“We have been through a tough period with the financial crisis, the failure in the housing market and workforce cuts. We started out in 2009 with a streamlined organisation and a focus on sales, profitability and efficient production. At the same time, we refused to stray from our strategic bearing of building quality homes at reasonable prices for the majority population and developing attractive residential areas on the outskirts of major cities and towns. Our customers are not investors or speculators looking to make money in the short term, but normal people buying homes because they want to live there. In other words, these are customers with genuine housing needs,” underline Ole Fleet, Managing Director of Block Watne and Mikael Olsson, Managing Director of Myresjöhus and SmålandsVillan.
What were the most important events for Block Watne, Myresjöhus and SmålandsVillan in 2009?
The market
Ole: “It became evident that those customers who had put off buying a home in 2008 came back to the market relatively quickly in 2009, motivated by the low interest rate, easier access to loans and the generally low housing prices. We also witnessed a certain pressure on prices however, particularly during the first months of 2009, so chose to concentrate on the sale and production of lower priced homes. Due to the difficult market in 2008, we had around 100 completed homes for sale when entering 2009. This naturally binds up our capital and could have had a negative impact on profitability. We implemented a number of measures to combat this situation and were aided by the fact that a good number of customers were interested in purchasing completed homes which they could move straight in to after they had sold their existing home. We managed to sell the majority of our completed homes during the first half of the year and could then concentrate our sales efforts on re-building an order backlog.”
Mikael: “The market in Sweden was difficult in 2008 and remained so in 2009. We started the year with a low order intake, and there was a good deal of uncertainty as to how the market would develop throughout the year. The difficulties experienced by export industries resulted in high unemployment, and when people are worried about their jobs, they put off all ideas of buying houses. The banks tightened up on their terms and conditions for mortgages. This had a particular impact on SmålandsVillan’s customer segment which mainly involves price-sensitive first time home buyers with very little capital. We reached bottom during the first quarter and from then on, the market saw a positive turnaround. First to return to the market were the Myresjöhus customers, followed by SmålandsVillan customers, and sales continued to improve throughout the second half of the year. We decided to launch a new catalogue of homes for the Myresjöhus portfolio in the spring. Luckily, we got the timing spot on and are very satisfied with the market reception for the new catalogue, “Attraktion” which comprises 49 architect-designed detached houses along with the supplementary catalogue entitled “Möjligheter”. We also launched a new house in the SmålandsVillan portfolio in the autumn under the name Villa Vetlanda.”
Operations
Ole: “After having to make such drastic workforce cuts, it always takes time to stabilise production and to gain the required level of productivity. One central aspect of our operations is ensuring the highest degree of efficiency possible at our buildings sites and this was all the more so important after the major changes made in the organisation. Our carpenters are paid by piece rate and make more money when a building project is well-planned. This involves ensuring that the drawings and specifications to be used are correct, that the correct materials are delivered at the right time and that we can benefit from recycling of good housing projects and products. The end result is always better and profitability is higher. It is in other words a win-win situation for all parties.”
Mikael: “We had to make major cuts to our production capacity and workforce in 2008. This provided us with lower costs in 2009 but our organisation was also under considerable pressure during certain periods. As sales improved and our order backlog grew during the second half of the year, we could once again increase our production rate and recruit production staff and new sales agents. Efficient production and volume increases for our factories are critical factors for profitability. We therefore implemented a process improvement project towards the end of 2009, in cooperation with consultancy firm ManTec. The purpose of this project is to carry out a critical review of working processes and production flow in the factories and to improve on the cost-efficiency of production together with both management and employees. We are very confident that this project will have a positive impact in 2010.”
What are the main challenges now in 2010?
Access to land for housing
Ole: “Availability of land is paramount when developing successful housing projects in locations where people want to live. One challenge we and other housing developers face is the length of time it takes for the municipalities to process applications. If we are to increase house building in general and gain more balance between supply and demand, then we need sufficient plots of land with the right locations which are developed for housing purposes, and the application process needs to be more efficient. We are now in the process of improving our access to plots of land in order to secure a long-term horizon for our own production of homes.”
Mikael: “The number of new homes being built in Sweden is far too low and this has been the case for a number of years. On the part of the municipalities, there is far too little emphasis on ensuring sufficient areas of land for housing to satisfy the growing demand for new homes. We know that demand will continue to increase, partly because of the growth in population. We aim to increase our efforts towards housing projects, both independently and in cooperation with other parties, and will focus on finding land with good locations for further development for housing.”
Low-energy homes
Ole: “Home buyers are now showing increased interest in energy consumption in general and are more willing to pay for low-energy systems. We take part on a number of projects together with other central organisations towards the creation of new systems and are helping to develop Passive House concepts for the future. This requires assessment of the entire value chain, from the physical location of a house on the plot of land to product development and construction. With our high level of expertise and control of the entire value chain, we have the perfect foundations for success with commercial solutions for homes with extremely low energy consumption levels.”
Mikael: “We maintain a constant focus on new and ingenious methods for production of homes for the future – benefiting not only our customers but our company as a leading manufacturer of homes. In 2009, we developed our very first version of our new energy-efficient external wall system – known as Effektväggen. This has been an essential factor in reducing energy consumption in the houses we build and helps us satisfy the increasingly stringent requirements from authorities. Effektväggen will become standard for both our brands in 2010 and we aim to make further improvements to the external wall so that it is more cost-efficient to product in our factories.”
Further profitable growth
“Key factors for further profitable growth are a continual focus on operational improvements in our factories and building sites and our choice of materials and products used. We share a long-term target to consolidate our choice of products as far as possible so that we can benefit from joint purchasing power.”
“Cost control, good sales and an increase in order backlog will allow us to employ more staff. We aim to be an attractive employer and recruit the best workers. The general conditions for our industry are now predominantly positive with the interest rate still low, the stable and decreasing level of unemployment, improved outlook for the export industry and good demand from customers. In total, we are now well prepared for future profitable growth in 2010,” conclude Ole Feet and Mikael Olsson.