Chief Executive's Statement

 

Overview

We have delivered an excellent operational and financial performance. We made strong progress in increasing build activity in the period and total home completions returned, as planned, to the more typical seasonal pattern following the dislocation created by the initial national lockdown in Spring 2020. We are building homes the country needs, supporting and creating jobs, and aiding wider economic growth whilst delivering both operationally and financially for all of our stakeholders.

 

	Progress in the half year	Area of focus in second half	Medium term targets
Home completions	8,067 total home completions (HY21: 9,077) including 395 JV completions (HY21: 378) reflecting a return to normal H1 : H2 completion phasing	On track to deliver between 18,000 and 18,250 total home completions including c. 750 JV completions in FY22	Disciplined growth in home completions to current target of 20,000 homes
Gross margin	120 bps increase in adjusted gross margin to 25.0% (HY21: 23.8%)   370 bps increase in gross margin to 24.3% (HY21: 20.6%)	Further 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 continued build optimisation and performance
ROCE	910 bps improvement in ROCE to 26.8% (HY21: 17.7%)	Disciplined land and work in progress investment to support growth	Minimum of 25% delivered through continued operating framework discipline

 

We are proud to be the UK's leading national sustainable housebuilder and to lead the industry in both customer service and build quality. We operate across England, Scotland and Wales through our three brands: Barratt Homes, David Wilson Homes and Barratt London. We strive to meet our customers' expectations and we believe that the high quality of our homes and our excellent customer service are both fundamental to our ongoing success.

 

We delivered half year total completions³ of 8,067 homes, 11.1% below the 9,077 delivered in the first half of FY21 (HY20: 8,314). HY21 total completions were boosted by the disruption created by the initial national lockdown in Spring 2020 and HY22 total completions reflect a return to the more normal seasonal phasing of completions across our fiscal year.

 

We are now on track to deliver total home completions of between 18,000 and 18,250, including c. 750 completions from our joint ventures.  This is an increase of 250 homes on previous guidance and is in excess of the volume delivered in FY19.  We remain committed to growing to our medium term target of 20,000 home completions, playing our part in addressing Britain's housing shortage.

 

Our house type ranges and their ongoing refinement continue to underpin our land acquisition at a minimum of 23% gross margin. We also remain focused on driving further improvements in the efficiency of our operations, controlling costs whilst maintaining our focus on quality and customer service and delivering a minimum ROCE of 25%.

 

It is a credit to our construction teams across the country that not only did they deliver growth in construction activity against a backdrop of supply chain challenges, they have also continued to lead the industry on quality. For the seventeenth year in a row, we achieved more NHBC Pride in the Job Quality awards than any other housebuilder.

 

As a result of strong market demand, tight cost control and the underlying strength of our land bank, we delivered a 120 bps increase in adjusted gross margin to 25.0% (HY21: 23.8%, HY20: 23.0%) in the half year. Reflecting the planned return to the more typical seasonal pattern of legal completions and increased administrative expenses we experienced a 30 bps reduction in adjusted operating margin to 20.0% (HY21: 20.3%, HY20: 19.4%).

 

During the period, we incurred £15.9m (HY21: £56.3m, HY20: £17.8m) of costs associated with legacy properties which are recognised outside adjusted gross and operating profit. As a result we delivered a reported gross margin of 24.3% (HY21: 20.6%, HY20: 22.2%) and a reported operating margin of 19.3% (HY21: 17.0%, HY20: 18.6%). Profit from operations for the half year was £434.0m (HY21: £422.9m, HY20: £421.7m).

 

Our ROCE at 26.8% (HY21: 17.7%, HY20: 29.3%) remained ahead of our target of a minimum 25% over the medium term and recovered by 910 bps on the 17.7% reported to 31 December 2020. The ROCE improvement was predominantly driven by the recovery in annualised profitability, with the comparative period impacted by the inclusion of the initial national lockdown in 2020.

 

Our balance sheet remains strong and we ended the half year with net cash of £1,131.7m (31 December 2020: £1,106.7m, 31 December 2019: £433.8m).

 

Keeping people safe

 

Our fundamental priority is to provide a safe working environment for all of our employees and sub-contractors and we are committed to achieving the highest industry 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 September 2021, in line with the wider construction industry and reflecting increased activity across housebuilding, we experienced an increase in our Injury Incidence Rate (IIR) to 416 (FY20: 256) per 100,000 workers in FY21. Following the introduction of action plans across the Group to address the IIR, with close monitoring from the Safety, Health and Environment (SHE) Committee, we are able to report an improvement. In the 12 months to 31 December 2021, our IIR has reduced to 295 (2020: 305, 2019: 330) per 100,000 workers and our SHE audit compliance was 97% (2020: 96%).

 

In response to the ongoing pandemic we continue 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 employees and sub-contractors. Our sales offices also continue to operate on an appointment only basis across the country.

Responsible development

 

We remain focused on the complex issues surrounding fire safety. All of our buildings, including the cladding and complete external wall systems used, were signed off by approved inspectors as compliant with the relevant Building Regulations at the time of their construction. The Group does not believe that leaseholders should have to pay for any necessary remediation of their buildings.

We established an in-house Building Safety Unit in July 2021 which has brought additional expertise and resources to our existing review of our historic multi-storey buildings of all heights in light of evolving Government guidance on building safety. At 31 December 2021, 206 buildings over 11 metres were part of the ongoing review.

Where we are the "responsible person" at a building we are ensuring any required remediation is carried out, at no cost to leaseholders. Where we no longer own buildings we are helping current building owners and management companies as they carry out reviews of their buildings and we will work with them to find suitable solutions to support leaseholders and residents in buildings we built.

 

On 10 January and 3 February 2022, the Department for Levelling Up, Housing and Communities contacted residential property developers regarding the financing and rectification of unsafe cladding on buildings with a height of above 11 metres constructed in the last 30 years. Discussions are ongoing and we will continue to work constructively with Government to ensure leaseholders are protected. Throughout its existing review the Group has been reviewing buildings of all heights and a provision has already been recognised for the rectification of buildings over 11 metres for which the Group is liable or had made a commitment at the reporting date. It is possible that further commitments may be made by the Group as work progresses or as Government legislation or regulations develop.

 

We detail our approach to building safety on our website at:

https://www.barrattdevelopments.co.uk/about-us/our-approach-to-building-safety.

 

Building sustainably

 

Our Building Sustainably Framework is built around three core pillars - Environment, Communities and People and is the blueprint for identifying and driving the positive changes we want to make. We are determined to maintain our position as the leading national sustainable housebuilder. Sustainability presents 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 other members of the Board, is now operational. This Committee is responsible for ensuring our Building Sustainably Framework is embedded across the Group's operations, to deliver our short, medium and longer term targets.

 

Key areas of focus for the Committee in the financial year to date have included our waste performance and action plans to drive continued waste reduction; plans to further reduce our emissions from operations, notably diesel consumption and the continued shift to renewable electricity tariffs across all of our operations.

 

A key milestone has been the completion of our prototype zero carbon home concept, the "Z House". This is the first zero carbon house developed by a major housebuilder which goes beyond the Future Homes Standard by delivering a carbon reduction of 125%⁵ and, reflecting our target that all of our new homes will be zero carbon from 2030, the Z House is an important step on this journey.

 

The Z House has involved more than 40 industry partners across housebuilding, sustainability and technology sectors and we challenged our supply chain partners to incorporate their most cutting edge products into the house to reduce its embodied carbon, both in build and long term occupation.

 

The Z House project will increase our understanding and showcase what can be done to deliver zero carbon living, using the latest technologies and working with the best industry partners. Ultimately, our aim is to find commercial solutions to enable our business and the wider industry to build high quality, zero carbon homes that customers love, at scale, driving the future of sustainable housebuilding.     

 

The 2021 CDP annual results were released in December 2021 and provided a valuable external appraisal of our performance against key sustainability measures. Our leadership level of A- in the "Climate" category was maintained in the year; we improved to leadership level status in the "Forests" category improving from B to A- and we also improved our result in the "Water" category moving from B- to B. These scores reflect our leading position in the UK housebuilding sector.

 

In July 2021 we also became a signatory of the UN Global Compact, reflecting our ongoing commitment to its Ten Principles for Corporate Sustainability. We continue our progress to achieve full compliance with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and are committed to achieving full disclosure with our Annual Report and Accounts for the year ended 30 June 2022.

 

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.

 

Customer first

 

Our customers are at the heart of everything we do. We believe our industry leadership in customer service is fundamental to our success, 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 12 consecutive years, with a customer satisfaction rating above 90%.

We are continually striving to improve the energy efficiency and sustainability of our homes and are adapting our home designs in response to both changing homebuyer demands, as well as the Future Homes Standard and other changes to Building Regulations. We aim to build high quality homes that optimise internal space and deliver excellent energy efficiency, resulting in lower lifetime costs for our customers. In FY21 99% of our home completions were EPC rated 'B' or above, a level of energy efficiency shared by just 3.1% of the existing housing stock.

 

Through their own sustainability initiatives, mortgage lenders are increasingly engaging with the housebuilding industry with regard to green mortgages. We launched a green mortgage pilot with Halifax for homebuyers seeking to purchase our energy efficient new homes. The pilot provides increased mortgage loan size based on improved affordability, through reduced home running costs. We will be working with mortgage lenders in the months ahead to see how we can help create more competitive and attractive mortgage products for our customers, reflecting the efficiency advantages created by our homes.

 

Following the changes to Help to Buy in 2021 and the anticipated end of the scheme in March 2023, "Deposit Unlock", an industry sponsored scheme, piloted with the Newcastle Building Society, was launched during the half year. This scheme provides our homebuyers with access to 95% LTV lending with help from an insurance premium funded by us. The Nationwide Building Society joined the Deposit Unlock scheme in November and we continue to explore alternative ways to improve mortgage availability for our customers.

 

We have continued to drive improvements to the customer journey and have adapted our processes to protect and support our customers as a result of the changing restrictions around COVID and latterly, the Omicron variant.  

 

Great places

 

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 divisional land teams possess extensive 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.

Our Group Design and Technical (GD&T) team continue to develop plans to ensure our housetypes meet the requirements of new building standards, effective on new development sites started from June 2022 and applicable to all development sites from June 2023, as well as the more significant Future Homes Standard changes required in 2025.

 

The Z House is proving invaluable to the GD&T team in determining the most suitable changes to our housetypes to meet the Future Homes Standard and the legislative requirements in England as well as different requirements in Scotland and Wales while also providing the best possible products for our customers.

 

The final phase of our national rollout programme to embed biodiversity best practice to all regions has now been completed and we are committed to demonstrating a minimum BNG of 10% across all development designs submitted for planning by 2023. With the Environment Bill receiving Royal Assent in mid-November 2021, we will remain ahead of legislation which will make BNG of 10% mandatory from mid-November 2023.

 

Leading construction

 

Our long standing commitment to build quality is embedded throughout our business. Throughout calendar 2021, Barratt has maintained its industry leadership with the lowest Reportable Items (RIs) per NHBC inspection^6.

 

In June 2021 our site managers secured 93 awards at the NHBC Pride in the Job Awards for excellence in site management and build quality, more than any other housebuilder for the 17^th consecutive year. In the subsequent Regional NHBC Pride in the Job Awards, in Autumn 2021, 31 site managers went on to win "Seals of Excellence" and our site managers secured five of the ten regional awards where we operate in the "Large Builder" category. Then, at the 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. As a business, we have won the supreme award five times and been runner-up three times in the past seven years. No other major housebuilder has achieved this level of success and recognition for quality.

 

We continue to increase the number of homes we build using Modern Methods of Construction (MMC). The adoption of MMC increases efficiency and helps to mitigate the challenges posed by the shortage of skilled workers within the industry. In the first half year we built and sold 22.3% of our homes using timber frame or large format block (HY21: 18.4%, HY20: 17.6%). We remain firmly on track with our target to use MMC to build 30% of our homes by FY25.

 

Investing in our people

 

Our 2021 employee engagement survey was completed in October 2021. This year's survey delivered an engagement score of 79.4% (2020 survey: 84.2%). Whilst Barratt experienced an annual decline in its engagement score, this follows a more general pattern observed across employers as a whole through the pandemic.

 

Following on from the 2021 engagement survey and reflecting our desire to positively respond and engage with our workforce, a number of new initiatives were agreed in the period. These include:

·     Increasing the scope of our private medical insurance so that it now covers the whole workforce;

·   an additional special day's holiday allowance from the start of the new calendar year for all employees to allow them to celebrate a birthday or anniversary; and

·     increasing the number of volunteering days to two per year from a previous one day per year, enhancing the opportunities for our employees to support their local charities and good causes.

 

The Group has also been recognised in the recently announced "Glassdoor Best Places to Work in the UK 2022" survey where, based entirely on employee feedback, we were ranked 30^th in the results announced on 12 January 2022, the only UK housebuilder to be in the top 50.

 

We are an accredited Living Wage Employer and we promote the payment of the Living Wage within our UK supply chain through our standard sub-contractor terms and conditions.

 

As our industry continues to face a skills shortage, it is important to attract and retain the best people. We invest for the future through our award winning schemes including those for graduates, apprentices and former Armed Forces personnel. Alongside our existing Degree Apprenticeships delivered in partnership with Sheffield Hallam University, we launched our new degree apprenticeship in Technical Design and Management. This is our third degree apprenticeship, alongside Construction and Quantity Surveying, making us the first house builder to deliver degree apprenticeships across the three main build functions.  We are also recruiting for candidates to join a new degree apprenticeship in Real Estate which will commence in 2023 again with Sheffield Hallam University. This is a first for the housebuilding industry and complements our existing popular programmes. Our development programmes included 456 participants at 31 December 2021 (31 December 2020: 473) and we plan to grow these programmes in 2022.

 

We are seeking to build a diverse and inclusive workforce that reflects the communities in which we operate, delivering excellence for our customers by drawing on a broad range of talents, skills and experience. This is embedded within our Building Sustainably Framework delivering our Diversity and Inclusion Strategy, focusing in particular on gender and ethnicity, where we are looking to build on the improvements in representation we have seen over the last 12 months. We also have a successful career development programme, Catalyst, for high potential female employees.

 

Charitable giving

 

We recognise the role we should play in supporting the communities in which we operate 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 FY21 we raised and donated £4.3m (FY20: £4.4m) for charitable causes and launched the Barratt Foundation which draws together all our charitable work under one body.

 

In the half year period the Foundation has:

 

·    Agreed a new £1.3m three-year funding partnership with the Outward Bound Trust. The funding will help this national youth charity to continue its work making positive changes in young people's lives through learning and adventures outdoors. The Foundation also match funded £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 single charity donation ever made by the Group or the Foundation.

 

·    Made donations including £126,000 to Whizz-Kidz to help them provide essential mobility equipment for disabled children; £50,000 to The Fire Fighters Charity to support their ongoing work helping the UK's fire services community and £20,000 to The Big Issue to support their vendors through the Christmas and New Year period.

 

·     Provided an additional £5,000 to each of the Group's 27 divisions to support local charities in need during the Christmas and New Year with donations going to a range of good causes including hospices, foodbanks and homelessness charities.

Our financial performance

Half year results

 

The Group has delivered an excellent first half performance. Overall our sales rate in the period was 2.6% ahead of the same period last year at 0.79 (HY21: 0.77, HY20: 0.69) net private reservations per active outlet per week. This sustained level of strong activity was ahead of our expectations given the strength in reservations activity for the comparative period in HY21, which benefited from pent-up demand following the initial national lockdown, the Stamp Duty holiday and increased Help to Buy ('HTB') reservation activity ahead of the tapering of HTB in December 2020.

 

Our sales rate remained strong throughout the half year period, reflecting the clear strength of underlying consumer demand and despite the significantly reduced HTB support now available to new home buyers. In the half year 22% of our private reservations used HTB, a significant decline from the 49% using HTB in HY21. 

 

During the half year, we operated from an average of 337 (HY21: 342, HY20: 372) active outlets including 8 (HY21: 8, HY20: 9) JV active outlets, the reduction of 1.5% reflecting the better than expected strength of the private sales rate in the half year which saw some sites trading through available homes for sale ahead of schedule. We have made good progress accelerating new site openings, launching 46 new outlets³ (HY21: 63 outlets, HY20: 45 outlets) in the half year, ahead of our expectations at the start of FY22.

 

Reflecting the stronger than expected sales rate in the period, we now expect average active outlets for the full year to be broadly in line with FY21. New outlet launches in the second half, along with those launched in the first half, are however expected to support a c. 3%  increase in active outlets at the year end, providing a solid active outlet position to support growth in FY23 and thereafter.

 

Total home completions³ were 8,067 homes (HY21: 9,077, HY20: 8,314 homes). The decline in completions reflected the planned return to the more normal seasonal pattern of completions with the comparative half year benefitting from the elevated level of construction work in progress carried into the new financial year following the initial national lockdown in Spring 2020 delaying planned FY20 completions into HY21.

 

The Group's completion mix was:

 

Completions (units)	HY22	HY21	Change
Private	5,896	6,903	(14.6%)
Affordable	1,776	1,796	(1.1%)
Wholly owned	7,672	8,699	(11.8%)
JV	395	378	4.5%
Total3	8,067	9,077	(11.1%)

Reflecting continued market strength, our total forward sales (including JVs) as at 31 December 2021 were up 9.1% at 14,818 homes (31 December 2020: 13,588 homes; 31 December 2019: 11,885 homes) at a value of £3,794.3m (HY21: £3,212.1m; HY20: £2,691.0m).

As a result of our strong order book position, the continued strength in housing demand and based on current market conditions and further growth in site based construction activity, we now expect total home completions to be between 18,000 and 18,250 homes in FY22, including 750 completions from our JVs, whilst ensuring we maintain our industry leading standards of both build quality and customer service. This represents an increase of 250 homes compared to our previous guidance.  We also continue to expect that affordable completions will equate to c. 21% of our completion volumes this year.

Our private ASP was £327,400 (HY21: £319,500, HY20: £312,000) reflecting c. 5% house price inflation, offset by a lower proportional delivery from London and a slight reduction in the average size of homes completed in the period. The affordable ASP increased by 8.1% to £157,100 (HY21: £145,300, HY20: £160,000) reflecting a shift in geographic mix. As a result, total ASP was £288,000 (HY21: £283,500, HY20: £279,800).

 

We delivered an uplift of 120 bps in adjusted gross margin in the half year. This reflected the net impact of mid single-digit house price growth and increasing build cost inflation, the ongoing transition to new sites and some dilution from lower completions in the period, driving reduced fixed cost efficiency. Each home completion delivered a contribution of c. 34% after land and build costs. As a result, our adjusted gross margin was 25.0% (HY21: 23.8%, HY20: 23.0%).

 

During the first half, total build cost inflation was around 5%. Whilst we anticipate improved fixed cost efficiency in the second half through completion volume growth and sales price inflation, we also expect to experience an increase in total build cost inflation (including infrastructure, materials and labour) to c. 6% for FY22. This reflects inflationary pressures across the economy and specific areas of building material cost inflation related to commodity input cost pressures and energy intensity. Given that our forward sales at the start of the second half incorporate underlying sales price inflation of c. 7%, we expect that the overall effect on margin will be neutral or positive for the second half of FY22.

 

In line with our commitment to put customers first, we incurred further costs in relation to building safety in the first half, recording adjusted item costs of £15.9m (HY21: £56.3m, HY20: £17.8m) through cost of sales in the period. This resulted in a reported gross margin of 24.3% (HY21: 20.6%, HY20: 22.2%).

 

Administrative costs have increased, principally reflecting increased people costs, the one-off charge for certain IT assets previously capitalised following a review of latest accounting guidelines, as well as a reduced level of sundry income. Administrative costs in the half year were £114.5m (HY21: £94.3m, HY20: £83.9m). We expect net administrative expenses for FY22 will now be approximately £240m.

 

Adjusted operating profit decreased by £55.3m to £449.9m (HY21: £505.2m, HY20: £439.5m) reflecting the return to more normal first half seasonal pattern of completion delivery.

 

The change in the adjusted operating margin in the half year reflected a number of factors:

 

·     Completion volumes: the return to the more normal seasonal pattern of completions saw an 11.8%, or 1,027 homes, decline in wholly owned home completions in the period creating a 80 bps negative margin impact; 

·     Net impact of selling prices relative to build cost: c. 5% house price inflation, offset by build cost inflation produced a 60 bps positive margin improvement;

·      Site transition: our margin initiatives continued to drive underlying improvement, including the ongoing transition to new sites using our continually refined standard house types, increasing margin by 70 bps;

·   Site extension costs: these costs arose from the expected extension in site durations due to COVID-19, reflecting the improvement in site efficiency through the period, new site starts and the completion of sites carrying these additional costs. The reduced charge across our completions created a 50 bps positive margin impact;

·    Mix and other items: changes in sales mix and other smaller items combined to create a 30 bps negative impact on the margin; and

·    Administrative expenses: the change in administrative expenses detailed above, resulted in a 100 bps negative margin impact.

 

Our adjusted operating margin, as a result, reduced by 30 bps to 20.0% (HY21: 20.3%, HY20: 19.4%). After adjusted items, the reported operating margin for the half year was 19.3% (HY21: 17.0%, HY20: 18.6%).

 

Net finance charges were in line with the prior period at £15.0m (HY21: £14.8m, HY20: £14.1m). The cash finance charge was £5.2m (HY21: £4.9m) with non-cash charges of £9.8m (HY21: £9.9m). We continue to expect FY22 net finance costs will be around £30m, ‎comprising £10m of cash and £20m of non-cash charges.

 

In the half year, the Group's reported share of JV profit was £13.6m (HY21: £22.1m, HY20: £15.4m). The adjusted share of JV profit was £15.1m (HY21: £16.8m) after adjusting for a £1.5m charge (HY21: £5.3m credit) associated with legacy properties. We continue to expect to deliver around 750 JV home completions in FY22.

Adjusted profit before tax reduced by 11.3% to £450.0m (HY21: £507.2m, HY20: £440.8m) and, after adjusted items, profit before tax increased by 0.6% to £432.6m (HY21: £430.2m, HY20: £423.0m). The Group recognised £81.6m of tax charges (HY21: £81.2m, HY20: £77.7m) at an effective rate of 18.9% (HY21: 18.9%, HY20: 18.4%).

 

Following the Autumn Budget announcement, with details of the Residential Property Developer Tax (RPDT), we now expect the effective tax rate in FY22 will be c. 20%, incorporating a 1% impact from the RPDT reflecting one quarter's application of the new tax from 1 April 2022. The full impact of the RPDT alongside with the scheduled increase in corporation tax to 25% from 1 April 2023, will result in the Group's effective tax rate increasing to c. 24.5% in FY23 and c. 29.0% in FY24.

 

Adjusted basic earnings per share reduced by 11.4% to 35.9 pence per share (HY21: 40.5, HY20: 35.3 pence per share). Basic earnings per share increased by 0.6% to 34.5 pence per share (HY21: 34.3, HY20: 33.8 pence per share) with the significantly lower adjusted items in the period creating the modest increase in basic earnings per share.

 

Adjusted items

 

Adjusted items of £17.4m (HY21: £77.0m, HY20: £17.8m) were recognised in the half year, reflecting legacy property costs associated with building safety related remediation activities. We continue to anticipate adjusted items of between £40m and £50m in FY22, comprising works related to external wall systems and reinforced concrete frames. This includes costs that we may agree to incur beyond our contractual and legal obligations and are in addition to any Government levies.

 

Capital structure and operating framework

 

We continue to maintain an appropriate capital structure reflecting our disciplined operating framework to ensure our balance sheet strength. Our capital structure remains centred on shareholders' funds and land creditors funding the longer term requirements of the business with term loans and bank debt funding shorter term requirements for working capital.

 

The net cash balance of £1,131.7m (31 December 2020: £1,106.7m, 31 December 2019: £433.8m), reflected the strength of underlying operating cash generation, notwithstanding an increase in working capital driven by our investment in both land and construction work in progress in the period and the payment of the final dividend of £223.0m with respect to FY21 in the period.

 

We continue to anticipate year end net cash of between £1.0bn - £1.1bn with improved trading counterbalanced by the acquisition of Gladman Developments Limited which completed on 31 January 2022, increased land and working capital investment in the second half to support our growth plans beyond FY22, as well as the payment of the enhanced interim dividend.

 

Whilst we continue to defer payment for some land purchases to meet land vendor aspirations, land creditors have remained within our operating framework range. As at 31 December 2021 land creditors totalled £682.3m (31 December 2020: £601.1m, 31 December 2019: £830.8m) and equated to 22.4% (31 December 2020: 21.2%, 31 December 2019: 27.4%) of the owned land bank. Land creditors falling due within the next 12 months totalled £412.5m at 31 December 2021 (31 December 2020: £333.6m, 31 December 2019: £491.3m).

 

In order to maintain a resilient balance sheet, our operating framework is to hold modest average net cash over the financial year and to be cash positive at year end over the medium term. We have achieved a half year total surplus (net cash and land creditors combined) of £449.4m (31 December 2020: total surplus of £505.6m, 31 December 2019: total indebtedness of £397.0m).

 

During the period we also successfully extended the £700m Revolving Credit Facility (RCF) for one additional year with the RCF now maturing 22^nd November 2025.

 

Our operating framework remains unchanged with the exception of future dividend cover policy and progress over both the last six and twelve month periods are shown below:

 

 

	Operating framework	Position at 31 December vs 30 June 2021	Position at 31 December  2020
Land bankA	c. 3.5 years owned and c. 1.0 year controlled	4.3 years owned and 0.8 years controlled (2021: 4.0 years owned and 0.7 year controlled)	5.0 years owned and 0.9 years controlled
Land creditors	Maintain at 15 - 25% of the land bank over medium term	22.4% (2021: 22.3%)	2020: 21.2%
Net cash	Modest average net cash over the financial year	£1,144m over six months ending 31 December 2021 (£821m over twelve months ending 30 June 2021)	£548m over six months ending 31 December 2020
	Year end net cash	£1,131.7m net cash (2021: £1,317.4m net cash)	£1,106.7m net cash
Total indebtedness (net cash and land creditors)	Minimal year end total indebtedness in the medium term	Total net surplus of £449.4m (2021: Total net surplus of £659.1m)	Total net surplus of £505.6m
Treasury	Appropriate financing facilities	£700m RCF extended to November 2025 £200m USPP maturing 2027	£700m RCF extended to November 2024 £200m USPP maturing 2027
Dividend policy	2.25x dividend cover from previous framework position of 2.5x dividend cover with cover reducing to 2.0x in FY23 and 1.75x in FY24	Cover reduced to 2.25x FY22 interim dividend proposed of 11.2p (2021: total dividend of 29.4p)	FY21 interim dividend of 7.5p

 

A. Land supply is calculated as total owned (owned land and land subject to unconditional contracts) and controlled (land subject to conditional contracts) land bank plots divided by wholly owned completions in the last 12 months

 

Net tangible assets were £4,683.8m and £4.58 per share at 31 December 2021, (31 December 2020: £4,298.2m and £4.22 per share, 31 December 2019: £3,941.5m and £3.87 per share) of which land, net of land creditors, and work in progress, totalled £4,230.4m and £4.14 per share (31 December 2020: £3,835.2m and £3.77 per share, 31 December 2019: £4,005.8m and £3.93 per share).

 

The key dimensions underpinning delivery of our strategy

 

Land and planning

 

Our land bank is the foundation of our future operational and financial performance. Throughout the period, we have continued to focus on optimising our existing land bank to balance site duration and our build and sales capacity across our portfolio.

  

We have remained disciplined and selective in our land purchasing and have approved £673.4m (HY21: £254.0m, HY20: £406.1m) of operational land for purchase, which equates to 8,869 plots (HY21: 5,635 plots, HY20: 9,242 plots) on 48 (HY21: 35, HY20: 44) new sites in attractive locations across the country that meet our demanding hurdle rates. We are especially pleased that after suspending land buying from March through early August 2020, land approvals through calendar 2021 have recovered to 21,301 plots, more than 6% ahead of our internal ambitions at the start of last year. We continue to expect to approve between 18,000 and 20,000 plots of operational land (FY21: 18,067, FY20: 9,441) in FY22.

 

An attractive range of land buying opportunities continue to come to market and we have a good pipeline of offers accepted on additional sites. We invested around £410m (HY21: £320m, HY20: £450m) on land acquisitions and the settlement of land creditors during the half year and now expect to invest c. £1.1bn on land in FY22, ahead of the £745m invested in FY21.

 

We continue to target a geographically balanced land portfolio with a supply of owned land of c. 3.5 years and a further c. 1.0 year of controlled land. Reflecting our focus on future growth, we remain above this target with 5.1 years (31 December 2020: 5.9, 31 December 2019: 4.6). Our land bank comprised of 4.3 years (31 December 2020: 5.0, 31 December 2019: 3.7) of owned land and 0.8 years (31 December 2020: 0.9, 31 December 2019: 0.9) of controlled land at 31 December 2021.

 

 

 

Our land bank at 31 December comprised:

 

Our land bank	31 December 2021	31 December 2020
Plots with detailed planning consent	49,622	54,079
Plots with outline planning consent	16,373	9,846
Plots with resolution to grant and other	560	235
Owned and unconditional land bank (plots)	66,555	64,160
Conditionally contracted land bank (plots)	11,909	11,450
Total owned and controlled land bank (plots)	78,464	75,610
Number of years' supply (A)	5.1	5.9
JVs owned and controlled land bank (plots)	4,418	5,010
Strategic land (acres)	14,172	13,232
Land bank carrying value	£3,046.1m	£2,836.7m

 

A. Land supply is calculated as total owned (owned land and land subject to unconditional contracts) and controlled (land subject to conditional contracts) land bank plots divided by wholly owned completions in the last 12 months

 

At 31 December 2021, the ASP of plots in our owned land bank was £303,000 (31 December 2020: £275,000, 31 December 2019: £277,000).

 

During the half year we delivered 2,104 (HY21: 2,149, HY20: 1,942) completions from strategically sourced land, and we converted 1,272 plots (HY21: 1,106, HY20: 2,421 plots) of strategic land into our owned and controlled land bank. We continue to target 30% of completions from strategic land in the medium term. Around 28% of our strategic land is allocated or included in draft local plans.

 

Rebuilding site based construction activity

 

The potential of our land bank can only be unlocked through an efficient build process and we are pleased with the way our business has continued to rebuild activity from the complete shutdown which was required during the first national lockdown in March 2020. It is a testament to the strength and commitment of our construction teams, our sub-contractors, many of whom have worked with Barratt for many years, and our supply chain partners, in particular over recent months, that we have been able to drive continued growth in our site based construction activity.

 

As a result, site based construction activity, in the first half has shown a strong advance with an average of 341 equivalent homes (HY21: 298, HY20: 351), including JV's constructed each week, an increase of 14.4%. We also, as a result, enter the second half with an increased level of work in progress carried forward at 31 December 2021 compared with the positions at both 31 December 2020 and 30 June 2021. This combination puts the Group in a strong position to deliver both our upgraded guidance on total home completions for the year as well as a solid work in progress position to support growth in FY23.

 

Improving efficiency and reducing costs

 

Improving the efficiency of our operations and controlling costs, whilst maintaining our focus on quality and customer satisfaction, remains an over-riding focus for the Group, optimising our margin and improving our operational and financial resilience.

 

Our continuously evolving standard house type ranges maintain our high standards of design whilst being faster to build and more suitable for MMC, helping us to reduce build cost and waste.

 

Through our sales teams and regular home buyer surveys we continue to monitor changing home buyer priorities and requirements, particularly with respect to working from home and other lifestyle changes, which may have an enduring impact on home buyer preferences when we ultimately emerge from the pandemic and associated restrictions.

 

We delivered 4,920 completions (HY21: 5,376, HY20: 4,491 completions) from our standard house type ranges across the country in the half year. Of our outlets, 88% (HY21: 83%, HY20: 76%) have the standard house type ranges.

 

We continue to anticipate that c. 90% of our outlets will be suitable for our standard house type ranges equating to approximately 85% of our completions. Our continually refined house type ranges cover all segments of our market providing us with the flexibility to replan sites to suit market conditions and meet changing consumer demands should the need arise.

 

We have a robust and carefully managed supply chain with more than 90% of the housebuild materials sourced by our centralised procurement function being manufactured or assembled in the UK. We have pricing agreements in place for almost all of these materials to June 2022.

 

Acquisition of Gladman Developments Limited

On  31 January 2022 we announced the acquisition of Gladman Developments Limited for a total cash consideration of £250m on a debt and cash free basis. Gladman operates as a land promoter in the UK with particular strength in the south of England. The acquisition brings together Barratt's best in class housebuilding operations with Gladman's excellent land sourcing and promotion capabilities, providing greater flexibility for landowners and significantly enhancing Barratt's strategic land credentials.

In the three years through to 31 March 2019, prior to the onset of the COVID-19 pandemic, Gladman generated average annual sales of £52.5m, EBITDA of £19.6m, operating profits of £18.7m and profit before tax of £18.9m; with an annual average of 4,230 plots securing planning permission and 4,156 plots sold for Gladman's promotion partners over this same period.

In its last financial year, to 31 March 2021, Gladman, despite the ongoing disruption created by COVID-19, secured planning consent on 2,760 plots across 15 sites with a high planning success rate and, through its targeted marketing, secured sales of 2,796 plots on 18 sites to housebuilders and housing associations.

Gladman's existing portfolio, comprising approximately 406 potential sites with an average site size of 242 plots, is expected to deliver an incremental 500 home completions per annum for Barratt from FY25.

Following the acquisition, Gladman will operate as a stand-alone business within the Group led by its experienced management team, including David Gladman, Chairman and Victoria Hesson, Chief Executive. Gladman will continue to supply land to third parties as well as provide an additional route for Barratt to source strategic land and help to promote Barratt's existing strategic land portfolio.

Shareholder returns

 

After an unprecedented and challenging period, our business has demonstrated both its operational strength and financial resilience. Our disciplined operating framework and the speed of management decision making and actions, both at the start of the pandemic and throughout the period since, have delivered a rapid operational recovery, robust cash flow generation and a strong balance sheet. Whilst uncertainties remain around COVID-19, the Board has confidence that the Group's financial position and inherent cash generation now allow the Group to review capital returns to shareholders.

 

Ordinary dividend cover to reduce on a phased basis FY22 - FY24

 

Whilst our overriding priority remains the continued investment in the business to grow our completion volumes, we recognise 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 has revised the Group's ordinary dividend policy, implementing a phased reduction in dividend cover from 2.5x in FY21 to 1.75x in FY24. The ordinary dividend cover will reduce by 0.25x annually from FY22 through to FY24.

 

The Board, has declared an interim dividend of 11.2 pence per share (2020: 7.5 pence, 2019: nil). The interim dividend will be paid on Wednesday 18 May 2022 to all shareholders on the register on Friday 8 April 2022. Shareholders who wish to elect for the Dividend Reinvestment Plan should do so by 26 April 2022. The Board will now target a full year ordinary dividend based on an ordinary dividend cover of 2.25 times adjusted earnings per share.

 

Over the medium term, we also recognise that the Group should operate with a strong and resilient but also capital efficient balance sheet, aligned with our operating framework. Where capital beyond the requirements for investment in the growth of the business is identified, it is the Board's intention to return this to shareholders. We will provide an update on the method and timing of any such return when it is appropriate to do so, taking into account opportunities for further investment and prevailing equity market conditions at that time.   

 

Guidance for FY22

Looking to the balance of the current financial year our guidance is summarised in the following table. Where guidance has been amended, this is highlighted.

Completions	c. 18,000 - 18,250 total home completions, inc. 750 JV completions (previously 17,750 - 18,000, inc. 750 JV completions) c. 21% affordable, c. 79% private mix
Average sales outlet growth Year end sales outlet position	Average sales outlets in line with FY21 (previously c. 3% growth) Year end outlet growth of 3% vs 358 at end of FY21
Build cost inflation range	c. 6% (previously 4% to 5%)
Administrative expenses	c. £240m (previously £230m)
Interest cost	c. £30m (c. £10m cash, c. £20m non-cash)
Adjusted items in respect of legacy properties	Estimated charge of £40m - £50m
Land approvals	18,000 to 20,000 plots
Land cash spend	c. £1.1bn (previously c. £1.0bn)
Year end net cash	c. £1.0bn - £1.1bn
Taxation	c. 20% for FY22 reflecting RPDT impact from 1 April 2022
Dividend cover	2.25x ordinary dividend cover based on adjusted earnings per share (previously 2.5x ordinary dividend cover)

 

Current trading and outlook

 

We have had a very strong start to our second half with 291 net private reservations per average week (2021: 264, 2020: 294) and operated from an average of 325 outlets (2021: 343, 2020: 355). This has resulted in a net private reservations per active outlet per average week of 0.90 (2021: 0.77, 2020: 0.83).

 

Our total forward sales³ as at 30 January 2022 were 15,736 homes (31 January 2021: 14,289 homes, 2 February 2020: 13,043 homes) at a value of £4,109.7m (31 January 2021: £3,425.8m, 2 February 2020: £3,027.1m) We are now 92% forward sold with respect to private wholly owned home completions for FY22 (FY21: 92%).

The composition of our forward sales at 30 January 2022 and the order book movement since the end of HY22 are detailed in the following tables:

	30 January 2022		31 January 2021		Variance %
	£m	Homes	£m	Homes	£m	Homes
Private	2,625.9	7,382	1,933.6	5,769	35.8	28.0
Affordable	1,219.2	7,534	1,242.4	7,746	(1.9)	(2.7)
Wholly owned	3,845.1	14,916	3,176.0	13,515	21.1	10.4
JV	264.6	820	249.8	774	5.9	5.9
Total	4,109.7	15,736	3,425.8	14,289	20.0	10.1

 

	Current Year		Prior Year		Variance %
	Private	Total	Private	Total	Private	Total
31 December	6,557	14,818	5,104	13,588	28.5	9.1
Reservations	1,248	1,439	1,169	1,330	6.8	8.2
Completions	(423)	(521)	(504)	(629)	(16.1)	(17.2)
30 Jan / 31 Jan	7,382	15,736	5,769	14,289	28.0	10.1

 

The Group is in a very good position. We have substantial net cash, a strong forward sales position, an excellent land bank as well as a continued focus on delivering operational improvements across our business and an unwavering commitment to deliver high quality sustainable homes across the country.

 

Based on current market conditions and absent any further COVID-19 related disruption, we now expect total home completions to be between 18,000 and 18,250 homes in FY22 (including 750 from JVs), whilst ensuring we maintain our industry leading standards of quality and service.  

 

We expect a higher level of completions in our second half relative to our first half reflecting a return to the normal phasing of completions, the increased level of work in progress carried forward at 31 December 2021 compared to 31 December 2020, as well as further anticipated growth in our construction activity in the traditionally stronger second half.

 

We remain focused on rebuilding our completion volumes to our medium term target of 20,000 homes. This, coupled with our land acquisition at a minimum 23% gross margin and our ongoing focus on operating efficiencies, support our continued target of a minimum 25% ROCE in the medium term.

 

Macro economic uncertainties remain, most notably around rising inflation and interest rates in the wider UK economy. As a business we also face higher taxation, the ongoing challenges around build cost inflation and the future withdrawal of Help to Buy, which will begin to impact reservations in Autumn 2022, as the scheme draws to a close in March 2023. The Board believes, however that the overall strength of the housing market, our operational performance since the onset of the pandemic and our strong financial position provide us with the platform and flexibility to react to any challenges and opportunities in the remainder of FY22 and beyond.

 

David Thomas

Chief Executive

8 February 2022

  

 

 

 

 

1 Refer to Glossary for definition of key financial metrics

2 Unless otherwise stated, all numbers quoted exclude JVs                                                                                                                                                                                                                                                         

3 Including JVs in which the Group has an interest

4 In addition to the Group using a variety of statutory performance measures it also measures performance using alternative performance measures (APMs). Definitions of APMs and reconciliations to the equivalent statutory measures are detailed in the Glossary and Definitions. Net cash definition in Note 5.1

5 Measured against 2013 ADL1a but using Future Homes metrics and targets

6 Measured by the NHBC amongst the 14 major housebuilders constructing more than 1,000 homes annually

 

 

Principal risks and uncertainties

In pursuing our strategic priorities to create value for stakeholders, we experience risk. The Board is responsible for the overall stewardship of risk management and ensuring the Group maintains the appropriate level of risk to achieve its objectives.

The risks facing the Group, separately or in combination, 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 give rise to new risks.

Risk management controls are integrated into all levels and operations of our business and across all our operations, including at site, divisional, regional and Group level.

The business prioritises the safety of its workforce and continues to update its working practices, considering the latest government guidance. The risks associated with the pandemic are reducing as the country progresses with its vaccination programme and lifts the restrictions on its economy. Nonetheless, the current public health situation, the potential for future variants, and subsequent economic or operational disruption, remain factored into the assessment of risk.

Management is progressing its assessment of the possible effects of climate change, both of the potential physical changes to the environment in which it operates and of the regulatory and socio-economic changes required to transition to a low-emission society. Where risks are identified, mitigations are planned and the impact incorporated into our financial planning.

The Group's assessment of its legacy properties is ongoing. On 10 January and 3 February 2022, the Department for Levelling Up, Housing and Communities contacted residential property developers regarding the financing and rectification of unsafe cladding on buildings with a height of above 11 metres constructed in the last 30 years. Discussions are ongoing and we will continue to work constructively with Government to ensure leaseholders are protected. It is possible that further commitments may be made by the Group following these discussions.

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.

Save as set out above, the Directors do not consider the process of risk management and the principal risks and uncertainties to have changed since the publication of the Annual Report and Accounts for the year ended 30 June 2021.

Further details of the Group's principal risks and mitigation of the risks outlined below can be found on pages 58 to 64 of the Annual Report and Accounts for the year ended 30 June 2021, which is available at www.barrattdevelopments.co.uk.

Principal Risks

Economic environment, including housing demand and mortgage availability

Changes in the UK and European macroeconomic environments, may lead to falling demand or tightened mortgage availability, on which the majority of our customers are reliant, reducing the affordability of our homes.

Land availability

The inability to secure sufficient consented land and strategic land options at appropriate cost and quality in the right locations which enhance communities.

Government regulation and planning policy

Changes in the regulatory environment affect the conditions and time taken to obtain planning approval and technical requirements including Building Regulations, increasing the challenge of providing quality homes where they are most needed.

Construction

Failure to achieve excellence in construction, through delays from adverse conditions, a failure to identify cost overruns promptly, design and construction defects, and deviation from environmental standards.

Availability of raw materials, sub-contractors and suppliers

Shortages or increased costs of materials and skilled labour or the failure of a key supplier.

Safety, health and environment

Health and safety or environmental breaches can result in incidents affecting employees, sub-contractors and site visitors and undermine the creation of a great place to work.

Attracting and retaining high calibre employees

Failure to recruit and/or retain the best people so that both our employees and the business can benefit from the available development opportunities.

Availability of finance and working capital

Unavailability of sufficient borrowing and surety facilities to settle liabilities, manage working capital, respond to changes in the economic environment, and take advantage of appropriate land buying and operational opportunities to deliver strategic priorities.

IT

The Group continues to integrate its IT systems to enhance control and drive efficiency. The failure of any of these systems, in particular those relating to customer information, surveying and valuation, could restrict the Group's operations and disrupt progress in its strategic priorities. Failure to comply with data regulations could also incur significant financial penalties and reputational damage.

Significant nationwide unexpected event affecting multiple locations

A significant unexpected event, such as the COVID-19 pandemic or the failure of national infrastructure, could have a material impact on our business.

Climate change

In the short-to-medium term, Government regulations and customer and investor expectations will require the Group to further enhance its sustainable business practices. In the long term the Group must adapt to the physical changes to the climate in which it operates.

Emerging Risk

Social trends

Social and Demographic changes resulting in significant change to the demand profile for our products and developments. Social developments drive changes in customers' expectations of the service they receive, the ways in which they communicate with the Group, and the manner in which the Group engages with its stakeholders.

 

 

Condensed Consolidated Income Statement

for the half year ended 31 December 2021 (unaudited)

 

Continuing operations	Notes	Half year ended  31 December 2021   £m	Half year ended  31 December 2020   £m	Year ended 30 June  2021 (audited) £m
Revenue	2.1	2,247.1	2,494.7	4,811.7
Cost of sales		(1,700.6)	(1,980.8)	(3,801.7)
Gross profit		546.5	513.9	1,010.0
Administrative expenses	2.3	(114.5)	(94.3)	(204.4)
Part-exchange income		47.2	131.8	220.4
Part-exchange expenses		(45.2)	(128.5)	(214.9)
Profit from operations	2.3	434.0	422.9	811.1
Finance income	5.2	0.5	0.7	1.4
Finance costs	5.2	(15.5)	(15.5)	(28.0)
Net finance costs	5.2	(15.0)	(14.8)	(26.6)
Share of post-tax profit from joint ventures		13.6	22.1	27.7
Profit before tax		432.6	430.2	812.2
Tax	2.6	(81.6)	(81.2)	(152.1)
Profit for the period		351.0	349.0	660.1
Profit for the period attributable to the owners of the Company		351.0	348.8	659.8
Profit for the period attributable to non-controlling interests		-	0.2	0.3
Earnings per share from continuing operations:
Basic	2.4	34.5p	34.3p	64.9p
Diluted	2.4	33.9p	33.9p	64.0p

The notes in sections 1 to 6 form an integral part of these Condensed Consolidated Half Yearly Financial Statements.

 

Adjusted items: See note 2.2 for further details	Profit per Income Statement (above)	Cost/(credit) associated with legacy properties	CJRS grant repaid	Adjusted profit
	£m	£m	£m	£m
Half year ended 31 December 2021:
Gross profit	546.5	15.9	-	562.4
Profit from operations	434.0	15.9	-	449.9
Share of post tax profit from JVs	13.6	1.5	-	15.1
Profit before tax	432.6	17.4	-	450.0
Half year ended 31 December 2020:
Gross profit	513.9	56.3	22.8	593.0
Profit from operations	422.9	56.3	26.0	505.2
Share of post tax profit from JVs	22.1	(5.3)	-	16.8
Profit before tax	430.2	51.0	26.0	507.2
Year ended 30 June 2021:
Gross profit	1,010.0	81.9	22.8	1,114.7
Profit from operations	811.1	81.9	26.0	919.0
Share of post tax profit from JVs	27.7	(0.4)	-	27.3
Profit before tax	812.2	81.5	26.0	919.7