Preliminary Results

Bovis Homes Group PLC 11 March 2002 BOVIS HOMES GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2001 Issued 11 March 2002 The Board of Bovis Homes Group PLC today announced its preliminary results for 2001. * Operating profit increased by 20.5% to Â£85.2 million (2000: Â£70.7 million) * Pre tax profit increased by 19.2% to Â£80.0 million (2000: Â£67.1 million) * Earnings per share increased by 18.3% to 49.7p (2000: 42.0p) * Operating margin increased to 23.8% (2000: 23.2%) * Return on average capital employed of 23.0% (2000: 23.2%) * Plots with planning consent at 10,326 plots (4.3 years' supply on 2001 completions) * Strategic landholdings of 19,847 potential plots (8.2 years' supply on 2001 completions) * Final dividend of 8.5p net per ordinary share making 12.7p for the year (3.9 times covered) * Year end net borrowings of Â£57.2 million (17.1% gearing) Commenting on the results, Malcolm Harris, the Chief Executive of Bovis Homes Group PLC said: 'The Group has delivered another excellent set of results, improving profits, operating margins and earnings per share. Additional investments in prime landholdings during the year have further strengthened the Group's consented and strategic landholdings, providing a firm base to expand the business. The current year has started well with cumulative sales reservations over 10% ahead in terms of volume compared with 2001. Sales prices achieved to date are above budget and the comparable period last year. Housing affordability remains good due to low interest rates and a competitive mortgage market. Based upon our trading experience to date and the current economic outlook, the Board is confident of 2002 being another successful year.' Enquiries: Malcolm Harris, Chief Executive Bovis Homes Group PLC Tel: 020 7321 5010 on Monday 11 March Tel: 01474 872427 thereafter Andrew Best / Emily Bruning Shared Value Limited Tel: 020 7321 5010 Chairman's statement The Group achieved a further year of strong performance reacting quickly to changes in market conditions and managing effectively the period of uncertainty arising from the tragic events on 11 September in the United States. The solid progress reported at the interim stage of 2001 was enhanced with a strong second half year. Results Profit on ordinary activities before taxation for the year ended 31 December 2001 rose by 19.2% to Â£80.0 million, compared with Â£67.1 million in 2000. This result was achieved from total turnover of Â£358.5 million, 17.5% greater than the previous year primarily from a 3% increase in volume of legal completions and a 14% increase in average selling price. For the year, the operating margin was increased to 23.8% and return on capital employed, which has again surpassed the Group's minimum target, stood at 23.0%. Basic earnings per share increased by 18.3% in 2001 to 49.7 pence. Dividend The Board proposes a final dividend for the year ended 31 December 2001 of 8.5 pence to be paid on 24 May 2002 to shareholders on the register at the close of business on 26 April 2002. This dividend when added to the interim dividend of 4.2 pence paid on 23 November 2001 totals 12.7 pence for the year and is covered 3.9 times by the basic earnings per share of 49.7 pence. The total dividend per share for the year represents an increase of 8.5% over the total dividend for 2000. Market conditions The housing market remained buoyant during 2001, notwithstanding the potential for decline raised by the terrorist attacks in the United States. Significant forecasting by market commentators of a UK recession only threatened to damage consumer confidence which remained resilient assisted by the 200 basis point interest rate reduction during 2001. The reduction in interest rates fed through rapidly to mortgage rates and reduced the share of household disposable income being used to service the home mortgage. At the end of the third quarter of 2001, affordability trend indicators reported that the first year mortgage interest payments as a percentage of average net earnings for a two income couple were 18%. As a result of reduced mortgage payments, house affordability has remained strong even after the reported increases in house prices. In January 2002 the Halifax reported annual growth in new house prices of 9.5% for the year ended 31 December 2001. Strategy In 2001 the Group was successful in growing its operating margins and at the same time increasing its volume of legal completions. The Board has established an expansion plan which it has started to implement. From 1 January 2002, the Northern area of operation has been launched as a new region. Further regional launches are planned, subject to market conditions, which will further expand the Group's geographic coverage. The Group's strategy is to grow its activity levels through regional expansion whilst retaining its well established financial objectives. The Group will continue to employ its core strategies across the expanded Group, focusing on consistent investment in prime land and continuous improvement programmes in respect of products and processes. Research and development into new build techniques and materials will continue in the Group's pursuit of multi-skilling the work force to improve the build process and delivering to customers a quality product which is synonymous with the Bovis Homes' name. The Group anticipates through its regional expansion to permit high calibre management within the Group to advance to positions of increased responsibility, gaining good experience whilst adding value in new, challenging and exciting roles. The Board The Board has been reconstituted and now comprises three executive directors; Malcolm Harris, Chief Executive; Ron Walford, Finance Director; and Stephen Brazier, Group Operations Director, and three non executive directors including myself as Chairman. During 2001, Jim Ditheridge retired from office and Mike Johnson resigned from the Board, whilst retaining operational responsibility for Central region. Since the year end, Mike Sharpe has retired from office and Peter Baker has resigned from the Board, whilst retaining operational responsibility for South West region. John Emery retired on 3 January 2002 after 25 years service with the Group. Ron Walford has notified the Board of his intention to retire from the Company effective from 30 June 2002. Ron has been with the Group for 30 years and was appointed Finance Director in 1974. I am pleased to advise that from 1 July 2002, David Ritchie will be appointed as Finance Director. David has been the Group's Financial Controller since 1998, having joined the Group soon after flotation. On behalf of the Board I would like to express my thanks to Ron Walford, John Emery and Mike Sharpe for their service with the Group and contribution to the Board. I would also like to thank Mike Johnson and Peter Baker for their contribution as Board members and look forward to their continuing support as Managing Directors of their respective regions. Employees These results could not have been achieved without a great deal of hard work and effort from our employees, for which the Board expresses thanks. Such dedication provides great confidence for the future. After careful consideration, the Board decided to introduce a new defined contribution pension scheme effective from 1 January 2002. New employees joining the Group after that date are being offered membership of the new scheme. Existing members of the defined benefit scheme continue to be members of that scheme. The Group has for many years advanced the concept of employee share ownership through the Inland Revenue approved Profit Sharing Scheme. This scheme has been phased out by the Government, however, the Group intends to launch a new Share Incentive Plan (SIP), subject to Inland Revenue approval. At the forthcoming annual general meeting the Board will seek approval from the shareholders to do this. Prospects The UK economy to date has surprised many with its resilience against recession. Consumer confidence has been reported recently as having recovered to levels comparable with the record levels reached in July 2001, before the tragedies unfolded in the United States. However, latest GDP forecasts suggest limited output growth during 2002 with the manufacturing sector being more susceptible to contraction. Underlying inflation is forecast for 2002 to remain below the 2.5% benchmark rate used by the Monetary Policy Committee which may lead to reticence in respect of increases in interest rates. This along with earnings growth forecasts as published by the Halifax in its February 2002 Economic Outlook of 4.0% for 2002 will assist in maintaining affordability in the housing market. In the same Economic Outlook, the Halifax has forecast a reduction in house price increases during 2002 compared with 2001 which should assist stability in the housing market. Given the Group's trading experience to date in 2002 with reservations and site visitors ahead of the same period in 2001 and the prevailing economic picture, the Board is confident that 2002 will be another successful year. Nigel Mobbs Chairman Chief Executive's operational review Trading environment The United Kingdom's overall economy performed remarkably well during 2001 particularly when compared with the world economic climate. Underlying inflation ended the year considerably below the Government's target of 2.5%. Bank base interest rates remained at 6.0% until February before decreasing steadily to a low of 4.0% in November where they remained until the end of the year. Strong growth in high street spending and increases in average earnings and employment provided a strong consumer base. Consumer confidence was adversely affected by the outbreak and protraction of the foot and mouth epidemic which caused restrictions on the movement of people and vehicles and severe hardship in areas dependant upon farming and tourist activity. The poor weather conditions experienced during 2000 continued through the first quarter of 2001 resulting in extensive flooding in many parts of the country which impacted upon the Group's production resulting in the profit split being strongly biased towards the second half of the year. The tragedies experienced in the United States on 11 September had a world-wide impact, the consequences of which will take time to fully evaluate. Affordability remained good throughout 2001 due to low interest rates, improvements in average earnings and a very competitive mortgage market. The average house price increase for new homes for the year ended 31 December 2001, as reported by the Halifax, was 9.5% with significant regional price variations. Group performance Operating in a reasonable, but challenging, housing market the Group produced an excellent performance further strengthening the operating base to facilitate the planned expansion of the business. The Group's operating margin improved to 23.8% from 23.2% in 2000 as a result of the combined effects of new products, process improvements, specification changes and increased volumes. The Group legally completed 2,429 houses, a 3% increase in unit throughput whilst at the same time it pursued opportunities to trade commercial landholdings and successfully completed a sale at Cambourne near Cambridge. The Group's average house sales price increased by 14% compared with 2000. After taking account of an 8% increase in the average size of unit to 1,053 square feet, sales price per square foot, net of incentives, increased by 6%. By comparison, construction costs per square foot increased by 7% including specification upgrades. The significant increase in average unit size reflects the ongoing increase in contribution from the Group's range of three storey townhouses and room in the roof homes, which contributed 15% of the legal completions during 2001 (2000: 4%). This contribution is demonstrated in the product mix of the Group's legal completions where five bedroom units have increased to 8% of total legal completions reflective of the flexible room in the roof space designed over a traditional two storey four bed unit. Product mix and average sales price 2001 2000 % Units Average % Units Average Year ended 31 December sales sales price price Â£ Â£ House type ---- ---- ------- ---- ------ ------ Two bedroom 17 420 97,100 17 416 84,700 Three bedroom 26 636 118,600 25 592 105,600 Four bedroom 34 834 165,400 38 890 152,200 Five or more bedroom 8 200 275,700 4 98 249,600 Social Housing 10 229 63,900 10 230 57,600 Retirement Homes 5 110 160,200 6 134 150,200 ---- ---- -------- ---- ------ ------ Group 100 2,429 140,600 100 2,360 123,300 ---- ----- -------- ---- ------ ------ Regional performance The planned growth within Central region facilitated the first stage of the expansion plan with the launch of the Northern region on 1 January 2002. The Central region results included 156 legal completions from the Northern area with a gross housing profit contribution of Â£4.0 million (2000: 120 legal completions and Â£3.2 million gross housing profit). Unit completions and average sales price Year ended 31 December 2001 2000 Units Average Units Average sales sales price price Â£ Â£ ------ -------- ------ ------- Central 769 150,000 650 135,200 South East 867 149,500 931 124,600 South West 683 115,600 645 103,800 Retirement Homes 110 160,200 134 150,200 ------ ------ ------ ------- Group 2,429 140,600 2,360 123,300 ------ ------- ------ ------- Operating margins Year ended 31 December 2001 2000 % % -------- -------- Central 26.4 22.7 South East 25.1 26.4 South West 16.9 18.1 Retirement Homes 25.6 25.8 -------- -------- Group 23.8 23.2 --------- --------- The South West region results included 107 social housing units, 45 units more than the previous year representing a far greater percentage of the region's activity and contributing more significantly to the Group's social housing throughput. Of these, 92 units were built on land that was not in the region's ownership. Land and planning The cost of processing planning applications and the time periods involved have increased considerably. Despite these impositions, the Group managed to increase its landholdings with planning consent to 10,326 plots as at 31 December 2001 which represented 4.3 years' supply based upon 2001 legal completion levels. The re-positioning of the Group's land bank continued during the year with a significant investment at Hatfield where the Group intends building the major part of a new village which will consist of a minimum of 1,000 homes. The average plot cost of the consented land bank (excluding social housing) was Â£36,300 which represented 24.4% of the average selling price in the year of Â£148,600 (excluding social housing). The plots held with consent at 31 December 2001 are anticipated to generate a higher average sales price as new products are developed in prime locations. The strategic landholdings as at the end of the financial year improved to 19,847 potential plots after transferring 411 plots from strategic to consented land during the year at a 15.0% discount to market value. Despite continuing planning difficulties a large number of strategic schemes are now at an advanced stage. Therefore, it is anticipated that there will be a substantial increase in the transfer of plots to consented land during 2002/2003. Unit completions originating from strategic land contributed 52% (2000: 49%) of the Group's development profit in the year. 28% (2000: 31%) of the unit completions in the year were built on previously used land. Consented land bank Total plots as at 31 December 2001 2000 Plots Plots --------- -------- Central 4,288 4,294 South East 3,470 3,385 South West 2,200 2,083 Retirement Homes 368 371 -------- -------- Group 10,326 10,133 -------- -------- Years' supply based upon completions in 4.3 4.3 the year -------- -------- Strategic land bank Total potential plots as at 31 December 2001 2000 Plots Plots ------- -------- Central 4,103 3,495 South East 11,259 10,446 South West 4,485 4,000 Retirement Homes - 75 --------- --------- Group 19,847 18,016 -------- -------- Years' potential supply based upon 8.2 7.6 completions in the year --------- --------- Included in strategic landholdings are 8,327 potential plots in strategic 'growth locations'. Growth locations are areas designated for development within draft or adopted development plans by local, county or unitary planning authorities. Total potential plots in 'growth 2001 2000 locations' as at 31 December Plots Plots Central 1,507 1,128 South East 5,334 5,439 South West 1,486 2,014 Retirement Homes - 75 --------- --------- Group 8,327 8,656 --------- --------- Pursuant to the publication of PPG3 the Group has acquired a number of investments which are potential re-development sites not allocated for residential use in the current plan which should receive planning consent in the short to medium term. Research and development The Group undertakes continuous reviews of all of its activities with an objective of achieving a safe working environment whilst maximising efficiency and profitability. In addition to process reviews, an extensive research and development programme is underway relating to site based activities, the objective of which is to: * achieve construction in all weather conditions; * attain consistent high quality; * maximise mechanical handling and use of factory finished components; * minimise waste by utilising lean, efficient construction techniques; * develop multi-skilled team working and new trade sequencing; * achieve partnering agreements involving suppliers, skilled tradesmen, industry bodies and Government, to develop new products and methods of operating. During 2001 significant progress has been made by the Group in these areas with increased usage of pre-assembled and pre-finished components and targets have been established for 2002. Component usage Average Target Average Target total total Year Year Year Year 2000 2001 2001 2002 ------ ------ ------ ------ Factory pre-finished, pre glazed windows 31% 85% 87% 95% Factory pre-finished soffits, fascias, barge boards 30% 85% 87% 95% Factory pre-assembled, pre-finished GRP porches 97% 97% 98% 99% Factory pre-assembled, pre-finished GRP dormers 2% 83% 46% 81% Factory assembled pre-glazed external steel doorsets 14% 74% 81% 99% Factory assembled internal doorsets - 25% 16% 62% Factory assembled pre-glazed cassette doorsets 4% 66% 71% 88% Factory assembled pre-glazed external feature doorsets 58% 85% 77% 92% Factory pre-finished garage doors 100% 100% 100% 100% Factory pre-fabricated engineered joist sets - 57% 62% 91% Factory finished radiators 100% 100% 100% 100% Factory pre-assembled stair parts/balusters 57% 100% 98% 100% New technology snap fit plumbing 48% 86% 82% 97% Factory pre-plumbed thermal store cylinders 61% 81% 82% 91% ------ ------ ------ ------ A new dimension in mechanical handling has been extensively trialled in the form of a unique rough terrain telescopic forklift truck with 360 degrees rotational ability, giving the operatives on-site ability to handle heavy materials including autoclaved aerated concrete components being developed in partnership with one of the Group's suppliers. The Group is participating in several Partners In Innovation (P.I.I.) projects in various stages of completion. These projects, part funded by Government, are designed to promote innovation and continuous improvement: * Using superdried timber in construction (Lead Partner: BRE, Centre for Timber Technology & Construction) * New environmentally friendly exterior building components for Medium Density Fibreboard (MDF) (Lead Partner: BRE, Centre for Timber Technology & Construction) * Adding value to UK timber: Development and demonstration of glued laminated products (Lead Partner: BRE, Centre for Timber Technology & Construction) * Development of a new energy efficient system for the whole house (a.a.c.) (Lead Partner: Leading aircrete manufacturer) The erection of a demonstration unit for the whole house (a.a.c.) partnership will form part of the prestigious ZETHUS project, a collection of innovative dwelling constructions being erected during 2002 at the University of Greenwich (Faculty of Build Environment). Ahead of the ZETHUS project, the Group trialled the use of aircrete components in the South West region utilising aircrete storey height panels, floor beams and stair components. Finishing works are progressing and trials have commenced with thin coat spray plasters. The Group is currently experimenting with innovative construction sequences, utilising multi-skilled labour for superstructure erection and finishing teams. The Group is working with major supply chain partners in many areas including the development of solid wall constructions and modular pre- fabricated brickwork. Social housing The Group provides quality homes serving a wide socio-economic customer base and is focusing upon the social housing sector as an area of expansion. Partnership agreements with housing associations offer significant benefits in terms of price, build quality, low maintenance and deliverability within short time scales. Additional resources are being deployed to this sector of the business. Details relating to a number of the schemes that the Group has been involved in during the past twelve months are presented within the 2001 report and accounts. Health, safety and environment Best practice in health, safety and environmental awareness and management is an important element in the continuing success of the Group. The objective is to maintain the highest practical levels of health and safety and effective environmental policies. The Health, Safety and Environmental Consultative Committee oversees these important matters, formulating and promulgating policy to all stakeholders. The Committee is chaired by a Bovis Homes Limited director by annual rotation to ensure that fresh ideas and initiatives are constantly introduced, assessed and, where appropriate, implemented on a consistent basis. The Chairman is supported by a committee comprising Group employees from numerous disciplines complemented by the Health and Safety Director and external independent professional advisers. During 2001 the Committee instigated a new S.M.A.R.T. audit regime, covering every site, which allows detailed, progressive and cumulative analysis of performance and focus for constant improvement. A revitalised health and safety competition was launched in 2001 entitled the 'Bovis Homes Health and Safety Marathon'. The high profile competition is progressively and cumulatively judged to stimulate, motivate and improve health and safety standards. Whether on site or at its offices, Bovis Homes promotes all aspects of safety and environmental management throughout its operations in the interests of all stakeholders. Its record of success was once again recognised in 2001 with the Gold Medal Award from the Royal Society for the prevention of Accidents and the National Award from the British Safety Council. Bovis Homes' objective is to achieve sustainable construction and reduce environmental impact. The Group seeks to protect and, wherever possible, improve the environment by retaining mature landscaping and introducing new planting and habitats. It is also committed to planning for the most efficient and effective use of development land. The Group has introduced higher density properties with flexible accommodation which addresses the changing lifestyles of its customers including the ability to work from home. The Group has issued to employees within the Group an Environmental Management Manual containing the Environmental Policy, Environmental Effects Document and Best Practice Checklists. It is a comprehensive approach consolidating policies, procedures and systems, explaining how all employees can assist the Group in achieving its environmental aims and make a positive contribution to the environment. Further information in respect of health and safety, environmental management, sustainable development and detailed progress against previously set environmental targets can be found in the Group's inaugural free standing Corporate Report on policies, procedures and performance. Group and management structure A framework has been established to enable the Group to expand. David Durling has been appointed as Managing Director of the new Northern region which is based at Wilmslow and covers the north west and north east of England. Geoff Coleman has been appointed as Managing Director of the South East region following Mike Sharpe's retirement from office. Regardless of where and when elements of the Group's expansion plan occur, all systems, methods of operating, procurement and processes are standardised in line with the Group operational model which is subject to regular review and, where appropriate, improvement. The operational model is founded upon the concept of empowerment, fostering regional management's entrepreneurial flair within a prescribed method of operating, to purchase land in the right location using local knowledge, to specify products to meet local needs, to market these products to the identified customer base and maximise profitability. As part of the expansion plan and to further improve the Group's efficiency, Castle Bromwich Hall, the regional office for the Central operation, was sold in 2001 and a new purposely designed office is being built at Coleshill, near Birmingham, which will be occupied in the summer of 2002. The relocation will provide space for expansion, a net cash saving for the business, improve operating efficiency and reduce office running costs compared with the previous location. Further area and regional offices will be opened as and when appropriate. The effect of these changes will add volume and profit, improving the overall overhead recovery level of the Group. Turning to the management of the growing business, the Board of the Company has been reconstituted since the 2001 year end to three executive directors and three non executive directors. These changes have focused all regional Managing Directors efforts to the main operating company whilst I, along with the Group Operations Director and Finance Director concentrate on overseeing the entire Group activity. The expansion plan of the Group will be assisted by the new Board structure. The framework outlined for expansion will be underpinned by the Group's ability to sustain the business long term and to consistently improve the level of earnings per share. Structural and operational changes will continue to be made only where there is a sound business case for such actions. Employees Bovis Homes is a people business. It is essential therefore that the right individuals are recruited, trained and motivated. The objective is to ensure that the Group employs the highest calibre of employees who add value to the business and are sensitive to the demands and requirements of the Group's customers whilst having the entrepreneurial drive and flair to move the operation forward without compromising good corporate governance. Training is an essential element of the Group's business strategy. Employees have a personal development plan which is formulated in consultation with their manager to support their individual aspirations whilst matching and complementing the needs of the Group. Once the plan has been formulated there is further appraisal to ensure that the aims and objectives are successfully achieved. An action plan has been formulated to facilitate the development of key staff in the business to allow both succession for current executives and the fulfilment of new senior positions arising from the proposed expansion. It is hoped that the majority of future senior appointments will be resourced through promotion from within the Group. All appointments, however, will be made upon merit, ability and experience and progress maintained to ensure that the business does not, and will not, rely upon any particular individual for its future success. On 1 January 2002, the Group launched a new defined contribution pension scheme which will be offered to new employees joining the Group. The Scheme is intended to offer these employees the surety of a pension and provide the Group with certainty of contribution levels. All employees currently in the existing Bovis Homes' defined benefit pension scheme continue to be members of that scheme. Planning legislation The further deterioration in the planning system has been acknowledged by the Government who published a Planning Green Paper on 12 December 2001, the objective of which is to deliver a fundamental change to the planning system in England. The Group previously responded positively to the opportunities that arose pursuant to the publication of PPG3. It welcomes the review and trusts that the Green Paper will provide opportunities for government at local and national level to work with the industry to find practical solutions to improve the planning system. Taxation The housebuilding industry continues to be adversely affected by new or increased Government taxes. Aggregate tax A new levy on aggregate materials is to be implemented in April 2002 set at Â£1.60 per tonne. This additional burden will add considerable cost to all infrastructure, roads and sewers as well as construction work. Landfill tax The current tax cost is Â£2 per tonne for inactive and Â£12 per tonne for active waste. During 2002 the active waste tax is to be increased by Â£1 per tonne. Further increases are proposed for 2003 and 2004. Climate change levy Additional taxes have been imposed on electricity, gas, liquefied petroleum gas and solid fuels: * Electricity 0.43 pence per kWh * Gas 0.15 pence per kWh * LPG 0.96 pence per kg (0.07 pence per kWh) * Solid fuel 1.17 pence per kg (0.15 pence per kWh) These taxes make British made products more expensive to manufacture and adds further costs to the housebuilding industry. The Group has budgeted in 2002 for an additional Â£2 per square foot, representing over 3% of budgeted construction costs, to allow for the aforementioned tax increases and building regulation changes. Outlook for 2002 Bovis Homes commenced the new year in a strong position with an excellent land bank and product range, efficient processes and a good forward sales position. The new Northern region has started strongly supporting the Group's plans to add further operations to improve shareholder value. Most importantly the Group is supported by able, enthusiastic, committed employees led by a very capable management team, confident of their ability to deliver ongoing, positive results for the Group's shareholders. Malcolm Harris Chief Executive Financial review Overview 2001 was a year of good growth for the Group notwithstanding the tragic events in the United States on 11 September 2001 and the aftermath. Turnover increased by 17.5% and pre tax profit was raised by 19.2%. Earnings per share increased by 18.3% to 49.7 pence. The balance sheet ended the year in very sound condition with a strong land bank and low borrowings relative to shareholders' funds and total bank facilities. Review of results The profit on ordinary activities before taxation for the year ended 31 December 2001 amounted to Â£80.0 million inclusive of a profit arising on the sale of freehold property of Â£1.2 million. This compares with Â£67.1 million in the previous year and excluding this year's exceptional profit represents an increase of 17.4% year on year. Total turnover rose from Â£305.0 million in 2000 to Â£358.5 million in 2001. 2,429 profit units were completed at an average selling price of Â£140,600 compared with 2,360 units and Â£123,300 in the previous year. The 14% increase in average selling price reflected the larger proportion of three storey and room in the roof properties which represented 15% of unit output in the year, against 4% in the previous year. Overall, the average selling price per square foot increased by 6% and the average size of unit increased by 8%. Operating profit increased by 20.5% to Â£85.2 million (2000: Â£70.7 million), and showed an enhanced operating margin of 23.8% on turnover, compared with 23.2% in the previous year. Land sale and other income accounted for Â£17.0 million turnover compared with Â£14.0 million in 2000. Land sales contributed a profit less option costs of Â£2.7 million in 2001 (2000: Â£2.3 million). A profit of Â£1.2 million arose from the sale of a regional office near Birmingham. Net interest payable amounted to Â£6.4 million, and was covered 13 times by profit before interest. The net corporation tax charge for the year amounting to Â£23.4 million, was after crediting an adjustment in respect of prior years amounting to Â£0.3 million. Dividends paid and proposed totalled Â£14.5 million (2000: Â£13.3 million) resulting in a retained profit for the financial year of Â£42.1 million (2000: Â£34.1 million). Review of balance sheet Shareholders' funds increased during the year by Â£44.8 million to Â£334.9 million and net borrowings reduced by Â£3.8 million to Â£57.2 million. The additional capital employed was essentially invested in land held for development, offset by an increase in land creditors and relatively small reductions in work in progress and part exchange properties, as follows: As at 31 December 2001 2000 Increase/ (decrease) Â£m Â£m Â£m -------- -------- -------- Land held for development 397.9 309.6 88.3 Land creditors (102.9) (62.7) (40.2) --------- -------- -------- Net investment in land 295.0 246.9 48.1 Raw materials and work in progress 120.2 121.2 (1.0) Part exchange properties 23.7 27.3 (3.6) -------- -------- -------- The Group has maintained over 4 years' supply of land, based on the previous year's profit unit output, negotiating deferred land payment terms wherever possible. Closing work in progress has been held at a similar level to that at the beginning of the year, whilst the book value of part exchange properties has been reduced by 13%. The strategies applied during the year, including the level of investment in land and work in progress, have enabled the Group to achieve a return on average capital employed of 23.0%. Review of cash flow Cash inflow from operating activities amounted to Â£43.9 million, compared with an outflow of Â£23.4 million in 2000. The strength of the cash flow in the year allowed the Group to reduce its net borrowings at 31 December 2001 by Â£3.8 million to Â£57.2 million. This represented a net debt/equity ratio of 17.1%, compared with 21.0% at the start of the year. This level of debt is well below the bank facilities now available to the Group. It currently has total bank facilities amounting to Â£224.0 million, of which Â£5.0 million is an overdraft facility, and Â£219.0 million is comprised of a number of bilateral revolving credit facilities of which Â£20.0 million matures on 2 November 2002, Â£35 million on 10 December 2005, Â£124 million on 9 January 2007, Â£20 million on 5 February 2007 and Â£20 million on 10 December 2007. Accounting standards The Group has adopted the new accounting standard FRS 18: 'Accounting Policies', and commenced the implementation of FRS 17: 'Retirement Benefits', in accordance with the standard. Under FRS 18 the Group has reviewed its accounting policies to ensure that they remain the most appropriate to its particular circumstances for the purpose of giving a true and fair view. In respect of FRS 17 an independent actuary has valued the Group's defined benefit scheme, as at 31 December 2001, in accordance with the standard. The valuation shows a gross deficit in the scheme of Â£3.97 million, with a deferred tax asset of Â£1.19 million leaving a net pension deficit of Â£2.78 million. This is a disclosure item only in the 2001 report and accounts as required by the standard. Pensions A triennial valuation of the Group's defined benefit pension scheme as at 30 June 2001 showed that the total market value of the assets was sufficient to cover 97.5% of the benefits that had accrued to members at that date, after allowing for assumed future increases in earnings. On the basis of this valuation and advice from the scheme's independent actuary the Group increased its contribution rate from 15% to 20% of pensionable earnings (less one and a half times the lower earnings limit where appropriate) with effect from 1 July 2001. The Group's pension cost was calculated under the existing accounting standard SSAP 24. Ron Walford Finance Director Group profit and loss account Continuing operations For the year ended 31 December 2001 2001 2000 Â£000 Â£000 -------- -------- Turnover 358,543 304,996 Cost of sales (243,284) (207,170) -------- -------- Gross profit 115,259 97,826 Administrative expenses (30,034) (27,135) -------- --------- Operating profit 85,225 70,691 Profit on sale of freehold property 1,213 - -------- -------- Profit before interest 86,438 70,691 Interest receivable and similar income 172 88 Interest payable and similar charges (6,604) (3,710) -------- -------- Profit on ordinary activities before taxation 80,006 67,069 Taxation on profit on ordinary activities (23,400) (19,700) --------- -------- Profit on ordinary activities after taxation 56,606 47,369 Dividends paid and proposed (14,549) (13,252) -------- --------- Retained profit for the financial year 42,057 34,117 ======== ======= Basic earnings per ordinary share 49.7p 42.0p -------- -------- Diluted earnings per ordinary share 49.1p 41.5p -------- -------- In both the current and preceding financial periods there were no other recognised gains or losses. Note of Group historical cost profit and losses Continuing operations For the year ended 31 December 2001 2001 2000 Â£000 Â£000 -------- -------- Profit on ordinary activities before taxation 80,006 67,069 Realisation of property revaluation gains of previous years 614 - -------- -------- Historical cost profit on ordinary activities before taxation 80,620 67,069 -------- -------- Historical cost profit for the year retained after taxation and dividends 42,671 34,117 -------- -------- Group balance sheet As at 31 December 2001 2001 2000 Â£000 Â£000 -------- -------- Fixed assets Tangible assets 6,844 8,584 Investments 1,356 1,051 -------- -------- 8,200 9,635 -------- -------- Current assets Stock and work in progress 544,000 458,585 Debtors due within one year 10,134 8,671 Debtors due after more than one year 7,851 4,884 Cash and short term deposits 6,386 1,039 -------- -------- 568,371 473,179 -------- --------- Creditors: amounts falling due within one year (128,810) (113,428) --------- -------- Net current assets 439,561 359,751 -------- -------- Total assets less current liabilities 447,761 369,386 Creditors: amounts falling due after more than one year (111,305) (77,861) Provisions for liabilities and charges (1,552) (1,473) -------- -------- Net assets 334,904 290,052 ======== ======== Capital and reserves Called up share capital 57,444 56,785 Share premium 135,571 133,435 Revaluation reserve 203 817 Profit and loss account 141,686 99,015 -------- -------- Equity shareholders' funds 334,904 290,052 ======== ======== Group cash flow statement For the year ended 31 December 2001 2001 2000 Â£000 Â£000 -------- -------- Net cash inflow/(outflow) from operating activities 43,908 (23,395) Returns on investments and servicing of finance Interest received 172 88 Interest paid (6,720) (3,424) -------- -------- (6,548) (3,336) -------- --------- Taxation paid (23,491) (18,096) -------- -------- Capital expenditure and financial investment Purchase of tangible fixed assets (3,368) (2,040) Sale of tangible fixed assets 4,797 234 Purchase of investments (668) (586) Sale of fixed asset investments 36 5 --------- --------- 797 (2,387) -------- -------- Equity dividend paid (13,678) (12,518) --------- --------- Cash inflow/(outflow) before management of 988 (59,732) liquid resources and financing Management of liquid resources and financing Increase in short term deposits (6,000) - Increase in borrowings 2,000 61,000 Issue of ordinary share capital 2,795 1,000 -------- -------- (1,205) 62,000 --------- -------- (Decrease)/increase in cash (217) 2,268 ========= ======== Group reconciliation of movements in shareholders' funds For the year ended 31 December 2001 2001 2000 Â£000 Â£000 -------- -------- Opening shareholders' funds 290,052 254,935 Issue of ordinary shares 2,795 1,000 Total recognised gains and losses for the year 56,606 47,369 Dividends paid and proposed (14,549) (13,252) -------- -------- Closing shareholders' funds 334,904 290,052 ======== ======== Group reconciliation of operating profit to operating cash flows For the year ended 31 December 2001 2001 2000 Â£000 Â£000 -------- -------- Operating profit 85,225 70,691 Depreciation and amortisation 2,050 1,831 Profit on disposal of non property tangible (67) (13) fixed assets Increase in stocks (85,415) (98,310) Increase in debtors (4,430) (374) Increase in creditors 46,545 2,780 ---------- --------- Net cash inflow/(outflow) from operating 43,908 (23,395) activities =========== ========= Group reconciliation and analysis of net debt For the year ended 31 December 2001 2001 2000 Â£000 Â£000 -------- -------- (Decrease)/increase in cash in the year (217) 2,268 Cash outflow/(inflow) from change in debt 4,000 (61,000) -------- -------- Change in net debt 3,783 (58,732) Opening net debt (61,011) (2,279) --------- -------- Closing net debt (57,228) (61,011) ======== ======== Analysis of net debt: Cash 386 1,039 Short term deposits 6,000 - Bank overdraft (614) (1,050) Borrowings (63,000) (61,000) -------- -------- (57,228) (61,011) ======== ======== Notes to the accounts 1. Basis of preparation The Group accounts include the accounts of the Company and its subsidiary undertakings all of which are made up to 31 December 2001. The financial information included within this statement does not constitute the Company's statutory accounts for the year ended 31 December 2001 or 2000. The information contained in this statement has been extracted from the statutory accounts of Bovis Homes Group PLC for the year ended 31 December 2001, which have not yet been filed with the Registrar of Companies, on which the auditors have given an unqualified audit report, not containing statements under section 237(2) or (3) of the Companies Act 1985. The Group has adopted the new accounting standard FRS 18: 'Accounting Policies' during the year. There has been no material effect on the Group's results in the year arising from the implementation of this standard. The Group has implemented stage one of the transitional rules of FRS 17: 'Retirement Benefits' during the year. Required disclosures arising from this implementation are included in the Company's statutory accounts for the year ended 31 December 2001. In line with the Urgent Issues Task Force Information Sheet No. 48 dated 5 July 2001, assets related to long term incentive plans have been classified in investments for the current and prior year results. 2. Earnings per ordinary share Basic earnings per ordinary share for the year ended 31 December 2001 is calculated on profit after tax of Â£56,606,000 (2000: Â£47,369,000) over the weighted average of 113,977,097 (2000: 112,735,747) ordinary shares in issue during the year. Diluted earnings per ordinary share is calculated on profit after tax of Â£56,606,000 (2000: Â£47,369,000) over the diluted weighted average of 115,391,819 (2000: 114,184,319) ordinary shares potentially in issue during the year. The diluted average number of shares is calculated in accordance with FRS 14: 'Earnings Per Share'. The dilutive effect relates to the average number of potential ordinary shares held under option during the year. 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 year. Only share options which have met their cumulative performance criteria have been included in the dilution calculation. There is no dilutive effect on the profit after tax used in the diluted earnings per share calculation. The weighted average number of shares excludes shares held in employee share trusts where dividends have been waived. 3. Taxation 2001 2000 Â£000 Â£000 -------- -------- Current tax for the year 23,728 20,200 Adjustment in respect of prior years (328) (500) -------- -------- 23,400 19,700 ======== ======== The rate of corporation tax applied was 30% for the year to 31 December 2001 and the year to 31 December 2000. During the year prior year tax positions were finalised leading to the release of a tax provision amounting to Â£328,000 (2000: Â£500,000). 4. Dividends The proposed final dividend of 8.5 pence net per ordinary share will be paid on 24 May 2002 to holders of ordinary shares on the register at the close of business on 26 April 2002. The dividend when added to the already paid interim dividend of 4.2 pence, totals 12.7 pence for the year. This information is provided by RNS The company news service from the London Stock Exchange

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