foundations of successkpmg.co.uk/email/03mar13/280837/foundations_of_success_acc-v2.pdfwelcome...
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FoundatiF d tions of Success
27 February 2013
Welcome
Richard ThrelfallRichard Threlfall UK Head Infrastructure, Building & Construction
+44 (0)113 231 3437 [email protected]
Margins
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2
Insolvencies
Impact of Insolvencies over the current recessionary period Time
House House building building
Insolvencieswith high Property development
levels of debtFacilities management
Insolvencies with high levels of fixed
Contractors with fixed costs Contractors with fixed costs Steelwork/modular
costs/own labour Sub-contractors with own labour (M&E)
Main contractors
Run on Northern Rock
Connaught and Rok Kinetics Robinson Steel/Barratt
Steel/Pocklington Steel Doyle, Kirby and
Gayford, MJN Coulston, Rotary, Airedale
250250 224 224 217 219
200
150 153 161 149
190 186 173 177 142
177 143
177 163 155 143 147 127
Num
ber
99 96 94 100
5050
0 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2007 2008 2009 2010 2011 2012
Receiverships Administrations CVAs
Source: Insolvency Service.
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3
30%
) (%
nge
hac ua
ln
nnA
20%
10%
0%
(10)%
(20)% (20)%
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
(30)% 19
8319
8419
8519
8619
8719
8819
8919
9019
9119
9219
9319
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
10
GDP Construction (excl. Public) Construction (incl. Public)
UK GDP and Construction Output 1970 – 2010
SourceSource:: KPMG analysis KPMG analysis
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4
% Quarterly growth
8 0% 8.0%
ConsensusGDP
fforecast
6.0%
4.0%4.0%
2.0%
-
Highest 2.0%
Median 1.1%
(2.0%) Lowest 0.3%
(4.0%)
(6.0%)
(8.0%) Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Q1 Q1 Q2 Q2 Q3Q3
2007 2008 2009 2010 2011 2012 2013
Construction output growth UK GDP growth
S ONS HM T
UK GDP and Construction Output 2007 – 2012
ONS, HM Treasury.Source:
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5
Foundations of Success
Cost
Cash Growth
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7© 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity.
Event overview
Cost
Cash Growth
1The power of technology to transform cities Pedro Miranda
2The Debt MarketsClive Gibbard
3Cost Transformation Jeremy Kay
4PricingRobert Browne
5ThThe HHousebbuildiilding OOutltlookk Dane Houlahan
Interactive Infrastructure
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8
Interactive Infrastructure
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9
The Debt Markets
Clive GibbardClive Gibbard Partner, Debt Advisory
+44 (0)20 7311 1671 clive gibbard@kpmg co [email protected]
Debt Markets Current market conditions
W. European loan volumes and number of deals
500 400 NNum
ber of transaactions
Vol
ume
(US
$bn) 400
300
200
100
300
200
100
0 01Q07 1Q08 1Q09 1Q10 1Q11 1Q12
Investment grade Investment grade LeveragedLeveraged Number of transactions Number of transactions Source: LPC
W. European investment grade bond issuance
250 180 160
Pro
ceeed
s (U
S$b
n) 200 140
Num
bber o
f dea
ls
120150 100
80100 6060 4050 20
0 0 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12
Investment grade Investment grade Number of deals Number of deals Source: Thomson Bonds
W. European loan average margins
500
a
1Q07 1Q08 1Q09 1Q10 1Q11 1Q12
400
Mar
gin
(bps
)
300
200
100
0
LeveragedLeveraged Investment Grade Investment Grade Source: LPC
Historic 10-year GBP Credit Spreads
500
200
300
400
0
100
Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13
BBB A
Spr
ead
(bps
)
BBB A Source: DataStream
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11
Debt Funding Challenges and Opportunities
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12
■ Macro Activity and Outlook ■ Regulatory Pressure on
Financial Institutions ■ Sector Reliance on the Bank
Market ■ Limited number and appetite of
lenders ■ Positive Working C apital ■
unwinding
■ Government action ti■ Resolution of Lender Legacy
Positions ■ Development of Alternative
Funding Markets ■ Financial Markets Stabilising?
Optimising lender perceptions
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13
Banks’ credit issues:
■ Activity and Pipeline ■ Profitability and Cashflow ■ Control and contingency ■ Transparency and disclosure ■ Security
Borrower opportunities:
■ Promote strong relationships ■ Demonstrate stability ■ Develop funding options ■ Demonstrate ‘self-help’ ■ Articulate credit story
Key Funding Strategy considerations
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14
Strongcapitalisation capitalisation
expected to be a positive
differentiator
can miti tDebt structuring
itigate credit pressures
Funding diversityFunding
has value
Evaluation of JV Evaluation of JV vehicles should
include all funding impacts
pl i fPreparation and
lanning of funding provides flexibility flexibility
Cost optimisation
Jeremy Jeremy KayKay Partner, The Strategy Group
+44 (0)20 7694 4540 [email protected]
Cost optimisation
1 It’s time to act
2 Finding it
3 3 Delivering Delivering it it
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It’s time to act 1
2012 Business Leaders survey
Changing business operation s to realise co st efficiencies
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43%
Improving cash and working capital management 32%
Exploiting growth opportuniti es through successful transactions 30%
Preparing your organisation f or major busines s mode changes 25%
Managing and retaining the rig ht peop le within the organisation 24%
Addressing risk throughout t he organisation 21%
Average operating margin
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2 Finding it – journey’s end?
PortfoP tf lilio – didispose//acquiire
Structural/Operating model Structural/Operating model
Effectiveness – less for less
Efficiency – same for less
Volume related
Discretionary
2 Finding it – do you know ...
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19
11 How many layers between the
iGroup CEO
i ti ? and ‘man on tools’
in your organisation?
Good is 6 - 8 max 6 8 max
Opportunity to: ■ simplify
organisation ■ widen spans of
control ■ speed decision
making
2 Finding it – do you know ...
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20
22 What is the average revenue per
Opp erations Director ? Good is £50m £50m +
Opportunity to: ■ standardise
regional modelsregional models ■ improving spans
of control ■ re tf h lfocus the role
on value adding activity
2 Finding it – do you know ...
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21
33 What is your cost to value
ratio in pp rocurement? Good is 1:13 1:13
Opportunity to: ■ execute real
category management
■ enforce compliancecompliance
■ leverage Group scale
2 Finding it – do you know ...
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22
44 What proportion of your transactional
h d iactivity is done
toutside
?of a
shared service centre ?
Good is <15% 15%
Opportunity to: ■ consolidate and
rationalise activity ■ move to lower
cost locations ■ creatte
standardisation of process
2 Finding it – do you know ...
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23
55 What is your average IT spp end pp er user?
Good is £1.8k £1.8k
Opportunity to: ■ outsource ■ rationalise
applications and licences
■ reduce service levels
3 Delivering it – ‘eye of an investor’
Transparency
Fi i l Financial, organisation and operational
Hardeconomics
raT d ff b fit iT de off benefits, riskkand implementation
complexity
Speed Treat like a Treat like a
deal – weeks not months
Sustainability
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24
Execution and making
it stick Engagement
Ownership, governance and communication
Comparators Internal sectorInternal, sectorand out of sector
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25
Cost optimisation – in conclusion
1 Act now – don’t just catch up
2 Find it – raise the ambition
3 Deliver it – not business as usual 3 Deliver it not business as usual
Introduction to Strategic Pricing
Robert Robert BrowneBrowne
Partner, The Strategy Group
+44(0)20 44(0)20 73173111 89628962
Summary of KPMG pricing research
“Paying the Price for Recession”
Pricing trends during the recession and implications for
future strategy
■ In response to currentt economiic condiditions:ti
– 54% of companies ‘reduced prices across the board’,, and
– 63% implemented discounting policies without understanding the impact on demand
■ 70% of senior managers believe their organisations do not have a clear pricing strategy
■ 50% of senior managers believe they are in a price war
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27
Why is pricing difficult? Buying capabilities are significantly more developed
Sellers / BD Vs. Buyers
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28
Pricing is primarily a tactical lever to win work and
achieve sales objectives £ Purchasing is a capability strategic capability to cut costs and drive profitability
Strategy Conflict between market share (use capacity) and profitability
Reduce costs from supply base over time
Process Many pricing decisions are ad hoc and reactive
T ender processes used consistently
People People No pricing roles Sales and BD people have little
pricing and negotiation training
Purchasing department Proven techniques and training
for price-based negotiation
Data Don’t know competitors’ pricing
strategg ies Systems collect market pricing
and price history
Measures Focus on revenue not profitability % price or cost reduction
KPMG’s strategic pricing framework
Key questions
Strategy
Value creation creation
Price and offer structure
■ How do you create value for customers compared to competitors? • What are your sources of advantage?
■ How does the value you create differ by type of work and by customer type? ■ How are prices (and offers) set?
PolicyPolicy
Price and discount policy
Process and governance
■ What is the price and discount policy? ■ How are pricing decisions managed including
during the contract term? • Are you negotiating based on value?
Implementation
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29
V l i ti d lli Value communication and selling
Pricing organisation and capability
■ Are you communicating and selling based value, not price?
on
■ What data, tools and skills are used in pricing decisions?
Pricing in the Construction sector Two rules…easy to understand, challenging to implement (1 of 2)
RULE NUMBER 1 RULE NUMBER 1
DO NOT CUT PRICES TO DO NOT CUT PRICES TO ACHIEVE REVENUE GOALS
■ Cuttingg pprices to achieve revenue ggoals is unlikelyy to drive enough extra business to break even on profitability (unless the market is growing quickly)
■ Offering “ad hoc” discounts or price cuts simply encouragges customers to seek them out
■ Empowering sales or bidding teams with additional “pricing flexibility” will accelerate price declines
■ Know your walk-away price / margin and stick to it – locking in low margin work will damage long-term profitability, particularly when the market improves
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30
Pricing in the Construction sector Two rules…easy to understand, challenging to implement (2 of 2)
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31
RULE NUMBER 2 RULE NUMBER 2
DEVELODEVELO P P TTARGETED ARGETED PRICING AND SALES
STRATEGIES
■ Design specific pricing actions to defend customers and / or types of work where you have an advantage
■ D evel op di scount policies with ri gidl y d efi ned parameters that empower the sales and BD team to sell incremental work
■ Monitor competitors’ pricing and respond strategically (e.g( g ., defend business we don’t want to lose)) ratherthan tactically to try to win every sale
■ Get alignment with sales and BD team…the best laid plans will have no effect if you cannot them on board
The Housebuilding Outlook
Dane Dane HoulahanHoulahan Corporate Finance
+44 (0)20 7311 8708 [email protected]
DRAFT
Housing market overview
■ The housing market continues to out perform relative to many other sectors and broader B&C sector
■ However this is not necessarily across the board….
1. Housing continues to outperform apartments
22. Cl d i N th / S th di idClear an i d increasing Nor th / Sou th divide
3. London market remains strong fuelled by overseas investors – is it a bubble?
■ ■ Mortgage availability is the key constraint in the first and second time buyer market
■ Financing for the sector is also an issue
■■ initiatives are needed Government committed to increase housing supply making some impact but more is
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33
DRAFT
Consensus house price forecasts
Historic and forecast UK house prices
25.0
20.0
15.0
10.0
5.0
0.0
-5.0
-10.0
-15.0
11.5% forecast UK house price growth to 2017
1995 1996 1997 1998 1999 1998 2000 2001 2002 2003 2004 2003 2005 2006 2007 2008 2009 2010 2011 2012 2011 2013 2014 2015 2016 2017
0.5% 1.5% 2.0% 3.5% 3.5% 1995 1996 1997 1999 2000 2001 2002 2004 2005 2006 2007 2008 2009 2010 2012 2013 2014 2015 2016 2017
Halifax Savills Jones Lang LaSalle Midpoint
% c
hang
e
Moderate short term growth with improving outlook over the medium term
Source: Halifax, Savills, Jones Lang LaSalle
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Majority of growth driven by London and the South East
Forecast UK house prices by region
Region 2013 2014 2015 2016 5yrs to end 2017 5yrs to end 2017
UK 0.5% London 1 5% London 1.5% South East 1.5% South West 1.0% East 1 0% East 1.0% East Midlands 0.5% West Midlands 0.0% North East -0.5% North East 0.5% North West 0.0% Yorkshire & Humber 0.0% Wales 0.5% Scotland 0.0%
1.5% 4 0% 4.0% 3.5% 2.5% 3 0% 3.0% 2.0% 0.5%
-0.5% 0.5% 0.0%
-0.5% 1.5% 0.0%
2.0% 4 5% 4.5% 4.0% 3.0% 3 5% 3.5% 2.5% 1.0% 0.0% 0.0% 0.5% 0.5% 2.0% 0.5%
3.5% 5 0% 5.0% 4.5% 4.0% 4 5% 4.5% 4.0% 3.0% 2.5%2.5% 2.5% 2.5% 3.5% 2.5%
3.5% 11.5% 4 5% 21 0% 4.5% 21.0% 4.5% 19.5% 4.0% 15.5% 4 0% 17 0% 4.0% 17.0% 3.5% 13.0% 3.0% 7.5% 3.0% 4.5% 3.0% 4.5% 3.0% 6.0% 3.0% 5.5% 3.5% 11.5% 3.0% 6.0%
© 2013 KPMG LLP, a UK limited liabili ty partnership, i s a subsidiar y of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidentia l and its circulation and use are restricted. KPMG and the KPMG log o are registered trademarks of KPMG International Cooperative, a Swiss entity.
35
Regional market outlook is driving strategies Regional for many of the nationals market outlook is driving strategies for many of the nationals
DRAFT
Performance of the listed house builders
60.00%
80.00%
100.00%
0.00%
20.00%
40.00%
‐40.00%
‐20.00%
Listed housebuilder index FTSE 100 FTSE All Share Index
June 2011 EV:Gross Asset Multiple: 1.0x Average EBIT margin: 8.9%
EV:P/E Multiple: 26.1x
January 202EV:Gross Asset Multiple: 1.0x Average EBIT margin: 11.8%
EV:P/E Multiple: 24.5x
100.00%
120.00% January 2013EV:Gross Asset Multiple: 1.35x Average EBIT margin: 12.1%
EVEV :P/E P/E MM ultilti pll e: 15.815 8 x
Note: The listed housebuilder i ndex is comprised of Barratt, Bellway, Berkeley, Bovis, Persimmon, Redrow and Taylor Wi mpey Source: Captial IQ
■ Strong relative performance to the market
■ Improving margins and KPIs – benefits of land write-down's flowing through
■ A number now focusing on thei r mei dium an d longer term landbanb k s
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36
DRAFT
Increased corporate activity
The various market drivers have led to an increased level of corporate activity over the past 12 months
Persimmon’s acquisition of
Hillreed in October 2012
Rumours and subsequent attempted
take private around Redrow in 2011/2
GSO’s £160m equity investment in
Miller Miller in in March March 2012 2012
Crest Nicholson’s flotation in February
20132013
Oaktree’s acquisition of CountrysideProperties in
February 2013
And we expect to see further mid-market deals over the next 18 months… 1. Pent up deals 2. Banks looking to sell “inherited” assets
3. Nationals looking to grow land banks 4. PE interest in the sector
© 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity.
37
DRAFT
Finance constrained environment
Finance remains a key constraint particularly for SMEs…
■ Many of the larger players have been able to refinance
■ But many SMEs are capital constrained through:
– Reserves being eroded through the down-turn
– Lower LTV lending ratios from banks and/or a lack of appetite to lend
■ '2 speed' market developing between the 'haves and have nots'
Accentuating issues around how the sector can increase volumes in the short to medium term
© 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity.
38
DRAFT
Conclusions
© 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity.
39
Underlying demand / supply imbalance will supply imbalance will
remain
■ Will continue to vary by product and geography ■ North/South divide likely to continue to grow ■ Positive but cautious given linkage to the broader economy
Government policy willGovernment policy will remain important
■ 'Getting Britain Building' remains high on Government’ s agenda ■ New build seen as a key driver for recovery in construction and
the wider economy
Mortgage availability ■ Mortgages are the key constraining factor on the demand side ■ FirstBuy and NewBuy has made other some difference but needs
to be maintained
Finance availability for the sector
■ Financing for SMEs will continue to constrain new build volumes ■ Potential opportunities for new capital providers and market
entrants ■ Likely continued corporate activity
The housebuildingg sector can helpp lead the construction industryy back to continued ggrowth
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