RNS No 6884w
BOVIS HOMES GROUP PLC
19th March 1998
BOVIS HOMES GROUP PLC
PRELIMINARY RESULTS
FOR THE YEAR ENDED 31 DECEMBER 1997
Issued 19 March 1998
Following a successful flotation in December 1997, the Board of Bovis
Homes Group PLC today announced its maiden preliminary results for 1997 as a
separately quoted company.
Pre tax profit increased 60% to #37.3 million (1996:#23.3 million)
Operating margin increased to 15.4% (1996: 11.0 %)
Return on average capital employed increased to 18.8% (1996:12.5%)
Adjusted earnings per share increased by 40% to 22.8p (1996: 16.3p)
Unit completions increased 4.1% to 2,556 (1996: 2,456)
Plots held with planning consent increased 15.6% to 8,296 (1996: 7,178)
Year end net short term deposits of #27.9 million
Commenting on the results, Malcolm Harris, the Chief Executive of Bovis Homes
Group PLC said:
"Following the solid performance in 1997, the first two months' trading
results of 1998 were encouraging with margin improvements across all
sectors of the business. Land purchases have been in line with
expectations."
An extract from the full text from the Chairman's statement, the Chief
Executive's Operational Review and the Financial Review follow:
Enquires:
Malcolm Harris, Chief Executive
Bovis Homes Group PLC
Tel: 0171 329 0096 on Thursday 19th March until 2.30 p.m. only
Tel: 01474 872427 thereafter
Results issued by Julian Bosdet & Henry Harrison-Topham
Shandwick Consultants Ltd
Tel: 0171 329 0096
Extract from the Chairman's Statement
This is my first statement to shareholders since the flotation of the
Company last December. I am therefore particularly pleased to be able to
report favourably on an outstanding year for the Group, which benefited from
the implementation of strategic changes within the Group, against a background
of improved market conditions.
Results
For the year ended 31 December 1997 pre tax profit amounted to #37.3 million,
an increase of 60% over the pro forma result for the previous year. Our
published result compares with our forecast of #37.1 million made at the time
of the flotation.
Unit completions increased by 4% and stringent cost containment and
construction efficiencies together with selling price improvements saw
margins improve.
Adjusted earnings per share of 22.8p showed an increase of 40% over the
previous year, assuming issued share capital of 112.8 million shares for both
years.
Dividend Policy
As indicated in the flotation prospectus, the Board is not recommending
payment of a final dividend for the 1997 financial year. In the absence of
unforeseen circumstances, the first dividend declared by the Board as an
independently quoted company, will be the interim dividend for the year
ending 31 December 1998, which it expects to pay in November 1998, followed by
a final dividend in May 1999.
Market Conditions
The market for the Group's range of houses and locations remained strong
throughout 1997. The consequences of the General Election in May and the new
Government's first budget in July were largely neutral to the housing market.
Increases in interest rates since then have perhaps dampened some of the
optimism seen earlier in the year, but current indicators do not appear to
suggest further major increases. Indeed strong economic performance, coupled
with low inflation and relatively stable interest rates, has resulted in
housing being more affordable today than for many years.
Strategy
The Company is focused on maximising shareholder value by achieving a superior
return on capital employed and consistent growth in profits and earnings per
share. This will be achieved by:
Skilfull investment in short, medium and long term land holdings, either
directly held or on option.
Continuous improvement to the design of our range of homes.
Improved management of development and construction to enhance profitability.
The management of risk by diversity of product range and spread of locations.
Growth across each of the regions and Retirement Homes to deliver further
economies of scale.
We have the land with planning consent, the strategic landholdings, the
financial resources and the management expertise to achieve these objectives.
Looking Forward
The immediate economic scenario is reassuringly stable. Land prices, however,
are increasing and there is fierce competition for the best locations. These
conditions emphasise the virtues of maintaining a strategic land bank. Demand
for new houses remains good in the areas in which we have a presence.
The Group is very strong financially, backed by the availability of good
banking facilities. Management continues to maintain tight cost and overhead
controls.
The Board is therefore confident that the Group will continue to prosper.
Sir Nigel Mobbs
Chairman
Chief Executive's Operational Review
Bovis Homes' operating margin in 1997 was 15.4%, one of the highest in the
industry. The Group's core strength lies in its management at all levels
throughout the organisation, and I am pleased to be able to report that
management's combined efforts culminated in all regions and our Retirement
Homes operation producing significant improvements in profitability. As
mentioned in the Chairman's report, strong cost controls, coupled with
construction efficiencies, contributed towards margin enhancement last year
and further improvements are expected in 1998. Our focus is upon growth in
profits as opposed to volume increases at the expense of margin, with a clear
emphasis on improvements to the return on shareholders funds.
The Market
Southern England sustained strong demand and increased selling prices; the
Midlands, North and South West experienced a steady market with improvements
in demand and selling prices in the second half of the year.
The increase in average sales price per square foot achieved, net of
incentives and trade-in costs, was 3.9% over 1996.
Average building costs were contained through tight cost control and value-
engineering and showed a small reduction in cost per square foot compared with
the previous year.
Overheads were further reduced by #0.8 million from 1996 to 1997 despite an
increase of 4% in unit completions.
Product Mix and Average Selling Price
The average selling price has increased from #90,100 in 1996 to #92,600 in
1997. The analysis of product mix, related average selling prices and
regional unit completion profile are shown below.
Product Mix Analysis - 1997
House type Unit Average
completions selling price
in 1997 in 1997
% #
One and two bedrooms 477 19 65,4000
Three bedrooms 761 30 73,400
Four bedrooms 841 33 118,000
Five or more bedrooms 103 4 177,700
Social Housing 202 8 53,000
Retirement (Note) 172 6 124,200
________ _______ _________
Total: 2,556 100 92,600
________ _______ _________
Note: Of total unit completions, 146 were sales made by the Retirement Homes
operation. The balance of the retirement units sold comprises sales,
by the three regions, of homes for the elderly which do not have
very sheltered housing facilities.
Regional Unit Completion Profile
Year ended Year ended
31 December 1997 31 December 1996
Unit Unit
completions % completions %
South East 1,104 43 1,030 42
South West 677 26 528 21
Central 629 25 755 31
_______ ___ _____ ____
Total three regions 2,410 94 2,313 94
_______ ___ _____ ____
Retirement Homes 146 6 143 6
operation
_______ ___ ______ ____
Total: 2,556 100 2,456 100
_______ ___ ________ ____
All regions have increased unit completions with the exception of Central
which has been replanning many of its sites to accommodate new products.
The Bovis Homes product range is principally targeted to compete against the
second-hand market. Our policy is to offer a superior dwelling both in terms
of design and specification. Where we compete directly with other new homes,
we aim to differentiate our dwellings in terms of elevational treatment,
internal layout and specification. We believe that our product mix and
geographic spread, will enable us to be reasonably resilient to any major
economic changes.
The introduction of a very wide range of products based upon standardised plan
forms and construction methods, with resultant economies of scale, allows us
to tailor the final product to meet local needs in terms of both external
design and internal specification whilst retaining high quality standards and
cost control. The introduction of this method of working over the past two
years has substantially improved the overall profitability of the business.
We have a policy of continuous product improvement, the objective of which is
to ensure that we are competitive in all sectors of the market in which we
operate. We also consistently review all of our internal processes to
increase quality with an objective of reducing unit cost.
Congratulations are in order to Jim Ditheridge and his colleagues in receiving
a Housebuilder of the Year award in recognition of the very high quality of
product and service offered by Retirement Homes, which specialises in very
sheltered housing.
Our social housing operation is an important part of the business that we are
committed to long term, with the expectation that it will substantially
increase its contribution towards the Group's overall performance in the
coming years.
Land and Planning
Consented Land Bank at 31 December 1997
Plots held with planning consent for immediate development increased from
7,178 plots at the start of the year to 8,296 plots at 31 December 1997,
representing 3.25 years' land supply based upon 1997 sales. Our average plot
cost as at 31 December 1997 was #18,600 (20.1% of 1997 average selling price)
compared with our average plot cost as at 31 December 1996 of #19,600 (21.8%
of 1996 average selling price).
Consented Land Bank at 31 December 1997
Analysis by Region & Retirement Homes
Plots of consented land
Total %
South East 3,013 36
South West 2,351 29
Central 2,572 31
Retirement Homes 360 4
_____ ____
Total: 8,296 100
_____ ____
Strategic Land Bank at 31 December 1997
Bovis Homes usually acquires its strategic land under option exercisable when
outline planning consent has been achieved.
Strategic land held at 31 December 1997 of over 2,200 acres had potential for
more than 13,000 plots. This included approximately 1,300 acres with
prospects for approximately 8,300 plots, which are in areas designated for
development within draft or adopted development plans by local, county or
unitary planning authorities, including a number of plots with planning
permission.
Strategic Land Bank at 31 December 1997
Analysis by Region & Retirement Homes
Potential Plots
In
"Growth
Total % locations" %
South East 7,730 59 6,326 76
South West 2,570 20 678 8
Central 2,664 21 1,254 15
Retirement Homes 43 - 43 1
_______ ___ ______ _____
Total: 13,007 100 8,301 100
_______ ___ ______ _____
"Growth locations": areas designated for development within draft or adopted
development plans by local, county or unitary planning authorities.
Land successfully converted from strategic to consented land provided 24% of
the Group's unit completions during 1997, contributing 32% of the
Group's profit and was particularly important in the South East region
operation where our largest strategic interests are held.
The Government is, understandably, focusing upon the optimum use of brown
land. 30% of the Group's production was based upon previously used land in
1997 and this is expected to rise to approximately 35% of production in 1998.
We have a very able land management team, including qualified town planners,
and I believe that we can provide sufficient land at an acceptable purchase
price to meet the Group's requirements.
As quoted by other housebuilders, we have also experienced delays in many
areas in obtaining detailed planning consent. Although there is some
frustration and a belief that the system can be improved, due to the strength
of the Group's total landholdings this problem is not expected to impede the
business's overall performance.
Health & Safety
Bovis Homes promotes all aspects of safety throughout its operations in the
interests of employees, subcontractors and visitors to its sites and premises.
The Company views this as an essential element in the success of the business
and this was recognised in 1997 with major awards from both the Royal Society
for the Prevention of Accidents and the British Safety Council.
Outlook for 1998
Our objective of expanding the business with a greater coverage of the major
conurbations in the North of England, is proceeding well. Building costs
overall are being contained notwithstanding the recent cement price increase.
Despite stiff competition for prime development land our skilled management
team has been acquiring sites in the right locations and at prices acceptable
to the Group and if this continues through the year it will result in us
maintaining a strong land bank with consent, as well as adding further
important strategic land holdings.
Malcolm Harris
Chief Executive
Financial Review
Introduction
1997 has seen the fundamental restructuring of the capital and financing of
the Group. On 9 December 1997 the Company ceased to be a wholly owned
subsidiary of P&O following a placing by Hambros Bank Limited, and its
shares were admitted to the Official List of the London Stock Exchange.
A total of 112,538,532 new and existing ordinary shares were sold under the
placing, and a further 259,500 were issued to directors, all at the placing
price of #2 per ordinary share. The proceeds of the issue of new ordinary
shares received by the Company were used to repay loans outstanding to the
P&O Group. The proceeds arising from the placing of the 24,729,060 existing
ordinary shares were received directly by P&O.
In anticipation of the placing Bovis Homes Limited, the principal subsidiary
of the Company, on 3 November 1997, entered into a series of bilateral
committed revolving loan facilities and uncommitted bonding facilities with
Barclays Bank PLC, Midland Bank plc, Royal Bank of Scotland plc, Den Danske
Bank and West Deutsche Landesbank. The aggregate amounts of the committed
facilities and the uncommitted bonding facilities are #100 million and #55
million respectively. These facilities mature on 2 November 2002, and,
together with new overdraft and money market facilities totalling #20 million,
are available to Bovis Homes Limited to provide finance for the general
corporate purposes of the Group.
Corporate Structure
During 1996 the business and trade of the Group was conducted through the
Company and its subsidiary companies, and Partkestrel Limited
("Partkestrel"), all wholly owned subsidiaries of P&O. On 31 December 1996 the
assets and trade of Partkestrel were transferred to a subsidiary of the
Company whilst the ownership of the shares remained with P&O. In consequence
it is appropriate to show the aggregate of the accounts of Bovis Homes Group
PLC and Partkestrel as pro forma figures for 1996, so as to provide a fair
comparison against 1997 consolidated figures. The pro forma figures have
been shown in addition to the 1996 consolidated figures for Bovis Homes Group
PLC and its subsidiary and associated companies, which are required under the
Companies Act 1985, and have been used as comparative figures throughout this
review.
Review of Results
The Group achieved an operating profit of #38.3 million, representing an
improvement of 30% over the previous year (#29.4 million). This was based on
2,556 unit completions (2,456) at an average selling price of #92,600
(#90,100). Turnover however was lower at #248.9 million, compared with
#267.5 million in 1996, due to a significantly lower level of land sales
and other income.
An improvement in gross margin and a reduction in administration expenses,
combined to enhance the operating margin to 15.4% (11.0%). The gross margin
has benefited in 1997 from the Company's procurement policies, a greater
proportion of value-engineered products coupled with more efficient site
layouts, as well as more favourable market conditions. Administration
expenses, which include sales and marketing costs have reduced from
#21.1 million to #20.3 million. This continued improvement follows on from
the re-organisation in 1995 and 1996, and the continuous review of the
Group's operations to identify and implement further improvements.
Interest payable less interest receivable amounted to #1.0 million compared
with #6.1 million in 1996. The sharp reduction being due to the positive
cash flow over the last two years.
Profit before tax was #37.3 million (#23.3 million) and profit after tax was
#25.7 million (#18.4 million). The effective tax charge at 31.1%
benefited from a relatively small amount of losses brought forward in a
subsidiary company, compared with the previous year.
A dividend amounting to #29.0 million was paid to P&O on 2 October 1997.
Review of the Balance Sheet
Net assets at 31 December 1997 amounted to #208.7 million.
Stocks and work in progress at year end amounting to #243.7 million, are #7.1
million lower than at 31 December 1996. Within these figures the land bank
has been increased by #12.5 million to #162.6 million, whilst the book value
of part exchange properties and other housing stocks has reduced by
#8.9 million to #17.3 million and housing work in progress and raw materials
have reduced by #10.7 million to #63.1 million. Creditors payable under and
over one year, excluding interest free financing from P&O Group companies,
amounted to #86.2 million (#80.6 million). They included deferred land
payments of #38.0 million compared with #34.1 million at the end of 1996,
reflecting the Group's policy to defer land payments on new acquisitions
whenever possible, to maximise the return on capital employed within the
business.
The capital funding of the business has changed substantially during
the year as explained in the introduction. At the commencement of the year
the Group had interest free funding of #165.5 million from the P&O Group, plus
interest bearing finance of #7.4 million. At the close of the year the
Company was funded by issued share capital and share premium totalling
#188.5 million and was holding net short term deposits of #27.9 million.
Cash Flow
Net cash flow from operating activities of #51.6 million was enhanced by a
reduction in stocks and work in progress and an increase in creditors. A
dividend of #29.0 million was paid to P&O in October and the proceeds of the
issue of new ordinary shares were applied in repaying the outstanding interest
free loan due to P&O.
At 31 December 1997 #30.0 million of surplus cash resources were on deposit
with the money market at maturities ranging between 2 days and 12 days after
31 December 1997. There was also a bank overdraft of #2.1 million. This put
the Group in a strong financial position as it went forward into 1998.
Ron Walford
Finance Director
Group Profit and Loss Account
for the year ended 31 December 1997
Pro forma
1997 1996 1996
#000 #000 #000
Turnover - continuing
operations 248,878 267,508 250,711
Cost of sales (190,350) (217,074) (204,044)
_______ ________ ________
Gross profit 58,528 50,434 46,667
Administrative expenses (20,270) (21,069) (21,069)
_______ _________ ________
Operating profit -
continuing operations 38,258 29,365 25,598
Interest receivable and
similar income 322 56 56
Interest payable and similar
charges (1,243) (6,169) (6,169)
_______ _______ _______
Profit on ordinary
activities before taxation 37,337 23,252 19,485
Taxation on profit on
ordinary activities (11,600) (4,840) (4,626)
________ _______ _______
Profit on ordinary
activities after taxation 25,737 18,412 14,859
Dividend paid (29,000) - -
Transfer from reserves 3,263 - -
________ ________ _______
Retained profit for the
financial year - 18,412 14,859
________ ________ ________
Basic earnings per ordinary
share #2.71 - #758.11
________ _______ ________
Adjusted earnings per
ordinary share* 22.8p 16.3p 13.2p
________ ________ ________
* Adjusted earnings per share is calculated on the basis of the 112.8
million shares in issue on flotation as if they had been in issue throughout
the two years ended 31 December 1997. The proceeds of the issue were applied
in repaying an interest free loan due to P&O, hence no adjustment has been
made to earnings in respect of interest. The Board believes that adjusted
earnings per share is the most appropriate basis for comparing earnings per
share throughout the period.
In both the current and preceding financial period there was no material
difference between the historical profits and losses and those reported in the
profit and loss account.
Group Balance Sheet
at 31 December 1997
Pro forma
1997 1996 1996
#000 #000 #000
Fixed assets
Tangible assets 9,588 8,193 8,193
Investments 24 41 41
_______ ________ ________
9,612 8,234 8,234
_______ ________ ________
Current assets
Stocks and work in progress 243,696 250,812 250,812
Debtors due within one year 8,090 7,243 7,243
Debtors due after more than one year 3,597 3,319 3,319
Cash and short term deposits 29,988 - -
_______ ________ _________
285,371 261,374 261,374
Creditors: amounts falling due within
one year (73,355) (68,666) (68,666)
Interest free loan due to P&O and
subsidiaries - (148,850) (165,492)
_______ ________ ________
(73,355) (217,516) (234,158)
Net current assets 212,016 43,858 27,216
_______ ________ ________
Total assets less current liabilities 221,628 52,092 35,450
Creditors: amounts falling due after
more than one year (12,886) (11,956) (11,956)
________ ________ ________
Net assets 208,742 40,136 23,494
_______ _________ ________
Capital and reserves
Called up share capital 56,399 23,010 10
Share premium 132,103 - -
Revaluation reserve 884 865 865
Profit and loss account 19,356 16,261 22,619
_______ ______ ______
Equity shareholders' funds 208,742 40,136 23,494
_______ _______ _______
Group Cash Flow Statement
for the year ended 31 December 1997
Pro forma
1997 1996 1996
#000 #000 #000
Net cash flow from operating activities 51,580 97,956 78,172
Returns on investments and servicing of
finance:
Interest received 322 56 56
Interest paid (1,506) (7,684) (7,684)
______ _______ _______
(1,184) (7,628) (7,628)
______ _______ _______
Taxation (paid)/received (6,707) 7,141 7,200
Capital expenditure and financial
investment
Sale of tangible fixed assets 506 408 408
Purchase of tangible fixed assets (2,897) (1,087) (1,087)
_______ _______ _______
(2,391) (679) (679)
_______ _______ _______
Dividend paid (29,000) - -
________ _______ _______
Cash inflow before management of liquid
resources and financing 12,298 96,790 77,065
Management of liquid resources
Amount placed on short term deposits (29,988) - -
Financing
Issue of ordinary share capital 188,492 - -
Repayment of P&O loans (169,492) (90,200) (70,475)
________ ________ ________
Increase in cash 1,310 6,590 6,590
________ ________ ________
Group Statement of Total Recognised Gains and Losses
for the year ended 31 December 1997
Pro forma
1997 1996 1996
#000 #000 #000
Profit for financial year 25,737 18,412 14,859
Unrealised surplus on the
revaluation of property - 151 151
______ ______ ______
Total recognised gains relating
to the year 25,737 18,563 15,010
______ ______ ______
Group Reconciliation of Movements in Shareholders' Funds
for the year ended 31 December 1997
Pro forma
1997 1996 1996
#000 #000 #000
Opening shareholders' funds 23,494 21,573 8,484
Disposal of revalued property 19 - -
Issue of share capital 188,492 - -
Total recognised gains and losses
for the year 25,737 18,563 15,010
Dividend (29,000) - -
_______ ______ ______
Closing shareholders' funds 208,742 40,136 23,494
_______ ______ ______
Notes to the Accounts
1 Basis of Preparation
The pro forma information contained herein in respect of the year ended 31
December 1996 is based on a combination of the accounts of all the
companies and businesses now operated by Bovis Homes Group PLC which
comprised Bovis Homes Group PLC and subsidiary and associated undertakings
together with Partkestrel Limited ("Partkestrel") a wholly owned
subsidiary of P&O. On 31 December 1996 the assets of Partkestrel were
acquired by a subsidiary of Bovis Homes Group PLC for consideration
settled through an intercompany account with P&O. From 1 January 1997 the
trade relating to those assets was included in the consolidated accounts
of Bovis Homes Group PLC. Following flotation flotation on 9 December
1997 Partkestrel remained a wholly owned subsidiary of P&O.
2 Taxation
The effective corporation tax rates payable for the years ended 31
December 1997 and 1996 have been reduced by brought forward tax losses and
in the case of 1996 by tax credits in respect of earlier years.
3 Dividends
On 2 October 1997 an ordinary dividend of #29.0 million was paid by the
Company to P&O.
4 Earnings per ordinary share
Basic earnings per ordinary share for the year ended 31 December 1997 is
calculated on the weighted average of 9,495,586 ordinary shares in issue
during the year. Basic earnings per ordinary share for the year ended
31 December 1996 is calculated on the weighted average of 19,600 ordinary
shares in issue during the year which reflects the adjustment from #1
shares to 50p shares.
Adjusted earnings per share is calculated on the basis of the 112.8
million shares in issue on flotation as if they had been in issue
throughout the two years ended 31 December 1997. The proceeds of the issue
were applied in repaying an interest free loan due to P&O, hence no
adjustment has been made to earnings in respect of interest. The Board
believes that adjusted earnings per share is the most appropriate basis
for comparing earnings per share throughout the period.
The issue of shares under Share Option Schemes does not give rise to a
material dilution of earnings.
5 Called Up Share Capital
On 3 November 1997 the Company (then called Bovis Homes Investments
Limited) sub-divided its existing called up share capital of 9,800 #1
ordinary shares into 39,200 ordinary shares of 25p each and
issued 49,418,920 new ordinary shares of 25p each to P&O for #12.4
million. On 3 December 1997 the entire authorised share capital was
consolidated into shares of 50p each. With effect from 9 December 1997
the authorised share capital was increased to 150,000,000 ordinary shares
of 50p each, and an additional 88,068,972 ordinary shares were issued at
#2 each, increasing the issued share capital to 112,798,032 ordinary
shares of 50p each.
6 Reconciliation of operating profit to operating cash flows
Pro forma
1997 1996 1996
#000 #000 #000
Operating profit 38,258 29,365 25,598
Depreciation 1,139 1,188 1,188
Profit on disposal of tangible fixed
assets (124) (98) (98)
Decrease in stocks 7,116 50,430 34,413
Decrease in debtors 1,952 1,145 1,145
Increase in creditors 3,239 15,926 15,926
______ ______ ______
Net cash inflow from operating activities 51,580 97,956 78,172
______ ______ ______
7 Change of Name
On 4 November 1997 the Company (then known as Bovis Homes Investments
Limited) re-registered as a public limited company and changed its name to
Bovis Homes Group PLC.
8 Non-statutory Accounts
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 December 1997 or 1996, but is
derived from those accounts. Statutory accounts for the Company for 1996
have been delivered to the Registrar of Companies and those for 1997 will
be delivered following the company's Annual General Meeting. The
auditors have reported on those accounts: their reports were unqualified
and did not contain statements under section 237(2) or (3) of the
Companies Act 1985.
END
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