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Does Size Matter?

Does Size Matter?. Peter Redfern Deputy Group Chief Executive Friday 21 April 2006. Does size matter?. George Wimpey in context Benefits of scale Challenges of scale Do conclusions differ UK-US? George Wimpey growth opportunities Conclusions. George Wimpey in context.

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Does Size Matter?

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  1. Does Size Matter? Peter Redfern Deputy Group Chief Executive Friday 21 April 2006

  2. Does size matter? • George Wimpey in context • Benefits of scale • Challenges of scale • Do conclusions differ UK-US? • George Wimpey growth opportunities • Conclusions

  3. 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

  4. IAS UK GAAP 2005 2004 2004 2003 2002 2001 Group comps 17,021 16,654 16,654 16,570 16,917 14,437 PBT £m 366.5 437.6 450.7 378.2 285.9 152.0 Net worth £m 1,544.4 1,331.4 1,439.1 1,168.4 944.6 783.3 Div per share 17.6p 16.0p 16.0p 12.25p 9.1p 8.25p Gearing 34% 39% 36% 45% 40% 49% George Wimpey in context

  5. New business structure: North 8 Midlands 8 South 9 Total 25 + 3 new satellites UK business Aberdeen Edinburgh Glasgow Newcastle Leeds Liverpool Manchester Birmingham London Bristol Plymouth

  6. US business • West3 • South West 4 • South East 4 • Total 11 • + 3 satellites Sacramento CentralValley Denver Phoenix Dallas Jacksonville Austin Orlando Tampa Houston Sarasota

  7. George Wimpey in context Group volume UK volume Revenue £m Barratt 14,351 2,472.4 George Wimpey 17,021 12,636 2,285.2 14,351 Persimmon Barratt George Wimpey 12,100 3,003.2 Persimmon 12,636 Taylor Woodrow 8,178 3,476.9 Taylor Woodrow 12,516 Bellway 7,001 1,178.1 Bellway 7,001 Wilson Bowden 5,207 1,230.8 Wilson Bowden 5,207 4,372 781.0 4,372 Redrow Redrow Miller 2,801 897.8 Miller 2,801 2,702 521.2 2,702 Bovis Bovis Crest 2,486 714.3 Crest 2,486

  8. UK volume/landbank history

  9. US volume/landbank history

  10. Benefits of scale • Material procurement • Other construction costs • Overhead costs • Land buying • Length of landbank

  11. 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

  12. Procurement - bricks 2001 average price paid £/000 bricks George Wimpey 160 McAlpine 180 Laing 215

  13. 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

  14. 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

  15. 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

  16. 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

  17. No of plots No of acres Cost per plot as % of ASP Masterton, Dunfermline 695 66 17.3% Lawley, Telford 1,167 71 19.6% Newton Leys 1,650 90 20.7% Land buying - larger sites • Average cost per plot as % of ASP 2005: 26.6%

  18. Land BuyingCase 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 construction Summer 2007 Pay for site October 2007 First completion December 2007

  19. 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

  20. Other scale benefits • Brand awareness/customer confidence • Risk diversification • Reduced financing costs/new opportunities

  21. 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

  22. Challenges of scale completing >2000 units pa % total new UK housing starts by companies Total UK completions under NHBC (000s)

  23. 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

  24. Morrison Homesgrowth opportunity US Homeownership Rates 71% 70% 69% 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 68% 67% 66% 70.0 69.2 68.6 68.3 65% 68.0 67.5 66.9 66.4 64% 65.7 65.4 65.1 64.1 64.1 64.1 63% 64.0 63.9 62% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2010E Source: CSFB

  25. SF Permits 2005 Rank 209 1 151 3 166 2 81 6 40 12 647 1,681 38% Morrison Homesgrowth opportunity Job Growth 2005 Rank Population Growth 2005 Rank 000s Florida 297 1 404 1 California 278 2 290 3 Texas 154 3 388 2 Arizona 117 4 199 4 Colorado 55 18 63 11 TOTAL 901 1.344m Total US 2,010 2.753m 45% Morrison Markets 49%

  26. 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

  27. June 2005 Aug 2005 Jan 2006 March 2006 April 2006 Preliminary evaluation of possible land opportunities Fort Myers operation established as satellite office Approved 5 land contracts for total of 341 lots Initial land contract signed Initial permit for model home obtained Case study – Fort Myers • In the last three years • 7% increase in total population • 1.2% increase in employment Closed 50 lots

  28. 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

  29. 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

  30. 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.

  31. 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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