TIDMBDEV
RNS Number : 7400X
Barratt Developments PLC
02 September 2020
2 September 2020
Barratt Developments PLC
Annual Results Announcement for the year ended 30 June 2020
Resilient performance, strong financial position maintained
Commenting on the results David Thomas, Chief Executive of
Barratt Developments PLC said:
"While COVID-19 has had a significant impact on our results, our
priority has been to keep our people safe, mitigate the effect of
the pandemic on our business and be able to emerge from the crisis
in a resilient position. Although uncertainties remain, all of our
sites are operational, we are seeing very strong consumer demand
and our robust financial position means we enter the new financial
year with cautious optimism. We are now renewing our focus on our
medium term targets, on leading the industry in quality and service
and on supporting jobs and economic growth by building the homes
the country needs."
Year ended Year ended Change
GBPm unless otherwise stated(1,2,3) 30 June 2020 30 June 2019
Total completions (homes)(4) 12,604 17,856 (29.4%)
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Revenue 3,419.2 4,763.1 (28.2%)
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Gross margin (%) 18.0 22.8 (480bps)
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Profit from operations 493.4 901.1 (45.2%)
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Operating margin (%) 14.4 18.9 (450bps)
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Profit before tax 491.8 909.8 (45.9%)
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Basic earnings per share (pence) 39.4 73.2 (46.2%)
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Total dividend per share (pence) nil 46.4 n/m
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ROCE (%) 15.6 29.7 (1,410bps)
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Net cash 308.2 765.7 (59.7%)
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-- COVID-19 and the lockdown period significantly reduced
completion volumes, increased costs and impacted profit:
o Total COVID-19-related costs of GBP74.3m, comprising GBP45.2m
of safety costs, non-productive site costs and site-based employee
costs and GBP29.1m related to an expected increase in site
durations.
o After COVID-19 costs, adjusted profit from operations was
GBP507.3m (2019: GBP904.3m) at an adjusted operating margin of
14.8% (2019: 19.0%).
o After adjusted items of GBP13.9m comprising CJRS grant income
of GBP26.0m (which was repaid in FY21) and legacy properties costs
of GBP39.9m, profit from operations was GBP493.4m (2019:
GBP901.1m).
-- Profit before tax of GBP491.8m (2019: GBP909.8m), impacted by
the unprecedented disruption to sales and build in our fourth
quarter.
-- Resilient balance sheet with net cash at 30 June 2020 of
GBP308.2m (2019: GBP765.7m) and land creditors of GBP791.9m (2019:
GBP960.7m) equivalent to 25.4% (2019: 31.3%) of the owned land
bank, equating to modest total gearing (including land creditors)
of 12.3% (2019: 4.9%).
-- Continued industry leadership in quality and customer service
recognised through a sixteenth consecutive year achieving more NHBC
Pride in the Job Awards than any other housebuilder and the
eleventh consecutive year of receiving the HBF maximum 5 Star
customer satisfaction rating.
-- Our commitment to be the country's leading national
sustainable housebuilder demonstrated with new sector-leading
carbon reduction targets.
-- Net private reservations per active outlet per average week
from 1 July through to 23 August have been ahead of the prior year
at 0.94 (FY20: 0.68).
-- Strong forward sales(4) as at 23 August 2020 with 15,660
homes (25 August 2019: 13,064 homes) and a value of GBP3,706.5m (25
August 2019: GBP3,037.5m ).
-- Health and safety continues to be our number one priority and
our production levels continue to improve .
-- When the Board believes the time is right, it will implement
a dividend policy based on a dividend cover of 2.5 times.
1. Refer to Glossary for definition of key financial metrics
2. Unless otherwise stated, all numbers quoted exclude JVs
3. In addition to the Group using a variety of statutory
performance measures it also measures performance using alternative
performance measures (APMs). Definitions of the APMs and
reconciliations to the equivalent statutory measures are detailed
in the Definitions of alternative performance measures and
reconciliation to IFRS. Net cash definition in Note 5.1
4. Including JVs in which the Group has an interest
Certain statements in this document may be forward looking
statements. By their nature, forward looking statements involve a
number of risks, uncertainties or assumptions that could cause
actual results to differ materially from those expressed or implied
by those statements. Forward looking statements regarding past
trends or activities should not be taken as a representation that
such trends or activities will continue in the future. Accordingly
undue reliance should not be placed on forward looking statements.
Nothing contained in this Annual Report or the Group's website
should be construed as a profit forecast or an invitation to deal
in the securities of the Company.
There will be an analyst conference call and webcast at 8.30am
today. An archived version of the webcast will also be available on
our website during the afternoon of 2 September 2020.
Dial in UK toll free: 0808 109 0700
International dial in: +44 (0) 203 003 2666
The presentation will also be webcast live with the follow on
Q&A. Please register and access the webcast using the following
link:
https://webcast.merchantcantoscdn.com/webcaster/dyn/4000/7464/16532/123319/Lobby/default.htm
Further copies of this announcement can be downloaded from the
Barratt Developments PLC corporate website at
www.barrattdevelopments.co.uk or by request from the Company
Secretary's office at: Barratt Developments PLC, Barratt House,
Cartwright Way, Forest Business Park, Bardon Hill, Coalville,
Leicestershire, LE67 1UF.
For further information please contact:
Barratt Developments PLC
Jessica White, Chief Financial Officer 01530 278 259
Analyst/investor enquiries
John Messenger, Group Investor Relations Director 07867 201 763
Media enquiries
Tim Collins, Head of Corporate Communications 020 7299 4874
Brunswick
Jonathan Glass / Rosie Oddy 020 7404 5959
Barratt Developments PLC LEI: 2138006R85VEOF5YNK29
Chairman's Statement
Introduction
Before the COVID-19 pandemic, we were delivering strong progress
against our medium term targets. The onset of COVID-19 and the
subsequent lockdown has caused significant disruption to our
business and had a substantial impact on our financial performance.
Nevertheless, our business has demonstrated its resilience and
operational strength delivering 12,604 high quality new homes
(including JVs) across Britain in FY20 (FY19: 17,856 homes).
Handling the COVID-19 crisis
The health and safety of all individuals who work for or with us
is of fundamental importance to the Board. Prior to the Prime
Minister's lockdown announcement on 23 March 2020 to try to control
the spread of COVID-19, the Board, together with the Senior
Management team, acted quickly and decisively to commence the
temporary closure of all of our construction sites, sales centres
and offices. This was completed by 27 March 2020. Throughout the
lockdown period, the Board worked closely with the Senior
Management team and held a number of additional virtual Board
meetings to ensure that key decisions such as those relating to
furloughing, payment of dividends, workforce remuneration and our
liquidity were made in a timely manner.
As the lockdown restrictions eased, the Board monitored the
phased reopening of our construction sites in England and Wales
from 11 May 2020 and in Scotland from 1 June 2020. By 30 June 2020,
all of our construction sites were operational and our employees,
other than those shielding, had returned to work.
To safeguard the jobs of the c. 85% of employees that we
furloughed, we initially participated in the Government's CJRS.
However, given that our financial position has remained resilient,
the Board made the decision in July 2020 to return the CJRS funds
received of GBP26.0m.
I would like to take this opportunity to thank the Senior
Management team for their tireless commitment to address all of the
challenges relating to COVID-19 and the way in which they led our
business through this difficult period. It is a testament to their
leadership and resilience that our business has emerged in good
shape.
Our employees
It is our employees that deliver our success, and our
performance is due to the dedication and ability of our skilled and
experienced team. I am especially proud of the way in which our
entire workforce adapted to changes in working arrangements as we
temporarily closed our construction sites, sales centres and
offices, through the lockdown period and their subsequent
reopening. All of our employees have risen to the challenges
brought by COVID-19 and pulled together to get our business back up
and running. I would like to take this opportunity to thank them
for the support and commitment that they have shown to our
business.
The views of our employees are important to the Board and they
are at the heart of our operations. Our Workforce Forum has played
a vital role in our engagement with our employees during FY20, and
continues to inform our actions and decisions. David Thomas, our
Chief Executive, sent weekly updates throughout the lockdown period
to all employees to keep them informed on matters such as the
reopening of construction sites, sales centres and offices, pay,
holiday policy, and health and wellbeing. In addition, our intranet
was regularly updated with information on corporate and government
policy, and a dedicated COVID-19 email address was established to
enable employees (including those on furlough) to ask questions or
send in comments or suggestions relating to the impact of COVID-19
on our business. We also undertook a pulse survey following the
return to work by all employees, other than those shielding, which
showed that employees were very positive about the way in which
management had dealt with COVID-19 related matters, particularly in
respect of pay and communication.
Safety, Health and Environment
Our SHE team played a vital role throughout the whole lockdown
period. They ensured the safe temporary closure of our construction
sites, sales centres and offices, and continued to regularly check
that our closed construction sites remained safe throughout
lockdown. They were also instrumental in the reopening of our
construction sites, helping us establish and implement extensive
COVID-19 working practices and protocols to enable those returning
to site to do so safely and in compliance with the Government's
social distancing measures.
Sustainability
We believe that at the core of quality housebuilding is a
commitment to create a positive environmental, social and economic
legacy for future generations. This is embedded in our business
through our purpose to lead the future of housebuilding by putting
our customers at the heart of everything we do. By doing business
sustainably we create value for our stakeholders.
Good governance of these activities and connecting social,
environmental and economic value across our business leads to
better long term decisions. Consequently, in January 2020, we
published our science-based targets to show our commitment to
reducing carbon emissions, both our direct emissions (scope 1 and 2
by 29% from 2018 levels by 2025) and indirect emissions (scope 3 by
11% from 2018 levels by 2030). We also commenced work during FY20
on our programme to achieve compliance with the recommendations of
the TCFD.
I am also pleased to report that we performed well in the key
indices FTSE4Good, NextGeneration and in CDP surveys.
To further strengthen the capability of our Group Sustainability
team we appointed an experienced Group Sustainability Director who
is working with the Executive Committee to determine how we can
enhance, both operationally and through increased reporting, our
position as the country's leading sustainable national
housebuilder. Engagement with our stakeholders will play a key role
in the development of our strategy in this area.
Quality and service
In FY20 we continued to demonstrate our industry leading
credentials for quality and service. Through our Leading
construction priority, we are committed to excellence in all
aspects of our construction operations, and to building the highest
quality homes. We achieved a 5 Star rating in the HBF customer
satisfaction survey for the 11th year in a row, a record that is
unprecedented for a major housebuilder. Our 5 Star rating means
that over 90% of our customers would recommend us to their family
and friends, and is the leading industry benchmark of quality and
service. In addition, our site managers achieved 92 NHBC Pride in
the Job Awards for excellence in site management this year, more
than any other housebuilder for the 16th year in a row, and our
highest number of awards for seven years.
Winning these awards underlines the high standard of work that
our site managers and their teams deliver on a daily basis. It also
highlights our high standards and quality to our customers.
Political and economic environment
COVID-19 and the global response to it has damaged the UK
economy, and it is likely that there will be an increase in
unemployment in the coming months as businesses continue to be
impacted. The full extent of the economic impact being caused by
COVID-19 is yet to become fully clear, and there remains
uncertainty regarding the outcome of the ongoing negotiations
regarding the UK leaving the EU.
However, the underlying drivers of the UK housing market remain
strong. Home ownership is still the tenure of choice for the
majority of people, and this combined with the long term
undersupply of new housing means that there remains a good level of
underlying demand. The industry has seen encouraging levels of
interest and sales as lockdown was eased and sales centres
reopened, and we believe that the long term impact of the pandemic
on people's choices and priorities will be an increase in demand
for the high quality homes that we provide as consumers look for
more space both indoors and outdoors.
The Government recognises the importance of housebuilding in
achieving their 'levelling up' agenda. The Stamp Duty holiday is an
important intervention that will save many of our customers
thousands of pounds which they can put towards the deposit for
their new home. The proposed reforms to the planning system
demonstrate a commitment to speeding up the planning process,
offering transparency and certainty to local communities and
ensuring we can build the homes the country needs. We also need the
planning system to ensure that quality, design and sustainability
are at the heart of new development. We hope the forthcoming Future
Homes Standard will give the industry the certainty required to
invest in building the low carbon homes needed to combat climate
change.
Low interest rates continue to keep mortgages at historically
affordable levels. However, there has been a reduction in the high
LTV lending that many people require to get onto the housing
ladder. This has arisen post COVID-19 and reflects a response to a
perceived increase in risk and high levels of demand. The
restriction and removal of Help to Buy will exacerbate this. It is
important that lenders and the Government consider what further
options are available to help potential first time buyers who want
to purchase their own home.
Culture
In order to remain successful, it is important that we create
and embed a positive culture throughout our business. The Board is
mindful of the need to set the tone from the top. A review of the
culture of our business was undertaken during FY20. Our business
has a strong culture of 'doing the right thing' and taking pride in
the work that we do whilst remaining focused on the needs of our
customers and other stakeholders. We will continue to develop the
culture of our business and make further improvements where there
is scope to do so.
The New Code
Last year I highlighted that we had early adopted a number of
provisions of the New Code and Guidance on Board Effectiveness
issued by the FRC in July 2018. These related to Section 172 of the
Act: Duty to promote the long term success of the Company;
Stakeholder engagement; Chief Executive pay ratio; malus and
clawback and pension contributions. This year we have further
developed these disclosures in light of evolving best practice and
guidance from our advisers.
I am pleased to confirm that we have fully complied with all of
the provisions of the New Code. The requirements of the Code will
be described throughout the Governance Report in our Annual Report
and Accounts, together with explanations as to how we have complied
with these requirements and the various provisions.
Board appointments, succession and evaluation
The Nomination Committee continues to oversee Board appointments
and succession of Board members, and assesses the composition of
the Board and its Committees annually. No new appointments were
made to the Board or any of the Committees during the year.
The Board effectiveness review, which was this year facilitated
internally with support from Lintstock, confirmed that the Board
currently comprises the appropriate skills and experience to drive
our strategy forward. We will continue to assess the composition of
the Board and focus on identifying any skills, knowledge or
experience that will further strengthen the Board's
capabilities.
Dividend
Going forward, the Board believes that it is in the best
interests of shareholders to have a long term predictable dividend
income stream and this is best achieved through an ordinary
dividend policy with a defined level of ordinary dividend cover. In
addition, it believes that the Company should continue to maintain
its disciplined approach both growing completion volumes and
investing in attractive land opportunities that meet our hurdle
rates whilst reducing gearing. When the Board believes the time is
right it will implement a dividend policy based on a dividend cover
of 2.5 times.
The Board has previously announced that given the uncertainties
caused by the impact of COVID-19, the interim dividend of 9.8 pence
per share, equating to c. GBP100m, would be cancelled, and that it
would not propose an ordinary dividend in respect of FY20 or the
intended special dividend of GBP175m in respect of FY20.
The Board continues to recognise the importance of dividends to
all its shareholders. The Board however, also feels that given the
unprecedented impact of COVID-19 and the importance of a resilient
balance sheet, it will no longer propose the FY21 special dividend
of GBP175m which would have been payable in November 2021.
AGM
Our 2020 AGM will be held on Wednesday 14 October 2020. We are
closely monitoring the ongoing impact of COVID-19, and developments
in UK regulation in relation to how AGMs may be held during this
period. Further details about the AGM will be provided in the
Notice of AGM .
Looking forward
We have an experienced and committed Board who are focused on
promoting the success and long term sustainable value of the Group.
We will continue to review our composition and ensure that it
aligns with our strategy as we move forward.
The last few months of FY20 were unprecedented but our employees
have shown great strength and commitment to getting our business
restarted. We start FY21 with a continued focus on our operational
and financial performance including our medium term targets.
On behalf of the Board, I thank you for the confidence that you
have shown in the business during FY20, especially throughout the
lockdown period and for your continued support.
John Allan
Chairman
1 September 20 20
Chief Executive's Statement
COVID-19
We acted quickly at the outset of the pandemic and, in line with
our commitment to health and safety, took the decision to
temporarily close all of our construction sites, sales centres and
offices by 27 March 2020.
In response to COVID-19, the Board implemented immediate
measures to manage the Group's cost base and cash flows to ensure
resilience, including:
-- Suspending all land buying activity;
-- Ceasing all recruitment activity;
-- Postponing non-essential capital expenditure;
-- Actively managing cash flows whilst ensuring that we
continued to pay our suppliers and sub-contractors on time;
-- Cancelling the interim dividend, which was due to be paid on 11 May 2020;
-- Furloughing a proportion of our employees at their normal pay; and
-- A voluntary 20% reduction in base salary and fees for the
Board, the wider Executive and the Regional Managing Director team
for the period our sites were closed. In addition, they also agreed
to waive any salary or fee increase for FY21.
In addition, in May 2020, the Remuneration Committee agreed with
the recommendation of the Executive Directors that there would be
no payments to any Director or employee under the FY20 annual bonus
scheme.
Following our establishment of extensive COVID-19 working
practices and protocols, we gradually restarted our site operations
from 11 May 2020 in England and Wales and from 1 June 2020 in
Scotland. As a result, all of our construction sites were
operational at the end of the financial year and our employees,
other than those shielding, had returned to the business.
Through the temporary closure of the business, where around 85%
of our employees were placed on furlough, we used the Government's
CJRS. Our employees, other than those shielding, had returned from
furlough by 1 July 2020. We are grateful for the support that the
Government provided to UK businesses through the CJRS, which
allowed us to safeguard the jobs of our c. 6,700 employees during
the height of the pandemic. Our financial position remained
resilient through year end and accordingly, in early July, the
Board decided to repay all furlough funds received.
We have delivered a resilient operational and financial
performance this year against the unprecedented impact of the
COVID-19 pandemic, and the resulting lockdown on our operations.
Prior to the pandemic we were delivering strong progress against
our medium term targets, with an operating margin of 18.9% in 2019
(2018: 17.7%) and a ROCE for the 12 months to 31 December 2019 of
29.3% (2018: 29.5%). However, the lockdown period had a significant
impact on our financial performance this year . Our business model
is resilient, with both operational and financial strength, and we
remain dedicated to the delivery of the high quality homes the
country needs.
Housing market fundamentals
The Government has a target of 300,000 homes to be built per
year by the mid-2020s to meet existing demand. Updates to the NPPF,
to ensure that local authorities plan positively for housing and
are accountable for under-delivery, provide further support to
housing growth. We welcome too the latest White Paper on planning
reform and we will play an active part in the consultation process
over the coming months.
The lending environment, positive up until the pandemic, has
become less certain. Whilst mortgage rates remain attractive,
reflecting greater competition in the mortgage market and a broad
spread of lenders supporting homebuyers, there has been a material
change in LTV lending criteria.
Prior to the pandemic the availability of both 95% LTV lending
and the Government's Help to Buy scheme provided invaluable help
for those seeking to get onto the housing ladder. Today there are
no mainstream mortgage lenders providing mortgages at 95% LTV for
new build homebuyers, increasing the current reliance of purchasers
on Help to Buy.
The Government has confirmed that Help to Buy will only continue
in its current form until March 2021. Thereafter a new scheme will
be in place for two further years, limited to first time buyers
with regional price caps. We have been planning for the changes to
the Help to Buy scheme in our land acquisition since the new scheme
was announced.
Up to March 2020, 272,852 homes had been bought using the
scheme, 82% of these by first time buyers, (source: MHCLG, Help to
Buy (equity loan scheme) statistics: April 2013 to March 2020).
Although Help to Buy continues for first time buyers through to
31 March 2023, the regional price caps will prove restrictive for
many, particularly those looking to purchase new homes in parts of
the North and the Midlands where the price caps create significant
limitations on the choice of new housing available within the new
scheme. During FY20, 46% of our purchasers who used Help to Buy
would not qualify for the new Help to Buy scheme, but they would
qualify for other mortgage products or be able to use our
part-exchange schemes.
Performance overview
Our purpose is to lead the future of housebuilding by putting
customers at the heart of everything we do. We are very proud to
lead the industry in both build quality and customer service. We
are committed to playing our part in addressing the housing
shortage and helping to rebuild Britain's economic activity after
the disruption created by COVID-19.
Prior to the lockdown, we were delivering strong progress
against our medium term targets including increasing completion
volumes whilst maintaining our industry leading quality and
service. As at 22 March 2020, we had delivered 10,364 total home
completions including 484 joint venture completions, up 9.8% on the
prior year equivalent period (2019: 9,437 homes). The lockdown
halted construction activity and meant the closure of our sales
centres until 21 May 2020 in England, 11 June 2020 in Scotland and
25 June 2020 in Wales. As a result, wholly owned completions
declined by 29.7% to 12,034 homes in the year ended 30 June 2020
(2019: 17,111 homes). In addition, we delivered 570 homes through
our joint ventures in the year (2019: 745 homes). Total home
completions including JVs for the year were therefore 12,604 homes
(2019: 17,856 homes).
The significant progress on our gross margin targets and
resulting profitability, as demonstrated by our half year results
was understandably, severely impacted by the COVID-19 pandemic. At
the half year, we had delivered a profit from operations of
GBP421.7m (H1 FY19: GBP409.7m) and a profit before tax of GBP423.0m
(H1 FY19: GBP408.0m).
As well as causing the significant reduction in completion
volumes with the associated impact on our profitability this year,
COVID-19 has resulted in significant additional costs. During the
lockdown period and in preparation for site recommencement we
incurred GBP45.2m of safety costs, non-productive site costs and
site-based employee costs and GBP29.1m related to the expected
increase in site durations due to COVID-19. After charging this
GBP74.3m, we made an adjusted profit from operations of GBP507.3m
(2019: GBP904.3m) at an adjusted operating margin of 14.8% (2019:
19.0%).
In total, we incurred net adjusted items of GBP13.9m comprising
GBP26.0m of CJRS grant income, which we have repaid since the year
end, offset by, as previously announced, GBP39.9m of costs
associated with legacy properties, including Citiscape and the
associated review, and developments where cladding has needed to be
removed and replaced. After these adjusted items we delivered a
profit from operations for the year of GBP493.4m (2019: GBP901.1m)
at an operating margin of 14.4% (2019: 18.9%).
As a result, we experienced a decline in profit before tax for
the year to GBP491.8m (2019: GBP909.8m).
The closure of all of our construction sites by 27 March 2020
came at our peak point for work in progress. Prior to the pandemic
we had been expecting to achieve completions ahead of the 17,856
homes we achieved last year, and had been investing in work in
progress to deliver a substantial number of homes in our fourth
quarter. As a result of this and the decrease in our profit for the
year, our ROCE, which had grown from 23.9% in FY15 to 29.7% in
FY19, reduced to 15.6% in FY20.
Our balance sheet remains strong, with year end net cash of
GBP308.2m (2019: GBP765.7m), land creditors of GBP791.9m (2019:
GBP960.7m) and therefore a modest total gearing (including land
creditors) of 12.3% (2019: 4.9%). At 30 June 2020 our net tangible
assets were GBP3,933.3m (2019: GBP3,960.8m).
Throughout the year we have maintained a disciplined approach
across our operations and this combined with our strong balance
sheet will enable us to keep investing in our business as market
conditions become clearer.
The health and safety of our employees, sub-contractors and
customers remains a fundamental priority. We have continued to
rebuild productivity levels and have seen our production levels
continue to improve, benefitting from the return of additional
sub-contractors, extended operating hours on many of our sites and
from delayed new sites commencing construction. This provides the
foundation for increasing volumes following the COVID-19
disruption, whilst maintaining our industry leading quality.
Whilst land buying was temporarily suspended, we remained active
in the land market, negotiating attractive fully conditional
options. We have now re-entered the market selectively, maintaining
our disciplined approach, where we see attractive
opportunities.
Our operating framework and appropriate capital structure has
served us well over the last three years. The resilience they have
created was demonstrated in FY20 given the unprecedented impact of
COVID-19. Reflecting the changed economic and trading backdrop we
have adjusted our operating framework to reflect our dividend
policy, include a new target range for land creditor usage and
introduced a target for minimal total indebtedness in the medium
term.
We enter FY21 focused on rebuilding both our completion volumes
and our financial performance towards our unchanged medium term
targets.
FY20 Areas of focus for FY21 Medium term targets
Wholly 12,034 * Driving site based construction activity * Disciplined growth in wholly owned home completions
owned homes
completions
* Maximising sales for customers who will not qualify
under the new Help to Buy scheme
* Wholly owned home completion growth to 14,500 -
15,000 homes in FY21
-------- ---------------------------------------------------------- ------------------------------------------------------------
Gross 18.0% * Rebuilding site based construction activity to * Land acquisition at a minimum 23% gross margin and
margin improve fixed cost recovery optimising performance
* Controlling materials and labour cost inflation
-------- ---------------------------------------------------------- ------------------------------------------------------------
ROCE 15.6% * Tight control of working capital with build release * Minimum of 25% delivered through improving margin and
aligned with home completion cash generation return to operating framework
* Focus on cash with selective land spend beyond land
creditor settlements
-------- ---------------------------------------------------------- ------------------------------------------------------------
Sustainability
We are committed to creating a positive environmental, social
and economic legacy for future generations. This goes to the core
of quality housebuilding - creating high quality homes and
communities in great places, and ensuring we provide a positive
legacy that helps local communities thrive. Providing confidence to
our customers that their homes are designed and built to meet the
challenges of the future is vital, and underpins our business.
The protection and enhancement of the resources on which our
business relies, our people, the communities in which we operate,
our partners and the planet require that we do business sustainably
and create value for our stakeholders. Good governance of these
activities and connecting social, environmental and economic value
across our business leads to better long term decisions.
From keeping people safe and healthy to ensuring sustainable and
responsible sourcing, our Sustainability Framework 2020+ ensures we
continually progress the sustainability focus areas that matter
most to our stakeholders. Each of these areas has set targets and
KPIs, with a member of the Board accountable for specific actions
to ensure delivery.
We have also put in place new sector leading targets:
-- Earlier this year we became the first national housebuilder
to publish science-based targets for reducing carbon emissions, and
the new net zero goal extends this sustainability roadmap
further;
-- Commitment to purchase 100% of our operational electricity from renewable sources by 2025;
-- Committed to delivering low carbon homes for customers, we
have set a target to ensure new standard housetype designs will be
net zero carbon in use from 2030; and
-- By 2040 we will become a net zero greenhouse gas emissions
business across all of our direct operations.
Sustainability is embedded in our business through our purpose
to lead the future of housebuilding by putting our customers at the
heart of everything we do. This is delivered through our strategic
priorities of customer first, great places, leading construction
and investing in our people, and our principles of keeping people
safe, being a trusted partner, building strong community
relationships, safeguarding the environment and ensuring the
financial health of our business.
Customer first: Leadership in quality and service
We have a long term commitment to quality and customer service
and we believe our industry leadership in these areas is
fundamental to maintaining the strength and resilience of our
business. This enduring commitment to quality and customer service
has been evidenced through external benchmarking. We are the only
major housebuilder to be awarded the maximum 5 Star rating by our
customers in the HBF customer satisfaction survey for 11 years in a
row and our customer satisfaction rating is consistently above
90%.
Great places: We remain committed to building more high quality
homes
We remain committed to playing our part in addressing the
housing shortage. We design attractive developments that meet our
high quality standards and through effective place making, will
enhance local communities for years to come. 93 of our sites have
received Built for Life accreditations, 23 of which were rated
outstanding.
Leading construction: Construction excellence and modern methods
of construction
We seek to achieve excellence across all aspects of
construction. Our people take pride in what they do and this helps
us put customers first by delivering industry leading quality
homes. This commitment has once again been recognised through the
NHBC Pride in the Job Awards where in June 2020 our site managers
were awarded 92 awards, more than any other housebuilder for the
16th consecutive year.
We are also committed to increasing the number of homes we build
using MMC to increase efficiency and to help mitigate the
challenges posed by the shortage of skilled workers within the
industry. We continue to develop, trial and implement MMC. In 2020
we constructed 2,652 homes (21% of our home completions) using MMC
including timber frame, large format block and offsite manufactured
ground floor solutions and roof cassettes. Our target is to use MMC
in the construction of 25% of our homes by 2025.
Timber frame construction is a sustainable, low energy method of
build and is assembled in factories to high standards. Over the
last three years, we have built 6,035 homes using timber frame, the
majority in Scotland. We are also increasing its use across England
and Wales. Last year, we acquired Oregon, a UK manufacturer of
timber frames. Oregon, which was already one of our key timber
frame suppliers providing high quality products and excellent
customer service, has continued to expand and has opened an
additional factory as we look to expand further our use of timber
frame.
Investing in our people
Our employees have reacted in a resilient and adaptable way
during the challenges posed by COVID-19, both those who worked hard
to get us ready to restart on site, and those who were not able to
work during the period of temporary closure, many of whom were
inspirational as volunteers in their local communities. I would
like to take this opportunity to thank them for the support and
commitment that they have shown to our business. We were pleased to
be able to support all of our employees throughout our period of
hibernation on their normal pay.
We are building a diverse and inclusive workforce that reflects
the communities in which we operate, delivering excellence for our
customers by drawing on a broad range of talents, skills and
experience.
We are investing for the future and continue to develop award
winning schemes including those for graduates, apprentices and
former Armed Forces personnel, alongside our own Degree
Apprenticeship in Residential Development and Construction run in
conjunction with Sheffield Hallam University.
We also continue to collaborate with the wider housebuilding
industry. We actively participate in the Home Building Skills
Partnership, which aims to attract new entrants to the industry,
provide the skills for today and the future, and support the supply
chain in developing the skills they need to support our
industry.
We seek to create a great place to work founded on an open and
honest culture. We engage with our employees on a regular basis so
we can understand their issues and concerns and address them. We
carry out an annual engagement survey, further surveys throughout
the year and consult with our Workforce Forum. The feedback
received is used to drive continual improvements. Employee
engagement remains a key measure of our success and we are pleased
to have maintained UK upper quartile performance in our engagement
survey for the seventh consecutive year.
We value everyone for who they are and the unique contribution
they bring. We seek to represent the communities in which we
operate and we know that a diverse team means a stronger business,
is better for our customers and makes us a more attractive
employer. Through our Diversity and Inclusion strategy we remain
committed to creating an inclusive environment for everyone. We
have identified targets for gender and ethnicity representation,
our leaders have completed Diversity and Inclusion training and all
of our employees complete mandatory diversity e-learning as part of
their induction. We have expanded our career development program
for female leaders and are committed to supporting underrepresented
groups, to ensure everyone reaches their potential.
We are now an accredited Living Wage Employer, making us one of
the first major housebuilders to receive the accreditation. The
real Living Wage is different to the Government's National Minimum
and Living Wage, as it is an independently calculated higher hourly
rate of pay that is based on the actual cost of living. Receiving
this accreditation demonstrates our commitment to our employees as
well as our suppliers and sub-contractors.
Keeping people safe
A fundamental priority is to provide a safe working environment
for all our employees and sub-contractors. We are committed to
achieving the highest industry health and safety standard and the
wellbeing of our people is paramount to us.
Prior to COVID-19, increased activity levels across the industry
in terms of site openings and production volumes combined with
shortages of skilled employees and sub-contractors contributed to
an increased risk of accidents on sites.
Following the outbreak of COVID-19 the risk profile of our sites
was fundamentally reassessed, particularly around the demands for
social distancing. O ur sites are operating safely with COVID-19
working practices and protocols that have been established in line
with the latest guidance from Government, Public Health Authorities
and the Construction Leadership Council. This includes changes to
signage, site welfare facilities and compounds, site access and
walkways. We have also enhanced our induction, training and support
for our employees and sub-contractors in response to COVID-19. We
have received an Assurance Statement from the British Safety
Council certifying that our COVID-19 workplace safety, health and
environmental arrangements are in accordance with current guidance
and best practice, demonstrating our commitment to providing a safe
and healthy workplace.
We have stringent standards and a continuous focus on health and
safety throughout our business. In line with the industry we are
seeing pressures in this area but we continue to seek to reduce the
number of injuries occurring. We are committed to improving our
processes and procedures and challenging unsafe behaviours. We also
continue to focus on ensuring workers do not suffer long term
issues associated with their work activities and are looking at
ways we can further improve standards. In the year ended 30 June
2020, our reportable injury incidence rate was 256 (2019: 297) per
100,000 workers and our Health and Safety SHE audit compliance rate
was 96% (2019: 96%).
Safeguarding the environment
Reducing carbon emissions
We recognise the contribution we can make to the UK's reduction
of carbon emissions and in May 2019 we signed a letter alongside
127 other businesses, investors and business networks calling for
the Government to accept the Committee on Climate Change's proposed
target and make Britain net zero carbon by 2050.
In January 2020 the Board approved our own new challenging
science-based carbon reduction targets. In our own operations we
will aim to reduce carbon emissions by 29% from FY18 to FY25,
through measures like reducing diesel used by generators on site,
amending our vehicle policies and implementing energy efficiency
opportunities across our offices, sites, sales centres and show
homes. During the year our carbon intensity measure increased by
9.7% mainly as a result of delays created between our construction
activities and home completions.
In addition, we are focused on the measureable steps that we can
take to reduce both the embodied carbon in our supply chain and
in-use carbon from our homes , including increasing the use of
timber frame in home construction, which is a sustainable
technology. We have set a target to reduce indirect carbon
emissions by 11% from our supply chain and our homes by 2030.
Partnerships with our suppliers and sub-contractors are key to the
delivery of our goals and we continue to engage with them in
respect of this. In July this year we launched a Sustainability
Capability Matrix with our suppliers, enabling our category
managers to work with our suppliers and together drive progress
against our sustainability priorities.
We are working with Innovate UK on AIMCH, a research project to
compare issues such as embodied carbon in homes and the generation
of waste between offsite and traditional build methods. We are
actively looking at how we can meet the Future Homes Standard and
design homes which are not connected to the gas grid.
Biodiversity and water
We are aiming to create a net positive impact for ecology and
biodiversity across all developments we are progressing through
planning from 2020. We hold a strategic partnership with the RSPB
and released wildlife friendly show home garden guidance in July
2019. This mandates newly designed show home gardens to reach at
least 'Bronze Level' standard against RSPB criteria.
We have also published our 'Approach to Water', which explains
the ways in which the business is mitigating the risks from
flooding and freshwater scarcity both to our business and to the
communities in which we operate.
Waste
We continue to focus on waste and resource efficiencies and take
practical steps in our operations to reduce waste.
We have disappointingly seen a further rise in waste intensity
of 18% in FY20 (FY19: 8% increase). This is an 8.6% increase
compared to the baseline in FY15 and puts our longer term target
for waste reduction at risk. We have undertaken a review and
identified that onsite segregation can be improved. We have
commenced a back to basics campaign in order to reinforce
monitoring and tracking of waste reduction actions across our
sites.
As part of our efforts to analyse and understand the root causes
of waste, we also conducted a survey of 72 suppliers to investigate
the extent and types of single use plastic packaging on site,
identifying opportunities to reduce it through further
collaboration.
Charitable giving
We are committed to creating a positive legacy in the
communities in which we live and work and we aim to be industry
leading in our approach to charitable giving and social
responsibility. We believe it is important to support charitable
causes both locally and nationally and we actively promote
charitable giving and volunteering amongst our employees. In FY20
we raised and donated GBP4.4m (FY19: GBP2.9m) for charitable
causes.
COVID-19 has made it all the more important to do what we can to
support our communities. We have donated GBP100,000 to NHS
Charities Together directly and an additional GBP50,000 to NHS
Charities Together through The Sun's Who Cares Wins campaign, as
well as, GBP25,000 to The Big Issue to support vendors who were
unable to sell the magazine during the lockdown. In the early
stages of the pandemic, we also donated 5,000 medical standard
facemasks to the NHS and all 400 of our defibrillators to St John
Ambulance and St Andrew's First Aid. This is in addition to our Big
Barratt NHS Thank You, under which we provide a deposit
contribution to NHS workers trying to get onto the property ladder.
To date the NHS Thank You has funded over GBP10.0m of deposit
contributions.
The Group has also entered into new partnerships with a number
of charities this year. In September 2019, we signed up to a three
year GBP1m partnership agreement with Outward Bound Trust. The
Trust uses outdoor adventure programmes to help young people access
nature and build resilience and self-belief. Our partnership will
help around 2,400 children, while 82 of our employees will get the
opportunity to act as mentors on Outward Bound courses. We also
entered into a three year partnership with HighGround to help fund
horticultural therapy services for injured service personnel and
became the official sponsors of the Whizz Kidz Kidz Board, a group
of young wheelchair users who meet to discuss and develop
recommendations around the issues facing disabled young people.
These partnerships build on our existing partnerships with St
Mungo's, a homelessness charity, The Royal British Legion
Industries (RBLI) helping build a Centenary Village for
ex-servicemen and women, as well as our long term commitment to the
RSPB to improve the sustainability of our developments, enhancing
and improving habitats and supporting wildlife.
Two of the Group's five principles are 'Being a trusted partner'
and 'Building strong community relationships' and we are committed
to partnering with local organisations to support and improve
communities and leave a positive legacy in the areas in which we
work. Through the Barratt & David Wilson Community Fund this
year we have supported a range of different causes, from new
equipment for a local sports club to playgroups at a children's
hospice, and from support groups for cancer sufferers to library
buses for local schools. A number of our divisions also supported
the fight against COVID-19, donating to Meals for the NHS and St
John Ambulance.
Dividend policy
We recognise the importance of dividends to our shareholders.
Going forward, we believe that it is in the best interests of
shareholders to have a long term predictable dividend income
stream, through an ordinary dividend policy with a defined level of
ordinary dividend cover. When the Board believes the time is right
it will implement a dividend policy based on a dividend cover of
2.5 times.
Current trading and outlook
We are focused on rebuilding our completion volumes to our
medium term target and capacity of 20,000 homes. We have acquired
land in recent years at a minimum 23% gross margin, and through our
continued focus on operating efficiencies and the rebuilding of
completion volumes, we continue to target a minimum 25% ROCE in the
medium term.
The sales performance across all regions in the new financial
year to date has been encouraging, with net private reservations
per average week of 314 (FY20: 250), resulting in net private
reservations per active outlet per average week of 0.94 (FY20:
0.68). We have also seen a substantial increase in home completion
volumes in the eight weeks to 23 August 2020, which were up 62.4%
compared to the prior period at 1,439 homes including JVs (25
August 2019: 886 homes including JVs). The increased activity
levels are being stimulated by a combination of pent-up demand, the
Stamp Duty holiday and an understanding that Help to Buy will only
be available to first time buyers and regional home price caps will
exist from April 2021.
Our total forward sales, including JVs, as at 23 August 2020
stood at 15,660 homes (25 August 2019: 13,064 homes) at a value of
GBP3,706.5m (25 August 2019: GBP3,037.5m).
23 August 2020 25 August 2019 Variance %
GBPm Homes GBPm Homes GBPm Homes
-------- ------- -------- ------- ------- ------
Private 2,143.7 6,577 1,583.5 5,088 35.4 29.3
-------- ------- -------- ------- ------- ------
Affordable 1,277.6 8,249 1,133.9 7,089 12.7 16.4
-------- ------- -------- ------- ------- ------
Wholly owned 3,421.3 14,826 2,717.4 12,177 25.9 21.8
-------- ------- -------- ------- ------- ------
JV 285.2 834 320.1 887 (10.9) (6.0)
-------- ------- -------- ------- ------- ------
Total 3,706.5 15,660 3,037.5 13,064 22.0 19.9
-------- ------- -------- ------- ------- ------
We are pleased that since the start of the new financial year we
have seen our production increase, constructing the equivalent of
347 homes in the week ending 23 August 2020 and we are on track to
deliver our planned output.
Based on current market conditions, construction activity levels
and assuming no further lockdowns, we expect to grow wholly owned
completions to between 14,500 and 15,000 homes in FY21, and in
addition around 650 completions from our joint ventures, whilst
ensuring we maintain our industry leading standards of quality and
service.
Whilst there continues to be economic and political uncertainty,
the Group is in a strong position. We have a substantial net cash
balance, a well-capitalised balance sheet, a healthy forward sales
position, a continued focus on delivery of operational improvements
across our business and an ongoing commitment to deliver high
quality homes across the country. We have therefore now re-entered
the land market selectively, maintaining our disciplined approach,
where we see attractive opportunities.
Our experienced Board remains focused on taking the actions
necessary to safeguard the operational and financial strength of
the business whilst our first priority remains the health and
safety of our employees, sub-contractors and customers.
The Board will continue to monitor the market and economy and
believes that our strong financial position provides us with the
resilience and flexibility to react to changes in the operating
environment in FY21 and beyond.
David Thomas
Chief Executive
1 September 2020
Chief Financial Officer ' s Review
Our financial performance this year is substantially lower than
our expectations after our half year performance due to the
significant impact of COVID-19. The strength of our balance sheet,
the resilience embedded in our business model and the immediate
actions taken by the Board positioned us well for the challenges
arising from COVID-19.
Results for the year ended 30 June 2020
Profitability
We delivered a resilient performance on home reservations in the
year given that COVID-19 resulted in the physical closure of our
sales centres from 23 March until 21 May in England, 11 June in
Scotland and 25 June in Wales. Our overall net private reservation
rate for the year was 0.60 (2019: 0.70) per active outlet per
average week.
We had three distinct periods for reservations in the year as
follows:
Pre lockdown Lockdown Post lockdown Full Year
38 Weeks 8 Weeks 6 Weeks
(1 July (23 March (18 May to (1 July to
to 22 March) to 17 May) 30 June) 30 June)
------------ -------------- ------------ -------------- ------------
2020 0.73 (0.10) 0.63 0.60
2019* 0.68 0.82 0.69 0.70
Variance % 7.4% n/m (8.7%) (14.3%)
------------ -------------- ------------ -------------- ------------
*2019 is equivalent period
Prior to the COVID-19 pandemic, the market was stable with a net
reservation rate of 0.73 per active outlet per average week, 7.4%
up on the 0.68 achieved in the prior year equivalent period
('PYEP').
Whilst we kept our sales centres open virtually throughout the
pandemic, and implemented new selling techniques using technology,
during the lockdown period we experienced a lower level of
reservations as most customers prefer to visit our sales centres
before reserving. We also experienced a relatively high level of
cancellations in this period, a reflection of build-related delays
to completion dates and employment uncertainty for some customers.
This resulted in a net negative reservation rate of 0.10 per active
outlet per average week. This period is normally the height of the
spring selling season with 0.82 net private reservations secured in
the PYEP.
Following the reopening of our sales centres and our controlled
restart of construction activities, we achieved a net reservation
rate of 0.63 per active outlet per average week for the last six
weeks of our financial year. Whilst this was 8.7% below the PYEP,
this rate included all of our active outlets in a period where our
sales centres gradually reopened. We also saw our cancellation rate
return to more normal levels in this period.
During the year, we operated from an average of 366 active
outlets (2019: 379 outlets) including JVs. We launched 75 new
outlets (2019: 163 outlets) including JVs in the year with the
lockdown severely curtailing new outlet openings in the final
quarter. In FY21 we expect to operate from a slightly lower number
of active outlets reflecting delays to new site commencements
created by the impact of the period of lockdown on our operations.
We expect to legally complete a similar proportion of affordable
homes at c. 20% of total home completions in FY21.
Following the disruption to build from the site closure,
lockdown and restart process, completion volumes substantially
declined year on year as follows:
Completions (homes) FY20 FY19 Change
Private 9,568 13,533 (29.3%)
------- ------- --------
Affordable 2,466 3,578 (31.1%)
------- ------- --------
JV 570 745 (23.5%)
------- ------- --------
Total (including
JVs) 12,604 17,856 (29.4%)
------- ------- --------
Selling prices have remained resilient throughout the year, with
no discernible change in pricing levels post COVID-19. Our total
average selling price ('ASP') was GBP280.3k (2019: GBP274.4k), with
private ASP at GBP310.6k (2019: GBP312.0k), reflecting changes in
mix with a lower proportion of completions from London. Outside of
London, our private ASP increased by 2.2% to GBP303.6k (2019:
GBP297.2k), mainly driven by geographical mix. Affordable ASP
increased by 23.3% to GBP163.0k (2019: GBP132.2k) reflecting
changes in mix, primarily the proportion of completions from
London.
The significant progress against our medium term targets and our
profitability was severely impacted by the COVID-19 pandemic due to
a material reduction in completion volumes and substantial
additional costs.
Our adjusted gross margin in FY20 was 18.5% (2019: 22.8%), with
the decline primarily reflecting the reduction in completion
volumes coupled with additional costs associated with expected
extended site durations. Adjusted gross margin also includes 150
bps of non-recurring costs, relating to non-productive site
overheads during lockdown (GBP45.2m, 130 bps impact) and an
inventory provision (GBP8.2m, 20 bps impact). Including adjusted
items from legacy property costs and CJRS grant income, gross
margin was 18.0% (2019: 22.8%).
This year, we delivered an adjusted operating profit of
GBP507.3m (2019: GBP904.3m) at an adjusted operating margin of
14.8% (2019: 19.0%). The decline reflected the reduction in
adjusted gross margin partly offset by a significant reduction in
administrative expenses primarily due to the effect of COVID-19 on
incentive schemes. Operating margin was 14.4% (2019: 18.9%) again
reflecting the costs associated with legacy properties and CJRS
grant income.
The decline in adjusted operating margin reflects a number of
factors:
-- Completion volumes: the most significant impact related to
the decline in wholly owned completion volumes. The 29.7% or 5,077
unit reduction in wholly owned home completions created a 190 bps
negative impact.
-- New sites: the benefit of the Group's minimum 23% gross
margin on incremental site openings as well as the improved build
cost performance of our housing range generated a 50 bps positive
impact.
-- Net impact of build costs relative to selling prices: modest
sales price inflation across the year relative to underlying build
cost inflation produced a 50 bps negative impact.
-- Site extension costs: this arises from an expected extension
in site durations due to COVID-19 of approximately six months
reflecting the recovery in site efficiency through to year end. In
line with our accounting policy, which requires an equal margin to
be recognised on all homes completed in the financial year and
future years, there was a charge of GBP29.1m across all ongoing
sites in 2020 and a 90 bps negative impact on the adjusted
operating margin.
-- Mix and other items: changes in sales mix and other smaller
items combined to create a 60 bps negative impact.
-- Administrative expenses: following the onset of COVID-19 we
took a number of actions to reduce costs, including the cessation
of all recruitment activity and the decision to make no payments
under the FY20 annual bonus scheme, which contributed to a
significant reduction in administrative expenses. This added 120
bps to the adjusted operating margin. In FY21, we expect
administrative expenses will revert back to previous levels at c.
GBP195m .
-- Inventory provision charge: primarily resulting from changes
in the expected commercial revenues following the substantial
deterioration in the retail and restaurant sector, reduced the
viability of a mixed use site and, as a result, there was a net
charge of GBP8.2m with a 20 bps reduction.
-- Non -productive site overheads: these costs , which would
normally be capitalised to WIP were instead expensed due to the
absence of activity during the lockdown period totalled GBP45.2m.
These costs related to safety measures, non-productive site and
site-based employee costs and had a 130 bps negative impact on the
adjusted operating margin.
There were two adjusted items recognised during the year, being
costs associated with legacy properties and grant income received
under the CJRS.
-- Cost associated with legacy properties: the Group incurred an
additional GBP39.9m (2019: GBP6.9m) of costs in the year. Of this
GBP11.4m related to legacy properties comprising costs related to
developments where cladding has needed to be removed and replaced.
The remaining GBP28.5m relates to Citiscape and the associated
review. As previously announced, in July, in line with our
commitment to customers and recognising the responsibility we have
for the work of our partners, we took the decision to pay for
required remedial action on the reinforced concrete frame at
Citiscape, a development designed for us in 2001 by a third-party
structural engineering firm, which would otherwise fall on
leaseholders. We apologise unreservedly to affected customers that
the standards that we set for ourselves and our partners were not
met at these developments. While we have no legal liability to
cover the costs of this work, as a responsible developer, we
appointed independent structural engineers to review the other
developments where reinforced concrete frames were designed for us
by either the same original engineering firm or by other companies
within the group of companies which has since acquired it. The
preliminary reviews of all of these developments have not
identified any issues as severe as those present at Citiscape.
Engineers are now undertaking more detailed reviews to see if any
remediation of the concrete frames is required and in line with our
commitment to put our customers first, we will ensure that no costs
associated with these remedial works are borne by leaseholders. The
total costs for the required remedial programme at Citiscape, the
structural engineering reviews and remediation required at other
buildings, is estimated to be around GBP70m of which, based on the
Group's liability for works at 30 June, GBP22.1m was provided in H2
FY20. At its meeting on 5 July 2020, the Board committed to pay for
other remedial works including Citiscape, with a total estimated
cost of GBP48m, which will be charged in FY21.
-- CJRS grant income: through the period of temporary closure of
the business, where around 85% of our employees were placed on
furlough, we used the Government's CJRS receiving GBP26.0m. With
our employees, other than those shielding, having returned from
furlough at the start of July and our financial position remaining
resilient, the Board decided on 5 July 2020 to repay all furlough
funds received. With the decision to repay CJRS funds taken after
the year end, we have recognised the total grant income received in
FY20 as an adjusted item. In FY21 the return of this grant income
will be recognised as an expense in adjusted items.
As a result, we delivered an operating profit of GBP493.4m
(2019: GBP901.1m).
Net finance charges were GBP29.9m (2019: GBP28.8m). This GBP1.1m
increase reflects the cash phasing profile in the year, a GBP2.0m
finance charge on leased assets following the adoption of the new
accounting standard offset by a GBP1.6m reduction in the imputed
interest on land creditors, which as a proportion of our owned land
bank reduced in line with our operating framework. In FY21, finance
costs are expected to be similar to FY20 at c. GBP30m of which c.
GBP10m is cash and c. GBP20m is non-cash.
Joint ventures delivered a reduced profit for the year of
GBP28.3m (2019: GBP37.5m) reflecting reduced profit from land sales
and the impact of the COVID-19 lockdown on both build activity and
completions. In FY21, we expect to deliver around 650 joint venture
completions.
As a result, profit before tax for the year declined to
GBP491.8m (2019: GBP909.8m). The tax charge for the year was
GBP89.1m (2019: GBP170.4m) at an effective rate of 18.1% (2019:
18.7%).
Basic earnings per share reduced to 39.4 pence per share (2019:
73.2 pence per share).
With the substantial decline in Group profitability in FY20, our
ROCE, which had improved from 23.9% in FY15 to 29.7% in FY19 and
was 29.3% in the 12 month period to 31 December 2019, reduced to
15.6% in FY20.
Cash flow
Net cash decreased to GBP308.2m at 30 June 2020 (2019:
GBP765.7m). The decline in net cash primarily reflected a GBP121.0m
net cash outflow from operating activities (2019: GBP361.3m cash
inflow), a net GBP41.0m cash inflow from reduced investment in
joint ventures (2019: GBP15.9m cash inflow) and GBP373.2m dividends
paid to shareholders in the year (2019: GBP452.3m).
The major drivers of the net cash outflow from operating
activities in the year to 30 June 2020 were:
-- The reduced level of profit from operations, which declined to GBP493.4m (2019: GBP901.1m);
-- A cash outflow in respect of working capital and provisions
of GBP428.1m (2019: GBP347.5m); and
-- Interest and tax payments which totalled GBP199.0m (2019: GBP171.8m).
The GBP428.1m outflow in respect of working capital and
provisions consisted of:
-- A GBP211.8m increase in inventories reflecting the additional
construction work in progress carried at the end of the year
following the disruption to completions caused by COVID-19, as well
as a modest increase in land investment;
-- A GBP129.3m decrease in receivables which reflected the lower
level of construction and sales activity in the last quarter caused
by COVID-19;
-- A GBP373.8m decrease in respect of payables. This consisted
of a GBP168.8m reduction in land creditors and a GBP216.7m decrease
in trade payables reflecting payments made to our suppliers and
sub-contractors, which were not replaced at the same level due to
the lower level of construction activity due to the impact of
COVID-19 in our last quarter; and
-- A GBP28.2m increase in provisions as a result of additional
costs associated with legacy properties.
Balance sheet
The Group's net assets at 30 June 2020 totalled GBP4,840.3m
(2019: GBP4,869.0m) after the payment of dividends totalling
GBP373.2m (2019: GBP452.3m).
At 30 June 2020, the Group had net cash balances of GBP308.2m
(2019: GBP765.7m). As at 30 June 2020 land creditors had reduced to
GBP791.9m (2019: GBP960.7m) and equated to 25.4% (2019: 31.3%) of
the owned land bank, in line with our pre-existing operating
framework, but also reflecting our suspension of land buying
activity from March through to August. Our total gearing, including
land creditors, has increased to 12.3% at 30 June 2020 (2019: 4.9%)
an increase of 740 bps. Whilst our total gearing, including land
creditors, has reduced by 360 bps since 2016, we are focused on
reducing it from the current level over the medium term.
In FY21, we expect average net cash of c. GBP300m across our
financial year, and net cash balances of around GBP550m at 30 June
2021. Land creditors are expected to further reduce, reflecting the
suspension of land buying in FY20 and the timing of payments due to
existing land creditors, with GBP492.9m falling due for payment in
FY21. Land creditors due beyond FY21 total GBP299.0m at 30 June
2020 (2019: GBP385.6m due beyond FY20).
Net tangible assets were GBP3,933.3m (386 pence per share) at 30
June 2020, (2019: GBP3,960.8m, 389 pence per share). Land, net of
land creditors, and work in progress totalled GBP4,172.8m (410
pence per share) at 30 June 2020 (2019: GBP3,743.7m, 368 pence per
share).
The key dimensions underpinning delivery of our strategy
Land and planning
The land market prior to COVID-19 remained stable allowing our
operations to secure plots on attractive terms at our minimum 23%
gross margin and 25% ROCE hurdle rates. We acted quickly and
decisively in response to COVID-19, and in line with our
established action plan for significant unexpected events,
suspended land purchasing on 19 March 2020. As a result, we
approved the purchase of significantly less land in FY20 than we
had envisaged earlier in the financial year with GBP368.1m (2019:
GBP859.8m) of operational land approved for purchase, which we
expect to equate to 9,441 plots (2019: 18,448 plots).
The suspension of land buying activity both protected our cash
flows and enabled us to assess the market and gain greater clarity
on the economic impact of the pandemic.
We have a strong land bank and have therefore recommenced land
buying selectively, maintaining our disciplined approach, where we
see attractive opportunities. Including the payment of land
creditors , we would expect to invest c. GBP850m in land during
FY21, (FY20: GBP780m invested in land).
Our target remains to have a regionally balanced land portfolio
with a supply of owned land of c. 3.5 years and a further c. 1.0
year of controlled land. The aim for a shorter than sector average
land bank reflects our focus on ROCE and our fast build and sell
model. Reflecting our reduced completion volumes in FY20 due to
COVID-19, at 30 June 2020 we are above this target with 6.7 years
land supply comprising 5.7 years owned land and 1.0 year of
controlled land, with the owned land bank including land with both
outline and detailed planning consents.
Our land bank at 30 June comprised:
Our land bank 30 June 2020 30 June 2019
Owned and unconditional land
bank (plots) 68,393 66,423
------------- -------------
Conditionally contracted land
bank (plots) 11,931 13,599
------------- -------------
Total owned and controlled land
bank (plots) 80,324 80,022
------------- -------------
Number of years' supply 6.7 4.7
------------- -------------
JVs owned and controlled land
bank (plots) 5,400 5,207
------------- -------------
Strategic land (acres) 13,271 11,995
------------- -------------
Land bank carrying value 3,112.3 3,071.6
------------- -------------
At 30 June 2020, the ASP of plots in our owned land bank was
GBP276k (2019: GBP275k).
During the year we delivered 2,929 (2019: 4,374) completions
from strategically sourced land, and we converted 3,137 plots
(2019: 7,915 plots) of strategic land into our owned and controlled
land bank. Around 20% of our strategic land is allocated or
included in draft local plans. We continue to target 30% of
completions from strategic land in the medium term, which we
believe is an appropriate level for our business.
Following our success with planning over the past 12 months we
are well positioned, with all of our expected FY21 completions
(2019: all of our FY20 completions).
Improving efficiency and reducing costs
Improving the efficiency of our operations and controlling costs
whilst maintaining our focus on quality and customer satisfaction
remains a key focus for the Group, as both will enhance our margin
and improve business resilience. Our new housetype ranges maintain
our high standards of design whilst being faster to build, helping
us to reduce build cost and are more suitable for MMC. We delivered
60% of our completions, including JVs, outside London from these
ranges across the country in the year (2019: 36%). Of our outlets,
including JVs, 79% (2019: 72%) now have the new product ranges.
Over the next few years, we would expect that c. 90% of our
outlets would be suitable for our new product ranges equating to c.
85% of our completions. Our new housing ranges cover all segments
of our market providing us with the flexibility to replan sites to
suit market conditions and meet consumer demands should the need
arise.
We continue to make further refinements to our housing ranges in
response to the changing costs of certain trades and materials,
without affecting our quality or design standards. As part of our
continuous review process, we have introduced hipped roof designs
to some of our standard housetypes, which reduce the amount of
brickwork required, and optimised internal floor plans to achieve
more usable living space from the same house footprint and increase
profitability.
We have a robust and carefully managed supply chain with around
90% of the housebuild materials sourced by our centralised
procurement function being manufactured or assembled in the UK. We
are also improving construction efficiency and reducing demand on
labour through implementing the new housetype ranges, which are
easier and quicker to build, and through the use of MMC such as
timber frames, large format block and light gauge steel frames.
We have fixed price agreements in place for 95% of these
materials to December 2020 and 62% are fixed until June 2021.
We are currently seeing limited pressure on skilled labour
supply given the impact of COVID-19 with any shortages being
location and trade specific. We are also improving construction
efficiency and reducing demand on labour through the continued
roll-out of our new housetype ranges, which are easier and quicker
to build, and through the use of MMC. We anticipate inflation of
between 1% and 2% in FY21 broadly in line with FY20.
Operating framework and capital structure
Our operating framework and appropriate capital structure has
served us well over the last three years. The resilience they have
created was demonstrated in FY20 given the unprecedented impact of
COVID-19.
We will continue to maintain an appropriate capital structure as
part of our disciplined operating framework. Shareholders' funds
and land creditors fund the longer term requirements of the
business and term loans and bank debt fund the shorter term
requirements for working capital.
Reflecting the changed economic and trading backdrop we have
adjusted our operating framework to reflect our future dividend
policy, include a new target range for land creditor usage and to
introduce a target of minimal total indebtedness in the medium
term. Our revised operating framework is as follows:
New operating framework Positions at 30 June 2020
and 2019
Land bank c. 3.5 years owned and 2020: 5.7 years owned and
c. 1.0 year controlled 1.0 year controlled
(2019: 3.9 years owned and
0.8 years controlled)
---------------------------- -----------------------------------
Land creditors Reduce usage to 15 - Reduced to 25.4%
25% of the land bank
over medium term
(2019: 31.3%)
---------------------------- -----------------------------------
Net cash Modest average net cash FY20 average net cash of GBP348.3m
over the financial year (2019: GBP298.3m)
---------------------------- -----------------------------------
Year end net cash 2020: GBP308.2m
(2019: GBP765.7m)
---------------------------- -----------------------------------
Total indebtedness Minimal year end total 2020: total indebtedness of
(net cash indebtedness in the medium GBP483.7m
and land term (2019: total indebtedness
creditors) of GBP195.0m)
---------------------------- -----------------------------------
Treasury Appropriate financing GBP700m RCF extended to November
facilities 2024
GBP200m USPP maturing 2027
---------------------------- -----------------------------------
Dividend 2.5x dividend cover FY20 no dividend proposed
policy (at the appropriate time) (2019: 46.4p per share)
---------------------------- -----------------------------------
Our operating framework provides the strong financial foundation
for our business:
-- Land bank: our land bank framework is unchanged. We continue
to target a regionally balanced land portfolio with a supply of
owned land of c. 3.5 years and a further c. 1.0 year of controlled
land reflecting our focus on ROCE and our fast build and sell
model. We are above this framework level, reflecting the decline in
our completions. Through our focus on rebuilding completion
volumes, we expect to gradually realign with our operating
framework.
-- Land creditors: following the reduction in land creditors to
25.4% of the land bank in FY20, and in order to reduce gearing and
further strengthen our balance sheet, we have revised the targeted
range of land creditor usage to a 15 - 25% range.
-- Net cash: in order to preserve a resilient balance sheet, we
continue to seek to maintain a modest average net cash position
over the financial year.
-- Total indebtedness : in order to strengthen our balance sheet
further, in the medium term, we will target achieving a minimal
total indebtedness at year end, where total indebtedness is the
combination of net cash and land creditors.
-- Treasury: we will continue to maintain an appropriate capital
structure as part of our disciplined operating framework, with
shareholders' funds and land creditors funding the longer term
requirements of the business and with term loans and bank debt
funding shorter term requirements for working capital.
-- Dividend policy: when the Board believes the time is right it
will implement a dividend policy based on a dividend cover of 2.5
times.
Pensions
The Group operates a funded defined benefit pension scheme,
which, with effect from 30 June 2009, ceased to offer future
accrual of defined benefit pensions. Alternative defined
contribution pension arrangements are in place for current
employees. The Group operates the Scheme under the UK regulatory
framework, with a legally separate fund that is Trustee
administered. The Trustees are responsible for ensuring that the
Scheme is sufficiently funded to meet current and future benefit
payments and for the investment policy with regard to Scheme
assets.
Over the years, the defined benefit section has been well funded
due to the successful working relationship between the Trustee and
the Company. During the course of FY20, both parties worked
together to investigate options for insuring the defined benefit
members' benefits with a UK-based insurance company, with the
objective of ensuring the financial security of those benefits for
the long term. After a detailed selection process, on 16 June 2020,
the Trustees entered into a 'buy-in' using a bulk annuity insurance
contract with an insurer in respect of the liabilities of the
defined benefit scheme. The insurer will pay into the Scheme cash
matching the benefits due to members.
The Company was supportive of the Trustee's investment decision
as it reduces the risks in the Scheme and provides additional
security for the benefits due to members of the Scheme.
The buy-in has resulted in a re-measurement of the Scheme's
assets, with an actuarial loss of GBP69.2m recognised in the Group
and Company Statement of Comprehensive Income. Following the buy-in
there is a defined benefit asset of GBP3.5m on the Balance Sheet
reflecting the remaining assets held by the Scheme.
Treasury
Relationships with banks and cash management are coordinated
centrally as a Group function. This year our cash balances and bank
overdrafts have been presented gross rather than net with no change
in our net cash. The Board sets and approves Treasury Policy and
Senior Management control day-to-day operations. The Treasury
Policy is intended to maintain an appropriate capital structure and
provide the right platform for the business to manage its operating
risks. More detail on Treasury Policy is included in note 5.3 to
the condensed consolidated financial statements.
Tax strategy
The Group recognises its broader social responsibilities to pay
the right amount of tax at the right time. All of the profits of
the Group are subject to full UK corporation tax and the tax charge
for the year ended 30 June 2020 was GBP89.1m (2019: GBP170.4m).
The Group does not enter into business transactions which are
for the sole purpose of reducing potential tax liabilities. The
Group's tax strategy is to only take advantage of any available
reliefs and exemptions which have been set out in any current tax
legislation to minimise its tax liabilities. The Group does not
have a target effective tax rate. The rate for the year ended 30
June 2020 was 18.1% (2019: 18.7%) which is marginally lower (2019:
lower) than the standard effective rate of tax of 19.0% (2019:
19.0%).
In a strong financial position entering FY21
During the year we have demonstrated financial discipline across
our operations, showing the benefit of our clear, well embedded
operating framework. We closed the year with a strong financial
position comprising a substantial net cash balance and a
well-capitalised balance sheet, positioning us well for FY21.
Jessica White
Chief Financial Officer
1 September 2020
Consolidated Income Statement
Year ended 30 June 2020
2020 2019(1)
Continuing operations Notes GBPm GBPm
Revenue 2.1 3,419.2 4,763.1
====================================================================== ====== ========== ==========
Cost of sales (2,804.9) (3,678.9)
------ ---------- ----------
Gross profit 614.3 1,084.2
---------------------------------------------------------------------- ------ ---------- ----------
Analysed as:
Adjusted gross profit 631.4 1,087.4
Cost associated with legacy properties 2.2 (39.9) (3.2)
CJRS grant income 2.2 22.8 -
---------------------------------------------------------------------- ------ ---------- ----------
Administrative expenses (124.5) (186.3)
====================================================================== ====== ========== ==========
Part-exchange income 327.5 341.1
====================================================================== ====== ========== ==========
Part-exchange expenses (323.9) (337.9)
------ ---------- ----------
Profit from operations 2.2 493.4 901.1
---------------------------------------------------------------------- ------ ---------- ----------
Analysed as:
Adjusted operating profit 507.3 904.3
Cost associated with legacy properties 2.2 (39.9) (3.2)
CJRS grant income 2.2 26.0 -
---------------------------------------------------------------------- ------ ---------- ----------
Finance income 5.2 5.1 7.1
====================================================================== ====== ========== ==========
Finance costs 5.2 (35.0) (35.9)
------ ---------- ----------
Net finance costs 5.2 (29.9) (28.8)
====================================================================== ====== ========== ==========
Share of post-tax profit from joint ventures 28.3 39.2
====================================================================== ====== ========== ==========
Analysed as:
Adjusted share of post-tax profit from joint ventures 28.3 46.2
Cost associated with legacy properties 2.2 - (7.0)
---------------------------------------------------------------------- ------ ---------- ----------
Loss on disposal of joint ventures - (1.7)
====================================================================== ====== ========== ==========
Profit before tax 491.8 909.8
---------------------------------------------------------------------- ------ ---------- ----------
Analysed as:
Adjusted profit before tax 505.7 920.0
Cost associated with legacy properties 2.2 (39.9) (10.2)
CJRS grant income 2.2 26.0 -
---------------------------------------------------------------------- ------ ---------- ----------
Tax 2.5 (89.1) (170.4)
------ ---------- ----------
Profit for the year 402.7 739.4
------ ---------- ----------
Profit for the year attributable to the owners of the Company 399.7 740.0
------ ---------- ----------
Profit/(loss) for the year attributable to non-controlling interests 3.0 (0.6)
------ ---------- ----------
Earnings per share from continuing operations
====================================================================== ====== ========== ==========
Basic 2.3 39.4p 73.2p
====================================================================== ====== ========== ==========
Diluted 2.3 38.9p 72.3p
------ ---------- ----------
(1) The Group has applied IFRS 16 using the modified
retrospective approach and therefore comparatives have not been
restated. Further information on the initial application of this
standard can be found in notes 1.4 and 1.5.
Consolidated Statement of Comprehensive Income
Year ended 30 June 2020
Group
2020 2019(1)
Notes GBPm GBPm
------ ------- --------
Profit for the year 402.7 739.4
------ ------- --------
Other comprehensive income/(expense):
================================================= ====== ======= ========
Items that will not be reclassified to
profit or loss
================================================= ====== ======= ========
Actuarial loss on defined benefit pension
scheme 6.1 (69.2) (15.4)
================================================= ====== ======= ========
Tax credit relating to items not reclassified 13.1 2.9
------ ------- --------
Total items that will not be reclassified
to profit or loss (56.1) (12.5)
------ ------- --------
Total comprehensive income recognised
for the year 346.6 726.9
------ ------- --------
Total comprehensive income recognised
for the year attributable to the owners
of the Company 343.6 727.5
------ ------- --------
Total comprehensive income/(expense) recognised
for the year attributable to non-controlling
interests 3.0 (0.6)
------ ------- --------
(1) The Group has applied IFRS 16 using the modified
retrospective approach and therefore comparatives have not been
restated. Further information on the initial application of this
standard can be found in notes 1.4 and 1.5.
Statement of Changes in Shareholders' Equity
Group
Total
Group Group
retained retained
earnings earnings Non-
Share Own due to due to controlling
capital shares shareholders shareholders interests
(note Share Merger (note Share-based of the of the (note Total
5.4.1) premium reserve 5.4.2) payments Company Company 4.1.1) equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 July
2018 as adjusted
for changes
in accounting
policies(1) 101.3 232.6 1,109.0 (1.2) 18.0 3,126.0 3,142.8 7.5 4,593.2
-------- -------- -------- ------- ------------ ------------- ------------- ------------ --------
Profit/(loss)
for the year - - - - - 740.0 740.0 (0.6) 739.4
================== ======== ======== ======== ======= ============ ============= ============= ============ ========
Actuarial
loss on pension
scheme - - - - - (15.4) (15.4) - (15.4)
================== ======== ======== ======== ======= ============ ============= ============= ============ ========
Tax on items
above taken
directly to
equity - - - - - 2.9 2.9 - 2.9
-------- -------- -------- ------- ------------ ------------- ------------- ------------ --------
Total
comprehensive
income/(expense)
recognised
for the year
ended 30 June
2019 - - - - - 727.5 727.5 (0.6) 726.9
================== ======== ======== ======== ======= ============ ============= ============= ============ ========
Dividend payments - - - - - (452.3) (452.3) - (452.3)
================== ======== ======== ======== ======= ============ ============= ============= ============ ========
Issue of shares 0.4 6.7 - - - - - - 7.1
================== ======== ======== ======== ======= ============ ============= ============= ============ ========
Share-based
payments - - - - 14.1 - 14.1 - 14.1
================== ======== ======== ======== ======= ============ ============= ============= ============ ========
Purchase of
own shares - - - (21.7) - - (21.7) - (21.7)
================== ======== ======== ======== ======= ============ ============= ============= ============ ========
Transfers
in respect
of share options - - - 7.8 (12.4) 4.7 0.1 - 0.1
================== ======== ======== ======== ======= ============ ============= ============= ============ ========
Tax on
share-based
payments - - - - 1.2 0.4 1.6 - 1.6
-------- -------- -------- ------- ------------ ------------- ------------- ------------ --------
At 30 June
2019(1) 101.7 239.3 1,109.0 (15.1) 20.9 3,406.3 3,412.1 6.9 4,869.0
-------- -------- -------- ------- ------------ ------------- ------------- ------------ --------
Profit for
the year - - - - - 399.7 399.7 3.0 402.7
================== ======== ======== ======== ======= ============ ============= ============= ============ ========
Actuarial
loss on pension
scheme - - - - - (69.2) (69.2) - (69.2)
================== ======== ======== ======== ======= ============ ============= ============= ============ ========
Tax on items
above taken
directly to
equity - - - - - 13.1 13.1 - 13.1
-------- -------- -------- ------- ------------ ------------- ------------- ------------ --------
Total
comprehensive
income
recognised
for the year
ended 30 June
2020 - - - - - 343.6 343.6 3.0 346.6
================== ======== ======== ======== ======= ============ ============= ============= ============ ========
Dividend payments - - - - - (373.2) (373.2) - (373.2)
================== ======== ======== ======== ======= ============ ============= ============= ============ ========
Distributions
to
non-controlling
interests - - - - - - - (8.5) (8.5)
================== ======== ======== ======== ======= ============ ============= ============= ============ ========
Issue of shares 0.1 5.9 - - - - - - 6.0
================== ======== ======== ======== ======= ============ ============= ============= ============ ========
Share-based
payments - - - - 6.8 - 6.8 - 6.8
================== ======== ======== ======== ======= ============ ============= ============= ============ ========
Purchase of
own shares - - - (5.9) - - (5.9) - (5.9)
================== ======== ======== ======== ======= ============ ============= ============= ============ ========
Transfers
in respect
of share options - - - 0.9 (9.7) 8.1 (0.7) - (0.7)
================== ======== ======== ======== ======= ============ ============= ============= ============ ========
Tax on
share-based
payments - - - - (1.4) 1.6 0.2 - 0.2
-------- -------- -------- ------- ------------ ------------- ------------- ------------ --------
At 30 June
2020 101.8 245.2 1,109.0 (20.1) 16.6 3,386.4 3,382.9 1.4 4,840.3
-------- -------- -------- ------- ------------ ------------- ------------- ------------ --------
(1) The Group has applied IFRS 16 using the modified
retrospective approach and therefore comparatives have not been
restated. The adoption of IFRS 16 had no effect on the opening
reserves at 1 July 2019.Further information on the initial
application of this standard can be found in notes 1.4 and 1.5.
In the prior year, the Group's equity at 1 July 2018 was
adjusted for the initial application of IFRS 9 'Financial
Instruments' and IFRS 15 'Revenue from contracts with
customers'.
Balance Sheet
At 30 June 2020
Group
-----------------------------
2020 2019(1) 1 July 2018(1)
re-presented(2) re-presented(2)
Notes GBPm GBPm GBPm
------ ---------- ----------------- -----------------
Assets
================================================== ====== ========== ================= =================
Non-current assets
================================================== ====== ========== ================= =================
Other intangible assets 101.1 102.3 100.0
================================================== ====== ========== ================= =================
Goodwill 4.2 805.9 805.9 792.2
================================================== ====== ========== ================= =================
Property, plant and equipment 19.0 17.4 11.6
================================================== ====== ========== ================= =================
Right-of-use assets 46.7 - -
================================================== ====== ========== ================= =================
Investments in joint ventures and associates 152.1 189.0 234.1
================================================== ====== ========== ================= =================
Retirement benefit assets 6.1 3.5 62.6 58.7
================================================== ====== ========== ================= =================
Secured loans 1.0 1.4 1.9
================================================== ====== ========== ================= =================
Trade and other receivables 1.3 1.5 3.1
================================================== ====== ========== ================= =================
1,130.6 1,180.1 1,201.6
------ ---------- ----------------- -----------------
Current assets
================================================== ====== ========== ================= =================
Inventories 3.1 5,027.9 4,824.3 4,516.7
================================================== ====== ========== ================= =================
Secured loans 1.1 1.2 0.3
================================================== ====== ========== ================= =================
Trade and other receivables 84.9 223.6 226.5
================================================== ====== ========== ================= =================
Cash and cash equivalents(2) 5.1 619.8 1,136.0 1,176.2
================================================== ====== ========== ================= =================
5,733.7 6,185.1 5,919.7
------ ---------- ----------------- -----------------
Total assets 6,864.3 7,365.2 7,121.3
------ ---------- ----------------- -----------------
Liabilities
================================================== ====== ========== ================= =================
Non-current liabilities
================================================== ====== ========== ================= =================
Loans and borrowings 5.1 (200.0) (200.0) (191.1)
================================================== ====== ========== ================= =================
Trade and other payables (319.7) (413.5) (566.3)
================================================== ====== ========== ================= =================
Lease liabilities (36.1) - -
================================================== ====== ========== ================= =================
Deferred tax liabilities (2.4) (17.6) (25.3)
================================================== ====== ========== ================= =================
(558.2) (631.1) (782.7)
------ ---------- ----------------- -----------------
Current liabilities
================================================== ====== ========== ================= =================
Loans and borrowings(2) 5.1 (117.7) (177.7) (193.8)
================================================== ====== ========== ================= =================
Trade and other payables (1,305.4) (1,587.9) (1,465.8)
================================================== ====== ========== ================= =================
Lease liabilities (11.7) - -
================================================== ====== ========== ================= =================
Current tax liabilities (2.8) (99.5) (85.8)
================================================== ====== ========== ================= =================
Provisions 3.2 (28.2) - -
------ ---------- ----------------- -----------------
(1,465.8) (1,865.1) (1,745.4)
------ ---------- ----------------- -----------------
Total liabilities (2,024.0) (2,496.2) (2,528.1)
------ ---------- ----------------- -----------------
Net assets 4,840.3 4,869.0 4,593.2
------ ---------- ----------------- -----------------
Equity
================================================== ====== ========== ================= =================
Share capital 5.4 101.8 101.7 101.3
================================================== ====== ========== ================= =================
Share premium 245.2 239.3 232.6
================================================== ====== ========== ================= =================
Merger reserve 1,109.0 1,109.0 1,109.0
================================================== ====== ========== ================= =================
Total retained earnings 3,382.9 3,412.1 3,142.8
------ ---------- ----------------- -----------------
Equity attributable to the owners of the Company 4,838.9 4,862.1 4,585.7
================================================== ====== ========== ================= =================
Non-controlling interests 4.1 1.4 6.9 7.5
------ ---------- ----------------- -----------------
Total equity 4,840.3 4,869.0 4,593.2
------ ---------- ----------------- -----------------
(1) The Group has applied IFRS 16 using the modified
retrospective approach and therefore comparatives have not been
restated. Further information on the initial application of this
standard can be found in notes 1.4 and 1.5.
(2) The prior year balances for cash and cash equivalents and
bank overdrafts have been re-presented in accordance with IAS 32
(see note 1.4). There is no impact on the net assets of the
Group.
Cash Flow Statement
Year ended 30 June 2020
Group
2020 2019(1)
re-presented(3)
Notes GBPm GBPm
------ -------- -----------------
Reconciliation of operating profit to cash
flow from operating activities:
Profit from operations 493.4 901.1
------ -------- -----------------
Depreciation of property, plant and equipment 5.5 4.3
==================================================== ====== ======== =================
Loss on disposal of property, plant and
equipment 0.4 -
==================================================== ====== ======== =================
Depreciation of right-of-use assets(1) 13.6 -
==================================================== ====== ======== =================
Amortisation of intangible assets 1.2 -
==================================================== ====== ======== =================
Profit on disposal of subsidiary undertaking - (0.6)
==================================================== ====== ======== =================
Impairment/(reversal of impairment) of inventories 3.1 8.2 (14.8)
==================================================== ====== ======== =================
Profit on redemption of secured loans (0.4) (1.2)
==================================================== ====== ======== =================
Share-based payments charge 6.8 14.1
==================================================== ====== ======== =================
Imputed interest on deferred term payables(2) 5.2 (19.9) (21.5)
==================================================== ====== ======== =================
Imputed interest on lease arrangements(1) 5.2 (2.0) -
==================================================== ====== ======== =================
Amortisation of facility fees 5.2 (2.3) (2.8)
==================================================== ====== ======== =================
Finance income related to employee benefits 5.2 1.6 2.0
------ -------- -----------------
Total non-cash items 12.7 (20.5)
------ -------- -----------------
Increase in inventories (211.8) (291.9)
==================================================== ====== ======== =================
Decrease/(increase) in receivables 129.3 (2.3)
==================================================== ====== ======== =================
Decrease in payables (373.8) (53.3)
==================================================== ====== ======== =================
Increase in provisions 3.2 28.2 -
==================================================== ====== ======== =================
Total movements in working capital and provisions (428.1) (347.5)
------ -------- -----------------
Interest paid (11.7) (11.6)
==================================================== ====== ======== =================
Tax paid (187.3) (160.2)
------ -------- -----------------
Net cash (outflow)/inflow from operating
activities (121.0) 361.3
------ -------- -----------------
Investing activities:
Purchase of property, plant and equipment (7.5) (7.2)
==================================================== ====== ======== =================
Consideration, net of cash acquired, paid
on acquisition of subsidiaries - (15.8)
==================================================== ====== ======== =================
Proceeds, net of cash disposed of, from
the disposal of subsidiaries - 4.6
==================================================== ====== ======== =================
Increase in amounts invested in entities
accounted for using the equity method (31.2) (51.0)
==================================================== ====== ======== =================
Repayment of amounts invested in entities
accounted for using the equity method 72.2 66.9
==================================================== ====== ======== =================
Dividends received from investments accounted
for using the equity method 24.2 60.3
==================================================== ====== ======== =================
Proceeds from the disposal of investments
accounted for using the equity method - 18.6
==================================================== ====== ======== =================
Interest received 3.5 5.1
==================================================== ====== ======== =================
Net cash inflow from investing activities 61.2 81.5
------ -------- -----------------
Financing activities:
Dividends paid to equity holders of the
Company 2.4 (373.2) (452.3)
==================================================== ====== ======== =================
Distribution made to non-controlling partner 4.1.1 (8.5) -
==================================================== ====== ======== =================
Purchase of own shares (5.9) (21.7)
==================================================== ====== ======== =================
Proceeds from issue of share capital 6.0 7.1
==================================================== ====== ======== =================
Payment of dividend equivalents (0.7) -
==================================================== ====== ======== =================
Loan repayments(3) (60.0) (16.1)
==================================================== ====== ======== =================
Repayment of lease liabilities(1) (14.1) -
==================================================== ====== ======== =================
Net cash outflow from financing activities (456.4) (483.0)
------ -------- -----------------
Net decrease in cash and cash equivalents (516.2) (40.2)
==================================================== ====== ======== =================
Cash and cash equivalents at the beginning
of the year(3) 1,136.0 1,176.2
------ -------- -----------------
Cash and cash equivalents at the end of
the year(3) 5.1 619.8 1,136.0
------ -------- -----------------
(1) The Group has applied IFRS 16 using the modified
retrospective approach and therefore comparatives have not been
restated. Further information on the initial application of this
standard can be found in notes 1.4 and 1.5.
(2) The Balance Sheet movements in land payables include
non-cash movements due to imputed interest. Imputed interest is
therefore included within non-cash items in the statement
above.
(3) The prior year balances for cash and cash equivalents and
bank overdrafts have been re-presented in accordance with IAS 32
(see note 1.4).
Section 1 - Basis of preparation
---------------------------------
1.1 Cautionary statement
The Chairman's Statement and Chief Executive's Statement
commentary contained in this Annual Results Announcement, including
the principal risks and uncertainties (note 7.5), have been
prepared by the Directors in good faith based on the information
available to them up to the time of their approval of this report
solely for the Company's shareholders as a body, so as to assist
them in assessing the Group's strategies and the potential for
those strategies to succeed and accordingly should not be relied on
by any other party or for any other purpose and the Company hereby
disclaims any liability to any such other party or for reliance on
such information for any such other purpose.
This Annual Results Announcement has been prepared in respect of
the Group as a whole and accordingly matters identified as being
significant or material are so identified in the context of Barratt
Developments PLC and its subsidiary undertakings in the
consolidation taken as a whole.
1.2 Basis of preparation
Whilst the financial information included in this Annual Results
Announcement has been prepared in accordance with IFRS as issued by
the IASB, IFRIC interpretations and SIC interpretations as adopted
and endorsed by the EU, this announcement does not itself contain
sufficient information to comply with IFRS. Full Financial
Statements that comply with IFRS are included in the 2020 Annual
Report and Accounts, which will be made available at
www.barrattdevelopments.co.uk in September 2020.
The accounting policies adopted are consistent with those
followed in the preparation of the Group's 2020 Annual Report and
Accounts which have not changed from those adopted in the Group's
2019 Annual Report and Accounts except as disclosed in note
1.4.
This Annual Results Announcement has been prepared under the
historical cost convention as modified by the revaluation of
secured loans, and share-based payments.
Critical accounting judgements and key sources of estimation
uncertainty
The preparation of condensed consolidated financial statements
in conformity with IFRS requires the use of estimates and
assumptions that affect the reported amounts of assets and
liabilities at the date of the Financial Statements and the
reported amounts of revenues and expenses during the reporting
period. Although these estimates are based on the Directors' best
knowledge of the amounts, actual results may ultimately differ from
those estimates. The Directors have made no individual critical
accounting judgements that have a significant impact upon the
Financial Statements, apart from those involving estimations.
The most significant estimates made by the Directors in these
condensed consolidated financial statements are:
-- Margin recognition
In order to determine the profit that the Group is able to
recognise on its developments in a specific period, the Group
allocates site-wide development costs between homes built in the
current year and in future years. It also has to estimate costs to
complete on such developments and make estimates relating to future
sales price margins on those developments and homes. In making
these assessments there is a degree of inherent uncertainty.
The Group's site valuation process determines the forecast
profit margin for each site. The valuation process acts as a method
of allocating land costs and construction work in progress costs of
a development to each individual plot and drives the recognition of
costs in the Income Statement as each plot is sold. Any changes in
the forecast profit margin of a site from changes in sales prices
or costs to complete is recognised across all homes sold in both
the current period and future periods. This ensures that the
forecast site margin achieved on each individual home is equal
across the development.
The Group has reassessed its estimates on a site-by-site basis
to incorporate the expected extension of site duration caused by
COVID-19 and the adoption of COVID-19 safe working practices and
protocols. On average, the Group estimates that site durations will
increase by around six months, resulting in an additional
allocation of GBP29.1m of site-wide development costs to homes sold
in the current year.
Management have performed a sensitivity analysis to assess the
impact of a change in estimated costs for developments on which
sales were recognised in the year. A 1% increase in estimated costs
recognised in the year, which is considered to be reasonably
possible, would impact cost of sales and work in progress and would
reduce the Group's gross profit by GBP22.9m, a reduction in gross
margin of 70 bps.
-- Costs associated with legacy properties
Following the Grenfell tragedy, the Government issued a number
of advice notes aimed at clarifying fire safety and building safety
requirements. These have now been replaced by updated consolidated
Government guidance published on 20 January 2020. The updated
guidance applies to multi-storey, multi-occupied residential
buildings.
The Government has issued revised guidelines to Building Owners
and those deemed the Responsible Person (normally the Management
Company) to consider, as part of their fire risk assessments, the
ability of any cladding system to prevent the spread of fire. As a
result there has been more scrutiny of all materials used on
building facades. The Group has undertaken a review of all of its
current and legacy buildings where it has used cladding solutions.
Approved Inspectors signed off all of our buildings, including the
cladding used, as compliant with the relevant Building Regulations
at the time of completion. In line with our commitment to put our
customers first, we have incurred and accrued GBP11.4m of costs for
work involved at legacy properties associated with removing and
replacing cladding.
We voluntarily undertook to pay for work to remove and replace
ACM cladding on the Citiscape development in Croydon in 2019. This
is a non-standard development which was designed for us in 2001 by
a third-party structural engineering firm and was sold to the
current freeholders in 2003. When the ACM cladding was removed,
structural concerns were identified and we appointed independent
structural engineers to undertake a full investigation of the
building. These investigations have identified significant issues
relating to the design of the building's reinforced concrete frame,
requiring extensive remedial work.
As a responsible developer, we appointed independent structural
engineers to review all of the other developments where reinforced
concrete frames were designed for us by either the same original
engineering firm or by other companies within the group of
companies which has since acquired it. The preliminary reviews of
all 26 of these developments, the majority of which were designed
over ten years ago, are complete and have not identified any issues
as severe as those present at Citiscape. Engineers are now
undertaking more detailed reviews to see if any remediation of the
concrete frames is required. Those detailed reviews have so far
shown that eleven developments have no defects while nine
developments required some remedial action to address smaller-scale
problems. At these developments, remedial action has either been
successfully completed or is underway.
We apologise unreservedly to affected customers that the
standards that we set for ourselves and our partners were not met
at these developments. While in most cases we have no legal
liability to cover the costs of this work, in line with our
commitment to customers and recognising the responsibility we have
for the work of our partners, we have taken the decision to pay for
the required remedial action which would otherwise fall on
leaseholders. We are actively seeking to recover costs from third
parties, however there is no certainty regarding the extent of any
financial recovery. We have incurred GBP28.5m of costs relating to
Citiscape and the associated review.
Management have made estimates as to the future costs, to the
extent of the remedial works required and the costs of providing
alternative accommodation to those affected. The Financial
Statements have been prepared based on currently available
information, including known costs and quotations where possible.
However, the detailed review is ongoing and therefore the extent
and cost of any remedial work may change as this work
progresses.
Management have performed a sensitivity analysis to assess the
impact of a change in their estimate of total costs. A 10% increase
in estimated costs recognised in the year would impact cost of
sales and would reduce the Group's gross margin by 20 bps.
-- Impairment of goodwill and indefinite life brands
The impairment review for the goodwill of the housebuilding
business and the Group's indefinite life brand requires an
estimation of the value-in-use of the housebuilding business. The
value-in-use calculation requires an estimate of the expected
future cash flows from the housebuilding business, including the
anticipated growth rate of revenue and costs, and requires the
determination of a suitable discount rate to calculate the present
value of the cash flows. The sensitivity of the valuation of
goodwill and brands to changes in expectations is set out in note
4.2.
COVID-19
The Group has exercised judgement in evaluating the impact of
COVID-19 on the condensed consolidated financial statements. In
addition to the key sources of estimation uncertainty, the areas
where COVID-19 has been considered are:
-- Going concern - see note 1.3
-- Nature and carrying value of inventories - see note 3.1
1.3 Going concern
In determining the appropriate basis of preparation of the
condensed consolidated financial statements, the Directors are
required to consider whether the Group can continue in operational
existence for the foreseeable future.
The Group's business activities, together with factors which the
Directors consider are likely to affect its development, financial
performance and financial position are set out in the Chief
Executive's statement. The material financial and operational risks
and uncertainties that may have an impact upon the Group's
performance and their mitigation are outlined in note 7.5 and
financial risks including liquidity risk, market risk, credit risk
and capital risk are outlined in note 5.3 to these condensed
consolidated financial statements.
At 30 June 2020, the Group held cash of GBP619.8m and total
loans and borrowings of GBP317.7m, consisting of GBP117.7m of
overdrafts repayable on demand and GBP200.0m sterling USPP notes
maturing in August 2027. These balances, set against pre-paid
facility fees, comprise the Group's net cash of GBP308.2m presented
in note 5.1.
Should further funding be required, the Group has a committed
GBP700m RCF, subject to compliance with certain financial
covenants, that matures in November 2024. In addition, on 28 April
2020 the Group received confirmation that it was eligible to access
funding under the CCFF until March 2021. Utilisation of the CCFF is
not anticipated.
As such, in consideration of its net current assets of
GBP4,267.9m, the Directors are satisfied that the Group has
sufficient liquidity to meet its current liabilities and working
capital requirements.
The future financial performance of the Group is dependent upon
the wider economic environment in which it operates. The factors
that particularly affect the performance of the Group include flat
or negative economic growth, buyer confidence, mortgage
availability and affordability, competitor pricing, new housing
supply, falls in house prices or land values and the cost and
availability of raw materials, sub-contractors and suppliers.
COVID-19 has heightened the inherent uncertainty in the Group's
assessment of these factors. Since the release from lockdown, UK
housing market activity has shown a marked rebound and demand
relative to supply remains strong. However, the outlook remains
unclear: unemployment is expected to rise and market activity could
be affected by an unfavourable outcome to negotiations regarding
the UK's relationship with the EU or changes to the Government's
Help to Buy scheme. The suspension of trading under COVID-19 has
increased the Group's short term sensitivity to its RCF covenants.
Future outbreaks of the disease may cause further disruption.
The Group's financial forecasts reflect the outcomes that the
Directors consider most likely, based on the information available
at the date of signing of these condensed consolidated financial
statements. This includes the implementation of COVID-19 safe
working practices and market changes following revisions to the
Help to Buy scheme.
To assess the Group's resilience to more adverse outcomes, its
forecast performance was sensitised to reflect a series of
scenarios based on the Group's principal risks and the downside
prospects for the UK economy and housing market presented in the
latest available external economic forecasts.
This exercise included a reasonable worst-case scenario in which
the Group's principal risks manifest in aggregate to a severe but
plausible level. This assumed that sales volumes and average
selling prices fall below their pre-COVID-19 levels by 25% and 10%
respectively, construction costs increase by 5%, and that the Group
temporarily closes its operations for two months in response to a
national resurgence of the virus.
The effects were modelled over the three-year period covered by
the Directors' viability review, alongside reasonable mitigation
that the Group would expect to undertake in such circumstances,
primarily a reduction in investment in inventories in line with the
fall in expected sales and the actions successfully deployed during
the Group's closure of its operations in March 2020, without
Government assistance. In all scenarios, including the reasonable
worst case, the Group is able to comply with its financial
covenants, operate within its current facilities without utilising
the CCFF, and meet its liabilities as they fall due.
Furthermore, a reverse stress test was performed to determine
the market conditions in which the Group, without mitigating
action, would cease to be able to operate under its current
facilities. Based on past experience and current economic
forecasts, the Directors consider the possibility of this outcome
to be remote and have identified mitigation that would be adopted
in such circumstances.
Accordingly, the Directors consider there to be no material
uncertainties that may cast significant doubt on the Group's
ability to continue to operate as a going concern. They have formed
a judgement that, at the time of approving the condensed
consolidated financial statements there is a reasonable expectation
that the Group has adequate resources to continue in operational
existence for the foreseeable future, being at least 12 months from
the date of these condensed consolidated financial statements. For
this reason, they continue to adopt the going concern basis in the
preparation of these condensed consolidated financial
statements.
1.4 Application of accounting standards
During the year ended 30 June 2020 the Group has applied
accounting policies and methods of computation consistent with
those applied in the prior year except in respect of IFRS 8
'Operating Segments' and IAS 32 'Financial Instruments:
Presentation'; and as amended by the adoption of new and revised
standards including IFRS 16 'Leases'.
-- IFRS 8 'Operating segments':
This standard requires disclosure of a segment's information if
its revenue, profit or assets constitute 10% of the Group's total.
In recent years, the Group's Commercial operating segment has
consistently not met these criteria and its disclosure does not
give useful information to investors concerning the value and risks
of the Group. Therefore it is no longer disclosed separately.
-- IAS 32 'Financial Instruments: Presentation':
The Group's cash balances and bank overdrafts are subject to
cash pooling arrangements. In accordance with IAS 32: 'Financial
Instruments: Presentation', cash balances are presented gross
within cash and cash equivalents and bank overdrafts are presented
gross within current loans and other borrowings. In prior periods,
these amounts were presented net in cash and cash equivalents. For
presentational purposes, the balances have been re-presented as at
30 June 2019 and 1 July 2018. The impact of this change is to
increase both cash and cash equivalents and bank overdrafts within
current loans and other borrowings as at 30 June 2019 by GBP177.7m
and as at 1 July 2018 by GBP193.8m in the Group's Balance Sheet.
This has had no impact on net cash or net assets.
During the year the Group has adopted the following new and
revised standards and interpretations:
-- IFRS 16 'Leases':
This standard became effective for accounting periods beginning
on or after 1 January 2019 and was applicable to the Group for the
year beginning on 1 July 2019, replacing IAS 17 'Leases' and IFRIC
4 'Determining whether an arrangement contains a lease'. The Group
has applied IFRS 16 using the modified retrospective approach,
under which any cumulative effect of initial application is
recognised in retained earnings at 1 July 2019. Comparative
information has not, therefore, been restated and is reported under
previous accounting policies.
IFRS 16 specifies how leases are recognised, measured and
disclosed.
The Group has elected to apply the practical expedient in
respect of the assessment of transactions as leases. Contracts not
previously assessed as leases under IAS 17 were not reassessed.
The Group as a lessee
Prior to the application of IFRS 16 the Group's property and
equipment leases were classified as operating leases. Under IFRS 16
right-of-use assets and lease liabilities are recognised in the
Balance Sheet. At transition, lease liabilities were measured at
the present value of remaining lease payments, discounted at
incremental borrowing rates which ranged between 1% and 6% at 1
July 2019. Incremental borrowing rates were calculated based upon
risk free UK government bond rates adjusted for the average term of
each lease portfolio and Group specific spread adjustments. Lease
liabilities are re-measured when the Group changes its assessment
of whether it will exercise a termination or extension option.
Right-of-use assets are initially measured at cost comprising the
initial measure of the lease liability plus any direct costs less
any lease incentives. Subsequently, right-of-use assets are
measured at cost less accumulated depreciation and any accumulated
impairment losses.
The following practical expedients were used when applying IFRS
16 to leases previously classified as operating leases under IAS
17:
-- a single discount rate is applied to portfolios of leases
with similar properties
-- the exemptions not to recognise right-of-use assets and
liabilities for leases with a low-value underlying asset or a lease
term of less than 12 months are applied
-- initial direct costs were excluded from measurement of the
right-of-use asset at the date of initial application
-- hindsight was used in determining the lease term
The Group as lessor
The Group is not required to make any adjustments on transition
to IFRS 16.
Information on the impact of the adoption of IFRS 16 on the
financial statements is provided in note 1.5.
There has been no impact on the Financial Statements as a result
of:
-- IFRIC 23 'Uncertainty over Income Tax Treatments';
-- Amendments to IFRS 9 'Prepayment Features with Negative
Compensation';
-- Amendments to IAS 28 'Long-term Interests in Associates and
Joint Ventures';
-- Annual Improvements to IFRS Standards 2015-2017 Cycle;
and
-- Amendments to IAS 19 'Plan Amendment, Curtailment or
Settlement'.
1.5 Impact of changes in accounting policies
On transition to IFRS 16 the Group recognised GBP55.4m of
right-of-use assets, GBP55.0m of lease liabilities and GBP0.4m of
accruals.
The table below presents a reconciliation from operating lease
commitments disclosed at 30 June 2019 to lease liabilities
recognised at 1 July 2019.
Group
GBPm
Operating lease commitments disclosed under IAS
17 as at 30 June 2019 58.3
==================================================== =======
Effect of discounting (10.4)
==================================================== =======
Other adjustments including adjustments for short
term leases and hindsight adjustments 7.1
---------------------------------------------------- -------
Lease liabilities recognised at 1 July 2019 55.0
---------------------------------------------------- -------
The Group has elected to adopt IFRS 16 using the modified
retrospective approach, under which any cumulative effect of
initial application is recognised in retained earnings at 1 July
2019. Comparative information has not been restated. The following
tables summarise the impact of the adoption of IFRS 16 on the
Income Statement, Balance Sheet and Cash Flow Statement.
Group
-------------- -----------------
Year ended
Adjustments 30 June 2020
Year ended in respect before adjustments
30 June 2020 of the adoption for the adoption
as reported of IFRS 16 of IFRS 16
Impact on Consolidated Income GBPm GBPm
Statement: GBPm
------------------------------------ -------------- ----------------- --------------------
Revenue 3,419.2 - 3,419.2
===================================== ============== ================= ====================
Cost of sales (2,804.9) 0.5 (2,805.4)
------------------------------------- -------------- ----------------- --------------------
Gross profit 614.3 0.5 613.8
------------------------------------- -------------- ----------------- --------------------
Administrative expenses (124.5) 0.8 (125.3)
===================================== ============== ================= ====================
Part-exchange income 327.5 - 327.5
===================================== ============== ================= ====================
Part-exchange expenses (323.9) - (323.9)
------------------------------------- -------------- ----------------- --------------------
Profit from operations 493.4 1.3 492.1
===================================== ============== ================= ====================
Finance income 5.1 - 5.1
===================================== ============== ================= ====================
Finance costs (35.0) (2.0) (33.0)
------------------------------------- -------------- ----------------- --------------------
Net finance costs (29.9) (2.0) (27.9)
===================================== ============== ================= ====================
Share of post-tax profit
from joint ventures 28.3 - 28.3
===================================== ============== ================= ====================
Profit before tax 491.8 (0.7) 492.5
===================================== ============== ================= ====================
Tax (89.1) 0.1 (89.2)
------------------------------------- -------------- ----------------- --------------------
Profit for the year 402.7 (0.6) 403.3
------------------------------------- -------------- ----------------- --------------------
Earnings per share from continuing
operations
==================================== ============== ================= ====================
Basic 39.4p (0.1p) 39.5p
===================================== ============== ================= ====================
Diluted 38.9p - 38.9p
------------------------------------- -------------- ----------------- --------------------
Group
-----------------
As at 30
Adjustments June 2020
As at 30 in respect before adjustments
June 2020 of the adoption for the adoption
as reported of IFRS 16 of IFRS 16
Impact on Consolidated Balance
Sheet: GBPm GBPm GBPm
--------------------------------- --- ------------- ----------------- --------------------
Assets
================================= === ============= ================= ====================
Non-current assets
================================= === ============= ================= ====================
Right-of-use assets 46.7 46.7 -
====================================== ============= ================= ====================
Other non-current assets per
Balance Sheet 1,083.9 - 1,083.9
====================================== ============= ================= ====================
1,130.6 46.7 1,083.9
==== ============= ================= ====================
Current assets 5,733.7 - 5,733.7
-------------------------------------- ------------- ----------------- --------------------
Total assets 6,864.3 46.7 6,817.6
-------------------------------------- ------------- ----------------- --------------------
Liabilities
-------------------------------- ---- ------------- ----------------- --------------------
Non-current liabilities
-------------------------------- ---- ------------- ----------------- --------------------
Lease liabilities (36.1) (36.1) -
-------------------------------------- ------------- ----------------- --------------------
Other non-current liabilities (522.1) - (522.1)
-------------------------------------- ------------- ----------------- --------------------
(558.2) (36.1) (522.1)
---- ------------- ----------------- --------------------
Current liabilities
================================ ==== ============= ================= ====================
Lease liabilities (11.7) (11.7) -
====================================== ============= ================= ====================
Other current liabilities (1,454.1) 0.5 (1,454.6)
-------------------------------------- ------------- ----------------- --------------------
(1,465.8) (11.2) (1,454.6)
---- ------------- ----------------- --------------------
Total liabilities (2,024.0) (47.3) (1,976.7)
-------------------------------------- ------------- ----------------- --------------------
Net assets 4,840.3 (0.6) 4,840.9
-------------------------------------- ------------- ----------------- --------------------
Equity
================================ ==== ============= ================= ====================
Retained earnings 3,382.9 (0.6) 3,383.5
====================================== ============= ================= ====================
Other reserves and capital 1,456.0 - 1,456.0
====================================== ============= ================= ====================
Non-controlling interests 1.4 - 1.4
-------------------------------------- ------------- ----------------- --------------------
Total equity 4,840.3 (0.6) 4,840.9
-------------------------------------- ------------- ----------------- --------------------
Group
-------------- -----------------
Year ended
Adjustments 30 June 2020
Year ended in respect before adjustments
Impact on Consolidated Cash 30 June 2020 of the adoption for the adoption
Flow as reported of IFRS 16 of IFRS 16
Statement: GBPm GBPm GBPm
-------------------------------------- -------------- ----------------- --------------------
Profit from operations 493.4 1.3 492.1
--------------------------------------- -------------- ----------------- --------------------
Depreciation of right-of-use
assets 13.6 13.6 -
--------------------------------------- -------------- ----------------- --------------------
Imputed interest on lease
arrangements (2.0) (2.0) -
--------------------------------------- -------------- ----------------- --------------------
Other non-cash items 1.1 - 1.1
======================================= ============== ================= ====================
Total non-cash items 12.7 11.6 1.1
--------------------------------------- -------------- ----------------- --------------------
Increase in inventories (211.8) - (211.8)
======================================= ============== ================= ====================
Movement in payables and receivables (244.5) 1.2 (245.7)
======================================= ============== ================= ====================
Increase in provisions 28.2 - 28.2
======================================= ============== ================= ====================
Total movements in working
capital and provisions (428.1) 1.2 (429.3)
--------------------------------------- -------------- ----------------- --------------------
Interest paid (11.7) - (11.7)
======================================= ============== ================= ====================
Tax paid (187.3) - (187.3)
--------------------------------------- -------------- ----------------- --------------------
Net cash (outflow)/inflow
from operating activities (121.0) 14.1 (135.1)
--------------------------------------- -------------- ----------------- --------------------
Net cash inflow from investing
activities 61.2 - 61.2
Repayment of lease liabilities (14.1) (14.1) -
======================================= ============== ================= ====================
Other financing activities (442.3) - (442.3)
--------------------------------------- -------------- ----------------- --------------------
Net cash outflow from financing
activities (456.4) (14.1) (442.3)
--------------------------------------- -------------- ----------------- --------------------
Net decrease in cash and cash
equivalents (516.2) - (516.2)
======================================= ============== ================= ====================
Cash and cash equivalents
at the beginning of the year(1) 1,136.0 - 1,136.0
--------------------------------------- -------------- ----------------- --------------------
Cash and cash equivalents
at the end of the year 619.8 - 619.8
--------------------------------------- -------------- ----------------- --------------------
(1) The prior year balances for cash and cash equivalents and
bank overdrafts have been re-presented in accordance with IAS 32
(see note 1.4).
Section 2 - Results for the year and utilisation of profits
------------------------------------------------------------
2.1 Revenue
An analysis of the Group's continuing revenue is as follows:
Residential completions(1) Revenue
--------
2020 2019 2020 2019
number number GBPm GBPm
-------------- -------- --------
Revenue from private residential
sales 9,568 13,533 2,971.5 4,222.6
===================================== ============== ============= ======== ========
Revenue from affordable residential
sales 2,466 3,578 402.0 473.1
===================================== ============== ============= ======== ========
Other revenue including commercial
sales - - 45.7 67.4
-------------- ------------- -------- --------
12,034 17,111 3,419.2 4,763.1
-------------- ------------- -------- --------
(1) Residential completions exclude JV completions of 570 homes
(2019: 745) in which the Group has an interest.
2.2 Profit from operations
2.2.1 Cost of sales
In response to the COVID-19 pandemic, the Group took the
decision to temporarily close its sales centres, construction sites
and offices during the year and implemented extensive working
practices and protocols to enable a safe return to operations.
Included within cost of sales are GBP45.2m (2019: GBPnil) of
non-productive site overheads and safety costs incurred during the
controlled closure and restart of our sites that would ordinarily
be capitalised as work in progress including GBP25.4m of employee
costs. Additional site-wide development costs arising from
extensions in site durations of GBP29.1m (2019: GBPnil) have been
allocated to homes sold in the current year in line with the
Group's margin recognition policy, more detail of which is included
note 1.2.
Cost of sales is presented net of GBP22.8m in Government grant
income received in respect of the CJRS (2019: GBPnil).
2.2.2 Government grants and assistance
During the year the Group recognised CJRS grant income from the
Government designed to mitigate the impact of C OVID-19. Amounts
receivable during the year are disclosed below. No Government
grants were receivable or received during 2019.
2020
Amounts receivable and received
GBPm
Grant income in respect of the CJRS included in cost of sales 22.8
========================================================================= =================================
Grant income in respect of the CJRS included in administrative expenses 3.2
---------------------------------
26.0
---------------------------------
At 30 June 2020, receivables in respect of the CJRS of GBP4.4m
(2019: GBPnil) were included in other receivables.
On 6 July 2020 the Group announced that it would return all
Government grants received in respect of the CJRS. These grants
have been repaid since the balance sheet date (see note 7.3).
2.2.3 Adjusted items
Cost associated with legacy properties:
During the year, charges of GBP39.9m were recognised in respect
of costs associated with legacy properties (2019: GBP6.9m charged
in respect of costs associated with legacy properties and GBP3.7m
released following the disposal of a legacy property). These
amounts have been separately disclosed as adjusted items in the
Income Statement. Further details are provided in note 3.2. No
charge (2019: GBP7.0m) was recognised in adjusted items in the year
in respect of costs associated with legacy JV properties.
CJRS grant income:
During the year, the Group recognised grant income of GBP26.0m
in respect of the UK Government's CJRS (2019: GBPnil). This was a
one-off, temporary Scheme, from which the income has been
voluntarily refunded by the Group after the balance sheet date. No
income in respect of CJRS will be recognised in future periods. It
has therefore been presented as an adjusted item. Further
information regarding the repayment of the grant is included in
note 7.3.
2.3 Earnings per share
The earnings per share from continuing operations were as
follows:
2020 2019(1)
pence pence
Basic earnings per share 39.4 73.2
------- --------
Diluted earnings per share 38.9 72.3
------- --------
(1) The Group has applied IFRS 16 using the modified
retrospective approach and therefore comparatives have not been
restated. Further information on the initial application of this
standard can be found in notes 1.4 and 1.5.
Basic earnings per share is calculated by dividing the profit
for the year attributable to ordinary shareholders of the Parent
Company by the weighted average number of ordinary shares in issue
during the year, excluding those held by the EBT that do not
attract dividend equivalents which are treated as cancelled.
Diluted earnings per share is calculated by dividing the profit
for the year attributable to ordinary shareholders of the Parent
Company by the weighted average number of ordinary shares in issue
adjusted to assume conversion of all potentially dilutive share
options from the start of the year.
2020 2019(1)
------------------------------------------------------------------------------ -------- --------
Profit attributable to ordinary shareholders of the Parent Company (GBPm) 399.7 740.0
============================================================================== ======== ========
Weighted average number of shares in issue (million) 1,018.2 1,014.2
============================================================================== ======== ========
Weighted average number of shares in EBT (million) (4.3) (3.8)
-------- --------
Weighted average number of shares for basic earnings per share (million) 1,013.9 1,010.4
-------- --------
Weighted average number of shares in issue (million) 1,018.2 1,014.2
============================================================================== ======== ========
Adjustment to assume conversion of all potentially dilutive shares (million) 10.0 10.0
-------- --------
Weighted average number of shares for diluted earnings per share (million) 1,028.2 1,024.2
-------- --------
(1) The Group has applied IFRS 16 using the modified
retrospective approach and therefore comparatives have not been
restated. Further information on the initial application of this
standard can be found in notes 1.4 and 1.5.
2.4 Dividends
2020 2019
GBPm GBPm
Amounts recognised as distributions to equity shareholders in the year:
=================================================================================== ====== ======
Final dividend for the year ended 30 June 2019 of 19.5p (2018: 17.9p) per share 197.8 180.6
=================================================================================== ====== ======
Special dividend for the year ended 30 June 2019 of 17.3p (2018: 17.3p) per share 175.4 174.6
=================================================================================== ====== ======
Interim dividend for the year ended 30 June 2020 of nil (2019: 9.6p) per share - 97.1
------ ------
Total dividends distributed to equity shareholders in the year 373.2 452.3
------ ------
2020 2019
GBPm GBPm
Proposed final dividend for the year ended 30 June 2020 of nil (2019: 19.5p) per share - 197.1
------- ------
Proposed special dividend for the year ended 30 June 2020 of nil (2019: 17.3p) per share - 175.0
------- ------
2.5 Tax
All profits of the Group are subject to UK corporation tax.
The current year tax charge has been provided for, by the Group,
at a standard effective rate of 19.0% (2019: 19.0%) and the closing
deferred tax assets and liabilities have been provided in these
condensed consolidated financial statements at a rate of 19.0%
(2019: between 17.0% and 19.0%) of the temporary differences giving
rise to these assets and liabilities, dependent upon when they are
expected to reverse.
2.5.1 Tax recognised in the Income Statement
The tax expense represents the sum of the tax currently payable
and deferred tax.
Analysis of the tax charge for the year
2020 2019
GBPm GBPm
Current tax:
=================================================== ====== ======
UK corporation tax for the year 100.0 176.3
=================================================== ====== ======
Adjustment in respect of previous years (7.4) (1.7)
------ ------
92.6 174.6
------ ------
Deferred tax:
=================================================== ====== ======
Origination and reversal of temporary differences (3.1) (5.0)
=================================================== ====== ======
Adjustment in respect of previous years (1.5) 0.2
=================================================== ====== ======
Impact of change in corporation tax rate 1.1 0.6
------ ------
(3.5) (4.2)
------ ------
Tax charge for the year 89.1 170.4
------ ------
Factors affecting the tax charge for the year
The tax rate assessed for the year is lower (2019: lower) than
the standard effective rate of corporation tax in the UK of 19.0%
(2019: 19.0%). The differences are explained below:
2020 2019
GBPm GBPm
Profit before tax 491.8 909.8
------ ------
Profit before tax multiplied by the standard rate of corporation tax of 19.0% (2019: 19.0%) 93.4 172.9
============================================================================================= ====== ======
Effects of:
============================================================================================= ====== ======
Other items including non-deductible expenses 4.8 0.5
============================================================================================= ====== ======
Additional tax relief for land remediation costs (1.3) (2.0)
============================================================================================= ====== ======
Adjustment in respect of previous years (8.9) (1.5)
============================================================================================= ====== ======
Adjustment for post-tax profits of certain JVs included in Group profit before tax - (0.1)
============================================================================================= ====== ======
Impact of change in tax rate on deferred tax liability 1.1 0.6
------ ------
Tax charge for the year 89.1 170.4
------ ------
Legislation was substantively enacted during the year to repeal
the reduction of the main corporation tax rate, thereby maintaining
19.0% throughout the financial year. Accordingly, the rate change
includes the re-measurement of opening temporary differences to
19.0% where these were previously measured at between 17.0% and
19.0% depending on the timing of expected reversal.
Completion volumes were significantly reduced by the Group's
decision to pause activity in response to COVID-19, reducing profit
before tax for the financial year. Adjustments in respect of
previous years reflect the latest estimates and assumptions and
truing up to final corporation tax computations. The proportional
impact of those adjustments has a greater impact on this year's
effective tax rate due to the lower profit before tax.
2.5.2 Tax recognised in equity
In addition to the amount charged to the Consolidated Income
Statement, a net current and deferred tax credit of GBP13.3m (2019:
GBP4.5m credit) was recognised directly in equity.
Section 3 - Working capital
-----------------------------
3.1 Inventories
Group
2020 2019
GBPm GBPm
-------- --------
Land held for development 3,112.3 3,071.6
================================================ ======== ========
Construction work in progress 1,852.4 1,632.8
================================================ ======== ========
Part-exchange properties and other inventories 63.2 119.9
-------- --------
5,027.9 4,824.3
-------- --------
3.1.1 Nature and carrying value of inventories
The Group's principal activities are housebuilding and
commercial development. The majority of the development activity is
not contracted prior to the development commencing. Accordingly,
the Group has in its Balance Sheet at 30 June 2020 current assets
that are not covered by a forward sale. The Group's internal
controls are designed to identify any developments where the
balance sheet value of land and work in progress is more than the
projected lower of cost or net realisable value. During the year
the Group has conducted six-monthly reviews of the net realisable
value of specific sites identified as at high risk of impairment,
based upon a number of criteria including low site profit margins
and sites with no forecast completions. Where the estimated net
realisable value of a site was less than its current carrying value
the Group has impaired the land and work in progress value.
During the year, due to performance variations, changes in
assumptions and changes to viability on individual sites, there
were gross impairment charges of GBP18.8m (2019: GBP5.5m) and gross
impairment reversals of GBP10.6m (2019: GBP20.3m), resulting in a
net impairment of GBP8.2m (2019: GBP14.8m reversal) included within
profit from operations.
The key estimates in these reviews are those used to estimate
the realisable value of a site, which is determined by forecast
sales rates, expected sales prices and estimated costs to complete.
The effects of COVID-19 have been considered and the expected
extension in the time period required to trade through each site
has increased site costs to complete.
The Directors consider all inventories to be essentially current
in nature, although the Group's operational cycle is such that a
proportion of inventories will not be realised within 12 months. It
is not possible to determine with accuracy when specific inventory
will be realised as this will be subject to a number of variables
such as consumer demand and planning permission delays.
3.1.2 Expensed inventories
The value of inventories expensed in the year ended 30 June 2020
and included in cost of sales was GBP2,511.9m (2019: GBP3,502.7m),
of which GBP29.1m in the current year relates to the incremental
costs of extensions in site durations due to the adoption of
COVID-19 safety practices.
3.2 Provisions
Group
------------------ ------------------
Legacy properties
- Citiscape
Legacy properties and related
- cladding review Total
GBPm GBPm GBPm
---------------------------- ------------------ ------------------ -------
At 1 July 2019 - - -
---------------------------- ------------------ ------------------ -------
Additions to provisions in
the year 11.4 28.5 39.9
----------------------------- ------------------ ------------------ -------
Utilisation in the year - (11.7) (11.7)
============================= ================== ================== =======
At 30 June 2020 11.4 16.8 28.2
----------------------------- ------------------ ------------------ -------
Further information on the Group's provisions is provided in
note 1.2.
Section 4 - Business combinations and other investing activities
-----------------------------------------------------------------
4.1 Business combinations
4.1.1 Non-controlling interests
Group
Movement in non-controlling interest share of net assets recognised in the Consolidated Balance 2020 2019
Sheet GBPm GBPm
------ ------
At 1 July 6.9 7.5
================================================================================================= ====== ======
Distribution of profits to non-controlling partner (8.5) -
================================================================================================= ====== ======
Share of profit/(loss) for the year recognised in the Consolidated Income Statement 3.0 (0.6)
================================================================================================= ====== ======
At 30 June 1.4 6.9
------ ------
4.2 Goodwill
Group
2020 2019
GBPm GBPm
------ ------
Cost
At 1 July 830.4 816.7
======================================== ====== ======
Arising on acquisition during the year - 13.7
------ ------
At 30 June 830.4 830.4
------ ------
Accumulated impairment losses
======================================== ====== ======
At 30 June 24.5 24.5
------ ------
Carrying amount
======================================== ====== ======
At 30 June 805.9 805.9
------ ------
During the prior year the Group acquired all of the share
capital of Oregon Timber Frame Limited. Goodwill arising on the
acquisition of GBP13.7m was capitalised and allocated to the
Group's housebuilding business.
The Group's goodwill relating to the acquisition of Wilson
Bowden Limited in 2007 has a carrying value of GBP792.2m relating
to the housebuilding business.
4.2.1 Impairment of goodwill and indefinite life brands
The Group conducts an annual impairment review of goodwill and
its indefinite life brand, David Wilson Homes, together for the
cash generating unit to which it is allocated, being the
housebuilding business.
An impairment review was performed at 30 June 2020 by comparing
the value-in-use of the housebuilding business to the carrying
value of its tangible and intangible assets and allocated
goodwill.
The value-in-use was determined by discounting the risk-adjusted
expected future cash flows of the housebuilding business. The first
year of cash flows were determined using the Group's approved
detailed site-by-site forecast. The cash flows for the second to
the fifth years were determined using Group level internal forecast
cash flows based upon expected volumes, selling prices and margins,
taking into account available land purchases and work in progress
levels. The cash flows for year six onwards were extrapolated in
perpetuity using an estimated growth rate of 1%, based upon the
historical long term growth rate of the UK economy.
COVID-19 has heightened the inherent uncertainty in the
prospects for the wider UK economy and housing market in the medium
term. The Group's financial forecasts reflect the outcomes that
Management consider most likely, based on the information available
at the date of signing of these financial statements. The key
assumptions underlying the forecasts are:
-- Expected changes in selling prices for completed houses and
the related impact on operating margin: these are determined on a
site-by-site basis for the first year dependent upon local market
conditions and product type . For years two to five, these have
been estimated at a Group level based upon past experience and
expectations of future changes in the market, taking into account
external market forecasts.
-- Sales volumes: these are determined on a site-by-site basis
for the first year dependent upon local market conditions, land
availability and planning permissions. For years two to five, these
have been estimated at a Group level based on past experience and
expectations of future changes in the market, taking into account
external market forecasts.
-- Expected changes in site costs to complete: these are
determined on a site-by-site basis for the first year dependent
upon the expected costs of completing all aspects of each
individual development. For years two to five, these have been
estimated at a Group level based on past experience and
expectations of future changes in the market, taking into account
external market forecasts.
The forecasts have been sensitised to reflect scenarios based on
the Group's principal risks and the downside prospects for the UK
economy through adjustments to the key assumptions. The adverse
scenarios modelled are the Directors' assessment of a reasonable
worst-case scenario, being that used to assess the Group's ability
to continue as a going concern in note 1.3, and a scenario in which
the Group's risks manifest to an intermediate level. The
risk-adjusted expected future cash flows are the weighted average
of these possible economic outcomes. The value-in-use constitutes
the present value of these cash flows through the application of an
appropriate discount rate.
The key variables for the value-in-use calculations were:
-- Discount rate: this is a pre-tax rate reflecting the Group's
target capital structure, current market assessments of the time
value of money and risks appropriate to the Group's housebuilding
business. In the prior year, uncertainty in the Group's cash flows
was reflected through an adjustment to the discount rate. In
response to COVID-19, Management have reflected future economic
uncertainty in the risk-adjusted cash flows, giving a more accurate
representation of the risks specific to the Group. As this risk has
been reflected in the underlying cash flows, no adjustment has been
made to the discount rate. Accordingly, a rate of 10.0% (2019:
15.2%) is considered by the Directors to be the appropriate pre-tax
discount rate.
-- Probability of variance in assumptions: Management consider
the assumptions applied in the Group's forecast to represent the
most likely outcomes. To reflect ongoing uncertainty, heightened by
COVID-19, the likelihood that actual performance will differ from
assumptions has been estimated at a Group level with reference to
external market forecasts and the Group's current trading
performance. A change in the assigned probabilities changes the
weighting of the scenarios in the calculation of the expected cash
flows.
The result of the value-in-use exercise concluded that the
recoverable value of goodwill and intangible assets exceeded its
carrying value by GBP1,182.5m (2019: GBP2,095.6m) and there has
been no impairment. The fall in headroom is due to a reduction in
forecast completions following COVID-19.
If the value-in-use is determined using only the reasonable
worst case cash flows, a full impairment of goodwill and indefinite
life brands is required. The sensitivity of the recoverable amount
of goodwill to changes in the discount rate and the probabilities
of the occurrence of adverse scenarios is shown below.
+100 bps -100 bps Change
---------- ---------- ---------- ----------
required
Change Change Revised Change Change Revised to reduce
in value in value headroom in value in value headroom headroom
Variable GBPm % GBPm GBPm % GBPm to GBPnil
---------- ---------- ---------- ---------- ---------- ---------- -----------
Discount rate (664.0) (11.1%) 518.5 830.6 13.9% 2,013.0 2.0%
---------- ---------- ---------- ---------- ---------- ---------- -----------
Probability
of adverse
scenarios (117.5) (2.0%) 1,065.0 117.5 2.0% 1,300.0 10.1%
---------- ---------- ---------- ---------- ---------- ---------- -----------
Section 5 - Capital structure and financing
--------------------------------------------
5.1 Net cash
Net cash is defined as cash and cash equivalents, bank
overdrafts, interest bearing borrowings and prepaid fees.
Net cash at 30 June is shown below:
Group
2019
2020 Re-presented(1)
Notes GBPm GBPm
-------- -------- -----------------
Cash and cash equivalents(1) 5.1.1 619.8 1,136.0
-------- -------- -----------------
Drawn debt
Borrowings:
============================================== ======== ======== =================
Sterling US private placement notes (200.0) (200.0)
======================================================== ======== =================
Bank overdrafts(1) (117.7) (177.7)
======================================================== ======== =================
Total borrowings being total drawn debt (317.7) (377.7)
======================================================== ======== =================
Prepaid fees 6.1 7.4
-------- -----------------
Net cash 308.2 765.7
-------- -----------------
Total borrowings at 30 June are analysed as:
============================================== ======== ======== =================
Non-current borrowings (200.0) (200.0)
======================================================== ======== =================
Current borrowings(1) (117.7) (177.7)
======================================================== ======== =================
Total borrowings being total drawn debt(1) (317.7) (377.7)
-------- -----------------
(1) The prior year balances for cash and cash equivalents and
bank overdrafts have been re-presented in accordance with IAS 32
(see note 1.4). There is no impact on net cash.
Movement in net cash, including a reconciliation of liabilities
arising from financing activities, is analysed as follows:
Group
2020 2019
re-presented(1)
GBPm GBPm
-------- -----------------
Net decrease in cash and cash equivalents(1) (516.2) (40.2)
============================================== ======== =================
Repayment/(drawdown) of borrowings:
============================================== ======== =================
Loan repayments(1) 60.0 16.1
============================================== ======== =================
Other movements in borrowings:
============================================== ======== =================
Movement in prepaid fees (1.3) (1.5)
============================================== ======== =================
Movement in net cash in the year (457.5) (25.6)
============================================== ======== =================
Opening net cash 765.7 791.3
-------- -----------------
Closing net cash 308.2 765.7
-------- -----------------
(1) The prior year balances for cash and cash equivalents and
bank overdrafts have been re-presented in accordance with IAS 32
(see note 1.4) and as a result the movements reported in the prior
year have been amended.
5.1.1 Cash and cash equivalents
Cash and cash equivalents are held at floating interest rates
linked to the UK bank rate, LIBOR and money market rates as
applicable. Cash and cash equivalents comprise cash held by the
Group and short term bank deposits with an original maturity of
three months or less from inception and are subject to an
insignificant risk of changes in value.
5.1.2 Borrowings and facilities
All debt facilities at 30 June 2020 are unsecured.
The principal features of the Group's committed debt facilities
at 30 June 2020 and 30 June 2019 were as follows:
Amount drawn
30 June 30 June
Facility 2020 2019 Maturity
---------- ---------- --------------------
Committed facilities:
====================== ========== ========== ========== ====================
RCF GBP700.0m - - 22 November 2024(1)
====================== ========== ========== ========== ====================
Fixed rate sterling
USPP notes GBP200.0m GBP200.0m GBP200.0m 22 August 2027
---------- ---------- ---------- --------------------
(1) On 22 November 2019, the Group's GBP700.0m RCF was amended
and extended from November 2023 to November 2024.
In addition, on 28 April 2020 the Group received confirmation
that it was eligible to access funding under the CCFF until March
2021 should that be required.
The Group also uses various bank overdrafts and uncommitted
borrowing facilities that are subject to floating interest rates
linked to the UK bank rate and LIBOR as applicable. Publication of
LIBOR is expected to cease before the end of 2021, after which
floating interest rates currently linked to LIBOR will be
transitioned to an appropriate alternative reference rate under the
existing agreements.
Weighted average interest rates are disclosed in note 5.2.
5.2 Net finance costs
Recognised in the Consolidated Income Statement:
2020 2019
Notes GBPm GBPm
Finance income
============================================= ====== ====== ======
Finance income on short term bank deposits (3.0) (2.8)
============================================= ====== ====== ======
Finance income related to employee benefits 6.1 (1.6) (2.0)
============================================= ====== ====== ======
Other interest receivable (0.5) (2.3)
------ ------ ------
(5.1) (7.1)
------ ------ ------
Finance costs
============================================= ====== ====== ======
Interest on loans and borrowings 9.5 9.7
============================================= ====== ====== ======
Imputed interest on deferred term payables 19.9 21.5
============================================= ====== ====== ======
Finance charges on leased assets(1) 2.0 -
============================================= ====== ====== ======
Amortisation of facility fees 2.3 2.8
============================================= ====== ====== ======
Other interest payable 1.3 1.9
------ ------ ------
35.0 35.9
------ ------ ------
Net finance costs 29.9 28.8
------ ------ ------
(1) The Group has applied IFRS 16 using the modified
retrospective approach and therefore comparatives have not been
restated. Further information on the initial application of this
standard can be found in notes 1.4 and 1.5.
The weighted average interest rates (excluding fees) paid in the
year were as follows:
Group
2020 2019
% %
----- -----
USPP notes 2.8 2.8
----- -----
5.3 Financial risk management
The Group's approach to risk management and the principal
operational risks of the business are detailed in note 7.5.
The Group's operations and financing arrangements expose it to a
variety of financial risks, of which the most material are:
liquidity risk, the availability of funding at reasonable margins,
credit risk and interest rates. There is a regular, detailed system
for the reporting and forecasting of cash flows from operations to
Senior Management including Executive Directors to ensure that
liquidity risks are promptly identified and appropriate mitigating
actions are taken by the Treasury department. These forecasts are
further stress-tested at a Group level on a regular basis to ensure
that adequate headroom within facilities and banking covenants is
maintained. In addition, the Group has in place a risk management
programme that seeks to limit the adverse effects of the other
risks on its financial performance.
The Board approves treasury policies and certain day-to-day
treasury activities have been delegated to a centralised Treasury
Operating Committee, which in turn regularly reports to the Board.
The Treasury department implements guidelines that are established
by the Board and the Treasury Operating Committee.
5.3.1 Liquidity risk
Liquidity risk is the risk that the Group will be unable to meet
its liabilities as they fall due. The Group actively maintains a
mixture of long term and medium term committed facilities that are
designed to ensure that the Group has sufficient available funds
for operations. The Group's borrowings are typically cyclical
throughout the financial year and peak in April to May, and October
to November of each year, due to seasonal trends in income.
Accordingly, the Group maintains sufficient facility headroom to
cover these requirements. On a normal operating basis, the Group
has a policy of maintaining a minimum headroom of GBP150.0m. The
Group identifies and takes appropriate actions based on its
regular, detailed system for the reporting and forecasting of cash
flows from its operations. In response to the potential impact of
COVID-19 on the Group's forecast cash flows, the Group applied for,
and has received confirmation that it is eligible to access funding
under the CCFF until March 2021 should that be required. The
Group's drawn debt, excluding fees, re-presented 35.3% (2019: 42.0%
(re-presented - see note 1.4)) of available committed facilities at
30 June 2020. In addition, the Group had GBP619.8m (2019:
GBP1,136.0m (re-presented - see note 1.4)) of cash and cash
equivalents.
The Group was in compliance with its financial covenants at 30
June 2020. The Group's resilience to its principal risks, including
potential impacts resulting from COVID-19, has been modelled
together with possible mitigating actions, over a three-year
period. At the date of approval of the Financial Statements, the
Group's internal forecasts indicate that it will be able to operate
within its current facilities and remain in compliance with these
covenants for the foreseeable future, being at least 12 months from
the date of approval of these condensed consolidated financial
statements.
One of the Group's objectives is to minimise refinancing risk.
The Group therefore has a policy that the average maturity of its
committed bank facilities and private placement notes is a minimum
of two years with a target of two to three years. At 30 June 2020,
the average maturity of the Group's committed facilities was 5.0
years (2019: 5.2 years).
The Group maintains certain committed floating rate facilities
with banks to ensure sufficient liquidity for its operations. The
undrawn committed facilities available to the Group, in respect of
which all conditions precedent had been met, were as follows:
Group
2020 2019
Expiry date GBPm GBPm
------ ------
In more than two years but not more than five years 700.0 700.0
------ ------
On 28 April 2020 the Group received confirmation that it was
eligible to access funding under the CCFF until March 2021 should
that be required.
In addition, the Group had undrawn uncommitted overdraft
facilities available at 30 June 2020 of GBP55.0m (2019:
GBP95.0m).
5.3.2 Market risk (price risk)
5.3.2.1 Interest rate risk
The Group has both interest bearing assets and interest bearing
liabilities. Floating rate borrowings expose the Group to cash flow
interest rate risk, and fixed rate borrowings expose the Group to
fair value interest rate risk.
The Group has a conservative treasury risk management strategy
and the Group's interest rates are set using fixed rate debt
instruments.
Due to the level of the Group's interest cover ratio and in
accordance with the Group's policy to hedge a proportion of the
forecast RCF drawings based on the Group's three-year plan, no
interest rate hedges are currently required.
The exposure of the Group's financial liabilities to interest
rate risk is as follows:
Floating rate financial Fixed rate financial Non-interest bearing
liabilities liabilities financial liabilities Total
Group GBPm GBPm GBPm GBPm
2020
Financial liability
exposure to interest
rate risk - 200.0 1,410.6 1,610.6
-------------------------- ------------------------- ------------------------- --------
2019
Financial liability
exposure to interest
rate risk(1) - 200.0 1,808.8 2,008.8
-------------------------- ------------------------- ------------------------- --------
(1) The prior year balances for cash and cash equivalents and
bank overdrafts have been re-presented in accordance with IAS 32
(see note 1.4).
Floating interest rates on sterling borrowings are linked to the
UK bank rate, LIBOR and money market rates. The floating rates are
fixed in advance for periods generally ranging from one to six
months. Short term flexibility is achieved through the use of
overdraft, committed and uncommitted bank facilities. The Group
retained a strong cash position throughout the year and therefore
the use of floating rate facilities was minimal. The weighted
average interest rate for floating rate borrowings in 2020 was 1.7%
(2019: 2.0%).
Sterling USPP notes of GBP200.0m were issued on 22 August 2017
with a fixed coupon of 2.77% and a ten-year maturity. These fixed
rate notes expose the Group to fair value interest rate risk.
Sensitivity analysis
In the year ended 30 June 2020, if UK interest rates had been
0.5% higher/lower (considered to be a reasonably possible change)
and all other variables were held constant, the Group's pre-tax
profit would increase/decrease by GBP2.6m (2019: GBP2.2m), the
Group's post-tax profit would increase/decrease by GBP2.1m (2019:
GBP1.8m) and as such the Group's equity would increase/decrease by
GBP2.1m (2019: GBP1.8m).
5.3.3 Credit risk
In the majority of cases, the Group receives cash on legal
completion for private sales and receives advance stage payments
from registered providers for affordable housing. Included within
trade and other receivables is GBP12.0m (2019: GBP77.6m) due from
Homes England in respect of the Help to Buy scheme. Since this
receivable is due from a UK Government agency, the Group considers
that this receivable has an insignificant risk of default. In
addition the Group has GBP619.8m (2019: GBP1,136.0m (re-presented
see note 1.4)) on deposit with seven financial institutions. As a
result of the pension scheme buy-in (note 6.1) the Group is exposed
to credit risk associated with the insurer which is assessed to be
low. Other than this, the Group has no significant concentration of
credit risk, as its exposure is spread over a large number of
counterparties and customers.
The Group manages credit risk through its credit policy. This
limits its exposure to financial institutions with high credit
ratings, as set by international credit rating agencies, and
determines the maximum permissible exposure to any single
counterparty.
The maximum exposure to any counterparty at 30 June 2020 was
GBP100.7m (2019: GBP158.3m) of cash on deposit with a financial
institution. The carrying amount of financial assets recorded in
the condensed consolidated financial statements, net of any
allowance for losses, represents the Group's maximum exposure to
credit risk.
5.3.4 Capital risk management (cash flow risk)
The Group's objectives when managing capital are to safeguard
its ability to continue as a going concern in order to provide
returns for shareholders and meet its liabilities as they fall due
while maintaining an appropriate capital structure.
The Group manages its share capital as equity, as set out in the
Statement of Changes in Shareholders' Equity; and its bank
borrowings (being overdrafts, loan notes and bank loans) and its
private placement notes as other financial liabilities. The Group
is subject to the prevailing conditions of the UK economy and the
quantum of the Group's earnings is dependent upon the level of UK
house prices. UK house prices are determined by the UK economy and
economic conditions including the impact of COVID-19, employment
levels, interest rates, consumer confidence, mortgage availability
and competitor pricing. The Group's approach to the management of
the principal operational risks of the business, including its
mitigating actions in response to COVID-19 are detailed in note
7.5.
Following the lockdown introduced by the UK Government in
response to COVID-19, in order to manage its cash flows and capital
structure, the Group cancelled payment of the 2020 interim dividend
and no final dividend or special cash payments will be made in
respect of the year ended 30 June 2020. The Group also suspended
land buying activity and carefully managed its operational cash
flows. In addition, on 28 April 2020 the Group received
confirmation that it was eligible to access funding under the CCFF
until March 2021 should that be required.
Other methods by which the Group can manage its short term and
long term capital structure include: further adjusting the level of
dividends and special cash payments paid to shareholders (assuming
the Company is paying a dividend or a special cash payment);
issuing new share capital; arranging debt to meet liability
payments; and selling assets to reduce debt.
5.4 Share capital
5.4.1 Ordinary share capital
2020 2019
Allotted and issued ordinary shares GBPm GBPm
10p each fully paid: 1,018,302,400 (2019: 1,016,985,862) ordinary shares 101.8 101.7
------ ------
2020 2019
Options over the Company's shares granted during the year Number Number
LTPP 2,629,027 2,940,565
=========================================================== ========== ==========
Sharesave 3,142,874 1,673,444
=========================================================== ========== ==========
DBP 583,505 644,386
=========================================================== ========== ==========
ELTIP 1,254,200 1,221,120
=========================================================== ========== ==========
7,609,606 6,479,515
---------- ----------
2020 2019
Allotment of shares during the year Number Number
At 1 July 1,016,985,862 1,012,722,682
============================================================= ============== ==============
Issued to satisfy early exercises under Sharesave schemes 39,215 39,090
============================================================= ============== ==============
Issued to satisfy exercises under matured Sharesave schemes 1,277,323 1,524,090
============================================================= ============== ==============
Issued to the EBT to satisfy future exercises - 2,700,000
-------------- --------------
At 30 June 1,018,302,400 1,016,985,862
-------------- --------------
5.4.2 Own shares reserve
The own shares reserve represents the cost of shares in Barratt
Developments PLC purchased in the market or issued by the Company
and held by the EBT on behalf of the Company in order to satisfy
options and awards that have been granted by the Company.
The EBT has agreed to waive all or any future right to dividend
payments on shares held within the EBT and these shares do not
count in the calculation of the weighted average number of shares
used to calculate EPS until such time as they are vested to the
relevant employee.
2020 2019
Ordinary shares in the Company held in the EBT (number) 4,708,806 6,172,255
---------- ----------
Cost of shares held in the EBT GBP20.1m GBP15.1m
---------- ----------
Market value of shares held in the EBT at 495.9p (2019: 572.6p) per share GBP23.4m GBP35.3m
---------- ----------
During the year the EBT purchased 1,174,900 (2019: 4,000,000)
shares in the market and disposed of 111,851 (2019: 58,801) shares
in settlement of exercises under the SMSOP 2009/10; and 2,526,498
(2019: 1,400,549) shares were used to satisfy the vesting of the
2016 LTPP and the 2016 DBP. No shares (2019: 2,700,000 shares) were
issued to the EBT at par.
Section 6 - Directors and employees
------------------------------------
6.1 Retirement benefit obligations
The Group operates defined contribution and defined benefit
pension schemes.
6.1.1 Defined contribution schemes
The Group operates defined contribution retirement benefit
schemes for all qualifying employees, under which it pays
contributions to an independently administered fund. Contributions
are based upon a fixed percentage of the employee's pay and once
these have been paid, the Group has no further obligations under
these schemes.
2020 2019
GBPm GBPm
Contributions during the year
========================================================================== ====== ======
Group defined contribution schemes' Consolidated Income Statement charge 13.6 11.5
------ ------
At the balance sheet date, there were outstanding contributions
of GBP2.0m (2019: GBP2.0m), which were paid on or before the due
date.
6.1.2 Defined benefit scheme
The Group operates a funded defined benefit pension scheme in
Great Britain, which, with effect from 30 June 2009, ceased to
offer future accrual of defined benefit pensions. Alternative
defined contribution pension arrangements are in place for current
employees.
The Scheme provides benefits to members based on their length of
service and their salary in the final years leading up to
retirement or date of ceasing active accrual if earlier. The Group
operates the Scheme under the UK regulatory framework, with a
legally separate fund that is Trustee administered. The Trustees
are responsible for ensuring that the Scheme is sufficiently funded
to meet current and future benefit payments and for the investment
policy with regard to Scheme assets. The Group continues to meet
the Scheme's administration expenses and Pension Protection Fund
levy.
On 16 June 2020, the Trustees entered into a bulk annuity
insurance contract with an insurer in respect of the liabilities of
the defined benefit scheme. This type of deal is also known as a
'buy-in'. The insurer will pay into the Scheme cash matching the
benefits due to members. The Trustees are of the opinion that this
investment decision is appropriate, reduces the risks in the Scheme
and provides additional security for the benefits due to members of
the Scheme. The Trustees retain the legal obligation for the
benefits provided under the Scheme.
As the buy-in policy is a qualifying insurance asset, the fair
value of the insurance policy is deemed to be the present value of
the obligations that have been insured. The policy secured exactly
matches the benefits due to Scheme members under the Scheme's Trust
Deed and Rules, and the asset has therefore been set equal to the
liabilities covered. An additional liability has been recognised in
respect of GMP equalisation, where a small premium will be paid to
the insurer once the process of equalisation has been
completed.
The buy-in has resulted in a re-measurement of the scheme's
assets, with a re-measurement loss of GBP69.2m recognised in the
Group Statement of Comprehensive Income.
The Scheme previously exposed the Group to a number of risks. As
a result of the buy-in these risks have been reduced and at the
balance sheet date the principal risk is the credit risk associated
with the insurer which is assessed to be low.
For the purposes of calculating the accounting costs and
obligations of the Scheme, the assets of the Scheme were previously
calculated at fair (bid) value. In the current year they are
assumed to match the value of the obligations insured. The
liabilities of the Scheme have been calculated at each balance
sheet date using the following assumptions:
Principal actuarial assumptions 2020 2019
Weighted average assumptions to determine benefit obligations
=============================================================== ====== ======
Discount rate 1.58% 2.31%
=============================================================== ====== ======
Pensions-in-payment increase rate 2.94% 3.17%
=============================================================== ====== ======
Rate of price inflation 3.08% 3.38%
------ ------
Weighted average assumptions to determine net cost
=============================================================== ====== ======
Discount rate 2.31% 2.91%
=============================================================== ====== ======
Pensions-in-payment increase rate 3.17% 3.08%
=============================================================== ====== ======
Rate of price inflation 3.38% 3.30%
------ ------
Members are assumed to exchange 19% of their pension for cash on
retirement. The assumptions have been chosen by the Group following
advice from Mercer Limited, the Group's actuarial advisers.
The following table illustrates the life expectancy for an
average member on reaching age 65, according to the mortality
assumptions used to calculate the Scheme liabilities:
Assumptions Male Female
Retired member born in 1955 (life expectancy at age 65) 22.7 years 24.3 years
----------- -----------
Non-retired member born in 1975 (life expectancy at age 65) 23.9 years 25.5 years
----------- -----------
The base mortality assumptions are based on the SAPS
SP3MA/S2PFA_M (2019: S2PA) mortality tables with an adjustment to
allow for the Scheme members being treated as if they are 1.5 years
younger than the population of the S2PA mortality tables. Allowance
for future increases in life expectancy is made in line with the
CMI 2019 projections with a long term trend of 1.25% per annum
(2019: CMI 2018 projections with a long term trend of 1.25% per
annum).
The sensitivities regarding the principal assumptions used to
measure the Scheme liabilities are set out below:
Increase/(decrease) in Scheme liabilities
Assumptions Change in assumption GBPm %
---------------------- -----------------------
Discount rate Increase of 0.25% (19.2) (4.5)
Increase of 0.50% (37.2) (8.7)
------------------------------------------ ----------------------- -------------------
Rate of inflation Increase of 0.25% 9.3 2.2
Increase of 0.50% 19.0 4.5
------------------------------------------ ----------------------- -------------------
Life expectancy Increase by 1 year 20.7 4.9
---------------------- ----------------------- -------------------
The changes in the actuarial assumptions used in the calculation
of sensitivities were selected on the basis that they provide a
range of reasonably possible changes.
The amounts recognised in the Consolidated Income Statement were
as follows:
2020 2019
GBPm GBPm
Past service cost - (1.7)
=========================================================================================== ====== =======
Interest cost (8.9) (10.1)
=========================================================================================== ====== =======
Interest income 10.5 12.1
------ -------
Total pension income recognised in net finance costs in the Consolidated Income Statement 1.6 2.0
------ -------
Total pension income recognised in the Consolidated Income Statement 1.6 0.3
------ -------
The amounts recognised in the Group Statement of Comprehensive
Income were as follows:
2020 2019
GBPm GBPm
Expected return less actual return on Scheme assets (29.6) 28.8
================================================================================================== ======= =======
Loss arising from changes in the assumptions underlying the present value of benefit obligations (39.6) (44.2)
================================================================================================== ======= =======
Total pension re-measurements recognised in the Group Statement of Comprehensive Income (69.2) (15.4)
------- -------
The amount included in the Group Balance Sheet arising from
obligations in respect of the Scheme is as follows:
2020 2019
GBPm GBPm
Net asset for defined benefit obligations at 1 July 62.6 58.7
====================================================================================== ======== ========
Contributions paid to the Scheme 8.5 19.0
====================================================================================== ======== ========
Income recognised in the Consolidated Income Statement 1.6 0.3
====================================================================================== ======== ========
Amounts recognised in the Group Statement of Comprehensive Income (69.2) (15.4)
-------- --------
Surplus for funded Scheme/net asset recognised in the Group Balance Sheet at 30 June 3.5 62.6
-------- --------
Analysed as:
Present value of funded obligations (425.8) (393.9)
====================================================================================== ======== ========
Fair value of Scheme assets 429.3 456.5
-------- --------
A deferred tax liability of GBP0.7m (2019: GBP11.6m) has been
recognised in the Group Balance Sheet in relation to the pension
asset.
Movements in the present value of defined benefit obligations
were as follows:
2020 2019
GBPm GBPm
Present value of defined benefit obligations at 1 July 393.9 357.3
========================================================= ======= =======
Past service cost - 1.7
========================================================= ======= =======
Interest cost 8.9 10.1
========================================================= ======= =======
Actuarial loss 39.6 44.2
========================================================= ======= =======
Benefits paid from Scheme (16.6) (19.4)
------- -------
Present value of defined benefit obligations at 30 June 425.8 393.9
------- -------
The maturity profile of these obligations at 30 June 2020 was as
follows:
2020
Expected total benefit payments: GBPm
Within one year 17.2
================================== ======
Between one and two years 17.8
================================== ======
Between two and five years 57.2
================================== ======
Between five and ten years 109.6
------
Movements in the fair value of Scheme assets were as
follows:
2020 2019
GBPm GBPm
Fair value of Scheme assets at 1 July 456.5 416.0
======================================== ======= =======
Interest income 10.5 12.1
======================================== ======= =======
Actuarial (loss)/gain on Scheme assets (29.6) 28.8
======================================== ======= =======
Employer contributions 8.5 19.0
======================================== ======= =======
Benefits paid from Scheme (16.6) (19.4)
------- -------
Fair value of Scheme assets at 30 June 429.3 456.5
------- -------
The analysis of Scheme assets was as follows:
2020 2019
GBPm % GBPm %
------ ------
Quoted equity securities - - 67.4 14.8
================================== ====== ====== ====== ======
Debt securities - - 380.7 83.4
================================== ====== ====== ====== ======
Assets held by insurance company 425.8 99.2 - -
================================== ====== ====== ====== ======
Cash 3.5 0.8 8.4 1.8
------ ------ ------ ------
Total 429.3 100.0 456.5 100.0
------ ------ ------ ------
The fair values of the Scheme assets in the above table are
measured in accordance with level 2 as defined in note 5.3.3 of the
Annual Report and Accounts.
The actual return on Scheme assets was as follows:
2020 2019
GBPm GBPm
Actual return on Scheme assets (19.1) 40.9
------- ------
The expected employer contribution to the Scheme in the year
ending 30 June 2021 is GBPnil.
Section 7 - Contingencies, related parties and principal
risks
---------------------------------------------------------
7.1 Contingent liabilities
7.1.1 Contingent liabilities related to subsidiaries
Certain subsidiary undertakings have commitments for the
purchase of trading stock entered into in the normal course of
business.
In the normal course of business, the Group has given
counter-indemnities in respect of performance bonds and financial
guarantees. Management estimate that the bonds and guarantees
amount to GBP399.1m (2019: GBP444.8m), and confirm that at the date
of these condensed consolidated financial statements the
possibility of cash outflow is considered minimal and no provision
is required.
Cladding
As disclosed in note 1.2, the Group has undertaken a review of
all of its current and legacy buildings where it has used cladding
solutions. Approved Inspectors signed off all of our buildings,
including the cladding used, as compliant with the relevant
Building Regulations at the time of completion.
We recognise that the retrospective review of building materials
continues to evolve. The Financial Statements have been prepared
based on currently available information; however, the costs of the
removal and replacement of cladding may change as building works
progress. In addition, further changes to Building Regulations and
Fire Safety Regulations are currently in the consultation phase and
revised requirements may alter the current position.
Structural issues
As disclosed in note 1.2, following the issues identified at
Citiscape, the Group is conducting a review of developments where
reinforced concrete frames have been designed by either the same
original engineering firm which designed Citiscape, or by other
companies within the group of companies which has since acquired
it. The condensed consolidated financial statements have been
prepared based on currently available information, however, the
detailed review is ongoing and therefore the extent and cost of any
remedial work may change as this work progresses.
While in most cases we have no legal liability, in line with our
commitment to put our customers first we will ensure that no costs
associated with these remedial works are borne by leaseholders. We
are actively seeking to recover costs from third parties, however
there is no certainty regarding the extent of any financial
recovery.
7.1.2 Contingent liabilities related to JVs and associates
The Group has given counter-indemnities in respect of
performance bonds and financial guarantees to its JVs totalling
GBP10.4m at 30 June 2020 (2019: GBP12.5m).
At 30 June 2020, the Group no longer has an obligation to repay
grant monies received by a JV upon certain future disposals of land
(2019: GBP0.9m).
The Group has also given a number of performance guarantees in
respect of the obligations of its JVs, requiring the Group to
complete development agreement contractual obligations in the event
that the JVs do not perform as required under the terms of the
related contracts. These guarantees have been reviewed in the light
of COVID-19, and at 30 June 2020 the probability of any loss to the
Group resulting from these guarantees is considered to be
remote.
There are no contingent liabilities in relation to associates at
30 June 2020 or 30 June 2019.
7.1.3 Contingent liabilities related to legal claims
Provision is made for the Directors' best estimate of all known
material legal claims and all legal actions in progress. The Group
takes legal advice as to the likelihood of success of claims and
actions and no provision is made (other than for legal costs) where
the Directors consider, based on such advice, that claims or
actions are unlikely to succeed, or a sufficiently reliable
estimate of the potential obligations cannot be made.
7.2 Related party transactions
7.2.1 Remuneration of key personnel
The Board and certain members of Senior Management are related
parties within the definition of IAS 24 (Revised) 'Related Party
Disclosures' ('IAS 24') and the Board are related parties within
the definition of Chapter 11 of the UK Listing Rules ('Chapter
11'). There is no difference between transactions with key
personnel of the Company and transactions with key personnel of the
Group.
Disclosures related to the remuneration of key personnel as
defined in IAS 24 will be provided in note 6.1 of the 2020 Annual
Report and Accounts .
There have been no related party transactions as defined in
Listing Rule 11.1.5R for the year ended 30 June 2020.
7.2.2 Transactions between the Company and its subsidiaries
The Company has entered into transactions with its subsidiary
undertakings in respect of funding and Group services (which
include management accounting and audit, sales and marketing, IT,
company secretarial, architects and purchasing). Recharges are made
to the subsidiaries based on their utilisation of these
services.
Company
------
2020 2019
GBPm GBPm
------------------------------------------------------------------------------ ------ --------
Transactions between the Company and its subsidiaries during the year:
============================================================================== ====== ========
Charges in respect of management and other services provided to subsidiaries 67.2 82.7
=============================================================================== ====== ========
Net interest paid by the Company on net loans from subsidiaries 5.0 4.1
=============================================================================== ====== ========
Dividends received from subsidiary undertakings 519.3 593.6
------------------------------------------------------------------------------- ------ --------
Balances at 30 June:
============================================================================== ====== ========
Amounts due by the Company to subsidiary undertakings 19.3 334.3
=============================================================================== ====== ========
Amounts due to the Company from subsidiary undertakings 395.5 76.3
------------------------------------------------------------------------------- ------ --------
The Company and its subsidiaries have entered into
counter-indemnities in the normal course of business in respect of
performance bonds.
7.2.3 Transactions between the Group and its JVs
The Group has entered into transactions with its JVs as
follows:
Group
------
2020 2019
GBPm GBPm
--------------------------------------------------------------------------------- ------ ------
Transactions between the Group and its JVs during the year:
================================================================================= ====== ======
Charges in respect of development management and other services provided to JVs 5.6 8.4
================================================================================== ====== ======
Interest charges in respect of funding provided to JVs 0.5 2.2
================================================================================== ====== ======
Dividends received from JVs 24.2 60.3
---------------------------------------------------------------------------------- ------ ------
Balances at 30 June:
================================================================================= ====== ======
Funding loans and interest due from JVs net of impairment 81.9 64.4
================================================================================== ====== ======
Other amounts due from JVs 15.7 19.8
================================================================================== ====== ======
Loans and other amounts due to JVs (0.9) (1.8)
---------------------------------------------------------------------------------- ------ ------
In addition, one of the Group's subsidiaries, BDW Trading
Limited, contracts with a number of the Group's JVs to provide
construction services.
The Group's contingent liabilities relating to its JVs are
disclosed in note 7.1.2.
7.2.4 Transactions between the Group and its associate
The amount of outstanding loans due to the Group from its
associate at 30 June 2020 was GBPnil (2019: GBPnil). There were no
other amounts outstanding to the Group from its associate as at 30
June 2020.
7.3 Post balance sheet events
Structural issues
As disclosed in note 1.2, following the issues identified at
Citiscape, the Group is conducting a review of developments where
reinforced concrete frames have been designed by either the same
original engineering firm which designed Citiscape, or by other
companies within the group of companies which has since acquired
it.
The detailed reviews of these developments is ongoing. We
apologise unreservedly to affected customers that the standards
that we set for ourselves and our partners were not met at these
developments. While in most cases we have no legal liability, in
line with our commitment to put our customers first we will ensure
that no costs associated with these remedial works are borne by
leaseholders. After the year end, the Group has committed to
undertake remedial work at additional developments.
Based on our current assessments, it is estimated that the total
future costs, in addition to those costs recognised in FY20 and
prior, will be GBP48.0m. This is for the required remedial
programme at Citiscape, the review itself, and any remediation
required at other buildings. We are actively seeking to recover
costs from third parties, however there is no certainty regarding
the extent of any financial recovery. No adjustments have been made
to these Financial Statements in respect of these costs.
Coronavirus Job Retention Scheme
During the year the Group utilised the Government's CJRS. The
Group recognised GBP26.0m of funding under this scheme in the
Income Statement in the financial year. The furlough scheme
provided welcome and timely support but on 6 July 2020 the Group
announced that because of the resilience of the Group's financial
position it would return all the furlough funds received. These
funds were returned in August 2020. Given the timing of the
decision to repay the CJRS, there was no liability recognised at 30
June and the costs will be recognised and treated as an adjusted
item in the year ending 30 June 2021.
7.4 Statutory accounts
The condensed consolidated financial statements for the year
ended 30 June 2020 have been approved by the Directors and prepared
in accordance with International Financial Reporting Standards
('IFRS') as issued by the International Accounting Standards Board
('IASB'), International Financial Reporting Interpretations
Committee ('IFRIC') interpretations and Standing Interpretations
Committee ('SIC') interpretations as adopted and endorsed by the
European Union ('EU').
Barratt Developments PLC's 2020 Annual Report and Accounts will
be made available to shareholders and published on its website
www.barrattdevelopments.co.uk in September 2020. The financial
information set out herein does not constitute the Company's
statutory accounts for the year ended 30 June 2020 (as defined in
Sections 434 and 436 of the Companies Act 2006) but is derived from
the 2020 Annual Report and Accounts and the accounts contained
therein. Statutory accounts for 2020 will be delivered to the
Registrar of Companies prior to the Company's Annual General
Meeting which will be held on 14 October 2020. The auditor has
reported on these accounts; their report was unqualified and did
not contain statements under Section 498 (2) or (3) of the
Companies Act 2006.
The comparative figures for the year ended 30 June 2019 are not
the Company's statutory accounts for the financial year but are
derived from those accounts which have been reported on by the
Company's auditor and which were delivered to the Registrar of
Companies. The 2019 report of the auditor is unqualified and does
not contain statements under Section 498 (2) or (3) of the
Companies Act 2006.
Whilst the financial information included in this Annual Results
Announcement has been prepared in accordance with IFRS, this
announcement does not itself contain sufficient information to
comply with IFRS as adopted for use in the EU.
7.5 Risk management
Our performance is subject to a number of risks. The Board has
conducted a robust assessment of the principal risks facing the
business. Whilst the principal risks for the Group related to the
execution of its business strategy have not fundamentally changed,
the likelihood of the risk factors occurring can change.
COVID-19 presents a risk to the health and safety of our
employees, sub-contractors and customers. The Group prioritises
health and safety and has implemented COVID-19 working practices
and protocols in line with the latest guidance from the Government,
Public Health Authorities and the Construction Leadership
Council.
In addition, the pandemic has heightened the Group's other
principal risks: it has required the Group to quickly adapt to a
new working environment, involving changes to construction methods
and IT systems, coupled with economic uncertainty and challenges
for our supply chain. As the pandemic has evolved, the Board has
reassessed its impact on principal risks. In addition, a
'bottom-up' evaluation was completed to ensure a comprehensive
consideration of the risks to the business. Additional mitigating
actions have been implemented where necessary.
There is an overarching risk of a significant unexpected event,
such as the COVID-19 pandemic, having a material impact on the
business, manifesting through the Group's principal risks. Our
business has an established action plan for significant unexpected
events, the effectiveness of which has been demonstrated by our
response to COVID-19 this year.
The principal risks are set out in the table below, including
the impact of COVID-19 and the mitigating actions adopted in
response. In addition to its principal risks, the Group has
identified climate change and social trends as emerging risks.
Risk A B C D E
Economic environment, including housing demand and mortgage Land availability Government regulation and planning policy Joint ventures and consortia Construction
availability
Risk level net High risk Medium risk Medium risk Low risk High risk
of mitigation
-------------------------------------------------------------- ------------------------------------------------------------ -------------------------------------------------------------- -------------------------------------------------------------- --------------------------------------------------------------
Risk appetite Medium risk Medium risk Medium risk Medium risk Low risk
-------------------------------------------------------------- ------------------------------------------------------------ -------------------------------------------------------------- -------------------------------------------------------------- --------------------------------------------------------------
Link to Customer first Great places Great places Great places Leading construction
strategic
priorities
-------------------------------------------------------------- ------------------------------------------------------------ -------------------------------------------------------------- -------------------------------------------------------------- --------------------------------------------------------------
Change in risk No change No change No change No change Increase
level from
previous year
-------------------------------------------------------------- ------------------------------------------------------------ -------------------------------------------------------------- -------------------------------------------------------------- --------------------------------------------------------------
Risk Changes in the UK macroeconomic environment may lead to The inability to secure sufficient consented land and Changes in the regulatory The Group can facilitate large or Failure to achieve excellence in
description falling demand or tightened mortgage strategic land options at appropriate environment affect the conditions and complex developments through joint ventures or consortia construction, through delays from adverse conditions, a
availability, on which the majority of our customers are cost and quality in the right locations which enhance time taken to obtain planning approval arrangements, allowing the provision failure to identify cost overruns
reliant, reducing the affordability communities. and technical requirements including of housing in particular areas of need by sharing risk and promptly, design and construction defects, and deviation from
of our homes. Building Regulations, increasing the challenge of providing capital requirements. environmental standards.
Securing favourable sites that meet our margin and site quality homes where they are most
An inability to meet customers' needs will lead to reduced ROCE hurdle needed. Securing more JV sites that meet Delays or deficiencies in construction
volumes and affect our ability rates will enable volume growth. our hurdle rates enables disciplined could increase costs, expose the
to provide profitable growth. Sufficient, appropriate planning volume growth, but the arrangements Group to liabilities, and result in poor product quality,
permissions on new sites will enable may be complex and capital intensive. reduce selling prices and sales
the Group to deliver disciplined volume growth at our target volumes.
margins.
Inefficiency and competitive
disadvantage from a failure to develop
and implement new and innovative construction methods.
-------------------------------------------------------------- ------------------------------------------------------------ -------------------------------------------------------------- -------------------------------------------------------------- --------------------------------------------------------------
Responsibility Executive Committee Land Committee Operations Committee Operations Committee Operations Committee
-------------------------------------------------------------- ------------------------------------------------------------ -------------------------------------------------------------- -------------------------------------------------------------- --------------------------------------------------------------
Current status COVID-19 and the ongoing The Group temporarily suspended land purchasing between The Government continues to reiterate its commitment to Our investment in JVs is GBP152.1m (2019: GBP189.0m) a The temporary closure of construction sites during the year
of risk requirement for social distancing has disrupted the UK March and August 2020. The temporary facilitating the provision of new reduction from the previous year. caused a delay to construction.
economy and greatly heightened uncertainty closure of construction sites and sales centres due to homes, but the planning process remains lengthy and complex. Sites are now operating COVID-19 working practices and
over employment levels in the short and medium term. COVID-19 reduced sales volumes and The temporary closure of our construction sites and sales protocols in line with the latest Government
cash inflows. Changes to Building centres as a result of COVID-19 and industry guidance to ensure the safety of our employees
Future developments of the virus or an unfavourable outcome Regulations, such as the Future also affected our JV and consortium sites. and sub-contractors.
to negotiations regarding the Our land bank is sufficient to meet current operational Homes Standard effective in 2025, will increase design This has increased costs and is expected to increase site
UK's relationship with the EU could cause further economic needs. requirements. duration.
disruption.
The Group continues to increase its use of MMC to address
From April 2021, the Government's Help to Buy scheme will be skilled employee shortages and reduce its environmental
subject to regional caps and impact.
restricted to first time buyers. The scheme is due to end in
March 2023.
-------------------------------------------------------------- ------------------------------------------------------------ -------------------------------------------------------------- -------------------------------------------------------------- --------------------------------------------------------------
Response/
mitigation * Continual monitoring of the market at a Board, * All potential land acquisitions are subject to formal * Considerable in-house technical and planning * Continual communication with our JV and consortia * Programme of site inspections to ensure protection of
Executive Committee, regional and divisional level, appraisal and approval by the Land Committee. expertise focused on complying with regulations and partners concerning the impact of COVID-19 on trading sites during lockdown.
leading to amendments in the Group's forecasts and achieving implementable planning consents that meet arrangements and contractual requirements.
planning as necessary. local requirements.
* Group, regional and divisional review of land
currently owned, committed and identified against * Review of revised construction delivery against
requirements. * All potential JVs are subject to formal appraisal and expected sales rates.
* Assessed likely market impact of COVID-19. * Robust and rigorous design standards for the homes approval by the Group's Land Committee and the Board.
and places we develop that exceed current and
* Formal relationship management with key land expected statutory requirements.
suppliers, landowners and local authorities. * Executive Committee, regional and divisional reviews
* Comprehensive sales policies and regular review of * Once operational, the performance of JVs and and quarterly site valuations assess expected
pricing, local markets and developing good working consortia are subject to regular review. margins.
relationships with mortgage lenders. * Review by Land Committee and management on strategic * Policies and technical guidance manuals for employees
land and sites. on regulatory compliance and the standards of
business conduct expected.
* Continuous review of quality of design and materials,
* Quarterly site valuations based on the latest market * Land forum and academy training events. which are both evaluated by external and internal
data. technical experts, including the NHBC, to ensure
* Consultation with Government agencies, membership of compliance with all building and other regulations.
* Increased usage of strategic land. industry groups to help monitor, understand and plan
for proposed regulation change.
* Maintenance of an appropriate capital structure and
balance sheet control. * Monitoring and improving the environmental and
sustainability impact of construction methods and
materials.
* Planning for the end of the transition period for the
UK's exit from the EU and adapting business
operations as necessary. * Appropriate insurance cover.
* Development of alternative strategies to drive sales * Detailed build programmes and quality reviews.
following the announced changes to Help to Buy.
* Implementation of MMC by Design and Technical teams.
* Technologies new to us go through a rigorous testing
and analysis process before full implementation.
-------------------------------------------------------------- ------------------------------------------------------------ -------------------------------------------------------------- -------------------------------------------------------------- --------------------------------------------------------------
Key risk Gross and operating margins, PBT, ROCE, EPS, TSR, total home Land approvals (plots) Gross and operating margins, PBT, ROCE, EPS, TSR, total home ROCE, Customer service,
indicators completions completions total home total home completions,
completions gross margin, operating margin, PBT, ROCE, EPS,
construction waste
intensity and carbon
intensity reduction
-------------------------------------------------------------- ------------------------------------------------------------ -------------------------------------------------------------- -------------------------------------------------------------- --------------------------------------------------------------
Risk F G H I J
Availability of raw materials, sub-contractors and suppliers Safety, health and environment Attracting and retaining high-calibre employees Availability of finance and working capital IT
Risk level net High risk High risk Medium risk Medium risk Medium risk
of mitigation
-------------------------------------------------------------- ------------------------------------------------------------ -------------------------------------------------------------- -------------------------------------------------------------- ------------------------------------------------------------
Risk appetite Low risk Low risk Medium risk Low risk Low risk
-------------------------------------------------------------- ------------------------------------------------------------ -------------------------------------------------------------- -------------------------------------------------------------- ------------------------------------------------------------
Link to Leading construction Investing in our people Investing in our people Underpinning all priorities Underpinning all priorities
strategic
priorities
-------------------------------------------------------------- ------------------------------------------------------------ -------------------------------------------------------------- -------------------------------------------------------------- ------------------------------------------------------------
Change in risk Increase Increase Decrease Increase No change
level from
previous year
-------------------------------------------------------------- ------------------------------------------------------------ -------------------------------------------------------------- -------------------------------------------------------------- ------------------------------------------------------------
Risk Shortages or increased costs of materials and skilled labour, Health and safety or environmental breaches can result in Failure to recruit and/or retain the best people so that both Unavailability of sufficient borrowing The Group continues to integrate its
description the failure of a key supplier incidents affecting employees, sub-contractors our employees and the business and surety facilities to settle liabilities, manage working IT systems to enhance control and drive efficiency. The
or the inability to secure supplies on appropriate credit and site visitors and undermine the creation of a great can benefit from the available development opportunities. capital, respond to changes in failure of any of these systems, in
terms. place to work. the economic environment, and take advantage particular those relating to customer information,
Development of skilled employees is critical to delivery of of appropriate land buying and operational opportunities to surveying and valuation, could
Maintaining sufficient material and skilled sub-contractor SHE breaches affect the wellbeing the Group's strategy of profit deliver strategic priorities . restrict the Group's operations and disrupt progress in its
availability of our employees and could result and volume growth through quality and efficiency. strategic priorities. Failure
will enable disciplined growth in the provision of in reputational damage, criminal prosecution and civil to comply with data regulations could also incur
high-quality homes. Failure to do so may litigation, and delays in construction significant financial penalties and reputational damage.
lead to increased costs and delays in construction or increased costs.
-------------------------------------------------------------- ------------------------------------------------------------ -------------------------------------------------------------- -------------------------------------------------------------- ------------------------------------------------------------
Responsibility Operations Committee Safety, Health and Environment Executive Committee Treasury Committee Technology Risk Sub-committee
Operating Committee
-------------------------------------------------------------- ------------------------------------------------------------ -------------------------------------------------------------- -------------------------------------------------------------- ------------------------------------------------------------
Current status The COVID-19 pandemic has increased pressure on the The Group continues to focus on health and safety ensuring Whilst competitiveness for employees in the operational In November 2019 the Group extended its GBP700m RCF until Wherever possible, the Group has facilitated home working
of risk availability of certain build materials consistent controls are in place business continues, this has reduced 2024 with the option to extend this further by one year. In for its employees, prioritising
in the short term, with potential for further disruption if to reduce accidents and injuries. due to the current economic uncertainty. addition, the Group holds GBP200m their safety during the pandemic. This has necessitated the
further outbreaks occur. of fixed rate USPP notes that mature in 2027. adoption of new and changes to
The Group IIR rate for the year The pandemic has necessitated a wide change in working existing IT systems. Whilst presenting an initial
There also continues to be a shortage of skilled labour in is 256 (2019: 297) per 100,000 persons employed (including practices. The temporary closure of construction sites and sales centres challenge, this has also encouraged the
the housebuilding industry, which may be affected by an sub-contractors). in the year in response to the improvement of the Group's IT environment.
unfavourable outcome to the COVID-19 pandemic significantly reduced cash inflows to the
negotiations regarding the The Group has acted to minimise the risk to its employees, Group. The Group The threat of external cyber attacks and phishing attempts
trading relationship between the sub-contractors actively managed its cash flows persists with a number of high
UK and EU. and customers of contracting COVID-19 whilst at work, with average net cash for the year of GBP348.3m and net profile incidents being reported in the media during the
incurring additional cost. assets of GBP4,840.3m as at 30 June year.
Around 10% of the Group's materials, by spend, are imported 2020.
and a further 30%, by spend, contain The pandemic and the workplace changes it has required
some imported components. present a challenge to the physical,
mental
and financial wellbeing of employees.
-------------------------------------------------------------- ------------------------------------------------------------ -------------------------------------------------------------- -------------------------------------------------------------- ------------------------------------------------------------
Response/
Mitigation * Secured supply continuity for all supplies with high * Sites and sales centres are operating under a * Comprehensive human resources programme including * Committed bank facilities and private placement notes * Centrally maintained IT systems.
potential to be disrupted by COVID-19. detailed set of social distancing and hygiene apprenticeships, a graduate development programme, of around GBP900m with maturity on the RCF in 2024
practices and protocols in line with the latest succession planning and training academies tailored and the USPP in 2027.
Government guidance. to each discipline.
* Fully tested disaster recovery programme.
* Adhere to the Prompt Payment Code to support the
liquidity of our partners. * Increased frequency of monitoring of working capital
* Nominated social distancing marshal present on all * Ongoing monitoring of employee turnover and absence and cash requirements and compliance with banking
sites. statistics and feedback from exit interviews. covenants. * Regular reviews to seek to reduce the risk of
successful cyber-attacks.
* Centralised team procures the majority of the Group's
materials from within the UK including subcontractor
materials, ensuring consistent quality and cost. * Internal committed health and safety team. * Annual employee engagement survey to measure employee * Obtained confirmation of eligibility for CCFF until
satisfaction. March 2021, should it be required. * GDPR compliant business processes and data
management.
* Development of long-term supplier and sub-contractor * Regular health and safety monitoring, internal and
partnerships with all significant supply agreements external audits of all operational units, and regular * Remuneration benchmarking against industry * Policy requiring minimum headroom of GBP150m of
fixed in advance, usually for 12 months. Senior Management reviews of developments. competitors. drawings against committed facilities. * Technology Risk Sub-committee provides oversight of
technology risk.
* Key supplier audit programme to assess risks to the * Continued reinforcement of Group SHE policies and * Maintained normal pay for furloughed employees and * Maintenance of an appropriate capital structure.
reliability of supply continuity. procedures. committed to paying those who are required to shield. * Group-wide compliance and policies on passwords and
When schools closed, all employees with childcare transferring data to third parties.
responsibilities were granted one week of special
paid leave to enable them to make necessary * Assessed the medium and long-term viability of the
* Requirement to develop multiple supplier * Dedicated SHE Board and SHE Operations Committee that arrangements. Additional paid leave provided to business model.
relationships for both labour contracts and material review key performance indicators and improvement non-furloughed employees.
supplies, with contingency plans should any key plans.
supplier fail.
* Quarterly performance reviews by divisional
* Control of build and material costs throughout build management within all operating units.
programmes.
* Independent reviews of our SHE processes.
* All key suppliers have confirmed that they have plans
in place to seek to minimise disruption on the UK's
exit from the EU.
* Partnered with benefit providers to offer additional
online training to support the wellbeing of employees
during the COVID-19 lockdown, including on their
mental health and working from home.
-------------------------------------------------------------- ------------------------------------------------------------ -------------------------------------------------------------- -------------------------------------------------------------- ------------------------------------------------------------
Key risk Customer Health Employee Average net Customer service,
indicators service, and safety engagement cash gross and operating
gross and (SHE audit score margin, PBT, ROCE, EPS
operating compliance)
margin,
PBT, ROCE,
EPS, TSR,
total home
completions
-------------------------------------------------------------- ------------------------------------------------------------ -------------------------------------------------------------- -------------------------------------------------------------- ------------------------------------------------------------
Statement of Directors' Responsibilities
The responsibility statement set out below has been prepared in
connection with (and will be set out in) the Annual Report and
Accounts of the Company for the year ended 30 June 2020, which will
be available to shareholders and published on its website
www.barrattdevelopments.co.uk in September 2020.
Financial Statements and accounting records
The Directors are responsible for preparing the Annual Report
and Accounts including the Directors' Remuneration report and the
Financial Statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. The Directors are required by
the IAS Regulation to prepare the Group Financial Statements under
IFRS as adopted by the EU and have also elected to prepare the
Parent Company Financial Statements in accordance with IFRS. The
Financial Statements are also required by law to be properly
prepared in accordance with the Companies Act 2006 and Article 4 of
the IAS Regulation. Under company law, the Directors must not
approve the Financial Statements unless they are satisfied that
they give a true and fair view of the state of affairs of the
Company and the Group and of the profit or loss of the Company and
the Group for that period.
IAS 1 requires that financial statements present fairly for each
financial year the relevant entity's financial position, financial
performance and cash flows. This requires the faithful
representation of the effects of transactions, other events and
conditions in accordance with the definitions and recognition
criteria for assets, liabilities, income and expenses set out in
the IASB's 'Framework for the preparation and presentation of
financial statements'. In virtually all circumstances, a fair
presentation will be achieved by compliance with all applicable
IFRS.
Directors are also required to:
-- properly select and apply accounting policies;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRS are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the entity's financial position and financial
performance; and
-- make an assessment of the Company's and the Group's (as the
case may be) ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's and
the Group's transactions on an individual and consolidated basis
and disclose with reasonable accuracy at any time the financial
position of the Company and the Group and enable them to ensure
that the Financial Statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the
Company and the Group and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Fair, balanced and understandable
The Board considers, on the advice of the Audit Committee, that
the Annual Report and Accounts, taken as a whole, is fair, balanced
and understandable and provides the information necessary for
shareholders to assess the Company's and the Group's position,
performance, business model and strategy.
Directors' responsibility statement
The Directors confirm that, to the best of each person's
knowledge:
a) the Group and Parent Company Financial Statements in the
Annual Report and Accounts, which have been prepared in accordance
with IFRS, SIC interpretations as adopted and endorsed by the EU,
IFRIC interpretations and those parts of the Companies Act 2006
applicable to companies reporting under IFRS, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company and of the Group taken as a whole; and
b) the Annual Report and Accounts includes a fair review of the
development and performance of the business and the position of the
Company and the Group taken as a whole, together with a description
of the principal risks and uncertainties they face.
By order of the Board
David Thomas Jessica White
Chief Executive Chief Financial Officer
1 September 2020 1 September 2020
Definitions of alternative performance measures and
reconciliation to IFRS
The Group uses a number of APMs which are not defined within
IFRS. The Directors use these APMs, along with IFRS measures, to
assess the operational performance of the Group as detailed in the
Strategic report in the Annual Report and Accounts. Definitions,
and reconciliations of the financial APMs used to IFRS measures,
are included below:
Gross margin is defined as gross profit divided by revenue:
2020 2019(1)
Revenue per Condensed Consolidated Income
Statement (GBPm) 3,419.2 4,763.1
================================================ ======== ========
Gross profit per Condensed Consolidated Income
Statement (GBPm) 614.3 1,084.2
================================================ ======== ========
Gross margin 18.0% 22.8%
-------- --------
(1) The Group has applied IFRS 16 using the modified
retrospective approach and therefore comparatives have not been
restated. Further information on the initial application of this
standard can be found in notes 1.4 and 1.5.
Adjusted gross margin is defined as adjusted gross profit divided by revenue:
2020 2019(1)
Revenue per Condensed Consolidated Income
Statement (GBPm) 3,419.2 4,763.1
================================================== ======== ========
Adjusted gross profit per Condensed Consolidated
Income Statement (GBPm) 631.4 1,087.4
================================================== ======== ========
Adjusted gross margin 18.5% 22.8%
-------- --------
(1) The Group has applied IFRS 16 using the modified
retrospective approach and therefore comparatives have not been
restated. Further information on the initial application of this
standard can be found in notes 1.4 and 1.5.
Operating margin is defined as profit from operations divided by revenue :
2020 2019(1)
Revenue per Condensed Consolidated Income
Statement (GBPm) 3,419.2 4,763.1
=================================================== ======== ========
Profit from operations per Condensed Consolidated
Income Statement (GBPm) 493.4 901.1
=================================================== ======== ========
Operating margin 14.4% 18.9%
-------- --------
(1) The Group has applied IFRS 16 using the modified
retrospective approach and therefore comparatives have not been
restated. Further information on the initial application of this
standard can be found in notes 1.4 and 1.5.
Adjusted operating margin is defined as adjusted profit from operations divided by revenue :
2020 2019(1)
Revenue per Condensed Consolidated Income
Statement (GBPm) 3,419.2 4,763.1
=============================================== ======== ========
Adjusted profit from operations per Condensed
Consolidated Income Statement (GBPm) 507.3 904.3
=============================================== ======== ========
Adjusted operating margin 14.8% 19.0%
-------- --------
(1) The Group has applied IFRS 16 using the modified
retrospective approach and therefore comparatives have not been
restated. Further information on the initial application of this
standard can be found in notes 1.4 and 1.5.
Net cash is defined in note 5.1.
ROCE is calculated as earnings before amortisation, interest,
tax, operating charges relating to the defined benefit pension
scheme and operating adjusting or exceptional items for the year,
divided by average net assets adjusted for goodwill and
intangibles, tax, net cash, retirement benefit assets/obligations
and derivative financial instruments:
2020 2019(1)
GBPm GBPm
------- --------
Profit from operations 493.4 901.1
================================================== ======= ========
Amortisation of intangible assets 1.2 -
================================================== ======= ========
Cost associated with legacy properties 39.9 3.2
================================================== ======= ========
CJRS grant income (26.0) -
================================================== ======= ========
Defined benefit past service cost - 1.7
================================================== ======= ========
Share of post-tax profit from JVs and associates
including loss on disposal of JVs 28.3 37.5
================================================== ======= ========
Earnings before amortisation, interest, tax,
adjusted items and defined benefit scheme
charges 536.8 943.5
------- --------
30 June 31 December 30 June 31 December 30 June
2020 2019 2019(1) 2018 2018
GBPm GBPm GBPm GBPm GBPm
Group net assets per Condensed
Consolidated Balance Sheet 4,840.3 4,849.1 4,869.0 4,551.7 4,597.7
===================================== ======== ============ ========== ============ ==========
Less:
Other intangible assets per
Condensed Consolidated Balance
Sheet (101.1) (101.7) (102.3) (100.0) (100.0)
===================================== ======== ============ ========== ============ ==========
Goodwill per Condensed Consolidated
Balance Sheet (805.9) (805.9) (805.9) (792.2) (792.2)
===================================== ======== ============ ========== ============ ==========
Current tax liabilities/(assets) 2.8 (0.4) 99.5 84.3 85.8
===================================== ======== ============ ========== ============ ==========
Deferred tax liabilities 2.4 16.2 17.6 21.5 25.3
===================================== ======== ============ ========== ============ ==========
Retirement benefit assets (3.5) (68.6) (62.6) (53.1) (58.7)
===================================== ======== ============ ========== ============ ==========
Cash and cash equivalents(2) (619.8) (826.0) (1,136.0) (844.5) (1,176.2)
===================================== ======== ============ ========== ============ ==========
Loans and borrowings(2) 317.7 399.3 377.7 465.4 384.9
===================================== ======== ============ ========== ============ ==========
Prepaid fees (6.1) (7.1) (7.4) (8.6) -
-------- ------------ ---------- ------------ ----------
Capital employed 3,626.8 3,454.9 3,249.6 3,324.5 2,966.6
-------- ------------ ---------- ------------ ----------
Three point average capital
employed 3,443.8 3,180.2 3,000.3
-------- ------------ ---------- ------------ ----------
2020 2019(1)
Earnings before interest, tax, adjusted items
and defined benefit scheme charges (from table
above) (GBPm) 536.8 943.5
================================================== ======== ========
Three point average capital employed (from table
above) (GBPm) 3,443.8 3,180.2
-------- --------
ROCE 15.6% 29.7%
-------- --------
(1) The Group has applied IFRS 16 using the modified
retrospective approach and therefore comparatives have not been
restated. Further information on the initial application of this
standard can be found in notes 1.4 and 1.5.
(2) The prior year balances for cash and cash equivalents and
bank overdrafts have been re-presented in accordance with IAS 32
(see note 1.4).
Total gearing including land creditors is defined as land
creditors and net debt/cash divided by net tangible assets:
2020 2019(1)
Net cash (GBPm) (308.2) (765.7)
================================================== ======== ========
Land creditors (GBPm) 791.9 960.7
-------- --------
483.7 195.0
-------- --------
Net assets (GBPm) 4,840.3 4,869.0
================================================== ======== ========
Less goodwill and other intangible assets (GBPm) (907.0) (908.2)
-------- --------
3,933.3 3,960.8
-------- --------
Total gearing including land creditors 12.3% 4.9%
-------- --------
(1) The Group has applied IFRS 16 using the modified
retrospective approach and therefore comparatives have not been
restated. Further information on the initial application of this
standard can be found in notes 1.4 and 1.5.
TSR is a measure of the performance of the Group's share price
over a period of three financial years. It combines share price
appreciation and dividends paid to show the total return to the
shareholders expressed as a percentage.
Glossary
ACM Aluminium Composite Material
Active A site with at least one plot for sale
Outlet
--------------------------------------------------------------
AGM Annual General Meeting
--------------------------------------------------------------
AIMCH Advanced Industrialised Methods for the Construction
of Homes
--------------------------------------------------------------
APM Alternative performance measure
--------------------------------------------------------------
ASP Average selling price
--------------------------------------------------------------
Building The requirements relating to the erection and extension
Regulations of buildings under UK Law
--------------------------------------------------------------
Capital Average net assets adjusted for goodwill and intangibles,
employed tax, cash, loans and borrowings, prepaid fees, retirement
benefit assets/obligations and derivative financial
instruments
--------------------------------------------------------------
CCFF COVID Corporate Financing Facility
--------------------------------------------------------------
CDP Carbon Disclosure Project
--------------------------------------------------------------
CJRS Coronavirus Job Retention Scheme
--------------------------------------------------------------
CMI The actuarial profession's Continuous Mortality Investigation
--------------------------------------------------------------
the Company Barratt Developments PLC
--------------------------------------------------------------
COVID-19 Coronavirus Disease 2019
--------------------------------------------------------------
DBP Deferred Bonus Plan
--------------------------------------------------------------
EBT Barratt Developments Employee Benefit Trust
--------------------------------------------------------------
ELTIP Employee Long Term Incentive Plan
--------------------------------------------------------------
EPS Earnings per share
--------------------------------------------------------------
EU European Union
--------------------------------------------------------------
FRC Financial Reporting Council
--------------------------------------------------------------
FY Financial year ended 30 June
--------------------------------------------------------------
GDPR General Data Protection Regulation
--------------------------------------------------------------
GMP Guaranteed Minimum Pension
--------------------------------------------------------------
the Group Barratt Developments PLC and its subsidiary undertakings
--------------------------------------------------------------
Gross margin Gross profit divided by total revenue
--------------------------------------------------------------
HBF Home Builders Federation
--------------------------------------------------------------
IAS International Accounting Standards
--------------------------------------------------------------
IASB International Accounting Standards Board
--------------------------------------------------------------
IFRIC International Financial Reporting Interpretations Committee
--------------------------------------------------------------
IFRS International Financial Reporting Standards
--------------------------------------------------------------
ISDA International Swaps and Derivatives Association
--------------------------------------------------------------
JVs Joint ventures
--------------------------------------------------------------
KPI Key performance indicator
--------------------------------------------------------------
LIBOR The London Interbank Offered Rate
--------------------------------------------------------------
LTPP Long Term Performance Plan
--------------------------------------------------------------
LTV Loan to Value
--------------------------------------------------------------
MHCLG Ministry of Housing, Communities and Local Government
--------------------------------------------------------------
MMC Modern methods of construction
--------------------------------------------------------------
Net cash Cash and cash equivalents, bank overdrafts, prepaid
fees, interest bearing borrowings and foreign exchange
swaps
--------------------------------------------------------------
Net tangible Group net assets less other intangible assets and goodwill
assets
--------------------------------------------------------------
New Code UK Corporate Governance Code issued in July 2018 (a
copy of which is available from www.frc.org.uk)
--------------------------------------------------------------
NHBC National House Building Council
--------------------------------------------------------------
NHS National Health Service
--------------------------------------------------------------
Non-recurring Costs associated with legacy properties, CJRS grant
items income, reversal of impairment/impairment of inventories
and non-productive site overheads expensed during the
COVID-19 lockdown
--------------------------------------------------------------
Operating Profit from operations divided by revenue
margin
--------------------------------------------------------------
Oregon Oregon Timber Frame Limited and its subsidiary Oregon
Contract Management Limited
--------------------------------------------------------------
PBT Profit before tax
--------------------------------------------------------------
PYEP Prior year equivalent period
--------------------------------------------------------------
RBLI Royal British Legion Industries
--------------------------------------------------------------
RCF Revolving Credit Facility
--------------------------------------------------------------
ROCE Earnings before amortisation, interest, tax, operating
charges relating to the defined benefit pension scheme
and operating adjusting or exceptional items, divided
by average net assets adjusted for goodwill and intangibles,
tax, cash, loans and borrowings, prepaid fees, retirement
benefit assets/obligations and derivative financial
instruments
--------------------------------------------------------------
SAPS Self-Administered Pension Scheme
--------------------------------------------------------------
the Scheme The Barratt Group Pension & Life Assurance Scheme
--------------------------------------------------------------
Sharesave Savings-Related Share Option Scheme
--------------------------------------------------------------
SHE Safety, Health and the Environment
--------------------------------------------------------------
SIC Standing Interpretations Committee
--------------------------------------------------------------
Site ROCE Site operating profit (site trading profit less allocated
administrative overheads) divided by average investment
in site land, work in progress and equity share
--------------------------------------------------------------
SMSOP Senior Management Share Option Plan
--------------------------------------------------------------
TCFD The Task Force for Climate-related Financial Disclosures
--------------------------------------------------------------
Total completions Unless otherwise stated total completions quoted include
JVs
--------------------------------------------------------------
Total gearing Land creditors and net debt/cash divided by net tangible
including assets
land creditors
--------------------------------------------------------------
TSR Total shareholder return
--------------------------------------------------------------
USPP United States Private Placement
--------------------------------------------------------------
WIP Work in progress
--------------------------------------------------------------
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