Barratt Developments' full-year revenue rose by 1.0% to £5.3bn as higher average selling prices helped to offset the slowdown in reservations over the second half.
Underlying operating profit fell 18.2% to £862.9m. This reflected several factors including high build cost inflation, lower completion volumes, and a relatively higher contribution from London completions where margins are lower.
Total home completions declined 3.9% to 17,206.
The net cash position remained broadly flat at £1.1bn as a reduction in land spend helped to offset the completion of the £200m share buyback programme. Free cash flow rose from £388.7m to £442.5m.
Barratt expects total completions to reduce this year to a range of 13,250 - 14,250, as the outlook for the UK housing market remains "uncertain".
A final dividend of 23.5p per share was announced, taking the full-year payment to 33.7p, down from 36.9p.
The shares fell 2.3% following the announcement.
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Our view
Full-year results for Barratt Developments, the country's largest housebuilder contained no surprises.
Rate rises throughout the year pushed up borrowing costs for buyers, making mortgage affordability much more difficult. Add to the mix the closure of the Help to Buy scheme and the fallout from the mini budget back in September 2022 and you've got a potent cocktail, which saw Barratt's net private reservation rates fall by around a third.
Whilst fewer homes were sold, the top line was propped up by underlying house price inflation and an increased proportion of higher-priced London completions. But this comes with a caveat. London sales are typically lower margin than those of other regions. Alongside high build cost inflation and lower completion volumes, margins got squeezed and underlying operating profits fell at double-digit rates.
As a result, there's been a pause on recruitment, and spending on new land looks set to decline further next year as Barratt aims to better manage its cash resources and cost base through the storm that lies ahead. Easing build cost inflation should help on this front too.
On the balance sheet side, a substantial net cash position of around £1.1bn gives Barratt plenty of flexibility to cope with a challenging market. No new share buyback programmes have been announced and dividends this year are forecast to decline by over 40%, broadly in line with earnings. Nonetheless the shares still carry a healthy dividend yield of over 4%. Remember, payouts to shareholders are variable and can't be guaranteed.
Ultimately, housebuilders are cyclical beasts. Their fortunes tend to expand and contract in line with the economy. And with tougher borrowing conditions and economic uncertainty, people are simply less likely to wander into a show home, and even less inclined to sign on the dotted line than they were a year ago.
Barratt's in a resilient financial position though, and the valuation's trading well below the long-term average, so the housing market slowdown looks well priced in. But with interest rates set to remain higher for longer, consumer confidence and spending will continue to come under pressure this year, and it could be a while before momentum really picks back up again.
Barratt Developments key facts
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