Bellway p.l.c.

Good morning and welcome to Belway's full year results. Keith and I are joined by Simon Scougal, who you may recall joined the board back in August as Chief Commercial Officer. Simon is going to provide an update on the land and planning environment and also set out our plans for a new timber frame facility. Keith, as you know, will be leaving early in the new year, so this will be his final presentation. Keith is a difficult act to replace, having spent almost 13 years on the board, but he's also a very good act to follow. And as you would expect from him, he's leaving with an experienced finance team in place and with the balance sheet in good order. Simon joining the board offers me continuity and with a strong leadership team already in place, some of whom are here today. We've got two regional RCs, Stuart Gray and Ian Goulds just sitting up the back there, Gavin Jago, who you're familiar with, our Group FC, Phil Hope, and of course, our chair and industry veteran, John Tuck. And I also look forward to welcoming our new CFO, Shane Docherty, to the board on the 2nd of December. Now, today's presentation, in addition to our results, is about providing an update on strategy and our organic growth plans. FY24, as expected, was a year of reset following lockdowns. market uncertainty and leading to a reduced PBT of 226 million. Importantly, despite those challenges, we have built a strong platform from which to grow. Bellway is in healthy order to drive both multi-year volume growth and return on capital employed. And that's because we have a larger order book. We have a high quality land bank because we kept investing. We have the ability to continue growing outlets, a healthy WIP position, capacity within our divisional structure, and we have the balance sheet to invest. Those strengths are also complemented by an improving market backdrop. Cost inflation has reduced, affordability has improved, and a new government has a clear agenda to increase housing supply. Overall, I would describe our business as being very much on the front foot and ready to capitalise on better trading conditions. I will cover our approach and thoughts in more detail later this morning, but first, our results with Keith.

Thanks, Jason. Good morning, everybody. So I'll start with housing revenue, which reduced, as expected, to £2.4 billion. The lower number of private completions reflected weaker trading conditions, particularly in H1 and the lower order book at the start of the financial year. Social housing completions were also lower, And this reflects our decision to accelerate the delivery of social housing obligations in FY23 to aid cash collection and to utilise capacity in our construction teams. The overall average selling price moderated slightly to almost £308,000, mainly driven by decline in the private ASP, which reduced primarily because of mixed changes. In addition, the use of incentives, which were used consistently throughout the year, had a small downward effect. In the year ahead, we will begin our volume recovery and we expect to complete at least 8,500 homes, as Jason will outline soon. Our strong outlet opening programme has contributed to a healthy increase in the order book at the start of the year. On this, alongside gradually improving trading conditions means that growth in FY25 will be almost entirely driven by private sales. Volume output will also be supported on our larger sites by both our Bellway and our Ashbury brands, with the latter now used in around 10% of completions. The overall average selling price in FY25 is likely to be around £310,000, which is slightly ahead of that achieved in FY24. The underlying operating margin was 10% and the operating profit was £238 million, with the reduction compared to FY23 mainly driven by the decline in volume. The underlying gross margin was also lower at 16% as the continued use of incentives and higher site-based overheads caused by the slower sales market played their part in the decline. In addition, build cost inflation, particularly that occurred in FY23 and therefore embedded within site valuations, also contributed to the reduction. Admin costs were flat at £142 million as the workforce planning exercise we undertook last autumn helped to offset inflationary pressures and salary growth. Looking forward, inflationary pressures have receded and cost rises are being further offset with our strong cost control initiatives. And this, coupled with a more robust pricing environment, means that we expect a gradual recovery in the gross margin in the year ahead. The admin expense will increase by up to 10% after holding costs flat for two years, although the recovery of admin costs will be a little better. Offering competitive reward packages to retain a high quality workforce, investing in people and new trainees to deliver growth, And the initial pre-operational costs of our new timber frame factory, which Simon will come on to soon, will all contribute to the rise. And although it's difficult to be precise at this early stage, the improvement in gross margin, together with a slightly better recovery of overheads, should mean that we'll deliver an operating margin approaching 11% for the full year. The net loss from joint ventures was £2.3 million, but this conceals their positive trading performance and associated operating profit of £2.2 million. And this is offset against a £4.5 million interest cost charged on the JV partner's invested capital. Now, given that 50% of this capital is provided by Bellway, there is a corresponding and equal credit included within the net finance expense with the details set out in the appendices. Taking this credit into consideration, the underlying finance charge was £9.7 million and it's likely to increase in the year ahead to around £16 million, mainly driven by a higher imputed interest cost on land creditors. The overall tax rate rose to 29% and the increase on last year simply reflects the rise in the UK-wide corporate tax rates. In relation to building safety, the net adjusting charge of £37 million includes £20 million recognised through cost of sales and a £17 million finance expense. Now that cost of sales charge has two main components. Firstly, in relation to the government self-remediation contract, there's a small true-up cost of £6 million, and that includes a credit of £2 million in the second half of the year. Secondly, there's an additional charge of £14 million relating to the one-off and isolated structural issue reported last year on a legacy London apartment scheme. The updated cost estimate follows more intrusive investigative surveys and modern work, which have resulted in an updated remediation solution. We do, of course, continue to pursue recoveries, but these are not yet recognised on the balance sheet, given the complex nature of the process. The building safety finance charge is simply the unwinding of the discount on the provision. And in the first half of FY25, the five finance charge will be under £8 million. Although in the second half of the year, this will change modestly as it is in part dependent on any movement in gilt rates. In terms of remediation, we are making continual progress. We spent £146 million on building safety over the past few years. And between Bellway and government funds and various trusted third parties. We have commenced or completed works on 137 buildings. We expect expenditure to rise in FY25 and we are committed to accelerating the pace of remediation. Access, legal and planning issues amongst others can all frustrate matters, but we have the internal resource expertise and the balance sheet strength to meet this objective. Importantly, our building safety team have the support and the sponsorship to expedite progress. Our strong balance sheet includes our investment in land, our healthy rip position and our low gearing and Simon will provide an update on land in a short while. We have consciously increased investment in site-based WIP to support growth, and it has risen to £2.1 billion. WIP turn is lower as expected because of the lower output and slower sales rate. At the same time, we've progressed our ambitious site-based opening programme, and on a select basis, we've also invested in foundations to secure one common set of site-wide building regulations ahead of the change from June 2024. This proactive investment in WIP in the context of our very strong balance sheet will allow Bellway to make the most of the volume growth opportunity in both FY25 and FY26. Year-end net debt was a very modest 10 million pounds and noticeably the average debt during the year was also low at only 46 million pounds. Land creditors have reduced significantly and they are low at £225 million, resulting in low adjusted year-end gearing of under 7% and I expect adjusted gearing to remain low in the year ahead. Our finance structure with £530 million of committed facilities is designed to be flexible. Four supportive relationship banks, all with appetite to lend, together with our long-term private placement holders, results in a diversified debt structure providing both resilience and capacity to invest. Our approach encapsulates the usual healthy thread of Bellway conservatism and this continues to serve us well. Given the reduction in volume output, return on capital was understandably low at 6.9%. However, on a longer term basis, our 10-year accounting return, including both NAV growth and dividends paid per share, is attractive with an annualised compound return of 13.6% per annum, with this driven by our successful organic growth strategy. And this, of course, is measured over an unusually disruptive period. It includes the dilutive effect of Brexit, Covid, the end of help to buy, building safety provisions, and more recently, FY24's reduction in earnings, which was caused by high inflation and the rapid rise in interest rates from late 2022. Going forward, with the sector and economic headwinds beginning to subside, the outlook is more positive. And in this context, the management team remains focused on creating value for shareholders through delivering ambitious volume growth, improving on return on capital employed, and providing a regular annual dividend return. Delivering growth will be the primary value driver and this will be achieved from our strong land outlet and width position and supported by our inherent structural capacity. Growth will also result in an improved asset turn, and coupled with our margin improvement initiatives, this will help unlock the intrinsic value within our balance sheet and drive a recovery in return on capital employed. Lastly, our capital allocation policy is designed to prioritise growth while providing a regular annual dividend return to shareholders with a cover of two and a half times underlying earnings. And in that regard, the proposed final dividend is 38 pence per share, and this will result in a total dividend for the full year of 54 pence. I'm confident that these three focus areas will drive further value for shareholders in the years ahead. Now, Better With Bellway is a long term strategic priority and it encapsulates our commitment to operating in a responsible and a sustainable manner. And I'm pleased to report that several initiatives are really gathering momentum and picking just maybe a few highlights on the slide. We were awarded the Large House Builder of the Year. Energy House 2 at the University of Salford was voted Project of the Year at the National Sustainability Awards. and we've reduced the waste on our building sites by 17%. I'm also pleased that we've made further progress on carbon. There's been a 14% reduction in scope one and two emissions, and we are well on the way to beating our 2030 targets several years early. We expect to make further meaningful progress on reducing scope three emissions as we adopt the future home standard and we are now turning our thoughts to a longer term net zero target, which we will report upon in due course. We are focused on taking actions that make a difference rather than chasing ratings, but we also do acknowledge that our story would sometimes be better understood. So in that regard, we are working with Next Generation to try to better explain some of our initiatives and also to understand whether there are any gaps in our wide-reaching strategy. So to end, I will summarise with the key points for the year ahead. We will begin our volume recovery delivering at least 8,500 homes. The average selling price will be around £310,000 and the underlying operating margin will approach 11%. The dividend cover is likely to be around two and a half times underlying earnings. In summary, Bellway is in a position of strength. It's now ready to begin its recovery with a growth-focused long-term strategy set to deliver improving returns for shareholders. I'll now pass it over to Simon, who is going to provide an update on the land market and also outline plans for Bellway Home Space, which is our new timber frame facility.

Thank you, Keith, and good morning, everyone. Now moving on to land. We contracted to purchase 4,621 plots across 27 sites in the year and continue to have a very healthy owned and controlled land bank of around 49,000 plots. This represents a land bank length of 6.4 years based on FY24's legal completions. As you can see from the table, we have depth in all tiers of our land bank, with a total of over 95,000 plots to underpin our multi-year growth ambitions. All of our divisions are now active in the land market, following the improved market outlook that Jason and Keith have referred to. New opportunities are gradually growing in number, and whilst most sites are subject to competitive bidding, I am pleased to report that we have around 8,100 plots currently agreed with heads of terms across 41 sites at attractive returns. Going forward, the outlook is encouraging and we welcome the new government's proposals around improving the planning system and the reintroduction of mandatory housing targets, which should result in more sites coming to the market from both private and public sector landowners in calendar year 2025 and beyond. A good example of recent support from the new government for our sector is the new Secretary of State for Housing, Communities and Local Government's decision to grant us planning consent on a 380 unit allocated site in Durham City that we acquired freehold three and a half years ago. The site became caught up in the local planning system and to a degree local politics and was ultimately called in for review by the Secretary of State's predecessor under the prior government. we now have an implementable detailed planning consent for the first phase of this development. We successfully opened 80 new outlets in FY24, testament to our front-footed investment in land prior to financial year 2023. Further supported by the ongoing hard work from our land and planning teams, we delivered modest growth in sales outlets during FY24, booking the sector trend. We have good visibility on future outlet openings with around 50 new outlets forecast to open in FY25. And we are well positioned to maintain the average number of outlets at around 245 during the current year. And due to our strong pipeline of land, we expect to grow the average number of outlets again in FY26, subject of course to the timing or planning decisions. We have also continued to invest in longer-term sites through our now well-established and dedicated business unit, Bellway Strategic Land, which comprises a team of over 20 specialists, principally working on medium to longer-term option and promotion agreements. The group has signed option agreements to buy 35 sites across the UK in the financial year, increasing our strategic land bank to 45,500 plots, with a good spread across all of our trading divisions. Our proactive investment in land has resulted in the plots in our strategic land bank growing by over 75% in the last five years. And as a result, we expect to deliver an increased proportion of volume output from our well-located, strategically sourced land bank over the medium term. Those plots in the group's strategic land bank with a positive planning status typically have an embedded modest discount to market value and will therefore support margin improvement in the years ahead. So, to conclude on land, Bellway has a high-quality land bank with strength and depth. With positive planning reforms on the horizon, our investment in strategic land in recent years will bolster our short-term pipeline further, and it will provide a platform to support our Outward Opening programme and deliver our long-term volume growth ambitions. I would now like to provide an update on our plans for the increased use of timber frame construction for housing across the group. As Jason mentioned at the interim results in March, we've been increasing the use of timber frame across the group, successfully trialling it in recent years in several of our northern and southern divisions, in addition to its long-established use in our two Scottish divisions. The learnings from these trials gives us the confidence to go a stage further by investing in our own proprietary timber frame manufacturing facility under the banner of Bellway HomeSpace. We have recently taken possession of a 134,000 square foot industrial unit in Mansfield, Nottinghamshire, under a long-term lease arrangement. And this new modern facility has been chosen for its strong transport links and a central location between the A1 and the M1. The group has also appointed a managing director with many years of manufacturing experience within our sector to run its new timber frame operations. and we are also in the process of recruiting a workforce for the new production facility. A new robotic machinery has been ordered at a cost of around £9 million from a leading manufacturer. We expect to deliver our first homes from the facility in mid-2026, with a ramp-up to full capacity of 3,000 homes by 2030. This will be an important foundation for our volume growth ambitions, and our Bellway Homespace facility will support a targeted increase in timber frame use to around 30% of output by 2030, from 12% in 2024. This new strategic priority will be further supported through existing partnerships with leading experts, including a major UK timber frame supplier. They will assist with installation and quality control on site, but they will also support our own production from the Bellway Homespace facility. We expect to generate a range of benefits from the use of timber frame in the years ahead, and this has been corroborated from our on-site trials. These include faster build speed and whip turn, improved quality and customer experience, reduced waste and reduced carbon emissions. It will also lead to supply chain diversification, with less reliance on blocks and brick layers, both of which have been in short supply in previous cycles when industry output has increased. Overall, we are confident that our investment in timber frame in the years ahead will be a key driver to long-term volume growth, and it will complement the targets set out in our Better With Bellaway sustainability strategy that Keith has just been updating you on. Timber frame construction is fast becoming the future of UK house building. And our investment now in Bellway Homespace will allow the group to retain control of a fundamental part of the construction process. Jason, if I can hand over to you, please.