Annual Report and Accounts 2010

Having strengthened our financial position during 2009, we have delivered a significant improvement in our financial performance in 2010. This reflects a combination of the continuing benefits of the operational decisions that we took in 2008 and the delivery of our strategy for recovery that I set out in last year's Annual Report.

Developing our strategy

After a year of greater stability in our markets in the UK and North America during 2009, 2010 has brought a broadly stable year in the UK market and, as expected, some volatility in the US. It is, therefore, very pleasing to have been able to deliver such a strong improvement in the performance of the Group without the assistance that a market recovery provides.

We enter 2011 with a continuing focus on maximising the value that we achieve from each home completion across all of the Group's operations and we have made good progress in the key areas of pricing, build cost reduction, replanning and additions to our landbank, as you will see in the regional sections of this Annual Report.

The next stage is to build on this platform and on the experience that we have gained as a management team from the difficult trading conditions of the last few years.

As set out in the description of our value cycle, our primary channel for the creation of value is the active management of our land portfolio. Rather than seeing homebuilding as the driver of value, we see it as the way to deliver the value that we have created through selecting land and optimising its value.

We manage over 170,000 plots of land in our portfolio across the UK, the US, Canada and Spain. This requires a significant amount of capital to fund and it is essential that we allocate our capital to the most attractive opportunities in order to generate the best returns.

The majority of this portfolio is land in the UK. This reflects the nature of the UK land-buying market, with developers typically taking responsibility for delivering an implementable planning consent. Given the unpredictable nature of the current planning system, it is essential to ensure that we have sufficient land at different stages of planning to be able to plan the required scale of our building operations with reasonable certainty. By contrast, in the US, it is usually the case that the land vendor is responsible for achieving the required consents.

However, the lengthy planning process provides us with opportunities as well as challenges. We can use that time to refine our designs for the community, engaging with the planning authority and local residents to ensure that what we deliver will meet their needs. This is a process that we have spent more time on since the downturn, with encouraging results, and one which we will continue to focus on, going forward.

Once an optimised planning consent is achieved, we begin work on site to deliver the design that we have created. By getting the basics right, we deliver high quality homes for our customers that are built safely, efficiently, cost effectively and with minimal impact on the environment.

We have made good progress in enhancing our operational efficiency over the last few years through a combination of merger synergies, reduced labour and materials costs and value engineering sites to reduce the level of infrastructure costs. This is an ongoing process and we have initiated a programme of continuous improvement in this area with each of our sites being reviewed on a quarterly basis to ensure that the anticipated value is delivered or exceeded.

We continue to monitor our overhead costs carefully and, following a consultation process, we will be consolidating our Corporate office and UK Head Office into a single team based in our existing High Wycombe office. This will enable us to work more efficiently to support the operational business and enhance communication across departmental functions. In addition, we will commence the roll-out of a new IT system in our UK business which is expected to increase efficiency and reduce support costs.

In order to deliver value for shareholders, it is essential that the homes and communities that we build are attractive places to live for our customers. This is a key stage of optimising value as we design each development and it is supported by the work of our sales and marketing and customer care teams.

We recognise that buying a house is a significant financial and emotional investment. Surveys often highlight moving home as one of the most stressful events in a person's life and we aim to make the process of buying, moving into and living in a Taylor Wimpey home as easy as possible for our customers. We will continue to work with mortgage lenders to identify ways in which we can help our customers to purchase their home in an environment where mortgage lending remains constrained, particularly for first time buyers.

Our homes are designed for the way that our customers live. For example, we have undertaken considerable customer research to ensure that our new house type range in the UK meets the needs of modern living.

We participate in industry customer care surveys across our business and benchmark our scores both internally and against our industry peers.

Combining these initiatives with the strong team of people that we have across our business gives us the ability to continue to grow our margins, subject to stable market conditions.

Refinancing

A key achievement during 2010 was the completion of our refinancing in December. We now have a simplified debt structure and extended maturity profile, as well as greater operational flexibility to pursue the strategy outlined above. Ryan Mangold provides more detail on the new facilities in his Group Financial Review.

North American operations

As we have previously outlined, our intention is to refocus the business of the Group on the UK market in the medium term. This is a decision that the Board has considered for some time, particularly given the potential for recovery in the US housing market. However, there are a number of factors that mean that the Group is better positioned to deliver value to shareholders if it is focused on its UK operations.

The decision reflects the relative attractiveness of the UK housing market, which is driven by structural undersupply of new housing, the constrained supply of land within the UK and the low stock levels within the UK housebuilding industry. The Board believes that, historically, the combined UK business and North American business have not had a material overlap nor shared significant synergies. The Board also believes that, historically, the UK equity markets have not fully reflected the value and contribution of the North American business.

As previously announced, we received interest in our North American operations towards the end of 2010 and have made progress in evaluating these approaches. However, there is no guarantee that any transaction will take place and we will not recommend a sale of the business to shareholders unless we consider that it represents a satisfactory value for our high quality operations. We will update the stock market as appropriate in due course.

People

Our value cycle requires significant input from skilled people to deliver quality homes and communities for our customers. I continue to believe that the quality of our teams is a key differentiator for our business and is reflected in the strength of the performance that we have delivered together in 2010. I would like to record my thanks for their ongoing commitment and hard work, once again.

Corporate responsibility

We remain committed to being a responsible company and to playing our part in building increasingly sustainable homes and communities.

As Group Chief Executive, I take ownership of the corporate responsibility agenda at the Board level and oversee the work of our Sustainability Steering Group. I also sit on the Confederation of British Industry's Climate Change Board, enabling us to benefit from best practice across a wide range of industries.

Outlook

In the UK, we have seen a positive start to 2011 with some price increases achieved. We expect the underlying market to remain relatively flat over the course of 2011, although we are likely to continue to see volatility in the national house price indices from month to month as economic uncertainty continues and mortgage lending remains restricted.

The significant long term undersupply of new housing in the UK persists and we are committed to working with the UK government to deliver a planning system that is capable of supporting an increased level of supply, whilst recognising the likelihood of reduced supply during the transition stage. We will also continue to work with the mortgage industry to identify ways of increasing mortgage supply, such as our recently launched 'Take5' product that uses an insurance-backed guarantee to provide an affordable 95% mortgage.

In North America, markets appear to have stabilised and there are signs of increasing consumer confidence. Affordability levels remain at record highs and this, combined with gradually reducing foreclosure levels, provides the potential for a strong recovery as confidence returns.

We are evaluating proposals for our North American business and will update the market as appropriate in due course.

With a simplified debt structure in place, we now have significantly greater operational flexibility and an enhanced ability to deliver our strategic priorities, including further margin improvement.

Pete Redfern

Group Chief Executive