Barratt Redrow plc

Good morning everyone and welcome to our full year results presentation. So as usual, I'm going to start with an overview of the year, have a look at current trading and have a look at our priorities looking ahead. Stephen will then take you through our operational performance and Mike will cover off our financials. and I'll then come back to talk about the industry fundamentals, sustainability, and to conclude. So I think first to reflect on the year, we've delivered another really strong operational performance and a good financial performance against what is clearly a very challenging operating environment. So total home completions at 17,206, down 3.9% on last year. But clearly two very different halves. So we saw growth in the first half, and that reversed in the second half, given the reservation backdrop since September 22nd. Overall for the year, adjusted pre-tax profit of $884 million. 16% below the record that we set in FY22, but a touch ahead of consensus expectations and clearly a reflection of the softer demand and pricing that we've seen since September 22 and ongoing build cost inflation. Return on capital employed at 22.2% was impacted primarily by the decline in profitability. A very strong net cash position at 1.1 billion, and that is after 360 million of dividend payments and the completion of our 200 million share buyback programme. And then growth in our year-end net tangible asset per share of 20 pence or 4.5% to 467 pence. I'd just like to take this moment to acknowledge the tremendous hard work and dedication from our employees, subcontractors and our supply chain partners. you know that I would always do that, but it has clearly been a particularly challenging year. If we look at current trading, since the financial year end, we have seen a continuation of the softer reservation rate. Our private reservation rate over the period through to the 27th of August has been at 0.42%. 30% below the 0.6 in the same period last year. But in this period, we've seen a very limited uplift from sales to the private rental sector or to registered providers. And as the year develops, we expect another solid uplift to our private reservation rate through additional sales to PRS and registered providers. with transactions already planned over the coming months, and our long-term partnership with Citra Living continuing to generate reservations. Our average active outlet position at 374 is still more than 10% ahead of last year. But we do expect that this will unwind a bit as we move through FY24, as sites which have been extended by the lower reservation rate move towards completion. And lastly, we're pleased to be 49% forward sold with respect to our FY24 private completion guidance. So if we move on to looking forward, we're focused on four key areas. driving reservations and driving completions through the business. We'll use our industry-leading quality and customer service to attract our core private homebuyers, help them to access affordable mortgages and tailor incentives to help them buy. In addition, we are focused on securing reservations from alternative channels. This involves building on our strategic partnership with Citra Living, as well as our long-standing relationships with RPs, public sector bodies, and other investors, all of which will support our build activity and completions in FY24. Secondly, we are focused on costs. Stephen will cover this in more detail, but we're focused on managing our build activity and getting our build costs down as market pricing adjusts. We've taken 6% out of our group headcount from the end of September 22 through to the financial year end. And our operating costs are under constant review. And we will adjust our cost base as is necessary. We have an experienced management team. We know what levers to pull depending on how the market evolves. Thirdly, we will maintain our highly selective approach to land buying, particularly as prevailing land prices have not yet adjusted to the changed market conditions. Finally, we will continue to lead the industry around sustainability. This encompasses everything from the actions we can deliver today, for example around construction waste, to our development of zero carbon homes for 2030. Finally, we continue to expect to deliver between 13,250 and 14,250 total home completions in FY24. Thank you, and with that, I will now hand over to Stephen to take us through our operational performance.

Thank you, David, and good morning, everyone. Today, I'll take you through the usual operational updates and provide some additional detail around our changing reservation mix, our operational performance, as well as our land bank position as we manage through the market uncertainty. Our sales performance is detailed here on slide 7. Our wholly owned reservation rate at 0.55 net private reservations per outlet per week was 32.1% below the 0.81 generated in FY22, reflecting the softening in demand through the year. Reservations fell back sharply in late September 2022. showed the typical seasonal uplift coming into calendar 23, but then softened again from mid-May as mortgage rates moved higher. Our drive to develop sales through alternative channels, primarily in the PRS or private rental sector, and with additional private sales to IPs or registered providers of social housing, generated 0.10 of the FY23 reservation rate, sharply upon the 0.03 contributed in FY22. I will detail more around our change in reservation mix in a moment. Total average sales outlets were 10.5% higher at 367, reflecting firstly the opening of 104 new sales outlets, and secondly, the significantly lower reservation rate, which extended the sales activity of a number of our outlets. Looking to FY24, we expect total average sales outlets will be around 6% lower, reflecting both reduced outlet openings as well as sites temporarily extended, which will draw to a close. In the bottom table, we have detailed the absolute movements in our private order book in FY22 and FY23, which helps calibrate, firstly, the degree to which, despite the 25.4% decline in private reservations, our elevated private order book was able to support private completions in FY23. And secondly, the impact of this lower denominator of the contribution of PRS and RP reservations as our activity with Citra expanded significantly in the year, particularly with the turnkey deal involving 604 homes, which we announced on 30 June. We've clearly seen a significant shift in the private reservation mix, as I've just highlighted. Here in slide eight, for the first time, we've broken out the private reservation customer mix in FY22 and FY23. There are really three points I'd like to highlight. Firstly, you can see the challenges faced by the first-time buyers. They accounted for 37% of reservations in FY22, but this declined to 25% in FY23. Help to buy is included within these shares, but the impact of help to buy's closure is clear. With help to buy accounting for 20% of the 37% share in FY22, but just 3% of the 25% first-time buyer share in FY23. Secondly, the increased use of part exchange is clear here too. Part exchange is a tool we understand and we manage very carefully. PatExchange moved from 4% of reservations in FY22 to 11% in FY23, but it's a tool our sales teams use carefully to help unlock sales. By way of context, PatExchange usage ramped from 9% to 15% over the five years prior to the pandemic, so 11% sits well within this historic range. Finally, you can see quite clearly how important our self-help measures have been through the strategic move to develop sales with PRS and RPs, with their share of reservations increasing from 3% in FY22 to 17% in FY23. PRS sales can't simply be turned on. The groundwork began more than two years ago with our partnership with Citra Living, targeting the delivery of 1,000 homes annually. With the combined impacts in the autumn of both the end of Help to Buy and the step up in mortgage interest rates, our PRS activity has become a key support to our reservation and completion volumes relative to the wider industry. We expect to continue growing our PRS and RP activity in the current market, where our individual private buyers are thwarted by current mortgage rate and affordability challenges. Turning now to completions on slide 9. We delivered 17,206 total completions, 3.9% lower than FY22. The benefit of our strong order book and the disciplined growth in construction activity helped support first half completion growth. The second half, however, was impacted by the weaker reservation activity from late September onwards. On pricing, our private average selling price improved by 7.9%. Applying our analysis for light-for-light matching house types and sites, we estimate annual house price inflation was around 6.3%. House price inflation was also relatively uniform across the UK, with our West, Central, Scotland and Southern regions ahead of the group average, and London, the weaker region. In terms of the bridge from 6.3% to the reported 7.9% increase in private sales, we had a positive impact from an increased proportion of larger home completions outside London, as well as London contributed a larger share of completions in the year. This was then offset by increased proportion of completions delivered to PRS and RPs. We've included here the completion volumes and ASPs for the homes completed with Citra, which we hope will help modelling the mix for FY24. Our affordable average selling price at just over £167,000 was 4.9% ahead and reflected a shift in site mix, along with a higher proportion of London completions. In FY24, we expect the affordable average selling price will remain broadly in line with the average in FY23. The group's overall average selling price improved by 6.5%, reflecting the higher proportion of affordable homes at 24% from 22% in FY22. Now turning to slide 10. I want to cover off some of our key performance measures around productivity, customer satisfaction, safety and build quality. On build, our teams have done a tremendous job in the year, growing output by more than 10% in the first quarter and then managing our site activity to align with the slowdown in market demand and customer completions through the balance of FY23. Across the year, construction output equated to an average of 322 equivalent homes each week. Total legal completions averaged 331 per week. So whilst the value of WIP has increased, which Michael touched on, this is a reflection of bill cost inflation rather than volume, which has been tightly controlled. In FY24, we are again aiming to align construction activity with reservations as they evolve to ensure we carry an efficient but responsive bill position on our sites and tight control on our balance sheet. On HPF customer satisfaction scoring, building on our 14-year record, I can report we remain comfortably five-star in the current reporting period with our latest rolling annual score at 92.4%. The one area where our performance dipped in FY23 and where we need to improve is around our injury incidence rate, which increased in the year to 289%. The increase again centred on minor slips and trips, but we are challenging our divisions to find new ways to change behaviours. We've also engaged with our employees and subcontractors to help develop target plans to drive our IIR lower. The 2023 NHBC Prior on the Job Awards programme began in June and we're delighted that once again we led the industry with 96 of our site managers securing the coveted award, making it a 19th year where we've secured more awards than any other house builder. Our industry-leading build quality was also maintained once again through our FY23. We consistently ranked first amongst the major house builders group with average reportable items. RI's at 0.16 and we've now ranked first in the industry for four years on this key build inspection measure. Turning now to slide 11 and bill cost inflation. On total bill cost inflation, our view for FY24 has not changed since July, with inflation estimated at around 5% for FY24. On material pricing, which we estimate at around 60% of bill costs, we have seen inflationary pressures easing. And we're also now seeing price reductions in some key product areas, notably bricks, plastic-related products, timber and steel. Prices and expectations are adjusting, particularly where energy hedging arrangements for our supplies are unwinding to lower levels. We had supply agreements in place for 73% of our material needs to December 23, and 14% through to June 2024, as at the year end. And we're looking to secure improved terms over the coming months. Around our labour costs, which we estimate make up around 40% of our build costs, as you'd expect, we continue to see signs of softening, particularly in trades at the front end of new site development, where activity is continuing to decline. We're currently entering into short-term contracts with our subcontractors to take advantage of the reducing cost base. New contracts reflecting latest rates and rate reductions are also being used to renegotiate existing arrangements through collaboration with our subcontractor network. So pulling it all together, we still currently see 5% as very much a realistic view on total bill cost inflation in FY24. Turning now to our land bank on slide 12. As you're aware, We paused almost all land buying activity given the market uncertainties and reported net cancellations in the year of 812 plus. Reflecting both on completions and the pause in our land buying activity, our owned and controlled land bank has reduced but remains strong at 4.3 years supply on a trailing basis but 5.4 years on our midpoint guidance for FY24. Critically, over 81% of our owned land bank has detailed consent at the year end, and I can confirm we have detailed consents in place on all FY24 schedule completions. With current land activity paused, we've had our teams focus on our strategic land position, which has grown significantly in FY23, increasing by more than 10,300 plots during the year, and Gladman grew in its promotional land by more than 3,000 plots. we will maintain a highly selective approach to land buying in FY24. So in summary, we've delivered a strong operating performance in the year. Build cost inflation, after unprecedented rates of inflation over the last couple of years, is now beginning to ease. Our land buying remains paused, but we do not feel under pressure to resume land purchases. And finally, we have incredibly strong management teams who I have no doubt will make the right operational decisions as we manage through the year ahead to maximise value from our land bank and control our capital employed. So thank you everyone. I'll now hand over to Mike.

Thanks, Stephen, and good morning, everyone. So let me now take you through our financial performance. So first of all, a look at the headline numbers on slide 14, which demonstrate our good financial performance in what's been a very challenging year. Group revenue was £5.3 billion, up slightly on last year as our reduced volume was offset by the increased ASP that Stephen touched on a few minutes ago. Adjusted operating profit was £862.9 million. That's 18% below the prior year, with the adjusted operating margin down 380 basis points to 16.2%. Steve has already touched on the impact of inflation, and I'll cover the key drivers in our overheads and operating margin shortly. Our results include adjusted items relating to both external wall systems and reinforced concrete frames, which together totaled £179.2 million. Adjusted EPS was 67.3 pence, 18.9% below last year. And so based on our dividend policy for this year of cover at two times adjusted earnings, we'll pay a total dividend of 33.7 pence for the year, with the final dividend of 23.5 pence being paid in early November. Our balance sheet once again remains strong, and we closed the year with a net cash position of £1.1 billion. So turning now to adjusted operating margin, this chart breaks down the key movements that we've seen during the year. First of all, we saw only a small 30 basis point reduction from the reduced volume in the year. There was, however, a significant impact from inflation, which reduced margin by 170 basis points, with build cost inflation running, as we said, between 9% and 10% during the year, which more than offset the underlying sales price inflation of 6.3%. Our London developments diluted margin by 20 basis points, with a slightly greater share of completions in the year from developments which had been previously impaired. During the year, we recorded an additional £28 million in completed development charges, which had a 60 basis point year-on-year margin impact. And those charges reflect a number of things, including the extended timeframes for the adoption of roads and public open space, together with some remedial works on certain of our sites during the year. Changes in sales mix, increased selling costs and some aborted costs around land transactions and other smaller items created a 70 basis point negative impact. And finally, our increased administrative expenses reduced the margin by 30 basis points during the year. So if I turn now to those overheads and adjusted items in more detail. So administrative expenses increased by £14 million to £267.5 million. And that's lower than our initial guidance for the year, with employee performance pay costs around £34 million lower than last year. And we'd expect that to normalise as we come through into FY24. The £48 million net increase in other administrative costs during the year had three main drivers. First of all, the impact of the 4% annual salary award to colleagues and also the cost of living supplements that we awarded colleagues during the year. This year we had a full year impact of Gladman compared to only five months last year, which contributed around £10 million of extra costs. and also some additional costs from our building safety unit as remediation activity accelerated and we increased our activity in that area. So looking forward to FY24, we currently expect administrative costs will be between 290 and 300 million pounds. And as I said, that increase largely reflects the normalization of employee performance pay costs. So let me touch now in more detail on the adjusted items. And firstly, on external wall systems, we recognised the net charge of £117.7 million during the year. After signing the legal agreement with government in the spring, we contacted all of the relevant building owners again, and that was partly responsible for the net increase of 55 buildings in the period, with the total under review now 278. Secondly, as we've now tendered more contracts for remedial work, we revised our average plot cost up from £21,000 to £23,000, which reflects our latest view of the remediation costs based on tender returns. We also benefited from a technical £52 million credit as the discount rate increased in line with UK gilt rates during the year, and we had a further £2.7 million of cost recoveries during the year. On a separate note, negotiations are still ongoing with the Scottish Government and Homes for Scotland with respect to the contract which will codify the Scottish Safer Buildings Accord. So for the time being, the Scottish buildings in our portfolio have been provided on the same basis as those in England and Wales. If I move on now to reinforced concrete frame, here we've recognised a net charge of £61.5 million during the year, with £23.7 million recognised in JVs and the remaining £37.8 million in the group's operations. So this charge includes the finalised remediation plans for one remaining development in the original Cityscape-led review, where additional work was identified in five buildings. The remaining buildings in the Cityscape review are now undergoing or have completed remediation works. And finally, as we highlighted with our July trading update, we identified two further developments where remediation works may be required. Although our initial cost estimate was up to £40 million, we recorded £10 million in the year for remediation, of which we've spent £2.4 million by the year end. And we hope to have a clearer picture of whether any further work will be required by the time we report our half-year results in February. So moving on to cash flow on slide 18, and this chart highlights the strength of the cash generation from our business. Taking you through the bridge from our reported operating profit of £707.4 million, we made net interest and tax payments of £175 million during the year. The cash flow benefited from £165 million of positive working capital movements, which include the add-back of the adjusted item charges and various movements in receivables and payables. We spent £33 million on remediation works during the year, and we invested an incremental £146 million into work-in-progress, part-exchange properties and new promotion agreements. Within this total, we added £70.5 million of part exchange properties onto the balance sheet during the year, but of those part tax properties held at the year end, more than 63% had secured onward sales already. We also invested £69 million into work in progress, with as Stephen highlighted, WIP experiencing build cost inflation throughout the year and more equivalent units being completed than constructed during the year. As you would expect, the net impact of land was low this year, with the majority of land payments already committed as we came into the financial year. And these, together with a positive £57 million impact from joint venture dividends and reduced JV investments, resulted in £544 million of positive operating cash flow. Our investment and financing spend of £52 million included £23 million in relation to our new timber frame factory, which opened during the year in Derby. And so after dividend payments totalling £360 million and £201 million spent on the share buyback, we saw a net cash outflow of £69.2 million for the year. If I can turn briefly to the balance sheet now, I've already touched on the key movements in working capital during the year. And the other movements in the balance sheet relate to the step down in land activity, our management of net working capital and the increase in legacy property provisions. Net assets at the end of June were £5.6 billion, lower by £35 million over the year, with our retained profit offset by the impact of dividends and share buybacks. So if I can move on just to give a bit of colour on the status of our land bank, we've again broken this out in a little bit more detail. And the estimated gross margin in the land bank as a whole has reduced from 25.8% at the end of 2022 to 19.7% at the year end this year. There are three key contributors to this gross margin decline. First of all, the decline in house prices seen since the end of FY22 have reduced our future pricing expectations across the land bank. Secondly, the impact of continued build cost inflation. And again, as a reminder, we price the whole land bank today from today's perspective on both sales prices and build costs. And thirdly, the slower reservation rate means that we carry increased site overheads on each plot as site lives lengthen. Around half of the land bank plots have an estimated gross margin in excess of 20%, and we still believe impairment risk to be relatively low across the portfolio as a whole. A 5% fall in house prices from today we believe would result in impairment charges of around £10 million, or only 0.3% of the land bank's carrying value. So just moving on to our operating framework, and as you know, this has been in place for a number of years and helps us drive discipline throughout the business. It's also helped us to maintain our strong and resilient balance sheet. We were in our target range for all of the framework metrics at the end of June. During the year, we extended our £700 million rolling credit facility to November 2027, with two further one-year extension periods to November 29, if we agree with our lenders. That facility remains undrawn for the time being. The strength of our balance sheet means we're well placed to navigate the current market uncertainty, and we'll continue to apply our operating framework in FY24 as we adjust the size of the business to the current market. Finally, just to highlight some guidance for FY24, as David touched on earlier, we still expect to deliver between 13,250 and 14,250 total home completions for the year. Average sales outlets will reduce slightly during the year, but our overall site numbers are expected to remain resilient. I've already touched on our overhead expectations, and on land I don't expect any significant changes from our current approach, but we already have land commitments of around £500 million, and we'd expect overall land spend to be in the range of £500 to £700 million for the full year. We currently anticipate ending the year with a net cash balance of between £700 and £800 million. And finally, the Board reviewed our capital allocation policy, and while we continue to believe that excess capital should be returned to shareholders when it's appropriate to do so, we don't believe that now is the right time to put the balance sheet under more pressure, and therefore we decided not to begin a second share buyback at this point in the market cycle. We have, however, confirmed that we'll retain our stated dividend policy, which reduces dividend cover to 1.75 times for the FY24 financial year. And with that, let me hand back to David. Thank you.