Annual Report and Accounts 2011

DELIVERING OUR PRIORITIES

WELCOME TO BARRATT DEVELOPMENTS PLC

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Our aim is to be recognised as the nation’s leading housebuilder, creating communities where people aspire to live.

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CONTENTS

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A clear set of priorities to rebuild profitability

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Report of the Directors

Front Cover: This four bedroom home offers great living space

and is located in a picturesque riverside setting in Bocking, Braintree.

Notice regarding limitations on Director liability under English Law

Under the Companies Act 2006, a safe harbour limits the liability of Directors in respect of statements in and omissions from the Report of the Directors contained on pages 2 to 64. Under English Law the Directors would be liable to the Company (but not

to any third party) if the Report of the Directors contains errors as a result of recklessness or knowing misstatement or dishonest concealment of a material fact, but would not otherwise be liable.

Report of the Directors

Pages 2 to 64 inclusive comprise the Report of the Directors which has been drawn up and presented in accordance with and in reliance upon English company law and liabilities of the Directors in connection with that report shall be subject to the limitations and restrictions provided by such law.

Cautionary statement regarding forward-looking statements

The Group’s reports including this document

and written information released, or oral statements made, to the public in future by or on behalf

of the Group, may contain forward-looking statements. Although the Group believes that its expectations are based on reasonable assumptions, any statements about future outlook may be influenced by factors that could cause actual outcomes and results

to be materially different.

PERFORMANCE HIGHLIGHTS

• Total completions, including joint ventures, were 11,171 (2010: 11,377)
• Private average selling price (excluding joint ventures) up 7.4% to £198,900 (2010: £185,200)

due to active management of mix

• Overall underlying selling prices were stable for the period, but with regional variations
• 50% increase in operating profit before operating exceptional items to £135.0m (2010: £90.1m), with full year operating margin before operating exceptional items increasing to 6.6% (2010: 4.4%)
• Second half housebuild operating margin1 of 8.0% against 5.9% for the previous year
• Profit from operations was

£127.3m (2010: £74.3m) after operating exceptional items of £7.7m (2010: £15.8m)

• The Group returned to profit before exceptional costs for the full year of £42.7m. After exceptional costs the Group made a loss before tax of £11.5m (2010: £162.9m)
• Refinancing package in place providing the Group with c. £1bn of committed facilities and private placement notes improving balance sheet efficiency
• Net debt of £322.6m (2010: £366.9m)

1 Housebuild margin is profit from operations before operating exceptional costs for the housebuilding segment divided by revenue for the housebuilding segment

Profit from operations before operating exceptional items

£m

07 513.3

08 550.2

09

10

11

34.2

90.1

135.0

Net debt

£m

07

08

09

10

11

1,301.2

1,650.6

1,276.9

366.9

322.6

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Accounts

Accounting policies 72

Impact of standards and interpretations

in issue but not yet effective 77

Critical accounting judgements and

key sources of estimation uncertainty 78

Notes to the financial statements 80

OUR BUSINESS MODEL

THE WAY WE WORK

Barratt Developments PLC is one of the nation’s largest housebuilders with over 4,000 employees and 25 divisions throughout Britain. In 2010/11 we sold over 11,000 homes.

We operate across a broad spectrum of the market from flats to family homes and urban regeneration schemes.

We also have a focused commercial developments business.

Where we sell

Northern region Number of completions: 2,054 (18.4%)

1. Central region Number of completions: 1,734 (15.5%)
2. East region

Number of completions: 2,057 (18.4%)

1. Southern region Number of completions: 2,009 (18.0%)
2. London

Number of completions: 1,240 (11.1%)

1. West region

Number of completions: 2,077 (18.6%)

Our land

Planning and communities

Acquiring the right land is critical to our business and its future profitability. Our experienced land teams use their local knowledge to identify land suitable for development and secure planning permission to enable new homes to be built.

Agreed terms land purchases in 2010/11

£454.1m

Owned and controlled land bank plots

60,083

(2010: 62,340)

Owned and controlled land bank years based upon 2011 completion volumes

5.4

(2010: 5.6)

Acres of strategic land

c.11,400

We are committed to working closely with local communities and councils to ensure that we can provide the housing that is required to high environmental and design standards.

Detailed planning consents for 2011/12 expected completions

96%

Detailed planning consents for 2012/13 expected completions

70%

Percentage of legal completions in 2010/11 on brownfield land

67%

(2010: 70%)

Houses built to Code Level 3* or above

3,071

(2010: 1,765)

* We aim to secure a position as the lowest cost provider complying with the Code for Sustainable Homes (the ‘Code’) – see page 11.

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Our brands

Our housebuilding business trades under the Barratt Homes, David Wilson Homes and Ward Homes brands. Barratt Homes is the best known housebuilding brand in Britain focusing on traditional housing, flats and urban regeneration. David Wilson Homes has a reputation for producing larger family homes.

We also have a strong regional brand, Ward Homes, operating in Kent and the South East. Commercial developments are delivered by Wilson Bowden Developments.

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We build a variety of homes under our brand names ranging from those for first-time buyers, family homes, high-rise flats and social housing. We seek to match our products with customer demand and local regulation.

Average number of active sites

364

(2010: 360)

Total completions*

11,171

(2010: 11,377)

Average selling price

£178,300

(2010: £174,300)

Number of NHBC ‘Pride in the Job’ Quality Awards

80

(2010: 82)

Our customers

Our homes

Customer service and satisfaction are of paramount importance to us and our local teams seek to ensure that our customers are satisfied with their new homes.

Proportion of our customers who would ‘recommend us to a friend’

98%

(2010: 97%)

Percentage of legal completions in 2010/11 which were social housing

23.8%

(2010: 16.5%)

* Total completions is defined as housebuilding completions (2011: 11,078, 2010: 11,325) plus completions from joint ventures in which the Group has a share (2011: 93, 2010: 52).

CHAIRMAN’S STATEMENT

FOCUSED ON OUR PRIORITIES

This has been a further year of recovery for the Group. We have remained focused on our key priorities and have delivered

a significant improvement in the profitability of the Group whilst continuing to see further progress in quality

and customer service.

he housing market in the UK has remained constrained. The key restriction on the new

build industry remains the availability of adequate mortgage finance, particularly with higher loan to value products.

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With continuing low levels of new build activity, there remains a fundamental imbalance between annual housing demand and supply which will continue to widen unless the underlying causes are addressed. There is considerable demand for housing but the mortgage market is not supporting this and it will clearly take time for the market to function in a more normal way.

As a result of Government policy, we are seeing changes in the planning process and the implementation of ‘localism’, empowering communities to have more control over local

development. We have responded positively to these changes and each of our businesses continues to engage directly with their

local communities.

We welcome the introduction of the Government’s FirstBuy scheme, designed to stimulate the market by providing equity share loans to first-time buyers, in the absence of more normal mortgage lending.

“With continuing low levels of new build activity, there remains

a fundamental imbalance between annual housing demand and supply...”

Our response

Our response to the current market restrictions has been clear and consistently pursued. Our priorities have been optimising selling prices, improving operational efficiency and targeted land spend. As a result, we have driven significant margin improvement in each of the last two years.

Importantly, improvements in operational efficiency have not been at the expense of quality. The Group has, for the second consecutive year, achieved Home Builders Federation (‘HBF’) Five Star status. This is the highest achievable level in terms of customer satisfaction and whether they would recommend us to

a friend. Additionally, under the National House-Building Council (‘NHBC’) ‘Pride in the

Job’ scheme, our site managers have won more quality awards than any other housebuilder for the seventh year running.

This high level of quality

is central to our pricing policy. We are committed to achieving an appropriate return for the outstanding homes that we build and we have the right sales and marketing capabilities to achieve this.

Private average selling price increased by 7.4% to £198,900 during the year compared with

2010. This was driven by the business actively changing the profile of the products we build – more family houses and less flats.

Longer term financing arrangements

We were pleased to complete our debt refinancing in May 2011. This provides the Group with around

£1 billion of committed facilities and private placement notes to May 2015, with some of the Group’s arrangements extending as far as 2021.

Our improved operational performance and strong cash management contributed to a further reduction in debt levels by the year end.

No dividend will be paid in respect of the 2011 financial year. However, the Board remains committed to reinstating the payment of dividends when

it is appropriate to do so.

New land to improve margins further

Since we re-entered the land market in mid-2009, we have

had two good years of land buying and invested a total of £981.3m.

We have secured terms on around 22,000 plots and this will represent the foundation of our future business and margin growth.

We have maintained our long-term

“We were pleased to complete our debt refinancing in May 2011.

This provides the Group with around £1 billion of committed facilities and

private placement notes to May 2015, with some of

the Group’s arrangements extending as far as 2021.”

Below: The Old Cider Works, near Taunton. The regeneration of a former cider plant at the foot of the Quantock Hills.

relationships with land vendors, and also developed new relationships, through a very difficult period for the industry. We have maintained a disciplined approach. Wherever possible we are acquiring land on deferred terms and during the year we increased our hurdle rates to ensure that we are increasingly selective about the opportunities we secure.

Our employees

In the year I have visited many of our local offices and housing developments. I am always impressed by the enthusiasm

and ability of our employees. It is through their efforts that we lead the industry on service, quality and the standard of our sites.

The efficiency and quality of our operation would not be possible without the skills and commitment of our employees and I do wish to record the Board’s thanks to all our people.

The future

We have returned to profit before exceptional items which is an important milestone.

We recognise that economic uncertainty and mortgage availability will continue to influence the housing market. However, we have a skilled workforce, an evolving land

bank and a strengthened financial position. We are at the forefront

of addressing many of the changes that will shape the industry in future years: evolving customer demand; design and environmental standards; and changes in planning. With these strengths we remain

well equipped to compete now and in the future.

Bob Lawson

CHAIRMAN

GROUP CHIEF EXECUTIVE’S REVIEW

GOOD PROGRESS IN CHALLENGING TIMES

This has been a year of good progress against a challenging backdrop, particularly in the first half of our financial year.

e have achieved a 50% increase in profit from operations before operating exceptional

items, agreed terms on 8,861 plots of land, were awarded

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HBF Five Star status for a second consecutive year, and refinanced our business until 2015.

We are well placed to secure further margin growth although the housing market is likely to remain challenging.

Performance

We increased profit from operations before operating exceptional items by 50% from £90.1m to £135.0m with a significant improvement in operating margin before operating exceptional items to 6.6%

(2010: 4.4%).

Our second half housebuild operating margin before operating exceptional items improved to 8.0% against 5.9% the previous year, demonstrating the strength of our margin improvement over the period.

The Group returned to profitability in the year with a profit before tax and exceptional items of £42.7m (2010: loss of £33.0m).

Our improved operational efficiency and continued tight control over the timing of land expenditure and working capital, enabled us to reduce net debt to £322.6m at

30 June 2011 (30 June 2010:

£366.9m).

Our priorities

Our overriding objective is to rebuild profitability and we have set out three clear priorities to achieve this:

• optimising selling prices;
• improving operational efficiency; and
• targeted land buying.

We have made considerable progress in each of these areas. Our intent is to deliver these priorities, whilst tightly controlling the balance sheet, thereby managing overall levels

of debt given the uncertain economic environment.

Optimising selling prices During the year we have focused on securing the best price for every sale. Across the Group

we have focused on maximising value rather than driving volumes. Procedures are in place to ensure strict pricing disciplines in

every development.

Average selling price (excluding joint ventures) rose by 2.3% to

£178,300 (2010: £174,300), with

private average selling prices increasing by 7.4% to £198,900 (2010: £185,200). These increases were mainly as a result of changes in mix including from flats

to houses.

The first half of the year was significantly affected by weak consumer confidence, particularly around the Government’s

Comprehensive Spending Review in October 2010. The net private reservation rate per active site

per week for the first half was

0.39 (H1 2010: 0.49). In the

second half of the year we saw a significant improvement with a net private reservation rate per active site per week of 0.48 (H2 2010: 0.52). As a result, the net

private reservation rate per active site per week during the year reduced from an average of

0.50 to an average of 0.44.

We are building a higher proportion of houses to satisfy customer demand and in the last twelve months we have redesigned both our Barratt and David Wilson house types. In the year, 66% of completions were houses compared with 60%

“We increased profit from operations before operating exceptional items by 50% from

£90.1m to £135.0m with a significant improvement in operating margin before operating exceptional items to 6.6% (2010: 4.4%).”

during the prior year. Improvements in our marketing capability have been an important factor in driving sales. New leads generated from our websites have continued to increase and our centralised call centre, which was established in the last financial year, is operating well. At the point of sale, further resources have been invested

in improving conversion rates through the enhanced presentation of our sales centres and on-site sales technology.

Our unique five-year warranty continues to provide a point of difference from our competitors. This covers fixtures and fittings and is additional to the ten-year NHBC warranty on the fabric of the building. During the year this feature has been working

A clear set of priorities to rebuild profitability

Our overriding objective is to rebuild profitability and we have set out three clear priorities to achieve this.

Optimising selling prices

We remain focused upon margin improvement through optimising selling prices.

Operational efficiency

We continue to focus upon improving operational

efficiency including controlling costs throughout the business.

Targeted land buying

We are investing in land from which we expect to deliver attractive returns in the future.

Delivering our priorities is summarised on page 12.

effectively as an incentive for the customer.

Operational efficiency Driving operational efficiency has remained a significant focus for the Group. Our supply

contracts for materials continue to be reviewed and renegotiated as appropriate and we purchase an increasingly significant proportion of our materials centrally.

We continue to review our supply chain to create efficiencies by introducing new suppliers and altering build specifications where appropriate. Standard house-type costs are benchmarked across the Group every six months to ensure the lowest cost is achieved whilst maintaining the quality

of our homes. Overall, we have seen total housebuilding costs (including infrastructure) reduce by 1.4% per square foot in the year. Going forward, it is likely that some pressure will continue to be felt as raw material prices rise due to underlying commodity price increases.

Further efficiency savings and reductions in operating costs have been achieved through the ongoing focus on our Quality and Cost programme which promotes and shares best practice in the build process across the Group.

We have further reduced our administration expenses in the year and will continue to review these going forward.

Land and planning

Our strategy continues to be to optimise our existing land holdings by getting the best

possible prices for our products whilst replanning sites and reducing build and associated costs. In the last twelve months we have replanned a further

60 sites. In particular, we have continued to be successful

at replacing flats with new purpose-designed house types. This ensures that we are building the right mix of products for our customers, particularly given the

lending restrictions which still favour houses over flats.

During the year we continued to invest in land which met our clearly defined hurdle rates in terms of profitability and return on capital, providing attractive returns at current selling prices. Recently acquired higher margin land is now driving margin improvement. The Group’s strategy is focused on acquiring land in prime locations, (for example with excellent transport links), and on land that is relatively advanced in terms of gaining planning consents. We have

seen prices for land firming in

the South East as other housebuilders are targeting this area. We have maintained our discipline of not chasing prices

“We remain committed to working closely with local communities and councils to ensure that we can provide their required housing to high environmental and design standards.”

up and have continued to adopt an acquisition strategy that is not unduly focused on any specific geographic area.

For the full year we agreed terms on £454.1m of land purchases, the majority of which we will acquire on the basis of deferred payment. This equates to 88 sites and 8,861 plots of which 86% are for houses. The forecast average selling price on this land is c. £205,000 based on current prices.

Total cash expenditure on land in the year was £261m (2010: £253m).

Land creditors as at 30 June 2011 were £700.7m (2010:

£566.8m). The year on year increase in land creditors reflects the significant proportion of newly acquired land that has been