Annual Financial Report

RNS Number : 2945K
Bovis Homes Group PLC
09 April 2018
 

Bovis Homes Group PLC - Annual Report and Accounts 2017

 

Annual Report and Accounts 2017, Notice of Annual General Meeting, Proxy Card

 

Copies of the above documents have been submitted to the National Storage Mechanism and will shortly be available for inspection at www.hemscott.com/nsm.do

 

The documents are being mailed to shareholders and are available on the Company's website at www.bovishomesgroup.co.uk/annualreport2017

 

Annual Report and Accounts 2017 - publication required by DTR 6.3.5

 

The Company published its Preliminary Results for the year ended 31 December 2017 on 1 March 2018.  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.  To maintain 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.bovishomesgroup.co.uk/annualreport2017

 

 

Bovis Homes Group PLC - Annual Report and Financial Statements 2017

 

Chairman's statement

 

I am pleased to report that the Group starts the new year in a much stronger operational position. 2017 commenced with a difficult period for the business managing a high level of customer issues. After 18 years' service David Ritchie stepped down as Chief Executive in January and we announced our intention to slow production during the year to enable the business to reset. In early March the Board acknowledged that it had received written proposals from Redrow plc and Galliford Try plc outlining their rationalisation for a potential merger. Having reviewed each approach in detail the Board concluded that neither reflected the underlying value of the business and both were rejected.

We were delighted to welcome Greg Fitzgerald as Group Chief Executive in April 2017. The Group is benefitting from Greg's extensive housebuilding experience, operational focus and hands on approach to management.

Customers

Returning our customers back to the centre of everything we do and delivering a significantly improved level of customer satisfaction was our number one priority for 2017. There has been a step change in our approach to customer experience and I am very pleased to report that since the start of the HBF year (1 October 2017), the Group is trending at a 4 star HBF Customer Satisfaction score. Delivering our customers quality new homes and a high level of customer service that meets their expectations throughout their entire journey with Bovis Homes, remains one of our core strategic priorities.

People

People, remain a key priority and we are continuing to invest more in training and development than ever before. We have established the Bovis Homes Training Centre and developed a range of training opportunities for all our employees and subcontractors.

Acknowledging the skills shortage in our industry, we are pleased to have signed the HBF's Home Building Skills Pledge, committing us to working with others in the industry to recruit and train more people to the highest industry agreed standards. We also remain very committed to our Bovis Homes Apprenticeship Scheme and welcomed 20 new recruits in the year.

In what has been a very challenging period, the extraordinary passion and commitment shown by our employees, which I have witnessed first hand, has been outstanding. On behalf of the Board, I would like to thank all of them for their dedication, hard work and enthusiasm in delivering quality houses to our customers and driving operational change. I would also like to extend my thanks to our subcontractors and suppliers who are such an important and valued component of our business.

The housing market

The fundamentals of the new build housing market remain positive with strong demand across all our regions. Interest rates remain low by historical standards and the mortgage market continues to be competitive. Increasing the supply of new homes in the UK remains a key priority for Government and their support for purchasers, in particular through the Help to Buy Scheme, is enabling them to access the housing market through affordable mortgage finance. Whilst the supply of labour in our market remains challenging, the planning environment continues to be positive, supporting a rational market for housing land.

Ordinary dividends and capital return plan

The Board intends to continue the strategy set out in 2017 of maintaining an efficient balance sheet and delivering sustainable dividends to shareholders. In setting the level of dividends the Board considers a range of factors including the extent to which the dividend is covered by underlying earnings and free cash flow, the prevailing strength of the balance sheet and general economic circumstances, with particular regard to the cyclicality of the industry.

The Board is pleased to recommend a final ordinary dividend of 32.5p (FY16: 30.0p) per share bringing the total ordinary dividend for FY17 to 47.5p (FY16: 45.0p) per share, representing a 6% increase. Reflecting the Board's confidence in the outlook for the business, it intends to increase the ordinary dividend for FY18 by a further 20% to 57 pence per share.

In addition, the Board intends that surplus capital will be returned to shareholders via special dividends totalling a minimum of £180m or c.134 pence per share in the three years to 2020, with the first special dividend payment of £60m, equivalent to c.45 pence per share being paid towards the end of 2018.

The Group expects to continue to be strongly cash generative over the next two years and the Board is committed to reviewing the capacity for further returns to shareholders over time.

The Board

I would like to thank my Board colleagues for another year of support and positive challenge. We are pleased to have been joined in November by Mike Stansfield who brings strong housebuilding industry experience spanning three decades. Mike is also a member of the Nomination Committee, the Remuneration Committee and the Audit Committee. As previously announced Alastair Lyons will step down from the Board at our AGM in May. Alastair has been on the Board since October 2008 as Deputy Chairman and Senior Independent Director, and as Chairman of the Remuneration Committee since May 2014. My colleagues and I would like to acknowledge the valuable contribution Alastair has made to the Group during this time. Ralph Findlay, non-executive director, will take the position of Senior Independent Director on Alastair's retirement at the 2018 AGM and it is proposed that Nigel Keen, nonexecutive Director, will take the Chair of the Remuneration Committee.

The future

We have set out our clear medium term targets to be achieved by 2020 which will return Bovis Homes Group to being a leading UK housebuilder and deliver significantly improved returns to shareholders. I continue to spend a lot of my time with Bovis Homes in the regional offices and on site with the leadership team. The team are driving change  through the business and allowing the positive culture that evolved during 2017 to flourish which gives me confidence in the Group's ability to deliver quality housing and service to our customers and improved returns to our shareholders.

In the year ahead we expect to deliver a controlled increase in completions volume, maintain our high level of customer service, complete our balance sheet optimisation and drive forward our profitability and return on capital employed.

 

Ian Tyler

Chairman

 

Chief Executive's Statement

2017 in review

The Group has followed a clear strategic direction and has made significant progress towards implementing its operational priorities.  I am pleased with the outcome for 2017 with the business delivering against all of its operational and financial targets for the year.

We reduced our rate of production to allow us to reset the business, improve our production processes, and consistently deliver high quality new homes to our customers.  As planned, we delivered 3,645 (FY16: 3,977) homes in the year in a controlled and disciplined manner.

In re-setting the business, we have driven sales from our older, lower margin sites and significantly reduced our levels of both stock and part exchange properties.

There has been a step change in the way we operate.  There is a far greater operational and commercial focus across all aspects of the business, driven by a hands on management approach and facilitated by our new regional structure.  Our sites are set up in the right way from the start with a well managed progressive build programme.

We completed a comprehensive review of our consented and strategic land bank, identified sites for disposal outside of our core operating areas, and took a land write down of £3.3m through normal operating costs in the year.

As expected, the Group's profitability in the year was also impacted by a high level of build costs within our cost base coming into the year, increased investment across the business, in particular, in process change and customer service, an overweight operating structure for the reduced level of completions, and our drive for sales from older sites and stock properties.

There is significant opportunity to optimise our balance sheet and we made excellent progress in the year, resulting in a strong year end cash position.  We are well positioned to make further progress in FY18 with a particular focus on releasing investment across our larger sites.

The business starts the new financial year in a much stronger position as a result of all of these initiatives and is ready to drive towards our medium term financial targets of 23.5% gross margin and 25% return on capital employed.

We are pleased to have welcomed Mike Stansfield to the Board of Directors in November 2017.  Mike has a strong housebuilding and customer experience background spanning three decades.  Mike has also become a member of the Nomination Committee, the Remuneration Committee and the Audit Committee.

I have been very impressed by the resilience and dedication of all of the Group's employees over the past 12 months and would like to thank them for their hard work.  I am excited about the year ahead and on making further good progress to returning Bovis Homes to being a leading UK housebuilder.

 

Operational update

Transformed our customer service

Transforming our customer service was the number one priority for 2017 and we have made very significant progress in the year.  The Group's HBF Customer Satisfaction score is trending well above 80% since the start of the new HBF year (1 October 2017), equivalent to a 4 star housebuilder.  Our controlled and disciplined period ends in June and December, reflect the step change in the way we are now operating and the mind-set across the business.  We have invested in our customer service function in terms of people and training, and appointed our Customer Experience Director who has been leading the review of every aspect of our customers' experience with Bovis Homes.

 

Restructuring successfully completed

As part of our strategic reorganisation, during the year we implemented initiatives to simplify and streamline our operating structure, to reduce costs and make us more agile.  This has been completed within the £4m restructuring cost taken in FY17.  We are now on track to deliver against our target of overheads as a maximum of 5% of revenue in FY18.

We have re-organised our operational structure concluding that the business is best served by seven rather than eight operating regions.  We merged our Eastern and Southern regions creating a South East region and a larger Southern Counties region.  With a much greater hands on approach to management, the proximity of our developments to each of our regional offices is a key criterion for our development land acquisition.  As part of the re-organisation we re-located our Southern Counties regional office to Basingstoke, our Northern Home Counties business to a new permanent office in Milton Keynes, and are soon to re-locate our South East regional office to Kings Hill near Maidstone, all to best serve these geographies.  The business is now well balanced in terms of geographic spread of completions with an even distribution of plots in our land bank.

We reviewed the efficiency of our in-house functions to ensure the best value approach and have transitioned to an outsourced or partially outsourced model for a number of business areas including legal, planning, design and engineering.

 

High quality motivated people

People satisfaction is a key strategic priority for the Group and we are committed to investing in the development and training of our workforce including our subcontractors.  We have benefitted from a full year of input from our Learning and Development team and firmly established our Bovis Homes Training Centre.

In the year we have seen really good progress in the development of a much more 'hands on leadership' with a far greater operational focus.  We continue to invest in the training and development of our seven regional managing directors and our site teams are now well supported by both our regional teams and the Executive Leadership team.  Following my initial visit to all of our developments in my first few months with the business, I have re-visited most developments on at least one occasion, and along with the Executive Leadership team, will continue to be very active across all areas of the business.

The quality of our site managers is critical and we are focused on ensuring we have the very best site managers across all our developments.  We have introduced an attractive new remuneration package and greater level of training and development specifically targeted at this group. We have also revised the sales commission structure for our sales advisors to ensure that they are better aligned with delivering margin progression across the Group.  Investment in the training and development of our commercial teams is a key focus for FY18.

High quality build

We have focused on improving our build procedures and on driving efficiency and high standards through 'getting it right first time'.  We have appointed five new regional construction directors and invested in our site teams with a resulting reduction in the site manager headcount turn.

The slowed rate of production in FY17 has allowed us to ensure all of our developments are set up correctly from the start, with the construction directors now controlling that process.  The Group is committed to delivering a high standard of health and safety for all our employees, subcontractors and on-site visitors.  In the year we brought our health and safety inspections in-house which will support a more proactive culture and approach.

Progress with commercial

We have invested in a new commercial system which will be implemented across the business in Q2 FY18 and will drive a significant improvement in the way our commercial teams operate.  It will standardise processes driving best practice across the Group, support more accurate forecasting of our cost base, increase visibility and deliver overall improved efficiency.

Delivering our medium term targets

The Group has set out its medium term targets to be achieved by FY20 which will return Bovis Homes to being a leading UK housebuilder and deliver significantly improved returns to our shareholders.  The management incentive schemes are closely aligned to the Group's medium term targets.

We have made very good progress against a number of these targets in FY17.  With our focus on customer satisfaction, profitability and completing our balance sheet optimisation, we expect to drive forward the Group's financial performance, including return on capital employed, in FY18.

 

4 star HBF customer satisfaction rating

-       Top quartile of the UK housebuilders for customer satisfaction

 

Progress in FY17:

-       Significant improvement in customer satisfaction with HBF score (1 October 17 onwards) trending at well above 80%, equivalent to a 4 star housebuilder

-       Investment in customer service function including people and training

-       Complete review of the Bovis Homes customer journey led by Customer Experience Director

 

4,000 completions p.a.

-       Optimal business size for the Group's operational structure and land bank

 

Progress in FY17:

-       Regional restructuring successfully completed

-       Controlled delivery in FY17, on track to deliver an increase in completions in-line with market expectations for FY18 in a controlled and disciplined manner

 

3.5 to 4.0 year owned land bank

-       Manage land investment through the cycle, minimising risk

 

Progress in FY17:

-       Complete review of consented and strategic land banks

-       Slowed rate of consented land acquisition in FY17

23.5% gross margin

-       Deliver embedded margin within our land bank

 

Progress in FY17:

-       Operational issues addressed

-       Focus on 'getting it right first time'

-       New land acquired in FY17 at gross margin in excess of 26%

-       Four new major margin initiatives launched

 

5% administrative expense as a % of revenue

-       Minimise fixed costs, maximise economies of scale

 

Progress in FY17:

-       Restructuring completed including outsourcing of certain functions

-       Direct selling and marketing, planning, design, engineering and legal costs now included in cost of sales

-       Investment in information systems to deliver benefits from FY18

 

Min £180m net cash from balance sheet optimisation

-       Reduction in net assets

 

Progress in FY17:

-       £30.5m land disposals

-       £28.9m reduction in part exchange properties, £10.0m reduction in stock properties

 

25% return on capital employed

-       Increased profitability and balance sheet optimisation

 

Progress in FY17:

-       Strong focus on effective balance sheet and cash management

-       Increase in FY18 profitability and balance sheet optimisation to drive significant improvement in ROCE in FY18

 

Land

The fundamentals of our land bank are very strong; building traditional family housing in prime locations predominantly on greenfield sites.  We have a southern location bias with no exposure to London.  We use a high proportion of standard housing and are introducing an element of bespoke housing where appropriate to maximise the value of each development.

Given our medium term targets of 4,000 completions per annum and a 3.5 to 4.0 year owned land bank, we slowed our rate of land acquisition in the year.  This has allowed us to be more selective with our land acquisition and with the land market remaining attractive, the land acquired in FY17 is expected to deliver a gross margin in excess of 26%.

We have had significant success in progressing the planning status of our valuable strategic land assets including gaining consent in the year for our developments at Bishop's Stortford, Witney, Petersfield, Drake's Broughton and Didcot. We expect to deliver c.10,000 plots from our strategic land bank over the next 5 years, with the returns exceeding our minimum hurdle rates.  We will continue to pursue new strategic land opportunities that are within our core operating area.

We have great forward visibility on our land bank with 100% of our FY18 land having detailed planning consent, and 93% of our land for FY19 and 70% for FY20, already secured.

Affordable housing

Affordable housing is a very important part of our business and represents a significant opportunity for the Group.  We are establishing strong relationships with the registered providers, working closely with them to understand their priorities and ensure support for their initiatives, and strengthening Bovis Homes' reputation in this area.  We are exchanging contracts on our affordable delivery earlier, reducing our risk and effectively managing our working capital.  In FY17 we exchanged on 43 affordable contracts with 82% of the affordable content for FY18 now contracted on.  In the year we also entered into an agreement with Hampshire's largest Housing Association, Vivid, to deliver them c.75 new homes, both private and affordable, at our development in Boorley Green.

Margin initiatives

Driving Group profitability is key for FY18 and beyond, and we have launched four major group wide margin initiatives:

1.     Price optimisation

We are focused on driving our prices across all our products and developments.  This reflects our priority of controlled volume growth, high levels of customer satisfaction and increased profitability.  In particular, our sales advisors have a new sales commission structure which is aligned to optimising price.

2.     Specification review

We have made amendments to our build specification which have improved the quality of our production with a lower cost base.  This specification review is ongoing both in terms of the fabric of our build, and a review of the scope of fixtures that are delivered as standard in our homes.  As a result, we see further opportunities to optimise both pricing and reduce our costs through these changes.

3.     Cost reduction

In FY17 we increased the cost contingency across all our developments to 4% on the basis of what was required and in light of the operational challenges we were addressing.  We have made significant improvements to our operations and with further progress expected in FY18, we are targeting to release a proportion of this cost contingency.

4.     New housing range

We are eagerly awaiting the launch of our new housing range in April 2018, with completions coming through from FY19.  We have undertaken a complete review of the sales and construction specifications and developed an industry leading housing range designed to meet the needs of today's customer.  The range is for both our private and affordable homes and will not only deliver added value to our customers, it will optimise prices and drive a reduction in production costs across the Group.

Balance sheet optimisation

Optimising the balance sheet represents a significant opportunity for the Group and we made excellent progress in the year towards our target of delivering a minimum of £180m of additional cash flow into the business by December 2018.

On land we expect to realise c.£80 to £100m of cash and in FY17 we made five land sales realising proceeds of £30.5m.  Our focus in FY18 will be on our larger sites, including Wellingborough and Sherford, where we will look to divest a share of the development, most likely through a partnership arrangement.

Our initiatives on work in progress are expected to generate between c.£40m to £80m of cash.  We made good progress in the year with a reduction in our level of part exchange properties of £28.9m and stock properties of £10.0m.  Further reductions in work in progress levels across the Group is a key focus for FY18, and will be a significant contributor to the cash delivered this year as well as the drive towards our medium term ROCE target of 25%.

We concluded the disposal of our shared equity portfolio in H2 17, generating total cash receipts of £28.8m.  We also completed the disposal of three owned offices with cash proceeds of £8.4m and the sale of our site cabins and fork lift trucks. In total, we expect the disposal of non-returning assets to deliver between c.£50m and £60m of cash.

 

Market

The market fundamentals are strong and we continue to see good levels of demand for new homes across all our regions with pricing remaining firm.  Despite the recent increase in interest rates they remain at historic low levels with good competition in the mortgage lending market.  The Government is committed to increasing the supply of new homes in the UK and their policy on housing and planning, and commitment to Help to Buy, reflect this.

 

Ordinary dividend and capital return plan

The Board intends to pursue a strategy of maximising sustainable dividends to shareholders.  In setting the level of dividends the Board will consider a range of factors including the extent to which the dividend is covered by underlying earnings and free cash flow, the prevailing strength of the balance sheet and general economic circumstances, with particular regard to the cyclicality of the industry.

The Board is pleased to recommend a final ordinary dividend of 32.5p (FY16: 30.0p) bringing the total ordinary dividend for FY17 to 47.5p (FY16: 45.0p), representing a 6% increase on the prior year.  Based on the current operating plan and reflecting the Board's confidence in the outlook for the business, the Board intends to increase the ordinary dividend for shareholders for FY18 by a further 20% to c.57 pence per share.  Thereafter it intends to move progressively towards an ordinary dividend twice covered by earnings in FY20.

In addition, the Board intends that surplus capital will be returned to shareholders via special dividends totalling £180m or c.134 pence per share in the three years to FY20, with the first special dividend payment of £60m or c.45 pence per share expected to be paid towards the end of 2018.

The Group will continue to be strongly cash generative and given the balance sheet position the Board is committed to reviewing capacity for further returns to shareholders over time.

 

 

FY17

FY18

FY19

FY20

Ordinary dividend

47.5p per share

c.57p per share

Trend to 2 x cover

Special dividend

nil

c.45p per share

Total c.89 pence per share

 

 

Outlook

We started the year with a strong forward sales position representing c.40% of the consensus FY18 forecast revenue for the Group.  Sales in the first 8 weeks of this year have been good with our average private sales rate per site per week up 14% to 0.5.  Pricing has been running slightly ahead of our expectations.

We are confident of delivering growth in completions for the year in line with expectations in a controlled and disciplined manner.

We expect to drive forward the Group's profitability with, in particular, the launch of our four major margin initiatives.  Combined with the completion of our balance sheet optimisation in FY18, we should see a significant improvement in the Group's return on capital employed as we progress towards our target of 25% ROCE for FY20.

 

Greg Fitzgerald

Chief Executive

 

 

Financial Review

 

Trading performance

In line with our planned slow down in production and initiatives implemented to re-set the business during the year, the Group delivered 3,645 legal completions, a decrease of 8% on the previous year (2016: 3,977).  The completions included 1,072 affordable homes representing 29% of our completions (2016: 27%).  This generated total revenue of £1,028.2m, a decrease of 3% on the previous year (2016: £1,054.8m).

Housing revenue was £992.9m, only 3% behind the prior year (2016: £1,022.8m) with our average sales price increasing by 7% to £272,400 (2016: £254,900).  Other revenue was £3.3m (2016: £6.2m) and land sales revenue, associated with five land sales, was £32.0m in 2017, compared to three land sales achieved in 2016 with a total revenue of £25.8m.

As part of our strategic review the Group has reviewed how all development related activities are delivered to the business.  This has resulted in certain services being outsourced to ensure best value is delivered to our developments throughout the housing cycle.  In line with this review all project specific sales costs which were previously included in the Group's administrative expenses have been reclassified within cost of sales.

Certain other technical, legal and build related project costs, previously included in the Group's administrative expenses, have been capitalised into work in progress and will be released through cost of sales as we legally complete homes.  This is a change in accounting policy and the Group's income statement has been restated for this change.

Total gross profit was £184.6m (gross margin: 18.0%), compared with £209.0m (gross margin: 19.8%) in 2016.  Housing gross margin was 18.3% in 2017, below the 19.6% achieved in 2016 but broadly in line with the housing gross margin delivered in H2 2016 (18.4%) with profitability impacted by a high level of build costs within our cost base coming into the year, an increased level of investment across the business in the period to address legacy issues, actions taken to reduce stock and part exchange holdings, land write downs including on out of area developments (£3.3m loss) in part offset by the profit on disposal of operational fixed assets (£2.5m).

During 2017, our construction costs increased by 9% per square foot, reflecting higher value site locations and the inflationary impact of labour and materials of around 4%, as we delivered production in a more controlled manner.

The profit on land sales in 2017 was £2.4m (2016: £7.7m) as we continue the strategy of managing our capital base through the disposal of parcels of land on several of our larger sites although these disposals will not impact our delivery in the next 2 to 3 years.

The Group delivered a pre-exceptional operating profit for the year ended 31 December 2017 of £128.0m (2016: £160.0m) at an operating profit margin of 12.5% (2016: 15.2%).

Overheads increased by 16% in 2017 to £56.6m (2016: £49.0m).  This level of administrative costs reflects the heavy structure existing in the business at the beginning of the year which was planned to deliver growth as well as additional investment to reset the business and deliver operational improvements for future periods.

During the year the business has been restructured reducing from eight operating regions to seven as well as outsourcing certain activities, the benefit of which will be seen in future periods.

The Group incurred one-off costs of £10.3m in the period made up of the additional £3.5m customer care provision taken at the half year (2016: £7.0m) as well as £6.8m of exceptional costs, split between £4.0m relating to the strategic restructuring of the business and advisory fees of £2.8m related to bid approaches in the first half.

Profit before tax reduced to £114.0m, comprising operating profit of £128.0m, exceptional costs of £6.8m, net financing charges of £7.2m with no profit from joint ventures in the year.  This compares to £154.7m of profit before tax in 2016, which comprised £160.0m of operating profit, £5.6m of net financing charges and a profit from joint ventures of £0.3m.

Financing and Taxation

Net financing charges during 2017 were £7.2m (2016: £5.6m).  Net bank charges were £3.0m (2016: £3.3m), because of modestly lower net debt during 2017 than 2016 offset by a higher level of commitment fees and issue costs amortised in 2017.  We incurred a £5.1m finance charge (2016: £5.0m charge), reflecting the imputed interest on land bought on deferred terms.  The Group had a reduced finance credit of £1.1m (2016: £2.4m) arising from the unwinding of the discount on its available for sale financial assets during 2017 as the portfolio was sold during the year.  There were also other expenses of £0.2m (2016: income of £0.3m).

The Group has recognised a tax charge of £22.7m at an effective tax rate of 19.9% (2016: tax charge of £33.9m at an effective rate of 21.9%).  The reduced tax rate is driven by the reduced level of corporation tax to 19%. The Group has a current tax liability of £16.9m in its balance sheet as at 31 December 2017 (2016: £13.9m).

Earnings per share and Dividends

Basic earnings per share for the year were 68.0p compared to 90.1p in 2016.  This has resulted in a return on equity of 10% (2016: 13%).

As previously communicated the Board will propose a 2017 final dividend of 32.5p per share.  This dividend will be paid on 25 May 2018 to holders of ordinary shares on the register at the close of business on 3 April 2018.  The dividend reinvestment plan gives shareholders the opportunity to reinvest their dividends in ordinary shares.  Combined with the interim dividend paid of 15.0p, the dividend for the full year totals 47.5p and compares to a total of 45.0p for 2016, an increase of 6%.

Net Assets and Cash flow

As at 31 December 2017 net assets of £1,056.6m were £40.6m higher than at the start of the year.  Net assets per share as at 31 December 2017 were 787p (2016: 757p).

Inventories decreased during the year by £127.2m to £1,322.0m.  The value of residential land, the key component of inventories, decreased by £107.2m, as we reduced our land investment in line with our medium term strategy.  Other movements in inventories included an increase in work in progress of £10.0m with lower levels of stock properties and show homes more than offset by the infrastructure investment at our key Wellingborough site in the year.  Against these movements there was a significant reduction in part exchange properties of £28.9m.

Trade and other receivables decreased by £13.2m, including a reduced level of land sales debtors.  Trade and other payables totalled £478.2m (2016: £582.8m).  Land creditors decreased to £246.7m (2016: £343.3m) with reduced land investment during the year and the settlement of existing creditors.  Trade and other creditors decreased to £231.5m (2016: £239.5m), driven by a reduction in build activity resulting in lower amounts outstanding to our supply chain.  Deferred income decreased in the year to £16.5m (2016: £20.4m) while payments on account in relation to affordable housing increased to £41.4m (2016: £13.8m) reflecting the increased level of cash received on these contracts during the year.

As at 31 December 2017 the Group's net cash balance was £144.9m.  Having started the year with net cash of £38.6m, the Group generated an operating cash inflow before land expenditure of £350.6m (2016: £307.5m), driven by the increased affordable housing cash received and a significant reduction in our Help to Buy debtor at the end of the year to £1.5m (2016: £13.0m).  In addition to this, further cash was generated through the sale of several of our fixed assets including offices for £8.4m (£1.6m profit) and other assets including cabins and forklifts for £5.7m (£2.5m profit), while the disposal of the shared equity portfolio generated net proceeds of £28.8m.  As previously highlighted net cash payments for land investment were reduced at £188.9m (2016: £205.6m).  Non-trading cash outflow, excluding the fixed asset and shared equity disposals, reduced to £55.4m (2016: £93.3m) with greater dividends offset by lower corporation tax payments.

Cash flow

£m

2017

2016

Net cash at 1 January

38.6

30.0

Profit in the year

91.3

120.8

Dividends and taxes paid

(79.5)

(88.6)

Decrease in property, plant and equipment

9.3

2.1

Decrease in net land

10.6

13.5

Decrease/ (Increase) in part exchange properties

28.9

(19.1)

Disposal of available for sale financial assets

28.8

7.5

Other

16.9

(27.6)

Net cash at 31 December

144.9

38.6

 

We have a committed revolving credit facility of £250m in place which was extended for one year during early 2018 and now expires in December 2022.

Land bank

2017

2016

Consented plots added

2,550

3,047

Sites added

11

27

Sites owned at period end

117

133

Plots in consented land bank at period end

17,096

18,704

Average consented land plot ASP

£293,000

£271,000

Average consented land plot cost

£53,300

£52,400

 

The Group's consented land bank of 17,096 plots as at 31 December 2017 represents 4.7 years of supply based on the 2017 completions volume.  The reduction in plots year on year reflects our strategy to deliver c. 4,000 completions per annum from 2019 onwards and maintain an optimal land bank at 3.5 to 4.0 times.  The 3,645 plots that legally completed in the year were in part replaced by a combination of site acquisitions and conversions from our strategic land pipeline.  Based on our appraisal at the time of acquisition, the new additions are expected to deliver a future gross margin over 26% and a ROCE in excess of 25%.

The average selling price of all units within the consented land bank increased over the year to £293,000, 8% higher than the £271,000 at 31 December 2016.  The estimated embedded gross margin in the consented land bank as at 31 December 2017, based on prevailing sales prices and build costs is 23.2%.

Strategic land continues to be an important source of supply and during the year 1,850 plots have been converted from the strategic land pipeline into the consented land bank.

Earl Sibley
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, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group and Parent company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. 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 the Company and of the profit or loss of the Group for that period.

In preparing these financial statements, the directors are required to:

  • select suitable accounting policies and then apply them consistently;
  • make judgements and accounting estimates that are reasonable and prudent;
  • state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements;
  • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

 

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

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

The directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess a Company's performance, business model and strategy.

Each of the directors, whose names and functions are listed on pages 48 to 49 of the Annual Report confirm that, to the best of their knowledge:

  • the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
  • the Strategic Report contained in the Annual report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

 

By Order of the Board

M T D Palmer

Group Company Secretary

1 March 2018

 

 

 

Group income statement



For the year ended 31 December                                                                                                                                                                     

2017
£000

 

2016
£000

(restated - see note 9)

Revenue                                                                                                                                      

1,028,223

1,054,804

Cost of sales

(843,572)

 (845,775)

Gross profit

184,651

209,029

Administrative expenses before exceptional items

(56,619)

(49,059)

Exceptional administrative expenses

(6,812)

-

Administrative expenses

(63,431)

 (49,059)

Operating profit before exceptional items

128,032

159,970

Exceptional items

(6,812)

-

Operating profit

121,220

159,970

Financial income                                                                                                                          

1,337

3,035

Financial expenses                                                                                                                     

(8,536)

 (8,622)

Net financing costs

(7,199)

(5,587)

Share of profit of Joint Ventures                                                                                                

(20)

331

Profit before tax

114,001

154,714

Income tax expense                                                                                                                    

(22,706)

 (33,866)

Profit for the year attributable to ordinary shareholders

91,295

120,848

 

 

 

Earnings per share (pence)

 

 

Basic                                                                                                                                           

68.0

90.1

Diluted                                                                                                                                          

67.8

90.0

 

Group statement of comprehensive income



For the year ended 31 December


2017
£000


2016
£000

Profit for the year

91,295

120,848

Other comprehensive income/(expense)

 

 

Items that will not be reclassified to the income statement

 

 

Remeasurements on defined benefit pension scheme                               

9,286

 (14,107)

Deferred tax on remeasurements on defined benefit pension scheme     

(1,630)

2,624

Items reclassified to the income statement

 

 

Available for sale reserves reclassified on disposal                                 

1,696

-

Deferred tax on available for sale reserve movement

(288)

-

Total comprehensive income for the year attributable to ordinary shareholders

100,359

109,365

 

 

 

 

 Balance sheet


As at 31 December                                                                                                                                                                       


2017
£000


2016
£000

Assets

 

 

Property, plant and equipment                                                                                      

2,603

11,870

Investments                                                                                                                  

8,717

8,786

Restricted cash                                                                                                            

1,414

1,444

Deferred tax assets                                                                                                     

-

1,955

Trade and other receivables                                                                                        

832

5,758

Available for sale financial assets                                                                               

-

27,804

Retirement benefit asset                                                                                              

2,111

-

Total non-current assets

15,677

57,617

Inventories                                                                                                                    

1,321,952

1,449,165

Trade and other receivables                                                                                        

76,686

84,992

Cash and cash equivalents                                                                                          

170,062

38,552

Total current assets

1,568,700

1,572,709

Total assets

1,584,377

1,630,326

Equity

 

 

Issued capital                                                                                                               

67,330

67,261

Share premium                                                                                                             

215,991

215,057

Retained earnings                                                                                                        

773,255

733,609

Total equity attributable to equity holders of the parent

1,056,576

1,015,927

Liabilities

 

 

Bank and other loans

25,209

-

Deferred tax liability                                                                                                      

570

-

Trade and other payables                                                                                            

93,089

162,612

Net retirement benefit obligations                                                                                 

-

6,590

Provisions                                                                                                                     

812

812

Total non-current liabilities

119,680

170,014

Trade and other payables                                                                                            

385,079

420,220

Provisions                                                                                                                     

6,187

10,280

Current tax liabilities                                                                                                     

16,855

13,885

Total current liabilities

408,121

444,385

Total liabilities

527,801

614,399

Total equity and liabilities

1,584,377

1,630,326

 

Group statement of changes in equity

       



 

Total
retained
earnings
£000


Issued
capital
£000


Share
premium
£000


Total
£000

 

Balance at 1 January 2016

676,201

67,190

214,368

957,759

Total comprehensive income

109,365

-

-

109,365
Shared equity movement reclassified to the income statement

2,099

-

-

2,099

Issue of share capital

-

71

689

760

Deferred tax on other employee benefits

48

-

-

48

Share based payments

1,308

-

-

1,308

Dividends paid to shareholders

 (55,412)

-

-

 (55,412)

Balance at 31 December 2016

733,609

67,261

215,057

1,015,927

 

 

 

 

 

Balance at 1 January 2017

733,609

67,261

215,057

1,015,927

Total comprehensive income

100,359

-

-

100,359

Issue of share capital

-

69

934

1,003

Purchase of own shares

(2,575)

-

-

(2,575)

Deferred tax on other employee benefits

49

-

-

49

Share based payments

2,243

-

-

2,243

Dividends paid to shareholders

(60,430)

-

-

(60,430)

Balance at 31 December 2017

773,255

67,330

215,991

1,056,576

 

 

Statement of cash flows

 

Group


For the year ended 31 December                                                                                                                                                

2017
£000

2016
£000

Cash flows from operating activities

 

 

Profit for the year

91,295

120,848

Depreciation                                                                                                               

1,514

2,274

Revaluation of available for sale financial assets                                                     

1,355

1,191

Available for sale reserve reclassified on disposal

1,696

-

Financial income                                                                                                         

(1,337)

(3,035)

Financial expense                                                                                                      

8,536

8,622

Profit on sale of property, plant and equipment

(4,117)

(764)

Equity-settled share-based payment expense                                                          

2,243

1,308

Income tax expense                                                                                                   

22,706

33,866

Share of results of Joint Ventures                                                                            

20

(331)

Decrease in trade and other receivables

13,232

5,313

Decrease in available for sale financial assets

27,577

9,941

Decrease/(increase) in inventories

122,097

(130,647)

(Decrease)/increase in trade and other payables

(104,664)

42,976

(Decrease)/Increase in provisions and retirement benefit obligations

(3,685)

7,395

Cash generated from operations

178,468

98,957

Interest paid

(3,250)

(4,010)

Income taxes paid

(19,074)

(33,142)

Net cash from operating activities

156,144

61,805

Cash flows from investing activities

 

 

Interest received

142

45

Acquisition of property, plant and equipment                                                            

(1,371)

(1,787)

Proceeds from sale of plant and equipment

13,237

2,389

Movement of investment in Joint Ventures                                                                

32

625

Dividends received from Joint Ventures                                                                    

119

129

Reduction in restricted cash                                                                                      

-

7

Net cash generated from/(used in) investing activities

12,159

1,408

Cash flows from financing activities

 

 

Dividends paid                                                                                                            

(60,430)

(55,412)

Proceeds from the issue of share capital                                                                  

1,003

760

Purchase of own shares

(2,575)

-

Drawdown/(repayment) of bank and other loans                                                     

25,209

(1,999)

Net cash used in financing activities

(36,793)

(56,651)

Net increase in cash and cash equivalents

131,510

6,562

Cash and cash equivalents at 1 January                                                                  

38,552

31,990

Cash and cash equivalents at 31 December                                                             

170,062

38,552

  

 

Notes to the financial statements

 

1       General information

 

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 2017 comprise the Company and its subsidiaries (together referred to as 'the Group') and the Group's interest in associates and joint ventures.

The consolidated financial statements were authorised for issue by the directors on 1 March 2018.  The financial statements were audited by PriceWaterhouseCoopers LLP.

The financial information set out above does not constitute the Company's statutory financial statements for the years ended 31 December 2017 or 2016 but is derived from those financial statements.  Statutory financial statements for 2016 have been delivered to the registrar of companies, and those for 2017 will be delivered in due course. The auditors have reported on those financial statements; 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 498 (2) or (3) of the Companies Act 2006.

 

2       Basis of accounting

 

The consolidated financial statements of the Company and the Group have been prepared in accordance with the International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRS IC) interpretations as adopted by the European Union and Companies Act 2006 applicable to companies reporting under IFRS.

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

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

3       Going concern

 

The Directors are satisfied that the Group has sufficient resources to continue in operation for the 12 months from date of approval of these financial statements. The Directors reviewed detailed financial and covenant compliance forecasts covering the period to December 2018 and summary financial forecasts for the following two years.

 

Having started the year with net cash of £38.6 million, the Group generated a strong operating cash flow during 2017, increasing the net cash position to £144.9 million. As at 31 December 2017, the Group held cash and cash equivalents of £170.1 million and had borrowings of £25.2 million. On 3 December 2015, the Group entered into a new £250.0 million committed revolving credit facility that was extended for a further year both during 2016 and early in 2018. This facility now expires in December 2022 and was fully available for drawdown at 31 December 2017.

 

For these reasons, the Directors consider it appropriate to prepare the financial statements of the Group on a going concern basis.

 

4       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.

A joint arrangement is an arrangement over which the Group and one or more third parties have joint control. These joint arrangements are in turn classified as:

• Joint ventures whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities; and

• Joint operations whereby the Group has rights to the assets and obligations for the liabilities relating to the arrangement

 

The consolidated financial statements include the Group's share of the comprehensive income and expense of its joint ventures on an equity accounted basis, from the date that joint control commenced. The Group does not have any joint operations as the current time.

 

5       Critical accounting judgements and key sources of estimation uncertainty

 

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 below.

Key sources of estimation uncertainty          

 

Land held for development and housing work in progress

The Group holds inventories which are stated at the lower of cost and net realisable value. To assess the net realisable value of land held for development and housing work in progress, the Group completes a financial appraisal of the likely revenue which will be generated when these inventories are combined as residential properties for sale and sold. Where the financial appraisal demonstrates that the revenue will exceed the costs of the inventories and other associated costs of constructing the residential properties, the inventories are stated at cost. Where the assessed revenue is lower, the extent to which there is a shortfall is written off through the income statement leaving the inventories stated at a realisable value. To the extent that the revenues which can be generated change, or the final cost to complete for the site varies from estimates, the net realisable value of the inventories may be different. A review taking into account estimated achievable net revenues, actual inventory and costs to complete as at 31 December 2017 has been carried out, which has identified no material net movement in the carrying value of the provision. These estimates were made by local management having regard to actual sales prices, together with competitor and marketplace evidence, and were further reviewed by Group management. Should there be a future significant decline in UK house pricing, then further write-downs of land and work in progress may be necessary. Further detail on the carrying value of inventories is laid out in note 3.1 of the Group's Annual Report and Accounts.

Defined benefit pension scheme

The Group has an active defined benefit pension scheme, which is subject to estimation uncertainty. Note 5.7 of the Annual Report and Accounts outlines the way in which this Scheme is recognised in the Group's Financial Statements, the associated risks and sensitivity analysis showing the impact of a change in key variables on the defined benefit obligation.

Customer care provision

Following legal completion, the Group provides a two year warranty that covers any defects which arise during that period. The level of provision per completion is based on actual costs incurred over the preceding twelve months. Judgement is applied in determining whether this level of provision is sufficient, or whether it should be adjusted to reflect the level of outstanding customer rectification works at the balance sheet date. Note 5.6 of the Annual Report and Accounts provides further detail of this provision.

Margin recognition

The gross margin from revenue generated on each of the Group's individual sites within the year is recognised based on the latest forecast for the gross margin expected to be generated over the remaining life of that site. The remaining life gross margin is calculated using forecasts for selling prices and all land, build, infrastructure and overhead costs associated with that site. There is inherent uncertainty and sensitivity to external forces (predominantly house prices and labour costs) in these forecasts, which are reviewed regularly throughout the year by management and are addressed on pages 30 to 33 of the Annual Report and Accounts.

6       Segment reporting

 

The Chief Operating Decision Maker, which is the Board, notes that 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 criteria provisions of IFRS8.

7       Impact of standards and interpretations effective for the first time

 

The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of 1 January 2017:

 

Amendments to IAS 7 'Statement of Cash Flows - Changes in liabilities arising from financing activities' and Amendment to IAS 12 'Recognition of Deferred Tax Assets for Unrealised Losses' have both come into effect with no significant impact on the Group.

 

8       Impact of standards and interpretations in issue but not yet effective

 

A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2017, and have not been applied in preparing these financial statements:

  • IFRS9 'Financial instruments' replaces IAS39 'Financial Instruments: Recognition and Measurement' and is effective from 1 January 2018. As the Group disposed of its shared equity assets during 2017 and does not presently hold any complex financial instruments, it is expected that the new standard will not have a material impact on the Group's reported results.
  • IFRS 15, 'Revenue from contracts with customers' replaces IAS 18 'Revenue' and IAS 11 'Construction contracts', setting out new revenue recognition criteria particularly with regard to performance obligations which may have some impact on the timing of revenue recognised by the Group on certain contracts. The standard will be effective for the period beginning 1 January 2018 and remains subject to industry interpretations and consensus. However, based on the Group's assessment of the standard it is not thought to have an impact on private housing sales, which make up the majority of the Group's revenue and profit. Land sales, which by their nature vary from year to year, are not expected to be impacted, but will continue to be reviewed as they occur in future to ensure that the treatment is consistent with the new standard. Housing association sales are not expected to be impacted significantly, as the new standard allows for recognition over time, which is the Group's current practice. However, the nature of the individual contracts will need to be assessed as they are entered into, and could give rise to a difference in timing of revenue recognition compared to IAS11. If the standard were to be applied to the Group's 2017 financial statements, it would not have a material impact on the revenue reported by the Group.
  • IFRS16 'Leases' replaces IAS17 'Leases' and is effective from 1 January 2019. The new standard requires all assets held by the Group under lease agreements of greater than 12 months in duration to be recognised as assets within the Balance Sheet, unless they are considered to be of low value. Similarly, the present value of future payments to be made under those lease agreements must be recognised as a liability. As the Group is increasingly entering into lease agreements as part of its strategy to reduce capital employed in its operations, it is expected that the implementation of the standard will increase both the assets and liabilities of the Group but will not have a material impact on its net assets.
  • Amendment to IFRS 2 'Share-based payments', effective from 1 January 2018, which is not expected to have a significant impact on the Group's financial statements.
  • Amendment to IFRS 4 'Insurance Contracts' regarding the implementation of IFRS 9 'Financial Instruments', effective from 1 January 2018, which is not expected to have a significant impact on the Group's financial statements.
  • Amendment to IAS 40 'Investment Property', effective from 1 January 2018, which is not expected to have a significant impact on the Group's financial statements.
  • Annual Improvements 2014-2016, effective from 1 January 2018, which is not expected to have a significant impact on the Group's financial statements.
  • Amendment to IAS 28 'Investments in Associates and Joint Ventures', effective from 1 January 2019, which is not expected to have a significant impact on the Group's financial statements.
  • IFRIC 23 Uncertainty over income tax treatments, effective 1 January 2019, which is not expected to have a significant impact on the Group's financial statements.

 

9      Accounting Policies

Following the Group's structural and strategic review the accounting treatment of all project specific costs related to sales, legal, technical and build activities have been reviewed. Where these have previously been included in the Group's administrative expenses we now consider it more appropriate to treat them as follows. All sales costs will be reclassified within cost of sales (impact on twelve months ended 31 December 2017: £20.7m; impact on year ended 31 December 2016: £19.2m). All other project related costs identified above will be capitalised into work in progress and released to the P&L as we legally complete homes (impact on twelve months ended 31 December 2017: £7.9m; impact on year ended 31 December 2016: £7.5m). We believe this approach provides reliable and more relevant information. We consider this a change in accounting policy and have restated prior year comparatives in the Group's Income Statement in line with IAS8. The Balance Sheet as at 31 December 2016 and the opening reserves at 1 January 2016 have not been restated as the impact is not considered material.

Revenue

Revenue comprises the fair value of consideration received or receivable, net of value-added tax, rebates and discounts. 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.

Revenue is recognised once the value of the transaction can be reliably measured and the significant risks and rewards of ownership have been transferred. Revenue is recognised on house sales at legal completion. Revenue is recognised on land sales and commercial property sales from the point of unconditional exchange of contracts. For affordable housing, revenue and costs are recognised by reference to the stage of completion of contract activity at the balance sheet date and profit is recognised from the point at which the outcome of the contract is reasonably certain. When it is probable that the total costs on a construction contract will exceed total contract revenue, the expected loss is recognised as an expense in the Income Statement immediately.

Where land is sold with material development obligations, the recognition of revenue and profit is deferred until the work is complete.

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.

 

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 units.

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 along with any expected overage. 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 and written down on a straight-line basis over the life of the option. Should planning permission be granted and the option be exercised, the option is not amortised during that year and its carrying value is included within the cost of land purchased.

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.

Part exchange properties are held at the lower of cost and net realisable value, and include a carrying value provision to cover the costs of management and resale. Any profit or loss on the disposal of part exchange properties is recognised within cost of sales in the Group Income Statement.

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. Other debtors include amounts receivable from the Government in relation to the Help To Buy scheme.

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 recognised over the period of the credit term and charged to finance costs using the effective interest rate method.

Government Grants

Government grants are recognised in the income statement so as to match with the related costs that they are intended to compensate. Government grants are included within deferred income.

Bank and other loans

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.

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.

Available for sale assets

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. 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.

Available for sale financial assets relate to legal completions where the Group has retained an interest through agreement to defer recovery of a percentage of the market value of the property, together with a legal charge to protect the Group's position. The Group participates in three schemes. 'Jumpstart' schemes are receivable 10 years after recognition with 3% interest charged between years 6 to 10. The 'HomeBuy Direct' and 'FirstBuy' schemes are operated together with the Government. Receivables are due 25 years after recognition with interest charged from year 6 onwards at a base value of 1.75% plus annual RPI increments. These assets are held at fair value being the present value of expected future cash flows taking into account the estimated market value of the property at the estimated date of recovery.

Net financing costs

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.

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.

Income Tax

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.

Tax assets and liabilities

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.

Share based payments

The Group has applied the requirements of IFRS2: "Share-based payments".

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 except when the share-based payment is cancelled where the charge will be accelerated.

Fixed asset investments

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

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.

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 Group statement of comprehensive income.

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

10     Reconciliation of net cash flow to net cash



                                                                                                                                                                                                                     


2017
£000


2016
£000

Net increase in net cash and cash equivalents                                                                   

131,510

6,562

(Increase) / decrease in borrowings

(25,209)

1,999

Net cash at start of period

38,552

29,991

Net cash at end of period

144,853

38,552

 

 

 

Analysis of net cash:

 

 

Cash and cash equivalents

170,062

38,552

Bank and other loans                                                                                                           

(25,209)

-

Cash and cash equivalents at 31 December                                                                       

144,853

38,552

 

11     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 19.25% 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. 

12     Dividends

 

The following dividends were declared by the Group:


 

2017
£000

2016
£000

Prior year final dividend per share of 30.0p (2016: 26.3p)

40,300

35,273

Current year interim dividend per share of 15.0p (2016: 15.0p)

20,130

20,139

 

60,430

55,412

The Board has decided to propose a final dividend of 32.5p per share in respect of 2017.

13     Earnings per share

 

Basic earnings per share

The calculation of basic earnings per share for the year ended 31 December 2017 was based on the profit attributable to ordinary shareholders of £91,295,000 (2016: £120,848,000) and a weighted average number of ordinary shares outstanding during the year ended 31 December 2017 of 134,246,134 (2016: 134,178,673).

 

Profit attributable to ordinary shareholders



                                                                                                                                                                                                                     


2017
£000


2016
£000

Profit for the year attributable to equity holders of the parent

91,295

120,848

 

Weighted average number of ordinary shares



                                                                                                                                                                                                                     


2017
£000


2016
£000

Weighted average number of ordinary shares at 31 December

134,246,134

134,178,673

 

Diluted earnings per share

The calculation of diluted earnings per share for the year ended 31 December 2017 was based on the profit attributable to ordinary shareholders of £91,295,000 (2016: £120,848,000) and a weighted average number of ordinary shares outstanding during the year ended 31 December 2017 of 134,566,722 (2016: 134,322,449).

The average number of shares is increased by reference to the average number of potential ordinary shares held under option during the year. This reflects the number of ordinary shares which would be purchased using the aggregate difference in value between the market value of shares and the share option exercise price. The market value of shares has been calculated using the average ordinary share price during the year. Only share options which are expected to meet their cumulative performance criteria have been included in the dilution calculation.

 

Weighted average number of ordinary shares (diluted)

 

2017

2016

Weighted average number of ordinary shares at 31 December

134,246,134

134,178,673

Effect of share options in issue which have a dilutive effect

320,588

143,776

Weighted average number of ordinary shares (diluted) at 31 December

134,566,722

134,322,449

 

14     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 year.

Transactions between the Group, Company and key management personnel in the year ending 31 December 2017 were limited to those relating to remuneration, which are disclosed in the director's remuneration report published with the Group's Annual Report and Accounts 2017. At a General Meeting held on 2 May 2017, remuneration arrangements for Mr Greg Fitzgerald were approved comprising a Recruitment Award and the 2017 Bonus. Full details are contained in the circular sent to shareholders dated 7 April 2017.

Mr Greg Fitzgerald, appointed Group Chief Executive on 18 April 2017, is non-executive Chairman of Ardent Hire Solutions ("Ardent"). The Group hires forklift trucks from Ardent and has also undertaken a sale of forklift trucks to Ardent as part of its capital optimisation initiatives. The total net value of transactions with Ardent were as follows:



 


2017
£000


2016
£000

Rental expenses paid to Ardent

1,413

926

Income received from Ardent for the sale of forklifts

2,287

833

The balance of rental expenses payable to Ardent at 31 December 2017 was £160,000 (2016: £103,000) and no income was receivable (2016: nil). There have been no other related party transactions during the current financial year which have materially affected the financial performance or position of the Group, and which have not been disclosed.

 

Transactions with Bovis Peer LLP and IIH Oak Investors LLP

Bovis Homes Limited is contracted to provide property and letting management services to Bovis Peer LLP. Fees charged in the period, inclusive of VAT, were £169,000 (2016: £157,000). None of these fees are outstanding at 31 December 2017 (2016: nil).

 

In 2014, Bovis Homes Limited entered into a Joint Venture arrangement with IIH Oak Investors LLP to hold 190 homes under a private rental scheme. As at 31 December 2017, loans of £3,714,314 (2016: £3,505,000) are outstanding with IIH Oak Investors at an interest rate of 6%. Interest charges made in respect of loans were £214,000 (2016: £220,000)

 

15     Post balance sheet events

On 27 February 2018, the latest triennial pension valuation as at 30 June 2016 and the associated recovery plan was agreed with the scheme's Trustees (see note 5.7 of the Annual Report and Accounts for further details).


This information is provided by RNS
The company news service from the London Stock Exchange
 
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