10th Mar 2008 07:01
Bovis Homes Group PLC10 March 2008 BOVIS HOMES GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007 Issued 10 March 2008 The Board of Bovis Homes Group PLC today announced its preliminary results for2007 which have been prepared in accordance with International FinancialReporting Standards as adopted by the EU ('IFRS'). • Pre tax profit of £123.6 million (2006: £132.0 million stated before one-off pension credit of £3.5 million; £135.5 million inclusive of pension credit) • Basic earnings per share of 72.4p per share (2006: 77.8p per share pre one-off pension credit) • Continuing sector-high operating margin at 22.8% pre Elite acquisition one-offs and fair value charges: 22.4% inclusive (2006: 23.1% pre one-off pension credit) • A year of successful investment: acquisition and integration of Elite Homes, purchase of Filton, Bristol and achievement of outline planning in early 2008 for key strategic site at Wellingborough • Full year dividend increased by 17% to 35.0p net per ordinary share (2006: 30.0p) with final dividend at 17.5p per share reflecting half of full year dividend as announced at interim • Strategic land holdings increased to 24,868 potential plots (2006: 24,719 potential plots) • 11,413 plots with planning consent owned/controlled (2006: 12,395 plots) • Modest gearing, with £44 million of year end net debt Commenting on the results, Malcolm Harris, the Chief Executive of Bovis HomesGroup PLC said: "2007 was a challenging year for the industry following several interest rateincreases, allied with a reduction in availability of funding, particularly forfirst-time buyers. Against that background, the Group delivered a goodperformance, in particular in maintaining a strong operating margin. Shareholdervalue was added through the successful promotion of strategic land includingFilton in Bristol and Stanton Cross, Wellingborough. "Looking forward, although the long term position relating to supply and demandhas not changed, the current housing market is weak. Cumulative salesreservations for 2008 to 7 March 2008 are 1,262 as compared to 1,582 at the samepoint in the previous year. Our performance through the spring period remainscritical in establishing the likely volume outcome for the current year. For theyear as a whole, unless decisive action is taken now to reduce interest ratesand more normal conditions return to the mortgage market, it is likely thatvolumes will be well below those achieved in 2007. "Looking beyond 2008, the Board believes that with its strong land position,healthy balance sheet, and highly experienced management team, the Group is wellplaced to benefit when sentiment improves." Enquiries: Malcolm Harris, Chief Executive Neil Cooper, Finance Director Bovis Homes Group PLC On Monday 10 March - tel: 020 7321 5010 Thereafter - tel: 01474 876200 Results issued by: Andrew Best / Emily Bruning Shared Value Limited On Monday 10 March - tel: 020 7321 5010 Chairman's statement With activity in the housing marketplace slowing during 2007, Bovis Homes hasdelivered a good performance whilst maintaining a sector-high operating profitmargin. During 2007, the Group continued to focus on its long term investment programme,and was successful in the second half of 2007 in both gaining a 'resolution togrant' planning permission at its major project in Filton, Bristol and insubsequently acquiring this key site. Good progress has also been made atWellingborough. After receiving a 'resolution to grant' planning permission inDecember 2006, this major project received its outline planning consent inJanuary 2008. Whilst the Group remained cautious in investing in consented landduring 2007, it is well positioned to take advantage of opportunities to acquireconsented land that may arise during 2008. The Group successfully acquired Elite Homes Group Ltd, a regional housebuilder,during the second half of 2007, which complements the Group's existingactivities in the north of England. Physical integration is now complete, as isthe re-branding of existing outlets, and the land bank acquired is enabling theregion to deliver against its existing growth plans, in a geography where landacquisition has been difficult given planning constraints. Whilst the Group made several large investments during the year, the Groupexited 2007 with low gearing, and only £44 million of net debt, leaving it wellplaced to continue to develop going forward. Results For the year ended 31 December 2007, the Group achieved a pre-tax profit of£123.6 million, as against a comparable £132.0 million in 2006 (stated before aone-off non-cash pension credit of £3.5 million). Earnings per share was 72.4pin 2007 as compared to 77.8p per share before pension credit in 2006. Total revenue generated was £555.7 million (2006: £597.3 million), and the Grouplegally completed on 2,930 homes (2006: 3,123) in the year. The average sales price of private homes grew by 3.8% year against year.However, the overall average sales price fell by 2.3%, from £183,700 in 2006 to£179,500 in 2007. The main factor behind this movement was mix, with socialhousing taking a greater proportion of the whole in 2007, as compared to 2006. The operating margin of the Group remained strong at 22.4%. This was somewhatdiluted by the impact of one-off restructuring and other fair value adjustmentsassociated with the acquisition of Elite Homes. Adjusting for these, theunderlying operating margin was 22.8%, only marginally behind the prior year:23.1% pre one-off pension credit. Dividend The Group remains committed to its existing guidance on dividends, which is thatdependent on business environment, and conditional on any necessary approvals,the Group will double its dividend from 20.0p per share in 2004 to 40.0p pershare in 2008. Looking beyond 2008, the Board remains intent on a progressivedividend policy over the long term, business environment permitting. Consistent with the Group's existing guidance, but also reflecting the changesin interim payout ratio announced and made at the half year 2007, the Group isproposing a final dividend for the year of 17.5p per share. In total, takentogether with the interim dividend of 17.5p per share paid in November 2007, theGroup's total dividend for 2007 is 35.0p per share, a year on year increase of16.7%. This dividend is covered 2.1 times by the basic earnings per share of72.4p. The proposed final dividend of 17.5p per share for 2007 will be paid on 23 May2008 to shareholders on the register at the close of business on 28 March 2008.The Board intends to offer a scrip dividend alternative. Shareholders will beable to choose between new ordinary shares or cash, for some or all of theirdividend under this programme. The Board Following the retirement of Mr Mark Nicholls from the Board at the AGM in 2007,the make-up of the Board has remained stable: with four non-executive directorsincluding myself, and three executive directors. Looking ahead, on 2 July 2008 I shall be standing down and will be succeeded asnon-executive Chairman by Mr Malcolm Harris, the current Chief Executive. MrDavid Ritchie, the current Group Managing Director will step up as ChiefExecutive, and his current position will cease to exist. Whilst the Group recognises that the appointment of the new chairman divergesfrom the Combined Code's recommended practice, the Group has actively canvassedits major shareholders and is therefore confident that this change is not onlyin the best interests of the Group but is also strongly supported byshareholders. The Group is in the process of appointing an independentnon-executive deputy Chairman as part of these changes. Employees The Board would like to thank its employees and sub-contractors for theirefforts and achievements during a year that has been challenging in manyrespects. In particular, the Board would like to thank Mr Peter Baker, theregional Managing Director of South West region who retired during the yearafter 26 years service and its Northern regional team for its efforts in supportof the Elite Homes acquisition, as well as welcoming Elite Homes employees tothe Bovis Homes Group. Market conditions & prospects The housing market during 2007 has been impacted by the tightening of interestrates over the first half of 2007, and then the banking crisis during the secondhalf, which has had an impact in terms both of availability of credit andconsumer confidence. In fact, the ongoing GfK NOP omnibus survey on consumerconfidence suggested that the consumer climate for major purchases was at itslowest ebb for 15 years in December 2007. The Group remains confident in the long term prospects for housebuilding in theUK, and notes the announcement of Government targets for housebuilding well inexcess of current rates of development: an indicator of a long term excess ofdemand over supply. However, the Group also recognises that the short term outlook for the marketremains uncertain. Notwithstanding this, the Group is well placed to tradeacross a range of differing market conditions: with its good quality mid-marketproduct mix, long term investment programme in strategic land, and present lowgearing. As a result, the Group remains confident in its ability to delivershareholder value over the mid and long term. Tim Melville-Ross Chairman Performance Review During the year, Bovis Homes legally completed 2,930 homes, of which 2,293 wereprivate, and 637 were social and partnership. This is as compared to 3,123 legalcompletions during 2006 of which 2,714 were private and 409 were social andpartnership. The average sales price achieved for private homes increased by 3.8% comparedwith the previous year. The average size of private homes legally completed wasbroadly the same, at 1,023 square feet, as the previous year, at 1,028 squarefeet, with the Group's migration in mix to a smaller and more marketable goodquality mid-market offering largely complete. With a large increase in social and partnership properties in the mix, movingfrom 13% in 2006 to 22% in 2007, the average sales price for the Group reducedby 2.3%, from £183,700 in 2006 to £179,500 in 2007, and the average size ofproperty legally completed was 969 square feet compared with 992 square feet in2006. The successful acquisition of Elite Homes in October 2007 added 118 legalcompletions to the Group's total 2007 performance and had a small dilutiveimpact on average sales price, driven by the fact that property prices in thenorth of England are typically lower than those elsewhere in England. The operating margin remained strong in 2007, given prevailing marketconditions. The reported operating margin at 22.4% was adversely impacted by theone-off restructuring costs and fair value adjustments associated with theacquisition of Elite Homes. Adjusting for these, the underlying operating marginat 22.8% was ahead of that at the half year, only marginally reduced versus23.1% achieved in 2006. Market sector analysisYear ended 31 December 2007 2006 % Units Average % Units AverageHouse type sales price sales price £ £------------------------------------------------------------------------------One and two bedroom 31 916 141,100 32 996 134,300Three bedroom 27 793 210,700 31 957 200,700Four bedroom 12 340 278,800 14 436 265,000Five or more bedroom 6 182 351,600 7 230 324,100Retirement Living 2 62 283,400 3 95 242,200Social housing 15 430 85,500 9 274 88,200Partnership housing(third 7 207 79,200 4 135 78,400party owned landunits)------------------------------------------------------------------------------Group 100 2,930 179,500 100 3,123 183,700------------------------------------------------------------------------------ Product mix analysisYear ended 31 December 2007 2006 % Units Average % Units Average House type sales price sales price £ £------------------------------------------------------------------------------Traditional 23 664 199,600 30 941 189,500Room-in-roof 10 295 322,200 13 389 300,400Three storey 21 632 220,500 21 646 213,400Apartments 22 640 138,000 20 643 129,000Retirement Living 2 62 283,400 3 95 242,200Social housing 15 430 85,500 9 274 88,200Partnership housing(third 7 207 79,200 4 135 78,400party owned landunits)------------------------------------------------------------------------------Group 100 2,930 179,500 100 3,123 183,700------------------------------------------------------------------------------ Unit completions and average sales priceYear ended 31 December 2007 2006 Units Average Units Average sales price sales price £ £ South East 703 207,600 906 212,100South West 819 138,200 836 148,700Central 567 194,200 510 204,200Eastern 435 185,400 504 167,400Northern 344 170,000 272 168,500Retirement Living 62 283,400 95 242,400------------------------------------------------------------------------------Group 2,930 179,500 3,123 183,700------------------------------------------------------------------------------ The Group's consented land bank fell by 982 plots from 12,395 plots at 1 January2007 to 11,413 plots at 31 December 2007. This closing land bank represented 3.9years of supply at 2007 activity levels. In a manner consistent with itsapproach in recent years, the Group has been somewhat cautious during 2007 inits approach to acquiring consented land, having regard to prevailing landprices. Of the 2,266 plots added, 641 plots were transferred from the strategicland bank, and 1,625 plots were secured in the market, including 824 as part ofthe acquisition of Elite Homes. The strategic land bank as at 31 December 2007 was 24,868 potential plots (2006:24,719 potential plots). The Group transferred 598 plots into the consented landbank during 2007, and added a further net 747 potential plots. Contained within the strategic land bank, but enjoying a "resolution to grant"residential planning consent at 31 December 2007 were 5,300 plots in twolocations: Filton in Bristol and Wellingborough. The 2,200 plots associated withFilton are expected to be in the consented land bank by the half year, togetherwith 900 plots at Wellingborough. This latter amount will reflect thatproportion of land likely to be on the balance sheet by the half year, with theremainder of the 3,100 plots relating to Wellingborough remaining under controlvia an option. These remaining plots will stay disclosed in the strategic landbank until ownership is taken through exercise of the Group's option. Excluding both social housing and third party owned land, the average plot costwas £48,400, which represented 23.5% of the average private sales price duringthe year. The equivalent figure for 2006 was £46,900 representing 23.6% of theaverage private sales price for that year. Consented land bankTotal plots as at 31 December 2007 2006 Plots Plots-----------------------------------------------------------------------------South East 2,687 3,237South West 2,565 3,135Central 2,162 2,143Eastern 1,946 2,199Northern 1,765 1,313-----------------------------------------------------------------------------Group (exc. third party owned land plots) 11,125 12,027 Third party owned land plotsSouth East 93 88South West 195 280-----------------------------------------------------------------------------Group consented land bank 11,413 12,395-----------------------------------------------------------------------------Urban redevelopment - Legal agreement exchanged* 536 700Development approved by planning committee subject toS106 being signed* 5,304 3,100-----------------------------------------------------------------------------Aggregate holdings 17,253 16,195----------------------------------------------------------------------------------------------------------------------------------------------------------Years' supply based upon legal completions in the year(Consented land bank) 3.9 4.0Years' supply based upon legal completions in the year(Aggregate holdings) 5.9 5.2-----------------------------------------------------------------------------* held in strategic land bank Strategic land bankTotal potential plots as at 31 December 2007 2006 Plots Plots--------------------------------------------------------------------------------South East 8,440 8,400South West 5,161 4,545Central 9,306 9,417Eastern 702 1,268Northern 1,259 1,089--------------------------------------------------------------------------------Group strategic land bank 24,868 24,719--------------------------------------------------------------------------------Years' supply based upon completions in the year 8.5 7.9-------------------------------------------------------------------------------- Although 20% ROCE remains the Group's objective over the business cycle, andremains a criterion for land investments, the Group will take decisions fromtime to time that affect the short term delivery of this measure whereopportunities arise to add shareholder value in the longer term. Firstly, theGroup has invested in major strategic land sites, ahead of their conversion intoland with residential planning permission and subsequent generation of returns.Secondly, the Group acquired Elite Homes towards the end of the financial yearfor a total consideration of £72.3 million; of which £25.7 million was paid tothe shareholders of Elite, with the Group assuming £46.2 million of debt. Alliedto these decisions, the performance of the Group in terms of its volume of legalcompletions has impacted ROCE during 2007, which was 17%. In terms of senior management progression, Mr Tim Melville-Ross who joined theBoard in 1997 is retiring from his position as Chairman on 2 July 2008. TheBoard wishes to thank him for the significant contribution that he has madetowards the Group's progress and would like to acknowledge the skill andexpertise he has brought to bear as a highly effective Board member and Chairmanover this period. Outlook for 2008 In the shorter term, economic uncertainties coupled with the cost andavailability of credit have adversely affected consumer confidence. The Groupexpects that the outcome of the spring selling season during 2008 will be a goodmarker to allow a balanced assessment of likely performance in a year wherewider macro-economic trends are currently depressing confidence and thusactivity. For the year as a whole, unless decisive action is taken now to reduceinterest rates and more normal conditions return to the mortgage market, it islikely that volumes will be well below those achieved in 2007. Given currentsales trends, a further increase in social mix is likely to occur in 2008. In current conditions the Group has a number of clear priorities: to focus oncontrolling its cost base and ensuring that cash flow is well managed, enabling it to act quickly when opportunities present themselves; to continue to leverageits strength in the acquisition and promotion of strategic land, a key source oflong term superior shareholder value; and to continue its existing pricingstrategy. As already outlined, the Group believes that the long term supply and demanddynamic in its industry remains extremely positive, with Government projectionsfor required housing completions running well ahead of current building volumesacross the industry. Looking beyond 2008 therefore, the Board believes that with its strong landposition, healthy balance sheet, and highly experienced management team, theGroup is well placed to benefit when sentiment improves. Malcolm Harris Chief Executive Financial review Profit before tax and earnings per share Pre-tax profit for the Group for the year ended 31 December 2007 was £123.6million. This is as compared to £132.0 million for the year ended 31 December2006, stated before a one-off pension credit of £3.5 million. Basic earnings pershare for 2007 was 72.4p, a reduction of 5.4p or 7% on the prior year statedbefore the one-off pension credit. Revenue Total revenue for the Group was £555.7 million in 2007 as compared to £597.3million in 2006. The key component of revenue for the Group is housing revenue,which was £525.9 million for the year ended 31 December 2007, as compared to£573.7 million for the prior year. The Group legally completed 2,930 homes in 2007, of which 118 were contributedby the Group's recent acquisition, Elite Homes. This is as compared to 3,123legal completions in 2006. The average sales price of legal completions fell slightly, from £183,700 in2006 to £179,500 in 2007. Within this, the average sales price for privatecompletions in 2007 increased by 3.8%. More than offsetting this, social housingas a share of the selling mix grew from 13% in 2006 to 22% in 2007 depressingthe overall average sales price. Over the recent past, the Group has been repositioning its sales mix away fromlarger, more discretional properties towards good quality mid-market homes. Thisprocess is now largely complete, as evidenced by the relatively small 0.5% yearover year change in the average size of its private completions. The overallyear over year decline of 2.3% in the Group's average size of legal completionsis more marked than this, from 992 square feet in 2006 to 969 square feet in2007, because of the aforementioned increased social mix. The Group disposed of £25.1 million of land during 2007, as compared to £19.5million in 2006. Other income at £4.7 million for 2007 was broadly in line withthe prior year at £4.1 million. Operating profit The Group delivered £124.4 million of operating profit for the year ended 31December 2007 at an operating margin of 22.4%. This margin was diluted by the impact of the £1.0 million one-off restructuringcosts associated with the acquisition of Elite Homes, as well as by the £1.0million impact of the fair value adjustments made to the inventory of EliteHomes acquired by the Group. Adjusting for these two items, the underlyingoperating margin of the Group for 2007 was 22.8%, as compared to 23.1%, prepension credit, delivered in 2006. This was a creditable performance, anddemonstrates the Group's focus in this area, being particularly pleasing giventhe impact of both interest rate hikes and the financial crisis on consumersentiment during 2007, as well as the associated market dislocation in creditavailability. Profit from land sales, less option costs, was £10.0 million in 2007, ascompared with £7.8 million of profit from land sales, less option costs, in2006. Given the nature of trading during 2007, the Group maintained a tight controlover overhead costs by reducing its absolute cost and holding its ratio torevenue static despite falling levels of legal completions and housing revenue. The Group's administrative expenses as a percentage of revenue, which includesales and marketing costs, together with any bonus payable, was in line with theprevious year: at 8.7% of sales in 2007 as compared to 8.7% of sales in 2006after adjusting for the one-off pension credit. Analysis of margin Total housing Group 2007 2006 2007 2006 % % % %---------------------------------------------------------------------------------Revenue 100.0 100.0 100.0 100.0Land costs (19.7) (19.6) (20.2) (19.8)Construction costs (50.0) (49.2) (48.7) (48.4)---------------------------------------------------------------------------------Gross profit 30.3 31.2 31.1 31.8Administrative expenses (inc.sales and marketing costs) (8.7) (8.7)---------------------------------------------------------------------------------Operating profit 22.4 23.1---------------------------------------------------------------------------------Note: 2006 data excludes £3.5 million pension credit Financing Net financing costs were £0.8 million in 2007 (2006: £5.8 million). The keydriver of this year over year movement was the interest earned from the positivenet cash balance held by the Group for the majority of the year, but the Groupalso benefited from a favourable net pension financing credit during 2007. Bank interest net income for 2007 was £2.4 million, which included arrangementfee and commitment fee charges. This is as compared to a £3.6 million net chargein 2006. Offsetting this, the Group incurred a £4.1 million finance charge(2006: £2.2 million) reflecting the difference between the cost and nominalprice of land bought on deferred terms and which is charged to the incomestatement over the life of the deferral of the consideration payable. The Group benefited from a £0.9 million net pension financing credit during2007: this credit arose as a result of the expected return on plan assets beingin excess of the interest on the plan obligations. The equivalent number in 2006was £0.3 million, which was reported in administrative expenses in that year. Taxation The Group has accounted for a tax charge of £36.7 million through the incomestatement at an effective rate of 29.7% (2006: 29.9%). Of this charge, thecurrent year tax was £37.2 million, the deferred tax charge was £0.1 million andthe Group enjoyed the benefit of a £0.6 million rebate relating to a prior year. The deferred tax charge related in part to the final £2.0 million special cashcontribution made by the Group to the pension scheme, offset by the deferred taxcredit arising in the year following changes made in the initial carrying valueof assets and liabilities of Elite Homes arising from its fair value exercise.All deferred tax balances at the end of 2007 have been restated at 28%, giventhe upcoming change in corporation tax in April 2008. Dividends The Group paid the 2006 final dividend of 20.0p per share, and the 2007 interimdividend of 17.5p per share during 2007. In total, this equated to £45.0 million(2006: £31.8 million). Post-tax earnings in 2007 were 1.9 times the dividendpaid as compared to 2.9 times in 2006. At the 2007 half year, the Groupannounced that it would rebalance the payment of its interim and final dividend,and so the interim 2007 dividend reflected half of the expected full payment, asopposed to the previous one-third. Had this previous treatment been applied, theGroup would have covered its dividend payment 2.3 times. The Board is recommending a 17.5p per share final dividend for 2007, which wouldtake the total dividend for the year to 35.0p per share, in line with itspreviously announced commitment on dividends. Net assets The Group's net assets at 31 December 2007 were £723.7 million, £45.9 millionhigher than the net asset position as at 31 December 2006. Whilst the movementwas predominantly driven by the movement in retained earnings, the Group's netassets position also benefited from an increase in share capital and sharepremium through the uptake of scrip dividends and from an actuarial gain arisingfrom the Group's defined benefit pension scheme. Net assets per share as at 31 December 2007 was £5.99 as compared to £5.62 at 31December 2006. Analysis of net assets 2007 2006 £m £m--------------------------------------------------------------------------Net assets at 1 January 677.8 598.1Profit for the year 86.9 95.0Dividends (45.0) (31.8)Share capital issued 1.4 9.2Net actuarial gain on defined benefitspension scheme 2.4 6.1Deferred tax on other employee benefits (0.8) 0.2Adjustment to the fair value of cash flowhedges 0.1 0.5Adjustment to reserves for share basedpayments 0.9 0.5--------------------------------------------------------------------------Net assets at 31 December 723.7 677.8-------------------------------------------------------------------------- Acquisition of Elite Homes Group Ltd On 12 October 2007, the Group acquired Elite Homes Group Ltd, a northernhousebuilder together with its three subsidiaries. The acquisition was for atotal consideration of £72.3 million; of which £25.7 million was paid to theshareholders of the company, with the Group assuming £46.2 million of debt. The Group's consolidated results contain the trading results of Elite Homes from12 October through to 31 December and the balance sheet of Elite Homes,following a fair value exercise on acquisition. The Group has expensed £1.0million of one-off restructuring costs in 2007 relating to the acquisition andintegration of this business. This cost is included in administrative expenses. As at the balance sheet date, the Group has recognised £9.2 million of acquiredgoodwill arising on consolidation. The Group believes that this goodwill issustained by the overhead cost benefits arising as a result of the substantialgeographic overlap between Elite Homes and the Group's existing Northern region,together with the subsequent rationalisation of structure and organisationswhich has occurred. The Group has also gained access to strategic landcapability and opportunities across the north of England. Pensions Following an actuarial valuation of the Group's defined benefit pension schemein 2004, which revealed a deficit, the Group agreed with the trustees of thepension scheme a number of special cash contributions to be made by the Group tothe scheme to help mitigate the deficit that existed at that point. The finalpayment of £2.0 million was made during 2007. An actuarial valuation wasundertaken as at 30 June 2007, revealing that the scheme was then in surplus. This valuation has been rolled forward to 31 December 2007, with the help ofestimates provided by the Group's actuarial advisors. Positively, the Group'sdeficit of £5.1 million at the end of 2006 is now a surplus of £1.0 million asat the end of 2007, benefiting from the £2.0 million special contributionoutlined above, together with an actuarial gain of £3.7 million. The actuarial gain is made up of two elements: firstly, £1.5 million arisingfrom changes between previous actuarial assumptions, and the actual outturn, andsecondly £2.2 million arising from movements in the underlying actuarialassumptions used. Specifically, the movement in bond yields during 2007 has ledto a reassessment of the discount rate to be applied in calculating the value ofthe scheme's liabilities. Analysis of pension scheme (surplus) / deficit 2007 2006 £m £m---------------------------------------------------------------------------Pension deficit at 1 January 5.1 22.4Contributions into the pension scheme (3.4) (7.5)One-off pension credit - (3.5)Expense to the income statement 1.0 2.3Actuarial gain on defined benefits pensionscheme (3.7) (8.6)---------------------------------------------------------------------------Pension (surplus) / deficit at 31 December (1.0) 5.1--------------------------------------------------------------------------- Cashflow 2007 has seen a marked swing in the Group's cash balances over the year. For themajority of the year, the Group held substantial sums of cash on deposit. TheGroup entered the year with £102.7 million net cash in hand, and had £107.8million net cash in hand at the half year. During the second half of 2007, theGroup made two major investments: firstly, the acquisition of Elite Homes, andsecondly, the purchase of its strategic site at Filton, Bristol. As a result ofthis investment, the Group closed the year with a modest gearing position andnet borrowings. Excluding the impact of these large individual investments, the Group saw anincrease in working capital between the start and the end of 2007, with anincreased £8 million investment in home exchange properties reflecting anincreased use of this effective selling tool. Work in progress was £18 millionhigher, and land creditors fell by £40 million. The increase in land sales andin social and partnership housing sales has led to an increase in tradereceivables. Net borrowings & banking facilities As at 31 December 2007, the Group had £0.3 million of cash in hand, andborrowings of £44.6 million. The Group has in place currently £225 million ofbanking facilities, made up of bilateral committed revolving loan facilitieseffective until early 2010, together with a short term overdraft facility tofacilitate cash management. On average, the Group held £49 million of cash during 2007. Accordingly, theGroup had no average gearing excluding land creditors. Including land creditors,the Group's average gearing was 5%. Year end gearing was 6% excluding landcreditors or 15% including land creditors. The Group's peak monthly borrowingwas £114 million at the end of November. Financial risk & liquidity In general, the Group seeks to mitigate any exposure to material interest ratefluctuations through interest rate swaps. The maturity terms on these swaps willbe reviewed when taken out, with care taken to ensure that borrowings of anappropriate term are likely to be in place to match the interest rate swapsbeing taken out. The Group's outstanding interest rate swaps expired in December2007, and having regard to current and future estimates of monetary policy, theGroup has delayed entering into further swaps at present. This position will bereviewed during the first half of 2008. The Group's banking arrangements outlined above are considered to be adequate interms of flexibility and liquidity for its medium term cashflow needs. With lessthan £1 million of net financing charges, net interest cover during 2007 wasover 154 times, as compared with over 24 times during 2006. As the Group functions wholly in the UK, currency risk management is not aconsideration. Financial Reporting There have been no changes to the Group's accounting policies during 2007. TheGroup has adopted IFRS7 during the year, which has altered the disclosures givenin respect of financial instruments. Neil Cooper Group Finance Director Bovis Homes Group PLCGroup income statementFor the year ended 31 December 2007 2007 2006 £000 £000-------------------------------------------------------------------------Revenue - continuing operations 555,702 597,290Cost of sales (382,659) (407,204)-------------------------------------------------------------------------Gross profit 173,043 190,086Administrative expenses (48,653) (48,803)-------------------------------------------------------------------------Operating profit before financing costs 124,390 141,283Financial income 6,158 654Financial expenses (6,962) (6,453)-------------------------------------------------------------------------Net financing costs (804) (5,799)-------------------------------------------------------------------------Profit before tax 123,586 135,484-------------------------------------------------------------------------Income tax expense (36,727) (40,446)-------------------------------------------------------------------------Profit for the period attributable to equityholders of the parent 86,859 95,038--------------------------------------------------------------------------------------------------------------------------------------------------Basic earnings per ordinary share 72.4p 79.8p-------------------------------------------------------------------------Diluted earnings per ordinary share 72.2p 79.5p------------------------------------------------------------------------- Bovis Homes Group PLC Group balance sheetAt 31 December 2007 2007 2006 £000 £000-------------------------------------------------------------------------AssetsGoodwill 9,176 -Property, plant and equipment 14,451 14,778Available for sale financial assets 1,085 -Investments 22 22Deferred tax assets 3,233 6,089Trade and other receivables 2,589 2,850Retirement benefit asset 1,010 --------------------------------------------------------------------------Total non-current assets 31,566 23,739-------------------------------------------------------------------------Inventories 870,550 758,078Trade and other receivables 52,725 22,446Cash 346 142,841-------------------------------------------------------------------------Total current assets 923,621 923,365-------------------------------------------------------------------------Total assets 955,187 947,104------------------------------------------------------------------------- EquityIssued capital 60,415 60,288Share premium 156,734 155,494Hedge reserve - (112)Retained earnings 506,594 462,162-------------------------------------------------------------------------Total equity attributable to equity holders of theparent 723,743 677,832------------------------------------------------------------------------- LiabilitiesBank loans 25,000 25,100Trade and other payables 28,816 44,264Retirement benefit obligations - 5,140Provisions 1,463 1,512-------------------------------------------------------------------------Total non-current liabilities 55,279 76,016-------------------------------------------------------------------------Bank overdraft 3,588 -Bank loans 16,000 15,060Trade and other payables 142,291 159,368Provisions 500 602Current tax liabilities 13,786 18,226-------------------------------------------------------------------------Total current liabilities 176,165 193,256-------------------------------------------------------------------------Total liabilities 231,444 269,272--------------------------------------------------------------------------------------------------------------------------------------------------Total equity and liabilities 955,187 947,104-------------------------------------------------------------------------These accounts were approved by the Board of directors on 7 March 2008. Bovis Homes Group PLC Group statement of cash flowsFor the year ended 31 December 2007 2007 2006 £000 £000---------------------------------------------------------------------------Cash flows from operating activitiesProfit for the year 86,859 95,038Depreciation 1,421 1,499Financial income (6,158) (654)Financial expense 6,962 6,453Profit on sale of property, plant and equipment (43) (120)Equity-settled share-based payment expenses 133 455Income tax expense 36,727 40,446Other non-cash items 996 ----------------------------------------------------------------------------Operating profit before changes in working capitaland provisions 126,897 143,117---------------------------------------------------------------------------(Increase) / decrease in trade and other receivables (29,821) 51,099(Increase) / decrease in inventories (42,195) 23,295(Decrease) / increase in trade and other payables (39,519) 19,619Decrease in provisions and employee benefits (6,301) (8,590)---------------------------------------------------------------------------Cash generated from operations 9,061 228,540---------------------------------------------------------------------------Interest paid (4,812) (5,829)Income taxes paid (39,052) (35,342)---------------------------------------------------------------------------Net cash from operating activities (34,803) 187,369---------------------------------------------------------------------------Cash flows from investing activitiesInterest received 5,420 512Acquisition of property, plant and equipment (879) (1,668)Proceeds from sale of plant and equipment 106 174Acquisition of subsidiary net of cash acquired (73,304) ----------------------------------------------------------------------------Net cash from investing activities (68,657) (982)---------------------------------------------------------------------------Cash flows from financing activitiesDividends paid (44,990) (31,757)Proceeds from the issue of share capital 1,367 9,234Drawdown / (repayment) of borrowings 1,000 (15,000)---------------------------------------------------------------------------Net cash from financing activities (42,623) (37,523)---------------------------------------------------------------------------Net (decrease) / increase in cash and cashequivalents (146,083) 148,864Cash and cash equivalents at 1 January 142,841 (6,023)---------------------------------------------------------------------------Cash and cash equivalents at 31 December (3,242) 142,841--------------------------------------------------------------------------- Bovis Homes Group PLC Group statement of recognised income and expenseFor the year ended 31 December 2007 2007 2006 £000 £000--------------------------------------------------------------------------Effective portion of changes in fair value ofinterest rate cash flow hedges 160 642Deferred tax on changes in fair value of interestrate cash flow hedges (48) (193)Actuarial gain on defined benefits pension scheme 3,750 8,640Deferred tax on actuarial movements on definedbenefits pension scheme (1,325) (2,592)Deferred tax on other employee benefits (790) 218--------------------------------------------------------------------------Net expense recognised directly in equity 1,747 6,715Profit for the period 86,859 95,038--------------------------------------------------------------------------Total recognised income and expense for the period attributable to equity holders of the parent 88,606 101,753-------------------------------------------------------------------------- Notes to the accounts 1 Basis of preparation Bovis Homes Group PLC ('the Company') is a company domiciled in the UnitedKingdom. The consolidated financial statements of the Company for the year ended31 December 2007 comprise the Company and its subsidiaries (together referred toas 'the Group') and the Group's interest in associates. The consolidated financial statements were authorised for issue by the directorson 7 March 2008. The accounts were audited by KPMG Audit Plc. The financial information included within this statement does not constitute theCompany's statutory accounts for the year ended 31 December 2006 or 2007. Theinformation contained in this statement has been extracted from the statutoryaccounts of Bovis Homes Group PLC for the year ended 31 December 2007, whichhave not yet been filed with the Registrar of Companies, on which the auditorshave given an unqualified audit report, not containing statements under section237(2) or (3) of the Companies Act 1985. The consolidated financials statements have been prepared in accordance withIFRS as adopted by the EU, and the accounting policies have been appliedconsistently for all periods presented in the consolidated financial statements. The preparation of financial statements in conformity with IFRS requiresmanagement to make judgements, estimates and assumptions that affect theapplication of policies and reported amounts of assets and liabilities, incomeand expenses. The estimates and associated assumptions are based on historicalexperience and various other factors that are believed to be reasonable underthe circumstances, the results of which form the basis of making judgementsabout carrying values of assets and liabilities that are not readily apparentfrom other sources. Actual results may differ from these estimates. In 2006, the total Provisions balance of £2,114,000 as at 31 December 2006 wasdisclosed on the face of the balance sheet as a non-current liability. This hasbeen reclassified for the 2006 comparative balance sheet in 2007, to beconsistent with the presentation of this item in 2007. The impact is to move£602,000 from non-current into current liabilities on the face of the 2006comparative balance sheet. 2 Basis of consolidation The consolidated financial statements incorporate the accounts of the Companyand entities controlled by the Company (its subsidiaries) made up to 31December. Control is achieved where the Company has the power to govern thefinancial and operating policies of an entity so as to obtain benefits from itsactivities. The existence and effect of potential voting rights that arecurrently exercisable or convertible are considered when assessing whether theGroup controls another entity. Associates are those entities in which the Group has significant influence, butnot control, over the financial and operating policies. The consolidatedfinancial statements include the Group's share of the total recognised gains andlosses of associates on an equity accounted basis, from the date thatsignificant influence commences until the date that significant influenceceases. 3 Accounting policies There have been no changes to the Group's accounting policies. These accountingpolicies will be disclosed in full within the Group's forthcoming financialstatements. 4 Reconciliation of net cash flow to net debt 2007 2006 £000 £000--------------------------------------------------------------------------Net (decrease) / increase in net cash and cashequivalents (146,083) 148,864(Drawdown) / repayment of borrowings (1,000) 15,000Fair value adjustments to interest rate swaps 160 642Net debt at start of period 102,681 (61,825)--------------------------------------------------------------------------Net debt at end of period (44,242) 102,681-------------------------------------------------------------------------- Analysis of net debt:Cash and cash equivalents (3,242) 142,841Bank loans (41,000) (40,000)Fair value of interest rate swaps - (160)--------------------------------------------------------------------------Net debt (44,242) 102,681-------------------------------------------------------------------------- 5 Income taxes Current tax Current tax expense is the expected tax payable on the taxable income for theyear, calculated using a corporation tax rate of 30% applied to the pre-taxincome, adjusted to take account of deferred taxation movements and anyadjustments to tax payable for previous years. Current tax for current and prioryears is classified as a current liability to the extent that it is unpaid.Amounts paid in excess of amounts owed are classified as a current asset. 6 Reconciliation of 2006 Income statement and key performance metrics fromreported to underlying Group Income StatementYear ended 31 2006 Reported Pension credit 2006 UnderlyingDecember 2006 £000 £000 £000----------------------------------------------------------------------------Revenue -continuingoperations 597,290 - 597,290----------------------------------------------------------------------------Gross profit 190,086 - 190,086Administrativeexpenses (48,803) (3,470) (52,273)----------------------------------------------------------------------------Operatingprofit beforefinancingcosts 141,283 (3,470) 137,813Net financingcosts (5,799) - (5,799)----------------------------------------------------------------------------Profit beforetax 135,484 (3,470) 132,014Income taxexpense (40,446) 1,041 (39,405)----------------------------------------------------------------------------Profit for theperiod 95,038 (2,429) 92,609 Administrativeexpenses ratioto revenue 8.2% 8.7%Operatingprofit margin 23.7% 23.1%Return oncapitalemployed 20.5% 20.0% 7 Acquisition of Elite Homes Group Ltd On 12 October, the Group acquired Elite Homes Group Ltd. Total consideration was£72.3 million, of which £25.7 million was paid to the shareholders of Elite,£46.2 million related to the settlement of outstanding loans, and £0.4 millionrelated to directly attributable transaction costs. Pre acquisition Fair value Fair value adjustment £000 £000 £000------------------------------------------------------------------------------------Property, plant andequipment 278 - 278Inventory 69,175 2,099 71,274Trade and otherreceivables 1,428 - 1,428Cash and cashequivalents (1,051) - (1,051)Trade and otherpayables (10,269) - (10,269)Current tax 2,025 - 2,025Deferred tax - (608) (608)------------------------------------------------------------------------------------Total 61,586 1,491 63,077Goodwill 9,176------------------------------------------------------------------------------------Consideration 72,253------------------------------------------------------------------------------------Satisfied byCash 25,700Assumption of debt 46,154Transaction costs 399------------------------------------------------------------------------------------Total consideration 72,253------------------------------------------------------------------------------------ The £2,099,000 uplift to the carrying value of inventory has been recognised toreflect the fair value of land and WIP acquired. The £608,000 deferred taxadjustment relates to the fair value change in inventory. These fair valueadjustments are provisional, and will be confirmed within 1 year of thetransaction. Elite Homes contributed £16.7 million of revenue and £2.9 millionto gross profit for the period 12 October to 31 December 2007. Had theacquisition been made on the first day of 2007, the combined revenue of theGroup would have been £593.5 million and the combined operating profit wouldhave been £125.7 million. The goodwill balance relates to the acquisition of Elite Homes Group Ltd during2007. Goodwill has arisen as a result of two main factors. Firstly, synergyarising from the integration of and subsequent rationalisation of Elite Homeswith the existing Bovis Homes Northern region as a result of the overlap andduplication of the organisational structures existing alongside each other inthe North West and Yorkshire in a highly replicated way. Secondly, theacquisition has allowed the Group access to the expertise and contacts of theElite Homes buying team which the Group anticipates will offer future strategicand consented land opportunities. The Group has performed an impairment review on Elite Homes, and is satisfiedthat its recoverable amount as determined by value-in-use calculations is inexcess of the carrying value of assets and liabilities, together with thegoodwill arising on consolidation. The key assumptions for this include adiscount rate of 7.0% based on the Group's post-tax weighted average cost ofcapital, and the internal management forecasts covering the period determined bythe full utilisation of the existing consented land bank. These forecasts weregenerated at the point of acquisition, using forward looking estimates andgrowth rates based on market assessments made at the time of the transaction,and have been reviewed following the first quarter's trading. For the purposesof this review the goodwill has been allocated to the cash generation unit ofElite Homes. 8 Dividends The following dividends were paid by the Group. 2007 2006 £000 £000------------------------------------------------------------------------------Prior year final dividend per share of 20.0p (2006: 16.7p) 23,976 19,826Current year interim dividend per share of 17.5p (2006:10.0p) 21,014 11,931------------------------------------------------------------------------------Dividend cost 44,990 31,757------------------------------------------------------------------------------ A final dividend in respect of 2007 of 17.5p per share, amounting to a totaldividend of £21,026,000 based on the shares in issue as at 7 March 2008, wasproposed by the Board on 7 March 2008. This final dividend will be paid subjectto approval on 23 May 2008 to shareholders on the register at the close ofbusiness on 28 March 2008. This dividend has not been recognised as a liabilityat the balance sheet date. 9 Earnings per share Basic earnings per ordinary share for the year ended 31 December 2007 iscalculated on profit after tax of £86,859,000 (year ended 31 December 2006:£95,038,000) over the weighted average of 119,984,811 (year ended 31 December2006: 119,103,110) ordinary shares in issue during the period. The impact of the 2006 one-off pension credit of £3.5 million on basic earningsper share can be analysed as follows: 2007 2006 Pence Pence---------------------------------------------------------------------------Basic earnings per share 72.4 79.8Effect of one-off pension credit, net of related tax - (2.0)---------------------------------------------------------------------------Earnings per share stated before pension credit, net ofrelated tax 72.4 77.8--------------------------------------------------------------------------- Diluted earnings per ordinary share is calculated on profit after tax of£86,859,000 (year ended 31 December 2006: £95,038,000) over the diluted weightedaverage of 120,244,911 (year ended 31 December 2006: 119,523,151) ordinaryshares potentially in issue during the period. The average number of shares isdiluted in reference to the average number of potential ordinary shares heldunder option during the period. This dilutive effect amounts to the number ofordinary shares which would be purchased using the aggregate difference in valuebetween the market value of shares and the share option exercise price. Themarket value of shares has been calculated using the average ordinary shareprice during the period. Only share options which have met their cumulativeperformance criteria have been included in the dilution calculation. 10 Circulation to shareholders The consolidated financial statements will be sent to shareholders on or about 8April 2008. Further copies will be available on request from the CompanySecretary, Bovis Homes Group PLC, The Manor House, North Ash Road, New AshGreen, Longfield, Kent DA3 8HQ. Further information on Bovis Homes Group PLC can be found on the Group'scorporate website www.bovishomes.co.uk/plc, including the slide presentationdocument which will be presented at the Group's results meeting on 10 March2008. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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