Bellway p.l.c.

Thank you, good morning, and welcome to Bellway's full year results. As usual, I'm joined by Shane and Simon, with a number of our senior management team also with us today. If I could take you to the first slide. Bellway delivered a strong full year performance, and I was particularly pleased with cash generation, and that's despite Thank you very much. Operating margin of 10.1% was 80 basis points lower than FY25, but operating cash increased by 36% to almost £870 million. As you are aware, trading across the past six months has been affected by the prolonged conflict in the Middle East and the subsequent increase The impact of those elevated borrowing costs continues to be more pronounced in the south of England whereas other parts of the UK are proving to be more resilient. Outlook is still uncertain but it is reasonable to assume that higher mortgage rates and a lower order book will lead to a lower output this year. We are targeting volumes of between 9,000 and 9,400 homes. That said, it is still my intention to drive volumes, to drive operating cash and continue with our dual approach to capital allocation. We are both investing in the right land for growth. and extending our buyback with a further $150 million this year. That takes total dividends and buybacks to $450 million across FY26 and FY27. Given the market backdrop, We are taking action to be more efficient and to position ourselves for growth. And you can see from the slide, Bellway has a strong platform to deliver higher returns in the future. Underpinned by a strong balance sheet, continued investment in land, operational efficiencies that I will refer to later, and government support for first time buyers. p.l.c. and based upon our past experience with Help to Buy, the new scheme has the potential to boost volumes by around 10% and with a market recovery provide a path back to at least 10,000 homes a year and a return on equity of 15%. I'll provide an update on operations later, but first, our financial results with Shane.

Thank you, Jason, and good morning, everyone. As Jason said, we delivered a robust performance in FY26 despite the challenging market backdrop. That was supported by our opening order book and a strong contribution from bulk completions. Total volumes increased by 10.8% to 9,695 homes. We delivered double-digit growth in both private and social housing output, with social homes accounting for around 21% of completions in line with the prior year. Bulk completions more than doubled to 615 homes and that represented around 6% of our output. We had a strong pipeline of bulk opportunities and we expect bulk completions to increase to over 10% of our output in FY27. The average selling price increased by 2.5% to just over £324,000 and that entirely reflected geographic and product mix. with no underlying house price inflation. Strong growth in volumes and revenue drove a 9% increase in underlying gross profit to £498 million. The underlying gross margin was 70 basis points lower at 15.7% and I'll provide more detail on that shortly. Administrative expenses increased to £173 million and that was in line with our previous guidance. The increase reflects annual pay awards, targeted investment in important areas of the business, which included our timber frame factory and strengthened IT, commercial and finance functions. This investment provides the infrastructure and expertise required to support our long-term growth ambitions. Against a prolonged, challenging market backdrop, we are obviously reviewing the group's overhead cost base to ensure that our resources remain aligned with our strategic priorities and are deployed as efficiently as possible. This includes a number of areas of opportunity, use of technology and AI to simplify processes, whilst retaining the expertise and capacity needed to respond as market conditions improve. Jason will cover that review in more detail later. Admin expenses will increase in FY27, although it's important to add that that will be materially lower than in FY26 and primarily reflects annual pay awards. We'll provide more specific guidance on that once our overhead review is completed. As market conditions and volumes recover, we expect to generate operating leverage from investments already made and the management actions now underway as we progress back towards, as Jason said, delivering more than 10,000 homes a year. Turning to underlying operating profit, this increased by 5.6% to $321 million. And whilst the reduction in gross margin and higher overhead cost base resulted in an 80 basis point reduction in underlying operating margin to 10.1%, underlying profit before tax increased by 5.7% to $306 million. I'm pleased to report that the proposed total dividend has increased by 7% to 75 pence per share. The figures on the slides are presented on an underlying basis and adjusting items primarily relate to bill safety and they're set out in the income statement in Appendix 1. Turning now to our gross margin, we thought it was helpful to show an underlying gross margin bridge which shows the three principal drivers of the movement in underlying gross margin which reduced by 70 basis points to 15.7%. Firstly, as previously guided, the evolution of the land bank provided a 100 basis point benefit as newer higher margin land contributed to completions. Secondly, net pricing and targeted sales incentives reduced margin by 50 basis points. Importantly, these measures supported sales and volume delivery in what's been a challenging market. and finally, bill cost inflation, net procurement savings and operational efficiencies reduced margin by 110 basis points with mixed accounting for the remaining 10 basis point reduction. Overall, the 100 basis point benefit from non-bank evolution was more than offset by pricing, incentives and bill cost inflation. Whilst these pressures will continue into FY27, The next slide, which we think is critical in the context of the strategy that we outlined previously, shows why the margin embedded in the land bank supports recovery in future years. And as you can see from the slide, the embedded gross margin in the land bank with detailed planning permission is currently around 17%. And of these plots, 70% of those have margin above 15% including 53% above 18% which is obviously well above the current gross margin trajectory that we have on our forward order book. We do expect gross margin to reduce further in FY27 and that reflects current market conditions. The continued flow through of bill cost inflation including costs already embedded in WIP and a higher proportion of bulk completions. Whilst bulk completions typically carry a lower margin, they support volume delivery, asset turn and critically cash generation and thus value creation for our shareholders. From FY28, we expect margin to begin recovering as higher margin land contributes a greater share of completions, although of course that pace will depend on market conditions, particularly around where interest rates are for our customers at that point. The continued discipline in land acquisition and our strategic land pipeline provide further opportunities to improve land mix and support longer-term volume growth. Turning to operating cash generation, and I guess we're conscious of the fact that trading has been difficult, One thing myself, Jason, Simon are keen to emphasize is that we are consistent in terms of the strategy we outline and we prove by doing. And I think this operating cash generation slide shows that. We generated very strong adjusted operating cash flow in FY26. And the bridge demonstrates the benefit of our focus on capital efficiency and how that cash has been allocated whilst maintaining a healthy year-end net cash position. and also a very strong balance sheet in terms of land and the level of WIP that we have invested. Turning to the key movements, in line with our strategy, there was a 72 million reduction in total WIP. Land utilised through cost of sales was 564 million, which exceeded land investment in the year. Together with the movement in land creditors, this resulted in a 152 million reduction in land held on the balance sheet. After other working capital movements and tax, adjusted operating cash flow increased by 36% to £869 million. This cash generation provides the capacity to both invest in future growth and deliver enhanced returns to shareholders. During the year, we invested £496 million in land, including the settlement of land creditors, and returned £224 million to our shareholders through dividends and share buybacks. Due to the share buybacks, this was significantly up on the 70 million returned in the prior year to shareholders. After 33 million of bill safety expenditure, we ended the year with net cash of 158 million after those returns and the investments that we made in land in that period. And we have a very robust and well-capitalised balance sheet and this is underpinned by our investment in land and WIP. Both remain important areas of focus as we seek to improve capital efficiency and generate further cash in the years ahead. And turning now to the key balance sheet movements. As highlighted earlier, the land balance reduced by 152 million to 2.35 billion. During the year, we entered into new land contracts on deferred terms totaling around 177 million and made land creditor payments of around 252 million. As a result, land creditors reduced to 265 million at year end, and that's equivalent to around 11 percent of the overall land balance. As we said before, over the medium term, we intend to increase the use of deferred payments towards 15 to 20 percent of land value, and that's broadly in line with historical levels. and that obviously forms part of our ongoing move to a more capital efficient operating model whilst maintaining discipline over the terms and overall cost of land acquisition and Jason will discuss that land bank in more detail later. Total WIP reduced to 2.26 billion with the main movements coming from site WIP. Breaking down those movements, site WIP reduced by 103 million to just over 2 billion and that demonstrates our continued progress in aligning build activity more closely with sales and improving capital efficiency and drove a decent uptick in our whip turn during the course of the year. Part exchange properties increased by 32 million and that reflected the greater use of this incentive in a slower housing market and the balance at the year end was 58 million. And finally, show homes were broadly unchanged at 143 million. Turning to bill safety, the overall provision remained broadly stable at £520 million. We have now started our completed works on 59% of the relevant buildings and we're increasing our focus on recoveries from the supply chain. We have a significant number of claims that we're pursuing. We expect cash expenditure of at least £100 million in FY27, with further detail on bill legacy safety provided in Appendix 8. To finish, adjusted gearing including land creditors reduced by 530 basis points to 3% and the accretive effect of the share buyback supported a 4.2% increase in net asset value per share to just over £31 per share. Underlying return on capital and pre-tax return on equity both increased by 50 basis points to 9.2% and 8.7% respectively. Turning to capital allocation and in line with my previous comment around consistency of our strategy and delivery, I just want to remind people of what we outlined in terms of our capital allocation strategy. It starts with our balance sheet. That provides the foundation for a flexible approach, balancing disciplined investment for growth with attractive shareholder returns. We'll maintain financial strength, continue to invest selectively in land and strategic initiatives, and drive greater capital efficiency, particularly through improved whip turn. And the resulting cash generation will support our ordinary dividend and multi-year share buyback program. The next slide demonstrates the strong progress we have made in executing this framework. The 36% increase in adjusted operating cash flow to $869 million That's equivalent to 2.7 times underlying operating profit. This is well ahead of our target to maintain conversion of at least two times over the three years to FY28, which we laid out last October when we spoke to you. And that reflects the higher volume and improved land and whip turn. Driving greater whip efficiency remains a key priority across all 20 operating divisions. and whilst we've made good progress in FY26, we see further opportunity to reduce average WIP and improve asset turn by FY28 whilst retaining the capacity to invest in land and support, therefore, future growth. The stronger cash generation also provides the platform to deliver enhanced shareholder returns. In addition to maintaining ordinary dividend cover of two and a half times underlying earnings, we've commenced a further 150 million share buyback for FY27. And together, dividends and share buybacks are expected to total, as Jason said, around 450 million across FY26 and 27. And I think that demonstrates very clearly our commitment to long-term creation of shareholder value. To conclude my section, I'll summarise our guidance for FY27. Clearly, we recognise the continuing risks to inflation, interest rates and customer confidence from the geopolitical and current macroeconomic uncertainty. Against this backdrop, we remain focused on volume delivery, driving efficiency and cash generation whilst retaining the capacity to respond as market conditions improve. for FY27 we expect volume output of between 9,000 and 9,400 homes with a higher contribution from bulk completions and social housing representing around 20% of our total volume. An overall average selling price of around £325,000 and that's broadly in line with FY26 but margins will be lower. Bill safety expenditure of at least 100 million and land spend of around 500 million and that's consistent with our replacement led strategy and that will all be underpinned by cash dividends and share buybacks of around 225 million. I think it's important to re-emphasise looking through the near term headwinds with our management actions and the return of supported market conditions We see a clear pathway back towards an underlying operating margin and return on equity of 15%. That's very much our longer-term strategy. We're very committed to it, and it'll be underpinned by stronger cash generation, which hopefully you'll see this morning in terms of what we've articulated and driving shareholder returns over time. I'll now hand back to Jason, who'll cover the operation review and outlook. Thank you, Shane.

I will start with trading. In FY26, we achieved a private sales rate of 0.55, including a good contribution from bulk sales of around 10%. And you will recall that we enjoyed a strong first three months to the calendar year, post-budget and pre-Middle East, where the sales rate climbed to almost 0.7 per outlet. And you can see from the slide how the sales rate has fallen as mortgage rates increased in April and across the summer period. And to put that into context, mortgage rates for an 80% LTV were below 4% at the start of the year and are now above 5%. Repayments on a £250,000 mortgage have gone up by almost £2,000 per year. Looking at this financial year, those affordability pressures continue to weigh upon customer demand. In the first nine weeks, Thank you very much. Whereas some divisions in the south have been lower than 0.4. And these regional differences are reflected in headline house prices, with the north generally holding firm but downward pressure on some sites in the south of England. Overall, incentives average around 5% and part exchange has increased to 10% in FY26 and may increase further to support volume this year. A similar story with bulk sales. We have a strong pipeline of opportunities. Last year we delivered around 600 homes from bulk and this year I would expect that figure to double to around 1,200 homes, supporting both volume and cash generation. And finally, order book. As at the 2nd of October, our order book is around 5,000 homes and 1.4 billion. Moving on to land bank. A total Thank you very much. and our strategic land bank. We are still active in the land market. Last year we contracted on 8,600 plots, with 80% of those in the better selling areas of the Midlands, the North and Scotland. Our investment is forecast to be around 500 million this year, but we have the firepower to invest more if conditions improve. And we have strong land-buying controls in place. Every acquisition is approved by either Simon or myself and the regional chairs. And that approach ensures our capital is invested in land that drives better returns. Moving on to planning. The planning environment has improved slightly, but progress is slow. Limited local authority resources and too many consultees. And that's highlighted in strategic land, not coming through the system as quickly as we would like. That's not an impact on cash, but it is a near-term drag on outlet openings. Despite this, strategic land offers significant opportunity in the years ahead, with over half of our plots attracting a positive planning status and around 80 planning applications running in the system. Ultimately, it will benefit margin and outlet growth. To put that into context, we expect around 15% of our completions to generate from strategic from both this year and next year, and that will likely grow to around 20% in FY29. Average outlet numbers will be around 230 this year, down from 238 last year. And from FY28, we are well positioned to grow outlets again, given our land investment and that strategic pull through. Turning now to costs. Overall... Bill cost inflation is running at around 3% and largely driven by energy surcharges, with building materials accounting for most of that increase. As I mentioned in my introduction, operational efficiencies, cost savings and overheads are our key priorities. And I will highlight how and where we are taking action. Firstly, operational efficiencies. Our programme is well advanced. Timber frame factory is complete. Output is expanding quickly. House type redesign is complete. The new bellway collection is fully optimised for timber frame and we can improve build times by up to six weeks per house. Brand refresh is complete. More cost effective, easier for the customer, digital first in approach. It's modern, it looks great and provides the platform for extra revenue opportunities. The final piece of work on the new platform is to deliver a step change in our additions and upgrades programme by offering customers more choice, and that will be up and running in the second half of this year. Cost savings. A few examples. Since energy costs spiked in April, p.l.c. Since April, we have had requests for energy-related costs of over £22 million. We have authorised just £3 million. Most contractors value the relationship with Bellway, the good payment terms and the promise of future work, above any short-term gain or benefit. Centralised approach has saved Bellway around £20 million, or 1% of BCI. Another example of a cost saving is the introduction of our three-tier specification following the launch of our new house type range. Our new base specification is still a great offer and expected to save £5 million in costs in FY27. A savings Overhead costs. As Shane has mentioned, our operational cost base is under review. 20 UK trading divisions gives us the right balance between a nationwide footprint and the platform for growth. I don't want to cut into that muscle. That's Bellway's strength. But a broad review of overheads is underway. The next two slides look at our positioning within the market. The first slide highlights our broad product range, accessible price point, and all based upon larger two-storey housing. The second slide highlights Bellway's balanced national land bank and how it supports medium-term margin recovery. and you can also see we have the second lowest ASP in the sector with a good exposure to the first time buyer market. And if you go back to 2022, the last year of Help to Buy, 42% of completions came from first time buyers and that drove higher volumes. Finally, Outlook. We are targeting completions of between 9,000 and 9,400 homes. And Shane has mentioned there will be margin pressure in FY27. But the challenges in FY27 give way to opportunity in 28 and beyond. Your first home could drive volumes back to 10,000 homes and as early as FY28. Capital efficiency has markedly improved. We have a strong balance sheet with net cash and a strong track record on delivery. I hope you can see that we are taking action to make the business more resilient, more structurally efficient and we have the capability to respond to stronger demand. Thank you. Happy to take questions.