TIDMBWY
RNS Number : 8408P
Bellway PLC
15 October 2019
National housebuilder Bellway announces today, Tuesday 15
October 2019, its preliminary results for the year ended 31 July
2019.
Highlights
Robust financial performance driven by record volume
Year ended Year ended Movement
31 July 31 July
2019 2018(4)
Revenue GBP3,213.2m GBP2,957.7m +8.6%
Gross profit GBP790.2m GBP757.5m +4.3%
Gross margin 24.6% 25.6% (100 bps)
Operating profit GBP674.9m GBP652.9m +3.4%
Operating margin 21.0% 22.1% (110 bps)
Profit before taxation GBP662.6m GBP641.1m +3.4%
Earnings per share 437.8p 423.4p +3.4%
Proposed total dividend per share 150.4p 143.0p +5.2%
Solid financial results together with a strong balance sheet
-- Another successful year with a record number of housing
completions at 10,892 homes (2018 - 10,307), up 5.7% on last
year.
-- Solid operational performance, together with volume growth,
resulted in profit before taxation rising by 3.4%, in line with
guidance, to GBP662.6 million (2018 - GBP641.1 million).
-- The operating margin of 21.0% (2018 - 22.1%) continued to
moderate towards a more normalised level.
-- Positive non-recurring contribution from the Group's
flagship, high gross margin development at Nine Elms in Battersea,
which contributed 214 completions (2018 - 132), at an average
selling price of GBP820,467 (2018 - GBP705,567). Notwithstanding
the reducing proportion of revenue generated in London, the Group
should achieve an average selling price in the year ahead in excess
of GBP285,000 (2019 - GBP291,968).
-- Strong balance sheet and net cash of GBP201.2 million(1)
(2018 - GBP99.0 million), ensuring significant financial
flexibility and capacity for future investment.
-- The growth in earnings has enabled the Board to propose a
5.2% increase in the total dividend per share to 150.4p (2018 -
143.0p). A favourable cash position provides further opportunity
for dividend growth in the year ahead.
Strong operational focus
-- A continued focus on quality and customer care resulted in
Bellway achieving five-star homebuilder(3) status for the third
consecutive year.
-- Further, considered investment in new outlets resulted in an
all-time high reservation rate of 210 per week (2018 - 200), an
increase of 5.0%.
-- The Group contracted to acquire 13,113 plots (2018 - 12,962
plots) and has land in place with the benefit of implementable
detailed planning permission to meet the current year's forecast
volume growth.
-- The new Scotland East division contributed 273 completions
during the year. The more recently opened Eastern Counties and
London Partnerships divisions are expected to contribute to growth
in the next twelve months.
-- The recently launched 'Artisan Collection' house type range,
which will enable cost savings through greater standardisation, is
progressing well and in line with expectations. House types from
this range are now plotted on 97 developments, with the first
completion due later this month.
Well placed to deliver long term volume growth and further value
for shareholders
-- A positive start to the new financial year, with the weekly
reservation rate in the nine weeks to 29 September increasing by
4.0% to 183 (1 August to 30 September 2018 - 176). This, together
with a strong forward order book, provides a solid platform from
which to deliver further, yet more moderate volume growth in the
year ahead, assuming market conditions remain supportive.
-- In the new financial year, the one-off benefit to the
operating margin from Nine Elms will not be repeated and in
addition, in the absence of house price inflation, industrywide
build cost pressures will continue to have a moderating effect. As
a result of these combined influences, the reduction to a
consistent, underlying operating margin will be more
pronounced.
-- Capacity to deliver up to 13,000 homes per annum over the
medium term from the current divisional structure and a longer term
ability to expand beyond this.
-- Bellway remains well placed to continue its long term growth
strategy and this, together with its strong financial position,
should result in further value creation for shareholders.
FOR FURTHER INFORMATION, PLEASE CONTACT JASON HONEYMAN, CHIEF
EXECUTIVE OR KEITH ADEY, FINANCE DIRECTOR FROM TUESDAY 15 OCTOBER -
FRIDAY 18 OCTOBER ON 0191 217 0717.
(1) Bellway uses a range of statutory performance measures and
alternatives 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 11.
(2) All figures relating to completions, order book,
reservations, cancellations and average selling price exclude the
Group's share of its joint ventures.
(3) As measured by the Home Builders' Federation Customer Satisfaction survey.
(4) Restated following the adoption of IFRS 15 'Revenue from
contracts with customers'. See note 10 for further details.
Chairman's Statement
Introduction
The Group, now comprising 22 operating divisions, delivered
another positive set of results, consistent with its long term
growth strategy and in doing so, achieved record volume, revenue
and profit. In this tenth consecutive year of volume growth,
Bellway completed the sale of 10,892 homes (2018 - 10,307), thereby
making another substantial contribution to addressing the housing
shortage in the UK. This growth, together with a solid operational
performance, resulted in a 3.4% increase in earnings per share,
which rose to 437.8p (2018 - 423.4p). Return on Capital Employed
('RoCE') also remained high at 24.7%(1) (2018 - 27.2%).
Importantly, growth was achieved alongside a continued
prioritisation of both build quality and customer care. For the
third year in succession, the Group was recognised as a five-star
homebuilder(3) , a testament to our significant and continued
efforts in this crucial aspect of the business. This achievement
further builds upon our reputation as a leading national
homebuilder, with a focus on customer service and quality. Bellway
remains fully committed to growing the business in a safe,
responsible and sustainable manner.
The Group has consistently exercised strong financial
disciplines, resulting in net cash at 31 July of GBP201.2
million(1) (2018 - GBP99.0 million). The strength and efficiency of
the balance sheet will not only provide Bellway with significant
flexibility and capacity for future investment, but it also ensures
that the Group can respond positively should there be any
unexpected changes in the economic environment.
Market conditions supportive of disciplined volume growth
strategy
The ongoing imbalance between supply and demand for affordably
priced, good quality housing remains across many parts of the
country. Additionally, strong demand for new homes has continued to
be supported by the ongoing availability of Help to Buy, together
with an environment of low interest rates.
The land market remains attractive and the planning environment
favourable, with the Group continuing to identify value enhancing
opportunities which meet our requirements in respect of both gross
margin and RoCE. Whilst a shortage of skilled labour remains a
challenge for the wider construction sector, this did not prevent
Bellway from delivering a record number of new homes in the
year.
Bellway continues to draw upon these favourable market
conditions, retaining its clear strategy to deliver long term and
disciplined volume growth. This, together with the continued focus
on quality and customer care, enables all stakeholders to benefit
from our continued success.
Commitment to value creation over the long term
The board continues to believe that value generation is best
evaluated through capital growth, by increasing net asset value per
share ('NAV'), together with the payment of a regular dividend.
For the year ended 31 July 2019, the solid trading performance
resulted in NAV rising by 14.1% to 2,372p(1) (2018 - 2,079p).
Furthermore, the growth in earnings has enabled the board to
recommend a 5.3% increase in the final dividend to 100.0p per share
(2018 - 95.0p), increasing the proposed total dividend for the year
by 5.2% to 150.4p per share (2018 - 143.0p). The dividend is
determined following careful consideration of capital requirements,
as well as the Group's operational capability to deliver further
long term volume growth. If approved, the total dividend will be
covered by earnings by 2.9 times (2018 - 3.0 times).
Measured over the medium term, in the three years since 31 July
2016, the increase in NAV of 850p and cumulative dividend payments
of 389.4p per share have resulted in total growth in value of
1,239.4p(1) per share. This is equivalent to a substantial
annualised accounting return of 22.0%(1) relative to the 31 July
2016 NAV of 1,522p per share.
For the foreseeable future, and assuming continued opportunity
for investment and volume growth, the Group will continue to
reinvest earnings into attractive land opportunities, as well as
delivering sustainable and appropriate growth in the dividend,
thereby driving further long term value creation for
shareholders.
People and supply chain
It is the hard work, dedication and efforts of those who have
worked for and with Bellway over the last twelve months which have
enabled the Group to deliver these record results in a responsible
and sustainable manner. On behalf of the Board I would therefore
like to extend our gratitude to all of those who have contributed
to another strong performance.
Paul Hampden Smith
Chairman
14 October 2019
Operating Review
Trading performance
Demand for new homes remained strong across the country and
based on this, the Group has made further considered investment
into land and work in progress, opening an additional 110 new
sites, resulting in an average of 268 active outlets (2018 - 247)
throughout the year. This positive action has resulted in an
all-time high reservation rate of 210 per week (2018 - 200), a 5.0%
increase on last year. As is typically the trend, the reservation
rate in the second half of the year was higher, which is a
reflection of the stronger spring market. Furthermore, the rate of
increase in the second half of the year was more pronounced at
7.2%, in part driven by site openings, but also reflecting more
positive customer sentiment following some uncertainty in the run
up to Christmas. In addition to a robust overall performance, the
private reservation rate was also strong at 160 per week (2018 -
152 per week), a rise of 5.3%, demonstrating the positive
underlying demand for new homes.
The cancellation rate remained low at 12% (2018 - 11%),
moderating slightly in the second half of the year, which again was
a reflection of stronger consumer sentiment in the period.
The pricing environment remained firm and on some sites,
typically in affordable areas where demand is strongest, low single
digit price increases over budget expectations were achieved. More
generally, however, the rate of house price inflation reduced
throughout the year and its margin enhancing benefit continues to
diminish.
Help to Buy provides ongoing support to the sector's ability to
grow output, providing access to mortgage finance for those with at
least a 5% deposit. Additionally, the ongoing environment of low
interest rates ensures that new homes remain affordable in a
historical context, further supporting the strong underlying
demand. Help to Buy was used across the Group in 36% of completions
(2018 - 39%), with first time buyers representing approximately
two-thirds of customers using the scheme. As in prior years, the
use of Help to Buy was more prevalent in London, given higher house
prices and hence deposit requirements in this part of the
country.
The table below shows the number and average selling price of
homes completed in the year, analysed geographically, between
private and social homes:-
Homes sold (number) Average selling price (GBP000)
Private Social Total Private Social Total
2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018
North 4,397 4,171 803 890 5,200 5,061 264.0 258.0 108.8 95.8 240.1 229.5
South 4,045 4,092 1,647 1,154 5,692 5,246 409.1 390.1 168.3 155.2 339.4 338.4
Group 8,442 8,263 2,450 2,044 10,892 10,307 333.5 323.4 148.8 129.3 292.0 284.9
------ ------ ------ ------ ------- ------- ------ ------ ------ ------ ------ ------
The total number of homes sold rose by 5.7% to 10,892 (2018 -
10,307), with this rate of increase positively affected by a 19.9%
rise in the number of social completions, which rose to 2,450 (2018
- 2,044). This reflects planned construction programmes and the
requirements of planning agreements and is in accordance with
previous guidance.
The Ashberry brand, introduced to increase the sales rate and
improve capital efficiency on some of our larger sites, continued
to support volume growth, contributing 564 completions (2018 -
348). Ashberry now represents 5.2% of total homes sold (2018 -
3.4%) and has the potential to expand further in the years ahead,
building upon the success already achieved to date.
In all regions, the market remained strongest for affordably
priced homes in desirable locations. Divisions such as Manchester,
East Midlands and Northern Homes Counties all performed well, each
completing in excess of 600 homes, benefitting from positive market
conditions, together with land investment and outlet openings over
recent years. Our new Scotland East division, which opened on 1
August 2018 and is based in Livingston, completed the sale of 273
homes in its first year of trading, benefitting from investment in
land and strong demand for new homes.
In addition, good progress has been made in our most recently
launched divisions, Eastern Counties and London Partnerships, both
of which opened on 1 February 2019. Eastern Counties delivered its
first completions in the year and has secured land in a number of
locations to enable further growth in the year ahead. London
Partnerships, whose benefit to the Group will grow over the longer
term, has commenced on-site production and will contribute
completions in the next twelve months.
In London, where the Group has gradually reduced invested
capital, demand remains robust for affordably priced homes. The
London boroughs contributed 1,010 completions (2018 - 1,118) at an
average selling price of GBP499,617 (2018 - GBP414,872), with this
representing 9.3% of the number of homes sold (2018 - 10.8%).
Bellway's exposure at the higher end of the London market is
limited, with 'The Residence' development at Nine Elms in Battersea
remaining a noteworthy exception. This site comprises 514
apartments at an anticipated overall average selling price of
around GBP670,500. It has sold very well to date, contributing 214
completions in the year (2018 - 132), at an average selling price
of GBP820,467 (2018 - GBP705,567), representing 5.5% of housing
revenue (2018 - 3.2%).
Land at The Residence was bought in December 2013 and the gross
margin achieved has therefore been substantially enhanced by
positive house price growth and the post-acquisition redesignation
of the area as 'Zone 1' by Transport for London. Accordingly, the
contribution to operating margin from the site at Nine Elms in the
year under review was around 80 basis points greater than the
contribution recognised in the prior financial year. The site is
now close to conclusion, with only 31 apartments remaining to
complete in the new financial year.
Excluding completions from Nine Elms, the Group's average
selling price in the Capital was affordable at GBP413,359 (2018 -
GBP375,956) and demand remains robust at this price point. The
Group will continue to invest in financially viable locations in
London where demand is strong, however the proportion of homes sold
in London is likely to reduce in the foreseeable future, reflecting
the positive availability of good quality land at attractive
returns elsewhere in the country.
Overall, the Group's average selling price increased by 2.5% to
GBP291,968 (2018 - GBP284,937), driven mainly by investment in good
quality locations. Exposure at the upper end of the market was
limited, with just 4% of completions beyond the Help to Buy
threshold of GBP600,000. Notwithstanding the reducing proportion of
revenue generated in London, the Board still expects the average
selling price in the year ahead to be in excess of GBP285,000.
Driving down costs
Given competition for resource, there is continued upward
pressure on build costs in the construction sector, as has been the
case for a number of years. To mitigate cost pressures, the Group
continues to pursue a number of cost control initiatives across the
business, under the direction of a recently appointed and highly
experienced Group Commercial Director.
The 'Artisan Collection' is one such initiative, introduced last
year, whereby the rationalised range of 43 standard Group house
types should more readily comply with local authority planning
requirements and reduce costs through the speed of build and the
scale of standardisation. Additionally, the collection is appealing
to customers, designed to enable the creation of distinctive
communities with individual character areas within developments.
The 'Artisan Collection' is currently plotted on around 12,000
plots at 97 developments. The first completion is due later this
month at our site in Kings Norton, Birmingham.
As previously reported, an experienced Head of Procurement
joined the Group in July 2018, with a key focus on achieving
savings from standardisation and rationalisation of Group deals,
whilst maintaining the quality of the homes we build. This approach
to cost saving is not just limited to the Group procurement
function, but is widespread throughout the organisation. Building
upon our already strong culture of cost control, we have launched a
two-year Group wide cost saving initiative, BWY2020, which is
designed to generate cost savings, maintain quality and improve
efficiencies by sharing and implementing best practice across our
divisions.
Lastly, to better understand the effect of all of these
initiatives, the Group initiated a significant upgrade of IT
systems, in partnership with COINS, to strengthen financial and
commercial processes across the Group. This two-year programme is
progressing in line with expectations and over the longer term, it
is expected to improve the quality of management information. This
will be used to target cost saving measures and identify further
opportunities for improvement.
Leaving the EU
Bellway has been in close contact with its supply chain partners
over the last year to reduce any adverse risks to the business from
'Brexit'. Whilst most of our materials are sourced in the UK, a
limited number of our supply chain partners manufacture in Europe,
supplying goods such as electrical appliances and ceramic tiles. We
have forecast our material requirements for the coming year and
communicated these to our suppliers. In turn, they have considered
alternative trade routes to bring goods into the UK and have
increased their stock levels to ensure that they have materials
available in the event of delays through ports.
Investing for growth
The land market remains attractive and we continue to focus on
population hubs in affordable areas, where there is high demand for
new homes. Our land teams have identified value enhancing
opportunities in accordance with the Group's requirements in
respect of both gross margin and RoCE. Accordingly, Bellway entered
into contracts to acquire 13,113 plots (2018 - 12,962 plots) across
93 sites (2018 - 100 sites), with a total value of GBP782.0 million
(2018 - GBP833.5 million). Contracted plots include additions to
both sections of the owned and controlled land bank.
Geographically, 48% of those sites contracted were located in the
north of the country and 52% in the south, a balanced approach to
investment, with some diversification of risk and returns across
the country.
The tables below analyse the Group's land holdings at 31
July:-
2019 2018
Owned and controlled plots
DPP: plots with implementable detailed
planning permission 26,421 26,877
Pipeline: plots pending an implementable
DPP 16,300 14,200
Total owned and controlled plots 42,721 41,077
--------- ---------
Strategic plots
Positive planning status 8,800 8,500
Longer term interests 16,800 11,900
Total strategic land holdings 25,600 20,400
--------- ---------
Ensuring that land is in place to deliver growth remains a key
priority for the Group, and in that regard, the total owned and
controlled land bank rose to 42,721 plots (2018 - 41,077 plots),
representing a supply of 3.9 years (2018 - 4.0 years) based on last
year's output.
The number of plots benefitting from an implementable detailed
planning permission ('DPP') remained broadly unchanged at 26,421
(2018 - 26,877 plots). The Group either acquired land or obtained
DPP on 10,436 plots (2018 - 11,529 plots), with 94% of these
additions to the top tier of the owned and controlled land bank
originating from the land 'pipeline'. These are typically sites
which are bought conditionally and on which value is added by
progressing through the planning process. Notwithstanding this
success, the 'pipeline' section of the land bank grew by 14.8% to
16,300 plots (2018 - 14,200 plots).
As previously reported, as the Group continues to grow, longer
term strategic land becomes more important as a supplementary
source of supply. Accordingly, Bellway continues to invest in its
strategic land bank and entered into option agreements to buy an
additional 29 sites (2018 - 27 sites). The Group's strategic land
holdings have risen to some 25,600 plots (2018 - 20,400 plots),
offering opportunity for further volume growth in the years
ahead.
Included within this total are 8,800 plots (2018 - 8,500 plots)
with a positive planning status, representing only those plots that
are the subject of a current planning application or form part of
an emerging local plan. The rise in plots has been achieved
notwithstanding the successful promotion of 1,717 plots into the
owned and controlled land bank.
In addition to these shorter term strategic plots, Bellway has a
further interest in an estimated 16,800 plots (2018 - 11,900
plots), which have the potential to obtain planning permission over
a longer time frame.
Providing compelling opportunities can be identified, Bellway
will make further investment in its strategic land resource,
further bolstering its in-house land team, thereby ensuring that
the contribution from this part of the business increases in the
future.
Strengthening the brand
Ensuring that the Bellway brand is one in which customers can
trust is fundamental in all that we do. As a result of our
considerable efforts in this area, we are delighted to have
achieved the status as a five-star homebuilder(3) in the Home
Builders' Federation Customer Satisfaction survey for the third
consecutive year.
We are also proud that the high standards achieved by site
managers in the business were recognised, with 42 (2018 - 49)
individuals receiving NHBC Pride in the Job Awards. Furthermore,
the Customer Experience Committee formed two years ago continues to
drive future improvements to quality and customer care.
The Group has enhanced its efforts with regards to digital
marketing, launching a new consumer website in September 2018 and a
new corporate website in March this year. More recently, in
September 2019, we launched new Instagram and Facebook accounts for
both existing and prospective customers. Increasing the amount of
resource dedicated to this area will make our marketing efforts
more effective and improve the buying experience for our customers.
Both the websites and our social media content will continue to
evolve in the future.
We will continue to prioritise quality and service in the year
ahead, ensuring that a positive customer experience is an integral
part of how we manage our business. An example of this approach is
the investment we are making in a new customer care system. This
will help us to better and more efficiently manage customer
appointments, building upon the systems already in place in the
business in order to deliver further improvements to our customers'
experience.
Building new homes safely
The health and safety of both operatives and members of the
public who visit our sites is of the utmost importance to the
Group. Sites are frequently inspected by both our in-house health
and safety team and external consultants, including the NHBC, to
ensure that we maintain high standards. We also use these visits to
benchmark our performance against other organisations in the sector
and we continue to compare favourably with our peers.
Our efforts in this area of the business has been recognised in
the NHBC Health and Safety Awards, with 12 of our site managers
receiving Commended Awards (2018 - 11), representing 23% of the
total awards issued across the industry, significantly ahead of our
share of volume output.
During their regular site visits, our own health and safety team
review processes and procedures in order to evaluate compliance,
develop good practice, identify training needs and encourage
innovation from our staff. We continue to run campaigns on key
target areas, utilising a variety of formats, including billboards
and on-site tool box talks. Performance of individual sites is not
only evaluated at divisional level, but it is also highlighted to
senior management, demonstrating the importance of this issue
throughout the Group. Through continually focusing on improving our
efforts around health and safety we have continued to reduce the
lost time from accidents, with the seven day reportable incidence
rate having fallen by 19.6% to 324.87 incidents per 100,000 site
operatives (2018 - 404.02). We have a number of important
initiatives and focus areas for the coming year including work
around mental health and wellbeing.
The Grenfell tragedy has understandably increased the focus on
fire safety across the industry and more specifically on apartment
blocks. Government guidance issued in December 2018 has sought to
improve fire protection measures within wall systems on buildings
above 18 metres in height. Bellway has a small number of
developments, which obtained full building regulation approval at
the time of construction, where cladding has been used. Given
evolving guidance in this complex area, as a responsible developer
and along with the wider housebuilding sector, we continue to work
proactively with the government and our delivery partners in
relation to fire safety on apartment schemes.
Appointing the right people
Given the strong growth in the business, Bellway continued to
expand its workforce, employing an average of 2,980 employees
during the year (2018 - 2,808), an increase of 6.1%. In addition,
through indirect subcontract labour and the Group's supply chain,
we estimate that we supported around 30,000 to 34,000 jobs during
the year, providing a valuable boost to both local employment and
the wider economy.
Bellway has a responsibility to ensure that the industry has the
right skill base in order to grow in the future. We continue to
invest in young talent and have increased the number of
apprenticeships and graduates in our business by 9.2% to 155 (2018
- 142). This is also ahead of our initial target, which was set
when we became members of 'The 5% Club', a charitable organisation
which recognises our commitment to have at least 5% of our
workforce employed in these developmental roles. With the launch of
our graduate training programme, 'Great Careers Built With Us',
later this year, we expect that this number will continue to grow
in the next twelve months. Bellway continues to participate in the
HBF Home Building Skills Partnership which works to attract new
talent and develop, grow and sustain the workforce required by the
industry to deliver further increases in housing supply.
The Group encourages and supports a diverse workforce and has
implemented a number of initiatives around equality, diversity and
inclusion. These include enhancing parental leave benefits,
equality, diversity and inclusion training programmes and creating
diversity champions in each of our divisions to promote progress in
this area.
Bellway4Good
Bellway remains committed to being a responsible homebuilder and
ensuring that its growth is achieved in an ethical and sustainable
manner for all its stakeholders, including customers, employees,
shareholders, suppliers and local communities. Bellway4Good is the
Group banner for managing our corporate responsibility activities,
with targets focused around the three 'pillars' of the environment,
construction and society and economy.
Under 'environment', the focus is on energy efficient work and
for the second year running, 100% of construction compounds were
fitted with energy saving devices. All showhomes have also been
fitted with LED lighting, further contributing to carbon savings.
Additionally, from 1 February 2019, all compound electrical
supplies were bought under the Renewable Energy Guarantees of
Origin system, thereby ensuring a commitment to buying energy
generated from renewable energy sources. As a result of these
actions, the Group reduced its own carbon emissions per legal
completion, i.e. excluding those arising from its supply chain, to
2.4 tonnes (2018 - 2.5 tonnes). We also remain committed to
ensuring timber purchased by Bellway is from sustainable sources,
mandating that all supplies have Forest Stewardship Council ('FSC')
timber certification.
Within 'construction', for the fifth year running we have
increased the percentage of waste diverted from landfill to 98.4%
(2018 - 98.1%). Waste diversion from offices has also increased to
54.9% (2018 - 44.6%).
Under 'society and economy' our charitable initiatives have
gathered momentum. We are proud that at the end of the year, our
colleagues and business partners had raised GBP494,812 for Cancer
Research UK (2018 - GBP394,453), taking total donations over the
past three years to a noteworthy GBP1,275,178, well ahead of our
GBP1 million target. In recognition of this effort, Bellway won the
Cancer Research UK 'Flame of Hope' award, acknowledging our
significant fundraising achievement and support for this worthwhile
cause. We continue to match employee fundraising for charities of
their choice and offer a payroll giving scheme for those who wish
to participate. In total, charitable donations amounted to
GBP754,793 (2018 - GBP564,040) in the year, of which GBP391,736
(2018 - GBP272,096) was raised by our employees or
subcontractors.
Current trading and outlook
In addition to delivering volume growth of 5.7%, the Group ended
the financial year with a sizeable forward order book of 4,878
homes (2018 - 4,841), with a value of GBP1,223.9 million(1) (2018 -
GBP1,301.1 million). In the first nine weeks of the new financial
year, trading has remained robust, with the Group achieving 183
reservations per week (1 August to 30 September 2018 - 176), an
increase of 4.0%. As a result of this positive start, the order
book at 29 September 2019 remained strong and comprised 5,190 homes
(30 September 2018 - 5,380 homes) with a value of GBP1,311.6
million(1) (30 September 2018 - GBP1,469.5 million). The slight
reduction is a result of the higher number of completions recorded
in this short trading period, a reflection of good on-site
construction progress.
The Board is mindful that the uncertainty surrounding 'Brexit'
could pose a threat to consumer confidence. Assuming market
conditions remain favourable, the strong order book, together with
additional, considered investment in land and work in progress,
should enable Bellway to deliver further, yet more moderate volume
growth in the year ahead.
Also in the new financial year, the one-off benefit to the
operating margin from Nine Elms will not be repeated and in
addition, in the absence of house price inflation, industrywide
build cost pressures will continue to have a moderating effect. As
a result of these combined influences, the reduction to a
consistent, underlying operating margin will be more
pronounced.
Beyond this new financial year, with a consistent operating
margin, the Board continues to see further opportunities for both
volume and earnings growth. Specifically, following the growth
potential afforded by investment in the additional new divisions of
Eastern Counties and London Partnerships, the Group has capacity to
increase output to 13,000 homes per annum. Over the medium term
there is opportunity to expand beyond this, with further new
divisions. This, together with the Group's strong financial
position, ensures our strategy for growth will deliver further
sustainable value for shareholders.
Jason Honeyman
Group Chief Executive
14 October 2019
Financial Review
Operating performance
The successful delivery of the Group's disciplined growth
strategy has resulted in further growth in housing revenue for the
tenth successive year, with this increasing by 8.3% to GBP3,180.1
million (2018 - GBP2,936.8 million). This was driven principally by
the number of housing completions rising by 5.7% to 10,892 homes
(2018 - 10,307 homes), a record level for the Group. Additionally,
the 2.5% increase in average selling price to GBP291,968 (2018 -
GBP284,937) contributed to this growth, as a result of favourable
changes in product and geographic mix.
Other revenue, which includes non-recurring land, commercial and
ground rent sales, increased by GBP12.2 million to GBP33.1 million
(2018 - GBP20.9 million). This, combined with housing revenue
growth, resulted in total revenue rising by 8.6% to GBP3,213.2
million (2018 - GBP2,957.7 million).
The gross margin, although still high, was slightly below last
year at 24.6% (2018 - 25.6%(4) ), with the reduction likely to
continue as Nine Elms trades out and build cost increases remain a
facet of the industry, with house price inflation continuing to
diminish.
Under IFRS 15 we now separately disclose the effect of
part-exchange sales which, during the period, resulted in a loss of
GBP5.6 million (2018 - GBP4.1 million).
In order to boost operational capability and support continued
growth, Bellway invested further in its regional structure, with 22
operating divisions as at 31 July 2019. As a consequence,
administrative expenses grew to GBP109.7 million (2018 - GBP100.5
million), but as a proportion of revenue, they remained flat at
3.4%(1) (2018 - 3.4%).
The positive trading performance resulted in operating profit
increasing by 3.4% to GBP674.9 million (2018 - GBP652.9 million)
and the operating margin remained high at 21.0% (2018 - 22.1%).
Net finance expense
The net finance expense was GBP14.4 million(1) (2018 - GBP13.6
million) and principally includes bank interest and notional
interest on land acquired on deferred terms. Bank interest, which
includes interest on drawn monies, commitment fees and refinancing
costs, increased to GBP6.3 million (2018 - GBP5.2 million). Average
net debt reduced to GBP165.4 million(1) (2018 - GBP191.5 million).
Notional interest on land acquired on deferred terms decreased by
GBP1.0 million to GBP7.8 million (2018 - GBP8.8 million).
Profitability
Profit before taxation rose by 3.4% to GBP662.6 million (2018 -
GBP641.1 million), in line with the rate of operating profit
growth. The corporation tax charge was GBP124.0 million (2018 -
GBP121.2 million), reflecting an effective tax rate of 18.7% (2018
- 18.9%). The effective tax rate is below the standard rate of
corporation tax of 19.0% (2018 - 19.0%), primarily due to an
enhanced tax deduction for remediating previously developed,
brownfield land.
Basic earnings per share rose by 3.4% to 437.8p per share (2018
- 423.4p).
Investing cash for future growth
The Group is highly cash generative and generated cash from
operations of GBP419.1 million (2018 - GBP375.6 million),
representing 62.1% of operating profit (2018 - 57.5%), with this
after making further investment in inventories to generate future
revenue growth.
The tax paid was GBP119.3 million and after dividend payments of
GBP178.9 million, joint venture funding of GBP4.3 million and other
minor cash outflows of GBP14.4 million, net cash at the end of the
year was GBP201.2 million(1) (2018 - GBP99.0 million), with this
ungeared balance sheet demonstrating the financial strength of the
business. Following a change in legislation regarding the timing of
tax payments-on-account, the cash outflow in relation to tax in the
new financial year will increase by around 50%, although the
effective tax rate in the income statement is likely to be similar
to that reported in the year ended 31 July 2019.
Land creditors, which are considered to be a source of longer
term debt finance, stood at GBP297.9 million (2018 - GBP365.4
million) and continue to be used only when it is cost effective to
do so. Including land creditors, total debt stood at GBP96.7
million (2018 - GBP266.4 million), representing very modest
adjusted gearing of 3.3%(1) (2018 - 10.4%).
A balanced and flexible capital structure
The balance sheet principally comprises amounts invested in land
and work in progress, with the balance of inventories rising by
6.3% to GBP3,477.6 million (2018 - GBP3,271.6 million). The
carrying value of land remained broadly unchanged at GBP2,004.4
million (2018 - GBP2,011.9 million) reflecting the lower average
plot cost of sites acquired in the period. Work in progress rose by
16.4% to GBP1,298.2 million (2018 - GBP1,115.1 million) and was
40.8% (2018 - 38.0%) as a proportion of housing revenue.
Consistent with previous years, the financing structure remains
simple and transparent, with growth financed through retained
earnings, net bank borrowings and land creditors. The Group has
committed borrowing facilities of GBP575 million, extending in
tranches through to December 2023. This provides reassurance on the
security of funding for the years ahead.
The Group had a modest retirement benefit asset of GBP2.8
million (2018 - GBP1.3 million) at 31 July reflecting an ongoing
commitment to funding this future, long term obligation.
A focus on capital employed
Following the dividend payment of 145.4p per share, the net
asset value rose by 14.2% to GBP2,921.2 million (2018 - GBP2,557.1
million), representing a net asset value per share of 2,372p(1)
(2018 - 2,079p).
This growth in NAV and the payment of the dividend resulted from
the compounding effect of reinvesting earnings back into high
return land opportunities. RoCE remains high at 24.7%(1) (2018 -
27.2%), or 22.1%(1) (2018 - 23.6%) when including land creditors as
part of the capital base. Notwithstanding the lowly geared balance
sheet, the post-tax return on equity remained high at 19.8%(1)
(2018 - 22.1%).
Bellway's long term growth strategy and continued disciplined
investment in high return land opportunities continues to deliver
further value growth for shareholders.
Keith Adey
Group Finance Director
14 October 2019
Group Income Statement
For the year ended 31 July 2019
Note 2019 2018
GBP000 GBP000
Restated(1)
Revenue 3,213,243 2,957,664
Cost of sales (2,423,062) (2,200,184)
Gross profit 790,181 757,480
Other operating income 169,922 141,093
Other operating expenses (175,513) (145,125)
Administrative expenses (109,685) (100,577)
Operating profit 674,905 652,871
Finance income 3 569 649
Finance expenses 3 (15,014) (14,261)
Share of result of joint ventures 2,131 1,798
Profit before taxation 662,591 641,057
Income tax expense 4 (124,037) (121,152)
Profit for the year * 538,554 519,905
------------ ------------
Earnings per ordinary share - Basic 6 437.8p 423.4p
Earnings per ordinary share - Diluted 6 436.4p 421.6p
Group Statement of Comprehensive Income
For the year ended 31 July 2019
2019 2018
GBP000 GBP000
Profit for the period 538,554 519,905
Other comprehensive income
Items that will not be recycled to the income
statement:
Remeasurement gains on defined benefit pension
plans 1,333 5,001
Income tax on other comprehensive income (227) (850)
Other comprehensive income for the period, net
of income tax 1,106 4,151
---------- ----------
Total comprehensive income for the period * 539,660 524,056
---------- ----------
* All attributable to equity holders of the
parent.
(1) See note 10.
Group Statement of Changes in Equity
At 31 July 2019
Note Issued Share Capital Other Retained Total Non-controlling Total
capital premium redemption reserves earnings interest equity
reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1
August 2017 15,349 171,240 20,000 1,492 1,983,325 2,191,406 (66) 2,191,340
Total
comprehensive
income for the
period
Profit for the
period - - - - 519,905 519,905 - 519,905
Other
comprehensive
income ** - - - - 4,151 4,151 - 4,151
--------- ---------- ----------- --------- ------------ ------------ ---------------- ------------
Total
comprehensive
income
for the period - - - - 524,056 524,056 - 524,056
Transactions
with
shareholders
recorded
directly in
equity:
Dividends on
equity shares 5 - - - - (162,647) (162,647) - (162,647)
Shares issued 23 2,412 - - - 2,435 - 2,435
Credit in
relation to
share options
and tax thereon - - - - 1,850 1,850 - 1,850
Transactions
with
non-controlling
interest - - - - - - 66 66
--------- ---------- ----------- --------- ------------ ------------ ---------------- ------------
Total
contributions
by and
distributions
to shareholders 23 2,412 - - (160,797) (158,362) 66 (158,296)
Balance at 31
July 2018 15,372 173,652 20,000 1,492 2,346,584 2,557,100 - 2,557,100
Total
comprehensive
income for the
period
Profit for the
period - - - - 538,554 538,554 - 538,554
Other
comprehensive
income ** - - - - 1,106 1,106 - 1,106
--------- ---------- ----------- --------- ------------ ------------ ---------------- ------------
Total
comprehensive
income
for the period - - - - 539,660 539,660 - 539,660
Transactions
with
shareholders
recorded
directly in
equity:
Dividends on
equity shares 5 - - - - (178,865) (178,865) - (178,865)
Purchase of own
shares - - - - (512) (512) - (512)
Shares issued 23 2,102 - - (8) 2,117 - 2,117
Credit in
relation to
share options
and tax thereon - - - - 1,674 1,674 - 1,674
Total
contributions
by and
distributions
to shareholders 23 2,102 - - (177,711) (175,586) - (175,586)
Balance at 31
July 2019 15,395 175,754 20,000 1,492 2,708,533 2,921,174 - 2,921,174
--------- ---------- ----------- --------- ------------ ------------ ---------------- ------------
** An additional breakdown is provided in the Group Statement of
Comprehensive Income.
Group Balance Sheet
At 31 July 2019
Note 2019 2018
GBP000 GBP000
ASSETS
Non-current assets
Property, plant and equipment 29,791 13,095
Investment property - -
Financial assets and equity accounted joint arrangements 49,902 43,463
Deferred tax assets 706 1,121
Retirement benefit assets 2,776 1,298
83,175 58,977
Current assets
Inventories 3,477,583 3,271,611
Trade and other receivables 127,858 114,915
Cash and cash equivalents 7 201,241 98,993
3,806,682 3,485,519
Total assets 3,889,857 3,544,496
---------- ----------
LIABILITIES
Non-current liabilities
Trade and other payables 97,215 82,320
Deferred tax liabilities 2,199 2,538
99,414 84,858
Current liabilities
Corporation tax payable 66,314 61,463
Trade and other payables 802,955 841,075
869,269 902,538
Total liabilities 968,683 987,396
---------- ----------
Net assets 2,921,174 2,557,100
---------- ----------
EQUITY
Issued capital 15,395 15,372
Share premium 175,754 173,652
Capital redemption reserve 8 20,000 20,000
Other reserves 1,492 1,492
Retained earnings 8 2,708,533 2,346,584
Total equity 2,921,174 2,557,100
---------- ----------
Group Cash Flow Statement
For the year ended 31 July 2019
Note 2019 2018
GBP000 GBP000
Cash flows from operating activities
Profit for the year 538,554 519,905
Depreciation charge 5,757 1,855
Loss/(profit) on sale of property, plant and equipment 4 (72)
Finance income 3 (569) (649)
Finance expenses 3 15,014 14,261
Share-based payment expense 1,648 2,459
Share of post tax result of joint ventures (2,131) (1,798)
Income tax expense 4 124,037 121,152
Increase in inventories (205,972) (303,427)
Increase in trade and other receivables (11,901) (29,319)
(Decrease)/increase in trade and other payables (45,377) 51,228
Cash from operations 419,064 375,595
Interest paid (7,829) (5,472)
Income tax paid (119,311) (116,128)
Net cash inflow from operating activities 291,924 253,995
---------- ----------
Cash flows from investing activities
Acquisition of property, plant and equipment (5,126) (3,921)
Proceeds from sale of property, plant and equipment 74 298
Increase in loans to joint ventures (5,750) (7,320)
Repayment of loans by joint ventures 1,442 -
Interest received 482 188
Net cash outflow from investing activities (8,878) (10,755)
---------- ----------
Cash flows from financing activities
Decrease in bank borrowings - (30,000)
Payment of lease liabilities (3,538) -
Proceeds from the issue of share capital on exercise
of share options 2,117 2,435
Purchase of own shares (512) -
Dividends paid 5 (178,865) (162,647)
Net cash outflow from financing activities (180,798) (190,212)
---------- ----------
Net increase in cash and cash equivalents 102,248 53,028
Cash and cash equivalents at beginning of year 98,993 45,965
Cash and cash equivalents at end of year 7 201,241 98,993
---------- ----------
Notes
1. Basis of preparation and accounting policies
Bellway p.l.c. is a company incorporated in England and
Wales.
The financial information set out above does not constitute the
Group's statutory financial statements for the years ended 31 July
2019 or 2018, but is derived from those financial statements.
Statutory financial statements for 2018 have been delivered to the
registrar of companies, and those for 2019 will be delivered in due
course. The auditor, KPMG LLP, has reported on those financial
statements; their reports were (i) unqualified, (ii) did not
include a reference to any matters to which the auditor drew
attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under section 498 (2) or (3) of
the Companies Act 2006.
The preparation of financial statements in conformity with
Adopted IFRSs requires management to make judgements, estimates and
assumptions that affect the application of policies and reported
amounts of assets and liabilities, income and expenses. The
estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making the judgements about the carrying values of assets
and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
The Group's activities are financed principally by a combination
of ordinary shares and bank borrowings less cash in hand. At 31
July 2019, cash was GBP201.2 million having generated cash of
GBP102.2 million during the year. The Group has operated within all
of its banking covenants throughout the year. In addition, the
Group had bank facilities of GBP575.0 million, expiring in tranches
up to December 2023, with GBP575.0 million available for drawdown
under such facilities at 31 July 2019.
The directors consider that the Group is well placed to manage
business and financial risks in the current economic environment
and have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable
future. Accordingly they continue to adopt the going concern basis
in preparing the Annual Report and Accounts.
Whilst the financial information included in this announcement
has been prepared in accordance with Adopted IFRSs, this
announcement does not itself contain sufficient information to
comply with Adopted IFRSs. The Group expects to send its Annual
Report and Accounts 2019 to shareholders on 7 November 2019.
Effect of new standards and interpretations effective for the
first time
The Group adopted IFRS 15 'Revenue from contracts with
customers' during the current financial year. Details of the effect
on these financial statements are included in note 10.
The Group adopted IFRS 16 'Leases' during the current financial
year. IFRS 16 requires lessees to recognise a lease liability
reflecting future lease payments and a 'right-of-use asset' for
virtually all lease contracts. The Group used the modified
retrospective approach so the comparative information has not been
restated. The right-of-use asset at the date of transition was
equal to the lease liability at that date, adjusted by the amount
of any prepaid or accrued lease payments relating to that lease
recognised in the balance sheet immediately before the date of
initial application. The weighted average incremental borrowing
rate applied to lease liabilities at the date of initial
application was 3.15%.
Following the adoption of these standards, the following
accounting policies have changed compared to those in the 2018
Annual Report and Accounts:
Revenue recognition
(a) Private and social (turnkey and plot sale) housing sales and
land sales.
Revenue is measured at the fair value of consideration received
or receivable, net of incentives. Revenue is recognised in the
income statement at a point in time when the performance
obligation, being the transfer of a completed dwelling to a
customer, has been satisfied. This is when legal title is
transferred.
(b) Social housing properties as part of a land sale and design
and build contract.
Revenue is measured at the fair value of consideration received
or receivable, net of incentives. Revenue is recognised in the
income statement at a point in time when the performance
obligations have been satisfied. This is when the homes are build
complete and all material contractual obligations have been
fulfilled.
Notes (continued)
Incentives
Sales incentives are substantially cash in nature. Cash
incentives are recognised as a reduction in housebuild revenue by
the cost to the Group of providing the incentive.
Rental income
Rental income is recognised in the income statement on a
straight-line basis over the term of the lease.
Part-exchange properties
The purchase and subsequent sale of part-exchange properties is
an activity undertaken in order to achieve the sale of a new
property. The original sale of private housing is recognised, as
above, at the fair value of the part exchange property plus the
cash received or receivable. The fair value of the part exchange
property is equal to the amount assessed by external valuers. The
onward sale of a part-exchange property is recognised at the fair
value of consideration received or receivable. As it is not
considered a principal activity of the Group the income and
expenses associated with this are recognised in other operating
income and other operating expenses. Income is recognised in the
income statement at a point in time when the performance
obligations have been satisfied. This is when legal title is
transferred.
Leases
The lease liability is initially measured at the present value
of the remaining lease payments, discounted using the Group's
incremental borrowing rate. The lease term comprises the
non-cancellable period of the contract, together with periods
covered by an option to extend the lease where the Group is
reasonably certain to exercise that option. Subsequently, the lease
liability is measured by increasing the carrying amount to reflect
interest on the lease liability, and reducing it by the lease
payments made. The lease liability is remeasured when the Group
changes its assessment of whether it will exercise an extension or
termination option.
Right-of-use assets are initially measured at cost, comprising
the initial measurement of the lease liability, plus any initial
direct costs and an estimate of asset retirement obligations, less
any lease incentives. Subsequently, right-of-use assets are
measured at cost, less any accumulated depreciation and any
accumulated impairment losses, and are adjusted for certain
remeasurements of the lease liability. Depreciation is calculated
on a straight-line basis over the length of the lease.
The Group has elected to apply exemptions for short-term leases
and leases for which the underlying asset is of low value. For
these leases, payments are charged to the income statement on a
straight-line basis over the term of the relevant lease.
Right-of-use assets are presented in property, plant and
equipment on the balance sheet and lease liabilities are shown on
the balance sheet in trade and other payables in current
liabilities and non-current liabilities depending on the length of
the lease term.
The Group has also adopted the following standards and
interpretations for the first time in these financial statements
which had no material effect:
-- IFRS 9 'Financial Instruments'.
-- Annual Improvements to IFRS 2014 - 2016 Cycle.
-- Amendments to IFRS 2: Classification and measurement of
share-based payment transactions.
Standards and interpretations in issue but not yet effective
At the date of authorisation of these financial statements there
were a number of standards and interpretations which were in issue
and endorsed by the EU but not yet effective. These have not been
applied in these financial statements and are not expected to have
a material effect when adopted.
Notes (continued)
2. Segmental analysis
The executive Board (the Chief Operating Decision Maker as
defined in IFRS 8 'Operating segments') regularly reviews the
Group's performance and balance sheet position at both a
consolidated and divisional level. Each division is an operating
segment as defined by IFRS 8 in that the executive Board assess
performance and allocates resources at this level. All of the
divisions have been aggregated in to one reporting segment on the
basis that they share similar economic characteristics
including:
-- National supply agreements are in place for key inputs
including materials.
-- Debt is raised centrally and the cost of capital is the same
at each division.
-- Sales demand at each division is subject to the same
macroeconomic factors, such as mortgage availability and government
policy.
Additional information on average selling prices and the unit
sales split between north, south, private and social has been
included in the Operating Review. The Board does not, however,
consider these categories to be separate reportable segments as
they review the entire operations at a consolidated and divisional
level when assessing performance and making decisions about the
allocation of resources.
3. Finance income and expenses
2019 2018
GBP000 GBP000
Interest receivable on bank deposits 397 161
Interest on fair value through profit or loss 136 425
Interest element of movement in pension scheme asset 36 -
Other interest income - 63
Finance income 569 649
------- -------
Interest payable on bank loans and overdrafts 6,690 5,410
Interest on deferred term land payables 7,826 8,754
Interest payable on leases 498 -
Interest element of movement in pension scheme deficit - 97
Finance expenses 15,014 14,261
------- -------
4. Taxation
The effective rate of income tax is 18.7% of profit before
taxation (2018 - 18.9%) and compares favourably to the Group's
standard tax rate for the year of 19.0% (2018 - 19.0%). The lower
effective tax rate in the current year is principally due to
enhanced tax deductions received by the Group in relation to land
remediation relief and a credit following the finalisation of the
prior year corporation tax returns.
The deferred tax assets and liabilities held by the Group that
are expected to be realised after 31 March 2020 are valued at 17%,
the substantively enacted corporation tax rate that will be
effective after that date.
Notes (continued)
5. Dividends on equity shares
2019 2018
GBP000 GBP000
Amounts recognised as distributions to equity holders
in the year:
Final dividend for the year ended 31 July 2018 of 95.0p
per share (2017 - 84.5p) 116,829 103,668
Interim dividend for the year ended 31 July 2019 of 50.4p
per share (2018 - 48.0p) 62,041 58,997
Dividends forfeited (5) (18)
178,865 162,647
---------- ----------
Proposed final dividend for the year ended 31 July 2019
of 100.0p per share (2018 - 95.0p) 123,103 116,830
The 2019 proposed final dividend is subject to approval by shareholders
at the Annual General Meeting on 10 December 2019 and, in accordance
with IAS 10 'Events after the Reporting Period', has not been included
as a liability in these financial statements. The proposed final dividend,
subject to shareholder approval, will be paid on 8 January 2020 to all
ordinary shareholders on the Register of Members on 29 November 2019.
The ex-dividend date is 28 November 2019. At the record date for the
final dividend for the year ended 31 July 2018, shares were held by
the Bellway Employee Share Trust (1992) (the 'Trust') on which dividends
had been waived.
The level of distributable reserves are sufficient in comparison to
the proposed dividend.
6. Earnings per ordinary share
Basic earnings per ordinary share is calculated by dividing
earnings by the weighted average number of ordinary shares in issue
during the year (excluding the weighted average number of ordinary
shares held by the Trust which are treated as cancelled).
Diluted earnings per ordinary share uses the same earnings
figure as the basic calculation. The weighted average number of
shares has been adjusted to reflect the dilutive effect of
outstanding share options allocated under employee share schemes
where the market value exceeds the option price. Diluted earnings
per ordinary share is calculated by dividing earnings by the
diluted weighted average number of ordinary shares.
Reconciliations of the earnings and weighted average number of
shares used in the calculations are outlined below:
Earnings Weighted Earnings Earnings Weighted Earnings
average per share average per share
number of number of
ordinary ordinary
shares shares
2019 2019 2019 2018 2018 2018
GBP000 Number p GBP000 Number p
For basic earnings per
ordinary share 538,554 123,012,723 437.8 519,905 122,779,199 423.4
Dilutive effect of options
and awards 398,943 (1.4) 528,251 (1.8)
For diluted earnings per
ordinary share 538,554 123,411,666 436.4 519,905 123,307,450 421.6
---------- -------------- ----------- ---------- -------------- -----------
7. Analysis of net cash
At 1 August Cash At 31 July
2018 flows 2019
GBP000 GBP000 GBP000
Cash and cash equivalents 98,993 102,248 201,241
Net cash 98,993 102,248 201,241
------------ ---------- -----------
Notes (continued)
8. Reserves
Own shares held
The Group holds shares within the Trust for participants of
certain share-based payment schemes. These are held within retained
earnings. During the period 20,000 shares were purchased by the
Trust (2018 - nil shares) and the Trust transferred 20,911 (2018 -
118,863) shares to employees and directors. The number of shares
held within the Trust and on which dividends have been waived, at
31 July 2019 was 64,629 (2018 - 65,540). These shares are held
within the financial statements at a cost of GBP1.3 million (2018 -
GBP1.2 million). The market value of these shares at 31 July 2019
was GBP1.9 million (2018 - GBP1.9 million).
Capital redemption reserve
On 7 April 2014 the Group redeemed 20,000,000 GBP1 preference
shares, being all of the preference shares in issue. An amount of
GBP20 million, equivalent to the nominal value of the shares
redeemed, was transferred to a capital redemption reserve on the
same date.
9. Contingent liabilities
Following the Grenfell fire, there has been evolving guidance in
the complex area of fire safety, including amendments to the
Building Regulations which, from 21 December 2018, ban the use of
combustible materials in the external walls of new high-rise
residential buildings 18 metres or more in height. The result of
this and revised guidance to building owners and responsible
persons is additional scrutiny and review of the materials used in
the construction of apartment schemes. Whilst all buildings
constructed by Bellway obtained the appropriate building
regulations approval at the time of construction, as a responsible
developer, Bellway continues to work with residents, management
companies, housing associations and freeholders to assess the
performance of specific cladding systems and fire safety measures.
A liability, which is immaterial in the context of these financial
statements, is included in the balance sheet based on management's
expectation of the potential cost of working with partners to carry
out replacement cladding and related fire safety works as part of
Bellway's commitment to be a responsible developer. These estimates
may change over time as further information is assessed, building
works progress and fire safety regulations further evolve.
Notes (continued)
10. Revenue from contracts with customers
The Group adopted IFRS 15 'Revenue from contracts with
customers' during the current financial year. This standard
resulted in presentational changes to the income statement to gross
up part-exchange revenue and expenses within operating profit which
were previously recognised on a net basis within cost of sales,
since part-exchange transactions were treated as being associated
with housing sales. The Group used the full retrospective approach
so the prior year comparatives have been restated. The effect of
IFRS 15 is that these are considered separate transactions and are
therefore presented separately within other operating income and
other operating expenses as it is not a principal activity of the
Group, and for the period ended 31 July 2019 was an increase in
other operating income of GBP169.9 million, an increase in other
operating expenses of GBP175.5 million, and a corresponding GBP5.6
million decrease in cost of sales.
The financial statement items affected by the adoption of IFRS
15 for the comparative period are shown below. There was no change
in previously reported balance sheet information or earnings per
share.
Year ended 31 July 2018
As previously Adjustment Restated
reported in respect
of
part-exchange
transactions
GBP000 GBP000 GBP000
Revenue 2,957,664 - 2,957,664
Cost of sales (2,204,216) 4,032 (2,200,184)
Gross profit 753,448 4,032 757,480
Other operating income - 141,093 141,093
Other operating expenses - (145,125) (145,125)
Administrative expenses (100,577) - (100,577)
Operating profit 652,871 - 652,871
-------------- --------------- ------------
11. Alternative performance measures
Bellway uses a variety of alternative performance measures
('APMs') which, although financial measures of either historical or
future performance, financial position or cash flows, are not
defined or specified by IFRSs. The directors use a combination of
APMs and IFRS measures when reviewing the performance, position and
cash of the Group.
The APMs used by the Group are defined below:
-- Administrative expenses as a percentage of revenue - This is
calculated as the total administrative overheads divided by total
revenue. The directors consider this to be an important indicator
of how efficiently the Group is managing its administrative
overhead base.
-- Net finance expense - This is finance expenses less finance
income. The directors consider this to be an important measure when
assessing whether the Group is using the most cost effective source
of finance.
-- Dividend cover - This is calculated as earnings per ordinary
share for the period divided by the dividend per ordinary share
relating to that period. At the half year the dividend per ordinary
share is the proposed interim ordinary dividend, and for the full
year it is the interim dividend paid plus the proposed final
dividend. The directors consider this an important indicator of the
proportion of earnings paid to shareholders and reinvested in the
business.
Notes (continued)
-- Capital invested in land, net of land creditors, and work in
progress - This is calculated as shown in the table below. The
directors consider this as an indicator of the net investment by
the Group in the period to achieve future growth.
2019 2018 Mvt 2018 2017 Mvt
Per balance sheet GBPm GBPm GBPm GBPm GBPm GBPm
Land 2,004.4 2,011.9 (7.5) 2,011.9 1,838.2 173.7
Work in progress 1,298.2 1,115.1 183.1 1,115.1 1,017.7 97.4
Increase in capital
invested in land
and work in progress
in the year 175.6 271.1
Land creditors (297.9) (365.4) 67.5 (365.4) (366.8) 1.4
Increase in capital
invested in land,
net of land creditors,
and work in progress
in the year 243.1 272.5
-------- --------
-- Net asset value per ordinary share ('NAV') - This is
calculated as total net assets divided by the number of ordinary
shares in issue at the end of each period. The directors consider
this to be a proxy when reviewing whether value, on a share by
share basis, has increased or decreased in the period.
-- Capital employed - Capital employed is defined as the total
of equity and net bank debt. Equity is not adjusted where the Group
has net cash. The directors consider this to be an important
indicator of the operating efficiency and performance of the
Group.
-- Return on capital employed ('RoCE') - This is calculated as
operating profit divided by the average capital employed. Average
capital employed is calculated based on opening, half year and
closing capital employed. The calculation is shown in the table
below. The directors consider this to be an important indicator of
whether the Group is achieving a sufficient return on its
investments.
2019 2019 2019 2018 2018 2018
Capital Land creditors Capital Capital Land Capital
employed employed employed creditors employed
including including
land creditors land
creditors
GBPm GBPm GBPm GBPm GBPm GBPm
Operating profit 674.9 674.9 652.9 652.9
Capital employed/land
creditors:
Opening 2,557.1 365.4 2,922.5 2,191.3 366.8 2,558.1
Half year 2,720.4 294.5 3,014.9 2,455.3 367.3 2,822.6
Closing 2,921.2 297.9 3,219.1 2,557.1 365.4 2,922.5
Average 2,732.9 319.3 3,052.2 2,401.2 366.5 2,767.7
---------- --------------- ---------------- ---------- ----------- -----------
Return on capital
employed 24.7% 22.1% 27.2% 23.6%
-- Post tax return on equity - This is calculated as profit for
the year divided by the average of the opening, half year and
closing net assets. The directors consider this to be a good
indicator of the operating efficiency of the Group.
2019 2018
GBPm GBPm
Profit for the year 538.6 519.9
Net assets:
Opening 2,557.1 2,191.3
Half year 2,693.8 2,323.9
Closing 2,921.2 2,557.1
Average 2,724.0 2,357.4
---------- ----------
Post tax return on equity 19.8% 22.1%
Notes (continued)
-- Total growth in value per ordinary share - The directors use
this as a proxy for the increase in shareholder value since 31 July
2016.
Net asset value per ordinary share:
At 31 July 2019 2,372p
At 31 July 2016 1,522p
-------
Net asset value growth per ordinary share 850.0p
Dividend paid per ordinary share:
Year ended 31 July 2019 145.4p
Year ended 31 July 2018 132.5p
Year ended 31 July 2017 111.5p
-------
Cumulative dividends paid per ordinary share 389.4p
Total growth in value per ordinary share 1,239.4p
-----------
-- Annualised accounting return in NAV and dividends paid since
31 July 2016 - This is calculated as the annualised increase in net
asset value per ordinary share plus cumulative ordinary dividends
paid per ordinary share since 31 July 2016 (as detailed above)
divided by the net asset value per ordinary share at 31 July 2016.
The directors use this as a proxy for the increase in shareholder
value since 31 July 2016.
Net asset growth per ordinary share 850.0p
Dividend paid per ordinary share 389.4p
Total growth in value per ordinary share 1,239.4p
Net asset value per ordinary share at 31 July 2016 1,522.0p
Total value per ordinary share 2,761.4p
-----------
Annualised accounting return - 1 22.0%
-- Net cash - This is the cash and cash equivalents less bank
debt. The directors consider this to be a good indicator of the
financing position of the Group. This is reconciled in note 7.
-- Average net debt - This is calculated by averaging the net
debt/cash position at 1 August and each month end during the year.
The directors consider this to be a good indicator of the financing
position of the Group throughout the year.
-- Cash generated from operations before investment in land, net
of land creditors, and work in progress - This is calculated as
shown in the table below. The directors consider this as an
indicator of whether the Group is generating cash before investing
in land and work in progress to achieve future growth.
2019 2018
GBPm GBPm
Cash from operations 419.1 375.6
Add: increase in capital invested in land, net
of land creditors, and work in progress (as described
above) 243.1 272.5
Cash generated from operations before investment
in land, net of land creditors, and work in progress 662.2 648.1
-------- --------
-- Gearing - This is calculated as net bank debt divided by
total equity. The directors consider this to be a good indicator of
the financial stability of the Group.
-- Adjusted gearing - This is calculated as the total of net
bank debt/cash and land creditors divided by total equity. The
directors believe that land creditors are a source of long-term
finance so this provides an alternative indicator of the financial
stability of the Group.
-- Order book - This is calculated as the total expected sales
value of current reservations that have not legally completed. The
directors consider this to be an important indicator of the likely
future operating performance of the Group.
Principal risks and uncertainties
A risk register is maintained detailing all of our potential
risks, categorised between strategic, operational, financial and
compliance and reputational risks. The risk management processes
are set up to ensure all aspects of the business are considered,
from strategy through to business execution and including any
specialist business areas.
The risk register is reviewed on a regular basis as part of the
management reporting process, resulting in the regular assessment
of each risk, its severity and any required mitigating actions. The
severity of risk is determined based on a defined scoring system
assessing risk impact and likelihood.
A summary of principal risks is reported to management, the
Audit Committee and the Board, which is mainly, but not
exclusively, comprised of risks considered to be outside of our
risk appetite after mitigation. This summary is reviewed throughout
the year, with the Board systematically considering the risks
taking into account any changes which may have occurred. Once a
year, via the Audit Committee, the Board determines whether the
system of risk management is appropriately designed and operating
effectively.
We have identified the following principal risks to our
business:
Risk and Change
description Strategic relevance KPIs Mitigation in year
Land
Inability to * Insufficient land would affect our volume growth * Land bank (with DPP). * Budgeting and forecasting of growth targets to ensure No
source suitable targets. land bank supports strategic target. change.
land at
appropriate * Number of homes sold.
gross margins * Failure to buy land at the right margin would have a * Pre-purchase due diligence and viabilities on all
and RoCE detrimental effect on future returns. proposed land purchases.
* RoCE.
* Authorisation of all land purchases in accordance
* Gross margin. with Group procedures and our Approvals Matrix.
* EPS.
----------------------------------------------------------------- ------------------------------------------------------------------ ------------------------------------------------------------------------------ ---------
Planning
Delays and * Failure to obtain planning within appropriate * EPS. * Group and divisional planning specialists provide No
complexity in timescales would have a detrimental impact on our advice and support to the divisions to assist with change.
the planning growth prospects and have an adverse effect on securing planning permissions.
process returns. * RoCE.
* Management of immediate, medium term and strategic
* Number of plots acquired directly in land bank with land to maintain an appropriate balance of land in
an implementable DPP. terms of quantity and location.
* Number of plots converted from medium term pipeline
to land with DPP.
* Number of plots in our pipeline land bank.
* Number of plots identified in our strategic land bank
with a positive planning status.
----------------------------------------------------------------- ------------------------------------------------------------------ ------------------------------------------------------------------------------ ---------
Construction resources
Shortage of * Failure to secure required and appropriate resources * Number of homes sold. * Systems are in place to select, appoint, monitor, No
appropriately causes delays in construction, impacting the ability manage and build long-term relationships with our change.
skilled to deliver volume growth targets. sub-contractors.
sub-contractors * Customer satisfaction score.
and shortages
of building * Pricing pressure would impact returns. * Competitive rates and prompt payment for our
materials at * Employee turnover. sub-contractors.
competitive
prices
* EPS. * Group-wide purchasing arrangements are in place.
* Continued review and monitoring of supplier and
sub-contractor performance.
----------------------------------------------------------------- ------------------------------------------------------------------ ------------------------------------------------------------------------------ ---------
Health and safety
There are * In addition to the moral obligation and the * Number of RIDDOR seven day lost time accidents per * The Board considers health and safety issues at every No
significant requirement to act in a responsible manner, injuries 100,000 site operatives. meeting. change.
health and to any individual while at one of our business
safety risks locations would delay construction and could result
inherent in in criminal prosecution, civil litigation and * NHBC health and safety benchmark. * Regular visits to sites by senior management
the reputational damage. (independent of our divisions) and external
construction consultants to monitor health and safety standards
process * NHBC Health and Safety Awards. and performance against the health and safety
policies and procedures.
------------------------------------------------------------------ ------------------------------------------------------------- ------------------------------------------------------------------ ---------
External environment
There are a * The impact of these external factors would be on the * Number of homes sold. * Ongoing monitoring of key business metrics and No
number of ability to sell houses and apartments and on returns. development of action plans as necessary. change.
external
factors that * Forward order book.
could affect * Product range and pricing strategy determined based
our ability on regional market conditions.
to generate * Reservations rate.
sales,
including * Use of sales incentives, such as part-exchange, to
but not * Customer satisfaction score. encourage the selling process.
limited to:
Economic
factors, * EPS. * Use of government-backed schemes to encourage home
especially ownership.
house price
inflation and * RoCE.
interest
rates
Mortgage
availability
Government
housing
policy
------------------------------------------------------------------ ------------------------------------------------------------- ------------------------------------------------------------------ ---------
Uncertainty * The uncertainty that currently exists in relation to * Number of homes sold. * While outside of our direct control, we continue to No
over Brexit Brexit and the economy has resulted in splitting out monitor business performance and build a robust change.
and the the risk associated with Brexit due to the potential future-proof business with a solid strategy and sound
future impact impact on our business. * Forward order book. financial controls.
on the
economy could
significantly * Reservations rate.
impact our
ability to
deliver our * EPS.
strategic
objectives
* RoCE.
------------------------------------------------------------------ ------------------------------------------------------------- ------------------------------------------------------------------ ---------
Human resources
Inability to * Failure to attract and retain people with appropriate * Employee turnover. * Continued development of the Group Human Resources No
attract and skills will affect our ability to perform and deliver function and implementation of our people strategy. change.
retain our volume growth target.
appropriate * Number of graduates and apprentices.
people * Monitoring and review of staff turnover and feedback
from exit interviews.
* Number of people who have worked for the Group for 10
years or more.
* Competitive salary and benefits packages which are
regularly reviewed and benchmarked.
* Training days per employee.
* Succession plans in place and key person dependencies
* Senior management gender split. identified and mitigated.
* Increased level of training provided to employees.
* Trainee Assistant Site Manager apprenticeship
training programme in place.
* Increased number of graduates and apprentices.
------------------------------------------------------------------ ------------------------------------------------------------- ------------------------------------------------------------------ ---------
IT and security
Failure to * Poor performance of our systems would affect * EPS. * Group-wide systems are in operation which are No
have suitable operational efficiency, profitability and our control centrally controlled with an outsourced support change.
systems in environment. function in place.
place and
appropriate
back up, * Continued investment in systems.
contingency
plans and
security * Regular review and testing of our security measures,
policies contingency plans and IT security policies.
* Group-wide Cyber Security Committee in place.
------------------------------------------------------------------ ----------------------------- ----------------------------------------------------------------- ---------
Legal and regulatory compliance
Failure to * Lack of appropriate procedures and compliance would * Volume growth. * In-house expertise from Group Company Secretariat, No
comply with result in delays in land development, construction Legal, Health and Safety and Technical functions who change.
legislation and sales completions plus possible re-work to sites advise and support divisions on compliance and
and all of which could have a detrimental impact on * EPS. regulatory matters.
regulatory profitability and reputation potentially leading to
requirements, financial penalties and other regulatory
including consequences. * Number of homes sold. * Consultation with government agencies, specialist
changes to external legal advisors and subject matter experts
Building (e.g. fire safety consultants) including ongoing
Regulations, * We await the outcome of the government's review under * RoCE. cooperation with the CMA.
Fire Safety the Building Safety Programme. We are cooperating
Regulations with the CMA regarding their leasehold investigation
and leasehold into the sale of homes in the new build housing * Gross margin. * Strengthened group-wide policies, procedures and
reform market and await the government's detailed proposals training for key regulatory matters.
legislation and leasehold reform legislation.
as a result
of ongoing * Continual monitoring and review of changes to
government legislation and regulation, including any supporting
consultations guidance and advice notes.
* Continual liaison with the HBF on regulation and
compliance matters.
------------------------------------------------------------------ ----------------------------- ----------------------------------------------------------------- ---------
The Group continues to invest in its control environment, with a
significant IT implementation project and developments to both IT
and business processes ongoing. The risks associated with these
changes, including those relating to the adjustment of employees to
new processes, are regularly monitored by management and the
Board.
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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR USABRKVARAAA
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