Bellway profits on the rise – thanks to the South

HOUSEBUILDER Bellway illustrated Britain’s increasingly polarised housing market as it attributed surging profits and a dividend hike to strong trading in the South.

The builder said demand in Yorkshire and the North remains weaker than the South, where it made 63 per cent of its housing turnover during the year to the end of July.

Pre-tax profits increased 57 per cent to £105.3m, helping its operating margin reach 11.4 per cent, versus 8.5 per cent a year earlier.

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Bellway revealed a 6.2 per cent increase in completions, selling 5,226 homes during the year.

Chairman Howard Dawe said Bellway’s growth “has been driven by the group’s strong performance in the South”.

“Our focus on land buying in recent years has tended to be in the South,” said finance director Keith Adey. “For every £1 we spent in the North, £2 (has been) in the South. What we’re seeing is the returns from that investment.

“There’s a stronger demand in the South, but we have a strong presence in the North.”

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Bellway’s Northern completions edged up 1.3 per cent to 2,375 from 2,345 a year earlier. Their average selling price was up about five per cent to £151,376.

However, the builder sold 10.6 per cent more homes in the South with 2,851 completions. Their average selling price was up 5.9 per cent to £216,031.

Mr Adey said he expects “a bit more volume growth to come from the North” this year.

“Yes, the South is a stronger market but these things are not linear. Clearly there are difficult markets in the North. Yorkshire is a market we struggle in. There’s perhaps not a lot of money there.”

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The builder’s Yorkshire sites include one on the former Vickers tank factory in Crossgates, plus other Leeds developments in Pudsey and Farsley, and a scheme in Boroughbridge, North Yorkshire. It ended the year with 213 outlets.

“Even though the national output of new homes is reported to be at or near an all-time low of approximately 120,000 homes, Bellway has now achieved three consecutive years of increased volume output,” said chief executive John Watson.

Mr Dawe is retiring in January after 51 years with the group. Mr Watson is moving to chairman, and will be succeeded by operations director Ted Ayres.

The builder hiked its total dividend 60 per cent to 20p per share – meaning it is paying out roughly a third of its earnings to shareholders.

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The dividend hike echoes other listed builders’ capital returns programmes, such as Persimmon’s plan to pay out £1.9bn in dividends over the next decade.

“If we can return a third of earnings to shareholders, we can reinvest the balance back into the business,” said Mr Adey. “With the uncertainties in Europe and unemployment, we feel it’s a responsible way to do it.”

Bellway plans a “three-pronged strategy” of increasing volumes, average selling prices and operating margins. It hopes to increase outlets and volume by around five per cent this year, and said it can do this without “compromising capital disciplines or significantly increasing overheads”.

Bellway’s order book increased three per cent to £441.2m and reservations since the end of July remain in line with expectations.

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It said building a greater proportion of private family homes helped its strong profits performance. Private completions rose 13.4 per cent to 3,843.

However, social housing sales dropped almost 20 per cent to 868.

Mr Adey said this was a combination of timing and changes in grant funding for social housing. “Some of the housing associations in the North find it a bit harder to access funding,” he said.

The housebuilder said trading has been boosted by Government incentive schemes, such as NewBuy, where the state and builder underwrite some of the risk for lenders. The scheme increases access to 95 per cent mortgages and has accounted for 6.3 per cent of Bellway’s reservations since launch. It was used to reserve 133 homes in the period up to the end of July.

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Meanwhile, Bellway has been cutting its use of shared equity schemes, which accounted for six per cent of completions, down from 10 per cent the prior year.

Shore Capital analyst Jon Bell said profits and dividends were ahead of its expectations.

“Bellway was the only housebuilder not to withdraw its dividend at the height of the downturn,” he said. “It is noticeable that the company makes reference to growth having been driven in the South of the country.”