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Article Excerpt
OPERATOR: Good morning ladies and gentlemen and welcome to the Barratt's IMS conference call. (Operator Instructions).
I would now like to hand over to the Chairperson, Mark Clare, Chief Executive. Please begin your meeting and I will be standing by.
MARK CLARE, GROUP CHIEF EXECUTIVE, BARRATT DEVELOPMENTS PLC: Well good morning everybody, hopefully you've all had a chance to look at the statement this morning which covered the 19 week period beginning July. As usual Mark is with me and we will take your questions as soon as I've done a brief introduction. We're conscious of the fact that Wolesley have also got their IMS out this morning, so I understand that some may have to drop off at 8.30. So we'll move as quickly as we can.
Just to cover the key points, market conditions remain very difficult and what started with restrictions on lending has clearly become a wider issue of housing market confidence and now a declining sentiment over the broader economic outlook. Against this backdrop our sales have remained in line with our expectations and are up on the key April and May period this year. There is however increased pressure on pricing and therefore margins, so we expect to make further write-downs as at December 31, which will be calculated once the half year closes and announced in February.
Debt levels are reducing and we expect to continue to operate within our committed facilities and banking covenants.
If I could first turn to sales. You'll recall that we've put in place a range of enhanced incentives, shared equity, mortgage subsidy, stamp duty abolition and cash discounts backed by a revamped sales and marketing focus, already acknowledged to be one of the best in the industry. And in some areas we've discounted more sharply to reduce surplus stock or where we are reaching the end of sites.
The culmination of the two has led to visitor levels down only 6% for the period, but since the beginning of September, up 7.5% on a site-by-site basis. Internet leads have also risen dramatically, up 16% for the last two months against the prior period. So a reasonably strong performance on visitor levels.
For the period since July private net reservations were a shade under 200 per week, that's 0.36 sales per site per week, down 23% on the same period last year. But since the beginning of September, we've seen a step-up in sales to 233 per week.
Net private reservations have been 0.44 per site per week, around 7% down on the same period last year, and, as I said, running significantly ahead of the key selling season in April and May this year.
One final point on sales rates, we've traditionally used a figure for total outlets. The number of effective outlets where we're actively selling is lower, particularly in this current market. And in terms of effective outlets, our sales rates have been 0.51 per site per week since the start of the autumn selling season in September.
Now, the Barratt sales machine has also been very successful in using part exchange. 20% year-to-date sales have been part-exchange against 12% for the same period last year. But, at the same time, we've reduced the unsold part-exchange stock by 63% to just 252 properties at week 19. And our ability to move these secondhand properties on so quickly means that we can continue to use it as one of our most effective incentives.
Cancellation rates are running at 24% against 23% last year, and we continue to take a very prudent approach in terms of what we count as a reservation. And that prudent approach is also reflected on our forward order book, which is up from the June figure, and now stands at GBP820 million, which is 59% contracted.
So, this is a highly competitive market where pricing is now becoming very aggressive. We estimate that by the end of December average selling prices on a like-for-like basis will have fallen between 15% to 20% since their peak in July 2007. And while our cost reduction programs continue to make good progress, these reductions will not offset increased discounting. So, we know that margins will be under further pressure.
In addition to sales, cash generation and debt reduction remain our top priority. Land spend for the financial year is expected to be less than the GBP568 million we disclosed in September, and significantly lower, of course, for the year afterwards.
Work in progress is being very tightly controlled. We're on track to deliver at least GBP200 million of free cash flow by the end of 2009 -- June 2009. Stock levels are being reduced at a satisfactory rate. They're down about 30% from the level at June. 1,291 unreserved finished good stock at week 19, against 1,821 at the end of June, so another good performance there. And that represents about 6.5 weeks of supply at current rates.
And, of course, reducing work in progress more generally, and continuing to drive down finished stock, will remain a key priority for the second half as we drive the free cash flow I mentioned earlier.
As a result of the progress we're making, we expect net borrowings to be lower than prior year levels at both the half and the full year. And we'll not be publishing debt targets or additional disclosure related to our covenants, but I can say we expect to stay within committed facilities and covenants.
And I want to conclude by spelling out our approach to write-downs. There's little doubt that given pricing pressure we've experienced since the end of June, further write-downs will be required at the half year.
In determining the level, we'll assess the selling prices of completed units up until December 31, and estimate any expected price movements beyond that date. We'll complete a detailed site-by-site review by the end of December. This will then be reviewed with our auditors, and we will disclose any additional write-downs that are required in February.
Now, in terms of outlook, the housing market remains intensely difficult, and clearly the economic position has deteriorated. We welcome the package of economic interventions, including interest rate cuts, banking support, and housing support programs. However these will take time to work their way through and we see little prospect of...
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