Half Year Results

05/02/2020 Archive

BARRATT DEVELOPMENTS PLC

Half year results for the six month period ended 31 December 2019

Strong first half performance, continued good progress against medium term targets

£m unless otherwise stated¹^,²	Half year ended 31 December 2019	Half year ended 31 December 2018	Change
Total completions (homes)3	8,314	7,622	9.1%
Revenue	2,266.2	2,132.0	6.3%
Profit from operations	421.7	409.7	2.9%
Adjusted operating margin4	19.4%	19.0%	40 bps
Operating margin4	18.6%	19.2%	(60 bps)
Profit before tax	423.0	408.0	3.7%
Basic earnings per share (pence)	33.8	32.7	3.4%
Interim dividend per share (pence)	9.8	9.6	2.1%
ROCE (%)4	29.3	29.5	(20 bps)
Net cash4	433.8	387.7	11.9%

Highlights

Britain’s largest housebuilder leading the industry in both build quality and customer service. Only major housebuilder to be awarded HBF 5 Star rating by our customers for ten consecutive years
Highest half year home completions in 12 years with 8,314 total completions3, up 9.1%, reflecting growth and a smoother delivery profile. On track for 3-5% growth in wholly owned completions in FY20
Adjusted operating margin of 19.4% (2018: 19.0%), driven by continued good progress from our margin initiatives. Operating margin was 18.6% (2018: 19.2%) after adjusted items costs of £17.8m (2018: adjusted items credit of £3.7m)
Land creditors as at 31 December reduced to £830.8m (2018: £961.8m), achieving targeted level, and continued effective cash generation, closing the half year with net cash of £433.8m (2018: £387.7m)
First UK housebuilder to set a science-based target, challenging ourselves to reduce carbon emissions in our operations by around a third from FY18 to FY25 in line with our ambition to be the leading national sustainable housebuilder

Current trading

Net private reservations per active outlet per average week from 1 January to 2 February 2020 were 0.83 (2019: 0.74)
Strong total forward sales3 as at 2 February 2020 of 13,043 homes (3 February 2019: 13,194 homes) at a value of £3,027.1m (3 February 2019: £3,021.0m)
Outlook for the full year remains in line with the Board’s expectations

Capital Return Plan

Further extension to the Capital Return Plan with proposed special returns of £175m in November 2020 and November 2021 in addition to ordinary dividend cover at 2.5 times

Commenting on the results David Thomas, Chief Executive of Barratt Developments PLC, said:

“We have achieved a strong first half performance, delivering continued volume growth and making good progress against our medium term targets. We have made a good start to our second half and with substantial net cash, a well- capitalised balance sheet and strong forward sales, the outlook for the full year is in line with our expectations.

‘The customer continues to be at the heart of everything we do. In 2019 we were proud to become the only major housebuilder to be awarded a 5 Star rating by our customers in the HBF survey for ten consecutive years and look forward to extending that record. We will continue to lead the industry in quality and service as we deliver the high quality homes and developments the country needs, creating jobs and supporting economic growth across England, Scotland and Wales.”

Refer to Glossary for definition of key financial metrics
Unless otherwise stated, all numbers quoted exclude JVs
Including JVs in which the Group has an interest
In addition to the Group using a variety of statutory performance measures it also measures performance using alternative performance measures (APMs). Definitions of APMs and reconciliations to the equivalent statutory measures are detailed in the Glossary and Definitions. Net cash definition in Note 5.1

Note on forward looking statements

Certain statements in this document may be forward looking statements. By their nature, forward looking statements involve a number of risks, uncertainties or assumptions that could cause actual results to differ materially from those expressed or implied by those statements. Forward looking statements regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. Accordingly undue reliance should not be placed on forward looking statements.

This announcement contains inside information. The person responsible for arranging for the release of this announcement on behalf of Barratt Developments PLC is Claire Adams (Interim Head of Investor Relations).

There will be an analyst and investor meeting at 8:30am today at Deutsche Bank, 1 Great Winchester Street, London, EC2N 2DB. The presentation will be broadcast live on the Barratt Developments corporate website, www.barrattdevelopments.co.uk, from 8:30am today. A playback facility will be available shortly after the presentation has finished.

A listen only function will also be available

Dial in:	08003 767922
International dial in:	+44 (0) 2071 928000
Conference ID:	1970264

Further copies of this announcement can be downloaded from the Barratt Developments corporate website www.barrattdevelopments.co.uk or by request from the Company Secretary's office at: Barratt Developments PLC, Barratt House, Cartwright Way, Forest Business Park, Bardon Hill, Coalville, Leicestershire, LE67 1UF.

For further information please contact:

Barratt Developments PLC
Jessica White, Chief Financial Officer	01530 278 259
Analyst/investor enquiries
Claire Adams, Interim Head of Investor Relations	01530 278 270
Media enquiries
Tim Collins, Head of Corporate Communications	020 7299 4874
Brunswick
Jonathan Glass/ Rosie Oddy	020 7404 5959

Financial reporting calendar

The Group's next scheduled announcement of financial information is the trading update on 7 May 2020.

Chief Executive’s Statement Overview

We have delivered a strong operational and financial performance in our first half and continue to make good progress against our medium term targets. We are building homes the country needs, creating jobs and supporting economic growth whilst also delivering both operationally and financially for our stakeholders.

Primary operational targets and key financial metrics
	Medium term targets	Progress in the half year
Completions	3-5% growth per annum in wholly owned home completions Present business capacity of 20,000 homes per annum	Highest half year completions in 12 years On track to deliver 3-5% growth in wholly owned completions in FY20
Gross margin	New land acquisitions at minimum 23% gross margin	Significant progress towards our margin targets Adjusted gross margin up 60 bps to 23.0% (Gross margin 22.2%)
ROCE	Minimum of 25%	Strong ROCE of 29.3% for the 12 months to 31 December 2019

We are very proud to be Britain’s largest housebuilder and to consistently lead the industry in both customer service and build quality. We operate across England, Scotland and Wales through our three brands: Barratt Homes, David Wilson Homes and Barratt London. We strive to meet our customers’ expectations and we believe that the high quality of our homes and our excellent customer service is fundamental to our ongoing success.

We remain committed to playing our part in addressing Britain’s housing shortage and have a medium term target to grow wholly owned home completion volumes by 3-5% per annum. We delivered our highest half year volume in 12 years, strongly growing total completions3 by 9.1% to 8,314, driven by growth in our regional business including our Cambridgeshire division, and outer London. This increase reflects both progress towards our medium term volume target and our aim for a smoother delivery profile between the first and second half of our financial year. We remain committed to maintaining our industry-leading standards of quality and customer service whilst continuing to grow volume.

Over the last six years, the operational improvements we have made have successfully grown our margin and we have now made significant progress towards our margin targets. Our new product ranges continue to underpin our land acquisition at a minimum of 23% gross margin. We continue to remain focused on driving further improvements in the efficiency of our operations and controlling costs whilst maintaining our focus on quality and customer satisfaction.

As a result of our successful operational improvements, in the half year we delivered a 60 bps increase in adjusted gross margin to 23.0% (2018: 22.4%) and a 40 bps increase in adjusted operating margin to 19.4% (2018: 19.0%). During the period, we incurred £17.8m of adjusted items related to costs associated with legacy properties at developments where cladding has needed to be removed and replaced. We delivered a gross margin of 22.2% (2018: 22.6%) and an operating margin of 18.6% (2018: 19.2%). Profit from operations for the half year was £421.7m (2018: £409.7m).

We delivered a strong ROCE of 29.3% (2018: 29.5%), ahead of our target of a minimum of 25% over the medium term. We are pleased with our ROCE performance as in the half year we achieved our target to reduce land creditors in line with our operating framework.

We have a robust and resilient balance sheet and ended the half year with net cash of £433.8m (31 December 2018: £387.7m).

Our disciplined approach and our financial strength enable us to keep investing in our business and the future of housebuilding.

Attractive housing market fundamentals

The housing market fundamentals remain attractive. The lending environment continues to be positive with greater competition in the mortgage market and a broad spread of lenders supporting homebuyers. We anticipate continuing Government support for new-build homes to help aspiring homebuyers to get onto the housing ladder. The Conservative Party manifesto going into the 2019 General Election made clear that Help to Buy will continue in its current form until March 2021, and thereafter a new scheme will be in place for two further years with scheme participation available to first-time buyers with some regional price caps. To June 2019, 236,313 homes had been bought using the scheme, 81% by first-time buyers (Source: MHCLG, Help to Buy (equity loan scheme) statistics: November 2019).

Committed to building more high quality homes

We remain committed to playing our part in addressing the housing shortage. We design attractive developments that meet our high quality standards and will enhance local communities for years to come. We continue to increase volumes whilst maintaining our industry-leading quality, and remain committed to investing in the future of housebuilding.

Leadership in quality and customer service

We believe our industry leadership in quality and customer service is fundamental to our business resilience and our quality has been externally recognised through a number of awards. The NHBC Pride in the Job Awards recognise excellence in build quality and site management. In June 2019, 84 of our site managers achieved awards, more than any other housebuilder for the 15th consecutive year. Of these site managers, 23 have gone on to win Seals of Excellence with three winning regional awards. We are extremely proud that one of our site managers, Mark Summersgill, was named Supreme Winner in the Large Builder category at the NHBC Pride in the Job Awards. As a business, this is the fourth time in five years we have won a Supreme award. No other major housebuilder has achieved this level of success and recognition for quality in the same period.

We are also the only major housebuilder to be awarded the maximum 5 Star rating by our customers in the HBF customer satisfaction survey for ten years in a row which means that our customer satisfaction rating is consistently over 90%.

In November 2019 we were awarded the Housebuilder of the Year award at the WhatHouse? Awards, also winning the Gold Award in the Best Large Housebuilder category. In addition, we were successfully named as Large Housebuilder of the Year at the Housebuilder Awards 2019. To win these two major industry awards in the same year is a unique achievement for our business and a reflection of our commitment to quality and customer service.

Investing in our people

We are committed to the development of our people, not just because it is the right thing to do, but because it is fundamental to our long-term success. As our industry continues to face a skills shortage, it is important to attract and retain the best people.

We are building a diverse and inclusive workforce that reflects the communities in which we operate, delivering excellence for our customers by drawing on a broad range of talents, skills and experience.

We are investing for the future and continue to develop award winning schemes including those for graduates, apprentices and former Armed Forces personnel, alongside our own Degree Apprenticeship in Residential Development and Construction run in conjunction with Sheffield Hallam University. Building on the success of this programme, we have created a fast track bricklaying apprenticeship, shortening the programme duration by six months, which has attracted more candidates.

We also continue to collaborate with the wider housebuilding industry. We actively participate in the Home Building Skills Partnership, the aims of which include attracting new entrants to the industry, providing the skills for today and the future, and supporting the supply chain in attracting and developing the skills they need to support our industry.

We seek to create a great place to work founded on an open and honest culture. We engage with our employees on a regular basis so we can understand their issues and concerns and address them. We carry out an annual engagement survey, further surveys throughout the year and consult with our Workforce Forum. The feedback received is used to take action and devise improvements.

We aim to create an attractive working environment and we are committed to delivering our Diversity and Inclusion Strategy. We have identified targets in areas such as gender and ethnicity and our aim is to improve in all areas over the next two years. We have introduced flexible working to help us retain talented employees as it can be particularly beneficial for those with family and caring responsibilities. Nearly all our managers have now completed our diversity training programme, and all employees will complete our diversity and inclusion e-learning module. We have also launched a career development programme for high potential female employees.

We are now an accredited Living Wage Employer, making us one of the first major housebuilders to receive the accreditation. The real Living Wage is different to the Government’s National Minimum and Living Wage, as it is an independently calculated higher hourly rate of pay that is based on the actual cost of living. Receiving this accreditation demonstrates our commitment to our employees as well as our suppliers and subcontractors.

Modern methods of construction (MMC)

We are committed to increasing the number of homes we build using MMC to increase efficiency and to help mitigate the challenges posed by the shortage of skilled workers within the industry. We continue to develop, trial and implement MMC, building and selling 17.6% of homes in the first half using timber frame or large format block (2018: 14.6% homes built and sold using timber frame, large format block or light gauge steel frame). We also use offsite manufactured ground floor solutions and roof cassettes. In FY19, we achieved our 2020 target of 20% of home completions using MMC a year ahead of schedule and set a new target to use MMC to build 25% of our homes by 2025.

Timber frame construction is a sustainable, low energy method of manufacturing, built in factories to high standards. In June 2019, we acquired Oregon, a manufacturer of timber frames. Oregon was already one of our key timber frame suppliers, providing high quality products and excellent customer service. The experienced Oregon management team continue to lead our timber frame business and the integration of Oregon into the Group is proceeding well. Our core English housetypes have now been designed for Oregon timber frames and the first frames on English sites have been erected during the half year. We expect to deliver over 800 timber frames from Oregon to our sites this year.

Our financial performance

Half year results

The Group has delivered a strong first half performance with good customer demand for our high quality new homes supported by a stable market backdrop. Overall our net private reservation rate was strong at 0.69 (2018: 0.64) with a particularly strong end to the half year.

During the period, we operated from an average of 372 outlets3 (2018: 376 outlets) and expect to operate a similar number of outlets across our financial year. We have made good progress on new site openings, launching 45 new outlets3 (2018: 90 outlets) in the half year which was ahead of our new site openings plan.

Total home completions3 were the highest at our half year for 12 years at 8,314 homes (2018: 7,622 homes) and comprised:

Completions (units)	H1 FY20	H1 FY19	Change
Private	6,301	6,078	3.7%
Affordable	1,699	1,324	28.3%
JV	314	220	42.7%
Total³	8,314	7,622	9.1%

As a result of the strong half year completion growth we are on track to deliver 3-5% growth in wholly owned completions this year, with our volume growth continuing to come from three areas. Our Cambridgeshire division, now in its second full year of trading, is performing well and delivered 143 completions in the half year. Over the next few years the division will grow towards its capacity of around 725 units. We continue to focus on the growth opportunities in outer London and our London business is now fully repositioned to take advantage of these. In addition, our existing divisional network has capacity for further volume growth. In recent years, we have secured high quality land to support growth across our regional business. This should enable growth in each regional division to c. 725 homes per annum over the medium term.

Affordable housing completions increased by 28.3% to 1,699 (2018: 1,324). This included an additional 305 homes within our London business reflecting delivery on new sites and weighting of delivery towards the first half of this year. We continue to expect affordable completions to represent 21% of our volume for the financial year.

Private ASP was £312,000 (2018: £317,300) reflecting the greater weighting of London delivery in the second half due to site build programmes. Outside of London, our private ASP increased by 2.6% to £303,900 (2018: £296,200), driven by mix movements towards our higher ASP regions and to larger family homes. Affordable ASP increased by 32.3% to £160,000 (2018: £120,900) reflecting the change in mix with more affordable units delivered in London. Total ASP was £279,800 (2018: £282,200).

The repositioning of our London business is now complete with all wholly owned central London units forward sold. Our two remaining active central London JVs are now 98% forward sold.

We have delivered an uplift of 60 bps in adjusted gross margin in the half year mainly from the delivery of our new product ranges on land acquired at a minimum 23% gross margin hurdle rate, whilst continuing in the normal course of our business to invest in quality and customer service. As a result our adjusted gross margin was 23.0% (2018: 22.4%). In line with our commitment to put customers first, adjusted item costs of £17.8m arose on legacy properties at developments where cladding has needed to be removed and replaced, leading to a gross margin of 22.2% (2018: 22.6%).

We carefully control our administrative expenses. Alongside underlying inflation of c. 3%, there have been changes to the phasing of expenditure and we have invested in our new Oregon and Cambridgeshire operations and in our IT capabilities. As a result, our administrative costs in the half year increased to £82.0m (2018: £72.5m). We continue to expect net administrative expenses for FY20 to be around £195m.

Operating profit increased by £12.0m to £421.7m (2018: £409.7m) as a result of our increased completion delivery and growth in adjusted gross margin partly offset by the adjusted items and increase in administrative costs. Our adjusted operating margin increased by 40 bps to 19.4% (2018: 19.0%) driven by the strong delivery across our business. After adjusted items, operating margin for the half year was 18.6% (2018: 19.2%).

Net finance charges were £1.0m lower than the prior period at £14.1m (2018: £15.1m). The cash finance charge was £3.1m (2018: £3.2m) with non-cash charges of £11.0m (2018: £11.9m). We now expect FY20 net finance costs to be around £30m, comprising £7m of cash and £23m of non-cash.

In the half year, the Group’s share of JV profit was £15.4m (2018: £13.4m). We continue to expect to deliver around 750 JV completions and around £30m of JV profit in FY20.

Profit before tax increased by 3.7% to £423.0m (2018: £408.0m) and the Group recognised £77.7m of tax charges at an effective rate of 18.4% (2018: 18.7%). Basic earnings per share increased by 3.4% to 33.8 pence per share (2018: 32.7 pence per share).

Adjusted items

Following the Grenfell Tower tragedy, amendments to the Building Regulations and related guidance have been made. The Group carried out a review of all of its current and legacy buildings where it has used cladding. Approved Inspectors signed off all of our buildings, including the cladding used, as compliant with the relevant Building Regulations during construction and on completion. Following this review and in line with our commitment to put our customers first, we have incurred and accrued an additional £7.0m of costs for work involved at legacy properties associated with removing and replacing cladding. Whilst we were not liable for these works, the costs would otherwise have fallen to leaseholders, many of whom bought their properties from us. In addition to removing and replacing cladding at one bespoke development constructed in 2001, further works have been required for which we have also provided voluntary assistance, with total costs associated with this development of £10.8m.

Further to continuing and evolving Government advice on the cladding of multi-storey buildings, we continue to work with building owners and management companies on the assessment and review of buildings we have constructed.

We are signatories to the Building Safety Charter and active members of the Early Adopters Group, which is committed to supporting cultural change across the industry to ensure buildings are safe for those living and working in them, now and in the future.

Capital structure and operating framework

We will continue to maintain an appropriate capital structure and operating framework.

Our capital structure has shareholders’ funds and land creditors funding the longer term requirements of the business with term loans and bank debt funding shorter term requirements for working capital. On 22 November 2019, we extended our £700m Revolving Credit Facility to 22 November 2024.

In order to maintain a resilient balance sheet, our operating framework is to have average net cash over the financial year and to be cash positive at year end. As at 31 December 2019, the Group had a net cash balance of £433.8m (31 December 2018: £387.7m), reflecting effective operating cash generation and phasing of land payments, partly offset by an increase in corporation tax paid due to new payment schedules required by changes to tax regulation. We now expect FY20 year-end net cash to be around £600m as a result of trading and lower levels of required investment in other working capital.

Whilst we continue to seek to defer payment for some land purchases to drive a higher ROCE, we have achieved our targeted reduction in land creditors to 25-30% of the owned land bank during the half year. As at 31 December 2019 land creditors were 27.4% (31 December 2018: 32.1%) of the owned land bank.

Our operating framework has remained consistent throughout the half year and is as follows:

	Operating framework	Progress in the half year
Land bank	c. 3.5 years owned and c. 1.0 year controlled	31 December 2019: 3.7 years owned and 0.9 years controlled (31 December 2018: 3.7 years owned and 1.0 year controlled)
Land creditors	Reduce usage to 25-30% of the land bank over medium term	Achieved target - reduced to 27.4% (31 December 2018: 32.1%)
Net cash	Average net cash over the financial year	Average net cash of £458.3m for the six months ending 31 December 2019
Net cash	Year-end net cash	31 December 2019: £433.8m (31 December 2018: £387.7m)
Treasury	Appropriate financing facilities	£700m Revolving Credit Facility extended to November 2024
Capital Return Plan	2.5 x dividend cover Ordinary dividend supplemented by special returns when market conditions allow	FY20 interim dividend of 9.8p (2018: 9.6p) per share and Capital Return Plan extended to November 2021

Net tangible assets were £3,941.5m (£3.87 per share) (2018: £3,659.5m) of which land, net of land creditors, and work in progress totalled £4,005.8m (£3.93 per share) (2018: £3,704.9m).

The key dimensions underpinning delivery of our strategy

Land and planning

In addition to stable market conditions, our successful land investment strategy has driven increased completion volumes and improvements in profitability during the half year.

We have continued to see high quality land opportunities across the country that exceed our minimum hurdle rates. Our ability to dual brand and appeal to a broad mix of purchasers through our Barratt and David Wilson product ranges enables us to successfully deliver larger sites. We continue with our disciplined approach to land acquisition, and have approved £406.1m (2018: £338.2m) of operational land for purchase, which equates to 9,242 plots (2018: 9,576 plots) in line with our expectations. To support our volume growth aspirations we continue to expect to approve between 18,000-22,000 plots for the full year. We spent around £450m on land during the half year and continue to expect to invest c. £1.1bn on land in FY20.

We continue to target a regionally balanced land portfolio with a supply of owned land of c. 3.5 years and a further c. 1.0 year of controlled land. Our target for a shorter than sector average land bank reflects our focus on ROCE and our fast build and sell model. Reflecting the high quality land opportunities we have seen in recent years as well as our growth ambitions, at 31 December 2019 we are above this target with 4.6 years land supply comprising 3.7 years owned land and 0.9 years of controlled land, with the owned land bank including land with both outline and detailed planning consents.

Our land bank at 31 December comprised:

Our land bank	31 December 2019	31 December 2018
Owned and unconditional land bank (plots)	65,728	63,125
Conditionally contracted land bank (plots)	15,118	17,505
Total owned and controlled land bank (plots)	80,846	80,630
Number of years’ supply	4.6	4.7
JVs owned and controlled land bank (plots)	5,656	5,426
Strategic land (acres)	12,988	12,192
Land bank carrying value	£3,036.3m	£2,994.4m

At 31 December 2019, the ASP of plots in our owned land bank was £277k (2018: £275k) which remains representative of our expected delivery in FY20.

During the half year we delivered 1,942 (2018: 1,894) completions from strategically sourced land, and we converted 2,421 plots (2018: 2,472 plots) of strategic land into our owned and controlled land bank. Around 35% of our strategic land is allocated or included in draft in local plans. We continue to target 30% of completions from strategic land in the medium term, which we believe is an appropriate level for our business.

Following our success with planning over the past 12 months we are well positioned, with 98% of our expected FY21 completions (2019: 97% of FY20 completions) having outline or detailed planning consent.

Improving efficiency and reducing costs

Improving the efficiency of our operations and controlling costs whilst maintaining our focus on quality and customer satisfaction remains a key focus for the Group, as it will enhance our margin and improve business resilience. Our new housetype ranges maintain our high standards of design whilst being faster to build, helping us to reduce build cost and waste and are more suitable for MMC. We delivered 4,491 completions (2018: 2,159 completions) from these ranges across the country in the half year. Of our outlets, 76% now have the new product ranges and we expect to deliver around 10,000 completions from these ranges in FY20. Over the next few years, we would expect that c. 90% of our outlets would be suitable for our new product ranges equating to c. 85% of our completions. Our new housing ranges cover all segments of our market providing us with the flexibility to replan sites to suit market conditions and meet consumer demands should the need arise.

We continue to make further refinements to our housing ranges in response to the changing costs of certain trades and materials, without affecting our quality or design standards. As part of our continuous review process, we have introduced hipped roof designs to some of our standard house types which reduce the amount of brickwork required and also optimised internal floor plans to achieve more usable living space from the same house footprint and increase profitability.

We have a robust and carefully managed supply chain with around 90% of the housebuild materials sourced by our centralised procurement function manufactured or assembled in the UK. We are also improving construction efficiency and reducing demand on labour through implementing the new housetype ranges, which are easier and quicker to build, and through the use of MMC such as timber frames, large format block and light gauge steel frames.

We have fixed price agreements in place for all of these materials to June 2020, half are fixed until December 2020 with over a third fixed until June 2021.

Whilst we continue to see some pressure on skilled labour supply with shortages remaining location and trade specific the rate of inflation is moderating, we now expect overall build cost inflation for FY20 to be around 3%.

Health and safety

A fundamental priority is to provide a safe working environment for all our employees and sub-contractors. We are committed to achieving the highest industry health and safety standard and the well-being of our people is paramount to us. Increased activity levels across the industry in terms of site openings and production volumes combined with shortages of skilled staff has contributed to an increased risk of accidents on sites.

We have stringent standards and a continuous focus on health and safety throughout our business to seek to reduce the number of injuries occurring. We are focused on improving our processes and procedures and challenging unsafe behaviours. We also continue to focus on ensuring workers do not suffer long term issues associated with their work activities. We strive for improved standards and the prevention of injury and ill health. In line with the industry we are seeing pressures in this area and we continue to focus on driving improvements. In the 12 months to 31 December 2019, our reportable injury incidence rate was 330 (12 months to December 2018: 371) per 100,000 workers and our Health and Safety SHE audit compliance rate was 96% (12 months to 31 December 2018: 96%).

Charitable giving

We are committed to creating a positive effect in the communities in which we operate and we aim to be industry leading in our approach to charitable giving and social responsibility. We believe it is important to support charitable causes locally and nationally and we actively promote charitable giving and volunteering amongst our employees.

We are committed to partnering with local organisations to support and improve communities and create a positive effect in the areas in which we work. Each of our divisions and offices support local charities and the Group matches the funds raised by our employees. We also encourage all of our employees to take paid time off work to volunteer in their local communities and ask them to consider using the Give As You Earn scheme. In January 2019, we launched the Barratt & David Wilson Community Fund through which each of our divisions and Group support functions give £1,000 a month to community groups and charities local to them or their sites. The fund is expected to donate around £1.0m to local charities and organisations over three years, with £318,000 donated to date.

We have recently launched a new £1.0m national charity partnership with The Outward Bound Trust, helping young people from disadvantaged backgrounds to make positive changes in their lives through learning and adventures in the outdoors. Our three year partnership will provide funding to enable 2,400 young people to attend their residential courses, to develop the key employability skills needed to prepare them for the world of work. We’ll also be sending Barratt employees on the courses as mentors and hosting the annual Big Barratt Hike fundraiser event with the charity.

Sustainability

We aim to be the leading national sustainable housebuilder, building a sustainable business that is resilient and ready for the future. We aim to connect social, environmental and economic value through the commitment to sustainability across our business, as we believe this leads to better long term decisions that should create long term value for our stakeholders.

As explained in our FY19 Annual Report & Accounts, based on our stakeholders’ views we adopted a number of the UN Sustainable Development Goals, after researching their relevance to the UK, our sector, and how they link to what matters most to our stakeholders, and our priorities and principles. We will report on our progress on these this year in our FY20 Annual Report & Accounts.

In recognition of the transparency of our sustainability disclosures, in 2019 we were the first national housebuilder to receive a Crystal award from NextGeneration, the homebuilding sustainability benchmark. We also received a NextGeneration Gold award for our sustainability performance.

Reducing carbon emissions

We recognise the contribution we can make to the UK’s reduction of carbon emissions and in May we signed a letter alongside 127 other businesses, investors and business networks calling for the Government to accept the Committee on Climate Change’s proposed target and make Britain net zero carbon by 2050.

The 2050 net zero target has been set by Government and in January 2020 the Board approved our own new challenging science-based carbon reduction targets. In our own operations we will aim to reduce carbon emissions by 29% from FY18 to FY25, through measures like reducing diesel used by generators on site, amending our vehicle policies and implementing energy efficiency opportunities across our offices, sites, sales offices and show homes.

In addition, we are focused on the measureable steps that we can take to reduce both the embodied carbon in our supply chain and in-use carbon from our homes, including increasing the use of timber frame in home construction, which is a sustainable, low energy technology. We have set a target to reduce indirect carbon emissions by 11% from our supply chain and our homes by 2030. Partnerships with our suppliers is key to the delivery of our goals and we are engaging our suppliers and subcontractors.

We are working with Innovate UK on AIMCH, a research project to compare issues such as embodied carbon in homes and the generation of waste between offsite and traditional build methods. We are actively looking at how we can meet the Future Homes Standard and design homes which are not connected to the gas grid.

Biodiversity and water

We are aiming to create a net positive impact for ecology and biodiversity across all developments we are progressing through planning from 2020. We hold a strategic partnership with the RSPB and released wildlife friendly show home garden guidance in July 2019, mandating newly designed show home gardens to at least reach ‘Bronze Level’ standard against RSPB criteria.

We have also produced a document on our Approach to Water, available on our website, which explains the ways in which the business is impacted by water issues, water risks and actions we are taking.

Waste

We continue to focus on waste and resource efficiencies and continue to take practical steps in our operations to reduce waste. Over the course of 2019, we increased the number of pallets returned to our supply chain to over 296,000, a 15% improvement on the previous calendar year. We have also reduced the amount of packaging and protection used with kitchen units and reduced the requirement for polythene wrapping of structural joists in summer months.

In addition we continue to focus on gaining a better understanding of waste generation to help inform our strategic decisions. We have implemented a quarterly data reporting process, providing regional and divisional waste data analysis to our divisions to support better tracking of waste generation and costs. We have also started a review to compare the resource efficiency of timber frame and masonry built homes and issued a survey to our suppliers to better understand their approach to reducing packaging and single-use plastics. Furthermore, we have analysed samples of skip contents to assess quality of our segregation and are using the findings to inform a renewed site based waste reduction and segregation awareness campaign in our second half.

Capital Return Plan

We have a well-defined dividend policy with the Group paying an ordinary dividend cover of 2.5 times. We have previously announced that when market conditions allow, ordinary dividends will be supplemented with special returns. As previously announced the Board intends to pay a special return of £175m in November 2020. Demonstrating the Board’s confidence in the business going forward, it now proposes to pay a further special return of £175m in November 2021.

The special returns proposed for November 2020 and November 2021, and any future special returns, may be made through share buybacks, special dividends or a combination of both. This recognises that at certain price points the Board believes that the Group is undervalued and share buybacks may be in the best interests of all shareholders. Our interim dividend is consistently calculated based on profit attributable to our shareholders for the 12 months to the half year date, 31 December 2019. Using our ordinary dividend cover policy of 2.5 times we will pay one third of this amount as an interim dividend. The Board is pleased to propose an interim dividend of 9.8 pence per share (2018: 9.6 pence per share). The interim dividend will be paid on Monday 11 May 2020 to all shareholders on the register on Friday 17 April 2020.

Capital Return Plan^A	Dividend pence per share	Ordinary dividend £m	Special return pence per share	Special return £m	Total pence per share	Total £m
Total paid^B	98.3	992.4	64.3	649.8	162.6	1,642.2
Interim dividend FY20	9.8C	99.4D	-	-	9.8	99.4
Consensus estimate final dividend and special return in respect of FY20	19.3C,E	195.8 D,E	17.2C	175.0	36.5	370.8
Total proposed and consensus dividend and return in respect of FY20	29.1	295.2	17.2	175.0	46.3	470.2
Consensus estimate total dividend and special return in respect of FY21	30.3C,E	307.5 D, E	17.2C	175.0	47.5	482.5
Total	157.7	1,595.1	98.7	999.8	256.4	2,594.9

All future ordinary and special returns are subject to shareholder approval
Comprises total dividend payments for FY16 - FY19
Based upon 31 December 2019 share capital of 1,018,280,445
Based upon 31 December 2019 share capital of 1,014,746,539 shares for proposed payments
Based on Reuters consensus estimates of earnings per share of 72.8 pence for FY20 and 75.8 pence for FY21 as at 31 January 2020 and applying a 2.5 times dividend cover in line with the announced policy. 31 December share capital 1,018,280,445 less shares held by the EBT of 3,533,906 resulting in 1,014,746,539 shares for proposed payment calculation. This consensus estimate is provided for illustration purposes. No member of the Group nor any of their respective directors, officers or employees: (i) has commented on the consensus estimate, (ii) endorses the consensus estimate, or (iii) accepts any responsibility whatsoever for the accuracy of the consensus estimate and shall accordingly have no liability whatsoever in respect of the consensus estimate.

Current trading and outlook

The Group has had a strong start to our financial year and the outlook for the full year is in line with the Board’s expectations. We remain focused on delivering our medium term targets of volume growth in wholly owned completions of 3-5% over the medium term, land acquisition at a minimum 23% gross margin, and a minimum 25% ROCE.

The Group has achieved 294 net private reservations per average week (2019: 284), operating from an average of 355 outlets (2018: 385), resulting in net private reservations per active outlet per average week of 0.83 (2019: 0.74), in the second half to date.

Our total forward sales3 as at 2 February 2020 were 13,043 homes (3 February 2019: 13,194 homes) at a value of £3,027.1m (3 February 2019: £3,021.0m).

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