Bellway p.l.c.

Good morning and welcome to Bellway's half year results. As usual, I'm joined by Shane and Simon with lots of our senior management team also with us today. If I could take you to the first slide. We delivered a good first half performance despite a softer selling period through much of 2025. Half-year volume increased to 4,700 homes. That delivered an operating margin of 10.5%. we have an order book of 4,400 homes and a strong land bank largely unchanged at 94,000 plots. Now, since the start of the calendar year, trading conditions have markedly improved with a notable pickup in both home buyer interest and reservations. However, the ongoing conflict in the Middle East clearly has the potential to dampen customer demand and clearly increases the risk of higher inflation. That said, today we have not seen any material impact upon sales rates. And for FY26, given our half-year result and our order book, we remain on target to deliver operating profit in the region of 320 to 330 million. The full year is likely to deliver a higher volume than previous guidance with an operating margin similar to the half year. And while margin headwinds may well continue, delivering higher volumes will certainly drive cash generation and that very much supports our programme to be more capital efficient. I will provide the usual detail on Ops and Outlook later, but first for our results and update on capital allocation with Shane.

Thank you, Jason, and good morning, everyone. As Jason said, we've delivered a robust performance in the first half, despite ongoing challenges in our industry. Supported by the order book at the start of the year and despite subdued trading throughout the autumn, volume output increased by 2.7% to 4,702 homes. There was growth in both private and social output and the proportion of social completions was in line with prior year at around 21%. The ASP was up by 3.7% to just over £322,000 and in line with expectations. The increase in the ASP was driven by geographic and mixed changes with headline pricing remaining broadly stable. Turning to gross margin, there was a 20 basis point reduction to 16.2%. This slight reduction reflects the benefit of higher margin land in the mix, which was offset by incremental incentive usage, the absence of any HPI, and low single digit bill cost inflation. These factors are also reflected in our order book and combined with the expected contribution of bulk sales in the second half, we currently expect gross margin in FY26 to be similar to that achieved in the first half. These margin dynamics together with embedded cost inflation carried in our work in progress are likely to remain a headwind to margin, at least in the near term. And there are clear risks of potentially higher bill cost inflation stemming from the ongoing conflict in the Middle East. We'll be in a better position to comment on the potential impact of FY27 when we report in our June trading update. Looking further ahead, we are working through our WIP balance and growing proportion of our output will benefit from newer high margin land. With a stable market supported by a more favourable HBI BCI dynamic as seen in previous cycles, we are well positioned to drive ongoing improvements in our margin in future years. In line with our strategy to invest across the group to deliver greater efficiencies and long-term growth, the admin overhead increased to 86 million and the full year number is expected to be between 170 and 175 million. Our investments include our new timber frame factory, combined with strategic investments across IT and strengthened commercial and finance teams, which means we now have the right structure in place to effectively deliver on all of our strategic priorities. We expect that that level of increase will not repeat in future years whilst obtaining operating leverage from it as we drive towards 10,000 units if market conditions improve into the medium term will obviously be a key focus also. The effect of the increased overhead investment together with the movement in gross margin led to a 50 basis point reduction in the underlying operating margin to 10.5%. Underlying PBT was slightly higher at 151 million, and I'm pleased to report that the interim dividend has been increased by almost 10% to 23p per share. This slide has covered the group's underlying performance, adjusting items shown in more detail in the income statement in Appendix 1. These include 300k through admin expenses relating to the previously announced CMA investigation. The other adjusting items relate to bill safety, which I will cover later in the presentation. Turning to our balance sheet, it is robust and well capitalised with a strong land bank and whip position at its core foundation. These are key focus areas for our capital efficiency drive and critical to our plans for increasing cash generation. I will cover this in more detail shortly as part of our capital allocation strategy. First, to highlight the key balance sheet movements. Reflecting our largely land replacement only land strategy, the land balance of 2.5 billion has reduced slightly by around 38 million since the year end. During the first half we entered into new lawn contracts on deferred terms totalling around 130 million and settled land creditor payments of around 180 million. This led to period end land creditors of 290 million representing 12% of our land balance. As previously guided and as part of our strategy to run the business with a more efficient capital structure, there will likely be an increase in the use of land creditors over the medium term. The range is expected to be between 15% and 20% of land value, which is similar to historic norms. Jason will cover our land bank in more detail later. The work in progress balance, which includes site WIP, show homes and part exchange properties reduced by 39 million to 2.3 billion. Breaking that movement down into three component parts. Firstly, the value of show homes remain flat, reflecting our broadly stable outlet position The value of part exchange properties rose by just over 20 million. Part exchange is an important selling incentive for customers, and whilst its usage increased, it has remained disciplined and represents a relatively modest 6% of our completions. Finally, site WIP reduced by 61 million to just over 2.1 billion. And this highlights some good early progress with our capital efficiency drive, which we spoke about to you in detail last October. To finish on the balance sheet, as you will see from the bottom of the slide, our adjusted gearing including land creditors remains low at 10.3% and our net asset value per share has now risen to just over £30. We've continued to make good progress on bill safety, and I'm pleased to report that the overall provision remains broadly stable. With regards to movements in the provision, in addition to the 6.5 million adjusting finance expense, which was in line with previous guidance, there was a very modest net increase of 4.2 million in the bill safety provision through cost of sales, which relates to the refinement of overall cost estimates. We have now completed determinations on all of our legacy buildings in England and Wales in accordance with the joint plan. Our provision is based on robust assumptions and prudent cost estimates for both internal and external works on the 457 buildings in scope for remediation. We have started our completed work on 172 buildings with the majority of spend expected by FY30. We've spent 212 million on legacy build safety since the start of the programme, including 21 million in the first half of FY26. The strengthened team at our dedicated Bill Safety Division is focused on completing works as promptly and as efficiently as possible. For FY26, we continue to budget for total spend of over £150 million, although I must caveat that this level of spend remains dependent on receiving requests for payment from the Government for works carried out on our behalf for the Bill Safety Fund, totalling around £90 million. I think it's important to point out today that for Prudence, our shareholder returns capital allocation modelling assumes significant disbursements around bill safety over the next three years. The provision at the 31st of January 26 was 507 million, and I'm confident that we are well provided for the remediation works required across the legacy portfolio. In terms of recoveries, we've recognised 81 million to date. We do, of course, continue to actively pursue further supply chain recoveries, but as these are not virtually certain at the balance sheet date, no additional reimbursements have been recognised. Turning next, just to remind you of our priorities for capital allocation, which we covered in detail last October. In short, it is a flexible framework with our strong balance sheet and well-invested land bank as the foundations of the business, which support our balanced approach to continue to invest for growth and delivering enhanced returns for shareholders from increased cash conversion and generation. As part of our strategy, we are sharply focused on driving greater efficiencies and our whip balance presents a significant opportunity for much greater cash generation, which I will cover next. We generated good operating cash flow in the first half. The cash flow bridge chart shows the movement from a small net cash position to ending the period with modest net debt at 72 million, in line with our plans to run a more efficient balance sheet and increase returns to shareholders. To run through our key movements, you can see the decrease in total WIP that I referenced earlier amounted to 39 million. In relation to land, the monetization of land through cost of sales was 283 million. This was slightly lower than the cash spent on land, and together with the movement in land creditors, this led to a 38 million decrease in land on the balance sheet in the period. After other working capital movements and tax, the operating cash generated before investment in land, bill safety spend and distributions to shareholders was 314 million. As a result, the conversion of operating profit to adjusted operating cash flow was two times. As I highlighted in October, we are aiming to maintain the conversion level at a minimum of 2x over the three years to FY28. As I said previously, adjusted cash flow is the fuel for future investment opportunities in the business and ultimately greater value creation and returns for our shareholders. In this regard, we invest 302 million in land, including settlement of land creditors and dividend payments and share buybacks totaled 105 million. We also spent 21 million on bill safety, which I referenced earlier. After taking account of all of these disbursements, we closed the half year with net debt at a modest 72 million. I will now cover our cash generation targets for the second half, which I think is important in the context of what we're discussing this morning and the tougher trading backdrop that may emerge, together with our longer term ambitions in the context of driving shareholder value against this potential backdrop. As I've said many times, driving WIP efficiency is a key area of focus across all of our 20 operating divisions and a significant opportunity for the group to deliver cash generation. We've increased our volume guidance for the year by between 100 and 300 units on our original volume guidance of 9,200 units. And the combination of this increased monetisation with tighter controls around WIP spend will see us increasing our operating cash flow conversion targets significantly year over year. As the chart shows, operating profit will grow by between 20 and 30 million year on year in FY26. But we expect operating cash flow will increase substantially more than that by between 100 and 150 million year on year. This leaves the company in a strong position to drive future value for shareholders by continuing to drive volume appropriately against this tougher trading backdrop. This will provide greater opportunity to invest in more high margin land and potentially returning more excess capital to shareholders. Overall, we are targeting adjusted operating cash flow of between 750 and 800 million for the full year. Looking beyond FY26, we have a greater proportion of units at an advanced stage of build than a couple of years ago, which should support a faster monetisation of our WIP balance. This drive for improvements in WIP turn and to lower our WIP balance will enhance asset turn and support cash generation. This will help fund our bill safety disbursements, further land investment and returns for shareholders. We'll maintain our underlying dividend cover of 2.5x and this will be supplemented by returns of excess capital. In this regard, we are making good progress on our 150 million share buyback launched in October, with around 64 million completed so far, and we have a clear intention of returning excess capital in future years. To finish my section, a summary of guidance for FY26. We of course recognise the risks to inflation and customer demand from the ongoing situation in the Middle East. Notwithstanding this, and supported by a robust first half and our current order book, we are well placed to deliver FY26 underlying operating profit in the range of £320 to £330 million. So for guidance, we are targeting volume of between 9,300 and 9,500 homes, the final outcome of which is dependent on completions from our bulk sales pipeline. The average selling price will be around 325,000 pounds with the increase over FY25 driven by mix. It's important to point out when we give that guidance, we are not in any way given that guidance in the context of any potential negative impacts that it might have on FY27. It's all based on the strong work that we've been doing, monetizing our WIP and broadening the pipeline of opportunities that we see both in private sales and potential bulk sales. The admin overhead will be between 170 and 175 million. We currently expect the operating margin to be similar to the first half level at around 10.5%. The finance expense will be around 20 million. and adjusted operating cash flow is expected to be strongly ahead of prior year at between 750 and 800 million. Finally, land spend is expected to be in the region of five to 600 million, reflecting our largely replacement only land strategy. Despite the headwinds facing our industry, I'm confident that our self-help and drive for capital efficiency will mitigate the impact on our strategy to increase cash generation and value for shareholder returns. I'll now pass back to Jason, who will cover the operation review and outlook. Thank you, Shane.

And now for trading. In the first half, we achieved a private sales rate of 0.47, with January being our strongest month at 0.6. And that momentum has continued to build into the start of the spring selling season. With regard to the mortgage market, improved affordability and changes to lending criteria have both contributed to those better trading conditions. That said, recent increases in mortgage rates due to the events in the Middle East clearly has the potential to impact upon future demand. And that brings me on to current trading. In the first six weeks since the 1st of February, we have achieved a private sales rate of 0.66 and bulk sales made an additional but modest contribution of 57 homes. And from a geographical and mixed point of view, the picture hasn't really changed much, with Scotland, the north of England and the Midlands all remaining stronger than the south. But those regional differences are quite pronounced, with Midlands and upwards all delivering a strong sales rate of around 0.75, significantly higher than the 0.5 being achieved in the south. Headline pricing remains firm, although incentives are full at 5%. And we find that prices for houses are more robust or more resilient than those for flats. And as I referenced in my introduction, the last two weeks of our current trading period have coincided with the conflict in the Middle East. Both of those weeks have delivered a consistent sales rate of 0.65, or the equivalent of 155 private homes per week. We continue to progress bulk sales to support both this year and next. We are over 85% sold for FY26, hold an order book of over 1.5 billion or 5,300 homes as at the 13th of March. The next slide shows our land bank totaling some 94,000 plots, half of which are owned and controlled and half are strategic. Now, I'm happy with the size and the shape of the land bank. It supports our short-term growth ambitions. We are still buying land, but with caution. In the period, we contracted on 4,700 plots across 15 sites, including one site in Scotland for 1,900 homes that was converted from our Strat pipeline. And strategic land continues to play an important role in our growth ambitions. Within this financial year, we will have 80 strat planning applications or around 17,000 plots in the system. And to put that into context, that has increased threefold in just two years. And that is a significant change in our business. And these strat plots will support both margin recovery and outlet numbers from FY28 onwards. Overall, we have detailed planning consent on over 95% of our plots to meet our volume for FY27. And as a consequence, we've got good visibility on outlets. We're on target to open 55 outlets this year and a further 55 to 60 next year. And we expect average outlet numbers to hold at around 240 for both this year and next, with growth up to 250 in FY28. With regard to planning, I would describe planning reform as positive rather than perfect. Overall, and outside of London, the planning environment is generally supportive. Moving on to costs. Overall, cost inflation remains modest at around 1% or 2%. And we currently have no issues with regard to availability, either labor or materials. That said, we are very mindful of the heightened inflationary risk caused by the events in the Middle East. And as a consequence, our focus on being more cost efficient seems ever more relevant today and I'll give you a few examples of our approach to saving costs to support margin. Firstly, we intend to phase out the Ashbury brand as it is proving too expensive to fund a separate brand to sell just 9 or 10% of our volume. We plan to adopt a single brand approach that will play on our 80 year history. It will be clearer to the customer, a digital first approach, less expensive and without any overall impact upon outlet numbers. Secondly, we will shortly launch our new house type range, the Bellway Collection, which has been designed to be timber frame friendly. And by that, I mean optimised panel widths and ceiling heights to improve both speed and efficiency and also reduce waste in the process. And with our new house type range, our single brand approach, we have the perfect platform to personalise homes and offer extras and additions on a much greater scale to drive incremental revenue and profit growth. And thirdly, we successfully opened our timber frame facility, Bellway Home Space, back in January. and we've already started delivering timber kits to our divisions. Our investment in technology that supports category two closed panel systems is hugely as important as I firmly believe that cap two is a key part of the future of house building. And one final point before outlook, build quality and customer service. I'm pleased to report that we are rated as a five-star house builder for the 10th consecutive year. But more important is our position with HBF's new scoring system, which has been designed to be more challenging. House builders are now measured by their customers at both eight-week and nine-month intervals and based upon both quality and service. Bellway have achieved an overall score of 4.38, the highest of any national listed house builder. A phenomenal effort by our ops teams and a direct result of their hard work. And finally, Outlook. We're on track to deliver a volume of 9,300 to 9,500 homes. As you've heard from Shane, regardless of the wider backdrop, we have a sharp focus on improving cash generation and we expect to deliver a significant increase in operating cash flow this year. And should we find ourselves in a prolonged turbulent period, our business is in good shape, We have a flexible capital allocation framework and a strong and experienced management team and are well able to navigate our way through any challenges. Thank you. Now happy to take questions.