Preliminary Results - Part 2

Bovis Homes Group PLC 12 March 2001 Part 2 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 Group's objective is to maintain the highest practical levels of health and safety and effective environmental policies. Overseeing all issues relating to these important matters is the Health, Safety and Environmental Consultative Committee which is drawn from a variety of Group employees from numerous disciplines and complemented by external independent advisers. The Committee is chaired by a Main Board director by annual rotation to ensure that fresh ideas and initiatives are constantly introduced, assessed and, where appropriate, implemented on a consistent basis. During 2000 the Committee completely revised and re-issued the Group's Health and Safety Policy Document which contains clear policies, procedures and best industry practice. A further initiative was the introduction of a revised Induction System for staff and site based employees alike to improve communication and safety performance. A practical approach is sought to achieve real progress in improving standards. The subject has a high profile throughout the Group both in its offices and on site. New campaigns evolve on a continuous basis to ensure that a fresh approach delivers the message - 'Be Safe At Work'. Added incentives are provided through Safety Excellence Awards with annual prizes rewarding those who lead by example. Whether on site or at its offices, Bovis Homes promotes all aspects of safety and environmental management throughout its operations in the interests of employees, purchasers, contractors and visitors to its sites and premises. Its record of success was once again recognised in 2000 with the Gold Award from the Royal Society for the Prevention of Accidents and the National Award from the British Safety Council. Environment The Group's Environmental Policy identifies ten key elements with an objective of achieving sustainable construction. * Plan for the effective and efficient use of development land * Design for minimum waste * Aim for lean, efficient and effective construction * Minimise energy consumption in construction * Minimise energy consumption of the product in life-cycle use * Do not pollute * Conserve water resources * Respect people * Protect and wherever possible improve the environment * Set targets In pursuance of these ten key elements, the Group issued an Environmental Management Manual containing the Environmental Policy, Environmental Effects Document and Best Practice checklists to all employees within the Group. It is a comprehensive approach consolidating policies procedures and systems, explaining how all employees can assist the Group in achieving the ten key elements and make a positive contribution to the environment. During 2000 a number of practical targets set out within the Environmental Policy and aimed at tangible improvement were monitored: * Achieve a minimum average of 12,000 square feet living space per developable acre across all schemes and monitor year on year for improvement During 2000 the Group achieved 13,300 square feet of living space per developable acre, with a target in excess of 14,000 square feet for 2001. * Maximise off-site manufacture, pre-assembly and pre-finishing and measure performance During 2000 the Group achieved the following usage of off-site manufactured, pre-assembled, pre-finished components. Also shown are the targets for 2001. Component usage Notional Notional average target total 2000 2001 % % ------- ------- Factory pre-finished, pre glazed windows 31 85 Factory pre-finished soffits, fascias, barge 30 85 boards Factory pre-assembled, pre-finished GRP 97 97 porches Factory pre-assembled, pre-finished GRP 2 83 dormers Factory assembled pre-glazed external steel 14 74 doorsets Factory assembled internal doorsets - 25 Factory assembled pre-glazed cassette 4 66 doorsets Factory assembled pre-glazed external feature 58 85 doorsets Factory pre-finished garage doors 100 100 Factory pre-fabricated engineered joist sets - 57 Factory finished radiators 100 100 Factory pre-assembled stair parts/balusters 57 100 New technology snap fit plumbing 48 86 Factory pre-plumbed thermal store cylinders 61 81 ------- ------- * Minimise the wastage levels of materials and measure performance During 2000 site wastage, expressed financially, amounted to 6% of all materials the Group purchased. Through the further introduction of pre- fabrication and pre-finishing a targeted 5% reduction of the wastage sum has been set over the next two years. * Reduce energy consumption in Bovis Homes' offices and measure performance Energy consumption in respect of gas and electricity has been monitored over the last three years and shows a reduction on 1998 levels. A targeted 5% reduction has been set over the next two years. The installation of video conferencing, telephone conferencing, and e- mail in all regions has assisted the Group's objective of reducing car journeys and pollution. Foundations for Growth Framework A framework has been established to enable the Group to expand the operation. The current regional format, with supporting area offices, will be replicated over a wider geographic area to deliver strong growth over the coming years to facilitate improved shareholder value whilst maintaining a highly efficient overhead and process structure. All systems, basic methods of operating, procurement and processes are, and will continue to be, standardised, regularly reviewed and, where appropriate, improved. The system is, however, entrepreneurial in that it allows local management the ability within a prescribed method of operating to purchase land in the right location using local knowledge and to design and specify products to maximise profitability and meet/exceed customer expectations. To further improve the Group's efficiency, Castle Bromwich Hall, the regional office for the Central operation, has been sold above book value with completion due in July 2001. Bovis Homes will retain occupancy of the main building until relocation in June 2002. Land has been purchased in Coleshill near Birmingham on which a modern office will be constructed. The overall effect of the relocation will be a net cash saving, improved operating efficiency and a reduction in office running costs compared with our existing facilities. The Northern area of the Central region is producing good results and is expected to be established as a separate region next year. To support its planned expansion a new area office will be established in Humberside to cover Leeds, Sheffield, Yorkshire and Humberside. An area office will be established in Cambridgeshire this year to assist expansion of this important geographic location with an expectation that a full region will be operational within five years. 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. The structure aforementioned is flexible and will allow Bovis Homes to operate in the most efficient way, respond quickly to economic changes and provide long term improvement in shareholder value. Although the expansion is planned through organic growth, should a corporate acquisition opportunity arise which the Board believes would be in the shareholder's best interests, it would be absorbed within the framework outlined. Any expansion, therefore, will be underpinned by the ability to sustain the business long term and to consistently improve the level of earnings per share. Management Bovis Homes is a people business. It is essential, therefore, that the right individuals are trained and motivated. Where appropriate the Group recruits externally and since flotation a number of new employees have joined, including nine senior executives of which six were recruited from outside the industry, the purpose being to ensure that we have the highest calibre of employees who add value to the business and are sensitive to the demands and requirements of our customers whilst having the entrepreneurial drive and flair to move the operation forward without compromising good corporate governance. Training is an essential element of our 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 set are set. A Succession Plan has been formulated to facilitate both replacement of current executives and 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. Outlook for 2001 Current forecasts indicate a general slowing of the UK economy which is likely to result in further interest rate reductions. Average earnings are predicted to increase by approximately 4.5% with underlying RPI growth below the Government's 2.5% target. The Halifax's latest outlook states that average house prices will increase by 4%, below the increase in earnings which should improve affordability. Bovis Homes enters the new year with high quality well positioned land holdings which will enable the Group to increase the number of sales outlets by approximately 15%. Due to the combined effects of new products and additional prime sites the average sales price is anticipated to increase compared with 2000. All of the fundamentals to deliver superior growth in earnings are in place. We have the framework, management, land, product, processes and finance. We are, therefore, confident of our ability to deliver ongoing positive results for our shareholders. Malcolm Harris Chief Executive Financial review Profit on ordinary activities before taxation for the year ended 31 December 2000 increased by 21% over the previous year to £67.1 million. In addition the Group has been strengthened by further investment in prime sites, new products and increased borrowing facilities. Review of results Operating profit amounted to £70.7 million in the year ended 31 December 2000. This represented an improvement of 24% over the £56.9 million earned in the previous year, and showed the margin on turnover rising from 20.5% in 1999 to 23.2% in 2000. This enhancement in margin came through at the gross profit level, with administration expenses, as a percentage of turnover, remaining broadly unchanged. Total turnover of £305.0 million showed an increase of 9.8% compared with the previous year (1999: £277.8 million). The Group achieved 2,360 unit completions at an average sales price of £123,300 in 2000 against 2,429 unit completions at an average sales price of £109,400 in 1999. The increase in average sales price reflected a shift in product mix towards larger houses, and also specification and product type changes, over the two years. Land sale and other income accounted for £14.0 million of total turnover compared with £12.0 million in 1999. Land sales contributed a profit less option costs of £2.3 million in 2001 (1999: £1.2 million). Net interest absorbed £3.6 million during the year compared with £1.5 million in 1999, reflecting the increase in average borrowings year on year. The corporation tax charge for the year amounted to £19.7 million and was after crediting £0.5 million in respect of a prior year tax adjustment. Dividends paid and proposed amounted to £13.3 million (1999: £12.2 million), resulting in a retained profit for the financial year of £34.1 million (1999: £26.3 million). Review of balance sheet Shareholders' funds increased during the year by £35.2 million to £290.1 million, and net borrowings increased by £58.7 million to £61.0 million. The additional capital was predominantly invested in land and work in progress as follows: As at 31 December 2000 1999 Increase £m £m £m ------ ------ ------ Land held for development 309.6 256.2 53.4 Raw materials and work in 121.2 90.0 31.2 progress Part exchange properties 27.3 13.5 13.8 The Group focused its attention on acquiring prime sites, negotiating deferred terms wherever possible; land creditors amounted to £62.7 million at 31 December 2000 (31 December 1999: £65.1 million). The increase in the level of work in progress at year end allowed the Group to display more of its new products including the room in the roof homes and the three storey town houses. The investment strategy throughout the year has been to maintain a consistent land investment policy relating to short, medium and long term supply, and market new products in the most effective way, whilst at the same time maximising the return on capital employed. The return on capital employed during the year, taking the operating profit as a percentage of the average of opening and closing shareholders' funds plus debt, amounted to 23.2% (1999: 23.1%). Review of cash flow Borrowings net of cash deposits increased from £2.3 million at the commencement of the year to £61.0 million at 31 December 2000. This increased debt/equity gearing over the year from 0.9% to 21.0% at the year end. The Group arranged additional bilateral revolving credit facilities of £55 million with its five existing banks maturing after 5 years (£35 million) and 7 years (£20 million). These funds were drawn down on 11 December 2000 as core borrowings and interest rate swap agreements entered into to fix the interest rates for the full terms of the facilities. The existing bilateral revolving credit facilities amounting to £100 million remain in place until maturity on 2 November 2002. In total the Group now has total banking facilities, including overdraft, of £160 million. Ron Walford Finance Director Group profit and loss account Continuing operations For the year ended 31 December 2000 2000 1999 £000 £000 -------- -------- Turnover 304,996 277,804 Cost of sales (207,170) (196,298) -------- -------- Gross profit 97,826 81,506 Administrative expenses (27,135) (24,568) -------- -------- Operating profit 70,691 56,938 Interest receivable and similar income 88 96 Interest payable and similar charges (3,710) (1,598) -------- -------- Profit on ordinary activities before 67,069 55,436 taxation Taxation on profit on ordinary activities (19,700) (16,900) -------- -------- Profit on ordinary activities after taxation 47,369 38,536 Dividends paid and proposed (13,252) (12,186) -------- -------- Retained profit for the financial year 34,117 26,350 ======== ======== Basic earnings per ordinary share 42.0p 34.2p -------- -------- Diluted earnings per ordinary share 41.5p 33.8p -------- -------- In both the current and preceding financial periods there were no other recognised gains or losses. In both the current and preceding financial periods there was no material difference between the historical cost profits and losses and those reported in the profit and loss account Group balance sheet At 31 December 2000 2000 1999 £000 £000 -------- -------- Fixed assets Tangible assets 8,584 8,395 Investments 665 673 -------- -------- 9,249 9,068 -------- -------- Current assets Stock and work in progress 458,585 360,275 Debtors due within one year 9,057 8,426 Debtors due after more than one year 4,884 4,743 Cash and short term deposits 1,039 362 -------- -------- 473,565 373,806 -------- -------- Creditors: amounts falling due within one (113,428) (101,197) year Net current assets 360,137 272,609 -------- -------- Total assets less current liabilities 369,386 281,677 Creditors: amounts falling due after more (77,861) (25,250) than one year Provisions for liabilities and charges (1,473) (1,492) -------- -------- Net assets 290,052 254,935 ======== ======== Capital and reserves Called up share capital 56,785 56,535 Share premium 133,435 132,685 Revaluation reserve 817 817 Profit and loss account 99,015 64,898 -------- -------- Equity shareholders' funds 290,052 254,935 ======== ======== Group cash flow statement For the year ended 31 December 2000 2000 1999 £000 £000 -------- -------- Net cash (outflow)/inflow from operating (23,981) 36,265 activities Returns on investments and servicing of finance Interest received 88 95 Interest paid (3,424) (1,591) -------- -------- (3,336) (1,496) -------- -------- Taxation paid (18,096) (15,981) -------- -------- Capital expenditure and financial investment Purchase of tangible fixed assets (2,040) (2,975) Sale of tangible fixed assets 234 266 Sale of fixed asset investments 5 - -------- -------- (1,801) (2,709) Equity dividend paid (12,518) (11,586) -------- -------- Cash (outflow)/inflow before financing (59,732) 4,493 Financing Movement in borrowings 61,000 (5,000) Issue of ordinary share capital 1,000 69 -------- -------- 62,000 (4,931) -------- -------- Increase/(decrease) in cash 2,268 (438) ======== ======== Group reconciliation of movements in shareholders' funds For the year ended 31 December 2000 2000 1999 £000 £000 -------- -------- Opening shareholders' funds 254,935 228,517 Issue of ordinary shares 1,000 718 Total recognised gains and losses for the 47,369 38,536 year Funding of share issue to Qualifying Employee Share Ownership Trust - (650) Dividends paid and proposed (13,252) (12,186) -------- -------- Closing shareholders' funds 290,052 254,935 ======== ======== Group reconciliation of operating profit to operating cash flows For the year ended 31 December 2000 2000 1999 £000 £000 Operating profit 70,691 56,938 Depreciation 1,631 1,499 Profit on disposal of tangible fixed assets (13) (64) Increase in stocks (98,310) (40,074) Increase in debtors (760) (1,913) Increase in creditors 2,780 19,879 -------- -------- Net cash (outflow)/inflow from operating (23,981) 36,265 activities ======== ======== Group reconciliation and analysis of net debt For the year ended 31 December 2000 2000 1999 £000 £000 -------- -------- Increase/(decrease) in cash in the year 2,268 (438) Movement in borrowings (61,000) 5,000 -------- -------- Change in net debt (58,732) 4,562 Opening net debt (2,279) (6,841) -------- -------- Closing net debt (61,011) (2,279) ======== ======== Analysis of net debt: Cash 1,039 362 Bank overdraft (1,050) (2,641) Borrowings (61,000) - -------- -------- 61,011 2,279 ======== ======== 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 2000. The financial information included within this statement does not constitute the Company's statutory accounts for the year ended 31 December 2000 or 1999. The information contained in this statement has been extracted from the statutory accounts of Bovis Homes Group PLC for the year ended 31 December 2000, 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 standards FRS 16 (Current taxation) during the year. There has been no material effect on the Group's results in the year arising from the implementation of this standard. 2 Earnings per ordinary share Basic earnings per ordinary share for the year ended 31 December 2000 is calculated on profit after tax of £47,369,000 (1999: £38,536,000) over the weighted average of 112,735,747 (1999: 112,817,440) ordinary shares in issue during the year. Diluted earnings per ordinary share is calculated on profit after tax of £47,369,000 (1999: £38,536,000) over the diluted weighted average of 114,184,319 (1999: 114,103,935) 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 were waived. 3 Taxation 2000 1999 £000 £000 ------- ------- Current tax for the year 20,200 16,900 Adjustment in respect of prior years (500) - -------- -------- 19,700 16,900 ======== ======== The rate of corporation tax applied was 30% for the year to 31 December 2000 and 30.25% for the year to 31 December 1999. During the year prior year tax positions were finalised leading to the release of a tax provision amounting to £500,000. 4 Dividends The proposed final dividend of 7.8 pence net per ordinary share will be paid on 25 May 2001 to holders of ordinary shares on the register at the close of business on 27 April 2001. The dividend when added to the already paid interim dividend of 3.9 pence, totals 11.7 pence for the year.

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