AGM Trading and Integration Update
Barratt Redrow plc (the ‘Group’) is pleased to announce its first trading update as a combined Group for the period from 1 July 2024 to 13 October 2024 (the ‘period’).
David Thomas, Chief Executive commented:
“Whilst customer demand continues to be sensitive to the wider economy, we are beginning to see more stable market conditions with increased mortgage availability and affordability. It will take some time for customer confidence to fully recover from the macroeconomic headwinds faced over the past two years, but we are encouraged by the solid trading we have experienced over recent weeks.
This is an exciting new chapter for our business. Barratt Redrow is uniquely well-positioned to meet the need for new homes of all tenures across the country. We have superior scale, with a differentiated multi brand offering that can be deployed across our strong combined land portfolio. We begin this journey with a strong balance sheet, a solid forward sales position and the ability to add significant value through cost and revenue synergies. We look forward with confidence to delivering a smooth and efficient integration process, and to capturing the enhanced growth opportunities ahead of us.”
Highlights:
- Acquisition of Redrow plc completed on 21 August 2024, with final Competition and Markets Authority (‘CMA’) clearance received on 4 October 2024.
- Integration under way to deliver: at least £90m of cost synergies, and revenue synergies from 45 incremental sales outlet openings through until FY28.
- Optimisation of the divisional office network under way, with collective consultation on five potential divisional closures announced on 21 October 2024.
- Barratt Redrow private reservation rate from 22 August to 13 October of 0.67, 36.7% ahead of the pro-forma equivalent in FY24 of 0.49.
- Barratt standalone private reservation rate from 1 July to 13 October up 31.9% to 0.62 (FY24: 0.47).
- Reflecting unchanged guidance on the standalone Barratt operations and the inclusion of Redrow’s order book and performance from 22 August 2024, total home completions for Barratt Redrow are expected to be between 16,600 and 17,200 for FY25.
- Matthew Pratt, Geeta Nanda and Nicky Dulieu welcomed to the Barratt Redrow plc Board.
Overview
Reflecting legal completion of the acquisition of Redrow plc on 21 August 2024, this update includes trading data for Barratt Redrow plc (“Barratt Redrow”) from 22 August 2024 to 13 October 2024 and the standalone performance of Barratt Developments PLC (“Barratt”) and Redrow plc (“Redrow”) for the period from 1 July to 13 October 2024. All comparatives are based on the equivalent trading period1 (‘FY24’) unless otherwise stated.
Rationale for the acquisition
The acquisition will:
- Help us to address the country’s housing shortage by creating an exceptional homebuilder in terms of development pace, build quality, customer service and sustainability.
- Deliver revenue synergies by accelerating homebuilding through our scale, geographic coverage and three national high quality, distinct and complementary brands, and in doing so improve asset turn.
- Deliver significant cost synergies rapidly and efficiently.
- Allow the enlarged Group to maintain a robust balance sheet, better protected to operate through the cycle, providing a strong platform from which to deliver improved shareholder returns.
- Deliver significant benefits for our wider stakeholders including our highly skilled and dedicated employees, our sub-contractors, our suppliers and most importantly our customers who will have access to more homes across a broader product range and at more price points.
Revenue synergies and growth
The acquisition of Redrow gives us clear opportunities to deliver more homes with greater customer choice over the years ahead. With our ambition to return to 22,000 total home completions in the medium term, increasing revenue is a key operational driver for the Group. The acquisition creates clear opportunities through:
- The geographic expansion of the Redrow brand and house type range into new regions to meet local market demand by leveraging the existing Barratt divisional network; and,
- The deployment of the Redrow brand onto suitable Barratt development sites, as well as the Barratt Homes and David Wilson Homes brands onto Redrow sites, creating opportunities for dual or triple branded sites.
Expansion through dual and triple branding gives us the opportunity to create c. 45 incremental sales outlets by FY28, with around 30 delivered by FY27.
With our portfolio of three differentiated brands outside London, Barratt Redrow will be well placed to acquire larger development sites and develop them more quickly through the creation of incremental sales outlets.
Together, these opportunities give us the ability to optimise housing mix, price points and customer choice, as well as controlling the delivery of community facilities, sustainability and biodiversity requirements of these larger developments.
Cost synergies
Following the receipt of CMA clearance on 4 October 2024, (and the lifting of restrictions on our ability to undertake any integration activity), we have begun the integration of the two businesses at pace. As a result of our planning to date, we are confident that we can deliver cost synergies of at least £90m, as reported in February 2024. Cost synergies will be delivered from three principal sources:
- Procurement related savings targeted at £34m or 38% of the £90m target. Synergies will be centred on optimising procurement for Redrow’s business, whilst working with our supply chain partners to unlock additional procurement savings.
- Optimisation of our divisional office structure targeted at £33m or 37% of the £90m target, which is anticipated to result in the closure of nine divisional offices across the country with our activities re-aligned across 32 divisions (see below).
- Consolidation of duplicated central and support functions targeted at £23m or 25% of the £90m target which will include the rationalisation of Board positions, senior management as well as PLC and other third-party related costs.
We have identified run rate synergies post CMA clearance, from 4 October 2024, of at least £45m at the end of the first year, with at least £81m secured by the end of the second year and with the balance in the third year through to 3 October 2027.
The timing of synergies recognised in the Barratt Redrow plc income statement will reflect:
- Existing supplier contract arrangements and the migration to negotiated new terms agreed with suppliers over the coming quarters; and
- Employee consultation requirements as we rationalise the divisional office network.
