TIDMBVS
RNS Number : 6137J
Bovis Homes Group PLC
01 April 2010
Bovis Homes Group PLC - Annual Report and Accounts 2009
Annual Report and Accounts 2009, Notice of Annual General Meeting, Proxy Card
Copies of the above documents will shortly be available for inspection at the UK
Listing Authority's Document Viewing Facility, which is situated at:
Financial Services Authority
25 The North Colonnade
Canary Wharf
London E14 5HS
Tel No: 020 7066 1000
The documents are being mailed to shareholders and are available on the
Company's website at www.bovishomes.co.uk/plc/annualreport2009
Amendments to Articles of Association
The Company further announces that, in accordance with DTR 6.1.2, new Articles
of Association, which incorporate a number of amendments to the existing
Articles of Association, to be proposed for adoption at the Company's
forthcoming Annual General Meeting on 6 May 2010, have been lodged with the UK
Listing Authority for publication through the Document Viewing Facility. An
explanation of the proposed changes is set out in the Notice of Annual General
Meeting which, in summary, update the Company's existing Articles primarily to
reflect the implementation of the remaining provisions of the Companies Act 2006
which the Company has not already incorporated into its existing Articles of
Association, the implementation of the Companies (Shareholders' Rights)
Regulations 2009 and certain amendments to the Uncertificated Securities
Regulations 2001.
Annual Report and Accounts 2009 - publication required by DTR 6.3.5
The Company published its Preliminary Results for the year ended 31 December
2009 on 8 March 2010. In order to comply with DTR 6.3.5 it is now publishing in
unedited full text information contained in the annual financial report of a
type required to be disseminated in a half-yearly financial report. For
coherence, this repeats some of the information contained in the Preliminary
Results announcement.
The full annual financial report is available on the Company's website at
www.bovishomes.co.uk/plc/annualreport2009
Annual report and accounts 2009
Bovis Homes Group PLC
Chairman's statement
With the backdrop of the UK housing market continuing to be challenging, the
Group is pleased to be able to report on a successful year in 2009. Good
progress was made in delivery of the strategic objectives laid out by the Group
at the start of 2009: progress which leaves the Group well placed to deliver
profitable growth looking ahead.
The Group achieved strong year over year growth during 2009 in both the number
of private homes legally completed and the private reservations taken in the
year. It benefited from new initiatives such as the upgrading of sales systems
and by innovations in how the Group marketed and sold its homes, including
methods to assist customers in raising the necessary mortgage deposits. During
2009, the Group achieved 1,801 private reservations, representing an 82%
increase in sales levels compared to the 989 private reservations taken in 2008.
Over the year, the Group has effectively controlled costs and work in progress
levels. Overheads were reduced by 34% compared with 2008. Cash inflow was very
strong resulting in GBP221 million being generated during the year, including a
GBP59 million equity placing, providing the Group with GBP112 million of net
cash in hand at 31 December 2009 compared with GBP108 million of net debt pre
issue costs at 31 December 2008.
Results
For the year ended 31 December 2009, the Group generated GBP281.5 million of
revenue from the legal completion of 1,803 homes, as compared to revenues of
GBP282.3 million in 2008 from 1,817 legal completions.
The Group achieved a pre-exceptional pre tax profit of GBP7.5 million in 2009
(2008: GBP14.4 million) with pre-exceptional basic earnings per share at 4.4p
(2008: 9.2p per share).
There was a GBP2.7 million pre tax exceptional charge for the year following the
release in the second half of GBP11.6 million of inventory provision not now
required.
This provision release offset an GBP8.9 million inventory provision charged in
the first half of 2009. There was also a GBP4.2 million exceptional interest
charge linked to the refinancing of the Group's facility agreement, which was
agreed in December 2009 and signed in January 2010, and GBP1.2 million of other
items.
Taking exceptional items into account, the Group achieved a pre tax profit of
GBP4.8 million (2008: pre tax loss GBP78.7 million) and a basic earnings per
share of 2.8p (2008: basic loss per share of 49.1p).
On a pre-exceptional basis, the Group achieved an operating margin of 6.2% in
2009, marginally below the prior year's 7.5%. A 9% decline in private home
prices impacted gross margins, though this was substantially offset by the
Group's strong performance in controlling costs and reducing overhead.
The Group's net assets increased from GBP632.3 million at the start of 2009 to
GBP692.6 million at 31 December 2009, equating to a net asset value of GBP5.20
per share. The major element of the net asset movement over the year of GBP60.3
million was the net GBP59.0 million raised by the Group's equity placing in
September. Retained earnings increased by GBP1.2 million including retained
profit for the year of GBP3.5 million and the reserves adjustment for the
Group's pension deficit which increased from GBP6.8 million to GBP8.9 million.
Dividend
As previously announced, having regard to trading conditions the Board did not
recommend payment of a final dividend for 2008 and did not pay an interim
dividend in 2009. No cash payments have therefore been made in 2009 relating to
dividends. The Board does not propose payment of a final dividend for 2009
although it recognises the importance of dividends to shareholders, and
anticipates that delivery of the Group's trading and investment plans will
create a solid basis for the resumption of dividends.
The Board
There were no changes to the Board during 2009, although the Group Finance
Director, Mr Neil Cooper, announced his intention in November 2009 to leave the
Group in order to pursue career options elsewhere. Mr Cooper will continue
serving with the Group until the 2009 Annual General Meeting on 6 May 2010. The
Board would like to thank Mr Cooper for his significant contribution to the
Board and to the robust performance of the Group in the current challenging
market conditions. The Board would also like to thank Mrs Lesley McDonagh, who
steps down at the upcoming AGM, for her contribution to the success of the Group
since 2003.
Employees
Following on from what was a challenging year for its employees in 2008, the
Group would like to thank its employees for their hard work and commitment
during 2009, a year during which the Group made real progress in strengthening
its balance sheet so as to enable it to compete successfully in the future. The
Board recognises that in 2009 its employees were working in a business with
substantially reduced headcount, focussing on cash preservation and generation,
whilst also taking actions to facilitate future business growth. Those actions
to generate savings also impacted on the suppliers and sub-contractors of the
Group and the Board would like to thank them for their contribution to the
performance of the Group.
Market conditions and prospects
The Group expects that a degree of stabilisation in house prices evidenced in
the marketplace in later 2009 will continue into 2010. Statistics would suggest
the market as a whole has seen the commencement of modest pricing growth in the
second half of 2009, although the Group remains somewhat cautious due to
relatively low levels of second hand stock supporting price growth in the second
hand market which appears to have moved ahead at a faster rate than the new
build sector during 2009.
Pricing is a function of both supply and demand. Whilst supply as evidenced by
second hand stocks appears to have been relatively lower than demand over 2009,
absolute demand in 2009 has been limited by reduced mortgage availability.
Positively, the number of mortgages being approved for home purchase has grown
during 2009 although it still remains difficult for first time buyers to access
the market given the large shift in deposit requirements, and the absolute level
of mortgages approved for home purchase still remains below historical levels.
Overall, therefore, the Group expects that the pricing environment in 2010,
whilst potentially volatile month by month, will be relatively stable taking the
year as a whole.
Given this expected stable pricing environment and an improvement in mortgage
volumes, the Group is confident that its key strategies for 2010 will ensure
that it is well positioned for profitable growth as the market slowly recovers.
Acquiring residential land to grow its output capacity, whilst ensuring that
working capital investments are made in a controlled manner, will create a
strong platform for future value creation.
Malcolm Harris
Chairman
Report of the directors - Business review
The marketplace and Group performance
Bovis Homes Group PLC's (Bovis Homes) business remains designing, building and
selling homes for both private and public sector customers, operating in England
and Wales. The key steps in the value delivery chain for the Group remain the
sourcing of land, achievement of an appropriate planning consent, physical
construction of property and its subsequent sale.
Marketplace demand during 2009
A decision to purchase a property is influenced by a number of factors. These
may include affordability, confidence in the direction of future house prices
and the ability to fund a purchase using a mortgage.
With house prices falling over 2008 and into the first half of 2009 allied with
base interest rates falling by early March 2009 to historical lows at 0.5%,
affordability for housing at present is better than average when compared to
long term trends.
Perhaps surprisingly, given this general improvement in affordability during
2009, the volume of housing transactions occurring in the market remained very
low by historical standards. Importantly, the majority of housing transactions
are financed through a mortgage. Whilst monthly mortgage approvals for home
purchase rose to 60,518 by November 2009, this level was 42% lower than the
number of monthly mortgage approvals for home purchase on average over the 10
year period ending September 2007, just prior to the banking crisis.
Furthermore, HMRC data for residential property transactions over GBP40,000
suggests that transactions in 2009 were 8% lower than the 2008 equivalent and
52% lower than the 2007 equivalent.
The most concerning development in the mortgage market since the start of the
housing market downturn has been the increase in size of the deposit required to
access mortgage funding either at all or at a reasonable cost. This is
particularly concerning in as much as it adversely impacts the ability of first
time buyers to transact, as they generally hold limited cash or equity required
for a deposit. A property market without new entrants will necessarily be
limited in its ability to grow at a reasonable pace.
Furthermore, with minimum densities for larger scale new build development being
imposed through Government planning policies, which drive development of smaller
homes, housebuilders are less able to mitigate this risk.
Marketplace supply in 2009
The year as a whole appears to have seen pricing across the housing market being
stable to marginally positive. Data collated by the Royal Institute of Chartered
Surveyors suggests that the supply of second hand stock in the market has been
lower than the demand for that property, with the house sales to stock ratio
improving through 2009. This has led to a supply and demand imbalance and thus
prices have begun to rise.
The scale of this pricing movement varies widely between differing indices. The
Nationwide suggests that the annual change for all properties to December 2009
has been +5.9%, whereas the Halifax suggests a lower total, at +1.1% on an
annual basis. Hometrack price survey data indicates an annual 1.9% decline. This
latter survey data includes cash buyers as opposed to the two lender indices
which do not.
Whilst this trend appears positive, some caution should be applied. Firstly,
data published by the Nationwide suggests the annual price movement for new
build properties was flat over year: a substantial discount to its overall
market growth metric. Secondly, the data published by a number of commentators
demonstrate that sales price growth varies in direct correlation with proximity
to London, and unlike the downturn where prices fell nationally, pricing
recovery appears to be regional in nature.
Over 2009 the number of new build properties being built has fallen, with the
Government recording the construction of 90,900 homes in England in the first
three quarters of 2009, as compared to 111,200 in the first three quarters of
2008. On an annualised basis, this equates to 121,200 units. As compared to the
equivalent period in 2007, this is a fall of 31%. This compares to the
Government's latest estimates of household formation numbers, released in March
2009. This suggests that English households are expected to grow to 27.8 million
by 2031, with annual growth in household formation of 252,000. This is over
twice the level of current build volumes.
Whilst household formation estimates are necessarily speculative, there clearly
exists a substantial gap between the formation of new households and the supply
of new homes to the market which gives the Group confidence in the longer term
supply and demand imbalance in the United Kingdom being maintained looking
forward.
Competition
The Group continues to view the main competitor for Bovis Homes as the second
hand market. In a normal year, the Group would expect over 90% of residential
transactions to be second hand, with pricing in the new build sector being set
by reference to that market. This normal pattern was distorted somewhat in late
2008 and early 2009 by the actions of new build participants driving for volume
though aggressive price discounting where the Group operated in close proximity.
This appears to have largely ceased in later 2009 as stock levels have been
decreased across the sector, with more normal pricing patterns re-emerging.
Group performance in 2009
With 1,803 legal completions achieved during 2009, the Group's performance was
similar to its performance in the previous year (2008: 1,817 legal completions).
This comparison masks the success achieved by the Group in increasing its volume
of private homes in 2009 by 25%, with 1,527 legal completions in 2009 versus
1,223 units in 2008.
Given the lower private home forward sales position at the start of 2009 as
compared to the start of 2008, this improvement in private legal completions
arose from an 82% increase in the number of private homes reserved in 2009, with
1,801 private home reservations as compared to 989 private home reservations in
2008. Offsetting this was a fall in the volume of social homes legally
completed, from 594 units (33% of total volume) in 2008 to 276 units in 2009
(15% of total volume). The Group expects that the social housing mix will rise
in 2010 as new sites are started.
As a result of this reduction in social housing in the mix, the Group's average
sales price increased by 3% in 2009 compared to 2008. The average sales price of
legal completions in 2009 was GBP154,600, up from GBP150,800 in 2008. The
average sales price of the Group's private legal completions in 2009 was
GBP165,500, a 9% decline on the average sales price seen in 2008 (GBP181,000)
and a 20% decline on the average sales price in 2007 (GBP206,200). The average
sales price of the Group's social legal completions was GBP94,600, a 7% increase
on the equivalent in 2008 (GBP88,500).
Given an increase in the average size of the Group's private homes from 972
square feet in 2008 to 993 square feet in 2009, the underlying sales price per
square foot fell by 11%. Overall, the average size of the Group's legally
completed homes increased from 909 square feet in 2008 to 958 square feet in
2009, showing the effect of the reduction in social mix, given the smaller
average size of social legal completions at 762 square feet per unit.
Strategy and objectives
Following a review in 2009, the Group has expanded its strategic objectives as
follows:
· The Group seeks to achieve profit margins in the upper quartile of the
sector whilst achieving a strong return on capital employed (ROCE) over the
cycle
· The Group seeks to ensure long-term growth in profits and in earnings per
share
· The Group seeks to deliver a flow of land to maintain a landbank
sufficient to support the activities of the Group
· The Group seeks to achieve a high standard of performance for health,
safety and environmental matters
· The Group seeks to deliver upper quartile customer service as compared to
its peer group
With house prices for new build homes continuing to be subdued and with a
relatively fixed cost base in the short term, it is understandable that the
Group has not immediately returned to growth in profits and returns during 2009.
However the Board regards the progress made by the Group during 2009 in reducing
its cost base and improving its balance sheet strength as being both important
and satisfactory in terms of the achievement of the actions needed to
re-establish profit and returns growth over the mid term.
In the event that house prices remain stable to marginally positive, and given
the manner in which inventory provision releases will tend to suppress profit
margins as house prices rise, the ability of the Group to deliver against its
financial strategic objectives will be assisted by a number of actions: firstly,
that existing 'lower margin' land can be successfully developed so as to recoup
the cash tied up in this investment; secondly, that the Group continues to
manage its balance sheet such that it has adequate financial resources to
acquire new 'higher margin' land and finally that the Group acquires sufficient
new land to both increase the number of sales outlets and generate a return to
the profit margins targeted by land acquisition investment hurdle rates.
The Group has demonstrated good progress in these activities, with an increase
in private legal completions in 2009 by 25% and with housing production
restarted as higher than normal levels of unsold finished goods stocks were
successfully reduced during the year. With a strong balance sheet at 31 December
2009, the Group has demonstrated its ability to drive cash out of work in
progress thus enabling debt reduction and cash accumulation. The Group also
recommenced its land acquisition process and made good progress with four
consented sites acquired in the final quarter of 2009 and terms agreed in
principle on 15 further sites at the year end, which will be progressed in 2010.
To further strengthen its balance sheet position, the Group raised new equity
from its shareholders in September 2009 and refinanced its banking facility
agreement at the end of 2009, giving it the funds and the flexibility required
to grow its outlet capacity in the mid term.
Performance against the Group's non-financial objectives will be covered in more
detail throughout the operating performance review.
Operating performance
Whilst the Group has limited both the levels of housing production and
investments in land at materially lower levels than in previous years, this has
not lessened the commitment of the Group to operate its business in a manner
that ensures that its operations are well managed, appropriately monitored and
operated in a safe and environmentally sustainable manner.
Looking back, during the first half of the year the Group conserved cash with a
very low level of expenditure on construction work in progress and on land
acquisitions, and with some sites mothballed until stock levels were reduced. As
the market backdrop stabilised, and the Group made good progress on growing
reservation rates, bringing down stock levels and reducing debt, the Group was
able to commit to greater production volumes in the second half year. Following
this successful period of balance sheet restructuring, the Group has also
restarted the acquisition of consented land in the market place. This sequence
of activity followed the Group's intent to position itself well with a strong
cash position to support future investment. The following brief review
highlights the key operational performance during this period of change together
with objective data assessing progress achieved over the year.
Further details of the Group's efforts and achievements during 2009 in regards
to Corporate Social Responsibility will be published in a separate report,
available from the Company's website (www.bovishomes.co.uk/plc).
Employees
Following two major restructuring events during 2008, the Group started 2009
with 462 direct employees, including employees serving their notice period, and
closed the year with 487 employees, an increase which has arisen following the
recruitment of additional construction staff and land buyers to support the
Group's current growth aspirations.
Notwithstanding the reduced levels of production activities across the business
during 2009, the Group continued to maintain a high level of organisational
focus in ensuring the health and safety of its employees, subcontractors and
other site visitors. The Group operates its health and safety regime through
comprehensive staff training, clear and accountable management processes and
through regular and transparent reporting of the performance of the Group in all
aspects of health and safety.
This is overseen in two parallel ways: firstly, through the operational line
and, secondly, via the nominated regional director responsible for safety
directly through to a Group-wide oversight committee run by the Group Director
of Health & Safety and chaired by a senior Group manager.
In this way, the operational line continues to take day to day accountability
for this area, whilst the Group also maintains appropriate simultaneous
oversight of these activities. As an indication of the importance placed by the
Group in these areas, Health & Safety is always the first report on the agenda
of Board meetings.
The Group also seeks to ensure that all of its employees and subcontractors who
operate at or visit sites carry a CSCS card: indicating its commitment to a
fully trained workforce. This requirement extends throughout the organisation to
the executive Group directors and the Company Secretary who all carry CSCS
cards. The Group was 99% compliant in 2009 in this area.
Very positively, reportable accidents under the Reporting of Injuries, Diseases
and Dangerous Occurrences Regulations (RIDDOR) have fallen sharply, to 4 (2008:
27). Minor injuries have also fallen by 55%, from 144 accidents in 2008 to 64
accidents in 2009.
The Group maintains external monitoring services from the NHBC to ensure an
independent assessment of the performance of the Group in health and safety
matters. The outcome from their reporting also confirms a very positive trend
for the Group. The weighted average result for NHBC priority A scores has been
reduced to 0.01 in 2009 from 0.11 in 2008 and the weighted average result for
priority B scores has fallen to 0.32 in 2009 from 1.49 in 2008.
Given the reduced levels of construction in 2009, it is to be expected that
absolute health and safety scores have fallen. Positively, the Group's
reportable accident incidence rate, which takes account of the number of
employees and subcontractors working for the Group, has also reduced sharply
from 1,024 in 2008 to 173 in 2009. This rate is also now well below industry
benchmarks as evidenced by the HSE Construction accident incidence rate of 782
for 2008/9 being the most recent year published.
Whilst these demonstrate that health and safety performance is relatively strong
versus external benchmarks and improving versus internal scoring, the Group
cannot be complacent. With activity likely to increase on site in 2010 versus
2009, this will remain an area of focus for regional and Group management.
Customers
The Group continues to use its customer charter to set the expectations it has
in relation to the quality of the product it delivers and the manner in which
the sales transaction is serviced. Despite the obvious risks to a customer care
process during a period of sharp focus on cost control and the restructuring of
the Sales function across the Group, it is pleasing to see the key internal
scoring metrics of 'recommend a friend' and 'purchase another Bovis home' not
just remaining high in absolute terms, but also delivering good year over year
improvement. The focus of the Group's customer communication has remained web
based during 2009, with the Group using the power of the internet to directly
market its products to consumers, utilising internally generated mailing lists
as well as via intermediaries such as 'smart new homes.com' or 'right move.com'.
Over 70% of customer enquiries now originate via the web.
The major change in the way that the Group sells its products in 2009 has been
the adoption of the 'hub' structure to enable more cost effective selling of its
products. The principle of this structure is that the Group manages a cluster of
sales outlets using a team of sales managers operating from a single sales
outlet location, with customers making appointments to view at their preferred
site. The purpose of the change was to improve methods of servicing customer
needs at a lower sales overhead cost per transaction, with additional
operational benefits such as the fact that sales hubs are capable of being
manned more efficiently on a seven day opening basis and also into the evening
whereas to maintain this in a traditional manned outlets way would be expensive.
This selling process also exploits advances in telephony communications as well
as being consistent with the increasing prevalence of email communication from
customers. In parallel with this change in selling processes, the Group has
upgraded its prospect management system, improving on-site technology whilst
integrating the Group's prospects database with brochure fulfilment.
The Group continues to provide a range of tailored incentives to act as
motivators for potential customers. By far the most popular have been the
Group's equity mortgage products: initially, the Group's own 'Jumpstart' scheme
but latterly also the Government backed 'Home Buy Direct' scheme.
The attraction of these schemes are that they offer those first time buyers who
do not possess sufficient equity to put down a large deposit but who are
otherwise credit-worthy, the opportunity to transact. The use of 'Home exchange'
on the other hand has reduced substantially over the year as a result of lower
activity in the second hand market and reluctance on the part of homeowners to
accept the lower value of their home as a result of the downturn.
Shareholders
The value chain for Bovis Homes over the long term business cycle remains the
sourcing of land, achievement of an appropriate planning consent, physical
construction of property and its subsequent sale.
In the shorter term the mortgage market dislocation starting in late 2007 led
the Group to take a number of measures to protect long term shareholder value
including reduction of its overhead base, a sharp reduction in house production
levels, the sale of excess levels of finished good stock, and a cutback in land
expenditure.
The benefits of these actions were seen in 2009, the result of which was a
strengthening of the Group's balance sheet position by the end of 2009.
Overhead levels were reduced by 34% on the prior year and by circa 45% compared
to the overhead base of the Group at the start of 2008. As the Group increases
its volume of house building and land acquisition, it is anticipated that
overheads will rise as essential land buying and technical resources are added
to the business to support growth.
The Group constructed 911 units worth of production during 2009, with only 221
units built in the first half, and a further 690 units in the second half as the
market backdrop generally improved. This has enabled the Group to free up
considerable cash from working capital, as nearly 900 more units were legally
completed than were built. As planned, the level of work in progress held at
year end has fallen sharply, from 1,878 units worth of production at the end of
2008 to 986 units worth of production at the end of 2009. Within this work in
progress, the number of unsold finished stock units has also been reduced
sharply.
Looking ahead, the Group now expects that levels of production will broadly
match the levels of legal completions, such that there is not likely to be
further substantial release of cash from work in progress, but equally, the
Group will be vigilant to ensure that it does not invest unnecessary levels of
capital in this area.
With a 25% increase in the volume of private units legally completed during the
year, and an 82% increase in the number of private unit reservations achieved in
the year, the Group has been successful in increasing sales rates. Together with
its success in controlling work in progress, this has been a strong contributory
factor to a very strong period of cash flow generation in 2009.
Given the caution shown by the Group in the consented land market since 2006,
and the uncertainty engendered by market conditions more recently, sales outlet
numbers have fallen over 2009, with 85 sales outlets on average during the year.
The Group has commented that this average is likely to fall in 2010 to around 70
outlets. The challenge ahead for the Group is to use its balance sheet strength
to acquire residential land and thus grow its sales outlet count: either through
consented land purchase or via conversion of the existing strategic land the
Group controls. To this end, four new consented sites were acquired in the final
quarter of 2009, with terms agreed in principle on a further 15 sites by 31
December 2009.
The Group held a consented land bank of 12,042 plots at 31 December 2009, over
six and a half years supply at current levels of activity, although it has
reduced over the year from 13,545 plots at 31 December 2008, demonstrating the
impact of the Group's aforementioned caution in land acquisition. The consented
land bank reduced by virtue of the 1,803 legal completions during 2009 whilst
there were 300 net plots added after adjusting for the effect of replanning. The
average consented land plot cost at the start of 2009 was GBP35,000. This has
increased over the year, following a net inventory provision release over 2009,
to GBP35,200 at 31 December 2009.
The strategic land bank at 31 December 2009 amounted to 16,363 potential plots
as compared to 18,972 potential plots at 31 December 2008. Given the relatively
low levels of additions into the strategic land bank during the year, and the
transfer of only one site into the consented land bank, the major factor in this
movement has been the removal of a large option-controlled site from the
potential plot numbers as views on the delivery of an acceptable residential
planning consent in that location have been revised. The remaining un-amortised
option costs relating to this site were written off during the year.
Environment and sustainability
The Group continues to regard sustainable development as critical to the long
term creation of value for its shareholders.
Given the continuing focus on climate change, the role of the housebuilding
industry is important in terms of both the mitigation of the impact of its near
term building developments on the local environment, and in playing its part in
the evolution of building techniques and advances which reduce the carbon
arising from new housebuilding developments.
Ensuring that its developments take place in a manner which mitigates the impact
of its operations on its local environment, balancing the needs of local
communities for new housing with the requirement to avoid environmental damage,
the Group works with a range of external stakeholders to agree and carry out
development in a mutually acceptable manner.
Looking forward, the Group is focusing on ways to ensure that its products
conform to good environmental standards, including both EcoHomes standards and
emerging standards under the Code for Sustainable Homes. Reflecting the existing
contribution that the Group makes to the communities and environments in which
it operates, the Group is proud to say that it is a member of the FTSE4Good
index.
The Group's Corporate Social Responsibility report outlines this area in more
detail, and is available on the Group's website (www.bovishomes.co.uk/plc)
Main trends and factors looking forward
The stabilisation of house prices in the new build market and improving consumer
sentiment in later 2009, alongside increasing numbers of mortgages being
approved, has improved the market backdrop at the start of 2010 relative to the
position at the same point in 2009.
Allied to this, the Group has been able to demonstrate robust and successful
balance sheet management: enabling it to plan and take actions designed to grow
profits, margins and returns in the mid term.
However, the economy is benefiting from an unprecedented level of monetary
support at present, and risks surrounding the timing of the cessation of this
together with the evident policy challenges for the Government arising from
historically high peace time levels of budget deficits may suggest tougher times
ahead.
The Group entered 2010 with a stronger forward sales position than in the prior
year, reflecting its focus on delivering early sales activity to support volume
aspirations for 2010 as a whole. Given the already mentioned lower number of
sales outlets available to the Group in 2010 and the prevailing market
conditions, the Group has made a solid start to 2010 in terms of reservations.
For the first nine weeks of 2010, the Group has achieved an average private
sales rate of 0.42 net reservations per site per week. This compares with an
average private sales rate per site per week throughout 2009 of 0.41 and an
average in the first nine weeks of 0.39. As at 5 March 2010, reflecting the
strong opening position, the Group held 969 net sales for legal completion in
2010, as compared to 772 net sales at the same point in 2009. Within the current
year total, private sales amount to 701 units (2009: 515 units) and social sales
amount to 268 units (2009: 257 units).
The Group is strongly placed with the financial capability to acquire consented
land which will enable it to grow its output capacity as measured by sales
outlet numbers, without relying on a resurgence in the housing market, thus
increasing both revenue and profit in the mid term. In 2009 the Group's strategy
was clear: control of working capital and cash generation. The strategy for 2010
is equally clear: investment in new land to generate strong future returns.
David Ritchie
Chief Executive
Financial performance during the year
Revenue
The Group delivered GBP278.8 million of housing revenue in 2009, 1.8% ahead of
the prior year (2008: GBP274.0 million). There was no income from land sales in
2009 (2008: GBP4.9 million). Together with GBP2.7 million of other income (2008:
GBP3.4 million) the Group's total revenue for 2009 was GBP281.5 million which
was broadly in line with total revenue in 2008 at GBP282.3 million.
Pre-exceptional operating profit
The Group delivered a pre-exceptional operating profit for the year ended 31
December 2009 of GBP17.4 million at an operating margin of 6.2%, as compared to
GBP21.3 million in the previous year, at an operating margin of 7.5%.
Pre-exceptional gross margins fell by circa six percentage points, from 22.4% in
2008 to 16.1% in 2009, largely driven by a reduction in private home profit
margins as the average sales price on private legal completions fell by 9% in
2009 as compared to 2008. Largely offsetting this, the Group's pre-exceptional
overhead ratio to revenue improved by circa five percentage points to 9.9% from
14.9% in 2008.
With no land sales in 2009, net option costs in 2009 were GBP1.5 million, as
compared to GBP1.3 million of land sales profit less option costs in
2008.
Exceptional and non-recurring costs
The Group discloses items as exceptional when the Board deems them material by
size or nature, non-recurring and of such significance that they require
separate disclosure.
Periodically, the Group reviews its inventory carrying values on a site by site
basis, taking into account local management and the Board's estimates of current
achievable pricing in local markets. Where this gives rise to a situation where
the then current carrying costs of the asset plus estimated costs to complete
are higher than the estimated net realisable value, a provision is recognised
for the difference. Where a subsequent review indicates a net realisable value
in excess of the carrying cost plus estimated costs to complete, any remaining
un-utilised provision is required to be released.
The Group has reviewed the carrying value of its assets and liabilities as at 31
December 2009. Following this year end review, the Group has released GBP11.6
million of provisions held against the carrying costs of inventory. This release
increases the land cost base going forward which is expected to impact 2010 cost
of sales by approximately GBP5 million. Of the Group's GBP11.6 million provision
release in the second half, there was a gross release of GBP14.0 million offset
by an additional further provision of GBP2.4 million.
Taking into account the GBP11.6 million year end inventory provision release,
and the GBP8.9 million inventory provision charged in the first half of 2009,
the net inventory provision release for the year as a whole was GBP2.7 million.
Offsetting this, the Group has written off the GBP4.2 million remaining
un-amortised element of the one-off fee paid to its banking syndicate in
relation to the facility agreement entered into December 2008 following the
agreement of a new deal, approved in December 2009 and entered into during
January 2010.
The Group has also taken a GBP1.0 million provision relating to a potential
onerous land contract and a GBP0.2 million impairment on the carrying value of
its available for sale asset portfolio.
In total, the Group has taken GBP2.7 million of exceptional items before tax in
2009 (2008: GBP93.1 million)
Pre tax profit and earnings per share
The Group achieved pre-exceptional profit before tax of GBP7.5 million, with
pre-exceptional operating profit of GBP17.4 million and net financing charges of
GBP9.9 million. This compares to GBP21.3 million of pre-exceptional operating
profit and GBP6.9 million of net financing charges in 2008 which generated
GBP14.4 million of pre-exceptional profit before tax in that year.
After accounting for GBP2.7 million of exceptional charges (2008: exceptional
charges of GBP93.1 million) the Group made a pre tax profit of GBP4.8 million
for the year as a whole (2008: GBP78.7 million pre tax loss).
Pre-exceptional basic earnings per share for the year was 4.4p and basic
earnings per share after exceptional charges was 2.8p. This is as compared to
pre-exceptional basic earnings per share of 9.2p and basic loss per share after
exceptional charges of 49.1p in 2008.
Financing
Pre-exceptional net financing charges were GBP9.9 million in 2009 (2008: GBP6.9
million). Net bank charges for 2009 were GBP8.6 million, which included the
amortisation of arrangement fees (GBP4.3 million) and commitment fee charges
(GBP3.2 million). This compares to GBP5.6 million of net charges in 2008. On
average during 2009, the Group had GBP9 million of net debt, as compared to an
average net debt of GBP97 million in 2008, the improvement arising from strong
working capital and other expenditure control as well as from the positive
impact of the Group's equity placing in September 2009. The Group was net cash
positive from August 2009. The Group incurred a GBP1.7 million finance charge
(2008: charge of GBP2.5 million), reflecting the difference between the cost and
nominal price of land bought on deferred terms which is charged to the income
statement over the life of the deferral of the consideration payable.
The Group benefited from a GBP0.2 million net pension financing credit during
2009. This credit arose as a result of the expected return on scheme assets
being in excess of the interest on the scheme obligations. The equivalent credit
in 2008 was GBP1.1 million. The Group also benefited from a finance credit of
GBP0.5 million arising from the unwinding of the discount on its
available-for-sale financial assets during 2009 (2008: GBP0.1 million). There
were also GBP0.3 million of other financing charges during the year.
The Group charged GBP4.2 million of exceptional financing cost charges arising
in the year relating to the write-off of unamortised one-off bank facility
arrangement fees.
Taxation
The Group has recognised a tax charge of GBP1.3 million on pre tax profits of
GBP4.8 million at an effective rate of 27.1% (2008: tax credit of GBP19.7
million at an effective rate of 25.1%). Of this, a GBP2.0 million charge has
arisen on pre-exceptional pre tax profits of GBP7.5 million, and a GBP0.7
million tax credit has arisen on pre tax exceptional items of GBP2.7 million.
The Group continues to recognise a current tax asset, of GBP0.8 million, in its
closing balance sheet as at 31 December 2009 (2008: GBP23.6 million).
Dividends
As previously announced, the Board did not recommend payment of a final dividend
for 2008, having regard to trading conditions and did not pay an interim
dividend in 2009. No cash payments have therefore been made in 2009 relating to
dividends. The Board does not propose payment of a final dividend for 2009.
Net assets
At 31 December 2009, the Group's net assets were GBP692.6 million, GBP60.3
million higher than the opening net asset position at 31 December 2008. The main
driver of this change has been the equity placing carried out by the Group which
increased net assets by GBP59.0 million. Retained earnings increased by GBP1.2
million including retained profit for the year of GBP3.5 million and the
reserves adjustment for the Group's pension deficit which increased from GBP6.8
million to GBP8.9 million.
Net assets per share as at 31 December 2009 was GBP5.20 as compared to GBP5.23
at 31 December 2008.
Pensions
Following a roll-forward of the valuation of the Group's pension scheme, with
latest estimates provided by the Group's actuarial advisors, the Group's pension
scheme had a deficit of GBP8.9 million at 31 December 2009, an increase of
GBP2.1 million on the opening deficit of GBP6.8 million at 31 December 2008.
Whilst scheme assets grew strongly over the year, from GBP58.7 million to
GBP67.6 million, the scheme liabilities increased to a greater extent, from
GBP65.5 million to GBP76.5 million, impacted by a fall in bond yields.
As well as benefiting from a generally stronger stock market in 2009, scheme
assets benefited from a GBP1.9 million special cash contribution made by the
Group into the scheme in December 2009.
Cash flow
The Group started the year with GBP108.4 million of net debt before issue costs.
At 31 December 2009, the Group held GBP112.3 million of net cash. Having
commenced the year with a number of strategies designed to strengthen its
balance sheet through maximisation of cash flow generation, the circa GBP221
million of cash inflow achieved by the Group in the year demonstrates good
success in this area.
There were a number of factors enabling the Group to deliver this strong cash
inflow: firstly and most significantly, successful working capital management
enabled the Group to reduce work in progress by GBP105 million. Secondly, the
Group received GBP22 million of tax rebates following its post exceptional loss
in 2008. Finally, the Group raised GBP59 million of new equity capital during
the year as a result of its placing in September 2009.
Net cash in hand
As at 31 December 2009, the Group held GBP114.6 million of cash in hand, offset
by a GBP2 million loan received as part of the Government's Kickstart programme
aimed at supporting national housebuilders and encouraging increased levels of
production and a GBP0.3 million interest rate swap fair value adjustment: in
total GBP112.3 million (2008: GBP100.1 million net debt after issue costs). As
the Group had substantial cash in hand at the year end, there was no year end
gearing.
At the end of the year, the Group had in place a GBP220 million committed
syndicated banking facility, which was due to step down to GBP180 million in
February 2010 and to GBP160 million in September 2010 and which was due to
mature in March 2011. Well ahead of this maturity, the Group chose to refinance
this facility, taking advantage of improved credit conditions in the banking
marketplace.
As at 31 December 2009, the Group had received credit approval for a new
facility which it entered into in January 2010, at which point its existing
facility was cancelled. The new facility is a GBP150 million committed
syndicated facility with a longer term, maturing in September 2013, with more
flexible borrowing terms and a cheaper cost.
Financial risk and liquidity
The Group largely sees three categories of financial risk: interest rate risk,
credit risk and liquidity risk. Currency risk is not a consideration as the
Group trades exclusively in England and Wales.
In regards to interest rate risk, the Group from time to time will enter into
hedge instruments to ensure that the Group's exposure to excessive fluctuations
in floating rate borrowings is adequately hedged. With the commencement of a new
banking arrangement in late 2008, the Group entered into a GBP50 million zero
cost cap and floor collar hedge arrangement in February 2009, ensuring that
variable rates on up to GBP50 million of the Group's floating rate debt are held
within a pre-determined range. This prevents the Group from suffering material
adverse floating rate increases beyond an agreed level ('the cap') in return for
which the Group accepts a minimum payment cost ('the floor').
With unprecedentedly low LIBOR rates together with the risk premium on LIBOR
rates falling away as liquidity has returned to the market, the variable cost of
borrowings is below the floor and therefore ongoing costs are being incurred. As
the Group has no debt at present, these hedge instruments are regarded as
ineffective and thus all costs are being taken directly through income. At
present, this cost is estimated at GBP0.3 million per annum until expiry in
March 2011 which reflects the fair value of the interest rate swap.
In regard to credit risk, this is largely mitigated by the nature of the Group's
business, its sales being generally made on completion of a legal contract at
which point monies are received in return for transfer of title.
During 2009, the Group saw an increase in the number of sales being made
together with the provision of a shared equity investment by the Group as a key
part of the Group's sales incentive packages: either via the Government 'HomeBuy
Direct' scheme or via the Group's own 'Jumpstart' scheme. This has led to an
increase in the value of the Group's long term receivable Available for Sale
Financial Asset balance which at 31 December 2009 was GBP21.3 million versus
GBP6.0 million at 31 December 2008. Whilst this represents an overall increase
in credit risk, each individual credit exposure is small given the high number
of counterparties. On average, individual shared equity exposure amounts to
GBP26,000.
During 2009 and into early 2010, the Group successfully re-refinanced its
banking arrangements, putting in place a GBP150 million syndicated facility
which is committed to September 2013. The Group regards this facility as
adequate in terms of both flexibility and liquidity to cover its medium term
cash flow needs.
Financial reporting
There have been no changes to the Group's accounting policies during 2009.
Principal risks and uncertainties
Management of risk is key to protecting value. The Group approaches this via a
review of the dimensions of risk that it faces in its business operations,
identifying for each risk the answers to two questions: firstly, what is the
impact of the risk occurring, and secondly, what is the likelihood of this risk
occurring. The mitigation plans and processes identified by management are taken
into account as part of this assessment. Blending these responses together
enables the Group to identify those risks most likely to pose a threat. The
review of risk includes assessment of those risks which may be remote in
likelihood but high in impact.
Each year, the Board formally reviews risk, examining risk in a changing
business landscape and considering the management assessment of this risk. In
doing so, the Board is able to ensure that its risk register is up to date and
reflects any relevant changes in the Group's operating environment and that it
has satisfied itself as to the mitigation factors available to the Group.
As in previous years, the risks that the Group face generally fall into a number
of categories: these include commercial risks, social risks, environmental risks
and ethical risks. With regard to commercial risk, the stabilisation of the
marketplace during 2009 has greatly reduced the risks affecting the Group in
2008 around working capital adequacy, risks further reduced following an
effective year of cash flow generation.
Accordingly, the main commercial risks identified by the Group now largely
relate to three areas:
· Market driven risks such as the risks to revenue created by a worsening
economic environment
· Legislative risk such as the risk of planning or legislative changes
driving costs ahead of sales prices and thus impacting shareholder returns
· Risks around land purchasing, as the key and most volatile input cost that
the Group incurs
In regards to market risk, uncertainties clearly remain as to the direction and
pace of future house price movements. This is particularly so against a backdrop
of unprecedented macro economic support at present which is unlikely to persist
into the mid term, allied to worsening public finances. Given this relative
uncertainty in regards to the pricing environment, the associated commercial
risks of lower house prices looking forward still persist: for example in terms
of the affordability both of planning gain packages and of the affordability of
cost changes driven by primary legislation particularly in terms of
sustainability and the Code for Sustainable Homes.
The state of public finances may also pose a threat to the contribution from
Government in funding the revenue earned from social housing obligated to be
delivered as part of a planning gain package under a s106 agreement.
In regards to legislative risk, there are particular uncertainties at present
given the general election due to take place in the first half of 2010. The
Conservative Party, currently leading in the polls, has indicated that it
regards the volume output of new homes over the recent past as inadequate.
Accordingly, it is currently outlining draft policies that will greatly change
the existing planning framework. Whilst the Group supports the intent behind
this, it remains concerned that the plans as outlined increase uncertainty
around land supply and have the potential to disrupt and/or reduce land supply
in the mid term, with the impact likely to be felt first in the strategic land
market.
Business risks are not just limited to those of a commercial nature. The Group
remains intent on continuing to manage risks across all risk dimensions. The
principal social, environmental and ethical risks and uncertainties remain the
following:
· Existing land contamination is not identified pre-acquisition
· Wildlife habitats are not identified resulting in planning difficulties
· Sustainable development requirements are not addressed, leading to
planning delays and the loss of potential efficiencies
· Failure to design for social inclusion, and for use of appropriate
materials
· Environmental pollution occurs on a construction site and is not swiftly
controlled
· Health and safety standards are breached, leading to injury
· A significant environmental, health and safety, social or ethical event
impacts on the Group's reputation or brand
In all the areas that the Group regards as potential risks, the Group has
reviewed the likelihood and impact of a problem occurring and has identified
suitable controls and processes to manage, monitor and mitigate these risks.
As the Group moves out of a highly challenging trading environment into a more
stable marketplace, the nature of the risks that it is focused on are evolving
towards those
risks associated with growth, such as the need to acquire land successfully.
This said, it is important to recognise that whilst conditions may have
improved, profound uncertainties remain in regards to the UK economy which do
suggest that appropriate levels of caution should be maintained.
Neil Cooper
Group Finance Director
Statement of directors' responsibilities in respect of the annual report and the
financial statements
The directors are responsible for preparing the annual report and the Group and
Parent Company financial statements, in accordance with applicable law and
regulations.
Company law requires the directors to prepare Group and Parent Company financial
statements for each financial year. Under that law the directors are required to
prepare the Group financial statements in accordance with IFRSs as adopted by
the EU and applicable law and have elected to prepare the Parent Company
financial statements on the same basis.
Under company law, the directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Group and Parent Company and of their profit or loss for that
period.
In preparing each of the Group and Parent Company financial statements, the
directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgments and estimates that are reasonable and prudent;
· for the Group and Parent Company financial statements, state whether they
have been prepared in accordance with IFRSs as adopted by the EU;
· prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Group and the Parent Company will continue in
business.
The directors are responsible for keeping proper accounting records that are
sufficient to show and explain the Parent Company's transactions and disclose
with reasonable accuracy at any time the financial position of the Parent
Company and enable them to ensure that its financial statements comply with the
Companies Act 2006. They have general responsibility for taking such steps as
are reasonably open to them to safeguard the assets of the Group and to prevent
and detect fraud and other irregularities.
Under applicable law and regulations, the directors are also responsible for
preparing a directors' report, report on directors' remuneration and report on
corporate governance that comply with that law and those regulations.
The directors are responsible for the maintenance and integrity of the corporate
and financial information included on the Company's website. Legislation in the
UK governing the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
We confirm that to the best of our knowledge:
a) the Group and Parent Company financial statements in this report, which
have been prepared in accordance with IFRS as adopted by the EU, IFRIC
interpretation and those parts of the Companies Act 2006 applicable to companies
reporting under IFRS, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and of the Group taken as a
whole; and
b) the management report contained in this report includes a fair review of
the development and performance of the business and the position of the Company
and the Group taken as a whole, together with a description of the principal
risks and uncertainties they face.
For and on behalf of the Board
David Ritchie
Chief Executive
Neil Cooper
Finance Director
5 March 2010
Bovis Homes Group PLC
Group income statement
+--------------------+-------------+-+-------------+-+----------+-+-------------+--+-------------+--+----------+--+
| For the year ended | 2009 | 2008 |
| 31 December | | |
+--------------------+--------------------------------------------+-----------------------------------------------+
| | Before | | Exceptional | | | | Before | | Exceptional | | | |
| | exceptional | | items | | | | exceptional | | items | | | |
| | items | | | | | | items | | | | | |
+--------------------+-------------+-+-------------+-+----------+-+-------------+--+-------------+--+----------+--+
| | GBP000 | | GBP000 | | GBP000 | | GBP000 | | GBP000 | | GBP000 | |
+--------------------+-------------+-+-------------+-+----------+-+-------------+--+-------------+--+----------+--+
| | | | | | | | | | | | | |
+--------------------+-------------+-+-------------+-+----------+-+-------------+--+-------------+--+----------+--+
| Revenue | 281,505 | | - | | 281,505 | | 282,326 | | - | | 282,326 | |
+--------------------+-------------+-+-------------+-+----------+-+-------------+--+-------------+--+----------+--+
| Cost of sales | (236,339 | )| 1,471 | | (234,868 | )| (219,011 | )| (76,487 | )| (295,498 | )|
+--------------------+-------------+-+-------------+-+----------+-+-------------+--+-------------+--+----------+--+
| Gross | 45,166 | | 1,471 | | 46,637 | | 63,315 | | (76,487 | )| (13,172 | )|
| profit/(loss) | | | | | | | | | | | | |
+--------------------+-------------+-+-------------+-+----------+-+-------------+--+-------------+--+----------+--+
| Administrative | (27,769 | )| - | | (27,769 | )| (42,018 | )| (16,641 | )| (58,659 | )|
| expenses | | | | | | | | | | | | |
+--------------------+-------------+-+-------------+-+----------+-+-------------+--+-------------+--+----------+--+
| Operating | 17,397 | | 1,471 | | 18,868 | | 21,297 | | (93,128 | )| (71,831 | )|
| profit/(loss) | | | | | | | | | | | | |
| before financing | | | | | | | | | | | | |
| costs | | | | | | | | | | | | |
+--------------------+-------------+-+-------------+-+----------+-+-------------+--+-------------+--+----------+--+
| Financial income | 2,304 | | - | | 2,304 | | 1,389 | | - | | 1,389 | |
+--------------------+-------------+-+-------------+-+----------+-+-------------+--+-------------+--+----------+--+
| Financial expenses | (12,178 | )| (4,197 | )| (16,375 | )| (8,292 | )| - | | (8,292 | )|
+--------------------+-------------+-+-------------+-+----------+-+-------------+--+-------------+--+----------+--+
| Net financing | (9,874 | )| (4,197 | )| (14,071 | )| (6,903 | )| - | | (6,903 | )|
| costs | | | | | | | | | | | | |
+--------------------+-------------+-+-------------+-+----------+-+-------------+--+-------------+--+----------+--+
| Profit/(loss) | 7,523 | | (2,726 | )| 4,797 | | 14,394 | | (93,128 | )| (78,734 | )|
| before tax | | | | | | | | | | | | |
+--------------------+-------------+-+-------------+-+----------+-+-------------+--+-------------+--+----------+--+
| Income tax | (2,070 | )| 763 | | (1,307 | )| (3,319 | )| 23,058 | | 19,739 | |
| (expense)/credit | | | | | | | | | | | | |
+--------------------+-------------+-+-------------+-+----------+-+-------------+--+-------------+--+----------+--+
| Profit/(loss) for | 5,453 | | (1,963 | )| 3,490 | | 11,075 | | (70,070 | )| (58,995 | )|
| the period | | | | | | | | | | | | |
| attributable to | | | | | | | | | | | | |
| equity holders of | | | | | | | | | | | | |
| the parent | | | | | | | | | | | | |
+--------------------+-------------+-+-------------+-+----------+-+-------------+--+-------------+--+----------+--+
| | | | | | | | | | | | | |
+--------------------+-------------+-+-------------+-+----------+-+-------------+--+-------------+--+----------+--+
| Earnings/(loss) | | | | | | | | | | | | |
| per share | | | | | | | | | | | | |
+--------------------+-------------+-+-------------+-+----------+-+-------------+--+-------------+--+----------+--+
| Basic | 4.4p | | (1.6p | )| 2.8p | | 9.2p | | (58.3p | )| (49.1p | )|
+--------------------+-------------+-+-------------+-+----------+-+-------------+--+-------------+--+----------+--+
| Diluted | 4.4p | | (1.6p | )| 2.8p | | 9.2p | | (58.3p | )| (49.1p | )|
+--------------------+-------------+-+-------------+-+----------+-+-------------+--+-------------+--+----------+--+
| | | | | | | | | | | | | |
+--------------------+-------------+-+-------------+-+----------+-+-------------+--+-------------+--+----------+--+
| Dividend per share | | | | | | | | | | | | |
| charged in period | | | | | | | | | | | | |
+--------------------+-------------+-+-------------+-+----------+-+-------------+--+-------------+--+----------+--+
| 2008 interim paid | | | | | - | | | | | | 5.0p | |
| November 2008 | | | | | | | | | | | | |
+--------------------+-------------+-+-------------+-+----------+-+-------------+--+-------------+--+----------+--+
| 2007 final paid | | | | | - | | | | | | 17.5p | |
| May 2008 | | | | | | | | | | | | |
+--------------------+-------------+-+-------------+-+----------+-+-------------+--+-------------+--+----------+--+
| | | | | | - | | | | | | 22.5p | |
+--------------------+-------------+-+-------------+-+----------+-+-------------+--+-------------+--+----------+--+
Bovis Homes Group PLC
Group statement of comprehensive income
+-----------------------------------+---------+--+---------+--+---------+--+
| For the year ended 31 December | | | | |
| | | | | |
+------------------------------------------------+---------+--+---------+--+
| | | | 2009 | | 2008 | |
+-----------------------------------+---------+--+---------+--+---------+--+
| | | | GBP000 | | GBP000 | |
+-----------------------------------+---------+--+---------+--+---------+--+
| | | | | | | |
+-----------------------------------+---------+--+---------+--+---------+--+
| Profit / (loss) for the period | 3,490 | | (58,995 | )|
+------------------------------------------------+---------+--+---------+--+
| Actuarial loss on defined benefits pension | (4,210 | )| (8,820 | )|
| scheme | | | | |
+------------------------------------------------+---------+--+---------+--+
| Deferred tax on actuarial movements on defined | 1,179 | | 2,470 | |
| benefits pension scheme | | | | |
+------------------------------------------------+---------+--+---------+--+
| Total comprehensive income and expense for the | 459 | | (65,345 | )|
| period | | | | |
| attributable to equity holders of the parent | | | | |
+-----------------------------------+---------+--+---------+--+---------+--+
Bovis Homes Group PLC
Group balance sheet
+-----------------------------------+----------+--+----------+--+----------+--+
| At 31 December | | | 2009 | | 2008 | |
+-----------------------------------+----------+--+----------+--+----------+--+
| | | | GBP000 | | GBP000 | |
+-----------------------------------+----------+--+----------+--+----------+--+
| | | | | | | |
+-----------------------------------+----------+--+----------+--+----------+--+
| Assets | | | | | | |
+-----------------------------------+----------+--+----------+--+----------+--+
| Property, plant and equipment | | | 11,574 | | 12,347 | |
+-----------------------------------+----------+--+----------+--+----------+--+
| Investments | | | 22 | | 22 | |
+-----------------------------------+----------+--+----------+--+----------+--+
| Deferred tax assets | | | 6,446 | | 5,548 | |
+-----------------------------------+----------+--+----------+--+----------+--+
| Trade and other receivables | | | 2,213 | | 2,418 | |
+-----------------------------------+----------+--+----------+--+----------+--+
| Available for sale financial | | | 21,291 | | 6,030 | |
| assets | | | | | | |
+-----------------------------------+----------+--+----------+--+----------+--+
| Total non-current assets | | | 41,546 | | 26,365 | |
+-----------------------------------+----------+--+----------+--+----------+--+
| Inventories | | | 630,709 | | 780,808 | |
+-----------------------------------+----------+--+----------+--+----------+--+
| Trade and other receivables | | | 30,771 | | 37,947 | |
+-----------------------------------+----------+--+----------+--+----------+--+
| Cash | | | 114,595 | | 11,634 | |
+-----------------------------------+----------+--+----------+--+----------+--+
| Current tax assets | | | 831 | | 23,550 | |
+-----------------------------------+----------+--+----------+--+----------+--+
| Total current assets | | | 776,906 | | 853,939 | |
+-----------------------------------+----------+--+----------+--+----------+--+
| Total assets | | | 818,452 | | 880,304 | |
+-----------------------------------+----------+--+----------+--+----------+--+
| Equity | | | | | | |
+-----------------------------------+----------+--+----------+--+----------+--+
| Issued capital | | | 66,570 | | 60,497 | |
+-----------------------------------+----------+--+----------+--+----------+--+
| Share premium | | | 210,181 | | 157,127 | |
+-----------------------------------+----------+--+----------+--+----------+--+
| Retained earnings | | | 415,815 | | 414,654 | |
+-----------------------------------+----------+--+----------+--+----------+--+
| Total equity attributable to | | | 692,566 | | 632,278 | |
| equity holders of the parent | | | | | | |
+-----------------------------------+----------+--+----------+--+----------+--+
| | | | | | | |
+-----------------------------------+----------+--+----------+--+----------+--+
| Liabilities | | | | | | |
+-----------------------------------+----------+--+----------+--+----------+--+
| Bank and other loans | | | 2,337 | | 111,730 | |
+-----------------------------------+----------+--+----------+--+----------+--+
| Trade and other payables | | | 23,077 | | 24,907 | |
+-----------------------------------+----------+--+----------+--+----------+--+
| Retirement benefit obligations | | | 8,910 | | 6,790 | |
+-----------------------------------+----------+--+----------+--+----------+--+
| Provisions | | | 1,700 | | 1,623 | |
+-----------------------------------+----------+--+----------+--+----------+--+
| Total non-current liabilities | | | 36,024 | | 145,050 | |
+-----------------------------------+----------+--+----------+--+----------+--+
| Trade and other payables | | | 87,698 | | 101,964 | |
+-----------------------------------+----------+--+----------+--+----------+--+
| Provisions | | | 2,164 | | 1,012 | |
+-----------------------------------+----------+--+----------+--+----------+--+
| Total current liabilities | | | 89,862 | | 102,976 | |
+-----------------------------------+----------+--+----------+--+----------+--+
| Total liabilities | | | 125,886 | | 248,026 | |
+-----------------------------------+----------+--+----------+--+----------+--+
| | | | | | | |
+-----------------------------------+----------+--+----------+--+----------+--+
| Total equity and liabilities | | | 818,452 | | 880,304 | |
+-----------------------------------+----------+--+----------+--+----------+--+
These accounts were approved by the Board of directors on 5 March 2010 and
signed on its behalf: D Ritchie and N Cooper, Directors.
Bovis Homes Group PLC
Group statement of changes in equity
+--------------------------+---------+--+-------------+--+----------+--+----------+--+---------+---------+---------+--+
| | | | | | | | | | | | | |
+--------------------------+---------+--+-------------+--+----------+--+----------+--+---------+---------+---------+--+
| For the year ended | Own | | Retirement | | Other | | Total | | Issued | Share | Total | |
| 31 December 2009 | shares | | Benefit | | retained | | retained | | capital | premium | | |
| | held | | obligations | | earnings | | earnings | | | | | |
+--------------------------+---------+--+-------------+--+----------+--+----------+--+---------+---------+---------+--+
| | GBP000 | | GBP000 | | GBP000 | | GBP000 | | GBP000 | GBP000 | GBP000 | |
+--------------------------+---------+--+-------------+--+----------+--+----------+--+---------+---------+---------+--+
| Balance at 1 January | (2,958 | )| (8,635 | )| 518,187 | | 506,594 | | 60,415 | 156,734 | 723,743 | |
| 2008 | | | | | | | | | | | | |
+--------------------------+---------+--+-------------+--+----------+--+----------+--+---------+---------+---------+--+
| Total comprehensive | - | | (6,350 | )| (58,995 | )| (65,345 | )| - | - | (65,345 | )|
| income and expense | | | | | | | | | | | | |
+--------------------------+---------+--+-------------+--+----------+--+----------+--+---------+---------+---------+--+
| Deferred tax on other | - | | - | | (22 | )| (22 | )| - | - | (22 | )|
| employee benefits | | | | | | | | | | | | |
+--------------------------+---------+--+-------------+--+----------+--+----------+--+---------+---------+---------+--+
| Current tax on share | - | | - | | 498 | | 498 | | - | - | 498 | |
| based payments | | | | | | | | | | | | |
| recognised directly in | | | | | | | | | | | | |
| equity | | | | | | | | | | | | |
+--------------------------+---------+--+-------------+--+----------+--+----------+--+---------+---------+---------+--+
| Issue of share capital | - | | - | | - | | - | | 82 | 393 | 475 | |
+--------------------------+---------+--+-------------+--+----------+--+----------+--+---------+---------+---------+--+
| Own shares disposed | 154 | | - | | (154 | )| - | | - | - | - | |
+--------------------------+---------+--+-------------+--+----------+--+----------+--+---------+---------+---------+--+
| Share based payments | - | | - | | (22 | )| (22 | )| - | - | (22 | )|
+--------------------------+---------+--+-------------+--+----------+--+----------+--+---------+---------+---------+--+
| Dividends paid to | - | | - | | (27,049 | )| (27,049 | )| - | - | (27,049 | )|
| shareholders | | | | | | | | | | | | |
+--------------------------+---------+--+-------------+--+----------+--+----------+--+---------+---------+---------+--+
| Balance at 31 December | (2,804 | )| (14,985 | )| 432,443 | | 414,654 | | 60,497 | 157,127 | 632,278 | |
| 2008 | | | | | | | | | | | | |
+--------------------------+---------+--+-------------+--+----------+--+----------+--+---------+---------+---------+--+
| Balance at 1 January | (2,804 | )| (14,985 | )| 432,443 | | 414,654 | | 60,497 | 157,127 | 632,278 | |
| 2009 | | | | | | | | | | | | |
+--------------------------+---------+--+-------------+--+----------+--+----------+--+---------+---------+---------+--+
| Total comprehensive | - | | (3,031 | )| 3,490 | | 459 | | - | - | 459 | |
| income and expense | | | | | | | | | | | | |
+--------------------------+---------+--+-------------+--+----------+--+----------+--+---------+---------+---------+--+
| Deferred tax on other | - | | - | | (2 | )| (2 | )| - | - | (2 | )|
| employee benefits | | | | | | | | | | | | |
+--------------------------+---------+--+-------------+--+----------+--+----------+--+---------+---------+---------+--+
| Issue of share capital | - | | - | | - | | - | | 6,073 | 53,054 | 59,127 | |
+--------------------------+---------+--+-------------+--+----------+--+----------+--+---------+---------+---------+--+
| Own shares disposed | 138 | | - | | (138 | )| - | | - | - | - | |
+--------------------------+---------+--+-------------+--+----------+--+----------+--+---------+---------+---------+--+
| Share based payments | - | | - | | 704 | | 704 | | - | - | 704 | |
+--------------------------+---------+--+-------------+--+----------+--+----------+--+---------+---------+---------+--+
| Balance at 31 December | (2,666 | )| (18,016 | )| 436,497 | | 415,815 | | 66,570 | 210,181 | 692,566 | |
| 2009 | | | | | | | | | | | | |
+--------------------------+---------+--+-------------+--+----------+--+----------+--+---------+---------+---------+--+
Bovis Homes Group PLC
Group statement of cash flows
+------------------------------------+--+--+----------+--+---------+--+
| For the year ended 31 December | | | | | | |
| | | | | | | |
+------------------------------------+--+--+----------+--+---------+--+
| | | | 2009 | | 2008 | |
+------------------------------------+--+--+----------+--+---------+--+
| | | | GBP000 | | GBP000 | |
+------------------------------------+--+--+----------+--+---------+--+
| | | | | | | |
+------------------------------------+--+--+----------+--+---------+--+
| Cash flows from operating | | | | | | |
| activities | | | | | | |
+------------------------------------+--+--+----------+--+---------+--+
| Profit/(loss) for the year | | | 3,490 | | (58,995 | )|
+------------------------------------+--+--+----------+--+---------+--+
| Depreciation | | | 769 | | 1,168 | |
+------------------------------------+--+--+----------+--+---------+--+
| Impairment of goodwill | | | - | | 10,036 | |
+------------------------------------+--+--+----------+--+---------+--+
| Impairment of assets | | | 245 | | 2,241 | |
+------------------------------------+--+--+----------+--+---------+--+
| Financial income | | | (2,304 | )| (1,389 | )|
+------------------------------------+--+--+----------+--+---------+--+
| Financial expense | | | 16,375 | | 8,292 | |
+------------------------------------+--+--+----------+--+---------+--+
| Loss/(profit) on sale of property, | | | 3 | | (146 | )|
| plant and equipment | | | | | | |
+------------------------------------+--+--+----------+--+---------+--+
| Equity-settled share-based payment | | | 704 | | (22 | )|
| expense / (credit) | | | | | | |
+------------------------------------+--+--+----------+--+---------+--+
| Income tax expense / (credit) | | | 1,307 | | (19,739 | )|
+------------------------------------+--+--+----------+--+---------+--+
| (Release) / write-down of | | | (2,664 | )| 75,202 | |
| inventories | | | | | | |
+------------------------------------+--+--+----------+--+---------+--+
| Operating profit before changes in | | | 17,925 | | 16,648 | |
| working capital and provisions | | | | | | |
+------------------------------------+--+--+----------+--+---------+--+
| | | | | | | |
+------------------------------------+--+--+----------+--+---------+--+
| (Increase) / Decrease in trade and | | | (7,555 | )| 8,924 | |
| other receivables | | | | | | |
+------------------------------------+--+--+----------+--+---------+--+
| Decrease in inventories | | | 152,762 | | 13,345 | |
+------------------------------------+--+--+----------+--+---------+--+
| Decrease in trade and other | | | (17,173 | )| (43,444 | )|
| payables | | | | | | |
+------------------------------------+--+--+----------+--+---------+--+
| (Decrease) / Increase in | | | (611 | )| 702 | |
| provisions and employee benefits | | | | | | |
+------------------------------------+--+--+----------+--+---------+--+
| Cash generated from operations | | | 145,348 | | (3,825 | )|
+------------------------------------+--+--+----------+--+---------+--+
| | | | | | | |
+------------------------------------+--+--+----------+--+---------+--+
| Interest paid | | | (6,684 | )| (8,769 | )|
+------------------------------------+--+--+----------+--+---------+--+
| Income taxes received / (paid) | | | 21,688 | | (16,924 | )|
+------------------------------------+--+--+----------+--+---------+--+
| Net cash from operating activities | | | 160,352 | | (29,518 | )|
+------------------------------------+--+--+----------+--+---------+--+
| | | | | | | |
+------------------------------------+--+--+----------+--+---------+--+
| Cash flows from investing | | | | | | |
| activities | | | | | | |
+------------------------------------+--+--+----------+--+---------+--+
| Interest received | | | 1,481 | | 187 | |
+------------------------------------+--+--+----------+--+---------+--+
| Acquisition of property, plant and | | | (44 | )| (143 | )|
| equipment | | | | | | |
+------------------------------------+--+--+----------+--+---------+--+
| Proceeds from sale of plant and | | | 45 | | 214 | |
| equipment | | | | | | |
+------------------------------------+--+--+----------+--+---------+--+
| Net cash from investing activities | | | 1,482 | | 258 | |
+------------------------------------+--+--+----------+--+---------+--+
| | | | | | | |
+------------------------------------+--+--+----------+--+---------+--+
| Cash flows from financing | | | | | | |
| activities | | | | | | |
+------------------------------------+--+--+----------+--+---------+--+
| Dividends paid | | | - | | (27,049 | )|
+------------------------------------+--+--+----------+--+---------+--+
| Proceeds from the issue of share | | | 60,662 | | 475 | |
| capital | | | | | | |
+------------------------------------+--+--+----------+--+---------+--+
| Costs associated with share | | | (1,535 | )| - | |
| placing | | | | | | |
+------------------------------------+--+--+----------+--+---------+--+
| (Repayment) / drawdown of | | | (118,000 | )| 79,000 | |
| borrowings | | | | | | |
+------------------------------------+--+--+----------+--+---------+--+
| Costs associated with refinancing | | | - | | (8,290 | )|
+------------------------------------+--+--+----------+--+---------+--+
| Net cash from financing activities | | | (58,873 | )| 44,136 | |
+------------------------------------+--+--+----------+--+---------+--+
| | | | | | | |
+------------------------------------+--+--+----------+--+---------+--+
| Net increase in cash and cash | | | 102,961 | | 14,876 | |
| equivalents | | | | | | |
+------------------------------------+--+--+----------+--+---------+--+
| Cash and cash equivalents at 1 | | | 11,634 | | (3,242 | )|
| January | | | | | | |
+------------------------------------+--+--+----------+--+---------+--+
| Cash and cash equivalents at 31 | | | 114,595 | | 11,634 | |
| December | | | | | | |
+------------------------------------+--+--+----------+--+---------+--+
Notes to the financial statements
Bovis Homes Group PLC ('the Company') is a company domiciled in the United
Kingdom. The consolidated financial statements of the Company for the year
ended 31 December 2009 comprise the Company and its subsidiaries (together
referred to as 'the Group') and the Group's interest in associates.
The consolidated financial statements were authorised for issue by the directors
on 5 March 2010. The accounts were audited by KPMG Audit Plc.
The financial information set out above does not constitute the company's
statutory accounts for the years ended 31 December 2009 or 2008 but is derived
from those accounts. Statutory accounts for 2008 have been delivered to the
registrar of companies, and those for 2009 will be delivered in due course. The
auditors have reported on those accounts; their reports were (i) unqualified,
(ii) did not include a reference to any matters to which the auditors drew
attention by way of emphasis without qualifying their report and (iii) did not
contain a statement under section 237 (2) or (3) of the Companies Act 1985 in
respect of the accounts for 2008 nor a statement under section 498 (2) or (3) of
the Companies Act 2006 in respect of the accounts for 2009.
1. Statement of compliance
The consolidated financial statements of the Company and the Group have been
prepared in accordance with International Financial Reporting Standards as
adopted by the EU (adopted IFRS) and its interpretations as adopted by the
International Accounting Standards Board (IASB). On publishing the Company
financial statements in the Group's full Report and Accounts together with the
Group financial statements, the Company is taking advantage of the exemption in
s408 of the Companies Act 2006 not to present its individual income statement
and related notes that form a part of these approved financial statements.
2. Basis of preparation
The financial statements are prepared on the historical cost basis except for
derivative financial instruments and available for sale assets.
The
preparation of financial statements in conformity with adopted IFRSs requires
management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities, income
and expenses. The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis of making the judgements
about carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of the revision and future periods if the revision affects both current and
future periods.
Judgements made by management in the application of adopted IFRSs that have
significant effect on the financial statements and estimates with a significant
risk of material adjustment in the next year are discussed in note 28 of the
Group's full Report and Accounts, available from the Group's website.
The accounting policies set out below have been applied consistently to all
periods presented in these consolidated financial statements. The accounting
policies have been applied consistently to the Company and the Group where
relevant.
Impact of standards and interpretations effective for the first time
The following new standards, amendments to standards or interpretations are
mandatory for the first time for the Company's year ended 31 December 2009. They
have had no material impact on the Group's financial statements.
IAS1 (2007) - Presentation of financial statements. This relates to the
presentation of financial statements and in particular the presentation of a
statement of changes in equity as a primary statement. Previously this statement
was disclosed as a note to the accounts.
Amendments to IFRS 7 - Improving Disclosures about Financial Instruments. The
amended standard requires additional disclosures in relation to the Group's
financial instruments recognised at fair value, as set out in note 23 of the
Group's full Report and Accounts, available from the Group's website.
IFRS8 - Operating segments. This standard relates to the degree to which
financial information is disaggregated in published financial information to aid
the reader in a better understanding of the performance of the Group. The
Group's operations remain those of a housebuilder operating entirely within
England and Wales, and there are no activities of the Group which do not support
this operation. Following the introduction of this standard, the Group reviewed
its internal financial management information and reporting arising from its
internal organisational structure. Following this review, it is confident that
its internal organisational structures are sufficiently similar in terms of
economic characteristics, products, construction processes, distribution methods
and types of customers so as to meet fully the aggregation criteria of the
standard. Accordingly, the Board has concluded that there are no separate
segments, either business or geographic, to disclose.
IAS23 - (Amended) Borrowing costs. This amendment requires an entity to
capitalise borrowing costs directly attributable to the acquisition,
construction and production of a qualifying asset, as part of the cost of that
asset. A qualifying asset is one that takes a substantial period of time to get
ready for use or sale. Inventories which are produced in large quantities on a
repetitive basis over a short period of time are not qualifying assets. This
amendment is not expected to have any material impact on the Group's financial
statements as the activities performed by the Group do not generally produce
qualifying assets.
3. Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and entities controlled by the Company (its subsidiaries) made up to
31 December. Control is achieved where the Company has the power to govern the
financial and operating policies of an entity so as to obtain benefits from its
activities. The existence and effect of potential voting rights that are
currently exercisable or convertible are considered when assessing whether the
Group controls another entity. The financial statements of subsidiaries are
included in the consolidated financial statements from the date that control
commences until the date that control ceases.
Associates are those entities in which the Group has significant influence, but
not control, over the financial and operating policies. The consolidated
financial statements include the Group's share of the total recognised gains and
losses of associates on an equity accounted basis, from the date that
significant influence commences until the date that significant influence
ceases.
4. Accounting policies
Business combinations
The purchase method of accounting is used to account for the acquisition of
subsidiary undertakings by the Group. The cost of or consideration for an
acquisition is measured as the fair value of the assets given and liabilities
taken on or assumed in return for the acquisition plus costs directly
attributable to the acquisition. On acquisition, identifiable assets and
liabilities are measured initially at fair value, with any excess of
consideration being recognised as goodwill. Accounting policies of subsidiary
undertakings have been changed where necessary to ensure consistency with those
adopted by the Group.
Revenue
Revenue is recognised in the income statement when the significant risks and
rewards of ownership have been transferred to the purchaser. Revenue comprises
the fair value of the consideration received or receivable, net of value-added
tax, rebates and discounts. Revenue in respect of the sale of residential
properties and land is recognised at the fair value of the consideration
received or receivable on legal completion of the sale transaction. Revenue does
not include the value of the onward legal completion of properties accepted in
part exchange against a new property. The net gain or loss arising from the
legal completion of these part exchange properties is recognised in cost of
sales.
Rental income is recognised in the income statement on a straight-line basis
over the term of the lease. Lease incentives granted are recognised as an
integral part of the total rental income.
Operating leases
Rentals payable under operating leases are charged to income on a straight-line
basis over the term of the relevant lease. Lease incentives received are
recognised as an integral part of the total lease expenditure.
Net financing costs
Net finance costs comprise:
· interest payable on borrowings, including any premiums payable on
settlement or redemption and direct issue costs, accounted for on an accrual
basis to the income statement using the effective interest method;
· interest receivable on funds invested accounted for on an accrual basis
to the income statement using the effective interest method;
· imputed interest on available-for-sale financial assets and on deferred
terms land payables;
· pension finance costs or benefits being the net of interest costs on
liabilities and expected return on assets linked to the Defined Benefit Scheme;
and
· gains and losses on hedging instruments that are recognised in the income
statement.
Finance costs are included in the measurement of borrowings at their
amortised cost to the extent that they are not settled in the period in which
they arise.
The Group is required to capitalise borrowing costs directly attributable to the
acquisition, construction and production of a qualifying asset, as part of the
costs of that asset. Inventories which are produced in large quantities on a
repetitive basis over a short period of time are not qualifying assets. The
Group does not generally produce qualifying assets.
Taxation
Income tax comprises the sum of the tax currently payable or receivable and
deferred tax. Income tax is recognised in the income statement except to the
extent that it relates to items recognised directly in equity, in which case it
is recognised in equity.
The tax currently payable or receivable is based on taxable profit or loss for
the year and any adjustment to tax payable or receivable in respect of previous
years. Taxable profit or loss differs from net profit or loss as reported in the
income statement because it excludes items of income or expense that are taxable
or deductible in other years and it further excludes items that are never
taxable or deductible. The Group's liability or asset for current tax is
calculated using tax rates that have been enacted or substantively enacted by
the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability method. Deferred
tax liabilities are generally recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary differences
can be utilised. Such assets and liabilities are not recognised if the temporary
difference arises from non-tax deductible goodwill, from the initial recognition
of assets and liabilities in a transaction that affects neither the tax profit
nor the accounting profit, and from differences relating to investments in
subsidiaries to the extent that they will probably not reverse in the
foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance
sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to allow all or part of the asset
to be recovered. Deferred tax is calculated at the tax rates that are expected
to apply in the period when the liability is settled or the asset is realised.
Deferred tax is charged or credited in the income statement, except when it
relates to items charged or credited directly to reserves, in which case the
deferred tax is also dealt with in reserves.
Derivative financial instruments and hedge accounting
The Group's activities expose it primarily to the financial risks of changes in
interest rates. The Group uses interest rate swap contracts where deemed
appropriate to hedge these exposures. The Group does not use derivative
financial instruments for speculative purposes. The use of financial derivatives
is governed by the Group's policies approved by the Board of directors, which
provide written principles on the use of financial derivatives.
Derivative financial instruments are recognised at fair value. The fair value of
interest rate swaps is the estimated amount that the Group would receive or pay
to terminate the swap at the balance sheet date, taking into account interest
rates and the current creditworthiness of the swap counterparties.
Where the derivative instrument, typically an interest rate swap, is deemed an
effective hedge over the exposure being hedged, the derivative instrument is
treated as a cash flow hedge and hedge accounting applied. Under a cash flow
hedge, gains and losses on the effective portion of the change in the fair value
of the derivative instrument are recognised directly in equity.
Changes in the fair value of derivative financial instruments that do not
qualify for hedge accounting and any ineffectiveness in the hedge relationship
are recognised in the income statement as they arise.
Hedge accounting is discontinued when the hedging instrument expires or is sold,
terminated, or exercised, or no longer qualifies for hedge accounting. At that
time, any cumulative gain or loss on the hedging instrument recognised in
reserves is retained in reserves until the forecasted transaction occurs. If a
hedged transaction is no longer expected to occur, the net cumulative gain or
loss recognised in reserves is transferred to net profit or loss for the
period.
Goodwill
Where the fair value of consideration paid for an acquisition exceeds the fair
value of the net assets acquired, the excess is recognised as goodwill arising
on consolidation and is capitalised as an asset. Once capitalised, this asset is
reviewed for impairment on an annual basis with any impairment arising requiring
immediate recognition in the income statement.
For the purpose of impairment testing, goodwill is allocated to each of the
cash-generating units of the Group at acquisition. Cash-generating units to
which goodwill has been allocated are tested for impairment at least annually.
If the recoverable amount of the cash-generating unit is less than the carrying
amount of the unit, the impairment loss is allocated first to reduce the
carrying amount of any goodwill allocated to the unit and then, where
appropriate, to the other assets of the unit pro-rata on the basis of the
carrying amount of each asset in the unit. Any impairment is recognised
immediately in the income statement and is not subsequently reversed.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation
and impairment losses. Certain property that had been revalued to fair value on
or prior to 1 January 2004, the date of transition to adopted IFRS, are measured
on the basis of deemed cost, this being the revalued amount at the date of that
revaluation less any subsequent accumulated depreciation and subsequent
accumulated impairment losses. Regular reviews of the carrying values of
property are completed to assess any impairment in value. When impairment is
identified, the asset's recoverable amount is assessed and any shortfall is
written off through the income statement.
Depreciation is charged so as to write off the cost less residual value (which
is reassessed annually) of assets over their estimated useful lives.
Depreciation is charged on property in respect of the value of the building.
Land is not depreciated. The basis of depreciation for each class of asset is as
follows:
+----------------------+--------------------+
| · Buildings | straight line over |
| | 50 years |
+----------------------+--------------------+
| · Plant and | 33.3% reducing |
| machinery | balance |
+----------------------+--------------------+
| · Computer | straight line over |
| equipment | 3 years |
+----------------------+--------------------+
| · Office | 25% reducing |
| equipment | balance |
+----------------------+--------------------+
The gain or loss arising on the disposal or retirement of an asset is determined
as the difference between the sales proceeds and the carrying amount of the
asset and is recognised in the income statement.
Fixed asset investments
Investments in subsidiaries are carried at cost less impairment. Following the
issue of IFRIC11 in 2007, the Parent Company accounts for the share-based
payments granted to subsidiary employees as an increase in the cost of its
investment in subsidiaries.
Trade and other receivables
Trade receivables do not carry any interest and are stated at their nominal
value as reduced by appropriate allowances for estimated irrecoverable amounts.
Receivables on extended terms granted as part of a sales transaction are secured
by way of a legal charge on the relevant property, categorised as an available
for sale financial asset and are stated at fair value as described in note 15.
Gains and losses arising from changes in fair value are recognised directly in
equity in retained earnings, with the exceptions of impairment losses, the
impact of changes in future cash flows and interest calculated using the
'effective interest rate' method, which are recognised directly in the income
statement. Where the investment is disposed of, or is determined to be impaired,
the cumulative gain or loss previously recognised in equity is included in the
income statement for the period. Given its materiality, this item is being
disclosed separately on the face of the balance sheet.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost
comprises direct materials and, where applicable, direct labour costs and those
overheads, not including any general administrative overheads, that have been
incurred in bringing the inventories to their present location and condition.
Net realisable value represents the estimated net selling price less estimated
total costs of completion of the finished goods.
Land held for development, including land in the course of development until
legal completion of the sale of the asset, is initially recorded at cost.
Where, through deferred purchase credit terms, cost differs from the nominal
amount which will actually be paid in settling the deferred purchase terms
liability, an adjustment is made to the cost of the land, the difference being
charged as a finance cost.
Options purchased in respect of land are capitalised initially at cost. Regular
reviews are completed for impairment in the value of these options, and
provisions made accordingly to reflect loss of value. The impairment reviews
consider the period elapsed since the date of purchase of the option given that
the option contract has not been exercised at the review date. Further, the
impairment reviews consider the remaining life of the option, taking account of
any concerns over whether the remaining time available will allow successful
exercise of the option. The carrying cost of the option at the date of exercise
is included within the cost of land purchased as a result of the option
exercise.
Investments in land without the benefit of planning consent, either through
purchase of freehold land or non refundable deposits paid on land purchase
contracts subject to residential planning consent, are capitalised initially at
cost. Regular reviews are completed for impairment in the value of these
investments, and provision made to reflect any irrecoverable element. The
impairment reviews consider the existing use value of the land and assesses the
likelihood of achieving residential planning consent and the value thereof.
Ground rents are held at an estimate of cost based on a multiple of ground rent
income, with a corresponding credit created against cost of sales, in the year
in which the ground rent first becomes payable by the leasehold purchaser.
Cash and cash equivalents
Cash and cash equivalents comprises cash balances and call deposits. Bank
overdrafts that are repayable on demand and form an integral part of the Group's
cash management are included as a component of cash and cash equivalents for the
purpose of the statement of cash flows.
Bank borrowings
Interest-bearing bank loans and overdrafts are initially recorded at fair value,
net of direct issue costs, and subsequently at amortised cost. Finance charges
are accounted for on an accrual basis to the income statement using the
effective interest method and are added to the carrying amount of the instrument
to the extent that they are not settled in the period in which they arise.
Trade payables
Trade payables on normal terms are not interest bearing and are stated at their
nominal value.
Trade payables on extended terms, particularly in respect of land, are recorded
at their fair value at the date of acquisition of the asset to which they
relate. The discount to nominal value which will be paid in settling the
deferred purchase terms liability is amortised over the period of the credit
term and charged to finance costs using the effective interest rate method.
Provisions
A provision is recognised in the balance sheet when the Group has a present
legal or constructive obligation as a result of a past event, and it is probable
that an outflow of economic benefits will be required to settle the obligation.
If the effect is material, provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current market assessments of
the time value of money and, where appropriate, the risks specific to the
liability.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received,
net of direct issue costs.
Own shares held by ESOP trust
Transactions of the Group-sponsored ESOP trust are included in the Group
financial statements. In particular, the trust's purchases of shares in the
Company are debited directly to equity through an own shares held reserve.
Employee benefits
The Group accounts for pensions and similar benefits under IAS 19 (Revised):
"Employee benefits". In respect of defined benefit schemes, the net obligation
is calculated by estimating the amount of future benefit that employees have
earned in return for their service in the current and prior periods, such
benefits measured at discounted present value, less the fair value of the scheme
assets. The discount rate used to discount the benefits accrued is the yield at
the balance sheet date on AA credit rated bonds that have maturity dates
approximating to the terms of the Group's obligations. The calculation is
performed by a qualified actuary using the projected unit method. The operating
and financing costs of such plans are recognised separately in the income
statement; service costs are spread systematically over the lives of employees
and financing costs are recognised in the periods in which they arise. All
actuarial gains and losses are recognised immediately in the statement of
recognised income and expense.
Payments to defined contribution schemes are charged as an expense as they fall
due.
Share-based payments
The Group has applied the requirements of IFRS2: "Share-based payments". In
accordance with the transitional provisions of IFRS1, IFRS2 has been applied to
all grants of equity instruments after 7 November 2002 that were unvested as of
1 January 2005.
The Group issues equity-settled share-based payments to certain employees in the
form of share options over shares in the Parent Company. Equity-settled
share-based payments are measured at fair value at the date of grant calculated
using an independent option valuation model, taking into account the terms and
conditions upon which the options were granted. The fair value is expensed on a
straight line basis over the vesting period, based on the Group's estimate of
shares that will eventually vest, with a corresponding credit to equity.
Segment reporting
As the Group's main operation is that of a housebuilder and it operates entirely
within the United Kingdom, there are no separate segments, either business or
geographic, to disclose, having taken into account the aggregation testing
provisions of IFRS8.
Exceptional items
Items that are both material in size and unusual or infrequent in nature are
presented as exceptional items in the income statement. The Directors are of the
opinion that the separate recording of exceptional items provides helpful
information about the Group's underlying business performance. Examples of
events that, inter alia, may give rise to the classification of items as
exceptional are the restructuring of existing and newly-acquired businesses,
gains or losses on the disposal of businesses or individual assets and asset
impairments, including currently developable land, work in progress and
goodwill.
Restructuring costs
Restructuring costs are recognised in the income statement when the Group has a
detailed plan that has been communicated to the affected parties. A liability is
accrued for unpaid restructuring costs.
Impact of standards and interpretations in issue but not yet effective
A number of new standard, amendments to standards and interpretations are not
yet effective for the year ended 31 December 2009, and have not been applied in
preparing these consolidated financial statements. None of these are expected to
have an effect on the consolidated financial statements of the Group. Comments
on specific new standards or amendments are as follows:
Amendment to IAS39 'Financial instruments'. This standard is amended such that
gains or losses on a hedged instrument should be reclassified from equity to
profit or loss during the period that the hedged forecast cash flows affect
profit or loss. As the Group's current hedged instruments are currently
ineffective, movements are currently taken through the income statement so this
will have no practical impact. This amendment will apply to the Group from the
accounting period commencing 1 January 2010.
Comprehensive revision to IFRS3 'Business combinations'. This revision will have
no impact on implementation although it will alter the accounting treatment for
future potential acquisitions. This revision will apply to the Group from the
accounting period commencing 1 January 2010.
IFRIC15 'Agreements for the construction of real estate'. IFRIC15 provides
guidance on whether the construction of real estate should be accounted for
under IAS11 or IAS18. The Group already accounts for the construction of real
estate in accordance with IFRIC15 and accordingly this interpretation which is
effective from 1 January 2010 will have no impact upon the Group.
The Group has not early adopted any standard, amendment or interpretation.
5. Exceptional items
Inventory carrying value
The Group has reviewed the carrying value of its inventory items, comparing the
carrying cost of the asset against estimates of net realisable value. Net
realisable value has been arrived at using the Board's estimates of achievable
selling prices taking into account current market conditions, and after
deduction of an appropriate amount for selling costs. This has given rise in
the second half to an GBP11.6 million release of previously taken provision:
this release comprised a gross release of GBP14.0 million and a further
provision of GBP2.4 million. Taken together with the GBP8.9 million provision
taken in the first half, the net inventory provision release for the year as a
whole was GBP2.7 million (2008: GBP75.2 million provision taken).
Financing charge
Following the credit approval of a new banking facility in December 2009
followed by the entering into of that agreement during January 2010, the Group
has written off the GBP4.2 million remaining un-amortised element of the one-off
and other capitalised transaction fees in relation to the facility agreement
entered into in December 2008 (2008: GBPnil).
Other exceptional items
The Group has taken a GBP0.2 million impairment charge relating to
available-for-sale assets (2008: GBP1.2 million) and a GBP1.0 million provision
for a potential onerous land contract (2008: GBPnil).
Other items in 2008 included a GBP10.0 million goodwill write-off, a GBP1.0
million fixed asset impairment and a GBP5.7 million restructuring charge.
Total exceptional charges for 2009 are GBP2.7 million (2008: GBP93.1 million).
6. Reconciliation of net cash flow to net debt
+------------------------------------+--+--+---------------+-+----------+-+
| | | | 2009 | | 2008 | |
+------------------------------------+--+--+---------------+-+----------+-+
| | | | GBP000 | | GBP000 | |
+------------------------------------+--+--+---------------+-+----------+-+
| | | | | | | |
+------------------------------------+--+--+---------------+-+----------+-+
| Net increase in net cash and cash | | | 102,961 | | 14,876 | |
| equivalents | | | | | | |
+------------------------------------+--+--+---------------+-+----------+-+
| Repayment/(drawdown) of borrowings | | | 118,000 | | (70,730 | )|
+------------------------------------+--+--+---------------+-+----------+-+
| Fair value adjustments to interest | | | (337) | | - | |
| rate swaps | | | | | | |
+------------------------------------+--+--+---------------+-+----------+-+
| Movement in financing prepayment | | | (8,270 | )| - | |
+------------------------------------+--+--+---------------+-+----------+-+
| Net debt at start of period | | | (100,096 | )| (44,242 | )|
+------------------------------------+--+--+---------------+-+----------+-+
| Net cash/(debt) at end of period | | | 112,258 | | (100,096 | )|
+------------------------------------+--+--+---------------+-+----------+-+
| | | | | | | |
+------------------------------------+--+--+---------------+-+----------+-+
| Analysis of net cash/(debt): | | | | | | |
+------------------------------------+--+--+---------------+-+----------+-+
| Cash and cash equivalents | | | 114,595 | | 11,634 | |
+------------------------------------+--+--+---------------+-+----------+-+
| Unsecured bank and other loans | | | (2,000 | )| (120,000 | )|
+------------------------------------+--+--+---------------+-+----------+-+
| Fair value of interest rate swaps | | | (337 | )| - | |
+------------------------------------+--+--+---------------+-+----------+-+
| Issue Costs | | | - | | 8,270 | |
+------------------------------------+--+--+---------------+-+----------+-+
| Net cash/(debt) | | | 112,258 | | (100,096 | )|
+------------------------------------+--+--+---------------+-+----------+-+
7. Income taxes
Current tax
Current tax is the expected tax payable or receivable on the taxable income or
loss for the year, calculated using a corporation tax rate of 28.0% applied to
the pre-tax income or loss, adjusted to take account of deferred taxation
movements and any adjustments to tax payable for previous years. Current tax
receivable for current and prior years is classified as a current asset.
8. Dividends
The following dividends were paid by the Group.
+----------------------------------------+---+-----+----------+--+----------+
| | | | | | |
| | | | 2009 | | 2008 |
+----------------------------------------+---+-----+----------+--+----------+
| | | | GBP000 | | GBP000 |
+----------------------------------------+---+-----+----------+--+----------+
| | | | | | |
+----------------------------------------+---+-----+----------+--+----------+
| Prior year final dividend per share of | | | - | | 21,031 |
| nil (2008: 17.5p) | | | | | |
+----------------------------------------+---+-----+----------+--+----------+
| Current year interim dividend per | | | - | | 6,018 |
| share of nil (2008: 5.0p) | | | | | |
+----------------------------------------+---+-----+----------+--+----------+
| Dividend cost | | | - | | 27,049 |
+----------------------------------------+---+-----+----------+--+----------+
The Board has decided not to propose a final dividend in respect of 2009.
9. Earnings or Loss per share
Basic earnings per ordinary share before exceptional items for the year ended 31
December 2009 is calculated on pre-exceptional profit after tax of GBP5,453,000
(year ended 31 December 2008 profit: GBP11,075,000) over the weighted average of
124,179,686 (year ended 31 December 2008: 120,268,986) ordinary shares in issue
during the period.
Basic loss per ordinary share on exceptional items for
the year ended 31 December 2009 is calculated on an exceptional loss after tax
of GBP1,963,000 for 2009 (year ended 31 December 2008 loss: GBP70,070,000) over
the weighted average of 124,179,686 (year ended 31 December 2008: 120,268,986)
ordinary shares in issue during the period.
Basic earnings per ordinary
share for the year ended 31 December 2009 is calculated on profit after tax of
GBP3,490,000 (year ended 31 December 2008 loss: GBP58,995,000) over the weighted
average of 124,179,686 (year ended 31 December 2008: 120,268,986) ordinary
shares in issue during the period.
Diluted earnings per ordinary share before exceptional items for the year ended
31 December 2009 is calculated on pre-exceptional profit after tax of
GBP5,453,000 (year ended 31 December 2008 profit: GBP11,075,000) expressed over
the diluted weighted average of 124,203,192 (year ended 31 December 2008:
120,314,451) ordinary shares potentially in issue during the period.
Diluted loss per ordinary share on exceptional items for the year ended 31
December 2009 is calculated on an exceptional loss after tax of GBP1,963,000
(year ended 31 December 2008 loss: GBP70,070,000) expressed over the weighted
average of 124,179,686 ordinary shares in issue during the period (year ended 31
December 2008: 120,268,986).
Diluted earnings per ordinary share for the year ended 31 December 2009 is
calculated on profit after tax of GBP3,490,000 (year ended 31 December 2008
loss: GBP58,995,000) expressed over the diluted weighted average of 124,203,192
ordinary shares potentially in issue during the period (year ended 31 December
2008: 120,268,986).
The average number of shares is diluted in reference to the average number of
potential ordinary shares held under option during the period. This dilutive
effect amounts to the number of ordinary shares which would be purchased using
the aggregate difference in value between the market value of shares and the
share option exercise price. The market value of shares has been calculated
using the average ordinary share price during the period. Only share options
which have met their cumulative performance criteria have been included in the
dilution calculation. A loss per share cannot be further reduced through
dilution.
In a manner consistent with IAS33, the Group has reviewed the
impact of its equity placing in September 2009 on its prior year earnings per
share disclosures. As the impact is immaterial, no prior year restatement has
occurred.
10. Related Party transactions
Transactions between fellow subsidiaries, which are related parties, have been
eliminated on consolidation, as have transactions between the Company and its
subsidiaries during this period.
Transactions between the Group, Company
and key management personnel in the year ending 31 December 2009 were limited to
those relating to remuneration, which are disclosed in the Report on directors'
remuneration which can be found in the full Report and Accounts available from
the Group's website.
Mr Malcolm Harris, a Group Director, is a non-executive Director of the National
House Builders Council (NHBC), and the House Builders Federation. The Group
trades in the normal course of business, on an arms-length basis, with the NHBC
for provision of a number of building-related services, most materially for
provision of warranties on new homes sold and for performance bonding on
infrastructure obligations. The Group pays subscription fees and fees for
research as required to the House Builders Federation.
Total net payments
were as follows:
+---------------------------+----------+-+----------+-+----------+--+
| | | | Year | | Year | |
| | | | ended | | ended | |
+---------------------------+----------+-+----------+-+----------+--+
| | | | 31 | | 31 | |
| | | | December | | December | |
| | | | 2009 | | 2008 | |
+---------------------------+----------+-+----------+-+----------+--+
| | | | GBP000 | | GBP000 | |
+---------------------------+----------+-+----------+-+----------+--+
| | | | | | | |
+---------------------------+----------+-+----------+-+----------+--+
| NHBC | | | 724 | | 1,258 | |
+---------------------------+----------+-+----------+-+----------+--+
| HBF | | | 78 | | 92 | |
+---------------------------+----------+-+----------+-+----------+--+
There have been no related party transactions in the current financial year
which have materially affected the financial performance or position of the
Group, and which have not been disclosed.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR IBMLTMBTMMIM
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