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Redrow Group Plc.

Redrow Group Plc.

Redrew House
St. Davids Park
Flintshire CH5 3PW
United Kingdom
Telephone: (44) 1244 520 044
Fax: (44) 1244 520 720
Web site:http://www.redrow.co.uk

Public Company
Incorporated: 1974
Employees: 1091
Sales: £341.6 million ($512.4 million) (1999)
Stock Exchanges: London
Ticker Symbol: RDW
NAIC: 23321 Single Family Housing Construction; 23311 Land Subdivision and Development; 23332 Commercial and Institutional Building Construction

Flintshire-based Redrow Group plc is one of the United Kingdoms largest home builders and developers. In fiscal 1999, the company completed more than 3,100 homes, for an average selling price of more than £106,000. Many of Redrows homes, which hit chiefly the suburban middle-to-upper income brackets, sell at prices ranging up to £400,000 or more. Redrows operations are structured into three primary divisions: Homes, Land, and Commercial. Redrows home real estate sales are grouped under two main subsidiaries: the mid- to high-end Redrow Homes, and its Heritage brand, which, with more than 2,500 completions per year, at an average selling price of £112,900, comprises the bulk of the companys home sales; and Harwood Homes, lower-priced homes, townhomes, and apartment structures targeted primarily at the first-home-buying urban market, with average selling prices of less than £64,000. Despite its smaller size, Harwood Homes represents the companys fastest growing sales division; in the late 1990s, the company has been rolling out the Harwood brand across England and into Scotland. The companys Land division holds an essential position in the companys future growth. Redrows land bank of more than 12,000 development lots gives the company an approximately

four-year supply of buildable land, providing a buffer against sudden rises in land prices. Redrows policy of purchasing forward land and guiding those purchases through a government-led approval process, rather than buying land at market prices, has enabled the company to keep land costs low, at less than 18 percent of housing sales prices. In 1999, Redrow held more than 27,000 plots of forward land. Redrows third division, Commercial, builds and sells commercial properties, including office buildings, executive parks, restaurants, and retail centers. Redrow Commercial represents only four percent of the companys sales; however, in January 1999 the company paid £34 million for a proposed mixed home and commercial site, expected to boost the Commercial divisions share in the companys total revenues. Redrow continues to be guided by founder and chairman Steve Morgan; day-to-day operations, however, are led by longtime partner Paul Pedley, who was named company CEO in 1999.

Modest Beginnings in the 1970s

Steve Morgan most likely had no idea that the modest Northwest England firm he founded in the early 1970s was to grow into one of the United Kingdoms leading real estate developers and that he himself would become one of Englands richest businessmen. In 1974, at the age of 21, Morgan took a £5,000 loan from his father and opened a civil engineering firm. Operating at first from a small bungalow in the town of Rhyl, in Cheshire, Morgan focused on local trench-digging and pipe-laying projects. The location of one of his earliest projectson Redwood and Harrow drivescontracted to provide his companys name. (This project also provided the name to Morgans later Harwood Homes division.)

From its earliest pipe-laying projects, Redrow expanded into providing general construction contracting services. By 1978, Redrow added full-scale building contracting to its projects. The following year, the company moved to more spacious quarters in Denbigh, North Wales, where it built its own offices and plant yard. The companys growth enabled to it to expand its building contracting beyond its home base to cover the Cheshire region and to enter Mersey side. Redrow also was taking on larger and larger projects. In 1980, the company signed to perform its first £1 million contract, at Presthaven Sands, in Prestatyn.

A dip in the building market in the 1980s encouraged Morgan to take Redrow into a new direction. In 1982, Morgan formed the Redrow Homes subsidiary and began construction of the companys first private homes. Initially targeted at the more modestly priced housing brackets, Redrow quickly turned its ambitions to a higherand more profitableend. In 1983, the company began construction of the first of its Heritage homes, targeted at the mid-priced and luxury housing markets.

The company expanded quickly during the next five years, spreading its activities to cover more and more of England, and particularly the booming South East region around London. By 1985, Redrow had entered three of the countrys most important building markets, the Midlands, the South East, and the South West, and had built up a particularly strong land bank in the South East. The company grew so quickly that Morgan was forced to hire a right hand man, taking on Paul Pedley to assist in the companys expansion during the soaring real estate climate of the mid-1980s.

The company expanded both internally, through land purchases, and externally, with the acquisition of other developers, notably the 1987 acquisition of Whelmar Homes, bringing the company into Lancashire. At the same time, Redrow entered the commercial real estate market, forming its Commercial division for construction of office complexes and industrial parks, as well as fast food and other restaurant and retail structures. By then, also, the companys building contracting and civil engineering projects had taken a clear back seat to its home building programs.

Then, in early 1988, Morgan and Pedley sold off nearly all of the companys South East land bankjust in time to see the British housing market crash. Morgan received a great deal of attention for his foresight and probably prevented the company from going under in the difficult real estate climatecalled the worst building market in England since the Second World Warthat lasted until well into the next decade.

Rebuilding in the 1990s

Whereas Redrows South East competitors found themselves saddled with huge parcels of suddenly worthless land, Redrow had escaped the region with its pockets full. Nonetheless, overbuilding in the 1980s, coupled with a slump into an extended recession, itself compounded by the outbreak of the Persian Gulf War, put a virtual halt to new building construction. Redrow continued to operate in its Northwest regional base, including building a new headquarters in Flintshire in

1990, but the building recession soon spread throughout the United Kingdom. By 1991, with few new projects on hand, Morgan placed day-to-day operations of the company into the hands of Paul Pedley and took off with his family on a six-month backpacking tour of the world. Named managing director, Pedley led Redrow into new territories, establishing Redrow in the South Wales and Yorkshire regions.

The companys acquisition of Costain Homes in 1993, for which it paid £25 million, announced Morgan and Pedleys belief that the South East building market was soon to pick up again. The Costain Homes acquisition gave Redrow a new foothold in the region, while its other regional operations also were beginning to rebuild. By the end of 1993, the company had completed more than 1,200 homes, for a total turnover of £111 million. The company, however, prepared to expand still morewithin two years, Redrow nearly doubled its annual sales.

Fueling the companys growth was its decision to take Redrow public in 1994. Despite building market uncertainties, which led to a lower-than-expected initial share price, the public offering nonetheless made Morgan one of the United Kingdoms richest businessmen, as he reduced his ownership in the company from 98 percent to 60 percent. The public offering enabled Redrow to build up extensive land banks not only in the Northwestern regions, but in the South East as well. Much of the companys land bank took the form of forward land purchases, that is, land that jiad not yet received any development approval, rather than purchases of more expensive market-ready lands, which would have exposed the company to greater risks of price fluctuations.

At mid-decade, Redrow turned its new construction focus to the Northwestern region. At the same time, it sought to profit from new government brownfield incentives. To preserve the countrys rural or greenfield environment, the British government instead sought to encourage builders and prospective homeowners to construct on urban land converted from former industrial and other commercial uses. Redrow developed a new division, Harwood Homes, for its brownfield projects, offering new homesmostly attached homes and town-housesat an average of half the price of its Heritage line of homes. The Harwood line was initially targeted at the young urban professional market, with smaller home designs; its success, however, prompted the company to roll out new models to accommodate the needs of larger families. Originally operating in the Northwest, the Harwood division quickly rolled out on a national scale, as well as taking Redrow into Scotland for the first time.

Key Dates:

1974:
Redrow is founded by Steve Morgan.
1978:
Company expands into building contracting.
1980:
Redrow achieves its first million-pound contract.
1982:
Redrow Homes development subsidiary is formed.
1983:
Construction of Heritage homes begins.
1994:
Public listing on London Stock Exchange.
1996:
Redrow enters the Scottish market.
1999:
Paul Pedley named CEO of Redrow.

Despite a construction dip in 1996, the United Kingdom pulled out of the recession in the mid-1990s, sparking a rising demand for new construction. By 1997, Redrow was completing more than 2,600 houses per year. In that year, also, the company bought a 140-acre parcel in Dunfermline, Scotland, which, capable of supporting up to 1,600 homes, was Redrows largest development to date. Meanwhile, Morgan became even richer, when he sold off an additional 25 percent of his control of the company, reducing his shareholding to just 35 percent of Redrows total stock.

By the end of 1997, Redrow had readied the launch of the redesigned Heritage line. Dubbed the New Heritage Range, and offering some 42 different home models, the new line was highly successful, winning a number of the countrys most prominent housing awards. The New Heritage line also transformed the companys image: with sales in the south topping those in the north for the first time in the companys history, Redrow was no longer merely a Northwest home builder, but a truly national British builder. By the end of the companys June 1999 fiscal year, revenues had swelled to £342 million, for pretax earnings of £56 million. As a recognition of his role in helping to build the company into one of the United Kingdoms leading home builders, Paul Pedley was name CEO. The company had already made a number of prominent land purchases, including the January 1999 purchase of four land sites from British chemical giant ICI for £34.5 million. This purchase, together with the companys extensive land bank, ensured plenty of Redrow developments for the start of the new century.

Principal Subsidiaries

Redrow Homes Limited; Redrow Homes (Jersey) Limited; Harwood Homes; Redrow Commercial Developments Limited; Redrow Group Services Limited; Poche Interior Design Limited.

Principal Competitors

Barratt Developments; Bryant Group; Beazer Group; Centex; Bellway; George Wimpey; Berkeley Group; John Laing; Bovis Homes; Persimmon; British Land Company; Westbury; Brixton Estate; Wilson Bowden.

Further Reading

Cave, Andrew, Redrow Cuts Exposure to London Values, Daily Telegraph, August 18, 1997.

Jagger, Suzy, Redrow Poised To Finalise Pounds 34.5m ICI Land Bank Deal, Daily Telegraph, January 11, 1999.

Redrow Builds on Growth in the South-East, Financial Times, September 15, 1999.

Redrow Founder To Cut Stake, Financial Times, March 11, 1997, p. 20.

Redrow Is on Firm Foundations, Independent, September 15, 1999, p. 21.

Stevenson, Tom, Redrow May Have Homed in Too Late, Independent, April 29, 1994, p. 32.

, Redrow Shaves Pounds 25m Off Float Forecast, Independent, April 13, 1994, p. 33.

M.L. Cohen

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