Wimpey seeks alliance

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The Independent Online
George Wimpey, the construction group, hinted strongly yesterday that it sees a strategic contracting partnership with a rival as the way to earn decent returns from the ravaged British building industry.

Joe Dwyer, chief executive, believed leading players would seriously consider further capacity cutbacks in 1995 and that, although Wimpey was not talking to anybody, "if opportunities arise I see no reason why I should turn my face away". He refused to rule out some form of strategic alliance.

Many building industry experts believe UK consolidation is inevitable, pointing out that leading French and German rivals are at least three times the size of British opposite numbers.

The fragility of construction profit margins is stark. Wimpey's construction arm made operating profits in 1994 of just £3.4m (£10.3m) on sales of £684.4m, despite the announcement that overall taxable profits jumped 77 per cent to £45m (£25.5m).

Eight per cent of its 3,000-strong UK construction workforce were made redundant, and the company is not ruling out further bloodletting this year.

Mr Dwyer said too many competing construction companies were depressing margins. The way forward, he added, was to become less reliant on conventional contracting and more involved with private finance initiatives.

Wimpey, whose borrowings-to-shareholders' funds ratio of just 7 per cent gives it one of the sector's strongest balance sheets, is better-placed than most to do this. Its 22 per cent return on assets employed echoes the halcyon days of 1989.

Capital spending of £81m in 1994 was up 60 per cent on the previous 12 months.

Strong performances from Wimpey's homes and minerals businesses propelled the 1994 performance. Profits from homebuilding rose from £25.4m to £43m despite the flat housing market, with worldwide completions up 19 per cent at 11,189. British completions were up 16 per cent to 8,078, with sales slightly down on the previous year at 7672.

The "feel-good factor" remained absent, said Sir John Quinton, chairman. Enthusiasm had been dampened by the two recent interest rate hikes, and the phenomenon of negative equity would drag on the market for some time.

The minerals division performed robustly. Profits rose from £13m to £15.4m despite bad weather holding back the American business early in 1994.

Worldwide sales of drystone jumped nearly 8 per cent to 27.9 million tonnes, while coated stone sales rose 17 per cent to 5.3m tonnes.

A final dividend of 3.50p makes a total of 5.50p (5.25p). Wimpey's results met City expectations and the shares drifted off 2p to 118p. David Taylor, construction analyst at UBS, the broker, forecasts profits this year of £60m, and £70m in 1996.