Barratt Developments (BDEV) continues to reap the rewards of its heavy investment programme over the past five years. The group revealed a 61 per cent increase in operating profit to £224m at the half-year mark, on margins that were up 320 basis points to 14.2 per cent. Profit is on the rise because Barratt has sold a substantial proportion of the lower-return land acquired prior to the financial crisis. By next year around 75 per cent of the land held by the group will be higher-margin plots acquired subsequent to 2008-09.
The steady improvement in Barratt's land bank has helped drive return on capital employed (ROCE), which at 21.6 per cent is well ahead of the comparable rate of 14.2 per cent in 2013. Management believes the group is well on its way to achieving its dual targets of a gross margin of at least 20 per cent and ROCE of at least 25 per cent by November 2017. Management said that margins benefited in the half year because previous material and labour shortages have subsided, thereby driving down costs.