Barratt Redrow plc (BTRW) Earnings Call Transcript & Summary

Hello, and welcome to the Barratt Developments 2020 Full Year Results Call. My name is Courtney, and I'll be your coordinator for today's event. Please note that this conference is being recorded. [Operator Instructions] And I will now hand you over to your host, David Thomas, Chief Executive Officer, to begin today's conference. Thank you.

Thank you, and good morning, everyone, and welcome to our full year results presentation. By way of a running order, I will start with an overview of our performance and the impact of COVID-19. Then I will revisit our medium-term targets, their deliverability and our areas of focus in the coming 12 months. Steven will then take you through our operational performance with a particular focus on our site construction activity and production recovery. Jessica will then cover our financial performance in detail and the changes to our operating framework, and I will then review the industry fundamentals, sustainability and, finally, current trading and outlook. Turning then to Slide 3. Our strong progress on both volume growth and margin improvement was clearly impacted by COVID-19 and the resultant lockdown. However, the controlled and disciplined restart of our operations allowed us to begin the new financial year with all of our sites reopened. And as you will see later, we are in a strong position in terms of both reservations and construction activity. Our first priority throughout this turbulent period has been the health and safety of our employees, our subcontractors and our customers. This led us to implement our controlled shutdown and was front and center of our site restart program. Through decisive action in lockdown and recovery, we ended the year with a strong balance sheet, with GBP 308 million of net cash, and we expect this cash position to improve through FY '21. Whilst dealing with the challenges in the year, we have maintained our industry-leading position in quality and service, receiving the HBF 5 Star customer satisfaction award for the 11th year in a row and collecting more NHBC Pride in the Job Awards than any other housebuilder for the 16th year in a row. Before the pandemic and lockdown, I expect it to be highlighting a record set of financial results, with strong completion growth, margin improvement and another year with our ROCE pushing towards 30%. COVID-19 and the lockdown clearly changed all of this. Now the overriding focus across our business is on rebuilding completion volumes and improving margin and return on capital employed. This table on Slide 4 helps lay out our operational targets in the current environment. Our first target is rebuilding completion volumes. We have maintained our infrastructure and capacity to build back to 20,000 completions, provided market demand is there. Improving site-based construction activity is vital and will help us to make the most of the current Help to Buy scheme and the encouraging market recovery seen to date. We are aiming to grow wholly owned completions by 20% to 25% in FY '21 to deliver between 14,500 and 15,000 homes. Our second target is delivering margin improvement. Here, the recovery is our site-based construction activity is key, along with a tight control of our material and labor costs. Our margin improvement will also be supported through land purchases at a minimum 23% gross margin. Clearly, as we rebuild construction activity, we will also maintain our industry-leading standards of quality and service. Finally, our return on capital employed will improve through both the rebuild of profitability and a tight control of working capital and selective land spend in the year ahead. These operational targets are the absolute priorities for our team. I will now hand over to Steven, who will look in more detail at our operational performance.

Thank you, David, and good morning, everyone. I'd now like to take you through the operational aspects of the business. Starting with sales on Slide 6. We've produced a good performance to deliver a sales rate for the year of 0.6 reservations per outlet per week given the challenging backdrop for the latter part of the year. As a group, we achieved a strong net private sales rate of 0.73 for the first 38 weeks of the year, some 7.4% ahead of the same period in the prior year. Sales were then dramatically impacted by the lockdown period from the 23rd of March through to the 21st of May, the date we effectively began the phased reopening of our sales offices. Since the restart, we have seen a strong recovery across the entire country in terms of demand and delivered a sales rate of 0.63 in the 6 weeks through to the year-end with an improving trend. While the sales rate post lockdown was 8.7% below the same 6 weeks in 2019, it included all of our active sites, where most notably in Wales and Scotland, sales offices only opened for physical appointments in June. Turning now to completions on Slide 7. For the year, we achieved 12,604 completions, including joint ventures. This 29.4% decline on the prior year is all attributable to the impact of the lockdown, disrupting both sales and construction activities at essentially the peak period in the year. Completions in the first half were 8.1% ahead year-on-year, but the lockdown and its impact significantly affected delivery in the second half. The reduction in JV completions follows a similar path but was helped by the stronger completion delivery in the first half. Now taking a look at our buyer types on Slide 8. The completion profile is very similar to last year. Help to Buy remains an important customer proposition, and 35% of our total completions use the scheme. As everyone is aware, the existing Help to Buy scheme is being replaced by a new Help to Buy scheme for first-time buyers only, with regional price caps for completions from April 2021 until March 2023. The government has extended the build completion date on the current scheme to the end of February next year, but legal completion in all those exceptional circumstances will need to be completed by the 31st of March. Assuming the new scheme is adopted as currently drafted, 16% of our total completions in 2020 would have been affected under the new Help to Buy scheme rules. This reflects first-time buyers purchasing above regional price caps and existing homeowners, both of which will no longer qualify under the new scheme. To mitigate the impact of these changes, we have replotted and adjusted our sales mix on certain sites, but the regional price caps will prove more restrictive for first-time buyers, particularly in the North and Midlands. For restricted first-time buyers and existing homeowners, we are working with lenders to develop alternative mortgage products and promoting the use of our highly effective Part Exchange offer. Now look at pricing on Slide 9. Regionally, the private ASP of just under GBP 304,000 was 2.2% ahead of the prior year. The main driver of this was a change in geographic mix. During the year, the London private ASP was materially higher at GBP 755,000 reflected in the trade through of a small number of high-value Central London completions as well as mix changes in Outer London. We have now essentially traded out of Central London with just 1 wholly owned unit remaining to complete and 2 JV units left to sell. Across the group, we achieved a modest level of underlying house price inflation. Turning now to Slide 10. During the lockdown period, our focus centered on the health and safety of our employees, subcontractors, customers and suppliers, and how to restart operations in a safe manner. We spent a considerable time developing enhanced COVID-19 working practices and protocols, which have proved invaluable as we then started the phased reopening of our site operations. We received an Assurance Statement from the British Safety Council certifying that our COVID-19 workplace safety, health and environmental arrangements are in accordance with current guidance and best practice, demonstrating our absolute commitment to providing a safe and healthy workplace. Sites were reopened in ways to achieve a controlled and disciplined restart whilst also factoring in different government guidance and timing in England, Scotland and Wales. All operational sites were restarted with our employees returned to work by the 30th of June. Restoring our construction activity is a critical issue for ourselves and the industry. Highlighted in Slide 11, the first step in this process has been the safe and controlled return of management and trade at our sites. As you can see, from the 14th of May, when we were preparing sites for reopening with around 1,500 heads on-site, we mobilized to more than 14,000 by the 2nd of July, and we had more than 16,300 on-site in the last recorded week to the 20th of August. This remobilization of both site management and subcontractors was driven by: firstly, the phased reopening of our sites, which began on the 11th of May in England and Wales and on the 1st of June in Scotland; secondly, the controlled increase in trades allowed on-site from an initial limit of 25 to 40, with health and safety approval in late May, then to the removal of centrally imposed limits from the 25th of June; and thirdly, the broadening of construction activity on-site from our initial focus of -- on finishing trades to meet forward sales commitments to control, build across all stages of our defined build process. Turning now to Slide 12. Our focus is now centered on optimizing construction on each and every one of our sites to get activity back to the levels prior to lockdown. What I hope will be more informative, however, is to look at the actual output of equivalent units or homes across our build active sites. The chart details the average equivalent number of units constructed each week in FY '19, for the first 38 weeks of the lockdown in FY '20 and FY '20 as a whole. We have also then included the weekly production of equivalent units since the start of FY '21 and highlighted with the green line at 295, the midpoint of our guidance on average weekly completions, assuming 50 weeks of build and sales activity. As you can see, we have seen a pretty consistent recovery in equivalent units produced each week. Seasonality will have an impact. But absent any further lockdown restrictions or particularly inclement weather conditions in the months ahead, we believe we can build to deliver a weekly average output of between 290 and 300 units across FY '21, in line with our completion guidance of between 14,500 and 15,000 homes for the year. There are a number of areas where we are working to optimize construction activity, which include extended site operating hours, improved build scheduling to reduce the time any unit is not being worked on, increasing the proportion of site startup and infrastructure construction, where group sales performance and working capital controls allow. The adoption of our standard house types is also a key ingredient, creating greater simplicity, repeatability and efficiency gains. We are also continually looking at ways we can incorporate more MMC in our site build, with Oregon playing an important role given the build speed advantages available with more timber frame construction. Now an update on our house type range rollout in Slide 13. As you know, in 2016, we launched new product ranges for both our brands to support margin growth. We are continuously reviewing our product designs and refining them to both improve the use of space and generate further build efficiencies, both of which ultimately support demand and improve margin. The progress from the rollout has continued, with 60% of all regional completions delivered from the new ranges, up from 36% in 2019. Currently, 79% of our outlets are using the new product ranges, with the remaining sites either trading out of our previous range or nonstandard schemes, including our London projects. We expect over the next couple of years that the new range will be used across 90% of our outlets and account for around 85% of group completions. Turning to Slide 14. We also remain committed to MMC development as part of our drive to improve both the homes we build and our performance. Some 21% of our completions used MMC in FY '20 compared with 20% the prior year. We remain on track to increase usage to 25% target by 2025. Oregon remains a key part of this strategy, and we're very pleased with both the integration and the opportunities Oregon is delivering. Now to land, and firstly Slide 15. Our land banking plot terms is very similar to the position reported at the end of last year and remains strong at over 80,000 owned and controlled plots. As you are aware, we suspended unconditional land bank back in March with the onset of COVID-19, and this temporary suspension continued until mid-August. As a result, land approvals in the year were limited to 9,441 plots across 51 sites, only slightly ahead of the position we reported for the half year. With the COVID-19 and lockdown impact on our completions, our land bank length has extended to 5.7 years of owned land and 1 year of controlled land. We remain committed, however, to our shorter land bank model. Over the medium term, we intend to return to our targeted operating framework of 3.5 years of owned and 1 year of controlled land through a combination of completion volume recovery and reduced land spend. We've now recommenced selective land buying, maintaining our disciplined approach where we see attractive opportunities. Turning now to the land bank and supply on Slide 16. As the chart highlights, there continues to be a very good flow of annual planning consents at almost 370,000 through to March this year. Clearly, this position will evolve in the coming months post-COVID-19. Greenfield land prices have also shown only modest price growth, reflecting the better supply situation. To date, we have not seen significant distressed land opportunities. We are, however, expecting a greater choice and spread of sites coming to the market this autumn as agents and land vendors return to active site marketing. Turning to build costs in Slide 17. As you're aware, we actively manage our supply chain to support the delivery and quality of our finished homes. We have a centralized procurement team, which manages 90% of our build materials from foundation level to completion across our standard product. On materials, we've experienced modest inflationary pressure which has eased through the second half. This easing reflects not only the impact of demand from COVID-19, but also this sharp drop in energy costs. We have fixed price agreements in place for 95% of our materials to December 2020 and 62% for the full year to June '21. Labor cost inflation has eased, with previous areas of inflationary pressure impacted by the changed economic backdrop and the desire to secure work from reputable developers with a record for prompt payment. This puts us in a strong position looking forward. We now expect build cost inflation of between 1% and 2% in FY '21, broadly in line with the cost inflation experienced in FY '20. Now to summarize in Slide 18. We have delivered a resilient performance in the year. Our sales rate has shown a strong recovery with a positive trend. Our construction activity is now very close to pre-lockdown levels, and we are confident in our ability to build out on our completion guidance. We remain committed to delivering industry-leading quality and customer service. Above everything will be our continued focus on health and safety of our employees, subcontractors and customers. And with that, I'll hand over to Jessica.

Thank you, Steven, and good morning, everyone. As David and Steven have said, FY '20 has been a challenging year, with the disruption of COVID-19 having a substantial impact on our financial performance. Turning to our headline numbers on Slide 20. Our revenue was GBP 3.4 billion. This was down 28.2% from last year driven by reduced completion volumes in our fourth quarter. Our profit for the year was impacted by the unprecedented construction sales and build whilst some sites were closed and with additional exceptional costs on legacy properties as announced in July. I will cover these in more detail shortly. We delivered an operating profit of GBP 493.4 million and an operating margin of 14.4% for the year. Our profit before tax was GBP 491.8 million, of which GBP 68.8 million came from second half, reflecting our reduced completion volumes and significant additional costs incurred. We closed the year with a healthy net cash position of GBP 308.2 million, demonstrating the resilience of our business and the benefits of the [ reformative ] actions that we did. Our ROCE was 15.6%. The metric impacted twofold by COVID-19 firstly through reduced profitability and secondly through our higher posing capital employed as COVID-19 [indiscernible] investment [indiscernible] expecting to deliver a significant number of completions during our final quarter. Turning to revenue on Slide 21. Our wholly owned home completions were 12,034; and total home completions, including joint ventures, were 12,604, down 29.4%. However, in the period to the 22nd of March, prior to lockdown, we had delivered 10,364 home completions, up almost 10% from the prior year. Private average selling price reduced by 0.4% to GBP 310,600 reflecting geographical mix changes. We delivered a lower proportion of private units in London. Our overall average selling price was similar to last year at GBP 280,300. Small increase was driven by affordable completions with a higher proportion of London affordable completions, up from 7% last year to 18% this year, including 179 [indiscernible]. On guidance, we expect around 20% of completions to be affordable in FY '21, and in addition, we expect around 650 joint venture completions. Now looking at the impact of COVID-19 and the exceptional or adjusted items and what they had on our gross profit and margin on Slide 22. Our group's profit for the year was GBP 614.3 million, and we had an 18% gross margin. This was after incurring GBP 39.9 million exceptional costs in relation to legacy properties. GBP 17.8 million of this was charged in the first half. And in July, we announced that we expect to incur a further GBP 70 million of costs related to Citiscape and the related review. Of this, GBP 22.1 million was incurred in FY '20, and we expect to incur the balance of GBP 48 million in FY '21. We also temporarily benefited from exceptional income from the government CJRS grant of GBP 26 million. We have now repaid this in full, and it will be an exceptional charge in FY '21. GBP 22.8 million for the grant is allocated against cost of sales and so adjusted against gross profit, and the remaining GBP 3.2 million is within administrative costs. Before these items, our adjusted gross profit was GBP 631.4 million, and adjusted gross margin was 18.5%. We also incurred GBP 45.2 million of COVID-19-related nonrecurring costs in the year. These costs related to nonproductive site overheads expenses due to the absence of activity during the lockdown period; costs in relation to safety measures; and site-based employee costs, which would normally be capitalized to WIP. And we also incurred an GBP 8.2 million inventory provision, primarily in relation to the commercial side of one of our London sites, which contains a cinema, restaurant and retail units. Adjusting for these nonrecurring costs would result in a gross margin of 20% in FY '20. We also incurred COVID-19-related costs in relation to the expected extensive [ cost ] duration. That have been extended due to COVID-19 by approximately 6 months due to the temporary closure and the period of reduced productivity post-lockdown. As a result, the increase in cost is reflected in our site margins. In line with our long-standing accounting policy of site margin equalization, margins were reduced on ongoing sites throughout the year, resulting in a charge of GBP 29.1 million in FY '20. Clearly, we'll be seeking to improve against this as our production levels improve further. The chart on Slide 23 breaks down the components of our operating margin movement year-on-year. As I outlined last year, we had nonrecurring items in FY '19, which benefited margin by 40 basis points, giving an underlying operating profit -- operating margin of 18.5%. The almost 30% reduction in completion volumes caused by the COVID-19 lockdown meant that we didn't recover our cost base as efficiency as we would have liked, as we give to deliver a much higher volume. This caused 190 basis points of margin deterioration. Our margin initiatives continue to drive underlying improvement with a 50-basis point benefit from the transition to new sites, although clearly reduced volumes affected this transition. There was a negative impact of 50 basis points in relation to inflation as we saw modest house price inflation, which didn't offset our build cost inflation. We obviously saw a 90-basis point reduction, reflecting the expected 6-month extension in site durations that I've previously outlined. There was an adverse movement of 60 basis points in relation to mix and other items. Our reduced admin expenses had a positive impact of 120 basis points. This is mainly driven by decisions that there will be no payments to any director or employee under the FY '20 bonus scheme and the reversal of past charges on share incentives as the majority of schemes did invest. The combination of these resulted in a year-on-year reduction of GBP 59 million. As I previously detailed, we had a nonrecurring 20 basis points impact due to the inventory provision charge and 130 basis points impact from the nonproductive site overheads. As a result, FY '20 adjusted operating margin was 14.8%. The costs associated with legacy properties, offset by furlough grant income, reduced operating margin to 14.4%. We have a clear, well-embedded operating framework as shown on Slide 24. This is underpinned by a strong balance sheet, which has been fundamental during these turbulent times. Reflecting the recently changed economic and trading backdrop, I'm pleased to announce today some refinements to our operating framework. We are reducing our land credit to target level and introducing a minimum medium-term target for the minimum year-end total indebtedness. These changes will further strengthen our business looking forward. We closed the year at both our operating framework level on land pipeline due to much lower level than expected of completions in the year with 5.7 years owned land. We will bring this back in line with our framework of around 3.5 years through both increasing volumes and limiting land additions over the next couple of years. We have met our targets to reduce land creditors to the lower end of our previous 25% to 30% framework at 25.4% in the owned land bank, 590 basis points lower than last year. Going forward, we'll expect to operate within 15% to 25% of the owned land bank. In FY '21, we expect land creditors to further reduce, reflecting the timing of payments due to existing land creditors, with GBP 493 million [ boarding ] due for payment this year. We closed FY '20 with a healthy net cash position of GBP 308 million, and we operated with an average net cash balance of GBP 348 million over the full year. Year-end total indebtedness is now included in our operating framework, which we expect to be minimal in the medium term. Our year-end investment position was GBP 484 million. We continue to maintain appropriate financing facilities for our business and have significant headroom against them. During FY '20, we didn't draw on our GBP 700 million RCF, which further demonstrates our strong cash flow management and our balance sheet resilience. Given the uncertainties caused by COVID-19, the Board made a difficult decision to cancel the interim dividend and not to propose an ordinary dividend for the intended special dividend in respect of FY '20. The Board continues to recognize the importance of dividends to all its shareholders. However, given the unprecedented impact of COVID-19 and the importance of resilient balance sheet, we will no longer propose the FY '21 special dividend of GBP 175 million. Going forward, the Board believes that it is in the best interest of shareholders to have a long-term predictable dividend income stream. At the appropriate time, it will implement its ordinary dividend policy with a defined level, 2.5x cover. Now turning to our balance sheet on Slide 25. In March, we acted quickly to pause land bank due to the uncertainties of the economic backdrop. Our land bank, therefore, increased by only GBP 41 million to GBP 3.1 billion. As I've already outlined, our land creditors have continued to reduce as targeted and are GBP 169 million lower than last year. Trade payables were much lower than last year, reflecting our reduced level of site activity, and that we continue to pay our suppliers and subcontractors as normal. Other net working capital liability was higher than the prior year, mainly due to trade and other receivables being GBP 139 million lower than normal due to lower trading activity in the last quarter, and this includes a reduction in government helped by receivables. The reduction in other assets and liabilities is due to a reduction in tax liability at the year-end of GBP 112 million due to the changes in the government tax payment regime, offset by pension assets downwards revaluation following the full buy-in of our defined benefit scheme this year. Our balance sheet remains strong, with net assets at 30th of June, GBP 4.8 billion. Moving on to our cash flow on Slide 26. We continue to demonstrate a disciplined approach to cash management as shown by our cash holding. Our operating profit was GBP 493.4 million, offset by investments in our business. We made net cash interest and tax payments of GBP 195.5 million, as we paid 6 quarterly installments in the year due to government exchanges, corporation tax payment regime, as I outlined last year. This timing change resulted in us paying around GBP 27 million more in tax payments than last year. We invested GBP 163 million in Part Exchange as the COVID-19 lockdown came at the point of our peak investment in WIP. Net land investment increased by around GBP 220 million in the period as we achieved our targeted reduction in land creditors. Our total land spend during the year was GBP 750 million. As a point of guidance, we expect land spend in FY '21 to be around GBP 850 million. Our operating cash outflow for the year was GBP 52 million. We made GBP 373 million of dividend payments in respect to FY '19 and invested GBP 32 million in other investing and financing activities leading to a net cash outflow of GBP 458 million. Our year-end cash position was strong at GBP 308 million. On guidance for FY '21 on Slide 27, I will cover the guidance areas not already given. We expect to deliver around 14,500 to 15,000 wholly owned completions, and we also expect administrative expenses to return to normal levels at GBP 195 million. Our interest costs are expected to be around GBP 30 million, comprising GBP 10 million of cash interest and GBP 20 million of noncash interest. Our year-end net cash position is anticipated to be around GBP 550 million in June 2021, with an average net cash position of GBP 300 million during the year. Now to summarize on Slide 28. We delivered a resilient financial performance this year and have a strong balance sheet with significant financing facilities. We achieved our target of reducing land creditors. And through our disciplined approach to cash management, ended the year with a healthy cash position. Our refined operating framework is clear, and we are well positioned for the future. Thank you, and I'll now hand over to David.

Thank you, Jessica. As Jessica and Steven have both underlined with their presentations, clearly, we have a strong investment proposition. And I would like to pick this up on Slide 30. We aim to operate with one of the shortest land banks in the industry. This clearly improves our return on capital employed and reduces our longer-term risk. We've demonstrated that we have a resilient balance sheet, and we are naturally cash-generative. We have a strong and highly experienced build and sales team who are rightly proud of the standards that they deliver, and they are clearly focused on improving efficiency and driving out ways that we can improve our margin. Our quality and service performance is key to the strength of our business, and we recognize that it is our license to operate in communities, the length and breadth of the country. Our broad geographic spread gives us a diversified business that creates a balanced market exposure. And finally, we lead the industry on sustainability because we clearly understand how important that -- it is for our business operations, both now and in the future. These differentiators put us in a strong position to deliver for all of our stakeholders. Prior to COVID-19, I highlighted how these differentiators help us grow volumes, deliver margin improvement and generate strong cash returns. Now our investment proposition remains unchanged, but our operational targets have to recognize the rebuilding task ahead. Now looking at the market fundamentals in Slide 31. There clearly remains strong demand for new homes across the country, evidenced both in the past few years and since the lockdown ended. The government has a target of building 300,000 homes per year to address years of undersupply, and clearly the government housing policy remains very supportive of that target. As Steven outlined, the land market remains attractive. The recent extension of the Help to Buy build completion deadline is welcomed, and the tapering to the scheme from 2021 continues as expected. Mortgage interest rates remain very attractive and affordable. The lending environment has, however, seen lending criteria tightened most notably around higher loan-to-value lending. Looking at the mortgage environment in more detail in Slide 32. Here are 2 charts which you have seen before and which clearly remain important indicators. On the left-hand chart, you can see that average mortgage rates, both for the 85% loan-to-value and for Help to Buy, remain attractive. Mortgage providers have pushed mortgage rates higher in recent weeks partly to control new mortgage demand given the capacity challenges faced but also a reflection of perceived lending risk. The chart on the right shows the proportion of average income spent on monthly mortgage interest and repayments. This Halifax data shows that affordability of mortgages still remains good, with mortgage costs as a proportion of earnings well below the long-run average due to ongoing low borrowing costs, some wage inflation and very modest house price inflation. Mortgage affordability is clearly supported by low mortgage interest rates and a shift towards fixed rate borrowing, both reducing risk and volatility. The qualification hurdles for a mortgage have, however, become more challenging since the onset of the pandemic. This chart on Slide 33 highlights the removal by certain banks of both 95% and 90% loan-to-value products for new build homebuyers, which has happened since the commencement of COVID-19. Help to Buy, as a result, remains an important tool for those aspiring to homeownership. Changes in mortgage lender behavior, particularly with the removal of access to Help to Buy for existing homeowners, is something which we will continue to monitor as well as maintaining our ongoing dialogue with mortgage lenders. Turning now to Slide 34. Our overriding focus for the year ahead is rebuilding our volumes, our margin and our return on capital employed. But clearly, our longer-term priorities remain. We published our vision 6 years ago to lead the future of housebuilding by putting customers at the heart of everything we do. This defines our culture, our actions and the way that we do business. That vision continues to be underpinned by 4 strategic priorities. We passionately believe that we need to put the customer first to ensure that we build a responsive and resilient business for the longer term. We also have to build great places, communities, where people are proud to live. We aim to lead construction, striving for excellence and embracing modern methods of construction. And investing in our people is vital. Deploying successful strategies for retention and recruitment will help us to meet the longer-term skills challenge that will be faced by the entire industry. We aim to be the leading national sustainable housebuilder to create long-term value for all of our stakeholders. Supporting our vision, our priorities and our principles enables us to deliver excellent financial and operational performance and build a resilient, sustainable business, creating long-term value for all stakeholders. I want to talk briefly on Slide 35 about a key principle on which we have made significant progress this year, safeguarding the environment. This is essential to building a sustainable business which delivers value for stakeholders. In December last year, we appointed a new Group Sustainability Director who is leading our efforts to be the U.K.'s most sustainable housebuilder. And in January, we set new science-based targets, aiming to reduce carbon emissions across our operational footprint. We are targeting a shift to 100% renewable energy sourcing for our own operations by 2025. New standard house type designs will be net zero carbon in use from 2030, and that we will become a net zero carbon emissions business across all of our direct operations by 2040. We are also aiming to create a positive impact for ecology and biodiversity across all of our developments. In leading the industry in sustainability, we will innovate and run ahead of regulations. This is clearly the right thing to do. It will strengthen our consumer proposition, and it will make our business fitter and more resilient for the long term. So let me now bring you up-to-date on current trading, which is summarized on Slide 36. It has clearly been an encouraging start to our new financial year. Our private sales rate per outlet per average week since the 1st of July has been 0.94, more than 38% ahead of the equivalent period last year. And bear in mind that we had a strong comparative period. Coupled with lower outlet numbers, this results in net private reservations per week of 314, almost 26% ahead of the prior year. And our forward sales position, including joint ventures, is also very strong at just over GBP 3.7 billion, 22% ahead of this point last year. Finally, and importantly, I would highlight that this forward sales position is also stated after a strong start to the year, with total completions, including joint ventures, at 1,439 through to the 23rd of August, 62% ahead of the equivalent period last year, which totaled 886 completions through to the 25th of August. So in conclusion, turning to Slide 37. We are clearly operationally strong. Our controlled return to site has provided a platform for sustained construction output recovery, absent further lockdowns. We are clearly financially strong with net cash at year-end, significant unused facilities available, and we expect to generate additional cash in FY '21. Our operational and financial strength are great assets, and we will continue to focus on margin improvement, return on capital employed and disciplined completion growth. We will also continue to lead the industry on quality and service. Our current trading and strong forward order book means we are cautiously optimistic on our outlook, and we are looking forward to rebuilding the business in FY '21. The industry fundamentals clearly remain very attractive. And whilst we are mindful of the economic uncertainties, including Brexit, we are in a strong position, and we are confident in our business going forward. Our vision, priorities and principles have served us well in FY '20 and remain as important now as we rebuild Barratt as a strong, resilient business for the future. Thank you. And we will now be happy to take your questions, and I will hand back to the conference coordinator.

[Operator Instructions] Okay. And our first question comes in from the line of Will Jones calling from Redburn.

Three, if I could, please. The first, maybe if you could just explore the recent weeks of trading, that strong sales rate for July and August. I was referencing the statement, obviously, to the Help to Buy deadlines prompting some action. Have your percentages, I guess, of customers using Help to Buy, has that changed a lot over the last couple of months versus, say, the full year average for 2020? And just perhaps if you could just comment on the pricing you're achieving against those recent sales, please. The second was just around build rates, the roughly 350 equivalent units that you built, I think, last week, and then the guidance of building closer to 300 for the year as a whole. Is there a reason why that 350 does step down from here? Or are you just allowing for winter or some setbacks maybe or whatever it might be? Just wondering about the gap between the 2 there in terms of the -- just effectively the build rate guidance. And then the last one was just perhaps if we could go back to the margin bridge on Slide 23. Is it possible just to explain to us more simply the difference between -- if we look at the volume impact decline of 190 basis points for gross margin and the extended site durations of 90, can you just help us understand the difference between those 2? And then in terms of their improvement going forward, presumably, we can do the math on any volume improvements against 190, but the site extension, is that -- do you just have to trade out of those sites now over time? Or do you revisit that every 6 or 12 months? And if volumes go up this year, that gets a better benefit? I don't know. Just any more understanding really around those 2 items would be great.

Okay, Will. Yes, you're definitely coming through loud and clear. So just on question 3, the margin bridge, that all sounded quite tricky to me, so Jessica will cover that. And then on build rates, Steven will talk about build rates. So if I start off, and then we'll move to Steven. So just in terms of trading for July and August, I mean, I think, first of all, when we announced in July with the trading update, we were clearly seeing good trading trends coming through June. And so I think it's been -- as Steven touched on, it's been kind of consistent trading across the country. I wouldn't call out any particular area. I just say that, overall, we've seen good trends. In terms of Help to Buy, the Help to Buy participation has ticked up a little in July and August, and that is probably the other side of loan-to-value availability dropping a little. And therefore, I think Help to Buy is becoming even more attractive given what I would imagine are temporary reductions in loan-to-values from lenders. In terms of pricing, I think we said that for FY '20, there was very little movement in terms of pricing. For July and August, I would describe pricing as very firm. I mean I don't think we could give any figures because it's just too short a period of time. But I would say pricing is very firm through July and August. Steven, do you want to pick up on yield?

Yes, David. Will, yes, it's exactly as you say in terms of -- the 347, that 347 was week 8. We put on Slide 12 a sort of green line sort of indicating where we need to be to deliver our guidance, 14,500 to 15,000 per year. Week 8, we've got all our trades back on-site now as we sort of indicated on the preceding slide. We've got highly predictive weather. The guys are working long hours -- extended hours on-site and weekends. And we have to bear in mind that over the 50-week average, and that obviously takes into account the 2 weeks off in Christmas, but over the 50-week average, there will be some sort of lesser working hours, particularly when you get to sort of November, December, January, February, when days are shorter, and they don't tend to work the weekend. So will probably be our most productive time of the year, so we need to be doing those sort of numbers to deliver the average throughout the year. Hopefully, that explains that one.

Thanks, Steven. And Jessica will pick up on the margin.

In terms of the 2 elements of the bridge, the volume impact is simply going through the effect of the decrease in completion volumes year-on-year. Despite extension, as I said, we expect that our sites will be extended on average by around 6 months. Clearly, that's a conservative judgment, but we have already had a period of time where we've been on site for longer than we would have anticipated pre-COVID, while we've been building our productivity back up. When thinking about the GBP 29 million, that's clearly related to the completion volumes in the year. So if you take the GBP 29 million on the 12,000 wholly owned completion, when looking forward, you can extrapolate that over the 14,500 to 15,000 completions. So that would, if you take the 15,000, that would be an impact of around GBP 36 million on FY '21. And clearly, we're going to be looking to improve against that as we go forward, and dependent upon where we turn out on production levels.

But the roughly, 20 -- that run rate, GBP 29 million, is more a reference point against last year's output as opposed to necessarily what you're guiding for, for the year ahead. So do you reassess that -- I'm saying could that number be better because your worse point at the moment or you have been -- is that not the right way to interpret it, sorry?

Yes, the GBP 29 million is a full year impact across all of our completions in FY '20 because we recognize margin on an equalized margin basis. So we had a 90 basis point reduction of margin. If our assumptions around 6 months continue, then we will continue to see that 90 basis points continue all those sites straight through. If we can do better than that, then clearly we see an improvement on that position. But as always, we will assess that every time we do our valuation, which is every month, we look at the proportion of our sites.

The next question comes from the line of Aynsley Lammin calling from Canaccord.

Just 3 questions for me. So first of all, just on Help to Buy and the impact kind of what you're doing in the land market, just to preempt what's obviously, as it tapers down in March, are you being a bit more conservative in your land buying or kind of what you're expecting the impact of that tapering to be on Help to Buy? And then second question, just on special dividends. Just wondered if you could give more if your thinking behind that. Obviously, you've got the macro risk and the earnings could be quite volatile. But is there anything structurally where you've kind of not particularly like to be paying out special dividends? I don't know if income funds prefer just an ordinary dividend. Anything that you could add to that would be great, please. And then just on the kind of -- obviously, your volume guidance is dependent on no more kind of full natural lockdowns, but just where you've seen recent regional or local lockdowns. Has that had any impact recently on build rates, sales rates or anything? Or is it pretty minimal?

So I'll have a go at the first 2 in terms of Help to Buy and special dividends. And then Steven will pick up in relation to local lockdowns, and we obviously have some experience of that. So in terms of Help to Buy, I mean, I think the key thing to flag is that the tapering in March '21, as you know, is not new news. And therefore, we've said previously that we have looked at our land-buying assumptions in light of that tapering. And broadly, that has meant that we've said, first of all, we would expect to see a pickup in terms of Part Exchange activity, and therefore, some increase in incentives -- incentive cost as a result of more Part Exchange. And secondly, we would expect to see a slowing in the rate of sale as we move past that March '21 position. So that's something that we factored into our land buying, certainly, over the last couple of years. And obviously, we'll see what happens when we move through to March '21. In terms of special dividends, we've announced in this announcement today and in our previous announcement that the November '20 and the November '21 special dividends will no longer be proposed. I think when you look at the evolution of our dividends, we started with an ordinary dividend. And then when we saw that we had surplus cash, we then added the special dividend on the basis that it was a mechanism by which we could distribute our surplus cash. So in resetting our dividend, I think we're saying that an ordinary dividend is appropriate. We'll obviously continue to monitor the performance of the business going forward, but there is simply no special dividend on the table at this point. In terms of the difference for funds, I mean, we recognize there can be some difference in terms of treatment, if the special dividend is not set out over a long period of time, typically 3-plus years, and we'll take account of that but I think we're some way away from those kind of discussions at this point.

In terms of impact of the local lockdowns, yes, we've sites in -- left there in the Northwest, which were in those areas where there were local lockdowns and there was no noticeable impact on build or sales activities. Our activities weren't restricted by the lockdowns. So no noticeable impact from those lockdowns.

Great. Just to follow up then, David. So on the special dividends, you're not kind of abandoning them forever more. It's just in the near term, you don't see any prospect of specials but they could come back on the table later on if recovery continues and cash flow improves, et cetera?

Yes. I mean in the same way, as I said, it evolved originally. I mean, we don't have any philosophical problem with special dividends. I mean, we saw that there was a place for it in our dividend strategy previously. But at this point, we're very much on the basis that we go forward with ordinary dividends, and the Board will just continue to assess that on a 6-monthly basis.

The next question comes from the line of Andy Murphy from Panmure Gordon.

I've got 2 questions and a little bit interrelated. Just thinking about the COVID-19 and working from home, which has been a key element of work in practice over the last 6 months. I was just wondering to what extent you're seeing pressure from people coming and saying that I need a bit more space in the house I'm looking for and whether you're reacting to that in terms of redesigning and what that might impact on costs. And I guess the flip side to that is really the second question, think about Help to Buy. I'm imagining -- I'm assuming that with the restrictions coming in that Help to Buy was a new courage, maybe an increase in smaller houses, which obviously this is sort of a counterbalance to my first question. So I was wondering how you're thinking about adjusting your output to the Help to Buy restrictions? And then finally, I was wondering, you said earlier on that 16% of your output last year would not have been eligible for Help to Buy. I was wondering if you've given any thought to what proportion of that 16% could have actually bought -- they just chose to use Help to Buy in order to get -- would they have had or what proportion about the capacity to make the purchases without Help to Buy?

Okay. Andy, I think I'll just try to run through that. As you say, they're probably kind of interrelated. So I think, first of all, in terms of house-type design, certainly, Steven and I, and Steven and his team, have talked about the extent to which there are implications on house-type design in light of COVID-19. Well, I think we have to recognize it is early days. We've been very focused on restarting the business and clearly getting back to reservations and getting back to build. What you see in terms of the search information coming through from Rightmove and coming through from Zoopla is that people are looking for flexible space. So I don't think they're necessarily looking for more space because I think people recognize that a larger house costs more money. But what people are looking for is the flexibility of space, whether it be for people to undertake home working, whether it be for children to undertake school work and so on. So that flexible space, rather than say a dedicated office, I think is high up on people's priority list. And the other area is open space. So clearly, there's been search trends that have been more about houses than about apartments. So that's a sign that Rightmove had flagged really right back since April, May time. In terms of Help to Buy, I mean, I don't think per se that Help to Buy creates or a move towards smaller homes. I mean, arguably, presently, quite the reverse because of the relatively high cap at 600,000. As we move to regional caps, we flagged that perhaps in Midlands and Northern that the regional caps look reasonably tight. So that may cause some movement towards smaller houses for Help to Buy users, but that's obviously on a very regional basis. But the majority of the country, the caps don't present any particular challenge. And I think you've got to bear in mind that for us, planning the business, we're also planning beyond 2023 when Help to Buy will stop. So I think the most important thing we see is that you've got to have a balanced portfolio. And with Barratt and David Wilson, we clearly have the opportunity to present a very balanced portfolio in terms of 1 bedroom through to 5 bedroom homes. So I think that's important. When you look at people who can and can't use the Help to Buy program, 2 things, really, to highlight. I think there's been a reasonable amount of commentary over the last 2 or 3 years from different parties that there are a lot of people who are using the Help to Buy program who may have the financial means to go for a more conventional mortgage. So the reality is that perhaps people do have savings, but given Help to Buy, they don't need to use all of their savings for the deposit. And secondly, Part Exchange for the second time or subsequent mover has always been a very important part of the market for the house builder. So we would expect to see an increase in Part Exchange as we move beyond March '21 and go back to perhaps more normal levels of Part Exchange as we saw prior to the launch of Help to Buy.

Great. Just to ask one follow-up question. On that, just on Help to Buy, what's chance that you ascribe the government might change its mind and defer the changes or continue with the existing Help of Buy arrangements as they are just in terms of help the housing market along at this time?

Well, I think, Andy, very simple. I mean, the sort of view that I would have on it would be 2 things. First of all, I think the government have given us good visibility of the tapering and then the termination of the scheme. As you know, this visibility was put in place sometime ago. So I think largely, government have done what you would ask them to do, which is to give us visibility firstly. And secondly, we've got to plan our business on the basis that the tapering and then the ending of the scheme run in line with the timetable as set out by government. So I can speculate all day long, but that's not the way we're going to run the business. So in terms of our land buying and our strategy, it's very much about putting the business in a place for 2021 and then for 2023, where we've got a balanced portfolio of products. That's the key thing we need to focus on. Keep talking to the banks, keep looking at the loan-to-value, that's obviously what government will do as well. And I'd be very confident as the banks want to lend, that the banks will provide the loan-to-values to allow the markets to operate normally.

The next question comes in from the line of John Fraser-Andrews calling from HSBC.

I'll have 3 as well, please. The first one is on your forward order book, the GBP 3.7 billion is higher than your sales of last year. Clearly, those are going to increase quite a bit. But could you just set out how much of that forward order book you think is for the current financial year? And how much for the year after? That's the first question. The second is on outlets. The decline in the first 8 weeks of this year, the 9% lower outlets. What's the plan there, please, in terms of our profile and particularly starting up outlets to drive the volume growth that you're projecting? And the third and final question is on the land spend. You projected at GBP 850 million. Can you just set out sort of where you stand in terms of spending that money. It sounds like you haven't spent too much so far. You've said you've been selective. But going into this autumn land market, what have you seen over the summer in terms of land prices? And what are the indications on availability to meet your objectives?

Okay. Thank you for those. So just on -- just talking on the forward order book and what's for FY '21, what's for FY '22, just in broad terms. And then in terms of outlets, I mean I think Steven will just pick up a general view in relation to outlets. And I think what I'll do on land spend is we'll just split that between Steven and myself. So I'll just give an overall view in terms of land spend and then Steven can talk maybe about some of the opportunities and what we see in terms of the land market. But as we've said this morning on land, clearly, the steps that we're taking back into the market are obviously fairly tentative. So if I just start off in terms of land spend. I mean, as you know, we've historically guided to land spend, and we've been at land spend levels that have been close to GBP 1 billion. In the current year on land spend, Jessica gave the guidance and a big part of that expenditure of GBP 850 million is in relation to the brought-forward land creditor position. So circa GBP 490 million, GBP 500 million of spend in that area. And therefore, the incremental trend, some of it is already committed, but there is a fair amount of it will be committed to us stepping back into the market. So perhaps as Steven wants to just outline what we're doing in these sort of tentative steps back into the market.

Yes, yes. Yes. Thanks. Yes, as David said, in fact, we've recently just come back into a market middle of August and we've signed off 9 to 10 deals in the last couple of weeks, which are proceeding on a short-term basis. Generally, a lot of the sites we're looking at, the locations have strong, proven demand, where we can build standard product. They've got strong planning credentials where we expect some sites pretty soon. And they generally sorted deals in the size of 100, 150-plus on average. Obviously, maintaining a very disciplined approach where we see these attractive opportunities that either meet or exceed our hurdle rates. In terms of our visibility of land, we're [indiscernible] all the agents and landowners as you'd expect. We have good relationships and we have good visibility of land coming into the market in the next 6 to 9 months. And we're expecting a number of sites to come through onto the market in autumn and early part of 2021. So we're pretty happy with the way things, a lot of good prospects, good availability going forward on land.

Okay. Thanks, Steven. And just in terms of outlets, I mean, Steven, again, will expand a little. But what I would say on outlets, I mean, clearly, there has been delays. So delays for us in terms of getting sites ready to commence and/or commencing on site. So that's clearly been part of what's happened in relation to COVID. But Steven, do you want to take just the outline?

Yes, again, there has been delays, as David touched on. And there is sort of a bit of a lag coming through the planning system, a number of sites that are already expected inside of March here pulling out sort of coming through July, August, September. No doubt the numbers will be coming out in due course on the planning achievement in terms of sites approved. But on average, we've got about 9,800 sites start in the next 12 months and we'd hope to start building the outlet around about the level we're currently operating on and moving forward on that business. Certainly, the sites are selling very well, which is another factor which impacts our outlook.

Okay. And Jessica, on the forward order book?

Yes. So we have a strong forward order book at the 23rd of August at GBP 3.7 billion, which is 15,660 homes and we're seeing good completion delivery over the first 8 weeks of the year. I think when looking at the split, it's best to look at it by type of products. So we have wholly owned private homes within the order book of almost 6,600. And because of how we sell the majority of those will be delivered in the current year of affordable homes of nearly 6,000 -- nearly 8,250. Some of those will be delivered this year. Some of those will be delivered next year because affordable contracts tend to be entered into towards the start of the site. So unaffordable, the best way to look at things is around 20% of our completion volumes this year. So around 20% of our 14,500 to 15,000 wholly owned completions will be affordable units.

The next question comes in from the line of Chris Millington calling from Numis.

It seems that [ shapes ] kind of move away from the free. So I'll stick with that. Can you just talk quickly about build inflation on new contracts? I understand the 1% to 2% guidance you've given, but obviously, that carries forward contracts signed sometime ago. So maybe just kind of current trends there. Also, you touched on pricing earlier, saying it's been very firm. But I presume with the sales rate feeding through at the level it is doing, you may be looking to actually change pricing. So perhaps any comment there? And then the last one I wanted to touch on really is fire safety. I mean, it really does feel like it's a moving feast at the moment. But perhaps you could just give us your update and thoughts and whether or not you feel like you're well covered from a provision point of view, both really on legacy properties, which are being completed, I'm talking about there?

Okay. Chris, so I think in terms of the build inflation in relation to contracts, I mean, Steven will pick that up in terms of the position. On sales pricing, I'll pick that up and then fire safety, I'll cover. So just in terms of sales pricing. I mean, Chris, I think all I would say is it's a very short period through July and August. So clearly, the initial part of it is the extent to which we're having to do deals. Previously, if you went back to your 4 months ago, you'd see deals in the market. Prior to lockdown, whether it would be stamp duty deals, and clearly, there's now a stamp duty holiday, so there's not stamp duty deals. So the reality is that there is less deals being done, and that would clearly be the first thing to happen before prices actually move. But overall, it's a very positive environment in terms of pricing, given the levels of demand. And when we get to the half year, we'll obviously update in terms of our experience across the first half. In terms of fire safety, I would say, overall, that clearly the cladding solutions for buildings has obviously been the subject of intense scrutiny since the tragic events around Grenfell. And we've said previously that we've undertaken a review of all of our buildings. We've demonstrated as a business that where we feel that there is a requirement for us to step up to deal with things, whether we are legally liable to do so or not, we have been comfortable to take on the commitment to step up. Everything that we're aware of that we would be required to undertake, we have made provision for, but we recognize that the position is evolving because regulations are being altered, and we've clearly seen a number of changes to regulation over the last couple of years. So I think for everyone, it is just an ongoing position, but we've been quite transparent. And we've clearly, as Jessica touched on, we've had substantial costs over the last couple of years relating to fire safety, but cladding in particular. Steven, you...

Yes, yes, yes. In terms of build cost inflation, whether it be on supply and fixed contracts or direct materials and direct labor we're involved in, we sort of approach it on a similar basis. We turn into sort of fixed prices generally 6 to 12 months, deliberately sort of a short-term strategy to take in the year advantages as things change. In terms of our raw materials and a lot of the materials, we agree prices on. Also, applies to our contracts as well, subcontractors. So 90% of our materials are fixed for the first half and 62% for the second half. We're seeing good levels of competitive tension across the market, whether it be on supply and fix or materials. It's been helped by some energy reduction costs in the last 6 months or so. And I think the other factor, which obviously big influence on our build cost inflation is labor rate. And again, we're not seeing any real pressure on labor increases. The trade increase, which was due in June, July, was pushed back to September, and we understand that it's now likely to be pushed back until June '21. So there's plenty of trade availability. We've seen reasonably consistent rates geographically around the group, no real pressure points and achieving good levels of fixed pricing. So we're happy on that 1% to 2% for the year.