Industry response to The Barker Review Peter Johnson Chief Executive, George Wimpey Plc Merrill Lynch Housing Market Conference Friday 23 April 2004

Agenda  Summary of key recommendations  Impact on housebuilders  Implementation and reality  Challenges for the industry  Summary and Conclusions 2

Key recommendations 1 Output  Housing output needs to increase significantly to meet demand  Affordability should be a key criterion when setting housing targets Planning  Prime responsibility for housing decisions should be at the regional level  Additional planning routes should be available to housebuilders  Regions should be able to diverge from PPG3 where appropriate Government funding  Local government should receive greater financial gain from new housing developments, so the benefits better match the costs  Government should finance “pump-priming” infrastructure  Government needs to increase funding of “sub-market” housing 3

Key recommendations 2 Taxation  A planning-gain supplement is the best way to tax land “ rent ” profits  Alternatives, such as VAT, could have perverse effects on land supply  This new tax should partially replace S 106 agreements Requirements on industry  The industry must improve customer satisfaction significantly  The industry should work to increase off-site prefabrication  And increase the number of apprentices and training generally  And work with CABE on a code of best practice for external design  Local Authorities should set conditions to increase build rates on new sites 4

Impact on housebuilders 1 Output  If fully implemented, today’s constraints on growing volumes will be lifted  Steady growth in volumes will underpin earnings growth for largest companies Prices  If supply responds to demand, prices should become more stable  Even a limited supply response would stop price increases being a one way bet Land market  As prices moderate and land supply improves, land prices will rise more slowly Profits  Margins are likely to stabilise or converge to “normal” levels over time  However volume growth will enable profits of the efficient producer to grow Cash  More stable land prices will lead to significantly higher cash generation  This should increase economic value added and hence earnings multiples: valuations should become earnings-driven rather than assets-driven 5

Impact on housebuilders 2 Land banks  Today, competitive advantage comes from holding long land banks  With more responsive supply, holding gain much reduced - < cost of capital  Land banks will be held for operational need, not for financial returns Competition  Barker’s vision is that competition will be based on delivery of superior value to customers at lowest cost: a normal competitive industry model Operating strategies  Successful operational strategies will become  delivering superior customer satisfaction  at lowest total cost  on developments that meet modern “standards” of design Industry consolidation  Benefits of scale will increase whilst limits to scale will reduce  Acquisition remains an alternative to organic growth to deliver profit growth 6

Implementation and reality Obstacles to implementation  Limited regional government infrastructure  Size and complexity of the South East Region  Need for a political consensus on  roles of regional, county and district planning bodies  introduction and rate of a planning-gain supplement Approach to implementation  Extensive industry consultation planned  Conservative Party conducting policy review Realistic timeframe  Implementation unlikely until after the next election  Industry needs to get on and address those issues within its control  Industry mindset will change, and hence strategies for volume growth 7

Challenges for the industry 1 Increasing volume growth rates  Need to create organisation structure and processes which support growth  GW: flexible organisation plus two brands will support volume growth Lower house price inflation  Lower house price price inflation will increase exposure to rising costs  GW: scale and focus on “best practice” processes ensures tight control of costs Pressure to increase build-out rates  There will be pressure to increase selling and build rates (from ave c0.7 a week)  GW: already builds at 1 a week (highest in industry) - efficient build processes Meeting customer needs  Industry must raise average “willingness to refer” from 46% to 75%  GW: achieved 85%, Laing Homes 70% in 2003; all management bonused on “willingness to refer” ; rigorous benchmarking between GW, Laing Homes and Morrison 8

Challenges for the industry 2 Innovation  Industry must demonstrate embrace of prefabrication: many examples in place, but to date these lack benefits of scale  GW: uses prefabricated components wherever possible and timber- frame where appropriate; in discussion with Universities on approach to innovation Attracting skilled workers  Industry must increase investment in training and employ more apprentices  GW: employs > 300 apprentices; structured programme of personal development and training at all levels up to international graduate programme Design  Industry must continue to develop innovative design whilst controlling costs  Industry must demonstrate its design standards have improved  GW: no national house-types; inter-regional bench-marking enables standardisation of best footprints with flexibility of external design 9

Summary and Conclusions: excellent news for the industry The Barker Review establishes a favourable political climate for housing  It puts housing high up the political agenda  It confirms the obstacle to meeting housing need is the planning system  Whilst implementation will be slow, the volume “risk” is now on the upside  The industry is absolved from land hoarding It creates a tax framework favourable to the industry  A planning gain supplement will fall on land owners rather than the industry  The problems associated with VAT are underlined  The need to “simplify” S106 agreements is confirmed The economics of the industry will be much improved  Lower house price inflation will lead to lower land inflation  Whilst “stock gains” will be reduced, cash generation should greatly improve  This should lead to higher EVA and hence higher multiples 10

Summary and Conclusions: and excellent news for George Wimpey The Barker Review also requires changes in the industry  Its objective is that competition should be based on delivering superior customer satisfaction at lowest cost: most business models need to change  This will enhance the benefits of scale, whilst reducing the limits to scale  There will be winners and losers based on speed of adaptation to a new world Different operating models and efficiencies will affect relative valuations  Relative values will reflect ability to win under the new model rather than just length of land banks  Long land banks will not produce a return above the cost of capital George Wimpey is well placed to benefit from these changes  We already achieve customer satisfaction scores well ahead of the Barker target  Our fast build rate and organisational model gives us low production costs  We have established a good reputation with CABE and others for innovative design and forward-looking vision 11

Industry response to The Barker Review Peter Johnson Chief Executive, George Wimpey Plc Merrill Lynch Housing Market Conference Friday 23 April 2004