RNS Number:6905S
Bovis Homes Group PLC
12 March 2007
BOVIS HOMES GROUP PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006
Issued 12 March 2007
The Board of Bovis Homes Group PLC today announced its preliminary results for
2006 which have been prepared in accordance with International Financial
Reporting Standards as adopted by the EU ('IFRS').
* Pre tax profit growth of 13.7% to #132.0 million stated before one-off
pension credit of #3.5 million; #135.5 million inclusive of pension credit
* Sector leading operating margin at 23.1% pre one-off pension credit
(2005: 24.0%)
* Continuing good return on capital employed, held level at 20% pre
one-off pension credit
* Final dividend increased by 20% to 20.0p net per ordinary share making
30.0p for the year (2005: 25.0p)
* Strong cash management, with #103 million net cash-in-hand at the year
end
* Strategic land holdings increased to 24,719 potential plots (2005:
22,166 potential plots)
* 12,395 plots with planning consent owned/controlled, representing 4.0
years supply (2005: 13,138 plots) and a further c.3,800 plots (1.2 years
supply) at an advanced planning stage, currently held in the strategic land
bank
Commenting on the results, Malcolm Harris, the Chief Executive of Bovis Homes
Group PLC said:
" 2006 was a year of excellent progress, with good growth in pre-tax profits, a
high return on capital employed and strong cash management.
Future sustainable growth is underpinned by enhanced land holdings and an
excellent forward sales position which is over 15% ahead of the comparable
position in 2006.
The Board's confidence in the future prospects of the Group is reflected in the
continuing progressive dividend policy, with an anticipated doubling of the
dividend between 2004 and 2008."
Enquiries: Malcolm Harris, Chief Executive
Neil Cooper, Finance Director
Bovis Homes Group PLC
On Monday 12 March - tel: 020 7321 5010
Thereafter - tel: 01474 876200
Results issued by: Andrew Best / Emily Bruning
Shared Value Limited
On Monday 12 March - tel: 020 7321 5010
Chairman's statement
2006 was a year of good progress for Bovis Homes, delivering healthy growth in
the volume of legal completions, whilst retaining the Group's sector-leading
operating profit margin. Increased revenues drove strong cash generation for the
Group, with positive net cash in hand at the year end, and thus the Group is
well positioned to invest in future land supply throughout the Group's
operations.
The Group remained cautious in 2006 over consented land investment in a highly
priced, supply-constrained land market. However, the Group's long term
investment programme in strategic land continues to deliver opportunities for
the Group to replenish its consented land bank without resorting to purchasing
open-market residential land, facilitating revenue growth at good margins.
Results
For the year ended 31 December 2006, the Group achieved pre-tax profit of #132.0
million (stated before a one-off pension credit of #3.5 million), a 13.7%
increase on the previous year's performance of #116.1 million. Basic earnings
per share increased by 12.8%, from 69.0p to 77.8p, again stated before the
pension credit mentioned above.
Total revenue increased by 14.6%, from #521.2 million in 2005 to #597.3 million
in 2006, and the volume of legal completions grew by 15.6% to 3,123 units.
The Group's average sales price increased to #183,700, 4.7% higher than 2005's
#175,500. This increase was contributed to by a changing mix, with a smaller
number of lower priced social and partnership units, and a greater number of
private units. Despite this mix change, the average size of units legally
completed has reduced in 2006 as compared to 2005, demonstrating the Group's
continuing focus on good quality, mid-market private units.
The Group's operating margin, before the one-off pension credit, remained
strong, at 23.1%, versus 24.0% in 2005. For the ninth consecutive year, the
Group has generated a return on capital employed of at least 20%.
Dividend
Together with the 10.0p per share 2006 interim dividend declared and paid, the
proposed final dividend for the year ended 31 December 2006, of 20.0p per share,
demonstrates the Board's commitment to its earlier statement in respect of
dividends, which is that - conditional on any necessary approvals required at
future general meetings, and subject to a stable business environment -
dividends will be doubled from their 20.0p per share base in 2004 to 40.0p per
share in 2008, including a 5.0p per share increase in both 2007 and 2008.
The 2006 dividend, taking the interim and final dividend in total, at 30.0p per
share, is a 20% increase on the 2005 dividend of 25.0p per share, and is covered
2.6 times by the basic earnings per share of 77.8p per share, excluding one-off
pension credit.
The proposed final dividend of 20.0p per share for 2006 will be paid on 25 May
2007 to shareholders on the register at the close of business on 30 March 2007.
The Board intends to offer a scrip dividend alternative, pursuant to which the
shareholders may elect to receive the whole or part of their final 2006 dividend
in new ordinary shares, credited as fully paid, as an alternative to cash.
The Board
There have been a number of Board changes to communicate.
Firstly, after four and a half years as the Group Finance Director, Mr David
Ritchie has been appointed, effective from 2 January 2007, to the role of Group
Managing Director.
Mr Ritchie's appointment reflects both the additional demands created by the
growth of the Group, and the value that Mr Ritchie has added to date as an
executive director. Mr Ritchie will be responsible to the Chief Executive for
the day to day running of the regional operations.
Secondly, succeeding Mr Ritchie as Group Finance Director, Mr Neil Cooper has
been appointed to the Board as an executive director on 2 January 2007. Mr
Cooper previously worked in senior finance roles in Reckitt & Colman Plc and
Whitbread Plc.
Thirdly, Mr Colin Holmes was appointed as a non-executive director, with effect
from 1 December 2006. Mr Holmes is currently the Chief Executive of Tesco's UK
convenience store business, and has been with Tesco since 1988.
The Board currently comprises five non-executive directors, including myself,
and three executive directors.
The Board would like to pay tribute to Mr Mark Nicholls, who steps down from the
Board at the upcoming AGM. Mr Nicholls has been a non-executive director of the
Company since before flotation in 1997, and his contribution to the development
of the Group has been significant.
Employees
Bovis Homes believes that the success of the Group is down to the hard work,
talent and expertise of its employees. Their commitment is fundamental to
achieving this success.
In making this happen, we strive to maintain a diverse workforce, reflecting the
range of talents in the communities we work and operate in. We are also
committed to the health, safety and welfare of all of our employees, whether on
building sites, or in the office: conducting business in the right way.
I would like to thank all of our employees for their efforts towards making 2006
a successful year for Bovis Homes.
Market conditions & prospects
The housing market during 2006 was generally stronger than in 2005, helped by a
broadly positive economic backdrop for much of the year. Average national
earnings growth at 3.7% for the year to December 2006, and record high
employment levels, have had a positive effect on the housing market in terms of
both pricing, and volume trends.
Looking ahead, it is anticipated that the undersupply of new housing relative to
new household generation will continue. It is generally accepted that the
constraints of the planning system remain firmly in place on the supply side;
constraints that both restrict supply of land for housebuilding, and increase
the time taken to bring strategic land opportunities into the consented land
bank. When this is allied to household growth, driven by demographic and
societal changes, that is in excess of supply, then robust market fundamentals
remain in place.
This said, inflationary pressures in the economy as a whole have become more
acute through 2006, and in response, the Bank of England Monetary Policy
Committee raised rates by 0.25% twice during 2006: in August, and in November,
together with a third 0.25% rise in January 2007.
The impact of these on consumer confidence will become clear in due course, but
the Group believes that it is well placed to operate successfully in its
marketplace during 2007.
The Group has migrated its sales mix towards good quality mid-market private
homes over a period of time, and this taken together with its ability to procure
land through its long term investment strategy; the integration and efficiency
of its design, build and marketing processes; the growth opportunities afforded
by steady regional expansion and the further development of the urban
regeneration business will enable the Group to continue to offer good prospects
and to enhance shareholder value.
Tim Melville-Ross
Chairman
Chief Executive's operational review
The Group achieved a good performance in 2006 operating in a steady housing
market. The Group has increased legal completions by over 15% and delivered a
pre-tax profit of #132.0 million excluding a one-off pension credit of #3.5
million whilst maintaining a strong operating margin, high return on capital
employed and excellent cash management. Future expansion of the Group has been
underpinned by further investment in strategic land and in the ongoing
development of the urban regeneration business.
Product mix & average sales price
The Group legally completed 3,123 homes in 2006, including 135 dwellings built
on third-party owned land, compared with 2,702 homes in 2005, including 147
homes built on third-party owned land. The Group's average sales price was
#183,700 compared with #175,500 the previous year, a 4.7% increase. The average
size of property decreased by 2.2% from 1,014 square feet in 2005, to 992 square
feet in 2006, demonstrating the Group's focus on good quality mid-market homes.
Taking this further progress in product mix into account, the average sales
price per square foot of the Group's private homes increased by 5.1% year over
year.
Market sector analysis
Year ended 31 December 2006 2005
% Units Average % Units Average
House type sales price sales price
# #
-------------------------------------------------------------------------------
One and two bedroom 32 996 134,300 23 602 135,100
Three bedroom 31 957 200,700 31 845 183,900
Four bedroom 14 436 265,000 12 321 266,500
Five or more bedroom 7 230 324,100 9 254 313,600
Retirement Living 3 95 242,200 3 84 239,100
Social housing 9 274 88,200 17 449 94,300
Partnership housing
(third 4 135 78,400 5 147 74,100
party owned land
units)
-------------------------------------------------------------------------------
Group 100 3,123 183,700 100 2,702 175,500
-------------------------------------------------------------------------------
Product mix analysis
Year ended 31 December 2006 2005
% Units Average % Units Average
House type sales price sales price
# #
-------------------------------------------------------------------------------
Traditional 30 941 189,500 28 758 194,200
Room-in-roof 13 389 300,400 13 354 295,000
Three storey 21 646 213,400 21 558 202,200
Apartments 20 643 129,000 13 352 135,500
Retirement Living 3 95 242,200 3 84 239,100
Social housing 9 274 88,200 17 449 94,300
Partnership housing
(third 4 135 78,400 5 147 74,100
party owned land
units)
-------------------------------------------------------------------------------
Group 100 3,123 183,700 100 2,702 175,500
-------------------------------------------------------------------------------
Regional performance
Demand was steady across England and Wales throughout the year: sale price
improvements however were more significant in the Southern markets. During 2006,
72% of the Group's private home legal completions achieved an average sales
price of #167,000. In addition, 13% of the total 2006 legal completions were
either social or partnership housing, with an average sales price of #85,000.
The establishment of new regions with subsequent adjustments to geographical
operating areas has made accurate comparisons between historical volumes,
margins and average sales prices on a regional basis challenging, and with
further operations due to open, the Group averages are now more appropriate than
those shown regionally. Encouragingly, the performance of these developing
regions has made a substantial contribution to the increased volume of legal
completions delivered by the Group. For example, the Group's Eastern and
Northern regions grew their volume of legal completions on a combined basis by
24% demonstrating the growth achievable from a platform of well controlled and
judicious investment.
Unit completions and average sales price
Year ended 31 December 2006 2005
Units Average Units Average
sales price sales price
# #
-------------------------------------------------------------------------------
South East* 906 212,100 815 196,500
South West 836 148,700 678 149,700
Central 510 204,200 500 179,000
Eastern* 504 167,400 393 160,000
Northern 272 168,500 232 173,700
Retirement Living 95 242,400 84 239,100
-------------------------------------------------------------------------------
Group 3,123 183,700 2,702 175,500
-------------------------------------------------------------------------------
* Restatement of prior year to reflect the movement of the Norfolk area from
South East into Eastern
Land and planning
The average plot cost for the consented land bank (excluding social housing and
third-party land) at the year end was #46,900 which represented 23.6% of the
average sales price achieved in 2006 (excluding social housing and dwellings
constructed on third-party owned land). This compared well with the average plot
cost (excluding social housing and third party land) at the start of the year of
#45,300.
The strategic land holdings as at 31 December 2006 stood at 24,719 potential
plots (2005: 22,166). The Group was successful in promoting land during the year
resulting in the attainment of planning consent and transfer to the consented
land bank of 1,435 plots. As at the end of the year, the strategic land holdings
included c.700 plots controlled through a legal agreement relating to
redevelopment of existing residential land and c.3,100 plots approved by
planning committee subject to a S106 agreement being signed. These c.3,800 plots
have a high degree of certainty, and represent an additional 1.2 years potential
supply, at 2006 volumes, in addition to the 4.0 years of land supply available
from the Group's consented land bank in place, again at 2006 volumes.
An indicator of the ability of the Group to source cost effective land via its
strategic land holdings is that 41% of housing profits were generated from
strategically sourced land in 2006 compared with 32% in 2005.
Consented land bank
Total plots as at 31 December 2006 2005
Plots Plots
-------------------------------------------------------------------------------
South East* 2,986 3,171
South West 3,135 3,341
Central 2,143 2,260
Eastern* 2,199 2,290
Northern 1,313 1,383
Retirement Living 251 251
-------------------------------------------------------------------------------
Group (exc. third party owned land plots) 12,027 12,696
Third party owned land plots
South East 88 88
South West 280 354
-------------------------------------------------------------------------------
Group consented land bank 12,395 13,138
-------------------------------------------------------------------------------
Urban redevelopment - Legal agreement exchanged# 700 -
Development approved by planning committee subject to
S106 being signed# 3,100 -
-------------------------------------------------------------------------------
Aggregate holdings 16,195 13,138
-------------------------------------------------------------------------------
Years' supply based upon legal completions in the year
(Consented land bank) 4.0 4.9
Years' supply based upon legal completions in the year
(Aggregate holdings) 5.2 4.9
-------------------------------------------------------------------------------
# held in strategic land bank
*Restatement of prior year to reflect the movement of the Norfolk area from
South East into Eastern
Strategic land bank
Total potential plots as at 31 December 2006 2005
Plots Plots
--------------------------------------------------------------------------------
South East 8,256 8,207
South West 4,545 5,124
Central 9,417 7,099
Eastern 1,268 336
Northern 1,089 1,180
Retirement Living 144 220
--------------------------------------------------------------------------------
Group strategic land bank 24,719 22,166
--------------------------------------------------------------------------------
Years' supply based upon completions in the year 7.9 8.2
--------------------------------------------------------------------------------
Partnership housing
The Group is actively involved with housing associations, local authorities and
other similar bodies, providing quality new homes at affordable prices, either
for rent or shared ownership, to communities throughout the country. The Group
has total in-house capability to handle all aspects of each project, including
major regeneration schemes. In addition to design and build, there exists
expertise to provide cross-subsidies from the development and sale of open
market housing and commercial buildings.
The Horfield regeneration project in Bristol remains the largest single
partnership scheme currently being developed by the Group, which is now expected
to deliver over 900 properties when completed.
During 2006, seventeen new developments exchanged legal agreements, providing
the Group with a good base to expand this important part of its business.
Further opportunities are in the pipeline which will enable the Group to work in
partnership with local authorities, Government and registered social landlords
in fulfilling community needs whilst generating shareholder value.
Research and development
With a challenging sustainability agenda ahead for the industry, the Group
believes that continuous improvement through research and development is key to
the continuing success of the business and is a significant factor in delivering
environmental, social and sustainability objectives. The Group engages with many
stakeholder organisations, including housebuilding industry warranty providers
and building control bodies, the Home Builders Federation, the Building Research
Establishment, and the Department of Communities and Local Government in respect
of building regulation development, and actively partners many manufacturers and
suppliers. Further details are contained in the Group's Corporate Social
Responsibility report, which is available to all shareholders.
Pension scheme
The Group made a commitment during 2004 to fund the past service deficit on its
defined benefits pension scheme, as identified in the actuarial valuation
completed in June 2004, by 2007. Up to 31 December 2006, special contributions
had been paid into the pension scheme amounting to #8.6m, and the deficit has
reduced substantially as at the end of 2006.
Group strategic objectives to improve shareholder value
The Group's performance during 2006 has been achieved in a manner consistent
with its long held strategic objectives, laid out below:
* Achieve a minimum return on capital employed of 20%, and maximise the
operating margin
* Ensure growth in profits and earnings per share
* Ensure that the Group maintains the highest level of awareness and
practical implementation of health, safety and environmental standards
The following outlines the strategies employed by the Group in achieving its
objectives.
Strategies to deliver objectives
* Achieve a minimum return on capital employed of 20%, and maximise the
operating margin
Land supply is a fundamental requirement of a housebuilding business: its
purchase and management are key to the success of the operation. The Group has
a consistent land investment policy relating to purchase and management of its
land holdings. An important aspect of this strategy is in the long-term
assembly of large developments through strategic land holdings, assisted by
the Group's Land Directors, Land Managers and Town Planners in both obtaining
and promoting the Group's land resources in an effective manner. Its strategic
land holdings have grown substantially over the years and underpin the future
profitability and growth of earnings and dividends, as promotion of strategic
land through to a residential planning status allows the Group to add to its
consented land bank without having to pay an open market price: particularly
effective where land inflation is moving sharply ahead. All investments are
made on the basis of a minimum of 20% return on capital employed, setting a
clear performance benchmark for its internal management team that is echoed by
the Group's declared targets in this area, and the Group measures its
performance in land acquisition by reference to both a consented land bank,
and to its strategic land holdings.
The Group employs qualified architects, civil engineers, structural engineers,
interior designers and has a Group Research and Development Department. This
combined professional group works with regional and Group sales and marketing
departments to ascertain customer requirements. Subsequently, continuous
research and development enables delivery of homes that meet purchasers'
requirements at an affordable price. This method of operating facilitates a
high level of customer satisfaction and has enabled the Group to provide a
wide range of homes that meet peoples' expectations in a highly integrated
manner. The Group has a total professional in house capability covering all
aspects and functions of the business delivering an efficient service at a
cost effective price, providing shorter timescales and the ability to focus
attention where necessary. Prices are maximised by effective marketing whilst
ensuring that the required volumes are met. The Group measures performance by
virtue of the level of customer satisfaction and profit margin achieved
compared with its peer group.
The Group continues to focus attention on recruitment, training and motivation
of an able and efficient management team. Bovis Homes is a "people" business.
It is essential, therefore, the right calibre of individuals is recruited,
trained and motivated, and staff turnover is monitored on a monthly basis.
The management and control of this Group is, and will continue to be,
undertaken by people who understand the economic and political climate in
which the Group operates, who are sensitive to the demands and requirements of
customers and have the entrepreneurial drive to move the operation forward
without compromising clear and straightforward corporate governance.
The Group's operating margin and return on capital employed is assessed by
comparison to the performance of its peer group.
* Ensure growth in profits and earnings per share
Planned sustainable expansion in volume and revenue is a major factor in the
delivery of this key objective. The Group has set expansion targets which will
be met through the establishment of new regions providing wider geographic
coverage. The Group believes, for reasons of geographic focus, and cost
effective & efficient management, that this model offers the right level of
cost efficiency and will deliver long-term added value. Allied to this, the
Group has demonstrated progress in urban regeneration partnerships, developing
private and partnership properties through effective collaboration with
housing associations, local government and their agencies.
The Board believes that shareholders should benefit from the Group's success
in this objective, and is committed to a progressive dividend policy, advising
shareholders of the Board's decision (subject to a stable business environment
and necessary shareholder approvals) to double the dividend between 2004 and
2008. Since 2002, the dividend per share has more than doubled, from 14.0p per
share in 2002, to a proposed 30.0p per share in 2006.
The Group measures performance by regard to growth in earnings per share, and
increases in pre-tax profit: both as compared to the Group's peers, and to
broader market comparators.
* Ensure that the Group maintains the highest level of awareness and
practical implementation of health, safety and environmental standards
Best practice in health, safety and environmental awareness and management is
an important element in the continuing success of the Group. The Health,
Safety and Environmental Consultative Committee oversees these important
matters, formulating and promulgating policy to all stakeholders. The
Committee is chaired by a Bovis Homes Limited director by annual rotation to
ensure that fresh ideas and initiatives are constantly introduced, assessed
and, where appropriate implemented on a consistent basis. The chairman is
supported by a committee comprising Group employees from numerous disciplines
complemented by the Health and Safety Director and external independent
professional advisers. The chairman reports formally to the Board through
submission of a Health and Safety report tabled at each Board meeting.
Bovis Homes promotes all aspects of safety and environmental management
throughout its operations in the interests of all stakeholders. Its record of
success was recognised in 2006 with the RoSPA President's Award which was
given to Bovis Homes Group PLC for an outstanding performance in occupational
health and safety over a period of ten years. Bovis Homes' objective is to
achieve sustainable construction and reduce environmental impact. The Group
seeks to protect and, wherever possible, improve the environment by retaining
mature landscaping and introducing new planting and habitats.
It is also committed to planning for the most efficient and effective use of
development land. The Group has introduced higher density properties with
flexible accommodation which addresses the changing lifestyles of its
customers, including the ability to work from home.
The Group emphasises the importance of this objective by publishing an annual
report on Corporate Social Responsibility which is issued to all shareholders
and contains a number of key metrics used to assess performance: these include
the percentage of legal completions on brownfield land, Health and Safety
statistics, and the contribution made towards fulfilling social housing needs
Outlook for 2007
The current economic outlook for the UK is relatively benign. The recent
increase in retail prices has been affected by high international energy and
base material prices. These commodities have now moderated in value which should
feed through to lower prices over the next twelve months.
Further to the repositioning of the product range to mid-market, the Group now
has a range of homes that are highly competitive compared with the second-hand
market. This strategy was accompanied by a decision to release products for sale
at an early stage of the production cycle. The overall effect has been to
provide a good base to deliver sustainable growth.
The Group has an improved forward order book compared with last year, strong
land holdings, and is in an excellent position to expand and deliver added
shareholder value.
Malcolm Harris
Chief Executive
Financial review
Overview
The Group's continued focus on achieving cost effective land purchases through
the use of its longer term strategic land investment programme, allied with the
repositioning of the Group's product mix towards good quality mid-market private
homes have put the Group in a position where attractive growth in the number of
legal completions has been achieved whilst at the same time delivering profit at
a healthy operating margin and making a 20% return on capital employed.
Whilst there has been a shift in the product mix of the Group away from social
and partnership housing in 2006 as against 2005, this has been driven by timing
factors around the legal completion of social housing, and the Group anticipates
a higher mix of social and partnership housing going forward.
The Group's consented land bank equated to around four years supply at 2006
volumes, with 12,395 plots. This compared to 13,138 plots at the start of the
year, the reduction reflecting the Group's caution in procuring consented land
in the prevailing land market. However, progress in procuring strategic land was
good, with 2,553 net potential plots added to the strategic land holdings during
2006.
Gearing benefited from strong revenue growth and good control over working
capital, with net cash in hand at the end of the year of #103 million. The long
term investment programme that the Group has in place to generate cost-effective
land plots from strategic land carries material future investment requirements
in both land cost and in infrastructure cost: by their nature, the timing of
these costs can be uncertain.
The Group's average gearing during 2006 was 9%, The Group has historically been
successful in deferring payment for a proportion of its acquired land, creating
a balance sheet liability. The practical effect of these contractual agreements
is to defer cash outflow for a period of time, and thus avoid the funding
requirements that would ordinarily be crystallised by this cash outflow. Average
gearing would have been 19% if adjusted to reflect this liability as part of the
Group's debt.
Profit before tax and earnings per share
The ordinary profit before tax for the year ended 31 December 2006 was #132.0
million stated before a one-off pension credit of #3.5 million, up by #15.9
million or 13.7% from the comparable number in 2005 at #116.1 million. This gave
rise to a basic earnings per share of 77.8p for 2006, excluding the one-off
pension credit (79.8p per share inclusive of the credit) up 8.8p or 12.8% from
the comparable number in 2005, at 69.0p per share. Including the pension credit,
ordinary profit before tax for 2006 was #135.5 million.
Revenue
Total revenue for the Group in 2006 was #597.3 million. This reflected an
increase of 14.6% on the prior year at #521.2 million.
The Group housing revenue increased by 21.0%, being the key component of the
Group's total revenue, from #474.2 million in 2005 to #573.7 million in 2006,
benefiting both from an increase in the volume of legal completions, and an
increase in average sales price from #175,500 to #183,700. This increase in
average sales price between 2005 and 2006 was despite a 2.2% fall in average
size per unit legally completed, from 1,014 square feet in 2005 to 992 square
feet in 2006. More than offsetting the impact of this, the average sales price
per square foot grew by some 7% in 2006 versus 2005: driven in part by increases
in sales price per square foot for private housing legal completions, and in
part by a reduction in the contribution to the mix of social and partnership
housing units, which generally have a lower sales price than private units.
The Group sold #19.5 million of land in 2006, down from #34.2 million in 2005,
and other income was #4.1 million in 2006, a reduction of #8.7 million from the
equivalent number in 2005.
Operating profit
The Group delivered an operating profit of #137.8 million pre one-off pension
credit in 2006, at an operating profit margin of 23.1%, again stated before the
pension credit. Operating profit grew by 10.2%, or an incremental #12.7 million,
versus the comparable #125.1 million in 2005. Including the pension credit, the
Group operating profit for 2006 was #141.3 million.
Of this operating profit, land sales contributed a profit, less option costs, of
#7.8 million, as against land sales profit less option costs of #13.1 million in
2005.
Administrative expenses, including sales & marketing and a provision for staff
bonuses, as a percentage of revenue increased slightly in 2006 as against 2005,
from 8.5% in 2005 to 8.7% in 2006, ignoring the one-off pension credit.
After excluding the impact of land sales and other income, the gross margin on
housing was broadly flat year over year.
Analysis of margin Total housing Group
2006 2005 2006 2005
% % % %
----------------------------------------------------------------------------------
Revenue 100.0 100.0 100.0 100.0
Land costs (19.6) (18.6) (19.8) (19.2)
Construction costs (49.2) (50.0) (48.4) (48.3)
----------------------------------------------------------------------------------
Gross profit 31.2 31.4 31.8 32.5
Administrative expenses (inc.
sales and marketing costs) (8.7) (8.5)
----------------------------------------------------------------------------------
Operating profit 23.1 24.0
----------------------------------------------------------------------------------
Note: 2006 data excludes #3.5 million pension credit
Financing
Net interest payable for the year amounted to #5.8 million (2005: #9.0 million),
a year over year reduction reflecting a generally decreased level of average
borrowings throughout the year. Interest cover stood at over 23 times.
Of this total, the bank interest net charge, including arrangement fees and
un-drawn commitment fees was #3.6 million, down by #2.4 million from the
previous year's total of #6.0 million. The remaining #2.2m cost incurred in 2006
was a finance charge reflecting the difference between the cost and nominal
price of land bought on deferred terms, which is charged to the income statement
over the life of the deferral. This compared to a total of #3.0 million charged
in 2005.
Taxation
The Group's tax charge taken through the income statement amounted to #40.5
million. This equates to an effective tax rate of 29.9% on profit before
taxation (2005: 29.8%). This income statement charge is made up of tax on the
current year of #38.1 million, a tax credit of #0.4 million relating to prior
years, and a deferred tax charge of #2.8 million. This deferred tax charge
includes a #1.7 million deferred tax charge relating to the #5.8 million special
contribution paid into the pension scheme, and a #1.0 million deferred tax
charge relating to the #3.5 million one-off pension credit taken in the year.
Dividends
During the year, the Group paid the 2005 final dividend of 16.7p per share, and
the 2006 interim dividend of 10.0p per share. In total, this amounted to #31.8
million (2005: #25.9 million). Post-tax earnings before the one-off pension
credit in 2006 were 2.9 times the dividends paid.
The Board is recommending a 20.0p per share final dividend for 2006, taking the
total dividend for 2006 to 30.0p per share. This represents a dividend cover of
2.6 times, using basic earnings per share pre one-off pension credit.
Net assets
The Group's net assets grew by some #80 million in 2006 as against 2005, with
closing net assets at #678 million (2005: #598 million). The major driver of
this was #63.2 million in retained earnings, inclusive of one-off pension
credit, and the Group also benefited from the addition of #9.2 million of issued
share capital and share premium arising from the exercise of share options and
an increased uptake of scrip dividends. There was also an actuarial gain on the
Group's defined benefits pension scheme, of #6.1 million net of deferred tax,
during 2006.
Analysis of net assets
2006 2005
#m #m
-------------------------------------------------------------------------------
Net assets at 1 January 598.1 538.2
Profit for the year 95.0 81.5
Dividends (31.8) (25.9)
Share capital issued 9.2 4.8
Actuarial gain / (loss) on defined benefits
pension scheme 6.1 (2.0)
Deferred tax on other employee benefits 0.2 0.9
Adjustment to the fair value of cash flow
hedges 0.5 0.3
Adjustment to reserves for share based
payments 0.5 0.3
--------------------------------------------------------------------------------
Net assets at 31 December 677.8 598.1
--------------------------------------------------------------------------------
Return on capital employed
The return on capital employed for the Group for 2006 was 20%, taking the
operating profit of the business pre one-off pension credit at #137.8 million,
and an average capital employed of #689.2 million. This represents the ninth
consecutive year of achievement of a minimum return of 20%.
Pensions
The Group operates a defined benefit pension scheme, on which the last actuarial
valuation was on 30 June 2004; which indicated that the market value of the
scheme's assets was below the present value of the scheme's liabilities at that
point. As a result, the Group has agreed to contribute to reducing this deficit
over an agreed period, through special contributions made by the Group to the
scheme. During 2006, the Group contributed #5.8 million under this agreement.
According to the estimates provided by the Group's actuarial advisor, the
deficit on the Group's scheme has fallen from #22.4 million at the start of 2006
to #5.1 million as at the end of 2006. This movement is primarily due to the
payment of the #5.8 million special cash contribution, a #3.5 million one-off
credit and an actuarial gain of #8.6 million.
The actuarial gain enjoyed by the scheme in 2006 has arisen in two areas: an
increase in the value of the scheme's assets, and a reduction in the value of
the estimated future liabilities of the scheme following re-estimation as actual
results varied from previous actuarial estimations which in combination total
#5.2 million, and a #3.4 million gain arising from movements in the underlying
actuarial assumptions used, in particular around the discount rate applied
having regard to bond yields.
Analysis of pension scheme deficit
2006 2005
#m #m
--------------------------------------------------------------------------------
Pension deficit at 1 January 22.4 20.5
Contributions into the pension scheme (7.5) (3.6)
One-off pension credit (3.5) -
Expense to the income statement 2.3 2.6
Actuarial (gain) / loss on defined benefits
pension scheme (8.6) 2.9
--------------------------------------------------------------------------------
Pension deficit at 31 December 5.1 22.4
--------------------------------------------------------------------------------
As outlined previously, 2006 features a one-off pension credit of #3.5 million
arising from an actuarial revaluation following scheme rule changes in April
2006, which the Group is obliged to take to the income statement. To provide a
more meaningful comparison against prior year, the Group has adjusted the
reported figures by the credit to generate an underlying comparator and the
table in note 6 provides a reconciliation.
Cashflow
Cashflow generation was strong during 2006 benefiting from a reduction in
working capital at the year end employed in both trade and other receivables,
and in the carrying costs of inventories as compared to the closing 2005 balance
sheet.
Specifically, cashflow benefited from a favourable #11 million reduction in the
carrying cost of home-exchange properties, and a #16 million reduction in the
carrying cost of housing work in progress, with sales levels stronger in 2006
than in 2005. Cashflow also benefited from the timing of receivables between
2005 and 2006, from a #23 million favourable movement in the Group's land
creditors and from an increased level of scrip dividend.
Given the nature of the Group's long term investment programme in strategic
land, the cost of land acquisition and its associated infrastructure costs
post-consent can be both sizeable and unpredictable in terms of its timing. The
Group has a number of large strategic land holdings which are expected to
require substantial levels of cash expenditure during 2007 and beyond. These
costs are likely to be well in excess of that required for these sites during
2006.
Net borrowings & banking facilities
The Group exited 2006 with #40.2 million of fixed rate borrowings, offset by
#142.9 million of cash on short term deposit.
The Group held banking facilities of #220 million at 31 December 2006, made up
of bilateral committed revolving loan facilities with six banks; effective from
7 February 2005 for 5 years to 6 February 2010.
As indicated earlier, with an average net borrowing of #54 million in 2006,
average gearing stood at 9%, or 19% if taking into account land creditors. The
Group's peak net borrowing position during the year was #111 million.
Financial risk & liquidity
The Group seeks to fix an element of its borrowings, in order to mitigate the
risk of material interest rate fluctuations. This is achieved by entering into
interest rate swaps of varying maturities, the need for which would normally be
reviewed at the point of draw-down of additional loan funding, having regard to
the current and future estimates of the monetary environment. Care is taken to
match the maturity of the swap with that of the underlying borrowing. At 31
December 2006, the Group had interest rate swaps in place on #40 million of
borrowings.
The Group's banking arrangements, which constitute a #220 million revolving
credit facility, plus an overdraft facility, offer the Group adequate
flexibility & liquidity for its foreseeable cash flows in the medium term. Given
the bilateral and committed nature of these facilities, the Group is able to
draw down funds to fulfil its needs, for periods ranging from a few days to
periods extending to the life of the facilities. Investment of short term cash
surpluses is strictly controlled by the Group Finance function, with care taken
to ensure that funds are not deposited for periods longer than necessary.
As the Group functions wholly in the UK, currency risk management is not a
material consideration.
Financial Reporting
Unlike the previous year of 2005, which featured the adoption of International
Financial Reporting Standards, there have been no changes in the Group's
accounting policies during 2006.
Neil Cooper
Group Finance Director
Bovis Homes Group PLC
Group income statement
For the year ended 31 December 2006
2006 2005
#000 #000
--------------------------------------------------------------------------------
Revenue - continuing operations 597,290 521,194
Cost of sales (407,204) (351,997)
--------------------------------------------------------------------------------
Gross profit 190,086 169,197
Administrative expenses (48,803) (44,120)
--------------------------------------------------------------------------------
Operating profit before financing costs 141,283 125,077
Financial income 654 557
Financial expenses (6,453) (9,556)
--------------------------------------------------------------------------------
Net financing costs (5,799) (8,999)
--------------------------------------------------------------------------------
Profit before tax 135,484 116,078
Income tax expense (40,446) (34,603)
--------------------------------------------------------------------------------
Profit for the period attributable to equity
holders of the parent 95,038 81,475
--------------------------------------------------------------------------------
Basic earnings per ordinary share 79.8p 69.0p
Diluted earnings per ordinary share 79.5p 68.7p
Bovis Homes Group PLC
Group balance sheet
At 31 December 2006 2006 2005
#000 #000
--------------------------------------------------------------------------------
Assets
Property, plant and equipment 14,778 14,663
Investments 22 23
Deferred tax assets 6,089 11,447
Trade and other receivables 2,850 5,727
--------------------------------------------------------------------------------
Total non-current assets 23,739 31,860
--------------------------------------------------------------------------------
Inventories 758,078 781,373
Trade and other receivables 22,446 70,523
Cash 142,841 344
--------------------------------------------------------------------------------
Total current assets 923,365 852,240
--------------------------------------------------------------------------------
Total assets 947,104 884,100
--------------------------------------------------------------------------------
Equity
Issued capital 60,288 59,699
Share premium 155,494 146,849
Hedge reserve (112) (561)
Retained earnings 462,162 392,160
--------------------------------------------------------------------------------
Total equity attributable to equity holders of the
parent 677,832 598,147
--------------------------------------------------------------------------------
Liabilities
Bank loans 25,100 40,802
Trade and other payables 44,264 32,666
Retirement benefit obligations 5,140 22,370
Provisions 2,114 1,345
--------------------------------------------------------------------------------
Total non-current liabilities 76,618 97,183
--------------------------------------------------------------------------------
Bank overdraft - 6,367
Bank loans 15,060 15,000
Trade and other payables 159,368 151,493
Tax liabilities 18,226 15,910
--------------------------------------------------------------------------------
Total current liabilities 192,654 188,770
--------------------------------------------------------------------------------
Total liabilities 269,272 285,953
--------------------------------------------------------------------------------
Total equity and liabilities 947,104 884,100
--------------------------------------------------------------------------------
These accounts were approved by the Board of directors on 9 March 2007.
Bovis Homes Group PLC
Group statement of cash flows
For the year ended 31 December 2006
2006 2005
#000 #000
--------------------------------------------------------------------------------
Cash flows from operating activities
Profit for the year 95,038 81,475
Depreciation 1,499 1,509
Investment income (654) (557)
Interest expense 6,453 9,556
(Profit)/loss on sale of property, plant and
equipment (120) (56)
Equity-settled share-based payment expenses 455 423
Income tax expense 40,446 34,603
--------------------------------------------------------------------------------
Operating profit before changes in working capital
and provisions 143,117 126,953
--------------------------------------------------------------------------------
Decrease / (increase) in trade and other receivables 51,099 (34,442)
Decrease / (increase) in inventories 23,295 (81,456)
Increase in trade and other payables 19,619 18,154
Decrease in provisions and employee benefits (8,590) (990)
--------------------------------------------------------------------------------
Cash generated from operations 228,540 28,219
--------------------------------------------------------------------------------
Interest paid (5,829) (10,467)
Income taxes paid (35,342) (39,450)
--------------------------------------------------------------------------------
Net cash from operating activities 187,369 (21,698)
--------------------------------------------------------------------------------
Cash flows from investing activities
Interest received 512 651
Acquisition of property, plant and equipment (1,668) (3,303)
Proceeds from the sale of plant and equipment 174 97
--------------------------------------------------------------------------------
Net cash from investing activities (982) (2,555)
--------------------------------------------------------------------------------
Cash flows from financing activities
Dividends paid (31,757) (25,858)
Proceeds from issue of share capital 9,234 4,825
Repayment of borrowings (15,000) (20,000)
Purchase of own shares* - (351)
Sale of own shares* - 128
--------------------------------------------------------------------------------
Net cash from financing activities (37,523) (41,256)
--------------------------------------------------------------------------------
Net increase / (decrease) in cash and cash
equivalents 148,864 (65,509)
Cash and cash equivalents at 1 January (6,023) 59,486
--------------------------------------------------------------------------------
Cash and cash equivalents at 31 December 142,841 (6,023)
--------------------------------------------------------------------------------
* Reclassified from 'Cashflows from investing activities' in 2005
Bovis Homes Group PLC
Group statement of recognised income and expense
For the year ended 31 December 2006
2006 2005
#000 #000
--------------------------------------------------------------------------------
Effective portion of changes in fair value of
interest rate cash flow hedges 642 468
Deferred tax on changes in fair value of interest
rate cash flow hedges (193) (140)
Actuarial gain / (loss) on defined benefits
pension scheme 8,640 (2,850)
Deferred tax on actuarial movements on defined
benefits pension scheme (2,592) 855
Deferred tax on other employee benefits 218 869
--------------------------------------------------------------------------------
Net expense recognised directly in equity 6,715 (798)
Profit for the period 95,038 81,475
--------------------------------------------------------------------------------
Total recognised income and expense for the period 101,753 80,677
attributable to equity holders of the parent
--------------------------------------------------------------------------------
Notes to the accounts
1 Basis of preparation
Bovis Homes Group PLC ('the Company') is a company domiciled in the United
Kingdom. The consolidated financial statements of the Company for the year ended
31 December 2006 comprise the Company and its subsidiaries (together referred to
as 'the Group') and the Group's interest in associates.
The consolidated financial statements were authorised for issue by the directors
on 9 March 2007. The accounts were audited by KPMG Audit Plc.
The financial information included within this statement does not constitute the
Company's statutory accounts for the year ended 31 December 2005 or 2006. The
information contained in this statement has been extracted from the statutory
accounts of Bovis Homes Group PLC for the year ended 31 December 2006, which
have not yet been filed with the Registrar of Companies, on which the auditors
have given an unqualified audit report, not containing statements under section
237(2) or (3) of the Companies Act 1985.
The consolidated financials statements have been prepared in accordance with
IFRS as adopted by the EU, and the accounting policies have been applied
consistently for all periods presented in the consolidated financial statements.
Diluted earnings per share in the prior year has been restated by adjusting
earnings for share-based payment expenses. This has reduced 2005 diluted
earnings per share by 0.2p per share.
The preparation of financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities, income
and expenses. The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis of making judgements
about carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates.
2 Basis of consolidation
The consolidated financial statements incorporate the accounts of the Company
and entities controlled by the Company (its subsidiaries) made up to 31
December. Control is achieved where the Company has the power to govern the
financial and operating policies of an entity so as to obtain benefits from its
activities. The existence and effect of potential voting rights that are
currently exercisable or convertible are considered when assessing whether the
Group controls another entity.
Associates are those entities in which the Group has significant influence, but
not control, over the financial and operating policies. The consolidated
financial statements include the Group's share of the total recognised gains and
losses of associates on an equity accounted basis, from the date that
significant influence commences until the date that significant influence
ceases.
3 Accounting policies
There have been no changes to the Group's accounting policies. These accounting
policies will be disclosed in full within the Group's forthcoming financial
statements.
4 Reconciliation of net cash flow to net debt
2006 2005
#000 #000
--------------------------------------------------------------------------------
Net increase / (decrease) in net cash and cash
equivalents 148,864 (65,509)
Repayment of borrowings 15,000 20,000
Fair value adjustments to interest rate swaps 642 468
Net debt at start of period (61,825) (16,784)
--------------------------------------------------------------------------------
Net debt at end of period 102,681 (61,825)
--------------------------------------------------------------------------------
Analysis of net debt:
Cash and cash equivalents 142,841 (6,023)
Bank loans (40,000) (55,000)
Fair value of interest rate swaps (160) (802)
--------------------------------------------------------------------------------
Net debt 102,681 (61,825)
--------------------------------------------------------------------------------
5 Income taxes
Current tax
Current tax expense is the expected tax payable on the taxable income for the
year, calculated using a corporation tax rate of 30% applied to the pre-tax
income, adjusted to take account of deferred taxation movements and any
adjustments to tax payable for previous years. Current tax for current and prior
years is classified as a current liability to the extent that it is unpaid.
Amounts paid in excess of amounts owed are classified as a current asset.
6 Reconciliation of Income statement and key performance from reported to
underlying
Group Income Statement
Year ended 31 December 2006
2006 Reported Pension credit 2006 Underlying
#000 #000 #000
--------------------------------------------------------------------------------
Revenue - continuing
operations 597,290 - 597,290
--------------------------------------------------------------------------------
Gross profit 190,086 - 190,086
Administrative expenses (48,803) (3,470) (52,273)
--------------------------------------------------------------------------------
Operating profit
before financing costs 141,283 (3,470) 137,813
Net financing costs (5,799) - (5,799)
--------------------------------------------------------------------------------
Profit before tax 135,484 (3,470) 132,014
Income tax expense (40,446) 1,041 (39,405)
--------------------------------------------------------------------------------
Profit for the period 95,038 (2,429) 92,609
--------------------------------------------------------------------------------
Administrative expenses
ratio to revenue 8.2% 8.7%
Operating profit margin 23.7% 23.1%
Return on capital
employed 20.5% 20.0%
7 Dividends
The following dividends were paid by the Group.
2006 2005
#000 #000
--------------------------------------------------------------------------------
Prior year final dividend per share of 16.7p (2005: 13.6p) 19,826 16,036
Current year interim dividend per share of 10.0p (2005:
8.3p) 11,931 9,822
--------------------------------------------------------------------------------
Dividend cost 31,757 25,858
--------------------------------------------------------------------------------
A final dividend in respect of 2006 of 20.0p per share, amounting to a total
dividend of #24,115,000 based on the shares in issue as at 9 March 2007, was
proposed by the Board on 9 March 2007. This final dividend will be paid subject
to approval on 25 May 2007 to shareholders on the register at the close of
business on 30 March 2007. This dividend has not been recognised as a liability
at the balance sheet date.
8 Earnings per share
Basic earnings per ordinary share for the year ended 31 December 2006 is
calculated on profit after tax of #95,038,000 (year ended 31 December 2005:
#81,475,000) over the weighted average of 119,103,010 (year ended 31 December
2005: 118,119,910) ordinary shares in issue during the period.
The impact of the one-off pension credit of #3.5 million on basic earnings per
share can be analysed as follows:
2006 2005
Pence Pence
--------------------------------------------------------------------------------
Basic earnings per share 79.8 69.0
Effect of one-off pension credit, net of related tax (2.0) -
--------------------------------------------------------------------------------
Earnings per share stated before pension credit, net of
related tax 77.8 69.0
--------------------------------------------------------------------------------
Diluted earnings per ordinary share is calculated on profit after tax of
#95,038,000 (year ended 31 December 2005: #81,475,000) over the diluted weighted
average of 119,523,151 (year ended 31 December 2005: 118,595,375) ordinary
shares potentially in issue during the period. The average number of shares is
diluted in reference to the average number of potential ordinary shares held
under option during the period. This dilutive effect amounts to the number of
ordinary shares which would be purchased using the aggregate difference in value
between the market value of shares and the share option exercise price. The
market value of shares has been calculated using the average ordinary share
price during the period. Only share options which have met their cumulative
performance criteria have been included in the dilution calculation.
9 Circulation to shareholders
The consolidated financial statements will be sent to shareholders on or about 4
April 2007. Further copies will be available on request from the Company
Secretary, Bovis Homes Group PLC, The Manor House, North Ash Road, New Ash
Green, Longfield, Kent DA3 8HQ.
Further information on Bovis Homes Group PLC can be found on the Group's
corporate website www.bovishomesgroup.plc.uk, including the slide presentation
document which will be presented at the Group's results meeting on 12 March
2007.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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