REG - Bellway PLC - Trading Update

BellwayAnnouncement

09/08/2022 07:00

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RNS Number : 3113V  Bellway PLC  09 August 2022

Bellway p.l.c.

 

Trading Update

 

Tuesday 9 August 2022

 

 

 

Bellway p.l.c. ("Bellway" or the "Group") is today issuing a Trading Update
for the year ended 31 July 2022 ahead of its Preliminary Results announcement
on Tuesday 18 October 2022.

 

 

Highlights

 

§     Record housing revenue, which rose by 13% to over £3.5 billion
(2021 - £3,107.1 million, 2020 - £2,204.4 million).

§    Growth in housing completions of 10.5% to a record 11,198 homes (2021
- 10,138, 2020 - 7,522), at an average selling price of £314,400 (2021 -
£306,479, 2020 - £293,054).

§    Further improvement in the underlying operating margin to around
18.5%(3) (2021 - 17.0%, 2020 - 14.5%), driven by improved site operating
efficiency and completions from more recently acquired land.

§      Continued strong demand across the country, with a 6.9% increase
in the overall reservation rate to 218 per week (2021 - 204, 2020 - 178).

§    Retained status as a five-star(4) homebuilder for the sixth
consecutive year, with 93.6% of customers stating that they would recommend a
Bellway home to a friend.

§     Further disciplined land investment to support our growth plans,
with 19,089 plots(5) (2021 - 19,819 plots, 2020 - 12,124 plots) contracted at
attractive rates of return, for a total contract value of £1,300.3 million(5)
(2021 - £1,066.0 million, 2020 - £777.7 million).

§    Strong balance sheet with year-end net cash of £245 million(6) (2021
- £330.3 million, 2020 - £1.4 million) and low adjusted gearing, inclusive
of land creditors, of around 4%(7) (2021 - 3.8%, 2020 - 11.4%).  This
provides both financial resilience and capacity for investment to deliver
future growth.

§     A strong forward sales position, with an order book comprising 7,223
homes (2021 - 7,082 homes, 2020 - 6,588 homes) at a value of £2,114.3
million(8) (2021 - £2,022.3 million, 2020 - £1,760.2 million).  This
underpins our previously announced ambition to deliver an annual output of
around 12,200 homes for the year ending 31 July 2023, representing volume
growth of around 20% over a two-year period.

Jason Honeyman, Chief Executive, commented:

 

"Bellway has delivered another strong performance, with volume output and
housing revenue reaching record levels for the Group.  This result has been
achieved through our investment in land and the dedication of our colleagues,
subcontractors and supply chain partners, against the backdrop of a
challenging operating environment and macroeconomic uncertainty.

 

I am delighted that Bellway has retained its status as a five-star(4)
homebuilder for the sixth consecutive year, reflecting our focus on build
quality and customer satisfaction.  As part of our 'Better with Bellway'
sustainability strategy and as we aim for further volume growth in the years
ahead, we remain dedicated to maintaining the high quality of our product,
making further improvements in the service we offer our customers and setting
ambitious targets in respect of carbon reduction.

 

Looking ahead, our sizeable forward order book and continued strong investment
in land puts the Group in an excellent position to deliver another record year
of volume output, notwithstanding the ongoing challenges in the planning
system and upcoming end of the Help-to-Buy scheme.  In addition, a robust
balance sheet continues to provide strategic flexibility and a platform for
our long-term strategic priorities of volume growth and value creation."

 

 

Market and current trading

 

The UK housing market remains robust, underpinned by good mortgage
availability and low levels of unemployment across the country.  Bellway's
high-quality and energy efficient new homes have attracted strong customer
demand across all regions where we operate, supported by our well-designed
product range and ongoing investment in land and selling outlets in desirable
locations.  Reservations were ahead of the prior year, with particular
strength in the autumn and spring, following a traditional seasonal pattern.
 The overall reservation rate rose by 6.9% to 218 per week (2021 - 204, 2020
- 178) and although interest rates and fuel costs have contributed to the rise
in the cost of living, Bellway's range of modern, well-designed new homes
continues to provide an attractive and affordable proposition for our
customers.  Confidence amongst our customers is strong and is reflected in a
consistently low cancellation rate of 13% (2021 - 13%, 2020 - 17%).

 

Average weekly private reservations were slightly ahead of the prior year at
170 per week (2021 - 169, 2020 - 141), with the increase achieved
notwithstanding a reduction in the use of the Help-to-Buy scheme.  Customers
used Help-to-Buy in 16% of total reservations (2021 - 30%, 2020 - 40%), with
utilisation most pronounced on apartment schemes in, and around, London, where
the Group has intentionally reduced its exposure in recent years.  Overall,
mortgage availability is healthy and while the availability of 95%
loan-to-value products remains limited, some lending institutions are
gradually reintroducing these products for new build properties.  Although
customer uptake is currently low, this provides some encouragement regarding
the availability of alternative financing arrangements as the Help-to-Buy
scheme draws to a close for new reservations later this calendar year.

 

The forward order book has grown further, rising in value by 4.5% to £2,114.3
million(8) (2021 - £2,022.3 million, 2020 - £1,760.2 million) and comprises
7,223 homes (2021 - 7,082 homes, 2020 - 6,588 homes).  This strong forward
sales position, together with our programme of planned outlet openings,
provides Bellway with a strong foundation to increase volume output to around
12,200 homes in financial year 2023, representing volume growth of around 20%
over a two-year period.

 

 

Results

 

The Group has delivered record housing revenue, which rose by 13% to over
£3.5 billion (2021 - £3,107.1 million, 2020 - £2,204.4 million).  The
growth has been primarily driven by the increase in volume output, with
completions rising by 10.5% to 11,198 (2021 - 10,138, 2020 - 7,522), in line
with previous guidance.  The overall average selling price rose by 2.6% to
£314,400 (2021 - £306,479, 2020 - £293,054).  This is higher than
previously expected, in part driven by a higher proportion of private
completions, which rose to 82% of the total (2021 - 78%, 2020 - 78%).  In
addition, underlying house price inflation has had some upward effect on the
price achieved of sales taken in the period.

 

We now expect the average selling price to be over £300,000 in the year
ending 31 July 2023.  This slight moderation from the level in financial year
2022 reflects expected changes in geographical and product mix, as previously
guided.

 

The underlying operating margin for the 2022 financial year is expected to
rise to around 18.5%(3) (2021 - 17.0%, 2020 - 14.5%), driven by improved site
operating efficiency and completions from more recently acquired land.

 

 

Production and cost control

 

Upward pressure on build costs has persisted across the sector throughout the
year, with rising energy prices, global supply chain constraints and
increasing wage costs all contributing to the rise.  Strong commercial
disciplines, forward buying and value engineering initiatives have helped to
mitigate these upward cost pressures which overall have been offset by house
price inflation.

 

The availability of materials has gradually improved through the second half
of the financial year and, although we continue to experience ad hoc shortages
at a regional level, these are being well-managed by our experienced
procurement teams. While challenges are expected to persist for the industry
in the year ahead, our long-standing relationships with subcontractors and
suppliers, good on-site disciplines, and familiarity with our Artisan
Collection of standard house types are all expected to help ease production
constraints.

 

 

Land buying and planning

 

Bellway's experienced land teams have continued with a programme of
disciplined land investment to support our long-term growth ambitions.  The
Group has maintained a sharp focus on acquiring land in desirable locations
with high demand, where the product is affordable in the context of localised
market conditions.

 

Building on the proactive approach to land investment in the prior year, the
Group has contracted to acquire 19,089 plots(5) during 2022 (2021 - 19,819
plots, 2020 - 12,124 plots) across 107 sites(5) (2021 - 109 sites, 2020 - 69
sites).  The value of the contracted plots is £1,300.3 million(5) (2021 -
£1,066.0 million, 2020 - £777.7 million) and the average gross margin, based
upon revenue and cost at the time of acquisition, is around 23%.

 

Bellway also continues to invest in its strategic land portfolio and has
further strengthened its strategic land team to pursue longer-term
opportunities.  As a result of this approach, the Group has entered into an
additional 30 option agreements (2021 - 24, 2020 - 15), with these sites
generally located in areas across the country where there is a strong demand
for new housing supply.

 

The planning system remains slow, constrained by a COVID related backlog and
increasing complexities around biodiversity and nutrient neutrality
regulations.  This has continued to restrict the pace of outlet openings
across the wider sector, with Bellway operating from 235 outlets at 31 July
2022 (2021 - 254, 2020 - 276).  Notwithstanding these constraints, Bellway's
proactive land investment, particularly over the past two years, ensures the
Group is well placed to deliver growth in the number of selling outlets in the
year ahead, with this likely to be weighted towards the second half of the
financial year.

 

 

'Better with Bellway'

 

In March 2022, we launched 'Better with Bellway', our overarching strategy
with regards to acting responsibly and sustainably.  This includes ambitious
targets in respect of our three flagship priority areas of Carbon Reduction,
Customers and Communities, and becoming an Employer of Choice.  Some recent
highlights in these areas are shown below:

 

Carbon Reduction - We have established ambitious targets to reduce greenhouse
gas emissions, over and above the requirements of the Future Homes Standard.
These are currently being verified by the Science Based Targets initiative and
we hope to report their conclusions later this calendar year.

 

Customers and Communities - We are proud to have retained our position as a
five-star(4) homebuilder for the sixth consecutive year, with a score of 93.6%
in the HBF's most recently published eight-week survey, which asks customers
whether they would recommend Bellway to a friend.

 

Employer of Choice - We are delighted with the results from our recent
employee engagement survey in which 95% of colleagues said they would
recommend Bellway as 'a great place to work'.  We will continue to seek
feedback from colleagues to maintain this high level of employee satisfaction
in the years ahead.

 

More broadly, our 'Better with Bellway' sustainability and responsibility
strategy includes targets in respect of biodiversity, resource efficiency,
charitable engagement, sustainability throughout the supply chain and building
homes safely.  More details are available on our website at
www.bellwayplc.co.uk/sustainability.

 

 

Building safety

 

Bellway continues to take its responsibilities with regards to building safety
very seriously.  A Managing Director has recently been appointed to lead our
new Building Safety division, supported by an experienced team, whose remit
includes the proficient remediation of legacy schemes, in a cost-effective
manner.  This division is separately resourced so as not to detract from
day-to-day operations and growth prospects elsewhere in the Group.

 

As previously announced, in the period between 2017 and up to 31 January 2022,
the Group set aside a total of £186.8 million, in relation to apartment
buildings over 11 metres in height, which were generally built within our
10-to-12 year warranty period.  On 7 April 2022, as part of the Building
Safety Pledge (the "Pledge"), we announced that this commitment would be
extended to include buildings constructed by the Group since 5 April 1992 and
to reimburse the Building Safety Fund and the ACM Fund in accordance with the
principles set out in the Pledge.

 

We are making good progress on the remediation programme and our estimate of
the cost of these additional commitments remains unchanged at around £300
million, in addition to the £186.8 million already set aside since 2017.  A
further update will be provided with our Preliminary Results on 18 October
2022.

 

 

Financial position

 

Bellway has a strong balance sheet, with net cash of £245 million(6) at 31
July 2022 (2021 - £330.3 million, 2020 - £1.4 million). This represents an
ungeared(9) position (2021 - ungeared, 2020 - ungeared) and provides both
resilience and strategic flexibility.  This net cash balance is slightly
ahead of previous expectations, primarily reflecting the timing of cash
outflows in relation to land contracts.

 

Committed land obligations are modest, at around £395 million (2021 - £455.8
million, 2020 - £343.6 million) and adjusted gearing, inclusive of land
creditors, remains low at around 4%(7) (2021 - 3.8%, 2020 - 11.4%).

 

Outlook

 

Bellway has entered the new financial year in a robust position.  Our
sizeable order book, strengthened land bank and well-capitalised balance sheet
provide a strong platform to deliver our growth ambitions, notwithstanding the
wider economic uncertainties and the upcoming end of the Help-to-Buy scheme in
March 2023.

 

The Board still expects the Group to deliver further volume growth, in
financial year 2023, to an annual record output of around 12,200 homes, with
the timing of outlet openings expected to drive a second half weighting for
completions.

 

Over the longer-term, the Group's approach to responsible business practices
through the 'Better with Bellway' sustainability strategy will continue to
benefit our stakeholders and ensures that Bellway is well placed to generate
further value for shareholders in the years ahead.

 

 

'Meet the Team' investor and analyst event

 

We look forward to welcoming investors and analysts to our 'Meet the Team' day
on Tuesday 6 September 2022, at our Great Dunmow site in Essex.  There will
be a focus on our land-led volume growth and key parts of our 'Better with
Bellway' sustainability strategy.

 

During the day, attendees will have the opportunity to meet with the Executive
team and regional and local colleagues from a wide range of disciplines across
the business.  The day will consist of a site tour, a range of short
presentations and senior management insights into various aspects of the
business.

 

There will be no new financial information or disclosures provided on the day.
 For further information please contact investor.relations@bellway.co.uk

 

 

(1)    All figures relating to completions, order book, reservations,
cancellations, and average selling price exclude the Group's share of its
joint ventures unless otherwise stated.

(2)    Comparatives are for the year ended 31 July 2021 or as at 31 July
2021 ('2021') or are for the year ended 31 July 2020 or as at 31 July 2020
('2020') unless otherwise stated.

(3)      The underlying operating margin is the operating profit (before
net legacy building safety expense and exceptional items) divided by total
revenue.

(4)      As measured by the Home Builders' Federation using the eight week
NHBC Customer Satisfaction survey.

(5    ) Includes the Group's share of land contracted through joint venture
partners comprising 237 plots (2021 - 882 plots, 2020 - 203 plots), with a
contract value of £12.7 million (2021 - £39.2 million, 2020 - £15.3
million) across 1 site (2021 - 2 sites, 2020 - 1 site).

(6)      Net cash is cash and cash equivalents less debt financing.

(7)      Adjusted gearing is the total of net debt/cash and land creditors
divided by total equity.

(8)      Order book is the total expected sales value of reservations that
have not legally completed.

(9)      Gearing is net debt divided by total equity.

 

 

For further information, please contact:

 

Bellway p.l.c.

Keith Adey, Group Finance Director

0191 217 0717

 

Gavin Jago, Group Investor Relations Director

0191 217 0717

 

 

Media enquiries

Paul Lawler, Group Head of Communications

paul.lawler@bellway.co.uk

07813 392 669

 

Ged Brumby, Edelman Smithfield

ged.brumby@edelmansmithfield.com

07540 412 301

 

 

Certain statements in this announcement are forward-looking statements which
are based on Bellway p.l.c.'s expectations, intentions and projections
regarding its future performance, anticipated events or trends and other
matters that are not historical facts.  Such forward-looking statements can
be identified by the fact that they do not relate only to historical or
current facts.  Forward-looking statements sometimes use words such as 'aim',
'anticipate', 'target', 'expect', 'estimate', 'intend', 'plan', 'goal',
'believe', or other words of similar meaning.  These statements are not
guarantees of future performance and are subject to known and unknown risks,
uncertainties and other factors that could cause actual results to differ
materially from those expressed or implied by such forward-looking
statements.  Given these risks and uncertainties, prospective investors are
cautioned not to place undue reliance on forward-looking statements.
Forward-looking statements speak only as of the date of such statements and,
except as required by applicable law, Bellway p.l.c. undertakes no obligation
to update or revise publicly any forward-looking statements, whether as a
result of new information, future events or otherwise.

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