TIDMBVS
RNS Number : 4622V
Bovis Homes Group PLC
08 April 2019
Bovis Homes Group PLC - Annual Report and Accounts 2018
Annual Report and Accounts 2018, Notice of Annual General
Meeting 2019 and Proxy Card
The Company's Annual General Meeting will be held at 12 noon on
Wednesday 22(nd) May 2019 at The Spa Hotel, Mount Ephraim, Royal
Tunbridge Wells, Kent TN4 8XJ.
In order to comply with Listing Rule 9.1.3, copies of Annual
Report and Accounts 2018 incorporating the Notice of Annual General
Meeting 2019, together with the Proxy Form, have been submitted to
the National Storage Mechanism and will shortly be available for
inspection at www.morningstar.co.uk/uk/NSM
The documents are being posted to shareholders who have
requested hard copies. Copies of the Annual Report and Accounts
2018 and the Notice of Annual General Meeting 2019 and are
available on the Company's website at
www.bovishomesgroup.co.uk/annualreport2018 and
www.bovishomesgroup.co.uk/investors/shareholders/agm/2019 for
shareholders receiving web communications.
Annual Report and Accounts 2018 - publication required by DTR
6.3.5
The Company published its Preliminary Results for the year ended
31 December 2018 on 28 February 2019. 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. To maintain
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/annualreport2018
Bovis Homes Group PLC - Annual Report and Financial Statements
2018
Chairman's statement
I am pleased to report that the Group made significant
operational and financial progress in 2018. Following a period of
re-setting the business, 2018 has been a year of positive progress
across all aspects of the Group. Our focus has remained on
delivering high quality new homes in a controlled and disciplined
approach with a high level of customer service.
Customers
Our customers remain at the centre of everything we do and
delivering a significantly improved level of customer satisfaction
was our number one priority for 2018. I am delighted with our 4
star HBF customer satisfaction rating for 2018, up from 2 star in
the prior year. We are committed to retaining this rating going
forwards reflecting our high quality build, and also have a range
of customer facing initiatives including a new Customer
Relationship Management system to be rolled out in 2019 to help us
build a better Bovis Homes.
People
People remain a key priority and each year we are investing more
in training and development than ever before. This is managed
through our Bovis Homes Training Centre where a range of training
opportunities are designed for all our employees and
subcontractors.
Acknowledging the skills shortage in our industry, we are
pleased to have signed the HBF's Home Building Skills Pledge,
committing us to working with others in the industry to recruit and
train more people to the highest industry-agreed standards. We also
remain very committed to our Bovis Homes Apprenticeship Scheme and
welcomed 37 new recruits in the year.
On behalf of the Board, I would like to thank all of our
employees for their dedication, hard work and enthusiasm in driving
the operational change through the business and delivering a step
change in our financial performance. I would also like to extend my
thanks to our subcontractors and suppliers who are such an
important and valued component of our business.
The housing market
The fundamentals of the new build housing market remain positive
with strong demand across all our regions.
Interest rates remain low by historical standards and the
mortgage market continues to be competitive. Increasing the supply
of new homes in the UK remains a key priority for Government and
their support for purchasers, in particular through the extended
Help to Buy Scheme, is enabling them to access the housing market
through affordable mortgage finance. Whilst the supply of labour in
our market remains challenging,
the planning environment continues to be positive, supporting a
rational market for housing land. Brexit has caused a level of
consumer and wider uncertainty and we are hopeful of a positive
conclusion to it in the near term.
Ordinary dividends and capital return plan
The Board intends to continue its strategy of maintaining an
efficient balance sheet and delivering sustainable dividends to
shareholders. In setting the level of dividends the Board considers
a range of factors including the extent to which the dividend is
covered by underlying earnings and free cash flow, the prevailing
strength of the balance sheet and general economic circumstances,
with particular regard to the cyclicality of the industry.
The Board is pleased to recommend a final ordinary dividend of
38.0p (FY17: 32.5p) per share bringing the total ordinary dividend
for FY18 to 57.0p (FY17: 47.5p) per share, representing a 20%
increase.
In addition, the Board intends that surplus capital will be
returned to shareholders totalling a minimum of GBP180m or c. 134
pence per share in the three years to 2020, with the first special
dividend payment of GBP60m, equivalent to 45 pence per share paid
in November 2018.
The Group expects to continue to be strongly cash generative and
the Board is committed to reviewing the capacity for further
returns to shareholders over time.
The Board
I would like to thank my colleagues on the Board for their
collective support and strong individual contributions during a
progressive and successful year in 2018. I was delighted to welcome
Katherine Innes Ker as a non-executive director in October 2018,
bringing strong experience as a non-executive director across a
range of sectors including housebuilding experience, which
strengthens the Board.
We value dialogue with all our shareholders, institutional and
retail and have maintained ongoing engagement
with our major shareholders during 2018. The Board has been very
cognizant of the vote on the Directors' Remuneration Report at the
2018 AGM and was disappointed with the outcome, having made
significant efforts to engage with shareholders, institutions and
proxy advisors beforehand. Following the vote, we have sought to
better understand the rational for the dissent including holding a
corporate governance presentation
in October 2018. This was well attended by major shareholders
and allowed discussion to further explore and answer specific
concerns.
The future
We have set out our clear medium term targets to be achieved by
2020 which will return Bovis Homes Group to being a leading UK
housebuilder and deliver significantly improved returns to
shareholders. Much progress has been made towards these targets
during 2018 with a number already achieved.
I continue to spend a lot of my time with Bovis Homes in the
regional offices and on site with the wider leadership team and am
delighted to report the positive culture that has evolved over the
past 18 months. I expect 2019 to be another year of great progress
with a wide range of initiatives being implemented across the
business to build an even better Bovis Homes for the future. We
expect to deliver a controlled increase in completions volume,
maintain our high level of build quality and customer service and
drive forward our profitability and return on capital employed in
the year ahead.
Ian Tyler
Chairman
Chief Executive's Statement
2018 in review
The changes implemented across all areas of the business over
the past two years have resulted in a significant step up in the
operational and financial performance of the Group in 2018 and I am
pleased to report a record year of profits with our profit before
tax up 47.4% to GBP168.1m.
Customer satisfaction has been at the core of all we have done
during 2018 and we expect to achieve our target of a 4 star HBF
customer satisfaction rating for 2018, a significant improvement
from our 2 star HBF customer satisfaction rating in 2017. This
shift in quality is reflected across all of our housing delivery
and in the feedback we receive from our private customers and
housing association partners.
We have improved our production processes to ensure we
consistently deliver high quality new homes for our customers
whilst also driving operational efficiency. In the year, we
delivered a total of 3,759 (2017: 3,645) units in a controlled and
disciplined manner.
We launched our new housing range, the Phoenix collection in
2018 and have made excellent progress with site replans. Our first
show homes from the new range have been successfully launched and
we are looking forward to delivering our first completions in
Spring 2019.
We are focused on controlled volume growth whilst optimising
prices and costs, and this is reflected in a 390 basis points
improvement in our operating margin to 16.4% for 2018. The benefits
from our key margin initiatives are coming through and we expect to
achieve further benefits in 2019.
We have a high quality land bank which is well positioned to
meet today's demand for new homes. We have excellent forward
visibility on our land, with all land for 2019 having detailed
planning consent, and 97% of our land for 2020 already secured.
On balance sheet optimisation, our specific actions over the
past two years have focused on ensuring we have an efficient land
bank to match our strategy, the reduction in our working capital,
the disposal of non performing assets and the joint venture of our
two largest sites. Overall, we are aiming to achieve in excess of
GBP250m additional net cash benefit, including a c. GBP68m net cash
benefit on the completion of our joint venture at Wellingborough in
H1 2019, well ahead of our GBP180m target.
I am delighted that as a result of the very positive
improvements across all areas of the business, we have seen a step
up in our return on capital to 19.3% in the year from 13.7% in
2017.
Overall, we have made good progress towards all of our medium
term targets with a number achieved in 2018, and we expect to build
upon this further in 2019.
I would like to thank all the Group's employees for their hard
work and commitment over the past 12 months and to recognise that
each one of them has played their part in the very positive
turnaround in all aspects of the Group's performance in 2018. We
have plenty more opportunities in 2019, and I am looking forward to
another year of progress and returning Bovis Homes to being one of
the UK's leading housebuilders.
Operational update
Customer service
Customer satisfaction has been central to all that we have done
this year and we are pleased that this is reflected in our expected
4 star HBF customer satisfaction rating for 2018, a step change
from the 2 star rating received in the prior year. This improvement
has been seen across all our regions, with each expected to achieve
at least a 4 star rating. The new year has started well with our
rating tracking ahead of 2018.
We continue to invest in our customer service function and will
see the implementation of a new customer relationship management
system rolled out across the business in 2019. This will provide a
complete end to end Bovis Homes experience for our customers,
making it easier for them to engage with us, whilst driving
improved efficiency.
We became a member of the Institute of Customer Service in the
year, which has supported our company wide customer service
training programmes and provided the opportunity to gain a
professional qualification within customer service.
The Bovis Home Buyers Panel continues to meet and provides us
with very valuable feedback and opinion on all aspects of our
customer experience.
Strong sales position
The Group starts the year with a strong sales position with
forward sales representing 48% of consensus FY19 revenues. Our
focus remains on optimising prices whilst delivering controlled
volume growth.
Our new sales specification, launched in 2018, gives our
customers the ability to choose extras within their new home and
has been well received. We see further opportunity from this in
2019 with our Select range of customer options now well established
and available across a greater proportion of our developments.
The Government sponsored Help to Buy scheme remains important,
particularly for first time buyers, and was used for 38% (2017:
37%) of our private completions in 2018.
Part exchange is a positive sales proposition for our customers
and during 2018 we reviewed our polices and procedures for the
scheme to ensure we operate it efficiently and minimise our levels
of part exchange stock. In the year, 8.7% of our private
completions used part exchange. We see an increase in its use as a
sales opportunity for 2019 and are comfortable for part exchange to
be at a similar level as the prior year which was 22.2% of private
completions.
Our focus remains on building high quality desirable family
homes in prime locations on lower risk greenfield sites. We have
structured the business to ensure all our developments are well
serviced by our regional offices and have seven well balanced
regions operating across the southern half of England. We have no
developments within the M25 and apartments account for just 4% of
our owned land bank plots. Our strategy, in the medium term, is to
reduce the proportion of larger homes we build and increase our
offering of two and three bedroom homes and this was reflected in
our development replans and land buying during 2018. 96% of our
land bank plots have an average selling price of less than GBP600k
with 42% at less than GBP300k, with the average selling price in
our land bank at GBP305k. Only 1% of the 4,164 plots we acquired in
2018 are expected to have a sales price in excess of GBP600k.
High build quality
Improving our build quality has been a key priority and we have
made further progress during the year. We have high calibre
construction directors, site managers and site teams across all our
regions, and a far greater hands on approach is now entrenched
across the business, with best practice promoted and shared.
We are delighted that in 2018, six of our site managers and site
teams were awarded NHBC Pride in the Job Quality awards, an
increase from two awards in 2017 and in-line with our highest
number since 2004.
Our NHBC Construction Quality Review for 2018 highlighted an 18%
improvement in our Group score over the past two years bringing it
broadly in line with industry average, with the NHBC noting during
a review that 'Bovis Homes has made a significant step-up in build
quality and customer satisfaction results in a relatively short
time frame.' We have also seen a significant reduction in our NHBC
reportable items which are in line with the industry average.
We have invested in our health and safety function and have seen
very positive results in terms of more frequent and transparent
reporting, a more pro-active culture across the business, and an
improved overall health and safety record year on year.
People
People satisfaction is a key strategic priority and we are
committed to investing in the development and training of our
workforce including our subcontractors. We have a dedicated
Learning and Development team which supports the business through a
full range of training and development programmes, leveraging our
in-house Bovis Homes Training Centre. In 2018 we delivered 4,505
delegate training days, up 14% on the prior year.
A key priority has been the development of our leadership teams
with the roll out of our bespoke leadership framework programmes to
over 140 leaders across the business. We are also very focused on
strengthening our talent pipeline through our annual succession
planning review.
In 2018 we launched our trainee assistant site manager programme
which lasts 18 months and covers all aspects of site management. We
are very committed to our apprenticeship scheme and recruited a
further 37 apprentices in the year taking our total to 68.
As part of our commitment to the HBF's Home Building Skills
Partnership we continue to offer training opportunities to our
subcontractors including the Site Supervisor Safety Training scheme
to over 150 people in 2018, as well as mental health training to
raise the awareness and importance of personal well-being across
the industry.
We are pleased to report an ongoing steady improvement in our
employee engagement level as measured by our monthly employee
engagement survey.
Phoenix housing range
We launched our new housing range of 28 new house types for both
private and affordable housing in April 2018. It is designed to
meet our customers' needs today including more open plan living,
larger bedrooms and better storage. The range also reflects a
complete construction specification review to ensure time, material
and labour efficient designs. With our first completions due in
Spring 2019, the new range will deliver exciting, high quality new
homes as well as drive further price optimisation and a reduction
in production costs.
We have made good progress implementing the new range with 34
sites replanned with the new house types and a further 19
developments in the planning process. Our first new show homes
launched in January at our Hampton Meadows development in
Stadhampton and at our Priory Fields development in Wells with
excellent customer feedback, and our first completions will be in
H1 19. Overall, we expect up to 15% of our private completions in
2019 to be Phoenix house types and this will increase quickly in
future periods.
We expect to replan c. 3,500 plots from our land bank and all
new sites are being acquired and designed with the Phoenix product.
We anticipate the new range will facilitate an improvement to the
embedded gross margin in our land bank of 1% as the positive impact
of replanning comes through improving our layouts, optimising
pricing and reducing build costs. The range provides significant
opportunities and will ensure we remain competitive for the prime
sites we are seeking to secure for the future.
Building a better Bovis Homes
The investment in efficient systems and processes and the
development of our operational teams is a key priority for the
Group and we are now 18 months into a 3.5 year plan of implementing
a series of major business change projects, system improvements and
upgrading equipment across the Group.
We successfully implemented COINS as our primary business system
in Spring 2018 and it is already providing significant improvements
in process, reporting and cost control. The second phase will be
implemented during 2019 delivering further improvement across our
commercial, construction and land activities. A key focus is also
to support mobile working, allowing our commercial and technical
teams in particular to be active on our development sites and
support the site teams as much as possible.
Further process changes are being coordinated across the
business including a consistent automated document management
system to support our teams as well as our supply chain, and in
time, provide information directly to our customers. A new
financial planning and modelling tool is being rolled out during
2019, and we are implementing a new integrated HR, payroll and
learning management solution. In addition, we continue to invest in
our sales website to ensure we build a better Bovis Homes.
These changes alongside the new customer relationships
management system, revised customer journey and the new Phoenix
housing range represent a significant investment as well as
considerable ongoing business development to enable the group to
drive further operational improvements and our financial
performance forward in the medium term.
Partnership housing
The housing shortage and in particular the need for greater
delivery of affordable homes in the UK remains very significant.
Housing Associations are seeking new ways to support their
traditional affordable housing delivery and following the Letwin
review, the Government is focused on facilitating the quicker
delivery of larger schemes.
Bovis Homes is exceptionally well placed to play its part and we
are delighted to be developing our new Partnership Housing Division
during 2019. It is a land led strategy reflecting our valuable and
deliverable strategic land bank with a number of sites of
significant scale. The Group has significantly improved its
relationships with Housing Associations over the last couple of
years, and often under resourced the Housing Associations are
seeking partnerships with Bovis Homes a partner of choice. The new
division will be led by Keith Carnegie as CEO of Partnership
Housing who has much experience in this area.
The Group already has successful partnerships with Housing
Associations on its sites at Wokingham and Boorley Green, and with
Live West for the development of our site at Tavistock. Most
recently we have entered into a 50:50 joint venture with Clarion
Housing Group for the development of our site at Sherford and we
expect to complete the joint venture of our site at Wellingborough
with a housing association this year.
There is a strong pipeline of pull-through from our strategic
land bank with six sites including North Whitely, Alphington, near
Exeter, and Taunton all identified as being suitable for
partnership development.
This partnership approach is expected to drive the best returns
from our land opportunities, enable good working capital management
on key schemes and deliver incremental volume from our sites in
future periods.
Land
The Group has a high quality owned land bank with strong
fundamentals and excellent forward visibility. All our land for
2019 has detailed planning consent and 97% of our land for 2020 is
secured.
We continue to see good opportunities in the land market and
increased our land activity in 2018 to ensure we maintain this
strong supply, in line with our target of a 3.5 to 4.0 years land
bank. In the year we secured a total of 4,164 plots (2017: 2,550)
across 19 (2017: 11) sites.
As at 31 December 2018, we had a total of 15,832 (2017: 17,096)
owned plots in our land bank representing a 4.0 year owned land
supply assuming our target 4,000 completions. We also had 1,496
plots at our development at Sherford which was put into a 50:50
joint venture during H2 2018.
As at 31 December 2017 2018
Total consented land 17,096 17,328
-------- --------
Joint venture plots - 1,496
-------- --------
Owned land bank plots 17,096 15,832
-------- --------
Land bank years(1) 4.3 yrs 4.0 yrs
-------- --------
(1) Land bank years calculated assuming 4,000 completions
p.a.
Our strategic landbank remains a very valuable source of high
quality land for the Group. We saw a step up in the strategic land
pull-through in the year as we made progress on a number of major
projects which will form a key part of delivering new homes for
years to come. These are exciting high quality developments
including North Whitely in the highly desirable borough of
Winchester, Alphington, an excellent location on the edge of
Exeter, Staplehurst in Kent, and a development at Tavistock, Devon
where we have entered into a partnership with Live West, a leading
developer of affordable housing in the South West.
Our strategic pipeline is strong with our developments in
Taunton (832 plots), Camborne (863 plots) and Collingtree (349
plots) all having received outline planning and ideal for
development within our newly formed Partnership Housing division.
We continue to pursue new strategic land opportunities that are
within our core operating area and in the year optioned 1,415
strategic land plots (2017: 2,338).
As at 31 December 2018, we had a total of 19,278 plots (2017:
20,756) in our strategic land bank across 53 sites (2017: 52).
Balance sheet optimisation
As part of our strategic review in 2017 we set out a clear plan
to optimise our balance sheet with a target of realising an
additional net cash benefit of GBP180m from this. Since mid 2017
our focus has been on working capital management, the disposal of
non performing assets and optimising the structure of our balance
sheet. I am pleased to report that we have delivered GBP180m of
additional net cash benefit to date and are now aiming to realise a
total of c. GBP250m with the completion of our joint venture at
Wellingborough. There remain some further opportunities including
the disposal of PRS joint ventures, and we will maintain a strong
focus on active balance sheet optimisation going forward.
On land optimisation we have realised a total of GBP81m of net
cash benefit to date including GBP15m from the joint venture of our
development at Sherford with Clarion Housing Group. We have
disposed of parcels of land on some of our larger sites and also
disposed of several sites outside of our operating area. We expect
to deliver c. GBP68m net cash benefit from the completion of our JV
of Wellingborough in H1 19 and c. GBP4m from the disposal of an out
of operating area site.
Our initiatives on work in progress have totalled GBP43m net
cash benefit of which the reduction of our part exchange properties
contributed GBP26m. The balance reflects optimisation of our
site-by-site WIP and other initiatives such as the sale and
leaseback of our show homes.
We have disposed of other non-returning assets to release total
net cash of GBP56m, the largest of which was the sale of our shared
equity portfolio in 2017, realising total cash receipts of
GBP30m.
Delivering our medium term targets
The Group set out its medium term targets to be achieved by 2020
and return Bovis Homes to being a leading UK housebuilder whilst
significantly improving returns to our shareholders. We have made
very good progress against these targets in 2018 with several
already achieved.
We expect to make further progress in 2019 with the first
completions from our new Phoenix housing range and our on-going
specification review. We also expect to further the opportunity
from our customer extras Select range, and will continue to drive
revenue and cost management, all supported by more effective
systems and ways of working.
Target Progress to date Timing / outlook
4 star HBF customer Achieved
satisfaction * 4 star HBF customer satisfaction score for 2018 * Maintain 4 star rating
rating
-------------------------------------------------------------- --------------------------------------------------------------
4,000 completions 2020
p.a. * 3% increase in completions in FY18, in-line with * Further controlled volume growth expected in FY19
expectations
-------------------------------------------------------------- --------------------------------------------------------------
3.5 to 4.0 year Achieved
owned land bank * Divestment of sites outside of our core operating * Completion of Wellingborough JV in H1 2019
areas
* Maintain 3.5 to 4.0 year owned land bank (ex JVs)
* Sherford JV completed
-------------------------------------------------------------- --------------------------------------------------------------
Min 23.5% gross 2020
margin * 380 basis point improvement in Group gross margin in * Margin initiatives underpin and provide upside to
FY18 to 21.8% 2020 gross margin target
* Margin initiatives delivering progress in FY18 with * Embedded land gross margin at 24.8% will drive
further opportunities further improvements over time
* New land acquired in FY18 at an average gross margin
in excess of 26%
-------------------------------------------------------------- --------------------------------------------------------------
5% admin expense 2019
as % of revenues * Effective operating structure in place with continued
investment in process and systems to deliver
efficiency
* Improvement in admin expense to revenue ratio to 5.3%
in FY18
-------------------------------------------------------------- --------------------------------------------------------------
Min GBP180m Achieved
net cash from * In aggregate, balance sheet initiatives aiming for * Further c. GBP68m net cash benefit from completion of
balance sheet GBP250m net cash benefit, with GBP180m achieved to Wellingborough JV
optimisation date
* On-going active balance sheet optimisation and review
of capital returns
-------------------------------------------------------------- --------------------------------------------------------------
25% return on 2020
capital employed * Increase in Group ROCE to 19.3% in FY18 from 13.7% in
FY17
-------------------------------------------------------------- --------------------------------------------------------------
Ordinary dividend and capital return plan
The Board intends to pursue a strategy of maximising sustainable
dividends to shareholders. In setting the level of dividend the
Board will consider a range of factors including the extent to
which the dividend is covered by underlying earnings and free cash
flow, the prevailing strength of the balance sheet and general
economic circumstances, with particular regard to the cyclicality
of the industry.
The Board is recommending a final ordinary dividend of 38.0p per
share (FY17: 32.5p) bringing the total ordinary dividend for FY18
to 57.0p per share (47.5p), representing a 20% increase on the
prior year.
In 2017, the Board stated that it intended that surplus capital
totalling GBP180m or c. 134p per share will be returned to
shareholders in the three years to 2020. We are pleased to report
that the first payment of GBP60m was made via a special dividend of
45p per share in November 2018. The Group will continue to be
strongly cash generative and given the balance sheet position the
Board is committed to reviewing capacity for further returns to
shareholders over time.
FY18 FY19 FY20
-------------------- -------------- ------------ -----------
Ordinary dividend 57p per share Trend to 2 x cover
Surplus cash return 45p per share Total c. 90p per share
-------------------- -------------- -------------------------
Outlook
We have seen strong sales in the first eight weeks of the year
with a rate of 0.58 sales per site per week, an increase of 15.7%
on the prior year. Given the current increased level of uncertainty
surrounding the broader UK economy, we are encouraged by the
positive start to the year and are pleased to report our forward
sales represent 48% of consensus total 2019 revenues for the
Group.
We remain focused on delivering controlled volume growth whilst
maintaining our absolute focus on high quality build and customer
service.
During 2019 we are implementing a number of initiatives across
all areas of the business to build a better Bovis Homes. In
particular, we are looking forward to the first completions from
our new Phoenix housing range this Spring, with our new house types
designed to best meet our customers' needs whilst driving forward
Group profitability.
We have excellent visibility on our land with all of our
developments for 2019 delivery launched and 97% of our land for
2020 secured.
We are launching our new Partnership Housing division, a land
led strategy which will see Bovis Homes helping to address the
severe housing shortage in the UK whilst maximising our output and
returns.
The Group set out its medium term targets to be achieved by 2020
and return Bovis Homes to being a leading UK housebuilder whilst
significantly improving returns to our shareholders. We have made
very good progress against these targets in 2018 with several
already achieved, and we expect to make additional progress on the
Group's operational and financial performance in 2019.
The Board is pleased to recommend a final ordinary dividend of
38.0p per share (FY17: 32.5p) bringing the total ordinary dividend
for FY18 to 57.0p per share (47.5p), representing a 20% increase on
the prior year. Including the special dividend of 45.0p per share
paid in November 2018, dividends for FY18 more than doubled to
102.0p per share (2017: 47.5p).
Greg Fitzgerald
Chief Executive
Financial Review
Trading performance
In line with our strategy, the Group delivered controlled growth
during 2018 resulting in a 3% increase to 3,759 legal completions
(2017: 3,645). The completions included 1,192 affordable homes
representing 32% of our completions (2017: 29%). Total revenue was
GBP1,061.4m, an increase of 3% on the previous year (2017:
GBP1,028.2m).
Housing revenue was GBP1,026.9m, 3% ahead of the prior year
(2017: GBP992.9m). The average sales price for our private homes
increased 1% to GBP337,400 (2017: GBP334,500) with our overall
average sales price remaining broadly flat at GBP273,200 (2017:
GBP272,400). The Group's revenue includes sales of private homes to
Heylo Housing Association including the impact of the bulk
transaction of 275 homes which exchanged in December 2017 with all
homes under the deal completing during 2018.
Other revenue was GBP20.4m (2017: GBP3.3m) driven by the release
of deferred revenue from disposals within our PRS joint ventures
and land sales revenue, associated with three land sales, was
GBP14.1m in 2018, compared to five land sales achieved in 2017 with
total revenue of GBP32.0m.
Total gross profit was GBP230.9m (gross margin: 21.8%), compared
with GBP184.6m (gross margin: 18.0%) in 2017. Housing gross margin
was 21.9% in 2018, strongly ahead of the 18.3% achieved in 2017
driven by the increasing embedded margin in our land bank, reduced
customer care costs and our ongoing operational improvements
including the initial impacts from our margin initiatives.
During 2018, our construction costs increased by 3% per square
foot, reflecting the inflationary impact of labour and materials
that we estimate to be around 3 - 4% during the year offset by
reductions in our cost base as we delivered production in a
controlled manner, changes in specification and the
under-utilisation of contingency in line with our margin
initiative.
The profit on land sales in 2018 was GBP1.2m (2017: GBP2.4m) as
we continue the strategy of managing our capital base through the
disposal of parcels of land on several of our larger sites although
these disposals will not impact our delivery in the next 2 to 3
years. The Group also entered into its first major joint venture in
December 2018 at Sherford, near Plymouth, with Clarion Housing
Group.
Operating profit increased to GBP174.2m (2017: GBP128.0m) at an
operating profit margin of 16.4% (2017: 12.5%). Overheads were
broadly flat in 2018 at GBP56.7m (2017: GBP56.6m) reflecting the
efficient Group structure put in place during 2017, offset by
higher employee costs and the ongoing investment in new processes,
systems and training.
The Group delivered a record profit before tax for the year
ended 31 December 2018 GBP168.1m, comprising operating profit of
GBP174.2m and net financing charges of GBP6.1m. This compares to
GBP114.0m of profit before tax in 2017, which comprised GBP128.0m
of operating profit, exceptional costs of GBP6.8m and GBP7.2m of
net financing charges.
Financing and Taxation
Net financing charges during 2018 were GBP6.1m (2017: GBP7.2m).
Net bank charges were GBP2.7m (2017: GBP3.0m), because of lower net
debt during 2018 than 2017 offset by a higher level of commitment
fees and issue costs amortised in 2018. We incurred a GBP3.6m
finance charge (2017: GBP5.1m charge), reflecting the imputed
interest on land bought on deferred terms. The Group had no finance
credit during the period (2017: GBP1.1m) arising from the unwinding
of the discount on its available for sale financial assets as the
portfolio was sold during 2017. There were also other credits of
GBP0.2m (2017: expenses of GBP0.2m).
The Group has recognised a tax charge of GBP31.5m at an
effective tax rate of 18.7% (2017: tax charge of GBP22.7m at an
effective rate of 19.9%). The reduced tax rate is driven by the
reduced level of corporation tax to 19%. The Group has a current
tax liability of GBP18.1m in its balance sheet as at 31 December
2018 (2017: GBP16.9m).
Earnings per share and Dividends
Basic earnings per share for the year were 101.6p compared to
68.0p in 2017. This has resulted in a return on equity of 13%
(2017: 9%).
As previously communicated, the Board will propose a 2018 final
dividend of 38.0p per share. This dividend will be paid on 24 May
2019 to holders of ordinary shares on the register at the close of
business on 29 March 2019. Combined with the interim dividend paid
of 19.0p and the special dividend of 45.0p, the dividend for the
full year totals 102.0p and compares to a total of 47.5p for 2017,
an increase of 115%. The dividend reinvestment plan gives
shareholders the opportunity to reinvest their dividends in
ordinary shares.
Net Assets and Cash flow
As at 31 December 2018 net assets of GBP1,061.1m were GBP4.5m
higher than at the start of the year. Net assets per share as at 31
December 2018 were 790p (2017: 787p).
Inventories decreased during the year by GBP1.7m to GBP1,320.2m.
The value of residential land, the key component of inventories,
decreased by GBP54.7m, as we reduced our land investment in line
with our medium term strategy. Other movements in inventories
included an increase in work in progress of GBP56.3m driven by the
infrastructure investment at our key Wellingborough site in the
year. We have also increased the level of housing work in progress
which will support controlled delivery in the first half of 2019 as
we seek to improve our phasing profile over a period of time. There
was also a further reduction in part exchange properties of
GBP3.4m.
Trade and other receivables decreased by GBP12.4m, including a
reduced level of land sales debtors. Trade and other payables
totalled GBP462.5m (2017: GBP478.2m). Land creditors increased to
GBP293.3m (2017: GBP246.7m) reflecting increased land investment
during the year and the settlement of existing creditors. The
second half of 2018 was our strongest period of land acquisition
since the start of 2017, including significant strategic land
conversion at Whiteley, Hampshire and Exeter which contributed to
the year end land creditors. Trade and other creditors decreased to
GBP169.2m (2017: GBP231.5m), driven by the timing of payments, a
reduction in deferred income from our housing association partners
and controlled build delivery around our year end.
As at 31 December 2018 the Group's net cash balance was
GBP126.8m. Having started the year with net cash of GBP144.9m, the
Group generated an operating cash inflow before land expenditure of
GBP291.2m (2017: GBP350.6m). Net cash payments for land investment
were reduced at GBP145.4m (2017: GBP188.9m), reflecting the
deferred payment terms achieved, the timing of acquisitions towards
the end of the year and reduction in land sales debtors.
Non-trading cash outflow, excluding the fixed asset disposals,
increased to GBP163.9m (2017: GBP55.4m) with significantly
increased dividends and higher corporation tax payments.
Cash flow
2018 2017
GBPm GBPm
------------------------------------ -------- -------
Net cash at 1 January 144.9 38.6
Profit in the year 136.6 91.3
Dividends and taxes paid (158.8) (79.5)
(Increase)/Decrease in inventories (1.9) 122.1
Other 6.0 (27.6)
------------------------------------ -------- -------
Net cash at 31 December 126.8 144.9
------------------------------------ -------- -------
We have a committed revolving credit facility of GBP250m in
place which expires in December 2022.
Land Bank
2018 2017
--------------------------------------- ---------- ----------
Consented plots added 4,164 2,550
Sites added 19 11
Sites owned at period end 117 117
Total plots in land bank at period end
including joint ventures 17,328 17,096
--------------------------------------- ---------- ----------
Average consented land plot ASP GBP305,000 GBP293,000
Average consented land plot cost GBP54,900 GBP53,300
--------------------------------------- ---------- ----------
The Group's total land bank including joint ventures of 17,328
plots as at 31 December 2018 represents 4.6 years of supply based
on the 2018 completions volume. If the land bank is adjusted to
reflect the joint venture at Sherford, the land bank reflects our
strategy to deliver c. 4,000 completions per annum from 2019
onwards and maintain an optimal land bank at 3.5 to 4.0 times. The
3,759 plots that legally completed in the year were replaced by a
combination of site acquisitions and conversions from our strategic
land pipeline. Based on our appraisal at the time of acquisition,
the new additions, on average, are expected to deliver a future
gross margin over 26% and a ROCE in excess of 25%.
The average selling price of all units within the consented land
bank increased over the year to GBP305,000, 4% higher than the
GBP293,000 at 31 December 2017. The estimated embedded gross margin
in the consented land bank as at 31 December 2018, based on
prevailing sales prices and build costs is 24.8% and reflects the
initial impact of our margin initiatives.
Strategic land continues to be an important source of supply and
during the year 1,958 plots have been converted from the strategic
land pipeline into the consented landbank.
Earl Sibley
Group Finance Director
Statement of directors' responsibilities in respect of the
annual report and the financial statements
The directors are responsible for preparing the Annual Report,
the Directors' Remuneration Report and the financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have prepared the Group and Parent company financial statements in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union. 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 the Company and of the profit or loss of the Group for
that period.
In preparing these financial statements, the directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates that are reasonable and prudent;
-- state whether applicable IFRSs as adopted by the European
Union have been followed, subject to any material departures
disclosed and explained in the financial statements;
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and the Group and enable them to
ensure that the financial statements and the Directors'
Remuneration Report comply with the Companies Act 2006 and, as
regards the Group financial statements, Article 4 of the IAS
Regulation. They are also responsible for safeguarding the assets
of the Company and the Group and hence for taking reasonable steps
for the prevention and detection of fraud and other
irregularities.
The directors are responsible for the maintenance and integrity
of the Company's website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
The directors consider that the Annual Report and Accounts,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess a Company's
performance, business model and strategy.
Each of the directors, whose names and functions are listed on
pages 62 to 63 of the Annual Report confirm that, to the best of
their knowledge:
-- the Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the EU, give a true and fair
view of the assets, liabilities, financial position and profit of
the Group; and
-- the Strategic Report contained in the Annual report includes
a fair review of the development and performance of the business
and the position of the Group, together with a description of the
principal risks and uncertainties that it faces.
By Order of the Board
M T D Palmer
Group Company Secretary
28 February 2019
Group income statement
For the year ended 31 December 2018 2017
GBP000 GBP000
=========================================== ========= =========
Revenue 1,061,396 1,028,223
=========================================== ========= =========
Cost of sales (830,505) (843,572)
=========================================== ========= =========
Gross profit 230,891 184,651
=========================================== ========= =========
Administrative expenses before exceptional
items (56,723) (56,619)
=========================================== ========= =========
Exceptional administrative expenses - (6,812)
=========================================== ========= =========
Administrative expenses (56,723) (63,431)
=========================================== ========= =========
Operating profit before exceptional
items 174,168 128,032
=========================================== ========= =========
Exceptional items - (6,812)
=========================================== ========= =========
Operating profit 174,168 121,220
=========================================== ========= =========
Financial income 481 1,337
=========================================== ========= =========
Financial expenses (6,585) (8,536)
=========================================== ========= =========
Net financing costs (6,104) (7,199)
=========================================== ========= =========
Share of profit/(loss) of Joint Ventures 5 (20)
=========================================== ========= =========
Profit before tax 168,069 114,001
=========================================== ========= =========
Income tax expense (31,499) (22,706)
=========================================== ========= =========
Profit for the year attributable
to ordinary shareholders 136,570 91,295
=========================================== ========= =========
Earnings per share (pence)
=========================================== ========= =========
Basic 101.6p 68.0p
=========================================== ========= =========
Diluted 101.5p 67.8p
=========================================== ========= =========
Group statement of comprehensive income
For the year ended 31 December 2018 2017
GBP000 GBP000
============================================ ======== ========
Profit for the year 136,570 91,295
============================================ ======== ========
Other comprehensive (expense) / income
============================================ ======== ========
Items that will not be reclassified
to the income statement
============================================ ======== ========
Remeasurements on defined benefit
pension scheme (5,781) 9,286
============================================ ======== ========
Deferred tax on remeasurements on
defined benefit pension scheme 1,083 (1,630)
============================================ ======== ========
Items reclassified to the income
statement
============================================ ======== ========
Available for sale reserve reclassified
on disposal - 1,696
============================================ ======== ========
Deferred tax on available for sale
reserve movement - (288)
============================================ ======== ========
Total other comprehensive (expense)
/ income (4,698) 9,064
============================================ ======== ========
Total comprehensive income for the
year attributable to ordinary shareholders 131,872 100,359
============================================ ======== ========
Balance sheets
2018 2017
As at 31 December GBP000 GBP000
==================================== ========= =========
Assets
==================================== ========= =========
Intangible fixed assets 1,079 -
==================================== ========= =========
Property, plant and equipment 2,181 2,603
==================================== ========= =========
Investments 28,992 8,717
==================================== ========= =========
Restricted cash 1,381 1,414
==================================== ========= =========
Trade and other receivables 611 832
==================================== ========= =========
Available for sale financial assets - -
==================================== ========= =========
Retirement benefit asset 1,381 2,111
==================================== ========= =========
Total non-current assets 35,625 15,677
==================================== ========= =========
Inventories 1,320,229 1,321,952
==================================== ========= =========
Trade and other receivables 64,505 76,686
==================================== ========= =========
Cash and cash equivalents 163,217 170,062
==================================== ========= =========
Total current assets 1,547,951 1,568,700
==================================== ========= =========
Total assets 1,583,576 1,584,377
==================================== ========= =========
Equity
==================================== ========= =========
Issued capital 67,398 67,330
==================================== ========= =========
Share premium 216,907 215,991
==================================== ========= =========
Retained earnings 776,762 773,255
==================================== ========= =========
Total equity attributable to equity
holders of the parent 1,061,067 1,056,576
==================================== ========= =========
Liabilities
==================================== ========= =========
Bank and other loans 36,401 25,209
==================================== ========= =========
Deferred tax liability 730 570
==================================== ========= =========
Trade and other payables 183,769 93,089
==================================== ========= =========
Provisions - 812
==================================== ========= =========
Total non-current liabilities 220,900 119,680
==================================== ========= =========
Trade and other payables 278,706 385,079
==================================== ========= =========
Provisions 4,843 6,187
==================================== ========= =========
Current tax liabilities 18,060 16,855
==================================== ========= =========
Total current liabilities 301,609 408,121
==================================== ========= =========
Total liabilities 522,509 527,801
==================================== ========= =========
Total equity and liabilities 1,583,576 1,584,377
==================================== ========= =========
Group statement of changes in equity
Total
retained Issued Share Total
earnings capital premium GBP000
GBP000 GBP000 GBP000
=============================== ========= ========= ========= =========
Balance at 1 January 2017 733,609 67,261 215,057 1,015,927
=============================== ========= ========= ========= =========
Total comprehensive income 100,359 - - 100,359
=============================== ========= ========= ========= =========
Issue of share capital - 69 934 1,003
=============================== ========= ========= ========= =========
Own shares disposed - - - -
=============================== ========= ========= ========= =========
Purchase of own shares (2,575) - - (2,575)
=============================== ========= ========= ========= =========
Deferred tax on other employee
benefits 49 - - 49
=============================== ========= ========= ========= =========
Share based payments 2,243 - - 2,243
=============================== ========= ========= ========= =========
Dividends paid to shareholders (60,430) - - (60,430)
=============================== ========= ========= ========= =========
Total transactions with owners
recognised directly in equity (60,713) 69 934 (59,710)
=============================== ========= ========= ========= =========
Balance at 31 December 2017 773,255 67,330 215,991 1,056,576
=============================== ========= ========= ========= =========
Balance at 1 January 2018 773,255 67,330 215,991 1,056,576
=============================== ========= ========= ========= =========
Total comprehensive income 131,872 - - 131,872
=============================== ========= ========= ========= =========
Issue of share capital - 68 916 984
=============================== ========= ========= ========= =========
Own shares disposed - - - -
=============================== ========= ========= ========= =========
Deferred tax on other employee
benefits (113) - - (113)
=============================== ========= ========= ========= =========
Share based payments 1,413 - - 1,413
=============================== ========= ========= ========= =========
Dividends paid to shareholders (129,665) - - (129,665)
=============================== ========= ========= ========= =========
Total transactions with owners
recognised directly in equity (128,365) 68 916 (127,381)
=============================== ========= ========= ========= =========
Balance at 31 December 2018 776,762 67,398 216,907 1,061,067
=============================== ========= ========= ========= =========
Statements of cash flows
2018 2017
For the year ended 31 December GBP000 GBP000
============================================ ========= =========
Cash flows from operating activities
============================================ ========= =========
Profit for the year 136,570 91,295
============================================ ========= =========
Depreciation and amortisation 905 1,514
============================================ ========= =========
Revaluation of available for sale financial
assets - 1,355
============================================ ========= =========
Available for sale reserve reclassified
on disposal - 1,696
============================================ ========= =========
Financial income (481) (1,337)
============================================ ========= =========
Financial expense 6,585 8,536
============================================ ========= =========
Profit on sale of property, plant and
equipment (450) (4,117)
============================================ ========= =========
Equity-settled share-based payment
expense 1,413 2,243
============================================ ========= =========
Income tax expense 31,499 22,706
============================================ ========= =========
Share of results of Joint Ventures (5) 20
============================================ ========= =========
Profit on sale of assets to joint ventures (1,197) -
============================================ ========= =========
Decrease/(increase) in trade and other
receivables 12,402 13,232
============================================ ========= =========
Decrease in available for sale financial
assets - 27,577
============================================ ========= =========
(Increase)/decrease in inventories (1,891) 122,097
============================================ ========= =========
Decrease in trade and other payables (15,692) (104,664)
============================================ ========= =========
Decrease in provisions and retirement
benefit obligations (7,042) (3,685)
============================================ ========= =========
Cash generated from operations 162,616 178,468
============================================ ========= =========
Interest paid (2,773) (3,250)
============================================ ========= =========
Income taxes paid (29,165) (19,074)
============================================ ========= =========
Net cash inflow from operating activities 130,678 156,144
============================================ ========= =========
Cash flows from investing activities
============================================ ========= =========
Interest received 278 142
============================================ ========= =========
Acquisition of intangible fixed assets (1,213) -
============================================ ========= =========
Acquisition of property, plant and
equipment (1,876) (1,371)
============================================ ========= =========
Proceeds from sale of property, plant
and equipment 1,977 13,237
============================================ ========= =========
Movement of investment in Joint Ventures (20,300) 32
============================================ ========= =========
Dividends received from Joint Ventures 1,067 119
============================================ ========= =========
Reduction in restricted cash 33 -
============================================ ========= =========
Net cash (outflow)/generated from investing
activities (20,034) 12,159
============================================ ========= =========
Cash flows from financing activities
============================================ ========= =========
Dividends paid (129,665) (60,430)
============================================ ========= =========
Proceeds from the issue of share capital 984 1,003
============================================ ========= =========
Purchase of own shares - (2,575)
============================================ ========= =========
Drawdown of bank and other loans 11,192 25,209
============================================ ========= =========
Net cash used in financing activities (117,489) (36,793)
============================================ ========= =========
Net (decrease) / increase in cash and
cash equivalents (6,845) 131,510
============================================ ========= =========
Cash and cash equivalents at 1 January 170,062 38,552
============================================ ========= =========
Cash and cash equivalents at 31 December 163,217 170,062
============================================ ========= =========
Notes to the financial statements
1 General information
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 2018 comprise the Company
and its subsidiaries (together referred to as 'the Group') and the
Group's interest in associates and joint ventures.
The consolidated financial statements were authorised for issue
by the directors on 28 February 2019. The financial statements were
audited by PriceWaterhouseCoopers LLP.
The financial information set out above does not constitute the
Company's statutory financial statements for the years ended 31
December 2018 or 2017 but is derived from those financial
statements. Statutory financial statements for 2016 have been
delivered to the registrar of companies, and those for 2017 will be
delivered in due course. The auditors have reported on those
financial statements; 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 Basis of accounting
The consolidated financial statements of the Company and the
Group have been prepared in accordance with the International
Financial Reporting Standards (IFRS) and IFRS Interpretations
Committee (IFRS IC) interpretations as adopted by the European
Union and Companies Act 2006 applicable to companies reporting
under IFRS.
The Company has elected to take the exemption under section 408
of the Companies Act 2006 to not present the Company income
statement and statement of comprehensive income.
The Group has applied the following standards for the first time
for its annual reporting period commencing 1 January 2018:
-- IFRS9 'Financial instruments'
-- IFRS15 'Revenue from Contracts with Customers'
The impact of these changes on the Group's financial statements
is described in Note 1.7 of the Annual Report. The accounting
policies have been applied consistently to the Company and the
Group where relevant.
3 Going concern
The Directors are satisfied that the Group has sufficient
resources to continue in operation for the 12 months from date of
approval of these financial statements. The Directors reviewed
detailed financial and covenant compliance forecasts covering the
period to December 2019 and summary financial forecasts for the
following two years.
Having started the year with net cash of GBP144.9 million, the
Group generated a strong operating cash flow during 2018 but also
made significantly increased dividend payments, decreasing the net
cash position to GBP126.8 million. As at 31 December 2018, the
Group held cash and cash equivalents of GBP163.2 million and had
borrowings of GBP36.4 million. On 3 December 2015, the Group
entered into a new GBP250.0 million committed revolving credit
facility that was extended for a further year both during 2016 and
early in 2018. This facility now expires in December 2022 and was
fully available for drawdown at 31 December 2018.
For these reasons, the Directors consider it appropriate to
prepare the financial statements of the Group and the Company on a
going concern basis.
4 Basis of consolidation
The consolidated financial statements incorporate the financial
statements 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. The financial
statements of subsidiaries are included in the consolidated
financial statements from the date that control commences until the
date that control ceases.
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.
A joint arrangement is an arrangement over which the Group and
one or more third parties have joint control. These joint
arrangements are in turn classified as:
-- Joint ventures whereby the Group has rights to the net assets
of the arrangement, rather than rights to its assets and
obligations for its liabilities; and
-- Joint operations whereby the Group has rights to the assets
and obligations for the liabilities relating to the arrangement
The consolidated financial statements include the Group's share
of the comprehensive income and expense of its joint ventures on an
equity accounted basis and its share of income and expenses of its
joint operation within the corresponding lines of the income
statement, from the date that joint control commenced.
5 Critical accounting judgements and key sources of estimation uncertainty
The preparation of financial statements in conformity with
adopted IFRSs requires management to make 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
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.
No individual judgements have been made that have a significant
impact on the financial statements, other than those involving
estimates, which are outlined below.
Key sources of estimation uncertainty
Land held for development and housing work in progress
The Group holds inventories which are stated at the lower of
cost and net realisable value. To assess the net realisable value
of land held for development and housing work in progress, the
Group completes a financial appraisal of the likely revenue which
will be generated when these inventories are combined as
residential properties for sale and sold. Where the financial
appraisal demonstrates that the revenue will exceed the costs of
the inventories and other associated costs of constructing the
residential properties, the inventories are stated at cost. Where
the assessed revenue is lower, the extent to which there is a
shortfall is written off through the income statement leaving the
inventories stated at a realisable value. To the extent that the
revenues which can be generated change, or the final cost to
complete for the site varies from estimates, the net realisable
value of the inventories may be different. A review taking into
account estimated achievable net revenues, actual inventory and
costs to complete as at 31 December 2017 has been carried out,
which has identified no material net movement in the carrying value
of the provision. These estimates were made by local management
having regard to actual sales prices, together with competitor and
marketplace evidence, and were further reviewed by Group
management. Should there be a future significant decline in UK
house pricing, then further write-downs of land and work in
progress may be necessary. Further detail on the carrying value of
inventories is laid out in note 3.1 of the Group's Annual Report
and Accounts.
Margin recognition
The gross margin from revenue generated on each of the Group's
individual sites within the year is recognised based on the latest
forecast for the gross margin expected to be generated over the
remaining life of that site. The remaining life gross margin is
calculated using forecasts for selling prices and all land, build,
infrastructure and overhead costs associated with that site. There
is inherent uncertainty and sensitivity to external forces
(predominantly house prices and labour costs) in these forecasts,
which are reviewed regularly throughout the year by management and
are addressed on pages 30 to 33 of the Annual Report and
Accounts.
Defined benefit pension scheme
The Group has an active defined benefit pension scheme, which is
subject to estimation uncertainty. Note 5.7 of the Annual Report
and Accounts outlines the way in which this Scheme is recognised in
the Group's Financial Statements, the associated risks and
sensitivity analysis showing the impact of a change in key
variables on the defined benefit obligation.
6 Segment reporting
The Chief Operating Decision Maker, which is the Board, notes
that 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 criteria provisions of IFRS8.
7 Impact of standards and interpretations effective for the first time
The Group has adopted the following new standards and amendments
to standards, including any consequential amendments to other
standards, with a date of initial application of 1 January
2018:
-- IFRS9 'Financial instruments' replaced IAS39 'Financial
Instruments: Recognition and Measurement' and was effective from 1
January 2018. Consistent with the disclosure made in the Group's
2017 Annual Report and Accounts, the implementation of the standard
has not had a material impact on the Group's or the Company's 2018
financial statements for the following reasons:
i. The Group disposed of its shared equity available for sale assets during 2017
ii. The Group does not presently hold any complex financial instruments
iii. Any investments in equities for outside of the Bovis Homes Group are immaterial
iv. Any trade debtors are held under standard terms agreed with the customer
v. The Group has experienced a low level of default events on
its debtors historically and currently has no reason to expect this
to change significantly in future
vi. The Group has no reason to expect any impairment or losses
on the intercompany balance held between Bovis Homes Group and
Bovis Homes Limited
-- IFRS 15, 'Revenue from contracts with customers' replaced IAS
18 'Revenue' and IAS 11 'Construction contracts', setting out new
revenue recognition criteria particularly with regard to
performance obligations. Consistent with the disclosure made in the
Group's 2017 Annual Report and Accounts, the implementation of the
standard has not had a material impact on the revenue and cash
flows reported by the Group for the year ended 31 December 2018.
The reasons for this are outlined by each of the Group's main
revenue types below:
i. Private housing: the impact is immaterial as housing revenue
is recognised on completion of the single performance obligation of
supplying a house
ii. Affordable housing: no or minimal impact as the significant
majority of the Group's contracts give the Housing Association
control over houses as they are built and the Group the right to
payment for work done, and therefore revenue will continue to be
recognised over time by reference to the stage of completion of the
building works. Contracts continue to be assessed individually as
they are entered into to confirm that these criteria are met. Where
land sales to Housing Associations are de-linked from housebuilding
contracts, land sale revenue will be recognised separately, as was
the case prior to the implementation of the new standard
iii. Land Sales: the Group will continue to separate land sales revenue from any significant infrastructure-related performance obligations that may exist within contracts
Properties taken in part exchange as consideration for private
house sales and then subsequently sold on by the Group will
continue to be recognised through cost of sales within the income
statement based on the profit or loss made on the resale as they
are seen to be incidental to the operations of the business and not
a part of its core activities.
8 Impact of standards and interpretations in issue but not yet effective
A number of new standards and amendments to standards and
interpretations are effective for annual periods beginning after 1
January 2018, and have not been applied in preparing these
financial statements:
-- IFRS16 'Leases' replaces IAS17 'Leases' and is effective from
1 January 2019. The new standard requires all assets held by the
Group under lease agreements of greater than 12 months in duration
to be recognised as assets within the Balance Sheet, unless they
are considered to be of low value. Similarly, the present value of
future payments to be made under those lease agreements must be
recognised as a liability. The Group incorporated the new standard
into its accounting policies from 1 January 2019, with the effect
that any lease agreements are reviewed against the criteria within
the standard to determine whether identifiable assets exist that
should be recognised on the Group balance sheet, along with any
associated liabilities. These assets are depreciated over the
remaining term of the lease agreement with the cost being taken to
the Income Statement, along with service charges and the interest
charge calculated on the liability. Any agreements that are
short-term (being of less than 12 months duration) or low-value
(less than GBP3,000 in value) in nature are excluded and will
continue to be expensed to the Income Statement on a straight-line
basis. Only existing agreements considered to contain leases under
IAS17 will be reviewed against the new standard; those not
considered to be assets under IAS17 will not be impacted by the new
standard. Based on the Group's analysis of the lease agreements
that are currently in place, it is estimated that the new standard
will have the effect of increasing the Group's assets by around
GBP4.5m, with a marginally higher increase in the Group's
liabilities, resulting in a small reduction in the Group's net
assets. The new standard is also expected to increase the Group's
Operating Profit by around GBP1.5m with an increase of similar
magnitude in Financial Expenses. There will not be any impact on
the Group's cash flows. The Group will adopt the "modified
retrospective" transition approach, whereby an adjustment will be
made to equity on 1 January 2019 and prior period financial
information will not be restated for the impact of the
standard.
-- Amendment to IAS 28 'Investments in Associates and joint
ventures', effective from 1 January 2019, which is not expected to
have a significant impact on the Group's financial statements.
-- IFRIC 23 Uncertainty over income tax treatments, effective 1
January 2019, which is not expected to have a significant impact on
the Group's financial statements.
9 Accounting Policies
Revenue
Revenue is recognised in the income statement when control of
each home has passed to the purchaser, which is when legal title is
transferred. Revenue in respect of the sale of residential
properties is recognised at the fair value of the consideration
received or receivable, net of value added tax and discounts, on
legal completion. In certain instances, property may be accepted in
part consideration for a sale of a residential property. The fair
value is established by independent surveyors, reduced for costs to
sell. Net sale proceeds generated from the subsequent sale of part
exchange properties are recorded as an adjustment to cost of sales.
The original sale is recorded in the normal way, with the fair
value of the exchanged property replacing cash receipts. Cash
incentives are considered to be a discount from the purchase price
offered to the acquirer and are therefore accounted for as a
reduction to revenue.
The Group applies its policy on contract accounting when
recognising revenue and profit on contracts. Revenue and costs are
recognised by reference to the stage of completion of contract
activity at the balance sheet date. This is normally measured by
surveys of work performed to date. When it is probable that the
total costs on a construction contract will exceed total contract
revenue, the expected loss is recognised as an expense in the
Income Statement immediately. The application of this policy
requires judgements to be made in respect of the total expected
costs to complete for each site. The Group has in place established
internal control processes to ensure that the evaluation of costs
and revenues is based upon appropriate estimates.
Revenue is recognised on land sales and commercial property
sales from the point of unconditional exchange of contracts as long
as there are no significant obligations remaining. Where the Group
still has significant obligations to perform under the terms of the
contract, revenue is recognised when the obligations are
performed.
When the Group makes sales to joint ventures in which it owns an
interest, it will only recognise revenue and profit in the period
of the initial transaction to the extent of third parties'
interests in the joint venture. The unrecognised element of revenue
and profit will be deferred and released to the income statement
when the joint venture has sold the assets to which the original
transaction with the Group related. 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.
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 units.
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 along with any expected overage. 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 and written down on a straight-line basis over the life of
the option. Should planning permission be granted and the option be
exercised, the option is not amortised during that year and its
carrying value is included within the cost of land purchased.
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.
Part exchange properties are held at the lower of cost and net
realisable value, and include a carrying value provision to cover
the costs of management and resale. Any profit or loss on the
disposal of part exchange properties is recognised within cost of
sales in the Group Income Statement.
Trade and other receivables
Trade receivables, amounts recoverable on contracts and other
debtors do not carry any interest and are stated at their nominal
value as reduced by appropriate allowances for estimated
irrecoverable amounts. The Group applies the IFRS 9 simplified
approach to measuring expected credit losses which uses a lifetime
expected loss allowance for all trade receivables and contract
assets. To measure the expected credit losses, trade receivables
and contract assets have been grouped based on shared credit risk
characteristics and the age of the outstanding amounts. The
contract assets relate to unbilled work in progress on affordable
housing contracts described in note 2.0 of the Annual Report and
have a historically low level of default, similar to the Group's
low default levels on trade receivables. Other debtors include
amounts receivable from the Government in relation to the Help To
Buy scheme.
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.
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.
Bank and other loans
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.
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.
Net financing costs
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.
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.
Income Tax
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.
Tax assets and liabilities
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.
Share based payments
The Group has applied the requirements of IFRS2: "Share-based
payments".
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.
Fixed asset investments
Investments in subsidiaries are carried at cost less impairment.
The Parent Company accounts for the share based payments granted to
subsidiary employees as an increase in the cost of its investment
in subsidiaries.
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.
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 Group statement of comprehensive income.
Payments to defined contribution schemes are charged as an
expense as they fall due.
10 Reconciliation of net cash flow to net cash
2018 2017
GBP000 GBP000
=========================================== ======== ========
Net (decrease) / increase in cash and cash
equivalents (6,845) 131,510
=========================================== ======== ========
(Increase) / decrease in borrowings (11,192) (25,209)
=========================================== ======== ========
Net cash at start of period 144,853 38,552
=========================================== ======== ========
Net cash at end of period 126,816 144,853
=========================================== ======== ========
Analysis of net cash:
========================== ======== ========
Cash and cash equivalents 163,217 170,062
========================== ======== ========
Bank and other loans (36,401) (25,209)
========================== ======== ========
Net cash at end of period 126,816 144,853
========================== ======== ========
11 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 19% 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.
12 Dividends
The following dividends were paid by the Group:
2018 2017
GBP000 GBP000
======================================== ======== =======
Prior year final dividend per share
of 32.5p (2017:30.0p) 43,645 40,300
======================================== ======== =======
Special dividend per share of 45.0p
(2017: nil) 60,483 -
======================================== ======== =======
Current year interim dividend per share
of 19.0p (2017:15.0p) 25,537 20,130
======================================== ======== =======
129,665 60,430
======================================== ======== =======
The Board has decided to propose a final dividend of 38p per
share in respect of 2018.
13 Earnings per share
Basic earnings per share
The calculation of basic earnings per share for the year ended
31 December 2018 was based on the profit for the year attributable
to ordinary shareholders of GBP136,570,000 (2017: GBP91,295,000)
and a weighted average number of ordinary shares outstanding during
the year ended 31 December 2018 of 134,355,573 (2017:
134,246,134).
Profit attributable to ordinary shareholders
2018 2017
GBP000 GBP000
==================================== ======== =======
Profit for the year attributable to
equity holders of the parent 136,570 91,295
==================================== ======== =======
Weighted average number of ordinary shares
2018 2017
==================================== =========== ===========
Weighted average number of ordinary
shares at 31 December 134,355,573 134,246,134
==================================== =========== ===========
Diluted earnings per share
The calculation of diluted earnings per share for the year ended
31 December 2018 was based on the profit for the year attributable
to ordinary shareholders of GBP136,570,000 (2017: GBP91,295,000)
and a weighted average number of ordinary shares outstanding during
the year ended 31 December 2018 of 134,557,450 (2017:
134,566,722).
The average number of shares is increased by reference to the
average number of potential ordinary shares held under option
during the year. This reflects 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 and
fair value of future employee services. The market value of shares
has been calculated using the average ordinary share price during
the year. Only share options which are expected to meet their
cumulative performance criteria have been included in the dilution
calculation.
Weighted average number of ordinary shares (diluted)
2018 2017
============================================ =========== ===========
Basic weighted average number of ordinary
shares at 31 December 134,355,573 134,246,134
============================================ =========== ===========
Effect of share options in issue which
have a dilutive effect 201,877 320,588
============================================ =========== ===========
Diluted weighted average number of ordinary
shares at 31 December 134,557,450 134,566,722
============================================ =========== ===========
14 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
year.
Transactions between the Group, Company and key management
personnel in the year ended 31 December 2018 were limited to those
relating to remuneration, which are disclosed in the directors
remuneration report.
Mr Greg Fitzgerald, appointed Group Chief Executive on 18 April
2017, is non-executive Chairman of Ardent Hire Solutions
("Ardent"). The Group hires forklift trucks from Ardent and has
also undertaken a sale of forklift trucks to Ardent as part of its
capital optimisation initiatives. The total net value of
transactions with Ardent were as follows:
2018 2017
GBP000 GBP000
==================================== ======== =======
Rental expenses paid to Ardent 2,059 1,413
==================================== ======== =======
Income received from Ardent for the
sale of forklift trucks - 2,287
==================================== ======== =======
The balance of rental expenses payable to Ardent at 31 December
2018 was GBP155,000 (2017: GBP160,000) and no income was receivable
(2017: GBPnil). There have been no other related party transactions
in the financial year which have materially affected the financial
performance or position of the Group, and which have not been
disclosed.
Transactions with Bovis Peer LLP and IIH Oak Investors LLP
Bovis Homes Limited is contracted to provide property and
letting management services to Bovis Peer LLP. Fees charged in the
period, inclusive of VAT, were GBP109,000 (2017: GBP169,000). None
of these fees are outstanding at 31 December 2018 (2017: nil).
In 2014, Bovis Homes Limited entered into a joint venture
arrangement with IIH Oak Investors LLP to hold 190 homes under a
private rental scheme. As at 31 December 2018, loans of
GBP1,598,319 (2017: GBP3,714,314) are outstanding with IIH Oak
Investors at an interest rate of 6%. Interest charges made in
respect of loans were GBP118,000 (2017: GBP214,000)
In December 2018, Bovis Homes Limited entered into a joint
venture arrangement with Clarion Housing Group, with the joint
venture purchasing the Group's interest in its land at Plymouth,
near Sherford. Part of this consideration was financed by debt from
the Group, with the associated loan balance between the Group and
Bovis Latimer (Sherford) LLP being GBP22,256,000 at 31 December
2018.
15 Post balance sheet events
There are no post balance sheet events to disclose as at 28
February 2019.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR UWVRRKAASRAR
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April 08, 2019 12:00 ET (16:00 GMT)
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