Berkeley Group delivers robust operating performance, guidance reiterated

Berkeley Group Holdings plc (“LON:BKG) has announced its unaudited interim results for the six months ended 31 October 2024. 

Rob Perrins, Chief Executive, said:

“Berkeley has delivered £275 million of pre-tax profit for the six months, with net cash at £474 million. Despite ongoing geopolitical and macroeconomic volatility, we remain on track to achieve our pre-tax profit guidance of £525 million for the full year and at least £450 million for FY26. We are also on target to complete the final annual £283 million payment under the current Shareholder Returns programme by 30 September 2025.

There is good underlying demand for our homes, but transaction volumes remain around a third lower than FY23. Whilst we have seen a slight uptick in recent weeks, a meaningful recovery will require a sustained improvement in consumer confidence and stability in the wider macroeconomic environment.

As previously announced, pre-tax return on equity will dip below Berkeley’s long-term target of 15% at the above levels of profitability, due to the impact of the operating environment and market conditions of recent years on our industry and the wider economy.

We therefore welcome Government’s mission for growth and its brownfield-led housing agenda to resolve the issues in the planning system and deliver 1.5 million new homes over the next five years.  Indeed, the strength and tone of Government’s housing commitments have already galvanised the planning system.

We are now working closely with all levels of government to ensure that this positive momentum quickly translates into economically viable planning consents to unlock greater investment and delivery on the ground, but this will take time.    We also remain alive to the very significant changes to Building Regulations and the establishment of a new industry regulator.  This necessary change brings uncertainty as it beds-in and with it the risk of delays and additional costs.

Illustrating the scale of the opportunity, but also the challenge, housing starts in London fell to just 8,450 in the twelve months to 30 June 2024, according to the most recent quarterly statistics issued by MHCLG. This compares to Government’s newly identified annual target of 80,000 for the capital.

Berkeley wants to play its full part in addressing this shortfall and helping Government meet its ambitions and believes that we are close to the point of inflection when both the operating environment and market conditions are supportive of investment. In light of this, we are today announcing a new 10-year strategy – Berkeley 2035 – which takes into account both the volatility that persists in the operating environment and emerging opportunities.

Berkeley 2035 provides a framework within which Berkeley can utilise its entrepreneurial property expertise to: (i) increase return on capital in the core business through optimising existing sites, bringing pipeline sites into delivery and investing in new land; (ii) establish our own market-leading Build to Rent (“BTR”) platform and significantly grow its value; and (iii) make returns to shareholders, through share buy-backs or dividends; a strategy that will grow the long-term value of the Company, while retaining financial strength. The opportunity to introduce third party funding to the BTR platform provides the financial capacity and flexibility to increase investment or shareholder returns further.

Berkeley has identified £7 billion of its free cash flow to deploy over the next ten years in a combination of: (i) land investment; (ii) construction of its BTR platform; and (iii) returns to shareholders. This is before introducing any external funding to the BTR platform and anticipates the initial allocation set out below:

This agile framework for capital allocation combines necessary near-term resilience with the ability to flex a greater allocation to new land, the BTR platform or shareholder returns as the operating environment evolves. We are targeting to maintain operating margins in the historic range of 17.5% to 19.5% over this period, maintain the future gross margin in our land holdings above £6.0 billion, grow the value of our BTR platform and grow net asset value per share.  Adopting this strategy at this point in the cycle will result in Berkeley investing more in the near-term to drive higher profits and returns to shareholders in the long-term, and meeting our long-term 15% pre-tax return on equity target.

Our teams have made fantastic progress throughout the period as we breathe new life into neglected urban sites and create some of the most exciting mixed-use neighbourhoods in the country.  St William’s stunning Regent’s View development in Bethnal Green exemplifies our approach and I am hugely proud that this innovative gasworks regeneration project has been named the world’s best Future Residential Project at the World Architecture Festival.

I wish to thank the entire team across Berkeley for their hard work, commitment and sheer ingenuity.  They deliver hugely positive outcomes for all of our stakeholders and remain the bedrock of our continued success.”

Summary of FINANCIAL POSITION, Earnings AND Shareholder Returns

·     Sales during the period have been largely consistent with FY24 run rates, with a slight improvement in recent weeks, and we are on target to achieve our FY25 and FY26 pre-tax profit guidance.

·     Sales prices are resilient and build costs are stable with negligible inflation albeit we are alert to wider macroeconomic risk.

·      Operating efficiency maintained with operating costs in line with last year.  

·    Net cash is £474 million, following shareholder returns of £242 million in the period, with £1.2 billion of borrowing capacity providing total liquidity of £1.7 billion.

·      Net asset value per share has increased to £34.47 and reflects historic cost.

·      Unrivalled land holdings with £6.7 billion of future gross margin – with strong planning momentum during the period.

CAPITAL ALLOCATION

·    New 10-year strategy, Berkeley 2035, announced to provide resilience and flexibility for Berkeley to allocate capital between land investment, growing its BTR platform and shareholder returns, as the operating environment evolves.

·    On track to make the final £283 million annual shareholder return under the current Shareholder Returns programme by 30 September 2025, including a 33 pence per share interim dividend to the paid in March 2025.

DELIVERING FOR ALL STAKEHOLDERS

·      2,103 homes delivered, plus 177 in joint ventures (2023: 1,785, plus 204) – 92% of which are on brownfield land.

·   Over £300 million of subsidies provided to deliver affordable housing and committed to wider community and infrastructure benefits in the period.

·   Berkeley is delivering some 10% of London’s new private and affordable homes – supporting an average of approximately 26,000 UK jobs per annum directly and indirectly through its supply chain over the last five years.

·      Industry leading Net Promoter Score (+78.2) and customer satisfaction ratings maintained.

·    A recognised leader in the industry for nature, committing to biodiversity net gain seven years before it became mandatory in February 2024.  In total, 57 developments are now committed which together will create more than 600 acres of new or measurably improved natural habitats.

·    Awarded a place on CDP’s “A List” for climate transparency and performance and Supplier Engagement Award.  More than 50 embodied carbon studies completed as we progress our Climate Action programme.

·   Gold membership of The 5% Club, with 9% of direct employees in ‘earn and learn’ positions as graduates, apprentices or sponsored students within the period. 

Investor and Analyst Presentation:

A pre-recorded presentation by the Directors of Berkeley Group on the results will be made available on the Company’s website at 11:00 today – https://www.berkeleygroup.co.uk/investors/results-and-announcements.