The Berkeley Group Stock

Good morning, ladies and gentlemen, and welcome to the Berkeley Group Interim Results Presentation for the 6 months ended 31st of October 2025. This is my first results announcement as Executive Chair and my 50th since first joining the Board in 2001, which seems fitting as we look forward to celebrating Berkeley's 50th anniversary in 2026.

I will shortly hand over to Richard Stearn, our Chief Executive; and our new CFO, Neil Eady, to review the first half of the year and what has been a highly credible performance in a challenging trading environment.

As we look ahead to our anniversary year and an exciting future, Berkeley's DNA remains grounded in our added value philosophy. Our Berkeley 2035 strategy provides us with an agile capital allocation framework to make the right decisions across the cycle to create long-term shareholder value.

Berkeley has an unique position in London development market through its scale, experience and expertise, and we're determined to play a full part in helping government meet its growth ambitions and housing targets.

In London, this means increasing starts tenfold to over 80,000 per annum and GBP 1.5 million across the country over the course of this parliament. It must, however, be recognized that since 2015, successive governments have seen property ownership as a source of increased revenue, coupled with higher corporate and development taxes. This has and will continue to constrain viability and investment.

Notwithstanding this, I've been greatly encouraged by and I'm in full support of government's recent policy initiatives and their commitment to reduce regulation, including the Homes for London package launched in conjunction with the GLA. It is critical that these initiatives move at pace alongside a reduction in the tax burden if their objectives are to be met.

I will now hand you over to Richard Stearn, our Chief Executive.

Thank you, Rob, and good morning, ladies and gentlemen. I will cover the following key areas today. First, I'll start with the resilient results delivered for the 6 months before looking at what continues to be a complex and challenging operating environment. Next, I'll touch on the inherent value within Berkeley and how Berkeley 2035 provides the flexible capital allocation framework to drive shareholder value over the cycle using our added value approach.

I will also set out why we are so positive on the long-term outlook for the London market, both for sale and for rent. And I will then look at our current operational priorities and how this influences capital allocation. I'll also provide an update on our BTR platform before concluding with our guidance.

Berkeley has delivered a resilient set of results for the first 6 months of this financial year. Pretax profit is GBP 254 million. We closed the period with net cash of GBP 342 million after returning GBP 132 million to shareholders through share buybacks. Our net asset value per share has increased by 5% to GBP 37.63. We have provided over GBP 220 million of subsidies to deliver affordable housing and community infrastructure, and our Net Promoter Score remains industry-leading. This performance reflects the operational capabilities of our teams, the quality of our market-leading homes and the strength of our unique long-term business model.

And so the operating environment remains complex and challenging. At a high level, government policy is very supportive, but the regulatory burden is not reducing at the pace we would like and general sentiment remains fragile, not helped by the uncertainty leading up to last month's budget. Yet the feel good factor is within reach, but does need interest rates to fall and positive economic momentum to return.

In terms of sales, in our September AGM update, we noted that trading levels were stable. However, unsurprisingly and as widely reported, the market has been more subdued in the months leading up to the budget. Overall, sales for the half year are around 4% off the same period last year, still some 30% down over the last 2 years. However, there are encouraging signs. Customer interest, evidenced by inquiries and leads, is consistently good. With the budget uncertainty now behind us, we look forward to interest rates resuming their downward trajectory.

Combined with the real wage growth of recent years and high savings ratios, this should improve affordability and sentiment, both important prerequisites for customers to be confident to commit to property purchases.

Build costs have remained flat during the period, amid a competitive tendering environment. In terms of legislation, the BSR's Gateway 2 system does remain protracted. Positively, there is renewed impetus to speed up the process, driven by the revitalized leadership team at the BSR, and there are signs of improvement. We look forward to this translating into consistent, timely and reliable building approvals.

We have obtained 3 new planning consents for some 1,800 homes alongside over 30 revisions that improve our existing consents. Overall, well over 90% of our land holdings have a planning consent that underpins a backstop position, and this provides an excellent platform from which to add value. We have also acquired 2 new conditional sites that represent long-term opportunities, and these have been added to the pipeline.

This slide sets out the key features of Berkeley's business model with its long-term value proposition and cash generation potential. Berkeley's scale and position in the London market are unmatched. This gives us a clear advantage in one of the world's most resilient property markets. Some 90% of our activity is on brownfield land and so fully aligned to government's brownfield-first approach to addressing the housing crisis.

Berkeley has deep London expertise and strong relationships that enable us to navigate complex planning and delivery challenges effectively in a market with high barriers to entry. We are an added value developer, maximizing value on a site-by-site basis, which differs to a volume-based growth model.

Our brand is synonymous with delivering exceptional developments that create long-term value, which gives Berkeley its reputation for delivery with local communities and customers alike. We expect this to translate into our Berkeley Living rental platform, too.

Finally, sustainability and delivering value for a diverse range of stakeholders is at the heart of our business, and this reinforces our reputation. Our Berkeley 2035 strategy set out on the right-hand side of this slide provides the financial agility to allocate capital at the right point in the cycle to deliver long-term value for shareholders through its 3 key value drivers.

Despite the complexity of today's operating environment, we remain positive on Berkeley's long-term value proposition, given the structural factors at play in our core market. London is a global powerhouse city with a resilient and adaptive economy. It attracts international capital, talent and business, which supports sustained housing demand.

London remains the biggest financial center in Europe and attracts almost 3x as much foreign direct investment as any other European city. It is also the top-ranked city for inbound real estate investment and second globally.

Oxford Economics ranks London as the #1 city worldwide for human capital. And of course, London is second to none in terms of heritage, culture and restaurants, green open spaces and education as well as a reputation for diversity and fairness, all supported by a legal system that is admired around the world.

On the sales side, there is a persistent undersupply of new homes. You will be familiar with this data, a selection of which is captured in the appendices to these slides. Falling interest rates, a competitive mortgage market and improving affordability will all underpin demand.

For rental, the same undersupply exists. We're seeing an occupational trend toward renting and policy increasingly favors institutional landlords. In addition to the institutional appetite for capital investment in the living sector is undiminished with its low-risk inflation-linked income stream.

As I said earlier, government policy is supportive. The fall in supply in London is acute and the package of measures announced by MHCLG and the GLA in October is a positive step towards restoring development viability and getting more homes into production. The package includes a reduction in the benchmark level of affordable housing, reductions in community infrastructure levy and positive changes to the London plan design guidance.

We await final details following the consultation period, and its ultimate success will depend upon the speed, scale and duration of implementation. These structural drivers present a compelling backdrop for Berkeley's long-term value creation potential.

On this slide, I have set out our operating priorities in today's environment and how this impacts capital allocation. First, on operations. We remain focused on operating margin and cash generation. We are advancing BSR Gateway 2 applications on buildings that are for delivery between FY '29 and FY '31. We are also driving optimization, replanning sites to recover or enhance returns where conditions have eroded gross margins. Finally, we continue to progress planning on our long-term land holdings to secure our future development pipeline.

On capital allocation in this environment, we will carefully align delivery to demand and the pace of BSR Gateway approvals. Developing out our BTR platform is a key focus with 1,100 rental homes scheduled for delivery by the end of FY '28. We are seeking new land opportunities that reflect today's conditions and are value accretive. These will predominantly be on a conditional basis. Where site returns cannot be improved, we will recycle capital through disposal.

And finally, we are committed to our shareholder return program, prioritizing share buybacks in the current environment where we see value. These priorities ensure we maintain a strong financial base while positioning the business for attractive shareholder returns over the Berkeley 2035 period.

Berkeley is moving at pace to create a market-leading build-to-rent platform, which reflects our passion for customers, quality and communities. We have transferred 2 further buildings into the platform in the period, both in Zone 3 in North London at our Grand Union and Silk Stream developments. Therefore, Berkeley already has over 25% of the initial target 4,000 home portfolio transferred to the platform and in production.

We will be launching our first development in spring next year, 187 homes for rent at Foundry Yard, Alexandra Gate in Haringey. As indicated in our full year results announcement in June, we are planning to launch a further 3 buildings to the rental market during the course of 2026.

In terms of the Renters' Rights Act, we see this as a major step in professionalizing the U.K. rental sector, and Berkeley Living is fully aligned with its requirements.

I have included a number of BTR slides in the appendices. These set out, firstly, how Berkeley is capturing full value from this new sales channel through developing its own operating platform, which we covered in the June results. And secondly, some slides setting out the current market characteristics, which are favorable in terms of both the occupational and institutional capital perspectives.

Rents are forecast to grow by 3% in London in 2026 and 4% per annum for the following 3 years. Institutional investors are looking to increase their asset allocations to the living sector at a time when new supply in London is falling.

Finally, this slide brings together our guidance. We remain on target to meet our pretax profit guidance of GBP 450 million for both FY '26 and FY '27. We expect operating margins to be in the historic range of 17.5% to 19.5% over this period. We are targeting net cash of around GBP 300 million at the end of FY '26, but this will depend upon the pace of investment in new land and share buybacks. And this will be after a further GBP 175 million is spent on land creditors in the second half of the year, reducing the outstanding balance to below GBP 500 million.

Under Berkeley 2035, our next return hurdle is GBP 640 million over the 5-year period to September 2030. In terms of capital allocation, based on our current financial position and operational focus, coupled with the dislocation in the share price, we will be prioritizing shareholder returns in this environment.

Thank you. And I will now hand over to Neil to take you through the numbers in more detail.

Thank you, Richard, and good morning, everyone. I'm Neil Eady, Berkeley's new CFO. I will take you through the results today, beginning with a summary, then drilling down on the income statement, cash flow and balance sheet.

Starting with a summary of performance for the period. We have delivered GBP 254 million of pretax profit in the first half of the year, which is slightly ahead of our guidance in the September trading statement and reflects a front half weighting of the annual profit due to timing of completions.

Earnings per share has decreased by 1.7% to 184p, reflecting lower profit, largely offset by share buybacks of GBP 132 million in the period.

Operating margin is 20.8%, slightly higher than the comparative period due to the aforementioned first half weighting. Pretax return on equity is 14.2%, with return on capital employed of 15.5%.

Turning to the balance sheet. Net assets are GBP 3.6 billion. The increase of GBP 39 million in the period principally reflects the profit after tax of GBP 179 million, exceeding shareholder returns of GBP 132 million.

Net cash remains healthy at GBP 342 million with overall liquidity, therefore, in excess of GBP 1.5 billion. Net asset value per share has increased by 5% to GBP 37.63, as a consequence of the net asset movement just mentioned and most significantly, the buyback of 3.5 million shares.

This slide sets out some of our key operational metrics. Firstly, we have cash due on forward sales of GBP 1.1 billion. This provides good visibility on near-term earnings and cash flow, with 95% of sales for FY '26 already secured. As a reminder, this figure represents the cash still to collect on our exchange private sales only. It's therefore a cash, not a revenue figure and excludes exchange deposits, affordable homes, institutional sales and commercial property.

Our customer deposit strategy remains 20% for forward sales. Over 40% of the forward sales cash relates to this financial year and the remainder thereafter. The second important metric on this slide is the estimated future gross margin in our land holdings, which has reduced by GBP 210 million to GBP 6.5 billion from 51,719 plots. I will look at this movement later.

Turning now to the income statement and comparing this to the first half of last year. Revenue has decreased by 8% to GBP 1.2 billion with lower volumes and lower ASP. Gross profit is GBP 319 million, representing a gross margin of 27.0%, slightly ahead of the comparative period.

Operating expenses have decreased by 8% to GBP 74 million despite what remains an inflationary environment as we continue to focus on efficiency and exert close control on all areas of cost.

Operating margin is 20.8%, slightly higher than the comparative period and above our long-term range of 17.5% to 19.5%. With profits slightly weighted to the first half of this year, operating margin is forecast to moderate for the full year to a level within the long-term range.

Our net finance income is GBP 3 million compared to GBP 10 million in the comparative period, with interest earned on gross cash falling principally as a result of lower interest rates, but still exceeding our blended cost of debt, which includes our green bond with its 2.5% coupon.

With St Edwards now delivering out of London sites only, our share of joint venture profits are GBP 6 million. It will remain at or below this more modest level over the guidance period.

The effective tax rate for the period was 29.7%, which fully reflects both the corporation tax rate of 25% and the 4% residential property developer tax.

Drilling down to volume and ASP. We completed 2,022 homes at an average selling price of GBP 570,000 in the period. This compares to 2,103 homes at an average selling price of GBP 600,000 in the first half of last year. As always, the change in ASP reflects the mix of properties delivered in the respective periods, both tenure and location rather than underlying sales price movements.

Looking ahead, we reiterate our guidance for this current year, which is for volumes to be marginally lower and ASP around 5% lower than FY '25. In the following year, FY '27, volumes will be a little lower again, but pricing will be around FY '25 levels.

Moving to the cash flow. This slide sets out the key movements for the half year, which results in an increase in net cash of GBP 5 million to GBP 342 million. GBP 254 million has been generated from pretax profits, of which GBP 93 million has been absorbed by a net increase in working capital investment.

I will run through the key movements within working capital shortly. The other significant items are the GBP 40 million distribution from the St Edwards joint venture and the GBP 132 million of shareholder returns through share buybacks. We are looking to retain net cash of around GBP 300 million at the end of FY '26, as Richard said, subject to the pace of investment in new land and share buybacks.

I will not go through each line on this balance sheet slide as I will run through the 2 key numbers, inventory and creditors in the next 2 slides. The other notable balance is investment property at GBP 260 million, reflecting our investment to date on the first 6 BTR assets, 2 of which were transferred to the BTR platform in the period.

As previously explained, we have adopted the cost option within IAS 40, and so we'll not revalue these assets in the balance sheet, but we will provide information on market value at the balance sheet date as the portfolio matures.

Drilling down into inventory. This slide sets out the GBP 146 million net decrease in inventories in more detail. Land and work in progress has decreased by GBP 112 million, of which GBP 82 million relates to the transferring of 2 additional BTR assets into investment property. Within this balance, the overall land cost has decreased by GBP 61 million.

Land not under development has risen by GBP 28 million following the completion of the acquisition of a site in Hersham, Surrey. Build WIP has moderated slightly as we continue to match production to demand. Completed stock reduced by GBP 33 million in the period to GBP 305 million. This is spread across a number of sites, providing immediately available product for prospective purchases.

Creditors have decreased by GBP 155 million in the period. First, there has been a decrease of GBP 86 million in customer deposits, driven by the difference between current sales rates and the amount of revenue taken to the profit and loss account. The second significant movement is the net GBP 73 million reduction in land creditors, with GBP 80 million settled in the period.

The slide also sets out the future payment profile for the remaining GBP 640 million of land creditors, which are largely unchanged in the period. A further GBP 175 million of land creditors will be settled in the second half, totaling circa GBP 250 million for the year.

Scheduled land credit payments in FY '27 totaled GBP 90 million, with a similar annual profile thereafter. Provisions representing post-completion development obligations, including those related to build fire safety matters, have increased by GBP 6 million in the period.

In terms of our financing, the group's borrowing capacity of GBP 1.2 billion is unchanged from the year-end and comprises GBP 400 million of 2031 dated green bonds, with a 2.5% coupon, an GBP 800 million bank facility consisting of a GBP 260 million drawn green term loan and a GBP 540 million undrawn revolving credit facility. These bank facilities are in place to February 2029. At the period end, Berkeley had net cash of GBP 342 million and therefore, total available liquidity of GBP 1.5 billion.

This slide summarizes our landholdings. Estimated future gross margin is GBP 6.5 billion across 52,000 homes on 60 sites, down from GBP 6.7 billion and 53,000 at 30th of April '25. This means we have replaced GBP 0.1 billion of the GBP 0.3 billion of gross profit delivered through the income statement in the period through replanning activity and market movements.

New planning consents were secured at 3 sites, 900 homes at Borough Triangle, around 500 homes at the former Brighton Gasworks site and the third site at Hemel Hempstead moved from the pipeline into land holdings following receipt of planning consent for 500 homes. The pipeline now comprises of approximately 14,000 plots and includes 2 new sites, both subject to planning, added to the pipeline given the anticipated time scales to secure viable planning consents.

In summary, this slide reinforces Richard's earlier comments about Berkeley's unique market position, underpinned by circa 66,000 plots in our land holdings and pipeline. When combined with our net cash of GBP 342 million and liquidity of over GBP 1.5 billion, we are in a great position to deliver the Berkeley 2035 strategy.

Thank you very much. This concludes today's results.