Record profit for Bovis Homes in 2015 drives further improvement in return on capital employed

Record profit for Bovis Homes in 2015 drives further improvement in return on capital employed

Bovis Homes Group PLC is today issuing the following trading update ahead of reporting its final results for the year ended 31 December 2015 on Monday 22 February 2016.

Significant revenue and profit growth

We expect to announce a significant increase in revenue and profit before tax driven by a record number of legal completions and a strong increase in average sales price. The Group delivered 3,934 homes which represents an increase of over 8% compared to the prior year (2014: 3,635). Average sales price increased by 7% to circa £231,000 (2014: £216,600).
With this result we will achieve our targeted improvement in capital turn to in excess of one times. This combined with an anticipated increase in operating profit margin to over 17% should enable the Group to increase its return on capital employed to in excess of 18% for 2015 (2014: 16.2%).

Strong land investment to support continued growth

We continue to operate successfully in a benign land market with strong acquisitions in the year and further progress made with our strategic land assets. In 2015, we acquired 35 consented sites adding 6,058 plots to our consented land bank of which 2,217 plots (37%) were converted from our strategic land assets. In addition, we are progressing the acquisition of a further five strategic sites where planning has been achieved for an additional circa 1,600 consented plots. The average return on capital employed of the land acquired in 2015 based on investment appraisal at the time of acquisition is circa 28%, supported by a gross margin of over 26%. As a result of another year of strong land investment, our consented land bank has grown to around 19,500 plots, supporting our growth strategy.
Following the continued good progress with our valuable strategic land assets the strategic land bank at the end of the year stands at circa 23,000 plots. Having achieved resolutions to grant planning consent at North Whiteley (circa 1,700 plots) in October and at Bexhill (circa 1,000 plots) in November, good progress has been made in finalising the planning agreements necessary to acquire these high value sites. During December, our site at Wellingborough obtained revised planning consent for 3,650 plots which supports the start of housebuilding on site during 2016 with the expectation of achieving a profit margin in excess of our hurdle rates. Development partners are being identified for these larger sites as appropriate, in line with the Group’s aims for capital efficiency.

Balance sheet

The Group had net cash of £30 million at the year end, having started 2015 with £5 million of net cash, as we maintained our tight capital discipline during a year of strong land investment.

Positive trading and outlook

During 2015, the Group traded on an average of 102 sales outlets, an increase of 6% over the prior year, and achieved a 10% increase in the number of private reservations (excluding PRS) compared with 2014. The Group closed the year trading on 101 sales outlets. We remain positive of the Group’s ability to increase sales outlets during 2016 to support further volume growth.
The Group has started 2016 with a strong forward sales position with 2,003 total reservations, an increase of 14% over the prior year’s 1,752 forward reservations. Excluding the impact of PRS, private forward reservations increased by 11% to 841 (2015: 756).

Current housing market conditions together with our improved forward sales position and anticipated growth in average sales outlets support our expectation of continued growth. The profile of our anticipated sales outlet launches means that legal completions in 2016 will be weighted to the second half in a similar manner to 2015.
Subcontract labour availability remains a key constraint in the market as a whole. Whilst this has driven cost inflation we continue to see signs of these cost increases moderating.

Strategy on track

In 2015, the Group has continued to deliver its growth strategy and improve shareholder returns. We start 2016 with a new structure of eight operating regions and an improved mix of sites focused on traditional family housing in the South of England which will support the delivery of further growth in 2016 and beyond.
Our strong pipeline of strategic land positions the Group well to grow further the consented land bank and increase our sales outlets over time. Volume growth will continue to come from sustainable rates of production and sales across a greater number of sales outlets. Average sales prices continue to increase driven both by improved mix and favourable market conditions.

Commenting, David Ritchie, Chief Executive of Bovis Homes, said: “We have delivered the Group’s highest ever level of profit driven by another year of record volume in 2015. Our strategic plan is on track and we have enhanced our business structure for the start of this year to manage the planned further growth in volume. We have invested well during 2015 in new consented land assets and achieved a strong level of conversion from our strategic land bank. Assuming market conditions remain stable we are confident in our ability to improve return on capital employed further in 2016.”

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