Building homes, building value Bellway p.l.c. Annual Report and Accounts 2019 Financial and Strategic Highlights Group revenue (£m) Profit before taxation (£m) £3,213.2m +8.6% £662.6m +3.4% Average selling price (£) Order book value at 31 July (£m) £291,968 +2.5% £1,223.9m -5.9% Plots contracted in the year (plots) Owned and controlled land bank (plots) 13,113 plots +1.2% 42,721 plots +4.0% Note: Unless otherwise stated all numbers throughout the Annual Report and Accounts exclude joint ventures. In this report About Us Governance Accounts Other Information IFC Financial and 42 Board of Directors and 88 Group Income Statement 115 Five Year Record Strategic Highlights Group General Counsel 88 Statements of 116 Alternative IFC In this report and Company Secretary Comprehensive Income Performance Measures 1 Who we are 44 Chairman’s Statement on 89 Statements of Changes 118 Glossary 2 Why Bellway Corporate Governance in Equity 120 Advisers and Group 46 Corporate Governance 91 Balance Sheets General Counsel and Strategic Report Report 92 Cash Flow Statements Company Secretary 4 Principal KPIs 50 Nomination Committee 93 Accounting Policies 121 Shareholder Analysis Report 5 Chairman’s Statement 98 Notes to the Accounts 121 Financial Calendar 6 Our Marketplace 52 Audit Committee Report 8 Key Stakeholder 58 Remuneration Report Relationships 77 Directors’ Report 10 Business Model 81 Independent Auditor’s 18 Strategy Report to the Members of 20 Operating Review Bellway p.l.c. 24 Financial Review 26 Principal Risks 28 Risk Management 30 Going Concern and Long- Term Viability Statements 33 Corporate Responsibility For further details on our business please visit: www.bellwayplc.co.uk Who we are About Us Bellway has been building quality homes for over 70 years. We also build careers for nearly 3,000 people. We build trust by working in a sustainable way. We build value for our shareholders. We are building homes, building value. Bellway p.l.c. Annual Report and Accounts 2019 1 Why Bellway Our homes We build high quality homes designed to complement the style of existing local architecture in communities that meet local demand and enhance the area in which they are built. With a range that extends from one-bedroom apartments to six-bedroom family homes, we offer an extensive choice from which customers can choose a property that meets their particular requirements. We also provide homes to housing associations for social housing. Our focus is to provide desirable, traditional family housing across our divisions outside of London and to provide apartments within the London boroughs, with our activity in London predominantly in zone 3 and beyond. Our brands Bellway and Ashberry are the main brands we use to sell our homes. Bellway is the brand we are most well known for. The Ashberry brand was introduced a few years ago as a means of helping us to develop larger sites more quickly. These sites are dual branded and shared between adjacent divisions so one will sell as Bellway and the other as Ashberry. Ashberry branded homes are of equal quality to Bellway homes but offer customers different elevations and interior specifications. We have also launched a Bellway London brand. Our people Our people are the key to our success and we aim to provide them with a rewarding and fulfilling career. Bellway has long had a reputation as a good employer, taking a personal interest in its workforce and supporting career development. As a result, many employees have spent a large proportion of their working lives with us. However, we are not complacent and strive to continue to be an employer of choice. Our customers We pride ourselves on understanding the aspirations of all of our customers, not just in the type of home that suits their needs, but in the environment in which they want to live. All of our customers are treated with the same high level of customer service. Our high standard of service and build quality is endorsed by our customers, with 9 out of 10 customers saying they would recommend to a friend buying a new home from Bellway. Our Customer Experience Committee drives improvements to quality and works to develop and share best practice across the Group to further enhance our service to customers. Bellway p.l.c. 2 Annual Report and Accounts 2019 About Us Our business We are committed to being a responsible homebuilder. Our aim is to operate our business in an ethical and sustainable manner while at the same time building attractive, desirable and sustainable developments in which customers want to live, in harmony with existing communities. As one of the UK’s largest homebuilders, we have an important role to play in addressing the national housing shortage by building high quality homes in desirable locations. We work with a range of stakeholders to build trust so that we can fulfil this role whilst at the same time operating our business in a socially responsible, ethical and sustainable way. We currently operate from 22 divisions covering the main population centres across England, Scotland and Wales. Our divisional structure allows local management teams to respond to specific demands in their area and, through their detailed local knowledge, acquire land on which to design and build homes that meet or exceed the expectations of our customers and contribute to creating strong local communities. The divisional teams are supported by our Regional Chairmen and by our specialist Head Office teams. Our capacity for growth We continue to focus on our growth strategy to help us build on our success in 2018/19 and beyond. Providing market conditions continue to remain supportive, the Group has the operational and financial strength to further expand the divisional network, thereby supporting additional growth in the years ahead and delivering further sustainable long-term returns for shareholders. Mature divisions Newer divisions Not to scale Rating from the Home Builders Federation Customer Satisfaction survey 5 star Bellway p.l.c. Annual Report and Accounts 2019 3 Principal KPIs The Group has seven principal KPIs, which are shown below. Our secondary performance measures, which support these KPIs, are shown on pages 12 to 16. Number of homes sold (homes) Operating margin (%) 10,892 22.3 22.1 10,307 21.0 10,892 9,644 21.0% homes -110bps +5.7% 2017 2018 2019 2017 2018 2019 This KPI demonstrates how well the business model is able to Operating margin demonstrates how efficiently the business is support the Group’s strategy of delivering volume growth. being operated. Return on capital employed (%)(~) Earnings per ordinary share (p) 27.6 27.2 423.4 437.8 24.7 24.7% 437.8p 370.6 -250bps +3.4% 2017 2018 2019 2017 2018 2019 Return on capital employed (‘RoCE’) is a key indicator of how we Earnings per ordinary share (‘EPS’) is a useful measure of how are delivering our strategy of building shareholder value, which profitable Bellway is, year on year. is reliant on land acquisition and the subsequent performance of our developments. Net asset value per ordinary share (p)(~) Total dividend per ordinary share (p) 2,372 150.4 143.0 2,079 122.0 2,372p 1,785 150.4p +14.1% +5.2% 2017 2018 2019 2017 2018 2019 The directors consider net asset value per ordinary share (‘NAV’) to This is another useful indicator of how the directors are delivering be a useful proxy when reviewing whether shareholder value, on a the strategy of generating shareholder value, particularly when share by share basis, has increased or decreased in the period. combined with NAV. Note that the 2019 final dividend figure is proposed. Operating profit (£m) 652.9 674.9 £674.9m 571.6 +3.4% Note: 2017 2018 2019 ~ Bellway uses a range of statutory performance measures and alternative performance measures when reviewing the performance of the Group against its strategy. Definitions of the alternative performance measures and a reconciliation to statutory performance Operating profit is another measure of how efficiently the business measures can be found on pages 116 to 117. Throughout this report ‘~’ refers to alternative is being operated and of the profitability of the Group’s core performance measures. business. This KPI is one of the measures used to determine the directors’ annual bonus payment. Link to remuneration – see pages 58 to 76. Bellway p.l.c. 4 Annual Report and Accounts 2019 Chairman’s Statement The Board continues to believe that value generation is best evaluated through capital Report Strategic growth, by increasing net asset value per share, together with the payment of a regular dividend. Paul Hampden Smith Chairman Introduction Bellway continues to draw upon these favourable market The Group, now comprising 22 operating divisions, delivered conditions, retaining its clear strategy to deliver long-term and another positive set of results, consistent with its long-term disciplined volume growth. This, together with the continued growth strategy and in doing so, achieved record volume, focus on quality and customer care, enables all stakeholders revenue and profit. In this tenth consecutive year of volume to benefit from our continued success. growth, Bellway completed the sale of 10,892 homes (2018 Commitment to value creation over the long-term – 10,307), thereby making another substantial contribution to addressing the housing shortage in the UK. This growth, The Board continues to believe that value generation is together with a solid operational performance, resulted in best evaluated through capital growth, by increasing net a 3.4% increase in earnings per share, which rose to 437.8p asset value per share (‘NAV’), together with the payment of a (2018 – 423.4p).