Gaining the Benefits of Scale Peter Johnson George Wimpey PLC 19 April 2001.

Gaining the Benefits of ScalePeter Johnson

George Wimpey PLC

19 April 2001

Wimpey today

• 2000 Results

Revenue £m

Profit Before Tax £m

Shareholder Funds(p)

Interest Cover

UK Completions

USA Completions

1702

146

182

7.1

11437

2638

1527

113

158

7.4

12365

2574

+11%

+30%

+15%

-4%

-7%

+2%

2000 1999 % Change

Agenda

• What we’re doing to gain benefits from our scale

– strengthening our land bank

– building better and cheaper

– improved selling and marketing

– creating an efficient organisation

• How scale is helping us

• What this means for our shareholders

Strengthening our Land Bank

Strengthening our land bank

• We were • We now have

– prioritised land acquisitions

based on our business strategy

– all regions with critical mass

– competing internally

– reacting to regional demands

– trying to grow 29 regions to

achieve critical mass

– rationing on first come first

served basis

• Result was

– land in the wrong place

– acquired at poor margins

Strengthening our land bank

• Completions Before and After

– Regional Businesses now up to critical mass

Scotland

North

Midlands

South

UK Total

2

6

7

21

780

560

480

540

2001 After

4

8

8

9

29

390

420

390

370

390

2001 Before

6 520

No of BU’s Ave. PC’s per BU No of BU’s Ave. PC’s per BU

• We now have

– prioritised land acquisitions

based on our business strategy

Strengthening our land bank

• We were

– competing internally

– reacting to local demands of

regions

– trying to get 29 regions to critical

mass

– rationing on first come first

served basis

• Result was

– land in the wrong place

– bought at poor margins

– workable landbanks in all regions

– all regions with critical mass

Strengthening our land bank

Short Term Land Bank at end 2000 (Plots)

LondonBristol

Birmingham

Manchester

Leeds

Liverpool

Newcastle

EdinburghGlasgow

2,802

7,876

3,641

4,196

2,244

6,099

6,531

Total = 33,389 Plots

LondonBristol

Birmingham

Manchester

Leeds

Liverpool

Newcastle

EdinburghGlasgow

Strengthening our land bank

Short Term Land Bank at end 2000 (Years)

2.5

3.7

2.9

2.8

1.9

4.2

2.8

Average = 3.0 Years

LondonBristol

Birmingham

Manchester

Leeds

Liverpool

Newcastle

EdinburghGlasgow

Strengthening our land bank

Cost of Short Term Land Bank at end 2000 (£millions)

65.3m

85.9m

125.7m

161.7m

50.3m

42.2m

158.6m

Total = 689.7m

Strengthening our land bank

• We were

– competing internally

– reacting to local demands of

regions

– trying to get 29 regions to critical

mass

– rationing on first come first

served basis

• Result was

– land in the wrong place

– bought at poor margins

• We now have

– prioritised land acquisitions

based on our business strategy

– all regions with critical mass

– workable landbanks in all regions

• Result is

– we are buying land where we

want it

– at much better margins

– raised our target returns

Building Better & Cheaper

Building better and cheaper

• We were using • We now have

– local design (per McLean)

• savings identified

• adapted locally

• easier for PPG3

• benchmark costs

– Wimpey central design:

• expensive design features

• not adapted to local markets

• costly to adapt to PPG3

– Wimpey central buying:

• inflexible service

• not suited to local needs

• inhibited upgrades

• buying at high prices

-Reduction of roof complexity - £1000-Reduction of special features - £600-Positioning - £500

Building better and cheaper

Before

After

Front Right

Redesign of Vaudeville House Type by Leicester Office

-Reduction of roof complexity - £1000-Reduction of special features - 600Total Saving = £2,100

Building better and cheaper

Before

After

Front Right

Redesign of Vaudeville House Type by Leicester Office

Building better and cheaper

• We were using • We now have

– local design (per McLean)

• savings identified

• benchmark costs

• adapted locally

• easier for PPG3

– Wimpey central design:

• expensive design features

• not adapted to local markets

• costly to adapt to PPG3

– Wimpey central buying:

• inflexible service

• not suited to local needs

• inhibited upgrades

• high prices

– co-ordinated buying

• flexibility for design

• integrate service need

• use scale effectively

• savings identified

Building better and cheaper

• Build Costs

– McLean Build Costs more than 10% cheaper than Wimpey

• Build time

– McLean 12 Weeks

– Wimpey 16 -19 Weeks

• Benchmarking across regions to bring down both

Building better and cheaper

• Procurement

• Central Purchasing not working:

– Bricks

• Wimpey National deal cost £12 per thousand more than McLean

– Sanitary Ware

• McLean co-ordinated approach bought sanitary ware sets £300

cheaper than Wimpey

Building better and cheaper

• Procurement

• How is it organised now?

– National Product Consultation Groups run by regional Buyers to:

• Meet quarterly with suppliers/subcontractors

• Monitor and organise benchmarking

• Introduce new products and innovations

– Benefits

• National scale but with knowledge on the ground

• National deals supported by regional management

• Materials procurement co-ordinated with site/subcontractor needs

Improving Sales & Marketing

Improved selling and marketing

• We were • We now have

– common price and market data

– plans to exploit full product range

where it is needed

– established project teams to exploit

experience on “options”

– as well as on Bespoke

developments

– not sharing pricing information

between Wimpey and McLean

– not working together on mixed

outlet developments

– not transferring experience of

successes on options

– not sharing market, competitor or

customer data

Product - Options

Top 10 Options for 2000

Margin on Options between 20% and 30%

Option

Electrical Sockets/PointingCoving

Glazed Doors

>40%

25%-40%

Take up as% of PC’s

Garden LandscapingBurglar AlarmsFire Surrounds

Additional Lighting

20%-25%

DownlightsKitchen Flooring - Ceramic

Carpets

Product - Options

• Taking ideas from regions to form consistent approach

Options Project Team

e.g.

– Double Garage Sales Centre - Yorkshire

Product - Options

• Taking ideas from regions to form consistent approach

e.g.

– Double Garage Sales Centre - Yorkshire

Options Project Team

– Car Style Specification Sheet - Bristol

Product - Options

• Taking ideas from regions to form consistent approach

e.g.

– Double Garage Sales Centre - Yorkshire

– Car Style Specification Sheet - Bristol

– Commissions from off-site Sales - West London

Options Project Team

How restructuring is helping us

How restructuring is helping us

• Reduced Overheads

– Reduction in Staff - 435

– Completions per member of Office Staff increased by >40%

– Overhead Savings - £20 million

– Impact on Margin for 2002 - 1.7%

How scale is helping us

• We are buying better

– land

– materials

– services

• We employ a wider range of skills and experience

– developing innovative bespoke projects

– larger inner-city development schemes

– experimenting with additional options and extras

How scale is helping us

• we are able to leverage these experiences

– sharing design/bespoke experiences

– developing a wider and larger range of options

– applying lessons we can learn from our US business

• we are better able to manage risk

– large and complex land purchases

– major development schemes

– innovation in design or construction

How scale is helping us

• we are able to attract top quality partners

– suppliers and subcontractors

– our own staff and management

– partners in major development schemes

What this means for our shareholders

What this means for our shareholders

• Margins will increase

– £20 million overhead cost reductions

– benefits from improved design/procurement

– land is being bought at better margins

– increased options/extras

– prices will improve through better product and geographical mix

• George Wimpey has the potential to compete with and

better the performance of its peers - we are putting in

place the organisation and processes to ensure it does

What this means for our shareholders

• George Wimpey has earned lower margins than its main

competitors - there is no good reason why it should

continue to do so