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Article Excerpt
BOB LAWSON, CHAIRMAN, BARRATT DEVELOPMENTS PLC: Well, good morning everyone, and welcome to our interim results presentation.
Our program today, is that Mark Pain will take you through the numbers and then Mark Clare will provide an overview of our performance and an update on current trading.
Let me first cover the context. As an industry, we have faced into eighteen months of difficult market conditions. Mortgage finance has become extremely scarce, particularly in the high loan to value sector. Consumer confidence, overall, and the confidence in the housing market in particular has declined. And in the half year the overall economic conditions have deteriorated markedly.
As we look forward, it's clear that affordability is improved in many segments of the market, both in terms of declining prices and interest rates.
Our current performance demonstrates the purchasers see value at our current prices, and recognize that supply is more limited as stock declines. But the key for this industry is credit availability; without this it's difficult to see any material improvement in market conditions.
We are still aware that the Government is still wrestling with this issue. Indeed, the series of announcements this week must be helpful over time. There are a number of measures already underway, to improve the availability of credit, but it's simply too soon to call the effect of them.
What is clear, that as yet, there has been no discernable improvement in the market position? So that's what we need to contend with; intensely difficult market conditions, and a lack of forward visibility.
To meet the challenge, we are focused on a clear set of priorities, the Executive have invested much effort to ensure that everyone in the Company is aligned and equally importantly, committed to execute. These priorities are three; maximizing sales, focusing intensely on driving costs out and generating cash. The result of these will enable us, to reduce our debt and create a more stable platform for the future.
As a result of our focus on cash maximization, the Board has decided, that no interim dividend will be paid. Further, and more importantly, the Board is confident that the right actions have been taken to compete today, and to capitalize on the opportunities of tomorrow. This is an immensely capable organization; the new calendar year has started well, with further uplifts in visitor levels, and further uplifts in sales levels.
So finally, perhaps our biggest challenge is that we seek to ensure the capability of the organization is, as much as possible, so the shareholders can benefit in the future upturns in the market; on that note, over to Mark for the results.
MARK PAIN, GROUP FD, BARRATT DEVELOPMENTS PLC: Thanks Bob and good morning everyone. Today I'll take you through a brief financial overview; I'll then run through the major elements of the P & L and cash flow and finally look at the balance sheets and debt structure.
Turning first to the key highlights, our performance reflects tough trading conditions, and our absolute focus on cash generation and de-leveraging, which we have successfully achieved in the first half. Revenue fell 24%, GBP1.26 billion, operating profit before exceptional was GBP16.6 million, and we made a loss before tax and exceptionals of GBP80 million.
We incurred exceptional costs of GBP512 million, comprising land rights and reorganization costs, giving us a pre-tax loss after exceptionals of GBP592 million.
Tangible net assets after write-downs were 419p per share. Net debt at the end of December was GBP1.42 billion, down GBP316 million from December 2007. And we have a loan to value ratio of 49%.
Turning now to our key revenue drivers; total completions declined by 24% to 6,905. Private completions were down 16% to 5,997 and social completions were down 52% to 908. Lower social completions reflect a combination of higher volumes in 2007/8, 325 private sales to RSLs, which we have classified in our private sales numbers, and lower new site starts this year.
The overall average selling price decreased, by approaching 10%, to GBP160,700. Private average selling prices, declined by 15% to GBP170,100, whilst social average selling prices increased as a result of site and product changes by 5.3% to GBP98,600.
Underlying selling prices, that's comparing identical products, in identical locations after discounts, decreased by around 22% over the six months till the end of December, bringing the peak to trough decline in average selling prices from June 2007 to around 27%.
Housing revenues, which account for 88% of total revenue, fell by 31% reflecting a combination of both lower completion volumes and lower average selling prices, whilst other revenues, mainly Wilson Bowden Developments, increased by GBP111 million reflecting the disposal of assets.
Moving down the P & L, gross profits of GBP69.9 million, reflects a 15.3 basis point reduction in the gross margin. This was driven by the combination, of the underlying average selling price decline, which reduced margins by around 27% offset by the impact of the inventory impairment cost savings and mix changes.
Operating expenses were down 23% to GBP53 million. We are continuing to right size the business to reflect current and anticipated business volumes. Operating profits before exceptional costs were GBP16.6 million and operating profit margins of 1.3%.
Exceptional items fell into two categories, write-downs and the carrying value of land and WIP, totaling GBP495 million and re-structuring and re-organization costs of GBP17.5 million, largely relating to the re-sizing of the business, which we announced in July.
We've carried out an interim revue of goodwill, and concluded that it is appropriate at this stage to continue to carry goodwill created at the time of the acquisition of David Wilson Homes. You will recall that we have already written off all goodwill associated with Wilson Bowden Developments.
The operating loss after exceptionals was GBP496 million. We incurred a net finance charge of GBP94.6 million consisting of GBP96.2 million of funding costs, being average borrowings of around GBP1.96 billion at an average cost of 9.8%, offset by GBP1.6 million of other small accounting adjustments.
In the second half, you should base your finance cost forecast of average borrowings of around GBP1.7 billion and an average interest cost of around 8.6%.
The Group tax credit at the interims was GBP168 million reflecting a tax rate of 28.4%, that is marginally higher than the standard rate, because of adjustments arising from prior years.
Looking at the cash flow, there is a lot of detail on the slide, but there are three numbers to note. There has been an operating cash inflow of GBP317.3 million, positive free cash flow of GBP254.8 million and a reduction in net debt over the last six months of GBP227.8 million.
Turning now to the balance sheets; here are the main asset headings, goodwill, no change. Non current assets, that includes a GBP109 million deferred tax asset as well as our dream staff equity share asset, which stood at GBP68.3 million up just GBP1.4 million since June 2008. Random WIP I'll go through in more detail. And in other current assets, we've included part exchange and a GBP55 million current tax asset.
Turning now to land; at the end December, we had a gross land bank of over GBP2.56 billion with 60,586 plots, which we own or are unconditionally contracted, and 11,614 plots which we control, are legally contracted to purchase, but on which there remains some outstanding contractual issues, such as the need for planning.
In total, we have 4.4 years land supply, based off the last calendar year's completions. This is actually 5.6 years supply, based off this year's consensus completions.
We acquired very little land in the first half, around 2,177 plots at average GBP46,000 per plot. The average plot costs charged to P&L was around GBP33,000. This reflects the disproportionately high impact of land write-downs against surplus apartment stock and bulk sales taken in the first half. The average holding cost of land in our balance sheet, was also reduced to GBP41,000 per plot.
And this is broken down on the next slide, which shows not surprisingly, that land in the North and Midlands has been more aggressively written-down than land in the South and London. Geographically, around 55% of our owned land is in the North and Midlands, with 45% in London and the South. And we have nearly 8,000 known plots in Central London alone.
It is also worth noting, that our land bank is on average around 2.6 years old, but as planning takes around twelve to eighteen months, land moving into the land bank over the last 2.5 years would have been valued and priced on average about three to four years ago.
We have updated our review of our carrying value of land and work in progress, to the end of December. This was done on a site by site basis, using valuations incorporating forecast sales rates, and average selling prices that reflect current and anticipated trading conditions. We recognized an additional pre-tax impairment of GBP432 million, split 51%/49% between flats and houses, bringing the total house building write-down to GBP589 million.
Whilst assumptions are site specific on a broad portfolio basis, sales rates are assumed to run at current levels, and we've built in a decline of around 27% in the average selling prices since June 2007 to the end of the financial year.
The Group also reviewed the land and work in progress held within Wilson Bowden Developments. The review reflected declining sector yields and the value achieved on sale. As a result an impairment charge of GBP63 million have been made in this first half, bringing the total write down to GBP115 million.
Moving on to work in progress, unreserved stock levels, excluding show homes have reduced. Stock units are coming down and now stand at 1, 106 around 2.6 units per effective site. Included in our finished stock units are around 400 apartments on just three sites that we are currently selling into the investor market.
Excluding this stock, we're down to around 1.7 units per effective site, very close to optimal stock levels. Roof to complete levels are also down from June, by 28% to 5,187 with 3, 271 unreserved units, which is down 37% since June. Overall WIP is down to GBP1.2 billion a decline of around GBP385 million pounds, 25% over the last six months.
I've also shown on the slide, our part exchange stock which is actually accounted for in inventories. We have 346 unreserved units and a GBP47 million financial exposure at the end of December. And as you can see from the slide, we have reduced that to only 186 units and GBP25 million of exposure currently.
On the liability side of the balance sheet, the main changes over the last six months have been a further reduction in net debts, reduced trade payables reflecting lower current build levels, and a small decline in pension obligations. This is based on our previous valuations, and does not reflect the impact of the current equity market decline.
Our net interest rate swaps are showing a notional GBP111 million mark to market deficit, as a result of movements in the long-term interest rates over the last six months. These were to some extent, offset by a notional gain on foreign exchange swaps of GBP58.6 million as swaps are largely hedge accounted and there is minimal P&L impact.
Turning now to our debt structure, I am sure you are familiar with the detail here. But, for clarity, we have a good access to a significant level of medium-term funding. Currently approaching GBP2.3 billion with an average life of around 3.5 years and GBP800 million of headroom at the end of December.
Our debt is mainly structured around a series of credit facilities provided by a number of large banks and longer term financers through a series of private placements.
We are deleveraging ahead of our internal plans and in December...
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