TIDMBDEV
RNS Number : 9033P
Barratt Developments PLC
06 September 2017
6 September 2017
Barratt Developments PLC
Annual Results Announcement for the year ended 30 June 2017
Another year of strong performance
GBPm unless otherwise stated(1,2) Year ended Year ended Change
30 June 2017 30 June 2016
------------------------------------ -------------- -------------- ---------
Total completions (plots)(3) 17,395 17,319 0.4%
------------------------------------ -------------- -------------- ---------
Revenue (GBPm) 4,650.2 4,235.2 9.8%
------------------------------------ -------------- -------------- ---------
Gross margin (%) 20.0 18.9 1.1 ppts
------------------------------------ -------------- -------------- ---------
Profit from operations (GBPm) 799.2 668.4 19.6%
------------------------------------ -------------- -------------- ---------
Operating margin (%) 17.2 15.8 1.4 ppts
------------------------------------ -------------- -------------- ---------
Profit before tax (GBPm) 765.1 682.3 12.1%
------------------------------------ -------------- -------------- ---------
Basic earnings per share (pence) 61.3 55.1 11.3%
------------------------------------ -------------- -------------- ---------
ROCE (%) 29.8 27.1 2.7 ppts
------------------------------------ -------------- -------------- ---------
Tangible net assets per share
(pence) 340 311 9.3%
------------------------------------ -------------- -------------- ---------
Net cash (GBPm) 723.7 592.0 22.2%
------------------------------------ -------------- -------------- ---------
Highlights
-- The UK's largest housebuilder, delivering our highest volumes in nine years
-- Commitment to build quality and customer service demonstrated
by the achievement of more NHBC Pride in the Job Awards than any
other housebuilder for the 13th consecutive year and the award of
the Home Builders Federation maximum five star customer
satisfaction rating for the eighth consecutive year
-- Strong growth in profit before tax, up by 12.1% to GBP765.1m
-- Delivered our 20% gross margin and 25% ROCE targets with
continued focus on further margin improvement
-- 39.0% increase in final ordinary dividend per share to 17.1p
(2016: 12.3p) together with 17.3p special dividend per share
Current trading
-- Forward sales (including JV's) up 13.8%, as at 3 September
2017 at GBP2,749.9m (4 September 2016: GBP2,416.5m)
-- Net private reservations per active outlet per average week
from 1 July were in line with the prior year at 0.74 (FY17:
0.75)
Commenting on the results David Thomas, Chief Executive of
Barratt Developments PLC said:
"This has been another excellent year for the Group. We have
delivered a strong operational and financial performance and our
highest completion volumes for nine years. We are committed to
increasing the supply of new homes as the UK's largest housebuilder
and we remain industry leading in terms of quality and customer
service.
The Group starts the new financial year in a good position with
a strong balance sheet, healthy forward sales and we continue to
see robust consumer demand supported by a positive mortgage
environment. We are focused on driving further operational
improvements through the business with a particular focus on margin
improvement."
1 Refer to Glossary for definition of key financial metrics.
2 Unless otherwise stated, all numbers quoted exclude joint ventures ('JV').
3 Includes JV completions.
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.
There will be an analyst and investor meeting at 9.00am today at
Deutsche Bank, 1 Great Winchester Street, London, EC2N 2DB. The
presentation will be broadcast live on the Barratt Developments
corporate website, www.barrattdevelopments.co.uk, from 9.00am
today. A playback facility will be available shortly after the
presentation has finished.
A listen only function will also be available.
Dial in: 0800 279 7204
International dial in: +44 (0) 330 336 9411
Access code: 6162686
Further copies of this announcement can be downloaded from the
Barratt Development PLC corporate website
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
Chloé Barnes, Investor Relations 020 7299 4895
Media enquiries
Tim Collins, Head of Corporate Communications 020 7299 4874
Brunswick
Jonathan Glass/Wendel Verbeek 020 7404 5959
Chairman's statement
This has been another excellent year for the Group across all
key operational and financial performance metrics. We achieved
record profits, completion volumes were at their highest level for
nine years and we remain industry leading in terms of quality and
customer service.
We have delivered our FY17 financial targets of 20% gross margin
and 25% ROCE, and we are committed to further progress. Improving
our profit margin remains a priority for the Group and we have a
number of initiatives underway to further increase efficiency,
reduce costs and simplify our business.
We remain the largest housebuilder in the UK, delivering 17,395
homes in the year reflecting the strength of our housebuilding
operations.
Our sites were awarded 74 NHBC Pride in the Job Awards for site
management this year, more than any other housebuilder for the 13th
year in a row. We were also awarded the Home Builders Federation
maximum five star rating for the eighth consecutive year - the only
major housebuilder with this record. We have now won 56 Built for
Life accreditations for excellence in the design of homes and
neighbourhoods, more than all the other housebuilders combined.
These are significant achievements and are testament to our
continuing focus on leading the future of housebuilding by putting
customers first and at the heart of everything we do.
Political and economic environment
Whilst the General Election in June 2017 created some
uncertainty, Government support for housebuilding and a commitment
to tackle the country's housing shortage remain. The Government's
Housing White Paper published in February contained many positive
measures, particularly those aimed at speeding up the planning
system and bringing forward more land for new homes. Following the
outcome of the EU referendum, the Board continues to monitor
carefully the potential impacts of the vote to leave the EU on our
business.
Market conditions remain good with a wide availability of
attractive mortgage finance, which, alongside Help to Buy,
continues to support robust consumer demand. The Group is in a
strong position, with a substantial year end net cash balance,
healthy forward sales position and an experienced management
team.
Consequently, we remain confident in the strong fundamentals of
the housing sector and our business.
Our employees
The outstanding progress made during the year would not have
been possible without the capability and dedication of our Senior
Management team and employees whom I would like to thank on behalf
of the Board. We ensure that we reward all of our employees
appropriately so that we can recruit and retain the best people
whilst motivating them to continue to perform year on year.
Corporate Governance
Underpinning any successful Company, is good corporate
governance. Corporate governance is the basis of good management
practice and we place it at the heart of everything we do. It is
embedded in our policies, procedures and processes throughout our
business from Board level to our divisional operations.
Last year the Government published a Green Paper on Corporate
Governance. The Financial Reporting Council (FRC) announced a
fundamental review of the UK Corporate Governance Code to take into
account their work done around corporate culture and succession
planning. The review will also take account of the issues raised in
the Government's Green Paper and the BEIS Select Committee
inquiry.
We have begun to explore the various proposals in the Green
Paper and the FRC review with our advisors. We have already taken
steps to establish a forum at which employee representatives from
across the business will have the opportunity to express the views
of the workforce on key topics such as culture, diversity, training
and remuneration. This will ensure that best practice is embedded
in our business and that we can effectively respond to, and
implement, any changes that may be required as new regulation or
legislation is introduced.
We will continue to ensure that good corporate governance
remains embedded within the culture and values of the business as a
whole whilst adapting our policies, processes and procedures in
light of any changes proposed by the Government and the FRC.
Through the Nomination Committee, we will ensure that we continue
to have robust succession planning in place for both Board members
and Senior Management.
We continue to cooperate fully with the Metropolitan Police on
the ongoing investigation we instigated regarding possible
misconduct in the London business. As stated in October 2016,
Barratt does not anticipate any material adverse financial effect
and our London business is operating well.
Appointments and succession
A number of Board changes took place during the year.
After eight years of service, Mark Rolfe stood down from the
Board after the 2016 AGM. Jock Lennox, who had joined the Board on
1 July 2016, took over as Audit Committee Chairman. In addition,
Richard Akers was appointed as Senior Independent Director with
effect from the conclusion of the 2016 AGM.
As announced on 19 January 2017, Neil Cooper, previously Chief
Financial Officer, left the Board by mutual agreement. From that
date, David Thomas performed the dual roles of Chief Executive and
Chief Financial Officer. In order to maintain a stable governance
framework, the Board ensured that David had sufficient support from
members of the Senior Management team and from members of the Board
to enable him to undertake his day to day duties under both
roles.
On 22 June 2017, we were pleased to announce the appointment of
Jessica White as Chief Financial Officer. Jessica was previously
Group Financial Controller and is therefore very familiar with the
way in which the Group operates.
Delivering returns for our shareholders
In line with the improved Capital Return Plan announced in
February 2017, and given the strong financial performance of the
Group, the Board is pleased to propose a final dividend of 17.1
pence per share (2016: 12.3 pence per share) and a special dividend
of GBP175.0m (17.3 pence per share), both of which, subject to
shareholder approval, will be paid in November 2017. The total
proposed dividend for FY17, including the interim dividend of 7.3
pence per share paid in May 2017, is therefore 41.7 pence per share
(2016: 30.7 pence per share).
Conclusion
I believe that you have a strong and experienced Board dedicated
to managing your Company efficiently with a great focus on
achieving long term sustainable value. The Board continues to have
the right balance of skills, experience and knowledge to deliver
the strategy of the Group during FY18. We remain, as ever,
cognisant of the need for continued assessment of the Board and
will keep under review the effectiveness, time commitment and
tenure of each of our Directors.
I, on behalf of the Board, would like to thank you for your
continued support and look forward to seeing many of you at our AGM
on 15 November 2017.
John Allan
Chairman
5 September 2017
Chief Executive's statement
Our results
We have traded strongly throughout the financial year,
delivering a record profit before tax of GBP765.1m, up 12.1% on the
prior year (2016: GBP682.3m). We achieved our targets set in
September 2014 of 20% gross margin and 25% ROCE, with 2017 gross
margin at 20.0% (2016: 18.9%) and our highest ROCE in 12 years at
29.8% (2016: 27.1%).
We have also continued to strengthen our Balance Sheet, ending
the year with net cash of GBP723.7m (2016: GBP592.0m) and with net
tangible assets of GBP3,430.0m (2016: GBP3,118.0m).
Housebuilding Commercial Total
------------------------------------------- ------------- ---------- -------
Total completions including JV's (plots) 17,395 - 17,395
------------------------------------------- ------------- ---------- -------
Revenue (GBPm) 4,589.1 61.1 4,650.2
------------------------------------------- ------------- ---------- -------
Gross margin (%) 20.2% 7.9% 20.0%
------------------------------------------- ------------- ---------- -------
Profit from operations (GBPm) 797.8 1.4 799.2
------------------------------------------- ------------- ---------- -------
Operating margin (%) 17.4% 2.3% 17.2%
------------------------------------------- ------------- ---------- -------
Share of post-tax profit/(loss) from joint
ventures and associates (GBPm) 26.5 (0.9) 25.6
------------------------------------------- ------------- ---------- -------
Our businesses
Our improved financial results have been driven by a strong and
disciplined operational performance in both our housebuilding and
commercial developments businesses.
Housebuilding
Housebuilding results
The business performed well throughout the financial year and
delivered against both its financial and operational targets.
Market conditions remain supportive, with attractive mortgage
financing and the support of Help to Buy driving strong consumer
demand.
We are the UK's largest housebuilder with total completions at
17,395 units including JV's (2016: 17,319). Private completions
increased by 0.8% to 13,303 (2016: 13,198), affordable completions
were 3,342 (2016: 2,707), and JV completions in which the Group had
an interest were 750 (2016: 1,414).
We continue to increase the proportion of higher margin land
completions which accounted for 92% (2016: 86%) of the total in the
year and to trade through our legacy assets which has also
contributed to the improvement in our gross margin.
Total average selling price ('ASP') on completions in the year
increased by 6.0% to GBP275.2k (2016: GBP259.7k), with private ASP
increasing by 8.0% to GBP313.1k (2016: GBP289.8k) benefiting from
mix changes and underlying house price inflation. Completions in
our London business were in line with expectations and weighted to
the second half, consistent with planned site build programmes,
resulting in a higher ASP in the second half of FY17.
Our FY17 sales rate was 0.72 (2016: 0.69) net private
reservations per active outlet per week in the full year and 0.76
(2016: 0.72) in the second half. During the year, we operated from
an average of 377 active outlets including JV's (2016: 378).
Our share of profits from JV's and associates in the year for
the housebuilding business decreased to GBP26.5m (2016: GBP72.4m),
reflecting planned site build programmes and some headwinds in the
central London market.
As at 30 June 2017 we were selling from 11 (2016: 11) JV
outlets. In FY18 we expect to deliver around 750 joint venture
completions and our share of profits from JV's to be around
GBP25m.
Committed to building more high quality homes
We are dedicated to playing our part in addressing the UK's
housing shortage, whilst maintaining our quality standards, and
designing developments, which look great, are a pleasure to live
on, and will enhance local communities for years to come.
We lead the industry in the high quality of our homes and our
customer service. That quality is recognised through the NHBC Pride
in the Job Awards for site management where we have achieved more
awards than any other housebuilder for the 13th consecutive year.
We are also the only major housebuilder to be rated five star by
our customers in the HBF customer satisfaction survey for eight
consecutive years.
We are committed to investing in the future of housebuilding. We
continue to offer a range of graduate, apprentice and trainee
programmes and are one of the largest employers of apprentices in
the industry. In addition, we have successfully trialled a
programme to recruit and train ex-forces personnel in site
management. We also continue to develop, trial and implement modern
methods of construction which can help address industry-wide skills
challenges and support future growth.
The key dimensions underpinning delivery of our strategy
In addition to the generally favourable market conditions during
the year, the increase in our housebuilding profitability has
benefited from our successful land investment strategy and from
improvements in operating margin.
Land and planning
A key factor in the growth of our housebuilding business in
recent years has been our land investment strategy, which has
boosted absolute profit and led to increased completion volumes.
The land market remained attractive throughout the financial year
and we secured excellent opportunities that exceeded our minimum
hurdle rates of 20% gross margin and 25% site ROCE. In the period,
we approved the purchase of GBP957.2m (2016: GBP1,095.6m) of land,
equating 18,497 plots (2016: 24,387 plots). We expect to approve
the purchase of over 20,000 plots in FY18.
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. Our target for a shorter than sector average land
bank reflects our focus on ROCE and our fast build and sell model.
At 30 June 2017 we achieved this target with a 4.5 years land
supply comprising 3.5 years owned land and 1.0 years controlled
land, with the owned land bank including land with both outline and
detailed planning consents. At 30 June 2017, the ASP of plots in
our owned land bank was GBP265k.
On strategic land we are making good progress and in FY17 we
have achieved our mid-term target of delivering 25% of completions
from strategic land. We target continued growth in the
participation of strategically sourced land in the medium term,
which will support future margin growth.
Following our success with planning over the past 12 months we
are very well positioned, with all of our expected FY18 completions
(2016: 99.7% of FY17 completions) having outline or full planning
consent.
Improving efficiency and reducing costs
Improving the efficiency of our operations and controlling costs
continues to be a high priority for the Group, as it will further
enhance our margin.
In 2016, the Group undertook a fundamental review of its Barratt
and David Wilson housing ranges. The outcome was a reduction in the
number of houses in the range which will increase standardisation,
simplify construction and reduce build costs whilst maintaining our
high standards of design and build quality. There are currently 132
sites with c. 19,000 plots where we will be using the new ranges,
of which 51 sites are already under construction.
We have also focused on improving margins through further
standardisation of our layouts, stopping the advance sale of show
homes and through business process simplification.
We have a robust and carefully managed supply chain with 90% of
the housebuild materials sourced by our centralised procurement
function manufactured or assembled in the UK. The cost of c. 75% of
our centrally procured materials is now fixed until the end of
FY18.
On labour, whilst we continue to see some pressure on skilled
labour supply with shortages remaining location and trade specific,
the rate of cost increase has eased. We are also seeking to
increase construction efficiency and reduce demand on labour
through implementing the new housetype ranges which are easier to
build and through the use of alternative build options such as
timber frames, large format block and light gauge steel frames.
We continue to expect that overall build cost inflation for FY18
will be c. 3-4%. We carefully control our administrative cost base
and expect administrative expenses to be around GBP150m for FY18
(2017: GBP132.8m).
Commercial developments
Wilson Bowden Developments ('WBD') is our commercial development
division.
During the year, WBD completed a new logistics hub and a
freehold sale. WBD are currently developing a logistics warehouse
and an office and warehouse facility. We have also continued to
make progress in leasing our retail schemes at Hinckley, and have
completed its investment sale.
Commercial development revenue was GBP61.1m (2016: GBP81.9m)
with an operating profit before adjusting items of GBP10.2m (2016:
GBP6.0m). After charging an GBP8.8m provision against a legacy
commercial asset, we recognised an operating profit of GBP1.4m
(2016: GBP6.0m).
Health and safety
The health and safety of our people, contractors, customers and
the general public is the Group's number one priority.
Increased activity levels across the industry in terms of site
openings and production volumes combined with shortages of skilled
staff has contributed to an increased risk of accidents on sites.
We remain fully committed to the highest standards of health and
safety on our sites. In the year, our reportable injury incidence
rate has decreased slightly with 379 (2016: 385) reportable
incidents per 100,000 employees.
The tragic events at Grenfell Tower in London illustrate why
health and safety must always remain the first priority for the
building industry. Fire safety is core to the way we plan and build
our developments. Following the fire at Grenfell Tower, we
conducted a review of our sites and continue to ensure we are
maintaining the highest standards of building safety.
Delivery of our strategic objectives
We delivered on our financial targets, set in September 2014, of
a minimum ROCE of 25% and a 20% gross margin for FY17 and we are
focused on making further progress. With our improved Capital
Return Plan, announced with our interim results in February 2017,
we continue to deliver attractive cash returns.
Our key financial metrics
Our housebuilding business achieved a gross margin of 20.2%
(2016: 19.1%) up 1.1 ppts and an operating margin of 17.4% (2016:
15.9%) up 1.5 ppts reflecting the improvements we have driven
through the business, notwithstanding that the high-end London
market presents some headwinds in this regard. The Group delivered
a gross margin of 20.0% (2016: 18.9%) and an operating margin of
17.2% (2016: 15.8%) up 1.4 ppts on the prior year.
We have achieved our ROCE target with ROCE increasing by 2.7
ppts to 29.8% (2016: 27.1%). Contributing to this growth has been
our increased operating profitability, use of land creditors and
the disposal of our legacy shared equity interests. It remains a
core part of our strategy to drive ROCE performance further, in
line with our fast build and sell model.
Maintaining an appropriate capital structure
As at 30 June 2017, the Group had a net cash balance of
GBP723.7m (2016: GBP592.0m), ahead of expectations, driven by
strong performance and the timing of land and working capital
payments. We expect to have low levels of average net debt
throughout the year and FY18 year-end net cash to be around
GBP500m.
We seek to defer payment for land purchases where possible to
drive a higher ROCE, and land creditors as at 30 June 2017 were 37%
of the owned land bank (30 June 2016: 38%). We continue to secure
attractive deferred payment terms on land and expect land creditors
as a proportion of the owned land bank to reduce slightly and be
around 30-35% at 30 June 2018, in line with our operating
framework.
The Group continues to maintain an appropriate financial
structure 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. In
December, we further strengthened working capital capacity by
amending and extending our existing revolving credit facility,
removing the GBP150m stepdown in facility size previously due in
December 2017 and extending our GBP700m facility to December 2021.
In August 2017, the Group refinanced the maturing US$80m US Private
Placement (USPP) with a new USPP of GBP200m, taking advantage of
the current low interest rate environment. This has a ten year
maturity with a fixed coupon of 2.77% which is significantly lower
than the maturing USPP that had a fixed rate of interest of 8.14%.
Following these financing changes we expect interest costs for FY18
to be around GBP50m of which c. GBP15m will be cash interest
costs.
Net tangible assets were GBP3,430.0m (GBP3.40 per share) of
which land net of land creditors and work in progress totalled
GBP3,340.7m (GBP3.31 per share).
Capital Return Plan
In February, the Board announced that, given the significant
operational and financial improvements the Group has made over the
last few years, it would improve and extend the existing dividend
plan announced in September 2014. As a result, the Group has
improved the level of ordinary dividend cover from three times to
two and a half times, and thereby increased the dividend payout
ratio.
When market conditions allow, ordinary dividends will be
supplemented with the payment of special dividends. The Board
proposes to pay special dividends of GBP175m in November 2017 and
November 2018.
We are therefore delighted to propose a final dividend of 17.1
pence per share (2016: 12.3 pence per share) resulting in a total
ordinary dividend for the year up 33.3% to 24.4 pence per share
(2016: 18.3 pence per share) and the third of our special dividends
totalling GBP175.0m, equivalent to 17.3 pence per share. Both
dividends will be paid on 20 November 2017 to all shareholders on
the register at the close of business on 27 October 2017.
Total Capital
Ordinary dividend Special dividend Return Total pence
Capital Return Plan(A) GBPm GBPm GBPm per share
-------------------------- ----------------- ---------------- ------------- -----------
Paid to date(B) 407.7 224.7 632.4 63.1p
-------------------------- ----------------- ---------------- ------------- -----------
Proposed payment
-------------------------- ----------------- ---------------- ------------- -----------
November 2017 172.2(D) 175.0 347.2 34.4p(D)
-------------------------- ----------------- ---------------- ------------- -----------
Year to November 2018 255.7(C,D) 175.0 430.7 42.7p(D)
-------------------------- ----------------- ---------------- ------------- -----------
Total proposed payment 427.9(C,D) 350.0 777.9 77.1p(D)
-------------------------- ----------------- ---------------- ------------- -----------
Total Capital Return Plan 835.6 574.7 1,410.3 140.2p(D)
-------------------------- ----------------- ---------------- ------------- -----------
A All ordinary and special dividends are subject to shareholder
approval. The third special dividend will be subject to shareholder
approval at the Annual General Meeting in November 2017 and
subsequent special dividends will be subject to shareholder
approval.
B Comprises FY15 interim dividend of 4.8 pence per share
(GBP47.5m), FY15 final dividend of 10.3 pence per share
(GBP103.1m), FY15 special dividend of 10.0 pence per share
(GBP100.0m), FY16 interim dividend of 6.0 pence per share
(GBP60.1m), FY16 final dividend of 12.3 pence per share
(GBP123.6m), FY16 special dividend of 12.4 pence per share
(GBP124.7m), and FY17 interim dividend of 7.3 pence per share
(GBP73.4m).
C Based on Reuters consensus estimates of earnings per share of
63.4 pence for FY18 as at 31 August 2017 and applying a two and a
half times dividend cover in line with previously announced
policy.
D Based upon 30 June 2017 share capital of 1,006,729,041 shares for proposed payments.
Current trading and outlook
In the first nine weeks of the financial year, the Group has
achieved net private reservations per average week of 265 (FY17:
267), resulting in net private reservations per active outlet per
average week of 0.74 (FY17: 0.75).
Forward sales (including JV's) up 13.8%, as at 3 September 2017
at GBP2,749.9m (4 September 2016: GBP2,416.5m), equating to 12,160
plots (4 September 2016: 11,364 plots).
3 September 4 September Variance
2017 2016 GBPm
-------------- ------- ----------- ------- ----------- --------
Forward sales GBPm Plots GBPm Plots %
-------------- ------- ----------- ------- ----------- --------
Private 1,722.3 4,994 1,545.9 4,723 11.4
-------------- ------- ----------- ------- ----------- --------
Affordable 749.0 6,260 707.4 5,957 5.9
-------------- ------- ----------- ------- ----------- --------
Sub-total 2,471.3 11,254 2,253.3 10,680 9.7
-------------- ------- ----------- ------- ----------- --------
JV 278.6 906 163.2 684 70.7
-------------- ------- ----------- ------- ----------- --------
Total 2,749.9 12,160 2,416.5 11,364 13.8
-------------- ------- ----------- ------- ----------- --------
We have started the new financial year in a good position, with
GBP723.7m year-end net cash and a healthy forward order position.
Our outlook for FY18 is unchanged and we continue to expect to
deliver modest growth in wholly owned completions, with affordable
completions representing a similar proportion of completions as
FY17.
We have industry leading quality and customer service, and
talented employees whose outstanding contribution drives our
success. I am proud to lead our first class team who are all
determined to build on our outstanding operational and financial
performance.
In FY18, we will continue to deliver our strategic objectives
with a particular focus on improving margin, maintaining an
appropriate capital structure and delivering our Capital Return
Plan. When market conditions allow, ordinary dividends will be
supplemented with the payment of special dividends.
David Thomas
Chief Executive
5 September 2017
Consolidated Income Statement
Year ended 30 June 2017
2017 Total 2016 Total
Continuing operations Notes GBPm GBPm
--------------------------------------------------------------- ------ ----------- -----------
Revenue 2.1 4,650.2 4,235.2
=============================================================== ====== =========== ===========
Cost of sales (3,718.2) (3,434.8)
--------------------------------------------------------------- ------ ----------- -----------
Gross profit 932.0 800.4
--------------------------------------------------------------- ------ ----------- -----------
Analysed as:
Adjusted gross profit 940.8 800.4
Cost associated with commercial asset 2.1 (8.8) -
--------------------------------------------------------------- ------ ----------- -----------
Administrative expenses (132.8) (132.0)
--------------------------------------------------------------- ------ ----------- -----------
Profit from operations 2.1 799.2 668.4
--------------------------------------------------------------- ------ ----------- -----------
Analysed as:
Adjusted operating profit 808.0 668.4
Cost associated with commercial asset 2.1 (8.8) -
--------------------------------------------------------------- ------ ----------- -----------
Finance income 5.2 2.9 5.9
=============================================================== ====== =========== ===========
Finance costs 5.2 (62.6) (64.1)
--------------------------------------------------------------- ------ ----------- -----------
Net finance costs 5.2 (59.7) (58.2)
=============================================================== ====== =========== ===========
Share of post-tax profit from joint ventures 25.4 71.9
=============================================================== ====== =========== ===========
Share of post-tax profit from associates 0.2 0.2
--------------------------------------------------------------- ------ ----------- -----------
Profit before tax 765.1 682.3
--------------------------------------------------------------- ------ ----------- -----------
Analysed as:
Adjusted profit before tax 773.9 682.3
Cost associated with commercial asset 2.1 (8.8) -
--------------------------------------------------------------- ------ ----------- -----------
Tax 2.4 (149.1) (132.0)
--------------------------------------------------------------- ------ ----------- -----------
Profit for the year 616.0 550.3
--------------------------------------------------------------- ------ ----------- -----------
Profit for the year attributable to the owners of the Company 615.8 550.3
--------------------------------------------------------------- ------ ----------- -----------
Profit for the year attributable to non-controlling interests 0.2 -
--------------------------------------------------------------- ------ ----------- -----------
Earnings per share from continuing operations
=============================================================== ====== =========== ===========
Basic 2.2 61.3p 55.1p
--------------------------------------------------------------- ------ ----------- -----------
Diluted 2.2 60.7p 54.3p
--------------------------------------------------------------- ------ ----------- -----------
Statement of Comprehensive Income
Year ended 30 June 2017
Group
--------------------------------------------------- ------ --------------
2017 2016
Notes GBPm GBPm
--------------------------------------------------- ------ ------ ------
Profit for the year 616.0 550.3
--------------------------------------------------- ------ ------ ------
Other comprehensive income/(expense):
=================================================== ====== ====== ======
Items that will not be reclassified to
profit or loss
=================================================== ====== ====== ======
Actuarial loss on defined benefit pension
scheme 6.1 (4.4) (9.0)
=================================================== ====== ====== ======
Fair value adjustment on available for
sale financial assets - 0.5
=================================================== ====== ====== ======
Tax credit relating to items not reclassified 0.9 1.7
--------------------------------------------------- ------ ------ ------
Total items that will not be reclassified
to profit or loss (3.5) (6.8)
--------------------------------------------------- ------ ------ ------
Items that may be reclassified subsequently
to profit or loss
=================================================== ====== ====== ======
Amounts deferred in respect of effective
cash flow hedges 5.2 1.9 6.3
=================================================== ====== ====== ======
Amounts reclassified to the Income Statement
in respect of hedged cash flows 5.2 10.2 (1.1)
=================================================== ====== ====== ======
Tax charge relating to items that may be
reclassified (2.4) (1.2)
--------------------------------------------------- ------ ------ ------
Total items that may be reclassified subsequently
to profit or loss 9.7 4.0
--------------------------------------------------- ------ ------ ------
Total comprehensive income recognised for
the year 622.2 547.5
--------------------------------------------------- ------ ------ ------
Total comprehensive income recognised for
the year attributable to the owners of
the Company 622.0 547.5
--------------------------------------------------- ------ ------ ------
Total comprehensive income recognised for
the year attributable to non-controlling
interests 0.2 -
--------------------------------------------------- ------ ------ ------
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 Hedging (note Share-based of the of the (note Total
5.5.1) premium reserve reserve 5.5.2) payments Company Company 4.1) equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ -------- -------- -------- -------- ------- ------------ ------------- ------------- ------------ --------
At 1 July
2015 99.5 219.1 1,109.0 (13.7) (2.7) 34.0 2,257.2 2,288.5 8.9 3,711.3
------------------ -------- -------- -------- -------- ------- ------------ ------------- ------------- ------------ --------
Profit for
the year - - - - - - 550.3 550.3 - 550.3
================== ======== ======== ======== ======== ======= ============ ============= ============= ============ ========
Amounts deferred
in respect
of effective
cash flow
hedges - - - 6.3 - - - - - 6.3
================== ======== ======== ======== ======== ======= ============ ============= ============= ============ ========
Amounts
reclassified
to the Income
Statement
in respect
of hedged
cash flows - - - (1.1) - - - - - (1.1)
================== ======== ======== ======== ======== ======= ============ ============= ============= ============ ========
Fair value
adjustments
on available
for sale
financial
assets - - - - - - 0.5 0.5 - 0.5
================== ======== ======== ======== ======== ======= ============ ============= ============= ============ ========
Actuarial
losses on
pension scheme - - - - - - (9.0) (9.0) - (9.0)
================== ======== ======== ======== ======== ======= ============ ============= ============= ============ ========
Tax on items
above taken
directly to
equity - - - (1.2) - - 1.7 1.7 - 0.5
------------------ -------- -------- -------- -------- ------- ------------ ------------- ------------- ------------ --------
Total
comprehensive
income
recognised
for the year
ended 30 June
2016 - - - 4.0 - - 543.5 543.5 - 547.5
================== ======== ======== ======== ======== ======= ============ ============= ============= ============ ========
Dividend payments - - - - - - (263.2) (263.2) - (263.2)
================== ======== ======== ======== ======== ======= ============ ============= ============= ============ ========
Issue of shares 0.9 3.6 - - - - (0.6) (0.6) - 3.9
================== ======== ======== ======== ======== ======= ============ ============= ============= ============ ========
Share-based
payments - - - - - 12.8 - 12.8 - 12.8
================== ======== ======== ======== ======== ======= ============ ============= ============= ============ ========
Net purchase
of own shares - - - - (0.8) - - (0.8) - (0.8)
================== ======== ======== ======== ======== ======= ============ ============= ============= ============ ========
Transfer of
share-based
payments charge
for
exercised/lapsed
options - - - - - (10.8) 10.8 - - -
================== ======== ======== ======== ======== ======= ============ ============= ============= ============ ========
Tax on
share-based
payments - - - - - (8.5) 7.2 (1.3) - (1.3)
------------------ -------- -------- -------- -------- ------- ------------ ------------- ------------- ------------ --------
At 30 June
2016 100.4 222.7 1,109.0 (9.7) (3.5) 27.5 2,554.9 2,578.9 8.9 4,010.2
------------------ -------- -------- -------- -------- ------- ------------ ------------- ------------- ------------ --------
Profit for
the year - - - - - - 615.8 615.8 0.2 616.0
================== ======== ======== ======== ======== ======= ============ ============= ============= ============ ========
Amounts deferred
in respect
of effective
cash flow
hedges - - - 1.9 - - - - - 1.9
================== ======== ======== ======== ======== ======= ============ ============= ============= ============ ========
Amounts
reclassified
to the Income
Statement
in respect
of hedged
cash flows - - - 10.2 - - - - - 10.2
================== ======== ======== ======== ======== ======= ============ ============= ============= ============ ========
Actuarial
losses on
pension scheme - - - - - - (4.4) (4.4) - (4.4)
================== ======== ======== ======== ======== ======= ============ ============= ============= ============ ========
Tax on items
above taken
directly to
equity - - - (2.4) - - 0.9 0.9 - (1.5)
------------------ -------- -------- -------- -------- ------- ------------ ------------- ------------- ------------ --------
Total
comprehensive
income
recognised
for the year
ended 30 June
2017 - - - 9.7 - - 612.3 612.3 0.2 622.2
================== ======== ======== ======== ======== ======= ============ ============= ============= ============ ========
Dividend payments - - - - - - (321.7) (321.7) - (321.7)
================== ======== ======== ======== ======== ======= ============ ============= ============= ============ ========
Issue of shares 0.4 2.0 - - - - - - - 2.4
================== ======== ======== ======== ======== ======= ============ ============= ============= ============ ========
Share-based
payments - - - - - 9.1 - 9.1 - 9.1
================== ======== ======== ======== ======== ======= ============ ============= ============= ============ ========
Purchase of
own shares - - - - (3.6) - - (3.6) - (3.6)
================== ======== ======== ======== ======== ======= ============ ============= ============= ============ ========
Transfer of
share-based
payments charge
for
exercised/lapsed
options - - - - 5.8 (14.4) 8.7 0.1 - 0.1
================== ======== ======== ======== ======== ======= ============ ============= ============= ============ ========
Tax on
share-based
payments - - - - - 0.7 2.8 3.5 - 3.5
------------------ -------- -------- -------- -------- ------- ------------ ------------- ------------- ------------ --------
At 30 June
2017 100.8 224.7 1,109.0 - (1.3) 22.9 2,857.0 2,878.6 9.1 4,322.2
------------------ -------- -------- -------- -------- ------- ------------ ------------- ------------- ------------ --------
Balance Sheet
At 30 June 2017
Group
-------------------------------------------------- ------ ----------------------
2017 2016
Notes GBPm GBPm
-------------------------------------------------- ------ ---------- ----------
Assets
================================================== ====== ========== ==========
Non-current assets
================================================== ====== ========== ==========
Other intangible assets 100.0 100.0
================================================== ====== ========== ==========
Goodwill 4.2 792.2 792.2
================================================== ====== ========== ==========
Property, plant and equipment 9.5 9.6
================================================== ====== ========== ==========
Investments in joint ventures and associates 213.1 255.9
================================================== ====== ========== ==========
Retirement benefit assets 6.1 13.6 8.1
================================================== ====== ========== ==========
Available for sale financial assets 3.5 3.8
================================================== ====== ========== ==========
Trade and other receivables 2.3 1.6
================================================== ====== ========== ==========
Derivative financial instruments - swaps 5.3 - 11.8
-------------------------------------------------- ------ ---------- ----------
1,134.2 1,183.0
-------------------------------------------------- ------ ---------- ----------
Current assets
================================================== ====== ========== ==========
Inventories 3.1 4,475.4 4,326.6
================================================== ====== ========== ==========
Available for sale financial assets 0.4 0.8
================================================== ====== ========== ==========
Trade and other receivables 204.5 149.6
================================================== ====== ========== ==========
Cash and cash equivalents 5.1 784.4 758.0
================================================== ====== ========== ==========
Derivative financial instruments - swaps 5.3 13.2 -
-------------------------------------------------- ------ ---------- ----------
5,477.9 5,235.0
-------------------------------------------------- ------ ---------- ----------
Total assets 6,612.1 6,418.0
-------------------------------------------------- ------ ---------- ----------
Liabilities
================================================== ====== ========== ==========
Non-current liabilities
================================================== ====== ========== ==========
Loans and borrowings 5.1 (1.4) (171.5)
================================================== ====== ========== ==========
Trade and other payables (596.9) (629.9)
================================================== ====== ========== ==========
Deferred tax liabilities (8.0) (10.5)
================================================== ====== ========== ==========
Derivative financial instruments - swaps 5.3 - (7.5)
-------------------------------------------------- ------ ---------- ----------
(606.3) (819.4)
-------------------------------------------------- ------ ---------- ----------
Current liabilities
================================================== ====== ========== ==========
Loans and borrowings 5.1 (72.5) (6.0)
================================================== ====== ========== ==========
Trade and other payables (1,534.2) (1,513.5)
================================================== ====== ========== ==========
Derivative financial instruments - swaps 5.3 (5.8) (5.6)
================================================== ====== ========== ==========
Current tax liabilities (71.1) (63.3)
-------------------------------------------------- ------ ---------- ----------
(1,683.6) (1,588.4)
-------------------------------------------------- ------ ---------- ----------
Total liabilities (2,289.9) (2,407.8)
-------------------------------------------------- ------ ---------- ----------
Net assets 4,322.2 4,010.2
-------------------------------------------------- ------ ---------- ----------
Equity
================================================== ====== ========== ==========
Share capital 5.5 100.8 100.4
================================================== ====== ========== ==========
Share premium 224.7 222.7
================================================== ====== ========== ==========
Merger reserve 1,109.0 1,109.0
================================================== ====== ========== ==========
Hedging reserve - (9.7)
================================================== ====== ========== ==========
Retained earnings 2,878.6 2,578.9
-------------------------------------------------- ------ ---------- ----------
Equity attributable to the owners of the Company 4,313.1 4,001.3
-------------------------------------------------- ------ ---------- ----------
Non-controlling interests 4.1 9.1 8.9
-------------------------------------------------- ------ ---------- ----------
Total equity 4,322.2 4,010.2
-------------------------------------------------- ------ ---------- ----------
Cash Flow Statement
Year ended 30 June 2017
Group
--------------------------------------------- ------ ------------------
2017 2016
Notes GBPm GBPm
--------------------------------------------- ------ -------- --------
Reconciliation of operating profit
to cash flow from operating activities
Profit from operations 799.2 668.4
--------------------------------------------- ------ -------- --------
Depreciation 4.1 4.5
============================================= ====== ======== ========
Loss on disposal of fixed assets - 0.2
============================================= ====== ======== ========
Impairment of inventories 13.5 8.6
============================================= ====== ======== ========
Impairment/(reversal of impairment)
of available for sale financial assets (2.6) 2.1
============================================= ====== ======== ========
Impairment of investment in entities
accounted for using the equity method 1.0 -
============================================= ====== ======== ========
Share-based payments charge 9.1 12.8
============================================= ====== ======== ========
Imputed interest on deferred term payables* 5.2 (32.5) (34.5)
============================================= ====== ======== ========
Imputed interest on available for sale
financial assets and interest free
loans* 5.2 - 2.9
============================================= ====== ======== ========
Amortisation of facility fees 5.2 (3.3) (2.9)
============================================= ====== ======== ========
Finance income related to employee
benefits 5.2 0.4 0.4
--------------------------------------------- ------ -------- --------
Total non-cash items (10.3) (5.9)
--------------------------------------------- ------ -------- --------
Increase in inventories (162.3) (161.6)
============================================= ====== ======== ========
Increase in trade and other receivables (66.7) (0.9)
============================================= ====== ======== ========
(Decrease)/increase in trade and other
payables (9.7) 188.5
============================================= ====== ======== ========
Decrease in available for sale financial
assets 3.3 100.8
--------------------------------------------- ------ -------- --------
Total movements in working capital (235.4) 126.8
--------------------------------------------- ------ -------- --------
Interest paid (23.2) (26.8)
============================================= ====== ======== ========
Tax paid (141.7) (109.6)
--------------------------------------------- ------ -------- --------
Net cash inflow from operating activities 388.6 652.9
--------------------------------------------- ------ -------- --------
Investing activities:
Purchase of property, plant and equipment (4.0) (6.1)
============================================= ====== ======== ========
Increase in amounts invested in entities
accounted for using the equity method (54.9) (33.6)
============================================= ====== ======== ========
Repayment of amounts invested in entities
accounted for using the equity method 37.2 21.7
============================================= ====== ======== ========
Dividends received from investments
accounted for using the equity method 85.1 28.1
============================================= ====== ======== ========
Interest received 2.5 2.6
============================================= ====== ======== ========
Net cash inflow from investing activities 65.9 12.7
--------------------------------------------- ------ -------- --------
Financing activities:
Dividends paid 2.3 (321.7) (263.2)
============================================= ====== ======== ========
Purchase of own shares (3.6) (1.0)
============================================= ====== ======== ========
Proceeds from disposal of own shares 0.1 0.2
============================================= ====== ======== ========
Proceeds from issue of share capital 2.4 3.9
============================================= ====== ======== ========
Loan repayments (105.6) (10.9)
============================================= ====== ======== ========
Drawdown of loans 0.3 3.0
--------------------------------------------- ------ -------- --------
Net cash outflow from financing activities (428.1) (268.0)
--------------------------------------------- ------ -------- --------
Net increase in cash and cash equivalents 26.4 397.6
============================================= ====== ======== ========
Cash and cash equivalents at the beginning
of the year 758.0 360.4
--------------------------------------------- ------ -------- --------
Cash and cash equivalents at the end
of the year 5.1 784.4 758.0
--------------------------------------------- ------ -------- --------
*The Balance Sheet movements in land, available for sale
financial assets and certain interest free loans include non-cash
movements due to imputed interest. Imputed interest is therefore
included within non-cash items in the statement above.
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 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'), this announcement does not itself contain sufficient
information to comply with IFRS. Full Financial Statements that
comply with IFRS are included in the 2017 Annual Report and
Accounts which will be circulated to shareholders in October 2017
and made available at www.barrattdevelopments.co.uk at that
point.
The accounting policies adopted are consistent with those
followed in the preparation of the Group's 2017 Annual Report and
Accounts which have not changed from those adopted in the Group's
2016 Annual Report and Accounts.
This Annual Results Announcement has been prepared under the
historical cost convention as modified by the revaluation of
available for sale financial assets, derivative financial
instruments and share-based payments.
Critical accounting judgements and key sources of estimation
uncertainty
The preparation of condensed consolidated financial statements
in conformity with generally accepted accounting principles
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 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 set out within the
relevant notes.
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 future 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 5.4 to these condensed
consolidated financial statements.
The financial performance of the Group is dependent upon the
wider economic environment in which the Group operates. As
explained in the 'Principal risks and uncertainties' section in
note 7.5, factors that particularly affect the performance of the
Group include changes in the macroeconomic environment including
buyer confidence, availability of mortgage finance for the Group's
customers and interest rates. In forming their conclusion, the
Directors have considered all currently available information about
the potential future outcomes of events and changes in conditions
that are reasonably possible at the time of making this statement.
In doing this they have concluded that no material uncertainties
exist.
At 30 June 2017 the Group had total committed bank facilities
and private placement notes of GBP748.3m. The final maturity dates
of these facilities range from August 2017 to December 2021, with
the GBP700.0m revolving credit facility maturing in December 2021.
Since the balance sheet date the US$ private placement notes have
been repaid and new sterling US private placement notes have been
issued resulting in total committed bank facilities and private
placement notes of GBP900.0m with maturities ranging from December
2021 to August 2027. The committed facilities and private placement
notes provide appropriate headroom above our current forecast debt
requirements.
In addition to these committed borrowing facilities the Group
has GBP16.8m of financing from the Government's 'Get Britain
Building' scheme repayable on 31 March 2018. Further committed loan
facilities of GBP4.6m are available under agreements with local
government which are due to be repaid between March 2018 and March
2020.
Accordingly, after making enquiries and having considered
forecasts and appropriate sensitivities, the Directors have formed
a judgement, at the time of approving the condensed consolidated
financial statements, that 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 Adoption of new and revised standards
In the year ended 30 June 2017, the Group has adopted no new
standards, amendments or interpretations.
Section 2 - Results for the year and utilisation of profits
------------------------------------------------------------
Estimation of future income and costs to complete - In order to
determine the profit that the Group is able to recognise on its
developments in a specific period, the Group has to allocate
site-wide development costs between units 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 units. In making these
assessments there is a degree of inherent uncertainty. The Group
has developed internal controls to assess and review carrying
values and the appropriateness of estimates made.
2.1 Segmental analysis
The Group consists of two separate segments for management
reporting and control purposes, being housebuilding and commercial
developments. The segments are considered appropriate for reporting
under IFRS 8 'Operating Segments' since these segments are
regularly reviewed internally by the Board without further
significant categorisation. The Group presents its primary segment
information on the basis of these operating segments. As the Group
operates in a single geographic market, Great Britain, no secondary
segmentation is provided.
House- Commercial 2017 House- Commercial 2016
building developments Total building developments Total
Units Units Units Units Units Units
-------------------------- ---------- -------------- ---------- ---------- -------------- ----------
Residential completions* 16,645 - 16,645 15,905 - 15,905
-------------------------- ---------- -------------- ---------- ---------- -------------- ----------
Consolidated Income
Statement GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ---------- -------------- ---------- ---------- -------------- ----------
Revenue 4,589.1 61.1 4,650.2 4,153.3 81.9 4,235.2
Cost of sales (3,661.9) (47.5) (3,709.4) (3,361.3) (73.5) (3,434.8)
========================== ========== ============== ========== ========== ============== ==========
Adjusted item(**) - (8.8) (8.8) - - -
-------------------------- ---------- -------------- ---------- ---------- -------------- ----------
Gross profit 927.2 4.8 932.0 792.0 8.4 800.4
========================== ========== ============== ========== ========== ============== ==========
Administrative expenses (129.4) (3.4) (132.8) (129.6) (2.4) (132.0)
-------------------------- ---------- -------------- ---------- ---------- -------------- ----------
Profit from operations 797.8 1.4 799.2 662.4 6.0 668.4
========================== ========== ============== ========== ========== ============== ==========
Share of post-tax
profit/(loss) from
joint ventures and
associates 26.5 (0.9) 25.6 72.4 (0.3) 72.1
-------------------------- ---------- -------------- ---------- ---------- -------------- ----------
Profit from operations
including post-tax
profit/(loss) from
joint ventures and
associates 824.3 0.5 824.8 734.8 5.7 740.5
-------------------------- ---------- -------------- ---------- ---------- -------------- ----------
Finance income 2.9 5.9
========================== ========== ============== ========== ========== ============== ==========
Finance costs (62.6) (64.1)
-------------------------- ---------- -------------- ---------- ---------- -------------- ----------
Profit before tax 765.1 682.3
========================== ========== ============== ========== ========== ============== ==========
Tax (149.1) (132.0)
-------------------------- ---------- -------------- ---------- ---------- -------------- ----------
Profit for the year
from continuing
operations 616.0 550.3
-------------------------- ---------- -------------- ---------- ---------- -------------- ----------
*Residential completions exclude joint venture completions of
750 (2016: 1,414) in which the Group has an interest.
House- Commercial 2017 House- Commercial 2016
building developments Total building developments Total
Balance Sheet GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ---------- -------------- ---------- ---------- -------------- ----------
Segment assets 5,821.4 27.6 5,849.0 5,648.0 42.2 5,690.2
============================= ========== ============== ========== ========== ============== ==========
Elimination of intercompany
balances (21.3) (30.2)
----------------------------- ---------- -------------- ---------- ---------- -------------- ----------
5,827.7 5,660.0
============================= ========== ============== ========== ========== ============== ==========
Cash and cash equivalents 784.4 758.0
----------------------------- ---------- -------------- ---------- ---------- -------------- ----------
Consolidated total
assets 6,612.1 6,418.0
----------------------------- ---------- -------------- ---------- ---------- -------------- ----------
Segment liabilities (2,081.9) (76.3) (2,158.2) (2,114.3) (72.4) (2,186.7)
============================= ========== ============== ========== ========== ============== ==========
Elimination of intercompany
balances 21.3 30.2
----------------------------- ---------- -------------- ---------- ---------- -------------- ----------
(2,136.9) (2,156.5)
============================= ========== ============== ========== ========== ============== ==========
Loans and borrowings (73.9) (177.5)
============================= ========== ============== ========== ========== ============== ==========
Deferred tax liabilities (8.0) (10.5)
============================= ========== ============== ========== ========== ============== ==========
Current tax liabilities (71.1) (63.3)
----------------------------- ---------- -------------- ---------- ---------- -------------- ----------
Consolidated total
liabilities (2,289.9) (2,407.8)
----------------------------- ---------- -------------- ---------- ---------- -------------- ----------
House- Commercial 2017 House- Commercial 2016
building developments Total building developments Total
Balance Sheet GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ---------- -------------- ------- ---------- -------------- -------
Other information
------------------- ---------- -------------- ------- ---------- -------------- -------
Capital additions 4.0 - 4.0 6.1 - 6.1
------------------- ---------- -------------- ------- ---------- -------------- -------
Depreciation 4.1 - 4.1 4.5 - 4.5
------------------- ---------- -------------- ------- ---------- -------------- -------
** During the year an amount of GBP8.8m (2016: GBPnil) was
provided in respect of impairment costs associated with a legacy
commercial asset. These costs have been disclosed as adjusted in
the Income Statement.
In determining the sum provided it was necessary to estimate the
cash flows associated with the asset, and to discount these at an
appropriate rate. The discount rate was determined at 2.3% with
reference to the Group's forecast average cost of debt.
2.2 Earnings per share
Basic earnings per share is calculated by dividing the profit
for the year attributable to ordinary shareholders of the parent
company of GBP615.8m (2016: GBP550.3m) by the weighted average
number of ordinary shares in issue during the year, excluding those
held by the Employee Benefit Trust which are treated as cancelled,
which was 1,004.3m (2016: 998.7m) shares.
Diluted earnings per share is calculated by dividing the profit
for the year attributable to ordinary shareholders of the parent
company of GBP615.8m (2016: GBP550.3m) 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,
giving a figure of 1,014.7m (2016: 1,013.0m) shares.
The earnings per share from continuing operations were as
follows:
2017 2016
pence pence
---------------------------- ------- -------
Basic earnings per share 61.3 55.1
---------------------------- ------- -------
Diluted earnings per share 60.7 54.3
---------------------------- ------- -------
2.3 Dividends
2017 2016
GBPm GBPm
----------------------------------------------------------------------------------- ------ ------
Amounts recognised as distributions to equity shareholders in the year:
=================================================================================== ====== ======
Final dividend for the year ended 30 June 2016 of 12.3p (2015: 10.3p) per share 123.6 103.1
=================================================================================== ====== ======
Special dividend for the year ended 30 June 2016 of 12.4p (2015: 10.0p) per share 124.7 100.0
=================================================================================== ====== ======
Interim dividend for the year ended 30 June 2017 of 7.3p (2016: 6.0p) per share 73.4 60.1
----------------------------------------------------------------------------------- ------ ------
Total dividends distributed to equity shareholders in the year 321.7 263.2
----------------------------------------------------------------------------------- ------ ------
2017 2016
GBPm GBPm
-------------------------------------------------------------------------------------------- ------ ------
Proposed final dividend for the year ended 30 June 2017 of 17.1p (2016: 12.3p) per share 172.2 123.3
-------------------------------------------------------------------------------------------- ------ ------
Proposed special dividend for the year ended 30 June 2017 of 17.3p (2016: 12.4p) per share 175.0 125.0
-------------------------------------------------------------------------------------------- ------ ------
The proposed final dividend and the special dividend are subject
to approval by shareholders at the Annual General Meeting. The cost
has been calculated based on the issued share capital at 30 June
2017 and has not been included as a liability at 30 June 2017.
2.4 Tax
All profits of the Group are subject to UK corporation tax.
The current year tax charge has been provided for at an
effective rate of 19.75% (2016: 20.0%) and the closing deferred tax
assets and liabilities have been provided in these condensed
consolidated financial statements at a rate of between 17.0% and
19.0% (2016: between 18.0% and 20.0%) of the temporary differences
giving rise to these assets and liabilities, dependent upon when
they are expected to reverse.
2.4.1 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
2017 2016
GBPm GBPm
--------------------------------------------------- ------ ------
Current tax:
=================================================== ====== ======
UK corporation tax for the year 152.8 135.1
=================================================== ====== ======
Adjustment in respect of previous years 0.5 (2.6)
--------------------------------------------------- ------ ------
153.3 132.5
--------------------------------------------------- ------ ------
Deferred tax:
=================================================== ====== ======
Origination and reversal of temporary differences (3.1) (0.4)
=================================================== ====== ======
Adjustment in respect of previous years (0.4) 1.7
=================================================== ====== ======
Impact of reduction in corporation tax rate (0.7) (1.8)
--------------------------------------------------- ------ ------
(4.2) (0.5)
--------------------------------------------------- ------ ------
Tax charge for the year 149.1 132.0
--------------------------------------------------- ------ ------
Factors affecting the tax charge for the year
The tax rate assessed for the year is lower (2016: lower) than
the standard effective rate of corporation tax in the UK of 19.75%
(2016: 20.0%). The differences are explained below:
2017 2016
GBPm GBPm
---------------------------------------------------------------------------------------------- ------ ------
Profit before tax 765.1 682.3
---------------------------------------------------------------------------------------------- ------ ------
Profit before tax multiplied by the standard rate of corporation tax of 19.75% (2016: 20.0%) 151.1 136.5
============================================================================================== ====== ======
Effects of:
============================================================================================== ====== ======
Other items including non-deductible expenses 1.0 1.2
============================================================================================== ====== ======
Additional tax relief for land remediation costs (1.8) (2.0)
============================================================================================== ====== ======
Adjustment in respect of previous years 0.1 (0.9)
============================================================================================== ====== ======
Adjustment for post-tax profits of certain joint ventures included in Group profit before
tax (0.6) (1.0)
============================================================================================== ====== ======
Impact of change in tax rate on deferred tax asset (0.7) (1.8)
---------------------------------------------------------------------------------------------- ------ ------
Tax charge for the year 149.1 132.0
---------------------------------------------------------------------------------------------- ------ ------
2.4.2 Tax recognised in equity
In addition to the amount charged to the Consolidated Income
Statement, a net current and deferred tax charge of GBP2.0m (2016:
GBP0.8m) was recognised directly in equity.
Section 3 - Working capital
----------------------------
3.1 Inventories
Carrying value of land and work in progress - 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 2017 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 within the Balance Sheet, 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 GBP16.8m (2016: GBP11.0m) and
gross impairment reversals of GBP3.3m (2016: GBP2.4m), resulting in
a net impairment charge of GBP13.5m (2016: GBP8.6m) 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 estimation of future sales prices and costs to complete
included zero net inflation (2016: zero net inflation for the first
three years and then low single digit inflation thereafter). If the
UK housing market were to change beyond management expectations in
the future, in particular with regards to the assumptions around
sales prices and estimated costs to complete, further adjustments
to the carrying value of land and work in progress may be required.
A 5% reduction in forecast average selling prices would result in
additional impairment of inventories, however this would not be
material.
The land held at the balance sheet date that has already been
impaired is most sensitive to the judgements being applied and the
potential for further impairment or reversal. Forecasting risk also
increases in relation to those sites that are not expected to be
realised in the short to medium term.
Group
------------------------------------------------ ------------------
2017 2016
GBPm GBPm
------------------------------------------------ -------- --------
Land held for development 2,895.6 2,880.2
================================================ ======== ========
Construction work in progress 1,509.1 1,386.3
================================================ ======== ========
Part-exchange properties and other inventories 70.7 60.1
------------------------------------------------ -------- --------
4,475.4 4,326.6
------------------------------------------------ -------- --------
3.1.1 Nature of inventories
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 2017
and included in cost of sales was GBP3,509.6m (2016:
GBP3,233.7m).
Section 4 - Business combinations and other investing activities
-----------------------------------------------------------------
4.1 Business combinations
4.1.1 Non-controlling interests
At 30 June 2017 the following subsidiaries of the Group had
non-controlling interests:
Voting Country Principal
Percentage rights of place Principal
Subsidiary owned controlled registration of business activity
-------------------------- ----------- ------------ -------------- ------------- --------------
SQ Holdings Limited 90.0% 90.0% Guernsey* UK Housebuilding
-------------------------- ----------- ------------ -------------- ------------- --------------
The Tin Hat Regeneration England Commercial
Partnership LLP 90.0% 50.0% and Wales UK development
-------------------------- ----------- ------------ -------------- ------------- --------------
*Subject to UK corporation tax (see note 2.4).
Group
------------------------------------------------------------------------------------------------- --------------
Movement in non-controlling interest share of net assets recognised in the Consolidated Balance 2017 2016
Sheet GBPm GBPm
------------------------------------------------------------------------------------------------- ------ ------
At 1 July 8.9 8.9
================================================================================================= ====== ======
Share of profit for the year recognised in the Consolidated Income Statement 0.2 -
================================================================================================= ====== ======
At 30 June 9.1 8.9
------------------------------------------------------------------------------------------------- ------ ------
4.2 Goodwill
Group
GBPm
----------------------------------------------- ------
Cost
=============================================== ======
At 1 July 2015, 30 June 2016 and 30 June 2017 816.7
----------------------------------------------- ------
Accumulated impairment losses
=============================================== ======
At 1 July 2015, 30 June 2016 and 30 June 2017 24.5
----------------------------------------------- ------
Carrying amount
=============================================== ======
At 30 June 2016 and 30 June 2017 792.2
----------------------------------------------- ------
The Group's goodwill has a carrying value of GBP792.2m relating
to the housebuilding segment. The goodwill relating to the
commercial developments segment, with a cost of GBP24.5m, was fully
impaired in the year ended 30 June 2008.
4.2.1 Impairment of goodwill and intangible assets
The Group conducts an annual impairment review of goodwill and
intangibles together for the housebuilding segment.
Impairment of goodwill and brands - The impairment review for
the goodwill of the housebuilding business and the Group's
indefinite life brand, David Wilson Homes, requires an estimation
of the value-in-use of the housebuilding segment. The value-in-use
calculation requires an estimate of the future cash flows expected
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 discount rate used is based on the average capital
structure of the Group, current market assessments of the time
value of money and risks appropriate to the Group's housebuilding
business. Changes in these may impact upon the Group's discount
rate in future periods. The sensitivity of the valuation of
goodwill and brands to changes in expectations and discount rates
is set out in this note.
An impairment review was performed at 30 June 2017 and compared
the value-in-use of the housebuilding segment with the carrying
value of its tangible and intangible assets and allocated
goodwill.
The value-in-use was determined by discounting the expected
future cash flows of the housebuilding segment. The first two years
of cash flows were determined using the Group's approved detailed
site-by-site business plan. The cash flows for the third to the
fifth years were determined using Group level internal forecasted
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 2.5%, which was based
upon the historical long term growth rate of the UK economy.
The key assumptions for the value-in-use calculations were:
-- Discount rate: this is a pre-tax rate reflecting current
market assessments of the time value of money and risks appropriate
to the Group's housebuilding business. Accordingly, the rate of
14.5% (2016: 14.2%) is considered by the Directors to be the
appropriate pre-tax risk adjusted discount rate, being the Group's
estimated long term pre-tax weighted average cost of capital. The
rate used in the 30 June 2017 impairment review is calculated using
the average capital structure of the Group during the financial
year, consistent with the prior year, due to the cyclicality of the
Group's borrowing requirements.
-- Expected changes in selling prices for completed houses and
the related impact upon operating margin: these are determined on a
site-by-site basis for the first two years dependent upon local
market conditions and product type. For years three 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 two years dependent upon local market conditions,
land availability and planning permissions. For years three 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.
-- Expected changes in site costs to complete: these are
determined on a site-by-site basis for the first two years
dependent upon the expected costs of completing all aspects of each
individual development. For years three 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.
The conclusion of this impairment review was that given the
current position of the housebuilding segment and the expectations
as to its future performance based upon current forecasts for sales
volumes and expected changes in both selling prices and costs to
complete, the housebuilding segment's goodwill and intangible
assets were not impaired. The recoverable value of goodwill and
intangible assets exceeded its carrying value by GBP1,720.8m (2016:
GBP1,424.6m).
If the UK housing market and expectations regarding its future
were to deteriorate with either operating margins reduced each year
by 4.8% (2016: 4.2% per annum) versus management expectations or
the appropriate discount rate were to increase by 5.4% (2016: 4.5%)
and all other variables were held constant, then the recoverable
value of goodwill and intangible assets would equal its carrying
value.
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 foreign exchange
swaps.
Net cash at 30 June is shown below:
Group
---------------------------------------------------------------------------
2017 2016
Notes GBPm GBPm
---------------------------------------------- -------- ------- --------
Cash and cash equivalents 5.1.1 784.4 758.0
---------------------------------------------- -------- ------- --------
Drawn debt
Borrowings
============================================== ======== ======= ========
Term loans - (100.0)
============================================== ======== ======= ========
Government loans (21.4) (27.0)
============================================== ======== ======= ========
Private placement notes (61.6) (60.0)
============================================== ======== ======= ========
Prepaid fees 9.1 9.5
---------------------------------------------- -------- ------- --------
Total borrowings being total drawn debt (73.9) (177.5)
---------------------------------------------- -------- ------- --------
Derivative financial instruments
============================================== ======== ======= ========
Foreign exchange swaps 5.3 13.2 11.5
---------------------------------------------- -------- ------- --------
Net cash 723.7 592.0
---------------------------------------------- -------- ------- --------
Total borrowings at 30 June are analysed as:
============================================== ======== ======= ========
Non-current borrowings (1.4) (171.5)
============================================== ======== ======= ========
Current borrowings (72.5) (6.0)
---------------------------------------------- -------- ------- --------
Total borrowings being drawn debt (73.9) (177.5)
---------------------------------------------- -------- ------- --------
Movement in net cash is analysed as follows:
Group
---------------------------------------------------------------- --------------
2017 2016
GBPm GBPm
---------------------------------------------------------------- ------ ------
Net increase in cash and cash equivalents 26.4 397.6
================================================================ ====== ======
Net loan repayments/(drawdown) including foreign exchange loss 103.6 (1.0)
================================================================ ====== ======
Foreign exchange gain on swaps 1.7 8.9
================================================================ ====== ======
Movement in net cash in the year 131.7 405.5
================================================================ ====== ======
Opening net cash 592.0 186.5
---------------------------------------------------------------- ------ ------
Closing net cash 723.7 592.0
---------------------------------------------------------------- ------ ------
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 (excluding Get Britain Building loans) is
unsecured.
The principal features of the Group's debt facilities at 30 June
2017 and 30 June 2016 were as follows:
Amount drawn
------------------------
30 June 30 June
Facility 2017 2016 Maturity
------------------------ ---------- ----------- ----------- -----------------------
Committed facilities
======================== ========== =========== =========== =======================
Revolving credit -
facility (RCF) GBP700.0m - 29 December 2021
======================== ========== =========== =========== =======================
- Repaid in full on
Term loan - GBP100.0m 27 March 2017
======================== ========== =========== =========== =======================
Repayment due on
Government loans* GBP16.8m GBP16.8m GBP22.5m 31 March 2018
======================== ========== =========== =========== =======================
GBP4.6m GBP4.6m
including including Repayments due between
Local government GBP0.2m GBP0.1m 31 March 2018 and
loan agreements GBP4.6m interest interest 31 March 2020
======================== ========== =========== =========== =======================
Fixed rate US$ private
placement notes $80.0m $80.0m $80.0m 23 August 2017
------------------------ ---------- ----------- ----------- -----------------------
*Government loans comprise cash received for specific sites
under the Government's 'Get Britain Building' scheme, which is
repayable as described in the table above.
Amendments to the Group's facilities which have occurred since
the balance sheet date are included in note 7.3.
The Group also uses various bank overdrafts and uncommitted
borrowing facilities that are subject to floating interest rates
linked to the UK bank rate, LIBOR and money market rates as
applicable.
Weighted average interest rates are disclosed in note 5.2.
5.2 Net finance costs
Recognised in the Consolidated Income Statement:
2017 2016
Notes GBPm GBPm
--------------------------------------------------------------------------------- ------ ------ ------
Finance income
================================================================================= ====== ====== ======
Finance income on short term bank deposits (0.7) (0.7)
================================================================================= ====== ====== ======
Imputed interest on available for sale financial assets and interest free loans - (2.9)
================================================================================= ====== ====== ======
Finance income related to employee benefits 6.1 (0.4) (0.4)
================================================================================= ====== ====== ======
Other interest receivable (1.8) (1.9)
--------------------------------------------------------------------------------- ------ ------ ------
(2.9) (5.9)
--------------------------------------------------------------------------------- ------ ------ ------
Finance costs
================================================================================= ====== ====== ======
Interest on loans and borrowings 12.0 14.1
================================================================================= ====== ====== ======
Imputed interest on deferred term payables 32.5 34.5
================================================================================= ====== ====== ======
Amounts reclassified to the Income Statement in respect of hedged cash flows 10.2 (1.1)
================================================================================= ====== ====== ======
Foreign exchange losses on US Dollar debt 1.7 8.9
================================================================================= ====== ====== ======
Amortisation of facility fees 3.3 2.9
================================================================================= ====== ====== ======
Other interest payable 2.9 4.8
--------------------------------------------------------------------------------- ------ ------ ------
62.6 64.1
--------------------------------------------------------------------------------- ------ ------ ------
Net finance costs 59.7 58.2
--------------------------------------------------------------------------------- ------ ------ ------
Recognised in equity:
2017 2016
GBPm GBPm
------------------------------------------------------------------------------ ------- ------
Amounts deferred in respect of effective cash flow hedges (1.9) (6.3)
------------------------------------------------------------------------------ ------- ------
Total fair value movement on cash flow swaps included in equity (1.9) (6.3)
------------------------------------------------------------------------------ ------- ------
Amounts reclassified to the Income Statement in respect of hedged cash flows (10.2) 1.1
------------------------------------------------------------------------------ ------- ------
Total fair value movement on cash flow swaps transferred from equity (10.2) 1.1
------------------------------------------------------------------------------ ------- ------
The weighted average interest rates, excluding fees, paid in the
year were as follows:
Group
------------------------------------ ----- ------
2017 2016
% %
------------------------------------ ----- ------
Bank loans excluding swap interest 1.7 2.1
==================================== ===== ======
Net swap payment 5.4 5.2
==================================== ===== ======
Government loans 1.9 2.2
==================================== ===== ======
Term loans 4.4 4.7
==================================== ===== ======
Private placement notes 8.2 8.2
------------------------------------ ----- ------
5.3 Derivative financial instruments - swaps
The Group has entered into derivative financial instruments in
the form of interest rate swaps and cross currency swaps to manage
the interest rate and foreign exchange rate risk arising from the
Group's operations and sources of finance. The use of financial
derivatives is governed by the Group's policies approved by the
Board of Directors as detailed in note 5.4 to the condensed
consolidated financial statements. The Group does not enter into
any derivatives for speculative purposes.
Hedge accounting - The Group has adopted hedge accounting for
its swaps. If it ceases to be highly probable that there is
sufficient forecast debt to match with the period of the interest
rate swaps or if the cross currency hedges cease to be highly
effective, any changes in fair value of the swaps would be
recognised in the Consolidated Income Statement, rather than
equity.
As detailed in note 5.3.1 below, the cash flows hedged by the
interest rate swap are no longer expected to occur and the
resulting ineffectiveness has been transferred to the Consolidated
Income Statement in the year.
The Group includes foreign exchange swaps within net debt. These
swaps were entered into to hedge the foreign exchange exposure upon
the Group's US Dollar denominated private placement notes. The
Group's foreign exchange swaps have both an interest rate and an
exchange rate element and only the exchange rate element on the
notional amount of the swap is included within the net cash
note.
The Group's derivative financial instruments at 30 June are
shown below:
Group
----------------------------------------------- ---------------
2017 2016
Designated as cash flow hedges: GBPm GBPm
----------------------------------------------- ------ -------
Foreign exchange swap - exchange rate element 13.2 11.5
=============================================== ====== =======
Foreign exchange swap - interest rate element - 0.3
----------------------------------------------- ------ -------
Non-current asset - 11.8
----------------------------------------------- ------ -------
Current asset 13.2 -
----------------------------------------------- ------ -------
Interest rate swaps - non-current liability - (7.5)
----------------------------------------------- ------ -------
Interest rate swaps - current liability (5.8) (5.6)
----------------------------------------------- ------ -------
Total liability (5.8) (13.1)
----------------------------------------------- ------ -------
Net derivative financial instruments 7.4 (1.3)
----------------------------------------------- ------ -------
5.3.1 Interest rate swaps
The Group enters into derivative transactions in the form of
swap arrangements to manage the cash flow risks, related to
interest rates, arising from the Group's sources of finance.
In previous years the Group entered into swap arrangements to
swap GBP25.0m (2016: GBP137.0m) of floating rate debt into fixed
rate Sterling debt in accordance with the Group Treasury policy
outlined in note 5.4. After taking into account swap arrangements,
the fixed interest rates applicable to the debt were as
follows:
2017 2016
------------------------------ --------------------------------
Fixed rate Fixed rate
payable payable
GBPm % Maturity GBPm % Maturity
----- ----------- ---------- ------ ----------- -----------
- - - 60.0 6.06 2017
===== =========== ========== ====== =========== ===========
- - - 19.5 6.18 2017
===== =========== ========== ====== =========== ===========
- - - 32.5 5.83 2017
===== =========== ========== ====== =========== ===========
25.0 5.64 2022* 25.0 5.61 2022
----- ----------- ---------- ------ ----------- -----------
25.0 137.0
----- ----------- ---------- ------ ----------- -----------
*The GBP25.0m 2022 interest rate swap arrangement contains a
clause allowing the Group and the Company or counterparty to cancel
the swap on 22 August 2017 at fair value.
The Group has concluded that future floating rate borrowing is
no longer expected to be highly probable. As a result, the Group
intends to discontinue prospectively hedge accounting for the
interest rate swap. As the transaction is no longer highly probable
the loss previously recognised on the interest rate swap of GBP5.8m
has been reclassified from equity to the Income Statement during
the year ended 30 June 2017. This is included in the Statement of
Consolidated Income within the GBP10.2m reclassified to the Income
Statement in the year.
In addition, during the year ended 30 June 2017 hedging
ineffectiveness of GBP0.7m (2016: GBP0.7m charge) was credited to
the Consolidated Income Statement.
5.3.2 Foreign exchange swaps
The Group enters into derivative transactions in the form of
swap arrangements to manage the cash flow risks related to foreign
exchange arising from the Group's sources of finance denominated in
US Dollars.
As at 30 June 2017, the Group had outstanding fixed rate US
Dollar loan notes of US$80.0m (2016: US$80.0m).
The Group has entered into swap arrangements to swap all of this
debt into fixed rate Sterling debt in accordance with the Group
Treasury policy outlined in note 5.4. After taking into account
swap arrangements, the fixed interest rates applicable to the debt
were as follows:
2017 2016
----------------------------- -------------------------------
Fixed rate Fixed rate
payable payable
US$m % Maturity US$m % Maturity
----- ----------- --------- ----- ----------- -----------
80.0 8.14 2017 80.0 8.14 2017
----- ----------- --------- ----- ----------- -----------
There was no ineffectiveness to be taken through the
Consolidated Income Statement during the year or the prior
year.
5.4 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 derivative financial instruments are detailed in note
5.3.
The Group's operations and financing arrangements expose it to a
variety of financial risks of which the most material are: credit
risk, foreign exchange risk, liquidity risk, interest rates and the
availability of funding at reasonable margins. There is a regular,
detailed system for the reporting and forecasting of cash flows
from the operations to Group management to ensure that liquidity
risks are promptly identified and appropriate mitigating actions
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, in particular by using
financial instruments, including debt and derivatives, to hedge
interest rates and currency rates. The Group does not use
derivative financial instruments for speculative purposes. See
principal risks and uncertainties section for more details.
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.
5.4.1 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 and May; and
October and 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
upon its regular, detailed system for the reporting and forecasting
of cash flows from its operations. The Group's drawn debt,
excluding fees, represented 11.3% (2016: 20.0%) of available
committed facilities at 30 June 2017. In addition, the Group had
GBP784.4m (2016: GBP758.0m) of cash and cash equivalents.
The Group was in compliance with its financial covenants at 30
June 2017. At the date of approval of the condensed consolidated
financial statements, the Group's internal forecasts indicate that
it will remain in compliance with these covenants for the
foreseeable future, being at least 12 months from the date of
approval of the 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 at least
two years on average with a target of three years. At 30 June 2017,
the average maturity of the Group's facilities was 4.1 years (2016:
3.0 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
----------------------------------------------------- --------------
2017 2016
Expiry date GBPm GBPm
----------------------------------------------------- ------ ------
In more than one year but not more than two years - 150.0
===================================================== ====== ======
In more than two years but not more than five years 700.0 550.0
===================================================== ====== ======
700.0 700.0
----------------------------------------------------- ------ ------
In addition, the Group had GBP71.2m (2016: GBP71.2m) of undrawn
uncommitted facilities available at 30 June 2017.
5.4.2 Market risk (price risk)
5.4.2.1 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 fixed using both derivatives and
fixed rate debt instruments. The Group's policy target is for 0-40%
of average borrowings over the three-year plan period to be at
fixed rates of interest. Due to the seasonality of the Group's
funding requirements, 111.7% (2016: 108.6%) of the Group's gross
borrowings were fixed as at 30 June 2017 and the average over the
three-year plan period has increased to 60.1% (2016: 42.4%) due to
the issuance of a GBP200m fixed rate USPP in August 2017 (see note
7.3).
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
-------------------------- ------------------------- -------------------------- ------------------------- --------
2017
========================== ========================= ========================== ========================= ========
Financial liabilities
(excluding derivatives) 16.8 66.2 1,828.7 1,911.7
========================== ========================= ========================== ========================= ========
Impact of interest rate
swaps (25.0) 25.0 - -
-------------------------- ------------------------- -------------------------- ------------------------- --------
Financial liability
exposure to interest
rate risk (8.2) 91.2 1,828.7 1,911.7
-------------------------- ------------------------- -------------------------- ------------------------- --------
2016
========================== ========================= ========================== ========================= ========
Financial liabilities
(excluding derivatives) 112.8 64.7 1,870.2 2,047.7
========================== ========================= ========================== ========================= ========
Impact of interest rate
swaps (137.0) 137.0 - -
-------------------------- ------------------------- -------------------------- ------------------------- --------
Financial liability
exposure to interest
rate risk (24.2) 201.7 1,870.2 2,047.7
-------------------------- ------------------------- -------------------------- ------------------------- --------
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 weighted
average interest rate for floating rate borrowings in 2017 was 3.7%
(2016: 3.6%).
US Dollar denominated private placement notes of GBP61.6m (2016:
GBP60.0m) were arranged at fixed interest rates and exposed the
Group to fair value interest rate risk. The weighted average
interest rate for fixed rate US Dollar denominated private
placement notes, after the effect of foreign exchange rate swaps,
for 2017 was 8.2% (2016: 8.2%) with, at 30 June 2017, a weighted
average period of 0.2 years (2016: 1.2 years) for which the rate is
fixed.
Sensitivity analysis
In the year ended 30 June 2017, 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 GBP0.9m (2016: GBP0.1m), the
Group's post-tax profit would increase/decrease by GBP0.7m (2016:
GBPnil) and the Group's equity would increase/decrease by GBP0.7m
(2016: GBPnil).
5.4.2.2 Foreign exchange rate risk
As at 30 June 2017, the Group had fixed rate US Dollar
denominated private placement notes of US$80.0m (2016: US$80.0m).
In order to mitigate risks associated with the movement in the
foreign exchange rate the Group has entered into foreign exchange
swap arrangements all of which are designated as cash flow hedges,
which fully hedge the principal of its US Dollar denominated debt
and the US Dollar interest payments.
Details of the Group's foreign exchange swaps are provided in
note 5.3.2.
5.4.3 Credit risk
In the majority of cases, the Group receives cash upon legal
completion for private sales and receives advance stage payments
from registered providers for affordable housing. Included within
trade and other receivables is GBP64.1m (2016: GBP48.8m) due from
the Homes and Communities Agency 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. 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 in the following ways:
-- The Group has a credit policy that is limited to financial
institutions with high credit ratings, as set by international
credit rating agencies, and has a policy determining the maximum
permissible exposure to any single counterparty.
-- The Group only contracts derivative financial instruments
with counterparties with which the Group has an ISDA Master
Agreement in place. These agreements permit net settlement, thereby
reducing the Group's credit exposure to individual
counterparties.
The maximum exposure to any counterparty at 30 June 2017 was
GBP140.0m (2016: GBP144.4m) of cash on deposit with a financial
institution.
5.4.4 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
whilst 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 are dependent upon
the level of UK house prices. UK house prices are determined by the
UK economy and economic conditions including employment levels,
interest rates, consumer confidence, mortgage availability and
competitor pricing. The management of these operational risks is
set out in the principal risks and uncertainties in note 7.5.
In addition, the other methods by which the Group can manage its
short term and long term capital structure include: adjusting the
level of dividends and special cash payments paid to shareholders
(assuming the Group 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.
5.5 Share capital
5.5.1 Ordinary share capital
2017 2016
GBPm GBPm
-------------------------------------------------------------------------- ------ ------
Allotted and issued ordinary shares:
========================================================================== ====== ======
10p each fully paid: 1,007,899,274 ordinary shares (2016: 1,003,607,066) 100.8 100.4
-------------------------------------------------------------------------- ------ ------
2017 2016
Options over the Company's shares granted during the year number number
----------------------------------------------------------- ---------- ----------
Options granted:
=========================================================== ========== ==========
LTPP 2,594,923 1,880,862
=========================================================== ========== ==========
Sharesave 2,671,967 1,782,338
=========================================================== ========== ==========
CFO Scheme - 121,880
=========================================================== ========== ==========
DBP 520,442 305,468
=========================================================== ========== ==========
5,787,332 4,090,548
----------------------------------------------------------- ---------- ----------
2017 2016
Allotment of shares during the year number number
------------------------------------------------------------- -------------- --------------
At 1 July 1,003,607,066 995,452,663
============================================================= ============== ==============
Issued to satisfy early exercises under Sharesave schemes 115,153 106,614
============================================================= ============== ==============
Issued to satisfy exercises under matured Sharesave schemes 1,297,729 1,968,683
============================================================= ============== ==============
Issued to satisfy vesting of LTPP awards 2,126,790 4,620,159
Issued to satisfy exercises under the DBP 712,296 1,458,947
Issued to the EBT to satisfy future exercises 40,240 -
------------------------------------------------------------- -------------- --------------
At 30 June 1,007,899,274 1,003,607,066
------------------------------------------------------------- -------------- --------------
5.5.2 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 Barratt Developments Employee Benefit Trust on
behalf of the Company in order to satisfy options and awards that
have been granted under the Barratt Developments PLC Executive, CFO
and Senior Management Share Option Plans, the LTPP and the DBP.
These ordinary shares do not rank for dividend and do not count in
the calculation of the weighted average number of shares used to
calculate earnings per share until such time as they are vested to
the relevant employee.
2017 2016
--------------------------------------------------------------------------- ------------- -------------
Ordinary shares in the Company held in the EBT (number) 1,170,233 1,367,707
--------------------------------------------------------------------------- ------------- -------------
Market value of shares held in the EBT at 563.5p (2016: 405.4p) per share GBP6,594,263 GBP5,544,684
--------------------------------------------------------------------------- ------------- -------------
During the year the EBT purchased 664,653 shares in the market
and disposed of 902,367 shares in settlement of exercises under the
Senior Management Share Option Plan 2009/10, the SMIS and the CFO
Scheme. A further 2,879,326 shares were issued to the EBT at par,
of which 2,839,086 were used to satisfy the vesting of the 2013
LTPP and the 2013 DBP.
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.
2017 2016
GBPm GBPm
------------------------------------------------------------------------- ------ ------
Contributions during the year
========================================================================= ====== ======
Group defined contribution schemes Consolidated Income Statement charge 8.2 8.4
------------------------------------------------------------------------- ------ ------
At the balance sheet date, there were outstanding contributions
of GBP0.9m (2016: GBP0.6m), which were paid on or before the due
date.
6.1.2 Defined benefit scheme
Defined benefit pension scheme - The Directors engage a
qualified independent actuary to calculate the Group's asset in
respect of its defined benefit pension scheme. In calculating this
asset, it is necessary for actuarial assumptions to be made, which
include estimations of discount rates, salary and pension
increases, price inflation, the long term rate of return upon
scheme assets and mortality. As actual rates of increase and
mortality may differ from those assumed, the pension
liability/asset may differ from that included in these condensed
consolidated financial statements. The sensitivities regarding the
principal assumptions used to measure the Scheme liabilities are
set out in the note below.
The Group operates a funded defined benefit pension scheme in
Great Britain, the Barratt Group Pension & Life Assurance
Scheme (the '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 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 Trustees must agree a funding plan with the Group such that
any funding shortfall is expected to be met by additional
contributions and investment performance. In order to assess the
level of contributions, triennial valuations are carried out using
prudent assumptions.
The most recent full actuarial valuation of the Scheme was
carried out at 30 November 2016. The results of this valuation have
been updated to 30 June 2017 by a qualified independent actuary.
The Group agreed with the Trustees of the Scheme to make
contributions to the Scheme of GBP14.5m per annum from 1 July 2017
until 31 March 2020 (with the increase backdated to 1 April 2017
paid in July 2017) to address the Scheme's actuarial deficit. The
Group also continues to meet the Scheme's administration expenses
and Pension Protection Fund levy.
At the balance sheet date, there were outstanding contributions
of GBP2.0m (2016: GBP0.8m).
The Scheme exposes the Group to a number of risks, the most
significant being:
Risk Description
----------------------- ---------------------------------------------------------------------------------------------
Volatile asset returns The defined benefit obligation ('DBO') is calculated using a discount rate set with
reference
to high quality corporate bond yields. If assets underperform this discount rate, this will
create a plan deficit. The Scheme holds a proportion of its assets in equities and other
growth
assets which are expected to outperform corporate bonds in the long term. However, returns
are likely to be volatile in the short term, potentially resulting in short term cash
requirements
and an increase in the defined benefit obligation recorded on the Balance Sheet. The
allocation
to growth assets is monitored to ensure it remains appropriate given the Scheme's long term
objectives.
----------------------- ---------------------------------------------------------------------------------------------
Changes in bond yields A decrease in corporate bond yields will increase the funding and accounting liabilities,
although this will be partially offset by an increase in the value of the Scheme's
investments
in corporate and government bonds.
----------------------- ---------------------------------------------------------------------------------------------
Inflation risk A significant proportion of the DBO is indexed in line with price inflation, with higher
inflation
leading to higher liabilities.
----------------------- ---------------------------------------------------------------------------------------------
Life expectancy The majority of the Scheme's obligations are to provide a pension for the life of each of
the members, so increases in life expectancy will result in an increase in the liabilities.
----------------------- ---------------------------------------------------------------------------------------------
For the purposes of calculating the accounting costs and
obligations of the Scheme, the assets of the defined benefit scheme
have been calculated at fair (bid) value. The liabilities of the
Scheme have been calculated at each balance sheet date using the
following assumptions:
Principal actuarial assumptions 2017 2016
--------------------------------------------------------------- ------ ------
Weighted average assumptions to determine benefit obligations
=============================================================== ====== ======
Discount rate 2.60% 2.90%
=============================================================== ====== ======
Rate of price inflation 3.21% 2.80%
--------------------------------------------------------------- ------ ------
Weighted average assumptions to determine net cost
=============================================================== ====== ======
Discount rate 2.90% 3.80%
=============================================================== ====== ======
Rate of price inflation 2.80% 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 1952 (life expectancy at age 65) 23.3 years 25.2 years
------------------------------------------------------------ ----------- -----------
Non-retired member born in 1972 (life expectancy at age 65) 24.8 years 26.7 years
------------------------------------------------------------ ----------- -----------
The base mortality assumptions are based upon the S2PA (2016:
S1NA) 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 2016
projections with a long term trend of 1.25% per annum (2016: CMI
2015 projection 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 in scheme liabilities
---------------------------------
Assumptions Change in assumption GBPm %
------------------- ---------------------- ------------------ -------------
Discount rate Decrease by 0.1% 8.0 2.0
------------------- ---------------------- ------------------ -------------
Rate of inflation Increase by 0.1% 4.3 1.1
------------------- ---------------------- ------------------ -------------
Life expectancy Increase by 1 year 16.2 4.1
------------------- ---------------------- ------------------ -------------
The amounts recognised in the Consolidated Income Statement were
as follows:
2017 2016
GBPm GBPm
------------------------------------------------------------------------------------------- ------- -------
Interest cost 11.1 13.6
=========================================================================================== ======= =======
Interest income (11.5) (14.0)
------------------------------------------------------------------------------------------- ------- -------
Total pension income recognised in net finance costs in the Consolidated Income Statement (0.4) (0.4)
------------------------------------------------------------------------------------------- ------- -------
Total pension income recognised in the Consolidated Income Statement (0.4) (0.4)
------------------------------------------------------------------------------------------- ------- -------
The amounts recognised in the Group Statement of Comprehensive
Income were as follows:
2017 2016
GBPm GBPm
-------------------------------------------------------------------------------------------------- ------- -------
Expected return less actual return on Scheme assets (20.1) (34.9)
================================================================================================== ======= =======
Loss arising from changes in the assumptions underlying the present value of benefit obligations 24.5 43.9
================================================================================================== ======= =======
Total pension cost recognised in the Group Statement of Comprehensive Income 4.4 9.0
-------------------------------------------------------------------------------------------------- ------- -------
The amount included in the Group Balance Sheet arising from
obligations in respect of the Scheme is as follows:
2017 2016
GBPm GBPm
-------------------------------------------------------------------------------------- -------- --------
Present value of funded obligations 397.2 405.4
====================================================================================== ======== ========
Fair value of Scheme assets (410.8) (413.5)
-------------------------------------------------------------------------------------- -------- --------
Surplus for funded Scheme/net asset recognised in the Group Balance Sheet at 30 June (13.6) (8.1)
-------------------------------------------------------------------------------------- -------- --------
2017 2016
GBPm GBPm
------------------------------------------------------------------- ------- -------
Net asset for defined benefit obligations at 1 July (8.1) (5.3)
=================================================================== ======= =======
Contributions paid to the Scheme (9.5) (11.4)
=================================================================== ======= =======
Income recognised in the Consolidated Income Statement (0.4) (0.4)
=================================================================== ======= =======
Amounts recognised in the Group Statement of Comprehensive Income 4.4 9.0
------------------------------------------------------------------- ------- -------
Net asset for defined benefit obligations at 30 June (13.6) (8.1)
------------------------------------------------------------------- ------- -------
A deferred tax liability of GBP2.6m (2016: GBP1.6m) 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:
2017 2016
GBPm GBPm
------------------------------------------------- ------- -------
Present value of benefit obligations at 1 July 405.4 367.5
================================================= ======= =======
Interest cost 11.1 13.6
================================================= ======= =======
Actuarial loss 24.5 43.9
================================================= ======= =======
Benefits paid from Scheme (43.8) (19.6)
------------------------------------------------- ------- -------
Present value of benefit obligations at 30 June 397.2 405.4
------------------------------------------------- ------- -------
Movements in the fair value of Scheme assets were as
follows:
2017 2016
GBPm GBPm
---------------------------------------- ------- -------
Fair value of Scheme assets at 1 July 413.5 372.8
======================================== ======= =======
Interest income 11.5 14.0
======================================== ======= =======
Actuarial gain on Scheme assets 20.1 34.9
======================================== ======= =======
Employer contributions 9.5 11.4
======================================== ======= =======
Benefits paid from Scheme (43.8) (19.6)
---------------------------------------- ------- -------
Fair value of Scheme assets at 30 June 410.8 413.5
---------------------------------------- ------- -------
The analysis of Scheme assets was as follows:
2017 2016
GBPm % GBPm %
-------------------------- ------ ------ ------ ------
Quoted equity securities 102.4 24.9 96.3 23.3
========================== ====== ====== ====== ======
Debt securities 307.1 74.8 315.8 76.4
========================== ====== ====== ====== ======
Other 1.3 0.3 1.4 0.3
-------------------------- ------ ------ ------ ------
Total 410.8 100.0 413.5 100.0
-------------------------- ------ ------ ------ ------
The fair values of the Scheme assets in the above table are
measured in accordance with level 1 as defined in note 5.3.3 of the
Annual Report and Accounts.
The actual return on Scheme assets was as follows:
2017 2016
GBPm GBPm
-------------------------------- ------ ------
Actual return on Scheme assets 31.6 48.9
-------------------------------- ------ ------
The expected employer contribution to the Scheme in the year
ending 30 June 2018 is GBP15.3m.
The Group has obtained legal advice on the rights to the Group's
defined benefit pension scheme's assets after the death of the last
member. Based on this advice, the Group has concluded that it is
appropriate to recognise an asset related to this scheme.
Section 7 - Contingencies, related parties, post balance
sheet events 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 GBP464.1m (2016: GBP482.0m), 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.
As previously disclosed in the Group's Financial Statements
following correspondence with an industry wide final salary pension
scheme, there is a risk of an obligation arising in respect of
pension scheme funding pursuant to Section 75 of the Pensions Act
1995 for employees of a subsidiary who left the Group following
disposal of its business and assets. The Directors consider that
whilst it is increasingly probable that a liability could result in
the future; at present the amount of any such provision cannot be
reliably estimated given the fundamental uncertainties underlying
any such calculation. No provision has been recognised in relation
to this matter as at 30 June 2017.
The Group is currently engaging with legal and professional
advisors in its efforts to understand the position of the Trustees
and how they might reach a reliable estimate of any potential
liability. The Court determination scheduled to take place in late
spring was deferred by the Trustees following advice from a
Scottish QC. It still remains difficult to predict how long the
Trustees will take to calculate any liability and when the debt
notices will be served. At this point the Group will be able to
re-consider its options in respect of any obligation arising in
this matter. Therefore disclosure on this matter is made in
accordance with note 7.1.3 below.
7.1.2 Contingent liabilities related to joint ventures and associates
The Group has given counter-indemnities in respect of
performance bonds and financial guarantees to its joint ventures
totalling GBP62.5m at 30 June 2017 (2016: GBP56.5m). The Group has
also provided principal guarantees of GBP9.0m (2016: GBP9.0m) and
cost and interest overrun guarantees in relation to the borrowings
of a number of the Group's London joint ventures. At 30 June 2017,
no cost or interest overruns had been incurred (2016: GBPnil). The
Group's maximum exposure under these cost and interest overrun
guarantees is estimated at GBP18.1m as at 30 June 2017 (2016:
GBP17.7m).
At 30 June 2017, the Group has an obligation to repay GBP0.9m
(2016: GBP0.9m) of grant monies received by a joint venture upon
certain future disposals of land.
The Group has also given a number of performance guarantees in
respect of the obligations of its joint ventures, requiring the
Group to complete development agreement contractual obligations in
the event that the joint ventures do not perform as required under
the terms of the related contracts.
There are no contingent liabilities in relation to associates at
30 June 2017.
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.
No contingent liability in respect of such claims has been
recognised.
7.2 Related party transactions
7.2.1 Remuneration of key personnel
Disclosures related to the remuneration of key personnel as
defined in IAS 24 'Related Party Disclosures' will be provided in
the 2017 Annual Report and Accounts.
7.2.2 Transactions between the Group and its joint ventures
The Group has entered into transactions with its joint ventures
in respect of development management/other services (with charges
made based on the utilisation of these services) and funding. These
transactions totalled GBP10.1m (2016: GBP14.3m) and GBP1.8m (2016:
GBP1.3m) respectively. In addition, one of the Group's
subsidiaries, BDW Trading Limited, contracts with a number of the
Group's joint ventures to provide construction services.
During the year the Group received dividends totalling GBP85.1m
(2016: GBP28.1m) from its joint ventures.
The Group has made loans of GBP174.9m (2016: GBP84.9m) to its
joint ventures which are included within Group investments
accounted for using the equity method. The amount of other
outstanding payables to the Group from its joint ventures at 30
June 2017 totalled GBP9.1m (2016: GBP0.4m).
The amount of outstanding loans and other amounts due from the
Group to its joint ventures totalled GBP1.2m (2016: GBP47.6m).
The Group's contingent liabilities relating to its joint
ventures are disclosed in note 7.1.2.
7.2.3 Transactions between the Group and its associates
The amount of outstanding loans due to the Group from its
associates at 30 June 2017 was GBPnil (2016: GBPnil). There were no
other amounts outstanding to the Group from its associates as at 30
June 2017.
The Group's contingent liabilities relating to its associates
are disclosed in note 7.1.2.
7.2.4 Property purchase by a Director of Barratt Developments PLC
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').
The Group entered into the following transaction which, for the
purposes of IAS 24 is considered to be a 'related party
transaction'.
In June 2016 David Thomas notified the Board of his, and his
connected person's intention to buy one property each at the BDW
Trading Limited site at Cane Hill Park. The Company's shareholders
approved the transactions at the 2016 AGM and further details of
the transactions, which have completed during the year ended 30
June 2017, will be provided in the 2017 Annual Report and
Accounts.
There have been no 'smaller related party transactions' as
defined in Listing Rule 11.1.10R for the year ended 30 June 2017 or
in the year ended 30 June 2016.
7.3 Post balance sheet events
On 22 August 2017 the Company issued a Sterling US Private
Placement (USPP) of GBP200m. This issuance has a 10 year maturity
with a fixed coupon of 2.77%.
In addition, on 22 August 2017 the Company, utilising the break
clause, cancelled the GBP25.0m 2022 interest rate swap at fair
value.
On 23 August 2017 the Group repaid its US$80.0m USPP which had a
fixed rate of 8.14%.
7.4 Statutory accounts
The condensed consolidated financial statements for the year
ended 30 June 2017 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 2017 Annual Report and Accounts will
be circulated to shareholders in October 2017 and will be made
available on its website www.barrattdevelopments.co.uk at that
point. The financial information set out herein does not constitute
the Company's statutory accounts for the year ended 30 June 2017
(as defined in Sections 434 and 436 of the Companies Act 2006) but
is derived from the 2017 Annual Report and Accounts and the
accounts contained therein. Statutory accounts for 2017 will be
delivered to the Registrar of Companies following the Company's
Annual General Meeting which will be held on 15 November 2017. 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 2016 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 2016 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 Principal risks and uncertainties
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.
The principal risks are set out in the table below.
Risk A: Economic environment, B: Land purchasing C: Liquidity
including housing
demand and mortgage
availability
---------------- -------------------------------- ------------------------------- ---------------------------
Potential Changes in the UK The ability to secure Unavailability
impact and European macroeconomic sufficient consented of sufficient
environments, including land and strategic borrowing facilities
but not limited to, land options at to enable the
flat or negative economic an appropriate cost servicing of
growth, inflation, and quality to provide liabilities (including
interest rates, buyer profitable growth. pension funding)
confidence, mortgage and the inability
availability, Government to refinance
backed schemes, competitor facilities as
pricing, falls in they fall due,
house prices or land obtain surety
values, may lead to bonds, or comply
a falling demand or with borrowing
lower price achieved covenants. Furthermore,
for houses, which there are risks
in turn could result from management
in impairments of of working capital
the Group's inventories, such as conditional
goodwill and intangible contracts, build
assets. costs, joint
ventures and
the cash flows
related to them.
---------------- -------------------------------- ------------------------------- ---------------------------
Mitigation Board, Executive Committee, All potential land Committed bank
regional and divisional acquisitions are facilities and
management reviews subject to formal private placement
Quarterly site valuations appraisal and approval notes of around
Comprehensive sales by the Land Committee GBP900m with
policies and regular Group, regional maturity on the
review of pricing, and divisional review RCF in 2021 and
local markets and of land currently the private placement
developing good working owned, committed notes in 2027
relationships with and identified against Regular forecasts
mortgage lenders requirements of working capital
and cash requirements
and compliance
with banking
covenants
Policy requiring
minimum headroom
of GBP150m of
drawings against
committed facilities
---------------- -------------------------------- ------------------------------- ---------------------------
The opportunity The majority of our Securing more sites Availability
customers require that at least meet of sufficient
mortgages to purchase our hurdle rates committed and
their new home. Buyer of a minimum 20% surety facilities
confidence, the availability gross margin and ensures that
of mortgages and mortgage 25% site ROCE will the Group can
interest rates are enable disciplined manage changes
affected by the economic volume growth. in the economic
environment. environment and
take advantage
of appropriate
land buying and
operational opportunities
to help deliver
sustainable shareholder
value.
---------------- -------------------------------- ------------------------------- ---------------------------
Risk D: Attracting and E: Availability F: Government
retaining high-calibre of raw materials, regulation and
employees sub-contractors planning policy
and suppliers
------------------ ------------------------------ ----------------------------- -----------------------------
Potential The ability to recruit Shortages or increased Inability to
impact and/or retain employees costs of materials adhere to the
with the appropriate and skilled labour, increasingly
skills or sufficient the failure of a stringent and
numbers of such employees. key supplier or complex regulatory
the inability to environment,
secure supplies including planning
upon appropriate and technical
credit terms could requirements
increase costs and and time taken
delay construction. to obtain planning
approval affects
the housing market
and generally
the regulatory
requirements.
------------------ ------------------------------ ----------------------------- -----------------------------
Mitigation Comprehensive Human Centralised team Considerable
Resources programme procures the majority in-house technical
including apprenticeship of the Group's materials and planning
schemes, a graduate from within the expertise focused
development programme, UK including sub-contractor on complying
succession planning materials, ensuring with regulations
and training academies consistent quality and achieving
tailored to each discipline and costs implementable
Ongoing monitoring planning consents
of employee turnover Seek to establish that meet local
and absence statistics and maintain long requirements
and feedback from term supplier and Robust and rigorous
exit interviews sub-contractor partnerships design standards
Annual employee engagement with all of our for the homes
survey to measure significant supply and places we
employee satisfaction agreements fixed develop
Remuneration benchmarking in advance, usually Policies and
against industry competitors for 12 months technical guidance
Establishing a key manuals for employees
supplier audit programme on regulatory
to assess risks compliance and
to the reliability the standards
of supply continuity of business conduct
expected
Group policies include Consultation
tendering, the requirement with Government
for multiple suppliers agencies, membership
for both labour of industry groups
contracts and material to help understand
supplies and establish and monitor proposed
contingency plans regulation change
should any key supplier
fail
------------------ ------------------------------ ----------------------------- -----------------------------
The opportunity Development of skilled Maintaining sufficient Securing sufficient,
employees is critical material and skilled appropriate planning
to deliver the Group's sub-contractor availability permissions upon
strategy of disciplined will enable disciplined new sites will
growth, improving volume growth. enable the Group
key financial metrics to deliver disciplined
through a focus on volume growth.
efficiency and the
continued delivery
of attractive cash
returns.
------------------ ------------------------------ ----------------------------- -----------------------------
Risk G: Construction H: Joint ventures I: Safety, J: IT
and new technologies and consortia health and
environmental
---------------- --------------------------- --------------------- -------------------- -----------------
Potential Failure to identify Large development Health and Failure
impact and achieve key projects, some safety or of any of
construction milestones, of which involve environmental the Group's
due to factors joint ventures breaches can IT systems
including the impact or consortia result in in particular
of adverse weather arrangements injuries to those relating
conditions, identify and/or commercial employees, to surveying
cost overruns promptly, developments, sub-contractors and valuation,
design and construction are complex and site visitors, could adversely
defects, and exposure and capital causing potential impact the
to environmental intensive and reputational performance
liabilities, which changes may damage, criminal of the Group.
could delay construction, negatively prosecution
increase costs, impact upon and civil
reduce selling cash flows litigation,
prices and result or returns. delays in
in litigation and construction
uninsured losses. or increased
There are also costs.
risks associated
with climate change
and the use of
new technology
in the build process
e.g. materials
related to carbon
reduction.
---------------- --------------------------- --------------------- -------------------- -----------------
Mitigation Executive Committee, All potential Internally Centrally
regional and divisional joint ventures resourced maintained
reviews and quarterly are subject health and IT systems
site valuations to formal appraisal safety team Fully-tested
Continuous review and approval disaster
of MMC and the by the Group's Regular health recovery
quality of materials Land Committee and safety programme
which are evaluated and the Board monitoring Regular
by external and Once operational, by our in-house reviews
internal technical the performance team, internal to seek
experts, including of joint ventures and external to reduce
the NHBC, to ensure and consortia audits of the risk
compliance with are subject all operational of successful
all building and to regular units cyber-attacks
other regulations review and regular Working
Monitoring and Senior Management with external
improving environmental reviews of specialists
and sustainability developments and consultants
impact of construction on a detailed
methods and materials Continual GDPR compliance
used reinforcement programme
Maintenance of of Group health
appropriate insurance and safety
cover and environmental
policies and
procedures
Dedicated
SHE Board
and Operations
Committees
which
review key
performance
indicators,
improvement
plans and
reinforce
the importance
of health,
safety
and environmental
compliance
---------------- --------------------------- --------------------- -------------------- -----------------
The opportunity Assessing of MMC Securing more Continue to Improve
and implementing joint venture prioritise integration
where appropriate sites that and focus of IT systems
to reduce the risks at least meet upon to enhance
inherent in the our hurdle health and business
construction process rates enables safety to control
and to help address disciplined seek to reduce and drive
the shortage of volume growth injury efficiency.
skilled employees and engaging rates and
and sub-contractors. with joint manage the
ventures to risks inherent
assist in reducing in
and sharing the construction
risks on complex, process.
capital intensive,
bespoke and
commercial
developments.
---------------- --------------------------- --------------------- -------------------- -----------------
Statement of Directors' Responsibilities
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 International Accounting Standards Regulation (the 'IAS
Regulation') to prepare the Group Financial Statements under
International Financial Reporting Standards as adopted by the
European Union ('IFRS') 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 the Disclosure and Transparency Rules, the
Directors must not approve the Accounts unless they are satisfied
that they give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company for that
period.
International Accounting Standard 1 requires that Financial
Statements present fairly for each financial year the Company'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 International Accounting
Standards Board'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 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
transactions and disclose with reasonable accuracy at any time the
financial position of the Company 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
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 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, Standing Interpretation Committee interpretations as
adopted and endorsed by the European Union, International Financial
Reporting Interpretations Committee 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
5 September 2017 5 September 2017
Glossary
Active
outlet A site with at least one plot for sale
------------------ --------------------------------------------------------------
AGM Annual General Meeting
------------------ --------------------------------------------------------------
ASP Average selling price
------------------ --------------------------------------------------------------
Building This is the industry standard, endorsed by the Government,
for Life for well-designed homes and neighbourhoods that local
12 communities, local authorities and developers are invited
to use to stimulate conversations about creating good
places to live
------------------ --------------------------------------------------------------
CMI The actuarial profession's Continuous Mortality Investigation
------------------ --------------------------------------------------------------
DBO Defined Benefit Obligation
------------------ --------------------------------------------------------------
DBP Deferred Bonus Plan
------------------ --------------------------------------------------------------
EBT Barratt Developments Employee Benefit Trust
------------------ --------------------------------------------------------------
EU European Union
------------------ --------------------------------------------------------------
FRC Financial Reporting Council
------------------ --------------------------------------------------------------
FY Refers to the financial year ended 30 June
------------------ --------------------------------------------------------------
GDPR General Data Protection Regulation
------------------ --------------------------------------------------------------
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
------------------ --------------------------------------------------------------
JV's Joint ventures
------------------ --------------------------------------------------------------
LIBOR The London Interbank Offered Rate
------------------ --------------------------------------------------------------
LTPP Long Term Performance Plan
------------------ --------------------------------------------------------------
MMC Modern methods of construction
------------------ --------------------------------------------------------------
Net cash Net cash / debt is defined as cash and cash equivalents,
bank overdrafts, interest bearing borrowings and foreign
exchange swaps
------------------ --------------------------------------------------------------
Net tangible
assets Group net assets less other intangible assets and goodwill
------------------ --------------------------------------------------------------
NHBC National House Building Council
------------------ --------------------------------------------------------------
OHSAS Occupational Health and Safety Management Systems
------------------ --------------------------------------------------------------
Operating
margin Profit from operations divided by revenue
------------------ --------------------------------------------------------------
PEFC The Programme for the Endorsement of Forest Certification
------------------ --------------------------------------------------------------
RCF Revolving Credit Facility
------------------ --------------------------------------------------------------
ROCE Return on capital employed ('ROCE') is calculated as
earnings before 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, retirement benefit assets/obligations
and derivative financial instruments
------------------ --------------------------------------------------------------
Sharesave Savings-Related Share Option Scheme
------------------ --------------------------------------------------------------
SHE Safety, Health and the Environment
------------------ --------------------------------------------------------------
SIC Standing Interpretations Committee
------------------ --------------------------------------------------------------
Site ROCE Site ROCE on land acquisition is calculated as site
operating profit (site trading profit less overheads
less allocated administrative overheads) divided by
average investment in site land, work in progress and
equity share
------------------ --------------------------------------------------------------
SMIS Senior Manager Incentive Scheme
------------------ --------------------------------------------------------------
the Scheme The Barratt Group Pension & Life Assurance Scheme
------------------ --------------------------------------------------------------
Unless otherwise stated total completions quoted include
Total completions JV's
------------------ --------------------------------------------------------------
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SSMFMIFWSEDU
(END) Dow Jones Newswires
September 06, 2017 02:00 ET (06:00 GMT)
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