REG - Bellway PLC - Trading Update

BellwayAnnouncement

09/08/2024 07:00

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RNS Number : 7979Z  Bellway PLC  09 August 2024

Bellway p.l.c.

 

Trading Update

 

Friday 9 August 2024

 

 

 

Bellway p.l.c. ('Bellway' or the 'Group') is today issuing a Trading Update
for the year ended 31 July 2024 ahead of its Preliminary Results announcement
on Tuesday 15 October 2024.

 

 

Highlights

 

§ Total housing completions of 7,654 homes (2023 - 10,945) at an overall
average selling price of around £308,000 (2023 - £310,306), both slightly
ahead of previous guidance.

§ Housing revenue of over £2.35 billion (2023 - £3,396.3 million) and the
underlying operating margin is expected to be around 10%(3) (2023 - 16.0%)(4).

§ Overall, headline pricing has remained firm, and incentives continue to be
used on a targeted basis.

§ The private reservation rate per outlet per week of 0.51 increased by 10.9%
compared to the prior year (2023 - 0.46).  This was delivered from a higher
number of outlets, which averaged 245 in the year (2023 - 238).

§ Bellway has a strong and well-capitalised balance sheet with modest
year-end net debt of £10 million(5), in line with the Board's expectations
(2023 - net cash of £232.0 million).

§ Reflecting the improvement in trading and growth in outlet numbers, the
forward order book at 31 July 2024 increased to 5,144 homes (2023 - 4,411
homes), with a value of £1,412.9 million(6) (2023 - £1,193.5 million).

§ The Group has a strong land bank and outlet opening programme, which
together with our healthy order book and work-in-progress position supports
our plans for volume growth in financial year 2025 and beyond.

§ The efforts of our colleagues in delivering our 'Better with Bellway'
sustainability strategy have been reflected through multiple industry awards,
including 'Large Housebuilder of the Year' and 'Best Sustainability
Initiative' at the 2023 Housebuilder Awards.

§ Our ongoing focus on providing high-quality homes and service for our
customers has resulted in Bellway retaining its status as a five-star(7)
homebuilder for the eighth consecutive year.

Jason Honeyman, Group Chief Executive, commented:

 

"Bellway has delivered another resilient performance despite the continuation
of challenging operating conditions during the year.  This result has been
achieved due to the dedication of our colleagues, subcontractors and supply
chain partners.

While a lower starting forward order book drove a reduction in volume output,
customer demand during the year has benefitted from a moderation in mortgage
interest rates which has helped to ease affordability constraints and
supported an increase in reservations.

The improving trading backdrop, combined with the strength of our outlet
opening programme, has generated healthy growth in the year-end order book.
 As a result, we are in a strong position to return to growth in financial
year 2025, as previously guided.

 

We are encouraged by the new Government's plans to increase the supply of new
homes across the country and welcome its plans to reform the planning system.
 Overall, the long-term housing market fundamentals are positive, and we
remain confident that our robust balance sheet and operational strength,
combined with the depth and quality of our land bank, will enable Bellway to
successfully capitalise on future growth opportunities."

 

 

Market and current trading

 

Customer confidence has improved, driven by a moderation of both mortgage
interest rates and consumer price inflation, and an increase in wages.
 Trading patterns were less volatile than the prior financial year when sharp
changes in borrowing rates led to significant variations in customer demand.
 We have been encouraged by the improvement in affordability during the year
and the relative stability in mortgage interest rates since January 2024.
 This led to a reduction in the cancellation rate to a normalised level of
14% (2023 - 18%) and overall, headline pricing and the level of targeted
incentives have remained stable across our regions.

 

The private reservation rate was 13.8% higher than the prior year at an
average of 124 per week (2023 - 109), with the improvement driven by stronger
demand and an increase in outlet numbers.  The private reservation rate per
outlet per week increased by 10.9% to 0.51 (2023 - 0.46) including a small
contribution from bulk sales of 0.02 (2023 - 0.01).  The private reservation
rate per outlet per week in the second half of the financial year increased to
0.58 compared to 0.43 in the first half, reflecting the improving trading
backdrop and a seasonal uplift through the spring.

 

The overall reservation rate, including social homes, rose by 3.2% to 161 per
week (2023 - 156).  The more modest rate of increase reflects the planned
reduction in social housing completions, in both financial years 2024 and
2025, compared to the elevated level achieved in financial year 2023.  This
is in line with expectations and follows a period in which the Group
accelerated the construction of social homes as part of a wider programme of
cash generation and maintaining financial resilience when trading conditions
became challenging in late summer 2022.

 

The Group traded from an average of 245 outlets during the year (2023 - 238),
in line with our expectations, with a closing position of 250 outlets at 31
July 2024 (2023 - 240).  The 2.9% increase in average outlets was driven by
the strength of our land bank and targeted approach to land acquisition, and
was achieved despite the ongoing delays in the planning system.

 

The combination of the improvement in trading and growth in outlet numbers has
driven a healthy increase in the forward order book.  At 31 July 2024 it
comprised 5,144 homes (2023 - 4,411 homes) with a value of £1,412.9
million(6) (2023 - £1,193.5 million).  The higher level of private
reservations was the primary driver of the increase in the forward order book,
which will serve as a platform for a return to growth in financial year 2025.
 

 

Bellway's procurement teams continue to work closely with our wide range of
supply chain partners and there are presently good levels of building
materials and subcontractor availability across the Group, with limited
overall cost inflation on new tenders.

 

Results

 

The Group has delivered housing revenue of over £2.35 billion (2023 -
£3,396.3 million) and total housing completions reduced by 30.1% to 7,654
homes (2023 - 10,945 homes).  There was a similar decrease in both private
and social output and, as a result, the proportion of private completions was
in line with the prior year at 75% of the total.

 

While volume output was slightly ahead of previous guidance, the decline
compared to the prior year reflected the lower forward order book at 1 August
2023 and the softer trading conditions, particularly in the first half of the
financial year, although these are beginning to gradually improve.  The
overall average selling price decreased slightly to around £308,000 (2023 -
£310,306), driven by geographic and mix changes.

 

The underlying operating margin for financial year 2024 is expected to be
around 10%(3) (2023 - 16.0%) and as previously guided, the reduction, in part,
reflects the effect of lower volume output.  In addition, and as reported
last year, there has been a decrease in site profitability, in line with
expectations, arising from cost inflation, the use of sales incentives and the
costs of operating outlets for extended durations.

 

 

Land investment

 

Bellway has a high-quality land bank with strength and depth, and our
experienced teams have continued with a disciplined and targeted approach to
land acquisition during the year.  Building on the expansion of our strategic
land bank in recent years, the Group entered into option agreements to buy 35
sites (2023 - 19 sites), which has enhanced our longer-term growth prospects
and overall land supply for a relatively low initial capital outlay.

 

The improving economic outlook in terms of both lower interest rates and house
price stability has supported an increase in our activity in the shorter-term
land market, notably since the start of calendar year 2024.  Overall, during
financial year 2024, the Group has contracted to purchase 4,621 owned and
controlled plots (2023 - 4,715 plots) across 27 sites (2023 - 35 sites) with a
total contract value of £344.8 million (2023 - £378.2 million).  We are
continuing to rebuild our future pipeline of potential acquisitions, with
Heads of Terms agreed on around 8,000 plots at 31 July 2024.

 

 

Financial position and dividend

 

The Group has a strong and well-capitalised balance sheet, and we remain
focused on maintaining financial resilience through the cycle.  Year-end net
debt was modest and in line with expectations at £10 million(5) (2023 - net
cash of £232.0 million) and adjusted gearing(8), inclusive of land creditors,
remains low (2023 - 4.0%).

 

The Board continues to expect underlying dividend cover will be around 2.5
times(9) for the full financial year.

 

'Better with Bellway'

 

'Better with Bellway' is the Group's strategy and long-term commitment with
regards to acting responsibly and sustainably.  The strategy outlines
ambitious targets in respect of our three flagship areas of Carbon Reduction,
Customers and Communities, and becoming an Employer of Choice.

 

Through a range of initiatives, we have embedded the 'Better with Bellway'
sustainability strategy across the Group's operations, and we are delighted
that the efforts of our colleagues have been recognised through several
industry awards during the year.

 

At the 2023 Housebuilder Awards, Bellway won the 'Large Housebuilder of the
Year' and 'Best Staff Development Award' for 'Employer of Choice'.  The
Group's flagship 'Future Homes' research project into carbon reduction at the
University of Salford has also won several accolades, including 'Best
Sustainability Initiative' at the 2023 Housebuilder Awards and 'Major Project
of the Year' at the National Sustainability Awards.

 

We are also proud to have retained our position as a five-star(7) homebuilder
for the eighth consecutive year, and our drive to deliver high-quality homes
to all our customers was further reflected by Bellway site managers winning 45
'Pride in the Job' Awards at the 2024 NHBC Awards.

 

We look forward to reporting further progress on our 'Better with Bellway'
strategy with our Preliminary Results on 15 October 2024.

 

 

Outlook

 

Bellway has delivered a resilient performance in financial year 2024, and
while we remain alert to future potential risks to customer demand and cost
inflation, the good levels of customer enquiries and relative stability in
reservation rates in recent months have been encouraging.  The Bank of
England's cut to base rate earlier this month together with the current low
levels of consumer price inflation provide a further underpin for improving
customer confidence.

 

Against this positive backdrop, we welcome the new Government's focus on
addressing the ongoing shortfall of housing and its recognition of the
importance of housebuilding to drive sustained economic growth.  Bellway is
encouraged by the Government's plans to reform the planning system to support
a marked increase in the supply of new homes across the country and we look
forward to the publication of its long-term housing strategy in the coming
months.

 

If market conditions remain stable, Bellway's strengthened forward order book
together with its healthy outlet opening programme and work-in-progress
position provide an excellent platform to return to growth in financial year
2025.

 

The long-term fundamentals of the UK housebuilding industry are positive, and
the Board remains confident that, given the Group's operational strengths and
land bank depth, Bellway is very well-placed to deliver volume growth in the
years ahead to support ongoing value creation for shareholders.

 

 Notes:

 

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

2    Comparatives are for the year ended 31 July 2023 or as at 31 July 2023
('2023') unless otherwise stated.

3   Underlying operating margin is operating profit before net legacy
building safety expense and exceptional items divided by total revenue.

4    For the purposes of Rule 28 of the Takeover Code this statement is a
profit estimate. Please refer to the Appendix for a confirmation from
Bellway's Directors in relation to this profit estimate.

5    Net cash/(debt) is cash plus cash equivalents, less debt financing.

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

7    As measured by the Home Builders Federation using the eight week NHBC
Customer Satisfaction survey.

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

9    Underlying dividend cover is underlying profit for the period per
ordinary share divided by the dividend per ordinary share relating to that
period.

 

 

Appendix:

 

Profit Estimate

 

Bellway's trading update on 7 June 2024 included the following statements
regarding its financial year ended 31 July 2024 ('FY 24'):

 

i.      "The overall average selling price is now anticipated to be around
£305,000 (31 July 2023 - £310,306).  The increase from the previous
guidance of £295,000 is mainly due to changes in product mix."

 

ii.     "In line with previous guidance, the Group is on track to deliver
full year volume output of around 7,500 homes (31 July 2023 - 10,945 homes)
and we continue to expect a reduction in the underlying operating margin of at
least 600 basis points from the level in the prior year (31 July 2023 -
16.0%)."

 

These statements constituted a profit forecast for the purpose of Rule 28 of
the Takeover Code (the 'FY 24 Profit Forecast').

 

Bellway has now passed through its financial year ended 31 July 2024 and the
guidance given in today's trading update includes an update on the FY 24
Profit Forecast, which is now a profit estimate for the purposes of Rule 28 of
the Takeover Code (the 'FY 24 Profit Estimate'), as below:

 

i.    "Housing revenue of over £2.35 billion (2023 - £3,396.3 million) and
the underlying operating margin is expected to be around 10% (2023 - 16.0%)."

 

Basis of preparation

 

The FY 24 Profit Estimate has been based on the unaudited management accounts
of Bellway for its financial year ended 31 July 2024 and has been prepared on
a basis consistent with Bellway's accounting policies which are in accordance
with International Financial Reporting Standards. These policies are
consistent with those expected to be applied in the preparation of Bellway's
annual results for the year ended 31 July 2024.

 

Bellway's unaudited management accounts for FY 24 and the FY 24 Profit
Estimate are subject to a number of ordinary course trading assumptions which
will be finalised as part of the year end process and preparation of
consolidated Group accounts.

 

Assumptions

 

The FY 24 Profit Estimate is based on the assumptions listed below.

1.    The Bellway Board of Directors confirming management's consistent
application of Bellway's accounting policies for the period, including with
respect to:

 

a.    site valuations and land margins; and

b.    recognition of housing completions, revenues and associated costs;

 

2.    There being no material unexpected post year-end adjustments for the
period;

 

3.    There will be no material post-year changes in legislation, taxation,
regulatory requirements, applicable standards or the position of any
regulatory bodies impacting on Bellway's accounting policies for the period.

 

Bellway Directors' confirmation

 

The Bellway Directors have considered the FY 24 Profit Estimate and confirm
that it remains valid as at the date of this announcement, has been properly
compiled as above and that the basis of the accounting used is consistent with
Bellway's accounting policies.

 

 

For further information, please contact:

 

Bellway p.l.c.

Keith Adey, Group Finance Director

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

 

Sodali & Co (Financial PR)

Justin Griffiths

Victoria Heslop

bellway@sodali.com

0207 250 1446

 

 

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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