WIMPEY has emerged from a year spent picking itself off the floor with
perhaps a better idea of what it is trying to achieve than one or two of
its competitors in the contracting industry.
It certainly needs to do something because too many of its businesses
are just marginally profitable or dependant upon one-off circumstances
to make shareholders comfortable.
For the year to December 31, Wimpey reported a modest pre-tax profit
of #25.5m compared with a #112m loss incurred in 1992.
But only UK housebuilding can hold its head up high and even there,
Wimpey will have to work hard to move up to the profit levels being
achieved by smaller rivals such as Persimmon or Bryant.
There are no prizes for guessing that the Scottish operations were the
star performers with Wimpey building about 1600 units and with margins
in excess of 10%.
The current year should see an advance to about 1900 dwellings and
with even fatter returns from an operation that contributed about 20% of
the 8134 UK sales.
Overall housing margins rose from 3% to 6.5% and an operating profit
coincidentally identical to the group pre-tax result.
Chief executive Joe Dwyer reckons that by the end of this year as the
provisioned land is worked out, margins could hit 10%. That points to an
average of about 8% overall but with the prospect of an industry level
of 12% plus in 1995.
Overseas housing broke even overall with losses of perhaps #2m in
California where Wimpey intends packing up its bags to concentrate on
Florida and Georgia.
It is also looking to depart from Australia as well as France and
Spain because the returns do not justify the effort. Instead management
skills are to be used to much greater extent on expanding contracting
though a more financially oriented approach.
The present situation where the division turned over #659m last year
to generate a mere #2.2m operating profit and all of that earned abroad
is obviously not sustainable as a serious way of making money.
Instead, the push will be into projects that require skills and deep
pockets -- joint ventures on an equity basis with perhaps local
authorities, trust hospitals or major industrial companies.
Chairman Sir John Quinton was making all the right noises yesterday
about shareholder value and adequate levels of profitability.
Cost-cutting will contribute several millions, but the company does need
to rid itself of the remainder of its property portfolio. To call some
of the buildings albatrosses brings on slightly pained looks so let's
call them cuckoos in the nest that are eating up resources.
However, that is patently insufficient and so it is quite possible
that there could be a significant acquisition.
Certainly thanks to the #300m disposal programme so far and last
summer's #104m rights issue, Wimpey is quite well-heeled with
end-December debt of #28m or 5% gearing.
The City gave a somewhat churlish response yesterday to the optimism
about the US and UK economies and marked the shares down 8p to 210p.
The profits outlook is for about #50m this year which would leave the
shares trading at around 25 times likely earnings -- which is expensive
unless something decisive happens -- and the pressure is mounting. The
dividend total has been held at 5.25p for a 3.2% yield.
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