Annual Financial Report
Bovis Homes Group PLC - Annual Report and Accounts 2013
Annual Report and Accounts 2013, Notice of Annual General Meeting, Proxy Card
Copies of the above documents have been submitted to the National Storage Mechanism and will shortly be available for inspection at www.hemscott.com/nsm.do
The documents are being mailed to shareholders and are available on the Company's website at www.bovishomesgroup.co.uk/annualreport2013
Annual Report and Accounts 2013 - publication required by DTR 6.3.5
The Company published its Preliminary Results for the year ended 31 December 2013 on 24 February 2014. In order to comply with DTR 6.3.5 it is now publishing, in unedited full text, information contained in the annual financial report of a type required to be disseminated in a half-yearly financial report. To maintain coherence, this repeats some of the information contained in the Preliminary Results announcement.
The full annual financial report is available on the Company's website at www.bovishomesgroup.co.uk/annualreport2013
Bovis Homes Group PLC - Annual Report and Financial Statements 2013
Chairman's statement
The economic backdrop has shown signs of improvement over the last year and this has been reflected in a recovery in the UK housing market. The availability of mortgage finance is increasing in terms of the number of mortgages being approved, and the rates being charged on these mortgages are increasingly competitive. Although indices report that UK house prices increased strongly in 2013, after excluding the effects of London, house price rises are considered to have been modest across the country. However, the Government has also provided positive assistance, particularly through the Help to Buy scheme. As a result of these factors, consumer confidence has improved.
With this improving backdrop, the management team at Bovis Homes has produced a strong set of results in 2013, delivering the targeted improvements in return on capital employed. The Group is increasingly benefiting from the compound positive effects of stronger volumes, higher average sales price and improving profit margins, driving profits and return on capital employed higher. The Group has also set the foundations for ongoing growth through its carefully targeted land acquisition strategy, continued product development and focus on balance sheet strength.
Financial performance
The Group delivered a strong increase in the return on capital employed by 2.7 ppts to 10.4% in 2013 with both profit margins and capital turn contributing to this improvement. The Group continues to be well capitalised with a strong balance sheet with net debt at the end of 2013 of £18 million.
Earnings per share and dividends
Basic earnings per share for the year have grown by 49% to 44.9p. Consistent with the intention to increase dividends progressively as earnings per share increase, the Board will be recommending a final dividend of 9.5p per share, which, when combined with the 2013 interim dividend of 4.0p, totals 13.5p for the year, an increase of 50% on the 2012 dividend. The final dividend will be payable on 23 May 2014 to shareholders on the register on 28 March 2014. It is the Board's intention to continue to pursue this progressive dividend approach.
Future prospects
While delivering a strong profit result in 2013, the Group has built a significantly improved forward sales position at the start of 2014, which underpins volume growth for this year. With another year of carefully targeted but assertive land investment in 2013 ahead of utilisation and a strong land pipeline going into 2014, sales outlets are expected to grow during 2014 and 2015, supporting further growth in reservation volumes. Assuming current market conditions continue, the location of these new sales outlets and the nature of the homes being developed is expected to further increase the Group's average sales price and improve profit margins. Together with a continued focus on balance sheet efficiency, this is expected to deliver further strong growth in both capital turn, profitability, and ultimately shareholder returns.
People
The Board of directors has been delighted with the commitment and skill shown by the Group's employees in delivering growth during 2013 and, on behalf of the Board, I would like to thank them for their dedication and hard work. The Board would also like to extend its thanks to its subcontractors and suppliers.
Corporate governance
Bovis Homes is committed to high standards of corporate governance, including those related to the role and effectiveness of the Board and compliance with the UK Corporate Governance Code. Details are set out in the corporate governance section on pages 33 to 41 of the annual report.
Corporate social responsibility
The Group remains committed to delivering strong Corporate Social Responsibility performance. During 2013, the Group was able to maintain its health and safety track record, as measured by incidence rate, notwithstanding a significant increase in build activity. In respect of customer satisfaction, 93% of customers were happy to recommend Bovis Homes to their friends. Focus remains high in the Group to make further improvements in both of these important areas, as part of the overall Corporate Social Responsibility strategy.
Conclusion
Looking ahead, I believe that the Group has the right strategy in place to deliver enhanced, sustainable shareholder returns in the years ahead and I look forward to working with the Board and executive team to continue the Group's success.
Ian Tyler
Chairman
Chief Executive's Statement
The Group has continued to acquire high quality land assets in the south of England and in prime locations in the midlands and northwest, where it is considered the housing market will be more robust. As a result, the Group has grown active sales outlets, leading to higher volumes. With an increasing proportion of legal completions from post downturn sites, average sales price and profit margins have improved.
Furthermore through an improvement in the efficiency of capital employed by active management of the land bank and work in progress, the Group has increased its capital turn. The combination of improved profitability and increased capital turn has delivered a strong improvement in the Group's return on capital employed.
Bovis Homes aims to be a quality housebuilder delivering high returns generated from a strong land bank, much of it strategically sourced, and quality homes sold at a premium price. In order to deliver improved returns, the following clear strategic objectives for 2013 were set out and have been delivered:
· Increase operating profits
· Enhance future returns through targeted land investment
· Improve efficiency of capital employed
As a result of delivering against these three strategic objectives, the Group has achieved a significant increase in return on capital employed to 10.4% in 2013 from 7.7% in 2012.
Additionally the Group has focussed on the following objectives:
· Deliver strong health, safety and environmental standards
· Deliver a strong customer service experience
Increase operating profits
Operating profit increased in 2013 by 46% to £82.8 million, as a result of the compound positive effect of an increased volume of legal completions sold at a higher average sales price generating a stronger profit margin.
During 2013, the Group achieved 2,773 private reservations, a 48% increase on the 1,873 achieved in 2012. Net private sales per site per week increased by 34% to 0.59 (2012: 0.44), as a result of the improving quality of the Group's active sales outlets and the benefit of a recovering housing market. Active sales outlets averaged 90 during 2013, an increase of 10% on the 82 achieved during 2012.
One effect of the positive sales rate was that some sites were completed more quickly than expected. Also certain sites were launched later than anticipated due to planning delays. These two factors led to the Group achieving a marginally lower average number of active sales outlets than had been expected at the start of 2013.
The higher level of private reservations enabled the Group to deliver a 26% increase in private legal completions to 2,330 (2012: 1,854), as well as carrying forward a significantly enhanced private forward order book of 692 private reservations, up from 249 at the beginning of 2013. This improved forward order book will support the Group's volume ambitions for 2014 and enable the Group to deliver a more balanced profile of legal completions through the year, with an increased proportion of its full year legal completions in the first half. Additionally, this will assist in improving the working capital cycle of the Group through the year.
During 2013, the Group supported new customers accessing the housing market using the Government's Help to Buy shared equity scheme. In the year new homes were handed over to 872 customers who were able to use shared equity products, including the Help to Buy scheme, as part of their home purchase. During 2012, shared equity products (including Government backed schemes) were used to support customers buying 535 new homes. The Group sees the Help to Buy scheme as an attractive replacement for other shared equity products.
483 social homes were legally completed in 2013 (2012: 501), constituting 17% of total legal completions (2012: 21%). The Group decided to prioritise private build over social, particularly during Q4 2013, to ensure that private production was not constrained by tightness in the supply of sub-contract labour or materials lead times. At the beginning of 2014 the Group held 685 forward social reservations (2013: 529).
In aggregate the Group delivered 2,813 legal completions in 2013, a 19% increase on the 2,355 in 2012. To support this significant increase in new home delivery, the Group increased its construction output in 2013 by 26% to 2,935 homes (2012: 2,322).
The Group achieved a 13% increase in private average sales price to £212,700 in 2013 (2012: £188,700). This has been driven primarily by changes in the Group's product mix of private legal completions with an increase in larger traditional two storey homes and a decrease in townhouses. The Group considers that in its areas of operation sales prices have increased by between 2% and 3% with stronger gains in the south of England offset by modest movements in the midlands and north of England. Including social homes, the Group's average sales price was 14% higher at £195,100 (2012: £170,700).
Housing gross margin increased from 22.6% in 2012 to 23.5% in 2013, resulting from the increased contribution from legal completions on stronger margin sites acquired post the housing market downturn. This margin progression was impacted by the planned incremental year on year cost of circa £3.5 million to promote strategic land assets.
The housing gross margin was also affected for the first time in many years by increases in build costs, mainly from labour rates. Increased activity in the new homes market has led to demand for subcontract labour exceeding supply. As a result, subcontractors have seen the ability to renegotiate at higher rates. Given the timing of such increases, the Group has been able to limit the cost impact well within the benefit from increasing sales prices.
As a result of the compound positive effect of volume growth, higher average sales price and improved gross profit margin, housing gross profit increased by 41% to £130.2 million (2012: £92.1 million). With overheads well controlled, the operating margin increased to 14.9% (2012*: 13.3%).
Enhance future returns through targeted land investment
The Group applies rigorous criteria for the acquisition of consented land, reflecting not only the anticipated margin and return on capital, but also site specific risks and geographic concentration risk.
2013 was a successful year for land investment. The Group continued to invest in high quality consented land assets, retaining its focus on specific areas of search in the south of England and prime locations in the midlands and northwest. During the year the Group added 3,737 plots on 27 sites to the consented land bank at a cost of £225 million (2012: 2,651 consented plots at a cost of £161 million). The plots added have an estimated future revenue of £841 million and an estimated future gross profit potential of £216 million, based on current sales prices and current build costs, and are expected to deliver a gross margin of over 25% and a ROCE well in excess of the Group's 20% hurdle rate. A further circa 2,800 plots on 12 sites were contracted at the end of 2013, awaiting satisfaction of legal conditions.
In 2014 to date, circa 2,300 consented plots on nine sites have been added to the consented land bank, many of these plots arising from the successful completion of the contracts secured during 2013. Included in the sites added to date in 2014 is a major new settlement at Sherford in Devon, where the Group owns 1,658 consented plots. The land cost of this site is very low, due to the high level of infrastructure spend which is phased over the life of the site. As a result, the peak funding on this long term major project is expected to be between 1% and 2% of the Group's net assets. Sherford will be an anchor site within the South West region over many years and is expected to deliver a strong margin and an excellent return on capital employed.
The consented land bank amounted to 14,638 plots as at 31 December 2013 (2012: 13,776). The Group estimates that the gross profit potential on these consented plots at the 2013 year end, based on current sales prices and current build costs, was £727 million with a gross margin of 24.2% (2012: £600 million at 22.7%).
At the year end, the consented land bank included 9,197 consented plots (63% of total), which have been acquired since the housing market downturn (2012: 7,368 plots and 54% of total). The average consented land plot cost was £45,800 at the start of 2013 and increased over the year to £48,900, as a result of a lower number of written down plots held in the land bank (10% of land plots versus 13% at the start of the year) and the addition of new prime traditional housing sites where the average plot cost is higher.
The strategic land bank at 31 December 2013 contained 20,108 potential plots (2012: 19,318). The Group converted circa 1,200 plots of strategic land having achieved consent during 2013. The Group has continued to invest in new strategic land assets to assist in replenishing its consented land bank at strong margins in the future.
In addition, the Group has secured resolution to grant planning consent on three of its major strategic land assets at Winnersh, Witney and Bishops Stortford. These sites will deliver in aggregate over 1,200 consented plots at a significant discount to market value. Planning consents will be formally released once the planning agreements for each site are signed. Good progress continues to be made on a number of other major strategic projects, where material promotion costs are being incurred to achieve planning consents. This is expected to deliver significant numbers of consented plots over the next few years.
Improve efficiency of capital employed
Improving capital turn is critical to the Group's ability to deliver material growth in return on capital employed. Capital turn has continued to improve from 0.5 in 2011 to 0.7 in 2013. The consented land bank is the key element of capital employed. While this has grown in size with the investments made by the Group, the average number of plots per active sales outlet has continued to decrease from 188 in 2011 to 158 in 2013. The average number of plots per site acquired in 2013 was 138 plots, compared to 147 in 2012.
Work in progress turn increased to 2.7 times in 2013 from 2.5 in 2012. Notional units of production at the end of 2013 increased to 1,040 (2012: 918), as a result of the increase in active sales outlets and to facilitate higher legal completion volumes in the first half of 2014 over the first half of 2013. The value of work in progress has increased to £202.3 million from £172.7 million.
With the land investment undertaken to date and the strength of the ongoing land pipeline, the output capacity of the business is expected to increase. On the basis of current market conditions, capital turn should improve further in 2014 and beyond.
Deliver strong health, safety and environmental standards
The Group is committed to delivering strong health and safety standards for its employees, subcontractors and other site visitors. It maintains a high level of organisational focus on its health and safety regime through comprehensive staff training, clear and accountable management processes and through regular and transparent reporting of performance.
This is overseen, firstly, through the operational line, which takes day to day accountability for this area and, secondly, via a Group-wide oversight committee with nominated regional directors responsible for safety, run by the Group Director of Health and Safety and chaired by a senior Group manager. 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.
As the Group increased its build activity by 26% during 2013, the health and safety risk incidence rate across the business was maintained positively at 22.4 (2012: 23.1), the lower rate meaning stronger performance. This reflects a robust performance given the magnitude of the increase in employee numbers and subcontractor population during the year.
The Group set itself challenging targets at the start of 2013 with the ambition to further reduce health and safety risk incidence over a five year period. Disappointingly, the performance of the Group in the first year of this five year period was behind target. The Group continues to develop its health and safety processes and controls with the aim of improving performance in line with the targets set for 2014. Health and safety will remain a key focus for regional, divisional and Group management.
The Group continues to regard sustainable development as critical to the long term creation of value for its shareholders. The housebuilding industry has an important role to play both in mitigating the impact of its building activities on the local environment and in the evolution of building techniques and advances, which reduce the carbon usage from new build developments.
During 2013, the Group has continued to focus on waste in order to drive down the quantity of waste produced in building a home. The quantity of active waste generated per home in 2013 remained at 3.1 tonnes and the amount sent to landfill was reduced by 12%.
The Group works with a range of external stakeholders to agree and carry out development in a mutually acceptable manner, thereby ensuring that its developments take place in a way which mitigates the impact on the local environment, thereby balancing the needs of local communities for new housing with the requirement to avoid environmental damage.
Looking forward, the Group is focusing on ways to ensure that its products conform to good environmental standards, including the Code for Sustainable Homes. During 2013, 1,036 of the Group's homes were constructed to at least Code 3 of 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 pleased to report that it continues to be a member of the FTSE4Good index.
Given the nature of our business, scope of operations in the UK, business relationships, supply chains and labour practices we have not included information specifically about human rights in this report. We have an Ethical Code of Conduct and an Equal Opportunities policy which recognise the importance of high standards and treating our employees fairly. All policies can be found on the Company's website at www.bovishomesgroup.co.uk.
Further details of the Group's efforts and achievements during 2013 in regards to Corporate Social Responsibility will be published in a separate report, available from the Company's website (www.bovishomesgroup.co.uk).
Deliver a strong customer service experience for Bovis Homes customers
The Group is focused on delivering its customers a high quality home alongside a good level of service through the period the customer is buying the home and thereafter as the customer enjoys their new home. During 2013, 93% of customers reported that they would recommend Bovis Homes to a friend and this was reinforced by the award during February 2013 of a five star customer satisfaction rating by the Home Builder Federation. During the course of 2013, the Group's score in the Home Builder Federation customer satisfaction survey has dropped marginally below the 90% benchmark for the five star rating at 89%.
Whilst remaining a robust customer satisfaction score, the Group was disappointed to see this deterioration in its external customer satisfaction rating and the gap which has opened between this external score and the customers' response to the Group's internal customer satisfaction survey. The Group has reinforced its Customer Journey processes across the business with the view to improving its customer satisfaction performance.
The focus of the Group's customer communication has remained digitally based during 2013, 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 Rightmove and Zoopla. Over 70% of customer enquires originate via the web.
IT connectivity is provided to the sales operations, enabling efficient and effective customer communication and the utilisation of an integrated CRM system. The selling process is supported by the Group's bespoke prospect management system, which delivers on-site technology whilst integrating the Group's prospect database with brochure fulfilment.
Employee diversity
The following table shows the gender split within the Group as at 31 December 2013. At Bovis Homes, 65% of the workforce is male, a relatively common proportion in the construction and housebuilding industries. While a lower proportion of senior management and directors are female, the Group encourages and supports gender diversity. As at 31 December 2013, there were five senior managers (all male) who were directors of Group subsidiaries.
Male Female
PLC Directors 6 0
Senior Managers 15 1
All employees 496 270
% 65% 35%
Structure
In anticipation of increasing activity levels in 2014 and beyond, the Group is now operating from six regions in two divisions with plans for two further regions to become operational in the foreseeable future (previously the Group operated through a three region structure). This new structure will provide the Group with a business capacity of between 4,000 and 5,000 homes per annum, whilst maintaining close alignment to the localities in which it operates with significant local knowledge. The geographical focus of the Group remains exactly as before, being in the south of England and in prime locations in the midlands and northwest. Although this change will lead to a limited increase in the Group's overhead expenditure in absolute terms, overhead efficiency is expected to continue to improve in 2014 and beyond.
The two divisions, South and Central, are led by Divisional Managing Directors, Malcolm Pink and Keith Carnegie respectively. The strength and experience of the Group's existing senior management is demonstrated by six of the eight regional managing directors being internal appointments.
The Board
Colin Holmes has decided to retire from the Board at the 2014 Annual General Meeting to be held on 16 May 2014 after seven and a half years as a non-executive director and seven years as Remuneration Committee chairman. The Board would like to thank Colin for his valuable contribution during his time on the Board. Alastair Lyons will succeed as Remuneration Committee chairman following the AGM.
Market conditions
Housing market conditions improved materially during 2013. An increase in the number of mortgage products including a greater availability of high loan to value mortgages has supported a greater number of housing transactions. Bank of England mortgage approvals statistics show a significant increase during the second half of 2013 with monthly figures approaching a level more reflective of a healthy housing market.
Homebuyer confidence appears to have improved materially with more positive views on the future direction of house prices, employment and security of earnings. With this improving backdrop, trading conditions are expected to remain broadly positive during 2014, supporting sales rates and sales prices.
House prices have been rising at a modest rate across many regional markets with stronger rises in the south of England, offset by more modest changes in the midlands and north of England. As expected, with activity and sales prices rising, the cost of building houses is also rising as material suppliers enjoy increased demand for their products and subcontractors see an ability to increase rates.
The Government's Help to Buy shared equity product, launched in April 2013, has provided strong impetus to the new build industry, supporting first time buyers in particular. The Help to Buy mortgage indemnity product was also launched in Q4 2013 and, given it assists not just new build customers, the Group considers this Government backed product to be further support to activity in the wider housing market.
As a result of the positive activity in the housing market, the support provided to banks to facilitate cost effective mortgage lending via the Government's Funding for Lending Scheme is being withdrawn. The Group views this development positively, as it signals that the mortgage market is beginning to operate more effectively without assistance.
Current trading
The Group entered 2014 with a forward sales order position of 1,377 homes, a 77% improvement on the 778 homes brought forward at the start of 2013. Of these, 692 were private homes (2013: 249) and 685 were social (2013: 529).
The Group has delivered 468 private reservations in the first seven weeks of 2014 (2013: 285), an increase of 64%. Operating from an average of 93 active sales outlets during this period (2013: 90), the Group has achieved a sales rate per site per week of 0.72, a 60% improvement on the 0.45 achieved in the comparable period in 2013. Sales prices achieved on these private reservations to date have been ahead of the Group's expectations by circa 2%.
As at 21 February 2014, the Group held 1,875 sales for legal completion in 2014, as compared to 1,064 sales at the same point in 2013, an increase of 76%. Of these, private sales amounted to 1,160 homes (2013: 534), with social housing sales of 715 homes (2013: 530).
Build to Rent scheme - private rental sector
In 2012, the Government announced its Build to Rent scheme, with the intention of providing funding support to assist in the establishment of PRS vehicles. Whilst not yet contracted, the Group has agreed terms and is at an advanced stage in finalising agreements to deliver new homes under two separate PRS transactions on sites owned by the Group, each using support from the Government's scheme.
The two transactions involve approximately 500 homes, of which circa 250 would legally complete in 2014 with the remainder in 2015. The profit delivery combined with the acceleration of capital turn enabled by these transactions would act as a further positive contributor to increasing the Group's return on capital employed in both 2014 and 2015.
Outlook
The successful continued execution of the growth strategy in 2013 has positioned the Group strongly to continue to grow in 2014 and beyond.
The sales achieved in 2014 to date combined with the expected growth in active sales outlets should enable the Group to deliver a strong increase in total reservations during 2014, assuming current market conditions continue. From these reservations excluding any potential volume arising from the PRS transactions (250 homes in 2014), the Group aims to deliver between 3,400 and 3,600 legal completions in 2014 and a stronger forward order book for 2015.
This legal completion volume will represent major growth in the Group's output and will require a material increase in build activity compared to 2013. During a period of constrained capacity in the material and labour supply markets, build costs for 2014 legal completions are expected to increase by between 3% and 5%. However with a continuing tight focus on the Group's operational performance, market rises in sales prices are expected to at least cover such cost increases.
The Group expects further growth in the proportion of legal completions from post downturn sites to increase both the average sales price and housing gross margin in 2014. When combined with improving overhead efficiency, the operating margin is expected to increase to approximately 17%.
With a clear focus on controlling the capital employed of the Group through management of the land bank and control of working capital, improving capital turn is expected to be at least 0.8 in 2014. Based on current market conditions continuing and excluding any potential volume arising for the PRS transactions, the Group expects to deliver a strong increase in return on capital employed to at least 14% in 2014 with the expectation of further progress thereafter.
David Ritchie
Chief Executive
Financial Review
Revenue
During 2013, the Group generated total revenue of £556.0 million, an increase of 31% on the previous year (2012: £425.5 million). Housing revenue in 2013 was £548.7 million, 36% ahead of the prior year (2012: £402.0 million) and other income was £4.3 million (2012: £5.7 million). Land sales revenue, associated with one land sale and the recognition of deferred income on land sales legally completed in prior years, was £3 million in 2013, compared to three land sales achieved in 2012 with a total revenue of £17.8 million.
Operating profit
The Group delivered a 46% increase in operating profit for the year ended 31 December 2013 to £82.8 million (2012*: £56.7 million) at an operating margin of 14.9% (2012*: 13.3%). Housing operating margin in 2013 was 15.0% (2012: 12.7%) and reached 16.8% in the second half of 2013.
Housing gross margin increased to 23.5% in 2013 from 22.6% in 2012. The gross margin benefited from the increased contribution from legal completions on sites acquired post the housing market downturn. As previously disclosed, the Group increased the promotional expenditure on strategic land by circa £3 million in 2013 over 2012, which held back the year on year margin growth. This level of cost incurred in 2013 to promote strategic land is expected to remain relatively stable during 2014.
The profit on land sales in 2013 was £0.1 million (2012 benefited from a material profit of £4.8 million at a margin of 27%). Total gross profit was £130.3 million (gross margin: 23.4%), compared with £96.9 million (gross margin: 22.8%) in 2012.
Overheads, including all sales and marketing costs, increased in 2013 by 18%, as the Group invested early to support the large number of land assets acquired and the increased number of sales outlets. The overheads to revenue ratio improved to 8.5% in 2013 from 9.5% in 2012*.
Profit before tax and earnings per share
Profit before tax increased by 48% to £78.8 million, comprising operating profit of £82.8 million, net financing charges of £4.3 million and a profit from joint ventures of £0.3 million. This compares to £53.2 million of profit before tax in 2012*, comprising £56.7 million of operating profit, £3.7 million of net financing charges and a profit from joint ventures of £0.2 million. Basic earnings per share for the year improved by 49% to 44.9p compared to 30.2p in 2012*.
Financing
Net financing charges during 2013 were £4.3 million (2012*: £3.7 million). Net bank charges were £3.5 million (2012: £2.6 million), as a result of higher net debt during 2013 compared to 2012. The Group incurred a £3.1 million finance charge (2012: £3.1 million charge), reflecting the imputed interest on land bought on deferred terms. The Group also benefited from a finance credit of £2.3 million (2012: £1.7 million) arising from the unwinding of the discount on its available for sale financial assets during 2013. There were £0.3 million of other financing credits during 2012.
Taxation
The Group has recognised a tax charge of £18.7 million at an effective tax rate of 23.7% (2012*: tax charge of £13.1 million at an effective rate of 24.5%). The Group has a current tax liability of £9.2 million in its balance sheet as at 31 December 2013 (2012*: current tax liability of £5.7 million).
Dividends
Given the ongoing material improvement in the Group's performance and the confidence of the Board in the continued delivery of the Group's strategy, the Board has proposed a 2013 final dividend of 9.5p per share. This dividend will be paid on 23 May 2014 to holders of ordinary shares on the register at the close of business on 28 March 2014. The dividend reinvestment plan gives shareholders the opportunity to reinvest their dividends in ordinary shares.
Combined with the interim dividend paid of 4.0p, the dividend for the full year totals 13.5p compared to a total of 9.0p paid in 2012, an increase of 50%. The Board expects to grow dividends progressively as earnings per share increase.
Net assets
|
|
|
2013 |
|
2012* |
|
|||
|
|
|
£m |
|
£m |
|
|||
|
Net assets at 1 January |
|
|
|
|
758.8 |
|
728.6 |
|
|
Profit after tax for the year |
|
|
|
|
60.1 |
|
40.2 |
|
|
Share capital issued |
|
|
|
|
1.0 |
|
0.6 |
|
|
Net actuarial movement on pension scheme through reserves |
|
|
|
|
2.9 |
|
(2.7 |
) |
|
Deferred tax on other employee benefits |
|
|
|
|
- |
|
(0.1 |
) |
|
Adjustment to reserves for share based payments |
|
|
|
|
0.8 |
|
0.9 |
|
|
Dividends paid to shareholders |
|
|
|
|
(13.3 |
) |
(8.7 |
) |
|
Net assets at 31 December |
|
|
|
|
810.3 |
|
758.8 |
|
*Adjusted for IAS19R
As at 31 December 2013 net assets of £810.3 million were £51.5 million higher than at the start of the year. Inventories increased during the year by £107.4 million to £971.0 million. The value of residential land, the key component of inventories, increased by £84.2 million, as the Group invested ahead of usage. At the end of 2013, the remaining provision held against land carried at net realisable value was £19.9 million, after utilisation of £8.7 million during the year. Other movements in inventories were an increase in work in progress of £29.5 million, offset by a decrease in part exchange properties of £6.3 million.
Trade and other receivables reduced by £23.1 million, with a reduction in debtors related to land sales of £12.7 million and lower amounts owing from housing associations. Available for sale financial assets held as current assets at 2012 year end of £7.2 million, relating to units held in an investment fund into which the Group sold show home properties, were fully recovered during 2013. Trade and other payables totalling £242.6 million (2012: £249.3 million) comprised land creditors of £123.8 million (2012: £123.8 million) and trade and other creditors of £118.8 million (2012: £125.5 million). Net assets per share as at 31 December 2013 were 604p (2012: 567p).
Pensions
Taking into account the latest estimates provided by the Group's actuarial advisors, the Group's pension scheme on an IAS19R basis had a surplus of £3.2 million at 31 December 2013 (2012*: deficit of £3.2 million). Scheme assets grew over the year to £94.7 million from £85.2 million and the scheme liabilities increased to £91.5 million from £88.4 million. Scheme assets benefited from a £2.8 million special cash contribution made by the Group in December 2013.
As at 30 June 2013, an actuarial valuation was undertaken on behalf of the pension scheme trustee, which showed a deficit of £12.8 million at that date. The difference to the IAS19R basis results from more conservative assumptions on discount rate and mortality, as well as the additional special cash contribution of £2.8 million made during December 2013. A new schedule of contributions is in the process of being agreed between the Group and the pension scheme trustee.
Net cash and cash flow
Having started the year with a net cash balance of £18.8 million, the Group generated an operating cash inflow before land expenditure of £204 million (2012: £130 million), demonstrating the strong underlying cash generation from the Group's existing assets. Net cash payments for land investment were £203 million (2012: £139 million). Non-trading cash outflow was £38 million. As at 31 December 2013 the Group's net debt balance was £18.0 million with £12.0 million of cash in hand, offset by a drawn term loan of £25.0 million, £4.8 million of loans received from the Government and £0.2 million being the fair value of an interest rate swap.
At the 31 December 2013, the Group had in place a committed revolving credit facility of £175 million, of which £50 million expires in December 2015 and £125 million in March 2017. Additionally the Group had a fully drawn three year term loan of £25 million, repayable in January 2016.
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 the UK.
With regard 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. The Group does not have a defined policy for interest rate hedging.
Credit risk is largely mitigated by the fact that the Group's sales are generally made on completion of a legal contract at which point monies are received in return for transfer of title. During 2013, the Group made a limited number of sales 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 'FirstBuy' scheme or via the Group's own 'Jumpstart' scheme. This has led to a limited increase in the size of the Group's long term receivable Available for Sale Financial Asset balance which at 31 December 2013 was £44.8 million versus £43.9 million at 31 December 2012.
Whilst this does represent an increase in credit risk in total, each individual credit exposure is small given the high number of counter parties. On average, individual shared equity exposure amounts to £21,000 (2012: £20,000).
Details of the Group's financing arrangements are included above. The Group regards this new facility as adequate in terms of both flexibility and liquidity to cover its medium term cash flow needs.
Financial reporting
The Group has adopted IAS19 (Revised 2011) "Employee Benefits", which outlines the accounting requirements for employee benefits. The application of IAS19 (Revised 2011) has resulted in the interest cost and expected return on assets being replaced by a net interest charge/credit on the net defined benefit pension liability/ surplus. Certain costs previously recorded as part of finance costs or other comprehensive income have now been presented within administrative expenses. The comparative period has been restated with profit being £0.7 million lower and other comprehensive income £0.7 million higher including the tax impact of the changes. The impact on both basic and diluted earnings per share was a reduction of 0.5 pence. The Group records actuarial adjustments immediately so there has been no effect on the prior year pension deficit.
Other than IAS19R, there have been no changes to the Group's accounting policies. These accounting policies will be disclosed in full within the Group's forthcoming financial statements.
Jonathan Hill
Group Finance Director
Statement of directors' responsibilities in respect of the annual report and the financial statements
The directors are responsible for preparing the annual report, the directors' remuneration report and the 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 confirm that they have complied with the above requirements in preparing the financial statements. The directors also confirm that they consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Parent Company's performance, business model and strategy.
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 strategic report, a directors' report, a directors' remuneration report and a 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.
Each of the directors, whose names and functions are listed on page 32 of the annual report confirm that, to the best of their knowledge:
a) the Group and Parent Company financial statements, 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 strategic report includes a fair, balanced and understandable 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.
By Order of the Board
M T D Palmer
Group Company Secretary
21 February 2014
Bovis Homes Group PLC
Group income statement
|
For the year ended 31 December |
|
2013 |
|
2012 restated - note 8 |
|
|
|
|
£000 |
|
£000 |
|
|
|
|
|
|
|
|
|
Revenue |
|
556,000 |
|
425,533 |
|
|
Cost of sales |
|
(425,693 |
) |
(328,634 |
) |
|
Gross profit |
|
130,307 |
|
96,899 |
|
|
Administrative expenses |
|
(47,476 |
) |
(40,186 |
) |
|
Operating profit before financing costs |
|
82,831 |
|
56,713 |
|
|
Financial income |
|
2,815 |
|
2,203 |
|
|
Financial expenses |
|
(7,134 |
) |
(5,926 |
) |
|
Net financing costs |
|
(4,319 |
) |
(3,723 |
) |
|
Share of profit of joint venture |
|
283 |
|
254 |
|
|
Profit before tax |
|
78,795 |
|
53,244 |
|
|
Income tax expense |
|
(18,727 |
) |
(13,051 |
) |
|
Profit for the period attributable to equity holders of the parent |
|
60,068 |
|
40,193 |
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
Basic |
|
44.9 |
p |
30.2p |
|
|
Diluted |
|
44.8 |
p |
30.1p |
|
|
|
|
|
|
|
|
Group statement of comprehensive income
|
For the year ended 31 December |
|
|
2013 |
|
2012 restated - note 8 |
|
|
|
|
|
£000 |
|
£000 |
|
|
|
|
|
|
|
|
|
|
Profit for the period |
60,068 |
|
40,193 |
|
||
|
Other comprehensive income |
|
|
|
|
||
|
Items that will not be reclassified to profit and loss: |
|
|
|
|
||
|
Actuarial gains / (losses) on defined benefit pension scheme |
3,693 |
|
(3,500 |
) |
||
|
Deferred tax on actuarial movements on defined benefit pension scheme |
(748 |
) |
797 |
|
||
|
Total comprehensive income for the period attributable to equity holders of the parent |
63,013 |
|
37,490 |
|
||
Bovis Homes Group PLC
Group balance sheet
|
At 31 December |
|
|
2013 |
|
2012 restated - note 8 |
|
|
|
|
|
£000 |
|
£000 |
|
|
Assets |
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
13,526 |
|
11,910 |
|
|
Investments |
|
|
5,089 |
|
5,387 |
|
|
Restricted cash |
|
|
1,823 |
|
1,152 |
|
|
Deferred tax assets |
|
|
1,451 |
|
2,881 |
|
|
Trade and other receivables |
|
|
1,560 |
|
1,930 |
|
|
Available for sale financial assets |
|
|
44,844 |
|
43,869 |
|
|
Retirement benefit asset |
|
|
3,237 |
|
- |
|
|
Total non-current assets |
|
|
71,530 |
|
67,129 |
|
|
|
|
|
|
|
|
|
|
Inventories |
|
|
971,016 |
|
863,597 |
|
|
Trade and other receivables |
|
|
41,713 |
|
64,844 |
|
|
Available for sale financial assets |
|
|
- |
|
7,119 |
|
|
Cash and cash equivalents |
|
|
12,025 |
|
24,396 |
|
|
Total current assets |
|
|
1,024,754 |
|
959,956 |
|
|
Total assets |
|
|
1,096,284 |
|
1,027,085 |
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
Issued capital |
|
|
67,048 |
|
66,908 |
|
|
Share premium |
|
|
213,428 |
|
212,550 |
|
|
Retained earnings |
|
|
529,786 |
|
479,391 |
|
|
Total equity attributable to equity holders of the parent |
|
|
810,262 |
|
758,849 |
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
Bank and other loans |
|
|
30,064 |
|
5,606 |
|
|
Other financial liabilities |
|
|
- |
|
706 |
|
|
Trade and other payables |
|
|
29,631 |
|
50,681 |
|
|
Retirement benefit obligations |
|
|
- |
|
3,171 |
|
|
Provisions |
|
|
2,052 |
|
1,668 |
|
|
Total non-current liabilities |
|
|
61,747 |
|
61,832 |
|
|
|
|
|
|
|
|
|
|
Trade and other payables |
|
|
212,926 |
|
198,620 |
|
|
Other financial liabilities |
|
|
784 |
|
- |
|
|
Provisions |
|
|
1,411 |
|
2,065 |
|
|
Current tax liabilities |
|
|
9,154 |
|
5,719 |
|
|
Total current liabilities |
|
|
224,275 |
|
206,404 |
|
|
Total liabilities |
|
|
286,022 |
|
268,236 |
|
|
|
|
|
|
|
|
|
|
Total equity and liabilities |
|
|
1,096,284 |
|
1,027,085 |
|
These financial statements were approved by the Board of directors on 21 February 2014.
Bovis Homes Group PLC
Group statement of changes in equity
|
|
Total |
|
Issued |
Share |
Total |
|
|
For the year ended 31 December |
retained earnings |
|
capital |
premium |
|
|
|
|
£000 |
|
£000 |
£000 |
£000 |
|
|
Balance at 1 January 2012 |
449,671 |
|
66,836 |
212,064 |
728,571 |
|
|
Total comprehensive income and expense |
37,490 |
|
- |
- |
37,490 |
|
|
Issue of share capital |
- |
|
72 |
486 |
558 |
|
|
Deferred tax on other employee benefits |
33 |
|
- |
- |
33 |
|
|
Share based payments |
861 |
|
- |
- |
861 |
|
|
Dividends paid to shareholders |
(8,664 |
) |
- |
- |
(8,664 |
) |
|
Balance at 31 December 2012 |
479,391 |
|
66,908 |
212,550 |
758,849 |
|
|
Balance at 1 January 2013 |
479,391 |
|
66,908 |
212,550 |
758,849 |
|
|
Total comprehensive income and expense |
63,013 |
|
- |
- |
63,013 |
|
|
Issue of share capital |
- |
|
140 |
878 |
1,018 |
|
|
Deferred tax on other employee benefits |
(23 |
) |
- |
- |
(23 |
) |
|
Share based payments |
766 |
|
- |
- |
766 |
|
|
Dividends paid to shareholders |
(13,361 |
) |
- |
- |
(13,361 |
) |
|
Balance at 31 December 2013 |
529,786 |
|
67,048 |
213,428 |
810,262 |
|
Bovis Homes Group PLC
Group statement of cash flows
|
For the year ended 31 December |
|
2013 |
|
2012 restated - note 8
|
|
|
|
|
£000 |
|
restated - note 8 £000 |
|
|
|
|
|
|
|
|
|
Cash flows from operating activities |
|
|
|
|
|
|
Profit for the year |
|
60,068 |
|
40,193 |
|
|
Depreciation |
|
1,180 |
|
906 |
|
|
Impairment of available for sale financial assets |
|
(47 |
) |
889 |
|
|
Financial income |
|
(2,815 |
) |
(2,203 |
) |
|
Financial expense |
|
7,134 |
|
5,926 |
|
|
Profit on sale of property, plant and equipment |
|
(24 |
) |
(14 |
) |
|
Equity-settled share-based payment expense |
|
766 |
|
861 |
|
|
Income tax expense |
|
18,727 |
|
13,051 |
|
|
Share of result of joint venture |
|
(283 |
) |
(254 |
) |
|
Decrease / (increase) in trade and other receivables |
|
28,737 |
|
(3,587 |
) |
|
Increase in inventories |
|
(107,419 |
) |
(65,841 |
) |
|
(Decrease) / increase in trade and other payables |
|
(4,911 |
) |
1,093 |
|
|
Decrease in provisions and retirement benefit obligations |
|
(2,845 |
) |
(2,401 |
) |
|
Cash generated from operations |
|
(1,732 |
) |
(11,381 |
) |
|
|
|
|
|
|
|
|
Interest paid |
|
(5,781 |
) |
(1,707 |
) |
|
Income taxes paid |
|
(14,634 |
) |
(9,922 |
) |
|
Net cash from operating activities |
|
(22,147 |
) |
(23,010 |
) |
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
Interest received |
|
269 |
|
773 |
|
|
Acquisition of property, plant and equipment |
|
(2,802 |
) |
(1,213 |
) |
|
Proceeds from sale of plant and equipment |
|
30 |
|
25 |
|
|
Movement in loans with Joint Venture |
|
360 |
|
- |
|
|
Dividends received from Joint Venture |
|
267 |
|
243 |
|
|
Investment in restricted cash |
|
(671 |
) |
(493 |
) |
|
Net cash from investing activities |
|
(2,547 |
) |
(665 |
) |
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
Dividends paid |
|
(13,361 |
) |
(8,664 |
) |
|
Proceeds from the issue of share capital |
|
1,018 |
|
558 |
|
|
Increase in borrowings |
|
24,666 |
|
- |
|
|
Net cash from financing activities |
|
12,323 |
|
(8,106 |
) |
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
(12,371 |
) |
(31,781 |
) |
|
Cash and cash equivalents at 1 January |
|
24,396 |
|
56,177 |
|
|
Cash and cash equivalents at 31 December |
|
12,025 |
|
24,396 |
|
Notes to the financial statements
1 General information
Bovis Homes Group PLC (the "Company") is a company domiciled in the United Kingdom. The consolidated financial statements of the Company for the year ended 31 December 2013 comprise the Company and its subsidiaries (together referred to as the "Group") and the Group's interest in associates and joint ventures.
The financial statements were authorised for issue by the directors on 21 February 2014.
The financial information set out above does not constitute the company's statutory financial statements for the years ended 31 December 2013 or 2012 but is derived from those financial statements. Statutory financial statements for 2012 have been delivered to the registrar of companies, and those for 2013 will be delivered in due course. The auditors have reported on those financial statements; their reports were (i) unmodified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without modifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
2 Basis of accounting
The consolidated financial statements of the Company and the Group have been prepared in accordance with 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 here 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.
The accounting policies set out below have been applied consistently to all relevant periods presented in these consolidated financial statements. The accounting policies have been applied consistently to the Company and the Group where relevant.
The financial statements are prepared on the historical cost basis except for derivative financial instruments and available for sale financial assets.
3 Going concern
The Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future. The Directors reviewed detailed financial and covenant compliance forecasts covering the period to December 2014 and summary financial forecasts for the following two years.
As at 31 December 2013 the Group held cash and cash equivalents of £12.0 million and had total borrowings of £30.1 million. On 29 January 2013 the Group entered into a £125 million committed revolving credit facility expiring in March 2017 and a three year term loan of £25 million expiring in January 2016. This financing arrangement replaced the Group's previous £150 million committed revolving credit facility. During August 2013, the committed revolving credit facility was increased by an additional £50 million, expiring on 31 December 2015. As at 31 December 2013, the full £175 million was available for drawdown.
For these reasons, the Directors consider it appropriate to prepare the financial statements of the Group on a going concern basis.
4 Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.
Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the Group's share of the total recognised gains and losses of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases.
Joint ventures are those entities in which the Group has joint control over the financial and operating policies. The consolidated financial statements include the Group's share of the total recognised gains and losses of joint ventures on an equity accounted basis, from the date that joint control commenced until joint control ceases.
5 Critical accounting judgements and key sources of estimation uncertainty
The preparation of financial statements in conformity with adopted IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Judgements made by management in the application of adopted IFRSs that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed below.
Key sources of estimation uncertainty
Land held for development and housing work in progress
The Group holds inventories which are stated at the lower of cost and net realisable value. To assess the net realisable value of land held for development and housing work in progress, the Group completes a financial appraisal of the likely revenue which will be generated when these inventories are combined as residential properties for sale and sold. Where the financial appraisal demonstrates that the revenue will exceed the costs of the inventories and other associated costs of constructing the residential properties, the inventories are stated at cost. Where the assessed revenue is lower, the extent to which there is a shortfall is written off through the income statement leaving the inventories stated at a realisable value. To the extent that the revenues which can be generated change, or the final cost to complete for the site varies from estimates, the net realisable value of the inventories may be different. A review taking into account estimated achievable net revenues, actual inventory and costs to complete as at 21 February 2014 has been carried out, which has identified no material net movement in the carrying value of the provision. These estimates were made by local management having regard to actual sales prices, together with competitor and marketplace evidence, and were further reviewed by Group management. Should there be a future significant decline in UK house pricing, then further write-downs of land and work in progress may be necessary. Further details on the carrying value of inventories is laid out in note 3.1 of the annual report.
Available for sale financial assets
The estimation of the fair value of available for sale financial assets requires judgement and estimation as to the quantum, timing and value of repayment of the Group's receivable, as well as to the choice of instrument-specific market-assessed interest rate used to determine a discount rate. Note 4.6 of the annual report contains a sensitivity analysis showing the impact of a change in the major judgement factors applied in the valuation of these instruments.
6 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 criteria provisions of IFRS8.
7 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.
8 Impact of standards and interpretations effective for the first time
The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of 1 January 2013:
IFRS13 establishes a single framework for measuring fair value and making disclosures about fair value measurements, when such measurements are required or permitted by other IFRSs. In particular, it unifies the definition of fair value as the price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date. In accordance with the transitional provisions of IFRS13, the Group has applied the new fair value measurement guidance prospectively, and has not provided any comparative information for new disclosures.
IAS19 (Revised 2011) "Employee Benefits" outlines the accounting requirements for employee benefits. The Standard establishes the principle that the cost of providing employee benefits should be recognised in the period in which the benefit is earned by the employee, rather than when it is paid or payable, and outlines how each category of employee benefits are measured, providing detailed guidance in particular about post-employment benefits. This impacts the measurement of various components representing movements in the defined benefit pension obligation and associated disclosures, but not the Group's total obligation.
The application of IAS19 (Revised 2011) has resulted in the interest cost and expected return on assets being replaced by a net interest charge/credit on the net defined benefit pension liability/surplus. Certain costs previously recorded as part of finance costs or other comprehensive income have now been presented within administrative expenses.
The comparative period has been restated with profit being £0.7 million lower and other comprehensive income £0.7 million higher including the tax impact of the changes. The impact on both basic and diluted earnings per share was a reduction of 0.5 pence. The Group records actuarial adjustments immediately so there has been no effect on the prior year pension deficit.
The other standards and interpretations that are applicable for the first time in the Group's financial statements for the year ended 31 December 2013, have no effect on these financial statements.
9 Impact of standards and interpretations in issue but not yet effective
A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2013, and have not been applied in preparing these consolidated financial statements. Comments on specific new standards or amendments are as follows:
IFRS10 'Consolidated Financial Statements', IFRS 11 'Joint Arrangements', IFRS 12 'Disclosure of interest in Other Entities', IAS27 (Revised) 'Separate Financial Statements' and IAS28 (Revised) 'Investments in Associates and Joint Ventures' all cover various aspects of Group Financial Statements but are not expected to have a significant impact on the Group.
Amendment to IAS32 will apply to the Group from 1 January 2014. This amendment provides guidance on the application of offsetting in financial statements. The Group is currently assessing the impact of the standard on the Group's results and financial position.
IFRS9 'Financial Instruments' was reissued in October 2010 as the second step in the IASB project to replace IAS39 'Financial Instruments: Recognition and Measurement'. IFRS9 (2010) now includes new requirements for classifying and measuring financial assets and financial liabilities and the derecognition of financial instruments. The IASB is continuing the process of expanding IFRS9 to add new requirements for impairment and hedge accounting. In November 2013 the IASB officially removed the previous mandatory effective date (i.e. 1 January 2015) and decided that it would be no earlier than 1 January 2015. The Group is currently assessing the impact of the standard on the Group's results and financial position and will continue to assess the impact as the standard is revised by the IASB.
The Group has not early adopted any standard, amendment or interpretation. Of the above, IFRS9 'Financial Instruments' has not yet been endorsed by the EU.
10 Accounting Policies
Revenue
Revenue comprises the fair value of consideration received or receivable, net of value-assessed tax, rebated and discounts. Revenue does not include the value of the onward legal completion of properties accepted in part exchange against a new property. The net gain or loss arising from the legal completion of these part exchange properties is recognised in cost of sales.
Revenue is recognised once the value of the transaction can be reliably measured and the significant risks and rewards of ownership have been transferred. Revenue is recognised on house sales at legal completion. Revenue is recognised on land sales and commercial property sales from the point of unconditional exchange of contracts. For affordable housing sales in bulk, revenue is recognised upon practical completion.
Where land is sold with material development obligations, the recognition of revenue and profit is deferred until the work is complete.
Rental income is recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads, not including any general administrative overheads, that have been incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated net selling price less estimated total costs of completion of the finished 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 along with any expected overage. Where, through deferred purchase credit terms, cost differs from the nominal amount which will actually be paid in settling the deferred purchase terms liability, an adjustment is made to the cost of the land, the difference being charged as a finance cost.
Options purchased in respect of land are capitalised initially at cost. 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.
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.
Trade payables
Trade payables on normal terms are not interest bearing and are stated at their nominal value.
Trade payables on extended terms, particularly in respect of land, are recorded at their fair value at the date of acquisition of the asset to which they relate. The discount to nominal value which will be paid in settling the deferred purchase terms liability is recognised over the period of the credit term and charged to finance costs using the effective interest rate method.
Government Grants
Government grants are recognised in the income statement so as to match with the related costs that they are intended to compensate. Government grants are included within deferred income.
Interest-bearing bank loans and overdrafts are initially recorded at fair value, net of direct issue costs, and subsequently at amortised cost.
Finance charges are accounted for on an accrual basis to the income statement using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
Cash and cash equivalents
Cash and cash equivalents comprises cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
Available for sale assets
Receivables on extended terms granted as part of a sales transaction are secured by way of a legal charge on the relevant property, categorised as an available for sale financial asset, and are stated at fair value. Gains and losses arising from changes in fair value are recognised directly in equity in retained earnings, with the exceptions of impairment losses, the impact of changes in future cash flows and interest calculated using the 'effective interest rate' method, which are recognised directly in the income statement. Where the investment is disposed of, or is determined to be impaired, the cumulative gain or loss previously recognised in equity is included in the income statement for the period. Given its materiality, this item is being disclosed separately on the face of the balance sheet.
Available for sale financial assets relate to legal completions where the Group has retained an interest through agreement to defer recovery of a percentage of the market value of the property, together with a legal charge to protect the Group's position. The Group participates in three schemes. 'Jumpstart' schemes are receivable 10 years after recognition with 3% interest charged between years 6 to 10. The 'HomeBuy Direct' and 'FirstBuy' schemes are operated together with the Government. Receivables are due 25 years after recognition with interest charged from year 6 onwards at a base value of 1.75% plus annual RPI increments. These assets are held at fair value being the present value of expected future cash flows taking into account the estimated market value of the property at the estimated date of recovery.
Bank Borrowings
The benefit on loans with an interest rate below market is calculated as the difference between interest at a market rate and the below market interest. The benefit is treated as a Government grant.
Net financing costs
Finance costs are included in the measurement of borrowings at their amortised cost to the extent that they are not settled in the period in which they arise.
The Group is required to capitalise borrowing costs directly attributable to the acquisition, construction and production of a qualifying asset, as part of the costs of that asset. Inventories which are produced in large quantities on a repetitive basis over a short period of time are not qualifying assets. The Group does not generally produce qualifying assets.
Equity Instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Own Shares held by ESOP trust
Transactions of the Group-sponsored ESOP trust are included in the Group financial statements. In particular, the trust's purchases of shares in the Company are debited directly to equity through an own shares held reserve.
Hedging
Derivative financial instruments are recognised at fair value.
Income Tax
Income tax comprises the sum of the tax currently payable or receivable and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Tax assets and liabilities
The tax currently payable or receivable is based on taxable profit or loss for the year and any adjustment to tax payable or receivable in respect of previous years. Taxable profit or loss differs from net profit or loss as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability or asset for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from non-tax deductible goodwill, from the initial recognition of assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit, and from differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to reserves, in which case the deferred tax is also dealt with in reserves.
Share based payments
The Group has applied the requirements of IFRS2: "Share-based payments".
The Group issues equity-settled share-based payments to certain employees in the form of share options over shares in the Parent Company. Equity-settled share-based payments are measured at fair value at the date of grant calculated using an independent option valuation model, taking into account the terms and conditions upon which the options were granted. The fair value is expensed on a straight line basis over the vesting period, based on the Group's estimate of shares that will eventually vest, with a corresponding credit to equity except when the share-based payment is cancelled where the charge will be accelerated.
Fixed asset investments
Investments in subsidiaries are carried at cost less impairment. 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.
Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
Employee benefits
The Group accounts for pensions and similar benefits under IAS 19 (Revised): "Employee benefits". In respect of defined benefit schemes, the net obligation is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods, such benefits measured at discounted present value, less the fair value of the scheme assets. The discount rate used to discount the benefits accrued is the yield at the balance sheet date on AA credit rated bonds that have maturity dates approximating to the terms of the Group's obligations. The calculation is performed by a qualified actuary using the projected unit method. The operating and financing costs of such plans are recognised separately in the income statement; service costs are spread systematically over the lives of employees and financing costs are recognised in the periods in which they arise. All actuarial gains and losses are recognised immediately in the Group statement of comprehensive income.
Payments to defined contribution schemes are charged as an expense as they fall due.
11 Reconciliation of net cash flow to net cash
|
|
|
2013 |
|
2012 |
|
|
|
|
£000 |
|
£000 |
|
|
|
|
|
|
|
|
|
Net decrease in net cash and cash equivalents |
|
(12,371 |
) |
(31,781 |
) |
|
Increase in borrowings |
|
(24,546 |
) |
- |
|
|
Fair value adjustments to interest rate swaps |
|
209 |
|
(9 |
) |
|
Fair value adjustment to interest free loans |
|
(121 |
) |
(195 |
) |
|
Net cash at start of period |
|
18,790 |
|
50,775 |
|
|
Net (debt) / cash at end of period |
|
(18,039 |
) |
18,790 |
|
|
|
|
|
|
|
|
|
Analysis of net cash: |
|
|
|
|
|
|
Cash and cash equivalents |
|
12,025 |
|
24,396 |
|
|
Unsecured loans |
|
(29,856 |
) |
(5,190 |
) |
|
Fair value of interest rate swaps |
|
(208 |
) |
(416 |
) |
|
Net cash |
|
(18,039 |
) |
18,790 |
|
12 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 23.25% applied to the pre-tax income or loss, adjusted to take account of deferred taxation movements and any adjustments to tax payable for previous years. Current tax receivable for current and prior years is classified as a current asset.
13 Dividends
The following dividends were declared by the Group:
|
|
|
|
2013 |
|
2012 |
|
|
|
|
£000 |
|
£000 |
|
|
|
|
|
|
|
|
Prior year final dividend per share of 6.0p (2012: 3.5p) |
|
|
8,010 |
|
4,663 |
|
Current year interim dividend per share of 4.0p (2012: 3.0p) |
|
|
5,351 |
|
4,001 |
|
Dividends declared |
|
|
13,361 |
|
8,664 |
The Board has decided to propose a final dividend of 9.5p per share in respect of 2013.
14 Earnings per share
Basic earnings per share
The calculation of basic earnings per share at 31 December 2013 was based on the profit attributable to ordinary shareholders of £60,068,000 (2012: £40,193,000) and a weighted average number of ordinary shares outstanding during the year ended 31 December 2013 of 133,643,311 (2012: 133,294,726), calculated as follows:
Profit attributable to ordinary shareholders
|
|
2013 |
|
2012 |
|
|
|
£000 |
|
£000 |
|
|
Profit for the period attributable to ordinary shareholders |
60,068 |
|
40,193 |
|
Weighted average number of ordinary shares
|
|
2013 |
|
2012 |
|
|
Issued ordinary shares at 1 January |
133,294,726 |
|
132,860,480 |
|
|
Effect of own shares held |
(288,388 |
) |
(445,306 |
) |
|
Effect of shares issued in year |
636,973 |
|
879,552 |
|
|
Weighted average number of ordinary shares at 31 December |
133,643,311 |
|
133,294,726 |
|
Diluted earnings per share
The calculation of diluted earnings per share at 31 December 2013 was based on the profit attributable to ordinary shareholders of £60,068,000 (2012: £40,193,000) and a weighted average number of ordinary shares outstanding during the year ended 31 December 2013 of 133,933,279 (2012: 133,432,911).
The average number of shares is increased by reference to the average number of potential ordinary shares held under option during the period. This reflects the number of ordinary shares which would be purchased using the aggregate difference in value between the market value of shares and the share option exercise price. The market value of shares has been calculated using the average ordinary share price during the period. Only share options which have met their cumulative performance criteria have been included in the dilution calculation.
Weighted average number of ordinary shares (diluted)
|
|
2013 |
2012 |
|
Weighted average number of ordinary shares at 31 December |
133,643,311 |
133,294,726 |
|
Effect of share options in issue which have a dilutive effect |
289,968 |
138,185 |
|
Weighted average number of ordinary shares (diluted) at 31 December |
133,933,279 |
133,432,911 |
15 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 2013 were limited to those relating to remuneration, which are disclosed in the director's remuneration report and in note 5.3 of the annual report.
Transactions between the Group, Company and joint ventures are in note 5.5 of the annual report.
Malcolm Harris, a Group Director until his resignation on 29 November 2013, is a non-executive Director of the Home Builders Federation (HBF). The Group pays subscription fees and fees for research as required to the HBF.
Total net payments were as follows:
|
|
2013 £000 |
|
2012 £000 |
|
|
HBF |
70 |
|
93 |
|
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.
Transactions with Bovis Peer LLP
Bovis Homes Limited is contracted to provide property and letting management services to Bovis Peer LLP. Fees charged in the period, inclusive of VAT, were £147,000 (2012: £144,000).
Loans totalling £1,575,355 were provided in prior years at an annual interest rate of LIBOR plus 2.4%. No other loans or sales of inventory have taken place. Interest charges made in respect of the loans were £46,000 (2012: £49,000).
This information is provided by RNS
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