Annual Report and Accounts 2014 BUILDING HOMES, BUILDING VALUE For further details on our business please visit: Contents www.bellway.co.uk About Us 01 About Us 02 Financial Highlights 03 Operational Highlights Strategic Report 06 Chairman’s Statement 08 Group Strategy 10 Business Model 22 Chief Executive’s Operating Review 26 Group Finance Director’s Review 29 Risk Management Process 30 Risk Statement 33 Corporate Responsibility Governance 36 Board of Directors 37 Advisers 38 Chairman’s Statement on Corporate Governance 40 Corporate Governance Report 45 Report of the Board on Directors’ Remuneration 62 Report of the Directors 66 Statement of Directors’ Responsibilities in respect of the Annual Report and Accounts 67 Independent Auditor’s Report to the Members of Bellway p.l.c. Accounts 70 Group Income Statement 70 Statements of Comprehensive Income 71 Statements of Changes in Equity 73 Balance Sheets 74 Cash Flow Statements 75 Accounting Policies 80 Notes to the Accounts Other Information 99 Five Year Record 100 Shareholder Information 105 Notice of Annual General Meeting 108 Glossary Cover: 110 Notes Cromwell Fields, IBC Principal Offices Great Waldingfield, Suffolk Bellway p.l.c. Annual Report and Accounts 2014 About Us 01 – 05 01 Strategic Report 06 – 35 About Us Governance 36 – 69 Accounts 70 – 98 Other Information 99 – 112 INTRODUCTION FROM ITS ORIGINS NEARLY 70 YEARS AGO AS A FAMILY-OWNED HOUSEBUILDING BUSINESS IN NEWCASTLE UPON TYNE, BELLWAY HAS GROWN TO BECOME ONE OF THE UK’S LARGEST HOUSEBUILDING GROUPS, WITH REVENUE IN 2013/14 OF £1.486 BILLION, HAVING BUILT AND SOLD OVER 130,000 HOMES SINCE INCORPORATION. Bellway has its headquarters in Newcastle upon Tyne and operates from 15 divisions throughout the UK. The Group constructs and sells high quality homes to suit a variety of budgets, from apartments up to five-bedroom family homes, including the provision of social housing throughout the country. We directly employ over 2,000 employees and indirectly engage over 5,500 other workers via sub-contract arrangements. The Group’s operations are located in the main population centres in the UK (excluding Northern Ireland), as shown in the chart below. The northern region covers Scotland, the north east and north west of England, Yorkshire and the Midlands. In the south, our business incorporates divisions in the south east and south west of England, London and Wales. The number of homes sold and average selling price for each region is shown on page 23. Our office locations 1. Head Office 2. East Midlands 3. Essex 4. Manchester 5. North East 6. North London 7. North West 8. Northern Home Counties 9. Scotland 10. South East 11. Thames Gateway 12. Thames Valley 13. Wales 14. Wessex 15. West Midlands 16. Yorkshire Bellway p.l.c. Annual Report and Accounts 2014 02 About Us Financial Highlights Total Group revenue Operating profit Operating margin (£m) (£m) (%) 1,486.4 256.1 17.2 +33.8% +69.5% +360bps 768.3 886.1 1,004.2 1,110.7 1,486.4 51.3 75.2 114.6 151.1 256.1 6.7 8.5 11.4 13.6 17.2 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 Profit before taxation Earnings per ordinary share Total dividend per ordinary (£m) (p) share (p) read more on 245.9 157.0 52.0 p.6 +74.5% +75.8% +73.3% 44.4 67.2 105.3 140.9 245.9 29.7 41.5 65.5 89.3 157.0 10.0 12.5 20.0 30.0 52.0 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 Net asset value per ordinary Return on capital employed share (p) (%) read 1,118 19.6 more on p.27 +11.7% +730bps 856 888 933 1,001 1,118 4.9 7.0 10.1 12.3 19.6 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 Bellway p.l.c. Annual Report and Accounts 2014 About Us 01 – 05 03 Strategic Report 06 – 35 Operational Governance 36 – 69 Accounts 70 – 98 Highlights Other Information 99 – 112 Completed sales Average selling price (homes) (£) read read more on more on 6,851 p.23 213,182 p.23 +21.2% +10.4% 4,595 4,922 5,226 5,652 6,851 163,175 175,613 186,648 193,025 213,182 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 Owned and controlled Order book value land bank (plots) at 31 July (£m) read read more on more on 35,434 p.24 924.3 p.25 +7.4% +36.0% 32,602 31,086 31,136 32,991 35,434 421.0 426.8 441.2 679.5 924.3 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 Top: Bishop Cuthbert, Hartlepool, Cash expended on land and County Durham land creditors in the year (£m) Bottom: Moderno, Brighton, read more on East Sussex 460.0 p.26 +53.3% 208.0 250.0 305.0 300.0 460.0 2010 2011 2012 2013 2014 Bellway p.l.c. Annual Report and Accounts 2014 04 About Us Right: Horizon @ Prospect Place, Cardiff Bay, Cardiff Bellway p.l.c. Annual Report and Accounts 2014 About Us 01 – 05 05 Strategic Report 06 – 35 Governance 36 – 69 Accounts 70 – 98 Other Information 99 – 112 Top left: North Lodge Park, Milton, Essex Bottom left: Signature, Kings Hill, Kent Top right: Glaze, Lount, Leicestershire Bottom right: Mile Field, Leavesden, Hertfordshire Bellway p.l.c. Annual Report and Accounts 2014 06 Strategic Report Chai rma n’s Statement INTRODUCTION PEOPLE AND SUPPLY CHAIN This has been an exceptional year This record set of results could not have of progress for the Group in which been achieved without the hard work, we have delivered record revenue dedication and commitment of all and profit. those who work for and with Bellway. The Group’s response to strong I wish to express the Board’s gratitude market conditions has resulted in to all of the Group’s employees, sub- growth of 21.2% in the number of legal contractors and suppliers whose efforts completions to 6,851 (2013 – 5,652) have enabled Bellway to safely and and an increase in earnings per share substantially increase output. of 75.8% to 157.0p (2013 – 89.3p). BUILDING SHAREHOLDER DIVIDEND VALUE The rapid growth in profitability is A disciplined approach to investment matched by an increase in the proposed has resulted in the Group achieving dividend. The Board is proposing to a return on capital employed of 19.6% increase the final dividend by 71.4% to (2013 – 12.3%) and an 11.7% increase 36.0p per ordinary share (2013 – 21.0p) in the net asset value per ordinary which, if approved, will be paid on share (‘NAV’) to 1,118p. The strategy THIS HAS BEEN AN 14 January 2015. This rise produces an of sustainable growth with a focus EXCEPTIONAL YEAR increase of 73.3% in the total dividend on return on capital employed, together for the year to 52.0p (2013 – 30.0p), with regular and increasing dividend OF PROGRESS FOR another record for the Group, with this payments, ensures that the Group being covered by earnings 3.0 times is well placed to create further value THE GROUP ...” AND (2013 – 3.0 times). The Board expects for shareholders. “THE GROUP IS WELL to maintain this level of cover in the foreseeable future. PLACED TO CREATE Bellway has an unbroken record of paying a dividend every year, John Watson FURTHER VALUE including throughout the downturn, FOR SHAREHOLDERS.” thereby providing certainty of return Chairman to shareholders. The proposed final 13 October 2014 John Watson dividend for the year ended 31 July 2014 will mean that the Group has returned Chairman over £220 million to shareholders since July 2007. The rate of cash return to investors will now increase, commensurate with the expected growth in earnings. The Group’s dividend policy, whilst providing certainty of return, also ensures that sufficient cash can be re-invested in land and work in progress in order to deliver further, sustainable growth. This approach enables Bellway to remain flexible, with the ability to respond to growth opportunities or changes in market conditions as they arise. 19.6 % Return on capital employed +730bps Bellway p.l.c. Annual Report and Accounts 2014 About Us 01 – 05 07 Strategic Report 06 – 35 Governance 36 – 69 Accounts 70 – 98 Other Information 99 – 112 Above: Chase Meadow, Warwick, Warwickshire Left: Heaton Manor, Stockport, Greater Manchester Below: Brooklands, Holmes Chapel, Cheshire Bellway p.l.c. Annual Report and Accounts 2014 08 Strategic Report Group Strategy Bellway’s strategy is to The Group’s operational The Group’s balance sheet build shareholder value capacity is currently built capacity is largely comprised through sustainable volume around a nationwide structure of its net cash position of growth, utilising the Group’s of 15 operating divisions. £5.1 million at 31 July 2014 operational and balance sheet In addition there is an combined with bank facilities capacity, combined with a operational and balance sheet of £300 million. As a result of strong focus on return on capacity to further expand these factors the Group has capital employed (‘ROCE’). the Group’s divisional base in a capability to invest in land This generates growth in areas of high population whilst that either meets or exceeds the Group’s net asset value maintaining strict investment our investment criteria, per ordinary share (‘NAV’) criteria, cost control and which include gross margin which when combined with without encroaching upon and ROCE.