Barratt: £137m profit despite taking big hit

Barratt might be struggling as a result of working within a UK housing market that has imploded, but it has managed to reveal a pre-tax profit of £137m. The figure represents a profit margin of 3.8%.

The existence of any profit at all comes as good news, given that housebuilding rival Taylor Wimpey announced last week that it had dived into the red to the tune of £1.5bn in only the first six months of 2008.

Barratt’s latest figures are annual results, covering the 12 months to 30 June 2008.

Profit would have been further ahead at more than £390m but for the toll of exceptional costs of £260m made up of three main elements:

• Restructuring costs
• Write-down in the value of assets
• Goodwill charges

Barratt’s turnover rose to £3.6bn thanks to the first full year’s contribution from Wilson Bowden which was bought for £2.2bn at the peak of the market in February last year. Barratt’s latest set of accounts show the on-going burden of £790m of goodwill, only £30m down on the figure of £820m 12 months earlier.

Mark Clare, chief executive, has revealed the much anticipated details of Barratt’s financial future following months of speculation over its battle to strike a new deal with its lenders.

Barratt has been nursing a major problem as a result of  the collapse in the value of its assets, namely its future building plots and work-in-progress. The drop in its asset value had left Barratt with a debt ratio that was outside its existing banking covenants.

However all is now well on that score.

Clare said: “We have signed a new three-year £400m facility and have reached agreement to extend £350m of our existing £400m revolving credit facility. These debt facilities do not mature until 2011.”

As a result, Clare said that “a good deal of the uncertainty about our future has been removed”.

Statistics from the past 12 months show:

• 18,600 completions – up from 17,200 in the previous year.
• Average sale price of £183,000 – a rise of 6% (but 1% on a like-for-like basis).

Wilson Bowden synergies of £33m were delivered, ahead of the target figure of £30m.

Net debt stands at £1.7bn.

Clare sees further room to trim costs and is looking for additional savings of £40m as a result of cost saving measures. His plans include:

• Cutting the number of divisions from 44 to 26.
• The loss of 1,200 jobs.

Land spend in the coming year will drop by £400m to £570m, almost all of which relates to contractual commitments.

“Work-in-progress is being tightly controlled and we will continue to match construction rates to projected sales rates,” Clare said. “We will only start on new sites or new phases where we are confident of sales rates, so the number of sites will fall to an average of around 500.”

He expects that selling off Wilson Bowden Developments’ portfolio of properties will bring in £200m of cash.