Half Year Results

BARRATT DEVELOPMENTS PLC

Half year results for the six month period ended 31 December 2022

Strong operating performance, well positioned for an uncertain trading backdrop in 2023

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

“We have delivered a strong operating performance for the six months to 31 December 2022. This was possible because of our significant forward order book at 30 June 2022 and the tremendous efforts of our employees, sub-contractors and supply chain partners.

However, the economic backdrop has clearly been challenging and consumer confidence weakened significantly during the half, which meant we saw lower reservation rates for future sales – particularly in the second quarter. Whilst we have seen some early signs of improvement in current trading during January, we will need to see continued momentum over the coming months before we can be confident that these challenging trading conditions are easing.

Our business remains fundamentally strong, both operationally and financially, with an experienced leadership team, a strong net cash position and a resilient and flexible business model. We are well-placed to navigate the challenges ahead and are focused on driving revenue whilst taking a decisive and disciplined approach to costs. As always, our priority is delivering excellent quality and service for our customers.”

£m unless otherwise stated1,2	Half year ended 31 December 2022	Half year ended 31 December 2021	Change
Total completions (homes)3	8,626	8,067	6.9%
Revenue	2,783.9	2,247.1	23.9%
Alternative performance measures:4
Adjusted gross profit	647.9	562.4	15.2%
Adjusted gross margin	23.3%	25.0%	(170 bps)
Adjusted profit from operations	511.8	449.9	13.8%
Adjusted operating margin	18.4%	20.0%	(160 bps)
Adjusted profit before tax	521.5	450.0	15.9%
Adjusted basic earnings per share (pence)	39.2	35.9	9.2%
ROCE5	29.6%	26.2%	340 bps
Net cash	969.1	1,131.7	(14.4%)
Statutory basis:
Gross margin	22.6%	24.3%	(170 bps)
Profit from operations	494.2	434.0	13.9%
Operating margin	17.8%	19.3%	(150 bps)
Profit before tax	501.5	432.6	15.9%
Basic earnings per share (pence)	37.7	34.5	9.3%
Interim dividend per share (pence)	10.2	11.2	(8.9%)
Tangible net asset value per share (pence)	462	458	0.9%

Highlights

• Strong operational performance in the first half, delivering 6.9% growth in total home completions³ to 8,626 with adjusted profit before tax up 15.9% at £521.5m and reported profit before tax also advancing 15.9% to £501.5m.
• Continuing focus on build quality, health and safety and customer service recognised as the Group was named ‘Large Housebuilder of the Year’ for the third time in four years.
• Industry leadership on Sustainability recognised with the Group joining the CDP’s Climate Change ‘A’ List for Leadership, one of just 283 companies worldwide and the top-rated UK housebuilder.
• Strong balance sheet with net cash of £969.1m (HY22: £1,131.7m) after dividend payment of £259.8m and £100.5m of share repurchases.li
• Our full year out-turn remains dependent on how the market evolves through the Spring selling season, but assuming we continue to see the improved reservation activity we have experienced since the start of calendar 2023, we expect to deliver total home completions of between 16,500 to 17,000 in FY23 (including c. 750 JV completions).
• Interim ordinary dividend of 10.2p (HY22: 11.2p) reflecting the planned reduction in dividend cover to 2.0 times for the full financial year (2.25 times cover in HY22).
• Buyback programme to recommence following today’s interim results announcement.

Current trading

• Net private reservations per active outlet per average week from 1 January 2023 through to 29 January 2023 were 0.49, 45.6% below the 0.90 in the equivalent period in 2022, reflecting the more tentative demand seen in the calendar year to date, but an uplift on the level of activity seen from our AGM announcement through to 31 December 2022.
• Forward sales3 as at 29 January 2023 were 10,854 homes (30 January 2022: 15,736) at a value of £2,665.0m (30 January 2022: £4,109.7m) with 8,719 homes of these total forward sales either exchanged or contracted (30 January 2022: 11,362 exchanged or contracted).

1. Refer to Glossary for definition of key financial metrics
2. Unless otherwise stated, all numbers quoted exclude JVs
3. Including JVs in which the Group has an interest
4. In addition to the Group using a variety of statutory performance measures, it also measures performance using alternative performance measures (APMs). Definitions of APMs and reconciliations to the equivalent statutory measures are detailed in the Glossary and Definitions. Net cash definition in Note 11
5. ROCE for the 12 months to 31 December 2021 has been restated to exclude provisions in relation to legacy properties from capital employed

Note on forward looking statements

Certain statements in this announcement may be forward looking statements. By their nature, forward looking statements involve a number of risks, uncertainties or assumptions that could cause actual results to differ materially from those expressed or implied by those statements. Forward looking statements regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. Accordingly undue reliance should not be placed on forward looking statements. Unless otherwise required by applicable law, regulation or accounting standards, the Group does not undertake to update or revise any forward looking statements, whether as a result of new information, future developments or otherwise.

There will be a results meeting at the Chartered Accountants' Hall, 1 Moorgate Place, London, EC2R 6EA at 8.30am today.

A conference call and webcast will accompany the meeting starting at 8.30am. Details for the conference call are included below. We would advise calling in to the conference call at 8.15am to ensure you are registered ahead of the start of the meeting.

Standard International: +44 (0) 33 0551 0200
UK Toll Free: 0808 109 0700
USA Local: +1 786 697 3501
USA Toll Free: +1 866 580 3963

The presentation will also be webcast live with the Q&A. Please register and access the webcast using the following link:

https://broadcaster-audience.mediaplatform.com/#/event/63bc003eb389f42c6f386631

An archived version of the webcast will also be available on our website later this afternoon and further copies of this announcement can be downloaded from the Barratt Developments PLC corporate website at www.barrattdevelopments.co.uk or by request from the Company Secretary's office at: Barratt Developments PLC, Barratt House, Cartwright Way, Forest Business Park, Bardon Hill, Coalville, Leicestershire, LE67 1UF.

For further information, please contact:

Analyst / investor enquiries
Mike Scott, Chief Financial Officer	07881 327 748
John Messenger, Group Investor Relations Director	07867 201 763
Media enquiries
Tim Collins, Group Corporate Affairs Director	020 7299 4874
Brunswick
Jonathan Glass / Rosie Oddy	020 7404 5959

Barratt Developments PLC LEI:2138006R85VEOF5YNK29

Financial reporting calendar

The Group's next scheduled announcement of financial information is the Q3 trading update on 3 May 2023.

Chief Executive’s Statement

Overview

We have delivered a strong operating performance for the six months to 31 December 2022. This has been supported by our significant forward order book at 30 June 2022 and the tremendous efforts of our employees, sub-contractors and supply chain partners.

However, the first half of the financial year saw a marked slowdown in the UK housing market. Political and economic uncertainty impacted the first quarter; this was then compounded by rapid and significant changes in mortgage rates which reduced affordability, homebuyer confidence and reservation activity through the second quarter.

Our business remains fundamentally strong, both operationally and financially, with an experienced leadership team, a strong net cash position and a resilient and flexible business model. We are focused on successfully navigating the challenges ahead and continuing to deliver both excellent quality and service for our customers and the energy-efficient homes needed across the country.

	Progress in the half year	Area of focus in second half
Home completions	8,626 total home completions (HY22: 8,067) including 362 JV completions (HY22: 395) reflecting order book strength carried into the new financial year	Expect to deliver between 16,500 to 17,000 total home completions including c. 750 JV completions in FY23
Gross margin	170 bps decrease in adjusted gross margin to 23.3% (HY22: 25.0%) 170 bps decrease in gross margin to 22.6% (HY22: 24.3%)	Managing build cost inflation Adjusting our cost base to reflect market activity
ROCE	340 bps increase in ROCE5 to 29.6% (12 months to 31 December 2021: 26.2%)	Disciplined investment in work in progress to support activity matching market demand

We delivered total completions³ of 8,626 homes, 6.9% ahead of the 8,067 delivered in the first half of FY22. HY23 total completions were supported by the strength of the Group forward order book entering FY23 and an excellent performance from our site teams in delivering homes ready for our customers.

The benefit of underlying house price inflation, estimated at around 8.8% was largely offset by total build cost inflation at around 10% which, when combined with an adverse mix effect on gross margin from a greater proportion of completions in London, resulted in a 170 bps decrease in adjusted gross margin to 23.3% (HY22: 25.0%).Administrative expenses increased, in line with previous guidance, but the operational gearing impact of this increase on operating margin was moderated by strong revenue growth, resulting in a 160 bps reduction in the adjusted operating margin to 18.4% (HY22: 20.0%).

During the period, we incurred £20.0m of net costs associated with legacy properties in relation to the reinforced concrete frame remediation works, which are recognised outside adjusted gross and operating profit. Of these costs, £2.4m were incurred by joint ventures (HY22: £1.5m). As a result, we delivered a reported gross margin of 22.6% (HY22: 24.3%) and a reported operating margin of 17.8% (HY22: 19.3%). Profit from operations for the half year was £494.2m (HY22: £434.0m).

Our ROCE at 29.6% remained ahead of our 25% medium term target and increased by 340 bps on the 26.2% reported to 31 December 2021. The ROCE improvement was driven predominantly by the strong operating performance of the Group, which delivered a higher level of profit than in the prior year.

Our balance sheet remains strong and we ended the half year with net cash of £969.1m (31 December 2021: £1,131.7m). The reduced level of net cash reflects committed land spend with respect to approvals secured in FY22, working capital investment, the payment of the final dividend for FY22 of £259.8m (HY22: £223.0m) and £100.5m with respect to the share buyback programme.

The current trading outlook remains uncertain with only four weeks’ trading since the start of 2023. Reservations have shown a modest uplift since the start of January, helped by the tempering in both future interest rate and energy cost expectations, as well as the introduction of more competitive mortgage rates. The sustainability of this recovery however remains uncertain, notably with respect to the challenges still faced by first time buyers.

Our full year out-turn remains dependent on how the market evolves through the Spring selling season, but assuming we continue to see the improved reservation activity we have experienced since the start of calendar 2023, we expect to deliver total home completions of between 16,500 to 17,000 in FY23 (including c. 750 JV completions).

Keeping people safe

Our fundamental priority is to provide a safe working environment for all of our employees and sub-contractors and we are committed to achieving the highest industry health and safety standards.

In the 12 months to 31 December 2022, reflecting increased levels of building activity on our sites across the country, our IIR increased slightly to 301 (2021: 295) per 100,000 workers and our SHE audit compliance was 96% (2021: 97%).

We remain focussed on improvement of our site-based processes and procedures, challenging unsafe behaviours and looking at ways we can further improve and, as detailed later, we have also engaged with our employees, group-wide, seeking their views on how we can further enhance our safety, health and environmental performance with additional future targeted actions.

Building sustainably

Our Building Sustainably Framework is built around three core pillars – Nature, Places and People. These pillars cover the material issues for our business and are informed by industry understanding, as well as the opinions and challenges offered by all our stakeholders. We are determined to maintain our position as the leading national sustainable housebuilder. Sustainability presents opportunities for business growth, encourages innovation and improves our homes for customers.

The Group’s Sustainability Committee, chaired by our Chief Executive David Thomas and attended by three other members of the Board, is responsible for ensuring our Building Sustainably Framework is embedded and acted upon across the Group’s operations, to deliver our short, medium and long term targets.

Key areas of focus for the Committee in the financial year to date have included our emissions performance and action plans to drive continued waste reduction; plans to further reduce our emissions from operations, notably diesel consumption, with ongoing hydro- treated vegetable oil trials and the continued shift to renewable electricity tariffs across all our operations.

A further milestone has been the completion of the ‘Energy House 2.0’ where we have partnered with Saint-Gobain and the University of Salford to build a concept home ‘eHome2’ that will test the effects of climate change and look at ways new houses can cope with more extreme weather conditions whilst cutting energy and water usage. The three-bedroom family home has been built to test innovative building products designed to meet the Future Homes Standard. The house builds on our knowledge and understanding gained from the Zed-House, and was constructed using an advanced timber frame solution with pre-insulated walls installed at the factory and lightweight render-based bricks, whilst being built in less than 14 weeks – half the time it takes to build a traditional home.

The eHome2 will also test zero carbon performance in different temperatures and weather conditions to replicate extreme changes in the climate and the long term expected increase in temperatures faced in the UK. The data collected will help to inform how both Barratt and the wider housebuilding sector can design homes that are future-proof, whilst cutting bills for consumers.

We were delighted that our sustainability performance has been recognised in the 2022 CDP annual results with Barratt Developments joining the CDP’s ‘Climate Change A List for Leadership’, one of just 283 companies worldwide and the top-rated UK housebuilder. We also achieved Management level status, grade B in the “Forests” category and we maintained our Management level status, grade B in the “Water” category. These scores, across the three key areas of Climate Change, Water and Forests, reflect our leading position in the UK housebuilding sector.

In the industry specific NextGeneration awards, we once again maintained our position as the ‘Leading National Sustainable Housebuilder’, receiving the “Gold Award” for the seventh consecutive year, as well as the “Crystal Award”, for Transparency, for a third year. We also received the “Innovation Award” for the Zed House.

We became a signatory to the United Nations Global Compact back in July 2021, signalling our continued support for the Ten Principles of the UN Global Compact and our intention to implement them. We were therefore pleased that the submission of our FY22 Annual Report and Accounts, as our annual “Communication on Progress”, has been assessed as ‘Advanced’ by the Global Compact Office. We are the only UK company in the ‘Household Goods and Home Construction’ sector to achieve ‘Advanced’ status.

Customer first

Our customers are at the heart of everything we do. We believe our industry leadership in customer service is fundamental to our success and we are the only major housebuilder to have been awarded the maximum 5 Star rating by our customers in the HBF customer satisfaction survey for 13 consecutive years, with a customer satisfaction rating above 90%.

Following investment and training during 2022, we successfully activated the New Homes Quality Code in the half year. We welcome the Code, which is centred on fairness, not simply achieving technical standards, and covers the period from initial enquiry through to completion and then two years post-occupation of the new home.

We are continually striving to improve the energy efficiency and sustainability of our homes and are adapting our home designs in response to both changing homebuyer demands, as well as the Future Homes Standard and other changes to Building Regulations. We aim to build high quality homes that optimise internal space, deliver excellent energy efficiency and, as a result, unlock lower lifetime costs for our customers.

Our sales outlets actively promote the lower energy cost and environmental advantages of our homes, an increasingly important purchasing consideration for our customers. A typical Barratt or David Wilson home can unlock energy savings of up to £2,600 annually when compared to an average existing home. In FY22 99% of our home completions were EPC rated ‘B’ or above, a level of energy efficiency shared by just 3.1% of the existing housing stock.

Mortgage lenders, driven by their own sustainability initiatives, are increasingly engaging with the housebuilding industry about green mortgages. We are continuing to work with mortgage lenders to see how we can help create more competitive and attractive mortgage products for our customers, reflecting the energy efficiency and emissions advantages created by our homes.

We have continued to drive improvements to the customer journey and have adapted our processes to help our customers through the volatility in the mortgage market over recent months and we will continue to work with lenders to ensure our customers have access to the most attractive and suitable mortgage products available. We continue to promote our part-exchange offer to customers, we were the first housebuilder to introduce part-exchange and we have a long record of helping existing homeowners in their purchase of a Barratt or David Wilson home.

Finally, in November 2022, we were named ‘Large Housebuilder of the Year’ at “The Housebuilder Awards 2022” for the third time in the last four years.

Great places

We build homes in locations where our customers want to live, with good access to open space and amenities, transport connections, schools and workplaces. Our specialised divisional land teams, as well as the Gladman team, possess extensive local knowledge and strong relationships with landowners. This, combined with detailed research into local market conditions, means we can secure land in locations of strong customer demand.

With our national rollout programme to embed biodiversity best practice across all regions completed in FY22, all development designs now being submitted for planning will identify a minimum bio-diversity net gain (BNG) of 10% and we remain ahead of legislation, which makes BNG of 10% mandatory from November 2023.

Leading construction

Our long-standing commitment to excellent build quality is embedded throughout our business. Throughout calendar 2022, Barratt has maintained its industry leadership amongst the major housebuilders, with the Group once again registering the lowest Reportable Items (RIs) per NHBC inspection⁶.

Our build quality also continues to be recognised through the NHBC Pride in the Job Awards for site management. Our site teams’ success was initially recognised in June 2022, where our site managers secured 98 awards, more than any other housebuilder fo r the 18^th consecutive year. At the subsequent Regional NHBC Pride in the Job Awards 34 site managers went on to win ‘Seals of Excellence’ and our site managers secured five out of the nine awards in regions where we operate in the ‘Large Builder’ category. Finally, at the NHBC Pride in the Job Supreme Awards on 20 January 2023, Kirk Raine, site manager at Doseley Park in our Mercia Division, was named Supreme Winner in the ‘Large Builder’ category. No other major housebuilder has achieved this level of success and consistency, in terms of the recognition for site standards and build quality.

With the release of the Government’s SAP calculator in Autumn 2022, our Group Design and Technical (GD&T) team have continued to develop and fine-tune solutions to ensure our housetypes meet the requirements of new Building Regulations. The new standards became effective on new development sites in June 2022 and will be applicable to all development sites from June 2023.

The Zed House, now in occupation, is creating invaluable performance data to help the GD&T team in determining the most suitable changes to our housetypes to meet the Future Homes Standard in 2025 and the legislative requirements in England, as well as the different requirements in Scotland and Wales, while also providing the best possible homes for our customers.

We continue to grow the number of homes we build using Modern Methods of Construction (MMC). The adoption of MMC increases construction efficiency, reduces waste and helps to mitigate the long term challenges posed by the shortage of skilled workers within the industry. In the first half year we legally completed 25.8% of our homes using timber frame or large format block (HY22: 22.3%) and we remain on track with our target to use MMC to build 30% of our homes by FY25.

Investing in our people

Our 2022 employee engagement survey was completed in October 2022. This year’s survey delivered an engagement score of 84.4% (2021 survey: 79.4%). The improvement in the 2022 engagement score was welcomed and highlighted:

• The benefits of the Group’s proactive policy changes in FY22 around the provision of private medical insurance for all employees; an additional day’s holiday for all employees; and, enhanced time for employee volunteering.
• The positive impact on our employees of the Group’s decision to award a cost of living salary supplement of £1,000 to all employees below senior management for the period from 1 July 2022 through 31 December 2022.
• The introduction of enhanced family friendly policies including extended maternity, paternity and carer leave, effective from October 2022.

Following the 2022 engagement survey and reflecting our desire to positively respond and engage with our workforce, a number of new initiatives were agreed in the period. These included:

• A Group-wide survey on health and safety seeking employee views on how we can further improve our safety, health and environmental performance with future targeted actions.
• A further cost of living salary supplement of £1,000 to all employees below senior management for the period 1 January 2023 through 30 June 2023.

We also continue to operate as an accredited Living Wage Employer and we promote the payment of the Living Wage within our UK supply chain through our standard sub-contractor terms and conditions.

As our industry continues to face a skills shortage, it is important to attract and retain the best people. We invest for the future through our numerous award-winning schemes including those for graduates, apprentices and former Armed Forces personnel. We now have three Degree Apprenticeships delivered in partnership with Sheffield Hallam University, encompassing Construction, Quantity Surveying and Technical Design and Management. We are the first house builder delivering Degree Apprenticeships across the three main build functions. Our development programmes included 580 participants at 31 December 2022 (31 December 2021: 456).

We are seeking to build 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 life experience. This is embedded within our Building Sustainably Framework delivering our Diversity and Inclusion Strategy, focusing on gender and ethnicity, where we aim to build on the improvements in representation we have seen over the last year.

October 2022 saw the launch of our ethnic minority community (EMC) support programme, “Spotlight”. This is an eight-month externally facilitated programme, which includes feedback from the participants on actions needed, as well as a Group-wide EMC employee network. We are delighted to have been part of the 30% Club’s “Leaders for Race Equity” inaugural programme, alongside nine other organisations seeking to share best practice and establish tangible actions for change.

As well as a successful support programme for high potential female employees, “Catalyst”, we are also working with the Home Builders Federation and Women in Construction to launch a nationwide employment programme for women, helping address the gender imbalance in the construction workforce, which currently sees just 16% female representation.

Responsible development

On 30 January 2023 the Department for Levelling Up, Housing and Communities (DLUHC) published the Self-Remediation Terms and Deed of Bilateral Contract to incorporate the commitments made by housebuilders under the Building Safety Pledge, to which the Group became a signatory in April 2022, into a contractual arrangement.

The Group continues to work closely with DLUHC to ensure that leaseholders do not have to pay for necessary remediation work caused by the design, construction or refurbishment of buildings. Following a detailed legal review of the contractual terms and further Board discussion, the Board will make its decision to sign before the Government’s deadline of Monday 13 March 2023.

Our dedicated Building Safety Unit is managing our ongoing building safety remediation programme, which we anticipate will be delivered over the next three to five years, with building safety considerations paramount in the prioritisation and scheduling of works.

During the half year, thirteen buildings on six developments were brought into the portfolio under review and eight buildings either remediated or confirmed to require no remediation after detailed review.

The Group remains of the view that the current provision of £427.2m as at 31 December 2022 (30 June 2022: £434.6m) reflects our current best estimate of the extent and future costs of remediation work required. However, we will continue to review these estimates as we have further experience of completing the remediation of the buildings within our portfolio.

Further details on our approach to building safety can be viewed on our website at: https://www.barrattdevelopments.co.uk/aboutus/our-approach-to-building-safety.

Charitable giving

We recognise that we have a really important and positive role to play in supporting the communities in which we operate and we are passionate about making a difference. The Barratt Foundation is delivering our approach to charitable giving and social responsibility. We believe it is important to bring together, not only our financial resources, but also the commitment and enthusiasm of our employees to support charitable causes both locally and at a national level. To this end, we continue to actively promote both charitable giving and volunteering amongst our employees. In FY22, we raised and donated £5.1m (FY21 £4.3m) for charitable causes through the Barratt Foundation and Group donations.

In HY23, the Barratt Foundation has:

• Pledged £1m in grants to five new national charity partners. The five charities receiving grants were: Whizz-Kidz (£500,000), Place2Be (£300,000), Refuge (£100,000), Bookmark (£100,000) and the Lighthouse Club (£50,000). Each of these charities was carefully selected by the Barratt Foundation Trustees, reflecting their alignment with the Foundation’s key priorities centred around promoting social inclusion, mental health and education.
• Donated £50,000 to The Scouts Association and £50,000 to Girl Guiding UK, in memory of Her Majesty The Queen. Both organisations help the development of future generations and put civic duty at the heart of what they do. The Foundation also made a £50,000 donation to support the DEC’s Pakistan Floods Appeal.
• Provided an additional £5,000 to each of the Group’s 29 divisions and two Group offices to support local charities in need during the Christmas and New Year period, with donations going to 48 small local charities including hospices, foodbanks and homelessness charities throughout the UK.

Board changes and succession planning

On 27 October 2022, the Group announced the appointment of Jasi Halai as an Independent Non-Executive Director. Jasi joined the Board on 1 January 2023 and has also taken up positions on the Audit, Nomination, Remuneration and Sustainability Committees. Jasi is Chief Operating Officer at 3i and was appointed to the Board of 3i Group plc on 12 May 2022.

Jasi is a Chartered Management Accountant, holds an MSc in investment management from the CASS Business School and brings a wealth of financial and business skills and experience to the Board.

On 11 January 2023, the Group announced the appointment of Caroline Silver as a Non-Executive Director and Chair designate, with effect from 1 June 2023. Caroline will succeed John Allan as Non-Executive Chair on 6 September 2023. Caroline will also join the Remuneration and Nomination Committees on 1 June 2023. Caroline will become the Non-Executive Chair of the Nomination Committee on 6 September 2023.

Caroline brings a wealth of knowledge and experience to the Board across a number of commercial, financial, investment banking, governance and Board leadership roles.

Under the planned succession process, led by Jock Lennox, our Senior Independent Director, John Allan will retire from the Board on 6 September 2023, having completed nine years of service.

On 11 January 2023, the Group also announced, that in order to reduce her non-executive commitments, Sharon White had decided to step down as a Non-Executive Director by 30 June 2023, after nearly five years on the Barratt Developments PLC Board. A further announcement will be made in due course, once the date of Sharon’s departure is confirmed.

The Board will continue to assess its own composition and that of its Committees. It will also consider, and continue to meet, the requirements of the Hampton Alexander and the Parker and McGregor-Smith reviews throughout this process.

Our financial performance

Half year results

The Group delivered a strong operational first half performance, completing 8,626 homes across the country. However, trading conditions deteriorated throughout the half, which resulted in a progressive slowing of our private reservation rate.

Overall, our private reservation rate in the period was 44.3% below the same period last year at 0.44 (HY22: 0.79) net private reservations per active outlet per week. Political and economic uncertainty impacted the first quarter which was then compounded by the rapid and significant changes in mortgage rates which reduced affordability, homebuyer confidence and reservation activity through the second quarter. As a result, our reservation rate declined sequentially throughout the half year period.

Net private reservation rate per active outlet per average week	HY23	HY22	Change
1 July to FY results announcement 1	0.60	0.82	(26.8%)
FY results announcement to AGM 2	0.48	0.90	(46.7%)
AGM announcement to 31 December 3	0.30	0.69	(56.5%)
1 July to 31 December 4	0.44	0.79	(44.3%)

Note 1: Trading period through to 28 August 2022 and 29 August 2021, the cut-offs on current trading for the FY22 and FY21 results announcement.

Note 2: Sequential trading period through to 9 October 2022 and 10 October 2021, the cut-offs on current trading for the FY22 and FY21 AGM.

Note 3: Sequential trading period to 31 December 2022 and 2021.

Note 4: Private reservation rate throughout the half-year trading period.

In the half year, 8% of our private reservations used the Government’s Help to Buy scheme (“HTB”), a significant decline from the 22% using HTB in HY22 as reservations under HTB ceased on 31 October 2022 with almost all of the HTB reservations secured in the first quarter.

In the half year, we operated from an average of 360 (HY22: 337) active outlets (including 8 JVs (HY22: 8)), an increase of 6.8% on the prior year. The growth in active outlets was driven by two factors. Firstly, we successfully launched 52 (HY22: 46) new outlets (including 1 JV). Secondly, the significantly lower private reservation rate naturally extended the life of our average sale outlet. As a result, at 31 December 2022, we were operating from 378 active sales outlets (31 December 2021: 335), including 9 JV outlets (31 December 2021: 7).

Reflecting the weaker than expected sales rate in the period, and new outlet launches in the second half, we now expect average active outlets, including JVs, for the full year will be c. 8% ahead of the 332 average outlets in FY22.

Reflecting the sequential weakening in reservations and the growth in HY23 completions to meet customer expectations, total forward sales (including JVs) as at 31 December 2022 have reduced by 29.1% to 10,511 homes (31 December 2021: 14,818). The value of the total order book (including JVs) as at 31 December 2022 has reduced by 32.9% to £2,544.4m (31 December 2021: £3,794.3m).

We delivered 8,626 (HY22: 8,067) home completions (including JVs of 362 (HY22: 395)), representing growth of 6.9%. The growth in home completions in the period resulted from our particularly strong forward sales position, the increased level of work in progress carried into the new financial year, as well as a strong construction performance in the period, and in particular in the first quarter.

The Group’s completion mix was:

Completions (Homes)	HY23	HY22	Change
Private	6,549	5,896	11.1%
Affordable	1,715	1,776	(3.4%)
Wholly owned	8,264	7,672	7.7%
JV	362	395	(8.4%)
Total3	8,626	8,067	6.9%

Our private ASP grew by 13.6% to £372,000 (HY21: £327,400). The growth in ASP reflected underlying house price inflation of c. 8.8%, augmented by a higher proportional delivery of completions from London and a slight movement towards larger family homes completed outside London in the period.

The affordable ASP increased by 8.5% to £170,400 (HY22: £157,100). This too reflected a higher proportional delivery from London and modest changes in product mix. As a result, the Group’s total ASP was 14.6% ahead at £330,100 (HY22:£288,000).

We experienced a 170 bps decline in adjusted gross margin in the half year. This reflected the fact that the majority of the impact of underlying house price inflation was offset by increasing build cost inflation, as well as an adverse mix effect from London. Each home completion delivered a contribution of c. 33% after land and build costs (HY22: c. 34%). When combined with inflation and additional costs within our site and divisional operating costs, our adjusted gross margin was 23.3% (HY22: 25.0%).

Our forward sales at the start of the second half incorporate underlying sales price inflation of c. 7%. During the first half, total build cost inflation was around 10%. Whilst we anticipate some marginal easing in total build cost inflation in the second half, our full year guidance remains unchanged with total build cost inflation anticipated at around 9 to 10%. We expect that the overall effect on margin will be negative for the second half of FY23.

In line with our commitment to put customers first, we incurred further legacy property costs in relation to reinforced concrete frame remediation in the first half, recording adjusted item costs of £20.0m, of which £2.4m was incurred in our joint ventures (HY22: £1.5m). Accordingly, £17.6m (HY22: £15.9m) was recorded through cost of sales in the period. This resulted in a reported gross margin of 22.6% (HY22: 24.3%).

Administrative costs have increased, reflecting the incremental effect of Gladman, acquired in January 2022, an increase in the building safety unit operating costs and our two new divisions in Sheffield and Anglia. Alongside this, employee related costs have increased, encompassing both annual payroll inflation and the cost of living supplement. Administrative costs in the half year were £136.9m (HY22: £114.5m). We expect net administrative expenses for FY23 will now be approximately £285m, approximately £15m below our previous guidance of c. £300m.

Adjusted operating profit increased by £61.9m to £511.8m (HY22: £449.9m) reflecting both wholly owned completion volume growth, as well as a significant step-up in the average selling price. Our adjusted operating margin reduced by 160 bps to 18.4% (HY22: 20.0%).

The change in the adjusted operating margin in the half year reflected a number of factors:

• Completion volumes: the growth in wholly owned completions of 7.7%, or 592 homes, created a 40 bps positive impact;
• Net inflation: sales price inflation, relative to underlying build cost inflation produced a 40 bps positive impact;
• London: a significant increase in the share of completions from our London operations, 12% for the half year (HY22: 3%), where margins are lower than the regional business, resulted in a 70 bps negative margin impact;
• Mix and other items: changes in sales mix, increased selling costs, abortive costs as we made proactive decisions in land buying given the market, and other smaller items created a 80 bps negative impact; and
• Administrative expenses: the change in administrative expenses resulted in a 90 bps negative margin impact.

Adjusted items of £17.6m (HY22: £15.9m) were also recognised in arriving at operating profit in the half year, reflecting legacy property costs associated with reinforced concrete frame remediation projects. After adjusted items, the reported operating margin for the half year was 17.8% (HY22: 19.3%).

Net finance charges were significantly lower than the prior period at £8.7m (HY22: £15.0m). This reflected an increasing benefit from interest received on cash on deposit, with finance income increasing to £8.8m (HY22: £0.5m). The cash finance income was £3.5m (HY22: £5.2m charge) in the half year, with non-cash charges of £12.2m (HY22: £9.8m). We now expect FY23 net finance costs will be around £20m, comprising £5m of cash finance income and £25m of non-cash finance charges.

In the half year, the Group’s reported share of JV profit was £16.0m (HY22: £13.6m). The adjusted share of JV profit was £18. 4m (HY22: £15.1m) before an adjusting charge of £2.4m (HY22: £1.5m charge) associated with legacy properties. We continue to expect to deliver around 750 JV home completions in FY23.

Adjusted profit before tax increased by 15.9% to £521.5m (HY22: £450.0m) and, after adjusted items, profit before tax increas ed by 15.9% to £501.5m (HY22: £432.6m). The Group recognised £121.0m of total tax charges (HY22: £81.6m) at an effective rate of 24.1% (HY22: 18.9%).

The anticipated effective tax rate for FY23 of 24.1% reflects the full year impact of the RPDT, at an effective rate of 3.8%, along with the one-quarter impact of the scheduled increase in corporation tax to 25% from 1 April 2023, an effective rate of 20.3%. In FY24, the full year impact of the increase in corporation tax rate to 25% and the RPDT will result in an expected effective tax rate of c. 29.0%.

Adjusted basic earnings per share increased by 9.2% to 39.2 pence per share (HY22: 35.9 pence per share). Increased pre-tax profitability, notwithstanding the impact of the increased effective tax rate in the half year, created the solid increase in adjusted earnings per share.

Basic earnings per share also increased by 9.3% to 37.7 pence per share (HY22: 34.5 pence per share). The share buyback, which reduced the average share count by 8.0m shares in HY23, was responsible for 0.8% of both the adjusted and basic earnings per share growth in the period.

Capital structure and operating framework

We continue to maintain an appropriate capital structure reflecting our disciplined operating framework to ensure our balance sheet strength and resilience through the cycle. Our capital structure remains centred on shareholders’ funds and land creditors funding the longer-term requirements of the business with term loans and bank debt funding shorter-term requirements for working capital.

The net cash balance of £969.1m (31 December 2021: £1,131.7m), including cash and cash equivalents of £1,166.5m (31 December 2021: £1,336.3m), reflected the strength of underlying operating cash generation, notwithstanding a £190.4m increase in working capital in the period, as well as the payment of the final dividend of £259.8m with respect to FY22 and £100.5m with respect to the share buyback programme announced on 7 September 2022.

We now anticipate year-end net cash of between £0.8bn and £0.9bn with lower activity in the second half, relative to the first half, counterbalanced by reduced land and working capital investment, as our construction output moves to realign with reservation activity during the second half of FY22.

Whilst we continue to defer payment for some land purchases to optimise ROCE, the pause in land buying has seen land creditors reduce but remain within our operating framework range. As at 31 December 2022 land creditors totalled £622.3m (31 December 2021: £682.3m) and equated to 19.1% (31 December 2021: 22.4%) of the owned land bank. Land creditors falling due within the next 12 months totalled £433.5m at 31 December 2022 (31 December 2021: £412.5m). After deducting land creditor obligations from our net cash balance, we recorded a total net cash surplus of £346.8m at 31 December 2022 (31 December 2021: surplus of £449.4m).

During the half, we extended our £700m revolving credit facility to November 2027 with two further one-year extension periods through to November 2029, if agreed between the Group and its lenders. The extended revolving credit facility has also been amended to include three sustainability linked performance measures to be assessed and verified annually. The three performance measures are: (1) science-based target aligned scope 1 & 2 emissions reductions; (2) waste intensity reduction; and, (3) improving the sustainability of our homes, aligned with our Building Sustainably Framework.

Our operating framework remains unchanged. Progress over both the last six and twelve-month periods are shown below:

	Operating framework	Position at 31 December 2022 vs 30 June 2022	Position at 31 December 2021
Land bankA	c. 3.5 years owned and c. 1.0 year controlled	3.6 years owned and 0.8 years controlled (FY22: 3.9 years owned and 0.8 year controlled)	4.3 years owned and 0.8 years controlled
Land creditors	Maintain at 15 - 25% of the land bank over medium term	19.1% (FY22: 22.0%)	22.4%
Net cash	Modest average net cash over the financial year	£856.9m over six months ending 31 December 2022 (£957.4m over twelve months ending 30 June 2022)	£1,144m over six months ending 31 December 2021
	Year end net cash	£969.1m net cash (FY22: £1,138.6m net cash)	£1,131.7m net cash
Total indebtedness (net cash and land creditors)	Minimal year end total indebtedness in the medium term	Total net surplus of £346.8m (FY22: Total net surplus of £405.0m)	Total net surplus of £449.4m
Treasury	Appropriate financing facilities	£700m RCF extended to November 2027 £200m USPP maturing 2027	£700m RCF extended to November 2025 £200m USPP maturing 2027
Dividend policy	Phased reduction to 2.0x for FY23	FY23 proposed interim dividend of 10.2p (FY22: total dividend of 36.9p)	FY22 interim dividend of 11.2p

A. Land supply is calculated as total owned (owned land and land subject to unconditional contracts) and controlled (land subject to conditional contracts) land bank plots divided by wholly owned completions in the last 12 months.

Net tangible assets were £4,603.6m and £4.62 per share at 31 December 2022, (31 December 2021: £4,683.8m and £4.58 per share) of which land, net of land creditors, and work in progress, totalled £4,595.6m and £4.61 per share (31 December 2021: £4,230.4m and £4.14 per share).

The key dimensions underpinning delivery of our strategy

Land and planning

Our land bank is the foundation of our future operational and financial performance. Throughout the period we have been very selective with respect to the land opportunities on which we have been prepared to bid, reflecting the increased uncertainty on the outlook for both the UK economy and the housing market. As a result of our rigorous application of minimum investment hurdles to new land approvals, as well as the cancellation of some previous land approvals which are no longer proceeding, net land approvals in the period have been negative.

In the period, we approved 16 new sites but these were more than offset by 22 previously approved sites which will no longer proceed, resulting in a net cancellation of 6 sites in the half (HY22: net approval of 48 sites). The approved sites added 3,003 plots, at a cost of £246.2m, with 3,293 plots removed with respect to the sites no longer proceeding, at a previously agreed cost of £241.0m. The result was a net cancellation of 290 plots in the half year (HY22: net addition of 8,869 plots) and a net increase in approvals of £5.2m (HY22: net increase in approvals of £673.4m).

Reflecting the strength of our existing land bank and the uncertainty in the sales market, we anticipate that land approvals in FY23 will be minimal, based on current market conditions. We invested around £440m (HY22: £410m) on land acquisitions and the settlement of land creditors during the half year and we now expect to invest around £0.9bn to £1.0bn on land and land creditors in FY23, below the £1,036m invested in FY22.