16th Oct 2007 07:00
Bellway PLC16 October 2007 NATIONAL HOUSEBUILDER BELLWAY p.l.c. TODAY, TUESDAY 16 OCTOBER, ANNOUNCE THEIRPRELIMINARY RESULTS FOR THE YEAR ENDED 31 JULY 2007. HIGHLIGHTS Year Ended 31 July 2007 2006 • Homes sold 7,638 7,117 + 7.3%• Average selling price £173.3k £169.0k + 2.5%• Revenue £1,354.0m £1,240.2m + 9.2%• Operating profit £253.1m £239.3m + 5.8%• Operating margin 18.7% 19.3%• Profit before taxation £234.8m £220.7m + 6.4%• Basic earnings per ordinary share 146.1p 137.5p + 6.3%• Dividend per ordinary share 43.125p 34.5p + 25.0%• Land bank - plots with planning permission 23,500 22,600 + 4.0%• Total equity £1,035.8m £903.5m + 14.6%• Net asset value per ordinary share 903p 793p + 13.9%• Return on average capital employed 22.7% 23.4% Chairman, howard dawe said "I am pleased to report that Bellway has, yet again,produced a very good set of results" and that "profit before tax rose to a newrecord of £234.8 million". Furthermore "the directors are recommending an increase in the final dividend of 32%". He added "Bellway's policy of forward selling continued to prove fruitful" andthat "at 30 September, the forward order book of £667 million comparesfavourably with the position last year". He concluded "The coming weeks will give a better indication of the overallnational sentiment towards the housing market but the Board.... remainsconfident about the future prospects for the Group". FOR FURTHER INFORMATION, PLEASE CONTACT JOHN WATSON, CHIEF EXECUTIVE OR ALISTAIRLEITCH, FINANCE DIRECTOR. TUESDAY 16 OCTOBER - FRIDAY 19 OCTOBERJ WATSON: 07855 337007A LEITCH: 07855 337001THEREAFTER: 0191 217 0717 CHAIRMAN'S STATEMENT I am pleased to report that Bellway has, yet again, produced a very good set ofresults for the year ended 31 July. The Group continues to deliver organicgrowth in volumes and earnings despite the challenging market conditionsexperienced by the housing industry over the last twelve months. Results The number of new homes sold increased by 7.3% to 7,638 from 7,117 and theiraverage price rose by 2.5% from £169,000 to £173,300. Total turnover for theGroup was a new high at £1,354 million, an increase of £114 million from lastyear's level. As expected, the operating margin declined, moving from 19.3% to18.7%, however, profit before tax rose to a new record of £234.8 million, anincrease of 6.4%. Earnings per ordinary share have risen by 6.3% to 146.1 pencefrom 137.5 pence last year. Total equity has risen to over £1 billion for thefirst time at £1,036 million resulting in net assets per ordinary share nowstanding at 903 pence. Gearing at 31 July was a relatively modest 11%, however,during the year the average gearing was around 20%, with the finance expenses of£17.9 million covered over 14 times. Dividend Having raised the interim dividend by 15%, I am pleased to report that thedirectors are recommending an increase in the final dividend of 32% to 26.675pence, to reflect the financial health of the Group. Accordingly the totaldividend for the year will rise by 25% to 43.125 pence. We aim to continue ourprogressive dividend policy and further reduce cover as appropriate. The finaldividend will be paid on Wednesday 16 January 2008 to ordinary shareholders onthe Company's Register of Members at the close of business on Friday 7 December2007. The ex-dividend date is Wednesday 5 December 2007. Trading During our financial year the housing market saw a succession of five interestrate rises as the Bank of England tried to ease inflationary pressures acrossthe country. In Yorkshire, North West England and the Midlands, whereincentives were more widely used to maintain volumes, there was a tightening indemand during the twelve months. The markets in Scotland, North East Englandand in and around London have not been as affected by these actions and ourdivisions in these areas have traded well during the period. Bellway's policyof forward selling continued to prove fruitful, offering us a degree of shelterfrom these market conditions and our order book at 31 July stood at £594 millionrepresenting, at that time, 45% of our planned increased output. The Group was successful in bringing through plots from the pipeline into ourland with planning permission and this primary part of our land bank increasedto 23,500 plots. In addition, land awaiting permission stands at 15,800 plotsand when combined with plots with permission gives a land bank totalling 39,300plots. Furthermore, the Group also holds, for the longer term, some 3,000 acreswhere planning will be sought in the coming years. This is further augmented bysites where Bellway has preferred developer status with local authoritiesaccounting for around a further 3,500 plots. I am pleased to confirm that, in August, outline planning permission for 10,800plots was granted on the site held, in a joint venture with EnglishPartnerships, at Barking Riverside where there is River Thames frontageextending to almost one and a half miles. The Group has the right to call downto develop from the joint venture 50% of this site. People The Board is extremely grateful to its employees, sub-contractors, suppliers andpartners, without whose continuing support and contribution these results wouldnot have been possible. Outlook The market since August remained competitive and incentive led. Recent eventsin both global and UK financial markets would appear to have softened consumerconfidence. Nevertheless, at 30 September, the forward order book of £667million compares favourably with the position last year of £647 million. Whencombined with completions to date this represents 57% of planned output afterjust two months of this financial year. The coming weeks will give a better indication of the overall national sentimenttowards the housing market but the Board, at this time, believe that the keyfundamentals remain unaltered. With modest gearing the Group is well positionedto capitalise on opportunities should they arise in the coming months. TheGroup remains focussed on the delivery of lower value housing and the Board isconvinced that its current operational model will continue to serve it well.The Board therefore remains confident about the future prospects for the Group. H C DaweChairman 15 October 2007 Chief Executive's Operating Review Introduction Throughout the year the housing market continued to adjust to the higher cost ofborrowing. The figures outlined in the Chairman's Statement clearly demonstratethat the Group performed very well during the period, increasing legalcompletions, delivering a record profit and strong operating margins. The Group commenced the year with a robust forward order book of £561 million -one of the strongest positions in the industry. In addition, the number ofsales outlets had increased to 210 by the beginning of August 2006. The forwardorder book, supported by the additional outlets, helped to deliver the Group'ssixteenth year of organic growth and a record pre-tax profit of £234.8 million. Divisional Operations The 18 housing divisions worked diligently throughout the year to deliver thisforward sales position and, as a consequence, the number of legal completionsrose by 7.3% to 7,638, an increase of 521 units. The average selling priceincreased by 2.5% to £173,300 and was achieved primarily as a result of a changein product mix. Of the 521 increase in legal completions, 404 were obtained from our northerndivisions where turnover increased by 13.6% to £660.7 million. The combinedoutput of our two Scottish divisions has increased to 840 homes and this regioncontinues to experience some of the most buoyant market conditions in thecountry. The planning system in Scotland allows a higher percentage of detachedhomes and this has helped to increase the overall average selling price referredto earlier. With a new 650 homes scheme coming to the market in North Tyneside,the North East division was also able to increase volume to 717 new homes.Whilst the city centre of Manchester is, in our opinion, over supplied withapartments, the Manchester division overcame this problem by moving into thesuburbs and thereby increasing its output. When combined with the WestLancashire division, operating in the Liverpool area, the Group delivered ahealthy 1,182 legal completions from these two North West based divisions. Volume also increased in the southern divisions by some 117 homes resulting in a6.7% increase in turnover to £663 million. Most notably, legal completions inthe two Thames Gateway divisions have now reached 775 and with a comparativelylow average selling price for this region of £183,000, demand is still strong inthis government designated expansion area. Furthermore, exciting newdevelopments are planned in this region alongside the Group's existing large,strategic land holding held in a joint venture with English Partnerships atBarking which has recently received outline planning permission. The Essexdivision embarked upon the final phase of its Docklands development at LimehouseBasin in London and a major waterfront regeneration scheme being developed byour Welsh division in Cardiff Bay continues to sell well as this once derelictarea has now been transformed into a vibrant suburb of Cardiff, with viewsoverlooking the Bay. Three new divisions have now been opened in the last four years taking the totalnumber of divisions to 18. Thames Gateway North and the South West divisionsfrom a cold start last year produced 291 completions. In the year under reviewthe South Midlands division commenced operations and, whilst only 32 legalcompletions were achieved, the Group anticipates output increasing from thisdivision as the North Solihull regeneration project gathers pace. Land and Planning The quality and strength of the Group's land bank is pivotal to the futuresuccess of the Group. The land bank is divided into three sections. Firstly,the plots held with planning permission have increased from 22,600 to 23,500plots. Secondly, the land owned, contracted or optioned, currently awaitingplanning permission, which is referred to as pipeline has increased from 15,000to 15,800 plots. Thirdly, long term land, which represents around 5,500 plots,is typically made up of greenfield land held under option and brownfieldregeneration opportunities generated by the Group's urban regenerationspecialists, Bellway City Solutions. Together the first two categories amountto 39,300 plots, representing approximately five year's supply at current outputlevels. Significant land acquisitions in the year include two schemes in Sittingbourneand Belvedere in Kent representing around 670 plots, with proposed averageselling prices of around £150,000. A further site in Thamesmead in the Londonborough of Bexley has also been contracted, conditional on acquiring planningpermission for 500 plots at an average selling price of £172,000. In addition,two further sites at Greenwich and Bromley were acquired, representing 316plots, both of which are within a five mile radius of the Olympic site. In the north, two large schemes in the Scottish central belt at Carntyne inGlasgow and Airdrie in Lanarkshire, representing 875 plots, were acquired,again, at relatively low average selling prices of less than £150,000. I amalso pleased to report that an appeal against refusal of a planning permissionwas successful for 172 plots, just outside Morpeth in Northumberland. Regeneration Land continues to take an inordinate length of time to come through the planningsystem. To try and counter this, the Group has targeted large scale urbanregeneration projects where it is anticipated that planning permission will begranted ahead of other opportunities. Large regeneration projects are alreadyunderway in Liverpool and Birmingham and it is hoped that similar projects inManchester and Middlesbrough will commence shortly. The Group's City Solutionsteam has, during the year, been awarded preferred developer status on potentialnew schemes in Hull and Ilford town centre representing, in total, some 1,000plots. The new schemes will allow the company to work in partnership withvarious government agencies targeting, in particular, the undersupplied firsttime buyer market. As a result of government planning policies, many planning permissions are nowbeing granted which allow the company to build rented or shared ownership homesalongside private homes. These units are constructed and passed over to housingassociations to manage. During the year this type of output increased to 900homes with an average selling price of about £95,500. Cost Base The Group has, during the year, spent a considerable amount of time reviewingthe efficiency of the supply chain. The industry faces the challenge ofreducing carbon emissions which involves the employment of different buildingtechniques. By engaging with the Group's main suppliers we are engendering aspirit of partnership which in turn produces a more stable cost base for thecompany. In addition, the Group continues to employ timber frame systems,especially in relation to the housing association output referred to earlier,and this building technique now represents about one third of the Group'soutput. This system is highly insulated, reduces waste on site and leads tomore standardisation. These measures are helping to mitigate the effect ofannual labour and material cost increases. Environment The effect of climate change is one of the main challenges facing thehousebuilding industry today. In response to this, in April 2007, theGovernment launched the Code for Sustainable Homes which seeks to establish atarget of achieving carbon neutrality in all new homes by 2016. Bellway has made significant progress during the year in reducing the Group'sown impact on the environment. In the period, 326 homes were constructed to EcoHomes "Very Good" standard or higher and developments, particularly in the southof England, have commenced utilising new renewable energy. An example of thisapproach can be found at a development at Redhill in Surrey, where 250 homeswill have their heating and hot water supplied from a biomass boiler fired bylocally sourced wood chip. Inevitably, the demolition and remediation process of brownfield sites resultsin considerable quantities of waste materials. Bellway's excellent ongoingrelationship with plasterboard suppliers has resulted in 3,900 tonnes ofplasterboard being removed from site to be recycled. An ongoing priority is toimprove the efficiency of handling these materials. At Barking Riverside,working with a sub-contractor, a recycling plant with the capacity to produce350,000 tonnes of aggregates per annum has been constructed. The plant enablesthe capture and recycling of materials that would otherwise have been sent tolandfill. Arising from planning agreements, Bellway has contributed somewhere in theregion of £10 million towards enhanced community amenities, including, interalia, improved educational facilities, enhancements to parks, roads and localbiodiversity schemes. Customers The Group continually monitors customer reaction to its product and servicelevels, from initial enquiry through to legal completion and after-salessupport. During the year several surveys were undertaken and, of those whoresponded, around 75% of Bellway purchasers were satisfied with their new home.The Group is striving to improve this performance and, as part of ourcommitment, a Customer Service Charter is being utilised to monitor performanceand to improve service levels in future. Site managers play a pivotal role in this important area, helping to co-ordinateall elements of the building process and we are pleased to see that the NHBChave awarded Bellway with 19 "Pride in the Job" awards. In order to improveservice levels further, the Group has undertaken additional training to ensurethat standards of service remain high and we will continue to monitor customerresponses as well as adapt procedures and strive to ensure that customersatisfaction levels are improved. Health and Safety Health and safety awareness is one of the most important messages that the Groupinstils in all its employees, whether they are site or office based. Bellway'saim is to ensure the highest level of awareness of safety standards. The Groupis therefore particularly pleased to report that the Manchester division hasreceived an occupational health and safety award from the Royal Society for thePrevention of Accidents (RoSPA) in recognition of its commitment and highstandards in this crucial area. Although the number of lost time accidents has risen by one this year to 48, thenumber of major injuries has fallen from six to five and overall the Group'shealth and safety performance has again improved since last year. The Group's aim is for Bellway to be one of the safest companies to work for inthe industry. In line with achieving this goal, specific initiatives have beenundertaken, including the issue of action notices to sub-contractors whereunsafe working practices have been identified. Regular health and safety visitsto all our sites are undertaken by the NHBC and these result in health andsafety briefings and dialogue with all employees and sub-contractors. Slips,trips and falls remain the most common forms of accident and the Group, throughits health and safety managers and site management, is continuing to addressthis area in an attempt to further improve its health and safety record. Outlook The Group welcomes the recent pronouncements by Government to significantlyincrease housing output in this country by 2016 and 2020. Bellway is fullycommitted to playing its part in hopefully achieving these targets. With the support of the Group's expanding divisional network, combined with asteady increase in the number of sales outlets, Bellway ended the year with itshighest ever forward order book of £594 million. Whilst reservations to datehave declined slightly, we remain in a strong position with 57% of plannedoutput in place at the end of September. We therefore believe the foundationsare in place for the Group to continue to deliver further sustainable growth andadded shareholder value into the future. J K WatsonChief Executive 15 October 2007 GROUP INCOME STATEMENTFor the year ended 31 July 2007 Notes 2007 2006 £000 £000 Revenue 1,354,022 1,240,193 Cost of sales (1,042,102) (947,921) Gross profit 311,920 292,272 Administrative expenses (58,844) (52,932) Operating profit 253,076 239,340 Finance income 2 5,050 2,941 Finance expenses 2 (22,961) (21,339) Share of losses of associates (315) (233) Profit before taxation 234,850 220,709 Income tax expense 3 (68,136) (64,967) Profit for the year (all attributable to equity holders of the parent) 166,714 155,742 Earnings per ordinary share - basic 5 146.1p 137.5p Earnings per ordinary share - diluted 5 144.7p 136.2p GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE For the year ended 31 July 2007 2007 2006 £000 £000 Actuarial gains / (losses) on defined benefit pension scheme 5,268 (2,203) Tax on items taken directly to equity (1,475) 661 Net income / (expense) recognised directly in equity 3,793 (1,542) Profit for the year 166,714 155,742 Total recognised income (all attributable to equity holders of the parent) 170,507 154,200 GROUP BALANCE SHEETAt 31 July 2007 Notes 2007 2006 £000 £000ASSETSNon-current assetsProperty, plant and equipment 12,671 13,749Investment property 2,417 1,713Investments in subsidiaries, associates and jointly controlled entities - -Other receivables 5,201 5,736Deferred tax assets 7,826 10,174 28,115 31,372Current assetsInventories 1,537,874 1,433,999Trade and other receivables 45,252 26,503Cash and cash equivalents 25,381 2,329 1,608,507 1,462,831 Total assets 1,636,622 1,494,203 LIABILITIESNon-current liabilitiesInterest bearing loans and borrowings 77,000 159,000Retirement benefit obligations 1,986 11,716Land payables 47,875 23,958 126,861 194,674Current liabilitiesInterest bearing loans and borrowings 60,554 17,024Trade and other payables 380,895 349,995Current tax liabilities 32,498 29,010 473,947 396,029 Total liabilities 600,808 590,703 Net assets 1,035,814 903,500 EQUITYIssued capital 7 14,337 14,252Share premium 7 115,484 111,903Other reserves 7 1,492 1,492Retained earnings 7 904,567 775,919 Total equity attributable to equity holders of the parent 1,035,880 903,566Minority interest 7 (66) (66) Total equity 1,035,814 903,500 Approved by the Board of Directors on 15 October 2007 and signed on its behalfby H C Dawe A M LeitchDirector Director GROUP CASH FLOW STATEMENTFor the year ended 31 July 2007 Notes 2007 2006 £000 £000Cash flows from operating activitiesProfit for the year 166,714 155,742 Depreciation charge 3,102 3,141Profit on sale of property, plant and equipment (188) (1,152)Finance income (5,050) (2,941)Finance expenses 22,961 21,339Share-based payment charge 2,580 2,550Income tax expense 68,136 64,967Increase in inventories (103,875) (150,777)(Increase) / decrease in trade and other receivables (17,151) 6,895Increase in trade and other payables 46,584 32,243 Cash from operations 183,813 132,007 Interest paid (19,382) (17,937)Income tax paid (63,867) (65,198) Net cash inflow from operating activities 100,564 48,872Cash flows from investing activitiesAcquisition of property, plant and equipment (3,090) (4,808)Acquisition of investment property (704) (1,713)Proceeds from sale of property, plant and equipment 1,224 6,721Interest received 3,988 2,962 Net cash inflow from investing activities 1,418 3,162 Cash flows from financing activitiesDecrease in bank borrowings (67,000) (97,000)Proceeds from the issue of share capital on exercise of share options 3,666 3,115Purchase of own shares by employee share option plans (2,431) (403)Dividends paid (41,695) (36,882) Net cash outflow from financing activities (107,460) (131,170) Net decrease in cash and cash equivalents (5,478) (79,136) Cash and cash equivalents at beginning of year (12,695) 66,441 Cash and cash equivalents at end of year 6 (18,173) (12,695) NOTES 1. ACCOUNTING POLICIES The financial information has been prepared in accordance with InternationalFinancial Reporting Standards (IFRSs) as adopted by the European Union (EU) andeffective (or available for early adoption) at 31 July 2007. 2. FINANCE AND INCOME EXPENSE 2007 2006 £000 £000 Interest income 5,050 2,941 Interest payable on bank loans and overdrafts 15,828 16,358Interest on deferred term land payables 4,749 2,680Interest element of movement in pension scheme deficit 85 305Other interest expense 399 96Preference dividends 1,900 1,900 Finance expenses 22,961 21,339 3. TAXATION Taxation has been calculated at an effective rate of 29.0% of profit before tax(2006: 29.5%). 4. DIVIDENDS ON EQUITY SHARES 2007 2006 £000 £000Amounts recognised as distributions to equity holders in the year : Final dividend for the year ended 31 July 2006 of 20.2p per share (2005 : 18.25p) 23,103 20,657Interim dividend for the year ended 31 July 2007 of 16.45p per share (2006 : 14.3p) 18,813 16,232 41,916 36,889 Proposed final dividend for the year ended 31 July 2007 of 26.675p per share (2006 - 30,810 23,02820.2p) The proposed final dividend is subject to approval by shareholders at the AnnualGeneral Meeting on Friday 11 January 2008 and in accordance with IAS 10, has notbeen included as a liability in these financial statements. 5. EARNINGS PER ORDINARY SHARE Basic earnings per ordinary share is calculated by dividing earnings by theweighted average number of ordinary shares in issue during the year (excludingthe weighted average number of ordinary shares held by the employee shareownership plans which are treated as cancelled). Diluted earnings per ordinary share uses the same earnings figure as the basiccalculation except that the weighted average number of shares has been adjustedto reflect the dilutive effect of outstanding share options allocated underemployee share schemes where the market value exceeds the option price. It isassumed that all dilutive potential ordinary shares are converted at thebeginning of the accounting period. Diluted earnings per ordinary share iscalculated by dividing earnings by the diluted weighted average number ofordinary shares. Reconciliations of the earnings and weighted average number of shares used in the calculations are outlined below: Earnings Weighted Earnings Weighted average average number of number of ordinary ordinary shares shares 2007 2007 2006 2006 £000 £000 For basic earnings per ordinary share 166,714 114,108,350 155,742 113,248,814Options and awards - 1,140,376 - 1,121,473 For diluted earnings per ordinary share 166,714 115,248,726 155,742 114,370,287 6. ANALYSIS OF NET DEBT At 1 August Cash At 31 July 2006 flows 2007 £000 £000 £000 Cash and cash equivalents 2,329 23,052 25,381Bank overdrafts (15,024) (28,530) (43,554) Net cash and cash equivalents (12,695) (5,478) (18,173) Bank loans (141,000) 67,000 (74,000)Preference shares redeemable after more than one year (20,000) - (20,000) Net debt (173,695) 61,522 (112,173) 7. RECONCILIATION OF MOVEMENTS IN CAPITAL AND RESERVES Attributable to equity holders of the parent Ordinary Share Other Retained Total Minority Total share premium reserves earnings interest equity capital £000 £000 £000 £000 £000 £000 £000 At 1 August 2005 14,154 108,886 1,492 655,362 779,894 (66) 779,828Total recognised income and expense - - - 154,200 154,200 - 154,200Dividends on equity shares - - - (36,889) (36,889) - (36,889)Shares issued 98 3,017 - - 3,115 - 3,115Charge in relation to share options and tax thereon - - - 3,649 3,649 - 3,649Exercise of share options / share awards - - - (403) (403) - (403) At 31 July 2006 14,252 111,903 1,492 775,919 903,566 (66) 903,500 Total recognised income and expense - - - 170,507 170,507 - 170,507Dividends on equity shares - - - (41,916) (41,916) - (41,916)Shares issued 85 3,581 - - 3,666 - 3,666Charge in relation to share options and tax thereon - - - 2,488 2,488 - 2,488Exercise of share options / share awards - - - (2,431) (2,431) - (2,431) At 31 July 2007 14,337 115,484 1,492 904,567 1,035,880 (66) 1,035,814 Within retained earnings are amounts relating to ordinary shares held by theemployee share ownership plans. The number of shares held within these plans at31 July 2007 was 337,089 (2006: 441,439) which are held within the financialstatements at a value of £3,239,000 (2006: £2,173,000). 8. STATUTORY ACCOUNTS The financial information set out above does not constitute statutory accountsfor the year ended 31 July 2007 nor 2006. The statutory accounts for the yearended 31 July 2007 will be filed with the Registrar of Companies following theCompany's Annual General Meeting. The financial information for the year ended 31 July 2006 is derived from thestatutory accounts for that year. Those accounts have been reported on by theCompany's auditors and delivered to the Registrar of Companies. The Report ofthe Auditors was unqualified and did not contain statements under Section 237(2) or (3) of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Bellway