Incentive in every sale lets builder limit pain

Feb 6 2009 by Graeme King, The Journal

HOUSEBUILDER Bellway has revealed sales have slumped 38% in six months despite the company’s strenuous efforts to tempt buyers.

But finance director Alistair Leitch said the company was relatively comfortable with its position, given the travails of its rivals, and was already half way towards its much reduced full-year home sales target.

In the year to last July, Bellway managed to sell 6,500 of its 8,000 home target – this financial year the target is a much more modest 4,000.

Bellway has been in trouble with its shareholders recently over bonuses of £630,000 paid to top executives last year – despite the original targets for those bonuses not being met.

The board was defeated in a vote at the company’s agm in Newcastle, but a Bellway spokesman said yesterday that no move had been made since that meeting either to have the bonuses repaid or to adjust remuneration policy.

On 2008/09 performance, Bellway said it had been using incentives such as discounts, shared equity and part-exchanges in "virtually every private sale", but warned margins could fall by more than half in the six months to last January 31. Its order book stands at £296m – almost half the value a year ago – as the market struggles with a mortgage drought and plummeting confidence.

Bellway said the average price of its homes sold had fallen from £174,800 to £160,000, reflecting the use of incentives as well as a larger input than usual from cheaper social housing.

Mr Leitch said: "We want to make sure we can deliver on the 4,000 homes and hit our profit target. We feel we will deliver that. We are trying to position the group for when the market returns.

"We hope to be in a strong position to take Bellway forward – it’s about getting banking facilities in place and making sure we are borrowing for as little as possible." Though sales figures and prices were not very impressive, Bellway did have some better news for investors, saying it was on track to reduce debts by about £100m to £120m by the end of July.

It was working "well within" bank facilities of £402m to run from last year to 2015. The firm’s shares rose 5% as investors focused on better news.

Panmure Gordon analyst Mark Hughes said: "Bellway’s trading statement is a touch weaker than our expectations from a trading point of view, but ahead of our expectations from a cash generation and debt perspective – the most important barometer in the market at the moment."

Turning to yesterday’s interest rate cut, Mr Leitch welcomed it but said builders needed mortgage lenders to pass on the lower cost of borrowing to customers before there would be any impact on performance.

He said: "The cut is very welcome at Bellway from a corporate point of view as our debt is tied into the base rate, but from a selling point of view, the cut needs to come through the mortgage companies to follow through to the guy in the street."

-- Tables

‘ONE OF THE BANES OF MY LIFE IS TOWN HOUSES’

BELLWAY finance director Alistair Leitch yesterday tried to blame the advent of three-storey town houses for some of the industry’s woes.

He said Bellway had more than 1,000 completed properties on its books unsold, and many of these were town houses which the public did not want – regardless of market conditions.

He said: "They are the wrong type of properties in the wrong location. One of the banes of my life is town houses – three-storey houses, fitting in the square footage on a smaller plot to appease the local planning authorities.

"Most people prefer to live over two floors. Town houses are lovely in somewhere like Leazes Terrace in Newcastle [a street of Georgian houses], but in Ryton or Morpeth, where we build them in semi-rural locations, people vote with their feet and don’t buy them."

So would a relaxation of planning guidance help builders sell homes?

"That would be nirvana if it were to happen. Most people want to live in a ‘box’ with a front garden, back garden, and a degree of security and privacy – separated from their neighbours by a reasonable distance – but planners want to cram everyone in."