The UK’s largest housebuilder Barratt Developments (BDEV) posted a respectable set of full-year results and set out its stall for the coming 12 months while acknowledging that ‘the backdrop will continue to be difficult’.

The shares, which had gained 7% this year despite weak demand in the new-build market, dipped 2% to 433p as investors digested the statement.

CHALLENGING TIMES

For the year to June, Barratt delivered 17,206 new homes, 4% fewer than the previous year, although thanks to higher prices revenue inched up 1% to £5.32 billion.

However, lower customer demand combined with higher build costs – which the firm wasn’t able to recover despite higher selling prices – and lower operational gearing as the market slowed meant adjusted gross profits were down 13.6% at £1.13 billion.

As a result, the firm’s gross margin shrank from 24.8% to 21.2% while its return on capital employed (ROCE) dropped from 30% to 22.2%.

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The dividend, previously a key selling point for housebuilders thanks to their substantial excess capital, stands at 33.7p for the year against 36.9p last year, and the firm is sticking to its dividend cover target of 1.75 times for the current year as it retains surplus cash ‘to maintain the resilience of the group’s balance sheet’.

‘We delivered a strong performance against a challenging backdrop this year, while maintaining our focus on both build quality and customer service’, commented chief executive David Thomas.

He added: ‘We will continue to operate the business in a flexible way, with a short land bank aimed at maximising our delivery of housing from our efficient and resilient balance sheet.’

SUBDUED OUTLOOK

While there is still a clear need for more new homes in the UK, the firm is targeting current-year completions of between 13,250 and 14,250, or 17% to 23% fewer than last year, as it manages supply against short-term demand which has been heavily impacted by mortgage affordability.

As of the end of August, its forward sales position was 49% in terms of private homes against 62% at the same point in 2022, and the average net private reservation rate per outlet was down to 0.42 per week from 0.62 in 2022.

The focus for this year will be on ‘driving revenue through targeted use of incentives, sales to the private rental and social housing sectors, whilst continuing to manage build activity and controlling the cost base, supported by a highly selective approach to land buying’.

LEARN MORE ABOUT BARRATT DEVELOPMENTS

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