Final Results
1 March 2018
Good operational progress, well positioned for 2018
Bovis Homes Group PLC (the 'Group') is today issuing its results for the 12 months ended 31 December 2017.
Highlights
- Profit before tax, exceptional and one-off items in-line with expectations at £124.3m
- Strong increase in average selling price driven by changes in mix and modest price inflation
- Full year completions delivered in a controlled and disciplined manner
- Restructuring initiatives complete with business well positioned going into FY18
- Excellent progress with balance sheet optimisation resulting in a £145m year end net cash position
- Step change in quality and service, with customer satisfaction levels now trending well above 80%, equivalent to an HBF 4 star rating
- Board recommending a 6% increase in ordinary dividend for FY17 to 47.5 pence per share
|
|
FY17 |
FY16 |
Change |
|
Total completions |
3,645 |
3,977 |
-8% |
|
Average selling price |
£272.4k |
£254.9k |
+7% |
|
Group revenue |
£1,028.2m |
£1,054.8m |
-3% |
|
Profit before tax(1) |
£114.0m |
£154.7m |
-26% |
|
Earnings per share(1) |
68.0p |
90.1p |
-25% |
|
Dividend per share |
47.5p |
45.0p |
+6% |
|
Net cash |
£144.9m |
£38.6m |
+275% |
Note: (1) After exceptional and one-off costs totalling £10.3m including £3.5m customer care provision, £2.8m advisory fees and £4m restructuring costs
Greg Fitzgerald, Chief Executive commented,
"I am very pleased with the level of operational progress the Group has made during the year. We have significantly improved our customer satisfaction through a series of initiatives and controlled period ends. In addition, we have completed our restructuring, invested in our people, systems and processes, and comprehensively reviewed our land bank. The Group fundamentals are strong, and with the business turning around I am excited about future years. In 2018, we will deliver a controlled increase in volume, continue to build upon our high level of customer service, drive profitability, and complete our balance sheet optimisation. We will also continue to invest in our people and systems, and I'm particularly looking forward to launching our new housing range in April."
Operational update
- Investment across the business, in particular in customer service and site management to address operational challenges
- New regional structure and redefined operating area, as well as the outsourcing of certain functions, to drive efficiency
- Two new regional offices, better located to serve the regions' developments
- Increased level of investment in training and development across all disciplines
- 'Hands on' leadership with operational and commercial focus
- Land bank fundamentals remain strong underpinned by our strategic land
- New housing range to be launched in April delivering added value to our customers and a reduction in production costs
Medium term targets - 2020
A clear set of 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 shareholders. During FY17 we made significant operational progress across the business, with the Group well positioned to deliver an improved financial performance in FY18.
|
2020 Target |
Progress to date, outlook for FY18 |
|
4 star HBF customer satisfaction rating |
- HBF score for year to date (October 1 2017 onwards) trending at well above 80%, equivalent to 4 star housebuilder
|
|
4,000 completions
|
- On track to deliver 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 |
- Slowed rate of land acquisition, progress made with divestment of sites outside our core operating areas. Ongoing focus on potential to reduce investment in larger sites
|
|
23.5% gross margin with further opportunity beyond 2020 from new land |
- Operational issues addressed, embedded land bank margin strong, four major new margin initiatives launched. Well positioned for margin progression in FY18
|
|
5% admin expense as a % of revenue |
- Restructuring initiatives complete, on track to deliver 5% overhead in FY18 |
|
Min £180m additional cash delivered |
- Good progress with significant reduction in part exchange and stock properties, land sales and disposal of shared equity. Focus on WIP levels and reduced investment in larger sites in FY18
|
|
25% ROCE |
- Increase in profitability and balance sheet optimisation expected to drive a significant improvement in ROCE in FY18 |
Current trading and outlook
- Strong sales position with more than 40% of consensus FY18 revenues secured at start of the year
- Good demand in first 8 weeks with average sales per site per week up 14% to 0.5 and pricing ahead of expectations
- Confident on delivering completions for FY18 in line with expectations, with a significant improvement in financial performance and profitability
- Focus on driving profitability through our four major margin initiatives covering price optimisation, specification review, cost reduction, and the launch of our new housing range
- Expect to complete our balance sheet optimisation which, combined with increased profit for FY18, should result in a significant improvement in ROCE
- First special dividend payment of £60m, equivalent to c. 45 pence per share expected to be paid towards the end of 2018, with total special dividends of £180m, equivalent to c.134 pence per share, to be paid over three years to FY20.
There will be a meeting for analysts and investors at 9:00am today at Deutsche Bank, Winchester House, 1 Great Winchester Street, London EC2N 2DB. The presentation will be audiocast live on the Bovis Homes corporate website, www.bovishomesgroup.co.uk from 9:00am. A playback facility will be available shortly after the presentation has finished.
Certain statements in this press release are forward looking statements. Forward looking statements involve evaluating a number of risks, uncertainties or assumptions that could cause actual results to differ materially from those expressed or implied by those statements. Forward looking statements regarding past trends, results or activities should not be taken as representation that such trends, results or activities will continue in the future. Undue reliance should not be placed on forward looking statements.
For further information please contact:
|
Bovis Homes Group PLC Earl Sibley, Group Finance Director Susie Bell, Head of Investor Relations |
01474 876343
|
|
Maitland Neil Bennett James McFarlane |
020 7379 5151
|
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 - Progress made with divestment of sites outside of our core operating areas and progressing with the potential to reduce our investment on larger sites |
|
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 - On track to deliver a maximum 5% overhead in 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 - Shared equity disposal with a total of £28.8m cash proceeds
|
|
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.
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
Prof |
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.
Group income statement
|
|
2017
|
2016 (restated - see note 3) |
|
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
|
|
|
|
|
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
|
|
|
|
|
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 |
|
|
|
|||||
|
Balance at 1 January 2016 |
676,201 |
67,190 |
214,368 |
957,759 |
|||||
|
Total comprehensive income |
109,365 |
- |
- |
109,365 |
|||||
|
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 |
|
|
|
2017 |
2016 |
|
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 Basis of preparation
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 Joint Ventures.
The 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.
The consolidated financial statements 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 have been applied consistently for all periods presented in the consolidated financial statements, including the restatement as described in note 3.
The preparation of financial statements in conformity with IFRS 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 judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
2 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.
Joint ventures are those entities in which the Group has joint control over the financial and operating policies. 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.
3 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.
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.
4 Reconciliation of net cash flow to new cash
|
|
|
|
|
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 |
5 Income taxes
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.
6 Dividends
The following dividends were declared by the Group:
|
|
2017 |
2016 |
|
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 decided to propose a final dividend of 32.5p per share in respect of 2017.
7 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
|
|
|
|
|
Profit for the year attributable to equity holders of the parent |
91,295 |
120,848 |
|
|
|
|
Weighted average number of ordinary shares
|
|
2017 |
2016 |
|
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 |
|
|
|
|
8 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 was disclosed separately on the face of the balance sheet.
Available for sale financial assets related 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.
|
|
2017 |
2016 |
|
Non-current asset - available for sale assets |
- |
27,804 |
Key assumptions
|
|
2017 |
2016 |
|
Discount rate, incorporating default rate |
- |
9.0% |
|
Average house price inflation per annum for the next three years |
- |
3.0% |
Reconciliation of available assets for sale
|
|
2017 |
2016 |
|
Balance at 1 January |
27,804 |
35,303 |
|
Redemptions |
(5,300) |
(9,941) |
|
Disposals |
(22,270) |
- |
|
Revaluation taken through the income statement |
(1,355) |
- |
|
Imputed interest |
1,121 |
2,442 |
|
Balance at 31 December |
- |
27,804 |
During the year ended 31 December 2017, the Group disposed of or redeemed assets with a fair value of £27.6m, at a profit of £1.2m, Included within these figures is the disposal of assets with a fair value of £22.3m to PMM Group on 31 October 2017 for £21.5m, net of transaction costs, generating a loss on disposal of £0.8m.
9 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:
|
|
|
|
|
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.
10 Circulation to shareholders
The consolidated financial statements will be sent to shareholders on 9 April 2018. Further copies will be available on request from the Company Secretary, Bovis Homes Group PLC, The Manor House, North Ash Road, New Ash Green, Longfield, Kent, DA3 8HQ.
Further information on Bovis Homes Group PLC can be found on the Group's corporate website www.bovishomesgroup.co.uk, including the slide presentation document which will be presented at the Group's results meeting on 1 March 2018.
This information is provided by RNS
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