Bellway Aktie

Thank you. Good morning, and welcome to Bellway's half year results. As usual, I'm joined by Shane and Simon. We've lots of our senior management team also with us today. If I could take you to the first slide. We delivered a good first half performance despite a softer selling period through much of 2025. Half year volume increased to 4,700 homes. That delivered an operating margin of 10.5%. We have an order book of 4,400 homes and a strong land bank largely unchanged at 94,000 plots.

Now since the start of the calendar year, trading conditions have markedly improved with a notable pickup in both homebuyer interest and reservations. However, the ongoing conflict in the Middle East clearly has the potential to dampen customer demand and clearly increases the risk of higher inflation. That said, to date, we have not seen any material impact upon sales rates. And for FY '26, given our half year results and our order book, we remain on target to deliver operating profit in the region of GBP 320 million to GBP 330 million.

The full year is likely to deliver a higher volume than previous guidance with an operating margin similar to the half year. And while margin headwinds may well continue delivering higher volumes will certainly drive cash generation, and that very much supports our program to be more capital efficient.

I will provide the usual detail on ops and outlook later, but first, for our results and update on capital allocation with Shane.

Thank you, Jason, and good morning, everyone. As Jason said, we've delivered a robust performance in the first half despite ongoing challenges in our industry, supported by the order book at the start of the year and despite subdued trading throughout the autumn, volume output increased by 2.7% to 4,702 homes. There was growth in both private and social output and the proportion of social completions was in line with prior year at around 21%.

The ASP was up by 3.7% to just over GBP 322,000 and in line with expectations. The increase in the ASP was driven by geographic and mix changes with headline pricing remaining broadly stable.

Turning to gross margin. There was a 20 basis point reduction to 16.2%. This slight reduction reflects the benefit of higher-margin land in the mix, which was offset by incremental incentive usage, the absence of any HPI and low single-digit build cost inflation. These factors are also reflected in our order book and combined with the expected contribution of bulk sales in the second half, we currently expect gross margin in FY '26 to be similar to that achieved in the first half.

These margin dynamics, together with embedded cost inflation carried in our work in progress are likely to remain a headwind to margin, at least in the near term. And there are clear risks of potentially higher build cost inflation stemming from the ongoing conflict in the Middle East. We'll be in a better position to comment on the potential impact of FY '27 when we report in our June trading update.

Looking further ahead, we are working through our WIP balance and growing proportion of our output will benefit from newer high-margin land. With a stable market supported by a more favorable HPI BCI dynamic as seen in previous cycles, we are well positioned to drive ongoing improvements in our margin in future years. In line with our strategy to invest across the group to deliver greater efficiencies and long-term growth, the admin overhead increased to GBP 86 million, and the full year number is expected to be between GBP 170 million and GBP 175 million.

Our investments include our new timber frame factory, combined with strategic investments across IT and strength in commercial and finance teams, which means we now have the right structure in place to effectively deliver on all of our strategic priorities. We expect that, that level of increase will not repeat in future years, whilst obtaining operating leverage from it as we drive towards 10,000 units if market conditions improve into the medium term will obviously be a key focus also.

The effect of the increased overhead investment, together with the movement in gross margin led to a 50 basis point reduction in the underlying operating margin to 10.5%. Underlying PBT was slightly higher at GBP 151 million, and I'm pleased to report that the interim dividend has been increased by almost 10% to 23p per share.

This slide has covered the group's underlying performance. Adjusting items shown in more detail in the income statement in Appendix 1. These include GBP 300,000 to admin expenses relating to the previously announced CMA investigation. The other adjusting items relate to build safety, which I will cover later in the presentation.

Turning to our balance sheet. It is robust and well capitalized with a strong land bank and WIP position at its core foundation. These are key focus areas for our capital efficiency drive and critical to our plans for increasing cash generation. I will cover this in more detail shortly as part of our capital allocation strategy.

First, to highlight the key balance sheet movements, reflecting our largely land replacement only land strategy, the land balance of GBP 2.5 billion has reduced slightly by around GBP 38 million since the year-end. During the first half, we entered into new land contracts on deferred terms totaling around GBP 130 million, and settled line creditor payments of around GBP 180 million. This led to period-end land creditors of GBP 290 million, representing 12% of our land balance.

As previously guided, and as part of our strategy to run the business with a more efficient capital structure, there will likely be an increase in the use of land creditors over the medium term. The range is expected to be between 15% and 20% of land value, which is similar to historic norms. Jason will cover our land bank in more detail later.

The work in progress balance, which includes site WIP, show homes and part-exchange properties reduced by GBP 39 million to GBP 2.3 billion. Breaking that movement down into 3 component parts. Firstly, the value of show homes remained flat, reflecting our broadly stable outlet position. The value of part-exchange properties rose by just over GBP 20 million. Part-exchange is an important selling incentive for customers. And whilst its usage increased, it has remained disciplined and represents a relatively modest 6% of our completions.

Finally, site WIP reduced by GBP 61 million to just over GBP 2.1 billion. And this highlights some good early progress with our capital efficiency drive, which we spoke about to you in detail last October.

To finish on the balance sheet, as you will see from the bottom of the slide, our adjusted, our adjusted gearing, including land creditors, remains low at 10.3% and our net asset value per share has now risen to just over GBP 30. We've continued to make good progress on build safety, and I'm pleased to report that the overall provision remains broadly stable. With regards to movements in the provision, in addition to the GBP 6.5 million adjusting finance expense, which was in line with previous guidance, there was a very modest net increase of GBP 4.2 million in the build safety provision through cost of sales, which relates to the refinement of overall cost estimates.

We have now completed the terminations on all of our legacy buildings in England and Wales in accordance with the joint plan. Our provision is based on robust assumptions and prudent cost estimates for both internal and external works on the 457 buildings in scope for remediation. We have started our completed work on 172 buildings with the majority of spend expected by FY '30. We've spent GBP 212 million on legacy build safety since the start of the program, including GBP 21 million in the first half of FY '26. The strengthened team at our dedicated Build Safety division is focused on completing works as promptly and as efficiently as possible.

For FY '26, we continue to budget for total spend of over GBP 150 million, although I must caveat that this level of spend remains dependent on receiving requests for payment from the government for works carried out on our behalf for the build safety fund totaling around GBP 90 million. I think it's important to point out today that for prudence, our shareholder returns capital allocation modeling assumes significant disbursements around build safety over the next 3 years. The provision at the 31st of January '26 was GBP 507 million, and I'm confident that we are well provided for the remediation works required across the legacy portfolio.

In terms of recoveries, we've recognized GBP 81 million to date. We do, of course, continue to actively pursue further supply chain recoveries. But as these are not virtually certain at the balance sheet date, no additional reimbursements have been recognized.

Turning next, just to remind you of our priorities for capital allocation, which we covered in detail last October. In short, it is a flexible framework with our strong balance sheet and well-invested land bank as the foundations of the business, which support our balanced approach to continue to invest for growth and delivering enhanced returns for shareholders from increased cash conversion and generation. As part of our strategy, we are sharply focused on driving greater efficiencies and our WIP balance presents a significant opportunity for much greater cash generation, which I will cover next.

We generated good operating cash flow in the first half. The cash flow bridge chart shows the movement from a small net cash position to ending the period with modest net debt at GBP 72 million, in line with our plans to run a more efficient balance sheet and increase returns to shareholders. To run through our key movements, you can see the decrease in total WIP that I referenced earlier amounted to GBP 39 million.

In relation to land, the monetization of land through cost of sales was GBP 283 million. This was slightly lower than the cash spent on land and together with the movement in land creditors, this led to a GBP 38 million decrease in land on the balance sheet in the period. After other working capital movements and tax, the operating cash generated before investment in land, build safety spend and distributions to shareholders was GBP 314 million. As a result, the conversion of operating profit to adjusted operating cash flow was 2x.

As I highlighted in October, we are aiming to maintain the conversion level at a minimum of 2x over the 3 years to FY '28. As I've said previously, adjusted cash flow is the fuel for future investment opportunities in the business and ultimately, greater value creation and returns for our shareholders. In this regard, we invested GBP 302 million in land, including settlement of land creditors and dividend payments and share buybacks totaled GBP 105 million. We also spent GBP 21 million on build safety, which I referenced earlier. After taking account of all of these disbursements, we closed the half year with net debt at a modest GBP 72 million.

I will now cover our cash generation targets for the second half, which I think is important in the context of what we're discussing this morning and the tougher trading backdrop that may emerge, together with our longer-term ambitions in the context of driving shareholder value against this potential backdrop.

As I've said many times, driving WIP efficiency is a key area of focus across all of our 20 operating divisions and a significant opportunity for the group to deliver cash generation. We've increased our volume guidance for the year by between 100 and 300 units on our original volume guidance of 9,200 units. And the combination of this increased monetization with tighter controls around WIP spend will see us increasing our operating cash flow conversion targets significantly year-over-year.

As the chart shows, operating profit will grow by between GBP 20 million and GBP 30 million year-on-year in FY '26. But we expect operating cash flow will increase substantially more than that by between GBP 100 million and GBP 150 million year-on-year. This leaves the company in a strong position to drive future value for shareholders by continuing to drive volume appropriately against this tougher trading backdrop. This will provide greater opportunity to invest in more high-margin land and potentially returning more excess capital to shareholders.

Overall, we are targeting adjusted operating cash flow of between GBP 750 million and GBP 800 million for the full year. Looking beyond FY '26, we have a greater proportion of units at an advanced stage of build than a couple of years ago, which should support a faster monetization of our WIP balance. This drive for improvements in WIP turn and to lower our WIP balance will enhance asset turn and support cash generation. This will help fund our build safety disbursements, further land investment and returns for shareholders.

We'll maintain our underlying dividend cover of 2.5x, and this will be supplemented by returns of excess capital. In this regard, we are making good progress on our GBP 150 million share buyback launched in October with around GBP 64 million completed so far, and we have a clear intention of returning excess capital in future years.

To finish my section, a summary of guidance for FY '26. We, of course, recognize the risks to inflation and customer demand from the ongoing situation in the Middle East. Notwithstanding this and supported by a robust first half and our current order book, we are well placed to deliver FY '26 underlying operating profit in the range of GBP 320 million to GBP 330 million.

So for guidance, we are targeting volume of between 9,300 and 9,500 homes, the final outcome of which is dependent on completions from our bulk sales pipeline. The average selling price will be around GBP 325,000 with the increase over FY '25 driven by mix. It's important to point out when we give that guidance, we are not in any way giving that guidance in the context of any potential negative impacts that it might have on FY '27. It's all based on the strong work that we've been doing, monetizing our WIP and broadening the pipeline of opportunities that we see both in private sales and potential bulk sales.

The admin overhead will be between GBP 170 million and GBP 175 million. We currently expect the operating margin to be similar to the first half level at around 10.5%. The finance expense will be around GBP 20 million, and adjusted operating cash flow is expected to be strongly ahead of prior year at between GBP 750 million and GBP 800 million. Finally, land spend is expected to be in the region of GBP 500 million to GBP 600 million, reflecting our largely replacement-only land strategy. Despite the headwinds facing our industry, I'm confident that our self-help and drive for capital efficiency will mitigate the impact on our strategy to increase cash generation and value for shareholder returns.

I'll now pass back to Jason, who will cover the operational review and outlook.

Thank you, Shane. But now for trading. In the first half, we achieved a private sales rate of 0.47 with January being our strongest month at 0.6, and that momentum has continued to build into the start of the spring selling season. With regard to the mortgage market, improved affordability and changes to lending criteria have both contributed to those better trading conditions. That said, recent increases in mortgage rates due to the events in the Middle East clearly has the potential to impact upon future demand. And that brings me on to current trading. In the first 6 weeks since the 1st of February, we have achieved a private sales rate of 0.66 and bulk sales made an additional but modest contribution of 57 homes.

And from a geographical and mix point of view, the picture hasn't really changed much with Scotland, the North of England and the Midlands all remaining stronger than the South. But those regional differences are quite pronounced with Midlands and upwards all delivering a strong sales rate of around 0.75, significantly higher than the 0.5 being achieved in the South. Headline pricing remains firm, although incentives are full at 5%. And we find that prices for houses are more robust or more resilient than those for flats.

And as I referenced in my introduction, the last 2 weeks of our current trading period have coincided with the conflict in the Middle East. Both of those weeks have delivered a consistent sales rate of 0.65 or the equivalent of 155 private homes per week. We continue to progress bulk sales to support both this year and next. We are over 85% sold for FY '26, hold an order book of over GBP 1.5 billion or 5,300 homes as at the 13th of March.

The next slide shows our land bank totaling some 94,000 plots, half of which are owned and controlled and half are strategic. Now I'm happy with the size and the shape of the land bank. It supports our short-term growth ambitions. We are still buying land but with caution. In the period, we contracted on 4,700 plots across 15 sites including 1 site in Scotland for 1,900 homes that was converted from our strat pipeline. And strategic land continues to play an important role in our growth ambitions. Within this financial year, we will have 80 strat planning applications or around 17,000 plots in the system. And to put that into context, that has increased threefold in just 2 years. And that is a significant change in our business. And these strat plots will support both margin recovery and outlet numbers from FY '28 onwards.

Overall, we have detailed planning consent on over 95% of our plots to meet our volume for FY '27. And as a consequence, we've got good visibility on outlets. We're on target to open 55 outlets this year and a further 55 to 60 next year. And we expect average outlet numbers to hold at around 240 for both this year and the next with growth up to 250 in FY '28. With regard to planning, I would describe planning reform as positive rather than perfect. Overall, and outside of London, the planning environment is generally supportive.

Moving on to costs. Overall, cost inflation remains modest at around 1% or 2% and we currently have no issues with regard to availability, either labor or materials. That said, we are very mindful of the heightened inflationary risk caused by the events in the Middle East. And as a consequence, our focus on being more cost efficient seems ever more relevant today. And I'll give you a few examples of our approach to saving costs to support margin.

Firstly, we intend to phase out the Ashberry brand as it is proving too expensive to fund a separate brand to sell just 9% or 10% of our volume. We plan to adopt a single brand approach that will play on our 80-year history. It will be clearer to the customer, a digital-first approach, less expensive and without any overall impact upon outlet numbers.

Secondly, we will shortly launch our new house type range, the Bellway Collection, which has been designed to be timber-frame friendly. And by that, I mean, optimize panel widths and ceiling heights to improve both speed and efficiency and also reduce waste in the process. And with our new house type range, our single brand approach, we have the perfect platform to personalize homes and offer extras and additions on a much greater scale to drive incremental revenue and profit growth.

And thirdly, we successfully opened our timber frame facility, Bellway Home Space back in January. And we have already started delivering timber kits to our divisions. Our investment in technology that supports Category 2 closed panel systems is hugely important as I firmly believe that Cat 2 is a key part of the future of housebuilding.

And one final point before outlook, build quality and customer service. I'm pleased to report that we are rated as a 5-star housebuilder for the 10th consecutive year. But more important is our position with HBF's new scoring system, which has been designed to be more challenging. Housebuilders are now measured by their customers at both 8-week and 9-month intervals and based upon both quality and service. Bellway have achieved an overall score of 4.38, the highest of any national listed housebuilder, a phenomenal effort by our ops teams and a direct result of their hard work.

And finally, outlook. We're on track to deliver a volume of 9,300 to 9,500 homes. As you've heard from Shane, regardless of the wider backdrop, we have a sharp focus on improving cash generation, and we expect to deliver a significant increase in operating cash flow this year. And should we find ourselves in a prolonged turbulent period. Our business is in good shape. We have a flexible capital allocation framework and a strong and experienced management team and are well able to navigate our way through any challenges. Thank you. Now happy to take questions.

Allison from Bank of America. Two questions from my side. So first, if the -- let's assume the market activity will be muted given all the impact. Are you guys ready to give out more incentives or not? I think are we expecting maybe incentives will go beyond 5% for the rest of this year?

And the second question is what type -- what kind of inflation assumption you put in your fire safety remediation work?

Sorry, I didn't get the second question.

The inflation assumption you have for the fire safety remediation work.

So I'll take the first and you take the second. With regard to incentives, it was our intention at the start of the year to tighten up that incentive level to support margin growth into '27. Today, that looks a little bit too optimistic. But no, I don't have any plans to increase incentives. They're at a level that we're happy with, and we're delivering a sales rate that we're quite comfortable with. Can I hand over to you?

Yes, 3% on the inflation, [ build ] safety.

Aynsley Lammin from Investec. Just two for me, please. Just trying to understand the change in guidance a bit more, more volume and obviously less margin. Is that driven by kind of changing view of the market, what you expect going forward? Or is it just more opportunities to do some bulk sales and you can release some of that WIP? Any color around that would be quite interesting. First question.

And then just on the second question, I guess, a bit more color again last couple of weeks, have you seen any change in cancellation rates, the vibe on the ground in terms of the sales rates? Is it kind of beginning to feed through in confidence what we're seeing in the mortgage market?

Thanks, Aynsley. Shall I'll start with the last question and I'll hand back to you. No, sales rates, Aynsley, have held up and likely to hold up through March. And when I think about it in a little detail, it's probably not too much of a surprise. If you're planning to buy a home now, you probably made a decision a month or 2 ago, and you've already got the benefit of a mortgage offer, which probably looks quite good value Aynsley at the moment. So no -- we've seen no immediate impact.

And I think our buyers and customers in the market have got a little bit of crisis fatigue. We've been through Brexit and pandemics and Ukraine and Middle East. So there's a bit more resilience amongst our buyers. But I would expect that sales rates to soften into April, not now because you'll see the impact of the margin increase. And I don't think it will be material. I just think it will dampen a little bit. And all that's caveated to what's going on in the Middle East. But you'll probably see a softening into April, but not significant.

Yes. In terms of the guidance, it's probably along the lines and what we flagged when we came out in early February. It's very much probably reflective of what we were seeing in the first half of the year. It's probably easy enough to forget that now because I like the crisis fatigue. That's what it feels at the minute. But the run-up to the budget was a difficult time for everyone. And what we did in the run-up to the budget was we traded appropriately in relation to the value creation thesis that we set out last October, which is that we will drive pricing as appropriately as we need to. But sales rates in the run-up to Christmas were less than 0.5% across the sector.

So what you're seeing is the margin uptick that we're seeing coming through is really just reflective of the fact that with good visibility with good forward order book coming into the year, sales rates have picked up. And whilst the kind of 50 basis point margin reduction seems quite significant, those margin reductions become exaggerated, unfortunately, in a market like this where there is very little HPI for the reasons that Jason has outlined and you have kind of BCI running even at 1% or 2%, that is going to hit you to the tune of about 50 basis points on your margin. So that's all you're talking about. It's probably GBP 2,000 per unit in overall terms. It's a pretty small number.

The market has picked up quite significantly in the early part of this year across all of our divisions. And if that sales rate was to maintain, I think it's important to make that point, notwithstanding the caveat we put around the emergent situation, that sales rate was to hold at kind of 0.65. We will be looking at a kind of -- we never gave formal guidance into next year, but we did talk about the fact that we were going to get to 10,000 units. So if you storyboard that from the original guidance that we gave, 9,200, 96,000, maybe 10,000, we would have assumed off the current sales rates that we would still be forward sold to the tune of probably 35% of getting to a 9,000, so a flattish volume next year, notwithstanding the emergent situation.

So that volume uptick that we're seeing is not at the expense of the overlying market growth opportunity that's still there. And it's very easy to kind of talk yourself into a doom loop because of what might happen at the moment. But the broad reality is as you look out beyond maybe whether it's the end of this year or beyond next year, the demand-supply imbalance still holds. Jason talked about the strat land margin coming through. There will be good, strong underlying margin progression coming through our business. And we've got good volume opportunity, and we've got 20 outlets. So really, what you're seeing at the moment is just us trading appropriate through what has been a challenging environment and emerging from that with little debt and the ability to return capital to shareholders.

Zaim Beekawa, JPMorgan. The first is just to come back on the incentives. Can you give some indication on the cash, noncash portion? And then secondly, in light of the mortgage volatility you sort of alluded to and potential impact, what's your view on your own shared equity scheme like some of your peers? And then third, if I could go on the bulk sales, sort of any indication on the discount on those bulk sales compared to maybe a year ago or 6 months ago?

Should I start with?

Yes.

Sorry, on incentives, it's mostly cash and some additions. I did want to set out a chart to show you the regional differences across -- because you can understand there's probably more in the South than there is in the North at the moment. But nothing surprising in what you see regarding incentives.

And in terms of -- shall I do shared equity products. We don't think they're a big part of the market. I get a little bit frustrated because they can confuse customers when you've got a whole series of schemes across the industry. And I've always preferred a housing association on something government backed that people can trust and look into. So we look at it and watch with interest to see if that market moves, but I've got no ambition to bring out a bespoke shared equity product at the moment. Sales are good enough.

What I'd say in relation to bulk is -- I'm not trying to dock the answer. What we do is we tend to take an NPV approach to bulk pricing, and that's kind of using a 10% hurdle rate because whilst you may need to reduce your baseline pricing, you will find savings in other areas, not least your sales costs will be lower and also your running cost as a site can be lower as well, and you may have forward funding opportunities.

So looking at it through all those lenses, when we baseline that against private pricing and sales rates and if it has -- and using a hurdle rate of 10%, if that's NPV accretive, then we'll go after that deal. What I'd say in broader macro terms in terms of buyer appetite, it's a lot stronger now than it was 12 months ago, insofar as a lot of the indicative pricing that probably was coming back 12 months ago was reflective of where interest rates were, and you could be looking at maybe 20% discounts on pricing, which is not something that we'd be interested in.

But certainly -- and it's not reflected in the numbers at the moment, but it's certainly reflected in our pipeline of opportunities. The gentleman sitting in front of you there is actually living and breathing it at the moment, the 2 actually. We've got a significant pipeline of bulk opportunities, and we'd be confident that we'll see some of that coming through between now and year-end.

Can I just add to that? So there's lots of questions here about incentives. But from a bulk point of view, we did about 600 homes last year. This year, we'll probably do something similar. It's not a major part of our business. And incentives across the board, we've got a strong order book. Our sales rates are good. We were very well organized as we come out into January in the new year. So we've maximized what opportunity is there in the market. And I've got no intention to start discounting properties and being desperate. We can make good decisions. We're in a good place. So I think we're fine at the moment.

Will Jones from Rothschild & Co Redburn. Three as well, please. First, around build costs, if that's okay. Just what you've heard from manufacturers since Iran kicked off, visibility you've got generally and whether you have any framing of how you might look at your build cost basket in an energy context, any sensitivities around that?

Second, on the balance sheet and the returns, helpful guidance on the operating cash flow for the full year. Do you have any view at the moment as to how that might shake out, net cash net debt, please? And when you think about the ongoing buyback, hopefully, beyond the current year, how would you think about the sensitivity of that to -- broadly speaking, to a lower profit environment if it came through?

Or do you think that actually continuing to optimize the assets would mean that, that buyback can carry on? And then the last one just around Ashberry, just a reflection there. What, I guess, proved different to your expectation to make it too expensive? And any implications do you think on sales rates as that winds down?

Okay. I'll pick up build cost in Ashberry and I'll hand back to Shane, Will, if that's okay. On build costs, most of our supplier agreements are fixed from the start of '26 and generally last for around 12 months. If it gets really bad, Will, that counts for nothing. We know that we've been through the pandemic. All we've seen to date is lots of suppliers asking for increased delivery charges, haulage costs, fuel surcharges, those sorts of things, which is all manageable.

What has got our interest is where you've got high energy-dependent materials such as bricks, blocks, concrete chips and those sorts of things. So that's where we'll keep an eye on to see if there's any movement there. And like everyone, Will, we look every morning for a quick resolution to the problems in the Middle East to hope they don't transpire, but time will tell. So at the moment, mostly delivery and haulage costs is what's coming our way.

And on Ashberry, we did a thorough review of our brands. And I don't want to suggest for a moment that a one-brand approach is better than a multi-brand approach, but it certainly is for Bellway because Ashberry, after our research, our customers were confused with the product. And some people in this room used to get confused when you ask me about what is Ashberry and what does it do?

And I found that Ashberry was confusing our customers because it was asking for or selling the same product on the same site, and it was more expensive. So we decided to refresh that Bellway brand. We're going to offer 3 tiers of specification going up to Bellway premium. It's going to be very digital focused, both in our sales offices and on the Internet. And we think we'll make savings and be less confusing to our customers and deliver the dual outlets where we can. And you must remember, Will, we don't have lots of large sites. We've got handfuls of them where we can offer a dual outlet without making any sort of serious impact on outlet numbers.

So in terms of net debt, I mean, I anticipate at the moment, like it's probably worth just saying stripping out the build safety component, if I just assume that's constant, even though I expect that might come in slightly lower, even allowing for that, I think our net debt figure is probably going to be in the region of GBP 100 million, GBP 120 million type range between now and year-end. And that would probably see the buyback running at probably close to maybe GBP 100 million, GBP 120 million by year-end as well. So you have a decent clip of that coming through within that. So we're in good shape from a cash perspective.

The only thing, as I say, Will, I could bring that down would be if the build safety spend is lower. But I think it's important to talk about it in the context of it being at normal run rate. So I think that gives us a lot of confidence in terms of the fact that the capital allocation strategy is working against the backdrop of kind of 2 tough economic events running in the background and lower margins, we're still throwing off cash, and that is the underlying strategy going forward. We'll have plenty of cash to buy land. We'll buy land probably -- I won't quite say on a net replacement basis. We may make some incremental investment if we do it, though, it's because it's a compelling opportunity.

So we'll be very much focused on the returns to shareholders, I think, in the context of the cash that we'll continue to generate. And the fact that we've identified between 100 and 300 units this year, that's effectively ring-fenced upside from an operating cash perspective, even if it's not necessarily coming through on profitability. But as we all know, the share price is trading at a fundamental discount at the moment to what its net asset value is. And we look at our strat land opportunity. We look at the land margin upside that's coming through. And so it's very compelling for us to continue to look at buyback opportunities in that context.

I'm Rebecca Parker from Goldman Sachs. Just 2 questions. In terms of your outlet opening program, just wondering if you could talk to a bit around why you're expecting, I guess, outlets to be flat into '27. And I think the guidance for '28 has slipped by about 10 outlets there. And then secondly, on that increased proportion of higher margin land coming through, when do you expect that contribution to have more of a material impact? Is that more into 2028? Or can we start to see that come through in '27?

Rebecca, I'll start on outlet numbers. The growth -- let's start with '28, we'll go back to '27. So the growth is a product of our strat land coming through the system. Those 17,000 plots. So if that comes good, we'll get a natural increase in outlet numbers. Outlets are flat this year and next, probably because we had a big jump back in '23, '24, where we opened 80 outlets in 1 financial year. And we've just been buying replacement land. So it's difficult to see how we can grow outlets without that strike coming through. So we've held them flat.

And then as long as we get a decent run through the strat planning system, then we're likely to see a little bit of growth again.

In terms of margin progression, again, it's probably easier to talk about that in the context of how we were planning this before. And we have to take note of what we're hearing at the moment in terms of all the stagflation risks that are there in terms of potential BCI risk and interest rates going up. But we know that, that can also change quickly. So therefore, I think to answer your question most effectively, it's probably worth just talking about what the underlying margin upside that we were seeing coming through on the land bank.

So in simple terms, gross margin this year is going to be around 16.3%. We had in our head that, that could be probably getting up to 18%, maybe even 18.5% over the next 2.5 years as you get to FY '28. So you would have been looking at margin progression of probably 17% and then 18%. And I think the big question, Rebecca, that we're all asking is what impact is that 17% now coming under as a result of what's happening globally.

I think the comfort that you can take today is that hedging, it seems to be order the day at the moment. Everyone is talking about hedging in the context of BCI and stuff like that. I think our land margin uptick that you're seeing coming through is an effective hedge for what's potentially coming down the track in terms of higher interest rates and potentially higher costs. So that's the most effective way I can answer that question at the moment for you.

Can I -- sorry, Rebecca, can I just add to that because we've taken a more sober view of the outlook. We take the view that even if the war stops in the morning, there's still going to be a ripple of cost inflation in the system. That's already in existence. It's unlikely that the trading environment is going to change from a deal led market. So there's no house price inflation in the market. So we've just taken a more cautious realistic view of what's happening in the world. And then we see margin progression probably feeding through back end of '27 into '28. That's a sensible view to take today.

Alastair Stewart from Progressive. A couple of questions, please. First, in terms of the trading over the last 2 or 3 weeks, I think we're on week 4 now from what I hear. But in terms of that, you've been clear in terms of the weekly sales rates been holding up. But in terms of anecdote from sites, if there is any reticence anywhere among your potential buyers, is there a trend? Is it more traders up are more comfortable than the first-time buyers? And is there a regional disparity in terms of comfort about the situation? That's the first question.

In terms of the second, it's more of a sector-wide question. You're chasing the supply chain for recoveries. Everybody says that. But in terms of the bigger picture, are you and other housebuilders chasing -- do you see more upside in terms of recoveries from, say, big materials groups who have strong balance sheets, but also very strong lawyers? Or is it from the supply chain that probably have very little legal status, but no balance sheet to depend on really?

I'm just going to start recoveries with Simon, who can talk -- turn around without a microphone it would be fine.

Hear me now? That's better. So it's aimed at not just the supply base and their insurance, of course, it is also aimed at the larger suppliers and manufacturers. So we're very actively considering our options there. And there's quite a bit going in that space. I can't say any more at this moment in time, but we are very determined to secure as much recoveries as we can from as wide a pool as possible.

But just if you had to take one side of the divide, the big guys, the small guys, who do you think you've got most chance to get?

Well, it's a real mixed bag because even the small guys as it were, we're looking at them from their insurance position. So it's big guys behind them. So it's a real wide pool that we're looking at. But just to reassure, there's lots going on in that area.

And I'll come back to your trading point, Alastair. And I'm not sure I was surprised, but there's certainly resilience amongst our buyers because they have got crisis fatigue. It seems to be -- it's just too often, but I'm not naive enough to think it won't come and get them in the end, but everyone is very sensitive to the news at the moment. So I certainly think that March will continue with -- until we get to the end of March, there will be some decent sales rates we'll deliver.

And there's new spring buyers coming to the market, there may be a little more caution where people take the view, well, I might just wait for this war to end because mortgage offers are going to -- mortgage rates are going to come down. So there will be more caution in the market. I don't think significant, but I think it will just take the gloss off the very good sales rates that people in this room have been delivering so far this year.

Chris Millington, Deutsche. First one, just following on what you just said there, Jason. If we're going to see a slowdown in April, do you think you would have seen anything in inquiries, visitor levels? Is anything happening to that extent at the moment? Well, let's go one at a time.

Yes. We've just noticed visitor rates slowed down this week, which leads me to think that's not inquiries. It's what passing traffic. So serious buyers are still there, Chris. So just starting to moderate. And when you say sales start to slow down, I don't think we're going to move back to 2025. I just think the gloss will come off ourselves. We've been working quite hard to deliver that sales rate. But it seems to me it's a little bit inevitable unless something changes in the news, Chris, in the short term. That's my view.

Next one is about buying land. I mean as you say, you're on replacement, but you're still expending a lot of money. How do you deal with kind of the price cost inputs when you're going through trying to work out whether or not you should be committing to this stuff in times like this?

I think that's a very good point. And last October, I spoke to you about we're going to adopt a replacement-only policy, Chris, for land because that was going to help Shane's capital efficiency program. I'm not sure we'll ever do that this year. That's the level of caution. And you're quite right, until I can understand what that ripple of cost inflation that is almost inevitable going to come into the market, it's probably best to buy as little as possible or just the good deals that you've got on the table. That's probably my approach.

Sorry, I've got 2 more, but one is pretty quick. Affordable. Any sign that market is starting to wake up at all? Or is it still pretty?

Yes, murmuring. And certainly, the new grant round that comes into play now and next month has got the housing associations more active. I mean we'd like to materially move that market and start delivering more affordable homes and get building, Chris. But it's moving better. It was stuck. It's now got some life in it.

And sorry, my last one. Just about this land bank evolution. You've hopefully given that slide about pre-'24 plots, post '24 plots. Perhaps you can give us a little bit of help with the margins in each category or just talk around kind of what benefit that would have given you.

Well what I was going to do in -- I might get Simon to do a presentation to you on strat land in October, so we can show in a bit more detail. But sometimes on strat land, there's lots of hope. So I'd like to see those 17,000 plots come through the system. So that crystallizes the land value and the margins, Chris. So certainly, it's margin accretive. I'm not sure we can spell out today what that all means. Can you add anything on that, Shane?

Simon, do you want to?

I'll add one quick one there. Back to the margin point that Jason was talking about. Strat land obviously has the benefit to us because you get a discount to market value in the option terms we agree. But the other benefit is that we're not agreeing land value until we've got planning permission, a detailed planning permission. So half of our land bank there hasn't got a land value yet ascertained, which clearly benefits from what we're talking about with the risk in Middle East and build cost inflation, et cetera. We'll agree a price relevance at the time. So it would be better margin protection as well as a consequence of that.

Charlie Campbell at Stifel. Just one actually, just on the WIP and obviously, well plans in place to reduce that. And as you said, you've made good progress. Does that get more difficult in a slower sales environment where buyers are more choosy, more careful and maybe want to see more finished stock on the ground. Just wonder how you juggle the WIP reduction in a more difficult market.

Can I start? May be you can look at the headlines. Yes. We put the properties on the market, Charlie, that are more advanced. So that's what's for sale. So we're not particularly selling anything other than stock. So we engineer what we sell on those sites. And I wouldn't describe today's market as bad. A selling rate in 2/3 of the U.K. at 0.75. It's not bad at all. It's in the South of England and the Southwest of England, where we're probably a little bit more sensitive to the investment in WIP and sales rate. Are you okay to talk about the headline numbers, please, Shane?

Yes. Well, I mean, I think you've probably answered the bulk of the question insofar as, look, clearly, there's a volume correlation in terms of how many units you're selling. That's the tightest control you can have around WIP. But we have put a lot of hygiene -- additional hygiene controls in place around WIP spend in itself as well. So clearly, if we're in a situation where unit output wasn't where we anticipate it's going to be next year, that would actually have an impact on with monetization.

But we are well set up to manage our WIP spend proactively in relation to that. And we can see that in terms of KPIs that we have in place around a number of foundations, number of unreserved production. All of those percentages are substantially lower than where they were a couple of years ago. So if we maintain those at that level and run our business that way, you will see a commensurate reduction in WIP spend vis-a-vis what you're monetizing. But clearly, the opportunity to get to 10,000 units and doing that without overspending on WIP is where the significant cash monetization opportunity is.

A few from me, if possible. So Kate Middleton, Panmure Liberum. The first one is just on timber frames and vertical integration. So just wondering how many of the business units are currently utilizing timber frames and whether the rollout is phased or more discretionary and perhaps how that will link in with the new house types that you're bringing in?

The second is on cancellation rates and if you've seen any movement on those since the beginning of this year? And just finally, I know you've alluded to no real house price inflation, but just wondering whether on a regional perspective, you're seeing any underlying variation in ASPs at all?

Okay. I'll do those. On timber frame, we've started on our journey, and we've got 7 divisions out of 21 feeding into our facility. And we'll -- until we get up to speed and more proficient at it, we'll keep it with just those 7 surrounding the factory. The next step for us was to scale it up within the factory, work 2 or 3 shifts in a day and possibly in the future, build another factory somewhere else in the U.K. That's our thoughts.

In terms of cancellations, we've not seen anything yet. Who knows what's going to happen in the month of April? I certainly don't. And sorry, your third question was on.

Whether you're seeing any regional underlying movements in ASPs?

No, we haven't. You always get a good site that's selling really well that you might be a bit braver on. I think the market is sensitive. It's deal led. Our next step won't be to push house prices. It will be to reduce incentives, which is sort of the same thing, but you're keeping your headline the same. So it will be in those better selling areas in Scotland and the North of England, we've discussed as a team, should we reduce incentives down to 2%, for instance. I'm not quite brave enough to do that just yet, but maybe across the spring, early summer. Is that okay?

All done? Thank you very much, indeed. Thank you.

Thank you.

Good morning, and welcome to Bellway's full year results.

I'm joined by Shane. Simon is with us, too, here in the front row.

If I could take you to the first slide, just to set the scene. We had a good performance last year. Volume was up by over 14% to 8,749 homes. Operating margin increased to 10.9%, and that drove a strong increase in operating profit to GBP 303 million. And you can see that we are well positioned with land and outlets for FY '26.

Now along with our usual financial and operational detail today, Shane will also set out our new capital allocation framework, which is central to our approach to drive assets harder in a more challenging environment.

But firstly, I think it's important to provide some context with regard to recent trading. Trading, since the start of April, has been slower and never really recovered from the levels that we enjoyed in Q1 of this calendar year. Sales rates over the past 6 months have tended to hover between 0.5 and 0.6 per outlet. That said, the order book is still in good shape. We're well placed to have both a decent half year and achieve our full year guided volume of 9,200 homes.

And to complement that growth, there is further opportunity for the business. We have a sharper focus on return on capital employed and being more capital efficient. And regardless of that trading backdrop, given our well-invested land bank and WIP position, Bellway have the ability to increase cash generation and returns to our shareholders. And our confidence is reflected in our announcement today to commence a share buyback starting with an initial GBP 150 million.

In summary, I would describe our business as being very robust and well placed. But we must be mindful of the softer market conditions. And if the government are serious about growth and delivering more homes in this parliament, then that ambition needs to be reflected in the November budget.

Now I will provide more detail on ops and outlook later. But first, our financial results and capital allocation framework with Shane.

Thank you, Jason, and good morning, everyone. I'll start with the finance review.

As Jason said, we've delivered a good financial performance in FY '25 despite ongoing challenges for our industry. The combination of our healthy order book at the start of the year and the improvement in reservation rates supported a 14.3% increase in volume output to 8,749 homes. That growth was driven predominantly by private output, which was up by 20.3% to 6,924 homes. Social output was 3.7% lower at 1,825 homes as the proportion of social completions reduced to a more normalized level at around 21%. The ASP was up by 2.8% to 316,000, and that was in line with expectations. The increase in ASP was driven by geographic and mix changes with underlying pricing remaining broadly firm.

Turning then to gross margin. There was some modest progress here with a 40 basis point increase to 16.4%. Whilst we had the benefit of some higher margin land in the mix, this was partly offset by the absence of any HPI and ongoing low single-digit spot cost inflation. We also have higher embedded cost inflation in our WIP, which remains a headwind to margin in the nearer term. And this is reflected in our order book, and we currently expect gross margin progress in FY '26 to be similar to that achieved in FY '25.

Looking further ahead with our planned volume output growth, we're working through our WIP balance and a growing proportion of output will benefit from newer higher-margin land. With a stable market supported by a more favorable HPI BCI dynamic as seen in previous cycles, we are well positioned to drive ongoing improvements in our margin in future years. The increase in volume output and revenue drove an improvement in overhead recovery of roughly 50 basis points. This, together with the higher gross margin, led to the improvement in underlying operating margin to 10.9%, which was in line with expectations. Underlying PBT was 27.9% higher at GBP 289 million, which drove the strong increase in the proposed full year dividend to 70p per share.

This slide has covered the group's underlying performance. Adjusting items are shown in more detail in the income statement in Appendix 1. These include an adjusting item of GBP 15.4 million through admin expenses relating to the previously announced CMA investigation, comprising both our voluntary contribution and legal expenses. The other adjusting items relate to build safety, which I'll cover later in the presentation.

Turning then to our balance sheet. We have a very well robust capitalized balance sheet. And at its foundation, we have a high-quality land bank and a very strong WIP position to support our plans for multiyear growth and increasing cash generation, which I will cover shortly as part of our capital allocation framework. To highlight the key balance sheet movements, firstly, the increase in fixed assets primarily relates to our investment in our new timber factory facility -- timber frame facility. Given that relatively stable market backdrop, our land investment has started to normalize from the lower levels in the previous 2 years.

During FY '25, our overall land balance has risen by roughly 3% to GBP 2.5 billion. This increase in land activity is also reflected by the land creditor balance rising to GBP 338 million, although this remains modest overall and represents only 13% of our overall land balance. Jason will cover that in more detail later when he talks about the land bank.

The work-in-progress balance, which includes site WIP, show homes and part-exchange properties, rose by GBP 52 million, roughly 2% to just over GBP 2.3 billion. This slight increase was primarily due to spend on our ongoing strong outlet opening program. And to finish on the balance sheet, as you'll see from the bottom of the slide, on our adjusted gearing, and I think this is particularly relevant when we talk about capital allocation later and how we utilize that. Our gearing remains low at 8.3%, including land creditors. And quickly, our NAV per share has risen to GBP 29.89.

Turning then to cash flow, and you'll hear a lot of this throughout this presentation this morning. We generated good operating cash flow, and we ended the year with net cash of GBP 42 million. The chart shows a small increase in site WIP I referenced earlier, amounting to GBP 41 million. In relation to land, the monetization of land through cost of sales was GBP 521 million. Whilst this was higher than the cash spend on land as part of our drive -- to drive a more efficient capital structure, our increased use of land creditors towards a more normal level, as shown on the previous slide, helped to fund the GBP 70 million increase in the land balance in the year.

After other working capital movements and tax, the operating cash generated before investment in land, build safety spend and distributions to shareholders was GBP 639 million. This represents a 50% increase in operating cash flow on FY '24. Again, I think that's a theme that we will come back to when we talk to capital allocation, strong year-on-year growth, primarily driven by better discipline around WIP investment. When in FY '24, there was a net cash outflow over the same period of GBP 260 million. As a result, the conversion of operating profit to operating cash flow has risen from about 1.8x to 2.1x, and I'll provide more detail on our ambitions in this area later.

Adjusted operating cash flow is the fuel for future investment opportunities for the business and ultimately greater value creation and returns for shareholders. In this regard, we invested GBP 472 million in land, including settlement of land creditors and dividend payments totaling GBP 70 million. We also spent GBP 45 million on build safety, which I'll cover now. Overall, we've made good progress on build safety during the year.

With regards to movements in the provision, in addition to the GBP 14 million adjusting finance expense, which was in line with previous guidance, there was a net increase of GBP 37.4 million in the build safety provision.

I'll now cover the components of and the drivers behind the GBP 37.4 million, starting with the SRT. In December '24, following a period of industry-wide delays in obtaining building access licenses, housebuilders and the government committed to working together through a joint plan to accelerate assessments and remediation. We have now completed 100% of assessments in accordance with the joint plan for all of our legacy buildings in England and in Wales. Following this accelerated and extensive survey program, a higher proportion of legacy buildings was found to require works, both externally and internally than was previously assumed. And this has led to a net increase in the SRT and associated review provision of GBP 50.7 million through cost of sales.

With regard to structural defects, there was a net credit through cost of sales of GBP 13.3 million. This was largely due to remediation strategy being finalized for reinforced concrete frame issued identified at a high-rise apartment scheme in Greenwich London in FY '23. This strategy is less invasive than remediation design applied in the previous year and has led to a reduction in the cost estimate for the Greenwich scheme of GBP 19.3 million. This has been partly offset by a GBP 6 million charge relating to a mid-rise building, which was identified during the year with a similar issue to the Greenwich building. We've since carried out further reviews across all of our buildings over 11 meters in height constructed by or on behalf of Bellway, where the same third party responsible for the design and the frame of these 2 developments have been involved. And to date, no other similar design issues with reinforced concrete frames have been identified.

The provision at the 31st of July '25 is GBP 516 million, and I'm confident that we are well provided for the remediation works required across the legacy portfolio. Following a year of delivery against our requirements of the joint plan, with a particular focus on completing build surveys and procuring works, we will now be accelerating the pace of remediation. The strengthened team at our dedicated build safety division is focused on completing works as promptly and efficiently as possible. We have spent GBP 191 million on legacy build safety since the start of the program, including GBP 45 million in FY '25. For FY '26, we expect there will be a significant increase in spend to over GBP 100 million, although I must caveat that this level of spend will be dependent on receiving requests for payment from the government for works carried out on our behalf by their build safety fund.

To finish off this section now, I'd like to just cover a summary of guidance for FY '26. We are targeting volumes of around 9,200 homes, of which 20% will be social. The average selling price will be around GBP 320,000 with an increase of FY '25 driven by mix predominantly. The admin overhead will increase to around GBP 170 million, and that's driven by underlying wage increases and the full year impact of employer NIC. Together, I think it's important to say with important investments that we see for the efficiency and growth program that we have over the next number of years, that includes areas like IT, timber frame facilities becoming fully operational. We currently expect the operating margin to be similar to the FY '25 level at around 11%.

I'd now like to turn to the capital allocation framework. This is my second update that I've given to the city. And I think myself and Jason are very keen that we talk in detail today around our capital allocation framework and what that actually means for the business financially, value creation and strategically for the business. I think it's fair to say we've refreshed our approach to capital efficiency, and it's very much embedded across the group. There's a number of senior leaders here today from Bellway who are very much part of this journey. So I'd encourage you to talk to them as well as just the finance people in relation to this. This is very much a living, breathing thing across the business. And this section of the presentation covers our refined capital allocation framework and the strategy that we have to drive better value for our shareholders.

So first of all, I'd like to set out the clear priorities for capital allocation. We have a strong balance sheet, and we have a well-invested land bank, and that will remain the bedrock of the business. And it supports our balanced approach for investing for growth. And it's very important that we don't lose sight that Bellway has a really strong track record of growth, and that's very much the bedrock of this capital allocation framework as well as well as delivering enhanced returns to our shareholders. We're going to run the business with an efficient capital structure with low gearing, and we're going to continue to invest for growth. Whilst our financial strength provides flexibility and headroom to grow our land bank, I think it's fair to say with the current market backdrop, we expect our near-term land strategy to be largely replacement only.

We're also sharply focused on driving better efficiencies and our WIP balance presents a significant opportunity for much greater cash generation. If the trading environment remains stable, we can deliver growth in volume and profit. And that will drive strong cash generation, particularly as our elevated levels of WIP start to unwind. Combined with the ordinary dividend underpin, we believe that the value creation opportunities are significant for our shareholders. And I think this is evidenced today, as Jason said, with the launch of our GBP 150 million share buyback program, we're going to run that over the next 12 months. And I think it's important to emphasize we've got the capacity for this to be a multiyear program.

This slide summarized our clear priorities for capital allocation, and I'll provide more details on the pillar of the framework in the following slides.

Turning to our efficient capital structure. We're going to continue to run the business through the cycle with a strong balance sheet, but there are definitely opportunities to deliver greater efficiencies within the business. We're very well capitalized with total debt facilities of GBP 530 million. That comprises of GBP 400 million of bank facilities and GBP 130 million of fully drawn USPP notes. Over the next few years, we expect to run the business with modest average net debt and low year-end financial gearing of up to 5%. As we referenced earlier, land investment has started to normalize, and there will be a modest increase in the use of land creditors in the medium term. The range is expected to be between 15% and 20% of land value, and that's similar to our historic norms.

When taking land creditors into account, our adjusted gearing is expected to rise modestly into the mid-teens. And the chart illustrates that we successfully run the business with a similar efficient capital structure and level of adjusted gearing in previous cycles that we've been involved. I'm confident that this strong and efficient capital structure will enable the group to continue to invest in attractive land opportunities to drive the growth and improvement in returns. It will also ensure that efficiencies generated within the operational divisions as measured to return on capital employed will generate an ROE percentage at similar levels, which I think that's something that's really critical. We're driving to ensure that our return on equity and return on capital employed percentages are as close as they can be. And this will help to ensure that the balance sheet structure doesn't dilute the returns capacity for shareholders from operational efficiencies that are generated within the business.

Looking to improvements then in the WIP turn. This is the key area of focus across all 20 of our operating divisions, and it's a significant opportunity for the group. The chart shows our WIP turn fell by around 50% to 1.2x between FY '22 and FY '24. This was primarily driven by a sharp fall in volume output. Bellway stayed well invested in our WIP platform and our supply chain throughout the downturn. I think that's going to stand us -- that strategic decision is going to stand us in really good terms now as we look to harvest that investment that we made in the downturn as hopefully market conditions improve into the longer term. We've made some early progress in FY '25. The WIP turn has increased slightly, but this is an area where our discipline will improve further.

We're well positioned to deliver growth in volume over the next 3 years. And if you think about 10,000 homes in FY '28, that would see our revenue increasing by 20% from FY '25 levels, but it will also enable us to monetize our WIP. So that will allow us to target significant net cash inflow on WIP, so you can juxtapose that 20% increase in revenue, and that should allow you to reduce your WIP balance by around 10% over that same time frame. So that 10% reduction in WIP growing your revenue will allow us to get a significant cash release over that time frame. And that would see our WIP turn growing to about 1.8x by FY '28. And I think that's a ratio that we and I think a lot of people in this room will be comfortable with over that time frame, and that's going to be a key driver in increasing asset turn and cash generation to enhance our returns over that time frame.

Turning then to capital efficiency and cash generation. As part of our plans to deliver higher volume output and asset turn, we have an increased focus on bulk sales. They represent roughly 10% of our private reservations in FY '25, and they will remain a part of our strategy going forward. We will remain selective with our divisions working with our commercial finance teams, and it will be all around running scenarios and assess if a potential bulk sale is NPV positive compared to standard open market sales. So probably more of an NPV asset turn lens as opposed to just looking at the -- maybe what the margin differential between both options are. And we think that gives more options for our business leaders then who are running the divisions as they trade their way through the cycles, the ups and downs within the cycle.

Regarding land investment, as we highlighted earlier, we expect the number of plots will be broadly in line with plots utilized in the year, and that will be a largely replacement-only strategy. So delivering volume growth enhanced by bulk sales will enable us to work through the top tier of the land bank more quickly, which is lower embedded gross margin. These plots will be refreshed with higher-margin plots, and that will include from our strategic sites. Whilst 20% gross margin will remain a requirement for land acquisition, we'll be taking a more balanced approach to liability and the key underpin really will be more around higher levels of capital employed from those investment decisions.

And we'll be looking for the return on capital employed on those to be 20% plus underpinned by 20% plus gross margin. I think if you live by that in terms of land acquisition, that will create a lot of value for us and our shareholders over the coming years. The compounding effect of those initiatives and the drive to monetize our WIP, that should deliver a material increase to the group's operating cash flow conversion, and that's illustrated in the chart.

If you take FY '23 to '25, Bellway generated an aggregate underlying profit of around GBP 1.1 billion. Our adjusted operating cash flow before land, build safety spend and shareholder returns for that period was just over GBP 1.7 billion. So that represented a conversion between operating profit and operating cash flow of around 1.6x. There was an improvement in each year through the period with that 1.3x rising to 2.1x in FY '25, and we're expecting to maintain the conversion at greater than 2x over the next 3 years. And as an illustration, based on a similar level of aggregate underlying operating profit of around GBP 1.1 billion between FY '26 and '28 of getting to that 10,000 unit number, if we were to improve our cash flow conversion to 2.4x, this would generate an additional GBP 1 million of cash compared to the previous 3 years. That will help cover the ramp-up in build stage disbursements that we have over the next number of years, further land investments and crucially providing returns capacity for our shareholders.

So we think that's a very balanced scorecard as we think about capital allocation and fulfilling all the obligations that we have over the next number of years. And I've used that as an example. And whilst it's ambitious, we think it's definitely achievable. I've been at Bellway now for almost a year, and there's a clear focus across the group on delivering on all of these priorities. If the market remains stable, I'm confident that we can deliver greater cash generation and therefore, returns for our shareholders.

And I'll turn now to value creation for our shareholders. We're in a strong position to deliver growth in volume output and a significant increase in pretax ROE in the years ahead. These remain our strategic priorities to deliver growth with a supportive market with a well-invested land bank outlet network and with position. Within our divisions, we've experienced teams with operational strength and their significant structural capacity to deliver organic growth. Combined with an efficient capital structure and our drive for greater cash flow conversion, I'm confident that we have an excellent platform to increase returns for shareholders.

We will maintain our underlying dividend cover at 2.5x, and this will be supplemented by returns of excess capital. We started this today with an additional GBP 150 million share buyback and with a clear intention of returning further excess capital in future years as it arises. Returning excess capital is a key component of our strategy to increase returns. I think it's really important to say that our management incentives across the business are fully aligned with increasing cash generation and ROE and also profits and volume output that run commensurately with that. A new LTIP proposed for shareholder approval at this year's AGM includes a challenging FY '28 underlying pre-ROE stretch target of 14%. And whilst this would require exceptional delivery and more supportive market conditions than we are currently experiencing, it clearly demonstrates the extent of our ambitions collectively in Bellway.

I'll now pass back to Jason, who will cover the operating review and outlook. Thank you.

Thank you, Shane. Before I start, I think it's worth recognizing the amount of hard work involved in pivoting the business to being more capital efficient, and much credit goes to Shane, but also to our senior management teams across the U.K., who have embraced the new approach with so much energy and enthusiasm. A deserved well done to all.

Now I'll start with last year's trading. We achieved a private sales rate of 0.52 per outlet, with bulk sales contributing to a further 600 homes. Overall, the sales rate was 0.57, with cancellation rates steady at around 13%. Mortgage rates were relatively stable in the period. Affordability is still constrained for first-time buyers or for those without the benefit of a decent deposit, and those purchases are still exposed to rates of around 5%.

Overall, I would describe customer demand as sensitive, sensitive to mortgage rates and sensitive to the commentary around further tax increases. And that's clearly reflective in current trading. In the first 10 weeks since the 1st of August, we achieved a private sales rate of 0.51 per outlet, with bulk sales only making a very modest contribution in that period. Pricing has remained firm overall, the Southeast and Southwest areas are still slower, where we tend to deal harder and maximize the use of incentives.

Our order book at the 5th of October consists of 5,300 homes with a value of GBP 1.5 billion. And we are currently forward sold by around 65% for FY '26. In general, the market appears to be in the same pattern as last year, where the autumn selling season is largely flat, owing to the timing and noise around the budget. That said, you will recall that we enjoyed a busy start to the calendar year as homebuyers had waited for the outcome of the budget before making a commitment. And we will likely or hopefully see that pattern reemerge with a busy start into 2026.

The next slide is about multiyear volume growth and the conditions required to create a path back to 10,000 homes by FY '28. We have assumed a stable market and the following realistic assumptions. A private carryforward order book of around 40%, modest outlet growth to around 260 outlets by FY '28, an increased focus on bulk sales and the private sales rate moving towards 0.6 per outlet. With those conditions or similar, we can deliver 10,000 homes by FY '28.

Now if I could take you to the next slide, land bank. We have a total of some 95,000 plots nicely split between owned or controlled and strategic plots. Taking a look at gross margin within the land bank. The current margin for DPP plots is 18% to 19%, and we expect progression through '27 and '28 as the new higher-margin land come through from both pipeline and strategic.

In the period, we contracted or acquired just over 8,000 plots. So my short-term ambition, as Shane has said, is simply to maintain the land bank and continue with just replacement land. Today, a land bank length of around 4.5 years feels about right, particularly with an improving planning environment. And based on DPP and pipeline plots with a volume of 10,000 homes per year, that allows me to grow into the land bank rather than invest further. Looking forward, our focus will be on strategic land with the aim to harvest more consented plots from that strat tier of the land bank, delivering better margins for '27 and '28.

Turning now to outlets. We opened 56 new outlets during FY '25 and plan to open a similar number during this financial year. Overall, I would expect average outlet numbers to be between 240 and 245 for this year, with modest growth to around 250 for next year.

Regarding planning. Government progress remains positive. We do still experience some delays as local authorities take time to adopt local plans. And as you can imagine, some local authorities are more supportive and keen to deliver new homes, whereas others are less enthusiastic. Although I tend not to worry too much about outlets and planning as we are very fortunate to have good visibility on both and already have 85% of our plots with DPP for FY '27, we are in good shape.

Regarding production and costs, not much change over the past 12 months. Build cost inflation is still running around 1% or 2%. And it's still -- while still at very modest levels, it's still a margin headwind for housebuilders. And earlier in the year, you may remember, I mentioned Bellway Home Space, our new timber frame facility in Mansfield. We are progressing to plan and due to open in FY '26. Simon can offer a little more detail in Q&A and required, but our plans are very much part of our approach to drive WIP turn and return on capital employed.

And finally, outlook. With the strength of our order book, we are well placed to meet our guided volume of 9,200 homes and will hopefully benefit from a busier market at the start of the year to build that order book for FY '27. Structurally, we are able to deliver more volume in the years ahead. We have the land, the planning, the people and the outlets, but we just need a supportive economy in which to do so. The key message from today is our focus on cash generation and our confidence to increase returns to our shareholders, which Shane has already set out.

Thank you. We're now happy to take questions.

Ami Galla from Citi. A few questions from me. The first one was on the stretch of pretax ROE targets in your LTIP. Can you give us some sort of building blocks of framework of the sort of scenario where we can see that reasonably coming through by FY '28, i.e., what are the elements that we need to watch out to understand the moving parts there?

The second one on the Bellway Home Space facility. I think in the release, you've mentioned, it is one of the drivers of build efficiency for the business over time. At what point into the ramp-up phase can we see that get -- giving us more meaningful gains on the build side as we think about your journey there?

And the last one, just on the land market. You've kind of given us a reasonably strong framework of how you think about capital allocation. But in terms of the near-term sort of sentiment in the housing market, do you see any sort of near-term opportunities on the land? And how are land vendors really looking at this market today?

Ami, I'm going to give you a selection here. I'm going to get Shane to answer question one, Simon to do two, and then I'll close on three. So you get the full board.

Do you want to do the ROE first? Yes. So I think if we're sitting up here talking about capital allocation, cash efficiency, and I see a lot of my colleagues sitting here beside me, which makes me very comfortable as we talk about this. It's really important that you've got an incentive scheme in place that, that mirrors it. So we've done a lot of work on both our short-term and our long-term incentive schemes. And it's not a case that the old incentive schemes didn't do their job. They did, but they were very much probably focused around the P&L. And I think that works well in a rising market, but we all know that the market is a bit tougher now.

So the underpins within our STIP are around operating profit and operating cash flow. And then the LTIP is around return on equity, not return on capital employed, so return on equity, which means we have to return capital to shareholders as well. But we have to do that in a manner that allows us to grow as a business. So there's an EPS underpin within that as well. The 14% target is very much a stretch target. We've guided to 10,000 units today over 3 years. I think that's a number that we're pretty comfortable giving in the context of current market conditions. That's not going to deliver a 14% ROE. That probably delivers probably close to 12%.

I think the thing that we're really keen, if there's one big message that I want to deliver today, I think what we're keen to emphasize is our strategy. It's nothing new or anything. But I think what we pride ourselves in Bellway is that we're very clear, we're very detailed orientated around what we want to do, and we're all about staging, posting where we think we can get to as a business. The sector has suffered a lot in terms of profitability loss and return on equity loss over the last number of years. So the 10,000 units that will still deliver a lot of value for shareholders compared to where we are today in terms of cash returns and indeed the growth and profit that you would see coming off that.

But to get to 14%, you probably need to get unit output probably closer to 11,000 units. But both of those scenarios would see a lot of potential capital being returned to shareholders. We've obviously announced a GBP 150 million share buyback today. But clearly, if you get to 10,000 units and you're growing your revenues by 20% plus, there will be a cash monetization in that if you're being very disciplined around how you're doing land buying. I think it's fair to say in the context of the LTIP as well, the stretch component for management is very much between that 12% and 14%. So we're all very heavily incentivized to do obviously better than the 10,000 of the 12% plus, but that's not where we're guiding the market today because that's not where we see conditions.

Good morning, everyone. So on Home Space and perhaps more timber frame, Ami, we have no doubt it's going to drive capital efficiencies in the medium term. That's very much the strategy by opening the new timber frame factory, which is forecast for early calendar year '26. We're currently at 10% timber frame production across the group. That's predominantly through our Scottish divisions and some other divisions, and we're going to ramp that up to around 30% of output by 2030, but we're going to do it in a very prudent, careful manner. It's a new facility for us. So we want to make sure we get it right. So over the next 2 to 3 years, we'll introduce Home Space products into the group initially through 7 of our operating divisions. But we've also got a partnership with Donaldson Timber Solutions, who are currently helping us across the rest of the group. And between DTS and Bellway Home Space, we'll ramp it up towards a 30% point by FY '30.

I'll be brief on land, Ami. Just at the moment, we've got a very full land bank, and I described how we can grow into it. So I'm not in a position that I'm keen to overinvest. I'm a little bit like our purchases at the moment, adopt a wait-and-see approach to see what happens towards the end of the year. We're still buying land, but we're selective. So in those bigger divisions in better selling areas, we're still investing. I guess that dynamic will change. If the market does pick up, then our land appetite will probably increase. But just at the moment, we'll -- we haven't stopped. We've just paused.

It's Will Jones from Rothschild & Co. Redburn. Three, if I can, please. The first, if you could just update us on your thinking around bulk sales. There was a mention of it on an NPV basis in the presentation, but I think it was 0.03 of the sales rate last year and 0.1 or so the prior year. Where is normal? And I suppose if we continue with somewhat subdued conditions for, say, the next 6 months to hit that flat sales rate for the year, would you be willing to up the bulk sales content? Or would you let the sales rate slip slightly?

The second was just coming back to the balance sheet content. You gave some helpful guidance on the WIP balance potentially coming down 10%. How would you think about the land value balance? I think plots broadly steady. Does the value go up a bit as you replace a bit higher than you sell out at? And then last, just a technical one on the finance bill, whether you had any commentary on how we should think about that on a 3-year view as you return more cash?

I'll do bulk. You do the other 2. Well, as usual, your figures are more detailed than mine on bulk sales. We did about 8% to be this year in terms of bulk sales. But as Shane alluded to, we've got a bigger appetite and could do a little bit more this year. I don't think it's going to change the dial, but we'll probably do 10% plus. But sometimes it's dependent upon what's happening in the market, how busy it is. But if you talk to our RCs that are with us today, our regional chairs, there's certainly an appetite and some deals on the table that we're looking at. But if you said sort of 10% plus, I think that's about where we need to be, Will.

Can I hand you for balance sheet and finance?

Yes. On the land side, I mean, we've got roughly GBP 2.5 billion in land. That might tick up very slightly over the next 3 years, probably commensurate with our unit output, but it won't be a material movement. Probably the bigger piece there is that we're probably willing to take on more land creditors, and we're happy to let that go as high as 20%. So net-net, Will, that probably means the overall net land balance between land creditors and land won't increase that much. Probably the increase would be offset largely by land creditors.

I'm sorry, I missed your third question. Would you mind repeating that, please?

Finance cost [indiscernible]

Yes. I don't think that will be a material movement either because we have GBP 130 million of PP money. And when we set ourselves the kind of broad target of how do we actually make sure that return on equity and return on capital employed are broadly similar. Funny enough, when the PP money is kind of drawn fully at year-end, that kind of gives you close to the answer. So I would say our net debt is probably at year-end will probably only be kind of GBP 100 million to GBP 150 million, maybe slightly higher than that. So the finance costs themselves will not move significantly, I don't think, in relation to that.

Allison from Bank of America. Just one question on the share buyback. So I was wondering if in the next few years, if you see a better investment opportunities, for example, will you thinking maybe scale back GBP 150 million? Or is this is like the minimum you want to return per year in the future?

Yes. Yes. I mean, I think -- I'm glad you asked that question because we're very keen to emphasize that the lens we look at through everything is long-term shareholder return. But long term can't mean that people are waiting forever. So if you were to ask me to anticipate, I would say, I think we will be -- as long as that cash is generated, I think we will be returning it to shareholders. But we look at everything now through an IRR NPV/ROE lens.

So if there was an investment opportunity that we could undertake that made sense for us, we wouldn't be found wanting there. And -- but we wouldn't just turn around and say we've decided to make that investment to shareholders, which I think in the sector, we're guilty of doing sometimes, say, we're going to invest that money. I think what we'd be saying is we're investing that money because we actually see the IRR of that investment being greater than actually buying back the share at a certain price and the payback period of it will be X or Y. I think that's the level of precision you have to get down to when you've seen the hit that the sector has taken over the last number of years. So we are going to take our responsibilities around that very seriously, but we are absolutely going to invest in growth where that opportunity exists.

Aynsley Lammin, from Investec. I think I've got 3 as well, please. Just first of all, any kind of extra color on pricing and incentives as we've gone through the autumn selling season?

Second question, just on the kind of point you've just making, I guess. If you look at -- if the government does actually improve planning brilliantly and the sales rates do bounce back, is it right to assume that there is flexibility around that share buyback that you would open more outlets? I guess 260 outlets by FY '28 doesn't look that ambitious in terms of what the government wants and how much flexibility is there?

And the third question, Jason, just you mentioned this kind of hope the government recognizes a supportive economies needed. I mean just what's your wish list for November budget? Thoughts ahead of that would be interesting.

Okay. I might start with 3 of those and just get a bit of help. But pricing, Aynsley, is not flat all across the U.K. Not everything is like the Southwest and Southeast. There are some pockets of buoyant markets. So we explore those as best we can. At the moment, the Southeast and Southwest, it's full fat incentive in those locations at the moment. We deal hard. So we try to balance the books across the U.K. The new year may be different. We look at it quite regularly.

And in terms of outlets, I wanted to get across today that our ambition is based on realistic assumptions, and I've adopted the same approach with outlets. And if you assume that we're just going to buy replacement land, for me to offer you ambitious outlet growth doesn't seem right. I think I can deliver realistically modest outlet growth with an improving planning system. And you're quite right. It could get better. But I think what we've offered is deliverable. We need a slight tick up in sales rates. I think if you look at them in the round, the world doesn't end just with outlets from my point of view.

And with government support, I look at things, they've done a reasonable job on planning. Let's give some credit. Bellway are in super healthy shape. We've got no debt. We've got the land, the people, the planning and the outlets. All I need is a supportive economy. And sentiment is most of it, Aynsley. We need to lift. Sentiment is low in the market, and we've made 2 requests to government, and that's not just me alone, that's the majors.

Firstly, can we undo the stamp duty costs that were imposed on first-time buyers in April? And can we have a long-term deposit support scheme for first-time buyers? Not every young person has the benefit of the bank of mom and dad or fat family financial help to support them. So we think that that's fair to give them some lift. And if we can have that support, which isn't big numbers at the bottom of the housing ladder, we think that will improve the sector and get the market moving.

Clyde Lewis at Peel Hunt. Land creditors and large sites normally go hand in hand. But obviously, large sites don't necessarily help that ROE drive. So I'm just sort of looking for a little bit of help as to whether you are going to be more or less happy buying the larger sites, which will allow you to probably drive that land creditor position a little bit more. That was the first question.

Second question around London. I mean it's become a fairly small part of the group at the moment, again, given part of the market going on. But where does London sit within your sort of strategic thinking now again, given that ROE backdrop?

Third one was on the announcement yesterday from Barratt Redrow and Persimmon around the loan scheme. Are you tempted to get involved in that reside offering as well? But again, where does that sit from a margin point of view more than a capital point of view? I'd be interested on that.

And I suppose the last one I had was around demand for PRS and bulk deals. And are you only thinking about vanilla-type deals that you've done in the past? Or are you thinking actually we can maybe change the structure a little bit and look to pull capital from them earlier as part of the deals that you might do?

I'll do the first 2, you do the second 2. On large sites, you're quite right. That's where the use of land creditors. We're not buying, Clyde, lots of large sites at the moment. There's 2 guys sitting directly behind you that we'd probably invest in, 2 strong MDs from big businesses in East Midlands and Manchester, and we'd probably invest in those locations, maybe Milton Keynes, too. So strategically, where we think there's long-term demand. But other parts of the U.K., we're probably small to medium-sized sites at the moment.

In terms of London, listen, I love London, but the percentage of our business now in London, Clyde, is 2% to 3%. We come out a few years back, as you probably know, we was as high as 20% of our volume in London. And I didn't exit London because I predicted where we're going to be today, certainly not. It was just that the commercial terms were too hard for us to do business. And Bellway was sort of priced out of London. But you do need a function in London market to deliver meaningful improvement in housing supply, and it's not there yet. The viability concerns in London are significant and the housing numbers in London are dire. We will continue building in London, but on the fringes on the outside.

On the Help to Buy, that is some conversation that we've been part of as well. We're keeping a watch and brief on. I think it's helpful. I think it's going to be a niche product. I think the participants would say that themselves, but I think certainly a welcome addition. We would have similar type measures, obviously, in terms of deposit support and all that for our homebuyers. So we'll absolutely keep an eye on that and see just how it stacks up. I think fundamentally, what's required there is some kind of state support for first-time buyers. I think everyone in the room would acknowledge that. I mean there's a GBP 500 or GBP 600 differentiator in terms of what your monthly mortgage repayment will be depending on whether you're fortunate enough to have a 25% deposit or a 5% deposit.

And I think the thing that gives me heart has been relatively new still to this sector, just having worked in another jurisdiction is every division I visit, rental levels are consistently higher than what debt service costs are. So that tells us that the long-term fundamentals are strong. So we will absolutely keep an eye on that initiative and see if it's something that needs more extensive participation from us.

On your other point around PRS, I think it's a really interesting question. And yes, is the quick answer to all of that. We will look at all of those things in terms of forward fund transactions, all of those things, if it makes sense for us in terms of asset turn and having greater return capability for shareholders. I think it gives the people running the divisions more tools in their kit as well in a market where the HPI has been pretty much nonexistent. You have to look at every capital efficiency that you can. So we look at forward purchases, we look at forward funds, all of those things. And we've no hard target or how high and low that number will be. It all just depends on whether it stacks up compared to the private sales rate and the private ASPs that you can get.

It's Charlie Campbell at Stifel. A couple of questions, one operational, one financial. Mortgage availability, we're aware that banks are allowed to change stress tests and also have slightly higher availability of higher loan to income. Has that made any changes on the ground sort of currently? And will that in future?

And then secondly, the financial question is just on the dividend. I wonder sort of how you judge the balance between dividends and buybacks and whether there's a thought to maybe sort of cutting the dividend or widening the cover to do more buybacks. I just wonder how the debate came out on the answers we got today.

I'll start with mortgages. Charlie, I think what the banks have done has been really helpful. It's not going to move the dial. It's just a help. It's a movement in the right direction. Mortgage rates for 2- and 5-year money haven't really changed. They're around, I guess, 4.25%, something like that. But being able to loan more is a help for first-time buyers. It doesn't solve the deposit problem, but it's certainly a move in the right direction. So we welcome that.

Can I hand...

Yes. I mean, I think, again, an interesting question. I think where we've landed, I think, is a good balanced outcome. I think if we were sitting here saying that the cash generation wasn't going to be significant over the next number of years, I think we would have to have a hard look at our dividend policy in relation to that and maybe flip into a buyback. But I think you're going to see probably a 2:1 split between buyback and dividends roughly assuming that, that excess capital gets generated. And I think that feels right as a balance because I think having a dividend yield underpin is a good discipline for the business as well, just in terms of the growth ambitions that we have and just shareholders knowing that they'll get a cash return from the business every year as well.

Chris Millington at Deutsche. Can I just ask about strategic land and how it kind of configures in your outlet opening plans, your margin plans. Perhaps you can also comment on the relative margins versus the DPP land bank so we can understand what benefit it can bring in the future.

Next one, just curious about recoveries on the reinforced concrete frame. We had the Barratt court case there, which seem to open up avenues for recoveries. I know you can't recognize them, but would you hope to get some? And then also, is there likely to be anything different in H1, H2 split you can see them getting to the back end of the question queue. We have a question like that at the end.

If I do -- I'll do land. And can I ask you to do recoveries, Simon, just to keep Simon involved.

If our DPP land bank has a gross margin of 18% to 19%, we think the strategic land is 23% plus. If we are currently delivering 10% of our volume through the strat tier of the land bank, we think, Simon, that we can double that to 20%. It's an ambition, and we might miss it a little bit, but 20% by FY '28. So they're the sort of numbers where we are on strat. So it also gives us flexibility in the market. It's not just margin accretive, Chris. It just gives us a few options. So we quite like that, and you know we've invested in that for probably 5, 6 years now. So it's starting to bear fruit.

Is it worth you just commenting, Simon, on recoveries?

Just picking up on -- just on the strat piece as well, just interesting, but very helpful, Chris. We're aiming to have around 80 planning applications running this financial year on the strategic land portfolio to give you an idea of what we're throwing at this to get our conversion through into the DPP ultimately. So there's a lot of work going on there to try and drive the outlook piece.

On recoveries, yes, as you can imagine, we've got a very active program generally across our recoveries piece. It's only recently, of course, we've been able to quantify our liabilities properly with all the assessments being done. So on the SRT side of things, we're now gearing up to go after [ service ] and suppliers, and we've already recovered around GBP 80 million thus far on that.

And so far as the structural defect is concerned, we've got good prospects of success against those who are involved in the 2 schemes that Shane has alluded to, and we are heavily involved in litigation on those as well. So I'd expect to see some sort of recovery, decent recovery in the fullness of time. But it's complicated, and it will take years rather than months to get there, but I'm determined to do so.

Can I just quickly loop back to the strategic land? Let's say, you're up at 260 outlets by '28. Is that assuming you get that full conversion of 10% to 20% is strategic or...

It's a [indiscernible], Chris, and outlets. I just couldn't be more specific enough. There's too many moving parts in it, but we think it's doable. We wouldn't give you the number if we didn't think we could achieve it. Yes.

I think your other one was H1, H2 split.

Is there anything funny this year?

No, not really. I mean we were pretty well for it. So it's all coming into this financial year. So it will be -- it won't be massive, 50-50, give or take, I'd say. Yes.

Not 70-30.

All good. Thank you very much for your time. Thank you.