gaining the benefits of scale peter johnson george wimpey plc 19 april 2001
TRANSCRIPT
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