Bovis Homes Group PLC Final results 2014 Issued 23 February 2015 www.bovishomesgroup.co.uk Frame 1 • Strategy Agenda Cloakham Lawns, Axminster • Highlights • Operations • Financials • Summary Frame 2 Strong financial performance • Record legal completions of 3,635 (2013: 2,813) • 46% increase in revenue to £809.4m (2013: £556.0m) • 2014 full year dividend of 35 pence per share, (2013: 13.5 pence) 159% increase ...well positioned for future growth • Record investment in consented land • Over 18,000 consented plots owned providing 4 to 5 year’s supply • Over 21,000 strategic plots controlled - c5,000 plots with planning • Strong balance sheet with net cash of £5m (2013 net debt: £18m) Profits and returns growing strongly 78.8 44.9 10.6 2013 2014 2013 2014 2013 2014 16.2 133.5 78.6 Profit before tax (£m) Basic earnings per share (p) Return on capital employed * (%) +69% +75% +5.6ppt *Calculated as operating profit and share of profit of Joint Venture divided by average opening and closing capital employed excluding net cash Frame 3 A bigger business successfully delivering its strategy A business driving significant sustainable growth Year ended 31 December 2013 2014 Growth Land investment Consented plots added 3,737 7,300 +95% Sites added 27 42 +56% Year end owned sites 102 128 +25% Sales outlets Average active sales outlets in year 90 97 +8% Active sales outlets at year end 94 103 +10% Reservations Private reservations in year 2,773 3,218 +16% Social reservations in year 639 792 +24% Year end forward sales 1,377 1,752 +27%
Transcript
Bovis Homes Group PLCFinal results 2014
Issued 23 February 2015
www.bovishomesgroup.co.uk Frame 1
• Strategy
Agenda
Cloakham Lawns, Axminster
• Highlights
• Operations
• Financials
• Summary
Frame 2
Strong financial performance
• Record legal completions of 3,635 (2013: 2,813)
• 46% increase in revenue to £809.4m (2013: £556.0m)
• 2014 full year dividend of 35 pence per share, (2013: 13.5 pence) 159% increase
...well positioned for future growth
• Record investment in consented land
• Over 18,000 consented plots owned providing 4 to 5 year’s supply
• Over 21,000 strategic plots controlled - c5,000 plots with planning
• Strong balance sheet with net cash of £5m (2013 net debt: £18m)
Profits and returns growing strongly
78.8
44.9
10.62013
2014
2013
2014
2013
2014
16.2
133.5
78.6
Profit before tax (£m)
Basic earnings per share (p)
Return on capital employed*(%)
+69%
+75%
+5.6ppt
* Calculated as operating profit and share of profit of Joint Venture divided by average opening and closing capital employed excluding net cash
Frame 3
A bigger business successfully delivering its strategy
A business driving significant sustainable growth
Year ended 31 December 2013 2014 Growth
Land investment
Consented plots added 3,737 7,300 +95%
Sites added 27 42 +56%
Year end owned sites 102 128 +25%
Sales outlets
Average active sales outlets in year 90 97 +8%
Active sales outlets at year end 94 103 +10%
Reservations
Private reservations in year 2,773 3,218 +16%
Social reservations in year 639 792 +24%
Year end forward sales 1,377 1,752 +27%
Frame 4
Volume growth
xGrowth in average sales price
xImproving net profit margin
=Significant increase in net profit
• Increased active sales outlets• Increased reservations (inc PRS)• Stronger social housing contribution
• Better mix of traditional homes• More southern locations• c5% market price increase
• Greater proportion of full margin sites
• Improving overhead efficiency
2014 multiplier effect - business first, market second
2014
+29%
+11%
+2.0ppts
+66%
Frame 5
Agenda
• Strategy
• Highlights
• Operations
• Financials
• Summary
The Chase, Wincanton
Frame 6
Strategic plan
• A clear strategic plan communicated at Half Year Results
• Strategic plan on track
• Driving shareholder value across the cycle requires
- strong land acquisition at the bottom of the cycle
- slowing investment before the peak
• Aiming to deliver market leading performance over the cycle from long term land investment with a focus on building and selling quality family homes
- Acquiring, designing and developing quality traditional housing sites, focusing primarily in the south of England (excluding London)
- Creating aspirational homes using its well specified Portfolio traditionalhousing range in desirable settings, delivered with excellent customer service
- Growing to an optimal scale to suit the selected geography and productrange, which enables ongoing high quality management of risk and reward through short lines of management control
- Managing the business across the housing cycle to maximise returns, while effectively stewarding shareholders’ capital
- Enabling motivated and engaged employees and business partners to work ethically within a safe and healthy environment
Strategic plan to deliver optimised growth and returns
Frame 7
Managing the cycle
0
2,000
1,000
3,000
4,000
5,000
6,000
7,000160
150
140
130
120
110
100
90
80
70
Consented land acquisitions (LHS) Filton (LHS)
Elite Homes acquisition (LHS)Strategic land conversion (LHS)
Plot
s ad
ded
Land
pric
e in
dex
Government land price index (RHS)
Bovis Homes view of land prices
2011 2012 2013 2014201020092008200720062005
Frame 8
• First eighteen months of market house price rises in this cycle
- Price rises of between 7% and 8% in 2014
- Pace of price growth reducing towards a more sustainable level
• Planning environment remains positive
• Constrained capital for smaller housebuilders
- Greenfield residential land values increased by 2.3% in 2014 (Knight Frank)
• This cycle is expected to be flatter
- Bank of England role in guarding against risks in housing market
- MMR will lead to restrictions on high risk lending
An excellent period to invest assertively in residential land
Managing the business across the cycle
Frame 9
Delivery of strategy on track
Acquiring land
Delivering traditional
homes
Use of Portfolio
range
• 42 sites acquired (2013: 27)
• 82% of plots acquired in 2014 in south of England
• 10 sites contracted at 31 December 2014, expected to be acquired in 2015
• Strategic land bank containing 76 sites
• Managing capital through land sales
• 66% of private homes legally completed in 2014 traditional homes (2013: 59%)
• 86% of plots acquired for private houses during 2014 traditional
• 38% of 2014 private legal completions (2013: 23%)
• Strong sales price growth experienced with Portfolio homes versus older product type
Frame 10
Sustainable growth in volumes
• c40 additions p.a. from both consented acquisition and strategic conversion delivers net additions to active sales outlets
• Aiming to source c50% of consented land bank from strategic conversion
Projected land bank
sites128 sites c40 site additions p.a.
Over three years increase to 140 - 160 sites (20,000 to 24,000 plots)
Projected active sales
outlets
Legal completions
103 sales outlets
3,635 homes
125 - 130 sales
outlets
140 - 160 sales outlets
5,000 - 6,000 homes
December 2014
Time
Frame 11
Land investment fuelling growth
• Increasing land investment fuelling growth in sales outlets and volumes
• Growth in short term is secure given number of land sites already owned
• Future assertive land buying is key to delivering volume
Land site additions Average sales outlets Year end land sites
2009 2011 2012 2013 201420100
20
40
60
80
100
120
140
Frame 12
2010 2011 2012 2013 2014 by 2016
Capital turn 0.5 0.5 0.6 0.7 0.95 >1.0
Net margin 7.3% 10.0% 13.4% 14.9% 17.0% approaching 20%
ROCE 3.5% 5.5% 8.0% 10.6% 16.2% at least 20%
Confidence in achieving financial objectives
Based on prevailing market conditions continuing, by 2016 the Group is targeting:
• Capital turn in excess of 1.0
• Net margin approaching 20%
• ROCE of at least 20%
With land acquired to date and the pipeline of strategic and consented land, the Group is confident of achieving these objectives
Frame 13
Delivering increasing returns to shareholders
• Given confidence in strategic plan, and considering current modest levels of debt and future growth investment, the Board intends to recommend:
- dividend for 2014 of 35 pence, 159% increase on 13.5 pence for 2013
- dividend for 2015 of at least 35 pence
• Thereafter the Board intends to operate:
- regular payout of one third of earnings
- supplementary dividend payments of cash surplus to requirements as we move towards optimal scale
Strong dividend return will complement growing ROCE
Frame 14
Agenda
Elberry Gardens, Paignton
• Strategy
• Highlights
• Operations
• Financials
• Summary
Frame 15
Robust housing market
• Improved transaction levels
• House prices growing
• Good mortgage approval data
• Good affordability for home buyers
• Competitive mortgage market
• Positive control from MMR
Positive housebuilding conditions
• Orderly land market
• Robust weekly sales rates
• Help to Buy driving activity
• Aligned political backdrop with short term election disruption
• Cost increases moderating
Robust market - good for housebuilders
Frame 16
Year ended 31 December 2013 2014 Change
Reservations b/fwd 778 1,377 +77%
Reservations:
Private 2,773 3,218 +16%
Social 639 792 +24%
Total 4,190 5,387 +29%
Legal completions (2,813) (3,635) +29%
Carried forward 1,377 1,752 +27%
Strong forward sales position entering 2015
• Private reservations in the year increased by 16% - sales rate for 2014 of 0.64 and excluding PRS 0.54 (2013: 0.59)
• Forward order book improved by 27% with: - 41% increase in private reservations to 979 (2013: 692)- 13% increase in social reservations to 773 (2013: 685)
• c1,100 legal completions using Help to Buy in 2014 (2013: 872 using shared equity of which c700 were Help to Buy)
Frame 17
• Strong adherence to land buying strategy
• 7,300 consented plots on 42 sites added to the land bank during 2014
- current day GDV of £1,717m - appraisal ROCE of between 25% and 30% based on current market sales rates
• c1,000 plots on 10 sites contracted at year end
Ongoing improvements in spread and quality of land bank
Strong consented land investment in 2014
StaffordNewport
St Helens
Cuddington
Fremington
ChudleighBovey Tracey
Seaton
UpperHeyford
Bishop’s Cleeve
Inkberrow
MiltonKeynes Takeley
Elsenham
NantwichMoulton
Shifnal
Shrewsbury
HoneybournePershore
BrauntonHighbridge
SherfordGloweth
Ottery St Mary
FlitwickMarston Moretaine
Silverstone
EastbournePeacehaven
HailshamLittlehamptonBursledon
GodalmingSalisbury
Winnersh
PowickWelland
Tetbury Kemble
Pentyrch Swindon
Frame 18
Potential plots as at 31 Dec 2013 31 Dec 2014
South 12,568 13,946
Midlands 6,503 6,450
North 1,037 954
Total 20,108 21,350
Continued strong conversion of strategic land
• 21,350 strategic plots controlled on 76 strategic assets
• c4,500 potential plots across 21 strategic assets added to the strategic land holdings during 2014
• c3,000 plots converted across 16 strategic assets to the consented land bank during 2014
• Ambition for c50% of consented land bank to be strategically sourced
Strategic land remains important in supplying good quality residential land at a discount to market value
Frame 19
Strategic land critical to delivering superior returns
• Underpinning land investment through the cycle will be a healthy contribution from strategic land
• c2,900 plots across 9 sites already have residential planning consent agreed (excl Wellingborough) including:
• c5,000 plots on 18 sites are advancing through planning
• c2,700 strategic plots in positive dialogue with LPAs
• c1,600 plots are at appeal after recommendation for approval from officers on majority
• c3,400 plots of 2014 strategic investment are in process of progressing planning application - remaining c1,100 new plots have application running
• Planning achieved at Wellingborough - strong progress already made to enable site start (3,200 units with planning)
- c1,000 plots owned in consented land bank - first legal completions anticipated in 2016
• Tranche draw downs will spread capital requirements on strategic sites
13%
23%
13%8%
17%
10%
16%
Residential planning consent agreed Application in progress - positive outcome expected Local Planning Authority calling for application At appeal Application pending Long term planning Wellingborough
Frame 20
Agenda
• Strategy
• Highlights
• Operations
• Financials
• Summary
Cloakham Lawns, Axminster
Frame 21
Year ended 31 December (£m) 2013 2014 Change
Revenue 556.0 809.4 +46%
Gross profit 130.3 197.2 +51%
Administrative expenses (47.5) (59.6) +25%
Share of profit of Joint Venture 0.3 0.3
Profit before interest and tax 83.1 137.9 +66%
Finance cost (4.3) (4.4)
Profit before tax 78.8 133.5 +69%
Taxation charge (18.7) (28.3)
Profit after tax 60.1 105.2 +75%
Strong growth in revenue and profit
• Strong growth in revenue and gross profit
• Improving overhead efficiency ratio of 7.4% (2013: 8.5%)
• Stronger growth in profit before tax
• Proposed full year dividend of 35.0p, 159% growth
• Build cost % reducing with increase in traditional homes on higher value sites
• This was partially offset by the effect of build cost increases in 2014
Frame 25
Market effects on sales prices and construction costs
• 11% increase in average sales price - 14% increase for private homes
• Sales price inflation on 2014 legal completions of c5% compared to budget!
• Increase in construction cost per square foot of 9.6% from 2013, due to:-- product and geographic mix- increase in standard product specification and regulatory costs- increase in site prelims- inflationary impacts of labour and materials of c7%
2013 2014
Sales price per home 195.1 216.6
Sales price per sq ft 199.7 216.8
Construction cost per home 98.4 110.5
Construction cost per sq ft 100.7 110.6
Frame 26
Year ended 31 December (£m) 2013 2014
Housing receipts 596.8 797.3
Construction expenditure (345.6) (401.2)
Overheads (47.2) (60.0)
Operating cash flow 204.0 336.1
Cash expenditure on land (222.3) (265.8)
Land sales receipts 19.0 19.6
Non-trading items (37.5) (66.7)
Net cash flow (36.8) 23.2
Opening net cash 18.8 (18.0)
Closing net cash (18.0) 5.2
Cash generation enables continued investment
• Operating cash flow was strongly positive in 2014
• No gearing at 31 December 2014
Frame 27
Year ended 31 December (£m) 2013 2014
Land 750.4 874.7
Land creditors (123.8) (198.2)
Land net of creditors 626.6 676.5
Work in progress 202.3 225.5
Other assets 131.9 151.9
Other liabilities (132.5) (180.0)
Net (debt)/cash (18.0) 5.2
Net assets 810.3 879.1
Net assets per share 604p 655p
Increase in net assets
• Capital turn increased to 0.95 (2013: 0.7) • WIP turn improved to 3.6 (2013: 2.7)• Increasing land creditors reflect improved deferred terms agreed with land vendors• Other assets reflect increased amounts due from HAs and an increase in part exchange properties• Increase in other liabilities due to higher construction creditors and tax creditor
Frame 28
• In 2014, gross margin potential in the land bank has increased by 1.0ppts
• ASPs in land bank have increased by 9% during 2014 as higher value, new plots are added and existing plots benefit from market price increases
• c20k consented plots added from 2010 to 2014 - investment in land over five years of £1,063m
Estimates based on prevailing sales prices and prevailing build costs *As previously disclosed
Frame 29
As at 31 Dec 2011 31 Dec 2012 31 Dec 2013 31 Dec 2014
% land Plots % land Plots % land Plots % land Plots
South 72% 9,813 74% 10,171 71% 10,401 75% 13,565
Midlands 18% 2,528 17% 2,335 19% 2,705 17% 3,024
North 10% 1,382 9% 1,270 10% 1,532 8% 1,473
Group 100% 13,723 100% 13,776 100% 14,638 100% 18,062
Average plot cost £42,100 £45,800 £48,900 £46,600
Ongoing southern bias
• 18,062 plots with at least outline planning consent, representing between 4 and 5 years of supply
• 75% of land bank in South
• 45% of land bank (8,143 plots) sourced through strategic land conversion
Frame 30
New land investment driving future margin growth
128 174 243
27%19%4%+
ASP (£000)
Gross margin %
0
20
40
60
80
100
Pre downturn
at cost
Post downturn
at cost
Written down
18%
6%
76%
Land
ban
k pl
ots
(%)
• Land acquisitions have strengthened the land bank
Land bank plots 31 Dec 31 Dec 31 Dec 31 Dec 2011 2012 2013 2014
Post downturn at cost 5,797 42% 7,368 54% 9,197 63% 13,700 76%
Pre downturn at cost 5,561 41% 4,587 33% 3,943 27% 3,334 18%
Written down 2,365 17% 1,821 13% 1,498 10% 1,028 6%
13,723 13,776 14,638 18,062
Frame 31
Further growth in full margin land expected
Lega
l com
plet
ions
(%)
Post downturn at cost
Pre downturn at cost
Written down
0
20
40
60
80
100
2012 2013
17%
45%
38%
2014 2015 est 2016 est
11%
27%
62%
10%
17%
73%
10%
12%
78%
4%9%
87%
2011
26%
58%
16%
• Launch of newly acquired sites will deliver increasing percentage of higher margin completions
Frame 32
2011 2012 2013 20140.000000
33.349998
66.699997
100.049995
133.399994
Profit before tax (£m)
£133.5m
2011 2012 2013 2014
2011 2012 2013 2014
0.000000
162.600006
325.200012
487.800018
650.400024
Revenue (£m)
£809.4m
2011 2012 2013 20140.000000
4.225000
8.450001
12.675001
Net profit margin (%)
17.0%
0.000
0.825
1.650
2.475
WIP turn
3.6
2011 2012 2013 20140
4
8
12
16
ROCE (%)
16.2%
2011 2012 2013 20140.00
0.25
0.50
0.75
1.00
Capital turn
0.95
32.1 53
.2
78.8
133.
5
364.
8
425.
5 556.
0
809.
4
13.4 14
.9 17.0
2.7
2.5
2.2
3.6
5.5
8.0 10
.6
16.2
0.5 0.
6 0.7
0.95
10.0
All metrics performing positively
Frame 33
Agenda
• Strategy
• Highlights
• Operations
• Financials
• Summary
Frame 34
• Strategy on track
• Record volumes
• Strong margin improvement
• Material increase in capital turn
• ROCE target achieved
• Record year of land investment at the right point in housing cycle
• Strategic land increasing contribution
• Material increase in dividend
A strong 2014
Frame 35
• 479 private reservations in the first seven weeks of 2015 (2014: 468)
- Sales rates to date of 0.68 net reservations per site per week (2014: 0.72)
- Operating from an average of 101 active sales outlets in first seven weeks (2014: 93)
• Cumulative reservations to date of 2,336 (2014: 1,875), an increase of 25%
- 1,458 private reservations (2014: 1,160)
- 878 social (2014: 715)
• Pricing on private reservations achieved to date ahead of expectations set in Q4 2014 by circa 2%
• 575 plots on four sites acquired to date
Positive current trading in 2015
Frame 36
• Average active sales outlets expected to grow in line with last three years: - a stronger forward order book for 2015 and trading in first seven weeks supports growth
• Increase in average sales price, due to further mix improvements and market price rises secured to date continuing
• Market build cost increases in 2015 moderating compared to 2014 experience
• Net profit margin expected to increase resulting from: - higher housing gross margin and further improvement in overhead efficiency
• Increased finance charges with modestly higher average net debt
• Capital turn expected to improve to at least 1.0
• Further growth in ROCE expected, moving towards medium term ROCE ambitions
Confident in ability to deliver strong sustainable growth
2015 outlook
Frame 37
Frame 38
Disclaimer - important notice
Certain statements in this presentation are forward looking statements
Forward looking statements involve evaluating a number of risks, uncertainties or assumptions that could cause actual results to differ materially from those expressed or implied by those statements
Forward looking statements regarding past trends, results or activities should not be taken as a representation that such trends, results or activities will continue in the future
Undue reliance should not be placed on forward looking statements
Frame 39
Bovis Homes Group PLCFinal results 2014
www.bovishomesgroup.co.uk
Appendices
Frame 40
Year ended 31 December (£m) 2013 2014
Bank interest and commitment fees (2.6) (3.6)
Issue cost amortisation (0.9) (0.9)
Imputed interest on land (3.1) (3.0)
Pension financing (0.1) 0.1
Imputed interest on available for sale assets 2.3 3.0
Other items 0.1 -
(4.3) (4.4)
Imputed interest on land creditors drives the financial chargeImputed interest on land creditors drives the financial charge
Frame 41
Land creditor payments
0
20
40
60
80
100
120
140
160
180
200
2016+2015
£87m
£111m
£198m£m
• The majority of the land creditors are payable within one year
