• Issue 49

  • Jul 2019

The Source

HOUSEBUILDER NEWS

“Solid performance” for Berkeley despite drop in profits

The Berkeley Group has reported another “solid performance” during this financial year but face challenging market conditions with profits dropping 21% against 2018’s figure.

During the year ending April 30th 2019, pre-tax profit reached £775.2 million. However, Berkeley stated that this was better than predicted at the start of the year – they had expected profit would drop around 30% against the equivalent period in 2018 and this outcome reflected “resilient trading” during the year.

Other results: –

  • Revenue rose 4.1% to £2,957.4 million
  • 3,698 new homes were delivered across London and the south east, (2018 = 3,678)
  • Average selling price rose to £748,000 (2018 = £725,000) due to the mix on Berkeley’s schemes in central London
  • 11 new schemes were launched during the year – with 3 in London and the rest outside of the capital
  • The value of new reservations secured continued to be stable, with 2019 “marginally ahead” when compared to 2018

Berkeley stated that they are 18% ahead of their target to deliver £3 billion of pre-tax profit in the 5 years ending 30th April 2021 but added that pre-tax profit for 2019/20 was due to drop by a third against 2018/19.

Berkeley’s CEO, Rob Perrins, said: “The operating environment has been uncertain for three years, since the United Kingdom chose to leave the European Union, resulting in a lack of visibility in the political outlook. When seen alongside the increasing property tax burden since 2014, and a complicated, costly and bureaucratic planning system, it is unsurprising that both demand and supply are constrained at present.”

He added that Berkeley was starting this year “from a position of strength, with net cash of £975 million, forward sales of £1.8 billion and an estimated £6.2 billion of gross profit in our land holdings, and this means we can look beyond the current period of uncertainty with confidence”.

Kier Living to be sold by group

Kier, the infrastructure, buildings, developments and housing group, are selling off their housebuilding division, Kier Living, following a strategic review of its businesses.

With the group experiencing financial difficulties, it was reported in April that CEO Andrew Davies would head the review to simplify the company to “better allocate capital resources across the group and identify additional steps to improve cash generation and reduce leverage.”

Kier Living completed 2,042 units in their 2018 financial year and had a landbank of 4,739 plots at the end of 2018.

The Kier Living division come out as “strong” but needed “significant ongoing funding” to achieve future growth and did not fit operationally with other parts of the business.

With Kier Living classed by the board as “non-core”, actions to sell the housebuilding arm have started and have already attracted “a number” of interested parties. The sale is expected to include Kier Living’s interests, and share of their net debt, in established joint ventures, which include Homes England.

“The sale of Kier Living is expected to provide financial benefits beyond a reduction in net debt due to the release of associated working capital and a reduction in the group’s use of supply chain financing and off-balance sheet debt,” Kier said.

Meanwhile, John Anderson, Executive Director of Kier Living commented: “Kier Living is a successful and financially sound business. This is testament to our strong commercial track record and growing reputation as a quality housebuilder. Due to this, we’re attractive to prospective buyers and investors and we have seen this in the weeks leading up to the announcement when we have received a number of inbound expressions of interest in the business.”

“I am personally excited about what the future holds. However, the sale of a business can take a good few months and during that time we will remain a part of Kier Group. This means we will continue to operate to the current business plan. It really is business as usual for us.”

Housebuilders urged to accept modern methods of construction

The Housing, Communities and Local Government Committee (MHCLG) has advised the government that the target to build 300,000 new homes a year in the UK by mid-2020s will not be achieved due to an over-reliance on traditional building methods.

In a new report, the Committee appeals to the government to promote modern methods of construction (MMC) to enable the building of quality homes faster and more cheaply. The report also highlights the urgency to boost capacity and improve investor confidence to stand any chance in reaching housebuilding targets.

Currently, MMC in UK housebuilding are not widely utilised. Proposals from the report include: –

  • Supply chain capacity to be increased
  • Ensuring the workforce has the required skillset for developing technologies (Government to work alongside Homes England and specialist training centres, such as the Advanced Manufacturing Research Centre, to develop targeted programmes targeted for use in the manufacture of MMC homes.)
  • Centres of excellence to be developed, joining businesses and academia together to support innovation (possibly working alongside the Transforming Construction Programme and Construction Innovation Hub to create an arena for testing/standardising MMC processes/components, to comply with building regulations.)
  • Data collection and sharing to be improved (to minimise the reluctance to use MMC among lenders, insurers and home buyers by creating a database of MMC homes to prove the long-term value and durability)
  • Creating an “MMC Scheme” to establish a single set of standards for warranty providers, to provide more confidence in the industry
  • Government to examine the effect of the existing regulatory practices (confusing building regulations, accessing building land, etc.) and consider potential methods to deal with existing barriers (high upfront costs, etc.)
  • Access to funding on MMC

Clive Betts MP, Chair of the MHCLG Committee, said: “If the government is to have any chance of meeting its target of 300,000 new homes a year it cannot simply rely on traditional methods of construction. They must make a serious effort to support the use of new and emerging technologies that have the potential to have a transformative impact on the speed, cost and quality of home building. This is not simply about shifting production away from the building site and into factories. It is about seizing opportunities that modern technologies allow, whether it be precision manufacturing, use of new materials or digital working.

“First and foremost, they must create the conditions to improve investor and consumer confidence. Reluctance is understandable. The perception is that the building innovations of the sixties created homes that failed to survive half a century, while rows of Victorian terraces are still standing. Proving quality and longevity will be key. That is why we have called on the government to collect and publish the data that prove new building methods work and show if they have failed.

“The government will also need to support the industry to grow the capacity needed for MMC to play a greater role in national housebuilding. They will need to ensure that the right training schemes and apprenticeships are in place so that we have the skilled workforce that can utilise MMC techniques. They must also work with the industry to support the development of robust supply chains and support innovative businesses develop. The housing system is in urgent need of a major boost and if the government is to have any chance of meeting its ambitious target it must grasp every opportunity new technologies allow. But they must act fast and act now.”