Bellway p l c : Interim results

NATIONAL HOUSEBUILDER BELLWAY p.l.c. TODAY, WEDNESDAY 24 MARCH, ANNOUNCES INTERIM RESULTS FOR THE HALF YEAR ENDED 31 JANUARY 2021

Results

Strong first half results

Half year ended	Half year ended	Movement
31 January	31 January
2021	2020
Revenue	£1,720.5m	£1,541.4m	+11.6%
Gross profit	£357.5m1,2	£356.5m	+0.3%
Gross margin	20.8%1,2	23.1%	(230 bps)
Operating profit	£297.7m1,2	£297.2m	+0.2%
Operating margin	17.3%1,2	19.3%	(200 bps)
Net legacy building safety expense	£20.3m	-	n/a
Profit before taxation	£280.2m	£291.8m	(4.0%)
Earnings per share	185.9p	194.4p	(4.4%)
Interim dividend per share	35.0p	Nil	+100.0%
Net asset value per share ('NAV')	2,564p2	2,467p	+3.9%
Return on capital employed	19.3%1,2	19.9%	(60 bps)

•  Volume growth of 6.3% to a record 5,656 homes (2020 - 5,321 homes) at the half year, and for the full year, the Board now expects that Bellway will complete the sale of around 10,000 homes (31 July 2020 - 7,522 homes).

•  The increase in volume, together with average selling price growth of 5.8% to £303,206 (2020 - £286,570), has resulted in a 12.5% increase in housing revenue to a record £1,714.9 million (2020 - £1,524.8 million).

•  Strong underlying demand, with a 3.3% increase in the private reservation rate to 156 per week (2020 - 151), building upon last year's robust first half trading performance.

•  The operating margin, before net legacy building safety expense, was 17.3%1,2 (2020 - 19.3%) and has been positively influenced by an efficient absorption of overheads due to the strong first half revenue performance. For the full year, the Board now expects that the operating margin, before net legacy building safety expense, will be around 17%1,2 (31 July 2020 - 14.5%5).

•  The balance sheet is strong, with net cash of £346.4 million2 (2020 - £4.6 million), providing resilience and strategic flexibility. Land creditors remain low, at £371.7 million (2020 - £274.9 million).

•  A further £20.3 million, net of recoveries, has been set aside to help owners of legacy apartment schemes undertake fire safety improvements. This brings the total amount provided since 2017, in relation to fire safety, to £131.6 million, with £91.6 million of this remaining unutilised at 31 January.

•  The interim dividend has been reinstated at 35.0p per share (2020 - Nil).

Operational highlights

•  The Group has retained its status as a five-star homebuilder3 for the fifth consecutive year and our 'Customer First' programme, designed to enhance the customer experience in respect of construction quality and service levels, will formally launch in April.

•  Significant investment in land, with a record 8,848 plots contracted (2020 - 7,005 plots) with a value of £452.8 million (2020 - £408.2 million) at attractive margins, reflecting the opportunity in the market during a period of reduced competition. This investment ensures that the Group is well positioned to deliver future volume growth.

•  New higher margin land, together with ongoing cost control and efficiency initiatives, will lead to future recovery in the gross margin.

•  Our 'Artisan Collection' house-type range, which is being well received by our customers, has now been plotted across 195 developments (2020 - 128 developments) and will help drive quality, improved efficiency and long-term cost savings.

Current trading and outlook

•  A robust forward sales position, with the forward order book at 14 March 8.4% ahead at £1,643.2 million2 (8 March 2020 - £1,515.8 million) and comprising 6,028 homes (8 March 2020 - 5,772 homes).

•  The clarity provided by the forward order book has raised the expectation for the full year average selling price to be more than £295,000 (31 July 2020 - £293,054).

•  Bellway is in an excellent position to continue its long-term, disciplined growth strategy, increasing the supply of good quality, new homes, while generating future value for our stakeholders.

• 1 Before net legacy building safety expense (note 3).

• 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 15.

• 3 As measured by the Home Builders' Federation Customer Satisfaction survey.

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

• 5 Before net legacy building safety expense and other exceptional items (note 3).

Analyst and investor conference call and webcast

There will be an analyst and investor presentation via webcast, hosted by Jason Honeyman, Group Chief Executive and Keith Adey, Group Finance Director, at 9.30am today. To join the presentation, go to the Bellway p.l.c. corporate website,www.bellwayplc.co.uk. There is also a facility to join the presentation and Q&A session via a conference call. Participants should dial [phone] and use confirmation code 7569986. A playback facility will be available shortly after the presentation has finished.

For further information, please contact:-

Jason Honeyman, Group Chief Executive Keith Adey, Group Finance Director

Tel: [phone]

Chairman's Overview

Commenting on the results, Chairman, Paul Hampden Smith, said:

Bellway has delivered a good first half trading performance, achieving record first half revenue because of its strong brought forward sales position and investment in work-in-progress. We have delivered this growth, while retaining our core focus on quality and customer care and have been recognised as a five-star homebuilder3 for the fifth consecutive year.

We have acted cautiously and responsibly throughout the COVID-19 pandemic, ensuring safe working practices across all our construction sites, sales centres, and divisional offices. In addition, we continue to offer support to our colleagues, whose ongoing efforts have been crucial in helping Bellway emerge strongly from this global crisis, with ongoing mental health and wellbeing campaigns.

As a responsible developer, Bellway recognises concerns with regards to fire safety in apartment buildings. As part of our efforts to help building owners of legacy apartment schemes, we have recognised an additional net legacy building safety expense of £20.3 million in the period. The brings the total amount provided by the Group since 2017, in relation to fire safety, to £131.6 million. This is a substantial sum which demonstrates Bellway's responsible approach to supporting customers with regards to this issue.

Our front-footed approach to land investment during the period will help to secure further volume growth and margin recovery in the years ahead. In addition, we continue to make good progress on several internal initiatives, not least our initial strides towards meeting the Government's Future Homes Standard by 2025.

The Group's balance sheet is robust, with substantial cash resources, and I am therefore pleased to announce that we are reinstating the interim dividend at 35.0p per share (2020 - Nil). For the full year, the Board expects the dividend to be weighted towards the second half and to maintain a dividend cover of around three times earnings.

As the country prepares to emerge from the latest national 'lockdown', Bellway is in an excellent position to continue its long-term, disciplined growth strategy, increasing the supply of good quality, new homes, while generating future value for our stakeholders.

Group Chief Executive's Operating Review

Strong housing fundamentals

The fundamentals of the housing market remain robust, with an underlying requirement for new homes in the UK. Affordability is good, supported by an ongoing environment of low interest rates and the mortgage market is broadly supportive, although deposit requirements generally remain high, outside of the Government's Help-to-Buy scheme. The continuation of this scheme, albeit with the introduction of regional price caps from April 2021, together with the temporary and extended stamp duty holiday are both welcome, providing important support to the housing market and especially those looking to make their first step onto the housing ladder.

Bellway is also hopeful that the Government's new mortgage guarantee scheme will lead to the return of competitive, long-term, higher loan-to-value mortgages for both the new build sector and the wider market. If successful, this will underpin ongoing customer demand, while helping the sector to increase the much-needed supply of new homes. In doing so, it will promote a stable and sustainable housing market.

Positive trading conditions

Sales rates were more pronounced in the Summer and early Autumn, given the pent-up demand arising from the Spring national 'lockdown'. The reservation rate slowed during November, as the sector transitioned to the new Help-to-Buy rules and more widespread 'lockdown' measures were reintroduced. Despite the escalation of these 'lockdown' measures in the new calendar year, sales rates recovered to a more normalised level for the remainder of the trading period, boosted by the effective transition to the new Help-to-Buy scheme, which has been well received by our customers.

For the whole period, the private reservation rate rose by 3.3% to 156 per week (2020 - 151), and the overall reservation rate was resilient at 191 per week (2020 - 194). In line with respective Government guidance, sales centres have remained open in England and Scotland on an appointment only basis, but remain closed except for essential visits in Wales. The cancellation rate was low, at just 14% (2020 - 13%).

The pricing environment has remained firm, with some modest house price inflation, benefiting selected sites in localities where demand is particularly strong, with this most pronounced on developments in the north west of England and the Midlands.

Strong revenue growth

Bellway has achieved a good first half performance, benefiting from its elevated order book and investment in work-in-progress at the start of the financial year, together with ongoing customer demand for our mid-market, high quality housing product.

Housing revenue rose by 12.5% to £1,714.9 million (2020 - £1,524.8 million), in part driven by strong growth in the number of homes sold, which rose by 6.3% to 5,656 (2020 - 5,321 homes). This includes 334 homes (2020 - 275 homes) sold using our Ashberry brand, which continues to perform well and supports enhanced sales rates on larger sites, through the provision of an additional, differentiated sales outlet.

The market was strongest for affordably priced homes in desirable locations, with areas such as Manchester, the Midlands, Essex and the Home Counties, all delivering solid results. This strong demand for affordably priced homes has influenced our London strategy, which has evolved over recent years, to focus on the outer zones, where customers can often obtain better value. Completions using our Bellway London brand account for 7% of homes sold (2020 - 6%), although this has reduced compared to earlier years, as more compelling land investment opportunities can often be sourced elsewhere in the country. Our average selling price of private homes in London was accessible to a range of buyers at £440,391 (2020 - £497,419), with sites such as Beckton Parkside in Beckton, Eastside Quarter in Bexleyheath and St. George's Park in Hornchurch all experiencing strong demand.

The overall average selling price for the Group rose by 5.8% to £303,206 (2020 - £286,570), influenced by a greater proportion of private housing completions, which rose to 78% of the total (2020 - 77%). The Group deliberately accelerated the construction and sales completion of higher value homes in advance of the change in the Help-to-Buy price caps, which will become effective from 1 April 2021. The increase in the average selling price in the half year is therefore a short-term adjustment and for the full year, the overall average selling price is expected to be in excess of £295,000 (31 July 2020 - £293,054), before moderating to around £290,000 in the following financial year, assuming no change in underlying selling prices.