By Tim Barwell March 2 (Bloomberg) — Steve Morgan , who took the job of chairman at Redrow Plc for the second time almost 12 months ago, said the U.K. homebuilder’s biggest mistake during his nine-year absence was shifting to the low end of the market. Morgan, a 57-year-old native of Liverpool, created the company in 1974 and said he was dismayed to see its houses and apartments “dumbed down” to appeal to lower income buyers after he left in 2000. The decision to return was prompted by an 18-month spell during which the shares plunged 85 percent, shrinking the value of his 6.5 percent stake. “It’s in my blood,” Morgan said in an interview in London. “It was still my baby, the business I started from scratch.” The decision by Redrow’s management to build more apartments and fewer more-expensive houses sacrificed profit, Morgan said. Redrow’s average price of 137,400 pounds ($206,000) was the lowest in the industry last year and compares with the average of 179,639 pounds for the seven publicly traded U.K. homebuilders, according to Citigroup Inc. Apartments rose as a proportion of total construction during Britain’s decade-long property boom, as developers tapped demand from buyers who planned to rent out the properties. Detached houses fell to 12 percent of homes built in 2008 from 44 percent in 1997, according to the latest annual data from the National House-Building Council . The pendulum is now swinging back, with companies including Redrow and Taylor Wimpey Plc, the U.K.’s second-biggest homebuilder by volume, reducing the proportion of apartments in their construction plans. Slashing Products Morgan is now Redrow’s largest shareholder with a stake of almost 16 percent in his name, according to data compiled by Bloomberg. Since rejoining the company, he has slashed the number of products by more than half to 32 and introduced a range of costlier houses he expects will account for 80 percent of sales in 2012. Last year, about half of Redrow’s revenue came from apartments. “It’s returning Redrow to what they did very well in the 1980s and 1990s,” said Rachael Waring , a Liverpool-based analyst at Panmure Gordon & Co with a “hold” rating on the stock. “However, it will take some time to work.” Redrow, based in St. David’s Park in northern Wales, has climbed about 31 percent since the company announced Morgan’s intention to return a year ago, even though the company hasn’t made a profit since the property market peaked in 2007. That exceeds the 23 percent gain in the Bloomberg EMEA Homebuilders Index . Redrow now has a market value of 415 million pounds. ‘How Many Units?’ “The second I had gone they started to dumb down the product,” Morgan said of the previous management. “They got rid of the attention to detail that the product used to have and they made it cheaper. When I came back in, the psyche of the business was: ‘How many units, how many units?’” Morgan has an estimated net worth of about 350 million pounds according to the 2009 Sunday Times Rich List . He also owns the English Premier League soccer team Wolverhampton Wanderers. At the age of 21, Morgan set up Redrow as a civil engineering business with a 5,000-pound loan from his father. He went into homebuilding five years later and remained at the helm until October 2000. Redrow had net income of 50.4 million pounds on sales of 405.7 million pounds in fiscal 2000, the last year of results before Morgan left. It reported a loss of about 100 million pounds last year, in what Morgan called the “worst set of trading results” in the company’s history. Morgan Comes Back Morgan told Redrow last March that he wanted to rejoin management after increasing his stake to 29.9 percent, just short of a 30 percent holding that would trigger a mandatory offer for the remaining shares. He built up the holding by buying shares from the London-based hedge fund Toscafund Asset Management LLP through his investment vehicles. Only one board member appointed before Morgan’s return remains at the company following the departure of former Finance Director David Arnold this year. Paul Pedley , who was chief executive officer of Redrow for five years after Morgan left before becoming deputy chairman, declined a request for an interview. Most U.K. homebuilders reported losses last year after banks cut back on mortgage lending and many have sold shares to raise money. Prices of detached houses fell 16 percent from the peak of the market in October 2007 through last March, to an average of 211,595 pounds, according to Nationwide Building Society. Apartments dropped 22 percent to 109,708 pounds. Recovery May Stall Home prices overall have rebounded 9.2 percent in the past year, Nationwide data show. Even so, mortgage approvals dropped in January by more than economists forecast to an eight-month low, adding to evidence that the housing-market recovery may be losing momentum, the Bank of England said yesterday. The number of Britons renting their homes will increase for at least the next decade as limited financing options shut out first-time buyers, according to Savills Plc. That means Morgan may be facing a dwindling pool of buyers for his houses. Redrow’s first line of single-family homes introduced since Morgan’s return, called the New Heritage Collection, is influenced by the Arts and Crafts design movement of the early 1900s, he said. Features include kitchens with floor-to-ceiling units and timber or tiled canopies over doors and windows. ‘Win Me Over’ “This idea needs to win me over,” Robin Hardy , an analyst at KBC Peel Hunt in London, said of Redrow’s New Heritage range. Hardy has a “sell” rating on the stock. “It’s dressing a different exterior on a house without changing the interior.” The new houses may not be as profitable as Morgan thinks, according to Hardy. Redrow may struggle to pass on all of the costs of higher-end fittings such as central kitchen islands and extra plumbing needed for bigger houses, and should be concentrating on slashing building costs to fatten its margins, the analyst said. Prices for a typical three-bedroom home in the New Heritage collection range from 160,000 pounds to 190,000 pounds. Panmure’s Waring estimates that Redrow’s average selling price will swell to 173,000 pounds by 2012. Morgan said he is banking on a revival in Britons’ preference for single-family houses to help make Redrow profitable again. His instincts have served him well in the past. Sensing that the market was overheating, he sold all of Redrow’s sites in southeast England in 1988 before prices fell. He then re- entered the region in 1993 at the bottom of the market with the acquisition of Costain Plc’s house building division. “One of the benefits of having a few gray hairs is that I’ve been round the block before,” Morgan said. “Now it feels like I’ve never been away, particularly now we’re getting the product that’s right for the business back in again.” To contact the reporter on this story: Tim Barwell in London on tbarwell@bloomberg.net
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Redrow’s Morgan Aims to Revive His Company With Shift to Higher-End Homes
