Taylor Woodrow plc Report and Accounts 2006 Our aim is to be the homebuilder of choice. Our primary business is the development of sustainable communities of high-quality homes in selected markets in the UK, North America, Spain and Gibraltar. We seek to add shareholder value through the achievement of profitable growth and effective capital management. Contents 01 Group Financial Highlights 54 Consolidated Cash Flow 02 Chairman’s Statement Statement 05 Chief Executive’s Review 55 Notes to the Consolidated 28 Board of Directors Financial Statements 30 Report of the Directors 79 Independent Auditors’ Report 33 Corporate Governance Statement 80 Accounting Policies 37 Directors’ Remuneration Report 81 Company Balance Sheet 46 Directors’ Responsibilities 82 Notes to the Company Financial Statement Statements 47 Independent Auditors’ Report 87 Particulars of Principal Subsidiary 48 Accounting Policies Undertakings 51 Consolidated Income Statement 88 Five Year Review 52 Consolidated Statement of 90 Shareholder Facilities Recognised Income and Expense 92 Principal Taylor Woodrow Offices 53 Consolidated Balance Sheet Group Financial Highlights • Group revenues £3.68bn (2005: £3.56bn) • Housing profit from operations* £469m (2005: £456m) • Profit before tax £406m (2005: £411m) • Basic earnings per share 50.5 pence (2005: 50.6 pence) • Full year dividend 14.75 pence (2005: 13.4 pence) • Net gearing 18.6 per cent (2005: 23.7 per cent) • Equity shareholders’ funds per share 364.7 pence (2005: 338.4 pence) Profit before tax £m 2006 405.6 2005 411.0 2004 403.9 Full year dividend pence (Represents interim dividends declared and paid and final dividend for the year as declared by the Board) 2006 14.75 2005 13.4 2004 11.1 Equity shareholders’ funds per share pence 2006 364.7 2005 338.4 2004 303.8 * Profit from operations is before joint ventures’ interest and tax (see Note 3, page 56). Taylor Woodrow Report and Accounts 2006 01 Chairman’s Statement We have delivered a robust performance in 2006, with strong growth in North America and the UK performing in line with expectations. Norman Askew, Chairman In 2006 we: shareholders are once again being October 2003 following the acquisition • Increased our home completions in the offered the opportunity to reinvest some of Wilson Connolly. The company has UK and strengthened our order book; or all of their dividend under the benefited from his experience in the • Grew home completions and profits Dividend Re-Investment Plan, details homebuilding industry and we wish in North America, as a result of our of which are contained in the 2007 him a long and happy retirement. strategy of maximising forward sales AGM circular to shareholders. during the buoyant market conditions Our people of 2005; Board changes The company’s success is dependent • Achieved another good profit increase As previously announced, Iain Napier upon the expertise and enthusiasm from our businesses in Spain & Gibraltar; retired from the Board on 31 December of its team members. I would like to • Increased equity shareholders’ 2006. Following his arrival at Taylor take this opportunity to thank all of funds per share by 7.8 per cent Woodrow in early 2002, Iain oversaw my colleagues throughout the Group to 364.7 pence; our transition to a focused housebuilder, for their enterprise and hard work over • Reduced our gearing to 18.6 per cent. with the acquisition of Wilson Connolly the year. and the disposal of our non-core Growing dividends through the cycle Investment and Commercial Property Thanks are also due to our customers, In line with our progressive dividend portfolios. On behalf of the Board, trading partners, shareholders and policy, the Board recommends an I would like to extend our sincere other stakeholders in our business for increase in the final dividend for 2006 thanks for his leadership during a the continuing support that they give to 9.75 pence per share from 8.9 period of enormous change and wish to Taylor Woodrow. pence in 2005. This, together with the Iain every success in his new role interim dividend of 5.0 pence paid on as Chairman of Imperial Tobacco. Shareholder information 1 November 2006, makes a total Full details of the facilities available to dividend for the year of 14.75 pence, Ian Smith, joined the Board as Chief shareholders can be found on pages 90 an increase of 10 per cent. Executive on 2 January 2007, bringing and 91 of this Report and Accounts and with him extensive international at www.taylorwoodrow.com. Subject to confirmation at the Annual experience, along with a strong General Meeting (AGM) on 2 May 2007, background in strategy, in the logistics the dividend will be paid on 2 July 2007 and healthcare sectors. I look forward to shareholders on the register at close to working with Ian to deliver further of business on 25 May 2007. success for Taylor Woodrow. Norman Askew Chairman This dividend will be paid as a Graeme McCallum retired from the 19 February 2007 conventional cash dividend but Board in January 2007. He joined us in 02 Taylor Woodrow Report and Accounts 2006 Manfield Grange, two miles from the centre of Northampton, offers 79 new homes, ranging from one to five bedrooms, built in the grounds of the former Manfield Grange Children’s Hospital. A listed building, this magnificent restoration provides modern homes and luxury apartments with original and historical features complemented by the latest in high-specification features and fittings. Above: Manfield Grange, Northampton, England Taylor Woodrow Report and Accounts 2006 03 Featuring a variety of four and five bedroom family homes, River Heights is situated in the picturesque area of Steiner Ranch, Texas, and is located within walking distance of the town centre and is close to local schools. Above: River Heights, Steiner Ranch, Austin, Texas, USA 04 Taylor Woodrow Report and Accounts 2006 Chief Executive’s Review Taylor Woodrow operates a portfolio of housing businesses in selected markets in the UK, North America, Spain and Gibraltar, which account for 98 per cent of our operating profits. In addition to building new homes, we also have expertise in mixed-use development and construction, which help to support our development of sustainable new communities. Ian Smith, Chief Executive Structure and strategy It also enables us to mitigate the Strategic priorities Our aim is to be the homebuilder impact of any short-term weakness The Group’s key strategic priorities of choice. Our primary business is in any particular market or sub-market. are to: the development of sustainable Consequently, as the markets in Arizona, • Improve operating margins and communities of high-quality homes California and Florida started to weaken returns on capital from our UK in selected markets in the UK, North in 2005, we were able to reduce our Housing business; America, Spain and Gibraltar. We seek planned land spend in North America • Deliver competitive operating profit to add shareholder value through for 2006 and allocate additional funding margins and return on capital in the achievement of profitable growth to our UK Housing business. North America, whilst positioning and effective capital management. the business for growth as market Our performance in delivering total Each business is targeted to: conditions allow; shareholder return can be seen on • Deliver high-quality homes in which • Consolidate stable performance from page 40. our customers want to live; our business in Spain and Gibraltar, • Use capital efficiently; whilst building a platform for future We are a national homebuilder in the • Identify and manage risk effectively; growth; UK. In the United States we operate • Deploy effective and disciplined • Grow the profits of our Construction in Arizona, California, Florida and Texas. processes and systems, which business, while managing risk We also build in Ontario, Canada. encourage continuous improvement effectively. Our operations in Spain are focused on and support ‘right first time’ results; the popular holiday destinations of the • Work closely with supply chain Costa Blanca, Costa del Sol and Mallorca. partners to improve the way in which business is conducted; Operating a portfolio of housing • Recruit, retain and develop high- businesses allows us to allocate our quality staff. capital where we see the best opportunities for risk-adjusted returns. Taylor Woodrow Report and Accounts 2006 05 Chief Executive’s Review continued Monitoring our performance Operating margin % Home completions 2006 13.0 Operating margin is 2005 2006 calculated using profit from 2005 13.5 operations (excluding joint Return on average capital employed % ventures’ interest and tax) and revenue (including that of joint 2006 23.0 ventures). Please see Note 3 2005 24.6 of the Consolidated Financial Statements on page 56 for Gearing % 12,516 13,165 further information. This 2006 18.6 measure represents the profitability of our operations. 2005 23.7 Order book £m Return on average capital employed (ROACE) is 2006 2,235 calculated using profit from 2005 2,025 operations (excluding joint ventures’ interest and tax) Landbank plots and capital employed 2006 68,662 (pre-goodwill). This measure 2005 75,160 indicates how efficiently the business is using its capital to generate profits. Gearing is calculated as net Results Group housing has had a good year, debt divided by shareholders’ Consolidated revenue for the year with our North American business funds and represents the to 31 December 2006 was up 3 per reporting another year of record profits. level of borrowing within the cent at £3,572.1m (2005: £3,476.9m). Revenue increased to £3,128.4m business. Profit before tax was £405.6m (2005: (2005: £2,864.9m), reflecting an £411.0m). increase in both home and lot Home completions include completions. Profits from operations sales from within joint ventures, At 31 December 2006, total equity were higher than last year, at £469.2m, which are counted as a before minority interests was £2,103.5m as the increase in completions proportion of a unit in line (2005: £1,928.4m).