Trading Statement

Trading Statement

Bovis Homes Group PLC

Bovis Homes Group PLC

Trading update

Friday 10 July 2009

Overview

The Group is today providing a trading update covering the six month period ended 30 June 2009 ahead of reporting its interim results on Monday 24 August 2009.

The housing market has shown signs of stabilisation during the first half of 2009, with external house price indices indicating that the rate of price decline has lessened over this period and the number of mortgage approvals for home purchase has increased, albeit from a low base. Notwithstanding this, transaction volumes remain at historically low levels and pricing is substantially below the peak levels of late 2007.

The continuing lack of mortgage availability, particularly for first time buyers of newly built homes, has been challenging for the Group during the first six months of 2009. The Group has successfully met this challenge, delivering strong private sales volume growth through competitive pricing policies, restructured sales operations, specific first time buyer incentives and further engagement with the Homes and Communities Agency in agreeing additional sales to housing associations.

The Group has achieved 901 net private reservations in the six months since 1 January 2009; an increase of 92% over that achieved in the first six months of 2008, reflecting the Group’s plan to drive volume more assertively during 2009. The lower volume of social housing available for delivery in 2009 has led to a combined net reservation total in the first six months of 939 homes as compared to 666 homes in the comparable period in 2008.

During this period the Group has continued to focus on strong cash generation, with a net cash inflow of £94 million in the half year, resulting in net debt of only £14 million at 30 June 2009.

First half year results

For the six months ended 30 June 2009, the Group legally completed 754 homes, as compared to 851 homes in the comparable period, a reduction of 11%. The contribution from social housing in the first half of 2009 was significantly lower with only 16 social housing legal completions as compared to 227 social homes in the first half of 2008. The Group achieved 738 private legal completions, an 18% increase over the comparable period in 2008. The Group has not sold any development land during the first half of 2009.

For private homes, the Group has achieved an average net sales price of £160,400, as compared to £196,700 in the first six months of 2008 and £164,700 in the second half of 2008, reflecting house price reductions in the market. Overall, including social and partnership homes, the average sales price achieved by the Group for the six months ended 30 June 2009 was £159,700 compared with £167,600 in the first half of 2008.

The lower average private sales price achieved against the comparable period last year has placed downward pressure on the Group’s private housing gross margins. As the Group has been selling, in the main, advanced build stock, the Income Statement benefit from reductions in construction costs has to date been limited.

Actions taken by the Group to reduce its overheads during 2008 are now generating the expected level of saving in 2009. Overheads in the first six months of 2009 are anticipated to be circa £13 million, some 45% lower than the overhead in the first half of 2008. With this significant reduction in overhead, the Group is confident it will achieve a pre-exceptional profit before interest and tax for the first half of 2009 despite the lower gross profit generated on legal completions.

Balance sheet

As at 30 June 2009, the Group had reduced net debt to £14 million. Average net debt for the first half of 2009 was £69 million. On this basis, the Group’s first half year net finance charge including amortisation of fees is anticipated to be circa £6 million. The Group currently has substantial financial headroom with committed loan facilities of £220 million which were negotiated in December 2008, reduce to £160 million in September 2010, and mature in March 2011.

The Group now anticipates achieving a net cash positive position during the second half of 2009, as the Group continues to release cash from inventory. This assumes that the Group does not make significant cash expenditure on new land opportunities during the second half of 2009, beyond its previous guidance, the Group’s view being that any such land expenditure commitments are more likely to fall due from 2010 onwards.

A specific focus of the Group during 2009 has been to reduce the working capital invested in finished goods stock. Having started the year with circa 1,000 unsold stock homes, the Group has sold circa 550 of these stock homes. After taking account of home production in the first half of 2009, the Group’s unsold finished stock now stands at circa 480 homes. This focus on reducing stock has been a key factor in the generation of £94 million of net cash inflow during the first half year, and it will continue to be a priority for the remainder of the year.

At each period-end, the Group is required to assess the carrying value of its inventory. Based on current estimates of achievable prices in the market, there would only be a small number of specific sites where a write-down might be required at the half year. The Group is required to take into account sales prices prevailing at the date of the interim results announcement together with any reliable estimates of price movements thereafter and will provide further information on this at the time of the interim results announcement on 24 August 2009.

Outlook

The Group has positioned itself well to trade through the current downturn and continues to benefit from its longstanding prudence in the consented land market and the relatively high proportion of its land supply sourced strategically. 2009 will be a year of delivering strong positive cash flow, repositioning the Group’s balance sheet with lower work in progress and anticipated net cash in hand at the year end. This should provide the Group with the opportunity to invest in the residential land market at what it anticipates will be attractive values.

Given the importance of financial capacity in taking full advantage of this opportunity as it arises, and having regard to the likely level of profitability during 2009, the Board does not intend to declare an interim dividend for 2009.

Cumulative sales achieved to 30 June 2009 for 2009 legal completion stood at 1,364 homes as compared to 1,482 homes at the same point last year. Within these totals, private sales stood at 1,086 homes in 2009 compared to 888 homes in 2008, reflecting the improved private sales performance. The total cumulative sales also reflect the significantly lower volume of social homes sold for 2009 at 278 homes versus 594 homes in the prior period. This cumulative position includes the reservations held at 1 January 2009 which stood at 425 homes compared to 816 homes at 1 January 2008.

Looking to the full year, the Group’s sales performance to date provides support for the Group’s existing guidance on volumes anticipated for 2009 of circa 1,800 legal completions. The Group continues to anticipate legally completing only circa 300 social homes in 2009 compared to circa 600 social homes in 2008. This suggests a private legal completion volume of circa 1,500 homes, some 25% ahead of the circa 1,200 private legal completions achieved in 2008. This guidance continues to assume weekly sales activity at or around current levels, accepting that the summer sales period will show its typical seasonal slowdown before improving in the autumn.

The short term outlook for the housing market is a continuation of low levels of activity constrained by ongoing illiquidity in the mortgage market. House prices appear to be demonstrating a degree of stability at present, aided by the current low level of second hand homes being offered for sale across the housing market.

The Group has good visibility on reaching a debt free balance sheet during 2009 given its very low net debt at 30 June. The Group is operating with a sustainable and reduced overhead base which allows the achievement of trading profits from relatively low levels of revenue. These positive attributes position Bovis Homes well in the housebuilding sector when considering relative capabilities to invest in cost effective residential land. With improved home affordability and growing consumer confidence, homebuyer activity will in time increase creating an improvement in demand for the Group’s homes.

Conference Call for Analysts and Investors

David Ritchie, Chief Executive and Neil Cooper, Group Finance Director of Bovis Homes will host a conference call at 9:00am today, Friday 10 July 2009, to discuss the interim trading update.

To access the call please dial 020 7138 0841 and quote passcode: 8026554#. Please dial in 5 minutes prior to the start of the conference call to allow time for registration. A recording of the conference call will be available until midnight on 16 July 2009 on 020 7806 1970, accessible with the same passcode.

Enquiries:	Â	Â	Â	David Ritchie, Chief Executive
				Neil Cooper, Finance Director
				Bovis Homes Group PLC
				Tel: [phone]
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				Emily Bruning
				Shared Value Limited
				Tel: [phone]