Barratt Redrow plc

Good morning everyone and thank you for joining us today both here in the room and online for what will be a full morning. Some points of housekeeping before I hand over to David. There are no fire drills planned today so for everyone here please follow directions from UBS staff or follow me because I'll be going rapidly if there is a fire alarm this morning. Also if I could please ask if you have your phones with you switch them off please or turn them to silent. We're hoping to run through the results and cover questions on the half year within the hour today to give everyone time to step back across to the atrium where we've got members of our sales team here today as well as senior members across the Barrett Red Row business. So we'd like you to have time to be able to chat with them. So we aim to finish at basically 9.30 and then we're going to be back in here at 10am. But basically with that I will now hand over to David. And thank you for being here. Cheers.

Hi, good morning, everyone. Thank you, John. Welcome to all of you. As John said, we're going to be here for the morning. Buckle in. So as normal, I'm going to start off with an overview of the half year, then have a look at current trading, and then have a look at our short-term priorities looking forward. Mike is then going to follow with the financials. So as you know, it would normally be Stephen that would follow me, but by popular demand, Mike is going to follow with the financials and is going to really get into explaining some of the complications around the red roll combination, looking at how we've dealt with purchase price allocation and the related fair value exercise. And then Stephen's going to talk through our operational performance, looking to really focus on the comparable performance. So I think you can see that there's quite a lot to cover. As John said, we're going to cover it in an hour. And so after Stephen, we'll go straight into Q&A. So just looking at the first half in overview, I mean, we've had a really good operational performance. It's definitely been a more steady market, but we're really pleased with the way that the business has performed and what we've delivered over the six-month period. And as ever, you know, I'd just like to acknowledge the really hard work from all of our employees, but also from our subcontractors and our supply chain partners. I think we recognize that it is a real team effort to be able to deliver the results that we deliver over a six-month or a 12-month period. So total home completions at 6,846, 10.9% ahead of Barrett on a reported basis last year. Adjusted pre-tax profit was 6.4% ahead of Barrett reported at $167.1 million. But this included $50.4 million of purchase price allocation impacts and more to follow from Mike on that. And then excluding these, our adjusted profit before tax would have been 217.5 million, up some 38% on the Barrett reported in HY24. Rocky at 8.1% was primarily impacted by the decline in profitability in the year. We retain a strong net cash position at almost 459 million, and that's been maintained notwithstanding 171 million of dividends paid and 46.5 million spent on the remediation of legacy buildings. I'm also pleased to announce an increase in our interim dividend, which has moved ahead by 25% to 5.5 pence. And we're really delighted to have completed our combination with Red Roll, which legally completed in August. And we obtained CMA clearance in October. And our integration is really in full flight and progressing well. Just on current trading in brief. Since... the 30th of December we've seen a continuation of what is really solid reservation trends so you know that this is really great news for us as a business that you know we've seen this stabilization certainly over the last nine months and that's just reflected again in current trading you know 0.6 for the period from the beginning of the second half through to the second of February, in line with the combined trading performance over the same period last year. And while the reservation rate is identical, this year we had no PRS or bulk sales, whereas last year we did. So on a net basis, we're around 5% improved year on year. average active outlet position is 414 so that's very much in line with our September standalone guidance and that remains unchanged where we expect to see about a 9% decline now including red roll for the year and then we're 82% forward sold and with respect to FY25 private completions. So again, very much in line with what we would expect and in line with the prior year. Looking to full year position in terms of completions, we're narrowing the guidance range. from our AGM update in October. So guiding now at 16,800 to 17,200 total home completions and moving the lower end up by 200 homes. And I'm also very pleased to announce that we expect adjusted PBT, excluding the PPA adjustments, which Mike will come on to, will be towards the upper end of the current consensus range. And then lastly for me, just moving on to our kind of described as short-term priorities. So we are very, very focused in terms of delivering the benefits from the combination of Barrett and Red Rule. in terms of cost synergies also in terms of the revenue synergies and in terms of the overall integration of the businesses both on an operational and a systems basis. So therefore immediate focus on cost synergies. We're very pleased to have upgraded our guidance on cost synergies this morning from the original 90 million to 100 million. Secondly, really focusing on putting in place the plans to deliver the revenue synergies through the 45 sites that we've identified. And they will come through to provide contribution over the next two or three years. And also looking at how we can buy land with our one, two, three brand strategy. So we believe it gives us a lot of flexibility in the market in terms of how we can approach the land market. And particularly as we flagged previously, the ability to buy significantly larger sites than either business would have bought in their independent positions. And then thirdly, and always a focus that we recognize and look to improve our industry leadership. So industry leadership around build quality, customer service and sustainability. These are absolutely the hallmarks of how we deliver on our promises to our customers. And then fourthly, we want to ensure that we continue to operate with strong financial disciplines and balance sheet strength. This is something that we want. It's something that we know that our shareholders and our wider stakeholders want. And it is a key strength of our business. So thank you, everyone. And as I said, I will now hand over to Mike and we'll be back for Q&A. Thank you.

Thanks, David. Morning, everybody. I'm under no illusions I'm not here by popular demand, but here goes anyway. So I'm going to start with our reported results for the half. And as you know, there's many moving parts there. So what we'll then do is move on to strip out some of the noise and look at the underlying trading position. So if I start then on a reported basis with our numbers on this slide, this includes Redrose trading performance from acquisition on the 21st of August through to the 29th of December. And as David said earlier, adjusted profit before tax for that period for the half was £167.1 million. That's 6.4% ahead of our reported position last year. Adjusted earnings per share at £9.3 was 21.2% lower. And based on dividend policy, the current cover of 1.75 times adjusted earnings, we'll pay an interim dividend of £5.5, which is up 25% on last year's £4.4. We ended the half with £459 million of net cash, slightly ahead of our forecast, which was really due to the timing of some land payments around the half-year end. So moving on then to our sort of underlying trading performance. And on this slide, half year 25 results exclude the impact of the purchase price accounting adjustments, which are really just accounting timing differences and almost all non-cash items. and also includes an accounting policy alignment impact of 14 million in the current period. And we've put a more detailed slide in the appendices that helps you sort of reconcile those numbers through. In the half year 24 comparative period, we've included red rose trading performance from the 24th of August 2023 to the 31st of December, but we haven't aligned accounting policies for that period. So what you can see here then is total home completions were down 12% on the prior year, and that was in line with expectations as a result of lower outlet numbers during that period. Adjusted gross profit was down 8.6% at £386.6 million, but the adjusted gross margin was flat at 17%. And that reflects a mixture of site mix, the moderation of bill cost inflation, and the positive mix effect of newer land coming into production. I'll touch on that again in a few minutes. In half year 25, the accounting policy adjustments reduced this margin by 60 basis points, and adjusted operating profit was 37 million lower at 211.8 million, and really that's mainly the volume impact of operational gearing coming through. After interest and tax charges, adjusted EPS was 12 pence on this basis, and that's used to calculate the interim dividend for the half, and that's slightly lower than the 13.7 pence on a comparable basis. But overall, we're pleased with the performance of the group through the first half, as David said, despite the reduced volume, and we're particularly positive to see gross margin stabilising. So moving on then to the purchase price accounting adjustments, and this slide explains in some detail the fair value adjustments that we made to the balance sheet that we acquired. And really there are two fair value adjustments that we should dwell on. The first is on inventories, which on a net basis increased the value of inventories acquired by £104.3 million. And there are three elements to that adjustment. So first of all, under the accounting standards, we have to market value land options, which we would normally carry on the balance sheet at cost, and that resulted in an uplift of £72 million to their value. And really, this adjustment reflects the options planning prospects and proximity to exercise. Secondly, we wrote down undeveloped land by 60.5 million, and that's reflecting reductions in land prices over the past few years since that land was acquired by Red Row. And then thirdly, we uplifted land and work in progress on in-flight developments by 93 million pounds, and there we're recognizing the value that had been added through the build process to the stage of completion at the point that we acquired the Red Row business. So a net 104.3 million uplift. The second key fair value adjustment is an increase in the red row building safety provision of £39 million and that's not recognising any change in the risk profile of the portfolio but under the accounting rules we have to bring contingent liabilities onto the balance sheet and as you know normally they don't meet the threshold for recognition. So after recognising the Red Row brand value at £231.8 million, the residual goodwill was £259 million. Now in terms of forward guidance, we expect these fair value adjustments to unwind to the income statement reasonably quickly over the next two years, and there will be impacts to adjusted profit before tax this year of between £85 and £95 million, and next year of £15 to £25 million. So moving on then to the adjusted operating margin bridge, and here we've separated the main moving parts, and starting with some numbers on the Barrett operations. So first of all, as I said, the impact of lower completion volumes was a margin reduction of 150 basis points relative to half year 24. Now, positively, we saw a small benefit from the net inflation position, with flat bill costs and underlying sales prices slightly ahead year-on-year across the bank operations. A focus on our completed developments in the year resulted in lower charges on a year-on-year basis, and that contributed a further 60 basis points to margin in the half. And then Gladman also had a better year-on-year performance, as obviously the land market is beginning to pick up. Other changes to the sales mix, the impact of administrative expenses making up the final 140 basis point improvement year on year, taking the Barrett adjusted operating margin to 9.8%. And then we had a net 50 basis point impact from Red Row in the first half, and really that was driven by a combination of reduced completion volumes in the Red Row business, changes to the sales mix, and also that accounting policy alignment to Barrett accounting policies that I mentioned earlier. So this resulted in adjusted operating margin before purchase price adjustments of 9.3%, and then taking into account the purchase price adjustments, a 210 basis point reduction to the 7.2% that we reported this morning. So moving on now to look at administrative expenses and adjusted items. Adjusted admin expenses were up by 24.7% in the half to $175.7 million, but really that was driven all by the first-time recognition of the red row administrative expenses. Our expenses here included a salary increase of around 3%, but also a further reduction in sundry income. And we offset these costs through lower IT development spend. We moved into the deployment phase of our new CRM platform, for example, and also our continuing recruitment freeze. We had two adjusting items in the half. First, the red row transaction costs of £35.5 million. That took our total deal costs to around £60 million. And then secondly, reorganisation and restructuring costs of £14.4 million, which relates to the initial divisional office closure programme that we previously announced. Overall, we still expect costs relating to the delivery of the deal synergies to remain around the £78 million mark that we announced back in February 2024. And looking forward to the full year, I'd expect adjusted administrative expenses of around £400 million, and that will include the initial £10 million of cost synergy benefits that we expect to realise. So moving on to building safety, and with no additional charges for building safety across our portfolio in the period, the main movement here is the recognition of the Red Row portfolio within our numbers. Across the combined portfolio, 28 buildings were added from Red Row, with our portfolio in the Barrett business being 263 buildings. And I'm pleased to be able to highlight further progress in dealing with the portfolio, with 193, or two-thirds of these buildings, now either at the tender, mobilisation or active remediation stage, and our experience and visibility of potential future costs continues to improve. In relation to Scotland, as has been the case for a while, still no conclusion to the ongoing discussions there on the required scope of remediation, and so we're still providing for the Scottish buildings on the same basis as England and Wales. So moving on now to look at cash flow in the period. And the key movement here really is the significant amount of cash spent on land and work in progress as we begin to invest ahead of opening the new sales outlets that we're planning over the next few months. And that really underpins the next phase of growth that we'll talk about later this morning. I've already touched on our progress on building safety, with £46.5 million spent in the half, and we expect another £100 million to be spent in the second half of the year, although the timing of payments that we expect to make to the Building Safety Fund remain uncertain. After including the cash acquired from Red Row and the payment of the final dividend for the last financial year, the net outflow in the period was £410 million. So now I'd like to update on the position of the combined group's land bank. And this chart includes the gross margin on Redrose land within our land bank at its fair value. And as usual, the margin here is based on our current view of sales prices and bill costs. So we're making no assumptions here about future inflation or improved sales rates in these numbers. The total land bank now has an estimated gross margin of 18.3%, with the Barrett portfolio at 18.7%, slightly up on June, and Red Row at 17.6%, but before the impact of fair value, the Red Row portfolio would have been at 18.4%, so very similar to Barrett. 42% of the land bank plots have an estimated gross margin of more than 20%, and that's broadly consistent with the position we outlined at the end of the last financial year. And over the coming year or two, as we flagged back in September, it remains likely that margin recovery will be gradual. So we're not currently seeing any material benefit from sales prices. And although build costs have stabilized, clearly they aren't reducing. And so we're therefore focused on opening more sales outlets and optimizing our brand strategy and our house type range to drive completion growth, which will improve operational gearing and give us better fixed cost coverage to improve our margins overall. So before I finish, let me update on some key pieces of guidance for the full year. As David mentioned, we've narrowed the range this morning on our full year completions to 16,800 to 17,200. And with confidence in the outlook, we're also upgrading expectations for profit before tax towards the upper end of the consensus range. And then to highlight some additional points, we expect our fair value adjustments to reduce operating profits by between 80 and 90 million pounds for the full year, and add approximately 5 million to our interest costs, which really relates to the discounting impact on building safety provisions. The accounting policy alignments will further reduce operating profits by between 25 and 30 million, and all of these items really are non-cash in nature. And then we expect our land activity to continue at pace, spending between 0.9 and 1 billion pounds for the full year FY25. And then finally, we expect to report net cash at the end of the year of between 500 and 600 million pounds. So finally then to summarise, I think we're feeling confident in the outlook for the combined group. Trading remains robust and the inflation position looks reasonably stable in the short term. We're focused on delivering cost synergies and growth from the combined group and we'll touch on that later this morning. And finally, we're able to demonstrate our confidence in delivering on these plans by narrowing the range of completion guidance, increasing our profit expectations and also commencing a share buyback programme shortly. So with that let me hand over to Stephen who's now going to take you through our operational performance.