Preliminary Results

Bovis Homes Group PLC 08 March 2004 BOVIS HOMES GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2003 Issued 8 March 2004 The Board of Bovis Homes Group PLC today announced its preliminary results for 2003. â€¢ Pre tax profit increased by 17.5% to Â£123.0 million (2002: Â£104.7 million) showing a 22% compound annual increase since flotation â€¢ Earnings per share increased by 16.9% to 74.2p (2002: 63.5p) showing a 22% compound annual increase since flotation â€¢ Final dividend of 11.1p net per ordinary share making 16.4p for the year, a 17.1% increase over the prior year â€¢ Operating margin increased by 3.2 percentage points to 27.0% (2002: 23.8%) â€¢ Return on average capital employed of 25.5% (2002: 25.2%) â€¢ Plots with planning consent increased to 10,878 plots (owned: 10,468 plots/controlled: 410 plots) â€¢ Strategic landholdings increased to 22,152 potential plots after transferring 986 plots to consented landholdings during 2003 â€¢ Year end net borrowings of Â£45.3 million (9.7% geared) Commenting on the results, Malcolm Harris, the Chief Executive of Bovis Homes Group PLC said: 'The Group has delivered added shareholder value, producing record profits, increasing return on capital employed, improving the operating margin, and enhancing consented and strategic landholdings. The fundamentals affecting the industry have not changed during the past year. Demand for new homes outstrips supply. Although house prices have increased and interest rates have risen, affordability remains good. The real cost of servicing a standard rate mortgage is approximately 40% lower than the average of the last twenty five years. The Group has commenced 2004 in a strong position with sales reservations to date over 25% ahead of the comparable period last year. Build production has been increased in line with sales. Based upon the trading experience to date, and assuming an ongoing stable economic environment, the Board anticipates that 2004 will be another successful year.' Enquiries: Malcolm Harris, Results issued by: Andrew Best/ Chief Executive Emily Bruning Bovis Homes Group PLC Shared Value Limited on Monday 8 March on Monday 8 March Tel: 020 7321 5010 Tel: 020 7321 5010 Thereafter Tel: 01474 872427 Chairman's statement The Group has achieved a further year of record performance. The profits achieved in 2003 represented the sixth consecutive year of profit growth since the Group's flotation in 1997. During this six year period profits have grown by a compound 22% per annum. The solid results announced at the interim stage of 2003 were followed by a strong second half year performance. The Group has also made significant investment in working capital, both land and housing work in progress, which provides an excellent base to support trading in 2004. Results Profit on ordinary activities before taxation for the year ended 31 December 2003 increased by 17.5% to Â£123.0 million, compared with Â£104.7 million in 2002. This result was achieved from total turnover of Â£478.4 million, 3.7% greater than the previous year. The operating margin increased to 27.0% compared with 23.8% in 2002 whilst return on capital employed increased to 25.5% compared to 25.2% reported for the prior year. Basic earnings per share improved by 16.9% to 74.2 pence per ordinary share compared to 63.5 pence per ordinary share in 2002. Dividend The Board proposes a final dividend for the year ended 31 December 2003 of 11.1 pence to be paid on 21 May 2004 to shareholders on the register at the close of business on 23 April 2004. This dividend when added to the interim dividend of 5.3 pence paid on 21 November 2003 totals 16.4 pence for the year and is covered 4.5 times by the basic earnings per share of 74.2 pence. The total dividend per share for the year represents an increase of 17.1% over the total dividend for 2002. Market conditions Activity in the new housing market during 2003 was mixed when compared to 2002. Historically, reservations of new homes have been stronger in the first half of the calendar year. During 2003, this profile changed such that the second half of 2003 was stronger in terms of reservations than has traditionally been recorded. There were a number of reasons evident during the first half of 2003 why this occurred including the geopolitical uncertainties associated with the conflict in Iraq and much speculation at the time that interest rates would increase and have a limiting effect on house price growth. As it transpired, the conflict in Iraq had a short term effect on consumer confidence, the Monetary Policy Committee decided, unexpectedly, to cut interest rates on 10 July 2003 and the year closed with the Halifax reporting that new house prices had increased year on year by 15.0%. Consequently, new housing activity in the second half of 2003 was encouraging and has developed some considerable momentum into 2004. Activity in the overall housing market during 2003 slowed markedly year on year. Total property transactions declined by 16% with 1.34 million transactions in 2003 compared to 1.59 million in 2002. According to the Office of the Deputy Prime Minister ('ODPM'), new home private completions in England in 2003 increased by 5.8% to 130,300 units. Whilst the increase was encouraging, this level of housing supply continues to fall short of requirements. There is widespread acknowledgement that there is a requirement to supply new housing over the next twenty years, in England alone, in excess of 200,000 homes per annum. At the end of the third quarter of 2003, affordability trend indicators reported that the ratio of first year mortgage interest payments as a percentage to average net earnings for a two income couple was 18%. The same indicator reported in 2002 was 17%, reflecting a marginal deterioration in affordability during the year. However, these rates demonstrate strong ongoing affordability when compared to the same indicator published in 1990 at 37%, the highest the indicator has recorded in the last twenty years, coinciding with the housing ' boom' of the late 1980's. The average figure for this indicator between 1983 and 2003 was 19.7%, some 1.7 percentage points higher than the latest published figure. Strategy During 2003, with reductions in activity across the sector, the Group continued to focus on delivering the industry leading profit margins synonymous with Bovis Homes since flotation in 1997. The Group reacted quickly to the changing marketplace which was delivering lower volumes, continued its strong internal management control on achieving returns against replacement land values rather than historical land values, focused on cost control and drove for further margin growth. To this end, the Group was successful in increasing its average sales price by 9.4% and growing its operating margins by 3.2 percentage points. The identified regions targeted for rapid growth for the Group of Northern, Eastern and Retirement Living are now well set up to grow significantly during 2004. The expansion plan of the Group will, subject to market conditions, involve further launches of regions, particularly in locations where the Group has a satellite office of an already established region. The financial objectives of the Group remain consistent, focusing on achieving strong operating profit margins, above target levels of return on capital employed and attention to sound management of health, safety and environmental matters. The Board Following the appointment of Mrs Lesley MacDonagh as a non-executive director on 4 July 2003, the Board now comprises four non-executive directors, including myself as non-executive Chairman, and three executive directors. The Combined Code The Group continues to be committed to good corporate governance and applies the provisions of the existing Combined Code. A new Combined Code on Corporate Governance was published in July 2003 which became effective for listed companies for their financial year ends beginning on or after 1 November 2003. As the new Combined Code is required to be applied throughout the year of adoption, the Board took the decision to complete a rigorous review of the new Combined Code during the second half of 2003 ready for adoption on 1 January 2004. The Board is generally supportive of the requirements laid down in the new Combined Code but has a number of reservations. The Board recognises that shareholder access to non-executive directors can be useful and ensures that the non-executive directors are available to shareholders at the Annual General Meeting and at annual institutional presentation days. However, as independent non-executive directors, these individuals cannot be expected to have detailed knowledge of day to day commercial decisions within the Group. The Board is pleased to announce the appointment of Tim Melville-Ross as the Senior Independent Director. Tim has been a non-executive director on the Board since 1997. Employees Bovis Homes is a people business and I would like to thank all our employees for their contribution during the year. It is essential that the right individuals are recruited, trained and motivated. The objective is to ensure that the Group employs the highest calibre of employees, who add value to the business and are sensitive to the demands and requirements of the Group's customers, whilst having the entrepreneurial drive and flair to move the operation forward without compromising sound corporate governance. Prospects The Monetary Policy Committee has raised base interest rates by 25 basis points at both its November 2003 and February 2004 meetings. Further similar rises are anticipated over the coming months of 2004. Individually, these small rises are unlikely to have a significant effect on house prices, however, collectively there is likely to be a constraining effect on further house price increases. During 2004 it is considered likely that house price rises will begin to align more with earnings growth. Recent forecasts from various organisations indicate house price growth in 2004 of between 4% and 9%. Specifically, the latest house price forecast published by the Halifax indicates house price growth in 2004 of 8%. The fundamentals of the housing market remain sound with demand in the areas in which the Group operates exceeding supply. Affordability remains strong relative to long term averages and continues well below the peak in affordability measures in the late 1980's. The Group started 2004 with a stronger order book compared with prior years. Reservations since the start of the year have been good and internal budget sales prices have been exceeded. Given the Group's trading experience to date in 2004 and the prevailing benign economic picture, the Board is confident that 2004 will be another successful year. Nigel Mobbs Chairman Chief Executive's operational review Group results The Group delivered a further record performance with improvements in all key areas. Profit before taxation increased 17.5% to Â£123.0 million. Return on average capital employed increased to 25.5% and the operating margin improved to 27.0%. Consented landholdings increased to 10,878 plots (4.4 years' supply based upon legal completions in the year) and strategic land increased to 22,152 potential plots (8.9 years' supply based upon legal completions in the year). Trading environment The fundamentals of the housing market have not changed during the past year. Historical and current under supply have generated a housing shortage which underpins the demand for new housing. Recent independent surveys have confirmed that purchasers increasingly seek a new property as their first choice. In a survey of prospective purchasers, 28% stated that they would only consider buying a new home. This represents almost three purchasers for every new home built each year. A further 56% of prospective purchasers stated that they would consider buying either a new or second hand property. The Bank of England's base interest rate started 2003 at 4.0%, was reduced to 3.75% in February, further reduced to 3.5% in July and then was increased in November to 3.75%, where the rate remained to the end of the year. Average earnings increased by 3.4% during 2003. The combination of low average interest rates, earnings growth and house price growth resulted in the real cost of mortgages being approximately 40% cheaper at the end of 2003 than the average over the last twenty five years and in most areas of the country it was cheaper, in respect of monthly outgoings, to buy a property than to rent. Despite the positive position regarding demand, the housing market in the first half of 2003 was adversely affected by the conflict in the Middle East which reduced consumer confidence and created a period of uncertainty. In the second six months of 2003 an improvement in purchasers' attitudes was recorded resulting from the reduced cost of borrowing, increases in employment and alleviation of geopolitical uncertainties in the Middle East. The uncertainties in the early part of 2003 contributed to a reduction in property transactions in England and Wales which fell by 16% in 2003 to 1.34 million, the lowest total since 1996. Product mix and average sales price The Group legally completed 2,364 homes constructed on owned land and 118 homes constructed on third party owned land. Market sector analysis Year ended 31 December 2003 2002 % Units Average % Units Average House type sales sales price price Â£ Â£ ________________________________________________________________________________________________________ One and two bedroom 13 337 128,900 10 271 108,300 Three bedroom 33 814 167,000 33 887 148,100 Four bedroom 23 571 227,100 27 728 186,600 Five or more bedroom 15 364 298,800 17 442 273,300 Retirement Living 4 104 190,700 4 114 172,800 ________________________________________________________________________________________________________ Group (exc. partnership housing) 2,190 199,800 2,442 179,000 Partnership housing 7 174 74,700 4 114 73,600 ________________________________________________________________________________________________________ Group (exc. third party owned land units) 2,364 190,600 2,556 174,300 Third party owned land units 5 118 66,100 5 135 59,300 ________________________________________________________________________________________________________ Group 100 2,482 184,700 100 2,691 168,500 ________________________________________________________________________________________________________ The Group's average house sales price at Â£190,600, excluding units built on third party owned land, increased by 9.4%, net of incentives, compared with 2002. The average size of units legally completed during the year was 1,155 square feet (2002: 1,186 square feet). After taking account of the movement in average unit size, sales price per square foot, net of incentives, increased by 12.4%. By comparison, the average construction cost per square foot increased by 5.1% after absorbing specification upgrades, as well as additional taxation arising from aggregate tax, landfill tax and climate change levy. The average house price increase in the United Kingdom in 2003 reported by the Office of the Deputy Prime Minister ('ODPM') was 8.3% whilst the comparable increase reported by the Nationwide was 15.6% and by the Halifax was 17.3%. Regional performance Unit completions and average sales price Year ended 31 December 2003 2002 Units Average Units Average sales price sales price Â£ Â£ _____________________________________________________________________________________________________ South East 795 197,700 894 185,800 South West 572 181,000 644 155,500 Central 651 196,700 660 191,900 Northern 242 173,700 244 134,100 Retirement Living 104 190,700 114 172,800 _____________________________________________________________________________________________________ Group (exc. third party owned land units) 2,364 190,600 2,556 174,300 Third party owned land units 118 66,100 135 59,300 _____________________________________________________________________________________________________ Group 2,482 184,700 2,691 168,500 _____________________________________________________________________________________________________ The legal completions achieved on third party owned land were contributed by South West region. Operating margins Year ended 31 December 2003 2002 % % _____________________________________________________________________________________________________________ South East 26.5 22.2 South West 21.9 18.3 Central 31.8 31.1 Northern 25.7 17.5 Retirement Living 29.7 29.5 _____________________________________________________________________________________________________________ Group 27.0 23.8 _____________________________________________________________________________________________________________ All regions improved their operating margins during the year. South West region's results included 118 legal completions which were built on third party owned land (2002: 116 third party legal completions in South West region). The profit margins from this segment of its business are significantly lower than that from private sector sales. However, such activities provide early positive cash flow and a high return on average capital employed. Land and planning Consented land bank Total plots as at 31 December 2003 2002 Plots Plots _______________________________________________________________________________________________________ South East 3,279 3,458 South West 2,398 2,514 Central 3,043 2,628 Northern 1,392 1,324 Retirement Living 356 319 _______________________________________________________________________________________________________ Group (exc. third party owned land plots) 10,468 10,243 Third party owned land plots South West 410 473 _______________________________________________________________________________________________________ _______________________________________________________________________________________________________ Group 10,878 10,716 _______________________________________________________________________________________________________ Years' supply based upon legal completions in the year 4.4 4.0 (exc. third party owned land plots) _______________________________________________________________________________________________________ Years' supply based upon legal completions in the year 4.4 4.0 (inc. third party owned land plots) _______________________________________________________________________________________________________ The cost and time period involved in processing planning applications has not improved in 2003. Despite these difficulties, the Group has once again increased its landholdings with planning consent to 10,878 plots which represented approximately 4.4 years' supply based upon 2003 legal completion levels. The average plot cost of the consented land bank (excluding partnership housing and third party owned land) was Â£43,800 which represented 21.9% of the average sales price in the year of Â£199,800 (excluding partnership housing and units constructed on third party owned land). The strategic landholdings increased to 22,152 potential plots after transferring 986 plots from strategic land to consented land during the year at an average discount to market value of over 20%. A significant number of strategic holdings are now at an advanced planning stage. The Group currently anticipates approximately 9,000 plots of strategic land gaining planning consent over the next three years which will substantially assist the Group's planned expansion. The largest single project that the Group is currently promoting is at Wellingborough. This is a sustainable mixed use scheme which is allocated in the approved local plan. Work on the initial infrastructure is anticipated to commence in early 2005. Legal completions originating from strategic land contributed 28% (2002: 39%) of the Group's development profit in the year, and 35% (2002: 33%) of the legal completions (including third party units) in the year were built on previously used land which is reflective of the high historical concentration of Group developments in areas where there is less reusable land available. Strategic land bank Total potential plots as at 31 December 2003 2002 Plots Plots _________________________________________________________________________________________________________ South East 11,078 11,067 South West 6,616 6,472 Central 3,596 3,582 Northern 822 597 Retirement Living 40 123 _________________________________________________________________________________________________________ Group 22,152 21,841 _________________________________________________________________________________________________________ Years' supply based upon completions in the year 8.9 8.1 _________________________________________________________________________________________________________ Included in strategic landholdings were 10,315 potential plots in strategic ' growth locations'. Growth locations are areas designated for development within draft or adopted development plans by local, county or unitary planning authorities. Total potential plots as at 31 December 2003 2002 Plots Plots __________________________________________________________________________________________________________ South East 4,462 5,151 South West 4,242 4,033 Central 1,323 1,309 Northern 248 227 Retirement Living 40 123 __________________________________________________________________________________________________________ Group 10,315 10,843 __________________________________________________________________________________________________________ The Group has invested in various potential re-development sites, a number of which are allocated for residential use in current development plans. The majority of these investments are classified as brown land which will in future years substantially increase the percentage of properties constructed on previously used land. Research and development The Group believes that continuous improvement through research and development is key to the continuing success of the business and is a significant factor in delivering environmental, social and sustainability objectives. The Group engages with many stakeholder organisations, including housebuilding industry warranty providers and building control bodies (BCBs), the House Builders Federation (HBF), the Building Research Establishment (BRE), the ODPM in respect of building regulation development, and actively partners many manufacturers and suppliers. Further details are contained in the Group's Corporate Social Responsibility report which is being sent to all shareholders in addition to the Annual Report and Accounts. A new range of homes with higher perceived value, which complement the existing properties that the Group designs and builds, has been introduced across all regions. These new, private sector affordable properties have established a new lower entry price point for the Group's homes and will support the planned expansion, providing the Group's customers with value for money products whilst offering greater affordability. Partnership Developments Bovis Homes Partnership Developments is actively involved with housing associations, local authorities and other similar bodies providing quality new homes at affordable prices, for either rent or shared ownership, to communities throughout the country. The Group has total in-house capability to handle all aspects of each project including major regeneration schemes. In addition to design and build, there exists expertise to provide cross subsidies from the development and sale of open market housing and commercial buildings. Health, safety and environment Best practice in health, safety and environmental awareness and management is an important element in the continuing success of the Group. The objective is to maintain the highest practical levels of health and safety and effective environmental policies. The Health, Safety and Environmental Consultative Committee oversees these important matters, formulating and promulgating policy to all stakeholders. The Committee is chaired by a Bovis Homes Limited director by annual rotation to ensure that fresh ideas and initiatives are constantly introduced, assessed and, where appropriate, implemented on a consistent basis. The chairman is supported by a committee comprising Group employees from numerous disciplines complemented by the Health and Safety Director and external independent professional advisers. The chairman reports formally to the Board through submission of a Health and Safety report tabled at each Board meeting. Bovis Homes promotes all aspects of safety and environmental management throughout its operations in the interests of all stakeholders. Its record of success was once again recognised in 2003 with the Gold Medal Award from the Royal Society for the Prevention of Accidents and the National Award from the British Safety Council. Further details are available in the Group's free-standing Corporate Social Responsibility report. Bovis Homes' objective is to achieve sustainable construction and reduce environmental impact. The Group seeks to protect and, wherever possible, improve the environment by retaining mature landscaping and introducing new planting and habitats. It is also committed to planning for the most efficient and effective use of development land. The Group has introduced higher density properties with flexible accommodation which addresses the changing lifestyles of its customers, including the ability to work from home. The Group has issued to employees within the Group an Environmental Management Manual containing the Environmental Policy, Environmental Effects Document and Best Practice Checklists. It is a comprehensive approach consolidating policies, procedures and systems, explaining how all employees can assist the Group in achieving its environmental aims and make a positive contribution to the environment. Legislation and taxation The planning system deteriorated further during 2003 despite the Government's clear intention to improve performance. The Planning and Compulsory Purchase Bill and the New Communities Bill have not received royal assent and there is no sign of increased resources within local authorities to enable the efficient processing of applications. In respect of the Barker review, the Group is supportive of reforms which will improve the efficiency of the planning system and will contribute to the Government's aim of increasing housing supply. The housebuilding industry continues to be adversely affected by increased taxes levied by Government. Aggregate tax The levy on aggregate materials at Â£1.60 per tonne continues to add considerable cost to all infrastructure, roads and sewers as well as general construction costs. Landfill tax The active waste tax was Â£14.00 per tonne and the inert waste tax was Â£2.00 per tonne during 2003. Climate change levy Additional taxes have been imposed on electricity, gas, liquefied petroleum gas and solid fuels. Stamp duty land tax All significant land purchases attract stamp duty land tax at 4.0% and the majority have a non recoverable VAT element of 17.5% added. This is in addition to the stamp duty land tax that purchasers pay upon legal completion of the home. Employee costs Both employee and employer national insurance costs were increased in April 2003 which added an additional 1.0% to the cost of employment. Pension schemes The adverse tax treatment introduced by the Government has imposed considerable burdens on the Group's pension scheme. Further adverse changes affecting pension schemes are currently being promoted which will add additional costs. In particular, it is inequitable that companies that fully fund their own pension schemes should be required to subsidise those that do not. Group structure The new Northern region is now well established as a separate operation and is anticipated to substantially expand volume and profits during 2004. The new Eastern region was created with effect from January 2003 operating as a sub area of Central region. It will report as a separate business with effect from 1 January 2004 and will continue to utilise facilities and services available from other regions in the Group until it becomes self sufficient as a region in 2005. Outlook for 2004 The fundamentals affecting the industry remain sound. High levels of employment, low levels of inflation, affordable levels of interest rates and increases in earnings above retail price inflation, provide a good environment in which the industry can operate. The Group has commenced the new year with substantially increased levels of forward sales and housing work in progress. In addition, the Group has an excellent expanded product range, efficient processes and strong consented and strategic landholdings. The Group continues to be led by a capable management team who are supported by able, experienced and enthusiastic employees. The combined team has a clear commitment to deliver ongoing positive results for the Group's shareholders. Malcolm Harris Chief Executive Financial review Overview In a year remembered for the war in Iraq and uncertainty over the outlook for UK interest rates, the Group has delivered a further year of record earnings per share and profits before taxation. Earnings per share increased by 16.9% to 74.2 pence per share and profit before taxation increased by 17.5% to Â£123.0 million. The Group continued to invest in new land opportunities and closed the year with a land bank supply of 4.4 years with 10,878 controlled plots with full planning consent. In line with the Group's aim to support further profit growth through increased volumes of legal completions, there has been significant investment in other areas of working capital, which led to an increase in the Group's year end net borrowings which stood at Â£45.3 million. The Group has adopted unchanged accounting policies for this financial year. There have been no new UK accounting standards issued by the Accounting Standards Board during 2003, however the Group has adopted and complied, where applicable, with new Abstracts issued by the Urgent Issues Task Force. Review of results Profit before taxation The profit on ordinary activities before taxation for the year ended 31 December 2003 amounted to Â£123.0 million. This compared with Â£104.7 million in the previous year and represented an increase of 17.5% year on year. There were no exceptional items during either 2003 or 2002. Turnover Total turnover achieved was Â£478.4 million (2002: Â£461.3 million). Included within this figure was housing turnover of Â£450.6 million (2002: Â£445.4 million). The increase in housing turnover was primarily due to an increase in average sales price to Â£190,600 compared with Â£174,300 in 2002, an increase of 9.4% which more than offset the 7.5% decrease in unit legal completions to 2,364 units compared with 2,556 legal completions in 2002. Overall, the average sales price per square foot increased by 12.4% whilst the average size of unit decreased by 2.6% to an average 1,155 square feet (2002: 1,186 square feet). The decrease in average size was generated from a change in mix of house type legally completed towards more apartments and affordable homes built on Bovis Homes' owned land in partnership with housing associations. In addition, the Group handed over 118 affordable units to housing associations where the Group constructed houses under JCT contracts on land owned by the housing association. This generated Â£7.8 million of turnover and compared with 135 units handed over in 2002 and Â£8.0 million of turnover. Taken together, total legal completions amounted to 2,482 units (2,364 units on owned land and 118 units on third party owned land) and compared with 2,691 legal completions in 2002 (2,556 units on owned land and 135 units on third party owned land). Total turnover from legal completions was Â£458.4 million compared with Â£453.4 million in 2002. Land sales amounted to Â£13.8 million compared with Â£4.4 million in 2002 whilst other income, mainly arising from sales of commercial interests, was Â£6.2 million compared with Â£3.5 million in 2002. Operating profit The Group achieved an operating profit of Â£129.2 million, an increase of 17.9% over Â£109.6 million in the previous year, and achieved a rise in the operating margin to 27.0%, as compared to 23.8% in 2002. Land sale profits less option costs was a net profit of Â£2.9 million in 2003 (2002: net cost of Â£1.9 million). Administrative expenses, which include all sales and marketing costs and architects and planning costs, as a percentage of turnover were 8.5% compared with 7.8% in 2002. Administrative expenses increased by 13.0% to Â£40.7 million compared with Â£36.0 million in the previous year. The increase included additional headcount from the expansion of the regional structure. Average staff numbers (excluding site based staff) in 2003 were 478 compared with 455 in 2002. Financing Net interest payable amounted to Â£6.2 million (2002: Â£4.9 million), and was covered 21 times by profit before interest. Taxation The corporation tax charge for the year amounted to Â£36.5 million, and was after crediting an adjustment in respect of prior years amounting to Â£0.5 million. Dividends Dividends paid and proposed totalled Â£19.2 million (2002: Â£16.4 million) resulting in a retained profit for the financial year of Â£67.3 million. The total annual dividend was covered 4.5 times by post tax earnings. Review of balance sheet Shareholders' funds Shareholders' funds increased during the year to Â£465.5 million as a result of retained earnings of Â£67.3 million and the issue of Â£2.6 million of share capital and share premium arising from the exercise of share options by employees, offset by the movement in own shares held which are netted against equity. The netting of own shares held reflects a change in accounting treatment arising from the early adoption of Urgent Issues Task Force Abstract 38: 'Accounting for ESOP trusts'. Net borrowings The Group ended the year with net borrowings of Â£45.3 million having started 2002 with net cash in hand of Â£4.6 million. The Group utilised its existing bilateral committed revolving loan facilities to varying degrees throughout 2003 such that the average net borrowing was Â£98.4 million. The Group had fixed rate borrowings at 31 December 2003 of Â£75.0 million, Â£55.0 million on five year fixed terms and Â£20.0 million on seven year fixed terms. Cash deposited on the money market amounted to Â£30.0 million and there was a small net operating overdraft of Â£0.3 million. Working capital Land increased from Â£413.5 million to Â£468.7 million, whilst there was a reduction in land creditors from Â£94.7 million to Â£46.9 million. Work in progress increased from Â£131.0 million (including Â£14.4 million of part exchange properties) to Â£177.2 million (including Â£21.1 million of part exchange properties). As at 31 December 2003 2002 Increase/ (decrease) Â£m Â£m Â£m _____________________________________________________________________________________________________________ Land held for development 468.7 413.5 55.2 Land creditors (46.9) (94.7) 47.8 Net investment in land 421.8 318.8 103.0 Raw materials and work in progress 152.4 112.8 39.6 Part exchange properties 21.1 14.4 6.7 Development properties 3.7 3.8 (0.1) _____________________________________________________________________________________________________________ Work in progress 177.2 131.0 46.2 _____________________________________________________________________________________________________________ At the end of 2003, the Group held 4.4 years' supply of controlled land, based on the previous year's legal completions, with 10,468 plots of owned land with planning consent and 410 plots of third party owned land which the Group controls through the establishment of JCT contracts with these third parties to construct affordable housing. Return on capital employed Return on average capital employed for 2003 amounted to 25.5% based on the operating profit of the Group of Â£129.2 million and average capital employed of Â£506.8 million. For the sixth consecutive year, the Group has exceeded its objective of achieving a minimum return on capital employed of 20%. Cash flow and treasury Cash flow Cash inflow from operating activities amounted to Â£7.8 million (2002: Â£107.4 million). This cash inflow reflected both continuing strong cash generation from the sale of houses and other commercial interests and substantial investment in growing the working capital base. After accounting for capital expenditure, finance costs, dividend payments and tax payments, the net borrowings of the Group increased by Â£49.9 million moving a net cash in hand balance at 1 January 2003 of Â£4.6 million into a net borrowings balance of Â£45.3 million at 31 December 2003. Bank facilities and liquidity risk The Group held total bank facilities of Â£216.0 million at 31 December 2003, including Â£5.0 million of overdraft facility. The balance of the facilities were made up of bilateral committed revolving loan facilities held with seven banks, mainly five year facilities but with some seven year facilities. The earliest maturity date for these facilities is 10 December 2005 in respect of Â£35.0 million of facilities, with Â£124.0 million maturing on 9 January 2007, Â£20.0 million on 5 February 2007, Â£12.0 million on 3 May 2007 and Â£20.0 million on 10 December 2007. After a year of significant working capital investment, the Group's net borrowing position at 31 December 2003 of Â£45.3 million continued to reflect modest gearing of 9.7%. With average net borrowings of Â£98.4 million and average shareholders' funds of Â£418.1 million, the average gearing of the Group during 2003 was 23.5%. Given timing differences between the investments in working capital and the flow of legal completion monies from house sales, the Group's peak net borrowings during 2003 were Â£158.4 million. The Group believes that total bank facilities of Â£216.0 million are sufficient to enable funding of foreseeable cash flows required for the medium term plans for the Group. As these are bilateral revolving committed loan facilities, of which Â£75.0 million are drawn down and fixed through interest rate swaps, there is considerable flexibility available to the Group to manage its borrowing needs. Interest rate risk By fixing Â£75.0 million of borrowings through interest rate swaps with varying maturities, the Group has made certain its interest costs on what is considered its core borrowing requirement. Borrowings in addition to this core borrowing are judged on a case by case basis at the time of drawing down the loans in terms of interest rate flexibility and loan maturity. The Group has the ability to borrow using its bilateral committed revolving loan facilities for as little as a few days or up to the period through to maturity of the relevant facility. The Group can decide with its various banks whether to fix the interest rate of borrowing through the further use of interest rate swaps, although care is taken to marry together the dates of draw down and maturity of the floating rate borrowing and interest rate swap. Fair value The fair value of the Group's fixed rate borrowings at 31 December 2003 exceeded its book value by Â£2.2 million. This reflected the movement in long term interest rates since these financial instruments were established. Further, the fair value of land creditors due after more than one year (deemed financial instruments under FRS 13: 'Derivatives and Other Financial Instrument Disclosures') amounted to Â£17.5 million compared with their book value of Â£20.1 million, derived from the discounting of future cash flows in settling land creditors. The fair values of the Group's other long term assets and liabilities were not materially different from their book values. Accounting standards During 2003 there have been no new UK Financial Reporting Standards issued by the Accounting Standards Board. However, third year transitional rule disclosures are required through the stage implementation of FRS 17: 'Retirement Benefits', in accordance with the standard. Further, there have been a number of pronouncements from the Urgent Issues Task Force during 2003. UITF Abstract 38: 'Accounting for ESOP trusts' requires a company to account for own shares held as a deduction from equity rather than recognising such shares as an asset of the company. The Group has adopted this abstract for the year ended 31 December 2003. As a result, Â£1.4 million of own shares held as at 31 December 2003 have been included as a reduction in equity. In previous years, these own shares held have been included as investment assets of the Group. The comparatives have been restated by way of a prior year adjustment, which reduces the opening shareholders' funds by Â£1.1 million. In respect of FRS 17 an independent actuary has valued the Group's defined benefits pension scheme assets and liabilities, as at 31 December 2003, on the basis defined in the standard. The valuation shows a deficit, net of deferred tax, on the scheme of Â£12.3 million (2002: Â£9.4 million deficit), which is a disclosure item only in the 2003 Annual Report and Accounts in accordance with the standard. Under FRS 18: 'Accounting Policies' the Group has reviewed its accounting policies to ensure that they remain the most appropriate to its particular circumstances for the purpose of giving a true and fair view. These financial statements have been prepared in accordance with applicable UK accounting standards. As a UK listed company, the Group will be required for its consolidated accounts to adopt International Financial Reporting Standards ('IFRS') for the year ending 31 December 2005, including the interim results for the half year ending 30 June 2005. The Group will continue to assess the impact of adopting IFRS on an ongoing basis as both UK and International Standards are undergoing a period of rapid change to assist harmonisation. Given this period of rapid change, it is difficult to quantify the impact on the Group at this time. A small team has been established to manage the convergence to IFRS. David Ritchie Finance Director Bovis Homes Group PLC Group profit and loss account Continuing operations For the year ended 31 December 2003 2003 2002 Â£000 Â£000 ____________________________________________________________________________________________________ Turnover 478,424 461,284 Cost of sales (308,442) (315,668) ____________________________________________________________________________________________________ Gross profit 169,982 145,616 Administrative expenses (40,749) (36,025) ____________________________________________________________________________________________________ Operating profit 129,233 109,591 Interest receivable and similar income 145 807 Interest payable and similar charges (6,365) (5,695) ____________________________________________________________________________________________________ Profit on ordinary activities before taxation 123,013 104,703 Taxation on profit on ordinary activities (36,500) (31,200) ____________________________________________________________________________________________________ Profit on ordinary activities after taxation 86,513 73,503 Dividends paid and proposed (19,187) (16,365) ____________________________________________________________________________________________________ Retained profit for the financial year 67,326 57,138 ____________________________________________________________________________________________________ ____________________________________________________________________________________________________ Basic earnings per ordinary share 74.2p 63.5p ____________________________________________________________________________________________________ Diluted earnings per ordinary share 73.8p 63.0p ____________________________________________________________________________________________________ In both the current and preceding financial years there were no other recognised gains or losses. Bovis Homes Group PLC Group balance sheet At 31 December 2003 2003 2002 Restated (see note 1) Â£000 Â£000 _______________________________________________________________________________________________________ Fixed assets Tangible assets 8,238 8,215 Investments 23 23 _______________________________________________________________________________________________________ 8,261 8,238 _______________________________________________________________________________________________________ Current assets Stock and work in progress 645,922 544,496 Debtors due within one year 14,848 13,185 Debtors due after more than one year 5,577 5,082 Cash and short term deposits 30,005 81,548 _______________________________________________________________________________________________________ 696,352 644,311 _______________________________________________________________________________________________________ Creditors: amounts falling due within one year (141,915) (163,224) _______________________________________________________________________________________________________ Net current assets 554,437 481,087 _______________________________________________________________________________________________________ Total assets less current liabilities 562,698 489,325 Creditors: amounts falling due after more than one year (95,703) (91,657) Provisions for liabilities and charges (1,516) (1,794) _______________________________________________________________________________________________________ Net assets 465,479 395,874 _______________________________________________________________________________________________________ Capital and reserves Called up share capital 58,870 58,359 Share premium account 141,033 138,974 Revaluation reserve 203 203 Profit and loss account 265,373 198,338 _______________________________________________________________________________________________________ Equity shareholders' funds 465,479 395,874 _______________________________________________________________________________________________________ Bovis Homes Group PLC Group cash flow statement For the year ended 31 December 2003 2003 2002 Â£000 Â£000 ______________________________________________________________________________________________________ Net cash inflow from operating activities 7,808 107,399 Returns on investments and servicing of finance Interest received 155 667 Interest paid (6,146) (5,042) ______________________________________________________________________________________________________ (5,991) (4,375) ______________________________________________________________________________________________________ Taxation paid (35,000) (27,612) ______________________________________________________________________________________________________ Capital expenditure and financial investment Purchase of tangible fixed assets (1,752) (2,706) Sale of tangible fixed assets 424 327 Purchase of own shares (828) (400) Sale of own shares held - 72 ______________________________________________________________________________________________________ (2,156) (2,707) ______________________________________________________________________________________________________ Equity dividends paid (17,118) (15,182) ______________________________________________________________________________________________________ ______________________________________________________________________________________________________ Cash (outflow)/inflow before management of liquid resources and financing (52,457) 57,523 Management of liquid resources and financing Decrease/(increase) in short term deposits 51,544 (75,544) Increase in borrowings - 12,000 Issue of ordinary share capital 2,570 4,318 ______________________________________________________________________________________________________ 54,114 (59,226) ______________________________________________________________________________________________________ Increase/(decrease) in cash 1,657 (1,703) ______________________________________________________________________________________________________ Bovis Homes Group PLC Group reconciliation of movements in shareholders' funds For the year ended 31 December 2003 2003 2002 Restated (see note 1) Â£000 Â£000 ______________________________________________________________________________________________________ Opening shareholders' funds as previously stated 396,974 335,518 Prior year adjustment to reflect own shares netted against equity (1,100) (1,333) ______________________________________________________________________________________________________ Opening shareholders' funds as restated 395,874 334,185 Purchase of own shares (828) (400) Sale of own shares held - 107 UITF 17 expense of own shares held 537 526 Issue of ordinary shares 2,570 4,318 Total recognised gains and losses for the year 86,513 73,503 Dividends paid and proposed (19,187) (16,365) ______________________________________________________________________________________________________ Closing shareholders' funds 465,479 395,874 ______________________________________________________________________________________________________ Group reconciliation of operating profit to operating cash flows For the year ended 31 December 2003 2003 2002 Â£000 Â£000 ______________________________________________________________________________________________________ Operating profit 129,233 109,591 Depreciation and amortisation 1,881 1,636 Profit on disposal of non property tangible fixed assets (38) (19) Increase in stocks (101,426) (496) (Increase)/decrease in debtors (2,219) 332 Decrease in creditors (19,623) (3,645) ______________________________________________________________________________________________________ Net cash inflow from operating activities 7,808 107,399 ______________________________________________________________________________________________________ Group reconciliation and analysis of net debt For the year ended 31 December 2003 2003 2002 Â£000 Â£000 _______________________________________________________________________________________________________ Increase/(decrease) in cash in the year 1,657 (1,703) Cash (inflow)/outflow from change in debt (51,544) 63,544 _______________________________________________________________________________________________________ Change in net debt (49,887) 61,841 Opening net funds/(debt) 4,613 (57,228) _______________________________________________________________________________________________________ Closing net (debt)/funds (45,274) 4,613 _______________________________________________________________________________________________________ Analysis of net funds/(debt): Cash 5 4 Short term deposits 30,000 81,544 Bank overdraft (279) (1,935) Borrowings (75,000) (75,000) _______________________________________________________________________________________________________ (45,274) 4,613 _______________________________________________________________________________________________________ Notes to the accounts 1 Basis of preparation The Group accounts include the accounts of the Company and its subsidiary undertakings all of which are made up to 31 December 2003. The financial information included within this statement does not constitute the Company's statutory accounts for the year ended 31 December 2002 or 2003. The information contained in this statement has been extracted from the statutory accounts of Bovis Homes Group PLC for the year ended 31 December 2003, which have not yet been filed with the Registrar of Companies, on which the auditors have given an unqualified audit report, not containing statements under section 237(2) or (3) of the Companies Act 1985. The Group has adopted early Urgent Issues Task Force Abstract 38: 'Accounting for ESOP trusts' for the 2003 year end. As a result of the implementation of the requirements of this Abstract, shares in the Company held through Group controlled employee share scheme trusts which were previously reported as investments are now recorded as a deduction from equity. At 31 December 2003, the carrying value of these shares was Â£1,390,000 which has been set against the profit and loss reserve in the balance sheet. Changes in own shares held and UITF 17 expense charges are recorded in the Group reconciliation of movements in shareholders' funds. The comparative figures for investments and profit and loss reserve have been amended to reflect the change in treatment. The comparative figures included in the Group reconciliation of movements in shareholders' funds have been restated in a prior year adjustment to reflect this changed treatment such that shareholders' funds at 1 January 2002 have been reduced by Â£1,333,000. The Group has implemented the transitional rules of FRS 17: 'Retirement Benefits 'during the year. Required disclosures arising from this implementation are included in the Company's statutory accounts for the year ended 31 December 2003. 2 Earnings per ordinary share Basic earnings per ordinary share for the year ended 31 December 2003 is calculated on profit after tax of Â£86,513,000 (2002: Â£73,503,000) over the weighted average of 116,523,457 (2002: 115,667,157) ordinary shares in issue during the year. Diluted earnings per ordinary share is calculated on profit after tax of Â£86,513,000 (2002: Â£73,503,000) over the diluted weighted average of 117,267,429 (2002: 116,616,844) ordinary shares potentially in issue during the year. The diluted average number of shares is calculated in accordance with FRS 14: 'Earnings Per Share'. The dilutive effect relates to the average number of potential ordinary shares held under option during the year. 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 year. Only share options which have met their cumulative performance criteria have been included in the dilution calculation. There is no dilutive effect on the profit after tax used in the diluted earnings per share calculation. The weighted average number of shares excludes shares held in employee share trusts where dividends have been waived. Notes to the accounts (continued) 3 Taxation 2003 2002 Â£000 Â£000 _______________________________________________________________________________________________________ Current tax for the year 37,027 31,403 Adjustment in respect of prior years (460) (336) _______________________________________________________________________________________________________ Total current tax 36,567 31,067 Deferred tax (credit)/charge for changes to timing differences (67) 133 _______________________________________________________________________________________________________ 36,500 31,200 _______________________________________________________________________________________________________ During the year prior year tax positions were finalised leading to the release of a tax provision amounting to Â£460,000 (2002: Â£336,000). A deferred tax credit of Â£67,000 (2002: charge of Â£133,000) arose as a result of the movement of timing differences during the year. 4 Dividends The proposed final dividend of 11.1 pence net per ordinary share will be paid on 21 May 2004 to holders of ordinary shares on the register at the close of business on 23 April 2004. The dividend when added to the already paid interim dividend of 5.3 pence, totals 16.4 pence for the year. This information is provided by RNS The company news service from the London Stock Exchange

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