Annual Results for the year ended 30 June 2011

Barratt Developments PLC Annual Results Announcement for the year ended 30 June 2011

Mark Clare, Group Chief Executive commented:

"We have made considerable progress in rebuilding profitability - by optimising selling prices, improving operational efficiency and securing new higher margin land. Whilst we expect progress to continue, further recovery in the housing market remains dependent on improving economic conditions and the ability of our customers to secure mortgage finance.”

Highlights

• Total completions, including joint ventures, for the full year were 11,171 (2010: 11,377)
• Private average selling price (excluding joint ventures) up 7.4% for the full year 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)¹, with full year operating margin before operating exceptional items increasing to 6.6% (2010: 4.4%)
• Second half housebuild operating margin² of 8.0% against 5.9% for the previous year
• The Group returned to profit before exceptional costs for the full year³ of £42.7m (2010: loss of

£33.0m)

• Refinancing package in place providing the Group with c. £1 billion of committed facilities and private placement notes, improving balance sheet efficiency
• Net debt of £322.6m (2010: £366.9m) as at 30 June
• Net tangible asset value per share of £2.11 (2010: £2.08 per share) at 30 June 2011⁴
• For the first 11 weeks of our current financial year, we achieved average net private reservations of 183 per week, 10.2% above the same period last year. On a per active site basis this equates to a private sales rate of 0.49 (2010 equivalent period: 0.48)

¹ Profit from operations was £127.3m (2010: £74.3m) after operating exceptional items of £7.7m (2010: £15.8m)

² Housebuild margin is profit from operations before operating exceptional costs for the housebuilding segment divided by revenue for the housebuilding segment

³ After exceptional costs of £54.2m (2010: £129.9m) the Group made a loss before tax for the year of £11.5m (2010: £162.9m)

⁴ Net tangible asset value per share calculated as net assets, less intangible assets and goodwill, divided by number of allotted and issued ordinary shares

-ends -

Certain statements in this document may be forward looking statements. By their nature, forward looking statements involve a number of risks, uncertainties or assumptions that could cause actual results to differ materially from those expressed or implied by those statements. Forward looking statements regarding past trends or activities should not be taken as representation that such trends or activities will continue in the future. Accordingly undue reliance should not be placed on forward looking statements.

There will be an analyst and investor meeting at 8.30am today at UBS, Room 25, 7^th Floor, 1 Finsbury Avenue, London, EC2M 2PP. The presentation will be broadcast live on the Barratt Developments corporate website, www.barrattdevelopments.co.uk, from 8.30am today. A playback facility will be available shortly after the presentation has finished.

The presentation slides will be available on the Barratt Developments corporate website, www.barrattdevelopments.co.uk, from 8.30am today.

Further copies of this announcement can be obtained from the Company Secretary’s office at:

Barratt Developments PLC, Barratt House, Leicestershire, LE67 1UF.	Cartwright	Way,	Forest	Business Park, Bardon Hill, Coalville,
For further information please contact:
Barratt Developments PLC
Mark Clare, Group Chief Executive				020 7299 4898
David Thomas, Group Finance Director				020 7299 4896
Analyst / investor enquiries Susie Bell, Head of Investor Relations				020 7299 4880
Media enquiries Dan Bridgett, Head of External Affairs				020 7299 4873
The Maitland Consultancy
Liz Morley				020 7379 5151
Neil Bennett

Chairman’s statement

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.

Market conditions

The 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.

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.

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 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

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

We have achieved a 50% increase in profit from operations before operating exceptional items, agreed terms on 8,861 plots of land, were awarded 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 (h2 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% 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 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 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 acquired on deferred terms. Land creditors due within the next 12 months total £349.1m (2010: £266.6m), with £351.6m (2010:

£300.2m) due thereafter. In the period to 31 December 2011, we expect land creditors will remain fairly constant, dependent upon the satisfaction of contractual conditions, for example planning permission.

At 30 June 2011, the Group’s owned and unconditional land bank stood at 47,917 plots (2010: 50,948 plots) with an additional 12,166 plots (2010: 11,392 plots) under conditional contracts, giving a total of 60,083 plots (2010: 62,340 plots). This equates to approximately 5.4 years (2010: 5.6 years) of owned and controlled land based on 2011 completion volumes. We anticipate reducing our owned and unconditional land bank, based on prior year completion volumes, over the next couple of years to around four years supply and the conditional land bank to around one years supply.

Of the Group’s owned and unconditional plots (47,917 plots), less than 24% by value is made up of impaired land. 47% by value consists of non-impaired land where the average gross margin is c. 10% and the remaining 29% consists of land acquired since re-entering the land market in mid-2009 with an average gross margin of more than 20% based on current house prices.

Our underlying assumptions for impairment calculation purposes are for low single digit selling price and cost inflation. In the past year, we have only seen a small improvement in underlying prices, but we have continued to deliver further cost reductions. We recognise that the Group is not immune to future pricing trends in the wider housing market and we will continue to review the trading environment and our impairment assumptions during the year to 30 June 2012.

At the end of June 2011, the Group had detailed planning consent for 96% of budgeted volumes for the current financial year, with a further 3% having outline planning consent. For FY 2012/13 70% of forecasted volumes has detailed planning consent, with a further 12% having outline planning consent.

In addition, we have c. 11,400 (2010: c. 11,000) acres of strategic land which are regularly reassessed until the necessary planning consents are obtained. They are carried at the lower of cost and net realisable value minimising our exposure to risk. Strategic land is expected to produce an increasing proportion of our operational land in future years. In the next few years planning consents are expected on sites containing around 15,000 units.

Government policy

In May 2010 the Government announced proposals to change significantly the planning process and implement ‘localism’ thereby empowering the local communities to have more control over and consequently derive financial benefit from local development. At the same time, it was confirmed that there would be cuts in public expenditure in areas such as social housing. Against this backdrop there has been some disruption to the planning and housing development landscape but the short-term impact on our business has been limited. A high percentage of our land bank has outline or detailed planning consent and we have a significant level of contracted Government funding for affordable housing.

More recently, the Government has focused on growth strategies and in recognising the economic multiplier effect of housing development they have encouraged local development, with a move towards a ‘planning presumption in favour of sustainable development’.

The 2011 Budget announcements contained a number of positive measures for housebuilders. The introduction of a new Government backed shared equity scheme, FirstBuy, provides an important selling tool for the industry given the limited availability of higher loan to value (‘LTV’) mortgages, particularly for the new build sector. The Group has a strong track record of maximising the benefits of the previous HomeBuy Direct scheme and this new initiative is likely to reduce the requirement for our own shared equity products going forward. We have received an allocation of £24.9m of funding under the FirstBuy scheme which will fund the purchase of around 1,400 homes, with Barratt and the Homes and Communities Agency (‘HCA’) jointly providing up to 20% shared equity on each home purchased from us.

The 2011 Budget also included proposals to increase the supply of new housing through the accelerated release of public land, the reduction of regulatory cost and improvements in planning. We have already been successful in securing land through the existing Delivery Partner Panel (‘DPP’) initiative and expect this further commitment to be an important source of land for the Group going forward.

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. This will need genuine partnerships and new ways of collaborating, many of which are already emerging. We are determined to be at the forefront of any changes.

The mortgage market

The availability and affordability of mortgages is a key catalyst for underlying housing demand. The level of mortgage approvals has reduced dramatically in the past four years from the peak seen in 2007.

The mortgage market for new build housing is dominated by a limited number of lenders. There have been some changes in the respective market shares during the year primarily driven by the return of Building Societies and the changes in lending criteria from certain lenders. Some lenders still provide a lower LTV on new build houses when compared to second hand houses. There is typically a LTV of 90% on second hand but only 80% on new build. There does not appear to be any justification for this differential and it clearly disadvantages housebuilders and their customers. This discrepancy is a driver of lower demand for new homes. Shared equity schemes including Government schemes such as HomeBuy Direct and the new FirstBuy scheme have proved popular due to this discrepancy.

Partner of choice

During the year we have made progress in securing land through innovative arrangements and partnerships.

Our specialist Urban Regeneration team, working with our divisions, contracted 1,147 units on six sites through public sector partnerships with a gross development value of c. £180m.

We have been actively bidding for sites through the three area based DPPs that were established in 2010 by the HCA. To date, we have been successful on four bids accounting for up to 734 plots and are actively involved in ten ongoing bids.

We believe the Government’s recent announcement of its intention to increase the release of public land to build up to 100,000 new homes is a positive step. Barratt has a good track record of working with public sector partners and should be well positioned to capitalise on this initiative. We are already working on a number of public sector partnership sites including North Prospect in Plymouth, Heritage Park in Silverdale, Staffordshire and Elba Park near Sunderland.

Joint venture and partnership opportunities

We continue to explore joint venture (‘JV’) and partnership opportunities which allow us to access projects that may not otherwise be available or reduce the investment required and improve the return on capital employed through construction management or marketing fees.

We have established JVs with London & Quadrant, one of the country’s largest Residential Social Landlords, to develop two London residential sites:

• a 27-storey residential tower at Alie Street on the edge of the City of London. This development will deliver 235 units of which 64 will be affordable housing; and
• 375 new private flats beside Arsenal’s Emirates stadium. The development will comprise three residential towers with units ranging from studios to penthouses.

Barratt will receive a fee for construction and marketing services as well as 50% of the net profit.

We have also established two additional JVs, in East Grinstead and Worthing, with the Wates Group (‘Wates’), one of the UK’s largest building and construction companies. This brings our total JVs with Wates to four.

Commercial developments

Commercial development revenue was £49.2m (2010: £35.1m). This included revenue from the design and build for a major retailer of an 867,000 sq ft distribution centre in Rochdale. This project was completed in April 2011. The Group’s commercial development operations made a profit from operations of £0.8m (2010: loss of £6.1m).

The Group’s commercial development operation was also successful during the year in securing a redevelopment agreement for Basildon town centre, in partnership with our housebuilding operations.

Quality, service and design

During the last year we have updated both the Barratt and David Wilson Homes brands with internal layouts designed around modern living. The new designs were well received by consumers and we are starting to roll out both new ranges – ‘County’ and ‘Classic’. Our commitment to delivering the highest quality product and excellent customer service has been acknowledged by our customers both through our internal survey where 98% (2010: 97%) of customers would recommend us to a friend and our achievement of HBF Five Star housebuilder status for a second successive year. High quality products have contributed to the drive for profitability through achieving optimum selling prices and reducing costs.

Health, safety and the environment

We continue to place a high priority on the safety of our employees, contractors, customers and the wider community within which we operate. During the financial year our Injury Incidence Rate (‘IIR’) was 539 (2010: 582) per 100,000 persons employed which is a 7.4% decrease on last year’s figure. We remain committed to improving health and safety and have an Executive Health and Safety Committee, which reports to the Board, to drive further improvement.

We aim to secure a position as the lowest cost provider complying with the Code for Sustainable Homes (the ‘Code’). During the year we built 3,071 homes to Code Level 3 or above and we are already starting to build developments at higher Code levels where required. We are establishing improved and lower cost methods which are allowing us to reduce the cost of compliance. We are well advanced with the development of ways of building a Code Level 4 house to satisfy the criteria without the need for renewable sources of energy.

We are progressing our development at Hanham Hall, the UK’s first large-scale zero carbon housing development. We have cleared the site, built the first two zero carbon houses and commenced the renovation of the original listed Hanham Hall building.

As well as seeking technological solutions, we will continue to discuss with Government the most cost- effective way of meeting the environmental challenges facing the industry.

Refinancing

We undertook a complete 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. The effective cost of borrowing will be reduced as a result of improving the balance of the facilities between term debt and that needed to meet our working capital requirements, with the term debt reducing from £903m to £311m.

The covenant package is similar to before, and the facilities provide appropriate headroom above our current forecast debt requirements. Net debt as at 30 June 2011 was £322.6m (2010: £366.9m). Exceptional costs of £46.5m, relating to the refinancing and the cancellation of interest rate swaps, have been charged to the income statement.

Outlook

The outlook for the housing market remains challenging as a result of continuing constraints on the availability of mortgage finance and overall economic uncertainty.

Whilst we saw greater stability in the second half, trading conditions remain challenging in some areas outside the South East. Our London business continues to perform particularly well, reflecting its strong position across the capital.

We will continue to drive profitability through optimising the value of the homes we sell, delivering additional outlets from our new higher margin land whilst maintaining a tight control over costs and improving operational efficiency.

Since the end of the last financial year, sales performance has been in-line with normal seasonal trends. Given the increase in active sites this has meant we saw weekly net private reservations increase by 10.2% over the previous year. Net private reservations have averaged 0.49 (2010: 0.48) per active site per week. Cancellation rates have remained low at an average of 12.4% (2010: 12.1%) for the year to date.

We are targeting an increase in total completions for this financial year, driven by increasing numbers of outlets rather than higher sales rates. We expect average active site numbers to be around 400 (2011: 364) for the year as a whole. Forward sales at 11 September 2011 were £855.7m (2010: £865.1m) representing 5,541 plots (2010: 5,404 plots).

Our primary focus continues to be on optimising selling prices. We expect to see a further shift in product mix, with houses likely to represent around 70% of total volumes, resulting in a further increase in private average selling price. In addition, the percentage of our completions that will be delivered from newer higher margin sites is set to increase to around 35% this year which will enable us to continue to drive margins higher.

Mark Clare

Group Chief Executive

Group Finance Director’s review

Results

The Group has returned to making a profit before exceptional items and has reduced its net debt against the backdrop of a challenging market with continuing constrained mortgage availability.

Performance metrics were as follows:

• Revenue was £2,035.4m (2010: £2,035.2m).
• Total completions¹ decreased by 1.8% to 11,171 (2010: 11,377).
• Profit from operations before operating exceptional items² increased by 50% to £135.0m (2010:

£90.1m).

• Operating exceptional items² comprised reorganisation costs of £7.7m (2010: £11.0m) and an impairment of inventories of £nil (2010: £4.8m).
• Profit from operations was £127.3m (2010: £74.3m).
• Operating margin before operating exceptional items² was 6.6% (2010: 4.4%).
• Loss before tax was £11.5m (2010: £162.9m).
• Adjusted profit per share before exceptional items³ was 2.7p (2010: loss of 2.9p).
• Basic loss per share was 1.4p (2010: 14.5p).

Segmental analysis

The Group’s operations comprise two segments, housebuilding and commercial developments. These segments reflect the different product offerings and market risks facing the business.

The table below shows the respective contributions for these segments to the Group:

Commercial

Housebuilding £m	developments £m	Total £m
Revenue 1,986.2	49.2	2,035.4
Profit from operations before 134.2	0.8	135.0
Profit from operations 126.5	0.8	127.3

operating exceptional items²

An analysis of the operational performance of these segments is provided within the Business review.

Exceptional items

The Group incurred exceptional items before tax in the year of £54.2m (2010: £129.9m). This comprised operating exceptional items of £7.7m (2010: £15.8m) and exceptional finance costs of £46.5m (2010:

£114.1m).

Operating exceptional items

1. Restructuring costs

During the year, the Group continued to adjust its operations in light of current trading conditions resulting in £7.7m (2010: £11.0m) of reorganisation and restructuring costs.

Impairment of land and work in progress

The Group has completed a site-by-site impairment review using valuations incorporating forecast sales rates and average selling prices that reflect both current and anticipated trading conditions. The impairment reviews include low single digit house price and build cost inflation assumptions in future periods.

Since overall gross margin achieved across the Group’s developments were primarily in-line with those incorporated into prior period impairment reviews no further exceptional impairment was required at 30 June 2011, although there were gross impairment reversals and charges of £65.0m (2010: £57.4m) due to variations in market conditions across housebuilding sites. Changes arising from normal trading, such as

¹ Total completions of 11,171 (2010: 11,377) comprise private completions of 8,444 (2010: 9,455), social completions of 2,634 (2010:

1,870) and joint venture completions of 93 (2010: 52).

² Operating exceptional items, comprising restructuring costs and in 2010 exceptional inventory impairments, were £7.7m (2010:

£15.8m) of which £7.7m (2010: £11.0m) related to the housebuilding business and £nil (2010: £4.8m) related to the commercial developments business.

³ Exceptional items comprise operating exceptional items of £7.7m (2010: £15.8m), exceptional finance costs arising from the refinancing of £46.5m (2010: £114.1m arising from the amended financing arrangements) and the related tax credit on exceptional items of £14.9m (2010: £35.4m).