Interim report 2007 Bovis Homes Group PLC www.bovishomes.co.uk/plc Contents 01 02 Interim financial highlights Chairman’s interim statement 04 Group income statement 05 Group balance sheet 06 Group statement of cash flows 07 Group statement of recognised income and expense 08 Notes to the accounts 11 12 Independent review report by KPMG Audit Plc to Bovis Homes Group PLC Directors and officers Principal offices Interim financial highlights Pre tax profit £58.4m *£53.1m 2007 2006 Operating margin 22.5% *22.7% Earnings per share 34.2p *31.4p Dividends per share 17.5p 10.0p *2006 comparatives stated before a one off pension credit of £3.5 million (2007: £nil) 01 Results For the six months ended 30 June 2007 the Group achieved a pre-tax profit of £58.4 million as compared to £53.1 million in the same period in 2006 (stated before a one off pension credit of £3.5 million). At 10% growth, this represents good progress by the Group. As a result of this progress, basic earnings per share improved by 8.9% to 34.2p as compared with 31.4p in the prior first half, stated before the one-off pension credit. At £259.9 million, total Group revenue grew by 3.8% (2006: £250.5 million). Within this, the volume of legal completions was maintained, with 1,256 homes legally completed, as compared to 1,262 homes in the same half in the previous year. Of these, 13% or 164 units arose from social housing; a slightly higher proportion than that seen in 2006, where 141 units or 11% arose from social housing. The Group’s average sales price for the first half of 2007 was £189,600 compared to £188,700 for the comparable six months of 2006, representing a 0.5% year over year increase. This increase has arisen as a result of pricing gains on a square- footage basis, with the average sales price per square foot growing by 3.8%. Offsetting this, and as a result of an increase in the selling mix of smaller one and two bedroom homes, the average size of homes sold reduced to 995 square feet, from the previous year’s first half average of 1,028 square feet, reflecting the Group’s successful transition to selling good quality mid-market homes. Land sales totalled £19.1 million as compared to £10.2 million in the first half of 2006, demonstrating both the ongoing strength in the land market, and the weighting of planned land sales to the first half in 2007. The Group was able to hold its operating margin broadly in line in the first half of 2007, as compared to the same period in 2006, with a margin of 22.5% as compared to 22.7% (stated before the one off pension credit). This outcome benefited from good control of overhead expenditure during the period. Chairman’s interim statement Tim Melville-Ross Dividend +75% 17.5p Bovis Homes Group PLC is pleased to announce its interim results for the six months ended 30 June 2007. With 10.0% pre-tax profit growth and earnings per share growth of 8.9%, the Group has delivered a good set of results for the first half of the year despite a backdrop of rising interest rates during this period. The Group’s interim dividend per share has been increased by 75%, which is reflective of the Group’s decision to re-balance the annual dividend payments between interim and final whilst maintaining its existing commitments in terms of its full year dividend. 02 Dividends The interim dividend of the Company will amount to 17.5p net per share, an increase of 75% over 2006’s interim dividend of 10.0p. This dividend will be paid on 23 November 2007 to holders of ordinary shares on the register at the close of business on 28 September 2007. The Group continues to anticipate a 2007 full year dividend of 35.0p net per share, but has made a decision to alter the proportion of the full year dividend traditionally paid at the interim, from around 33% to around 50% of the anticipated full dividend reflecting the current strong cash position of the Group. This will give shareholders both the advantage of receiving dividends in a more balanced way and a timing benefit in 2007. The Board reiterates its previously advised statement in respect of dividends which is that it intends, conditional on any necessary approvals required at future general meetings, to increase the full year dividend for 2007 to 35.0p net per share followed by a 5.0p per share increase in 2008. This commitment, which is subject to a stable business environment, will double the full year dividend to 40.0p net per share from its 2004 base of 20.0p. The Board intends to offer a scrip dividend alternative, pursuant to which the shareholders may elect to receive the whole or part of their dividend in new ordinary shares credited as fully paid instead of cash, for the 2007 interim dividend. The Board also anticipates making a statement on its future intentions in respect of dividends beyond 2008 at the time of its 2007 preliminary results announcement in March 2008. Borrowings and financing Following a period of good cash generation, the Group enjoyed net cash in hand at 30 June 2007 of £108 million: up slightly from the cash position at the end of 2006 which was £103 million. Net borrowing during this period was minimal, as was the Group’s net financing charge, at £0.1 million (2006: £3.8 million). Including land creditors, effective average gearing was negligible over the first half of 2007 at 2%. Of this net financing charge, around £2.4 million (2006: £1.1 million) relates to non-cash imputed interest arising from land creditors, and reflects the increased level of land creditors held on the balance sheet as at 30 June 2007 versus 2006. The balance is largely income arising from cash on deposit, offset by cash interest arising from the Group’s borrowings. Land The Group has continued to pursue its twin-track strategy of acquisition and promotion of strategic land, alongside the acquisition of consented land, although the Group’s caution in acquiring consented land has continued into 2007. The controlled and consented land bank now stands at 11,674 plots, as compared with 12,395 plots at the end of 2006. The strategic land bank at 30 June 2007 stood at 24,594 potential plots as compared to 24,719 potential plots held at the start of the year. The Group remains well placed on a number of its major strategic projects with good potential to be converted into the consented land bank in the second half of 2007. A number of additional attractive new opportunities are being progressed which the Group believes will assist in replenishing its strategic land bank. Pensions As at 30 June 2007, the Group’s actuary estimated that the Group’s defined benefits pension scheme had swung from a deficit of £5.1 million to a small surplus of £2.8 million. The drivers of this change were twofold: firstly the last in a series of agreed special contributions made by the Group to the scheme, in this case totalling £2.0 million; secondly, the favourable impact arising from the actuarial assumptions applied to the estimation of the scheme’s liabilities, in particular the movement in the assumption for the discount rate derived from bond yields, which has had regard to market movements since the end of the previous year. Looking ahead, there is a triennial valuation of the scheme as at 30 June 2007 in progress. Cumulative reservations The Group held cumulative reservations for 2007 legal completion for 2,282 homes as at 30 June 2007 as compared to 2,273 homes at the same point in 2006 which represented a small increase in volume. Market conditions With interest rates increasing both in late 2006 and persistently during 2007, the market has begun to show signs of a slowing rate of growth in house prices. What is also apparent is that the positive national statistics on house price inflation produced by a number of market commentators benefit markedly from exceptional strength in London, and to a lesser degree Scotland and Northern Ireland. The Group does not trade in any of these markets. In the geographic markets in which the Group trades, progress for the Group has been steady, but not exceptional, with cancellation rates broadly consistent with prior years. However, consumers appear to be taking longer in their decision-making given uncertainty over the direction of interest rates going forward. Prospects Looking forward, the Group is confident in its ability to procure and promote strategic land at a discount to market, and to build and sell attractive, good quality mid-market homes at a competitive price. Based on the trends seen in the market during the first half of 2007, the Group anticipates making progress in terms of volume growth against 2006. Tim Melville-Ross Chairman 10 September 2007 Bovis Homes Group PLC 03 Six months ended 30 June 2007 (unaudited) £000 Six months ended 30 June 2006 (unaudited) £000 Year ended 31 Dec 2006 (audited) £000 259,931 250,495 597,290 (175,301) (167,402) (407,204) 84,630 (26,116) 58,514 3,258 (3,363) (105) 58,409 (17,361) 83,093 (22,748) 60,345 74 (3,860) (3,786) 56,559 (16,862) 190,086 (48,803) 141,283 654 (6,453) (5,799) 135,484 (40,446) 41,048 39,697 95,038 34.2p 34.1p 20.0p - - 20.0p 33.4p 33.3p - - 16.7p 16.7p 79.8p 79.5p - 10.0p 16.7p 26.7p Group income statement For the six months ended 30 June 2007 Revenue Cost of sales Gross profit Administrative expenses Operating profit before financing costs Financial income Financial expenses Net financing costs Profit before tax Income tax expense Profit for the period attributable to equity holders of the parent Earnings per share Basic Diluted Dividend per share charged in period 2006 final paid May 2007 2006 interim paid November 2006 2005 final paid May 2006 04 Bovis Homes Group PLC www.bovishomes.co.uk/plc Group balance sheet At 30 June 2007 Assets Property, plant and equipment Investments Deferred tax assets Trade and other receivables Retirement benefit asset Total non-current assets Inventories Trade and other receivables Cash Total current assets Total assets Equity Issued capital Shared premium Hedge reserve Retained earnings Total equity attributable to equity holders of the parent Liabilities Bank loans Trade and other payables Retirement benefit obligations Provisions Total non-current liabilities Bank loans Trade and other payables Tax liabilities Total current liabilities Total liabilities 30 June 2007 (unaudited) £000 30 June 2006 (unaudited) £000 31 Dec 2006 (audited) £000 14,581 14,669 14,778 22 3,187 2,734 2,830 23 6,952 3,301 - 22 6,089 2,850 - 23,354 24,945 23,739 745,898 42,378 132,829 921,105 775,121 36,826 9,816 821,763 758,078 22,446 142,841 923,365 944,459 846,708 947,104 60,376 156,290 4 483,121 699,791 24,995 35,358 - 2,004 62,357 - 165,480 16,831 182,311 60,027 151,118 (292) 416,195 627,048 20,265 23,384 7,740 1,157 52,546 20,152 132,612 14,350 167,114 60,288 155,494 (112) 462,162 677,832 25,100 44,264 5,140 2,114 76,618 15,060 159,368 18,226 192,654 244,668 219,660 269,272 Total equity and liabilities 944,459 846,708 947,104 These interim financial statements were approved by the Board of directors on 7 September 2007. Bovis Homes Group PLC 05 Group statement of cash flows For the six months ended 30 June 2007 Cash flows from operating activities Profit for the period Depreciation Financial income Financial expenses Profit on sale of property, plant and equipment Equity-settled share-based payment expenses Income tax expense Operating profit before changes in working capital and provisions (Increase)/decrease in trade and other receivables Decrease in inventories (Decrease)/increase in trade and other payables Decrease in provisions and employee benefits Cash generated from operations Interest paid Income taxes paid Net cash from operating activities Cash flows from investing activities Interest received Acquisition of property, plant and equipment Proceeds from sale of plant and equipment Net cash from investing activities Cash flows from financing activities Dividends paid Proceeds from the issue of share capital Repayment of borrowings Net cash from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at start of period Cash and cash equivalents at end of period 06 Bovis Homes Group PLC www.bovishomes.co.uk/plc Six months ended 30 June 2007 (unaudited) £000 Six months ended 30 June 2006 (unaudited) £000 Year ended 31 Dec 2006 (audited) £000 41,048 698 (3,258) 3,363 (1) (319) 17,361 58,892 (19,962) 12,180 (2,998) (1,760) 46,352 (2,475) (18,257) 25,620 2,960 (520) 20 2,460 (23,976) 884 (15,000) (38,092) (10,012) 142,841 132,829 39,697 727 (74) 3,860 (102) (29) 16,862 60,941 36,123 6,252 (28,538) (9,000) 65,778 (3,313) (15,840) 46,625 74 (764) 133 (557) (19,826) 4,597 (15,000) (30,229) 15,839 (6,023) 9,816 8 95,038 1,499 (654) 6,453 (120) 455 40,446 143,117 51,099 23,295 19,619 (8,590) 228,540 (5,829) (35,342) 187,369 512 (1,668) 174 (982) (31,757) 9,234 (15,000) (37,523) 148,864 (6,023) 142,841 Group statement of recognised income and expense For the six months ended 30 June 2007 Effective portion of changes in fair value of interest rate cash flow hedges Deferred tax on changes in fair value of interest rate cash flow hedges Actuarial gains on defined benefits pension scheme Deferred tax on actuarial movements on defined benefits pension scheme Deferred tax on other employee benefits Net income recognised directly in equity Profit for the period Total recognised income and expense for the period attributable to equity holders of the parent Six months ended 30 June 2007 (unaudited) £000 Six months ended 30 June 2006 (unaudited) £000 Year ended 31 Dec 2006 (audited) £000 165 (49) 5,770 (1,886) (471) 3,529 41,048 385 (116) 5,990 (1,797) - 4,462 39,697 9 642 (193) 8,640 (2,592) 218 6,715 95,038 44,577 44,159 101,753 Bovis Homes Group PLC 07 Notes to the accounts 1 Basis of preparation Bovis Homes Group PLC (‘the Company’) is a company domiciled in the United Kingdom. The consolidated interim financial statements of the Company for the six months ended 30 June 2007 comprise the Company and its subsidiaries (together referred to as ‘the Group’) and the Group’s interest in associates. The interim financial statements were authorised for issue by the directors on 7 September 2007. The financial statements are unaudited but have been reviewed by KPMG Audit Plc. The interim financial statements have been prepared in accordance with the recognition and measurement criteria of IFRS’s and comply with the requirements of the Listing Rules issued by the Financial Services Authority. The interim financial statements have been prepared on a basis consistent with the accounting policies adopted for the year ended 31 December 2006. These policies are set out in the Group’s Annual Report and Accounts 2006. As the Group’s main operation is that of a housebuilder, and it operates entirely in the UK, there are no separate segments, either business or geographic, to disclose. The Group has adopted IFRS 7 on 1 January 2007, which clarifies disclosure requirements for financial instruments. Adoption of IFRS 7 has had no impact on the income statement or balance sheet of the Group. The interim financial statements do not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. The figures for the half years ended 30 June 2007 and 30 June 2006 are unaudited. The figures for the year ended 31 December 2006 have been derived from the Company’s statutory accounts for the year ended 31 December 2006 upon which the auditors issued an unqualified opinion and which have been delivered to the Registrar of Companies. 2 Earnings per share Basic earnings per ordinary share for the six months ended 30 June 2007 is calculated on profit after tax of £41,048,000 (six months ended 30 June 2006: £39,697,000; year ended 31 December 2006: £95,038,000) over the weighted average of 119,880,594 (six months ended 30 June 2006: 118,792,999; year ended 31 December 2006: 119,103,010) ordinary shares in issue during the period. Analysis of effect of one off pension credit on basic earnings per share Basic earnings per share Effect of one off IAS 19 pension credit, net of related tax Earnings per share stated before pension credit, net of related tax Six months ended 30 June 2007 (unaudited) Six months ended 30 June 2006 (unaudited) Year ended 31 Dec 2006 (audited) 34.2p - 34.2p 33.4p (2.0p) 31.4p 79.8p (2.0p) 77.8p Diluted earnings per ordinary share is calculated on profit after tax of £41,048,000 (six months ended 30 June 2006: £39,697,000; year ended 31 December 2006: £95,038,000) over the diluted weighted average of 120,229,838 (six months ended 30 June 2006: 119,232,829; year ended 31 December 2006: 119,523,151) ordinary shares potentially in issue during the period. The average number of shares is diluted in reference to the average number of potential ordinary shares held under option during the period. 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 period. Only share options which have met their cumulative performance criteria have been included in the dilution calculation. At the 2006 half year, the profit after tax used in the diluted earnings per share calculation included a £9,000 adjustment to reverse the charge within the income statement in respect of the fair value of share options in issue. This adjustment was subsequently deemed unnecessary at the full year 2006 and has been excluded from the 2006 half year calculations included in this report. The impact of restatement is immaterial. Analysis of effect of one off pension credit on diluted earnings per share Diluted earnings per share Effect of one of IAS 19 pension credit, net of related tax Diluted earnings per share stated before pension credit, net of related tax 08 Bovis Homes Group PLC www.bovishomes.co.uk/plc Six months ended 30 June 2007 (unaudited) Six months ended 30 June 2006 (unaudited) Year ended 31 Dec 2006 (audited) 34.1p - 34.1p 33.3p (2.1p) 31.2p 79.5p (2.0p) 77.5p Notes to the accounts continued 3 Dividends The following dividends per qualifying ordinary share were paid by the Group. May 2007: 20.0p (May 2006: 16.7p) November 2006: 10.0p Six months ended 30 June 2007 (unaudited) Six months ended 30 June 2006 (unaudited) 23,976 - 23,976 19,826 - 19,826 Year ended 31 Dec 2006 (audited) 19,826 11,931 31,757 An interim dividend in respect of 2007 of 17.5p per share, amounting to a total dividend of £21,010,000 based on the shares in issue as at 7 September 2007, was declared by the Board on 7 September 2007. This interim dividend will be paid on 23 November 2007 to shareholders on the register at the close of business on 28 September 2007. This dividend has not been recognised as a liability at the balance sheet date. 4 Income taxes Current tax Current tax expense for the interim periods presented is the expected tax payable on the taxable income for the period, calculated using a corporation tax rate of 30%, adjusted to take account of deferred taxation movements. Current tax for current and prior periods is classified as a current liability to the extent that it is unpaid. Amounts paid in excess of amounts owed are classified as a current asset. Deferred tax The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities using tax rates enacted or substantially enacted at the balance sheet date. 5 Reconciliation of net cash flow to net cash/(debt) Net (decrease)/increase in cash and cash equivalents Repayment of borrowings Fair value adjustments to interest rate swaps Net cash/(debt) at start of period Net cash/(debt) at end of period Analysis of net cash/(debt): Cash Bank overdraft Bank loans Fair value of interest rate swaps Net cash/(debt) Six months ended 30 June 2007 (unaudited) £000 Six months ended 30 June 2006 (unaudited) £000 (10,012) 15,000 165 102,681 107,834 132,829 - (25,000) 5 107,834 15,839 15,000 385 (61,825) (30,601) 9,816 - (40,000) (417) (30,601) Year ended 31 Dec 2006 (audited) £000 148,864 15,000 642 (61,825) 102,681 142,841 - (40,000) (160) 102,681 Bovis Homes Group PLC 09 Notes to the accounts continued 6 Group statement of changes in equity Own shares held £000 Retirement benefit obligations £000 Balance at 1 January 2006 (3,380) (17,108) Other reserves £000 1,072 Other retained earnings £000 Total retained earnings £000 Issued capital Share premium Hedge reserve Total £000 £000 £000 £000 411,576 392,160 59,699 146,849 (561) 598,147 Total recognised income and expense Issue of share capital Own shares sold Share based payments Dividends paid to shareholders - - - - - 4,193 - - - - - - - - - 39,697 43,890 - - - - (29) (29) (19,826) (19,826) - 328 - - - - 269 44,159 4,269 - - - - - - - 4,597 - (29) (19,826) Balance at 30 June 2006 (3,380) (12,915) 1,072 431,418 416,195 60,027 151,118 (292) 627,048 Balance at 1 January 2006 (3,380) (17,108) 1,072 411,576 392,160 59,699 146,849 (561) 598,147 Total recognised income and expense Issue of share capital Own shares sold Share based payments Dividends paid to shareholders - - - - - 6,048 218 95,038 101,304 - - - - - - - - - - - - 455 455 (31,757) (31,757) - 589 - - - - 449 101,753 8,645 - - - - - - - 9,234 - 455 (31,757) Balance at 31 December 2006 (3,380) (11,060) 1,290 475,312 462,162 60,288 155,494 (112) 677,832 Balance at 1 January 2007 (3,380) (11,060) 1,290 475,312 462,162 60,288 155,494 (112) 677,832 Total recognised income and expense Issue of share capital Own shares sold Share based payments Dividends paid to shareholders - - 307 - - 3,884 (471) 41,048 44,461 - - - - - - - - - (307) 474 - - 474 (23,976) (23,976) - 88 - - - - 796 - - - Balance at 30 June 2007 (3,073) (7,176) 819 492,551 483,121 60,376 156,290 116 44,577 - - - - 4 884 - 474 (23,976) 699,791 7 Circulation to shareholders The interim report will be sent to shareholders. Further copies will be available on request from the Company Secretary, Bovis Homes Group PLC, The Manor House, North Ash Road, New Ash Green, Longfield, Kent DA3 8HQ. Further information on Bovis Homes Group PLC can be found on the Group’s corporate website www.bovishomes.co.uk/plc including the analyst presentation document which will be presented at the Group’s results meeting on 10 September 2007. 10 Bovis Homes Group PLC www.bovishomes.co.uk/plc Independent review report by KPMG Audit Plc to Bovis Homes Group PLC Introduction We have been instructed by the Company to review the financial information for the six months ended 30 June 2007 which comprises the Group income statement, Group balance sheet, Group statement of cash flows, Group statement of recognised income and expense and notes to the accounts. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Listing Rules of the Financial Services Authority. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the UK. A review consists principally of making enquiries of management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with International Statements on Auditing (UK and Ireland) and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2007. KPMG Audit Plc Chartered Accountants London 7 September 2007 Bovis Homes Group PLC 11 Directors and officers As at 30 June 2006 Bovis Homes Group PLC Board of Directors Timothy David Melville-Ross Chairman (non-executive) Lesley Anne MacDonagh Non-executive Director John Anthony Warren Non-executive Director Colin Peter Holmes Non-executive Director Malcolm Robert Harris Chief Executive David James Ritchie Group Managing Director Neil Cooper Group Finance Director Group Company Secretary Martin Trevor Digby Palmer, FCIS Group Company Secretary Principal offices 1 Bovis Homes Group PLC 5 Northern region Eden Point Three Acres Lane Cheadle Hulme Cheshire SK8 6RL Tel: (0161) 488 5000 Fax: (0161) 488 5088 DX: 741980 Eden Point 6 Eastern region W2 Building 7 High Street Great Cambourne Cambridgeshire CB23 6JX Tel: (01954) 714300 Fax: (01954) 714333 DX: 729501 Cambridge 7 Retirement Living The Manor House North Ash Road New Ash Green Longfield Kent DA3 8HQ Tel: (01474) 876200 Fax: (01474) 876201 DX: 41950 New Ash Green 2 The Manor House North Ash Road New Ash Green Longfield Kent DA3 8HQ Tel: (01474) 876200 Fax: (01474) 876201 DX: 41950 New Ash Green 2 2 South East region The Manor House North Ash Road New Ash Green Longfield Kent DA3 8HQ Tel: (01474) 876200 Fax: (01474) 876201 DX: 41950 New Ash Green 2 3 South West region Cleeve Hall Cheltenham Road Bishops Cleeve Cheltenham Gloucestershire GL52 8GD Tel: (01242) 662400 Fax: (01242) 662488 DX: 137901 Bishops Cleeve 2 4 Central region Bromwich Court Highway Point Gorsey Lane, Coleshill Birmingham B46 1JU Tel: (01675) 437000 Fax: (01675) 437030 DX: 728340 Coleshill 2 Information in respect of the Group’s press releases, interim reports, annual report and accounts and other investor relations information is available at www.bovishomes.co.uk/plc 12 Bovis Homes Group PLC www.bovishomes.co.uk/plc Bovis Homes Group PLC Page 13 Bovis Homes Group PLC, The Manor House, North Ash Road, New Ash Green, Longfield, Kent DA3 8HQ. www.bovishomes.co.uk/plc Designed and produced by the Bovis Homes Graphic Design Department. 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