Annual Financial Report

RNS Number : 6137J

Bovis Homes Group PLC

01 April 2010

 



Bovis Homes Group PLC - Annual Report and Accounts 2009

Annual Report and Accounts 2009, Notice of Annual General Meeting, Proxy Card

Copies of the above documents will shortly be available for inspection at the UK Listing Authority's Document Viewing Facility, which is situated at:

Financial Services Authority

25 The North Colonnade

Canary Wharf

London E14 5HS

Tel No: 020 7066 1000

The documents are being mailed to shareholders and are available on the Company's website at www.bovishomes.co.uk/plc/annualreport2009

Amendments to Articles of Association

The Company further announces that, in accordance with DTR 6.1.2, new Articles of Association, which incorporate a number of amendments to the existing Articles of Association, to be proposed for adoption at the Company's forthcoming Annual General Meeting on 6 May 2010, have been lodged with the UK Listing Authority for publication through the Document Viewing Facility.  An explanation of the proposed changes is set out in the Notice of Annual General Meeting which, in summary, update the Company's existing Articles primarily to reflect the implementation of the remaining provisions of the Companies Act 2006 which the Company has not already incorporated into its existing Articles of Association, the implementation of the Companies (Shareholders' Rights) Regulations 2009 and certain amendments to the Uncertificated Securities Regulations 2001.

Annual Report and Accounts 2009 - publication required by DTR 6.3.5

The Company published its Preliminary Results for the year ended 31 December 2009 on 8 March 2010.  In order to comply with DTR 6.3.5 it is now publishing in unedited full text information contained in the annual financial report of a type required to be disseminated in a half-yearly financial report.  For coherence, this repeats some of the information contained in the Preliminary Results announcement. 

The full annual financial report is available on the Company's website at www.bovishomes.co.uk/plc/annualreport2009

Annual report and accounts 2009

Bovis Homes Group PLC

Chairman's statement

With the backdrop of the UK housing market continuing to be challenging, the Group is pleased to be able to report on a successful year in 2009. Good progress was made in delivery of the strategic objectives laid out by the Group at the start of 2009: progress which leaves the Group well placed to deliver profitable growth looking ahead.

The Group achieved strong year over year growth during 2009 in both the number of private homes legally completed and the private reservations taken in the year. It benefited from new initiatives such as the upgrading of sales systems and by innovations in how the Group marketed and sold its homes, including methods to assist customers in raising the necessary mortgage deposits. During 2009, the Group achieved 1,801 private reservations, representing an 82% increase in sales levels compared to the 989 private reservations taken in 2008.

Over the year, the Group has effectively controlled costs and work in progress levels. Overheads were reduced by 34% compared with 2008. Cash inflow was very strong resulting in £221 million being generated during the year, including a £59 million equity placing, providing the Group with £112 million of net cash in hand at 31 December 2009 compared with £108 million of net debt pre issue costs at 31 December 2008.

Results

For the year ended 31 December 2009, the Group generated £281.5 million of revenue from the legal completion of 1,803 homes, as compared to revenues of £282.3 million in 2008 from 1,817 legal completions.

The Group achieved a pre-exceptional pre tax profit of £7.5 million in 2009 (2008: £14.4 million) with pre-exceptional basic earnings per share at 4.4p (2008: 9.2p per share).

There was a £2.7 million pre tax exceptional charge for the year following the release in the second half of £11.6 million of inventory provision not now required.

This provision release offset an £8.9 million inventory provision charged in the first half of 2009. There was also a £4.2 million exceptional interest charge linked to the refinancing of the Group's facility agreement, which was agreed in December 2009 and signed in January 2010, and £1.2 million of other items.

Taking exceptional items into account, the Group achieved a pre tax profit of £4.8 million (2008: pre tax loss £78.7 million) and a basic earnings per share of 2.8p (2008: basic loss per share of 49.1p).

On a pre-exceptional basis, the Group achieved an operating margin of 6.2% in 2009, marginally below the prior year's 7.5%. A 9% decline in private home prices impacted gross margins, though this was substantially offset by the Group's strong performance in controlling costs and reducing overhead.

The Group's net assets increased from £632.3 million at the start of 2009 to £692.6 million at 31 December 2009, equating to a net asset value of £5.20 per share. The major element of the net asset movement over the year of £60.3 million was the net £59.0 million raised by the Group's equity placing in September. Retained earnings increased by £1.2 million including retained profit for the year of £3.5 million and the reserves adjustment for the Group's pension deficit which increased from £6.8 million to £8.9 million.

Dividend

As previously announced, having regard to trading conditions the Board did not recommend payment of a final dividend for 2008 and did not pay an interim dividend in 2009. No cash payments have therefore been made in 2009 relating to dividends. The Board does not propose payment of a final dividend for 2009 although it recognises the importance of dividends to shareholders, and anticipates that delivery of the Group's trading and investment plans will create a solid basis for the resumption of dividends.

The Board

There were no changes to the Board during 2009, although the Group Finance Director, Mr Neil Cooper, announced his intention in November 2009 to leave the Group in order to pursue career options elsewhere. Mr Cooper will continue serving with the Group until the 2009 Annual General Meeting on 6 May 2010. The Board would like to thank Mr Cooper for his significant contribution to the Board and to the robust performance of the Group in the current challenging market conditions. The Board would also like to thank Mrs Lesley McDonagh, who steps down at the upcoming AGM, for her contribution to the success of the Group since 2003.

Employees

Following on from what was a challenging year for its employees in 2008, the Group would like to thank its employees for their hard work and commitment during 2009, a year during which the Group made real progress in strengthening its balance sheet so as to enable it to compete successfully in the future. The Board recognises that in 2009 its employees were working in a business with substantially reduced headcount, focussing on cash preservation and generation, whilst also taking actions to facilitate future business growth. Those actions to generate savings also impacted on the suppliers and sub-contractors of the Group and the Board would like to thank them for their contribution to the performance of the Group.

Market conditions and prospects

The Group expects that a degree of stabilisation in house prices evidenced in the marketplace in later 2009 will continue into 2010. Statistics would suggest the market as a whole has seen the commencement of modest pricing growth in the second half of 2009, although the Group remains somewhat cautious due to relatively low levels of second hand stock supporting price growth in the second hand market which appears to have moved ahead at a faster rate than the new build sector during 2009.

Pricing is a function of both supply and demand. Whilst supply as evidenced by second hand stocks appears to have been relatively lower than demand over 2009, absolute demand in 2009 has been limited by reduced mortgage availability. Positively, the number of mortgages being approved for home purchase has grown during 2009 although it still remains difficult for first time buyers to access the market given the large shift in deposit requirements, and the absolute level of mortgages approved for home purchase still remains below historical levels.

Overall, therefore, the Group expects that the pricing environment in 2010, whilst potentially volatile month by month, will be relatively stable taking the year as a whole.

Given this expected stable pricing environment and an improvement in mortgage volumes, the Group is confident that its key strategies for 2010 will ensure that it is well positioned for profitable growth as the market slowly recovers. Acquiring residential land to grow its output capacity, whilst ensuring that working capital investments are made in a controlled manner, will create a strong platform for future value creation.

Malcolm Harris

Chairman

Report of the directors - Business review

The marketplace and Group performance

Bovis Homes Group PLC's (Bovis Homes) business remains designing, building and selling homes for both private and public sector customers, operating in England and Wales. The key steps in the value delivery chain for the Group remain the sourcing of land, achievement of an appropriate planning consent, physical construction of property and its subsequent sale.

Marketplace demand during 2009

A decision to purchase a property is influenced by a number of factors. These may include affordability, confidence in the direction of future house prices and the ability to fund a purchase using a mortgage.

With house prices falling over 2008 and into the first half of 2009 allied with base interest rates falling by early March 2009 to historical lows at 0.5%, affordability for housing at present is better than average when compared to long term trends.

Perhaps surprisingly, given this general improvement in affordability during 2009, the volume of housing transactions occurring in the market remained very low by historical standards. Importantly, the majority of housing transactions are financed through a mortgage. Whilst monthly mortgage approvals for home purchase rose to 60,518 by November 2009, this level was 42% lower than the number of monthly mortgage approvals for home purchase on average over the 10 year period ending September 2007, just prior to the banking crisis.

Furthermore, HMRC data for residential property transactions over £40,000 suggests that transactions in 2009 were 8% lower than the 2008 equivalent and 52% lower than the 2007 equivalent.

The most concerning development in the mortgage market since the start of the housing market downturn has been the increase in size of the deposit required to access mortgage funding either at all or at a reasonable cost. This is particularly concerning in as much as it adversely impacts the ability of first time buyers to transact, as they generally hold limited cash or equity required for a deposit. A property market without new entrants will necessarily be limited in its ability to grow at a reasonable pace.

Furthermore, with minimum densities for larger scale new build development being imposed through Government planning policies, which drive development of smaller homes, housebuilders are less able to mitigate this risk.

Marketplace supply in 2009

The year as a whole appears to have seen pricing across the housing market being stable to marginally positive. Data collated by the Royal Institute of Chartered Surveyors suggests that the supply of second hand stock in the market has been lower than the demand for that property, with the house sales to stock ratio improving through 2009. This has led to a supply and demand imbalance and thus prices have begun to rise.

The scale of this pricing movement varies widely between differing indices. The Nationwide suggests that the annual change for all properties to December 2009 has been +5.9%, whereas the Halifax suggests a lower total, at +1.1% on an annual basis. Hometrack price survey data indicates an annual 1.9% decline. This latter survey data includes cash buyers as opposed to the two lender indices which do not.

Whilst this trend appears positive, some caution should be applied. Firstly, data published by the Nationwide suggests the annual price movement for new build properties was flat over year: a substantial discount to its overall market growth metric. Secondly, the data published by a number of commentators demonstrate that sales price growth varies in direct correlation with proximity to London, and unlike the downturn where prices fell nationally, pricing recovery appears to be regional in nature.

Over 2009 the number of new build properties being built has fallen, with the Government recording the construction of 90,900 homes in England in the first three quarters of 2009, as compared to 111,200 in the first three quarters of 2008. On an annualised basis, this equates to 121,200 units. As compared to the equivalent period in 2007, this is a fall of 31%. This compares to the Government's latest estimates of household formation numbers, released in March 2009. This suggests that English households are expected to grow to 27.8 million by 2031, with annual growth in household formation of 252,000. This is over twice the level of current build volumes.

Whilst household formation estimates are necessarily speculative, there clearly exists a substantial gap between the formation of new households and the supply of new homes to the market which gives the Group confidence in the longer term supply and demand imbalance in the United Kingdom being maintained looking forward.

Competition

The Group continues to view the main competitor for Bovis Homes as the second hand market. In a normal year, the Group would expect over 90% of residential transactions to be second hand, with pricing in the new build sector being set by reference to that market. This normal pattern was distorted somewhat in late 2008 and early 2009 by the actions of new build participants driving for volume though aggressive price discounting where the Group operated in close proximity. This appears to have largely ceased in later 2009 as stock levels have been decreased across the sector, with more normal pricing patterns re-emerging.

Group performance in 2009

With 1,803 legal completions achieved during 2009, the Group's performance was similar to its performance in the previous year (2008: 1,817 legal completions). This comparison masks the success achieved by the Group in increasing its volume of private homes in 2009 by 25%, with 1,527 legal completions in 2009 versus 1,223 units in 2008.

Given the lower private home forward sales position at the start of 2009 as compared to the start of 2008, this improvement in private legal completions arose from an 82% increase in the number of private homes reserved in 2009, with 1,801 private home reservations as compared to 989 private home reservations in 2008. Offsetting this was a fall in the volume of social homes legally completed, from 594 units (33% of total volume) in 2008 to 276 units in 2009 (15% of total volume). The Group expects that the social housing mix will rise in 2010 as new sites are started.

As a result of this reduction in social housing in the mix, the Group's average sales price increased by 3% in 2009 compared to 2008. The average sales price of legal completions in 2009 was £154,600, up from £150,800 in 2008. The average sales price of the Group's private legal completions in 2009 was £165,500, a 9% decline on the average sales price seen in 2008 (£181,000) and a 20% decline on the average sales price in 2007 (£206,200).  The average sales price of the Group's social legal completions was £94,600, a 7% increase on the equivalent in 2008 (£88,500).

Given an increase in the average size of the Group's private homes from 972 square feet in 2008 to 993 square feet in 2009, the underlying sales price per square foot fell by 11%. Overall, the average size of the Group's legally completed homes increased from 909 square feet in 2008 to 958 square feet in 2009, showing the effect of the reduction in social mix, given the smaller average size of social legal completions at 762 square feet per unit.

Strategy and objectives

Following a review in 2009, the Group has expanded its strategic objectives as follows:

·     The Group seeks to achieve profit margins in the upper quartile of the sector whilst achieving a strong return on capital employed (ROCE) over the cycle

·     The Group seeks to ensure long-term growth in profits and in earnings per share

·     The Group seeks to deliver a flow of land to maintain a landbank sufficient to support the activities of the Group

·     The Group seeks to achieve a high standard of performance for health, safety and environmental matters

·     The Group seeks to deliver upper quartile customer service as compared to its peer group

With house prices for new build homes continuing to be subdued and with a relatively fixed cost base in the short term, it is understandable that the Group has not immediately returned to growth in profits and returns during 2009. However the Board regards the progress made by the Group during 2009 in reducing its cost base and improving its balance sheet strength as being both important and satisfactory in terms of the achievement of the actions needed to re-establish profit and returns growth over the mid term.

In the event that house prices remain stable to marginally positive, and given the manner in which inventory provision releases will tend to suppress profit margins as house prices rise, the ability of the Group to deliver against its financial strategic objectives will be assisted by a number of actions: firstly, that existing 'lower margin' land can be successfully developed so as to recoup the cash tied up in this investment; secondly, that the Group continues to manage its balance sheet such that it has adequate financial resources to acquire new 'higher margin' land and finally that the Group acquires sufficient new land to both increase the number of sales outlets and generate a return to the profit margins targeted by land acquisition investment hurdle rates.

The Group has demonstrated good progress in these activities, with an increase in private legal completions in 2009 by 25% and with housing production restarted as higher than normal levels of unsold finished goods stocks were successfully reduced during the year. With a strong balance sheet at 31 December 2009, the Group has demonstrated its ability to drive cash out of work in progress thus enabling debt reduction and cash accumulation. The Group also recommenced its land acquisition process and made good progress with four consented sites acquired in the final quarter of 2009 and terms agreed in principle on 15 further sites at the year end, which will be progressed in 2010. To further strengthen its balance sheet position, the Group raised new equity from its shareholders in September 2009 and refinanced its banking facility agreement at the end of 2009, giving it the funds and the flexibility required to grow its outlet capacity in the mid term.

Performance against the Group's non-financial objectives will be covered in more detail throughout the operating performance review.

Operating performance

Whilst the Group has limited both the levels of housing production and investments in land at materially lower levels than in previous years, this has not lessened the commitment of the Group to operate its business in a manner that ensures that its operations are well managed, appropriately monitored and operated in a safe and environmentally sustainable manner.

Looking back, during the first half of the year the Group conserved cash with a very low level of expenditure on construction work in progress and on land acquisitions, and with some sites mothballed until stock levels were reduced. As the market backdrop stabilised, and the Group made good progress on growing reservation rates, bringing down stock levels and reducing debt, the Group was able to commit to greater production volumes in the second half year. Following this successful period of balance sheet restructuring, the Group has also restarted the acquisition of consented land in the market place. This sequence of activity followed the Group's intent to position itself well with a strong cash position to support future investment. The following brief review highlights the key operational performance during this period of change together with objective data assessing progress achieved over the year.

Further details of the Group's efforts and achievements during 2009 in regards to Corporate Social Responsibility will be published in a separate report, available from the Company's website (www.bovishomes.co.uk/plc).

Employees

Following two major restructuring events during 2008, the Group started 2009 with 462 direct employees, including employees serving their notice period, and closed the year with 487 employees, an increase which has arisen following the recruitment of additional construction staff and land buyers to support the Group's current growth aspirations.

Notwithstanding the reduced levels of production activities across the business during 2009, the Group continued to maintain a high level of organisational focus in ensuring the health and safety of its employees, subcontractors and other site visitors. The Group operates its health and safety regime through comprehensive staff training, clear and accountable management processes and through regular and transparent reporting of the performance of the Group in all aspects of health and safety.

This is overseen in two parallel ways: firstly, through the operational line and, secondly, via the nominated regional director responsible for safety directly through to a Group-wide oversight committee run by the Group Director of Health & Safety and chaired by a senior Group manager.

In this way, the operational line continues to take day to day accountability for this area, whilst the Group also maintains appropriate simultaneous oversight of these activities. As an indication of the importance placed by the Group in these areas, Health & Safety is always the first report on the agenda of Board meetings.

The Group also seeks to ensure that all of its employees and subcontractors who operate at or visit sites carry a CSCS card: indicating its commitment to a fully trained workforce. This requirement extends throughout the organisation to the executive Group directors and the Company Secretary who all carry CSCS cards. The Group was 99% compliant in 2009 in this area.

Very positively, reportable accidents under the Reporting of Injuries, Diseases and Dangerous Occurrences Regulations (RIDDOR) have fallen sharply, to 4 (2008: 27). Minor injuries have also fallen by 55%, from 144 accidents in 2008 to 64 accidents in 2009.

The Group maintains external monitoring services from the NHBC to ensure an independent assessment of the performance of the Group in health and safety matters. The outcome from their reporting also confirms a very positive trend for the Group. The weighted average result for NHBC priority A scores has been reduced to 0.01 in 2009 from 0.11 in 2008 and the weighted average result for priority B scores has fallen to 0.32 in 2009 from 1.49 in 2008.

Given the reduced levels of construction in 2009, it is to be expected that absolute health and safety scores have fallen. Positively, the Group's reportable accident incidence rate, which takes account of the number of employees and subcontractors working for the Group, has also reduced sharply from 1,024 in 2008 to 173 in 2009. This rate is also now well below industry benchmarks as evidenced by the HSE Construction accident incidence rate of 782 for 2008/9 being the most recent year published.

Whilst these demonstrate that health and safety performance is relatively strong versus external benchmarks and improving versus internal scoring, the Group cannot be complacent. With activity likely to increase on site in 2010 versus 2009, this will remain an area of focus for regional and Group management.

Customers

The Group continues to use its customer charter to set the expectations it has in relation to the quality of the product it delivers and the manner in which the sales transaction is serviced. Despite the obvious risks to a customer care process during a period of sharp focus on cost control and the restructuring of the Sales function across the Group, it is pleasing to see the key internal scoring metrics of 'recommend a friend' and 'purchase another Bovis home' not just remaining high in absolute terms, but also delivering good year over year improvement. The focus of the Group's customer communication has remained web based during 2009, with the Group using the power of the internet to directly market its products to consumers, utilising internally generated mailing lists as well as via intermediaries such as 'smart new homes.com' or 'right move.com'. Over 70% of customer enquiries now originate via the web.

The major change in the way that the Group sells its products in 2009 has been the adoption of the 'hub' structure to enable more cost effective selling of its products. The principle of this structure is that the Group manages a cluster of sales outlets using a team of sales managers operating from a single sales outlet location, with customers making appointments to view at their preferred site. The purpose of the change was to improve methods of servicing customer needs at a lower sales overhead cost per transaction, with additional operational benefits such as the fact that sales hubs are capable of being manned more efficiently on a seven day opening basis and also into the evening whereas to maintain this in a traditional manned outlets way would be expensive. This selling process also exploits advances in telephony communications as well as being consistent with the increasing prevalence of email communication from customers. In parallel with this change in selling processes, the Group has upgraded its prospect management system, improving on-site technology whilst integrating the Group's prospects database with brochure fulfilment.

The Group continues to provide a range of tailored incentives to act as motivators for potential customers. By far the most popular have been the Group's equity mortgage products: initially, the Group's own 'Jumpstart' scheme but latterly also the Government backed 'Home Buy Direct' scheme.

The attraction of these schemes are that they offer those first time buyers who do not possess sufficient equity to put down a large deposit but who are otherwise credit-worthy, the opportunity to transact. The use of 'Home exchange' on the other hand has reduced substantially over the year as a result of lower activity in the second hand market and reluctance on the part of homeowners to accept the lower value of their home as a result of the downturn.

Shareholders

The value chain for Bovis Homes over the long term business cycle remains the sourcing of land, achievement of an appropriate planning consent, physical construction of property and its subsequent sale.

In the shorter term the mortgage market dislocation starting in late 2007 led the Group to take a number of measures to protect long term shareholder value including reduction of its overhead base, a sharp reduction in house production levels, the sale of excess levels of finished good stock, and a cutback in land expenditure.

The benefits of these actions were seen in 2009, the result of which was a strengthening of the Group's balance sheet position by the end of 2009.

Overhead levels were reduced by 34% on the prior year and by circa 45% compared to the overhead base of the Group at the start of 2008. As the Group increases its volume of house building and land acquisition, it is anticipated that overheads will rise as essential land buying and technical resources are added to the business to support growth.

The Group constructed 911 units worth of production during 2009, with only 221 units built in the first half, and a further 690 units in the second half as the market backdrop generally improved. This has enabled the Group to free up considerable cash from working capital, as nearly 900 more units were legally completed than were built. As planned, the level of work in progress held at year end has fallen sharply, from 1,878 units worth of production at the end of 2008 to 986 units worth of production at the end of 2009. Within this work in progress, the number of unsold finished stock units has also been reduced sharply.

Looking ahead, the Group now expects that levels of production will broadly match the levels of legal completions, such that there is not likely to be further substantial release of cash from work in progress, but equally, the Group will be vigilant to ensure that it does not invest unnecessary levels of capital in this area.

With a 25% increase in the volume of private units legally completed during the year, and an 82% increase in the number of private unit reservations achieved in the year, the Group has been successful in increasing sales rates. Together with its success in controlling work in progress, this has been a strong contributory factor to a very strong period of cash flow generation in 2009.

Given the caution shown by the Group in the consented land market since 2006, and the uncertainty engendered by market conditions more recently, sales outlet numbers have fallen over 2009, with 85 sales outlets on average during the year.

The Group has commented that this average is likely to fall in 2010 to around 70 outlets. The challenge ahead for the Group is to use its balance sheet strength to acquire residential land and thus grow its sales outlet count: either through consented land purchase or via conversion of the existing strategic land the Group controls. To this end, four new consented sites were acquired in the final quarter of 2009, with terms agreed in principle on a further 15 sites by 31 December 2009.

The Group held a consented land bank of 12,042 plots at 31 December 2009, over six and a half years supply at current levels of activity, although it has reduced over the year from 13,545 plots at 31 December 2008, demonstrating the impact of the Group's aforementioned caution in land acquisition. The consented land bank reduced by virtue of the 1,803 legal completions during 2009 whilst there were 300 net plots added after adjusting for the effect of replanning. The average consented land plot cost at the start of 2009 was £35,000. This has increased over the year, following a net inventory provision release over 2009, to £35,200 at 31 December 2009.

The strategic land bank at 31 December 2009 amounted to 16,363 potential plots as compared to 18,972 potential plots at 31 December 2008. Given the relatively low levels of additions into the strategic land bank during the year, and the transfer of only one site into the consented land bank, the major factor in this movement has been the removal of a large option-controlled site from the potential plot numbers as views on the delivery of an acceptable residential planning consent in that location have been revised. The remaining un-amortised option costs relating to this site were written off during the year.

Environment and sustainability

The Group continues to regard sustainable development as critical to the long term creation of value for its shareholders.

Given the continuing focus on climate change, the role of the housebuilding industry is important in terms of both the mitigation of the impact of its near term building developments on the local environment, and in playing its part in the evolution of building techniques and advances which reduce the carbon arising from new housebuilding developments.

Ensuring that its developments take place in a manner which mitigates the impact of its operations on its local environment, balancing the needs of local communities for new housing with the requirement to avoid environmental damage, the Group works with a range of external stakeholders to agree and carry out development in a mutually acceptable manner.

Looking forward, the Group is focusing on ways to ensure that its products conform to good environmental standards, including both EcoHomes standards and emerging standards under the Code for Sustainable Homes. Reflecting the existing contribution that the Group makes to the communities and environments in which it operates, the Group is proud to say that it is a member of the FTSE4Good index.

The Group's Corporate Social Responsibility report outlines this area in more detail, and is available on the Group's website (www.bovishomes.co.uk/plc)

Main trends and factors looking forward

The stabilisation of house prices in the new build market and improving consumer sentiment in later 2009, alongside increasing numbers of mortgages being approved, has improved the market backdrop at the start of 2010 relative to the position at the same point in 2009.

Allied to this, the Group has been able to demonstrate robust and successful balance sheet management: enabling it to plan and take actions designed to grow profits, margins and returns in the mid term.

However, the economy is benefiting from an unprecedented level of monetary support at present, and risks surrounding the timing of the cessation of this together with the evident policy challenges for the Government arising from historically high peace time levels of budget deficits may suggest tougher times ahead.

The Group entered 2010 with a stronger forward sales position than in the prior year, reflecting its focus on delivering early sales activity to support volume aspirations for 2010 as a whole. Given the already mentioned lower number of sales outlets available to the Group in 2010 and the prevailing market conditions, the Group has made a solid start to 2010 in terms of reservations. For the first nine weeks of 2010, the Group has achieved an average private sales rate of 0.42 net reservations per site per week. This compares with an average private sales rate per site per week throughout 2009 of 0.41 and an average in the first nine weeks of 0.39. As at 5 March 2010, reflecting the strong opening position, the Group held 969 net sales for legal completion in 2010, as compared to 772 net sales at the same point in 2009. Within the current year total, private sales amount to 701 units (2009: 515 units) and social sales amount to 268 units (2009: 257 units).

The Group is strongly placed with the financial capability to acquire consented land which will enable it to grow its output capacity as measured by sales outlet numbers, without relying on a resurgence in the housing market, thus increasing both revenue and profit in the mid term. In 2009 the Group's strategy was clear: control of working capital and cash generation. The strategy for 2010 is equally clear: investment in new land to generate strong future returns.

David Ritchie

Chief Executive


Financial performance during the year

Revenue

The Group delivered £278.8 million of housing revenue in 2009, 1.8% ahead of the prior year (2008: £274.0 million). There was no income from land sales in 2009 (2008: £4.9 million). Together with £2.7 million of other income (2008: £3.4 million) the Group's total revenue for 2009 was £281.5 million which was broadly in line with total revenue in 2008 at £282.3 million.

Pre-exceptional operating profit

The Group delivered a pre-exceptional operating profit for the year ended 31 December 2009 of £17.4 million at an operating margin of 6.2%, as compared to £21.3 million in the previous year, at an operating margin of 7.5%.

Pre-exceptional gross margins fell by circa six percentage points, from 22.4% in 2008 to 16.1% in 2009, largely driven by a reduction in private home profit margins as the average sales price on private legal completions fell by 9% in 2009 as compared to 2008. Largely offsetting this, the Group's pre-exceptional overhead ratio to revenue improved by circa five percentage points to 9.9% from 14.9% in 2008.

With no land sales in 2009, net option costs in 2009 were £1.5 million, as compared to £1.3 million of land sales profit less option costs in 2008.

Exceptional and non-recurring costs

The Group discloses items as exceptional when the Board deems them material by size or nature, non-recurring and of such significance that they require separate disclosure.

Periodically, the Group reviews its inventory carrying values on a site by site basis, taking into account local management and the Board's estimates of current achievable pricing in local markets. Where this gives rise to a situation where the then current carrying costs of the asset plus estimated costs to complete are higher than the estimated net realisable value, a provision is recognised for the difference. Where a subsequent review indicates a net realisable value in excess of the carrying cost plus estimated costs to complete, any remaining un-utilised provision is required to be released.

The Group has reviewed the carrying value of its assets and liabilities as at 31 December 2009. Following this year end review, the Group has released £11.6 million of provisions held against the carrying costs of inventory. This release increases the land cost base going forward which is expected to impact 2010 cost of sales by approximately £5 million. Of the Group's £11.6 million provision release in the second half, there was a gross release of £14.0 million offset by an additional further provision of £2.4 million.

Taking into account the £11.6 million year end inventory provision release, and the £8.9 million inventory provision charged in the first half of 2009, the net inventory provision release for the year as a whole was £2.7 million.

Offsetting this, the Group has written off the £4.2 million remaining un-amortised element of the one-off fee paid to its banking syndicate in relation to the facility agreement entered into December 2008 following the agreement of a new deal, approved in December 2009 and entered into during January 2010.

The Group has also taken a £1.0 million provision relating to a potential onerous land contract and a £0.2 million impairment on the carrying value of its available for sale asset portfolio.

In total, the Group has taken £2.7 million of exceptional items before tax in 2009 (2008: £93.1 million)

Pre tax profit and earnings per share

The Group achieved pre-exceptional profit before tax of £7.5 million, with pre-exceptional operating profit of £17.4 million and net financing charges of £9.9 million. This compares to £21.3 million of pre-exceptional operating profit and £6.9 million of net financing charges in 2008 which generated £14.4 million of pre-exceptional profit before tax in that year.

After accounting for £2.7 million of exceptional charges (2008: exceptional charges of £93.1 million) the Group made a pre tax profit of £4.8 million for the year as a whole (2008: £78.7 million pre tax loss).

Pre-exceptional basic earnings per share for the year was 4.4p and basic earnings per share after exceptional charges was 2.8p. This is as compared to pre-exceptional basic earnings per share of 9.2p and basic loss per share after exceptional charges of 49.1p in 2008.

Financing

Pre-exceptional net financing charges were £9.9 million in 2009 (2008: £6.9 million). Net bank charges for 2009 were £8.6 million, which included the amortisation of arrangement fees (£4.3 million) and commitment fee charges (£3.2 million). This compares to £5.6 million of net charges in 2008. On average during 2009, the Group had £9 million of net debt, as compared to an average net debt of £97 million in 2008, the improvement arising from strong working capital and other expenditure control as well as from the positive impact of the Group's equity placing in September 2009. The Group was net cash positive from August 2009. The Group incurred a £1.7 million finance charge (2008: charge of £2.5 million), reflecting the difference between the cost and nominal price of land bought on deferred terms which is charged to the income statement over the life of the deferral of the consideration payable.

The Group benefited from a £0.2 million net pension financing credit during 2009. This credit arose as a result of the expected return on scheme assets being in excess of the interest on the scheme obligations. The equivalent credit in 2008 was £1.1 million. The Group also benefited from a finance credit of £0.5 million arising from the unwinding of the discount on its available-for-sale financial assets during 2009 (2008: £0.1 million). There were also £0.3 million of other financing charges during the year.

The Group charged £4.2 million of exceptional financing cost charges arising in the year relating to the write-off of unamortised one-off bank facility arrangement fees.

Taxation

The Group has recognised a tax charge of £1.3 million on pre tax profits of £4.8 million at an effective rate of 27.1% (2008: tax credit of £19.7 million at an effective rate of 25.1%). Of this, a £2.0 million charge has arisen on pre-exceptional pre tax profits of £7.5 million, and a £0.7 million tax credit has arisen on pre tax exceptional items of £2.7 million. The Group continues to recognise a current tax asset, of £0.8 million, in its closing balance sheet as at 31 December 2009 (2008: £23.6 million).

Dividends

As previously announced, the Board did not recommend payment of a final dividend for 2008, having regard to trading conditions and did not pay an interim dividend in 2009. No cash payments have therefore been made in 2009 relating to dividends. The Board does not propose payment of a final dividend for 2009.

Net assets

At 31 December 2009, the Group's net assets were £692.6 million, £60.3 million higher than the opening net asset position at 31 December 2008. The main driver of this change has been the equity placing carried out by the Group which increased net assets by £59.0 million. Retained earnings increased by £1.2 million including retained profit for the year of £3.5 million and the reserves adjustment for the Group's pension deficit which increased from £6.8 million to £8.9 million.

Net assets per share as at 31 December 2009 was £5.20 as compared to £5.23 at 31 December 2008.

Pensions

Following a roll-forward of the valuation of the Group's pension scheme, with latest estimates provided by the Group's actuarial advisors, the Group's pension scheme had a deficit of £8.9 million at 31 December 2009, an increase of £2.1 million on the opening deficit of £6.8 million at 31 December 2008. Whilst scheme assets grew strongly over the year, from £58.7 million to £67.6 million, the scheme liabilities increased to a greater extent, from £65.5 million to £76.5 million, impacted by a fall in bond yields.

As well as benefiting from a generally stronger stock market in 2009, scheme assets benefited from a £1.9 million special cash contribution made by the Group into the scheme in December 2009.

Cash flow

The Group started the year with £108.4 million of net debt before issue costs. At 31 December 2009, the Group held £112.3 million of net cash. Having commenced the year with a number of strategies designed to strengthen its balance sheet through maximisation of cash flow generation, the circa £221 million of cash inflow achieved by the Group in the year demonstrates good success in this area.

There were a number of factors enabling the Group to deliver this strong cash inflow: firstly and most significantly, successful working capital management enabled the Group to reduce work in progress by £105 million. Secondly, the Group received  £22 million of tax rebates following its post exceptional loss in 2008. Finally, the Group raised £59 million of new equity capital during the year as a result of its placing in September 2009.

Net cash in hand

As at 31 December 2009, the Group held £114.6 million of cash in hand, offset by a £2 million loan received as part of the Government's Kickstart programme aimed at supporting national housebuilders and encouraging increased levels of production and a £0.3 million interest rate swap fair value adjustment: in total £112.3 million (2008: £100.1 million net debt after issue costs). As the Group had substantial cash in hand at the year end, there was no year end gearing.

At the end of the year, the Group had in place a £220 million committed syndicated banking facility, which was due to step down to £180 million in February 2010 and to £160 million in September 2010 and which was due to mature in March 2011. Well ahead of this maturity, the Group chose to refinance this facility, taking advantage of improved credit conditions in the banking marketplace.

As at 31 December 2009, the Group had received credit approval for a new facility which it entered into in January 2010, at which point its existing facility was cancelled. The new facility is a £150 million committed syndicated facility with a longer term, maturing in September 2013, with more flexible borrowing terms and a cheaper cost.

Financial risk and liquidity

The Group largely sees three categories of financial risk: interest rate risk, credit risk and liquidity risk. Currency risk is not a consideration as the Group trades exclusively in England and Wales.

In regards to interest rate risk, the Group from time to time will enter into hedge instruments to ensure that the Group's exposure to excessive fluctuations in floating rate borrowings is adequately hedged. With the commencement of a new banking arrangement in late 2008, the Group entered into a £50 million zero cost cap and floor collar hedge arrangement in February 2009, ensuring that variable rates on up to £50 million of the Group's floating rate debt are held within a pre-determined range. This prevents the Group from suffering material adverse floating rate increases beyond an agreed level ('the cap') in return for which the Group accepts a minimum payment cost ('the floor').

With unprecedentedly low LIBOR rates together with the risk premium on LIBOR rates falling away as liquidity has returned to the market, the variable cost of borrowings is below the floor and therefore ongoing costs are being incurred. As the Group has no debt at present, these hedge instruments are regarded as ineffective and thus all costs are being taken directly through income. At present, this cost is estimated at £0.3 million per annum until expiry in March 2011 which reflects the fair value of the interest rate swap.

In regard to credit risk, this is largely mitigated by the nature of the Group's business, its sales being generally made on completion of a legal contract at which point monies are received in return for transfer of title.

During 2009, the Group saw an increase in the number of sales being made together with the provision of a shared equity investment by the Group as a key part of the Group's sales incentive packages: either via the Government 'HomeBuy Direct' scheme or via the Group's own 'Jumpstart' scheme. This has led to an increase in the value of the Group's long term receivable Available for Sale Financial Asset balance which at 31 December 2009 was £21.3 million versus £6.0 million at 31 December 2008. Whilst this represents an overall increase in credit risk, each individual credit exposure is small given the high number of counterparties. On average, individual shared equity exposure amounts to £26,000.

During 2009 and into early 2010, the Group successfully re-refinanced its banking arrangements, putting in place a £150 million syndicated facility which is committed to September 2013. The Group regards this facility as adequate in terms of both flexibility and liquidity to cover its medium term cash flow needs.

Financial reporting

There have been no changes to the Group's accounting policies during 2009.

Principal risks and uncertainties

Management of risk is key to protecting value. The Group approaches this via a review of the dimensions of risk that it faces in its business operations, identifying for each risk the answers to two questions: firstly, what is the impact of the risk occurring, and secondly, what is the likelihood of this risk occurring. The mitigation plans and processes identified by management are taken into account as part of this assessment. Blending these responses together enables the Group to identify those risks most likely to pose a threat. The review of risk includes assessment of those risks which may be remote in likelihood but high in impact.

Each year, the Board formally reviews risk, examining risk in a changing business landscape and considering the management assessment of this risk. In doing so, the Board is able to ensure that its risk register is up to date and reflects any relevant changes in the Group's operating environment and that it has satisfied itself as to the mitigation factors available to the Group.

As in previous years, the risks that the Group face generally fall into a number of categories: these include commercial risks, social risks, environmental risks and ethical risks. With regard to commercial risk, the stabilisation of the marketplace during 2009 has greatly reduced the risks affecting the Group in 2008 around working capital adequacy, risks further reduced following an effective year of cash flow generation.

Accordingly, the main commercial risks identified by the Group now largely relate to three areas:

·     Market driven risks such as the risks to revenue created by a worsening economic environment

·     Legislative risk such as the risk of planning or legislative changes driving costs ahead of sales prices and thus impacting shareholder returns

·     Risks around land purchasing, as the key and most volatile input cost that the Group incurs

In regards to market risk, uncertainties clearly remain as to the direction and pace of future house price movements. This is particularly so against a backdrop of unprecedented macro economic support at present which is unlikely to persist into the mid term, allied to worsening public finances. Given this relative uncertainty in regards to the pricing environment, the associated commercial risks of lower house prices looking forward still persist: for example in terms of the affordability both of planning gain packages and of the affordability of cost changes driven by primary legislation particularly in terms of sustainability and the Code for Sustainable Homes.

The state of public finances may also pose a threat to the contribution from Government in funding the revenue earned from social housing obligated to be delivered as part of a planning gain package under a s106 agreement.

In regards to legislative risk, there are particular uncertainties at present given the general election due to take place in the first half of 2010. The Conservative Party, currently leading in the polls, has indicated that it regards the volume output of new homes over the recent past as inadequate. Accordingly, it is currently outlining draft policies that will greatly change the existing planning framework. Whilst the Group supports the intent behind this, it remains concerned that the plans as outlined increase uncertainty around land supply and have the potential to disrupt and/or reduce land supply in the mid term, with the impact likely to be felt first in the strategic land market.

Business risks are not just limited to those of a commercial nature. The Group remains intent on continuing to manage risks across all risk dimensions. The principal social, environmental and ethical risks and uncertainties remain the following:

·     Existing land contamination is not identified pre-acquisition

·     Wildlife habitats are not identified resulting in planning difficulties

·     Sustainable development requirements are not addressed, leading to planning delays and the loss of potential efficiencies

·     Failure to design for social inclusion, and for use of appropriate materials

·     Environmental pollution occurs on a construction site and is not swiftly controlled

·     Health and safety standards are breached, leading to injury

·     A significant environmental, health and safety, social or ethical event impacts on the Group's reputation or brand

In all the areas that the Group regards as potential risks, the Group has reviewed the likelihood and impact of a problem occurring and has identified suitable controls and processes to manage, monitor and mitigate these risks.

As the Group moves out of a highly challenging trading environment into a more stable marketplace, the nature of the risks that it is focused on are evolving towards those

risks associated with growth, such as the need to acquire land successfully. This said, it is important to recognise that whilst conditions may have improved, profound uncertainties remain in regards to the UK economy which do suggest that appropriate levels of caution should be maintained.

Neil Cooper

Group Finance Director

Statement of directors' responsibilities in respect of the annual report and the financial statements

The directors are responsible for preparing the annual report and the Group and Parent Company financial statements, in accordance with applicable law and regulations.

Company law requires the directors to prepare Group and Parent Company financial statements for each financial year. Under that law the directors are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the Parent Company financial statements on the same basis.

Under company law, the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of their profit or loss for that period.

In preparing each of the Group and Parent Company financial statements, the directors are required to:

·     select suitable accounting policies and then apply them consistently;

·     make judgments and estimates that are reasonable and prudent;

·     for the Group and Parent Company financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;

·     prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Parent Company will continue in business.

The directors are responsible for keeping proper accounting records that are sufficient to show and explain the Parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the directors are also responsible for preparing a directors' report, report on directors' remuneration and report on corporate governance that comply with that law and those regulations.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

We confirm that to the best of our knowledge:

a)    the Group and Parent Company financial statements in this report, which have been prepared in accordance with IFRS as adopted by the EU, IFRIC interpretation and those parts of the Companies Act 2006 applicable to companies reporting under IFRS, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and of the Group taken as a whole; and

b)    the management report contained in this report includes a fair review of the development and performance of the business and the position of the Company and the Group taken as a whole, together with a description of the principal risks and uncertainties they face.

For and on behalf of the Board

David Ritchie

Chief Executive

Neil Cooper

Finance Director

5 March 2010

Bovis Homes Group PLC
Group income statement

For the year ended 31 December	2009						2008
	Before exceptional items		Exceptional items				Before exceptional items		Exceptional items
	£000		£000		£000		£000		£000		£000
Revenue	281,505		-		281,505		282,326		-		282,326
Cost of sales	(236,339	)	1,471		(234,868	)	(219,011	)	(76,487	)	(295,498	)
Gross profit/(loss)	45,166		1,471		46,637		63,315		(76,487	)	(13,172	)
Administrative expenses	(27,769	)	-		(27,769	)	(42,018	)	(16,641	)	(58,659	)
Operating profit/(loss) before financing costs	17,397		1,471		18,868		21,297		(93,128	)	(71,831	)
Financial income	2,304		-		2,304		1,389		-		1,389
Financial expenses	(12,178	)	(4,197	)	(16,375	)	(8,292	)	-		(8,292	)
Net financing costs	(9,874	)	(4,197	)	(14,071	)	(6,903	)	-		(6,903	)
Profit/(loss) before tax	7,523		(2,726	)	4,797		14,394		(93,128	)	(78,734	)
Income tax (expense)/credit	(2,070	)	763		(1,307	)	(3,319	)	23,058		19,739
Profit/(loss) for the period attributable to equity holders of the parent	5,453		(1,963	)	3,490		11,075		(70,070	)	(58,995	)
Earnings/(loss) per share
Basic	4.4p		(1.6p	)	2.8p		9.2p		(58.3p	)	(49.1p	)
Diluted	4.4p		(1.6p	)	2.8p		9.2p		(58.3p	)	(49.1p	)
Dividend per share charged in period
2008 interim paid November 2008					-						5.0p
2007 final paid May 2008					-						17.5p
					-						22.5p

Bovis Homes Group PLC

Group statement of comprehensive income

For the year ended 31 December
			2009		2008
			£000		£000
Profit / (loss) for the period			3,490		(58,995	)
Actuarial loss on defined benefits pension scheme			(4,210	)	(8,820	)
Deferred tax on actuarial movements on defined benefits pension scheme			1,179		2,470
Total comprehensive income and expense for the period attributable to equity holders of the parent			459		(65,345	)

Bovis Homes Group PLC

Group balance sheet

At 31 December			2009		2008
			£000		£000
Assets
Property, plant and equipment			11,574		12,347
Investments			22		22
Deferred tax assets			6,446		5,548
Trade and other receivables			2,213		2,418
Available for sale financial assets			21,291		6,030
Total non-current assets			41,546		26,365
Inventories			630,709		780,808
Trade and other receivables			30,771		37,947
Cash			114,595		11,634
Current tax assets			831		23,550
Total current assets			776,906		853,939
Total assets			818,452		880,304
Equity
Issued capital			66,570		60,497
Share premium			210,181		157,127
Retained earnings			415,815		414,654
Total equity attributable to equity holders of the parent			692,566		632,278
Liabilities
Bank and other loans			2,337		111,730
Trade and other payables			23,077		24,907
Retirement benefit obligations			8,910		6,790
Provisions			1,700		1,623
Total non-current liabilities			36,024		145,050
Trade and other payables			87,698		101,964
Provisions			2,164		1,012
Total current liabilities			89,862		102,976
Total liabilities			125,886		248,026
Total equity and liabilities			818,452		880,304

These accounts were approved by the Board of directors on 5 March 2010 and signed on its behalf: D Ritchie and N Cooper, Directors.                 

Bovis Homes Group PLC

Group statement of changes in equity

For the year ended 31 December 2009	Own shares held		Retirement Benefit obligations		Other retained earnings		Total retained earnings		Issued capital	Share premium	Total
	£000		£000		£000		£000		£000	£000	£000
Balance at 1 January 2008	(2,958	)	(8,635	)	518,187		506,594		60,415	156,734	723,743
Total comprehensive income and expense	-		(6,350	)	(58,995	)	(65,345	)	-	-	(65,345	)
Deferred tax on other employee benefits	-		-		(22	)	(22	)	-	-	(22	)
Current tax on share based payments recognised directly in equity	-		-		498		498		-	-	498
Issue of share capital	-		-		-		-		82	393	475
Own shares disposed	154		-		(154	)	-		-	-	-
Share based payments	-		-		(22	)	(22	)	-	-	(22	)
Dividends paid to shareholders	-		-		(27,049	)	(27,049	)	-	-	(27,049	)
Balance at 31 December 2008	(2,804	)	(14,985	)	432,443		414,654		60,497	157,127	632,278
Balance at 1 January 2009	(2,804	)	(14,985	)	432,443		414,654		60,497	157,127	632,278
Total comprehensive income and expense	-		(3,031	)	3,490		459		-	-	459
Deferred tax on other employee benefits	-		-		(2	)	(2	)	-	-	(2	)
Issue of share capital	-		-		-		-		6,073	53,054	59,127
Own shares disposed	138		-		(138	)	-		-	-	-
Share based payments	-		-		704		704		-	-	704
Balance at 31 December 2009	(2,666	)	(18,016	)	436,497		415,815		66,570	210,181	692,566

Bovis Homes Group PLC

Group statement of cash flows

For the year ended 31 December
			2009		2008
			£000		£000
Cash flows from operating activities
Profit/(loss) for the year			3,490		(58,995	)
Depreciation			769		1,168
Impairment of goodwill			-		10,036
Impairment of assets			245		2,241
Financial income			(2,304	)	(1,389	)
Financial expense			16,375		8,292
Loss/(profit) on sale of property, plant and equipment			3		(146	)
Equity-settled share-based payment expense / (credit)			704		(22	)
Income tax expense / (credit)			1,307		(19,739	)
(Release) / write-down of inventories			(2,664	)	75,202
Operating profit before changes in working capital and provisions			17,925		16,648
(Increase) / Decrease in trade and other receivables			(7,555	)	8,924
Decrease in inventories			152,762		13,345
Decrease in trade and other payables			(17,173	)	(43,444	)
(Decrease) / Increase in provisions and employee benefits			(611	)	702
Cash generated from operations			145,348		(3,825	)
Interest paid			(6,684	)	(8,769	)
Income taxes received / (paid)			21,688		(16,924	)
Net cash from operating activities			160,352		(29,518	)
Cash flows from investing activities
Interest received			1,481		187
Acquisition of property, plant and equipment			(44	)	(143	)
Proceeds from sale of plant and equipment			45		214
Net cash from investing activities			1,482		258
Cash flows from financing activities
Dividends paid			-		(27,049	)
Proceeds from the issue of share capital			60,662		475
Costs associated with share placing			(1,535	)	-
(Repayment) / drawdown of borrowings			(118,000	)	79,000
Costs associated with refinancing			-		(8,290	)
Net cash from financing activities			(58,873	)	44,136
Net increase in cash and cash equivalents			102,961		14,876
Cash and cash equivalents at 1 January			11,634		(3,242	)
Cash and cash equivalents at 31 December			114,595		11,634

Notes to the financial statements

Bovis Homes Group PLC ('the Company') is a company domiciled in the United Kingdom.  The consolidated financial statements of the Company for the year ended 31 December 2009 comprise the Company and its subsidiaries (together referred to as 'the Group') and the Group's interest in associates.

The consolidated financial statements were authorised for issue by the directors on 5 March 2010.  The accounts were audited by KPMG Audit Plc.

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2009 or 2008 but is derived from those accounts.  Statutory accounts for 2008 have been delivered to the registrar of companies, and those for 2009 will be delivered in due course. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 237 (2) or (3) of the Companies Act 1985 in respect of the accounts for 2008 nor a statement under section 498 (2) or (3) of the Companies Act 2006 in respect of the accounts for 2009.

1. Statement of compliance

The consolidated financial statements of the Company and the Group have been prepared in accordance with International Financial Reporting Standards as adopted by the EU (adopted IFRS) and its interpretations as adopted by the International Accounting Standards Board (IASB). On publishing the Company financial statements in the Group's full Report and Accounts together with the Group financial statements, the Company is taking advantage of the exemption in s408 of the Companies Act 2006 not to present its individual income statement and related notes that form a part of these approved financial statements.

2. Basis of preparation
               

The financial statements are prepared on the historical cost basis except for derivative financial instruments and available for sale assets.

The preparation of financial statements in conformity with adopted IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Judgements made by management in the application of adopted IFRSs that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 28 of the Group's full Report and Accounts, available from the Group's website.

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements. The accounting policies have been applied consistently to the Company and the Group where relevant.

Impact of standards and interpretations effective for the first time

The following new standards, amendments to standards or interpretations are mandatory for the first time for the Company's year ended 31 December 2009. They have had no material impact on the Group's financial statements.

IAS1 (2007) - Presentation of financial statements. This relates to the presentation of financial statements and in particular the presentation of a statement of changes in equity as a primary statement. Previously this statement was disclosed as a note to the accounts.

Amendments to IFRS 7 - Improving Disclosures about Financial Instruments. The amended standard requires additional disclosures in relation to the Group's financial instruments recognised at fair value, as set out in note 23 of the Group's full Report and Accounts, available from the Group's website.

IFRS8 - Operating segments. This standard relates to the degree to which financial information is disaggregated in published financial information to aid the reader in a better understanding of the performance of the Group. The Group's operations remain those of a housebuilder operating entirely within England and Wales, and there are no activities of the Group which do not support this operation. Following the introduction of this standard, the Group reviewed its internal financial management information and reporting arising from its internal organisational structure. Following this review, it is confident that its internal organisational structures are sufficiently similar in terms of economic characteristics, products, construction processes, distribution methods and types of customers so as to meet fully the aggregation criteria of the standard. Accordingly, the Board has concluded that there are no separate segments, either business or geographic, to disclose.

IAS23 - (Amended) Borrowing costs. This amendment requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction and production of a qualifying asset, as part of the cost of that asset. A qualifying asset is one that takes a substantial period of time to get ready for use or sale. Inventories which are produced in large quantities on a repetitive basis over a short period of time are not qualifying assets. This amendment is not expected to have any material impact on the Group's financial statements as the activities performed by the Group do not generally produce qualifying assets.

3. Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the Group's share of the total recognised gains and losses of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases.

4. Accounting policies

Business combinations

The purchase method of accounting is used to account for the acquisition of subsidiary undertakings by the Group. The cost of or consideration for an acquisition is measured as the fair value of the assets given and liabilities taken on or assumed in return for the acquisition plus costs directly attributable to the acquisition. On acquisition, identifiable assets and liabilities are measured initially at fair value, with any excess of consideration being recognised as goodwill. Accounting policies of subsidiary undertakings have been changed where necessary to ensure consistency with those adopted by the Group.

Revenue

Revenue is recognised in the income statement when the significant risks and rewards of ownership have been transferred to the purchaser. Revenue comprises the fair value of the consideration received or receivable, net of value-added tax, rebates and discounts. Revenue in respect of the sale of residential properties and land is recognised at the fair value of the consideration received or receivable on legal completion of the sale transaction. Revenue does not include the value of the onward legal completion of properties accepted in part exchange against a new property. The net gain or loss arising from the legal completion of these part exchange properties is recognised in cost of sales.

Rental income is recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income.

Operating leases

Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Lease incentives received are recognised as an integral part of the total lease expenditure.

Net financing costs

Net finance costs comprise:

·      interest payable on borrowings, including any premiums payable on settlement or redemption and direct issue costs, accounted for on an accrual basis to the income statement using the effective interest method;

·      interest receivable on funds invested accounted for on an accrual basis to the income statement using the effective interest method;

·      imputed interest on available-for-sale financial assets and on deferred terms land payables;

·      pension finance costs or benefits being the net of interest costs on liabilities and expected return on assets linked to the Defined Benefit Scheme; and

·      gains and losses on hedging instruments that are recognised in the income statement.

Finance costs are included in the measurement of borrowings at their amortised cost to the extent that they are not settled in the period in which they arise.

The Group is required to capitalise borrowing costs directly attributable to the acquisition, construction and production of a qualifying asset, as part of the costs of that asset. Inventories which are produced in large quantities on a repetitive basis over a short period of time are not qualifying assets. The Group does not generally produce qualifying assets.

Taxation

Income tax comprises the sum of the tax currently payable or receivable and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

The tax currently payable or receivable is based on taxable profit or loss for the year and any adjustment to tax payable or receivable in respect of previous years. Taxable profit or loss differs from net profit or loss as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability or asset for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from non-tax deductible goodwill, from the initial recognition of assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit, and from differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to reserves, in which case the deferred tax is also dealt with in reserves.

Derivative financial instruments and hedge accounting

The Group's activities expose it primarily to the financial risks of changes in interest rates. The Group uses interest rate swap contracts where deemed appropriate to hedge these exposures. The Group does not use derivative financial instruments for speculative purposes. The use of financial derivatives is governed by the Group's policies approved by the Board of directors, which provide written principles on the use of financial derivatives.

Derivative financial instruments are recognised at fair value. The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the balance sheet date, taking into account interest rates and the current creditworthiness of the swap counterparties.

Where the derivative instrument, typically an interest rate swap, is deemed an effective hedge over the exposure being hedged, the derivative instrument is treated as a cash flow hedge and hedge accounting applied. Under a cash flow hedge, gains and losses on the effective portion of the change in the fair value of the derivative instrument are recognised directly in equity.

Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting and any ineffectiveness in the hedge relationship are recognised in the income statement as they arise.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in reserves is retained in reserves until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in reserves is transferred to net profit or loss for the period.

Goodwill

Where the fair value of consideration paid for an acquisition exceeds the fair value of the net assets acquired, the excess is recognised as goodwill arising on consolidation and is capitalised as an asset. Once capitalised, this asset is reviewed for impairment on an annual basis with any impairment arising requiring immediate recognition in the income statement.

For the purpose of impairment testing, goodwill is allocated to each of the cash-generating units of the Group at acquisition. Cash-generating units to which goodwill has been allocated are tested for impairment at least annually. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then, where appropriate, to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. Any impairment is recognised immediately in the income statement and is not subsequently reversed.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Certain property that had been revalued to fair value on or prior to 1 January 2004, the date of transition to adopted IFRS, are measured on the basis of deemed cost, this being the revalued amount at the date of that revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Regular reviews of the carrying values of property are completed to assess any impairment in value. When impairment is identified, the asset's recoverable amount is assessed and any shortfall is written off through the income statement.

Depreciation is charged so as to write off the cost less residual value (which is reassessed annually) of assets over their estimated useful lives. Depreciation is charged on property in respect of the value of the building. Land is not depreciated. The basis of depreciation for each class of asset is as follows:

·      Buildings	straight line over 50 years
·      Plant and machinery	33.3% reducing balance
·      Computer equipment	straight line over 3 years
·      Office equipment	25% reducing balance

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement.

Fixed asset investments

Investments in subsidiaries are carried at cost less impairment. Following the issue of IFRIC11 in 2007, the Parent Company accounts for the share-based payments granted to subsidiary employees as an increase in the cost of its investment in subsidiaries.
 

Trade and other receivables

Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.

Receivables on extended terms granted as part of a sales transaction are secured by way of a legal charge on the relevant property, categorised as an available for sale financial asset and are stated at fair value as described in note 15. Gains and losses arising from changes in fair value are recognised directly in equity in retained earnings, with the exceptions of impairment losses, the impact of changes in future cash flows and interest calculated using the 'effective interest rate' method, which are recognised directly in the income statement. Where the investment is disposed of, or is determined to be impaired, the cumulative gain or loss previously recognised in equity is included in the income statement for the period. Given its materiality, this item is being disclosed separately on the face of the balance sheet.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads, not including any general administrative overheads, that have been incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated net selling price less estimated total costs of completion of the finished goods.

Land held for development, including land in the course of development until legal completion of the sale of the asset, is initially recorded at cost.

Where, through deferred purchase credit terms, cost differs from the nominal amount which will actually be paid in settling the deferred purchase terms liability, an adjustment is made to the cost of the land, the difference being charged as a finance cost.

Options purchased in respect of land are capitalised initially at cost. Regular reviews are completed for impairment in the value of these options, and provisions made accordingly to reflect loss of value. The impairment reviews consider the period elapsed since the date of purchase of the option given that the option contract has not been exercised at the review date. Further, the impairment reviews consider the remaining life of the option, taking account of any concerns over whether the remaining time available will allow successful exercise of the option. The carrying cost of the option at the date of exercise is included within the cost of land purchased as a result of the option exercise.

Investments in land without the benefit of planning consent, either through purchase of freehold land or non refundable deposits paid on land purchase contracts subject to residential planning consent, are capitalised initially at cost. Regular reviews are completed for impairment in the value of these investments, and provision made to reflect any irrecoverable element. The impairment reviews consider the existing use value of the land and assesses the likelihood of achieving residential planning consent and the value thereof.

Ground rents are held at an estimate of cost based on a multiple of ground rent income, with a corresponding credit created against cost of sales, in the year in which the ground rent first becomes payable by the leasehold purchaser.

Cash and cash equivalents

Cash and cash equivalents comprises cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

Bank borrowings

Interest-bearing bank loans and overdrafts are initially recorded at fair value, net of direct issue costs, and subsequently at amortised cost. Finance charges are accounted for on an accrual basis to the income statement using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

Trade payables

Trade payables on normal terms are not interest bearing and are stated at their nominal value.

Trade payables on extended terms, particularly in respect of land, are recorded at their fair value at the date of acquisition of the asset to which they relate. The discount to nominal value which will be paid in settling the deferred purchase terms liability is amortised over the period of the credit term and charged to finance costs using the effective interest rate method.

Provisions

A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Own shares held by ESOP trust

Transactions of the Group-sponsored ESOP trust are included in the Group financial statements. In particular, the trust's purchases of shares in the Company are debited directly to equity through an own shares held reserve.

Employee benefits

The Group accounts for pensions and similar benefits under IAS 19 (Revised): "Employee benefits". In respect of defined benefit schemes, the net obligation is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods, such benefits measured at discounted present value, less the fair value of the scheme assets. The discount rate used to discount the benefits accrued is the yield at the balance sheet date on AA credit rated bonds that have maturity dates approximating to the terms of the Group's obligations. The calculation is performed by a qualified actuary using the projected unit method. The operating and financing costs of such plans are recognised separately in the income statement; service costs are spread systematically over the lives of employees and financing costs are recognised in the periods in which they arise. All actuarial gains and losses are recognised immediately in the statement of recognised income and expense.

Payments to defined contribution schemes are charged as an expense as they fall due.

Share-based payments

The Group has applied the requirements of IFRS2: "Share-based payments". In accordance with the transitional provisions of IFRS1, IFRS2 has been applied to all grants of equity instruments after 7 November 2002 that were unvested as of 1 January 2005.

The Group issues equity-settled share-based payments to certain employees in the form of share options over shares in the Parent Company. Equity-settled share-based payments are measured at fair value at the date of grant calculated using an independent option valuation model, taking into account the terms and conditions upon which the options were granted. The fair value is expensed on a straight line basis over the vesting period, based on the Group's estimate of shares that will eventually vest, with a corresponding credit to equity.

Segment reporting

As the Group's main operation is that of a housebuilder and it operates entirely within the United Kingdom, there are no separate segments, either business or geographic, to disclose, having taken into account the aggregation testing provisions of IFRS8.

Exceptional items

Items that are both material in size and unusual or infrequent in nature are presented as exceptional items in the income statement. The Directors are of the opinion that the separate recording of exceptional items provides helpful information about the Group's underlying business performance. Examples of events that, inter alia, may give rise to the classification of items as exceptional are the restructuring of existing and newly-acquired businesses, gains or losses on the disposal of businesses or individual assets and asset impairments, including currently developable land, work in progress and goodwill.

Restructuring costs

Restructuring costs are recognised in the income statement when the Group has a detailed plan that has been communicated to the affected parties. A liability is accrued for unpaid restructuring costs.

Impact of standards and interpretations in issue but not yet effective

A number of new standard, amendments to standards and interpretations are not yet effective for the year ended 31 December 2009, and have not been applied in preparing these consolidated financial statements. None of these are expected to have an effect on the consolidated financial statements of the Group. Comments on specific new standards or amendments are as follows:

Amendment to IAS39 'Financial instruments'. This standard is amended such that gains or losses on a hedged instrument should be reclassified from equity to profit or loss during the period that the hedged forecast cash flows affect profit or loss. As the Group's current hedged instruments are currently ineffective, movements are currently taken through the income statement so this will have no practical impact. This amendment will apply to the Group from the accounting period commencing 1 January 2010.

Comprehensive revision to IFRS3 'Business combinations'. This revision will have no impact on implementation although it will alter the accounting treatment for future potential acquisitions. This revision will apply to the Group from the accounting period commencing 1 January 2010.

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

The Group has not early adopted any standard, amendment or interpretation.

5. Exceptional items

Inventory carrying value

The Group has reviewed the carrying value of its inventory items, comparing the carrying cost of the asset against estimates of net realisable value.  Net realisable value has been arrived at using the Board's estimates of achievable selling prices taking into account current market conditions, and after deduction of an appropriate amount for selling costs.  This has given rise in the second half to an £11.6 million release of previously taken provision: this release comprised a gross release of £14.0 million and a further provision of £2.4 million.  Taken together with the £8.9 million provision taken in the first half, the net inventory provision release for the year as a whole was £2.7 million (2008: £75.2 million provision taken).

Financing charge

Following the credit approval of a new banking facility in December 2009 followed by the entering into of that agreement during January 2010, the Group has written off the £4.2 million remaining un-amortised element of the one-off and other capitalised transaction fees in relation to the facility agreement entered into in December 2008 (2008: £nil).

Other exceptional items

The Group has taken a £0.2 million impairment charge relating to available-for-sale assets (2008: £1.2 million) and a £1.0 million provision for a potential onerous land contract (2008: £nil).

Other items in 2008 included a £10.0 million goodwill write-off, a £1.0 million fixed asset impairment and a £5.7 million restructuring charge.

Total exceptional charges for 2009 are £2.7 million (2008: £93.1 million).  

6. Reconciliation of net cash flow to net debt

			2009		2008
			£000		£000
Net increase in net cash and cash equivalents			102,961		14,876
Repayment/(drawdown) of borrowings			118,000		(70,730	)
Fair value adjustments to interest rate swaps			(337)		-
Movement in financing prepayment			(8,270	)	-
Net debt at start of period			(100,096	)	(44,242	)
Net cash/(debt) at end of period			112,258		(100,096	)
Analysis of net cash/(debt):
Cash and cash equivalents			114,595		11,634
Unsecured bank and other loans			(2,000	)	(120,000	)
Fair value of interest rate swaps			(337	)	-
Issue Costs			-		8,270
Net cash/(debt)			112,258		(100,096	)

7. Income taxes

Current tax

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, calculated using a corporation tax rate of 28.0% applied to the pre-tax income or loss, adjusted to take account of deferred taxation movements and any adjustments to tax payable for previous years.  Current tax receivable for current and prior years is classified as a current asset.

8. Dividends

The following dividends were paid by the Group.

			2009		2008
			£000		£000
Prior year final dividend per share of nil (2008: 17.5p)			-		21,031
Current year interim dividend per share of nil (2008: 5.0p)			-		6,018
Dividend cost			-		27,049

The Board has decided not to propose a final dividend in respect of 2009.

9. Earnings or Loss per share

Basic earnings per ordinary share before exceptional items for the year ended 31 December 2009 is calculated on pre-exceptional profit after tax of £5,453,000 (year ended 31 December 2008 profit: £11,075,000) over the weighted average of 124,179,686 (year ended 31 December 2008: 120,268,986) ordinary shares in issue during the period.

Basic loss per ordinary share on exceptional items for the year ended 31 December 2009 is calculated on an exceptional loss after tax of £1,963,000 for 2009 (year ended 31 December 2008 loss: £70,070,000) over the weighted average of 124,179,686 (year ended 31 December 2008: 120,268,986) ordinary shares in issue during the period.

Basic earnings per ordinary share for the year ended 31 December 2009 is calculated on profit after tax of £3,490,000 (year ended 31 December 2008 loss: £58,995,000) over the weighted average of 124,179,686 (year ended 31 December 2008: 120,268,986) ordinary shares in issue during the period.

Diluted earnings per ordinary share before exceptional items for the year ended 31 December 2009 is calculated on pre-exceptional profit after tax of £5,453,000 (year ended 31 December 2008 profit: £11,075,000) expressed over the diluted weighted average of 124,203,192 (year ended 31 December 2008: 120,314,451) ordinary shares potentially in issue during the period. 

Diluted loss per ordinary share on exceptional items for the year ended 31 December 2009 is calculated on an exceptional loss after tax of £1,963,000 (year ended 31 December 2008 loss: £70,070,000) expressed over the weighted average of 124,179,686 ordinary shares in issue during the period (year ended 31 December 2008: 120,268,986). 

Diluted earnings per ordinary share for the year ended 31 December 2009 is calculated on profit after tax of £3,490,000 (year ended 31 December 2008 loss: £58,995,000) expressed over the diluted weighted average of 124,203,192 ordinary shares potentially in issue during the period (year ended 31 December 2008: 120,268,986).

The average number of shares is diluted in reference to the average number of potential ordinary shares held under option during the period.  This dilutive effect amounts to the number of ordinary shares which would be purchased using the aggregate difference in value between the market value of shares and the share option exercise price.  The market value of shares has been calculated using the average ordinary share price during the period.  Only share options which have met their cumulative performance criteria have been included in the dilution calculation.  A loss per share cannot be further reduced through dilution.

In a manner consistent with IAS33, the Group has reviewed the impact of its equity placing in September 2009 on its prior year earnings per share disclosures.  As the impact is immaterial, no prior year restatement has occurred.

10. Related Party transactions

Transactions between fellow subsidiaries, which are related parties, have been eliminated on consolidation, as have transactions between the Company and its subsidiaries during this period. 

Transactions between the Group, Company and key management personnel in the year ending 31 December 2009 were limited to those relating to remuneration, which are disclosed in the Report on directors' remuneration which can be found in the full Report and Accounts available from the Group's website.

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

Total net payments were as follows:

			Year ended		Year ended
			31 December 2009		31 December 2008
			£000		£000
NHBC			724		1,258
HBF			78		92

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

 

END

 

 

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