Trading Statement

Trading Statement

Bovis Homes Group PLC

Bovis Homes Group PLC

Trading update

9 January 2009

Following the announcement on 29 December 2008 of the successful renewal of its banking arrangements, Bovis Homes Group PLC is today issuing the following trading update ahead of reporting its preliminary results for the year ended 31 December 2008 on Monday 9 March 2009.

The Group anticipates that profit before exceptional charges and tax for the 2008 financial year will be in line with the Board’s expectations. Despite the current challenging market conditions Bovis Homes continues to operate with modest gearing: net debt at 31 December 2008 was £109 million, utilising under 50% of its committed bank facility. The Group owns around seven years of land supply with residential planning consent and started 2009 with a good number of homes at an advanced stage of construction. These homes can be finished quickly when sold, generating strong positive cash flows for the Group.

The UK housing market was in well-publicised decline throughout 2008 and trading conditions in the housebuilding sector were the worst seen in many years. Accordingly, the Group’s priorities over the short term are to maintain its strong balance sheet capability to weather current market conditions in an orderly fashion and be well positioned for any market upturn.

As a key enabler, the Group was pleased to be able to announce on 29 December 2008 a successful renewal of its banking arrangements, together with the agreement of a covenant package more suited to current market conditions. The Group has entered into a new committed revolving credit facility, on a syndicated basis, maturing on 31 March 2011. All of the Group’s pre-existing banks are participating in the new syndicate. The facility totals £220 million, matching the Group’s previous facilities, with agreed reductions in facility size by £40 million in February 2010 and by a further £20 million in September 2010, providing the Group with £160 million of facility through the last six months of the facility period.

The Group’s new covenants reflect more appropriately the current trading conditions, with three covenants tested semi-annually; a test relating to gearing, a test relating to the net tangible worth of the Group and a test relating to cash flow cover. There is no interest cover covenant. Covenant levels have been set which provide comfort for the banks whilst providing the Group with the flexibility required to operate its business and allow investment in value-adding opportunities through the term of the facility.

As expected, the price of debt associated with the new facility is significantly higher than the Group’s previous facilities, reflecting current bank market conditions. Given current LIBOR rates, the Group’s marginal cost of debt is circa 6%. The Group has paid circa £8 million of arrangement and other fees in connection with agreeing the facility which will be charged to the interest line in the income statement during the term of the facility and commitment fees also apply.

The Group has taken decisive action in the face of the difficult trading conditions. During 2008, the Group cut its overhead base through restructuring, redundancies and cost reductions. The reduction in the overhead base in 2008 has been greater than previously indicated. The Group expects that as a result of its actions in 2008, overheads in 2009 will be between 40% and 50% lower than the comparable 2007 overhead base and the Group’s headcount at the end of the first quarter of 2009 is expected to be around 60% lower than at the start of 2008. Taken together with the Group’s previous restructuring costs, in total the Group has charged around £5 million of exceptional costs in 2008 relating to restructuring. The Group has also sharply reduced its investment in work in progress and land through 2008. As previously indicated, the Group was successful in slowing production, with fewer units built than legally completed. This is a strong result given the transitional nature of market conditions in 2008 and the momentum which was present in the Group’s build programmes on 1 January 2008.

In terms of sales performance, the Group legally completed 1,817 homes during 2008 compared to 2,930 legal completions in 2007, in line with the Group’s expectations. The average sales price of the Group’s legal completions as a whole for 2008 reduced to £150,800 (2007: £179,500). This was partly caused by changes in mix, predominantly arising from the increase in the sales mix of social and partnership housing, which has increased to 33% in 2008 from 22% in 2007. The Group achieved 1,223 private legal completions in 2008 versus 2,293 private legal completions in 2007 with an average private sales price achieved of £181,100 compared to £206,200 in 2007. The Group implemented a more assertive approach to pricing in the second half of 2008 to deliver its targeted volume of legal completions. This, combined with a number of deals agreed with the Homes and Communities Agency (formerly the Housing Corporation) to sell finished stock to housing associations, has reduced the average private sales price.

At each reporting date, the Group is required to assess the carrying value of its inventory. Based on currently achievable values for homes, the Group intends to charge an inventory write-down as part of the 2008 results. The Group is required to take into account sales prices prevailing at the date of the preliminary results announcement in March, together with any reliable estimates for price movements thereafter and will therefore provide further information with its preliminary results announcement.

Reflecting the low levels of activity during the second half of 2008, the Group’s forward sales position as at 1 January 2009 stood at 425 reservations. This is some 48% lower than the comparable position at 1 January 2008. The decrease is reflected in both private and social reservations, with the reduction in social housing activity arising as a result of the lower number of sites started during the second half of 2008, thus limiting the commencement of social phases.

The Group’s aim in 2009 is to continue to generate cash in an orderly way. To this end, investment in working capital, both land and work in progress, is expected to be limited and the Group intends to focus on selling its existing finished stock, the majority of which are houses rather than apartments. In addition, the Board will be recommending that no final dividend is proposed for 2008.

The outlook for the housing market, combined with that of the wider economy, appears challenging at present. Confidence is low, bad news predominates, and corrective economic actions which have worked historically have not yet seen a positive response. This all said, the Group has modest gearing, has reduced its expenditure in land and work-in-progress, has restructured its overhead base significantly and is in a position to generate strong cash flows to reduce its net debt. Interest rates are likely to remain low and with lower house prices, affordability will improve. When consumer confidence returns, the low levels of current housebuilding across the country will accentuate the well publicised supply and demand dynamic in the UK housing market. The Group is confident that, with its long term investment in both consented and strategic land, its strong product range and effective processes, it will be well positioned to take advantage of increased activity in the housing market in due course.

Conference Call for analysts

Please note that David Ritchie, Chief Executive, and Neil Cooper, Finance Director, of Bovis Homes will host a conference call at 09:00am today, Friday 9 January 2009, to discuss the year-end trading update.

To access the call please dial [phone] and quote passcode: 2373484. 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 January 2009, commencing approximately 30 minutes after the live call has finished, on: [phone], access code: 2373484#.

Enquiries:	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]