Investor presentation Creating retirement communities to enrich the quality of life for our customers and their families 2019 Based on half year results ended 28 February 2019 Retirement living to the full IR Contact: marina.calero@mccarthyandstone.co.uk
We have a great underlying business with strong fundamentals… Undisputed market leader with high market share Projected UK population growth 1 , million ▪ Built and sold more than 56,000 properties across more than 1,200 retirement 2017 developments since 1977 11.8 1.6 ▪ Transitioning from UK’s leading retirement housebuilder to become the UK’s leading developer, owner and manager of retirement communities through 17.3 3.0 2037 two-stage transformation strategy Aged 65+ Aged 85+ Operating in a market with significant growth opportunity Projected supply gap 2 , thousand ▪ Rapidly ageing population ▪ Structural undersupply of retirement housing People 579 Retirement housing demand, 2018-28 Offering a unique customer proposition ▪ Existing stock 162 Lifestyle built around retirement community and wellbeing Units ▪ c.17,000 homeowners across c.400 managed developments 72% shortfall ▪ Two key products: Retirement Living (RL) and Retirement Living Plus (RLP) Highly experienced management team with deep sector expertise Strong operational capabilities ▪ Recognised, well-respected brand ▪ High-quality housebuilder ▪ Strong landbank ▪ Best customer satisfaction ratings – consistently 5 star rating Mike Lloyd – Nigel Turner Rowan Baker John Tonkiss 93% of our customers would recommend us to a friend Paul Lester COO, Build COO, Services & CFO CEO Chairman ▪ Appointed Jan 2019 Customers High-quality services – 100% of our registered RLP Appointed Jan 2017 Appointed Sep 2018 Appointed Jan 2018 Formerly Appointed Jan 2019 Joined in 2012 and Joined in 2014 and Currently Chairman developments achieved “Good” or “Outstanding” CQC ratings Developments Formerly Commercial was previously was previously of Essentra plc and Property Services Director responsible ▪ Group Financial Group Chief Great people – committed and talented employees Forterra plc. Formerly Director and for Group Marketing Controller Operating Officer CEO of VT Group plc ▪ Executive Director at at The AA. Two new COO appointments in January 2019 and Group Managing Kier Group plc Director of Balfour Beatty plc 2 (1)Office for National Statistics population projections (2017) (2)Note: Analysis based on the assumption that 25% of the over-65 population would consider retirement housing. SOURCE: ONS, Knight Frank Research; team analysis
We are positioning the business to succeed in this challenging market environment Key operational highlights of transformation Shift in business mindset from growth to increasing ROCE and margins Realigning the workflow and rightsizing the operational cost base to deliver steady state volumes of c.2,100 units p.a. Change of year end to 31 October 2019 to decouple from peak holiday season Focus on two core offerings, Retirement Living and Retirement Living Plus (formerly Assisted Living) Improved product offering through increasing affordability, flexibility and choice for our customers – Buy, rent, shared ownership – Broadening market appeal via – Gym, local events, clubs, technology – Part – exchange – Doctors’ surgeries, pharmacies, increased affordability – Streamlined, contemporary and – Let customer’s property (Rent to rent) convenience stores compact designs – Variety of payment options Transforming the business from a retirement housebuilder to a developer, manager and owner of retirement communities 3
Two stages of our business transformation FY21 FY19: Housebuilder Optimising our operations for strong financial performance… Focus on ROCE and margins 1 3 4 2 Cost saving >£40m in FY21 Rightsizing Workflow Efficient sales and Build cost FY21 Operating margin >15% the business realignment marketing model reduction FY21 ROCE >15% In progress In progress In progress Cash saving >£90m FY19 to FY21 FY23: …leveraging strategic opportunities Developer, Manager, Owner ROCE >20% by FY23 Increased market penetration Choice of tenure Flexibility of services Affordability of product New revenue streams Reduced cyclicality 4
Stage 1 Summary: optimising our operations for strong financial performance >£40m Cost saving >£90m additional >15% ROCE by >15% operating Targets in FY21 cash generated FY21 margin by FY21 Stages 1 Workflow realignment IN PROGRESS No impact on P&L 20-30% Share of expected >£40m savings FY21 Rightsizing 2 COMPLETED the business Efficient sales and 3 IN PROGRESS marketing model 10-20% 50-60% Build cost reduction 4 IN PROGRESS 5
Stage 1 - optimising our operations for strong financial performance 1. Workflow realignment Uneven workflow in pursuit of previous growth strategy Stable monthly flow of build starts and first occupations Stable monthly flow of impacted results – planning mindset focused on first time land exchanges, build consents, tendency to accelerate activity to deliver volumes starts, sales releases and first occupations – Expected profile of first occupations Average rate of first occupations fundamental to FY21, % FY16 – FY18, % operational efficiency Steady volume at c. 2,100 units 53 29 3,000 unit sales target 25 23 23 23 17 7 Q3 FY21 Q1 Q1 FY21 Q2 FY21 Q4 FY21 Q2 Q3 Q4 Optimise balance sheet and reduce finished stock Progress: levels - >£70m reduction in inventory FY18 to FY21 ✓ Planning actions completed 3.9 years’ ✓ Incentive scheme launched Finished stock , units landbank 1,579 ✓ Landbank optionality maintained supply 1 441 new ✓ Inventory levels reducing in line with strategic plan stock 1,779 ✓ 10 high quality development sites added to the landbank 1,100 (HY18: 22) 1,138 1 - calculated based on FY18 legal completions of 2,134 units ✓ 21 planning consents achieved (HY18: 21) FY21 Target FY18 Actual HY19 Actual 6
Stage 1 - optimising our operations for strong financial performance … Cont 2. Rightsizing the business - COMPLETED New regional footprint: Rightsizing operational cost • Footprint reduction completed - focus on more densely populated base to reflect steady state areas volumes while remaining 9 7 positioned to scale for o South West region is now closed growth o Closure of region in Scotland over next 12 months Regions across Regions optimised the UK, each on priority areas in o c.£10m of annualised cash saving targeting 400+ line with their units across their steady state • Optimally resourcing each region in line with c.2,100 units p.a. entire footprint volume • Aligned support functions to adjusted volume and footprint • Group oversight and control strengthened through change in organisational design and increased adoption of consistent ways of c.£10m of working annualised cash saving o Two new COOs appointed in January 2019 to focus on our core Share of expected >£40m savings FY21 activities: Build & Production and Sales & Services 20-30% FY19 FY20 FY21 Full benefit Rightsizing 7
Stage 1 - optimising our operations for strong financial performance … Cont 3. Efficient sales and marketing model Strategic levers Reorganisation of sales teams and centralisation of marketing Optimised sales operating model and centralised marketing 1 Streamlined staffing function c.£2m of annualised cash saving streamlined staffing, standardised sales processes and improved marketing effectiveness Ongoing phased roll-out of Salesforce CRM system. 2 o 4 regions now live. Full roll-out to be completed by summer 2019 o Training and roll-out preparation underway with remaining regions Improved website and content management system on 3 Share of expected >£40m savings FY21 track for roll-out summer 2019 FY19 FY19 FY20 FY20 FY21 Revised operating Salesforce rollout Full benefit 10-20% model 8
Stage 1 - optimising our operations for strong financial performance … Cont 4. Build cost reduction Deliver more standardised and efficient designs, Completed design efficiency reviews through standard designs and spec guidelines of deploy more cost effective FY19 and FY20 sites for margin improvement opportunities. New schemes more design building solutions and compliant streamline procurement practices Value engineering - prelim standardisation and optimising of technical specs (e.g. foundations, balconies, wall structures) Standard construction programme and preliminary schedule rolled out • Agreed Wave 1 (of 4) of framework/spec. value improvements for materials Procurement initiatives - a programme for competitive tendering of sub-contract packages commenced Share of expected >£40m savings FY21 FY19 FY20 FY21 Design compliance 50-60% Improve design Full benefit and materials Redesigning and re-engineering the way we build 9
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