1. 2 mccarthy & stone the natural choice for a happy retirement

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McCarthy & Stonethe

Natural Choicefor a

Happy Retirement

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McCARTHY & STONEHalf year to 28/2/06

HIGHLIGHTS

• Revenue £131.1m (£131.0m)

• Pre-tax profit of £39.1m (£48.8m) -20%

• Headline EPS of 26.7p (34.2p) -22%

• Interim dividend of 6.0p (5.4p) +11%

• UK unit sales of 753 (792) -5%

• Average sales price £170,900 (£165,400) +3.3%

• Overall stock position of 10,607 units (10,758) -1.4%

• Group net borrowings £4.9m (£20.2m)

• Pre-tax return on capital over last 12 months 26% (40%)

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2003-BASED HOUSEHOLD PROJECTIONS

• 2003-2026 av. annual household growth 209,000 pa. – 4.8m homes

• Average household size to fall 2.34 in 2003 to 2.10 in 2026

• Annual growth: 55,000+ one person households in over 65 age group

• One person households over 65 increased from 2.7m+ to 3.9m+

• Under occupation of existing family homes

• McCarthy & Stone only building at rate of c. 2,000 pa

Increase in number of one person elderly households

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OUR CORE PRODUCT

Secure Flats for the Elderly

• 45 unit developments with 1 and 2 Bedroom flats

• Town Centre sites – near shops and amenities

• House Managers

• Communal Lounge, Guest Room, Laundry

• High level of Security and Central Monitoring

• Core Purchaser – Single/Widowed Female in mid 70’s – Needs-based over 50% of total sales

Independent Living in Secure Environment

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OUR MARKET

NHBC Retirement Homes “Started” 2005 with Warden in England and Wales

Year to

31/12/05

McCarthy & Stone starts 1,725

All Builders 2,651

McCarthy & Stone – 65% of market (with Warden)

High Market Share

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• Difficulties that major housebuilders experienced 1988-93• Heavy investment in finished stock/WIP in niche market• Length of time: Average timescales

• Competitors: Private Companies: Pegasus sold 160 units y/e 31.3.06 (133), Churchill sold 135 units y/e 30.11.05 (112)

• Bovis “very sheltered” product does not compete with core product (sold 251 units y/e 31.12.05 (308))

• Others, occasionally: Wilson Bowden

No significant competition from Major Housebuilders


BARRIERS

12 months 12 months 10 months 24 months+ c. 5 years

IdentifySite

Secure Site

Planning Consent

Practical Completion

SellOut

Negotiate Planning Build Sales

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CUSTOMER CARE

• HBF 2006 National Homes Survey – Maximum Five Star Rating• “Quality of Home” and “Recommend a Friend”

• Also outstanding results in NHBC Customer Satisfaction Survey & 1st in 13/17 questions

Strong Customer Care

75.376.176.2

79.180.18181.98282.58383.184.286.2

91.2

Survey Av.Builder 13Builder 12Builder 11Builder 10Builder 9Builder 8Builder 7Builder 6Builder 5Builder 4Builder 3Builder 2

MCTY

Q8 Would you recommend your builder to a friend

76.477.377.978.380.180.481.382.282.582.983.885.8

90.394

Survey Av.Builder 13Builder 12Builder 11Builder 10Builder 9Builder 8Builder 7Builder 6Builder 5Builder 4Builder 3Builder 2

MCTY

Q7 Overall, satisfaction with the quality of the new home

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McCARTHY & STONE BRAND

THE NATURAL CHOICEFOR A HAPPY RETIREMENT

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SALES/MARKETING

• Reservations in period 991 (755) +31%• Low opening reservation position 255 (440)• Average active sales points 117 (91) +29%• Continuing use of sales allowances to facilitate external part exchange• Importance of internet/website in sales process – 8.5% of completions

originated through website• NOP Awareness Research – Increase in prompted/unprompted

awareness• New marketing campaign initiated in March 2006

Improving Reservation Performance

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SALES

• Sold 753 units (792): Testing market, improved somewhat mid-Jan ’06 onwards• Average Selling Price - £170.9k (£165.4k) +3%: 4.6% incr. in ASP, square foot basis• 2 Bed flats 28% (29%)

Growth in ASP

£70,000

£90,000

£110,000

£130,000

£150,000

£170,000

£190,000

1999 2000 2001 2002 2003 2004 2005 2006

£79.5k£85.9k

£94.0k

£103.1k

£122.9k

£142.0k

£165.4k£170.9k

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SALES

Regional Average Selling Prices2005/06 2004/05

£’000 £’000 %South West 168.8 179.0 -6Western 177.3 171.2 4S East 182.8 185.1 -1North London 179.2 182.4 -2Midland 161.0 147.0 10N West 158.9 150.6 6North East 166.3 156.5 6Scotland 144.3 137.4 5Assisted Living 234.9 200.9 17Average 170.9 165.4 3

3% Increase in Average Selling Price

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UNIT SALES2005/2006

2004/2005

• Sales close to London only account for 6% (7%)• Southern Regions 46% (48%) : Northern Regions 47% (48%)

S W(156) 20%

S E(117) 15%

Midland(76) 10%

N W(137) 17%

Scotland(114) 14%

NE(49) 6%

Strong performance of Assisted Living : 50 units (34)

W(45) 6%

NL(64) 8%

AL(34) 4%

S W(145) 19%

S E(102) 14%

W(47) 6%

NL(53) 7%AL

(50) 7%

Midland(97) 13%

N W(102) 13%

Scotland(100) 13%

N E(57) 8%

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LAND

• Net sites exchanged 17 (26) : Equivalent units 768 (1,209)

• Tight land market. 3 sites (2) acquired unconditionally

• Average basic land cost per unit in period increased by 3% compared to H1 ‘05

• Average cost of land per unit in stock £39k (£34.8k)

• Average cost of land in stock c. 23% of ASP in period (21%)

• Moratorium causing difficulties for land acquisition in North

• Planning process pushes additional costs onto land

Total 10,607 units (10,758)

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PLANNING

• Secured 30 consents (25) representing 1,286 units (1,172)

• 3% more units secured at Planning from land acquisition stage

• Average time taken to secure consent was 67 weeks (exchange to PP)

• Increasing contributions Affordable Housing: £2.6m and 73 AH units

• Won 7 out of 11 appeals

• Moratorium creating difficulties at planning

• Joint DoH/ODPM report acknowledges shortage of specialist private retirement housing

Robust Planning Strategies

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CONSTRUCTION

• Completed 17 sites (12) with 768 units (553)

• Build starts, 18 sites (25) 722 units (1,087)

• Slowed build starts slightly in period as finished stock increased

• Closing WIP 1,560 units (2,516)

• Some material cost pressures, energy and commodity price related

• Budget build costs increasing by 5%

Controlling build costs

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INCOME STATEMENT ANALYSIS

Half year ended Feb ‘06 Feb ’05Unit Sales 753 792

£m £mRevenue 131.1 131.0

Gross Profit 61.5 68.2Administrative expenses (24.5) (21.2)Other operating income 2.5 2.4Operating profit 39.5 49.5Net interest (0.4) (0.7)PBT 39.1 48.8 -20%

=== ===• Net impact of IFRS on PBT for H1 ’05 +£0.5m

Decrease in PBT. Volume and margin related

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INCOME STATEMENT ANALYSIS

Half year ended Feb ’06 Feb ’05PBT 39.1 48.8 -20%Tax (11.7) (13.3)Profit after tax 27.4 35.3

=== ===Headline EPS 26.7p 34.2p -22%

• Net impact of IFRS on EPS for H1’05 +0.3p• Tax rate 30% (27.5%) – Benefit of commutation payment in prior year• 1.4m shares repurchased, cost £8.6m, since 28.2.05.

Decrease in EPS

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UK UNIT SALES

00/01 01/02 02/03 03/04 04/05 05/06H1 570 37% 619 37% 831 43% 780 38% 792 40% 753H2 980 1,052 1,117 1,275 1,191 ?

1,550 1,671 1,948 2,055 1,983 ?

Average Selling Price H1 £94k £103.1k £122.9k £142k £165.4k £170.9k +3%H2 £101.9k £117.2k £137k £162k £162.2kFull year £99k £112k £130.9k £154k £163.5k

• Incr. in ASP to £170.9k in H1 (05/06) +5% compared to £162.2k in H2 (04/05)

ASP nudges ahead

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HOUSE BUILDING MARGINS

Average per PlotHalf-year Av. Sales CoS Gross GrossFebruary Price Profit Profit

£’000 £’000 £’000 %2000 85.9 48.6 37.3 432001 94.0 45.9 48.1 512002 103.1 50.7 52.3 512003 122.9 60.7 62.2 512004 142.0 66.9 75.1 532005 165.4 79.2 86.2 522006 170.9 89.3 81.6 47

• Increase in ASP 3%, increase in CoS 13%: reduced Gross Profit per unit

Increase in Land and Build Costs counter ASP increase

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ADMINISTRATIVE EXPENSES

Feb ‘06 Feb ‘05 Y/e 31.8.05

Administrative expenses £24.5m £21.1m +16% £44.6m

Total Staff Numbers 1,086 1,126 -4% 1,136

• Increase in Admin costs of £3.4m : nearly 50%, due to extra S&M costs• Empty Property Costs increased by £0.8m on higher finished stock• Modest redundancy programme in September ’05 as build starts slow

Addressing cost increases

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CASH/BORROWINGS

Feb ‘06 Feb ‘05£m £m

Net Cash (4.9) (20.2)=== ===

Shareholders Funds 449.3 392.6=== ===

• Net impact of IFRS on S. Funds at Feb ’05 +7.9m• Average net borrowings £8.0m (cash £5.7m: repayment of Fin. Lease Dec ’04

£18.4m)• Over 12 months Company repurchased 1.4m Ordinary shares for £8.6m• Over 12 months sales of Freeholds for £45.8m• Increase in S. Funds over 12 months £56.7m. NTA per share 438p

Strong balance sheet

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UNIT STOCK POSITION

Half-year Half-year Full-yearFull-year Full year 28/2/0628/2/05 31/8/05 31/08/04 31/8/03

Unit Sales 753 792 1,983 2,055 1,948==== ==== === === ===

Finished Stock 2,706 1,978 +37% 2,692 2,217 1,693WIP 1,560 2,516 1,603 1,977 2,092

4,266 4,494 4,295 4,194 3,785Land with PP 2,884 2,207 2,443 2,212 1,875Land without PP 3,457 4,057 3,924 3,990 3,753

10,607 10,758 10,662 10,396 9,413==== ==== === ==== ====

Y/e Land investment £266.5m £241.1m £259.9m £226.0 £158.1mNet Units exch. in period 768 1,209 2,099 2,864 2,750

• Land creditor 28/2/06 £142.0m (£139.2m) – At 31.8.05 £160.7m

Overall stock position represents c. 5 years’ sales at recent sales rates

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STOCK POSITION

Feb ’06 Feb ’05 Aug ’05£’m £’m £’m

Land 266.5 241.1 259.9

WIP 105.9 145.9 105.6

Finished 227.6 151.5 205.6600.0 538.5 571.1==== ==== ====

• Increase in finished stock value• Overall increase in stock value

Strong Stock Position

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DIVIDENDS

31.8.06 31.8.05p p

Interim Dividend 6.0 5.4 +11%Final Dividend ? 14.0

? 19.4==== ====

Year end Year end31.8.06 31.8.05

Basic EPS ? 87.6pCover ? 4.5x

11% Increase in Interim Dividend

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RETURN ON CAPITAL

12 mths to28/2/06

£mPre-tax Profits (last 12 months) 118.1

===NTA at 28.2.06 449.3

===Return on Capital 26%

===

Good return on capital

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RECENT TRACK RECORDY/e 31/8/05

0

20

40

60

80

100

120

140

160

1997 1998 1999 2000 2001 2002 2003 2004 20050

102030405060708090

100

1997 1998 1999 2000 2001 2002 2003 2004 2005

0.02.04.06.08.0

10.012.014.016.018.020.0

1997 1998 1999 2000 2001 2002 2003 2004 2005

12.0p17.3p

25.3p34.7p

Pence

Earnings per share (p) – 28% Compound GrowthPre-tax profits (£m) - 26% Compound Growth

Dividend per share (p) - 26% Compound Growth

£m

Pence

3.0p4.5p

6.3p8.7p

9.7p

20.528.5

39.153.5

60.539.2p

75.449.2p

11.4p

116.076.5p

13.7p

Net assets per share (p) - 23% Compound Growth

0

50

100

150

200

250

300

350

400

450

1997 1998 1999 2000 2001 2002 2003 2004 2005

80p94p

115p140p

169p206p

268pPence

THE NATURAL CHOICEFOR A HAPPY RETIREMENT

147.899.2p

17.3p

357p*

127.8* 87.9p*

19.4p427p*

* Restatedfor IFRS

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FINANCIAL STRENGTHS

• Good margins. Return on Capital 26.0%

• Shareholders Funds increased to £449.3m (£392.6m)

• Reduced borrowing position over 12 months to £4.9m (£20.2m)

• Over last 12 months bought back 1.4m shares for £8.6m

• Strong operating cash flow

Strong Financial Position

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CURRENT TRADING

• Started the year with 111 active sites (86) and 255 (440) forward sales

• Sept/mid-Jan. trading was testing

• Since mid-Jan. some signs that reservation position improving

• Lower completions in H1 but higher reservations

• Carrying forward 493 reservations (403) into H2

• Fewer 1st occupations in H2, 24 (42)

• Will do well to over-achieve last years unit volumes of 1,983

• Margins will continue to ease

More selling points and more stock

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THE FUTURE

• Affordability is stretched

• Other housing fundamentals remain sound: Sound underlying demand, short supply, high employment, economic growth, low interest rates

• Strong business model and meeting demographic need

• Strong Balance Sheet/cash position

• Market leader – strong brand

Short term constraints/Fundamentals remain sound

1. 2 mccarthy & stone the natural choice for a happy retirement

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