02/09/2021 Archive
Barratt Developments PLC
Annual Results Announcement for the year ended 30 June 2021
A year of excellent performance. Well positioned for the year ahead.
Commenting on the results David Thomas, Chief Executive of Barratt Developments PLC said:
“We have made excellent progress this year thanks to the resilience, flexibility and hard work of our employees, sub-contractors and suppliers, who have also continued to deliver the highest standards of quality and service. We have begun the new financial year in a strong position and, whilst there are still uncertainties ahead, our strong balance sheet, forward order book visibility and construction activity to date all stand us in good stead. There is very strong demand for houses across the country and we play a crucial role in providing the high quality and sustainable homes this country needs. As we work towards our medium term target of growing completions to 20,000 homes a year, we are committed to doing so as the leading national sustainable housebuilder - building homes which have a positive environmental, social and economic impact today and into the future.”
|
£m unless otherwise stated1,2,3 |
Year ended 30 June 2021 |
Year ended 30 June 2020 |
Change |
Year ended 30 June 2019 |
Change |
|
Total completions (homes)4 |
17,243 |
12,604 |
36.8% |
17,856 |
(3.4%) |
|
Revenue |
4,811.7 |
3,419.2 |
40.7% |
4,763.1 |
1.0% |
|
Gross margin (%) |
21.0 |
18.0 |
300bps |
22.8 |
(180bps) |
|
Profit from operations |
811.1 |
493.4 |
64.4% |
901.1 |
(10.0%) |
|
Operating margin (%) |
16.9 |
14.4 |
250bps |
18.9 |
(200bps) |
|
Profit before tax |
812.2 |
491.8 |
65.1% |
909.8 |
(10.7%) |
|
Basic earnings per share (pence) |
64.9 |
39.4 |
64.7% |
73.2 |
(11.3%) |
|
Total ordinary dividend per share (pence) |
29.4 |
nil |
n/m |
29.1 |
1.0% |
|
ROCE (%) |
28.3 |
15.6 |
1,270bps |
29.7 |
(140bps) |
|
Net cash |
1,317.4 |
308.2 |
327.4% |
765.7 |
72.1% |
Highlights
- Excellent operational and financial performance throughout the year with total home completions4 increasing by 36.8% to 17,243 (2020: 12,604), just 3.4% below the 17,856 total completions achieved in 2019.
- Gross margin of 21.0% (2020: 18.0%; 2019: 22.8%) with the adjusted gross margin recovering to 23.2% (2020: 18.5%; 2019: 22.8%) reflecting market strength and completion volume recovery.
- Strong cash generation with net cash at 30 June 2021 of £1,317.4m (30 June 2020: £308.2m; 30 June 2019: £765.7m) which enables our growth plans.
- Maintained competitive position in the land market, whilst remaining disciplined. Approved £876.8m (2020: £368.1m; 2019: £859.8m) of operational land for purchase, equating to 18,067 plots (2020: 9,441 plots; 2019: 18,448 plots) on 97 new sites (2020: 51; 2019: 90).
- Continued industry leadership in quality and customer service recognised through a seventeenth consecutive year of achieving more NHBC Pride in the Job Awards than any other housebuilder and the twelfth consecutive year of receiving the HBF maximum 5 Star customer satisfaction rating.
- Made significant progress towards being the country’s leading national sustainable housebuilder, with an increased focus on significantly reducing our environmental impact.
- Final ordinary dividend per share of 21.9p (2020: nil; 2019: 19.5p) together with the interim dividend of 7.5p (2020: nil; 2019: 9.6p) resulting in a total ordinary dividend for the financial year of 29.4p (2020: nil; 2019: 29.1p).
Current trading
- Net private reservations per active outlet per average week at 0.83 from 1 July through to 22 August, 11.7% below the equivalent initial post lockdown period in FY21 at 0.94, but 22.1% above the 0.68 achieved in the same period in FY20.
- Strong forward sales4 as at 22 August 2021 with 15,734 homes (23 August 2020: 15,660 homes; 25 August 2019: 13,064 homes) and a value of £3,939.9m (23 August 2020: £3,706.5m; 25 August 2019: £3,037.5m).
- Construction activity on track to deliver planned output growth with 335 equivalent homes per average week built to date in the new financial year (FY21: 290 homes; FY20: 361 homes).
- Refer to Glossary for definition of key financial metrics
- Unless otherwise stated, all numbers quoted exclude JVs
- In addition to the Group using a variety of statutory performance measures it also measures performance using alternative performance measures (APMs). Definitions of the APMs and reconciliations to the equivalent statutory measures are detailed in the Definitions of alternative performance measures and reconciliation to IFRS section. Net cash definition in Note 5.1
- Including JVs in which the Group has an interest
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. Nothing contained in this announcement or the Group’s website should be construed as a profit forecast or an invitation to deal in the securities of the Company.
There will be an analyst conference call and webcast at 8.30am today. An archived version of the webcast will also be available on our website during the afternoon of 2 September 2021.
Dial in UK toll free: 0808 109 0700
International dial in: +44 (0) 203 003 2666
The presentation will also be webcast live with the follow on Q&A. Please register and access the webcast using the following link:
https://broadcaster-audience.mediaplatform.com/#/event/610bcc07ab59730374da68e7
Further copies of this announcement can be downloaded from the Barratt Developments PLC corporate website at www.barrattdevelopments.co.uk or by request from the Company Secretary's office at: Barratt Developments PLC, Barratt House, Cartwright Way, Forest Business Park, Bardon Hill, Coalville, Leicestershire, LE67 1UF.
|
For further information please contact: |
|
|
Barratt Developments PLC David Thomas, Chief Executive Officer |
020 7299 4897 |
|
Analyst/investor enquiries John Messenger, Group Investor Relations Director |
07867 201 763 |
|
Media enquiries Tim Collins, Head of Corporate Communications |
020 7299 4874 |
|
Brunswick Jonathan Glass / Rosie Oddy |
020 7404 5959 |
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Barratt Developments PLC LEI: 2138006R85VEOF5YNK29 |
Chairman’s statement
Introduction
We have made huge progress in our recovery from the impact of COVID-19 and we remain focused on our medium term targets. We delivered 17,243 high quality new homes (including JVs) across Britain in 2021, 36.8% ahead of last year and almost back to the 17,856 homes we completed in 2019. I would like to thank all our employees, sub-contractors and suppliers for their dedication and commitment, and for delivering our excellent operational and financial recovery.
Our employees
Our employees deliver our success. The Board is always keen to understand and respond to the views, concerns and challenges of our people – and this has never been more important than during recent times. Our Workforce Forum has continued to be pivotal in engaging with our employees, particularly in respect of future working arrangements. This has helped inform the Board’s view that, whilst our offices will always remain important for encouraging the collaboration and contact, which is fundamental to the wellbeing, creativity and effectiveness of our teams, the remote ways of working, which we implemented during the pandemic, will enable us to be more flexible in the future.
The physical and mental wellbeing of our employees remains a priority for the Board. We continue to introduce new ways of supporting our employees whether they are working from home, on site or in the office. The Board also continues to monitor the development of diversity and inclusion as we seek to create an environment that promotes equal opportunities for all.
Our culture
Our business has a strong culture and belief in ‘doing the right thing’ and taking pride in the work that we do and the way in which we operate, whilst remaining focused on the needs of our customers and other stakeholders.
The strength of our culture throughout the Group has been shown through the speed, scale and the quality of our recovery notwithstanding the continuing challenges created by COVID-19. We continue to seek ways of further developing and improving the positive culture of our business.
The Board recognises that the culture of the Group is driven by its leadership and continuously strives to lead by example.
Sustainability
We have continued to develop our sustainability strategy, particularly with regards to climate change, driven by our belief that this is the right thing to do for the Group’s long term prospects, our stakeholders and wider society. We are committed to leading our industry in both quality and sustainability and are striving to reduce our carbon emissions and the environmental impacts of the homes that we build whilst seeking to create biodiversity net gain across our developments. Creating a positive environmental, social and economic legacy for future generations is core to quality housebuilding. This is embedded in our business through our purpose to lead the future of housebuilding by putting our customers at the heart of everything we do.
By doing business sustainably we create value for our stakeholders. However, we recognise that, against the backdrop of climate change pressures, we need to accelerate change in both our operations and our supply chain in a way that promotes the benefits of our activities for all stakeholders.
In 2021, we have taken several steps to enhance our focus on sustainability. The Board agreed to establish a new Sustainability Committee during the year. This Committee will report directly into the Board and will be chaired by David Thomas, our Chief Executive. It will play an active role in developing, executing and monitoring the ongoing improvements in our drive to increase and enhance sustainability across our business.
In addition, the Remuneration Committee has agreed to include a target to reduce construction waste within the FY22 annual bonus scheme and a carbon reduction target in the Long Term Performance Plan (LTPP) award due to be granted later this year. These targets will help the Group move closer to achieving its overall waste intensity and carbon intensity targets.
We are also making good progress towards our compliance with the TCFD recommendations. In addition, following stakeholder interest, we will, with the publication of our Annual Report, begin reporting against the Sustainability Accounting Standards Board’s (SASB) disclosure criteria. This will be available on our website www.barrattdevelopments.co.uk with the Annual Report publication later this month.
Being a trusted partner is a principle we take seriously. We are committed to continuously enhancing our reporting disclosures to meet changing stakeholder needs and enable better analysis and comparability. That means continuing to align to best practice frameworks, standards and indices.
I am pleased to report that the steps we have taken to progress our sustainability strategy during the year have resulted in improvements in the Group’s sustainability rankings across various indices, such as the NextGeneration sustainability benchmark, the Responsibility 100 Index developed by Tortoise and in our CDP scoring. This is a great credit to the hard work and dedication of our teams.
More information on our sustainability strategy is detailed in the Chief Executive’s statement, including our performance on health and safety, build quality and customer service.
Building safety
We recognise that the wider complex issues surrounding fire safety guidance and cladding have caused distress for affected homeowners, as regulations and requirements have continued to evolve. A long term solution is needed which will require the involvement of the industry, the supply chain and Government. We have contributed to the Government’s consultation on establishing a Residential Property Developer Tax to raise tax revenues for the Government’s Building Safety Fund.
We will continue to dedicate significant focus to this area, as founding signatories to the Building Safety Charter and active members of the Early Adopters Group, which is committed to protecting life by putting safety first ahead of all other building priorities. The Executive Directors and I also continue to engage with all relevant stakeholders to try and identify the much needed industry solutions to support leaseholders and residents.
Board changes
It has been a year of change for the Board. On 1 March 2021 we welcomed Katie Bickerstaffe and Chris Weston to the Board. They bring a wealth of experience in business transformation, marketing, commerce and in driving performance and growth, which complement the existing skills of the Board.
On 4 May 2021, Richard Akers stepped down from the Board after completing nine years of service. I would like to thank Richard for his significant contribution to Barratt during his tenure; in particular, his excellent Chairmanship of the Remuneration Committee and his wise counsel as Senior Independent Director.
At the end of June 2021, Jessica White stepped down as Chief Financial Officer and a member of the Board for personal reasons. I would also like to thank Jessica for her valued contribution during her 15 years with the Group, not only in her four years as Chief Financial Officer, but also in her previous senior finance roles. As Chief Financial Officer, Jessica was an integral member of our leadership team and played an instrumental role in driving the Group towards its medium term targets.
As announced on 29 June 2021, Mike Scott will join the Board as our new Chief Financial Officer at a date to be agreed. Mike brings a wealth of financial experience as he currently holds the same position at Countryside Properties PLC and we are delighted to be welcoming him to the Group.
Stakeholder engagement
Stakeholder engagement is a key part of the Board’s agenda. Due to COVID-19, the Board was unable to undertake its normal site visits during the year. The Board has however, stayed in touch with the business through updates from the Designated NED for Workforce Engagement and the Executive Directors. I also attended the virtual Senior Leadership meeting to better understand the challenges our employees were facing on a day-to-day basis, and to thank them for their support, hard work and commitment in keeping the business operating through these challenging times.
In addition, I have attended virtual meetings with shareholders to discuss our approach to the continued COVID-19 restrictions and how we are tackling matters such as ESG and cladding.
Our 2020 AGM was held as a closed meeting, however we were keen to ensure that our shareholders had the opportunity to raise any questions ahead of the meeting. A designated email address was set up which allowed our shareholders to pose questions relating to the business to be transacted at the AGM. Each query was responded to on an individual basis and a copy of the questions and answers can be found on our website www.barrattdevelopments.co.uk.
Dividend
The Board established a new dividend policy based on an ordinary dividend with a 2.5 times dividend cover in 2020. The Board was delighted to resume dividend payments with the declaration of an interim dividend of 7.5 pence per share in February 2021 and is pleased to recommend a final dividend of 21.9 pence per share (2020: nil pence per share). Subject to shareholder approval, the final dividend will be paid on 9 November 2021 to those shareholders on the register as at the close of business on 1 October 2021. The total proposed ordinary dividend for 2021, including the interim dividend of 7.5 pence per share paid in May 2021, is 29.4 pence per share (2020: nil pence per share; 2019: 29.1 pence per share).
AGM
Our 2021 AGM will be held at the Ironmongers’ Hall in London on Wednesday 13 October 2021 at 12 noon. There are still COVID-19 restrictions in place at the venue and we would ask all shareholders looking to attend the AGM to adhere to these requirements. There will be a live webcast and the ability to submit questions on the day as well as in advance of the meeting. Voting at the AGM will continue to be by way of a poll to accurately reflect the holdings of our shareholders. Full details can be found in the Notice of AGM.
Looking to the future
Our business is in a strong position with substantial net cash, a well-capitalised balance sheet and a strong forward sales position. We continue to deliver operational improvements throughout our business alongside high quality, sustainable homes and developments across the country. However, we recognise that the UK economy continues to face uncertainties arising from COVID-19.
We have a diverse and experienced Board that is committed to promoting the success and long term sustainable value of the Group. We will continue to review our Board composition to ensure it has the skills, knowledge and experience that are aligned with our strategy as we move forward.
We remain focused on our medium term targets. The Board will continue to respond to changes in the market and the wider economy but believes that our operating performance, strong forward order book and further strengthened financial position provide us with the resilience and flexibility to react to changes in the operating environment in FY22 and beyond.
On behalf of the Board, I would like to thank you for the confidence you have shown in the Group during 2021, in what has been a challenging period for us all, and for your continued support.
John Allan
Chairman
1 September 2021
Chief Executive’s statement
Introduction
We have made excellent progress in what has been a challenging year, with health and safety remaining our absolute priority. I thank our employees, sub-contractors and supply chain for their hard work and dedication which enabled us to successfully rebuild our site-based construction activity, deliver quality homes alongside great customer service, and achieve our gross margin and ROCE targets. Looking forward, our focus remains on our medium term targets including growing completion volumes, and our industry leadership of sustainability to deliver long term value creation for all our stakeholders.
Our purpose is to lead the future of housebuilding by putting customers at the heart of everything we do.
We are committed to playing our part in addressing the housing shortage and delivering the high quality, sustainable homes and developments needed across England, Scotland and Wales. In doing so, we will continue to play our part rebuilding Britain’s economy as we emerge from the extended period of disruption created by COVID-19.
We will continue to lead the industry on sustainability and, in particular focus on our environmental impact, with clear targets and plans.
Housing market fundamentals
Despite the continued economic uncertainties following the pandemic, the housing market fundamentals remain attractive. There is strong demand for high quality new homes across the country.
The strength of new housing demand, as well as years of undersupply, underpin the Government’s ongoing target to build 300,000 new homes each year. We are well positioned to deliver high quality sustainable homes and developments needed across England, Scotland and Wales.
The land market remains attractive with a good supply of land opportunities, and despite pandemic-related challenges, planning consents remain ahead of home building activity. We continue to secure land opportunities at or above our minimum hurdle rates.
For the industry to continue to increase new home supply, it is vital that home buyers can access affordable and competitive mortgage finance. The revised Help to Buy scheme continues for first time buyers through to 31 March 2023. We continue to explore alternative ways to support our customers and are currently trialling the Deposit Unlock Scheme, which offers a 95% mortgage, with a UK mainstream lender.
Performance overview
We have delivered an excellent performance throughout the year, making significant financial and operational progress while improving both build quality and customer service. Our performance reflects the discipline embedded by our operating framework and the resulting strength in our business, as well as the commitment of our employees, sub-contractors and supply chain.
We increased wholly owned completions by 37.3% to 16,517 homes in the year ended 30 June 2021 (2020: 12,034 homes; 2019: 17,111 homes). In addition, we delivered 726 homes through our JVs (2020: 570 homes; 2019: 745 homes). Total
completions including JVs for the year were 17,243 homes (2020: 12,604 homes; 2019: 17,856 homes).
In the year, we achieved our medium term gross margin target delivering a 23.2% (2020: 18.5%; 2019: 22.8%) adjusted gross margin, with adjusted gross profit of £1,114.7m (2020: £631.4m; 2019: £1,087.4m), reflecting market strength and completion volume recovery. After the combination of legacy property costs and our repayment of CJRS grant income, totalling £104.7m, gross profit was £1,010.0m (2020: £614.3m; 2019: £1,084.2m), resulting in a gross margin of 21.0% (2020: 18.0%; 2019: 22.8%).
After administrative costs, we delivered an adjusted profit from operations for the year of £919.0m (2020: £507.3m; 2019: £904.3m) at an adjusted operating margin of 19.1% (2020: 14.8%; 2019: 19.0%). Profit from operations was £811.1m (2020: £493.4m; 2019: £901.1m).
After finance costs and JV income we have delivered an excellent recovery in profit before tax for the year to £812.2m (2020: £491.8m; 2019: £909.8m).
We have significantly strengthened our balance sheet with year end net cash of £1,317.4m (2020: £308.2m; 2019: £765.7m) and in line with our operating framework, we have reduced our land creditors to £658.3m (2020: £791.9m; 2019: £960.7m), achieving our minimal net indebtedness target. We have also driven our ROCE back to our medium term target level achieving 28.3% (2020: 15.6%; 2019: 29.7%).
Our targets for the coming year and medium term
In 2021 our focus on rebuilding both our completion volumes and our financial performance has delivered an excellent improvement on gross margin and ROCE. Following this performance, whilst recognising the UK economy continues to face uncertainty, we have a clear strategy and targets for both the year ahead and the medium term, over the coming three to five years.
Our business model has a present capacity for 20,000 completions
- We intend to grow completions back to pre-pandemic FY19 levels in FY22 with wholly owned completions between 17,000 and 17,250 homes with an additional c. 750 JV completions.
- Completions are expected to return to more normal phasing between the first and second halves of the year.
- Beyond FY22, we target disciplined volume growth at between 3% and 5% per year towards our current business capacity of 20,000 completions.
Our gross margin target remains at a minimum 23%
- We continue to buy land at a minimum 23% gross margin hurdle rate.
- In FY22 we expect our first half and second half margins to reflect our return to a normal phasing of completions.
Our ROCE target remains at a minimum 25%
- In FY22 and beyond, we aim to continue to deliver a minimum ROCE of 25%, in line with our medium term target.
- We expect ROCE at the half year to be affected by a return to the normal phasing of first half and second half completions as well as our planned investment in land and work in progress for future years.
Long term value creation
We are focused on creating long term value for our stakeholders and recognise that the resources we use are finite, from the materials we consume to the land we develop. Climate change makes it imperative that we constantly scrutinise and challenge the way we operate, as well as the environmental impact of our business. Our commitment is to remain the leading national sustainable housebuilder - our recognition in the sustainability indices demonstrates that we are making very good progress.
Set out below are our objectives for both the year ahead and the medium term, as well as our progress and activities in 2021:
|
Progress in FY21 |
Areas of focus for FY22 |
Medium term targets |
|
|
Home completions |
|
|
|
|
Gross margin |
|
|
|
|
ROCE |
|
|
|
Keeping people safe
Our priority is to provide a safe environment for employees, sub-contractors and customers and we are committed to achieving the highest industry health and safety standards.
In response to COVID-19 we implemented extensive working practices and protocols, which we have continued to refine and update in line with the latest guidance from Government, Public Health Authorities and the Construction Leadership Council. We also enhanced our induction, training and support for our employees and sub-contractors. Our arrangements were certified by the British Safety Council that they were in accordance with guidance and best practice, demonstrating our commitment to providing a safe and healthy workplace.
We have stringent standards and a continuous focus on health and safety throughout our business. In line with the wider construction industry and reflecting increased activity levels across housebuilding, we have unfortunately seen an increase in our IIR in the year at 416 (2020: 256; 2019: 297) per 100,000 workers. Our Health and Safety SHE audit compliance rate however improved to 97% (2020: 96%; 2019: 96%). We are committed to improving our processes and procedures and challenging unsafe behaviours in order to reduce our IIR. An action plan has been put in place, which the SHE Committee will be monitoring closely.
We also continue to focus on ensuring workers do not suffer long term issues associated with their work activities. We have implemented controls and raised awareness in areas such as exposure to hazardous dusts. We are also working with our key contractors to encourage them to implement health surveillance programmes for their workforces.
Responsible development Citiscape and associated review
In line with our commitment to put customers first and recognising the responsibility we have for the work of our partners, in July 2020 we announced we would pay for the required remedial action on the reinforced concrete frame at Citiscape. This was a development designed for us in 2001 by a third party structural engineering firm, where remedial costs would have otherwise fallen on leaseholders. We are pleased to report that over the last year the remedial action plan with respect to Citiscape has been completed.
As a responsible developer, we also appointed independent structural engineers to review all the other developments where reinforced concrete frames were designed for us by the same third party firm as Citiscape. We are pleased to report that this review is now substantially complete and did not identify any other buildings with issues as severe as those present at Citiscape. The cost of any remedial works will not be borne by leaseholders at these other developments.
External wall systems and associated review
As stated in the Chairman’s statement, we remain focused on the complex issues surrounding fire safety and cladding.
Consequently, we have established a Building Safety Unit which will bring additional expertise and resources to review and assess the construction of our multi-storey buildings in light of Government guidance on cladding and external wall systems.
All of our buildings, including the cladding and complete external wall systems used, were signed off by approved inspectors as compliant with the relevant Building Regulations at the time of their construction. In the aftermath of the tragedy at the Grenfell Tower, we acted to remove and replace ACM cladding from the small number of legacy developments where this material had been installed.
Alongside evolving Government advice on fire safety for multi-storey buildings, we are working with building owners, management companies and expert engineers on assessments of buildings we have constructed and the solutions needed to support leaseholders and residents.
Costs in relation to legacy properties
In aggregate, from 1 July 2017 to date, we have incurred charges of £184.2m across both the Citiscape, external wall systems and associated reviews. Of this, £81.5m was charged to adjusted items during 2021. We have outstanding provisions of £67.6m.
Whilst the charges reflect the current best estimate of the extent and future costs of work required, as assessments and work progresses or if Government legislation and regulation further evolves, estimates will be updated.
Following the establishment of our in-house Building Safety Unit, in FY22 we anticipate adjusted items of at least £40m for costs associated with EWS and cladding related remediation activities. These are costs that we may agree to incur beyond our contractual and legal obligations, and in response to evolving legislation.
Competitions and Markets Authority
On 11 June 2019 the Competition and Markets Authority (CMA) announced it had opened an investigation into the leasehold housing market. On 4 September 2020 the CMA announced it had opened cases with respect to ourselves and three of our competitors in relation to possible breaches of consumer protection law in the residential leasehold sector. Following these announcements, we have responded to a number of CMA requests for information. We are committed to putting our customers first and continue to engage with the CMA whilst it completes its investigation.
Charitable giving
We recognise the role we have in supporting the communities in which we operate. This is why we support a range of both local and national good causes, and encourage divisions to get involved with both fundraising and volunteering. In 2021 we raised and donated £4.3m (2020: £4.4m) for charitable causes.
The Barratt Developments PLC Charitable Foundation
This year we launched the Barratt Foundation. The Foundation will draw together all of our charitable work under one body, improving our impact across the communities we support and, thanks to Barratt Developments’ core funding, ensuring that every pound raised by the Foundation is available for charitable activities. The Foundation will support a wide range of charities in the UK.
To mark the launch of the Foundation, and to celebrate the completion of our 500,000th home, in January 2021 the Barratt Foundation 500k Giveaway supported ten employee-nominated charities.
Barratt and David Wilson Community Fund
Throughout 2021 we continued to support the Barratt and David Wilson Community Fund which allows each of our divisions to donate £1,000 to a different local charity each month. The Community Fund helps our employees to support the local causes that matter to them. From the start of the new financial year, the Community Fund is administered by the Barratt Foundation.
Employee engagement in our charitable activities
To encourage our employees to raise funds for local causes, the Group operates a fund matching scheme at both divisional and individual employee level. During 2021 the Group made available match funding of up to £15,000 per division and also provided up to £1,000 of match funding per individual for fund raising activities.
We also provide employees with one day of paid leave per year to encourage them to volunteer for a charity of their choice. In addition, we partner with Payroll Giving in Action to enable employees to make regular, tax-free donations to their chosen charities. In the 12 months to December 2021 the Group has agreed to match these donations.
Given COVID-19 restrictions it was difficult for our colleagues to fundraise during 2021. The Group therefore organised two virtual events, the Big Barratt Hike and the Barratt 500k challenge, to raise funds for three different charities. Our employees raised an amazing £145,500 towards the chosen charities.
In support of all the fundraising that our employees have managed to undertake in 2021, the Company has provided match funding totalling £363,500.
Current trading and outlook
Our focus remains on rebuilding our completion volumes to our medium term target and current capacity of 20,000 homes. We have acquired land in recent years at a minimum 23% gross margin, and through our continued focus on operating efficiencies and the rebuilding of completion volumes, we continue to target a minimum 25% ROCE in the medium term.
The sales performance in the new financial year to date has been strong, with net private reservations per average week of 277 (FY21: 314; FY20: 250), resulting in net private reservations per active outlet per average week of 0.83 (FY21: 0.94; FY20: 0.68).
Whilst the net reservation rate is 11.7% below that reported in FY21 it should be highlighted that the prior year comparative was a particularly active period, reflecting both pent-up demand following the national lockdown, as well as increased Help to Buy reservation activity ahead of the changes which would remove access to Help to Buy for existing homeowners.
Our total forward sales, including JVs, as at 22 August 2021 stood at 15,734 homes (23 August 2020: 15,660 homes; 25 August
2019: 13,064 homes) at a value of £3,939.9m (23 August 2020: £3,706.5m; 25 August 2019: £3,037.5m).
|
22 August 2021 |
23 August 2020 |
Variance % |
25 August 2019 |
Variance % |
||||||
|
£m |
Homes |
£m |
Homes |
£m |
Homes |
£m |
Homes |
£m |
Homes |
|
|
Private |
2,398.4 |
7,053 |
2,143.7 |
6,577 |
11.9 |
7.2 |
1,583.5 |
5,088 |
51.5 |
38.6 |
|
Affordable |
1,265.5 |
7,917 |
1,277.6 |
8,249 |
(0.9) |
(4.0) |
1,133.9 |
7,089 |
11.6 |
11.7 |
|
Wholly owned |
3,663.9 |
14,970 |
3,421.3 |
14,826 |
7.1 |
1.0 |
2,717.4 |
12,177 |
34.8 |
22.9 |
|
JVs |
276.0 |
764 |
285.2 |
834 |
(3.2) |
(8.4) |
320.1 |
887 |
(13.8) |
(13.9) |
|
Total |
3,939.9 |
15,734 |
3,706.5 |
15,660 |
6.3 |
0.5 |
3,037.5 |
13,064 |
29.7 |
20.4 |
We are also pleased that since the start of the new financial year we have seen a further improvement in our construction activity, building the equivalent of 335 homes per average week (FY21: 290 homes; FY20: 361 homes). This is some 15.5% ahead of the same period in FY21, when the business was rebuilding construction activity following the initial national lockdown, but is 7.2% below the equivalent financial period to date in FY20. We are on track to deliver our planned output growth.
Based on current market conditions, improved construction activity levels and assuming no further COVID-19 related disruption, we expect to grow wholly owned completions to between 17,000 and 17,250 homes in FY22, and in addition complete around 750 home completions from our JVs, whilst ensuring we maintain our industry leading standards of quality and customer service.
The completion profile in FY22 is also likely to revert back to the more typical seasonal pattern of legal completions with around 45% of our full year completion guidance anticipated in the first half of the new financial year and 55% scheduled for completion in the balance of the year.
Looking ahead we recognise that there continue to be macro challenges from both COVID-19 and economic uncertainties but we are monitoring the market closely and we are prepared to respond as necessary.
We have substantial net cash balances, a well-capitalised balance sheet, a strong forward sales position and clear plans to secure both incremental home completion growth and further operating efficiencies in the year ahead. We also have the continued ambition to accelerate our actions to deliver leading sustainability progress, further enhancing business resilience and our customer proposition.
The Board will continue to monitor the market and wider economy and believes that our strong financial position provides us with the platform and flexibility to react to changes in the operating environment in FY22 and beyond.
David Thomas
Chief Executive
1 September 2021
Financial review
Our financial performance this year has shown an excellent recovery following the substantial impact of COVID-19 last year. The strength and resilience of our balance sheet, combined with the commitment and dedication of our employees, sub- contractors and suppliers, along with strong demand for our high quality new homes have all contributed to this.
Results for the year ended 30 June 2021 Sales activity
We delivered an excellent reservation performance in the year with a net private reservation rate per week of 0.78 (2020: 0.60; 2019: 0.70). In 2021 our sales centres across the country operated on an appointment only basis, although our sales offices in Wales remained closed for longer following Welsh Government guidance during subsequent lockdown periods. The physical closure of our sales centres from 23 March to 21 May 2020 in England, 1 June in Scotland and 25 June in Wales impacted our 2020 reservations, making year on year comparisons less informative, and therefore our net private reservation rate is included with comparatives to 2019:
|
Private reservation rate |
H1 |
H2 |
FY |
|
2021 |
0.77 |
0.78 |
0.78 |
|
2020 |
0.69 |
0.51 |
0.60 |
|
2019 |
0.64 |
0.76 |
0.70 |
|
2021 vs 2020 (%) |
11.6% |
52.9% |
30.0% |
|
2021 vs 2019 (%) |
20.3% |
2.6% |
11.4% |
During the year we operated from an average of 343 active outlets (2020: 366; 2019: 379 outlets) including 8 (2020: 9; 2019: 9) active JV outlets; the reduction reflecting the delay to site starts created by the initial national lockdown. We have made good progress on rebuilding momentum in new site openings, launching a total of 144 new outlets (2020: 75; 2019: 163 outlets) including JVs in the year, with 81 new outlets (H2 2020: 30; H2 2019: 73) opened in the second half. In FY22, we expect to see average sales outlet growth of around 3%, reflecting our focus on growth from both land investment and land bank optimisation through additional dual branding of Barratt and David Wilson Homes on our sites. We expect the affordable housing share of our home completions mix to increase to around 21% in FY22, a slight increase on the 20% in 2021.
Following the disruption to build from COVID-19 and the resulting site closures, lockdown and the site restarts in the second half of 2020, completion volumes substantially increased year on year. In the first half completions benefited from the elevated level of work in progress carried into the new financial year and our higher forward sales position. The second half benefited from continued strength of demand, as well as improved construction activity, which delivered completions for the year ahead of both our start of the year and half year expectations.
|
Completions (homes) |
2021 |
2020 |
Change |
2019 |
Change |
|
Private |
13,134 |
9,568 |
37.3% |
13,533 |
(2.9%) |
|
Affordable |
3,383 |
2,466 |
37.2% |
3,578 |
(5.4%) |
|
JVs |
726 |
570 |
27.4% |
745 |
(2.6%) |
|
Total (including JVs) |
17,243 |
12,604 |
36.8% |
17,856 |
(3.4%) |
We have seen a gradual improvement in selling prices through the year, reflecting positive house price inflation across the country. Our total average selling price (‘ASP’) was £288.8k (2020: £280.3k; 2019: £274.4k), with private ASP at £325.5k (2020:
£310.6k; 2019: £312.0k), reflecting house price inflation and a higher proportion of completions in London. The affordable ASP decreased by 10.1% to £146.5k (2020: £163.0k; 2019: £132.2k) reflecting changes in mix, primarily a lower proportion of completions from our London operations.
Profitability
Adjusted gross profit improved to £1,114.7m (2020: £631.4m; 2019: £1,087.4m) with adjusted gross margin significantly recovering, increasing to 23.2% (2020: 18.5%; 2019: 22.8%). The adjusted gross margin improvement reflected house price inflation ahead of build cost inflation and the scale of completion volume growth, which drove incremental fixed cost efficiency, with each home completion delivering a contribution of c. 32% after land and build costs.
After adjusted items totalling £104.7m (2020: £17.1m; 2019: £3.2m) relating to legacy property costs and the reversal of CJRS grant income recognised in 2020 but repaid in 2021, gross profit was £1,010.0m (2020: £614.3m; 2019: £1,084.2m) and the gross margin was 21.0% (2020: 18.0%; 2019: 22.8%).
This year, we delivered an adjusted operating profit of £919.0m (2020: £507.3m; 2019: £904.3m) with an adjusted operating margin of 19.1% (2020: 14.8%; 2019: 19.0%). The 430 bps improvement in the adjusted operating margin reflected a number of factors:
- Completion volumes: the most significant item was the recovery in our wholly owned completion volumes, with a 37.3% or 4,483 home increase creating a 310 bps positive impact (2020: 190 bps negative impact).
- Net impact of selling prices relative to build costs: sales price inflation across the year relative to underlying build cost inflation produced a 90 bps positive impact (2020: 50 bps negative impact).
- New sites: the benefit of the Group’s minimum 23% gross margin hurdle rate on new land acquisitions and the improved build cost performance of our housing range generated a 60 bps positive impact (2020: 50 bps positive impact).
- Site extension costs: these costs arose from the expected extension in site durations due to COVID-19, reflecting both the lockdown period and incremental build time on sites, of approximately six months. Reflecting the recovery in site efficiency through the year, new site starts and the completion of sites carrying these additional costs, there was a reduced charge of £15.8m (2020: £29.1m) across all ongoing sites in 2021 and a 30 bps positive impact (2020: 90 bps negative impact) on the adjusted operating margin.
- Mix and other items: changes in sales mix and other smaller items combined to create a 20 bps negative impact (2020: 60 bps negative).
- Administrative expenses: the reintroduction of annual employee incentives following the decision to make no payments under the 2020 annual employee incentive schemes, delivery against share incentive scheme targets, and a slight reduction in sundry income with a modest offsetting increase in part-exchange income, contributed to a significant increase in net administrative expenses. This deducted 150 bps (2020: added 120 bps) from the adjusted operating margin. In FY22, we expect administrative expenses will increase to c. £230m, reflecting a further reduction in sundry income alongside inflationary pay increases and disciplined investment in people and our IT systems.
- Non-productive site overheads: costs totalling £45.2m in 2020 that would normally have been capitalised to WIP but were expensed due to the absence of activity during the initial lockdown period did not repeat in the year and had a 90 bps positive impact (2020: 130 bps negative impact) on the adjusted operating margin.
- Inventory provision release: changes in the expected revenues and profitability across the land bank and development portfolio resulted in a net provision release of £3.5m compared to an £8.2m charge in 2020. The net impact of £11.7m resulted in a 20 bps incremental increase in the adjusted operating margin (2020: 20 bps reduction).
There were two operating adjusting items recognised during the year:
- Cost associated with legacy properties: the Group incurred an additional £81.9m (2020: £39.9m) of costs in the year. Of this £32.5m (2020: £11.4m) related to legacy properties comprising costs relating to external wall systems and associated reviews. A further £49.4m (2020: £28.5m) related to Citiscape and associated reviews, which were substantially completed in the year. Following the establishment of our in-house Building Safety Unit, in FY22 we anticipate adjusted items of at least £40m for costs associated with EWS and cladding related remediation activities. These are costs that we may agree to incur beyond our contractual and legal obligations, and in response to evolving legislation.
- Repayment of CJRS grant income: through the period of temporary closure of the business in 2020, where around 85% of our employees were placed on furlough, we used the Government’s CJRS and received £26.0m of grant income. With the Board’s decision, in July 2020, to repay all CJRS funds received, the Group recognised the total grant income received in 2020 as adjusted income. In 2021, the return of this grant income has been recognised as an adjusting cost.
As a result, we delivered a profit from operations of £811.1m (2020: £493.4m; 2019: £901.1m) and an operating margin of 16.9% (2020: 14.4%; 2019: 18.9%) in the period.
Net finance charges were £26.6m (2020: £29.9m). This £3.3m decrease reflected a £6.2m reduction in the imputed interest on land creditors offset by the impact of the phasing of cash balances in the year. The cash finance charge was £9.7m (2020:
£7.3m) with non-cash charges of £16.9m (2020: £22.6m). In FY22, finance costs are expected to be similar to 2020 at c. £30m, of which c. £10m is cash and c. £20m is non-cash.
JVs delivered a decreased profit for the year of £27.7m (2020: £28.3m; 2019: £39.2m). The JV result in 2021 also included a release in respect of costs associated with JV legacy properties of £0.4m (2020: £nil; 2019: £7.0m charge).
As a result, profit before tax for the year increased to £812.2m (2020: £491.8m; 2019: £909.8m). The tax charge for the year increased to £152.1m (2020: £89.1m; 2019: £170.4m) reflecting the recovery in profit before tax and was at an effective rate of 18.7% (2020: 18.1%; 2019: 18.7%).
Basic earnings per share increased to 64.9 pence per share (2020: 39.4 pence per share; 2019: 73.2 pence per share). Adjusted earnings per share, before the impact of adjusting items and associated tax, increased by 81.5% to 73.5 pence per share (2020: 40.5 pence per share; 2019: 74.1 pence per share).
With the substantial recovery in Group profitability in 2021, our ROCE improved to 28.3% (2020: 15.6%; 2019: 29.7%).
Cash flow
Net cash increased to £1,317.4m at 30 June 2021 (30 June 2020: £308.2m). The increase in net cash reflected a £1,082.3m net cash inflow from operating activities (2020: £121.0m cash outflow), a £16.7m cash inflow from net investment in and dividends received from JVs (2020: £65.2m) and a reduced level of dividends paid to shareholders in the year of £76.3m (2020: £373.2m) which reflected the absence of a 2020 final dividend payment.
The major drivers of the net cash inflow from operating activities in the year were:
- The increased level of profit from operations, which increased to £811.1m (2020: £493.4m);
- A cash inflow in respect of working capital and provisions of £407.0m (2020: £428.5m cash outflow); and
- Interest and tax payments, which totalled £154.5m (2020: £199.0m).
The £407.0m inflow in respect of working capital and provisions consisted of:
- A £385.9m decrease in inventories reflecting the partial reversal of elevated construction work in progress carried at the end of last year following the disruption to completions caused by COVID-19, as well as a modest decrease in land investment in the year;