Barratt's trading suffers in first 19 weeks of 2008

Barratt Development’s chief executive Mark Clare has said that deteriorating trading conditions will see the housebuilding group “prioritise margin management”, in a management statement released today.

That might be interpreted as indicating an on-going squeeze on payments to subcontractors.

In its last annual accounts, Barratt announced a pre-tax profit of £440m which gave it a healthy profit margin of 15%.

The average sales price of the 17,200 houses sold during that period was £177,000, hence the profit Barratt made on each house can be calculated as being £27,000.

In today’s statement, Barratt gives an update for the conditions it has faced over the first 19 weeks of 2008 to 11 May compared with the same period last year:

• Turnover - down 8%
• Completions - down 6%
• Reservations per week - down 34%

Barratt’s forward orderbook currently stands at £1.6bn, well down on the £2.1bn figure at the same time last year “reflecting the lower sales rates currently being delivered”.

Worst affected regions:

• Midlands
• West

Least affected regions:

• London
• South East

The statement also said: “The group continues to operate within its £2.6bn of banking covenants. We expect net debt at the end of June [the end of Barratt’s financial year] to be approximately £1.7bn.”

Barratt has paid down, through re-financing, £200m of its £800m acquisition finance facility - it bought Wilson Bowden for £2.2bn back in February 2007, the height of the housebuilding cycle.

Two weeks ago Barratt exercised its option to roll forward the remaining £600m of its acquisition financing facility for a further 12 months to 25 April 2009.

Key bankers have played ball in letting £400m of the money due back in to arrive in the more medium-term. Barratt said the juggling “effectively deals with the group’s short-term re-financing requirements”.