Trading Statement

RNS Number : 9822I

Barratt Developments PLC

10 July 2013

 



10 July 2013

Barratt Developments PLC

Strong performance ahead of expectations

More than £1bn of land investment approved during the year

Barratt Developments PLC is today issuing a trading update for the year ended 30 June 2013 ahead of its annual results announcement on Wednesday 11 September 2013.

Highlights

·    Sales rate up 17.9% in the second half on the prior year, with average net private reservations per active site per week of 0.66. Sales rate up by 34.7% since the launch of Help to Buy in April

·    Total completions, including joint ventures, of 13,663 for the full year, with private completions up by 16.1% in the second half on the prior year

·    Private average selling price ('ASP') up by c. 9% in the second half on the prior year to c. £221k reflecting changes in mix

·    Operating margin expected to increase to c. 10.4% in the second half and c. 9.7% for the full year, up from 8.2% in the prior full year

·    Profit before tax and exceptional items for the full year expected to be c. £192m, ahead of the top end of analysts' expectations

·    Strong momentum reflected in the forward order book, with total forward sales up 53.6% to £829.7m as at 30 June 2013

·    The Group had a modest net debt position as at 30 June 2013 of c. £30m (2012: £167.7m), significantly lower than prior guidance reflecting a higher number of completions and the timing benefit of land payments

·    The Group continues to see good opportunities in the land market and has increased its rate of acquisition, approving 18,536 plots (2012: 12,085 plots) in the full year

Mark Clare, Group Chief Executive commented,

"As more house buyers return to the market, supported by improved mortgage availability and the Help to Buy scheme, we are in a strong position to continue to grow the value of the business.  We are increasing our investment in land whilst reducing debt and have delivered a performance ahead of expectations.  Momentum is continuing to build and with forward sales up substantially, we are confident we can improve our performance still further in the year ahead."

Overview

We are pleased to report significant improvements across all operating metrics for the Group, resulting in a strong performance for the financial year ended 30 June 2013.

Overall, all six of our regions have seen improved market conditions with London and the South East continuing to see the strongest trends.

We remain focused on delivering the best quality homes to our customers and were delighted to receive 102 awards for quality workmanship in this year's NHBC Pride in the Job campaign.  This is the highest number ever won by a housebuilder and the ninth consecutive year that our site managers have gained more awards than any other housebuilder.

Trading in the period

For the full year, net private reservations per active site per week (Note 1) were 0.58 (2012: 0.52).  We saw a significant step up in our sales rates in the second half with net private reservations per active site per week up 17.9% on the prior year equivalent period ('prior year') at 0.66 (2012: 0.56). Since the launch of Help to Buy on 1 April net private reservations per active site per week were up 34.7% on the prior year.

The number of active sites for the full year for the Group averaged 381 (2012: 381) and joint venture ('JV') sites averaged 6 (2012: 5).  We expect site numbers to remain at a similar level over the next 12 months and that higher sales rates should drive an increase in completion volumes.

Total completions, including JVs, were 13,663 (2012: 12,857) for the full year and up by 10.6% in the second half to 8,469 (2012: 7,659).  Private completions for the full year were 10,978 (2012: 9,832) and up by 16.1% in the second half to 6,737 (2012: 5,804).  For the full year, affordable housing completions were 2,268 (2012: 2,805) and JV completions in which the Group had a share were 417 (2012: 220).

Total ASP increased to c. £195k (2012: £180.5k) for the full year and increased by c. 11% in the second half to c. £200k (2012: £180.0k).

Private ASP increased to c. £214k (2012: £201.8k) for the full year, and was up by c. 9% in the second half to c. £221k (2012: £203.2k), reflecting changes in mix.  Whilst we continue to see regional variation, overall, underlying prices remained stable in the period.

Group revenues in the full year were up c. 12% on the prior year at c. £2,605m (2012: £2,323.4m) driven by higher completion volumes and a higher ASP.

Operating profit before exceptional items for the full year is expected to be up c. 32% at c. £252m (2012: £191.1m).  Operating margin (Note 2) is expected to increase to c. 10.4% (2012: 9.5%) in the second half and to c. 9.7% (2012: 8.2%) for the full year.  Profit from housebuilding JVs is expected to be c. £8m (2012: £0.8m).

Profit before tax and exceptional items for the full year is expected to be up c. 73% on the prior year at c. £192m (2012: £110.7m), ahead of the top end of analysts' expectations (Note 3).

The Group will charge exceptional costs of c. £88m in the full year (2012: £10.7m).  These principally relate to the Group's refinancing announced in May and include the interest make-whole payment on the private placement notes, the cancellation of cross currency and interest rate swaps, the write-off of fees in respect of the previous refinancing, fees in respect of the shared equity monetisation, and an impairment charge on a commercial JV.

Our strong performance in the second half is reflected in our forward sales position.  As at 30 June 2013, total forward sales were up by 53.6% at £829.7m (2012: £540.2m), equating to 4,898 plots (2012: 3,382 plots).  Private forward sales as at 30 June 2013 were up by 43.2% to £525.5m (2012: £366.9m) equating to 2,162 plots (2012: 1,684 plots).

Land

We have made further good progress during the year in transforming our landbank through the acquisition of higher margin sites and bringing more recently acquired land into production.  In the year, around half of our completions were from more recently acquired higher margin land and the proportion of impaired plots in the owned and controlled land bank as at 30 June 2013 reduced to c. 7% (2012: 12%).

During the financial year we stepped up our rate of land acquisition with the approval of £1,047.3m (2012: £578.1m) of land purchases, equating to 18,536 plots (2012: 12,085 plots).  We continue to see attractive land opportunities across all regions and remain focused on acquiring sites in prime locations that meet our minimum hurdle rates of 20% gross margin and a 25% return on capital based on operating margin. With our focus on maximising return on capital employed, we continue to target a relatively short landbank of c. 3.5 years supply of owned land and one year's supply of contracted land conditional on planning, both based on the prior full year's completions.

We continue to seek to defer payment for new land where possible so as to drive a higher return on capital.  Land creditors are expected to be c. 35% of the owned land bank as at 30 June 2013 (30 June 2012: 35%).

Net debt and interest

Net debt as at 30 June 2013 is expected to be c. £30m (2012: £167.7m). This is below our previous guidance reflecting the beneficial timing of land payments and a higher level of completions at the year end than previously anticipated.

As announced in May, the make-whole payment of £53m in respect of the prepayment of certain private placement notes was paid on 2 July 2013.  In line with our normal seasonal trends, net debt is expected to increase at December 2013 (2012: £331.7m).

The Group's net finance charge before exceptional costs for the full year is expected to be c. £68m (2012: £80.8m), consisting of finance charges of c. £47m (2012: £57.6m) on net debt and c. £21m (2012: £23.2m) of non-cash charges.

Outlook

Our focus remains on rebuilding profitability, targeting zero net debt as at 30 June 2015, and substantially improving our return on capital employed in the medium term.  We are targeting Group completion volumes of c. 16,000 units (including JVs) from our current structure, and recognise this may be achieved more quickly than previously anticipated reflecting the benefit of the Help to Buy scheme.

The strength of our forward order book and the expected delivery of around two thirds of completions from higher margin land, gives us confidence as we start the new financial year.

The Board will propose a conservatively set final dividend in respect of the financial year ended 30 June 2013, and reiterates its target of three times dividend cover for the year ending 30 June 2016.

Notes:

Note 1 - Joint ventures

Unless otherwise stated joint ventures are excluded

Note 2 - Operating margin

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

Note 3 - Range of analysts' estimates

The range of analysts' estimates for Profit before tax pre exceptional items for the financial year ended 30 June 2013 is £170m to £191m as per Bloomberg on 9 July 2013

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 08.30am today, Wednesday 10 July 2013, to discuss this trading update.

To access the conference call

Dial-in: [phone]

Access code: 8498993

A replay facility will be available shortly after

Dial-in: [phone]

Access code: 8498993

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:
Patrick Law, Corporate Affairs Director	020 7299 4892
Maitland
Liz Morley	020 7379 5151

www.barrattdevelopments.co.uk

 

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