REG - Barratt Developments - Barratt Developments PLC Trading Update
10/07/2024 07:00
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RNS Number : 7651V Barratt Developments PLC 10 July 2024
10 July 2024
Barratt Developments PLC
Strong delivery in a challenging market
Barratt Developments PLC (the 'Group') is today issuing a trading update for
the year ended 30 June 2024 (the 'year' and 'FY24') ahead of publication of
its annual results on 4 September 2024((1)). Comparatives are to the year
ended 30 June 2023 ('FY23') unless otherwise stated.
David Thomas, Chief Executive, commented:
"During another year of economic and political uncertainty, we have delivered
a strong operational performance, reflecting the exceptional work of our
employees, sub-contractors and suppliers, and their commitment to delivering
high quality homes that people want to live in.
Whilst we continue to navigate a challenging macroeconomic backdrop, we are
delivering industry leading build quality, sustainability and customer
service. Combined with the strength of our balance sheet, this has ensured we
remain resilient and responsive through the cycle.
Looking ahead, we are pleased that the proposed combination with Redrow was
strongly supported by both sets of shareholders in the Spring and, subject to
the CMA's approval, we look forward to bringing together two businesses to
create an exceptional UK housebuilder ensuring we are well-positioned for the
future."
Highlights
● Net private reservations per active outlet((2)) per week of 0.58 (FY23:
0.55)((3)) including a contribution of 0.08 (FY23: 0.10) from the private
rental sector and additional sales to registered providers of social housing.
● Total home completions at the upper end of our guidance range for FY24 at
14,004 (FY23: 17,206) including 536 from JVs (FY23: 828).
● Total forward sales (including JVs) at 30 June 2024 of 7,239 homes (30 June
2023: 8,995) at a value of £1,912.3m (30 June 2023: £2,223.4m), in line with
expectations.
● Adjusted profit before tax is anticipated to be slightly ahead of our previous
expectations.
● Legacy property charges of c. £192m (FY23: £179.2m) recognised as adjusted
items, including the first half charge of £61.9m and c. £130m in H2 relating
to legacy property issues previously disclosed.
● Strong balance sheet position with year-end net cash((4)) of c. £865m (30
June 2023: £1,069.4m) which positions us well as land market activity
increases.
● Given the expected profile of sales outlet openings in FY25, we anticipate
total home completions in a range of 13,000 to 13,500 in FY25, including c.
600 completions from our JVs.
● Awarded 89 Pride in the Job Awards for outstanding site management in the 2024
NHBC Awards, more than any other housebuilder for the 20(th) consecutive year.
● The combination of Barratt and Redrow was approved by both sets of
shareholders on 15 May 2024. The CMA's Phase 1 review commenced on 13 June
2024 and we are co-operating fully with their enquiries, which we expect will
be decided by 8 August 2024.
Trading
Reservation rates
Our net private reservation rate for FY24 was 0.58 (FY23: 0.55) per active
outlet per week, an increase of 5.5%. This included a contribution of 0.08
(FY23: 0.10) from reservations into the private rental sector ('PRS'),
principally to Citra Living, and additional reservations of private units to
Registered Providers of social housing ('RPs') (Appendix 1).
Underlying private sales activity has remained sensitive to mortgage
availability and affordability. As outlined in our interim results, we saw an
improving reservation rate during the first half as mortgage rates began to
ease lower from August 2023 and this trend continued through the second half
of the year.
First time buyer activity has stabilised and shown some recovery, accounting
for 27% of FY24 private reservations (FY23: 25%). Meanwhile demand amongst
existing homeowners remained resilient, albeit with continuing elevated levels
of sales incentives and increased use of part exchange, at 16% of private
reservations in the year (FY23: 11%). We are tightly controlling part exchange
transactions with unsold part exchange stock of 120 homes at the year end (30
June 2023: 146).
We continue to drive revenue across all tenures by increasing sales into the
private rental and affordable housing sectors. Our strategic partnership with
Citra Living advanced during FY24 and was complemented by additional sales to
a growing portfolio of PRS providers. Overall, through PRS related activity
and the strength of our long-standing relationships with RPs, we successfully
secured 1,452 (FY23: 1,769) private reservations, which supported both build
activity and completions in FY24, and our order book into FY25 and FY26.
Sales outlets
Across FY24 we operated from an average of 346 (FY23: 367) active sales
outlets (including 9 JVs (FY23: 8)) as we traded through those outlets where
activity was extended by the reduced reservation rates experienced from Autumn
2022. At 30 June 2024 we were operating from 326 (30 June 2023: 389) active
sales outlets (including 10 JVs (30 June 2023: 9)).
Due to lower land buying activity in 2022 and 2023 and the annualised impact
of sales outlets closing in the second half of FY24, we forecast average sales
outlets will reduce by around 9% in FY25. We expect this reduction to be
temporary with significant net sales outlet growth in Q4 FY25 and FY26
supporting average sales outlets for FY26 above FY24 levels.
Home completions and ASPs
Total home completions (including JVs) reduced by 18.6% in the year to 14,004
(FY23: 17,206). As we reported in February, our lower order book and more
muted demand in the first quarter of the year resulted in a 28.5% decline in
total home completions in the first half. With reservation activity improving
on a sustained basis throughout the second quarter and continuing from the
start of the new calendar year, total home completions declined by a more
modest 8.7% in the second half. The affordable housing share of wholly owned
home completions reduced to 20.8% (FY23: 23.9%) (Appendix 2).
The total average selling price ('ASP') for the year was c. £307k (FY23:
£319.6k), with the private ASP reducing by 6.4% at c. £344k (FY23: £367.6k)
and, excluding PRS and RP completions, reduced by 4.9% to c. £355k (FY23:
£373.2k). The affordable ASP was c. £165k (FY23: £167.2k).
Order book
Our forward sales position has continued to normalise during FY24, with total
forward sales (including JVs) of £1,912.3m at 30 June 2024 (30 June 2023:
£2,223.4m), equating to 7,239 homes (30 June 2023: 8,995). At 30 June 2024,
73% of these homes (30 June 2023: 73%) were contractually exchanged
(Appendices 3 and 4). Excluding PRS and RP reserved plots, the private ASP in
the order book at 30 June 2024 was £368.6k (30 June 2023: £376.9k). The 2.2%
reduction in the ASP reflected several factors but included an estimated 2.7%
underlying reduction in house prices, as well as a positive impact through a
greater proportion of London homes in the order book at 30 June 2024 when
compared with the prior year end.
Build activity
During FY24 we managed our site-based construction activity to reflect our
order book position coming into the year, the prevailing reservation rates
achieved and the reduced number of sales outlets, with an average 257 (FY23:
322) equivalent homes (including JVs) built per week in the year. The
disciplined management of our construction activity to ensure we have
efficient working capital across our sites and build stages is a constant
focus.
We experienced total build cost inflation of approximately 5% in FY24, in line
with our previous guidance. We expect total build cost inflation to abate,
with average total build costs anticipated to be broadly flat in FY25.
Adjusted items - costs associated with legacy properties and Redrow
transaction costs
Adjusted items recognised in the year relate to costs associated with legacy
properties and totalled c. £192m (FY23: £179.2m), as well as costs in
relation to the Redrow transaction of c. £23m.
The legacy property costs of c. £192m, includes the first half adjusted item
charge of £61.9m, which related to an increase in the fire safety and
external wall systems contingency, based on latest information in relation to
the Government's Building Safety Fund expenditure, as well as remediation
costs for atypical buildings within our portfolio.
The second half charges in relation to legacy properties of c. £130m relate
to developments previously identified as potentially requiring remediation
work, which have been previously disclosed.
In relation to fire safety and external wall systems, the charge relates to
the development first disclosed as a contingent liability in our FY24 interim
results. The charge in relation to reinforced concrete frame relates to the
remediation of two developments in London, first referenced as contingent
liabilities in FY23. Remaining building safety provisions are in line with our
previous expectations.
The Group signed the Scottish Safer Buildings Accord commitment letter on 31
May 2023 and the Housing (Cladding Remediation) (Scotland) Act 2024 received
Royal Assent on 21 June 2024, codifying the principles of the Accord into law.
The Single Building Assessment specification, being the required methodology
for assessing in-scope buildings, was published in its final form on 21 June
2024 and negotiations continue with the Scottish Government over the developer
remediation contract, which is currently due to be published in draft in July
2024. The adoption of a similar fire risk assessment process to England, based
on PAS 9980, is positive but there remains uncertainty over the standard of
remediation that will be required on buildings in scope. No provision has
been recognised in relation to the Accord, with existing provisions for
Scotland made on a consistent basis with England and Wales. As these
negotiations advance, we will further update the market.
Leading on sustainability and innovation
Innovation and sustainable outcomes continue to be critical to our long-term
success, and as such we remain focused on the practical delivery of our
commitments.
Our Group Design and Technical team continue to develop plans to meet the
requirements of the Future Homes Standard in 2025/2026. Our eHome2 project is
providing real world data on how the house is performing across various
external temperatures and weather conditions, created within the Energy House
2.0 chamber at the University of Salford. The team is developing and evolving
our house type designs to meet the step change in both the design of, and
materials used in, the homes we will build under the new Standard.
Our industry-leading sustainability performance continues to be recognised,
with the Group maintaining its position in the CDP's Global Climate Change A
List for Leadership, one of fewer than 365 companies worldwide, and placing
the Group, once again, as the most highly rated UK national housebuilder.
Leadership in quality and customer service
Our commitment to leading build quality and customer service is more important
than ever given the more difficult market backdrop. Once again, the standard
of build quality across our sites has been recognised through the NHBC Pride
in the Job Awards for build quality and site management with our site managers
achieving 89 awards in June 2024, more than any other housebuilder for the
20(th) consecutive year.
These awards complemented 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 15(th) successive year, a record which is
unique amongst the major housebuilders.
Land
We have continued our disciplined approach to land approvals throughout FY24,
but we did see an increase in development sites coming to market, particularly
through the final quarter. As a result, our land approval activity has
increased with net approvals of 58 sites in the year (FY23: net cancellation
of 2 sites). Overall, this land activity led to a net increase of 12,439
plots in the year (FY23: net reduction of 812 plots) and a net increase of
£646.9m in future approved land costs (FY23: net decrease of £14.9m)
(Appendix 5).
Our cash land spend in FY24, on approved land or the settlement of land
creditors, reduced to c. £680m (FY23: £822.8m), a reflection of the limited
land approvals in FY23 and early FY24.
Following the acceleration in land approvals during the final quarter of FY24
and based on current market conditions, we now expect our land spend in FY25
will show a significant increase relative to FY24. 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.
Balance sheet, liquidity and shareholder returns
The Group remains financially strong, with a well-capitalised balance sheet,
substantial cash and additional liquidity. As at 30 June 2024 the Group held
net cash((4)) of c. £865m (30 June 2023: £1,069.4m) and an undrawn committed
revolving credit facility of £700m, extended during the year to mature in
November 2028. The year end net cash position reflected strong working capital
discipline.
Land creditors, at the end of the financial year of c. £473m (30 June 2023:
£506.7m), equated to c. 15% (30 June 2023: 16.1%) of the owned land bank, at
the bottom of our target range, reflecting our step back from the land market
from September 2022. We expect land creditors to move higher in FY25 as a
result of the growing momentum in land approvals.
The Board intends to declare an ordinary dividend in line with policy, with
dividend cover of 1.75 times adjusted FY24 earnings per share, with the FY24
results.
Barratt Redrow
The proposed combination with Redrow was strongly supported by both sets of
shareholders. We look forward to welcoming new colleagues from Redrow into
the Group and moving forward with the integration of the two businesses to
create an exceptional UK housebuilder, following the completion of the CMA
merger assessment process.
Outlook
We have delivered a strong operational performance in what has been another
challenging year and, as a result, we expect to deliver FY24 adjusted profit
before tax slightly ahead of our previous expectations.
We welcome the new Government's urgency and focus on housebuilding and reform
of the planning system as key to both unlocking economic growth and tackling
the chronic undersupply of new homes. We look forward to working with
Government and wider stakeholders to address supply side constraints and
deliver the new homes, of all tenures, the country needs.
Given the profile of land acquisition over the past 24 months, we expect to
see a reduction in average outlets in FY25 which will impact volume delivery
but are confident that average outlet numbers will grow into FY26.
Although the macro backdrop remains challenging, particularly demand
sensitivity to current mortgage pricing and availability, and with lower
average sales outlets, we anticipate total home completions, including JVs,
will be in a range of 13,000 to 13,500 in FY25, including c. 600 completions
from our JVs.
We have significant net cash((4)), a well-capitalised balance sheet and a
solid forward sales position all of which allow us to enter FY25 with
confidence.
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 2024.
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. Net cash is comprised of cash and cash equivalents, bank overdrafts, interest
bearing borrowings and prepaid fees.
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 08:00am today, Wednesday 10 July, to discuss this Trading
Update.
To access the conference call we would advise calling in 10-15 minutes ahead
of the 8.00am start time on:
Dial-in (UK & International): +44 (0)33 0551 0200
The password phrase for the call is: "Barratt Trading July" and please be
prepared to give both your full name and organisation, as these details must
be submitted to the Takeover Panel at the end of the conference call.
A recording of the conference call will be available on our website during the
afternoon of 10(th) July.
For further information, please contact:
Barratt Developments PLC
Mike Scott, Group Chief Financial Officer 07881 327 748
John Messenger, Group Investor Relations Director 07867 201 763
For media enquiries:
Tim Collins, Group Corporate Affairs Director 020 7299 4874
Brunswick
Rosie Oddy / Johnathan Glass 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 FY24
full year results announcement on 4 September 2024.
Appendices
1. Sales Rate H1 H2 FY
FY24 0.48 0.69 0.58
FY23 0.44 0.65 0.55
FY24 vs FY23 9.1% 6.2% 5.5%
Of which PRS & RPs
FY24 0.06 0.10 0.08
FY23 0.05 0.13 0.10
2. Completions (homes) FY24 FY23 Variance
Total private completions 10,666 12,456 (14.4%)
Of which private exc. PRS and RPs 8,851 11,676 (24.2%)
PRS 1,048 258 306.2%
RPs 767 522 46.9%
Affordable 2,802 3,922 (28.6%)
Wholly owned 13,468 16,378 (17.8%)
JV 536 828 (35.3%)
Total 14,004 17,206 (18.6%)
30 June 2024 30 June 2023 Variance
3. Forward sales £m Homes £m Homes £m Homes
Total private 1,196.4 3,386 1,331.9 3,884 (10.2%) (12.8%)
Of which private exc. PRS & RPs 930.0 2,523 1,003.0 2,661 (7.3%) (5.2%)
PRS 129.0 400 247.6 899 (47.9%) (55.5%)
RPs 137.4 463 81.3 324 69.0% 42.9%
Affordable 568.2 3,462 746.2 4,659 (23.9%) (25.7%)
Wholly owned 1,764.6 6,848 2,078.1 8,543 (15.1%) (19.8%)
JV 147.7 391 145.3 452 1.7% (13.5%)
Total 1,912.3 7,239 2,223.4 8,995 (14.0%) (19.5%)
FY24 FY23 Variance
4. Forward sales roll (homes) Private Total Private Total Private Total
30 June 2023 / 2022 3,884 8,995 6,108 13,579 (36.4%) (33.8%)
Reservations 10,168 12,248 10,232 12,622 (0.6%) (3.0%)
Completions (10,666) (14,004) (12,456) (17,206) (14.4%) (18.6%)
30 June 2024 / 2023 3,386 7,239 3,884 8,995 (12.8%) (19.5%)
Number of sites Number of plots
5. Land approval movements H1 FY24 H2 FY24 FY24 H1 FY24 H2 FY24 FY24
Approved or amended 13 56 69 1,990 13,243 15,233
Cancelled (7) (4) (11) (2,244) (550) (2,794)
Net approvals 6 52 58 (254) 12,693 12,439
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