Interim Results for the half year ended 31 December 2010

Results for the half year ended 31 December 2010

Highlights:

Revenues for the half year were in line with the prior year equivalent period at £877.6m (2009:

£872.4m)

Completions for the period were 4,832 (2009: 5,053), including 36 (2009: 25) joint venture completions

Average selling price (excluding joint venture completions) increased by 5.7% against the prior year equivalent period to £175,800 (2009: £166,300), with private average selling price increasing by 10.8% to £191,900 (2009: £173,200), mainly as a result of mix changes

The drive to improve business performance and rebuild profitability led to a significant increase in operating margin to 5.0% (2009: 0.6%), with profit from operations in the first six months of £43.5m (2009: £5.2m)

Loss before tax for the period of £4.6m (2009: loss before tax of £178.4m)

Terms were agreed on £318.0m of land purchases, comprising 57 sites and 6,078 plots, which are expected to deliver attractive margins based on current selling prices

Net debt reduced year on year to £537.0m (2009: £605.3m) and is forecast to be around £400m at 30 June 2011 (30 June 2010: £366.9m)

The Group has delivered 0.57 (2010: 0.55) private sales per active site per week in the last six weeks, in line with the equivalent period in the prior year and up from 0.39 in the first half

Commenting on the results Mark Clare, Group Chief Executive of Barratt Developments said:

“By focusing on price not volume and improving the underlying efficiency of our business, we have achieved a significant improvement in our operating margin despite a challenging autumn selling season.

2011 has started well with encouraging sales rates and stable underlying pricing. We expect to see further operating margin growth in our second half as we continue to optimise prices, reduce costs and open new higher margin sites from recently acquired land.

However, the market remains fragile and longer term recovery continues to depend on greater availability of mortgage finance.”

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The Interim Management Report contains certain forward-looking statements about the future outlook for the Group. Although the Directors believe that these statements are based on reasonable assumptions, any such statements should be treated with caution as future outlook may be influenced by factors that could cause actual outcomes and results to be materially different.

A 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. Those wishing to listen-only to the presentation at 8.30am may dial:

Live dial-in:

UK access number	+44 (0)20 3140 0723
UK toll free	0800 368 1916
Replay
UK access number	+44 (0)20 3140 0698
UK toll free	0800 368 1890
US toll free	+1 877 846 3918
Conference reference	376039#

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

The Interim Management Report for the six months ended 31 December 2010 is available from today, 24 February 2011, on the Barratt Developments corporate website, www.barrattdevelopments.co.uk via the following link: www.barrattdevelopments.co.uk/ir/reports/.

Further copies of the 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
Susie Bell, Head of Investor Relations	020 7299 4880
For media enquiries, please contact:
Barratt Developments PLC
Dan Bridgett, Head of External Affairs	020 7299 4873
Maitland
Liz Morley Neil Bennett	020 7379 5151

Results

The Group delivered an improved operating performance in the period with a significant increase in both average selling prices and operating margin. This is against a backdrop of restricted mortgage lending and weak consumer confidence, particularly around the Government‟s Comprehensive Spending Review in October 2010.

The Group‟s profit from operations for the first half of its financial year was £43.5m (2009: £5.2m), with an operating margin of 5.0% (2009: 0.6%). The Group made a loss before tax in the period of £4.6m (2009: loss before tax

£178.4m).

The Group‟s loss per share was 0.9p (2009: loss per share 18.9p).

The Group‟s half year net debt was £537.0m (2009: £605.3m), an increase of £170.1m compared with £366.9m at 30 June 2010 reflecting normal operational trends. Net debt is expected to reduce to around £400m as at 30 June 2011 (30 June 2010: £366.9m).

The Board is committed to improving the profitability and strengthening the financial position of the Group whilst continuing to invest in its existing land bank as well as new sites. In this context, the Board will not be paying an interim dividend (2009: nil).

Driving business performance

The Group‟s overriding objective remains rebuilding profitability. We have made considerable progress in the first six months of the financial year and are on course to deliver further improvement in the second half. We have three clear priorities to drive business performance:

Focus upon margin improvement through optimising average selling prices and not chasing volumes

Continued emphasis on operational and cost efficiency

Investing in land which is expected to deliver attractive returns in the future

Significant progress on all of these priorities has been achieved in the first half of the year. The Group has maintained underlying selling prices and delivered a 10.8% increase in private average selling prices during what has been a tough autumn selling period.

We have continued to pursue further operational efficiencies designed to reduce our build costs and increase the effectiveness of our operations. We have maintained a firm control on direct costs despite upward price pressures on certain materials. There has been no increase in overheads in the period and, looking ahead, the Group is focused on lowering these costs further as it sees the benefits of investment in new systems coming through. Further progress on costs is also targeted from technical innovation, in particular the efficient delivery of low carbon housing.

The Group has continued to acquire land where it provides attractive returns. We expect this new, higher margin land to help drive future gross margin improvement as the number of sites opening on newly acquired land increases significantly.

Housebuilding operations

In the first six months of the financial year the Group operated across an average of 352 (2009: 368) active sites, down 4.3% on the same period last year. During the half year, the Group opened 79 sites and as at 31 December 2010 it was operating from 366 (2009: 364) active sites.

In the second half the Group expects to open a further c. 100 sites, with total active sites as at 30 June 2011 expected to be c. 390 (30 June 2010: 339).

The Group averaged 138 (2009: 180) net private reservations per week during the first half, which was

0.39 (2009: 0.49) net private reservations per active site per week. During the period the Group saw a decline in consumer confidence, particularly in the weeks around the Government‟s Comprehensive Spending Review in October 2010. The extreme weather conditions during December also adversely affected sales rates with a number of sites inaccessible due to heavy snowfall. The cancellation rate for the first half was 20.1% compared with 17.8% in the prior year equivalent period.

Total housebuilding completions (including joint ventures) for the first half were 4,832 (2009: 5,053) with private completions of 3,669 (2009: 4,381), social housing completions of 1,127 (2009: 647) and joint venture completions in which the Group had a share of 36 (2009: 25).

Housebuilding operations (continued)

Overall 65.1% (2009: 60.2%) of the Group‟s first half completions (excluding joint ventures) were houses. Outside central London, houses accounted for 72.4% (2009: 64.7%) of completions (excluding joint ventures).

The continued constraints on mortgage finance and, specifically the limited availability of higher loan to value products, has meant shared equity remains an important part of the Group‟s sales mix. In the first six months, 1,342 (2009: 1,370) completions utilised shared equity, representing 28.0% (2009: 27.2%) of completions. Of these, 537 (2009: 754) completions used the Government HomeBuy Direct initiative, with the remainder using the Group‟s own schemes.

The Group is continually looking to develop new innovative products and partnerships that help to address the lack of higher loan to value mortgage products available in the market. In January the Group announced its arrangement with Hitachi Capital (UK) PLC which allows parents to borrow money to help their children on to the property ladder without having to re-mortgage or create a second charge over their own homes.

The Group has also targeted an increase in the use of part-exchange and in the first half, 12.7% (2009: 9.6%) of completions were supported by this. Sales to investors fell to 4.7% (2009: 11.7%) of the Group‟s completions (excluding joint ventures), however we would expect to see this increase going forward as rental yields become more attractive.

The increase in social housing content to 23.5% (2009: 12.9%) of completions (excluding joint ventures), reflects the higher level of site openings over the past twelve months and the phasing of social delivery upon existing sites. For the financial year to June 2011, the Group expects social housing to represent c. 20% (2010: 16.5%) of completions.

For the first six months, the average selling price („ASP‟) (excluding joint ventures) increased by 5.7% to £175,800 (2009: £166,300). Private ASP increased by 10.8% to £191,900 (2009: £173,200) and social ASP increased by 3.8% to £123,500 (2009: £119,000). The increase in ASP was driven by changes in mix, with the Group selling a higher proportion of houses versus flats. Excluding the impact of changes in mix, underlying selling prices in the first six months remained stable.

Housebuilding revenues were £847.2m (2009: £844.7m), in line with the equivalent period last year. Housebuilding gross margin was 9.2% (2009: 6.9%) with the improvement mainly resulting from a 3.5% increase in revenue per square foot.

Housebuilding operations saw a significant increase in profit from operations to £43.2m (2009: £11.8m). As a result the operating margin increased to 5.1% up from 1.4% in the prior year equivalent period. This increased profitability was driven by a substantial improvement in gross margin coupled with tight overhead cost control.

Commercial development operations

Commercial development revenue was £30.4m (2009: £27.7m). This included revenue from the design and build for a major retailer of an 867,000 sq ft distribution centre in Rochdale. This project is on schedule to complete in the second half of the financial year. The Group‟s commercial development operations made a profit from operations of

£0.3m (2009: loss from operations £6.6m).

In the period the Group‟s commercial development operation was successful in securing redevelopment agreements for Wokingham and Basildon town centres. Both of these have residential development elements which enables close co-operation and synergies between our commercial development and housebuilding operations.

Land

The Group has continued to invest in land where it meets its clearly defined hurdle rates in terms of profitability and return on capital, providing attractive returns at current prices. 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.

In the first half the Group agreed terms on £318.0m of land purchases equating to a total of 57 sites and 6,078 plots. By value 81% was for houses and 59% was located in our southern area.

For the full financial year, the Group anticipates agreeing terms on around 8,000 plots (mid 2009 to June 2010 13,359 plots). This slowdown in the rate of acquisition follows the progress we have made in acquiring land since re-entering the market in mid 2009. We continue to acquire land as a national housebuilder and ensure that our land acquisition strategy is not unduly focused on any geographic area.

Total cash expenditure on land in the first half was £142m (2009: £124m). The Group anticipates that total cash expenditure for the financial year on land will be between £350m and £400m (2009: £253m).

Land creditors as at 31 December 2010 were £588.1m (2009: £453.5m). 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 £321.6m, with £266.5m due thereafter. In the second half to 30 June 2011, we expect land creditors will increase by £100m to £150m, however this is dependent upon the timing of legal contracts and payments.

At 31 December 2010, the Group‟s owned land bank stood at 50,587 plots (2009: 50,990 plots) with an additional 13,555 plots (2009: 13,429 plots) under conditional contracts, giving a total of 64,142 plots (2009: 64,419 total plots). This equates to approximately 4.5 years of owned land based on the prior year‟s completion volumes.

Of the Group‟s total plots including owned, conditional and approved land (66,479 plots), less than 20% is now made up from impaired land. 38% consists of non-impaired older land where the trading margin is on average c. 15% and the remaining 42% includes land acquired since re-entering the land market in mid 2009 with an average trading margin of more than 20% based on current house prices.

The majority of the Group‟s land bank already has outline or detailed planning consent. At the end of January 2011, the Group has detailed planning consent for 100% of budgeted volumes for the current financial year and 87% of budgeted volumes for FY 2011/12, with a further 5% having outline planning consent.

Balance sheet

The net assets of the Group increased by £5.2m to £2,905.4m between 30 June and 31 December 2010. Significant balance sheet movements include:

Land holdings reduced by £65.0m to £2,243.7m. This decrease reflects land additions of £174.7m offset by land usage.

Work in progress increased by £81.0m to £1,062.4m in accordance with the increase in sites at the end of the period. The Group maintains tight control over its work in progress and at 31 December 2010 the Group had 837 (30 June 2010: 746) unreserved completed units.

Available for sale financial assets increased by £19.0m to £155.3m reflecting the 1,342 completions which used HomeBuy Direct or the Group‟s own similar products during the half year.

Group net debt increased by £170.1m to £537.0m reflecting normal operational trends.

Trade and other payables decreased by £115.8m to £1,197.7m reflecting the net reduction in trade payables partially offset by an increase in land payables.

The deficit on the Barratt Developments defined benefit pension scheme decreased by £14.4m in the half year to

£31.7m due to good asset returns and the Group‟s deficit reduction contributions offset by increased liabilities driven by a fall in corporate bond yields and a rise in long-term inflation assumptions.

Goodwill and intangible assets remained at £892.2m as the impairment review of the housebuilding business and brand indicated that no impairment was required.

Deferred tax assets reduced by £10.0m to £163.3m mainly due to the reduction in the corporation tax rate from 28% to 27%.

Borrowings and cash flow

Group net debt at 31 December 2010 was £537.0m (2009: £605.3m) with gearing at 26.7% (2009: 29.9%). Net debt is expected to reduce to around £400m by 30 June 2011.

The Group‟s net finance charge in the first half was £48.2m (2009: £68.9m before exceptional items, £183.0m including exceptional items). This includes a net non-cash finance charge of £12.9m (2009: £15.8m). The Group expects that its full year net finance charge before exceptional items will be around £100m (2010: £121.6m), consisting of cash interest of around £70m on net debt (including term debt) and around £30m of non-cash finance charges.

The Group‟s existing bank facilities will mature in April and November 2012. We are making good progress in our discussions regarding the re-financing of our facilities and expect this to be completed within the coming months.

Quality, service and the environment

During the half year ended 31 December 2010, the Group continued to make good progress in improving customer service and our most recent customer survey indicated that 97% (2009: 96%) of customers would recommend us to a friend.

The five-year warranty continues to be a product that is unique to the Group providing a point of difference compared to other housebuilders.

Our commitment to delivering the highest quality product is not only acknowledged by our customers but it is widely recognised through awards and ratings such as Barratt‟s Five Star housebuilder status. This improvement in standards has been a contributing factor in driving profitability through maximising price and minimising unnecessary costs.

Current trading and outlook

We have made a good start to the second half of the financial year with a significant pick-up in trading since the depressed autumn selling period. Sales rates have been encouraging, with the Group achieving an average net private reservation rate of 0.57 (2010: 0.55) per site per week over the last six weeks, up from 0.39 in the first half. Some of the increase in net private reservation rate from the first half may reflect deferrals from last year as a result of the severe weather in December.

As at 20 February 2011, forward sales for the Group were up by 5.4% to £893.5m (21 February 2010: £847.4m) of which £567.1m (63%) were contracted (21 February 2010: £545.1m (64%)).

Underlying prices have remained stable, and we expect to see an increase in overall ASP in the second half versus the prior year due to further changes in mix, with houses representing a higher proportion of total completions. Whilst our focus remains on optimising selling price and not pursuing volumes, we recognise that the Group is not immune to future pricing trends in the wider housing market.

Whilst the market remains fragile, and longer term recovery is still dependent on greater availability of mortgage finance, with our continued focus on tight cost control and drive for improved operating efficiency, combined with an increase in completions from new higher margin land going forward, we expect to deliver further improvement in the Group‟s performance.

Mark Clare

Group Chief Executive 23 February 2011

The Group‟s financial and operational performance is subject to a number of risks. The Board seeks to ensure that appropriate processes are put in place to manage, monitor and mitigate these risks which are identified in the table below. The Group recognises that the management of risk is fundamental to the achievement of Group targets. As such management throughout the Group are involved in this process.

Principal risks of the Group include, but are not limited to:

Risk	Mitigation
Market
Response to changes in the macroeconomic environment including unemployment, buyer confidence, availability of mortgage finance for purchasers, interest rates and the impact of competitor pricing.	A weekly review is undertaken of key trading indicators, including reservations, sales rates, visitor levels, pricing levels, competitor activity and cash flow projections and where appropriate management action is taken. The Group seeks to give mortgage lenders complete transparency regarding house purchase prices alongside any discounts or other incentives in order that they have appropriate information upon which to base their lending decision. The Group works with key mortgage lenders to ensure that products are appropriate wherever possible for its customers.
Design and construction defects may lead to cost overruns including remedial costs, and may reduce selling prices and adversely impact the Group‟s reputation.	The Group has a comprehensive approach to quality, service and customer care encapsulated in the „Forward through Quality‟ initiative and customer care code of practice.
Liquidity
Availability of sufficient borrowing facilities to enable the servicing of liabilities as they fall due.	The Group actively maintains a mixture of long-term and medium- term committed facilities that are designed to ensure that it has sufficient available funds for operations. The Group‟s borrowings are typically cyclical throughout the financial year and peak in April and May, and October and November of each year, as, due to seasonal trends in income, these are the points in the year when the Group has the highest working capital requirements. Accordingly, the Group maintains sufficient facility headroom to cover these requirements. On a normal operating basis the Group has a policy of maintaining facility headroom of up to £250m. The Group has in place a comprehensive regular forecasting process encompassing profitability, working capital and cash flow that is fully embedded in the business. These forecasts are further stress tested at a Group level on a regular basis to ensure that adequate headroom within facilities and banking covenants is maintained.
Inability to obtain surety bonds.	The Group actively maintains a number of surety facilities that are designed to ensure that it has sufficient bonds available. The Group has a comprehensive regular forecasting process for surety bond requirements.
Inability of the Group to refinance its facilities as they fall due.	The Group has a policy that the maturity of its committed facilities and private placement notes in aggregate is at least two years on average with a target of three years.
	The Group‟s existing bank facilities will mature in April and November 2012. We are making good progress in our discussions regarding the re-financing of our facilities and expect this to be completed within the coming months.
Inability of the Group to comply with its	The Group is in compliance with its borrowing covenants and at
borrowing covenants.	the date of approval of the condensed consolidated half yearly
	financial statements, the Group‟s internal forecasts indicate that it
	will remain in compliance with these covenants for the
	foreseeable future being at least twelve months from the date of
	signing the condensed consolidated half yearly financial
	statements.

Risk	Mitigation
People
Ability of the Group to attract, retain and develop a sufficiently skilled and experienced workforce.	The Group has a comprehensive Human Resources policy in place which includes apprentice schemes, a graduate programme, succession planning and training schemes tailored to each discipline. The Group continues to target a fully CSCS carded and qualified workforce.
Underfunding of the Group‟s obligations in respect of the defined benefit pension scheme.	An actuarial valuation is conducted every three years. The Group reviews this and as appropriate considers what additional contributions are necessary to make good this shortfall. To limit the risk further, with effect from 30 June 2009, the scheme ceased to offer future accrual of defined benefit pensions for current employees and the link between accrued benefits and future salary increases was removed.
Subcontractors and suppliers
Shortages or increased costs of materials and skilled labour could increase costs and delay construction.	The Group adopts a professional approach to site management and seeks to partner with its supply chain.
Failure of a key supplier or inability to secure supplies upon appropriate credit terms.	The Group has a policy of having multiple suppliers for both labour contracts and material supplies, and contingency plans should key suppliers fail.
Land
Securing sufficient land of appropriate size and quality to provide profitable growth subject to the available borrowing facilities.	Each division produces a detailed site-by-site monthly analysis of the amount of land currently owned, committed and identified. These are consolidated for regular review at Board level. In addition, each operating division holds weekly land meetings. Every land acquisition is subject to a formal appraisal procedure and is required to achieve an overall Group defined hurdle rate of return.
The timing of conditional land purchase contracts becoming unconditional is uncertain. Unexpected changes in contract status may result in additional cash outflow for the Group.	Each division has a site-by-site detailed short-term and medium-term forecasting process including sensitivity scenarios.
Falls in house prices or land values or a failure of the housing market to recover could lead to further impairments of the Group‟s inventories, goodwill and intangible assets.	The Group‟s internal systems clearly identify the impact of sales price changes on the margin achievable. As a minimum, the Group performs biannual asset impairment reviews.
The market for land can be illiquid and therefore it may be difficult to sell or trade land if required. Where land is sold, there is a risk that the proceeds may not be received from the counterparty.	The Group‟s internal forecasting process is able to identify the impact of these sensitivities explicitly.
Government regulation
Changes in Government policy towards the housebuilding industry.	The Group consults with the UK Government both directly and through industry bodies to highlight potential issues.
The housebuilding industry is subject to extensive and complex regulations and an increasingly stringent regulatory environment including planning and technical requirements.	The Group has considerable in-house technical and planning expertise devoted to complying with regulations and achieving implementable planning consents.
Consequence of changes in tax legislation.	The Group has adopted a low risk strategy to tax planning. Potential and actual changes in tax legislation are monitored by both industry experienced in-house finance teams and external tax advisers.

Risk	Mitigation
Construction
Failure to identify and achieve key construction milestones, including the impact of adverse weather conditions, could delay construction or increase costs.	The Group‟s weekly reporting identifies the number of properties at key stages of construction. Projected construction rates are evaluated as part of the monthly forecasting cycle.
Large development projects, including commercial developments, are complex and capital intensive and changes may negatively impact upon cash flows or returns.	Development projects, including returns and cash flows, are monitored regularly by divisional management teams.
Failure to identify cost overruns promptly.	The total costs on every site in progress are evaluated at least quarterly and reviewed by the divisional management teams.
Cost reduction measures may adversely affect the Group‟s business or its ability to respond to future improvements in market conditions.	In parallel to reducing costs during the downturn a Main Board level committee has developed a „Planning for Recovery‟ programme.
Exposure to environmental liabilities and consideration of the impact of construction schemes upon the environment and social surroundings.	The Group regularly monitors a number of environmental impact indicators. The results of this appear in the Group‟s Corporate Responsibility Report.
Litigation and uninsured losses.	The Group has an in-house legal department and consults with external lawyers as appropriate. The Group maintains appropriate insurance cover for all main risks of the Group. Any litigation that could have a material impact upon the Group is disclosed as contingent liabilities (see note 17).
Health and safety
Health and safety.	The Group has a dedicated health and safety audit department which is independent of the management of the operating divisions.
IT
Failure of the Group‟s IT systems, in particular those relating to surveying and valuation, could adversely impact the performance of the Group.	The Group has a fully tested disaster recovery programme in place.

Details of the Group‟s management of liquidity risk, market risk, credit risk and capital risk in relation to financial instruments are provided in note 13.

Condensed consolidated income statement

for the half year ended 31 December 2010 (unaudited)

Half year ended 31 December 2010								Half year ended 31 December 2009			Year ended 30 June 2010 (audited)
	Before except- ional items			Except- ional items (note 5)				Before except- ional items	Except- ional items (note 5)			Before except- ional items	Except- ional items (note 5)
Note			£m	£m		£m		£m	£m	£m		£m	£m	£m
Continuing operations
Revenue	4		877.6	-		877.6		872.4	-	872.4		2,035.2	-	2,035.2
Cost of sales			(796.5)	-		(796.5)		(813.8)	(4.8)	(818.6)		(1,850.4)	(4.8)	(1,855.2)
Gross profit/(loss)			81.1	-		81.1		58.6	(4.8)	53.8		184.8	(4.8)	180.0
Administrative expenses			(37.6)	-		(37.6)		(37.6)	(11.0)	(48.6)		(94.7)	(11.0)	(105.7)
Profit/(loss) from operations	4		43.5	-		43.5		21.0	(15.8)	5.2		90.1	(15.8)	74.3
Finance income	6		9.1	-		9.1		7.8	-	7.8		13.4	-	13.4
Finance costs	6		(57.3)	-		(57.3)		(76.7)	(114.1)	(190.8)		(135.0)	(114.1)	(249.1)
Net finance costs	6		(48.2)	-		(48.2)		(68.9)	(114.1)	(183.0)		(121.6)	(114.1)	(235.7)
Share of post-tax profit/(loss) from joint ventures			0.1	-		0.1		(0.6)	-	(0.6)		(1.5)	-	(1.5)
Loss before tax			(4.6)	-		(4.6)		(48.5)	(129.9)	(178.4)		(33.0)	(129.9)	(162.9)
Tax	7		(4.4)	-		(4.4)		15.6	35.4	51.0		9.1	35.4	44.5
Loss for the period from continuing operations			(9.0)	-		(9.0)		(32.9)	(94.5)	(127.4)		(23.9)	(94.5)	(118.4)
Loss for the period attributable to equity shareholders			(9.0)	-		(9.0)		(32.9)	(94.5)	(127.4)		(23.9)	(94.5)	(118.4)
Loss per share from continuing operations
Basic and Diluted	8					(0.9)p				(18.9)p				(14.5)p

Notes 1 to 19 form an integral part of the condensed consolidated half yearly financial statements.