Barratt: £200m savings from work-in-progress checks

Barratt has cut back hard on the amount of work-in-progress on its housing sites and says that it is “on track” to deliver its target of a £200m benefit.

The carrying value of the land and work-in-progress will be reviewed yet again and “it is anticipated that further write-downs will be required at the half-year” – these details being scheduled for announcement on 25 February 2009.

Barratt’s update this morning takes the form of an interim management statement covering a 19-week period from 1 July to 9 November.

Mark Clare, chief executive, said: “Conditions in the housing market are as tough as anyone can remember with increasing pressure on prices and margins.  

“Against this backdrop, Barratt's focused sales effort has enabled us to deliver robust sales volumes, in-line with management expectations".

Barratt’s fight is focused on reducing costs and generating cash in order to reduce its sky-high level of debt.

Pricing pressure has continued. Cost cutting will have a negative impact on operating margins, says Clare.

Visitor levels per site for the 19-week period were down 5.8% compared with the same period last year.

“However, since the beginning of the autumn selling season at the start of September, we have seen visitor levels per site up approximately 7.5% on the comparable period,” he added.

Private net reservations averaged 197 per week, down 23% on the same period last year. 

Section 106 social housing represented 16% of total completions for the period, broadly the same level as the prior year.

Cancellation rates have averaged approximately 24% for the period, compared with 23% in the prior year. “We expect this rate to trend upwards in keeping with normal seasonal trends as we approach the December half-year,” said Clare.

“As indicated at our preliminary results announcement, we are seeing increased pricing pressure driven by buyers' expectations, lenders lowering valuations and competitor activity.”

As a result the average selling price on a like-for-like basis will have fallen by 15% - 20% at the end of December 2008 from their peak in July 2007.  

Total sales outlets are expected to reduce further, to an average of around 500 for the group's financial year.

The forward order book currently stands at £820m equating to 5,513 plots (2007: 10,424 plots).

Of this, £480m (59%) is contracted.

Stock levels continue to decline - as at 9 November, Barratt had 1,291 unreserved stock units, equating to 6.6 weeks supply at current sales rates. This is down from 1,821 units at 30 June 2008, a 29% reduction.  

“We expect net borrowings at both the half and full year to be lower than prior year levels and that the group will continue to operate within its committed facilities and banking covenants.” said Clare.