Final Results for the year ended 30 June 2017

Barratt Developments PLC

Annual Results Announcement for the year ended 30 June 2017

Another year of strong performance

£m unless otherwise stated1,2	Year ended 30 June 2017	Year ended 30 June 2016	Change
Total completions (plots)3	17,395	17,319	0.4%
Revenue (£m)	4,650.2	4,235.2	9.8%
Gross margin (%)	20.0	18.9	1.1 ppts
Profit from operations (£m)	799.2	668.4	19.6%
Operating margin (%)	17.2	15.8	1.4 ppts
Profit before tax (£m)	765.1	682.3	12.1%
Basic earnings per share (pence)	61.3	55.1	11.3%
ROCE (%)	29.8	27.1	2.7 ppts
Tangible net assets per share (pence)	340	311	9.3%
Net cash (£m)	723.7	592.0	22.2%

Highlights

• The UK’s largest housebuilder, delivering our highest volumes in nine years
• Commitment to build quality and customer service demonstrated by the achievement of more NHBC Pride in the Job Awards than any other housebuilder for the 13th consecutive year and the award of the Home Builders Federation maximum five star customer satisfaction rating for the eighth consecutive year
• Strong growth in profit before tax, up by 12.1% to £765.1m
• Delivered our 20% gross margin and 25% ROCE targets with continued focus on further margin improvement
• 39.0% increase in final ordinary dividend per share to 17.1p (2016: 12.3p) together with 17.3p special dividend per share

Current trading

• Forward sales (including JV’s) up 13.8%, as at 3 September 2017 at £2,749.9m (4 September 2016: £2,416.5m)
• Net private reservations per active outlet per average week from 1 July were in line with the prior year at 0.74 (FY17: 0.75)

Commenting on the results David Thomas, Chief Executive of Barratt Developments PLC said:

“This has been another excellent year for the Group. We have delivered a strong operational and financial performance and our highest completion volumes for nine years. We are committed to increasing the supply of new homes as the UK’s largest housebuilder and we remain industry leading in terms of quality and customer service.

The Group starts the new financial year in a good position with a strong balance sheet, healthy forward sales and we continue to see robust consumer demand supported by a positive mortgage environment. We are focused on driving further operational improvements through the business with a particular focus on margin improvement.”

1. Refer to Glossary for definition of key financial metrics.
2. Unless otherwise stated, all numbers quoted exclude joint ventures (‘JV’).
3. Includes JV completions.

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 279 7204

International dial in: +44 (0) 330 336 9411

Access code: 6162686

Further copies of this announcement can be downloaded from the Barratt Development PLC corporate website 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
Jessica White, Chief Financial Officer	01530 278 259
Analyst/investor enquiries
Chloé Barnes, Investor Relations	020 7299 4895
Media enquiries
Tim Collins, Head of Corporate Communications	020 7299 4874
Brunswick
Jonathan Glass/Wendel Verbeek	020 7404 5959

Chairman’s statement

This has been another excellent year for the Group across all key operational and financial performance metrics. We achieved record profits, completion volumes were at their highest level for nine years and we remain industry leading in terms of quality and customer service.

We have delivered our FY17 financial targets of 20% gross margin and 25% ROCE, and we are committed to further progress. Improving our profit margin remains a priority for the Group and we have a number of initiatives underway to further increase efficiency, reduce costs and simplify our business.

We remain the largest housebuilder in the UK, delivering 17,395 homes in the year reflecting the strength of our housebuilding operations.

Our sites were awarded 74 NHBC Pride in the Job Awards for site management this year, more than any other housebuilder for the 13th year in a row. We were also awarded the Home Builders Federation maximum five star rating for the eighth consecutive year – the only major housebuilder with this record. We have now won 56 Built for Life accreditations for excellence in the design of homes and neighbourhoods, more than all the other housebuilders combined.

These are significant achievements and are testament to our continuing focus on leading the future of housebuilding by putting customers first and at the heart of everything we do.

Political and economic environment

Whilst the General Election in June 2017 created some uncertainty, Government support for housebuilding and a commitment to tackle the country’s housing shortage remain. The Government’s Housing White Paper published in February contained many positive measures, particularly those aimed at speeding up the planning system and bringing forward more land for new homes. Following the outcome of the EU referendum, the Board continues to monitor carefully the potential impacts of the vote to leave the EU on our business.

Market conditions remain good with a wide availability of attractive mortgage finance, which, alongside Help to Buy, continues to support robust consumer demand. The Group is in a strong position, with a substantial year end net cash balance, healthy forward sales position and an experienced management team.

Consequently, we remain confident in the strong fundamentals of the housing sector and our business.

Our employees

The outstanding progress made during the year would not have been possible without the capability and dedication of our Senior Management team and employees whom I would like to thank on behalf of the Board. We ensure that we reward all of our employees appropriately so that we can recruit and retain the best people whilst motivating them to continue to perform year on year.

Corporate Governance

Underpinning any successful Company, is good corporate governance. Corporate governance is the basis of good management practice and we place it at the heart of everything we do. It is embedded in our policies, procedures and processes throughout our business from Board level to our divisional operations.

Last year the Government published a Green Paper on Corporate Governance. The Financial Reporting Council (FRC) announced a fundamental review of the UK Corporate Governance Code to take into account their work done around corporate culture and succession planning. The review will also take account of the issues raised in the Government’s Green Paper and the BEIS Select Committee inquiry.

We have begun to explore the various proposals in the Green Paper and the FRC review with our advisors. We have already taken steps to establish a forum at which employee representatives from across the business will have the opportunity to express the views of the workforce on key topics such as culture, diversity, training and remuneration. This will ensure that best practice is embedded in our business and that we can effectively respond to, and implement, any changes that may be required as new regulation or legislation is introduced.

We will continue to ensure that good corporate governance remains embedded within the culture and values of the business as a whole whilst adapting our policies, processes and procedures in light of any changes proposed by the Government and the FRC. Through the Nomination Committee, we will ensure that we continue to have robust succession planning in place for both Board members and Senior Management.

We continue to cooperate fully with the Metropolitan Police on the ongoing investigation we instigated regarding possible misconduct in the London business. As stated in October 2016, Barratt does not anticipate any material adverse financial effect and our London business is operating well.

Appointments and succession

A number of Board changes took place during the year.

After eight years of service, Mark Rolfe stood down from the Board after the 2016 AGM. Jock Lennox, who had joined the Board on 1 July 2016, took over as Audit Committee Chairman. In addition, Richard Akers was appointed as Senior Independent Director with effect from the conclusion of the 2016 AGM.

As announced on 19 January 2017, Neil Cooper, previously Chief Financial Officer, left the Board by mutual agreement. From that date, David Thomas performed the dual roles of Chief Executive and Chief Financial Officer. In order to maintain a stable governance framework, the Board ensured that David had sufficient support from members of the Senior Management team and from members of the Board to enable him to undertake his day to day duties under both roles.

On 22 June 2017, we were pleased to announce the appointment of Jessica White as Chief Financial Officer. Jessica was previously Group Financial Controller and is therefore very familiar with the way in which the Group operates.

Delivering returns for our shareholders

In line with the improved Capital Return Plan announced in February 2017, and given the strong financial performance of the Group, the Board is pleased to propose a final dividend of 17.1 pence per share (2016: 12.3 pence per share) and a special dividend of £175.0m (17.3 pence per share), both of which, subject to shareholder approval, will be paid in November 2017. The total proposed dividend for FY17, including the interim dividend of 7.3 pence per share paid in May 2017, is therefore 41.7 pence per share (2016: 30.7 pence per share).

Conclusion

I believe that you have a strong and experienced Board dedicated to managing your Company efficiently with a great focus on achieving long term sustainable value. The Board continues to have the right balance of skills, experience and knowledge to deliver the strategy of the Group during FY18. We remain, as ever, cognisant of the need for continued assessment of the Board and will keep under review the effectiveness, time commitment and tenure of each of our Directors.

I, on behalf of the Board, would like to thank you for your continued support and look forward to seeing many of you at our AGM on 15 November 2017.

John Allan

Chairman

5 September 2017

Chief Executive’s statement

Our results

We have traded strongly throughout the financial year, delivering a record profit before tax of £765.1m, up 12.1% on the prior year (2016: £682.3m). We achieved our targets set in September 2014 of 20% gross margin and 25% ROCE, with 2017 gross margin at 20.0% (2016: 18.9%) and our highest ROCE in 12 years at 29.8% (2016: 27.1%).

We have also continued to strengthen our Balance Sheet, ending the year with net cash of £723.7m (2016: £592.0m) and with net tangible assets of £3,430.0m (2016: £3,118.0m).

	Housebuilding	Commercial	Total
Total completions including JV’s (plots)	17,395	–	17,395
Revenue (£m)	4,589.1	61.1	4,650.2
Gross margin (%)	20.2%	7.9%	20.0%
Profit from operations (£m)	797.8	1.4	799.2
Operating margin (%)	17.4%	2.3%	17.2%
Share of post-tax profit/(loss) from joint ventures and associates (£m)	26.5	(0.9)	25.6

Our businesses

Our improved financial results have been driven by a strong and disciplined operational performance in both our housebuilding and commercial developments businesses.

Housebuilding

Housebuilding results

The business performed well throughout the financial year and delivered against both its financial and operational targets. Market conditions remain supportive, with attractive mortgage financing and the support of Help to Buy driving strong consumer demand.

We are the UK’s largest housebuilder with total completions at 17,395 units including JV’s (2016: 17,319). Private completions increased by 0.8% to 13,303 (2016: 13,198), affordable completions were 3,342 (2016: 2,707), and JV completions in which the Group had an interest were 750 (2016: 1,414).

We continue to increase the proportion of higher margin land completions which accounted for 92% (2016: 86%) of the total in the year and to trade through our legacy assets which has also contributed to the improvement in our gross margin.

Total average selling price (‘ASP’) on completions in the year increased by 6.0% to £275.2k (2016: £259.7k), with private ASP increasing by 8.0% to £313.1k (2016: £289.8k) benefiting from mix changes and underlying house price inflation. Completions in our London business were in line with expectations and weighted to the second half, consistent with planned site build programmes, resulting in a higher ASP in the second half of FY17.

Our FY17 sales rate was 0.72 (2016: 0.69) net private reservations per active outlet per week in the full year and 0.76 (2016: 0.72) in the second half. During the year, we operated from an average of 377 active outlets including JV’s (2016: 378).

Our share of profits from JV’s and associates in the year for the housebuilding business decreased to £26.5m (2016: £72.4m), reflecting planned site build programmes and some headwinds in the central London market.

As at 30 June 2017 we were selling from 11 (2016: 11) JV outlets. In FY18 we expect to deliver around 750 joint venture completions and our share of profits from JV’s to be around £25m.

Committed to building more high quality homes

We are dedicated to playing our part in addressing the UK’s housing shortage, whilst maintaining our quality standards, and designing developments, which look great, are a pleasure to live on, and will enhance local communities for years to come.

We lead the industry in the high quality of our homes and our customer service. That quality is recognised through the NHBC Pride in the Job Awards for site management where we have achieved more awards than any other housebuilder for the 13th consecutive year. We are also the only major housebuilder to be rated five star by our customers in the HBF customer satisfaction survey for eight consecutive years.

We are committed to investing in the future of housebuilding. We continue to offer a range of graduate, apprentice and trainee programmes and are one of the largest employers of apprentices in the industry. In addition, we have successfully trialled a programme to recruit and train ex-forces personnel in site management. We also continue to develop, trial and implement modern methods of construction which can help address industry-wide skills challenges and support future growth.

The key dimensions underpinning delivery of our strategy

In addition to the generally favourable market conditions during the year, the increase in our housebuilding profitability has benefited from our successful land investment strategy and from improvements in operating margin.

Land and planning

A key factor in the growth of our housebuilding business in recent years has been our land investment strategy, which has boosted absolute profit and led to increased completion volumes. The land market remained attractive throughout the financial year and we secured excellent opportunities that exceeded our minimum hurdle rates of 20% gross margin and 25% site ROCE. In the period, we approved the purchase of £957.2m (2016: £1,095.6m) of land, equating 18,497 plots (2016: 24,387 plots). We expect to approve the purchase of over 20,000 plots in FY18.

We continue to target a regionally balanced land portfolio with a supply of owned land of c. 3.5 years and a further c. 1.0 year of controlled land. Our target for a shorter than sector average land bank reflects our focus on ROCE and our fast build and sell model. At 30 June 2017 we achieved this target with a 4.5 years land supply comprising 3.5 years owned land and 1.0 years controlled land, with the owned land bank including land with both outline and detailed planning consents. At 30 June 2017, the ASP of plots in our owned land bank was £265k.

On strategic land we are making good progress and in FY17 we have achieved our mid-term target of delivering 25% of completions from strategic land. We target continued growth in the participation of strategically sourced land in the medium term, which will support future margin growth.

Following our success with planning over the past 12 months we are very well positioned, with all of our expected FY18 completions (2016: 99.7% of FY17 completions) having outline or full planning consent.

Improving efficiency and reducing costs

Improving the efficiency of our operations and controlling costs continues to be a high priority for the Group, as it will further enhance our margin.

In 2016, the Group undertook a fundamental review of its Barratt and David Wilson housing ranges. The outcome was a reduction in the number of houses in the range which will increase standardisation, simplify construction and reduce build costs whilst maintaining our high standards of design and build quality. There are currently 132 sites with c. 19,000 plots where we will be using the new ranges, of which 51 sites are already under construction.

We have also focused on improving margins through further standardisation of our layouts, stopping the advance sale of show homes and through business process simplification.

We have a robust and carefully managed supply chain with 90% of the housebuild materials sourced by our centralised procurement function manufactured or assembled in the UK. The cost of c. 75% of our centrally procured materials is now fixed until the end of FY18.

On labour, whilst we continue to see some pressure on skilled labour supply with shortages remaining location and trade specific, the rate of cost increase has eased. We are also seeking to increase construction efficiency and reduce demand on labour through implementing the new housetype ranges which are easier to build and through the use of alternative build options such as timber frames, large format block and light gauge steel frames.

We continue to expect that overall build cost inflation for FY18 will be c. 3-4%. We carefully control our administrative cost base and expect administrative expenses to be around £150m for FY18 (2017: £132.8m).

Commercial developments

Wilson Bowden Developments (‘WBD’) is our commercial development division.

During the year, WBD completed a new logistics hub and a freehold sale. W BD are currently developing a logistics warehouse and an office and warehouse facility. We have also continued to make progress in leasing our retail schemes at Hinckley, and have completed its investment sale.

Commercial development revenue was £61.1m (2016: £81.9m) with an operating profit before adjusting items of £10.2m (2016: £6.0m). After charging an £8.8m provision against a legacy commercial asset, we recognised an operating profit of £1.4m (2016: £6.0m).

Health and safety

The health and safety of our people, contractors, customers and the general public is the Group’s number one priority.

Increased activity levels across the industry in terms of site openings and production volumes combined with shortages of skilled staff has contributed to an increased risk of accidents on sites. We remain fully committed to the highest standards of health and safety on our sites. In the year, our reportable injury incidence rate has decreased slightly with 379 (2016: 385) reportable incidents per 100,000 employees.

The tragic events at Grenfell Tower in London illustrate why health and safety must always remain the first priority for the building industry. Fire safety is core to the way we plan and build our developments. Following the fire at Grenfell Tower, we conducted a review of our sites and continue to ensure we are maintaining the highest standards of building safety.

Delivery of our strategic objectives

We delivered on our financial targets, set in September 2014, of a minimum ROCE of 25% and a 20% gross margin for FY17 and we are focused on making further progress. With our improved Capital Return Plan, announced with our interim results in February 2017, we continue to deliver attractive cash returns.

Our key financial metrics

Our housebuilding business achieved a gross margin of 20.2% (2016: 19.1%) up 1.1 ppts and an operating margin of 17.4% (2016: 15.9%) up 1.5 ppts reflecting the improvements we have driven through the business, notwithstanding that the high-end London market presents some headwinds in this regard. The Group delivered a gross margin of 20.0% (2016: 18.9%) and an operating margin of 17.2% (2016: 15.8%) up 1.4 ppts on the prior year.

We have achieved our ROCE target with ROCE increasing by 2.7 ppts to 29.8% (2016: 27.1%). Contributing to this growth has been our increased operating profitability, use of land creditors and the disposal of our legacy shared equity interests. It remains a core part of our strategy to drive ROCE performance further, in line with our fast build and sell model.

Maintaining an appropriate capital structure

As at 30 June 2017, the Group had a net cash balance of £723.7m (2016: £592.0m), ahead of expectations, driven by strong performance and the timing of land and working capital payments. We expect to have low levels of average net debt throughout the year and FY18 year-end net cash to be around £500m.

We seek to defer payment for land purchases where possible to drive a higher ROCE, and land creditors as at 30 June 2017 were 37% of the owned land bank (30 June 2016: 38%). We continue to secure attractive deferred payment terms on land and expect land creditors as a proportion of the owned land bank to reduce slightly and be around 30-35% at 30 June 2018, in line with our operating framework.

The Group continues to maintain an appropriate financial structure with shareholders’ funds and land creditors funding the longer term requirements of the business and with term loans and bank debt funding shorter term requirements for working capital. In December, we further strengthened working capital capacity by amending and extending our existing revolving credit facility, removing the £150m stepdown in facility size previously due in December 2017 and extending our £700m facility to December 2021. In August 2017, the Group refinanced the maturing US$80m US Private Placement (USPP) with a new USPP of £200m, taking advantage of the current low interest rate environment. This has a ten year maturity with a fixed coupon of 2.77% which is significantly lower than the maturing USPP that had a fixed rate of interest of 8.14%. Following these financing changes we expect interest costs for FY18 to be around £50m of which c. £15m will be cash interest costs.

Net tangible assets were £3,430.0m (£3.40 per share) of which land net of land creditors and work in progress totalled £3,340.7m (£3.31 per share).

Capital Return Plan

In February, the Board announced that, given the significant operational and financial improvements the Group has made over the last few years, it would improve and extend the existing dividend plan announced in September 2014. As a result, the Group has improved the level of ordinary dividend cover from three times to two and a half times, and thereby increased the dividend payout ratio.

When market conditions allow, ordinary dividends will be supplemented with the payment of special dividends. The Board proposes to pay special dividends of £175m in November 2017 and November 2018.

We are therefore delighted to propose a final dividend of 17.1 pence per share (2016: 12.3 pence per share) resulting in a total ordinary dividend for the year up 33.3% to 24.4 pence per share (2016: 18.3 pence per share) and the third of our special dividends totalling £175.0m, equivalent to 17.3 pence per share. Both dividends will be paid on 20 November 2017 to all shareholders on the register at the close of business on 27 October 2017.

Capital Return PlanA	Ordinary dividend £m	Special dividend £m	Total Capital Return £m	Total pence per share
Paid to dateB	407.7	224.7	632.4	63.1p
Proposed payment
November 2017	172.2D	175.0	347.2	34.4pD
Year to November 2018	255.7C,D	175.0	430.7	42.7pD
Total proposed payment	427.9C,D	350.0	777.9	77.1pD
Total Capital Return Plan	835.6	574.7	1,410.3	140.2pD

1. All ordinary and special dividends are subject to shareholder approval. The third special dividend will be subject to shareholder approval at the Annual General Meeting in November 2017 and subsequent special dividends will be subject to shareholder approval.
2. Comprises FY15 interim dividend of 4.8 pence per share (£47.5m), FY15 final dividend of 10.3 pence per share (£103.1m), FY15 special dividend of 10.0 pence per share (£100.0m), FY16 interim dividend of 6.0 pence per share (£60.1m), FY16 final dividend of 12.3 pence per share (£123.6m), FY16 special dividend of 12.4 pence per share (£124.7m), and FY17 interim dividend of 7.3 pence per share (£73.4m).
3. Based on Reuters consensus estimates of earnings per share of 63.4 pence for FY18 as at 31 August 2017 and applying a two and a half times dividend cover in line with previously announced policy.
4. Based upon 30 June 2017 share capital of 1,006,729,041 shares for proposed payments.

Current trading and outlook

In the first nine weeks of the financial year, the Group has achieved net private reservations per average week of 265 (FY17: 267), resulting in net private reservations per active outlet per average week of 0.74 (FY17: 0.75).

Forward sales (including JV’s) up 13.8%, as at 3 September 2017 at £2,749.9m (4 September 2016: £2,416.5m), equating to 12,160 plots (4 September 2016: 11,364 plots).

	3 September 2017		4 September 2016		Variance £m
Forward sales	£m	Plots	£m	Plots	%
Private	1,722.3	4,994	1,545.9	4,723	11.4
Affordable	749.0	6,260	707.4	5,957	5.9
Sub-total	2,471.3	11,254	2,253.3	10,680	9.7
JV	278.6	906	163.2	684	70.7
Total	2,749.9	12,160	2,416.5	11,364	13.8

We have started the new financial year in a good position, with £723.7m year-end net cash and a healthy forward order position. Our outlook for FY18 is unchanged and we continue to expect to deliver modest growth in wholly owned completions, with affordable completions representing a similar proportion of completions as FY17.

We have industry leading quality and customer service, and talented employees whose outstanding contribution drives our success. I am proud to lead our first class team who are all determined to build on our outstanding operational and financial performance.

In FY18, we will continue to deliver our strategic objectives with a particular focus on improving margin, maintaining an appropriate capital structure and delivering our Capital Return Plan. When market conditions allow, ordinary dividends will be supplemented with the payment of special dividends.

David Thomas

Chief Executive

5 September 2017

Consolidated Income Statement

Year ended 30 June 2017

Continuing operations	Notes	2017 Total £m	2016 Total £m
Revenue	2.1	4,650.2	4,235.2
Cost of sales		(3,718.2)	(3,434.8)
Gross profit		932.0	800.4
Analysed as:
Adjusted gross profit		940.8	800.4
Cost associated with commercial asset	2.1	(8.8)	-
Administrative expenses		(132.8)	(132.0)
Profit from operations	2.1	799.2	668.4
Analysed as:
Adjusted operating profit		808.0	668.4
Cost associated with commercial asset	2.1	(8.8)	-
Finance income	5.2	2.9	5.9
Finance costs	5.2	(62.6)	(64.1)
Net finance costs	5.2	(59.7)	(58.2)
Share of post-tax profit from joint ventures		25.4	71.9
Share of post-tax profit from associates		0.2	0.2
Profit before tax		765.1	682.3
Analysed as:
Adjusted profit before tax		773.9	682.3
Cost associated with commercial asset	2.1	(8.8)	-
Tax	2.4	(149.1)	(132.0)
Profit for the year		616.0	550.3
Profit for the year attributable to the owners of the Company		615.8	550.3
Profit for the year attributable to non-controlling interests		0.2	–
Earnings per share from continuing operations
Basic	2.2	61.3p	55.1p
Diluted	2.2	60.7p	54.3p

Statement of Comprehensive Income

Year ended 30 June 2017

		Group
	Notes	2017 £m	2016 £m
Profit for the year		616.0	550.3
Other comprehensive income/(expense):
Items that will not be reclassified to profit or loss
Actuarial loss on defined benefit pension scheme	6.1	(4.4)	(9.0)
Fair value adjustment on available for sale financial assets		-	0.5
Tax credit relating to items not reclassified		0.9	1.7
Total items that will not be reclassified to profit or loss		(3.5)	(6.8)
Items that may be reclassified subsequently to profit or loss
Amounts deferred in respect of effective cash flow hedges	5.2	1.9	6.3
Amounts reclassified to the Income Statement in respect of hedged cash flows	5.2	10.2	(1.1)
Tax charge relating to items that may be reclassified		(2.4)	(1.2)
Total items that may be reclassified subsequently to profit or loss		9.7	4.0
Total comprehensive income recognised for the year		622.2	547.5
Total comprehensive income recognised for the year attributable to the owners of the Company		622.0	547.5
Total comprehensive income recognised for the year attributable to non- controlling interests		0.2	–