Final Results

Bellway PLC 17 October 2000 NATIONAL HOUSEBUILDER BELLWAY p.l.c. TODAY (TUESDAY 17 OCTOBER 2000) ANNOUNCE THEIR PRELIMINARY RESULTS FOR THE YEAR ENDED 31 JULY 2000 HIGHLIGHTS 2000 1999 Increase * TURNOVER £634m £504m 26% * NO. OF HOMES SOLD 5,714 5,172 10% * AVERAGE SELLING PRICE £106,400 £93,100 14% * OPERATING MARGIN 15.1% 14.5% 4% * PROFIT BEFORE TAX £89.1m £68.2m 31% * DIVIDEND PER ORDINARY SHARE 12.4p 11.25p 10% * ORDINARY DIVIDEND COVER 4.4x 3.7x 19% * HEADLINE EARNINGS PER ORDINARY SHARE 55.4p 41.2p 34% * EARNINGS PER ORDINARY SHARE 55.4p 42.0p 32% * NET ASSET VALUE PER ORDINARY SHARE 289p 247p 17% FOR FURTHER INFORMATION, PLEASE CONTACT ALAN ROBSON, FINANCE DIRECTOR. TUESDAY 17TH OCTOBER ING BARINGS 60, LONDON WALL, LONDON EC2M 5TQ - TEL: 020 7767 5430. WEDNESDAY 18TH OCTOBER 0831 331 191. THEREAFTER 0191 217 0717. CHAIRMAN'S STATEMENT I AM DELIGHTED TO BE ABLE TO REPORT ON ANOTHER OUTSTANDING YEAR. THIS CONTINUES OUR CONSISTENT GROWTH IN EARNINGS PER SHARE WHICH HAS AVERAGED IN EXCESS OF 23% PER ANNUM OVER THE LAST TEN YEARS. Results During the year, we sold 5,714 homes, 542 more than the previous financial year and turnover rose by £130 million to £634 million from £504 million. For the first time in our history, the average selling price for the year exceeded £100,000 at £106,400, an increase of 14% over the previous year. Operating margins rose to 15.1% from last year's 14.5% and the profit before tax increased by 31% to £89.1 million compared to £68.2 million in the previous year. The return on capital employed is 27.1% per annum, one of the highest in the industry. Headline earnings per share rose to 55.4p from 41.2p, an increase of over 34%. Our strong balance sheet has been further enhanced by £46.5m of retained profits resulting in shareholders' funds of £335.9m. Net book asset value per share has risen to 289p from 247p. Net borrowings at 31 July were £17.5m giving modest gearing of 5% which puts us in a very strong financial position to exploit opportunities as they arise. There is already evidence of more stability in the land market. The directors are pleased to recommend a final dividend of 8.8p per ordinary share compared with 7.95p in the previous year making a total dividend of 12.4p for the year which represents an increase of over 10%. This final dividend will be payable on Monday 15 January 2001 to ordinary shareholders who are on the Register of Members at the close of business on Friday 15 December 2000. Strategy, Trading and Prospects The strategic reorganisation I announced last year has gone well. I am confident that the strong platform it created will improve our product mix and increase our average selling price. During the year our southern region's output grew substantially, benefiting from the buoyant market conditions and produced a particularly notable trading performance. Our northern region, where conditions were not so buoyant, also showed excellent growth. Currently the number of homes reserved is similar to last year, but the sales value is higher. Although it is too early to predict the likely outcome for the current year, we remain confident of and plan for continuing growth. It is fortunate that a tempering of the increase in selling prices has recently occurred and as a result homes remain affordable. This should ensure ongoing stability in the housing market and provide the conditions for us to continue our excellent track record into the foreseeable future. The Group is enjoying good trading conditions nationally and in the current year we are concentrating on added value, customer care and improving margins. We have intensified our well-established strategy of targeting brownfield developments with projects in most of the country's major conurbations. The wisdom of this policy was re-inforced by the Government publication 'Planning Policy Guidance Note 3'. Good quality brownfield development can only be achieved by using bespoke designs and layouts and we are proud of our long-standing 'local, national housebuilder' policy of individual designs matching customers needs. This approach allied to broad market and geographical coverage provides a strong framework for continuing organic growth. Our policy is, we believe, one of the most consistent and successful in the industry. Land and Employees Our quality land bank with planning permission, one of the best in the industry, now stands at 15,500 plots and this should allow us to increase volumes in the current financial year. In addition, we control a greater number of potential plots which we anticipate will receive planning consent in due course. The Group's future is secured by our excellent land bank and more importantly through the outstanding efforts and teamwork of all our employees. I would like to thank them on behalf of the Board and the shareholders. AGAINST THIS BACKGROUND YOUR BOARD REMAINS EXTREMELY CONFIDENT ABOUT THE GROUP'S FUTURE PROSPECTS AND I SEE NO REASON WHY YOUR GROUP SHOULD NOT CONTINUE TO PROSPER IN THIS DECADE AS IT HAS DONE IN THE LAST. 16 October 2000 Howard C Dawe CHIEF EXECUTIVE'S REVIEW In my first review as Chief Executive, I am pleased that the Group has achieved another excellent year of progress. The hard work undertaken in previous years has established the foundation to deliver continuing growth in the future. Our consistent growth record is highlighted by an increase in earnings per share in the last 10 years from 6.6p to 55.4p, a performance that is the envy of many of our competitors. Trading Divisions Our philosophy continues to be one of delegating as many decisions as possible to divisional level. Bellway operates as autonomous locally managed businesses with strong central control but no intermediary board structures. This structure enables quick decision-making and sets us apart from the standard industry profile. Last year we announced a strategic review resulting in changes to divisional boundaries preparing Bellway for the challenges of the future. The Yorkshire division has completed its restructuring and our new Northern Home Counties division in Milton Keynes is established with the first legal completions being achieved. The Thames Gateway division has acquired new premises in Kent and is well placed for further expansion along the Thames corridor where affordability levels are some of the strongest in the south east. Thames Gateway and Northern Home Counties have been established in areas that the Government have specifically targeted for new growth. This restructuring takes the number of operating divisions to 14 from 1st August 2000. Our former grant aided urban regeneration divisions in East Midlands, Thames Gateway, West Lancashire and Yorkshire achieved a selling price well below the average for the Group. These divisions are pursuing mixed use inner city projects using their brownfield experience gained over many years and will in future enjoy higher selling prices. Essex, North London and Wessex divisions all benefited from buoyant market conditions and I am pleased to report the excellent progress made by our Wales division. The division based in the North East of England continued its consistent trading performance. We continue to invest heavily in divisional management so that we have the infrastructure in place to create increased turnover from our smaller divisions. Land Land is at the core of our business and we continue to be innovative in our approach to land procurement. Recently, for example, we have established joint ventures with local authorities in Ipswich, Sheffield and Southampton to develop over 900 homes. The Lord Rogers Report focuses on urban renaissance and we contribute through the acquisition of sites in city centres up and down the country, in particular at Birmingham, Bristol, Cardiff and Nottingham. One of our key strengths must be our ability to read the market place. During the year we maintained our long term land buying disciplines relating to return on capital employed and margins and in an aggressive market this policy resulted in a reduced level of land procurement. The quality of our consented land bank of 15,500 plots still remains one of the best in the industry and is sufficient for our current needs. This is a conservative figure due to our inclusion of only land with planning permission and excludes 3,500 plots currently owned at Barking. We are also processing through planning 2,700 plots, currently held under conditional contracts. In addition to the foregoing we control a substantial number of plots in our long-term strategic land bank. Current market conditions are providing opportunities to procure land at attractive prices and we fully intend to take advantage of these in the current trading year. 'Bellway - the local, national Housebuilder' Customers do not want uniform design and standard specifications. Inner city schemes are forming an increasing percentage of our business. These schemes are predominantly high density, mixed use with unique designs produced by local architects matching local styles with local needs. The schemes are a natural extension of our urban regeneration experiences. The increasing complexity of brownfield development plays to the strengths we have built up over many years. This changing profile not only results in an increase in our average selling price, but also expands our product base. Construction There has been much discussion within our industry regarding off-site manufacturing. Our 'local, national Housebuilder' philosophy has resulted in a diverse product range which involves embracing all forms of imaginative architectural and construction techniques. This is where I see the future. Our policy is to form partnerships with suppliers to allow us to operate at the forefront of technology without having to commit valuable capital resources to non-core activities. Timber frame is a form of construction capable of time savings on traditional two and three storey buildings though it is not always capable of adapting to multi-storey or unique designs. Other construction techniques therefore need to be applied in these situations. The pressures on the labour market experienced in previous years have eased and the cost of raw materials has remained relatively stable throughout the year. Training Two years ago we encouraged our divisions to recruit more young people under training schemes. In addition, we have a programme of on-site training allowing our workforce to be assessed to NVQ level 2. We sincerely hope that a significant percentage of our site workforce will progress beyond this level and pursue a career with Bellway. Better processes need the right people to implement them. Panel forms of construction still need bricklayers and joiners on site and inner city construction requires more skills not less. Environment One of the most important challenges every year is to minimise any adverse environmental impact of the Group's building activities. Many of our developments improve the environment through the reclamation of land which would otherwise remain environmentally unattractive and potentially hazardous. Our percentage of developments that are on brownfield land is already in advance of the Government's stated target of 60% to be achieved by 2008. Recently we have obtained planning permission for over 400 homes on the site of two disused quarries in Birmingham and Northfleet where major reclamation works will result in the conversion of over 20 acres of derelict land into public open space. Furthermore we are testing an insulation system which uses recycled newspaper which is claimed to be beneficial to allergy and asthma sufferers. Following an audit of our sites by one of our manufacturers, we discovered that 10% of waste was made up of plasterboard. We are now in partnership with the manufacturer in returning this plasterboard to the factory for recycling. At Ipswich, following a commission from the Suffolk Wildlife Trust, we safely relocated hundreds of lizards and slow worms prior to starting work on site. New habitats were found for ground nesting birds, a new pond was created and large tracts of land that were once part of an airport are now being incorporated into an adjoining country park. Our Customers Our customers are a most valued asset. We recognise that growth comes not only from selling more homes but also from satisfied customers who are an essential part of Bellway's future. Our after sales service is co-ordinated by dedicated customer relations staff who report directly to their local Managing Director. Their work is being supported by the introduction of bespoke software and by a 24 hour, 7 days a week response line allowing us to react to our customers' needs. For many years our customers have been able to upgrade specifications through higher quality fixtures and fittings and have taken the opportunity to customise their new homes. The Group is therefore expanding the optional extras available including high specification flooring and state of the art audio systems. Additionally, we continue to arrange for trained financial advisers to be available to call at the customers home on a 7 day a week basis to advise on mortgages and ancillary financial products. This year we have supplemented this service with a new call centre manned 7 days a week with access through the internet to major lenders. This allows us to offer clients at the time of reservation 'in principle' mortgage arrangements. This professional service is, we believe, an industry first and will continue to improve client liaison as well as enhancing our income stream. Information Technology The Group is anxious to improve its efficiency through the appropriate use of new technology. Our investment in this important field augments our systems through the use of bespoke software in areas such as forecasting, group wide intranet, land procurement, sales monitoring and cashflow modelling. B2C e-commerce aids our customers through reservations on-line on selected sites, call centre, customer care and a wide variety of other systems. We will increasingly benefit from B2B systems as they evolve. The Future Looking ahead, we will continue to maximise shareholder return by shrewd well- timed land investment, improving our product and optimising revenue opportunities. 16 October, 2000 John K Watson GROUP PROFIT AND LOSS ACCOUNT For the year ended 31 July 2000 Notes 2000 1999 £000 £000 Turnover 634,301 504,406 Cost of sales 509,332 405,521 _______ _______ Gross profit 124,969 98,885 Administrative expenses 29,360 25,633 _______ _______ Group operating profit 95,609 73,252 Share of operating (loss) / profit in associated (2) 440 undertakings _______ _______ Total operating profit : Group and share of 95,607 73,692 associates Exceptional profit - sale of fixed asset - 900 _______ _______ Profit before interest 95,607 74,592 Net interest payable (including associated 6,462 6,415 undertakings) _______ _______ Profit on ordinary activities before taxation 89,145 68,177 Taxation 27,182 21,033 _______ _______ Profit after taxation 61,963 47,144 Minority interest (9) 79 _______ _______ Profit attributable to shareholders 61,954 47,223 Dividends on equity and non-equity shares 1 15,446 14,163 _______ _______ Retained profit for year 46,508 33,060 ====== ====== Earnings per ordinary share - basic 2 55.4p 42.0p Earnings per ordinary share - diluted 2 55.3p 41.8p Earnings per ordinary share - headline basic 2 55.4p 41.2p The Group's results for both the current and preceding financial years derive from continuing operations. There were no significant recognised gains or losses in the current or preceding year other than the profit attributable to shareholders. GROUP BALANCE SHEET at 31 July 2000 2000 1999 £000 £000 Fixed assets Tangible assets 14,768 13,221 Investments 2,249 2,072 _______ _______ 17,017 15,293 _______ _______ Current assets Stocks 508,514 490,164 Debtors 14,206 19,961 Cash at bank and in hand 37,525 9,656 _______ _______ 560,245 519,781 Current liabilities Creditors due within one year 167,751 165,085 _______ _______ Net current assets 392,494 354,696 _______ _______ Total assets less current liabilities 409,511 369,989 Creditors due after more than one year 73,640 81,057 _______ _______ Net assets 335,871 288,932 ======= ======= Capital and reserves Equity share capital Ordinary shares 13,652 13,622 Non-equity share capital Preference shares 20,000 20,000 _______ _______ Called up share capital 33,652 33,622 Equity reserves Share premium account 95,214 94,695 Other reserves 1,518 1,511 Profit and loss account 205,546 159,172 _______ _______ Shareholders' funds - equity and non-equity 335,930 289,000 Equity minority interest (59) (68) _______ _______ 335,871 288,932 ======= ======= Approved by the Board of Directors on 16 October 2000 and signed on its behalf by Howard C Dawe Alan G Robson GROUP CASH FLOW STATEMENT for the year ended 31 July 2000 2000 1999 £000 £000 £000 £000 Cash inflow from operating activities 75,613 15,767 Net cash outflow from returns on investments and servicing of finance Interest paid (7,189) (6,261) Interest received 772 281 Dividends paid - non-equity (1,900) (1,900) _______ _______ (8,317) (7,880) Taxation (22,688) (23,790) Net cash outflow from capital expenditure and financial investment Purchase of tangible fixed assets (5,808) (4,852) Sale of tangible fixed assets - exceptional - 1,310 item - other 1,118 750 _______ _______ (4,690) (2,792) Equity dividends paid (12,587) (11,403) _______ _______ Net cash inflow / (outflow) before financing 27,331 (30,098) Net cash inflow from financing Issue of ordinary share capital on exercise of share options 549 1,266 Increase in bank loans - 19,000 _______ _______ 549 20,266 _______ _______ Increase / (Decrease) in cash in year 27,880 (9,832) ===== ===== NOTES 1 DIVIDENDS ON EQUITY AND NON-EQUITY SHARES 2000 1999 £000 £000 Ordinary share capital - equity Interim paid on 1 July 2000 - 3.6p per share (1999 - 3.3p) 3,932 3,598 Final proposed - 8.8p per share (1999 - 7.95p) 9,614 8,665 ________ ________ 13,546 12,263 9.5% preference share capital - non-equity 1,900 1,900 ________ ________ 15,446 14,163 ====== ====== The directors recommend payment of the final dividend on 15 January 2001 to shareholders on the register at the close of business on 15 December 2000. 2 EARNINGS PER ORDINARY SHARE The calculation of basic earnings per ordinary share is based on earnings of £ 60,054,000 (1999 - £45,323,000) after taxation, minority interest and preference dividend and the weighted average number of ordinary shares in issue during the year of 108,328,741 (1999 - 107,918,069). The calculation of diluted earnings per ordinary share uses the same earnings figure as the basic calculation but the weighted average number of shares has been adjusted to 108,559,653 (1999 - 108,390,769) to reflect the dilutive effect of outstanding share options. The calculation of the headline basic earnings per ordinary share uses the same weighted average number of ordinary shares as the basic calculation, however the earnings are adjusted to exclude exceptional items and the related tax effect. This has no effect on the current year but earnings reduce by £900,000 to £44,423,000 for 1999. 3 RECONCILIATION OF NET BORROWINGS At 1 August Cash flows Exchange At 31 July 1999 Differences 2000 £000 £000 £000 £000 Cash at bank and in hand 9,656 27,880 (11) 37,525 Bank loans falling due after (55,000) - - (55,000) more than one year _______ _______ _______ _______ (45,344) 27,880 (11) (17,475) ====== ====== ====== ====== The net borrowings at 31 July 2000 of £17,475,000 represents gearing of 5.2%. 4 The financial information set out above does not constitute the company's statutory accounts for the years ended 31 July 1999 or 2000 but is derived from those accounts. Statutory accounts for 1999 have been delivered to the registrar of companies and those for 2000 will be delivered following the company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985.

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