Half Year Results

BARRATT DEVELOPMENTS PLC

Half Yearly Financial Report for the six months ended 31 December 2013

First half housing completions at highest level in five years

• Significant increase in output with the Group1 responding quickly to uplift in consumer demand
• Strong, broad based recovery with higher sales rates across all areas of the country
• Continued investment in high return new development opportunities across the UK with 11,394 plots approved in the half year
• Disciplined approach has delivered significant progress on ROCE2 at 14.2% for the 12 months to 31 December 2013
• Recruitment target for apprentices, graduates and trainees increased to 1,100 over three years

	Half year ended 31 December 2013	Half year ended 31 December 2012	Change
Total completions3	6,195	5,194	+19%
Revenue	£1,264.9m	£951.1m	+33%
Profit from operations	£139.5m	£80.8m	+73%
Operating margin4	11.0%	8.5%	+250bp
Profit before tax	£120.4m	£45.9m5	+162%
Basic earnings per share	9.5p	3.4p	+179%
Interim dividend per share	3.2p	-	n/a
ROCE	14.2%	9.0%	+520bp

Outlook

• Very strong start to the second half with 0.76 (2013: 0.64) net private reservations per active site per week6 over the last eight weeks
• Net private reservations up 30.2% at 0.69 (2013: 0.53) per active site per week for the financial year to date
• Total forward sales as at 23 February 2014 up by 56.2% to £1,748.1m (24 February 2013: £1,119.1m)
• Expect to deliver full year profit towards the top end of the range of current analyst estimates7
• Interim dividend payment of 3.2 pence per share reflecting the move to three times dividend cover, two years ahead of target. For the three years to FY16 total dividend payments expected of around £365m based on current analyst estimates8

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

“Underpinning this strong performance is an improved market and a business model that is delivering homes that people want to buy in places they want to live. Our disciplined approach means that we have been able to increase the number of new homes we are building whilst driving up profitability, return on capital and dividends. Our momentum has continued into 2014 with sales rates well above last year and forward sales of £1.7bn. We are now expanding our recruitment programme to 1,100 apprentices, graduates and trainees, demonstrating our commitment to further controlled growth.”

1. In this Half Yearly Financial Report, Barratt Developments PLC is defined as the „Company‟ and it together with its subsidiar y undertakings is defined as the „Group‟
2. Return on capital employed („ROCE‟) is calculated as earnings before interest, tax and operating exceptionals for the 12 months to December divided by average net assets adjusted for goodwill and intangibles, tax, cash, loans and borrowings, retirement benefit obligations and derivative financial instruments
3. Includes joint venture („JVs‟) completions in which the Group has an interest
4. Operating margin is profit from operations divided by revenue
5. Restated following the adoption of IAS 19 (Revised) „Employee Benefits‟ in the period
6. Unless otherwise stated all numbers exclude joint ventures
7. As per Reuters on 25 February 2014 where estimates for FY14 profit before tax ranged from £323m to £380m
8. As per Reuters estimates on 25 February 2014

The Half Yearly Financial Report contains certain forward-looking statements about the future outlook for the Group. Although the Directors believe that these statements are based on reasonable assumptions, any such statements should be treated with caution as the future outlook may be influenced by factors that could cause actual outcomes and results to be materially different.

There will be an analyst and investor meeting at 8.30am today at Deutsche Bank, 1 Great Winchester Street, London, EC2N 2DB. The meeting will be broadcast live on the Barratt Developments corporate website, www.barrattdevelopments.co.uk. A listen only function will also be available.

Please dial:

UK: 0800 9531287

International: +44 (0) 1452 560297

Conference ID: 46204713

The Half Yearly Financial Report for the six month period ended 31 December 2013 is available from today, 27 February 2014, on the Barratt Developments corporate website, www.barrattdevelopments.co.uk via the following address: www.barrattdevelopments.co.uk/barratt/en/investor/results

Further copies of the 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
Susie Bell, Head of Investor Relations	020 7299 4880
For media enquiries, please contact:
Barratt Developments PLC Patrick Law, Group Corporate Affairs Director	020 7299 4892
Maitland Liz Morley	020 7379 5151

Group Chief Executive’s statement

Overview

The housing market has remained strong and coupled with a good operational performance, we have delivered significant improvements across all of our key financial metrics in the first half.

We have increased our production and sales levels, and agreed the purchase of 11,394 plots of land on 85 sites, an increase of 22% on the prior year equivalent period (the „prior year‟).

We have achieved a 250 basis point increase in operating margin and a 162% increase in pre-tax profit on the prior year. ROCE for the 12 months to 31 December 2013 has improved by 520 basis points to 14.2%. We have a formal ROCE target of 18% for FY16, however given our progress to date, we expect to achieve this earlier.

The Board is pleased to announce an interim dividend of 3.2 pence per share, reflecting the move to a dividend payment covered three times by earnings per share, two years ahead of target.

The market

The growth in consumer confidence that started in early 2013 has continued throughout the first half of our financial year, against the backdrop of an improving economic outlook. The Help to Buy equity loan scheme has provided additional impetus to the market recovery and we expect it to remain a very attractive opportunity for our customers, particularly first-time buyers, during the remaining life of the scheme. More generally, we are also seeing improvements in the underlying provision of mortgage finance. During the period, 29% of our total completions (excluding JVs) utilised Help to Buy.

Geographically, we are seeing a broad based recovery in terms of sales, with higher average sales rates across all regions.

Increasing the supply of new homes

Whilst both the market for new homes and build rates are improving, the shortage of homes will not be fully resolved in the short-term. We support the Government‟s attempts to accelerate the supply of new homes by assisting the ability to buy, and also addressing the longer-term supply issues of land availability and planning. We are responding quickly and have increased our output by 19% in the period compared with the prior year, and continue to expect to deliver around 45,000 new homes over the next three years.

Increased activity levels across the sector have led to some pressures on the industry supply chain, material costs and subcontract labour costs. The strength of our supplier relationships and focus on centralised procurement and standard product has served us well, and we have had no significant disruption to our build programme in the period9. Looking ahead, we are confident that our supplier relationships will continue to benefit the Group and that our requirements for the next 12 months will be met.

Financial performance

In the half year, we delivered 6,195 (2012: 5,194) total completions (including JVs), an increase of 19.3% on the prior year. Private completions were up 22.7% on the prior year to 5,202 (2012: 4,241). Affordable housing completions totalled 751 (2012: 844), with the reduction in volume reflecting site phasing. We expect affordable housing to account for around 16% (FY13: 17.1%) of completions for FY14. JV completions in which the Group had an interest were 242 units (2012: 109 units).

Total average selling price („ASP‟) increased by 13.9% in the period to £211,200 (2012: £185,500). Private ASP increased by 11.6% in the period to £225,300 (2012: £201,900) primarily driven by changes in mix, with fewer flats outside of London, more family homes being built around the country and an increased proportion of completions from London in the period versus the prior year. Affordable housing ASP increased by 10.1% to £113,800 (2012: £103,400).

Operating profit increased by 72.6% to £139.5m (2012: £80.8m). Operating margin was up by 250 basis points to 11.0% (2012: 8.5%) reflecting the higher proportion of completions from new higher margin land, growth in volumes and the early benefit of lower incentives on completions.

1. The six months ended 31 December 2013 (the „period‟)

In the half year, the Group‟s share of JV profit was £10.1m (2012: £0.5m), and for FY14 we expect this to be around £35m. We continue to make good progress on all JV sites and expect a high level of completions in the full year from our Altitude and Queensland Terrace developments, both Barratt London JVs with London & Quadrant.

We have a total of 12 JV sites, of which seven are in London. The total future gross development value of our JV sites as at 31 December 2013 was £2.5bn, the majority of which is expected to be delivered over the next six years.

Finance charges reduced to £29.2m (2012: £35.4m), reflecting our lower cost of debt following the refinancing in May 2013 and lower average debt in the period.

Profit before tax increased by 162.3% to £120.4m (2012: £45.9m) and basic earnings per share increased by 179.4% to 9.5 pence per share (2012: 3.4 pence per share).

Delivering our strategic objectives

Our improved performance has been driven by our continued focus on our three strategic objectives of building profitability, maintaining an appropriate capital structure and driving ROCE.

Building profitability

Targeted land buying

The most important factor in our drive to build profitability is acquiring and bringing into production high margin land. In the half year, 60% of our completions were from more recently acquired higher margin land. We remain disciplined in our land buying and all land acquired must meet or exceed our hurdle rates of 20% gross margin and 25% ROCE10.

We continue to see excellent opportunities in the land market and we were successful in approving the acquisition of 11,394 plots (2012: 9,320 plots) of land in the period, a 22.3% increase on the prior year. In London and the South East where the land market is more competitive, we are focused on acquiring land from the public sector and sites that are larger or more technically complex. In both areas we have a strong capability and track record.

Our broader success in buying land is based on the extensive local knowledge of our divisional land teams and strong local relationships with land owners, combined with detailed assessments of local market conditions. We have target locations based on the availability of land, housing market conditions and the likelihood of obtaining planning.

An important part of bringing land into production is the planning process. We have seen some improvements in this area, both as a result of changes in Government policy and operational improvements within our business. Following the implementation of the Government‟s National Planning Policy Framework, there are stronger incentives for local authorities to put in place their plan for a five year land supply. That is leading to an improved dialogue between local authorities and our divisions. Nevertheless, the planning process remains a lengthy one and on average it takes us around 70 weeks from agreeing to purchase the land to achieving full or outline planning consent. The length of the planning process will remain a restriction on the speed at which housing supply can increase.

During the half year, we achieved planning on 77 sites (2012: 70 sites). Looking forward, we have detailed consents for 82% of our expected FY15 completions and outline consents on a further 10%.

We continue to target a regionally balanced land portfolio with a supply of owned and controlled land of approximately 4.5 years. As at 31 December 2013, our owned and controlled land bank stood at 4.4 years (2012: 4.0 years) based on 12 months to 31 December 2013 completion volumes, totalling 62,644 plots

(2012: 56,062 plots). We also held 6,488 plots (2012: 6,790 plots) of approved land.

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

The acquisition of new land and the completion of older sites has transformed the Group‟s land bank. As at 31 December 2013, 79% of our owned and controlled land bank plots were acquired since re-entering the land market in 2009, with less than 5% of plots on impaired old land.

At 31 December 2013, our JVs had an owned and controlled land bank in which the Group had an interest of 5,492 plots (2012: 1,848 plots), of which 4,699 plots (2012: 1,156 plots) are in London.

In addition, we have c. 10,500 acres (30 June 2013: c. 11,400 acres) of strategic land, which we actively manage to obtain the necessary planning consents. In the half year, 3,654 plots (2012: 1,698 plots) were transferred from strategic land to our operational land bank, more than double the number in the prior year. Strategic land is expected to become an increasing proportion of our operational land in future years.

Optimising prices

We remain focused on improving the quality of our homes in terms of location, design and construction quality. This in turn helps underpin our determination to secure a competitive advantage and ensure we get the right prices for the outstanding homes we build.

We aim to design homes and places where people aspire to live and we are continuing to invest in and develop our new product range. During the period, we have introduced „Great Places‟ throughout the Group, which incorporates the Design Council‟s Building for Life 12, the industry standard for well-designed neighbourhoods to ensure that we build attractive, functional and sustainable developments.

We continue to see a change in the mix of homes we build – more family homes and apartments in London, and fewer apartments outside London. This ongoing change in mix has driven higher average private selling prices in the period.

The improved market conditions and stronger consumer demand have led to some increases in underlying sales prices across the Group, largely in the form of reduced incentives. This has resulted in an improvement in our net pricing on reservations in the period of around 150 to 200 basis points.

Overall, ASP increased by 13.9% to £211,200 (2012: £185,500), with private ASP increasing by 11.6% from £201,900 in the prior year to £225,300.

Operational efficiency

Improving efficiency remains a priority for the Group. We continue to standardise the building of our homes, centralise procurement and share best practice. We regularly benchmark efficiency measures across divisions.

In the period, the majority of materials, including subcontractor materials, were centrally procured. This ensures consistent quality and costs across the Group, as well as securing a supply chain for our 27 divisions11.

All of our significant supply agreements are fixed in advance, usually for 12 months. During the period we saw some upward price pressure, in particular for bricks and timber. For FY14 material costs will be in line with our expectations, supported by our fixed-term contracts and pricing. During the period we have seen some increases in subcontracted labour costs, particularly in relation to bricklaying, where rates are now similar to pre-downturn levels.

We continue to renew subcontractor and supplier agreements to ensure best pricing and the continuous availability of labour and materials, and are confident that our requirements for the next 12 months will be met.

Maintaining an appropriate capital structure

Net debt as at 31 December 2013 was significantly lower than in the prior year at £155.0m (2012:

£331.7m). The increase of £129.1m from 30 June 2013 (Net debt: £25.9m) reflects normal seasonal trends in working capital, the payment in July 2013 of £53m in respect of interest on the early termination of

1. During the year ended 30 June 2013, we operated from 25 divisions. During the half year we opened divisions in Aberdeen and central London

£151.9m equivalent of private placement notes and the £24.5m paid for the FY13 dividend. We continue to expect that the Group will have minimal net debt as at 30 June 2014.

The appropriate capital structure for the Group is that land and long-term work in progress are funded by shareholders‟ funds and land creditors. The use of land creditors drives a higher ROCE and at 31 December 2013 they were 37% (2012: 37%) as a proportion of our owned land bank.

Driving return on capital employed

The Group is focused on driving a significant increase in ROCE and for the 12 months to 31 December 2013 generated a ROCE of 14.2% (2012: 9.0%). We have a formal ROCE target of 18% for FY16, however given our progress to date we expect to achieve this earlier.

All land acquired since 2009 has met our requirement of a minimum site ROCE hurdle of 25%. On the 60 sites completed to date that have been acquired since 2009, we have achieved an average site ROCE of 38%.

Employees

At 31 December 2013 we had 5,358 (2012: 4,760) employees and had engaged around 12,500 (2012: c.

10,000) subcontractors.

To help the Group address the skill shortage in the building industry, in 2013, we set out to recruit 600 apprentices, graduates and trainees over a three year period. We have made rapid progress and are likely to meet the target within the first two years of our scheme. We now aim to recruit around 1,100 apprentices, graduates and trainees over the next three years.

Construction excellence and efficiency

The Group prides itself on delivering the highest quality of construction, which underpins our brands and the attractiveness of our homes to potential buyers. In FY13 our site managers won 102 NHBC „Pride in the Job‟ awards – the most awards a housebuilder has ever won and an industry leading performance for the ninth consecutive year. We are continuing to invest in our people to seek to ensure that this track record is maintained.

Industry leading customer experience

Customer satisfaction remains very high, with over 90% of our customers saying they would recommend us to a friend. In FY13 we achieved the highest HBF grading of 5 Star for the fourth consecutive year, a stronger track record than any other national housebuilder. With our levels of output increasing rapidly, we are very focused on seeking to maintain customer satisfaction levels.

Dividend

The Board recognises the importance of both capital growth and dividend income to shareholders. We recommenced dividend payments in November 2013 with a final dividend in respect of FY13 of 2.5 pence per share, which was covered around six times by adjusted basic earnings per share. At the time we stated that our intention was to adopt a progressive dividend policy with the target of reaching a dividend cover of around three times in FY16.

Given the prevailing market backdrop, the strong operational and financial performance of the Group and our confidence in the future prospects of the Group, the Board is pleased to move to a dividend payment covered around three times by earnings per share with immediate effect. Based on current analyst estimates for earnings per share, total dividend payments for the three years to FY16, assuming a three times dividend cover, would be around £365m, which the Board considers sensibly balances returns to shareholders with the investment needed to continue to develop and add value to the business.

The interim dividend of 3.2 pence per share will be paid on 20 May 2014 to all shareholders on the register on 22 April 2014.

Current trading and outlook

In the last eight weeks, the sales performance across the Group has remained very strong. Average net private reservations per active site per week have increased by 18.8% on the prior year equivalent period to

0.76 (2013: 0.64). We continue to see the benefit of reduced sales incentives, which coupled with

improvements in underlying prices, is now driving an improvement in net selling prices of around 250 basis points.

As at 23 February 2014, total forward sales (excluding JVs) for the Group were up 56.2% at £1,748.1m (24 February 2013: £1,119.1m), equating to 9,062 plots (24 February 2013: 6,030 plots). Private forward sales

(excluding JVs) as at 23 February 2014 increased by 47.4% to £1,323.2m (24 February 2013: £897.7m). JV total forward sales at 23 February 2014 were £188.0m (24 February 2013: £105.3m), equating to 346 plots (24 February 2013: 365 plots). JV private forward sales were £181.8m (24 February 2013: £80.1m).

We expect full year completion volumes for the Group to be around 14,250, plus around 650 completions delivered through our JV portfolio. We remain committed to rebalancing the proportion of completions delivered in the first half of the year. This will deliver benefits in customer service levels, supply chain management and will assist us in getting the best possible price for our high quality homes.

We are confident in the outlook for the Group and expect to deliver a very strong performance for the full financial year, with profit before tax towards the top end of the range of current analyst estimates.

The Board will remain focused on managing the balance between controlled business growth that creates shareholder value and providing sustainable and attractive dividends.

Mark Clare

Group Chief Executive 26 February 2014

The Group‟s financial and operational performance and reputation is subject to a number of potential risks and uncertainties, which could have a material impact on the Group‟s performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results. The Directors do not consider that the process of risk management and the principal risks and uncertainties have changed since the publication of the Annual Report and Accounts for the year ended 30 June 2013. A detailed explanation of the relevance to the Group‟s strategy and mitigation of the risks outlined below can be found on pages 34 to 39 of the Annual Report and Accounts for the year ended 30 June 2013, which is available at www.barrattdevelopments.co.uk.

Economic environment, including housing demand and mortgage availability

Changes in the UK and European macroeconomic environments, including unemployment, flat economic growth, buyer confidence, availability of mortgage finance particularly for higher loan to values including Government backed schemes, the ability of purchasers to repay shared equity loans, interest rates, competitor pricing, falls in house prices or land values or a failure of the housing market to recover, may lead to a fall in the demand for houses which in turn could result in impairments of the Group‟s inventories, goodwill and intangible assets.

Cost reduction measures may adversely affect the Group‟s business or its ability to respond to future improvements in market conditions.

Land purchasing

The ability to secure sufficient consented land at appropriate cost and quality to provide profitable growth.

Liquidity

Unavailability of sufficient borrowing facilities to enable the servicing of liabilities (including pension funding) and the inability to refinance facilities as they fall due, obtain surety bonds, or comply with borrowing covenants. Furthermore, there are risks to management of working capital such as conditional contracts, build costs, joint ventures and the cash flows related to them.

Attracting and retaining high calibre employees

Inability to recruit and/or retain employees with appropriate skill sets or sufficient numbers of such employees.

Availability of raw materials, subcontractors and suppliers

Shortages or increased costs of materials and skilled labour, the failure of a key supplier or the inability to secure supplies upon appropriate credit terms could increase costs and delay construction.

Government regulation and planning policy

Inability to adhere to the increasingly stringent and complex regulatory environment, including planning and technical requirements affecting the housing market and regulatory requirements more generally.

Construction and new technologies

Failure to identify and achieve key construction milestones, due to factors including the impact of adverse weather conditions, the failure to identify cost overruns promptly, design and construction defects, and exposure to environmental liabilities which could delay construction, increase costs, reduce selling prices and result in litigation and uninsured losses. There are also risks associated with climate change and the use of new technology in the build process e.g. materials related to carbon reduction.

Joint ventures and consortiums

Large development projects, some of which involve joint ventures or consortium arrangements and/or commercial developments, are complex and capital intensive and changes may negatively impact upon cash flows or returns.

Health and safety

Health and safety breaches can result in injuries to employees, subcontractors and site visitors, delays in construction/increased costs, reputational damage, criminal prosecution and civil litigation.

Information technology (‘IT’)

Failure of the Group‟s IT systems, in particular those relating to surveying and valuation, could adversely impact the performance of the Group.

Financial risk management and contingent liabilities

Details of the Group‟s management of liquidity risk, market risk, credit risk and capital risk in relation to financial instruments are provided in the Annual Report and Accounts for the year ended 30 June 2013 on pages 125 to 130.

Details of contingent liabilities including litigation are provided in note 19 of the condensed consolidated half yearly financial statements.

Condensed consolidated income statement

for the half year ended 31 December 2013 (unaudited)

Half year ended 31 December 2013

Half year ended 31 December 2012

(*restated)

Year ended 30 June 2013 (audited) (*restated)

			Before	Except-					Before	Except-					Before	Except-
			except-	ional					except-	ional					except-	ional
			ional items	items					ional items	items					ional items	items
	Note		£m	£m		£m			£m	£m		£m			£m	£m	£m
Continuing operations
Revenue	4		1,264.9	-		1,264.9			951.1	-		951.1			2,606.2	-	2,606.2
Cost of sales			(1,088.1)	-		(1,088.1)			(839.9)	-		(839.9)			(2,247.0)	-	(2,247.0)
Gross profit			176.8	-		176.8			111.2	-		111.2			359.2	-	359.2
Administrative expenses			(37.3)	-		(37.3)			(30.4)	-		(30.4)			(106.5)	(2.8)	(109.3)
Profit from operations	4		139.5	-		139.5			80.8	-		80.8			252.7	(2.8)	249.9
Finance income	5		4.7	-		4.7			7.7	-		7.7			12.8	-	12.8
Finance costs	5		(33.9)	-		(33.9)			(43.1)	-		(43.1)			(81.1)	(79.3)	(160.4)
Net finance costs	5		(29.2)	-		(29.2)			(35.4)	-		(35.4)			(68.3)	(79.3)	(147.6)
Share of post-tax profit/(loss) from joint ventures			10.1	-		10.1			0.5	-		0.5			7.7	(5.4)	2.3
Share of post-tax loss from associates			-	-		-			-	-		-			(0.1)	-	(0.1)
Profit before tax			120.4	-		120.4			45.9	-		45.9			192.0	(87.5)	104.5
Tax	6		(27.8)	-		(27.8)			(13.1)	-		(13.1)			(50.5)	20.7	(29.8)
Profit/(loss) for the period
from continuing operations			92.6	-		92.6			32.8	-		32.8			141.5	(66.8)	74.7
Profit/(loss) for the period
attributable to equity
shareholders			92.6	-		92.6			32.8	-		32.8			141.5	(66.8)	74.7
Earnings per share from
continuing operations
Basic	8					9.5p						3.4p					7.7p
Diluted	8					9.2p						3.3p					7.5p

* The condensed consolidated income statement has been restated for the comparative prior period and the comparative prior year following the adoption of IAS 19 (Revised) „Employee Benefits‟ in the period (see note 3).

Notes 1 to 21 form an integral part of the condensed consolidated half yearly financial statements.