Housebuilder Barratt Developments strengthened its market position and calmed the nerves of investors with the news that it had secured a deal with its lenders to bolster its finances.
Even confirmation that it would be axing 1,200 jobs failed to dent the company’s recovery. The recovery began on Wednesday when speculators gambled that the company had secured the refinancing deal it needed.
The take-up was so good that the share price gained almost 40 per cent.There were further gains in early trading on Thursday when the deal was confirmed.
The group, which took on a heavy debt with last year’s acquisition of upmarket developer Wilson Bowden, had already warned last week that around 1,000 jobs were under threat – 50 of them at its office in Halesowen.
Despite the recovery, the firm’s outlook could hardly be described as sunny as it revealed average private sales were down 43 per cent year-on-year in the past six months.
Barratt said it had struck a “prudent” deal to extend the repayment of £400 million of debt and had renegotiated its banking agreements in a move seen as giving the group vital breathing space. Barratt also offered hope that there was still buyer demand for property, albeit restricted by an “acute” shortage of mortgage finance.
The group said visitor numbers in the past six months had risen 15 per cent on the previous half-year, although were still down 14.8 per cent year-on-year.
Forward sales were down by half as at July 1, at £700 million against £1.41 billion last year, while prices of private property sales reduced by five per cent in the year to June 30 on an underlying basis, according to the group.
Barratt is cutting 18 per cent of its 6,700 workforce and shutting offices in Chester and Sheffield to save costs in the face of falling sales and property prices.
It is also merging a further eight divisions into four under plans to cut annual costs by around £40 million, half of which should be saved this financial year.
Mark Clare, group chief executive, said: “By enhancing our sales capability, reducing our costs, and agreeing a new financial package, we have now substantially improved our competitive position.”
Barratt said it would take an £85 million hit on writing-down the value of land in the year to the end of June, with a further £30 million wiped off land from recent acquisition Wilson Bowden.
That deal, bought at the top of the market last year, has seen Barratt burdened with £1.66 billion of debt. But Barratt said yesterday this was lower than expected and had already been reduced by £80 million since the end of last year.
The group is scaling back building projects, as are its fellow housebuilders as the credit crunch continues to put off home buyers.
Barratt said it expected production to reach its lowest level for more than 50 years. “We continue to believe that in the longer term, the imbalance between supply and demand will drive future growth for the UK housebuilding industry, and bring about more stable pricing,” it added.