07/09/2022 Archive
Barratt Developments PLC
Annual Results Announcement for the year ended 30 June 2022
Excellent operational and financial performance; completions recovered to pre-pandemic levels
Commenting on the results David Thomas, Chief Executive of Barratt Developments PLC said:
“This has been a year of fantastic progress, with completions recovering to pre-pandemic levels and excellent productivity across our sites. Customers are at the heart of everything we do and we were awarded more NHBC Pride in the Job Awards than any other housebuilder for the 18th year in a row – testament to the high quality we consistently achieve across our sites.
Our financial strength and operational excellence position us well to navigate the macro-economic uncertainties ahead. I’d like to thank our employees, sub-contractors and supply chain partners for helping us to continue to deliver the industry-leading, sustainable homes and developments our customers want and the UK needs”.
|
£m unless otherwise stated1,2,3 |
Year ended 30 June 2022 |
Year ended 30 June 2021 |
Change |
|
Total completions (homes)4 |
17,908 |
17,243 |
3.9% |
|
Revenue |
5,267.9 |
4,811.7 |
9.5% |
|
Alternative performance measures: |
|||
|
Adjusted gross margin (%) |
24.8 |
23.2 |
160bps |
|
Adjusted profit from operations |
1,054.8 |
919.0 |
14.8% |
|
Adjusted operating margin (%) |
20.0 |
19.1 |
90bps |
|
Adjusted profit before tax |
1,054.8 |
919.7 |
14.7% |
|
Adjusted basic earnings per share (pence) |
83.0 |
73.5 |
12.9% |
|
ROCE (%)5 |
30.0 |
27.8 |
220bps |
|
Statutory basis: |
|||
|
Gross margin (%) |
17.1 |
21.0 |
(390bps) |
|
Profit from operations |
646.6 |
811.1 |
(20.3%) |
|
Operating margin (%) |
12.3 |
16.9 |
(460bps) |
|
Profit before tax |
642.3 |
812.2 |
(20.9%) |
|
Basic earnings per share (pence) |
50.6 |
64.9 |
(22.0%) |
|
Total ordinary dividend per share (pence) |
36.9 |
29.4 |
25.5% |
|
Net cash |
1,138.6 |
1,317.4 |
(178.8) |
Highlights
- Excellent operational performance throughout FY22 with total home completions4 increasing by 3.9% to 17,908 (FY21: 17,243) homes and returning to pre-pandemic levels. Based on current market conditions, we are targeting total home completion growth of 3% to 5% in FY23, to between 18,400 and 18,800 homes.
- Adjusted gross margin of 24.8% (FY21: 23.2%) reflecting strong customer demand, house price inflation ahead of build cost inflation and improved site based productivity. The reported gross margin, after adjusted item costs of £408.2m (FY21: £104.7m), reduced to 17.1% (FY21: 21.0%).
- Ongoing industry leadership in quality and customer service - 18th consecutive year of achieving more NHBC Pride in the Job Awards than any other housebuilder and the 13th consecutive year of receiving the maximum HBF 5 Star customer satisfaction rating.
- Strong cash generation with net cash at 30 June 2022 of £1,138.6m (30 June 2021: £1,317.4m) retaining balance sheet strength, investment in capacity for planned growth, as well as enhanced returns to shareholders.
- Significant progress as the leading national sustainable housebuilder with carbon intensity6 reduced by 14.0% to 1.53 (FY21: 1.78) tonnes and waste intensity6 reducing by 15.6% to 4.97 (FY21: 5.89) tonnes. Additional investments made in sustainability R&D during the year, further extending our industry leadership.
- Final ordinary dividend per share of 25.7p (FY21: 21.9p) together with the interim dividend of 11.2p (FY21: 7.5p) resulting in a total ordinary dividend for the financial year of 36.9p (FY21: 29.4p), reflecting our policy of reducing dividend cover.
- Return of £200m surplus capital through the implementation of a share buyback programme which will start shortly, with an initial tranche of £50m to be completed by the end of the calendar year and the total programme completed no later than 30 June 2023.
Current trading
- Market fundamentals remain strong, reflecting the continued imbalance between housing supply and demand, as well as good mortgage availability.
- We entered FY23 with a strong forward sales position and at 28 August 2022 we are 55% forward sold with respect to private wholly owned home completions for FY237 (29 August 2021 for FY22: 59%8) with 59% of the private order book exchanged (29 August 2021: 56% of the private order book exchanged). As at 28 August 2022 total forward sales were at 14,058 homes (29 August 2021: 15,402 homes) and a value of £3,808.9m (29 August 2021: £3,843.4m).4
- Net private reservations per active outlet per average week for the period to 28 August 2022 were lower than last year at 0.60 (FY22: 0.82) and below the 0.70 for the equivalent period in FY20, prior to the pandemic. In part, this reflects limited availability of homes for early occupation, given our strong forward order book, as well as heightened macro-economic uncertainty.
- As the land market has become increasingly competitive, our land approvals in the new financial year to date are lower than in FY22, reflecting our strong land bank position and disciplined application of our minimum hurdle rates of 23% gross margin and 25% ROCE.
- Construction activity is on track to deliver planned output growth in FY23 with 366 equivalent homes per average week built to date in the new financial year (FY22: 336 homes).
- Refer to Glossary for definition of key financial metrics.
- Unless otherwise stated, all numbers quoted exclude JVs.
- In addition to the Group using a variety of statutory performance measures, it also measures performance using alternative performance measures (APMs). Definitions of the APMs and reconciliations to the equivalent statutory measures are detailed in the Definitions of alternative performance measures and reconciliation to IFRS section. Net cash definition in Note 19.
- Including JVs in which the Group has an interest.
- The definition of ROCE has been updated in the year to exclude provisions in relation to legacy properties from capital employed. To ensure comparability, ROCE for FY21 has been restated under the revised definition.
- Both carbon and waste intensity are measured relative to 100m2 of legally completed build area in the respective financial year. Carbon intensity is based on scope 1 and 2 emissions.
- Our forward sold position with respect to FY23 private home completions is based on the mid-point of wholly owned completions guidance (17,850 homes) and assuming a 79%: 21% private: affordable home completion mix.
- Our forward sold position with respect to FY22 is based on actual wholly owned private home completions for the year.
This announcement contains inside information. The person responsible for arranging for the release of this announcement on behalf of Barratt Developments PLC is John Messenger (Group Investor Relations Director).
Certain statements in this announcement 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. Unless otherwise required by applicable law, regulation or accounting standards, the Group does not undertake to update or revise any forward looking statements, whether as a result of new information, future developments or otherwise.
There will be a results meeting at the Chartered Accountants' Hall, 1 Moorgate Place, London, EC2R 6EA at 8.30am today.
A conference call and webcast will accompany the meeting starting at 8.30am. Details for the conference call are included below. We would advise calling in to the conference call at 8.15am to ensure you are registered ahead of the start of the meeting.
- Standard International : +44 (0) 33 0551 0200
- UK Toll Free: 0808 109 0700
- New York: +1 212 999 6659
- USA Toll Free: 1 866 966 5335
The presentation will also be webcast live with the follow on Q&A. Please register and access the webcast using the following link:
https://broadcaster-audience.mediaplatform.com/#/event/62f3ad76368bde6d2842e8f5
An archived version of the webcast will also be available on our website later this afternoon and further copies of this announcement can be downloaded from the Barratt Developments PLC corporate website at www.barrattdevelopments.co.uk or by request 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 |
|
|
Mike Scott, Chief Financial Officer |
07881 327 748 |
|
John Messenger, Group Investor Relations Director |
07867 201 763 |
|
Media enquiries |
|
|
Tim Collins, Head of Corporate Communications |
020 7299 4874 |
|
Brunswick |
|
|
Jonathan Glass / Rosie Oddy |
020 7404 5959 |
Website links: Barratt Developments, Barratt Homes and David Wilson Homes
Barratt Developments PLC LEI: 2138006R85VEOF5YNK29
Chairman’s statement
In FY22, we have delivered excellent operational and financial results. Notwithstanding the challenges faced by the industry, most notably around building materials supplies, we have successfully grown both our home completions and our adjusted financial results to levels that exceeded our pre-pandemic full year performance in FY19.
We delivered 17,908 high quality, energy efficient new homes (including JVs) across Britain in FY22. This performance is 3.9% ahead of last year and also ahead of the 17,856 homes we completed pre-pandemic in FY19. We achieved adjusted profit before tax of
£1,054.8m, a new record for the Group.
I would like to express my thanks to all our employees, sub-contractors and suppliers for their continuing commitment and dedication to Barratt.
Our employees
Our employees are key to our success. The Board is always keen to understand and respond to their views, concerns and challenges. Communication and feedback is achieved through a variety of channels including the Workforce Forum, town hall meetings and employee surveys.
We are conscious of the challenges that many of our employees will be facing as a result of the cost of living crisis and we are doing all we can to support them. We accelerated our annual pay review by three months to 1 April 2022 and introduced a temporary cost of living supplement for the six months from 1 July 2022, to all employees below the senior management team. In January 2022, we extended our private medical insurance cover to all employees, a first for the sector. We also introduced an additional paid volunteering day and gave an extra special day’s holiday to all our employees. We will continue to monitor the economic backdrop and take any further steps that are deemed appropriate to ensure our employees are supported and we remain an employer of choice in the industry.
During the year, we appointed a new Head of Diversity and Inclusion to enhance our strategy and to deliver more rapid progress in the creation of a diverse and inclusive workplace.
Our culture
Our business has a well-embedded culture and belief in operating to the highest standards, taking pride in the work that we do and the way in which we operate, whilst remaining focused on the needs of our customers and other stakeholders.
The underlying strength of our culture has been shown through the way the Group has continued to drive growth in the past year whilst, at the same time, improving our build quality and customer service. The Board continues to seek ways of further developing and advancing the positive culture of our business and recognises that the Group’s culture is driven by its leadership.
Building sustainably
Our Building Sustainably framework is the blueprint for identifying and driving the positive changes we aspire to deliver. We are determined to maintain our position as the leading national sustainable housebuilder and recognise that sustainability presents clear 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 additional members of the Board, became operational in the year. This Committee is responsible for scrutinising the sustainability strategy, ensuring the Building Sustainably framework is embedded across the Group’s operations and that we are mitigating our sustainability risks and leveraging opportunities in the short, medium and longer term.
We are committed to continuously enhancing our reporting disclosures to meet changing stakeholder requirements and enable better analysis and comparability. I am pleased to report that we have undertaken a thorough review of Group wide climate related risks and opportunities and this year’s Annual Report will include full disclosure and compliance with the recommendations of the TCFD.
The 2021 CDP annual results provided valuable external benchmarking of our performance against key sustainability measures. Our leadership level in the “Climate” category was maintained in the year; we improved to the leadership level in the “Forests” category, and we also improved our score in the “Water” category. The CDP results reflect our leading position in the UK housebuilding sector and are a credit to the hard work and dedication of our teams throughout the Group.
Finally, 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.
Building safety
We have always been clear that we do not believe leaseholders should have to pay for necessary remediation to fix building safety issues caused by the design, construction or refurbishment of their buildings. On 6 April 2022 we announced that a proportionate and sensible approach to fire safety in historical buildings had been agreed with the UK Government and we have pledged to support leaseholders by funding remediation of buildings that we developed over the past 30 years. Accordingly, we have recognised an additional provision of £396m during the year. The Group is now also subject to the Residential Property Developer Tax (RPDT), which came into effect on 1 April 2022.
We have, however, urged Government to reconsider additional plans to expand the scope of the Building Safety Levy, which would create a further tax burden on the industry in addition to the existing RPDT and the six percentage point increase in corpora tion tax currently planned for 1 April 2023. In our view, the plan to expand the scope of the Building Safety Levy risks further punishing UK housebuilders who were not responsible for most of the historical buildings or building safety issues being addressed.
Board changes and succession planning
On 6 December 2021, we welcomed Mike Scott to the Board as an Executive Director and Chief Financial Officer. Mike has brought a wealth of financial experience from his previous roles.
Nina Bibby has completed nine years’ service and will not stand for re-election at the AGM in October. During the year, we commenced a search for a new Non-Executive Director. This process is ongoing and an announcement will be made once the appointment has been finalised.
We welcome the new targets introduced by the FCA to increase diversity on listed company boards and executive committees.
Considering the need to continuously refresh the Board and our succession plans, Jock Lennox, Senior Independent Director, is leading the process to find a suitable candidate to replace me as Chair by the 2023 AGM. Full details will be announced once the appointment of the new Chair has been concluded.
Stakeholder engagement
Stakeholder engagement is a key part of the Board’s agenda. Full details around engagement during the year will be available in the Group’s Annual Report.
Shareholder returns
The Board remains focused on the continued investment in the business to deliver disciplined growth in our completion volumes. The Group’s financial position and inherent cash generation has allowed the Board to review capital returns to shareholders durin g the year.
At the half year, we considered 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 revised the Group’s ordinary dividend policy, implementing a phased reduction in dividend cover of 0.25x per year from 2.5x in FY21 to 1.75x in FY24.
The Board declared an interim dividend for FY22 of 11.2 pence per share (interim FY21 dividend: 7.5 pence per share) and is pleased to recommend a final FY22 dividend of 25.7 pence per share (final FY21 dividend: 21.9 pence per share). Subject to shareholder approval, the final dividend will be paid on 4 November 2022 to shareholders on the register at the close of business on 30 September 2022.
Shareholders who wish to elect for the Dividend Reinvestment Plan should do so by 14 October 2022.
The total proposed ordinary dividend for FY22, including the interim dividend of 11.2 pence per share paid in May, is 36.9 pence per share (FY21: 29.4 pence per share) reflecting the revised ordinary dividend cover of 2.25x adjusted earnings per share.
Additional capital returns
At the half year results, the Board confirmed that, where we have capital beyond our requirements for investment in the growth of the business, it would be the Board’s intention to return this to shareholders. We committed to provide an update on the method and timing of any such return when appropriate to do so, considering opportunities for further investment and prevailing equity market conditions.
Following the excellent performance of the business throughout FY22 and our strong and resilient balance sheet, the Board has approved a return of surplus capital of £200m in FY23 through the implementation of a share buyback programme which will start shortly with an initial tranche of £50m to be completed by the end of the calendar year and the total programme completed no later than 30 June 2023.
AGM
Our 2022 AGM will be held at the offices of Linklaters LLP in London on Monday 17 October 2022 at 2pm. Similar to last year there will also be a live webcast and the ability to submit questions on the day as well as in advance of the meeting. Voting at the AGM will continue to be by way of a poll to accurately reflect the holdings of our shareholders. Full details can be found in the separate Notice of AGM.
Looking to the future
We have a diverse and experienced Board that is committed to promoting the success and long term sustainable value of the Group. We continue to review our Board composition to ensure it has the skills, knowledge and experience that are aligned with our strategy as we move forward.
Our business is also in a very good position with substantial net cash, a strong forward sales position, and an excellent land bank. Our employees are focused on delivering operational improvements across our business, with an unwavering commitment to deliver high-quality, energy-efficient and sustainable homes and developments across the country.
Macro-economic uncertainties remain, most notably around household energy costs and elevated inflationary pressures, changes in interest rates and the consequent impacts on employment, wage growth, house prices and consumer spending and confidence. As a business, we also face the prospect of higher taxation, the ongoing challenges around build cost inflation and the withdrawal of Help to Buy, which will close for new reservations at the end of October 2022.
The Board will continue to monitor and respond to changes in the market and the wider economy but believes that our operating performance, forward order book and strong balance sheet position us well, with the resilience and flexibility to react to changes in the operating environment for FY23 and beyond.
On behalf of the Board, I would like to thank you for the confidence you have shown in the Group during the past year and for your continued support.
John Allan Chairman
6 September 2022
Chief Executive’s statement
Introduction
We have made excellent progress in a year of strong housing demand. I would, once again, like to thank our employees, sub- contractors and supply chain partners for their hard work and commitment, which enabled us to successfully grow our site-based construction activity, notwithstanding the significant supply chain challenges, and deliver high-quality homes and great service to our customers. Our focus remains on achieving our medium-term targets, growing completion volumes and further developing our industry leadership around sustainability, to deliver long-term value for all our stakeholders.
Our purpose is to lead the future of housebuilding by putting customers at the heart of everything we do.
We remain committed to playing a key role in addressing the housing shortage and delivering the high-quality, energy-efficient and sustainable developments needed across England, Scotland and Wales. In doing so, we will continue to contribute to growing Britain’s economy as we navigate the economic challenges emerging post-pandemic, as well as the macro-economic impacts developing from the war in the Ukraine, most notably around energy costs, inflation and interest rates.
We continue to lead the industry on sustainability, with a particular focus on reducing our environmental impact and we have clear targets and plans for the years ahead.
Housing market fundamentals
Despite the continued macro-economic uncertainties, the housing market fundamentals remain attractive. Strong demand for high- quality, energy-efficient homes has been evident across the UK since it emerged from the initial national lockdown in summer 2020.
The strength of new housing demand, as well as years of under supply, underpin the Government’s ongoing target to build 300,000 new homes each year. We are well positioned to deliver the high-quality, energy-efficient and sustainable developments needed across the UK.
The land market remains attractive with a steady supply of opportunities. Despite some planning delays during the year, planning consents have remained ahead of home building activity at a national level. Planning delays are however becoming more commonplace, reflecting constrained planning resources, the delayed impacts of the pandemic and emerging land use issues, notably the challenges created by nutrient neutrality. We are currently engaging with the consultation around future planning reform. We would urge the Government to ensure any changes deliver a planning system that is responsive to housing need, predictable and timely, and well-resourced at local authority level, to ensure a flow of consented land, which will allow the housebuilding industry to deliver the homes the country needs.
For the industry to grow new homes supply, it is vital that homebuyers can continue to access affordable and competitive mortgage finance. Whilst the revised Help to Buy scheme draws to a close on 31 March 2023, a more competitive mortgage market backdrop has increased the availability of 95% loan-to-value (LTV) lending. In addition, “Deposit Unlock”– a scheme developed by the housebuilding industry, insurers and lenders – is also now available across our developments through a number of mainstream mortgage lenders, and offers a 95% LTV mortgage.
Committed to building more homes
Reflecting our position as Britain’s largest housebuilder, and our commitment to play a key role in addressing the housing shortage, this year we have put in place additional building blocks for future growth beyond our previous target of 20,000 annual home completions.
At the end of January 2022, we acquired Gladman Developments Limited. Gladman is the country’s largest land promoter, which brought into the Group an industry-leading team of experts in land sourcing, promotion and planning. Gladman, at the time of its acquisition, held a portfolio of 406 land promotion sites encompassing more than 98,000 plots, which will provide an additional route to both grow the Group’s strategic land bank and accelerate the strategic land bank conversion. Gladman will also benefit from the Group’s development resources and financial strength, allowing it to offer a broader range of land promotion options to its current and future land partners. Gladman will, we believe, enable us to deliver incremental completions of 500 homes per annum from FY25.
We have also opened two new divisions – Sheffield and Anglia, in our Northern and East regions respectively – to support our future growth. Both divisions are dual branded, offering both Barratt and David Wilson homes and, following a period of land bank assembly, offer attractive opportunities for additional growth over the coming years. Once operating at scale, over the next five to seven years, we believe these two divisions combined will have the capacity to deliver more than 1,000 home completions per year.
To support our site-based construction activity, address the longer-term challenge of labour availability in the industry and build the most energy-efficient and sustainable homes for the future, Oregon, our in-house timber frame manufacturing business, is building a new timber frame facility near Derby. This facility will add significant capacity to Oregon’s output from FY24.
Through these investments in enhanced land supply, geographic infill and additional off-site construction capability, we are creating the capacity to grow to 21,500 total completions (including JVs) per annum in the medium-term, ensuring we can deliver growth in the high-quality, energy-efficient and sustainable homes the country needs.
Performance overview
We have delivered an excellent performance throughout the year, making significant financial and operational progress, while improving both build quality and customer service.
Our performance is a testament to the disciplines embedded by our operating framework and the resulting strength in our business, as well as the commitment of our employees, sub-contractors and supply chain partners.
We increased our total home completions by 3.9% to 17,908 (FY21: 17,243) and delivered on our target to grow total home completions back above the pre-pandemic level of 17,856 achieved in FY19.
Wholly owned completions also grew by 3.9% to 17,162 homes (FY21: 16,517 homes). In addition, we delivered 746 homes through our JVs (FY21: 726 homes).
We achieved our medium-term gross margin target, delivering a 24.8% adjusted gross margin (FY21: 23.2%), with adjusted gross profit of £1,308.1m (FY21: £1,114.7m), reflecting strong customer demand, house price inflation ahead of build cost inflation and improved site based productivity.
The impact of adjusting items, which reflected legacy property costs associated with building safety related remediation activities, as well as the estimated future costs of such works as part of the Building Safety Pledge, resulted in reported gross profit of £899.9m (FY21: £1,010.0m) and a reported gross margin of 17.1% (FY21: 21.0%).
After deducting administrative costs, we delivered an adjusted operating profit of £1,054.8m (FY21: £919.0m) and an adjusted operating margin of 20.0% (FY21: 19.1%). Profit from operations, after the deduction of adjusting items, was £646.6m (FY21: £811.1m).
With the deduction of finance costs and including JV income, we delivered strong growth in adjusted profit before tax for the year to £1,054.8m (FY21: £919.7m). Reported profit before tax, after deducting adjusting items, was £642.3m (FY21: £812.2m).
Our Balance Sheet has remained strong with year-end net cash of £1,138.6m (FY21: £1,317.4m). We have increased our land creditors at the year end to £733.6m (FY21: £658.3m) and, as a result, we have reported a year-end net indebtedness surplus of £405.0m (FY21: £659.1m net surplus). We have also improved our ROCE, which has increased by 220 bps to 30.0% (FY21: restated 27.8%) and, as a result, has moved ahead of the returns achieved in the three years prior to the onset of the pandemic.
Our targets for the coming year and the medium term
In FY22, our focus on rebuilding both our total home completions and financial performance has delivered an excellent improvement on adjusted gross margin and ROCE. Building on this performance, whilst recognising the UK economy continues to face macro uncertainties, we have a clear strategy and targets for both the year ahead and the medium term of three to five years.
Our business now has capacity to deliver 21,500 home completions
- We intend to grow total home completions in FY23 to between 18,400 and 18,800 homes, with wholly owned completions between 17,650 and 18,050 homes, along with an additional c. 750 JV completions.
- Completions are expected to reflect the phasing out and timing of legal completions under the Help to Buy scheme, which must be completed by 31 March 2023.
- Beyond FY23, we will continue to target disciplined volume growth at between 3% and 5% annually towards our new target of 21,500 total home completions.
Our gross margin target remains at a minimum 23%
- We continue to buy land at a minimum 23% gross margin hurdle rate.
- In FY23, on the assumption that house price growth moderates over the coming months, and build cost inflation continues at between 9% and 10%, we would anticipate that our gross margin will move towards our minimum medium-term gross margin hurdle rate of 23%.
Our ROCE target remains at a minimum 25%
- In FY23 and beyond, we aim to continue to deliver a minimum ROCE of 25%, in line with our medium-term target.
Long-term value creation
We are focused on creating long-term value for our stakeholders. We recognise that the resources used in our operations are finite, from the land that we develop, to the materials we consume. Our impact on climate change makes it imperative that we constantly scrutinise and challenge the way we operate, as well as the environmental impact of our business.
Set out below are the progress and activities in FY22, as well as our objectives for the year ahead and the medium term:
|
Progress in FY22 |
Areas of focus for FY23 |
Medium-term targets |
|
|
Home completions |
|
|
|
|
Gross margin |
|
|
|
|
ROCE |
|
|
|
Keeping people safe
Our fundamental priority is always to provide a safe environment for all our employees, sub-contractors and customers, and we are committed to achieving the highest 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 last year’s Annual Report, reflecting increased activity across housebuilding following the initial national lockdown, we experienced a significant increase in our Injury Incidence Rate (IIR) in FY21 to 416 (FY20: 256) per 100,000 workers. Following the introduction of action plans to address the IIR, and with close monitoring from the Safety, Health and Environment (SHE) Committee, we are able to report a significant improvement has been achieved, with our IIR reducing by 37% to 262 per 100,000 workers*, and our SHE audit compliance has been maintained at 97%* (FY21: 97%).
We also continue to focus on ensuring workers do not suffer long-term issues associated with their work activities. We have implemented controls and raised awareness in areas such as exposure to hazardous dusts and repetitive strain injuries. We are also working with our key contractors to encourage them to implement health surveillance programmes for their workforces.
As part of our enduring response to COVID-19, we have continued 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 site-based employees and sub-contractors, and employees operating under hybrid working arrangements.
Building safety pledge
As stated in the Chairman’s statement, we have always been clear that we do not believe leaseholders should pay for necessary remediation to fix building safety issues caused by the design, construction or refurbishment of their buildings. We announced on 6 April 2022 that a proportionate and sensible approach to fire safety in historical buildings had been agreed with the Government, and we have pledged to support leaseholders by funding remediation of buildings we developed over the past 30 years.
We are working with the HBF and the Department for Levelling Up, Housing and Communities (DLUHC) to agree the necessary legal documentation and arrangements for a fair approach to the remediation process, including a robust and independent arbitration process to ensure clarity for all parties where there are areas of uncertainty.
We have provided £396m with respect to our Building Safety Pledge in FY22. Our dedicated Building Safety Unit is managing our building safety remediation programme, which should be delivered over the next three to five years, with building safety considerations paramount in the prioritisation and scheduling of works. The charges reflect the current best estimate of the extent and futu re costs of work required, but adjustments to the expected costs to complete may be required as work progresses.
We are also now subject to the Residential Property Developer Tax, which came into effect on 1 April 2022. This was introduced to fund the remediation of all residential buildings above 18 metres and applies to the majority of our profits above a £25m annual allowance at a rate of 4%.
Competitions and Markets Authority
After the end of the financial year, on 16 August 2022, the Competition and Markets Authority (CMA) announced that, after more than three years of investigation, during which we have worked constructively with the CMA, it had now closed its investigation into the Group in relation to the sale of leasehold homes.
Charitable giving
We recognise our responsibility to support the communities we operate in, 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 FY22, we raised and donated £5.1m (FY21:
£4.3m) for charitable causes through the Barratt Foundation and Group donations.
To ensure that the Barratt Foundation can continue to donate to worthy causes, we have agreed a £12m rolling three-year funding agreement (£4m per financial year). In addition, we donated an additional c. £900k to the Barratt Foundation, which represents the unclaimed proceeds from the Shareholder Tracing and Reunification exercise completed in June 2021.
The Barratt Foundation
Now in its second year of operation, the Barratt Foundation was particularly active in FY22 – supporting over 500 charities and launching two new multi-year partnerships focused on social mobility and education.
A £1.3m three-year partnership with national youth charity, The Outward Bound Trust, will fund 15,000 days of outdoor learning and adventure for 3,000 disadvantaged young people. The Foundation also matched £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 charity contribution ever made by the Group or the Foundation.
Continuing our longstanding support for Whizz-Kidz, the Barratt Foundation also made a £1.2m three-year commitment to provide life-changing mobility equipment and training opportunities for disabled children and young people.
During the year, the Foundation also made notable grants including:
- £111,000 to Sheffield Hallam University, where a three-year commitment is providing nine scholarships and 60 bursaries to support students facing financial hardship during their studies;
- £100,000 to Magic Breakfast, the 2022 employee charity vote winner, to provide 300,000 healthy breakfasts to children at risk of hunger in schools across the UK;
- £50,000 to the British Red Cross, to support the Ukraine Humanitarian Appeal;
- £50,000 to The Fire Fighters Charity, to support their ongoing work with the UK’s fire services community;
- £40,000 to Emmaus UK, to provide rooms and support for homeless people at Emmaus communities across the UK; and
- £30,000 to Missing People, to help reconnect missing people with their loved ones by supporting a vital helpline and online chat service.
Barratt and David Wilson Community Fund
The Barratt Foundation also continued to support the Barratt and David Wilson Community Fund throughout the year. This enables each of our divisions and Group offices to support local charities that really matter to them by donating £1,000 to a different local charity each month. Building on this, and reflecting the challenges faced by many over the Christmas period, the Barratt Foundation also provided an additional £5,000 to each of the Group’s divisions and offices to further support local charities such as hospices, foodbanks and homelessness charities. In FY23, the Barratt Foundation is increasing the funding available to the Community Fund by 50%, enabling each of our divisions to donate £1,500 to a different local charity each month.
Employee engagement in our charitable activities
To encourage our employees to raise funds for local causes, the Barratt Foundation matches funds up to £15,000 per division and to £1,000 per employee for employee fundraising. In addition, the Group doubled the number of volunteering days to two per year from the start of calendar year 2022. The Group also partners with Payroll Giving in Action to enable employees to make regular, tax- free donations to their chosen charities. In FY22, Barratt employees and divisions raised £705,589 (FY21: £303,190) for charities and good causes, with an additional £260,055 (FY21: £363,500) provided by the Barratt Foundation in matched funding.
Looking to FY23, the Group has decided to double the available match funding for employee fundraising from £1,000 to £2,000, reflecting the Barratt Foundation’s aspirations to further harness employee fundraising efforts and donate more to good causes across the UK.
Current trading and outlook
Our strategy, provided the economic backdrop remains supportive, centres on growing our completion volumes to our new medium- term target of 21,500 homes. In recent years, we have acquired land at a minimum 23% gross margin. Through our ongoing focus on operating efficiencies and growth in home completions, we continue to target a minimum 25% ROCE in the medium term.
Market fundamentals remain strong, reflecting the continued imbalance between housing supply and demand, as well as good mortgage availability.
We entered FY23 with a strong forward sales position and at 28 August 2022 we are 55% forward sold with respect to private wholly owned home completions for FY23 (29 August 2021 for FY22: 59%) with 59% of the private order book exchanged (29 August 2021: 56% of the private order book exchanged). As at 28 August 2022 forward sales were at 14,058 homes (29 August 2021: 15,402 homes) and a value of £3,808.9m (29 August 2021: £3,843.4m).
|
Order book position |
28 August 2022 |
29 August 2021 |
Variance % |
|||
|
£m |
Homes |
£m |
Homes |
£m |
Homes |
|
|
Private |
2,421.5 |
6,467 |
2,331.1 |
6,851 |
3.9 |
(5.6) |
|
Affordable |
1,079.6 |
6,658 |
1,250.9 |
7,835 |
(13.7) |
(15.0) |
|
Wholly owned |
3,501.1 |
13,125 |
3,582.0 |
14,686 |
(2.3) |
(10.6) |
|
JVs |
307.8 |
933 |
261.4 |
716 |
17.8 |
30.3 |
|
Total |
3,808.9 |
14,058 |
3,843.4 |
15,402 |
(0.9) |
(8.7) |
Net private reservations per active outlet per average week for the period to 28 August 2022 were lower than last year at 0.60 (FY22: 0.82) and below the 0.70 for the equivalent period in FY20, prior to the pandemic. In part this reflects limited availability of homes for early occupation given our strong forward order book, as well as heightened macro-economic uncertainty.
As the land market has become increasingly competitive, our land approvals in the new financial year to date are lower than in FY22, reflecting our strong land bank position and disciplined application of our minimum hurdle rates of 23% gross margin and 25% ROCE.
Construction activity is on track to deliver planned output growth in FY23 with 366 equivalent homes per average week built to date in the new financial year (FY22: 336 homes).
Based on current market conditions, we expect to grow total home completions to between 18,400 and 18,800 homes in FY23, including c. 750 home completions from our JVs, whilst ensuring we maintain our industry-leading standards of build quality and customer service.
The completion profile in FY23 will reflect the phasing out and timing of legal completions under the Help to Buy scheme, which must be completed by 31 March 2023. We currently estimate that c. 45% of our full year completion guidance will be delivered in the first half of the new financial year, with c. 55% scheduled for completion in the second half.
On the assumption that house price growth moderates over the coming months, whilst build cost inflation continues at between 9% and 10%, we would anticipate that our gross margin will move towards our minimum medium-term gross margin hurdle rate of 23%.
We have substantial net cash balances, a well-capitalised balance sheet, a strong forward sales position and clear plans to secure both incremental home completion growth and further operating efficiencies in the year ahead. We also have the continued ambition to accelerate our actions to deliver leading sustainability progress, further enhancing business resilience and our customer proposition.
Looking ahead, we recognise that significant macroeconomic uncertainties remain, most notably around inflation, energy costs and interest rates, and their impacts on UK economic growth, employment, and consumer confidence and spending. International incidents, notably the ongoing conflict in Ukraine, could also disrupt global supply chains and further affect confidence at home.
The Board will continue to monitor and respond to changes in the market and the wider economy, but believes that our operating performance, forward order book and very strong financial position provide us with both the resilience and flexibility to react to changes in the operating environment in FY23 and as the market evolves thereafter.
Building Sustainably
We are determined to continue to be the leading national sustainable housebuilder. To enable our business to grow and prosper against the backdrop of climate change, biodiversity loss and growing inequality, we need to constantly evolve and adapt our approach. We do this through a strong understanding of our customers’ and wider stakeholders’ needs, high standards of governance and a culture of responsibility.
Our Building Sustainably framework
Our Building Sustainably framework brings together our sustainability ambitions, targets, activities and metrics to ensure that important issues and solutions are embedded in our everyday business decisions and the actions we take. During the year, we have further invested in the tools and programmes to support our business, measure our performance and ensure we are making progress towards our targets. Our framework is built around three pillars: Nature, Places and People. These pillars cover the material issues for our business and are informed by industry understanding, as well as the opinions and challenges offered by our stakeholders.
How we manage sustainability
We have a clear process – from issue identification to operational delivery of action plans – across each of our framework pillars and their corresponding priorities. This allows us to create supporting work streams that drive our implementation plans and create accountability around each issue. A governance structure, embedded across the business, underpins the framework.
The Board delegates day-to-day delivery of our framework to the Executive Committee, which is supported by operational cross- business working groups. Regular monitoring of targets enables us to continually identify and re-prioritise areas for improvement.
Our Sustainability Committee is required to meet at least four times a year to debate, review and scrutinise the sustainability strategy and monitor the delivery of implementation plans.
Our performance – delivering on our commitments
We have made good progress on reducing waste across our business with a 15.6% reduction to 4.97 tonnes per 100m2 of legally completed build area* (FY21: 5.89 tonnes per 100m2 legally completed build area).
We have a strategy and transition pathway in place to achieve our net zero carbon goal by 2040. In FY22 our market-based carbon emission intensity for scopes 1 and 2 reduced by 14% to 1.53 tCO2e/100m2 (2021: 1.78 tCO2e/100m2). Scope 1 and 2 absolute emissions have reduced by 23% compared to 2018 levels, driven by progress in our reduction initiatives:
- Electric or plug-in hybrid vehicles now comprise 41% of our company car fleet;
- Offices where we are responsible for the electricity supply are now on renewable tariffs;