Half Year Results

06/02/2019 Archive

BARRATT DEVELOPMENTS PLC

Half year results for the six month period ended 31 December 2018

Strong first half delivery, good progress against medium term targets

£m unless otherwise stated^1,2	Half year ended 31 December 2018	Half year ended 31 December 2017	Change
Total completions (units)3	7,622	7,324	4.1%
Revenue	2,132.0	1,988.0	7.2%
Gross margin (%)4	22.6	20.6	200 bps
Profit from operations	409.7	355.2	15.3%
Operating margin (%)4	19.2	17.9	130 bps
Profit before tax	408.0	342.7	19.1%
Basic earnings per share (pence)	32.7	27.1	20.7%
Interim dividend per share (pence)	9.6	8.6	11.6%
ROCE (%)4	29.5	28.3	120 bps
Tangible net assets per share (pence)4	360.8	333.4	8.2%
Net cash4	387.7	165.9	133.7%

Highlights

Britain’s largest housebuilder with total completions³ for the first half at 7,622 homes, up 4.1%
First half net private reservations of 0.64 (2017: 0.68) per active outlet per week
Good progress on medium term targets including 200 bps improvement in gross margin to 22.6%
Continued industry-leading customer satisfaction and build quality
Our largest single charitable donation, £750,000, to RBLI to support the construction of a Centenary Village to provide crucial housing support to ex-servicemen and women

Current trading

Net private reservations of 0.74 (2018: 0.78) per active outlet per average week
Total forward sales3 up 7.3% to £3,021.0m as at 3 February 2019 (4 February 2018: £2,816.2m)
Outlook for the full year remains in line with the Board’s expectations

Capital Return Plan

Further extended Capital Return Plan with ongoing commitment to ordinary dividend cover at 2.5 times and intention to pay special returns of £175m in November 2019 and £175m in November 2020

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

“The Group has delivered a strong operational and financial performance across the half year. As Britain’s largest housebuilder, we are helping to address the country’s housing shortage by building high quality homes, growing volumes, creating jobs and supporting economic growth, whilst continuing to lead the industry in quality and customer service.

‘Operating efficiencies are delivering improved margins and our controlled and disciplined business model means we have a high-quality land bank, strong forward sales, excellent financial position and efficient cash flow generation.

‘Whilst we continue to monitor market conditions closely, current trading is in line with our expectations and we are confident of delivering a good financial and operational performance in FY19.”

Refer to Glossary for definition of key financial metrics
Unless otherwise stated, all numbers quoted exclude JVs
Including JVs in which the Group has an interest
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 Glossary and Definitions. Net cash definition in Note 5.1

Note on forward looking statements

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.

This announcement contains inside information. The person responsible for arranging for the release of this announcement on behalf of Barratt Developments PLC is Jenny Matthews (Interim Head of Investor Relations).

There will be an analyst and investor meeting at 8:30am 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 8:30am today. A playback facility will be available shortly after the presentation has finished.

A listen only function will also be available Dial in: 0800 376 7922

International dial in: +44 (0) 207 192 8000

Conference ID: 6993905

Further copies of this announcement can be downloaded from the Barratt Developments 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 Jenny Matthews, Interim Head of Investor Relations	020 7299 4894
Media enquiries Tim Collins, Head of Corporate Communications	020 7299 4874
Derek Harris, Head of Public Relations	020 7299 4873
Brunswick Jonathan Glass/Wendel Verbeek	020 7404 5959

Financial reporting calendar

The Group's next scheduled announcement of financial information is the trading update on 9 May 2019.

Chief Executive’s Statement Overview

The Group has delivered a strong operational and financial performance in the first half. We are making good progress against our medium term targets.

Primary operational targets and key financial metrics
	Medium term targets	Progress in the half year
Completions	3-5% growth per annum Present business capacity is 20,000 per annum	4.1% increase in half year total completions3 to 7,622
Gross margin	New land acquisitions at minimum 23% gross margin	200 bps increase in gross margin to 22.6%, resulting in 130 bps improvement in operating margin to 19.2%
ROCE	Minimum of 25%	Strong ROCE of 29.5% at December 2018

We are very proud to be not only Britain’s largest housebuilder, but also to lead the industry in both customer service and build quality. We strive to meet our customers’ expectations and we believe that the high quality of our homes and our excellent customer service is fundamental to our ongoing success. We are building the homes the country needs, creating jobs and supporting economic growth whilst also delivering both operationally and financially for our shareholders.

We are the largest housebuilder in Britain by volume, building homes across England, Scotland and Wales through our three brands: Barratt Homes, David Wilson Homes and Barratt London. We have grown volumes³ by 28.7% over the last five financial years and we remain committed to growing the business whilst maintaining our industry-leading standards of quality and customer service. Total completions³ for the period were 7,622 homes (2017: 7,324 homes), in line with our expectations of delivering growth in FY19. Our new Cambridgeshire division is now fully operational and delivered completions in the half year and will provide the business with further growth over the medium term.

We have grown margin significantly over the last five years and in this half year the Group has delivered a gross margin of 22.6% (2017: 20.6%). Operating margin increased by 130 bps to 19.2% for the half year with operating profit of £409.7m (2017: £355.2m), driven mainly by sites purchased at higher gross margins and the benefits of the new product range coming through.

We continue to focus on driving further margin improvements through the business. The operational improvements that we have made, including our new product range and our concentration on standardised product, continue to enable us to acquire land at a minimum of 23% gross margin.

ROCE has grown from 14.2% to 29.5% since December 2013, and we expect it to remain at a minimum of 25% over the medium term.

Our balance sheet remains robust, ending the half year with net cash of £387.7m (31 December 2017: £165.9m) and with net tangible assets of £3,659.5m (31 December 2017: £3,375.5m).

This disciplined approach and our financial strength enables us to keep investing in our business and the future of housebuilding.

Strong housing market fundamentals

The housing market fundamentals remain attractive. The Government has set a target of 300,000 homes to be built per year by the mid-2020s to meet existing demand and in July 2018, Ministers released an updated National Planning Policy Framework to ensure that local authorities plan positively for housing and will be held accountable for under- delivery.

The lending environment also remains positive with greater competition in the mortgage market and a broad spread of lenders supporting homebuyers. We continue to see strong Government support for the new build industry and to help people to get onto the housing ladder. In October 2018, the Government announced that Help to Buy will continue in its current form until March 2021, and thereafter will be in place for two further years limited to first-time buyers with some regional price caps. To June 2018 nearly 184,000 homes had been bought using the scheme, 81% by first-time buyers (Source: MHCLG, Help to Buy (equity loan scheme) statistics: April 2013 to June 2018).

The land market remains stable and we continue to see excellent land opportunities that exceed our minimum hurdle rates.

Committed to building more high quality homes

As Britain’s largest housebuilder we remain committed to playing our part in addressing the housing shortage. We design attractive developments that meet our high quality standards and will enhance local communities for years to come. We continue to increase volumes whilst maintaining our industry-leading quality, and remain committed to investing in the future of housebuilding.

Leadership in quality and customer service

We believe our industry leadership in quality and customer service is fundamental to business resilience. That quality is recognised through the NHBC Pride in the Job Awards for site management. In June 2018 our site managers were awarded 83 awards, more than any other housebuilder for the 14th consecutive year. We are also the only major housebuilder to be awarded the maximum 5 Star rating by our customers in the HBF customer satisfaction survey for nine consecutive years.

Investing in our people

We are committed to the development of our people in order to drive our success. A shortage of skilled workers in our sector means that attracting and retaining the best people is an important priority for the business. We are building a diverse and inclusive workforce that reflects the communities in which we operate, delivering excellence for our customers by drawing on a broad range of talents, skills and experience.

We are investing for the future and continue to develop award winning schemes including those for graduates, apprentices, former Armed Forces personnel and our own Degree Apprenticeship in Residential Development and Construction, run in conjunction with Sheffield Hallam University. Building on the success of our programme, we have created a fast track bricklaying apprenticeship, which has attracted more interested candidates and reduced the programme duration by six months.

We also continue to collaborate with the wider housebuilding industry. We actively participate in the Home Building Skills Partnership, the aims of which include attracting new entrants to the industry, providing the skills for today and the future, and supporting the supply chain in attracting and developing the skills they need to support our industry.

To support our diversity and inclusion strategy we have reviewed and improved our family friendly policies and enhanced our industry leading maternity and paternity benefits. Over 1,200 managers have now completed our diversity training programme, and all employees will complete our diversity and inclusion e-learning module. We have also launched a career development programme for high potential female employees.

Modern methods of construction

We continue to develop, trial and implement modern methods of construction. In the first half we built and sold over 1,100 homes using timber frame, large format block and light gauge steel frame. We also use offsite manufactured ground floor solutions and roof cassettes. We aim to use modern methods of construction on 20% of homes by 2020.

Our financial performance

Half year results

The Group has delivered a strong first half performance with good customer demand for high quality new homes supported by a stable market backdrop. Overall our net private reservation rate was solid at 0.64 (2017: 0.68) per active outlet per week in the half year period including reservations from two bespoke design and build arrangements.

During the period, we operated from an average of 376 outlets³ (2017: 376 outlets). We have made good progress on new site openings, launching 90 new outlets³ (2017: 93 outlets) in the half year. We now expect to see average active outlet numbers for the full year to be similar to last year.

Total completions³ were 7,622 homes (2017: 7,324 homes) and comprised:

Completions (units)	H1 FY19	H1 FY18	Change
Private	6,078	5,715	6.4%
Affordable	1,324	1,229	7.7%
JV	220	380	(42.1%)
Total (including JVs)	7,622	7,324	4.1%

Total ASP remained constant at £282,200 (2017: £281,000). Private ASP was £317,300 (2017: £314,600) as a similar number of homes in Central London year on year completed at higher ASP’s, offset by changes in the regional mix. Outside of London, our private ASP reduced by 1.8% to £296,200 (2017: £301,700), driven by an increase in the proportion of two and three bedroom homes offset by some underlying house price inflation. Affordable ASP reduced by 3.0% to £120,900 (2017: £124,700) reflecting changes in mix. We continue to expect FY19 total ASP to reduce from that achieved in the first half due to less Central London product as we continue to trade through our remaining Central London sites. At 31 December 2018, we had 39 private, wholly owned homes remaining to legally complete in Central London.

Our gross margin was 22.6% (2017: 20.6%) mainly reflecting the benefit of our new product ranges and sites that we have purchased at improved margins.

We delivered a 130 bps operating margin improvement for the half year. Delivery from new sites within our regional business accounted for 120 bps of this improvement, mainly driven by sites purchased at higher gross margins and the benefits of our new product ranges coming through. Margin also benefitted by 30 bps from the disposal of a legacy commercial asset and 50 bps from the reversal of inventory impairment. There were small incremental benefits from our Central London business, trading through our legacy sites and from the cessation of the sale of showhomes. Against this both mix and other items, and administrative costs reduced margin. Administrative costs reduced margin by 70 bps, reflecting the timing of certain expenditure and a reduction in sundry income. As a result of our operating margin improvement, Group operating profit increased by £54.5m to £409.7m (2017: £355.2m).

Net finance charges were £8.1m lower than the prior period at £15.1m (2017: £23.2m) and we now expect FY19 net finance costs to be around £40m, comprising £8m of cash and £32m of non-cash.

In the half year, the Group’s share of JV profit was £13.4m (2017: £11.3m). We now expect to deliver around 700 JV completions in FY19, and expect JV profit to be around £25m.

Profit before tax increased by 19.1% to £408.0m (2017: £342.7m) and the Group recognised £76.1m of tax charges at an effective rate of 18.7% (2017: 20.3%). The higher prior year rate reflected adjustments arising in that period in relation to earlier years. Basic earnings per share increased by 20.7% to 32.7 pence per share (2017: 27.1 pence per share).

Operating framework and capital structure

We will continue to maintain an appropriate capital structure and a sustainable operating framework, 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. On 22 November 2018, we amended and extended our £700m Revolving Credit Facility to 22 November 2023.

In order to preserve a resilient balance sheet, we maintain a modest average net cash position over the financial year and are cash positive at year end. As at 31 December 2018, the Group had a net cash balance of £387.7m (31 December 2017: £165.9m), reflecting cash generated from completions and the timing of land investment. We now expect FY19 year-end net cash to be around £600-£650m.

We continue to seek to defer payment for some land purchases to drive a higher ROCE. As at 31 December 2018 the Group had reduced land creditors to 32.1% (31 December 2017: 36.7%) of the owned land bank in line with guidance. At 30 June 2019, we expect this to be 30-35% of the owned land bank, and we expect to continue to reduce this further and target 25-30% of the owned land bank over the medium term.

Our operating framework has remained consistent throughout the half year and is as follows:

	Operating framework	Progress in the half year
Land bank	c. 3.5 years owned and c. 1.0 year controlled	31 December 2018: 3.7 years owned and 1.0 year controlled (31 December 2017: 3.8 years owned and 1.2 years controlled)
Land creditors	Reduce usage to 25-30% of the land bank over medium term	Reduced to 32.1% (31 December 2017: 36.7%)
Net cash	Modest average net cash over the financial year	Expect FY19 average net cash of c.£200m
Net cash	Year-end net cash	31 December 2018: £387.7m (31 December 2017: £165.9m)
Treasury	Appropriate financing facilities	£700m Revolving Credit Facility extended to 2023
Capital Return Plan	2.5 x dividend cover Ordinary dividend supplemented by special returns when market conditions allow	FY19 interim dividend of 9.6p (2017: 8.6p) per share and Capital Return Plan extended to November 2020

Net tangible assets were £3,659.5m (£3.61 per share) of which land, net of land creditors, and work in progress totalled £3,704.9m (£3.65 per share).

The key dimensions underpinning delivery of our strategy

In addition to stable market conditions during the half year, our successful land investment strategy has helped to drive 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 increased gross profit and led to increased completion volumes.

The land market remained attractive throughout the first half of the year and we secured excellent opportunities that exceeded our minimum hurdle rates. In the period the Group approved £338.2m (2017: £641.2m) of operational land for purchase in the year, which equates to 9,576 plots (2017: 13,263 plots). To support our volume growth aspirations we expect to approve between 18,000-22,000 plots per annum over each of the next three financial years.

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. Reflecting the excellent land opportunities we have seen over the year as well as our growth ambitions, at 31 December 2018 we are slightly above this target with a 4.7 years land supply comprising 3.7 years owned land and 1.0 year of controlled land, with the owned land bank including land with both outline and detailed planning consents.

Our land bank at 31 December comprised:

Our land bank	31 December 2018	31 December 2017
Owned and unconditional land bank (plots)	63,125	64,542
Conditionally contracted land bank (plots)	17,505	19,075
Total owned and controlled land bank (plots)	80,630	83,617
Number of years’ supply	4.7	5.0
JVs owned and controlled land bank (plots)	5,426	5,329
Strategic land (acres)	12,192	11,806
Land bank carrying value	£2,994.4m	£3,229.0m

At 31 December 2018, the ASP of plots in our owned land bank was £275k (2017: £266k). During the half year period 26% (2017: 28%) of our completions were from strategically sourced land and we are making good progress in reaching our medium term target of 30% of completions from strategic land, which we believe is an appropriate level for our business.

Following our success with planning over the past 12 months we are very well positioned, with 97% of our expected FY20 completions (2017: 97% of FY19 completions) having outline or detailed planning consent.

Improving efficiency and reducing costs

Improving the efficiency of our operations and controlling costs remains a key focus for the Group, as it will further enhance our margin and improve business resilience. We have launched our new cost effective housetype ranges but we are also seeking ways to improve efficiencies and reduce costs across the business.

In 2016, the Group undertook a full review of its housing ranges. The new ranges maintain our high standards of design whilst being faster to build, help us to reduce build cost and waste and are more suitable for modern methods of construction. We continue to roll out our new housing ranges across the business with the new ranges now identified for 398 sites (February 2018: 304 sites) across the country and we currently have 230 sites (February 2018: 150 sites) under construction. We have made further refinements to our housing range in the half year, in response to the changing costs of certain trades and materials, without affecting our quality or design standards. Our new housing ranges cover all segments of our market, providing us with the flexibility to replan sites to suit market conditions and meet consumer demands should the need arise.

We have a robust and carefully managed supply chain with around 90% of the housebuild materials sourced by our centralised procurement function manufactured or assembled in the UK.

The pricing of 98% of our centrally procured materials are fixed until the end of June 2019 and 40% are fixed until December 2019.

We continue to see some pressure on skilled labour supply with shortages remaining location and trade specific. We are also improving construction efficiency and reducing demand on labour through implementing the new housetype ranges, which are easier and quicker to build, and through the use of modern methods of construction such as timber frames, large format block and light gauge steel frames. We continue to expect that overall build cost inflation for FY19 will be c. 3-4%.

In FY19 we expect to receive both lower management fees from our joint ventures and less sundry income. Accordingly, despite carefully controlling our administrative cost base, with expected underlying inflation of c. 2%, we now expect net administrative expenses for FY19 to be around £170m.

Health and safety

Health and safety is a core priority for the Group and 'Keeping people safe' is a key business principle. We are continually focused on improving our processes and procedures and challenging unsafe attitudes and behaviours. We continue to develop our already established approach to safety and recognise that health requires equal focus, to ensure workers do not suffer long term issues associated with their work activities. We continue to strive for improved standards and the prevention of injury and ill health. In line with the industry we are seeing pressures in this area and we continue to focus on driving improvements. In the 12 months to 31 December 2018, our reportable injury incidence rate was 371 (12 months to December 2017: 403) per 100,000 workers.

Charitable giving

We are committed to creating a positive legacy in the communities in which we live and work 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 locally and nationally and we actively promote charitable giving and volunteering amongst our employees.

Each of our divisions and offices support local charities and the Group matches the funds raised by our employees. We have recently announced that we will also start to match the money raised by individuals for the charities close to their hearts. We also encourage all of our employees to take paid time off work to volunteer in their local communities and ask them to consider using the Give As You Earn scheme.

In January 2019, we launched the Barratt & David Wilson Community Fund through which each of our divisions will give £1,000 a month to community groups and charities local to them or their sites.

On a national level we continue to work with the RSPB through our national partnership which aims to improve the sustainability of our developments, enhancing and improving habitats and supporting wildlife.

As part of our 60^th Anniversary celebrations we were delighted to announce a new partnership with the Royal British Legion Industries (RBLI) and made the Group’s largest single donation of £750,000 to help them build a Centenary Village to provide crucial housing support to ex-servicemen and women.

Capital Return Plan

We have a well-defined dividend policy with the Group paying an ordinary dividend cover of 2.5 times earnings. We have previously announced that when market conditions allow, ordinary dividends will be supplemented with the payment of special returns. As previously announced the Board intends to pay a special return of £175m in November 2019. Additionally, demonstrating the Board’s confidence in the business going forward it proposes to pay a further special return of £175m in November 2020.

As previously announced in September 2018, the Board has reviewed the mechanism for delivering the £175m cash return to shareholders in November 2019 and any future special returns beyond the current Capital Return Plan. The Board believes that at times there are differences between both underlying market conditions and the strength of our business and market valuation.

As a consequence, the Board has introduced the flexibility to this policy such that the £175m cash returns proposed in November 2019 and November 2020, and any future special returns, can be made through a combination of share buybacks and special dividends, as opposed to solely special dividends. Whilst the payment of special dividends represents the Board’s preferred method of returning excess capital to shareholders, this recognises that at certain share price points, share buybacks will be in the best interest of shareholders.

For the five years to November 2020 total dividend payments are expected to be around £2.1bn based on current analyst estimates.

Capital Return Plan^A	Ordinary dividend £m	Special dividend £m	Total £m	Total pence per share
Total paid^B	697.6	474.3	1,171.9	116.2
Year to November 2019	271.9 C, D	175.0	446.9	44.2D
Year to November 2020	276.9 C, D	175.0	451.9	44.7D
Total proposed payment	548.8C, D	350.0	898.8	88.9D
Total	1,246.4	824.3	2,070.7	205.1

All future ordinary and special dividends are subject to shareholder approval
Comprises total dividend payments for FY16-FY18
Based on Reuters consensus estimates of earnings per share of 67.3p for FY19 and 68.6p for FY20 as at 1 February 2019 and applying a 2.5 times dividend cover in-line with announced policy. This consensus estimate is provided for illustration purposes. No member of the Group nor any of their respective directors, officers or employees: (i) has commented on the consensus estimate, (ii) endorses the consensus estimate, or (iii) accepts any responsibility whatsoever for the accuracy of the consensus estimate and shall accordingly have no liability whatsoever in respect of the consensus estimate
Based upon 31 December 2018 share capital of 1,010,761,958 shares for proposed payments

In accordance with this policy, the Board is pleased to announce an interim dividend of 9.6 pence per share (2018: 8.6 pence per share). This dividend represents one third of the expected ordinary dividend for the financial year, based on the full year dividend being covered 2.5 times by the total of the earnings for both the six months to 30 June 2018 and the six months to 31 December 2018.

The interim dividend will be paid on Tuesday 7 May 2019 to all shareholders on the register on Friday 12 April 2019.

Current trading and outlook

Whilst the imminent departure of the UK from the EU has created increased levels of economic and political uncertainty, the Group is in a strong position, with a substantial net cash balance, strong balance sheet, healthy forward sales position and an experienced management team. The Board will continue to monitor the market and economy. Our strong financial foundation provides us flexibility to take appropriate action where necessary. Given the uncertainties arising from the way in which the UK will depart from the EU, we have worked with our suppliers on continuity of supply of non- UK manufactured components, including product specification reviews, their holding additional inventories and review of logistic routes to seek to mitigate the potential for disruption.

The sales performance across the Group in the second half to date has been encouraging, with net private reservations per average week of 284 (2018: 294), resulting in net private reservations per active outlet per average week of 0.74 (2018: 0.78).

Our total forward sales3 as at 3 February 2019 were £3,021.0m against a strong prior year of £2,816.2m.

	3 February 2019		4 February 2018		Variance %
	£m	Units	£m	Units	£m	Units
Private	1,473.8	4,874	1,790.3	5,302	(17.7)	(8.1)
Affordable	1,164.2	7,496	778.7	6,224	49.5	20.4
Wholly owned	2,638.0	12,370	2,569.0	11,526	2.7	7.3
JV	383.0	824	247.2	828	54.9	(0.5)
Total	3,021.0	13,194	2,816.2	12,354	7.3	6.8

Based on current market conditions, we expect to grow volume towards the lower end of our medium term target range in FY19, in line with current market expectations, whilst ensuring we maintain our industry leading standards of quality and service. The housing market fundamentals remain attractive, with a long term undersupply of new homes, strong Government support to the sector and a positive lending environment.

The Group has had a strong start to our financial year and the outlook for the full year is in line with the Board’s expectations. We remain focused on delivering our medium term targets of volume growth of 3-5% over the medium term, land acquisition at a minimum 23% gross margin, and a minimum 25% ROCE.

Our strong, well-capitalised balance sheet and robust order book gives us the resilience and flexibility to react to potential changes in the operating environment in 2019 and beyond.

The Board’s confidence in the Group’s operational and financial performance is reflected by the proposed FY19 and FY20 special dividend.

David Thomas

Chief Executive

5 February 2019

Principal risks and uncertainties

The Group’s financial and operational performance and reputation is subject to a number of potential risks and uncertainties, which could, either separately or in combination, have a material impact on the Group’s performance over the remaining six months of the financial year and could cause actual results and shareholder returns to differ materially from expected and historical results.

The process by which the UK will depart the EU is currently uncertain and poses heightened risk on three of the Group’s principal risks being i) the economic environment; ii) the ability to attract and retain high calibre employees; and iii) the availability of raw materials, sub-contractors and suppliers. A no-deal exit would further increase these risks. The Board continues to monitor changes in these risks and to take appropriate action where necessary. Given the uncertainties arising from the way in which the UK will depart from the EU, we have worked with our suppliers on continuity of supply of non-UK manufactured components, including product specification reviews, their holding additional inventories and review of logistic routes to seek to mitigate the potential for disruption.

Reputational risk could potentially arise from a number of sources including external and internal influences relating to the housebuilding sector which when combined or over a period of time could create a new principal risk. The Group actively manages the impact of reputational risk by carefully assessing the potential impact of all the principal risks and implementing mitigation actions to minimise those risks.

The Group is committed to safeguarding the environment in which it operates and assesses climate change risks as set out in our Climate Change Policy online and our annual submission to the Carbon Disclosure Project.

Save as set out above, the Directors do not consider the process of risk management and the principal risks and uncertainties to have changed since the publication of the Annual Report and Accounts for the year ended 30 June 2018.

Further details of the Group’s principal risks and mitigation of the risks outlined below can be found on pages 51 to 56 of the Annual Report and Accounts for the year ended 30 June 2018, 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 but not limited to: flat or negative economic growth, inflation, interest rates, buyer confidence, mortgage availability, Government backed schemes, competitor pricing, falls in house prices or land values.

Land availability

The inability to secure sufficient consented land and strategic land options at appropriate cost and quality.

Availability of finance and working capital

Unavailability of sufficient borrowing facilities and the inability to refinance facilities as they fall due, obtain surety bonds, or comply with borrowing covenants. Furthermore, there are risks from 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

The ability to recruit and/or retain employees with the appropriate skills 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.

Government regulation and planning policy

Changing complex regulatory environment which affects planning, technical requirements and the time taken to obtain planning approval.

Construction

Failure to identify and achieve key construction milestones (due to factors including the impact of adverse weather conditions), failure to identify cost overruns promptly, design and construction defects, and exposure to environmental liabilities. 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 consortia

Large development projects, some of which involve joint ventures or consortia arrangements and/or commercial developments, are complex and capital intensive.

Safety, health and environmental

Health and safety or environmental breaches can result in incidents affecting employees, sub-contractors and site visitors.

Failure of any of the Group’s IT systems in particular those relating to customer information, surveying and valuation. The Group could suffer significant financial and reputational damage due to the loss, theft or corruption of data either inadvertently or via a targeted cyber attack.

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