ANNUAL REPORT 2014 BERKELEY ANNUAL REPORT 2014 BERKELEY ANNUAL REPORT 2014 STRATEGIC REPORT STRATEGIC ABOUT THIS REPORT STRATEGIC REPORT FINANCIALS Welcome to the Annual Report of The Berkeley Business model 4 Independent Auditors’ report on the Group Holdings plc (“the Berkeley Group” or Performance highlights 5 consolidated financial statements 86 THE BERKELEY “Berkeley”), a publicly owned company, listed Chairman’s statement 6 Consolidated income statement 89 on the London Stock Exchange within the FTSE Managing Director’s statement 7 Consolidated statement of 250. The Strategic Report explains Berkeley’s What we do 10 comprehensive income 89 strategy, business model, performance and Where we operate 16 Consolidated statement of GROUP outlook. The Governance section covers the How we operate: managing risk 20 financial position 90 role and activities of the Board in running the How we operate: Our Vision 27 Consolidated statement of business and their remuneration. The detailed Trading and financial review and outlook 38 changes in equity 91 Financials, accompanied by a report from the Consolidated cash flow statement 92 Group’s auditors, complete the Annual Report. GOVERNANCE Notes to the consolidated financial statements 93 Berkeley builds homes and neighbourhoods Board of Directors 48 Company balance sheet 115 Corporate governance report 50 Notes to the Company in its core markets of London and the Audit Committee report 54 financial statements 116 Directors’ remuneration report 56 Five year summary and definitions 120 South of England. Its knowledge, expertise Directors’ report 81 Shareholder information 121 and proven track record, with over thirty years of experience in this market, gives it an unrivalled ability to deliver new homes and communities. Berkeley will continue to forward sell its developments wherever possible, maintaining a strong balance sheet and keeping financial risk low in order to mitigate the operating risks of delivery. It will carefully allocate capital to the right projects at the right time, matching supply to demand wherever it can. The Berkeley Group is honoured this year to have been awarded the UK’s highest accolade for business success – the Queen’s Award for Sustainable Development 2014. This is the second time the group has been recognised having previously won the award in 2008, the first housebuilder to have achieved this. Proud to be a member of the Berkeley Group of Companies THE CORNICHE, ALBERT EMBANKMENT (COMPUTER GENERATED IMAGE) COVER: EMERALD SQUARE, ROEHAMPTON 01 BERKELEY ANNUAL REPORT 2014 / STRATEGIC REPORT BERKELEY ANNUAL REPORT 2014 / STRATEGIC REPORT STRATEGIC REPORT STRATEGIC STRATEGIC REPORT LONG-TERM THINKING AT THE HEART OF OUR SUCCESS ROYAL ARSENAL RIVERSIDE (COMPUTER GENERATED IMAGE) Image shown is computer generated and indicative only. 02 03 BERKELEY ANNUAL REPORT 2014 / STRATEGIC REPORT BERKELEY ANNUAL REPORT 2014 / STRATEGIC REPORT STRATEGIC REPORT STRATEGIC BUSINESS MODEL 2014 PERFORMANCE HIGHLIGHTS The Berkeley Group builds homes and neighbourhoods. Berkeley has committed to return £13 per share to shareholders by September 2021. 164 pence per share (£215 million) has already been paid, We seek to create beautiful, successful places. These places range in size from a few a further 90 pence per share (£122 million) has been declared for payment homes in market towns to complex, mixed-use urban regeneration schemes of in September 2014, leaving 180 pence per share (£243 million) to return over 4,000 homes all built with safety, sustainability and quality at their heart. by the first milestone of 434 pence by September 2015. Berkeley aims to run the business for long-term success. Its strategy rests on five key principles, with four clear outputs: STRATEGY PERFORMANCE CYCLICAL MARKET KNOWING OUR MARKET SOUND FINANCIALS We recognise that the property We operate in London and the South Weaimtokeepfinancialrisklow,by PROFIT BEFORE TAX EARNINGS PER SHARE market is inherently cyclical. of England, markets that we know and maintaining a strong balance sheet, understand. Given the importance of forward selling new homes where UNDERSTANDING RISK relationships and local knowledge we possible and carefully allocating funds Weunderstandthattherearesignificant believe that this gives us a competitive to the right projects at the right time. operational risks in successfully identifying, million pence advantage and enables us to deliver new £380.0 221.8 designing, building and selling homes places which are socially, environmentally AUTONOMY 2010 £110.3m 2010 60.0p and creating new places. We have recognised brands and and economically successful. 2011 £136.2m 2011 72.1p autonomous operational teams who carefully 2012 £214.8m 2012 121.0p manage each individual scheme, regardless 2013 £270.7m 2013 160.0p of size, to a bespoke design, and embrace 2014 £380.0m 2014 221.8p Berkeley’s core values in their approach. RETURN ON EQUITY NET ASSET VALUE PER SHARE OUR VISION “Our Vision” is Berkeley’s framework designed to implement this strategy and help all of our people contribute to the success of the business by giving them a clear set of commitments in every area of the business. 27.5% 1,066 pence This is explained in more detail on pages 27 to 37 of the Strategic Report. 2010 13.3% 2010 637p 2011 15.3% 2011 709p 2012 21.2% 2012 839p 2013 22.4% 2013 1,009p 2014 27.5% 2014 1,066p OUTPUTS OUTLOOK SHAREHOLDERS SOCIETY PEOPLE PLACES CASH DUE ON FORWARD SALES GROSS MARGIN IN LAND HOLDINGS We have a clear plan to return We are building new homes Our approach creates We aim to deliver sustainable £13 per share (over £1.7 billion) by to help the country meet the jobsinouroffices,onour communities which endure 2021 and to retain a successful, housing shortfall and creating developments and in our long after our work is complete, sustainable business thereafter. places characterised by the supply chain, some 4.5 for and our engagement with local Our 2014 Performance quality of their design, public every new home built. We have people through the Berkeley £2,274 million £3,014 million Highlights opposite show that realm, transport and access engaged a loyal and dedicated Foundation supports this. we are on track to achieve this. to jobs and amenities. workforce within Berkeley. 2010 £648m 2010 £2,038m 2011 £814m 2011 £2,304m 2012 £1,056m 2012 £2,580m 2013 £1,453m 2013 £2,852m 2014 £2,274m 2014 £3,014m 04 05 BERKELEY ANNUAL REPORT 2014 / STRATEGIC REPORT BERKELEY ANNUAL REPORT 2014 / STRATEGIC REPORT STRATEGIC REPORT STRATEGIC CHAIRMAN’S STATEMENT MANAGING DIRECTOR’S STATEMENT I am proud of the role that Berkeley’s vision is to be a Berkeley has played in world-class business generating generating economic growth long-term value by creating and its wider contribution successful, sustainable places to our society where people aspire to live TONY PIDGLEY CBE CHAIRMAN ROB PERRINS MANAGINGDIRECTOR Commenting on the results, Chairman Forward sales are critical to enable Commenting on the results, Managing Looking forwards, we continue to see Tony Pidgley said: theindustrytocommitthesignificant Director Rob Perrins said: opportunities to acquire land that meet capital necessary to do this. Berkeley is our hurdle returns. This will typically be “Thesearestrongresultswhichreflectthe “Berkeley has built and sold 3,742 new building on all of its sites that have an characterised by long-term and complex current market conditions and Berkeley’s homes this year at an average selling implementable planning consent and we development sites to which Berkeley can bold strategy to invest at the right point price of £423,000, driving a 40.4% increase are employing over 11,000 people directly bring its expertise. The land already in in the economic and housing cycle. Basic inpre-taxprofitsto£380.0millionand on our sites sustaining a further 10,000 our pipeline comprises a number of sites earnings per share have grown by 38.6% a rise in pre-tax return on equity from jobs indirectly in the supply chain. This that match these criteria and the ongoing to 221.8 pence, of which 149 pence has 22.4% to 27.5%. year we have completed some 30% more operational focus is to deliver this over been paid to shareholders as dividends homes than at the peak of the market in The Group remained ungeared throughout thenextfiveyears.Ifthisisachieved, in the year, and the estimated value of 2007,andIamproudoftheroleBerkeley the year, with net cash rising from it has the potential to enhance the gross margin in our land holdings is now has played in generating economic growth £44.7 million to £129.2 million after paying existing gross margin in the land bank in excess of £3 billion. and its wider contribution to our society £195.2 million of dividends to shareholders by some £1.5 billion and help build a The Board has declared a further interim through the homes and places we create. and investing further in new land and sustainable business. dividend of 90 pence per share (£122 construction. This investment and a Berkeley’s achievements are testament to Berkeleyhasfinishedtheyearwell, million), payable on 26 September 2014 to favourable market have enabled us to build the skill and dedication of our employees, deliveringastrongcashflowperformance, shareholders on the register on 22 August and sell over 15,000 new homes in London and to the commitment of our partners growing its unrivalled land holdings 2014. This means that 254 pence per share and the South of England over the last on our schemes and in the supply chain, through acquisition and optimisation, has been paid or committed to date, and fiveyears,duringwhichperiodwehave andIwouldliketoexpressmythanksto continuing to invest in inventory and leaves a further 180 pence per share in delivered some 10% of both the total private allofthem.IamdelightedthattheGroup securing additional forward sales. This ordertomeetthefirstmilestoneofpaying and affordable homes built in London. has been recently awarded the Queen’s givestheBoardtheconfidenceto 434 pence per share by September 2015.