Barratt Developments Regulatory News (BDEV)

4 September 2019

Barratt Developments PLC

Annual Results Announcement for the year ended 30 June 2019

Another year of strong performance, continued good progress against medium term targets

Highlights

·; Strong operational and financial performance with continued good progress against medium term targets

·; Operating margin of 18.9% (2018: 17.7%), with a trading improvement of 80 bps, driven mainly by continued strong progress from our margin initiatives

·; Profit before tax of £909.8m (2018: £835.5m), driven by margin initiatives, a strong close to the year and additional contribution from joint ventures

·; Continue to lead the industry in quality and customer service, achieving more NHBC Pride in the Job Awards than any other housebuilder for the 15th consecutive year and receiving the maximum HBF 5 Star customer satisfaction rating for the tenth year in a row

·; Strong cash generation with net cash at 30 June 2019 of £765.7m (2018: £791.3m)

·; Final ordinary dividend per share of 19.5p (2018: 17.9p) together with 17.3p (2018: 17.3p) special dividend per share, resulting in a total dividend for the financial year of 46.4p (2018: 43.8p)

Current trading

·; Net private reservations per active outlet per average week from 1 July were 0.70 with the prior year benefiting from reservations on two bespoke design and build arrangements (FY19: 0.75, excluding the two bespoke design and build arrangements 0.70)

·; Strong total forward sales4 as at 1 September 2019 of 12,911 homes (2 September 2018: 12,648 homes) at a value of £2,998.6m (2 September 2018: £3,054.0m).

Commenting on the results David Thomas, Chief Executive of Barratt Developments PLC said:

"It has been another outstanding year delivering a strong operational and financial performance. The Group's long term investment in quality and operational excellence continues to drive margin improvements, alongside our highest number of completions for 11 years. As the only major housebuilder to be awarded a 5 Star rating for customer satisfaction for ten years in a row, we continue to lead the industry in quality and customer service.

Whilst there is increased economic and political uncertainty, we begin the new financial year with a strong forward order book, balance sheet and cash position which we believe provides us with the resilience and flexibility to react to potential changes in the operating environment in FY20 and beyond. We maintain our focus on the delivery of operational improvements across our business, and our commitment to deliver the highest quality homes across the country."

1. Refer to Glossary for definition of key financial metrics

2. Unless otherwise stated, all numbers quoted exclude JVs throughout this statement

3. In addition to the Group using a variety of statutory performance measures it also measures performance using alternative performance measures (APMs). Definitions of the APMs and reconciliations to the equivalent statutory measures are detailed in the Glossary and Definitions

4. Including JVs in which the Group has an interest 

Certain statements in this document may be forward looking statements. By their nature, forward looking statements involve a number of risks, uncertainties or assumptions that could cause actual results to differ materially from those expressed or implied by those statements. Forward looking statements regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. Accordingly undue reliance should not be placed on forward looking statements.

There will be an analyst and investor meeting at 8.30am today at Deutsche Bank, 1 Great Winchester Street, London, EC2N 2DB. The presentation will be broadcast live on the Barratt Developments corporate website, www.barrattdevelopments.co.uk, from 8:30am today. A playback facility will be available shortly after the presentation has finished.

Dial in: 0844 571 8892

International dial in: +44 (0) 207 192 8000

Access code: 1469366

Further copies of this announcement can be downloaded from the Barratt Developments PLC corporate website www.barrattdevelopments.co.uk or by request from the Company Secretary's office at: Barratt Developments PLC, Barratt House, Cartwright Way, Forest Business Park, Bardon Hill, Coalville, Leicestershire, LE67 1UF.

For further information please contact:

Barratt Developments PLC

Jessica White, Chief Financial Officer 01530 278 259

Analyst/investor enquiries

Jenny Matthews, Investor Relations 020 7299 4894

Media enquiries

Tim Collins, Head of Corporate Communications 020 7299 4874

Brunswick

Jonathan Glass/Alison Lea 020 7404 5959

Chairman's Statement

We have once again performed strongly against our key financial and operational metrics, and we continue to lead the industry in the quantity and just as importantly, the quality of our homes. This year we delivered 17,856¹ high quality new homes across Britain, the highest number for 11 years.

Quality

The Group's vision is to lead the future of housebuilding by putting our customers at the heart of everything we do. This year we once again demonstrated our industry leading credentials for quality and service.

We achieved a 5 Star rating in the HBF customer satisfaction survey for the tenth year in a row, a record that is unprecedented for a major housebuilder. Our 5 Star rating means that over 90% of our customers would recommend us to their family and friends, and is the leading industry benchmark of quality and service. In addition, our site managers achieved 84 NHBC Pride in the Job Awards for excellence in site management this year - more than any other housebuilder for 15 years in a row, and our highest number of awards for five years.

Political and economic environment

Despite increased political uncertainty, the prevailing economic and political backdrop for the industry is positive. Home ownership is still the tenure of choice for the majority of people, and this combined with the long term undersupply of new housing means that underlying demand remains strong.

The Government continues to support new housebuilding. We welcome the extension of Help to Buy until 2023, albeit subject to restrictions from 2021 onwards. We believe Help to Buy is a successful scheme that has supported new development whilst helping over 221,000² families to buy a new home. The Government's stamp duty cut has also assisted over 340,000³ first-time buyers since its inception in November 2017.

The revised National Planning Policy Framework published last year has provided additional clarity for housebuilders, and the majority of local authorities now have an up-to-date, adopted local plan. In total over 369,0004 units secured planning permission in England in 2018, demonstrating that the planning system continues to facilitate new development.

Low interest rates continue to keep mortgages at historically affordable levels and there is increased competition amongst lenders. This robust mortgage market makes demand more effective and further strengthens the backdrop for the housebuilding sector.

Our employees

The Group's continued good progress is only possible because of the dedication and ability of our management team and all of our employees. I would like to take this opportunity to thank everyone in our business for their contribution over the last year. We aim to recruit the best talent available from within our industry and beyond, and the Board believes that this approach provides a solid foundation from which we can grow our business and continue to provide our customers with outstanding quality and service.

The views of our employees are important to the Board. They are the ones that shape the culture of the business and are at the heart of our operations. Our Workforce Forum, established in 2018, met three times during the course of this year to discuss a variety of topics including enhancing workforce engagement, health and wellbeing strategy, benefits, charitable giving, diversity and inclusion.

To enhance the Board's engagement with its employees further, the Board has appointed Richard Akers, the Chair of the Remuneration Committee and our Senior Independent Director, as the designated Non-Executive Director for workforce engagement. Richard will attend at least one Workforce Forum meeting a year to discuss matters relating to working at Barratt. Richard and the Group HR Director will update the Board in respect of any key issues raised at meetings.

Culture

The success of our business is rooted in our culture. This is based on the values and the behaviours exhibited by our people across our business who are working towards our vision to lead the future of housebuilding by putting customers at the heart of everything we do. It's important to examine the culture of an organisation to make sure that it is encouraging the right behaviours, providing the right incentives and leading by example. Consequently the Board will be undertaking a review of the Group's culture later this year.

Safety, health and the environment

The safety and health of all individuals on and around our sites and in our offices is a fundamental priority. We were therefore deeply saddened that a sub-contractor working on one of our sites was fatally injured in June 2019. Our thoughts are with the family, friends and colleagues of the individual concerned. We are cooperating fully with the Health and Safety Executive during its ongoing investigation and await the outcome.

We continuously reinforce the importance of safety and health to our workforce. Our injury incidence rate for reportable injuries per 100,000 employees and contractors decreased during FY19 to 297 (2018: 462).

Our social and environmental impact is an important concern for the Board. To identify those issues that matter most to our stakeholders we undertook a materiality review process in 2019. This review reconfirmed that the issues that we are focusing on remain key to our stakeholders. We have also embraced the UN SDGs. We updated our sustainability framework, which sets out the areas of priority in terms of sustainability and how we will deliver against these, to reflect the feedback received from the materiality process and the UN SDGs that we will be focussing on. We will monitor progress against this throughout FY20.

Acquisition and disposals

In June 2019, we announced the acquisition of Oregon, a supplier of timber frames. This acquisition was in line with our strategy to progress construction through the use of MMC. We are excited to work with the team at Oregon and welcome each and every one of them into the Barratt family. Throughout FY20, we will focus on integrating the Oregon business into the Group.

During the year, we disposed of our property management company, Barratt Residential Asset Management. We also sold our remaining 50% interest in the Aldgate Place joint venture to our joint venture partner, in line with our strategy to trade out of central London.

The New Code

In July 2018, the Financial Reporting Council published the new UK Corporate Governance Code and Guidance on Board Effectiveness. Whilst these provisions do not apply to the Company for FY19, we have decided to early adopt those relating to Section 172 of the Companies Act: Duty to promote the long term success of the Company; Stakeholder engagement; CEO pay ratio; malus and clawback and pension contributions.

Board appointments and succession

The Nomination Committee continues to oversee Board appointments and succession of Board members. It annually assesses the composition of the Board and its Committees. No new appointments were made to the Board or any of the Committees during the year. The Board effectiveness review, which was this year externally facilitated by Linstock, supported the view that the Board currently comprises the appropriate skills and experience to drive our strategy forward. It did however highlight the need to consider what skills any new Non-Executive Director would need to possess to support our succession plan for Non-Executive Directors and continuous refresh of the Board.

Delivering returns to our shareholders

In line with the Group's extended Capital Return Plan announced in February 2019, I am pleased to confirm that the Board will be recommending a final dividend of 19.5 pence per share (2018: 17.9 pence per share) and a special dividend of £175.0m (17.3 pence per share) for approval by shareholders at the 2019 AGM. The total proposed dividend for FY19, including the interim dividend of 9.6 pence per share paid in May 2019, is therefore 46.4 pence per share (2018: 43.8 pence per share).

Summary

We continue to have an experienced and committed Board who are focused on promoting the success and long term sustainable value of the Group. We will continue to review our composition and ensure that it aligns with our strategy as we move forward.

Our performance this year has put us in a strong position to progress our medium term targets of increasing volume, improving margin and improving ROCE over the forthcoming years. We will continue to focus on the quality of the homes that we build and putting the customer at the heart of everything we do.

On behalf of the Board, I thank you for your continued support and look forward to welcoming you to our AGM on 16 October 2019.

John Allan

Chairman

3 September 2019

1. Including JVs in which the Group has an interest

2. MHCLG, Help to Buy (Equity Loan Scheme) Data to 31 March 2019, England, July 2019

3. HMRC Quarterly Stamp Duty Land Tax Statistics, July 2019

4. HBF New Housing Pipeline report, p5 www.hbf.co.uk/documents/8440/HPL_REPORT_2018_Q4_FINAL.pdf

Chief Executive's statement

Overview

We have delivered a strong operational and financial performance this year and are making good progress against our medium term targets.

We are very proud to be Britain's largest housebuilder and to lead the industry in both build quality and customer service. Quality and customer service has been a long term commitment for us, and we strive to meet our customers' expectations. We believe that high quality homes and excellent customer service are fundamental to our ongoing success. We are building homes the country needs, creating jobs and supporting economic growth whilst also delivering both operationally and financially for our shareholders.

We are operating across England, Scotland and Wales through our three brands: Barratt Homes, David Wilson Homes and Barratt London. We remain committed to playing our part in addressing the housing shortage. We continue to increase volumes whilst maintaining our industry leading quality. In line with expectations, we saw 2.6% growth in our wholly owned completions to 17,111 homes (2018: 16,680 homes) and delivered 745 homes through our joint ventures (2018: 899 homes), making our total completions including JVs 17,856 homes (2018: 17,579 homes) for the year.

We have grown margin significantly over the last five years and this year delivered a gross margin of 22.8% (2018: 20.7%). Operating margin increased by 120 bps to 18.9% (2018: 17.7%) for the year with profit from operations of £901.1m (2018: £862.6m). We delivered 80 bps of operating margin improvements from trading driven mainly by sites purchased at higher gross margins and the benefits of the new product range delivery, partly offset by an increase in administration expenses. We also benefited from a further net 40 bps of operating margin from non-recurring items, being the disposal of a legacy commercial asset and net reversal of inventory provisions offset by costs associated with legacy properties. Our operational improvements, including new product ranges, underpin our land acquisition at a minimum of 23% gross margin.

In addition, we delivered a strong performance from our joint ventures at £37.5m (2018: £18.6m).

As a result we delivered a record profit before tax for the year of £909.8m (2018: £835.5m).

ROCE has grown from 23.9% in the 12 months to June 2015 to 29.7% in the 12 months to June 2019, and our target is for it to be a minimum of 25% over the medium term.

Our balance sheet remains robust, with year end net cash of £765.7m (2018: £791.3m), net tangible assets of £3,960.8m (2018: £3,705.5m) and minimal total gearing (including land creditors) of 4.9% (2018: 5.5%).

Our disciplined approach combined with our financial strength enables us to keep investing in our business and the future of housebuilding.

Strong housing market fundamentals

The housing market fundamentals remain attractive. The Government has set a target of 300,000 homes to be built per year by the mid-2020s to meet existing demand and in July 2018, Ministers released an updated National Planning Policy Framework to ensure that local authorities plan positively for housing and will be held accountable for under-delivery.

The lending environment also remains positive with greater competition in the mortgage market and a broad spread of lenders supporting homebuyers. We continue to see strong Government support for the new build industry and to help people to get onto the housing ladder. In October 2018, the Government announced that Help to Buy will continue in its current form until March 2021, and thereafter will be in place for two further years, limited to first-time buyers with regional price caps. Up to March 2019, over 221,000 homes had been bought using the scheme, 81% by first-time buyers2.

The land market remains stable and we continue to see excellent land opportunities that exceed our minimum hurdle rates.

Committed to building more high quality homes

As Britain's largest housebuilder we remain committed to playing our part in addressing the housing shortage. We design attractive developments that meet our high quality standards and will enhance local communities for years to come. We continue to increase volumes whilst maintaining our industry leading quality, and remain committed to investing in the future of housebuilding.

Leadership in quality and customer service

We have an absolute and long term commitment to quality and customer service and we believe our industry leadership in this is fundamental to business resilience. Our quality is recognised through the NHBC Pride in the Job Awards for site management. In June 2019 our site managers were awarded 84 awards, more than any other housebuilder for the 15th consecutive year. We are also the only major housebuilder to be awarded the maximum 5 Star rating by our customers in the HBF customer satisfaction survey for ten years in a row which means that our customer satisfaction rating is consistently over 90%.

Investing in our people

We are committed to the development of our people in order to drive our success. A shortage of skilled workers in our sector means that attracting and retaining the best people is an important priority for the business. We are building a diverse and inclusive workforce that reflects the communities in which we operate, delivering excellence for our customers by drawing on a broad range of talents, skills and experience. Employee engagement remains a key measure of our success and we are pleased to have maintained upper quartile performance in our engagement survey for the sixth consecutive year. Our focus on retention has resulted in a reduction in employee turnover this year.

We are investing for the future and continue to develop award winning schemes including those for graduates, apprentices, ex-Armed Forces personnel and our own Degree Apprenticeship in Residential Development and Construction, run in conjunction with Sheffield Hallam University. Building on the success of our programme, we have created a fast track bricklaying apprenticeship, which has attracted more candidates and reduced the programme duration by six months. We currently have 470 apprentices, graduates and trainees on programmes, which is 7.2% of our workforce. We have recruited a further 269 apprentices, trainees and graduates for our FY20 intake.

We also continue to collaborate with the wider housebuilding industry. We actively participate in the Home Building Skills Partnership, the aims of which include attracting new entrants to the industry, providing the skills for today and the future, and supporting the supply chain in attracting and developing the skills they need to support our industry.

We aim to create an open, honest and fair working environment that embraces diversity and inclusion and we are committed to delivering our Diversity and Inclusion Strategy. We have identified targets in areas such as gender and ethnicity and our aim is to improve in all areas over the next two years. We have introduced flexible working which can help us retain talented employees and can be particularly beneficial for those with family and caring responsibilities. Over 1,600 managers have now completed our diversity and inclusion training programme, and a diversity and inclusion e-learning module has been rolled out to all employees. During the year we have also launched a career development programme, Catalyst, for high potential female employees.

In celebration of us achieving the maximum 5 Star rating in the HBF Customer Satisfaction Survey for the tenth year in a row and to recognise the hard work and dedication of our teams, in July 2019 we awarded all employees below Senior Management level a special award of 200 shares.

MMC

We are committed to increasing the number of homes we build using MMC to increase efficiency and to help mitigate the challenges posed by the shortage of skilled workers within the industry. We continue to develop, trial and implement MMC, building and selling 2,626 homes using timber frame, large format block and light gauge steel frame. We also use offsite manufactured ground floor solutions and roof cassettes. We have achieved our 2020 target of 20% of home completions using MMC a year ahead of schedule. Our new target is to use MMC to build 25% of our homes by 2025.

Over the last three years, we have built 5,274 homes using timber frame with the majority in Scotland and we are also increasing its use across England and Wales. Timber frame construction is a sustainable, low energy method of build manufacture from the world's most renewable building material and is built in factories to high standards. In June 2019, we acquired Oregon, a manufacturer of timber frames. Oregon was already one of our key timber frame suppliers providing high quality products and excellent customer service. The experienced Oregon management team continue to lead our timber frame business.

Our financial performance

Full year results

The Group has delivered a strong performance with good customer demand for high quality new homes supported by a stable market backdrop. Overall our net private reservation rate was 0.70 (2018: 0.72) per active outlet per week and 0.76 (2018: 0.77) in the second half of the year.

During the year, we operated from an average of 379 active outlets (2018: 380 active outlets) including JVs. We made good progress on new site openings, launching 163 new outlets (2018: 142 new outlets) including JVs in the year. In FY20 we expect to operate from a similar number of active outlets and to legally complete a similar proportion of affordable homes.

Our total ASP for the year was £274,400 (2018: £288,900), with private ASP at £312,000 (2018: £328,800), reflecting changes in our mix and our trade out of central London, partly offset by some underlying house price inflation.

Outside of London, our private ASP reduced by 1.7% to £297,200 (2018: £302,400), driven by an increase in the proportion of two and three bedroom homes offset by some underlying house price inflation. Affordable ASP increased by 6.9% to £132,200 (2018: £123,700) reflecting changes in mix.

We have made good progress in our strategy to trade out of central London, delivering 127 wholly owned central London completions in the year, resulting in 18 private homes being left to legally complete. We also have 262 units left to complete in our two remaining active central London JVs, of which 85% are now forward sold. We continue to focus on the strong growth opportunities that exist in outer London.

We have grown margin significantly over the last five years. Our gross margin improved to 22.8% (2018: 20.7%) mainly reflecting the benefit of our new product ranges and sites that we have purchased at improved margins. 

We delivered an operating margin of 18.9% (2018: 17.7%) in the year. Operating margin improvements from trading of 80 bps were driven mainly by sites purchased at higher gross margins and the benefits of the new product range delivery, partly offset by an increase in administration expenses. We also benefited from a further net 40 bps of operating margin from non-recurring items being the disposal of a legacy commercial asset (10 bps) and reversal of inventory provisions (40 bps) offset by additional costs associated with legacy properties (10 bps) related to cladding.

Administration expenses reduced operating margin by 80 bps, largely reflecting a reduction in other income. As a result of our operating margin improvement, Group operating profit increased by 4.5% to £901.1m (2018: £862.6m).

Net finance charges were £28.8m (2018: £45.1m), £16.3m lower than prior year, mainly due to a reduction in the imputed interest on land creditors, as land creditors as a proportion of our owned land bank reduced in line with our operating framework. In FY20, finance costs are expected to increase to c.£35m, due to non-cash charges arising from the new lease accounting standard and lower interest income as we expect a lower average net cash holding in the year as we move towards our operating framework of 25 - 30% land creditors.

JVs delivered a better than expected profit for the year of £37.5m (2018: £18.6m) mainly as a result of profit generated from land sales and additional home completions. In FY20, we expect to deliver around 750 JV completions and c.£30m of profit based on expected build programmes.

Reflecting our strong performance, profit before tax for the year was up 8.9% to £909.8m (2018: £835.5m). The tax charge for the year was £170.4m (2018: £164.0m) at an effective rate of 18.7% (2018: 19.6%). Basic earnings per share increased by 10.1% to 73.2 pence per share (2018: 66.5 pence per share).

Operating framework and capital structure

We will continue to maintain an appropriate capital structure and a sustainable operating framework, with shareholders' funds and land creditors funding the longer term requirements of the business and with term loans and bank debt funding shorter term requirements for working capital. On 22 November 2018, we amended and extended our £700m RCF to 22 November 2023.

In order to preserve a resilient balance sheet, we maintain a modest average net cash position over the financial year and are cash positive at year end. As at 30 June 2019, the Group had a net cash balance of £765.7m (2018: £791.3m). We expect a net cash balance of around £450m - £500m at 30 June 2020, with the expected reduction from 30 June 2019 due to: an increase in corporation tax payable in the year of around £80m following changes in corporation tax payment dates announced by the Government in 2017 for all very large companies; additional land investment; and the reduction of land creditors as we move towards 25 - 30% of the owned land bank in line with our operating framework.

As at 30 June 2019 the Group had reduced land creditors to 31.3% (2018: 33.6%) of the owned land bank in line with guidance. Whilst we continue to seek to defer payment for some land purchases to drive a higher ROCE, we expect to reduce land creditors to our targeted level of 25 - 30% of the owned land bank in FY20. Our total gearing including land creditors has reduced from 28.8% at 30 June 2015 to 4.9% at 30 June 2019.

We continue to tightly control work in progress which has appropriately increased to £1,632.8m at 30 June 2019 (2018: £1,463.1m) reflecting an expected increase in volume delivery in the next six months, whilst maintaining our high standard of quality and service and recognising safety and health needs. It also reflects associated infrastructure requirements and an increase in owned show homes following our decision to cease our leaseback programme as one of our margin initiatives. Our ROCE has remained strong at 29.7% for the 12 months to 30 June 2019 (2018: 29.6%) as a result of our focus on delivery of progress on our medium term targets, maintaining an appropriate capital structure and focus on our operating framework. Our operating framework has remained consistent throughout the year and is as follows:

Net tangible assets were £3,960.8m (389 pence per share) (2018: £3,705.5m, 366 pence per share) of which land, net of land creditors, and work in progress totalled £3,743.7m (368 pence per share) (2018: £3,429.8m, 339 pence per share).

The key dimensions underpinning delivery of our strategy

Land and planning

In addition to stable market conditions during the year, our successful land investment strategy has helped to drive increased completion volumes and improvements in profitability.

The land market remained attractive throughout the year and we secured excellent opportunities that exceeded our minimum hurdle rates. In the year the Group approved £859.8m (2018: £933.9m) of operational land for purchase, which we expect to equate to 18,448 plots (2018: 20,951 plots). To support our volume growth aspirations we expect to approve between 18,000 - 22,000 plots in FY20. During the year, our cash expenditure on land was £941m (2018: £1,083m) and we expect to invest c.£1.1bn on land during FY20.

We continue to target a regionally balanced land portfolio with a supply of owned land of c.3.5 years and a further c.1.0 year of controlled land. Our target for a shorter than sector average land bank reflects our focus on ROCE and our fast build and sell model. Reflecting the excellent land opportunities we have seen over the year as well as our growth ambitions, at 30 June 2019 we were slightly above this target with a 4.7 years land supply, comprising 3.9 years owned land and 0.8 years of controlled land, with the owned land bank including land with both outline and detailed planning consents.

Our land bank at 30 June comprised:

At 30 June 2019, the ASP of plots in our owned land bank was £275k (2018: £270k), which is representative of our expected delivery in FY20. During the year 26% (2018: 27%) of our home completions were from strategically sourced land and we are on track to deliver our medium term target of 30% of completions from strategic land, which we believe is an appropriate level for our business. During the year, 7,915 plots (2018: 2,788 plots) of strategic land were converted to our owned land bank.

Following our success with planning over the past 12 months we are very well positioned, with all of our expected FY20 completions (2018: all of FY19 completions) having outline or detailed planning consent.

Improving efficiency and reducing costs

Improving the efficiency of our operations and controlling costs remains a key focus for the Group, as it will further enhance our margin and improve business resilience. We have launched our new cost effective housetype ranges and continue to seek ways to improve efficiencies and reduce costs across our business.

The new housetype ranges maintain our high standards of design whilst being faster to build, help us to reduce build cost and waste and are more suitable for MMC. We continue to roll out our new housing ranges across our regional business as our London business primarily builds apartments. This year we have delivered 6,024 completions (2018: 1,522 completions) from these ranges across the country. Over 70% of our outlets now have the new product ranges. We have made further refinements to our housing range in response to the changing costs of certain trades and materials, without affecting our quality or design standards. Our new housing ranges cover all segments of our market providing us with the flexibility to replan sites to suit market conditions and meet consumer demands should the need arise.

We have a robust and carefully managed supply chain with around 90% of housebuild materials sourced by our centralised procurement function being manufactured or assembled in the UK. We have fixed price agreements in place for all of these materials to December 2019 and 65% to June 2020.

We continue to see some pressure on skilled labour supply with shortages remaining location and trade specific. We are improving construction efficiency and reducing demand on labour through implementing the new housetype ranges, which are easier and quicker to build, and through the use of MMC such as timber frames, large format block and light gauge steel frames. We saw build cost inflation of 3% in the year and anticipate c. 3-4% inflation for FY20.

In FY20 we expect to receive both lower management fees from our joint ventures and less other income. Accordingly, despite carefully controlling our administrative cost base, with expected underlying inflation of c. 3%, we expect administrative expenses for FY20 to be around £195m.

Health and safety

A fundamental priority is to provide a safe working environment for all our employees and sub-contractors. We are committed to achieving the highest industry health and safety standard and the wellbeing of our people is paramount to us and everyone across our business is responsible for this. Increased activity levels across the industry in terms of site openings and production volumes combined with shortages of skilled staff has contributed to an increased risk of accidents on sites.

Whilst we recognise that entirely eradicating risk is a challenge, we have stringent standards and a continuous focus on health and safety throughout our business to seek to reduce the number of injuries occurring.

Following the Grenfell Tower tragedy, amendments to the Building Regulations and related guidance have been made. The Group carried out a review of all of its current and legacy buildings where it has used cladding. Approved Inspectors signed off all of our buildings, including the cladding used, as compliant with the relevant Building Regulations during construction and on completion.

However, in line with our commitment to put our customers first, we have incurred and accrued an additional £13.9m (including JVs) of costs for work involved in removing and replacing cladding where otherwise costs are likely to have fallen on leaseholders, many of whom bought their properties from us.

Further to continuing and evolving Government advice on the cladding of multi-storey buildings, we continue to work with building owners and management companies on assessment and review of buildings we have constructed.

We are signatories to the Building Safety Charter and active members of the Early Adopters Group, which is committed to supporting cultural change across the industry to ensure buildings are safe for those living and working in them, now and in the future.

Charitable giving

We are committed to creating a positive legacy in the communities in which we live and work and we aim to be industry leading in our approach to charitable giving and social responsibility. We believe it is important to support charitable causes locally and nationally and we actively promote charitable giving and volunteering amongst our employees. In March 2019, to mark our tenth year as a HBF 5 Star housebuilder, we announced a new £500,000 three-year partnership with St Mungo's to help improve the lives of those experiencing homelessness. This partnership builds on our work with the RBLI to help them build a Centenary Village to provide crucial housing support to ex-servicemen and women, and our long term commitment to the RSPB to improve the sustainability of our developments, enhancing and improving habitats and supporting wildlife.

Two of the Group's five principles are 'Building strong community relationships' and 'Being a trusted partner' and we are committed to partnering with local organisations to support and improve communities and leave a positive legacy in the areas in which we work. In January 2019, we launched the Barratt & David Wilson Community Fund through which each of our operating divisions and Group support functions give £1,000 a month to community groups and charities local to them or their sites.

The Community Fund operates in addition to the divisional charity matching that already takes place across the Group. Each of our operating divisions and Group support functions support local charities and the Group matches the funds raised by our employees. We recently announced that we will also start to match the money raised by individuals for the charities close to their hearts. We also encourage all of our employees to take paid time off work to volunteer in their local communities and ask them to consider using the Give As You Earn scheme.

The Barratt & David Wilson Community Fund is expected to donate around £1m to local charities and organisations over the next three years.

Sustainability

ESG issues are increasingly important to our stakeholders and we believe the right sustainability management approach will deliver sustainable value for them.

We aim to be the leading national sustainable housebuilder. With a commitment to sustainability throughout our business, we believe integrated thinking enables us to make better long term decisions. By focusing on the connection between social, environmental and economic value, we can create long term value for our stakeholders. Since our first sustainability strategy in 2015 we have aligned our organisation around ESG priorities. The Board has overall responsibility for our sustainability framework, with delivery delegated to the Executive Committee to ensure it is embedded into the business.

In 2016 we set out six sustainability issues that matter most to our business and our stakeholders, based on what they had told us. Targets, actions, metrics and accountabilities are assigned within our sustainability framework. Investor, community, local and national Government focus on ESG issues is continuing to accelerate, particularly in relation to climate change, biodiversity and waste. During the year we commissioned an independent consultant to conduct a full materiality assessment and we revised the issues that matter most to our business and stakeholders.

Additional areas we will be including in our future framework to reflect stakeholder views are: the mental health and wellbeing of our employees; diversity and inclusion performance targets; affordability; and an increasing focus on the lifetime environmental performance of the homes we build.

Based on our stakeholders' views we have adopted a number of the UN SDGs, after researching their relevance to the UK, our sector, and then specifically considering the linkage to the items that matter most to our stakeholders, and our priorities and principles. We describe this process and the seven UN SDGs that we have chosen within our Annual Report & Accounts, and we will report on our progress next year.

To date, we have made some good progress on our goals. Operational carbon emissions relative to build area have fallen by 3.1% during FY19, a 21.6% reduction since 2015. Nearly half of all of our electricity consumption has been matched by the purchase of renewable energy. We continue to work on our programme of improvements for waste intensity and although it increased during the year by 7.8% measured on housing completions and 3.4% measured on build activity including work in progress, we have made good progress since 2015 with a reduction of 7.9% overall.

Concerns over biodiversity loss and the impact poor ecology planning can have on our business have underpinned our drive to work closely with the Government and our partners on developing practical biodiversity net gain guidance. Over 65% (2018: 56%) of new developments have a biodiversity action plan.

We have shown our commitment to eradicating modern slavery and human trafficking in the supply chain by signing the Construction Protocol. This is championed by the Gangmasters Labour Abuse Authority. We will be working with them and our sector partners and the Supply Chain Sustainability School to improve knowledge and awareness of this with our suppliers and employees.

Capital Return Plan

We have a well-defined dividend policy, with the Group's paying an ordinary dividend cover of 2.5 times. We have previously announced that when market conditions allow, ordinary dividends will be supplemented with special returns and in February 2019 the Board proposed to extend the special return commitment and pay special returns of £175m in November 2019 and 2020. This is expected to total £2.1bn in respect of the five years ended FY20 based on current analyst estimates.

In September 2018, the Board introduced flexibility to the mechanism for delivering cash returns to shareholders to include share buybacks. Given no share buybacks were undertaken in the year ended 30 June 2019, the Board proposes to pay the £175m special return due in November 2019 by way of a special dividend of 17.3p per share. The special return proposed for November 2020, and any future special returns, may be made through share buybacks, special dividends or a combination of both. This recognises that at certain price points the Board believes that the Group is undervalued and share buybacks may be in the best interests of all shareholders.

A. All future ordinary and special returns are subject to shareholder approval

B. Comprises total dividend payments for FY16 - FY18

C. Based upon 30 June 2019 share capital of 1,016,985,862

D. Based upon 30 June 2019 shares for proposed payments of 1,010,813,607

E. Based on Reuters consensus estimates of earnings per share of 70.6 pence for FY20 as at 30 August 2019 and applying a 2.5 times dividend cover in line with the announced policy. 30 June share capital 1,016,985,862 less shares held by the EBT of 6,172,255 resulting in 1,010,813,607 shares for proposed payment calculation. This consensus estimate is provided for illustration purposes. No member of the Group nor any of their respective directors, officers or employees: (i) has commented on the consensus estimate, (ii) endorses the consensus estimate, or (iii) accepts any responsibility whatsoever for the accuracy of the consensus estimate and shall accordingly have no liability whatsoever in respect of the consensus estimate.

In accordance with this policy, the Board proposes to pay a final ordinary dividend of 19.5 pence (2018: 17.9 pence) per share for the financial year ended 30 June 2019, which subject to shareholder approval, will be paid on Tuesday 5 November 2019 to shareholders on the register at the close of business on Friday 11 October 2019. Together with the interim ordinary dividend of 9.6 pence per share (2018: 8.6 pence per share), which was paid in the year, this gives a total ordinary dividend for the year of 29.1 pence per share (2018: 26.5 pence per share). With basic earnings per share of 73.2 pence (2018: 66.5 pence) the ordinary dividend is therefore covered around 2.5 times by earnings, in line with our ordinary dividend policy.

Under the special cash payment programme the Board is also proposing a payment of £175m (17.3 pence per share), which subject to shareholder approval, will be paid by way of a special dividend on Tuesday 5 November 2019 to shareholders on the register at the close of business on Friday 11 October 2019.

Current trading and outlook

We remain focused on delivering our medium term targets of volume growth in wholly owned home completions of 3 - 5% per annum over the medium term, land acquisition at a minimum 23% gross margin, and a minimum 25% ROCE.

We have delivered a robust sales performance across the Group in the new financial year to date of 0.70 net private reservations per active outlet per average week (FY19: 0.75). As previously stated, last year we benefitted from reservations on two bespoke design and build arrangements, excluding these we delivered a net private reservations rate per active outlet per average week of 0.70, in line with this year.

Strong total forward sales1 as at 1 September 2019 of 12,911 homes (2 September 2018: 12,648 homes) at a value of £2,998.6m (2 September 2018: £3,054.0m).

Based on current market conditions, we expect to grow volume towards the lower end of our medium term target range in FY20, in line with current market expectations, whilst ensuring we maintain our industry leading standards of quality and service. The housing market fundamentals remain attractive, with a long term undersupply of new homes, strong Government support to the sector and a positive lending environment.

Whilst there is increased economic and political uncertainty, the Group is in a strong position. We recognise that the economic outlook will depend on the form of the UK's EU withdrawal in the medium term. We have a substantial net cash balance, a well-capitalised balance sheet, a healthy forward sales position, a continued focus on delivery of operational improvements across our business and an ongoing commitment to deliver high quality homes across the country. The Board will continue to monitor the market and economy and believes that our strong financial position provides us with the resilience and flexibility to react to potential changes in the operating environment in FY20 and beyond.

David Thomas

Chief Executive

3 September 2019

1. Including JVs in which the Group has an interest

2. MHCLG, Help to Buy (Equity Loan Scheme) Data to 31 March 2019, England, July 2019

Consolidated Income Statement

Year ended 30 June 2019

1 The Group has applied IFRS 15 using the cumulative effect method. Comparatives have not been restated in respect of the adoption of IFRS 15 or IFRS 9. Further information on the initial application of these standards can be found in notes 1.4 and 1.5.

Consolidated Statement of Comprehensive Income

Year ended 30 June 2019

1 The Group has applied IFRS 15 using the cumulative effect method. Comparatives have not been restated in respect of the adoption of IFRS 15 or IFRS 9. Further information on the initial application of these standards can be found in notes 1.4 and 1.5.

Group Statement of Changes in Shareholders' Equity

1 The Group has applied IFRS 15 using the cumulative effect method. Comparatives have not been restated in respect of the adoption of IFRS 15 or IFRS 9. Further information on the initial application of these standards can be found in notes 1.4 and 1.5.

Group Balance Sheet

At 30 June 2019

1 The Group has applied IFRS 15 using the cumulative effect method. Comparatives have not been restated in respect of the adoption of IFRS 15 or IFRS 9. Further information on the initial application of these standards can be found in notes 1.4 and 1.5.

Group Cash Flow Statement

Year ended 30 June 2019

1 The Group has applied IFRS 15 using the cumulative effect method. Comparatives have not been restated in respect of the adoption of IFRS 15 or IFRS 9. Further information on the initial application of these standards can be found in notes 1.4 and 1.5.

2 The Balance Sheet movements in land and certain interest free loans include non-cash movements due to imputed interest. Imputed interest is therefore included within non-cash items in the statement above.

1.1 Cautionary statement

The Chairman's Statement and Chief Executive's Statement commentary contained in this Annual Results Announcement, including the principal risks and uncertainties (note 7.4), have been prepared by the Directors in good faith based on the information available to them up to the time of their approval of this report solely for the Company's shareholders as a body, so as to assist them in assessing the Group's strategies and the potential for those strategies to succeed and accordingly should not be relied on by any other party or for any other purpose and the Company hereby disclaims any liability to any such other party or for reliance on such information for any such other purpose.

This Annual Results Announcement has been prepared in respect of the Group as a whole and accordingly matters identified as being significant or material are so identified in the context of Barratt Developments PLC and its subsidiary undertakings in the consolidation taken as a whole.

1.2 Basis of preparation

Whilst the financial information included in this Annual Results Announcement has been prepared in accordance with IFRS as issued by the IASB, IFRIC interpretations and SIC interpretations as adopted and endorsed by the EU, this announcement does not itself contain sufficient information to comply with IFRS. Full Financial Statements that comply with IFRS are included in the 2019 Annual Report and Accounts which will be circulated to shareholders in September 2019 and made available at www.barrattdevelopments.co.uk at that point.

The accounting policies adopted are consistent with those followed in the preparation of the Group's 2019 Annual Report and Accounts which have not changed from those adopted in the Group's 2018 Annual Report and Accounts except as disclosed in note 1.4.

This Annual Results Announcement has been prepared under the historical cost convention as modified by the revaluation of secured loans and share-based payments.

Critical accounting judgements and key sources of estimation uncertainty

The preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Financial Statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on the Directors' best knowledge of the amounts, actual results may ultimately differ from those estimates. The Directors have made no individual critical accounting judgements that have a significant impact upon the Financial Statements, apart from those involving estimations.

The most significant estimates made by the Directors in these condensed consolidated financial statements are:

·; Margin recognition - see section 2

·; Impairment of goodwill and indefinite life brands - see note 4.2.1

1.3 Going concern

In determining the appropriate basis of preparation of the condensed consolidated financial statements, the Directors are required to consider whether the Group can continue in operational existence for the foreseeable future.

The Group's business activities, together with factors which the Directors consider are likely to affect its future development, financial performance and financial position are set out in the Chief Executive's statement. The material financial and operational risks and uncertainties that may have an impact upon the Group's performance and their mitigation are outlined in note 7.4 and financial risks including liquidity risk, market risk, credit risk and capital risk are outlined in note 5.3 to these condensed consolidated financial statements.

The financial performance of the Group is dependent upon the wider economic environment in which the Group operates. As explained in the Risk management section in note 7.4, factors that particularly affect the performance of the Group include changes in the UK and European macroeconomic environments, including but not limited to, the impact of the UK's forthcoming exit from the EU and any change or removal of the Government's Help to Buy scheme, flat or negative economic growth, inflation, interest rates, buyer confidence, mortgage availability, competitor pricing and falls in house prices or land values. In forming their conclusion, the Directors have considered all currently available information about the potential future outcomes of events and changes in conditions that are reasonably possible at the time of making this statement. In doing this they have concluded that no material uncertainties exist.

At 30 June 2019 the Group had total committed facilities and private placement notes of £900.0m. The £700.0m RCF matures in November 2023 and the £200.0m sterling USPP notes mature in August 2027. The RCF and USPP notes provide appropriate headroom above our current forecast debt requirements.

Accordingly, after making enquiries and having considered forecasts and appropriate sensitivities, the Directors have formed a judgement, at the time of approving the condensed consolidated financial statements, that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, being at least 12 months from the date of these condensed consolidated financial statements. For this reason, they continue to adopt the going concern basis in the preparation of these condensed consolidated financial statements.

1.4 Adoption of new and revised standards

During the year ended 30 June 2019 the Group has adopted the following new and revised standards:

·; IFRS 15 'Revenue from Contracts with Customers':

This standard became effective for accounting periods beginning on or after 1 January 2018 and was applicable to the Group from 1 July 2018, replacing IAS 18 'Revenue', IAS 11 'Construction contracts' and related interpretations. The standard sets out requirements for revenue recognition from contracts with customers. The standard requires that revenue to which the Group expects to be entitled from a contract with a customer is allocated to each performance obligation within that contract and then recognised as that obligation is satisfied.

The Group has applied IFRS 15 using the cumulative effect method and therefore comparative information has not been restated.

The Group's revenue derives principally from the sale of the homes we build and from the sale of commercial property. Revenue is normally recognised at legal completion. For certain contracts with registered providers, or other customers, revenue is recognised over time. The point of recognition of the main revenue streams is unchanged following adoption of the new standard; however, the recognition of a number of associated income streams has been adjusted.

Warranty

The Group previously offered a five-year warranty on sales of private homes. Under previous standards, no adjustment was made to revenue to reflect this warranty when the property was sold, although an allowance for future costs associated with the warranty was held within the Balance Sheet. An element of this warranty represents a separate performance obligation. On transition to IFRS 15, an element of the sales price of homes previously sold with this warranty has been deferred and will be recognised over the warranty period in the Income Statement, with the majority of this revenue and cost of sales recognised by the end of FY20. Opening reserves have been reduced by £3.4m on transition as a result of this adjustment, and an additional £10.0m of revenue offset by £8.0m cost of sales has been recognised in the year.

Part-exchange transactions

The standard has also required presentational changes to our Income Statement to include part-exchange income and expenses below gross margin. Previously, the income and costs were recognised on a net basis within cost of sales since part-exchange transactions were treated as linked with the sale of new builds. Under IFRS 15 this is a separate transaction, but is not considered to be a principal activity of the Group and is therefore reclassified to sundry income, within administrative expenses, rather than revenue. Gross profit in the year has been reduced by £3.2m as a result of this adjustment.

Introductory and contract management fees

Under the new standard, introductory and other fees payable to customers in exchange for services are recognised in cost of sales. Previously these were deducted from revenue. Management fees on commercial projects are recognised in revenue rather than other income within administrative expenses. As a result, an extra £2.7m of revenue has been recognised in the year, offset in cost of sales and administration expenses.

The impact of these changes on revenue and profits is shown below, and a summary of the impact of the adoption of IFRS 15 on the condensed consolidated financial statements is included in note 1.5.

·; IFRS 9 'Financial Instruments':

This standard became effective for accounting periods beginning on or after 1 January 2018 and was applicable to the Group from 1 July 2018 replacing IAS 39 'Financial Instruments: Recognition and Measurement'. IFRS 9 introduced new requirements for the classification and measurement of financial instruments, impairment of financial assets and hedge accounting.

The changes resulting from the adoption of IFRS 9 are discussed below, and the impact on the condensed consolidated financial statements which is not material are summarised in note 1.5.

Classification and measurement of financial assets

Under IFRS 9 the Group's remaining secured loans, previously classified as available for sale assets under IAS 39, were reclassified as Fair Value through Profit and Loss and as a result future changes in fair value will be posted to the Income Statement rather than in other comprehensive income. No adjustments were required in respect of amounts previously dealt with in other comprehensive income, since following the sale of the majority of the Group's available for sale assets in February 2016, fair value adjustments previously held in equity were realised and transferred to the Income Statement.

Impairment of financial assets

The impairment requirements of IFRS 9 have required the Group to consider the expected credit losses for financial assets held at the reporting date. The Directors have reviewed the Group's financial assets and assessed the credit risk of each category of asset and concluded that there is no material impact on the Group's Financial Statements. The main financial assets of the Group are cash and cash equivalents which are placed on deposit with a number of financial institutions, and are assessed to have a low credit risk. Trade and other receivables include amounts due from Homes England in respect of the Help to Buy scheme which are also assessed as low risk, together with other receivables.

Classification and measurement of financial liabilities

All of the Group's financial liabilities are held at amortised cost. Under IFRS 9 a renegotiated land creditor arrangement has been deemed a modification resulting in a reduction in opening reserves of £1.1m and a reduction in finance costs of £0.2m in the current year.

Hedge accounting

The Group currently has no qualifying hedge relationships under IFRS 9 or IAS 39.

There has been no impact on the Financial Statements as a result of:

·; Amendments to IFRS 2 'Classification and Measurement of Share-based Payment Transactions';

·; Amendments to IAS 40 'Transfers of Investment Property';

·; IFRIC Interpretation 22 'Foreign Currency Transactions and Advance Consideration'; and

·; Annual Improvements to IFRS Standards 2014-2016 Cycle.

1.5 Impact of changes in accounting policies

The Group has applied IFRS 15 using the cumulative effect method. Comparatives have not been restated in respect of the adoption of IFRS 15 or IFRS 9. The tables below summarise the impact of the changes in accounting policies on the Income Statement, Balance Sheet and Cash Flow Statement of the Group.

Margin recognition - In order to determine the profit that the Group is able to recognise on its developments in a specific period, the Group has to allocate site-wide development costs between homes built in the current year and in future years. It also has to estimate costs to complete on such developments and make estimates relating to future sales price margins on those developments and homes. In making these assessments there is a degree of inherent uncertainty. The Group has developed internal controls to assess and review carrying values and the appropriateness of estimates made.

Management have performed a sensitivity analysis to assess the impact of a change in estimated costs for developments on which sales were recognised in the year. A 1% increase in estimated costs recognised in the year, which is considered to be reasonably possible, would reduce the Group's gross margin by 60bps.

2.1 Segmental analysis

The Group consists of two separate segments for management reporting and control purposes, being housebuilding and commercial developments. The segments are considered appropriate for reporting under IFRS 8 'Operating Segments' since these segments are regularly reviewed internally by the Board without further significant categorisation. The Group presents its primary segment information on the basis of these operating segments. As the Group operates in a single geographic market, Great Britain, no secondary segmentation is provided.

1 The Group has applied IFRS 15 using the cumulative effect method. Comparatives have not been restated in respect of the adoption of IFRS 15 or IFRS 9. Further information on the initial application of these standards can be found in notes 1.4 and 1.5.

2 Residential completions exclude JV completions of 745 (2018: 899) in which the Group has an interest.

3 During the year charges of £6.9m were recognised in respect of costs associated with legacy properties (2018: £4.0m). An amount of £3.7m was released following the disposal of a legacy commercial asset (2018: £3.0m provided in respect of costs associated with legacy commercial assets). During the year a charge of £7.0m (2018: £nil) was recognised in respect of costs associated with JV legacy properties. These amounts have been separately disclosed in the Income Statement.

 1 The Group has applied IFRS 15 using the cumulative effect method. Comparatives have not been restated in respect of the adoption of IFRS 15 or IFRS 9. Further information on the initial application of these standards can be found in notes 1.4 and 1.5.

2.2 Earnings per share

The earnings per share from continuing operations were as follows:

1 The Group has applied IFRS 15 using the cumulative effect method. Comparatives have not been restated in respect of the adoption of IFRS 15 or IFRS 9. Further information on the initial application of these standards can be found in notes 1.4 and 1.5.

Basic earnings per share is calculated by dividing the profit for the year attributable to ordinary shareholders of the Parent Company by the weighted average number of ordinary shares in issue during the year, excluding those held by the Employee Benefit Trust that do not attract dividend equivalents which are treated as cancelled.

Diluted earnings per share is calculated by dividing the profit for the year attributable to ordinary shareholders of the Parent Company by the weighted average number of ordinary shares in issue adjusted to assume conversion of all potentially dilutive share options from the start of the year. 

1 The Group has applied IFRS 15 using the cumulative effect method. Comparatives have not been restated in respect of the adoption of IFRS 15 or IFRS 9. Further information on the initial application of these standards can be found in notes 1.4 and 1.5.

2.3 Dividends

The proposed final dividend and the special dividend are subject to approval by shareholders at the Annual General Meeting. The cost has been calculated based on the eligible issued share capital at 30 June 2019 and has not been included as a liability at 30 June 2019.

2.4 Tax

All profits of the Group are subject to UK corporation tax.

The current year tax charge has been provided for, by the Group, at a standard effective rate of 19.0% (2018: 19.0%) and the closing deferred tax assets and liabilities have been provided in these condensed consolidated financial statements at a rate of between 17.0% and 19.0% (2018: between 17.0% and 19.0%) of the temporary differences giving rise to these assets and liabilities, dependent upon when they are expected to reverse.

2.4.1 Tax recognised in the Income Statement

The tax expense represents the sum of the tax currently payable and deferred tax.

Analysis of the tax charge for the year

Factors affecting the tax charge for the year

The tax rate assessed for the year is lower (2018: higher) than the standard effective rate of corporation tax in the UK of 19.0% (2018: 19.0%). The differences are explained below:

2.4.2 Tax recognised in equity

In addition to the amount charged to the Consolidated Income Statement, a net current and deferred tax credit of £4.5m (2018: £5.1m charge) was recognised directly in equity.

3.1 Inventories

3.1.1 Nature and carrying value of inventories

The Group's principal activities are housebuilding and commercial development. The majority of the development activity is not contracted prior to the development commencing. Accordingly, the Group has in its Balance Sheet at 30 June 2019 current assets that are not covered by a forward sale. The Group's internal controls are designed to identify any developments where the balance sheet value of land and work in progress is more than the projected lower of cost or net realisable value. During the year the Group has conducted six-monthly reviews of the net realisable value of specific sites identified as at high risk of impairment, based upon a number of criteria including low site profit margins and sites with no forecast completions. Where the estimated net realisable value of a site was less than its current carrying value the Group has impaired the land and work in progress value.

During the year, due to performance variations, changes in assumptions and changes to viability on individual sites, there were gross impairment charges of £5.5m (2018: £13.2m) and gross impairment reversals of £20.3m (2018: £9.9m), resulting in a net impairment reversal of £14.8m (2018: £3.3m charge) included within profit from operations.

The key estimates in these reviews are those used to estimate the realisable value of a site, which is determined by forecast sales rates, expected sales prices and estimated costs to complete.

The Directors consider all inventories to be essentially current in nature, although the Group's operational cycle is such that a proportion of inventories will not be realised within 12 months. It is not possible to determine with accuracy when specific inventory will be realised as this will be subject to a number of variables such as consumer demand and planning permission delays.

3.1.2 Expensed inventories

The value of inventories expensed in the year ended 30 June 2018 and included in cost of sales was £3,502.7m (2018: £3,619.7m).

4.1 Business combinations

4.1.1 Non-controlling interests

4.1.2 Disposal of Group subsidiary undertakings

On 16 March 2019 the Group disposed of the entire share capital of its wholly owned subsidiary Barratt Residential Asset Management Limited ('BRAM') for a total consideration, received in cash, of £5.25m. The gain recognised by the Group on disposal and included within administrative expenses was £0.6m.

On 29 June 2019 the Group disposed of its subsidiary Barratt London Investments Limited ('BLIL') including the Group's 50% interests in Aldgate Place (GP) Limited, The Aldgate Place Limited Partnership, Aldgate Land One Limited and Aldgate Land Two Limited which were held by that company. The Group received cash consideration of £18.6m for the net assets of BLIL (being its investments in its JVs), recognising a £1.7m loss on disposal.

Financial information relating to these subsidiaries for the period from 1 July 2018 to their disposal, which is consolidated within these condensed consolidated financial statements, is set out below:

4.1.3 Group acquisition of subsidiary undertakings

On 27 June 2019 the Group acquired 100% of the share capital of Oregon Timber Frame Limited, which owns 100% of the share capital of Oregon Contract Management Limited. Oregon was established in 1998 and is one of the UK's largest timber frame manufacturers. It specialises in the manufacture and erection of high quality timber frame superstructures. Further details on the strategic rationale for the acquisition are included in the Strategic report in the Annual Report and Accounts.

Details of the purchase consideration, net assets acquired and the resulting goodwill are as follows:

The assets and liabilities acquired have been recognised at their acquisition-date fair values. The fair value of trade and other receivables is equal to the gross contractual amounts receivable.

Goodwill arises as a result of operational synergies between Oregon and the Group's existing housebuilding segment.

No revenue or profit contribution is recognised in the Consolidated Income Statement in respect of Oregon. If the acquisition had occurred on 1 July 2018, consolidated pro-forma revenue and profit for the year ended 30 June 2019, based on Oregon's results for the year adjusted for intercompany transactions and differences in accounting policies, would have been £4,788.8m and £740.5m respectively. Acquisition costs of £0.9m are included in administrative expenses in the Consolidated Income Statement and in operating cash flows in the Cash Flow Statement.

The Group's cash outflow in respect of the acquisition is as follows:

There were no acquisitions in the year ended 30 June 2018.

4.2 Goodwill

During the year the Group acquired all of the share capital of Oregon Timber Frame Limited (note 4.1.3). Goodwill arising on the acquisition of £13.7m has been capitalised and allocated to the Group's housebuilding segment.

The Group's goodwill relating to the acquisition of Wilson Bowden Limited in 2007 has a carrying value of £792.2m relating to the housebuilding segment. The goodwill relating to the commercial developments segment, with a cost of £24.5m, was fully impaired in the year ended 30 June 2008.

4.2.1 Impairment of goodwill and indefinite life brands

The Group conducts an annual impairment review of goodwill and indefinite life brands together for the housebuilding segment.

Impairment of goodwill and indefinite life brands - The impairment review for the goodwill of the housebuilding business and the Group's indefinite life brand, David Wilson Homes, requires an estimation of the value-in-use of the housebuilding segment. The value-in-use calculation requires an estimate of the future cash flows expected from the housebuilding business, including the anticipated growth rate of revenue and costs, and requires the determination of a suitable discount rate to calculate the present value of the cash flows. The discount rate used is based on the target capital structure, current market assessments of the time value of money and risks appropriate to the Group's housebuilding business. Changes in these may impact upon the Group's discount rate in future periods. The sensitivity of the valuation of goodwill and brands to changes in expectations is set out in this note.

An impairment review was performed at 30 June 2019 and compared the value-in-use of the housebuilding segment with the carrying value of its tangible and intangible assets and allocated goodwill.

The value-in-use was determined by discounting the expected future cash flows of the housebuilding segment. The first two years of cash flows were determined using the Group's approved detailed site-by-site business plan. The cash flows for the third to the fifth years were determined using Group level internal forecast cash flows based upon expected volumes, selling prices and margins, taking into account available land purchases and work-in-progress levels. The cash flows for year six onwards were extrapolated in perpetuity using an estimated growth rate of 1%, which was based upon the historical long term growth rate of the UK economy.

The key assumptions for the value-in-use calculations were:

·; Discount rate: this is a pre-tax rate reflecting current market assessments of the time value of money and risks appropriate to the Group's housebuilding business. Accordingly, the rate of 15.2% (2018: 14.5%) is considered by the Directors to be the appropriate pre-tax risk adjusted discount rate, being the Group's estimated long term pre-tax weighted average cost of capital.

·; Expected changes in selling prices for completed houses and the related impact on operating margin: these are determined on a site-by-site basis for the first two years dependent upon local market conditions and product type. For years three to five, these have been estimated at a Group level based upon past experience and expectations of future changes in the market, taking into account external market forecasts.

·; Sales volumes: these are determined on a site-by-site basis for the first two years dependent upon local market conditions, land availability and planning permissions. For years three to five, these have been estimated at a Group level based upon past experience and expectations of future changes in the market, taking into account external market forecasts.

·; Expected changes in site costs to complete: these are determined on a site-by-site basis for the first two years dependent upon the expected costs of completing all aspects of each individual development. For years three to five, these have been estimated at a Group level based upon past experience and expectations of future changes in the market, taking into account external market forecasts.

The result of the value-in-use exercise concluded that the recoverable value of goodwill and intangible assets exceeded its carrying value by £2,095.6m (2018: £1,731.4m) and there has been no impairment.

Management have performed a sensitivity analysis in assessing recoverable amounts of goodwill, based on changes in key assumptions considered to be possible. A 5% fall in sales volumes would reduce the headroom over carrying value by £408.7m and no impairment would arise.

5.1 Net cash

Net cash is defined as cash and cash equivalents, bank overdrafts, interest bearing borrowings, prepaid fees and foreign exchange swaps.

Net cash at 30 June is shown below: