CHIEF EXECUTIVE'S REVIEW

Purpose, Long-term Strategy and Capital Allocation

Berkeley's purpose is to build quality homes, strengthen communities and make a positive difference to people's lives, using our sustained commercial success to make valuable and enduring contributions to society, the economy and natural world.

We are the only large UK homebuilder to prioritise brownfield land, as we progress 32 of the country's most complex regeneration projects, 26 of which are in delivery.  Each of these neighbourhoods is uniquely designed in partnership with local councils and communities and includes valuable public amenities and infrastructure, alongside tenure-blind private and affordable homes. 

We have made strong progress across this portfolio in the year as we transform neglected land into welcoming and sustainable neighbourhoods.

-   At Kidbrooke Village in Greenwich we have now completed over 3,000 private and affordable homes and established a thriving village centre, including a new train station, shops, cafes, a pub and community centre. This popular neighbourhood is defined by its green open landscape and we are about to start work on the next phase of the award-winning Cator Park, which will include a new pavilion and education space for the London Wildlife Trust.

-   At King's Road Park we have now completed the first private and affordable homes and welcomed our first residents to this new community in the South Fulham Regeneration Area. The first section of a new public park is now open and a collection of carefully restored heritage assets has been unveiled. Enabling work is also underway on the refurbishment of the site's Grade II Listed Gasholder, thought to be the oldest in the world, which will become the historic centrepiece of this new neighbourhood. 

Berkeley is a unique, asset-focussed development business that seeks to manage risk and generate value through market cycles, with its inherent latent value rooted in its unrivalled land holdings.  We seek to find the optimum development solution for each site in terms of the social, environmental and economic value for all stakeholders, alongside the returns we deliver to our shareholders. We firmly believe these objectives are mutually compatible and reinforcing. The pace at which we deliver homes from our land holdings is determined by the prevailing operating environment and we will always adopt a long-term approach, prioritising financial strength above annual profit targets.

Our capital allocation policy is clear:  first, ensure financial strength reflects the cyclical nature and complexity of brownfield development and is appropriate for the prevailing operating environment; second, invest in the business (land and work-in-progress, including build to rent assets) at the right time; and third, make returns to shareholders through share buy-backs and dividends.

Strategy Positioning - "Berkeley 2035"

The Government's aspiration to deliver 1.5 million homes over this current parliament has been a catalyst to unlocking the planning system. Berkeley is well aligned to Government's ambition with its brownfield land holdings and pipeline in well-connected urban areas.

In December 2024, Berkeley announced a 10-year strategy to drive long-term shareholder value by using its operating expertise and balance sheet strength to capitalise on investment opportunities as they arise while taking account of the volatility that persists in the operating environment.

Berkeley 2035 is underpinned by an agile capital allocation framework that identifies £7 billion of free cash flow to deploy over the next 10 years to drive value, based upon the following initial allocation:

As indicated by the £1.3 billion identified for flexible allocation, Berkeley will adopt an agile approach able to flex a greater allocation to new land, its BTR platform or shareholder returns as the operating environment evolves. Capacity for further investment or shareholder returns will be created to the extent third party funding (debt or equity) is introduced to the BTR platform over the next 10 years.

Berkeley 2035 comprises three principal value drivers:

(i)         Increase return on capital in the core business by:

·   Optimising the value of existing sites through re-planning activity, alongside the delivery of high-quality placemaking and customer service;

·    Securing the inherent value within our pipeline sites and bringing them forward into delivery; and

·  Selective investment in new sites where Berkeley can use its added-value development expertise to create great places and homes, and value for shareholders.

(ii)         Establish our own market-leading BTR platform and significantly grow its value by:

·    Creating a permanent route to market with income generating assets attractive to institutional core capital to capture fundamental BTR value drivers of rental growth and stabilised investment yields;

·     Identifying multiple and flexible exit routes post stabilisation, including:

-    Disposal of individual BTR buildings or a series of portfolios;

-    Introducing third-party equity, Berkeley retaining management under a fee arrangement; or

-    Debt introduction, with allocation to the BTR assets; and

·     Maximising the opportunity to capture superior returns through best-in-class platform and service.

(iii)        Make returns to shareholders, through share buy-backs or dividends; a strategy that will grow the long-term value of the Company, while retaining financial strength:

·    Targeting a minimum level of shareholder returns of £2.0 billion over 10 years

·    £0.9 billion of which will be returned on a phased basis by 30 September 2030

-   Includes the final £260 million to be returned under the 2011 programme of which £139 million already paid and remaining £121 million to be paid by 30 September 2025

-    Residual £640 million to be paid via share buy-backs or dividends

·    £1.1 billion to be paid by 30 September 2034

Berkeley 2035 incorporates the necessary resilience to navigate what remains a volatile near-term operating environment, while providing Berkeley with the flexibility to use its entrepreneurial property expertise to maximise the value and potential of our land holdings and BTR platform, grow net asset value per share over the investment phase of the 10-year period, growing profitability and delivering returns to shareholders at the right point in the cycle.  We continue to target operating margin of 17.5% to 19.5% and a long-term pre-tax ROE of 15%.

Shareholder Returns

Shareholder returns during the financial year totalled £381.5 million:

Dividends paid in the year of £68.0 million comprised a £35.0 million payment in July 2024 (33 pence per share) and a £33.0 million payment in March 2025 (33 pence per share).

The special dividend in the year of £183.8 million (174 pence per share) was followed by a share consolidation which reduced the Company's share capital, net of Treasury and EBT shares, by 3.7 million shares (3.5%).

The share buy-backs of £129.7 million were in respect of 3.3 million shares (average price: £39.05 per share).

Under Berkeley 2035 there is £121 million due to be returned by 30 September 2025 which may be made through share buy-backs and a dividend in September to the extent there is a residual amount following any share buy-backs (which completes the annual return of £284 million by 30 September 2025 under the 2011 Programme).  Thereafter, the next shareholder return hurdle is a further £640 million over the five year period to 30 September 2030.  

Housing Market and Operations

Sales

The value of underlying net sale reservations for the year was 5% ahead of FY24, weighted slightly to the second half reflecting the improved momentum we noted in December's interim results and March's Trading Update.  While this is encouraging, current sales levels are below our long-term aspirations and around 30% lower than FY23. 

While transaction sales volumes will only inflect in a meaningful way once there is confidence in the trajectory of interest rate reductions and wider economic stability, Berkeley's unique and beautiful developments with access to nature and well connected to public transport, alongside outstanding customer service, continue to differentiate our product and generate good enquiry levels.  

This underlying demand has underpinned the launch of three new developments in London during the year: Wandsworth Mills, Bermondsey Place in Southwark and Trillium in Marylebone and the next phases of a number of our established developments, including White City Living, London Dock and TwelveTrees Park, amongst others. These have all generated good levels of forward sales, with customers who are able to commit funds recognising that this is a good time to buy.  In these market conditions, demand levels do vary between sites, depending upon their individual characteristics, and this is also reflected in pricing. Overall, sales prices secured across our portfolio have been slightly ahead of business plan pricing at the start of the financial year. Forward sales are £1,403 million (30 April 2024: £1,701 million) and will moderate further over the next 12 months under prevailing market conditions.

Our outlook for the sales market is positive. The fundamentals are strong and improving with good employment, real wage inflation, falling mortgage rates and strong rental market dynamics.  There is deep-rooted undersupply of new homes in Berkeley's core markets.   Focusing on London, which remains a fantastic global city, the latest quarterly MHCLG data is stark with just over 6,300 new-build starts over the last 12 months to 31 December 2024, a year-on-year decline of some 60%.  London's housing need is now estimated at 88,000 homes per year based on the NPPF assessment, while the current London Plan (which remains in place until 2026) has an annual housing delivery target of 52,000 homes. 

Land and planning

Berkeley has acquired three new sites in the year. These include: a strategic site at Maidenhead in Berkshire for 220 homes, following the grant of a planning consent; a brownfield site in Hersham, Surrey, for which a resolution to grant planning has been received since the year end for 260 homes; and the Queensmere and Observatory Shopping Centres in Slough, which have the potential to deliver over 2,000 homes.

We have made good progress on the planning front, securing five new planning consents at Bromley-by-Bow (2,150 homes), Leyton (640 homes) and Stratford (245 homes) in London and Bath (611 homes) and the new Maidenhead site outside London.   In addition, there have been over 30 other planning amendments agreed in the year, including additional homes at TwelveTrees Park in West Ham, London Dock in Wapping, Heron Wharf in Poplar, and Horlicks Quarter in Slough.

At 30 April 2025, Berkeley's land holdings comprise 52,714 plots across 64 developments (30 April 2024: 54,081 plots across 70 developments), including those in the St Edward joint venture.  The plots in the land holdings have an estimated future gross profit of £6.72 billion (30 April 2024: £6.93 billion), which includes the Group's 50% share of the anticipated profit on St Edward's joint venture developments.

Through the three new sites, planning activity (including transfers with the pipeline) and market movements, Berkeley has replaced £0.5 billion of the £0.7 billion of gross profit taken through the Income Statement in the year.  The estimated future gross margin in the holdings at the end of the year was 24.7% (30 April 2024: 25.1%).

The estimated future gross margin represents Management's risk-adjusted assessment of the potential gross profit for each site, taking account of a wide range of factors, including current sales and input prices; the political and economic backdrop; the planning regime; and other market forces; all of which could have a significant effect on the eventual outcome.

In the year, Berkeley has provided some £580 million in subsidies to deliver affordable housing and commitments to wider community and infrastructure benefits through Section 106 agreements. At over 150% of post-tax profit, this rate has doubled over the last 10 years. Over the same period new starts across the industry in London have more than halved.

The pipeline comprises approximately 12,000 plots at 30 April 2025, following the transfer in the year of the site at Bromley-by-Bow to the land holdings on achieving planning consent net of other movements. The pipeline includes the first phase of the St William site at Beckton (2,800 homes) and the St Edward site in Brentford (2,100 homes), pending finalisation of its Section 106 agreement.

Construction

For Berkeley, build costs have remained stable over the course of the year.  The sluggish domestic economic backdrop, with low housebuilding and wider construction activity, is leading subcontractors to absorb underlying inflationary pressure on materials and labour within their tender pricing.  As we look forward, Berkeley expects this dynamic to continue as subcontractors place value on securing the forward orders in a weak market.

We remain alive to inflation risk, conscious of the recent increase in Employers' National Insurance Contributions, but more prominently from ongoing regulatory change, including the transition to a new regulatory regime.  In respect of the latter, we continue to work with both the MHCLG and the Building Safety Regulator (BSR) to resolve the ongoing process issues encountered at Gateway 2 which, if left unresolved, would lower industry-wide delivery over the medium-term.

Build to Rent Platform

Berkeley has made significant strides toward establishing a market-leading BTR platform during this period. 

The first four buildings have been transferred to the BTR platform as at 30 April 2025. Comprising 762 homes, this is nearly 20% of the initial 4,000 home portfolio. The next two buildings (at Grand Union and Silkstream) have been transferred since the financial year end:

A management team is in place, led by senior Berkeley employees augmented through external hires from the BTR industry with operational, customer service and digital experience.  Six planning consents have been obtained to revise the amenity provision or optimise the unit mix for a rental market in the relevant buildings. An appropriate specification has been determined and Berkeley is well advanced in establishing a distinct BTR brand identity targeting a rental market that leverages the existing brand credentials. Berkeley will be launching its first development to the rental market in spring 2026 (Alexandra Gate).

The initial BTR portfolio homes are included in the land holdings plots and future estimated gross profit.

CMA investigation

In February 2024, the Competition and Markets Authority (CMA) announced an investigation into possible anti-competitive sharing of information in the housebuilding industry.  We continue to cooperate with the CMA and its enquiries.  

Self-Remediation Terms and Contract

On 13 March 2023 Berkeley entered into the Self-Remediation Terms and Contract with MHCLG, under which developers have responsibility for any life-critical fire safety defects in buildings they have developed in the 30-year period to April 2022.

For the 820 relevant buildings Berkeley has developed over this period, we have third party assessments on over 95%.  All of the remaining buildings are where Berkeley is not the freeholder and has not yet been provided access.  There are 36 buildings where works are still to be completed, 12 of which are buildings where Berkeley is reimbursing Government for the works under the Developer Remediation Contract. Where works are required and yet to commence, Berkeley intends to begin works as soon as reasonably possible, subject to access being provided by the freeholder. It is Berkeley's preference to take full responsibility for all its relevant buildings and to complete any required works itself as this will speed up the overall process of remediation.  We are seeking recoveries from the supply chain and insurers where appropriate.

We continue to work closely with Government and the BSR to complete any required remediation work as quickly as possible which, together with the actions taken to date, should restore trust and confidence to the housing market, enabling it to operate efficiently, effectively and fairly for all.

Outlook

Berkeley is determined to play a full part in helping Government meet its growth ambitions and has been greatly encouraged by the tone set by the brownfield-led housing agenda.  Converting this into delivery is challenging particularly as it comes after a period of extreme cost inflation and complex regulatory change.  However, the challenges must not dampen the ambition as the prize is significant in the form of economic growth, revitalised towns and cities and better prospects for young people.

We have a clear plan for the next 10 years and are ready to invest £5 billion of capital into new sites and our new BTR platform, which will deliver at least 4,000 additional homes over this period.

We are positive about the future, with strong fundamentals supporting both the for sale and rental elements of our business including structural under-supply and the prospect of falling interest rates and a supportive lending market. Central to this is the UK and London's position in the global economy and the ability to attract the investment required by both the public and private sectors to meet the nation's housing need.

As always, we are positioning Berkeley for the long-term and embark upon the new financial year in a strong financial position with net cash of £0.3 billion, £1.4 billion of cash due on exchanged private forward sales and £6.7 billion of future gross margin in our land holdings.   

Rob Perrins

Chief Executive