TIDMBVS
RNS Number : 0438D
Bovis Homes Group PLC
24 March 2014
Bovis Homes Group PLC - Annual Report and Accounts 2013
Annual Report and Accounts 2013, Notice of Annual General
Meeting, Proxy Card
Copies of the above documents have been submitted to the
National Storage Mechanism and will shortly be available for
inspection at www.hemscott.com/nsm.do
The documents are being mailed to shareholders and are available
on the Company's website at
www.bovishomesgroup.co.uk/annualreport2013
Annual Report and Accounts 2013 - publication required by DTR
6.3.5
The Company published its Preliminary Results for the year ended
31 December 2013 on 24 February 2014. In order to comply with DTR
6.3.5 it is now publishing, in unedited full text, information
contained in the annual financial report of a type required to be
disseminated in a half-yearly financial report. To maintain
coherence, this repeats some of the information contained in the
Preliminary Results announcement.
The full annual financial report is available on the Company's
website at www.bovishomesgroup.co.uk/annualreport2013
Bovis Homes Group PLC - Annual Report and Financial Statements
2013
Chairman's statement
The economic backdrop has shown signs of improvement over the
last year and this has been reflected in a recovery in the UK
housing market. The availability of mortgage finance is increasing
in terms of the number of mortgages being approved, and the rates
being charged on these mortgages are increasingly competitive.
Although indices report that UK house prices increased strongly in
2013, after excluding the effects of London, house price rises are
considered to have been modest across the country. However, the
Government has also provided positive assistance, particularly
through the Help to Buy scheme. As a result of these factors,
consumer confidence has improved.
With this improving backdrop, the management team at Bovis Homes
has produced a strong set of results in 2013, delivering the
targeted improvements in return on capital employed. The Group is
increasingly benefiting from the compound positive effects of
stronger volumes, higher average sales price and improving profit
margins, driving profits and return on capital employed higher. The
Group has also set the foundations for ongoing growth through its
carefully targeted land acquisition strategy, continued product
development and focus on balance sheet strength.
Financial performance
The Group delivered a strong increase in the return on capital
employed by 2.7 ppts to 10.4% in 2013 with both profit margins and
capital turn contributing to this improvement. The Group continues
to be well capitalised with a strong balance sheet with net debt at
the end of 2013 of GBP18 million.
Earnings per share and dividends
Basic earnings per share for the year have grown by 49% to
44.9p. Consistent with the intention to increase dividends
progressively as earnings per share increase, the Board will be
recommending a final dividend of 9.5p per share, which, when
combined with the 2013 interim dividend of 4.0p, totals 13.5p for
the year, an increase of 50% on the 2012 dividend. The final
dividend will be payable on 23 May 2014 to shareholders on the
register on 28 March 2014. It is the Board's intention to continue
to pursue this progressive dividend approach.
Future prospects
While delivering a strong profit result in 2013, the Group has
built a significantly improved forward sales position at the start
of 2014, which underpins volume growth for this year. With another
year of carefully targeted but assertive land investment in 2013
ahead of utilisation and a strong land pipeline going into 2014,
sales outlets are expected to grow during 2014 and 2015, supporting
further growth in reservation volumes. Assuming current market
conditions continue, the location of these new sales outlets and
the nature of the homes being developed is expected to further
increase the Group's average sales price and improve profit
margins. Together with a continued focus on balance sheet
efficiency, this is expected to deliver further strong growth in
both capital turn, profitability, and ultimately shareholder
returns.
People
The Board of directors has been delighted with the commitment
and skill shown by the Group's employees in delivering growth
during 2013 and, on behalf of the Board, I would like to thank them
for their dedication and hard work. The Board would also like to
extend its thanks to its subcontractors and suppliers.
Corporate governance
Bovis Homes is committed to high standards of corporate
governance, including those related to the role and effectiveness
of the Board and compliance with the UK Corporate Governance Code.
Details are set out in the corporate governance section on pages 33
to 41 of the annual report.
Corporate social responsibility
The Group remains committed to delivering strong Corporate
Social Responsibility performance. During 2013, the Group was able
to maintain its health and safety track record, as measured by
incidence rate, notwithstanding a significant increase in build
activity. In respect of customer satisfaction, 93% of customers
were happy to recommend Bovis Homes to their friends. Focus remains
high in the Group to make further improvements in both of these
important areas, as part of the overall Corporate Social
Responsibility strategy.
Conclusion
Looking ahead, I believe that the Group has the right strategy
in place to deliver enhanced, sustainable shareholder returns in
the years ahead and I look forward to working with the Board and
executive team to continue the Group's success.
Ian Tyler
Chairman
Chief Executive's Statement
The Group has continued to acquire high quality land assets in
the south of England and in prime locations in the midlands and
northwest, where it is considered the housing market will be more
robust. As a result, the Group has grown active sales outlets,
leading to higher volumes. With an increasing proportion of legal
completions from post downturn sites, average sales price and
profit margins have improved.
Furthermore through an improvement in the efficiency of capital
employed by active management of the land bank and work in
progress, the Group has increased its capital turn. The combination
of improved profitability and increased capital turn has delivered
a strong improvement in the Group's return on capital employed.
Bovis Homes aims to be a quality housebuilder delivering high
returns generated from a strong land bank, much of it strategically
sourced, and quality homes sold at a premium price. In order to
deliver improved returns, the following clear strategic objectives
for 2013 were set out and have been delivered:
-- Increase operating profits
-- Enhance future returns through targeted land investment
-- Improve efficiency of capital employed
As a result of delivering against these three strategic
objectives, the Group has achieved a significant increase in return
on capital employed to 10.4% in 2013 from 7.7% in 2012.
Additionally the Group has focussed on the following
objectives:
-- Deliver strong health, safety and environmental standards
-- Deliver a strong customer service experience
Increase operating profits
Operating profit increased in 2013 by 46% to GBP82.8 million, as
a result of the compound positive effect of an increased volume of
legal completions sold at a higher average sales price generating a
stronger profit margin.
During 2013, the Group achieved 2,773 private reservations, a
48% increase on the 1,873 achieved in 2012. Net private sales per
site per week increased by 34% to 0.59 (2012: 0.44), as a result of
the improving quality of the Group's active sales outlets and the
benefit of a recovering housing market. Active sales outlets
averaged 90 during 2013, an increase of 10% on the 82 achieved
during 2012.
One effect of the positive sales rate was that some sites were
completed more quickly than expected. Also certain sites were
launched later than anticipated due to planning delays. These two
factors led to the Group achieving a marginally lower average
number of active sales outlets than had been expected at the start
of 2013.
The higher level of private reservations enabled the Group to
deliver a 26% increase in private legal completions to 2,330 (2012:
1,854), as well as carrying forward a significantly enhanced
private forward order book of 692 private reservations, up from 249
at the beginning of 2013. This improved forward order book will
support the Group's volume ambitions for 2014 and enable the Group
to deliver a more balanced profile of legal completions through the
year, with an increased proportion of its full year legal
completions in the first half. Additionally, this will assist in
improving the working capital cycle of the Group through the
year.
During 2013, the Group supported new customers accessing the
housing market using the Government's Help to Buy shared equity
scheme. In the year new homes were handed over to 872 customers who
were able to use shared equity products, including the Help to Buy
scheme, as part of their home purchase. During 2012, shared equity
products (including Government backed schemes) were used to support
customers buying 535 new homes. The Group sees the Help to Buy
scheme as an attractive replacement for other shared equity
products.
483 social homes were legally completed in 2013 (2012: 501),
constituting 17% of total legal completions (2012: 21%). The Group
decided to prioritise private build over social, particularly
during Q4 2013, to ensure that private production was not
constrained by tightness in the supply of sub-contract labour or
materials lead times. At the beginning of 2014 the Group held 685
forward social reservations (2013: 529).
In aggregate the Group delivered 2,813 legal completions in
2013, a 19% increase on the 2,355 in 2012. To support this
significant increase in new home delivery, the Group increased its
construction output in 2013 by 26% to 2,935 homes (2012:
2,322).
The Group achieved a 13% increase in private average sales price
to GBP212,700 in 2013 (2012: GBP188,700). This has been driven
primarily by changes in the Group's product mix of private legal
completions with an increase in larger traditional two storey homes
and a decrease in townhouses. The Group considers that in its areas
of operation sales prices have increased by between 2% and 3% with
stronger gains in the south of England offset by modest movements
in the midlands and north of England. Including social homes, the
Group's average sales price was 14% higher at GBP195,100 (2012:
GBP170,700).
Housing gross margin increased from 22.6% in 2012 to 23.5% in
2013, resulting from the increased contribution from legal
completions on stronger margin sites acquired post the housing
market downturn. This margin progression was impacted by the
planned incremental year on year cost of circa GBP3.5 million to
promote strategic land assets.
The housing gross margin was also affected for the first time in
many years by increases in build costs, mainly from labour rates.
Increased activity in the new homes market has led to demand for
subcontract labour exceeding supply. As a result, subcontractors
have seen the ability to renegotiate at higher rates. Given the
timing of such increases, the Group has been able to limit the cost
impact well within the benefit from increasing sales prices.
As a result of the compound positive effect of volume growth,
higher average sales price and improved gross profit margin,
housing gross profit increased by 41% to GBP130.2 million (2012:
GBP92.1 million). With overheads well controlled, the operating
margin increased to 14.9% (2012*: 13.3%).
Enhance future returns through targeted land investment
The Group applies rigorous criteria for the acquisition of
consented land, reflecting not only the anticipated margin and
return on capital, but also site specific risks and geographic
concentration risk.
2013 was a successful year for land investment. The Group
continued to invest in high quality consented land assets,
retaining its focus on specific areas of search in the south of
England and prime locations in the midlands and northwest. During
the year the Group added 3,737 plots on 27 sites to the consented
land bank at a cost of GBP225 million (2012: 2,651 consented plots
at a cost of GBP161 million). The plots added have an estimated
future revenue of GBP841 million and an estimated future gross
profit potential of GBP216 million, based on current sales prices
and current build costs, and are expected to deliver a gross margin
of over 25% and a ROCE well in excess of the Group's 20% hurdle
rate. A further circa 2,800 plots on 12 sites were contracted at
the end of 2013, awaiting satisfaction of legal conditions.
In 2014 to date, circa 2,300 consented plots on nine sites have
been added to the consented land bank, many of these plots arising
from the successful completion of the contracts secured during
2013. Included in the sites added to date in 2014 is a major new
settlement at Sherford in Devon, where the Group owns 1,658
consented plots. The land cost of this site is very low, due to the
high level of infrastructure spend which is phased over the life of
the site. As a result, the peak funding on this long term major
project is expected to be between 1% and 2% of the Group's net
assets. Sherford will be an anchor site within the South West
region over many years and is expected to deliver a strong margin
and an excellent return on capital employed.
The consented land bank amounted to 14,638 plots as at 31
December 2013 (2012: 13,776). The Group estimates that the gross
profit potential on these consented plots at the 2013 year end,
based on current sales prices and current build costs, was GBP727
million with a gross margin of 24.2% (2012: GBP600 million at
22.7%).
At the year end, the consented land bank included 9,197
consented plots (63% of total), which have been acquired since the
housing market downturn (2012: 7,368 plots and 54% of total). The
average consented land plot cost was GBP45,800 at the start of 2013
and increased over the year to GBP48,900, as a result of a lower
number of written down plots held in the land bank (10% of land
plots versus 13% at the start of the year) and the addition of new
prime traditional housing sites where the average plot cost is
higher.
The strategic land bank at 31 December 2013 contained 20,108
potential plots (2012: 19,318). The Group converted circa 1,200
plots of strategic land having achieved consent during 2013. The
Group has continued to invest in new strategic land assets to
assist in replenishing its consented land bank at strong margins in
the future.
In addition, the Group has secured resolution to grant planning
consent on three of its major strategic land assets at Winnersh,
Witney and Bishops Stortford. These sites will deliver in aggregate
over 1,200 consented plots at a significant discount to market
value. Planning consents will be formally released once the
planning agreements for each site are signed. Good progress
continues to be made on a number of other major strategic projects,
where material promotion costs are being incurred to achieve
planning consents. This is expected to deliver significant numbers
of consented plots over the next few years.
Improve efficiency of capital employed
Improving capital turn is critical to the Group's ability to
deliver material growth in return on capital employed. Capital turn
has continued to improve from 0.5 in 2011 to 0.7 in 2013. The
consented land bank is the key element of capital employed. While
this has grown in size with the investments made by the Group, the
average number of plots per active sales outlet has continued to
decrease from 188 in 2011 to 158 in 2013. The average number of
plots per site acquired in 2013 was 138 plots, compared to 147 in
2012.
Work in progress turn increased to 2.7 times in 2013 from 2.5 in
2012. Notional units of production at the end of 2013 increased to
1,040 (2012: 918), as a result of the increase in active sales
outlets and to facilitate higher legal completion volumes in the
first half of 2014 over the first half of 2013. The value of work
in progress has increased to GBP202.3 million from GBP172.7
million.
With the land investment undertaken to date and the strength of
the ongoing land pipeline, the output capacity of the business is
expected to increase. On the basis of current market conditions,
capital turn should improve further in 2014 and beyond.
Deliver strong health, safety and environmental standards
The Group is committed to delivering strong health and safety
standards for its employees, subcontractors and other site
visitors. It maintains a high level of organisational focus on its
health and safety regime through comprehensive staff training,
clear and accountable management processes and through regular and
transparent reporting of performance.
This is overseen, firstly, through the operational line, which
takes day to day accountability for this area and, secondly, via a
Group-wide oversight committee with nominated regional directors
responsible for safety, run by the Group Director of Health and
Safety and chaired by a senior Group manager. The Group also seeks
to ensure that all of its employees and subcontractors who operate
at or visit sites carry a CSCS card, indicating its commitment to a
fully trained workforce.
As the Group increased its build activity by 26% during 2013,
the health and safety risk incidence rate across the business was
maintained positively at 22.4 (2012: 23.1), the lower rate meaning
stronger performance. This reflects a robust performance given the
magnitude of the increase in employee numbers and subcontractor
population during the year.
The Group set itself challenging targets at the start of 2013
with the ambition to further reduce health and safety risk
incidence over a five year period. Disappointingly, the performance
of the Group in the first year of this five year period was behind
target. The Group continues to develop its health and safety
processes and controls with the aim of improving performance in
line with the targets set for 2014. Health and safety will remain a
key focus for regional, divisional and Group management.
The Group continues to regard sustainable development as
critical to the long term creation of value for its shareholders.
The housebuilding industry has an important role to play both in
mitigating the impact of its building activities on the local
environment and in the evolution of building techniques and
advances, which reduce the carbon usage from new build
developments.
During 2013, the Group has continued to focus on waste in order
to drive down the quantity of waste produced in building a home.
The quantity of active waste generated per home in 2013 remained at
3.1 tonnes and the amount sent to landfill was reduced by 12%.
The Group works with a range of external stakeholders to agree
and carry out development in a mutually acceptable manner, thereby
ensuring that its developments take place in a way which mitigates
the impact on the local environment, thereby balancing the needs of
local communities for new housing with the requirement to avoid
environmental damage.
Looking forward, the Group is focusing on ways to ensure that
its products conform to good environmental standards, including the
Code for Sustainable Homes. During 2013, 1,036 of the Group's homes
were constructed to at least Code 3 of the Code for Sustainable
Homes. Reflecting the existing contribution that the Group makes to
the communities and environments in which it operates, the Group is
pleased to report that it continues to be a member of the FTSE4Good
index.
Given the nature of our business, scope of operations in the UK,
business relationships, supply chains and labour practices we have
not included information specifically about human rights in this
report. We have an Ethical Code of Conduct and an Equal
Opportunities policy which recognise the importance of high
standards and treating our employees fairly. All policies can be
found on the Company's website at www.bovishomesgroup.co.uk.
Further details of the Group's efforts and achievements during
2013 in regards to Corporate Social Responsibility will be
published in a separate report, available from the Company's
website (www.bovishomesgroup.co.uk).
Deliver a strong customer service experience for Bovis Homes
customers
The Group is focused on delivering its customers a high quality
home alongside a good level of service through the period the
customer is buying the home and thereafter as the customer enjoys
their new home. During 2013, 93% of customers reported that they
would recommend Bovis Homes to a friend and this was reinforced by
the award during February 2013 of a five star customer satisfaction
rating by the Home Builder Federation. During the course of 2013,
the Group's score in the Home Builder Federation customer
satisfaction survey has dropped marginally below the 90% benchmark
for the five star rating at 89%.
Whilst remaining a robust customer satisfaction score, the Group
was disappointed to see this deterioration in its external customer
satisfaction rating and the gap which has opened between this
external score and the customers' response to the Group's internal
customer satisfaction survey. The Group has reinforced its Customer
Journey processes across the business with the view to improving
its customer satisfaction performance.
The focus of the Group's customer communication has remained
digitally based during 2013, with the Group using the power of the
internet to directly market its products to consumers, utilising
internally generated mailing lists as well as via intermediaries
such as Rightmove and Zoopla. Over 70% of customer enquires
originate via the web.
IT connectivity is provided to the sales operations, enabling
efficient and effective customer communication and the utilisation
of an integrated CRM system. The selling process is supported by
the Group's bespoke prospect management system, which delivers
on-site technology whilst integrating the Group's prospect database
with brochure fulfilment.
Employee diversity
The following table shows the gender split within the Group as
at 31 December 2013. At Bovis Homes, 65% of the workforce is male,
a relatively common proportion in the construction and
housebuilding industries. While a lower proportion of senior
management and directors are female, the Group encourages and
supports gender diversity. As at 31 December 2013, there were five
senior managers (all male) who were directors of Group
subsidiaries.
Male Female
PLC Directors 6 0
Senior Managers 15 1
All employees 496 270
% 65% 35%
Structure
In anticipation of increasing activity levels in 2014 and
beyond, the Group is now operating from six regions in two
divisions with plans for two further regions to become operational
in the foreseeable future (previously the Group operated through a
three region structure). This new structure will provide the Group
with a business capacity of between 4,000 and 5,000 homes per
annum, whilst maintaining close alignment to the localities in
which it operates with significant local knowledge. The
geographical focus of the Group remains exactly as before, being in
the south of England and in prime locations in the midlands and
northwest. Although this change will lead to a limited increase in
the Group's overhead expenditure in absolute terms, overhead
efficiency is expected to continue to improve in 2014 and
beyond.
The two divisions, South and Central, are led by Divisional
Managing Directors, Malcolm Pink and Keith Carnegie respectively.
The strength and experience of the Group's existing senior
management is demonstrated by six of the eight regional managing
directors being internal appointments.
The Board
Colin Holmes has decided to retire from the Board at the 2014
Annual General Meeting to be held on 16 May 2014 after seven and a
half years as a non-executive director and seven years as
Remuneration Committee chairman. The Board would like to thank
Colin for his valuable contribution during his time on the Board.
Alastair Lyons will succeed as Remuneration Committee chairman
following the AGM.
Market conditions
Housing market conditions improved materially during 2013. An
increase in the number of mortgage products including a greater
availability of high loan to value mortgages has supported a
greater number of housing transactions. Bank of England mortgage
approvals statistics show a significant increase during the second
half of 2013 with monthly figures approaching a level more
reflective of a healthy housing market.
Homebuyer confidence appears to have improved materially with
more positive views on the future direction of house prices,
employment and security of earnings. With this improving backdrop,
trading conditions are expected to remain broadly positive during
2014, supporting sales rates and sales prices.
House prices have been rising at a modest rate across many
regional markets with stronger rises in the south of England,
offset by more modest changes in the midlands and north of England.
As expected, with activity and sales prices rising, the cost of
building houses is also rising as material suppliers enjoy
increased demand for their products and subcontractors see an
ability to increase rates.
The Government's Help to Buy shared equity product, launched in
April 2013, has provided strong impetus to the new build industry,
supporting first time buyers in particular. The Help to Buy
mortgage indemnity product was also launched in Q4 2013 and, given
it assists not just new build customers, the Group considers this
Government backed product to be further support to activity in the
wider housing market.
As a result of the positive activity in the housing market, the
support provided to banks to facilitate cost effective mortgage
lending via the Government's Funding for Lending Scheme is being
withdrawn. The Group views this development positively, as it
signals that the mortgage market is beginning to operate more
effectively without assistance.
Current trading
The Group entered 2014 with a forward sales order position of
1,377 homes, a 77% improvement on the 778 homes brought forward at
the start of 2013. Of these, 692 were private homes (2013: 249) and
685 were social (2013: 529).
The Group has delivered 468 private reservations in the first
seven weeks of 2014 (2013: 285), an increase of 64%. Operating from
an average of 93 active sales outlets during this period (2013:
90), the Group has achieved a sales rate per site per week of 0.72,
a 60% improvement on the 0.45 achieved in the comparable period in
2013. Sales prices achieved on these private reservations to date
have been ahead of the Group's expectations by circa 2%.
As at 21 February 2014, the Group held 1,875 sales for legal
completion in 2014, as compared to 1,064 sales at the same point in
2013, an increase of 76%. Of these, private sales amounted to 1,160
homes (2013: 534), with social housing sales of 715 homes (2013:
530).
Build to Rent scheme - private rental sector
In 2012, the Government announced its Build to Rent scheme, with
the intention of providing funding support to assist in the
establishment of PRS vehicles. Whilst not yet contracted, the Group
has agreed terms and is at an advanced stage in finalising
agreements to deliver new homes under two separate PRS transactions
on sites owned by the Group, each using support from the
Government's scheme.
The two transactions involve approximately 500 homes, of which
circa 250 would legally complete in 2014 with the remainder in
2015. The profit delivery combined with the acceleration of capital
turn enabled by these transactions would act as a further positive
contributor to increasing the Group's return on capital employed in
both 2014 and 2015.
Outlook
The successful continued execution of the growth strategy in
2013 has positioned the Group strongly to continue to grow in 2014
and beyond.
The sales achieved in 2014 to date combined with the expected
growth in active sales outlets should enable the Group to deliver a
strong increase in total reservations during 2014, assuming current
market conditions continue. From these reservations excluding any
potential volume arising from the PRS transactions (250 homes in
2014), the Group aims to deliver between 3,400 and 3,600 legal
completions in 2014 and a stronger forward order book for 2015.
This legal completion volume will represent major growth in the
Group's output and will require a material increase in build
activity compared to 2013. During a period of constrained capacity
in the material and labour supply markets, build costs for 2014
legal completions are expected to increase by between 3% and 5%.
However with a continuing tight focus on the Group's operational
performance, market rises in sales prices are expected to at least
cover such cost increases.
The Group expects further growth in the proportion of legal
completions from post downturn sites to increase both the average
sales price and housing gross margin in 2014. When combined with
improving overhead efficiency, the operating margin is expected to
increase to approximately 17%.
With a clear focus on controlling the capital employed of the
Group through management of the land bank and control of working
capital, improving capital turn is expected to be at least 0.8 in
2014. Based on current market conditions continuing and excluding
any potential volume arising for the PRS transactions, the Group
expects to deliver a strong increase in return on capital employed
to at least 14% in 2014 with the expectation of further progress
thereafter.
David Ritchie
Chief Executive
Financial Review
Revenue
During 2013, the Group generated total revenue of GBP556.0
million, an increase of 31% on the previous year (2012: GBP425.5
million). Housing revenue in 2013 was GBP548.7 million, 36% ahead
of the prior year (2012: GBP402.0 million) and other income was
GBP4.3 million (2012: GBP5.7 million). Land sales revenue,
associated with one land sale and the recognition of deferred
income on land sales legally completed in prior years, was GBP3
million in 2013, compared to three land sales achieved in 2012 with
a total revenue of GBP17.8 million.
Operating profit
The Group delivered a 46% increase in operating profit for the
year ended 31 December 2013 to GBP82.8 million (2012*: GBP56.7
million) at an operating margin of 14.9% (2012*: 13.3%). Housing
operating margin in 2013 was 15.0% (2012: 12.7%) and reached 16.8%
in the second half of 2013.
Housing gross margin increased to 23.5% in 2013 from 22.6% in
2012. The gross margin benefited from the increased contribution
from legal completions on sites acquired post the housing market
downturn. As previously disclosed, the Group increased the
promotional expenditure on strategic land by circa GBP3 million in
2013 over 2012, which held back the year on year margin growth.
This level of cost incurred in 2013 to promote strategic land is
expected to remain relatively stable during 2014.
The profit on land sales in 2013 was GBP0.1 million (2012
benefited from a material profit of GBP4.8 million at a margin of
27%). Total gross profit was GBP130.3 million (gross margin:
23.4%), compared with GBP96.9 million (gross margin: 22.8%) in
2012.
Overheads, including all sales and marketing costs, increased in
2013 by 18%, as the Group invested early to support the large
number of land assets acquired and the increased number of sales
outlets. The overheads to revenue ratio improved to 8.5% in 2013
from 9.5% in 2012*.
Profit before tax and earnings per share
Profit before tax increased by 48% to GBP78.8 million,
comprising operating profit of GBP82.8 million, net financing
charges of GBP4.3 million and a profit from joint ventures of
GBP0.3 million. This compares to GBP53.2 million of profit before
tax in 2012*, comprising GBP56.7 million of operating profit,
GBP3.7 million of net financing charges and a profit from joint
ventures of GBP0.2 million. Basic earnings per share for the year
improved by 49% to 44.9p compared to 30.2p in 2012*.
Financing
Net financing charges during 2013 were GBP4.3 million (2012*:
GBP3.7 million). Net bank charges were GBP3.5 million (2012: GBP2.6
million), as a result of higher net debt during 2013 compared to
2012. The Group incurred a GBP3.1 million finance charge (2012:
GBP3.1 million charge), reflecting the imputed interest on land
bought on deferred terms. The Group also benefited from a finance
credit of GBP2.3 million (2012: GBP1.7 million) arising from the
unwinding of the discount on its available for sale financial
assets during 2013. There were GBP0.3 million of other financing
credits during 2012.
Taxation
The Group has recognised a tax charge of GBP18.7 million at an
effective tax rate of 23.7% (2012*: tax charge of GBP13.1 million
at an effective rate of 24.5%). The Group has a current tax
liability of GBP9.2 million in its balance sheet as at 31 December
2013 (2012*: current tax liability of GBP5.7 million).
Dividends
Given the ongoing material improvement in the Group's
performance and the confidence of the Board in the continued
delivery of the Group's strategy, the Board has proposed a 2013
final dividend of 9.5p per share. This dividend will be paid on 23
May 2014 to holders of ordinary shares on the register at the close
of business on 28 March 2014. The dividend reinvestment plan gives
shareholders the opportunity to reinvest their dividends in
ordinary shares.
Combined with the interim dividend paid of 4.0p, the dividend
for the full year totals 13.5p compared to a total of 9.0p paid in
2012, an increase of 50%. The Board expects to grow dividends
progressively as earnings per share increase.
Net assets
2013 2012*
GBPm GBPm
------------------------------------------------ ------ -----
Net assets at 1 January 758.8 728.6
Profit after tax for the year 60.1 40.2
Share capital issued 1.0 0.6
Net actuarial movement on pension scheme
through reserves 2.9 (2.7)
Deferred tax on other employee benefits - (0.1)
Adjustment to reserves for share based payments 0.8 0.9
Dividends paid to shareholders (13.3) (8.7)
------------------------------------------------- ----- -----
Net assets at 31 December 810.3 758.8
------------------------------------------------- ----- -----
*Adjusted for IAS19R
As at 31 December 2013 net assets of GBP810.3 million were
GBP51.5 million higher than at the start of the year. Inventories
increased during the year by GBP107.4 million to GBP971.0 million.
The value of residential land, the key component of inventories,
increased by GBP84.2 million, as the Group invested ahead of usage.
At the end of 2013, the remaining provision held against land
carried at net realisable value was GBP19.9 million, after
utilisation of GBP8.7 million during the year. Other movements in
inventories were an increase in work in progress of GBP29.5
million, offset by a decrease in part exchange properties of GBP6.3
million.
Trade and other receivables reduced by GBP23.1 million, with a
reduction in debtors related to land sales of GBP12.7 million and
lower amounts owing from housing associations. Available for sale
financial assets held as current assets at 2012 year end of GBP7.2
million, relating to units held in an investment fund into which
the Group sold show home properties, were fully recovered during
2013. Trade and other payables totalling GBP242.6 million (2012:
GBP249.3 million) comprised land creditors of GBP123.8 million
(2012: GBP123.8 million) and trade and other creditors of GBP118.8
million (2012: GBP125.5 million). Net assets per share as at 31
December 2013 were 604p (2012: 567p).
Pensions
Taking into account the latest estimates provided by the Group's
actuarial advisors, the Group's pension scheme on an IAS19R basis
had a surplus of GBP3.2 million at 31 December 2013 (2012*: deficit
of GBP3.2 million). Scheme assets grew over the year to GBP94.7
million from GBP85.2 million and the scheme liabilities increased
to GBP91.5 million from GBP88.4 million. Scheme assets benefited
from a GBP2.8 million special cash contribution made by the Group
in December 2013.
As at 30 June 2013, an actuarial valuation was undertaken on
behalf of the pension scheme trustee, which showed a deficit of
GBP12.8 million at that date. The difference to the IAS19R basis
results from more conservative assumptions on discount rate and
mortality, as well as the additional special cash contribution of
GBP2.8 million made during December 2013. A new schedule of
contributions is in the process of being agreed between the Group
and the pension scheme trustee.
Net cash and cash flow
Having started the year with a net cash balance of GBP18.8
million, the Group generated an operating cash inflow before land
expenditure of GBP204 million (2012: GBP130 million), demonstrating
the strong underlying cash generation from the Group's existing
assets. Net cash payments for land investment were GBP203 million
(2012: GBP139 million). Non-trading cash outflow was GBP38 million.
As at 31 December 2013 the Group's net debt balance was GBP18.0
million with GBP12.0 million of cash in hand, offset by a drawn
term loan of GBP25.0 million, GBP4.8 million of loans received from
the Government and GBP0.2 million being the fair value of an
interest rate swap.
At the 31 December 2013, the Group had in place a committed
revolving credit facility of GBP175 million, of which GBP50 million
expires in December 2015 and GBP125 million in March 2017.
Additionally the Group had a fully drawn three year term loan of
GBP25 million, repayable in January 2016.
Financial risk and liquidity
The Group largely sees three categories of financial risk:
interest rate risk, credit risk and liquidity risk. Currency risk
is not a consideration as the Group trades exclusively in the
UK.
With regard to interest rate risk, the Group from time to time
will enter into hedge instruments to ensure that the Group's
exposure to excessive fluctuations in floating rate borrowings is
adequately hedged. The Group does not have a defined policy for
interest rate hedging.
Credit risk is largely mitigated by the fact that the Group's
sales are generally made on completion of a legal contract at which
point monies are received in return for transfer of title. During
2013, the Group made a limited number of sales with the provision
of a shared equity investment by the Group as a key part of the
Group's sales incentive packages, either via the Government
'FirstBuy' scheme or via the Group's own 'Jumpstart' scheme. This
has led to a limited increase in the size of the Group's long term
receivable Available for Sale Financial Asset balance which at 31
December 2013 was GBP44.8 million versus GBP43.9 million at 31
December 2012.
Whilst this does represent an increase in credit risk in total,
each individual credit exposure is small given the high number of
counter parties. On average, individual shared equity exposure
amounts to GBP21,000 (2012: GBP20,000).
Details of the Group's financing arrangements are included
above. The Group regards this new facility as adequate in terms of
both flexibility and liquidity to cover its medium term cash flow
needs.
Financial reporting
The Group has adopted IAS19 (Revised 2011) "Employee Benefits",
which outlines the accounting requirements for employee benefits.
The application of IAS19 (Revised 2011) has resulted in the
interest cost and expected return on assets being replaced by a net
interest charge/credit on the net defined benefit pension
liability/ surplus. Certain costs previously recorded as part of
finance costs or other comprehensive income have now been presented
within administrative expenses. The comparative period has been
restated with profit being GBP0.7 million lower and other
comprehensive income GBP0.7 million higher including the tax impact
of the changes. The impact on both basic and diluted earnings per
share was a reduction of 0.5 pence. The Group records actuarial
adjustments immediately so there has been no effect on the prior
year pension deficit.
Other than IAS19R, there have been no changes to the Group's
accounting policies. These accounting policies will be disclosed in
full within the Group's forthcoming financial statements.
Jonathan Hill
Group Finance Director
Statement of directors' responsibilities in respect of the
annual report and the financial statements
The directors are responsible for preparing the annual report,
the directors' remuneration report and the Group and Parent Company
financial statements, in accordance with applicable law and
regulations.
Company law requires the directors to prepare Group and Parent
Company financial statements for each financial year. Under that
law the directors are required to prepare the Group financial
statements in accordance with IFRSs as adopted by the EU and
applicable law and have elected to prepare the Parent Company
financial statements on the same basis.
Under company law, the directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and Parent Company and of
their profit or loss for that period.
In preparing each of the Group and Parent Company financial
statements, the directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgments and estimates that are reasonable and prudent;
-- for the Group and Parent Company financial statements, state
whether they have been prepared in accordance with IFRSs as adopted
by the EU;
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and the Parent
Company will continue in business.
The directors confirm that they have complied with the above
requirements in preparing the financial statements. The directors
also confirm that they consider the annual report and accounts,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Group and
Parent Company's performance, business model and strategy.
The directors are responsible for keeping proper accounting
records that are sufficient to show and explain the Parent
Company's transactions and disclose with reasonable accuracy at any
time the financial position of the Parent Company and enable them
to ensure that its financial statements comply with the Companies
Act 2006. They have general responsibility for taking such steps as
are reasonably open to them to safeguard the assets of the Group
and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the directors are also
responsible for preparing a strategic report, a directors' report,
a directors' remuneration report and a report on corporate
governance that comply with that law and those regulations.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
Each of the directors, whose names and functions are listed on
page 32 of the annual report confirm that, to the best of their
knowledge:
a) the Group and Parent Company financial statements, which have
been prepared in accordance with IFRS as adopted by the EU, IFRIC
interpretation and those parts of the Companies Act 2006 applicable
to companies reporting under IFRS, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the
Company and of the Group taken as a whole; and
b) the strategic report includes a fair, balanced and
understandable review of the development and performance of the
business and the position of the Company and the Group taken as a
whole, together with a description of the principal risks and
uncertainties they face.
By Order of the Board
M T D Palmer
Group Company Secretary
21 February 2014
Bovis Homes Group PLC
Group income statement
For the year ended 31 December 2012
2013 restated
- note 8
GBP000 GBP000
---------------------------------------- -------- ---------
Revenue 556,000 425,533
Cost of sales (425,693) (328,634)
---------------------------------------- -------- ---------
Gross profit 130,307 96,899
Administrative expenses (47,476) (40,186)
---------------------------------------- -------- ---------
Operating profit before financing costs 82,831 56,713
Financial income 2,815 2,203
Financial expenses (7,134) (5,926)
---------------------------------------- -------- ---------
Net financing costs (4,319) (3,723)
Share of profit of joint venture 283 254
Profit before tax 78,795 53,244
Income tax expense (18,727) (13,051)
---------------------------------------- -------- ---------
Profit for the period attributable
to equity holders of the parent 60,068 40,193
---------------------------------------- -------- ---------
Earnings per share
---------------------------------------- -------- ---------
Basic 44.9p 30.2p
Diluted 44.8p 30.1p
---------------------------------------- -------- ---------
Group statement of comprehensive income
For the year ended 31 December 2012
2013 restated
- note 8
GBP000 GBP000
------------------------------------------------------- ------ ---------
Profit for the period 60,068 40,193
Other comprehensive income
Items that will not be reclassified to profit
and loss:
Actuarial gains / (losses) on defined benefit
pension scheme 3,693 (3,500)
Deferred tax on actuarial movements on defined
benefit pension scheme (748) 797
Total comprehensive income for the period attributable
to equity holders of the parent 63,013 37,490
------------------------------------------------------- ------ ---------
Bovis Homes Group PLC
Group balance sheet
At 31 December 2012
2013 restated
- note 8
GBP000 GBP000
------------------------------------ --------- ---------
Assets
Property, plant and equipment 13,526 11,910
Investments 5,089 5,387
Restricted cash 1,823 1,152
Deferred tax assets 1,451 2,881
Trade and other receivables 1,560 1,930
Available for sale financial assets 44,844 43,869
Retirement benefit asset 3,237 -
Total non-current assets 71,530 67,129
------------------------------------ --------- ---------
Inventories 971,016 863,597
Trade and other receivables 41,713 64,844
Available for sale financial assets - 7,119
Cash and cash equivalents 12,025 24,396
Total current assets 1,024,754 959,956
------------------------------------ --------- ---------
Total assets 1,096,284 1,027,085
------------------------------------ --------- ---------
Equity
Issued capital 67,048 66,908
Share premium 213,428 212,550
Retained earnings 529,786 479,391
------------------------------------ --------- ---------
Total equity attributable to equity
holders of the parent 810,262 758,849
------------------------------------ --------- ---------
Liabilities
Bank and other loans 30,064 5,606
Other financial liabilities - 706
Trade and other payables 29,631 50,681
Retirement benefit obligations - 3,171
Provisions 2,052 1,668
------------------------------------ --------- ---------
Total non-current liabilities 61,747 61,832
------------------------------------ --------- ---------
Trade and other payables 212,926 198,620
Other financial liabilities 784 -
Provisions 1,411 2,065
Current tax liabilities 9,154 5,719
Total current liabilities 224,275 206,404
------------------------------------ --------- ---------
Total liabilities 286,022 268,236
------------------------------------ --------- ---------
Total equity and liabilities 1,096,284 1,027,085
------------------------------------ --------- ---------
These financial statements were approved by the Board of
directors on 21 February 2014.
Bovis Homes Group PLC
Group statement of changes in equity
Total Issued Share Total
For the year ended 31 December retained capital premium
earnings
GBP000 GBP000 GBP000 GBP000
------------------------------- --------- ------- ------- -------
Balance at 1 January 2012 449,671 66,836 212,064 728,571
Total comprehensive income
and expense 37,490 - - 37,490
Issue of share capital - 72 486 558
Deferred tax on other employee
benefits 33 - - 33
Share based payments 861 - - 861
Dividends paid to shareholders (8,664) - - (8,664)
Balance at 31 December
2012 479,391 66,908 212,550 758,849
------------------------------- --------- ------- ------- -------
Balance at 1 January 2013 479,391 66,908 212,550 758,849
Total comprehensive income
and expense 63,013 - - 63,013
Issue of share capital - 140 878 1,018
Deferred tax on other employee
benefits (23) - - (23)
Share based payments 766 - - 766
Dividends paid to shareholders (13,361) - - (13,361)
Balance at 31 December
2013 529,786 67,048 213,428 810,262
------------------------------- --------- ------- ------- -------
Bovis Homes Group PLC
Group statement of cash flows
For the year ended 31 December 2013 2012
restated
- note 8
restated
GBP000 - note 8
GBP000
------------------------------------------- -------- ---------
Cash flows from operating activities
Profit for the year 60,068 40,193
Depreciation 1,180 906
Impairment of available for sale financial
assets (47) 889
Financial income (2,815) (2,203)
Financial expense 7,134 5,926
Profit on sale of property, plant and
equipment (24) (14)
Equity-settled share-based payment
expense 766 861
Income tax expense 18,727 13,051
Share of result of joint venture (283) (254)
Decrease / (increase) in trade and
other receivables 28,737 (3,587)
Increase in inventories (107,419) (65,841)
(Decrease) / increase in trade and
other payables (4,911) 1,093
Decrease in provisions and retirement
benefit obligations (2,845) (2,401)
------------------------------------------- -------- ---------
Cash generated from operations (1,732) (11,381)
Interest paid (5,781) (1,707)
Income taxes paid (14,634) (9,922)
------------------------------------------- -------- ---------
Net cash from operating activities (22,147) (23,010)
------------------------------------------- -------- ---------
Cash flows from investing activities
Interest received 269 773
Acquisition of property, plant and
equipment (2,802) (1,213)
Proceeds from sale of plant and equipment 30 25
Movement in loans with Joint Venture 360 -
Dividends received from Joint Venture 267 243
Investment in restricted cash (671) (493)
Net cash from investing activities (2,547) (665)
------------------------------------------- -------- ---------
Cash flows from financing activities
Dividends paid (13,361) (8,664)
Proceeds from the issue of share capital 1,018 558
Increase in borrowings 24,666 -
Net cash from financing activities 12,323 (8,106)
------------------------------------------- -------- ---------
Net decrease in cash and cash equivalents (12,371) (31,781)
Cash and cash equivalents at 1 January 24,396 56,177
------------------------------------------- -------- ---------
Cash and cash equivalents at 31 December 12,025 24,396
------------------------------------------- -------- ---------
Notes to the financial statements
1 General information
Bovis Homes Group PLC (the "Company") is a company domiciled in
the United Kingdom. The consolidated financial statements of the
Company for the year ended 31 December 2013 comprise the Company
and its subsidiaries (together referred to as the "Group") and the
Group's interest in associates and joint ventures.
The financial statements were authorised for issue by the
directors on 21 February 2014.
The financial information set out above does not constitute the
company's statutory financial statements for the years ended 31
December 2013 or 2012 but is derived from those financial
statements. Statutory financial statements for 2012 have been
delivered to the registrar of companies, and those for 2013 will be
delivered in due course. The auditors have reported on those
financial statements; their reports were (i) unmodified, (ii) did
not include a reference to any matters to which the auditors drew
attention by way of emphasis without modifying their report and
(iii) did not contain a statement under section 498 (2) or (3) of
the Companies Act 2006.
2 Basis of accounting
The consolidated financial statements of the Company and the
Group have been prepared in accordance with International Financial
Reporting Standards as adopted by the EU (adopted IFRS) and its
interpretations as adopted by the International Accounting
Standards Board (IASB). On publishing the Company financial
statements here together with the Group financial statements, the
Company is taking advantage of the exemption in s408 of the
Companies Act 2006 not to present its individual income statement
and related notes that form a part of these approved financial
statements.
The accounting policies set out below have been applied
consistently to all relevant periods presented in these
consolidated financial statements. The accounting policies have
been applied consistently to the Company and the Group where
relevant.
The financial statements are prepared on the historical cost
basis except for derivative financial instruments and available for
sale financial assets.
3 Going concern
The Directors are satisfied that the Group has sufficient
resources to continue in operation for the foreseeable future. The
Directors reviewed detailed financial and covenant compliance
forecasts covering the period to December 2014 and summary
financial forecasts for the following two years.
As at 31 December 2013 the Group held cash and cash equivalents
of GBP12.0 million and had total borrowings of GBP30.1 million. On
29 January 2013 the Group entered into a GBP125 million committed
revolving credit facility expiring in March 2017 and a three year
term loan of GBP25 million expiring in January 2016. This financing
arrangement replaced the Group's previous GBP150 million committed
revolving credit facility. During August 2013, the committed
revolving credit facility was increased by an additional GBP50
million, expiring on 31 December 2015. As at 31 December 2013, the
full GBP175 million was available for drawdown.
For these reasons, the Directors consider it appropriate to
prepare the financial statements of the Group on a going concern
basis.
4 Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company
(its subsidiaries) made up to 31 December. Control is achieved
where the Company has the power to govern the financial and
operating policies of an entity so as to obtain benefits from its
activities. The existence and effect of potential voting rights
that are currently exercisable or convertible are considered when
assessing whether the Group controls another entity. The financial
statements of subsidiaries are included in the consolidated
financial statements from the date that control commences until the
date that control ceases.
Associates are those entities in which the Group has significant
influence, but not control, over the financial and operating
policies. The consolidated financial statements include the Group's
share of the total recognised gains and losses of associates on an
equity accounted basis, from the date that significant influence
commences until the date that significant influence ceases.
Joint ventures are those entities in which the Group has joint
control over the financial and operating policies. The consolidated
financial statements include the Group's share of the total
recognised gains and losses of joint ventures on an equity
accounted basis, from the date that joint control commenced until
joint control ceases.
5 Critical accounting judgements and key sources of estimation uncertainty
The preparation of financial statements in conformity with
adopted IFRSs requires management to make judgements, estimates and
assumptions that affect the application of policies and reported
amounts of assets and liabilities, income and expenses. The
estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
Judgements made by management in the application of adopted
IFRSs that have significant effect on the financial statements and
estimates with a significant risk of material adjustment in the
next year are discussed below.
Key sources of estimation uncertainty
Land held for development and housing work in progress
The Group holds inventories which are stated at the lower of
cost and net realisable value. To assess the net realisable value
of land held for development and housing work in progress, the
Group completes a financial appraisal of the likely revenue which
will be generated when these inventories are combined as
residential properties for sale and sold. Where the financial
appraisal demonstrates that the revenue will exceed the costs of
the inventories and other associated costs of constructing the
residential properties, the inventories are stated at cost. Where
the assessed revenue is lower, the extent to which there is a
shortfall is written off through the income statement leaving the
inventories stated at a realisable value. To the extent that the
revenues which can be generated change, or the final cost to
complete for the site varies from estimates, the net realisable
value of the inventories may be different. A review taking into
account estimated achievable net revenues, actual inventory and
costs to complete as at 21 February 2014 has been carried out,
which has identified no material net movement in the carrying value
of the provision. These estimates were made by local management
having regard to actual sales prices, together with competitor and
marketplace evidence, and were further reviewed by Group
management. Should there be a future significant decline in UK
house pricing, then further write-downs of land and work in
progress may be necessary. Further details on the carrying value of
inventories is laid out in note 3.1 of the annual report.
Available for sale financial assets
The estimation of the fair value of available for sale financial
assets requires judgement and estimation as to the quantum, timing
and value of repayment of the Group's receivable, as well as to the
choice of instrument-specific market-assessed interest rate used to
determine a discount rate. Note 4.6 of the annual report contains a
sensitivity analysis showing the impact of a change in the major
judgement factors applied in the valuation of these
instruments.
6 Segment reporting
As the Group's main operation is that of a housebuilder and it
operates entirely within the United Kingdom, there are no separate
segments, either business or geographic, to disclose, having taken
into account the aggregation criteria provisions of IFRS8.
7 Exceptional items
Items that are both material in size and unusual or infrequent
in nature are presented as exceptional items in the income
statement. The Directors are of the opinion that the separate
recording of exceptional items provides helpful information about
the Group's underlying business performance. Examples of events
that, inter alia, may give rise to the classification of items as
exceptional are the restructuring of existing and newly-acquired
businesses, gains or losses on the disposal of businesses or
individual assets and asset impairments, including currently
developable land, work in progress and goodwill.
8 Impact of standards and interpretations effective for the first time
The Group has adopted the following new standards and amendments
to standards, including any consequential amendments to other
standards, with a date of initial application of 1 January
2013:
IFRS13 establishes a single framework for measuring fair value
and making disclosures about fair value measurements, when such
measurements are required or permitted by other IFRSs. In
particular, it unifies the definition of fair value as the price at
which an orderly transaction to sell an asset or to transfer a
liability would take place between market participants at the
measurement date. In accordance with the transitional provisions of
IFRS13, the Group has applied the new fair value measurement
guidance prospectively, and has not provided any comparative
information for new disclosures.
IAS19 (Revised 2011) "Employee Benefits" outlines the accounting
requirements for employee benefits. The Standard establishes the
principle that the cost of providing employee benefits should be
recognised in the period in which the benefit is earned by the
employee, rather than when it is paid or payable, and outlines how
each category of employee benefits are measured, providing detailed
guidance in particular about post-employment benefits. This impacts
the measurement of various components representing movements in the
defined benefit pension obligation and associated disclosures, but
not the Group's total obligation.
The application of IAS19 (Revised 2011) has resulted in the
interest cost and expected return on assets being replaced by a net
interest charge/credit on the net defined benefit pension
liability/surplus. Certain costs previously recorded as part of
finance costs or other comprehensive income have now been presented
within administrative expenses.
The comparative period has been restated with profit being
GBP0.7 million lower and other comprehensive income GBP0.7 million
higher including the tax impact of the changes. The impact on both
basic and diluted earnings per share was a reduction of 0.5 pence.
The Group records actuarial adjustments immediately so there has
been no effect on the prior year pension deficit.
The other standards and interpretations that are applicable for
the first time in the Group's financial statements for the year
ended 31 December 2013, have no effect on these financial
statements.
9 Impact of standards and interpretations in issue but not yet effective
A number of new standards, amendments to standards and
interpretations are not yet effective for the year ended 31
December 2013, and have not been applied in preparing these
consolidated financial statements. Comments on specific new
standards or amendments are as follows:
IFRS10 'Consolidated Financial Statements', IFRS 11 'Joint
Arrangements', IFRS 12 'Disclosure of interest in Other Entities',
IAS27 (Revised) 'Separate Financial Statements' and IAS28 (Revised)
'Investments in Associates and Joint Ventures' all cover various
aspects of Group Financial Statements but are not expected to have
a significant impact on the Group.
Amendment to IAS32 will apply to the Group from 1 January 2014.
This amendment provides guidance on the application of offsetting
in financial statements. The Group is currently assessing the
impact of the standard on the Group's results and financial
position.
IFRS9 'Financial Instruments' was reissued in October 2010 as
the second step in the IASB project to replace IAS39 'Financial
Instruments: Recognition and Measurement'. IFRS9 (2010) now
includes new requirements for classifying and measuring financial
assets and financial liabilities and the derecognition of financial
instruments. The IASB is continuing the process of expanding IFRS9
to add new requirements for impairment and hedge accounting. In
November 2013 the IASB officially removed the previous mandatory
effective date (i.e. 1 January 2015) and decided that it would be
no earlier than 1 January 2015. The Group is currently assessing
the impact of the standard on the Group's results and financial
position and will continue to assess the impact as the standard is
revised by the IASB.
The Group has not early adopted any standard, amendment or
interpretation. Of the above, IFRS9 'Financial Instruments' has not
yet been endorsed by the EU.
10 Accounting Policies
Revenue
Revenue comprises the fair value of consideration received or
receivable, net of value-assessed tax, rebated and discounts.
Revenue does not include the value of the onward legal completion
of properties accepted in part exchange against a new property. The
net gain or loss arising from the legal completion of these part
exchange properties is recognised in cost of sales.
Revenue is recognised once the value of the transaction can be
reliably measured and the significant risks and rewards of
ownership have been transferred. Revenue is recognised on house
sales at legal completion. Revenue is recognised on land sales and
commercial property sales from the point of unconditional exchange
of contracts. For affordable housing sales in bulk, revenue is
recognised upon practical completion.
Where land is sold with material development obligations, the
recognition of revenue and profit is deferred until the work is
complete.
Rental income is recognised in the income statement on a
straight-line basis over the term of the lease. Lease incentives
granted are recognised as an integral part of the total rental
income.
Inventories
Inventories are stated at the lower of cost and net realisable
value. Cost comprises direct materials and, where applicable,
direct labour costs and those overheads, not including any general
administrative overheads, that have been incurred in bringing the
inventories to their present location and condition. Net realisable
value represents the estimated net selling price less estimated
total costs of completion of the finished goods.
Land held for development, including land in the course of
development until legal completion of the sale of the asset, is
initially recorded at cost along with any expected overage. Where,
through deferred purchase credit terms, cost differs from the
nominal amount which will actually be paid in settling the deferred
purchase terms liability, an adjustment is made to the cost of the
land, the difference being charged as a finance cost.
Options purchased in respect of land are capitalised initially
at cost. Regular reviews are completed for impairment in the value
of these options, and provisions made accordingly to reflect loss
of value. The impairment reviews consider the period elapsed since
the date of purchase of the option given that the option contract
has not been exercised at the review date. Further, the impairment
reviews consider the remaining life of the option, taking account
of any concerns over whether the remaining time available will
allow successful exercise of the option. The carrying cost of the
option at the date of exercise is included within the cost of land
purchased as a result of the option exercise.
Investments in land without the benefit of planning consent,
either through purchase of freehold land or non refundable deposits
paid on land purchase contracts subject to residential planning
consent, are capitalised initially at cost. Regular reviews are
completed for impairment in the value of these investments, and
provision made to reflect any irrecoverable element. The impairment
reviews consider the existing use value of the land and assesses
the likelihood of achieving residential planning consent and the
value thereof.
Ground rents are held at an estimate of cost based on a multiple
of ground rent income, with a corresponding credit created against
cost of sales, in the year in which the ground rent first becomes
payable by the leasehold purchaser.
Trade and other receivables
Trade receivables do not carry any interest and are stated at
their nominal value as reduced by appropriate allowances for
estimated irrecoverable amounts.
Trade payables
Trade payables on normal terms are not interest bearing and are
stated at their nominal value.
Trade payables on extended terms, particularly in respect of
land, are recorded at their fair value at the date of acquisition
of the asset to which they relate. The discount to nominal value
which will be paid in settling the deferred purchase terms
liability is recognised over the period of the credit term and
charged to finance costs using the effective interest rate
method.
Government Grants
Government grants are recognised in the income statement so as
to match with the related costs that they are intended to
compensate. Government grants are included within deferred
income.
Interest-bearing bank loans and overdrafts are initially
recorded at fair value, net of direct issue costs, and subsequently
at amortised cost.
Finance charges are accounted for on an accrual basis to the
income statement using the effective interest method and are added
to the carrying amount of the instrument to the extent that they
are not settled in the period in which they arise.
Cash and cash equivalents
Cash and cash equivalents comprises cash balances and call
deposits. Bank overdrafts that are repayable on demand and form an
integral part of the Group's cash management are included as a
component of cash and cash equivalents for the purpose of the
statement of cash flows.
Available for sale assets
Receivables on extended terms granted as part of a sales
transaction are secured by way of a legal charge on the relevant
property, categorised as an available for sale financial asset, and
are stated at fair value. Gains and losses arising from changes in
fair value are recognised directly in equity in retained earnings,
with the exceptions of impairment losses, the impact of changes in
future cash flows and interest calculated using the 'effective
interest rate' method, which are recognised directly in the income
statement. Where the investment is disposed of, or is determined to
be impaired, the cumulative gain or loss previously recognised in
equity is included in the income statement for the period. Given
its materiality, this item is being disclosed separately on the
face of the balance sheet.
Available for sale financial assets relate to legal completions
where the Group has retained an interest through agreement to defer
recovery of a percentage of the market value of the property,
together with a legal charge to protect the Group's position. The
Group participates in three schemes. 'Jumpstart' schemes are
receivable 10 years after recognition with 3% interest charged
between years 6 to 10. The 'HomeBuy Direct' and 'FirstBuy' schemes
are operated together with the Government. Receivables are due 25
years after recognition with interest charged from year 6 onwards
at a base value of 1.75% plus annual RPI increments. These assets
are held at fair value being the present value of expected future
cash flows taking into account the estimated market value of the
property at the estimated date of recovery.
Bank Borrowings
The benefit on loans with an interest rate below market is
calculated as the difference between interest at a market rate and
the below market interest. The benefit is treated as a Government
grant.
Net financing costs
Finance costs are included in the measurement of borrowings at
their amortised cost to the extent that they are not settled in the
period in which they arise.
The Group is required to capitalise borrowing costs directly
attributable to the acquisition, construction and production of a
qualifying asset, as part of the costs of that asset. Inventories
which are produced in large quantities on a repetitive basis over a
short period of time are not qualifying assets. The Group does not
generally produce qualifying assets.
Equity Instruments
Equity instruments issued by the Company are recorded at the
proceeds received, net of direct issue costs.
Own Shares held by ESOP trust
Transactions of the Group-sponsored ESOP trust are included in
the Group financial statements. In particular, the trust's
purchases of shares in the Company are debited directly to equity
through an own shares held reserve.
Hedging
Derivative financial instruments are recognised at fair
value.
Income Tax
Income tax comprises the sum of the tax currently payable or
receivable and deferred tax. Income tax is recognised in the income
statement except to the extent that it relates to items recognised
directly in equity, in which case it is recognised in equity.
Tax assets and liabilities
The tax currently payable or receivable is based on taxable
profit or loss for the year and any adjustment to tax payable or
receivable in respect of previous years. Taxable profit or loss
differs from net profit or loss as reported in the income statement
because it excludes items of income or expense that are taxable or
deductible in other years and it further excludes items that are
never taxable or deductible. The Group's liability or asset for
current tax is calculated using tax rates that have been enacted or
substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profit, and is accounted for using the
balance sheet liability method. Deferred tax liabilities are
generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised. Such assets and
liabilities are not recognised if the temporary difference arises
from non-tax deductible goodwill, from the initial recognition of
assets and liabilities in a transaction that affects neither the
tax profit nor the accounting profit, and from differences relating
to investments in subsidiaries to the extent that they will
probably not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered. Deferred tax is
calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised.
Deferred tax is charged or credited in the income statement, except
when it relates to items charged or credited directly to reserves,
in which case the deferred tax is also dealt with in reserves.
Share based payments
The Group has applied the requirements of IFRS2: "Share-based
payments".
The Group issues equity-settled share-based payments to certain
employees in the form of share options over shares in the Parent
Company. Equity-settled share-based payments are measured at fair
value at the date of grant calculated using an independent option
valuation model, taking into account the terms and conditions upon
which the options were granted. The fair value is expensed on a
straight line basis over the vesting period, based on the Group's
estimate of shares that will eventually vest, with a corresponding
credit to equity except when the share-based payment is cancelled
where the charge will be accelerated.
Fixed asset investments
Investments in subsidiaries are carried at cost less impairment.
Following the issue of IFRIC11 in 2007, the Parent Company accounts
for the share based payments granted to subsidiary employees as an
increase in the cost of its investment in subsidiaries.
Provisions
A provision is recognised in the balance sheet when the Group
has a present legal or constructive obligation as a result of a
past event, and it is probable that an outflow of economic benefits
will be required to settle the obligation. If the effect is
material, provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and, where appropriate, the
risks specific to the liability.
Employee benefits
The Group accounts for pensions and similar benefits under IAS
19 (Revised): "Employee benefits". In respect of defined benefit
schemes, the net obligation is calculated by estimating the amount
of future benefit that employees have earned in return for their
service in the current and prior periods, such benefits measured at
discounted present value, less the fair value of the scheme assets.
The discount rate used to discount the benefits accrued is the
yield at the balance sheet date on AA credit rated bonds that have
maturity dates approximating to the terms of the Group's
obligations. The calculation is performed by a qualified actuary
using the projected unit method. The operating and financing costs
of such plans are recognised separately in the income statement;
service costs are spread systematically over the lives of employees
and financing costs are recognised in the periods in which they
arise. All actuarial gains and losses are recognised immediately in
the Group statement of comprehensive income.
Payments to defined contribution schemes are charged as an
expense as they fall due.
11 Reconciliation of net cash flow to net cash
2013 2012
GBP000 GBP000
----------------------------------- ------- -------
Net decrease in net cash and cash
equivalents (12,371) (31,781)
Increase in borrowings (24,546) -
Fair value adjustments to interest
rate swaps 209 (9)
Fair value adjustment to interest
free loans (121) (195)
Net cash at start of period 18,790 50,775
----------------------------------- ------- -------
Net (debt) / cash at end of period (18,039) 18,790
----------------------------------- ------- -------
Analysis of net cash:
Cash and cash equivalents 12,025 24,396
Unsecured loans (29,856) (5,190)
Fair value of interest rate swaps (208) (416)
Net cash (18,039) 18,790
----------------------------------- ------- -------
12 Income taxes
Current tax
Current tax is the expected tax payable or receivable on the
taxable income or loss for the year, calculated using a corporation
tax rate of 23.25% applied to the pre-tax income or loss, adjusted
to take account of deferred taxation movements and any adjustments
to tax payable for previous years. Current tax receivable for
current and prior years is classified as a current asset.
13 Dividends
The following dividends were declared by the Group:
2013 2012
GBP000 GBP000
Prior year final dividend per share
of 6.0p (2012: 3.5p) 8,010 4,663
Current year interim dividend per share
of 4.0p (2012: 3.0p) 5,351 4,001
---------------------------------------- ------ ------
Dividends declared 13,361 8,664
---------------------------------------- ------ ------
The Board has decided to propose a final dividend of 9.5p per
share in respect of 2013.
14 Earnings per share
Basic earnings per share
The calculation of basic earnings per share at 31 December 2013
was based on the profit attributable to ordinary shareholders of
GBP60,068,000 (2012: GBP40,193,000) and a weighted average number
of ordinary shares outstanding during the year ended 31 December
2013 of 133,643,311 (2012: 133,294,726), calculated as follows:
Profit attributable to ordinary shareholders
2013 2012
GBP000 GBP000
------------------------------------ ------- -------
Profit for the period attributable
to ordinary shareholders 60,068 40,193
Weighted average number of ordinary shares
2013 2012
------------------------------------- ------------ ------------
Issued ordinary shares at 1 January 133,294,726 132,860,480
Effect of own shares held (288,388 ) (445,306 )
Effect of shares issued in year 636,973 879,552
------------------------------------- ------------ ------------
Weighted average number of ordinary
shares at 31 December 133,643,311 133,294,726
------------------------------------- ------------ ------------
Diluted earnings per share
The calculation of diluted earnings per share at 31 December
2013 was based on the profit attributable to ordinary shareholders
of GBP60,068,000 (2012: GBP40,193,000) and a weighted average
number of ordinary shares outstanding during the year ended 31
December 2013 of 133,933,279 (2012: 133,432,911).
The average number of shares is increased by reference to the
average number of potential ordinary shares held under option
during the period. This reflects the number of ordinary shares
which would be purchased using the aggregate difference in value
between the market value of shares and the share option exercise
price. The market value of shares has been calculated using the
average ordinary share price during the period. Only share options
which have met their cumulative performance criteria have been
included in the dilution calculation.
Weighted average number of ordinary shares (diluted)
2013 2012
---------------------------------------- ------------ ------------
Weighted average number of ordinary
shares at 31 December 133,643,311 133,294,726
Effect of share options in issue which
have a dilutive effect 289,968 138,185
---------------------------------------- ------------ ------------
Weighted average number of ordinary
shares (diluted) at 31 December 133,933,279 133,432,911
---------------------------------------- ------------ ------------
15 Related party transactions
Transactions between fellow subsidiaries, which are related
parties, have been eliminated on consolidation, as have
transactions between the Company and its subsidiaries during this
period.
Transactions between the Group, Company and key management
personnel in the year ending 31 December 2013 were limited to those
relating to remuneration, which are disclosed in the director's
remuneration report and in note 5.3 of the annual report.
Transactions between the Group, Company and joint ventures are
in note 5.5 of the annual report.
Malcolm Harris, a Group Director until his resignation on 29
November 2013, is a non-executive Director of the Home Builders
Federation (HBF). The Group pays subscription fees and fees for
research as required to the HBF.
Total net payments were as follows:
2013 2012
GBP000 GBP000
----- -------- --------
HBF 70 93
----- -------- --------
There have been no related party transactions in the current
financial year which have materially affected the financial
performance or position of the Group, and which have not been
disclosed.
Transactions with Bovis Peer LLP
Bovis Homes Limited is contracted to provide property and
letting management services to Bovis Peer LLP. Fees charged in the
period, inclusive of VAT, were GBP147,000 (2012: GBP144,000).
Loans totalling GBP1,575,355 were provided in prior years at an
annual interest rate of LIBOR plus 2.4%. No other loans or sales of
inventory have taken place. Interest charges made in respect of the
loans were GBP46,000 (2012: GBP49,000).
This information is provided by RNS
The company news service from the London Stock Exchange
END
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