Preliminary Results - Part 1

Bovis Homes Group PLC 12 March 2001 Part 1 BOVIS HOMES GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2000 Issued 12 March 2001 The Board of Bovis Homes Group PLC today announced its preliminary results for 2000. * Pre tax profit increased by 21% to £67.1 million (1999: £55.4 million) * Earnings per share increased by 23% to 42.0p (1999: 34.2p) * Operating margin increased to 23.2% (1999: 20.5%) * Return on average capital employed increased to 23.2% (1999: 23.1%) * Plots with planning consent at 10,133 plots (4.3 years' supply on 2000 completions) * Strategic land holdings of 18,016 potential plots (1999: 17,003 potential plots) * Final dividend of 7.8p net per ordinary share making 11.7p for the year, an increase of 8.3% (3.6 times covered) * Year end net borrowings of £61.0 million (21% gearing) Commenting on the results, Malcolm Harris, the Chief Executive of Bovis Homes Group PLC said: 'The Group continued to enhance shareholder value by delivering improvements in profits, operating margins and return on capital employed. We enter the current year in a strong position with excellent land holdings, products and improved processes. Housing profit margins are running ahead of budget and cumulative sales reservations are above the comparative period last year. To effectively manage costs during the exceptional weather conditions experienced over the winter period, building works on a number of sites have been delayed. This may result in the split of profits between the first and second half years being more weighted towards the latter six months. However, based on the current economic outlook the Board is confident of another successful year.' Enquiries: Malcolm Harris, Chief Executive Bovis Homes Group PLC Tel: 020 7321 5010 on Monday 12 March Tel: 01474 872427 Thereafter Results Andrew Best / Emily Bruning issued Shared Value Limited by: Tel: 020 7321 5010 on Monday 12 March Tel: 020 7321 5010 thereafter Chairman's Statement The Group had another very successful year, with basic earnings per share increasing by 23% in 2000 to 42.0 pence. The strong start to the year was followed by a more constrained market over the summer period with improved activity in the autumn. Over the year as a whole the operating margin was increased to 23.2% of turnover and the return of operating profit on capital employed also amounted to 23.2%. Results Profit on ordinary activities before taxation for the year ended 31 December 2000 rose by 21% to £67.1 million, compared with £55.4 million in 1999. This result was achieved from total turnover of £305.0 million, which was approximately 10% higher than the previous year notwithstanding slightly lower unit volume. The average size of unit completed in the year was greater than in 1999 and this together with improved specification and new product types raised the average sales price from £109,400 to £123,300. Dividend The Board proposes a final dividend for the year ended 31 December 2000 of 7.8 pence to be paid on 25 May 2001 to shareholders on the register at the close of business on 27 April 2001. This dividend when added to the interim dividend of 3.9 pence paid on 24 November 2000 totals 11.7 pence for the year and is covered 3.6 times by the basic earnings per share of 42.0 pence. The total dividend per share for the year represents an increase of 8.3% over the total dividend for 1999. Market conditions Mortgage rate rises between September 1999 and February 2000 together with the abolition of mortgage interest tax relief and increases in rates of stamp duty in April were assimilated into the market place and had a negative impact on demand during the summer months. This contributed to slowing the annual rate of growth in house prices to a level more in line with earnings growth. In January 2001 the Halifax reported that the annual house price growth had declined to 3.1% at December 2000. The Group's trading activities demonstrated a return to normal seasonal market conditions in the last quarter of the year. Strategy In order to maximise total shareholder return the Group has continued to vigorously apply its key strategies with due recognition of an appropriate level of risk. It is relevant to restate these strategies which are: * a consistent land investment and holding policy relating to short, medium and long term supply; * a continuous evaluation of all products and processes to ensure the highest levels of efficiency and profitability; * the minimisation of risk by ensuring wide spread of product range and geographic coverage; * the maintenance of a highly effective and competitive management and overhead structure; * the maintenance of clear progressive policies on health, safety and environmental matters including training. Industry consolidation In recent months the house-building sector has seen some consolidation as a result of merger and acquisition activity. It has been suggested that such action may increase the advantages of bulk purchasing of materials and larger sites. Your Board has reviewed these activities and believes that Bovis Homes already has the capabilities to secure such benefits. The Group continues to be successful in its land acquisition strategy and buys materials at keen prices using bulk purchasing and partnering to mutual benefit. It has a continuous improvement programme and is developing new ideas to improve its production methods. The Board will continue to monitor the sector and assess whether we can gain advantage from acquisitions in the future. The Board The composition of the Board and the individual responsibility of Board members did not change during the year and comprised seven executive directors led by the Chief Executive, Malcolm Harris, and three independent non-executive directors including myself as Chairman. By agreement with the Company JE Ditheridge is to retire from office on 31 March 2001. On behalf of the Board I would like to express my thanks to Jim Ditheridge for his long service with the Group and his contribution to the Board. Authority to purchase shares It is proposed to renew the authority of the Company to purchase up to 10% of its own shares at the forthcoming AGM. At the present time, the directors have no wish to exercise the authority to purchase any of the shares of the Company but consider that it is appropriate to have the flexibility to do so. Employees These results could not have been achieved without a great deal of hard work and effort from our employees, for which the Board expresses thanks. Such dedication provides great confidence for the future. Prospects According to recent economic comment, the UK economy is forecast to slow over the course of 2001, with many forecasting GDP circa 2.5% as against 3.0% assessed for 2000. On this basis there are real prospects for further reductions in interest rates and ongoing underlying inflation below the Government's target of 2.5%. With earnings growth projected at rates over 4.0%, affordability in the housing market is forecast to remain positive. Given the Group's trading experience to date and assuming there are no significant fluctuations from the above economic scenario or other unforeseen circumstances the Board is confident of another successful year. Nigel Mobbs Chairman Chief Executive's operational review Trading environment The new millennium started well with high levels of employment and underlying inflation below the Government's target of 2.5% which continued throughout 2000. Actions taken by the Bank of England's Monetary Policy Committee up to February 2000 assisted economic stability and despite the interest rate increases the standard mortgage rate level was still low compared with the last twenty five years. The Chancellor's budget in March 2000 affected affordability through withdrawal of tax relief on mortgages and added further tax burdens in the form of stamp duty increases which had a marked constraining effect on sales through the summer months. Despite the budget changes, affordability remained positive due to increases in average earnings during the year of approximately 4.3% and a very competitive mortgage market. The strong economic base assisted house sales to return to a more normal seasonal pattern in the autumn. The average house price increase for the year was reported at 3.1% by the Halifax with new house prices increasing by 6.4%. There were, however, significant regional variations in price levels. The overall number of property transactions recorded in the year fell by 2.5%. Performance Operating in a constrained market, Bovis Homes achieved all of its key objectives with particular emphasis upon investment to provide long term shareholder value. The Group's focus upon product development and process efficiency continues to deliver excellent returns. New designs introduced during the year have been well received and will provide a strong platform to expand the business. The Group's average sales price increased to £123,300, a 12.7% increase compared with 1999. Sales price per square foot, net of incentives, increased by 11.4%. Building costs per square foot increased by 7.7% including specification upgrades. The Group's operating margin improved to 23.2% from 20.5% in 1999 reflecting the combined benefits of new products, specification upgrades and process improvements. Regional performances Operating margins Year ended 31 December 2000 1999 % % -------- -------- South East 26.4 23.1 South West 18.1 15.1 Central 22.7 20.1 Retirement Homes 25.8 23.1 -------- -------- Group 23.2 20.5 -------- -------- All regions in the business significantly increased their operating margins which are substantially above the average for the industry. The Group continued to pursue opportunities to trade its commercial land holdings during 2000 and successfully completed sales of its Swindon commercial land in South West region and Cambourne commercial land in Central region. Unit completions and average sales price Year ended 31 December 2000 1999 Units Average Units Average sales sales price price £ £ South East 931 124,600 1,062 110,900 South West 645 103,800 604 95,500 Central 650 135,200 641 114,700 Retirement Homes 134 150,200 122 137,900 ------ ------- ------- ------- Group 2,360 123,300 2,429 109,400 ------ ------- ------- ------- The Central region result included 120 unit completions in the Northern area, which contributed £3.2 million of gross profit. Sector performances Product mix and average sales price Year ended 31 December 2000 1999 Units Average Units Average sales sales price price House type £ £ Two bedroom 416 84,700 446 71,700 Three bedroom 592 105,600 660 92,600 Four bedroom 890 152,200 912 134,900 Five or more bedroom 98 249,600 94 234,600 Social Housing 230 57,600 195 55,100 Retirement Homes 134 150,200 122 137,900 ----- ------- ------- ------- Group 2,360 123,300 2,429 109,400 ----- ------- ------- ------- The new range of three storey town houses and room in the roof homes contributed approximately 4% of the legal completions during the year with a minimum of 15% forecast for 2001. Construction The weather conditions endured, particularly in the second half of the year, were appalling (with the wettest autumn since 1872 recorded) and only an excellent performance from our site based employees limited the adverse effect on the build programme. Although overall house production was in line with expectations, build completion dates were delayed leading to later legal completions and a correspondingly higher than anticipated level of trade-in property stock at the end of December. The re-sale of trade-in stock has been very strong since the year end with no loss on book value and stocks returning to a more normal level. Research and development Throughout 2000 Bovis Homes operated its continuous improvement programme trialling and installing a number of new materials and methods capitalising on pre-fabrication, pre-finishing and latest available technology, working with many external bodies including the National House Building Council, Building Research Establishment, House Builders Federation, Construction Industry Training Board and many trade suppliers. The Group continued to undertake the research and development of the application of autoclaved aerated concrete (aac) in the UK, including the potential of reinforced units. Working closely with the Construction Industry Training Board, preliminary trials commenced in 2000 with the development of the concept of multi-skilled house building teams with the object of alleviating the severe skills shortage and recruitment issues facing the industry. Work is ongoing with leading plant and equipment manufacturers to further advance mechanical handling techniques on site in line with the increased use of pre-assembled, pre-finished components. We continue to work on partnering arrangements with our suppliers and last year provided finance and technical assistance to assist with their own research and development. Land and planning Severe delays are being experienced in obtaining planning consent pursuant to the publication of the Government's new planning guideline, PPG3. Despite these impositions and intense competition for prime sites, the Group has managed to maintain its land holdings with consent at 10,133 plots as at 31 December 2000 which represents approximately 4.3 years' supply based upon 2000 legal completion levels. The Group's strategy to invest in prime locations with a wider geographic spread has been met during the year and a large number of planning applications are pending resolution which should further strengthen our consented land bank during 2001. The average plot cost of land as at 31 December 2000 was £28,500 which represented 21.9% of the average sales price in the year of £130,400, excluding social housing. The plots held with consent at 31 December 2000 are anticipated to generate a higher average sales price as new products are developed. With regard to the strategic land, a number of large developments are at an advanced stage of planning being allocated in Approved Plans or brownfield sites which should achieve consent under the Government's new guideline. The aforementioned planning delays limited the number of plots transferred from strategic to consented land bank during the year to 581 plots at a 16% discount to market value. As these delays are overcome, we anticipate a substantial increase in the transfer of plots from strategic land to consented land in 2001. Of the closing consented land bank 45% of the plots held were promoted through the Group's strategic holdings. Unit completions originating from strategic land contributed 49% (1999: 46%) of the Group's development profit in the year. 31% (1999: 32%) of the unit completions in the year were built on previously used land. Consented land bank Total plots as at 31 December 2000 1999 Plots Plots ------- ------- South East 3,385 3,252 South West 2,083 2,211 Central 4,294 4,419 Retirement Homes 371 453 ------- ------- Group 10,133 10,335 ------- ------- Years' supply based upon completions in the 4.3 4.3 year ------- ------- Strategic land bank Total potential plots as at 31 December 2000 1999 Plots Plots ------- ------- South East 10,446 10,248 South West 4,000 3,657 Central 3,495 3,032 Retirement Homes 75 66 ------- ------- Group 18,016 17,003 ------- ------- Total potential plots in 'growth locations' as 2000 1999 at 31 December Plots Plots South East 5,439 6,440 South West 2,014 1,722 Central 1,128 999 Retirement Homes 75 66 ------- ------ Group 8,656 9,227 ------- ------ Pursuant to the publication of PPG3 and recent decisions by a number of planning authorities, it is probable that a number of sites either owned or under option may no longer be released within the current plan period. One large holding in Hampshire has been part allocated in the current plan with the balance shown as potential development post 2011. The Group's potential plots in 'growth locations' reflect the changed planning position. Within our strategic holdings there are a number of investments which are redevelopment sites not allocated for residential consent in the current plan which we believe will receive consent in the short to medium term. MORE TO FOLLOW

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