hmi conference 2004 the challenges facing the board peter johnson ceo george wimpey plc tuesday 7...
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HMI Conference 2004The challenges facing the Board
Peter Johnson
CEO George Wimpey Plc
Tuesday 7 September 2004
The role of the Board
Maintaining standards of Corporate Governance
Approving plans, budgets and major projects
Ensuring management:
is of an adequate calibre
is addressing current business priorities
has an effective strategy to create shareholder value
is listening to its shareholders
Current business priorities
Implementing Barker
Managing a changing market
Current business issues:Implementing “Barker”
Promoting the message
Promoting free market vs increased regulation
Communicating with Government on delivery
Fulfilling our part of the bargain
Preparing for growth
Customer service
50%
55%
60%
65%
70%
75%
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
GW
mo
nth
ly C
SM
sco
re
2003 2004
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
Current industry ave recommendation rate
Barker target 2007 recommendation rate
George Wimpey recommendation rate
2003 2004
GW weekly sales rates: 2002 vs. 2004
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2002 2004
GW weekly sales rates: 2002 - 2004
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2002 2003 2004
GW weekly sales rates: 1997 - 2004
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
1997 1998 1999 2000 2001 2002 2003 2004
George WimpeyASP on reservations
0
50
100
150
200
250
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
£0
00
s
North Division Midland Division South Division2003 2004
A comparison with the past
1990
Industry stocks were highPlanning was a lesser issue
Many companies were highly gearedLand purchase was poorly disciplined
Many companies had to
manage for cash
Interest rates were highUnemployment was high and risingMortgage service costs were highThere were many distress sellers
The effect on house prices was
largely out of our hands
2004
Industry stocks are lowLand with planning is scarceCompanies are well-financed
Land purchase is well-disciplined
Companies can manage for
their shareholders
Interest rates are lowUnemployment is low and stableMortgage service costs are low
Number of distress sellers will be low
The effect on our house prices
is mainly in our own hands
Strategies for shareholder value: The Berkeley example
Exit volume housebuilding: major players have scale benefits
Focus on urban regeneration: area of competitive advantage
Cautious in land market: demand bidding prices too high
Use balance sheet capacity to improve shareholder returns
Return surplus funds which cannot be used at adequate returns within
business to shareholders
Strategic priorities
Generate positive free cash flow
focus on areas of competitive advantage
avoid areas of competitive weakness
don’t overpay for land
Deploy surplus cash in the interests of shareholders
don’t over-invest in mature markets
don’t grow volumes for the sake of it
use the balance sheet in the shareholders’ interests
give shareholders immediate as well as future cash returns
George Wimpey Strategy
Secure margins through land disciplines and cost controlSustain benefits arising from absolute and relative scaleStructure in place for growth if land available on right terms
In UK, prioritise margin and cash over rapid volume growth
Maintain rapid growth rate of Morrison within existing markets
Deliver significant volume and profit growth from Morrison
Continue to reduce gearing levels to ~40%Sustain policy to increase dividends ahead of earnings growth
Reduce gearing and increase dividend payout
Conclusions
A key time for the industry: Boards face important challenges
Long term, Barker is key: we must deliver our side of the programme,
and help Government deliver theirs
Short term, the market is changing: we must adapt our volume targets
to reflect a tighter market
Our strategies must reflect the real world: we can only achieve
profitable growth if we have competitive advantages
Now is the time to demonstrate we justify higher share prices!