Bellway H2 2026 Earnings Results & Report

Bellway EPS Results

• Actual EPS: GBX 187.80
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Bellway Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Bellway (LON:BWY), together with its subsidiaries, engages in the home building business in the United Kingdom. The company builds and sells homes ranging from one-bedroom apartments to six-bedroom family homes, as well as provides homes to housing associations for social housing. It offers homes under Bellway, Ashberry, and Bellway London brands. The company was founded in 1946 and is headquartered in Newcastle upon Tyne, the United Kingdom.

Bellway H2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Strong cash generation and shareholder returns: Adjusted operating cash flow rose 36% to £869 million, supporting a £224 million FY2026 return to shareholders and a further £150 million buyback in FY2027. Dividends and buybacks are expected to total around £450 million across FY2026 and FY2027.
• Negative Sentiment: Near-term trading is expected to weaken: Bellway is targeting 9,000–9,400 home completions in FY2027 versus 9,695 this year, as elevated mortgage rates and a lower order book pressure demand. Management expects gross margins to fall further due to build-cost inflation, incentives and a higher proportion of bulk completions.
• Positive Sentiment: Margin recovery is embedded in the land bank: Around 70% of plots with detailed planning permission have margins above 15%, while 53% are above 18%. Management expects margins to begin recovering from FY2028 as higher-margin land contributes more completions.
• Positive Sentiment: Operational efficiency initiatives are progressing: Timber-frame production, house-type redesign, centralized procurement and a lower-cost specification are expected to improve build times and reduce costs. The company estimates that its approach to energy-related subcontractor surcharges has saved roughly £20 million.
• Neutral Sentiment: Your First Home could support future volumes, but details remain uncertain: Bellway believes the scheme could increase volumes by around 10% and help return output to at least 10,000 homes annually, potentially from FY2028. However, the impact depends on final developer fees, funding levels and regional price caps, which remain unresolved.

Presentation

[Jason Honeyman, CEO at Bellway]

Good morning, and welcome to Bellway's full-year results. As usual, I am joined by Shane and Simon, with a number of our senior management team also with us today. If I could take you to the first slide. Bellway delivered a strong full-year performance, and I was particularly pleased with cash generation, and that is despite a softer selling period for much of the year. Volumes increased by almost 11% to 9,700 homes. Operating profit increased to 5.6% to GBP 321 million. Operating margin of 10.1% was 80 basis points lower than FY 2025. Operating cash increased by 36% to almost GBP 870 million. As you are aware, trading across the past six months has been affected by the prolonged conflict in the Middle East and the subsequent increase in mortgage rates.

[Jason Honeyman, CEO at Bellway]

The impact of those elevated borrowing costs continues to be more pronounced in the South of England, whereas other parts of the U.K. are proving to be more resilient. Outlook is still uncertain, but it is reasonable to assume that higher mortgage rates and a lower order book will lead to a lower output this year. We are targeting volumes of between 9,000 and 9,400 homes. That said, it is still my intention to drive volumes, to drive operating cash, and continue with our dual approach to capital allocation. We are both investing in the right land for growth and extending our buyback with a further GBP 150 million this year. That takes total dividends and buybacks to GBP 450 million across FY 2026 and 2027. Given the market backdrop, we are taking action to be more efficient and to position ourselves for growth.

[Jason Honeyman, CEO at Bellway]

You can see from the slide, Bellway has a strong platform to deliver higher returns in the future, underpinned by a strong balance sheet, continued investment in land, operational efficiencies that I will refer to later, and government support for first-time buyers. The average age of a first-time buyer is now 34 years old. Your First Home is clearly the right thing to do for young people. Set up right, it can also deliver growth. Bellway are well-placed to capture growing demand for first-time buyers. Based upon our past experience with Help to Buy, the new scheme has the potential to boost volumes by around 10%, and with a market recovery, provide a path back to at least 10,000 homes a year and a return on equity of 15%. I will provide an update on operations later. First, our financial results with Shane.

[Shane Doherty, CFO at Bellway]

Thank you, Jason, and good morning, everyone. As Jason said, we delivered a robust performance in FY 2026, despite the challenging market backdrop. That was supported by our opening order book and a strong contribution from bulk completions. Total volumes increased by 10.8% to 9,695 homes. We delivered double digit growth in both private and social housing output, with social homes accounting for around 21% of completions, in line with the prior year. Bulk completions more than doubled to 615 homes, and that represented around 6% of our output. We had a strong pipeline of bulk opportunities, and we expect bulk completions to increase to over 10% of our output in FY 2027. The average selling price increased by 2.5% to just over GBP 324,000. That entirely reflected geographic and product mix, with no underlying house price inflation.

[Shane Doherty, CFO at Bellway]

Strong growth in volumes and revenue drove a 9% increase in underlying gross profit to GBP 498 million. The underlying gross margin was 70 basis points lower, at 15.7%, and I will provide more detail on that shortly. Administrative expenses increased to GBP 173 million, and that was in line with our previous guidance. The increase reflects annual pay awards, targeted investment in important areas of the business, which included our timber frame factory and strengthened IT, commercial, and finance functions. This investment provides the infrastructure and expertise required to support our long-term growth ambitions. Against a prolonged challenging market backdrop, we are obviously reviewing the group's overhead cost base to ensure that our resources remain aligned with our strategic priorities and are deployed as efficiently as possible.

[Shane Doherty, CFO at Bellway]

This includes a number of areas of opportunity, use of technology and AI to simplify processes whilst retaining the expertise and capacity needed to respond as market conditions improve, and Jason will cover that review in more detail later. Admin expenses will increase in FY 2027, although it is important to add that that will be materially lower than in FY 2026 and primarily reflects annual pay awards. We will provide more specific guidance on that once our overhead review is completed. As market conditions and volumes recover, we expect to generate operating leverage from investments already made and the management actions now underway as we progress back towards, as Jason said, delivering more than 10,000 homes a year. Turning to underlying operating profit. This increased by 5.6% to GBP 321 million.

[Shane Doherty, CFO at Bellway]

Whilst the reduction in gross margin and higher overhead cost base resulted in 80 basis points reduction in underlying operating margin to 10.1%. Underlying profit before tax increased by 5.7% to GBP 306 million. I am pleased to report that the proposed total dividend has increased by 7% to GBP 0.75 per share. The figures on the slides are presented on an underlying basis, and adjusting items primarily relate to building safety, and they are set out in the income statement in Appendix 1. Turning now to our gross margin. We thought it was helpful to show an underlying gross margin bridge, which shows the three principal drivers of the movement in underlying gross margin, which reduced by 70 basis points to 15.7%. Firstly, as previously guided, the evolution of the land bank provided a 100-basis point benefit as newer, higher margin land contributed to completions.

[Shane Doherty, CFO at Bellway]

Secondly, net pricing and targeted sales incentives reduced margin by 50 basis points. Importantly, these measures supported sales and volume delivery in what has been a challenging market. Finally, build cost inflation, net of procurement savings, and operational efficiencies reduced margin by 110 basis points, with mix accounting for the remaining 10-basis point reduction. Overall, the 100-basis point benefit from land bank evolution was more than offset by pricing incentives and build cost inflation. Whilst these pressures will continue into FY 2027, the next slide, which we think is critical in the context of the strategy that we outlined previously, shows why the margin embedded in the land bank with detailed planning permission is currently around 17%.

[Shane Doherty, CFO at Bellway]

Of these plots, 70% of those have margin above 15%, including 53% above 18%, which is obviously well above the current gross margin trajectory that we have on our forward order book. We do expect gross margin to reduce further in FY 2027, and that reflects current market conditions, the continued flow-through of build cost inflation, including costs already embedded in WIP, and a higher proportion of bulk completions. Whilst bulk completions typically carry a lower margin, they support volume delivery, asset turn, and critically, cash generation and thus value creation for our shareholders. From FY 2028, we expect margin to begin recovering as higher margin land contributes a greater share of completions. Although, of course, that pace will depend on market conditions, particularly around where interest rates are for our customers at that point.

[Shane Doherty, CFO at Bellway]

Continued discipline in land acquisition and our strategic land pipeline provide further opportunities to improve land mix and support longer-term volume growth. Turning to operating cash generation. I guess we're conscious of the fact that trading has been difficult. One thing myself, Jason, Simon are keen to emphasize is that we are consistent in terms of the strategy we outline, and we prove by doing. I think this operating cash generation slide shows that. We generated very strong adjusted operating cash flow in FY 2026. The bridge demonstrates the benefit of our focus on capital efficiency and how that cash has been allocated whilst maintaining a healthy year-end net cash position, and also a very strong balance sheet, in terms of land and the level of WIP that we have invested. Turning to the key movements.

[Shane Doherty, CFO at Bellway]

In line with our strategy, there was a GBP 72 million reduction in total WIP. Land utilized through cost of sales was GBP 564 million, which exceeded land investment in the year. Together with the movement in land creditors, this resulted in a GBP 152 million reduction in land held on the balance sheet. After other working capital movements and tax, adjusted operating cash flow increased by 36% to GBP 869 million. This cash generation provides the capacity to both invest in future growth and deliver enhanced returns to shareholders. During the year, we invested GBP 496 million in land, including the settlement of land creditors, and returned GBP 224 million to our shareholders through dividends and share buybacks. Due to the share buybacks, this was significantly up on the GBP 70 million returned in the prior year to shareholders.

[Shane Doherty, CFO at Bellway]

After GBP 33 million of building safety expenditure, we ended the year with net cash of GBP 158 million after those returns and the investments that we made in land in that period. We have a very robust and well-capitalized balance sheet, and this is underpinned by our investment in land and WIP. Both remain important areas of focus as we seek to improve capital efficiency and generate further cash in the years ahead. Turning now to the key balance sheet movements. As highlighted earlier, the land balance reduced by GBP 152 million to GBP 2.235 billion. During the year, we entered into new land contracts under deferred terms totaling around GBP 177 million and made land creditor payments of around GBP 252 million. As a result, land creditors reduced to GBP 265 million at year-end, and that's equivalent to around 11% of the overall land balance.

[Shane Doherty, CFO at Bellway]

As we said before, over the medium term we intend to increase the use of deferred payments towards 15%-20% of land value, and that's broadly in line with historical levels. That obviously forms part of our ongoing move to a more capital efficient operating model, whilst maintaining discipline over the terms and overall cost of land acquisition. Jason will discuss that land bank in more detail later. Total WIP reduced to GBP 2.26 billion, with the main movements coming from site WIP. Breaking down those movements, site WIP reduced by GBP 103 million to just over GBP 2 billion, and that demonstrates our continued progress in aligning build activity more closely with sales and improving capital efficiency, and drove a decent uptick in our WIP turn during the course of the year.

[Shane Doherty, CFO at Bellway]

Part exchange properties increased by GBP 32 million, and that reflected the greater use of this incentive in a slower housing market, and the balance at the year-end was GBP 58 million. Finally, show homes were broadly unchanged at GBP 143 million. Turning to building safety, the overall provision remained broadly stable at GBP 520 million. We have now started or completed works on 59% of the relevant buildings, and we're increasing our focus on recoveries from the supply chain.

[Shane Doherty, CFO at Bellway]

We've a significant number of claims that we're pursuing. We expect cash expenditure of at least GBP 100 million in FY 2027, with further detail on build legacy safety provided in Appendix 8. To finish, adjusted gearing, including land creditors, reduced by 530 basis points to 3%, and the accretive effect of the share buyback supported a 4.2% increase in net asset value per share to just over GBP 31 per share.

[Shane Doherty, CFO at Bellway]

Underlying return on capital and pre-tax return on equity both increased by 50 basis points to 9.2% and 8.7%, respectively. Turning to capital allocation, and in line with my previous comment around consistency of our strategy and delivery, I just want to remind people of what we outlined in terms of our capital allocation strategy. It starts with our balance sheet. That provides the foundation for a flexible approach, balancing disciplined investment for growth with attractive shareholder returns.

[Shane Doherty, CFO at Bellway]

We'll maintain financial strength, continue to invest selectively in land and strategic initiatives, and drive greater capital efficiency, particularly through improved WIP turn. The resulting cash generation will support our ordinary dividend and multi-year share buyback program. The next slide demonstrates the strong progress we have made in executing this framework. The 36% increase in adjusted operating cash flow to GBP 869 million, that's equivalent to 2.7x underlying operating profit.

[Shane Doherty, CFO at Bellway]

This is well ahead of our target to maintain conversion of at least two times over the three years to FY 2028, which we laid out last October when we spoke to you, and that reflects the higher volume and improved land and WIP turn. Driving greater WIP efficiency remains a key priority across all 20 operating divisions. Whilst we've made good progress in FY 2026, we see further opportunity to reduce average WIP and improve asset turn by FY 2028, whilst retaining the capacity to invest in land and support therefore future growth.

[Shane Doherty, CFO at Bellway]

The stronger cash generation also provides the platform to deliver enhanced shareholder returns. In addition to maintaining ordinary dividend cover of two and a half times underlying earnings, we've commenced a further GBP 150 million share buyback for FY 2027. Together, dividends and share buybacks are expected to total, as Jason said, around GBP 450 million across FY 2026 and 2027.

[Shane Doherty, CFO at Bellway]

I think that demonstrates very clearly our commitment to long-term creation of shareholder value. To conclude my section, I will summarize our guidance for FY 2027. Clearly, we recognize the continuing risks to inflation, interest rates, and customer confidence from the geopolitical and current macroeconomic uncertainty. Against this backdrop, we remain focused on volume delivery, driving efficiency, and cash generation, whilst retaining the capacity to respond as market conditions improve. For FY 2027, we expect volume output of between 9,000 and 9,400 homes, with a higher contribution from build completions and social housing representing around 20% of our total volume. An overall average selling price of around GBP 325,000. That is broadly in line with FY 2026. Margins will be lower. Building safety expenditure of at least GBP 100 million and land spend of around GBP 500 million, and that is consistent with our replacement-led strategy.

[Shane Doherty, CFO at Bellway]

That will all be underpinned by cash dividends and share buybacks of around GBP 225 million. I think it is important to reemphasize, looking through the near-term headwinds with our management actions and the return of supported market conditions, we see a clear pathway back towards an underlying operating margin and return on equity of 15%. That is very much our longer-term strategy. We are very committed to it, and it will be underpinned by stronger cash generation, which hopefully you will see this morning in terms of what we articulated and driving shareholder returns over time. I will now hand back to Jason, who will cover the operation review and outlook.

[Jason Honeyman, CEO at Bellway]

Thank you, Shane. I will start with trading. In FY 2026, we achieved a private sales rate of 0.55, including a good contribution from bulk sales of around 10%. You will recall that we enjoyed a strong first three months to the calendar year, post-budget and pre Middle East, where the sales rate climbed to almost 0.7 per outlet. You can see from the slide how the sales rate has fallen as mortgage rates increased in April and across the summer period. To put that into context, mortgage rates for an 80% LTV were below 4% at the start of the year and are now above 5%. Repayments on a GBP 250,000 mortgage have gone up by almost GBP 2,000 per year. Looking at this financial year, those affordability pressures continue to weigh upon customer demand.

[Jason Honeyman, CEO at Bellway]

In the first nine weeks since August 1st, we have achieved a private sales rate of 0.5, with September showing a modest improvement from August sales. Bulk sales made a contribution of around 10%. A point to note is the geographical performance with Scotland, Northeast and Northwest all enjoying sales rates of up to 0.6, whereas some divisions in the south have been lower than 0.4. These regional differences are reflected in headline house prices, with the north generally holding firm, but downward pressure on some sites in the South of England. Overall, incentives average around 5% and part exchange has increased to 10% in FY 2026 and may increase further to support volume this year. A similar story with bulk sales. We have a strong pipeline of opportunities. Last year, we delivered around 600 homes from bulk.

[Jason Honeyman, CEO at Bellway]

This year I would expect that figure to double to around 1,200 homes, supporting both volume and cash generation. Finally, order book. As of October 2nd, our order book is around 5,000 homes and GBP 1.4 billion. Moving on to land bank. A total of 95,000 plots and evenly split between owned and controlled and strategic. Similar size to last year, reflecting our land replacement policy. Importantly, those newer plots are at higher margins. Overall, an owned and controlled land bank of around 4.5 to five years. That is enough to support growth without tying up excess capital. That said, I am targeting around 30,000 plots in the DPP land bank to give me at least three years of output as we aim to get back to 10,000 homes per year.

[Jason Honeyman, CEO at Bellway]

I plan to top up those consented plots through high margin land from both the open market and our strategic land bank. We are still active in the land market. Last year, we contracted on 8,600 plots, with 80% of those in the better selling areas of the Midlands and North and Scotland. Our investment is forecast to be around GBP 500 million this year, but we have the firepower to invest more if conditions improve. We have strong land buying controls in place. Every acquisition is approved by either Simon or myself and the regional chairs, and that approach ensures our capital is invested in land that drives better returns. Moving on to planning. The planning environment has improved slightly, but progress is slow. Limited local authority resources and too many consultees.

[Jason Honeyman, CEO at Bellway]

That is highlighted in strategic land not coming through the system as quickly as we would like. That is not an impact on cash, but it is a near-term drag on outlet openings. Despite this, strategic land offers significant opportunity in the years ahead, with over half of our plots attracting a positive planning status and around 80 planning applications running in the system. Ultimately, it will benefit margin and outlet growth. To put that into context, we expect around 15% of our completions to generate from strategic, from both this year and next year, and that will likely grow to around 20% in FY 2029. Average outlet numbers will be around 230 this year, down from 238 last year. From FY 2028, we are well-positioned to grow outlets again, given our land investment and that strategic pull-through.

[Jason Honeyman, CEO at Bellway]

Turning now to costs. Overall, build cost inflation is running at around 3% and largely driven by energy surcharges, with building materials accounting for most of that increase. As I mentioned in my introduction, operational efficiencies, cost savings, and overheads are our key priorities. I will highlight how and where we are taking action. Firstly, operational efficiencies, and our program is well advanced. Timber frame factory is complete. Output is expanding quickly. House type redesign is complete. The new Bellway Collection is fully optimized for timber frame, and we can improve build times by up to six weeks per house. Brand refresh is complete, more cost effective, easier for the customer. A digital-first in approach. It is modern, it looks great, and provides the platform for extra revenue opportunities.

[Jason Honeyman, CEO at Bellway]

The final piece of work on the new platform is to deliver a step change in our additions and upgrades program by offering customers more choice. That will be up and running in the second half of this year. Cost savings, a few examples. Since energy costs spiked in April, we have taken a robust approach to subcontractor requests for cost increases. Any application for additional costs as a result of the Middle East is controlled by head office to ensure we take a consistent approach to any surcharge. Since April, we have had requests for energy related costs of over GBP 22 million. We have authorized just GBP 3 million. Most contractors value the relationship with Bellway, the good payment terms and the promise of future work above any short term gain or benefit. This centralized approach has saved Bellway around GBP 20 million, or 1% of BCI.

[Jason Honeyman, CEO at Bellway]

Another example of a cost saving is the introduction of our three-tier specification following the launch of our new house type range. Our new base specification is still a great offer and expected to save GBP 5 million in costs in FY 2027. A saving of almost GBP 1,300 on a four bed home. Yet the customer still has the opportunity to upgrade through our additions platform. Overhead costs. As Shane has mentioned, our operational cost base is under review. 20 U.K. trading divisions gives us the right balance between a nationwide footprint and the platform for growth. I don't want to cut into that muscle. That's Bellway's strength. A broad review of overheads is underway. The next two slides look at our positioning within the market. The first slide highlights our broad product range, accessible price point, and all based upon larger two story, or two story housing.

[Jason Honeyman, CEO at Bellway]

The second slide highlights Bellway's balanced national land bank and how it supports medium term margin recovery. You can also see we have the second lowest ASP in the sector, with a good exposure to the first time buyer market. If you go back to 2022, the last year of Help to Buy, 42% of completions came from first time buyers, and that drove higher volumes. Finally, outlook. We are targeting completions of between 9,000 and 9,400 homes. Shane has mentioned there will be margin pressure in FY 2027. The challenges in FY 2027 give way to opportunity in 2028 and beyond. Your First Home could drive volumes back to 10,000 homes and as early as FY 2028. Capital efficiency has markedly improved. We have a strong balance sheet with net cash and a strong track record on delivery.

[Jason Honeyman, CEO at Bellway]

I hope you can see that we're taking action to make the business more resilient, more structurally efficient, and we have the capability to respond to stronger demand. Thank you. Happy to take questions.

[Aynsley Lammin, Analyst at Investec]

Thanks. Morning. Aynsley Lammin from Investec. Just two from me, please. Just on the recent trading, I wonder if you could comment if you have actually seen any cancellations from first-time buyers as they await the new scheme to come in, or is it mainly just the higher interest rates? The second question on the Your First Home scheme, have you had any discussions with government? What is your fear that could go wrong with that in terms of the detail at the end of budget? Are you confident that they understand what is necessary around price caps, the funding scale, etc?

[Jason Honeyman, CEO at Bellway]

Thanks, Aynsley. I will take both, if I may. From the first-time buyer, it is early, Aynsley. There is a little bit of cancellation in the South of England, but not that we can see in the north, which you would probably expect, but nothing significant. In terms of Your First Home, I don't see problems, I see opportunity. My view on it is that Your First Home, Aynsley, is going to underpin volumes, but it will not supercharge profits. The reason I think that is because I am quite relaxed about the income caps, the regional caps.

[Jason Honeyman, CEO at Bellway]

There are more guardrails in place than the old system. I think their funding for the first round of Your First Home will be. Let us see how it develops before it is funded beyond that. I think it will support volumes. I think it is the right thing to do for young people. I think it will be fairly measured. Sorry, you did ask me, are we engaging with government? We do directly. I do, and HBF do it on behalf of the sector.

[Zaim Beekawa, Analyst at JPMorgan]

Thank you. Zaim Beekawa, JPMorgan. Two questions from me. The first is just on stamp duty. I think that was commented in the prelims, but it seems like there's no comment on that in today's statement. Is that something that you feel like is off the cards now? Also, to come back to Your First Home. Obviously, there'll be a developer's contribution, but what's your appetite to provide further incentives, cash or non-cash, beyond that? Thank you.

[Jason Honeyman, CEO at Bellway]

In terms of SDLT, I'm a big ad for supporting young people, but I think you need an SDLT cut to improve affordability in the whole market. I think it's probably optimistic or naive of me to ask government for both at the same time. We'll see how the market unfolds in 2027, but I won't be shy in going back if we need to encourage the market because it's affordability pressures. In terms of your question on Your First Home, I think it's a good one. I've made the point quite clearly, and I'm relaxed about income caps, regional caps. The bits I don't know are developer fees, and the amount of money in the pot to fund the first round of Your First Home.

[Jason Honeyman, CEO at Bellway]

I've made it quite clear that there is going to be strong appetite for Your First Home, both from developers and from first-time buyers. If the scheme rules don't work, that's a political problem, not appetite problem. I think they get that message, but we won't know the answer until October, the budget day. Do you mind asking some questions?

[Shane Doherty, CFO at Bellway]

No, I think you're doing much better than me.

[Jason Honeyman, CEO at Bellway]

Yeah.

[Lewis Roxburgh, Analyst at Goodbody]

I think I've got one for you, Shane. Lewis Roxburgh, Goodbody. Just one on cash flow. Do you have any targets that you're thinking about in terms of a specific conversion rate or level or looking at another way, a target land bank or WIP or asset turn just to help us from that perspective? Secondly, just what you're seeing in terms of land prices, particularly in the north, where we've seen obviously stronger pricing there. Lastly, Your First Home scheme. How quickly do you think the uptake will take to reach that 10% of your expectations just based on the volume guide? I think that's probably more gradual, but just some color there. Thanks.

[Jason Honeyman, CEO at Bellway]

I'll do land. You do-

[Shane Doherty, CFO at Bellway]

Yep. Do you want me to, cash flow targets? Lewis, I guess you probably picked it up from the presentation. We're trying to be as consistent as we can. The capital allocation strategy that we outlined was very much lowish levels of gearing on the balance sheet. That doesn't change. The opportunity that we identified was WIP turn was at about 1.3 when we started this cycle. Get that above 2 in this market. That's going to take a few years to do that. In a tougher market, obviously, it's harder to do that. We'd be very comfortable with that as a measure. I think the comfort that people can take is a lot of the operating cash flow opportunity is coming from WIP. We made an important strategic decision, and this is aligned to the supply chain challenges that we have.

[Shane Doherty, CFO at Bellway]

We in the sector saw unit output go from 11,000, in our case, down to 7,000 overnight. We made a very, I think, wise strategic decision then that we weren't going to reduce our WIP exponentially. You would have been reducing your WIP spend to probably GBP 1.5 billion or GBP 1.4 billion from GBP 2 billion a year. The disruption that would have on your sites and everything else would be significant. When we turn and we talk to our supply chain partners now around BCI and working with us, they believe us when we talk about our pipeline, because that's Bellway and that what we've done. It's worked out well for us because we're now monetizing that WIP. We're going after that opportunity, and I think you can see that.

[Shane Doherty, CFO at Bellway]

We got a 20 basis point improvement in WIP turn in the year, went from about 1.3 up to over 1.5. Again, we are on a good track to get that up to 2. We are doing that and we are buying back our shares at a discount. That is a good timing piece for us in a world where trading is very difficult. Low levels of leverage, a very strong land bank. We are net replacement on land.

[Shane Doherty, CFO at Bellway]

You can see from our balance sheet, we have got 3% gearing, including land creditors at the moment. If Simon and Jason turn around and say that they want to buy more land, we absolutely have the firepower to do that. The three of us are very much committed to net replacement on land broadly, and that gives the guys plenty of firepower, I think, to go after the opportunities that are there.

[Jason Honeyman, CEO at Bellway]

I think on your land question, I think it is a good question. I think, the answer may surprise some. The land market in the north is quite competitive. I was only talking to Clyde earlier because his recent note was quite accurate. Land prices are holding up quite strongly in the north of England for two reasons. One, because, the planning environment is slow, and the second reason is there is an appetite from developers for outlets in better selling areas. Most are well-funded, so there is more cash being focused in those better selling areas of the north, where it is a bit softer down the south.

[Will Jones, Analyst at Rothschild & Co Redburn]

Thanks. Will Jones from Rothschild & Co Redburn. First one, just around margins, helpful bridge for the year finished. When we look forward, I think you have guided to 3%-4% build cost inflation. Can we assume land mix will be similar again at 100 basis points? Pricing wise, if we stay the same sequentially, where are we at the moment in terms of what might be the price effect on margin for year ahead?

[Will Jones, Analyst at Rothschild & Co Redburn]

Second one was just maybe on that land point. I know you have slightly tweaked the way you consider new land to IRR as opposed to just necessarily gross margin and ROCE, but perhaps you can just update us on what you are asking your new land acquisitions to clear. The last one just around Your First Home. Are you hearing anything on the price caps and how they might be struck? Clearly, we exited Help to Buy with price caps. Do you think they will be similar or more restrictive against those? Or maybe we just don't know yet.

[Jason Honeyman, CEO at Bellway]

You do margins, I will do HBI.

[Shane Doherty, CFO at Bellway]

Yep. On the margin bridge, I do want to answer the question as best I can. We are not guiding on margin this morning because it is just so difficult in this market, as you will understand. I think the one thing the three of us are very comfortable talking about is that land margin uptick. I think it is important that we give that assurance, in a world where margin is under pressure, and it is all well and good for us to talk about an aspiration to get to a 15% return on capital employed. To do that, you need margin progression. We are very comfortable that that margin upside exists in terms of the land mix, and will continue to do so for the next number of years.

[Shane Doherty, CFO at Bellway]

There is decent margin progression on our DPP land bank all the way to the 20%+ that you have on strategic land. Clearly, as your penetration rate goes up on strata and you trade your way through the forward order book, you will get that margin progression. The BCI, our build cost is roughly half your ASP. If you divide that by two, you are probably getting to about a 1.5%. The big unknown that we have at the moment is, how hard are we going to need to trade incentives in this market? Bulk does not have as dilutive impact on margin as you would think. It is probably around 50 basis points in overall terms, but the cash generation that you get from that is significant.

[Shane Doherty, CFO at Bellway]

The unknown for us is just the extent to which we will need to drive incentives and base pricing over the next 12 months. Margin will be going downward this year. I would caveat that by saying, you will get margin progression in future years. When we give guidance around what our land bank looks like, we are doing that mark to market at the moment in terms of what current levels of BCI and HBI look like in overall terms. In terms of our land hurdle rates, our hurdle rate is typically 20% on both ROCE and on margin.

[Shane Doherty, CFO at Bellway]

Particularly in the north, we might look at certain deals where the margin is lower than that if there is a strong ROCE in that and where it is competitive, because it makes sense to do that in those situations. In general, they are the hurdle rates that we have and I think, Simon, they work generally for us in terms of what we are trying to.

[Simon Scougall, Chief Commercial Officer at Bellway]

What we are finding in the north is whilst land value, as Jason mentioned, are firm, and we may take a little bit lower if it is a quality site. The strength of our balance sheet allows us to agree good deferred terms, and we are getting much better improvement in terms of funds on the back of that approach.

[Jason Honeyman, CEO at Bellway]

I think the land market reflects slower sales rate. Shane was ahead of his time with capital efficiency because the land market today, whilst prices have not softened, payment terms have. They understand that we are selling slower than we were a few years ago. That is good. Can I just touch on price caps, Will?

[Jason Honeyman, CEO at Bellway]

The reason I am more relaxed on price caps than I am on developer fees and the pot is because in my one-to-one discussions with the minister, I have pointed out quite clearly that the Scottish Help to Buy product that was launched in June has only sold one home in four months because of the scheme rules and the price caps. I have pointed out, Will, that the Welsh government are writing to me saying, "Jason, would you like to increase the price cap to GBP 375 because we recognize GBP 300 is not working?"

[Jason Honeyman, CEO at Bellway]

They understand the detail, and I think that that will be accommodated in the regional caps or the local authority caps that they are thinking about. It will not all be perfect, nothing ever will. I don't think you are going to go back to the price caps of Help to Buy. Some of those, we can't even build a house for those figures, let alone sell a home. I think they get it.

[Harry Goad, Analyst at Berenberg]

Yeah. Hi, it's Harry Goad at Berenberg. I've got two, please. Just extending the point about gross margin contribution from land, how many years does it take before we get to fully reinvested land bank, if that makes sense? Over that period, is it fair to assume everything else being equal, about 100 basis points of contribution per annum? The second question is just the point around capital efficiency. Just as a reminder, is there implicit assumption there that what you feel in terms of long-term required land holdings will be less in the future than it was in the past because of regulatory change? Thank you.

[Shane Doherty, CFO at Bellway]

Just the first part of your question there. I get the bit about margin progression. Just so I understand exactly what you're asking, just the first part?

[Harry Goad, Analyst at Berenberg]

Effectively, how many years does it take before you have a fully reinvested land bank at today's-

[Jason Honeyman, CEO at Bellway]

20% gross

[Shane Doherty, CFO at Bellway]

At today's? Look, I think in terms of there is a kind of a gross margin improvement coming through of 1% per annum. We're always careful in terms of how we articulate it at the moment because the industry itself is flagging headwinds at the moment, and it's a double whammy in terms of BCI and HBI. That 1% progression is real. My own view for what it's worth, because we can all crystal ball gaze, is that we've been long on cost challenges over the last number of years. You've seen the HBF report yourself, I'm sure, which talks about a GBP 75k increase in build costs over the last four to five years. There's been pretty much no HBI. That's all baked in to our margin now.

[Shane Doherty, CFO at Bellway]

The question obviously is, at what point do you get a little uptick in your HBI to provide, at the very least, the neutralizing impact so that 1% comes through. Then 1% margin progression is only GBP 3,000, about GBP 3,000-GBP 4,000 per home in terms of a beat on HBI versus BCI. IT's not a whole lot. It's just in this market, it hasn't really existed for the last number of years. I would say there's probably an inherent 1% uplift that you'll get off where margin lands this year. Then it's just a case of how that whole HBI, BCI dynamic lands. You'd have to be somewhat optimistic insofar as we're all sitting here, and there's been a series of questions around a Your First Home scheme with a 2.5% underpin in terms of what the deposit required is by first-time buyers.

[Shane Doherty, CFO at Bellway]

I think if I was in this room six months ago, and I said that that was a potential, I don't think anyone would've believed it. I think if you even look at press coverage, the dynamic is changing in terms of the industry. I think we're doing a better job explaining some of the cost of capital challenges that we have in terms of viability, and I think there's a lot more focus now coming around what macro support can be provided for house builders who are actually as well invested as we are in terms of providing much needed homes.

[Jason Honeyman, CEO at Bellway]

The second question, Harry?

[Harry Goad, Analyst at Berenberg]

The second one was around your point of capital efficiency. Is there an implied assumption there that you just will, in the future, need to hold less land relative to output than you historically have because of the planning system improvements?

[Jason Honeyman, CEO at Bellway]

Yeah, I'm a bit cautious of that. We've been improving the planning system, Harry, since I left school 40 years ago. I think you're probably always going to need a 4.5 to five years land bank to compensate for that environment. You can get closer to four, I guess, in a better market when it's turning, but I'd be cautious with that at the moment.

[Harry Goad, Analyst at Berenberg]

Okay.

[Rebecca Parker, Analyst at Goldman Sachs]

Hi, Rebecca Parker from Goldman Sachs. Just wondering if you could provide some color on how bulk appetite is tracking. You're planning to double your bulk sales into next year, and the types of discounts you're having to offer there. Are there certain regions where you're targeting doing these deals, maybe in weaker performing regions? Secondly, are you seeing outlets drop into this year? How is the planning environment and confidence that you can drive growth into FY 2028 on outlets?

[Jason Honeyman, CEO at Bellway]

Do you want to do that first?

[Shane Doherty, CFO at Bellway]

In bulk? Yeah. Look, bulk has been a significant area of opportunity for us. Look, we haven't reinvented the wheel here or anything. It's just historically, the private demand backdrop has been stronger. We take very much a group approach now to bulk deals because what the counterparties tell us is they want to deal with Bellway. They don't necessarily want to deal with the divisions on their own. We take a more holistic strategy in terms of how we go after bulk. The hopper of bulk opportunities is significant, and I think that's important, again, when we sit in front of people like yourselves. The way we can mitigate margin reduction is making sure there's a lot of appetite out there for bulk. There is, and there's two reasons for that. One, the funding allocation that's been given around affordable housing.

[Shane Doherty, CFO at Bellway]

We're seeing more interest levels there. Also the fact that the rental underpin is still very strong for those customers who actually can't buy a home. So, the economics tend to work in this market because bulk buyers will tend to take an even longer term view than we do in terms of where interest rates are going to be ultimately in the long term. I would say we've got very strong visibility around our ability to double that. If we wanted to, we could probably do more, and it's just a case of whether we would actually want to do that or not. We look at everything on an NPV basis. Typically, the reduction can be around 10%, but you'll claw some of that back through obviously your site preliminaries and your sales and marketing cost.

[Shane Doherty, CFO at Bellway]

Then obviously, as Jason said already, if you can get a funded deal in particular, it can be very much NPV accretive. That's how we look at bulk. I think we've created a good platform in terms of where there's plenty of healthy competitive tension around people who want that product, and it's a flexible strategy for us because obviously you've got Your First Home coming out and if the market improves, we never over-commit in terms of doing something that's a long way out, because we do that for BCI purposes as well as anything else.

[Shane Doherty, CFO at Bellway]

We don't want to have a big BCI exposure around something that's going to have many years to build, where you might have locked in prices. There's a good symmetry there in terms of if the market demand backdrop picks up overall. Feeling pretty good about that opportunity in overall terms.

[Jason Honeyman, CEO at Bellway]

Can I just pick up your point on planning and outlets? It always strikes me as strange when house builders come out and suggest they're growing outlet numbers when no one's buying any land and the planning system's slow. Our outlets are just coming off slightly. It's difficult for me to say there's going to be significant growth in the short term. I'd probably be more interested in better quality outlets, right product in the right area, driving good sales rates as opposed to getting consumed by outlets. I don't want to see them fall back too much, but it's difficult to see why they're going to grow in the short term.

[Rebecca Parker, Analyst at Goldman Sachs]

Thanks.

[Clyde Lewis, Analyst at Peel Hunt]

Clyde Lewis at Peel Hunt. Two, if I may. Jason, you touched on the 20 regional offices at the same time and talk about overheads, reviewing costs there. 450-470 units times the 20 regional offices gets you to that 9 to 94. Where are you thinking is the optimum size for a regional business these days? Certainly, given the bulk sales, given AI tools and other dynamics that have obviously helped the business. The second one was on the Future Homes Standard, and I suppose where are you in terms of that ramp up in terms of costs for building the new standards? How many years left have you got before you're at the full run rate? Also, I suppose, on the impact of timber frame, how much of a drag will that be around gross margin, given it's still typically more expensive than traditional build?

[Jason Honeyman, CEO at Bellway]

Yeah. I'd be guessing to talk about how AI is going to impact on my regional businesses. I look at 20 U.K. offices and think that feels about right as a nationwide footprint at the moment, and I measure it against 600 homes per division. There isn't a sweet spot. You can't say, "Look, we can do 600 in every office." If I've got a mature senior management team with good geography, I'm running 700, 800 out of that office. If I'm out in Norwich, the natural absorption rate is probably 300 or 400. It's a balance, but as an average, I take 600. I think my existing infrastructure gives me the ability to grow into those shoes as opposed to opening up more offices in the medium term. Future home standards. We're fully embedded in the system, costs fully provided.

[Jason Honeyman, CEO at Bellway]

It's been a long journey getting here to implement it all, but I have no concerns on that. I do worry that people are going to unwind it, after all the effort that's gone in to put it in place. Your final point is a good point on. We've put a lot of investment into closed panel timber frame systems, which trust me, Clyde, is the future of house building. Five years' time, closed panel, sealed units, wall construction. It's the answer, but it is a little bit more expensive.

[Jason Honeyman, CEO at Bellway]

Our investment now, we expect to get up to maybe 1,000 units this year. That's one shift. I can run that operation in three shifts. You know how I approach things. I'd prefer to get that one shift right before I start getting into the next one. We'll breathe success into that factory. It's a slight drag at the moment, but that's a good investment for the future.

[Analyst]

I'm going to nip in before you there, Chris.

[Jason Honeyman, CEO at Bellway]

Ladies first.

[Analyst]

Surprise. Actually, just two, that they probably have a couple of bits. Firstly, Shane, you target a pre-tax return on equity rather than return on capital employed. One would assume that's the top end of guidance in terms of your balance sheet leverage and land creditors. Is there anything else in there that differentiates that pre-tax return on equity from a return on capital employed? Then secondly, just in terms of that 10,000 units that you're sort of aiming for 2028, is that included in that what looks like about 20% of plots that need to be bought for 2028? Or would you need to step up going into the land market?

[Analyst]

Kind of the follow on from that, when you tell that to government, given where your completions have been previously, and they say, "Hold on, Jason, you used to do much more than that, and the ambition used to be substantially higher than that. What are the backlogs?" Do you feel there's something more that might come down the line in terms of planning? Because land availability, as well as confidence in terms of being able to sell, but land availability is clearly going to be very key.

[Jason Honeyman, CEO at Bellway]

You do ROE and onto-

[Shane Doherty, CFO at Bellway]

Yeah. The only reason we talk about ROE is a number of our regional chairs are here, and they will all remind me, they are all measured on return on capital employed, but we think it is right that we measure ourselves on return on equity. It is myself, Jason, and Simon's job to make sure we run an efficient balance sheet. I don't think you will ever see a situation where return on equity, Glynis, will be running materially ahead of return on capital employed. When we did the maths on that and we came with our capital allocation strategy, we said we were not going to be over-leveraged, so around a 5% gearing rate in overall terms, and it is nothing more complicated than that.

[Shane Doherty, CFO at Bellway]

Whatever operational efficiencies we are driving in the businesses, we want to make sure that that gets driven down into return on equity, because I think the industry has probably been guilty in the past of we have had margin degradation, and then we are all sitting on big cash balances, and that is a dilution to return on equity. You will not see that there. That is the promise that we are making, is that return on equity will never run lower materially than return on capital employed.

[Jason Honeyman, CEO at Bellway]

Glynis, 10,000 homes in 2028 is deliverable off owned and controlled rather than new land coming into the market. New land would feed into 2029 to deliver those numbers. I am reasonably confident that we can deliver that if the market is there. Why not help Your First Home deliver extra volume by 2028? If the scheme is up and running, let us go for it. Customers need it, government needs it, more social homes, we need it. We are certainly prepared for it. How do you drive more volumes, and will the government be interested? I am not sure. It is a little bit more guesswork. I personally think you need a better selling environment with lower mortgage rates to drive more volume. I think trying to squeeze it out of the planning system or your existing land bank is probably too hopeful.

[Jason Honeyman, CEO at Bellway]

You need a better selling environment, lower interest rates, and you will see the market free up a bit quicker. We are really forcing that volume at the moment, are not we? Let us be honest. We are throwing everything at the private market. We are doing bulk investor deals. We are encouraging housing associations. We are forcing it at the moment.

[Shane Doherty, CFO at Bellway]

It's at the back.

[Jason Honeyman, CEO at Bellway]

You're the last one.

[Chris Millington, Analyst at Deutsche Bank]

Yeah. Thank you. Chris Millington at Deutsche Bank.

[Jason Honeyman, CEO at Bellway]

Okay.

[Chris Millington, Analyst at Deutsche Bank]

Look, the first one I wanted to ask about is, how robust do you think the intake margins on land are? We often hear from people say it's coming in at 20%, 25%, and then we rarely see the output. I know there's headwinds there. Can you just give us some confidence as to what you're assuming on sales rates, what you're assuming on build cost contingency? Just give us a little bit more color. I'll go one at a time.

[Jason Honeyman, CEO at Bellway]

Okay. I'll start with that. I reckon our intake margins have moderated a little bit, Chris. You're quite right. Probably 21%, 22%, dependent upon planning and geography, those sorts of things. I do think they're fairly robust in the north of England because we can see the sales rate, we can see the prices. If you were to invest too much in the South of England, you've still got a bit of price erosion with build cost inflation, then your margins become a little bit flaky. That's why most of our investment is in the north of England. I can't be more specific than that, but it feels fairly robust at the moment in terms of where we're investing.

[Chris Millington, Analyst at Deutsche Bank]

Do you have more contingency on build cost than perhaps what you're used to, given the environment?

[Jason Honeyman, CEO at Bellway]

Yeah, certainly. We've got additional costs in there going forward, because we're mindful that prices could be flattish and there's still that nudge of energy inflation. Until we can see a clearer picture, I don't think we'll over-invest in land, Chris. We're just going to keep the hopper where it is and stay efficient.

[Shane Doherty, CFO at Bellway]

An extra layer of comfort on that is obviously when we update on where our margins are sitting across the tiers, we look at that bottom up around where sales rates are and everything else. Clearly, if we're in a trough, you'll take a view around what a halfway point is. Then equally, I think when Simon and Jason are buying land, they will put the business through the wringer then to say, "What have we learned maybe from land we've bought before and how should we be buying now in terms of is that actually going to give you the sales rate based on what we know is actually out there in the market?" So it changes your buyer behavior, and obviously, we update our margins then to reflect what we're seeing overall in the market balanced.

[Chris Millington, Analyst at Deutsche Bank]

That's helpful. Thank you. Affordable housing market. Can you just give us a comment about Section 106 and additionality, just how pricing and demand's faring?

[Jason Honeyman, CEO at Bellway]

Yeah. I guess I mention that because the past couple of years, there's been a struggle to get local authorities to invest. I think that's settled down now, so we're a little bit more relaxed on when we invest in land, Chris. We was getting to the point where if you had 40% of affordable on a site in Oxford that was greenfield site, we didn't know the value of 40% of the land. We couldn't buy the land unless you'd contracted with someone up front. That's settled down, that side of the market. The new funding round and the pressure from government into the RSL world has stabilized, pretty relaxed there.

[Chris Millington, Analyst at Deutsche Bank]

Sorry, last one. Would you go any further with vertical integration post the timber frame factory?

[Jason Honeyman, CEO at Bellway]

That's a debate I have with our Chair. I'm particularly interested to see year two of our timber frame facility, and whether we'd expand that approach into the South of England. You've got to be mindful of Clyde's comments on pressure on margins. It needs to be fed into the system rather than jump in with two feet. All eyes on it, but need to see how it unravels. Thank you.

[Ami Galla, Analyst at UBS]

Ami Galla from UBS. A few questions from me. The first one was on Your First Home and its impact on the sector. When you think about the land sites and the site layouts that you have in place, do we need replanning? When we think longer term of how this could shift the tenure mix in the sector, how do you think about that?

[Ami Galla, Analyst at UBS]

The second question, still early days, but on build cost inflation, what is your early read on how the supply chain is thinking into next year? Do we think that as the surcharges unwind, there could be quite a quick normalization to the build cost in the sector? The last one is on the strategic sites that are locked in planning, pending planning. What do you think is delaying the decision there? Is it just timing and resourcing, or are there some technical elements where, say, councils are not willing to come to a more definite terms, etc?

[Jason Honeyman, CEO at Bellway]

I'll do all three, Ami. I'm not brave enough to go and replan some of our sites. We've got quite a broad product range already, and we are affordable family homes in the main. We think a good part of our land bank is attractive to first-time buyers. Certainly, we'll take on board your comments on new land that we buy. I'm not going to change what I've got. I think we're quite well-placed as it is.

[Jason Honeyman, CEO at Bellway]

You're quite right. I love talking about my centralized approach to energy surcharges, and we have generally saved nearly GBP 20 million. If those diesel prices continue past the spring next year, we'll have to rethink that approach, because we have to share some of the costs with our subcontractors and suppliers. We can't burden them with it all. It's a balanced approach. I will come under pressure if that conflict is still going next spring. Your final question was on planning?

[Ami Galla, Analyst at UBS]

Strategic, the plots that are applied for planning, which are pending to an extent on the strategic land.

[Jason Honeyman, CEO at Bellway]

Sorry, the 20-

[Ami Galla, Analyst at UBS]

Essentially, in terms of planning delays and potentially the strategic-

[Jason Honeyman, CEO at Bellway]

The problems?

[Ami Galla, Analyst at UBS]

pending plan.

[Jason Honeyman, CEO at Bellway]

Yeah, I think it's volume. There's limited resources in local authorities to deal with planning applications. There's lots of developers and private companies with strong strategic land banks that are flooding the system with planning applications. That causes a log jam. That's point number one. The number of people that we consult to get planning, particularly on something large, is remarkable. If you ask 10 people, Ami, a question, you might get six of them to agree and four won't. It just creates time delays through the system.

[Jason Honeyman, CEO at Bellway]

I'm not complaining at the government. They're making an effort to improve things through the NPPF. There are still some local authorities that want to die in a ditch over a planning application, but most are dealing with it. I don't see it changing. I'm going back to Harry's point about would you shrink the land? Not really. I'm just not confident enough about the planning environment. It might get better, it might improve a bit more, but I don't see anything dramatic.

[Ami Galla, Analyst at UBS]

Thank you.

[Jason Honeyman, CEO at Bellway]

All done. Thank you very much for your time.

Participants

Executives

• Jason Honeyman, CEO
• Shane Doherty, CFO
• Simon Scougall, Chief Commercial Officer

Analysts

• Aynsley Lammin, Analyst at Investec
• Zaim Beekawa, Analyst at JPMorgan
• Lewis Roxburgh, Analyst at Goodbody
• Will Jones, Analyst at Rothschild & Co Redburn
• Harry Goad, Analyst at Berenberg
• Rebecca Parker, Analyst at Goldman Sachs
• Clyde Lewis, Analyst at Peel Hunt
• Analyst
• Chris Millington, Analyst at Deutsche Bank
• Ami Galla, Analyst at UBS