TIDMBDEV
RNS Number : 0607S
Barratt Developments PLC
06 July 2020
6 July 2020
Barratt Developments PLC
Resilient performance, strong financial position
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
Barratt Developments PLC (the 'Group') is today issuing a
trading update for the year ended 30 June 2020 (the 'year') ahead
of publication of its annual results on 2 September 2020. The Group
also provides an update following the conclusion of investigations
into structural issues at a legacy development - Citiscape in
Croydon. All comparatives are to the year ended 30 June 2019
('2019') unless otherwise stated.
-- All operational sites were reopened by 30 June 2020 and all
employees, other than those shielding, have now recommenced working
in the business
-- Health and safety continues to be our first priority and all
of our operations comply with our enhanced COVID-19 working
practices and protocols
-- Completion volumes were significantly reduced by the lockdown
period with 12,604(1) total homes including joint ventures
completed during the year (2019: 17,856 homes)
-- High customer interest levels since sales centres reopened,
with net private reservations per active outlet(2) per average week
of 0.63 (2019: 0.69) for the last six weeks
-- Our forward order book is strong with total forward sales
(including JVs) as at 30 June 2020 of 14,326 homes (30 June 2019:
11,419 homes) at a value of GBP3,249.7m (30 June 2019:
GBP2,604.1m)
-- Resilient balance sheet, with year-end net cash(3) of around
GBP305m (30 June 2019: GBP765.7m) and land creditors at around
GBP800m (30 June 2019: GBP960.7m) equivalent to c.25% (30 June
2019: 31.3%) of the owned land bank
David Thomas, Chief Executive commented:
"Prior to the COVID-19 pandemic, the Group was delivering a
strong year of progress on both volume and margin. The pandemic has
caused significant disruption, but our highly skilled and
experienced team have shown incredible resilience, flexibility and
commitment both through the peak of the crisis and in the careful
reopening of our sites.
Now, with our construction sites operational across the UK, we
begin the new financial year with cautious optimism supported by
our strong forward order book and our well capitalised balance
sheet."
Update for the year
COVID-19
The Group traded well across the country up to 22 March 2020 and
was on track to meet its medium term targets.
We acted quickly at the outset of the pandemic and, in line with
our commitment to health and safety, took the decision to
temporarily close all of our sales centres, construction sites and
offices by 27 March 2020.
In response to COVID-19, the Board implemented immediate
measures to manage the Group's cost base and cash flows to ensure
resilience, including:
-- Suspending all land buying activity;
-- Ceasing all recruitment activity;
-- Postponing non-essential capital expenditure;
-- Actively managing cash flows whilst ensuring that we are
paying our suppliers and subcontractors on time;
-- Cancelling the interim dividend, which was due to be paid on 11 May 2020;
-- Furloughing a proportion of our employees at their normal pay; and
-- A voluntary 20% reduction in base salary and fees for all
Executive Directors, the wider Executive and Regional Managing
Director team, the Chairman and the Non-Executive Directors for the
period our sites were closed.
In addition, in May 2020, the Remuneration Committee agreed with
the recommendation of the Executive Directors that there would be
no payments to any Director or employee under the FY20 annual bonus
scheme.
Following our establishment of extensive COVID-19 working
practices and protocols, we gradually restarted our site operations
from 11 May 2020 in England and Wales and from 1 June 2020 in
Scotland. As a result, all of our construction sites were
operational at 30 June 2020 and all our employees, other than those
shielding, have now returned to the business.
Through the temporary closure of the business, where around 85%
of our employees were placed on furlough, we used the Government's
Coronavirus Job Retention Scheme. All of our employees, other than
those shielding, have now returned from furlough. We are grateful
for the support that the Government has provided to UK businesses
through the Coronavirus Job Retention Scheme, which allowed us to
safeguard the jobs of our c. 6,700 employees during the height of
the pandemic. However, our financial position has remained
resilient; therefore, we will now repay all furlough funds
received.
This period has had a significant impact on our financial
performance this year and the strong progress we had been making
against our medium term targets. However, we have a resilient
business model with both operational and financial strength, and
remain dedicated to the delivery of the high quality homes the
country needs.
The market recovery
Since the removal of Government restrictions on housing market
activity on 13 May 2020 there has been a welcome recovery in
internet activity, site visitors and net reservations across both
the industry and our business. However, the prospects for the wider
UK economy and the medium term impact on the new homes market
remains uncertain and will only become clearer over the coming
months.
Key to the health of the new homes market is mortgage
availability. Whilst there is a reduced level of availability of
higher loan to value mortgages, demand from first time buyers
looking to use Help to Buy has been significant since the market
reopened.
To help ensure the UK's housing recovery is sustained, capacity
in the industry is maintained and to ensure that customers who
planned to use the current Help to Buy scheme still can, given the
unprecedented backdrop, we believe it would be sensible for
Government to extend the existing scheme beyond March 2021.
Sales performance
The sales rate for the full year was 0.60 (2019: 0.70) net
private reservations per active outlet(2) per week, with a rate for
the period to 22 March 2020 of 0.73 (period to 24 March 2019: 0.68)
net private reservations per active outlet(2) per average week.
Following the reopening of our sales centres, we have seen an
increase in lead volumes, which are running at levels in excess of
those achieved in the same period in FY19. In the six weeks since
reopening we have achieved a sales rate of 0.63 (2019: 0.69) net
private reservations per active outlet(2) per average week with no
discernible change in pricing levels.
During the year, we operated from an average of 366 (2019: 379)
active outlets(2) (including JVs) and as at 30 June 2020 we were
operating from 348 (2019: 371) active outlets(2) (including
JVs).
The unprecedented impact of COVID-19 has significantly reduced
our completion volumes this year to 12,604 homes (2019: 17,856
homes) including JVs, of which 10,364 homes (2019: 9,437 homes)
were completed in the period to 22 March 2020. We delivered 9,568
private home completions (2019: 13,533 homes), 2,466 affordable
home completions (2019: 3,578 homes) and 570 JV home completions
(2019: 745 homes).
Selling prices have remained resilient throughout the year. Our
total average selling price ('ASP') for the year was c. GBP280k
(2019: GBP274.4k), with private ASP at c. GBP311k (2019:
GBP312.0k), both at similar levels to last year.
Forward sales
Our forward sales position is strong, with total forward sales
(including JVs) as at 30 June 2020 at a value of GBP3,249.7m (30
June 2019: GBP2,604.1m), equating to 14,326 homes (30 June 2019:
11,419 homes).
Since the onset of COVID-19 our forward sales have remained
resilient, and now that we have restarted construction, we are
initially focusing on delivery for those customers who have
reserved or exchanged contracts with us. Given the timing of the
COVID-19 lockdown and the progression of reservations to exchanged
contracts, 73% of homes (2019: 76%) within our total forward sales
(including JVs) were contractually exchanged at 30 June 2020
providing clear visibility for the start of FY21.
Build performance
Our sites are operating safely with a detailed set of working
practices and protocols that have been established in line with the
latest guidance from Government, Public Health Authorities and the
Construction Leadership Council. This includes changes to signage,
site welfare facilities and compounds, site access and walkways. A
nominated social distancing marshal is present on all sites to
ensure policy compliance and we provide induction, training and
support for our employees and sub-contractors.
The health and safety of our employees, sub-contractors and
customers remains our first priority. On our sites that have been
reopened for four weeks or more we are operating at around 75% of
construction activity levels prior to lockdown, a reflection of
social distancing requirements, the timing of subcontractors
returning to sites and our prioritisation of build required to meet
forward sales commitments. We now expect site productivity levels
to continue to improve towards those achieved prior to lockdown,
particularly following the most recent changes to social distancing
requirements in England, the return of additional subcontractors
and extended operating hours on many of our sites.
We have a robust and carefully managed supply chain with around
90% of housebuilding materials sourced by our centralised
procurement function being manufactured or assembled in the UK,
which has proved particularly valuable as we reopened our sites in
the COVID-19 environment.
The Group has incurred significant additional costs arising from
COVID-19 including the controlled closure, hibernation and
recommencement of our activities. In addition, site durations are
now expected to be extended, resulting in increased site costs.
Further details will be included in our full year results
announcement.
Resilient balance sheet
Funding and liquidity
As at 30 June 2020 the Group had net cash(3) of around GBP305m
(30 June 2019: net cash GBP765.7m). Throughout the second half we
have actively managed our cash flows to ensure resilience and as a
result we operated with average net cash of c. GBP237m (H2 FY19:
GBP167.9m). Since our return to site our cash flows have benefitted
from completion delivery, reduced working capital requirements and
the timing of land payments.
The Group has GBP200m of drawn US private placement notes and a
GBP700m undrawn revolving credit facility. The Group has also
received confirmation that it is eligible to access funding under
the Covid Corporate Financing Facility ('CCFF') should that be
required.
Land creditors at around GBP800m (2019: GBP960.7m) have reduced
to c. 25% (30 June 2019: 31.3%) of the owned land bank in line with
our operating framework of 25% to 30%. This follows the targeted
reduction achieved at the half year and a lower level of land
additions in the second half due to our suspension of land buying
activity, partly offset by changes in the timing of land creditor
payments. As at 30 June 2020 c. GBP350m of our land creditors fall
due for payment in the first half of FY21.
Land and planning
We continue to closely monitor the land market. Due to the
strength of our land bank and current economic uncertainty, our
land buying activities remain suspended, with the exception of
where we can obtain attractive conditional options that we can
choose whether or not to progress as market conditions become
clearer.
Investing in our people
We are committed to our people, not just because it is the right
thing to do, but because they are fundamental to our long-term
success. It is testament to the quality of our people that we are
the only major housebuilder to be awarded the HBF's maximum 5 Star
customer satisfaction rating for the 11(th) year in a row,
reflecting our commitment to quality and customer service. We are
incredibly proud of our site managers, who once again excelled this
year with 92 (2019: 84) NHBC Pride in the Job Awards, more than any
other housebuilder for the 16(th) consecutive year.
Our employees have reacted in a resilient and adaptable way
during the challenges posed by COVID-19, both those who worked hard
to get us ready to restart on site, and those who were not able to
work during the period of temporary closure, many of whom were
inspirational as volunteers in their local communities. We were
pleased to be able to support all of our employees throughout our
period of hibernation on their normal pay.
Citiscape
In 2017, following the tragedy at Grenfell, we carried out a
review of all buildings where cladding had been used. As part of
this review, we voluntarily undertook to pay for work to remove and
replace Aluminium Composite Material ('ACM') cladding on the
Citiscape development in Croydon. This is a non-standard
development which was designed for us in 2001 by a third-party
structural engineering firm and was sold to the current freeholders
in 2003.
When the ACM cladding was removed from Citiscape in 2019,
structural concerns were identified and we appointed independent
structural engineers to undertake a full investigation of the
building. These investigations have identified significant issues
relating to the design of the building's reinforced concrete frame
('RCF') requiring extensive remedial work. While we have no legal
liability to cover the costs of this work, in line with our
commitment to customers and recognising the responsibility we have
for the work of our partners, we have taken the decision to pay for
the required remedial action which would otherwise fall on
leaseholders.
As a responsible developer, we appointed independent structural
engineers to review all of the other developments where RCFs were
designed for us by either the same original engineering firm or by
other companies within the group of companies which has since
acquired it.
The preliminary reviews of all 26 of these developments, the
majority of which were designed over ten years ago, are complete
and have not identified any issues as severe as those present at
Citiscape. Engineers are now undertaking more detailed reviews to
see if any remediation of the concrete frames is required. Those
detailed reviews have so far shown that eight developments have no
defects while seven developments required some remedial action to
address smaller-scale problems. At these developments, remedial
action has either been successfully completed or is underway.
We apologise unreservedly to affected customers that the
standards that we set for ourselves and our partners were not met
at these developments. While in most cases we have no legal
liability, in line with our commitment to put our customers first
we will ensure that no costs associated with remedial works are
borne by leaseholders.
As previously disclosed, up to 31 December 2019, we had incurred
GBP15.8m on Citiscape for both the costs of removing the ACM
cladding and other voluntary assistance including the costs of
providing alternative accommodation for residents. Based on our
current assessments, it is estimated that the total future costs
for the required remedial programme at Citiscape, the review
itself, and any remediation required at other buildings, will be
around GBP70m, with this charge, and the related cash outflow
arising in FY20 and FY21. We are actively seeking to recover costs
from third parties, however there is no certainty regarding the
extent of any financial recovery.
Capital returns
In March 2020, given the uncertainties caused by the impact of
COVID-19, the Board cancelled the interim dividend of 9.8 pence per
share, equating to c. GBP100.0m (4) , which was due to be paid on
11 May 2020. The Board has decided that, given the unprecedented
impact of COVID-19, it will not propose to shareholders at the AGM
in October 2020 an ordinary dividend in respect of FY20 or the
previously announced special dividend of GBP175m in respect of
FY20. However, the Board continues to recognise the importance of
dividends as a part of overall shareholder returns and will give
further consideration to future dividend policy.
Outlook
Whilst the economic outlook remains unclear, the Group is in a
strong position. We have a well-capitalised balance sheet, robust
liquidity, a healthy forward sales position, a continued focus on
the delivery of operational performance improvements across our
business and an ongoing commitment to deliver high quality homes
across the country.
Our experienced Board remains focused on taking the actions
necessary to safeguard the operational and financial strength of
the business whilst our first priority remains the health and
safety of our employees, sub-contractors and customers.
The Board will continue to monitor the market and economy and
believes that our strong financial position provides us with the
resilience and flexibility to react to changes in the operating
environment in FY21 and beyond.
This trading update contains certain forward-looking statements
about the future outlook for the Group. Although the Directors
believe that these statements are based upon 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.
Notes:
(1) All figures within this statement exclude joint venture
(JVs) completions in which the Group has an interest unless
otherwise stated
(2) An active outlet is defined as an outlet with at least one
plot for sale. Our definition remains consistent with previous
reporting periods, unaffected by the closure of our sales centres
across the Group during the lockdown period
(3) Net cash is defined as cash and cash equivalents, bank
overdrafts, interest bearing borrowings, prepaid fees and foreign
exchange swaps
(4) Based on 31 December 2019 share capital of 1,014,746,539 shares for proposed payments
Appendices
1. Sales Rate
--------------- ------------- -----------------------------------------
Pre lockdown Lockdown Post lockdown Full Year
38 Weeks 8 Weeks 6 Weeks (1 July -
(1 July to (23 March (18 May - 30 June)
22 March) to 17 May) 30 June)
2020 0.73 (0.10) 0.63 0.60
2019 * 0.68 0.82 0.69 0.70
Variance % 7.4% n/m (8.7%) (14.3%)
--------------- ------------- ------------ -------------- -----------
*2019 is equivalent period
2. Completions (homes) 2020 2019 Variance
-------------------------- ------- --------------- ----------------
Private 9,568 13,533 (29.3%)
Affordable 2,466 3,578 (31.1%)
-------------------------- ------- --------------- ----------------
Wholly owned 12,034 17,111 (29.7%)
JV 570 745 (23.5%)
-------------------------- ------- --------------- ----------------
Total 12,604 17,856 (29.4%)
-------------------------- ------- --------------- ----------------
3. ASP GBPk 2020 2019
----------------- ------------------------- ----------------------
H1 H2 FY H1 H2 FY
Private 312.0 c. 308 c. 311 317.3 307.7 312.0
Affordable 160.0 c. 170 c. 163 120.9 138.9 132.2
----------------- ------- ------- ------- ------ ------ ------
Total ASP 279.8 c. 281 c. 280 282.2 268.5 274.4
----------------- ------- ------- ------- ------ ------ ------
30 June 2020 30 June 2019 Variance %
4. Forward GBPm Homes GBPm Homes GBPm Homes
sales
-------------- -------- ------- -------- ------- ----------- --------
Private 1,703.3 5,320 1,195.2 3,827 42.5% 39.0%
Affordable 1,274.1 8,201 1,088.3 6,720 17.1% 22.0%
--------------- -------- ------- -------- ------- ----------- --------
Wholly owned 2,977.4 13,521 2,283.5 10,547 30.4% 28.2%
JV 272.3 805 320.6 872 (15.1%) (7.7%)
--------------- -------- ------- -------- ------- ----------- --------
Total 3,249.7 14,326 2,604.1 11,419 24.8% 25.5%
--------------- -------- ------- -------- ------- ----------- --------
Conference call for analysts and investors
David Thomas, Chief Executive, Steven Boyes, Chief Operating
Officer and Jessica White, Chief Financial Officer will be hosting
a conference call at 08:45am today, Monday 6(th) July, to discuss
this Trading Update.
To access the conference call:
Dial-in: +44 (0)330 336 9104
Passcode: 506921
A replay facility will be available shortly after:
Dial-in: +44 (0)207 660 0134
Passcode: 5099523
For further information please contact:
Barratt Developments PLC
Jessica White, Chief Financial Officer 01530 278 259
John Messenger, Group Investor Relations
Director 07867 201 763
For media enquiries:
Tim Collins, Head of Corporate Communications 020 7299 4874
Derek Harris, Head of Public Relations 020 7299 4873
Brunswick
Jonathan Glass 020 7404 5959
The person responsible for arranging the release of this
announcement on behalf of Barratt Developments PLC is John
Messenger (Group Investor Relations Director).
www.barrattdevelopments.co.uk
Barratt Developments PLC LEI: 2138006R85VEOF5YNK29
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END
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