Berkeley bounces back from Brexit uncertainty

The FTSE 100 firm said it entered 2016/17 with record cash due on forward sales of £3.25bn and future estimated land bank gross margin of £6.15bn, respectively.

“This is a consequence of Berkeley operating its added value strategy which manages risk through the cycle,” the board said in the statement.

The forward sales provide good visibility over the next two years, it said, and Berkeley reiterated its guidance for the delivery of £2.0bn of pre-tax profit over the three year period ending on 30 April 2018, having delivered the first £0.5bn of this in the year ended 30 April 2016.

“This visibility of cash flow and earnings also underpins the company's dividend plan, of which the next £1.00 interim dividend per share is payable to shareholders on 15 September, bringing the total returns paid to shareholders since 2011 to £6.34, with a further £10 per share to be paid evenly over the remaining 5 years to September 2021.

“Following the dividend payment and taking into account the £20m spent on acquiring the company's shares on 24 June, Berkeley expects to remain ungeared at the 31 October half year, with the actual level of cash dependent on the extent and timing of land and build investment,” the board explained.

Berkeley reported in its full year results in June that reservations were some 20% lower in the first five calendar months of the year, compared to the same period in 2015, as customers adjusted to higher property taxes and the uncertainty surrounding the UK referendum on the European Union, with Berkeley deferring the release of new product to the market.

After a hiatus either side of the referendum, the market in August - traditionally a quiet month - has returned to the relative levels reported for the first five months of the year; approximately 20% down on August 2015, which the company said reflected the lower levels of available product, as well as the broader market conditions.

“Importantly, throughout 2016, site visitor numbers and enquiries have been at similar levels to the same period last year demonstrating the strength of underlying demand, although customers are taking longer to commit.

“Pricing has remained resilient and above business plan levels with reservation cancellation rates at normal levels, following a temporary and expected increase after the UK referendum result.”

Berkeley said its focus is on delivering the high quality homes and places for customers during the current financial year and 2017/18, whilst closely matching its capital investment into new phases and developments to the market demand for delivery from 2018/19 onwards.

“Berkeley has been selective in the land market, acquiring just two sites in the period, both unconditionally, with planning advanced on a number of existing sites.”

The board did assert that government policy has been helpful outside London, but has had a negative effect on the capital.

“Transaction taxes are now too high and this is restricting both mobility in the second hand market and the pace of supply and delivery of new homes in London and the South East.

“There is also a tension between the national policy on starter homes and the London Mayor's ambition to build more affordable housing, while the very high rates of the Community Infrastructure Levy adopted by local authorities now pose a significant threat to development viability,” the management statement read.

It said while the challenges persist, and the barriers to entry for small builders remain high, London will fall well short of its targets for new homes.

“This is not just a problem for business and ordinary people in the capital but for the country as a whole - London is the engine of our national economy and the principal driver of fiscal revenues.

“So this is not just a question of housing Londoners … it poses a risk to deficit reduction and the prosperity of the whole country.”

Berkeley pointed to its “strong balance sheet, forward sales, high quality land bank and leading brand and customer service” in claiming it is well positioned to deliver its earnings and dividend guidance and optimise shareholder returns in the current market conditions, whilst retaining sufficient capital to be flexible should “suitable new investment opportunities” arise.