Bellway profits slump on cost of building protection measures as housebuilder flags cooling demand
- Bellway achieved record sales on the back of rising private home completions
- But its earnings plummeted by 38% to £242.6m for the 12 months ending July
- In April, the Newcastle-based company signed up to the Building Safety Pledge
Profits at Bellway tumbled after the housebuilder agreed to a massive charge for building safety improvements.
Despite achieving record revenues on the back of rising private home completions, the FTSE 250 firm on Tuesday revealed profits plunged 38 per cent year-on-year to £242.6million in the 12 months ending July.
It booked a £346.2million expense related to fire remediation measures on buildings over 11 metres tall, constructed over the previous three decades, against just £51.8million during the last year.
Earnings: Despite achieving record revenues, the FTSE 250 firm revealed its profits plunged by 38 per cent year-on-year to £242.6million for the 12 months ending July
In April, the Newcastle-based company joined other major housing developers in signing up to the UK Government’s Building Safety Pledge, which was set up in response to the Grenfell Tower fire.
When discounting the cost of this commitment, Bellway’s underlying pre-tax profit was up 22.5 per cent to £650.4million thanks to the continued pandemic-induced demand for new homes among Britons.
The firm’s overall house completions surpassed targets, rising by 10.5 per cent to a record 11,200, with the growth in newly-constructed private properties far outpacing falling demand for social housing.
Average selling prices also increased by 2.6 per cent to £314,400 as record low interest rates and a temporary stamp duty holiday drove even higher prices in the UK housing market.
But the group forecasts average sale prices will decline to around £300,000 this financial year because it expects social housing to comprise a greater share of transactions.
Bellway’s results come amid signs of a slowdown in the property market, with figures released yesterday from the website Rightmove showing first-time buyer demand was about a fifth weaker in the first fortnight of October than last year.
Mortgage rates have also spiked in recent weeks following a widely-criticised ‘mini-budget from former Chancellor Kwasi Kwarteng, which included £45billion worth of unfunded tax cuts.
Though most of those measures have been reversed, swap rates – a common metric used to price mortgage deals – remain elevated, and lenders have introduced more expensive deals for customers.
The Bank of England is also set to hike interest rates further to try and dampen inflation, having already raised them on seven consecutive occasions since December 2021, when they were only 0.1 per cent.
Amidst this backdrop, bosses at Bellway forecast output will be ‘at a similar level to the prior year,’ although AJ Bell’s investment director, Russ Mould, said even this outlook ‘looks ambitious.’
He added: ‘Even if it achieves this, margins are likely to suffer as rising input costs are no longer masked by continuing house price inflation.
‘Bellway and other housebuilders have already had a horrible year in share price terms, so the question is just how much of this is priced in. The sector may remain out of fashion for as long as mortgage costs are on the rise.’
Bellway shares closed trading 2.2 per cent lower at £17.86 on Tuesday, meaning their value has declined by approximately 46 per cent over the past 12 months.