bovishomesgroup.co.uk
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Bovis Homes Group PLC, The Manor House,
North Ash Road, New Ash Green, Longfield,
Kent DA3 8HQ.
www.bovishomesgroup.co.uk
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Annual report and accounts 2016
Bovis Homes Group PLC
Annual report and accounts
Strategic report
A review of our business
model, strategy and
summary financial and
operational performance
Business overview
2 2016 highlights
4 Chairman’s statement
6 What we do
7 Reasons to invest
10 Housing market overview
4
Chairman’s statement
Ian Tyler discusses how the
Group is well placed for
the future
Our business and strategy
12 Interim Chief Executive’s report
18 Our business model
20 Strategic priorities
26 Principal risks and uncertainties
30 Risk management
Corporate social responsibility
32 Our CSR priorities
Our financial performance
46 Financial review
48 Directors and officers
51 Corporate governance report
59 Remuneration report
81 Audit Committee report
86 Nomination Committee report
88 Directors’ report
94 Auditor’s report
101 Group income statement
101 Group statement of
comprehensive income
102 Balance sheets -
Group and Company
103 Group statement of changes
in equity
104 Statement of cash flows -
Group and Company
105 Notes to the financial statements
131 Five year record
132 2017 AGM Notice
136 Explanatory notes to the
AGM Notice
139 Shareholder information
140 Principal offices
Our governance
Detailed discussion of our
governance framework and
remuneration policy
Financial
statements
Financial statements
and notes
Supplementary
information
12
Interim Chief Executive’s report
Earl Sibley provides an
overview of the year and
discusses the plans ahead
46
Financial review
Earl Sibley reports on the
financial performance for
the year
s
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2016 highlights
Financial highlights
11% s in revenues
13% s in dividends
6% s in net assets per share
to 757p
Profit before tax (£m)
£154.7m
.
1
0
6
1
.
7
4
5
1
.
5
3
3
1
Active sales outlets
99
101.999999
76.499999
2
8
7
0 9
9
2
0
1
9
9
Private reservations
2,960 (excluding PRS)
3
7
7
,
2
9
0
7
,
2
6
8
9
,
2
0
6
9
,
2
Revenue (£m)
£1,054.8m
.
5
6
4
9
.
4
9
0
8
.
0
6
5
5
.
5
5
2
4
.
8
4
5
0
1
,
160.100
120.075
80.050
40.025
0.000
.
8
8
2 7
3
5
.
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
Gross margin (%)
22.3%
.
8
2
2
.
4
3
2
.
4
4
2
.
5
4
2
.
3
2
2
Operating margin (%)
15.2%
.
0
7
1
.
3
7
1
.
2
5
1
.
9
4
1
.
3
3
1
17.300
12.975
8.650
4.325
0.000
50.999999
25.500000
0.000000
254899.996470
191174.997352
127449.998235
63724.999117
0.000000
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
Average sales price (£)
£254,900
0
0
9
,
4
5
2
0
0
6
,
1
3
2
0
0
6
,
6
1
2
0
0
1
,
5
9
1
0
0
7
0
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1
,
2986.0
2239.5
1493.0
746.5
0.0
3934.0
2950.5
1967.0
983.5
0.0
25494.0
19120.5
12747.0
6373.5
0.0
3
7
8
,
1
5
5
3
,
2
Legal completions
3,977
4
3
9
,
3
7
7
9
,
3
5
3
6
,
3 3
1
8
,
2
2012
2013
2014
2015
2016
Strategic land bank
25,494 plots
4
9
4
,
5
2
3
8
0
,
3
2
0
5
3
,
1
2
8
1
3
,
9
1
8
0
1
,
0
2
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
ROCE (%)
17.0%
6
.
0
1
0
.
8
3
.
8
1
0
.
7
1
2
.
6
1
Earnings per share (p)
90.1p
4
.
5
9
1
.
0
9
6
.
8
7
9
.
4
2 4
.
0
3
95.40
71.55
47.70
23.85
0.00
Consented land bank
18,704 plots
4
1
8
,
9
1
4
0
7
,
8
1
2
6
0
,
8
1
6
7
7
,
3
1
8
3
6
,
4
1
19814.0
14860.5
9907.0
4953.5
0.0
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
1054.80
843.84
632.88
421.92
210.96
0.00
24.500
18.375
12.250
6.125
0.000
18.300
13.725
9.150
4.575
0.000
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2 | Annual report and accounts | Strategic report | Business overview
The Group’s fundamentals remain strong
Operational highlights
10% s increase in average
selling price
4% s private sales per active
sales outlet per week
to 0.58
Revenue (£m)
Revenue (£m)
£1,054.8m
£1,054.8m
Profit before tax (£m)
Profit before tax (£m)
£154.7m
£154.7m
Active sales outlets
Active sales outlets
99
99
Private reservations
2,960 (excluding PRS)
Private reservations
2,960 (excluding PRS)
1054.80
1054.80
160.100
160.100
843.84
843.84
632.88
632.88
421.92
421.92
210.96
0
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6
5
5
5
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2
210.96
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120.075
120.075
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1493.0
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1493.0
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1
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3
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,
746.5
746.5
0.00
0.00
0.000
0.000
2012
2013
2012
2014
2013
2015
2014
2016
2015
2016
2012
2013
2012
2014
2013
2015
2014
2016
2015
2016
0.000000
0.000000
2012
2013
2012
2014
2013
2015
2014
2016
2015
2016
0.0
0.0
2012
2013
2012
2014
2013
2015
2014
2016
2015
2016
Gross margin (%)
Gross margin (%)
22.3%
22.3%
Operating margin (%)
Operating margin (%)
15.2%
15.2%
Average sales price (£)
Average sales price (£)
£254,900
£254,900
Legal completions
3,977
Legal completions
3,977
24.500
24.500
8
.
2
4
.
3
2
8
.
2
2
4
.
4
2
4
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3
2
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4
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4
2
3
.
2
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.
2
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18.375
18.375
2
12.250
12.250
17.300
17.300
12.975
12.975
9
.
4
1
3
.
3
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8.650
8.650
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6.125
6.125
4.325
4.325
63724.999117
63724.999117
0.000
0.000
2012
2013
2012
2014
2013
2015
2014
2016
2015
2016
2012
2013
2012
2014
2013
2015
2014
2016
2015
2016
0.000
0.000
0.000000
0.000000
2012
254899.996470
254899.996470
3934.0
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191174.997352
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2013
2012
2014
2013
2015
2014
2016
2015
2016
2012
2013
2012
2014
2013
2015
2014
2016
2015
2016
ROCE (%)
ROCE (%)
17.0%
17.0%
Earnings per share (p)
Earnings per share (p)
90.1p
90.1p
Consented land bank
18,704 plots
Consented land bank
18,704 plots
Strategic land bank
25,494 plots
Strategic land bank
25,494 plots
18.300
18.300
95.40
95.40
13.725
13.725
71.55
71.55
3
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0.00
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0.0
0.0
0.0
Bovis Homes Group PLC | 3
Chairman’s statement
The housing market
The Board closely monitors UK housing market conditions as
we progress through the cycle. We believe that the key factors
which supported the positive market conditions in 2016 remain
in place for 2017.
The fundamental lack of supply in the UK housing market and
the current strong demand from customers together provide
a robust footing for the business. The positive Government
support for house building was reconfirmed in the recent
Housing White Paper. In particular the residential planning
regime is ensuring that land supply to the market is ahead
of production rates and the Help to Buy scheme provides
confidence for our customers to invest in new homes.
We paused our land investment around the time of the
EU referendum vote but have subsequently continued to
invest in land in a disciplined manner to take advantage of
the continued strength in demand in our core regional
markets combined with a continuing flow of good land
acquisition opportunities.
The current shortage of skilled construction labour in the
industry remains a major short term operational challenge
for the industry as a whole. This constraint has continued to
impact our business during 2016. We are working hard to
bring new people into the sector and we continue to invest
in developing our own construction teams and support our
subcontractors through apprenticeship schemes.
Dividends and earnings per share
The Group has retained the strength of its balance sheet
during 2016 with an improved net cash position at year end.
We delivered earnings per share of 90.1p with full year profits
impacted by the shortfall in completions and increased costs
including a one-off £7 million customer care provision. Given
the strength of our balance sheet and our confidence in the
future prospects of the business, a final dividend for 2016 of
30.0 pence per share will be recommended. When combined
with the interim dividend this provides a total dividend of
Ian Tyler
Chairman
2016 was a difficult year for Bovis Homes with operational
challenges following a period of ambitious growth. Whilst
we achieved strong growth in the first half of 2016, we were
unable to deliver our anticipated unit sales and customer
service performance in the second half. As a result, we saw
earnings fall year on year.
This shortfall in performance had two underlying causes which
inevitably have their origins in preceding periods. Firstly, our
production processes have not been sufficiently robust to
cope with the twin pressures of our growth strategy and the
resource shortages across the industry. Secondly, we have not
designed and resourced our customer service proposition and
processes appropriately to deliver a ‘customer first’ culture.
In order to address both of these we have embarked on a
programme to deliver significant and urgent improvement
in underlying processes across the business, focused on the
delivery of the highest quality of product and service to
our customers. In taking these actions we will slow the Group’s
rate of production for 2017 and are targeting completions
volumes for the year to be c. 10% to 15% below prior year’s
level, before a return to normal industry production levels.
The fundamentals of the business remain strong with our
45.0 pence for the year, an increase of 13% on 2015.
market positioning reflected in our high quality southern
The final dividend will be payable on 19 May 2017 to
biased land bank. The land additions executed in 2016 have
shareholders on the register on 24 March 2017.
further enhanced our land bank and ensured we hold over
four years of owned consented land supply together with
substantial further opportunity in our strategic land interests.
Whilst there will inevitably be an impact on our earnings and
cash flow from the actions we are taking in 2017, the Board
intends to recommend maintaining the dividend for 2017 at
Given the clear need to ensure we optimise the return achieved
the declared level for this year confirming its confidence in the
on the Group’s high quality land assets, we are undertaking a
future potential of the business.
fundamental review of our structure and strategy during 2017,
to include our geographic coverage, our organisation design,
the basis of capital allocation to our land bank and other
assets, and our medium term aspirations for growth.
4 | Annual report and accounts | Strategic report | Business overview
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Our targeted land investment remains concentrated on
family housing sites in our Southern based operating area
Brookfields
Inkberrow
People
We continue to invest in our people, and our training and
development programmes will be extended further in 2017,
supported by the launch of the national Bovis Homes
Training Centre.
The commitment and skill shown by the Group’s employees
despite the difficulties faced during 2016 continues to impress me
and, on behalf of the Board, I would like to thank them all for their
dedication and hard work. I would also like to extend my thanks to
our subcontractors and suppliers who are such a key component of
our business.
The Board
I would like to thank my colleagues for another year of support
and positive challenge. Nigel Keen joined the Board during
the year and we have already benefitted substantially from his
insight and experience. I would also like to express my thanks
to David Ritchie, our previous Chief Executive, who stepped
down in January 2017 after eighteen years of valued service.
Earl Sibley, the Group Finance Director, has taken on the role of
Interim Chief Executive and the search for a permanent Chief
Executive Officer is underway.
The future
Despite the difficulties of 2016, the Board remains confident in
the Group’s abilities to deliver improved returns to shareholders.
The process of transformation is already underway under
Earl Sibley’s interim leadership and I am confident the plans in
place will address the operational weaknesses we have seen in
our business, and focus us once again on delivering high quality
product and service to our customers. Further, we will undertake a
strategic and structural review of the business to ensure we meet
our commitment to delivering the highest possible returns from our
valuable land assets.
Ian Tyler
Chairman
Bovis Homes Group PLC | 5
What we do
Bovis Homes is a builder of high quality traditional homes in England.
The Group’s business involves the design, build and sale of new homes
for both private customers and Registered Social Landlords.
The Group employed over 1,200 staff directly at the end of 2016 and up
to a further 4,000 sub-contractors work on its sites on a daily basis. In 2016,
the Group legally completed 3,977 (2015: 3,934) homes predominately on
greenfield sites.
Midlands
684
legal completions
in 2016
2015: 723
Where we operate
North
445
legal completions
in 2016
2015: 427
South
2,848
legal completions
in 2016
2015: 2,784
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6 | Annual report and accounts | Strategic report | Business overview
Reasons to invest
Here we set out the reasons to invest in Bovis Homes as we create the homes
our customers desire.
Product mix – building desirable family homes
• Lower risk greenfield sites
• Traditional two-storey family homes with limited apartments
• High usage of quality standard ‘Portfolio’ housing range
Geography – prime Southern location bias
• Focus on higher capital growth locations of the UK housing market
• Targeting 75-80% of land developed to be in prime south of England locations
• Strategy not to develop in London
Quality land bank – successful land buying strategy
• More than 4 years consented prime operational land supply
• Disciplined approach with recently increased group-wide acquisition hurdle rates
• 38% of land bank sourced strategically and targeting 50%
Operational priorities – clearly established to drive
improved operating performance
• Clear set of priorities established
• Centred on delivering high quality service and product to our customers
• Priority actions commenced with commitment to delivering a significantly improved
operating performance
Capital efficiency – further opportunities
• Identified balance sheet opportunities to enhance capital efficiency
• Shared equity and key strategic sites targetted
Bovis Homes Group PLC | 7
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8 | Annual report and accounts | Strategic report | Business overview
Birch Gate
Wymondham
Bovis Homes Group PLC | 9
Private and social homes legally completed in 2016
Private homes by type legally completed in 2016
Homes
Private
2,330 83%
Social
Total
483 17%
2,813
Property type
2 Bedroom
299 13%
3 Bedroom
1,015 43%
4 & 5 Bedroom 573 25%
Apartments
443 19%
Total
2,330
Ageing of land at 31 December 2016
Location of land at 31 December 2016
Plots
Post downturn 16,814 85%
1
Pre downturn
1
2,559 13%
Written down
2
441
2%
Total
19,814
1 Plots held at cost (downturn being July 2008)
2 Plots held below cost at net realisable value
Annual subcontractor cost increases
Plots
South
14,531 78%
Midlands
2,760 15%
North
Total
1,413
7%
18,704
See map on page 6
Demand versus supply
Net balance %
Source: BCIS
%
12
10
8
6
4
2
0
-2
-4
-6
300
250
200
150
100
50
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i
s
i
R
g
n
i
l
l
a
F
2012
2011
2013
2014
2015
2016est
Residential land prices
New build planning approvals (England)
150
125
Quarterly
Moving Annual total
100
75
50
Source: DCLG
Jan 2004
Jul 2011
However the market continues to be supported by
2015
2014
2011
2012
2013
0
2016
80
60
40
20
0
-20
-40
-60
Housing market overview
2007
-80
2015
RICS new vendor instructions
RICS new buyer enquiries
Source: RICS
UK housing market in the medium term
Housing market transactions
Government initiatives and wide availability of mortgage
Source: HBF
finance at historically low interest rates.
Approvals of mortgages for house purchases
Mortgage approvals by month
120
90,000
100
80,000
80
70,000
0
0
0
60,000
‘
60
50,000
40,000
40
0
0
0
‘
2011
2012
2013
2014
2015
2016
10,000
30,000
20,000
20
Jan 2007
2012
2013
2014
2015
Dec 2015
2016
1500
1125
0
0
0
‘
750
375
0
Source: HCA
The total UK housing stock is estimated to be around 27 million
homes with 23 million homes in England, of which 19 million
Gross mortgage lending
400
are privately owned. The average activity level over the long
350
term within this market has resulted in 1.1 million transactions
300
per annum. During 2016, this increased to circa 1.2 million
250
transactions although this is still down from a peak of circa
200
n
b
£
1.6 million transactions during 2007. The lack of supply that
150
is preventing higher transaction levels is driving a significant
100
increase in house prices that have accelerated over the last
50
three years with Halifax reporting an average sales price of
2005 2006 2007 2008 2009 2010
2011 2012
0
£222,484 in December 2016.
Source: National Statistics Agency
UK housing market in the short term
Annual HPI
to Dec 2014
Annual HPI
to Dec 2015
Annual HPI
to Dec 2016
+7.8%
+9.5%
+7.2%
+4.5%
+8.3%
+7.9%
+6.5%
+4.4%
+6.6%
Halifax
Nationwide
Hometrack
Pricing
During 2016 pricing has continued to move upwards.
House prices in London, where the Group does not operate,
had an estimated increase of around 4% according to
the Halifax, lower than the UK average for the first time
since 2008. The pace of house price inflation is expected
to moderate further during 2017 with the Halifax showing
expected annual house price inflation between 1 and 4%.
Pricing is driven by the factors affecting demand and supply
within the overall housing market.
Housing demand
The Governments view in the recent White Paper is that we
need between 225,000 and 275,000 new homes per year
to keep up with population growth following years of
under-supply. While this is supportive of demand over the
long term, demand in 2017 could be constrained by slower
economic growth and pressure on employment, contributed to
by uncertainty surrounding the nature of a UK exit from the EU.
10 | Annual report and accounts | Strategic report | Business overview
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0
Source: Bank of England
Jan Feb Mar Apr May
Jun
Jul Aug Sep Oct Nov Dec
Source: Bank of England
Growth in residential planning approvals
0
0
0
0
‘
30
10
20
-20
-10
25,000
35,000
30,000
%
Private starts and completions
In recent years there has been a shift in the government’s
attitude to the new build housing market recognising
the growing deficit in housing supply and the economic
implications of this deficit. This has resulted in the Government
being very supportive of the industry, with improvements in
the planning environment and the release of more Government
owned land, together with the introduction of demand side
Units
initiatives such as the Help to Buy shared equity scheme.
Projects
This scheme was introduced in April 2013 exclusively for new
H12014
build properties and it has recently been confirmed that this
scheme will continue until 2021. The overall impact of this
Q3
product has been positive, not only in enabling more customers
to access mortgage finance, but also in increasing consumers’
Source: HBF
confidence to purchase.
2007 2008 2009 2010
10,000
Source: HBF
Completions
2011
Q1
2012
Q1
2013
Q1
2016
Q1
2014
Q1
2015
Q1
2013
2012
2011
20,000
15,000
-40
-30
Starts
Q3
Q3
Q3
Q3
Q3
Monthly mortgage approvals increased through 2015 reaching
a high of 73,000 in January 2016. However, this moderated
during the months leading up to the EU referendum and its
immediate aftermath before recovering in the final quarter of
the year to around 67,000 approvals a month.
Over the last couple of years there have been attempts to
provide stability to the housing market through various measures.
The Mortgage Market Review laid out new requirements
requiring that lenders undertake a thorough assessment of
affordability which should ensure borrowers are less likely to
have difficulties meeting their commitments if interest rates rise.
The Government also announced that additional powers would
be granted to the Bank of England to guard against financial
stability risks from the housing market. These powers include
setting limits on debt to income ratios and loan to value ratios
for mortgages. The application of these powers is likely to
have a moderating effect on housing demand and pricing,
particularly at the latter stages of the cycle.
The recent changes to Stamp duty have provided a boost to
the market, with lower transaction costs for the vast majority
of purchasers. There is however a 3% surcharge for buy-to-let
properties, although this has had little impact on the Group
due to the nature of the product and the geography in which
it operates.
Annual subcontractor cost increases
2012
2011
2013
2014
2015
2016est
New build planning approvals (England)
Quarterly
Moving Annual total
Source: BCIS
%
12
10
8
6
4
2
0
-2
-4
-6
300
250
200
150
100
50
0
s
g
n
i
l
l
e
w
D
2011
2012
2013
2014
2015
2016
Source: HBF
Mortgage approvals by month
90,000
80,000
70,000
60,000
50,000
0
0
0
‘
30,000
40,000
The UK housing market continues to be supported by
Government initiatives and competitive mortgage availability
20,000
10,000
2012
2013
2014
2015
2016
Annual subcontractor cost increases
0
Jan Feb Mar Apr May
Jun
Jul Aug Sep Oct Nov Dec
Source: Bank of England
Housing supply
Private starts and completions
35,000
30,000
25,000
20,000
0
0
0
‘
15,000
10,000
12
10
8
is also affected by the number of purchasers and the amount and
type of residential land coming to market, as well as potential
purchasers’ confidence in future house price movements.
6
4
%
2
0
-2
-4
2012
2011
During the last few years, the number of residential land purchasers
in the market has remained relatively stable. Private housebuilders
2013
have struggled to access bank finance to fund their purchase at the
leverage and at the price that they require. The main purchasers
have been publicly listed housebuilders, who have demonstrated a
disciplined approach. Until more capital becomes available to the
Source: BCIS
wider new build sector, it is unlikely that the number of purchasers
will increase substantially.
2016est
2014
2015
-6
2011
Q1
Q3
2012
Q1
Q3
Q3
2013
Q1
Q3
2014
Q1
2015
Q1
Q3
2016
Q1
Q3
New build planning approvals (England)
Starts
Completions
Source: HBF
In terms of new build supply, the number of new home completions
in England in 2016 as reported by the DCLG is expected to be
around 142,000. Housing starts for 2016 are expected at 148,000,
an increase of 2% compared to the year before. This is still
insufficient to meet the projected 221,000 additional households
being created every year leaving a significant shortfall in supply. This
coupled with the wider affordability issue highlights the importance
of increasing the supply of new homes over the coming years.
300
250
200
150
100
50
0
s
g
n
i
l
l
e
w
D
Supply chain
Source: HBF
Quarterly
Moving Annual total
2011
2012
2013
2014
2015
2016
Annual subcontractor cost increases
2012
2011
2013
2014
2015
2016est
%
12
10
8
6
4
2
0
-2
-4
-6
Source: BCIS
300
New build planning approvals (England)
Overall build costs are expected to climb by 3% to 4% during 2017
broadly in line with recent experience. Labour costs are forecast to
increase by 4% to 5% with the availability of sub-contract labour
being the key issue affecting the sector. This affects the ability
to build at the required speed to fulfil consumer demand with a
consequential effect on the industry’s cost base. Material costs
are expected to increase by 1% to 3% in 2017 due to underlying
UK inflation in the supply chain which is likely to be impacted by
the weaker exchange rate following the UK decision to exit the
European Union.
Moving Annual total
Quarterly
i
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250
200
150
s
g
n
100
Residential land
50
0
The price of residential land is a residual value calculation, with a
developer willing to pay a land price based on expected incomes
2016
less costs and a required development margin. When residential
house prices change, the value of a piece of land tends, therefore,
Source: HBF
to move by a factor of two or three. The value of residential land
2011
2012
2013
2014
2015
In terms of the supply of residential land, the quantity of
planning applications made and granted fell significantly from
2008 to 2011. With the launch of the National Policy Planning
Framework (“NPPF”) in March 2012, the supply of residential
land has increased materially in the last few years.
Mortgage approvals by month
90,000
80,000
70,000
60,000
0
0
0
‘
20,000
30,000
40,000
50,000
Different types of residential land sites come to market in terms
of size, product type, location and former use (greenfield or
brownfield). Larger sites, particularly in the south of England, tend
to attract relatively few purchasers due to capital commitments,
2016
2013
whereas smaller sites up to 50 plots may attract many more.
Again, the product mix on a site may attract different levels of
demand with, for instance, apartment schemes in city centres
Source: Bank of England
(outside London) likely to attract a limited number of purchasers,
compared to traditional two storey detached housing sites.
Jul Aug Sep Oct Nov Dec
Jan Feb Mar Apr May
10,000
2012
2014
2015
Jun
0
Overall, the demand and supply dynamic of the land market
remains favourable for well-funded purchasers and residential land
can be purchased at sensible returns.
Private starts and completions
35,000
30,000
Competitors
25,000
‘
0
0
0
20,000
The second hand market remains the main competition for
Bovis Homes. In a normal year, the Group would expect around
90% of residential transactions to be second hand, with pricing in
the new build sector being set by reference to that market.
15,000
10,000
Q3
Q3
Q3
2013
Q1
2012
Q1
2011
Q1
The de-stocking by the housebuilders between 2008 and 2011
Q3
led to new build contributing a greater proportion of residential
transactions. With overall consumer confidence improving and
transaction numbers increasing materially, the new build sector will
Source: HBF
move back towards 10% of total housing market transactions.
Completions
2014
Q1
2016
Q1
2015
Q1
Starts
Q3
Q3
Mortgage approvals by month
Bovis Homes Group PLC | 11
0
0
0
‘
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
35,000
30,000
25,000
20,000
0
0
0
‘
15,000
10,000
Source: HBF
2012
2013
2014
2015
2016
Jan Feb Mar Apr May
Jun
Jul Aug Sep Oct Nov Dec
Source: Bank of England
Private starts and completions
2011
Q1
Q3
2012
Q1
Q3
2013
Q3
2014
Q3
Q1
Q1
2015
Q1
Q3
2016
Q1
Q3
Starts
Completions
Interim Chief Executive’s statement
We are performing an end to end review of our production
processes to ensure we develop to programme and deliver
our customers the high quality homes they expect. We are
fully committed to putting our customers back at the centre
of everything we do and to delivering a much improved level
of customer service. We will strengthen both our regional
management teams and functional leadership, and continue to
invest in our people to establish consistent best practice across
all regions of the Group.
2017 operational priorities
The implementation of our operational priorities has
commenced in the early weeks of 2017 and is focused on:
• Developing to programme
• Transforming customer service
• Leadership and operational excellence
Develop to programme
The business has suffered from weakness in our production
processes which has manifested in our development
programmes not delivering to plan, in particular around the
half year and year end periods when we have had a heavy
weighting of completions.
We have commenced an end to end review of our build
process from the point we acquire a development to the timing
of the final completion. We will bring in external best practice
to complement good internal procedures where appropriate,
and will benchmark across all our regions. In particular we are
focused on:
• Adding new senior operational resource to target a reduction
in build times, improve build quality and ensure we have the
optimum resourcing models
• Investment in resourcing of and training in our build
management system
• Improved communication with our supply chain, working as
a collaborative partnership throughout the build process
• Ensuring common understanding and adherence to our best
practices across all regions
Earl Sibley
Interim Chief Executive
Bovis Homes has pursued an ambitious growth strategy over
the past five years with completions almost doubling over
this period. This fast growth has led to progressively
developing operational challenges across the business.
Whilst we achieved strong growth in the first half of the
year we were unable to deliver our planned level of
completions for the second half, with a shortfall of 180 private
homes in December. This reflected underlying weaknesses
in our production processes and resulted in higher than
expected costs.
Our customer service standards have been declining for some
time and combined with the delays to production towards the
year end, we have entered 2017 with a high level of customer
service issues. Our customer service proposition has failed to
ensure that all of our customers receive the expected high
standard of care. The Group has taken a one-off £7 million
customer care provision in 2016 to address this high level
of customer issues. After taking this provision, the Group
delivered a profit before tax of £154.7 million, below our
previously stated range of £160 to £170 million.
The fundamentals of our business remain strong. We have
continued to invest in our consented land bank which stands
at £1,020.6 million, representing over four years of high
• Formal cross functional development project teams to
quality land supply, and our balance sheet remains robust with
bring effective collaboration and a high level of internal
increased year end net cash of £38.6 million.
customer service
Having assumed the role of Interim Chief Executive on
Achieving better management of our build programme and
9 January 2017, I have established a clear set of operational
developing to plan will result in a significant improvement to
priorities for 2017 and actions are already being taken.
our build efficiency.
12 | Annual report and accounts | Strategic report | Our business and strategy
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Operational priorities identified to improve performance
Transforming customer service
Improving capital efficiency
The Group’s customer service levels have experienced a decline in
Alongside these operational priorities we remain focused on
recent years, as evidenced by our HBF customer satisfaction rating.
progressing balance sheet opportunities in 2017 to improve capital
At the beginning of this year we commenced a clear programme
efficiency and deliver enhanced shareholder returns. These include
of actions to arrest this decline and to progressively return our
the sale of part or all of our shared equity assets, a reduction
HBF rating to the top quartile of listed housebuilders. A customer
in part exchange assets, and the continuation of land sales
service task force has been established with its immediate priority
where appropriate. We are also undertaking a detailed review of
to address outstanding concerns from customers within our two
the ways in which we can maximise capital efficiency on some of
year warranty period.
our larger strategic sites including Wellingborough, in particular the
We are increasing the resource across our customer service
potential for strategic partnerships.
function to improve both our project management capability and
Land investment strategy
our day to day operational capacity. We have additional staff
dealing with customer enquiries and more operatives on the
ground working in customers’ homes.
We continue to pursue a low risk approach to land investment
targeting greenfield, traditional, two storey, family housing in
Southern biased locations, sourced from both the consented land
We are reviewing all of our customer service procedures and
and strategic land markets.
controls to ensure best practice across all regions, and are already
progressing with:
• Improved customer service training for all staff
• Enhanced quality assurance processes prior to homes being
handed over, making our customers an integral part of
that process
• Improvements to our customer responsiveness
and communication
In 2016, we acquired 27 sites following the acquisition of 35 sites
in 2015, with the Group having deliberately paused its investment
in land around the time of the EU referendum. We took the
opportunity to increase our land acquisition hurdle rates in June to
levels which have since been maintained.
Consented land bank
Consented plots added
2016
2015
3,047
6,058
Plots in consented land bank at year end
18,704
19,814
• Review of complaints procedures for the periods both pre and
post legal completion
• The formation of a Homebuyers Panel composed of customers
who will provide advice and challenge as we review all aspects
of our customer service in the coming months
Land bank years
Sites added
Sites owned at year end
Average selling price
Average land plot cost
4.7
27
133
5.0
35
142
271,000
247,000
52,400
49,200
Leadership and operational excellence
Proportion in South of England
78%
76%
Last year we saw an increased level of investment in our people
The 3,047 plots added to the land bank in 2016 have an estimated
through training and development programmes and this will be
future revenue of c. £950 million and an estimated future gross
extended further during 2017, supported by the opening of the
profit potential of c. £260 million based on sales prices and build
Bovis Homes Training Centre.
The improvement of both external and internal customer service
and the driving of a cultural change in how we operate, are at
the core of our leadership development programme. Our values
costs at the point of appraisal, delivering an estimated future
gross margin of 27.2%. The average return on capital employed
of the land acquired based on investment appraisal at the time of
acquisition is c. 30%.
of quality, caring and integrity should stand at the centre of our
The estimated gross profit potential of the Group’s total consented
decision making and inform how we effect operational changes.
land bank plots as at 31 December 2016, based on prevailing
As we commence 2017 our eight regional businesses are fully
operational, having opened three new office locations in close
proximity to our developments during 2016. We are focused on
sales prices and build costs, has increased to c. £1,300 million
with a gross margin of 25.6% (31 December 2015: £1,247 million
at 25.5%).
strengthening our regional management teams and establishing
The successful conversion of strategic land continues to be a key
functional excellence across the Group. To further develop our
driver of value for the Group. New strategic land investments
functional leadership, our group commercial function introduced in
added 3,346 plots into the strategic land bank, giving a total of
2016 will be complemented by new senior leadership positions for
25,494 strategic plots at the year end across 89 strategic sites.
both customer service and development activities.
The strategic land bank reflects positively the Group’s strategy of
land acquisition with 67% of the strategic plots in the South
of England.
Bovis Homes Group PLC | 13
Interim Chief Executive’s statement
During 2016, the Group converted 562 plots from the strategic
Despite the slippage in production that caused difficulties
land bank into the consented land bank. This was a lower
towards the end of 2016, the overall production levels during
number of plots than in prior years due to timings of consents
the year were over 4,200 notional units of build, 7% ahead
but we are already seeing success early in 2017 on a number
of 2015. Housing work in progress ended 2016 higher at
of sites including 503 additional plots at Bishops Stortford
1,166 units worth of production (2015: 929), with work in
transferring into the consented land bank.
progress turn as a result reducing to 2.8 times (2015: 3.5).
We have signed the revised s106 for our key site at
Wellingborough which represents the largest single investment
on our balance sheet (c. £50 million). We have progressed well
Looking forward through 2017 we aim to align our production
rates better with our sales rates and target a more even flow
of production and completions through the year.
with the main infrastructure road into the housing area and
The Group’s average construction cost per square foot in 2016
will commence building houses later this year. We are currently
excluding the one off customer care provision was 11% higher
looking to identify partners for this development.
than in 2015. We continue to see constraints on the availability
We continue to develop our key strategic site at Wokingham
with the first homes legally completing during the year and a
further land sale going ahead as planned. The proceeds from
this land sale largely covered the latest deferred land payment
for the site thereby managing the capital employed on this
key scheme.
In pursuit of capital efficiency the Group completed the sale of
three parcels of land during 2016, and further land sales are
planned in 2017.
2016 housing delivery
In 2016 the Group delivered 3,977 homes (2015: 3,934).
Private legal completions (excluding PRS) decreased by
1% to 2,884 (2015: 2,901) reflecting the shortfall in private
completions at the year end. Legal completions of social homes
of skilled labour across the sector resulting in increased market
labour costs, and for the year inflationary pressures increased
our total build costs by c. 5%. Product mix and the delivery
of completions in higher value locations also increased our
average build cost, whilst inefficiencies in our production
processes and phasing, in particular the heavy weighting of
completions to the year end, were also a factor.
Managing our construction cost base remains a key focus
for management and delivering on our operational priority
of developing to programme will result in improved build
efficiency across the Group. We are focused on strengthening
our relationships with key subcontractors, working in closer
partnership with them throughout the production process, and
will continue to optimise materials costs through Group-wide
purchase agreements.
were 1,074 (2014: 848), representing 27% of total legal
The Group recognised a one off £7 million customer care
provision at the year end as a result of a much higher level
of customer service issues. Customer service standards fell
significantly during 2016 and homes were completed, in
particular at the year end, which fell materially short of the
high standard expected. We have a customer service task
force in place whose absolute focus is to address these issues
and the customer care provision will cover the cost of the
required remedial work and appropriate compensation for
affected customers.
completions (2015: 22%).
Average active sales outlets of 99 were lower than the 102 in
2015, with the Group having closed more sites than previously
anticipated. Despite this reduction in active sales outlets, an
increase in net private reservations per site per week to 0.58
(2015: 0.56) enabled the Group to achieve 2,960 private
reservations, broadly in line with the 2,986 achieved in 2015.
Our average sales price increased by 10% to £254,900
(2015: £231,600) with the average sales price of private legal
completions (excluding PRS) 10% higher at £306,000
(2015: £272,100). These average prices benefitted both from
the improved geographical and product mix on new sites
driving higher sales prices and some modest price inflation.
The increased total revenue supported an improvement in
capital turn to 1.12 (2015:1.05).
14 | Annual report and accounts | Strategic report | Our business and strategy
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Strong land bank underpins future increases in
shareholder returns
Outlook
The Group is focused on making 2017 the year when we re-set the
business and deliver on our operational priorities. Reflecting this
we are slowing our rate of production and targeting completion
volumes for 2017 to be c. 10% to 15% below the 2016 level,
before a return to normal industry production levels. The average
selling price is again expected to increase reflecting the mix coming
through our landbank.
We continue to see market inflation impacting both the cost
of subcontract labour and material supplies. To deliver on our
operational priorities we will also see an increased level of
investment in 2017 across the business.
We will continue to invest in high quality land opportunities that
meet our minimum acquisition hurdle rates but will maintain our
consented land bank at broadly current levels.
Whilst there will inevitably be an impact on our earnings and
cashflow from the actions we are taking in 2017, the Board
intends to recommend maintaining the dividend at the level
declared for 2016, confirming its confidence in the future
potential of the business.
Earl Sibley
Interim Chief Executive
Bovis Homes Group PLC | 15
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16 | Annual report and accounts | Strategic report | Our business and strategy
Cloakham Lawns
Axminster
Bovis Homes Group PLC | 17
Our business model
Driving value across the cycle
Aiming to deliver robust performance over the cycle from
long term land investment with a focus on building and
selling quality family homes
Activities
Driving value
Bovis Homes DNA
• Investing in quality consented land
• Investing in and promoting
strategic land
Long term strategic
investment in land
to drive returns
over the cycle
• Creating desirable homes
• Creating high quality environments
• Safely delivering efficient and cost
effective build to a high standard
• Building strong relationships
with materials suppliers and
sub-contractors
Traditional family
homes constructed to
a high standard using
traditional materials
with an all-inclusive
specification
• Providing great customer service
• Delivering quality homes justifying
a premium price
High quality homes
sold for a
premium price
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18 | Annual report and accounts | Strategic report | Our business and strategy
How the business invests in land over time will drive
returns over the cycle
ROCE is expected to grow over time with profit growth
and improvements in capital turn, assuming current
market conditions continue
Strategic priorities
Risks involved
Measuring success
Acquiring, designing and
developing quality traditional
housing sites, focusing primarily
in the south of England
(excluding London)
• Insufficient consented land
available at hurdle rates
• Shortages of subcontract labour
and materials
• Changes in regulations
Creating aspirational homes
using its well specified Portfolio
traditional housing range in
desirable settings, delivered with
excellent customer service
• Product quality and service
standards below customer
expectations
Operating at an optimal scale to
suit the selected geography and
product range, which enables
ongoing high quality management
of risk and reward through short
lines of management control
• Lack of availability of
mortgage finance
• Insufficient consented land
available at hurdle rates
• Availability and cost of both
materials and sub-contract labour
Managing the business across the
housing cycle to maximise returns,
while effectively stewarding
shareholders’ capital
• Increased economic uncertainty
• Lack of availability of
mortgage finance
• Planning changes frustrate the
conversion of strategic land
Enabling motivated and engaged
• Inability to attract and retain
employees and business partners
good people
to work ethically within a safe and
healthy environment
• Unsafe construction practices
Growth in gross
margin potential in
land bank
Growth in percentage
of land in the south
% private homes from
Portfolio range
Customer satisfaction
scores on quality
of homes
Private sales rate
Active sales outlets
Return on capital
employed
Increasing capital turn
% of land from
strategic conversion
Employee engagement
NHBC risk incidence
RIDDOR reportables
1
2
3
4
5
For more information on our strategic
priorities, see pages 20 to 24.
For more information on our risks, see
pages 26 to 29.
For more information on our KPIs,
see pages 20 to 24.
Bovis Homes Group PLC | 19
Strategic priorities
Acquiring, designing and developing quality traditional
housing sites, focusing primarily in the south of England
(excluding London)
Our approach
Progress in 2016
The Group adopts a regional approach to the
acquisition, design and development of housing sites
to ensure the appropriate level of focus during the
lifecycle of each site.
Every land investment must meet rigorous criteria
around margin, return on capital and site specific risk.
Each region employs specialists from a broad range of
disciplines, which means we have extensive in-house
experience and expertise at our disposal to see
housing projects of all sizes through from start
to finish.
The Group achieved the following during 2016:
• The Group acquired 3,047 plots on 27 sites in
2016 with 82% of these plots in the south
of England
• In order to manage capital the Group delivered
3 land sales totalling 232 plots
• The estimated gross profit potential in the land
bank has increased from £1.2bn to £1.3bn
Priorities for 2017
KPIs
The Group is focused on delivering the following
in 2017:
• The acquisition of c. 25 sites with the majority in
the south of England
Private homes by type legally completed in 2016
• Maintaining the size and gross profit potential of
Property type
the landbank with at least four years of land
bank supply
2 Bedroom
299 13%
3 Bedroom
1,015 43%
4 & 5 Bedroom 573 25%
Apartments
443 19%
Our consented land bank
Total
2,330
Gross margin potential in consented land bank
£1,301m (2015: £1,247m)
% of consented land bank in south
78% (2015: 76%)
Growing gross profit potential from land bank
Location of land at 31 December 2016
Consented
plots
Revenue
ASP
£m
£000
Gross
profit
£m
Gross
margin
%
Plots
2014 additions
7,300
1,717
235.2
447 26.0%
South
14,531 78%
Midlands
2,760 15%
31 December 2014
18,062
4,040
223.7 1,017 25.2%
2015 additions
6,058
1,667
275.2
441 26.4%
North
Total
See map on page 6
1,413
7%
31 December 2015
19,814
4,894
247.0 1,247 25.5%
18,704
2016 additions
3,047
949
311.3
258 27.2%
31 December 2016
18,704
5,076
271.3 1,301 25.6%
Estimates based on prevailing sales prices and prevailing build costs
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2,330 83%
u
O
483 17%
2,813
Homes
Private and social homes legally completed in 2016
|
Ageing of land at 31 December 2016
t
r
o
p
e
r
Plots
2%
19,814
1
Pre downturn
2
Written down
1
Post downturn 16,814 85%
c
2,559 13%
i
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441
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1 Plots held at cost (downturn being July 2008)
2 Plots held below cost at net realisable value
20 | Annual report and accounts | Strategic report | Our business and strategy
Residential land prices
g
n
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s
i
R
g
n
i
l
l
a
F
RICS new buyer enquiries
RICS new vendor instructions
2007
2015
Jan 2004
Jul 2011
Housing market transactions
Approvals of mortgages for house purchases
2011
2012
2013
2014
2015
2016
Jan 2007
Dec 2015
Source: HCA
Source: Bank of England
Gross mortgage lending
Growth in residential planning approvals
2005 2006 2007 2008 2009 2010
2011 2012
2007 2008 2009 2010
2011
2012
2013
H12014
Source: National Statistics Agency
Source: HBF
Units
Projects
150
125
100
75
50
Source: DCLG
0
0
0
‘
120
100
80
60
40
20
%
30
20
10
0
-10
-20
-30
-40
Private
Social
Total
Total
Demand versus supply
Net balance %
80
60
40
20
0
-20
-40
-60
-80
Source: RICS
0
0
0
‘
750
1500
1125
375
0
n
b
£
400
350
300
250
200
150
100
50
0
Creating aspirational homes using its well specified Portfolio
traditional housing range in desirable settings, delivered with
excellent customer service
Our approach
Progress in 2016
Bovis Homes differentiates itself with its internally
developed Portfolio traditional housing range
incorporating great space whilst being efficient to
build, and all-inclusive specification.
The Group has a clear customer journey to ensure
that each customer’s experience is a positive one,
from the initial enquiry through to moving into a new
high quality home.
The Group achieved the following during 2016:
• The Group increased the proportion of private
legal completions of Portfolio homes to 59% from 55%
in 2016
• The business increased production by 12% during 2016
but delays in part due to labour shortages impacted the
quality of some finished homes
• Our customer service fell below the high standard we
expect resulting in reduced customer satisfaction scores
Priorities for 2017
KPIs
The Group is focussed on delivering the following
in 2017:
• Improving customer satisfaction scores driven by
investment in our customer service function and
quality assurance processes
• A further increase in the proportion of private legal
completions from the Portfolio range
Customer satisfaction
2H (2015: 3H)
% private homes from Portfolio range
59% (2015: 55%)
Our homes
100
80
60
40
20
0
18%
19%
13%
12%
21%
18%
9%
14%
22%
29%
70%
77%
66%
59%
53%
2012
2013
2014
2015
2016
Legal completions
Apartments
3 storey
Traditional
Private and social homes legally completed
Homes
Private
Social
Total
2016
2015
2,903 73%
3,086 78%
1,074 27%
848 22%
3,977
3,934
Private homes by type legally completed
Homes
2 bedroom
3 bedroom
2016
2015
134
5%
231
8%
1,245 43%
1,339 43%
4 and 5 bedroom
1,266 43%
1,132 37%
Apartments
Total
258
9%
384 12%
2,903
3,086
Bovis Homes Group PLC | 21
Strategic priorities
Operating at an optimal scale to suit the selected
geography and product range, which enables ongoing
high quality management of risk and reward through
short lines of management control
Our approach
Progress in 2016
We have an operating structure with 8 regional
businesses located in close proximity to our
developments. Three of these were established prior to
2016 but became operating regions during the year.
We aim to deliver optimal completion volumes from
each region so as to drive value, maximise operating
leverage and improve overall Group returns.
Each region is focussed on acquiring high quality
land opportunities to maintain the supply of
consented land across the Group.
• 3 new offices opened in Reading, Milton Keynes
and Stansted ensuring management teams are
located in close proximity to our developments
• Private reservation rate per site per week increased
to 0.58 from 0.56 in 2015
• Continued investment in high quality land across all
regions with 133 consented sites under our control
Priorities for 2017
KPIs
• Commitment to re-setting the business and
Number of legal completions
delivering on our operational priorities
• With the priority on delivering high quality homes
and customer service, the Group is targeting
lower completion volumes in 2017
3,977 (2015: 3,934)
Average active sales outlets
99 (2015: 102)
Active sales outlets
Private reservations (excluding PRS)
Number of active sales outlets
Brought forward
Outlets opened in year
Outlets closed in year
Carried forward
Average
Year on year change
2016
101
31
(33)
99
99
-3%
2015
103
26
(28)
101
102
6%
Year ended 31 December
Brought forward
Reservations
Legal completions
Carried forward
Year on year reservations
2016
2015
841
756
2,960
2,986
(2,884)
(2,901)
917
841
-1%
+10%
Net sales rate per site per week
0.58
0.56
22 | Annual report and accounts | Strategic report | Our business and strategy
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Managing the business across the housing cycle to maximise
returns, while effectively stewarding shareholders’ capital
Our approach
Progress in 2016
Critical to successful management of the business
through the housing market cycle is the quantity and
source of land acquired at different points in the cycle.
As the housing market emerges from a downturn,
the Group will invest assertively in consented land.
The Group aims to limit or halt investment in the
consented land market well before the housing market
peaks and a cyclical correction occurs. As competition
increases in the consented land market the conversion
of strategic land is critical. The Group has the experience
to deal with a downturn, reducing the capacity of its
business in the short term and generating surplus cash.
Priorities for 2017
• Identifying balance sheet opportunities which will
drive capital efficiency and enhanced returns for
our shareholders
• Conversion of key strategic sites to the consented
land bank supported by investment partners
where appropriate
• Continued growth in capital turn to 1.12 from
1.05 in 2015
• ROCE has decreased in the period to 17.0% from 18.3%
in 2015 given the reduced operating margin
• Circa 3,350 plots have been added to the strategic
landbank to support the investment in consented land
• 18% of consented plots added in the year were
converted from the strategic land bank
KPIs
Capital turn
1.12 (2015: 1.05)
% of consented land bank from strategic conversion
38% (2015: 41%)
Return on capital employed
17.0% (2015: 18.3%)
Capital efficiency metrics
Strategic land bank
Year ended 31 December
2016
2015
Total potential plots as at 31 December
Capital turn (1)
1.12
1.05
South
Average plots per site acquired
Work in progress turn (2)
113
2.8
173
3.5
Midlands
North
(1) Capital turn is calculated as revenue divided by average capital employed excluding
net cash
(2) Work in progress turn is calculated as revenue divided by work in progress
Group strategic land bank
Years’ supply based upon legal
completions in the year
2016
Plots
2015
Plots
17,174
15,579
7,629
6,716
691
788
25,494
23,083
6.4
5.9
Bovis Homes Group PLC | 23
Strategic priorities
Enabling motivated and engaged employees and
business partners to work ethically within a safe and
healthy environment
Our approach
Progress in 2016
The Group recognises the critical role that its
people play in the delivery of the strategic plan.
Business growth has been supported by higher
levels of investment to support recruitment,
training and development of staff.
Health and safety is a core value within our business.
• The employee numbers have grown from 1,062 at
the start of 2016 to 1,253 at the end of 2016
• The latest employee survey carried out in 2016
showed increased engagement at 83%
• Improving health and safety performance, with
a decrease in our AIIR albeit with an increase in
RIDDORs in the year
Priorities for 2017
KPIs
• Investment in leadership and training, to embed
Employee engagement
our core values accross the Group
• Establish functional excellence and best practice
across the Group
• Focus on ensuring all sites fully adopt our
stringent health and safety procedures
83% (2015: 78%)
NHBC risk incidence
32 (2015: 45)
RIDDOR reportables
36 (2015: 31)
Annual injury incidence rate (AIIR)
Sustainability
1000
800
600
400
200
0
9
1
7
0
2
6
7
7
5
8
9
3
Bovis Homes Group PLC 2016
Bovis Homes Group PLC 2015
HSE Construction AIIR 2016
HSE Construction AIIR 2014/15
Year ended 31 December
2016
2015
Active waste generated per home (tonnes)
3.9
3.2
Active waste sent to land fill per home (tonnes)
100
0.27
0.19
24 | Annual report and accounts | Strategic report | Our business and strategy
90
80
70
60
50
40
30
20
10
0
%
5
9
%
4
9
%
3
9
2011
2012
2013
Would recommend a Bovis Home to a friend
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Hampton Lea
Malpas
Bovis Homes Group PLC | 25
Principal risks and uncertainties
Risk
Description
Impact
Link to strategic
priorities
Mitigations
Impact change
Likelihood change
Residual risk after mitigation
from last year
from last year
Market risk
Economic
environment
Deterioration of the health of the
Adversely affects consumer confidence and
UK economy, brought about by
demand for new homes, with consequential
higher interest rates and increasing
impact on revenues, profits and potentially
unemployment, leading to decreased
asset carrying values
affordability, reducing demand for
housing and falling house prices
There is a specific risk in 2017 relating
to a UK exit from the EU
Mortgage
finance
The availability of mortgage finance,
Increased restrictions on mortgages granted
particularly deposit requirements for
could reduce demand for homes and
first time buyers, is fundamental to
therefore revenues and profits
customer demand
Operational risk
Materials and
subcontract
labour
Increasing production across the
The Group’s ability to build is constrained
industry may lead to shortages of both
and may impact profitability if costs rise
materials and subcontract labour
Following recent exchange rate
fluctuations material prices have
increased and could rise further
Land
procurement
Insufficient land acquired with outline
Expansion of the business and delivery
consent or conversion of strategic land
of the Group’s strategic plan to improve
assets to support housing development
shareholder returns from the development
of land is curtailed, with existing activity
levels compromised
26 | Annual report and accounts | Strategic report | Our business and strategy
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• Close monitoring of lead indicators in the housing
market, notably visitors to sales outlets, sales rates
and ASP
• Maintaining a rigorous approach to land acquisition,
with spend focused in the south of England, where
the economy is expected to remain more robust
• A cautious gearing position with a conservatively
structured balance sheet is retained
• Close monitoring of market data for
mortgage approvals
• Investing in land more suited to traditional homes,
with reduced focus on the first time buyer
• Providing a range of purchase assistance schemes
to our customers
=
s
=
s
• Maintain clear visibility of future production
requirements and its impact on suppliers
and subcontractors
• Maintain close relationships with key suppliers
and subcontractors to gain visibility of future
supply against need
s
s
=
s
• Clearly defined strategy and geographical focus
• Rigorous due diligence for land acquisition to
preserve defined hurdle rates
• Regular review of the pipeline of new land purchases
• Investment in procurement and promotion of
strategic land opportunities
• Maintaining larger land bank to deal with periods
of reduced investment
Risk
Description
Impact
Link to strategic
priorities
Mitigations
Impact change
from last year
Likelihood change
from last year
Residual risk after mitigation
Market risk
Economic
environment
Deterioration of the health of the
Adversely affects consumer confidence and
UK economy, brought about by
demand for new homes, with consequential
higher interest rates and increasing
impact on revenues, profits and potentially
unemployment, leading to decreased
asset carrying values
affordability, reducing demand for
housing and falling house prices
There is a specific risk in 2017 relating
to a UK exit from the EU
Mortgage
finance
The availability of mortgage finance,
Increased restrictions on mortgages granted
particularly deposit requirements for
could reduce demand for homes and
first time buyers, is fundamental to
therefore revenues and profits
customer demand
Increasing production across the
The Group’s ability to build is constrained
industry may lead to shortages of both
and may impact profitability if costs rise
Operational risk
Materials and
subcontract
labour
materials and subcontract labour
Following recent exchange rate
fluctuations material prices have
increased and could rise further
Land
procurement
Insufficient land acquired with outline
Expansion of the business and delivery
consent or conversion of strategic land
of the Group’s strategic plan to improve
assets to support housing development
shareholder returns from the development
of land is curtailed, with existing activity
levels compromised
• Close monitoring of lead indicators in the housing
market, notably visitors to sales outlets, sales rates
and ASP
• Maintaining a rigorous approach to land acquisition,
with spend focused in the south of England, where
the economy is expected to remain more robust
• A cautious gearing position with a conservatively
structured balance sheet is retained
• Close monitoring of market data for
mortgage approvals
• Investing in land more suited to traditional homes,
with reduced focus on the first time buyer
• Providing a range of purchase assistance schemes
to our customers
=
s
=
s
• Maintain clear visibility of future production
requirements and its impact on suppliers
and subcontractors
• Maintain close relationships with key suppliers
and subcontractors to gain visibility of future
supply against need
s
s
=
s
• Clearly defined strategy and geographical focus
• Rigorous due diligence for land acquisition to
preserve defined hurdle rates
• Regular review of the pipeline of new land purchases
• Investment in procurement and promotion of
strategic land opportunities
• Maintaining larger land bank to deal with periods
of reduced investment
W
O
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W
O
L
W
O
L
W
O
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H
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Bovis Homes Group PLC | 27
Principal risks and uncertainties
Risk
Description
Impact
Link to strategic
priorities
Mitigations
Impact change
Likelihood change
Residual risk after mitigation
from last year
from last year
Operational risk
Customer
service
People and
capability
Product quality and service
The reputation of the Bovis Homes brand is
standards that do not meet our
diminished with an adverse effect on sales
customers’ expectations
volumes and returns
s
s
An inability to attract, develop or retain
The loss of key staff or the failure to attract,
• A reward system that motivates achievement of
good people
develop and retain suitable talent may inhibit
the Group’s ability to achieve its strategy
Health,
safety and
environmental
Unsafe practices in our construction
A loss of trust in the ability of Bovis
activities causing injury or death
Homes to build homes safely and in an
to our stakeholders and damage
environmentally responsible way, affecting
to communities
the reputation and financial health of
the business
Planning and
procurement
Changes in the regulatory framework
Increased costs and significant delays
or local planning policy and procedures
in production leading to reduced
legal completions
Reduced number of active sales outlets due
to delays in planning process leads to lower
build and sales activity
28 | Annual report and accounts | Strategic report | Our business and strategy
• All homes built are subject to NHBC building
control inspections
• All staff are trained in the provision of the Group’s
customer service process
• Bovis Homes build a range of high specification
homes which are continuously reviewed and updated
• Quality inspections completed by build staff, sales
staff and senior managers
performance targets
• Development programmes tailored to our employees
• Assistant site manager and apprenticeship schemes
• A consultative committee reviews performance
and regulatory requirements for health, safety
and environmental matters
• Monitoring health, safety and environmental
performance against a standard of excellence
• A requirement for regular training for all staff
and site based personnel
• Land acquisition costs appropriately reflect latest
planning requirements that cannot be mitigated
• Close monitoring of changes in planning policy
by experienced team
• Maintain close relationships with local
planning departments
• Close monitoring of key milestones on all
pipeline developments
s
s
s
s
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Risk
Description
Impact
Link to strategic
priorities
Mitigations
Impact change
from last year
Likelihood change
from last year
Residual risk after mitigation
Operational risk
Customer
service
Product quality and service
The reputation of the Bovis Homes brand is
standards that do not meet our
diminished with an adverse effect on sales
customers’ expectations
volumes and returns
People and
capability
good people
develop and retain suitable talent may inhibit
the Group’s ability to achieve its strategy
Health,
safety and
environmental
Unsafe practices in our construction
A loss of trust in the ability of Bovis
activities causing injury or death
Homes to build homes safely and in an
to our stakeholders and damage
environmentally responsible way, affecting
to communities
the reputation and financial health of
the business
Planning and
procurement
Changes in the regulatory framework
Increased costs and significant delays
or local planning policy and procedures
in production leading to reduced
legal completions
Reduced number of active sales outlets due
to delays in planning process leads to lower
build and sales activity
• All homes built are subject to NHBC building
control inspections
• All staff are trained in the provision of the Group’s
customer service process
• Bovis Homes build a range of high specification
homes which are continuously reviewed and updated
• Quality inspections completed by build staff, sales
staff and senior managers
s
s
An inability to attract, develop or retain
The loss of key staff or the failure to attract,
• A reward system that motivates achievement of
s
s
s
s
=
=
performance targets
• Development programmes tailored to our employees
• Assistant site manager and apprenticeship schemes
• A consultative committee reviews performance
and regulatory requirements for health, safety
and environmental matters
• Monitoring health, safety and environmental
performance against a standard of excellence
• A requirement for regular training for all staff
and site based personnel
• Land acquisition costs appropriately reflect latest
planning requirements that cannot be mitigated
• Close monitoring of changes in planning policy
by experienced team
• Maintain close relationships with local
planning departments
• Close monitoring of key milestones on all
pipeline developments
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W
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Bovis Homes Group PLC | 29
Risk management
The Board is required to assess the prospects of the
Company, taking account of its current position and
principal risks, and to explain how this has been done, over
what period and why that period is considered appropriate.
The assessment context
The Board has considered the longer term viability of the Group,
reviewing this over a 5 year period based on the strategy as
outlined on pages 18 to 24, the current performance of the
Group and its principal risks. The average life cycle of our
housing developments falls within a 5 year time period and this
aligns with the timeframe focused on for the annual strategic
review exercise conducted within the business and reviewed
by the Board. It is also in line with the financing arrangement
extended by the Group in 2016.
The Group’s current strategy was communicated in detail
during 2014 and remains in place albeit the short term focus is
on improving operational performance not growth. The Board
has considered the Group’s risk appetite and believe this to be
towards the lower end of the risk scale for the housebuilding
sector. The Board have highlighted the following elements of
the strategy as key considerations in reaching this view, all of
which have an impact on the Group’s key investment decisions:
• Focused on a Southern biased geography
• Targeted at edge of town and large village greenfield locations
• Delivering a high proportion of standard Portfolio
designed housing
• Traditional two storey family housing is the core product
offering with only limited low rise apartments in the mix
• The Group’s strategy is to be more or less self-financing in
terms of growth ambitions with low levels of debt and modest
land creditors
The assessment process and assumptions
During 2016, the Board carried out a robust assessment of the
principal risks facing the Group, including those that would
threaten the execution of its strategy, future performance
and liquidity. Management and mitigation of those principal risks
have been taken into consideration when considering the future
viability of the Group. The Group’s principal risk review, as set
out on pages 26 to 29, considers the impact of these principal
risks and the mitigating controls that are in place. As part of its
annual strategic review the Board considered the Group’s 5 year
financial plan, the core assumptions underpinning this plan and
how the current economic environment may impact this plan.
The early years of the financial plan are prepared in detail with
the basis being the development of our existing land bank.
There is inherently more uncertainty in the later years of the
plan as these incorporate a higher level of assumed housing
completions from land owned currently without planning or
land not currently owned by the Group.
The Group’s financial plan has been reviewed in the context
of its operational performance during 2016 and stress tested
against scenarios to assess the future viability of the Group.
The potentially highest impact risks, from a Group viability
point of view, are seen as those which arise from a downturn
in the economic environment within the UK, leading to
decreased affordability, reduced demand for housing and falling
house prices. In modelling an economic downturn assumptions
have been applied to the plan numbers that are based on
the Group’s experience and the wider sector’s experience of
historical declines in the housing cycle.
Specifically our economic downturn scenario has applied
sensitivities to the assumptions on sales rates, pricing and costs
but has assumed that current interest rate policies remain in
place and does not specifically evaluate the impact of a material
change to the current political climate which is supportive of
the housebuilding sector. The sensitivities along with the impact
of the expected mitigating actions that would be taken by the
Group, were overlaid on the Group’s 5 year Strategic Plan.
The key mitigating actions we expect the business to take in a
downturn include restricting investment in land, reducing the
level of production and work in progress held and optimising
our overhead base to ensure it aligns with the scale of
operations through the cycle.
The results of this stress testing indicated that the Group would
be able to able to withstand the impact of these assumptions,
taking into account the impact of mitigating actions, on the
Group’s financial performance.
Viability statement
Based on the results of this analysis, the Board have a reasonable
expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the five
year period reviewed.
Going concern
The directors also considered it appropriate to prepare the
financial statements on the going concern basis, as explained in
the basis of preparation paragraph in note 1.3 to the accounts.
In forming this view, the Group has analysed its forecast
covenant compliance over the period linked to its banking
arrangement, arriving at an assessment of the headroom evident
between the forecast covenant headroom and the outcomes
necessary to achieve covenant compliance.
The Group entered into its current banking arrangement on
3 December 2015 and it was extended for one year in December
2016. This arrangement provides a committed revolving credit
facility with a limit of £250 million maturing in December 2021.
The Group regards its current banking arrangement as
adequate for its needs in terms of flexibility and liquidity.
As at 31 December 2016, the Group had nil drawings under
the facility and had net cash of £39 million.
More details on the Group’s approach to financial risk
management are laid out in note 4.6.
30 | Annual report and accounts | Strategic report | Our business and strategy
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Plymouth
Bovis Homes Group PLC | 31
Our corporate social responsibility (CSR) priorities
Introduction
This is our second year reporting under our revised
CSR framework. We continue to update and
amend our CSR strategy with feedback from our
customers, employees and other stakeholders.
This report provides an update on our performance
during the year and further information, including
relevant policies, can be found on our website,
www.bovishomesgroup.co.uk.
Highlights:
• Launch of our Vision, Mission and Values
A review of our operational processes is ongoing to ensure that
we deliver for our customers.
We conducted our bi-annual staff survey in September and
October 2016, with a response rate of 66%, an increase of 5%
over the previous survey. The survey indicated an engagement
score of 83%, which compares well to 78% in 2014. It was
especially impressive note that 97% of respondents said they
care about the future of the Company and this allows us to
continue to improve on our responsibilities as a home builder.
For each response received, the Group agreed to provide a
£10 donation to the regional charity funds, with £7,770 being
provided to good causes that are close to our employees.
During the year the Group made an important commitment to
the nation and signed up to its own Armed Forces Covenant.
• 97% of our staff survey respondents care about the
Bovis Homes is proud to be a supporter of the Armed Forces
future of Bovis Homes, with an overall engagement
Covenant and is committed to ensuring that our nation’s Forces
score of 83%
• Winner of the Armed Forces Covenant Bronze Award,
following our commitment to the Armed Forces
Covenant during 2016
• Reduction in Annual Injury Incident Rate
• Increase in our affordable housing provision
Our customer satisfaction rating has fallen below the standard
we would expect to a 2 Star level. We recognise that our
customer service has to improve and are committed to getting
this right. We have been working with our employees to redefine
and launch our Vision, Mission and Values as part of the changes
required to put the customer at the heart of all we do.
personnel (past and present), and their families, are treated
with respect and fairness. In recognition of this commitment,
Bovis Homes recently received the Bronze Award of the Defence
Employer Recognition Scheme. Further details, including our
commitments, can be found on our website.
Our focus on engaging with our sub-contractors has begun to
show dividends, with daily activity briefings now being operated
across substantially all of our sites. It is pleasing to note that our
health & safety performance has improved with a reduction in
the Annual Injury Incidence Rate (AIIR) to 620 (2015: 719).
This compares to the HSE Construction AIIR of 398.
Our Vision
Proud of every home;
built by people who care
Our Mission
To operate a highly respected home
builder where we attract caring
people who act with integrity to
ensure we safely build quality on time
Our Values
32 | Annual report and accounts | Strategic report | Corporate social responsibility
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Our performance against our priorities is set out below
People - priority
2016 performance
Return our HBF customer satisfaction rating to 4 Star
Ensure consistent delivery of the Customer Journey
Improve near-miss reporting
Reduce the annual injury incidence rate
Embed daily activity briefings
Reinforce our core values across the enlarged Group
Embed the leadership values into the business through comprehensive senior leadership
development programme
Launch a Managing Effectively programme for middle managers
Continue to recruit ex-Armed forces personnel for our Trainee Assistant Site
Management programme
Continue to develop our apprenticeship programme
Environment - priority
Reduce active waste per home
Reduce active waste sent to landfill
Reduce inert waste (brick and block) per home
Reduce our GHG emissions against our chosen intensity measures
2016 performance
Continue to support the development of sustainable and ecologically diverse living environments
Community - priority
2016 performance
Continue to develop our strategic partnerships with registered social landlords
Continue to build on our relationships and support our sub-contractors and suppliers
Work with local stakeholders to identify community priorities for improvements on our new sites
Continue to encourage and support our staff in their fundraising efforts for local good causes
Priority not met
Priority partially met/within range
Priority met
Bovis Homes Group PLC | 33
People
Employees
2016
2015
Priorities for 2017
Total staff turnover (%)1
27%
26%
• Improve our HBF customer satisfaction rating
• Improve customer service training
New roles created
191
128
• Formation of homebuyers’ panel
Employee engagement score
(bi-annual survey)
83%
(2014)
78%
Employees
Performance vs priorities
Training days completed (no.)
2,892
2,634
Total staff
1,253
1,062
% female staff
36%
36%
Number of apprentices recruited
29
36
Health and safety
2016
2015
Annual injury incidence rate
620
719
Near-misses reported
2,764
4,265
Directors’ tours
640
628
CSCS carded site workforce (%)
95%
92%
Customer
2016
2015
HBF customer satisfaction rating
2 Star
3 Star
Reinforce our core values across the
enlarged Group
Embed the Leadership values into the
business through comprehensive senior
leadership development programme
Launch a Managing Effectively programme
for middle managers
Continue to recruit ex-Armed forces
personnel for our Trainee Assistant Site
Management programme
Continue to develop our apprenticeship
programme
The Group has been busy with a number of initiatives focused
on its employees and their engagement and wellbeing.
We have been working with our employees to redefine our
Vision, Mission and Values, and this has been well received
1 Includes voluntary and planned leavers e.g. resignation and retirement
by staff. This has been supported by a refresh of our human
Customers
Performance vs priorities
Return our HBF customer satisfaction
rating to 4 Star
Ensure consistent delivery of the
Customer Journey
resources and training strategies. The Group has also recruited
a Head of Talent to oversee, amongst other things, training
and personal development within the business.
We conducted our bi-annual staff survey in September and
October with a response rate of 66%, an increase of 5% over
the previous survey. The survey indicated an engagement
score of 83%, which compares well to 78% in 2014. It was
especially impressive to note that 97% of respondents said
they care about the future of the Company and this allows us
The Group’s HBF customer satisfaction rating has dropped
to continue to build on our responsibilities as a home builder.
to 2 Star at the end of the year (2015: 3 Star). The Group
Group level feedback has been provided to staff and our
recognises that its customer service has to improve and is
regional businesses will be reviewing their own areas of the
committed to getting this right. A taskforce led by a senior
survey to see what they can do to improve the wellbeing and
manager was established in 2016 to help rectify the problems
welfare of our staff.
faced by a small number of our customers who have waited
extended periods to have remedial works carried out or where
customers have not received the standard of service that we
would want.
The Group is also reviewing all operational processes to identify
the required changes to ensure we consistently deliver a high
standard of home and service in the future.
Feedback from the survey also showed the positive effect
of the changes made following the 2014 survey, with staff
indicating their belief that changes can be made.
34 | Annual report and accounts | Strategic report | Corporate social responsibility
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The Group operates solely in the UK and complies with all relevant
legislation and regulations. The Group continues to apply its
employment policies to not discriminate between employees, or
potential employees, on the grounds of gender, sexual orientation,
age, colour, creed, ethnic origin or religious belief.
Bovis Homes passionately believes in equality and diversity
for all. To that end, we have an Equal Opportunity policy which
is rigorously enforce and promoted. In addition, Bovis Homes has
never been the subject of litigation alleging discrimination. It is
Group policy to give full and fair consideration to the employment
needs of disabled persons (and persons who become disabled
whilst employed by the Group) where requirements may be
adequately covered by these persons and to comply with any
current legislation with regard to disabled persons. The Group’s
policies are supported by the Group’s Dignity at Work policy which
prohibits bullying, harassment or victimisation.
Whilst Bovis Homes does not formally recognise a Trade Union,
it is supportive of its employees’ rights to freedom of association
including the right to form and join trade unions. Employees often
bring Trade Union members as representatives to formal meetings
and we value their input.
Bovis Homes supports the Minimum Wage and ensures that all
employees are paid in excess of it. The Group has not been found
to have failed to pay the Minimum Wage and remains an ardent
supporter of it and its aims.
Bovis Homes is moving towards compliance with the principles of
the Construction Industry Joint Council (CIJC) Handbooks even
though it does not formally recognise the same.
The Group continues to operate both a defined benefit pension
scheme and a defined contribution pension scheme. It also
operates a stakeholder pension for construction staff. The Group
has a Share Incentive Plan, Save As You Earn share option scheme,
a Share Option Plan and a Long Term Incentive Plan to motivate
employees and encourage strong involvement with the Group.
Staff are kept informed of the Group’s performance and matters of
concern or interest to employees via the Bovisnet intranet service, a
news magazine and emails that are sent to all staff. Consultations
are held at staff meetings and personal briefings are provided by
elected employee representatives. Each regional business meets
regularly with employee representatives to discuss matters that may
impact staff. The Executive Leadership Team provide presentations
to staff at all regional offices at key points in the year. The Group
conducts an employee engagement survey on a bi-annual basis.
The Group has continued to grow during 2016 with an additional
191 new roles created. At 31 December 2016, the Group directly
employed 1,253 people (2015: 1,062). In common with the
construction industry, the majority of our site-based population
is employed by our sub-contractors. During the year, our average
workforce population was 5,161 (2015: 4,313).
Director and employee profile
The following table shows the gender split within the Group as
at 31 December 2016. In common with the construction industry,
the majority of the workforce is male at 64%. While a lower
proportion of senior management and directors are female, the
Group encourages and supports diversity, including gender. As at
31 December 2016, there were ten senior managers (all male) who
were directors of Group subsidiaries.
The Group believes that it has a key role to play in ensuring that
Analysis by role and gender
employees have an appropriate work life balance. To that end, we
Role
Male
Female
Total
are committed to working towards ensuring that no employees
work excessive hours. In addition, we seek to minimise weekend
and late night working to an absolute minimum and then only
when it is essential. When it does occur, Bovis Homes seeks to
Non-executive directors
Executive directors
Senior managers
redress the balance by giving people time off in lieu. Moreover, the
Managers
Group has introduced a process of buying and selling holiday.
Site and sales staff
Bovis Homes also encourages flexible working which allows
employees to leave work early on a Friday.
As part of the commitments we have made for our
Armed Forces Covenant, we have also been exploring further
ways to support employees that are active reservists.
In 2016, the Group adopted an Anti-Slavery and Human
Trafficking Policy in support of its efforts to combat
modern slavery. A statement in line with the provisions of the
Modern Slavery Act 2015 is available on our website.
In line with our peers, the total employee turnover rate increased
slightly to 27% (2015: 26%) due to the increasing demand for
skilled staff within the house building industry. We work hard to
attract and retain the talented people that we need and ensure
that they are appropriately rewarded.
Support staff
Apprentices
Total
Analysis by age
Age
<21 years
21 – 30 years
31 – 40 years
41 – 50 years
51 – 60 years
>60 years
Total
4
2
14
154
365
214
52
805
1
0
1
65
140
237
4
448
No. of
employees
62
226
249
311
317
88
1,253
5
2
15
219
505
451
56
1,253
%
5.0
18.0
19.9
24.8
25.3
7.0
100
Bovis Homes Group PLC | 35
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People
Training
We have continued our investment in training during the
year, spending £756,000 (2015: £331,000) on employee
training in support of the Group’s policy to train and develop
employees to ensure that they are equipped to undertake
the functions and tasks for which they are employed, and to
provide the opportunity for career development equally and
without discrimination.
Training needs are identified against the Group’s H&S core
training matrix and where there are role specific training
requirements. Training needs are further discussed with
individual employees as part of their probation and annual
appraisal. In addition to this, training needs can be identified
on other occasions, either by senior directors as a result of
a change in business need, or as a result of an individual
changing position or being promoted. The Group has an
educational sponsorship policy to support employee’s personal
development and will meet course expenses, including allowing
day release, where appropriate.
Employees continue to receive regular training covering
topics such as health, safety and environmental matters,
IT, management, sales and customer care. A total of 2,892
Bovis Homes Armed Forces Day
The Bovis Homes Armed Forces Day
event, held at Exeter Rugby Club’s
Sandy Park stadium, was arranged
to celebrate Bovis Homes’ and
Exeter Chiefs’ signing of the Armed
Forces Covenant during the half-
time interval of their Premiership
match with Saracens.
The event was also attended by senior military personnel
including Lieutenant General Sir John Lorimer, President
training days were delivered during the year via our Group
of the Army Rugby Union, and representatives of the
Learning & Development team (2015: 2,634), equivalent to
Invictus foundation.
2.3 days per employee (2015: 2.5). Additional training is
also arranged by our regional businesses where they identify
specific needs.
The Armed Forces Covenant is a promise from the nation
that those who serve or have served, and their families, are
treated fairly when accessing both public sector and private
The Group operates the Build Academy Induction on a quarterly
services. Businesses, local authorities and charities are all
basis. This is a four day residential training course for all new
being encouraged to sign the covenant.
site-based management which provides bespoke training
covering site health & safety, production and customer care.
All new starters attend the centralised company induction
on their first day with the company. They receive a welcome
personally from a member of the ELT followed by subject
matter experts providing key information on subjects such as
HR, H&S, learning and development and IT. This is a major
step forward in generating a team ethos from day one and
is complemented by regional and functional induction at the
normal place of work from day two.
During 2016, six ex-military employees that started the trainee
assistant site manager programme in 2015 were promoted to
Assistant Site Manager positions.
Our Apprenticeship scheme has continued to develop with
29 new apprentices joining the Group during the year.
Priorities for 2017
As part of its commitment to the covenant, Bovis Homes
will continue to help ex-servicemen and women to find
new roles in the company through the Career Transition
Partnership (CTP), as well as supporting staff members who
choose to be members of the Reserve forces. A new unique
discount scheme is also being rolled out.
The Bovis Homes Armed Forces discount scheme, which was
also launched at the event, will be open to serving forces
personnel (regular and reservists). It allows service personnel
to combine buyer assistance schemes with a package of
offers from the company, in order to purchase their own
Bovis home as simply and affordably as possible.
Lieutenant General Sir John Lorimer commented:
“Bovis Homes has today joined the ever-growing list
of organisations who have signed the Armed Forces
Covenant. As one of the UK’s major house builders we are
delighted that they have pledged to offer such significant
• Embed our core values across the Group and new joiners
discounts to Armed Forces Personnel, in conjunction with
• Continue to develop our apprenticeship programme
• Review ways to improve employee engagement
the Government’s Help to Buy and Forces Help to
Buy schemes.”
36 | Annual report and accounts | Strategic report | Corporate social responsibility
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Health and safety
NHBC Seal of Excellence/
Pride in the Job
Congleton site manager
Steve lands top award
Performance vs priorities
Improve near-miss reporting
Reduce the annual injury incidence rate
Embed daily activity briefings
A Congleton site manager has proved himself to be one of
Our focus during 2016 has been on worker engagement at
site level supported by senior management through safety
director tours. Daily activity briefings (“DABs”) have been
the best in the business after landing a high-profile award at
introduced to almost all of our sites during the year. They provide
a prestigious industry event.
Steve Jones was given a much sought-after ‘Seal of
Excellence’ award by the National House Building Council
for his work at Bovis Homes’ Loachbrook Meadow
development. He was one of only 12 site managers across
the whole of the North West to receive the accolade.
A delighted Steve said: “It’s a great honour to win the
award and I accepted it on behalf of all the Bovis Homes
team and contractors here at Loachbrook Meadow, who
are working hard every day to deliver quality homes, while
keeping an absolute focus on health and safety.
an opportunity for site management to communicate with sub-
contractors and those on site on tasks scheduled to occur that day
and particular risks that may arise as a result. They also provide a
forum for sub-contractors to provide feedback and for near-misses
to be discussed and improvements implemented.
The absolute number of near-miss reports has reduced compared
to the prior year. Feedback from the site management teams
indicates that an increased level of communication at the DABs
provides a better forum for learning from issues, with feedback
provided to other sites and the rest of the business via the Health
and Safety team. We will continue to monitor near-miss reports
but do not intend to target a specific number.
“Communication is key when it comes to running busy
Site staff have been supported with best practice videos of DABs to
building sites like this. It’s important to have clear messages
ensure that all stakeholders get the most from this process.
that everyone can understand and buy into, and also
listening and taking on board what others have to say.
We communicate well at Congleton and we’re one big
team looking to deliver quality homes, look after our
customers and be safe while we do it.”
Following feedback from the management teams, the Group
modified its approach to managing the risk of falls from height.
This has been achieved by changing from fall arrest to fall
prevention systems with the introduction of birdcage
scaffolding / decking. This has been successfully rolled out
Steve, aged 31, has been a site manager for four years,
across the business. In addition, revised forklift truck health
and started his working life at Ben Bailey Homes as an
checks were also introduced.
apprentice brick layer. He has been at Bovis Homes for
nearly nine years.
Bovis Homes Mercia Managing Director, Jo Morrison,
said: “I am so proud of Steve and his hard-working team
at Congleton. We’re all delighted with his success and
the award is a testament to the attention to detail and
commitment that Steve brings to his work in delivering
quality new homes for our customers.”
The Seal of Excellence Awards is the second stage of the
NHBC’s ‘Pride in the Job’ competition. It follows the
Quality Awards, which were presented back in June.
The developments and the site managers have been judged
by NHBC specialists, with every stage of the build inspected
ensuring meticulous and consistent attention to detail.
Site managers must also demonstrate excellent leadership,
technical expertise and robust health and safety processes.
The Group’s senior leaders also completed Leading Safely training
from the Institution of Occupational Safety and Health and a
Leading Safety Differently workshop. This is part of our drive to
promote the integration of health and safety, and develop the right
behaviours, at all levels of the business.
The Group has been developing a new site induction process to be
undertaken by all visitors to construction sites. It will be followed
by a short test to ensure inductees have understood the content.
In order to enhance the engagement level during the induction
process, an induction video is planned to be introduced in 2017.
Bovis Homes Group PLC | 37
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People
The Bovis Homes Safety Awards recognise excellent
performance in health and safety at our sites. The judging
took place in November 2016 with nine sites winning Regional
Excellence Awards. Four sites were Highly Commended and
went through to compete for the Group Excellence Award.
The Group is pleased to announce that our Warwick site
received the Group Excellence Award.
The superb examples of health & safety identified during the
judging for the awards has been shared with the Regional
Build Directors for implementation across the business.
Alongside the Bovis Homes Safety Awards, the Group
competed with other house builders in the National House
Building Council’s Pride in the Job Awards, where four of
our site managers were selected from more than 16,000
site managers working across the country to receive Quality
Awards. Our team at Loachbrook Meadow, led by Steve Jones,
went on to win the next level of award, the Seal of Excellence.
The Group’s overall health and safety performance is improving
with a reduction in the annual injury incidence rate over the
year and a continued focus on enhancing our performance
during 2017.
Priorities for 2017
• Reduce annual injury incidence rate
• Improving leadership behaviours
• Enhancing the quality of workforce engagement
• Increasing the awareness of occupational health risks
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Woodlands
Dawlish
Bovis Homes Group PLC | 39
Environment
KPI
2016
2015
Active waste* diverted from landfill
93%
94%
Active waste* generated per home
(tonnes)
3.93
3.2
Priorities for 2017
• Refine our waste reduction strategy
• Reduce active waste per home
• Reduce active waste sent to landfill
• Set target for active waste per plot
Total GHG emissions per legally
completed unit
1.61
1.40
Greenhouse gas (GHG) emissions
Performance vs priorities
* Active waste is non-hazardous waste that is likely to change in
composition (e.g. decay) in landfill, such as packaging, wood or plastic.
Waste
Performance vs priorities
Reduce active waste per home
Reduce active waste sent to landfill
Reduce inert waste (brick and block)
per home
The Group recognises that as a leading national home builder
it needs to minimise its impact on the environment. We always
aim to operate efficiently, reducing waste and minimising the
energy and natural resources we use.
The Group aims to produce an average of 4.5 tonnes of
Reduce our GHG emissions against our
chosen intensity measures
We continue to recognise the importance of climate change
and minimise our impact on the environment.
Our impact on climate change also means that careful thought
is given to the homes that we build. Our preference is for
a fabric first approach to ensure that the heating of space,
which has the greatest impact on a home’s energy efficiency, is
mitigated as far as possible within the actual construction
of homes.
We continue to review green energy provision on our
developments, including the use of photovoltaic roof tiles
in place of traditional panels. Our development at
Stadhampton includes provision for all homes to incorporate
photovoltaic panels.
waste per home. Of this, the majority is active waste.
Performance and methodology
Disappointingly, it has exceeded this target during 2016,
producing 6.1 tonnes of waste per home. A review during the
year identified a number of differences in the way that waste
has been measured by each regional business and a standard
approach is in the process of being agreed. We have joined
the House Builders’ Federation Waste Group which is
focused on reducing waste in the construction of new homes.
Our work with the Waste Group will enable us to benchmark
our current waste strategy and set targets for reducing waste
and increasing recycling and reuse rates. We will also be
working with our suppliers and sub-contractors to review
our processes and procurement methods in order to meet
these targets.
Despite the increased level of waste, the Group continued to
divert almost all of its waste from landfill to other uses at 93%.
We continue to research and develop more efficient build
processes and modern methods of construction which should
reduce the amount of waste generated from our activities.
GHG emissions have been reported from all sources required
under the Companies Act 2006 (Strategic Report and
Directors’ Report) Regulations 2013. These sources fall within
the Group’s operational control. The Group does not have
responsibility for any emission sources that are not included
in the consolidated financial statements and are outside the
boundary of operational control.
During the year, measures were operated to collect emissions
data from our construction sites. Where this data was
incomplete at the year end, we have extrapolated total
emissions by using (i) an averaging approach to extend data
to a full year for sites with part-year data, and (ii) applied an
average calculated from all sites to sites returning inadequate
data. The calculations allow for sites which opened and closed
during the year.
GHG emissions have been calculated using emission factors
from UK Government’s GHG Conversion Factors for Company
Reporting 2016. Scope 1 emissions arise from the consumption
of gas at our facilities, diesel on construction sites and UK
business mileage in fleet cars. Emissions from air conditioning
in offices have been excluded as not being material. Scope 2
emissions represent purchased electricity.
40 | Annual report and accounts | Strategic report | Corporate social responsibility
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Greenhouse gas (GHG) emissions data for the period 1 January
2016 to 31 December 2016 (with prior year comparatives)
We work closely with local authorities to retain and protect trees
wherever possible and provide mature environments for local
wildlife populations. Where trees are removed, we aim to provide a
Emissions from:
2016
2015
2014
Unit
net improvement to the number of habitats, through planting and
Combustion of fuel at our
facilities and construction
sites as well as fleet vehicle
use (Scope 1 emissions)
Purchased electricity
(Scope 2 emissions)
Total GHG emissions
(Scope 1 and Scope 2)
Company’s chosen
intensity measurements:
(i) Total GHG emissions per
legally completed unit
(ii) Total GHG emissions
per 1,000 sq ft legally
completed
4,780
4,168
4,168
1,627
1,324
1,527
6,406
5,492
5,695
1.61
1.40
1.57
1.54
1.36
1.57
*
*
*
**
†
* Tonnes of CO2e
** Tonnes of CO2e per legally completed unit
† Tonnes of CO2e per 1,000 sq ft legally completed
There has been increase in GHG emissions against our chosen
intensity measures as a result of an increase in fleet vehicle use
and the opening of three additional regional offices to support
the Group’s operations.
Priority for 2016
• Reduce our GHG emissions against our chosen intensity measures.
Open space, ecology and sustainable
water management
Performance vs priorities
Continue to support the development of
sustainable and ecologically diverse
living environments
Our developments are about more than just homes and the
incorporation of open space and communal areas is considered at
an early stage.
All of our sites are subject to extensive pre-construction
assessments. Our ecology assessments include an evaluation of
the suitability of habitats for protected species and proposals
to mitigate the impact of our developments more generally.
Mitigating measures can include translocating species and creating
wildlife corridors. An archaeological assessment will
also be undertaken to determine whether a site is likely to
contain archaeological remains and any mitigating actions that
may be required.
the inclusion of bird and bat boxes and other wildlife habitats.
All sites are reviewed at acquisition stage to determine the likely
ground conditions and the type of surface water measures
required to limit surface water discharge and any potential for
localised flooding. This involves active consultation with the
Environment Agency and water authorities to ensure that there
is, as a minimum, no impact from our development on local
flood conditions. Our approach is not to acquire sites on flood
plains and to incorporate sustainable drainage systems where
appropriate for the development.
We specify Forestry Stewardship Council (FSC) or PEFC certified
timber is used for all of our developments.
Barry the bat
Often our proposals for new developments include plans to
provide accommodation for wildlife too.
Our Bidford-on-Avon location in Warwickshire was a case
in point as our pre-construction ecology assessments
discovered a bat, soon nicknamed ‘Barry’ by the regional
team, taking residence in a derelict building that had been
earmarked for demolition.
To keep the impact on Barry to a minimum during the
construction of the new homes, the regional team
worked closely with a specialist ecologist to review the
options available. The goal was to ensure this nocturnal
resident could be rehomed in the least stressful way and as
close to his original habitat as possible.
The team communicated closely with Natural England as the
plans were drawn up, and having obtained a licence from
them, new bat boxes could be installed at the development
ahead of the building’s demolition.
Barry has now been safely rehomed and is enjoying life on
the development.
Bovis Homes Group PLC | 41
Community
KPI
2016
2015
Affordable housing completions
1,074
848
S.106/CIL commitments
£26.7m £56.8m
We continue to work with our supply chain to ensure timely
delivery of our homes in an environmentally and socially aware
way. Our suppliers and sub-contractors are involved at an early
stage in site development to ensure adequate resource planning is
in place and health & safety remains a number one priority.
The use of local and regional suppliers means that our
Education commitments
£12.7m £31.6m
developments provide benefits for the wider community, through
Affordable housing
Performance vs priorities
Continue to develop our strategic
partnerships with registered providers
Working collaboratively with our public sector partners is
central to the way we operate and we are proud to be playing
a key role in tackling the country’s housing supply challenge.
We work with local authorities and registered providers (RPs)
to ensure that affordable housing on the majority of our
developments in a way that meets local needs.
During the year we continued to build on our affordable
housing offering by working with RPs and government agencies
to offer a range of different tenures providing solutions that
meet the affordable housing needs of our partners and the
communities in which we work.
We offer Help to Buy and our own Trinity Discount Scheme for
Armed Forces personnel as part of our Armed Forces Covenant.
We have been working with a number of providers to develop
a bespoke specification for the homes we deliver to RPs in
response to the growing demands they are under.
Of our 3,977 homes (2015: 3,934) completed in 2016, 1,074
were sold to RPs, representing 27% of the homes we sold
(2015: 848 and 22%).
Priorities for 2017
• Continue to develop our strategic offering to assist with
affordable housing
Supply chain
Performance vs priorities
Continue to build on our relationships and
support our sub-contractors and suppliers
job creation and opportunities for other local businesses to
support the development.
We collaborate with our supply chain on the development
of skills for the industry, with our apprenticeship programme
incorporating secondments to learn key construction skills.
We offer work experience placements to those attending school
and college.
We work with our suppliers to provide innovative designs and
products as well as providing training on topics such as health and
safety and modern slavery. During 2017 we will be organising
workshops with our groundworks contractors on safe practices
around buried services.
In return for our commitment, our suppliers must meet our
anti-bribery and ethical conduct standards. A whistleblowing
procedure is in place to support our contractors and their staff.
Priorities for 2017
• Continue to build on our relationships and support our sub-
contractors and suppliers
Community and infrastructure improvements
Performance vs priorities
Work with local stakeholders to identify
community priorities for improvements on
our new sites
Through local consultation processes we have made certain
commitments relating to the sites we have acquired
during 2016. These commitments vary from development
to development, based on the local needs, but will usually
incorporate provision for education, health services and
open spaces. These commitments represented approximately
£13,000 per home for developments acquired during 2016.
Our overall level of S.106/CIL and education commitments have
reduced compared to the prior year as a result of fewer total
plots being acquired from a lower number of sites.
During the planning phase for our developments, we always
seek to incorporate leisure and amenity areas together
with integrating developments into local public transport
infrastructure. Where appropriate, local resident travel vouchers
may be provided to encourage use of public transport.
42 | Annual report and accounts | Strategic report | Corporate social responsibility
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Our larger developments will often include provision of a local
school, which will also benefit the local community.
Our Cloakham Lawns development in Axminster, Devon has
continued its partnership with the Ferne Animal Sanctuary located
close by with a free 12-month subscription offered to all new
home buyers at this development. This follows on from our
sponsorship of an accessible plaque-rubbing trail located at the
sanctuary. The engraved plaques were designed by local wildlife
artist Patrick Moran and include pictures of a frog, toadstool, ferns,
kingfisher, deer, oak and acorn.
Our St George’s Park development in Stafford also received the
Best Homebuilder Development Central England prize in Zoopla’s
Buyers’ Choice Homebuilder Awards thanks to support from
its residents.
Charity
Performance vs priorities
Continue to encourage and support our staff in
their fundraising efforts for local good causes
During 2016 Bovis Homes has been busy with many fundraising
events and local sponsorship opportunities. Staff have been
involved in activities and supporting local good causes. We have
continued to make facilities available to staff, with local
fundraising days. Charitable donations and sponsorship are
managed by each regional business to ensure that local causes
and charities important to staff are given priority. Our staff have
raised £19,000 to support local good causes.
Our West Midlands region took part in the Yorkshire 3-Peaks
challenge in partnership with a contractor and raised over £12,000
from donations from staff, family and friends.
As an incentive for staff to complete the employee survey, we
agreed to make a £10 donation for each completed survey to the
regional charity funds. It is pleasing to note that over £7,700 was
raised to support worthy causes across the business.
Our customers have also been involved, Bovis Homes agreed to
make a donation of £25 to Children in Need for each completed
customer satisfaction survey. This resulted in £5,225 being donated
in November 2016 following 209 completed responses.
Chair cheer for Cheltenham charities
Bovis Homes’ Western region, which is based in Bishop’s
Cleeve, invited staff and members of the public to its
ex-showhome furniture sale, helping to raise funds for the
Motor Neurone Disease Association and Cancer Research UK.
With furniture ranging from desks and drawers to tables and
sofas, and home accessories including ornaments, cushions
and lamps for sale, the event saw more than 100 people
visit and raise £1,800, to be split between the two charities.
Further furniture items from the showhomes were also
donated to Sue Ryder Care Hospice in Leckhampton.
Bovis Homes Site Start Sales Co-ordinator, Charles Bond,
said: “We’re thrilled that we were able to raise this fantastic
amount for two worthy causes. Our show homes are
uniquely designed, and once it they have been sold we no
longer require the furniture, so this is a great opportunity to
raise some extra funds for our annual charity and to finish
the year on a high.”
Selected by staff in January, the company has been raising
funds throughout the year for the charities by dressing down
on Fridays, baking and selling cakes and holding raffles.
Strategic report approval
The Group continues to support the Fifty Foundation, which
The strategic report outlined on pages 2 to 47, incorporates the
provides grants to support former employees in receipt of a Bovis
financial highlights, the chairman’s statement, the strategic review,
Homes pension to assist with replacement windows or boiler
the chief executive’s review, the financial review, the risks and
repairs and oversees visitors for eligible pensioners.
uncertainties review and corporate social responsibility review.
By Order of the Board
Earl Sibley
Interim Chief Executive
20 February 2017
Bovis Homes Group PLC | 43
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44 | Annual report and accounts | Strategic report | Corporate social responsibility
Winchester Village
Winchester
Bovis Homes Group PLC | 45
Financial review
Earl Sibley
Group Finance Director
Revenue
The Group generated total revenue of £1,054.8 million, an
increase of 11% on the previous year (2015: £946.5 million).
Housing revenue was £1,022.8 million, 12% ahead of the
prior year (2015: £910.1 million) with our average sales
price increased by 10% to £254,900 (2015: £231,600).
Other revenue was £6.2 million (2015: £6.4 million) and
land sales revenue, associated with three land sales, was
£25.8 million in 2016, compared to four land sales achieved
in 2015 with a total revenue of £30.0 million.
Gross profit
Total gross profit was £235.7 million (gross margin: 22.3%),
compared with £232.3 million (gross margin: 24.5%) in 2015.
The profit on land sales in 2016 was £7.7 million (2015: £8.8
million) as we continue the strategy of managing our capital
base through the disposal of parcels of land on large sites.
Housing gross margin was 22.2% in 2016, below the 24.4%
achieved in 2015. This was largely due to the deferral of
circa 180 private completions into 2017 which resulted in an
increase in the proportion of social completions in the year to
27% (2015: 22%) these having lower profit margins, as well
as reflecting the one off £7.0 million customer care provision.
This provision reflects additional costs expected to be incurred
across the business as we conclude a higher than expected
level of outstanding remedial items on homes completed in the
last two years, as well as the costs to rectify a limited number
of homes with more significant issues and the associated
compensation costs.
During 2016, our construction costs increased by 12%
per square foot, reflecting higher value site locations, the
inflationary impact of labour and materials, additional costs
related to delivering our production at peak times and the
impact of the one off customer care provision.
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Operating profit
The Group delivered an operating profit for the year ended
31 December 2016 of £160.0 million (2015: £163.5 million) at
an operating profit margin of 15.2% (2015: 17.3%).
Overheads, including sales and marketing costs, increased
by 10% in 2016, as we invested in our enlarged operating
structure with average headcount growing 15% over the year
and three new offices opening to support our eight operating
regions. The overheads to revenue ratio reduced slightly to
7.1% in 2016 (2015: 7.2%) with the further efficiencies from
growing the scale of the business not being realised due to the
deferral of volume and therefore revenue into 2017.
Profit before tax and earnings per share
Profit before tax reduced to £154.7 million, comprising
operating profit of £160.0 million, net financing charges of
£5.6 million and a profit from joint ventures of £0.3 million.
This compares to £160.1 million of profit before tax in
2015, which comprised £163.5 million of operating profit,
£5.2 million of net financing charges and a profit from joint
ventures of £1.8 million. The profit from joint ventures in 2015
included the benefits of revaluing both the Bovis Peer LLP and
IIH Oak Investors LLP PRS property portfolios in the period.
Basic earnings per share for the year were 90.1p compared to
95.4p in 2015. This has resulted in a return on equity of 13%
(2015: 15%).
Financing
Net financing charges during 2016 were £5.6 million
(2015: £5.2 million). Net bank charges were £3.3 million
(2015: £3.3 million), as a result of modestly lower net debt
during 2016 than 2015 offset by a higher level of commitment
fees and issue costs amortised in 2016. We incurred a £5.0
million finance charge (2015: £4.9 million charge), reflecting
the imputed interest on land bought on deferred terms.
The Group benefited from a finance credit of £2.4 million
(2015: £2.9 million) arising from the unwinding of the discount
on its available for sale financial assets during 2016 as well as
other credits of £0.3 million (2015: £0.1 million)
Taxation
The Group has recognised a tax charge of £33.9 million at
an effective tax rate of 21.9% (2015: tax charge of £32.1
million at an effective rate of 20.0%). The increased tax rate is
driven by a prior year deferred tax adjustment relating to the
transition of our subsidiaries from UK GAAP to FRS 101.
The Group has a current tax liability of £13.9 million in its
balance sheet as at 31 December 2016 (2015: current tax
liability of £16.9 million).
Dividends
As previously communicated the Board will propose a 2016
final dividend of 30.0p per share. This dividend will be paid
on 19 May 2017 to holders of ordinary shares on the
register at the close of business on 24 March 2017.
46 | Annual report and accounts | Strategic report | Our financial performance
The financial position of the Group remains robust
The dividend reinvestment plan gives shareholders the opportunity
to reinvest their dividends in ordinary shares. Combined with
the interim dividend paid of 15.0p, the dividend for the full
year totals 45.0p and compares to a total of 40.0p for 2015, an
increase of 13%.
Net assets
Net assets at 1 January
Profit after tax for the year
Share capital issued
Purchase of own shares
Net actuarial movement on pension
scheme through reserves
Deferred tax on other employee benefits
Adjustment to reserves for share based payments
and shared equity
2016
£m
957.8
120.8
0.8
-
(14.1)
2.6
3.4
2015
£m
879.1
128.0
0.6
(2.4)
0.2
-
1.5
Dividends paid to shareholders
(55.4)
(49.2)
Net assets at 31 December
1,015.9
957.8
As at 31 December 2016 net assets of £1,015.9 million were
£58.1 million higher than at the start of the year. Net assets per
share as at 31 December 2016 were 757p (2015: 714p).
Inventories increased during the year by £130.6 million to
£1,449.2 million. The value of residential land, the key component
of inventories, increased by £6.9 million, as we invested in line
with usage. At the end of 2016, the remaining provision held
against land carried at net realisable value was £3.0 million, after
utilisation of £4.2 million during the year. Other movements
in inventories were an increase in work in progress of £104.6
million driven by an increase in the underlying level of ongoing
production, the deferral of c. 180 almost complete homes into
2017 and an increase in part exchange properties of £19.1 million
due to the high volume of legal completions in December.
Trade and other receivables decreased by £5.2 million, primarily
due to lower amounts owing from land sales. Trade and
other payables totalled £582.8 million (2015: £535.2 million).
Land creditors increased to £343.3 million (2015: £322.9 million)
as we continue to take advantage of the opportunity to negotiate
deferred payment terms with our land vendors. Trade and other
creditors increased to £239.5 million (2015: £212.3 million), driven
by a 7% increase in build activity over 2016 leading to a higher
level of closing work in progress and an increase in the amounts
we owe to subcontractors and materials suppliers.
Pensions
Taking into account the latest estimates provided by the
Group’s actuarial advisors, our pension scheme on an IAS19
basis had a deficit of £6.6 million at 31 December 2016
(2015: surplus of £7.1 million). The scheme’s assets grew over
the year to £119.0 million from £109.3 million and the scheme
liabilities increased to £125.6 million from £102.2 million.
The movements in the liabilities in the period are driven largely by a
reduction in the discount rate applied to those liabilities as a result
of changes in bond yields.
Net cash and cash flow
Having started the year with net cash of £30.0 million, the
Group generated an operating cash inflow before land
expenditure of £307.5 million (2015: £329.0 million), reflecting
higher profitability and increased recovery of land cost attributable
to legal completions net of increased construction expenditure.
Net cash payments for land investment was £205.6 million
(2015: £205.8 million). Non-trading cash outflow reduced to £93.3
million (2015: £98.4 million) with greater dividends offset by lower
corporation tax payments and there were no special contributions
to the pension scheme in the year (2015: £7.8 million). As at 31
December 2016 the Group’s net cash balance was £38.6 million.
We have a committed revolving credit facility of £250 million in
place which was extended for one year during 2016 and now
expires in December 2021.
Financial risk and liquidity
The Group largely sees three categories of financial risk: interest rate
risk, credit risk and liquidity risk. Currency risk is not a consideration
as the Group trades exclusively in the UK.
With regard to interest rate risk, the Group from time to time will
enter into hedge instruments to ensure that the Group’s exposure
to excessive fluctuations in floating rate borrowings is adequately
hedged. The Group does not have a defined policy for interest
rate hedging.
Credit risk is largely mitigated by the fact that the Group’s sales are
generally made on completion of a legal contract at which point
monies are received in return for transfer of title. During 2016,
the Group made no shared equity sales. With redemptions taking
place, the Group’s long term receivable Available for Sale Financial
Asset balance at 31 December 2016 was £27.8 million versus £35.3
million at 31 December 2015.
Whilst this remains a credit risk in total, each individual credit
exposure is small given the high number of counter parties.
On average, individual shared equity exposure amounts to
£24,700 (2015: £22,950).
Details of the Group’s financing arrangements are included on page
113. The Group regards this facility as adequate in terms of both
flexibility and liquidity to cover its medium term cash flow needs.
Financial reporting
There have been no changes to the Group’s accounting policies.
Earl Sibley
Group Finance Director
Bovis Homes Group PLC | 47
Directors and officers
1 Ian Tyler
2 Alastair Lyons
3 Ralph Findlay
4 Chris Browne
5 Nigel Keen
6 Earl Sibley
Board skillset
Board skillset
Board skillset
(Number of directors)
(Number of directors)
(Number of directors)
4
3
4
5
5
5
2
2
2
4
6
6
4
4
4
6
6
6
3
3
4
5
5
4
Construction and property
Construction and property
Construction and property
Retail
Retail
Retail
Financial
Financial
Financial
Strategy and business development
Strategy and business development
Strategy and business development
People and culture
People and culture
People and culture
Health and safety and regulation
Health and safety and regulation
Health and safety and regulation
Public sector
Public sector
Public sector
Environment and sustainability
Environment and sustainability
Environment and sustainability
Tenure
Tenure
Tenure
(Number of directors)
(Number of directors)
(Number of directors)
Diversity
Diversity
Diversity
(Number of directors)
(Number of directors)
(Number of directors)
1
1
1
1
1
3
2
2
3
3
3
1
5
6
5
0-2 years
0-2 years
0-2 years
2-4 years
2-4 years
2-4 years
Male
Male
Male
Female
Female
Female
5+ years
5+ years
5+ years
48 | Annual report and accounts | Our governance
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1 Ian Tyler (56)
Non-executive Chairman
2 Alastair Lyons CBE (63)
Independent, Non-executive Deputy Chairman
3 Ralph Findlay (56)
Independent, Non-executive Director
Committee membership: Nomination Committee
Date appointed: 29 November 2013
Experience: Ian was Chief Executive of Balfour
Beatty plc from 2005 to March 2013, having joined
the company in 1996 as Finance Director and
becoming Chief Operating Officer in 2002. He is a
Chartered Accountant and prior to 1996 was
Financial Controller of Hanson and Finance
Director of ARC Ltd, one of its principal subsidiaries,
and held financial roles at Storehouse plc. He was a
non-executive director of Cable & Wireless
Communications Plc until September 2015, where
he was also chairman of its audit committee, and a
non-executive director of VT Group plc until 2010.
He became a non-executive director of Mediclinic
International plc in February 2016, following its
reverse takeover of Al Noor Hospitals Group Plc
where he was non-executive chairman
Skills: Board leadership and debate, construction
health & safety matters, familiarity with dealing with
international shareholders, business growth and
value creation
External directorships: Non-executive director of BAE
Systems plc and Mediclinic International plc.
Non-executive Chairman of Cairn Energy PLC.
Independent Chairman of AWE Management Ltd
(a joint venture company between Lockheed Martin,
Jacobs Engineering and Serco)
and Senior Independent Director
Committee membership: Chairman of the
Remuneration Committee, member of the Nomination
and Audit Committees
Date appointed: 01 October 2008
Experience: Alastair is non-executive chairman of
Admiral Group plc and Welsh Water. He was non-
executive chairman of Serco Group plc and Towergate
Insurance until June 2015. Previously in his executive
career, Alastair was Chief Executive of the National
Provident Institution and the National and Provincial
Building Society, Managing Director of the Insurance
Division of Abbey National plc and Director of
Corporate Projects at National Westminster Bank plc.
He has a broad base of business experience with a
particular focus on mortgage lending and insurance
industries. He was awarded the CBE in 2001 for
services to social security having served as a non-
executive director of the Department for Work and
Pensions and the Department of Social Security
Skills: Broad commercial and detailed mortgage
lending and insurance industry experience
External directorships: Non-executive chairman
of Admiral Group plc, Non-executive chairman of
Welsh Water
4 Chris Browne OBE (56)
Independent, Non-executive Director
5 Nigel Keen (55)
Independent, Non-executive Director
Committee membership: Nomination, Remuneration
and Audit Committees
Committee membership: Nomination, Remuneration
and Audit Committees
Date appointed: 01 September 2014
Date appointed: 15 November 2016
Experience: Nigel is Property and Development
Director of the John Lewis Partnership and is
responsible for the property strategy and portfolio
across both John Lewis and Waitrose, including
stores, supermarkets, distribution centres and
manufacturing sites. He joined the John Lewis
Partnership in 1999, having previously held roles
with Tesco plc from 1989 to 1999, including as
Construction Director, and with John Evers &
Experience: Chris is Chief Operating Officer of easyJet
plc, where she served as a non-executive director from
January to September 2016. She was Chief Operating
Officer, Aviation, of TUI Travel plc until September
2015, having previously been managing director
of Thomson Airways from 2007 to May 2014 and
managing director First Choice Airways from 2002
to 2007. She has a Doctorate of Science (Honorary)
for Leadership in Management and was awarded an
OBE in 2013 for services to aviation
Skills: Commercial and general management
experience in a consumer facing and highly regulated
industry, plus leadership and operational skills
External directorships: EasyJet Airline
Company Limited
Committee membership: Chairman of the Audit
Committee and member of the Nomination and
Remuneration Committees
Date appointed: 07 April 2015
Experience: Ralph is a Chartered Accountant and is
Chief Executive Officer of Marston’s PLC, a position
he has held since 2001, having been Finance Director
from 1996 to 2001 and Group Financial Controller
from 1994 to 1996. He previously held roles with
Geest plc as Group Chief Accountant, Bass plc as
Treasury Manager and qualified and worked with Price
Waterhouse as a specialist in financial services
Skills: Commercial, financial and general
management experience in a consumer facing industry.
Land acquisition and business growth experience
External directorships: Chief Executive of
Marston’s PLC, Pro-Chancellor and Chair of Council
of Keele University
6 Earl Sibley (44)
BA (Hons) ACA, Interim Chief Executive
Committee membership: None
Date appointed: 16 April 2015
Experience: Earl is a chartered accountant and was
appointed Interim Chief Executive in January 2017.
He rejoined Bovis Homes as Group Finance Director
in April 2015 having worked as Group Financial
Controller from 2006 to 2008. Earl held a number of
senior finance and operational positions with Barratt
Developments plc from 2008 to 2015, including
Regional Finance Director. He previously worked for
Ernst & Young
Skills: Leadership, strategic focus, financial and
accounting expertise
External directorships: None
7 Martin Palmer (58)
FCIS, Group Company Secretary
Committee membership: Secretary to the Board and
Partners from 1985 to 1989, having trained as a
Board committees
Quantity Surveyor
Skills: Property, construction and customer experience
in a consumer facing industry. Property strategy, land
acquisition and development
Date appointed: 01 December 2001
Experience: Martin is a Fellow of the Institute of
Chartered Secretaries and Administrators. He has
fifteen years of experience with Bovis Homes and
External directorships: Property and Development
was previously Group Company Secretary of London
Director of the John Lewis Partnership (Waitrose
Forfaiting Company PLC from 1997 to 2001
Limited and John Lewis Properties plc)
Skills: Governance, regulation and compliance
External directorships: None
Bovis Homes Group PLC | 49
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50 | Annual report and accounts | Our governance
Corporate governance report
2016 was a challenging year for Bovis Homes. We delivered
profitability and volume below expectations and were not able
to achieve an improvement in returns, as operational challenges
towards the year end interrupted the planned delivery of the
Group’s growth strategy in 2016. Positively, we slowed our land
investment in the second half in response to market conditions,
maintained our efficient management of capital and, although our
return on capital employed fell back from 18.3% to 17.0%, our
capital turn was again in excess of one times.
Ian Tyler
Chairman
Recognising the challenges faced by the Company and their
The non-executive directors continued to be effective in providing
causation, the Board has reviewed the immediate operational
constructive challenge in Board meetings and in testing proposals
priorities for 2017 and the outcome, together with our
put forward by the executive directors, together with the
determined approach to governance and a range of initiatives
supporting assumptions. An internal formal Board evaluation
already underway, is expected to feed through into improved
was carried out at the beginning of 2017, which has provided
operational performance and a range of benefits in the short
valuable insights. Further information is provided on pages 54 to
term. Further to this, we will complete a fundamental review
55, including the objectives we will be pursuing during 2017.
of our operations during 2017. We remain a viable and well
The Committees also performed effectively during 2016.
positioned housebuilder, with the objective of improving
shareholder returns in a sustainable business that delivers quality
homes to satisfied customers.
Our corporate governance practices remain aligned with the
latest version of the UK Corporate Governance Code and the
Board reviewed its policy on diversity, which says that we will
The Board has ultimate responsibility for the success of the
always make appointments to the Board based on merit.
Company and my task focuses on ensuring that it provides
strong strategic leadership and monitors the delivery of strategic
priorities and objectives, whilst having an eye on the principal
risks. In doing so, the Board must uphold the highest standards
of integrity and promote effective relationships, communication,
openness and accountability in the boardroom, throughout the
I was delighted to welcome Nigel Keen, Property and
Development Director of the John Lewis Partnership, to the Board
as a non-executive director in November 2016. He has strong
property, construction and customer experience and is already
establishing himself as a valuable Board member.
business and externally with stakeholders. Rebuilding trust has
I would like to thank my colleagues on the Board for their
never been more important and high standards of corporate
collective support and strong individual contributions during
governance help to underpin this process. Culture and values
2016. David Ritchie stepped down as Chief Executive on
play a vital role in delivering long term success and require
9 January 2017, after eight and a half years in the role and over
continuous focus, whilst the right standards and behaviours
18 years with the Company, and I would like to thank him for his
enable the Board to function effectively in supporting and
determined and valuable contribution during this time. A search
overseeing senior management as they drive, reinforce and
for a permanent Chief Executive is underway.
embed the Group’s culture and values. Progress was established
in this area in 2016 and a number of initiatives already underway
will move us forward in 2017, driving the right attitudes and
behaviours and helping the operations improve performance and
function effectively, particularly in the areas of build programme
delivery and customer service.
The Board had an eventful year in 2016 and again made
several visits to the regions, creating the opportunity for closer
interaction with the regional teams and the development of
a greater understanding of their challenges and concerns.
Progress with delivery of the Group’s strategy was monitored
and it was reviewed and tested at the Board’s strategy day.
Other regular activities included monitoring of principal risks and
scrutiny of health and safety performance, customer satisfaction
performance, and delivery of build production.
We value dialogue with all our shareholders, institutional and
retail, and I have already met with a number of our major
shareholders this year. Our 2017 AGM will be held on
2 May 2017 and you will find the Notice at the end of this
Annual Report.
This report has been approved by the Board and I can confirm
that, during 2016, your Company was compliant with the
provisions of the UK Corporate Governance Code.
Ian Tyler
Chairman
Bovis Homes Group PLC | 51
Bovis Homes Group PLC | 51
Corporate governance report
Introduction
The leadership structure
This report sets out the Company’s compliance with the UK
The Board is responsible to the Company’s shareholders for the
Corporate Governance Code (“the Code”) issued by the
Financial Reporting Council (publicly available at www.frc.
org.uk) and also describes how the governance framework,
explained in our corporate governance policy guidelines,
available on the Company’s website (www.bovishomesgroup.
co.uk/investor-centre/corporate-governance), is applied.
long-term success of the Group and its values, strategy, business
model and governance. It establishes culture, provides leadership
and sets the Group’s strategic objectives. Business plans,
budgets and forecasts are reviewed, challenged and approved
and progress and overall performance is monitored, applying
independent judgment. The schedule of matters reserved for
The Board is pleased to report that the Company has,
the Board is reviewed and approved on an annual basis by
throughout 2016, complied with and applied the provisions of
the Board and a copy is available on the Company’s website
the UK Corporate Governance Code, as explained below.
(www.bovishomesgroup.co.uk/investor-centre/corporate-governance).
The governance structure in 2016 and for 2017 is shown below.
Bovis Homes Group PLC Board
Responsible for leadership, strategy,
values and governance
Executive Leadership Team
Bovis Homes Limited Board
Responsible for the operations of the Group
Audit Committee
Remuneration Committee
Nomination Committee
• Oversees financial
• Sets and reviews
statements and reporting
remuneration policy
• Reviews balance and
composition of the Board
• Monitors internal controls
• Determines remuneration
and risk management
• Monitors effectiveness
of external and internal
auditors
and incentives of the
executive directors and the
Chairman
• Sets performance criteria
for incentive plans
• Maintains focus on
succession planning
• Leads recruitment process
for the Board
• Recommends
appointment of directors
West Division board
East Division board
Responsible for the operational
management of the West Division
Responsible for the operational
management of the East Division
Mercia region
board
West Midlands
region board
Northern Home
Counties region
board
Eastern region
board
Western region
board
South West
region board
Thames Valley
region board
Southern region
board
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The Board
From the start of the year until 15 November 2016, the Board
comprised the non-executive Chairman, three independent non-
executive and two executive directors. Nigel Keen was appointed
on 15 November 2016, increasing the number of independent
non-executive directors to four. The provision of a formal,
comprehensive and tailored induction is ongoing for Nigel, which
includes visits to the regional offices, site visits and meetings with
senior management.
Following the year-end, David Ritchie stepped down as Chief
Executive on 9 January 2017 and Earl Sibley, Group Finance
Director, was appointed Interim Chief Executive on the same date.
This reduced the number of executive directors to one. The Board
commenced the recruitment of a new Chief Executive in early 2017.
Biographical details for the directors are provided on page 49.
Their dates of appointment / retirement, length of service to the
end of 2016 and attendance at Board meetings in 2016 are
shown below.
Name
Ian Tyler
Alastair Lyons
Chris Browne
Ralph Findlay
Nigel Keen
Date of appointment
Current role
29/11/13
01/10/08
01/09/14
07/04/15
15/11/16
Chairman
Deputy Chairman
Non-executive
Non-executive
Non-executive
Tenure in
current role
Attendance
at meetings
3 years
8.25 years
2.3 years
1.75 years
1.5 months
11/11
11/11
10/11
11/11
3/3
David Ritchie (resigned 09/01/17)
01/07/02
Former Chief Executive
8.5 years
11/11
Earl Sibley
16/04/15
Group Finance Director (during 2016)
1.75 years
11/11
Interim Chief Executive (since 09/01/17)
The Board benefits from a broad range of expertise and experience
All the directors have service agreements or contracts and the
and has a strong blend of skills, which has allowed it to perform
details are set out in the current remuneration policy, available at
effectively during a challenging year for the business. The non-
www.bovishomesgroup.co.uk.
executive Chairman brings a strong track record of commercial
experience in construction and infrastructure related industries, which
benefit the Group in the delivery of its strategy and oversight of its
business plans and performance. Alastair Lyons has a broad base of
business experience, with a particular focus on mortgage lending and
insurance industries and including chairing listed companies. Chris
Browne brings a strong commercial and operational background
from a consumer facing industry and Ralph Findlay adds strong
In accordance with the Companies Act 2006 and as permitted by
the Company’s Articles of Association, the Board has authorised
any conflicts of interest and potential conflicts of interest are
reviewed annually. The Board is satisfied that powers to authorise
actual and potential conflicts are operating effectively.
Board meetings
commercial, financial and general management expertise, again from
There were eleven meetings during 2016. The Board maintains
a consumer facing industry. Nigel Keen adds an in-depth construction
and reviews a rolling agenda plan, which ensures that all key issues
and property background and experience of running property
and matters reserved to the Board are discussed at the appropriate
strategy and portfolios, once again from a consumer facing industry.
time. The Chairman reviews meeting agendas with the Interim
The four non-executive directors have been determined by the
Board to be independent in character and judgement with no
relationships or circumstances likely to affect, or that could appear
to affect, their judgement.
All the directors will be offering themselves for re-election at the
Chief Executive and Company Secretary and the Company Secretary
maintains a rolling schedule of matters arising and progress with
actions which is reviewed at each meeting.
The Board receives a comprehensive electronic meeting pack a
week in advance of each meeting plus other information required
to enable it to discharge its duties. Meetings are conducted in an
forthcoming AGM, in accordance with the Code. The Board strongly
atmosphere of open and free flowing discussion and debate, with a
supports all the individual director’s re-elections, taking account of
the balance of skills and expertise and the performance of the Board
as a whole.
questioning approach which enables the non-executive directors to
challenge and test the strategy, policy and proposals put forward by
the executive directors. The Chief Operating Officer, Keith Carnegie,
attended all meetings in 2016, increasing the range of views and
the input available to the non-executive directors.
Bovis Homes Group PLC | 53
Corporate governance report
At each Board meeting during 2016:
• the Chief Executive provided a review of business and
current trading performance, recent developments and
strategic issues.
• the Group Finance Director provided a financial review,
including results and latest projections, budgets, rolling
forecasts, Group KPIs, leading market indicators and an
analysis of share price valuation and movements.
The Board’s site visit to
the Group’s Wokingham
development
In the middle of October 2016, the Board visited
Thames Valley region’s Emmbrook Place, Wokingham
development in Berkshire. Opened in June 2016 and
• the Board received regular reports covering health and
located close to the M4, the site offers two, three,
safety, customer satisfaction, key operational areas, investor
relations, major shareholdings and litigation.
At particular points in the year, the Board reviewed:
• the Group’s mission, vision and values and the action being
taken to reinforce them throughout the Group.
four and five bedroom homes in a semi-rural setting,
convenient for local living and commuting to Reading
and London. The sales office provided the backdrop for
discussion with regional management and sales staff,
covering the local market, production, sales rates and
customer satisfaction, coupled with a viewing of the
• strategy, principal risks and mitigation, financial statements,
show homes.
regulatory announcements and dividend policy.
• updates on large strategic projects.
• progress with an overall review of risk management.
• succession planning and organisational development.
• the results of the 2016 staff engagement survey.
• actions arising from the 2015 Board performance evaluation.
The Board also reviewed other topics, such as the market
environment, land acquisitions, land sales, analysis of
competitors, investor and analyst feedback, and the process for
the longer term viability statement. Presentations were received
on an operational review and business priorities, succession
planning, the Market Abuse Regulation and other governance
and regulatory developments.
Five meetings were held in London and six were held in the
regions, with three providing further opportunity to interact
with local management teams. Three regions provided
presentations to the Board at these meetings in open discussion
and question and answer sessions. One meeting was followed
by an evening meeting with the Executive Leadership Team (the
senior management below the Board) and the Board also met
its members at other points in the year. Visits to sites, including
product viewings, took place in three regions.
The annual strategy day held in July provided the Board with
the opportunity for an in-depth review of the mid-term strategy
for the Group and was preceded by an evening starter session.
The Chairman also held a meeting with the non-executive
directors, without the executives present, during the year.
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A tour of the construction site followed, led by the site
manager, which allowed feedback to be given by site staff
on progress with the build programme, site specific issues,
welfare and health and safety performance. Returning to
the sales office, a discussion summarising the site’s overall
performance concluded the visit.
Ensuring an effective Board
The Board undertook an internal formal evaluation of its own
performance at the beginning of 2017. Independent Audit’s
“Thinking Board” questionnaire software was used to capture
views on the functioning of the Board in 2016 in areas of
strategic decision making, long term thinking, assessing risks,
the business model and risk strategy. The Chairman completed
interviews to explore and expand on the views expressed and a
draft report was prepared and discussed by the Board.
The overall result of the evaluation reflected the challenges that
the business has had in 2016. Whilst the underlying direction,
culture and management of the Board were strong, the
evaluation identified the material areas on which the Board will
focus particularly in 2017.
Culture
Non-executive directors have a good and open relationship with
both executive directors and executive management and the Board
as a whole meets regularly with regional management teams.
The Board recognised in 2015 that cultural and organisational
change was necessary to improve our service to customers and
handle effectively the strategic growth plans, and a programme
of change was put forward by management and agreed by
the Board. In the light of the operational challenges experienced
in 2016 it is clear that whilst progress was made insufficient
change was achieved. The Board will place greater emphasis on
understanding the relationship between central, divisional and
regional management, the impact that has on the development of
an accountable and customer centered culture across the business,
and on identifying measures of the extent to which the required
changes to culture and practice become embedded in the business.
Succession planning
The Group has a robust process to identify and evaluate the
succession pipeline for key roles in the business and the Board
has good visibility of the outcome of this process. However, in
light of senior staff turnover, the Board will focus more directly
on ensuring the identification by management of the skills and
characteristics necessary in each role to deliver the Group’s strategy
in an increasingly challenging environment, and the development of
individuals capable of achieving this.
Risk management
In general, the management of risk is embedded throughout the
Group and the Board actively considers the level and management
of risk in its deliberations. However, greater focus will be given to
the impact and visibility of customer service and quality failures
on the Group’s wider reputation. The Board will also review the
identification and reporting of risk indicators, in particular non-
financial, which provide early warning of developing issues ahead of
these being manifest in financial reporting.
Strategy and execution
Whereas the Board believes the business has developed a clear,
appropriate, and executable strategy it recognizes that, despite the
Board’s regular reviews of progress and performance with regional
teams, management reporting failed to identify in a timely manner
the operational pressures to which the business was subject, and the
material weaknesses in the Group’s production planning capability
from which stemmed the customer service issues that have arisen.
It has, therefore, instigated a full review both of the Group’s
production planning process and the Group’s approach to
customer service.
Reward structure
The Board believes that the measures of performance adopted for
variable reward focused too heavily on financial performance at the
expense of measures such as customer satisfaction and operational
delivery against plan that in turn reflected the underlying health of
the business. The Board is therefore proposing consequent changes
to the Group’s variable reward measures in this year’s directors’
remuneration policy.
The Board completed its second external independent performance
evaluation of its own performance towards the end of 2014.
This was conducted by Independent Audit, (who have no other
connection with the Company) and comprised a thorough review
of Board materials, followed by a confidential interview process.
The Board then completed an internal formal evaluation of its own
performance for 2015 at the start of 2016 and set out an action
plan in the 2015 Annual Report. In pursuing this plan during 2016
the Board:
• commenced the overseeing of a process designed to reinforce and
embed the Group’s mission, vision and values across the business
and with every member of staff.
• continued to review, flex and adapt the Board’s agenda plan to
suit requirements and enhance meeting effectiveness.
• increased its focus on leadership development and its
understanding of talent management and succession planning for
senior management.
• progressed the Board’s understanding of market trends and
developments as they impact the sector and our customers
through reports, presentations and discussion.
The performance evaluation of the Chairman was led by the
Senior Independent Director, with input from all other members
of the Board. It was again considered that the Board had been
effective under the Chairman’s leadership with well-planned
meetings, appropriate agendas based on a good understanding of
the Company’s business model and strategy, and broad effective
contribution by directors. Board meetings continue to be held in
a conducive environment with a strong focus on the important
issues and open debate and constructive challenge. The Chairman
maintained good and effective working relationships with both
executive and non-executive directors during the year and spent
significant time both on sites and with the Company’s executives and
relevant external advisers. He also maintained constructive dialogue
with the Company’s principal institutional investors, providing useful
feedback to the Board’s assessment of the Company’s progress.
Board committees
The Board is supported by standing Audit, Nomination and
Remuneration Committees and their memberships, roles and activities
are set out in separate reports: The Audit Committee report is on
pages 81 to 83, the Nomination Committee report is on pages 86
and 87, and the Remuneration Committee report is on pages 59
to 80. Each Committee reports to and has terms of reference
approved by the Board and the minutes of Committee meetings are
circulated to and are reviewed by the Board.
The Audit Committee is chaired by Ralph Findlay, the Remuneration
Committee is chaired by Alastair Lyons and the Nomination
Committee is chaired by Ian Tyler.
The Board completed a performance evaluation of its Committees
during early 2017 and all were found to be effective and working
well, with all achieving their respective remits.
Bovis Homes Group PLC | 55
Corporate governance report
Governance through the business
The Board aims to meet governance best practice where it
fits with our business model, organisational structure
and approach. Further details are set out below.
Amongst matters reserved for the Board are leadership of
the Group, approval of strategy and budgets, oversight of
operations and performance, capital structure, financial
reporting, internal controls and approval of major expenditure
and transactions.
The Board has approved a written division of responsibilities
between the non-executive Chairman and the Chief Executive
and the role of the non-executive Deputy Chairman has been
similarly defined.
The Chairman is primarily responsible for:
• the effective working of the Board,
• taking a leading role in determining the Board’s composition
and structure, and
Training is made available to directors when required and the
Chairman is responsible for ensuring that directors continually
update and refresh their knowledge and skills and awareness of
the culture and operations of the Company, as appropriate to
their role on the Board and on Board Committees. During 2016
the directors received training on the Market Abuse Regulation
and other governance and regulatory developments.
The Company has an insurance policy in place which insures
directors against certain liabilities, including legal costs.
Information on share capital is provided on page 89.
Shareholder engagement
The Company has a comprehensive investor relations programme,
which allows the Chief Executive and Group Finance Director to
regularly engage with our major shareholders. In addition to one-
to-one meetings through the year, the Company holds a series of
presentations and meetings following the announcement of the
final and half-yearly results. These presentations are made publicly
available so that all shareholders can access them on the Group’s
• ensuring that effective communications are maintained
website at www.bovishomesgroup.co.uk.
with shareholders.
The Chief Executive is responsible for:
• the operational management of the Group,
The Board reviews feedback on investor relations meetings,
visits and presentations, including the matters communicated
and discussed. During 2016, the feedback received was helpful to
the Board and the Chairman held a number of discussions and
• developing strategic operating plans and presenting them to
meetings with major shareholders.
the Board, and
• the implementation of strategy agreed by the Board.
The Deputy Chairman supports the Chairman in ensuring that
the Board is effective and constructive relations are maintained,
in addition to acting as the Senior Independent Director, in
which capacity he leads the annual performance evaluation of
the Chairman and provides an additional point of contact
for shareholders.
The Board also values other channels to obtain shareholders’
views. The Chairman is responsible for ensuring that all directors
are aware of any issues or concerns that major shareholders
may have. In addition, the Deputy Chairman (also the Senior
Independent Director) is accessible to shareholders.
All shareholders are invited to attend the Company’s AGM,
which this year will be held on 2 May 2017. The full Board,
including all Committee Chairmen, attend and value this meeting
The Company’s Management Paper is subject to Board review.
as a means of communicating with private investors, encouraging
It contains controls, authorities and procedures across the range
their participation. All shareholders have the opportunity to
of the Group’s activities and includes the authorities and decision
exercise their right to vote and can appoint proxies if they are
making delegated by the Board to management.
unable to attend. To facilitate this we provide an electronic voting
The advice and services of the Group Company Secretary
are available to the directors. All directors have access to the
Company’s professional advisers and can seek independent
professional advice at the Company’s expense. No such advice
was sought during the year.
facility. Shareholders attending the AGM have the opportunity to
ask questions relevant to the business of the meeting and hear the
views of other shareholders before casting their vote. After the
meeting the results of voting on all resolutions are published on
the Group’s website
Risk management and internal control
The Board has responsibility for maintaining and monitoring
sound risk management and internal control systems.
The Board’s role includes responsibility for the risk appetite
and the identification, management and mitigation of risk.
Risk is a regular agenda item, which allows the directors to
review the risk appetite and principal risks and assess the
quality of risk management processes and risk mitigation.
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In setting its approach, the Board aims to ensure that the Company
It is designed to manage rather than eliminate risk and can only
is neither prevented from taking opportunities nor exposed to
provide reasonable and not absolute assurance against material
unreasonable risk.
Monitoring and review forms part of the work undertaken by
the Audit Committee and is based principally on reviewing
reports from the co-sourced Internal Audit function and from
management and covers all material controls, including financial,
operational and compliance controls and compliance with risk
management processes.
misstatement or loss.
Control framework
The Company maintains a comprehensive control environment,
which is regularly reviewed by the Board. The principal elements
of the control environment include regular board meetings, the
Division and regional structure, defined operating controls and
authorisation limits, a co-sourced Internal Audit function and a
In reviewing the effectiveness of the Company’s system of internal
comprehensive financial reporting system.
control and risk management systems, the Board (i) considered the
risk appetite and (ii) reviewed changes in the nature, likelihood and
impact of the principal risks, their mitigation, the controls placed
against them and the Company’s ability to respond to changes at
separate stages during the year and (iii) received reports from the
Audit Committee on the operation and effectiveness of the risk
There are a number of elements of the Company’s internal control
and risk management systems that are specifically related to the
Company’s financial reporting process:
• there is a well understood management structure which allows
for clear accountability and an appropriately granular level of
management and internal controls systems and their integration
financial control.
with strategy and the business model, which included review
of the minutes of Committee meetings. Recommendations for
improvements to internal controls were made during the year and
corrective action was taken, but they did not represent significant
control failings or weaknesses.
A consequence of a period of ambitious growth has been that
considerable operational pressures and challenges were experienced,
resulting from the cumulative effect of delayed build programmes
and a shortage of sub-contract labour, leading to operational
difficulties, which peaked in December 2016. The result was, firstly, a
shortfall in private completions in December and, secondly, customers
not receiving the level of service we wish to provide. Weaknesses
in the application of operational and customer service controls
manifested themselves as control failures under these pressures, with
• the structure is underpinned by documented authority levels
for business transactions laid out in the Company’s
Management Paper.
• the process is further supported by process documents for both
internal management reporting and external reporting which
stipulates, amongst other things, reporting timetables and the
contents of key management reports.
The Company maintains computer systems that record financial
transactions and whose effectiveness is reviewed by the co-sourced
Internal Audit function on a regular basis. Any findings arising from
these exercises are reported to the Audit Committee and action is
taken, as appropriate.
the outcome that, whilst the controls are fit for purpose, they were
Control over cash expenditure is a key component. The Company
not fully effective in maintaining operational control in respect of
maintains tight control in this area through a centralised payment
quality and customer service. The Board has reviewed events leading
function, regularly maintained authorisation documents and
up to the year-end and the causation of the control failures and
segregation of authorisation accountability.
reasserted the importance of leadership and the right behaviours
and of controls being properly applied by the business. It has also
put a clear set of operational priorities in place, including a focus
on customer service, a review of customer service procedures and
controls, and an end to end review of the build process. The Audit
Committee will review build programme delivery and customer
service controls and the immediate measures taken to strengthen
their effectiveness and to reduce operational pressures and it will
monitor the outcome of the reviews put in place by the Board.
The Board has complied with Principle C.2 of the Code by completing
a robust assessment of the principal risks facing the Company and it
has established a continuous process for identifying, evaluating and
managing the principal risks, in accordance with the FRC’s “Guidance
on Risk Management, Internal Control and Related Financial and
Business Reporting”. This process has been in place for the period
under review and up to the date of approval of the Annual Report
and Accounts and includes compliance with provision C.2.3.
The Company maintains a regular weekly and monthly financial
reporting cycle, allowing management to assess financial progress.
This is further supported by a formal budget and monthly forecasting
process which ensures that there is a recent financial forecast in place
at all times against which to assess performance. Together with this
financial reporting, the Company requires its divisional and regional
management teams to report key business issues as part of a monthly
regional operational reporting pack on a standard basis.
Finally, there is a process of accounts preparation which ensures
that there is an audit trail between the output from the Company’s
financial reporting system and the financial statements as they are
prepared for reporting.
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Sandbach
58 | Annual report and accounts | Our governance
Directors’ remuneration report
On behalf of the Board, I am pleased to present the Directors’ Remuneration Report
for the financial year ended 31 December 2016. The report is set out in two parts:
• The three year remuneration policy to be submitted to shareholders in a binding
vote at the 2017 AGM.
• The annual remuneration report which provides details on how directors were paid
in 2016 and the link between remuneration and the Company’s performance.
This section of the report also outlines how we intend to implement the new
remuneration policy in 2017. The annual report on remuneration is subject to an
advisory shareholder vote at the 2017 AGM.
Alastair Lyons
Chairman of the
Remuneration Committee
Remuneration in context
2016 proved a difficult year for the Group as operational challenges
Changes in remuneration for 2017
The existing remuneration policy approved by shareholders in 2014 is due
impacted the delivery of homes towards the year end. As a result, the
for renewal at the 2017 AGM. The Committee has undertaken a detailed
number of legal completions was lower than anticipated, with the shortfall
review to ensure that the future policy reflects the Company’s strategic
moving into 2017, leaving pre-tax profit 3% below 2015. The Group
priorities and takes account of best practice developments. The proposed
continued its disciplined land investment and capital turn again improved.
policy changes include greater flexibility within the weighting of financial
Basic earnings per share fell by 5% to 90.1p and Return on Capital
Employed (“ROCE”) finished at 17.0% (2015: 18.3%). During the year,
the Group delivered the land sales expected, acquired a good level of high
quality consented land, the majority at increased hurdle rates, and achieved
the conversion of a number of strategic land assets.
The Board has determined that the priority for 2017 is to improve
operational delivery and the various measures being taken are designed to
build on the strengths of the Group and secure improved and sustainable
returns for shareholders in the years ahead. The Board considers that it is
important that the way forward is underpinned by a remuneration policy
that is directly linked to our strategic objectives, something the new three
year remuneration policy has been designed to achieve.
Remuneration in 2016
The performance in 2016 against stretching financial and operational
targets resulted in between 10% and 13.3% of maximum being
awarded to the executive directors for the annual bonus key measures.
Further explanation of the annual bonus performance assessment can be
found on pages 71 to 72.
Given the difficult year experienced by the Group and its failure to achieve
its financial and customer service targets the Committee has decided that it
would be inappropriate to pay these bonuses in cash. Instead, it will
(subject to any regulatory restrictions) apply its discretion to pay Earl’s
bonus in shares which will be subject to a two year holding period.
As a result of the earnings per share (“EPS”) and ROCE performance
conditions being only partially met the LTIP awards granted in 2014 will vest
to the extent of 35.9%. The delivery of profit growth has been reflected
in the EPS performance of the Group over the past three financial years
with absolute cumulative EPS reaching 264.1p against a stretching target
range of 230p to 280p. ROCE reached 17% in 2016 against a range of
17% to 20%. The remaining third of the LTIP award, based on relative total
shareholder return (“TSR”) over the last three years, will lapse given the
Group’s TSR over this period of 18%, against the comparator group median
TSR of 59%.
In January 2017 David Ritchie stepped down from his role as Chief
Executive. Remuneration arrangements in respect of his departure have
been determined by the Committee in line with his service contract and the
remuneration policy approved by shareholders in 2014. Full details can be
found on page 78.
and non-financial performance measures and the strengthening of recovery
provisions (malus and clawback) for incentive schemes; the introduction of
a two year holding period following vesting for LTIP awards granted from
2017 onwards to strengthen long term alignment with shareholders;
and an increase in the shareholding guideline for the CEO position.
As an example of the use of increased flexibility within the annual bonus,
for 2017 a quantifiable build programme delivery measure will be added
alongside the current customer satisfaction measure to focus improvement
on operational delivery. In terms of the 2017 LTIP awards, the Committee
will conclude on the performance measures, to include the Home Builders
Federation Customer Satisfaction rating, and the targets and weightings,
following the annual Strategic Planning Review with the intention that
awards will be granted in August 2017. Full details of the performance
measures will be disclosed in next year’s remuneration report.
A consultation took place with major shareholders at the beginning of
2017 on these proposed changes to the remuneration policy, which was
largely supportive. The Committee also took the opportunity to reiterate its
previously communicated approach to the progressive increase in
base salary for Earl Sibley, to reflect both his strong performance and
increased experience. With effect from 1 January 2017, Earl Sibley’s salary
was, therefore, increased from £275,000 to £300,000 (an increase of 9.1%).
Further details on the rationale for this increase are provided on pages 76
to 77. Earl is currently acting as Interim Chief Executive and will receive a
temporary salary uplift to £450,000 to reflect the much broader range of
responsibilities that he carries whilst in this acting role.
Conclusion
I hope you find that this report clearly explains the remuneration
approach adopted by Bovis Homes and that it enables you to appreciate
how it links to our priorities for 2017 in the context of our strategic
objectives, and how it underpins our strategy. The Committee takes an
active interest in shareholder views and consults on any significant changes
being considered. The Committee considers the new remuneration policy
fair and fully aligned with the interests of shareholders and looks forward
to your voting support at the 2017 AGM. I will be available at the AGM to
take any questions you may have.
Alastair Lyons
Chairman of the Remuneration Committee
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Policy report
The remuneration policy
The Company’s existing Directors’ Remuneration Policy was approved by shareholders at the Company’s 2014 Annual General
Meeting and took effect from the date of that meeting. The new policy set out below will be proposed for adoption at the AGM
on 2 May 2017. If approved it will apply on a legislative basis immediately following shareholder approval and will replace the
policy approved in 2014.
No significant changes have been made to the policy that was approved in 2014. However, certain amendments have been
made to take account of corporate developments since then and to ensure the policy remains appropriate for the Company
going forwards. The changes made to the proposed policy as compared to the policy approved in 2014 can be summarised
as follows:
Variable pay performance metrics
The 2017 remuneration policy will include greater flexibility in terms of the balance between financial and non-financial
performance measures for awards made under the variable pay plans. This allows the Committee to introduce key operational
performance metrics, in addition to financial metrics, if such focus is considered appropriate in any given year. The Committee
intends to make use of this flexibility for 2017, as set out in the implementation section on pages 76 to 78.
Holding period for LTIP awards
Awards granted from 2017 onwards will be subject to a two year post-vesting holding period, to further strengthen long term
alignment with shareholders.
Increased shareholding guideline for CEO position
The shareholding guideline for the CEO position will be increased from 100% to 200% of base salary to bring it into line with
investor guidelines. The shareholding guidelines are now included in the formal remuneration policy.
Malus and clawback provisions
Malus and clawback provisions were not included in the 2014 remuneration policy but were introduced for variable pay from 2016
onwards. Malus and clawback provisions will, therefore, be formalised in the 2017 remuneration policy. The circumstances in which
malus and clawback can be applied have also been extended to bring them into line with market practice.
Summary
The remuneration policy is designed to provide a market competitive, performance-related package which supports and facilitates
the delivery of the Company’s strategy, the long-term success of the Company, and the creation of long-term shareholder value.
The Committee intends to apply the 2017 remuneration policy for three years and will keep the policy under review to ensure it
promotes the attraction, retention and motivation of the high performing executive talent required to deliver the business strategy.
Should any changes be required before the end of the three year period, the amended policy will be put to shareholders, following
shareholder consultation, as appropriate.
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Components of the remuneration framework for executive directors
The policy table below summarises the main components of the remuneration framework a large proportion of which is performance related.
Fixed pay
Purpose and link to strategy
Operation
Opportunity
Performance metrics
Not applicable.
Whilst we do not consider it appropriate
to set a maximum base salary level,
any increases will take into account the
individual’s skills, experience, performance,
the external environment and the pay of
employees throughout the Group.
Whilst generally the intention is to maintain
a link with general employee pay and
conditions, in circumstances such as
significant changes in responsibility or size
and scope of role or progression in a role,
higher increases may be awarded.
Thus, where a new director is appointed at
a salary below market competitive levels to
reflect initial experience, it may be increased
over time subject to satisfactory performance
and market conditions.
We do not consider it appropriate to set
a maximum benefits value as this may
change periodically.
Not applicable.
Base salary
Ordinarily reviewed annually.
To attract and retain high
performing talent required to
deliver the business strategy,
providing core reward for
the role.
The review typically considers competitive
positioning, the individual’s role,
experience and performance, business
performance and salary increases
throughout the Group.
Market benchmarking exercises are
undertaken periodically and judgement is
used in their application.
Benefits
To provide market competitive
benefits consistent with role.
Benefits typically include medical
insurance, life assurance, membership
of the Bovis Homes Regulated Car
Scheme for Employees or cash car
allowance, annual leave, occupational
sick pay, health screening, personal
accident insurance, and participation in
all employee share schemes (SAYE and
SIP). In line with business requirements,
other expenses may be paid, such as
relocation expenses, together with
related tax liabilities.
Pension
To attract and retain talent by
enabling long term pension saving.
Not applicable.
Executives joining the Group since January
2002 can choose to participate in a
defined contribution arrangement, or
may receive a cash equivalent. A salary
supplement may also be paid as part of
a pension allowance arrangement.
Executives who joined the Group
prior to January 2002 can continue
to participate in the defined benefit
pension arrangement, which is closed
to new members.
A pension allowance of up to 20% of base
salary may be paid. This may be taken
as a contribution to the Group Personal
Pension Plan, as a salary supplement, or a
combination of the two.
For executive directors who participate in
the Company’s defined benefit scheme,
to the extent that the annual value of
their participation is less than the pension
allowance, the balance may be taken as a
salary supplement.
Bovis Homes Group PLC | 61
Policy report
The remuneration policy
Variable pay
Purpose and link to strategy
Operation
Opportunity
Performance metrics
Annual bonus
To incentivise and reward the
delivery of near term business
targets and objectives.
The annual bonus scheme is a
discretionary scheme and is reviewed
prior to the start of each financial year to
ensure that it appropriately supports the
business strategy.
Performance measures and stretching
targets are set by the Committee.
Bonuses are normally paid in cash. In any
year in which no dividend is proposed
discretion may be exercised to pay part,
or all, of the bonus in ordinary shares,
deferred for two years.
Actual bonus amounts are determined
by assessing performance against the
agreed targets after the year end. The
results are then reviewed to ensure that
any bonus paid accurately reflects the
underlying performance of the business.
Clawback provisions can be applied for
a period of two years from the bonus
payment date in certain circumstances,
including a material misstatement,
serious misconduct, a material failure of
risk management or serious reputational
damage to any Group company.
Typically, annual awards are made
under the LTIP. Awards can be
granted in the form of nil-cost options,
forfeitable shares or conditional
share awards.
Performance is measured over a
performance period of not less than
three years. LTIP awards do not
normally vest until the third anniversary
of the date of the grant.
Vested awards are then subject to a
two year holding period. For nil-cost
options this will be a prohibition on
exercise until the end of the
holding period.
Awards may be granted with the
benefit of dividend equivalents, so
that vested shares are increased by the
number of shares equal to dividends
paid from the date of grant to the
date of exercise.
Malus provisions can be applied to
awards prior to the vesting date and
clawback provisions can be applied
for two years thereafter in certain
circumstances, including a material
misstatement, serious misconduct, a
material failure of risk management
or serious reputational damage to any
Group company.
Long Term Incentive Plan
(“LTIP”)
To incentivise, reward and
retain executives over the
longer term and align the
interests of management
and shareholders.
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The annual bonus
scheme offers a
maximum opportunity
of up to 100% of base
salary. Achievement of
stretching performance
targets is required to
earn the maximum.
Performance measures are selected to
focus executives on strategic priorities,
providing alignment with shareholder
interests and are reviewed annually.
Weightings and targets are reviewed and
set at the start of each financial year.
Financial metrics will comprise at least
50% of the bonus and are likely to
include one or more of:
The maximum annual
award, under normal
circumstances, is as
follows:
• 150% of base
salary for the CEO.
• 125% of base
salary for the GFD.
In exceptional
circumstances an
award may be
granted under the
LTIP rules up to
200% of base salary.
• a profit based measure
• a cash based measure
• a capital return measure
Non-financial metrics, key to
business performance, will be used
for any balance. These may include
measures relating to build quality and
customer service.
Overall, quantifiable metrics will comprise
at least 70% of the bonus.
Below threshold performance delivers no
bonus and target performance achieves a
bonus of 50% of base salary.
The performance measures applied
to LTIP awards are reviewed annually
to ensure they remain relevant to
strategic priorities and aligned to
shareholder interests.
Weightings and targets are reviewed
and set prior to each award.
Performance measures will include
long term performance targets,
of which financial and / or share
price based metrics will comprise
at least two thirds of the award.
Quantifiable non-financial metrics,
key to business performance, will be
used for any balance.
Any material changes to the
performance measures from year
to year would be subject to prior
consultation with the Company’s
major shareholders.
Below threshold performance realises
0% of the total award, threshold
performance realises 30% and
maximum performance realises
100%. The Committee may adjust
downwards the number of shares
realised in the event that the formulaic
outcome does not, in its opinion,
reflect the underlying financial
performance of the Company.
Policy report
Variable pay
Purpose and link to strategy
Operation
Opportunity
Performance metrics
Shareholding guideline
To encourage executives to build
up a meaningful shareholding over
time and align the interests of
management and shareholders.
Executive directors benefitting from the
exercise or release of LTIP awards are
expected to retain 100% of the net value
derived as shares, after settling all costs
and income tax due, until such time as the
guideline is met.
The guideline for the
CEO is 200% of base salary
and for the GFD is 100% of
base salary.
Not applicable.
Notes to the policy table
The Committee may make minor amendments to the policy set out above (for regulatory, exchange control, tax or administrative purposes or to take account
of a change in legislation) without obtaining shareholder approval for that amendment.
The executive directors may request and the Company may grant salary and bonus sacrifice arrangements.
The LTIP rules permit the substitution or variance of performance conditions to produce a fairer measure of performance as a result of an unforeseen event
or transaction and include discretions for upwards adjustment to the number of shares to be realised in the event of a takeover, scheme of arrangement or
voluntary winding up. Non-significant changes to the performance metrics may be made by use of discretion under the LTIP rules. Awards are normally satisfied
in shares, although there is flexibility to settle in cash.
The Committee reserves the right to make remuneration payments and payments for loss of office (including exercising any discretions available to it in
connection with such payments) that are not in line with the policy table set out above where the terms of the payment were agreed:
(i) before 16 May 2014 (the date the Company’s existing remuneration policy came into effect);
(ii) before the policy set out in this 2016 Annual Report came into effect, provided that the terms of payment were consistent with the shareholder approved
directors’ remuneration policy in force at the time they were agreed; or
(iii) at a time when the relevant individual was not a director of the Company and, in the opinion of the Committee, the payment was not in consideration for
the individual becoming a director of the Company.
For these purposes “payments” includes the Committee satisfying awards of variable remuneration and an award over shares is “agreed” at the time the award
is granted.
Performance measures for the annual bonus scheme and the LTIP are selected to focus the executive directors on strategic financial and operational priorities,
both short term and those related to long term sustainable performance, providing alignment with shareholder interests. Targets for each performance measure
are then set by the Committee in light of strategic objectives over the short term for the annual bonus scheme and over at least a three year performance
period for the LTIP. In setting targets the Committee takes into account a number of reference points including internal and analysts’ forecasts.
Bovis Homes Group PLC | 63
Policy report
The remuneration policy
Illustration of the application of the remuneration policy
Our aim is to ensure that superior reward is only paid for exceptional performance, with a substantial proportion of executive
directors’ reward opportunity being performance related. The chart below sets out remuneration scenarios for the executive
director at three levels of performance, as a percentage of the total reward opportunity and as a total value.
Earl Sibley
Group Finance Director (currently Interim CEO)
4%
31%
29%
36%
Jonathan Hill
Group Finance Director
4%
30%
29%
37%
Maximum
1,038
Maximum
963
7%
51%
18%
24%
Target
626
12%
88%
Minimum
363
7%
51% 24%
18%
578
In line with
expectations
13%
87%
Minimum
333
0
200
400
600
£000s
800
1,000 1,200
0
500
1000
£000s
1500
2000
Salary and benefits
Pensions
Bonus
LTIP
The following basis of calculation and assumptions have been used in the scenarios above:
• Minimum performance reflects base salary as at 1 January 2017 and benefits and pension paid in 2016 (2017 policy for the
defined contribution arrangement) as set out in the single figure on page 70.
• Target performance reflects base salary as at 1 January 2017, benefits and pension paid in 2016 (2017 policy for the defined
78.8
80
contribution arrangement) as set out in the single figure on page 70, annual cash bonus at 50% of maximum and LTIP vesting at
70
threshold of 30% of maximum.
60
53.2
50
• Maximum performance reflects base salary as at 1 January 2017, benefits and pension paid in 2016 (2017 policy for the defined
contribution arrangement) as set out in the single figure on page 70, annual cash bonus at 100% of maximum and LTIP vesting
m
£
40
32.5
34.2
30
at maximum of 100%.
20
8.7
• No share price, dividends or discount rate assumptions have been included in the charts above.
2013
10
2012
0
13.4
Non-executive director and chairman fees
Total spend
on pay
Profit before
tax
Dividends
paid
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The Board, comprising the Chairman and the executive directors, sets the remuneration of the non-executive directors, without
their participation. The Remuneration Committee, with the Chairman absenting himself from discussions, sets the remuneration of
the Chairman who receives an all-inclusive fee. The level of fees must be within the limit approved by shareholders, contained in
the Articles of Association. Non-executive directors and the Chairman do not participate in the annual bonus scheme or the LTIP
and are not eligible to join the Group’s pension schemes. All non-executive director and chairman fees are payable in cash and
there are no additional fees or other items in the nature of remuneration. All non-executive directors and the Chairman may receive
reimbursement for reasonable expenses incurred and the Company may satisfy any related tax liabilities.
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Purpose and link to strategy
Operation
Opportunity
Performance metrics
To attract and retain
non-executive directors and
a chairman of the
appropriate calibre.
Typically reviewed on an annual basis.
Market benchmarking exercises are
undertaken periodically and judgement is
used in their application.
Fee increases may be applied in line
with the outcome of any review.
Not applicable.
A basic fee is paid. Additional
fees may be paid for additional
responsibilities such as chairmanship/
membership of a committee.
Fees are set at a level considered
appropriate taking account of
competitive positioning, the
individual’s responsibilities, the time
commitment required and the size
and complexity of the Company.
Approach to recruitment
In agreeing a remuneration package for a new executive director, it would be expected that the structure and quantum of variable pay
elements would reflect those set out in the policy table above. However, the Committee would retain the discretion to flex the balance
between annual and long-term incentives and the measures used to assess performance for these elements, with the intention that a
significant proportion would be delivered in shares. Salary would reflect the skills and experience of the individual, and may be set at a level
to allow future progression to reflect performance in the role.
On recruitment, relocation benefits may be paid as appropriate.
This overall approach would also apply to internal appointments, with the proviso that any commitments entered into before promotion
which are inconsistent with this policy can continue to be honoured under the policy. Similarly, if an executive director is appointed
following the Company’s acquisition of or merger with another company, legacy terms and conditions would be honoured.
An executive director may initially be hired on a contract requiring 24 months’ notice which then reduces pro-rata over the first year of the
contract to requiring 12 months’ notice.
The Committee may award compensation for the forfeiture of awards from a previous employer in such form as the Committee considers
appropriate taking account of all relevant factors including the expected value of the award, performance achieved or likely to be achieved,
the proportion of the performance period remaining and the form of the award. There is no specific limit on the value of such awards, but
the Committee’s intention is that the value awarded would be equivalent to the value forfeited.
Maximum variable pay will be in line with the maximum set out in the policy table above (excluding buy-outs). The Committee retains
discretion to make appropriate remuneration decisions outside the standard policy to meet the individual circumstances when:
• An interim appointment is made to a fill an executive director role on a short-term basis.
• Exceptional circumstances require that the Chairman or a non-executive director takes on an executive function on a short-term basis.
For non-executive directors, the Board would consider the appropriate fees for a new appointment taking into account the existing level
of fees paid to the non-executive directors, the experience and ability of the new non-executive director and the time commitment and
responsibility of the role.
Bovis Homes Group PLC | 65
Policy report
The remuneration policy
Service contracts and exit payments policy
The current executive director’s service contract contains the key elements shown below.
Provision
Detailed terms
Notice period
12 months by either employer or director
Termination payment
Up to 12 months’ salary (excluding bonus or other enhancement)
The executive director’s service contract does not contain specific provision for compensation in the event of early termination, with
the exception of 12 months’ base salary in the event of removal at an AGM.
When determining exit payments, the Committee would take account of a variety of factors, including individual and business
performance, the obligation for the director to mitigate loss (for example, by gaining new employment), the director’s length of
service and any other relevant circumstances, such as ill health. A departing director may also be entitled to a payment in respect of
statutory rights. Should a departing director be required to retire and be eligible for an early retirement pension under the terms of
the defined benefit pension arrangement, an actuarial reduction will only be applied, in accordance with the rules, if the departing
director has not reached age 55.
The Committee would distinguish between types of leaver in respect of incentive plans. ‘Good leavers’ (death, ill-health, agreed
retirement, redundancy or any other reason at the discretion of the Committee) may be considered for a bonus payment having
completed the full year and part year bonus payments may be paid and LTIP awards may vest at the usual time taking into
account performance conditions and pro rating for time in employment during the performance period, unless the Committee
determines otherwise. The LTIP rules include discretion for upwards adjustment to the number of shares to be realised for
‘good leavers’ and, in exceptional circumstances, acceleration of the realisation date. In all other leaver circumstances, the
Committee would decide the approach taken, which would ordinarily mean that leavers would not be entitled to consideration
for a bonus and LTIP awards would lapse. Any vested LTIP award that is subject to a holding period at the time of the
executive’s cessation of employment will not lapse except in the case of the executive’s gross misconduct.
The Committee reserves the right to make any other payments in connection with a director’s cessation of office or employment
where the payments are made in good faith in discharge of an existing legal obligation (or by way of damages for breach of such
an obligation) or by way of settlement of any claim arising in connection with the cessation of a directors’ office or employment.
In addition, the Committee reserves the right, acting in good faith, to pay fees for outplacement assistance and/or the director’s
legal and/or professional advice fees in connection with his cessation of office or employment.
The appointment of the Chairman and each of the non-executive directors is for an initial period of three years, which is renewable
for further terms, and is terminable by the Chairman / non-executive director (as applicable) or the Company on twelve months’
notice. Any new Chairman / non-executive director appointments will be subject to a three month notice period. No contractual
payments would be due on termination. There are no specific provisions for compensation on early termination for the non-
executive directors, with the exception of entitlement to compensation equivalent to 12 months’ fees or, if less, the balance of
appointment, in the event of removal at an AGM.
Change of control
All the Company’s share plans contain provisions relating to change of control. In general, outstanding awards would normally vest
and become exercisable on a change of control, to the extent that any applicable performance conditions have been satisfied at
that time, reflecting the time period to the date of the event. Any deferred bonus shares will be released on change of control.
The LTIP rules include discretion for upwards adjustment to the number of shares to be realised in the event of a takeover, scheme
of arrangement or voluntary winding up.
External directorships
Executive directors may, if so authorised by the Board, accept appointments as non-executive directors of suitable companies and
organisations outside the Group and retain any associated fees.
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Pay and conditions throughout the Group
The pay and conditions of employees throughout the Group are considered by the Committee in setting remuneration policy for the
executive directors and senior management. The Committee is kept regularly informed on the pay and benefits provided to employees and
base salary increase data from the annual salary review for general staff is considered when reviewing executive directors’ salaries and those
of senior management. The Committee does not consult with employees when setting remuneration policy for the executive directors.
Difference in the Company’s policy on remuneration of directors compared to employees
The remuneration policy for the executive directors is designed with pay and conditions throughout the Group in mind. The Committee
believes that some differences are necessary to reflect responsibility and provide appropriate focus and motivation for delivery of the
Group’s strategy. Executive directors, therefore, have a higher bonus opportunity than employees generally to motivate them to achieve
stretching annual targets and they participate in the LTIP to provide focus on long term sustainable performance. This approach is designed
to provide an appropriate emphasis on performance related pay.
Consideration of shareholder views
The Company is committed to ongoing dialogue with shareholders and welcomes feedback on directors’ remuneration. Feedback received
from meetings during the year and in relation to the AGM is considered, together with guidance from shareholder representative bodies
more generally, and taken into account in the annual review of remuneration policy. The Committee believes that it has a responsible
approach to directors’ pay and that its policy is appropriate and fit for purpose.
Support from shareholders is evidenced by the 99.19% approval of the 2015 Directors’ Remuneration Report at the 2016 AGM (see the
annual remuneration report for further details). Major shareholders were consulted on the changes to the remuneration policy, including
the increased flexibility in variable pay plan performance metrics, the adoption of post vesting holding periods for LTIP awards, and the
increase in the shareholding guideline for the CEO to 200% and their feedback was incorporated into the final proposals.
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Annual remuneration report
Remuneration report
Introduction
This annual remuneration report explains how the remuneration policy has been implemented in the year ended 31 December 2016
and how it will be implemented for 2017. Details of remuneration in 2016 are set out first, followed by the approach for 2017.
At a glance summary
Component and where to find
David Ritchie - CEO
(resigned 09 January 2017)
Earl Sibley - GFD
Single figure totals for 2016 (page 70)
£1,029k
Annual bonus payments for 2016 (pages 71 to 72)
£55k
£371k
£37k
(10% of maximum)
(13.3% of maximum)
LTIP awards vesting in respect of 2016 (page 72)
35.9% of total award
n/a
LTIP awards granted in 2016 (page 73)
150% of basic salary
125% of basic salary
Salaries for 2017 (page 76)
£563,750 (+2.5%)
£300,000 (+9.1%)
Shareholding as % of salary (page 74)
280%
0.66%
Guideline: 100% of salary
(CEO 200% from 2017 onwards)
Changes to the remuneration policy for 2017
An updated remuneration policy is being submitted to the 2017
AGM for approval. Changes include greater flexibility within the
weighting of financial and non-financial performance measures for
incentive schemes, the strengthening of recovery provisions (malus
and clawback) for incentive schemes, the introduction of a two year
holding period following vesting for LTIP awards from 2017 onwards,
and an increase in the shareholding guideline for the CEO position
from 100% to 200%.
Annual bonus for 2017 (page 77)
n/a
Profit before tax: 20% weighting
ROCE: 30% weighting
Build programme delivery: 20% weighting
Customer satisfaction: 20% weighting
Individual performance: 10% weighting
Bonus opportunity remains at
100% of basic salary.
The balance of financial and
non-financial metrics has been
adjusted and a quantifiable build
programme delivery measure has
been introduced.to sit alongside
the customer satisfaction
measure to ensure focus on
strong operational delivery.
LTIP awards for 2017 (page 78)
n/a
125% of basic salary
Committee to conclude on performance
measures, targets and weightings, following
the annual Strategic Planning Review with the
intention that awards will be granted in
August 2017.
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The link between remuneration and strategy
As set out in the Strategic Report, the Group has a strategic plan containing both near and longer term objectives. These objectives include
the delivery of improving levels of return and operating profit, increasing the efficiency of capital employed, building quality homes on
time and delivering high levels of customer satisfaction. These objectives are measured by reference to the Group’s reported KPIs of pre-tax
profit, ROCE, earnings per share, the build programme agreed as part of the annual business plan, and customer satisfaction scores, all of
which are now built into the Group’s incentive schemes.
Annual bonus arrangements are clearly linked to the Group’s near term strategy via the inclusion of profit before tax, ROCE and customer
satisfaction performance measures. For 2017, we have added quantifiable build programme delivery as a new performance measure in
response to the need for the Group to prioritise the improvement of its build operating practices. The LTIP has a longer term perspective
and for 2016 awards feature performance measures of relative total shareholder return and earnings per share, both of which are measured
over a three year period and ROCE, measured in year three of the performance period. The Committee will conclude on the performance
measures, weightings and targets for the 2017 awards following the annual Strategic Planning Review and intends to grant awards in
August 2017. In line with the proposed policy, at least two thirds of the award will be based on financial and / or share price based metrics
and quantifiable non-financial metrics, key to business performance, will be used for any balance. Disclosure of the detailed measures,
weightings and targets will be made in the 2017 Remuneration Report.
The Committee has reviewed the remuneration policy for submission to the 2017 AGM and is satisfied that the proposed remuneration
arrangements will closely align with the Group’s business strategy and appropriately reflect the need to improve operational performance.
Key remuneration decisions during 2016
During 2016, the Committee set targets for the 2016 annual bonus (shown on page 71) and approved 2015 bonus payments. It set targets
for and approved LTIP awards made in 2016 and approved the level of vesting for the 2013 LTIP awards. It also introduced malus and
clawback provisions to incentive awards from 2016 onwards. A consultation with shareholders took place on proposed changes to the
remuneration policy to be submitted to shareholders at the 2017 AGM.
The Committee also completed the 2017 remuneration review, which included consideration of the link between executive remuneration
and pay and employment conditions throughout the Group (including the general proposals for staff for 2017).
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Annual remuneration report
Remuneration report
Implementation of remuneration policy for the year ended 31 December 2016
Single figure of executive directors’ remuneration (audited)
The following table reports a single figure for total remuneration for each executive director who served during the 2016 financial year.
David Ritchie
Earl Sibley
(appointed CEO 03 July 2008; appointed an
executive director in 2002; resigned 09 January 2017)
(appointed GFD 16 April 2015)
Base salary
Benefits (1)
Annual bonus
Long Term Incentives (2)
Sub-total
Pension (3)
Other – pension salary supplement (4)
Total remuneration
Notes:
2016
£000
550
18
55
(5) 255
878
76
75
2015
£000
550
22
329
(6) 471
1,372
58
75
1,029
1,505
2016
£000
275
18
37
n/a
330
41
-
371
2015
£000
177
8
155
n/a
340
27
-
367
(1) Taxable benefits include medical insurance and loan account balancing payment relating to membership of the Bovis Homes Regulated Car Scheme,
plus income tax and national insurance due on this payment
(2) The 2013 LTIP measured over the three year period to 31 December 2015 vested to the extent of 66.7% on 26 February 2016. The 2014 LTIP
measured over the three year period to 31 December 2016 will vest to the extent of 35.9% on 25 February and 19 August 2017.
(3) The single value for David Ritchie has been calculated as 20 times the increase in accrued pension during the year (net of inflation), less the director’s
own contributions. The single figure for Earl Sibley has been calculated as the employer’s cash contribution.
(4) David Ritchie receives a non-bonusable and non-pensionable pension salary supplement.
(5) This is an estimated value based on the average share price over the last quarter of 2016 of 814.66 pence for the 2014 LTIP awards which vest on 25
February and 19 August 2017.
(6) This is the actual value delivered under the 2013 LTIP calculated using the share price on the vesting date (937.5 pence on 26 February 2016) and
includes 4,101 notional dividend shares. Last year’s report included an estimate in respect of the vesting value of the 2013 LTIP (based on the average
share price over the last quarter of 2015 of 1,001.74 pence) as the award had not vested at the date of the report.
David Ritchie is a non-executive director of A.G. BARR p.l.c. and retained director’s fees of £53,995 during 2016. Earl Sibley does not
currently hold any external directorships.
The following table shows the remuneration for the non-executive directors who served during the 2016 financial year.
Non-executive directors
Ian Tyler
Alastair Lyons
Chris Browne
Ralph Findlay (appointed 07/04/15)
Nigel Keen (appointed 15/11/16)
John Warren (retired 15/05/15)
Total
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Salary / fees
£000
2016
170
74
46
54
6
-
350
2015
161
74
46
39
-
20
340
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Annual bonus payment in respect of 2016
The maximum opportunity for executive directors for the year ended 31 December 2016 was 100% of salary, the same as in previous years.
A breakdown of the performance against the measurement criteria is shown below. All targets were set at the beginning of 2016. The full
detail of performance targets is disclosed retrospectively.
Measure
Financial measures (70%)
Profit before tax
(pre-Group allowance for bonus charge)
ROCE
Non-financial measures (30%)
Customer satisfaction
Individual performance
Weighting
(as a % of maximum)
Threshold
On target
Stretch
Award achieved
(% of maximum)
40%
30%
10%
20%
0% of
maximum
£186.2m
0% of
maximum
19.0%
50% of
maximum
£195.7m
50% of
maximum
20.0%
100% of
maximum
£205.2m
100% of
maximum
21.0%
57%
0%
0%
On target is
0%
threshold
25%
50% of
maximum
50%
100% of
maximum
75%
0%
100%
85%
n/a
11%
Assessed against the achievement of
defined individual objectives
57%
50%
25%
90%
0%
Total bonus for executive directors (% salary)
0%
25%
50%
Profit before tax: Pre-tax profit of £154.7 million was achieved
representing a 3% decrease on 2016. Performance was below
threshold and none of the 40% weighting for this performance
measure was awarded.
Return on capital employed: The Group achieved ROCE of 17%
in 2016. Performance was below threshold and none of the 30%
weighting for this performance measure was awarded.
Customer satisfaction: The Group delivered an average customer
satisfaction score below 85%. Performance was below on target against
this measure and none of the 10% weighting to this performance
measure was awarded.
Individual performance: The Committee assessed the directors as
having partially delivered on their individual objectives. 10% of the 20%
weighting to this performance measure was awarded for David Ritchie
and 13.3% of the 20% weighting was awarded for Earl Sibley (see
explanation on page 72).
11%
0%
0%
0%
0%
0%
0%
0%
0%
11%
11%
11%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
50%
57%
57%
50%
57%
50%
50%
50%
50%
50%
50%
50%
50%
50%
25%
25%
25%
25%
25%
25%
25%
25%
25%
25%
25%
25%
25%
David Ritchie
0%
0%
25%
25%
50%
50%
Earl Sibley
David Ritchie
50%
50%
50%
50%
66.6%
25%
25%
25%
25%
25%
50%
50%
50%
50%
50%
Earl Sibley
David Ritchie
David Ritchie
David Ritchie
25%
25%
25%
25%
66.6%
50%
50%
50%
50%
50%
50%
50%
Earl Sibley
Earl Sibley
Earl Sibley
0%
0%
0%
25%
25%
25%
66.6%
66.6%
66.6%
50%
50%
50%
10% CEO
75%
75%
13.3% GFD
100%
100%
10% CEO
100%
13.3% GFD
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
75%
75%
75%
75%
75%
75%
75%
75%
75%
75%
75%
75%
75%
75%
75%
75%
75%
75%
75%
75%
75%
75%
75%
75%
75%
75%
75%
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Annual remuneration report
Remuneration report
Executive director
Maximum bonus % of salary
Target bonus % of salary
Actual bonus % of salary
Total 2016 bonus £000
David Ritchie
Earl Sibley
100
100
50
50
10.0%
13.3%
55
37
David Ritchie was set the following personal objectives for 2016, designed to support the changes needed to the way the Group
operated to underpin its growth strategy:
• To embed the Group’s agreed values across the business
• To forge the newly established executive leadership into an effective, coherent and integrated team
• To promote the development of talented individuals within a structured management succession plan
• To promote innovation within the Group’s core functions such as build and sales
The Committee considered that despite the operational challenges faced in 2016, which in turn accounted for his missing his financial
and customer service targets, progress had been made under David’s leadership in these areas, in particular in getting the Group’s values
understood and adopted across the business; in building the effectiveness of the Executive Leadership Team; and in promoting from
within to new roles across the expanded regional management structure. The Committee therefore, awarded 10% against the maximum
20% weighting for this performance measure.
Earl Sibley was set the following personal objectives for 2016, designed to enhance the effectiveness of those areas under his
responsibility and to improve the Group’s capital and cost effectiveness:
• To develop and implement the year’s investor relations plan
• To reduce capital employed by reducing the Group’s net current assets
• To improve cost effectiveness through better procurement and control of costs and improved cost reporting
• To implement a balanced scorecard approach to business reporting
• To improve the effectiveness of Internal Audit, thereby strengthening the Group’s framework of internal control
The Committee considered that Earl had made good progress against his range of objectives, putting the Group in a better position now
to tackle the challenges that were manifest in 2016. In particular, the Group’s internal business reporting was much improved, providing
the transparency required for effective management; Internal Audit had been redesigned to provide much improved oversight of the
framework of internal control; and regional plans were well developed to improve capital efficiency. Improving cost effectiveness
remains an area of material focus. The Committee awarded two thirds or 13.3% against the maximum 20% weighting of this
performance measure.
Given the difficult year experienced by the Group and its failure to achieve its financial and customer satisfaction targets the Committee
has decided that it would be inappropriate to pay these bonuses in cash. Instead, it will (subject to any regulatory restrictions) apply its
discretion to pay Earl’s bonus in shares which will be subject to a two year holding period. David Ritchie has agreed, as a modification of
his entitlements on ceasing to be employed by the Group, as set out later in this report, that his bonus be delivered in the same way.
Bovis Homes Group Long Term Incentive Plan
Long term incentive awards are made in the form of performance shares or nil-cost options under the Bovis Homes Group Long Term
Incentive Plan which was approved by shareholders at the 2010 Annual General Meeting. Each award is made subject to the achievement
of performance criteria as set out below and will ordinarily vest after three years. Discretions available to the Committee contained in the
LTIP rules are set out in the policy table and also in the exit payments policy on pages 62 and 66.
Awards vesting in respect of 2016
The LTIP awards made in 2014 were measured over the three year period to 31 December 2016 and will vest to the extent of 35.9% on
25 February and 19 August 2017. One third of the award was measured against each of EPS performance, TSR performance against an
index and ROCE performance.
The threshold EPS target was 230p and the maximum target was 280p measured on a cumulative three year basis. Absolute cumulative
EPS over the three year performance period was 264.1p. Therefore, 77.7% of the EPS element will vest.
The threshold TSR target was performance equal to the annualised median of the index and the maximum target was performance
equal to the annualised median of the index, plus 10%. Actual TSR was 18% which was below the median of the index of 59% and,
therefore, none of the award based on TSR will vest.
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The threshold ROCE target was 17% and the maximum target was 20% measured in the third year of the performance period (2016).
Actual ROCE in 2016 was 17% and, therefore, 30% of the ROCE element will vest.
Awards granted during 2016 (audited)
An award of 93,696 shares was made to David Ritchie at 150% of basic salary at a grant price of £8.805 on 23 February 2016, exercisable
in 2019 and subject to a three year performance period ending on 31 December 2018, as follows:
Executive director
David Ritchie
Type of award
Number of shares
awarded
Face value at date
of grant £000
% of face value that
would vest at threshold
Performance share award
93,696
825
30
An award of 39,040 shares was made to Earl Sibley at 125% of basic salary at a grant price of £8.805 on 23 February 2016, exercisable in
2019 and subject to a three year performance period ending on 31 December 2018, as follows:
Executive director
Earl Sibley
Type of award
Number of shares
awarded
Face value at date
of grant £000
% of face value that
would vest at threshold
Performance share award
39,040
344
30
The performance measures for all 2016 awards are unchanged from the prior year, namely TSR (33.3%), EPS (33.3%) and ROCE (33.3%). 10% of
the total award vests for achieving threshold performance on any measure.
The performance targets are:
• TSR – threshold performance equal to the annualised median of the index and maximum performance equal to the annualised median of
the index, plus 10% (unchanged from the prior year).
• EPS – threshold performance at cumulative EPS of 370 pence and maximum performance at cumulative EPS of 440 pence.
• ROCE – threshold performance at 20.5% and maximum performance at 25.3%.
The 2016 constituents of the TSR index, which may be subject to change, are as listed below:
TSR comparator group
Barratt Developments plc
Persimmon plc
Historical LTIP awards
Bellway plc
Redrow plc
The Berkeley Group plc
Crest Nicholson Holdings plc
Taylor Wimpey plc
The table below summarises the historical long term incentive awards made to the executive directors.
Award size (% salary)
Performance criteria
Year of grant
Performance period
(CEO)
(GFD)
TSR
EPS
ROCE
Percentage of award vesting
2013
2014
2015
2016
01/01/2013 – 31/12/2015
100%
33.3%
33.3%
33.3%
01/01/2014 – 31/12/2016
150%
33.3%
33.3%
33.3%
66.7%
35.9%
01/01/2015 – 31/12/2017
150%
*150%
33.3%
33.3%
33.3%
Ongoing
01/01/2016 – 31/12/2018
150%
125%
33.3%
33.3%
33.3%
Ongoing
*This level of award was granted on an exceptional basis.
Pensions
During 2016, David Ritchie was a senior executive member of the Bovis Homes Pension Scheme (“BHPS”). This is a contributory funded,
defined benefit scheme, approved by HMRC. He received a pension allowance of 20% of salary and some or all of this allowance was used
in relation to his membership of the BHPS, to the extent that it remained beneficial in light of new pension legislation. The balance was
paid as a non-bonusable and non-pensionable salary supplement.
Earl Sibley is a member of the Bovis Homes Group Personal Pension Plan (“GPP”) and the Company’s contribution is 15% of his base salary.
There are no special early retirement or early termination provisions for executive directors, except as noted in the exit payments policy.
Any new appointments would include eligibility for membership of the GPP, unless the appointee was already a member of the BHPS.
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Annual remuneration report
Remuneration report
Directors’ pension accruals (audited)
Executive director
David Ritchie
Notes:
Employer
contributions to
pension scheme
during the year
£
Director
contributions to
pension scheme
during the year
£
Accumulated total
accrued pension
at 31 Dec 2016
£ p.a.
Increase in
accrued pension
during the year
(net of inflation)
£ p.a.
Transfer value of
accrued pension
at 31 Dec 2016 (1)
£
Single value at
31 Dec 2016 (3)
£
48,795
7,913
73,288
4,199
1,219,601
76,077
1. The transfer value has been calculated using the transfer basis introduced in July 2015.
2. The accrued pension figures above are the aggregate pension resulting from two periods of service. The first period relates to service up to 5 April
2011 and the second period relates to service from 6 April 2011 to 31 December 2016.
3. The single value has been calculated as 20 times the increase in accrued pension during the year (net of inflation), less the director’s own contributions.
Directors’ shareholdings and share interests (audited)
Directors’ beneficial share interests
The directors’ interests in the share capital of the Company are shown below. All interests are beneficial.
31 Dec 2016
31 Dec 2015
Ordinary
shares
Share
Options
Shares under
the LTIP
(shares subject
to performance
conditions)
SAYE options
(options subject
to continuous
employment)
Ordinary
shares
Share
Options
Shares under
the LTIP
(shares subject
to performance
conditions)
SAYE options
(options subject
to continuous
employment)
Executive directors
David Ritchie
Earl Sibley (appointed 16/04/15)
Non-executive directors
Ian Tyler
Alastair Lyons
Chris Browne
Ralph Findlay (appointed 07/04/15)
Nigel Keen (appointed 15/11/16)
210,628
270
2,090
25,350
1,026
-
-
-
-
-
-
-
-
-
305,833
3,988 210,416
72,255
4,213
109
-
-
-
-
-
-
-
-
-
-
2,000
25,350
1,026
-
-
-
-
-
-
-
-
-
235,231
1,882
33,215
-
-
-
-
-
-
-
-
-
-
-
There were no changes in the holdings of ordinary shares of any of the directors between 31 December 2016 and 20 February
2017 other than the normal monthly investment in partnership shares through the Bovis Homes Group Share Incentive Plan.
The directors’ interests in share options and awards under the Long Term Incentive Plan are detailed on page 75. There were
no changes in the holdings of share options and awards under the Long Term Incentive Plan between 31 December 2016 and
20 February 2017.
Shareholding guidelines
Guidelines have been approved for executive directors in respect of ownership of Bovis Homes’ shares. The Board expects executive
directors benefiting from the exercise of Long Term Incentive Plan awards or exercise of share options to retain 100% of the net
value derived from the exercise as shares, after settling all costs and income tax due, until such time as executive directors hold
shares with an historical cost equal to basic annual salary and, from 2017 onwards, the CEO holds shares with an historical cost
equal to twice basic annual salary.
Executive director
Shareholding
at 31 Dec 2016
Historical
acquisition cost
Salary at
1 Jan 2017
% shareholding
achieved
Shareholding
guideline
David Ritchie (resigned 9 January 2017)
210,628
£1,579,322
£563,750
280%
Earl Sibley
270
£1,992
£300,000
0.66%
100%
100%
David Ritchie met the shareholding guidelines during 2016. There has been limited opportunity for Earl Sibley to progress towards
satisfying the shareholding guidelines during 2016.
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Directors’ interests in Long Term Incentive Plan shares
Executive director
Award date
Vesting date
Interest
as at
31 Dec 2015
Interest
as at
31 Dec 2016
Value of
shares at
date of award
(£000)
Vesting and
exercised
in year
Lapsed
in year
Expiry date
Market
value at
vesting
(£000)
Gain on
exercise
(£000)
Shares
retained
on exercise
David Ritchie
26/02/13
26/02/16
69,284
46,190
450
25/02/14
25/02/17
50,598
50,598
465
19/08/14
19/08/17
27,256
27,256
232
24/02/15
24/02/18
88,093
88,093
24/02/16
24/02/19
-
93,696
Earl Sibley
18/08/15
18/08/18
33,215
33,215
24/02/16
24/02/19
-
39,040
825
825
375
344
-
-
-
-
-
-
23,094
26/02/23
433
-
-
-
-
-
25/02/24
19/08/24
24/02/25
24/02/26
18/08/25
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
24/02/26
-
-
-
Directors’ interests in share options
Executive director
Date of grant
Scheme
Interest as at
31 Dec 2015
Granted
in year
Lapsed
in year
Exercised
in year
Interest as at
31 Dec 2016
Exercise price
per share
Option exercise
period
David Ritchie
02/05/2014
24/03/2016
SAYE
SAYE
Earl Sibley
24/03/2016
SAYE
1,882
-
-
-
2,106
4,213
-
-
-
-
-
-
1,882
796.95
06/19 – 12/19
2,106
712.00 06/21 – 12/21
4,213
712.00 06/21 – 12/21
The Save As You Earn (SAYE) options were granted at a 10% discount (2014 options) and a 20% discount (2016 options) to the prevailing
market price on the date of grant. There was no payment required to secure the grant of any share options. There was no change in the
terms and conditions of any outstanding options granted under the SAYE Scheme during the financial year. Share options held in the
SAYE Scheme, which are not subject to performance conditions, may under normal circumstances be exercised during the six months after
maturity of the savings contract.
Total Shareholder Return performance graph (1)
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r
e
P
R
S
T
800
700
600
500
400
300
200
100
0
156
149
120
184
128
105
173
170
131
402
278
230
252
212
155
731
698
327
312
348
272
509
288
255
Bespoke home construction index (2)
FTSE 250 index
Bovis Homes Group PLC
(1) This graph illustrates eight-year TSR performance and therefore does
not represent the period under which the Long Term Incentive Plan
is measured
(2) Median TSR growth of the constituents of the bespoke index. Index
consists of FTSE 250 home construction companies as at 31 December
2008 (Barratt Developments, Bellway, The Berkeley Group, Persimmon,
Redrow, Taylor Wimpey)
Dec 2008
Dec 2009
Dec 2010
Dec 2011
Dec 2012
Dec 2013
Dec 2014
Dec 2015 Dec 2016
Source - DataStream
As required by the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended), the above
graph shows the Total Shareholder Return of an ordinary share held in Bovis Homes Group PLC over the last eight financial years, compared
to the FTSE 250 index and the median of the FTSE 350 home construction companies (as listed at 31 December 2008) over the same
period. As a constituent of the FTSE 250 operating in the home construction sector, the Committee considers both these indices to be
relevant benchmarks for comparison purposes.
The middle market price of the Company’s shares at 31 December 2016 was £8.20 (2015: £10.15). During the year ended 31 December
2016 the share price recorded a middle market low of £6.27 and a high of £10.24. As at the date of this report the share price stood
at £8.41.
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Annual remuneration report
Remuneration report
David Ritchie
Total CEO remuneration
Chief Executive
David Ritchie
6%
28%
Single figure total £000
Maximum
26%
40%
518
1,016
1,757
836
1,315
Maximum
2009
2010
2011
2012
Annual bonus against maximum %
10%
47%
20%
23%
Long Term Incentive Plan vesting against maximum %
In line with
expectations
Change in remuneration of CEO
18%
1,037
82%
0
31
100
82.4
84.2
31
0
In line with
expectations
50
Jonathan Hill
Group Finance Director
30%
2013
4%
29%
1,440
2014
37%
1,596
2015
2016
1,505
963
1,029
97.8
7%
51% 24%
50
18%
88.7
59.8
10
66.7
578
66.7
35.9%
13%
87%
The table below sets out the percentage change in the remuneration awarded to David Ritchie between 2015 and 2016 compared
Minimum
595
to the average percentage change for employees as a whole.
Minimum
333
Executive director
0
David Ritchie
500
1000
£000s
1500
2000
0
Base salary
500
Benefits
1000
Annual bonus
1500
2000
0%
£000s
0%
-83.3%
Employees as a whole
Salary and benefits
Pensions
Bonus
LTIP
2.83%
0%
-54.1%*
*Excludes sales and build functions which have tailored incentive schemes.
Relative importance of spend on pay
The graph below details Group wide expenditure on pay for all employees (including variable pay, social security, pensions and
share based payments) as reported in the audited financial statements for the last two financial years, compared with profit before
tax and dividends paid to shareholders.
200
150
m
£
100
50
0
Notes:
160.1 154.7
63.5
51.1
49.2
55.4
Total spend
on pay
Profit before
tax
Dividends
paid
2015
2016
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• Total spend on pay in 2015 was £51.1 million and in 2016 was £63.5 million, representing an increase of 24.3%.
• Profit before tax in 2015 was £160.1 million and in 2016 was £154.7 million, representing a reduction of 3.4%.
• Dividends paid to shareholders totalled £49.2 million in 2015 and £55.4 million in 2016, representing an increase of 12.6%.
Implementation of remuneration policy for the year ending 31 December 2017
Changes in the way that remuneration policy will be implemented in 2017 versus 2016 include base salary increases, the addition
of a quantifiable build programme delivery measure for the 2017 annual bonus and a rebalancing of the weightings for the other
performance measures, and the strengthening of provisions that enable the withholding of payment or the recovery of sums
paid (malus and clawback) in incentive schemes. A two year holding period before vested awards can be exercised is also being
introduced for the LTIP awards made from 2017 onwards. The Committee will conclude on the most appropriate performance
measures, targets and weightings for these awards, following the annual Strategic Planning Review, with the intention that awards
will be granted in August 2017. Full details will be disclosed in the 2017 annual remuneration report.
Executive directors’ base salaries and benefits
The salaries of the executive directors with effect from 1 January 2017 were as follows:
Executive directors
David Ritchie (resigned 9/01/17)
Earl Sibley (appointed 16/04/15)
Position
2017 base salary
CEO
GFD
£563,750
£300,000
% increase
from 2016
2.5%
9.1%
The salary of David Ritchie, the former Chief Executive, was increased by 2.5%, in line with the wider employee population.
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Annual remuneration report
The Committee carefully considered the increase for Earl Sibley, in line with the phased approach set out in the 2015 Remuneration Report,
and on which shareholders were previously consulted. In summary, Earl Sibley was appointed in April 2015 on a salary of £250,000 with
the expectation that salary would be increased to an appropriate market rate for a strongly performing experienced individual over the
first three years of service, subject to individual performance and increased experience. In view of the ongoing strong performance being
delivered by Earl Sibley, his pace of development, increased level of experience and his contribution to the Group, the Committee decided
to progress his salary by 9.1% for 2017, following the increase of 10% for 2016. The Committee considers that this progressive approach
contributes to his being fully motivated to meet the challenges ahead in delivering operational improvement and the Group’s strategy to
the benefit of shareholders.
Earl Sibley was appointed as Interim Chief Executive from 9 January 2017 and will receive a temporary salary uplift of £450,000 per annum
whilst in this role.
An allowance of just over 3% of salary roll was provided for general staff increases.
Benefits will continue on the same basis as for 2016.
Approach to annual bonus
Following the regular annual review, it was concluded that the annual bonus scheme for 2017 should be adjusted to measure key elements
of performance that are in line with the Company’s particular circumstances and the need to focus on strong operational delivery and high
levels of customer satisfaction. The Committee has, therefore, adjusted the balance of financial and non-financial metrics from 70%:30%
to 50%:50% and has introduced a quantifiable build programme delivery measure. The weightings for the remaining performance
measures have been rebalanced. Full details are given below. There is no change to quantum.
Provisions that enable the withholding of payment or the recovery of sums paid (malus and clawback) have been strengthened and can
apply to the annual bonus in circumstances of (i) a serious misstatement of results; (ii) an error in assessing a performance condition or in
the information on which the award was granted; (iii) serious misconduct; (iv) a material failure of risk management; (v) serious reputational
damage; or (vi) any other circumstances that the Committee considers to be similar in nature or effect. Malus can apply prior to the bonus
payment date and clawback can apply for a two year period thereafter.
The Committee has decided not to disclose the detail of performance targets in advance as they are considered commercially sensitive,
being closely indicative of the Group’s strategy, but will disclose them retrospectively in the 2017 annual remuneration report. The 2017
performance measures and weightings are described below.
Measure
Rationale / link to strategy
% weighting
Financial measures (50%)
Profit before tax
Explicitly ties reward to financial performance.
Challenges management to deliver and out-perform profit target.
ROCE
Aligns the way the business is managed with the key interest of
shareholders, being the return achieved on invested capital.
Non-financial measures (50%)
Build programme delivery
Improving build operating practices and delivering quality homes
on time is key to operational efficiency, customer satisfaction,
reputation and future success. Measured by delivery against the
build programme agreed as part of the annual business plan.
20%
30%
20%
Customer satisfaction
Quality of service is key to reputation and future success, both in
20%
terms of customer demand and achieved selling prices.
Measured by the average score achieved in our internal customer
satisfaction surveys.
Individual performance
Focuses the executive directors on strategic priorities and the
10%
achievement of defined elements within their roles.
Total opportunity
100%
Bovis Homes Group PLC | 77
Annual remuneration report
Remuneration report
Approach for Long Term Incentive Plan awards
The key features of the long term incentive arrangements (as outlined on page 73) are expected to remain the same as those for
2016, with the proviso that the Committee intends to introduce the Home Builders Federation Customer Satisfaction rating as a
performance measure, alongside the financial and share price performance measures. The financial measures will comprise at least
two thirds of awards and the HBF Customer Satisfaction rating, which is independently and objectively assessed, will make up the
balance. The Committee will conclude on the specific performance measures, weightings and targets for the 2017 awards following
the annual Strategic Planning Review. It is intending to delay the grant of awards until August 2017 and detailed disclosure will be
provided in the 2017 Remuneration Report.
Provisions that enable the withholding of payment or the recovery of sums paid (malus and clawback) can apply in certain
circumstances as set out in the policy report. Malus can apply prior to the award vesting date and clawback can apply for a two year
period thereafter. A two year holding period following vesting has been introduced for the 2017 awards onwards, which extends to
five years the time between awards being granted and when they can be exercised.
Pensions
Pension arrangements (as outlined on page 73) will continue on the same basis as in 2016.
Payments for loss of office (audited)
David Ritchie resigned as Chief Executive and as an executive director of the Company with effect from 9 January 2017 and his
employment with the Group will end on 28 February 2017. Remuneration arrangements in respect of his departure were
determined by the Committee in line with Mr Ritchie’s service contract and the Company’s remuneration policy approved by
shareholders in 2014. He will be assisting the Group with an orderly transition of his duties until the end of his employment.
He will continue to receive his salary and all contractual benefits until this date.
On ceasing to be employed by the Group, Mr Ritchie will be entitled to receive:
• Payment in lieu of notice for the remainder of his contractual notice period from 1 March 2017 to 8 January 2018 comprising a
lump sum of £242,180 payable in March 2017 and the sum of £338,250 payable in six equal monthly instalments from July 2017
until December 2017. This second element may be reduced to take account of mitigation.
• Benefits in kind comprising payment for any accrued holiday not taken before 28 February 2017, continued use of his current
company car until 8 January 2018 and private medical insurance and life cover on the current basis or a sum equal to the
reasonable cost of obtaining these benefits personally, until 8 January 2018.
• Other expenses comprising a contribution in respect of legal costs and a contribution towards outplacement counselling.
• Annual bonus: A bonus of 10% of base salary (£55,000) in respect of the individual performance non-financial measure of the
annual bonus for 2016, payable in April 2017. The bonus will be subject to clawback for a period of two years. No bonus is
payable for 2017.
• Long term incentive awards: The following treatment will apply in accordance with the rules of the Long Term Incentive Plan and
the terms of the awards:
a) The LTIP award granted on 26 February 2013 and which vested on 26 February 2016 shall remain exercisable over 52,643
shares (inclusive of dividend equivalent shares) in accordance with the LTIP rules.
b) The LTIP award of 50,598 shares granted on 25 February 2014 shall vest to the extent that the performance conditions are met
and will become exercisable (together with any dividend equivalent shares that may accrue in accordance with the LTIP rules)
from 25 February 2017 (the normal vesting date) for a period of six months.
c) The LTIP award of 27,256 shares granted on 19 August 2014 shall vest to the extent that the performance conditions are met
and will become exercisable (together with any dividend equivalent shares that may accrue in accordance with the LTIP rules)
from 19 August 2017 (the normal vesting date) for a period of six months.
d) The LTIP award of 88,093 shares granted on 24 February 2015 shall vest to the extent that the performance conditions are
met and will become exercisable on 24 February 2018 (the normal vesting date), pro-rated for the number of complete months
served and subject to a maximum of 13,300 shares (inclusive of dividend equivalent shares) vesting. Any part of the award that
vests shall be exercisable for a period of six months after that date.
e) The LTIP award granted on 24 February 2016 of 93,696 shares shall lapse on 28 February 2017.
78 | Annual report and accounts | Our governance
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Non-executive directors’ remuneration
The fees for the non-executive director positions in 2016 and for 2017 are set out below.
Role
Chairman fee
Deputy Chairman fee
Non-executive director base fee
Additional fees:
Audit Committee chair
Remuneration Committee chair
2016
2017
£170,000
£170,000
£66,000
£70,000
£46,000
£49,000
£8,000
£8,000
£9,000
£9,000
The fees for the Deputy Chairman and the other non-executive directors were increased to their current levels with effect from 1 January
2017, following a review which took into account competitive positioning, responsibilities, time commitment for the roles and the size and
complexity of the Company. The fees for non-executive directors will next be reviewed with effect from 1 January 2018.
Remuneration of senior management and other below board employees
In addition to responsibility for executive directors, the Committee is also involved in consideration of the remuneration arrangements for the
Executive Leadership Team below the Board, in conjunction with the Interim Chief Executive. Alignment is delivered by ensuring that senior
management participate in the same bonus and incentive schemes as the executive directors, with similar performance measures and targets.
The Remuneration Committee
Committee membership and meetings
All members of the Committee are independent non-executive directors who have no personal financial interest, other than as
shareholders, in the matters to be decided. Biographical details are provided on page 49.
Name
Alastair Lyons
Chris Browne
Ralph Findlay
Nigel Keen
Date of appointment
Role
Attendance
at meetings
01/10/2008
Chairman
01/09/2014
Member
07/04/2015
Member
15/11/2016
Member
7/7
6/7
7/7
1/1
The Committee met seven times in 2016. In addition to the key activities and decisions mentioned in the introduction to this report, the
Committee reviewed the remuneration policy, approved the directors’ remuneration report for inclusion in the 2015 Annual Report and
reviewed feedback from shareholders and institutions, approved the vesting of 2013 CSOP options, approved the 2016 offer of the SAYE
scheme, reviewed the Committee’s terms of reference and completed an evaluation of its performance and was found to be performing
effectively and fulfilling its remit.
The Committee starts its meetings without executive management present when it wishes to do so. During 2016, the Committee asked
Ian Tyler (Chairman) and David Ritchie (former Chief Executive) to attend meetings and assist its discussions. This excluded matters
connected to their own remuneration, service agreements or terms and conditions of employment. The Committee takes care to recognise
and manage conflicts of interest when receiving views from executive directors or senior management and no director or senior executive
is involved in any decisions regarding their own remuneration.
The Group Company Secretary acts as secretary to the Committee.
Advisers to the Committee
Deloitte LLP were appointed advisers to the Committee in August 2009. Deloitte provide independent advice on all aspects of executive
remuneration and attend Remuneration Committee meetings when invited by the Chairman of the Committee. The Committee reviews the
advice, challenges conclusions and assesses responses from Deloitte to ensure objectivity and independence. Deloitte did not provide any
other services to the Company during the period. Deloitte are a founder member of the Remuneration Consultants Group and have
signed the voluntary Code of Practice for remuneration consultants. The fees paid to Deloitte for services provided in 2016 were £26,160
(2015: £2,250).
Bovis Homes Group PLC | 79
Annual remuneration report
Remuneration report
Shareholder voting at the 2016 AGM
At the AGM held on 10 May 2016, shareholder proxy voting on the directors’ remuneration report for the year ended 31 December
2015 was as follows:
Resolution
For
%
Against
%
Total votes
Withheld (1)
Directors’ remuneration report 2015
85,193,070
99.19
692,932
0.81
85,886,002 1,170,255
Shareholder voting at the 2014 AGM
At the AGM held on 16 May 2014, shareholder proxy voting on the directors’ remuneration policy was as follows:
Resolution
For
%
Against
%
Total votes
Withheld (1)
Directors’ remuneration policy
104,567,017
96.64 3,632,595
3.36
108,199,612
92,040
(1) A vote withheld is not a vote in law and is not counted in the calculation of votes for and against.
The Company is committed to ongoing shareholder dialogue and seeks to understand any concerns investors may have. Should
there be a significant level of votes against resolutions relating to directors’ remuneration, the Company will seek to understand the
reasons for this and will set out any actions taken in response.
By order of the Board
Alastair Lyons
Chairman of the Remuneration Committee
20 February 2017
Note: This Directors’ Remuneration Report has been prepared in accordance with the requirements of Schedule 8 to the Large and Medium-sized
Companies and Groups (Accounts and Reports) Regulations 2008 (as amended). The report also meets the relevant requirements of the Listing Rules
of the Financial Conduct Authority, and describes how the Board has complied with the principles and provisions of the UK Corporate Governance
Code relating to remuneration matters. Remuneration tables subject to audit in accordance with the relevant statutory requirements are contained in
the annual remuneration report.
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Audit Committee report
“I am pleased to introduce the Audit Committee report. During the year, the Committee
has reviewed the Group’s financial reporting, risk management and internal control systems
and maintained oversight of external and Internal Audit. The Committee continues to play a
fundamental role in protecting shareholders’ interests.”
Ralph Findlay, Committee Chairman
Overview
During the year, the Committee reviewed the integrity of the
Group’s financial statements, with focus on significant areas of
judgement, and kept operating, financial and accounting practices
under review. The system for internal control, financial reporting
and risk management was monitored in the context of the growth
of the Group and its effectiveness was reviewed. Reporting from
management, Internal Audit and the external auditor was openly
debated, testing conclusions and audit judgements. The effectiveness
of the Group’s Internal Audit function received focus, a co-sourced
arrangement was put in place and an overall review of risk
management was commenced.
Committee membership and meetings
The Committee comprised three independent non-executive directors
until 15 November 2016, when the number increased to four.
Between them they have the recent and relevant experience required
by the UK Corporate Governance Code and as a whole they have
competence relevant to the sector in which the Company operates.
Biographical details and information on skillsets are provided on
pages 48 and 49.
Committee membership is determined by the Board following
recommendation from the Nomination Committee and is reviewed
as part of the Committee’s performance evaluation. Nigel Keen
became a member of the Committee on his appointment as a
non-executive director on 15 November 2016. The Company
Chairman, Chief Executive and Group Finance Director were present
at all meetings in 2016 and attend meetings by invitation.
The external auditors PricewaterhouseCoopers LLP attended all
meetings and Deloitte LLP attended one meeting as temporary
co-sourced Internal Audit provider. The former Internal Audit
Director attended one meeting and the Group Financial Controller
attended two meetings.
Name
Date of appointment
Role
Attendance
at meetings
Ralph Findlay
(appointed Chairman 15/05/15)
07/04/2015
Chairman
Alastair Lyons
01/10/2008
Member
Chris Browne
01/09/2014
Chairman
Nigel Keen
15/11/2016
Member
3/3
3/3
2/3
1/1
The Committee met three times in 2016 and detailed papers and
information were received sufficiently in advance of meetings to
allow proper consideration of matters for discussion. The Committee
also met with the external auditors, without executive management
present, at the end of each meeting. These discussions noted the
impact of significant growth on the business and the opportunities
for improvement in the control environment. See page 57 for further
information on the control environment in 2016. Ralph Findlay met
privately with the audit engagement partner of the external auditors
during the year. The Group Company Secretary acts as secretary to
the Committee. An overview of the main activities during 2016 is
provided below.
Responsibilities and terms of reference
The key responsibilities of the Committee are:
• Monitoring the integrity of the financial statements, the
accompanying reports to shareholders and corporate
governance statements, including reviewing the findings of the
external auditor.
• Reviewing and monitoring the effectiveness of systems for internal
control, financial reporting and risk management.
• Overseeing and reviewing the effectiveness of Internal Audit.
• Making recommendations to the Board in relation to the
appointment and removal of the external auditor and approving
their remuneration and terms of engagement.
• Reviewing and monitoring the external audit process and the
independence and objectivity of the auditor, as well as the nature
and scope of the external audit and its effectiveness.
• Developing the policy on the engagement of the external
auditor to supply non-audit services, taking into account relevant
ethical guidance.
The Committee’s terms of reference are available on the
Company’s website (www.bovishomesgroup.co.uk/investor-centre/
corporate-governance).
Main activities during the year
The Committee followed a programme structured around the
annual reporting cycle and received reports from co-sourced Internal
Audit, the external auditors and management. The key activities
undertaken were:
• Discussed with the external auditors the key accounting
considerations and judgements reflected in the Group’s results for
the year ended 31 December 2015.
• Reviewed the 2015 annual report and accounts, so as to
recommend to the Board that, taken as a whole, it was fair,
balanced and understandable.
• Assessed the results and effectiveness of the 2015 final audit.
• Reviewed and discussed with the external auditor the key
accounting considerations and judgements reflected in the
Group’s results for the six months ended 30 June 2016.
• Evaluated and agreed the external auditor’s audit strategy
memorandum in advance of their 2016 year-end audit.
• Received reports from co-sourced Internal Audit covering various
aspects of the Group’s regional operations, controls
and processes.
• Completed a tender for co-sourced Internal Audit services
towards the end of the year, resulting in the appointment of
Grant Thornton.
• Assessed the co-sourced Internal Audit providers’ draft audit plan
and structure for 2017 to be followed by a full plan in early 2017.
Bovis Homes Group PLC | 81
Audit Committee report
• Reviewed and assessed the Group’s risk appetite.
• Reviewed progress with an overall review of risk management,
commenced to assess and improve the control environment,
and the setting up of a Risk Governance Committee.
• Reviewed the effectiveness of the system of internal control
and risk management systems and reported to the Board
that, although there were no material control weaknesses,
there was considerable scope for improvement in the
control environment.
• Completed an assessment of fraud risk and anti-fraud measures.
• Assessed an IT security review and the steps to be taken.
• Reviewed management’s going concern assessment at each
reporting period end, considering detailed financial forecasts,
future cash flow projections and the resources available to
the Group, including the current banking facility and forecast
covenant compliance.
• Reviewed management’s viability assessment for the year end
reporting period covering strategic planning, principal risks,
detailed financial forecasts, resources available to the Group,
scenario testing, qualifications and assumptions and the
period chosen.
• Reviewed the Committee’s terms of reference.
• Reviewed the Company’s whistleblowing policy and
arrangements, there having been two whistleblowing events
during the year.
At its meeting in February 2017, the Committee discussed with
the external auditor the key accounting considerations and
judgements reflected in the Group’s results for the year ended
31 December 2016 and reviewed the 2016 annual report and
accounts, to be able to recommend to the Board that, taken
as a whole, it was fair, balanced and understandable and
provided the information necessary for shareholders to assess
the Company’s performance, business model and strategy.
The approach taken was to analyse key areas of progress and
challenge during the year, followed by reviewing the 2016
annual report and accounts to ensure that all key areas had been
reported upon in a balanced and fair way.
Significant areas
The key accounting judgements considered by the Committee in
relation to the 2016 accounts and discussed with the external
auditors, were:
• Inventory provisioning - the level of inventory provisioning
impacts the carrying value of the most significant balance on the
balance sheet. Since the downturn in the land market in 2008
the Company has carried a provision to write down the carrying
value of the land held within inventories to the lower of cost and
net realisable value, less costs to sell, where this is less than the
historical cost. The assessment of the level of provision required,
requires the exercise of judgement by management.
82 | Annual report and accounts | Our governance
The Committee receives a regular report on this provision, updated
by management, at relevant Committee meetings. At this year end
the paper proposed an immaterial adjustment, which was in line
with the forecast position and had been audited by the external
auditors. The written down sites and any adjustments proposed
were discussed and justified by management and the land write
down provision remaining at the period end (£3.0 million) was
reviewed, together with the profit attributable to the reversal of
the provision on the sale of written down units during the year,
which was not considered to be material. Following discussion, the
Committee was satisfied that the judgements exercised were
appropriate and that the provision was appropriately stated at the
year end. Details of the movements in the provision are provided
in note 3.1 to the accounts on page 109.
• Available for sale financial assets - the assumptions used to
fair value available for sale financial assets, (otherwise known
as shared equity and details of which are provided in note
4.2 on pages 111 to 112), affects the carrying value on the
balance sheet. These assumptions require the exercise of
significant judgement by management. This is assessed
through the Committee discussing with management and the
auditors the assumptions adopted and any adjustments made
to those assumptions, including, in particular, the long run
HPI assumption and the discount rate which are the key
determinants of the expected final redemption value.
Following discussion the Committee considered that the
assumptions adopted were reasonable.
• Margin recognition - the level of costs attributable to each legal
completion affects the profit and margin recognised in the
income statement. Certain site wide costs including land and
infrastructure are allocated to individual legal completions on a
proportionate basis using an approximate measure for the area
of land each housing plot utilises as the basis of allocation.
The total costs allocated represent the combination of costs
incurred to date and an estimate of the cost to complete.
The assessment of cost to complete is based on the specific
details of each site and incorporates certain assumptions and
judgements by management. The level of profit recognised in
the income statement is monitored throughout the year via
the Group’s usual budgeting, forecasting and management
accounts reporting. The methodology adopted and the Group’s
performance to date against expectations had been audited by
the external auditors.
• Customer care provision - following legal completion, the Group
provides a two year warranty that covers any defects which arise
during that period. The level of provision per completion is based
on actual costs incurred over the preceding twelve months.
Judgement is applied in determining whether this level of
provision is sufficient, or whether it should be adjusted to reflect
the level of outstanding customer rectification works at the
balance sheet date.
• Land acquisitions - certain land acquisitions incorporate
site specific terms for example overages, conditionality or
ongoing obligations with the land owner.
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The key terms are assessed and appropriate accounting entries made
for such acquisitions where they impact the balance sheet land value.
The material and complex land transactions in the year were
substantively audited by the external auditors. Management review
and understand the impact of the key terms of each land transaction
as part of the acquisition process and in line with an escalating
system of approval based on materiality certain acquisitions are
appropriately assessed by the Chairman and the Board as a whole.
The external auditors reported on relevant transactions to the Audit
When an approval request is made, the Committee has due regard
to the nature of the non-audit service, whether the external auditor
is a suitable supplier, and whether there is likely to be any threat to
independence and objectivity in the conduct of the audit.
The related fee level, both separately and relative to the audit fee is
also considered. For an analysis of fees paid to PwC for audit services
see note 2.1 on page 107. There were no non-assurance services
provided by PwC during the year.
Committee and following discussion the Committee considered the
Internal Audit
accounting to be appropriate.
External auditors
PricewaterhouseCoopers LLP (PwC) were appointed as external
auditor at the 2015 AGM, following the completion of a competitive
audit tender process supervised by the Committee. In doing so,
the Committee complied with the provisions of the Competition
& Markets Authority Order. Our 2017 AGM Notice contains
a resolution for the re-appointment of PwC as auditors to the
Company. In making this recommendation, the Committee took into
account, amongst other matters, the independence and objectivity
of PwC, the effectiveness of the external audit process and cost.
There are no contractual restrictions on the choice of external auditor.
The AGM Notice also contains a resolution to give the directors
authority to determine the auditor’s remuneration, which provides a
practical flexibility to the Committee.
During the year, the Committee reviewed the independence
and objectivity of the external auditor, which was confirmed in
an independence letter containing information on procedures
providing safeguards established by the external auditor.
Regulation, professional requirements and ethical standards
were taken into account, together with consideration of all
relationships between the Company and PwC and their staff.
Relations with the external auditors are managed through a series
of meetings and regular discussions and we ensure a high quality
audit by challenging the key areas of the external auditor’s work.
At its meeting in February 2017, the Committee reviewed the
effectiveness of the external audit process as part of its consideration
of the 2016 final audit. This involved assessing delivery and content
against the audit plan for the 2016 year end audit, including
determination of audit risks and significant areas of judgement,
consideration of the performance and communication of the audit
team, and the quality of reporting, observations, recommendations
and insight. It also included reviewing comprehensive papers from
the external auditors, discussing and challenging their conclusions
and audit judgements and assessing responses from the external
auditor. Lastly, feedback was taken on the effectiveness and conduct
of the audit from those involved, including feedback from the
regional businesses on visits to the regions, which was positive.
The Committee keeps under review its policy which requires
the Committee to approve all non-audit services proposed to
be undertaken by the external auditors, with the exception of
compliance work undertaken in the ordinary course of business
and audit related services, which are treated as pre-approved.
The Committee assessed the effectiveness of the Internal
Audit function during 2015 and in early 2016, with the conclusion
that there were opportunities for improvement. A co-sourced
approach was adopted and Deloitte LLP were appointed on a
temporary basis to complete a number of regional reviews and
to provide other support. A tender for co-sourced Internal Audit
services was then completed towards the end of the year,
which resulted in the appointment of Grant Thornton on a
permanent basis. The appointment is intended to provide the
expertise and experience necessary to support the delivery
of effective Internal Audit services and to assist in securing
improvement in the control environment.
Performance evaluation
The Committee undertook a self-assessment process in January
2017 to review the Committee’s performance, the effectiveness of
the external auditor, and the Group’s Internal Audit function.
The Committee is considered to be effective, with members having a
good mix of skills and experience to provide an appropriate level of
challenge when debating the reports, statements and findings
presented to them. In reviewing the effectiveness of the external
auditor, the Committee considers PwC to have carried out a high
quality audit in the second year since appointment, having
established effective working relationships and gained a good
understanding of the Group’s business. The Committee was satisfied
with the scope of the external audit, and that PwC demonstrate
independence having reviewed all services provided to the Group
by them. The Committee believes the external audit to be effective.
In relation to Internal Audit, following a review the Committee
adopted a co-sourced approach for 2016 and will keep the
effectiveness of the arrangement under review during 2017
as it assesses the quality of services provided by the Internal
Audit function and the delivery of improvements in the
control environment. Finally, the evaluation also concluded that
the Committee had appropriate terms of reference and had
fulfilled its remit in 2016.
Ralph Findlay
Chairman of the Audit Committee
20 February 2017
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Marine Drive
Teignmouth
Bovis Homes Group PLC | 85
Nomination Committee report
“ The Committee has kept the balance and composition of the Board under review,
maintained its focus on succession planning and made one nomination for appointment
to the Board.”
Ian Tyler, Committee Chairman
Overview
The Committee has continued to maintain a watching brief on
the knowledge, skills and experience available to the Board, both
in light of anticipated future challenges and the more complex
• Considering succession planning for directors and senior
executives, taking into account the challenges and opportunities
facing the Company and the skills and expertise needed in
the future.
nature of the business. Succession planning was also kept under
• Monitoring the leadership needs of the Company and leading
review and diversity is naturally part of this oversight. Having
considered the experience and insight the appointment would
bring, one new non-executive director was recommended for
appointment and Nigel Keen joined the Board in November 2016.
The Committee commenced the recruitment of a new Chief
Executive in early 2017 and will continue to monitor the balance
and composition of the Board as the future direction of the
Group unfolds. Information on the Board’s skillset is set out on
pages 48 to 49, together with biographies.
Committee membership and meetings
All members of the Committee are independent non-executive
directors, with the exception of the Chairman of the Company
and, during 2016, the former Chief Executive. Ian Tyler chaired
the Committee during the year and the other members of the
Committee were Alastair Lyons, Chris Browne, Ralph Findlay,
Nigel Keen (from 15 November 2016) and David Ritchie.
Name
Date of appointment
Role
Attendance
at meetings
Ian Tyler
29/11/2013
Chairman
Alastair Lyons
01/10/2008
Member
Chris Browne
01/09/2014
Member
Ralph Findlay
07/04/2015
Member
Nigel Keen
15/11/2016
Member
David Ritchie
(resigned 09/01/17)
03/07/2008
Member
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The Committee met seven times in 2016, with the key focus in
the first part of the year being on Board composition and the
recruitment of a non-executive director. A recommendation for
appointment followed. Later in the year the Committee reviewed
the diversity policy, considered succession planning and approved
two new service contracts for current non-executive directors.
For all meetings, papers and supporting documentation were
circulated sufficiently in advance to allow proper consideration
of matters for discussion. The Group Company Secretary acts as
secretary to the Committee.
Responsibilities and terms of reference
the process for Board appointments, ensuring they are
conducted on merit, against objective criteria (including diversity),
using the services of an appropriate external search consultant.
• Making recommendations to the Board, including on the
re-appointment of non-executive directors, the re-election
of directors at the AGM, and membership of the Audit and
Remuneration Committees.
The Committee also reviews the results of the Board performance
evaluation relating to the composition of the Board. External legal
or other independent professional advice can be obtained at the
Company’s expense, although this facility was not utilised during
the year. The Committee’s terms of reference are available on the
Company’s website (www.bovishomesgroup.co.uk/investor-centre/
corporate-governance).
Main activities during the year
The main activities during the first part of 2016 were focused on
non-executive recruitment and succession planning. Having
considered the knowledge, skills and experience required and
the need for greater land and property expertise, the Committee
recommended the appointment of Nigel Keen as a non-executive
director. Nigel was appointed on 15 November 2016. A formal,
comprehensive and tailored induction is being provided for Nigel,
including visits to the regional offices, site visits and meetings with
senior management.
A summary of the Committee’s activities during 2016 follows:
• Keeping the structure, size and composition of the Board under
review, concluding that the Board balance and composition
should be supplemented by an additional non-executive director.
• Running the recruitment process for a new non-executive
director, using objective criteria and the external search services
of The Zygos Partnership (who have no other connection with
the Company), including recommendation of appointment to
the Board.
• Considering succession planning as the Group becomes more
complex, with a view to future requirements.
• Recommending the directors to stand for re-election at the 2016
AGM in accordance with the UK Corporate Governance Code
• Approving the Nomination Committee report for the 2015
The key responsibilities of the Committee are:
Annual Report.
• Reviewing the structure, size and composition of the Board
• Reviewing the Committee’s terms of reference.
(including skills, knowledge, experience and diversity) and to
make recommendations to the Board.
• Setting a Committee timetable for 2017.
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Hampton Lea
Malpas
Non-executive directors’ service contracts are renewed on an annual
basis following the conclusion of a second three year term, subject
to satisfactory performance and there being no need to re-balance
the Board, with the third year of the third term extending until the
subsequent AGM. Having served for eight years, a recommendation
was made to the Board that the service contract for Alastair Lyons
be renewed for a further term running until the 2018 AGM.
A recommendation was also made to the Board that the service
contract for Ian Tyler be renewed for a further three year term.
These decisions followed rigorous review, including the contribution,
performance and commitment of Alastair and Ian and the
composition of the Board as a whole.
The principle of boardroom diversity is strongly supported and
the Committee reviewed the diversity policy, first published in
September 2011. The policy sets out that appointments to the
Board will always be based on merit, so that the Board has the
right individuals in place. It also explains that diversity is seen as an
important consideration as part of the objective criteria used to assess
candidates to achieve a balanced board. The decision was taken
not to set measurable objectives and the Committee continues to
consider boardroom diversity in all its succession planning discussions.
Performance evaluation
An evaluation of the performance of the Board Committees was
completed as part of the internal formal evaluation of the Board,
completed at the start of 2017. The Committee was found to be
effective and it was concluded that it had fulfilled its remit in 2016
and had appropriate terms of reference.
Ian Tyler
Chairman of the Nomination Committee
20 February 2017
Bovis Homes Group PLC | 87
Directors’ report
The directors have pleasure in submitting their annual report for
Annual General Meeting
the year ended 31 December 2016.
Other disclosures made in the Annual Report
The Company is required to disclose certain information in its
directors’ report which the directors have chosen to disclose
elsewhere in the Annual Report and is incorporated by
reference. Details of where this information can be found are
set out below:
Subject
Notice of the 2017 Annual General Meeting to be held on
Tuesday, 2 May 2017 is set out on pages 132 to 135. Members
wishing to vote should return forms of proxy to the Company’s
Registrar not less than 48 hours, (excluding non-working days),
before the time for holding the meeting.
A resolution to renew the Group’s Save As You Earn Share
Option Scheme is included in the notice of the Annual General
Meeting and full details of the proposed changes (which are
Pages
incorporated here by reference) can be found in the explanatory
Likely future developments in the business
12 to 15
notes on pages 136 to 137.
Important events since the year end
Going concern statement
Directors’ interests
Employee involvement / employment of disabled persons
Greenhouse gas emissions
Corporate governance report
Directors' remuneration
Subsidiaries and associated undertakings
130
30
74
35
40 to 41
51 to 57
68 to 80
125
The directors believe that all the resolutions to be considered
at the Annual General Meeting are in the best interests of
the Company and its shareholders as a whole. The directors
unanimously recommend that all shareholders vote in favour of
the resolutions, as the directors intend to do in respect of their
own shares in the Company.
Directors
Details of the directors are shown on pages 48 to 49.
Nigel Keen was appointed as an independent non-executive
director on 15 November 2016.
Research and development
David Ritchie resigned as Chief Executive and as a director on
We continue to undertake research and development to
improve the processes, materials and products used in the
construction of our developments and to enhance the energy
efficiency of our range of homes.
9 January 2017.
In accordance with the UK Corporate Governance Code, all the
directors will retire at the 2017 Annual General Meeting and,
being eligible, offer themselves for re-appointment.
Disclosure of information under Listing Rule 9.8.4R
Details of directors’ pay, pension rights, service contracts and
There is no further information to be disclosed in accordance
with Listing Rule 9.8.4R.
Dividends
An interim dividend of 15.0p (2015: 13.7p) net per share was
paid on 18 November 2016. The Board proposes to pay, subject
to shareholder approval at the 2017 Annual General Meeting,
a final dividend of 30.0p (2015: final dividend of 26.3p) net
per share in respect of the 2016 financial year on 19 May 2017
to shareholders on the register at the close of business on 24
March 2017. On this basis, the total dividend for 2016 will be
45.0p (2015: 40.0p), representing an increase of 12.5%.
The dividend reinvestment plan gives shareholders the
opportunity to reinvest dividends.
directors’ interests in the ordinary shares of the Company are
included in the Directors’ Remuneration Report on pages
68 to 80.
Directors’ indemnities
During the financial year and as at the date of this report,
indemnities were in force under which the Company has
agreed to indemnify the directors, to the extent permitted by
law and the Company’s Articles of Association, in respect of
all losses arising out of, or in connection with, the execution
of their powers, duties and responsibilities, as directors of the
Company or any of its subsidiaries.
David Ritchie was a director of Bovis Homes Pension Scheme
Trustee Limited (the “Pension Trustee”) until 9 January 2017.
The Company’s subsidiary, Bovis Homes Limited, has granted
a qualifying pension scheme indemnity to the directors of the
Pension Trustee to the extent permitted by law in respect of
all losses arising out of, or in connection with, the execution
of their powers, duties and responsibilities as directors of the
Pension Trustee.
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Powers of the directors
Subject to the Company’s Articles of Association, UK legislation
and any directions given by special resolution, the business of the
Company is managed by the Board, which may exercise all the
powers of the Company. The directors have been authorised to
allot and issue ordinary shares and to make market purchases of
the Company’s ordinary shares and these powers may be exercised
under authority of resolutions of the Company passed at its Annual
General Meeting. The rules in relation to the appointment and
replacement of directors are set out in the Company’s Articles
of Association.
Articles of Association
Shareholders are entitled to attend, speak and vote at general
meetings of the Company, to appoint one or more proxies and, if
they are corporations, to appoint corporate representatives.
On a show of hands at a general meeting of the Company every
shareholder present in person or by proxy and entitled to vote has
one vote and on a poll every shareholder present in person or by
proxy and entitled to vote has one vote for every ordinary share
held. Further details regarding voting, including the deadlines for
voting, at the Annual General Meeting can be found in the notes
to the Notice of the Annual General Meeting at the back of this
annual report and accounts. No shareholder is, unless the Board
decides otherwise, entitled to attend or vote either personally or
by proxy at a general meeting or to exercise any other shareholder
Unless expressly specified to the contrary in the Articles of
rights if he or any person with an interest in shares has been sent a
Association, they may only be amended by a special resolution of
notice under section 793 of the Companies Act 2006 and has failed
the Company’s shareholders at a general meeting.
to supply the Company with the requisite information within the
Share capital
The Company has a premium listing on the London Stock Exchange.
As at 20 February 2017, its share capital comprised 134,522,340
fully paid Ordinary Shares of 50 pence each. At the Company’s
2016 AGM, the directors were authorised to:
prescribed period.
Shareholders may receive a dividend and on a liquidation may share
in the assets of the Company. None of the ordinary shares of the
Company, including those held by the Company’s share schemes,
carry any special rights with regard to control of the Company.
Employees participating in the Bovis Homes Group Share Incentive
• allot shares in the Company or grant rights to subscribe for, or
Plan may direct the trustee to exercise voting rights on their behalf
convert, any security into shares up to an aggregate nominal
at any general meeting but are not required to do so.
amount of £22,374,300;
The instrument of transfer of a certificated share may be in any
• allot shares up to an aggregate nominal amount of £44,748,601
usual form or in any other form which the Board may approve.
for the purpose of a rights issue; and
• make market purchases up to 13,438,018 shares in the Company
(representing approximately 10% of the Company’s issued share
capital at the time).
Shareholders will be asked to renew similar authorities at the
2017 AGM.
During the year the Company allotted 142,679 shares in connection
with the exercise of options under the Company’s employee
share plans. The Employee Benefit Trust did not purchase any
shares during the year.
The Company has not held any shares in treasury during the period
under review.
All issued shares are fully paid and free from any restrictions on
their transfer, except where required by law, such as insider trading
rules. The rights and obligations attaching to the Company’s
ordinary shares are set out in the Company’s Articles of Association,
copies of which can be obtained from Companies House in the UK
or by writing to the Group Company Secretary.
The Board may refuse to register any instrument of transfer of a
certificated share which is not fully paid, provided that the refusal
does not prevent dealings in shares in the Company from taking
place on an open and proper basis. Certain employees and officers
of the Company must conform to the Company’s share dealing
rules; these restrict the ability to deal in the Company’s shares at
certain times and require permission to deal.
The Board may also refuse to register a transfer of a certificated
share unless the instrument of transfer: (i) is lodged, duly stamped
(if stampable), at the registered office of the Company or any
other place decided by the Board accompanied by the certificate
for the share to which it relates and such other evidence as the
Board may reasonably require to show the right of the transferor
to make the transfer; (ii) is in respect of only one class of shares;
and (iii) is in favour of not more than four transferees. Transfers of
uncertificated shares must be carried out using the relevant system
and the Board can refuse to register a transfer of an uncertificated
share in accordance with the regulations governing the operation
of the relevant system and with UK legislation. There are no other
limitations on the holding of ordinary shares in the Company and
the Company is not aware of any agreements between holders of
securities that may result in restrictions on the transfer of securities
or on voting rights.
Bovis Homes Group PLC | 89
Directors’ report
Substantial shareholdings
As at 31 December 2016, the following interests of 3% or more in the Company’s issued share capital had been notified to the Company:
Ordinary shares of 50p each
Standard Life Investments (Holdings)
Dimensional Fund Advisors LP
Prudential plc group of companies
Norges Bank
Legal & General Group Plc
% direct
holding
% indirect
holding
% financial
instruments
Total number of
shares held
-
-
-
3.98
3.00
7.10
5.00
-
9,544,517
6,723,676
4.80
0.09
6,576,735
-
-
-
-
5,356,208
4,047,987
% of voting
rights of
the issued
share capital
7.10
5.00
4.89
3.98
3.00
Between 1 January and 20 February 2017, the following interests of 3% or more in the Company’s issued share capital were
notified to the Company:
20 February 2017
Ordinary shares of 50p each
% direct
holding
% indirect
holding
% financial
instruments
Total number of
shares held
% of voting
rights of
the issued
share capital
Standard Life Investment (Holdings)
-
<5.00
-
-
<5.00
Takeover directive
Auditors
On a change of control, provisions in the Group’s syndicated
Each person who is a director at the date of approval of this
banking facility agreements (described in note 4.3 to the
report confirms that:
accounts) would allow lenders to withdraw the facility.
• so far as the director is aware, there is no relevant audit
All of the Group’s share schemes contain provisions relating
information of which the Company’s auditors are
to a change of control. Under these provisions, a change
unaware; and
of control would be a vesting event, allowing exercise of
outstanding options and awards, subject to satisfaction of
performance conditions, as required.
• each director has taken all the steps that he/she ought to
have taken as a director to make himself/herself aware of
any relevant audit information and to establish that the
There are a number of commercial contracts that could alter
Company’s auditors are aware of that information.
in the event of a change of control. None is considered to be
material in terms of their potential impact on the Group in
this event.
Financial risk management
Details of financial risk management and exposure to credit /
liquidity risks are included in note 4.6 to the accounts.
Political donations
This confirmation is given and should be interpreted in
accordance with the provisions of Section 418 of the
Companies Act 2006.
Following an audit tender process conducted at the end
of 2014, PricewaterhouseCoopers LLP were appointed as
auditor at the 2015 AGM. In accordance with the provisions
of the Companies Act 2006, resolutions concerning the
re-appointment of PricewaterhouseCoopers LLP and their
No political donations were made during the year ended
remuneration will be placed before the 2017 Annual
31 December 2016 (2015: nil). The Group has a policy of
General Meeting.
not making donations to political parties or incurring
political expenditure.
.
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Each of the directors, whose names and functions are listed on
pages 48 to 49 of the Annual Report confirm that, to the best of
their knowledge:
• the Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the EU, give a true and fair
view of the assets, liabilities, financial position and profit of the
Group; and
• the Strategic Report contained in the Annual report includes a
fair review of the development and performance of the business
and the position of the Group, together with a description of the
principal risks and uncertainties that it faces.
By Order of the Board
M T D Palmer
Group Company Secretary
20 February 2017
Bovis Homes Group PLC
Registered number 306718
Statement of directors’ responsibilities
The directors are responsible for preparing the Annual Report, the
Directors’ Remuneration Report and the financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements
for each financial year. Under that law the directors have prepared
the Group and Parent company financial statements in accordance
with International Financial Reporting Standards (IFRSs) as adopted
by the European Union. Under company law the directors must not
approve the financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Group and the
Company and of the profit or loss of the Group and the Company
for that period.
In preparing these financial statements, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable
and prudent;
• state whether applicable IFRSs as adopted by the European Union
have been followed, subject to any material departures disclosed
and explained in the financial statements;
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Company and the Group and enable
them to ensure that the financial statements and the Directors’
Remuneration Report comply with the Companies Act 2006
and, as regards the Group financial statements, Article 4 of the
IAS Regulation. They are also responsible for safeguarding the
assets of the Company and the Group and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The directors are responsible for the maintenance and integrity
of the Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
The directors consider that the Annual Report and Accounts, taken
as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess a Company’s
performance, business model and strategy.
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Winchester Village
Winchester
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Bovis Homes Group PLC | 93
Auditor’s report
Independent auditors’ report to the members of Bovis Homes Group PLC
Report on the financial statements
Our opinion
In our opinion:
• Bovis Homes Group PLC’s Group financial statements and Company financial statements (the “financial statements”) give a true
and fair view of the state of the Group’s and of the Company’s affairs as at 31 December 2016 and of the Group’s profit and the
Group’s and the Company’s cash flows for the year then ended;
• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards
(“IFRSs”) as adopted by the European Union;
• the Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and
as applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the IAS Regulation.
What we have audited
The financial statements, included within the Annual report and accounts (the “Annual Report”), comprise:
• the Group and Company balance sheets as at 31 December 2016;
• the Group income statement and Group statement of comprehensive income for the year then ended;
• the Group and Company statements of cash flows for the year then ended;
• the Group and Company statements of changes in equity for the year then ended; and
• the Notes to the financial statements, which include a summary of significant accounting policies and other explanatory information.
Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the financial statements.
These are cross-referenced from the financial statements and are identified as audited.
The financial reporting framework that has been applied in the preparation of the financial statements is IFRSs as adopted by the
European Union and, as regards the Company financial statements, as applied in accordance with the provisions of the Companies
Act 2006, and applicable law.
Context
Bovis Homes Group PLC is a British housebuilder listed on the London Stock Exchange. The Group is wholly UK based, operating in
England and Wales.
The Group is dependent on macroeconomic factors as well as the conditions of the UK residential property market. The Group may
be particularly adversely affected by any factor that reduces sales prices or transaction volumes or presents constraints in the supply
chain in the UK residential property market. This was particularly relevant for our work in the areas of margin forecasting and the
valuation of inventory
Our audit approach - Overview
• Overall Group materiality: £7,730,000 which represents 5% of profit before tax.
Materiality
Audit
scope
• The Group consists of one main trading entity and is structured into eight regions, being
Mercia, West Midlands, Western, South West, Northern Home Counties, Eastern, Thames
Valley and Southern. The Group financial statements are a consolidation of these eight
regional reporting units and the centralised Group functions.
We undertook work across each of the eight regions and the head office which together
account for 100% of the Group revenue and profit before tax.
Areas of
focus
• Margin forecasting and recognition
• Valuation of available for sale assets –
• Valuation of warranty and customer
shared equity
care provision
• Accounting for complex land acquisitions
• Carrying value of inventory
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The scope of our audit and our areas of focus
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”).
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular,
we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved
making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of
management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of
material misstatement due to fraud.
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are
identified as “areas of focus” in the table below. We have also set out how we tailored our audit to address these specific areas in order to
provide an opinion on the financial statements as a whole, and any comments we make on the results of our procedures should be read in
this context. This is not a complete list of all risks identified by our audit.
Area of focus
How our audit addressed the area of focus
Margin forecasting and recognition
Refer to page 82 of the Audit Committee Report.
• At a regional level we tested managements forecasting and
The Group’s margin forecasting and recognition model (“CV
model”) is based on a number of key assumptions including:
• Build costs (allocated to each plot on an actual costs basis)
• Central site costs, including infrastructure costs and land
(allocated to each plot based on the Group’s ‘land
factor’ model)
• Sales price (based on a fixed expected sales price for the
type/size of property)
Periodic surveyor and financial appraisals are performed to
determine the costs to date and work in progress based upon
the stage of completion of each unit and the CV model is
updated accordingly.
monitoring controls, including attendance at a selection of the
surveyor and financial appraisal meetings
• We tested significant underlying assumptions within the CV
Model and checked the consistent application of the model
through comparing the costs recognised and stage complete
on key sites to the forecasts. We also understood any
significant differences between the forecast cost and actual
cost incurred.
• We also tested that the system correctly recalculated the
cost apportionment following cost and stage completion
amendments made by management.
• We have tested a sample of forecast sales prices to the actual
sales price attained for similar properties to support the validity
of the estimated sales price in the CV model.
There is uncertainty within the above assumptions from potential
changes in the market conditions or unforeseen circumstances.
• We have tested a sample of costs incurred to third
This could result in the forecast assumptions being inaccurate and
party support.
an incorrect margin being recognised.
We consider this to be the most significant financial reporting risk
Based on the procedures performed, we did not identify any sites
where we considered the underlying assumptions in the forecast
for the Group principally due to the high level of management
to be inappropriate.
judgement inherent in the accounting for the Group’s
developments and site appraisals.
Bovis Homes Group PLC | 95
Auditor’s report
Area of focus
How our audit addressed the area of focus
Valuation of warranty and customer care provision
Refer to page 82 of the Audit Committee Report and page
126 of the financial statements.
The Group provides private home buyers with a 2 year
warranty against issues arising from a failure to build to
accepted standards. As a result of this, the Group maintains
a warranty provision to cover the expected costs of rectifying
claims. This provision is based on historical experience of such
costs incurred across the Group supplemented by known
specific items, and may include compensation costs where
considered necessary.
• We have tested a sample of specific items included in the
provision to correspondence received from customers, and
have corroborated the quantification of amounts provided
by management back to supporting documentation or
explanations, including evidence of settlement post
year end.
• We have tested the calculation of the historical experience
by testing the underlying actual costs incurred and the
calculation apportioning this to properties sold during the
2 year warranty period.
Whilst some of the claims are known at the reporting date,
there may be others which have either not been notified to
the Group or have not yet become visible to customers.
As a result, there is inherent uncertainty with respect to the
completeness and valuation of the estimated provision to
remediate these issues.
Carrying value of inventory
Refer to page 82 of the Audit Committee Report and page
109 of the financial statements.
Inventory is comprised of land held for development, work
in progress (WIP), raw materials and completed plots/part
exchange properties.
Land held for development and raw materials are held at cost.
WIP is made up of the cost of the land being built on, direct
materials and, where applicable, direct labour costs and those
overheads that have been incurred in bringing the inventories
to their present location and condition. Completed plots are
held at build cost and part exchange properties are held at
the market value determined at the time of exchange.
Inventories are stated at the lower of cost and net realisable
value (“NRV”), NRV being the estimated net selling price less
estimated total costs of completion of the finished units based
on management’s forecast
Due to the cyclical nature of the housing industry or issues
experienced during the build programme, there is a risk that
the NRV of the inventory is lower than cost and therefore
inventory is held at the incorrect value.
• We have tested other directly related costs by
corroborating these back to supporting documentation.
• We have tested the completeness of the provision by
tracing back a sample of known/identified claims to their
inclusion in the provision calculations.
Based on the procedures performed we noted no reasonable
likely alternative assumptions that would result in a material
change to the valuation of the provision.
• We tested margins for all major sites to identify those
with low or eroding margins, for example due to specific
issues or underperformance. We discussed the identified
sites with management, including considering the level of
provisions held against these sites and corroborated the
explanations with other external evidence to support the
carrying value of inventory.
• We tested the percentage completion of units across a
sample of sites and checked that forecasts have been
appropriately updated for costs incurred to date and
expected costs to completion.
• We also assessed the historical accuracy of management’s
forecasting.
• We considered the level and ageing of completed but
unreserved units and part exchange properties and
challenged the recoverability of these assets.
• We checked that appropriate site acquisition approvals
considering site profitability had been obtained for
significant sites.
Based on the procedures performed we did not identify
any sites where we determined that additional impairments
were required in the year, above those already made
by management.
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Area of focus
How our audit addressed the area of focus
Valuation of available for sale assets – shared equity
Refer to page 82 of the Audit Committee Report and page 111
of the financial statements.
Shared equity assets are held at fair value and comprise long-
term receivables from shared equity schemes. The valuation
method for these assets is not capable of being based on
observable market data and therefore the valuation model of
these assets is highly subjective to management judgement and
estimates including expected house price movements, credit risk
of borrowers, discount rates, recoverability and expected timing
of receipt.
Fluctuations in the underlying assumptions used could have a
material impact on the value of these assets.
• We tested the mechanics and base data of the valuation model
and through discussion with management understood the key
assumptions included within the model. We then evaluated
and challenged these assumptions with our own independent
research on house prices.
• We assessed whether the current assumptions are reflective of
any historic trends of redemption of loans. We also benchmarked
the shared equity schemes against other known shared equity
schemes to ensure the assumptions are reasonable.
Based on the procedures performed we noted no reasonable likely
alternative assumptions that would result in a material change to
the valuation.
Accounting for complex land acquisitions
Refer to page 82 of the Audit Committee Report and page 109
of the financial statements.
• We tested key controls, including approval for land acquisitions
and approval to enter into or extend a land purchase option.
The Group enters into certain complex land acquisitions –
either through a complex structure or with complex terms
attached such as overages, options or specific agreements
with the purchaser.
Acquisitions of land could be incorrectly accounted for due to
the complex manner in which transactions can be structured.
• On a sample basis, we reviewed management’s papers on the
proposed accounting treatment of the transactions.
• We substantively tested material or complex land acquisitions
through examination of contracts and agreements to check
that the acquisition and subsequent overage terms have been
identified and accounted for appropriately, and that there are no
unrecorded liabilities within the financial statements.
• Where relevant we agreed cash payments and receipts to
completion statements and bank statements.
• We assessed the accounting treatment of the transactions
against relevant accounting standards.
Based on the procedures performed we were satisfied that
management had appropriately accounted for these transactions.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as
a whole, taking into account the geographic structure of the Group, the accounting processes and controls, and the industry in which the
Group operates.
The Group consists of one main trading entity and is structured into eight regions, being Mercia, West Midlands, Western, South West,
Northern Home Counties, Eastern, Thames Valley and Southern. The Group financial statements are a consolidation of these eight regional
reporting units and the centralised Group functions.
We undertook work across each of the eight regions and the head office which together account for 100% of the Group revenue and profit
before tax.
Our work in the regions, together with the additional procedures performed at the Group level, gave us the evidence we needed for our
opinion on the Group financial statements as a whole. The Group consolidation, financial statement disclosures and certain items, including
defined benefit pension scheme balances, cash, accounts payable and share equity available for sale assets, were audited by the Group
engagement team at the head office.
Bovis Homes Group PLC | 97
Auditor’s report
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent
of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements,
both individually and on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall Group materiality
£7,730,000 (2015: £8,000,000)
How we determined it
5% of profit before tax
Rationale for benchmark applied
Based on our professional judgement, we determined materiality by applying a benchmark of
5% of profit before tax. We believe that profit before tax is the most appropriate measure and
it provides a consistent year-on-year basis for our work.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £390,000
(2015: £400,000) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Going concern
Under the Listing Rules we are required to review the directors’ statement, set out on page 30, in relation to going concern.
We have nothing to report having performed our review.
Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to
the directors’ statement about whether they considered it appropriate to adopt the going concern basis in preparing the
financial statements. We have nothing material to add or to draw attention to.
As noted in the directors’ statement, the directors have concluded that it is appropriate to adopt the going concern basis in
preparing the financial statements. The going concern basis presumes that the Group and Company have adequate resources
to remain in operation, and that the directors intend them to do so, for at least one year from the date the financial statements
were signed. As part of our audit we have concluded that the directors’ use of the going concern basis is appropriate.
However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Group’s
and Company’s ability to continue as a going concern.
Other required reporting
Consistency of other information and compliance with applicable requirements
Companies Act 2006 reporting
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic report and the Directors’ report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
• the Strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements.
In addition, in light of the knowledge and understanding of the Company and its environment obtained in the course of the audit,
we are required to report if we have identified any material misstatements in the Strategic report and the Directors’ report. We have
nothing to report in this respect.
98 | Annual report and accounts | Our governance
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ISAs (UK & Ireland) reporting
Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:
• information in the Annual Report is:
− materially inconsistent with the information in the audited financial statements; or
−
apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group and
Company acquired in the course of performing our audit; or
− otherwise misleading.
We have no
exceptions to report.
• the statement given by the directors on page 51, in accordance with provision C.1.1 of the UK Corporate
We have no
Governance Code (the “Code”), that they consider the Annual Report taken as a whole to be fair,
exceptions to report.
balanced and understandable and provides the information necessary for members to assess the Group’s
and Company’s position and performance, business model and strategy is materially inconsistent with our
knowledge of the Group and Company acquired in the course of performing our audit.
• the section of the Annual Report on page 81, as required by provision C.3.8 of the Code, describing the
We have no
work of the Audit Committee does not appropriately address matters communicated by us to the
exceptions to report.
Audit Committee.
The directors’ assessment of the prospects of the Group and of the principal risks that would
threaten the solvency or liquidity of the Group
Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw
attention to in relation to:
• the directors’ confirmation on page 28 of the Annual Report, in accordance with provision C.2.1 of the
We have nothing
Code, that they have carried out a robust assessment of the principal risks facing the Group, including those
material to add or to
that would threaten its business model, future performance, solvency or liquidity.
draw attention to.
• the disclosures in the Annual Report that describe those risks and explain how they are being managed
We have nothing
or mitigated.
material to add or to
draw attention to.
• the directors’ explanation on page 30 of the Annual Report, in accordance with provision C.2.2 of the
We have nothing
Code, as to how they have assessed the prospects of the Group, over what period they have done so and
material to add or to
why they consider that period to be appropriate, and their statement as to whether they have a reasonable
draw attention to.
expectation that the Group will be able to continue in operation and meet its liabilities as they fall due
over the period of their assessment, including any related disclosures drawing attention to any necessary
qualifications or assumptions.
Under the Listing Rules we are required to review the directors’ statement that they have carried out a robust assessment of the
principal risks facing the Group and the directors’ statement in relation to the longer-term viability of the Group. Our review was
substantially less in scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their
statements; checking that the statements are in alignment with the relevant provisions of the Code; and considering whether the
statements are consistent with the knowledge acquired by us in the course of performing our audit. We have nothing to report having
performed our review.
Adequacy of accounting records and information and explanations received
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit;
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from
branches not visited by us; or
• the Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns.
We have no exceptions to report arising from this responsibility.
Bovis Homes Group PLC | 99
Auditor’s report
Directors’ remuneration
Directors’ remuneration report - Companies Act 2006 opinion
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006.
Other Companies Act 2006 reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors’ remuneration
specified by law are not made. We have no exceptions to report arising from this responsibility.
Corporate governance statement
Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to ten further provisions
of the Code. We have nothing to report having performed our review.
Responsibilities for the financial statements and the audit
Our responsibilities and those of the directors
As explained more fully in the Directors’ responsibilities statement set out on page 91, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs
(UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
What an audit of financial statements involves
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an
assessment of:
• whether the accounting policies are appropriate to the Group’s and the Company’s circumstances and have been consistently
applied and adequately disclosed;
• the reasonableness of significant accounting estimates made by the directors; and
• the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the directors’ judgements against available evidence, forming our own
judgements, and evaluating the disclosures in the financial statements.
We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide
a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive
procedures or a combination of both.
In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with
the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for our report. With respect to the Strategic Report and Directors’
report, we consider whether those reports include the disclosures required by applicable legal requirements.
Christopher Burns
Senior Statutory Auditor
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
20 February 2017
100 | Annual report and accounts | Our governance
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Group income statement
For the year ended 31 December
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit before financing costs
Financial income
Financial expenses
Net financing costs
6
1
0
2
Note
2016
£000
2015
£000
2.0
1,054,804
946,504
(819,123)
(714,196)
235,681
232,308
(75,711)
(68,778)
159,970
163,530
3,035
(8,622)
(5,587)
3,348
(8,583)
(5,235)
1,770
2.1
4.4
4.4
Share of profit of Joint Ventures
5.5
331
Profit before tax
Income tax expense
Profit for the year attributable to ordinary shareholders
Earnings per share (pence)
Basic
Diluted
Group statement of comprehensive income
For the year ended 31 December
Profit for the year
Other comprehensive income/(expense)
Items that will not be reclassified to profit and loss
Remeasurements on defined benefit pension scheme
Deferred tax on remeasurements on defined benefit pension scheme
154,714
160,065
5.1
(33,866)
(32,057)
120,848
128,008
2.3
90.1
2.3
90.0
95.4
95.2
2016
£000
2015
£000
120,848
128,008
5.7
5.1
(14,107)
2,624
182
(17)
Total comprehensive income for the year attributable to ordinary shareholders
109,365
128,173
Bovis Homes Group PLC | 101
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Balance sheets
As at 31 December
Assets
Property, plant and equipment
Investments
Restricted cash
Deferred tax assets
Trade and other receivables
Available for sale financial assets
Retirement benefit asset
Total non-current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Equity
Issued capital
Share premium
Retained earnings
Note
5.4
5.5
5.2
4.2
5.7
Group
Company
2016
£000
2015
£000
2016
£000
2015
£000
11,870
13,982
-
-
8,786
1,444
1,955
5,758
8,987
1,451
2,160
1,166
27,804
35,303
-
7,117
7,606
6,300
-
-
-
-
-
-
-
-
-
-
57,617
70,166
7,606
6,300
3.1
1,449,165
1,318,520
-
-
3.2
4.1
84,992
94,843
415,620
412,976
38,552
31,990
344
344
1,572,709
1,445,353
415,964
413,320
1,630,326
1,515,519
423,570
419,620
4.5
67,261
67,190
67,261
67,190
215,057
214,368
215,057
214,368
733,609
676,201
138,693
135,690
Total equity attributable to equity holders of the parent
1,015,927
957,759
421,011
417,248
Liabilities
Trade and other payables
Net retirement benefit obligations
Provisions
Total non-current liabilities
Bank and other loans
Trade and other payables
Provisions
Current tax liabilities
Total current liabilities
Total liabilities
3.3
5.7
5.6
3.3
5.6
5.2
162,612
171,306
781
781
6,590
812
-
1,327
-
-
-
-
170,014
172,633
781
781
-
1,999
420,220
363,936
10,280
2,245
13,885
16,947
444,385
385,127
614,399
557,760
-
-
-
1,778
1,778
2,559
-
-
-
1,591
1,591
2,372
Total equity and liabilities
1,630,326
1,515,519
423,570
419,620
The Company made a profit for the year of £57,107,000 (2015: £106,266,000).
These financial statements on pages 101 to 131 were approved by the Board of directors on 20 February 2017 and were signed on its behalf:
Earl Sibley, Director.
102 | Annual report and accounts | Financial statements
Group statement of changes in equity
Own
shares
held
£000
Retirement
benefit
obligations
£000
Other
retained
earnings
£000
Total
retained
earnings
£000
Issued
capital
£000
Share
premium
£000
Total
£000
Balance at 1 January 2015
(959)
(22,952)
622,065
598,154
67,114
213,850
879,118
Total comprehensive income
Issue of share capital
Own shares disposed
Purchase of own shares
Deferred tax on other employee benefits
Share based payments
Dividends paid to shareholders
-
-
864
(2,386)
-
-
-
165
128,008
128,173
-
-
-
-
-
-
-
(864)
-
(31)
-
-
(2,386)
(31)
1,531
1,531
(49,240)
(49,240)
-
76
-
-
-
-
-
-
128,173
518
-
-
-
-
-
594
-
(2,386)
(31)
1,531
(49,240)
Balance at 31 December 2015
(2,481)
(22,787)
701,469
676,201
67,190
214,368
957,759
Balance at 1 January 2016
(2,481)
(22,787)
701,469
676,201
67,190
214,368
957,759
Total comprehensive income
Issue of share capital
Own shares disposed
Purchase of own shares
Shared equity movement reclassified to the
income statement
Deferred tax on other employee benefits
Share based payments
Dividends paid to shareholders
-
-
153
-
-
-
-
-
(11,483)
120,848
109,365
-
-
-
-
-
-
-
-
(153)
-
-
-
-
2,099
2,099
48
48
1,308
1,308
(55,412)
(55,412)
-
71
-
-
-
-
-
-
-
109,365
689
760
-
-
-
-
-
-
-
-
2,099
48
1,308
(55,412)
Balance at 31 December 2016
(2,328)
(34,270)
770,207
733,609
67,261
215,057
1,015,927
Company statement of changes in equity
Balance at 1 January 2015
Total comprehensive income
Issue of share capital
Share based payments
Dividends paid to shareholders
Balance at 31 December 2015
Balance at 1 January 2016
Total comprehensive income
Issue of share capital
Share based payments
Dividends paid to shareholders
Balance at 31 December 2016
Attributable to equity holders of the parent
Total
retained
earnings
£000
Issued
capital
£000
Share
Premium
£000
Total
£000
77,133
67,114
213,850
358,097
106,266
-
1,531
(49,240)
-
76
-
-
-
106,266
518
-
-
594
1,531
(49,240)
135,690
67,190
214,368
417,248
135,690
67,190
214,368
417,248
57,107
-
1,308
(55,412)
-
71
-
-
-
689
-
-
57,107
760
1,308
(55,412)
138,693
67,261
215,057
421,011
Bovis Homes Group PLC | 103
Statement of cash flows
For the year ended 31 December
Cash flows from operating activities
Profit for the year
Depreciation
Revaluation of available for sale financial assets
Financial income
Financial expense
Profit on sale of property, plant and equipment
Equity-settled share-based payment expense
Income tax expense
Share of results of Joint Ventures
Group
Company
2016
£000
2015
£000
2016
£000
2015
£000
120,848
128,008
57,107
106,265
2,274
1,191
2,065
67
-
-
-
-
(3,035)
(3,348)
(8,888)
(7,856)
8,622
8,583
(764)
(43)
1,308
1,531
-
-
-
-
-
-
33,866
32,057
1,778
1,591
(331)
(1,770)
-
-
Note
2.1
4.4
4.4
5.3
5.1
5.5
Decrease/(increase) in trade and other receivables
15,254
(28,031)
(4,233)
(59,210)
Increase in inventories
Increase in trade and other payables
Increase/(decrease) in provisions and retirement benefit obligations
Cash generated from operations
Interest paid
Income taxes paid
Net cash from operating activities
Cash flows from investing activities
Interest received
(130,647)
(193,000)
42,976
168,773
7,395
(7,003)
-
-
-
-
-
-
98,957
107,889
45,764
40,790
(4,010)
(2,470)
(33,142)
(28,515)
-
-
-
-
61,805
76,904
45,764
40,790
45
75
8,888
7,856
Acquisition of property, plant and equipment
5.4
(1,787)
(2,424)
Proceeds from sale of plant and equipment
Movement of investment in Joint Ventures
Dividends received from Joint Ventures
Reduction/(investment) in restricted cash
Net cash generated from/(used in) investing activities
Cash flows from financing activities
Dividends paid
Proceeds from the issue of share capital
Purchase of own shares
Repayment of bank and other loans
Net cash used in financing activities
5.5
5.5
2.2
4.5
2,389
625
129
7
55
755
377
(25)
-
-
-
-
-
-
-
-
-
-
1,408
(1,187)
8,888
7,856
(55,412)
(49,240)
(55,412)
(49,240)
594
760
594
760
-
(2,386)
-
-
-
-
4.3
(1,999)
(44,952)
(56,651)
(95,984)
54,652
(48,646)
Net increase/(decrease) in cash and cash equivalents
6,562
(20,267)
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
4.1
4.1
31,990
52,257
38,552
31,990
-
344
344
-
344
344
104 | Annual report and accounts | Financial statements
Notes to the financial statements
The notes have been grouped into sections under five key categories:
1. Basis of preparation
2. Result for the year
3. Land bank and other operating assets and liabilities
4. Financing
5. Other disclosures
The key accounting policies have been incorporated throughout the notes to the financial statements adjacent to the disclosure to which they relate.
All accounting policies are included within an outlined box.
1.0 Basis of preparation
1.1 General information
Bovis Homes Group PLC (the “Company”) is a company domiciled in the United Kingdom. The consolidated financial statements of the Company for the
year ended 31 December 2016 comprise the Company and its subsidiaries (together referred to as the “Group”) and the Group’s interest in Joint Ventures.
The financial statements were authorised for issue by the directors on 20 February 2017.
1.2 Basis of accounting
The consolidated financial statements of the Company and the Group have been prepared in accordance with the International Financial Reporting
Standards (IFRS) and IFRS Interpretations Committee (IFRS IC) interpretations as adopted by the European Union and Companies Act 2006 applicable to
companies reporting under IFRS.
The accounting policies set out below have been applied consistently to all relevant periods presented in these consolidated financial statements.
The accounting policies have been applied consistently to the Company and the Group where relevant.
The financial statements are prepared on the historical cost basis except for derivative financial instruments and available for sale financial assets
which are on a fair value basis.
1.3 Going concern
The Directors are satisfied that the Group has sufficient resources to continue in operation for the 12 months from date of approval of these
financial statements. The Directors reviewed detailed financial and covenant compliance forecasts covering the period to December 2017 and summary
financial forecasts for the following two years.
Having started the year with net cash of £30.0 million, the Group again generated a strong operating cash flow during 2016, increasing the net cash position
to £38.6 million. As at 31 December 2016, the Group held cash and cash equivalents of £38.6 million and had no borrowings. On 3 December 2015, the
Group entered into a new £250 million committed revolving credit facility that was extended for one year during 2016, now expiring in December 2021,
all of which was available for drawdown at 31 December 2016.
For these reasons, the Directors consider it appropriate to prepare the financial statements of the Group on a going concern basis.
1.4. Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries)
made up to 31 December. Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights
to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing
control, the Group takes into consideration potential voting rights that are currently exercisable. The acquisition date is the date on which control is
transferred to the acquirer. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control
commences until the date that control ceases.
Associates are any entities in which the Group has significant influence, but not control, over the financial and operating policies. The consolidated
financial statements include the Group’s share of the comprehensive income and expense of associates on an equity accounted basis, from the date
that significant influence commences until the date that significant influence ceases.
A joint arrangement is an arrangement over which the Group and one or more third parties have joint control. The consolidated financial statements
include the Group’s share of the comprehensive income and expense of Joint Ventures on an equity accounted basis, from the date that joint control
commenced until joint control ceases. These joint arrangement are in turn classified as:
Joint Ventures whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities; and
Joint operations whereby the Group has rights to the assets and obligations for the liabilities relating to the arrangement.
1.5 Critical accounting judgements and key sources of estimation uncertainty
The preparation of financial statements in conformity with adopted IFRSs requires management to make judgements, estimates and assumptions that
affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are
based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis
of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from
these estimates.
Bovis Homes Group PLC | 105
Notes to the financial statements continued
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which
the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and
future periods.
Judgements made by management in the application of adopted IFRSs that have significant effect on the financial statements and estimates with a
significant risk of material adjustment in the next year are discussed below.
Key sources of estimation uncertainty for the Group
Land held for development and housing work in progress
The Group holds inventories which are stated at the lower of cost and net realisable value. To assess the net realisable value of land held for development
and housing work in progress, the Group completes a financial appraisal of the likely revenue which will be generated when these inventories are
combined as residential properties for sale and sold. Where the financial appraisal demonstrates that the revenue will exceed the costs of the inventories
and other associated costs of constructing the residential properties, the inventories are stated at cost. Where the assessed revenue is lower, the extent to
which there is a shortfall is written off through the income statement leaving the inventories stated at a realisable value. To the extent that the revenues
which can be generated change, or the final cost to complete for the site varies from estimates, the net realisable value of the inventories may be different.
A review taking into account estimated achievable net revenues, actual inventory and costs to complete as at 31 December 2016 has been carried out,
which has identified no material net movement in the carrying value of the provision. These estimates were made by local management having regard
to actual sales prices, together with competitor and marketplace evidence, and were further reviewed by Group management. Should there be a future
significant decline in UK house pricing, then further write-downs of land and work in progress may be necessary. Further detail on the carrying value of
inventories is laid out in note 3.1.
Available for sale financial assets
The Group’s available for sale financial assets, comprise of a portfolio of shared equity assets. The estimation of their fair value requires judgement and
estimation as to the quantum, timing and value of repayment of the Group’s receivable, as well as to the choice of instrument-specific market-assessed
interest rate used to determine a discount rate. Note 4.6 contains a sensitivity analysis showing the impact of a change in the major judgement factors
applied in the valuation of these instruments.
Defined benefit pension scheme
The Group has an active defined benefit pension scheme, which is subject to estimation uncertainty. Note 5.7 outlines the way in which this Scheme is
recognised in the Group’s Financial Statements, the associated risks and sensitivity analysis showing the impact of a change in key variables on the defined
benefit obligation.
The Company has no sources of estimation uncertainty.
Customer care provision
Following legal completion, the Group provides a two year warranty that covers any defects which arise during that period. The level of provision per
completion is based on actual costs incurred over the preceding twelve months. Judgement is applied in determining whether this level of provision is
sufficient, or whether it should be adjusted to reflect the level of outstanding customer rectification works at the balance sheet date.
1.6 Segment reporting
The Chief Operating Decision Maker, which is the Board, notes that the Group’s main operation is that of a housebuilder and it operates entirely
within the United Kingdom. There are no separate segments, either business or geographic, to disclose, having taken into account the aggregation
criteria provisions of IFRS8.
1.7 Impact of standards and interpretations effective for the first time
The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with
a date of initial application of 1 January 2015:
IFRIC21 ‘Levies’ and Amendment to IAS 19 ‘Employee benefits’ on defined benefit plans have both come into effect, with no significant impact on the Group.
Other changes recommended in ‘Annual Improvements 2011’, ‘Annual Improvements 2012’ and ‘Annual Improvements 2013’ have also been implemented
with no significant impact on the Group.
106 | Annual report and accounts | Financial statements
Notes to the financial statements continued
1.8 Impact of standards and interpretations in issue but not yet effective
A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2016, and have
not been applied in preparing these financial statements. The majority are not expected to have a significant effect on the financial statements of the
Group or the Company, and the full effect of the following standards will be assessed during the year ending 31 December 2017:
• IFRS 15, ‘Revenue from contracts with customers’ replaces IAS 18 ‘Revenue’ and IAS 11 ‘Construction contracts’, setting out new revenue recognition
criteria particularly with regard to performance obligations which may have some impact on the timing of revenue recognised by the Group on certain
contracts. The standard will be effective for the period beginning 1 January 2018.
• IFRS 16, ‘Leases’ requires lessees to recognise an asset and a liability on its balance sheet for all operating leases above thresholds for the value of the
asset and the length of the lease period. The standard will be effective for the period beginning 1 January 2019.
2.0 Result for the year
Revenue
Revenue comprises the fair value of consideration received or receivable, net of value-added tax, rebates and discounts. Revenue does not include
the value of the onward legal completion of properties accepted in part exchange against a new property. The net gain or loss arising from the
legal completion of these part exchange properties is recognised in cost of sales.
Revenue is recognised once the value of the transaction can be reliably measured and the significant risks and rewards of ownership have been
transferred. Revenue is recognised on house sales at legal completion. Revenue is recognised on land sales and commercial property sales from the
point of unconditional exchange of contracts. For affordable housing, revenue and costs are recognised by reference to the stage of completion of
contract activity at the balance sheet date. When it is probable that the total costs on a construction contract will exceed total contract revenue,
the expected loss is recognised as an expense in the Income Statement immediately.
Where land is sold with material development obligations, the recognition of revenue and profit is deferred until the work is complete.
Rental income is recognised in the Income Statement on a straight-line basis over the term of the lease. Lease incentives granted are recognised as
an integral part of the total rental income.
2.1 Operating profit before financing costs
Operating profit before financing costs is stated after charging/(crediting):
Depreciation of tangible fixed assets (see note 5.4)
Hire of plant and machinery
Personnel expenses (see note 5.3)
Rental income (included in revenue)
Government grants recognised within cost of sales (see note 4.3)
Auditors’ remuneration
Fees payable to the Company’s auditor for the audit of the Company’s annual financial statements
The audit of the Company’s subsidiaries, pursuant to legislation
Non Audit Fees
Interim review work
Other assurance related services
Fees charged to operating profit before financing costs
2016
£000
2,274
7,096
2015
£000
2,065
5,659
63,472
51,099
(735)
(21)
(460)
(42)
2016
£000
25
125
18
4
172
2015
£000
25
115
18
-
158
Bovis Homes Group PLC | 107
Notes to the financial statements continued
2.2 Dividends
The following dividends were paid by the Group:
Prior year final dividend per share of 26.3p (2015: 23.0p)
Current year interim dividend per share of 15.0p (2015: 13.7p)
2016
£000
35,273
20,139
55,412
2015
£000
30,838
18,402
49,240
The Board decided to propose a final dividend of 30.0p per share in respect of 2016. The dividend has not been provided for and there are no income
tax consequences.
30.0p per qualifying ordinary share (2015: 26.3p)
2.3 Earnings per share
Profit attributable to ordinary shareholders
Profit for the year attributable to equity holders of the parent
Weighted average number of ordinary shares
Weighted average number of ordinary shares at 31 December
Diluted earnings per share
2016
£000
2015
£000
40,254
35,293
2016
£000
2015
£000
120,848
128,008
2016
2015
134,178,673
134,194,203
The calculation of diluted earnings per share at 31 December 2016 was based on the profit attributable to ordinary shareholders of £120,848,000
(2015: £128,008,000) and a weighted average number of ordinary shares outstanding during the year ended 31 December 2016 of 134,322,449
(2015: 134,428,802).
The average number of shares is increased by reference to the average number of potential ordinary shares held under option during the year.
This reflects 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.
Weighted average number of ordinary shares (diluted)
Weighted average number of ordinary shares at 31 December
Effect of share options in issue which have a dilutive effect
Weighted average number of ordinary shares (diluted) at 31 December
2016
2015
134,178,673
134,194,203
143,776
234,599
134,322,449
134,428,802
108 | Annual report and accounts | Financial statements
Notes to the financial statements continued
3.0 Land bank and other operating assets and liabilities
This section shows the assets used to generate the Group’s trading performance and the liabilities incurred as a result. Liabilities relating to the Group’s
financing activities are addressed in section 4. Deferred tax assets and liabilities are shown in section 5.
3.1 Inventories
Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and
those overheads, not including any general administrative overheads, that have been incurred in bringing the inventories to their present location
and condition. Net realisable value represents the estimated net selling price less estimated total costs of completion of the finished units.
Land held for development, including land in the course of development until legal completion of the sale of the asset, is initially recorded at cost
along with any expected overage. Where, through deferred purchase credit terms, cost differs from the nominal amount which will actually be
paid in settling the deferred purchase terms liability, an adjustment is made to the cost of the land, the difference being charged as a finance cost.
Options purchased in respect of land are capitalised initially at cost and written down on a straight-line basis over the life of the option.
Should planning permission be granted and the option be exercised, the option is not amortised during that year and its carrying value is included
within the cost of land purchased.
Investments in land without the benefit of planning consent, either through purchase of freehold land or non refundable deposits paid on land
purchase contracts subject to residential planning consent, are capitalised initially at cost. Regular reviews are completed for impairment in the value
of these investments, and provision made to reflect any irrecoverable element. The impairment reviews consider the existing use value of the land
and assesses the likelihood of achieving residential planning consent and the value thereof.
Ground rents are held at an estimate of cost based on a multiple of ground rent income, with a corresponding credit created against cost of sales,
in the year in which the ground rent first becomes payable by the leasehold purchaser.
Part exchange properties are held at the lower of cost and net realisable value, and include a carrying value provision to cover the costs of
management and resale.
Group
Raw materials and consumables
Work in progress
Part exchange properties
Land held for development (net of provision)
Inventories
Inventories to the value of £813.0 million were recognised as expenses in the year (2015: £713.4 million).
Movement on inventory provision
Balance at 1 January
Land sales - Utilised on specific sites sold in the year
- Unutilised on specific sites sold in the year and so reversed
Provisions recognised on sites still held
Provisions released on sites still held
Balance at 31 December
£2.0 million (2015: £6.2 million) of inventories were valued at net realisable value rather than at historic cost.
2016
£000
2015
£000
7,092
5,224
372,859
270,093
48,593
29,528
1,020,621
1,013,675
1,449,165
1,318,520
2016
£000
2015
£000
6,718
12,904
(4,133)
(5,071)
(19)
(432)
(4,152)
(5,503)
455
-
755
(1,438)
3,021
6,718
Bovis Homes Group PLC | 109
Notes to the financial statements continued
3.2 Trade and other receivables
Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.
Other debtors include amounts receivable from the Government in relation to the Help To Buy scheme.
Current assets
Trade receivables
Amounts due from subsidiary undertakings
Other debtors
Prepayments and accrued income
Current assets
Group
Company
2016
£000
2015
£000
2016
£000
2015
£000
51,010
63,698
-
-
-
-
415,620
412,976
22,127
25,483
11,855
5,662
-
-
-
-
84,992
94,843
415,620
412,976
The total provision for doubtful receivables is £1.0 million (2015: £0.1 million).
The carrying value of amounts due from subsidiary undertakings represents the Company’s maximum credit risk. The directors consider these amounts to
be fully receivable at year end.
Receivables which are past due but not impaired are not material.
The directors consider that the carrying amount of trade receivables approximates to their fair value.
3.3 Trade and other payables
Trade payables
Trade payables on normal terms are not interest bearing and are stated at their nominal value.
Trade payables on extended terms, particularly in respect of land, are recorded at their fair value at the date of acquisition of the asset to which
they relate. The discount to nominal value which will be paid in settling the deferred purchase terms liability is recognised over the period of the
credit term and charged to finance costs using the effective interest rate method.
Government grants
Government grants are recognised in the income statement so as to match with the related costs that they are intended to compensate. Government
grants are included within deferred income.
110 | Annual report and accounts | Financial statements
Notes to the financial statements continued
Non-current liabilities
Trade payables
Other creditors
Current liabilities
Trade payables
Taxation and social security
Other creditors
Accruals
Deferred income
Group
Company
2016
£000
2015
£000
162,153
170,847
459
459
162,612
171,306
364,522
341,579
1,672
2,077
1,717
1,576
17,782
16,242
34,167
2,822
420,220
363,936
2016
£000
-
781
781
-
-
-
-
-
-
2015
£000
-
781
781
-
-
-
-
-
-
Total trade and other payables
582,832
535,242
781
781
The Group’s non-current liabilities largely relate to land purchased on extended payment terms. An ageing of land creditor repayments is provided in note 4.7.
4.0 Financing
This section outlines how the Group manages its capital and related financing activities.
4.1 Cash and cash equivalents
Cash and cash equivalents comprises cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of
the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
Bank balances
Call deposits
Cash and cash equivalents in the balance sheet and cash flows
4.2 Available for sale financial assets
Available for sale financial assets - shared equity
Group
Company
2016
£000
363
2015
£000
363
38,189
31,627
38,552
31,990
2016
£000
344
-
344
2015
£000
344
-
344
Receivables on extended terms granted as part of a sales transaction are secured by way of a legal charge on the relevant property, categorised
as an available for sale financial asset, and are stated at fair value. Gains and losses arising from changes in fair value are recognised directly in
equity in retained earnings, with the exceptions of impairment losses, the impact of changes in future cash flows and interest calculated using the
‘effective interest rate’ method, which are recognised directly in the income statement. Where the investment is disposed of, or is determined to be
impaired, the cumulative gain or loss previously recognised in equity is included in the income statement for the period. Given its materiality, this
item is being disclosed separately on the face of the balance sheet.
Available for sale financial assets relate to legal completions where the Group has retained an interest through agreement to defer recovery of a
percentage of the market value of the property, together with a legal charge to protect the Group’s position. The Group participates in three schemes.
‘Jumpstart’ schemes are receivable 10 years after recognition with 3% interest charged between years 6 to 10. The ‘HomeBuy Direct’ and ‘FirstBuy’
schemes are operated together with the Government. Receivables are due 25 years after recognition with interest charged from year 6 onwards at
a base value of 1.75% plus annual RPI increments. These assets are held at fair value being the present value of expected future cash flows taking
into account the estimated market value of the property at the estimated date of recovery.
Bovis Homes Group PLC | 111
Notes to the financial statements continued
Non-current asset - available for sale assets
Key assumptions
Discount rate, incorporating default rate
Average house price inflation per annum for the next three years
See note 4.6 for a sensitivity analysis on these assumptions.
Balance at 1 January
Redemptions
Revaluation taken through the income statement
Imputed interest
Balance at 31 December
2016
£000
2015
£000
27,804
35,303
2016
2015
9.0%
3.0%
9.0%
3.4%
2016
£000
2015
£000
35,303
39,433
(9,941)
(8,311)
-
2,442
1,320
2,861
27,804
35,303
Total impairments taken to date are £1,696,000 (2015: £1,696,000). The impairments relate to changes in expected cash flows as a result of movement
in future house price expectations.
4.3 Bank and other loans
Bank borrowings
Interest-bearing bank loans and overdrafts are initially recorded at fair value, net of direct issue costs, and subsequently at amortised cost.
Finance charges are accounted for on an accrual basis to the income statement using the effective interest method and are added to the carrying
amount of the instrument to the extent that they are not settled in the period in which they arise.
Government grants
The benefit on loans with an interest rate below market is calculated as the difference between interest at a market rate and the below
market interest. The benefit is treated as a Government grant.
112 | Annual report and accounts | Financial statements
Notes to the financial statements continued
Interest rate profile of bank and other loans
Revolving credit facility
Interest free loan at fair value
Rate
Facility maturity
Carrying
value 2016
£000
Carrying
value 2015
£000
LIBOR +120-225 bps
LIBOR +158 bps
2021
2016
-
-
-
1,999
The interest free loan was obtained to facilitate large infrastructure investment at one of the Group’s sites in the South West. The final repayment
of £2,000,000 was made on 5 January 2016.
Details of facilities
On 3 December 2015 the Group entered into a new £250 million committed revolving credit facility and this was extended for one year during 2016, now
expiring in December 2021. The facility syndicate comprises six banks. The facility includes a covenant package, featuring three covenants covering the
Group’s gearing ratio, consolidated tangible net worth and interest cover. These covenants are tested semi-annually as per the previous facility agreement.
The overall financing cost of the new arrangement is marginally better than the previous facility.
4.4 Net financing costs
Finance costs are included in the measurement of borrowings at their amortised cost to the extent that they are not settled in the period in which
they arise.
The Group is required to capitalise borrowing costs directly attributable to the acquisition, construction and production of a qualifying asset,
as part of the costs of that asset. Inventories which are produced in large quantities on a repetitive basis over a short period of time are not
qualifying assets. The Group does not generally produce qualifying assets.
Net financing costs recognised in the income statement
Interest income
Net pension finance credit
Imputed interest on available for sale assets
Finance income
Imputed interest on deferred terms land payables
Interest expense
Imputed interest on interest free loan
Hedge ineffectiveness for derivatives
Finance expenses
Net financing costs
2016
£000
(321)
(272)
(2,442)
(3,035)
4,967
3,655
-
-
8,622
5,587
2015
£000
(378)
(109)
(2,861)
(3,348)
4,901
3,563
48
71
8,583
5,235
Bovis Homes Group PLC | 113
Notes to the financial statements continued
4.5 Capital and reserves
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Own shares held by ESOP trust
Transactions of the Group-sponsored ESOP trust are included in the Group financial statements. In particular, the trust’s purchases of shares in the
Company are debited directly to equity through an own shares held reserve.
Share capital
In issue at 1 January
Issued for cash
Ordinary shares
2016
2015
Number
of shares
Issued capital
£000s
Share premium
£000s
Number
of shares
Issued capital
£000s
Share premium
£000s
134,379,661
67,190
214,368
134,228,043
67,114
213,850
142,679
71
689
151,618
76
518
In issue at 31 December – fully paid
134,522,340
67,261
215,057
134,379,661
67,190
214,368
The holders of ordinary shares (nominal value 50p) are entitled to receive dividends as declared from time to time and are entitled to one vote per share
at meetings of the Company.
Reserve for own shares held
The cost of the Company’s shares held in the ESOP trust by the Group is recorded as a reserve in equity. During the year ended 31 December 2015,
the Group purchased 240,000 shares at a total cost of £2,386,000. There were 16,089 (2015: 198,234) shares awarded under the Group’s long term
incentive plan that vested during 2016 and accordingly the balance of the own shares held reserve reduced by £153,000 (2015: £864,000). The Group
has suspended all rights on shares held by the Group in the Company.
4.6 Financial risk management
Group
The Group seeks to manage its capital in such a manner that the Group safeguards its ability to continue as a going concern and to fund its future development.
In continuing as a going concern, it seeks to provide returns for shareholders over the housing market cycle as well as enabling repayment of its liabilities as a
trading business.
The Group’s capital comprises its shareholders’ equity, added together with its net borrowings, or less its net cash, stated before issue costs. A five year
record of its capital employed is displayed on page 131.
Whilst the blended cost of capital is a factor in the Group’s decision making in assessing the right blend of shareholders’ equity and debt financing, the
Group has typically preferred to operate within a framework that features relatively low gearing or cash in hand. This is because the Group recognises that
housebuilding can be cyclical, and higher levels of gearing can create profound liquidity risks. The Group would seek to manage its capital base through
control over expenditure, maintenance of adequate banking facilities, control over dividend payments and in the longer term through adjustments to its
capital structure.
An important part of capital management for the Group is its financial instruments, which comprise cash, bank and other loans and overdrafts. The main
purpose of these financial instruments is to raise finance for the Group’s operations. The Group also utilises financial assets and liabilities such as trade
payables or receivables that arise directly from operations.
The use of these carries risk: interest rate risk, credit risk and liquidity risk. Given that the Group trades exclusively in the UK, there is no material currency risk.
The valuation of the Group’s available for sale financial assets is also impacted by housing market price fluctuations, giving rise to market price risk.
Company
The Company only trades with other Group entities and is only exposed to credit risk on those intercompany balances.
a. Interest rate risk
Exposure to interest rate risk arises in the normal course of the Group’s business and interest rate swaps are used where appropriate to hedge exposure
to fluctuations in interest rates. The Group has no exposure to currency risk as all its financial assets and liabilities are denominated in sterling.
Throughout the year, the Group’s policy has been that no trading in financial instruments shall be undertaken.
114 | Annual report and accounts | Financial statements
Notes to the financial statements continued
Hedging
Derivative financial instruments are recognised at fair value.
The Group mitigates its exposure to changes in interest rates on a core level of borrowings where appropriate through procuring interest rate swaps,
denominated in sterling. The decision whether to enter into a swap, and the timing of procurement of swaps depends on a number of key variables, on
which management form judgements. These matters include management’s view of likely cash flows and indebtedness, interest rate movements and
other macro-economic factors looking ahead. These assumptions are reviewed with the Group Finance Director on a periodic basis prior to any decision
being made. Decisions made by management in this area are discussed with the Board to ensure transparency of decision making.
In July 2013 the Group entered into a £25.0 million cash flow hedge to protect against movements in interest rates. This hedge expired on 29 January 2016.
Interest rate derivative financial instruments
Opening fair value
Change in fair value
Closing fair value
2016
£000
-
-
-
2015
£000
59
(59)
-
Effective interest rates and repricing analysis
The interest rate profile of the Group’s interest bearing financial instrument is set out in note 4.3.
Sensitivity analysis
In managing interest rates, the Group aims to reduce the impact of short-term fluctuations in the Group’s earnings, given that Group borrowings are
variable in terms of interest rate. Over the longer-term, however, permanent changes in interest rates would have an impact on consolidated earnings.
For the year ended 31 December 2016, a general increase of one percentage point in interest rates applying for the full year would not have a material
impact on the financial statements.
b. Credit risk
The Group’s exposure to credit risk is limited by the fact that the Group generally receives cash at the point of legal completion of its sales. There are
certain categories of revenue where this is not the case: for instance, housing association revenues or land sales. The largest single amount outstanding
at the year end was £9.6 million (2015: £8.8 million). The amount is secured against consented land. The Group retains these outstanding balances as
trade and other receivables. The Group also carries credit risk with regard to available for sale financial assets which it classifies as other receivables.
Whilst material in total, the individual risk is low given the high number of counterparties. Average exposure per transaction is £24,700 (2015: £22,950),
and a second charge is retained to protect the Group’s interests. The carrying value of trade and other receivables equates to the Group’s exposure to
credit risk. This is set out in note 3.2.
The Group’s trade and other receivables and available for sale assets are secured against the following:
Consented land
Second charge against property
Unsecured
2016
£000
2015
£000
17,282
10,092
28,762
36,469
72,510
84,751
118,554
131,312
In managing risk the Group assesses the credit risk of its counter parties before entering into a transaction. This assessment is based upon management
knowledge and experience. In the event that land is disposed of the Group seeks to mitigate any credit risk by retaining a charge over the asset disposed
of, so that in the event of default, the Group is able to seek to recover its outstanding asset.
Company
The Company’s exposure to credit risk is limited as a result of all outstanding balances relating to companies within the Group.
c. Liquidity risk
The Group’s banking arrangements outlined in note 4.3 are considered to be adequate in terms of flexibility and liquidity for its medium term cash flow
needs, thus mitigating its liquidity risk. The Group’s approach to assessment of liquidity risk is outlined in the section on the report on corporate governance
relating to Going Concern which can be found on page 30.
Bovis Homes Group PLC | 115
Notes to the financial statements continued
d. Housing market price risk
The performance of the UK housing market affects the valuation of certain of the Group’s non-financial assets and liabilities and the critical judgements
applied by management in these financial statements, including the valuation of land and work in progress.
The Group’s financial assets and liabilities are summarised below:
31 December 2016
Non-derivative financial assets
Restricted cash
Trade and other receivables
Available for sale financial assets
Cash and cash equivalents
Non-derivative financial liabilities
Bank and other loans
Trade and other payables
31 December 2015
Non-derivative financial assets
Restricted cash
Trade and other receivables
Available for sale financial assets
Cash and cash equivalents
Non-derivative financial liabilities
Bank and other loans
Trade and other payables
Linked to UK
housing market
£000
Not linked to UK
housing market
£000
Total
£000
-
-
1,444
90,750
27,804
-
38,552
1,444
90,750
27,804
38,552
-
-
(582,832)
(582,832)
27,804
(452,086)
(424,282)
Linked to UK
housing market
£000
Not linked to UK
housing market
£000
Total
£000
1,451
96,009
35,303
31,990
1,451
96,009
-
31,990
(1,999)
(1,999)
(535,242)
(535,242)
-
-
-
-
-
35,303
-
-
-
The fair value measurement of the Group’s available for sale financial assets include management assumptions of future house price inflation, and
therefore the fair value measurement includes inputs which are necessarily not based on observable market data.
35,303
(407,791)
(372,488)
Sensitivity - available for sale financial assets
Discount rate, incorporating default rate
House price inflation
2016 increase
assumptions
by 1%
2016 decrease
assumptions
by 1%
(1,270)
1,400
1,260
(1,155)
116 | Annual report and accounts | Financial statements
Notes to the financial statements continued
4.7 Financial instruments
Fair values
There is no material difference between the carrying value of financial instruments shown in the balance sheet and their fair value.
Estimation of fair values
The following summarises the major methods and assumptions used in estimating the fair values of financial instruments:
Land purchased on extended payment terms
When land is purchased on extended payment terms, the Group initially records it at its fair value with a land creditor recorded for any outstanding monies
based on this fair value assessment. Fair value is determined as the outstanding element of the price paid for the land discounted to present day.
The difference between the nominal value and the initial fair value is amortised over the period of the extended credit term and charged to finance
costs using the ‘effective interest’ rate method, increasing the value of the land creditor such that at the date of maturity the land creditor equals the
payment required.
Land creditor (estimated ageing)
2016
2015
Balance at
31 Dec
£000
Total contracted
cash payment
£000
Due within
1 year
£000
Between
1-2 years
£000
343,309
350,041
196,511
120,954
322,889
330,435
168,142
107,933
Between
2-3 years
£000
15,135
40,120
Between
3-4 years
£000
3,612
11,764
Between
4-5 years
£000
1,979
2,356
Due beyond
5 years
£000
11,850
120
Available for sale financial assets
The Group determines the fair value of its available for sale financial assets through estimation of the present value of expected future cash flows. Cash flows
are assessed taking into account expectations of the timing of redemption, future house price movement and the risks of default. An instrument-specific
market-assessed interest rate is used to determine present value via discounted cash flow modelling.
Fair value of quoted investments is based on the available price of those quoted investments at the balance sheet date.
Bank and other loans
Fair value is calculated based on discounted expected future principal and interest flows. Interest free loans are fair valued using an effective interest rate method.
See note 4.3 for further details.
Interest rate swaps
At each period end, an external valuation of the fair value of each interest rate swap is obtained from the relevant swap providers. Fair values are based
on broker quotes which reflect the actual transactions in similar instruments.
Trade and other receivables / payables
Other than land creditors, other financial liabilities and available for sale financial assets, the nominal value of trade receivables and payables is deemed
to reflect the fair value. This is due to the fact that transactions which give rise to these trade receivables and payables arise in the normal course of trade
with industry standard payment terms.
Interest rates used for determining fair value
The Group uses an instrument-specific market-assessed interest rate to determine the fair value of financial instruments.
The following table provides an analysis of financial assets and liabilities that are measured subsequent to initial recognition at fair value, grouped into
Levels 1 to 3 based on the degree to which the fair value is observable:
Level 1: fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets;
Level 2: fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset, either
directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3: fair value measurements are those derived from valuation techniques that include inputs for the asset/liability that are not based on observable
market data (unobservable inputs).
Bovis Homes Group PLC | 117
Notes to the financial statements continued
31 December 2016
Assets
Available for sale financial assets
Liabilities
31 December 2015
Assets
Available for sale financial assets
Liabilities
Level 1
£000
Level 2
£000
Level 3
£000
Group
£000
-
-
-
-
27,804
27,804
27,804
27,804
Level 1
£000
Level 2
£000
Level 3
£000
Group
£000
-
-
-
-
35,303
35,303
35,303
35,303
The Group’s only level 3 financial instruments relate to available for sale financial assets - shared equity. A reconciliation between the brought forward
and carried forward values is shown in note 4.2.
5.0 Other disclosures
This section includes all disclosures which are required by IFRS or the Companies Act which have not been included elsewhere in the financial statements.
5.1 Income tax
Income tax comprises the sum of the tax currently payable or receivable and deferred tax. Income tax is recognised in the income statement except
to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Recognised in the income statement
Current tax
Current year
Adjustments for prior years
Deferred tax
Origination and reversal of temporary differences
Adjustments for prior year
Total income tax in income statement
Reconciliation of effective tax rate
Profit before tax
Income tax using the domestic corporation tax rate
Non-deductible expenses
Other
Change in tax rate
Adjustments to the tax change in respect to the prior year
Total tax expense
Note
2016
£000
2015
£000
32,429
33,117
(2,293)
(1,497)
30,136
31,620
5.2
5.2
(1,126)
4,856
627
(190)
33,866
32,057
2016
%
2016
£000
2015
%
2015
£000
154,714
160,065
30,943
20.3
32,413
856
(354)
(142)
2,563
33,866
0.1
0.7
-
(1.1)
20.0
200
1,120
11
(1,687)
32,057
20.0
0.5
(0.2)
(0.1)
1.7
21.9
The UK trading subsidiaries adopted FRS 101 for the 31 December 2015 period. Transitional adjustments in respect of fair value of available assets for
sale and imputed interest on deferred land payments, previously held on consolidation, were reflected in those subsidiary accounts. The corporation tax
computations subsequently filed for the 2015 year end incorporated the transitional adjustments, some of which are required to be spread over 10 years
under UK tax legislation. Consequently the tax charge in the income statement this year includes prior year adjustments to reflect the release of the deferred
tax asset previously held on consolidation and a prior year current tax credit for the transitional adjustments deducted in the 2015 tax computations.
118 | Annual report and accounts | Financial statements
Notes to the financial statements continued
Recognised directly in equity
Relating to actuarial movements on pension scheme
Relating to share-based payments
Relating to shared equity
Deferred tax recognised directly in equity
5.2 Tax assets and liabilities
Note
5.2
5.2
5.2
2016
£000
2,624
(8)
909
3,525
2015
£000
(17)
(31)
-
(48)
The tax currently payable or receivable is based on taxable profit or loss for the year and any adjustment to tax payable or receivable in respect of
previous years. Taxable profit or loss differs from net profit or loss as reported in the income statement because it excludes items of income or
expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability or asset
for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method.
Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it
is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not
recognised if the temporary difference arises from non-tax deductible goodwill, from the initial recognition of assets and liabilities in a transaction
that affects neither the tax profit nor the accounting profit, and from differences relating to investments in subsidiaries to the extent that they will
probably not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected
to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when
it relates to items charged or credited directly to reserves, in which case the deferred tax is also dealt with in reserves.
Current tax assets and liabilities
The current liability of £13,885,000 (2015: £16,947,000) represents the remaining balance of income taxes payable in respect of current and prior years.
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Assets
Liabilities
Net
Group
Property, plant and equipment
Non-current trade payables
Available for sale financial assets
Employee benefits - pensions
Employee benefits - share-based payments
Provisions
Inventories
Adjustment on sale to Joint Venture
2016
£000
-
-
-
1,120
132
1,407
-
372
2015
£000
-
2,152
970
-
480
18
-
437
2016
£000
(273)
(27)
(714)
-
-
-
(62)
-
2015
£000
(258)
-
-
(1,423)
-
-
(216)
-
2016
£000
(273)
(27)
(714)
1,120
132
1,407
(62)
372
2015
£000
(258)
2,152
970
(1,423)
480
18
(216)
437
Tax assets/(liabilities)
3,031
4,057
(1,076)
(1,897)
1,955
2,160
Bovis Homes Group PLC | 119
Notes to the financial statements continued
Movement in temporary differences during the year
Group
Property, plant and equipment
Trade payables
Available for sale financial assets
Employee benefits - pensions
Employee benefits - share-based payments
Provisions
Inventories
Adjustment on sale to Joint Venture
Movement in temporary differences
Group
Property, plant and equipment
Trade payables
Available for sale financial assets
Employee benefits - pensions
Employee benefits - share-based payments
Provisions
Interest rate derivative
Inventories
Adjustment on sale to Joint Venture
Movement in temporary differences
Balance
1 Jan 2016
£000
Recognised
in income
£000
Recognised
in equity
£000
Balance
31 Dec 2016
£000
(258)
2,152
970
(1,423)
480
18
(216)
437
(15)
(2,179)
(2,593)
(81)
(340)
1,389
154
(65)
-
-
909
2,624
(8)
-
-
-
(273)
(27)
(714)
1,120
132
1,407
(62)
372
2,160
(3,730)
3,525
1,955
Balance
1 Jan 2015
£000
(332)
1,900
411
134
464
90
12
(273)
239
2,645
Recognised
in income
£000
Recognised
in equity
£000
Balance
31 Dec 2015
£000
74
252
559
(1,540)
47
(72)
(12)
57
198
(437)
-
-
-
(17)
(31)
-
-
-
-
(258)
2,152
970
(1,423)
480
18
-
(216)
437
(48)
2,160
Factors affecting future tax charge
A reduction in the UK corporation tax rate from 21% to 20% (effective from 1 April 2015) was substantively enacted on 2 July 2013. Further reductions
to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) were substantively enacted on 26 October 2015, and an additional reduction
to 17% (effective 1 April 2020) was substantively enacted on 6 September 2016. This will reduce the company’s future current tax charge accordingly.
The deferred tax asset at 31 December 2016 has been calculated based on these rates.
Employee benefits
The Group recognises the deficit or surplus on its defined benefits pension scheme under the requirements of IAS19 (Revised): ‘Employee benefits’.
This has generated a deficit of £6.6 million (2015: surplus of £7.1 million). As at 31 December 2016, a deferred tax asset of £1,120,000 (2015 tax liability:
£1,423,000) was recognised.
120 | Annual report and accounts | Financial statements
Notes to the financial statements continued
5.3 Directors and employees
The weekly average number of employees of the Group, all of whom were engaged in the United Kingdom on the Group’s principal activity, together
with personnel expenses, are set out below.
Average staff numbers
Average staff numbers
The company had no employees during 2016 (2015: nil)
A breakdown of staff numbers split by type of role is included on page 35.
Personnel expenses
Wages and salaries
Compulsory social security contributions
Contributions to defined contribution plans
Increase in expenses related to defined benefit plans
Equity-settled share-based payments
Personnel expenses
The company had no personnel expenses during 2016 (2015: nil)
Share-based payments
2016
2015
1,186
1,035
2016
£000
2015
£000
54,013
42,736
5,926
1,103
1,122
1,308
5,047
840
1,117
1,359
63,472
51,099
The Group has applied the requirements of IFRS2: “Share-based payments”.
The Group issues equity-settled share-based payments to certain employees in the form of share options over shares in the Parent Company.
Equity-settled share-based payments are measured at fair value at the date of grant calculated using an independent option valuation model, taking into
account the terms and conditions upon which the options were granted. The fair value is expensed on a straight line basis over the vesting period, based on
the Group’s estimate of shares that will eventually vest, with a corresponding credit to equity except when the share-based payment is cancelled
where the charge will be accelerated.
Movements in the number of share options outstanding and their related weighted average exercise prices
Long Term Incentive Plan
At 1 January
Granted
Lapsed
Exercised
At 31 December
Executive and other share options
At 1 January
Granted
Lapsed
Exercised
At 31 December
2016
2015
Average exercise
price in £ per
share option
-
-
-
-
-
Share options
000’s
665
322
(236)
(14)
737
Average exercise
price in £ per
share option
-
-
-
-
-
Share options
000’s
765
280
(230)
(150)
665
2016
2015
Average exercise
price in £ per
share option
8.02
-
8.85
5.42
8.59
Share options
000’s
417
-
(62)
(80)
275
Average exercise
price in £ per
share option
6.45
11.29
7.40
4.13
8.02
Share options
000’s
401
111
(32)
(63)
417
Bovis Homes Group PLC | 121
Notes to the financial statements continued
Save As You Earn
At 1 January
Granted
Lapsed
Exercised
At 31 December
2016
2015
Average exercise
price in £ per
share option
Share options
000’s
Average exercise
price in £ per
share option
Share options
000’s
6.97
7.12
7.45
5.23
7.27
302
166
(49)
(62)
357
5.61
7.66
7.47
3.76
6.97
273
148
(30)
(89)
302
Out of the 1,369,000 outstanding options (2015: 1,384,000), 177,000 options were exercisable.
Options exercised in 2016 resulted in 156,000 shares (2015: 302,000) being issued at a weighted average share price of £4.84 each (2015: £1.97 each).
Expiry date and exercise price of share options outstanding at the end of the year
Long Term Incentive Plan
Grant-vest
2011-14
2012-15
2013-16
2013-16
2014-17
2014-17
2015-18
2015-18
2015-18
2016-19
2016-19
Executive and other share options
Grant-vest
2010-13
2011-14
2012-15
2013-16
2014-17
2015-18
2010-13
2011-14
2012-15
2013-16
2014-17
2015-18
122 | Annual report and accounts | Financial statements
Expiry date
15/03/2021
28/02/2022
26/02/2023
20/08/2023
25/02/2024
19/08/2024
24/02/2025
18/08/2025
16/09/2025
23/02/2026
23/02/2026
Expiry date
25/08/2017
01/09/2018
22/08/2019
21/08/2020
20/08/2021
Exercise price
in £ per share
option
2016
Share options
000’s
2015
Share options
000’s
-
-
-
-
-
-
-
-
-
-
-
-
14
16
83
16
165
33
142
33
7
200
28
737
14
16
146
24
165
38
222
33
7
-
-
665
Exercise price
in £ per share
option
2016
Share options
000’s
2015
Share options
000’s
3.38
3.79
5.02
7.73
8.53
19/08/2024
11.29
25/08/2017
01/09/2018
22/08/2019
21/08/2020
20/08/2021
3.38
3.79
5.02
7.73
8.53
19/08/2022
11.29
5
12
9
21
50
38
5
2
17
21
39
56
5
13
23
28
62
46
5
2
75
40
52
66
275
417
Notes to the financial statements continued
Save As You Earn
Grant-vest
2011-16
2012-17
2013-16
2013-18
2014-17
2014-19
2015-18
2015-20
2016-19
2016-21
Expiry date
13/10/2016
29/09/2017
23/09/2016
23/09/2018
02/11/2017
02/11/2019
24/09/2018
24/09/2020
24/09/2019
24/09/2021
Exercise price
in £ per share
option
2016
Share options
000’s
2015
Share options
000’
3.85
4.57
5.88
5.88
7.97
7.97
7.66
7.66
7.12
7.12
-
13
-
20
50
11
83
28
116
36
357
20
14
42
21
56
15
96
38
-
-
302
The weighted average fair value of the options granted during the period determined using the Blacks-Scholes model was £4.85 per option (2015: £2.81).
The significant inputs into the model were a weighted average share price of £8.21 (2015: £11.32) at the grant date, the exercise price shown in the
table above, volatility of 36.38% (2016: 26.70%), an expected option life of 7 years (2015: 7 years) and an annual risk-free rate of 0.11% (2015: 1.36%).
The volatility is measured at the standard deviation of continuously compounded share returns, based on statistical analysis of daily share prices over the
last 3 years.
Share-based payments expense in the income statement
Long Term Incentive Plan
Executive and other share options
Save As You Earn share options
Total expense recognised as personnel expenses
2016
£000
957
116
235
2015
£000
1,053
117
189
1,308
1,359
Information relating to directors’ remuneration, compensation for loss of office, long term incentive plan, share options and pension entitlements appears
in the directors’ remuneration report on pages 68 to 80. The directors are considered to be the only key management personnel. A summary of key
management remuneration is as follows:
Wages and salaries
Compulsory social security contributions
Contributions to defined contribution plans
Equity-settled share-based payments
Key management remuneration
2016
£000
2015
£000
1,383
1,524
185
90
-
1,658
427
74
1,568
3,593
Details of the equity settled share based schemes are set out below.
Long Term Incentive Plan
A long term incentive plan for executive directors and senior executives was approved by shareholders at the 2010 Annual General Meeting. Two grants
of awards under this plan were made in 2016. Details of the vesting conditions of these awards are laid out in the directors’ remuneration report which
can be found on pages 68 to 80.
Share options
The Group introduced a Share Option Plan in 2007 designed to provide middle management with effective incentivisation. Executive directors of the
Company do not participate. This plan was approved by shareholders at the 2007 Annual General Meeting.
Bovis Homes Group PLC | 123
Notes to the financial statements continued
Save As You Earn share options
The Bovis Homes Group PLC 2007 Save As You Earn Option Scheme was established in 2007. Share options held in the Save As You Earn Option Scheme
are not subject to performance conditions and may under normal circumstances be exercised during the six months after maturity of the agreement. Save As
You Earn share options are generally exercisable at an exercise price which includes a 20% discount to the market price of the shares at the date of grant.
5.4 Property,plant and equipment
Plant, property and equipment is recorded at prime cost less accumulated depreciation. The sub-categories of PPE are depreciated as follows:
• Freehold buildings on a 2% straight line basis;
• Plant, machinery and vehicles on a 33.3% reducing balance basis; and
• Furniture, fixtures and fittings on a 25% reducing basis, other than computer equipment which is depreciated on a straight line basis over 3 years
Year ended 31 December 2015
Opening Net Book Amount
Additions
Disposals
Depreciation charge
Closing Net Book Amount
Year ended 31 December 2016
Opening Net Book Amount
Additions
Disposals
Depreciation charge
Closing Net Book Amount
5.5 Investments
Fixed asset investments
Freehold
buildings
£000
9,376
219
-
(177)
9,418
Freehold
buildings
£000
9,418
-
(1,480)
(193)
7,745
Furniture, fittings
and equipment
£000
782
333
(5)
(304)
806
Furniture, fittings
and equipment
£000
806
602
(2)
(595)
811
Plant, machinery
and vehicles
£000
3,476
1,872
Total
£000
13,634
2,424
(6)
(11)
(1,584)
(2,065)
3,758
13,982
Plant, machinery
and vehicles
£000
3,758
1,185
Total
£000
13,982
1,787
(143)
(1,625)
(1,486)
(2,274)
3,314
11,870
Investments in subsidiaries are carried at cost less impairment. The Parent Company accounts for the share based payments granted to subsidiary
employees as an increase in the cost of its investment in subsidiaries.
Subsidiary undertakings
Interest in subsidiary undertakings’ shares at cost (100% ownership of ordinary shares)
-
-
7,606
6,300
Group
Company
2016
£000
2015
£000
2016
£000
2015
£000
Investments accounted for using the equity method
Interest in Joint Ventures - equity
- loan
Other investments
5,259
3,505
8,764
22
5,296
3,669
8,965
22
-
-
-
-
7,606
6,300
-
-
8,786
8,987
7,606
6,300
124 | Annual report and accounts | Financial statements
Notes to the financial statements continued
The subsidiary and associated undertakings in which the Group has interests are incorporated in Great Britain. In each case their principal activity is related
to housebuilding and estate development.
The Group has thirty three subsidiaries, which are listed below.
Registered office
Country of incorporation
Ownership interest in ordinary shares
2016
%
2015
%
Bovis Homes (Quest) Company Limited
Bovis Homes Limited
Bishops Park Limited
Bovis Country Homes Limited
Bovis Homes (Broadbridge Heath) Limited
Bovis Homes (New Ash Green) Limited
Bovis Homes BVC Limited
Bovis Homes Cornwall Limited
Bovis Homes Developments Limited
Bovis Homes Devon Limited
Bovis Homes Eastern Limited
Bovis Homes Freeholds Limited
Bovis Homes Insulation Limited
Bovis Homes Midlands And Northern Limited
Bovis Homes Pension Scheme Trustee Limited
Bovis Homes Projects Limited
Bovis Homes Scotland Limited
Bovis Homes South East Limited
Bovis Homes Southern Limited
Bovis Homes Wessex Limited
Elite Homes Group Limited
Elite Homes (North West) Limited
Gigg Lane Limited
Elite Homes (Yorkshire) Limited
H.Newbury & Son (Builders) Limited
Kilbride Tavistock Limited
Nether Hall Park Open Space Management Company Limited
Orchard Homes (Pitt Manor) Limited
Oxford Land Limited
Page Johnson Properties Limited
Rissington Management Company Limited
R.T.Warren (Builders, St.Albans) Limited
Unitpage Limited
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
2
1
1
1
1
1
1
1
1
1
1
1
1
1
3
1
1
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
100
100
50
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
67
100
50
100
100
100
100
50
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
67
100
50
100
100
At 31 December 2016 the Group had an interest in the following Joint Ventures which have been equity accounted to 31 December and are registered
and operate in England and Wales.
Bovis Peer LLP
IIH Oak Investors LLP
Registered office
Country of incorporation
Ownership interest in entity
1
4
United Kingdom
United Kingdom
2016
%
50
26
2015
%
50
26
1. The Manor House, North Ash Road, New Ash Green, Longfield, Kent, DA3 8HQ
2. c/o Gilliespie MacAndrew LLP, 5 Atholl Crescent, Edinburgh, Scotland, EH3 8EJ, United Kingdom
3. Cowley Business Park, Cowley, Uxbridge, Middlesex, UB8 2AL
4. New Zealand House 15th Floor, 80 Haymarket, London, United Kingdom, SW1Y 4TE
Bovis Homes Group PLC | 125
Notes to the financial statements continued
The movement on the investment in the material Joint Venture (Bovis Peer LLP) during the year is as follows:
At the start of the year
Share of revaluation
Capital release re refinance
Net decrease in loans
Share of results
Dividend received
At the end of the year
Summarised financial information relating to the material Joint Venture is as follows:
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets of Joint Venture
Group share of net assets recognised in the Group balance sheet at 31 December
Revenue
Costs
Operating profit
Revaluation of properties
Interest
Profit for the year
Group share of profit for the year recognised in the Group income statement
Group share of IIH Oak Investors LLP profit for the year recognised in the Group income statement
Share of profit of Joint Ventures
2016
£000
4,555
-
-
-
244
(129)
2015
£000
4,811
1,578
(495)
(1,131)
169
(377)
4,670
4,555
2016
£000
2015
£000
32,190
32,190
747
(135)
580
(318)
(20,920)
(20,920)
11,882
11,532
5,941
5,766
1,750
(560)
1,190
-
(702)
488
244
87
331
1,688
(646)
1,042
3,156
(704)
3,494
1,747
23
1,770
The material Joint Venture has no significant contingent liabilities to which the Group is exposed and the Group has no significant contingent liabilities in
relation to its interest in the material Joint Venture.
Transactions with Bovis Peer LLP and IIH Oak Investors LLP
Bovis Homes Limited is contracted to provide property and letting management services to Bovis Peer LLP. Fees charged in the period, inclusive of VAT,
were £157,000 (2015: £153,000). None of these fees are outstanding at 31 December 2016 (2015: nil).
In 2014, Bovis Homes Limited entered into a Joint Venture arrangement with IIH Oak Investors LLP to hold 190 homes under a private rental scheme.
As at 31 December 2016, loans of £3,503,504 (2015: £3,667,675) are outstanding with IIH Oak Investors at an interest rate of 6%. Interest charges made
in respect of loans were £220,000 (2015: £249,000)
5.6 Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it
is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where
appropriate, the risks specific to the liability.
As at 1 January 2016
Additional provisions made
Amounts used
Unused provisions reversed
As at 31 December 2016
Customer
care costs
Onerous
contracts
Other
Total
1,206
7,000
-
-
8,206
750
-
(590)
-
160
1,616
1,910
-
(800)
3,572
8,910
(590)
(800)
2,726
11,092
Of the total provisions detailed above, £10,280,000 are expected to be utilised within the next year (2015: £2,245,000).
126 | Annual report and accounts | Financial statements
Notes to the financial statements continued
5.7 Employee benefits
The Group accounts for pensions and similar benefits under IAS 19 (Revised): “Employee benefits”. In respect of defined benefit schemes, the
net obligation is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and
prior periods, such benefits measured at discounted present value, less the fair value of the scheme assets. The discount rate used to discount
the benefits accrued is the yield at the balance sheet date on AA credit rated bonds that have maturity dates approximating to the terms of the
Group’s obligations. The calculation is performed by a qualified actuary using the Projected Unit Method. The operating and financing costs of such
plans are recognised separately in the income statement; service costs are spread systematically over the lives of employees and financing costs
and credits are recognised in the periods in which they arise. All actuarial gains and losses are recognised immediately in the Group statement of
comprehensive income.
Payments to defined contribution schemes are charged as an expense as they fall due.
Pension cost note
The Company operates a UK registered trust based pension scheme that provides defined benefits. Pension benefits are linked to the members’ final
pensionable salaries and service at their retirement (or date of leaving if earlier). The Trustees are responsible for running the Scheme in accordance with
the Scheme’s Trust Deed and Rules, which sets out their powers. The Trustees of the Scheme are required to act in the best interest of the beneficiaries
of the Scheme. There is a requirement that one-third of the Trustees are nominated by the members of the Scheme.
There are three categories of pension scheme members:
• Active members: currently employed by the Company
• Deferred members: former employees of the Company
• Pensioner members: in receipt of pension.
The defined benefit obligation is valued by projecting the best estimate of future benefit outgoings (allowing for future salary increases for active
members, revaluation to retirement for deferred members and annual pension increases for all members) and then discounting to the balance
sheet date. The majority of benefits receive increases linked to inflation (subject to various caps). The valuation method is known as the Projected Unit Method.
The approximate overall duration of the Scheme’s defined benefit obligation as at 31 December 2016 was 18 years.
Risks
Through the Scheme, the Company is exposed to a number of risks:
• Asset volatility: the Scheme’s defined benefit obligation is calculated using a discount rate set with reference to corporate bond yields, however the
Scheme invests significantly in equities and other growth assets. These assets are expected to outperform corporate bonds in the long term, but provide
volatility and risk in the short term.
• Inflation risk: a significant proportion of the Scheme’s defined benefit obligation is linked to inflation, therefore higher inflation will result in a higher
defined benefit obligation (subject to the appropriate caps in place). The majority of the Scheme’s assets are either unaffected by inflation, or only
loosely correlated with inflation, therefore an increase in inflation would also increase the deficit. However, the caps in place limit the potential impact
of higher inflation.
The Trustees and Company manage risks in the Scheme through the following strategies:
• Diversification: investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level
of assets.
• Investment strategy: the Trustees are required to review their investment strategy on a regular basis.
• Pensionable Salary cap: Pensionable Salary increases are capped at 2.5% pa. Therefore, the impact on the Scheme of the Company granting salary
increases above 2.5% is limited.
Retirement benefit obligations
The Group makes contributions to one defined benefit scheme that provides pension benefits for employees upon retirement.
Present value of funded obligations
Fair value of plan scheme assets
Recognised liability/(asset) for defined benefit obligations
2016
£000
2015
£000
125,594
102,160
(119,004)
(109,277)
6,590
(7,117)
Bovis Homes Group PLC | 127
Notes to the financial statements continued
Movements in the net liability/(asset) for defined benefit obligations recognised in the balance sheet
Net (asset)/liability for defined benefit obligations at 1 January
Contributions received
Expense recognised in the income statement
Loss/(gain) recognised in equity
2016
£000
(7,117)
(1,250)
850
14,107
2015
£000
668
(8,611)
1,008
(182)
Net liability/(asset) for defined benefit obligations at 31 December
6,590
(7,117)
The cumulative loss recognised in equity to date is £21.8 million (2015: 7.7 million).
Change in defined benefit obligation over the year
Defined benefit obligation at beginning of year
Net interest cost
Current service cost
Actual member contributions
Actual benefit payments by the scheme
Loss/(gain) on change of assumptions
Defined benefit obligation at end of year
Change in scheme assets over the year
Fair value of scheme assets at beginning of year
Interest income
Actual benefit payments by the scheme
Actual Group contributions
Actual member contributions
Gain/(loss) on assets
Administration costs
2016
£000
2015
£000
102,160
104,020
3,837
3,700
828
133
937
146
(3,375)
(3,610)
22,011
(3,033)
125,594
102,160
2016
£000
2015
£000
109,277
103,352
4,109
(3,375)
1,250
133
7,904
(294)
3,809
(3,610)
8,611
146
(2,851)
(180)
Fair value of scheme assets at end of year
119,004
109,277
The major categories of scheme assets are as follows:
Return seeking
Equities
Debt Instruments
Bonds
Gilts
Debt Instruments subtotal
Other
Property
Cash
Liability driven instruments
Total market value of assets
2016
£000
2015
£000
69,603
64,336
-
-
-
11,409
23,682
14,310
24,330
9,391
33,721
10,872
348
-
119,004
109,277
During 2016, scheme assets have been invested in cash and liability driven instruments, moving away from bonds and gilts, in order to reduce the
interest rate and inflation risk in the scheme whilst replicating the hedging of bond assets.
128 | Annual report and accounts | Financial statements
Notes to the financial statements continued
Sensitivity analysis
Assumption
Discount rate
RPI inflation
Future salary increases
Assumed life expectancy
Change in assumption
Change in defined
benefit obligation
+0.5%pa / -0.5%pa
-8% / +10%
+0.5%pa / -0.5%pa
+3% / -3%
+0.5%pa / -0.5%pa
+1 year
0%
+4%
Limitations of the sensitivity analysis
These calculations provide an approximate guide to the sensitivity of results and may not be as accurate as a full valuation carried out on
these assumptions. Each assumption change is considered in isolation, which in practice is unlikely to occur, as changes in some of the assumptions
are correlated.
Pensionable Salary increases are capped at 2.5% pa, as currently assumed, therefore changing the underlying assumption for future salary increases
by +0.5% has no impact on the liabilities
Expense recognised in the income statement
Current service cost
Administration expenses
Interest (credit)
Expense recognised in the income statement
Assumptions
Principal actuarial assumptions at the balance sheet date (expressed as weighted averages):
Group
Discount rate at 31 December
Future salary increases
Inflation - RPI
- CPI
Future pension increases
2016
£000
2015
£000
2016
£000
828
294
(272)
850
2015
%
3.8
2.5
3.1
2.1
2.5
2013
£000
2015
£000
937
180
(109)
1,008
2014
%
3.6
2.5
3.1
2.1
2.5
2012
£000
2016
%
2.6
2.5
3.4
2.4
2.5
2014
£000
Present value of defined benefit obligations
125,594
102,160
104,020
91,456
88,400
Fair value of scheme assets
(Deficit)/surplus in the scheme
119,004
109,277
103,352
94,693
85,229
(6,590)
7,117
(668)
3,237
(3,171)
Bovis Homes Group PLC | 129
Notes to the financial statements continued
The most recent formal actuarial valuation was carried out as at 30 June 2016. The results have been updated to 31 December 2016 by a qualified
independent actuary. As part of this valuation exercise, the mortality assumptions for the scheme are now based on the CMI 2015 model with an uplift
for future improvements in mortality in line with the medium cohort with a minimum improvement of 1.5%. These tables imply the following remaining
life expectancy at age 63.
Remaining years of life at 63
Men
Women
Current
age at 43
Current
age at 63
26.5
28.8
24.3
26.4
The Trustees are required to carry out an actuarial valuation every 3 years. The last actuarial valuation of the Scheme was performed by the Scheme Actuary
for the Trustees as at 30 June 2013. This valuation revealed a funding shortfall of £12.8 million. The Company agreed to pay annual contributions of 37%
of members’ pensionable salaries each year to meet the cost of future service accrual plus £175,000 per annum to cover administration expenses and
premiums for death in service lump sums associated with the Scheme.
To remove the deficit in the Scheme as at 30 June 2013, the Company agreed to pay £2.84 million on 1 December 2013 and a further £10.75 million
on 1 January 2015. These have been paid.
The Company therefore expects to pay £1.0m to the Scheme during the accounting year beginning 1 January 2017 to meet the cost of future benefit
accrual, administration expenses and premiums for death in service lump sums.
The actuarial valuation as at 30 June 2016 is currently underway, the results of which have not yet been finalised. Once the 2016 valuation has been
finalised a new Schedule of Contributions will be agreed and the contributions required may be different from those described above. If this is the case,
the contributions paid by the Company during the accounting period beginning 1 January 2017 may also be different to those set out above.
5.8 Related party transactions
Transactions between fellow subsidiaries, which are related parties, have been eliminated on consolidation, as have transactions between the Company
and its subsidiaries during this year.
Transactions between the Group, Company and key management personnel in the year ending 31 December 2016 were limited to those relating to
remuneration, which are disclosed in the director’s remuneration report (which can be found on pages 68 to 80 and in note 5.3).
Transactions between the Group, Company and Joint Ventures are in note 5.5.
5.9 Post balance sheet events
On 9 January 2017, David Ritchie, the previous Chief Executive, notified the Group of his intention to leave the Company. David immediately stepped down
as Chief Executive of the Group and as a Board Director but will remain with the Group until 28 February 2017 to assist with the process of transition.
The Board appointed Earl Sibley, the Group’s Finance Director, as Interim Chief Executive on the same date and have initiated a process to appoint a
permanent successor which is expected to take several months.
130 | Annual report and accounts | Financial statements
Five year record
Years ended 31 December
Revenue and profit
Revenue
Operating profit before financing costs
Net financing costs
Share of result of Joint Ventures
Profit before tax
Tax
Profit after tax
Balance sheet
Equity shareholders’ funds
Net (cash)/debt
Capital employed
Returns
Operating margin (note 1)
Return on shareholders’ funds (note 2)
Return on capital employed (note 3)
Homes (including units sold on third party owned land)
Number of unit completions
Average sales price (£’000)
Ordinary shares
Earnings per share (p) (note 4)
Dividends per share
Paid (p)
Interim paid and final proposed (p)
2016
IFRS
£m
2015
IFRS
£m
2014
IFRS
£m
2013
IFRS
£m
2012
IFRS
£m
1,054.8
160.0
(5.6)
0.3
154.7
(33.9)
120.8
1,015.9
(38.6)
977.3
15%
13%
17%
946.5
163.5
(5.2)
1.8
160.1
(32.1)
128.0
957.8
(30.0)
927.8
17%
15%
18%
809.4
137.6
(4.4)
0.3
133.5
(28.3)
105.2
879.1
(5.2)
873.9
17%
13%
16%
556.0
82.8
(4.3)
0.3
78.8
(18.7)
60.1
810.3
18.0
828.3
15%
8%
11%
425.5
56.7
(3.7)
0.2
53.2
(13.0)
40.2
758.8
(18.8)
740.1
13%
6%
8%
3,977
254.9
3,934
231.6
3,635
216.6
2,813
195.1
2,355
170.7
90.1
95.4
78.6
44.9
30.2
41.3
45.0
36.7
40.0
21.5
35.0
10.0
13.5
6.5
9.0
Note 1: Operating margin has been calculated as operating profit over turnover, stated before exceptional charges.
Note 2: Return on shareholders’ funds has been calculated as pre-exceptional profit after interest and tax over opening shareholders’ funds.
Note 3: Return on capital employed has been calculated as operating profit over the average of opening and closing shareholders’ funds plus net debt or less net cash, excluding
investment in Joint Ventures.
Note 4: Earnings per share is calculated on a pre-exceptional basis.
Bovis Homes Group PLC | 131
Notice of meeting
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.
If you are in any doubt as to any aspect of the proposals referred to in this document or as to the action you should take, you should
seek your own advice from a stockbroker, solicitor, accountant or other professional adviser.
If you have sold or otherwise transferred all of your shares, please pass this document together with the accompanying documents to
the purchaser or transferee, or to the person who arranged the sale or transfer so they can pass these documents to the person who
now holds the shares.
Notice of meeting
NOTICE IS HEREBY GIVEN that the 2017 Annual General Meeting of Bovis Homes Group PLC (the “Company”) will be held at The Spa
Hotel, Mount Ephraim, Royal Tunbridge Wells, Kent TN4 8XJ on Tuesday, 2 May 2017 at 2.00 pm for the following purposes:
Ordinary resolutions
Reports and accounts
1
To receive the audited accounts of the Company for the year ended 31 December 2016 and the reports of the directors and
auditors.
Remuneration report
2
3
To approve the directors’ remuneration report (other than the part containing the directors’ remuneration policy referred to in
resolution 3 below) in the form set out in the Company’s annual report and accounts for the year ended 31 December 2016 in
accordance with section 439 of the Companies Act 2006.
To approve the directors’ remuneration policy set out on pages 60 to 67 of the directors’ remuneration report, in the form set
out in the Company’s annual report and accounts for the year ended 31 December 2016, in accordance with section 439A of the
Companies Act 2006, to take effect immediately following the Annual General Meeting.
Dividend
4
To declare the final dividend recommended by the directors.
Directors
5
6
7
8
9
To re-appoint Ian Paul Tyler as a director of the Company.
To re-appoint Alastair David Lyons as a director of the Company.
To re-appoint Margaret Christine Browne as a director of the Company.
To re-appoint Ralph Graham Findlay as a director of the Company.
To re-appoint Nigel Keen as a director of the Company.
10 To re-appoint Earl Sibley as a director of the Company.
Auditors
11 To re-appoint PricewaterhouseCoopers LLP as auditors of the Company.
12 To authorise the directors to determine the remuneration of the auditors.
Save As You Earn Scheme
13 That the renewal of the Bovis Homes Group PLC Save As You Earn Share Option Scheme (“the SAYE Scheme”), the main features
of which are described in item 13 in the explanatory notes to this Notice and the rules of which are produced to the Meeting and
initialled by the Chairman for the purpose of identification, be and is hereby approved and that the directors be and are hereby
authorised to do all acts and things which they may consider necessary and expedient to do to carry the same into effect.
Authority to allot shares
14 That the directors be generally and unconditionally authorised to allot shares in the Company and to grant rights to subscribe for
or to convert any security into shares in the Company pursuant to section 551 of the Companies Act 2006 (“the 2006 Act”):
(a) up to an aggregate nominal amount of £22,397,969; and
(b) comprising equity securities (as defined in the 2006 Act) up to an aggregate nominal amount of £44,795,939 (including within
such limit any shares issued or rights granted under paragraph (a) above) in connection with an offer by way of a rights issue
to holders of ordinary shares in proportion (as nearly as may be practicable) to their existing holdings and so that the directors
may impose any limits or restrictions and make any arrangements which they consider necessary or appropriate to deal with
fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or any
other matter,
such authorities to apply (unless previously renewed, varied or revoked by the Company in a general meeting) until the conclusion
of the Annual General Meeting of the Company in 2018 or fifteen months from the date of this resolution, whichever is the earlier,
but in each case so that the Company may make offers and enter into agreements during the relevant period which would, or
might, require shares to be allotted, or rights to subscribe for or convert any security into shares to be granted, after the authority
ends and the directors may allot shares and grant rights under any such offer or agreement as if the authority had not ended.
132 | Annual report and accounts | Supplementary information
n
o
i
t
a
m
r
o
f
n
i
y
r
a
t
n
e
m
e
l
p
p
u
S
Notice of meeting continued
Special resolutions
Notice of general meetings
15 That a general meeting other than an Annual General Meeting may be called on not less than 14 clear days’ notice.
Authority to disapply pre-emption rights
16 That if resolution 14 is passed, and in place of all existing powers, the directors be generally empowered pursuant to section 570 and 573 of the
Companies Act 2006 (the ‘2006 Act’) to allot equity securities (as defined in the ‘2006 Act’) for cash under the authority given by that resolution as
if section 561 of the 2006 Act did not apply to any such allotment or sale, such power:
(a)
(b)
to expire (unless previously renewed, varied or revoked by the Company in a general meeting) at the conclusion of the Annual General Meeting
of the Company in 2018 or fifteen months from the date of this resolution, whichever is the earlier, but, in each case during this period the
directors may make an offer or agreement which would or might require equity securities to be allotted after the power ends and the directors
may allot equity securities under any such offer or agreement as if the power had not ended;
to be limited to the allotment of equity securities in connection with an offer of equity securities (but in the case of the authority granted under
resolution 14(b) by way of a rights issue only) to ordinary shareholders in proportion (as nearly as may be practicable) to their existing holdings
and so that the directors may impose any limits or restrictions and make any arrangements which they consider necessary or appropriate to deal
with fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or any other matter; and
(c)
to be limited, in the case of the authority granted under resolution 14(a), to the allotment of equity securities for cash otherwise than pursuant
to paragraph (b) up to an aggregate nominal amount of £3,363,058.
This power applies in relation to a sale of shares which is an allotment of equity securities by virtue of section 560(3) of the 2006 Act as if in the first
paragraph of this resolution the words ‘under the authority given by that resolution’ were omitted.
Authority to purchase own shares
17 That the Company be and is hereby granted general and unconditional authority, for the purposes of section 701 of the Companies Act 2006
(the ‘2006 Act’), to make market purchases (within the meaning of section 693(4) of the 2006 Act) of the ordinary shares of 50 pence each in its
capital PROVIDED THAT:
(i)
(ii)
this authority shall be limited so that the number of ordinary shares of 50 pence each which may be acquired pursuant to this authority does not
exceed an aggregate of 13,452,234 ordinary shares and shall expire at the conclusion of the next Annual General Meeting of the Company in
2018 (except in relation to the purchase of ordinary shares the contract for which was concluded before such time and which is executed wholly
or partly after such time);
the maximum (exclusive of expenses) price which may be paid for each ordinary share shall be the higher of: (a) an amount equal to 105% of
the average of the middle market quotations for an ordinary share of the Company as derived from the London Stock Exchange Daily Official
List for the five business days immediately preceding the day on which the Company agrees to buy the ordinary shares; and (b) an amount equal
to the higher of the price of the last independent trade of an ordinary share and the highest current independent bill for an ordinary share as
derived from the London Stock Exchange Trading System (SETS) (Commission Delegated Regulation (EU) 2016/1052); and
(iii) the minimum price (exclusive of expenses) which may be paid for an ordinary share shall be 50 pence.
Bovis Homes Group PLC
The Manor House, North Ash Road
New Ash Green, Longfield
Kent DA3 8HQ
By Order of the Board
M T D Palmer
Group Company Secretary
20 March 2017
Bovis Homes Group PLC | 133
Notice of meeting continued
Notes:
(i)
(ii)
Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001 and section 360B(2) of the 2006 Act, the Company gives notice that only
holders of ordinary shares entered on the register of members no later than 8.00pm on 27 April 2017 (or, in the event of any adjournment, on the
date which is 48 hours (excluding non-working days) before the time of the adjourned meeting) will be entitled to attend and vote at the meeting
and a member may vote in respect of the number of ordinary shares registered in the member’s name at that time. Changes to entries on the register
after the relevant deadline shall be disregarded in determining the rights of any person to attend or vote at the meeting.
A registered member of the Company may appoint one or more proxies in respect of some or all of their ordinary shares to exercise that member’s
rights to attend, speak and vote at a meeting of the Company instead of the member. A registered member appointing multiple proxies must ensure
that each proxy is appointed to exercise rights attaching to different shares and must specify on the proxy form the number of shares in relation to
which that proxy is appointed. A proxy form which may be used to make such appointment and give proxy instructions accompanies this Notice.
If you do not have a proxy form and believe that you should have one, or if you require additional forms, please contact the Company’s Registrar,
Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS99 6ZY. Members or their duly appointed proxies are requested to
bring proof of identity with them to the meeting in order to confirm their identity for security reasons. A shareholder attending the meeting has
the right to ask questions relating to the business being dealt with at the meeting in accordance with section 319A of the 2006 Act. In certain
circumstances prescribed by the same section, the Company need not answer a question.
(iii) The proxy form must be executed by or on behalf of the member making the appointment. Any corporation which is a member can appoint one or
more corporate representatives who may exercise on its behalf all of its powers as a member provided that they do not do so in relation to the same
shares. A corporation may execute the form(s) of proxy either under its common seal or under the hand of a duly authorised officer, attorney or other
authorised person. A member may appoint more than one proxy to attend and vote on the same occasion.
(iv) A proxy need not be a member of the Company.
(v) Participants of the Bovis Homes Group Share Incentive Plan may instruct the trustee to vote on their behalf on a poll.
(vi) The proxy form and the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of that power or authority
must be received at the office of the Company’s Registrar, Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS99 6ZY
or received via the Computershare website, (www.investorcentre.co.uk/eproxy) (full details of the procedures are given in the notes to the proxy
form enclosed with the report and accounts and on the website) not less than 48 hours (excluding non-working days) before the time for holding
the meeting. Completion of the proxy form, other such instrument or any CREST proxy instruction (as described in paragraph (vii) below) will not
preclude a member from attending the Annual General Meeting and voting in person instead of through his proxy or proxies. Voting on all substantive
resolutions will be by a poll. When announcing the results of the poll voting, the Company will disclose the total number of votes in favour and
against and the number of abstentions on the Company website (www.bovishomesgroup.co.uk) and through a Regulatory Information Service. If a
member returns both paper and electronic proxy instructions, those received last by the Registrar before the latest time for receipt of proxies will take
precedence. Members are advised to read the website terms and conditions of use carefully.
(vii) To appoint one or more proxies or to give an instruction to a proxy (whether previously appointed or otherwise) via the CREST system, CREST messages
must be received by the issuer’s agent (ID number 3RA50) not later than 48 hours (excluding non-working days) before the time appointed for holding
the meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the time stamp generated by the CREST system)
from which the issuer’s agent is able to retrieve the message. After this time any change of instructions to a proxy appointed through CREST should
be communicated to the proxy by other means. CREST personal members or other CREST sponsored members, and those CREST members who have
appointed voting service provider(s) should contact their CREST sponsor or voting service provider(s) for assistance with appointing proxies via CREST.
For further information on CREST procedures, limitations and system timings please refer to the CREST manual. The Company may treat as invalid a
proxy appointment sent by CREST in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.
(viii) CREST members and, where applicable, their CREST sponsors, or voting service providers should note that Euroclear UK & Ireland Limited does not
make available special procedures in CREST for any particular message. Normal system timings and limitations will, therefore, apply in relation to
the input of CREST proxy instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal
member, or sponsored member, or has appointed a voting service provider, to procure that his CREST sponsor or voting service provider(s) take(s))
such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection,
CREST members and, where applicable, their CREST sponsors or voting system providers are referred, in particular, to those sections of the CREST
manual concerning practical limitations of the CREST system and timings.
(ix) Any person to whom this Notice is sent who is a person nominated under section 146 of the 2006 Act to enjoy information rights (a “Nominated
Person”) may have a right, under an agreement between him and the member by whom he was nominated, to be appointed (or to have someone
else appointed) as a proxy for the Annual General Meeting. If a Nominated Person has no such proxy appointment right or does not wish to exercise
it, he may, under any such agreement, have a right to give instructions to the member as to the exercise of voting rights. The statement of the rights
of members in relation to the appointment of proxies in paragraph (ii) above does not apply to Nominated Persons. The rights described in these
paragraphs can only be exercised by members of the Company.
(x) As at 1 March 2017 (being the last practicable date prior to the publication of this Notice) the Company’s issued share capital consists of 134,522,340
ordinary shares, carrying one vote each. Therefore, the total voting rights in the Company as at 1 March 2017 are 134,522,340.
134 | Annual report and accounts | Supplementary information
Notice of meeting continued
(xi) Under section 527 of the 2006 Act, members meeting the relevant threshold requirements set out in that section may require the Company to publish
on a website a statement setting out any matter relating to: (i) the audit of the Company’s accounts (including the auditor’s report and the conduct of
the audit) that are to be laid before the Annual General Meeting; or (ii) any circumstance connected with an auditor of the Company ceasing to hold
office since the last Annual General Meeting that the members propose to raise at the Annual General Meeting. The Company may not require the
members requesting any such website publication to pay its expenses in complying with sections 527 or 528 of the 2006 Act. Where the Company
is required to place a statement on a website under section 527 of the 2006 Act, it must forward the statement to the Company’s auditor not later
than the time when it makes the statement available on the website. The business which may be dealt with at the Annual General Meeting includes
any statement that the Company has been required under section 527 of the 2006 Act to publish on a website.
(xii) Under sections 338 and 338A of the Companies Act 2006, members meeting the threshold requirements in those sections have the right to require
the Company: (a) to give, to members of the Company entitled to receive notice of the meeting, notice of a resolution which may properly be moved
and is intended to be moved at the meeting; and/or (b) to include in the business to be dealt with at the meeting any matter (other than a proposed
resolution) which may be properly included in the business unless (i) (in the case of a resolution only) it would, if passed, be ineffective, (ii) it is
defamatory of any person, or (iii) it is frivolous or vexatious. Such a request may be in hard copy form or in electronic form, must identify the resolution
of which notice is to be given or the matter to be included in the business, must be authorised by the person or persons making it, must be received
by the Company not later than 20 March 2017, being the date six clear weeks before the meeting, and (in the case of a matter to be included on the
business only) must be accompanied by a statement setting out the grounds for the request.
(xiii) Any member attending the meeting has the right to ask questions. The Company must cause to be answered any such question relating to the
business being dealt with at the meeting but no such answer need be given if: (i) to do so would interfere unduly with the preparation for the meeting
or involve the disclosure of confidential information; (ii) the answer has already been given on a website in the form of an answer to a question; or
(iii) it is undesirable in the interests of the Company or the good order of the meeting that the question be answered.
(xiv) Except as provided above, members who wish to communicate with the Company in relation to the Annual General Meeting should do so using the
following means: (1) by writing to the Company Secretary at the registered office address; or (2) by writing to the Company’s Registrar, Computershare
Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS99 6ZY. No other methods of communication will be accepted. In particular you may
not use any electronic address provided either in this Notice of meeting or in any related documents (including the Chairman’s Statement, the Annual
Report 2016 and the proxy form) to communicate with the Company for any purposes other than those expressly stated.
(xv) A copy of this Notice and other information required to be published in accordance with section 311A of the 2006 Act in advance of the Annual
General Meeting can be found at www.bovishomesgroup.co.uk.
(xvi) The following documents will be available for inspection at the Company’s registered office, during normal business hours, on any weekday (excluding
public holidays) from the date of this Notice until the date of the Annual General Meeting and on that date they will be available for inspection at
the place of the meeting from 1.30pm until the conclusion of the meeting:
(a) copies of the directors’ service contracts;
(b) copies of the terms and conditions of appointment for each non-executive director;
(c) the register of directors’ interests; and
(d) a copy of the Save As You Earn Share Option Scheme rules together with a comparison document showing the changes proposed to be made to
the rules pursuant to Resolution 13.
(xvii) The results of the voting at the Annual General Meeting will be announced through a Regulatory Information Service and will appear on the
Company’s website, www.bovishomesgroup.co.uk, as soon as reasonably practicable following the conclusion of the Annual General Meeting.
(xviii) Data protection statement: your personal data includes all data provided by you, or on your behalf, which relates to you as a shareholder, including
your name and contact details, the votes you cast and your Reference Number (attributed to you by the Company). The Company determines the
purposes for which and the manner in which your personal data is to be processed. The Company and any third party to which it discloses the data
(including the Company’s Registrar) may process your personal data for the purposes of compiling and updating the Company’s records, fulfilling its
legal obligations and processing the shareholder rights you exercise.
Bovis Homes Group PLC | 135
Explanatory notes to the notice of meeting
Item 1: Reports and accounts
The directors are required to present to shareholders at the Annual General Meeting the report of the directors, the strategic report and the accounts
of the Company for the year ended 31 December 2016. The report of the directors, the strategic report, the accounts and the report of the Company’s
auditors on the accounts and on those parts of the directors’ remuneration report that are capable of being audited are contained within the Company’s
annual report and accounts for the year ended 31 December 2016 (the “2016 Annual Report and Accounts”).
Items 2 and 3: Directors’ annual remuneration report and remuneration policy
Under section 439 of the 2006 Act, the directors are required to present the directors’ remuneration report (other than the part containing the
directors’ remuneration policy) prepared in accordance with Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008 (as amended), for the approval of shareholders by way of an advisory vote. The directors’ remuneration report, the relevant pages of
which can be found on pages 68 to 80 of the 2016 Annual Report and Accounts, gives details of the directors’ remuneration for the year ended 31
December 2016 and sets out the way in which the Company will implement its policy on directors’ remuneration during 2017. The Company’s auditors,
PricewaterhouseCoopers, have audited those parts of the directors’ remuneration report capable of being audited and their report may be found on pages
94 to 100 of the 2016 Annual Report and Accounts.
Under section 439A of the 2006, Act the directors are required to present the directors’ remuneration policy, prepared in accordance with Schedule 8 of
the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended), for the approval of shareholders by way of a
binding vote. The directors’ remuneration policy, which may be found on pages 60 to 67 of the 2016 Annual Report and Accounts, sets out the Company’s
proposed policy on directors’ remuneration. A copy of the directors’ remuneration policy, which was approved at the 2014 Annual General Meeting, is
available on the website at www.bovishomesgroup.co.uk or in hard copy on request from the Group Company Secretary.
The vote on the directors’ remuneration report is advisory in nature in that payments made or promised to directors will not have to be repaid, reduced
or withheld in the event that this resolution is not passed. In contrast, the vote on the directors’ remuneration policy is binding in nature in that the
Company may not make a remuneration payment or payment for loss of office to a person who is, is to be, or has been a director of the Company unless
that payment is consistent with the approved directors’ remuneration policy, or has otherwise been approved by a resolution of members. If resolution
3 is passed, the directors’ remuneration policy will take effect immediately following the Annual General Meeting. A remuneration policy will be put to
shareholders again no later than three years from the date of the Annual General Meeting. If resolution 2 in respect of the directors’ remuneration report
is not passed, the policy will be presented to shareholders for approval at the next Annual General Meeting.
Item 4: Final dividend
Subject to the declaration of the final dividend at the meeting, the dividend will be paid on 19 May 2017 to shareholders on the register at the close of
business on 24 March 2017.
Items 5 to 10: Re-appointment of directors
The UK Corporate Governance Code (“the Code”) requires FTSE 350 companies to put all directors forward for re-appointment by shareholders on an
annual basis. The purpose of this requirement is to increase accountability to shareholders. Accordingly, all the directors of the Company will retire at
the Annual General Meeting and offer themselves for re-appointment. The Company’s Articles of Association require that any director appointed by the
Board shall hold office only until the first annual general meeting for which notice is first given after their appointment. Accordingly, Nigel Keen will offer
himself for re-appointment on this basis.
The Code contains provisions dealing with the re-appointment of non-executive directors. In relation to the re-appointment of Alastair Lyons, Chris
Browne, Ralph Findlay and Nigel Keen as non-executive directors, the Chairman has confirmed following the formal performance evaluation conducted
during early 2017 that they continue to be effective in and demonstrate commitment to their roles, including commitment of time for Board and
committee meetings. Alastair Lyons brings a broad range of business knowledge and skills to the Board, with a particular focus on mortgage lending and
insurance industries. Chris Browne provides a strong commercial and general management background in a consumer facing industry. Ralph Findlay adds
strong commercial, financial and general management expertise, again from a consumer facing industry. Nigel Keen brings an in-depth construction and
property background and experience of managing property strategy and portfolios, once again from a consumer facing industry. Ian Tyler, non-executive
Chairman, has considerable construction industry knowledge and international business experience.
The Board strongly supports and recommends the re-appointment of the directors to shareholders.
Biographical details of all the directors can be found on pages 48 to 49 of the 2016 Annual Report and Accounts.
Items 11 and 12: appointment of auditors and auditors’ remuneration
The auditors of a company must be appointed at each general meeting at which accounts are presented. Resolution 11 proposes the re-appointment
of the Company’s existing auditors, PricewaterhouseCoopers LLP, as the Company’s auditors, for a further year. PricewaterhouseCoopers LLP were first
appointed at the 2015 AGM. Resolution 12 gives authority to the directors to determine the auditors’ remuneration.
Item 13: Renewal of the Bovis Homes Group PLC Save As You Earn Share Option Scheme
Overview
The SAYE Option Scheme was approved by HMRC on 13 July 2007 and by the Company’s shareholders on 11 May 2007 for a period of ten years.
Shareholder approval is now being sought to continue operating the SAYE Option Scheme for a further ten years. The SAYE Option Scheme enables the
Company to grant tax-favoured options over shares in the Company to U.K. resident employees.
Eligibility
All of the Group’s employees and full-time directors who are U.K. resident taxpayers are eligible to participate.
The Board of the Company may require employees to have completed a qualifying period of employment of up to five years before they are eligible to
participate in the SAYE Option Scheme. The board may allow other employees to participate.
Grant of Options
Options can only be granted to employees who enter into an approved savings contract with a designated bank or building society, under which monthly
savings are made as deductions from pay. The participant must select the date on which his or her savings will be repaid to him or her (the maturity date)
which may be three or five years after the start of the contract.
136 | Annual report and accounts | Supplementary information
Explanatory notes to the notice of meeting continued
Invitations to participate in the SAYE Option Scheme may be issued only during the period of 42 days commencing on any of the following: the
announcement of results for any financial period; any changes to the legislation affecting savings-related share option schemes being announced, made
or coming into effect; or a resolution by the directors of the Company that exceptional circumstances have arisen which justify the grant of options.
Individual Limits
A participant’s aggregate monthly savings under all savings contracts entered into in connection with the SAYE Option Scheme must not exceed the
statutory maximum (currently £500).
The number of shares over which an option is granted will be such that the total exercise price payable will correspond to the proceeds on maturity of the
related savings contract (i.e., the total savings plus accrued interest (if any)).
Exercise Price
The price per share payable upon the exercise of an option must not be less than 80% of the share’s market value. The market value will be the share’s
middle market quotation as derived from the Daily Official List of the London Stock Exchange on the dealing day immediately before the invitation date
or, if the board so determines, averaged over the three dealing days immediately prior to the invitation date. If the option relates to new issue shares, the
exercise price must not be less than the nominal value of a share.
Exercise of Options
Options will normally only be exercisable during the six-month period following the maturity date of the relevant savings contract. Earlier exercise is
permitted if the participant leaves employment in certain specified circumstances, otherwise options will lapse on the cessation of employment.
Options granted under the SAYE Scheme are not subject to performance conditions.
Leaving Employment
Options will lapse on cessation of employment with the group unless the participant ceases employment for a specified reason. The participant may
exercise options within six months of ceasing employment by reason of injury or disability, redundancy, retirement, a “relevant transfer” within the
meaning of the Transfer of Undertakings (Protection of Employment) Regulations 2006, the sale of the business or subsidiary company in which the
participant is employed or, if the option has been held for at least three years, ceasing employment for any other reason except gross misconduct. The
personal representatives of a participant who dies may exercise his or her options within 12 months of the date of his or her death or, if he or she dies
within six months from the maturity of the relevant savings contract, within 12 months from that maturity.
Corporate Events
In the event of a change of control of the Company as a result of a general takeover offer or a compulsory acquisition, or if a court approves a compromise
or scheme of arrangement of the Company, or if there is a winding up, options will become exercisable within limited specified periods of such events.
The Company will notify participants of the relevant corporate event so as to enable them to exercise their options or take other action. Alternatively,
participants may be offered equivalent new options over shares in a new holding company in exchange for their existing options.
Time Limit for Grants of Options
Options may not be granted more than ten years after the date the Company’s shareholders renew approval for the SAYE Scheme.
Satisfaction of Options
Options may be satisfied by the issue of new shares, a transfer of treasury shares or the transfer of existing shares.
Variation of Capital
In the event of any variation in our share capital (including a rights issue or any sub-division or consolidation of the share capital), the number and/or
description of shares under option may be adjusted as considered appropriate by the board.
Overall Plan Limits
The Company may not grant options under the SAYE Option Scheme or any other share plans adopted by the Company or any other company under its
control if such grant would cause the aggregate number of shares issued or issuable pursuant to options granted in the preceding ten years under those
plans to exceed 10% of the Company’s issued ordinary share capital at the proposed date of grant.
The satisfaction of options with treasury shares will be treated as an issue of shares for the purposes of the above limits for so long as U.K. institutional
shareholder guidelines recommend this. If options are to be satisfied by a transfer of existing shares, the percentage limits stated above will not apply.
Other Features of Options
Options are not transferable, except on death. Options are not pensionable. Options will lapse if a participant is declared bankrupt.
Rights Attaching to Shares
Any shares allotted when an option is exercised will rank pari passu with shares then in issue (except for rights arising by reference to a Record Date prior
to their allotment). For so long as the shares are admitted to listing by the U.K. Listing Authority and admitted to trading by the London Stock Exchange,
application will be made for any newly issued shares to be admitted to such listing and trading.
Alterations to the SAYE Option Scheme
The board may amend the SAYE Option Scheme in any respect, provided that the prior approval of shareholders is obtained for any amendment to the
advantage of participants to the following provisions: the individuals who may participate in the plan, the limits on the number of shares available under
the plan, the maximum entitlement of participants, the basis for determining a participant’s entitlement, the terms of shares to be provided under the
plan and the adjustment of options on a variation of the Company’s share capital.
The requirement to obtain the prior approval of shareholders will not, however, apply to any minor amendment made to benefit the administration of
the SAYE Scheme, to take account of a change in legislation or to obtain or maintain favorable tax, exchange control or regulatory treatment for eligible
employees, participants or for any company in the group.
Amendments that would adversely affect the interests of existing option-holders, or affect the tax-favoured status of the plan, are subject to
specified limitations.
Bovis Homes Group PLC | 137
Explanatory notes to the notice of meeting continued
Item 14: Authority to allot shares
The authority given to your directors at last year’s Annual General Meeting under section 551 of the 2006 Act to allot shares expires on the date of
the forthcoming Annual General Meeting. Accordingly, this resolution seeks to grant a new authority under section 551 to authorise the directors to
allot shares in the Company or grant rights to subscribe for, or convert any security into, shares in the Company up to an aggregate nominal amount of
£22,397,969 and also gives the Board authority to allot, in addition to these shares, further of the Company’s shares up to an aggregate nominal amount
of £44,795,939 in connection with a pre-emptive offer to existing members by way of a rights issue (with exclusions to deal with fractional entitlements
to shares and overseas shareholders to whom the rights issue cannot be made due to legal and practical problems). This is in accordance with the latest
institutional guidelines published by the Investment Association. This authority will expire at the conclusion of the next Annual General Meeting (or, if
earlier, 15 months from the date of the resolution). The directors intend to seek renewal of this authority at subsequent Annual General Meetings.
The amount of £22,397,969 represents less than 33.3% of the Company’s total ordinary share capital in issue as at 1 March 2017 (being the latest
practicable date prior to publication of this Notice). The amount of £44,795,939 represents less than 66.6% of the Company’s total ordinary share capital
in issue as at 1 March 2017 (being the latest practicable date prior to publication of this Notice). The Company did not hold any shares in treasury as at
1 March 2017.
The Board has no present intention to exercise this authority other than in connection with employee share schemes. It wishes to obtain the necessary
authority from shareholders so that allotments can be made (should it be desirable and should suitable market conditions arise) at short notice and without
the need to convene a general meeting of the Company which would be both costly and time consuming.
If the Board takes advantage of the additional authority to issue shares or grant rights to subscribe for, or convert any security into, shares in the Company
representing more than 33.3% of the Company’s total ordinary share capital in issue or for a rights issue where the monetary proceeds exceed 33.3% of
the Company’s pre-issue market capitalisation, all members of the Board wishing to remain in office will stand for re-election at the next Annual General
Meeting following the decision to make the relevant share issue.
Item 15: Notice of general meetings
This resolution is required as a result of the implementation in 2009 of the Shareholder Rights Directive. The regulation implementing this Directive
increased the notice period for general meetings under the 2006 Act to 21 days. The Company will be able to continue to call general meetings
(other than an Annual General Meeting) on 14 clear days’ notice as long as shareholders have approved the calling of meetings on 14 days’ notice.
Resolution 15 seeks such approval. The approval will be effective until the Company’s next Annual General Meeting, where it is intended that a similar
resolution will be proposed. The Company will also need to meet the requirements for electronic voting under the Directive before it can call a general
meeting on 14 days’ notice. It is confirmed that the ability to call a general meeting on 14 clear days’ notice would only be utilised in limited circumstances
and where the shorter notice period will be to the advantage of shareholders as a whole.
Item 16: Disapplication of pre-emption rights
Resolution 16 seeks authority for the directors to issue equity securities (as defined in the 2006 Act) in the Company for cash as if the pre-emption
provisions of section 561 of the 2006 Act did not apply. Other than in connection with a rights issue or any other pre-emptive offers concerning equity
securities, the authority contained in this resolution will be limited to the issue of equity securities for cash up to an aggregate nominal value of £3,363,058
which represents approximately 5% of the Company’s total ordinary share capital in issue as at 1 March 2017 (being the latest practicable date prior to
publication of this Notice). In accordance with the Pre-emption Group’s Statement of Principles, the directors confirm their intention that no more than
7.5% of the issued share capital (excluding treasury shares) will be issued for cash on a non pre-emptive basis during any rolling three-year period.
This resolution seeks a disapplication of the pre-emption rights on a rights issue so as to allow the directors to make exclusions or such other arrangements
as may be appropriate to resolve legal or practical problems which, for example, might arise with overseas members.
There are presently no plans to allot ordinary shares wholly for cash other than in connection with employee share schemes. Shares allotted under an
employee share scheme are not subject to statutory pre-emption rights.
The authority sought by resolution 16 will last until the conclusion of the next Annual General Meeting (or, if earlier, 15 months from the date of
the resolution). The directors intend to seek renewal of this power at subsequent Annual General Meetings.
Item 17: Authority to purchase own shares
This resolution renews the authority granted at last year’s Annual General Meeting to enable the Company to make market purchases of up to 13,452,234
of its own shares, representing approximately 10% of the Company’s total ordinary share capital in issue as at 1 March 2017 (being the latest practicable
date prior to publication of this Notice). Before exercising such authority, the directors would ensure that the Company was complying with the current
relevant UK Listing Authority rules and Investment Association guidelines. No purchases would be made unless the directors believe that the effect would
be to increase the earnings per share of the remaining shareholders and the directors consider the purchases to promote the success of the Company for
the benefit of its shareholders as a whole. Any shares so purchased would be cancelled. The directors have no present intention of exercising the authority
to purchase the Company’s ordinary shares but would like to have the flexibility of considering such purchases in the future.
Any purchases of ordinary shares would be by means of market purchases through the London Stock Exchange. The maximum price (exclusive of expenses)
which may be paid for each ordinary share shall be the higher of: (a) an amount equal to 105% of the average of the middle market quotations for
an ordinary share as derived from the London Stock Exchange Daily Official List for the five business days immediately preceding the day on which the
Company agrees to buy the ordinary shares; and (b) an amount equal to the higher of the price of the last independent trade of an ordinary share and
the highest current independent bid for an ordinary share as derived from the London Stock Exchange Trading System (SETS). The minimum price
(exclusive of expenses) would be 50 pence, being the nominal value of each ordinary share. The authority will only be valid until the conclusion of the next
Annual General Meeting in 2018.
As at 1 March 2017 there were options over 593,545 ordinary shares in the capital of the Company which represent 0.44% of the Company’s issued
ordinary share capital at that date. If the authority to purchase the Company’s ordinary shares was exercised in full, these options would represent 0.49%
of the Company’s issued ordinary share capital.
The directors consider that all the resolutions to be put to the meeting promote the success of the Company for the benefit of its shareholders
as a whole. Your Board will be voting in favour of them and unanimously recommends that you do so as well.
138 | Annual report and accounts | Supplementary information
Shareholder information
Registered office
The Manor House, North Ash Road, New Ash Green, Longfield, Kent DA3 8HQ Registered number 306718 registered in England
Financial calendar
Annual report posted
Annual General Meeting
Payment of 2016 final dividend
Announcement of 2017 interim results
Announcement of 2017 final results
Analysis of shareholdings - at 31 December 2016
1 - 5,000
5,001 - 50,000
50,001 - 250,000
250,001 - 500,000
500,001 - 1,000,000
1,000,001 - and over
Total
23 March 2017
2 May 2017
19 May 2017
14 August 2017
February 2018
Number of
shareholders
%
Number of
ordinary shares
1,996
79.49
1,908,336
298
121
40
24
32
11.87
5,110,563
4.82
14,339,874
1.59
13,802,130
0.96
16,216,915
1.27
83,144,522
2,511
100.0
134,522,340
%
1.42
3.80
10.66
10.26
12.06
61.81
100.0
Share price (middle market) - year to 31 December 2016
Advisers
Auditors
PricewaterhouseCoopers LLP
Financial advisers
Moelis & Company
Principal bankers
Abbey National
Treasury Services PLC
Barclays Bank PLC
Solicitors
Freshfields Bruckhaus Deringer LLP
Handelsbanken Capital Markets,
Svenska Handelsbanken AB
HSBC Bank plc
Lloyds Bank PLC
Royal Bank of Scotland plc
Registrar
At end of year: 820p
Lowest: 627p
Highest: 1024p
Joint stockbrokers
Jefferies Hoare Govett
68 Upper Thames Street
London EC4V 3BJ
Numis Securities Limited
The London Stock
Exchange Building
10 Paternoster Square
London EC4M 7LT
Insurance brokers
Arthur J Gallagher
Registrars
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
Shareholder enquiries regarding change of address, dividend payment or lost certificates should be directed to: Computershare Investor Services PLC,
The Pavilions, Bridgewater Road, Bristol BS99 6ZZ. Bovis Homes Shareholder Helpline: 0370 889 3236.
Investor Centre: the easy way to manage your shareholdings online:
Many shareholders want to manage their shareholding online and do so using Investor Centre, Computershare’s secure website. With Investor Centre
you can view shares balances, history and update your details. Visit www.investorcentre.co.uk for more information.
Internet and telephone share dealing is available via Investor Centre:
Internet dealing - The fee for this service is 1% of the value of each sale or purchase of shares (subject to a minimum of £30). Stamp duty of 0.5% is
payable on purchases.
Telephone dealing - The fee for this service will be 1% of the value of the transaction (plus £35). To use this service please call 0370 703 0084 with
your SRN to hand.
Note: The provision of these services is not a recommendation to buy, sell or hold shares in Bovis Homes Group PLC.
Dividend Reinvestment Plan (DRIP)
The DRIP gives shareholders the opportunity to reinvest their dividends to buy ordinary shares in the Company through a special dealing arrangement.
For further information please contact the Bovis Homes Shareholder Helpline: 0370 889 3236.
Electronic communications
Instead of receiving printed documents through the post many shareholders now receive their annual report and other shareholder documents
electronically, as soon as they are published. Shareholders that would like to sign up for electronic communications should go to
www.investorcentre.co.uk/ecomms where they can register.
Bovis Homes Group PLC | 139
Principal offices
Bovis Homes Group PLC
The Manor House
North Ash Road
New Ash Green
Longfield
Kent DA3 8HQ
Tel: (01474) 876200
1
2
3
4
5
6
7
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West division
1
Mercia region
2
West Midlands region
3
Western region
4
South West region
Dunston Hall
Dunston
Stafford
ST18 9AB
Bromwich Court
Highway Point
Gorsey Lane
Coleshill
Birmingham B46 1JU
Cleeve Hall
Cheltenham Road
Bishops Cleeve
Cheltenham
Gloucestershire GL52 8GD
Heron Road
Sowton Industrial Estate
Exeter
EX2 7LL
Tel: (01785) 788300
Tel: (01675) 437000
Tel: (01242) 662400
Tel: (01392) 344700
East division
5
Northern Home
Counties region
The Pinnacle
170 Midsummer Boulevard
Milton Keynes
MK9 1BP
6
Eastern region
57
Thames Valley region
8
Southern region
The Manor House
North Ash Road
New Ash Green
Longfield
Kent DA3 8HQ
550 Oracle Parkway
Thames Valley Park
Reading
Berkshire RG6 1PT
The Manor House
North Ash Road
New Ash Green
Longfield
Kent DA3 8HQ
Tel: (01675) 437000
Tel: (01474) 876200
Tel: (01189) 253206
Tel: (01474) 876200
140 | Annual report and accounts | Supplementary information
bovishomesgroup.co.uk
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Bovis Homes Group PLC, The Manor House,
North Ash Road, New Ash Green, Longfield,
Kent DA3 8HQ.
www.bovishomesgroup.co.uk
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Annual report and accounts 2016
Bovis Homes Group PLC