Final Results for the year ended 30 June 2014

10/09/2014 Archive

Barratt Developments PLC

Annual Results Announcement for the year ended 30 June 2014 A year of outstanding progress

10 September 2014

£m unless otherwise stated	Year ended 30 June 2014	Year ended 30 June 2013¹	Change
Total completions² (plots)	14,838	13,663	8.6%
Revenue	3,157.0	2,606.2	21.1%
Profit from operations³	409.8	252.7	62.2%
Operating margin⁴ (%)	13.0	9.7	330bps
Profit before tax⁵	390.6	192.0	103.4%
Basic earnings per share (pence)	31.2	7.7	305.2%
Total ordinary dividend per share (pence)	10.3	2.5	312.0%
Return on capital employed⁶ (%)	19.5	11.5	800bps

Highlights

Significant increase in housing completions with the Group⁷ responding to sustained strength in consumer demand across all areas of the country
Private average selling price increased by 12.9% to £241,600 (2013: £213,900) driven by further changes in mix and some house price inflation
Profit before tax more than doubled to £390.6m (2013: £192.0m before exceptional items)
Strong cash generation resulting in net cash at 30 June 2014 of £73.1m (2013: £25.9m net debt), the first net cash position for eight years
Continue to secure excellent land opportunities approving 21,478 plots for purchase and increased Group’s controlled land supply to 4.7 years

Return on capital employed target and medium term Capital Return Plan

ROCE up 800 basis points to 19.5% (2013: 11.5%) with new ROCE target set of at least 25% for FY17
Ordinary dividend set at three times cover with final dividend proposed of 7.1 pence per share, giving a total ordinary dividend of 10.3 pence per share
Special cash payment programme expected to return an incremental £400m to shareholders in the three years to FY17, with the first payment of £100m in November 2015

Outlook

A return to more normal seasonal trends following exceptionally high levels of activity post the launch of Help to Buy in April 2013
Private forward sales as at 7 September 2014 at £1,145.6m (2013: £880.4m) up 30.1% on the same point last year

Commenting on the results Mark Clare, Group Chief Executive of Barratt Developments PLC said:

“This significant improvement in performance has been driven by the £3.8bn we have committed to land investment since mid-2009, together with the recovering market and improvements in design, quality and efficiency. Our disciplined approach will support a further significant increase in performance this year and we are now targeting a return on capital of at least 25% by FY17. Our special cash payment programme for the next three years combined with our ordinary dividend, is expected to return around £950m of cash to our shareholders.”

Comparatives restated where applicable following the adoption of IAS 19 (Revised) 'Employee Benefits' in the year
Includes joint venture (‘JV’) completions in which the Group has an interest
Year ended 30 June 2013 profit from operations before exceptional items £252.7m, profit from operations £249.9m
Operating margin is profit from operations divided by revenue
Year ended 30 June 2013 profit before tax before exceptional items £192.0m, profit before tax £104.5m
Return on capital employed (‘ROCE’) is calculated as earnings before interest, tax, operating charges relating to the defined benefit pension scheme and operating exceptional items, divided by average net assets adjusted for goodwill and intangibles, tax, cash, loans and borrowings, retirement benefit obligations and derivative financial instruments
In this Annual Results Announcement, Barratt Developments PLC is defined as the ‘Company’ and together with its subsidiary undertakings is defined as the ‘Group’

Certain statements in this document may be forward looking statements. By their nature, forward looking statements involve a number of risks, uncertainties or assumptions that could cause actual results to differ materially from those expressed or implied by those statements. Forward looking statements regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. Accordingly undue reliance should not be placed on forward looking statements.

There will be an analyst and investor meeting at 9.00am today at Deutsche Bank, 1 Great Winchester Street, London, EC2N 2DB. The presentation will be broadcast live on the Barratt Developments corporate website, www.barrattdevelopments.co.uk, from 9.00am today. A playback facility will be available shortly after the presentation has finished.

A listen only function will also be available. Dial in: 0800 953 1287

International dial in: +44 (0) 1452 560 297

Access code: 84241416#

Further copies of this announcement can be obtained from the Company Secretary’s office at: Barratt Developments PLC, Barratt House, Cartwright Way, Forest Business Park, Bardon Hill, Coalville, Leicestershire, LE67 1UF.

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

Chairman's Statement

A year of outstanding progress

This has been a year of outstanding progress for the Group. In addition to stronger market conditions, we have benefitted from the underlying improvements we have embedded in the business.

As a result, our profitability⁸ has more than doubled, we have hit our return on capital target two years early and have improved our margins significantly.

An improving market

The UK housing market has continued to recover with strength now being seen in all regions. Mortgage lending has improved and the Government’s Help to Buy scheme has had a positive effect in increasing the construction and sale of new housing.

We were particularly pleased to see that in March, the Help to Buy (Equity Loan) scheme due to finish in 2016 was extended to 2020. This provides the industry with more continuity, an important consideration given the investment timescales involved in buying and developing land.

The varied rates of recovery across different regions of the UK have been challenging for policy makers. In this context, the measures introduced by the Bank of England in June to limit high loan to value lending appear well targeted.

We welcome a policy environment that provides greater stability in the longer term, which enables us to drive sustainable improvements in our returns.

An improved operating performance

During the year we have continued to benefit from the substantial improvements we have made to our operating performance.

Acquiring land suitable for development on the right terms is the fundamental building block of our business. Whilst the land market has become more competitive, in particular in the South East, the quality and disciplined approach of our land teams means that high margin land in attractive locations continues to be secured. The new sites already in production are exceeding our target returns.

There is no doubt that increasing volumes across the industry have put pressures on our supply chain. I am pleased that the long term relationships with our suppliers have ensured that we have been able to work through these issues with little disruption to our business.

At the same time, operating costs remain under control with a continued focus on process improvement, driven by the cost advantages of our centralised procurement systems, standardised build processes and IT systems.

Building quality homes

During the year we have increased our focus on design and the quality of the homes that we build. The Board believes that this customer-first ethos provides a competitive edge in terms of customer preference and pricing, whilst driving out costs resulting from poor build quality.

For the tenth successive year the National House-Building Council (‘NHBC’) has awarded our site managers more Pride in the Job Awards than any other housebuilder. We are the only major housebuilder to achieve the Home Builders Federation (‘HBF’) Five Star recommendation from customers for five consecutive years.

We are committed to Building for Life 12, the new Government endorsed design standard.

Our employees

The recent progress of the Group could not have been achieved without the talent and hard work of our employees. On behalf of the Board, I wish to thank our employees for their efforts that underpin the quality, the safety and the success of our operations. We are committed to continuing the investment in the development of our people, which is at the heart of creating a great place to work.

Profit before tax £390.6m (2013: £192.0m before exceptional items)

Improving returns and the Capital Return Plan

ROCE is an important performance metric for our business and our initial target of 18% ROCE for FY16 has been achieved two years early. The Board has therefore set a new target of at least 25% for FY17 and, following recent consultation with shareholders, ROCE performance has now been linked to the Executive Long Term Performance Plan.

Looking at the medium term plan for the Group, with a backdrop of controlled volume growth, we expect to substantially increase cash generation. Whilst we will continue our disciplined approach to investing in high quality land opportunities and targeting minimal year end net debt, we believe it is now appropriate to supplement our ordinary dividend payments. The Board is therefore pleased to announce a medium term Capital Return Plan that will combine the ordinary dividend, which will continue to be based on the dividend being three times covered by earnings, together with a special cash payment programme.

Under the special cash payment programme we anticipate proposing a special cash payment with our FY15 results of

£100m payable in November 2015, followed by a special cash payment of £125m proposed with our FY16 results payable in November 2016, and a special cash payment of £175m proposed with our FY17 results payable in November 2017. We will consider the best mechanism to effect the special cash payment programme such as using a B-class share scheme or a special dividend.

We therefore expect to return around £950m of cash through ordinary^B dividend and special cash payments to our shareholders in the next three years, which equates to a total of 96 pence per share based upon 30 June 2014 share capital.

As the first payment in the Capital Return Plan, the Board proposes a final ordinary dividend of 7.1 pence per share payable in November 2014, which combined with the interim dividend of 3.2 pence per share, gives a total dividend for FY14 of 10.3 pence per share. The dividend is covered three times by earnings, achieving our target for FY16 two years ahead of schedule.

Capital Return Plan – Proposed payments	Ordinary dividend £m	Special cash payment £m	Total £m	Total pence per share
November 2014	70^A	-	70	7.1^A
Year to November 2015	138B,C	100	238	24.2^C
Year to November 2016	164B,C	125	289	29.3^C
Year to November 2017	178B,C	175	353	35.8^C
Total^D	550	400	950	96.4^C

^A Proposed final dividend of 7.1p per share as announced on 10 September 2014.

^B Based on Reuters consensus estimates of earnings per share of 42.3p for FY15, 50.2p for FY16 and 54.2p for FY17 as at 8 September 2014 and applying a three times dividend cover in line with previously announced policy.

^C Based upon 30 June 2014 share capital of 984,983,475 shares.

^D All final dividends and the special cash payment programme are subject to shareholder approval. The first special cash payment will be subject to shareholder approval at the Annual General Meeting in November 2015 and subsequent special cash payments will be subject to shareholder approval.

The Board

The Board has set out a clear strategy for the future development of the Group and this is being successfully implemented by the Executive team. After six years as Chairman I will step down from the Board at the Company’s AGM.

I am grateful for the contribution of my Board colleagues in developing the Group’s strategy through market conditions that were challenging and are now improving. They have consistently supplied the right degree of support and challenge.

For the next stage of the Group’s development, the Board has recruited an outstanding new Chairman, John Allan CBE. He joined the Board on 1 August 2014 and I wish him and the Board well for the future.

Bob Lawson

Chairman

9 September 2014

Group Chief Executive’s Review

We have traded very well throughout the year on the back of stronger market conditions in all parts of the country, our substantial land investments over the last five years and continuing improvements in our underlying performance.

We have achieved considerable progress in building profitability and driving ROCE. Profitability has more than doubled to £390.6m (2013: £192.0m before exceptional items) and we achieved a ROCE of 19.5%, exceeding our target of 18% two years ahead of schedule. A continued focus on both profitability and ROCE will maximise sustainable shareholder value.

The stronger market conditions have resulted in a significant increase in activity levels and we have been particularly focused on maintaining discipline and control through every aspect of the business. We have strengthened our Balance Sheet, ending the year with a net cash balance of £73.1m (2013: £25.9m net debt) – the first time we have been in a year end net cash position for eight years.

During the year we have also continued to identify and implement operational improvements that will further enhance our future performance.

Our performance Building profitability

The very substantial increase in profitability has been driven by our land investment strategy, the efficiency of our business model and the prices we have achieved for the outstanding homes we have built.

Land investment

Since re-entering the land market in 2009, we have approved the purchase of £3.8bn of land. All land approvals must meet our minimum hurdle rates of a 20% gross margin and 25% ROCE⁹ without assuming price inflation. During the year, returns on newly acquired land exceeded these minimum hurdle rates.

The transformation of our land bank from older low margin land to newly acquired high margin land is progressing well. In 2014, 65% (2013: 49%) of completions were from newly acquired high margin land and this will increase in FY15, underpinning further improvements in financial performance. We expect 95% of all completions to be from new land for FY17 and that the Group gross margin will be a minimum of 20%.

Driving value

During the year, private average selling price increased by 12.9% from £213,900 to £241,600. This reflects our strategy of changing the mix of homes we sell and ensuring we maximise value coupled with house price inflation of around 5% for the year.

We are continuing to focus on carefully matching the type and style of homes we build to local demand conditions. The proportion of larger homes in attractive locations has increased and we are building fewer apartments. Outside of London, the proportion of our completions that were apartments fell from 21.5% to 17.4% during the year.

Stronger market conditions have led to an increase in underlying house prices. During the year we saw this reflected in the higher prices being achieved for our homes, particularly in London, the South East and the East of England with smaller increases elsewhere in the country.

A key component of our marketing proposition remains quality and good design. Higher quality homes on attractive, well designed developments command a price premium compared to the second-hand market in many areas.

Efficiency and costs

Higher production volumes across the industry placed a number of well publicised pressures on the supply chain. Increased costs and shortages of materials were experienced across the industry, however we experienced limited disruption to our build programme.

Our operating model of building a high proportion of standardised product, strong supplier relationships and centralised procurement contracts has served us well. A shortage of skilled labour did increase costs, with bricklaying the most affected area. However, these costs form a low proportion of our total cost base. Overall we have seen a low single digit increase in our build costs. Over the next twelve months we expect low single digit build cost inflation.

⁹ Site ROCE on land acquisition is calculated as site operating profit (site trading profit less overheads less allocated administrative overheads) divided by average investment in site land, work in progress and equity share

Driving returns on capital

During the year we continued our focus on increasing return on capital achieving a ROCE of 19.5%, up from 11.5% in FY13. As a result, we exceeded our target of 18% two years ahead of schedule and we have now revised our target to a ROCE of at least 25% for FY17.

New land coming into production is a key driver of return on capital for the business and we have a 25% hurdle rate for all the new land we acquire. On completed sites to date that were acquired since 2009, we have generated a 39.2% ROCE.

A stronger Balance Sheet

Over the last three years we have moved from net debt of £322.6m as at 30 June 2011 to net cash of £73.1m as at 30 June 2014. This reflects our stronger trading performance combined with control of working capital.

Our priorities

We have developed four priorities to deliver leading financial performance and returns for our shareholders; customer first, great places, building excellence and investing in our people. For each area we have a number of targets in place that will drive the performance of the business. We believe that by innovating in these areas and consistently applying best practice, we will maximise sustainable returns for our shareholders.

Customer first

A fundamental part of our strategy is to increase customer preference by building great homes and providing an outstanding experience for our customers. We have again achieved a customer recommendation score of over 90%, achieving a HBF 5 Star customer rating for the fifth consecutive year. We are the only major housebuilder to achieve this.

We ensure that the value of our David Wilson and Barratt brands are maximised through carefully defined market positioning and by offering the right house types to the right market segments. During the year we have refreshed the Barratt Homes and Barratt London brands and this is proving popular with customers and our employees.

80% of customer leads are now generated through our websites and 94% of leads are actioned within five working hours. The cost-effectiveness of our lead generation is also reinforced by a national call centre that is now handling over 70,000 enquiries per year.

We continue to develop a series of optional extras for our customers to ensure that we meet their requirements. Last year 57% of our customers chose optional extras with an average spend of £3,900.

In the longer term we are continuing to research the lifestyle choices of our customers to ensure we understand emerging consumer trends.

Great places

Building great places requires the ability to secure outstanding sites at the right price and ensuring that through thoughtful design they are transformed into attractive places to live.

We are positioning ourselves as the local developer of choice based on the quality of our business and the ability to secure the right planning consents. As a result, we have been able to develop innovative partnerships with a number of land owners. During the year we approved £1,198.1m (2013: £1,047.3m) of land investment amounting to 21,478 (2013: 18,536) units on 156 (2013: 145) sites. As at 30 June 2014 the Group had 4.7 years (excluding JV’s) of land supply, slightly exceeding the Group target of 4.5 years. This reflects our success at both acquiring operational land in the market and converting land from our strategic land.

We have made good progress on building our strategic land portfolio, which now comprises c. 69,200 plots (2013: c. 59,800 plots). In the year 10.0% (2013: 7.0%) of total completions were on strategically sourced land, and as our rate of strategic land conversion increases, we expect strategic land to deliver around 20% of completions in FY17.

18.2% (2013: 24.1%) of the land acquisitions approved in the year originated from the public sector. This is an area of competitive advantage for the Group as the procurement requirements are complex and require high design, environmental consideration and delivery capability.

In terms of design, we are now using Building for Life 12 on all new sites to ensure that we create great places to live. We are the only major housebuilder to commit to the full implementation of this standard.

Building excellence

The quality of our building processes and the homes we sell to our customers is of critical importance. For the tenth year in a row we have won more NHBC Pride in the Job Awards for the excellence of our site managers than any other housebuilder.

We believe that a ‘right first time’ approach is the most cost-effective option and we will continue to focus on the excellence of our build processes.

Where there are cost advantages and quality can be guaranteed, we are already adopting modern methods of construction (‘MMC’) in certain elements of home construction such as roofing systems. In the short term we will develop this approach further and in the longer term we believe there will be opportunities to develop a ‘whole house’ MMC approach across the business.

Investing in our people

Attracting and retaining the best people by investing in their development is fundamental to the success of our business, particularly as the industry continues to recover and skill shortages remain.

During the year over 750 of our sales advisers attended our internal sales academy, which awards a nationally recognised qualification, to ensure that our sales and service capability on site is enhanced. The first cohort of 36 assistant site managers started our foundation degree course at Sheffield Hallam University and we now have 64 students on the course in total.

In addition, we announced a new target to recruit 1,100 apprentices, interns and graduates over a three year period. During the year our graduate scheme was voted the best in the UK in the Job Crowd’s ‘Best Companies for Graduates to work for’.

Current trading

Current market conditions remain strong. Following the launch of Help to Buy in April 2013, sales rates over the summer period last year were exceptionally strong. This year we have seen a return to more normal seasonal trends. We started the new financial year with a strong forward order position and in the last ten weeks net private reservations per active site per week have averaged 0.62 (FY14 equivalent period: 0.66) in-line with our targets.

Pricing remains strong as we focus on achieving the best value for the outstanding homes we build and continue to see the benefits of reduced sales incentives coupled with improvements in selling prices arising from both underlying price inflation and changes in mix.

As at 7 September 2014 total forward sales (excluding JV’s) for the Group were up 22.3% at £1,505.9m (8 September 2013: £1,231.3m) equating to 7,682 plots (8 September 2013: 6,676 plots). Private forward sales (excluding JV’s) were £1,145.6m (8 September 2013: £880.4m), up 30.1%. JV total forward sales at 7 September 2014 were £249.8m (8 September 2013: £164.3m). JV private forward sales were £148.9m (8 September 2013: £156.3m).

Outlook

This has been a very strong performance and the outlook for the Group is positive.

We are continuing to see the benefits of the operational changes we have made in terms of efficiency and the focus we have placed on improving the design and quality of the homes we build. These disciplines coupled with the strength of the market and the quality of the land we are acquiring will support a further significant increase in performance in FY15 and progress towards the new ROCE target we have set of at least 25% by FY17.

With our strong projected cash generation, we are pleased to announce that our ordinary dividend programme will be supplemented by a special cash payment programme for the three years to FY17. The first special cash payment is

£100m in November 2015, with £125m in November 2016 and £175m in November 2017. In combination, we expect to return around £950m of cash through ordinary (based on consensus earnings) and special cash payments to our shareholders in the next three years.

Mark Clare

Group Chief Executive 9 September 2014

Operating and Financial Review

Delivering our priorities

We have traded well throughout the financial year, delivering a very strong performance and have seen significant improvements across all financial metrics.

Group highlights £m unless otherwise stated	Year ended 30 June 2014	Year ended 30 June 2013¹⁰	Increase
Total completions¹¹ (plots)	14,838	13,663	8.6%
Average selling price (£)	219,900	194,800	12.9%
Revenue	3,157.0	2,606.2	21.1%
Profit from operations before exceptional items	409.8	252.7	62.2%
Profit from operations	409.8	249.9	64.0%
Operating margin¹² (%)	13.0	9.7	330bps
Profit before tax before exceptional items	390.6	192.0	103.4%
Profit before tax	390.6	104.5	273.8%
Basic earnings per share (pence)	31.2	7.7	305.2%
Return on capital employed (%)	19.5	11.5	800bps
Net cash/(debt)	73.1	(25.9)	99.0
Net assets	3,354.0	3,073.2	9.1%
Net tangible assets	2,461.8	2,181.0	12.9%

Our performance

We aim to deliver sustainable shareholder value through the implementation of our priorities and the delivery of our key financial objectives of building profitability and driving ROCE. We have made significant progress in both of these objectives during the year, achieving a 330 basis points increase in operating margin, a 103.4% increase in profitability and a 800 basis points improvement in ROCE to 19.5%, exceeding our target for FY16 of 18% two years ahead of schedule.

Our businesses

£m unless otherwise stated	Housebuild	Commercial	Total
Total completions¹¹ (plots)	14,838	-	14,838
Revenue	3,142.6	14.4	3,157.0
Profit/(loss) from operations before exceptional items	410.8	(1.0)	409.8
Operating margin (%)	13.1	(6.9)	13.0
Share of post-tax profit/(loss) from joint ventures and associates	40.7	(0.2)	40.5

Housebuilding

We have experienced a positive trading environment with strong demand for new homes across the country and significant improvements in operating metrics across all six of our operating regions.

Sales rates were up significantly in the year at 0.69 (2013: 0.58) net private reservations per active site per week. This increase reflects a full year of the Government’s Help to Buy (Equity Loan) scheme in England, as well as the combination of our carefully selected locations, improved house design and development layout, and the investment we have made in our sales and marketing functions.

During the year we operated from an average of 364 (2013: 381) active sites (excluding JV’s). We opened 132 sites (2013: 139 sites) with the level of interest in our site openings showing the strong demand for our homes across the country.

Completions for the full year including JV’s, were up 8.6% at 14,838 (2013: 13,663). Private completions were up by 8.7% to 11,936 (2013: 10,978), affordable completions were 2,255 (2013: 2,268), and JV completions in which the Group had an interest were 647 (2013: 417). This represents our highest level of completions in six years. We continue to increase the proportion of our completions that are on more recently acquired higher margin land; these accounted for 65% (2013: 49%) of the total in the year. The growth in completion volumes has also enabled us to gain efficiencies from our 27 division operating structure.

The Consolidated Income Statement has been restated for the comparative year following the adoption of IAS 19 (Revised) 'Employee Benefits' in the year
Includes joint venture (‘JV’) completions in which the Group has an interest
Operating margin is profit from operations before operating exceptional costs divided by Group revenue

Help to Buy (Equity Loan) has provided a very attractive opportunity for our customers, especially for first time buyers. During the year 31.4% (2013: 4.0%) of our total completions (excluding JV’s) used the scheme.

We have seen a reduction in the use of our own sales schemes, with just 0.3% (2013: 10.0%) of our completions using equity share schemes other than Help to Buy (Equity Loan) and 8.3% (2013: 15.7%) using part-exchange. This has led to a reduction in our incentive costs.

Our total average selling price (‘ASP’) increased by 12.9% to £219,900 (2013: £194,800) in the financial year. The majority of this increase continues to be driven by changes in mix. We have also seen underlying sales prices strengthen throughout the year across all regions. Private average selling price increased by 12.9% to £241,600 (2013: £213,900) driven by the same factors, and affordable average selling price increased by 2.8% to £105,300 (2013: £102,400).

During the year we saw some upward price pressure on materials, in particular for bricks and timber. A shortage of skilled labour did increase costs, with bricklaying the most affected area. However, these labour costs are a low proportion of our total cost base. Overall we have seen a low single digit increase in our build costs. Over the next twelve months we expect low single digit build cost inflation.

Housebuilding operating profit increased by 62.6% to £410.8m (2013: £252.7m before exceptional items, £249.9m after exceptional items).

We have a total of 12 (2013: 10) housebuilding JV sites of which 6 (2013: 7) are in London. The total future gross development value of our JV’s as at 30 June 2014 was £3.0bn, the majority of which is expected to be delivered over the next six years. We have continued to make good progress on our housebuilding JV’s and during the year fully completed the development of Altitude, Aldgate which is a Barratt London JV with L&Q. Housebuilding profit from JV’s and associates for the year was £40.7m (2013: £7.7m).

Commercial developments

Since the downturn, outside London and the South East, the commercial occupier market has been able to satisfy demand through the availability of lower cost second-hand space. E-commerce logistics requirements present opportunities for larger distribution facilities. The retail occupier market remains challenging, although leisure occupiers have continued to perform well throughout the downturn. Mixed-use leisure and residential schemes are a focus for Wilson Bowden Developments going forward.

Commercial development revenue was £14.4m (2013: £13.6m) with an operating loss of £1.0m (2013: break- even). We completed land sales totalling 31 acres, stock property disposals totalling 152,000 sq. ft. and we also agreed a forward-funded deal for a 118-bed hotel in Derby city centre, with works due to start on site shortly. In our town centre projects, build activity has commenced on our 200,000 sq. ft. Hinckley scheme, which is substantially forward-funded and pre-let. Barratt London and Wilson Bowden Developments have been appointed Preferred Developer on a major mixed-use regeneration project in the London Borough of Hounslow.

Results

The improved performance in our housebuilding business resulted in an operating profit of £409.8m (2013: £252.7m before exceptional items, £249.9m after exceptional items) at an operating margin of 13.0% (2013: 9.7%).

The finance charge for the year was £59.7m (2013: £68.3m before exceptional items, £147.6m after exceptional items), consisting of a cash finance charge of £26.7m (2013: £47.5m) and £33.0m (2013: £20.8m) of non-cash charges.

Profit before tax for the year was £390.6m (2013: £192.0m before exceptional items, £104.5m after exceptional items). The increase of £198.6m excluding exceptional items was driven by increased completion volumes, a greater proportion of completions from more recently acquired land, some underlying house price inflation and continued efficiency gains.

The tax charge for the year was £85.2m (2013: £29.8m). The rate of tax assessed for the year is slightly below the standard effective rate of corporation tax of 22.5% (2013: 23.75%), due to a number of items, the largest of which was the use of previously unrecognised losses.

Profit after tax for the year was £305.4m (2013: £74.7m), resulting in basic earnings per share of 31.2p (2013: 7.7p).

Return on capital employed

We have been focused on driving a substantially improved ROCE and for the year delivered a ROCE of 19.5% (2013: 11.5%). This exceeds our target of 18% ROCE for FY16, two years ahead of schedule. We have now set a target of at least 25% ROCE for FY17.

Capital Return Plan

The Board has announced its Capital Return Plan with the intention of supplementing the Company’s ordinary dividend payments with a special cash payment programme.

The Board proposes to pay a final ordinary dividend of 7.1 pence (2013: 2.5 pence) per share for the financial year ended 30 June 2014, which subject to shareholder approval, will be paid on 20 November 2014 to shareholders on the register at the close of business on 31 October 2014. Together with the interim ordinary dividend of 3.2 pence per share, which was paid in the year, this gives a total ordinary dividend for the year of 10.3 pence per share. The ordinary dividend was covered around three times by basic earnings per share, achieving our target of three times ordinary dividend cover for FY16 two years ahead of schedule.

Under the special cash payment programme the Board anticipates proposing a special cash payment with our FY15 results of £100m payable in November 2015, followed by a special cash payment of £125m proposed with our FY16 results payable in November 2016, and a special cash payment of £175m proposed with our FY17 results payable in November 2017. We will consider the best mechanism to effect the special cash payment programme such as using a B-class share scheme or a special dividend.

In combination, the Capital Return Plan is expected to return around £950m of cash through ordinary (based on consensus earnings) and special cash payments to the Company’s shareholders in the next three years.

Net cash

We generated £242.3m (2013: £165.8m) of cash from our operations during the year, which resulted in net cash of

£73.1m at 30 June 2014 (2013: £25.9m net debt).

As we increase site numbers, make scheduled payments on agreed new land and build work in progress to deliver spring 2015 completions, we expect net debt at 31 December 2014 to increase in line with normal seasonal trends (2013: £155.0m). It remains our objective to maintain an appropriate capital structure and have minimal year end net debt.

Our strategy in action

Our vision is to lead the future of housebuilding by putting customers at the heart of everything we do. We will deliver sustainable returns for our shareholders by focusing on our priorities and our principles.

Our Priorities

We have four priorities to strengthen our business: customer first, great places, building excellence and investing in our people.

Customer first Key highlights

Only major housebuilder to achieve HBF 5 Star status for fifth consecutive year
Continually investing in improving product quality and customer service including site-based technology, our website and training
Undertaken recent research into customer needs and are using this throughout our business including in our house designs
Working with lenders to provide our customers with access to a wide range of mortgage products

Key performance indicator

HBF 5 Star Housebuilder

Our priority is to build great homes and provide a customer experience that exceeds expectations. We seek to anticipate our customers’ evolving needs by continuously improving the homes and places we build.

Customer satisfaction

We are proud to have been awarded the Home Builders Federation (‘HBF’) 5 Star status five years in a row for excellence in customer recommendation as measured by the HBF/NHBC customer survey. We continually invest in both improving our product quality and customer service. In order to give our customers peace of mind we also offer a five-year customer warranty that covers the majority of fixtures and fittings over and above the ten-year NHBC structural warranty.

Return to all news