Barratt feels pressure despite profits boost
Sep 9 2010 by Iain Laing, The Journal
HOUSEBUILDER Barratt Developments has said that the UK housing market is "still challenging", despite reducing its pre-tax losses and nearly trebling its operating profits.
The Newcastle-based firm said its operating profits for the year to the end of June were up to £90.1m from £34.1m in 2009. But it warned a lack of mortgage finance available to would- be homeowners continued to threaten the industry.
While the group said conditions in the housing market have steadily improved over the year, it added the number of buyers and sellers was still “extremely low“ by historical standards.
It nonetheless reduced its pre-tax losses for the year to £162.9m, down from £678.9m in 2009, and said it made a profit of £15.5m in the second half before tax and exceptional items. But it said market conditions forced it to build fewer sites, which would do “little to address the nation’s fundamental housing shortage”.
Average selling prices increased by 10.9% during the year and by 17.8% in the first half of the year, compared to the same point in 2009. Forward sales had continued to increase, up to £847.1m by September 5.
However, chairman Bob Lawson said that the company had focused on increasing its margins on reduced volumes in a bid to drive its growth.
He said: “During the year conditions in the housing market in Britain steadily improved. Nevertheless, by historic standards the market remained difficult and activity levels continued to be extremely low.
“The key restriction on the industry remains the availability of mortgage finance. The lack of availability of suitable higher loan to value products continued to restrict the new-build sector where customer deposits have traditionally been lower.
“With demand continuing to be constrained, the industry responded by opening fewer sites and controlling stock better. Whilst the improved balance between supply and demand has stabilised prices, it has done little to address the nation’s fundamental housing shortage which in the longer term will underpin the sector’s growth.”
He added the company had taken steps to strengthen its balance sheet, aided by a rights issue that raised gross proceeds of £720.5m.
Consumer demand and the lack of mortgage availability had prompted it to shift its housing mix more in the direction of houses than flats, and it had focused on increasing its portfolio of potentially-profitable land.
Group chief executive Mark Clare said: “Whilst the outlook for the UK housing market is still challenging, our priority remains optimising prices rather than volume and securing high quality land that will continue to drive our margin recovery.”
Numis Securities analyst Chris Millington said he expected the group to move into pre-tax profit in 2011. He said: “We expect to benefit from a combination of volumes growth and average sales price growth due to mix, margin improvement and lower finance costs.”
Rival developer, Berkeley, said that although trading remained resilient in London, outside the capital “the lack of credit and consumer confidence will act as a constraint to transactions”.
The latest survey by Halifax showed that house prices edged ahead by only 0.2% during August as activity in the market remained subdued.
The group said that activity had been “largely static” since the start of this year, enabling house price inflation to cool after prices were pushed up last year by a shortage of supply. It added that it expected prices to end the year at about the same level at which they started it.
