Trading Statement

RNS Number : 6533V

Barratt Developments PLC

16 January 2013

 



16 January 2013

Barratt Developments PLC

Profit more than doubles in the first half

Barratt Developments PLC is today issuing a trading update in respect of the six months to 31 December 2012 (the 'period') ahead of its interim results announcement on 27 February 2013.

Highlights

·    Group revenues of c. £950m, in line with prior year, and total completions of 5,085 units

·    Private completions increased by 5.3% on the prior year to 4,241 units

·    Group operating profit expected to be c. £80m for the period, up by c. 31% on the prior year

·    Operating margin expected to increase to c. 8.4%, up from 6.4% in the prior year

·    Profit before tax expected to be c. £45m, more than double the prior year

·    Significant increase in approvals to acquire higher margin land with £453.0m of land acquisitions approved in the period equating to 9,320 plots on 67 sites

·    Net debt as at 31 December 2012 of around £332m was significantly reduced from the £542.2m prior year position

·    Private forward sales (excluding JVs) of £536.5m as at 31 December 2012 up 35.5% on the prior year

Mark Clare, Group Chief Executive commented,

"This has been a good first half performance.  Pre-tax profit has more than doubled, net debt was significantly lower than the prior year, and we have started the second half with a strong private forward order book up by over 35%.  In addition, we have been investing for the future, successfully securing higher margin land both in the South-East and across the rest of the country that will drive further profit growth."

Trading

Market conditions remained stable during the period and the Group has made good progress in increasing profitability and reducing overall indebtedness.

Group revenues for the period were in line with the prior year equivalent period ('prior year') at c. £950m (2011: £952.8m).

Group operating profit for the period is expected to be up c. 31% at around £80m (2011: £61.1m).

Operating margin (Note 1) in the period is expected to increase to c. 8.4% (2011: 6.4%).  This improvement reflects the Group's strategy of driving profitability through achieving best value for our products, a continued focus on operational efficiency and bringing further higher margin land into production.

The net finance charge for the period is expected to be around £35m (2011: £38.9m).  This includes a non-cash finance charge (Note 2) of around £10m (2011: £9.5m).

We expect to deliver a profit before tax for the period of c. £45m (2011: £21.6m), an increase of c. 108% on the prior year.

Revenues

The average number of active sites (excluding joint ventures ('JVs')) in the period was 378 (2011: 377), with average JV sites of 5 (2011: 4).  We continue to expect the rate of site openings to increase in the second half and that average site numbers for FY13 (excluding JVs) will be just ahead of the prior year (FY12: 381).

Average net private reservations per active site per week (excluding JVs) in the period were 0.49 (2011: 0.48) (Note 3), and the cancellation rate (excluding JVs) was 18.8% (2011: 17.9%).

Total completions (excluding JVs) for the period were 5,085 units (2011: 5,117).  Private completions were up 5.3% on the prior year at 4,241 (2011: 4,028).  Social housing completions totalled 844 units (2011: 1,089) representing 16.6% (2011: 21.3%) of total completions (excluding JVs).  This reduction in volume reflects site phasing and for FY13 we expect social completions to account for around 18% of total completions.  Joint venture completions in which the Group had a share were 109 units (2011: 81).

Total average selling price ('ASP') (excluding JVs) increased by c. 2.1% in the period to c. £185k (2011: £181.2k).  Overall, underlying prices remain broadly stable, albeit with regional variations.

Private ASP increased by c. 1.1% in the period to c. £202k (2011: £199.9k) driven by a small positive change in mix.  Social ASP declined by c. 7.9% in the period to c. £103k (2011: £111.8k) largely due to a lower proportion of London units.

Joint ventures

Development on our JV sites has progressed well during the period.  Marketing suites have recently opened at our Altitude and Queensland Terrace developments in central London, and the overseas marketing programme has been launched for Fulham Wharf.  We expect completions and profits from JVs to increase significantly over the next few years, reflecting the delivery profile (Note 4).  Our success in securing JVs in London has increased our presence and strengthened our market position in the capital.  We will continue to assess JV opportunities which allow us either to access sites that may not otherwise be available, or to reduce the investment required and improve the return on capital employed, through construction management or marketing fees.

Forward sales

As at 31 December 2012, private forward sales (excluding JVs) were up 35.5% on the prior year at £536.5m (2011: £395.9m), equating to 2,281 plots (2011: 1,872 plots).  Total forward sales (excluding JVs) were £742.1m (2011: £659.5m) equating to 4,258 plots (2011: 4,485 plots), of which 73% (2011: 74%) were contracted.  Private JV forward sales were £39.4m (2011: £11.1m) equating to 125 plots (2011: 45) (Note 5).

Government initiatives

Government support for the UK housebuilding industry remains strong with a range of initiatives in place designed to support house purchases and stimulate growth.

We saw an increase in interest in the NewBuy mortgage indemnity scheme during the Autumn. For the period, 7.7% of private reservations (excluding Scotland and Wales) were supported by the scheme.  NewBuy remains a priority selling tool for the Group and we expect reservations using NewBuy to trend towards 10% to 15% of total private reservations in the second half of our financial year.

Shared equity continues to be an important selling tool for the industry.  The Group is pleased to have secured a substantial additional allocation as part of the Government's latest FirstBuy funding round. We are targeting the use of FirstBuy particularly on sites where affordability remains a key issue, with a focus on driving sales on older and impaired developments. 

In the period 16.9% (2011: 19.0%) of total completions (excluding JVs) were supported by shared equity, of which around three quarters were Government-backed schemes.   It is expected that the net balance sheet value of the Group's shared equity loans will be c. £195m as at 31 December 2012 (2011: £177.5m).

The Group will also receive c. £34m in low-cost development loans in 2013 from the Government's Get Britain Building Scheme which is designed to kickstart developments.

Land and planning

The Group has made good progress in transforming its landbank in the period by utilising historic, lower margin land whilst bringing more recently acquired, higher margin land into production as quickly as possible.

The Group's owned and controlled land bank totalled around 56,000 plots as at 31 December 2012 (2011: 58,359).  This equates to approximately 4.4 (2011: 4.6) years supply based on FY12 completion volumes.

For FY13 as a whole we continue to expect around half of completions to come from more recently acquired higher margin land, increasing to c. 70% in FY14 and c.  85% in FY15.  This land continues to perform in line with or ahead of our required hurdle rates on acquisition, which include a gross margin of at least 20% and a return on capital employed of at least 25% (Note 6).  As at 31 December 2012 more recently acquired land represented 64% (2011: 53%) of the owned and controlled land bank.

We also remain focused on maximising the value of our historic land holdings.  We anticipate delivering c. 18% of completions in FY13 as a whole from impaired land which would, in turn, reduce the proportion of impaired plots in the owned and controlled land bank as at 30 June 2013 to c. 8% (2012: 12.3%).  Where appropriate, we will continue to accelerate the utilisation of impaired land through land sales or swaps.

In the first half we have been successful in the land market and have agreed terms on £453.0m (2011: £178.1m) of new land equating to a total of 9,320 plots (2011: 4,671) on 67 sites (2011: 47) (Note 7).  We continue to see good land opportunities in prime locations across all regions and for FY13 we expect to agree terms on a total of c. 15,000 plots.  Our dual focus remains on ensuring we have the land supply necessary to support business growth over the next few years and to deliver it in a way that maximises return on capital. 

We have been particularly successful within the London market and today announced the acquisition of two new major sites in central London with a gross development value of £400m.  These projects in Blackfriars Road in Southwark, and Cannons Wharf in Surrey Quays, will provide more than 1,000 new homes for the capital.

We seek to defer payment for new land where possible to drive a higher return on capital.  As at 31 December 2012 land creditors were c. £795m (2011: £627.3m) representing c. 37% (2011: 29%) of the owned land bank. We would expect land creditors to remain at a fairly constant proportion of the land bank for the rest of the financial year.

In the period we received detailed planning consents covering 70 sites.  Looking forward, we have detailed consents for 85% of our expected FY14 completions and outline consents on a further 10%.

Stock and work in progress

Stock and work in progress have continued to be tightly controlled throughout the period.  Unreserved stock units as at 31 December 2012 totalled 865 (2011: 899), 2.2 units per active site (2011: 2.2 units).

Unreserved part-exchange units as at 31 December 2012 totalled 376 (2011: 355), 1.0 units per active site (2011: 0.9 units).

Net debt and interest

Reduction of indebtedness remains a key objective for the Group.  Net debt as at 31 December 2012 was c. £332m (2011: £542.2m), considerably below the prior year.  We expect the level to reduce significantly in the second half of this financial year, with net debt as at 30 June 2013 expected to be c. £160m.

For FY13 the net finance charge is expected to be c. £75m consisting of cash finance charge of c. £55m and c. £20m of net non-cash finance charge (Note 2).

Outlook

Whilst the availability of mortgage finance remains the key constraint to industry growth, we have started to see some improvements coming through. Expectations are that mortgage lending should increase in 2013, supported by the Bank of England's Funding for Lending Scheme.

We are on track to deliver around half of our full year completions from higher margin land, and combined with our continued focus on driving efficiency across the Group, we expect to deliver a significant improvement in profitability for the full year 2013.

The reduction of indebtedness remains a key objective and we reaffirm our target of achieving zero balance sheet net debt by June 2015. 

Assuming a continuing stable housing market, the Board expects to propose a conservatively set final dividend in respect of the financial year to 30 June 2013.

Note 1 - Operating margin

Operating margin is defined as Group profit from operations before exceptional items divided by Group revenue.

Note 2 - Non-cash finance charge

Non-cash finance charge is defined as imputed interest on available for sale financial assets, imputed interest on deferred term land payables, finance costs related to employee benefits and amortisation of facility fees.

Note 3 - Reservation rates (excluding JVs)

	Average net private reservations per week	Net private reservations per active site per week(1)
26 weeks to 31 Dec 2012	186	0.49
26 weeks to 31 Dec 2011	181	0.48

(1)   An active site is defined by the Group as a site with at least one unit available for sale

Note 4 - Joint ventures

London

Site	Altitude	Queensland Terrace	Fulham Wharf	Hendon Waterside
Location	Aldgate	Islington	Fulham	West Hendon
JV partner	London & Quadrant	London & Quadrant	London & Quadrant	Metropolitan Housing
Ownership (Barratt: JV partner)	50:50	50:50	50:50	75:25
Gross development value	£106m	£137m	£427m	£43m
Total units	235	375	462	191
Private/social mix (%)	73:27	100:0	85:15	80:20
JV landbank plots (31 Dec 12)	189	375	462	130
Forecast delivery profile
Commencement on site	Jan 11	May 12	Aug 12	Jul 10
Private legal completions start	Aug 13	Nov 13	May 14	Sept 12
Off site	Mar 14	Jun 15	Dec 17	Jun 13

Non-London

Site	The Acres	Bluebell Gate	The Fieldings  / Cissbury Chase
Location	Horley	East Grinstead	Worthing
JV partner	Wates	Wates	Wates
Ownership (Barratt: JV partner)	78.5:21.5	50:50	50:50
Gross development value	£150m	£49m	£68m
Total units	501	142	301
Private/social mix (%)	78:22	70:30	95:5
JV landbank plots (31 Dec 12)	259	132	301
Forecast delivery profile
Commencement on site	Feb 08	May 12	Nov 12
Private legal completions start	Feb 09	Dec 12	Apr 13
Off site	Jun 16	Jun 15	Jun 18

Note 5 - Forward sales

Forward sales - owned

	31 Dec 2012	31 Dec 2011	% change
Private
Value	£536.5m	£395.9m	35.5%
- due in H2	£487.0m	£342.0m	42.4%
- due after H2	£49.5m	£53.9m	(8.2%)
Plots	2,281	1,872	21.8%
Social
Value	£205.6m	£263.6m	(22.0%)
- due in H2	£87.7m	£141.1m	(37.8%)
- due after H2	£117.9m	£122.5m	(3.8%)
Plots	1,977	2,613	(24.3%)
Total
Value	£742.1m	£659.5m	12.5%
- of which contracted	£513.7m	£432.3m	18.8%
- % of which contracted	69%	66%	3%
- due in H2	£574.7m	£483.1m	19.0%
- due after H2	£167.4m	£176.4m	(5.1%)
Plots	4,258	4,485	(5.1%)
- % contracted	73%	74%	(1%)

Forward sales - Joint ventures

	31 Dec 2012	31 Dec 2011	% change
Private
Value	£39.4m	£11.1m	255.0%
- due in H2	£18.7m	£9.9m	88.9%
- due after H2	£20.7m	£1.2m	1,625.0%
Plots	125	45	177.8%
Social
Value	£12.3m	£13.9m	(11.5%)
- due in H2	£8.3m	£8.1m	2.5%
- due after H2	£4.0m	£5.8m	(31.0%)
Plots	95	91	4.4%
Total
Value	£51.7m	£25.0m	106.8%
- of which contracted	£48.1m	£16.2m	196.9%
- % of which contracted	93%	65%	28%
- due in H2	£27.0m	£18.0m	50.0%
- due after H2	£24.7m	£7.0m	252.9%
Plots	220	136	61.8%
- % contracted	95%	71%	24%

Note 6 - Return on capital employed

Return on capital employed is defined as site operating profit (site trading profit less sales overheads and allocated administrative overheads) divided by average investment in site land and work in progress.

Note 7 - Land approvals since mid 2009

	Period from 1 July 2012 to 31 December 2012	Period from 1 July 2011 to 31 December 2011	Total since mid 2009
Total land approvals	£453.0m	£178.1m	£2,012.4m
Total number of plots	9,320	4,671	43,625
Total number of sites	67	47	378
Location
- South:North (by value)	56%:44%	58%:42%	58%:42%
- South:North (by plots)	50%:50%	50%:50%	47%:53%
Vendor
- Government:Private	27%:73%	30%:70%	26%:74%
Type
- Houses:Flats	70%:30%	85%:15%	80%:20%
Status
- Owned	n/a	n/a	64%
- Contracted	n/a	n/a	22%
- Progressing	n/a	n/a	14%
Payment
- Paid FY10	n/a	n/a	£40.2m
- Paid in FY11	n/a	n/a	£132.9m
- Paid in FY12	n/a	n/a	£222.5m
- Due in FY13	n/a	n/a	£516.4m
- Due after FY13	n/a	n/a	£1,100.4m

Unless stated otherwise, % splits are by plots

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

Conference call for analysts and investors

Mark Clare, Group CEO and David Thomas, Group FD will be hosting a conference call at 08:00am today, Wednesday 16 January, to discuss this trading update.

To access the conference call:

Dial-in: [phone]/ 0808 237 0030

Participant pin code: 41318015#

A replay facility will be available:

Dial-in: [phone] / 0808 237 0026

Passcode: 635494#

For further information please contact:

Barratt Developments PLC
David Thomas, Group Finance Director	020 7299 4896
Susie Bell, Head of Investor Relations	020 7299 4880
For media enquiries, please contact:
Barratt Developments PLC
Patrick Law, Group Corporate Affairs Director	020 7299 4892
Maitland
Liz Morley	020 7379 5151

 

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