Half Year Results

07/02/2024 Archive

BARRATT DEVELOPMENTS PLC

Half year results for the six month period ended 31 December 2023

Solid operating performance in an uncertain market

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

“Whilst our operating environment is still challenging, Barratt has remained focused on delivering high-quality, energy- efficient and well-designed homes across the country. We continue to lead the industry in customer service, build quality and sustainability.

During the period, we have been rigorous in carefully controlling our build activity, managing our costs, being highly selective in land buying, and driving revenue. These clear priorities have helped maintain the strength of our balance sheet despite lower levels of profitability and ensure we remain resilient and responsive through the cycle.

Despite the challenging macroeconomic backdrop, underlying demand for our homes is strong. Since the start of January, we have seen early signs of improvement in both reservation rates and buyer sentiment, helped by expectations of lower interest rates and the introduction of more competitive mortgage rates. I would like to thank everybody at Barratt, our sub-contractors and our suppliers for their commitment and hard work as we continue to deliver for our customers, stakeholders and shareholders.”

£m unless otherwise stated^1,2	Half year ended 31 December 2023	Half year ended 31 December 2022	Change
Total completions (homes)³	6,171	8,626	(28.5%)
Revenue	1,850.8	2,783.9	(33.5%)
Alternative performance measures:⁴
Adjusted gross profit	295.9	647.9	(54.3%)
Adjusted profit before tax	157.1	521.5	(69.9%)
Adjusted gross margin	16.0%	23.3%	(730 bps)
Adjusted operating margin	8.4%	18.4%	(1,000 bps)
Adjusted basic earnings per share (pence)	11.8	39.2	(69.9%)
Statutory basis:
Gross profit	238.5	630.3	(62.2%)
Profit before tax	95.2	501.5	(81.0%)
Gross margin	12.9%	22.6%	(970 bps)
Operating margin	5.3%	17.8%	(1,250 bps)
Basic earnings per share (pence)	7.1	37.7	(81.2%)

ROCE	12.8%	29.6%	(1,680 bps)
Net cash	753.4	969.1	(22.3%)
Interim dividend per share (pence)	4.4	10.2	(56.9%)
Tangible net asset value per share (pence)	451	462	(2.4%)

Highlights

Resilient operational performance, delivering 6,171 total home completions³ (HY23: 8,626) and revenue of £1.9bn (HY23: £2.8bn), with adjusted profit before tax at £157.1m (HY23: £521.5m).
Adjusted items relating to costs associated with legacy properties of £61.9m (HY23: £20.0m), which resulted in reported profit before tax of £95.2m (HY23: £501.5m).
Balance sheet strength maintained with net cash of £753.4m (31 December 2022: £969.1m), after payment of the FY23 final dividend of £228.0m (FY22 final dividend: £259.8m).
Continued industry leadership on quality, customer satisfaction and sustainability: 96 NHBC Pride in the Job Awards, more than any other housebuilder for 19 years, rated ‘5 Stars’ by our customers in the HBF customer satisfaction survey for 14 years in a row, and recognised as the leading national sustainable housebuilder by NextGeneration for the eighth consecutive year.
Interim ordinary dividend of 4.4p (HY23: 10.2p) reflecting the reduced level of pre-tax profitability, the 600 bps step up in the corporation tax rate and partial offset from the planned reduction in dividend cover to 1.75 times for FY24.

Current trading and outlook

The net private reservation rate per active outlet per average week from 1 January 2024 through to 28 January 2024 was 0.60 (2023: 0.49), including a contribution of 0.04 (2023: 0.01) from sales into the private rental sector and to registered providers of social housing.
Forward sales³ as at 28 January 2024 were 8,760 homes (29 January 2023: 10,854) at a value of £2,268.3m (29 January 2023: £2,665.0m) with 6,470 homes of these total forward sales either exchanged or contracted (29 January 2023: 8,719).
Whilst our full year out-turn remains dependent on how the market evolves through the Spring selling season, based on the encouraging uplift in reservation activity since the start of January, we now expect to deliver total home completions of between 13,500 to 14,000 in FY24 (including c. 650 JV completions).

Recommended all-share offer for the combination of Barratt Developments PLC and Redrow plc

Barratt has today separately announced that it has agreed the terms of a recommended all-share offer for the combination of Barratt and Redrow. We believe that the combination will create an exceptional UK housebuilder in terms of quality, service and sustainability, delivering excellence and driving innovation for customers, employees, sub- contractors and the supply chain. The combination will bring together two companies with highly complementary geographic footprints and three highly respected brands – Barratt Homes, David Wilson Homes and Redrow – with which to accelerate the delivery of much-needed housing across the UK and provide the opportunity for shareholders to participate in future value creation in the combined group.

Refer to Glossary for definition of key financial metrics
Unless otherwise stated, all numbers quoted exclude JVs
Including JVs in which the Group has an interest
In addition to the Group using a variety of statutory performance measures, it also measures performance using alternative performance measures (APMs). Definitions of APMs and reconciliations to the equivalent statutory measures are detailed in the Glossary and Definitions. Net cash definition in Note 10

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 Peel Hunt Auditorium, 100 Liverpool Street, London, EC2M 2AT at 8.30am today. 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/659c2550e26eed4a213b8981

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

Chief Executive’s Statement

Overview

We have delivered a solid operating performance for the six months to 31 December 2023, supported by the commitment and efforts of our employees, sub-contractors and supply chain partners.

Total home completions were 6,171 (HY23: 8,626).
We achieved a 16.0% adjusted gross margin (HY23: 23.3%) reporting adjusted gross profit of £295.9m (HY23: £647.9m), with reduced gross profitability reflecting the stabilisation of customer demand at lower levels, softening house prices, ongoing, but moderating, build cost inflation and the operational gearing impact of lower completions.
The impact of adjusting items, which reflected legacy property costs associated with building safety related remediation activities, resulted in reported gross profit of £238.5m (HY23: £630.3m) and a reported gross margin of 12.9% (HY23: 22.6%).
We generated an adjusted profit before tax of £157.1m (HY23: £521.5m).
Reported profit before tax, after deducting adjusting items, was £95.2m (HY23: £501.5m).
Our balance sheet strength has been maintained with half year net cash of £753.4m (HY23: £969.1m) after dividend payments of £228.0m (HY23: £259.8m) and the typical seasonal investment in work in progress.
ROCE reduced by 1,680 bps to 12.8% (HY23: 29.6%), largely due to reduced profitability.

The market backdrop was challenging during the first half of the year with additional volatility created by the spike in mortgage rates experienced from May through July 2023, and affordability challenges faced by all home buyers but particularly first time buyers.

Against this backdrop, the Group set four priorities in the Summer of 2023, which have supported our performance through this volatile period.

Driving revenue through the targeted use of incentives for private purchasers and increased sales into the private rental and social housing sectors:
Given affordability and mortgage qualification challenges for our private customers, we have used targeted incentives to improve mortgage availability which resulted in:
- A sequential easing of the price deflation seen on our underlying private home reservations, from c. 3.5% for the 6 months to 30 June 2023, to c. 2.0% for the six months to 31 December 2023; and
- Growth of 9.8% in private home reservations to 3,909 (HY23: 3,561) homes in the half (excluding multi-unit sales).

Whilst underlying private completions declined by 36.1% to 4,008 homes (HY23: 6,269), home completions for the private rental sector and RPs increased by 176% to 772 homes (HY23: 280 homes) and contributed 12.9% (HY23: 3.4%) of total wholly owned home completions.

Controlling build activity and managing our costs:
Trading conditions require us to align our build activity with reservations and control our work in progress, particularly our site- based construction activity, while looking for ways to manage costs:
- Our construction teams have aligned our site-based construction activity to lower reservations, with 251 equivalent homes constructed each week in HY24, 24.6% below the 333 equivalent homes, built weekly, in HY23.
- Through our ongoing recruitment freeze we have now reduced our headcount by a cumulative 10%, from 30 September 2022, which compares with a 6% cumulative reduction through to 30 June 2023.
Maintaining our highly selective approach to land buying:
Prevailing land prices have not yet adjusted to the changed market conditions, and as a result:
- Our disciplined and highly selective approach to land buying has been maintained throughout the half year.
- The Group approved 6 net site additions but, given the size of sites cancelled relative to those approved, this equated to a net cancellation of 254 plots in the half; and,
- We remain committed to applying our long-standing hurdle requirements for new land investment, which require a minimum gross margin of 23% and ROCE of 25%.
Continuing to lead the industry around customer service, build quality and sustainability:
We continue to lead the industry on customer service, build quality and sustainability:
- We maintained our 5* HBF customer satisfaction status with the latest rolling annual recommend score at 93.1%, the highest score amongst the national housebuilders;
- We have maintained our industry leadership position amongst the major housebuilders, registering the lowest NHBC Reportable Items (RIs) per inspection at 0.14 through calendar 2023; and
- The Group was recognised as the leading national sustainable housebuilder by NextGeneration, for the 8^th consecutive year.

These four priorities have supported our resilient operational performance throughout the first half, in addition to positioning us well for the future.

Keeping people safe

Our first priority is always 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 2023, despite reduced levels of building activity on our sites and concerted campaigns to raise health and safety issues our IIR increased slightly to 305 (2022: 301) per 100,000 workers but our SHE audit compliance was 97% (2022: 96%). We remain focussed on improvement of our site-based processes and procedures, challenging unsafe behaviours and looking at ways we can further improve.

Building sustainably

Our Building Sustainably Framework remains centred around three core pillars – Nature, Places and People. These pillars cover the material issues for our business and are informed by our stakeholders. We are determined to maintain our position as the leading national sustainable housebuilder. Sustainability presents opportunities for innovation, business growth and will ultimately improve 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, delivering our transition to net zero, maintaining our industry leading performance and ensuring we are reporting our performance accurately and transparently in line with industry-specific and market-wide benchmarking and indices.

Key areas of focus for the Committee in the financial year to date have included action plans to maintain our industry-leading performance on site waste reduction; extending our commitment to reducing diesel consumption with the wider adoption of hydro- treated vegetable oil (HVO), as a transition initiative to further reduce our emissions from operations; and, plans, following the completion of the new timber frame facility, near Derby, to increase the proportion of our homes built using timber frame construction.

The Zed House and eHome2, within the Energy House 2.0 at Salford University, continue to provide important data on the performance of the homes for occupants, as well as their emissions performance. The eHome2, testing zero carbon performance in different controlled temperatures and weather conditions, replicating extreme changes in the climate and the long term expected increase in temperatures faced in the UK, is providing invaluable data for our teams as we evolve our house type designs and materials and construction methods used.

In the housebuilding industry’s NextGeneration awards, we once again maintained our position as the ‘Leading National Sustainable Housebuilder’, receiving the “Gold Award” for the eighth consecutive year, as well as the “Crystal Award”, for Transparency, for a fourth year.

Customer first

Our customers are at the heart of everything we do. 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 14 consecutive years.

We are continually striving to improve the space and energy efficiency of our homes both as a reaction to changing customer preferences and to help unlock lower lifetime housing costs for our customers.

Our sales outlets continue to 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 £2,200⁵ annually when compared to an average existing home. In FY23 99% of our home completions were EPC rated ‘B’ or above, a level of energy efficiency shared by just 3.3%6 of the existing housing stock.

We have continued to help our customers through the more difficult 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 also 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 to buy a new Barratt or David Wilson home.

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.

We also strive to build places that are good for nature and the environment. Whilst bio-diversity net gain legislation will come into force for larger sites from 12 February 2024, we have met our commitment that all development designs submitted for planning from January 2023 would identify a minimum bio-diversity net gain (BNG) of 10%.

Leading construction

Our long-standing commitment to excellent build quality is embedded throughout our business. Throughout calendar 2023, Barratt has once again maintained its industry leadership amongst the major housebuilders, with the Group registering the lowest Reportable Items (RIs) per NHBC inspection⁷ at 0.14 (2022: 0.16).

Our build quality also continues to be recognised through the NHBC Pride in the Job Awards for site management. Our site teams’ success in the most recent judging period was recognised in June 2023, where our site managers secured 96 awards, more than any other housebuilder for the 19^th consecutive year. At the subsequent Regional NHBC Pride in the Job Awards 30 site managers went on to win ‘Seals of Excellence’ and Sean O’Regan, site manager at Waldmers Wood in our Barratt Manchester division, was named the Supreme Runner Up in the ‘Large Builder’ category. No other national housebuilder has delivered this level of success and consistency, in terms of the recognition for site standards and build quality.

We continue to grow the number of homes we build using Modern Methods of Construction (MMC). The adoption of MMC, most notably timber frame construction increases efficiency, reduces both embodied carbon and 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 35.2% of our homes using MMC (HY23: 30.5%).

Investing in our people

Our 2023 employee engagement survey was completed in October 2023. This year’s survey delivered an engagement score of 74.9% (2022 survey: 84.4%). The reduction in the 2023 engagement score reflected:

A very strong engagement score in 2022 which was supported by two cost of living support payments, which ended in July 2023;
The Group’s ongoing recruitment freeze, which has created additional workload and responsibilities; and /li>
The lower levels of FY23 bonus received by the Groupwide workforce when compared to prior years.

Following the 2023 engagement survey, workshops and consultations are underway, reflecting our desire to respond positively and engage with our workforce to improve engagement.

We 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 have three Degree Apprenticeships delivered in partnership with Sheffield Hallam University, encompassing Construction, Quantity Surveying and Technical Design and Management. Our development programmes included 414 participants at 31 December 2023 (31 December 2022: 580).

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 life experience, talents and skills. 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 across our business.

Responsible development

Fire safety and external wall systems

We are making progress in relation to the assessment and remediation of buildings covered under the Building Safety Self Remediation Terms and we now have 104 buildings where site remediation teams are being mobilised, remediation is in progress or has been completed. Around 65% of our active portfolio have been assessed under the Fire Risk Assessment of External Walls and have an appropriate PAS 9980 assessment in place. During the half year, through inspections and testing, we identified a further 18 buildings requiring potential remedial works (HY23: 13 buildings) and 4 buildings were completed or assessed to need no remediation (HY23: 8 buildings).

As investigations into, and remediation of, the remaining buildings in the programme continue under the PAS9980 regime, it is possible that further buildings may require more extensive remediation than initially expected. Whilst existing provisions have more than covered the additional costs on such properties experienced over the last 6 months, we have received higher than expected tender returns in the period relating to future remediations. In addition, we have seen costs from the Building Safety Fund continue to be higher than initially communicated to us. Recognising this additional cost risk going forward, the Group has increased its overall EWS provision by £56.4m to cover the expected costs.

During the first half of the financial year, we determined that for three buildings on one development, a full fire test of the external wall system will be required to ascertain how it can be appropriately certified under PAS 9980. The buildings have a unitised curtain wall system which has not been used elsewhere in the Group. It is anticipated that the results of this fire test will take approximately 12 months to be determined.

Should the results of the full fire test indicate that the buildings require remediation, there are a range of possible outcomes up to the full replacement of the curtain wall system. The timing and extent of completion of these works would be dependent on the result of the fire test. At the balance sheet date, a provision is held for the cost of the fire test and some minor remediation works already identified. The current estimate of the range of incremental remediation costs is up to £90m. The upper end of the range would support full replacement of the unitised curtain wall system.

The Group signed the Scottish Government’s Safer Building Accord, on 31 May 2023. We are continuing to work with Homes for Scotland and the Scottish Government to agree a legally binding, long-form contract to give effect to the principles of the Accord. There remains, as a result, uncertainty around the extent of remediation which will be required in Scotland. Our existing provisions for Scottish buildings have been made on a consistent basis with England & Wales.

After incorporating the additional provision, detailed above, the Group is of the view that the provision in respect of fire safety and external wall systems of £582.6m as at 31 December 2023 (30 June 2023: £535.9m) 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.

Reinforced concrete frames

Our remediation activities with respect to concrete frame design and construction continued during the half year with developments proceeding in line with plans.

In relation to the two further developments identified in FY23, where remediation work might be required, the provision raised at 30 June 2023 of £7.6m remains management’s best estimate of the cost of remediation. Remediation works remain subject to further detailed analysis, which is ongoing and is expected to conclude by year end.

Through to 31 December 2023, of a total of 146 buildings requiring concrete frame design review and potential remediation, 92 buildings have been completed or closed off as requiring no remediation, 12 buildings are undergoing remediation works and 42 buildings remain under review.

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

Further details on our approach to building safety can be viewed on our website at:

https://www.barrattdevelopments.co.uk/about-us/our-approach-to-building-safety.

Competition and Markets Authority (“CMA”)

On 28 February 2023, the CMA launched a market study into housebuilding in England, Scotland and Wales. We welcomed the

study, which provided an opportunity for the industry to explain in detail the challenges being faced. We have taken a proactive and constructive approach in engaging with the CMA to assist with their study. The CMA reported on 25 August 2023 that its review was continuing and expected to conclude its market study during February 2024.

Charitable giving

In FY23, we raised and donated £6.3m (FY22 £5.1m) for charitable causes through the Barratt Foundation and Group donations. The Foundation celebrated a significant milestone in November 2023 having delivered more than £10m of funding to local and national charities since the launch of The Barratt Foundation in 2020.

During the first half of FY24, the Barratt Foundation:

Through the Winter Support Fund, donated £99,000 to small and local charities chosen by teams and Divisions across Barratt. Charities received a £3,000 donation in December and in January to support them through the winter months
Pledged in total more than £2m in grants to new and existing national charity partners, including:
- The launch of a new two-year partnership with Magic Breakfast with funding of £500,000;
- The renewal of the partnership with Place2Be, committing funding of £1m over three years; and, Bookmark, committing funds of £450,000 over three years;
- The launch of a new partnership with CleanupUK to provide Barratt employees with volunteering opportunities in their local area to create a cleaner and greener environment.

Board changes

As previously announced, on 6 September 2023, the Group announced the appointment of Nigel Webb as an Independent Non- Executive Director. Nigel joined the Board on 1 October 2023 and has also taken up positions on the Audit, Nomination and Remuneration Committees.

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 solid operational first half performance, completing 6,171 homes across the country.

Overall, our private reservation rate in the period at 0.48 was 9.1% above the 0.44 reported for the same period last year.

	1 July - FY results announcement ⁽¹⁾	FY results announcement - AGM ⁽²⁾	AGM announcement - 31 December ⁽³⁾	HY: 1 July - 31 December ⁽⁴⁾
HY24
Reported private reservation rate	0.42	0.51	0.51	0.48
Of which: PRS & RPs	0.02	0.07	0.10	0.06
Private reservation rate exc. PRS & RPs	0.40	0.44	0.41	0.42
HY23
Reported private reservation rate	0.60	0.48	0.30	0.44
Of which: PRS & RPs	0.05	0.02	0.06	0.05
Private reservation rate exc. PRS & RPs	0.55	0.46	0.24	0.39
Change HY24 vs HY23:
Reported private reservation rate	(30.0%)	6.3%	70.0%	9.1%
Of which: PRS & RPs	NM	NM	NM	20.0%
Private reservation rate exc. PRS & RPs	(27.3%)	(4.3%)	70.8%	7.7%

Note 1: Trading period through to 27 August 2023 and 28 August 2022, the cut-offs on current trading for the FY23 and FY22 results announcements.

Note 2: Sequential trading period through to 8 October 2023 and 9 October 2022, the cut-offs on current trading for the FY23 and FY22 AGMs.

Note 3: Sequential trading period to 31 December 2023 and 2022. Note 4: Private reservation rate throughout the half-year trading period.

In the half year, we operated from an average of 367 (HY23: 360) active sales outlets (including 9 JVs (HY23: 8)), an increase of 1.9% on the prior half year. Whilst we launched fewer new sales outlets in the half, with 15 openings (HY23: 52), the life of our average sales outlet has been extended by the slower private reservation rate experienced since Autumn 2022. We have begun to see these ‘extended’ outlets close as they sell through and, as a result, at 31 December 2023, we were operating from 342 active sales outlets (31 December 2022: 378), including 10 JV outlets (31 December 2022: 9). We continue to expect average active sales outlets, including JVs, for the full year will be c. 6% lower than of the 367 average outlets in FY23.

Reflecting the weaker level of reservations and the scheduled delivery of homes for our customers, total forward sales (including JVs) as at 31 December 2023 have reduced by 21.9% to 8,212 homes (31 December 2022: 10,511). The value of the total order book (including JVs) as at 31 December 2023 has reduced by 17.8% to £2,092.3m (31 December 2022: £2,544.4m).

The Group’s completion mix by both volume and average sales price (ASP), are detailed in the following table:

Completions (Homes)	HY24	HY23	Change
Private excluding PRS and RPs	4,008	6,269	(36.1%)
PRS	481	22	n.m.
RPs	291	258	12.8%
Total private	4,780	6,549	(27.0%)
Affordable	1,201	1,715	(30.0%)
Wholly owned	5,981	8,264	(27.6%)
JV	190	362	(47.5%)
Total³	6,171	8,626	(28.5%)
Average sales price (ASP) (£’000)
Private excluding PRS and RPs	357.8	375.9	(4.8%)
PRS	273.2	311.7	(12.4%)
RPs	278.1	282.1	(1.4%)
Total private	344.4	372.0	(7.4%)
Affordable	160.8	170.4	(5.6%)
Wholly owned	307.6	330.1	(6.8%)
JV	353.9	403.6	(12.3%)

We delivered 6,171 (HY23: 8,626) total home completions (including JVs of 190 (HY23: 362)), a decline of 28.5%. The decline in home completions in the period reflected the reduced order book entering the new financial year, as well as the slower sales rate but did benefit from increased private completions delivered to both the private rental sector and RPs.

Our private ASP, excluding completions to the PRS and RPs, reduced by 4.8% to £357,800 (HY23: £375,900). The reduction in the private ASP reflected an underlying house price decline of c. 2.7% (HY23: 8.8% underlying inflation) augmented by a reduced proportional delivery of completions from London.

The private rental sector ASP, at £273,200 showed a reduction of 12.4% (HY23: £311,700), but this reflected a wider geographic and product portfolio of home completions across the country in the half, relative to completions from a single site in HY23.

The RPs ASP, at £278,100 (HY23: £282,100) showed only a small decline of 1.4%, with product and geographic mix impacting the year-on-year comparison.

The overall private wholly owned ASP including PRS and RPs reduced by 7.4% to £344,400 (HY23: £372,000).

The affordable ASP reduced by 5.6% to £160,800 (HY23: £170,400). This also reflected a lower proportional delivery from London and modest changes in site mix. As a result, the Group’s total wholly owned ASP was 6.8% lower at £307,600 (HY23: £330,100).

We experienced a 730 basis point decline in adjusted gross margin in the half year. This reflected the impact of softer house prices and ongoing build cost inflation. Each home completion delivered a contribution of c. 29% after land and build costs (HY23: c. 33%). After site and divisional operating costs, the operational gearing impact of lower home completions in the half resulted in an adjusted gross margin of 16.0% (HY23: 23.3%).

Our forward sales at the start of the second half incorporate a 5.5% reduction in sales prices, excluding multi-unit sales, on the position a year ago. During the first half, total build cost inflation recognised through the income statement was around 7%. Whilst we continue to see an easing of total build cost inflation, with current materials purchases and labour costs now showing limited inflation on a year- on-year basis, recognising inflation carried in work in progress relating to home completions scheduled for the balance of FY24, our full year guidance remains unchanged, with total build cost inflation anticipated at around 5% recognised in the income statement. We expect that the overall effect of total build cost inflation will be negative on gross margin during the second half of FY24, with expected home completion growth improving fixed cost absorption resulting in an adjusted gross margin for FY24, broadly in line with that reported in the first half.

We incurred further legacy property costs in relation to building safety in the first half, recording adjusted items of £61.9m (HY23: £20.0m), of which £4.5m was incurred in our joint ventures (HY23: £2.4m). Accordingly, £57.4m (HY23: £17.6m) was recorded through cost of sales in the period. This resulted in a reported gross margin of 12.9% (HY23: 22.6%).

Administrative costs in the half year increased by 2.9% to £140.9m (HY23: £136.9m) reflecting annual payroll inflation but reduced headcount through our ongoing recruitment freeze. We expect net administrative expenses for FY24 will be in line with our previous guidance at c. £290m - £300m.

Adjusted operating profit reduced by £356.6m to £155.2m (HY23: £511.8m) reflecting both wholly owned completion volume decline, as well as the softer average selling prices and build cost inflation. Our adjusted operating margin reduced by 1,000 bps to 8.4% (HY23: 18.4%).

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

Completion volumes: the decline in wholly owned completions of 27.6%, or 2,283 homes, created a 660 bps negative impact;
Net inflation: sales price softening, combined with underlying build cost inflation produced a 540 bps negative impact;
London: a decline in the share of completions from our London operations, 2% for the half year (HY23: 12%), where margins are lower than the regional business, and the impact of a previously impaired site at Hounslow, the majority of which was traded through in HY23, resulted in an 80 bps positive margin impact;
Completed developments provision: after reflecting the increasingly extended time periods being experienced in relation to the adoption of roads and public space by local authorities on completed developments during FY23, modest changes to this provision in the half created a 70 bps positive 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 70 bps positive impact; and
Administrative expenses: the change in administrative expenses resulted in a 20 bps negative margin impact.

Adjusted items of £57.4m (HY23: £17.6m) were also recognised in arriving at operating profit in the half year, reflecting legacy property costs associated with building safety. After adjusted items, the reported operating margin for the half year was 5.3% (HY23: 17.8%).

Net finance charges were significantly below the prior period at £2.6m (HY23: £8.7m). This reflected an increasing benefit from interest received on cash on deposit, with finance income increasing to £24.0m (HY23: £8.8m). The cash finance income was £19.0m (HY23: £3.5m income) in the half year, with non-cash charges of £21.6m (HY23: £12.2m). The increase in non-cash finance charges reflects the unwinding of the discount attached to legacy property provisions.

We continue to expect FY24 net finance costs to be around £20m, however now comprising c. £35m of cash finance income and c. £55m of non-cash finance charges.

In the half year, the Group’s reported share of JV profit was £nil (HY23: £16.0m). The adjusted share of JV profit was £4.5m (HY23: £18.4m) before an adjusting charge of £4.5m (HY23: £2.4m charge) associated with legacy properties.

Adjusted profit before tax reduced by 69.9% to £157.1m (HY23: £521.5m) and, after adjusted items, profit before tax reduced by 81.0% to £95.2m (HY23: £501.5m). The Group recognised £26.4m of total tax charges (HY23: £121.0m) at an effective rate of 27.7% (HY23: 24.1%), with the tax rate impacted by the 600bps increase in the rate of corporation tax, effective from 1 April 2023.

The anticipated effective tax rate for FY24 has reduced to c.28% reflecting the impact of permanent differences on the rates of corporation tax (25%) and RPDT (4%).

Adjusted basic earnings per share reduced to 11.8 pence per share (HY23: 39.2 pence per share). The reduction in pre-tax profitability, combined with the impact of the increased effective tax rate in the half year, created the 69.9% reduction in adjusted earnings per share.

Basic earnings per share reduced by 81.2% to 7.1 pence per share (HY23: 37.7 pence per share). The share buyback completed in FY23, reduced the average share count by 38.6m shares in HY24 when compared with HY23.

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.

The net cash balance of £753.4m (31 December 2022: £969.1m), including cash and cash equivalents of £949.9m (31 December 2022: £1,166.5m), reflected the strength of underlying operating cash generation, notwithstanding a £145.1m increase in working capital in the period (HY23: £190.4m increase), as well as the payment of the final dividend of £228.0m with respect to FY23 (HY23:£259.8m).

We continue to anticipate year-end net cash of between £0.7bn and £0.8bn with higher build activity in the second half, relative to the first half, counterbalanced by reduced land and working capital investment, as our construction output continues to align with reservation activity.

The continued pause in land buying has seen land creditors reduce further and move below operating framework range. As at 31 December 2023 land creditors totalled £367.2m (31 December 2022: £622.3m) and equated to 12.3% (31 December 2022: 19.1%) of the owned land bank. Land creditors falling due within the next 12 months totalled £228.9m at 31 December 2023 (31 December 2022: £433.5m).

After deducting land creditor obligations from our net cash balance, we recorded a total net cash surplus of £386.2m at 31 December 2023 (31 December 2022: surplus of £346.8m).

During the half, we extended our £700m revolving credit facility by one additional year to November 2028 with one further one-year extension period through to November 2029 available, if agreed between the Group and its lenders. Our operating framework remains unchanged. Progress over both the last six and twelve-month periods are shown below:

	Operating framework	Position at 31 December 2023 vs 30 June 2023	Position at 31 December 2022
Land bank^A	c. 3.5 years owned and c. 1.0 year controlled	3.9 years owned and 0.6 years controlled (FY23: 3.6 years and 0.7 years)	3.6 years owned and 0.8 years controlled
Land creditors	Maintain at 15 - 25% of the land bank over medium term	12.3% (FY23: 16.1%)	19.1%
Net cash	Modest average net cash over the financial year	£784.7m over six months ending 31 December 2023 (£759.1m over twelve months ending 30 June 2023)	£856.9m over six months ending 31 December 2022
Net cash	Period end net cash	£753.4m net cash (FY23: £1,069.4m net cash)	£969.1m net cash
Total indebtedness (net cash and land creditors)	Minimal year end total indebtedness in the medium term	Total net surplus of £386.2m (FY23: Total net surplus of £562.7m)	Total net surplus of £346.8m
Treasury	Appropriate financing facilities	£700m RCF extended to November 2028 £200m USPP maturing 2027	£700m RCF extended to November 2027 £200m USPP maturing 2027
Dividend policy	Ordinary dividend cover of 1.75x from FY24	FY24 proposed interim dividend of 4.4p (FY23: total dividend of 33.7p)	FY23 interim dividend of 10.2p

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 £4,397m and £4.51 per share at 31 December 2023, (31 December 2022: £4,603.6m and £4.62 per share) of which land, net of land creditors, and work in progress, totalled £4,615.2m and £4.74 per share (31 December 2022: £4,595.6m and £4.61 per share).

Land and planning

Throughout the period we have maintained our highly selective approach to investment in land reflecting the continuing 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 previous land approvals which are no longer proceeding, net land plot approvals in the period have again been negative.

In the period, we approved 13 new sites but these were, in part, offset by 7 previously approved sites which will no longer proceed, resulting in a net approval of 6 sites in the half (HY23: net cancellation of 6 sites). The approved sites added 1,990 plots, at a cost of £127.3m, with 2,244 plots removed with respect to the sites no longer proceeding, at a previously agreed cost of £85.1m. The result was a net cancellation of 254 plots in the half year (HY23: net cancellation of 290 plots) and a net increase in approvals of £42.2m (HY23: net increase in approvals of £5.2m). The net increase in land approvals reflected both the geographic mix and the serviced nature of plots approved relative to those cancelled in the half.

Reflecting the strength of our existing land bank, the continuing uncertainty in the sales market and limited adjustment in broader market land values, we anticipate that land approvals in FY24 will be minimal, based on current market conditions. We invested around £239m (HY23: £440m) on land acquisitions and the settlement of land creditors during the half year and we continue to expect to invest around £0.5bn to £0.7bn on land and land creditors in FY24, below the £822.8m invested in FY23.

We continue to target a geographically balanced land portfolio with a supply of owned land of c. 3.5 years and a further c. 1.0 year of controlled land. Reflecting both reduced levels of completions and limited land buying, we are now in line with this overall target at 4.5 years (31 December 2022: 4.4 years).

Our land bank comprised of 3.9 years of owned land (31 December 2022: 3.6 years) and 0.6 years of controlled land at 31 December 2023 (31 December 2022: 0.8 years). Our land bank at 31 December comprised:

Our land bank	31 December 2023	31 December 2022
Plots with detailed planning consent	43,308	47,641
Plots with outline planning consent	10,086	15,773
Plots with resolution to grant and other	1,160	658
Owned and unconditional land bank (plots)	54,554	64,072
Conditionally contracted land bank (plots)	9,060	13,322
Total owned and controlled land bank (plots)	63,614	77,394
Number of years’ supply ^(A)	4.5	4.4
JVs owned and controlled land bank (plots)	4,166	4,186
Total land bank including JVs (plots)	67,780	81,580
Strategic land bank (acres)	17,370	16,221
Strategic land bank (plots)	107,753	93,600
Promotional land bank (plots)	102,360	93,903
Land bank carrying value	£2,979.1m	£3,253.7m

At 31 December 2023, the ASP of plots in our owned land bank was £333,000 (31 December 2022: £321,000) and the estimated gross margin in our land bank, based on the current ASP and estimated build costs, is 18.5% (31 December 2022: 23.5%; 30 June 2023: 19.7%).

During the half year we delivered 1,534 (HY23: 2,004) completions from strategically sourced land, and we converted 530 (HY23: 565) plots of strategic land into our owned and controlled land bank. We continue to target 30% of completions from strategic land in the medium term and approximately 24% of our strategic land is allocated or included in draft local plans.

Gladman Developments Limited

Gladman, operating on a stand-alone basis within the Group, secured 3,465 plots (HY23: 2,664) through new promotional agreements with landowners. Gladman secured planning consents on 1,834 plots across 8 sites (HY23: 1,298 plots across 9 sites). Reflecting the lower levels of land transaction activity across the country, Gladman secured land sale transactions to third parties equating to 364 (HY23: 1,248) plots.

Through its share of land transaction proceeds and associated fees, Gladman generated sales of £6.4m (HY23: £18.5m) and an operating profit, before amortisation of intangible assets, of £1.2m during the half year (HY23: £5.4m profit).

With reduced appetite amongst housebuilders for consented land, we continue to anticipate that Gladman will deliver reduced sales and profitability in FY24 when compared with FY23 but is well placed to capitalise on any change in the behaviour of housebuilders as the market improves. The business remains focused on growing its promotional land portfolio and securing planning consents to build a portfolio of attractive sites ready to market once demand begins to recover.

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