16 January 2012
Bovis Homes Group PLC
("The Group")
Trading update
2011 profit expected to be in line with current market consensus1
Strong forward trading position for 2012
Overview
Bovis Homes Group PLC is today issuing the following trading update ahead of reporting its preliminary results for the year ended 31 December 2011 on Monday 27 February 2012.
The Group has delivered significant profit growth in 2011 and is well positioned to improve returns further in 2012 and beyond.
Sales and profits growth
The Group expects to announce a profit before tax for 2011 in line with current market consensus1 expectations.
The Group legally completed 2,045 homes in 2011 (2010: 1,901), an increase of 8%, of which 1,624 were private (2010: 1,592 including the 215 home joint venture deal) and 421 were social (2010: 309). The underlying increase in private legal completions, excluding the joint venture deal, was 18%. The increase in social housing was driven by the significant number of new site openings in 2011.
The average private sales price increased by 4.5% to £180,100 in 2011 (2010: £172,400). This increase was almost entirely due to the improved mix of homes as the Group increases the contribution from family homes in the south of England. Combined with the higher proportion of social homes, the overall average sales price in 2011 was £162,400 (2010: £160,700).
The Group expects the 2011 housing gross margin to be in excess of 20% (2010: 17.9%), as a result of the full year effect of build cost savings and the initial contribution from legal completions on stronger profit margin sites acquired since the housing market downturn. With overheads in line with expectations, the Group anticipates that for 2011 the operating margin will be circa 10% (2010: 7.3%) and the return on capital employed will approach 5%.
During 2011, the Group achieved 1,653 net private reservations (2010: 1,334), an increase of 24%. This reflected an 11% increase in the average number of active sales outlets in 2011 to 73 from 66 in 2010 and an improvement in the net reservations per site per week of 11% to 0.43 versus 0.39 in 2010.
At 1 January 2012, the Group held forward sales for 2012 delivery of 568 homes, an increase of 35% compared to the 420 homes at the start of 2011, reflecting both the stronger private reservations position and an improved level of social housing reservations.
Improving efficiency of capital employed
During 2011, 18 sites and circa 2,600 plots have been added to the consented land bank, of which circa 1,000 plots were converted from strategic land. 88% of these plots are located in the south of England. The pipeline for land remains strong, with terms agreed to acquire around 20 sites, which will deliver over 2,000 plots.
The Group has continued to review its land holdings to rebalance capital employed through land sales on its larger sites. The Group achieved its five targeted land sales for 2011. Of these, four land sales legally completed in 2011, selling circa 500 consented plots with total income of circa £38 million. With one of these land sales being a land swap, circa £30 million will be recognised as revenue, with £2.3 million of profit, in 2011. The fifth land sale legally completed on 13 January 2012.
Overall, consented plots in the land bank ended 2011 marginally lower compared to the end of 2010 despite the increased site numbers, in line with the Group's focus on delivering improved efficiency of capital employed. To this end, the Group has also reduced housing work in progress at the end of 2011 to 949 homes worth of production (2010: 1,093 homes worth of production).
The Group remained in a strong cash position at the year end, with net cash of £51 million, having started 2011 with £52 million of net cash.
Market conditions
Mortgage approval volumes have remained stable at historically low levels of activity, with ongoing challenges for first time buyers, given the high levels of deposits required by mortgage lenders. With a backdrop of continuing economic and employment uncertainty, trading conditions are expected to remain challenging during 2012. That said, the Group regards positively the anticipated launch of the Government backed mortgage indemnity scheme and welcomes the stimulus that this scheme can provide to activity in the new build homes market. The mortgage indemnity scheme is expected to work in a similar way to the Group's existing Perfect 10 product. The Group will work with the industry, lenders and the Government with the aim of launching the new scheme in good time for the spring market this year.
Outlook
The Group opened 2012 operating from 80 active sales outlets. With continuing investment in consented land including an expected strong pull through of strategic land, the Group anticipates that average active sales outlets will grow by 16% to circa 85 in 2012. Based on current market conditions continuing, the Group expects to deliver higher volumes, at an increased average sales price with an improved profit margin, leading to a significant increase in profits in 2012. With strong focus on controlling capital employed, this will lead to a return on capital employed of at least 7% in 2012.
Commenting on the Group's achievements in 2011 and looking forward, David Ritchie, Chief Executive of Bovis Homes, said:
"We are delighted with the improved returns delivered in 2011. The Group is well placed for 2012 with increasing active sales outlets and stronger profit margins. Based on current market conditions continuing, the Group can deliver significantly increased profit and, coupled with improving efficiency of capital employed, a stronger return on capital employed in 2012 and beyond."
1: Reuters mean consensus of pre tax profit (pre exceptional) for 2011 financial year at 15 January 2012 of £31 million.
Conference call for analysts and investors
David Ritchie, Chief Executive and Jonathan Hill, Group Finance Director of Bovis Homes will host a conference call at 08:30am today, Monday 16 January 2012, to discuss the trading update.
To access the call please dial +44 (0)20 3140 0668 and enter pincode 148599# when prompted. Please dial in five minutes prior to the start of the conference call to allow time for registration. A recording of the conference call will be available until midnight on Friday 10 February 2011. To access the playback facility, please dial 020 3140 0698 and enter conference reference 381941# when prompted.
Certain statements may be forward looking statements. Forward looking statements involve evaluating a number of risks, uncertainties or assumptions that could cause actual results to differ materially from those expressed or implied by those statements. Forward looking statements regarding past trends, results or activities should not be taken as a representation that such trends, results or activities will continue in the future. Undue reliance should not be placed on forward looking statements.
-ENDS-
Enquiries: David Ritchie, Chief Executive
Jonathan Hill, Group Finance Director
Bovis Homes Group PLC
Tel: 01474 876200
Andrew Jaques, James White, Giles Robinson
MHP Communications
Tel: +44 (0)20 3128 8100
