Preliminary Results 2004

Bovis Homes Group PLC 14 March 2005 BOVIS HOMES GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2004 Issued 14 March 2005 The Board of Bovis Homes Group PLC today announced its preliminary results for 2004. â€¢ Pre tax profit increased by 18.0% to Â£145.2 million (2003: Â£123.0 million) showing a 21% compound annual increase since flotation in 1997 â€¢ Earnings per share increased by 17.3% to 87.0p (2003: 74.2p) showing a 21% compound annual increase since flotation in 1997 â€¢ Final dividend declared of 13.6p net per ordinary share making 20.0p for the year, a 22% increase over the prior year â€¢ Commitment to increase the full year dividend by 5.0p per share over each of the next four years, thus doubling the full year dividend from its current base of 20.0p â€¢ Operating margin at 26.7% (2003: 27.0%) â€¢ Return on average capital employed of 25.7% (2003: 25.5%) â€¢ Plots with planning consent increased to 11,528 plots (owned: 11,174 plots/controlled: 354 plots) â€¢ Strategic landholdings increased to 22,831 potential plots after transferring 2,155 plots to consented landholdings during 2004 â€¢ Year end net borrowings of Â£15.5 million (2.8% geared) Commenting on the results, Malcolm Harris, the Chief Executive of Bovis Homes Group PLC said: 'The Group has delivered a year of record profits with a 9% increase in the volume of legal completions and resultant strong cash flow. The Group is now benefiting from a strong pull through of strategic land into consented land. This success is expected to continue into the future with a reasonable degree of certainty for the next four years. The profit and cash generation resulting from the Group's short, medium and long term investment in strategic land provides the base to commit to a more progressive dividend policy in addition to facilitating the Group's planned expansion including the launch of two new regions on 1 July 2005. The Group has commenced 2005 with improved landholdings, an exciting new product range and a commitment to achieve the planned expansion. The stability of base interest rates since August 2004 has assisted consumer confidence and visitor numbers and reservations in early 2005 have been encouraging. The Group is well positioned and, assuming an ongoing stable economic environment, the Board is confident of the prospects for the Group in 2005.' Enquiries: Malcolm Harris, Chief Executive Bovis Homes Group PLC On Monday 14 March - tel: 020 7321 5010 Thereafter - tel: 01474 876200 Results issued by: Andrew Best / Emily Bruning Shared Value Limited tel: 020 7321 5022/5027 Chairman's statement The Group has achieved record profits during the 2004 financial year, with the seventh consecutive year of profit growth since the Group's flotation in 1997. During this seven year period profits have grown by a compound 21% per annum. The Group has been successful during 2004 in further strengthening its land bank and has increased return on average capital employed to 25.7%. Results Profit on ordinary activities before tax for the year ended 31 December 2004 increased by 18.0% to Â£145.2 million, compared with Â£123.0 million in 2003. This result was achieved from total turnover of Â£559.5 million, 17.0% greater than the previous year. The operating margin remained broadly similar at 26.7% compared with 27.0% in 2003 as did return on average capital employed at 25.7% compared to 25.5% reported for the prior year. Basic earnings per share improved by 17.3% to 87.0 pence per ordinary share compared to 74.2 pence per ordinary share in 2003. Dividend The Board proposes a final dividend for the year ended 31 December 2004 of 13.6 pence to be paid on 20 May 2005 to shareholders on the register at the close of business on 29 March 2005. This dividend when added to the interim dividend of 6.4 pence paid on 26 November 2004 totals 20.0 pence for the year and is covered 4.4 times by the basic earnings per share of 87.0 pence. The total dividend per share for the year represents an increase of 22% over the total dividend for 2003 of 16.4 pence. The Board intends, conditional on any necessary approvals required at future annual general meetings, to increase the full year dividend over the next four years by 5.0 pence per annum. This commitment, which is subject to a stable business environment, will double the full year dividend over the four year period to 40.0 pence per share from its 2004 base of 20.0 pence per share. The Group is able to make such a commitment in terms of dividend growth due to the strong pull through of strategic land which will deliver strong future profits and cash flows for the Group. The Board is proposing to introduce, subject to the approval of the Company's shareholders at the 2005 Annual General Meeting, a scrip dividend alternative, pursuant to which the shareholders may elect to receive the whole or part of their dividend in new ordinary shares credited as fully paid instead of cash, for the final dividend for the year ended 31 December 2004 and a scrip dividend mandate scheme for all future dividends to the extent that the Board decides, at its discretion, to offer a scrip dividend alternative in respect of such dividends. A circular containing details of the scrip dividend alternative and the scrip dividend mandate scheme, together with the relevant form of election, will be sent to shareholders at the same time as the notice of meeting for the Annual General Meeting. Market conditions The housing market, after a period of sustained buoyancy, experienced a mixed year in 2004. By contrast to 2003, the first half of the year was very strong. House sales price growth reached unsustainable levels combined with a significant increase in the volume of housing transactions. Consequently, press speculation and powerful commentary from external bodies including the Bank of England Monetary Policy Committee created a general concern that the housing market could witness a downturn. The second half of 2004 for the housing market saw the consumer reflecting this concern with slower house sales price growth and a slowing of the increase in property transactions. Having shown a year to date increase of 38% to June 2004, property transactions closed 2004 31% above 2003. The Monetary Policy Committee increased base interest rates four times between 5 February 2004 and 5 August 2004, increasing the rate from 3.75% to 4.75%. Whilst the absolute level of base interest rates was not such as to significantly undermine housing affordability, the upward direction of these rates during the six month period between February and August weakened consumer confidence. Consumers deferred making significant purchase decisions in anticipation of potential further interest rate rises. The Monetary Policy Committee was effective with its interest rate policy and market commentary. Base interest rates have remained unchanged since August 2004 which assisted in stabilising consumer confidence by the end of 2004. Also, average earnings continue to rise ahead of inflation which should provide further confidence. At the end of the third quarter of 2004, affordability trend indicators reported that the ratio of first year mortgage interest payments as a percentage of average net earnings for a two income couple was 24%. Whilst this rate was higher than the 19% reported at the same point in 2003, it demonstrates strong ongoing housing affordability when compared to the same indicator published in 1990 at 38%, the highest the indicator has recorded in the last twenty years, coinciding with the end of the housing 'boom' of the late 1980's. Strategy The Group continues to employ a consistent strategy in pursuit of its core objectives. This strategy involves focusing on delivering the maximum value achievable from each home constructed and legally completed. A growing coverage of England and Wales through the expanding regional structure contributed to growth in the volume of legal completions. Together, volume and pricing contributed to the increase in profits whilst generally retaining the Group's operating margins at the industry leading levels previously achieved. The Group aims to deliver a quality product to the housing market which is driven by customer needs, employing modern construction techniques which involve using materials pre-finished under factory conditions along with ongoing focus on build quality on the sites. New products are designed to improve the houses which the Group offers to its customers with reduced maintenance and better use of internal space. The Group operates customer care teams which are a core part of the regional management structure providing pre handover inspections and post occupation customer care services. In a housing market where further sales price increases may be more difficult to achieve, the Group's strategy to grow the size of its business through increased coverage of England and Wales is considered the best way forward. Subject to market conditions, the Group intends to launch further regions, particularly in locations where the Group has large strategic landholdings which, in the short term, are anticipated to deliver a large number of land plots with residential consent. These new regions will use the long land supply of these large strategically sourced landholdings to provide an 'anchor' site to base the region around. To this end, the Group has decided to launch two new regions effective from 1 July 2005. The first of these will be based at Bristol. Its 'anchor' site will be Filton where the Group has control of approximately 2,200 plots of land allocated in the local plan for residential development. The second of these new regions will be based at Wellingborough where the Group has a significant strategic landholding of approximately 3,000 plots of land, again allocated for residential development. The Board Following the resignation of Stephen Brazier from the Board and the Company on 31 July 2004, the Board now comprises four non-executive directors, including me as Chairman, and two executive directors. The Combined Code The Group continues to be committed to good corporate governance and complies with the provisions of the 2003 Combined Code. Employees Bovis Homes is a people business and I would like to thank all our employees for their contribution during the year. It is essential 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 sound corporate governance. Pensions The Group has demonstrated its commitment to the Bovis Homes defined benefits pension scheme by agreeing to make special contributions totalling approximately Â£11 million through the period from July 2004 to April 2007. These special contributions will remedy the past service pension deficit of Â£10.23 million identified at the latest triennial actuarial review completed effective from 1 July 2004. Future service employer contributions have been increased from 20% to 22% of basic salary whilst employee contributions have been increased from 5% to 6%. Prospects The Monetary Policy Committee raised base interest rates by 100 basis points between February and August 2004. These rises have taken effect and quelled unsustainable house price increases that were present in the marketplace. During 2005 it is considered likely that house price increases will be more subdued. Affordability remains good and the fundamentals of the housing market remain strong with demand in the areas in which the Group operates exceeding supply. The Group continues to increase the number of lower priced high value small homes offered following the launch of its new product range during 2004. The Group is well on course to deliver its predicted 9,000 plots of consented land through the strategic land bank between 2004 and 2006 with 2,155 plots converted in 2004 and the conversion of Brockworth Airfield, near Gloucester, for an estimated 1,300 plots in January 2005. The Group started 2005 with a strong land bank and a product range designed to appeal to the segment of the market where housing transactions are motivated by need rather than speculative appetite. The launch of new regions will assist in driving the Group to increased activity levels. The Group is well placed to operate successfully in a more challenging market and, subject to the current economic environment continuing, the Board anticipates that 2005 will be another successful year. Nigel Mobbs Chairman Chief Executive's operational review Group results The Group achieved a further year of record profits and improvement to the asset base. Profit before tax increased to Â£145.2 million, an 18.0% increase over the previous year. Return upon average capital employed improved to 25.7% (2003: 25.5%). The consented land bank closed at 11,528 plots (2003: 10,878 plots) and strategic land ended the year with 22,831 potential plots (2003: 22,152 potential plots) after transferring 2,155 plots from strategic land to consented land during the year. The Group's operating margin remained broadly in line at 26.7% (2003: 27.0%). Gearing remained low due to good cash management including an increase in the value of deferred payment land creditors. Trading environment The first six months of the year witnessed a strong demand stimulated by a combination of increased employment, average earnings improvements and low interest rates. The second half year was adversely affected by increased interest rates and negative comments relating to the housing market made by both the media and the Bank of England. Although base interest rates were still low by historical standards, the movement from 3.75% in February 2004 to 4.75% in August 2004 was sufficient to cool both consumer spending and house price increases. Product mix and average sales price The Group legally completed 2,700 homes, including 127 houses constructed on third party owned land, compared to 2,482 homes in 2003, including 118 houses on third party owned land. Market sector analysis Year ended 31 December 2004 2003 % Units Average % Units Average House type sales price sales price Â£ Â£ ______________________________________________________________________________ One and two bedroom 15 418 136,800 13 337 128,900 Three bedroom 37 989 184,900 33 814 167,000 Four bedroom 17 468 245,300 23 571 227,100 Five or more bedroom 15 397 313,400 15 364 298,800 Retirement Living 5 125 243,400 4 104 190,700 Social housing 6 176 91,500 7 174 74,700 Partnership housing (third 5 127 67,200 5 118 66,100 party owned land units) ______________________________________________________________________________ Group 100 2,700 197,900 100 2,482 184,700 ______________________________________________________________________________ The Group's average sales price was Â£197,900 compared with Â£184,700 the previous year, a 7.1% increase. The average size of unit increased by 0.5% to 1,146 square feet (2003: 1,140 square feet). The average sales price per square foot increased by 6.6%. The average construction cost per square foot increased by 6.9%, after absorbing specification upgrades as well as additional taxation arising from aggregate tax, landfill tax and climate change levy. Approximately 2% of the cost increase related to changes in building regulations which was allowed for in respect of investment appraisals and internal budgets. The average house price increase in the United Kingdom in 2004 reported by the Land Registry was 11.8%, whilst the comparable increase reported by the Nationwide was 12.7% and by the Halifax was 15.1%. Product mix analysis Year ended 31 December 2004 2003 % Units Average % Units Average House type sales price sales price Â£ Â£ ______________________________________________________________________________ Traditional 31 858 185,900 40 983 177,800 Room in the roof 19 512 292,300 19 480 274,400 Three storey 25 663 206,000 19 476 193,600 Apartments 9 239 140,700 6 147 130,500 Retirement Living 5 125 243,400 4 104 190,700 Social housing 6 176 91,500 7 174 74,700 Partnership housing (third 5 127 67,200 5 118 66,100 party owned land units) ______________________________________________________________________________ Group 100 2,700 197,900 100 2,482 184,700 ______________________________________________________________________________ Regional performance Unit completions and average sales price Year ended 31 December 2004 2003 Units Average Units Average sales price sales price Â£ Â£ ________________________________________________________________________________ South East 873 204,700 795 197,700 South West 809 171,100 690 161,400 Central 531 213,900 543 193,600 Eastern 178 202,500 108 212,900 Northern 184 202,300 242 173,700 Retirement Living 125 243,400 104 190,700 ________________________________________________________________________________ Group 2,700 197,900 2,482 184,700 ________________________________________________________________________________ The Northern region's legal completions total in the year was adversely affected due to delays in the provision of utility services required to enable properties to legally complete within the trading period. Eastern region, in its first year as a separately reported operation, achieved good growth and is now established to expand rapidly. Operating margins Year ended 31 December 2004 2003 % % ______________________________________________________________________________ South East 28.8 26.5 South West 22.9 21.9 Central 27.7 29.9 Eastern 31.1 41.0 Northern 18.2 25.7 Retirement Living 35.0 29.7 ______________________________________________________________________________ Group 26.7 27.0 ______________________________________________________________________________ South West region's operating margin included the margin arising on 127 dwellings which were constructed on third party owned land. The profit margins from this segment of its business are significantly lower than those from private sector sales. Such activities, however, provide early positive cash flow and a high return on average capital employed. The Northern region's reduction in operating margin was a result of a build up in overhead to facilitate future expansion and a substantial reduction in volume as a result of utility service problems in respect of two large developments. The reduction in volume in 2004 is expected to be redressed by an increase in revenue in 2005. Land and planning Consented land bank Total plots as at 31 December 2004 2003 Plots Plots ______________________________________________________________________________ South East 3,531 3,279 South West 2,464 2,398 Central 2,210 2,114 Eastern 1,135 929 Northern 1,526 1,392 Retirement Living 308 356 ______________________________________________________________________________ Group (exc. third party owned land plots) 11,174 10,468 Third party owned land plots South West 354 410 ______________________________________________________________________________ Group 11,528 10,878 ______________________________________________________________________________ Years' supply based upon legal completions in the year 4.3 4.4 ______________________________________________________________________________ The average plot cost of the consented land bank (excluding social housing and third party owned land) was Â£47,000 which represented 22.1% of the average sales price achieved in 2004 (excluding social housing and units constructed on third party owned land). The strategic landholdings increased to 22,831 potential plots after transferring 2,155 plots from strategic land to consented land during the year at an average discount to market value of 23%. A significant proportion of the Group's strategic landholdings are now at an advanced planning stage and are anticipated to add considerable value in the future. As previously advised, the Group anticipates between 2004 and 2006 that it will gain planning consent on approximately 9,000 plots of strategic land, which will assist the Group's planned expansion. The Brockworth Airfield site, near Gloucester, obtained planning consent in mid January 2005 for approximately 1,300 plots at a significant discount to market value. Two other large projects, namely Wellingborough and Filton, combined are anticipated to provide over 5,000 dwellings. Legal completions originating from strategic land contributed 29% (2003: 28%) of the Group's development profit in the year and 40% were built on previously used land (2003: 35%). This percentage is a reflection of the high historical concentration of Group developments in areas where there is less reusable land available. A high percentage of new investments are classified as brown land, which will substantially increase the percentage of dwellings constructed on previously used land. Strategic land bank Total potential plots as at 31 December 2004 2003 Plots Plots ____________________________________________________________________________ South East 9,095 11,078 South West 5,938 6,616 Central 6,349 3,260 Eastern 434 336 Northern 872 822 Retirement Living 143 40 ____________________________________________________________________________ Group 22,831 22,152 ____________________________________________________________________________ Years' supply based upon completions in the year 8.5 8.9 ____________________________________________________________________________ Included in strategic landholdings were 10,928 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 as at 31 December 2004 2003 Plots Plots _____________________________________________________________________________ South East 3,737 4,462 South West 3,506 4,242 Central 3,146 1,323 Eastern 98 - Northern 298 248 Retirement Living 143 40 _____________________________________________________________________________ Group 10,928 10,315 _____________________________________________________________________________ Partnership Developments Bovis Homes Partnership Developments is actively involved with housing associations, local authorities and other similar bodies providing quality new homes at affordable prices, for either rent or shared ownership, to communities throughout the country. The Group has total in-house capability to handle all aspects of each project including major regeneration schemes. In addition to design and build, there exists expertise to provide cross subsidies from the development and sale of open market housing and commercial buildings. The largest single partnership urban regeneration project that the Group is currently involved in is at Horfield in Bristol where it is redeveloping in excess of 800 homes. The Group was notified during 2004 that it has been appointed as preferred partner in respect of a further regeneration scheme which is expected to commence development in 2005, containing over 900 dwellings. Research and development The Group believes that continuous improvement through research and development is key to the continuing success of the business and is a significant factor in delivering environmental, social and sustainability objectives. The Group engages with many stakeholder organisations, including housebuilding industry warranty providers and building control bodies, the House Builders Federation, the Building Research Establishment, the ODPM in respect of building regulation development, and actively partners many manufacturers and suppliers. Further details are contained in the Group's Corporate Social Responsibility report which is being sent to all shareholders in addition to the Annual 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. The chairman reports formally to the Board through submission of a Health and Safety report tabled at each Board meeting. 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 2004 with the Gold Medal Award from the Royal Society for the Prevention of Accidents and the National Award from the British Safety Council. Further details are available in the Group's free-standing Corporate Social Responsibility report. 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 and make a positive contribution to the environment. Legislation and taxation The planning system showed no signs of improvement during 2004. There is an enormous gulf between the positive intentions of the Government and delivery by many of the planning authorities themselves. The Planning and Compulsory Purchase Bill and the new Communities Bill received Royal Assent during the year. The housebuiding industry continues to be adversely affected by increased taxes levied by the Government. Aggregate tax The levy on aggregate materials at Â£1.60 per tonne continues to add considerable cost to all infrastructure, roads and sewers as well as general construction costs. Landfill tax The active waste tax was increased to Â£15 per tonne during 2004 with further substantial rises expected in 2005 onwards. Inert waste tax remained at Â£2 per tonne during 2004. Climate change levy Additional taxes have been imposed on electricity, gas, liquefied petroleum gas and solid fuels. Stamp duty land tax All significant land purchases attract stamp duty land tax at 4.0% and the majority have a non recoverable VAT element of 17.5% added. This is in addition to the stamp duty land tax that purchasers pay upon legal completion of the home. Pension scheme The Group made a commitment during 2004 to fund the deficit on the defined benefits pension scheme by 2007. A payment of Â£1.85 million was made in 2004 and will be followed by additional payments to fund the deficit by 2007. In addition, the employer contribution rate was increased to 22% of salary with effect from 1 July 2004. The employee contribution was increased from 5% to 6% with effect from 1 July 2004. Group structure The new Eastern region reported for the first time as a separate operation in 2004. The region's first independent year of trading was highly successful. The operating margin remained high due to the effect of the Cambourne development, which was transferred from the Central region on the date of the launch of the Eastern region. The Northern region suffered a temporary set back due to problems with utility services which is expected to be redressed by an increase in revenue in 2005. Two new regions will be established on 1 July 2005. The new Wessex operation will be established in Bristol. It will operate for the first eighteen months as a sub region of the South West region and report as a separate business with effect from 1 January 2007. The second new region will be based at Wellingborough and will be established to manage this important large project, and surrounding developments. It will operate as a sub region of the Central region until 1 January 2007 when it will be reported as a separate region. Outlook for 2005 The economy is expected to be stable during the forthcoming year. High levels of employment and increases in earnings above retail price inflation provide a good economic base from which to operate. Average house sales prices, within the market the Group operates in, are not anticipated to increase faster than average earnings, which will improve the affordability ratio. The Group has designed a new range of products aimed at first time buyers which provides a good platform to expand the Group's activity and provide homes for people on lower incomes. Malcolm Harris Chief Executive Financial review Overview For the housing market, 2004 was very much a year of two halves. A strong demand for homes at rapidly increasing sales prices in the first half of the year engendered an air of unsustainability. Mortgage interest rates began to increase and housing affordability, whilst remaining strong, did deteriorate. In the second half of the year, the once confident consumer showed signs of uncertainty and purchase decisions were deferred until the direction of interest rates and house prices became clearer. Against this backdrop the Group delivered an increase in earnings per share of 17.3% to 87.0 pence per share and an increase in profit before tax of 18.0% to Â£145.2 million. The Group continued to invest in new land opportunities and closed the year with a land bank supply of 4.3 years with 11,528 controlled plots with full planning consent. The land bank increased by 6% during the year. The Group has maintained its investment in other areas of working capital such that at the end of 2004 there were sufficient units under construction, at different stages of build, to largely satisfy the legal completion volume requirements for 2005. Notwithstanding this ongoing investment, the Group has continued to generate significant positive trading cash flow which led to a decrease in the Group's year end net borrowings which stood at Â£15.5 million. The Group has adopted unchanged accounting policies for this financial year. There have been no new UK Financial Reporting Standards which affect the Group issued by the Accounting Standards Board during 2004. Profit before tax The profit on ordinary activities before tax for the year ended 31 December 2004 amounted to Â£145.2 million. This compared with Â£123.0 million in the previous year and represented an increase of 18.0% year on year. There were no exceptional items during either 2004 or 2003. Turnover Total turnover achieved was Â£559.5 million (2003: Â£478.4 million). Included within this figure was housing turnover of Â£534.4 million (2003: Â£458.4 million). The increase in housing turnover was primarily due to an 8.8% increase in unit legal completions to 2,700 units compared with 2,482 legal completions in 2003 and an increase in average sales price of 7.1% to Â£197,900 compared with Â£184,700 in 2003. The average sales price per square foot increased by 6.6% whilst the average size of unit increased marginally by 0.5% to an average 1,146 square feet (2003: 1,140 square feet). Land sales amounted to Â£19.6 million compared with Â£13.8 million in 2003 whilst other income, mainly arising from sales of commercial interests, was Â£5.5 million compared with Â£6.2 million in 2003. Operating profit The Group achieved an operating profit of Â£149.3 million, an increase of 15.6% over Â£129.2 million in the previous year, and maintained a relatively stable operating margin at 26.7%, as compared to 27.0% in 2003. Land sale profits less option costs generated a net profit of Â£9.4 million in 2004 (2003: Â£2.9 million). Land sale profits included the sale of commercial land, without residential planning consent, for Â£9.6 million with profit of Â£5.5 million. In total, the Group disposed of 127 plots of residential land typically on large sites where there is a long land bank supply. Administrative expenses, which include all sales and marketing costs, as a percentage of turnover were 8.1% compared with 8.5% in 2003. Administrative expenses increased by 11.8% to Â£45.5 million compared with Â£40.7 million in the previous year. The increase included additional headcount from the expansion of the regional structure. Average staff numbers (excluding site based staff) in 2004 were 516 compared with 478 in 2003. As a result of the 2004 defined benefits pension scheme actuarial valuation, administrative expenses included a SSAP 24 pension charge of Â£0.75 million in addition to the normal pension contributions made by the Group. This represents the first six months of recognition of the past service deficit identified through the actuarial valuation. Financing Net interest payable amounted to Â£4.1 million (2003: Â£6.2 million), and was covered 36 times by profit before interest. Taxation The corporation tax charge for the year amounted to Â£43.2 million, and was after crediting an adjustment in respect of prior years amounting to Â£0.4 million. Dividends Dividends paid and proposed totalled Â£23.5 million (2003: Â£19.2 million) resulting in a retained profit for the financial year of Â£78.5 million. The total annual dividend was covered 4.3 times by post tax earnings. Shareholders' funds Shareholders' funds increased during the year to Â£545.3 million as a result of retained earnings of Â£78.5 million and the issue of Â£1.8 million of share capital and share premium arising from the exercise of share options by employees, offset by the increase in own shares of Â£0.5 million held which are netted against equity. Net borrowings The Group ended the year with net borrowings of Â£15.5 million having started 2004 with net borrowings of Â£45.3 million. The Group utilised its existing bilateral committed revolving loan facilities to varying degrees throughout 2004 such that the average net borrowing was Â£52.0 million. The Group had fixed rate borrowings at 31 December 2004 of Â£75.0 million. Cash deposited in interest bearing bank accounts amounted to Â£59.5 million. Working capital Land increased from Â£468.7 million to Â£507.6 million, with an increase in land creditors from Â£46.9 million to Â£87.0 million. Work in progress increased from Â£177.2 million (including Â£21.1 million of part exchange properties) to Â£205.9 million (including Â£37.8 million of part exchange properties). As at 31 December 2004 2003 Increase/ (decrease) Â£m Â£m Â£m ____________________________________________________________________________ Land held for development 507.6 468.7 38.9 Land creditors (87.0) (46.9) (40.1) ____________________________________________________________________________ Net investment in land 420.6 421.8 (1.2) ____________________________________________________________________________ Raw materials and work in progress 164.5 152.4 12.1 Part exchange properties 37.8 21.1 16.7 Development properties 3.6 3.7 (0.1) ____________________________________________________________________________ Work in progress 205.9 177.2 28.7 ____________________________________________________________________________ At the end of 2004, the Group held 4.3 years' supply of controlled land, based on the previous year's legal completions, with 11,174 plots of owned land with planning consent and 354 plots of third party owned land which the Group controls through the establishment of JCT contracts with these third parties to construct affordable housing. Return on average capital employed Return on average capital employed for 2004 amounted to 25.7% based on the operating profit of the Group of Â£149.3 million and average capital employed of Â£580.5 million. For the seventh consecutive year, the Group has exceeded its objective of achieving a minimum return on capital employed of 20%. Pension scheme actuarial valuation The latest triennial actuarial valuation of the Group's defined benefit pension scheme was completed as at 30 June 2004. This valuation indicated that the total market value of the scheme's assets was sufficient to cover 77% of the present value of the scheme liabilities in respect of member service up to the valuation date, including allowance for future salary increases to normal retirement age. The past service deficit based on this funding level amounted to Â£10.23 million. The Group has decided to remedy this deficit during the period of July 2004 to April 2007, with a number of agreed special contributions to the pension scheme, totalling approximately Â£11.0 million when interest is taken into account. The first of these special contributions was made during 2004 and amounted to Â£1.85 million. A further payment of Â£1.5 million was made in January 2005. The scheme's independent actuary has advised that the average remaining service life of a scheme member is 7 years. Under the provisions of UK accounting standard SSAP 24 the deficit will be charged to the Group's profit and loss account over these 7 years with any year end surplus of special contributions over charges being held as a prepayment in the balance sheet. For the period from 1 July 2004 to the 31 December 2004, a SSAP 24 charge was included of Â£0.75 million and the year end balance sheet prepayment stood at Â£1.1 million. On the basis of advice from the scheme's independent actuary in respect of future service, the Group increased the employer contribution rate from 20% to 22% of pensionable earnings (less one and a half times the lower earnings limit where appropriate) with effect from 1 July 2004. Employee contribution rates were increased from 5% to 6% from 1 July 2004. Cash flow Cash inflow from operating activities amounted to Â£100.6 million (2003: Â£7.8 million). This cash inflow reflected both continuing strong cash generation from the sale of houses and other commercial interests and investment in growing the working capital base. After accounting for capital expenditure, finance costs, dividend payments and tax payments, the net borrowings of the Group decreased by Â£29.8 million from Â£45.3 million at 1 January 2004 to Â£15.5 million at 31 December 2004. Bank facilities and liquidity risk The Group held total bank facilities of Â£216.0 million at 31 December 2004, including Â£5.0 million of overdraft facility. The balance of the facilities were made up of bilateral committed revolving loan facilities held with seven banks, mainly five year facilities but with some seven year facilities. The earliest maturity date for these facilities is 10 December 2005 in respect of Â£35.0 million of facilities, with Â£124.0 million maturing on 9 January 2007, Â£20.0 million on 5 February 2007, Â£12.0 million on 3 May 2007 and Â£20.0 million on 10 December 2007. The Group's net borrowing position at 31 December 2004 of Â£15.5 million continued to reflect modest gearing of 2.8%. With average net borrowings of Â£52.0 million and average monthly shareholders' funds of Â£498.8 million, the average gearing of the Group during 2004 was 10.4%. Given timing differences between the investments in working capital and the flow of legal completion monies from house sales, the Group's peak net borrowings during 2004 were Â£86.0 million. Refinance of revolving loan facilities In February 2005, the Group successfully refinanced its group of bilateral facilities. New bilateral facilities were established with an aggregate value of Â£220.0 million on five year terms which mature on 6 February 2010. Whilst some way off from the natural maturity date of a number of the Group's existing facilities, it was identified that there was a window of opportunity to lock in finance for the next five years at favourable pricing margins compared to historical rates. The Group believes that total bank facilities of Â£225.0 million, including the Â£5.0 million overdraft facility, are sufficient to enable funding of foreseeable cash flows required for the medium term plans for the Group. As these are bilateral revolving committed loan facilities there is considerable flexibility available to the Group to manage its borrowing needs. Interest rate risk By fixing Â£75.0 million of borrowings through interest rate swaps with varying maturities, the Group has made certain its interest costs on what is considered its core borrowing requirement. Borrowings in addition to this core borrowing are judged on a case by case basis at the time of drawing down the loans in terms of interest rate flexibility and loan maturity. The Group has the ability to borrow using its bilateral committed revolving loan facilities for as little as a few days or up to the period through to maturity of the relevant facility. The Group can decide with its banks whether to fix the interest rate of borrowing through the further use of interest rate swaps, although care is taken to marry together the dates of draw down and maturity of the floating rate borrowing and interest rate swap. Fair value The fair value of the Group's fixed rate borrowings at 31 December 2004 exceeded its book value by Â£1.3 million. This reflected the movement in long term interest rates since these financial instruments were established. Further, the fair value of land creditors due after more than one year (deemed financial instruments under FRS 13: 'Derivatives and Other Financial Instrument Disclosures') amounted to Â£20.4 million compared with their book value of Â£23.3 million, derived from the discounting of future cash flows in settling land creditors. The fair values of the Group's other long term assets and liabilities were not materially different from their book values. Accounting standards During 2004 there have been no new UK Financial Reporting Standards issued by the Accounting Standards Board which impact the Group. Transitional rule disclosures as required through the stage implementation of FRS 17: 'Retirement Benefits' have been included in accordance with the standard. In respect of FRS 17 an independent actuary has valued the Group's defined benefits pension scheme assets and liabilities, as at 31 December 2004, on the basis defined in the standard. The valuation shows a deficit, net of deferred tax, on the scheme of Â£12.6 million (2003: Â£12.3 million deficit), which is a disclosure item only in the 2004 Annual Report and Accounts in accordance with the standard. Under FRS 18: 'Accounting Policies' 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. These financial statements have been prepared in accordance with applicable UK accounting standards. As a UK listed company, the Group will be required for its consolidated accounts to adopt International Financial Reporting Standards ('IFRS') for the year ending 31 December 2005, including the interim results for the half year ending 30 June 2005. The Group has assessed during 2004 each of the changes in accounting required through the adoption of IFRS. The intention is to publish, prior to the announcement of the Group's interim results for 2005, restated financial information for both the financial years ended 31 December 2003 and 31 December 2004. This will provide interested parties with two years of trend data using IFRS and will facilitate a better understanding of the results which will be published for the year ending 31 December 2005. IFRS is unlikely to have a significant impact on the trading results of the Group in any one year and whilst the shareholders' funds under IFRS will reduce due to the recognition of the Group's pension deficit and accounting for imputed interest on deferred term land purchases, this reduction will be small relative to shareholders' funds in total. David Ritchie Finance Director Bovis Homes Group PLC Group profit and loss account Continuing operations For the year ended 31 December 2004 2004 2003 Â£000 Â£000 ___________________________________________________________________________ Turnover 559,464 478,424 Cost of sales (364,664) (308,442) ___________________________________________________________________________ Gross profit 194,800 169,982 Administrative expenses (45,451) (40,749) ___________________________________________________________________________ Operating profit 149,349 129,233 Interest receivable and similar income 1,228 145 Interest payable and similar charges (5,395) (6,365) ___________________________________________________________________________ Profit on ordinary activities before tax 145,182 123,013 Tax on profit on ordinary activities (43,200) (36,500) ___________________________________________________________________________ Profit on ordinary activities after tax 101,982 86,513 Dividends paid and proposed (23,504) (19,187) ___________________________________________________________________________ Retained profit for the financial year 78,478 67,326 ___________________________________________________________________________ Basic earnings per ordinary share 87.0p 74.2p ___________________________________________________________________________ Diluted earnings per ordinary share 86.3p 73.8p ___________________________________________________________________________ In both the current and preceding financial years there were no other recognised gains or losses. In both the current and preceding financial years there was no material difference between the historical cost profits and losses and those reported in the profit and loss account. Bovis Homes Group PLC Group balance sheet At 31 December 2004 2004 2003 Â£000 Â£000 __________________________________________________________________________ Fixed assets Tangible assets 12,910 8,238 Investments 23 23 __________________________________________________________________________ 12,933 8,261 __________________________________________________________________________ Current assets Stocks and work in progress 713,499 645,922 Debtors due within one year 37,832 14,848 Debtors due after more than one year 5,414 5,577 Cash and short term deposits 59,486 30,005 __________________________________________________________________________ 816,231 696,352 __________________________________________________________________________ Creditors: amounts falling due within one year (218,448) (141,915) __________________________________________________________________________ Net current assets 597,783 554,437 __________________________________________________________________________ Total assets less current liabilities 610,716 562,698 Creditors: amounts falling due after more than one year (63,800) (95,703) Provisions for liabilities and charges (1,586) (1,516) __________________________________________________________________________ Net assets 545,330 465,479 __________________________________________________________________________ Capital and reserves Called up share capital 59,146 58,870 Share premium account 142,577 141,033 Revaluation reserve 203 203 Profit and loss account 343,404 265,373 __________________________________________________________________________ Equity shareholders' funds 545,330 465,479 __________________________________________________________________________ Bovis Homes Group PLC Group cash flow statement For the year ended 31 December 2004 2004 2003 Â£000 Â£000 _________________________________________________________________________ Net cash inflow from operating activities 100,640 7,808 Returns on investments and servicing of finance Interest received 1,155 155 Interest paid (5,289) (6,146) _________________________________________________________________________ (4,134) (5,991) _________________________________________________________________________ Taxation paid (40,750) (35,000) _________________________________________________________________________ Capital expenditure and financial investment Purchase of tangible fixed assets (6,232) (1,752) Sale of tangible fixed assets 68 424 Purchase of own shares (1,351) (828) Sale of own shares held 216 - _________________________________________________________________________ (7,299) (2,156) _________________________________________________________________________ Equity dividends paid (20,517) (17,118) _________________________________________________________________________ Cash inflow/(outflow) before management of liquid resources and financing 27,940 (52,457) Management of liquid resources and financing (Increase)/decrease in short term deposits (26,094) 51,544 Issue of ordinary share capital 1,820 2,570 _________________________________________________________________________ (24,274) 54,114 _________________________________________________________________________ Increase in cash 3,666 1,657 _________________________________________________________________________ Bovis Homes Group PLC Group reconciliation of movements in shareholders' funds For the year ended 31 December 2004 2004 2003 Â£000 Â£000 _________________________________________________________________________ Opening shareholders' funds 465,479 395,874 Purchase of own shares (1,351) (828) Sale of own shares held 259 - UITF 17 expense of own shares held 645 537 Issue of ordinary shares 1,820 2,570 Total recognised gains and losses for the year 101,982 86,513 Dividends paid and proposed (23,504) (19,187) _________________________________________________________________________ Closing shareholders' funds 545,330 465,479 _________________________________________________________________________ Group reconciliation of operating profit to operating cash flows For the year ended 31 December 2004 2004 2003 Â£000 Â£000 _________________________________________________________________________ Operating profit 149,349 129,233 Depreciation and amortisation 2,110 1,881 Loss/(profit) on disposal of non property tangible fixed assets 27 (38) Increase in stocks (67,577) (101,426) Increase in debtors (23,052) (2,219) Increase/(decrease) in creditors 39,783 (19,623) _________________________________________________________________________ Net cash inflow from operating activities 100,640 7,808 _________________________________________________________________________ Group reconciliation and analysis of net debt For the year ended 31 December 2004 2004 2003 Â£000 Â£000 _________________________________________________________________________ Increase in cash in the year 3,666 1,657 Cash outflow/(inflow) from change in debt 26,094 (51,544) _________________________________________________________________________ Change in net debt 29,760 (49,887) Opening net (debt)/funds (45,274) 4,613 _________________________________________________________________________ Closing net debt (15,514) (45,274) _________________________________________________________________________ Analysis of net debt: Cash 3,392 5 Short term deposits 56,094 30,000 Bank overdraft - (279) Borrowings (75,000) (75,000) _________________________________________________________________________ (15,514) (45,274) _________________________________________________________________________ Notes 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 2004. The financial information included within this statement does not constitute the Company's statutory accounts for the year ended 31 December 2003 or 2004. The information contained in this statement has been extracted from the statutory accounts of Bovis Homes Group PLC for the year ended 31 December 2004, 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 continued to implement 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 2004. 2 Earnings per ordinary share Basic earnings per ordinary share for the year ended 31 December 2004 is calculated on profit after tax of Â£101,982,000 (2003: Â£86,513,000) over the weighted average of 117,196,571 (2003: 116,523,457) ordinary shares in issue during the year. Diluted earnings per ordinary share is calculated on profit after tax of Â£101,982,000 (2003: Â£86,513,000) over the diluted weighted average of 118,125,595 (2003: 117,267,429) 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. Notes (continued) 3 Taxation 2004 2003 Â£000 Â£000 _________________________________________________________________________ Current tax for the year 43,264 37,027 Adjustment in respect of prior years (368) (460) _________________________________________________________________________ Total current tax 42,896 36,567 Deferred tax charge/(credit) for changes to timing differences 304 (67) _________________________________________________________________________ 43,200 36,500 _________________________________________________________________________ During the year prior year tax positions were finalised leading to the release of a tax provision amounting to Â£368,000 (2003: Â£460,000). A deferred tax charge of Â£304,000 (2003: credit of Â£67,000) arose as a result of the movement of timing differences during the year, including a deferred tax charge of Â£330,000 in respect of the pension fund SSAP 24 prepayment of Â£1,100,000. 4 Dividends The proposed final dividend of 13.6 pence net per ordinary share will be paid on 20 May 2005 to holders of ordinary shares on the register at the close of business on 29 March 2005. The dividend, when added to the already paid interim dividend of 6.4 pence, totals 20.0 pence for the year. 5 Annual Report and Accounts The 2004 Annual Report and Accounts will be posted to shareholders on or about 8 April 2005. This information is provided by RNS The company news service from the London Stock Exchange

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