Difficult year pushes Barratt into the red

Sep 23 2009 By Karen Dent, The Journal

BUILDER Barratt has plunged into the red after struggling through what it called an "intensely difficult" year for the housing market.

The company, which was set up in Newcastle more than 50 years ago, saw pre-tax profits slip from £137.3m last year to make a pre-tax loss of £678.9m for the 12 months to June 30.

But the builder, which is now planning to raise £720m by issuing new shares, made an operating profit of £34.2m - down from £550.2m the year before.

Chairman Bob Lawson said: “This has been an immensely difficult year for the housebuilding sector with the industry experiencing a material and sudden fall off in customer demand driven by a structural change in the availability and terms of mortgage finance, decline in house prices and a loss of consumer confidence in light of the prevailing economic uncertainty.”

He said there were signs the market was stabilising and Barratt’s sales rates had improved - but that would not be sustained unless it became easier for buyers to secure mortgages.

Barratt tackled the downturn by reducing its house prices and slashing costs. Since January last year, it has axed about 2,500 jobs in the UK and reduced its number of operating divisions from 32 to 25.

Mr Lawson said: “I recognise that many of the decisions the group has made in the year have adversely affected the employees; whilst that is something I very much regret it was necessary to ensure that the group protected its core business during the downturn.”

He said that shareholders would not receive a dividend this year as the group tries to save cash. It is issuing new shares as part of plans to reduce its debt, which stood at £1,276.9m at the end of June.

Barratt said a lack of confidence among house buyers and the continued difficulty that first time buyers faced getting a mortgage had contributed to the problems.

The average price of a new Barratt house has dropped by 14.1% to £157,200 and prices are now more than a quarter lower than their peak two summers ago.

However, the group’s forward sales at the end of June stood at £464.3m and had jumped to £733.4m by September 13 as “a degree of stability” returned to the housing market and selling prices remained level.

But group chief executive Mark Clare warned: “The encouraging signs being experienced are subject to continued uncertainty in the wider economic climate.

“There is unlikely to be a sustained recovery in the UK housing market until mortgage finance is more readily available particularly to the higher loan to value segment and consumer confidence is more fully restored.”