9th Jul 2008 07:00
Bovis Homes Group PLC Trading Update 9 July 2008 Overview The Group is today providing a trading update covering the six month periodended 30 June 2008 ahead of reporting its interim results on Tuesday 26 August2008. Against the worst market backdrop that the Group has seen for many years, theGroup has achieved a good quality of profit on those private homes it has soldbut has achieved significantly lower volumes of legal completions, largelyarising through a severe reduction in mortgage availability caused by the'credit crunch'. As previously advised, half year profit will be adverselyimpacted by this sharp reduction in volume. Sales & margins For the six months ended 30 June 2008, the Group has legally completed the saleof 851 homes, as compared to 1,256 homes legally completed in the comparableperiod, a reduction of 32%. Within these totals, around 27% of homes legallycompleted were social and partnership homes as compared to the first six monthsof 2007 in which 13% were social and partnership homes. For private homes, the Group has achieved an average net sales price of£196,500, as compared to £204,500 in the first six months of 2007, principallydue to a shift in the private selling mix towards smaller properties in thefirst half of 2008. Overall, including social and partnership homes, the averagesales price achieved by the Group for the six months ended 30 June 2008 was£167,500 compared with £189,600 in the first half of 2007. In line with the Group's aim to sustain good quality profits on those homessold, the Group's underlying housing gross margins on private home legalcompletions held up well in the first half of 2008, only decreasing byapproximately 2% compared to the first half of 2007. However, the overall dilution in the Group's housing gross margin will begreater, reflecting the higher proportion of social and partnership homes in themix together with a number of other factors: these include the impact ofincreased planning fees expensed on progression of strategic land opportunities,which the Group continues to charge to housing profit as incurred, appropriateprovisioning in respect of semi-fixed site management costs incurred during aperiod of lower build and sales activity in the first half of 2008, andimpairment provisions in respect of unsold part exchange properties. As aresult, the Group is expecting to deliver an overall gross housing profit marginof approximately 26% for the half year, a decline of some 6% against thecomparable period. Whilst the Group continues to work towards generating land sales profit during2008, it acknowledges that there are fewer organisations actively buying in thecurrent land market. During the first half year, the Group expects acontribution of approximately £2 million from land sales, net of option costs. Balance Sheet As at 30 June 2008, the Group had net debt of £94 million, with gearinganticipated to be approximately 13% at the half year end. Average net debt forthe first half of 2008 was approximately £81 million, and the Group nowanticipates that average net debt for the year as a whole will be in the range£110 million to £120 million. The Group has bilateral committed loan facilitiesof £220 million which do not mature until 2010. The Group has previously indicated that it is taking steps to manage its cashflows including, in particular, careful control of its investment in housingwork in progress. It has been successful in the first half of 2008 in convertingstrategic land, having obtained outline planning consent for both Wellingboroughand Filton during 2008. It anticipates holding around 14,000 plots of consentedland at 30 June 2008, of which approximately 58% has been converted from thestrategic land bank. Within this total will be 2,200 plots at Filton and 900plots at Wellingborough. The balance of the plots with consent at Wellingborough(2,200 plots) remain controlled under a call option which can be exercised bythe Group in the future. The pace of significant investment in these major andimportant projects remains under the control of the Group and is being adjustedin light of market conditions. With regard to land opportunities, the Group willevaluate these as they arise, but will exercise significant caution in this areafor at least the remainder of 2008, as it has done in the recent past, with only11% of the plots in the half year land bank purchased in the consented landmarket since the start of 2007. Having regard both to its carrying cost of inventory, and to reliable estimatesat the balance sheet date of sales prices given prevailing market conditions,the Board does not presently anticipate making any material inventory provisionsor write-downs at this half year. This position will be reviewed prior topublication of the Group's interim accounts, and again prior to the end of thetrading year. Cost reduction measures Further to the Group's comment in its interim management statement of 6 May 2008regarding actions taken to manage its overhead costs, the Group is closing itsEastern regional office, transferring control of its operation in this area toits existing Central and South East offices. It is also amalgamating a number ofkey functions of its Northern region with its Central region. These, togetherwith other cost saving measures, will be largely in place from the end of July2008. The Group has carefully assessed its actions in these areas to ensure thatit is not unduly compromising its capacity to grow when market conditionsimprove. The new structure will retain a good geographic coverage with regionaloffices in the South East, South West, Midlands and North West of England.Notwithstanding these changes, the Group is maintaining capability to identifyand appraise strategic land in all of its existing areas of operations. The Group expects total staff numbers, both office and site-based, to be reducedby around 40% compared to those employed at the start of the year andanticipates the annualised saving from these actions plus other cost savinginitiatives to be around 20% of its general overhead cost base. The Group willbe charging a one-off restructuring charge of around £2 million in its firsthalf year results as a result of these actions. Outlook and dividends Looking forward to the full year, the Group's reservation levels since itsprevious statement on 6 May 2008 have continued to be notably lower than theprevious year. Cumulative sales achieved to 30 June 2008 for 2008 legalcompletion stood at 1,482 homes as compared to 2,282 homes at the same pointlast year, a 35% decline year over year. The Group anticipates private homesales volumes to continue at prevailing levels for the balance of the sellingperiod for 2008, and is continuing to seek further opportunities in socialhousing. The Group continues to assess its pricing strategy very carefully and in thelight of house price indices showing falls in house prices, and a generalbackdrop of adverse media speculation, the Group is being pragmatic in theapplication of its pricing strategies at present, dealing assertively whereappropriate to maintain a competitive net pricing stance. Given the speed ofemerging trends in the market at present, it is difficult to estimate with anycertainty the likely net pricing of the Group over the second half of 2008, butany further market falls would likely reduce both the Group's achievable netpricing and gross margins. In setting out its dividend policy, the Board has consistently made clear thatthe payment of anticipated dividends would be dependent on the prevailingbusiness environment. Given the lack of liquidity in financial markets andfragile consumer confidence, which have created a high degree of uncertainty inthe housing market, the Board considers a reduction in dividend at this time tobe a balanced position to take for long term shareholder value. It thereforeintends to declare an interim dividend for 2008 of 5p per share which the Boardrecognises to be a substantial reduction from the 20p per share previouslyanticipated to be paid at this stage. In line with recent practice, the finaldividend is anticipated to be at the same level as the interim dividend, but afinal decision on this will be made in early 2009. The Group has been investing on a long term basis for many years and in doing sohas been able to purchase a large proportion of its residential land throughconversion of its strategic land investments. Allied to this, the Group has awell designed product range targeted towards mid market housing and hasdeveloped good expertise in the social and partnership housing sector. Havingtaken action this year through restructuring and cost control to mitigate theimpact from current housing market conditions, the Group will be able to exploitits strong asset base as and when the housing market returns to more normalconditions. Conference Call for Analysts and Investors David Ritchie, Chief Executive and Neil Cooper, Group Finance Director of BovisHomes will host a conference call at 11:00am today, Wednesday 9 July 2008, todiscuss the interim trading update. To access the call, please dial 020 7190 1595. Please dial in 5 minutes prior tothe start of the conference call to allow time for registration. A recording ofthe conference call will be available until midnight on 16th July 2008,accessible on 020 7190 5901, passcode: 139925#. \* TEnquiries: Bovis Homes Group PLC David Ritchie, Chief Executive Neil Cooper, Group Finance Director Tel: 01474 876200 - after 9am Shared Value Limited Emily Bruning Tel: 0207 321 5027\* T Copyright Business Wire 2008Related Shares:
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