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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Bellway Plc | LSE:BWY | London | Ordinary Share | GB0000904986 | ORD 12.5P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 78.00 | 2.93% | 2,744.00 | 2,740.00 | 2,744.00 | 2,752.00 | 2,680.00 | 2,704.00 | 123,594 | 14:39:17 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Operative Builders | 3.41B | 365M | 3.0558 | 8.98 | 3.28B |
From May 2019 to May 2024
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
Hot Features
Premium
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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