Barratt Developments PLC Building excellence Annual Report and Accounts 2017 Annual Report and Accounts 2017 Inside this report 1 45 113 175 Strategic Report Governance Financial Statements Other Information 1 Key highlights 46 The Board 114 Independent Auditor’s Report 175 KPI definitions and why we measure 2 A snapshot of our business 48 Corporate governance report 119 Consolidated Income Statement 176 Glossary 4 Our performance and financial highlights 60 Nomination Committee report 119 Statement of Comprehensive Income 177 Other Information 6 How we create and preserve value 65 Audit Committee report 120 Statement of Changes in 8 Chairman’s statement 74 Safety, Health and Environment Shareholders’ Equity – Group 10 Key aspects of our market Committee report 121 Statement of Changes in 76 Remuneration report Shareholders’ Equity – Company 12 Chief Executive’s statement Notice regarding limitations on Directors’ liability under 106 Other statutory disclosures 122 Balance Sheets English law 17 Our Strategic priorities Under the Companies Act 2006, a safe harbour limits the 112 Statement of Directors’ 123 Cash Flow Statements liability of Directors in respect of statements in, and omissions from, the Strategic Report contained on pages 1 to 44 and the Our principles Responsibilities 124 Notes to the Financial Statements Directors’ Report contained on pages 45 to 112. Under English Law the Directors would be liable to the Company (but not to 34 Keeping people safe any third party) if the Strategic Report and/or the Directors’ Report contains errors as a result of recklessness or knowing 35 Being a trusted partner misstatement or dishonest concealment of a material fact, 36 Building strong but would not otherwise be liable. Strategic Report and Directors’ Report community relationships Pages 1 to 44 inclusive comprise the Strategic Report and pages 45 to 112 inclusive comprise the Directors’ Report, both 37 Safeguarding the environment of which have been drawn up and presented in accordance with, and in reliance upon, English Company Law and liabilities of the 38 Ensuring the financial health Directors’ in connection with the reports shall be subject to the of our business limitations and restrictions provided by such law. Cautionary statement regarding forward-looking statements 40 Risk management The Group’s reports including this document and written information released, or oral statements made, to the public in future by or on behalf of the Group, may contain forward-looking statements. Although the Group believes that its expectations are based on reasonable assumptions, any statements about future outlook may be influenced by factors that could cause actual outcomes and results to be materially different. Strategic priorities Customer first Great places Leading construction Investing in our people See page 18 See page 22 See page 26 See page 30 Barratt Developments PLC – Annual Report and Accounts 2017 Strategic Report Governance Financial Statements Other Information Welcome to Key highlights1 Barratt Developments Continued strong performance Our vision is to lead 20172 2016² Change the future of housebuilding Total completions3 (plots) 17,395 17,319 0.4% by putting customers first Revenue (£m) 4,650.2 4,235.2 9.8% and at the heart Gross margin (%) 20.0 18.9 1.1 ppts Adjusted gross margin4 (%) 20.2 18.9 1.3 ppts of everything we do. Profit from operations (£m) 799.2 668.4 19.6% By investing in our people, Adjusted profit from operations4 (£m) 808.0 668.4 20.9% we are leading construction Operating margin (%) 17.2 15.8 1.4 ppts Adjusted operating margin4 (%) 17.4 15.8 1.6 ppts to create great places Profit before tax (£m) 765.1 682.3 12.1% where people aspire Adjusted profit before tax4 (£m) 773.9 682.3 13.4% to live and generating ROCE (%) 29.8 27.1 2.7 ppts sustainable returns Total dividend per share (pence) 41.7 30.7 35.8% for our shareholders. Net cash (£m) 723.7 592.0 22.2% Net assets (£m) 4,322.2 4,010.2 7.8% 1 Refer to page 175 for definitions of KPIs. 2 Unless otherwise stated, all numbers quoted exclude joint ventures (‘JV’) and are for the year ended 30 June throughout this Annual Report and Accounts. 3 Includes JV completions in which the Group has an interest. 4 Calculated before commercial adjusted item disclosed in note 2.2 of the Financial Statements. Annual Report and Accounts 2017 – Barratt Developments PLC 1 Strategic Report Governance Financial Statements Other Information A snapshot of our business We are the nation’s leading housebuilder operating across Britain with 27 housebuilding divisions delivering 17,3951 homes this year. Our year in numbers Our homes Our customers We are a HBF 5 Star homebuilder We put our customers first. We build Total completions1 Average active outlets Housebuilding divisions and create great places to live. great homes and aim to provide customer service that exceeds expectations. 2017 completions by unit type 2017 completions by deal type 17,395 366 27 2016: 17,319 2016: 365 2016: 27 Owned and controlled land bank plots Employees2 2017 2016 2017 2016 75,043 6,193 1 and 2 bedroom houses 12% 11% Help to Buy 35% 32% 3 bedroom houses 32% 34% Part-exchange 8% 8% 2016: 71,351 2016: 6,209 4 bedroom houses 32% 31% Other private 31% 35% 5 and 6 bedroom houses 4% 5% Investor 6% 8% Flats London 6% 7% Affordable 20% 17% 1 Total completions, including joint ventures, were 17,395 (2016: 17,319) for the year. Private completions for the year were 13,303 (2016: 13,198). Flats non-London 14% 12% Affordable completions for the year were 3,342 (2016: 2,707) and JV completions in which the Group had an interest were 750 (2016: 1,414). 2 Employee numbers, excluding sub-contractors, taken as at 30 June. 2 Barratt Developments PLC – Annual Report and Accounts 2017 Strategic Report Governance Financial Statements Other Information Our geographic spread (including JV’s) Our brands We are the nation’s leading housebuilder committed to operating throughout Britain1. Completion volumes in the year were: We have three housebuilding brands – Barratt Homes, David Wilson Homes and Barratt London. Commercial developments are delivered by Wilson Bowden Developments. 1 2 3 Scotland Northern Central 1,708 2,141 3,389 1 2016: 1,556 2016: 2,055 2016: 3,241 2 4 5 6 East West London and Southern 3 4 3,469 2,433 4,255 6 2016: 3,534 2016: 2,392 2016: 4,541 5 1 Housebuilding contributes 98.7% (2016: 98.1%) of revenues. We also have a commercial developments business which contributes 1.3% (2016: 1.9%) of revenues. Annual Report and Accounts 2017 – Barratt Developments PLC 3 Strategic Report Governance Financial Statements Other Information Our performance and financial highlights1 Another record year. We delivered our highest number of completions for nine years with continued strong performance against our financial and operational key performance indicators. Financial KPIs KPI Adjusted gross margin2 (%) KPI Adjusted profit before tax2 (£m) KPI Return on capital employed (ROCE) (%) 20.2% £773.9m 29.8% +1.3 ppts +13.4% +2.7 ppts 20.2 773.9 29.8 19.0 18.9 682.3 27.1 16.8 23.9 565.5 13.8 19.5 192.0 390.6 11.5 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Target Target Target 20% by FY17 Profit before tax in line with consensus At least 25% by FY17 Status: Achieved Status: Achieved Status: Achieved KPI Year end net cash/(debt) (£m) KPI Earnings per share (pence) KPI Total shareholder return £723.7m 61.3p +£131.7m +11.3% 723.7 61.3 81.3% 55.1 592.0 45.5 186.5 31.2 Total shareholder return for the (25.9) 73.1 7.7 three years ended 30 June 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Target Target (2016: 88.7% Total shareholder return for the Year end net cash 59.9p broadly in line with consensus at the start three years ended 30 June 2016) of the financial year Status: Achieved Status: Achieved See the full Total shareholder return performance graph page 104 1 Refer to page 175 for definitions of KPIs. 2 Gross margin and profit before tax are stated as adjusted measures following the inclusion of the adjusted commercial item as disclosed in note 2.2 of the Financial Statements. The value of key metrics disclosed in the prior year are unaffected by this change. 4 Barratt Developments PLC – Annual Report and Accounts 2017 Strategic Report Governance Financial Statements Other Information Non Financial KPIs KPI Health and Safety KPI Customer service KPI Employee engagement score (SHE audit compliance) 96% 78% Target Target Target 94% 5 Star Upper quartile engagement1 Status: Achieved Status: Achieved Status: Achieved KPI Owned and controlled land bank (years) KPI Land approvals (plots) KPI Total completions including joint ventures (units) 4.5 years 18,497 17,395 4.7 24,387 4.5 4.5 4.5 17,319 17,395 4.4 21,478 16,447 18,536 18,497 14,838 16,956 13,663 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Target Target Target c.4.5 years supply 16,000-18,000 plots approved Disciplined growth in completion volumes for purchase Status: Achieved Status: Achieved greater than target Status: Achieved 1 Assessed against the UK all sectors comparator group by IBM Kenexa. Annual Report and Accounts 2017 – Barratt Developments PLC 5 Strategic Report Governance Financial Statements Other Information How we create and preserve value Our business model focuses on delivering value across the housebuilding value chain, creating sustainable returns for shareholders and making a positive difference in the communities in which we operate.