Barratt Redrow plc

So I'm going to make a start. Good morning, everyone. Thanks for coming along to see us this morning and welcome to Bad at Red Rose interim results presentation for FY26. This morning, I'm joined by Mike Roberts, our Chief Operating Officer, who will provide an update on our operational performance. John Messinger, our Investor Relations Director, who will update on our financial performance. And after John, I will then update on the market, current trading synergies, and also set out how well positioned we are for the future. First of all, I would like to take you through some of our key messages. Barrett Redwell's performance over the half was resilient, both operationally and financially. and that is despite what has been a generally subdued market. While the consumer did benefit from two interest rate cuts and mortgage availability improved, consumer confidence clearly remained low. Speculation ahead of the November budget caused many to postpone decision-making. but we have maintained our financially robust position and solid balance sheet. Importantly, the successful integration of RedRoll is near completion and our synergy target remains unchanged. And we are now operating from three distinct high quality brands. Building on all of this, our focus centres on business as usual for BAT at Redroll around both optimising our capital employed and fine tuning our costs to ensure that we drive operational excellence and efficiencies across the enlarged group. So that we're going to be well, we feel well placed for the full year and well positioned for future growth. If we look in more detail at the operational highlights from the half year, clearly embedding RedRoll into the business was of course a highlight. And we have started to see the benefits of this reflected in our performance with good progress on synergies that I'll cover in more detail later. Our land position is strong at 5.6 years, allowing us to be even more selective around land intake. We delivered 7,444 homes in line with our plans for the year, which was a good achievement given the market environment. I would also like to highlight some of our externally accredited credentials in the period. Our repeated success in the HBF ratings and in the NHBC Pride in the Job Awards are testament to the dedication of our teams across the business, as well as to the quality of training that we provide and the customer first culture we maintain across the group. This quality is also reflected in our Trustpilot scores given by our customers, which award all three of our brands with the highest rating of excellent. John will cover our financials in more detail, but just to pull out a few highlights. Adjusted PBT before purchase price allocation impacts was lower than last year at 200 million. due to higher net interest costs and lower joint venture profits. So return on capital employed, again, pre PPA adjustments, was in line with last year at 9.1%. We were particularly pleased that nearly all of our 100 million target synergies were confirmed at the end of December. And finally, we finished the year with a solid net cash position after organic investment, which supports our growth plans, also our dividend payments of 172 million and the share buyback of 50 million and a half. With that, I will hand over to Mike, who will now go through our operational performance in more details.

Thank you David and good morning everyone. I'd like to take a moment just to introduce myself. I've been in the house building industry for 32 years and I joined Barrett back in 2004. I've worked closely with Stephen Boyes as Managing Director of our North East Division and in 2017 I was appointed Regional Managing Director for the Northern Region. In July last year I was appointed Chief Operating Officer on Stephen's retirement and today I'll be taking you through our operational performance for the first half. starting with a private reservation mix on slide seven. There are a couple of points to highlight. Firstly, PRS. Given the budget uncertainty, the market became harder in the period and potential discounts increased, but we maintained our discipline and were less active. As a result, PRS reservations were a lower proportion of overall reservation volumes at 4% down from 9% in the equivalent period last year. Secondly, for existing homeowners, we saw a significant increase in the use of part exchange at 23% of our private reservations, up from 14% last year. We've introduced our industry leading part exchange skills into the Red Row brand. It offers a stress-free moving option for our customers. And at a time when conveyancing chains were a concern for many potential home buyers, it has proved a popular incentive. To be clear, it's offered as an alternative and not additional incentive. And it's worth noting that the combination of part exchange and second home movers remain fairly consistent year on year. Part exchange has been an integral part of our business for many years and stock levels are carefully managed. At the end of the half, we had just 180 units unsold. Turning to completions on slide eight. We delivered 7,444 homes, an increase of 4.7% on the aggregated performance last year. Both private and affordable completions were ahead, although this is more about timing, so our guidance for FY26 is unchanged. Underlying private completions were 1.8% ahead and PRS completions were up over 50% to 423 homes. This increase was largely a function of our order book coming into the year and as I said earlier, the market has subsequently hardened. Affordable home completions were up 26%, helped by the rebuilding of our order book in the prior year and are now 19.5% of wholly owned completions, which is in line with our expected affordable mix. Joint venture completions were lower than the prior year due to timing, but we are on track to deliver approximately 600 units in the full year. In terms of pricing, the wholly owned average selling price was up 4.9%. More detail is provided in the appendix, but this was driven by a combination of mix, producing a slightly larger average unit size, and geographical volume variances given the spread of average selling prices between the regions. There were some notable variations by region, with our central and east regions seeing the strongest average selling price growth. Now turning to sales performance here on slide nine, the underlying private rate remains solid at 0.55 reservations per week ahead of last year, with customers benefiting from an improvement in mortgage availability and affordability. This good performance came despite the uncertainties which overshadowed much of the period. PRS and other multi-unit sales effectively paused in the run up to the budget, and although we saw a pick up afterwards, this added just 0.02 reservations per week over the period down on last year. We operated from an average of 405 sales outlets below last year, but very much in line with our plans. David will cover our view on sales outlet evolution later in the presentation. Turning to the private forward order book, this was 10% lower at the half year stage. This partly reflected a high starting point coming into the year, but also the reduced reservation rate, lower numbers of sales outlets and increased completions in the first half, all of which contributed to the overall lower number. Given the solid start to the calendar year, we are confident that we can deliver full year completions in line with the guidance. I'd like to wrap up with our industry leading credentials around design, build quality and customer service. It's what underpins our brands and is key to our sales success. We achieved a five-star rating for customer service in the HPF survey for the 16th consecutive year. And our site managers have secured an industry leading total of 115 pride in the job awards and 45 sales of excellence. Reportable items per NHBC inspection have increased slightly following the red row acquisition, but with opportunities to share best practice across the divisions, we expect to see this improve. And finally, I'd like to take this opportunity to congratulate Dane Mumford from our East Midlands Division, who was runner up in the Large Builder category at last month's Pride in the Jobs Supreme Awards, an excellent achievement. On that note, I'll hand over to John for an update on our financial performance.

Thanks Mike and good morning everyone. Today I'll take you through our half year 26 performance, an update on our land bank and also on building safety. Here is an overview of the half-year numbers. To be as clear as possible, we have set out here the adjusted pre-tax profits before PPA adjustments, then the adjusted profit before tax after PPA, and finally the statutory pre-tax after adjusted items. The first point to note is that both adjusted measures are now stated prior to the impact of imputed interest charges on legacy property provisions. We believe this measure provides you with the best view of the underlying performance of the business, moves us in line with peer reporting and includes the reclassification of £19.6 million of non-cash imputed interest in half year 26 and £18.4 million in half year 25, which has been added back in arriving at the reclassified results you see here. We also show the comparables and just to flag the aggregated and reported periods have seen minor restatements for the finalization of the purchase price allocation process, which was completed at the end of last year. I will focus on our performance relative to Barrett and RedRow aggregated for the whole of half year 25. And you will remember we consolidated RedRow actually from the 22nd of August. So adjusted profit before tax, before PPA impacts was down 13.6% in the half year to 200 million pounds. And I'll take you through the key drivers of that in a moment. The good news is that the purchase price allocation impacts largely fall away from next year, which will make all of our lives a lot easier. Slide 13, this slide looks at the margin performance in more detail, and there are several points to highlight. The increase in home completions coupled with an increase in ASP generated revenue growth of 10.5% to 2.6 billion pounds. However, the adjusted gross margin was 200 basis points lower at 15%, giving an adjusted profit of 394.8 million pounds. There were three drivers behind the margin movement. Firstly, while we benefited from growth in completion volumes, underlying pricing was flat. We then saw two headwinds on two fronts. Our targeted but increased use of non-cash sales incentives, particularly extras and upgrades to convert reservations against the challenging backdrop through 2025 was a negative to gross margin. These incentives added directly to cost of goods sold and had a direct impact on the gross margin. And we also experienced underlying bill cost inflation of approximately 1%, including procurement cost synergies. At operating profit, through both cost discipline and the benefit of cost synergies, adjusted operating profit before the impact of PPA adjustments was flat at 210.2 million pounds, with the margin back down 90 basis points to 8%. I'll cover margin movements in a moment, but just the final parts in the mix here. Adjusted finance charges at £12.4 million compared to finance income last half at £12.2 million. This reflected reduced average cash balances, utilisation of our RCF in the period, and the imputed interest rate on new land creditors relative to those being settled. And JV income, with lower completions in the period has reduced to 2.1 million pounds. As a result, adjusted PBT before PPA impact was 200 million, giving an adjusted earnings per share of 10 pence. And we have proposed an interim dividend of five pence per share with our two times dividend cover ratio in place for the full year. In summary, we saw good momentum on home completions and are pleased to see the benefits of red row integration coming through. Looking forward, there are clear opportunities to improve our gross margin, which David will cover. Turning now to our land bank on slide 14. A steadier pace of land acquisition, growth in completions, and a reclassification of some red road plots into our strategic land bank has seen the duration of our owned and controlled land bank move to 5.6 years in December. Our land bank is in a strong position and very consistent with our plans to optimize our capital employed, as David will set out. A key metric here on the slide, which we're increasingly focused on, is the average number of detailed consented plots on each of our sales outlets. This is clearly a function of the size of the outlet and the timeframe over which it has been actively selling, but we are looking to ensure our land bank is efficient. with sales outlets sized to deliver typically sales over a three to four year period. And with more than 27,500 strategic land bank plots submitted to local planning authorities across 103 applications, we expect to make further progress on strategic land conversions over the coming years too. Now looking at our embedded margin in the land bank. Here you'll see the updated plot distribution of embedded gross margins across our owned land bank plots. There are three moving parts to highlight. First, a positive 40 basis point impact reflecting the plot mix traded out through completions this half at a margin of 14.5% after including the PPA impact. Second, a negative 90 basis point impact from the flow through of flat pricing, build cost inflation and incremental sales incentives. And thirdly, a 20 basis point improvement from land acquired in the period at a 23% gross margin. As a result, the embedded gross margin ended the half 30 basis points lower at 18.9%. Improving the embedded gross margin is a clear priority. With little movement on pricing, we will do this best by managing cost-based inflation, driving development pace and buying land appropriately. To slide 16, here we look at our adjusted operating margin and the bridge. On a pre-PPA basis, including Red Row for the full 26 weeks, this was 8.9% for the combined operations in half-year 25, first column shaded here on the left. We saw a benefit of 40 basis points due to the gearing effect of higher volumes. The combination of flat pricing but underlying build cost inflation at 1% and the targeted use of non-cash incentives created a negative inflation impact of 90 basis points. Completed development provisions reflecting local authority delays in adoption of roads and public spaces accounted for a negative 40 basis points. The impact of cost synergies, which I'll set out in a moment, added 90 basis points, and these savings covered off both the underlying inflation in our admin expenses, as well as mix and other items. This has resulted in the operating margin before PPA impacts of 8% for the half. And finally, you can see the PPA dropping off to deliver the 7.5% margin on an adjusted basis. Turning to administrative expenses and adjusted items. We reduced our adjusted admin expenses by 5.4% in the half year to 184.8 million. When compared to the aggregated business last year, at 195.4 million. We also then show the adjusted items here in arriving at our reported admin expenses at 208.7 million pounds. This included adjusted items charges of 23.9 million with 18 million charged on further restructuring and integration and legal costs on legacy property recoveries at 5.8 million pounds. Whilst not shown here, the net impact of adjusted items in the period was £10.5 million, with significant legacy property-related recoveries from third parties of £13.4 million recognised in gross profit. It's positive to see both cash-based adjusted items falling away, as well as receipts coming in with respect to building remediation. Here is just a quick bridge in terms of the admin expenses. The movement in admin expenses from the aggregated base of 195.4 million to the 184.8 is set out on this slide and shaded light green. We saw an increase of 4.3 million pounds related to changes in national insurance contributions and a further 8.1 million pounds from total cost base inflation. Cost synergies then delivered a 23.2 million pound positive impact which were then coupled with a reduction of 0.2 million in sundry income which covers JD management fees and ground rents delivered the outturn at 184.8 million pounds. It is positive to see the synergies we identified at acquisition having a meaningful impact on our profit loss account. Turning to building safety where I'm pleased to report that there is very little to cover. There were no changes required to our provision position and having spent 77.8 million pounds on works across our building safety and reinforced concrete frame portfolios in the half and seeing the unwinding of imputed interest of 19.6 million, our total legacy property provisions just sat at just over 1 billion pounds. To cashflow. Slide 20 sets out the cashflow bridge for Barrett Red Row from reported operating profit on the left to the net cash outflow on the right. Really just a couple of cash flow numbers to point out. The biggest driver of cash outflow in the period was the seasonal increase in construction work in progress alongside part exchange investment, together equating to just over 313 million pounds. Three quarters of this is construction work in progress, very much following our sales cycle and construction seasonality. our net investment in land was relatively modest at £68.7 million and adjusting for the dividend payments of £172 million and £50 million in share buybacks, the net cash outflow was just under £600 million. We would expect an inflow of circa £300 million in the second half and for the year-end cash position to be in line with guidance at between £400 and £500 million. For ease we have included on the slide here, a reminder of some of the other relevant guidance points around cashflow. Turn to slide 21. Here is our usual balance sheet breakout. Limited points really to highlight, but over the 26 weeks, we saw a 21 million pound net investment in our gross land bank and land credit is reduced by just over 42 million pounds. giving a net land position at 4358 million, with land creditors funding 15% of our land investment. Land creditors clearly remain below our target range of 20 to 25%, but we are looking to add a larger proportion of land purchases on deferred terms to take us towards our target range, and also to manage our land bank more efficiently, as I alluded to earlier. The other balance sheet item to mention here As already discussed by Mike is our part exchange investment, which you can see closed out at £219 million with £74.7 million added in the half year period. Before I wrap up, I thought it would be helpful to remind you of our capital allocation priorities set out here. Our enhanced scale and balance sheet strength clearly put us in a strong financial position. but we are very mindful of the obligations we have, particularly with respect to building safety, how we are managing this appropriately. The Red Row acquisition has multiplied the opportunities we have to drive growth and value from the business. So we will invest in these, but at the same time, we will look to drive efficiencies in the way we manage both our capital employed and our cost base. And finally, we recognise the importance to our shareholders place on capital returns. We have a clear dividend policy and this is alongside an active 100 million buyback programme with 50 million pounds completed in the first half and a further 50 million pounds underway and set to complete in the second half of the year. So to summarize, our operational performance in the half year has been resilient, and that's despite the macro uncertainties faced. Our balance sheet remains solid, and we are capturing the cost synergies from the red row integration with our cost synergies confirmed. Turning to guidance, you will find a detailed slide in the appendices, but I thought it helpful to cover the main points here. As previously set out, we expect full year 26 total completions to be within the range of 17,200 to 17,800 homes. Underlying pricing is expected to be broadly flat, and we expect build cost inflation to be around 2%, including the benefit of procurement synergies. Reflecting the reclassification of imputed interest on the legacy property provisions, we anticipate an adjusted finance charge of approximately £30 million, with provision-related adjusted item imputed finance at £32 million for FY26. And our building safety programme remains in line with guidance at approximately £250 million of spend in the year. And we expect to finish the year with between £400 and £500 million of net cash. Happy to take questions later, but I will now hand back to David. Thank you.