Proactive Investors - Run By Investors For Investors

Absence of provisions makes Bellway stand out from rival UK housebuliders

Many UK housebuilders have had to put aside money to tackle issues such as poorly built homes and Grenfell Tower-style cladding
Bellway
Bellway posted an 8.7% rise in pre-tax profit for the first half

The absence of provisions in Bellway PLC’s (LON:BWY) first-half results has made the housebuilder stand out from rivals who have set aside money to deal with faults in homes.

Bellway said its margins were squeezed by cost inflation and a softening house market in the six months to January 31 but it still delivered an 8.7% rise in pre-tax profit to £313.9mln as revenue rose 12.4% to £1.5bn.

READ: Bellway lifts dividend as profits rise despite Brexit uncertainty and cost pressures

Dig a little deeper and there is one thing missing from the results – provisions.

Persimmon and Bovis Homes take hit over poorly built homes

Persimmon PLC (LON:PSN), on the other hand, took an impairment provision of £37.8mln in its 2018 results as it deals with complaints about the quality of homes and leasehold charges attached to new properties.

The housebuilder’s bill for dealing with complaints looks set to rise after launching a customer care improvement plan, which involves allowing a buyer’s solicitor to withhold 1.5% of the total value of a home until any faults identified at the time of release are resolved.

READ: Persimmon to let customers withhold 1.5% of house prices until housebuilder resolves faults

Bovis Homes Group PLC (LON:BVS) seems to have recovered from a botched homes scandal, which hit profits in 2016 and 2017 after setting aside money for customers affected by poor quality properties. 

READ: Bovis Homes sees good demand in 2019

Profits in 2018 jumped nearly 50% to a record £168.1mln as it focused on improving build quality.

However, it still took a provision of £4.8bn for the year without elaborating on what the money was for. 

Housebuilders set aside provisions to remove Grenfell Tower-style cladding

Barratt Developments PLC (LON:BDEV) said in its half-year results in February that it put aside money for work undertaken to remove and replace flammable cladding in buildings after similar materials were blamed for the Grenfell Tower fire tragedy last year.

A fire at the Grenfell Tower in West London claimed the lives of 72 people in June 2017. The rapid spread of the blaze was attributed to the use of combustible panels wrapped around the building.

Barratt agreed to pay £2mln to remove Grenfell Tower-style cladding at a building in Croydon in 2018 and in February said it had undertaken a review of all of its current and legacy buildings where it has used flammable materials.  

READ: Barratt Developments to pay special dividends in 2019 and 2020 as first-half profit jumps

“While we are satisfied that we currently have no liability in respect of cladding, we have made a provision for the work we have undertaken to carry out to remove and replace cladding in line with our commitment to put our customers first,” it said.

Crest Nicholson Holdings PLC (LON:CRST) said in 2018 results that it had also made fresh provisions to mitigate the fire risks in tall buildings.

READ: Crest Nicholson surges as it nabs Galliford Try's chief executive officer

The housebuilder has reviewed materials used in insulation and external facades, particularly for buildings over 18 metres high.

While it did not specify the amount set aside for dealing with fire hazards, it had £2.6mln in provisions last year.

Taylor Wimpey ground rents scandal 

Taylor Wimpey PLC (LON:TW. has bookmarked £30mln to replace flammable cladding on some of its developments, which brought total provisions to £170.3mln in 2018. 

The group has also paid out £25.5mln of the £130mln set aside in 2017 to settle a ground rents scandal, in which thousands of homebuyers were trapped in contracts with spiralling ground rents.

READ: Taylor Wimpey off to a "positive start" in 2019

Freeholders are being paid to move leaseholders with a 10-year doubling lease to an RPI-based structure. About half of homeowners will be switched to less onerous ground rent terms.

Lastly, Berkeley Group Holdings PLC (LON:BKG) took a £82.7mln provision in the first half related to “post competition development obligations”.

READ: Berkeley Group leaves guidance unchanged but is "mindful" of potential for disruption from political back-drop

View full BWY profile View Profile

Bellway PLC Timeline

Related Articles

Social care
February 01 2019
In the first half of the current year, the company said its health and housing pipeline had grown to 26 schemes with £222.5mln of gross development value
SigmaRoc quarry
April 18 2019
Founded in 2016, the firm looks to create value by purchasing assets in the fragmented construction materials market and forming them into larger groups to create efficiencies

© Proactive Investors 2019

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use