Bellway p l c : Annual Report 2023

Better with Bellway

Bellway p.l.c.

Annual Report and Accounts 2023

Always striving for better

Better with Bellway encapsulates our philosophy as a responsible homebuilder. We strive to operate our business in an ethical and sustainable manner whilst creating better long-term value for the benefit of our customers, people, suppliers, shareholders and the wider community.

In This Report

About Us

	Financial and	4
	Strategic Highlights
	Who We Are	6

Strategic Report

	Principal KPIs	10
	Investment Case	14
	Our Strategy	16
	Our Business Model	18
	Our Marketplace	24
	Chair's Statement	28
	Chief Executive's Market	30
	and Operational Review
	Group Finance	34
	Director's Review
	Better with Bellway Overview	38
	Better with Bellway Strategy	43
	and Priorities
	Section 172 Statement	63
	Key Stakeholder Relationships	64
	Risk Management	75
	Principal Risks	79
	Task Force on Climate-related	84
	Financial Disclosures (TCFD)
	Sustainability Accounting	91
	Standards Board (SASB)
	Non-Financial and Sustainability	96
	Information Statement

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. Bellway uses a range of statutory performance measures and alternative performance measures when reviewing the performance of the Group against its strategy. Definitions of the alternative performance measures, and a reconciliation to statutory performance measures, are included in note 28.
3. Underlying refers to any statutory performance measure or alternative performance measure before net legacy building safety expense and exceptional items (note 2).
4. Includes the Group's share of land contracted through joint venture partners comprising nil plots (2022 - 237 plots), with a contract value of nil (2022 - £12.7 million) across no sites (2022 - 1 site).
5. Includes the Group's share of land owned and controlled through joint venture partners comprising 935 plots (2022 - 962 plots).
6. As measured by the Home Builders' Federation using the eight-week NHBC Customer Satisfaction survey.
7. Comparatives are for the year ended 31 July 2022 or as at 31 July 2022 ('2022') unless otherwise stated.

Governance

Chair's Statement on	100
Corporate Governance
Board of Directors and	102
Group General Counsel and
Company Secretary
Board Activities and Decisions	104
Board Leadership	106
Division of Responsibilities	107
Composition, Succession	111
and Evaluation
Nomination Committee Report	112
Audit Committee Report	114
Remuneration Report	126
Sustainability	146
Committee Report
Directors' Report	147
Independent Auditor's Report	151

Accounts

	Group Income Statement	162
	Group Statement of	163
	Comprehensive Income
	Statements of Changes in Equity	164
	Balance Sheets	166
	Cash Flow Statements	167
	Accounting Policies	168
	Notes to the	170
	Financial Statements
	Five Year Record	209

Other Information

	Glossary	211
	Advisers and Group	213
	General Counsel and
	Company Secretary
	Shareholder Analysis	214
	and Financial Calendar

Bellway p.l.c. Annual Report and Accounts 2023

1

About Us

Financial and Strategic Highlights	4
Who We Are	6

2 Bellway p.l.c. Annual Report and Accounts 2023

Bellway Assistant Site Manager with customers at Sheasby Park.

About Us

Better homes, better value

Evolving from a local family business to a FTSE 250 company, Bellway has been building exceptional quality new homes throughout the UK for more than 75 years, creating outstanding properties in desirable locations.

A street scene of our Roman Gate development in Melton Mowbray.

The Goldsmith showhome at

Wavendon View, Wavendon.

Bellway p.l.c. Annual Report and Accounts 2023

3

About Us

Financial and Strategic Highlights

Resilient financial performance

Summary

Resilient performance while maintaining operational strength in a challenging market.

	Year ended	Year ended
	31 July 2023	31 July 2022	Movement
Housing completions	10,945	11,198	(2.3%)
Revenue	£3,406.6m	£3,536.8m	(3.7%)
Underlying performance measures:
Gross profit (underlying)	£687.3m2,3	£787.0m2,3	(12.7%)
Gross margin (underlying)	20.2%2,3	22.3%2,3	(210bps)
Operating profit (underlying)	£543.9m2,3	£653.2m2,3	(16.7%)
Operating margin (underlying)	16.0%2,3	18.5%2,3	(250bps)
Profit before taxation (underlying)	£532.6m2,3	£650.4m2,3	(18.1%)
Earnings per share (underlying)	328.1p2,3	420.8p2,3	(22.0%)
RoCE (underlying)	15.8%2,3	19.4%2,3	(360bps)
Statutory and other measures:
Net legacy building safety expense	£49.6m	£346.2m	(85.7%)
Profit before taxation	£483.0m	£304.2m	+58.8%
Earnings per share	297.7p	196.9p	+51.2%
Proposed total dividend per share	140.0p	140.0p	-
Net asset value per share	2,871p2	2,727p2	+5.3%
Net cash	£232.0m2	£245.3m2	(5.4%)
Land bank (total plots)	98,1645	97,7065	+0.5%

Robust housing output and financial performance in line with our expectations

• Near record housing completions of 10,945 homes
  (2022 - 11,198), at an overall average selling price of £310,306 (2022 - £314,399).
• Total revenue of £3,406.6 million (2022 - £3,536.8 million), a reduction of 3.7%.
• The Group's programme of accelerating the construction of social homes partially offset weaker private demand, which was impacted by higher mortgage interest rates, cost-of-living pressures and the end of Help-to-Buy.
• The overall reservation rate reduced by 28.4% to 156 per week (2022 - 218) and the private reservation rate decreased by 35.9% to 109 per week (2022 - 170), representing a private reservation rate per site per week of 0.46 (2022 - 0.70).
• The underlying operating margin was 16.0%2,3 (2022 - 18.5%), with the reduction mainly reflecting the effect of build cost and overhead inflation, extended site durations because of slower reservation rates and the increased use of targeted selling incentives.
• Underlying profit before taxation was £532.6 million2,3 (2022 - £650.4 million) and in line with our expectations.
• Underlying RoCE was 15.8%2,3 (2022 - 19.4%) with the reduction predominantly driven by the lower underlying operating margin.

Strong balance sheet and value-driven approach to capital allocation

• Strong balance sheet, with year-end net cash of £232.0 million2 (2022 - £245.3 million) and low adjusted gearing, inclusive of land creditors, of 4.0%2 (2022 - 4.4%) provides resilience and strategic flexibility.
• The net asset value per share ('NAV') increased by 5.3% to 2,871p2 (2022 - 2,727p), with the growth supported by the share buybacks undertaken during the year.
• The proposed total dividend per share has been held at 140.0p (2022 - 140.0p), representing dividend cover of 2.3 times2,3 underlying earnings and in line with previous guidance.
• In the current financial year and in line with Board's previously stated target, underlying dividend cover will be around 2.5 times2,3.
• The £100 million share buyback programme launched on 28 March 2023 is progressing well, with 3.8 million shares purchased at a cost of around £83 million as at 1 October 2023.
• Looking ahead, the strength of our land bank and balance sheet provide the Group with optionality, and the reinvestment of capital into compelling land opportunities will continue to be balanced with future shareholder returns.

4 Bellway p.l.c. Annual Report and Accounts 2023

Clear strategic priorities

High-quality land bank supports outlet opening programme and long-term growth ambitions

• The strength of our overall land bank, which comprises 98,164 plots5 (2022 - 97,706 plots), enables our land teams to remain highly selective with investment in the year ahead, without hindering the Group's long-term growth ambitions.
• Investment activity remains focused on securing land interests which offer compelling and enhanced financial returns and where possible, have significant flexibility in the contract terms.
• Bellway has a strong owned and controlled land bank which provides good visibility with regards to sales outlet growth in the current financial year and beyond.
• Reflecting the challenging market backdrop and the depth of our land bank, investment in new land was significantly lower than the prior year, with only 4,715 plots4 contracted (2022 - 19,089 plots) across 35 sites4 (2022 - 107 sites).
  We have also continued to review previously contracted land and decided not to proceed with the purchase of 886 plots across 4 previously approved sites.
• Further expansion of our strategic land bank during the year, which grew to 43,600 plots (2022 - 35,600 plots), underpins the Group's longer-term prospects.

'Better with Bellway' - our responsible and sustainable approach to business

• Supported by several research projects underway across the business, strong progress has been made in laying the foundations for a lower carbon footprint as we work towards a significant reduction in the Group's emissions by 2030.
• Our ongoing focus on providing high quality homes and service for our customers has resulted in Bellway retaining its position as a five-star6 homebuilder for the seventh consecutive year.
• We are delighted that our colleagues have raised over £3.1 million for Cancer Research UK over the last seven years, exceeding our target of £3.0 million.
• The Group signed the Government's Self-Remediation Terms ('SRT') in March 2023 and has also recently been confirmed as a member of the Responsible Actors Scheme ('RAS') by the Department of Levelling Up, Housing and Communities ('DLUHC').
• The SRT has provided improved clarity on the standards required for internal and external works on legacy buildings. As a result, we expect a step up in the level of remediation work carried out by our Building Safety division on legacy schemes in the current financial year.
• We have provided an additional net £49.6 million in relation to legacy building safety, as an adjusting item, which includes a net £43.4 million charge in the second half. The charge in the second half includes a provision of £30.5 million in relation to an isolated design issue identified with an apartment scheme built 12 years ago in Greenwich, London.

Recent trading and outlook

• Since the start of the new financial year, customer demand continues to be affected by mortgage affordability constraints, with reservations below the comparative rates in the prior year.
• In the nine weeks since 1 August, overall weekly reservations were 133 per week (1 August to 2 October 2022 - 191) and the private reservation rate was 99 per week (1 August to
  2 October 2022 - 136).
• The private reservation rate includes a bulk sale to a private rental sector investor, on compelling financial terms, comprising 71 homes (1 August to 2 October 2022 - nil). The private reservation rate per site per week in the period was 0.41 (1 August to 2 October 2022 - 0.58), including
  a contribution of 0.03 (1 August to 2 October 2022 - nil) from the bulk sale.
• The Group has a lower, yet still sizeable forward sales position with a value of £1,232.3 million2 as at 1 October (2 October 2022 - £2,093.8 million). The order book comprised 4,636 homes (2 October 2022 - 7,257 homes), of which 71% were exchanged (2 October 2022 - 71%).
• Given the reduced order book and prevailing lower reservation rates, there will be a material reduction in volume output in the current financial year. Based on the average private reservation rate per site per week of 0.46 achieved in financial year 2023, the Group is targeting to deliver completions of around 7,500 homes (2023 - 10,945 homes), and to end the year with a higher order book
  (2023 - 4,411 homes) to serve as a platform for a return to growth beyond the current financial year.
• The Board notes however, that a wider than usual range of outcomes are possible, and the final volume outturn will depend on the trajectory of mortgage interest rates and the strength of demand in the autumn and spring selling seasons.
• Overall, headline pricing has remained firm across our regions, although targeted incentives continue to be used to attract customers and secure reservations. In financial year 2024 we currently expect the overall average selling price to be around £295,000 (2023 - £310,306), with the moderation from 2023 primarily reflecting a higher expected proportion of social housing completions
  and a continued use of incentives.
• In the near term, we anticipate headwinds from lower volume output, ongoing pressures of cost inflation and the use of sales incentives to persist. Overall, we expect these factors, together with the effect of extended site durations, to lead to a reduction in the underlying operating margin2,3 of at least 600 basis points in the current financial year.
• There is a shortage of high-quality and energy efficient homes across the country and the long-term fundamentals of the UK housebuilding industry remain attractive. The Group's balance sheet and operational strengths combined with the depth
  of our land bank provide an excellent platform for Bellway to capitalise on future growth opportunities when they arise.

About Us

Bellway p.l.c. Annual Report and Accounts 2023

5

About Us

Who We Are

Our three brands meet the needs of our customers

Our brands represent our commitment to the different needs of our customers.

We understand that buying a home is one of the biggest decisions you will ever make, and each brand offers choice, whilst ensuring a consistent high level of service.

Bellway is our main brand. Bellway began as a small family business in 1946, with a passion for building high quality homes in carefully selected locations inspired by the needs of families. To this day, we maintain those same core values, combining our decades of expertise with the local personalised care that Bellway is known for.

9,174

Homes sold

The Ashberry brand launched in 2014 and is typically offered on larger sites, alongside our Bellway brand, to provide two differentiated outlets, using different elevational treatments and internal layouts, and therefore offering greater customer choice. This also has the advantage of improving sales rates, often more than can be achieved through using two Bellway outlets.

1,226

Homes sold

Bellway London was launched in 2018 to provide the London market with a modern and consistent identity that is recognisable across the capital. This covers all our developments in London boroughs, with our main focus being outer London boroughs and commuter towns within the M25. Properties range from one-bedroom apartments to four-bedroom houses.

545

Homes sold

6 Bellway p.l.c. Annual Report and Accounts 2023

Localised operations across the UK

	We currently operate from 21 divisions,
Divisional Office Locations	following the introduction of our new
	Building Safety division in August 2022,
	covering the main population centres
	across England, Scotland and Wales.

Our divisional structure allows local management teams to respond to specific demands in their area and, through their detailed local knowledge, acquire land on which to design and build homes that meet the high expectations of our customers and contribute to creating strong local communities.

The divisional teams are supported by our Regional Chairs and our specialist Group teams.

21 divisions

covering the main population centres across England, Scotland and Wales

2,979 people

employed in the Group as at 31 July 2023.

Guided by a clear purpose

Our aim is to operate our business in an ethical and sustainable manner, while at the same time building attractive, desirable and sustainable developments where customers want to live in harmony with existing communities.

About Us

Bellway p.l.c. Annual Report and Accounts 2023

7

Strategic

Report

Principal KPIs	10
Investment Case	14
Our Strategy	16
Our Business Model	18
Our Marketplace	24
Chair's Statement	28
Chief Executive's Market	30
and Operational Review
Group Finance Director's Review	34
Better with Bellway Overview	38
Better with Bellway Strategy	43
and Priorities
Section 172 Statement	63
Key Stakeholder Relationships	64
Risk Management	75
Principal Risks	79
Task Force on Climate-related	84
Financial Disclosures ('TCFD')
Sustainability Accounting	91
Standards Board ('SASB')
Non-Financial and Sustainability	96
Information Statement

8 Bellway p.l.c. Annual Report and Accounts 2023