TIDMBVS
RNS Number : 3620E
Bovis Homes Group PLC
05 April 2011
Bovis Homes Group PLC - Annual Report and Accounts 2010
Annual Report and Accounts 2010, Notice of Annual General
Meeting, Proxy Card
Copies of the above documents have been submitted to the
National Storage Mechanism and will shortly be available for
inspection at www.hemscott.com/nsm.do
The documents are being mailed to shareholders and are available
on the Company's website at
www.bovishomesgroup.co.uk/annualreport2010
Annual Report and Accounts 2010 - publication required by DTR
6.3.5
The Company published its Preliminary Results for the year ended
31 December 2010 on 14 March 2011. In order to comply with DTR
6.3.5 it is now publishing in unedited full text information
contained in the annual financial report of a type required to be
disseminated in a half-yearly financial report. For coherence, this
repeats some of the information contained in the Preliminary
Results announcement.
The full annual financial report is available on the Company's
website at www.bovishomesgroup.co.uk/annualreport2010
Bovis Homes Group PLC - Annual Report and Accounts 2010
Chairman's statement
Bovis Homes is pleased to report on a successful year in 2010
with strong improvement in profits and earnings and with
significant progress in the acquisition of high quality consented
land. Importantly, the Group operated successfully and grew its
business without reliance on improving general market conditions.
The Group's performance during 2010 was particularly positive given
the continuation of challenging conditions within the UK housing
market, with the constrained level of high loan to value mortgage
finance available to new build customers, many of whom have limited
deposit funding.
The Group legally completed a greater number of home sales
during the year and, in respect of private homes, increased the
average sales price achieved, reduced the average construction cost
and hence improved the average profit generated per private home by
13%. These achievements have contributed to the strong increase in
pre tax profits.
The Group's strategy is to increase investment in quality
residential land in order to grow sales outlets and thus volume,
revenues and margins. The Group has been successful with land
investment in 2010 with the addition of c3,700 high quality
consented plots to the land bank. These additions have enhanced the
gross profit potential in the land bank. The Group is well
positioned for profitable growth into the future.
Results
For the year ended 31 December 2010, the Group generated
GBP298.6 million of revenue from the legal completion of 1,901
homes, as compared to revenues of GBP281.5 million in 2009 from
1,803 legal completions.
The Group delivered a pre-tax profit of GBP18.5 million in 2010
(2009: GBP7.5 million pre exceptional charges and GBP4.8 million
post exceptional charges) with basic earnings per share at 10.6p
(2009: 4.4p per share pre exceptional charges and 2.8p per share
post exceptional charges). There were no exceptional items for 2010
(2009 exceptional charge: GBP2.7 million).
The Group achieved an operating margin of 7.2% in 2010, ahead of
the prior year's 6.2% pre exceptional items. Pricing improvements
combined with build cost savings led to an increase in gross
margin. This was partially offset by an increase in the ratio of
overheads to revenue year on year.
The Group's net assets increased from GBP692.6 million at the
start of 2010 to GBP710.8 million at 31 December 2010, equating to
a net asset value of GBP5.33 per share. As at 31 December 2010, the
Group had net cash of GBP52 million. The Group generated operating
cash inflows of GBP93 million before land expenditure of GBP137
million, leaving the Group well positioned to continue its value
enhancing investments in high quality land.
Dividend
In the light of the sustained improvement in the performance of
the Group and the Board's confidence in the Group's growth
strategy, the Board has proposed a full year dividend of 3.0p per
share. This is equivalent to an interim dividend of 1.0p per share
and a final dividend of 2.0p per share, had both an interim and a
final dividend been declared in 2010. In future years the Board
expects to grow dividends progressively, as earnings per share
increase.
The Board
During 2010, Neil Cooper, the Group Finance Director, left the
Group in order to take up the position of Group Finance Director at
William Hill PLC. The Board would like to thank Neil for his
significant contribution to the Board and to the robust performance
achieved by the Group through an extremely challenging period. The
Board would also like to thank Lesley MacDonagh, who stepped down
as a non executive director at the last AGM, for her contribution
to the success of the Group since 2003.
On 23 August 2010 Jonathan Hill joined as Group Finance Director
and became a member of the Board on that date. Jonathan joined
Bovis Homes from TUI Travel Group and brings considerable
experience and expertise to his new role.
Employees
After a challenging but rewarding year, the Group would like to
thank all of its employees for their hard work and commitment
during 2010, a year during which the Group made good progress in
improving the profitability of the business and undertook
significant investment in land to enable the business to grow in
the future. The Group would also like to thanks its suppliers and
sub-contractors for their efforts and hard work during the
year.
Market conditions and prospects
The housing market continued to suffer in 2010 from a lack of
mortgage availability at the level of loan to value ratios required
by first time buyers, which has constrained demand for new build
homes, many of which are small and affordable, targeted at the
first time buyer market. Monthly mortgage approval levels appear to
have stabilised during 2010, but at levels representative of less
than half of a normal market. In tackling the issue of the lack of
availability of high loan to value mortgages, the Group has
launched Perfect 10, a 90% loan to value mortgage product with
Barclays Bank, exclusive to the Group. The Group will continue to
find innovative ways to enable its customers to access appropriate
mortgage finance.
After having made some positive progress in H1 2010, the Group's
sales prices stabilised during H2 2010. Although the market remains
challenging and customer confidence and commitment levels remain
subdued, the Group currently believes that the pricing environment
will be stable for 2011 as a whole. A limited supply of homes for
sale will not satisfy demand from purchasers. However, buyers are
likely to remain constrained by mortgage availability and continue
to struggle to raise finance. It is anticipated that sales prices
will be more robust in the south of England compared to the north
of England, which will assist the Group given its southern bias of
sites.
Based on the continuation of current market conditions, the
Group is confident in its ability to grow in 2011 and increase
profits, supported by the contribution from new sites.
Additionally, the Group has the financial capability to continue
its consented land acquisition strategy, enabling it to grow
further its output capacity. Finally the Group will selectively
sell consented land on some of the Group's larger sites thus
contributing to the funding of new land acquisitions. Together
these actions will create strong foundations for the Group to
create value for our shareholders into the future.
Malcolm Harris Chairman
Operating review
The Market
During 2010 house prices for the market as a whole were
relatively flat with gains in pricing in the first half offset by
falls in the second half. The regional picture shows the south east
outperforming the other regions in England and Wales.
In terms of demand, a customer's decision to purchase a property
is influenced by a range of factors, including the ability to fund
a home purchase using a mortgage, affordability, confidence in the
direction of future house prices and confidence over future
employment prospects.
The pricing stability in 2010 occurred against a backdrop of
continuing low mortgage approvals. The Bank of England reported
that home purchase loans totalled 572,000 in 2010, a decrease of 3%
from 2009 and 54% lower than in 2007. The Bank of England reported
that the level of monthly mortgage approvals for home purchases was
relatively stable throughout 2010 and was running at c48,000 per
month on average for the year as a whole with a peak of 50,000 in
April and a low of 43,000 in November. This indicates the mortgage
market has found a short term equilibrium which is significantly
below historical levels of approvals.
Mortgage approval levels are fundamentally affected by the level
of customer deposit required by the lending institution. The
effects of the capital adequacy rules relating to mortgages
contained within Basel II, aligned to more conservative credit
scoring procedures by banks, has led to many purchasers being
unable to access mortgage finance. This is particularly an issue
for first time buyers, who tend to have lower funds available for a
deposit. According to the CML, 194,600 loans were made to first
time buyers during 2010, a reduction of 46% from the 360,000 loans
advanced in 2007, the year the banking crisis struck. The average
deposit for first time buyers is now around 25% compared to 10%
prior to the banking crisis. Without these new buyers entering the
housing market, overall market activity will remain subdued.
Affordability has improved significantly over the period of the
housing market downturn. As house prices have fallen by an average
of 20%, earnings have remained stable, and mortgage rates have
reduced with the lower base interest rate at 0.5%; according to
CLG, affordability as measured by repayments as a percentage of
income, has improved by 23% since 2007.
The confidence and thus commitment level of consumers was hit
during 2010 in the build up to, and after, the coalition government
announced its Comprehensive Spending Review. The expected effects
of tax increases and reducing public sector employment lowered
consumers' future expectations in terms of their personal financial
circumstances. This effect was particularly noticeable in the
second half of the year.
In terms of the overall market supply of homes, according to
RICS housing market data, new vendor instructions increased for
most of the year, until falling away in the last few months of the
year. This increase in supply coincided with reduced levels of
demand. However, given the historically low levels of interest
rates, and thus mortgage payment levels, and the consequential low
level of repossessions (36,300 in 2010 equating to 0.3% of all
mortgages, compared to 47,800 in 2009), there were limited forced
sellers in the market and thus house price falls in the market were
limited in the second half of the year.
In terms of new build supply the number of new home completions
in England was reported by the Government for 2010 at 102,570. This
was a decrease of 13% compared to 2009. However new build housing
starts increased by 32% to 103,140 in 2010.
The Government's estimates of household formation numbers,
released in March 2009, suggested that English households were
expected to grow to 27.8 million by 2031, with annual growth in
household formation of 252,000. This is over twice the level of
current build volumes.
The scale of the pricing movement is relatively consistent
between differing indices. The Nationwide reported that the annual
change for all properties in the year to 31 December 2010 was an
increase of 0.4%, whereas the Halifax reported a reduction for the
year of 1.6%, which is in line with the Hometrack price survey
data, which indicated an annual 1.6% decline. This latter survey
data includes cash buyers as opposed to the two lender indices
which do not.
The Group expects that house prices in 2011 will remain stable.
Over the medium term, increasing levels of demand from new
household formation, combined with low levels of additional supply
from new housing stock will act as a support to house prices. Any
improvements to the availability of mortgage finance, particularly
to first time buyers, is likely to further boost demand, thus
supporting prices.
Competition
The Group continues to view the main competitor for Bovis Homes
as the second hand market. In a normal year, the Group would expect
around 90% of residential transactions to be second hand, with
pricing in the new build sector being set by reference to that
market. The de-stocking by the housebuilders in 2008 and 2009 led
to new build contributing a greater proportion of residential
transactions. This was partially due to the fact that housebuilders
had been providing finance by way of shared equity products to home
buyers, which had enabled certain buyers to acquire homes with
lower levels of equity in the new build market compared to the
second hand market. Given the ongoing low level of transactions,
the greater contribution from new build homes is expected to have
continued in 2010.
Operational priorities for 2010
During 2010 the Group had four key operational priorities:
-- Growing revenue and increasing the operating margin
-- Investing in new land to generate strong future returns
-- Delivering strong health, safety and environmental
standards
-- Improving the customer service experience for Bovis Homes
customers
Growing revenue and operating margin
During 2010 the Group delivered on its priority by generating
higher revenues, driven by improved volumes, increased average
sales prices, and a stronger gross margin. Taken together with
overhead cost control, the Group delivered an enhanced operating
margin.
With 1,901 legal completions achieved during 2010, the Group's
volume performance was 5% ahead of the previous year (2009: 1,803
legal completions). The volume of private homes in 2010 increased
by 4%, with 1,592 legal completions in 2010 versus 1,527 units in
2009. The volume of social homes legally completed increased to 309
units from 276 units (16% of total volume, compared to 15% in
2009).
The Group achieved 1,334 private reservations during 2010 at a
rate of 0.39 net reservations per site per week. This compared to
1,586 private reservations in 2009 (excluding the 215 homes sold to
the joint venture) at a rate of 0.36 net reservations per outlet
per week. The average active sales outlets reduced from 85 in 2009
to 66 in 2010, as a result of the Group's caution in respect of
land investment during the pre downturn peak of the market and
through the housing market recession.
The Group continues to provide a range of tailored incentives to
assist potential customers in buying their new home, in particular,
the Group introduced its 'Perfect 10' product during 2010, a 90%
loan to value product in conjunction with the Barclays Bank,
exclusive to Bovis Homes. The Group's own shared equity mortgage
product, 'Jumpstart', has been successful and the Group has also
used to a limited extent the Government backed 'Home Buy Direct'
scheme. These two schemes offer those buyers who do not possess
sufficient equity for the required deposit but who are otherwise
credit-worthy, the opportunity to transact. The Group has continued
to offer Home Exchange thus allowing the customer to part exchange
their existing second hand home at an agreed value in part payment
for one of the Group's new homes. This remains an important
incentive for customers who are looking to move up the housing
ladder.
The Group's average sales price in 2010 increased by 3.9% to
GBP160,700 (2009: GBP154,600). This was primarily due to the
average sales price of the Group's private legal completions
increasing to GBP172,300 in 2010 from GBP165,500 in 2009. Excluding
215 units sold into the joint venture, which were typically small
units in lower price locations, and which were sold at a modest
discount to market value, the private average sales price increased
by 9.1% to GBP180,600. Of this increase, the Group considers around
3% to reflect market price movements with the balance delivered
through the improving mix of products in terms of size, type and
location.
The average size of the Group's private homes grew by 1.0% to
1,004 square feet in 2010 from 993 square feet in 2009 and the
sales price per square foot increased by 3.1%. The Group's social
homes also increased in average size to 792 square feet in 2010
from 762 square feet in 2009. Overall, the average size of the
Group's legally completed homes increased by 1.3% to 970 square
feet in 2010 from 958 square feet in 2009 and the sales price per
square foot increased by 2.7%.
The Group has achieved its target of substantially matching
production with legal completion volumes in 2010. As at 31 December
2010, the Group held housing work in progress equivalent to 1,093
homes (2009: 986 homes). This will facilitate the early legal
completion of homes reserved in the first half of 2011 and will
support the overall growth aspirations of the Group for the year.In
2010, the Group focused on reducing build costs through making
subcontract labour savings. These efforts yielded c20% reductions
in such costs on new contract lettings largely associated with new
sites and new build phases of existing sites. Therefore, the
benefits of such savings were not felt by the Group significantly
in 2010, with only initial benefits being delivered to the Group in
H2 2010. The Group negotiates national agreements with many of its
material suppliers to harness its buying power. With a backdrop of
inflationary input costs for material suppliers, the Group was
successful in holding its material costs static on average for
another year during 2010.
The effects of the sales price increases and the cost savings
delivered an improved gross margin of 17.9% in 2010 from 16.1% (pre
exceptional gains) in 2009. The margin increase would have been
greater, but for the negative impact of a higher cost of land after
the Group's 2009 year end land write back. The negative impact of
this change in land cost base lowered the achieved gross margin by
over one percentage point. With sales prices expected to remain
stable during 2011, the positive effect of the build cost savings
first felt in the second half of 2010 will continue and contribute
to improved gross margin throughout 2011. Subject to current market
conditions continuing, this provides confidence that the gross
margin achieved in the second half of 2010 of c19% can at least be
sustained in 2011.
The Group retained tight control over underlying overheads in
2010, which increased year on year by 3%, notwithstanding that the
Group invested in increased resources to support the growing
activity levels.
Overall the revenues of the Group grew by 6% and the operating
margin increased from 6.2% in 2009 to 7.2% in 2010.
Investing in land
The Group has been successful with land investment in 2010 with
the addition of c3,700 high quality consented plots to the land
bank at a cost of GBP203 million. Approximately 80% of these plots
are located in the south of England. These plots have an estimated
future revenue of GBP711 million and an estimated future gross
profit potential of GBP181 million based on current sales prices
and current build costs, delivering an estimated future gross
margin of over 25%. Of the plots added to the consented land bank,
822 plots were delivered through conversion of strategic land.
The Group held a consented land bank of 13,766 plots at 31
December 2010, an increase of 1,724 plots from 12,042 plots held at
31 December 2009. Of the 13,766 plots, 69% are located in the south
of England, where the housing market continues to show greater
robustness. At the year end, the consented land bank included 3,931
consented plots which have been acquired since the nadir of house
prices in the current downturn. The Group estimates that the gross
profit potential on the plots within the consented land bank at the
2010 year end, based on current sales prices and current build
costs, has increased to GBP461 million with a gross margin of
20.0%, compared to the position at 30 June 2010, when the gross
profit potential was GBP412 million with a gross margin of 19.2%.
The increase of GBP49 million demonstrates the contribution to the
Group's future profits from its land acquisitions.
The average consented land plot cost at the start of 2010 was
GBP35,200. This has increased over the year to GBP41,000 at 31
December 2010 as a result of a lower number of written down plots
held in the land bank at the end of the year (26% of land versus
36% at the start of the year) and the addition of new prime
southern traditional housing sites where the average plot cost is
higher.
As at 31 December 2010, the Group had agreed terms for the
acquisition of an additional c2,500 plots. Of these, 875 plots have
been acquired since the year end at a cost of GBP57 million and
with a gross profit potential of GBP51 million, based on current
sales prices and current build costs, delivering a gross margin of
over 25%.
The strategic land bank at 31 December 2010 amounted to 17,325
potential plots as compared to 16,363 potential plots at 31
December 2009. The Group added c1,800 potential plots to the
strategic land bank during 2010, thus enabling the strategic land
bank to grow in size notwithstanding the successful conversion of
over 800 plots into the consented land bank. The Group has for a
long time recognised the potential of strategic land investment
and, as visibility over the effects of the changes to the planning
environment improves, the Group intends to increase its investment
in strategic land.
Delivering strong health, safety and environmental standards
The Group is committed to delivering strong health and safety
standards for its employees, subcontractors and other site visitors
and maintains a high level of organisational focus on its health
and safety regime through comprehensive staff training, clear and
accountable management processes and through regular and
transparent reporting of the performance of the Group in all
aspects of health and safety.
This is overseen, firstly, through the operational line, which
takes day to day accountability for this area and, secondly, via a
Group-wide oversight committee with nominated regional directors
responsible for safety, run by the Group Director of Health and
Safety and chaired by a senior Group manager, thereby maintaining
appropriate oversight of these activities. The Group also seeks to
ensure that all of its employees and subcontractors who operate at
or visit sites carry a CSCS card, indicating its commitment to a
fully trained workforce.
Notwithstanding the significant increase in the Group's build
activity during 2010, the Group's NHBC risk score for the year was
0.66, which compares favourably to the industry peer group average.
Additionally, the incident rate decreased to 31, a 21% reduction
from 2009.
During the last 12 months the Group has focused efforts on
working at heights, PPE and slips, trips and falls in order to
raise awareness in these areas, as the Group strives to make the
work environment safer. Whilst the Group's health and safety
performance is relatively strong versus external benchmarks, the
Group cannot be complacent. Health and safety will remain a key
area of focus for regional and Group management.
The Group continues to regard sustainable development as
critical to the long term creation of value for its shareholders.
The housebuilding industry has an important role to play both in
mitigating the impact of its building activities on the local
environment and in the evolution of building techniques and
advances, which reduce the carbon usage from new build
developments.
Ensuring that its developments take place in a manner which
mitigates the impact of its operations on its local environment,
thereby balancing the needs of local communities for new housing
with the requirement to avoid environmental damage, the Group works
with a range of external stakeholders to agree and carry out
development in a mutually acceptable manner.
Looking forward, the Group is focusing on ways to ensure that
its products conform to good environmental standards, includingboth
to EcoHomes standards and to emerging standards under the Code for
Sustainable Homes. Reflecting the existing contribution that the
Group makes to the communities and environments in which it
operates, the Group is proud to say that it is a member of the
FTSE4Good index.
Further details of the Group's efforts and achievements during
2010 in regards to Corporate Social responsibility will be
published in a separate report, available from the Company's
website (www.bovishomesgroup.co.uk).
Improving the customer service experience for Bovis Homes
customers
The Group continues to invest in delivering its customer
charter, which sets the expectations in relation to the quality of
the product it delivers and the manner in which the sales
transaction is serviced. The Group has been recognised
independently by the achievement of a four star builder rating by
the Home Builder Federation. Additionally the Group is pleased to
see the key internal scoring metrics of 'recommend a friend',
'purchase another Bovis home' and 'overall quality of the new home'
continuing to generate strong satisfaction scores during 2010.
The focus of the Group's customer communication has remained web
based during 2010, with the Group using the power of the internet
to directly market its products to consumers, utilising internally
generated mailing lists as well as via intermediaries such as
'smart new homes' or 'right move'. Over 70% of customer enquires
now originate via the web.
The sales hub structure has proven successful. Given the
prevalence of the web as the primary enquiry origination point for
our customers, the Group has been able to provide its customers
with the convenience of appointments to view homes at their
preferred site. Whilst providing customers with improved
convenience, the Group has reduced its cost of sales per
transaction and increased its rate of successful sales conversion.
Additionally sales hubs are capable of being manned more
efficiently on a seven day opening basis and also into the evening
cost effectively. This selling process is supported by the Group's
bespoke prospect management system, which delivers on-site
technology whilst integrating the Group's prospects database with
brochure fulfilment.
Outlook
The Group entered 2011 with a forward sales order position of
420 homes for 2011 delivery. The forward sales position at the
start of 2010 was 643 homes, including the non-recurring sale of
215 homes, sold to the joint venture. Excluding this from the
comparative, the 2011 forward sales position was consistent with
the prior year, notwithstanding the lower number of active outlets:
66 on average during 2010 versus 85 on average during 2009.
The Group has made an encouraging start to trading in the first
nine weeks of 2011. Sales enquiries and site visitors in the period
to 4 March 2011 have increased by 24% and 28% respectively,
compared to the same period in 2010 from a similar number of sales
outlets. From these enhanced visitor levels, the Group achieved an
average private sales rate of 0.45 net reservations per site per
week, compared with an average in the first nine weeks of 2010 of
0.41 and an average of 0.36 during H2 2010. The Group has achieved
268 net private reservations in the first nine weeks of 2011
against 242 net private reservations in the comparative period in
2010, an increase of 11%. Pricing has been stable, consistent with
levels achieved in the second half of 2010. As at 4 March 2011, the
Group held 715 net sales for legal completion in 2011, as compared
to 969 net sales at the same point in 2010. Within the current year
total, private sales amount to 469 units (2010: 701 units) and
social sales amount to 246 units (2010: 268 units).
As a result of the investment in land in 2010, the Group expects
to launch 33 new sales outlets during 2011, 23 of which are
expected to open in the first half of the year. Taking into account
21 sales outlets which are expected to close through the year, it
is anticipated that the Group will trade from an average of 76
sales outlets in 2011 versus 66 sales outlets in 2009, an increase
of 15%.
Given the focus on acquiring land in the south of England, it is
anticipated that two thirds of the active sales outlets at the end
of the 2011 will be southern located versus just over half of the
active sales outlets at the start of the year. As new sales outlets
are opened by the Group, absolute weekly reservation levels are
anticipated to increase and the sales rates on new predominantly
southern sites are expected to be stronger than the Group's recent
weekly average sales rate. This will contribute to improvements in
both volumes and profit margins.
The Group is strongly placed with the financial capability to
continue its consented land acquisition strategy, enabling it to
grow its output capacity. In 2010 the Group's strategic priority
was clear: invest in new land to generate strong outlet growth. The
strategic priorities for 2011 are equally clear: open the recently
acquired sites quickly, acquire more land, and drive improved
efficiency within the Group's capital employed. This will be
assisted by selectively selling consented land on some of the
Group's larger sites, thus contributing to the funding of new land
acquisitions. The resulting improved spread of land assets will
lead to the increase in active sales outlets, which will deliver
increased volumes, without relying on improving conditions in the
housing market, thus increasing revenue, profit and returns in the
mid term.
The Board is confident about the Group's prospects for 2011,
assuming the continuation of current market conditions, and
continues to believe that the growth strategy will materially
improve shareholder returns.
David Ritchie Chief Executive
Strategy and objectives
Following a review in 2010, the Group has refined its strategic
objectives as follows:
Objective Target
------------------------------------- ---------------------------------
Build operating margin: -- Operating margin in the upper
-- Invest in new sites at stronger quartile of sector peer group
profit margins
-- Make additional build cost
savings
-- Improve efficiency of overheads
------------------------------------- ---------------------------------
Increase potential gross profit -- Annual growth in profits and
within the land bank: earnings per share
-- Acquire and open new sites
-- Replan and renegotiate existing
assets
-- Pull through of strategic
land
------------------------------------- ---------------------------------
Improve efficiency of capital -- ROCE in the upper quartile
employed: of sector peer group
-- Manage land bank and diversify
land holdings with a greater
number of sites
-- Control work in progress
------------------------------------- ---------------------------------
Deliver strong customer satisfaction -- Maintain four star builder
status
------------------------------------- ---------------------------------
Deliver strong health and safety -- NHBC Risk Score and Incidence
and Rate in the upper quartile of
environmental standards sector peer group
------------------------------------- ---------------------------------
Financial performance during the year
Revenue
During 2010, the Group generated total revenue of GBP298.6
million, compared to total revenue in 2009 of GBP281.5 million.
Housing revenue in 2010 was GBP305.6 million, 9.6% ahead of the
prior year (2009: GBP278.8 million). Of this revenue, GBP12.9
million has not been recognised in the financial statements in
2010. This is due to the fact that the Group holds a 50% equity
stake in a private rental joint venture into which the Group has
sold a portfolio of 215 new homes. This revenue and associated
profit will be recognised as and when the joint venture investment
is disposed or the homes in the joint venture are sold. As a result
the Group's reported housing revenue for 2010 was GBP292.7 million
(2009: GBP278.8m). Other income was GBP5.9 million (2009: GBP2.7
million). The Group chose not to sell any consented residential
development land in either 2009 or 2010.
Operating profit
The Group delivered an operating profit for the year ended 31
December 2010 of GBP21.6 million at an operating margin of 7.2%, as
compared to GBP17.4 million, before exceptional items, in the
previous year, at an operating margin of 6.2%. There were no
exceptional items in the current year.
Gross margin increased to 17.9% in 2010 from 16.1% (pre
exceptional gains) in 2009. Stronger average sales prices combined
with the initial benefit of construction cost savings in the second
half of 2010 contributed strongly to the gross margin, more than
offsetting the negative impact of a higher cost of land after the
2009 year end land write back. The negative impact of this change
in land cost lowered the achieved gross margin by over one
percentage point. The Group has delivered a materially improved
gross margin in H2 2010 of 18.9%, compared to 16.3% in H1 2010.
As anticipated, overheads increased in 2010 by 14%. Underlying
overheads increased year on year by 3%, with the remainder of the
increase arising from the increase in staff bonus charge,
reflecting the strong performance of the Group. As a result, the
overheads to revenue ratio increased to 10.6% in 2010 from 9.9% in
2009. Pre the effect of staff bonus, the overheads to revenue ratio
was 9.3%, compared to 9.6% in 2009.
Exceptional and non-recurring costs
There were no exceptional items for 2010 (2009 exceptional
charge: GBP2.7 million).
The Group has reviewed the carrying value of its inventory items
at the reporting date, comparing the carrying cost of the asset
against estimates of net realisable value. Net realisable value has
been arrived at using the Board's estimates of achievable sales
prices taking into account current market conditions, and after
deduction of an appropriate amount for sales and marketing costs.
This has given rise to no movement in the carrying value of
inventory as at 31 December 2010 (2009: GBP2.7 million credit).
There were no exceptional items relating to financing charges in
2010 (2009 exceptional charge: GBP4.2 million). There were no other
exceptional items in 2010 (2009 exceptional charge: GBP1.2
million).
Pre tax profit and earnings per share
The Group achieved profit before tax of GBP18.5 million,
comprising operating profit of GBP21.6 million, net financing
charges of GBP3.2 million and a profit from the joint venture of
GBP0.1 million. This compares to GBP17.4 million of pre-exceptional
operating profit and GBP9.9 million of net financing charges in
2009 which generated GBP7.5 million of pre-exceptional profit
before tax in that year. After accounting for exceptional charges,
the Group achieved a pre tax profit of GBP4.8 million in 2009.
Basic earnings per share for the year was 10.6p compared to pre
exceptional basic earnings per share of 4.4p and basic earnings per
share after exceptional charges of 2.8p in 2009.
Financing
The Group incurred net financing charges of GBP3.2 million in
2010 (2009: GBP9.9 million pre exceptional charges). This reduction
in finance costs arose, firstly, from the strong average net cash
position of the Group throughout 2010 (the Group had an average of
GBP78 million of net cash during 2010, as compared to an average
net debt of GBP9 million in 2009), and, secondly, from the
significantly more cost effective bank facilities agreed in January
2010. Net bank charges for 2010 were GBP2.2 million (2009: GBP8.6
million), which included the amortisation of arrangement fees
(GBP0.6 million) and commitment fee charges (GBP2.0 million). The
Group incurred a GBP2.7 million finance charge (2009: charge of
GBP1.7 million), 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 of the
consideration payable.
The Group benefited from a GBP0.2 million (2009: GBP0.2 million)
net pension financing credit during 2010. This credit arose as a
result of the expected return on scheme assets being in excess of
the interest on the scheme obligations. The Group also benefited
from a finance credit of GBP1.2 million (2009: GBP0.6 million)
arising from the unwinding of the discount on its
available-for-sale financial assets during 2010. There were also
GBP0.3 million of other financing credits during the year (2009:
GBP0.4 million of other charges).
Taxation
The Group has recognised a tax charge of GBP4.5 million on pre
tax profits of GBP18.5 million at an effective tax rate of 24.1%
(2009: tax charge of GBP1.3 million at an effective rate of 27.1%).
The effective rate is below that expected owing to the benefit of
land remediation allowances and the finalisation of prior years'
tax submissions. The Group has recognised a current tax liability
of GBP1.5 million in its closing balance sheet as at 31 December
2010 (2009: current tax asset of GBP0.8 million).
Dividends
The Board has proposed a full year dividend of 3.0p per share.
This is equivalent to an interim dividend of 1.0p per share and a
final dividend of 2.0p per share, had both an interim and a final
dividend been declared in 2010. No dividends were proposed by the
Board in respect of 2009.
Net assets
At 31 December 2010, the Group's net assets were GBP710.8
million, GBP18.2 million higher than the opening net asset position
at 31 December 2009. The main drivers of this change have been the
profit for the period of GBP14.0 million and the reduction in the
deficit on the Group's pension scheme, leading to an increase in
reserves of GBP3.0 million.
Net assets per share as at 31 December 2010 was GBP5.33 as
compared to GBP5.20 at 31 December 2009.
Pensions
Following a roll-forward of the valuation of the Group's pension
scheme, with latest estimates provided by the Group's actuarial
advisors, the Group's pension scheme had a deficit of GBP2.9
million at 31 December 2010, a decrease of GBP6.0 million on the
opening deficit of GBP8.9 million at 31 December 2009. Scheme
assets grew strongly over the year to GBP73.5 million from GBP67.6
million and scheme liabilities decreased to GBP76.4 million from
GBP76.5 million, reduced by the use of CPI rather than RPI, where
relevant, (GBP4.6 million), offset by a fall in bond yields and
improved mortality assumptions. As well as benefiting from a
generally stronger stock market in 2010, scheme assets benefited
from a GBP1.5 million special cash contribution made by the Group
into the scheme in December 2010.
Cash flow
The Group started the year with GBP112.3 million of net cash and
at 31 December 2010, held GBP51.7 million of net cash. The net cash
outflow of GBP60.6 million was the result of an operating cash
inflow pre land expenditure of GBP93 million, net cash payments in
2010 for land investment of GBP137 million and a non-trading cash
outflow of GBP17 million.
Net cash
Having started the year with a net cash balance of GBP112.3
million, as at 31 December 2010 the Group held GBP51.7 million of
net cash, with GBP67.0 million of cash in hand, offset by GBP15.2
million of loans received primarily as part of the Government's
Kickstart programme and a GBP0.1 million interest rate derivative
fair value adjustment.
At the end of the year, the Group had in place a GBP150 million
committed syndicated facility, maturing in September 2013, with
flexible borrowing terms at a low cost.
Financial risk and liquidity
The Group largely sees three categories of financial risk:
interest rate risk, credit risk and liquidity risk. Currency risk
is not a consideration as the Group trades exclusively in the
UK.
With regard to interest rate risk, the Group from time to time
will enter into hedge instruments to ensure that the Group's
exposure to excessive fluctuations in floating rate borrowings is
adequately hedged. With the commencement of a new banking
arrangement in late 2008, the Group entered into a GBP50 million
zero cost cap and floor collar hedge arrangement in February 2009,
ensuring that variable rates on up to GBP50 million of the Group's
floating rate debt are held within a pre-determined range. This
prevents the Group from suffering material adverse floating rate
increases beyond an agreed level ('the cap') in return for which
the Group accepts a minimum payment cost ('the floor').
With unprecedentedly low LIBOR rates together with the risk
premium on LIBOR rates falling away as liquidity has returned to
the market, the variable cost of borrowings is below the floor and
therefore ongoing costs are being incurred. As the Group has no
debt at present, these hedge instruments are regarded as
ineffective and thus all costs are being taken directly through
income. At present, this cost is estimated at GBP0.3 million per
annum until expiry in March 2011 which reflects the fair value of
the interest rate swap. At the time of the expiry of this hedge,
the Group will assess its future expected debt profile and, having
quantified its interest rate risk, will make a decision on any
future hedging. The Group does not have a defined policy for
interest rate hedging.
Credit risk is largely mitigated by the fact that the Group's
sales are generally made on completion of a legal contract at which
point monies are received in return for transfer of title. During
2010, the Group continued to make a number of sales with the
provision of a shared equity investment by the Group as a key part
of the Group's sales incentive packages, either via the Government
'Home Buy Direct' scheme or via the Group's own 'Jumpstart' scheme.
This has led to an increase in the size of the Group's long term
receivable. Available for Sale Financial Asset balance which at 31
December 2010 was GBP31.1 million versus GBP21.3 million at 31
December 2009. Whilst this does represent an increase in credit
risk in total, each individual credit exposure is small given the
high number of counterparties. On average, individual shared equity
exposure totals GBP24,000 (2009: GBP26,000).
In early 2010, the Group successfully re-refinanced its banking
arrangements, putting in place a GBP150 million syndicated facility
which is committed to September 2013. The Group regards this
facility as adequate in terms of both flexibility and liquidity to
cover its medium term cash flow needs.
Financial reporting
There have been no changes to the Group's accounting policies
during 2010.
Jonathan Hill Finance Director
Principal risks and uncertainties
The Group's financial and operational performance is subject to
a number of risks. The Board recognise that the management of these
risks is extremely important for the long-term success of the
Group. The identification, quantification and mitigation of these
risks are assessed on a regular basis by the Board. The key risks
facing the Group are as follows:
Risk Impact Mitigation
----------------- ----------------------------- ----------------------------
General Demand for housing is -- The Group retains a
Economic impacted by changes in cautious debt position with
Conditions employment, interest rates a conservatively structured
and customer confidence. balance sheet. -- The Group
A deterioration in the manages its level of work
economy in progress to match sales
could decrease customer levels. -- The Group is
demand for new homes and focussing its land
the pricing achievable, acquisition effort
with consequential impacts primarily in the south of
on revenues, profits and England, where the economy
potentially asset values. should remain more robust.
----------------- ----------------------------- ----------------------------
Mortgage The availability of mortgage -- The Group manages its
Availability finance is fundamental to level of work in progress
customer demand. Further to match sales levels. --
restriction on mortgages The Group is investing in
granted, potentially driven land with more traditional
by increased deposits homes, which are less
demanded by banks or more focussed on the first time
stringent credit vetting buyer. -- The Group
procedures, could reduce provides relevant customers
demand for homes and with purchase assistance
therefore revenues and schemes, which are targeted
profits. at those buyers with the
greatest difficulty in
accessing mortgages due to
deposit requirements. --
The Group continues to
innovate to find additional
ways to assist customers to
purchase a home.
----------------- ----------------------------- ----------------------------
Code for The introduction of higher -- The Group is investing
Sustainable levels of CSH may increase assertively in consented
Homes substantially production land which is subject to
("CSH") costs without an offsetting existing regulation
Requirements ability to increase sales standards. -- The Group
prices. Assuming councils continues to investigate
maintain their social new building techniques and
gain packages, land vendors advances, which can reduce
may see insufficient value the carbon usage from new
remaining in their land build developments in
and therefore the supply increasingly cost effective
of land at traditional ways.
margins may erode, thus
impeding the growth of
sites and therefore volumes
going forward.
----------------- ----------------------------- ----------------------------
Regulation The Group is subject to -- The Group maintains a
and Legislation large quantities of changing land bank to mitigate
rules and regulations in against significant impacts
relation to planning, from delayed build
legislation and health and activity. -- The Group
safety. Complying with the operates comprehensive
obligations can create costs processes to ensure
to the Group or may create compliance with known
delays in building activity. regulatory and legal
Additionally the quantity requirements. -- The Group
and range of obligations carefully monitors changes
create risks for the Group in legislation and
in remaining aware and fully regulation to ensure that
conversant with all of the changes effecting the
new developments. business are incorporated
within the Group's
processes.
----------------- ----------------------------- ----------------------------
Access The Group fails to invest -- The Group operates a
to Land effectively in land with rigorous formal process for
a residential planning land acquisitions and
consent to maintain and defines hurdle return rates
grow its consented land which must be achieved. --
bank, thus either limiting Management regularly review
expansion or possibly the pipeline of new land
compromising existing purchases.
activity.
----------------- ----------------------------- ----------------------------
As the activities of the Group evolve, the nature of the risks
that it is focused on evolve. For instance, as the Group has
acquired land successfully, the operational risk shifts to the
progression of these sites into the build and sales phase, with the
challenges of gaining detailed planning and of operationally
gearing up the Group to increase build and sales activity. This
said, it is important to recognise that whilst conditions may have
improved, profound uncertainties remain in regards to the UK
economy which do suggest that appropriate levels of caution should
be maintained.
Statement of directors' responsibilities in respect of the
annual report and the financial statements
The directors are responsible for preparing the annual report
and the Group and Parent Company financial statements, in
accordance with applicable law and regulations.
Company law requires the directors to prepare Group and Parent
Company financial statements for each financial year. Under that
law the directors are required to prepare the Group financial
statements in accordance with IFRSs as adopted by the EU and
applicable law and have elected to prepare the Parent Company
financial statements on the same basis.
Under company law, the directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and Parent Company and of
their profit or loss for that period.
In preparing each of the Group and Parent Company financial
statements, the directors are required to:
-- select suitable accounting policies and then apply them
consistently;
-- make judgments and estimates that are reasonable and
prudent;
-- for the Group and Parent Company financial statements, state
whether they have been prepared in accordance with IFRSs as adopted
by the EU;
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and the Parent
Company will continue in business.
The directors are responsible for keeping proper accounting
records that are sufficient to show and explain the Parent
Company's transactions and disclose with reasonable accuracy at any
time the financial position of the Parent Company and enable them
to ensure that its financial statements comply with the Companies
Act 2006. They have general responsibility for taking such steps as
are reasonably open to them to safeguard the assets of the Group
and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the directors are also
responsible for preparing a directors' report, report on directors'
remuneration and report on corporate governance that comply with
that law and those regulations.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
We confirm that to the best of our knowledge:
a) the Group and Parent Company financial statements in this
report, which have been prepared in accordance with IFRS as adopted
by the EU, IFRIC interpretation and those parts of the Companies
Act 2006 applicable to companies reporting under IFRS, give a true
and fair view of the assets, liabilities, financial position and
profit or loss of the Company and of the Group taken as a whole;
and
b) the management report contained in this report includes a
fair review of the development and performance of the business and
the position of the Company and the Group taken as a whole,
together with a description of the principal risks and
uncertainties they face.
For and on behalf of the Board
David Ritchie
Chief Executive
Jonathan Hill
Finance Director
11 March 2011
Bovis Homes Group PLC Group income statement
For the year ended 31
December 2010 2009
Before
exceptional Exceptional
items items
GBP000 GBP000 GBP000 GBP000
------------------------ --- -------- ----------- ----------- --------
Revenue 298,635 281,505 - 281,505
Cost of sales (245,218) (236,339) 1,471 (234,868)
----------------------------- -------- ----------- ----------- --------
Gross profit 53,417 45,166 1,471 46,637
Administrative expenses (31,784) (27,769) - (27,769)
----------------------------- -------- ----------- ----------- --------
Operating profit before
financing costs 21,633 17,397 1,471 18,868
Financial income 2,406 2,304 - 2,304
Financial expenses (5,614) (12,178) (4,197) (16,375)
----------------------------- -------- ----------- ----------- --------
Net financing costs (3,208) (9,874) (4,197) (14,071)
Share of profit of joint
venture 76 - - -
Profit/(loss) before tax 18,501 7,523 (2,726) 4,797
Income tax (expense)/credit (4,463) (2,070) 763 (1,307)
----------------------------- -------- ----------- ----------- --------
Profit/(loss) for the period
attributable to equity
holders of the parent 14,038 5,453 (1,963) 3,490
----------------------------- -------- ----------- ----------- --------
Earnings/(loss) per
share
------------------------ --- -------- ----------- ----------- --------
Basic 10.6p 4.4p (1.6p) 2.8p
Diluted 10.6p 4.4p (1.6p) 2.8p
----------------------------- -------- ----------- ----------- --------
Bovis Homes Group PLC
Group statement of comprehensive income
For the year ended 31 December
2010 2009
GBP000 GBP000
------------------------------------------ ------ ------
Profit for the period 14,038 3,490
Actuarial gains / (losses) on defined
benefit pension scheme 4,320 (4,210)
Deferred tax on actuarial movements
on defined benefit pension scheme (1,255) 1,179
Total comprehensive income for the period
attributable to equity holders of the
parent 17,103 459
------------------------------------------- ------ ------
Bovis Homes Group PLC
Group balance sheet
At 31 December 2010 2009
GBP000 GBP000
------------------------------------ ------- -------
Assets
Property, plant and equipment 11,307 11,574
Investments 4,847 22
Restricted cash 138 -
Deferred tax assets 3,899 6,446
Trade and other receivables 12,087 2,213
Available for sale financial assets 31,147 21,291
Total non-current assets 63,425 41,546
------------------------------------ ------- -------
Inventories 764,360 630,709
Trade and other receivables 37,271 30,771
Cash and cash equivalents 67,003 114,595
Current tax assets - 831
------------------------------------ ------- -------
Total current assets 868,634 776,906
------------------------------------ ------- -------
Total assets 932,059 818,452
------------------------------------ ------- -------
Equity
Issued capital 66,609 66,570
Share premium 210,409 210,181
Retained earnings 433,799 415,815
------------------------------------ ------- -------
Total equity attributable to equity
holders of
the parent 710,817 692,566
------------------------------------ ------- -------
Liabilities
Bank and other loans 15,233 2,337
Other financial liabilities 2,686 -
Trade and other payables 56,004 23,077
Retirement benefit obligations 2,870 8,910
Provisions 1,995 1,700
------------------------------------ ------- -------
Total non-current liabilities 78,788 36,024
------------------------------------ ------- -------
Bank and other loans 92 -
Trade and other payables 139,215 87,698
Provisions 1,604 2,164
Current tax liabilities 1,543 -
Total current liabilities 142,454 89,862
------------------------------------ ------- -------
Total liabilities 221,242 125,886
------------------------------------ ------- -------
Total equity and liabilities 932,059 818,452
------------------------------------ ------- -------
These accounts were approved by the Board of directors on 11
March 2011 and signed on its behalf by
David Ritchie and Jonathan Hill, Directors.
Bovis Homes Group PLC
Group statement of changes in equity
Total Issued Share Total
retained
For the year ended 31 December earnings capital premium
GBP000 GBP000 GBP000 GBP000
------------------------------- --------- ------- ------- -------
Balance at 1 January 2009 414,654 60,497 157,127 632,278
Total comprehensive income
and expense 459 - - 459
Deferred tax on other employee
benefits (2) - - (2)
Issue of share capital - 6,073 53,054 59,127
Share based payments 704 - - 704
Balance at 31 December
2009 415,815 66,570 210,181 692,566
------------------------------- --------- ------- ------- -------
Balance at 1 January 2010 415,815 66,570 210,181 692,566
Total comprehensive income
and expense 17,103 - - 17,103
Deferred tax on other employee
benefits 36 - - 36
Issue of share capital - 39 228 267
Share based payments 845 - - 845
Deferred tax on share based
payments (160) - - (160)
Current tax on share based
payments 160 - - 160
Balance at 31 December
2010 433,799 66,609 210,409 710,817
------------------------------- --------- ------- ------- -------
Bovis Homes Group PLC
Group statement of cash flows
For the year ended 31 December 2010 2009
GBP000 GBP000
---------------------------------------------- -------- --------
Cash flows from operating activities
Profit for the year 14,038 3,490
Depreciation 636 769
Adjustment for sale of assets to joint
venture 963 -
Impairment of available for sale assets 713 245
Financial income (2,406) (2,304)
Financial expense 5,614 16,375
Loss on sale of property, plant and equipment 8 3
Equity-settled share-based payment expense 845 704
Income tax expense 4,463 1,307
Share of result of joint venture (76) -
Release of inventory provisions - (2,664)
Increase in trade and other receivables (23,951) (7,555)
(Increase) / decrease in inventories (133,650) 152,762
Increase / (decrease) in trade and other
payables 84,335 (17,173)
Decrease in provisions and employee benefits (1,731) (611)
---------------------------------------------- -------- --------
Cash (outflow) / inflow generated from
operations (50,199) 145,348
---------------------------------------------- -------- --------
Interest paid (3,028) (6,684)
Income taxes (paid) / received (762) 21,688
---------------------------------------------- -------- --------
Net cash (outflow) / inflow from operating
activities (53,989) 160,352
---------------------------------------------- -------- --------
Cash flows from investing activities
Interest received 660 1,481
Acquisition of property, plant and equipment (402) (44)
Proceeds from sale of plant and equipment 24 45
Investment in joint venture (4,228) -
Movements in loans with joint venture (1,451) -
Investment in restricted cash (138) -
Net cash (outflow) / inflow from investing
activities (5,535) 1,482
---------------------------------------------- -------- --------
Cash flows from financing activities
Proceeds from the issue of share capital 267 60,662
Costs associated with share placing - (1,535)
Drawdown / (repayment) of borrowings 13,706 (118,000)
Costs associated with refinancing (2,041) -
Net cash inflow / (outflow) from financing
activities 11,932 (58,873)
---------------------------------------------- -------- --------
Net (decrease) / increase in cash and
cash equivalents (47,592) 102,961
Cash and cash equivalents at 1 January 114,595 11,634
---------------------------------------------- -------- --------
Cash and cash equivalents at 31 December 67,003 114,595
---------------------------------------------- -------- --------
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 2010 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 11 March 2011. The accounts were audited by
KPMG Audit Plc.
The financial information set out above does not constitute the
company's statutory accounts for the years ended 31 December 2010
or 2009 but is derived from those accounts. Statutory accounts for
2009 have been delivered to the registrar of companies, and those
for 2010 will be delivered in due course. The auditors have
reported on those accounts; their reports were (i) unqualified,
(ii) did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their
report and (iii) did not contain a statement under section 498 (2)
or (3) of the Companies Act 2006.
2 Statement of compliance
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. On publishing the Company
financial statements in the Group's full Report and Accounts
together with the Group financial statements, the Company is taking
advantage of the exemption in s408 of the Companies Act 2006 not to
present its individual income statement and related notes that form
a part of these approved financial statements.
3 Basis of preparation
The financial statements are prepared on the historical cost
basis except for derivative financial instruments and available for
sale assets.
The preparation of financial statements in conformity with
adopted IFRSs 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 the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
Judgements made by management in the application of adopted
IFRSs that have significant effect on the financial statements and
estimates with a significant risk of material adjustment in the
next year are discussed in note 28.
The accounting policies set out below have been applied
consistently to all relevant periods presented in these
consolidated financial statements. The accounting policies have
been applied consistently to the Company and the Group where
relevant.
Impact of standards and interpretations effective for the first
time
The following new standards, amendments to standards or
interpretations are mandatory for the first time for the Company's
year ended 31 December 2010. They have had no material impact on
the Group's financial statements.
IAS39 'Financial instruments' (Amendment). This standard is
amended such that gains or losses on a hedged instrument should be
reclassified from equity to profit or loss during the period that
the hedged forecast cash flows affect profit or loss. As the
Group's current hedged instruments are currently ineffective,
movements are currently taken through the income statement so this
has had no practical impact.
IFRS 2 'Share-based payment' (Amendment). The definition of
vesting conditions in IFRS 2 has been amended to clarify that
vesting conditions are limited to service conditions and
performance conditions. Conditions other than service or
performance conditions are considered non-vesting conditions. The
amendment also specifies that all cancellations, whether by the
entity or by other parties, should receive the same accounting
treatment, i.e. acceleration of the charge, rather than be treated
as a reversal. The Board has concluded that there is no significant
effect on the Group's financial statements.
IFRIC15 'Agreements for the construction of real estate'.
IFRIC15 provides guidance on whether the construction of real
estate should be accounted for under IAS11 or IAS18. The Group
already accounts for the construction of real estate in accordance
with IFRIC15 and accordingly this interpretation has had no impact
upon the Group.
The other standards and interpretations that are applicable for
the first time in the Group's financial statements for the year
ended 31 December 2010, have no effect on these financial
statements.
4 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.
Entities which are controlled with another party or parties
("joint ventures") are accounted for using the equity method of
accounting. The results attributable to the Group's holding in
joint ventures are shown separately in the consolidated income
statement. The amount included in the consolidated balance sheet is
the Group's share of the net assets of the joint ventures plus net
loans receivable.
5 Accounting policies
Business combinations
The purchase method of accounting is used to account for the
acquisition of subsidiary undertakings by the Group. The cost of or
consideration for an acquisition is measured as the fair value of
the assets given and liabilities taken on or assumed in return for
the acquisition. On acquisition, identifiable assets and
liabilities are measured initially at fair value, with any excess
of consideration being recognised as goodwill. Accounting policies
of subsidiary undertakings have been changed where necessary to
ensure consistency with those adopted by the Group.
Revenue
Revenue is recognised in the income statement when the
significant risks and rewards of ownership have been transferred to
the purchaser. Revenue comprises the fair value of the
consideration received or receivable, net of value-added tax,
rebates and discounts. Revenue in respect of the sale of
residential properties and land is recognised at the fair value of
the consideration received or receivable on legal completion of the
sale transaction. Revenue does not include the value of the onward
legal completion of properties accepted in part exchange against a
new property. The net gain or loss arising from the legal
completion of these part exchange properties is recognised in cost
of sales.
Rental income is recognised in the income statement on a
straight-line basis over the term of the lease. Lease incentives
granted are recognised as an integral part of the total rental
income.
Operating leases
Rentals payable under operating leases are charged to income on
a straight-line basis over the term of the relevant lease. Lease
incentives received are recognised as an integral part of the total
lease expenditure.
Net financing costs
Net finance costs comprise:
-- interest payable on borrowings, including any premiums
payable on settlement or redemption and direct issue costs,
accounted for on an accrual basis
to the income statement using the effective interest method;
-- interest receivable on funds invested accounted for on an
accrual basis to the income statement using the effective interest
method;
-- imputed interest on available-for-sale financial assets, fair
valued interest free loans and on deferred terms land payables;
-- pension finance costs or benefits being the net of interest
costs on liabilities and expected return on assets linked to the
Defined Benefit Scheme; and
-- gains and losses on hedging instruments that are recognised
in the income statement.
Finance costs are included in the measurement of borrowings at
their amortised cost to the extent that they are not settled in the
period in which they arise.
The Group is required to capitalise borrowing costs directly
attributable to the acquisition, construction and production of a
qualifying asset, as part of the costs of that asset. Inventories
which are produced in large quantities on a repetitive basis over a
short period of time are not qualifying assets. The Group does not
generally produce qualifying assets.
Taxation
Income tax comprises the sum of the tax currently payable or
receivable and deferred tax. Income tax is recognised in the income
statement except to the extent that it relates to items recognised
directly in equity, in which case it is recognised in equity.
The tax currently payable or receivable is based on taxable
profit or loss for the year and any adjustment to tax payable or
receivable in respect of previous years. Taxable profit or loss
differs from net profit or loss as reported in the income statement
because it excludes items of income or expense that are taxable or
deductible in other years and it further excludes items that are
never taxable or deductible. The Group's liability or asset for
current tax is calculated using tax rates that have been enacted or
substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profit, and is accounted for using the
balance sheet liability method.
Deferred tax liabilities are generally recognised for all
taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits
will be available against which deductible temporary differences
can be utilised. Such assets and liabilities are not recognised if
the temporary difference arises from non-tax deductible goodwill,
from the initial recognition of assets and liabilities in a
transaction that affects neither the tax profit nor the accounting
profit, and from differences relating to investments in
subsidiaries to the extent that they will probably not reverse in
the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered. Deferred tax is
calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised.
Deferred tax is charged or credited in the income statement, except
when it relates to items charged or credited directly to reserves,
in which case the deferred tax is also dealt with in reserves.
Derivative financial instruments and hedge accounting
The Group's activities expose it primarily to the financial
risks of changes in interest rates. The Group uses interest rate
swap contracts where deemed appropriate to hedge these exposures.
The Group does not use derivative financial instruments for
speculative purposes. The use of financial derivatives is governed
by the Group's policies approved by the Board of directors, which
provide written principles on the use of financial derivatives.
Derivative financial instruments are recognised at fair value.
The fair value of interest rate swaps is the estimated amount that
the Group would receive or pay to terminate the swap at the balance
sheet date, taking into account interest rates and the current
creditworthiness of the swap counterparties.
Where the derivative instrument, typically an interest rate
swap, is deemed an effective hedge over the exposure being hedged,
the derivative instrument is treated as a cash flow hedge and hedge
accounting applied. Under a cash flow hedge, gains and losses on
the effective portion of the change in the fair value of the
derivative instrument are recognised directly in other
comprehensive income.
Changes in the fair value of derivative financial instruments
that do not qualify for hedge accounting and any ineffectiveness in
the hedge relationship are recognised in the income statement as
they arise.
Hedge accounting is discontinued when the hedging instrument
expires or is sold, terminated, or exercised, or no longer
qualifies for hedge accounting. At that time, any cumulative gain
or loss on the hedging instrument recognised in reserves is
retained in reserves until the forecasted transaction occurs. If a
hedged transaction is no longer expected to occur, the net
cumulative gain or loss recognised in reserves is transferred to
net profit or loss for the period.
Property, plant and equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and impairment losses. Certain property
that had been revalued to fair value on or prior to 1 January 2004,
the date of transition to adopted IFRS, are measured on the basis
of deemed cost, this being the revalued amount at the date of that
revaluation less any subsequent accumulated depreciation and
subsequent accumulated impairment losses. Regular reviews of the
carrying values of property are completed to assess any impairment
in value. When impairment is identified, the asset's recoverable
amount is assessed and any shortfall is written off through the
income statement.
Depreciation is charged so as to write off the cost less
residual value (which is reassessed annually) of assets over their
estimated useful lives. Depreciation is charged on property in
respect of the value of the building. Land is not depreciated. The
basis of depreciation for each class of asset is as follows:
-- Buildings straight line over 50 years
-- Plant and machinery 33.3% reducing balance
-- Computer equipment straight line over 3 years
-- Office equipment 25% reducing balance
The gain or loss arising on the disposal or retirement of an
asset is determined as the difference between the sales proceeds
and the carrying amount of the asset and is recognised in the
income statement.
Fixed asset investments
Investments in subsidiaries are carried at cost less impairment.
Following the issue of IFRIC11 in 2007, the Parent Company accounts
for the share-based payments granted to subsidiary employees as an
increase in the cost of its investment in subsidiaries.
Trade and other receivables
Trade receivables do not carry any interest and are stated at
their nominal value as reduced by appropriate allowances for
estimated irrecoverable amounts.
Receivables on extended terms granted as part of a sales
transaction are secured by way of a legal charge on the relevant
property, categorised as an available for sale financial asset and
are stated at fair value as described in note 15. Gains and losses
arising from changes in fair value are recognised directly in
equity in retained earnings, with the exceptions of impairment
losses, the impact of changes in future cash flows and interest
calculated using the 'effective interest rate' method, which are
recognised directly in the income statement.
Where the investment is disposed of, or is determined to be
impaired, the cumulative gain or loss previously recognised in
equity is included in the income statement for the period. Given
its materiality, this item is being disclosed separately on the
face of the balance sheet.
Inventories
Inventories are stated at the lower of cost and net realisable
value. Cost comprises direct materials and, where applicable,
direct labour costs and those overheads, not including any general
administrative overheads, that have been incurred in bringing the
inventories to their present location and condition. Net realisable
value represents the estimated net selling price less estimated
total costs of completion of the finished goods.
Land held for development, including land in the course of
development until legal completion of the sale of the asset, is
initially recorded at cost. Where, through deferred purchase credit
terms, cost differs from the nominal amount which will actually be
paid in settling the deferred purchase terms liability, an
adjustment is made to the cost of the land, the difference being
charged as a finance cost.
Options purchased in respect of land are capitalised initially
at cost. Regular reviews are completed for impairment in the value
of these options, and provisions made accordingly to reflect loss
of value. The impairment reviews consider the period elapsed since
the date of purchase of the option given that the option contract
has not been exercised at the review date. Further, the impairment
reviews consider the remaining life of the option, taking account
of any concerns over whether the remaining time available will
allow successful exercise of the option. The carrying cost of the
option at the date of exercise is included within the cost of land
purchased as a result of the option exercise.
Investments in land without the benefit of planning consent,
either through purchase of freehold land or non refundable deposits
paid on land purchase contracts subject to residential planning
consent, are capitalised initially at cost. Regular reviews are
completed for impairment in the value of these investments, and
provision made to reflect any irrecoverable element. The impairment
reviews consider the existing use value of the land and assesses
the likelihood of achieving residential planning consent and the
value thereof.
Ground rents are held at an estimate of cost based on a multiple
of ground rent income, with a corresponding credit created against
cost of sales, in the year in which the ground rent first becomes
payable by the leasehold purchaser.
Cash and cash equivalents
Cash and cash equivalents comprises cash balances and call
deposits. Bank overdrafts that are repayable on demand and form an
integral part of the Group's cash management are included as a
component of cash and cash equivalents for the purpose of the
statement of cash flows.
Bank borrowings
Interest-bearing bank loans and overdrafts are initially
recorded at fair value, net of direct issue costs, and subsequently
at amortised cost. Finance charges are accounted for on an accrual
basis to the income statement using the effective interest method
and are added to the carrying amount of the instrument to the
extent that they are not settled in the period in which they
arise.
Joint ventures
Entities which are jointly controlled with another party or
parties ("joint ventures") are accounted for using the equity
method of accounting. The results attributable to the Group's
holding in joint ventures are shown separately in the consolidated
income statement. The amount included in the consolidated balance
sheet is the Group's share of the net assets of the joint ventures
plus net loans receivable.
Government grants
Government grants are recognised in the income statement so as
to match with the related costs that they are intended to
compensate. Government grants are included within deferred income.
The benefit on loans with an interest rate below market is
calculated as the difference between interest at a market rate and
the below market interest. The benefit is treated as a Government
grant. The benefit on loans with an interest rate below market is
calculated as the difference between interest at a market rate and
the below market interest, and the benefit is treated as a
Government grant.
Kickstart
During the year, the Group has been granted assistance for the
development of a number of sites under the Homes and Communities
Agency ('HCA') 'Kickstart' scheme. Where receipts under the
Kickstart scheme relate to grants they are accounted for in
accordance with the policy for government grants stated above.
In addition the Group has received cash upon specific sites
under the 'Kickstart equity' scheme which may be repayable in
future periods, as the sites to which it relates are developed,
along with the share of the profits or losses attributable to the
HCA arising from the sites. This grant element is included within
deferred income to the extent that it is currently estimated that
future economic benefit will be derived and will be released to the
income statement in line with sales from the relevant site. If part
or all the equity schemes are expected to be repaid these are shown
in other creditors.
Trade payables
Trade payables on normal terms are not interest bearing and are
stated at their nominal value.
Trade payables on extended terms, particularly in respect of
land, are recorded at their fair value at the date of acquisition
of the asset to which they relate. The discount to nominal value
which will be paid in settling the deferred purchase terms
liability is recognised over the period of the credit term and
charged to finance costs using the effective interest rate
method.
Provisions
A provision is recognised in the balance sheet when the Group
has a present legal or constructive obligation as a result of a
past event, and it is probable that an outflow of economic benefits
will be required to settle the obligation. If the effect is
material, provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and, where appropriate, the
risks specific to the liability.
Equity instruments
Equity instruments issued by the Company are recorded at the
proceeds received, net of direct issue costs.
Own shares held by ESOP trust
Transactions of the Group-sponsored ESOP trust are included in
the Group financial statements. In particular, the trust's
purchases of shares in the Company are debited directly to equity
through an own shares held reserve.
Employee benefits
The Group accounts for pensions and similar benefits under IAS
19 (Revised): "Employee benefits". In respect of defined benefit
schemes, the net obligation is calculated by estimating the amount
of future benefit that employees have earned in return for their
service in the current and prior periods, such benefits measured at
discounted present value, less the fair value of the scheme assets.
The discount rate used to discount the benefits accrued is the
yield at the balance sheet date on AA credit rated bonds that have
maturity dates approximating to the terms of the Group's
obligations. The calculation is performed by a qualified actuary
using the projected unit method. The operating and financing costs
of such plans are recognised separately in the income statement;
service costs are spread systematically over the lives of employees
and financing costs are recognised in the periods in which they
arise.
All actuarial gains and losses are recognised immediately in the
statement of recognised income and expense.
Payments to defined contribution schemes are charged as an
expense as they fall due.
Share-based payments
The Group has applied the requirements of IFRS2: "Share-based
payments". In accordance with the transitional provisions of IFRS1,
IFRS2 has been applied to all grants of equity instruments after 7
November 2002 that were unvested as of 1 January 2005.
The Group issues equity-settled share-based payments to certain
employees in the form of share options over shares in the Parent
Company. Equity settled share-based payments are measured at fair
value at the date of grant calculated using an independent option
valuation model, taking into account the terms and conditions upon
which the options were granted. The fair value is expensed on a
straight line basis over the vesting period, based on the Group's
estimate of shares that will eventually vest, with a corresponding
credit to equity except when the share-based payment is cancelled
where the charge will be accelerated.
Segment reporting
As the Group's main operation is that of a housebuilder and it
operates entirely within the United Kingdom, there are no separate
segments, either business or geographic, to disclose, having taken
into account the aggregation testing provisions of IFRS8.
Exceptional items
Items that are both material in size and unusual or infrequent
in nature are presented as exceptional items in the income
statement. The Directors are of the opinion that the separate
recording of exceptional items provides helpful information about
the Group's underlying business performance. Examples of events
that, inter alia, may give rise to the classification of items as
exceptional are the restructuring of existing and newly-acquired
businesses, gains or losses on the disposal of businesses or
individual assets and asset impairments, including currently
developable land, work in progress and goodwill.
Restructuring costs
Restructuring costs are recognised in the income statement when
the Group has a detailed plan that has been communicated to the
affected parties. A liability is accrued for unpaid restructuring
costs.
Impact of standards and interpretations in issue but not yet
effective
A number of new standards, amendments to standards and
interpretations are not yet effective for the year ended 31
December 2010, and have not been applied in preparing these
consolidated financial statements. None of these are expected to
have an effect on the consolidated financial statements of the
Group. Comments on specific new standards or amendments are as
follows:
IFRIC 14 'IAS 19 - The limit on a Defined Benefit Asset, Minimum
funding Requirements and their interaction'. This interpretation
outlines when refunds or reductions in future contributions can be
treated as available under IAS 19 "Employee Benefits" and how a
minimum funding requirement affects future contributions or may
give rise to a liability. This is effective from the period
beginning 1 January 2011.
IFRS 7 'Financial Instruments: Disclosure' (Amendment). The
amendment provides clarification of the standard and requires
additional disclosures in relation to financial instruments. This
is effective for the period beginning 1 January 2011.
The Group has not early adopted any standard, amendment or
interpretation.
6 Exceptional items Inventory carrying value
The Group has reviewed the carrying value of its inventory items
at the reporting date, comparing the carrying cost of the asset
against estimates of net realisable value. Net realisable value has
been arrived at using the Board's estimates of achievable sales
prices taking into account current market conditions, and after
deduction of an appropriate amount for selling costs. This has
given rise to no exceptional items relating to the carrying value
of inventory as at 31 December 2010 (2009: GBP2.7 million net
release).
Financing charge
There was no charge in 2010 (2009: GBP4.2 million).
Other exceptional items
There was no charge in 2010 (2009: GBP1.2 million).
In total there were no exceptional charges or releases for 2010
(2009 exceptional charge: GBP2.7 million).
7 Reconciliation of net cash flow to net cash
2010 2009
GBP000 GBP000
------------------------------------- ------- --------
Net (decrease) / increase in net
cash and cash equivalents (47,592) 102,961
(Drawdown) / repayment of borrowings (13,706) 118,000
Fair value adjustments to interest
rate swaps 245 (337)
Fair value adjustment to interest
free loans 473 -
Movement in financing costs included
in loans - (8,270)
Net cash / (debt) at start of period 112,258 (100,096)
------------------------------------- ------- --------
Net cash at end of period 51,678 112,258
------------------------------------- ------- --------
Analysis of net cash:
Cash and cash equivalents 67,003 114,595
Unsecured loans (15,233) (2,000)
Fair value of interest rate swaps (92) (337)
Net cash 51,678 112,258
------------------------------------- ------- --------
8 Income taxes
Current tax
Current tax is the expected tax payable or receivable on the
taxable income or loss for the year, calculated using a corporation
tax rate of 28.0% applied to the pre-tax income or loss, adjusted
to take account of deferred taxation movements and any adjustments
to tax payable for previous years. Current tax receivable for
current and prior years is classified as a current asset.
9 Dividends
There were no dividends paid in the current or prior year by the
Group. The Board has decided to propose a full year dividend of
3.0p per share in respect of 2010, subject to shareholder approval,
for payment on 27 May 2011 to shareholders on the register at the
close of business on 1 April 2011.
10 Earnings or Loss per share
Basic earnings per share
The calculation of basic earnings per share at 31 December 2010
was based on the profit attributable to ordinary shareholders of
GBP14,038,000 (2009: GBP3,490,000) and a weighted average number of
ordinary shares outstanding during the year ended 31 December 2010
of 132,664,656 (2009: 124,179,686), calculated as follows:
Profit attributable to ordinary shareholders
2010 2009
GBP000 GBP000
------------------------------------ ------- -------
Profit for the period attributable
to ordinary shareholders 14,038 3,490
Weighted average number of ordinary shares
2010 2009
------------------------------------- ------------ ------------
Issued ordinary shares at 1 January 133,138,968 120,994,753
Effect of own shares held (528,808 ) (621,297 )
Effect of shares issued in year 54,496 3,806,230
------------------------------------- ------------ ------------
Weighted average number of ordinary
shares at 31 December 132,664,656 124,179,686
------------------------------------- ------------ ------------
Basic earnings per ordinary share before exceptional items for
the year ended 31 December 2009 was calculated on the
pre-exceptional profit after tax of GBP5,453,000. Basic loss per
share on exceptional items for the year ended 31 December 2009 was
calculated on the exceptional loss after tax of GBP1,963,000. In
both cases this is expressed on a per share basis using the
weighted average share information disclosed above.
Diluted earnings per share
The calculation of diluted earnings per share at 31 December
2010 was based on the profit attributable to ordinary shareholders
of GBP14,038,000 (2009: GBP3,490,000) and a weighted average number
of ordinary shares outstanding during the year ended 31 December
2010 of 132,685,679 (2009: 124,203,192).
Under normal circumstances, 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.
However, as a loss per share cannot be reduced through dilution,
this dilution adjustment has not been applied to the calculation of
diluted loss per share arising from exceptional items in 2009. This
dilution adjustment has been applied to the calculation of diluted
earnings per share before exceptional items and diluted earnings
per share after exceptional items for 2009.
The calculation of diluted loss on exceptional items per share
at 31 December 2009 was based on the exceptional loss attributable
to ordinary shareholders of GBP1,963,000 and a weighted average
number of ordinary shares outstanding during the year ended 31
December 2009 of 124,179,686.
Weighted average number of ordinary shares (diluted)
2010 2009
-------------------------------------------- ------------ ------------
Weighted average number of ordinary shares
at 31 December 132,664,656 124,179,686
Effect of share options in issue which
have a dilutive effect 21,023 23,506
-------------------------------------------- ------------ ------------
Weighted average number of ordinary shares
(diluted) at
31 December 132,685,679 124,203,192
-------------------------------------------- ------------ ------------
Diluted earnings before exceptional items
Diluted earnings per ordinary share before exceptional items for
the year ended 31 December 2009 is calculated on the
pre-exceptional profit after tax of GBP5,453,000 and a weighted
average number of ordinary shares outstanding during the year ended
31 December 2009 of 124,203,192.
11 Related Party transactions
Transactions between fellow subsidiaries, which are related
parties, have been eliminated on consolidation, as have
transactions between the Company and its subsidiaries during this
period.
Transactions between the Group, Company and key management
personnel in the year ending 31 December 2010 were limited to those
relating to remuneration, which are disclosed in the Report on
director's remuneration which can be found in the full Report and
Accounts available on the Group's website.
Malcolm Harris, a Group Director, is a non-executive Director of
the Home Builders Federation (HBF) and was a non-executive Director
of the National House Building Council (NHBC) until 26 June
2010.
The Group trades in the normal course of business, on an
arms-length basis, with the NHBC for provision of a number of
building-related services, most materially for provision of
warranties on new homes sold and for performance bonding on
infrastructure obligations, The Group pays subscription fees and
fees for research as required to the HBF.
Total net payments were as follows: 2010 2009
GBP000 GBP000
NHBC 1,454 724
HBF 124 78
There have been no related party transactions in the current
financial year which have materially affected the financial
performance or position of the Group, and which have not been
disclosed.
Transactions with Joint Venture
In the period the Group entered into the following transactions
with Bovis Peer LLP. During the financial year, inventory was
transferred to Bovis Peer LLP for a cash consideration of
GBP25,859,250. In addition, a loan of GBP1,450,355 was provided to
Bovis Peer LLP on 25 March 2010 at an annual interest rate of LIBOR
plus 2.4%.
Bovis Homes Limited are contracted to provide Property and
Letting Management services to the Partnership. Fees charged in the
period ended 31 December 2010 in respect of these services totalled
GBP99,964 (inclusive of VAT).
This information is provided by RNS
The company news service from the London Stock Exchange
END
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