Housebuilder Bellway gave an upbeat appraisal of its West Midland operations yesterday as it reported increases in annual profits and revenues.

The group, which specialises in low-cost homes in regeneration areas, said that despite the continued need for sales incentives to combat challenging markets in most parts of the country, it managed to grow pre-tax profits by 3.2 per cent to £220.7 million in the year to July 31.

Revenues rose by 5.3 per cent to £1.24 billion, as the number of homes sold during the period increased to 7,117 at an average price of £169,000.

Newcastle upon Tyne-based Bellway described the performance as "creditable", adding that it was well positioned for the months ahead because of its lowcost model and amid plans to increase volumes this year from a greater number of outlets.

Bellway West Midlands, which o perates from Tamworth, recently started new long-term regeneraton schemes at Chelmsley Wood, north Solihull and Blakenall in Walsall.

The division is "flourishing and has secured a bright future", divisional managing director Colin Parker-Shaw said.

"We currently have 11 sites under construction and have a number of new developments coming on stream in the coming months in Rowley Regis, Chelmsley Wood and Ley Hill, Birmingham. We now have purchasers moving into the first phase of our major north Solihull development, Alcott Grove, and the strong early sales here indicate that this will be one of our key sites for 2007.

"With a healthy land bank, all the building blocks are now in place for this division to continue to grow and confirm our position as one of the leading new homes builders in the region."

Nationally, Bellway said reservations in August and September were nine per cent ahead of the same period last year, resulting in an order book worth £647 million at the end of September.

Chairman Howard Dawe said: "The current market, although stable, remains price competitive and is one in which Bellway has traditionally thrived."

Bellway said some parts of the country were more resilient than others, notably the North East, Scotland and the Thames Gateway area.

During the year the northern divisions of Bellway sold 3,764 homes, an increase from the 3,685 seen in the previous year. Overall the average selling price in the north fell slightly to £154,569 but, with volumes increasing, turnover lifted to £581.8 million.

The southern division also sold more homes, at 3,353. The average selling price jumped to £185,200 and with volumes increasing, turnover lifted to £621.1 million, a gain of 7.8 per cent on the previous year.

Bellway is paying a dividend of 34.5p, a rise of 10.4 per cent.

The group's shares, which were trading on a multiple of 9.5 compared with a sector average of 12.5, fell yesterday after a recent strong run fuelled by continued speculation over takeover activity in the sector.

Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers, said: "Management comments highlighting challenging conditions in many parts of the country are likely to be weighted against continued speculation regarding future industry consolidation."

Shares closed down 22p at 1334p.