Bellway p.l.c.
Trading Update
Thursday
7 February 2019
Bellway p.l.c. is today issuing a trading update for the six
months ended 31 January 2019 ahead of
its interim results announcement on Wednesday 27 March 2019.
Highlights
-
Ongoing delivery of the Group’s growth strategy, with total
revenue expected to rise by over 12% to almost £1.5 billion (2018 –
£1,324.4 million).
-
Further volume growth, with the number of housing completions
rising by 5.6% to 5,007 (2018 – 4,741).
-
The average selling price has risen by 6.5% to £293,800 (2018 –
£275,945).
-
A record sales performance, with the weekly reservation rate
rising by 2.8% to 183 (2018 – 178), the highest ever achieved by
the Group in a first half trading period.
-
A strong balance sheet, with modest net bank debt of £26.6
million3 (2018 – £131.4 million).
Paul Hampden
Smith, Chairman, commented:
“Bellway has delivered another strong trading performance,
achieving growth in both volume and average selling price in the
six month period. Further, disciplined investment in high
quality land, together with a sizeable forward order book, ensure
that the Group is well placed, over the longer term, to continue
increasing its contribution to the supply of much needed new
homes. While the forthcoming exit from the EU is providing a
degree of wider economic uncertainty, Bellway’s balance sheet is
solid and the Group retains its ability to respond positively to
opportunities in the land market as they arise.”
Market conditions and trading
Demand for affordably priced new homes remains strong, supported
by an environment of low interest rates and the availability of
responsible, higher loan-to-value mortgages, provided through the
Government’s Help to Buy scheme.
Against this backdrop, customer interest in Bellway homes
remains high. Evolving customer trends mean that digital
sales platforms are growing in importance and as such, the recent
investment in our new website has resulted in online visitor
traffic increasing by 15%. This, together with our ongoing
programme of site openings, enabled the Group to achieve a 2.8%
increase in the average weekly sales rate, which, net of
cancellations rose to 183 reservations per week (2018 – 178).
This compares to a strong comparator period, during which
reservations were 7.2% ahead of the equivalent six month period in
the year before last. The private sales rate remained strong
at 136 reservations per week (2018 – 136 per week), in line with
the same period in the prior financial year. This is a robust
performance given the ongoing discussions around our forthcoming
exit from the EU, which has inevitably had some bearing on customer
confidence in the wider economy.
This slight moderation in sentiment is reflected in the
cancellation rate, which whilst still low, has risen marginally to
13% (2018 – 11%). In addition, the measured use of incentives
has continued on certain sites. These have been generally
focussed towards higher value plots, where the Group has limited
exposure and where sales rates tend to be a little slower.
Whilst part-exchange continues to be an important selling
incentive, its use is well controlled, having been utilised in 7%
of completions (2018 – 7%), similar to the prior period.
Overall, although the rate of house price inflation continues to
moderate, the pricing environment remains firm, with modest
increases still achievable on many affordably priced sites across
the country.
Results
In the context of this trading environment, Bellway has
delivered another robust financial performance, with total revenue
expected to grow by over 12% to almost £1.5 billion. This has
been driven by a 5.6% increase in the number of housing
completions, which rose to 5,007 (2018 – 4,741), a strong result,
in part driven by further investment in work in progress.
In addition, the Group achieved a 6.5% rise in the average
selling price, which rose to £293,800 (2018 – £275,945). The
increase was mainly driven by previous investment in areas of high
demand, where average selling prices tend to be higher. In
addition, the overall average selling price has been positively
influenced by a greater number of completions from our flagship
development at Nine Elms, Battersea. This site contributed
125 homes (2018 – 53) at an average selling price of £828,500 (2018
– £562,285).
For the full financial year, the Board still expects the average
selling price to be slightly in excess of £290,000 (31 July 2018 – £284,937).
The operating margin in the first half of the financial year is
expected to moderate to around 21.5% (2018 – 22.2%), as the benefit
of historical house price inflation captured since land acquisition
begins to diminish. Notwithstanding the continuing reduction
in house price inflation, the operating margin for the current,
full financial year should be maintained at around this level
(31 July 2018 – 22.1%), followed by
further, gradual moderation in FY20.
Land buying and financial position
The land market remained attractive throughout the trading
period and Bellway has continued to selectively acquire sites on
terms that meet its minimum hurdle rates in respect of gross margin
and return on capital employed. Accordingly, the Group has
contracted to acquire 5,980 plots (2018 – 6,726 plots) across 45
sites (2018 – 56 sites) at an anticipated gross margin of around
24% based on today’s selling prices. The Group has
temporarily slowed the rate of investment on a number of site
acquisitions, pending the outcome of the UK’s exit from the EU.
Bellway continues to be highly cash generative thereby
facilitating continued reinvestment in land. Notwithstanding
cash expenditure of some £403 million on land and land creditors
(2018 – £403 million), the Group had modest net bank debt of £26.6
million3 (2018 – £131.4 million), representing gearing
of around 1%4 (2018 – 5.7%).
Outlook
Bellway commences its second half trading period in a solid
position. In addition to the 12% revenue growth and
notwithstanding the 5.6% growth in the number of legal completions,
the order book is strong, with a value of £1,171.3 million (2018 –
£1,297.4 million), comprising 4,587 units (2018 – 4,629 units).
This, together with further controlled investment in work in
progress should ensure that volume output for the full year exceeds
last year’s record of 10,307 new homes, although the rate of growth
achieved will be determined by the strength of the traditionally
strong spring selling season. Early signs suggest that
customer demand and reservations will follow their usual seasonal
trend, however, the Board remains cautious given the uncertainty
regarding the UK’s forthcoming exit from the EU and the extent to
which this will affect wider customer confidence.
Longer term, the underlying requirement for affordably priced
new homes remains strong. Bellway is well positioned to
capture this demand with its strong balance sheet, flexible capital
structure and operational capacity to continue its strategy of
disciplined volume growth.
1 All
figures relating to completions, order book, reservations,
cancellations and average selling price exclude the Group’s share
of its joint ventures.
2 All
comparatives are to the prior year equivalent six month period
ended 31 January 2018 or as at
31 January 2018 (‘2018’) unless
otherwise stated.
3 Net bank
debt is cash and cash equivalents less bank debt.
4 Gearing
is calculated as net bank debt divided by total equity.
FOR FURTHER INFORMATION PLEASE
CONTACT:
KEITH
ADEY, FINANCE DIRECTOR FROM 7:00
AM ONWARDS ON 0191 217 0717.
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.