Bellway enjoys jump in profits but Ukraine crisis adds to cost pressure headache

Housebuilding major Bellway has racked up higher half-year profits but revealed a further bill for high-rise fire safety works and cautioned over ongoing cost pressures amid the Ukraine conflict.

The Newcastle-based group, which has a string of development and sales sites in Scotland, reported a 9.8 per cent hike in underlying pre-tax profits to £307.6 million for the six months to January 31 thanks to record completions of 5,694 homes.

It set aside a further £22.1m for fire safety works on potentially dangerous cladding on its tall buildings following the Grenfell Tower tragedy, bringing its total cost so far to £186.8m since 2017.

The group said it will continue to see surging inflation, which it warned could be compounded by the Ukrainian crisis.

Newcastle-headquartered Bellway has a string of development and sales sites in Scotland.

It told investors: “Materials shortages, rising fuel prices and wage costs are expected to result in continued inflationary pressures in the year ahead, with these potentially exacerbated by the worldwide consequences of the crisis in Ukraine.”

But it said so far house price rises had been offsetting rising costs for the group, with average selling prices rising 2.9 per cent to £311,849.

The group shrugged off concerns that the cost of living crisis and rising interest rates are set to dampen the roaring property market.

“Customer interest and trading conditions have remained strong, with early indications suggesting that the underlying market demand will result in an upbeat spring selling season,” it noted.

The order book has grown since the end of January, to 7,491 homes worth £2.2 billion as of March 13, against £1.6bn a year ago, and weekly reservations rose 10.6 per cent to 291 in the six weeks since February 1.

This puts it on track to sell more than 11,100 homes over 2021-22, up around 10 per cent year-on-year, at an average selling price of over £305,000.

Chief executive Jason Honeyman said: “The mortgage market is generally supportive and notwithstanding the recent, modest rises in interest rates and ongoing cost-of-living inflationary pressures, our mid-market product remains affordable in a historical context.”

The group’s cladding fire safety costs come amid a ballooning bill for the housebuilding sector following the Grenfell Tower fire.

Bellway said it had been able to recover £2.5m of the latest increase in costs, with a total of £29.7m recouped from suppliers, subcontractors and professional advisors “where they have fallen short of the standards required”.

Mark Crouch, analyst at investment network eToro, said: “Conditions have been perfect for housebuilders over the past 12 months, but Bellway’s interim results hint at a market that is coming off the boil.

“Demand will remain strong in 2022, but we believe it will weaken somewhat in the face of higher inflation and rising interest rates.”

Ross Hindle, senior analyst at Third Bridge, noted: “Although inflated raw material and labour costs are a big factor, continued undersupply means Bellway continues to benefit from the yawning gap between housing supply and demand.

“Rising costs, staffing shortages and cladding issues remain three of the key challenges facing Bellway,” he added.

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