REG - Barratt Developments - Barratt Trading Statement

Barratt DevelopmentsAnnouncement

14/07/2022 07:00

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RNS Number : 4104S  Barratt Developments PLC  14 July 2022

 

 

14 July 2022

Barratt Developments PLC

A year of excellent operational and financial performance

 

Barratt Developments PLC (the 'Group') is today issuing a trading update for
the year ended 30 June 2022 (the 'year' and 'FY22') ahead of publication of
its annual results on 7 September 2022((1)). Comparatives are to the year
ended 30 June 2021 ('FY21') unless otherwise stated.

 

David Thomas, Chief Executive, commented:

 

"We have delivered an excellent performance this year, reflecting the strong
customer demand for our homes and the productivity of our sites. We are
delighted that completions have now returned to pre-pandemic levels and I am
grateful for the hard work and dedication of our teams and partners over the
past two years to achieve this important milestone.

While there are clearly macro-economic uncertainties ahead, the housing market
remains robust, our forward order book is strong and we have the resilience
and flexibility to react to changes in the operating environment. Our focus
remains on addressing the UK's housing shortage with the high-quality,
energy-efficient, sustainable homes and developments which we pride ourselves
on building."

Highlights

·     Strong nationwide demand sustained throughout the year, resulting
in net private reservations per active outlet((2)) per week of 0.81 (FY21:
0.78)((3)).

·     Total home completions returned to pre-pandemic levels, with
17,908 homes completed in the year (FY21: 17,243 homes) including 746 from JVs
(FY21: 726).

 

·      Adjusted profit before tax is anticipated to be in the range of
£1,050m and £1,060m, slightly ahead of current market consensus
expectations((4)) at £1,048m (FY21: £919.7m). This is stated before adjusted
item costs of c. £412m (FY21: costs of £107.5m).

·      Awarded 98 Pride in the Job Awards for outstanding site
management in the June 2022 NHBC awards, more than any other housebuilder for
the 18(th) consecutive year.

·      Continued to demonstrate our leading design and innovation
capabilities, with the launch of the zero carbon concept home, the  "Zed
House", as well as completions from Delamare Park, our first air source heat
pump development of 82 homes.

·      Introduced an accelerated 5% pay increase from 1 April 2022 and a
further temporary salary supplement of £1,000 to all  employees below senior
management, phased over the coming six months to 31 December 2022.

·      Balance sheet strength maintained with year-end net cash((5)) of
c. £1,125m (30 June 2021: £1,317.4m) after the £250m  acquisition of
Gladman Developments and land spend of c. £1,050m during the year.

·      Well positioned for FY23 with total forward sales (including JVs)
at 30 June 2022 of 13,579 homes (30 June 2021: 14,334 homes) at a value of
£3,622.3m (30 June 2021: £3,473.5m).

Trading

The Group has delivered an excellent performance throughout the year,
reflecting underlying market strength and demand for our high quality and
sustainable new homes. Overall, our net private reservation rate was strong at
0.81 (FY21: 0.78) per active outlet per week, an increase of 3.8% on FY21.

 

During the year, we operated from an average of 332 (FY21: 343) active sales
outlets (including 7 JVs (FY21: 8)) and launched 118 new sales outlets in the
year (FY21: 144). The reduction in average sales outlets mainly reflected the
strength of the private sales rate, resulting in sites selling out faster than
expected, however we also saw some planning delays on new sites. Site numbers
have recovered towards the end of the year and as at 30 June 2022 we were
operating from 352 (30 June 2021: 358) active outlets (including 9 JVs (30
June 2021: 8)).

 

We have again delivered strong growth in home completions in the year. Total
home completions (including JVs) increased to 17,908, ahead of both last
year's 17,243 and the 17,856 delivered in FY19. Total home completions were
impacted by the deferral into FY23 of a London apartment block comprising 221
homes, reflecting resource related delays in the building control process.

 

Our two-year completion volume recovery since the onset of the pandemic and
initial national lockdown, reflects the discipline, commitment and
adaptability of our workforce and our subcontractors, as well as the ongoing
support of our long-standing and valued supply chain partners.

 

We have delivered a total average selling price ('ASP') for the year of c.
£300k (FY21: £288.8k), with the private ASP at c. £341k (FY21: £325.5k)
and the affordable ASP at c. £159k (FY21: £146.5k), with the change in
affordable ASP reflecting an increased proportion of completions from our
outer London operations. We experienced average house price inflation of c. 8%
across the country on private reservations secured during FY22.

 

Our forward sales position is strong, with total forward sales (including JVs)
at 30 June 2022 of £3,622.3m (30 June 2021: £3,473.5m), equating to 13,579
homes (30 June 2021: 14,334 homes). As at 30 June 2022, 72% of these homes (30
June 2021: 75%) were contractually exchanged. The private ASP in our forward
order book at 30 June 2022 was £375.4k (30 June 2021: £339.8k). The movement
in the private ASP in the order book reflects house price inflation
experienced throughout the country, as well as a slight increase in the mix of
London units when compared with last year.

 

Our site teams and subcontractors have delivered a further improvement in our
construction activity, with an average of 352 (FY21: 311) equivalent homes
(including JVs) built per week in the year. During the first half, an average
341 (HY21: 298) equivalent homes were constructed each week. In the second
half, this improved further to 364 equivalent homes (2H21: 324). Our
construction output recovery has been driven by management focus and
commitment on three key areas:

-     Ensuring our sites offer safe, well-organised and attractive
workplaces for our employees and subcontractors;

-     Using our centralised procurement team and strong supplier
relationships to ensure continuity of building material supplies for our
subcontractors;

-     Increasing the use of our standard house types and modern methods of
construction, most notably timber frame construction.

 

We experienced total build cost inflation of c. 6% in FY22, in line with our
previous guidance. Reflecting the continued strength of the market, the
impacts of escalating energy costs and fuel cost inflation in relation to
transportation, we are currently experiencing total build cost inflation of
between 9% and 10%. We will update on our expectations for total build cost
inflation in FY23 with our full year results in September.

 

 

Leadership in quality and customer service

Our long-term commitment to quality and customer service remains absolute. It
is fundamental to both the resilience of our business and to maintaining our
position as the leading national sustainable housebuilder.

 

Our quality has, again, been recognised through the NHBC Pride in the Job
Awards for build quality and site management with our site managers achieving
98 awards in June 2022, more than any other housebuilder for the 18(th)
consecutive year.

 

These awards also complement the recognition of our focus on quality and
customer service by our customers who awarded us the maximum 5 Star rating in
the HBF customer satisfaction survey for the 13(th) successive year, more than
any other major housebuilder.

 

Committed to growth

As Britain's largest housebuilder we are committed to playing a key role in
addressing the UK's housing shortage and during the year we have put in place
additional building blocks for future growth beyond our target of 20,000 home
completions.

 

We have opened two new divisions to give us increased capacity over the coming
years. In our Northern region, we have opened a new Sheffield division and in
our East region, a new Anglia division based in Norwich, with both divisions
offering Barratt and David Wilson branded homes.

 

As a continuation of our strategy to migrate more of our production to timber
frame, we will open a new factory in England to complement our existing
factory in Scotland. The new timber frame manufacturing facility, near Derby,
will add significant capacity to our timber frame output from FY24.

 

Building sustainably

To demonstrate our leadership in sustainability we launched our first air
source heat pump development, at Delamare Park in Somerset during the year.
Among other features, homes on this development benefit from enhanced
insulation and air source heat pumps. Delamare Park is an important step both
for us to understand how future changes will impact our business and to
analyse customer awareness of, and satisfaction with, the homes the industry
will be delivering in the second half of this decade.

 

During the year, we also completed our zero carbon concept home, the "Zed
House". This is the first zero carbon house developed by a major housebuilder,
which goes beyond the Future Homes Standard by delivering a carbon reduction
of 125%((6)). The Zed House is an important milestone on our journey to meet
our target that all of our new homes will be zero carbon in use from 2030.

 

Supporting our employees

Recognising the impact of the ongoing cost of living squeeze, and as part of
our commitment to be the employer of choice in the housebuilding industry, we
brought forward our annual salary review from 1 July to 1 April 2022, awarding
a 5% increase to all eligible employees. In addition, we have recently also
introduced a temporary salary supplement of £1,000 for all employees, below
senior management level, phased over the 6-month period from 1 July 2022.

 

During the first half of FY22, we introduced several other initiatives for our
employees, which included:

-     Increasing the scope of our private medical insurance to cover all
employees;

-     Introducing an additional holiday allowance for employees to use on
a "special day";

-     Doubling the number of volunteering days to two per year, enhancing
the opportunities for employees to support their local charities and good
causes.

 

 

 

Building safety

Adjusted items in the year comprise legacy property costs associated with
building safety related remediation activities of c. £412m. The charge in the
year includes the first half charge of £17.4m and a subsequent net charge of
c. £395m in the second half. The second half charge includes reinforced
concrete frame remediation works but mainly reflects costs in relation to the
Department for Levelling Up, Housing and Communities' Developer Pledge. This
Pledge encompasses the Group's commitment to take responsibility for
undertaking or funding remediation and / or mitigation works, to address
critical fire-safety issues on all buildings of 11 metres and above, that we
have developed or refurbished over the last thirty years, as well as
reimbursing the Building Safety Fund and ACM Funds.

 

We anticipate that the required remediation programme in relation to the
Pledge will be delivered over the next three to five years, with building
safety considerations paramount in the prioritisation and scheduling of works.
Initial re-imbursement of costs incurred by the Building Safety Fund and the
private Sector ACM Cladding Remediation Fund, are likely to be agreed and
settled in the new financial year.

 

As previously guided, we are deploying additional resources in our dedicated
Building Safety Unit (BSU), which have not been included within the adjusted
item costs charged in the second half. The annualised BSU operating costs,
which will be expensed as incurred through administrative expenses, will
increase by approximately £10m per annum from 1 July 2022.

 

Land

We have secured land approvals in line with our expectations, whilst
maintaining discipline and selectivity in our land purchasing. In the year we
approved 19,089 net plots (FY21: 18,067 net plots) of operational land for
purchase, equating to £1,396.1m (FY21: £876.8m) on 102 new sites (FY21: 97),
in attractive locations that meet our required hurdle rates.

 

In line with our operating framework, we continue to target an owned and
controlled land bank of around 4.5 years in the medium term and we expect land
approvals in FY23 to be between 18,000 and 20,000 plots.

 

We have also been pleased with the integration and progress made by Gladman
Developments since the acquisition at the end of January 2022. The business
has performed in line with our expectations and the acquisition has brought
together Barratt's best in class housebuilding operations with Gladman's
excellent land sourcing and promotion capabilities, creating greater
flexibility for landowners and significantly enhancing Barratt's strategic
land credentials.

 

Balance sheet and liquidity

The Group remains financially strong, with a well-capitalised balance sheet
and substantial cash and additional liquidity. As at 30 June 2022 the Group
had net cash((5)) of c. £1,125m (30 June 2021: net cash £1,317.4m) and an
undrawn committed revolving credit facility of £700m. The year-end net cash
position reflected strong working capital discipline, the £250m acquisition
of Gladman Developments, land spend of c. £1,050m (FY21: £745m) and a
benefit from the initial tax relief recognised in respect of the building
safety remediation charge taken in the second half, which resulted in a £65m
reduction in the fourth quarter corporation tax payment.

Land creditors, at the end of the financial year of around £730m (30 June
2021: £658.3m), equated to c. 22% (30 June 2021: 22.3%) of the owned land
bank.

 

We continue to operate in line with our well-embedded operating framework,
creating discipline in our operations and resilience in our balance sheet.

 

 

 

 

Dividend

The Board continues to recognise the importance of dividends to all
shareholders and in line with the revised ordinary dividend policy, announced
at the time of the Group's interim results, the Board intends to declare an
ordinary dividend based on FY22 dividend cover of 2.25 times adjusted net
income.

 

The Board continues to review its capital allocation policy and will provide
an update with our FY22 financial results on 7 September 2022.

 

Outlook

We have delivered an excellent operational and financial performance this year
and, as a result, we expect to deliver FY22 adjusted profit before tax in the
range of £1,050m and £1,060m, slightly ahead of current market consensus
expectations((4)) at £1,048m (FY21 adjusted profit before tax: £919.7m).

Looking forward, we recognise that significant macro-economic uncertainties
remain, most notably around rising inflation and interest rates and their
consequent impacts on UK economic growth, employment, as well as consumer
confidence and spending.

Based on current market conditions, and assuming no material disruption to our
supply chain partners, we expect to grow total home completions in line with
our medium term growth target of 3% - 5% whilst ensuring we maintain our
industry leading standards of build quality and customer service. We also
continue to buy land at a minimum 23% gross margin hurdle rate and target a
minimum 25% ROCE.

We have significant net cash((5)) balances, a well-capitalised balance sheet,
a strong forward sales position and clear plans to secure both incremental
home completion growth and further operating efficiencies in the year ahead.

The Board will remain vigilant and respond to changes in the market and the
wider economy as they develop but believes that our operating performance, our
forward order book and very strong financial position, provide us with both
the resilience and flexibility to react to changes in the operating
environment in FY23.

 

This trading update contains certain forward-looking statements about the
future outlook for the Group. Although the Directors believe that these
statements are based upon reasonable assumptions, any such statements should
be treated with caution as future outlook may be influenced by factors that
could cause actual outcomes and results to be materially different.

 

Notes:

(1)    All of the information in this statement is unaudited with respect to
the year ended 30 June 2022.

(2)    An active outlet is defined as an outlet with at least one plot for
sale. Our definition remains consistent across all reporting periods.

(3)    All figures within this statement exclude joint venture (JV)
completions in which the Group has an interest unless otherwise stated.

(4)    Market expectations, as at market close on 12 July 2022, reflecting
Bloomberg consensus adjusted profit before tax at £1,048m based on 15 analyst
estimates.

(5)    Net cash is comprised of cash and cash equivalents, bank overdrafts,
interest bearing borrowings and prepaid fees.

(6)    Measured against 2013 ADL1a but using the Future Homes Standard
metrics and targets.

 

Appendices

 1. Completions (homes)         FY22                      FY21          Variance
 Private                        13,327                    13,134        1.5%
 Affordable                     3,835                     3,383         13.4%
 Wholly owned                   17,162                    16,517        3.9%
 JV                             746                       726           2.8%
 Total                          17,908                    17,243        3.9%
                                    2022                      2021
 2. ASP (£'000)   H1            H2           FY           H1     H2     FY
 Private          327.4         c. 352       c. 341       319.5  332.1  325.5
 Affordable       157.1         c. 162       c. 159       145.3  147.8  146.5
 Total ASP        288.0         c. 310       c. 300       283.5  294.7  288.8

 

                       30 June 2022      30 June 2021      Variance
 3. Forward sales      £m       Homes    £m       Homes    £m       Homes
 Private               2,292.9  6,108    1,945.2  5,724    17.9%    6.7%
 Affordable            1,083.4  6,730    1,259.1  7,861    (14.0%)  (14.4%)
 Wholly owned          3,376.3  12,838   3,204.3  13,585   5.4%     (5.5%)
 JV                    246.0    741      269.2    749      (8.6%)   (1.1%)
 Total                 3,622.3  13,579   3,473.5  14,334   4.3%     (5.3%)

 

Conference call for analysts and investors

 

David Thomas, Chief Executive, Steven Boyes, Deputy Chief Executive and Chief
Operating Officer and Mike Scott, Chief Financial Officer will be hosting a
conference call at 08:30am today, Thursday 14 July, to discuss this Trading
Update.

 

To access the conference call we would advise calling in 15 minutes ahead of
the 8.30am start time on:

Dial-in (Local): +44 (0)330 165 4012

Dial-in (Toll free): 0800 279 6877

Passcode: 2527238

 

A recording of the conference call will be available on our website during the
afternoon of 14(th) July.

 

For further information, please contact:

 Barratt Developments PLC
 John Messenger, Group Investor Relations Director  07867 201 763

 For media enquiries:
 Tim Collins, Head of Corporate Communications      020 7299 4874

 Brunswick
 Jonathan Glass/ Rosie Oddy                         020 7404 5959

 

www.barrattdevelopments.co.uk (http://www.barrattdevelopments.co.uk)

Barratt Developments PLC LEI: 2138006R85VEOF5YNK29

Financial reporting calendar

The Group's next scheduled announcement of financial information is the FY22
full year results announcement on 7 September 2022.

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