Barratt refinances, sees upswing

11th May 2011 14:54

House builder Barratt Developments is enjoying 2011 a lot more than it did 2010, with sales rates turning to more normal levels and selling prices on the up."We are encouraged by the improvement in market conditions we've seen since the start of 2011, following a challenging autumn period," said Mark Clare, group chief executive of Barratt.Net private reservations per site in the first four months of 2011 rose to 0.53, down from 0.56 in the corresponding period of 2010 but well up from the 0.39 seen in the second half of 2010. The cancellation rate was 16.1% (2010: 13.7%), broadly in-line with historic norms.Private average selling prices were up by around 4% year on year, Barratt said, due to changes in the mix of houses being sold."We are on track to deliver a substantial improvement in operating profit in both the second half and the full financial year, driven by new higher margin sites and a continued focus on tight cost control," the group said. Barratt's financial year runs to the end of June.As at 8 May 2011, forward sales stood at £1,046.9m, down from £1,073.3m at the same stage last year, of which £653.2m (62%) was contracted, compared to £684.1m (64%) the year before. The group has completed a debt refinancing which will provide around £1bn of committed facilities up until May 2015, though some facilities will be available through to 2021. The effective cost of borrowing will be reduced as a result of improving the balance of the facilities between term debt and that needed to meet working capital requirements, with the term debt reducing from £903m to £310m. The covenant package is similar, and the facilities provide appropriate headroom above Barratt's current forecast debt requirements, the group said.The group intends to set about using some of those new facilities by paying around £30m to cancel some £290m of the £480m nominal value of interest rate swaps it has on its books. "We estimate that our future blended rate of interest will be between 7.5% and 8%. The cash interest cost in fiscal 2011/12 will be circa £70m, a saving of around £5m p.a. from the estimated equivalent cost under the previous financing arrangements," the statement said.Exceptional costs of around £55m will be charged to the income statement; these mainly relate to the refinancing and the cancellation of the interest rate swaps."Whilst we are encouraged by the relative stability we have seen in the UK housing market since the beginning of January, we expect activity to remain constrained in the near term, reflecting the continued lack of higher loan to value mortgage products, particularly in the new build sector," the group said.---jh