Somewhere at the root of this banking crisis lies housing. Not enough supply,
too much demand. So bad loans are issued for properties people can’t afford,
silly mortgages offered for over 100% of value. It works, as long as house
prices spiral ever upwards. And if they don’t?
“It’s folly,” agrees Mark Clare, chief executive of Barratt, Britain’s biggest
housebuilder. And that’s just part of the trouble his business now faces.
So to what extent were housebuilders complicit in all this? Ah, there’s a
question. Clare pauses: “I guess what housebuilders did was to take
advantage of the fact that supply was nowhere near demand, so prices could
go up, and most of that fed back into land, and as a result of having to pay
higher prices for land, the cycle went on. But I’m not sure it was really
the fault of housebuilders, we were just part of the machine.”
He shrugs. Well, it’s housebuilders who now reap the whirlwind: tumbling
prices, frightened customers and a paralysed market. At Barratt, which
borrowed ambitiously to buy rival Wilson Bowden two years ago, Clare has had
to lose 1,300 staff and watch his share price plunge.
Back in 2007 it peaked at £12.82. Last week it closed at 79p. Such a drop has
done for many bosses. Clare, 51, an accountant by training, with GEC, Nortel
and British Gas on his CV, is proving more resilient.He has faced down the
flak – aimed at his lack of housebuilding experience, and that £2.1 billion
spent on Wilson Bowden – and made it plain he wants to see this through. So
far, his determination has won over the sceptics.
In fact, considering the speculation that constantly swirls round Barratt and
its £1.4 billion of debt, he is remarkably up-beat. Tall and chatty, jacket
off, he is in his element guiding me round the show apartment at Maple Quay,
Barratt’s swish new London development near Canada Water Tube station in
Rotherhithe, east London.
Around £320,000 there will buy you a modern kitchen, spacious lounge, two
light and airy bedrooms, and cupboards galore. Would I like to stand on the
rain-swept balcony and study the building site opposite? Not particularly, I
can see it’s great from here. Clare, who often carries a look of battered
surprise, just laughs.
Beneath, he is very serious. London and Scotland are areas where sales are
holding up better than others – he needs Maple Quay to sell. Half of it,
including a proportion of social housing, is still under construction.
And he’s fighting the slump with heavy marketing, bigger discounts and a
determined strategy to reduce that corporate debt, selling assets and
cutting back some developments. Barratt’s first-half results, released in
January, were better than some expected.
However, last week Barratt’s share price was hit again by rumours that the
company wanted to ask shareholders for cash to avoid defaulting on banking
covenants and couldn’t find underwriters. The external buffeting of the
business continues.
Clare, one-time protégé of Sir Roy Gardner at Centrica, brushes it aside. He
acknowledges that this year Barratt is likely to trade at a loss and, yes,
he is losing his finance director, Mark Pain, who is leaving to pursue “a
wider portfolio of business and personal interests”. What kind of timing is
that?
“It’s just a lifestyle thing,” says Clare. “Mark had said he’d do three years,
he will have done three-and-a-half by June. He’ll be a hard act to follow.
We’re looking for someone to take the company through challenging markets.”
How challenging? Clare is hesitant. February sees the start of the crucial
spring selling season but, so far, it’s not clear if there’s any upturn.
“The visibility out there is not good. We are driving as hard as we can,
stepping up part-exchange, marketing, and investment in the sales team. That
has worked previously and enabled us to outperform others, but I don’t know
where the market is going to be. It seems to have started as expected, not
gone down or started running away.”
Part of the difficulty is availability of mortgages for potential buyers.
Barratt, always strong on sales, has countered by offering significant
discounts, and pushing part-exchange and shared-equity schemes. It is also
offering 3,000 homes through the government’s Home Buy Direct initiative,
where the buyer pays for 70% and the developer and the state share the rest.
“Part-exchange is a fifth of our sales now,” says Clare. “We buy and sell
2,000 homes a year now, one of the few majors to do it at that level.
Another fifth is shared equity; you buy 80%, we hold the rest. And there are
straight discounts for cash buyers.”
Clare wants more, too, starting with a loosening of the planning laws. The gap
now developing between homes built and homes needed is getting “scary”, he
says. In 2007 the government wanted 240,000 built; the industry managed
170,000.
“Now the forecasts are as low as 50,000 private starts as we look forward.
Without some major step-change in building generated by the government, it
will take at least five years for the industry to get back to the level of
confidence and capacity it had before, because many of the people that were
employed will be gone.”
Does he regret buying Wilson Bowden? “No, it was a good acquisition – £900m of
the £2.1 billion was debt. Should I have indebted the company more? No. Was
I under pressure to gear up the company more? Yes. The key thing is that an
awful lot of great stuff has come out of that business into Barratt.”
Was Barratt chasing size for size’s sake, though? It is still the biggest
housebuilder by homes built – 16,000 in the past 12 months – but it has long
lagged behind rivals such as Persimmon by value.
Clare sighs. “What I’d like to be is the one who delivers most value to the
owners of the company. But at the moment we have to focus on how we drive
the company through very difficult times.”
Clare says he likes a challenge. His demise has been predicted so many times
he must feel bullet-proof. “I guess it’s just part of my DNA: I want to
prove people wrong.”
That DNA contains a restless ambition. The only son of a Hampshire carpenter,
with a mother who pushed him to achieve all he could, Clare started as a
local accountant, auditing pubs and shops, before moving swiftly into GEC
Marconi and climbing the corporate ladder with an earnest, unflashy style.
By 1995 he had joined British Gas as group financial controller. Five years
later, with its residential business subsumed into Centrica, he was managing
director, reporting to Gardner. The two had also worked together at GEC
Marconi and Nortel.
Gardner, who first pushed Clare into general management, describes him as a
first-class operator. “Mark’s a great moti-vator of people. He’s very
determined and he never hides.”
That was seen five years ago when Clare bore the brunt of public criticism for
British Gas’s price rises, regularly appearing on TV and radio. He then
pitched for the top slot when Gardner stood down at Centrica in 2006, but
the board wanted international experience and plumped for Sam Laidlaw
instead.
It was a setback, and Clare, following advice from Gardner, jumped sectors
after Barratt’s headhunters called. That finally fulfilled his wish to head
a household-name firm, but he must now regret his timing.
“No,” he counters, “it was a real opportunity to do something different.” Yet
a year after he joined, the Northern Rock queues appeared on the street.
“The next week’s reservations dropped 10%; that was the first sign. Then in
April 2008 we hit a wall; the credit dried up.”
He has been fighting back ever since. Like many GEC-trained managers, he is a
believer in process. He spent the summer of 2008 travelling round the
company’s offices, explaining what was going on.
“I talked about the newspaper coverage and the bank renegotiations, and the
need to focus on driving costs out. The culture here is one that says, if
that’s what needs to be done, let’s get on and do it.”
Does he still feel under threat? “I’ve never doubted myself, but
if it’s clear that someone else could do it more effectively the board will
make that decision,” he nods.
So will he soon tap the market for funds? He’s not saying. For now he’d rather
talk about the future of housing.
“I guess one benefit about not coming from this sector is that I don’t have
preconceived ideas as to constraints. I can ask, shouldn’t we be partnering
government more? Shouldn’t we get groups together and say how are we going
to work through this? It might have to be a different model in future.”
Downstairs in the marketing suite, as we part, a couple are signing in from
overseas. Clare is buoyed by the sight. There are bargains to be had here –
if he can just get the market moving again, he may yet prove the doubters
wrong.
The life of Mark Clare
VITAL STATISTICS
Born: August 10, 1957
Marital status: married, three children
School: Prices Grammar, Fareham, Hampshire
University: none
First job: articled clerk, Palmer, Riley & Co in Fareham
Pay: £630,000 and no bonus. “There is a theoretical bonus but last year
it didn’t happen”
Homes: Rickmansworth in Hertfordshire and Marbella
Car: black Audi A8
Favourite films: the Jason Bourne trilogy
Book: “The last one I read and remembered was Andrew Marr’s History of
Modern Britain”
Music: Take That
Gadget: iPod Touch
Last holiday: “A short break with my wife in the West Country, near
Bath”
WORKING DAY
THE Barratt Developments chief executive wakes at his house in Rickmansworth,
Hertfordshire, at 6am. Mark Clare drives himself to work in London for an
8am start. He has a conference call at 8.30 with his regional heads,
checking sales, visitor levels and competitor activity. “That gives me a
picture of the country that is very powerful. And people focus on the things
you measure.”
He spends up to two days a week out of the office, visiting Barratt sites.
“I’ll often spend the evening with a team, take them to an Indian
restaurant, ties off, talk to them informally, then go round the sites next
day.” Otherwise he tries to finish by 7pm.
DOWNTIME
MARK CLARE relaxes by playing tennis and mucking around in boats. “I play
doubles with my wife and friends at the Riverside club in Rickmansworth. I
also took up motorboating recently. We’ve got a 26ft Searay boat. We have an
apartment outside Marbella in Spain where we escape to. None of us are
really water people but we love it.”
He also tries to leave time for charity work. He sits on the corporate
development board of the NSPCC. “I learnt a lot about the charity sector
when I was with Centrica. It’s no good just asking corporates for money, you
have to show how it helps staff morale and staff turnover.”
