14th Mar 2005 07:00
Bovis Homes Group PLC14 March 2005 BOVIS HOMES GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2004 Issued 14 March 2005 The Board of Bovis Homes Group PLC today announced its preliminary results for2004. • Pre tax profit increased by 18.0% to £145.2 million (2003: £123.0 million) showing a 21% compound annual increase since flotation in 1997 • Earnings per share increased by 17.3% to 87.0p (2003: 74.2p) showing a 21% compound annual increase since flotation in 1997 • Final dividend declared of 13.6p net per ordinary share making 20.0p for the year, a 22% increase over the prior year • Commitment to increase the full year dividend by 5.0p per share over each of the next four years, thus doubling the full year dividend from its current base of 20.0p • Operating margin at 26.7% (2003: 27.0%) • Return on average capital employed of 25.7% (2003: 25.5%) • Plots with planning consent increased to 11,528 plots (owned: 11,174 plots/controlled: 354 plots) • Strategic landholdings increased to 22,831 potential plots after transferring 2,155 plots to consented landholdings during 2004 • Year end net borrowings of £15.5 million (2.8% geared) Commenting on the results, Malcolm Harris, the Chief Executive of Bovis HomesGroup PLC said: "The Group has delivered a year of record profits with a 9% increase in thevolume of legal completions and resultant strong cash flow. The Group is now benefiting from a strong pull through of strategic land intoconsented land. This success is expected to continue into the future with areasonable degree of certainty for the next four years. The profit and cashgeneration resulting from the Group's short, medium and long term investment instrategic land provides the base to commit to a more progressive dividend policyin addition to facilitating the Group's planned expansion including the launchof two new regions on 1 July 2005. The Group has commenced 2005 with improved landholdings, an exciting new productrange and a commitment to achieve the planned expansion. The stability of baseinterest rates since August 2004 has assisted consumer confidence and visitornumbers and reservations in early 2005 have been encouraging. The Group is wellpositioned and, assuming an ongoing stable economic environment, the Board isconfident of the prospects for the Group in 2005." Enquiries: Malcolm Harris, Chief Executive Bovis Homes Group PLC On Monday 14 March - tel: 020 7321 5010 Thereafter - tel: 01474 876200 Results issued by: Andrew Best / Emily Bruning Shared Value Limited tel: 020 7321 5022/5027 Chairman's statement The Group has achieved record profits during the 2004 financial year, with theseventh consecutive year of profit growth since the Group's flotation in 1997.During this seven year period profits have grown by a compound 21% per annum. The Group has been successful during 2004 in further strengthening its land bankand has increased return on average capital employed to 25.7%. Results Profit on ordinary activities before tax for the year ended 31 December 2004increased by 18.0% to £145.2 million, compared with £123.0 million in 2003. Thisresult was achieved from total turnover of £559.5 million, 17.0% greater thanthe previous year. The operating margin remained broadly similar at 26.7% compared with 27.0% in2003 as did return on average capital employed at 25.7% compared to 25.5%reported for the prior year. Basic earnings per share improved by 17.3% to 87.0 pence per ordinary share compared to 74.2 pence per ordinary share in 2003. Dividend The Board proposes a final dividend for the year ended 31 December 2004 of 13.6pence to be paid on 20 May 2005 to shareholders on the register at the close ofbusiness on 29 March 2005. This dividend when added to the interim dividend of6.4 pence paid on 26 November 2004 totals 20.0 pence for the year and is covered4.4 times by the basic earnings per share of 87.0 pence. The total dividend pershare for the year represents an increase of 22% over the total dividend for2003 of 16.4 pence. The Board intends, conditional on any necessary approvals required at futureannual general meetings, to increase the full year dividend over the next fouryears by 5.0 pence per annum. This commitment, which is subject to a stablebusiness environment, will double the full year dividend over the four yearperiod to 40.0 pence per share from its 2004 base of 20.0 pence per share. TheGroup is able to make such a commitment in terms of dividend growth due to thestrong pull through of strategic land which will deliver strong future profitsand cash flows for the Group. The Board is proposing to introduce, subject to the approval of the Company'sshareholders at the 2005 Annual General Meeting, a scrip dividend alternative,pursuant to which the shareholders may elect to receive the whole or part oftheir dividend in new ordinary shares credited as fully paid instead of cash,for the final dividend for the year ended 31 December 2004 and a scrip dividendmandate scheme for all future dividends to the extent that the Board decides, atits discretion, to offer a scrip dividend alternative in respect of suchdividends. A circular containing details of the scrip dividend alternative andthe scrip dividend mandate scheme, together with the relevant form of election,will be sent to shareholders at the same time as the notice of meeting for theAnnual General Meeting. Market conditions The housing market, after a period of sustained buoyancy, experienced a mixedyear in 2004. By contrast to 2003, the first half of the year was very strong.House sales price growth reached unsustainable levels combined with asignificant increase in the volume of housing transactions. Consequently, pressspeculation and powerful commentary from external bodies including the Bank ofEngland Monetary Policy Committee created a general concern that the housingmarket could witness a downturn. The second half of 2004 for the housing marketsaw the consumer reflecting this concern with slower house sales price growthand a slowing of the increase in property transactions. Having shown a year todate increase of 38% to June 2004, property transactions closed 2004 31% above2003. The Monetary Policy Committee increased base interest rates four timesbetween 5 February 2004 and 5 August 2004, increasing the rate from 3.75% to4.75%. Whilst the absolute level of base interest rates was not such as tosignificantly undermine housing affordability, the upward direction of theserates during the six month period between February and August weakened consumerconfidence. Consumers deferred making significant purchase decisions inanticipation of potential further interest rate rises. The Monetary PolicyCommittee was effective with its interest rate policy and market commentary.Base interest rates have remained unchanged since August 2004 which assisted instabilising consumer confidence by the end of 2004. Also, average earningscontinue to rise ahead of inflation which should provide further confidence. At the end of the third quarter of 2004, affordability trend indicators reportedthat the ratio of first year mortgage interest payments as a percentage ofaverage net earnings for a two income couple was 24%. Whilst this rate washigher than the 19% reported at the same point in 2003, it demonstrates strongongoing housing affordability when compared to the same indicator published in1990 at 38%, the highest the indicator has recorded in the last twenty years,coinciding with the end of the housing 'boom' of the late 1980's. Strategy The Group continues to employ a consistent strategy in pursuit of its coreobjectives. This strategy involves focusing on delivering the maximum valueachievable from each home constructed and legally completed. A growing coverageof England and Wales through the expanding regional structure contributed togrowth in the volume of legal completions. Together, volume and pricingcontributed to the increase in profits whilst generally retaining the Group'soperating margins at the industry leading levels previously achieved. The Group aims to deliver a quality product to the housing market which isdriven by customer needs, employing modern construction techniques which involveusing materials pre-finished under factory conditions along with ongoing focuson build quality on the sites. New products are designed to improve the houseswhich the Group offers to its customers with reduced maintenance and better useof internal space. The Group operates customer care teams which are a core partof the regional management structure providing pre handover inspections and postoccupation customer care services. In a housing market where further sales price increases may be more difficult toachieve, the Group's strategy to grow the size of its business through increasedcoverage of England and Wales is considered the best way forward. Subject tomarket conditions, the Group intends to launch further regions, particularly inlocations where the Group has large strategic landholdings which, in the shortterm, are anticipated to deliver a large number of land plots with residentialconsent. These new regions will use the long land supply of these largestrategically sourced landholdings to provide an 'anchor' site to base theregion around. To this end, the Group has decided to launch two new regions effective from 1 July 2005. The first of these will be based at Bristol. Its 'anchor' site willbe Filton where the Group has control of approximately 2,200 plots of landallocated in the local plan for residential development. The second of these newregions will be based at Wellingborough where the Group has a significantstrategic landholding of approximately 3,000 plots of land, again allocated forresidential development. The Board Following the resignation of Stephen Brazier from the Board and the Company on31 July 2004, the Board now comprises four non-executive directors, including meas Chairman, and two executive directors. The Combined Code The Group continues to be committed to good corporate governance and complieswith the provisions of the 2003 Combined Code. Employees Bovis Homes is a people business and I would like to thank all our employees fortheir contribution during the year. It is essential that the right individualsare recruited, trained and motivated. The objective is to ensure that the Groupemploys the highest calibre of employees, who add value to the business and aresensitive to the demands and requirements of the Group's customers, whilsthaving the entrepreneurial drive and flair to move the operation forward withoutcompromising sound corporate governance. Pensions The Group has demonstrated its commitment to the Bovis Homes defined benefitspension scheme by agreeing to make special contributions totalling approximately£11 million through the period from July 2004 to April 2007. These specialcontributions will remedy the past service pension deficit of £10.23 millionidentified at the latest triennial actuarial review completed effective from 1 July 2004. Future service employer contributions have been increased from 20% to 22% of basic salary whilst employee contributions have been increased from 5% to 6%. Prospects The Monetary Policy Committee raised base interest rates by 100 basis pointsbetween February and August 2004. These rises have taken effect and quelledunsustainable house price increases that were present in the marketplace. During2005 it is considered likely that house price increases will be more subdued.Affordability remains good and the fundamentals of the housing market remainstrong with demand in the areas in which the Group operates exceeding supply.The Group continues to increase the number of lower priced high value smallhomes offered following the launch of its new product range during 2004. The Group is well on course to deliver its predicted 9,000 plots of consentedland through the strategic land bank between 2004 and 2006 with 2,155 plotsconverted in 2004 and the conversion of Brockworth Airfield, near Gloucester,for an estimated 1,300 plots in January 2005. The Group started 2005 with a strong land bank and a product range designed toappeal to the segment of the market where housing transactions are motivated byneed rather than speculative appetite. The launch of new regions will assist indriving the Group to increased activity levels. The Group is well placed tooperate successfully in a more challenging market and, subject to the currenteconomic environment continuing, the Board anticipates that 2005 will be anothersuccessful year. Nigel MobbsChairman Chief Executive's operational review Group results The Group achieved a further year of record profits and improvement to the assetbase. Profit before tax increased to £145.2 million, an 18.0% increase over theprevious year. Return upon average capital employed improved to 25.7% (2003: 25.5%). The consented land bank closed at 11,528 plots (2003: 10,878 plots) and strategic land ended the year with 22,831 potential plots (2003: 22,152 potential plots) after transferring 2,155 plots from strategic land to consented land during the year. The Group's operating margin remained broadly in line at 26.7% (2003: 27.0%). Gearing remained low due to good cash management including an increase in the value of deferred payment land creditors. Trading environment The first six months of the year witnessed a strong demand stimulated by acombination of increased employment, average earnings improvements and lowinterest rates. The second half year was adversely affected by increasedinterest rates and negative comments relating to the housing market made by boththe media and the Bank of England. Although base interest rates were still lowby historical standards, the movement from 3.75% in February 2004 to 4.75% inAugust 2004 was sufficient to cool both consumer spending and house priceincreases. Product mix and average sales price The Group legally completed 2,700 homes, including 127 houses constructed onthird party owned land, compared to 2,482 homes in 2003, including 118 houses onthird party owned land. Market sector analysis Year ended 31 December 2004 2003 % Units Average % Units AverageHouse type sales price sales price £ £______________________________________________________________________________One and two bedroom 15 418 136,800 13 337 128,900Three bedroom 37 989 184,900 33 814 167,000Four bedroom 17 468 245,300 23 571 227,100Five or more bedroom 15 397 313,400 15 364 298,800Retirement Living 5 125 243,400 4 104 190,700Social housing 6 176 91,500 7 174 74,700Partnership housing(third 5 127 67,200 5 118 66,100party owned land units)______________________________________________________________________________Group 100 2,700 197,900 100 2,482 184,700______________________________________________________________________________ The Group's average sales price was £197,900 compared with £184,700 the previousyear, a 7.1% increase. The average size of unit increased by 0.5% to 1,146square feet (2003: 1,140 square feet). The average sales price per square footincreased by 6.6%. The average construction cost per square foot increased by6.9%, after absorbing specification upgrades as well as additional taxationarising from aggregate tax, landfill tax and climate change levy. Approximately2% of the cost increase related to changes in building regulations which wasallowed for in respect of investment appraisals and internal budgets. Theaverage house price increase in the United Kingdom in 2004 reported by the LandRegistry was 11.8%, whilst the comparable increase reported by the Nationwidewas 12.7% and by the Halifax was 15.1%. Product mix analysis Year ended 31 December 2004 2003 % Units Average % Units AverageHouse type sales price sales price £ £______________________________________________________________________________Traditional 31 858 185,900 40 983 177,800Room in the roof 19 512 292,300 19 480 274,400Three storey 25 663 206,000 19 476 193,600Apartments 9 239 140,700 6 147 130,500Retirement Living 5 125 243,400 4 104 190,700Social housing 6 176 91,500 7 174 74,700Partnership housing(third 5 127 67,200 5 118 66,100party owned land units)______________________________________________________________________________Group 100 2,700 197,900 100 2,482 184,700______________________________________________________________________________ Regional performance Unit completions and average sales priceYear ended 31 December 2004 2003 Units Average Units Average sales price sales price £ £________________________________________________________________________________South East 873 204,700 795 197,700South West 809 171,100 690 161,400Central 531 213,900 543 193,600Eastern 178 202,500 108 212,900Northern 184 202,300 242 173,700Retirement Living 125 243,400 104 190,700________________________________________________________________________________Group 2,700 197,900 2,482 184,700________________________________________________________________________________ The Northern region's legal completions total in the year was adversely affecteddue to delays in the provision of utility services required to enable propertiesto legally complete within the trading period. Eastern region, in its first yearas a separately reported operation, achieved good growth and is now establishedto expand rapidly. Operating margins Year ended 31 December 2004 2003 % %______________________________________________________________________________South East 28.8 26.5South West 22.9 21.9Central 27.7 29.9Eastern 31.1 41.0Northern 18.2 25.7Retirement Living 35.0 29.7______________________________________________________________________________Group 26.7 27.0______________________________________________________________________________ South West region's operating margin included the margin arising on 127dwellings which were constructed on third party owned land. The profit marginsfrom this segment of its business are significantly lower than those fromprivate sector sales. Such activities, however, provide early positive cash flowand a high return on average capital employed. The Northern region's reduction in operating margin was a result of a build upin overhead to facilitate future expansion and a substantial reduction in volumeas a result of utility service problems in respect of two large developments.The reduction in volume in 2004 is expected to be redressed by an increase inrevenue in 2005. Land and planning Consented land bank Total plots as at 31 December 2004 2003 Plots Plots______________________________________________________________________________South East 3,531 3,279South West 2,464 2,398Central 2,210 2,114Eastern 1,135 929Northern 1,526 1,392Retirement Living 308 356______________________________________________________________________________Group (exc. third party owned land plots) 11,174 10,468 Third party owned land plotsSouth West 354 410______________________________________________________________________________Group 11,528 10,878______________________________________________________________________________ Years' supply based upon legal completions in the year 4.3 4.4______________________________________________________________________________ The average plot cost of the consented land bank (excluding social housing andthird party owned land) was £47,000 which represented 22.1% of the average salesprice achieved in 2004 (excluding social housing and units constructed on thirdparty owned land). The strategic landholdings increased to 22,831 potential plots aftertransferring 2,155 plots from strategic land to consented land during the yearat an average discount to market value of 23%. A significant proportion of the Group's strategic landholdings are now at anadvanced planning stage and are anticipated to add considerable value in thefuture. As previously advised, the Group anticipates between 2004 and 2006 thatit will gain planning consent on approximately 9,000 plots of strategic land,which will assist the Group's planned expansion. The Brockworth Airfield site,near Gloucester, obtained planning consent in mid January 2005 for approximately1,300 plots at a significant discount to market value. Two other large projects,namely Wellingborough and Filton, combined are anticipated to provide over 5,000dwellings. Legal completions originating from strategic land contributed 29% (2003: 28%) ofthe Group's development profit in the year and 40% were built on previously usedland (2003: 35%). This percentage is a reflection of the high historicalconcentration of Group developments in areas where there is less reusable landavailable. A high percentage of new investments are classified as brown land,which will substantially increase the percentage of dwellings constructed onpreviously used land. Strategic land bank Total potential plots as at 31 December 2004 2003 Plots Plots____________________________________________________________________________South East 9,095 11,078South West 5,938 6,616Central 6,349 3,260Eastern 434 336Northern 872 822Retirement Living 143 40____________________________________________________________________________Group 22,831 22,152____________________________________________________________________________ Years' supply based upon completions in the year 8.5 8.9____________________________________________________________________________ Included in strategic landholdings were 10,928 potential plots in strategic"growth locations". Growth locations are areas designated for development withindraft or adopted development plans by local, county or unitary planningauthorities. Total potential plots as at 31 December 2004 2003 Plots Plots_____________________________________________________________________________South East 3,737 4,462South West 3,506 4,242Central 3,146 1,323Eastern 98 -Northern 298 248Retirement Living 143 40_____________________________________________________________________________Group 10,928 10,315_____________________________________________________________________________ Partnership Developments Bovis Homes Partnership Developments is actively involved with housingassociations, local authorities and other similar bodies providing quality newhomes at affordable prices, for either rent or shared ownership, to communitiesthroughout the country. The Group has total in-house capability to handle allaspects of each project including major regeneration schemes. In addition todesign and build, there exists expertise to provide cross subsidies from thedevelopment and sale of open market housing and commercial buildings. The largest single partnership urban regeneration project that the Group iscurrently involved in is at Horfield in Bristol where it is redeveloping inexcess of 800 homes. The Group was notified during 2004 that it has beenappointed as preferred partner in respect of a further regeneration scheme whichis expected to commence development in 2005, containing over 900 dwellings. Research and development The Group believes that continuous improvement through research and developmentis key to the continuing success of the business and is a significant factor indelivering environmental, social and sustainability objectives. The Groupengages with many stakeholder organisations, including housebuilding industrywarranty providers and building control bodies, the House Builders Federation,the Building Research Establishment, the ODPM in respect of building regulationdevelopment, and actively partners many manufacturers and suppliers. Furtherdetails are contained in the Group's Corporate Social Responsibility reportwhich is being sent to all shareholders in addition to the Annual Report andAccounts. Health, safety and environment Best practice in health, safety and environmental awareness and management is animportant element in the continuing success of the Group. The objective is tomaintain the highest practical levels of health and safety and effectiveenvironmental policies. The Health, Safety and Environmental Consultative Committee oversees theseimportant matters, formulating and promulgating policy to all stakeholders. TheCommittee is chaired by a Bovis Homes Limited director by annual rotation toensure that fresh ideas and initiatives are constantly introduced, assessed and,where appropriate, implemented on a consistent basis. The chairman is supportedby a committee comprising Group employees from numerous disciplines complementedby the Health and Safety Director and external independent professionaladvisers. The chairman reports formally to the Board through submission of aHealth and Safety report tabled at each Board meeting. Bovis Homes promotes all aspects of safety and environmental managementthroughout its operations in the interests of all stakeholders. Its record ofsuccess was once again recognised in 2004 with the Gold Medal Award from theRoyal Society for the Prevention of Accidents and the National Award from theBritish Safety Council. Further details are available in the Group'sfree-standing Corporate Social Responsibility report. Bovis Homes' objective is to achieve sustainable construction and reduceenvironmental impact. The Group seeks to protect and, wherever possible, improvethe environment by retaining mature landscaping and introducing new planting andhabitats. It is also committed to planning for the most efficient and effective use ofdevelopment land. The Group has introduced higher density properties withflexible accommodation which addresses the changing lifestyles of its customers,including the ability to work from home. The Group has issued to employees within the Group an Environmental ManagementManual containing the Environmental Policy, Environmental Effects Document andBest Practice Checklists. It is a comprehensive approach consolidating policies,procedures and systems, explaining how all employees can assist and make apositive contribution to the environment. Legislation and taxation The planning system showed no signs of improvement during 2004. There is anenormous gulf between the positive intentions of the Government and delivery bymany of the planning authorities themselves. The Planning and CompulsoryPurchase Bill and the new Communities Bill received Royal Assent during theyear. The housebuiding industry continues to be adversely affected by increased taxeslevied by the Government. Aggregate tax The levy on aggregate materials at £1.60 per tonne continues to add considerablecost to all infrastructure, roads and sewers as well as general constructioncosts. Landfill tax The active waste tax was increased to £15 per tonne during 2004 with furthersubstantial rises expected in 2005 onwards. Inert waste tax remained at £2 pertonne during 2004. Climate change levy Additional taxes have been imposed on electricity, gas, liquefied petroleum gasand solid fuels. Stamp duty land tax All significant land purchases attract stamp duty land tax at 4.0% and themajority have a non recoverable VAT element of 17.5% added. This is in additionto the stamp duty land tax that purchasers pay upon legal completion of thehome. Pension scheme The Group made a commitment during 2004 to fund the deficit on the definedbenefits pension scheme by 2007. A payment of £1.85 million was made in 2004 andwill be followed by additional payments to fund the deficit by 2007. Inaddition, the employer contribution rate was increased to 22% of salary witheffect from 1 July 2004. The employee contribution was increased from 5% to 6%with effect from 1 July 2004. Group structure The new Eastern region reported for the first time as a separate operation in2004. The region's first independent year of trading was highly successful. Theoperating margin remained high due to the effect of the Cambourne development,which was transferred from the Central region on the date of the launch of theEastern region. The Northern region suffered a temporary set back due toproblems with utility services which is expected to be redressed by an increasein revenue in 2005. Two new regions will be established on 1 July 2005. The new Wessex operationwill be established in Bristol. It will operate for the first eighteen months asa sub region of the South West region and report as a separate business witheffect from 1 January 2007. The second new region will be based atWellingborough and will be established to manage this important large project,and surrounding developments. It will operate as a sub region of the Centralregion until 1 January 2007 when it will be reported as a separate region. Outlook for 2005 The economy is expected to be stable during the forthcoming year. High levels ofemployment and increases in earnings above retail price inflation provide a goodeconomic base from which to operate. Average house sales prices, within the market the Group operates in, are notanticipated to increase faster than average earnings, which will improve theaffordability ratio. The Group has designed a new range of products aimed at first time buyers whichprovides a good platform to expand the Group's activity and provide homes forpeople on lower incomes. Malcolm HarrisChief Executive Financial review Overview For the housing market, 2004 was very much a year of two halves. A strong demandfor homes at rapidly increasing sales prices in the first half of the yearengendered an air of unsustainability. Mortgage interest rates began to increaseand housing affordability, whilst remaining strong, did deteriorate. In thesecond half of the year, the once confident consumer showed signs of uncertaintyand purchase decisions were deferred until the direction of interest rates andhouse prices became clearer. Against this backdrop the Group delivered an increase in earnings per share of17.3% to 87.0 pence per share and an increase in profit before tax of 18.0% to£145.2 million. The Group continued to invest in new land opportunities andclosed the year with a land bank supply of 4.3 years with 11,528 controlledplots with full planning consent. The land bank increased by 6% during the year.The Group has maintained its investment in other areas of working capital suchthat at the end of 2004 there were sufficient units under construction, atdifferent stages of build, to largely satisfy the legal completion volumerequirements for 2005. Notwithstanding this ongoing investment, the Group hascontinued to generate significant positive trading cash flow which led to adecrease in the Group's year end net borrowings which stood at £15.5 million. The Group has adopted unchanged accounting policies for this financial year.There have been no new UK Financial Reporting Standards which affect the Groupissued by the Accounting Standards Board during 2004. Profit before tax The profit on ordinary activities before tax for the year ended 31 December 2004amounted to £145.2 million. This compared with £123.0 million in the previousyear and represented an increase of 18.0% year on year. There were noexceptional items during either 2004 or 2003. Turnover Total turnover achieved was £559.5 million (2003: £478.4 million). Includedwithin this figure was housing turnover of £534.4 million (2003: £458.4 million). The increase in housing turnover was primarily due to an 8.8% increase in unit legal completions to 2,700 units compared with 2,482 legal completions in 2003 and an increase in average sales price of 7.1% to £197,900 compared with £184,700 in 2003. The average sales price per square foot increased by 6.6% whilst the average size of unit increased marginally by 0.5% to an average 1,146 square feet (2003: 1,140 square feet). Land sales amounted to £19.6 million compared with £13.8 million in 2003 whilstother income, mainly arising from sales of commercial interests, was £5.5 million compared with £6.2 million in 2003. Operating profit The Group achieved an operating profit of £149.3 million, an increase of 15.6%over £129.2 million in the previous year, and maintained a relatively stableoperating margin at 26.7%, as compared to 27.0% in 2003. Land sale profits less option costs generated a net profit of £9.4 million in2004 (2003: £2.9 million). Land sale profits included the sale of commercialland, without residential planning consent, for £9.6 million with profit of £5.5 million. In total, the Group disposed of 127 plots of residential land typically on large sites where there is a long land bank supply. Administrative expenses, which include all sales and marketing costs, as apercentage of turnover were 8.1% compared with 8.5% in 2003. Administrativeexpenses increased by 11.8% to £45.5 million compared with £40.7 million in theprevious year. The increase included additional headcount from the expansion ofthe regional structure. Average staff numbers (excluding site based staff) in2004 were 516 compared with 478 in 2003. As a result of the 2004 defined benefits pension scheme actuarial valuation,administrative expenses included a SSAP 24 pension charge of £0.75 million inaddition to the normal pension contributions made by the Group. This representsthe first six months of recognition of the past service deficit identifiedthrough the actuarial valuation. Financing Net interest payable amounted to £4.1 million (2003: £6.2 million), and wascovered 36 times by profit before interest. Taxation The corporation tax charge for the year amounted to £43.2 million, and was aftercrediting an adjustment in respect of prior years amounting to £0.4 million. Dividends Dividends paid and proposed totalled £23.5 million (2003: £19.2 million)resulting in a retained profit for the financial year of £78.5 million. Thetotal annual dividend was covered 4.3 times by post tax earnings. Shareholders' funds Shareholders' funds increased during the year to £545.3 million as a result ofretained earnings of £78.5 million and the issue of £1.8 million of sharecapital and share premium arising from the exercise of share options byemployees, offset by the increase in own shares of £0.5 million held which arenetted against equity. Net borrowings The Group ended the year with net borrowings of £15.5 million having started2004 with net borrowings of £45.3 million. The Group utilised its existingbilateral committed revolving loan facilities to varying degrees throughout 2004such that the average net borrowing was £52.0 million. The Group had fixed rateborrowings at 31 December 2004 of £75.0 million. Cash deposited in interestbearing bank accounts amounted to £59.5 million. Working capital Land increased from £468.7 million to £507.6 million, with an increase in landcreditors from £46.9 million to £87.0 million. Work in progress increased from£177.2 million (including £21.1 million of part exchange properties) to £205.9 million (including £37.8 million of part exchange properties). As at 31 December 2004 2003 Increase/ (decrease) £m £m £m____________________________________________________________________________Land held for development 507.6 468.7 38.9Land creditors (87.0) (46.9) (40.1)____________________________________________________________________________Net investment in land 420.6 421.8 (1.2)____________________________________________________________________________Raw materials and work inprogress 164.5 152.4 12.1Part exchange properties 37.8 21.1 16.7Development properties 3.6 3.7 (0.1)____________________________________________________________________________Work in progress 205.9 177.2 28.7____________________________________________________________________________ At the end of 2004, the Group held 4.3 years' supply of controlled land, basedon the previous year's legal completions, with 11,174 plots of owned land withplanning consent and 354 plots of third party owned land which the Groupcontrols through the establishment of JCT contracts with these third parties toconstruct affordable housing. Return on average capital employed Return on average capital employed for 2004 amounted to 25.7% based on theoperating profit of the Group of £149.3 million and average capital employed of£580.5 million. For the seventh consecutive year, the Group has exceeded itsobjective of achieving a minimum return on capital employed of 20%. Pension scheme actuarial valuation The latest triennial actuarial valuation of the Group's defined benefit pensionscheme was completed as at 30 June 2004. This valuation indicated that the totalmarket value of the scheme's assets was sufficient to cover 77% of the presentvalue of the scheme liabilities in respect of member service up to the valuationdate, including allowance for future salary increases to normal retirement age.The past service deficit based on this funding level amounted to £10.23 million.The Group has decided to remedy this deficit during the period of July 2004 toApril 2007, with a number of agreed special contributions to the pension scheme,totalling approximately £11.0 million when interest is taken into account. Thefirst of these special contributions was made during 2004 and amounted to £1.85 million. A further payment of £1.5 million was made in January 2005. Thescheme's independent actuary has advised that the average remaining service lifeof a scheme member is 7 years. Under the provisions of UK accounting standardSSAP 24 the deficit will be charged to the Group's profit and loss account overthese 7 years with any year end surplus of special contributions over chargesbeing held as a prepayment in the balance sheet. For the period from 1 July 2004to the 31 December 2004, a SSAP 24 charge was included of £0.75 million and theyear end balance sheet prepayment stood at £1.1 million. On the basis of advice from the scheme's independent actuary in respect offuture service, the Group increased the employer contribution rate from 20% to22% of pensionable earnings (less one and a half times the lower earnings limitwhere appropriate) with effect from 1 July 2004. Employee contribution rateswere increased from 5% to 6% from 1 July 2004. Cash flow Cash inflow from operating activities amounted to £100.6 million (2003: £7.8 million). This cash inflow reflected both continuing strong cash generation from the sale of houses and other commercial interests and investment in growing the working capital base. After accounting for capital expenditure, finance costs, dividend payments and tax payments, the net borrowings of the Group decreased by £29.8 million from £45.3 million at 1 January 2004 to £15.5 million at 31 December 2004. Bank facilities and liquidity risk The Group held total bank facilities of £216.0 million at 31 December 2004,including £5.0 million of overdraft facility. The balance of the facilities weremade up of bilateral committed revolving loan facilities held with seven banks,mainly five year facilities but with some seven year facilities. The earliestmaturity date for these facilities is 10 December 2005 in respect of £35.0 million of facilities, with £124.0 million maturing on 9 January 2007, £20.0 million on 5 February 2007, £12.0 million on 3 May 2007 and £20.0 million on 10 December 2007. The Group's net borrowing position at 31 December 2004 of £15.5 millioncontinued to reflect modest gearing of 2.8%. With average net borrowings of£52.0 million and average monthly shareholders' funds of £498.8 million, theaverage gearing of the Group during 2004 was 10.4%. Given timing differencesbetween the investments in working capital and the flow of legal completionmonies from house sales, the Group's peak net borrowings during 2004 were £86.0 million. Refinance of revolving loan facilities In February 2005, the Group successfully refinanced its group of bilateralfacilities. New bilateral facilities were established with an aggregate value of£220.0 million on five year terms which mature on 6 February 2010. Whilst someway off from the natural maturity date of a number of the Group's existingfacilities, it was identified that there was a window of opportunity to lock infinance for the next five years at favourable pricing margins compared tohistorical rates. The Group believes that total bank facilities of £225.0 million, including the£5.0 million overdraft facility, are sufficient to enable funding of foreseeablecash flows required for the medium term plans for the Group. As these arebilateral revolving committed loan facilities there is considerable flexibilityavailable to the Group to manage its borrowing needs. Interest rate risk By fixing £75.0 million of borrowings through interest rate swaps with varyingmaturities, the Group has made certain its interest costs on what is consideredits core borrowing requirement. Borrowings in addition to this core borrowingare judged on a case by case basis at the time of drawing down the loans interms of interest rate flexibility and loan maturity. The Group has the abilityto borrow using its bilateral committed revolving loan facilities for as littleas a few days or up to the period through to maturity of the relevant facility.The Group can decide with its banks whether to fix the interest rate ofborrowing through the further use of interest rate swaps, although care is takento marry together the dates of draw down and maturity of the floating rateborrowing and interest rate swap. Fair value The fair value of the Group's fixed rate borrowings at 31 December 2004 exceededits book value by £1.3 million. This reflected the movement in long terminterest rates since these financial instruments were established. Further, thefair value of land creditors due after more than one year (deemed financialinstruments under FRS 13: "Derivatives and Other Financial InstrumentDisclosures") amounted to £20.4 million compared with their book value of £23.3 million, derived from the discounting of future cash flows in settling land creditors. The fair values of the Group's other long term assets and liabilities were not materially different from their book values. Accounting standards During 2004 there have been no new UK Financial Reporting Standards issued bythe Accounting Standards Board which impact the Group. Transitional ruledisclosures as required through the stage implementation of FRS 17: "RetirementBenefits" have been included in accordance with the standard. In respect of FRS 17 an independent actuary has valued the Group's definedbenefits pension scheme assets and liabilities, as at 31 December 2004, on thebasis defined in the standard. The valuation shows a deficit, net of deferredtax, on the scheme of £12.6 million (2003: £12.3 million deficit), which is adisclosure item only in the 2004 Annual Report and Accounts in accordance withthe standard. Under FRS 18: "Accounting Policies" the Group has reviewed its accountingpolicies to ensure that they remain the most appropriate to its particularcircumstances for the purpose of giving a true and fair view. These financial statements have been prepared in accordance with applicable UKaccounting standards. As a UK listed company, the Group will be required for itsconsolidated accounts to adopt International Financial Reporting Standards("IFRS") for the year ending 31 December 2005, including the interim results forthe half year ending 30 June 2005. The Group has assessed during 2004 each ofthe changes in accounting required through the adoption of IFRS. The intentionis to publish, prior to the announcement of the Group's interim results for2005, restated financial information for both the financial years ended 31 December 2003 and 31 December 2004. This will provide interested parties withtwo years of trend data using IFRS and will facilitate a better understanding ofthe results which will be published for the year ending 31 December 2005. IFRSis unlikely to have a significant impact on the trading results of the Group inany one year and whilst the shareholders' funds under IFRS will reduce due tothe recognition of the Group's pension deficit and accounting for imputedinterest on deferred term land purchases, this reduction will be small relativeto shareholders' funds in total. David RitchieFinance Director Bovis Homes Group PLCGroup profit and loss account Continuing operations For the year ended 31 December 2004 2004 2003 £000 £000___________________________________________________________________________Turnover 559,464 478,424Cost of sales (364,664) (308,442)___________________________________________________________________________Gross profit 194,800 169,982Administrative expenses (45,451) (40,749)___________________________________________________________________________Operating profit 149,349 129,233Interest receivable and similar income 1,228 145Interest payable and similar charges (5,395) (6,365)___________________________________________________________________________Profit on ordinary activities before tax 145,182 123,013Tax on profit on ordinary activities (43,200) (36,500)___________________________________________________________________________Profit on ordinary activities after tax 101,982 86,513Dividends paid and proposed (23,504) (19,187)___________________________________________________________________________Retained profit for the financial year 78,478 67,326___________________________________________________________________________Basic earnings per ordinary share 87.0p 74.2p___________________________________________________________________________Diluted earnings per ordinary share 86.3p 73.8p___________________________________________________________________________ In both the current and preceding financial years there were no other recognisedgains or losses. In both the current and preceding financial years there was no materialdifference between the historical cost profits and losses and those reported inthe profit and loss account. Bovis Homes Group PLCGroup balance sheetAt 31 December 2004 2004 2003 £000 £000__________________________________________________________________________Fixed assetsTangible assets 12,910 8,238Investments 23 23__________________________________________________________________________ 12,933 8,261__________________________________________________________________________ Current assetsStocks and work in progress 713,499 645,922Debtors due within one year 37,832 14,848Debtors due after more than one year 5,414 5,577Cash and short term deposits 59,486 30,005__________________________________________________________________________ 816,231 696,352__________________________________________________________________________ Creditors: amounts falling due within one year (218,448) (141,915)__________________________________________________________________________Net current assets 597,783 554,437__________________________________________________________________________Total assets less current liabilities 610,716 562,698Creditors: amounts falling due after more than oneyear (63,800) (95,703)Provisions for liabilities and charges (1,586) (1,516)__________________________________________________________________________Net assets 545,330 465,479__________________________________________________________________________ Capital and reservesCalled up share capital 59,146 58,870Share premium account 142,577 141,033Revaluation reserve 203 203Profit and loss account 343,404 265,373__________________________________________________________________________Equity shareholders' funds 545,330 465,479__________________________________________________________________________ Bovis Homes Group PLCGroup cash flow statementFor the year ended 31 December 2004 2004 2003 £000 £000_________________________________________________________________________Net cash inflow from operating activities 100,640 7,808 Returns on investments and servicing of financeInterest received 1,155 155Interest paid (5,289) (6,146)_________________________________________________________________________ (4,134) (5,991)_________________________________________________________________________ Taxation paid (40,750) (35,000)_________________________________________________________________________Capital expenditure and financial investmentPurchase of tangible fixed assets (6,232) (1,752)Sale of tangible fixed assets 68 424Purchase of own shares (1,351) (828)Sale of own shares held 216 -_________________________________________________________________________ (7,299) (2,156)_________________________________________________________________________ Equity dividends paid (20,517) (17,118)_________________________________________________________________________Cash inflow/(outflow) before management of liquidresources and financing 27,940 (52,457)Management of liquid resources and financing(Increase)/decrease in short term deposits (26,094) 51,544Issue of ordinary share capital 1,820 2,570_________________________________________________________________________ (24,274) 54,114_________________________________________________________________________Increase in cash 3,666 1,657_________________________________________________________________________ Bovis Homes Group PLCGroup reconciliation of movements in shareholders' funds For the year ended 31 December 2004 2004 2003 £000 £000_________________________________________________________________________Opening shareholders' funds 465,479 395,874Purchase of own shares (1,351) (828)Sale of own shares held 259 -UITF 17 expense of own shares held 645 537Issue of ordinary shares 1,820 2,570Total recognised gains and losses for the year 101,982 86,513Dividends paid and proposed (23,504) (19,187)_________________________________________________________________________Closing shareholders' funds 545,330 465,479_________________________________________________________________________ Group reconciliation of operating profit to operating cash flows For the year ended 31 December 2004 2004 2003 £000 £000_________________________________________________________________________Operating profit 149,349 129,233Depreciation and amortisation 2,110 1,881Loss/(profit) on disposal of non property tangiblefixed assets 27 (38)Increase in stocks (67,577) (101,426)Increase in debtors (23,052) (2,219)Increase/(decrease) in creditors 39,783 (19,623)_________________________________________________________________________Net cash inflow from operating activities 100,640 7,808_________________________________________________________________________ Group reconciliation and analysis of net debt For the year ended 31 December 2004 2004 2003 £000 £000_________________________________________________________________________Increase in cash in the year 3,666 1,657Cash outflow/(inflow) from change in debt 26,094 (51,544)_________________________________________________________________________Change in net debt 29,760 (49,887)Opening net (debt)/funds (45,274) 4,613_________________________________________________________________________Closing net debt (15,514) (45,274)_________________________________________________________________________Analysis of net debt:Cash 3,392 5Short term deposits 56,094 30,000Bank overdraft - (279)Borrowings (75,000) (75,000)_________________________________________________________________________ (15,514) (45,274)_________________________________________________________________________ Notes 1 Basis of preparation The Group accounts include the accounts of the Company and its subsidiary undertakings all of which are made up to 31 December 2004. The financial information included within this statement does not constitute the Company's statutory accounts for the year ended 31 December 2003 or 2004. The information contained in this statement has been extracted from theRelated Shares:
Vistry Grp