Statement of Prospects
achieving sector leading growth
I am delighted with the progress GeorgeWimpey made during 2006. As a result of the strong advances made by our UK business, total Group completions for the year reached 17,963, the highest level the Group has achieved for 25 years. In addition our total Group short term landbank has risen to 76,736 plots (2005: 74,499 plots) as the UK landbank increased by 14%; the strongest year end position we have had during that period, not just in scale but also in its underlying value.
We started 2006 with a strong forward order book position and throughout the year we have continued to build on this by focusing on the actions that will secure the long term success of our business. I have been greatly encouraged by the progress made by our UK businesses this year. The action plans put in place at the end of 2005 have delivered improvements as planned. The structured focus on costs and improved land buying are already benefiting the financial performance of the business with margins showing strong growth in the second half.
In the US, as market conditions weakened we temporarily stood back from our strategy of growth. The action taken to build our forward order position at the end of 2005 was key in ensuring our businesses delivered a strong performance in the first half. Morrison Homes has taken action to ensure it is well positioned to deal with the current market whilst retaining its ability to return to growth as conditions stabilise. We still believe in the long term fundamentals of the US housing market and are confident that our businesses are positioned in markets with strong long term demographic trends.
Group results have benefited from the steady improvements made in the UK business, total revenues for the Group have risen by 5% to £3,147.4 million (2005: £3,003.2 million). As market conditions weakened in the US, we reviewed our land values and have recorded a one-off exceptional charge of £60.7 million pre-tax or £38.0 million post-tax on the write-down of our US land inventory and options. Pre-exceptional Group profit before tax rose by 1% to £370.9 million, with post-exceptional profit before tax of £310.2 million (2005: £366.5 million).
Creating value for our shareholders
The Board of GeorgeWimpey Plc is committed to ensuring we create long term value for our shareholders. We have a clear strategy in place to ensure that our businesses are strong and well positioned for the long term. Our confidence in the ongoing earnings growth of the Group has been reflected in the strong increase in dividends since 2003. During this period the percentage of profits returned to shareholders has almost doubled, rising from 18% in 2002 to 35% in 2006. Going forward the Board is committed to a progressive dividend policy and intends to grow dividends in line with earnings over the medium term whilst maintaining prudent levels of profit and cash cover.
We are proposing a 10% increase in the final dividend to 13.1 pence per share which if approved at our Annual General Meeting would bring the total dividend to 19.4 pence per share. This follows a 10.5% increase in our interim dividend and represents a rise of 10% on 2005.
I have welcomed the many changes that have been made in recent years to raise the profile of governance on the corporate agenda. As a Board we remain committed to ensuring that we achieve the highest standards of corporate governance and take our duty to behave as a responsible company very seriously. During the year we were pleased to adopt and implement early the 2006 Combined Code on Corporate Governance. A full report on our corporate governance activities is set out on pages 41 to 43 of the 2006 Annual Report and Accounts.
In February last year we announced that Peter Johnson would stand down as Chief Executive of George Wimpey at the end of June and that he would be succeeded by Peter Redfern, formerly Chief Executive of our UK business. I am pleased to report that the transition has been seamless and the Board has been delighted by the strategy Peter has implemented to ensure the long term success of our business.
In November we welcomed Ian Sutcliffe to the Board. Ian joined GeorgeWimpey UK in February as Managing Director and has proved to be an able successor to Peter Redfern. Ian joined us from Shell and the wealth of experience that he brought with him in cost management, marketing and procurement is already bearing fruit within our business.
Our business succeeds because of the dedication of our employees. It is their determination and hard work that creates value for you, our shareholders. Once again, on behalf of the Board, I am proud to be able to offer my sincerest thanks to our employees in both the UK and US, for all they have done this year to contribute to the on going success of GeorgeWimpey Plc.
In the UK the housing market has remained healthy during early 2007.We are confident that the business plans established across our UK business will continue to deliver benefits throughout the year. With a strong land position, an established cost reduction programme and a strong order book position we are confident that based on current market conditions, operating margins in the UK will exceed 14% in 2007.
In the US there have been signs that market conditions have stabilised in the first few weeks of 2007 with cancellation rates reducing dramatically and sales rates increasing. Given our low order book we expect volumes and margins in 2007 to be significantly below 2006. However if current trends continue, the market will improve during the year leading to a strong 2008. Our deliberately cautious approach to land acquisition and valuation, the firm actions we have taken to address costs and overheads along with our position in markets with strong long term demographic trends give us confidence that Morrison Homes is well placed to return to growth as conditions improve.
John Robinson, Chairman