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Taylor Wimpey shares halve

Written by Adrie van der Luijt

Wednesday, 02 July 2008

Housing developer Taylor Wimpey is to cut 900 jobs after failing to secure funding.

Shares in the firm lost more than half (50.42 per cent) of their value in trading on Wednesday morning after an anticipated announcement of a successful effort to raise £500 million in funding failed to materialise.

Instead, the group announced that the closure of 13 of its 39 regional offices and a reduction in staffing levels across the business, with the anticipated loss of approximately 900 jobs.

Group finance director to stand down

Peter Johnson, group finance director, has confirmed his intention to stand down from the board at the end of 2008 at which point he will leave the company. Johnson, 53, joined the board in November 2002.

Taylor Wimpey’s board said it expects job cuts and office closures to result in a reduction in overhead costs of approximately £45 million on an annualised basis starting from the fourth quarter of 2008.

The board added that the firm’s major markets were experiencing a significant downturn, characterised by significantly lower weekly sales rates and lower average selling prices than in recent years.

It expects that the UK housing market will remain weak at least through 2008 and does not anticipate any recovery in the short-term.

The board believes, however, that the US housing markets, while remaining weak, may have stabilised, although it does not anticipate any material recovery until 2009 at the earliest.

“Our focus remains on cash management, cost reductions and seeking to achieve a stable weekly sales rate. In respect of the merger, we remain on course to deliver our previously stated synergy run rate targets of £70 million by the end of 2008 and £100 million in aggregate by the end of 2009 and continue to expect future progress,” the board said in a trading update on Wednesday.

Tightly controlled expenditure

Over the last several months it has actively positioned the business in anticipation of weaker markets.

Actions taken to date include tightly controlling expenditure on work-in-progress, not making new commitments for land purchases, renegotiating terms with all of our subcontractors, and reducing the price of its homes with the aim of achieving a steadier sales rate and improving cash flow.

At the same time, the firm reviewed its capital structure with a view to putting the business in a robust financial position to be able to absorb further significant deterioration in market conditions.

The board was adamant that it remained in full compliance with its banking covenants.

“Without an amendment to the terms of our banking facilities, however, in certain negative market scenarios we might breach one or more banking covenants at the first testing date in 2009,” it added.

In that context, the board decided it would be prudent to agree a revised banking facility with its core lending banks conditional on raising further equity.

Taylor Wimpey (LSE:TW.) confirmed in a statement on 30 June that it was meeting with a number of existing and potential investors with a view to raising further equity capital.

“In light of current market conditions, however, we have not been able to conclude a satisfactory transaction. The board remains convinced of the fundamental attractions of the business over the medium and long term,” the firm concluded.

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