Bellway's interim margin halves - but still runs to 9%

Bellway reports that its profit margins have halved - down from 18% to 9% - as a result of  “extreme pressure” in the six months to the end of January.

In a trading update today Bellway has reported:

• sales of 2,000 homes (figure in six months to 31 January 2008: 3,300)
•  average selling price  £160,000 (figure in previous comparable period: £160,000)
• social housing mix up to 20% of total
• cash discounting, part exchange and shared equity used as incentives in virtually every private sale

Only by offering potential buyers a range of incentives did Bellway maintain a sales rate “in line with our expectations”.

And that explains the drop in the profit margin.

The house builder’s forward orderbook stands at £300m which is well down on the comparable figure of £580m at the same time a year ago.

Bellway adds an encouraging note saying: “Cost pressures have eased in recent months but the level of new development has slowed considerably. Cconsequently, these full benefits are not as yet being realised.”

Bellway isn’t quite out of the wood as regards write-downs to the value of its landbank and more could be needed – there will be further news on that score on 31 March when full interim results are published.

At present, the reduced divisional structure of 13 operating divisions has around 1,000 completed stock plots. These are being targeted to sell quickly to boost cash flow.

Land expenditure in the first six months represented 75% of the land creditors due in the year. That leaves Bellway with a minimal commitment for the second half of the financial year.

At present Bellway is not committing unconditionally to any new land purchases.

It reports that it is on target to reduce the year-on-year debt position at 31 July 2009 by around £100m to £120m.

Bellway states: “The group continues to operate well within its current committed banking facilities of £402m, which were negotiated and agreed in the second quarter of 2008 and extend out in annual tranches to 2015.”