Bellway p.l.c.

Good morning and welcome to Bellway's half year results. Some positive news to discuss on trading and growth outlook. But first, a few key highlights from the first half. We have delivered another credible operational performance despite a challenging market and from a significantly lower order book. Housing completions closed at 4,092 homes. Underlying PBT was 134 million. Dividend at 16 pence is around one third of the estimated full year return. and reflective of our previously guided two and a half times cover. And notably, our balance sheet remains robust with a healthy WIP position and capital to invest in land. Now, trading conditions have markedly improved since I last reported at our prelims in October. And you may recall at our prelims that I suggested FY24 was going to be tough and there was room for optimism in FY25. And that story is very much playing out, with the exception it's happening sooner than we envisaged. Improved affordability has led to an early pick-up in sales in January and ahead of the usual spring recovery. And as a consequence, that has reinforced our optimism and our prospects for a return to growth. We are seeing good levels of customer inquiries, higher reservation rates and healthy demand for energy efficient new homes. Operationally, despite the planning system, we can deliver meaningful growth next year. And the reasons behind my optimism, my confidence, we already have the land in place with the benefit of DPP. Outlet numbers and order book are both on track to grow again this year. And we have a healthy WIP position to meet the improvement in customer demand. And given these strengths and assuming market conditions remain stable, we are well placed to grow in 2025 and beyond. I'll discuss strategy and operations later, but first our results with Keith.

Okay, thanks, Jason. Good morning, everybody. So I'll start with housing revenue, which reduced, as expected, to £1.3 billion, with the lower volume output a reflection of weaker trading conditions over the past 18 months. And you will see that because of that lower demand, the reduction in homes sold has been mainly in respect of private completions, where volume dropped to 3,078 homes. As you know, since the summer of 2022, we sought to accelerate the delivery of our social housing contracts by utilising temporarily excess capacity in our construction teams. This meant that we were still able to deliver over 1,000 social homes in the first half, representing an unusually high 25% of output. And that increased social percentage was the main reason behind the modest reduction in the overall average selling price, which decreased to £309,000. In the second half, we will continue to deliver our accelerated social housing programme, and I therefore expect that we'll broadly complete around 2,100 social homes for the full year. The number of private completions will, however, continue to fall in the second half, so total volume output will be around 7,500 homes, but the reduction in proportion of private homes will have a further dilutive effect on the overall average selling price, which is likely to be around £295,000 for the full year. All of this is consistent with the guidance that we gave last October, and the weighting of completions towards H1 simply reflects construction programmes and a stronger private order book at the start of the year. The group is well positioned for growth in the next financial year, but it is worth noting that social output is likely to fall from the elevated levels that we achieved in both FY23 and FY24. And that means our recovery will be underpinned by private volume, and it will therefore require the recent improvement in demand, which Jason will come on to in his section, to continue. The anticipated growth in the proportion of private completions next year will in turn drive a corresponding recovery in the overall average selling price to over £300,000 in FY25. While discussing volume, I did want to briefly mention our Ashbury brand. It's now used in over 9% of volume output, and it is used on a similar proportion of sites. And as you know, we use this brand interchangeably with the Bellware brand, and it allows us to provide dual sales outlets on larger sites and offer customers a choice of both internal layouts and elevational treatments, all from our standard house type range. The benefits are enhanced sales rates and improved return on capital employed. And in addition, when it's used carefully, the use of multiple selling outlets in areas of higher demand allows us to bid on larger land releases while ensuring our capital disciplines are maintained. Underlying gross profit was £211 million and there was a 5 percentage point reduction in the gross margin to 16.5%. The continued use of selling incentives and higher site-based overheads due to the slower sales market played their part in the decline. In addition, build cost inflation, including that which was incurred last year and is therefore embedded within WIP, together with some more moderate cost increases experienced so far this year, also contributed to the reduction. The admin cost fell slightly to £70 million, and the cost-saving initiatives and headcount reduction we announced in October more than offset inflationary pressures, although these remain pronounced at the start of the financial year, particularly in relation to wage growth. I still expect the full year admin cost to be similar to last year's cost of £142 million. After considering overheads, the first half underlying operator margin was 11%. And this will moderate again for the full year, primarily because the H1 weighting of revenue means that overheads won't be absorbed as efficiently in H2. As a result, and as I said last October, the full year underlying operating margin will therefore reduce by at least 600 basis points from the 16% that we achieved in FY23. Assuming the market recovery continues, this sets a base for margin recovery in FY25 and beyond. As previously guided, there was a small loss from joint ventures of £1.4 million, and this loss will increase to up to £4 million for the full year as we continue to bear the initial upfront financing costs on a 1,200-unit longer-term scheme at Cherry Hinton in Cambridgeshire. The underlying interest charge was lower than last year at £4 million, and that in part reflects a reduced imputed interest charge on a lower land credit balance. For the full year, I expect a total underlying interest cost of around £10 million. Lastly, note the rise in the effective tax rate, which is now close to 29%. In relation to building safety, we've incurred a charge of £70 million in the first half as an adjustment item. This mainly relates to technical items, and the first being an interest charge of £9 million, which as previously advised reflects the unwinding of the discount on the provision at the start of the year. And secondly, there was a cost of sales charge of £7 million, and that rather dully takes into account the reduction in gilt rates over the past six months, which has resulted in an increase in the present value of the provision. In the second half, there will be an adjusting interest cost of £8 million as the provision unwinds at the new lower discount rates. Our building safety division is well established and work is gathering momentum. There are 32 buildings where initial works are now complete. We've got work underway on a further 62 buildings and we think we'll start work on a further 25 buildings over the next six months or so. We've also made good progress on inspecting properties, both reviewing external wall and internal fire stopper measures in accordance with the more onerous inspection requirements of the SRT, which often supersede any previous inspections which may have been undertaken. Complications and cost issues remain where works have originally been managed through one of the government funds or where the requirements of the SRT extend beyond the initial urgent requirement to remove potentially combustible facades. Obtaining the necessary planning permission and gaining licences to access sites can also be an impediment to progress. But despite the challenges, we are getting on with the job and we do believe that our provision remains adequate. Moving on to the balance sheet and despite our restricted land buying activity our owned and controlled land bank remains healthy at over 49,000 plots and this has allowed us to increase average outlet numbers in the period to 243. In addition the slow but eventual progress of sites through the planning system holds us in good stead to open over 40 new outlets in the second half of the year. This strong position bodes well for Belway's volume recovery and it should enable the group to outperform in the years ahead. While our strong land bank has afforded us caution in the land market, we have continued our investment in longer-term strategic land and now have over 44,000 plots under some form of contract. This will further support longer-term outlet growth beyond the current planning stalemate and the inevitable hiatus period before the next election. It also offers potential to drive future improvements in both margin and return on capital employed. Construction-based work in progress was over £1.95 billion, which is a rise of £92 million compared to 31 July. The overall number of plots in production has reduced, although we have cautiously progressed construction stages on certain sites. In addition, we have also continued to invest in site infrastructure where appropriate to underpin our ongoing site opening programme. The slower market also means that the amount invested in Port Exchange properties was higher, but it was still low at only £20 million. PortX is tightly controlled at Bellway and it was used in less than 3% of overall transactions. Our cash position remains strong, so we ended the period with net cash of £77 million, and that's after taking into consideration a cash outflow on land of £260 million. Land creditors are over £130 million lower at £239 million, and adjusted gearing, inclusive of land creditors, was less than 5%. The balance sheet is resilient with cash, low land credited debt and substantial committed credit facilities. Yes, it also offers an opportunity for future growth and improving returns with previous land and WIP investment ready to support an improving sales market and higher output in FY25. At the same time, we also maintain our ability to provide an ongoing cash return to shareholders. So you might recall our share buyback programme that completed in October after returning a total of £100 million at a weighted average share price of £21.93, which is a discount of over 24% to the 31st of January net asset value. In respect of the dividend, we'll make an interim payment of 16 pence per share, and that reflects our previously stated policy to maintain a dividend cover of two and a half times underlying earnings for the full year, with broadly one third of this declared at the half year. Now, this is a sustainable level of cover, which provides for a recurring shareholder return, although allocating which provides a recurrent shareholder return and a recovery in earnings will drive a commensurate increase in dividend payments over time. We do, of course, have the optionality to make further returns to shareholders, although allocating capital to achieve growth, if supported by the market, remains our priority. In terms of value metrics, NAV increased marginally to £28.88, driven by the accretive value of the share buyback. Annualised underlying post-tax return on equity was 5.6%, and the expected earnings rebound beyond this financial year will deliver improving returns, which remains a key focus for management. On carbon reduction, the chart shows our progress to date on the reduction in scope one and two emissions. And the use of renewable energy in our offices and biodiesel onsite has had a significant impact, even though market constraints meant that it was more difficult to procure renewable energy in some instances over the past year. We now have plans afoot to accelerate the connection of services to site to further reduce our reliance on onsite generators. Scope 3 is more complex and the implementation of the future home standard will play a big part in our reduction programme, although the legislative requirements are still not yet finalised. In addition, we continue to increase the use of timber frame construction on site, with successful trials in our North East, Durham and Yorkshire divisions, complementing the output from our Scottish businesses. Timber frame has the potential of reducing both carbon emissions and improving whip turn. I'll summarise the financial part of today's presentation with guidance for the full year. We're still on track to deliver around 7,500 homes at an overall average selling price of around £295,000. The underlying operating margin is likely to reduce by at least 600 basis points from the 16% that was achieved in FY23. The dividend cover will be around two and a half times underlying earnings for the full year. And finally, we have the cash, land bank, WIP and the outlet opening programme in place to serve as a platform for recovery in FY25. I'll now hand you back over to Jason.

Thank you, Keith. I will start with trading. During the period, we saw a steady improvement in customer confidence as the reduction in mortgage rates has a positive effect on sales activity. From the slide, you can see the contrast between Q1 and Q2, and typically we would expect the winter period to be a little quieter, but the opposite has happened as the market has begun to recover. Overall, in the first half, we achieved a private sales rate of 0.43 per outlet. Cancellation rates were lower than last year, falling to an average of 16% and notably fell to a more normal level of 13% in January. And affordability remains one of the key drivers behind housing demand. And during the first half, we saw a significant improvement with mortgage rates falling from 6% down to around 4.5%. And our experience suggests, as we saw in January, if 4% to 5% mortgage rates are available, that can support a sales rate of 0.6 per outlet. And overall, there is good availability of mortgage finance, although 95% LTV products are still in short supply. Mortgage rates have nudged up a little since January. And for a five-year fix, you can expect to pay 4.5% to 5% if you have at least a 10% deposit. Now home buyers today are getting used to the new mortgage rates, with demand being supported by both wage increases and lower inflation. There is an acceptance that that period of ultra-low rates is over. But I would stress that to sustain current reservation levels, the mortgage market needs stability. It's the volatility in rates that we saw in 22 and 23 that upsets the housing market. It affects customer confidence and people are understandably reluctant to make long-term decisions. And now for current trading. I've already mentioned that January was a good month for sales and that momentum has continued. In the first six weeks since the 1st of February, we have achieved a private sales rate of 0.67 per outlet or 163 private sales per week. And our sales success is not just attributed to that improved affordability. We also benefit from a strong outlet opening programme with around 80 outlets planned to open in FY24. Our investment in WIP and in particular superstructures, and by that I mean roofs and brickwork, enables our customers to see their homes under construction as we find many purchasers today are reluctant to buy off plan. And finally, there is simply very good interest in new homes and that's understandable given the lower energy costs and the lower maintenance costs. And as a consequence of all this, House prices are holding firm. Incentives have steadied at around 4% to 5%. And interestingly, we are beginning to see some sites in stronger selling areas that are becoming less reliant on incentives and still delivering a good rate of sale. The order book as at the 10th of March was 4,900 homes and around two thirds of that is already contracted. We are over 95% sold for the current year and our main focus now is to build the order book for July. And that brings me neatly onto positioning the group for recovery. As I mentioned in my introduction, we're planning for the next phase, recovery in 2025. And as a business, we are in a good space. We will deliver modest outlet growth this year and are well-placed to do the same in FY25. Our WIP position and recovering order book will result in a very strong start to the next financial year. And we have a high quality land bank that has strength and depth in all categories to support our growth ambitions. And remember, and this isn't guidance for FY25, but if we can sustain a sales rate of 0.6 per outlet, then that puts Bellway back on a path to deliver 10,000 homes. Turning now to production, bill cost inflation fell to around 1 or 2% in the period, weighted towards the labour element. We have good levels of availability for both materials and labour. Our focus is the control of costs and improvement of margin, which is a key strategic pillar for the group going forward. From a people perspective, we have established a commercial training academy for QSs of all levels to reinforce the disciplines of cost control. From a design perspective, we have a project underway to configure our house types for the option of timber frame construction to optimize both WIP and speed of build. Moving to land. We haven't bought much short-term land in the period, principally due to the uncertain market conditions and also our robust land position. But since the start of the new year, our appetite has changed as the outlook has improved. and we are now more active in the land market. And you can see from the chart, while the overall number of plots has reduced to 94,000, land with DPP is still a healthy 30,000 plots, as we redeployed our land buyers onto planning applications to over-manage that dysfunctional planning system. We still spend a disproportionate amount of time and money on planning processes. There are an extraordinary number of individuals, bodies and authorities seemingly wanting to and able to frustrate and challenge the delivery of new homes. And that position is unlikely to change during an election year. On a positive note, we are particularly pleased with the performance of our strategic land teams who have once again had a strong year and increased the strat land bank by a further 6% to 44,000 plots, providing an excellent platform for the years ahead. And now for Better with Bellway. It's been a good year for awards. Large House Builder of the Year Award and Best Staff Development Award at the House Builder Awards in 23. Major Projects of the Year for our Energy House at Salford University at the National Sustainability Awards. And for the eighth consecutive year, we have maintained our HBF five-star status for customer satisfaction. and I'm pleased to report that our eight-week satisfaction survey score has improved despite the challenges in the supply chain last year, with our score rising to over 92%. Our nine-month score has remained static at around 80%, but we are aiming to improve this figure as we benefit from a lower volume output this year, which offers a good opportunity to reinforce those customer service disciplines. And finally, outlook. FY24 will be a year of lower volume output as we manage and position the business to rebuild in the years ahead. Keith has already mentioned we will deliver around 7,500 homes in the current year, crucially build both the order book and outlet numbers for July. We have a clear focus on margin improvement and driving return on capital employed. And our operational strength combined with our robust land and WIP position provides a good foundation for our growth ambitions in the years ahead. Thank you. Keith and I are now happy to take questions.