1 George Wimpey Plc Analysts Visit to Milton Keynes 11/12 October 2006
Dec 23, 2015
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George Wimpey PlcAnalysts Visit to Milton Keynes
11/12 October 2006
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George Wimpey PlcMarket and trading update Pete Redfern Group Chief Executive
Analyst Visit South Midlands - 12 October 20063
UK market and trading updateEnd September 2006
• Market continues to be stable and positive across the UK
• Sales rates/margins year to date are in line with our plans for the UK business
• 97% sold for 2006 target volume
• Small price gains are being achieved
• Changes in business are well underway– land strategy being delivered
– cost improvement plans in place
Analyst Visit South Midlands - 12 October 20064
US market and trading updateEnd September 2006
• Market has weakened significantly since half year and 1 August results
• Current market conditions are poor– record stock levels driving price reductions
– US majors liquidating long land positions, through land sales and incentives
– US majors exiting land options and writing down positions
• Weakest markets are California, Nevada, Arizona, Florida, with Texas still sound
• However– changed position of Fed, with interest rates on hold
– general economic data remains sound
– new build starts have declined as realism takes hold
– September data (where available) shows first stabilising of stock position
Analyst Visit South Midlands - 12 October 20065
Morrison Homes sales dataTo week 38
Q3 2006 H1 2006 H2 2005
Weekly net sales rate 0.48 0.76 0.96
Average no of outlets 113 102 97
Cancellation rate* 41% 26% 13%
* Average cancellation rate flagged by US majors 35% (Q2 2006 Source: Credit Suisse)
Analyst Visit South Midlands - 12 October 20066
US short term market conditionsUpdated stock position
August 2006 June 2006 June 2005
Existing homes 3.92 m 3.73 m 2.65 m
Months’ supply 7.5 6.8 4.3
New homes 0.57 m 0.57 m 0.45 m
Months’ supply 6.6 6.3 4.2
Source: NAR / US Census Bureau
• Level of housing stock reaching 15 year high
• September data where available shows first signs of bottom
Analyst Visit South Midlands - 12 October 20067
US short term stock positionAnnual trend
0
1
2
3
4
5
6
7
8
9
10
Jan-85
Jan-87
Jan-89
Jan-91
Jan-93
Jan-95
Jan-97
Jan-99
Jan-01
Jan-03
Jan-05
Mon
ths'
sup
ply
January 1985 – August 2006Source: US Census Bureau
Analyst Visit South Midlands - 12 October 20068
• Generally price to market but Morrison do not need to follow land liquidators– average price reduction 10%, wide range around this
– competitor incentives up to $100k
– Morrison maintain a sales rate, but not chasing volume
– combination of incentives and now some headline reductions
• Strong focus on ensuring affordability– financing led deals
– some spec. adjustments
– medium term may be some product shift
• Q4 2006/Q1 2007 price positioning will depend on
– pricing actions of competitors
– underlying change in absorptions
Morrison HomesForward tactics - sales
Analyst Visit South Midlands - 12 October 20069
• Land values are reducing and terms are improving
• Some way to go in most markets before reaches current market price
• Cash pressure yet to bite on most land sellers
• Large land pipelines means future recovery in land price will probably be slow
US land marketCurrent position
Analyst Visit South Midlands - 12 October 200610
End 2005 * End 2000 *
Toll Brothers 9.5 years 7.7 years
Pulte 7.9 years 3.8 years
Lennar 7.9 years 7.1 years
NVR 7.6 years 3.6 years
Centex 6.8 years 3.9 years
DR Horton 6.6 years 4.4 years
Morrison 4.8 years 3.8 years
Ryland 4.5 years 3.7 years
Pipeline landbanksUS majors’ landbanks
* Based on closing volumes in the year
Analyst Visit South Midlands - 12 October 200611
• Withdraw from most new land purchases until value rebases– exceptions in Texas
– exceptions for A locations that reflect current pricing
– Q3 new approvals 706, of which 55% Texas
• Review existing land positions– non committed deals for current market value
– option and deposited deals for economic value
– owned deals for NRV (2005/6 purchases)
• Short term slow down of land purchases can be managed with current landbank
• Medium term opportunities for purchase from under pressure sellers
Morrison HomesForward tactics - land
Analyst Visit South Midlands - 12 October 200612
• Current market conditions poor and pricing worsening
• Action of US majors is impacting prices and volumes in short term – likely to continue into 2007
• Significant majority of Morrison land is well priced
– helped by cautious approach in 2005/6, particularly in California,
– some asset issues possible in year end review
– dependent on pricing patterns in Q4/Q1 in certain markets
• Underlying value intact
– employment and economic data still strong
– Morrison markets still seeing good job growth
– September re-sales listing shows signs of peaking
– market conditions will provide future opportunities for real growth
US marketConclusions
Analyst Visit South Midlands - 12 October 200613
• Continuing strong performance in the UK
• Tougher trading conditions in the US
• For the group as a whole– trading for the year in line with our expectations – assuming no further deterioration in the US market– assumes no material asset adjustments in US market
George Wimpey PlcGroup outlook
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George Wimpey UKStrategy Ian Sutcliffe Managing Director
Analyst Visit South Midlands - 12 October 200615
George Wimpey UKStrategic vision
• To have the lowest unit land cost of any major builder
• To create the most value in the planning process
• To be the most efficient builder
• To gain the maximum value for every plot sold
• To have the lowest, fit for purpose cost base
• To have the best people, who never want to leave
• To have a culture of delivering as advertised every time
Analyst Visit South Midlands - 12 October 200616
FinancialObjectives
Land
Product
People
Sales & Marketing
IT
Health & Safety
Cost Management
George Wimpey UKStrategic framework
Core Strategies
Key Enablers
PBIT
Volume
OP Margin
Analyst Visit South Midlands - 12 October 200617
FinancialObjectives
Land
Product
People
Sales & Marketing
IT
Health & Safety
Cost Management
George Wimpey UKKey areas of focus
Core Strategies
Key Enablers
PBIT
Volume
OP Margin
Analyst Visit South Midlands - 12 October 200618
George Wimpey UKTotal current landbank
46,000
47,000
48,000
49,000
50,000
51,000
52,000
53,000
54,000
55,000
56,000
Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec
To
tal p
lots
2004 2005 2006
Analyst Visit South Midlands - 12 October 200619
George Wimpey UKCurrent land use
Short term land• 1-2 years• nearer planning completion • lower risk/lower margin
Medium term land• 2-5 years• variable stages of planning• risks variable
Long term land• 5-10 years • little planning• higher risk/higher reward
10%
66%
24%
Analyst Visit South Midlands - 12 October 200620
George Wimpey UKLand value chainC
umul
ativ
e %
val
ue o
f fin
al s
ales
val
ue
100 %
+2 Yrs-10 Yrs -5 Yrs -2 Yrs Start
10 %
20 %
30 %
40 %
50 %
60 %
70 %
80 %
90 %
Ma
rke
tin
g a
nd
Se
llin
g
Plo
t S
ub
sti
tuti
on
Gro
un
d w
ork
s a
nd
Bu
ild
De
tail
ed
Pla
nn
ing
Pe
rmis
sio
n
Infr
as
tru
ctu
re a
nd
su
bd
ivis
ion
Val
ue
En
gin
eeri
ng
Ou
tlin
e P
lan
nin
g P
erm
iss
ion
An
nu
al
Mo
nit
ori
ng
R
ep
ort
Ch
an
ge
of
Us
e
LD
F A
llo
ca
tio
n
Ba
se
La
nd
RS
S
Land Developers
George Wimpey UK
Analyst Visit South Midlands - 12 October 200621
George Wimpey UKLand strategy
Issues
• Unit land input cost too high, too much short term land
• Size and quality of the landbank is insufficient for growth
• Planning timeline extending with more complex schemes
• Need for greater capital efficiency to fund growth
Actions
• Need to get further back in the value chain
• Continue to improve discipline around short term land buying
• Upgrade planning skills and major project development
• Restructuring of the overall landbank
Analyst Visit South Midlands - 12 October 200622
George Wimpey UKLand strategy
How will we get there?
• Focus– creating a dedicated land development resource specifically for long and medium term
land
• Process– proactively targeting opportunities, detailed value engineering and risk management
• Competence– develop capability to find, negotiate, promote and project manage through the very best
people
Analyst Visit South Midlands - 12 October 200623
George Wimpey UK Landbank split
2004 2005 2006 2007 2008 2009
Short term Medium term Long term
Analyst Visit South Midlands - 12 October 200624
George Wimpey UK2006 land acquisitions
Business unit Site name Month Total scope
Cost per plot
Cost per plot % asp
W Midlands Peugeot Works May 1,120 40.4 24.9%
E London UEL, Barking March 525 44.6 21.3%
E London Old church Hospital April 520 50.4 30.1%
S Wales Rodney Parade June 480 11.5 8.5%
N Yorkshire Thornaby Gas Depot March 326 35.0 27.3%
S Yorkshire Darnall January 318 29.9 21.9%
N Midlands Springfield Brewery February 307 26.2 21.5%
Midland St Modwens Developments January 272 44.1 30.8%
W London Wellesbourne Campus February 260 86.4 39.1%
N Thames Oaklands August 251 49.8 30.5%
South East Eastbourne coach park August 225 20.0 12.4%
W London Trout Road January 218 100.9 43.5%
N Thames Sunday Market site June 199 50.4 35.1%
North West St Benedict’s School June 188 31.9 24.9%
E Midlands Bestwood April 175 58.9 33.3%
Analyst Visit South Midlands - 12 October 200625
George Wimpey UK Sales and marketing
Issues
• Little demonstrable value added from the brand
• Costly visitor generation with fragmenting media viewing
• Inconsistent sales areas not maximising conversion
• Need for a more structured sales process to capture the maximum value
Actions
• Sharper brand positioning focussed on key benefits
• Full review of marketing spend effectiveness
• Create initial impact and a desire to purchase
• Build capability to deliver a consistent sense of urgency
Analyst Visit South Midlands - 12 October 200626
George Wimpey UKBrand strategy - framework
Laing(Premium)
10-20%
George Wimpey (Mainstream)
60-80%
G2(Value)10-20%
EmotionalPositioning
RationalSupport
Core Brand ValuesBuild Quality, Customer Care, Cost Efficiency and Processes
(The Way We Do Things – Common to all sub brands)
ExclusiveAspirational
Distinct
LocationPublic RealmSpecification
Floor PlansOptionalityDetailing
PricingFunctionality
Efficiency
EntryLevel
Affordability
ValueFor
Money
Analyst Visit South Midlands - 12 October 200627
George Wimpey UKBrand positioning
• Clearly defined customer offer
• Affordable, functional, fun
• Non traditional build
• Non traditional sales
• Low cost, fast cash turn
• All 60 on pilot scheme sold on the first day
Analyst Visit South Midlands - 12 October 200628
George Wimpey UK Cost management
Issues
• Build cost movement sq ft basis8.1% AAI 2002 – 2005
• Fragmented procurement not leveraging buying power
• Direct selling cost increases6.8% AAI 2002 – 2005
2005 total cost
Build 59.3%
Land 30.1%
Overhead6.0%
Selling4.6%
Analyst Visit South Midlands - 12 October 200629
George Wimpey UKCost management
Actions
• Developing an on going cost driven mind set
• Challenge every process and line item
• Identification of each saving initiative– 50+ initiatives
• Senior management ownership of each cost area
• Overall framework established to track benefits
• Fully integrated IT system rolled out in 2007/8
Analyst Visit South Midlands - 12 October 200630
George Wimpey UK Cost management initiative
Waste Management
• Cost champion Ed Woods
• Target savings £1.2 m
• Identification date November 2006
• Implementation date January 2007 (pilot September 2006)
• Identified savings 2006 - £300,000 Total £1.2m
Key actions Measure and track
1. Decrease total waste taken off siteNo skips x £/skip
2. Segregate inert and active waste Land fill tax
3. Increase use of REL v builder skips £/skip
4. Reduce overall administration Administration charge
5. Establish ongoing measurement,ownership and reporting
Analyst Visit South Midlands - 12 October 200631
George Wimpey UK People strategy
Issues
• Attraction and development
• Succession planning
• Talent management
• Retention of key staff
Analyst Visit South Midlands - 12 October 200632
George Wimpey UK People strategy
Actions
• Double the annual graduate recruitment intake
• Identify key development roles
• Management development programmes and exposure– position people for succession
• Remuneration more directly linked to performance– appraisal rating = incentive award
• Recognition for the champions of our business
Analyst Visit South Midlands - 12 October 200633
George Wimpey UK Summary and conclusions
We have a clear strategic plan
• Landbank quality is our top priority
• Structured approach to cost management
• Sharper sales and marketing to capture value
• Increased investment in people
All areas are already showing strong results
Analyst Visit South Midlands - 12 October 200634
George Wimpey UK Strategy
Any questions?
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George Wimpey South Midlands
Peter Gurr Managing Director
Analyst Visit South Midlands - 12 October 200636
George Wimpey South Midlands
• Peter Gurr – MD George Wimpey South Midlands appointed June 2004– 13 years experience as MD within industry
• GW South Midlands opened in 1985 as Tarmac Homes business
• By June 2004 stronger business focus required – land strategy needed clarifying
– geographic spread too broad
– limited presence in key regional growth areas - Milton Keynes
– people set in their ways, resistant to change
• Landbank depleted – at the end of 2003
• 1,027 plots = less than 2 years’ land supply,
• only 400 plots with planning
Analyst Visit South Midlands - 12 October 200637
George Wimpey South MidlandsStrategy to create a balanced business
• Immediate action taken to strengthen landbank – Develop a clear land strategy to refocus on key areas of
short term land (1-2 years)
medium term land (2-5 years)
long term land (strategic) (5 years +)
• Appointed new Land and Planning Team – Director appointed October 2004
– Land Managers appointed September 2004
• Developed relationships with – local/national land agents
– strategic alliances with EP and Milton Keynes Council
• Developed a new product range– PPG3 compliant products, increased standardisation
Analyst Visit South Midlands - 12 October 200638
George Wimpey South MidlandsCreating a balanced business
• Since June 2004 – 19 new sites purchased
– 4,153 plots
• Short term 804 plots
• Medium 3,149 plots
• Long term 200 plots
• Gross margin achieved on land bought pre June 2004: 16%
• Gross margin achieved on land bought post June 2004: 22%
Analyst Visit South Midlands - 12 October 200639
George Wimpey South Midlands Landbank
2004 2005 2006 2007* 2008*
Total landbank end of prior year 1,027 1,749 1,695 2,000 2,100
Opening plot with planning for year 398 422 534 750 900
Total volume 427 484 565* 540 600
* Estimated from current budgets
Analyst Visit South Midlands - 12 October 200640
George Wimpey South MidlandsLand acquisitions
Short term sites – Pages Priory, Leighton Buzzard (600 units) – part of Pratts Pitt (1,500 units)
– Eyebrook Vale, Corby (75) – part of Oakley Vale masterplan (+ 3,000 units)
Medium term sites – Design for Manufacture competition winner
• awarded Oxley Park site from English Partnerships (145 units)
– Parklands – Woburn Sands (576 units)
– Newton Leys (1,650 units)
– Stotfold (300 units)
Long term / strategic– Berryfields, Aylesbury (1,800 units)
Analyst Visit South Midlands - 12 October 200641
George Wimpey South Midlands Shape of the landbank
0
500
1000
1500
2000
2500
2004 2005 2006 2007 2008 2009
Short term Medium term Long term
Analyst Visit South Midlands - 12 October 200642
George Wimpey South MidlandsThe future business
• Financially secure– certainty of financial results, not reliant on market conditions
– greater flexibility to balance sales rates and margins
• Clearly defined geographic boundaries– well positioned in areas of greatest market demand
– established relationships with land agents, planning authorities and strategic partners
• Established product range– introduced preferred house type range
– secure cost base
• Focussed organisation – established as a ‘team’
– internal recognition for excellence in people development
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George Wimpey PlcAnalysts Visit to Milton Keynes
11/12 October 2006