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Published byDeborah Price Modified over 9 years ago
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Does Size Matter? Peter Redfern Deputy Group Chief Executive Friday 21 April 2006
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Does size matter? George Wimpey in context Benefits of scale Challenges of scale Do conclusions differ UK-US? George Wimpey growth opportunities Conclusions
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George Wimpey in context Focused housebuilder with strong ethos of health and safety/customer service Operating in -UK market -12,000 completions -US market - 5,000 completions Broad market presence UK - first time buyer apartments to 5 bed detached houses -average selling price c £180,000 More focused regional presence US -Townhomes c $180,000 -$250,000 -Single family houses c $200,000 -$450,000
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George Wimpey in context Group comps PBT £m Net worth £m Div per share Gearing 17,02116,654 16,57016,91714,437 366.5437.6 1,544.41,331.4 17.6p16.0p 34%39% 450.7378.2285.9152.0 1,439.11,168.4944.6783.3 16.0p 36% 12.25p 45% 9.1p 40% 8.25p 49% 20052004 200320022001 IASUK GAAP
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UK business New business structure: North8 Midlands8 South9 Total25 + 3 new satellites Bristol Manchester Liverpool Newcastle Edinburgh Glasgow Birmingham Leeds London Plymouth Aberdeen
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West 3 South West4 South East4 Total11 + 3 satellites Sacramento Central Valley Jacksonville Denver Sarasota Austin Dallas Phoenix Houston Orlando Tampa US business
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George Wimpey in context George Wimpey Barratt Persimmon Taylor Woodrow Bellway Wilson Bowden Redrow Miller Bovis Crest 17,021 14,351 12,636 12,516 Group volume Barratt Persimmon George Wimpey Taylor Woodrow Bellway Wilson Bowden Redrow Miller Bovis Crest 14,3512,472.4 UK volume Revenue £m 12,6362,285.2 12,1003,003.2 8,1783,476.9 7,0011,178.1 5,2071,230.8 4,372781.0 2,801897.8 2,702521.2 2,486714.3 7,001 5,207 4,372 2,801 2,702 2,486
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UK volume/landbank history
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US volume/landbank history
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Benefits of scale Material procurement Other construction costs Overhead costs Land buying Length of landbank
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Procurement - bricks 79% of brick market is supplied by 3 main suppliers Ibstock - 31%, Hanson - 30% and Wienerberger - 18% George Wimpey’s total UK brick requirement is 6% of total turnover of largest brick supplier National scale gives mutual supply chain synergies in matching supply to demand
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Procurement - bricks 2001 average price paid £/000 bricks George Wimpey McAlpine Laing 160 180 215
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Procurement - flooring Flooring (carpets, wood, laminate etc) supplied under one deal covering c 75% of business - introduced 2002 Extremely price competitive – guaranteed volume gives supplier ability to agree deal with overseas supplier Significant improvement in service levels to George Wimpey as well as to our end customers Provision of tailored on-site training for sales staff Ranges altered and added to suit demands of GW customers - regionally and nationally Only deal of this scale for Inside Right c 40% of business -GW is top priority
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Other construction savings Significant potential build cost savings from scale Benefits to steady flow through of work for subcontractors -relies on regional scale Sharing of knowledge and expertise becoming increasingly important - House types ~ balance between local ownership and scale economies ~ difference between good and bad can be 5% of margin -Site remediation - currently working on 200 brownfield sites -Land relationships - English Partnerships sale of 96 NHS sites
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Overheads Definitely saving of central overheads -However central overheads relatively small - for GW c 0.5% of revenue Regional overheads vary more significantly -most cost savings from acquisitions in last 5 years came from regional overheads - McAlpine 80% of £20m savings came from overheads Benefits of volume growth to efficiently use overheads
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Land buying Single biggest advantage of scale -increasing as average size of site changes National coverage improves visibility with vendors and agents Gives confidence in ability to fund and complete the acquisition quickly Enables purchase of larger sites which are often less competitive Enables quicker decisions at higher values Allows calculated risks on a proportion of sites to drive better margins
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Land buying - larger sites Average cost per plot as % of ASP 2005: 26.6% Newton Leys Lawley, Telford Masterton, Dunfermline 695 1,167 1,650 No of plots 66 71 90 No of acres 17.3% 19.6% 20.7% Cost per plot as % of ASP
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Land Buying Case study: Newton Leys 1650 dwellings – 1,155 private and 495 affordable Bought with outline planning in October 2005 -opportunity to improve planning position Major greenfield masterplan development -opportunity to create value through scheme More land than required for GW -opportunity to trade with competitors Discount to open market value for scale of purchase – c 5% Key timelines Start on site January 2007 House constructionSummer 2007 Pay for siteOctober 2007 First completionDecember 2007
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Length of landbank Is a long landbank good? Only if it adds value - Land prices rising faster than cost of capital on land - Necessary to manage planning process - Opportunity to structure better deal – eg Strategic Land Historically these conditions have been fulfilled – in the future it is less certain Scale does not directly allow longer land bank However, it is becoming harder to grow at small scale because of dependence on smaller sites and increased competition
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Other scale benefits Brand awareness/customer confidence Risk diversification Reduced financing costs/new opportunities
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Challenges of scale Management of risk -not really greater but necessary to have a hands on approach Decision making slow and cumbersome? -down to attitude not size -why we operate a local business model Procurement benefits uncertain -more true in the 80s/90s when suppliers were less consolidated
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Challenges of scale Total UK completions under NHBC (000s) % total new UK housing starts by companies completing >2000 units pa
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Do conclusions differ US – UK? Broadly conclusions are the same -but more at regional/state level than nationally This is driven by genuine regional variation -Planning systems -Construction methods - Market cycles Land market scale advantage is identical Transfer of skills, sharing of knowledge and expertise similar Brand value and reputation can be stronger -27% of customers bought a Morrison Home on the recommendation of friend/family member
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Morrison Homes growth opportunity Source: CSFB 70.0 69.2 68.6 68.3 68.0 67.5 66.9 66.4 65.7 65.4 65.1 64.1 64.0 64.1 63.9 62% 63% 64% 65% 66% 67% 68% 69% 70% 71% 1990199119921993199419951996199719981999200020012002200320042010E A homeownership rate of 70% in 2010 would imply the creation of c.1.28m households pa from 2004- 2010, compared to the 800,000 created pa from 1999-2004 US Homeownership Rates
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Morrison Homes growth opportunity 209 151 166 81 40 647 1,681 38% 1 3 2 6 12 SF Permits 2005 Rank Florida California Texas Arizona Colorado TOTAL Total US Morrison Markets 297 278 154 117 55 901 2,010 45% 1 2 3 4 18 Job Growth 2005 Rank 000s 404 290 388 199 63 1.344m 2.753m 49% 1 3 2 4 11 Population Growth 2005 Rank
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Morrison Homes growth opportunity 2001 - new satellites established in Jacksonville, Sarasota, Central Valley 2005 - these satellites accounted for 20% completions 2005 - new satellites established in Daytona Beach, Fort Myers and Reno
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Case study – Fort Myers In the last three years -7% increase in total population -1.2% increase in employment Closed 50 lots June 2005Aug 2005Jan 2006March 2006April 2006 Preliminary evaluation of possible land opportunities Initial land contract signed Fort Myers operation established as satellite office Initial permit for model home obtained Approved 5 land contracts for total of 341 lots
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Case study – Fort Myers Construction of the initial two models in first community to begin end April 2006 Sales will begin by early May 2006 A second community will commence sales in June 2006 First customer will move into a Morrison Home in October/November 2006 Forecasting 15-20 closings in 2006, up to 150 in 2007 Less than 18 months from initial land evaluation to first completed home
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George Wimpey UK growth opportunity 10% land bank growth in 2004 provides first foundation Change in land buying at both strategy and operational levels will build on this -Larger sites -More land trading -Improved people and processes -Strategic land Order book end of 2005 up 30% -Gives option to grow volume and start to improve margin Stronger first half volume in 2006 will provide opportunity
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George Wimpey objectives US Continued land bank growth driven by -Growth in exiting satellites to full scale -Continued new satellite program -Potential for bolt on acquisitions Continued volume growth with target of doubling to 10,000 units over next 5 years Maintain margins at 15% + levels as market normalises UK Drive organic growth from the existing land Use scale and changes to land buying to grow landbank and improve value Create/acquire strategic land portfolio Use scale to drive down build and operating costs Recover margins to 15+ levels.
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Does size matter? Conclusions Scale can drive significant value in housebuilding: -Material procurement -Land buying -Brand awareness Same conclusion in the US but focused more regionally Real opportunity for George Wimpey to take further advantage -Largest UK/US combined housebuilder -Proven volume growth track record in US -Existing land bank and changes to land buying give real UK opportunity
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