The Willmott Dixon Group have been dependent on a vast majority of public work which has seen the company grow over the past few years in the challenging times the industry is going through. The strategy the group have adapted for the past few years was to focus more on public sector work as it was more of guarantee rather than private sector. This has worked for the group as they have grown dramatically in size and turnover has increased over the years which will help the group achieve a turnover of 1 billion by the end of 2010.
Willmott Dixon Construction with the highest turnover 07.9 million. Analysis of the current Sectors Willmott Dixon in public sector terms, the education, health and prison sector markets have held up very well to date for the company, helping to establish a good order book for the business through to the end of 2010. However longer term prospects are more doubtful, with significant government spending cuts which must inevitably impact upon capital works being widely predicted.
Despite significant pent up demand for social housing, new development programmes have been scarce over the past year, with bank debt very difficult to secure and cross subsidy from housing for sale having completely evaporated. Nevertheless, Willmott Dixon expect social housing to remain one of the more robust markets in the medium and longer term, the group have continued to commit significant resource into designing and pricing schemes ready for when conditions improve. These investments now are beginning to bear fruit, with several major schemes expected to be secured before the end of the year.
Willmott Dixon interiors business has reinvented itself over the past eighteen months, broadening its activity well beyond the commercial office fit-out market that once formed the core of its operations. Now, most of its work comes through major food retailers and budget hotel operators, whose business models and capital programmes seem to be particularly robust during these difficult times.
Housing for sale remains a difficult sector, but one to which the group has reducing short term exposure. Sales on the Harmony development in West London which is the only scheme under construction Willmott Dixon has is reasonably well ahead of target.Moreover, the social housing maintenance business operates in one of the most robust sectors, and with contracts usually placed over several years, offers excellent workload visibility. Its market has become more competitive, but with improved commercial controls and significant recent investment in process reengineering, the efficiency improvements have at least kept pace. Willmott Dixon therefore sees the capacity for growth in this sector over the medium to longer term.
Furthermore, Willmott Dixon have had a very good first half of 2009 as they have been highly reliant upon high levels of public investments in recent years, particular in education, health and prison sectors. Over the enst few years the Willmott Dixon Group would need to quickly adapt to deal with the inevitable change over the next few years. Balance Sheet The group has increased heir shares to bring them trading advantages in these declining market conditions. The Willmott Dixon group have substantially increased equity shareholders funds to ï¿½130 million (2008: ï¿½31 million), predominantly through the issue of additional share capital. This is very important as this will help the capital structure to support the turnover growth to beyond ï¿½1 billion. (Refer appendix 7)
Business Plan & Strategy for increasing the Business & the Financial Implications Willmott Dixon requires a business strategy in order to develop over the next 5 years. An Ansoff Matrix was used to aid in directing the company in looking at the number of options available. The best option for the Willmott Dixon is the market penetration strategy (appendix 6). The reason for choosing this option is that they have a current product which is in the market, which needs increasing.
After analysing different sectors and using appropriate analysis techniques it is clear that different business strategies are needed for Willmott Dixon for future years. The following strategies have been suggested: Strategy 1 A lucrative opportunity for Willmott Dixon could be to invest money into the social housing sector. As the market is robust at the moment there is an increased likelihood for growth in this sector. Due to the population increasing in the country rapidly and not enough houses available there is a great demand for increase in social housing.
“A new report by the Local Government Association published warns that the impact of a slowdown in the economy combined with the credit crunch could lead to two million households, or 5 million people, on the waiting list for social housing in less than two years”. (Local Government Association, 2010) This supportive evidence further highlights that the social housing sector will experience growth in the coming years.
By analysing the SWOT analysis (Refer to Appendix 2) it is evident that the government have plans on increasing social housing. Financial Implications for Strategy 1 The financial implications of strategy 1 are not significant as Willmott Dixon already operate in the social housing sector. For this reason initial capital cost is minimal. The company also has a client base in the social housing sector so the transition to increase the workforce during development will be easier.
The company may want to employ another business development manager who can manage a framework of structuring the sector to win work in the social housing market. The reason for this is that the company would need to be prepared when the market growth increases and be able to offer something additional over the competition. The company would also be required to become familiar with local councils and private investors to increase working relationships.
Strategy 2 Willmott Dixon Group needs to focus on the private sector in the coming years. The public sector work will decrease due to public spending cuts made by the government. The company strongly need to focus on the Private Financial Imitative (PFI) work. Willmott Dixon need to penetrate this sector as the scope and level of work is at a greater level. Some contractors are moving away from this sector due to the risk implications and cost. As Willmott Dixon have progressed well in the last few years in the public sector work and have made them large sums of profit.
According to the “PFI market – UK 2010-2014 report from AMA Research, high costs and the associated risks are also leading to “an increasing number of contractors to limit their exposure to PFI.” However, the report states that long-term FM contracts associated with the majority of schemes “will continue to support a significant and growing level of repayments to participating contractors over much of the next decade.” (AMA research 2010-2014)
Financial Implications Strategy 2 The financial implications of strategy 2 are principally financial; high initial capital is needed to invest in this sector and due to the demand return is also likely to be proportionately high. The way this can be done is by Willmott Dixon investing their profit into this sector to increase the business and turnover. The company has got money in the bank which can be used to fund PFI work which would bring good return for up to 25 years and will also gain in an asset as they will own the building they invest in after time. Another financial implication would be a business development manager would need to be employed to gear the company in the right direction and provide exposure.