The housebuilder who is ready to take the long road back to recovery

DESPITE the generally depressed state of the housebuilding and residential property market, Taylor Wimpey’s chief executive Peter Redfern says he is pretty pleased with business. But sitting in the boardroom of his London office, his mood appears more reflective than upbeat. “Prices are very stable at the moment,” says Redfern. “Stable is good for us. Prices have not gone up or down for a sustained period of four months or so for some time.”

The good news, according to Redfern, who is wearing a black suit and tieless white shirt combination, is that the market will continue on like this for much of the next two years. There will only be “an occasional” rise or dip here and there.

But if you consider the rollercoaster ride the company and Redfern have been through over the last three years you can see why stable looks so attractive. The business has gone from sealing a £5bn merger to the brink of collapse under £1.5bn of debt after house sales slumped as a result of the financial crisis and recession, with the firm’s stock price sinking to as low as 4p at one point.

However, some economists would argue the housebuilding market is far from stable and that prices appear to have started falling again. Earlier this month, the Council of Mortgage Lenders noted that the £12bn that was lent for mortgages in September was the lowest since 2000.

Not surprisingly, perhaps, Redfern nevertheless thinks the worst is over. He says: “We would be foolish to say that a double dip is not possible. But we do say that it is not likely. Just as we say a sustained period of rising prices in the short term is also not likely.”

The boss of the country’s second largest housebuilder, a result of the 2007 merger of Taylor Woodrow and George Wimpey, Redfern argues his case cogently: “There is a lack of housing supply, and that will keep prices from falling too far. But there are currently not a huge amount of mortgage buyers on the market, and that will keep prices from rising.”

In his view three factors contribute to rising house prices. A rise in mortgage lending “is by far the biggest factor.” But the amount of homes being built in the country is also important. In 2006, the year before the crisis, the industry built 180,000 houses a year, he says. This year it will build 100,000.

The final factor “is general confidence. Are you prepared to take on the level of risk buying a house entails? How confident are you about keeping your job?” Redfern adds “confidence can change quickly either way”, but the other two factors, like oil tankers, take some time to turn around.

The housebuilder did not expect a great deal from last month’s government Comprehensive Spending Review (CSR). “We were looking for things not getting worse, rather than a massive upside,” he says. And to that degree Redfern got his wish.

Chancellor George Osborne abolished the Home Buyer Direct scheme which meant that first time buyers only had to initially finance 70 per cent of the cost of their home, with housebuilders and the state splitting the rest of the bill.

However, Redfern says housebuilders had expected the scheme, which was only introduced in 2008, to go. Taylor Wimpey will go back to what it previously did, which was to loan first-time buyers up to 25 per cent of the cost of a home.

The government added in the CSR that it wanted 150,000 affordable homes to be built by 2015, which on average are 30 per cent cheaper than private houses.

Redfern says that shared equity schemes account for 10 per cent of the houses and flats it builds a year in the UK. Social housing, he adds, is also not a significant part of its mix.

Taylor Wimpey builds 10,000 homes in the UK, 1,400 in Canada, 2,500 in the US and 130 in Spain a year. A quarter of these dwellings are flats, 35 per cent are two or three bedroom houses for first or second time buyers, with the rest being large four to five bedroom detached houses.

Those close to Taylor Wimpey expect it to sell its listless US business at some point over the next two years when the market begins to pick up.

In August, the business began to return to something like normal trading conditions, when it posted its first profit in more than two years. It reported half-year profits of £19.6m on rising house prices, compared to a loss of £681.9m in the same period last year. Sales rose eight per cent to £1.22bn. Its average selling price rose 9.8 per cent over the period to £168,000.

The business hiked margins by one per cent to 7.5 per cent, but this is still a long way from the 14 per cent the two firms enjoyed in 2006 because average prices were some 20 per cent higher than today.

The housebuilder did not pay a dividend as part of its half-year results, and has not paid one since 2007. Redfern says: “We are unlikely to pay a dividend in 2011, more likely in 2012, and will be very disappointed if we are not paying dividends by 2013.” He adds that his investors understand the long-term nature of the recovery this sector will have to go through.

The firm, which carries £700m of debt, comes to the end of its current banking facility – with Barclays, Lloyds Banking Group, Royal Bank of Scotland and HSBC – in July 2012 and has already opened talks.

Redfern says: “We are in a very different place to where we were at the time of the last refinancing [in 2009]. We had debts of around £1.5bn and we were in the middle of the financial crisis. Now our debt is much less. We would be disappointed if talks were not concluded by the middle of next year.” Its current deal gives it little flexibility to buy land.

Three years previously, in 2007, Redfern’s star could not have been brighter. At just 36 he had just completed the merger of his firm George Wimpey with rival Taylor Woodrow, leaving him as one of the youngest ever bosses of a FTSE 100 business, employing around 10,000 staff, with a market value of £5bn and a share price of 518p.

However, the business was hit by the financial crisis and the resulting housing slump. In 2008 it made a loss of £1.8bn on sales of £3.5bn after writing down £1.9bn land, goodwill and work in progress.

The business crashed out of the FTSE 100, and instead of masterminding expansion Redfern had to cut half of his staff and went into crunch talks with his bankers in a bid to finance a £2.5bn facility.

Many thought at the time that Redfern – who had rapidly moved from KPMG to Rugby Cement into the housebuilding industry – was too inexperienced to deal with such upheaval and would be a high profile casualty of the crunch. But he cut a deal with his banks and – at the second time of asking, after sweetening the terms – raised a fresh £510m from investors in 2009.

After having secured the business, Redfern is now faced with the slow climb out of a stagnant housebuilding market that many observers think will take at least two years to recover. The stock currently hovers at around 24p, giving the business a market value of £758m.

Is a high flyer like Redfern worried that – after the highs of a merger and the demanding lows of debt financing – the road ahead looks mundane in comparison? Needless to say, he disagrees: “Its not frustrating. We now have the time to get things right. We can get under the skin of the business and the land deals that we do. Big land deals can see us still building on a plot over ten years later. The first big land deal I did when I joined this company is still being built on today. That gives you a sense of how long-term this business is.”

It seems that Redfern, his investors and the housebuilding firms are all braced for a long haul. For an industry that has long been characterised by short-termist errors of judgement, that is an uncharacteristically sensible state of affairs. Let us hope it continues.

CV | PETER REDFERN
Age: 40

Work: KPMG; Rugby Cement, which he left when it was bought by rival RMC in 1999; joined George Wimpey in 2001; became the firm’s head in 2006; chief executive of Taylor Wimpey since 2007.

Education: Warwick University, where he read maths.

Family: Separated, three children.

Lives: Oxfordshire.

Hobbies: Football, squash, running, furniture making. “My grandfather was a carpenter, and I still have some of his tools in the workshop I have at home. I recently made a rocking horse for my daughter.”