Bellway PLC (BLWYF) (FY 2024) Earnings Call Highlights: Navigating Challenges and Embracing Growth Opportunities

Despite a dip in revenue and operating margin, Bellway PLC (BLWYF) focuses on strategic growth with a robust land bank and innovative investments.

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Oct 16, 2024
Summary
  • Revenue: Reduced to GBP2.4 billion due to lower private completions and weaker trading conditions.
  • Average Selling Price: Moderated to almost GBP308,000, with a forecast of GBP310,000 for FY25.
  • Operating Margin: Underlying operating margin was 10%, with an expectation to approach 11% in the next year.
  • Operating Profit: GBP238 million, reduced mainly due to a decline in volume.
  • Gross Margin: Lower at 16%, affected by incentives and higher site-based overheads.
  • Admin Costs: Flat at GBP142 million, with an expected increase of up to 10% in the coming year.
  • Net Debt: Year-end net debt was GBP10 million.
  • Net Loss from Joint Ventures: GBP2.3 million, offset by a positive trade and performance.
  • Finance Charge: Underlying finance charge was GBP9.7 million, expected to increase to around GBP16 million.
  • Tax Rate: Increased to 29% due to a rise in UK corporate tax rates.
  • Dividend: Proposed final dividend of 38p per share, totaling 54p for the full year.
  • Order Book: Over 5,100 homes valued at GBP1.4 billion, an increase from the previous year.
  • Volume Output: Expected to deliver at least 8,500 homes in the upcoming year.
  • Land Bank: Owned and controlled land bank of around 49,000 plots, with a strategic land bank of 45,500 plots.
  • Return on Capital Employed: Low at 6.9%, with a long-term annualized compound return of 13.6%.
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Release Date: October 15, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Bellway PLC (BLWYF, Financial) has a strong balance sheet with low gearing and significant investment capacity, allowing for future growth.
  • The company has a healthy land bank with over 95,000 plots, supporting its multiyear growth ambitions.
  • Bellway PLC (BLWYF) is set to deliver at least 8,500 homes in FY25, with a focus on private sales driving growth.
  • The company is investing in a new timber frame manufacturing facility, which is expected to enhance build speed, quality, and reduce carbon emissions.
  • Bellway PLC (BLWYF) has a strategic focus on organic growth, supported by a robust land and outlet position, and plans to reopen its South Midlands division.

Negative Points

  • The company's housing revenue decreased to GBP2.4 billion due to weaker trading conditions and a lower order book at the start of the financial year.
  • Operating margin was reduced to 10% due to lower volumes and continued use of incentives.
  • The average selling price moderated slightly, impacted by mix changes and the use of incentives.
  • Bellway PLC (BLWYF) faces challenges with building safety costs, with an anticipated expenditure of up to GBP100 million in FY25.
  • The company is experiencing some market hesitancy due to potential interest rate changes and concerns around the October budget.

Q & A Highlights

Q: Can you provide some color on the whip investment and its impact on volume outlook for the next two years?
A: Keith Adey, Group Finance Director, explained that the overall whip balance is expected to remain broadly the same in the year ahead due to inefficiencies from slower sales rates. However, as volume output increases, whip should start to recover. By FY26, if sales rates improve, whip might decrease slightly, aligning more with historical proportions.

Q: What is the expected contribution of strategic land to your volumes, and how is the planning system affecting this?
A: Simon Scougall, Group General Counsel, stated that currently, around 10% of completions come from strategic land, with a target to increase this to 20%. The government’s positive tone on planning reforms is encouraging, but the company is still assuming a slower planning system for now. Improvements are expected by mid-next summer.

Q: Are there any updates on government demand-side support for housing?
A: Jason Michael Honeyman, CEO, noted that while the government has an ambitious target to deliver 1.5 million homes, he welcomes this ambition. He emphasized the need to focus on building and creating jobs, rather than worrying about missing targets.

Q: How are you managing price increases and gross margin guidance for the year ahead?
A: Jason Michael Honeyman mentioned that modest price increases of a couple of percent are being implemented in certain regions like the North West, Midlands, and Scotland. Keith Adey added that the gross margin guidance is based on modest price increases and low inflation, with potential upside benefiting the subsequent financial year.

Q: What are your thoughts on future regulations and the impact of the Future Home Standard on costs?
A: Jason Michael Honeyman stated that the company is prepared for the Future Home Standard, with costs for heat pumps and PV included from December 2026. The estimated cost impact is GBP6,000 to GBP7,000 per unit, and no significant cost inflation is expected from these regulations.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.