‘Corporate governance has changed the way we communicate with our
shareholders,’ says Peter Johnson, the finance director of Taylor Woodrow, as he
flicks through a heavy-looking copy of the group’s accounts.
Johnson has been the FD of the £2.5bn company, which serves the top end of
the house building market in the UK, along with selected markets in the United
States and Spain, since 2002. He has grappled with his share of regulation since
he moved into business after
qualifying as a chartered accountant at Robson Rhodes, but nothing like the
recent wave of directives, standards and codes.
‘Here we go,’ he continues, taking a deep breath. ‘We have got the corporate
social responsibility report, the report of the directors and the corporate
governance statement goes on for one, two, three, four, five pages. The
director’s remuneration report goes from one to 11 pages.’
He drops the annual report on the desk with a thud, another FD frustrated and
tied down by the relentless splurge of regulation that companies have had to
cope with over the last 12 months.
Johnson’s frustration, however, should not be confused as disregard for good
governance. Having worked for Hendersons and Norwich Union, Johnson knows all
too well the importance of communicating with shareholders and managing risk.
It’s what he views as the excessive, unnecessary governance burden that he
takes issue with.’In my view, if businesses are to be successful, they need an
industrial strength set of business processes that manages risks appropriately,’
Johnson says. ‘To that end everything around business process, risk management
and risk control is a wholly positive thing. You shouldn’t need governance
statements to tell you that. The rest of it really doesn’t interest me and I am
not sure how much value it adds.’
But as testing as IFRS and the combined code may have been, they don’t even
come close to the commercial challenges that Johnson and his fellow board
members have had to manage.
In 2005 the FTSE 250 group delivered a 2% increase to pre-tax profits on the
previous year to £411m, on revenues up 4.9% to £3.4bn. The figures, although
solid, were far from spectacular as the group battled in a subdued UK housing
market, where it does most of its business. UK housing revenues for 2005 were
£1.6bn, down on the £1.9bn reported in the previous year.
Johnson says that from 1996 up to 2004, the UK market had been on a ‘really
good run’ thanks to a successive regime of low interest rates. Confidence was
good and house prices where climbing until the spring of 2004 when Bank of
England governor Mervyn King cautioned that it might not be the best time to buy
Cause and effect
‘After that happened the market shuddered to a halt. Interest rates were
still at a reasonably good level, based on the ability to meet monthly mortgage
payments, but confidence disappeared,’ Johnson explains.
‘We were still building and selling houses, but the market had slowed right
down – 2005 was better, but overall the market has been weaker than the previous
As difficult as the UK market has been, Johnson says Taylor Woodrow is not
about to feel sorry for itself. The group has established businesses in the
United States and Spain, as it looks to create new options beyond the UK.
A glance at the operating profits and land bank in the US, the UK and Spain
suggests that the group is planning to diversify out of its traditional UK
market. Of its 2005 operating profit, Taylor Woodrow took £233.4m out of the UK
and £199.5m from the United States. But looking at the group’s land bank, it has
more plots on the other side of the Atlantic (37,910) than it does in the UK
Johnson says the move into the US is part of a three to five year plan to
reduce Taylor Woodrow’s dependence on the UK. ‘We are always looking up to three
to five years ahead, where we can best put our capital. And unlike some of our
UK peer group we have got other choices. We don’t have to continue to grow the
UK market if there are better returns to be made elsewhere,’ Johnson says.
‘The US is the single largest part of our growth plans – but our business in
Spain is interesting and is the one that proportionally we are probably going to
invest the most in over the next three years. We are really looking to double or
even triple our business in Spain over the next five years. We have got more
than enough scope for growth in the markets outside the UK,’ he adds.
A key part of this growth abroad is remaining flexible so that Taylor Woodrow
is always in a position to choose where it invests. An example of this strategy
is the way Taylor Woodrow has moved into the US. Unlike the UK, where it is a
national house builder, the company has limited its expansion to Florida, Texas,
Arizona and California. By staying focused the group can target the most
lucrative markets. ‘In the UK we are a national house builder but in the US we
are not. Going into a new market has its own risks but it has turned out to be a
very buoyant market,’ Johnson says.
Adapting to new markets and managing change is something that Johnson thrives
on and has enjoyed since he was appointed as a director at Taylor Woodrow in
‘In my career there has always been an element of the unpredictable,’ he
says. ‘A business is a living organism. It’s full of people and people are
always imperfect and so it’s trying to make that work that I find fascinating.’
And working in finance is where Johnson believes he has had the best
opportunities to explore and manage these dynamics. ‘Finance in particular is
always enjoyable because there is never anything in a business that doesn’t
involve money so nobody can turn around and say that I shouldn’t be concerning
myself with something,’ he says.
‘You really can, and should, point your nose across everything. It is one of
the most broad ranging disciplines you can work in,’ he adds. Looking at the
year ahead for Taylor Woodrow, and given his appetite for change and new
challenges, Peter Johnson looks set for a very rewarding 12 months.
Managing the hype
Analysts, investment bankers and financial journalists are suckers for an
exciting acquisition story, which has made the house building sector one of the
most compelling to follow recently.
House builders Taylor Woodrow, Barratt Developments and George Wimpey are on
the brink of breaking into the FTSE 100.
One deal between any of these companies would skyrocket the merged group into
the top index.
Recently all it took to drive a wave of takeover speculation was for recently
appointed Barratt Developments FD Mark Pain to say that he wanted to take
his new company into the FTSE 100.
Taylor Woodrow FD Peter Johnson has grown used to the incessant speculation.
He acknowledges that consolidation in the sector is likely eventually, but adds
that for the time being his company has no intention of doing a large deal.
‘I suppose that in the long term there will be some more consolidation, but
it is not at the top of our agenda. Our strategy is pretty clear and we are
sticking to that strategy.’
Johnson is far more interested in discussing the concrete plans Taylor
Woodrow has in place for the future. ‘Our agenda is driven by making sure we get
our asset allocations right between the UK and the United States, and secondly
making sure that the UK business improves performance,’ Johnson says.
‘This is a business that has gone through a lot of change over the last five
years so we need a period of stability to get the business running as we would
like it be
run,’ he adds.
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