Barratt Developments plc (LON:BDEV) has issued a trading update in respect of the half year ended 31 December 2020 ahead of publication of its interim results on 4 February 2021.
Trading
We have delivered an excellent first half performance. Across the country, we have seen strong customer demand for our high quality new homes. Our sales rate over the period has, as anticipated, moderated since our October update to a more normalised level and for the period was up 11.6% at 0.771 (2019: 0.692) net private reservations per active outlet per week.
During the first half we saw an increased sales rate as strong underlying demand was supplemented by pent-up demand from the initial national lockdown, the introduction of the stamp duty holiday and the March 2021 end of Help to Buy for existing home owners. While we entered FY21 with elevated levels of work in progress and rapidly improved our site-based construction activity in the first quarter, the very strong demand experienced in the half year absorbed both of these, and has reduced our product availability for the third quarter of FY21.
In the half year, we operated from an average of 342 (2019: 372) active outlets (including 8 JVs (2019: 9)), a reduction of 8.1% reflecting the delay to site starts created by the initial national lockdown period. We have had a successful first half, launching 63 (2019: 45) new outlets (including JVs), above our expectations, which we expect to sustain the ongoing recovery in our completion volumes in FY21 and beyond.
In the period we delivered 9,077 (2019: 8,314) home completions (including JVs of 378 (2019: 314)), up 9.2% on last year. This growth benefited from both the elevated level of work in progress carried into the new financial year and our higher opening forward sales position, due to the initial national lockdown delaying completions. Our total average selling price (‘ASP’) increased by 1.1% to c. £283k (2019: £279.8k), with private ASP up 2.2% to c. £319k (2019: £312.0k), reflecting both a positive mix impact and underlying house price inflation.
Total forward sales (including JVs) as at 31 December 2020 have increased by 14.3% to 13,588 homes (2019: 11,885 homes) at a value of £3,212.1m (2019: £2,691.0m), 19.4% up on last year. We are now over 90% forward sold for this financial year.
Despite the challenges, our sites operated successfully across the country during the period, enabled by our extensive COVID-19 working practices and protocols. As a result, construction activity in the first half was slightly ahead of planned output, with an average of 298 equivalent homes, including JV’s, constructed per week. We enter our second half with a reduced level of work in progress carried forward at December 2020 compared to June 2020 and, as a result, a greater reliance on construction activity in the half year ahead.
Under the latest regulations to address the recent increase in coronavirus infections, we are able to continue site based construction across Britain. Our sales offices continue to operate on an appointment basis in England and Scotland but have been required to close in Wales. Our industry-leading and British Safety Council accredited COVID-secure policies are fully embedded and our first priority is to keep our employees, sub-contractors, suppliers and customers safe. We continue to manage the operational challenges created by COVID-19 across our business including providing flexibility for those with childcare responsibilities and supporting our clinically extremely vulnerable employees who are unable to work from home.
Land
We remain disciplined and selective in our land purchasing. Following our recommencement of land buying in August, we have approved the purchase of 5,635 plots on 35 new sites in attractive geographical locations that meet our hurdle rates. We are now seeing a greater range of land buying opportunities come to market and have a good pipeline of offers accepted on additional sites. We continue to target an owned and controlled land bank of around 4.5 years in the medium term, in line with our operating framework.
Balance sheet and liquidity
The Group is financially strong and has improved its net cash position this half year to c. £1,105m3 from £308.2m at 30 June 2020 reflecting our excellent completion delivery which has significantly reduced our work in progress. With our success in delivering new site starts, we expect to see increased investment in both land and work in progress in our second half as we focus on the further recovery of completion volumes beyond FY21.
Leading the industry in quality and customer service
Our long term commitment to quality and customer service is absolute. This is the right thing to do for customers but also fundamental to the resilience of our business. Our quality continues to be recognised through the NHBC Pride in the Job Awards for site management. In June 2020 our site managers were awarded 92 awards, more than any other housebuilder for the 16th consecutive year. In the subsequent Regional NHBC Pride in the Job Awards, Barratt secured seven out of the ten regional awards where we operate, an unprecedented achievement.
We also remain the only major housebuilder to be awarded the maximum 5 Star rating by our customers in the HBF customer satisfaction survey for 11 years in a row.
In December 2020, we were named ‘Large Housebuilder of the Year’ at The Housebuilder Awards 2020. This is the second year in a row we have won this award and the third time we have secured this title in the last five years.
Delivering our long term commitment to quality and customer service rests with the effort and dedication of our employees across the country. We believe it is important that we recognise our colleagues’ commitment, particularly after the challenges faced over the last year, and that we share the success of the business with the people who make it possible. Reflecting the challenges met and overcome in 2020, and to mark the milestone of completing our 500,000th home this financial year, an award of 200 shares has been made to all employees below managing director level. This is the third year in a row that the Board has recognised our employees’ commitment and support in this way, following the special share award in 2019 to mark ten years of HBF 5 Star rating and our 60th anniversary share award in 2018.
Becoming the UK’s leading national sustainable housebuilder
We believe that at the core of quality housebuilding is a commitment to create a positive environmental, social and economic legacy for future generations.
In early 2020, we became the first national housebuilder to publish science-based targets for reducing carbon emissions, and subsequently announced that by 2040 we will become a net zero greenhouse gas emissions business across all of our direct operations. In addition, in Autumn 2020 we set a new target to ensure our standard house types will be net zero carbon in use from 2030. These targets and our constant commitment to lead the industry in both quality and sustainability means that our customers will live in high quality, low carbon, energy efficient homes which have a lower impact on our environment and are cheaper to run.
Dividends
The Board continues to recognise the importance of dividends to all shareholders. As announced at our full year results, the Board plans to implement a dividend policy based on a full year dividend cover of 2.5 times. Subject to no material change in the operating environment, the Board now expects to agree the resumption of dividends with the interim results on 4 February 2021.
Outlook
The business continues to be in a strong position with substantial net cash, a well-capitalised balance sheet, a healthy forward sales position with over 90% sold for FY21, a continued focus on delivery of operational improvements across our business and an ongoing commitment to deliver high quality homes across the country. Nevertheless, we are mindful of the continued economic uncertainties arising from COVID-19 and the UK’s new trading arrangement with the EU, together with the end of the stamp duty holiday and the changes to Help to Buy.
Based on current market conditions and site construction activity, we now expect wholly owned completions to be between 15,250 and 15,750 homes in FY21, whilst ensuring we maintain our industry leading standards of quality and service. We expect a lower level of completions in our second half relative to our first half reflecting the reduced level of work in progress carried forward at December 2020 compared to June 2020 and, as a result, a greater reliance on construction activity in the half year ahead. We continue to expect to deliver around 650 home completions from our joint ventures.
We remain focused on rebuilding our completion volumes to our medium term target and current capacity of 20,000 homes. This, coupled with our land acquisition in recent years 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.
The Board will continue to monitor the market and wider economy but believes that our operating performance and further strengthened financial position provide us with the resilience and flexibility to react to changes in the operating environment in both FY21 and beyond.
This trading update contains certain forward-looking statements about the future outlook for the Group. Although the Directors believe that these statements are based upon reasonable assumptions, any such statements should be treated with caution as future outlook may be influenced by factors that could cause actual outcomes and results to be materially different.
Notes:
(1) Unless otherwise stated, all numbers quoted exclude Joint Ventures (JVs) throughout this statement.
(2) All comparatives are to the prior year equivalent six month period ended 31 December 2019 or as at 31 December 2019 (‘2019’), unless otherwise stated.
(3) Net cash comprises cash and cash equivalents, bank overdrafts, interest bearing borrowings, and prepaid fees.
David Thomas, Barratt Developments Chief Executive commented:
“Throughout the pandemic, our teams have worked hard to make our operations COVID-secure and our first priority continues to be keeping our employees, sub-contractors, suppliers and customers safe. I’d like to thank our people for their efforts in helping us to rebuild completion volumes, drive further operational improvements and deliver on our commitment to build the highest quality homes across the country. Despite the ongoing challenges presented by the pandemic, we are confident that our operating performance and strong financial position provide us with the resilience and flexibility to respond to the operating environment in FY21 and beyond.”
