Barratt Developments Trading Update

Barratt Developments PLC (the ‘Group’) is today issuing a trading update for the period from 1 July 2022 to 9 October 2022 (the ‘period’). All comparatives are to the equivalent trading period (‘FY22’) unless otherwise stated. Barratt Developments PLC’s year end is 30 June 2023.

Ian Ruthven, Managing Director of Barratt Developments Yorkshire West said:

“We are pleased to have seen consistently high levels of demand from prospective homebuyers across West Yorkshire. We are in a strong position to continue delivering high quality homes across the region.”

“We understand that the current cost of living crisis and uncertainties surrounding the mortgage market will continue to impact the buying decisions of those looking to purchase a new home, but we remain dedicated to supporting prospective buyers with incentives and buying schemes and the implementation of energy-efficient, sustainable homes.”

David Thomas, Chief Executive commented:

“We continue to see strong levels of interest across the country, however private reservations remain below the level seen in FY22 as customers react to the wider economic uncertainty.

Whilst the outlook for the year is less certain, we remain on track to deliver adjusted profit before tax1 for the year in line with current consensus, and we are focused on maintaining our commitment to lead the industry in the quality, energy-efficiency and sustainability of our homes and in our customer service, all of which are fundamental to our ongoing success amid a more challenging market backdrop.”

Trading update

In the period our net private reservations2 per average week were 188 (FY22: 281) and net private reservations per active outlet per average week of 0.55 (FY22: 0.85; FY21: 0.87; FY20: 0.72). (Appendix 1).

The private reservation rate in the period reflects customer response to increased wider economic uncertainty, where growing cost of living concerns have been compounded by increased mortgage interest rates and reduced mortgage availability.

In addition we have limited availability of homes for early occupation given the strength of our forward order book and we have also seen the expected reduction in Help to Buy activity, which accounted for 12% of private reservations in the period (FY22: 21%; FY21: 51%; FY20: 45%).

In line with our expectations, we have launched 25 (FY22: 27) new developments (including JVs) in the period. We operated with an average of 351 (FY22: 338) active outlets (including 8 JVs (FY22: 8)) and we continue to expect to deliver average sales outlet growth of around 3% in FY23.

In the period we delivered 3,608 (FY22: 3,699) home completions (including JVs), in line with our budget plans.

The completion profile in FY23 is expected to remain broadly in line with the typical seasonal pattern with around 45% of our full year completions anticipated in the first half of FY23 and around 55% in the second half of the financial year.

Reflecting the slower reservation rate, our total forward sales (including JVs) as at 9 October 2022 totalled 13,314 homes (10 October 2021: 15,393 homes; 11 October 2020: 15,135 homes; 13 October 2019: 12,963 homes) at a value of £3,603.1m (10 October 2021: £3,936.6m; 11 October 2020: £3,647.6m; 13 October 2019: £3,070.2m). (Appendices 2 and 3).

We are now 64%3 forward sold with respect to private wholly owned home completions for FY23 (FY22: 72%4; FY21: 70%4), of which approximately 72% are either completed or exchanged (FY22: 67%).

The private average selling price (‘ASP’) in our wholly owned forward order book as at 9 October 2022 was £377.2k (10 October 2021: £344.3k; 11 October 2020: £331.4k; 13 October 2019: £316.0k).

Construction activity continues to grow with 367 (FY22: 335; FY21: 294; FY20: 364) equivalent homes (including JVs) constructed per average week in the period. We will be closely monitoring changing market conditions in the coming months to ensure our site build programmes align with home delivery scheduling to meet customer commitments within our order book, as well as ongoing market demand.

We continue to expect build cost inflation of between 9% and 10% for FY23.

Land

Competition in the land market has remained elevated but we remain highly disciplined in our approach to acquiring new land. We are being increasingly selective in the land opportunities on which we are prepared to bid and continue to rigorously apply our minimum hurdle rates of 23% gross margin and 25% ROCE when evaluating opportunities. As a result, our net land approvals in the period are significantly lower than in FY22.

In the period we have approved the purchase of 813 plots (FY22: 3,735; FY21: 484; FY20: 1,986) across 3 (FY22: 15; FY21: 4; FY20: 7) sites. Reflecting the strength of our existing land bank, the increased uncertainty in the sales market and the highly competitive nature of the land market at present where supply remains limited, we now expect land approvals will be substantially below replacement level in FY23.

Outlook

The outlook for the year is less certain with the availability and pricing of mortgages critical to the long-term health of the UK housing market.

Based on our completions to date, our strong forward order book and current market conditions, we now expect wholly owned completions to be in line with those reported in FY22. Through the combination of adjusted completion guidance and robust home pricing, we remain on track to deliver current consensus adjusted profit before tax1, whilst ensuring we maintain our industry leading standards of build quality and customer service.

The Group is in a strong financial position with a substantial net cash balance and strong forward sales position. This provides us with a solid platform and gives us flexibility to respond to market conditions as they evolve throughout the year.

The Board confirms its commitment to the £200m share buyback programme announced on 7 September 2022 and, through to market close on 10 October 2022, the Group has purchased 10.645 million shares for cancellation at a cost of £39.9m. The Board will continue to evaluate the Group’s future capital allocation policy in light of evolving market conditions.

With our excellent land bank and experienced operational teams throughout our business, we remain well placed to continue to deliver much-needed high-quality, energy-efficient, sustainable homes across the country.