Trading Update

RNS Number : 6557L

Bovis Homes Group PLC

08 July 2014

 



8 July 2014

Bovis Homes Group PLC

Trading Update

Material increase in profits with strong growth in shareholder returns

The Group is today issuing a trading update for the six month period ended 30 June 2014 ahead of reporting its half year results due to be announced on Monday, 18 August 2014.

Highlights

·      Legal completions in H1 2014 54% higher at 1,487 (2013: 963)

·      Average sales price on legal completions of £210,000, 11% higher than H1 2013 (£188,500), driven by mix and modest improvements in house prices

·      H1 2014 operating margin expected to be at least 15% (H1 2013 11.1%)

·      As at 30 June 2014 cumulative reservations achieved to date and expected to legally complete in 2014 44% higher at 3,297 homes (30 June 2013: 2,287 homes)

·      A record investment of 4,597 consented plots on 23 sites added to the consented land bank in H1 2014

·      Return on capital employed* to 30 June 2014 expected to be circa 13.2% (30 June 2013: 7.7%)

* ROCE is EBIT for 12 months to 30 June 2014 divided by average of actual opening and anticipated closing capital employed

David Ritchie, Chief Executive, commented:

"Bovis Homes has delivered its highest ever number of first half year legal completions, driven by the high quality investments made during the last few years.  This is expected to lead to excellent first half results with a material improvement on last year.

"Trading continues to be robust, further increasing our confidence in delivering both strong volume growth for 2014 and an enhanced forward sales position for 2015.  The Group achieved a record number of land investments during the first half year in what continues to be an active, but orderly land market.

"The Group's results are now benefiting from our assertive, disciplined strategy of growth through land investment and we are well positioned to deliver our 2014 targets.  Looking further ahead we are confident that further improvements in key financial metrics can be delivered and that ongoing land investment will continue to strengthen the business and further enhance shareholder returns."

Current trading

The Group has delivered a strong performance during the first six months of 2014 across all key metrics.  The combination of these metrics is expected to lead to a material increase in profit for the first half year compared to the prior year.

During the period the Group legally completed 1,487 homes, including 106 Private Rental Sector units, (H1 2013: 963 with nil PRS units), an increase of 54%. The average sales price on these legal completions increased by 11% to £210,000 (H1 2013: £188,500), derived from the stronger mix of homes and modest improvements in house prices. 

With a significant improvement in housing profit, combined with modest land sale profit and a lower overhead ratio, the Group anticipates the half year operating margin will increase to at least 15% (H1 2013: 11.1%).

The Group has achieved 1,816 net private reservations during the six months to 30 June 2014 (2013: 1,389), a 31% increase year on year.  Net private reservations per site per week, excluding PRS reservations, have improved by 10% to 0.65 (2013: 0.59).  Recent trading weeks have seen two influences: firstly sales activity in the second quarter has moderated as expected in line with normal summer seasonality and secondly, the 2013 comparative figures included the first wave effect of Help to Buy reservations after launch in April 2013.  As a result, the year on year increase in sales rate has moderated compared to earlier in the year.  However, the sustained achievement of the current year sales rate will support the Group's growth plans without a requirement for future market improvement.

In striving to deliver high and growing returns to shareholders, the Group continues to balance the delivery of a strong sales rate with sales price improvements.  Sales prices have increased ahead of management expectations, with net prices achieved on private reservations to date averaging circa 4% ahead of target sales prices established in late 2013.

The Group expects to achieve a return on capital employed* for the 12 months to 30 June 2014 of 13.2% (30 June 2013: 7.7%), supported by the strongly increased operating profit and accelerating capital turn.

Land

The Group has continued to take advantage of an active, but orderly land market to acquire high quality land at above hurdle rate margins and returns.  The land strategy remains consistent, with a focus on the south of England and a long standing position of not investing in London.  In the first half the Group added 4,597 consented plots on 23 sites to the land bank, its strongest ever half year period of land investment.  A strong pipeline of conditionally contracted and terms agreed land deals will deliver further acquisitions during 2014.  The Group is highly selective as to the land it acquires and continues to apply discipline in its approach to land with consistent hurdle rates and without including future house price inflation in its land appraisals.

The Group continues to promote its strategic land through the planning process and is pleased with the progress being made on a number of significant strategic land holdings.  These strategic holdings are expected to provide a valuable source of development land, primarily in the south of England, as planning consents are achieved.

Balance sheet

As a result of undertaking a significant proportion of the year's land acquisitions in the first half of the year, the Group had net debt of £45 million as at 30 June 2014 (31 December 2013: net debt of £18.0 million).

Market conditions

The improving economic background is supporting demand in the housing market.  With the extension of the Help to Buy shared equity scheme to 2020, the Group will be able to help many first time buyers to take the first step on the housing ladder.  While the mortgage approvals rate has slowed in the last few months, the mortgage market remains positive overall.  The Group supports the actions taken by the Bank of England to encourage a sustainable housing market.  A less volatile environment where house prices move more in line with inflation will present a good backdrop for the industry to increase output of new homes and sustain returns for shareholders over the long term.

Outlook

As at 30 June 2014 cumulative reservations achieved to date and expected to legally complete in 2014, including social housing, stood at 3,297 homes (30 June 2013: 2,287 homes).  As a result of stronger returns on the homes sold the Group is confident that the targeted return on capital employed of at least 15% in 2014 can be delivered from volume at the lower end of previous guidance.  The Group also expects to achieve an enhanced forward sales position for 2015.

The land investments achieved so far this year provide a strong platform for future growth.  The improving economic outlook and significant imbalance between supply and demand for housing provides an attractive backdrop for the Group to exploit its growth opportunities and further enhance shareholder returns. 

Conference call for analysts and investors

David Ritchie, Chief Executive and Jonathan Hill, Group Finance Director of Bovis Homes will host a conference call at 08:30am today, Tuesday 8 June 2014 to discuss this trading statement.

To access the call please dial [phone] and enter pincode 39361557# when prompted.  Please dial in five minutes prior to the start of the conference call to allow time for registration.  A recording of the conference call will be available until midnight on Tuesday 15 July 2014.  To access the playback facility, please dial 020 3426 2807 and enter conference reference 649327# when prompted.

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

-ENDS-

Enquiries:              David Ritchie, Chief Executive

                                Jonathan Hill, Finance Director

                                Bovis Homes Group PLC

Tel: [phone]

Reg Hoare / James White / Giles Robinson

MHP Communications

Tel: [phone]

 

END

 

 

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