The group's interim trading statement said:
During the first half of 2012, Bovis Homes has made significant progress in delivering its strategy to improve returns with a doubling of profit, a strong increase in the number of active sales outlets and the successful continuation of investment in consented and strategic land.
This has been achieved against the backdrop of stable, but challenging, UK housing market conditions, reflecting the continuing restriction of higher loan to value mortgage lending, which particularly constrains first time buyers with limited deposits.
The focus of the group’s strategy is to deliver further material improvements in shareholder returns by increasing profitability whilst improving the efficiency of capital employed. The strategy can be successfully delivered during a period of stable market conditions and is flexible enough to operate during short periods of market weakness.
The group will deliver enhanced profits from the compound positive effect of:
- Volume growth from a greater number of sales outlets, delivered through consented land acquisition, primarily in the south of England.
- Higher average sales price from traditional homes on better located sales outlets.
- Stronger profit margins from an increasing proportion of legal completions from new higher margin sites.
Building the future profit potential in the land bank will be delivered by:
- Adding new consented sites to the land bank which will achieve higher profit margins.
- Progressively trading through older, lower margin sites.
- Continuing investment in strategic land and delivering strategic land conversion through achievement of residential planning consent.
Greater efficiency of capital employed will be delivered by:
- Efficient cash utilisation with more sites being acquired on deferred terms.
- Maintaining tight control of work in progress.
- Managing the land bank through selective sales of consented plots on sites.
Significant progress has been made in the delivery of this growth strategy with:
- circa 8,000 consented plots acquired since the housing market downturn.
- circa 30 new sales outlets expected to launch in 2012, with 33 new sales outlets having opened in 2011.
- six land sales delivered since the housing market downturn with further land sales to be undertaken selectively.
The successful execution of this strategy should enable the group, assuming stable market conditions, to continue to increase output capacity progressively and further improve margins in 2013 and beyond. The group considers that the required investment can be managed with its existing capital structure. This should lead to an increase in the group‘s return on equity to a level where it exceeds its cost of capital.
Commenting on the results, David Ritchie, chief executive of Bovis Homes Group said: “The group has delivered a strong performance during the first half of 2012 with profit before tax doubling against the backdrop of stable, but challenging, market conditions. This increase has been delivered through the compound positive effect of increased volumes, improved average sales price and stronger profit margins.
“As a result of a greater number of active sales outlets with an increasing proportion of new, more profitable sites, the group’s profits will, subject to stable market conditions, continue to increase significantly in the second half of 2012, in line with the group’s expectations.
“The investments already made in high quality, consented residential land, combined with the strong pipeline of future land opportunities, will support further sales outlet growth into 2013 and beyond. While investing strongly, the group is controlling capital employed through land bank management and by managing working capital tightly, which will, based on stable market conditions, lead to strongly improving shareholder returns going forward.
“With the progressive, sustainable improvement in the group’s profits and the Board’s confidence in the group’s growth strategy, the interim dividend has been doubled to 3 pence per share.”
· Legal completions of 944 homes (H1 2011: 801 homes), an increase of 18% with an average sales price of £164,400 (H1 2011: £163,400)
· Average active sales outlets increased by 21% to 82 in H1 2012 from 68 in H1 2011
· Two land sales achieved in H1 2012, delivering a profit of £3.9 million (H1 2011: Nil)
· 1,037 consented plots on eight sites added to the land bank during H1 2012, with a further 419 consented plots on two sites added in H2 to date
· Contracts in place at 20 August 2012 to acquire another circa 1,200 plots on ten sites, the majority of which are expected to be added to the consented land bank in H2 2012
· Terms agreed in principle to acquire a further 20 sites, representing in excess of 3,000 plots
· Consented land bank of 13,620 plots as at 30 June 2012, with potential gross profit of £574M, calculated using prevailing sales prices and build costs (31 December 2011: 13,723 plots with gross profit potential of £524M)
· 19,829 potential plots of strategic land (31 December 2011: 18,749 potential plots)