Annual Results Announcement
7 September 2022
Barratt Developments PLC
Annual Results Announcement for the year ended 30 June 2022
Excellent operational and financial performance; completions recovered to pre-pandemic levels
Commenting on the results David Thomas, Chief Executive of Barratt Developments PLC said:
" This has been a year of fantastic progress, with completions recovering to pre-pandemic levels and excellent productivity across our sites. Customers are at the heart of everything we do and we were awarded more NHBC Pride in the Job Awards than any other housebuilder for the 18th year in a row - testament to the high quality we consistently achieve across our sites.
Our financial strength and operational excellence position us well to navigate the macro-economic uncertainties ahead. I'd like to thank our employees, sub-contractors and supply chain partners for helping us to continue to deliver the industry-leading, sustainable homes and developments our customers want and the UK needs".
|
£m unless otherwise stated1,2,3 |
Year ended 30 June 2022 |
Year ended 30 June 2021 |
Change |
|
Total completions (homes)4 |
17,908 |
17,243 |
3.9% |
|
Revenue |
5,267.9 |
4,811.7 |
9.5% |
|
Alternative performance measures: |
|
|
|
|
Adjusted gross margin (%) |
24.8 |
23.2 |
160bps |
|
Adjusted profit from operations |
1,054.8 |
919.0 |
14.8% |
|
Adjusted operating margin (%) |
20.0 |
19.1 |
90bps |
|
Adjusted profit before tax |
1,054.8 |
919.7 |
14.7% |
|
Adjusted basic earnings per share (pence) |
83.0 |
73.5 |
12.9% |
|
ROCE (%)5 |
30.0 |
27.8 |
220bps |
|
Statutory basis: |
|
|
|
|
Gross margin (%) |
17.1 |
21.0 |
(390bps) |
|
Profit from operations |
646.6 |
811.1 |
(20.3%) |
|
Operating margin (%) |
12.3 |
16.9 |
(460bps) |
|
Profit before tax |
642.3 |
812.2 |
(20.9%) |
|
Basic earnings per share (pence) |
50.6 |
64.9 |
(22.0%) |
|
Total ordinary dividend per share (pence) |
36.9 |
29.4 |
25.5% |
|
Net cash |
1,138.6 |
1,317.4 |
(178.8) |
Highlights
· Excellent operational performance throughout FY22 with total home completions4 increasing by 3.9% to 17,908 (FY21: 17,243) homes and returning to pre-pandemic levels. Based on current market conditions, we are targeting total home completion growth of 3% to 5% in FY23, to between 18,400 and 18,800 homes.
· Adjusted gross margin of 24.8% (FY21: 23.2%) reflecting strong customer demand, house price inflation ahead of build cost inflation and improved site based productivity. The reported gross margin, after adjusted item costs of £408.2m (FY21: £104.7m), reduced to 17.1% (FY21: 21.0%).
· Ongoing industry leadership in quality and customer service - 18th consecutive year of achieving more NHBC Pride in the Job Awards than any other housebuilder and the 13th consecutive year of receiving the maximum HBF 5 Star customer satisfaction rating.
· Strong cash generation with net cash at 30 June 2022 of £1,138.6m (30 June 2021: £1,317.4m) retaining balance sheet strength, investment in capacity for planned growth, as well as enhanced returns to shareholders.
· Significant progress as the leading national sustainable housebuilder with carbon intensity6 reduced by 14.0% to 1.53 (FY21: 1.78) tonnes and waste intensity6 reducing by 15.6% to 4.97 (FY21: 5.89) tonnes. Additional investments made in sustainability R&D during the year, further extending our industry leadership.
· Final ordinary dividend per share of 25.7p (FY21: 21.9p) together with the interim dividend of 11.2p (FY21: 7.5p) resulting in a total ordinary dividend for the financial year of 36.9p (FY21: 29.4p), reflecting our policy of reducing dividend cover.
· Return of £200m surplus capital through the implementation of a share buyback programme which will start shortly, with an initial tranche of £50m to be completed by the end of the calendar year and the total programme completed no later than 30 June 2023.
Current trading
· Market fundamentals remain strong, reflecting the continued imbalance between housing supply and demand, as well as good mortgage availability.
· We entered FY23 with a strong forward sales position and at 28 August 2022 we are 55% forward sold with respect to private wholly owned home completions for FY237 (29 August 2021 for FY22: 59%8) with 59% of the private order book exchanged (29 August 2021: 56% of the private order book exchanged). As at 28 August 2022 total forward sales were at 14,058 homes (29 August 2021: 15,402 homes) and a value of £3,808.9m (29 August 2021: £3,843.4m).4
· Net private reservations per active outlet per average week for the period to 28 August 2022 were lower than last year at 0.60 (FY22: 0.82) and below the 0.70 for the equivalent period in FY20, prior to the pandemic. In part, this reflects limited availability of homes for early occupation, given our strong forward order book, as well as heightened macro-economic uncertainty.
· As the land market has become increasingly competitive, our land approvals in the new financial year to date are lower than in FY22, reflecting our strong land bank position and disciplined application of our minimum hurdle rates of 23% gross margin and 25% ROCE.
· Construction activity is on track to deliver planned output growth in FY23 with 366 equivalent homes per average week built to date in the new financial year (FY22: 336 homes).
1. Refer to Glossary for definition of key financial metrics.
2. Unless otherwise stated, all numbers quoted exclude JVs.
3. In addition to the Group using a variety of statutory performance measures, it also measures performance using alternative performance measures (APMs). Definitions of the APMs and reconciliations to the equivalent statutory measures are detailed in the Definitions of alternative performance measures and reconciliation to IFRS section. Net cash definition in Note 19.
4. Including JVs in which the Group has an interest.
5. The definition of ROCE has been updated in the year to exclude provisions in relation to legacy properties from capital employed. To ensure comparability, ROCE for FY21 has been restated under the revised definition.
6. Both carbon and waste intensity are measured relative to 100m2 of legally completed build area in the respective financial year. Carbon intensity is based on scope 1 and 2 emissions.
7. Our forward sold position with respect to FY23 private home completions is based on the mid-point of wholly owned completions guidance (17,850 homes) and assuming a 79%: 21% private: affordable home completion mix.
8. Our forward sold position with respect to FY22 is based on actual wholly owned private home completions for the year.
This announcement contains inside information. The person responsible for arranging for the release of this announcement on behalf of Barratt Developments PLC is John Messenger (Group Investor Relations Director).
Certain statements in this announcement may be forward looking statements. By their nature, forward looking statements involve a number of risks, uncertainties or assumptions that could cause actual results to differ materially from those expressed or implied by those statements. Forward looking statements regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. Accordingly, undue reliance should not be placed on forward looking statements. Unless otherwise required by applicable law, regulation or accounting standards, the Group does not undertake to update or revise any forward looking statements, whether as a result of new information, future developments or otherwise.
There will be a results meeting at the Chartered Accountants' Hall, 1 Moorgate Place, London, EC2R 6EA at 8.30am today.
A c onference call and webcast will accompany the meeting starting at 8.30am. Details for the conference call are included below. We would advise calling in to the conference call at 8.15am to ensure you are registered ahead of the start of the meeting.
· Standard International : +44 (0) 33 0551 0200
· UK Toll Free: 0808 109 0700
· New York: +1 212 999 6659
· USA Toll Free: 1 866 966 5335
The presentation will also be webcast live with the follow on Q&A. Please register and access the webcast using the following link:
https://broadcaster-audience.mediaplatform.com/#/event/62f3ad76368bde6d2842e8f5
An archived version of the webcast will also be available on our website later this afternoon and further copies of this announcement can be downloaded from the Barratt Developments PLC corporate website at www.barrattdevelopments.co.uk or by request from the Company Secretary's office at: Barratt Developments PLC, Barratt House, Cartwright Way, Forest Business Park, Bardon Hill, Coalville, Leicestershire, LE67 1UF .
For further information, please contact:
Barratt Developments PLC
Mike Scott, Chief Financial Officer 07881 327 748
John Messenger, Group Investor Relations Director 07867 201 763
Media enquiries
Tim Collins, Head of Corporate Communications 020 7299 4874
Brunswick
Jonathan Glass / Rosie Oddy 020 7404 5959
Website links : Barratt Developments , Barratt Homes and David Wilson Homes
Barratt Developments PLC LEI: 2138006R85VEOF5YNK29
Chairman's statement
In FY22, we have delivered excellent operational and financial results. Notwithstanding the challenges faced by the industry, most notably around building materials supplies, we have successfully grown both our home completions and our adjusted financial results to levels that exceeded our pre-pandemic full year performance in FY19.
We delivered 17,908 high quality, energy efficient new homes (including JVs) across Britain in FY22. This performance is 3.9% ahead of last year and also ahead of the 17,856 homes we completed pre-pandemic in FY19. We achieved adjusted profit before tax of £1,054.8m, a new record for the Group.
I would like to express my thanks to all our employees, sub-contractors and suppliers for their continuing commitment and dedication to Barratt.
Our employees
Our employees are key to our success. The Board is always keen to understand and respond to their views, concerns and challenges. Communication and feedback is achieved through a variety of channels including the Workforce Forum, town hall meetings and employee surveys.
We are conscious of the challenges that many of our employees will be facing as a result of the cost of living crisis and we are doing all we can to support them. We accelerated our annual pay review by three months to 1 April 2022 and introduced a temporary cost of living supplement for the six months from 1 July 2022, to all employees below the senior management team. In January 2022, we extended our private medical insurance cover to all employees, a first for the sector. We also introduced an additional paid volunteering day and gave an extra special day's holiday to all our employees. We will continue to monitor the economic backdrop and take any further steps that are deemed appropriate to ensure our employees are supported and we remain an employer of choice in the industry.
During the year, we appointed a new Head of Diversity and Inclusion to enhance our strategy and to deliver more rapid progress in the creation of a diverse and inclusive workplace.
Our culture
Our business has a well-embedded culture and belief in operating to the highest standards, taking pride in the work that we do and the way in which we operate, whilst remaining focused on the needs of our customers and other stakeholders.
The underlying strength of our culture has been shown through the way the Group has continued to drive growth in the past year whilst, at the same time, improving our build quality and customer service. The Board continues to seek ways of further developing and advancing the positive culture of our business and recognises that the Group's culture is driven by its leadership.
Building sustainably
Our Building Sustainably framework is the blueprint for identifying and driving the positive changes we aspire to deliver. We are determined to maintain our position as the leading national sustainable housebuilder and recognise that sustainability presents clear opportunities for business growth, encourages innovation and improves our products for customers.
The Group's Sustainability Committee, chaired by our Chief Executive David Thomas and attended by three additional members of the Board, became operational in the year. This Committee is responsible for scrutinising the sustainability strategy, ensuring the Building Sustainably framework is embedded across the Group's operations and that we are mitigating our sustainability risks and leveraging opportunities in the short, medium and longer term.
We are committed to continuously enhancing our reporting disclosures to meet changing stakeholder requirements and enable better analysis and comparability. I am pleased to report that we have undertaken a thorough review of Group wide climate related risks and opportunities and this year's Annual Report will include full disclosure and compliance with the recommendations of the TCFD.
The 2021 CDP annual results provided valuable external benchmarking of our performance against key sustainability measures. Our leadership level in the "Climate" category was maintained in the year; we improved to the leadership level in the "Forests" category, and we also improved our score in the "Water" category. The CDP results reflect our leading position in the UK housebuilding sector and are a credit to the hard work and dedication of our teams throughout the Group.
Finally, in December 2021, we were named "Sustainable Housebuilder of the Year" at The Housebuilder Awards 2021. This is the first time we have won this award and reaffirms both our progress to date and our commitment to be the leading national sustainable housebuilder.
Building safety
We have always been clear that we do not believe leaseholders should have to pay for necessary remediation to fix building safety issues caused by the design, construction or refurbishment of their buildings. On 6 April 2022 we announced that a proportionate and sensible approach to fire safety in historical buildings had been agreed with the UK Government and we have pledged to support leaseholders by funding remediation of buildings that we developed over the past 30 years. Accordingly, we have recognised an additional provision of £396m during the year. The Group is now also subject to the Residential Property Developer Tax (RPDT), which came into effect on 1 April 2022.
We have, however, urged Government to reconsider additional plans to expand the scope of the Building Safety Levy, which would create a further tax burden on the industry in addition to the existing RPDT and the six percentage point increase in corporation tax currently planned for 1 April 2023. In our view, the plan to expand the scope of the Building Safety Levy risks further punishing UK housebuilders who were not responsible for most of the historical buildings or building safety issues being addressed.
Board changes and succession planning
On 6 December 2021, we welcomed Mike Scott to the Board as an Executive Director and Chief Financial Officer. Mike has brought a wealth of financial experience from his previous roles.
Nina Bibby has completed nine years' service and will not stand for re-election at the AGM in October. During the year, we commenced a search for a new Non-Executive Director. This process is ongoing and an announcement will be made once the appointment has been finalised.
We welcome the new targets introduced by the FCA to increase diversity on listed company boards and executive committees.
Considering the need to continuously refresh the Board and our succession plans, Jock Lennox, Senior Independent Director, is leading the process to find a suitable candidate to replace me as Chair by the 2023 AGM. Full details will be announced once the appointment of the new Chair has been concluded.
Stakeholder engagement
Stakeholder engagement is a key part of the Board's agenda. Full details around engagement during the year will be available in the Group's Annual Report.
Shareholder returns
The Board remains focused on the continued investment in the business to deliver disciplined growth in our completion volumes. The Group's financial position and inherent cash generation has allowed the Board to review capital returns to shareholders during the year.
At the half year, we considered the significant ongoing cash generation of the Group's operations, as well as the importance of a long-term predictable dividend income stream for our shareholders. Accordingly, the Board revised the Group's ordinary dividend policy, implementing a phased reduction in dividend cover of 0.25x per year from 2.5x in FY21 to 1.75x in FY24.
The Board declared an interim dividend for FY22 of 11.2 pence per share (interim FY21 dividend: 7.5 pence per share) and is pleased to recommend a final FY22 dividend of 25.7 pence per share (final FY21 dividend: 21.9 pence per share). Subject to shareholder approval, the final dividend will be paid on 4 November 2022 to shareholders on the register at the close of business on 30 September 2022.
Shareholders who wish to elect for the Dividend Reinvestment Plan should do so by 14 October 2022.
The total proposed ordinary dividend for FY22, including the interim dividend of 11.2 pence per share paid in May, is 36.9 pence per share (FY21: 29.4 pence per share) reflecting the revised ordinary dividend cover of 2.25x adjusted earnings per share.
Additional capital returns
At the half year results, the Board confirmed that, where we have capital beyond our requirements for investment in the growth of the business, it would be the Board's intention to return this to shareholders. We committed to provide an update on the method and timing of any such return when appropriate to do so, considering opportunities for further investment and prevailing equity market conditions.
Following the excellent performance of the business throughout FY22 and our strong and resilient balance sheet, the Board has approved a return of surplus capital of £200m in FY23 through the implementation of a share buyback programme which will start shortly with an initial tranche of £50m to be completed by the end of the calendar year and the total programme completed no later than 30 June 2023.
AGM
Our 2022 AGM will be held at the offices of Linklaters LLP in London on Monday17 October 2022 at 2pm. Similar to last year there will also be a live webcast and the ability to submit questions on the day as well as in advance of the meeting. Votingat the AGM will continue to be by way of a poll to accurately reflect the holdings of our shareholders. Full details can be found in the separate Notice of AGM.
Looking to the future
We have a diverse and experienced Board that is committed to promoting the success and long term sustainable value of the Group. We continue to review our Board composition to ensure it has the skills, knowledge and experience that are aligned with our strategy as we move forward.
Our business is also in a very good position with substantial net cash, a strong forward sales position, and an excellent land bank. Our employees are focused on delivering operational improvements across our business, with an unwavering commitment to deliver high-quality, energy-efficient and sustainable homes and developments across the country.
Macro-economic uncertainties remain, most notably around household energy costs and elevated inflationary pressures, changes in interest rates and the consequent impacts on employment, wage growth, house prices and consumer spending and confidence. As a business, we also face the prospect of higher taxation, the ongoing challenges around build cost inflation and the withdrawal of Help to Buy, which will close for new reservations at the end of October 2022.
The Board will continue to monitor and respond to changes in the market and the wider economy but believes that our operating performance, forward order book and strong balance sheet position us well, with the resilience and flexibility to react to changes in the operating environment for FY23 and beyond.
On behalf of the Board, I would like to thank you for the confidence you have shown in the Group during the past year and for your continued support.
John Allan
Chairman
6 September 2022
Chief Executive's statement
Introduction
We have made excellent progress in a year of strong housing demand. I would, once again, like to thank our employees, sub-contractors and supply chain partners for their hard work and commitment, which enabled us to successfully grow our site-based construction activity, notwithstanding the significant supply chain challenges, and deliver high-quality homes and great service to our customers. Our focus remains on achieving our medium-term targets, growing completion volumes and further developing our industry leadership around sustainability, to deliver long-term value for all our stakeholders.
Our purpose is to lead the future of housebuilding by putting customers at the heart of everything we do.
We remain committed to playing a key role in addressing the housing shortage and delivering the high-quality, energy-efficient and sustainable developments needed across England, Scotland and Wales. In doing so, we will continue to contribute to growing Britain's economy as we navigate the economic challenges emerging post-pandemic, as well as the macro-economic impacts developing from the war in the Ukraine, most notably around energy costs, inflation and interest rates.
We continue to lead the industry on sustainability, with a particular focus on reducing our environmental impact and we have clear targets and plans for the years ahead.
Housing market fundamentals
Despite the continued macro-economic uncertainties, the housing market fundamentals remain attractive. Strong demand for high-quality, energy-efficient homes has been evident across the UK since it emerged from the initial national lockdown in summer 2020.
The strength of new housing demand, as well as years of under supply, underpin the Government's ongoing target to build 300,000 new homes each year. We are well positioned to deliver the high-quality, energy-efficient and sustainable developments needed across the UK.
The land market remains attractive with a steady supply of opportunities. Despite some planning delays during the year, planning consents have remained ahead of home building activity at a national level. Planning delays are however becoming more commonplace, reflecting constrained planning resources, the delayed impacts of the pandemic and emerging land use issues, notably the challenges created by nutrient neutrality. We are currently engaging with the consultation around future planning reform. We would urge the Government to ensure any changes deliver a planning system that is responsive to housing need, predictable and timely, and well-resourced at local authority level, to ensure a flow of consented land, which will allow the housebuilding industry to deliver the homes the country needs.
For the industry to grow new homes supply, it is vital that homebuyers can continue to access affordable and competitive mortgage finance. Whilst the revised Help to Buy scheme draws to a close on 31 March 2023, a more competitive mortgage market backdrop has increased the availability of 95% loan-to-value (LTV) lending. In addition, "Deposit Unlock"- a scheme developed by the housebuilding industry, insurers and lenders - is also now available across our developments through a number of mainstream mortgage lenders, and offers a 95% LTV mortgage.
Committed to building more homes
Reflecting our position as Britain's largest housebuilder, and our commitment to play a key role in addressing the housing shortage, this year we have put in place additional building blocks for future growth beyond our previous target of 20,000 annual home completions.
At the end of January 2022, we acquired Gladman Developments Limited. Gladman is the country's largest land promoter, which brought into the Group an industry-leading team of experts in land sourcing, promotion and planning. Gladman, at the time of its acquisition, held a portfolio of 406 land promotion sites encompassing more than 98,000 plots, which will provide an additional route to both grow the Group's strategic land bank and accelerate the strategic land bank conversion. Gladman will also benefit from the Group's development resources and financial strength, allowing it to offer a broader range of land promotion options to its current and future land partners. Gladman will, we believe, enable us to deliver incremental completions of 500 homes per annum from FY25.
We have also opened two new divisions - Sheffield and Anglia, in our Northern and East regions respectively - to support our future growth. Both divisions are dual branded, offering both Barratt and David Wilson homes and, following a period of land bank assembly, offer attractive opportunities for additional growth over the coming years. Once operating at scale, over the next five to seven years, we believe these two divisions combined will have the capacity to deliver more than 1,000 home completions per year.
To support our site-based construction activity, address the longer-term challenge of labour availability in the industry and build the most energy-efficient and sustainable homes for the future, Oregon, our in-house timber frame manufacturing business, is building a new timber frame facility near Derby. This facility will add significant capacity to Oregon's output from FY24.
Through these investments in enhanced land supply, geographic infill and additional off-site construction capability, we are creating the capacity to grow to 21,500 total completions (including JVs) per annum in the medium-term, ensuring we can deliver growth in the high-quality, energy-efficient and sustainable homes the country needs.
Performance overview
We have delivered an excellent performance throughout the year, making significant financial and operational progress, while improving both build quality and customer service.
Our performance is a testament to the disciplines embedded by our operating framework and the resulting strength in our business, as well as the commitment of our employees, sub-contractors and supply chain partners.
We increased our total home completions by 3.9% to 17,908 (FY21: 17,243) and delivered on our target to grow total home completions back above the pre-pandemic level of 17,856 achieved in FY19.
Wholly owned completions also grew by 3.9% to 17,162 homes (FY21: 16,517 homes). In addition, we delivered 746 homes through our JVs (FY21: 726 homes).
We achieved our medium-term gross margin target, delivering a 24.8% adjusted gross margin (FY21: 23.2%), with adjusted gross profit of £1,308.1m (FY21: £1,114.7m), reflecting strong customer demand, house price inflation ahead of build cost inflation and improved site based productivity .
The impact of adjusting items, which reflected legacy property costs associated with building safety related remediation activities, as well as the estimated future costs of such works as part of the Building Safety Pledge, resulted in reported gross profit of £899.9m (FY21: £1,010.0m) and a reported gross margin of 17.1% (FY21: 21.0%).
After deducting administrative costs, we delivered an adjusted operating profit of £1,054.8m (FY21: £919.0m) and an adjusted operating margin of 20.0% (FY21: 19.1%). Profit from operations, after the deduction of adjusting items, was £646.6m (FY21: £811.1m).
With the deduction of finance costs and including JV income, we delivered strong growth in adjusted profit before tax for the year to £1,054.8m (FY21: £919.7m). Reported profit before tax, after deducting adjusting items, was £642.3m (FY21: £812.2m).
Our Balance Sheet has remained strong with year-end net cash of £1,138.6m (FY21: £1,317.4m). We have increased our land creditors at the year end to £733.6m (FY21: £658.3m) and, as a result, we have reported a year-end net indebtedness surplus of £405.0m (FY21: £659.1m net surplus). We have also improved our ROCE, which has increased by 220 bps to 30.0% (FY21: restated 27.8%) and, as a result, has moved ahead of the returns achieved in the three years prior to the onset of the pandemic.
Our targets for the coming year and the medium term
In FY22, our focus on rebuilding both our total home completions and financial performance has delivered an excellent improvement on adjusted gross margin and ROCE. Building on this performance, whilst recognising the UK economy continues to face macro uncertainties, we have a clear strategy and targets for both the year ahead and the medium term of three to five years.
Our business now has capacity to deliver 21,500 home completions
• We intend to grow total home completions in FY23 to between 18,400 and 18,800 homes, with wholly owned completions between 17,650 and 18,050 homes, along with an additional c. 750 JV completions.
• Completions are expected to reflect the phasing out and timing of legal completions under the Help to Buy scheme, which must be completed by 31 March 2023.
• Beyond FY23, we will continue to target disciplined volume growth at between 3% and 5% annually towards our new target of 21,500 total home completions.
Our gross margin target remains at a minimum 23%
• We continue to buy land at a minimum 23% gross margin hurdle rate.
• In FY23, on the assumption that house price growth moderates over the coming months, and build cost inflation continues at between 9% and 10%, we would anticipate that our gross margin will move towards our minimum medium-term gross margin hurdle rate of 23%.
Our ROCE target remains at a minimum 25%
• In FY23 and beyond, we aim to continue to deliver a minimum ROCE of 25%, in line with our medium-term target.
Long-term value creation
We are focused on creating long-term value for our stakeholders. We recognise that the resources used in our operations are finite, from the land that we develop, to the materials we consume. Our impact on climate change makes it imperative that we constantly scrutinise and challenge the way we operate, as well as the environmental impact of our business.
Set out below are the progress and activities in FY22, as well as our objectives for the year ahead and the medium term:
|
|
Progress in FY22 |
Areas of focus for FY23 |
Medium-term targets |
|
Home completions |
• 3.9% growth in total home completions to 17,908 (FY21: 17,243) including 746 JV completions (FY21: 726). |
• Managing the phase out of Help to Buy by the end of March 2023.
• Delivering total home completions of between 18,400 and 18,800 including c. 750 JV completions. |
• Disciplined growth in home completions to our new target of 21,500 homes. |
|
Gross margin |
• 160 bps increase in adjusted gross margin to 24.8% (FY21: 23.2%).
• 390 bps decrease in gross margin to 17.1% (FY21: 21.0%). |
• Ongoing build optimisation and focus on build cost inflation control.
• Delivering continued operational improvements across our business. |
• Land acquisition at a minimum 23% gross margin and ongoing build optimisation and performance. |
|
ROCE |
• 220 bps increase in ROCE to 30.0% (FY21: restated 27.8%). |
• Disciplined and controlled land and work in progress investment to support growth. |
• Minimum of 25% delivered through continued operating framework discipline. |
Keeping people safe
Our fundamental priority is always to provide a safe environment for all our employees, sub-contractors and customers, and we are committed to achieving the highest health and safety standards. We are continually developing our processes and procedures, challenging unsafe behaviours and looking at ways we can further improve.
As highlighted in last year's Annual Report, reflecting increased activity across housebuilding following the initial national lockdown, we experienced a significant increase in our Injury Incidence Rate (IIR) in FY21 to 416 (FY20: 256) per 100,000 workers. Following the introduction of action plans to address the IIR, and with close monitoring from the Safety, Health and Environment (SHE) Committee, we are able to report a significant improvement has been achieved, with our IIR reducing by 37% to 262 per 100,000 workers*, and our SHE audit compliance has been maintained at 97%* (FY21: 97%).
We also continue to focus on ensuring workers do not suffer long-term issues associated with their work activities. We have implemented controls and raised awareness in areas such as exposure to hazardous dusts and repetitive strain injuries. We are also working with our key contractors to encourage them to implement health surveillance programmes for their workforces.
As part of our enduring response to COVID-19, we have continued to refine and update our working practices and policies in line with the latest guidance from Government, Public Health Authorities and the Construction Leadership Council. We also continue to operate enhanced induction, training and support for our site-based employees and sub-contractors, and employees operating under hybrid working arrangements.
Building safety pledge
As stated in the Chairman's statement, we have always been clear that we do not believe leaseholders should pay for necessary remediation to fix building safety issues caused by the design, construction or refurbishment of their buildings. We announced on 6 April 2022 that a proportionate and sensible approach to fire safety in historical buildings had been agreed with the Government, and we have pledged to support leaseholders by funding remediation of buildings we developed over the past 30 years.
We are working with the HBF and the Department for Levelling Up, Housing and Communities (DLUHC) to agree the necessary legal documentation and arrangements for a fair approach to the remediation process, including a robust and independent arbitration process to ensure clarity for all parties where there are areas of uncertainty.
We have provided £396m with respect to our Building Safety Pledge in FY22. Our dedicated Building Safety Unit is managing our building safety remediation programme, which should be delivered over the next three to five years, with building safety considerations paramount in the prioritisation and scheduling of works. The charges reflect the current best estimate of the extent and future costs of work required, but adjustments to the expected costs to complete may be required as work progresses.
We are also now subject to the Residential Property Developer Tax, which came into effect on 1 April 2022. This was introduced to fund the remediation of all residential buildings above 18 metres and applies to the majority of our profits above a £25m annual allowance at a rate of 4%.
Competitions and Markets Authority
After the end of the financial year, on 16 August 2022, the Competition and Markets Authority (CMA) announced that, after more than three years of investigation, during which we have worked constructively with the CMA, it had now closed its investigation into the Group in relation to the sale of leasehold homes.
Charitable giving
We recognise our responsibility to support the communities we operate in, and we aim to be industry leading in our approach to charitable giving and social responsibility. We believe it is important to support charitable causes - both locally and nationally - and we actively promote charitable giving and volunteering amongst our employees. In FY22, we raised and donated £5.1m (FY21: £4.3m) for charitable causes through the Barratt Foundation and Group donations.
To ensure that the Barratt Foundation can continue to donate to worthy causes, we have agreed a £12m rolling three-year funding agreement (£4m per financial year). In addition, we donated an additional c. £900k to the Barratt Foundation, which represents the unclaimed proceeds from the Shareholder Tracing and Reunification exercise completed in June 2021.
The Barratt Foundation
Now in its second year of operation, the Barratt Foundation was particularly active in FY22 - supporting over 500 charities and launching two new multi-year partnerships focused on social mobility and education.
A £1.3m three-year partnership with national youth charity, The Outward Bound Trust, will fund 15,000 days of outdoor learning and adventure for 3,000 disadvantaged young people. The Foundation also matched £300,000 raised by readers of The Times and Sunday Times who picked The Outward Bound Trust as one of their Christmas charities in 2021. The total - £1.6m - is the largest charity contribution ever made by the Group or the Foundation.
Continuing our longstanding support for Whizz-Kidz, the Barratt Foundation also made a £1.2m three-year commitment to provide life-changing mobility equipment and training opportunities for disabled children and young people.
During the year, the Foundation also made notable grants including:
• 111,000 to Sheffield Hallam University, where a three-year commitment is providing nine scholarships and 60 bursaries to support students facing financial hardship during their studies;
• 100,000 to Magic Breakfast, the 2022 employee charity vote winner, to provide 300,000 healthy breakfasts to children at risk of hunger in schools across the UK;
• 50,000 to the British Red Cross, to support the Ukraine Humanitarian Appeal;
• 50,000 to The Fire Fighters Charity, to support their ongoing work with the UK's fire services community;
• 40,000 to Emmaus UK, to provide rooms and support for homeless people at Emmaus communities across the UK; and
• 30,000 to Missing People, to help reconnect missing people with their loved ones by supporting a vital helpline and online chat service.
Barratt and David Wilson Community Fund
The Barratt Foundation also continued to support the Barratt and David Wilson Community Fund throughout the year. This enables each of our divisions and Group offices to support local charities that really matter to them by donating £1,000 to a different local charity each month. Building on this, and reflecting the challenges faced by many over the Christmas period, the Barratt Foundation also provided an additional £5,000 to each of the Group's divisions and offices to further support local charities such as hospices, foodbanks and homelessness charities. In FY23, the Barratt Foundation is increasing the funding available to the Community Fund by 50%, enabling each of our divisions to donate £1,500 to a different local charity each month.
Employee engagement in our charitable activities
To encourage our employees to raise funds for local causes, the Barratt Foundation matches funds up to £15,000 per division and to £1,000 per employee for employee fundraising. In addition, the Group doubled the number of volunteering days to two per year from the start of calendar year 2022. The Group also partners with Payroll Giving in Action to enable employees to make regular, tax-free donations to their chosen charities. In FY22, Barratt employees and divisions raised £705,589 (FY21: £303,190) for charities and good causes, with an additional £260,055 (FY21: £363,500) provided by the Barratt Foundation in matched funding.
Looking to FY23, the Group has decided to double the available match funding for employee fundraising from £1,000 to £2,000, reflecting the Barratt Foundation's aspirations to further harness employee fundraising efforts and donate more to good causes across the UK.
Current trading and outlook
Our strategy, provided the economic backdrop remains supportive, centres on growing our completion volumes to our new medium-term target of 21,500 homes. In recent years, we have acquired land at a minimum 23% gross margin. Through our ongoing focus on operating efficiencies and growth in home completions, we continue to target a minimum 25% ROCE in the medium term.
Market fundamentals remain strong, reflecting the continued imbalance between housing supply and demand, as well as good mortgage availability.
We entered FY23 with a strong forward sales position and at 28 August 2022 we are 55% forward sold with respect to private wholly owned home completions for FY23 (29 August 2021 for FY22: 59%) with 59% of the private order book exchanged (29 August 2021: 56% of the private order book exchanged). As at 28 August 2022 forward sales were at 14,058 homes (29 August 2021: 15,402 homes) and a value of £3,808.9m (29 August 2021: £3,843.4m).
|
Order book position |
28 August 2022 |
29 August 2021 |
Variance % |
|||
|
|
£m |
Homes |
£m |
Homes |
£m |
Homes |
|
Private |
2,421.5 |
6,467 |
2,331.1 |
6,851 |
3.9 |
(5.6) |
|
Affordable |
1,079.6 |
6,658 |
1,250.9 |
7,835 |
(13.7) |
(15.0) |
|
Wholly owned |
3,501.1 |
13,125 |
3,582.0 |
14,686 |
(2.3) |
(10.6) |
|
JVs |
307.8 |
933 |
261.4 |
716 |
17.8 |
30.3 |
|
Total |
3,808.9 |
14,058 |
3,843.4 |
15,402 |
(0.9) |
(8.7) |
Net private reservations per active outlet per average week for the period to 28 August 2022 were lower than last year at 0.60 (FY22: 0.82) and below the 0.70 for the equivalent period in FY20, prior to the pandemic. In part this reflects limited availability of homes for early occupation given our strong forward order book, as well as heightened macro-economic uncertainty.
As the land market has become increasingly competitive, our land approvals in the new financial year to date are lower than in FY22, reflecting our strong land bank position and disciplined application of our minimum hurdle rates of 23% gross margin and 25% ROCE.
Construction activity is on track to deliver planned output growth in FY23 with 366 equivalent homes per average week built to date in the new financial year (FY22: 336 homes).
Based on current market conditions, we expect to grow total home completions to between 18,400 and 18,800 homes in FY23, including c. 750 home completions from our JVs, whilst ensuring we maintain our industry-leading standards of build quality and customer service.
The completion profile in FY23 will reflect the phasing out and timing of legal completions under the Help to Buy scheme, which must be completed by 31 March 2023. We currently estimate that c. 45% of our full year completion guidance will be delivered in the first half of the new financial year, with c. 55% scheduled for completion in the second half.
On the assumption that house price growth moderates over the coming months, whilst build cost inflation continues at between 9% and 10%, we would anticipate that our gross margin will move towards our minimum medium-term gross margin hurdle rate of 23%.
We have substantial net cash 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. We also have the continued ambition to accelerate our actions to deliver leading sustainability progress, further enhancing business resilience and our customer proposition.
Looking ahead, we recognise that significant macroeconomic uncertainties remain, most notably around inflation, energy costs and interest rates, and their impacts on UK economic growth, employment, and consumer confidence and spending. International incidents, notably the ongoing conflict in Ukraine, could also disrupt global supply chains and further affect confidence at home.
The Board will continue to monitor and respond to changes in the market and the wider economy, but believes that our operating performance, 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 and as the market evolves thereafter.
Building Sustainably
We are determined to continue to be the leading national sustainable housebuilder. To enable our business to grow and prosper against the backdrop of climate change, biodiversity loss and growing inequality, we need to constantly evolve and adapt our approach. We do this through a strong understanding of our customers' and wider stakeholders' needs, high standards of governance and a culture of responsibility.
Our Building Sustainably framework
Our Building Sustainably framework brings together our sustainability ambitions, targets, activities and metrics to ensure that important issues and solutions are embedded in our everyday business decisions and the actions we take. During the year, we have further invested in the tools and programmes to support our business, measure our performance and ensure we are making progress towards our targets. Our framework is built around three pillars: Nature, Places and People. These pillars cover the material issues for our business and are informed by industry understanding, as well as the opinions and challenges offered by our stakeholders.
How we manage sustainability
We have a clear process - from issue identification to operational delivery of action plans - across each of our framework pillars and their corresponding priorities. This allows us to create supporting work streams that drive our implementation plans and create accountability around each issue. A governance structure, embedded across the business, underpins the framework.
The Board delegates day-to-day delivery of our framework to the Executive Committee, which is supported by operational cross-business working groups. Regular monitoring of targets enables us to continually identify and re-prioritise areas for improvement.
Our Sustainability Committee is required to meet at least four times a year to debate, review and scrutinise the sustainability strategy and monitor the delivery of implementation plans.
Our performance - delivering on our commitments
We have made good progress on reducing waste across our business with a 15.6% reduction to 4.97 tonnes per 100m2 of legally completed build area* (FY21: 5.89 tonnes per 100m2 legally completed build area).
We have a strategy and transition pathway in place to achieve our net zero carbon goal by 2040. In FY22 our market-based carbon emission intensity for scopes 1 and 2 reduced by 14% to 1.53 tCO2e/100m2 (2021: 1.78 tCO2e/100m2). Scope 1 and 2 absolute emissions have reduced by 23% compared to 2018 levels, driven by progress in our reduction initiatives:
• Electric or plug-in hybrid vehicles now comprise 41% of our company car fleet;
• Offices where we are responsible for the electricity supply are now on renewable tariffs;
• We continue to reduce the use of diesel generators on sites by securing grid connections as early as possible;
• For those generators and telehandlers in operation, we are trialling the use of alternative fuels (hydrotreated vegetable oil) on just over 10% of our development sites; and
• We are ensuring that all plant on sites are the most fuel-efficient available to us in the market.
Our business grew our completions beyond FY19 pre-pandemic levels, with completions at the highest level since the global financial crisis. This increased activity, coupled with rising build cost inflation has meant Scope 3 carbon intensity has increased from 211.95 to 219.27, however this is below FY19 (the comparative year unaffected by the pandemic). Our calculation uses a spend-based method that is particularly affected by high price inflation in some carbon-intensive sectors of the supply chain. The increase in supply chain emissions is partially offset by a decrease in emissions from sold products due to improved energy efficiency in our homes. We are engaging with key suppliers and sub-contractors to obtain quantity-based emissions data to improve supply chain emissions reporting.
Our GHG emissions in the year are shown in the table below:
|
Greenhouse gas emissions |
|
|
2022 |
2021 |
2020 |
2019 |
2018 |
|
Scope 1 Scope 2 |
Market based
|
tCO2e tCO2e
|
23,234* 1,840*
|
26,769 2,496
|
20,323 1,640
|
27,169 3,413
|
27,577 5,080
|
|
Total gross scope 1 & 2 emissions |
Market based
|
tCO2e
|
25,074
|
29,265
|
21,963
|
30,582
|
32,657
|
|
Scope 1 & 2 energy consumption |
|
MWh |
128,189* |
141,945 |
102,966 |
127,434 |
127,496 |
|
Carbon intensity (scope 1 & 2 emissions per 100m2 of legally completed build area) |
Market based
|
tCO2 e/100m² tCO2 e/100m² |
1.53*
|
1.78
|
1.80
|
1.78
|
1.90
|
|
Scope 3 Category 1: Purchased goods & services Scope 3 Category 11: Use of sold products Other scope 3 emissions |
|
tCO2e
tCO2e
tCO2e |
2,131,408
1,244,317*
220,814 |
1,983,082
1,352,982
148,189 |
2,020,341
930,797
177,919 |
2,305,017
1,311,087
217,907 |
2,421,559
1,273,346
160,785 |
|
Total gross scope 3 emissions |
|
tCO2e
|
3,596,538 |
3,484,253 |
3,129,057 |
3,834,011 |
3,855,690 |
|
Total gross scope 1, 2 & 3 emissions |
Market based Location based |
tCO2e tCO2e
|
3,621,612 3,624,574 |
3,513,518 3,516,995 |
3,151,020 3,153,640 |
3,864,593 3,866,342 |
3,888,347 3,889,983 |
Scope 1, 2 and 3 GHG emissions have been measured in accordance with the operational control method of the GHG Protocol. All scope 1 and 2 GHG emissions arise in the UK. Emission factors come from BEIS 'UK Government Conversion Factors for Company Reporting 2021'.
Scope 1 & 2 energy consumption comprise scope 1 energy consumption of 105,493 MWh* and scope 2 energy consumption of 22,696 MWh*.
Other scope 3 emissions is comprised of category 2: capital goods; category 3: fuel & energy related activities (5,748 tCO2e)*; category 4: upstream transportation & distribution; category 6: business travel (3,511 tCO2e)*; category 7: employee commuting; and category 12: end of life treatment of sold products.
Deloitte have provided independent third-party limited assurance in accordance with the International Standard for Assurance Engagements 3000 ('ISAE 3000') and Assurance Engagements on Greenhouse Gas Statements ('ISAE 3410') issued by the International Auditing and Assurance Standards Board ('IAASB') over selected metrics in the table and footnotes above identified with an *, as well as waste intensity, SHE audit compliance, Reportable Injury Incidence Rate and diversion of construction waste from landfill included within this announcement and also identified with an *. For Deloitte's full unqualified assurance opinion, which includes details of the selected metrics assured, our full Carbon Reporting Methodology Statement and a full breakdown of scope 3 GHG emissions, see our website www.barrattdevelopments.co.uk/building-sustainably/our-publications-and-policies/publications.
We have recently completed a programme embedding biodiversity best practice across all our regions, as part of our work to achieve biodiversity net gain ahead of legislation.
During the year, we appointed a new Head of Diversity and Inclusion, and we are in the process of developing a new strategy and action plan to help us achieve our ethnic minority and gender ambitions, as well as broaden the scope and reach of our diversity targets.
We are making good progress on our work on human rights to address the breadth and depth of issues that extend across our value chain.
Additional in-depth data detailing our performance across our framework is available at
https://www.barrattdevelopments.co.uk/building-sustainably/performance-data/data
Supporting global goals at a local level
Nationally, our framework aligns with the UK Government's 2050 net zero greenhouse gas emissions commitment and its 2025 Future Homes Standard. At a global level, our framework aligns with nine of the UN's 2030 Sustainable Development Goals (UN SDGs), shown below.
Our Building Sustainably framework has been created as a 'living framework', one that will evolve to pre-empt, meet and exceed the evolving sustainability risks and opportunities faced by our business and identified by our stakeholders.
On our website, we detail how the UN SDGs inform our framework and decision making, and how we are driving change against these priorities.
We became a signatory to the UN Global Compact in July 2021- a voluntary initiative based on CEO commitments to implement universal sustainability principles and to take steps to support UN goals.
Transparency
Our disclosures are critical for meaningful industry-wide improvement around sustainability. We are committed to continuously enhancing our disclosures to meet evolving stakeholder needs. As a result, we make information on our strategy, targets and performance publicly available through our website and other publications. We also complete a variety of benchmarks and indices throughout the year. These disclosures enhance transparency in key areas that are relevant to us and important to our stakeholders. They help us to align with global and local priorities and identify performance gaps, and therefore gives us a clear indication of where our efforts need to be directed.
In the year, we made improvements to our CDP score. CDP is a comprehensive and widely recognised global benchmark for many stakeholders, including investors. In 2021 we secured A- and B respectively for Forests and Water, and retained our A- score for Climate, making us a top-scoring company in the housebuilding sector.
The Sustainability Accounting Standards Board (SASB) is an independent not-for-profit organisation that sets standards to guide the disclosure of financially material sustainability information of companies. Our disclosures are based on criteria specific to the housebuilding sector. We have also maintained our Low Risk and Prime Status in both the Sustainalytics and ISS indices respectively, and scored in the upper quartile for FTSE4Good.
More information on our inputs to benchmarks and indices is on our website: https://www.barrattdevelopments.co.uk/building-sustainably/performance-data/sustainability-indices-benchmarks.
Awards and recognition
We continue to be recognised for our work through awards and commendations, both within the housebuilding industry and beyond.
• For the NextGeneration sustainability benchmark, we were the highest scoring national housebuilder and we received both the Gold Award and the Crystal Award. The latter recognises the transparency and quality of our sustainability reporting for the second time.
• We received the Sustainable Housebuilder of the Year Award at the Housebuilder Awards 2021.
• We received the Highly Commended Award for the Zed House at the Business Green Leaders Awards in June 2022.
Collaboration through partnerships
Through collaboration and long-term partnerships, we can deliver greater social, environmental and economic benefits for our partners, communities, business and the wider industry.
As part of our determination to maintain our position as the leading national sustainable housebuilder, we recognise that we cannot achieve our ambitions alone. As a result, we commit to and invest resources in long-term partnerships, which include our:
• unique national partnership with the RSPB;
• collaboration and research with the University of Salford; and
• position as the first national partner to join the Supply Chain Sustainability School and chairing of the Homes Leadership Group.
We continue our engagement with the UK Green Building Council to respond to the most pressing environmental challenges, and we work closely with Government departments to support the low carbon and skills agenda and ensure regulations drive sustainable growth.
Customer first
Customer service
We have an absolute commitment to quality and customer service. Throughout the year, we have continued to identify and drive improvements to the customer journey.
We are the only major housebuilder to have been awarded the maximum 5 Star rating by our customers in the HBF customer satisfaction survey for 13 consecutive years, where more than 90% of our customers said they would recommend Barratt to a friend.
Sustainability is a growing consideration for potential homebuyers, who are increasingly interested in the energy efficiency and running cost of the homes we build, the enhancements to the environment in and around the developments we create, and the lifestyle and wellbeing benefits - both mental and physical - that our homes can create for our customers.
Customer surveys during the year highlighted that 70% of buyers said it was important to know about their developer's environmental credentials, and we have further extended our programme of customer research to cover the specification of future homes so that we can capture potential customers' views and ensure we fulfil our commitment of putting the customer first.
The New Homes Quality Code
During FY22, the following have been launched: the New Homes Quality Code (NHQC; the "Code") and the New Homes Ombudsman Service (NHOS), as well as the introduction of the process to register with the New Homes Quality Board (NHQB). We welcome the Code, which covers the period from initial enquiry through to completion, and then two years post-occupation. The Code aims to build upon existing protections for homebuyers.
The most significant changes include a requirement to deliver a complete new home, which the customer will have the opportunity to visit and appoint a suitably qualified inspector to carry out a pre-completion inspection on their behalf, before they take ownership. Post-completion, there are new obligations on the housebuilder to meet rigorous complaint resolution timescales. We intend to activate the Code during the first half of FY23. The Code is centred on the principle of fairness, not simply achieving technical standards.
Reflecting our absolute commitment to put the customer at the heart of everything we do, and our leading position around build quality and customer service, we have been active throughout the year in delivering additional training and investment across all functions to ensure that, with these changes, we continue to lead the industry and deliver exceptional customer service.
Energy and water efficiency reduce new home costs and improve sustainability
We are continually striving to improve the energy efficiency and sustainability of our homes, and are adapting our home designs in response to Building Regulations and the subsequent changes within the Future Homes Standard, whilst keeping the customer experience at the forefront of all design decisions. Our aim is to build high-quality homes that optimise internal space and deliver excellent energy efficiency, resulting in lower lifetime costs for our customers.
In FY22, 99% of our home completions were EPC rated A or B (FY21: 99%), a level of energy efficiency shared by just 11.6% of all housing stock. Many customers are recognising that owning a new energy efficient home can deliver dramatic annual energy cost savings.
Mortgage accessibility
Through their own sustainability initiatives, UK mortgage lenders are increasingly engaging with the housebuilding industry regarding green mortgages. During the year, we supported a Halifax green mortgage pilot to help homebuyers seeking to purchase our energy efficient new homes. The pilot provides an increased mortgage loan size based on improved affordability, through reduced home running costs. We will continue to engage with mortgage lenders in the year to see how we can help create more competitive and attractive mortgage products for our customers, reflecting the energy efficiency advantages created by our new homes.
With the phase out of the Help to Buy scheme in March 2023, "Deposit Unlock", an industry-sponsored scheme piloted with the Newcastle Building Society, was launched during the year. This scheme provides homebuyers with access to 95% LTV (loan to value) lending with help from an insurance premium funded by us. The Nationwide Building Society joined the Deposit Unlock scheme in November 2021, and we currently anticipate more lenders will join the scheme as Help to Buy draws to a close. We are continuing to explore alternative ways to improve mortgage availability for our customers.
Supporting our Armed Forces
We are proud to remain a signatory to the Armed Forces Covenant and have a Deposit Contribution Scheme to help Armed Forces personnel onto the housing ladder. This scheme is available to qualifying UK Armed Forces personnel and offers a 5% deposit contribution, up to £15,000, toward our homes throughout the country.
Great places
Securing land supply through planning expertise
We build homes in locations where our customers want to live, with good access to open space and amenities, transport connections, schools and workplaces. Our specialised land teams possess deep local knowledge and strong relationships with landowners. This, combined with detailed research into local market conditions, means we can secure land in locations of strong customer demand.
We continue to develop our strategic land bank portfolio, which encompasses some 15,537 acres, equating to 91,440 plots, for longer-term development. Our strategic land bank and strategic land team have been complemented by the acquisition of Gladman Developments in January 2022. Gladman has brought an excellent team of planning and land promotion specialists into the Group, as well as a promotional land portfolio of 406 sites, equating to an estimated 98,078 plots.
Bringing land through the planning system and into production is the foundation of our future performance. The NPPF, first published in 2012 and amended in 2018, sets out the planning policies for England. This system, and the separate planning rules applied in Scotland and Wales, provide the basis for the delivery of a sustainable supply of consented sites.
Despite the continuing challenges posed to planning, notably by periods of lockdown-induced delays and resource constraints on many local planning departments, we have maintained solid momentum in securing planning consents. During the year, we achieved planning on 14,988 plots (FY21: 14,280 plots). We have detailed or outline planning permission on all FY23 expected home completions and 93% of expected home completions for FY24.
Built For Life
Placemaking principles are fundamental to our business: our customers want to live in great places that create a positive legacy. Our internal Great Places design principles are aligned to the Government-endorsed 'Building for Life 12' criteria and the updated 'Building for a Healthy Life' standard, which incorporates additional health and wellbeing criteria. As a result, Great Places now puts greater emphasis on development design to support good physical and mental health and wellbeing.
We shape our developments around existing ecology, green spaces, walkways and cycle paths to encourage social interaction and a sense of ownership and appreciation of the surroundings created.
Biodiversity
Biodiversity Net Gain (BNG) is an approach to development whereby the location's biodiversity is left in a measurably better state than if the development had not taken place. Our national rollout programme to embed biodiversity best practice across our regions was completed in the year. We are committed to demonstrating a minimum BNG of 10% for all development designs submitted for planning from January 2023, ahead of the legislation making BNG of 10% mandatory from mid-November 2023.
Since 2014, we have worked in partnership with the RSPB, Europe's largest nature conservation charity, to inform best practice in designing wildlife-friendly developments and increase awareness of the importance of biodiversity. Together we have produced wildlife-friendly landscaping and guides for our design teams and customers, and launched Nature on your Doorstep, a national campaign full of hints and tips on how to help wildlife thrive.
Continually evolving housetype design
Both our Barratt and David Wilson Homes brands have a range of standard house types, with the most popular and build-efficient housetypes making up our core ranges. We continually review, evolve and optimise our housetypes in response to feedback from our customers, sales and construction teams, as well as reflecting future legislative changes and our own targets. All changes are also informed by our target that all our housetypes will be net zero carbon in use from 2030.
Our Group Design and Technical team continue to develop plans to ensure our housetypes are adapted for interim changes to building regulations from June 2022, and then to meet the full Future Home Standard from 2025. These changes require us to deliver initially 31% and subsequently 75%-80% emission reductions relative to current standards. We are also ensuring we meet or exceed the different legislative requirements in Scotland and Wales. At Delamare Park in Somerset, where we are developing our first off-grid development, installing air source heat pumps, which will be required from 2025.
Our housetype evolution also seeks to ensure revised designs can be constructed in either traditional or timber frame format, recognising the advantages of MMC and our commitment to incorporate offsite-based products and systems in 30% of our home completions by 2025.
Our standard housetypes comprised 77% of homes completed in the year (FY21: 65% of homes completed) and feedback from both our customers and our build teams continues to be positive.
Water efficiency
Water efficiency is becoming increasingly important, and we recognise we have a responsibility to mitigate against future risk of geographical water scarcity and flooding, by increasing water efficiency in our homes and across our developments. Since summer 2021, all of our new homes have been built to a water use standard of 105 litres per person per day, creating the potential to reduce consumption by 26% compared to the national average.
In FY22, 72% (FY21: 68%) of our developments used above-ground, landscape-led Sustainable Urban Drainage Systems (SUDS), which manage surface water volumes and flow rates, reducing the impact of urbanisation on flooding.
Operationally, we are committed to reduce water use in our sites and throughout our estate. Currently, 58% of our operational sites have metered water supplies, so a critical first step in our operational water strategy is to improve our measurement of our baseline water use across our site-based activities. As a result, we have agreed a metering rollout plan commencing in FY23 to ensure we have an accurate measurement of baseline water consumption.
Leading construction
Construction activity
It is a testament to the strength, experience and commitment of our construction teams, sub-contractors (many of whom have worked with us for a number of years) and supply chain partners, that we have successfully grown our construction activity in the year. Despite supply chain challenges and constraints around materials availability for many parts of the construction sector, our site teams delivered a 13.2% improvement, constructing 352 equivalent homes, including JVs, each week in FY22 (FY21: 311 equivalent homes each week).
Build quality
This year, we have - once again - demonstrated our absolute commitment to build quality. Not only did our construction teams successfully deliver growth in construction output, despite the supply chain challenges, they also delivered construction quality scores, measured by the NHBC, that continue to lead the industry. The Group achieved an average 0.13 reportable items (RIs) per NHBC inspection (FY21: 0.12 RIs), the lowest of all major housebuilders (those who build more than 1,000 homes annually).
Site management excellence recognised for a record 18th year
Our commitment to build quality and site management was, once again, demonstrated by our success in the NHBC Pride in the Job Awards, which recognise site managers who achieve the highest standards in housebuilding across the UK.
At the 2021 Regional NHBC Pride in the Job Awards, in the Autumn, 31 site managers won "Seals of Excellence" and our site managers secured five of the ten 2021 Regional Awards where we operate in the "Large Builder" category. At the subsequent NHBC Pride in the Job Supreme Awards in January 2022, Henry Patecki, Site Manager at Wigston Meadows in our East Midlands division, was runner up in the Large Builder Category. Barratt David Wilson site managers have won the supreme award five times and been runner up two times in the past seven years.
Finally, in June, at the 2022 National NHBC Pride in the Job Awards, 98 site managers secured awards, more than any other housebuilder for the 18th consecutive year. No other major housebuilder has achieved this level of success and recognition for build quality on safe and efficient sites across the country. All our sites operate under the Group's certification to the Environmental Management System standard, ISO 14001, and Health and Safety standard, OHSAS 18001.
Innovation
We delivered 4,846 homes using MMC equating to 27% of our total home completions (FY21: 4,393 homes and 25% of total home completions). MMC provides opportunities to build with greater speed and efficiency, mitigate the impact of the skills shortage facing the industry and diversify the types of materials we use. This table details the various MMC used across our total home completions.
|
MMC |
FY22 |
FY21 |
|
Timber frame |
3,736 |
3,003 |
|
Roof cassettes |
194 |
696 |
|
Offsite ground floors |
614 |
360 |
|
Large format block |
226 |
334 |
|
Light gauge steel frame |
76 |
- |
|
TotalA |
4,846 |
4,393 |
|
Percentage of completionsA |
27% |
25% |
A Total and percentage of completions includes JVs and has been adjusted for homes where more than one technology has been used.
Timber frame growth
A key dimension to both our MMC and carbon reduction strategy is the delivery of an increased share of timber frame homes. Timber frame provides an efficient method of construction with lower levels of embodied carbon. Our core English housetypes have been designed so they can be built using either traditional brick and block or timber frame construction, and we delivered 3,006 (FY21: 1,638) timber frames from Oregon, our timber frame manufacturer, to our sites this year.
We are targeting the use of offsite-based products and systems in 30% of our home completions by 2025. The continued adoption of timber frame construction in England will be a significant contributor to meeting this target. The Group's additional investment in a new timber frame facility near Derby, scheduled to begin production in FY24, will be important in further expanding MMC and specifically our timber frame capacity looking to 2030.
Reducing waste
The housebuilding industry is continuing to experience high levels of demand for materials, many of which cause environmental and social impacts in their extraction, manufacture and transport, so it is critical that resource efficiency and waste reduction remain clear priorities. As a result, waste intensity reduction was, for the first time, included in annual bonus arrangements across the Group at the start of the year. Through the combination of a dedicated Group Waste Project Manager, enhanced waste monitoring through monthly reporting, detailed action plans and incentives, we have delivered a further improvement in our waste intensity with a 15.6% reduction to 4.97 tonnes per 100m2 of legally completed build area (FY21: 5.89 tonnes per 100m2 legally completed build area). In the year, our absolute waste tonnage decreased by 15.5% (FY21: increased by 2.7%).
In FY23, management annual bonus incentives will continue to include waste intensity reduction targets to ensure the Group continues to effectively manage waste and resources in the long term.
We continue to promote the efficient use of skips and segregation of waste across our business; our diversion of waste from landfill increased during the year to 96%* (FY21: 95%). In FY22, more than 30,000 paint tins across our sites were recycled (FY21: more than 10,000), and 366,408 pallets, used in the supply of building materials to site, were recycled (FY21: 243,057 pallets).
Lightweight compactible materials remain the largest portion of our remaining waste, particularly plastic and packaging materials. To help identify further waste reduction opportunities, we undertook supplier engagement workshops during FY22 with 17 suppliers. These workshops highlighted the potential to reduce packaging waste through specific approaches in conjunction with site best practice and procedures to minimise damage to building materials in transit. Several initiatives were suggested and are being investigated and trialled during both FY22 and FY23, to identify which will be best suited for implementation in the future.
Investing in our people
Our continued success is achieved through the hard work and dedication of our employees. We aim to attract and retain the best people by engaging with our employees, promoting their wellbeing, investing in their development, recognising their dedication, and ensuring our employee packages are effective and competitive. We are committed to becoming more diverse and inclusive as we believe this will create a stronger, more dynamic business for our customers, and make us a more attractive employer.
The development and training of employees
We are playing our part to address the industry's skills shortage. We have a number of award-winning and well-established development programmes, which have been expanded in the year, with further developments planned in FY23.
In total, we have developed, or are developing, 136 delegates through our Armed Forces transition programme. Skills developed in the Armed Forces transfer well to site management, and the programme has brought a large number of high-calibre individuals into our business.
Our flagship ASPIRE graduate development programme takes around 30 graduates annually. The programme goes from strength to strength, seeking candidates from all degree backgrounds. ASPIRE is designed to provide a broad understanding of our business, coupled with personal and professional development opportunities through a two-year programme, with the aim of creating leaders of the future.
This year, we launched our third degree apprenticeship with Sheffield Hallam University (SHU), in technical design and management. Sitting alongside existing programmes in construction and quantity surveying, this makes us the first housebuilder to deliver degree apprenticeships across the three main build functions. We are also recruiting for candidates to join a fourth degree apprenticeship with SHU in real estate to commence in 2023 - another first for the housebuilding industry.
As highlighted earlier, the Barratt Foundation also provided SHU students with £111,000 in FY22, in the form of scholarships and bursaries, to support students facing financial hardship during their studies.
Apprenticeships remain a vital route to develop skilled tradespeople for our industry
Our programmes for bricklaying and carpentry apprentices enable participants to achieve apprenticeship level within a reduced timeframe while maintaining the same high standards as before. We also continue to deliver development opportunities for those within our sales and marketing teams. Our schemes focus on bringing new talent to the industry and on retaining it for the future. To date, within the bricklaying and carpentry apprenticeship programmes, 256 apprentices (FY21: 184) have attended, and 102 apprentices (FY21: 174) are due to complete the course in FY23, with a further 160 (FY21: 124) recruited in FY22 for our FY23 intake.
We currently employ 391 apprentices, graduates and trainees (FY21: 426), around 6% (FY21: 7%) of our workforce, reflecting our ongoing commitment to developing future talent.
We continue to actively participate in the Home Building Skills Partnership, which seeks to attract new entrants to our industry, provide skills for the future, and support the supply chain in developing the skills they need to develop and grow with our industry.
We also seek to address skills shortages and prepare for the future by developing our people through access to continuous learning. Our MyLearning mobile app provides colleagues with even more flexibility and choice in how they access and consume learning content. Digital training has increased resulting in this slight drop although supporting our strategic intent of retaining a blended learning approach (programmes delivered through classroom, webinar and digital learning). In the year, we moved training to an 80:20 online: classroom model to provide enhanced training access for our employees.
Identifying and supporting our leaders of the future, along with effective succession planning, are important elements in our long-term success. In FY22, 269 (FY21: 270) high-potential employees have attended or are attending our Rising Stars programme.
How we recruit and retain the best talent
It is vital for us to recruit the best candidates and to develop talent within our business to ensure we have the necessary skills for continued operational delivery and future growth.
We engage with our future workforce through our work with schools, national apprenticeship bodies, universities and Armed Forces resettlement organisations. This includes getting involved with campus activities, attendance at careers fairs and employer-led events. During the year, we also engaged with more than 1,200 schools and colleges that correlated geographically with our divisional offices across the country.
For our FY22 recruitment, 29% (FY21: 23%) of our apprentices were recruited from the most deprived areas according to the Index for Multiple Deprivation. Our Construction and Sales Academy programmes develop talent within our business and we continue to work with the Home Building Skills Partnership.
As part of our response to ongoing engagement survey feedback, we are working to improve the visibility of career paths in all functions, with individual development plans and the proactive prioritising and tracking of internal promotions.
Remuneration and benefits are an important element of employee retention. We continue to review our employee packages to ensure they are effective and competitive.
Employee engagement
We aim to create a great place to work, founded on an open and honest culture. To achieve this, we engage with our employees to understand and address their issues and concerns. Our 2021 employee engagement survey was completed in October 2021. This survey delivered an engagement score of 79.4% (2020 survey: 84.2%). Whilst we experienced a small decline in the engagement score, this followed a more general pattern observed across employers as a whole through the pandemic.
A full analysis of the employee survey ratings and more than 2,500 narrative comments, informed both regional, divisional and functional action plans, as well as supporting resources encompassing training and development, health and wellbeing, and increased internal communication. Our Workforce Forum, which comprises employees representing all regions and levels of our business, also provides insights to inform our actions. Interim pulse surveys were undertaken on an ad-hoc basis, to follow up on action plans and their impacts. Our next full Group-wide survey will take place in September 2022.
Following on from the engagement survey, a number of new initiatives were agreed in the year, which included:
• increasing the scope of our private medical insurance so it now covers the whole workforce;
• introducing an additional special day's holiday allowance for all employees, to allow them to celebrate a birthday or anniversary; and
• doubling the number of volunteering days from one to two per year, to enhance the opportunities for our employees to support their local charities and good causes.
The Group was also ranked 30th in the "Glassdoor Best Places to Work in the UK" survey this year. This survey is based entirely on unprompted feedback from our employees and we were the only UK housebuilder listed in the top 50 "Best Places to Work in the UK".
Growing employee equity participation in our business
In April 2022, we invited all eligible employees to participate in the 14th grant under the Group's Sharesave scheme, which allows eligible employees to contribute a maximum of £500 per month in one or more Sharesave schemes. As at 30 June 2022, approximately 51% of our employees participated in one or more of the active schemes, compared to 50% as at 30 June 2021.
In recognition of the continued dedication, commitment and loyalty of our employees, in 2021 the Board agreed that an annual share award would be made to all employees below Managing Director level. Accordingly, in July 2022, an award of shares equating to £1,250 (July 2021: £1,250) was made to all qualifying employees. This award will vest in July 2024.
In line with the rest of the sector, our total Group employee turnover increased to 17% for the year to 30 June 2022 (FY21: 12%). Our target over the medium term is 15% and the Group's turnover, prior to the pandemic, ranged from 16% to 18% between FY17 to FY19.
Promoting the physical and mental wellbeing of employees
A key objective for the Group has remained the health and safety of our employees, especially their physical and mental wellbeing. During the year, we continued to progress our health and wellbeing programmes, including health and wellbeing hubs, stress awareness training for employees and mental health first aid and awareness training to encourage openness and appropriate responses between line managers and colleagues.
In FY22, we continued to extend our network of mental health first aiders and we are embedding focused support for these valued volunteers. We extended our partnership with our benefits providers to offer specific financial wellbeing services, as well as high-quality training to support physical and mental wellbeing. Our talent team also continues to provide and further develop regular mental wellbeing webinars.
Diversity and inclusion
We aim to create a working environment that provides equal opportunities for all and we are a signatory to the Business in the Community Race at Work Charter.
Selection for employment and promotion within Barratt is based on merit, following an objective assessment of ability and experience, and after giving full and fair consideration to all applicants. We are also committed to ensuring that our workplaces are free from discrimination and that everyone is treated with dignity and respect. We strive to ensure that our policies and practices provide equal opportunities in respect of training, career development and promotion for existing and potential employees, at all levels throughout the business, irrespective of age, disability, gender, gender reassignment, marriage and civil partnership, pregnancy and maternity, race and ethnicity, nationality, religion or belief, sex, and sexual orientation. We also remain signatories to the Social Mobility Pledge, committing us to providing opportunities to people from all different backgrounds.
Every effort is made to retain and support employees who become disabled during their time working within the Group and we continue to remove physical barriers for disabled colleagues or applicants.
All new employees receive mandatory diversity and inclusion training as part of their induction process. However, we recognise that we need to do more to develop greater diversity and inclusion within the Group. A new Head of Diversity and Inclusion joined the Group in FY22 and we intend to accelerate initiatives to further develop the diversity of our workplaces and ensure everyone who works within the Group feels they belong and are comfortable to be themselves.
We have made progress in female leadership representation. We continue to focus on this area through "Catalyst", our development and support programme, to help high-potential female employees develop their careers within the Group. As at 30 June 2022, women held 17% (FY21: 16%) of senior manager roles within the Group. We continue to work towards improving ethnic minority representation. As at 30 June 2022, 7% (FY21: 7%) of employees were from ethnic minority backgrounds and 2.1% (FY21: 1.5%) of senior leadership positions were held by ethnic minority employees.
Our employee networks have also become an increasingly important way for us to create a more open and inclusive business, and enables us to listen directly to the needs of our people. Our networks include groups to connect parents, LGBTQ+ colleagues and allies, and "Barratt Connect", a group for anyone who has felt isolated or missed the social interaction created by reduced office-based working during the pandemic. We are delighted to have added a group for our colleagues from Ethnic Minority Communities (EMC) this year, and implemented the foundations for a Disabled network who will meet for the first time in July 2022.
A real Living Wage employer
During the year, we maintained our Living Wage Foundation accreditation, reflecting the Group's commitment to paying our employees and supply chain employees an independently calculated rate of pay, which is based on the actual cost of living. The real Living Wage exceeds the national living wage (set by the Government) and covers all employees aged 18+, as well as incorporating a London weighting. Holding this accreditation demonstrates our clear commitment to our employees, suppliers and sub-contractors.
Our standard sub-contractor terms and conditions mandate the payment of the real Living Wage within our supply chain. To support this, we have implemented spot checks by divisions on higher risk trades and implemented internal remediation feedback systems. Where we find instances of non-compliance - as we did for one sub-contractor during the year - we require this to be rectified, with follow-up audits conducted to ensure full compliance. For those working in jurisdictions other than the UK, our expectation, included within our contract requirements, is that local statutory minimum wages are paid.
Gender pay gap
In November 2021, we published our annual Gender Pay Gap report. Our mean gender pay gap declined from 6.5% to 6.2%, and the median pay gap declined from 0.2% to (0.4%). The decrease in both measures during the period is largely due to commissions paid to our predominantly female sales teams in the comparator period, whereas most bonuses were cancelled due to the impact and uncertainty caused by COVID-19. This is also reflected in our mean bonus gap which also decreased more significantly from 33.4% to 2.8%, with our median gender bonus gap also falling from (1.4%)to (14.9%).
By early 2023 we will publish both our 2022 Gender Pay Gap Report and, for the first time, our Ethnicity Pay Gap Report, which will be available on our website.
Human rights and anti-bribery
Our respect for human rights underpins our strategic priorities. We have policies and procedures in place that support the core values of the UN Universal Declaration of Human Rights and the UN Guiding Principles of Business and Human Rights, and we act in accordance with our principles regarding diversity and the Modern Slavery Act 2015. Concerns can also be raised anonymously via our whistleblowing process.
This year, we began working on the development of our first human rights policy, undertaking engagement workshops with key Group functions to ascertain internal perceptions of risks and opportunities. We are undertaking a review of the salient issues for the Group in order to finalise the policy and publish in FY23.
Our non-financial KPIs regarding health and safety and employee engagement reflect our belief that it is a fundamental human right to work in a safe and supportive environment. Employees undertake training on modern slavery, and we are continuing the roll-out of diversity and inclusion training to all employees.
We have a strict anti-bribery and corruption policy and conduct our business in a fair, open and transparent manner. All employees are required to undertake regular training on our anti-bribery and corruption policy.
We work closely with our partners to ensure our standards are applied to our extended workforce. We are signatories to the Gangmaster and Labour Abuse Authority Construction Protocol, helping us share and receive information and training materials to identify and prevent modern slavery. It is a condition of all our supplier and sub-contractor contracts that they comply with the Bribery Act and our anti-bribery and corruption policy. These are available on our website.
David Thomas
Chief Executive
6 September 2022
Chief Financial Officer's review
Results for the year ended 30 June 2022
Sales activity
We delivered a strong reservation performance in the year with a net private reservation rate per week of 0.81 (FY21: 0.78). In FY22, our sales centres across the country operated on an appointment only basis.
|
Net private reservation rate |
H1 |
H2 |
FY |
|
FY22 |
0.79 |
0.84 |
0.81 |
|
FY21 |
0.77 |
0.78 |
0.78 |
|
FY22 vs FY21 (%) |
2.6% |
7.7% |
3.8% |
During the year, we operated from an average of 332 active outlets (FY21: 343) including 7 active JV outlets (FY21: 8). The reduction in average active outlets reflected both the strength of the private sales rate throughout the year, as well as some planning delays on new site openings.
We have made good progress on new site openings, despite the planning delays experienced, launching a total of 118 new outlets (including JVs) in the year in line with our expectations (FY21: 144), with 72 new outlets opened in H2 (H2 FY21: 81). Site numbers, as a result, recovered towards the end of the year and, at 30 June 2022, we were operating from 352 active sales outlets (30 June 2021: 358), including 9 JV outlets (30 June 2021: 8).
In FY23, we expect to see average active sales outlet growth of around 3%, reflecting both planned outlet growth and the impact of sales outlets that experienced delays in H2 FY22.
Home completions
Total home completions grew by 3.9% in FY22. The continued strength of demand for our new homes, as well as the further improvement in construction activity in H2, drove the growth in home completions in FY22. Total home completions were impacted by the deferral into FY23 of a London apartment block, comprising 221 homes, reflecting external resource-related delays in the third-party building control process. As anticipated, the affordable housing share of wholly owned home completions increased to 22.3% (FY21: 20.5%).
We expect the affordable housing share of our wholly owned home completions to reduce to around 21% in FY23.
|
Completions (homes) |
FY22 |
FY21 |
Change |
|
Private completions |
13,327 |
13,134 |
1.5% |
|
Affordable completions |
3,835 |
3,383 |
13.4% |
|
Wholly owned completions |
17,162 |
16,517 |
3.9% |
|
JV completions |
746 |
726 |
2.8% |
|
Total (including JVs) |
17,908 |
17,243 |
3.9% |
We experienced a continuous improvement in selling prices through the year, reflecting house price inflation across the country. As a result, our total average selling price (ASP) was £300.2k (FY21: £288.8k), with the private ASP up 4.7% at £340.8k (FY21: £325.5k).
The affordable ASP increased by 8.8% to £159.4k (FY21: £146.5k), reflecting an increased proportion of completions from our outer London operations. We anticipate that the affordable ASP will return to a level similar to that reported in the second half of FY22, at approximately £161k in FY23.
Profitability
Adjusted gross profit improved by 17.3% to £1,308.1m (FY21: £1,114.7m), with the adjusted gross margin advancing 160 bps to 24.8% (FY21: 23.2%). The adjusted gross margin improvement reflected house price inflation ahead of build cost inflation during the financial year and the benefit of completion volume growth, which drove incremental fixed cost efficiency, particularly in H2. In FY22, each home completion delivering a contribution of c. 34% (FY21: c. 32%) after land and direct build costs.
After adjusted items, totalling £408.2m (FY21: £104.7m) relating to legacy property costs and including the £396.4m charge regarding the industry pledge on building safety, gross profit was £899.9m (FY21: £1,010.0m), and gross margin was 17.1% (FY21: 21.0%).
Adjusted administrative expenses in the year were £256.4m (FY21: £201.2m). This increase included:
• increased headcount and acceleration of the annual salary review from 1 July to 1 April 2022;
• the return to normal business activity post pandemic;
• a one-off charge for certain IT assets, previously capitalised, following a review of latest accounting guidelines;
• incremental costs for establishment and operation of the Group's Building Safety Unit (BSU);
• the impact of administrative and integration costs for the Gladman Developments acquisition; and
• a reduction in sundry income.
After deducting adjusted administrative expenses and a modest net gain of £3.1m on part exchange activities (FY21: £5.5m), the Group delivered an adjusted operating profit of £1,054.8m (FY21: £919.0m), with an adjusted operating margin of 20.0% (FY21: 19.1%). The 90 bps improvement in the adjusted operating margin reflected:
• Completion volumes: the continued growth in our wholly owned completion volumes, with 3.9% or 645 home increase, created a 10 bps positive impact (FY21: 310 bps positive impact).
• Net impact of selling prices relative to build costs: sales price inflation relative to underlying build cost inflation produced a 140 bps positive impact (FY21: 90 bps positive impact).
• New sites: the benefit of the Group's minimum 23% gross margin hurdle rate on new land acquisitions and improved build cost performance of our range generated a 50 bps positive impact (FY21: 60 bps positive impact).
• Mix and other items: changes in sales mix and other smaller items created a 30 bps negative impact (FY21: 20 bps negative impact).
• Site extension costs: these costs arose from the expected extension in site durations due to COVID-19. The improvement in site efficiency through the year and the completion of sites carrying these additional costs created a 20 bps positive margin impact (FY21: 30 bps positive impact).
• Net administrative expenses: as detailed above, along with a small decrease in part-exchange income, increased net administrative expenses deducted 100 bps (FY21: deducted 150 bps) from the adjusted operating margin.
In FY23, we expect administrative expenses to increase to c. £300m, reflecting pay increases, a c. £10m cost for the expansion of the Building Safety Unit and investment in our people and IT systems.
Adjusted items recognised during the year were costs associated with legacy properties. The Group incurred an additional £408.2m (FY21: £81.9m) of net adjusted operating costs in the year after recovering £25m from our supply chain partners due to building safety related claims. Of this, £401.7m (FY21: £32.5m) related to fire safety and external wall systems, including a £396.4m charge for the agreement reached with the Government to undertake or fund remediation and/or mitigation works on fire safety issues on all our buildings of 11 metres and above that we have developed or refurbished over the last 30 years.
A further £30.5m (FY21: £49.4m) related to remedial works on reinforced concrete frames at some developments where reviews were completed in FY21 but have been updated for our latest estimate of remediation costs.. On a reported basis, we delivered a profit from operations of £646.6m (FY21: £811.1m) and an operating margin of 12.3% (FY21: 16.9%).
Net finance charges were £27.6m (FY21: £26.6m). This £1.0m increase reflected imputed interest on land creditors. The cash component of the interest charge was £8.3m (FY21: £9.7m) with non-cash charges of £19.3m (FY21: £16.9m). In FY23, finance costs are expected to increase to c. £38m, of which c. £10m is expected to be cash and c. £28m non-cash.
Our JVs delivered profit for the year of £23.3m (FY21: £27.7m). The JV result in FY22 also included an adjusted charge for JV legacy properties of £4.3m (FY21: £0.4m release). Consequently, profit before tax for the year declined to £642.3m (FY21: £812.2m).
The Group's tax charge for the year reduced to £127.1m (FY21: £152.1m), which reflected:
• corporation tax charges for adjusted profit before tax of £200.7m (FY21: £172.5m charge);
• corporation tax credits with respect to adjusted items of £82.5m (FY21: £20.4m credit); and
• Residential Property Developer Tax (RPDT) of £8.8m (FY21: £nil).
The growth in adjusted profit before tax resulted in an adjusted total tax charge of £209.6m (FY21: £172.5m) and was at an effective rate of 19.9% (FY21: 18.7%).
Adjusted earnings per share increased by 12.9% to 83.0 pence per share (FY21: 73.5 pence per share). Basic earnings per share decreased to 50.6 pence per share (FY21: 64.9 pence per share).
Reflecting growth in adjusted profitability and disciplined management of capital employed throughout the year, meant our ROCE improved to 30.0% (FY21: restated 27.8%).
Cash flow
Net cash decreased to £1,138.6m at 30 June 2022 (30 June 2021: £1,317.4m), with the main components being a £417.6m net cash inflow from operating activities (FY21: £1,082.3m cash inflow); a £222.4m net cash outflow from investing activities (FY21: inflow of £13.5m), principally reflecting the £205.6 cash impact of the Gladman acquisition; and a net financing cash outflow of £378.4m (FY21: outflow of £197.0m) principally reflecting dividends paid in the year of £337.0m (FY21: £76.3m).
The major drivers of the net cash inflow from operating activities in the year were:
• profit from operations, which reduced to £646.6m (FY21: £811.1m);
• a net cash outflow from working capital and provisions of £118.2m (FY21: £407.0m cash inflow); and
• interest and tax payments, which totalled £140.2m (FY21: £154.5m), including a c. £80m cash tax benefit from the tax relief immediately recognised on the adjusted item provision to the Building Safety Pledge.
The net £118.2m outflow (FY21: £407.0m inflow) for working capital and provisions consisted of:
• a £543.4m increase (FY21: £385.9m decrease) in inventories from growth in land investment and construction work in progress.
• a £20.8m decrease (FY21: £93.1m increase) in receivables, excluding the increase resulting from the acquisition of Gladman;
• a £10.7m decrease (FY21: £62.7m increase) in payables, excluding the increase resulting from the acquisition of Gladman, which consisted of a £75.3m increase (FY21: £133.6m decrease) in land creditors and a £86.0m decrease (FY21: £196.3m increase) in trade and other payables; and,
• a £415.1m increase (FY21: £51.5m increase) in provisions, principally following the charge associated with the Building Safety Pledge.
Balance sheet
The Group's net assets at 30 June 2022 totalled £5,631.3m (30 June 2021: £5,452.1m) after the payment of dividends totalling £337.0m (30 June 2021: £76.3m), reflecting the final dividend payment for FY21 and enhanced interim dividend for FY22.
Net tangible assets were £4,573.0m (447 pence per share) at 30 June 2022 (30 June 2021: £4,546.2m; 446 pence per share). Land, net of land creditors, and work in progress totalled £4,444.1m (435 pence per share) at 30 June 2022 (30 June 2021: £3,963.9m; 389 pence per share).
Goodwill and intangible assets increased to £1,058.3m (30 June 2021: £905.9m) following the acquisition of Gladman Developments in January 2022 for consideration of £218.4m.
At 30 June 2022, the Group held net cash balances of £1,138.6m (30 June 2021: £1,317.4m). At 30 June 2022, land creditors increased to £733.6m (30 June 2021: £658.3m) and equated to 22.0% (30 June 2021: 22.3%) of the owned land bank, in line with our operating framework.
Our minimal year-end total net indebtedness target was achieved with a net surplus of £405.0m at 30 June 2022 (30 June 2021: £659.1m net surplus).
A reduction in net cash and total net surplus is expected at the end of H1 FY23, reflecting investment in land and work in progress to support growth in home completions; the final enhanced ordinary dividend payment at 2.25x dividend cover (subject to shareholder approval); and the initial reimbursement of costs incurred by the Government's Building Safety Fund and Private Sector ACM Cladding Remediation Fund.
In FY23, we expect year-end net cash balances, including the announced share buy-back impact of £200m, will be c. £0.8bn. During FY23, £498.2m of land creditors will fall due for payment (30 June 2021, during FY22: £363.4m). Land creditors due beyond 30 June 2023 totalled £235.4m at 30 June 2022 (30 June 2021: £294.9m due beyond 30 June 2022).
Capital returns
The Board believes it is an appropriate time to consider the return of capital, which is beyond the requirements for investment and growth in the business. After Board consideration of the medium-term capital requirements, we are announcing our intention to return capital of £200m in FY23 through the implementation of a share buyback programme. It is the Board's intention that the buyback will proceed in tranches, with an initial tranche of £50m to be completed by the end of the calendar year and the total programme completed no later than 30 June 2023.
The key dimensions underpinning delivery of our strategy
Land and planning
We 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) of operational land for purchase, equating to £1,396.1m (FY21: £876.8m) on 102 new sites (FY21: 97).
The increase in the average cost per plot reflected several factors. These included; firstly the underlying increase in house prices over the last year; secondly a shift in the mix of plots approved to more primary locations with a land value premium; thirdly, an increase in the average size of homes planned for these plots which increases the land plot's value; and, finally a larger proportion of the plots approved were "serviced" plots requiring reduced site development cost which, is as a result, reflected in a higher land value.
Our competitive position in the land market continues to be enhanced through our ability to acquire larger sites, which can develop Barratt and David Wilson homes on dual-branded developments. This combination brings greater housetype variety and choice for customers, and enhances the speed that these sites can be developed, resulting in an improved ROCE.
We continue to see an attractive range of land buying opportunities and we have a solid pipeline of developments moving through our land approval process. During FY22, we spent £1,036m on land (FY21: £745m), encompassing land purchases and the settlement of land creditors.
We continue to target a regionally balanced land portfolio with a supply of owned land of c. 3.5 years and a further c. 1.0 year of controlled land. Our target for a shorter than sector average land bank recognises our focus on ROCE, and our fast build and sale model. Reflecting our focus on future growth, we remain above this target with 4.7 years' land supply at 30 June 2022 (30 June 2021: 4.7 years). Our land bank comprised of 3.9 years of owned land and 0.8 years of controlled land at 30 June 2022.
More than 75% (30 June 2021: 79%) of our owned and unconditional land bank plots have detailed planning consent, with the move into development of these plots supporting our sales outlets both now and in the future. As well as years of land supply, the planning status of our land bank plots and the distribution of plots within attractive development outlets remain important determinants of the commercial strength and quality of our land bank.
Our land bank at 30 June comprised:
|
Our land bank |
30 June 2022 |
30 June 2021 |
|
Plots with detailed planning consent |
51,009 |
52,775 |
|
Plots with outline planning consent |
15,957 |
13,452 |
|
Plots with resolution to grant and other |
721 |
374 |
|
Owned and unconditional land bank (plots) |
67,687 |
66,601 |
|
Conditionally contracted land bank (plots) |
13,239 |
11,041 |
|
Total owned and controlled land bank (plots) |
80,926 |
77,642 |
|
Number of years' supply |
4.7 |
4.7 |
|
JVs owned and controlled land bank (plots) |
4,548 |
4,661 |
|
Strategic land bank (acres) |
15,537 |
13,754 |
|
Strategic land bank (plots) |
91,440 |
78,964 |
|
Promotional land bank (plots) |
93,696 |
- |
|
Land bank carrying value (£m) |
3,339.9 |
2,946.3 |
At 30 June 2022, the ASP of plots in our owned land bank was £322k (30 June 2021: £289k).
Strategic land activity
During the year, we delivered 4,530 (FY21: 4,172) or 26% (FY21:25%) of our wholly owned home completions from strategically sourced land. With several planning successes in the year, we converted 1,663 plots (FY21: 3,507) of strategic land into our owned and controlled land bank. At 30 June 2022, around 25% (30 June 2021: around 28%) of our strategic land is allocated or included in draft local plans. We are also benefiting from the additional expertise brought by Gladman Developments' planning teams who, working with our strategic land teams, are analysing and re-prioritising our portfolio to unlock more momentum from our strategic land bank.
Land promotion activity
Following the acquisition of Gladman the Group now holds a significant promotional land portfolio, encompassing some 93,696 promotional plots.
Gladman uses its extensive land and planning expertise to identify land suitable for development; agree contractual partnerships with landowners; fund all costs associated with obtaining planning permission; and, through targeted marketing and competitive tender, secures optimum value for the land sale with Gladman receiving a share of the sale proceeds. Gladman's back-office functions have been integrated into the Group since acquisition, but Gladman continue to operate as a standalone business within the Group.
During the five months of ownership, Gladman secured an estimated 1,882 plots, through new promotional agreements with landowners. Following several planning successes, the business received planning consents on 807 plots and, reflecting strong demand for land with planning consent, Gladman secured land sale transactions equating to 1,332 plots.
Through its share of land transaction proceeds, Gladman generated sales of £23.3m and an adjusted operating profit, before amortisation of intangible assets, of £12.4m during the five-month post-acquisition period.
Gladman, with access to the Group's financial resources, has been engaging with its existing land promotion partners around alternative routes to unlocking value from their respective land positions. Reflecting the changing needs and aspirations of land promotion partners, Gladman now offers the ability to convert promotional agreements into option, hybrid or freehold sale arrangements for all, or part, of their land promotion partners' holdings.
Strategic land conversion
We continue to target around 30% of wholly owned completions from strategic and promotional land in the medium term. We believe this is an appropriate level for our business, and reflects the development and planning prospects held within our strategic land portfolio, the likely conversion of promotional land bank plots through Gladman Developments, our operating model, our targeted land bank length and focus on ROCE.
Whilst we have experienced planning delays over the past year, we are well positioned, with all expected FY23 completions (FY21: all of our FY22 completions) having outline or detailed planning consent.
Improving efficiency and controlling costs
Driving the efficiency of our operations and controlling costs remain key focus areas for the Group.
We have a robust and carefully managed supply chain, with approximately 95% of our building materials sourced by our centralised procurement function, and 90% of our building material needs are manufactured or assembled in the UK.
With the increased volatility in energy costs and commodities, and the rising inflationary backdrop across the UK economy, our supply chain partners have moved away from fixed-term pricing arrangements for a more dynamic pricing. We are committed to working collaboratively with our supply chain partners to secure sustainable, competitive pricing, while maintaining security of supply to support our site-based operations.
Reflecting the supply chain shift to more dynamic pricing, we have seen a reduction in pricing agreements, with several suppliers introducing surcharge arrangements around changes in their key input and transportation costs. We have pricing agreements in place for 73% of our material requirements to 31 December 2022 (FY22: 96% to 31 December 2021), and 12% of our requirements until 30 June 2023 (FY22: 71% to 30 June 2022).
We are currently seeing continued inflationary pressure on skilled labour supply, reflecting the inflationary pressure on labour in the economy and the continued strength of housebuilding construction activity balanced, to a degree, by a desire of sub-contractors and skilled trades to secure future workload visibility. We are improving construction efficiency and reducing demand on labour through the continued evolution of our housetype ranges, which are easier and quicker to build and are more suitable for MMC, helping us to reduce build cost and waste.
During FY22, total build cost inflation (including infrastructure, materials and labour) was around 6%, with the rate of inflation increasing throughout the financial year. Reflecting the continued strength of the market, and assuming no further material changes in the costs of energy or key commodities, we expect total build cost inflation of between 9% and 10% for FY23.
Operating framework and capital structure
Our operating framework and appropriate capital structure have served us well over the unprecedented period following the pandemic. The resilience of our operating framework and financing structure has been demonstrated over the last two years, and has provided the financial platform for our operations to deliver the recovery speed and scale in the last two years, along with the capacity to commit to investment to support future growth.
We continue to maintain an appropriate capital structure as part of our disciplined operating framework. Shareholders' funds and land creditors fund the longer- term land requirements of our business, and term loans and bank debt fund the shorter-term requirements for working capital.
Our operating framework, with the exception of our future dividend cover policy, remains unchanged, and our performance against targets at 30 June 2022 and 2021 are summarised below:
|
|
Operating framework |
Positions at 30 June 2022 and (30 June 2021) |
|
Land bank |
c. 3.5 years owned and c. 1.0 year controlled |
30 June 2022: 3.9 year owned and 0.8 years controlled. (30 June 2021: 4.0 years owned and 0.7 years controlled). |
|
Land creditors |
Maintain usage to 15 - 25% of the land bank over medium term |
30 June 2022: 22.0%. (30 June 2021: 22.3%). |
|
Net cash |
Modest average net cash over the financial year |
FY22: average net cash of £957.4m. (FY21: average net cash of £821.0m). |
|
Year-end net cash |
30 June 2022: £1,138.6m (30 June 2021: £1,317.4m) |
|
|
Total indebtedness |
Minimal year-end total indebtedness in the medium term |
30 June 2022: total net surplus of £405.0m (30 June 2021: total net surplus £659.1m) |
|
Treasury |
Appropriate financing facilities |
£700m RCF extended to 22 November 2025 £200m USPP maturing 22 August 2027 |
|
Dividend policy |
Phased reduction in dividend cover to 2.25x in FY22, 2.0x in FY23 and 1.75x in FY24 and thereafter |
FY22: total ordinary dividend of 36.9p (FY21: total ordinary dividend of 29.4p)
|
Treasury
Cash management and relationships with our banking partners are coordinated centrally. During the year, the Group successfully extended the £700m revolving credit facility (RCF) for one additional year, with the RCF now maturing 22 November 2025.
The Board sets and approves the Treasury Policy and senior management control day-to-day operations. The Group's Treasury Policy seeks to maintain an appropriate capital structure and provide the right platform for the business to manage its operating risks.
Tax
The Group does not enter into business transactions that are for the sole purpose of reducing potential tax liabilities. The Group's tax strategy is to only utilise any available reliefs and exemptions, which have been set out in any current tax legislation, to minimise the Group's tax liabilities.
All Group profits are subject to full UK corporation tax, and the total tax charge for the year ended 30 June 2022 was £127.1m (FY21: £152.1m).
The rate of corporation tax for the year ended 30 June 2022 was 19.8% (FY21: 18.7%), which is marginally below the standard effective rate of tax of 20.0% (inclusive of RPDT) (FY21: 19.0%).
The Group was subject to the Residential Property Developer Tax (RPDT) in FY22, with the new tax applicable from 1 April 2022. As a result, the Group was subject to a RPDT charge of £8.8m. RPDT, which is applied to the majority of our profits above a £25m annual allowance at a rate of 4%, will apply annually from FY23 for a HM Treasury specified period of ten years.
Looking ahead, the Group's tax charge and effective rate of tax is expected to increase broadly in line with changes in the future rate of corporation tax, which is expected to increase from 20% to 25% from 1 April 2023. Reflecting a Q4 FY23 impact of the increase in corporation tax, and the full year impact of RPDT, the Group's effective tax rate is expected to increase to approximately 24.5% in FY23.
Pensions
Defined contribution pension arrangements are in place for current employees. Defined contribution scheme charges with respect to qualifying employees totalled £14.9m (FY21: £13.9m). Pension contributions are based upon a fixed percentage of each qualifying employee's pay and, once paid, the Group has no further obligations under these schemes. During the prior year, the Group discharged its liabilities in respect of its former defined benefit pension schemes through an insurer buy-out.
Guidance for FY23
Looking to FY23, our guidance is summarised below:
|
Completions
|
c. 18,400 - 18,800 total home completions including c. 750 from JVs c. 21% affordable, c. 79% private mix |
|
Average sales outlet growth (inc. JVs) |
c. 3% |
|
Build cost inflation range |
c. 9 -10% |
|
Administrative expenses |
c. £300m (including amortisation of intangible asset charges of c. £10m) |
|
Interest cost |
c. £38m (c. £10m cash, c. £28m non-cash) |
|
Land approvals |
Replacement basis |
|
Land cash spend |
c. £1.2bn |
|
Year-end net cash |
c. £0.8bn |
|
Taxation |
Effective tax rate of 24.5% reflecting full year impact of RPDT and scheduled CT rate changes |
|
Ordinary dividend cover |
2.0x ordinary dividend cover based on adjusted EPS |
A strong financial position entering FY23
The Group is in a very strong position, entering FY23 with substantial net cash, a strong forward sales position and an excellent land bank. Our operating framework and strong financial position provide us with the flexibility to focus on delivering high quality, energy-efficient, sustainable homes and developments across the country, supporting planned completion growth in FY23 towards our new medium-term target of 21,500 homes.
Mike Scott
Chief Financial Officer
6 September 2022
Consolidated Income Statement
Year ended 30 June 2022
|
Continuing operations |
Notes |
2022 £m |
2021 £m |
|
Revenue |
2 |
5,267.9 |
4,811.7 |
|
Cost of sales |
|
(4,368.0) |
(3,801.7) |
|
Gross profit |
|
899.9 |
1,010.0 |
|
Administrative expenses |
|
(256.4) |
(204.4) |
|
Part-exchange income |
|
84.4 |
220.4 |
|
Part-exchange expenses |
|
(81.3) |
(214.9) |
|
Profit from operations |
3 |
646.6 |
811.1 |
|
Finance income |
5 |
2.5 |
1.4 |
|
Finance costs |
5 |
(30.1) |
(28.0) |
|
Net finance costs |
5 |
(27.6) |
(26.6) |
|
Share of post-tax profit from joint ventures |
|
23.3 |
27.7 |
|
Profit before tax |
|
642.3 |
812.2 |
|
Tax |
6 |
(127.1) |
(152.1) |
|
Profit for the year |
|
515.2 |
660.1 |
|
Profit for the year attributable to the owners of the Company |
|
515.1 |
659.8 |
|
Profit for the year attributable to non-controlling interests |
16 |
0.1 |
0.3 |
|
Earnings per share from continuing operations |
|
|
|
|
Basic |
7 |
50.6p |
64.9p |
|
Diluted |
7 |
49.8p |
64.0p |
Adjusted items:
|
|
|
Gross profit |
Profit from operations |
Share of post-tax profit from joint ventures |
Profit before tax |
||||
|
|
|
2022 |
2021 |
2022 |
2021 |
2022 |
2021 |
2022 |
2021 |
|
|
Notes |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Reported profit |
|
899.9 |
1,010.0 |
646.6 |
811.1 |
23.3 |
27.7 |
642.3 |
812.2 |
|
Cost associated with legacy properties |
4 |
433.2 |
81.9 |
433.2 |
81.9 |
4.3 |
(0.4) |
437.5 |
81.5 |
|
Legacy property recoveries |
4 |
(25.0) |
- |
(25.0) |
- |
- |
- |
(25.0) |
- |
|
CJRS grant repaid |
4 |
- |
22.8 |
- |
26.0 |
- |
- |
- |
26.0 |
|
Adjusted profit |
|
1,308.1 |
1,114.7 |
1,054.8 |
919.0 |
27.6 |
27.3 |
1,054.8 |
919.7 |
Consolidated Statement of Comprehensive Income
Year ended 30 June 2022
|
|
|
Group |
|
|
|
|
2022 |
2021 |
|
Profit for the year |
|
515.2 |
660.1 |
|
Other comprehensive income/(expense): |
|
|
|
|
Items that will not be reclassified to profit or loss |
|
|
|
|
Actuarial loss on defined benefit pension scheme |
|
- |
(2.2) |
|
Tax credit relating to items not reclassified |
|
- |
0.4 |
|
Total items that will not be reclassified to profit or loss |
|
- |
(1.8) |
|
Total comprehensive income recognised for the year |
|
515.2 |
658.3 |
|
Total comprehensive income recognised for the year attributable to the owners of the Company |
|
515.1 |
658.0 |
|
Total comprehensive income recognised for the year attributable to non-controlling interests |
|
0.1 |
0.3 |
Statement of Changes in Shareholders' Equity
Group
|
|
Share |
Share |
Merger |
Own |
Share-based |
Group retained |
Total |
Non- controlling interests (note 16)
|
Total |
|
At 1 July 2020 |
101.8 |
245.2 |
1,109.0 |
(20.1) |
16.6 |
3,386.4 |
3,382.9 |
1.4 |
4,840.3 |
|
Profit for the year |
- |
- |
- |
- |
- |
659.8 |
659.8 |
0.3 |
660.1 |
|
Actuarial loss on pension scheme |
- |
- |
- |
- |
- |
(2.2) |
(2.2) |
- |
(2.2) |
|
Tax on items above taken directly to equity |
- |
- |
- |
- |
- |
0.4 |
0.4 |
- |
0.4 |
|
Total comprehensive income recognised for the year ended 30 June 2021 |
- |
- |
- |
- |
- |
658.0 |
658.0 |
0.3 |
658.3 |
|
Dividend payments (note 8) |
- |
- |
- |
- |
- |
(76.3) |
(76.3) |
- |
(76.3) |
|
Distributions to non-controlling interests |
- |
- |
- |
- |
- |
- |
- |
(0.6) |
(0.6) |
|
Issue of shares |
- |
0.1 |
- |
- |
- |
- |
- |
- |
0.1 |
|
Share-based payments |
- |
- |
- |
- |
20.4 |
- |
20.4 |
- |
20.4 |
|
Transfers in respect of share options |
- |
- |
- |
15.4 |
(12.2) |
3.8 |
7.0 |
- |
7.0 |
|
Tax on share-based payments |
- |
- |
- |
- |
2.8 |
0.1 |
2.9 |
- |
2.9 |
|
At 30 June 2021 |
101.8 |
245.3 |
1,109.0 |
(4.7) |
27.6 |
3,972.0 |
3,994.9 |
1.1 |
5,452.1 |
|
Profit for the year being total comprehensive income recognised for the year ended 30 June 2022 |
- |
- |
- |
- |
- |
515.1 |
515.1 |
0.1 |
515.2 |
|
Dividend payments (note 8) |
- |
- |
- |
- |
- |
(337.0) |
(337.0) |
- |
(337.0) |
|
Distributions to non-controlling interests |
- |
- |
- |
- |
- |
- |
- |
(0.4) |
(0.4) |
|
Issue of shares |
0.4 |
8.1 |
- |
- |
- |
- |
- |
- |
8.5 |
|
Share-based payments |
- |
- |
- |
- |
24.2 |
- |
24.2 |
- |
24.2 |
|
Purchase of own shares |
- |
- |
- |
(28.5) |
- |
- |
(28.5) |
- |
(28.5) |
|
Transfers in respect of share options |
- |
- |
- |
6.2 |
(20.1) |
12.0 |
(1.9) |
- |
(1.9) |
|
Tax on share-based payments |
- |
- |
- |
- |
(2.7) |
1.8 |
(0.9) |
- |
(0.9) |
|
At 30 June 2022 |
102.2 |
253.4 |
1,109.0 |
(27.0) |
29.0 |
4,163.9 |
4,165.9 |
0.8 |
5,631.3 |
Balance Sheet
At 30 June 2022
|
|
|
Group |
||
|
|
Notes |
2022
£m |
2021 re-presented 1 £m |
1 July 2020 re-presented 1 £m |
|
Assets |
|
|
|
|
|
Non-current assets |
|
|
|
|
|
Other intangible assets |
|
205.4 |
100.0 |
101.1 |
|
Goodwill |
10 |
852.9 |
805.9 |
805.9 |
|
Investments in joint ventures and associates |
|
177.9 |
163.1 |
152.1 |
|
Property, plant and equipment |
|
41.2 |
20.4 |
19.0 |
|
Right-of-use assets |
|
35.6 |
39.3 |
46.7 |
|
Trade and other receivables |
|
6.5 |
1.2 |
5.8 |
|
|
|
1,319.5 |
1,129.9 |
1,130.6 |
|
Current assets |
|
|
|
|
|
Inventories |
11 |
5,291.6 |
4,645.5 |
5,027.9 |
|
Trade and other receivables |
|
237.0 |
179.6 |
86.0 |
|
Current tax assets |
|
9.9 |
- |
- |
|
Cash and cash equivalents |
12 |
1,352.7 |
1,518.6 |
619.8 |
|
|
|
6,891.2 |
6,343.7 |
5,733.7 |
|
Total assets |
|
8,210.7 |
7,473.6 |
6,864.3 |
|
Liabilities |
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
Loans and borrowings |
12 |
(200.0) |
(200.0) |
(200.0) |
|
Trade and other payables |
|
(240.5) |
(296.8) |
(319.7) |
|
Lease liabilities |
|
(26.6) |
(29.8) |
(36.1) |
|
Deferred tax liabilities |
|
(45.1) |
(8.9) |
(2.4) |
|
Provisions |
|
(359.6) |
- |
- |
|
|
|
(871.8) |
(535.5) |
(558.2) |
|
Current liabilities |
|
|
|
|
|
Loans and borrowings |
12 |
(17.3) |
(5.3) |
(117.7) |
|
Trade and other payables1 |
|
(1,414.4) |
(1,258.9) |
(1,175.2) |
|
Lease liabilities |
|
(10.5) |
(10.9) |
(11.7) |
|
Current tax liabilities |
|
- |
(1.0) |
(2.8) |
|
Provisions1 |
13 |
(265.4) |
(209.9) |
(158.4) |
|
|
|
(1,707.6) |
(1,486.0) |
(1,465.8) |
|
Total liabilities |
|
(2,579.4) |
(2,021.5) |
(2,024.0) |
|
Net assets |
|
5,631.3 |
5,452.1 |
4,840.3 |
|
Equity |
|
|
|
|
|
Share capital |
14 |
102.2 |
101.8 |
101.8 |
|
Share premium |
|
253.4 |
245.3 |
245.2 |
|
Merger reserve |
|
1,109.0 |
1,109.0 |
1,109.0 |
|
Total retained earnings |
|
4,165.9 |
3,994.9 |
3,382.9 |
|
Equity attributable to the owners of the Company |
|
5,630.5 |
5,451.0 |
4,838.9 |
|
Non-controlling interests |
16 |
0.8 |
1.1 |
1.4 |
|
Total equity |
|
5,631.3 |
5,452.1 |
4,840.3 |
1 Costs in relation to completed developments, previously included within trade and other payables, have been reclassified as provisions as described in note 1 to the condensed consolidated financial statements. Prior year balances have been re-presented to ensure comparability .
Cash Flow Statement
Year ended 30 June 2022
|
|
|
Group |
|
|
|
Notes |
2022 £m |
2021 re-presented2 £m |
|
Reconciliation of profit from operations to cash flow from operating activities |
|
|
|
|
Profit from operations |
|
646.6 |
811.1 |
|
Depreciation of property, plant and equipment |
|
6.2 |
5.8 |
|
Loss on disposal of property, plant and equipment |
|
3.2 |
- |
|
Depreciation of right-of-use assets |
|
13.0 |
13.8 |
|
Amortisation of intangible assets |
|
4.3 |
1.1 |
|
Profit on disposal of joint venture |
|
- |
(2.0) |
|
Reversal of impairment of inventories |
|
(2.2) |
(3.5) |
|
Share-based payments charge |
|
24.2 |
20.4 |
|
Imputed interest on deferred term payables1 |
5 |
(14.4) |
(13.7) |
|
Imputed interest on lease arrangements |
|
(0.9) |
(1.3) |
|
Amortisation of facility fees |
5 |
(4.0) |
(2.0) |
|
Finance income related to employee benefits |
5 |
- |
0.1 |
|
Total non-cash items |
|
29.4 |
18.7 |
|
(Increase)/decrease in inventories |
|
(543.4) |
385.9 |
|
Decrease/(increase) in receivables |
|
20.8 |
(93.1) |
|
(Decrease)/increase in payables2 |
|
(10.7) |
62.7 |
|
Increase in provisions2 |
|
415.1 |
51.5 |
|
Total movements in working capital and provisions |
|
(118.2) |
407.0 |
|
Interest paid |
|
(10.7) |
(11.0) |
|
Tax paid |
|
(129.5) |
(143.5) |
|
Net cash inflow from operating activities |
|
417.6 |
1,082.3 |
|
Investing activities: |
|
|
|
|
Purchase of property, plant and equipment |
|
(29.9) |
(7.2) |
|
Proceeds from the disposal of fixed assets |
|
1.0 |
- |
|
Consideration, net of cash acquired, paid on acquisition of subsidiary |
9 |
(205.6) |
- |
|
Increase in amounts invested in entities accounted for using the equity method |
|
(17.9) |
(7.9) |
|
Repayment of amounts invested in entities accounted for using the equity method |
|
9.9 |
3.4 |
|
Dividends received from investments accounted for using the equity method |
|
16.5 |
21.2 |
|
Proceeds from the disposal of investments accounted for using the equity method |
|
- |
2.0 |
|
Proceeds from the disposal of other investments |
|
1.4 |
- |
|
Interest received |
|
2.2 |
2.0 |
|
Net cash (outflow)/inflow from investing activities |
|
(222.4) |
13.5 |
|
Financing activities: |
|
|
|
|
Dividends paid to equity holders of the Company |
8 |
(337.0) |
(76.3) |
|
Distribution made to non-controlling partner |
16 |
(0.4) |
(0.6) |
|
Purchase of own shares |
|
(28.5) |
- |
|
Proceeds from the exercise of share options |
|
- |
8.0 |
|
Proceeds from issue of share capital |
|
8.5 |
0.1 |
|
Payment of dividend equivalents |
|
(1.9) |
(1.0) |
|
Loans and borrowings repayments |
|
(5.3) |
(112.4) |
|
Repayment of lease liabilities |
|
(13.8) |
(14.8) |
|
Net cash outflow from financing activities |
|
(378.4) |
(197.0) |
|
Net (decrease)/increase in cash, cash equivalents and bank overdrafts |
|
(183.2) |
898.8 |
|
Cash, cash equivalents and bank overdrafts at the beginning of the year |
|
1,518.6 |
619.8 |
|
Cash, cash equivalents and bank overdrafts at the end of the year |
12 |
1,335.4 |
1,518.6 |
1 The balance sheet movements in land payables include non-cash movements due to imputed interest. Imputed interest is included within non-cash items in the statement above.
2 Costs in relation to completed developments, previously included within trade and other payables, have been reclassified as provisions as described in note 1 to the condensed consolidated financial statements. Prior year balances have been re-presented to ensure comparability .
1. Basis of preparation
Cautionary statement
The Chairman's Statement and Chief Executive's Statement commentary contained in this Annual Results Announcement, including the principal risks and uncertainties (note 23), have been prepared by the Directors in good faith, based on the information available to them up to the time of their approval of this report, solely for the Company's shareholders as a body, so as to assist them in assessing the Group's strategies and the potential for those strategies to succeed. Accordingly, they should not be relied on by any other party or for any other purpose and the Company hereby disclaims any liability to any such other party or for reliance on such information for any such other purpose.
This Annual Results Announcement has been prepared in respect of the Group as a whole and accordingly matters identified as being significant or material are so identified in the context of Barratt Developments PLC and its subsidiary undertakings in the consolidation taken as a whole.
Basis of preparation
Whilst the financial information included in this Annual Results Announcement has been prepared in accordance with IAS in conformity with the requirements of the Companies Act 2006 and UK adopted IFRS as issued by the IASB, this announcement does not itself contain sufficient information to comply with those standards. Full Financial Statements that comply with those standards are included in the 2022 Annual Report and Accounts, which will be made available at www.barrattdevelopments.co.uk during September 2022.
The accounting policies adopted are consistent with those followed in the preparation of the Group's 2022 Annual Report and Accounts which have not changed from those adopted in the Group's 2021 Annual Report and Accounts except as disclosed below in the 'Application of accounting standards' section of this note.
This Annual Results Announcement has been prepared under the historical cost convention as modified by the revaluation of share-based payments.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Financial Statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on the Directors' best knowledge of the amounts, actual results may ultimately differ from those estimates. The Directors have made no individual critical accounting judgements that have a significant impact upon the Financial Statements, apart from those involving estimations.
The most significant estimates made by the Directors in these condensed consolidated financial statements are:
Estimation of future income and costs to complete
Margin recognition - In order to determine the profit that the Group is able to recognise on its developments in a specific period, the Group allocates site-wide development costs between homes built in the current year and in future years. It also has to estimate costs to complete on such developments and make estimates relating to future sales price margins on those developments and homes. In making these assessments there is a degree of inherent uncertainty.
The Group's site valuation process determines the forecast profit margin for each site. The valuation process acts as a method of allocating land costs and construction work in progress costs of a development to each individual plot and drives the recognition of costs in the Income Statement as each plot is sold. Any changes in the forecast profit margin of a site from changes in sales prices or costs to complete are recognised across all homes sold in both the current period and future periods. This ensures that the forecast site margin achieved on each individual home is equal for all current year completions and future plots across the development.
Management have performed a sensitivity analysis to assess the impact of a change in estimated costs for developments on which sales were recognised in the year. A 9% increase in estimated costs recognised in the year, which is considered to be reasonably possible, would impact cost of sales and work in progress and would reduce the Group's adjusted gross profit by £296.0m, a reduction in adjusted gross margin of 562 bps.
Costs associated with legacy properties
External wall systems and associated review
The Group is undertaking a review of all of its current and legacy buildings where it has used EWS or cladding solutions and continues to assess the action required in line with the latest updates to government guidance, as it applies, to multi-storey and multi-occupied residential buildings. All of our buildings, including those incorporating EWS or cladding solutions, were signed off by approved inspectors as compliant with the relevant Building Regulations at the time of completion.
On 6 April 2022, the Group signed an industry pledge on building safety (the 'Pledge') aligned to its belief that leaseholders should not have to pay for necessary remediation work caused by the design, construction or refurbishment of buildings. The Pledge commits the Group to address life-critical fire safety issues on all our buildings of 11 metres and above that we have developed or refurbished over the past 30 years. The Group further committed to withdraw our buildings from, and/or reimburse, the Government's Building Safety Fund and ACM Fund.
The Group has provided for the cost of fulfilling this pledge, as well as assisting with remedial work identified at a limited number of other legacy properties where it has a legal liability to do so, where relevant build issues have been identified, or it is considered probable that such build issues exist.
|
|
April 2022 |
Identified for review |
Review confirmed no remediation, or remediation completed |
June 2022 |
|
Under review: |
|
|
|
|
|
Buildings above 18 metres |
128 |
17 |
(5) |
140 |
|
Buildings under 18 metres |
83 |
10 |
(10) |
83 |
|
Total buildings |
211 |
27 |
(15) |
223 |
|
Developments |
66 |
7 |
(4) |
69 |
|
|
|
|
|
|
|
|
April 2022 |
Returned to scope following signing of Industry Pledge |
Review confirmed no remediation, or remediation completed |
June 2022 |
|
Remediation completed: |
|
|
|
|
|
Buildings above 18 metres |
11 |
(4) |
5 |
12 |
|
Buildings under 18 metres |
8 |
- |
10 |
18 |
|
Total buildings |
19 |
(4) |
15 |
30 |
|
Developments |
7 |
(2) |
4 |
9 |
This is a complex area requiring significant judgement with respect to both the individual remediation requirements of each building and the costs associated with that remediation (see also note 17). Management's estimate of the remediation cost of the relevant buildings was based on recent industry experience of the average remediation cost per plot of c. £21,000 plus an estimate of future cost price inflation over the period until the remediation is completed. An additional contingency was also allowed to reflect further buildings being identified as within the scope of the Pledge and for unforeseen remediation costs beyond management's current knowledge. As a result, £396.4m was provided in relation to the Pledge.
In relation to the timing of remediation spend, it has been assumed that the majority of the work will be completed over the next five years. The amount provided has been discounted accordingly. This depends on a number of factors, including the completion of legal documentation with the Government, timely engagement by building owners and remediation work being completed in line with our estimated timings.
The investigation of the works required at many of the buildings is at an early stage and therefore it is possible that these estimates will change over time or if government legislation and regulation further evolves.
The estimates are based on key assumptions that will be updated as work and time progresses. The sensitivity of the provision held at the balance sheet date to the following possible movements in those assumptions is shown below:
the balance sheet date to the following possible movements in those assumptions is shown below:
|
|
|
Increase/(decrease) in provisions at 30 June 2022 £m |
|
Sensitivity |
|
|
|
10% increase in estimated cost per plot |
|
27.7 |
|
100 bps increase in discount rate |
|
(12.0) |
|
10% of all cash flows delayed by one year |
|
1.2 |
Citiscape and associated review
As announced in July 2020, we took the decision to pay for required remedial action on the reinforced concrete frame at the Citiscape development in Croydon and undertook an associated review of 27 other developments where reinforced concrete frames were designed for us by either the same original engineering firm or by other companies within the group of companies that has since acquired it. This review is substantially complete and has not identified any other buildings with issues as severe as those present at Citiscape. Detailed reviews are ongoing and, in line with our commitment to put our customers first, we will ensure that the costs associated with any remedial works from these reviews are not borne by leaseholders.
Going concern
In determining the appropriate basis of preparation of the Financial Statements, the Directors are required to consider whether the Group can continue to meet its liabilities and other obligations for the foreseeable future.
The Group's business activities, together with factors that the Directors consider are likely to affect its development, financial performance and financial position, are set out in the Chief Executive's statement. The material financial and operational risks and uncertainties that may affect the Group's performance and their mitigation are outlined in note 23 to these condensed consolidated financial statements, and financial risks including liquidity, market, credit and capital risks are outlined in note 19.
At 30 June 2022, the Group held cash of £1,352.7m and total loans and borrowings of £217.3m, consisting of £17.3m of overdrafts repayable on demand and £200.0m Sterling USPP notes maturing in August 2027. These balances, set against pre-paid facility fees, comprise the Group's net cash of £1,138.6m, presented in note 12.
Should further funding be required, the Group has a committed £700.0m RCF, subject to compliance with certain financial covenants, that matures in November 2025.
As such, in consideration of its net current assets of £5,183.6m, the Directors are satisfied that the Group has sufficient liquidity to meet its current liabilities and working capital requirements.
Whilst the underlying fundamentals of the housing market remain attractive, with the Government restating its commitment to address the historical undersupply of new homes, uncertainty in the current market has increased. This has arisen from the ongoing impact of inflation on material costs and mortgage affordability, supply chain disruption and industry-specific challenges, such as the potential for further building safety or greenhouse gas emissions legislation or the withdrawal of Help to Buy from March 2023, which may impact reservations from autumn 2022. These, and other economic disruptions, could result in flat or negative economic growth, reduced buyer confidence, reduced mortgage availability and affordability, falls in house prices or land values and cost increases associated with raw materials, suppliers, subcontractors and employees.
The Group's financial forecasts reflect the outcomes that the Directors consider most likely, based on the information available at the date of signing of these condensed consolidated financial statements.
To assess the Group's resilience to more adverse outcomes, its forecast performance was sensitised to reflect a series of scenarios based on the Group's principal risks and the downside prospects for the UK economy and housing market presented in the latest available external economic forecasts.
This exercise included a reasonable worst-case scenario in which the Group's principal risks manifest in aggregate to a severe but plausible level. This assumed that average selling prices fall by 10%, sales volumes fall by 15% and construction costs increase by between 5% and 9% from the base forecasts, in addition to the implementation of a building safety levy and the acceleration of regulatory changes to reduce indirect greenhouse gas emissions.
The effects were modelled over the three-year period covered by the Directors' viability review, alongside reasonable mitigation that the Group would expect to undertake in such circumstances, primarily a reduction in investment in inventories in line with the fall in expected sales. In all scenarios, including the reasonable worst case, the Group is able to comply with its financial covenants, operate within its current facilities and meet its liabilities as they fall due.
Furthermore, a reverse stress test was performed to determine the market conditions in which the Group, without mitigating action, would cease to be able to operate under its current facilities within 12 months from the date of approval of these condensed consolidated financial statements. Based on past experience and current economic forecasts, the Directors consider the possibility of this outcome to be remote and have identified mitigation that would be adopted in such circumstances.
Accordingly, the Directors consider there to be no material uncertainties that may cast significant doubt on the Group's ability to continue to operate as a going concern. They have formed a judgement that, at the time of approving the condensed consolidated financial statements, there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, being at least 12 months from the date of these condensed consolidated financial statements. For this reason, they continue to adopt the going concern basis in the preparation of these condensed consolidated financial statements.
Application of accounting standards
During the year ended 30 June 2022, the Group has applied accounting policies and methods of computation consistent with those applied in the prior year with the exception of the following:
· IAS 37 'Provisions, Contingent Liabilities and Contingent Assets': The Group holds a liability to cover further costs that are required to complete the development after all homes have been legally completed. This requires an assessment of the cost to complete and has historically been presented within trade and other payables. Increasing difficulty in obtaining adoption of infrastructure and open spaces has increased uncertainty over the timing and amount of these costs. In accordance with IAS 37 'Provisions, Contingent Liabilities and Contingent Assets', it is now deemed appropriate to present these liabilities as provisions.
To ensure comparability, the relevant prior year balances have also been re-presented as provisions as at 30 June 2021 and 1 July 2020. The impact of this change at 30 June 2021 is to increase provisions by £142.3m and decrease trade and other payables by £142.3m, and at 1 July 2020 is to increase provisions by £130.2m and decrease trade and other payables by £130.2m, all within current liabilities in the Group's Balance Sheet. The movements in payables and provisions within the Cash Flow Statement for the year ended 30 June 2021 have been re-presented accordingly. This has had no impact on net assets or earnings per share.
During the year, the Group has adopted the following new and revised standards and interpretations which have had no impact on the Financial Statements:
· Amendment to IFRS 4: 'Extension of the Temporary Exemption from applying IFRS 9';
· Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16: 'Interest Rate Benchmark Reform - Phase 2'; and
· Amendment to IFRS 16: 'COVID-19 Related Rent Concessions beyond June 2021'.
2. Revenue
An analysis of the Group's continuing revenue is as follows:
|
|
Residential completions1 |
|
Revenue |
|
|
|
2022 number |
2021 number |
2022 £m |
2021 £m |
|
Revenue from private residential sales |
13,327 |
13,134 |
4,541.3 |
4,274.6 |
|
Revenue from affordable residential sales |
3,835 |
3,383 |
611.4 |
495.5 |
|
Revenue from commercial sales |
- |
- |
87.6 |
21.7 |
|
Revenue from planning promotion agreements |
- |
- |
23.3 |
- |
|
Other revenue |
- |
- |
4.3 |
19.9 |
|
|
17,162 |
16,517 |
5,267.9 |
4,811.7 |
1 Residential completions exclude JV completions of 746 homes (2021: 726) in which the Group has an interest.
Profit from operations includes all of the revenue and costs derived from the Group's operating businesses. Profit from operations excludes finance costs, finance income, the Group's share of profits or losses from JVs and associates and tax.
4. Adjusted items
|
|
|
2022 |
2021 |
|
Costs incurred in respect of legacy properties |
|
433.2 |
81.9 |
|
Amounts in respect of legacy properties recovered from third parties |
|
(25.0) |
- |
|
CJRS grant income repaid |
|
- |
22.8 |
|
Adjusted items in cost of sales |
|
408.2 |
104.7 |
|
CJRS grant income repaid |
|
- |
3.2 |
|
Adjusted items in administrative expenses |
|
- |
3.2 |
|
Costs/(credit) incurred in respect of legacy properties by JVs |
|
4.3 |
(0.4) |
|
Adjusted items in share of profit/(loss) from JVs |
|
4.3 |
(0.4) |
|
Total adjusted items |
|
412.5 |
107.5 |
Cost associated with legacy properties:
The adjusted costs in the year, associated with legacy properties, comprise additions to provisions of £448.0m, provision releases of £15.8m, costs expensed directly to the Income Statement of £1.0m and reimbursements recognised directly in the Income Statement of £25.0m. Further details of provisions movements are provided in note 13.
CJRS grant repayment:
During the year ended 30 June 2020, the Group recognised grant income of £26.0m in respect of the UK Government's CJRS. This was a temporary scheme from which the income was voluntarily refunded by the Group during the year ended 30 June 2021. Both the income and the repayment of the grant were presented as adjusted items in prior years.
Recognised in the Consolidated Income Statement:
|
|
|
2022 |
2021 |
|
Finance income |
|
|
|
|
Finance income on short-term bank deposits |
|
(1.9) |
(0.5) |
|
Finance income related to employee benefits |
|
- |
(0.1) |
|
Other interest receivable |
|
(0.6) |
(0.8) |
|
|
|
(2.5) |
(1.4) |
|
Finance costs |
|
|
|
|
Interest on loans and borrowings |
|
9.5 |
9.8 |
|
Imputed interest on deferred term payables |
|
14.4 |
13.7 |
|
Finance charge on leased assets |
|
0.9 |
1.3 |
|
Amortisation of facility fees |
|
4.0 |
2.0 |
|
Other interest payable |
|
1.3 |
1.2 |
|
|
|
30.1 |
28.0 |
|
Net finance costs |
|
27.6 |
26.6 |
The weighted average interest rates (excluding fees) paid in the year were as follows:
|
|
|
Group |
|
|
2022 % |
2021 % |
|
|
|
|
|
USPP notes |
2.8 |
2.8 |
6. Tax
All profits of the Group are subject to UK corporation tax.
The current year tax charge has been provided for, by the Group, at a standard effective rate, inclusive of RPDT, of 20.0% (2021: 19.0%) and the closing deferred tax assets and liabilities have been provided in these condensed consolidated financial statements at a rate of 19.0% - 29.0% (2021: 19.0% - 25.0%) of the temporary differences giving rise to these assets and liabilities.
Tax recognised in the Income Statement
The tax expense represents the sum of the tax currently payable and deferred tax.
Analysis of the tax charge for the year
|
|
2022 |
2021 |
|
Current tax: |
|
|
|
UK corporation tax for the year |
122.9 |
155.1 |
|
Residential property developer tax for the year |
6.3 |
- |
|
Adjustment in respect of previous years |
(8.2) |
(12.7) |
|
|
121.0 |
142.4 |
|
Deferred tax: |
|
|
|
Origination and reversal of temporary differences |
2.2 |
(3.5) |
|
Impact of introduction of residential property developer tax |
2.5 |
- |
|
Adjustment in respect of previous years |
2.6 |
7.8 |
|
Impact of change in corporation tax rate |
(1.2) |
5.4 |
|
|
6.1 |
9.7 |
|
Tax charge for the year |
127.1 |
152.1 |
Factors affecting the tax charge for the year
The tax rate assessed for the year is lower (2021: lower) than the standard effective rate of corporation tax in the UK of 20.0% (inclusive of RPDT) (2021: 19.0%). The differences are explained below:
|
|
2022 |
2021 |
|
Profit before tax |
642.3 |
812.2 |
|
Profit before tax multiplied by the standard rate of corporation tax of 20.0% (inclusive of RPDT) (2021: 19.0%) |
128.5 |
154.3 |
|
Effects of: |
|
|
|
Other items including non-deductible expenses and non-taxable income |
5.0 |
(0.9) |
|
Additional tax relief for land remediation costs |
(2.1) |
(1.8) |
|
Adjustment in respect of previous years |
(5.6) |
(4.9) |
|
Impact of RPDT |
2.5 |
- |
|
Impact of change in tax rate |
(1.2) |
5.4 |
|
Tax charge for the year |
127.1 |
152.1 |
The UK corporation tax rate will increase from 19% to 25% with effect from 1 April 2023. Legislation to increase the corporation tax rate was enacted during the 30 June 2021 accounting period and the impact on deferred tax was taken into account at the previous balance sheet date.
The Finance Act 2022 received Royal Assent on 24 February 2022 introducing a new residential property developer tax ('RPDT') which is effective from 1 April 2022 and is chargeable at 4% of profits generated from residential property development in excess of an annual threshold. RPDT was introduced by HM Treasury to obtain a contribution from the UK's largest residential property developers towards the cost of remediating defective cladding in the UK's high-rise housing stock and is expected to remain in force for up to ten years. RPDT will apply to the majority of the Group's profits.
Tax recognised in equity
In addition to the amount charged to the Consolidated Income Statement, a net current and deferred tax charge of £0.9m (2021: £3.3m credit) was recognised directly in equity.
7. Earnings per share
The earnings per share from continuing operations were as follows:
|
|
2022 |
2021 |
|
Basic earnings per share |
50.6 |
64.9 |
|
Diluted earnings per share |
49.8 |
64.0 |
|
Adjusted basic earnings per share |
83.0 |
73.5 |
|
Adjusted diluted earnings per share |
81.7 |
72.5 |
Basic earnings per share is calculated by dividing the profit for the year attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares in issue during the year, excluding those held by the EBT that do not attract dividend equivalents and which are treated as cancelled.
Diluted earnings per share is calculated by dividing the profit for the year attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares in issue adjusted to assume conversion of all potentially dilutive share options from the start of the year.
Adjusted basic and adjusted diluted earnings per share exclude the impact of adjusted items and any associated net tax amounts.
|
|
2022 |
2021 |
|
Profit attributable to ordinary shareholders of the Company (£m) |
515.1 |
659.8 |
|
Adjusted items (£m) |
412.5 |
107.5 |
|
Tax on adjusted items (£m) |
(82.5) |
(20.4) |
|
Adjusted profit attributable to ordinary shareholders of the Company (£m) |
845.1 |
746.9 |
|
|
|
|
|
Weighted average number of shares in issue (million) |
1,021.9 |
1,018.3 |
|
Weighted average number of shares in EBT (million) |
(3.2) |
(1.9) |
|
Weighted average number of shares for basic earnings per share (million) |
1,018.7 |
1,016.4 |
|
|
|
|
|
Weighted average number of shares in issue (million) |
1,021.9 |
1,018.3 |
|
Adjustment to assume conversion of all potentially dilutive shares (million) |
12.4 |
12.5 |
|
Weighted average number of shares for diluted earnings per share (million) |
1,034.3 |
1,030.8 |
8. Dividends
|
|
2022 |
2021 |
|
Amounts recognised as distributions to equity shareholders in the year: |
|
|
|
Final dividend for the year ended 30 June 2021 of 21.9p (2020: 0.0p) per share |
223.0 |
- |
|
Interim dividend for the year ended 30 June 2022 of 11.2p (2021: 7.5p) per share |
114.0 |
76.3 |
|
Total dividends distributed to equity shareholders in the year |
337.0 |
76.3 |
|
|
2022 |
2021 |
|
Proposed final dividend for the year ended 30 June 2022 of 25.7p (2021: 21.9p) per share |
261.4 |
222.7 |
9. Business combinations
Group acquisition of subsidiary undertaking
On 31 January 2022, the Group acquired 100% of the share capital of Gladman Developments Limited ('Gladman'). Gladman is a land promoter operating in the UK, with particular strength in the south of England. Further details on the strategic rationale for the acquisition are included in the Chief Executive's statement and the Chief Financial Officer's review.
Details of the purchase consideration, net assets acquired and the resulting goodwill are as follows:
|
|
|
2022 |
|
Cash paid |
|
218.4 |
|
Total purchase consideration |
|
218.4 |
|
Net assets and liabilities recognised as a result of the acquisition |
|
Fair value |
|
Intangible assets |
|
109.7 |
|
Tangible fixed assets |
|
1.3 |
|
Investments |
|
1.4 |
|
Inventories |
|
100.5 |
|
Trade and other receivables |
|
83.7 |
|
Cash |
|
12.8 |
|
Trade and other payables |
|
(110.7) |
|
Corporation tax asset |
|
0.1 |
|
Deferred tax liability |
|
(27.4) |
|
Net identifiable assets acquired |
|
171.4 |
|
Goodwill |
|
47.0 |
|
Net assets acquired |
|
218.4 |
The assets and liabilities acquired have been recognised at their acquisition date provisional fair values which may be amended during the 12 months following acquisition. The fair value of trade and other receivables is equal to the gross contractual amounts receivable.
Goodwill represents the value of intangible assets that do not qualify for separate recognition under accounting standards.
Revenue of £23.3m and a profit contribution of £9.5m are recognised in the Consolidated Income Statement in respect of Gladman. If the acquisition had occurred on 1 July 2021, consolidated pro-forma revenue and profit for the year ended 30 June 2022, based on Gladman's results for the year adjusted for intercompany transactions and differences in accounting policies, would have been £5,282.5m and £510.3m respectively.
Acquisition costs of £4.5m are included in administrative expenses in the Consolidated Income Statement and in operating cash flows in the Cash Flow Statement. Included within the Group's Consolidated Income Statement for the year are £4.3m of amortisation of the intangible assets recognised on acquisition and £1.4m in relation to deferred consideration recognised as employee remuneration.
The Group' cash outflow in respect of the acquisition is as follows:
|
|
|
2022 |
|
Cash consideration |
|
218.4 |
|
Cash balances acquired |
|
(12.8) |
|
Net outflow of cash - investing activities |
|
205.6 |
There were no acquisitions in the year ended 30 June 2021.
Goodwill
|
|
|
Group |
|
|
2022 £m |
2021 |
|
Cost |
|
|
|
At 1 July |
830.4 |
830.4 |
|
Arising on acquisition during the year |
47.0 |
- |
|
At 30 June |
877.4 |
830.4 |
|
Accumulated impairment losses |
|
|
|
At 1 July and 30 June |
24.5 |
24.5 |
|
Carrying amount |
|
|
|
At 30 June |
852.9 |
805.9 |
During the year, the Group acquired all of the share capital of Gladman Developments Limited (note 9). Goodwill of £47.0m arising on the acquisition has been capitalised and allocated to the Group's acquired land promotion business.
The Group's goodwill relating to the acquisition of Wilson Bowden Limited in 2007 has a carrying value of £792.2m, and goodwill relating to the 2019 acquisition of Oregon Timber Frame Limited has a carrying value of £13.7m, both relating to the housebuilding business.
Other intangible assets
The Group has capitalised, as intangible assets, brands that have been acquired. Acquired brand values are calculated using discounted cash flows.
|
|
|
|
|
|
|
|
|
Group |
|
|
|
Brands |
Customer contract relationships |
Customer contracts |
|
Total |
||
|
|
2022 £m |
2021 |
2022 £m |
2021 |
2022 £m |
2021 |
2022 £m |
2021 |
|
Cost |
|
|
|
|
|
|
|
|
|
At 1 July |
107.9 |
107.9 |
1.4 |
1.4 |
- |
- |
109.3 |
109.3 |
|
Acquired in the year |
10.8 |
- |
- |
- |
98.9 |
- |
109.7 |
- |
|
Amounts written off |
- |
- |
(1.4) |
- |
- |
- |
(1.4) |
- |
|
At 30 June |
118.7 |
107.9 |
- |
1.4 |
98.9 |
- |
217.6 |
109.3 |
|
Amortisation |
|
|
|
|
|
|
|
|
|
At 1 July |
7.9 |
7.5 |
1.4 |
0.7 |
- |
- |
9.3 |
8.2 |
|
Amortisation in the year |
0.2 |
0.4 |
- |
0.7 |
4.1 |
- |
4.3 |
1.1 |
|
Amounts written off |
- |
- |
(1.4) |
- |
- |
- |
(1.4) |
- |
|
At 30 June |
8.1 |
7.9 |
- |
1.4 |
4.1 |
- |
12.2 |
9.3 |
|
Carrying amount |
|
|
|
|
|
|
|
|
|
At 30 June |
110.6 |
100.0 |
- |
- |
94.8 |
- |
205.4 |
100.0 |
The Group does not amortise the housebuilding brand acquired with Wilson Bowden, being David Wilson Homes, valued at £100.0m, as the Directors consider that this brand has an indefinite useful economic life due to the Group intending to hold and support the brand for an indefinite period, and there are no factors that would prevent it from doing so.
During the year, in its acquisition of Gladman Developments Limited, the Group acquired brands valued at £10.8m and customer contracts valued at £98.9m. The customer contracts are amortised on a straight-line basis over the expected life of the contracts, the brands acquired in the year are amortised on a straight-line basis over a 20 year period.
Impairment of goodwill and indefinite life brands
The Group conducts an annual impairment review of goodwill and its indefinite life brand, David Wilson Homes.
Goodwill and indefinite life brands allocated to housebuilding
An impairment review was performed at 30 April 2022 by comparing the value in use of the housebuilding business to the carrying value of its tangible and intangible assets and allocated goodwill.
The value in use was determined by discounting the expected future cash flows of the housebuilding business. The first three years of cash flows were determined using the Group's approved detailed business plan. The cash flows for the fourth and fifth years were determined using Group-level internal forecast cash flows based upon expected volumes, selling prices and margins, taking into account available land purchases and work in progress levels. The cash flows for year six onwards were extrapolated in perpetuity using an estimated growth rate of 1%, based upon the historical long-term growth rate of the UK economy.
The key assumptions for the value-in-use calculation for the housebuilding business were:
· expected changes in selling prices for completed houses and the related impact on operating margin: these are determined on a site-by-site basis in the Group's approved business plan dependent upon local market conditions and product type. For subsequent years, these have been estimated at a Group level based upon past experience and expectations of future changes in the market, considering external market forecasts;
· sales volumes: these are determined on a site-by-site basis in the Group's approved business plan dependent upon local market conditions, land availability and planning permissions. For subsequent years, these have been estimated at a Group level based on past experience and expectations of future changes in the market, taking into account external market forecasts;
· expected changes in site costs to complete: these are determined on a site-by-site basis in the Group's approved business plan dependent upon the expected costs of completing all aspects of each individual development. For subsequent years, these have been estimated at a Group level based on past experience and expectations of future changes in the market, taking into account external market forecasts; and
· discount rate: this is a pre-tax rate reflecting the Group's target capital structure, risks appropriate to the housebuilding business and current market assessments of the time value of money. A rate of 14.9% (2021: 11.8%) is considered by the Directors to be the appropriate pre-tax discount rate.
The result of the value-in-use exercise concluded that the recoverable value of goodwill and intangible assets allocated to the housebuilding business exceeded its carrying value by £1,780.4m (2021: £1,861.2m) and there has been no impairment.
Goodwill allocated to land promotion
An impairment review was performed at 30 June 2022 by comparing the value-in-use of the land promotion business to the carrying value of its tangible and intangible assets and allocated goodwill.
The value in use was determined by discounting the expected future cash flows of the land promotion business. The first two years of cash flows were determined using the business's approved detailed business plan. The cash flows for year three onwards were extrapolated in perpetuity using an estimated growth rate of 1%, based upon the historical long-term growth rate of the UK economy.
The key assumptions for the value-in-use calculation were the expected sales values achieved under land promotion agreements, based on current market values for similar land, costs required to fulfil customer contracts, and the discount rate of 15.0%, being a pre-tax rate reflecting the risks appropriate to the land promotion business and current market assessments of the time value of money.
The result of the value-in-use exercise concluded that the recoverable value of goodwill allocated to the land promotion business exceeded its carrying value by £9.6m and there has been no impairment.
11. Inventories
|
|
Group |
|
|
|
2022 |
2021 |
|
Land held for development |
3,339.9 |
2,946.3 |
|
Construction work in progress |
1,837.8 |
1,675.9 |
|
Promotion agreements work in progress |
91.1 |
- |
|
Part-exchange properties and other inventories |
22.8 |
23.3 |
|
|
5,291.6 |
4,645.5 |
Nature and carrying value of inventories
The Group's principal activities are housebuilding and commercial development. The majority of the development activity is not contracted prior to the development commencing. Accordingly, the Group has in its Balance Sheet at 30 June 2022 current assets that are not covered by a forward sale. The Group's internal controls are designed to identify any developments where the balance sheet value of land and work in progress is more than the projected lower of cost or net realisable value. During the year, the Group has conducted six-monthly reviews of the net realisable value of specific sites identified as at high risk of impairment, based upon a number of criteria including low site profit margins and sites with no forecast completions. Where the estimated net realisable value of a site was less than its current carrying value, the Group has impaired the land and work in progress value.
During the year, due to performance variations, changes in assumptions and changes to viability on individual sites, there were gross impairment charges of £2.0m (2021: £3.6m) and gross impairment reversals of £4.2m (2021: £7.1m), resulting in a net reversal of impairment of £2.2m (2021: £3.5m) included within profit from operations.
The key estimates in these reviews are those used to estimate the realisable value of a site, which is determined by forecast sales rates, expected sales prices and estimated costs to complete.
The Directors consider all inventories to be essentially current in nature, although the Group's operational cycle is such that a proportion of inventories will not be realised within 12 months. It is not possible to determine with accuracy when specific inventory will be realised, as this will be subject to a number of variables such as consumer demand and planning permission delays.
Expensed inventories
The value of inventories expensed in the year ended 30 June 2022 and included in cost of sales was £3,761.9m (2021: £3,537.9m).
Net cash is defined as cash and cash equivalents, bank overdrafts, interest bearing borrowings and prepaid fees.
Net cash at 30 June is shown below:
|
Group |
|||
|
|
|
2022 |
2021 £m |
|
Cash and cash equivalents |
|
1,352.7 |
1,518.6 |
|
Drawn debt |
|
|
|
|
Borrowings: |
|
|
|
|
Sterling US private placement notes |
|
(200.0) |
(200.0) |
|
Bank overdrafts |
|
(17.3) |
(5.3) |
|
Total borrowings being total drawn debt |
|
(217.3) |
(205.3) |
|
Prepaid fees |
|
3.2 |
4.1 |
|
Net cash |
|
1,138.6 |
1,317.4 |
|
|
|
|
|
|
Total borrowings at 30 June are analysed as: |
|
|
|
|
Non-current borrowings |
|
(200.0) |
(200.0) |
|
Current borrowings |
|
(17.3) |
(5.3) |
|
Total borrowings being total drawn debt |
|
(217.3) |
(205.3) |
Movement in net cash is analysed as follows:
|
|
Group |
|
|
|
2022 £m |
2021 £m |
|
Net (decrease)/increase in cash and cash equivalents |
(165.9) |
898.8 |
|
(Drawdown)/repayment of borrowings: |
|
|
|
Loans and borrowings drawdowns |
(17.3) |
- |
|
Loans and borrowings repayments |
5.3 |
112.4 |
|
Other movements in borrowings: |
|
|
|
Movement in prepaid fees |
(0.9) |
(2.0) |
|
Movement in net cash in the year |
(178.8) |
1,009.2 |
|
Opening net cash |
1,317.4 |
308.2 |
|
Closing net cash |
1,138.6 |
1,317.4 |
Cash and cash equivalents
Cash and cash equivalents are held at floating interest rates linked to the UK bank rate and money market rates as applicable. Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less from inception and are subject to an insignificant risk of changes in value.
Borrowings and facilities
All debt facilities at 30 June 2022 are unsecured.
The principal features of the Group's committed debt facilities at 30 June 2022 and 30 June 2021 were as follows:
|
|
|
Amount drawn |
|
|
|
|
Facility |
30 June 2022 |
30 June 2021 |
Maturity |
|
Committed facilities: |
|
|
|
|
|
RCF |
£700.0m |
- |
- |
22 November 2025 |
|
Fixed rate Sterling USPP notes |
£200.0m |
£200.0m |
£200.0m |
22 August 2027 |
The Group also uses various bank overdrafts and uncommitted borrowing facilities that are subject to floating interest rates linked to SONIA and money market rates as applicable.
Weighted average interest rates are disclosed in note 5.
13. Provisions
|
|
|
|
|
Group |
|
|
Costs in relation to completed developments1 |
Legacy properties - EWS and associated review |
Legacy properties - Citiscape and associated review |
Total |
|
|
£m |
£m |
£m |
£m |
|
At 1 July 2021 (as previously presented) |
- |
41.6 |
26.0 |
67.6 |
|
Amounts reclassified from accruals1 |
142.3 |
- |
- |
142.3 |
|
At 1 July 2021 as re-presented1 |
142.3 |
41.6 |
26.0 |
209.9 |
|
Additions to provisions in the year |
47.3 |
414.5 |
33.5 |
495.3 |
|
Sites reclassified to completed developments |
26.3 |
- |
- |
26.3 |
|
Releases |
(21.4) |
(12.8) |
(3.0) |
(37.2) |
|
Utilisation in the year |
(49.0) |
(8.7) |
(11.6) |
(69.3) |
|
At 30 June 2022 |
145.5 |
434.6 |
44.9 |
625.0 |
|
|
Group |
|
|
|
2022 £m |
20211 £m |
|
Current1 |
265.4 |
209.9 |
|
Non-current |
359.6 |
- |
|
|
625.0 |
209.9 |
1 Costs in relation to completed developments, previously included within accruals, have been reclassified as provisions as described in note 1 to the condensed consolidated financial statements. The prior year balance for provisions has been re-presented to ensure comparability .
Further information on the Group's provisions is provided in note 1.
14. Share capital
Ordinary share capital
|
Allotted and issued ordinary shares |
2022 |
2021 |
|
10p each fully paid: 1,022,562,819 (2021: 1,018,331,741) ordinary shares |
102.2 |
101.8 |
|
Options over the Company's shares granted during the year |
2022 |
2021 |
|
LTPP |
2,774,294 |
3,204,477 |
|
Sharesave |
4,117,231 |
1,913,489 |
|
DBP |
674,051 |
- |
|
ELTIP |
1,080,733 |
1,249,000 |
|
|
8,646,309 |
6,366,966 |
|
Allotment of shares during the year |
2022 |
2021 |
|
At 1 July |
1,018,331,741 |
1,018,302,400 |
|
Issued to the EBT to satisfy the vesting of awards |
2,386,199 |
- |
|
Issued to satisfy early exercises under Sharesave schemes |
28,023 |
10,251 |
|
Issued to satisfy exercises under matured Sharesave schemes |
1,816,856 |
19,090 |
|
At 30 June |
1,022,562,819 |
1,018,331,741 |
15. Own shares reserve
The own shares reserve represents the cost of shares in Barratt Developments PLC purchased in the market or issued by the Company and held by the EBT on behalf of the Company in order to satisfy options and awards that have been granted by the Company.
The EBT has agreed to waive all, or any future right to dividend payments on shares held within the EBT and these shares do not count in the calculation of the weighted average number of shares used to calculate EPS until such time as they are vested to the relevant employee.
|
|
2022 |
2021 |
|
Ordinary shares in the Company held in the EBT (number) |
5,320,168 |
1,300,125 |
|
Cost of shares held in the EBT |
£27.0m |
£4.7m |
|
Market value of shares held in the EBT at 457.4p (2021: 695.2p) per share |
£24.3m |
£9.0m |
During the year, the EBT purchased 4,989,573 (2021: no) shares in the market and 2,386,199 (2021: no) shares were issued to the EBT. The EBT disposed of 3,355,729 (2021: 1,689,670) shares which were used to satisfy the vesting of ELTIP, LTPP and DBP awards. No shares were used in the year in settlement of exercises under Sharesave plans (2021: 1,719,011 shares were used in settlement of exercises under the Sharesave 2015 5-year plan and the Sharesave 2017 3-year plan).
16. Non-controlling interests
|
|
Group |
|
|
Movement in non-controlling interest share of net assets recognised in the Consolidated Balance Sheet |
2022 |
2021 |
|
At 1 July |
1.1 |
1.4 |
|
Distribution of profits to non-controlling partner |
(0.4) |
(0.6) |
|
Share of profit for the year recognised in the Consolidated Income Statement |
0.1 |
0.3 |
|
At 30 June |
0.8 |
1.1 |
Contingent liabilities related to subsidiaries
Certain subsidiary undertakings have commitments for the purchase of trading stock entered into in the normal course of business.
In the normal course of business, the Group has given counter-indemnities in respect of performance bonds and financial guarantees. Management estimate that the bonds and guarantees amount to £420.7m (2021: £423.8m) and confirm that, at the date of these condensed consolidated financial statements, the possibility of cash outflow is considered minimal and no provision is required.
External wall systems and associated review
As disclosed in note 1, the Group has signed an industry pledge (the 'Pledge') to undertake or fund remediation or mitigation works on all buildings of 11 metres or above that it has developed or refurbished in the 30 years from the date of the Pledge, being April 2022, and to reimburse the Government's Building Safety fund and ACM fund wherever they have contributed to such activities.
The Group is currently undertaking a review of all of its current and legacy buildings where it has used EWS or cladding solutions and continues to assess the action required in line with the latest updates to government guidance, as it applies, to multi-storey and multi-occupied residential buildings. Approved inspectors signed off all of our buildings, including the EWS or cladding used, as compliant with the relevant building regulations at the time of completion.
At 30 June 2022, the Group held provisions of £434.6m (2021: £41.6m) in relation to EWS and associated reviews, including liabilities arising from commitments made under the Pledge based on management's best estimate of the cost and timing of remediation of in-scope buildings. It is possible that as remediation work proceeds, additional remedial works are required which do not relate to EWS or cladding solutions. Such works may not have been identified from the reviews and physical inspections undertaken to date and may only be identified when detailed remediation work is in progress. Therefore the nature, timing and extent of any such costs was unknown at the balance sheet date.
In addition, we recognise that the retrospective review of building materials and fire-safety matters continues to evolve. These condensed consolidated financial statements have been prepared based on currently available information and regulatory guidance. However, these estimates may be updated if government legislation and regulation further evolves.
Citiscape and associated review
As disclosed in note 1, following the issues identified at Citiscape, the Group is conducting a review of developments where reinforced concrete frames have been designed by either the same original engineering firm which designed Citiscape, or by other companies within the group of companies which has since acquired it. The condensed consolidated financial statements have been prepared based on currently available information; however, the detailed review is ongoing and the extent and cost of any remedial work may change as this work progresses. While in most cases we have no legal liability, in line with our commitment to put our customers first we will ensure that the costs associated with remedial works from these reviews are not borne by leaseholders.
We are actively seeking to recover costs from third parties in respect of EWS, Citiscape and the associated reviews; however, there is no certainty regarding the extent of any financial recovery.
Contingent liabilities related to JVs
The Group has given counter-indemnities in respect of performance bonds and financial guarantees to its JVs totalling £2.2m at 30 June 2022 (2021: £1.8m).
The Group has also given a number of performance guarantees in respect of the obligations of its JVs, requiring the Group to complete development agreement contractual obligations in the event that the JVs do not perform as required under the terms of the related contracts. At 30 June 2022, the probability of any loss to the Group resulting from these guarantees is considered to be remote.
Contingent liabilities related to legal claims
Provision is made for the Directors' best estimates of all known material legal claims and all legal actions in progress. The Group takes legal advice as to the likelihood of success of claims and actions and no provision is made (other than for legal costs) where the Directors consider, based on such advice, that claims or actions are unlikely to succeed, or a sufficiently reliable estimate of the potential obligations cannot be made.
18. Related party transactions
Directors of Barratt Developments PLC and remuneration of key personnel
The Board and certain members of senior management are related parties within the definition of IAS 24 (Revised): 'Related Party Disclosures' and the Board are related parties within the definition of Chapter 11 of the UK Listing Rules. There is no difference between transactions with key personnel of the Company and transactions with key personnel of the Group.
Disclosures related to the remuneration of key personnel as defined in IAS 24 will be provided in note 5 of the 2022 Annual Report and Accounts .
There have been no related party transactions as defined in Listing Rule 11.1.5R for the year ended 30 June 2022.
Transactions between the Company and its subsidiaries
The Company has entered into transactions with its subsidiary undertakings in respect of funding and Group services (which include management accounting and audit, sales and marketing, IT, company secretarial, architects and purchasing). Recharges are made to the subsidiaries based on their utilisation of these services.
|
|
|
Company |
|
|
2022 |
2021 |
|
Transactions between the Company and its subsidiaries during the year: |
|
|
|
Charges in respect of management and other services provided to subsidiaries |
146.5 |
111.7 |
|
Net interest paid by the Company on net loans from subsidiaries |
24.5 |
15.8 |
|
Dividends received from subsidiary undertakings |
517.4 |
8.7 |
|
Balances at 30 June: |
|
|
|
Amounts due by the Company to subsidiary undertakings |
323.5 |
764.3 |
|
Amounts due to the Company from subsidiary undertakings |
79.2 |
76.0 |
The Company and its subsidiaries have entered into counter-indemnities in the normal course of business in respect of performance bonds.
Transactions between the Group and its JVs
The Group has entered into transactions with its JVs as follows:
|
|
|
Group |
|
|
2022 |
2021 |
|
Transactions between the Group and its JVs during the year: |
|
|
|
Charges in respect of development management and other services provided to JVs |
9.2 |
4.5 |
|
Interest charges in respect of funding provided to JVs |
0.5 |
0.7 |
|
Dividends received from JVs |
16.5 |
21.2 |
|
Balances at 30 June: |
|
|
|
Funding loans and interest due from JVs net of impairment |
94.0 |
86.0 |
|
Other amounts due from JVs |
39.3 |
26.9 |
|
Loans and other amounts due to JVs |
(1.3) |
(0.8) |
In addition, one of the Group's subsidiaries, BDW Trading Limited, contracts with a number of the Group's JVs to provide construction services.
The Group's contingent liabilities relating to its JVs are disclosed in note 17.
19. Financial risk management
The Group's approach to risk management and the principal operational risks of the business are detailed in note 23.
The Group's operations and financing arrangements expose it to a variety of financial risks, of which the most material are: liquidity risk, the availability of funding at reasonable margins, credit risk and interest rates. There is a regular, detailed system for the reporting and forecasting of cash flows from operations to senior management including Executive Directors to ensure that liquidity risks are promptly identified and appropriate mitigating actions are taken by the Treasury department. These forecasts are further stress-tested at a Group level on a regular basis to ensure that adequate headroom within facilities and banking covenants is maintained. In addition, the Group has a risk management programme that seeks to limit the adverse effects of the other risks on its financial performance.
The Board approves treasury policies and certain day-to-day treasury activities have been delegated to a centralised Treasury Operating Committee, which in turn regularly reports to the Board. The Treasury department implements guidelines that are established by the Board and the Treasury Operating Committee.
Liquidity risk
Liquidity risk is the risk that the Group will be unable to meet its liabilities as they fall due. The Group actively maintains a mixture of long-term and medium-term committed facilities that are designed to ensure that the Group has sufficient available funds for operations. The Group's borrowings are typically cyclical throughout the financial year and peak in April to May, and October to November of each year, due to seasonal trends in income. Accordingly, the Group maintains sufficient facility headroom to cover these requirements. On a normal operating basis, the Group has a policy of maintaining a minimum headroom of £150.0m. The Group identifies and takes appropriate actions based on its regular, detailed system for the reporting and forecasting of cash flows from its operations. The Group's drawn debt, excluding fees, represented 24.1% (2021: 22.8%) of available committed facilities at 30 June 2022. In addition, the Group had £1,352.7m (2021: £1,518.6m) of cash and cash equivalents.
The Group was in compliance with its financial covenants at 30 June 2022. The Group's resilience to its principal risks has been modelled, together with possible mitigating actions, over a three-year period. At the date of approval of the Financial Statements, the Group's internal forecasts indicate that it will be able to operate within its current facilities and remain in compliance with these covenants for the foreseeable future, being at least 12 months from the date of approval of these condensed consolidated financial statements.
One of the Group's objectives is to minimise refinancing risk. The Group has a policy that the average maturity of its committed bank facilities and private placement notes is a minimum of two years with a target of two to three years. At 30 June 2022, the average maturity of the Group's committed facilities was 3.8 years (2021: 4.0 years).
The Group maintains certain committed floating rate facilities with banks to ensure sufficient liquidity for its operations. The undrawn committed facilities available to the Group, in respect of which all conditions precedent had been met, were as follows:
|
|
Group |
|
|
Expiry date |
2022 |
2021 |
|
In more than two years but not more than five years |
700.0 |
700.0 |
In addition, the Group had undrawn, uncommitted overdraft facilities available at 30 June 2022 of £37.0m (2021: £17.0m).
Market risk (price risk)
Interest rate risk
The Group has both interest bearing assets and interest bearing liabilities. Floating rate borrowings expose the Group to cash flow interest rate risk, and fixed rate borrowings expose the Group to fair value interest rate risk.
The Group has a conservative treasury risk management strategy and the Group's interest rates are set using fixed rate debt instruments.
Due to the level of the Group's interest cover ratio and in accordance with the Group's policy to hedge a proportion of the forecast RCF drawings based on the Group's three-year plan, no interest rate hedges are currently required.
The exposure of the Group's financial liabilities to interest rate risk is as follows:
|
Group |
Floating rate financial liabilities |
Fixed rate financial liabilities |
Non-interest bearing financial liabilities |
Total |
|
2022 |
|
|
|
|
|
Financial liability exposure to interest rate risk |
- |
200.0 |
1,442.3 |
1,642.3 |
|
2021 |
|
|
|
|
|
Financial liability exposure to interest rate risk |
- |
200.0 |
1,339.8 |
1,539.8 |
Floating interest rates on Sterling borrowings are linked to SONIA and money market rates. The floating rates are fixed in advance for periods generally ranging from one to six months. Short-term flexibility is achieved through the use of overdraft, committed and uncommitted bank facilities. The Group retained a strong cash position throughout the year and, therefore, the Group did not draw on its RCF during the year and the use of other facilities was minimal. No interest was paid on floating rate borrowings in 2022 or 2021.
Sterling USPP notes of £200.0m were issued on 22 August 2017 with a fixed coupon of 2.77% and a ten-year maturity. These fixed rate notes expose the Group to fair value interest rate risk.
Sensitivity analysis
In the year ended 30 June 2022, if UK interest rates had been 0.5% higher (considered to be a reasonably possible change) and all other variables were held constant, the Group's pre-tax profit would increase by £4.9m (2021: £4.9m), the Group's post-tax profit would increase by £3.9m (2021: £4.0m) and, as such, the Group's equity would increase by £3.9m (2021: £4.0m). Had interest rates reduced to zero, the Group's pre-tax profit would decrease by £1.9m (2021 £0.5m) and the Group's post-tax profit and equity would decrease by £1.5m (2021: £0.4m).
Credit risk
In the majority of cases, the Group receives cash on legal completion for private sales and receives advance stage payments from registered providers for affordable housing. Included within trade and other receivables is £41.4m (2021: £29.9m) due from Homes England in respect of the Help to Buy scheme. Since this receivable is due from a UK government agency, the Group considers that it has an insignificant risk of default. In addition, the Group has £1,352.7m (2021: £1,518.6m) on deposit with 14 (2021: 9) financial institutions. Other than this, the Group has no significant concentration of credit risk, as its exposure is spread over a large number of counterparties and customers.
The Group manages credit risk through its credit policy. This limits its exposure to financial institutions with high credit ratings, as set by international credit rating agencies, and determines the maximum permissible exposure to any single counterparty.
The maximum exposure to any counterparty at 30 June 2022 was £190.0m (2021: £244.0m) of cash on deposit with a financial institution. The carrying amount of financial assets recorded in the Financial Statements, net of any allowance for losses, represents the Group's maximum exposure to credit risk.
Capital risk management (cash flow risk)
The Group's objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide returns for shareholders and meet its liabilities as they fall due while maintaining an appropriate capital structure.
The Group manages its share capital as equity, as set out in the Statement of Changes in Shareholders' Equity, and its bank borrowings (being overdrafts and bank loans) and its private placement notes as other financial liabilities. The Group is subject to the prevailing conditions of the UK economy and the quantum of the Group's earnings is dependent upon the level of UK house prices. UK house prices are determined by the UK economy and economic conditions, employment levels, interest rates, consumer confidence, mortgage availability and competitor pricing. The Group's approach to the management of the principal operational risks of the business are detailed in note 23.
Other methods by which the Group can manage its short-term and long-term capital structure include: adjusting the level of dividend payments to shareholders (assuming the Company is paying a dividend); issuing new share capital; arranging debt to meet liability payments; and selling assets to reduce debt.
The Group operates several defined contribution schemes.
Defined contribution schemes
The Group operates defined contribution retirement benefit schemes for all qualifying employees, under which it pays contributions to independently administered funds. Contributions are based upon a fixed percentage of the employee's pay and once these have been paid, the Group has no further obligations under these schemes.
|
|
2022 |
2021 |
|
Contributions during the year |
|
|
|
Group defined contribution schemes' consolidated Income Statement charge |
14.9 |
13.9 |
At the balance sheet date, there were outstanding contributions of £2.3m (2021: £1.9m), which were paid on or before the due date.
Defined benefit scheme
The Group previously sponsored a funded defined benefit pension scheme in Great Britain (the 'Scheme') which, with effect from 30 June 2009, ceased to offer future accrual of defined benefit pensions. On 16 June 2020, the Trustees entered into a bulk annuity insurance contract with an insurer in respect of the liabilities of the Scheme (a 'buy-in'). During the year to 30 June 2021, the insurer assumed responsibility for each of the previously bought-in benefits of Scheme members (a 'buy-out'). This has resulted in the discharge of all Scheme liabilities from the Group and the disposal of all Scheme assets.
21. Post balance sheet events
On 6 September 2022 the Board approved a £200m share buyback programme, with an initial tranche of £50m to be by completed the end of the calendar year and the total programme completed by no later than 30 June 2023.
22. Statutory accounts
The condensed consolidated financial statements for the year ended 30 June 2022 have been approved by the Directors and prepared in accordance with IAS in conformity with the requirements of the Companies Act 2006 and UK adopted IFRS as issued by the IASB.
Barratt Developments PLC's 2022 Annual Report and Accounts will be made available to shareholders and published on its website www.barrattdevelopments.co.uk in September 2022. The financial information set out herein does not constitute the Company's statutory accounts for the year ended 30 June 2022 (as defined in Sections 434 and 436 of the Companies Act 2006) but is derived from the 2022 Annual Report and Accounts and the accounts contained therein. Statutory accounts for 2022 will be delivered to the Registrar of Companies prior to the Company's Annual General Meeting, which will be held on 17 October 2022. The auditor has reported on these accounts; their report was unqualified and did not contain statements under Section 498 (2) or (3) of the Companies Act 2006.
The comparative figures for the year ended 30 June 2021 are not the Company's statutory accounts for the financial year but are derived from those accounts which have been reported on by the Company's auditor and which were delivered to the Registrar of Companies. The 2021 report of the auditor is unqualified and does not contain statements under Section 498 (2) or (3) of the Companies Act 2006.
Whilst the financial information included in this Annual Results Announcement has been prepared in accordance with IFRS, this announcement does not itself contain sufficient information to comply with IFRS as adopted for use in the UK.
23. Risk management
In pursuing our strategic priorities to create value for stakeholders, we experience risk. The Board is responsible for risk management and ensuring the Group maintains the appropriate level of risk to achieve its objectives.
The risks facing the Group could have a material adverse effect on the implementation of the Group strategy, our business, financial performance, shareholder value and returns, and reputation. Changes in the economic or trading environment can affect the likelihood and potential impact of risks, and may create new risks. In FY22, we have continued to evolve and enhance our risk management policies and processes.
Risk management controls are integrated into all levels of our business and across all operations, including at site, divisional, regional and Group level.
As part of the evolution of the Group's risk management framework, there have been several regional and function risk workshops to review and identify any potential emerging risks. These workshops presented a robust challenge to the principal risks identified at an executive level. During this process, we have reviewed the policies and methodologies behind our risk management to ensure we are continuing to identify key risks and can focus on mitigating these areas.
In April 2022, we signed the Industry Building Safety Pledge to commit to supporting leaseholders by funding or remediating life-critical fire safety works in buildings over 11 metres tall, which we have played a role in developing over the last 30 years. The amounts provided in the financial statements reflect the current best estimate of the extent and future costs of work required; however, these estimates may be updated as work progresses or as government legislation or regulations develop. Therefore, this has been highlighted as a principal risk this year.
The Group continues to assess the potential impact of both the physical impact of climate change and the regulatory and social measures that may be adopted to mitigate against it. Climate change remains a principal risk and, in line with amendments to the listing rules to require compliance with the recommendations of the Task Force for Climate-related Financial Disclosures, the Group will disclose its response in its Annual Report and Accounts for the year ended 30 June 2022.
Reputational risk could potentially arise from a number of sources including external and internal influences relating to the housebuilding sector that, when combined or over a period of time, could create a new principal risk. The Group actively manages the impact of reputational risk by carefully assessing the potential impact of all the principal risks and implementing mitigation actions to minimise those risks.
Following the executive review of principal risks, we determined that social trends no longer present an emerging risk to the Group.
Overall assessment
The Board has completed its assessment of the Group's principal and emerging risks, including those that would threaten its business model, future performance, solvency or liquidity. The current risk profile is within our tolerance range; the Group is willing to accept a moderate level of operational risk to deliver financial returns.
|
Risk |
A |
B
|
C |
D |
E Availability of raw materials, sub-contractors and suppliers |
F Legacy properties |
|
Risk level |
High risk |
Medium risk |
Medium risk |
High risk |
Medium risk |
Medium risk |
|
Change from previous year |
Increase |
No change |
No change |
No change |
No change |
New |
|
Risk appetite |
Medium risk |
Medium risk |
Low risk |
Low risk |
Low risk |
Low risk |
|
Change from previous year |
No change |
No change |
No change |
No change |
No change |
New |
|
Link to strategic priorities |
Customer first
|
Great places |
Great places |
Leading construction |
Leading construction |
Leading construction |
|
Risk description |
Changes in the UK macroeconomic environment may lead to falling demand or tightened mortgage availability, on which most of our customers are reliant, reducing the affordability of our homes. This could result in reduced sales volumes and affect our ability to provide profitable growth.
|
An inability to secure sufficient consented land and strategic land options at appropriate cost and quality in the right locations to enhance communities, could affect our ability to grow sales volumes and/or meet our margin and site ROCE hurdle rates.
|
Changes in the regulatory environment may affect the conditions and time taken to obtain planning approval and technical requirements including changes to Building Regulations or environmental regulations, such as nutrient neutrality, increasing the challenge of providing quality homes where they are most needed. Such changes may also impact our ability to meet our margin or site ROCE hurdle rates.
|
Failure to achieve excellence in construction, such as design and construction defects, deviation from environmental standards, or through an inability to develop and implement new and innovative construction methods. This could increase costs, expose the Group to future remediation liabilities, and result in poor product quality, reduced selling prices and sales volumes.
|
Not adequately responding to shortages or increased costs of materials and skilled labour or the failure of a key supplier, may lead to increased costs and delays in construction.
It may also impact our ability to achieve disciplined growth in the provision of high quality homes.
|
In April 2022, we signed the Industry Building Safety Pledge, to support leaseholders by funding or remediating life-critical fire safety works in buildings of over 11 metres, which we have played a role in developing over the last 30 years.
The amounts provided in the condensed consolidated financial statements reflect the best estimate of the extent and costs of work required; however, these will be updated as work progresses or as government legislation or regulations develop.
|
|
Responsibility |
Executive Committee |
Land Committee |
Operations Committee |
Operations Committee |
Operations Committee |
Operations Committee |
|
Response/ mitigation |
• Continual monitoring of the market at Board, Executive Committee, regional and operating divisional levels, leading to amendments in the Group's forecasts and planning as necessary.
• Comprehensive sales policies, regular reviews of pricing in local markets and development of good relationships with mortgage lenders.
• Disciplined operating framework with an appropriate capital structure and strong balance sheet.
|
• All land acquisitions are subject to formal appraisal and approval by the Land Committee.
• Group, regional and divisional review of land currently owned, committed and identified against requirements.
• Formal relationship management with key land suppliers, landowners and local authorities.
• Review by Land Committee and management on strategic land and sites.
• Purchase of Gladman Developments Limited. |
• In-house technical and planning expertise focused on regulations and achieving implementable planning consents that meet local requirements.
• Robust and rigorous design standards for the homes and places we develop that exceed current and expected statutory requirements.
• Policies and technical guidance for employees on regulatory compliance and the standards of business conduct expected.
• Consultation with government agencies, membership of industry groups to help monitor, understand and plan for proposed regulation change.
|
• Continuous review of design and materials, which are evaluated by technical experts including the NHBC, to ensure compliance with all regulations.
• Monitoring and improving the environmental and sustainability impact of construction methods and materials.
• Implementation of MMC by design and technical teams.
• Detailed build programmes supported by a robust quality assurance.
• Use of competent engineers through an approved panel.
|
• Centralised team procures most materials from within the UK including sub-contractor materials, ensuring consistent quality and cost.
• Development of long-term supplier and subcontractor partnerships with all significant supply agreements fixed in advance, usually for 12 months.
• Development of multiple supplier relationships for labour and material supplies, with contingency plans should any key supplier fail.
• Control of build and material costs throughout build programmes.
• Adhere to the Prompt Payment Code to support our partners.
|
• Dedicated Building Safety Unit has been set up to manage the remediation work.
• Assumptions on the estimated financial costs have been tested and challenged robustly.
|
|
Key risk indicators |
Internal: Gross and operating margins, PBT, ROCE, EPS, TSR, total home completions. External: GDP growth, CPI inflation, mortgage approvals, mortgage affordability, new housebuilding site starts |
Land approvals (plots).
|
Gross and operating margin, PBT, ROCE, EPS, TSR, total home completions.
|
Customer service, gross and operating margin, PBT, ROCE, EPS, construction waste intensity, carbon intensity, total home completions.
|
Customer service, gross and operating margin, PBT, ROCE, EPS, TSR, total home completions.
|
Gross and operating margin, PBT, ROCE, EPS.
|
|
Risk |
G Safety, health and environment |
H Attracting and retaining high-calibre employees |
I Availability of finance and working capital |
J IT |
K |
L |
|
Risk level |
Medium risk |
High risk |
Low risk |
Medium risk |
Medium risk |
Medium risk |
|
Change from previous year |
No change |
No change |
No change |
No change |
No change |
No change |
|
Risk appetite |
Low risk |
Medium risk |
Low risk |
Low risk |
Low risk |
Medium risk |
|
Change from previous year |
No change |
No change |
No change |
No change |
Decrease |
No change |
|
Link to strategic priorities |
Investing in our people |
Investing in our people |
Underpinning all priorities |
Underpinning all priorities |
Underpinning all priorities |
Underpinning all priorities |
|
Risk description |
Health and safety or environmental breaches can impact employees, sub-contractors and site visitors, and undermine the creation of a great place to work.
They can also affect the wellbeing of our employees and result in reputational damage, criminal prosecution and civil litigation, and delays in construction or increased costs.
|
Increasing competition for skills may mean we are unable to recruit and/or retain the best people. Having sufficient skilled employees is critical to delivery of the Group's strategy of volume growth whilst maintaining excellence in all of our other strategic priorities.
|
Lack of sufficient borrowing and surety facilities to settle liabilities and/or an ability to manage working capital, may mean we are unable to respond to changes in the economic environment, and take advantage of appropriate land buying and operational opportunities to deliver strategic priorities. |
A successful cyberattack on, or failure of, any of the Group's key systems, particularly those for customer information, surveying and valuation, could restrict operations and disrupt progress in strategic priorities.
Any breaches that lead to noncompliance with data regulations could incur significant financial penalties and reputational damage.
|
In the short to medium term, if the Group does not further enhance its sustainable Business practices to meet government regulations and customer and investor expectations, it may build homes that are not seen as fit for purpose or incur significant extra costs.
|
A significant unexpected event, such as the COVID-19 pandemic or the failure of national infrastructure.
|
|
Responsibility |
Safety, Health and Environment Operating Committee |
Executive Committee |
Treasury Committee |
Technology Risk Sub-committee |
Executive Committee |
Executive Committee |
|
Response/ Mitigation |
• Dedicated internal health and safety team.
• Regular health and safety monitoring, internal and external audits of all operational units, and regular senior management reviews of developments.
• SHE management system that continually reinforces Group SHE policies and procedures.
• Dedicated SHE Board and SHE Operations Committee that review key performance indicators and improvement plans.
• Quarterly performance reviews by divisional management in all operating units.
• Independent reviews of our SHE processes.
|
• Comprehensive HR programmes covering apprenticeships, graduate development, succession planning and training academies.
• Personal development plans for all employees.
• Development of a hybrid working model.
• Monitoring of employee turnover, absence statistics and feedback from exit interviews.
• Annual employee engagement survey to measure employee satisfaction.
• Remuneration benchmarking against competitors.
|
• Disciplined operating framework with an appropriate capital structure.
• Management have stress tested the Group's resilience and consider the funding available to be sufficient.
|
• Technology Risk Sub-Committee provides oversight of technology risk.
• Regular external reviews to reduce the risk of successful cyberattacks, including vulnerability and penetration tests by third parties.
• Group-wide compliance and policies on passwords and transferring data to third parties.
• Mandatory information security training programme for all new employees.
• Adoption of the recognised NIST control framework. Entered into an information security risk insurance policy.
• Continued investment in IT infrastructure. |
• New Board Sustainability Committee to oversee the business' response to climate risks.
• Committed to reduce the Group's carbon emissions, including those from its completed homes and supply chain.
• Review of Future Homes Standard, effective in 2025, to adapt and plan for compliance.
• Undertaken a detailed climate risk and opportunities review in consultation with internal business experts and external consultants.
• Progressed scenario analysis to determine the resilience of the Group's business model under different climate-related scenarios.
• Developed a net zero transition pathway for our whole value chain.
|
• Reviewed business continuity plans in place for possible failures in communications or infrastructure, covering operations at a national and local level.
• Stress-testing of the Group's available financing facilities to ensure resilience to a sudden economic shock.
|
|
Key risk indicators |
Employee engagement score. |
Employee engagement score. |
Average net cash, minimal year end indebtedness. |
Customer service, gross and operating margin, PBT, ROCE, EPS. |
Carbon intensity. |
Total indebtedness / surplus
|
Statement of Directors' Responsibilities
The responsibility statement set out below has been prepared in connection with (and will be set out in) the Annual Report and Accounts of the Company for the year ended 30 June 2022, which will be available to shareholders and published on its website www.barrattdevelopments.co.uk in September 2022.
Financial Statements and accounting records
The Directors are responsible for preparing the Annual Report and Accounts including the Directors' remuneration report and the Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the Group Financial Statements in accordance with IAS in conformity with the requirements of the Companies Act 2006 and UK adopted IFRS. The Financial Statements also comply with IFRS as issued by the IASB. The Directors have also elected to prepare the Parent Company Financial Statements in accordance with IAS in conformity with the requirements of the Companies Act 2006.
Under company law, the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Company and the Group for that period.
IAS 1 requires that financial statements present fairly for each financial year the relevant entity's financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the IASB's 'Framework for the preparation and presentation of financial statements'. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRS. Directors are also required to:
· properly select and apply accounting policies;
· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
· provide additional disclosures when compliance with the specific requirements in IFRS are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and
· make an assessment of the Company's and the Group's (as the case may be) ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's and the Group's transactions on an individual and consolidated basis and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Fair, balanced and understandable
The Board considers, on the advice of the Audit Committee, that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Company's and the Group's position, performance, business model and strategy.
Directors' responsibility statement
The Directors confirm that, to the best of each person's knowledge:
a) the Group Financial Statements in the Annual Report and Accounts, which have been prepared in accordance with IAS in conformity with the requirements of the Companies Act 2006 and UK adopted IFRS, and those of the Parent Company, which have been prepared in accordance with IAS in conformity with the requirements of the Companies Act 2006, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and Group taken as a whole; and
b) the Annual Report and Accounts includes a fair review of the development and performance of the business and the position of the Company and the Group taken as a whole, together with a description of the principal risks and uncertainties they face.
By order of the Board
David Thomas
Chief Executive
6 September 2022
Definitions of alternative performance measures and reconciliation to IFRS (unaudited)
The Group uses a number of APMs which are not defined within IFRS. The Directors use these APMs, along with IFRS measures, to assess the operational performance of the Group as detailed in the Strategic report in the Annual Report and Accounts. These APMs may not be directly comparable with similarly titled measures reported by other companies and they are not intended to be a substitute for, or superior to, IFRS measures. Definitions and reconciliations of the financial APMs used to IFRS measures are included below:
Gross margin is defined as gross profit divided by revenue:
|
|
2022 |
2021 |
|
Revenue per Condensed Consolidated Income Statement (£m) |
5,267.9 |
4,811.7 |
|
Gross profit per Condensed Consolidated Income Statement (£m) |
899.9 |
1,010.0 |
|
Gross margin |
17.1% |
21.0% |
Adjusted gross margin is defined as adjusted gross profit divided by revenue:
|
|
2022 |
2021 |
|
Revenue per Condensed Consolidated Income Statement (£m) |
5,267.9 |
4,811.7 |
|
Adjusted gross profit per Condensed Consolidated Income Statement (£m) |
1,308.1 |
1,114.7 |
|
Adjusted gross margin |
24.8% |
23.2% |
Operating margin is defined as profit from operations divided by revenue :
|
|
2022 |
2021 |
|
Revenue per Condensed Consolidated Income Statement (£m) |
5,267.9 |
4,811.7 |
|
Profit from operations per Condensed Consolidated Income Statement (£m) |
646.6 |
811.1 |
|
Operating margin |
12.3% |
16.9% |
Adjusted operating margin is defined as adjusted profit from operations divided by revenue :
|
|
2022 |
2021 |
|
Revenue per Condensed Consolidated Income Statement (£m) |
5,267.9 |
4,811.7 |
|
Adjusted profit from operations per Condensed Consolidated Income Statement (£m) |
1,054.8 |
919.0 |
|
Adjusted operating margin |
20.0% |
19.1% |
Adjusted earnings for adjusted basic earnings per share and adjusted diluted earnings per share are calculated by excluding adjusted items and any associated net tax amounts from profit attributable to ordinary shareholders of the Company :
|
|
2022 |
2021 |
|
|
£m |
£m |
|
Profit attributable to ordinary shareholders of the Company |
515.1 |
659.8 |
|
Government grants repaid per note 4 |
- |
26.0 |
|
Cost associated with legacy properties per note 4 |
408.2 |
81.9 |
|
Net cost/(credit) associated with JV legacy properties per note 4 |
4.3 |
(0.4) |
|
Tax impact of adjusted items |
(82.5) |
(20.4) |
|
Adjusted earnings |
845.1 |
746.9 |
Net cash is defined in note 12.
ROCE is calculated as earnings before amortisation, interest, tax, operating charges relating to the defined benefit pension scheme and operating adjusting items for the year, divided by average net assets adjusted for goodwill and intangibles, tax, net cash, retirement benefit assets/obligations and derivative financial instruments and provisions in relation to legacy properties:
|
|
2022 |
2021 |
|
|
£m |
£m |
|
Profit from operations |
646.6 |
811.1 |
|
Amortisation of intangible assets |
4.3 |
1.1 |
|
Cost associated with legacy properties |
408.2 |
81.9 |
|
CJRS grant repayment |
- |
26.0 |
|
Operating charges relating to the defined benefit scheme |
- |
2.3 |
|
Share of post-tax profit from JVs and associates |
23.3 |
27.7 |
|
Adjusted cost/(credit) related to JV legacy properties |
4.3 |
(0.4) |
|
Earnings before amortisation, interest, tax, adjusted items and defined benefit scheme charges |
1,086.7 |
949.7 |
|
|
30 June 2022 £m |
31 December 20211 £m |
30 June 20211 £m |
31 December 20201 £m |
30 June 20201 £m |
|
Group net assets per Condensed Consolidated Balance Sheet |
5,631.3 |
5,589.7 |
5,452.1 |
5,204.7 |
4,840.3 |
|
Less: |
|
|
|
|
|
|
Other intangible assets per Condensed Consolidated Balance Sheet |
(205.4) |
(100.0) |
(100.0) |
(100.6) |
(101.1) |
|
Goodwill per Condensed Consolidated Balance Sheet |
(852.9) |
(805.9) |
(805.9) |
(805.9) |
(805.9) |
|
Current tax liabilities/(assets) |
(9.9) |
(13.7) |
1.0 |
16.0 |
2.8 |
|
Deferred tax liabilities/(assets) |
45.1 |
9.9 |
8.9 |
(4.9) |
2.4 |
|
Retirement benefit assets |
- |
- |
- |
(2.1) |
(3.5) |
|
Cash and cash equivalents |
(1,352.7) |
(1,336.3) |
(1,518.6) |
(1,302.7) |
(619.8) |
|
Loans and borrowings |
217.3 |
208.7 |
205.3 |
201.1 |
317.7 |
|
Provisions in relation to legacy properties |
479.5 |
73.6 |
67.6 |
81.8 |
28.2 |
|
Prepaid fees |
(3.2) |
(4.1) |
(4.1) |
(5.1) |
(6.1) |
|
Capital employed |
3,949.1 |
3,621.9 |
3,306.3 |
3,282.3 |
3,655.0 |
|
Three point average capital employed |
3.625.8 |
|
3,414.5 |
|
|
|
|
2022 |
20211 |
|
Earnings before interest, tax, adjusted items and defined benefit scheme charges (from table above) (£m) |
1,086.7 |
949.7 |
|
Three point average capital employed (from table above) (£m) |
3,625.8 |
3,414.5 |
|
ROCE |
30.0% |
27.8% |
Underlying ROCE is calculated as ROCE (above) with net assets also adjusted for land payables:
|
|
30 June 2022 £m |
31 December 20211 £m |
30 June 20211 £m |
31 December 20201 £m |
30 June 20201 £m |
|
Capital employed (from ROCE table above) |
3,949.1 |
3,621.9 |
3,306.3 |
3,282.3 |
3,655.0 |
|
Adjust for land payables |
733.6 |
682.3 |
658.3 |
601.1 |
791.9 |
|
Capital employed adjusted for land payables |
4,682.7 |
4,304.2 |
3,964.6 |
3,883.4 |
4,446.9 |
|
Three point average capital employed adjusted for land payables |
4,317.2 |
|
4,098.3 |
|
|
|
|
2022 |
20211 |
|
Earnings before interest, tax, adjusted items and defined benefit scheme charges (from table above) (£m) |
1,086.7 |
949.7 |
|
Three point average capital employed adjusted for land payables (from table above) (£m) |
4,317.2 |
4,098.3 |
|
Underlying ROCE |
25.2% |
23.2% |
For the purpose of determining the Executive Directors' annual bonus, capital employed is adjusted for land, land payables and trade payables:
|
|
30 June 2022 £m |
31 December 20211 £m |
30 June 20211 £m |
31 December 20201 £m |
30 June 20201 £m |
|
Capital employed (from ROCE table above) |
3,949.1 |
3,621.9 |
3,306.3 |
3,282.3 |
3,655.0 |
|
Adjust for land |
(3,339.9) |
(3,046.1) |
(2,946.3) |
(2,836.7) |
(3,112.3) |
|
Adjust for land payables |
733.6 |
682.3 |
658.3 |
601.1 |
791.9 |
|
Adjust for trade payables |
324.0 |
238.9 |
289.6 |
223.3 |
186.8 |
|
Capital employed adjusted for land, land payables and trade payables |
1,666.8 |
1,497.0 |
1,307.9 |
1,270.0 |
1,521.4 |
|
Three point average capital employed adjusted for land, land payables and trade payables |
1,490.6 |
|
1,366.4 |
|
|
1 The definitions of ROCE, Underlying ROCE and capital employed have been updated in the year to exclude provisions in relation to legacy properties from capital employed. To ensure comparability, all comparatives have been restated under the revised definition.
Total indebtedness is defined as net debt/(cash) and land payables:
|
|
2022 |
2021 |
|
Net cash (£m) |
(1,138.6) |
(1,317.4) |
|
Land payables (£m) |
733.6 |
658.3 |
|
Total indebtedness |
(405.0) |
(659.1) |
TSR is a measure of the performance of the Group's share price over a period of three financial years. It combines share price appreciation and dividends paid to show the total return to the shareholders expressed as a percentage.
Glossary
|
ACM |
Aluminium Composite Material |
|
AGM |
Annual General Meeting |
|
Active Outlet |
A site with at least one plot for sale |
|
APM |
Alternative performance measure |
|
ASP |
Average selling price |
|
Barratt |
Barratt Developments PLC and its subsidiary undertakings |
|
BEIS |
Department for Business, Energy and Industrial Strategy |
|
BNG |
Biodiversity Net Gain |
|
Building for Life 12 |
This is the industry standard, endorsed by the Government, for well-designed homes and neighbourhoods that local communities, local authorities and developers are invited to use to stimulate conversations about creating good places to live |
|
Building Regulations |
The requirements relating to the erection and extension of buildings under UK Law |
|
Capital Employed |
Average net assets adjusted for goodwill and intangibles, tax, cash, loans and borrowings, prepaid fees, retirement benefit asset/obligations and derivative financial instruments |
|
CDP |
Charity that runs the global system for disclosure of environmental impacts for investors, companies, cities, states and regions |
|
CJRS |
Coronavirus Job Retention Scheme |
|
CMA |
Competition and Markets Authority |
|
COVID-19 |
Coronavirus Disease 2019 |
|
DBP |
Deferred Bonus Plan |
|
EBT |
Barratt Developments Employee Benefit Trust |
|
EEA |
The European Economic Area |
|
ELTIP |
Employee Long Term Incentive Plan |
|
EPC |
Energy Performance Certificate |
|
EPS |
Earnings per share |
|
ESG |
Environmental Social Governance |
|
EU |
European Union |
|
EWS |
External Wall System |
|
FCA |
Financial Conduct Authority |
|
Foundation |
The Barratt Developments PLC Charitable Foundation |
|
FTSE4Good |
Equity index series of companies demonstrating strong ESG practices |
|
FY |
Refers to the financial year ended 30 June |
|
GDPR |
General Data Protection Regulation |
|
GHG |
Greenhouse Gas |
|
Gross margin |
Gross profit divided by total revenue |
|
HBF |
Home Builders Federation |
|
IAS |
International Accounting Standards |
|
IASB |
International Accounting Standards Board |
|
IFRS |
International Financial Reporting Standards |
|
IIR |
Injury incidence rate |
|
ISAE |
International Standard on Assurance Engagements |
|
ISO |
International Organisation for Standardisation |
|
JVs |
Joint ventures |
|
KPI |
Key performance indicator |
|
LGBTQ+ |
Lesbian, gay, bisexual, transgender, queer and other gender expressions |
|
LTPP |
Long Term Performance Plan |
|
LTV |
Loan to Value |
|
MMC |
Modern methods of construction |
|
Net cash |
Net cash is defined as cash and cash equivalents, bank overdrafts, prepaid fees and interest bearing borrowings |
|
Net tangible assets |
Group net assets less other intangible assets and goodwill |
|
NIST |
NIST Cybersecurity Framework |
|
NHBC |
National House Building Council |
|
NPPF |
The National Planning Policy Framework |
|
Operating margin |
Profit from operations divided by revenue |
|
Oregon |
Oregon Timber Frame Limited and its subsidiary Oregon Contract Management Limited |
|
PBT |
Profit before tax |
|
RCF |
Revolving Credit Facility |
|
RIs |
Reportable items |
|
ROCE |
Return on capital employed ('ROCE') is calculated as earnings before amortisation, interest, tax, operating charges relating to the defined benefit pension scheme and operating adjusting or exceptional items for the year, divided by average net assets adjusted for goodwill and intangibles, tax, net cash, retirement benefit assets/obligations and derivative financial instruments |
|
RPDT |
Residential Property Developer Tax |
|
RSPB |
Royal Society for the Protection of Birds |
|
SASB |
Sustainability Accounting Standards Board |
|
Scheme |
The Barratt Group Pension & Life Assurance Scheme |
|
Sharesave |
Savings-Related Share Option Scheme |
|
SHE |
Safety, Health and the Environment |
|
Site ROCE |
Site operating profit (site trading profit less allocated administrative overheads) divided by average investment in site land and work in progress |
|
SONIA |
Sterling Overnight Interest Average |
|
SUDS |
Sustainable Urban Drainage Systems |
|
TCFD |
The Task Force for Climate-related Financial Disclosures |
|
the Company |
Barratt Developments PLC |
|
the Group |
Barratt Developments PLC and its subsidiary undertakings |
|
tCO2e |
Tonnes carbon dioxide equivalent |
|
Total completions |
Unless otherwise stated, total completions quoted include JVs |
|
Total indebtedness |
Net (cash)/debt and land payables |
|
TSR |
Total shareholder return |
|
Underlying ROCE |
ROCE as defined above, with net assets also adjusted for land payables |
|
UNSDGs |
United Nations Sustainable Development Goals |
|
USPP |
US Private Placements |
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