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George Wimpey Plc 2004 Preliminary Results

George Wimpey Plc 2004 Preliminary Results. Tuesday 22 February 2005. Disclaimer.

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George Wimpey Plc 2004 Preliminary Results

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  1. George Wimpey Plc2004 Preliminary Results Tuesday 22 February 2005

  2. Disclaimer This presentation is being made only to and is directed at (a) persons who have professional experience in matters relating to investments falling within Article 19(1) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (the "Order") or (b) any other persons to whom it may otherwise lawfully be communicated, falling within Article 49(1)of the Order (all such persons being referred to as "relevant persons"). Any person who is not a relevant person should not act or rely on this presentation or any of its comments. The financial information set out in this document does not constitute the Company's statutory accounts. Statutory accounts for 2003, which received an auditors' report that was unqualified and did not contain any statement concerning accounting records or failure to obtain necessary information and explanations, have been filed with the Registrar of Companies. 2

  3. Welcome Peter Johnson Group Chief Executive

  4. Agenda • Introduction Peter Johnson • 2004 Financial Review Andrew Carr-Locke • UK Business Review Peter Redfern • US Business Review Stu Cline • Strategy and Outlook Peter Johnson 4

  5. Introduction Peter Johnson Group Chief Executive

  6. 2004 headlines • Profits exceed expectations despite weak H2 in UK • UK operating margins up from • George Wimpey 17.1% to 18.5% • Laing Homes 12.4% to 13.3% • Outstanding US performance • volumes up >20% • operating margin up from 11.9% to 14.6% • Full year dividend increased 31% to 16.0p 6

  7. 2004 Financial Review Andrew Carr-Locke Group Finance Director

  8. 2004 results 2004 2003 Change £m Turnover 3,006 2,879 + 4% Operating profit 501 430 + 16% Interest (50) (52) - 4% Profit before tax 451 378 + 19% Tax 31% 31% - EPS 80.8p 68.5p + 18% NAV per share 368p 305p + 21% DPS 16.0p 12.25p + 31% Dividend cover 5.1x 5.6x - 8

  9. Segmental analysis Turnover Operating profit Operating margin £m Change £m Change 2004 2003 George Wimpey 1,976 + 2% 366 + 11% 18.5% 17.1% Laing Homes 325 - 4% 43 + 3% 13.3% 12.4% Morrison Homes* 705 + 16% 103 + 42% 14.6% 11.9% Other - - (11) - TOTAL 3,006 + 4% 501 + 16% 9 *Exchange rate in 2004 $/£=1.83, 2003 $/£=1.64

  10. 2004 completions Completions Ave selling price No Change £ / $ Change GW private 10,345 - 9% £182,000 + 8% GW affordable 777 + 33% £85,000 + 14% Laing private 929 - 5% £320,000 + 2% Laing affordable 181 + 50% £110,000 + 1% UK total 12,232 - 5% US total 4,422 + 21% $289,000 + 7% GROUP TOTAL 16,654 + 1% 10

  11. Cash flow summary Yr to Dec 2004 Yr to Dec 2003 £m Operating profit 501 430 Land spend (935) (853) Land realisations 702 665 Other working capital movements (92) (11) CASH INFLOW FROM OPERATIONS 176 231 Interest (49) 43 Tax (91) (118) Dividends (34) (25) Other movements 6 (198)* REDUCTION / (INCREASE) IN NET DEBT 8 (154) *Includes £215m acquisition payment for Laing Homes 11

  12. Balance sheet – net assets Dec 2004 Dec 2003* £m Fixed assets 36 26 Land 1,941 1,729 Land creditors (282) (290) Other current assets 388 308 Tax and provisions (123) (76) TOTAL NET ASSETS 1,960 1,697 *restated for UTIF 38 12

  13. Balance sheet –financing Dec 2004 Dec 2003* Shareholders’ funds £m 1,439 1,168 Net debt £m 521 529 Capital employed £m 1,960 1,697 Gearing 36% 45% Interest cover 10.1x 8.3x ROACE 27.4% 28.5% * restated for UITF 38 13

  14. Impact of weakening dollar • Adverse effect on turnover £82m • Adverse effect on operating profit £11.9m • Adverse effect on PBT £10.2m 2004 2003 Change Morrison $ turnover $1,290m $998m + 29% Morrison $ op profit $188.0m $118.6m + 59% Ave exchange rate $/£ = 1.83 $/£ = 1.64 Morrison £ turnover £705m £608m + 16% Morrison £ op profit £102.7m £72.3m + 42% 14

  15. Treasury • Committed facilities from diversified sources • £302m US private placements • £945m bank syndicated and bilateral facilities • all bank facilities renegotiated on improved terms • Interest rate exposure cautiously managed • net debt at year end £521m of which £430m at fixed rates • hedge accounting not adopted for interest rate hedging instruments – focus on underlying economic risk • Joint ventures • joint ventures formed for two inner city developments to limit concentrated risk 15

  16. IFRS / IAS • 2004 to be restated prior to interim’s close period • Most significant area – pensions • FRS 17 no major changes • Other areas of consideration • dividends • land acquisition on deferred terms • LTIPs / share options • hedge accounting • goodwill 16

  17. 2004 financial summary • PBT ahead of expectations - up 19% to £451m • Continued strengthening of margins across all businesses • GW up 1.4pp to 18.5% • Laing up 0.9pp to 13.3% • Morrison up 2.7pp to 14.6% • Group ROCE: 27.4% • UK = 25.8% • US = 33.8% • Gearing reduced to 36% • Full year dividend increased by 31% to 16.0p • dividend cover now 5.1x 17

  18. UK Business Review Peter Redfern Chief Executive, George Wimpey UK

  19. Market 2004 • October / November very quiet • much of industry incentive led – eg part ex and shared equity • cancellations well above average • urgency to buy at low level • Different drivers impacting on market sectors • owner occupiers fear of interest increases and price falls • investors looking for bargain opportunities • December at more normal levels • Professional sales approach is key strength • customer service and customer options • sales and site presentation 19

  20. Market 2005 and outlook • Market so far in 2005 • visitor level higher than 2004 and 2003 • first time buyers starting to return – c.20% of sales • GW / Laing position • outlets currently up 12% on 2004 • sales rate below high Q1 2004 levels • Industry fundamentals still in place • continued supply shortfall – no improvement in planning • growth in number of households exceeds forecasts • rental values holding up well in most markets 20

  21. Sales activity to Week 7 - GW • Laing sales rate to Week 7 is 0.50 (2004 = 0.52) 2005 2004 2003 Outlets 284 253 274 Ave sales rate per outlet 0.76 0.88 0.79 Ave weekly visitors per outlet 12.3 11.9 12.4 21

  22. Financial summary George Wimpey Laing Homes 2004 2003 2004 2003 Total completions 11,122 11,813 1,110 1,096 Private completions 10,345 11,228 929 975 Private ASP £182,000 £168,000 £320,000 £315,000 Turnover £m 1,976 1,933 325 337 Operating profit £m 365.8 330.1 43.1 41.7 Operating margin 18.5% 17.1% 13.3% 12.4% 22

  23. UK housing – Five year review Turnover £m Operating profit £m Operating margin % Total completions PD ASP £ 2000 1,254 142.5 11.4% 11,437 113,000 2001 1,406 173.6 12.4% 11,537 122,600 2002 2,062 290.2 14.0% 13,720 152,600 2003 2,270 371.8 16.4% 12,909 179,700 2004 2,301 408.9 17.8% 12,232 193,400 23

  24. UK housing – product mix FY 2004 H1 2004 2003 2002 Flats 31% 29% 26% 25% 2 / 3 bed houses 32% 29% 32% 33% 4 / 5 bed houses 37% 42% 42% 43% 24

  25. Price points 85% of private completions below £250,000 66% of private completions below £200,000 3500 3000 GW 2500 Laing 2000 No of completions 1500 1000 500 0 0 - 50k 50 - 100k 100k - 150k 150k - 200k 200k - 250k 250k - 300k 300k - 500k 500k+ 25 Price band £

  26. Land • Strengthening position despite being very cautious during H2 2004 • Hurdle rates raised again in October Owned and controlled plots Long term acres 2004 2003 2004 2003 North 15,396 13,526 4,934 4,959 Midlands 12,716 12,047 5,529 5,682 South 15,297 14,483 7,108 7,980 City 2,658 3,531 - - Laing 5,052 5,021 - - TOTAL 51,119 48,608 17,571 18,621 26

  27. Operating margin on land acquired 20 18 16 14 12 10 8 6 4 2 0 2000 2001 2002 2003 2004 PBIT % 27

  28. Land quality • Land bought at an average plot cost of £46.8k (2003: £53.6k) • Nearly 15,000 plots received detailed planning • c.95% of 2005 GWUK volumes have full planning • Land bank is of a good quality: 2004 Landbank ASP £000s 185 184 Cost per plot £000s 44.3 45.6 Land value % ASP 23.9% 24.8% 28

  29. Margins and costs • Margins continued improving by 1.4% to 17.8% • Target is to make net cost movement negligible • subcontractor cost pressures are low • specific material price increase pressures • Since September, strong focus on • housetype and specification efficiencies • subcontract, material and waste savings • ...processes in place to save £20m of costs in 2005 • There are some inevitable underlying cost movements... • building regulation changes • increase in brownfield / contaminated sites • …but scale remains a key advantage 29

  30. Looking forward • From October, market peaked and there has been small correction • At present, better than expected but still delicate • Well placed to benefit from Government housing strategy • delivery of design and sustainability standards • innovation in construction • affordable housing / Social Housing Grant • To be successful in this market we have to get basics right • land acquisition and planning • construction costs • sales processes / options • customer satisfaction 30

  31. US Business Review Stu Cline Chairman, Morrison Homes

  32. US economy Key indicators 2004 2005 Forecast* • Forecasts particularly strong for Morrison markets • 25% of above job growth forecast for California, Florida and Texas • Buoyant consumer confidence GDP growth 4.4% 3.5% Job growth 2.2m 2.0 – 2.2m Prime rate 5.25% (yr end) 5.25 – 6.50% 30-yr fixed mortgage rate 5.75% (yr end) 5.75 – 6.75% *Source: NAHB 32

  33. US housing market • 2004 was another record year • 1.6m Single Family starts 1.2m New Home sales • National price inflation c.5-7% but up to 15% in some markets • Market continues to be supported by strong fundamentals • population growth • affordability • low unemployment • Strong visitor and sales rates • Forecasts for 2005 (from NAHB): • SF starts of c.1.55m NH sales of c.1.15m 33

  34. Financial summary 2004 2003 Change Legal completions 4,422 3,661 + 21% Ave selling price $289,000 $270,000 + 7% Turnover $1,290m $998m + 29% Operating profit $188.0m $118.6m + 59% Operating margin 14.6% 11.9% + 2.7pp 34

  35. Five-year review Turnover $m Operating profit $m Operating margin % Completions ASP $ 2000 615 53.0 8.6% 2,638 227,000 2001 693 66.4 9.6% 2,900 238,000 2002 806 80.7 10.0% 3,197 252,000 2003 998 118.6 11.9% 3,661 270,000 2004 1,290 188.0 14.6% 4,422 289,000 CAGR - +37% - - +6% 35

  36. Land 2004 2003 Plots owned / under option 18,892 15,304 Plots controlled 2,687 1,663 Total landbank 21,579 16,967 Land spend $m 282 203 36

  37. Going forward 2004 • Improving US economy and record year in housing • Good volume growth • Strong margin performance • Excellent operating profit growth • Repositioned product mix • Improving position in challenging markets 2005 • US economy and housing projected to remain strong • Land in place for further organic growth • Further benefits of scale • Excellent order book in terms of volumes, ASP and margins • After 7 weeks, visitors/sales rates, ASPs, margins all ahead 37

  38. Strategy and outlook Peter Johnson Group Chief Executive

  39. Market slower lower sales rates broadly stable prices Increased Govt regulation planning no better limited action on Barker increased costs influencing product mix Land market competitive Market to remain strong high sales rates price momentum Pro-development culture supports growth limited taxes and restrictions on product mix Land market competitive but good availability Business environment UK US 39

  40. Strategy: Group • Target volume growth in both UK and US • Pace and priorities driven by • business environment • ability to sustain returns > cost of capital • Focus on areas of competitive advantage • Maintain above average asset turns (to generate cash) • Provide shareholders with enhanced returns through dividend growth 40

  41. Strategy: UK • Plan is in place • enhanced regional structure • satellites include Scotland, East Midlands, Sussex • growth of Laing as second brand • new regions include East and Southwest England • use of both brands on larger sites • Cautious implementation: prioritising margin over growth • Limited exposure to inner city developments, social housing • Meanwhile, focus on additional outlets to support volume 41

  42. Strategy: US • Maximise growth where • land is available on right terms • underlying market and returns are sustainable • management team is strong • Build on scale and success in • Central Florida: Orlando, Tampa, Sarasota • Northern California: expansion of Central Valley • Phoenix • Land in place to sustain organic growth at historic rate 42

  43. Outlook: UKglass half empty…or half full? • After 7 weeks, it is too early to call 2005 market • Background is key: 2004 H2 was weak • But early signs for 2005 are encouraging • visitors • selling rates • use of incentives • Order book c.5% below 2004 at slightly lower margins • However, outlets open +12%, reducing margin pressure • 2005 will be H2 biased 43

  44. Outlook: USset for continued progress • 2004 an all-time record for single family home sales • 2005 forecast to be another strong year • Sales rate to week 7 above strong 2004 performance • Order book up c.30% at better margins • Land in place to support growth plans in 2005 and beyond 44

  45. Outlook: summaryUS exposure provides balance • UK has started 2005 at better end of our expectations • though it is still too early to make firm judgements • lower sales rate offset by additional outlets • margins will be under pressure if no price growth • therefore focus on £20m cost saving programme • US has started 2005 very strongly • sales rate ahead of strong 2004 • new outlets opening through the Spring • prices and margins continue to move forward 45

  46. Forthcoming events • AGM trading update 14 April • Morrison presentations and dinner 14 April • Impact of IFRS Quarter 2 • Pre-close trading update 5 July • Interim results 6 September 46

  47. Q&A

  48. George Wimpey Plc2004 Preliminary Results Appendix

  49. Accounting SSAP 24 - P&L expense £11m SSAP 24 - Balance sheet net asset £19m FRS 17 – P&L (of which £8m non cash expenses on interest line) £19m FRS 17 – Balance sheet net deficit £130m Cash – paid into scheme during 2004 Service cost £8m Deficit contribution £15m Total £23m Pensions – UK defined benefit scheme • Benefits • scheme closed to new members in 2002 • active employee benefits modified and more equitable cost sharing implemented • terms for early retirement from deferred status now addressed • Investment Strategy • 69% of fund invested in bonds and cash (2003: 70%) 2004 (While the net deficit is unchanged at £130m the benefit of addressing the early retirement from a deferred status has been balanced by the strengthening of the mortality assumptions used) 49 (in line with our plans disclosed in the 2003 results’ presentation)

  50. Group reservations Reservations Ave outlets Per outlet / per week 2004 2003 2004 2003 2004 2003 GW private 9,804 11,421 257 272 0.73 0.81 Laing private 836 995 38 37 0.42 0.52 GW affordable 1,073 559 - - - - Laing affordable 205 153 - - - - UK TOTAL 11,918 13,128 295 309 - - US TOTAL 4,822 3,811 100 102 0.93 0.72 GROUP TOTAL 16,740 16,939 395 411 - - 50

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