Building On A Recession

Tough times can be a tonic to a business and an industry.

Taylor Wimpey has had a ‘good’ recession. After a fairly big shake-up last year and marginal profitability, it has set about rebuilding its business from the bottom up. The company has changed how it works and it is no longer stuck in a bottomed-out market, although the housing market is still far from great. Its first half operating margin was 9.3 per cent in 2011; up from 6.3 per cent for the whole of last year. Taylor Wimpey expects to hit a double-digit operating margin soon. Debt is much lower too.

Shaking-up the management team, selling-off the US business, improving operational procedures, particularly on site, all at the same time, is pretty impressive stuff from the UK’s second-largest house builder, by volume. The company also says it made better use of infrastructure in 2011 and simplified the build process along the way.

It may also have helped that Taylor Wimpey started to develop the lower priced land that it had bought during the recession. Development margins are driven by many things; demand, timing, operational efficiency, minimising borrowing costs, but fundamentally – if you are in control of what you might consider to be taken for granted by a leading player in this industry – by the cost of the most expensive element, the land.

In spite of the half a million or so empty properties in this country, there has been a strategic undersupply of new homes for decades. While it requires some political will to make land available, developers won’t develop it unless they can make some money.

Taylor Wimpey, and the rest of the industry, now has a less challenging market and that should spur it on, and it also seems to have benefitted from the past few hard years. Companies forced during recession periods to regroup, can come out fighting when the bad times end. They emerge stronger and more competitive than they were during the relatively ‘easy’ years. They can do it – but it isn’t as simple as it sounds.

Although they arguably didn’t have many other options, Taylor Wimpey seems to have done a difficult job pretty well.

How was your recession?

Mark

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