David Pretty, Barratt Developments chief executive, said this week that increased government regulations will lower housebuilders’ profit margins over the next 12 months.

Speaking after the release of Barratt’s trading statement on Monday, Pretty told Building: “Government regulations are having an impact – not just Part L, but a whole raft of things, such as the sustainable buildings code and environmental factors.”

Barratt’s margin for 2004/05 was 16.1%, and is expected to be about 16.25% for the 12 months to 30 June this year. However, Pretty’s prediction would suggest this could be reduced by about 0.5% in the next financial year.

The trading statement led to further speculation that Barratt will make a major acquisition later this year, when Pretty hands over to incoming chief executive Mark Clare, currently managing director of British Gas. The statement said that gearing, or borrowing, was just 11% and that the company had £38m cash.

Regulations are having an impact on margins – not just Part L, but a whole raft

David Pretty, Barratt

Pretty said no acquisition would be made ahead of Clare’s arrival, and added that the adoption of an acquisitive strategy was a matter for his successor. However, Pretty admitted: “We have clearly got the firepower.”

He added that there was “no reason” why the company should not get into the FTSE 100 in the next few years – a major acquisition would propel it on to this list – but said that this was “not an objective we are obsessed with”. Pretty said that the £850m of land bought in the past 12 months amounted to “an acquisition in itself”.

The statement said the company expected to confirm its 14th successive year of profit growth in its annual results on 27 September. Initial estimates suggest a pre-tax profit of £382m.

Postscript

Are your margins affected by tough regulations? Email building@cmpi.biz