Barratt bucks the trend as housebuilder sees trading pick up

Housebuilder Barratt Developments yesterday revealed a sharp reduction in losses and said there had been a significant pick-up in trading in 2011.

Barratt’s focus on selling more family houses rather than flats ensured the average price achieved on sales rose by 5.7 per cent to £175,800 in the second half of 2010 as it bucked the trend of a declining housing market. The price rise and ongoing efficiency savings helped Barratt’s profit margin jump from 0.6 per cent to 5 per cent and lifted its operating surplus to £43.5m from £5.2m a year earlier.

Bottom-line losses were £4.6m, compared to £178.4m the previous year, when the company incurred one-off charges due to restructuring costs and amended financing arrangements.

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Barratt, which is the UK’s biggest housebuilder by volume, said it had made “a good start to 2011 with a significant pick-up in trading since the depressed autumn selling period”, which was affected by the uncertainty surrounding the government’s Comprehensive Spending Review.

The number of reservations per site a week increased to 0.57 over the past six weeks, up from 0.39 in the final half of 2010, although some of the increase may be due to a bounce back from the disruption caused by the snow in December.

Underlying house prices have remained stable in 2011 and Barratt expects its average selling price to increase further as it pushes larger family homes and reduces its exposure to flats as first-time buyers struggle to get mortgages.

The number of completed sales in the period declined 4 per cent to 4,832, as Barratt focused on higher selling prices rather than chasing volumes.

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Barratt agreed terms to buy £318m of land – enough to build 6,078 homes – which it expects to deliver attractive margins at current market rates.

Chief executive Mark Clare said: “2011 has started well with encouraging sales rates and stable underlying pricing.

“We expect to see further operating margin growth in our second half as we continue to optimise prices, reduce costs and open new higher margin sites from recently acquired land.”

But he warned that the housing market remains fragile and its longer term recovery remains dependent on the greater availability of mortgages.

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He added: “We’re running the business in an extremely tight framework imposed by a lack of mortgage finance availability. It’s doubly frustrating it remains harder to borrow money on new homes than second-hand homes. That’s a discrimination that needs addressing as soon as possible.”

“We are encouraged by the strength of trading, improved year-end debt guidance and comments it is making good progress in the refinancing process,” said analysts at Liberum Capital.