Final Results

Barratt Developments PLC 26 September 2007 26 September 2007 BARRATT DEVELOPMENTS PLC Results for the year ended 30 June 2007 Group Highlights: • Integration of Wilson Bowden is progressing ahead of plan with increased synergy benefits of at least £60m in the second full year after completion. • Completions increased to 17,168 (2006: 14,601) up 17.6%, with an average selling price of £172,800 (2006: £165,800) up 4.2% and a 25.3% increase in Group turnover to £3,046.1m (2006: £2,431.4m) • Housebuild operating margin before restructuring costs* remained robust at 16.7% (2006: 17.0%). • Wilson Bowden Developments achieved a turnover of £44.7m and operating margin** of 14.5%. • Profit before tax and restructuring costs increased by 16% to £454.0m (2006: £391.4m) with pre-tax profit up 9.3% to £427.8m • Adjusted basic earnings per share*** increased 7.4% to 123.8p (2006: 115.3p) with basic earnings per share 116.2p (2006: 115.3p) • Proposed final dividend for the year 24.30p (2006: 20.69p) up 17.5%, bringing total dividends for the year to 35.68p (2006: 31.03p) up 15%, 2.7 times covered. • Land stocks strengthened to 109,700 plots (including 23,300 subject to contract)- 5.1 years supply at current volumes (2006: 66,500 plots (including 7,500 subject to contract)- 4.5 years supply). In addition the Group has access to 12,200 acres of strategic land (2006: 2,800 acres). • Net borrowings of £1,301.2m, including £913.2m to fund the acquisition (2006: net cash of £34.9m). • Forward sales at 30 June were £1,414m (2006: £845m), a new record, 67.3% higher than last year and 14.8% ahead of the proforma combined Barratt and Wilson Bowden total at 30 June 2006 of £1,232m. This has increased to £1,721m as at last week, and together with completions to date we have now secured 53.8% of our full year requirement. * Quoted before restructuring costs of £25.6m for housebuilding. Statutory operating margin 15.8% (2006: 17.0%). **Quoted before restructuring costs of £0.6m for commercial development. Statutory operating margin 13.2%. *** Quoted before restructuring costs of £26.2m offset by related tax of £6.5m. Charles Toner, Chairman, commented: 'This has been a historic year for Barratt Developments marked by very considerable change. Under a new Chief Executive, Mark Clare, we acquired Wilson Bowden. Whilst completing and rapidly integrating this major acquisition, we have delivered a robust operating performance against a backdrop of increasing UK interest rates. It is a tribute to our Executive team and our employees, from both Barratt and Wilson Bowden, who have worked tirelessly with considerable skill to deliver these results.' Mark Clare, Group Chief Executive of Barratt Developments PLC, commented: 'Good progress was made in 2007 with improved performance across the board despite the more challenging market and the complexity of the integration of Wilson Bowden. 'Including the impact of Wilson Bowden's results for the two months, turnover increased to £3,046.1m, a 25.3% increase on the previous year. Completion numbers were up by 17.6% at 17,168 and profit from operations before restructuring costs increased by 22.7% to £507.2m. 'Investment in land, a key driver of future growth, increased during the year to £1,013m from £841m the previous year and the forward land bank increased to 109,700 plots, including 23,300 subject to contract, a 5.1 year supply at 2007 proforma volumes. 'Forward sales continued to grow and we ended the year at £1,414m, 67.3% up on the previous year. As at the end of last week this figure now stands at £1,721m, and together with completions to date, we have now secured 53.8% of our full year requirement. 'Our progress with the integration of Wilson Bowden has been stronger than expected with the operational structures and management all now in place. A new combined IT platform is being rolled out across the whole business with the first implementations happening in October, completing in June next year. 'Through the removal of duplicated functions, reductions in the central management team, rationalisation of operating divisions and procurement savings we are now ahead of our original plans. We now expect to make savings of at least £30m in the first full year post-acquisition and at least £60m in the second year, up from £25m and £45m. 'Recognising the strength of last year's performance, our commitment to deliver greater shareholder value, and confidence in the future, we are moving towards a dividend policy targeted on a reduction in our cover ratio to 2.5 times over the planning cycle. As a result the Board is recommending an increase in the final dividend of 17.5% to 24.30p per share, bringing the full year to 35.68p per share, 15% above last year. 'We have already signalled that it would be prudent to assume that the cumulative impact of interest rate increases would result in the housing market tightening in 2007/8. The recent credit squeeze has further affected customer sentiment and pressure on lending institutions has led to a tightening of lending criteria and mortgage availability. 'It is not yet clear how quickly the market will recover but we have to assume that there will be downward pressure on volumes and price inflation in the short-term. 'However, the market fundamentals remain strong with demand continuing to exceed supply with the Government intent on stimulating the sector by accelerating land availability. 'By ensuring that our well respected sales capabilities are being fully utilised, that costs are being tightly managed and that we prudently manage our balance sheet we remain confident that we can continue to compete effectively going forward.' For further information please contact: Barratt Developments PLC Mark Clare, Group Chief Executive On the day: 020 7067 0700 Mark Pain, Group Finance Director Thereafter: 020 7299 4896 Weber Shandwick Financial Terry Garrett/Nick Dibden 020 7067 0700 The financial analysts' presentation slides and recording of the analyst presentation will be available on the Barratt Developments plc website: www.barrattdevelopments.co.uk from 0900hrs today. Further copies of the announcement can be obtained from the Company Secretary's office at Barratt Developments PLC, Rotterdam House, 116 Quayside, Newcastle upon Tyne, NE1 3DA Our 2007 Annual General Meeting will be held on 27 November 2007. Commencing at 2.30 pm at the Barber-Surgeons Hall, Monkwell Square, Wood Street, London, EC2Y 5BL. Details can be found on the Financial Calendar page of our website at www.barrattdevelopments.co.uk Business Review (abridged) The Group has achieved another strong performance this year, both from the existing Barratt operation and from the Wilson Bowden businesses that we acquired on 26 April 2007. Results include Wilson Bowden only from 26 April 2007. Overall our housebuilding operation delivered 17,168 completions (2006: 14,601) and profit from operations of £475.1m (2006: £413.5m). The acquired commercial developments business, Wilson Bowden Developments, (excluding its own housebuilding completions), delivered a profit from operations of £5.9m. The key performance indicators of the business are discussed in the table below: -------------------------------------------------------------------------------- Key performance indicator 2007 2006 Movement -------------------------------------------------------------------------------- Operational Residential completion numbers 17,168 14,601 17.6% Discussed in the Average sales section entitled price £172,800 £165,800 4.2% 'Housebuilding' Residential turnover divided by the number of completions Land bank plots 109,700 66,500 65.0% Discussed in the Number of residential plot section entitled owned and agreed subject to 'Land' contract Customer recommendation Discussed in the levels 89% 85% 4% section entitled The percentage of Barratt 'Quality and Homes customers who would service' 'recommend us to a friend' Reportable accidents 643 672 (4.3%) Discussed in the Number per 100,000 people section entitled employed in the 'Health and Safety' housebuilding business Financial Revenue £3,046.1m £2,431.4m 25.3% Discussed in the Profit from operations £481.0m £413.5m 16.3% Financial Review Profit before tax £427.8m £391.4m 9.3% Earnings per share 116.2p 115.3p 0.8% Profit after tax divided by the weighted average number of ordinary shares in issue -------------------------------------------------------------------------------- Housebuilding Barratt Homes completed 15,517 properties (up 6.3% on the prior year total of 14,601), with total revenue for the year of £2,666.5m, an increase of 9.7% over the prior year. The increase in completions has been driven by a 9% increase in the average rate of completions per operating site, although planning delays meant the average number of operating sites dropped from 461 to 449 during the year. Average selling price in Barratt Homes increased to £169,600, up 2.3% on the prior year, which was mainly due to price increases and changes in product mix. Wilson Bowden completed 1,651 properties since acquisition, with revenue of £334.9m. It operated from an average of 154 sites in the period, up 3% from the equivalent period last year. Wilson Bowden's average selling price was £202,800 in the period since acquisition. The higher average selling price than Barratt Homes reflects the different mix of market segments in which the David Wilson Homes brand operates. The integration of Wilson Bowden is progressing ahead of schedule, with both the new operational structure of 35 divisions and its supporting management structure in place. The Group is focused on developing its core brands: Barratt Homes for traditional housing, apartments and urban regeneration; and David Wilson Homes with a reputation for producing larger family homes, along with the Ward Homes brand based predominantly in Kent. However, we have decided to discontinue the use of our KingsOak brand. The rebranding of our sites and divisions is now complete. Progress is also being made in reducing our head office and administrative costs. In our first full year we estimate our synergy savings will be at least £30m, rising to at least £60m in the second full year following acquisition. Commercial development Wilson Bowden Developments was acquired as part of the acquisition of Wilson Bowden, and its trading performance during May and June was in line with our expectations. The main highlights were: the handover of East Midlands Fire Control Centre at Willow Farm, Castle Donington, which will be used to coordinate the Fire Service for five counties in the East Midlands; and the completion of the redevelopment and extension of the Jackson Square shopping centre at Bishop's Stortford. In addition we secured the letting to the Home Office of a 76,000 square foot office building at our Riverside Exchange site in Sheffield and made continued progress with lettings at the Eagles Meadow shopping centre in Wrexham which is due to open in the second half of 2008. Land The Group land bank has been strengthened during the year and now stands at 109,700 plots with a book value of £3,296.6m, representing approximately 5.1 years of land usage at the current rate of consumption. The land bank includes 23,300 plots which have been purchased subject to contract. Of our land bank at 30 June 2007, 72.2% of plots have either detailed or outline planning permission. We have detailed planning permission on 99.3% of plots for 2007/08 and 60.8% of plots for 2008/09. In addition we have 12,200 acres (2006: 2,800 acres) of strategic land, which has been considerably increased by the acquisition of Wilson Bowden. Expenditure on land purchases during the year was £1,012.7m compared with £841m for the previous year. The acquisition of Wilson Bowden, has further strengthened the Group's land bank, bringing with it not only the additional plots acquired but also strengthening our expertise in strategic land. The additional focus we shall now be able to bring to bear on the delivery of strategic land will enable us to deliver enhanced shareholder value in future years. Core strengths During the past year the Group continued to build upon its core strengths of geographic and product diversity, quality and service, and people. We have inherited strong skills from Wilson Bowden that complemented those in Barratt. Geographic and product diversity The Group offers a wide product range from first time buyer homes to luxury apartments and family homes with prices ranging from under £90,000 to £1.35 million and an average selling price of £172,800. We operate throughout Great Britain and at 30 June 2007 we were selling from 590 sites spread over 35 divisions. The diversity of product and places has been strengthened by our acquisition of Wilson Bowden. The provision of affordable homes continues to be a key component of our activities with the Group completing 2,833 homes for housing association partners during the year at an average selling price of £92,800. We are one of the leading providers in the industry of affordable homes for rent, shared ownership or low cost homes for sale. We believe that our strength in this area provides opportunities for the Group's further growth, especially in light of developing Government policy. We have continued to invest in our iPad range of homes which provides affordable housing for first time buyers. During the year 120 (2006: 30) homes were legally completed, 330 were under construction, and planning permission has been secured for a further 634 homes. Our product offering in this area has been further enhanced by the addition of the David Wilson Homes' range of iLife homes. We are pleased to have been awarded £30.5m of funding under the English Partnerships' First Time Buyers Initiative, to assist first time buyers who would otherwise have been unable to afford to buy their own home. Under this initiative the Group will build 316 homes on developments in Brighton, Bristol, Ely, Gravesend, Leeds, Liverpool, Romford, Southampton and Watford. During the last twelve months we have secured 219 sites, which will deliver 26,000 units in future years. A number of these sites are very significant for our plans for future growth. In Northampton, we have won 16 sites that will provide 1,500 new homes and we shall also help to fund new educational facilities in the town. We also recently announced schemes for more than 1,200 new homes in Middlesbrough and Stockton. In Telford, in consortium with two other developers, we are creating the largest single new community in Britain, our contribution to which will exceed 1,200 new homes. In addition, we are currently involved in a number of specialist urban regeneration projects. These include a £240 million development, the Great West Quarter in Brentford, which will create over 730 homes, almost half of which will be available for rent or shared ownership, and which will include a hotel and health centre. We are continuing to develop two flagship town centre regeneration projects in Feltham and Hounslow, creating 1,150 homes with commercial, retail and community facilities. The Feltham scheme, of over 800 homes, has been awarded £5m in direct funding from English Partnerships to enable around 58 homes to be made available to key workers and first time buyers on a shared ownership basis. We are also in partnership with the specialist regeneration company Artisan, developing over 1,000 homes in Rochdale. Quality and service We are pleased that overall customer satisfaction and the number of our customers who would 'recommend us to a friend' has continued to improve during the year. In the year ended 30 June 2007, 89% of Barratt Homes' customers responded that they would 'recommend us to a friend', which represents an improvement over the result of 85% in 2006 and 80% in 2005. In addition, our customer satisfaction rating has continued to improve from 70% in 2005 to 76% in 2006 and is now 81%. We are continually striving to improve our service to our customers and this is now a feature of senior management remuneration. During the year we also completed a training programme for all 'customer facing' staff covering our Customer Charter and Customer Care Personal Code of Practice. We also conducted full customer service audits of a number of our divisions, and based upon the audit findings, we have implemented a range of development programmes designed to improve our level of customer care. During the year, the Group also introduced a code of practice for all Group suppliers, which emphasises the importance that the Group places on high standards of customer care. The quality of our product offerings has been recognised by the receipt of several major national industry awards. Barratt Homes was named 'Housebuilder of the Year' at the 'What House?' Awards and 'Homebuilder of the Year' in the 'Your New Home' Awards. Furthermore, Barratt Homes also received Gold Awards for exterior design, landscaping and renovation at the 'What House?' Awards. Our people and expertise We recognise that one of our key strengths as a Group is our people. We have appointed a new Group Human Resources Director and have strengthened our human resources team during the year. We have also introduced a number of new initiatives to benefit our staff, including our Cornerstone induction plan, a new twice-yearly Performance and Development Review and the Barratt Leadership Development Programme, all of which will assist with the development of the Group's leaders of the future. We have launched a new Graduate Recruitment and Development Programme. 54 successful graduates joined the business in September 2007 selected from 752 applicants. They will undertake a two-year multidisciplinary programme. At any one time we have over 500 apprentices within our business. Our intention is to ensure that we continue to attract and retain the very best apprentices to provide a pipeline of skills for the future. We are currently working with the Learning and Skills Council and the Apprenticeship Ambassadors Network to ensure we have an industry leading apprenticeship programme. The Group has continued to make progress towards its target of a fully Construction Skills Certificate Scheme (CSCS) carded and qualified workforce, including our subcontractors, by 2010. At present over 60% of our workforce has achieved this target. The strengths of the Group in terms of people and expertise have been recognised again this year with the Group winning a number of national awards. Our construction teams won 71 National House-Building Council (NHBC) 'Pride in the Job' quality awards, a significant improvement on last year's achievement of 53 awards. This is more than any other housebuilder and a new record for the Group. The Group's innovative approach to housebuilding was recognised at both the 2006 'Housebuilder Innovation' Awards, where Barratt Homes won 'Housebuilding Innovator of the Year', and at the 'British Home' Awards where the 'Innovation Award for Building Technology' was presented for the Group's Elektron development in London Docklands. Environment During the year the Government announced the requirement for all new homes to be zero carbon by 2016. Whilst this requirement will pose a challenge for all housebuilders, we are seeking to become industry leaders in this area and we will launch, later in the year, an environmental charter that sets out how we will reduce our own impact, improve the environmental quality of what we build and help our customers to reduce their impact. Building upon the success of our seven home EcoSmart Show Village in Chorley, Lancashire (which included the latest energy efficient technologies) and as part of our commitment to zero carbon housing, we are to build the 'Green House' a prototype home using an award winning design developed by architects Gaunt Francis. The zero carbon home will be built at the Building Research Establishment's Innovation Park and will combine outstanding design, high standards of energy efficiency and the use of innovative microgeneration. It also includes recycled slag foundations, lime/hemp render walls and pitched roofs incorporating photovoltaic panels. The central heating will be controlled by a central computer system with internet linked energy efficiency appliances. We now have carbon saving measures on over 35 of our sites and have completed a review of how to improve the environmental impact of our existing housing designs. We continue to build the majority of our developments on brownfield sites, with 78% of Barratt developments in the year being built upon brownfield land, which significantly exceeds the Government's target of 60%. The Group continues to make progress in certifying our divisions to ISO14001 standard for Environmental Management. In last year's Annual Report we stated our target was that all of our divisions would have achieved ISO14001 status by 30 June 2007. This has been delivered and we are now beginning the process of certifying our newly acquired David Wilson Homes divisions, with a view to achieving ISO14001. Health and Safety As previously reported, the Group is saddened that a fatal accident occurred on a Barratt development on 26 September 2006. The accident took place at our Battersea Road development in London when a crane collapsed resulting in the tragic death of two people. The Group continues to cooperate with the ongoing Health and Safety Executive inquiry into the incident. Notwithstanding this tragic event, we have continued to make good progress in the field of Health and Safety with a reduction in the number of reportable accidents to 643 per 100,000 persons employed in the housebuilding business, a reduction of 4.3% on the previous year. In addition, the average safety standard ratings achieved by the Group in the independent NHBC site surveys have continued to be ahead of the other housebuilders using this service. The Group continues to make progress with the process of certifying our operating divisions under OHSAS18001 in Health and Safety. At 30 June 2007, 19 divisions were certified to this level and we have plans to certify another six divisions within the next year. Corporate responsibility As outlined in the sections above, the Group has continued to make good progress on corporate responsibility throughout the year. The Group has embedded its corporate responsibility strategy within Barratt operations and is now applying this in the newly acquired operations of the Group. The Group is proud to have gained entry to the FTSE4Good index during the year, which underpins our commitment to corporate responsibility. Barratt is included in the 'Top 100 Companies that Count' list, which is part of the Corporate Responsibility Index and was judged by Business in the Community and the Sunday Times. The Group's new corporate responsibility report will contain further details on our progress in corporate responsibility and will be found on the Group's investor relations website (www.barrattdevelopments.co.uk). Outlook We have already signalled that it would be prudent to assume that the cumulative impact of interest rate increases would result in the housing market tightening in 2007/8. The recent credit squeeze has further affected customer sentiment and pressure on lending institutions has led to a tightening of lending criteria and mortgage availability. It is not yet clear how quickly the market will recover but we have to assume that there will be downward pressure on volumes and price inflation in the short-term. However, the market fundamentals remain strong with demand continuing to exceed supply with the Government intent on stimulating the sector by accelerating land availability. Financial Review (abridged) The Group has delivered a strong performance in the year with growth in both revenue and completions. Key highlights are as follows: • Revenue up 25.3% to £3,046.1m from £2,431.4m in 2006 • Barratt Homes revenue £2,666.5m up from £2,431.4m in 2006 • Wilson Bowden revenue since acquisition £379.6m • Total completions 17,168 (2006: 14,601), up 17.6%, including 1,651 Wilson Bowden completions • Profit from operations (before restructuring costs of £26.2m) £507.2m increased by 22.7% from £413.5m in 2006 • Profit from operations £481.0m (2006: £413.5m) up 16.3% • Barratt Homes profit from operations (before restructuring costs of £13.1m) £440.2m up from £413.5m in 2006 • Wilson Bowden profit from operations (before restructuring costs of £13.1m) since acquisition £67.0m • Operating margin (before restructuring costs) 16.7% broadly consistent with 2006 (17.0%) • Operating margin was 15.8% (2006: 17.0%) • Barratt Homes operating margin (before restructuring costs) 16.5% (2006: 17.0%) • Wilson Bowden operating margin (before restructuring costs) since acquisition 17.7% • Profit before tax £427.8m (2006: £391.4m) up 9.3% • Adjusted earnings per share (before restructuring costs) 123.8p (2006: 115.3p) • Basic earnings per share 116.2p (2006: 115.3p) • Dividend per share up 15% for the full year to 35.68p (2006: 31.03p) Acquisition of Wilson Bowden The Group completed its acquisition of Wilson Bowden on 26 April 2007, at a cost of £2,049.6m, financed by cash and loan notes of £930.3m and £1,119.3m of shares. The acquisition has resulted in a fair value uplift in the value of Wilson Bowden's acquired balance sheet of £98.5m arising primarily from an increase in the value of inventory of £34.4m, the recognition of £107.0m of intangible assets related to the David Wilson Homes and Wilson Bowden Developments brands, a write off of £3.5m of goodwill, an adjustment to trade payables of £1.8m, offset by an additional deferred tax liability of £41.2m. The acquisition has resulted in the Group recognising £816.7m of goodwill. The goodwill arising on acquisition relates to: •the highly complementary geographical fit, which has enabled us to deliver synergies from the rationalisation of the number of operating divisions and consolidate central functions •the acquisition of the skills and experience within the Wilson Bowden workforce •an expanded consented land bank enabling increased operational flexibility •increased access to commercial and mixed-use developments •access to an expanded portfolio of strategic land and the expertise of Wilson Bowden strategic land teams. The carrying value of goodwill of £816.7m is comfortably supported by the cash flows of the underlying business units. During the year to 30 June 2007, the Group incurred £26.2m of one-off restructuring costs related to the reorganisation of the two former businesses, including redundancies, office reorganisation costs and systems harmonisation. Further restructuring costs will be incurred in 2008, particularly on the systems side, and we anticipate the overall cost will be in line with our original estimate of £35m. Segmental analysis Following the acquisition of Wilson Bowden, the Group has, for the first time, two segments, being housebuilding and commercial development. These segments reflect the different product offerings and market risks facing these areas of the business. The table below shows the respective contributions from these segments to the Group: -------------------------------------------------------------------------------- Commercial Housebuilding development Total £m £m £m -------------------------------------------------------------------------------- Revenue 3,001.4 44.7 3,046.1 Profit from operations before restructuring costs 500.7 6.5 507.2 Profit from operations 475.1 5.9 481.0 -------------------------------------------------------------------------------- Tax The Group corporation tax charge for the year was £127.4m, an effective rate of 29.8%. This is lower than the standard rate of 30% due to the impact of the announced reduction in the corporation tax rate to 28% from April 2008 upon deferred tax, and the tax charge benefiting from employee share schemes relief and from contaminated land relief. Offsetting these benefits there has been an additional tax charge due to costs that are not allowable for tax purposes, including certain transaction related costs. Dividend At the half year, the Directors approved an increase in the interim dividend per share of 10% from 10.34 pence per share to 11.38 pence per share. The Directors propose a final dividend per share of 24.30 pence, a 17.5% increase on the 2006 final dividend per share of 20.69 pence per share. This reflects our progressive dividend policy of reducing, over time, dividend cover to around 2.5 times. Balance sheet The net assets of the Group increased by £1,371.1m to £2,911.0m. The increase in net assets is due to retained profits and the shares issued in the year. Significant movements in the balance sheet are: •The Group's book value of land was £3,296.6m, an increase of £1,299.3m over 2006, of which £1,098.6m, at fair value, is due to the acquisition of Wilson Bowden. The remaining increase reflects our continued strategy to invest in sufficient land to drive organic growth. •Work in progress of the Group at 30 June 2007 was £1,368.5m, an increase of £767.4m on 2006, of which £602.2m was due to the acquisition of Wilson Bowden. Against this, the Group had a strong forward sales position of £1,414m, which was 14.8% up on the combined Group at June 2006. •Group net debt increased by £1,336.1m during the year, from net cash of £34.9m to net debt of £1,301.2m, of which £811.6m was the cash outflow on acquisition, added to which there were loan notes issued of £101.6m and debt acquired of £332.7m. •The Group recognised £816.7m of goodwill and £107.0m of intangible assets related to brands on its acquisition of Wilson Bowden. •The pension fund deficit on the Barratt Homes defined benefit pension scheme included in the Group balance sheet reduced by £9.6m in the year to £78.3m, reflecting the additional contributions that the Group has been making to reduce the deficit. •Other assets and liabilities have decreased by £290.1m during the year. Borrowings, cashflow and treasury Group net debt at the year end was £1,301.2m. The increase in net debt in the year arising from financing the Wilson Bowden acquisition and refinancing existing Wilson Bowden debt was £1,245.9m. To support the continuing acquisition of land and efficiently manage our balance sheet, we are targeting a funding level of around 2.5 times net debt/earnings before interest, tax, depreciation and amortisation (EBITDA). At the year end, the Group's committed facility had an average life of 3.5 years and headroom of £1,162.4m. £800m of the facilities arranged to finance the Wilson Bowden acquisition was provided on a 364-day basis, but with the ability for the Group to extend the facility for a further twelve months and the Group aims to refinance these through the debt capital markets. Group borrowings increased by £1,336.1m in the year from net cash of £34.9m to net debt of £1,301.2m. The reasons for the increase are: -------------------------------------------------------------------------------- 2007 2006 £m £m -------------------------------------------------------------------------------- Net cash at start of year 34.9 276.9 ---------- ---------- Operating cash flow 139.5 (58.5) Tax and net interest paid (148.3) (121.6) ---------- ---------- Free cash flow (8.8) (180.1) Acquisition of Wilson Bowden (1,245.9) - Investments in joint ventures (14.2) - Net fixed asset purchases (4.6) (1.3) Dividends (77.1) (67.5) Share issue and disposals 14.5 6.9 -------------------------------------------------------------------------------- Net debt at end of period (1,301.2) 34.9 -------------------------------------------------------------------------------- An analysis of the Group's free cash flow is as follows: 2007 2006 £m £m -------------------------------------------------------------------------------- Operating profit 481.0 413.5 Total non-cash items (7.6) (14.3) Working capital (333.9) (457.7) -------------------------------------------------------------------------------- Operating cash flow 139.5 (58.5) Net interest paid (27.8) (8.7) Taxation (120.5) (112.9) -------------------------------------------------------------------------------- Free cash flow (8.8) (180.1) -------------------------------------------------------------------------------- The most significant increase in borrowings in the year was the acquisition of Wilson Bowden at £1,245.9m, consisting of the cash paid and loan notes issued as part of the consideration, transaction fees paid, plus debt and cash acquired. In addition, we have invested £14.2m in the year in joint ventures mainly undertaking urban regeneration activities. There was an increase in net debt of £333.9m (2006: £457.7m) due to working capital movements. The majority of this increase was due to increased inventories, reflecting our continued land acquisition strategy and the additional work in progress requirements of the enlarged Group. Other cash movements include net interest payments of £27.8m (2006: £8.7m), tax payments of £120.5m (2006: £112.9m), dividend payments of £77.1m (2006: £67.5m), proceeds from the issue of share capital and disposal of own shares of £14.5m (2006: £6.9m). The Group has a centralised treasury operation into which all Wilson Bowden treasury operations have now been integrated. The Board approves treasury policies and certain day-to-day treasury activities have been delegated to a Treasury Operating Committee that in turn regularly reports to the Board. The Group has a conservative treasury risk management strategy which includes a target for fixed rates of interest of 60-80% of year end debt. As at 30 June 2007 63.0% was fixed. The Group uses swaps and fixed rate debt instruments to fix interest rates. Net bank interest was 12.0 times covered (2006: 47.5 times covered). Consolidated Income Statement for the year ended 30 June 2007 -------------------------------------------------------------------------------- Note 2007 2006 £m £m -------------------------------------------------------------------------------- Continuing operations Revenue 2 3,046.1 2,431.4 Cost of sales (2,452.2) (1,940.6) -------------------------------------------------------------------------------- Gross profit 593.9 490.8 Operating expenses before restructuring costs (86.7) (77.3) Restructuring costs 3 (26.2) - -------------------------------------------------------------------------------- Total operating expenses (112.9) (77.3) -------------------------------------------------------------------------------- Profit from operations 481.0 413.5 Finance income 4 3.5 2.0 Finance costs 4 (55.7) (24.1) Share of post tax loss from joint venture (1.0) - -------------------------------------------------------------------------------- Profit before tax 427.8 391.4 Tax 5 (127.4) (116.4) -------------------------------------------------------------------------------- Profit for the year from continuing operations 300.4 275.0 -------------------------------------------------------------------------------- Profit for the year attributable to equity shareholders 300.4 275.0 -------------------------------------------------------------------------------- Proposed/paid dividends per ordinary share Interim 6 11.38p 10.34p Final 6 24.30p 20.69p -------------------------------------------------------------------------------- Earnings per share from continuing operations Basic 7 116.2p 115.3p Diluted 7 114.3p 113.3p -------------------------------------------------------------------------------- Consolidated Statement of Recognised Income and Expense for the year ended 30 June 2007 -------------------------------------------------------------------------------- 2007 2006 £m £m -------------------------------------------------------------------------------- Profit for the year 300.4 275.0 Revaluation of available for sale financial assets (0.7) (4.5) Gains on swap arrangements 12.3 - Tax credited to reserves 0.8 1.3 -------------------------------------------------------------------------------- Total recognised income for the year attributable to equity shareholders 312.8 271.8 -------------------------------------------------------------------------------- Group balance sheet at 30 June 2007 -------------------------------------------------------------------------------- Note 2007 2006 £m £m -------------------------------------------------------------------------------- Assets Non-current assets Intangible assets 107.0 - Goodwill 816.7 - Property, plant and equipment 37.4 12.1 Investments - - Investments accounted for using the equity method 20.9 - Available for sale financial assets 37.3 31.3 Trade and other receivables 5.0 3.5 Deferred tax - 40.4 Derivative financial instruments - swaps 12.3 - -------------------------------------------------------------------------------- 1,036.6 87.3 -------------------------------------------------------------------------------- Current assets Inventories 4,769.6 2,644.4 Trade and other receivables 141.7 39.5 Cash and cash equivalents 182.1 43.3 Current tax asset - - -------------------------------------------------------------------------------- 5,093.4 2,727.2 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Total assets 6,130.0 2,814.5 -------------------------------------------------------------------------------- Liabilities Non-current liabilities Loans and borrowings (1,456.6) (2.5) Trade and other payables (111.7) (124.3) Retirement benefit obligations (78.3) (87.9) Deferred tax (3.1) - -------------------------------------------------------------------------------- (1,649.7) (214.7) -------------------------------------------------------------------------------- Current liabilities Loans and borrowings (26.7) (5.9) Trade and other payables (1,484.4) (988.3) Current tax liabilities (58.2) (65.7) -------------------------------------------------------------------------------- (1,569.3) (1,059.9) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Total liabilities (3,219.0) (1,274.6) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Net assets 2,911.0 1,539.9 -------------------------------------------------------------------------------- Equity Share capital 8 34.7 24.3 Share premium 8 206.1 202.3 Merger reserve 8 1,107.7 - Retained earnings 8 1,562.5 1,313.3 -------------------------------------------------------------------------------- Total equity 2,911.0 1,539.9 -------------------------------------------------------------------------------- Group cash flow Statement for the year ended 30 June 2007 -------------------------------------------------------------------------------- Group Note 2007 2006 £m £m -------------------------------------------------------------------------------- Net cash outflow from operating activities (12.3) (182.1) Cash flows from investing activities Purchase of property, plant and equipment (7.9) (3.3) Proceeds from sale of property, plant and equipment 3.3 2.0 Acquisition of subsidiary net of cash acquired (811.6) - Investments accounted for using the equity method (14.2) - Interest received 3.5 2.0 -------------------------------------------------------------------------------- Net cash (outflow)/inflow from investing activities (826.9) 0.7 -------------------------------------------------------------------------------- Cash flows from financing activities Proceeds from issue of share capital 3.9 4.5 Disposal of own shares 10.6 2.4 Dividends paid 6 (77.1) (67.5) Loan drawdowns 1,040.6 0.2 -------------------------------------------------------------------------------- Net cash inflow/(outflow) from financing activities 978.0 (60.4) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Net increase/(decrease) in cash and cash equivalents 138.8 (241.8) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Cash and cash equivalents at beginning of year 43.3 285.1 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Cash and cash equivalents at end of year 182.1 43.3 -------------------------------------------------------------------------------- Notes to the Financial Information 1. Accounting Policies Detailed below is an extract of the full accounting policies that will be included in the audited financial statements. Basis of preparation These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), International Financial Reporting Interpretations Committee (IFRIC) interpretations and Standing Interpretations Committee (SIC) interpretations endorsed by the European Union (EU) and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost convention as modified by the revaluation of available for sale financial assets, derivative financial instruments and share-based payments. A summary of the more significant Group accounting policies is set out below. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on the Directors' best knowledge of the amounts, event or actions, actual results ultimately may differ from those estimates. The most significant estimates made by the Directors in these financial statements are set out in 'Critical accounting judgements and key sources of estimation uncertainty'. Basis of consolidation The Group financial statements include the results of the holding company and all its subsidiary undertakings made up to 30 June. The financial statements of subsidiary undertakings are consolidated from the date when control passes to the Group using the purchase method of accounting and up to the date control ceases. All transactions with subsidiaries and inter-company profits or losses are eliminated on consolidation. Business combinations All of the subsidiary's identifiable assets and liabilities, including contingent liabilities, existing at the date of acquisition are recorded at their fair values. All changes to those assets and liabilities, and the resulting gains and losses that arise after the Group has gained control of the subsidiary are included in the post-acquisition income statement. Jointly controlled entities A jointly controlled entity is an entity in which the Group holds an interest with one or more other parties where a contractual arrangement has established joint control over the entity. Jointly controlled entities are accounted for using the equity method of accounting. Jointly controlled operations The Group enters into jointly controlled operations as part of its housebuilding and property development activities. The Group's share of profits and losses from its investments in such jointly controlled operations are accounted for on a direct basis and are included in the consolidated income statement. The Group's share of its investments' assets and liabilities is accounted for on a directly proportional basis in the consolidated balance sheet. Revenue Revenue is recognised at legal completion in respect of the total proceeds of building and development and an appropriate proportion of revenue from construction contracts is recognised by reference to the stage of completion of contract activity. The sale proceeds of part exchange houses are not included in revenue. Revenue is only recognised on a construction contract where the outcome can be estimated reliably. Revenue and costs are recognised by reference to the stage of completion of contract activity at the balance sheet date. This is normally measured by surveys of work performed to date. Contracts are only treated as construction contracts when they have been specifically negotiated for the construction of a development or property. Restructuring costs The acquisition of Wilson Bowden has lead to significant restructuring costs, including redundancy payments. The Group has classified these as a separate line in the income statement as they are material and it does not consider them to be a part of trading performance but rather an investment in the future of the business. These costs are recognised when the Group has a detailed plan that has been communicated to the affected parties. A liability is accrued for unsettled restructuring costs. Dividends Interim dividends are recognised in the financial statements at the time that they are paid, and final dividends are recognised at the time of agreement by the shareholders at the Annual General Meeting. Segmental reporting Following the acquisition of Wilson Bowden, the Group consists of two separate segments for management reporting and control purposes, being housebuilding and commercial development. The Group manages these segments separately due to the different operational and commercial risks that they face. These segments therefore comprise the primary reporting segments within the financial statements. As all of the Group's operations are within the United Kingdom, which is one economic environment in the context of the Group's activities, there are no geographic segments to be disclosed. Goodwill Goodwill arising on consolidation represents the excess of the fair value of the consideration over the fair value of the separately identifiable net assets and liabilities acquired. Goodwill arising on acquisition of subsidiary undertakings and businesses is capitalised as an asset and reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the cash-generating units of the Group at acquisition. Cash-generating units to which goodwill has been allocated are tested for impairment at least annually. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. Any impairment is recognised immediately in the income statement and is not subsequently reversed. Intangible assets Brands Internally generated brands are not capitalised. The Group has capitalised as intangible assets brands that have been acquired. Acquired brand values are calculated using discounted cash flows. Where a brand is considered to have a finite life, it is amortised over its useful life on a straight line basis. Where a brand is capitalised with an indefinite life, it is not amortised. The factors that result in the durability of brands capitalised is that there are no material legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of these intangible assets. The Group carries out an annual impairment review of indefinite life brands by performing a value-in-use calculation, using a discount factor based upon the Group's pre-tax weighted average cost of capital. Investments Interests in subsidiary undertakings are accounted for at cost less any provision for impairment. Where share-based payments are granted to the employees of subsidiary undertakings, by the parent company, they are treated as a capital contribution to the subsidiary and the Company's investment in the subsidiary is increased accordingly. Property, plant and equipment Property, plant and equipment is carried at cost less accumulated depreciation. Depreciation is provided to write off the cost of the assets on a straight line basis to their residual value over their estimated useful lives. Residual values and asset lives are reviewed annually. Freehold properties are depreciated on a straight line basis over twenty five years. Plant is depreciated on a straight line basis over its expected useful life, which ranges from one to seven years. Inventories Inventories are valued at the lower of cost and net realisable value. Costs comprises direct materials, direct labour costs and those overheads, which have been incurred in bringing the inventories to their present location and condition. Land held for development, including land in the course of development, is initially recorded at fair value. Where, through deferred purchase credit terms, the fair value differs from the amount that will ultimately be paid in settling the liability, this difference is charged as a finance cost in the income statement over the period of settlement. Due to the scale of the Group's developments, the Group has to allocate site-wide development costs between units built in the current year and in future years. It also has to estimate costs to complete on such developments. In making these assessments there is a degree of inherent uncertainty. The Group has developed internal controls to assess and review carrying values and appropriateness of estimates made. Leases Operating lease rentals are charged to the income statement in equal instalments over the life of the lease. Leases as lessor The Group enters into leasing arrangements with third parties following the completion of constructed developments until the date of the sale of the development to third parties. Rental income from these operating leases is recognised in the income statement on a straight line basis over the term of the lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised in the income statement on a straight line basis over the lease term. Share-based payments The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value is expensed in the income statement on a straight line basis over the vesting period, based on the Group's estimate of shares that will eventually vest. Tax The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on the profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are tax deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantially enacted by the balance sheet date. Deferred tax is recognised in respect of all temporary differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Pensions Defined contribution The Group operates defined contribution pension schemes for certain employees. The Group's contributions to the schemes are charged against profits in the year in which the contributions are made. Defined benefit The assets of the defined benefit pension scheme are measured at fair value. The liabilities of the defined benefit pension scheme are measured on an actuarial basis and discounted to present value. The net obligation is calculated by a qualified independent actuary and is recognised as a liability in the balance sheet. The Group uses a corridor approach when accounting for actuarial gains and losses. The corridor used is the greater of: - 10% of the present value of the defined benefit obligation at the end of the previous year; or - 10% of the fair value of plan assets at the end of the previous year. The amount recognised in the income statement is the excess of unrecognised actuarial gains and losses over the corridor spread over the expected average working lives of members of the scheme. The operating and financing costs of the defined benefit pension scheme are recognised in the income statement. Financial instruments Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument. The carrying amounts of the Group's financial assets and financial liabilities approximate to fair value. Available for sale financial assets These financial assets are initially recognised at the transaction price, and subsequently measured at each balance sheet date at fair value, with movements in the fair value of the assets being recognised directly in equity. On disposal of these financial assets the difference between the carrying value and the consideration received (including any cumulative gain or loss previously recognised directly in equity) is included in the income statement. Trade receivables Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. Amounts recoverable on construction contracts are included in trade receivables and stated at cost plus attributable profit less any foreseeable losses. Payments received on account for construction contracts are deducted from amounts recoverable on construction contracts. Trade payables Trade payables on normal terms are not interest bearing and are stated at amortised cost. Trade payables on extended terms, particularly in respect of land, are recorded at their fair value at the date of acquisition of the asset to which they relate. The discount to nominal value, which will be paid in settling the deferred purchase terms liability, is amortised over the period of the credit term and charged to finance costs using the 'effective interest rate' method. Payments received in excess of amounts recoverable on construction contracts are included in trade payables. Cash and cash equivalents Cash and cash equivalents includes cash and balances in bank accounts with no notice or less than three months notice from inception. Bank borrowings Interest bearing bank loans and overdrafts are recorded as the proceeds received, net of direct issue costs. Where bank agreements include a legal right to offset in hand and overdraft balances, and the Group intends to net settle the outstanding position, the offset arrangements are applied to record the net position in the balance sheet. Finance income and charges are accounted for using the 'effective interest rate' method in the income statement. Derivative financial instruments - swaps The Group has entered into derivative transactions in the form of swap arrangements to manage the interest rate risk arising from the Group's operations and its sources of finance. The use of financial derivatives is governed by the Group's policies approved by the Board of Directors as detailed in a note to the financial statements. The swap arrangements are designated as a hedge against changes in future cash flows as a result of interest rate movements. To the extent that these hedges are effective, gains and losses on the fair value of these swap arrangements are taken to reserves until realised. On realisation such gains and losses are recognised in the income statement. To the extent that any hedge is ineffective, gains and losses on the fair value of these swap arrangements are recognised in the income statement. Government grants Government grants are recognised in the income statement so as to match with related costs that they are intended to compensate. Grants related to assets are deducted from the carrying amount of the asset. Grants related to income are deducted from the related expense in the income statement. 2. Segmental Analysis Following the acquisition of Wilson Bowden, the Group consists of two separate segments for management reporting and control purposes, being housebuilding and commercial development. The Group presents its primary segment information on the basis of these operating segments. As the Group operates in a single geographic market, the United Kingdom, no secondary segmentation is provided. --------------------------------------------------------------------------------------------- Commercial Commercial Housebuilding development Total Housebuilding development Total 2007 2007 2007 2006 2006 2006 Units Units Units Units Units Units --------------------------------------------------------------------------------------------- Residential completions 17,168 - 17,168 14,601 - 14,601 --------------------------------------------------------------------------------------------- £m £m £m £m £m £m --------------------------------------------------------------------------------------------- Revenue 3,001.4 44.7 3,046.1 2,431.4 - 2,431.4 --------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------- Commercial Commercial Housebuilding development Total Housebuilding development Total 2007 2007 2007 2006 2006 2006 Result £m £m £m £m £m £m --------------------------------------------------------------------------------------------- Profit from operations before restructuring costs 500.7 6.5 507.2 413.5 - 413.5 Restructuring costs (25.6) (0.6) (26.2) - - - --------------------------------------------------------------------------------------------- Profit from operations 475.1 5.9 481.0 413.5 - 413.5 Share of post tax loss from joint venture (0.9) (0.1) (1.0) - - - --------------------------------------------------------------------------------------------- Profit from operations including share of post tax loss from joint venture 474.2 5.8 480.0 413.5 - 413.5 --------------------------------------------------------------------------------------------- Finance income 3.5 2.0 Finance costs (55.7) (24.1) --------------------------------------------------------------------------------------------- Profit before tax 427.8 391.4 Tax (127.4) (116.4) --------------------------------------------------------------------------------------------- Profit for the year from continuing operations 300.4 275.0 --------------------------------------------------------------------------------------------- Other information £m £m £m £m £m £m --------------------------------------------------------------------------------------------- Capital additions 7.9 - 7.9 3.3 - 3.3 Depreciation 4.8 0.1 4.9 2.1 - 2.1 --------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------- Commercial Commercial Housebuilding development Total Housebuilding development Total 2007 2007 2007 2006 2006 2006 £m £m £m £m £m £m ----------------------------------------------------------------------------------------------- Balance sheet ----------------------------------------------------------------------------------------------- Segment assets 5,654.6 314.6 5,969.2 2,730.8 - 2,730.8 --------------------------------------------- ------------------------ Elimination of intercompany balances (21.3) - ----------------------------------------------------------------------------------------------- 5,947.9 2,730.8 Deferred tax assets - 40.4 Cash and cash equivalents 182.1 43.3 ----------------------------------------------------------------------------------------------- Consolidated total assets 6,130.0 2,814.5 ----------------------------------------------------------------------------------------------- Segment liabilities (1,576.2) (119.5) (1,695.7) (1,200.5) - (1,200.5) --------------------------------------------- ------------------------ Elimination of intercompany balances 21.3 - ----------------------------------------------------------------------------------------------- (1,674.4) (1,200.5) Deferred tax liabilities (3.1) - Current tax liabilities (58.2) (65.7) Loans and borrowings (1,483.3) (8.4) ----------------------------------------------------------------------------------------------- Consolidated total liabilities (3,219.0) (1,274.6) ----------------------------------------------------------------------------------------------- 3. Restructuring costs Following the acquisition of Wilson Bowden on 26 April 2007, the Group has incurred £26.2m of costs in relation to reorganising and restructuring the business, including redundancy costs. Where existing employees could not be retained within the Group, redundancy costs of £12.2m have been incurred. Of the costs incurred at 30 June 2007, £23.8m was accrued. 4. Net finance costs -------------------------------------------------------------------------------- 2007 2006 £m £m -------------------------------------------------------------------------------- Finance income on short-term bank deposits (3.5) (2.0) -------------------------------------------------------------------------------- Interest on bank overdrafts and loans 43.5 10.7 Imputed interest on deferred term land payables 9.3 9.5 Finance costs related to employee benefits 2.9 3.9 -------------------------------------------------------------------------------- Finance costs 55.7 24.1 -------------------------------------------------------------------------------- Net finance costs 52.2 22.1 -------------------------------------------------------------------------------- Finance costs related to employee benefits of £3.9m have been reclassified from operating expenses to finance costs in the prior year. 5. Tax -------------------------------------------------------------------------------- 2007 2006 £m £m -------------------------------------------------------------------------------- Current tax 120.1 117.9 Deferred tax 7.3 (1.5) -------------------------------------------------------------------------------- 127.4 116.4 -------------------------------------------------------------------------------- Corporation tax is calculated at 30% (2006: 30%) of the estimated assessable profit for the year. 6. Dividends -------------------------------------------------------------------------------- 2007 2006 £m £m -------------------------------------------------------------------------------- Prior year final dividend of 20.69p per share (2005: 17.99p) 49.7 42.8 Interim dividend 11.38p per share (2006: 10.34p) 27.4 24.7 -------------------------------------------------------------------------------- 77.1 67.5 -------------------------------------------------------------------------------- 2007 2006 £m £m -------------------------------------------------------------------------------- Proposed final dividend for the year ended 30 June 2007 of 24.30p (2006: 20.69p) per share 84.2 49.7 -------------------------------------------------------------------------------- The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability as at 30 June 2007. It is proposed to pay the final dividend of 24.30p per share on 28 November 2007 to shareholders on the register on the close of business on 2 November 2007. 7. Earnings per share Basic earnings per share is calculated by dividing the profit for the year attributable to ordinary shareholders of £300.4m (2006: £275.0m) by the weighted average number of ordinary shares in issue during the year, excluding those held by the Employee Benefit Trust which are treated as cancelled, which were 258.6m (2006: 238.5m). Diluted earnings per share is calculated by dividing the profit for the year attributable to ordinary shareholders of £300.4m (2006: £275.0m) by the weighted average number of ordinary shares in issue adjusted to assume conversion of all potentially dilutive ordinary shares from the start of the year, giving a figure of 262.8m (2006: 242.8m). -------------------------------------------------------------------------------- 2007 2006 pence pence -------------------------------------------------------------------------------- The earnings per share from continuing operations are as follows: -------------------------------------------------------------------------------- Basic earnings per share 116.2 115.3 -------------------------------------------------------------------------------- Adjusted basic earnings per share 123.8 115.3 -------------------------------------------------------------------------------- Diluted earnings per share 114.3 113.3 -------------------------------------------------------------------------------- Adjusted diluted earnings per share 121.8 113.3 -------------------------------------------------------------------------------- The calculations of basic, diluted, adjusted basic and adjusted diluted earnings per share are based upon the following data: -------------------------------------------------------------------------------- 2007 2006 £m £m -------------------------------------------------------------------------------- Earnings for basic and diluted earnings per share 300.4 275.0 Add restructuring costs 26.2 - Less tax effect of above item (6.5) - -------------------------------------------------------------------------------- 320.1 275.0 -------------------------------------------------------------------------------- Earning are adjusted, removing restructuring costs and the related tax, to reflect the Group's underlying profit. 8. Reconciliation of Movements in Consolidated Equity -------------------------------------------------------------------------------- 2007 2006 £m £m -------------------------------------------------------------------------------- Balance at 1 July 1,539.9 1,325.6 Profit for the year 300.4 275.0 Disposal of own shares 10.6 2.4 Dividends (77.1) (67.5) Issue of share capital 1,122.0 4.5 Share issue costs (0.1) - Share-based payments 4.4 3.1 Revaluation of available for sale financial assets (0.7) (4.5) Gains on hedged swap arrangements 12.3 - Amounts transferred to the income statement (1.5) - Tax credited to reserves 0.8 1.3 -------------------------------------------------------------------------------- Balance at 30 June 2,911.0 1,539.9 -------------------------------------------------------------------------------- 9. Acquisition On 26 April 2007, the Group acquired 100% of the issued share capital of Wilson Bowden for total consideration of £2,049.6m. Wilson Bowden is the parent company of a group of companies involved in housebuilding and property development. This transaction has been accounted for using the purchase method of accounting. -------------------------------------------------------------------------------- Book Fair value Fair value adjustments value £m £m £m -------------------------------------------------------------------------------- Net assets acquired Intangible assets 3.5 103.5 107.0 Property, plant and equipment 23.1 - 23.1 Available for sale financial assets 8.7 - 8.7 Investments accounted for under the equity method 7.7 - 7.7 Inventories 1,828.5 34.4 1,862.9 Trade and other receivables 93.6 - 93.6 Cash and cash equivalents 17.1 - 17.1 Trade and other payables (526.4) 1.8 (524.6) Current tax 3.8 - 3.8 Bank loans and overdrafts (322.2) - (322.2) Derivative financial liabilities (10.5) - (10.5) Deferred tax 7.5 (41.2) (33.7) -------------------------------------------------------------------------------- 1,134.4 98.5 1,232.9 -------------------------------------------------------------------- Goodwill 816.7 -------------------------------------------------------------------------------- Total consideration 2,049.6 -------------------------------------------------------------------------------- Satisfied by: Cash 814.8 Loan notes alternative to cash 101.6 Issue of Barratt Developments PLC shares - issued 1,118.0 - to be issued 1.3 Directly attributable costs 13.9 -------------------------------------------------------------------------------- 2,049.6 -------------------------------------------------------------------------------- Net cash outflow arising on acquisition Cash consideration 828.7 Cash and cash equivalents acquired (17.1) -------------------------------------------------------------------------------- 811.6 -------------------------------------------------------------------------------- Barratt Developments PLC issued 102,571,785 ordinary shares of 10p nominal value to shareholders of Wilson Bowden as part of the acquisition consideration. The fair value of the shares issued was £1,118.0m which was determined using the closing bid share price on 25 April 2007. In addition, at 30 June 2007, the Company has a liability to issue shares with a fair value of £1.3m to satisfy the remaining Wilson Bowden plc 2003 Savings Related Share Option Scheme options. The fair value adjustments comprise: •The £103.5m adjustment to intangible assets relates to the write-off of £3.5m of goodwill on the Wilson Bowden balance sheet at acquisition and the recognition of £107.0m of intangible assets related to the brands acquired with Wilson Bowden. •A £34.4m uplift to the carrying value of inventories to reflect the fair value of land and work in progress acquired. •A £1.8m fair value adjustment to trade and other payables. •A £41.2m adjustment to deferred tax, including £32.1m related to the brands acquired, £10.3m related to the fair value uplift on inventories and other adjustments related to deferred tax of (£1.2m). The goodwill arising on the acquisition of Wilson Bowden plc is attributable to the anticipated profitability of the individual sites acquired, the highly complementary geographic fit, increased access to commercial development opportunities and the anticipated future operating synergies from the combination including flexibility in relation to the expanded strategic and consented land bank. Wilson Bowden contributed £379.6m revenue and £50.5m (including restructuring costs of £13.1m) to the Group's profit before tax for the period between the date of acquisition and the balance sheet date. If the acquisition of Wilson Bowden had been completed on the first day of the financial year, Group revenues for the period would have been £4,088.6m and Group profit attributable to equity shareholders, excluding the costs incurred by Wilson Bowden in its sale and restructuring costs of £48.9m, would have been £557.2m. As a result of the acquisition of Wilson Bowden, the Directors have reviewed Group operations and as a result the Group has closed certain divisional operations. Wilson Bowden had guaranteed the repayment of bank loans, overdrafts and financial guarantees made available to its subsidiary undertakings. At 26 April 2007, liabilities outstanding under these bank loans and overdrafts amounted to £10.3m. Contingent liabilities in respect of Wilson Bowden subsidiary undertakings' financial guarantees amounted to £37.5m. In addition, Wilson Bowden had entered into counter indemnities in the normal course of business in respect of performance bonds. Certain of the Wilson Bowden subsidiary undertakings had commitments for the purchase of trading stock entered into in the normal course of business. 10. Statutory Accounts The financial information given above does not constitute the Company's statutory accounts. Statutory accounts for the years ended 30 June 2007 and 30 June 2006 have been reported on without qualification by the Company's auditors and without a reference to S237 (2) or (3) of the Companies Act 1985. Statutory accounts for the year ended 30 June 2006 have been delivered to the Registrar of Companies and statutory accounts for the year ended 30 June 2007 will be delivered to the Registrar after the Company's Annual General Meeting. Whilst the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRS), this announcement does not itself contain sufficient information to comply with IFRS. -------------------------------------------------------------------------------- Supplemental information on Wilson Bowden Wilson Bowden was acquired on 26 April 2007. Barratt Developments' statutory results for the year ending 30 June 2007 include the results of Wilson Bowden for the two months from the date of acquisition. To assist investors in understanding the performance of the Group for the year, Barratt Developments is also providing unaudited financial information for Wilson Bowden for the six months to 30 June 2007 split between the period before and after acquisition. This information has been prepared on the same basis as the audited results for Barratt Developments. Accounting Under Barratt accounting policies and including fair policy Underlying value adjustments adjustments and Wilson ---------------------------------------------------------------------- fair value Bowden Four months to Two months to Six months to Six months to Six months to 26 April 2007 30 June 2007 30 June 2007 30 June 2007 30 June 2007 --------------------------------------------------------------------------------------------------------------------- Completions 984 1,651 2,635 - 2,635 Average selling price £221,600 £202,800 £209,800 - £209,800 £m £m £m £m £m --------------------------------------------------------------------------------------------------------------------- Revenue 236.3 379.6 615.9 - 615.9 Cost of Sales (230.4) (298.4) (528.8) 60.8 (468.0) --------------------------------------------------------------------------------------------------------------------- Gross profit 5.9 81.2 87.1 60.8 147.9 Administrative expenses (32.6) (14.2) (46.8) - (46.8) --------------------------------------------------------------------------------------------------------------------- Profit before company sale costs and restructuring costs (26.7) 67.0 40.3 60.8 101.1 Company sale costs and restructuring costs (21.0) (13.1) (34.0) - (34.0) --------------------------------------------------------------------------------------------------------------------- Profit from operations (47.7) 53.9 6.3 60.8 67.1 Net Finance costs (10.1) (3.3) (13.5) - (13.5) Post tax share of joint venture loss (0.1) (0.1) (0.2) - (0.2) --------------------------------------------------------------------------------------------------------------------- Profit before tax (57.9) 50.5 (7.4) 60.8 53.4 --------------------------------------------------------------------------------------------------------------------- Note: included in the above are the results of Wilson Bowden Developments (excluding its own housing completions) which generated revenue of £63.0m and gross profit of £14.0m in the six months to 30 June 2007. In the four months to 26 April 2007, revenue was £18.3m and gross profit was £5.3m. In the two months from 26 April 2007 to 30 June 2007, revenue was £44.7m and gross profit was £8.7m. This information is provided by RNS The company news service from the London Stock Exchange

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