Trading Statement

BOVIS HOMES GROUP PLC

Trading update

Bovis Homes Group PLC (the 'Group') is today issuing a trading update for the year ended 31 December 2017 ahead of the publication of its annual results on 1 March 2018.

Highlights

·     Significant improvement in customer satisfaction

·     Total completions of 3,645 delivered in a controlled and disciplined manner

·     Profit before tax, exceptional and one-off items in-line with management expectations

·     Excellent progress with balance sheet restructuring resulting in a £145m year end net cash balance

·     Strong forward sales position to support controlled growth in 2018

·     Operational restructuring and cost reduction initiatives completed, placing Group on track to deliver target of overheads at a maximum of 5% of revenue in 2018

Greg Fitzgerald, Chief Executive commented:

"The Group had a very disciplined year end and delivered against all of its financial and operational targets for 2017.  There has been a step change in the quality of our homes delivered on completion and I'm pleased to see this reflected in our level of customer satisfaction which continues to improve.  We've made excellent progress with our balance sheet restructuring resulting in a year end cash position significantly ahead of expectations.  Our forward order position is strong, and with robust industry fundamentals, we expect the Group to deliver a significant improvement in profitability in 2018."

Trading update

During 2017 we have been committed to improving our production processes and consistently delivering high quality new homes to our customers.

In the year, we delivered 3,645 (2016: 3,977) completions in a controlled and disciplined manner.  Private homes in the year totalled 2,573 (2016: 2,903) units with affordable housing totalling 1,072 (2016: 1,074) units, representing 29% (2016: 27%) of total completions.

Overall average selling price on completions in the year increased by c. 7% to c. £272k (2016: £254.9k) with our private average selling price increasing by c. 9% to c. £334k (2016: £306.0k).  The increase largely reflects changes in mix with a modest increase in underlying selling prices in the year.

Consistent with our plans to re-set the business, we have driven sales from our older, lower margin sites and significantly reduced our levels of both stock and part-exchange properties.  Whilst the business is already benefitting significantly from investments in process change and customer service these initiatives, as previously reported, have adversely impacted the Group's operating margin in the year.

Furthermore, as previously disclosed, exceptional and one-off items in the year totalled £10.3m comprising a £3.5m customer care cost, £2.8m advisory fees and £4m restructuring charge.

Profit before tax, one-off and exceptional items is anticipated to be in-line with management expectations.

Our sales rate during the year reflects our production led programme for 2017, with average net private reservations per active outlet per week of 0.48 (2016: 0.58) for the year.  As we begin 2018 we expect to trend towards a more normal sales rate.

We start the year with an excellent forward sales position, with total forward sales of 2,656 units and a value of £518m as at 31 December 2017.  Of this £417m is for delivery in 2018 representing c. 40% of the consensus 2018 revenue forecast for the group.  Private forward sales total 926 units and include c.275 homes across our operating areas sold to an investor with returns from the sale in line with our forecast expectations.

The Group operated from an average of 92 (2016: 99) active sites in the year.  The reduction in site numbers during the year reflects our controlled start on new sites and the drive to sell through and complete older sites.  We expect average site numbers to remain at a similar level in 2018.

Operational progress

At the start of 2017, we commenced a programme of actions to transform our customer service.  We have made excellent progress and are pleased with the continued improvement in our HBF scores. 

The development of our new housing range is progressing well and will provide us with 26 attractive new house types which we expect to be margin enhancing.  The range is to be launched across the Group in the first half of 2018 with completions delivered from 2019 onwards.

Within the £4m exceptional restructuring charge which we have taken during the year, we have implemented initiatives to simplify and streamline our operating structure, to reduce our costs, and to make us more agile.  We are targeting overheads at a maximum of 5% of revenue and are on track to deliver this from FY 2018 onwards.

Given our medium term target of 4,000 completions and a 3.5 to 4.0 year owned land bank, we have slowed our rate of land acquisition.  During the year we acquired 2,550 (2016: 3,047) plots across 11 (2016: 27) sites at an average gross margin in excess of 26%.  Of this, 1,850 plots across 6 sites were sourced from our strategic landbank.  As at 31 December 2017, the Group had c. 17,400 (2016: 18,704) plots in its consented land bank.  We have excellent forward visibility with 98% of our land for 2018 having detailed planning consent and are already active on site, and 92% of our land for FY19 already secured.

Balance sheet restructuring

We have set out a clearly defined programme of balance sheet optimisation targeting a minimum of £180 million additional cash flow into the business by December 2018.  We have made very good progress towards this in the year.

We concluded the disposal of the Group's shared equity portfolio in the year, generating total cash receipts of £27.6m.  We have also reduced our level of part exchange properties by c. £30m in the year and reduced our stock properties by over a third and c. £10m.

We made five land sales in the year realising proceeds of £30.5 million and will continue to review our land bank, with a particular focus on our larger owned sites, as we progress towards our target of reducing to 3.5 to 4.0 years of owned land (14,000 - 16,000 plots).

We also completed the disposal of three owned offices realising cash proceeds of c. £9m.

This balance sheet optimisation and the underlying profit delivery resulted in a net cash position of c. £145m as at 31 December 2017.

Outlook

The industry fundamentals remain strong with customer demand for new homes supported by attractive mortgage finance and government initiatives, in particular Help to Buy.

In 2018, the Group is committed to building upon the operational progress made in 2017 and is confident of delivering a significant improvement in financial performance and profitability, making good progress towards achieving its 2020 medium term targets.

The Board intends to recommend a final Ordinary dividend of 32.5p (2016: 30.0p) bringing total Ordinary dividends in respect of the 2017 financial year to 47.5p (2016: 45.0p).  Reflecting the strong outlook, it anticipates increasing this by 20% in 2018 and making a first Special dividend payment towards the end of the year.

Conference call for analysts and investors

Greg Fitzgerald, Chief Executive, and Earl Sibley, Group Finance Director will be hosting a conference call at 08:30am today, Friday 12 January 2018, to discuss this Trading Update.

To access the conference call: Dial‐in: +44 (0)333 300 0804, Pin: 75852475#.

A replay facility will be available shortly after: Dial in: +44 (0)333 300 0819, Pin: 301216458#

For further information please contact: