|
Article Excerpt
BOB LAWSON, CHAIRMAN, BARRATT DEVELOPMENTS PLC: Well good morning everybody and a very warm welcome to our preliminary announcement. From my point of view, this is my first time, and it's very reassuring for me to see a few faces in the audience that I actually recognize, so a very good morning.
I took over the Chair two months ago and thought it might be useful just to share my initial impressions with you to open up the day. I spent a great deal of time visiting our regions and seeing operations from the West Country through to Scotland including corporate and technical teams that support the business.
The top line conclusion is a very good business. The integration of David Wilson has been extremely well executed resulting in a market leading business in terms of quality, breadth of range and build processes. The synergies from both costs, and equally importantly capabilities, are beginning to flow through within the business.
Being new on the block I've also taken the opportunity to mystery shop the competition and that's an interesting exercise. It can get you into paths you don't want to go but it's interesting. The conclusion though is that the quality of the presentation of our product, the sales skill that support it, is significantly superior in Barratt and of course now in David Wilson. This differentiation is critical in the current market. It's characterized by restricted availability of mortgage finance and declining confidence in the consumer. These are the fundamental constraints, and as with most businesses in this climate, we've got very little forward view.
I've also been extremely impressed with the quality of the management and the depth of expertise. Within the direct reports to the Management Board and therefore Mark, rests 160 years of building experience. 160 years. I've listened to the senior management team, the fly on the wall, discuss the market developments within the business and the way ahead and those discussions all go well for the future of our business.
The priorities of the executive team have been to reassess all our sales opportunities by site and then to right-size the business. Through July and August 1,200 people have left our business, but that process is now complete.
In parallel Mark Pain and his team have conducted a master class in renegotiating our covenants. The successful conclusion to the negotiation has put our business on to a secure and appropriate foundation to go forward.
Given the focus on reducing debt, we are not in a position to pay a final dividend this year, the executive are taking the right actions, promoting and selling properties effectively, managing our working capital aggressively and minimizing costs, this plan will lead to resumption of dividend payments as soon as practical. I think you will note these three themes pervading the executive presentation.
I really am enjoying being part of Barratt and it's my pleasure now to hand over to the sage of Birmingham to begin our presentation.
MARK PAIN, GROUP FINANCE DIRECTOR, BARRATT DEVELOPMENTS PLC: Okay thank you Bob, good morning everyone. Today I'll take you through a brief financial overview, I'll then run through the key movements in the P&L and cash flow and finally look at the balance sheet and debt structure.
Turning first to the key highlights, this is the first full year following the acquisition of Wilson Bowden in April 2007, so to aid transparency I'll refer both to the pro forma, and where relevant, statutory comparisons.
As you can see all of our key metrics are down against last year's pro forma. Revenue fell 13% to a little over GBP3.5 billion, operating profit before exceptionals was down 21% to GBP550 million and profit before tax, pre exceptionals, was a little over GBP390 million.
We incurred exceptional costs of GBP255 million, including goodwill write-offs, which I'll detail later on. The interim dividend of 12.23p per share represents the total dividend payable for the year. Tangible net assets per share after write-downs was largely unchanged at 563p per share, with gearing measured as net debt divided by net assets, at 58%. Net debt at the year end was GBP1.65 billion, down GBP86.1 million from December 2007.
Turning now to the profit and loss account and our key performance drivers. Pro forma completions declined by 13.8% to 18,588 with private completions down 18% to 14,803 and social completions up 10% to 3,785. Despite deteriorating market conditions, a relatively good Q3 sales performance supported by increased selling outlets, enabled us to deliver stronger second half completions than in the first half.
Both private and social average selling prices increased by 3.9%. But as a result of the increased proportion of social completions, up from 16% to a little over 20%, the overall ASP increased by just 1.3% to GBP183,100. This increase was driven largely by changes in product and geographic mix.
However if we compare identical products in identical locations, we believe that underlying selling prices, after discounts, decreased by around 5% over the year, most of this decline occurring in the fourth quarter.
Housing revenues, which represent 96% of total revenue, fell by 12.7%, largely reflecting lower completion volumes whilst other revenues, mainly Wilson Bowden Developments, fell 20% reflecting tougher conditions in the commercial developments' market.
Moving down the P&L, gross profit of GBP682.2 million was down 22% on pro forma, this reflects a 210 basis point reduction in the gross margin driven by a combination of the underlying ASP decline noted earlier which reduced margins by around 4%, offset by cost savings and mix improvements.
We took decisive action on costs and have reduced operating expenses by 23% to GBP132 million, operating expenses accounted for 3.7% of revenues, down from 4.2% in the previous year. Operating profits before exceptional costs were GBP550 million, an operating profit margin of 15.5%.
Exceptional items fell into three categories, I'll detail all of these later, but in brief, write-downs in the carrying value of land and WIP totaling GBP208.4 million, goodwill and intangible asset impairments of GBP30.7 million being the full write-off of the goodwill and brand asset created on the acquisition of Wilson Bowden Developments. And restructuring and reorganization costs, as previously indicated, of GBP16 million, largely related to the Wilson Bowden integration.
Operating profit was GBP295.2 million after exceptional items. We incurred a net finance charge of GBP155.3 million that consisted mainly of GBP136.7 million of funding costs reflecting borrowings of around GBP2 billion and an average funding cost of 6.7% and a notional IFRS interest adjustment of GBP19.6 million relating largely to deferred land.
The guidance, you should assume an average interest rate of around 9.75% going forward reflecting the recently agreed refinancing package and amortization of financing costs.
The Group tax charge for the year of GBP51 million reflects a tax rate of 37%. Inflated because goodwill impairment is not allowable for tax purposes. Excluding this impact, the rate comes down to 31.5% which is higher than the standard rate because we've had to write-off the deferred tax asset on anticipated tax relief relating to share options which we'll not now vest. Looking head, we're basing our planning on a standard tax rate charge of 29.5%.
Looking at cash flow, there's an awful lot of detail on this slide, but there are three numbers to note. There's been a cash outflow of GBP350 million over the year, but in the second half, net debt came down by GBP86 million and we generated positive free cash flow of just shy of GBP190 million, reflecting how we've tightened [in] both work in progress and land spend.
Turning now to the balance sheet, these are the main asset headings. I'm going to talk through all of the key changes in a little bit more detail, but just for you, in the books, you've got this to take note of. And what I'll do is I'll start with goodwill and work my way down the key changes.
The Group recognized goodwill of GBP816.7 million and intangible assets relating to the brands acquired of GBP107 million on the acquisition of Wilson Bowden. Goodwill is split between the house building and commercial developments' business as detailed on the slide.
We are required to conduct an annual review of the carrying value of goodwill and intangible assets. We took the cash flows generated from our five year business plan, extrapolated these into perpetuity using a 2.5% growth rate, being an estimate of the long term growth rate of the economy required by the standards, and then discounted these at our pre tax whack of around 10%. We concluded that no goodwill impairment was required in relation to David Wilson Homes, and that given our intention to continue to support the David Wilson Homes brand, no brand impairment was required.
In relation to Wilson Bowden developments, as a result of our decision to dispose of the business, we have concluded that all of the goodwill and brand value created at acquisition, should be written-off.
Turning now to land, at the year end we had a net landbank of over GBP2.5 billion represented by 67,714 plots which we own or are unconditionally contracted, and 10,973 plots which we control, are legally contracted to purchase but on which there remains some outstanding contractual issues such as planning which must be satisfied before the contract becomes effective.
In addition we have 13,713 plots agreed which we have not yet entered into a contract. We are seeing a more significant decline in this number over the year as we've tightened in our land buying activities. In total the landbank represents just over four years' supply based off this year's completions of 18,588.
Looking at the detail of the landbank, the average cost of plots acquired was GBP51,300, that was driven up by a small number of high value sites brought into the landbank this year. The average plot cost charged to the P&L was GBP44,500 and the average holding cost in our balance sheet was GBP44,400.
Our landbank is on average around 2.4 years old, but please remember, planning is currently taking 12 to 18...
|
