Half Yearly Report

RNS Number : 4382R

Bovis Homes Group PLC

23 August 2010

 



BOVIS HOMES GROUP PLC

HALF-YEARLY FINANCIAL REPORT
for the six months ended 30 June 2010

Issued 23 August 2010

The Board of Bovis Homes Group PLC today announces its interim results for 2010.

·   Profit before tax of £3.5 million (2009 H1: loss before tax of £8.6 million)

·   Earnings per share of 1.8p (2009 H1: loss per share of 5.5p)

·   Revenue of £115.6 million (2009 H1: £122.6 million)

·   Board decision to resume declaring dividends at end of 2010 subject to continuation of current market conditions

·   Gross profit margin of 16.3% (2009 H1: 8.1%) with operating margin at 4.2% (2009 H1: -2.2%)

·   Net cash of £79 million (31 December 2009: £112 million) notwithstanding significant investment in consented land

·   1,874 consented plots added to the consented land bank during first half of 2010 at a cost of £107 million, with future revenue estimated at £373 million and potential gross profit of £94 million

·   13,113 plots in consented land bank at 30 June 2010 with potential gross profit calculated using current sales prices and current build costs of £412 million (31 December 2009: 12,042 plots)

·   Strategic landholdings of 17,270 potential plots (31 December 2009: 16,363 potential plots) with 567 plots converted to consented land bank in first half of 2010

·   Strong build quality and health & safety performance during a period of increased production

·   Strong customer service standards with 95% 'Recommend to a friend or relative' satisfaction and 93% 'Overall quality of the new home' satisfaction in latest Group quarterly survey results

Commenting on the results, David Ritchie, Chief Executive of Bovis Homes Group PLC said:

"The Group has performed well in the first half of 2010, delivering a solid set of trading results during a period when the housing market has remained challenging.  In addition, the Group has successfully implemented it near term land investment strategy.  Along with continuing the successful conversion of its strategic land investments, the Group has purchased a considerable amount of consented land.  In total, the Group has added 1,874 consented plots to the land bank in the first half of 2010, increasing the land bank to 13,113 consented plots at 30 June 2010.  Further, the Group has terms agreed on an additional c3,000 plots, many of which are anticipated to be acquired in the second half of 2010.

The Group is well positioned to exploit opportunities to expand, with net cash in hand at 30 June 2010 of £79 million and committed bank facilities of £150 million which mature in September 2013 and provide the flexibility to support the Group's land investment ambitions.  The Group has the ability to increase its output capacity and profitability in the future supported by a larger land bank across an increased number of housing sites, without reliance on a general housing market recovery.  Reflective of this, the Board has agreed to resume declaring dividends at the end of 2010 subject to the continuation of current market conditions."

Certain statements in this press release are forward looking statements.  Forward looking statements involve evaluating a number of risks, uncertainties or assumptions that could cause actual results to differ materially from those expressed or implied by those statements.  Forward looking statements regarding past trends, results or activities should not be taken as a representation that such trends, results or activities will continue in the future.  Undue reliance should not be placed on forward looking statements.

Enquiries:     David Ritchie, Chief Executive                 Results issued by:  Andrew Best / Peter Edsinger         
Bovis Homes Group PLC                                                      Shared Value Limited             

                     Tel: [phone]                                                               Tel: [phone] / 5038

Interim Management Report

Overview

During the first six months of 2010, the Group has successfully implemented the preliminary stage of its consented land investment strategy and has also improved its profit performance in what has continued to be a challenging market for new homes.  Improved legal completion volumes, combined with robust sales prices and strong cost control, has provided the base for the profit improvement whilst incurring a higher level of overheads associated with managing the land investment strategy.

The Group added 1,874 consented plots to its land bank, representing circa one year of land supply for the Group, in the first half of 2010.  These additions have an estimated future revenue at current sales prices of c£373 million and a potential gross profit of c£94 million.  This investment has increased the consented land bank to 13,113 plots at 30 June 2010 (31 December 2009: 12,042 consented plots), some 7 years of consented land supply when measured against 2009 legal completion volumes.  The Group has calculated using current sales prices and current build costs, that the consented land bank has a potential revenue of c£2.1 billion and a potential gross profit of £412 million.  The potential gross profit has been enhanced during the first six months of 2010 through the investment in new land.

Notwithstanding the considerable investment in new consented land, the Group retained net cash of £79 million at 30 June 2010 (31 December 2009: £112 million).  The Group generated £48 million of cash inflow from current trading in the first half of 2010 and expended £82 million on land payments.  Looking ahead, the Group anticipates that it will exit 2010 in a net cash position, subject only to the extent of cash expenditure for consented land purchases in the second half of the year.

The Group is positive in its view on future expansion and improved profits.  In addition to continuing the successful conversion of its strategic land investments, the Group believes that significant value will be created through investment in consented land at a low point in the housing market cycle.  Such investment now will provide an increase in output capacity for the Group, measured through an increase in active sales outlets in future years, from which the Group can deliver increased legal completion volumes at improved gross profit margins without reliance on a housing market recovery.

Market conditions

The housing market was stable during the first half of 2010, with external house price indices indicating static prices over this period, and the number of mortgage approvals for home purchase holding steady at between 45,000 and 50,000 approvals per month.  The new homes market remained subdued with restricted levels of mortgage availability, particularly in the first time buyer market, limiting the number of transactions and constraining sales price improvements.

In the last few weeks of the half year, after the General Election and the Budget, the market became more fragile.  The Group, therefore, remains cautious in its expectations of transaction volumes and sales prices in the short term given the low levels of consumer confidence at this time and the ongoing challenges in the mortgage market.

Income statement

The Group generated £128.5 million of income in the first half of 2010, an increase of 5% on the comparable period in 2009 of £122.6 million.  Of this income, £12.9 million has not been recognised in revenue in the financial statements for the first half of 2010.  This is due to the fact that the Group holds a 50% equity interest in a private rental joint venture (described further below) into which the Group has sold a portfolio of its new homes.  This income will be recognised as and when the joint venture investment is disposed.  As a result, the Group's reported revenue for the first half of 2010 was £115.6 million (2009: £122.6 million).  The Group chose not to sell any development land during either the first half of 2010 or the first half of 2009.

The Group legally completed 803 homes in the first half of 2010 (2009: 754 homes).  Of these, 762 homes were private, a 3% increase on the comparable number of 738 private homes in the first half of 2009.  The Group delivered 41 social homes (5% of total legal completions) in the first half of 2010, as compared to 16 social homes (2% of total legal completions) in the first half of 2009.

For private homes legally completed in the first half of 2010, the Group achieved an average net sales price of £163,500, as compared to £160,400 in the first six months of 2009.  Taking account of mix and including the reducing effect on the current year average of the stock sale to the joint venture, the underlying sales price improvement was around 3%.  Overall, including social and partnership homes, the average sales price achieved by the Group for the six months ended 30 June 2010 was £158,500 compared with £159,700 in the first half of 2009.  This decrease reflected the increased contribution from social housing in the first half of 2010.

The Group achieved a gross margin of 16.3% as compared to a pre exceptional items gross margin of 16.2% in the first half of 2009 (gross margin of 8.1% after exceptional items), a slight improvement associated with increased sales prices more than offsetting the increased land cost arising from the land inventory provision write back recognised at the end of 2009.  At the half year, lower construction costs have not benefited the margin significantly as they are more associated with recent build contracts.  The income statement benefit from these cost savings will become more significant in the second half of 2010 and into 2011 as units built under these contracts are legally completed.

With the increased level of investment in land acquisition and the related costs of processing, and given the Group's prudent policy of charging such costs to the income statement as incurred, the overhead charge in the income statement for the first half of 2010 has, as anticipated, increased to 12.1% of revenue (2009: 10.3% of revenue).  The Group expects the benefit of this overhead investment to be realised in future years as the Group increases its output capacity.

The Group achieved an operating profit margin of 4.2% in the first half of 2010 as compared to an operating profit margin pre exceptional items of 5.9% (operating loss margin of -2.2% after exceptional items) in the first half of 2009.  This reduction in operating margin reflects the effect of the JV income de-recognition and the write off of overheads associated with land acquisition.  These effects are anticipated to have less of an impact on the full year results for 2010, allowing the operating margin to return to a level ahead of 2009's full year operating margin of 6.2%.

The Group incurred net financing costs in the first half of 2010 of £1.3 million compared to £6.0 million incurred in the first half of 2009.  This reduction in finance costs arose firstly, from the strong net cash position of the Group throughout the first half of 2010, and secondly, from the significantly more cost effective bank facilities agreed in January 2010.  As a result, interest charges, commitment fees and arrangement fee amortisation were all significantly lower in the first half of 2010.  Within its finance costs, the Group charged £1.0 million (2009: £0.7 million), reflecting the difference between the cost and the nominal price of land bought on deferred terms which is charged to the income statement over the life of the deferral of the consideration payable.  This reflects the increased land purchase activity of the Group.

For the six months ended 30 June 2010 the Group achieved a pre tax profit of £3.5 million as compared to a pre-tax loss of £8.6 million in the first half of 2009 (pre tax profit of £1.2 million before exceptional items).  Basic earnings per share for the first half of 2010 was 1.8p as compared to a loss per share of 5.5p in the first half of 2009 (earnings per share of 0.4p before exceptional items).

The Group has established a rental joint venture, with a private investor, in which it holds a 50% equity share.  Into this joint venture, in March 2010, the Group legally completed 215 homes, including the balance of stock on a number of apartment schemes in the north of England, at a modest discount to open market value.  This portfolio of homes is intended to be rented in the private market over a number of years with the view of generating both an acceptable investment income return and a capital profit.  The portfolio sale of these 215 homes generated revenue of £25.7 million.  By the end of July 2010, 98% of the portfolio was let on private open market rents.  The Group's equity investment in the joint venture is £4 million.

Dividends

Given the confidence the Board has in the medium term prospects of the Group arising from its investment in new land opportunities and the Group's strong net cash position, assuming the continuation of current market conditions in the new homes market, the Board intends to resume declaring dividends at the end of the current financial year.

Cash flow

As at 30 June 2010, the Group held net cash in hand of £78.7 million (31 December 2009: net cash in hand of £112.3 million).  The Group generated £48 million of cash inflow from current trading during the six month period confirming its ongoing cash generative operations.  The Group expended £82 million on land during the first six months, part in payment of existing land creditors and part in payment for new land investments.  In total, there was a cash outflow in the first six months of £34 million, reflecting the first period of the Group's near term strategy of investment in consented land.  Average net cash for the first half of 2010 was £114 million (2009: average net debt of £69 million).  In addition, the Group has substantial financial headroom against its existing committed loan facilities of £150 million signed in January 2010 and maturing in September 2013.

The Group anticipates the second half of 2010 will be cash generative from current trading, before cash expenditure on land, as revenue will significantly exceed cash expenditure on construction, overheads, tax and interest.  On this basis, it is expected that the Group will have net cash in hand at 31 December 2010, subject only to the extent of cash expenditure for consented land purchases in the second half of the year.

Land

The Group is pleased to report good progress with its near term strategy of acquiring land with residential planning consent.  This strategy will enable the Group to grow its output capacity over the coming years and deliver increased levels of revenue and improved profit margins, thereby generating shareholder value.  The Group has been active in the consented land market since its equity share placing in September 2009, using its considerable cash resources to agree land purchases which are expected to generate returns in line with the Group's hurdle rates for land investment. 

The Group held 13,113 plots in its consented land bank at 30 June 2010, an increase of 1,071 plots on the 12,042 plots at the start of the year.  The Group added 1,874 consented plots to its consented land bank in the first half of 2010, 80% of which are located in the south of England, at a land cost of approximately £107 million.  In addition, the Group has agreed terms to acquire a further c3,000 plots with many at an advanced stage in the acquisition process.  New land has been acquired on deferred terms where appropriate, although the Group has taken advantage of opportunities where more cost effective land deals are achievable when supported by up front cash consideration.

The Group believes its strategy of acquiring consented land at this point in the housing market cycle will add significant value to the medium term prospects of the Group for a number of reasons: strong demand for new homes given the ongoing shortage of homes being built in England and Wales; good development land supply for the Group during a challenging period for achieving residential planning consents in the near term as the Government's localism agenda is debated and implemented; and the current surplus of land vendors over land buyers which is keeping land prices attractive.

At each period end, the Group is required to assess the carrying value of its inventory.  Based on current estimates of achievable sales prices in the market at normal sales rates, there has been no net land provision adjustment at the half year.  The Group land provision at 30 June 2010 stood at £48 million (31 December 2009: £54 million), reflecting £6 million of provision utilisation during the first half year.  At 30 June 2010, 32% of the plots in the consented land bank were subject to a provision, 51% of the plots were held at acquisition cost and were acquired prior to the nadir in house prices in the recent housing market downturn, and the balancing 17%, held at acquisition cost, have been acquired since the nadir of house prices in the housing market downturn.

The Group's existing consented land bank continues to show a robust quality, set against the current housing market conditions.  Of the 13,113 plots, 67% are located in the south of England, where the housing market has shown greater signs of recovery, and 55% of the land bank has been sourced through the conversion of strategic land at a discount to market value at the date of its acquisition.

The strategic land bank at 30 June 2010 stood at 17,270 potential plots as compared to 16,363 potential plots held at the start of the year.  The Group has successfully converted 567 potential plots into consented land during the first half year.  The Group has secured a further c1,500 strategic plots, of which c1,050 plots already have a planning consent and will be converted to the consented land bank in a number of phases over the coming years.

Net assets

At 30 June 2010, the Group held net assets of £692.8 million, which equates to a net assets per share value of £5.20.  Of this net asset value, land held at the lower of cost and net realisable value amounted to £530.2 million (£3.98 per share) and net cash was £78.7 million (£0.59 per share).

As at 30 June 2010, the Group's actuary estimated that the Group's defined benefits pension scheme had moved from a deficit of £8.9 million at the end of 2009 to a deficit of £12.2 million.  The main driver of this adverse movement has been the impact of assumption changes on the value of the scheme's liabilities, in particular assumptions relating to pension liability discount rates.

Other key performance indicators

The Group has continued to perform well in other key areas.  In respect of health & safety, the Group has achieved a strong level of performance as measured by independent inspection of all of its sites.  The Group was one of only two housebuilders to receive a Gold award for health & safety in the 2010 National House-Building Council's health & safety awards and has for the 14th year running received a Gold Award from RoSPA.

The Group's quality of build has been at the top of industry standards, with strong results achieved in independent quality inspections.  The Group has been ranked first of a large group of housebuilders in respect of these quality inspections in six of the last twelve months reported.

In terms of customer service, the Group continues to receive strong levels of satisfaction from its customers.  In the Group's latest quarter results, 95% of customers stated they would 'Recommend to a friend or relative' and 93% of customers stated they were satisfied with the 'Overall quality of the new home', with only 1% stating they were not satisfied.  The Group achieved a four star rating in the 2010 HBF customer satisfaction survey which confirmed the high level of customer service being delivered by the Group.

Principal risks and uncertainties

In a manner consistent with the Disclosure and Transparency Rules, the Board has formally identified a number of principal risks and uncertainties that may impact the business, reporting on these in full in its 2009 annual report and accounts.  The purpose of so doing is to ensure that the Group is able to arrange its affairs such that it can avoid the risk or mitigate the impact of the risk occurring.  A number of these risks relate to the Group's day to day operations, such as the risk of accidents occurring as a result of breaches of health & safety standards or of environmental damage arising.

Other risks and uncertainties are inherent in the activity of speculative housebuilding and are principally commercial in nature.  During the worsening trading environment, the Group reviewed and reassessed the likelihood and impact of risk occurring in this changing business environment.  Having done so, the Group identified that the principal commercial risks of the business fell into a number of categories, principally market driven risks around the ability to deliver sales pricing and sales volume, legislative risks posed by planning and legislation changes and liquidity risks given the difficulties in financial markets.

Given the strong investment in new consented land over the last six months, together with the Group's expectations of further investment in the near term, the risks associated with delivering future sales volumes have lessened.  The housing market has remained stable in terms of transactional activity and the ability of the Group to trade from an increased number of sales outlets in future periods will assist in achieving the targeted sales volumes.

Mortgage availability has improved during the first half of 2010 although still constrained relative to the period prior to the housing market downturn, and house prices have stabilised with small improvements within the new homes market, with the south of England stronger than the Midlands and the north of England.

Recent changes to the planning environment have increased the levels of uncertainty around obtaining residential planning consents.  The Government has been swift to announce its planned changes to the planning system and there appears a heightened risk that a period of hiatus will arise as local planning authorities react to the changing rules by slowing decision making.  There is now a risk that certain areas of the country will see limited positive decisions for planning consent for new homes until new planning legislation is released in 2011.  The strategy of the Group, implemented in the second half of 2009, to invest significantly in land which already has a residential planning consent will ensure that the Group has a strong pipeline of consented land on which to develop during the next few years without being significantly impacted by the aforementioned risks to planning.  Many of the Group's long term interests in strategic land remain strong contenders for planning consent, although the timing of such consents may be delayed by virtue of the current planning system changes.

Cumulative sales

Cumulative sales achieved to 30 June 2010 for 2010 legal completion stood at 1,474 homes as compared to 1,364 homes at the same point last year.  Within these totals, private sales stood at 1,150 homes in 2010 compared to 1,086 homes in 2009, reflecting a 6% increase.  In the first half of the year, the Group achieved a net private sales rate per site per week of 0.42 reservations, ahead of the comparable net private sales rate achieved in the first half of 2009 of 0.39 reservations per site per week.

Prospects

Cumulative sales achieved to 20 August 2010 for 2010 legal completion stood at 1,637 homes as compared to 1,519 homes at the same point last year, an 8% increase year over year.  Within this total, private sales now stand at 1,313 homes, up 5% on the 1,250 home sales achieved to the same point last year.  Based on the assumption that current housing market conditions prevail, the Group is targeting the legal completion of c1,600 private homes during 2010 as compared to 1,527 private home legal completions in 2009, representing an increase of 5%.

The Group has traded well through the housing market downturn and is strongly positioned to exploit opportunities to expand the Group based on investment at a low point in the housing market cycle.  2010 will be a year of improved profit performance and strong land acquisition, both of which will enable the Group to demonstrate that it has added shareholder value in a tough operating environment.  The Group will continue to use its strong balance sheet position to invest in cost effective consented land opportunities in the near term with the aim of increasing its land bank of consented plots.  This strategy will increase the output capacity of the Group through holding a larger land bank across an increased number of housing sites.  This new land has been acquired based on acquisition appraisals which achieve returns in line with the Group's hurdle rates using current sales prices.  Therefore, based on current market conditions, these new sites will provide the Group the potential to improve profit margins and investment returns over the coming years as these new sites begin to deliver legal completions.  The combination of increased volume from a greater number of sites with improved margins will contribute strongly to the profit growth of the Group, without reliance on a general housing market recovery.

Bovis Homes Group PLC

Group income statement

For the six months ended 30 June 2010	Six months ended 30 June 2010						Six months ended 30 June 2009						Year ended 31 December 2009
(unaudited)	Before exceptional items		Exceptional items		Total		Before exceptional items		Exceptional items		Total		Before exceptional items		Exceptional items		Total
	£000		£000		£000		£000		£000		£000		£000		£000		£000
Revenue	115,623		-		115,623		122,611		-		122,611		281,505		-		281,505
Cost of sales	(96,806	)	-		(96,806	)	(102,849	)	(9,843	)	(112,692	)	(236,339	)	1,471		(234,868	)
Gross profit/(loss)	18,817		-		18,817		19,762		(9,843	)	9,919		45,166		1,471		46,637
Administrative expenses	(13,997	)	-		(13,997	)	(12,582	)	-		(12,582	)	(27,769	)	-		(27,769	)
Operating profit/(loss) before financing costs	4,820		-		4,820		7,180		(9,843	)	(2,663	)	17,397		1,471		18,868
Financial income	1,363		-		1,363		764		-		764		2,304		-		2,304
Financial expenses	(2,634	)	-		(2,634	)	(6,708	)	-		(6,708	)	(12,178	)	(4,197	)	(16,375	)
Net financing costs	(1,271	)	-		(1,271	)	(5,944	)	-		(5,944	)	(9,874	)	(4,197	)	(14,071	)
Share of loss of equity accounted entities	(30	)	-		(30	)	-		-		-		-		-		-
Profit/(loss) before tax	3,519		-		3,519		1,236		(9,843	)	(8,607	)	7,523		(2,726	)	4,797
Income tax (expense)/credit	(1,126	)	-		(1,126	)	(725	)	2,756		2,031		(2,070	)	763		(1,307	)
Profit/(loss) for the period attributable to equity holders of the parent	2,393		-		2,393		511		(7,087	)	(6,576	)	5,453		(1,963	)	3,490
Earnings/(loss) per share
Basic					1.8p						(5.5p	)					2.8p
Diluted					1.8p						(5.5p	)					2.8p

Bovis Homes Group PLC

Group statement of comprehensive income

For the six months ended 30 June 2010	Six months ended		Six months ended		Year ended
(unaudited)	30 June 2010		30 June 2009		31 Dec 2009
	£000		£000		£000
Profit/(loss) for the period	2,393		(6,576	)	3,490
Actuarial losses on defined benefit pension scheme	(3,340	)	(4,400	)	(4,210	)
Deferred tax on actuarial movements on defined benefit pension scheme	935		1,232		1,179
Total comprehensive (expense)/income for the period attributable to equity holders of the parent	(12	)	(9,744	)	459

Bovis Homes Group PLC

Group balance sheet

At 30 June 2010 (unaudited)	30 June 2010		30 June 2009		31 Dec 2009
	£000		£000		£000
Assets
Property, plant and equipment	11,500		11,895		11,574
Available for sale financial assets	25,766		13,989		21,291
Investments	4,708		22		22
Deferred tax assets	6,680		9,028		6,446
Trade and other receivables	2,162		2,343		2,213
Total non-current assets	50,816		37,277		41,546
Inventories	700,859		689,490		630,709
Trade and other receivables	42,682		25,808		30,771
Cash and cash equivalents	89,314		4,791		114,595
Current tax asset	-		859		831
Total current assets	832,855		720,948		776,906
Total assets	883,671		758,225		818,452
Equity
Issued capital	66,607		60,514		66,570
Share premium	210,398		157,228		210,181
Retained earnings	415,791		404,988		415,815
Total equity attributable to equity holders of the parent	692,796		622,730		692,566
Liabilities
Bank and other loans	10,562		12,797		2,337
Trade and other payables	42,050		28,490		23,077
Retirement benefit obligations	12,170		11,050		8,910
Provisions	2,146		1,950		1,700
Total non-current liabilities	66,928		54,287		36,024
Trade and other payables	120,800		79,661		87,698
Provisions	1,647		1,547		2,164
Current tax liabilities	1,500		-		-
Total current liabilities	123,947		81,208		89,862
Total liabilities	190,875		135,495		125,886
Total equity and liabilities	883,671		758,225		818,452

These condensed consolidated interim financial statements were approved by the Board of directors on 20 August 2010.

Bovis Homes Group PLC

Group statement of changes in equity

(unaudited)	Total		Issued	Share	Total
For the six months ended 30 June 2010	retained		capital	premium
	earnings
	£000		£000	£000	£000
Balance at 1 January 2009	414,654		60,497	157,127	632,278
Total comprehensive income and expense	(9,744	)	-	-	(9,744	)
Deferred tax on other employee benefits	(19	)	-	-	(19	)
Issue of share capital	-		17	101	118
Share based payments	97		-	-	97
Balance at 30 June 2009	404,988		60,514	157,228	622,730
Balance at 1 January 2009	414,654		60,497	157,127	632,278
Total comprehensive income and expense	459		-	-	459
Deferred tax on other employee benefits	(2	)			(2	)
Issue of share capital	-		6,073	53,054	59,127
Share based payments	704		-	-	704
Balance at 31 December 2009	415,815		66,570	210,181	692,566
Balance at 1 January 2010	415,815		66,570	210,181	692,566
Total comprehensive income and expense	(12	)	-	-	(12	)
Deferred tax on other employee benefits	(2	)			(2	)
Issue of share capital	-		37	217	254
Share based payments	(10	)	-	-	(10	)
Balance at 30 June 2010	415,791		66,607	210,398	692,796

Bovis Homes Group PLC

Group statement of cash flows

For the six months ended 30 June 2010	Six months ended		Six months ended		Year ended
(unaudited)	30 June 2010		30 June 2009		31 Dec 2009
	£000		£000		£000
Cash flows from operating activities
Profit/(loss) for the period	2,393		(6,576	)	3,490
Depreciation	328		420		769
Impairment of assets	247		-		245
Financial income	(1,363	)	(764	)	(2,304	)
Financial expense	2,634		6,708		16,375
Loss/(profit) on sale of property, plant and equipment	4		(10	)	3
Equity-settled share-based payment (credit)/expense	(10)		97		704
Income tax expense/(credit)	1,126		(2,031	)	1,307
Write-down/(release) of inventories	-		8,895		(2,664	)
Share of results of joint ventures	30		-		-
Add back of profit not recognised on sale of assets to joint ventures	963		-		-
Operating profit before changes in working capital and provisions	6,352		6,739		17,925
(Increase)/decrease in trade and other receivables	(14,039	)	4,366		(7,555	)
(Increase)/decrease in inventories	(70,150	)	82,422		152,762
Increase/(decrease) in trade and other payables	51,016		(19,210	)	(17,173	)
(Decrease)/increase in provisions and employee benefits	(51	)	852		(611	)
Cash generated from operations	(26,872	)	75,169		145,348
Interest paid	(1,363	)	(4,154	)	(6,684	)
Income taxes received	1,906		22,460		21,688
Net cash from operating activities	(26,329	)	93,475		160,352
Cash flows from investing activities
Interest received	448		522		1,481
Acquisition of property, plant and equipment	(270	)	(15	)	(44	)
Proceeds from sale of plant and equipment	12		57		45
Purchase of investment in joint ventures	(4,210	)	-		-
Movement in loans with joint ventures	(1,450	)	-		-
Net cash from investing activities	(5,470	)	564		1,482
Cash flows from financing activities
Proceeds from the issue of share capital	254		118		60,662
Costs associated with share placing	-		-		(1,535	)
Drawdown/(repayment) of borrowings	8,305		(101,000	)	(118,000	)
Costs associated with refinancing	(2,041	)	-		-
Net cash from financing activities	6,518		(100,882	)	(58,873	)
Net (decrease)/increase in cash and cash equivalents	(25,281	)	(6,843	)	102,961
Cash and cash equivalents at the start of period	114,595		11,634		11,634
Cash and cash equivalents at the end of period	89,314		4,791		114,595

Notes to the accounts

1              Basis of preparation

Bovis Homes Group PLC ('the Company') is a company domiciled in the United Kingdom.  The condensed  consolidated interim financial statements of the Company for the six months ended 30 June 2010 comprise the Company and its subsidiaries (together referred to as 'the Group') and the Group's interest in associates. 

The condensed consolidated interim financial statements were authorised for issue by the directors on 20 August 2010.  The financial statements are unaudited but have been reviewed by KPMG Audit Plc.

The condensed interim financial statements do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006.

The figures for the half years ended 30 June 2010 and 30 June 2009 are unaudited.  The comparative figures for the financial year ended 31 December 2009 are not the Company's statutory accounts for that financial year.  Those accounts have been reported on by the Company's auditors and delivered to the Registrar of Companies.  The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

The preparation of a condensed set of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amount of assets, liabilities, income and expenses.  Actual results may differ from these estimates. 

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 following years remain those published in the Company's consolidated financial statements for the year ended 31 December 2009.

The condensed interim financial statements have been prepared in accordance with IAS34 'Interim Financial Reporting' as endorsed by the EU.  As required by the Disclosure and Transparency Rules of the Financial Services Authority, the condensed consolidated interim financial statements have been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's published consolidated financial statements for the year ended 31 December 2009, which were prepared in accordance with IFRSs as adopted by the EU.

The following new standards, amendments to standards or interpretations are mandatory for the first time for the Company's year ending 31 December 2010.  They are not expected to have a material impact on the Group's financial statements:

IFRS2 - (Amended) Group Cash-settled Share-based Payment Transactions.  The amendments clarify the accounting for group cash-settled share-based payment transactions and how an individual subsidiary in a group should account for some share-based payment arrangements in its own financial statements.  This amendment is not expected to have any material impact on the Group's financial statements as the Group already applies IFRIC11.

IFRS3 - (Revised) Business Combinations.  This revision has no impact on implementation although it will alter the accounting treatment for future potential acquisitions.

IAS27 - (Revised) Consolidated and Separate Financial Statements.  This primarily relates to accounting for non-controlling interests and the loss of control of a subsidiary.  The Group has not disposed of any subsidiaries in the period and therefore the revision of this accounting standard is not considered to have a material impact on the Group's financial statements.

IAS39 - (Amended) Financial Instruments.  This standard is amended such that gains or losses on a hedged instrument should be reclassified from equity to profit or loss during the period that the hedged forecast cash flows affect profit or loss.  As the Group's current hedged instruments are currently ineffective, movements are taken through the income statement so this will have no practical impact.

IFRIC15 - Agreements for the Construction of Real Estate.  IFRIC15 provides guidance on whether the construction of real estate should be accounted for under IAS11 or IAS18.  The Group already accounts for the construction of real estate in accordance with IFRIC15 and accordingly this interpretation which is effective from 1 January 2010 will have no impact upon the Group.

Accounting policies for new transactions and events:

IAS20 - Accounting for Government Grants and Disclosure of Government Assistance.  During the half year to 30 June 2010, the Group has been granted assistance for the development of several sites by the Homes and Communities Agency (HCA).  The grants issued by the HCA have been treated as government grants under this accounting standard.

IAS31 - Interests in Joint Ventures.  Following the purchase of a 50% share in Bovis Peer LLP, the Group has used the equity method of accounting for its interest in the joint venture.   

IFRS4 - Insurance Contracts.  The recent launch of the Group's 'The Perfect 10' mortgage product in partnership with Barclays will provide Bovis Homes' customers the ability to secure a 90% Loan To Value mortgage at a fixed interest rate of 4.99% for two years.  Under the terms of the contract, the Group will partly indemnify the bank if a borrower defaults and the bank repossesses and incurs a financial loss in so doing.  The Group regards such contracts as insurance contracts and they will be treated as such under this accounting standard.  There is no practical effect on the half-yearly financial report but an effect is expected on the full year financial statements.

2              Seasonality

In common with the rest of the UK housebuilding industry, activity occurs year-round, but there are two principal selling seasons: spring and autumn.  As these fall into two separate half years, the seasonality of the business is not pronounced, although it is biased towards the second half of the year under normal trading conditions.

3              Segmental reporting

All revenue and profit disclosed relate to continuing activities of the Group and are derived from activities performed in the United Kingdom.

4              Exceptional items

The Group has reviewed the carrying costs of its inventory items, comparing the carrying cost of the asset against estimates of net realisable value.  Net realisable value has been arrived at using the Board's estimates of achievable selling prices taking into account current market conditions, and after deduction of an appropriate amount for selling costs.  No land write-down or provision for onerous land contracts was made in the six months ended 30 June 2010 (six months ended 30 June 2009: £9.8 million total exceptional items; year ended 31 December 2009: £2.7 million total exceptional items).

5              Earnings/(loss) per share

(unaudited)	Six months ended		Six months ended		Year ended
	30 June 2010		30 June 2009		31 December 2009
	pence		pence		pence
Basic and diluted earnings/(loss) per share	1.8		(5.5	)*	2.8
Pre exceptional basic and diluted earnings per share	1.8		0.4		4.4

* As a loss per share cannot be reduced through dilution, the dilution adjustment was not applied to the calculation of diluted earnings per share for the six months ended 30 June 2009.

Basic earnings/(loss) per share

Basic earnings per ordinary share for the six months ended 30 June 2010 is calculated on a profit after tax of £2,393,000 (six months ended 30 June 2009: loss after tax of £6,576,000; year ended 31 December 2009: profit after tax of £3,490,000) over the weighted average of 133,168,667 (six months ended 30 June 2009: 120,376,631; year ended 31 December 2009: 124,179,686) ordinary shares in issue during the period.

Basic earnings per ordinary share before exceptional items for the six months ended 30 June 2010 is calculated on the pre-exceptional profit after tax of £2,393,000 (six months ended 30 June 2009: profit after tax of £511,000; year ended 31 December 2009: profit after tax of £5,453,000).  There is no basic earnings or loss per share on exceptional items for the six months ended 30 June 2010 (six months ended 30 June 2009: exceptional loss after tax of £7,087,000; year ended 31 December 2009: exceptional loss after tax of £1,963,000).  In all cases this is expressed on a per share basis using the weighted average share information disclosed above.

Diluted earnings/(loss) per share

Under normal circumstances, the average number of shares is diluted by reference to the average number of potential ordinary shares held under option during the period.  This dilutive effect amounts to 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.

The Group's diluted weighted average ordinary shares potentially in issue during the six months ended 30 June 2010 was 133,207,512 (six months ended 30 June 2009: 120,392,032; year ended 31 December 2009: 124,203,192).

6              Dividends

The Board determined on 20 August 2010 that no interim dividend for 2010 be paid (2009: nil).

7              Taxation

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.  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 and 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 was calculated using a rate of 28%.

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 differences arise from non-tax deductible goodwill, from the initial recognition of assets and liabilities in a transaction that affects neither the tax profit or 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 assets 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.

8              Related party transactions

Transactions between fellow subsidiaries, which are related parties, during the first half of 2010 have been eliminated on consolidation, as have transactions between the Company and its subsidiaries during this period.  The Group's associates and joint ventures are disclosed in the Group's Annual report and accounts 2009.  Since 31 December 2009 the Group has invested in Bovis Peer LLP, a joint venture.  The purpose of this entity is to invest in residential property.

In the six months ended 30 June 2010, inventory was sold to Bovis Peer LLP for a cash consideration of £25,859,250 (six months ended 30 June 2009: nil; year ended 31 December 2009: nil).  Half of the revenue and profit in respect of the sale to the joint venture has been eliminated from the Group results in accordance with IAS 31.  Fees earned in respect of lettings management services performed were £29,575 (six months ended 30 June 2009: nil; year ended 31 December 2009: nil).  In addition, a loan of £1,450,355 (six months ended 30 June 2009: nil; year ended 31 December 2009: nil) was provided to Bovis Peer LLP on an annual interest rate of LIBOR plus 2.4%.  Interest charges made in respect of the loan were £11,674 (six months ended 30 June 2009: nil; year ended 31 December 2009: nil).

Transactions between the Group and key management personnel in the first half of 2010 were limited to those relating to remuneration, previously disclosed as part of the Group's Report on directors' remuneration published with the Group's Annual report and accounts 2009.  No material change has occurred in these arrangements in the first half of 2010.

Mr Malcolm Harris, a Group Director, is a non-executive Director of the Home Builders Federation (HBF) and was a non-executive director of the National House-Building Council (NHBC) until 26 June 2010.  The Group trades in the normal course of business, on an arms-length basis, with the NHBC for provision of a number of building-related services, most materially for provision of warranties on new homes sold and for performance bonding on infrastructure obligations.  The Group pays subscription fees and fees for research as required to the HBF.

(unaudited)	Six months ended		Six months ended		Year ended
	30 June 2010		30 June 2009		31 December 2009
	£000		£000		£000
NHBC	834		291		724
HBF	68		73		78

There have been no related party transactions in the first six months of the current financial year which have materially affected the financial performance or position of the Group, and which have not been disclosed.

9              Reconciliation of net cash flow to net cash/(debt)

(unaudited)	Six months ended		Six months ended		Year ended
	30 June 2010		30 June 2009		31 Dec 2009
	£000		£000		£000
Net (decrease)/increase in cash and cash equivalents	(25,281	)	(6,843	)	102,961
(Drawdown)/repayment of borrowings	(8,305	)	101,000		118,000
Fair value adjustments to interest rate swaps	80		(103	)	(337	)
Movement in refinancing prepayment	-		(1,964	)	(8,270	)
Net cash/(debt) at start of period	112,258		(100,096	)	(100,096	)
Net cash/(debt) at end of period	78,752		(8,006	)	112,258
Analysis of net cash/(debt):
Cash	89,314		4,791		114,595
Bank and other loans	(10,305	)	(19,000	)	(2,000	)
Issue costs	-		6,306		-
Fair value of interest rate swaps	(257	)	(103	)	(337	)
Net cash/(debt)	78,752		(8,006	)	112,258

10            Circulation to shareholders

This interim report is be sent to shareholders.  Further copies are available on request from the Company Secretary, Bovis Homes Group PLC, The Manor House, North Ash Road, New Ash Green, Longfield, Kent  DA3 8HQ.  Further information on Bovis Homes Group PLC can be found on the Group's corporate website www.bovishomes.co.uk/plc including the analyst presentation document which will be presented at the Group's results meeting on 23 August 2010.

Statement of Directors' responsibility

We confirm to the best of our knowledge:

·      The condensed set of financial statements has been prepared in accordance with IAS34 Interim Financial Reporting as adopted by the EU;

·      The interim management report includes a fair review of the information required by:

(a)   DTR 4.2.7.R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b)   DTR 4.2.8.R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

For and on behalf of the Board,

David Ritchie

Chief Executive

20 August 2010

Independent review report by KPMG Audit Plc to Bovis Homes Group PLC

Introduction

We have been instructed by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2010 which comprises the Group income statement, Group statement of comprehensive income, Group balance sheet, Group statement of changes in equity, Group statement of cash flows and the related explanatory notes.  We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.  

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Services Authority ("the UK FSA").  Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors.  The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FSA. 

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the EU.  The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK.  A review of interim financial information consists of making enquiries, principally of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2010 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FSA.

William Meredith for and on behalf of KPMG Audit Plc

Chartered Accountants

London

20 August 2010

 

END

 

 

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