Trading Statement

RNS Number : 6792L

Barratt Developments PLC

15 January 2009

 



Barratt Developments PLC 

Trading update

Barratt Developments PLC ('Barratt') is today issuing a trading update for the 6 months to 31 December 2008, ahead of its interim results which will be announced on 25 February 2009.

Highlights

• Sales rates and completions ahead of expectations, supported by solid visitor levels during the period.

• Our focus on cash generation and stock reduction has led to a further reduction in operating margins. 

• Net debt reduced by approximately £230m over the last 6 months. Net debt as at 31 December 2008 was c. £1.42 billion. 

• The Group continues to operate within its banking facilities and debt covenants and has repaid, ahead of schedule, the £200m term loan facility due in April 2009.

• Good progress on the disposal of assets from the Wilson Bowden Developments portfolio.

Mark Clare, Group Chief Executive commented,

'Conditions in the housing market remain extremely challenging with little short term prospect for recovery. However, our visitor levels and sales rates have been above expectations, and we have generated significant cash flow and reduced debt.'

Revenues

Barratt's strong sales capability and compelling autumn sales and marketing campaign, coupled with targeted price discounts, delivered a pick-up in both visitor levels and sales rates throughout the autumn selling season. 

Visitor levels per site during the first half were down 2.0% on the prior year, but during the autumn selling period ran ahead of the prior year.

Private net reservations for the first half averaged 211 per week (0.39 private sales per week per site), down 6% on the prior year. On an effective site basis (i.e. only including sites where we are actively selling), private sales per week per site averaged 0.45 during the first half. The cancellation rate for the period was 27.8% compared to 29.8% in the prior year.

Total completions for the first half decreased by 23.8% to 6,905 (2007: 9,056). Private completions were 16.4% lower at 5,997 (2007: 7,177). Higher levels of S.106 social completions in the first half of the calendar year, coupled with lower levels of new site starts since June, led to a fall in social housing completions, down 51.7% to 908 (2007: 1,879). Social housing accounted for 13.1% (2007: 20.7%) of total completions.

Whilst selling prices were under pressure throughout the whole of 2008, we experienced a significant increase in price discounting in the last quarter as the industry moved to reduce stock levels. 

Total average selling prices decreased by 9.6% to £160,900 (2007: £178,000). Private average selling prices decreased by 14.8% to £170,400 (2007: £200,100) and social average selling prices increased by 5.0% as a result of mix changes to £98,300 (2007: £93,600).  

As at 31 December, forward sales for the Group totalled £456m (2007: £1,263m), equating to 3,529 plots (2007: 7,498). Of this, £360m (79%) was contracted. The lower forward order book reflects both reduced activity levels and a smaller pipeline of flatted development schemes which tend to require longer term customer commitments.

At the end of December the Government launched its new shared equity product - HomeBuy Direct. Barratt has successfully bid, and been allocated funding, for c.3,000 units across 138 developments throughout England, with an approximate sales value of £520m.

Margin

In the first half we have focused on reducing stock levels, exiting slow moving sites, and carefully managing the balance sheet to generate cash. As a result, and despite additional cost savings, operating margins are expected, to be below previous guidance for the full year. 

Land

The Group's owned and controlled land bank totalled 72,200 plots as at the end of December (December 2007: 89,400). The Group continues to invest only in new land to the extent that it is contractually committed to do so, with total land spend for the six months to 31 December 2008 of approximately £141m (2007: £593.3m). Total land spend for the full financial year to 30 June 2009 is expected to be lower than previous expectations at approximately £400m. 

In-line with normal accounting practices, the Group has commenced its review of the carrying value of land and work-in-progress as at 31 December 2008. As stated in our Interim Management Statement on 18 November 2008, given the continued pressure on pricing we have experienced in the first half, it is anticipated that further write-downs will be required as at 31 December 2008. The review is being carried out on a site-by-site basis, using valuations incorporating forecast sales rates, and average selling prices that reflect current trading conditions. 

In addition, based on the further tightening of the commercial property market, sales values achieved on certain disposals and the continued restricted availability of bank finance, we anticipate that additional write-downs will also be required against the assets of Wilson Bowden Developments. 

The Group will report the overall value of its impairment, and losses incurred in the half year upon targeted asset disposals, in our interim results to be announced on 25 February 2009.

Work-in-progress

Very tight controls are in place over work-in-progress and we remain on track to deliver our target of at least £200m of free cash flow from the reduction in work-in-progress in the full year.

Stock levels continue to decline. As at 31 December 2008, we owned 1,465 unreserved stock units down 20% since the end of June (June 2008: 1,821) and 7% down on the prior year (2007: 1,569 units), 6.9 weeks supply at current sales rates. Part-exchange stock levels were also down significantly, with owned unreserved units of 346 at 31 December 2008, down 49% since the end of June (June 2008: 677) and 33% down on the prior year (2007: 516 units).

Wilson Bowden Developments

Good progress has been made in the disposal of assets from the Wilson Bowden Developments portfolio, with net sales proceeds of approximately £171m, of which c.£120m was received in cash before the end of December. The process of divesting further assets from the Wilson Bowden Developments portfolio is progressing and we still expect to deliver a total of c.£200m from this exercise. 

Borrowings

Group net borrowings as at 31 December 2008 were lower than expectations at c.£1.42bn, a reduction of approximately £320m from 31 December 2007 and down c. £230m since 30 June 2008.  Interest costs, including the notional IFRS adjustment for land creditors and amortised fees, totalled £110m in the first half.

Barratt continues to operate within its committed debt facilities and banking covenants.  

Given the Group's strong cashflow generation we have taken the opportunity to repay and cancel, ahead of schedule, the remaining £200m term loan facility which was due in April 2009. The Group also repaid £37m of private placement notes on 12 January 2009. As a result, the Group's committed facilities now total £2.3 billion with an average maturity of 3.5 years. The first significant repayment will be due in July 2011.

Given current market conditions and the requirement to strengthen the Balance Sheet and conserve cash, the Board has decided not to pay an interim dividend. 

Outlook

Whilst it was encouraging to see a pick-up in our sales during the autumn selling season, market conditions remain challenging, impacted by a combination of poor buyer confidence and restricted access to mortgage finance. Until these issues ease we remain of the view that there will be no sustained recovery in the housing market.

Over the last six months we have focused on reducing stock and work in progress and generating cash. Over the next six months we will continue to focus on cash generation whilst seeking best value for our products.  

- ends -

Conference call for analysts and investors

Mark Clare, Group CEO and Mark Pain, Group FD will be hosting a conference call at 08:30am today, Thursday 15 January 2009, to discuss the Trading Update

To access the conference call

Dial-in: 020 7138 0818

A replay facility will be available until 28 January

Dial-in: 020 7806 1970. Passcode: 2348024#

www.barrattdevelopments.co.uk

For further information please contact:

Barratt Developments PLC
Mark Clare, Group Chief Executive	020 7299 4896
Mark Pain, Group Finance Director
For media enquiries, please contact:
Barratt Development PLC
Dan Bridgett, Head of External Affairs	020 7299 4873
Maitland
Liz Morley	020 7379 5151
Neil Bennett

 

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