Does Size Matter?

Peter Redfern

Deputy Group Chief Executive

Friday 21 April 2006

Does size matter?

George Wimpey in context

Benefits of scale

Challenges of scale

Do conclusions differ UK-US?

George Wimpey growth opportunities

Conclusions

George Wimpey in context

Focused housebuilder with strong ethos of health and safety/customer service

Operating in

-UK market -12,000 completions

-US market - 5,000 completions

Broad market presence UK

- first time buyer apartments to 5 bed detached houses

-average selling price c £180,000

More focused regional presence US

-Townhomes c $180,000 -$250,000

-Single family houses c $200,000 -$450,000

George Wimpey in context

Group comps

PBT £m

Net worth £m

Div per share

Gearing

17,021 16,654 16,654 16,570 16,917 14,437

366.5 437.6

1,544.4 1,331.4

17.6p 16.0p

34% 39%

450.7 378.2 285.9 152.0

1,439.1 1,168.4 944.6 783.3

16.0p

36%

12.25p

45%

9.1p

40%

8.25p

49%

2005 2004 2004 2003 2002 2001

IAS UK GAAP

UK business

New business structure:

North 8

Midlands 8

South 9

Total 25

+ 3 new satellites

Bristol

ManchesterLiverpool

Newcastle

EdinburghGlasgow

Birmingham

Leeds

London

Plymouth

Aberdeen

West 3 South West 4 South East 4 Total 11 + 3 satellites

Sacramento

Central Valley

Jacksonville

Denver

Sarasota

Austin

Dallas

Phoenix

Houston

OrlandoTampa

US business

George Wimpey in context

George Wimpey

Barratt

Persimmon

Taylor Woodrow

Bellway

Wilson Bowden

Redrow

Miller

Bovis

Crest

17,021

14,351

12,636

12,516

Group volume

Barratt

Persimmon

George Wimpey

Taylor Woodrow

Bellway

Wilson Bowden

Redrow

Miller

Bovis

Crest

14,351 2,472.4

UKvolume

Revenue £m

12,636 2,285.2

12,100 3,003.2

8,178 3,476.9

7,001 1,178.1

5,207 1,230.8

4,372 781.0

2,801 897.8

2,702 521.2

2,486 714.3

7,001

5,207

4,372

2,801

2,702

2,486

UK volume/landbank history

30,000

35,000

40,000

45,000

50,000

55,000

2001 2002 2003 2004 2005

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Landbank Completions

US volume/landbank history

0

5,000

10,000

15,000

20,000

25,000

2001 2002 2003 2004 2005

0

1,000

2,000

3,000

4,000

5,000

6,000

Landbank Completions

Benefits of scale

Material procurement

Other construction costs

Overhead costs

Land buying

Length of landbank

Procurement - bricks

79% of brick market is supplied by 3 main suppliers

Ibstock - 31%, Hanson - 30% and Wienerberger - 18%

George Wimpey’s total UK brick requirement is 6% of total turnover of

largest brick supplier

National scale gives mutual supply chain synergies in matching supply

to demand

Procurement - bricks

2001 average price paid £/000 bricks

George Wimpey

McAlpine

Laing

160

180

215

Procurement - flooring

Flooring (carpets, wood, laminate etc) supplied under one deal

covering c 75% of business - introduced 2002

Extremely price competitive – guaranteed volume gives supplier ability

to agree deal with overseas supplier

Significant improvement in service levels to George Wimpey as well

as to our end customers

Provision of tailored on-site training for sales staff

Ranges altered and added to suit demands of GW customers -

regionally and nationally

Only deal of this scale for Inside Right c 40% of business

-GW is top priority

Other construction savings

Significant potential build cost savings from scale

Benefits to steady flow through of work for subcontractors

-relies on regional scale

Sharing of knowledge and expertise becoming increasingly important

- House types

~ balance between local ownership and scale economies

~difference between good and bad can be 5% of margin

-Site remediation - currently working on 200 brownfield sites

-Land relationships - English Partnerships sale of 96 NHS sites

Overheads

Definitely saving of central overheads

-However central overheads relatively small - for GW c 0.5% of

revenue

Regional overheads vary more significantly

-most cost savings from acquisitions in last 5 years came from

regional overheads - McAlpine 80% of £20m savings came from

overheads

Benefits of volume growth to efficiently use overheads

Land buying

Single biggest advantage of scale

-increasing as average size of site changes

National coverage improves visibility with vendors and agents

Gives confidence in ability to fund and complete the acquisition quickly

Enables purchase of larger sites which are often less competitive

Enables quicker decisions at higher values

Allows calculated risks on a proportion of sites to drive better margins

Land buying - larger sites

Average cost per plot as % of ASP 2005: 26.6%

Newton Leys

Lawley, Telford

Masterton, Dunfermline 695

1,167

1,650

No of plots

66

71

90

No of acres

17.3%

19.6%

20.7%

Cost per plot as % of ASP

Land BuyingCase study: Newton Leys

1650 dwellings – 1,155 private and 495 affordable Bought with outline planning in October 2005

-opportunity to improve planning positionMajor greenfield masterplan development

-opportunity to create value through schemeMore land than required for GW

-opportunity to trade with competitors Discount to open market value for scale of purchase – c 5%

Key timelines

Start on site January 2007

House construction Summer 2007

Pay for site October 2007

First completion December 2007

Length of landbank

Is a long landbank good? Only if it adds value

- Land prices rising faster than cost of capital on land

- Necessary to manage planning process

- Opportunity to structure better deal – eg Strategic Land

Historically these conditions have been fulfilled – in the future it is less

certain

Scale does not directly allow longer land bank

However, it is becoming harder to grow at small scale because of

dependence on smaller sites and increased competition

Other scale benefits

Brand awareness/customer confidence

Risk diversification

Reduced financing costs/new opportunities

Challenges of scale

Management of risk

-not really greater but necessary to have a hands on approach

Decision making slow and cumbersome?

-down to attitude not size

-why we operate a local business model

Procurement benefits uncertain

-more true in the 80s/90s when suppliers were less consolidated

Challenges of scale

Tot

al U

K c

omp

letio

ns u

nder

NH

BC

(00

0s)

% t

otal

new

UK

hou

sing

sta

rts

by c

ompa

nie

s co

mpl

etin

g >

2000

uni

ts p

a

135

140

145

150

155

160

165

170

175

180

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

0

0.1

0.2

0.3

0.4

0.5

0.6

Do conclusions differ US – UK?

Broadly conclusions are the same

-but more at regional/state level than nationally

This is driven by genuine regional variation

-Planning systems

-Construction methods

- Market cycles

Land market scale advantage is identical

Transfer of skills, sharing of knowledge and expertise similar

Brand value and reputation can be stronger

-27% of customers bought a Morrison Home on the recommendation

of friend/family member

Morrison Homesgrowth opportunity

Source: CSFB

70.0

69.268.6

68.368.067.5

66.966.4

65.765.4

65.1

64.164.064.164.163.9

62%

63%

64%

65%

66%

67%

68%

69%

70%

71%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2010E

A homeownership rate of 70% in 2010 would imply the creation of

c.1.28m households pa from 2004-2010, compared to the 800,000

created pa from 1999-2004

US Homeownership Rates

Morrison Homesgrowth opportunity

209

151

166

81

40

647

1,681

38%

1

3

2

6

12

SFPermits

2005

Rank

Florida

California

Texas

Arizona

Colorado

TOTAL

Total US

Morrison Markets

297

278

154

117

55

901

2,010

45%

1

2

3

4

18

JobGrowth

2005

Rank000s

404

290

388

199

63

1.344m

2.753m

49%

1

3

2

4

11

Population Growth2005

Rank

Morrison Homes growth opportunity

2001 - new satellites established in Jacksonville, Sarasota, Central

Valley

2005 - these satellites accounted for 20% completions

2005 - new satellites established in Daytona Beach, Fort Myers and

Reno

Case study – Fort Myers

In the last three years

-7% increase in total population

-1.2% increase in employment

Closed 50 lots

June 2005 Aug 2005 Jan 2006 March 2006 April 2006

Preliminary evaluation of

possible land

opportunities Initial land contract signed

Fort Myers operation

established as satellite office

Initial permit for model

home obtained

Approved 5 land contracts for total

of 341 lots

Case study – Fort Myers

Construction of the initial two models in first community to begin end

April 2006

Sales will begin by early May 2006

A second community will commence sales in June 2006

First customer will move into a Morrison Home in October/November

2006

Forecasting 15-20 closings in 2006, up to 150 in 2007

Less than 18 months from initial land evaluation to first completed

home

George Wimpey UK growth opportunity

10% land bank growth in 2004 provides first foundation

Change in land buying at both strategy and operational levels will build

on this

-Larger sites

-More land trading

-Improved people and processes

-Strategic land

Order book end of 2005 up 30%

-Gives option to grow volume and start to improve margin

Stronger first half volume in 2006 will provide opportunity

George Wimpey objectives

USContinued land bank growth driven by

-Growth in exiting satellites to full scale

-Continued new satellite program

-Potential for bolt on acquisitionsContinued volume growth with target of doubling to 10,000 units over next 5 yearsMaintain margins at 15% + levels as market normalises

UKDrive organic growth from the existing landUse scale and changes to land buying to grow landbank and improve valueCreate/acquire strategic land portfolioUse scale to drive down build and operating costsRecover margins to 15+ levels.

Does size matter? Conclusions

Scale can drive significant value in housebuilding:

-Material procurement

-Land buying

-Brand awareness

Same conclusion in the US but focused more regionally

Real opportunity for George Wimpey to take further advantage

-Largest UK/US combined housebuilder

-Proven volume growth track record in US

-Existing land bank and changes to land buying give real UK

opportunity