# Bellway Plc reports strong trading performance and growth in forward order book

- Link: https://www.directorstalkinterviews.com/bellway-plc-reports-strong-trading-performance-and-growth-in-forward-order-book/4121159588
- Published: 2024-06-07T07:31:51+01:00
- Author: Amilia Stone

**Bellway plc **(LON:BWY) has issued a trading update in respect of the period from
1 February to 2 June 2024.

**Highlights**

§ Stronger trading through the spring selling season, with improved affordability
supporting an increase in customer confidence and reservation rates compared to 
the first half of the financial year.  

§ The private reservation rate per outlet per week of 0.62 increased by 6.9% compared
to the prior year equivalent (2023 – 0.58).  This was delivered from a higher number
of outlets, which averaged 245 in the period (2023 – 239).

§ Overall, headline pricing has remained firm, and incentives continue to be used
on a targeted basis. 

§ Reflecting the improvement in trading and growth in outlet numbers, the forward
order book has increased from the level of 4,411 homes at the start of the current
financial year.  The forward order book at 2 June 2024 comprised 5,346 homes (4 
June 2023 – 6,172 homes).

§ In line with previous guidance, the Group is on track to deliver full year volume
output of around 7,500 homes (31 July 2023 – 10,945 homes) and we continue to expect
a reduction in the underlying operating margin^(3) of at least 600 basis points 
from the level in the prior year (31 July 2023 – 16.0%).

§ The overall average selling price is now anticipated to be around £305,000 (31
July 2023 – £310,306).  The increase from the previous guidance of £295,000 is mainly
due to changes in product mix.  

§ The Group is now fully sold for the current financial year and given our strong
outlet opening programme and healthy forward order book, Bellway is well-positioned
to return to growth in financial year 2025.   

> **Jason Honeyman, Group Chief Executive, commented:**
> “Bellway has delivered a solid trading performance supported by improved affordability
> and a seasonal uplift through the spring, and we remain on track to deliver full
> year volume output of around 7,500 homes.
> We have been encouraged by ongoing healthy levels of customer interest and combined
> with the strength of our outlet opening programme, we continue to expect a year-
> on-year increase in the forward order book at 31 July 2024.  As a result, Bellway
> remains in a strong position to return to growth in financial year 2025.
> We reiterate our confidence that the Group’s robust balance sheet and operational
> strength, combined with the depth of our land bank, will enable Bellway to successfully
> capitalise on future growth opportunities.”

**Market and current trading**

Trading through the spring selling season has been robust, with a sustained improvement
in private reservations compared to the first half of the financial year.  Customer
demand has benefitted from an improvement in affordability, driven by a moderation
of both mortgage interest rates and consumer price inflation and an increase in 
wages.  Overall, the backdrop of market stability has led to headline pricing and
the level of targeted incentives remaining stable across our regions. 

The private reservation rate was higher than the equivalent period in 2023 at an
average of 152 per week (2023 – 139), with the improvement driven by stronger demand
and an increase in outlet numbers.  The private reservation rate per outlet per 
week increased by 6.9% to 0.62 (2023 – 0.58), including a small contribution of 
0.01 from bulk sales (2023 – 0.01).  The Group traded from an average of 245 outlets
in the period (2023 – 239), an increase of 2.5%, in line with our expectations and
ahead of the closing position of 240 outlets at 31 July 2023.

Notwithstanding the higher demand for private housing, the overall reservation rate
rose only slightly to 192 per week (2023 – 190), which partly reflects the expected
reduction in social housing output in financial year 2025 from the current elevated
levels.  The improvement in customer confidence also led to a reduction in the cancellation
rate to a normalised level of 11% (2023 – 15%).

Reflecting the improvement in trading and growth in outlet numbers, the forward 
order book has increased from the level of 4,411 homes at the start of the current
financial year.  The forward order book at 2 June 2024 comprised 5,346 homes (4 
June 2023 – 6,172 homes) with a value of £1,446 million^(4) (4 June 2023 – £1,710
million).  Given prevailing reservation rates and the anticipated profile of completions
in the coming months, we continue to expect a year-on-year increase in the forward
order book at 31 July 2024, which will serve as a platform for a return to growth
in financial year 2025.

There are presently good levels of building material and subcontractor availability
across the Group, with limited overall cost inflation on new tenders.  While underlying
cost pressures are currently far less pronounced than the prior year, the higher
levels of inflation experienced on costs incurred in earlier periods, and carried
in our work-in-progress, will be realised through the income statement for legal
completions in the months ahead.

**Land investment**

The strength and depth of the Group’s land bank has enabled an ongoing disciplined
and targeted approach to land acquisition.  Our investment in strategic land has
continued during the period, which has enhanced our longer-term growth prospects
and overall land supply for a relatively low initial capital outlay.  Building on
the expansion of our strategic land bank in recent years, since 1 August 2023 the
Group has entered into option agreements to buy 15 sites (1 August 2022 to 4 June
2023 – 14 sites).

Reflecting the backdrop of falling consumer price inflation and the improving outlook
in terms of both lower interest rates and house price stability, we have been more
active in the shorter-term land market since the start of calendar year 2024.  The
Group has contracted to purchase 3,906 owned and controlled plots since 1 August
2023 (1 August 2022 to 4 June 2023 – 4,342 plots) across 21 sites (1 August 2022
to 4 June 2023 – 32 sites) with a total contract value of £277 million (1 August
2022 to 4 June 2023 – £362 million).  We are continuing to rebuild our future pipeline
of potential acquisitions, with Heads of Terms agreed on around 5,700 plots at 2
June 2024.  

The Group has good visibility on the expected timing of near-term planning decisions
and, notwithstanding the risks from ongoing planning delays, we remain on track 
to open over 40 new selling outlets in the second half of the current financial 
year. 

**Financial position and dividend**

Bellway retains a strong and well-capitalised balance sheet.  Reflecting the delivery
profile of completions and normal working capital requirements to deliver the targeted
output in the current financial year, the Group had net debt of £57 million^(5) 
at 2 June 2024 (2023 – net cash of £42 million).  The Board continues to expect 
to end the financial year with low adjusted gearing^(6) (31 July 2023 – 4.0%).

As announced at the Interim Results on 26 March 2024, the interim dividend is 16.0p
per share (2023 interim dividend – 45.0p) and will be paid on 1 July 2024.  The 
Board continues to expect underlying dividend cover for the full financial year 
will be around 2.5 times^(7).  

**Outlook**

We have been encouraged by the recent period of relative stability in trading and
the Group is now fully sold for the current financial year, with our volume and 
margin guidance in line with that provided at the Interim Results.  

The Group is on track to deliver full year volume output of around 7,500 homes (
31 July 2023 – 10,945 homes) and we continue to expect a reduction in the underlying
operating margin^(3) of at least 600 basis points from the level in the prior year(
31 July 2023 – 16.0%).

The overall average selling price is now expected to be around £305,000 (31 July
2023 – £310,306).  The increase from our previous guidance of £295,000 is mainly
due to changes in product mix, including a contribution from some relatively high
value private completions in the final quarter of the current financial year.

Bellway has a strong outlet opening programme and a healthy forward order book and
work-in-progress position and, if market conditions remain stable, we are well-positioned
to return to growth in financial year 2025.

We remain alert to future potential risks to customer demand and cost inflation,
and in the coming weeks there may be a temporary impact to trading as political 
campaigning continues.  Notwithstanding this, the outlook is improving and there
is cross-party political support for increasing the supply of housing across the
country.  The long-term housing market fundamentals remain positive, and we are 
hopeful these will be bolstered by greater clarity over planning and housing policy
beyond the upcoming General Election.

The Board is confident that, given the strength of the Group’s land bank and balance
sheet, Bellway is very well-placed to deliver continued volume growth into the longer
term to support ongoing value creation for shareholders.

The Group’s next scheduled trading update, covering the financial year ending 31
July 2024, is on 9 August 2024.

**Notes:**

1    All figures relating to completions, forward order book, reservations, cancellations,
and average selling price exclude the Group’s share of its joint ventures.

2    Comparatives are for the period from 1 February to 4 June 2023 or as at 4 June
2023 (‘2023’) unless otherwise stated.

3    Underlying operating margin is operating profit before net legacy building 
safety expense and exceptional items divided by total revenue.

4    Forward order book is the total expected sales value of reservations that have
not legally completed.

5    Net cash/(debt) is cash plus cash equivalents, less debt financing.

6    Adjusted gearing is the total of net cash/(debt) and land creditors divided
by total equity.

7    Underlying dividend cover is underlying profit for the period per ordinary 
share divided by the dividend per ordinary share relating to that period.  

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