Taylor Wimpey reassures on debt HOME » NEWS » Taylor Wimpey reassures on debt Taylor Wimpey has not yet reached a deal to restructure its debt but expects an agreement by the end of the year, the housebuilder said as it reported a collapse in interim profits. In a trading statement, the struggling group scotched rumours that it had already convinced lenders to amend key covenants relating to its £1.7bn net debt. The shares fell 7 per cent to 48¼p, reversing gains made on Tuesday, because of speculation about an agreement. “Our primary focus is to amend certain of the existing borrowing agreements,” said Norman Askew, chairman. “To this end, the group is engaged in constructive dialogue and is not aware of any issues which would prevent these amendments being finalised by the end of the year.” Discussions over debt were triggered in July when Taylor Wimpey failed to raise £500m in capital from new and existing shareholders. The company said: “We are likely to breach the interest cover covenants when tested for the full year.” The first half results combined further writedowns and better-than-expected sales in the first weeks with collapsing margins of the second half. The developer wrote off £816m of the value of non-tangible assets that appeared on its balance sheet at the time of the Taylor Woodrow and George Wimpey merger last spring. That helped lead the company to a £1.5bn pre-tax loss, three times its market capitalisation. Excluding exceptional items, sales of £1.9bn (2007: £2.7bn for both constituent companies) netted pre-tax profits of £4.3m (£140.9m). There will be no interim dividend following losses per share of 134.9p, compared with 3.9p earnings last time. Pete Redfern, chief executive, said the writedown was a paper transaction and not a reflection of the quality of the merger. He also pointed to signs of recovery at Taylor Morrison, its US arm whose subprime troubles presaged those in the UK. There was also some hope in the UK, with sales in the past six weeks only 25-30 per cent lower than last year. In a trading statement the developer scotched trade press reports that claimed it had convinced lenders to amend key covenants relating to its £1.7bn net debt. The company’s share price immediately dropped 10 per cent to 46½p, reversing similar gains on Wednesday. “Our primary focus is to amend certain of the existing borrowing agreements,” said Norman Askew, chairman. “To this end, the group is engaged in constructive dialogue and is not aware of any issues which would prevent these amendments being finalised by the end of the year.” Discussions over debt were triggered last month when Taylor Wimpey failed to raise £500m in capital from new and existing shareholders. The company identified the talks as the principal risk for the next few months. It added “we are likely to breach the interest cover covenants when tested for the full year”. Taylor Wimpey’s first-half results sent mixed messages to the market, combining £816m of goodwill write-offs and collapsing margins with better-than-expected sales figures. The company reported pre-tax profits of £4.3m before exceptional items of £1.5bn, on sales of £1.9bn, up from £1.4bn. Last year first-half profits at Taylor Woodrow were £119.8m. There will be no interim dividend following losses per share of 134.9p, compared with a 3.9p profit last time. The £816m write-off comes on top of £690m of provisions against land and current stock, itself a £30m bump on previous guidance to investors. Pete Redfern, chief executive, stressed the write-down was a paper transaction and not a reflection of the quality of the merger.“Both sets of shareholders were equally exposed to both US and UK markets,” he said. Signs of recovery in the US market were mentioned earlier this summer and on Wednesday there were hints of a recovery in the UK market, with sales in the past 6 weeks down only 25-30 per cent on last year, according to Mr Redfern. Though the margins were “less than we would generally like” as a result of the higher use of incentives for buyers, the figure was better than the 40-60 per cent range experienced throughout the spring in the industry as a whole. Figures for Bovis on Tuesday showed it was down 70 per cent in the same period despite a sharp drop in prices. Taylor Wimpey’s debt was largely acquired after its two constituent companies, Taylor Woodrow and George Wimpey, merged at the height of the housebuilding bubble last spring. There were concerns that the company wrote off the entire value of its intangible assets, including goodwill and the value of the George Wimpey brand. Source: Financial Times