairman

Pete Redfern, Chief Executive

Principal risks and uncertainties

As with any business, Taylor Wimpey faces a number of risks and uncertainties in the course of the day to day operations. It is only by effectively identifying and managing these risks that we are able to deliver on our medium term targets of an average operating profit* margin of c.22%, an average annual return on net operating assets** of 30% and a total of GBP1.3 billion of dividends to be paid in cash to shareholders over the period.

In addition to the principal industry related risks set out below, 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, an emerging issue from some of our customers regarding leasehold properties with certain historical lease clauses as discussed on page 8, and those factors that are likely to affect our reputation. We actively work with our stakeholders to minimise the impact of new risks.

The table below summarises the Group's principal risks and uncertainties. These are not listed by order of importance. Management of these risks and uncertainties is the responsibility of the Chief Executive and the Group Management Team, together with the roles noted below. Further detail on the relevance of these risks to our strategy, the potential impact on key performance indicators, mitigation and responsibilities are provided in our 2016 Annual Report and Accounts, which will be available at www.taylorwimpey.co.uk/corporate from 17 March 2017.

We also maintain a Sustainability and Climate Change Risk and Opportunity Register to monitor other sustainability issues that could affect the Group. In addition, our climate change related risks and opportunities are available as part of our 2016 CDP submission. For more information please visit www.taylorwimpey.co.uk/corporate/sustainability

 
                                                Relevance         Potential                                                                 Mitigation       Progress 
                                                 to strategy       impact on                                                                                  in 2016 
                                                                   KPIs 
---------------------------------------------  ----------------  ------------------------------------------------------------------------  ---------------  --------------- 
 Government                                     Our ability                                                                                 We operate       Our customer 
  policy and                                    to build                      *    With the introduction of The Housing and Planning Act,   within our       and community 
  planning                                      homes and                          we may be required to meet higher levels of planning     comprehensive    engagement 
  regulations                                   communities                        obligations and we may incur additional costs to meet    community        strategy 
  The National                                  is dependent                       increased regulatory requirements.                       led planning     is embedded 
  Planning                                      upon drawing                                                                                strategy.        and having 
  Policy Framework                              up site                                                                                     This improves    a positive 
  (NPPF) and                                    proposals                                                                                   communications   effect. 
  the Localism                                  which meet                    *    Unforeseen delays or our inability to obtain suitable    with all         We have 
  Act are                                       the needs                          consents, could impact on the number or type of homes    parties,         been 
  well established,                             and                                that we build.                                           but especially   successful 
  although                                      affordability                                                                               local            in gaining 
  are insufficient                              of our                                                                                      communities,     planning 
  to deliver                                    customers,                                                                                  thereby          consents 
  greater                                       obtaining                     *    The locally produced CIL charge schedules may            enhancing        throughout 
  housing                                       planning                           increase costs, impacting the viability of current       our ability      the year 
  availability                                  permissions                        developments. Where CIL charges are not in place,        to deliver       with 
  for the                                       in acceptable                      there could be an impact on gaining planning consent     developments     particular 
  UK. Additional                                timeframes                         or Judicial Review challenge.                            that meet        emphasis 
  initiatives                                   and achieving                                                                               local            on the 
  and legislative                               other                                                                                       requirements.    conversion 
  and regulatory                                regulatory                                                                                  We consult       of the 
  amendments                                    requirements                  *    This could have a detrimental impact on the              with             strategic 
  have been                                     and permits.                       contribution per plot.                                   Government       land pipeline. 
  signalled                                                                                                                                 agencies 
  by the enactment                              There remains                                                                               and opposition   We continued 
  of The Housing                                a risk of                                                                                   parties          our 
  and Planning                                  delayed                                                                                     on housing       participation 
  Act 2016                                      or refused                                                                                  policy,          in the local 
  and The                                       planning                                                                                    both directly    Plans 
  Neighbourhood                                 applications,                                                                               and indirectly   Management 
  Planning                                      increased                                                                                   as a member      Group (PMG), 
  Bill is                                       timescales                                                                                  of industry      via the 
  currently                                     to the                                                                                      groups,          HBF, to 
  progressing.                                  discharge                                                                                   to highlight     ensure local 
  These seek                                    of planning                                                                                 potential        plans are 
  changes                                       conditions                                                                                  issues and       robust and 
  to hasten                                     and greater                                                                                 to understand    CIL charge 
  progress                                      complexity                                                                                  any proposed     schedules 
  through                                       around Section                                                                              changes          are 
  the planning                                  106 since                                                                                   to               appropriate. 
  system and                                    the                                                                                         regulations.     We have 
  accelerate                                    introduction                                                                                                 met with 
  build. They                                   of the                                                                                                       Government 
  could also                                    Community                                                                                                    officials 
  signal potential                              Infrastructure                                                                                               and 
  financial                                     Levy (CIL).                                                                                                  contributed 
  considerations                                                                                                                                             to the HBF 
  for some                                      As all elements                                                                                              submissions 
  sections                                      of the                                                                                                       in respect 
  of our customer                               anticipated                                                                                                  of The Housing 
  base.                                         changes                                                                                                      and Planning 
                                                from The                                                                                                     Act and 
  The new                                       Housing                                                                                                      the Starter 
  Administration                                and Planning                                                                                                 Homes 
  has published                                 Act and                                                                                                      initiative 
  a Housing                                     the Housing                                                                                                  in particular. 
  White Paper                                   White Paper 
  in February                                   are clarified, 
  2017, with                                    there could 
  several                                       be a change 
  months of                                     in demand 
  consultation                                  for specific 
  to follow.                                    products 
  Both the                                      at our planned 
  Housing                                       sites. In 
  White Paper                                   turn, this 
  and the                                       may lead 
  Neighbourhood                                 to changes 
  Planning                                      to site 
  Bill could                                    mixes, and 
  have a disruptive                             to extended 
  effect on                                     timeframes 
  the planning                                  to gaining 
  system,                                       consent. 
  sales rates, 
  site mixes 
  and customer 
  behaviour. 
 
  In December 
  2016, the 
  Housing 
  and Planning 
  Minister 
  issued a 
  Written 
  Ministerial 
  Statement 
  negatively 
  impacting 
  on the provisions 
  of housing 
  land supply 
  set out 
  in the NPPF 
  in instances 
  where there 
  is a Neighbourhood 
  Plan. This 
  could reduce 
  the scale 
  of strategic 
  land conversion 
  in the near 
  term. 
 
  Responsibility 
   *    UK Land Director 
 
 
   *    Regional Managing Directors 
---------------------------------------------  ----------------  ------------------------------------------------------------------------  ---------------  --------------- 
 Impact of                                      The majority                                                                                Our local        We continue 
 market environment                             of the homes        *    A reduction in demand for new homes below normal                   teams select     to promote 
 on mortgage                                    that we                  levels could negatively impact on both profit and                  the locations    the Government 
 availability                                   build are                cash generation. This would have an adverse effect on              and home         backed Help 
 and demand                                     sold to                  return on net operating assets and net debt.                       designs          to Buy scheme 
 Mortgage                                       individual                                                                                  that best        and have 
 availability                                   purchasers                                                                                  meet the         seen strong 
 and affordability                              who take                                                                                    needs of         interest 
 constrain                                      on mortgages                                                                                the local        in the scheme 
 the demand                                     to finance                                                                                  community        amongst 
 for housing.                                   their                                                                                       and customer     our customers. 
 Sustained                                      purchases.                                                                                  demand in 
 growth in                                      A change                                                                                    the present      Throughout 
 interest                                       in business                                                                                 and future.      2016 we 
 rates and                                      confidence,                                                                                 We evaluate      have continued 
 low wage                                       employment                                                                                  new outlet       to develop 
 inflation                                      opportunities                                                                               openings         good working 
 could challenge                                or significant                                                                              on the basis     relationships 
 mortgage                                       changes                                                                                     of local         with 
 affordability,                                 in the base                                                                                 market           established 
 leading                                        rate may                                                                                    conditions       mainstream 
 to lower                                       impact on                                                                                   and regularly    lenders 
 selling                                        the demand                                                                                  review the       and those 
 prices as                                      for housing.                                                                                pricing          wishing 
 a result                                       In particular,                                                                              and incentives   to increase 
 of falling                                     the ability                                                                                 that we          volume within 
 demand.                                        for first                                                                                   offer. We        the new 
                                                time buyers                                                                                 work closely     build market. 
 Following                                      and investors                                                                               with the 
 the 2014                                       to purchase                                                                                 financial 
 Mortgage                                       homes is                                                                                    services 
 Market Review,                                 impacted                                                                                    industry 
 stricter                                       by changes                                                                                  to ensure 
 guidelines                                     in mortgage                                                                                 customers 
 were introduced                                availability                                                                                receive 
 for lenders                                    at the higher                                                                               good advice 
 to assess                                      loan-to-value                                                                               on the 
 mortgage                                       levels,                                                                                     procurement 
 affordability                                  as it would                                                                                 of mortgage 
 in a rising                                    impact on                                                                                   products. 
 interest                                       the level 
 rate environment.                              of deposits 
 In 2015,                                       required. 
 the Bank 
 of England's 
 Financial 
 Policy Committee 
 gained new 
 powers, 
 to set loan-to-value 
 and debt-to-income 
 limits for 
 residential 
 mortgages. 
 The Government 
 has extended 
 the Help 
 to Buy equity 
 loan scheme 
 to 2021. 
 There is 
 uncertainty 
 over the 
 impact when 
 the scheme 
 ends. 
 
 Responsibility 
  *    UK Sales and Marketing Director 
 
 
  *    Regional Sales and Marketing Directors 
---------------------------------------------  ----------------  ------------------------------------------------------------------------  ---------------  --------------- 
 Material                                       We aim to                                                                                   We maintain      Following 
  costs and                                     commence             *    If the availability of subcontractors or materials is             regular          the recent 
  availability                                  work on                   insufficient to meet demand, this could lead to                   contact          growth in 
  of subcontractors                             new sites                 increased build times and costs, thereby reducing                 with suppliers   housebuilding, 
  A continued                                   as planning               profitability and return on capital employed.                     and negotiate    availability 
  increase                                      consents                                                                                    contract         and cost 
  in housing                                    allow, to                                                                                   volume,          of materials 
  production                                    accelerate                                                                                  pricing          has stabilised 
  may further                                   build progress       *    Lack of skilled subcontractors could also result in               and duration     and meets 
  reduce the                                    and optimise              higher levels of waste being produced from our sites              as               current 
  availability                                  return on                 and lower build quality.                                          appropriate.     demand. 
  of skilled                                    capital                                                                                     We provide       The supply 
  subcontractors                                employed.                                                                                   both             of quality 
  and materials                                 The vast                                                                                    high-level       subcontractors 
  and put                                       majority                                                                                    and site         remains 
  pressure                                      of work                                                                                     specific         challenging. 
  on utility                                    performed                                                                                   programme        The Group 
  firms to                                      on our sites                                                                                information      has agreed 
  keep up                                       is                                                                                          to aid with      product 
  with the                                      subcontracted,                                                                              demand           lines and 
  pace of                                       providing                                                                                   planning.        volumes 
  installation.                                 flexibility                                                                                 Competencies     with key 
  Further,                                      and supporting                                                                              are considered   suppliers 
  leaving                                       our strategy.                                                                               as part          to mitigate 
  the EU could                                                                                                                              of our           long lead 
  impact on                                                                                                                                 subcontractor    times and 
  the availability                                                                                                                          selection        shortages. 
  of skilled                                                                                                                                process, 
  workers.                                                                                                                                  particularly     During the 
  Together,                                                                                                                                 in relation      year the 
  this could                                                                                                                                to health        Group has 
  result in                                                                                                                                 and safety,      trialled 
  build programme                                                                                                                           quality,         several 
  and completion                                                                                                                            previous         different 
  delays and                                                                                                                                performance      build methods 
  unexpected                                                                                                                                and financial    as 
  cost increases.                                                                                                                           stability.       alternatives 
                                                                                                                                            We are           to 
  Responsibility                                                                                                                            assessing        conventional 
   *    Head of Procurement                                                                                                                 alternative      brick and 
                                                                                                                                            build methods    block. 
                                                                                                                                            to reduce 
   *    Regional Commercial Directors                                                                                                       reliance 
                                                                                                                                            on traditional 
                                                                                                                                            brick and 
                                                                                                                                            block 
                                                                                                                                            techniques 
                                                                                                                                            and resources. 
 
                                                                                                                                            We work 
                                                                                                                                            to address 
                                                                                                                                            the skills 
                                                                                                                                            shortage 
                                                                                                                                            with 
                                                                                                                                            apprenticeship 
                                                                                                                                            schemes 
                                                                                                                                            and the 
                                                                                                                                            Construction 
                                                                                                                                            Industry 
                                                                                                                                            Training 
                                                                                                                                            Board. 
---------------------------------------------  ----------------  ------------------------------------------------------------------------  ---------------  --------------- 
 Ability                                        Our business                                                                                We closely       In 2016, 
  to attract                                    model requires      *    Not filling critical roles or having a significantly               monitor          we acted 
  and retain                                    significant              changing work force could lead to delays in build,                 employee         on a 
  high-calibre                                  input from               quality issues, reduced sales levels, poor customer                turnover         comprehensive 
  employees                                     skilled                  service and reduced profitability.                                 levels on        staff survey, 
  Recruiting                                    people to                                                                                   a monthly        responding 
  employees                                     deliver                                                                                     basis and        to the views 
  with inadequate                               quality                                                                                     conduct          and 
  skills or                                     homes and                                                                                   exit             perspectives 
  in insufficient                               communities.                                                                                interviews,      of our 
  numbers,                                      There continues                                                                             as               employees. 
  or not being                                  to be                                                                                       appropriate,     We further 
  able to                                       competition                                                                                 to identify      developed 
  retain key                                    amongst                                                                                     any areas        our training 
  staff with                                    employers                                                                                   for              capability 
  the right                                     in the                                                                                      improvement.     and span, 
  skills for                                    housebuilding                                                                               We benchmark     by launching 
  the future,                                   and                                                                                         our              an 
  could have                                    construction                                                                                remuneration     NVQ-accredited 
  a detrimental                                 industries                                                                                  to ensure        Production 
  impact on                                     for                                                                                         we are           Academy, 
  our business.                                 sector-specific                                                                             competitive      additional 
                                                staff.                                                                                      within the       customer 
  Responsibility                                Shortages                                                                                   industry.        service 
   *    Group HR Director                       exist across                                                                                Clear            training 
                                                the industry                                                                                succession       and delivered 
                                                in the main                                                                                 plans are        a range 
   *    Every employee managing people          manual trades                                                                               in place         of development 
                                                and in certain                                                                              for key          courses 
                                                managerial                                                                                  roles within     for new 
                                                and                                                                                         the Group.       managers 
                                                professional                                                                                Our renewed      through 
                                                occupations.                                                                                approach         to the more 
                                                This could                                                                                  to succession    experienced 
                                                impact our                                                                                  planning         leader. 
                                                ability                                                                                     enabled          We enhanced 
                                                to achieve                                                                                  more internal    our careers 
                                                our strategic                                                                               candidates       website 
                                                goals.                                                                                      to be promoted   to include 
                                                                                                                                            to senior        a wider 
                                                                                                                                            roles. We        range of 
                                                                                                                                            hold regular     testimonials 
                                                                                                                                            development      and content, 
                                                                                                                                            reviews          highlighting 
                                                                                                                                            to identify      the range 
                                                                                                                                            training         of diverse 
                                                                                                                                            requirements.    career 
                                                                                                                                                             opportunities 
                                                                                                                                                             in the 
                                                                                                                                                             business. 
                                                                                                                                                             Lastly, 
                                                                                                                                                             having 
                                                                                                                                                             extended 
                                                                                                                                                             our 
                                                                                                                                                             performance 
                                                                                                                                                             review 
                                                                                                                                                             approach, 
                                                                                                                                                             we are 
                                                                                                                                                             confident 
                                                                                                                                                             that all 
                                                                                                                                                             staff will 
                                                                                                                                                             undergo 
                                                                                                                                                             a meaningful 
                                                                                                                                                             review to 
                                                                                                                                                             support 
                                                                                                                                                             development 
                                                                                                                                                             and 
                                                                                                                                                             progression. 
---------------------------------------------  ----------------  ------------------------------------------------------------------------  ---------------  --------------- 
 Land purchasing                                Land is                                                                                     Our Land         The short 
  The purchase                                  the major            *    Purchasing poor-quality or mispriced land, or                     teams select     term land 
  of land                                       'raw material'            incorrectly timing land purchases would have a                    and appraise     market 
  of poor                                       for the                   detrimental impact on our profitability and return on             each site,       remained 
  quality,                                      Group. The                capital employed.                                                 with the         benign 
  at too high                                   limited                                                                                     appraisal        throughout 
  a price,                                      availability                                                                                process          2016. We 
  or incorrect                                  of good-quality                                                                             ensuring         continued 
  timing of                                     land at              *    Acquiring insufficient land would reduce our ability              that each        to invest 
  land purchases                                an attractive             to actively manage the land portfolio and create                  project          in 
  in relation                                   price                     value for shareholders.                                           is financially   value-creating 
  to the economic                               throughout                                                                                  viable,          land 
  cycle could                                   the housing                                                                                 consistent       opportunities, 
  impact future                                 cycle, leads                                                                                with our         although 
  profitability.                                to significant                                                                              strategy         adapted 
                                                competition.                                                                                and              our approach 
  Responsibility                                The disciplined                                                                             appropriately    immediately 
   *    Divisional Managing Directors           purchasing                                                                                  authorised.      following 
                                                of land                                                                                     We strive        the EU 
                                                of the                                                                                      to be the        referendum 
   *    Regional Managing Directors             appropriate                                                                                 developer        where, due 
                                                quality,                                                                                    of choice,       to market 
                                                on attractive                                                                               through          uncertainty, 
   *    Regional Land and Planning Directors    terms at                                                                                    a                all land 
                                                the right                                                                                   comprehensive    opportunities 
                                                time and                                                                                    approach         proceeding 
   *    Strategic Land Managing Directors       scale in                                                                                    encompassing     were carefully 
                                                the economic                                                                                land vendors,    reassessed. 
                                                cycle, will                                                                                 land agents,     Going forward, 
                                                enhance                                                                                     local councils   we are mindful 
                                                the Group's                                                                                 and local        of external 
                                                ability                                                                                     communities.     factors 
                                                to deliver                                                                                  Our Strategic    and continue 
                                                sustainable                                                                                 Land teams       to critically 
                                                margins                                                                                     work alongside   assess 
                                                and return                                                                                  regional         opportunities 
                                                on capital                                                                                  businesses,      for robustness 
                                                employed                                                                                    to identify      in changing 
                                                through                                                                                     and secure       circumstances. 
                                                the cycle.                                                                                  land with        The landbank 
                                                                                                                                            the potential    is now in 
                                                                                                                                            for future       the optimal 
                                                                                                                                            development      size range 
                                                                                                                                            and to promote   to deliver 
                                                                                                                                            it through       our strategy. 
                                                                                                                                            the planning     Together 
                                                                                                                                            system.          with the 
                                                                                                                                                             strong 
                                                                                                                                                             conversion 
                                                                                                                                                             of the 
                                                                                                                                                             strategic 
                                                                                                                                                             pipeline, 
                                                                                                                                                             our reliance 
                                                                                                                                                             on purchasing 
                                                                                                                                                             short term 
                                                                                                                                                             land is 
                                                                                                                                                             diminished, 
                                                                                                                                                             providing 
                                                                                                                                                             some 
                                                                                                                                                             insulation 
                                                                                                                                                             from land 
                                                                                                                                                             price 
                                                                                                                                                             increases. 
---------------------------------------------  ----------------  ------------------------------------------------------------------------  ---------------  --------------- 
 Site and                                       Our operations                                                                              A                We continue 
 product                                        involve,            *    In addition to the potentially tragic personal impact              comprehensive    to compare 
 safety                                         and interface            of an accident on site or after customer completion,               health,          favourably 
 Building                                       with, a                  there is potential for legal proceedings, financial                safety and       with the 
 sites are                                      large number             penalties, reputational damage and delay to the                    environmental    UK 
 inherently                                     of people.               site's progress.                                                   (HSE)            housebuilding 
 dangerous                                      People range                                                                                management       and 
 places.                                        from employees                                                                              system is        construction 
 Unsafe practices                               and                                                                                         embedded         industry 
 by our employees                               subcontractors,                                                                             throughout       in terms 
 or subcontractors                              to customers                                                                                the business.    of site 
 have the                                       and their                                                                                   This is          safety. 
 potential                                      families,                                                                                   supported        We have 
 to cause                                       who live                                                                                    by our           continued 
 death or                                       on or visit                                                                                 policies         to keep 
 serious                                        our sites                                                                                   and procedures   our Annual 
 injury.                                        each day.                                                                                   to ensure        Injury 
                                                We want                                                                                     that we          Incidence 
 Responsibility                                 all of these                                                                                live up          Rate (AIIR) 
  *    Director of Health, Safety and Environ   people to                                                                                   to our           for reportable 
 ment                                           go home                                                                                     intention        injuries 
                                                at the end                                                                                  to provide       at the lower 
                                                of the day                                                                                  a safe and       end of the 
  *    Every employee and subcontractor         safe and                                                                                    healthy          normal range 
                                                uninjured.                                                                                  working          for the 
                                                                                                                                            environment      industry. 
                                                                                                                                            and that         2016 saw 
                                                                                                                                            we build         a slight 
                                                                                                                                            homes that       increase 
                                                                                                                                            comply with      of AIIR 
                                                                                                                                            the required     for reportable 
                                                                                                                                            regulations.     injuries 
                                                                                                                                            We provide       at 211 per 
                                                                                                                                            extensive        100,000 
                                                                                                                                            HSE training     employees 
                                                                                                                                            for our          from 36 
                                                                                                                                            employees,       injuries 
                                                                                                                                            providing        (2015: 175 
                                                                                                                                            regular          from 29 
                                                                                                                                            site toolbox     injuries), 
                                                                                                                                            talks for        as a result 
                                                                                                                                            our              of an increase 
                                                                                                                                            contractors      in accidents 
                                                                                                                                            and operatives   involving 
                                                                                                                                            and HSE          slips, trips 
                                                                                                                                            induction        and falls 
                                                                                                                                            courses.         and material 
                                                                                                                                            The 'Creating    handling. 
                                                                                                                                            a Site Team      These also 
                                                                                                                                            Approach'        account 
                                                                                                                                            initiative       for the 
                                                                                                                                            released         increase 
                                                                                                                                            in 2016          in the number 
                                                                                                                                            is designed      of injuries 
                                                                                                                                            to embed         in 2016 
                                                                                                                                            and train        being classed 
                                                                                                                                            the support      as major 
                                                                                                                                            'Blue Hat'       (18 in 2015 
                                                                                                                                            team to          to 53 in 
                                                                                                                                            assist our       2016). During 
                                                                                                                                            Site Managers    2017, there 
                                                                                                                                            to communicate   will be 
                                                                                                                                            the HSE          increased 
                                                                                                                                            ethos, thereby   focus on 
                                                                                                                                            supporting       addressing 
                                                                                                                                            a safe site.     housekeeping 
                                                                                                                                            All HSE          on site 
                                                                                                                                            issues are       to mitigate 
                                                                                                                                            reviewed         such injuries. 
                                                                                                                                            by the GMT 
                                                                                                                                            and actions      We continued 
                                                                                                                                            put in place     our safety 
                                                                                                                                            to rectify       supervisory 
                                                                                                                                            issues or        training, 
                                                                                                                                            help prevent     training 
                                                                                                                                            a recurrence.    over 3,200 
                                                                                                                                                             contractors' 
                                                                                                                                                             ground works 
                                                                                                                                                             supervisors 
                                                                                                                                                             and progressed 
                                                                                                                                                             the HSE 
                                                                                                                                                             training 
                                                                                                                                                             element 
                                                                                                                                                             of our 
                                                                                                                                                             'Creating 
                                                                                                                                                             a Site Team 
                                                                                                                                                             Approach' 
                                                                                                                                                             initiative 
                                                                                                                                                             to our Blue 
                                                                                                                                                             Hat support 
                                                                                                                                                             workers. 
---------------------------------------------  ----------------  ------------------------------------------------------------------------  ---------------  --------------- 
 

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.

Financial statements

Consolidated Income Statement

for the year to 31 December 2016

 
                                        Before                                 Before 
                                   exceptional  Exceptional               exceptional 
                                                      items 
                                         items         2016      Total          items  Exceptional      Total 
                                                                                             items 
                                                                                              2015 
                                                      (Note                                  (Note 
                                                      3 and                                  3 and 
GBP million                Note           2016           5)       2016           2015           5)       2015 
=========================  ====  =============  ===========  =========  =============  ===========  ========= 
Revenue                                3,676.2            -    3,676.2        3,139.8            -    3,139.8 
Cost of sales                        (2,735.8)        (0.5)  (2,736.3)      (2,351.8)        (0.6)  (2,352.4) 
=========================  ====  =============  ===========  =========  =============  ===========  ========= 
Gross profit 
 before positive 
 contribution                            927.3        (0.5)      926.8          779.1        (0.6)      778.5 
Positive contribution 
 from written 
 down inventory                           13.1            -       13.1            8.9            -        8.9 
=========================  ====  =============  ===========  =========  =============  ===========  ========= 
Gross profit                             940.4        (0.5)      939.9          788.0        (0.6)      787.4 
Net operating 
 expenses                     3        (177.3)            -    (177.3)        (155.9)            -    (155.9) 
=========================  ====  =============  ===========  =========  =============  ===========  ========= 
Profit on 
 ordinary activities 
 before finance 
 costs                                   763.1        (0.5)      762.6          632.1        (0.6)      631.5 
Interest receivable           4            0.7            -        0.7            0.7            -        0.7 
Finance costs                 4         (31.6)            -     (31.6)         (33.9)            -     (33.9) 
Share of results 
 of joint ventures                         1.2            -        1.2            4.9            -        4.9 
=========================  ====  =============  ===========  =========  =============  ===========  ========= 
Profit on 
 ordinary activities 
 before taxation                         733.4        (0.5)      732.9          603.8        (0.6)      603.2 
Taxation (charge)/credit      5        (143.7)          0.1    (143.6)        (121.5)          8.1    (113.4) 
=========================  ====  =============  ===========  =========  =============  ===========  ========= 
Profit for 
 the year                                589.7        (0.4)      589.3          482.3          7.5      489.8 
-------------------------  ----  -------------  -----------  ---------  -------------  -----------  --------- 
 
 
Attributable 
 to: 
Equity holders 
 of the parent                                                   589.3                                  490.1 
Non-controlling 
 interests                                                           -                                  (0.3) 
=========================  ====  =============  ===========  =========  =============  ===========  ========= 
                                                                 589.3                                  489.8 
=========================  ====  =============  ===========  =========  =============  ===========  ========= 
 
 
                            Note   2016   2015 
==========================  ====  =====  ===== 
Basic earnings per share       6  18.1p  15.1p 
Diluted earnings per 
 share                         6  17.9p  14.9p 
Adjusted basic earnings 
 per share                     6  18.1p  14.9p 
Adjusted diluted earnings 
 per share                     6  18.0p  14.7p 
--------------------------  ----  -----  ----- 
 

Financial statements

Consolidated Statement of Comprehensive Income

for the year to 31 December 2016

 
GBP million                              Note    2016   2015 
=======================================  ====  ======  ===== 
Items that may be reclassified 
 subsequently to profit or loss: 
Exchange differences on translation 
 of foreign operations                            6.3  (1.5) 
Movement in fair value of hedging 
 derivatives and loans                          (5.0)    1.5 
Items that will not be reclassified 
 subsequently to profit or loss: 
Actuarial loss on defined benefit 
 pension schemes                            9  (69.3)  (8.6) 
Tax credit/(charge) on items 
 taken directly to other comprehensive 
 income                                     7    10.7  (0.7) 
=======================================  ====  ======  ===== 
Other comprehensive expense for 
 the year net of tax                           (57.3)  (9.3) 
=======================================  ====  ======  ===== 
Profit for the year                             589.3  489.8 
=======================================  ====  ======  ===== 
Total comprehensive income for 
 the year                                       532.0  480.5 
=======================================  ====  ======  ===== 
 
Attributable to: 
Equity holders of the parent                    532.0  480.8 
Non-controlling interests                           -  (0.3) 
=======================================  ====  ======  ===== 
                                                532.0  480.5 
=======================================  ====  ======  ===== 
 

Financial statements

Consolidated Balance Sheet

at 31 December 2016

 
GBP million                      Note       2016       2015 
===============================  ====  =========  ========= 
Non-current assets 
Intangible assets                            3.5        2.7 
Property, plant and equipment               21.0       20.0 
Interests in joint ventures                 50.3       27.1 
Trade and other receivables                 87.2       95.4 
Deferred tax assets                 7       57.4       55.7 
===============================  ====  =========  ========= 
                                           219.4      200.9 
===============================  ====  =========  ========= 
Current assets 
Inventories                         8    3,984.0    3,891.2 
Trade and other receivables                 91.4      114.0 
Tax receivables                              0.2        1.7 
Cash and cash equivalents                  450.2      323.3 
===============================  ====  =========  ========= 
                                         4,525.8    4,330.2 
===============================  ====  =========  ========= 
Total assets                             4,745.2    4,531.1 
===============================  ====  =========  ========= 
Current liabilities 
Trade and other payables                 (988.1)  (1,093.4) 
Tax payables                              (61.6)          - 
Provisions                                (28.0)     (31.1) 
===============================  ====  =========  ========= 
                                       (1,077.7)  (1,124.5) 
===============================  ====  =========  ========= 
Net current assets                       3,448.1    3,205.7 
===============================  ====  =========  ========= 
Non-current liabilities 
Trade and other payables                 (442.5)    (402.0) 
Bank and other loans                      (85.5)    (100.0) 
Retirement benefit obligations      9    (234.1)    (178.4) 
Provisions                                 (5.1)      (2.9) 
===============================  ====  =========  ========= 
                                         (767.2)    (683.3) 
===============================  ====  =========  ========= 
Total liabilities                      (1,844.9)  (1,807.8) 
===============================  ====  =========  ========= 
 
Net assets                               2,900.3    2,723.3 
===============================  ====  =========  ========= 
Equity 
Share capital                              288.4      288.3 
Share premium account                      762.9      762.9 
Own shares                                (12.2)      (3.2) 
Other reserves                              43.2       41.9 
Retained earnings                        1,817.3    1,632.7 
===============================  ====  =========  ========= 
Equity attributable to parent            2,899.6    2,722.6 
Non-controlling interests                    0.7        0.7 
===============================  ====  =========  ========= 
Total equity                             2,900.3    2,723.3 
===============================  ====  =========  ========= 
 

Financial statements

Consolidated Statement of Changes in Equity

for the year to 31 December 2016

 
For the year to 31 
 December 2016                    Share     Share      Own      Other   Retained 
 GBP million                    capital   premium   shares   reserves   earnings    Total 
=============================  ========  ========  =======  =========  =========  ======= 
Balance as at 1 January 
 2016                             288.3     762.9    (3.2)       41.9    1,632.7  2,722.6 
=============================  ========  ========  =======  =========  =========  ======= 
Exchange differences 
 on translation of foreign 
 operations                           -         -        -        6.3          -      6.3 
Movement in fair value 
 of hedging derivatives 
 and loans                            -         -        -      (5.0)          -    (5.0) 
Actuarial loss on defined 
 benefit pension schemes              -         -        -          -     (69.3)   (69.3) 
Tax credit on items 
 taken directly to other 
 comprehensive income                 -         -        -          -       10.7     10.7 
=============================  ========  ========  =======  =========  =========  ======= 
Other comprehensive 
 income/(expense) for 
 the year net of tax                  -         -        -        1.3     (58.6)   (57.3) 
Profit for the year                   -         -        -          -      589.3    589.3 
=============================  ========  ========  =======  =========  =========  ======= 
Total comprehensive 
 income for the year                  -         -        -        1.3      530.7    532.0 
New share capital subscribed        0.1         -        -          -          -      0.1 
Own shares acquired                   -         -   (10.6)          -          -   (10.6) 
Utilisation of own 
 shares                               -         -      1.6          -          -      1.6 
Cash cost of satisfying 
 share options                        -         -        -          -        0.7      0.7 
Share-based payment 
 credit                               -         -        -          -        9.8      9.8 
Tax charge on items 
 taken directly to statement 
 of changes in equity                 -         -        -          -      (0.7)    (0.7) 
Dividends approved 
 and paid                             -         -        -          -    (355.9)  (355.9) 
=============================  ========  ========  =======  =========  =========  ======= 
Equity attributable 
 to parent                        288.4     762.9   (12.2)       43.2    1,817.3  2,899.6 
Non-controlling interests                                                             0.7 
=============================  ========  ========  =======  =========  =========  ======= 
Total equity                                                                      2,900.3 
=============================  ========  ========  =======  =========  =========  ======= 
 
  For the year to 31 
  December 2015                   Share     Share      Own      Other   Retained 
  GBP million                   capital   premium   shares   reserves   earnings      Total 
-----------------------------  --------  --------  -------  ---------  ---------  --------- 
Balance as at 1 January 
 2015                             288.3     762.9   (10.8)       41.9    1,451.9    2,534.2 
-----------------------------  --------  --------  -------  ---------  ---------  --------- 
Exchange differences 
 on translation of foreign 
 operations                           -         -        -      (1.5)          -      (1.5) 
Movement in fair value 
 of hedging derivatives 
 and loans                            -         -        -        1.5          -        1.5 
Actuarial loss on defined 
 benefit pension schemes              -         -        -          -      (8.6)      (8.6) 
Tax charge on items 
 taken directly to other 
 comprehensive income                 -         -        -          -      (0.7)      (0.7) 
-----------------------------  --------  --------  -------  ---------  ---------  --------- 
Other comprehensive 
 income for the year 
 net of tax                           -         -        -          -      (9.3)      (9.3) 
Profit for the year                   -         -        -          -      490.1      490.1 
-----------------------------  --------  --------  -------  ---------  ---------  --------- 
Total comprehensive 
 income for the year                  -         -        -          -      480.8      480.8 
New share capital subscribed          -         -        -          -          -          - 
Own shares acquired                   -         -    (2.0)          -          -      (2.0) 
Utilisation of own 
 shares                               -         -      9.6          -          -        9.6 
Cash cost of satisfying 
 share options                        -         -        -          -      (7.2)      (7.2) 
Share-based payment 
 credit                               -         -        -          -        7.3        7.3 
Tax credit on items 
 taken directly to statement 
 of changes in equity                 -         -        -          -        8.3        8.3 
Dividends approved 
 and paid                             -         -        -          -    (308.4)    (308.4) 
Equity attributable 
 to parent                        288.3     762.9    (3.2)       41.9    1,632.7    2,722.6 
Non-controlling interests                                                               0.7 
-----------------------------  --------  --------  -------  ---------  ---------  --------- 
Total equity                                                                        2,723.3 
-----------------------------  --------  --------  -------  ---------  ---------  --------- 
 
 

Financial statements

Consolidated Cash Flow Statement

for the year to 31 December 2016

 
GBP million                        Note     2016     2015 
=================================  ====  =======  ======= 
Net cash from operating 
 activities                          10    537.7    406.9 
=================================  ====  =======  ======= 
 
Investing activities: 
Interest received                            0.7      0.6 
Dividends received from 
 joint ventures                                -      0.8 
Proceeds on disposal of 
 property, plant and investments             0.3      0.7 
Purchases of property, 
 plant and equipment                       (3.1)    (5.6) 
Purchases of software                      (2.0)    (1.5) 
Amounts (invested in)/repaid 
 by joint ventures                        (22.0)     15.6 
Net cash (used in)/generated 
 from investing activities                (26.1)     10.6 
=================================  ====  =======  ======= 
 
Financing activities: 
Repayment of bank loans                  (100.0)        - 
Proceeds from other loans                   83.0        - 
Proceeds from sale of own 
 shares                                      0.1        - 
Cash received on exercise 
 of share options                            2.3      2.4 
Purchase of own shares                    (10.6)    (2.0) 
Dividends paid                           (355.9)  (308.4) 
=================================  ====  =======  ======= 
Net cash used in financing 
 activities                              (381.1)  (308.0) 
=================================  ====  =======  ======= 
 
Net increase in cash and 
 cash equivalents                          130.5    109.5 
Cash and cash equivalents 
 at beginning of year                      323.3    212.8 
Effect of foreign exchange 
 rate changes                              (3.6)      1.0 
=================================  ====  =======  ======= 
Cash and cash equivalents 
 at end of year                            450.2    323.3 
=================================  ====  =======  ======= 
 
 

Financial statements

Notes to the Condensed Consolidated Financial Statements

for the year to 31 December 2016

1. Basis of preparation

The financial information set out herein does not constitute the Group's statutory accounts for the years ended 31 December 2016 and 2015, but is derived from those accounts. Statutory accounts for 2015 have been delivered to the Registrar of Companies and those for 2016 will be delivered following the Company's Annual General Meeting to be held on 27 April 2017. The external auditor has reported on those accounts; its reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006 or equivalent preceding legislation.

The statutory accounts have been prepared on the basis of the accounting policies as set out in the previous annual financial statements.

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS), this announcement does not itself contain sufficient information to comply with IFRS. The Group expects to publish full financial statements on 17 March 2017 that comply with both IFRS as adopted for use in the European Union and IFRS as compliant with the Companies Act 2006 and Article 4 of the EU IAS Regulations.

Going concern:

The Group has prepared forecasts, including certain sensitivities taking into account the principal risks identified. Having considered these forecasts, the Directors remain of the view that the Group's financing arrangements and capital structure provide both the necessary facilities and covenant headroom to enable the Group to conduct its business for at least the next 12 months.

Accordingly the consolidated financial statements have been prepared on a going concern basis.

2. Operating segments

IFRS 8 'Operating segments' requires information to be presented in the same basis as it is reviewed internally.

The Group operates in two countries, being the United Kingdom and Spain.

The United Kingdom is split into three geographical operating segments, each managed by a Divisional Chairman who sit on the Group Management Team. In addition there is an operating segment covering the Corporate functions, Major Developments and Strategic Land.

As such the segmental reporting for 2016 is:

   -     Housing United Kingdom 
   -     North 
   -     Central and South West 
   -     London and South East (including Central London) 
   -     Corporate 
   -     Housing Spain 

Financial statements

Notes to the Condensed Consolidated Financial Statements

for the year to 31 December 2016

2. Operating segments (continued)

Segment information about these businesses is presented below:

 
                                           Central 
For the year to 31                         & South          London 
 December 2016                    North       West         & South 
 GBP million                   Division   Division   East Division  Corporate   Spain      Total 
----------------------------  ---------  ---------  --------------  ---------  ------  --------- 
Revenue 
External sales                  1,239.4    1,204.5         1,137.0        1.7    93.6    3,676.2 
Result 
Profit/(loss) on ordinary 
 activities before 
 joint ventures, finance 
 costs and exceptional 
 items                            279.9      280.7           249.3     (67.4)    20.6      763.1 
Share of results of 
 joint ventures                     0.1          -             1.1          -       -        1.2 
----------------------------  ---------  ---------  --------------  ---------  ------  --------- 
Profit/(loss) on ordinary 
 activities before 
 finance costs, exceptional 
 items and after share 
 of results of joint 
 ventures                         280.0      280.7           250.4     (67.4)    20.6      764.3 
Exceptional items                     -        2.2               -          -   (2.7)      (0.5) 
----------------------------  ---------  ---------  --------------  ---------  ------  --------- 
Profit on ordinary 
 activities before 
 finance costs, after 
 share of results of 
 joint ventures and 
 exceptional items                280.0      282.9           250.4     (67.4)    17.9      763.8 
Net finance costs                                                                         (30.9) 
----------------------------  ---------  ---------  --------------  ---------  ------  --------- 
Profit on ordinary 
 activities before 
 taxation                                                                                  732.9 
Taxation (including 
 exceptional tax)                                                                        (143.6) 
----------------------------  ---------  ---------  --------------  ---------  ------  --------- 
Profit for the year                                                                        589.3 
 
 
Assets and liabilities 
 At 31 December 2016 
 
Segment operating 
 assets                         1,155.1    1,241.0         1,451.9      215.4   123.7    4,187.1 
Joint ventures                      2.6        3.3            43.2        1.2       -       50.3 
Segment operating 
 liabilities                    (341.7)    (514.4)         (459.9)    (304.9)  (76.9)  (1,697.8) 
----------------------------  ---------  ---------  --------------  ---------  ------  --------- 
Group net operating 
 assets                           816.0      729.9         1,035.2     (88.3)    46.8    2,539.6 
Net current taxation                                                                      (61.4) 
Net deferred taxation                                                                       57.4 
Net cash                                                                                   364.7 
----------------------------  ---------  ---------  --------------  ---------  ------  --------- 
Net assets                                                                               2,900.3 
----------------------------  ---------  ---------  --------------  ---------  ------  --------- 
 

Financial statements

Notes to the Condensed Consolidated Financial Statements

for the year to 31 December 2016

2. Operating segments (continued)

 
                                        Central     London 
  For the year to 31                    & South    & South 
  December 2016                North       West       East 
  GBP million               Division   Division   Division  Corporate  Spain  Total 
-------------------------  ---------  ---------  ---------  ---------  -----  ----- 
Other information 
Property, plant and 
 equipment additions             0.9        0.9        1.0        0.3      -    3.1 
Software development 
 additions                         -          -          -        2.0      -    2.0 
Depreciation - property, 
 plant and equipment           (0.3)      (0.7)      (0.2)      (0.9)      -  (2.1) 
Software amortisation              -          -          -      (1.2)      -  (1.2) 
-------------------------  ---------  ---------  ---------  ---------  -----  ----- 
 
 
 
                                             Central         London 
For the year to 31                           & South        & South 
 December 2015                    North         West           East 
 GBP million                   Division     Division       Division  Corporate   Spain      Total 
----------------------------  ---------  -----------  -------------  ---------  ------  --------- 
Revenue 
External sales                  1,093.8      1,075.4          911.6        0.9    58.1    3,139.8 
Result 
Profit/(loss) on ordinary 
 activities before 
 joint ventures, finance 
 costs and exceptional 
 items                            251.1        243.2          198.2     (70.4)    10.0      632.1 
Share of results of 
 joint ventures                   (0.1)            -            5.0          -       -        4.9 
----------------------------  ---------  -----------  -------------  ---------  ------  --------- 
Profit/(loss) on ordinary 
 activities before 
 finance costs, exceptional 
 items and after share 
 of results of joint 
 ventures                         251.0        243.2          203.2     (70.4)    10.0      637.0 
Exceptional items                 (0.5)          2.0          (2.1)          -       -      (0.6) 
----------------------------  ---------  -----------  -------------  ---------  ------  --------- 
Profit on ordinary 
 activities before 
 finance costs, after 
 share of results of 
 joint ventures and 
 exceptional items                250.5        245.2          201.1     (70.4)    10.0      636.4 
Net finance costs                                                                          (33.2) 
----------------------------  ---------  -----------  -------------  ---------  ------  --------- 
Profit on ordinary 
 activities before 
 taxation                                                                                   603.2 
Taxation (including 
 exceptional tax)                                                                         (113.4) 
----------------------------  ---------  -----------  -------------  ---------  ------  --------- 
Profit for the year                                                                         489.8 
 
 
Assets and liabilities 
 At 31 December 2015 
 
Segment operating 
 assets                         1,198.0      1,273.8        1,417.0      148.0    86.5    4,123.3 
Joint ventures                      2.2          3.0           21.4        0.3     0.2       27.1 
Segment operating 
 liabilities                    (387.2)      (571.7)        (444.2)    (260.6)  (44.1)  (1,707.8) 
----------------------------  ---------  -----------  -------------  ---------  ------  --------- 
Group net operating 
 assets                           813.0        705.1          994.2    (112.3)    42.6    2,442.6 
Net current taxation                                                                          1.7 
Net deferred taxation                                                                        55.7 
Net cash                                                                                    223.3 
----------------------------  ---------  -----------  -------------  ---------  ------  --------- 
Net assets                                                                                2,723.3 
----------------------------  ---------  -----------  -------------  ---------  ------  --------- 
 

Financial statements

Notes to the Condensed Consolidated Financial Statements

for the year to 31 December 2016

2. Operating segments (continued)

 
                                        Central     London 
  For the year to 31                    & South    & South 
  December 2015                North       West       East 
  GBP million               Division   Division   Division  Corporate  Spain  Total 
-------------------------  ---------  ---------  ---------  ---------  -----  ----- 
Other information 
Property, plant and 
 equipment additions             0.1        2.8          -        2.6    0.1    5.6 
Software development 
 additions                         -          -          -        1.5      -    1.5 
Depreciation - property, 
 plant and equipment           (0.1)      (0.5)      (0.3)      (1.0)  (0.1)  (2.0) 
Software amortisation              -          -          -      (1.3)      -  (1.3) 
-------------------------  ---------  ---------  ---------  ---------  -----  ----- 
 
 

3. Net operating expenses and profit on ordinary activities before finance costs

Profit on ordinary activities before financing costs has been arrived at after charging/(crediting):

 
GBP million                 2016    2015 
========================  ======  ====== 
Administration expenses    189.2   172.1 
Other expense                9.5     6.5 
Other income              (21.4)  (22.7) 
Exceptional items            0.5     0.6 
========================  ======  ====== 
 

Net other income includes profits on the sale of property, plant and equipment, revaluation of certain shared equity mortgage receivables.

 
Exceptional items: 
 GBP million                            2016  2015 
======================================  ====  ==== 
Net addition to inventory impairments    0.5   0.6 
======================================  ====  ==== 
Exceptional items charged to cost of 
 sales                                   0.5   0.6 
======================================  ====  ==== 
 

The Group has seen sustained improvement in the UK housing market and improvement in confidence in the wider economy, driven by continued low interest rates, improved mortgage availability and Government incentives, including the 'Help to Buy' scheme.

This has resulted in a net UK release of GBP2.2 million (2015: GBP0.6 million addition) to the provision. This net reversal consists of GBP7.7 million of releases (2015: GBP6.6 million) and additional write-downs on previously impaired sites, due to site specific rather than market factors of GBP5.5 million (2015: GBP7.2 million). An additional write-down of GBP2.7 million to a previously impaired site in Spain has also been made (2015: GBPnil) resulting in a total net addition of GBP0.5 million (2015: GBP0.6 million) for the Group.

Profit on ordinary activities before financing costs has been arrived at after charging/(crediting):

 
GBP million                                      2016     2015 
============================================  =======  ======= 
Cost of inventories recognised as expense 
 in cost of sales, before write-downs 
 of inventories                               2,633.3  2,261.8 
Reversal of inventory impairment provisions     (7.7)    (6.6) 
Impairment of inventories                         8.2      7.2 
Depreciation - property, plant and 
 equipment                                        2.1      2.0 
Net foreign exchange (credit)/charge            (1.6)      0.7 
Gain on disposal of property, plant 
 and equipment                                  (0.3)    (0.5) 
Amortisation of intangible assets                 1.2      1.3 
Payments under operating leases                   1.7      2.0 
============================================  =======  ======= 
 

Financial statements

Notes to the Condensed Consolidated Financial Statements

for the year to 31 December 2016

4. Finance costs and interest receivable

 
Interest receivable 
 GBP million                                               2016  2015 
--------------------------------------------------------  -----  ---- 
External interest receivable                                0.7   0.7 
--------------------------------------------------------  -----  ---- 
                                                            0.7   0.7 
--------------------------------------------------------  -----  ---- 
 
  Finance costs are analysed as follows: 
 
  GBP million                                              2016  2015 
--------------------------------------------------------  -----  ---- 
Interest on overdrafts, bank and other loans               10.9  11.6 
Foreign exchange movements                                (1.6)   0.7 
--------------------------------------------------------  -----  ---- 
                                                            9.3  12.3 
Unwinding of discount on land creditors and other items    16.2  15.6 
Notional net interest on pension liability (Note 9)         6.1   6.0 
--------------------------------------------------------  -----  ---- 
                                                           31.6  33.9 
--------------------------------------------------------  -----  ---- 
 

5. Taxation

Tax (charged)/credited in the income statement is analysed as follows:

 
GBP million                             2016     2015 
-----------------------------------  -------  ------- 
Current tax: 
UK corporation tax:   Current year   (136.5)   (11.2) 
 Prior years                             2.5    (0.8) 
Foreign tax:          Current year     (2.3)    (0.7) 
                      Prior years          -        - 
--------------------  -------------  -------  ------- 
                                     (136.3)   (12.7) 
 ----------------------------------  -------  ------- 
Deferred tax: 
UK:                   Current year     (5.7)  (107.8) 
 Prior years                           (0.4)    (0.9) 
Foreign tax:          Current year     (1.2)      8.0 
                      Prior years          -        - 
                                       (7.3)  (100.7) 
 ----------------------------------  -------  ------- 
                                     (143.6)  (113.4) 
 ----------------------------------  -------  ------- 
 

Corporation tax is calculated at 20% (2015: 20.25%) of the estimated assessable profit for the year in the UK. Taxation outside the UK is calculated at the rates prevailing in the respective jurisdictions.

The tax charge for the year includes a credit in respect of movements in the exceptional impairment provision of GBP0.1 million (2015: GBP0.1 million charge). In 2015 the Group recognised an GBP8.0 million credit in relation to the recognition of Spanish temporary differences.

The income statement charge for 2016 includes a charge of GBPnil (2015: GBP0.6 million) relating to the impact on the deferred tax asset of the 1% reduction in UK corporation tax from 18% to 17% (2015: 2% reduction from 20% to 18%).

Financial statements

Notes to the Condensed Consolidated Financial Statements

for the year to 31 December 2016

5. Taxation (continued)

The charge for the year can be reconciled to the profit per the income statement as follows:

 
GBP million                                                                       2016     2015 
-----------------------------------------------------------------------------  -------  ------- 
Profit before tax                                                                732.9    603.2 
-----------------------------------------------------------------------------  -------  ------- 
 
Tax at the UK corporation tax rate of 20.00% (2015: 20.25%)                    (146.6)  (122.1) 
Net over provision in respect of prior years                                       2.1      0.5 
Tax effect of expenses that are not deductible in determining taxable profit       0.2      0.3 
Unrecognised temporary differences utilised                                          -      2.0 
Impact of corporate tax rate reduction on deferred tax                               -    (0.6) 
Recognition of deferred tax asset relating to Spanish business                     1.1      8.0 
Other rate impacting adjustments                                                 (0.4)    (1.5) 
-----------------------------------------------------------------------------  -------  ------- 
Tax charge for the year                                                        (143.6)  (113.4) 
-----------------------------------------------------------------------------  -------  ------- 
 

6. Earnings per share

 
                                                                                               2016     2015 
------------------------------------------------------------------------------------------  -------  ------- 
Basic earnings per share                                                                      18.1p    15.1p 
Diluted earnings per share                                                                    17.9p    14.9p 
 
Adjusted basic earnings per share                                                             18.1p    14.9p 
Adjusted diluted earnings per share                                                           18.0p    14.7p 
 
Weighted average number of shares for basic/adjusted earnings per share - million           3,259.7  3,247.3 
Weighted average number of shares for diluted basic/adjusted earnings per share - million   3,283.2  3,278.8 
------------------------------------------------------------------------------------------  -------  ------- 
 

Adjusted basic and adjusted diluted earnings per share, which exclude the impact of exceptional items and any associated net tax charges, are presented to provide a better measure on the underlying performance of the Group. A reconciliation of earnings attributable to equity shareholders used for basic and diluted earnings per share to that used for adjusted earnings per share is shown below.

 
GBP million                                                              2016   2015 
----------------------------------------------------------------------  -----  ----- 
Earnings for basic and diluted earnings per share                       589.3  490.1 
Adjust for exceptional net addition of inventory write-downs (Note 3)     0.5    0.6 
Adjust for tax on exceptional items (Note 5)                            (0.1)  (0.1) 
Adjust for exceptional deferred tax credit (Note 5)                         -  (8.0) 
Earnings for adjusted basic and adjusted diluted earnings per share     589.7  482.6 
----------------------------------------------------------------------  -----  ----- 
 

Financial statements

Notes to the Condensed Consolidated Financial Statements

for the year to 31 December 2016

7. Deferred tax

The following are the major deferred tax assets and liabilities recognised by the Group and movements thereon during the current and prior reporting year.

 
                                                                                                        Other 
                                                                             Retirement benefit     temporary 
GBP million             Share- based payments  Capital allowances  Losses           obligations   differences    Total 
----------------------  ---------------------  ------------------  ------  --------------------  ------------  ------- 
At 1 January 2015                         7.6                 4.5   110.2                  35.5         (0.3)    157.5 
(Charge)/Credit to 
 income                                     -               (0.5)  (98.8)                 (2.8)           1.4  (100.7) 
(Charge)/Credit to 
 equity                                 (0.4)                   -       -                 (0.7)             -    (1.1) 
----------------------  ---------------------  ------------------  ------  --------------------  ------------  ------- 
At 31 December 2015                       7.2                 4.0    11.4                  32.0           1.1     55.7 
Credit/(charge) to 
 income                                   0.6               (0.6)   (3.9)                 (2.7)         (0.7)    (7.3) 
(Charge)/Credit to 
 equity                                 (3.0)                   -       -                  10.7             -      7.7 
Foreign exchange                            -                   -     1.3                     -             -      1.3 
----------------------  ---------------------  ------------------  ------  --------------------  ------------  ------- 
At 31 December 2016                       4.8                 3.4     8.8                  40.0           0.4     57.4 
----------------------  ---------------------  ------------------  ------  --------------------  ------------  ------- 
 

Closing deferred tax on UK temporary differences has been calculated at the tax rates that are expected to apply for the period when the asset is realised or the liability is settled. Accordingly, the temporary differences have been calculated at rates between 20% and 17% (2015: 20% and 18%). The effect of the reduction in the UK corporation tax rate from 18% to 17% is GBPnil (2015: GBP0.6 million) in the income statement and GBP3.2 million (2015: GBP2.5 million)in the statement of comprehensive income and statement of changes in equity.

The net deferred tax balance is analysed into assets and liabilities as follows:

 
GBP million                 2016   2015 
-------------------------  -----  ----- 
Deferred tax assets         58.7   57.1 
Deferred tax liabilities   (1.3)  (1.4) 
-------------------------  -----  ----- 
                            57.4   55.7 
-------------------------  -----  ----- 
 

The Group has not recognised temporary differences relating to tax losses carried forward and other temporary differences amounting to GBP3.0 million (2015: GBP3.5 million) in the UK and GBP70.0 million (2015: GBP68.4 million) in Spain. The UK temporary differences have not been recognised as they are predominantly non-trading in nature and insufficient certainty exists as to their future utilisation. The temporary differences in Spain have not been recognised due to uncertainty of sufficient taxable profits in the future against which to utilise these amounts.

At the balance sheet date, the Group has unused UK capital losses of GBP269.5 million (2015: GBP264.3 million). No deferred tax asset has been recognised in respect of the capital losses at 31 December 2016 because the Group does not believe that it is probable that these capital losses will be utilised in the foreseeable future.

8. Inventories

 
GBP million                                                  2016     2015 
--------------------------------------------------------  -------  ------- 
Raw materials and consumables                                   -        - 
Finished goods and goods for resale                          20.9     17.1 
Residential developments: 
  Land                                                    2,652.5  2,743.7 
  Development and construction costs                      1,307.8  1,128.3 
Commercial, industrial and mixed development properties       2.8      2.1 
--------------------------------------------------------  -------  ------- 
                                                          3,984.0  3,891.2 
--------------------------------------------------------  -------  ------- 
 

Financial statements

Notes to the Condensed Consolidated Financial Statements

for the year to 31 December 2016

8. Inventories (continued)

The Group has seen sustained improvement in the UK housing market and improvement in confidence in the wider economy, driven by continued low interest rates, improved mortgage availability and Government incentives, including the 'Help to Buy' scheme.

This has resulted in a net UK release of GBP2.2 million (2015: GBP0.6 million addition) to the provision. This net reversal consists of GBP7.7 million of releases (2015: GBP6.6 million) and additional write-downs on previously impaired sites, due to site specific rather than market factors of GBP5.5 million (2015: GBP7.2 million). An additional write-down of GBP2.7 million to a previously impaired site in Spain has also been made (2015: GBPnil) resulting in a total net addition of GBP0.5 million (2015: GBP0.6 million) for the Group

In the year 5% (2015: 6%) of the Group's UK completions were from pre-2009 impaired sites.

At the balance sheet date the Group held inventory in the UK that had been written down to net realisable value of GBP119.6 million (2015: GBP151.6 million) with associated impairments of GBP96.8 million (2015: GBP124.2 million).

The UK net realisable value assessment of inventory is highly sensitive to small changes in judgements and the table below provides an indication of the impact to the inventory held on the balance sheet of 1% movements in selling prices and build costs.

 
                                                      +1% 
                                      -1% selling   build 
GBP million        +1% selling price        price    cost  -1% build cost 
-----------------  -----------------  -----------  ------  -------------- 
31 December 2016                 6.0        (8.1)   (8.4)             3.1 
-----------------  -----------------  -----------  ------  -------------- 
31 December 2015                10.9       (11.4)  (11.1)             9.2 
-----------------  -----------------  -----------  ------  -------------- 
 

There has been continued improvement in the Spanish housing market during the year. However, this improvement has been on newer sites which have been acquired in better locations. Sales rates and prices on sites which have been previously impaired remain low. In the year, 65 plots (2015: 53) were completed in Spain that had previously been impaired. In Spain, there was inventory written down to net realisable value of GBP18.7 million as at 31 December 2016 (2015: GBP24.3 million), with associated impairments of GBP50.2 million (2015: GBP43.5 million).

The table below details the movements recorded on the write-downs on impaired inventory through the income statement in the year.

 
Inventory Write-downs 
 GBP million              2016    2015 
----------------------  ------  ------ 
1 January                167.7   206.2 
Utilised                (28.3)  (35.6) 
Net addition               0.5     0.6 
Foreign exchange           7.1   (3.5) 
----------------------  ------  ------ 
31 December              147.0   167.7 
----------------------  ------  ------ 
 

9. Retirement benefit obligations

Retirement benefit obligations comprise a defined benefit pension liability of GBP232.7 million (2015: GBP177.1 million) and a post-retirement healthcare liability of GBP1.4 million (2015: GBP1.3 million).

The Group operates the Taylor Wimpey Pension Scheme (TWPS), a defined benefit pension scheme, which is closed to both new members and to future accrual. The Group also operates defined contribution pension arrangements in the UK, which are available to new and existing UK employees.

Financial statements

Notes to the Condensed Consolidated Financial Statements

for the year to 31 December 2016

9. Retirement benefit obligations (continued)

Defined benefit pension schemes

The Group's defined benefit pension scheme in the UK is the TWPS. The TWPS is a funded defined benefit pension scheme which provides benefits to beneficiaries in the form of a guaranteed level of pension payable for life. The level of benefits provided depends on members' length of service and their salary in the final years leading up to retirement or date of ceasing active accrual if earlier. Pension payments are generally increased in line with inflation.

The Group operates the TWPS under the UK regulatory framework. Benefits are paid to members from a Trustee-administered fund and the Trustee is responsible for ensuring that the scheme is sufficiently funded to meet current and future benefit payments. Scheme assets are held in trust.

The TWPS Trustees' other duties include managing the investment of scheme assets, administration of scheme benefits and exercising of discretionary powers. The Group works closely with the Trustees to manage the TWPS. The Trustees of the TWPS owe fiduciary duties to the TWPS' beneficiaries. The appointment of the Trustees is determined by the TWPS trust documentation.

The Trustees must agree a funding plan with the Group such that any funding shortfall is expected to be met by additional contributions and investment outperformance. In order to assess the level of contributions required, triennial valuations are carried out using prudent assumptions. The first funding valuation of the TWPS was performed during 2014, with an effective date of 31 December 2013. Subsequently, the Group agreed to make contributions of GBP18.0 million, including reimbursement in respect of administrative costs of the scheme. The next triennial valuation is currently being undertaken with an effective date of 31 December 2016.

In 2013, the Group introduced a GBP100.0 million Pension Funding Partnership utilising show homes, as well as seven offices which are owned, in a sale and leaseback structure. This provides an additional GBP5.1 million of annual funding for the TWPS. The assets held within this scheme do not affect the IAS 19 figures as they remain assets of the Group, and are not assets of the TWPS. As at 31 December 2016, there was GBP101.4 million of property and GBP9.6 million of cash held within the structure (2015: GBP91.1 million of property and GBP19.9 million of cash).

The Group continues to work closely with the Trustee in managing the pension exposure.

Accounting assumptions:

The assumptions used in calculating the accounting costs and obligations of the TWPS, as detailed below, are set by the Directors after consultation with independent, professionally qualified actuaries. The basis for these assumptions is prescribed by IAS 19 and they do not reflect the assumptions that may be used in future funding valuations of the TWPS.

 
                                                 TWPS 
                                       ------------------------ 
Accounting valuation assumptions              2016         2015 
-------------------------------------  -----------  ----------- 
As at 31 December 
Discount rate for scheme liabilities         2.70%        3.70% 
General pay inflation                          n/a          n/a 
Deferred pension increases                   2.25%        1.95% 
Pension increases                      2.15%-3.70%  2.05%-3.55% 
-------------------------------------  -----------  ----------- 
 

Financial statements

Notes to the Condensed Consolidated Financial Statements

for the year to 31 December 2016

9. Retirement benefit obligations (continued)

The table below shows the impact to the liability of movement in key assumptions.

 
                                                   Impact on defined benefit  Impact on defined benefit obligation (%) 
Assumption                  Change in assumption    obligation (GBP million) 
-------------------  ---------------------------  --------------------------  ---------------------------------------- 
Discount rate              Decrease by 0.1% p.a.          Increase by GBP41m                                       1.7 
Rate of inflation*         Increase by 0.1% p.a.          Increase by GBP29m                                       1.2 
Life expectancy       Members live 1 year longer         Increase by GBP125m                                       5.3 
-------------------  ---------------------------  --------------------------  ---------------------------------------- 
 

* Assumed to affect deferred revaluation and pensioner increases in payment.

The table below details the movements in the TWPS pension liability and assets recorded through the income statement and other comprehensive income.

 
                                           Present value         Fair value       Asset/ (liability) recognised on 
                                           of obligation   of scheme assets                          balance sheet 
At 1 January 2016                              (2,066.2)            1,889.1                                (177.1) 
Current service cost                                   -                  -                                      - 
Administration expenses                                -              (3.3)                                  (3.3) 
Interest (expense)/income                         (74.4)               68.3                                  (6.1) 
----------------------------------------  --------------  -----------------  ------------------------------------- 
Total amount recognised in income 
 statement                                        (74.4)               65.0                                  (9.4) 
----------------------------------------  --------------  -----------------  ------------------------------------- 
 
Return on scheme assets not included in 
 income statement                                      -              271.7                                  271.7 
Change in demographic assumptions                   71.2                  -                                   71.2 
Change in financial assumptions                  (431.4)                  -                                (431.4) 
Experience gains                                    19.2                  -                                   19.2 
Total remeasurements in other 
 comprehensive income                            (341.0)              271.7                                 (69.3) 
----------------------------------------  --------------  -----------------  ------------------------------------- 
 
Employer contributions                                 -               23.1                                   23.1 
Employee contributions                                 -                  -                                      - 
Benefit payments                                   112.8            (112.8)                                      - 
At 31 December 2016                            (2,368.8)            2,136.1                                (232.7) 
----------------------------------------  --------------  -----------------  ------------------------------------- 
 

Financial statements

Notes to the Condensed Consolidated Financial Statements

for the year to 31 December 2016

9. Retirement benefit obligations (continued)

 
                                           Present value         Fair value       Asset/ (liability) recognised on 
                                           of obligation   of scheme assets                          balance sheet 
At 1 January 2015                              (2,186.2)            2,003.8                                (182.4) 
Current service cost                                   -                  -                                      - 
Administration expenses                                -              (3.2)                                  (3.2) 
Interest (expense)/income                         (74.3)               68.3                                  (6.0) 
----------------------------------------  --------------  -----------------  ------------------------------------- 
Total amount recognised in income 
 statement                                        (74.3)               65.1                                  (9.2) 
----------------------------------------  --------------  -----------------  ------------------------------------- 
 
Return on scheme assets not included in 
 income statement                                      -             (72.5)                                 (72.5) 
Change in demographic assumptions                      -                  -                                      - 
Change in financial assumptions                     49.2                  -                                   49.2 
Experience gains                                    14.7                  -                                   14.7 
Total remeasurements in other 
 comprehensive income                               63.9             (72.5)                                  (8.6) 
----------------------------------------  --------------  -----------------  ------------------------------------- 
 
Employer contributions                                 -               23.1                                   23.1 
Employee contributions                                 -                  -                                      - 
Benefit payments                                   130.4            (130.4)                                      - 
At 31 December 2015                            (2,066.2)            1,889.1                                (177.1) 
----------------------------------------  --------------  -----------------  ------------------------------------- 
 

10. Notes to the cash flow statement

 
GBP million                                                              2016     2015 
--------------------------------------------------------------------  -------  ------- 
Profit on ordinary activities before finance costs                      762.6    631.5 
Adjustments for: 
  Depreciation of buildings, plant and equipment                          2.1      2.0 
  Net addition of inventory write-downs                                   0.5      0.6 
  Amortisation of software development                                    1.2      1.3 
  Pension contributions in excess of charge to the income statement    (20.1)   (19.9) 
  Share-based payment charge                                              9.8      7.3 
  Profit on disposal of property and plant                              (0.3)    (0.5) 
  Decrease in provisions                                                (0.9)    (7.4) 
--------------------------------------------------------------------  -------  ------- 
Operating cash flows before movements in working capital                754.9    614.9 
Increase in inventories                                               (113.3)  (269.1) 
Decrease in receivables                                                  42.3     13.0 
(Decrease)/Increase in payables                                        (61.7)     68.1 
Cash generated by operations                                            622.2    426.9 
Income taxes paid                                                      (71.0)    (5.5) 
Interest paid                                                          (13.5)   (14.5) 
--------------------------------------------------------------------  -------  ------- 
Net cash from operating activities                                      537.7    406.9 
--------------------------------------------------------------------  -------  ------- 
 

Financial statements

Notes to the Condensed Consolidated Financial Statements

for the year to 31 December 2016

10. Notes to the cash flow statement (continued)

Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank and other short term highly liquid investments with an original maturity of three months or less.

Movement in net cash/(debt)

 
                                                                        Total 
                           Cash and cash  Overdrafts, banks and   net (debt)/ 
GBP million                  equivalents            other loans          cash 
-------------------------  -------------  ---------------------  ------------ 
Balance 1 January 2015             212.8                (100.0)         112.8 
Cash flow                          109.5                      -         109.5 
Foreign exchange                     1.0                      -           1.0 
-------------------------  -------------  ---------------------  ------------ 
Balance 31 December 2015           323.3                (100.0)         223.3 
Cash flow                          130.5                   17.0         147.5 
Foreign exchange                   (3.6)                  (2.5)         (6.1) 
-------------------------  -------------  ---------------------  ------------ 
Balance 31 December 2016           450.2                 (85.5)         364.7 
-------------------------  -------------  ---------------------  ------------ 
 

11. Dividends

 
GBP million                            2016   2015 
====================================  =====  ===== 
Proposed 
Interim dividend 2016: 0.53p 
 (2015: 0.49p) per ordinary 
 share of 1p each                      17.3   15.9 
Final dividend 2016: 2.29p 
 (2015: 1.18p) per ordinary 
 share of 1p each                      74.9   38.6 
====================================  =====  ===== 
                                       92.2   54.5 
====================================  =====  ===== 
Amounts recognised as distributions 
 to equity holders 
Paid 
Final dividend 2015: 1.18p 
 (2014: 1.32p) per ordinary 
 share of 1p each                      38.5   42.9 
Interim dividend 2016: 0.53p 
 (2015: 0.49p) per ordinary 
 share of 1p each                      17.3   15.9 
Special dividend 2016: 9.20p 
 (2015: 7.68p) per ordinary 
 share of 1p each                     300.1  249.6 
====================================  =====  ===== 
                                      355.9  308.4 
====================================  =====  ===== 
 

The Directors recommend a final dividend for the year ended 31 December 2016 of 2.29 pence per share subject to shareholder approval at the Annual General Meeting, with an equivalent final dividend charge of GBP74.9 million (2015: GBP38.6 million). The final dividend will be paid on 19 May 2017 to all shareholders registered at the close of business on 18 April 2017.

The Directors additionally recommend a special dividend of c.GBP300.0 million subject to shareholder approval at the Annual General Meeting. The special dividend will be paid on 14 July 2017 to all shareholders registered at the close of business on 2 June 2017.

In accordance with IAS 10 'Events after the balance sheet date' the proposed final or special dividends have not been accrued as a liability as at 31 December 2016.

Alternative Performance Measures

The Group uses a number of alternative performance measures which are not defined within IFRS. The Directors use these measures in order to assess the underlying operational performance of the Group and, as such, these measures should be considered alongside the IFRS measures. The following Alternative Performance Measures are referred to throughout the full year results.

Profit before taxation and exceptional items and Profit for the year before exceptional items

The Directors consider the removal of exceptional items from the reported results provide more clarity on the performance of the Group. They are reconciled to profit before tax and profit for the year respectively, on the face of the Consolidated Income Statement.

Operating profit and operating profit margin

Within the highlights and throughout, operating profit is used as one of the main measures of performance, with operating profit margin (defined below) being a Key Performance Indicator. Operating profit is defined as profit on ordinary activities before net finance costs, exceptional items and tax, after share of results of joint ventures. The Directors consider this to be an important measure of underlying performance of the Group. Operating profit margin is calculated as operating profit divided by total Group revenue. The Directors consider this to be a metric which reflects the underlying performance of the business.

 
 Operating profit to profit before 
  interest and tax reconciliation 
                             2016      2016     2016          2015      2015     2015 
                             GBPm      GBPm        %          GBPm      GBPm        % 
                           Profit   Revenue   Margin        Profit   Revenue   Margin 
 Profit before 
  interest and 
  tax                       762.6   3,676.2     20.7         631.5   3,139.8     20.1 
                          -------  --------  -------       -------  --------  ------- 
 Adjusted for: 
 Share of results 
  of joint ventures           1.2         -      0.1           4.9         -      0.2 
 Exceptional 
  items                       0.5         -        -           0.6         -        - 
 Operating profit           764.3   3,676.2     20.8         637.0   3,139.8     20.3 
                          -------  --------  -------       -------  --------  ------- 
 

Net operating assets

Net operating assets is defined as net assets less net cash and tax balances and is used to calculate return on net operating assets which the Directors consider to be an important measure of the underlying operating efficiency and performance of the Group.

Return on net operating assets

Return on net operating assets, one of the Group's operational targets, is defined as 12-month operating profit divided by the average of the opening and closing net operating assets.

Capital employed

Capital employed is defined as net assets less net cash and intangible assets and is used to calculate return on capital employed. The Directors consider this to be an important measure of the underlying operating efficiency and performance of the Group.

Return on capital employed

Return on capital employed is a measure used to appraise the sites ahead of purchase and is defined as 12-month operating profit divided by the average of the opening and closing capital employed.

 
 Net operating assets and capital 
  employed 
                                 2016      2015      2014 
                                 GBPm      GBPm      GBPm 
 Basic net assets             2,900.3   2,723.3   2,535.3 
                             --------  --------  -------- 
 Average basic net 
  assets                      2,811.8   2,629.3 
                             --------  --------  -------- 
 Adjusted for: 
 Cash                         (450.2)   (323.3)   (212.8) 
 Borrowings                      85.5     100.0     100.0 
 Taxation                         4.0    (57.4)   (157.5) 
 Net operating assets         2,539.6   2,442.6   2,265.0 
                             --------  --------  -------- 
 Average net operating 
  assets                      2,491.1   2,353.8 
                             --------  --------  -------- 
 Adjusted for: 
 Taxation                       (4.0)      57.4     157.5 
 Intangible assets              (3.5)     (2.7)     (2.5) 
 Capital employed             2,532.1   2,497.3   2,420.0 
                             --------  --------  -------- 
 Average capital employed     2,514.7   2,458.7 
                             --------  --------  -------- 
 
 
 Return on net operating assets 
  and capital employed 
                            2016     2016      2016      2015     2015      2015 
                                                                          Return 
                         Average             Return   Average                 on 
                             net             on net       net                net 
                          assets   Profit    assets    assets   Profit    assets 
                            GBPm     GBPm         %      GBPm     GBPm         % 
 Basic net 
  assets                 2,811.8    762.6      27.1   2,629.3    631.5      24.0 
 Adjusted for: 
 Average Cash            (386.8)        -       4.3   (268.1)        -       3.0 
 Average Borrowings         92.8        -     (1.0)     100.0        -     (1.1) 
 Average Taxation         (26.7)        -       0.3   (107.4)        -       1.2 
 Share of results 
  of joint ventures            -      1.2         -         -      4.9         - 
 Exceptional 
  items                        -      0.5         -         -      0.6         - 
 Net operating 
  assets                 2,491.1    764.3      30.7   2,353.8    637.0      27.1 
                        --------  -------  --------  --------  -------  -------- 
 Average taxation           26.7        -     (0.3)     107.4        -     (1.2) 
 Average intangibles       (3.1)        -         -     (2.5)        -         - 
 Capital employed        2,514.7    764.3      30.4   2,458.7    637.0      25.9 
                        --------  -------  --------  --------  -------  -------- 
 

Net operating asset turn

This is defined as total Group revenue divided by the average of opening and closing net operating assets. The Directors consider this to be good indicator of how efficiently the Group is utilising their assets to generate value for the shareholders.

 
 Net operating asset 
  turn 
                           2016      2016     2016      2015      2015     2015 
                        Average                      Average 
                            net                Net       net                Net 
                         assets   Revenue    asset    assets   Revenue    asset 
                           GBPm      GBPm     turn      GBPm      GBPm     turn 
 Basic net 
  assets                2,811.8   3,676.2     1.31   2,629.3   3,139.8     1.19 
 Adjusted for: 
 Average Cash           (386.8)         -     0.21   (268.1)         -     0.13 
 Average Borrowings        92.8         -   (0.05)     100.0         -   (0.05) 
 Average Taxation        (26.7)         -     0.01   (107.4)         -     0.06 
 Net operating 
  assets                2,491.1   3,676.2     1.48   2,353.8   3,139.8     1.33 
                       --------  --------  -------  --------  --------  ------- 
 
 

Tangible net assets per share

This is calculated as net assets before any accrued dividends excluding goodwill and intangible assets divided by the number of ordinary shares in issue at the end of the period. The Directors consider this to be a good measure of the value intrinsic within each ordinary share.

 
 Tangible net assets 
  per share 
                    2016        2016      2016      2015        2015         2015 
                                           Net 
                            Ordinary    assets              Ordinary          Net 
                     Net      shares       per       Net      shares       assets 
                  assets    in issue     share    assets    in issue    per share 
                    GBPm        GBPm     pence      GBPm        GBPm        pence 
 Basic net 
  assets         2,900.3     3,270.3      88.7   2,723.3     3,258.6         83.6 
 Adjusted 
  for: 
 Intangible 
  assets           (3.5)           -     (0.1)     (2.7)           -        (0.1) 
 Tangible 
  net assets     2,896.8     3,270.3      88.6   2,720.6     3,258.6         83.5 
                --------  ----------  --------  --------  ----------  ----------- 
 
 

Net cash

Net cash is defined as total cash less total financing. This is considered by the Directors to be the best indicator of the financing position of the Group. This is reconciled in note 10.

Cash conversion

This is defined as cash generated from operations divided by operating profit. The Directors consider this measure to be a good indication of how efficiently the Group is turning profit into cash.

 
 Cash conversion 
                       2016          2016          2016     2015          2015              2015 
                                     Cash                                 Cash 
                                generated                            generated 
                                     from          Cash                   from 
                     Profit    operations    conversion   Profit    operations   Cash conversion 
                       GBPm          GBPm             %     GBPm          GBPm                 % 
 Profit before 
  interest 
  and tax             762.6         622.2          81.6    631.5         426.9              67.6 
 Adjusted 
  for: 
 Share of 
  results of 
  joint ventures        1.2             -         (0.1)      4.9             -             (0.5) 
 Exceptional 
  items                 0.5             -         (0.1)      0.6             -             (0.1) 
 Operating 
  profit              764.3         622.2          81.4    637.0         426.9              67.0 
                    -------  ------------  ------------  -------  ------------  ---------------- 
 
 
 

Adjusted gearing

This is defined as net cash plus land creditors divided by net assets. The Directors consider this to be a more representative measure of the Group's gearing levels.

 
 Adjusted gearing 
                          2016      2015 
                          GBPm      GBPm 
 Net assets            2,900.3   2,723.3 
                      --------  -------- 
 Cash                    450.2     323.3 
 Bank loans             (85.5)   (100.0) 
                      --------  -------- 
 Net cash                364.7     223.3 
 Land creditors        (599.8)   (629.8) 
 Adjusted net debt     (235.1)   (406.5) 
                      --------  -------- 
 
 Adjusted gearing         8.1%     14.9% 
                      --------  -------- 
 
 

Adjusted basic earnings per share

This is calculated as earnings attributed to the shareholders, excluding exceptional items and tax on exceptional items, divided by the number of shares in issue at the end of the period. The Directors consider this provides an important measure of the underlying earning capacity of the Group. Note 6 shows a reconciliation from basic earnings per share to adjusted basis earnings per share.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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February 28, 2017 02:01 ET (07:01 GMT)

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