Annual Report and Accounts 2015

Bovis Homes Group PLC Annual report and accounts 2015

www.bovishomesgroup.co.uk

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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Victory Fields Rissington and notes Financial statements statements Financial remuneration policy application ofthe frameworkand governance Detailed discussionofour Our governance operational performance summary financialand model, strategyand A review ofourbusiness Strategic report information Supplementary 121 128 127 125 122 oup incomestatement ectors andofficers Our financialperformance Corporate socialresponsibility 2 Our businessandstrategy Business overview 97 96 95 94 93 93 86 80 78 73 57 47 44 42 32 30 26 20 18 10 1 7 6 4 2

in equity AGM Notice rnia offices Principal information Shareholder Five yearr Notes tothefinancialstatements Statement ofcashflows 06 G Notice AGM 2016 aac sheets Balance comprehensive income report Auditor’s report Directors’ report Remuneration Explanatory notestothe Gr Gr Gr Nomination Committeer Audit Committeer Corporate gover Dir Financial r Our CSRpriorities Risk management Principal risksanduncertainties Strategic priorities Our businessmodel Chief Executive’ Housing marketoverview Reasons toinvest What wedo Chairman’ 2015 highlights oup statementofchanges oup statementof ecord eview s statement s report nance report eport Annual reportandaccounts eport

Chairman’s statement 12 the future Group iswellplacedfor Ian Tyler discusseshowthe 4 the year financial performancefor Earl Sibleyreports onthe Financial review 42 discusses theplansahead overview oftheyearand David Ritchieprovides an Chief Executive’s report

Contents 2015 highlights

Financial highlights 17% s in revenues 13% s in ROCE to 18.3% 20% s in profit before tax Net assets per share 14% s in dividends of 714p

Revenue (£m) Proﬁt before tax (£m) Active sales outlets Private reservations £946.5m £160.1m 102 2,986 (excluding PRS) 946.5 160.100 102.0 2986.0 97 757.2 102 90 160.1 946.5 120.075 76.5 2239.5 2,986 82 2,773 2,709 809.4

567.9 73 133.5 80.050 51.0 1493.0 378.6 1,873 556.0 1,653 40.025 78.8 25.5 746.5

189.3 425.5 364.8 53.2

0.0 0.000 32.1 0.0 0.0 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015

Gross margin (%) Operating margin (%) Average sales price (£) Legal completions 24.5% 17.3% £231,600 3,934 24.500 17.300 231599.996792 3934.0 24.4 24.5 17.0 17.3 23.4 2950.5 3,934

18.375 22.8 12.975 173699.997594 3,635 14.9 231,600 20.8 216,600 13.3 12.250 8.650 115799.998396 1967.0 195,100 2,813 170,700 10.0 2,355 162,400

6.125 4.325 57899.999198 983.5 2,045 Business overview | 0.0

0.000 0.000 0.000000 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015

ROCE (%) Earnings per share (p) Sites added to land bank Consented land bank 18.3% 95.4p 35 sites 19,814 plots 18.300 95.40 42.0 19814.0 42 95.4 18.3 13.725 71.55 31.5 14860.5 35 19,814 16.2 78.6 18,062

9.150 47.70 21.0 27 9907.0 14,638 13,723 13,776 10.6 19 18 8.0 4.575 23.85 44.9 10.5 4953.5 5.5 30.2

0.000 0.00 17.5 0.0 0.0 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Strategic report

2 | Annual report and accounts | Strategic report | Business overview The Group has delivered significant growth in Return on Capital Employed during 2015

Operational highlights 8% s increase in legal 10% s in consented land completions bank plots

RevenueRevenue (£m) (£m) Proﬁt beforeProﬁt taxbefore (£m) tax (£m) Active salesActive outlets sales outlets Private reservationsPrivate reservations £946.5£946.5m m £160.1£160.1m m 102 102 2,9862,986 (excluding (excluding PRS) PRS) 946.5 946.5 160.100 160.100 102.0 102.0 2986.0 2986.0 97 97 102 757.2 757.2 102 90 90 160.1 160.1 946.5 946.5 120.075 120.075 76.5 76.5 2239.5 2239.5 2,986 2,986 82 82 2,773 2,773 2,709 2,709 809.4 809.4 73 567.9 567.9 73 133.5 133.5 80.050 80.050 51.0 51.0 1493.0 1493.0 378.6 378.6 1,873 1,873 556.0 556.0 1,653 1,653 40.025 40.025 78.8 78.8 25.5 25.5 746.5 746.5

189.3 189.3 425.5 425.5 364.8 364.8 53.2 53.2

0.0 0.0 0.000 0.00032.1 32.1 0.0 0.0 0.0 0.0 2011 20122011 20132012 20142013 2015 2014 2015 2011 2012 201120132012 20142013 2015 2014 2015 2011 2012201120132012 20142013 2015 2014 2015 2011 2012201120132012 20142013 2015 2014 2015

Gross marginGross margin(%) (%) OperatingOperating margin margin(%) (%) AverageAverage sales price sales (£) price (£) Legal completionsLegal completions 24.5%24.5% 17.3%17.3% £231,600£231,600 3,9343,934 24.500 24.500 17.300 17.300 231599.996792231599.996792 3934.0 3934.0 24.4 24.5 24.4 24.5 17.0 17.3 17.0 17.3 23.4 23.4 2950.5 2950.5 3,934 3,934

18.375 18.375 22.8 22.8 12.975 12.975 173699.997594173699.997594 3,635 3,635 14.9 14.9 231,600 231,600 20.8 20.8 216,600 216,600 13.3 13.3 12.250 12.250 8.650 8.650 115799.998396115799.998396 1967.0 1967.0 195,100 195,100 2,813 2,813 170,700 170,700 10.0 10.0 2,355 2,355 162,400 162,400

6.125 6.125 4.325 4.325 57899.99919857899.999198 983.5 983.52,045 2,045

0.000 0.000 0.000 0.000 0.000000 0.000000 0.0 0.0 2011 2012201120132012 20142013 2015 2014 2015 2011 2012201120132012 20142013 2015 2014 2015 2011 2012201120132012 20142013 2015 2014 2015 2011 20122011 2013 2012 2014 2013 2015 2014 2015

ROCE (%)ROCE (%) EarningsEarnings per share per (p) share (p) Sites addedSites to added land tobank land bank ConsentedConsented land bank land bank 18.3%18.3% 95.4p95.4p 35 sites35 sites 19,81419,814 plots plots 18.300 18.300 95.40 95.40 42.0 42.0 19814.0 19814.0 42 42 95.4 95.4 18.3 18.3 13.725 13.725 71.55 71.55 31.5 31.5 14860.5 14860.5 35 35 19,814 19,814 16.2 16.2 78.6 78.6 18,062 18,062

9.150 9.150 47.70 47.70 21.0 21.0 27 27 9907.0 9907.0 14,638 14,638 13,723 13,776 13,723 13,776 10.6 10.6 19 19 18 18 8.0 8.0 4.575 4.575 23.85 23.85 44.9 44.9 10.5 10.5 4953.5 4953.5 5.5 5.5 30.2 30.2

0.000 0.000 0.00 17.5 0.00 17.5 0.0 0.0 0.0 0.0 2011 2012201120132012 20142013 2015 2014 2015 2011 2012201120132012 20142013 2015 2014 2015 2011 2012201120132012 20142013 2015 2014 2015 2011 20122011 2013 2012 2014 20132015 2014 2015

Bovis Homes Group PLC | 3 Chairman’s statement

We saw a steady rise in house prices throughout 2015 and the early signs in 2016 remain positive. The current constraints in the availability of skilled labour in the industry remains the major short term operational challenge for the industry as a whole. We are focused on further developing the quality of our own construction teams and working closely in partnership with our suppliers and sub contractors. Across the country we are working hard to bring new people into the sector to address the shortage.

Operational and capital effectiveness The Board recognises the inevitable challenges the Group faces Ian Tyler as we progress through the growth phase of our plans and are focused on delivering a high level of operational effectiveness Chairman across the enlarged business. We have further developed our management structures during the year to support an increase During last year Bovis Homes made good in volumes towards our targeted steady state of between 5,000 and 6,000 new homes each year and I have every progress against its ambitious strategic plan. confidence in our ability to deliver that ambition. We continue I am pleased to report that, once again, to invest in our people and with two additional operating through delivering a record volume of homes, regions in place from the start of 2016 we are able to apply the Group has driven growth in revenue greater management focus across our operating area. leading to a 21% increase in earnings per We recognise that our success depends on safely building share and achieving our targeted growth in quality homes on time for our customers. return on capital employed. I am pleased to confirm that the Group has made further improvements in shareholder returns in 2015. Combining a capital turn which exceeded one times for the first time with Growth strategy supported by a robust market an improvement in operating margin, the Group achieved its Our strategic plan, first communicated during 2014, remains target return on capital employed for 2015 at 18.3%. unchanged. The Board continues to review conditions in the UK housing market as we progress through the cycle and The increased size of the land bank including our valuable we believe that the key factors which supported the positive strategic holdings highlights the strong position of the Group market conditions in 2015 remain in place. for 2016. The Group has between four and five years of owned consented land supply and this is supported by over Whilst the UK financial markets have seen the impact of five years of supply of strategic land for future delivery. growing uncertainty in the global economy, the fundamental The Group has retained the strength of its balance sheet Business overview

| lack of supply in the UK housing market and the current during 2015 with, once again, net cash at year end. The Board strong demand from customers provides a robust back drop remains confident that, assuming a stable market, this will be to our growth strategy. The Government support for the the base for further growth in capital turn, profitability, and housebuilding industry remains positive. In particular the ultimately shareholder returns. residential planning regime is ensuring that land supply to the market is ahead of production rates and the extension of the Dividends and earnings per share Help to Buy scheme provides confidence for our customers to Driven by a record number of new homes in 2015 and the invest in new homes. The ongoing benign land market means ongoing trend of increasing average sales prices, the Group it is an excellent time to invest strongly in a disciplined manner. delivered a 21% improvement in earnings per share to 95.4p. Consistent with the period since 2010, our carefully targeted Given the good progress made in 2015 and our ongoing land investment has delivered significant future value into our confidence in delivering the longer term strategic plan, as consented land bank. This investment has been concentrated previously indicated, a final dividend for 2015 of 26.3 pence on good quality sites in areas of strategic focus where we will per share will be recommended. When combined with the be able to deliver our standard high quality Portfolio range of interim dividend this provides a total dividend of 40 pence for homes that our customers demand. the year, an increase of 14% on 2014. The final dividend will be payable on 20 May 2016 to shareholders on the register on 29 March 2016. Strategic report

4 | Annual report and accounts | Strategic report | Business overview Our positive investment in land has ensured we are well placed to further enhance value to our shareholders

Brookfields Inkberrow

The Board intends to recommend a progressive dividend for 2016 Warren, who stepped down from the Board this year, for his which is likely to again be ahead of our base dividend policy of service to Bovis Homes over many years both as a non-executive a regular payout ratio of one third of earnings per share. In the director and as Audit Committee Chairman. Ralph Findlay joined long term as we approach our planned steady state activity levels the Board during the year and has taken over chairmanship of and invest in land to replenish rather than grow our land bank, the Audit Committee. I would also like to express my thanks to we expect to generate cash surplus to our requirements which will Jonathan Hill, our previous Group Finance Director, who left the further enhance cash returns for shareholders. Group back in March after four years of valued service. His successor, Earl Sibley, joined the Board in April 2015. People I have continued to be impressed with the commitment and skill The future shown by the Group’s employees in delivering the growth during While it has been a time of operational challenge with fast moving 2015 and, on behalf of the Board, I would like to thank them all market conditions, the Board is confident that the Group’s long for their dedication and hard work. I would also like to extend my term growth plan remains appropriate in the current market and thanks to our subcontractors and suppliers who are such a key that our positive investment in land has ensured we are well placed component of our business. to further enhance value to our shareholders.

The Board I would like to thank my colleagues for another year of support Ian Tyler and positive challenge. In particular, I would like to thank John Chairman

Bovis Homes Group PLC | 5 What we do

Bovis Homes is a builder of high quality traditional homes in England and Wales. 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 1,000 staff directly at the end of 2015 and up to a further 4,000 sub-contractors work on its sites on a daily basis. In 2015, the Group legally completed 3,934 homes predominately on greenfield sites.

Where we operate Midlands North 723 427 legal completions legal completions in 2015 in 2015 2014: 477 2014: 440

South Business overview

| 2,784

legal completions in 2015 2014: 2,718 Strategic report

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.

Stewarding shareholder capital – delivering enhanced shareholder returns

• Rapidly increasing return on capital employed and capital turn • Dividend payout ratio of one third of earnings plus supplementary dividend payments to shareholders of cash surplus to requirements • Track record of stewarding the business successfully through a housing downturn

Growth strategy – a bigger agile business structure

• Strategy to deliver 5,000 to 6,000 units per annum • Fast growing major housebuilder with volumes doubled in last five years • Record volumes achieved and strong land investment set to deliver further growth

People – investing to safely build quality homes

• Experienced leadership team driving investment in individual and team development • Nimble and flexible operating model • Short spans of control to make better decisions

Geography – prime Southern location bias

• Focused in the higher capital growth locations of the UK Housing market • Targeting 75-80% of land developed in prime south of England locations (excluding London) with balance in developments in the Midlands and North West • History of high quality strategic land conversion with 41% of current consented landbank originating as strategic and generating increased profit potential

Product mix – unique and differentiated homes • Increased proportion of traditional family homes and minimal apartments • High usage of quality standard ‘Portfolio’ housing range • Delivered to high quality specification as standard • Heavily invested in lower risk greenfield sites

For more information on our strategic priorities see pages 20 to 24.

Bovis Homes Group PLC | 9 Private and social homes legally completed in 2015 Private homes by type legally completed in 2015

Homes Property type Private 2,330 83% 2 Bedroom 299 13%

Social 483 17% 3 Bedroom 1,015 43%

Total 2,813 4 & 5 Bedroom 573 25%

Apartments 443 19%

Total 2,330

Ageing of land at 31 December 2015 Location of land at 31 December 2015

Plots Plots Post downturn1 16,814 85% South 15,041 76%

Pre downturn 1 2,559 13% Midlands 2,962 15%

Written down 2 441 2% North 1,811 9% Annual subcontractor cost increases Total 19,814 10 Total 19,814

1 Plots held at cost (downturn being July 2008) 8 See map on page 6 2 Plots held below cost at net realisable value 6

% 2 2012 0 2010 2011 2013 2014 2015 est -2 Demand versus supply -4 80 Net balance % -6 60

Rising Source: BCIS 40 Residential land prices 20 150

0 125 -20 New build planning approvals (England) -40 250 100 Quarterly Moving Annual total RICS new buyer enquiries -60 200 75 Falling RICS new vendor instructions -80 2007 2015 150 Housing market overview 50 Jan 2004 Jul 2011 Dwellings 100 Source: RICS Source: DCLG 50 UK housing market in the medium term confidence in the future direction of house prices and confidence0 over future employment prospects, the key demand 2010 2011 2012 2013 2014 2015 determinant over the last few years has been the increasing Housing market transactions Approvals of mortgages for house purchases Source: HBF 1500 availability of mortgage finance and Government support. 120

100 1125 Mortgage approvals by month 90,00080 750 80,000 ‘000 ‘000 70,00060 60,000 375 40 50,000

‘000 40,00020 0 30,000 Jan 2007 Dec 2015 2010 2011 2012 2013 2014 2015 20,000 2012 2013 2014 2015 Source: HCA Source:10,000 Bank of England 0 The total UK housing stock is estimated to be around 27 million Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Gross mortgage lending Growth in residential planning approvals homes with 23 million homes in England, of which 19 million Source: Bank of England 400 30 are privately350 owned. The average activity level over the long The Government launched Help to Buy shared equity in 20 term within this market has resulted in 1.1 million transactions April 2013 exclusively for new build properties and recently 300 10 Private starts and completions per annum.250 During 2015, this increased to circa 1.2 million confirmed that this scheme will continue until 2021. 35,000 0 transactions200 although this is still down from a peak of circa The overall impact of this product has been positive, not % £bn 30,000 -10 1.6 million150 transactions during 2007. The lack of supply that only in enabling more customers to access mortgage finance, -20 is preventing100 higher transaction levels is driving a significant but also25,000 in increasing consumers’ confidence to purchase. Units 50 Monthly mortgage-30 approvals increased through 2013 reaching increase in house prices that have accelerated over the last ‘000 Projects 20,000 two years0 with Halifax reporting an average sales price of a high of 77,000-40 in January 2014. However, this moderated 2005 2006 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 2013 H12014 £203,900 in December 2015, higher than the 2007 peak for during15,000 the remainder of 2014 and 2015 with average Source: National Statistics Agency approvalsSource: HBF of circa 65,000 in both years. the first time. 10,000 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014 Q3 2015 Q3 Q4 Over the lastQ1 coupleQ1 of yearsQ1 there Q1have beenQ1 attemptsQ1 to UK housing market in the short term provide stability to Startsthe housing marketCompletions through various Annual HPI Annual HPI measures. The Mortgage Market Review laid out new to Dec 2014 to Dec 2015 Source: HBF requirements requiring that lenders undertake a thorough Halifax +7.8% +9.5% assessment of affordability which should ensure borrowers are Nationwide +7.2% +4.5% less likely to have difficulties meeting their commitments. Hometrack +8.3% +7.9% The Government also announced that additional powers would be granted to the Bank of England to guard against financial Pricing stability risks from the housing market. These powers include

Business overview During 2015 pricing has continued to move strongly upwards, setting limits on debt to income ratios and loan to value ratios |

driven by the London market with an estimated increase of for mortgages. The application of these powers is likely to around 17% according to Halifax. Excluding London, prices in have a moderating effect on housing demand and pricing, England are estimated to have increased by between 6% particularly at the latter stages of the cycle. and 8%. The pace of house price inflation reduced in the second half of 2015 towards a more sustainable level. Recently, the Government has announced reform of Stamp duty, which is likely to provide a boost to the market with Pricing is driven by the factors affecting demand and supply lower transaction costs for the vast majority of purchasers within the overall housing market. although buy-to-let properties will incur a 3% surcharge. Housing demand Proposals for planning reform to support the development of 100,000 new high quality, low cost starter homes for young Underlying demand from household formation, based on first time buyers, at a 20% discount to open market value, the Government’s latest estimates released in April 2013, have also been made. The full impact of these reforms is yet to suggested that English households are expected to grow be fully understood. by 221,000 per year through to 2021. Although demand is affected by a range of factors, including affordability, Strategic report

10 | Annual report and accounts | Strategic report | Business overview Annual subcontractor cost increases 10

% 2 2012 0 2010 2011 2013 2014 2015 est -2

-4

-6

Source: BCIS

New build planning approvals (England) 250 Quarterly Moving Annual total

200

150

Dwellings 100

0 2010 2011 2012 2013 2014 2015

Source: HBF

Mortgage approvals by month 90,000 80,000 70,000 The60,000 UK housing market remains robust with ongoing 50,000

‘000 40,000 Government30,000 support and competitive Annualmortgage subcontractor availability cost increases 20,000 10 2012 2013 2014 2015 10,000 8 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 6

Source: Bank of England 4 Housing supply type of residential land coming to market, as well as potential

% 2 purchasers’ confidence in future2012 house price movements. 0 Private starts and completions 2010 2011 2013 2014 2015 est During-2 the last few years, the number of residential land purchasers 35,000 in the market has remained relatively stable. Private housebuilders -4 have struggled to access bank finance to fund their purchase at the 30,000 leverage-6 and at the price that they require. The main purchasers

25,000 haveSource: been BCIS publicly listed housebuilders, who have demonstrated a disciplined approach. Until more capital becomes available to the ‘000 20,000 wider new build sector, it is unlikely that the number of purchasers will increase substantially. 15,000

10,000 New build planning approvals (England) 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014 Q3 2015 Q3 Q4 Q1 Q1 Q1 Q1 Q1 Q1 250 Quarterly Moving Annual total Starts Completions 200

Source: HBF 150 In terms of new build supply, the number of new home completions Dwellings 100 in England in 2015 as reported by the HBF is expected to be around 140,000. According to the HBF, housing starts for 2015 50 reached 145,000, an increase of 4% compared to the year before. This is still insufficient to address the growth in households and will 0 2010 2011 2012 2013 2014 2015 continue to leave a significant shortfall in supply. This coupled with the wider affordability issue highlights the importance of speeding Source: HBF up the supply of new homes over the coming years. In terms of the supply of residential land, the quantity of planning applications made and granted fell significantly from 2008 to Supply chain Mortgage approvals by month 2011. With the launch of the National Policy Planning Framework 90,000 (“NPPF”) in March 2012, the supply of residential land has Annual subcontractor cost increases 80,000 10 increased70,000 materially in the last few years. 60,000 8 Different types of residential land sites come to market in 50,000 6

terms‘000 of size, product type, location and former use (greenfield 40,000 or brownfield). Larger sites, particularly in the south of 4 30,000 England,20,000 tend to attract relatively few purchasers due to capital

% 2 2012 2013 2014 2015 2012 commitments,10,000 whereas smaller sites up to 50 plots may attract 0 2010 2011 2013 2014 2015 est many more.0 Again, the product mix on a site may attract different Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -2 levels of demand with, for instance, apartment schemes in city -4 Source: Bank of England centres (outside London) likely to attract a limited number -6 of purchasers, compared to traditional two storey detached

housing sites. Source: BCIS Private starts and completions Supply chain issues continue to be challenging with the Overall,35,000 the demand and supply dynamic of the land market availability of sub-contract labour the key issue affecting remains favourable for well funded purchasers and residential land 30,000 can be purchased at sensible returns. the sector. This affects the ability to build at the required speed to fulfil consumer demand with a consequential effect on the 25,000 New build planning approvals (England) Competitors industry’s250 cost base. However the BCIS forecast for cost increases ‘000 20,000 in 2016 is 4.4%Quarterly which comparesMoving to theirAnnual view total on cost increases The second hand market remains the main competition for

200 Bovis15,000 Homes. In a normal year, the Group would expect around of 8.8% in 2014 and 5.4% in 2015. 90% of residential transactions to be second hand, with pricing 150 in the10,000 new build sector being set by reference to that market. Residential land 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014 Q3 2015 Q3 Q4

Dwellings Q1 Q1 Q1 Q1 Q1 Q1 The price100 of residential land is a residual value calculation, with a The de-stocking by the housebuilders between 2008 and developer willing to pay a land price based on expected incomes 2011 led to new buildStarts contributing a greaterCompletions proportion of 50 less costs and a required development margin. When residential residential transactions. With overall consumer confidence Source: HBF improving and transaction numbers increasing materially, the house prices0 change, the value of a piece of land tends, therefore, to move by a 2010factor of two 2011 or three. 2012 The value 2013 of residential 2014 land 2015 is new build sector will move back towards 10% of total housing also affected by the number of purchasers and the amount and market transactions. Source: HBF

Bovis Homes Group PLC | 11 Mortgage approvals by month 90,000 80,000 70,000 60,000 50,000

‘000 40,000 30,000 20,000 2012 2013 2014 2015 10,000 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Source: Bank of England

Private starts and completions 35,000

30,000

25,000 ‘000 20,000 15,000 10,000 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014 Q3 2015 Q3 Q4 Q1 Q1 Q1 Q1 Q1 Q1

Starts Completions

Source: HBF

Strategic report | Our business and strategy Chief Executive’sreport 12 . on year. nation needsasitsteadilygrowsits capacityandoutputyear is whollyalignedwiththisstrategy todeliverthehomes driving landsupplythroughtheplanning process.TheGroup its renewedcommitmenttoHelpBuy,StarterHomesand homes ayearandissupportingnewhousebuildingthrough has anambitionfortheindustrytobuildover200,000new by increasinglevelsofplanningpermissions.TheGovernment supply withtheavailabilityofdevelopmentlandsupported Housing demandcontinuestorunaheadofnewhousing with growthinbothtransactionlevelsandsalesprices. The positivehousingmarketconditionsintheUKcontinue, with afocusonbuildingandsellingqualityfamilyhomes. performance overthecyclefromlongtermlandinvestment ambitions fortheGroup.Weaimtodelivermarketleading The strategicplancommunicatedduring2014laidoutthe remains robustwithyearendnetcashof£30million. 2.1 percentagepointshigherthan2014.Ourbalancesheet to £160.1millionandreturnoncapitalemployedwas18.3%, return oncapitalemployed.Profitbeforetaxincreasedby20% increase inoperatingmarginledtoafurtherimprovement capital turnin2015exceededonetimesandthisalongwithan prices, deliveredastrongimprovementinoperatingprofit.Our The increaseinvolume,alignedwithhigheraveragesales | Annualreport andaccounts shareholder returns. areas anddeliveringfurtherincreasesin in highqualitylandassetsitstarget completions during2015whileinvesting strategy, achievingarecordnumberoflegal Bovis Homesisdeliveringitsgrowth Chief Executive David Ritchie | Strategic report | Ourbusiness andstrategy Proportion inSouthofEngland Plots inconsentedlandbankatperiodend Average consentedlandplotcost Sites ownedatperiodend Sites added Consented plotsadded also sitespecificrisksandgeographicconcentrationrisk. anticipated profitmarginandreturnoncapitalemployed,but criteria areappliedtoeveryproposal,reflectingnotonlythe land tofulfilitsstrategicambitions.Ourrigorousacquisition is strongmarketdemandforhousingandsufficientsupplyof Southern, geographieswithinwhichtheGroupbelievesthere This investmentisfocusedintheGroup’stargeted,primarily will increasetowardsthislevelovertimewithlandinvestment. 150 salesoutletsatsteadystate.Averageoutletnumbers new homesperannumwillbeachievedbyoperatingaround Our strategicambitionofdeliveringbetween5,000and6,000 number ofownedconsentedsitesduringthenextfewyears. consented sitesandremainsontracktoincreasefurtherits portfolio. Asat31December2015,theGroupowned142 made intheyearwithmanykeysitesourstrategicland growth isfurthersupportedbythegoodprogresswehave our ambitiontoacquirearound40newsitesperyear.This 2015 followingtheacquisitionof42sitesin2014,linewith prices andhighprofitmargins.Weacquired35sitesduring strategic land,toprovidegrowthinvolumeatstrongsales investment strategy,includingstronglevelsofconversionfrom The Groupcontinuestoimplementitsdisciplinedland Land investmentsupportingfuturegrowth • • • • shareholder returnsfrom: The Group’sstrategicplanremainstodelivergrowthin Strategic plan

the performanceduring2015 Execution oftheplanwhichhasbeenfurtherevidencedby to adapttheplanchangesinmarket Ongoing assessmentofthehousingcycleensuringflexibility of theGroup’sstructuretomanagefuturegrowth Investment inpeopletounderpinthecontinuousevolution of between5,000and6,000newhomesperannum grow thebusinessinacontrolledwaytowardssteadystate Disciplined landinvestment,bothconsentedandstrategic,to

£49,200 19,814 6,058 76% 142 2015 35

£46,600 18,062 7,300 75% 128 2014 42 Strategy delivery is on track with further investment in high quality land

In the year the Group added to the land bank 6,058 consented In pursuit of capital efficiency the Group completed in 2015 the plots on 35 sites at a cost of £343 million. These plots have an sale of 4 parcels of land on strategically sourced sites, and further estimated future revenue of c£1,700 million and an estimated land sales are planned in 2016. future gross profit potential of c£440 million based on sales prices The successful execution of our plan in respect of our key strategic and build costs at the point of appraisal, delivering an estimated sites has the potential to deliver a significant long term benefit to future gross margin of 26.4%. The average return on capital the business. The Group’s strategic land assets represent one of employed of the land acquired based on investment appraisal at its key differentiators. We expect these assets will provide strong the time of acquisition is c28%. replenishment for the consented land bank over the coming years. The estimated gross profit potential of the Group’s consented land The size of this opportunity supports the Group’s aim for 50% of bank plots as at 31 December 2015, based on prevailing sales its consented land bank to be sourced through strategic means in prices and build costs, has increased to £1,247 million with a gross the future. margin of 25.5% (31 December 2014: £1,017 million at 25.2%). Written down land in the land bank at 31 December 2015 made Evolving Group structure to better manage a up only 2% of plots (31 December 2014: 6%). bigger business As planned, in order to manage effectively the increased annual The successful conversion of strategic land continues to be a key volume and support growth the Group has been operating as driver of value for the Group. New strategic land investments eight regional businesses since 1 January 2016. The changes have added 3,827 plots into the strategic land bank, giving a total of seen the formation both of our West Midlands and East Midlands 23,083 strategic plots at the year end across 80 strategic sites. regions from splitting our existing Central region and of the The strategic land bank reflects positively the Group’s strategy of fledgling Thames Valley region, which is planning to deliver its first land acquisition with 68% of the strategic plots in the South of new homes during 2016. The evolved structure ensures greater England. During 2015, the Group converted 2,217 plots from the management focus in our regional geographies and maintains strategic land bank into the consented land bank. our ability to make the right business choices in an agile manner, The Group has either secured or is in the final stages of securing whilst managing risk effectively through short lines of management planning consent on eight major strategic sites: Bishop’s Stortford control. The eight regions are structured in two operating divisions, (where the first 180 plots have already been added to the each overseeing four regions. In line with our strategy this consented land bank), North Whiteley, Bexhill, Witney, Edwalton, operating structure provides the platform to deliver between 5,000 Gravesend, Taunton and Tavistock. In total, these sites will and 6,000 homes per annum. deliver over 5,000 consented plots with high profit margins and In order to manage this growth, the management team has been returns above existing hurdle rates. These sites will be acquired strengthened through promotions from within the business. once valuation and option exercise processes are complete. The Keith Carnegie, previously Central Division Managing Director sites generally benefit either from significant deferred terms on and with over 15 years’ experience with the Group, has taken purchase or the ability to add the land over a number of years up the new role of Chief Operating Officer from 1 January 2016. through tranche drawdown. Our site at Wellingborough obtained Keith is responsible for how the business operates across all its revised planning consent in December 2015 for 3,650 plots which regional businesses and also oversees the key Group wide support supports the start of housebuilding on site during 2016 with the functions. The Group is clear on its operating priorities going expectation of achieving a profit margin in excess of our hurdle forward and in particular is focused on how we safely build quality rates. Overall, around 8,000 plots of the strategic land bank have homes, ensuring each of our developments is set up to deliver planning agreed. In a number of cases, development partners are our production plans and that we follow consistently our robust being identified for these larger sites, in line with the Group’s aims processes and procedures from site acquisition through planning for capital efficiency. and construction onto sales. Keith is also leading a review of the An example of working with a development partner is on Group support functions to assess how these need to evolve to our strategic site at North Wokingham which was acquired in support our future growth. December and is included within the year end land bank. We sold a parcel of the development to a Registered Social Landlord (RSL) in December and have entered into a contract with the same RSL to develop a mix of private and social dwellings. This development has already commenced construction on the key infrastructure roads in the early weeks of 2016.

Bovis Homes Group PLC | 13 Chief Executive’s report

The Group recognises the critical role that our people play Execution of the plan in the delivery of the strategic plan. In particular, we are In 2015, the Group has taken another step forward in scale, investing in our leadership team through formal development delivering an 8% increase in legal completions to 3,934 programmes accompanying more informal mentoring across all homes (2014: 3,635). Private legal completions (excluding PRS) our business operations. Overall, our employee base continues increased by 10% to 2,901 (2014: 2,645). Legal completions to grow with the scale of the business. We closed the year of social homes were 848 (2014: 704), representing 22% of with 1,062 employees having increased from 928 at the start total legal completions (2014: 19%) more in line with the of 2015. This growth has been supported by higher levels of proportion of social housing plots in our land bank. investment to support recruitment, training and development. Average active sales outlets of 102 were 6% higher than the Given the current labour constraints impacting the sector, staff 97 in 2014, although this increase reflects delays to sales turnover remains most pronounced in our build department. launches of some new higher margin sites. The combination During the year, we recruited 192 new employees into our of active sales outlet growth in 2015 and a greater southern construction teams including 37 new apprentices. Our Build focus enabled the Group to achieve 2,986 private reservations Academy programme first developed in 2014 has been a (excluding PRS), a 10% increase on the 2,709 achieved key part of our approach to supporting new members of our in 2014. Net private reservations (excluding PRS) per site construction team. per week was 0.56 compared to 0.54 in 2014. Whilst this represents a robust sales rate it also reflects the Group’s Continually assessing the housing cycle ambition to match sales rates more closely with production The Group continues to view the housing market as being rates and the availability of finished homes. supportive of growth during the current upswing in the cycle. There continue to be constraints on capital available to smaller Our average sales price increased by 7% to £231,600 housebuilders and discipline is being demonstrated in the (2014: £216,600) with the average sales price of private consented land market. Demand for new housing remains legal completions (excluding PRS) 8% higher at £272,100 strong with increasing housing transaction levels and higher (2014: £250,800). These average prices benefit both from sales prices (the Halifax house price index rose over 9% in the improved geographical and product mix on new sites 2015). Demand is supported by an active mortgage market driving higher sales prices and estimated annual market pricing and low interest rates. The planning system is delivering improvements of circa 4-5%. an increased level of planning consents underpinning our During 2015, 55% of the private homes legally completed investment in strategic land and providing a good supply of were from the “Portfolio” range, up from 38% in 2014. consented land into the market. However, the level of new This percentage is expected to grow further in 2016. build homes being supplied continues to be below Government The “Portfolio” range of homes continues to be excellently targets. As a result, we believe a good opportunity remains received by customers and they are also highly efficient for well capitalised housebuilders to invest in land to increase to build. In addition, as planned, the proportion of traditional housing supply. private homes sold increased to 70% in 2015 from 66% Robust discipline in our investment strategy is demonstrated in 2014. Three storey homes reduced to 18% of legal

Our business and strategy completions (2014: 21%) and apartments have decreased to | by our record of land acquisitions made at above hurdle rate margins and our improving capital turn. We continue to assess 12% (2014: 13%). the housing cycle and have the ability to adapt quickly. We The Group achieved production levels 12% ahead of 2014. have processes in place that enable the Group to stop its land Work in progress turn remained high at 3.5 times (2014: 3.6). investment quickly when required and adjust the length of Housing work in progress ended 2015 at 929 units worth of its overall land holdings as the cycle evolves. Our long term production (2014: 923), equivalent to less than one quarter’s investment strategy, including our ambition to source around worth of our 2015 volume. Looking forward through 2016 we 50% of consented land from strategic land, provides greater aim to align our production rates further with our sales rates flexibility of land supply in a changing economic environment and target a more even flow of production. whilst contributing sites with strong sales prices and high profit margins. Strategic report

14 | Annual report and accounts | Strategic report | Our business and strategy Delivering further increases in shareholder returns

Activity levels continue to increase across the sector and in the The Group is currently trading on 102 sales outlets (2015: 99). near term the availability of skilled labour remains a constraint. The pipeline of new sites controlled by the Group currently being This labour shortage has driven higher than expected levels of managed through the planning, procurement and early phases of construction cost inflation. In addition, we have seen additional construction is expected to increase this level further through 2016. cost pressure in the business as we drive increased activity levels on site from higher prelim costs and the impact of replacing The Group has delivered 429 private reservations in the first seven underperforming sub-contractors. The Group’s average construction weeks of 2016, this equates to a sales rate per site per week cost per square foot in 2015 was 8% higher than in 2014. Whilst of 0.60 compared to 0.68 in 2015 which benefited from some we continue to see signs of these cost increases moderating, bulk investor reservations. Sales prices achieved on these private managing our construction cost base remains a key priority for reservations to date have been ahead of the Group’s expectations the business. We are seeking to develop further our strategic set prior to the start of 2016. partnerships with our key sub-contractors, manage our materials Outlook costs through Group-wide agreements, in addition to driving continuous review and improvements across all sites and all areas In the current cycle the Group has increased its investment in of spend. land with strong profit margins and increased capital turn whilst maintaining a robust balance sheet position. Market conditions The strong sales position brought forward from 2015 combined The housing market in 2015 represented a positive trading with the strong pipeline of new sites expected to commence environment. Customer demand was strong throughout the year trading in the next few months provides a solid platform from with weekly prospect levels running ahead of 2014. Monthly which to expect further growth in 2016. The profile of our mortgage approvals, according to the Bank of England, were 18% anticipated sales outlet launches means that legal completions in higher in the year supported by unchanged interest rates. 2016 will be weighted to the second half year in a similar manner The Government’s support for the housebuilding sector has to 2015. In contrast, the increased overhead costs being incurred to continued during the year through driving the UK planning system manage the enlarged Group will be evenly spread over the year. to deliver consented land, the extension of Help to Buy through to The average sales price continues to improve due to further product 2021, and the initiatives announced in respect of Starter Homes. and site mix improvements and market-wide house price rises. Whilst we welcome the news on Help to Buy which provides As a result, the Group expects a further improvement in capital turn greater certainty and confidence in the market, the proposals in for 2016. We expect to see growth in gross profit margin in 2016 respect of Starter Homes are still developing and their effect will driven by a greater proportion of new higher profit margin sites become clearer in time. in the mix. We expect further modest improvements in overhead House prices continue to rise across many regional markets with efficiency, despite investing in the Group’s evolving structure, which stronger growth in the south of England. Whilst there are signs that together with higher gross profit margins are expected to underpin cost pressure is moderating in 2016, continuing rising activity levels our operating profit margin progression. Given the increased capital in the sector may drive ongoing constraints in labour supply. As a turn and the improving profit margin, we maintain our ambition to result, the cost of building new homes is expected to drive continued growth in return on capital employed. The Group increase further. has seen strong forward sales and robust trading in early 2016 in line with our expectations and anticipates 2016 being another Current trading successful year of growth and strong returns. The Group entered 2016 with a strong forward sales position with 2,003 total reservations, a 14% improvement on 2015.

2015 2014 Change David Ritchie Private 841 756 +11% Chief Executive PRS 38 223 -83%

Social 1,124 773 +45%

Total forward sales 31 December 2,003 1,752 +14%

Bovis Homes Group PLC | 15 Our business and strategy |

Strategic report

16 | Annual report and accounts | Strategic report | Our business and strategy The Fairways Leamington Spa

Bovis Homes Group PLC | 17 Our business model

Driving value across the cycle

Aiming to deliver market leading 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 Long term strategic investment in land • Investing in and promoting to drive returns strategic land over the cycle Land acquisition

• Creating desirable homes

• Creating high quality environments Design Traditional family homes constructed to a high standard using traditional materials with an all-inclusive • Safely delivering efficient and cost specification effective build to a high standard

• Building strong relationships Build with materials suppliers and Our business and strategy

| sub-contractors

• Providing great customer service High quality homes sold for a • Delivering quality homes justifying premium price Sales a premium price Strategic report

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 continue to grow with strong profit growth and improvements in capital turn, assuming current market conditions continue

Strategic priorities Risks involved Measuring success

Acquiring, designing and • Insufficient consented land 1 Growth in gross developing quality traditional available at hurdle rates margin potential in housing sites, focusing primarily • Shortages of subcontract labour land bank in the south of England and materials (excluding London) • Changes in regulations Growth in percentage of land in the south

2 Creating aspirational homes • Product quality and service % private homes from using its well specified Portfolio standards below customer Portfolio range traditional housing range in expectations Customer satisfaction desirable settings, delivered with scores on quality excellent customer service of homes

3 Growing to an optimal scale to • Lack of availability of mortgage Growth in legal suit the selected geography and finance completions toward product range, which enables 5,000 - 6,000 homes • Insufficient consented land ongoing high quality management per annum available at hurdle rates of risk and reward through short lines of management control • Availability and cost of both Increasing average materials and sub-contract labour active sales outlets

4 Managing the business across the • Increased economic uncertainty Return on capital housing cycle to maximise returns, employed • Lack of availability of mortgage while effectively stewarding finance Increasing capital turn shareholders’ capital • Planning changes frustrate the % of land from conversion of strategic land strategic conversion

Enabling motivated and engaged • Inability to attract and retain 5 Employee engagement employees and business partners good people to work ethically within a safe and • Unsafe construction practices NHBC risk incidence healthy environment RIDDOR reportables

For more information on our strategic For more information on our risks, see For more information on our KPIs, priorities, see pages 20 to 24. pages 26 to 29. 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 2015

The Group adopts a regional approach to the The Group achieved the following during 2015: acquisition, design and development of housing sites • The Group acquired 6,058 plots on 35 sites in to ensure the appropriate level of focus during the 2015 with 76% of these plots in the south of lifecycle of each site. England Every land investment must meet rigorous criteria • In order to manage capital the Group delivered around margin, return on capital and site specific risk. 4 land sales totalling 356 plots Each region employs specialists from a broad range of disciplines, which means we have extensive in-house • The estimated gross profit potential in the land experience and expertise at our disposal to see bank has increased from £1.0bn to £1.2bn housing projects of all sizes through from start to finish.

Priorities for 2016 KPIs

The Group is focused on delivering the following Gross margin potential in consented land bank Private and social homes legally completed in 2015 in 2016:Private homes by type legally completed in 2015 £1,247m (2014: £1,017m) Homes • The acquisition of aroundProperty 40 sites type with the majority Private 2,330 83% in the south of England 2 Bedroom 299 13% % of consented land bank in south Social 483 17% 3 Bedroom 1,015 43% • Further growth in the size and gross profit potential Total 2,813 4 & 5 Bedroom 573 25% of the landbank 76% (2014: 75%) Apartments 443 19%

Total 2,330

Our business and strategy Our consented land bank Growing gross profit potential from land bank |

Ageing of land at 31 December 2015 Location of land at 31 December 2015 Consented Revenue ASP Gross Gross Plots profit margin £m £000 £m %

Plots Plots 2013 additions 3,737 841 225.0 216 25.7% 1 Post downturn 16,814 85% South 15,041 76% 31 December 2013 14,638 3,007 205.4 727 24.2%

Pre downturn 1 2,559 13% Midlands 2,962 15% 2014 additions 7,300 1,717 235.2 447 26.0%

Written down 2 441 2% North 1,811 9% 31 December 2014 18,062 4,040 223.7 1,017 25.2%

Total 19,814 Total 19,814 2015 additions 6,058 1,667 275.2 441 26.4% 31 December 2015 19,814 4,894 247.0 1,247 25.5% 1 Plots held at cost (downturn being July 2008) See map on page 6 2 Plots held below cost at net realisable value Estimates based on prevailing sales prices and prevailing build costs

Demand versus supply 80 Net balance % 60 Strategic report Rising 40 Residential land prices | | | 20 20 150 Annual report and accounts Strategic report Our business and strategy

0 125 -20

-40 100 RICS new buyer enquiries -60 75 RICS new vendor instructions Falling -80 2007 2015 50 Jan 2004 Jul 2011

Source: RICS Source: DCLG

Housing market transactions Approvals of mortgages for house purchases 1500 120

100 1125 80 750 ‘000 ‘000 60

375 40

20 0 Jan 2007 Dec 2015 2010 2011 2012 2013 2014 2015

Source: HCA Source: Bank of England

Gross mortgage lending Growth in residential planning approvals 400 30 350 20

300 10 250 0 200 % £bn -10 150 -20 100 Units -30 50 Projects 0 -40 2005 2006 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 2013 H12014

Source: National Statistics Agency Source: HBF

Creating aspirational homes using its well specified Portfolio traditional housing range in desirable settings, delivered with excellent customer service

Our approach Progress in 2015

Bovis Homes differentiates itself with its internally The Group achieved the following during 2015: developed Portfolio traditional housing range incorporating great space whilst being efficient to • The Group increased the proportion of private build, and all-inclusive specification. legal completions of Portfolio homes to 55% from 38% in 2014 The Group has a clear customer journey to ensure that each customer’s experience is a positive one, • The business increased production by 12% during 2015 from the initial enquiry through to moving into a new but delays due to labour shortages have impacted the high quality home. Group’s customer satisfaction scores

Priorities for 2016 KPIs

The Group is focussed on delivering the following Customer satisfaction in 2016: (2014: 3H) • A further increase in the proportion of private legal 3H completions from the Portfolio range % private homes from Portfolio range • Improving customer satisfaction scores 55% (2014: 38%)

Our homes

100 Private and social homes legally completed 13% 12% Homes 2015 2014 21% 18% 19%

80 18% Private 3,086 78% 2,931 81% 21% 22% Social 848 22% 704 19% 29% Apartments Total 3,934 3,635 60 39% 3 storey Traditional Private homes by type legally completed Homes 2015 2014 40 70% 66% 2 bedroom 231 8% 342 12% 59% 53% 3 bedroom 1,339 43% 1,352 46% 20 40% 4 and 5 bedroom 1,132 37% 858 29% Apartments 384 12% 379 13% 0 2011 2012 2013 2014 2015 Total 3,086 2,931 Legal completions

Bovis Homes Group PLC | 21 Strategic priorities

Growing to 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 2015

In 2014 the Group set out a strategic plan which • The Group has delivered a 8% increase in in a stable housing market expects over the completions to 3,934 homes medium term to deliver 5,000 to 6,000 new • Private reservations (excluding PRS) increased by homes annually with premium profit margins 10% during the year to 2,986 benefiting from the effectiveness of the operating model. • Growth locked into the land bank with 142 consented sites under our control The Group will continue to evolve its organisational structure to manage effectively this increased annual volume and will augment its resources to support growth as further land investment occurs.

Priorities for 2016 KPIs

• Further growth towards optimal scale with an Number of legal completions increasing number of legal completions and private reservations 3,934 (2014: 3,635) • An increase in the average number of Average active sales outlets active sites

• Two new operating regions to support delivery 102 (2014: 97) of legal completions in 2016 Our business and strategy |

Active sales outlets Private reservations (excluding PRS)

Number of active sales outlets 2015 2014 Year ended 31 December 2015 2014

Brought forward 103 94 Brought forward 756 692

Outlets opened in year 26 25 Reservations 2,986 2,709

Outlets closed in year (28) (16) Legal completions (2,901) (2,645)

Carried forward 101 103 Carried forward 841 756

Average 102 97 Year on year reservation growth +10% +9%

Year on year growth 6% 8% Net sales rate per site per week 0.56 0.54 Strategic report

22 | Annual report and accounts | Strategic report | Our business and strategy

Managing the business across the housing cycle to maximise returns, while effectively stewarding shareholders’ capital

Our approach Progress in 2015

Critical to successful management of the business • Operating profit has risen strongly due to the compound through the housing market cycle is the quantity and positive effect of volume growth, increased ASP and source of land acquired at different points in the cycle. improved operating margin

As the housing market emerges from a downturn, • With capital well controlled, ROCE has increased the Group will invest assertively in consented land. significantly in the period to 18.3% from 16.2% in 2014 The Group aims to limit or halt investment in the • Circa 4,400 plots have been added to the strategic consented land market well before the housing market landbank to support the investment in consented land peaks and a cyclical correction occurs. As competition increases in the consented land market the conversion • 37% of consented plots added in the year were of strategic land is critical. The Group has the experience converted from the strategic land bank to deal with a downturn, reducing the capacity of its business in the short term and generating surplus cash.

Priorities for 2016 KPIs

• Continued improvement in ROCE Capital turn

• Conversion of key strategic sites to consented (2014: 0.95) land bank 1.05

• Further incremental investment in the strategic % of consented land bank from strategic conversion land bank 41% (2014: 45%)

Return on capital employed

18.3% (2014: 16.2%)

Capital efficiency metrics Strategic land bank

2015 2014 Year ended 31 December 2015 2014 Total potential plots as at 31 December Plots Plots

Capital turn (1) 1.05 0.95 South 15,579 13,946

Average plots per site acquired 173 174 Midlands 6,716 6,450

Work in progress turn (2) 3.5 3.6 North 788 954

(1) Capital turn is calculated as revenue divided by average capital employed excluding Group strategic land bank 23,083 21,350 net cash

(2) Work in progress turn is calculated as revenue divided by work in progress Years’ supply based upon legal completions in the year 5.9 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 2015

The Group recognises the critical role that its • The employee numbers have grown from 928 at the people play in the delivery of the strategic plan. start of 2015 to 1,062 at the end of 2015 Business growth has been supported by higher levels of investment to support recruitment, • The last employee survey carried out in 2014 training and development of staff. showed engagement at 78%

Health and safety is a core value within our business. • Continuing strong health and safety performance, albeit with an increase in RIDDORs in the year

Priorities for 2016 KPIs

• Improve employee engagement, and reinforce Employee engagement our core values across the Group

• Expand the assistant site manager and 78% apprentice programme to increase the intake NHBC risk incidence in 2016 • Focus on ensuring all sites fully adopt our 45 (2014: 39) stringent health and safety procedures RIDDOR reportables Our business and strategy

| (2014: 24)

Annual injury incidence rate (AIIR) Sustainability

1000 Year ended 31 December 2015 2014

800 Number of homes built to Level 3 CSH 1,787 1,605

600 Active waste generated per100 home (tonnes) 3.2 2.8 719 663 Bovis Homes Group PLC 2015 Active waste sent to land 90fill per home (tonnes) 0.19 0.28 577 400 567 Bovis Homes Group PLC 2014

80 95% 94% HSE Construction AIIR 2014/15 93% 200 HSE Construction AIIR 2013/14 70

0 60 50

Strategic report 20

10 24 | Annual report and accounts | Strategic report | Our business and strategy 0 2011 2012 2013

Would recommend a Bovis Home to a friend

Bramble Chase Honeybourne

Bovis Homes Group PLC | 25 Principal risks and uncertainties

Risk Description Impact Link to strategic Mitigations Impact change Likelihood change Residual risk after mitigation priorities from last year from last year

Market risk

Economic Deterioration of the health of the Adversely affects consumer confidence and • Close monitoring of lead indicators in the housing environment UK economy, brought about by demand for new homes, with consequential market, notably visitors to sales outlets, sales rates s higher interest rates and increasing impact on revenues, profits and potentially and ASP = unemployment, leading to decreased asset carrying values • Managing build rates against sales activity affordability, reducing demand for housing and falling house prices • 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

Mortgage The availability of mortgage finance, Increased restrictions on mortgages granted • Close monitoring of market data for mortgage finance particularly deposit requirements for could reduce demand for homes and approvals first time buyers, is fundamental to therefore revenues and profits = = • Investing in land more suited to traditional homes, customer demand with reduced focus on the first time buyer

• Providing a range of purchase assistance schemes to our customers

Operational risk

Materials and Increasing production across the The Group’s ability to build is constrained • Maintain clear visibility of future production subcontract industry may lead to shortages of both and may impact profitability if costs rise requirements and its impact on suppliers and s = labour materials and subcontract labour subcontractors • Maintain close relationships with key suppliers and subcontractors to gain visibility of future supply Our business and strategy

| against need

Land Insufficient land acquired with outline Expansion of the business and delivery • Clearly defined strategy and geographical focus procurement consent or conversion of strategic land of the Group’s strategic plan to improve • Rigorous due diligence for land acquisition to preserve t assets to support housing development shareholder returns from the development = defined hurdle rates of land is curtailed, with existing activity levels compromised • 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 Strategic report

26 | Annual report and accounts | Strategic report | Our business and strategy

Risk Description Impact Link to strategic Mitigations Impact change Likelihood change Residual risk after mitigation priorities from last year from last year

Market risk

s HIGH higher interest rates and increasing impact on revenues, profits and potentially and ASP = unemployment, leading to decreased asset carrying values • Managing build rates against sales activity affordability, reducing demand for housing and falling house prices • 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

Mortgage The availability of mortgage finance, Increased restrictions on mortgages granted • Close monitoring of market data for mortgage finance particularly deposit requirements for could reduce demand for homes and approvals LOW first time buyers, is fundamental to therefore revenues and profits = = HIGH • Investing in land more suited to traditional homes, customer demand with reduced focus on the first time buyer

• Providing a range of purchase assistance schemes to our customers

Operational risk

Materials and Increasing production across the The Group’s ability to build is constrained • Maintain clear visibility of future production subcontract industry may lead to shortages of both and may impact profitability if costs rise requirements and its impact on suppliers and LOW s = HIGH labour materials and subcontract labour subcontractors • Maintain close relationships with key suppliers and subcontractors to gain visibility of future supply against need

• Rigorous due diligence for land acquisition to preserve LOW t HIGH assets to support housing development shareholder returns from the development = defined hurdle rates of land is curtailed, with existing activity levels compromised • 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 2014 2015

Bovis Homes Group PLC | 27 Principal risks and uncertainties

Risk Description Impact Link to strategic Mitigations Impact change Likelihood change Residual risk after mitigation priorities from last year from last year

Operational risk

Planning and Changes in the regulatory framework Increased costs and significant delays • Land acquisition costs appropriately reflect latest procurement or local planning policy and procedures in production leading to reduced legal planning requirements that cannot be mitigated s s completions • Close monitoring of changes in planning policy by Reduced number of active sales outlets due experienced team to delays in planning process leads to lower • Maintain close relationships with local planning build and sales activity departments

• Close monitoring of key milestones on all pipeline developments

People and An inability to attract, develop or retain The loss of key staff or the failure to attract, • A reward system that motivates achievement of capability good people develop and retain suitable talent may inhibit performance targets s the Group’s ability to achieve its strategy = • Development programmes tailored to our employees

• Assistant site manager and apprenticeship schemes

Health, Unsafe practices in our construction A loss of trust in the ability of Bovis • A consultative committee reviews performance safety and activities causing injury or death to Homes to build homes safely and in an and regulatory requirements for health, safety and = s environmental our stakeholders and damage to environmentally responsible way, affecting environmental matters communities the reputation and financial health of • Monitoring health, safety and environmental the business performance against a standard of excellence

• A requirement for regular training for all staff and site based personnel

Customer Product quality and service standards The reputation of the Bovis Homes brand is • All homes built are subject to NHBC building service that do not meet our customers’ diminished with an adverse effect on sales control inspections

Our business and strategy = s

| expectations volumes and returns

• 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 Strategic report

28 | Annual report and accounts | Strategic report | Our business and strategy Risk Description Impact Link to strategic Mitigations Impact change Likelihood change Residual risk after mitigation priorities from last year from last year

Operational risk

Planning and Changes in the regulatory framework Increased costs and significant delays • Land acquisition costs appropriately reflect latest procurement or local planning policy and procedures in production leading to reduced legal planning requirements that cannot be mitigated LOW s s HIGH completions • Close monitoring of changes in planning policy by Reduced number of active sales outlets due experienced team to delays in planning process leads to lower • Maintain close relationships with local planning build and sales activity departments

• Close monitoring of key milestones on all pipeline developments

s HIGH the Group’s ability to achieve its strategy = • Development programmes tailored to our employees

• Assistant site manager and apprenticeship schemes

= LOW environmental our stakeholders and damage to environmentally responsible way, affecting environmental matters HIGH communities the reputation and financial health of • Monitoring health, safety and environmental the business performance against a standard of excellence

• A requirement for regular training for all staff and site based personnel

s LOW expectations volumes and returns = HIGH • 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

Bovis Homes Group PLC | 29 Risk management

The Board is required to assess the prospects of the The Group’s financial plan has been stress tested against scenarios Company, taking account of its current position and to assess the future viability of the Group. The potentially highest principal risks, and to explain how this has been done, over impact risks, from a Group viability point of view, are seen as what period and why that period is considered appropriate. those which arise from a downturn in the economic environment within the UK, leading to decreased affordability, reduced The assessment context demand for housing and falling house prices. In modelling an The Board has considered the longer term viability of the Group, economic downturn assumptions have been applied to the plan reviewing this over a 5 year period based on the strategy as numbers that are based on the Group’s experience and the wider outlined on pages 18 to 24, the current performance of the sector’s experience of historical declines in the housing cycle. Group and its principal risks. The average life cycle of our Specifically our economic downturn scenario has applied housing developments falls within a 5 year time period and this sensitivities to the assumptions on sales rates, pricing and costs aligns with the timeframe focused on for the annual strategic but has assumed that current interest rate policies remain in review exercise conducted within the business and reviewed place and does not specifically evaluate the impact of a material by the Board. It is also in line with the financing arrangement change to the current political climate which is supportive of renewed by the Group in 2015. the housebuilding sector. The sensitivities along with the impact The Group’s current strategy was communicated in detail during of the expected mitigating actions that would be taken by the 2014 and remains unchanged. The Board has considered the Group, were overlaid on the Group’s 5 year Strategic Plan. Group’s risk appetite and believe this to be towards the lower The key mitigating actions we expect the business to take in a end of the risk scale for the housebuilding sector. The Board downturn include restricting investment in land, reducing the have highlighted the following elements of the strategy as key level of production and work in progress held and optimising our considerations in reaching this view, all of which have an impact overhead base to ensure it aligns with the scale of operations on the Group’s key investment decisions: through the cycle.

• Focused on a Southern biased geography The results of this stress testing indicated that the Group would be able to able to withstand the impact of these assumptions, • Targeted at edge of town and large village greenfield locations taking into account the impact of mitigating actions, on the • Delivering a high proportion of standard Portfolio Group’s financial performance. designed housing Viability statement • Traditional two storey family housing is the core product Based on the results of this analysis, the Board have a reasonable offering with only limited low rise apartments in the mix expectation that the Company will be able to continue in • The Group’s strategy is to be more or less self-financing in operation and meet its liabilities as they fall due over the five terms of growth ambitions with low levels of debt and modest year period reviewed. land creditors Going concern The assessment process and assumptions The directors also considered it appropriate to prepare the

Our business and strategy During 2015, the Board carried out a robust assessment of the financial statements on the going concern basis, as explained in |

principal risks facing the Group, including those that would the Basis of preparation paragraph in note 1.3 to the accounts. threaten the execution of its strategy, future performance In forming this view, the Group has analysed its forecast and liquidity. Management and mitigations of those principal risks covenant compliance over the period linked to its banking have been taken into consideration when considering the future arrangement, arriving at an assessment of the headroom evident viability of the Group. The Group’s principal risk review, as set out between the forecast covenant headroom and the outcomes on pages 26 to 29, considers the impact of these principal risks necessary to achieve covenant compliance. and the mitigating controls that are in place. As part of its The Group entered into its current banking arrangement on annual strategic review the Board considered the Group’s 5 year 3 December 2015. This arrangement provides a committed financial plan, the core assumptions underpinning this plan and revolving credit facility with a limit of £250 million maturing how the current economic environment may impact this plan. in December 2020. The Group regards its current banking The early years of the financial plan are prepared in detail with the arrangement as adequate for its needs in terms of flexibility basis being the development of our existing land bank. and liquidity. As at 31 December 2015, the Group had nil There is inherently more uncertainty in the later years of the drawings under the facility and had net cash of £30 million. plan as these incorporate a higher level of assumed housing completions from land owned currently without planning or land More details on the Group’s approach to financial risk not currently owned by the Group. management are laid out in note 4.6. Strategic report

30 | Annual report and accounts | Strategic report | Our business and strategy

Abbotswood Romsey

Bovis Homes Group PLC | 31 Strategic report | Corporate social responsibility Our corporatesocialresponsibility environment andcommunity,whichaligntoourstrategicprioritiesbusinessmodelasfollows: and reducingtheemissionsfromouractivities.WehaveidentifiedthreepillarsofCSRstrategy–people, improving resourceefficiencyandreducingoperationalrisk,whilstminimisingourimpactontheenvironment our growthstrategyandobjectives.Wearecommittedtoenhancingsustainabilityperformancethrough Our corporatesocialresponsibility 32 | Annualreport andaccounts Community Environment People Sustainable businessmodel housing needs Identifying local ethical manner Engaging inan species eradicating invasive relocating wildlife; Protecting and assessments transport andpollution Undertaking ecological, Land acquisition Land acquisition strategic land Promoting sought afterlocations Investing inland Land acquisition Recruiting, developingandsupportingtalentedstaff Design Design with thelocalarea Designing homesin-keeping provision contributing towardstheir Developing travelplansand community facilities Providing onandoffsite with thelocalcommunity Consulting andengaging through productevolution Reducing potentialwaste biodiversity wildlife habitatstoprotect Incorporating openspacesand Optimising watermanagement Effective useofland specification ofourhomes High energyefficiency inthe to meetcustomerneeds Portfolio housingrange Using ourfully-specified desirable communities Designing sustainableand Design | Strategic report through longtermsustainableemployment (CSR) prioritiesarelinkedwiththedirectionofourbusinessindelivering | Corporate socialresponsibility impact onlocalresidents Considerate buildtolimit suppliers sub-contractors and relationships withlocal Creating strong materials Use ofsustainable on alldevelopments management processes Standard waste material waste practices tominimise Ongoing betterworking Build Build within thecommunity construction environment Creating asafe homes Safely buildingquality Build (CSR)

priorities

for homes Meeting localdemand with localbusinesses Building relationships landlords registered social Working with Sales Sales our customers efﬁcient homesto quality, energy Delivering high the housingcycle meet demandacross assistance schemesto Providing purchase customer service Providing great Sales Sustainable shareholder value shareholder Sustainable

Our policy

Our CSR policy is managed by the Executive Leadership Team (ELT). The ELT comprises senior directors with operational and functional responsibilities and is chaired by David Ritchie, Chief Executive. Ultimate responsibility for corporate social responsibility, including climate change policy, lies with the Board of Bovis Homes Group PLC and the Chief Executive as the nominated director.

Supporting the CSR policy are other policy documents covering health and safety, the environment, ethics and conduct, equal opportunities and whistleblowing, all of which are reviewed annually.

You can find further information on our CSR policy on our website, www.bovishomesgroup.co.uk

Performance during the year People During the year, the Group received two awards for its health and safety performance:

Aim • the Royal Society for the Prevention of Accidents (RoSPA) Gold To ensure that people’s experiences with us are safe and positive. Award for the 19th consecutive year; and

• a further British Safety Council International Safety Award. KPI 2015 2014 Our annual internal health and safety award scheme has also HBF customer satisfaction rating 3 Star 3 Star continued and is presented to the site management team achieving the best health and safety rating. Annual injury incidence rate 719 663 We are continuing to do more to increase the safety of our sites. Voluntary staff turnover (%) 26 24 The number of directors’ site tours undertaken has increased significantly, from 327 in 2014 to 628 in 2015. The site tours Training days completed (no.) 2,634 2,415 enable directors and senior managers to effectively support our site teams in attaining high health and safety standards. Our improving Customers safety culture is also reflected in a 65% increase in the number of Our objective near-misses reported of 4,265, up from 2,562 in 2014. Near-miss reporting enables hazards to be identified and dealt with before an Ensure that each customer’s experience is a positive one by incident occurs. following our Customer Journey. These improvements have not yet come through to the annual Performance during the year injury incidence rate, which at 719 represents an increase on the The Group has maintained its HBF customer satisfaction rating previous year. Initiatives are in place to further target improvements of 3 Star alongside the growth in the business to 3,934 legal in this incidence rate, for example daily activity briefings which completions (2014: 3,635). highlight health and safety matters affecting site operations during the day ahead. We have updated our Customer Journey and implemented a revised home inspection regime prior to completion to ensure that our Health and safety training has always been a key focus for homes meet the high expectations of the Group and our customers. the Group and this continued in 2015, with increased attention on the core competencies of staff joining the business. Priorities for 2016 The Group delivered 1,528 (2014: 1,100) health and safety • Return our HBF customer satisfaction rating to 4 Star. training attendances of varying duration on a range of topics, in line with the requirements of the expanding business. This was • Ensure consistent delivery of the Customer Journey. achieved through the concerted efforts of the Group Health Health and Safety Safety and Environment Director and regional staff, working together with external health and safety training providers. Our objective Ensure our activities are undertaken in a safe manner. Priorities for 2016 • Improve near miss reporting.

• Reduce the annual injury incidence rate.

• Embed daily activity briefings.

Bovis Homes Group PLC | 33 Employees To help improve communication with staff, and to keep them Our objective updated on the Group’s performance and matters of concern or interest to employees, a new intranet service was launched We endeavour to create a safe working environment, one to complement the news magazine and emails that are sent to where our staff feel valued, are treated with respect and are all staff. Consultations are held at staff meetings and personal provided with opportunities for personal development. briefings are provided by elected employee representatives. The Chief Executive and Group Finance Director provide Performance during the year presentations to staff at all regional offices at key points in The Group created 128 new roles during 2015, increasing the year. total staff numbers by 14% to 1,062. The Group continues to apply its employment policies to not discriminate between Training employees, or potential employees, on the grounds of gender, We have continued our investment in training during the sexual orientation, age, colour, creed, ethnic origin or religious year, spending £331,000 on employee training in support of belief. It is Group policy to give full and fair consideration the Group’s policy to train and develop employees to ensure to the employment needs of disabled persons (and persons that they are equipped to undertake the functions and tasks who become disabled whilst employed by the Group) where for which they are employed, and to provide the opportunity requirements may be adequately covered by these persons for career development equally and without discrimination. and to comply with any current legislation with regard to Employees continue to receive regular training covering topics disabled persons. such as health, safety and environmental matters. A total

In line with our peers, the voluntary employee turnover rate of 2,634 training days were delivered during the year increased slightly to 26% due to the increasing demand for (2014: 2,415). skilled staff within the house building industry. We work The Build Academy was launched in 2014 as a four day hard to attract and retain the talented people that we need residential training course for all site-based management. and during 2015 we increased the holiday allowance and The course was well received and we have incorporated the introduced more flexible working where this is appropriate. Build Academy into the Employee Journey for all new site-

The increase in total staff numbers highlighted the need to based management. ensure that the Company’s culture and values are embedded We continued our trainee assistant site manager programme at all levels of the organisation. This formed part of a by actively encouraging applications from ex-armed forces discussion at the Group’s Senior Leadership Conference on personnel. This is a ten month training programme that equips how to safely build quality homes. The senior leadership team staff with the skills necessary to become part of the site has also been strengthened in line with the growth of management team. During 2015, 12 employees that started the business. the programme in 2014 were promoted to Assistant Site

Our employee engagement survey is undertaken every Manager positions.

Corporate social responsibility two years. The last survey took place in 2014 and showed We also continued our site based apprenticeship scheme with |

employee engagement at 78%. As part of reinforcing our core 36 new apprentices joining the Group during the year to bring values, we are working to improve our employee engagement the total to 43 apprentices. We will continue to develop this score. We have introduced an ‘Employee Journey’, a structured programme during 2016. induction programme for every employee covering their first three months with Bovis Homes. We also launched a new appraisal process for all staff. The Group continues to operate both a defined benefit pension scheme and a defined contribution pension scheme. It also 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. Strategic report

34 | Annual report and accounts | Strategic report | Corporate social responsibility Director and employee profile Jake takes the apprentice prize The following table shows the gender split within the Group as at 31 December 2015. 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 2015, there were nine senior managers (all male) who were directors of Group subsidiaries.

Analysis by role and gender

Role Male Female Total

Non-executive directors 3 1 4 Executive directors 2 0 2 Senior managers 16 1 17 Managers 141 46 187

Site and sales staff 273 114 387 Young Honiton carpenter Jake Pulman showed that Support staff 201 221 422 he really has nailed his new career by being crowned Apprentices 40 3 43 champion apprentice at Bovis Homes in 2015.

Total 676 386 1,062 Jake, in his second year with the Company, landed the blue riband prize and a £500 voucher at the Apprentice of the Analysis by age Year awards held in Bristol.

Age No. of % employees The 20-year-old, who is attending Exeter College and has

<21 years 48 4.5 been working on two Bovis Homes developments at nearby Cranbrook, was a worthy winner of the coveted Apprentice 21 – 30 years 191 18.0 of the Year honour according to Group Land Director, 31 – 40 years 197 18.6 Malcolm Pink. 41 – 50 years 276 26.0 51 – 60 years 270 25.4 “Our apprentice awards have been going from strength to strength since they started four years ago, and to be a >60 years 80 7.5 winner you really do have to be the best of the best,” said Total 1,062 100 Malcolm. “Jake has only been with us for 18 months, but he has already made an impact and has just those qualities Priorities for 2016 of commitment and dedication, together with a can-do • Reinforce our core values across the enlarged Group. attitude, that we look for and foster here at Bovis Homes.”

• Embed the Leadership values into the business through a 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.

Bovis Homes Group PLC | 35 .

Greenhouse gas (GHG) emissions Environment Our objective Effectively manage our carbon emissions. Aim Performance and methodology To effectively manage and reduce the impact of our operations GHG emissions have been reported from all sources required on the environment. under the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013. These sources fall within KPI 2015 2014 the Group’s operational control. The Group does not have responsibility for any emission sources that are not included Active waste* diverted 94% 90% in the consolidated financial statements and are outside the from landfill boundary of operational control.

Active waste* generated per During the year, measures were operated to collect emissions 3.2 2.8 home (tonnes) data from our construction sites for the third year running. Where this data was incomplete at the year end, we have Total GHG emissions per extrapolated total emissions by using (i) an averaging approach 1.40 1.57 legally completed unit to extend data to a full year for sites with part-year data, and (ii) applied an average calculated from all sites to sites Legal completions to level 3 returning inadequate data. and above Code for 1,787 1,605 The calculations allow for sites which opened and closed Sustainable Homes during the year.

*Active waste is non-hazardous waste that is likely to change in GHG emissions have been calculated using emission factors composition (e.g. decay) in landfill, such as packaging, wood or plastic. from UK Government’s GHG Conversion Factors for Company Reporting 2015. Scope 1 emissions arise from the consumption Waste of gas at our facilities, diesel on construction sites and UK Our objective business mileage in fleet cars. Emissions from air conditioning in offices have been excluded as not being material. Scope 2 Ensure the efficient use of materials in the construction of emissions represent purchased electricity. our homes.

Greenhouse gas (GHG) emissions data for the period Performance during the year 1 Jan 2015 to 31 Dec 2015 (with prior year comparatives) The Group has continued to re-use or recycle materials and has increased the amount of active waste diverted from landfill to Emissions from: 2015 2014 Unit 94%. The amount of active waste sent to landfill during 2015 Combustion of fuel at our was 0.19 tonnes per home (2014: 0.28). This improvement facilities and construction 4,168 4,168 continues to reflect our focus on reducing, re-using and sites as well as fleet vehicle * Corporate social responsibility

| recycling and we are reminding all staff and sub-contractors of use (Scope 1 emissions) the importance of minimising waste from our activities. Purchased electricity * 1,324 1,527 We continue to work with our suppliers to recycle and re-use (Scope 2 emissions) other waste such as timber and plasterboard. Total GHG emissions 5,492 5,695 * Our research and development for our Portfolio range of (Scope 1 and Scope 2) homes continues to enable more efficient build processes to be undertaken and reduce the amount of waste generated from Company’s chosen intensity our activities. measurements: (i) Total GHG emissions per 1.40 1.57 Priorities for 2016 legally completed unit ** • Reduce active waste per home. (ii) Total GHG emissions • Reduce active waste sent to landfill. per 1,000 sq ft legally 1.36 1.57 † completed • Reduce inert waste (brick and block) per home.

* Tonnes of CO2e ** Tonnes of CO2e per legally completed unit † Tonnes of CO2e per 1,000 sq ft legally completed Strategic report

36 | Annual report and accounts | Strategic report | Corporate social responsibility .

A number of our sites also incorporate allotments with priority Our homes given to residents, and during 2015 we have committed to provide 128.9 hectares of open space through new sites acquired by the Bovis Homes has always been an advocate of the ‘Fabric Group (2014: nil). First’ approach to energy efficiency, designing our homes All sites are reviewed at acquisition stage to determine the likely to be highly efficient and concentrating first and foremost ground conditions and the type of surface water measures required on reducing the demand for space heating and hot to limit surface water discharge and any potential for localised water heating. This is being continuously improved flooding. This involves active consultation with the Environment via research and development of modern methods of Agency and water authorities to ensure that there is, as a construction with traditional materials. All of our timber minimum, no impact from our development on local is obtained from FSC and PEFC managed sources. flood conditions. Our Fabric First principle involves: • Improvements in the fabric of our homes in walls, floors, Investing in Devon’s development roofs, windows and doors.

• Installing higher levels of insulation materials in our walls and loft spaces.

• Enhancing the thermal performance of construction junctions to reduce heat loss and cold bridging.

• Improving permeability to control unnecessary heat loss.

• Improving the efficiency and performance of ventilation systems. Bovis Homes is making a major investment in the Priority for 2016 preservation and enhancement of the Devon environment as part of the consortium of • Reduce our GHG emissions against our chosen intensity measures. housebuilders delivering the new Sherford Open space, ecology and sustainable development, just a few miles south of Dartmoor. water management Before a brick has been laid, more than £1 million worth of Our objective planting and environmental improvements are already taking place. Limit the impact of our developments on the local environment and promote sustainable development. The work forms part of the largest habitat creation scheme in the South West, and has seen 200,000 trees Ensure our developments provide adequate areas for recreation (22 hectares) already planted on site by local contractors. and wildlife. This is the first stage in creating a 500-acre community Performance during the year parkland, which will be accompanied by allotments, urban parks, communal gardens, as well as an extensive network All of our sites are subject to extensive pre-construction of cycle and footpaths. assessments. Our ecology assessments include an evaluation of the suitability of habitats for protected species and proposals “In many developments the houses come first and the green to mitigate the impact of our developments more generally. space comes later, but not at Sherford,” said Wayne Mitigating measures can include translocating species and Bennett, Sales and Marketing Director - South West region. creating wildlife corridors. An archaeological assessment will also “From the outset, the vision for Sherford has been a be undertaken to determine whether a site is likely to contain community integrated into the picturesque Devon archaeological remains and any mitigating actions that may countryside. We are committed to honouring this and the be required. woodland and parkland is our foundation, taking shape well ahead of building work.” 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 Priority for 2016 net improvement to the number of habitats, through planting and the inclusion of bird and bat boxes and other wildlife habitats. • Continue to support the development of sustainable and ecologically diverse living environments.

Bovis Homes Group PLC | 37 .

Community and infrastructure improvements Community Objective Develop sustainable and desirable homes, positively Aim contributing to existing communities. To add value to the communities we operate in. Performance during the year KPI 2015 2014 As part of our land acquisition programme, during the year we have committed to provide £56.8 million of improvements Affordable housing to infrastructure, facilities and local communities which 848 704 completions both support the forthcoming developments and the wider local area. These improvements are agreed with local S.106/CIL commitments £56.8m - stakeholders and depend on the priorities in each local areas. Typically, improvements relate to: Education commitments £31.6m - • open space, including wildlife habitats, sports facilities, communal gardens and allotments; Affordable housing • road improvements, including access to developments and Our objective improving junctions in the local area; and To deliver mixed tenure developments that meet local needs • community buildings, such as community centres and and facilitate community cohesion. sports pavilions.

Performance during the year An important element of any community is the provision of During the year we continued to build on our positive education and, in conjunction with the relevant local authority, relationships with registered social landlords to help provide we ensure that appropriate provision is made for all of our affordable housing that meets the needs of local communities. developments. During the year we have committed to provide Of our 3,934 units (2014: 3,635) completed in 2015, 848 were £31.6 million towards new primary and secondary school sold to registered social landlords, representing 22% of the places, which will not only support the new developments but homes we sold (2014: 704 and 19%). also meet demands in the wider local community.

Priority for 2016 Priority for 2016 • Continue to develop our strategic partnerships with • Work with local stakeholders to identify community priorities registered social landlords. for improvements on our new sites.

Supply chain Charity Our objective Our objective

Corporate social responsibility To be the preferred partner for our sub-contractors and suppliers. Support good causes and encourage our staff to participate in |

charitable events. Performance during the year We work with suppliers at national, regional and local levels Performance during the year and have a number of Group wide supply agreements in place We encourage each of our regional businesses to positively for the provision of materials. We seek to engage with all contribute to the communities that they are working in. suppliers in a proactive and responsible manner. Each of our Initiatives can include making donations, sponsorship or sites is subject to a tender process for sub-contracted works providing assistance to complete projects. In addition, our in which we encourage local businesses to take part, which in regional offices encourage staff to participate in national turn can create employment opportunities in the local area. charitable events and make donations to good causes, such as Children in Need and MacMillan Coffee Morning. We recognise that cash flow is a key part of running a business As an incentive for customers to complete our feedback in our supply chain and have implemented weekly payment questionnaires we also offer to make a donation to Children runs to ensure our suppliers are paid promptly. in Need.

Priority for 2016 The Group also supports The Fifty Foundation, a charity that • Continue to build on our relationships and support our provides small grants to retired Lendlease and Bovis Homes staff sub-contractors and suppliers. who need financial assistance for home repairs or adaptations. Strategic report

38 | Annual report and accounts | Strategic report | Corporate social responsibility .

Priority for 2016 Community • Continue to encourage and support our staff in their fundraising efforts for local good causes.

The Centre of attention

Teaming up with the local playgroup in Bude!

Work was completed in 2015 on a new £1 million community centre as part of the Coopers Edge community near Brockworth, Gloucestershire, where Bovis Homes have a number of developments.

Jeremy Cook, Associate Commercial Director - Western region, said: “We’re proud of what the Consortium is creating at Coopers Edge, and delighted at how quickly a Supporting urban environment work in Great Barr strong community spirit has developed alongside the new homes and infrastructure.

“This new community centre is a symbol of that spirit and a real milestone in the life of this development. It is the latest in a host of fantastic new facilities being provided for local residents, such as play areas and sports pitches, that are making Coopers Edge so popular.”

The new single-storey centre built by the consortium of builders at Coopers Edge provides three multi-use rooms, storage, disabled access, changing and kitchen facilities as well as a double height hall for a range of activities. Externally, the building is reflective of the local area with Cotswold stone in use throughout. Staging an information event at Stanton Cross

Strategic report approval The strategic report outlined on pages 2 to 43, incorporates the financial highlights, the chairman’s statement, the strategic review, the chief executive’s review, the financial review, the risks and uncertainties review and corporate social responsibility review.

By Order of the Board Earl Sibley Group Finance Director 19 February 2016

Bovis Homes Group PLC | 39

Corporate social responsibility |

Strategic report

40 | Annual report and accounts | Strategic report | Corporate social responsibility

Abbey Vale Evesham

Bovis Homes Group PLC | 41 Strategic report | Our financial performance Financial review 42 the housinggrossmarginwasmaintained. Inaddition,the of 4%persquarefoot,althoughthese gainslargelyensured increased by8%persquarefoot, ahead ofsalespricegains 24.5% in2014.During2015,the Group’sconstructioncosts Housing grossmarginwas24.4% in2015,broadlylinewith land onlargesites,oftenstrategicallysourced. managing itscapitalbasethroughthedisposalofparcels (2014: £3.9million)astheGroupcontinuesitsstrategyof The profitonlandsalesin2015was£8.8million compared with£197.2million(grossmargin:24.4%)in2014. Total grossprofitwas£232.3million(grossmargin:24.5%), 17.3% (2014:17.0%). (2014: £137.6million)atanoperatingprofitmarginof the yearended31December2015to£163.5million The Groupdelivereda19%increaseinoperatingprofitfor Operating profit sales achievedin2014withatotalrevenueof£21.6million. land sales,was£30.0millionin2015,comparedtothree (2014: £4.2million).Landsalesrevenue,associatedwithfour year (2014:£783.6million)andotherrevenuewas£6.4million Housing revenuewas£910.1million,16%aheadoftheprior increase of17%onthepreviousyear(2014:£809.4million). The Groupgeneratedtotalrevenueof£946.5million,an Revenue | Annualreport andaccounts return oncapitalemployed. resulted intheGroupachievingitstargetfor This alongwithastrongbalancesheethas and capitalturnimproving. performance withearningsgrowingstrongly The Grouphasdeliveredarobustfinancial Group FinanceDirector Earl Sibley | Strategic report | Ourfinancial performance resulted inareturnonequityof15%(2014:13%). 95.4p comparedto78.6pin2014.Thisimprovementhas Basic earningspersharefortheyearimprovedby21%to and IIHOakInvestorsLLPPRSpropertyportfoliosintheperiod. 2015 includedthebenefitsofrevaluingbothBovisPeerLLP joint venturesof£0.3million.Theprofitfromin profit, £4.4millionofnetfinancingchargesandaprofitfrom tax in2014,whichcomprised£137.6millionofoperating £1.8 million.Thiscomparesto£133.5millionofprofitbefore charges of£5.2millionandaprofitfromjointventures comprising operatingprofitof£163.5million,netfinancing Profit beforetaxincreasedby20%to£160.1million, Profit beforetaxandearningspershare reinvest theirdividendsinordinary shares.Combinedwiththe reinvestment plangivesshareholders theopportunityto at thecloseofbusinesson29March 2016.Thedividend on 20May2016toholdersofordinary sharesontheregister final dividendof26.3ppershare. This dividendwillbepaid As previouslycommunicatedtheBoardwillproposea2015 Dividends 2015 (2014:currenttaxliabilityof£14.0million). liability of£16.9millioninitsbalancesheetasat31December at aneffectiverateof21.2%).TheGrouphasacurrenttax effective taxrateof20.0%(2014:charge£28.3million The Grouphasrecognisedataxchargeof£32.1millionatan Taxation other creditsof£0.1million. on itsavailableforsalefinancialassetsduring2015aswell (2014: £3.0million)arisingfromtheunwindingofdiscount The Groupalsobenefitedfromafinancecreditof£2.9million the imputedinterestonlandboughtdeferredterms. million financecharge(2014:£3.0charge),reflecting and issuecostsamortisedin2015.TheGroupincurreda£4.9 than 2014outweighedbyalowerlevelofcommitmentfees million), asaresultofmodestlyhighernetdebtduring2015 £4.4 million).Netbankchargeswere£3.3million(2014:£4.5 Net financingchargesduring2015were£5.2million(2014: Financing from 7.4%in2014. The overheadstorevenueratioimproved7.3%in2015 control andtosupporttheenlargedstructureofGroup. the deliveryoflargenumberlandassetsunderits 15% in2015,astheGroupinvestedearlytoadvance Overheads, includingsalesandmarketingcosts,increasedby mix ofhomesbeingmoreweightedtoexistingsites. completions ofnewhighermarginsitesresultingintheoverall housing grossmarginintheyearwasimpactedbydelays The Group has delivered a robust financial performance with earnings growing strongly

interim dividend paid of 13.7p, the dividend for the full year totals Net cash and cash flow 40p and compares to a total of 35p for 2014, an increase Having started the year with net cash of £5.2 million, the Group of 14%. Maintaining a level of dividend ahead of our base policy generated an operating cash inflow before land expenditure of of one-third of retained earnings is a sign of the Board’s continued £329.1 million (2014: £336.1 million), reflecting higher profitability confidence in the Group’s strategic plan. and increased land cost attributable to legal completions outweighed by increased construction expenditure. Net cash Net assets 2015 2014 £m £m payments for land investment reduced to £230.6 million (2014: £265.8 million), reflecting the increase in land investment Net assets at 1 January 879.1 810.3 being more than offset by higher land creditors. Non-trading cash Profit after tax for the year 128.0 105.2 outflow increased to £98.4 million (2014: £66.7 million) with Share capital issued 0.6 0.5 greater dividend, higher corporation tax payments and a special Purchase of own shares (2.4) – contribution to the pension scheme. As at 31 December 2015 the Group’s net cash balance was £30.0 million with £32.0 million Net actuarial movement on pension scheme through reserves 0.2 (5.7) cash in hand, offset by £2.0 million loans received from the Government. Deferred tax on other employee benefits - 0.3

Adjustment to reserves for share based payments 1.5 0.8 At 31 December 2015, the Group had in place a committed revolving credit facility of £250 million which expires in Net movement in shared equity – (3.5) December 2020. Dividends paid to shareholders (49.2) (28.8)

Net assets at 31 December 957.8 879.1 Financial risk and liquidity The Group largely sees three categories of financial risk: interest As at 31 December 2015 net assets of £957.8 million were rate risk, credit risk and liquidity risk. Currency risk is not a £78.7 million higher than at the start of the year. Net assets per consideration as the Group trades exclusively in the UK. share as at 31 December 2015 were 714p (2014: 655p). With regard to interest rate risk, the Group from time to time Inventories increased during the year by £193.0 million to will enter into hedge instruments to ensure that the Group’s £1,318.5 million. The value of residential land, the key component exposure to excessive fluctuations in floating rate borrowings is of inventories, increased by £139.0 million, as the Group invested adequately hedged. The Group does not have a defined policy for ahead of usage. At the end of 2015, the remaining provision held interest rate hedging. against land carried at net realisable value was £6.7 million, after utilisation of £5.5 million during the year. Other movements in Credit risk is largely mitigated by the fact that the Group’s sales are inventories were an increase in work in progress of £49.8 million generally made on completion of a legal contract at which point and an increase in part exchange properties of £4.2 million. monies are received in return for transfer of title. During 2015, the Group made no shared equity sales. With redemptions taking Trade and other receivables increased by £34.6 million, primarily place, the Group’s long term receivable Available for Sale Financial due to higher amounts owing from housing associations and Asset balance at 31 December 2015 was £35.3 million versus amounts receivable relating to land sales completed in 2015. Trade £39.4 million at 31 December 2014. and other payables totalled £535.2 million (2014: £360.5 million). Land creditors increased to £322.9 million (2014: £198.2 million) Whilst this remains a credit risk in total, each individual credit with the Group taking advantage of the opportunity to negotiate exposure is small given the high number of counter parties. deferred payments to land vendors. Trade and other creditors On average, individual shared equity exposure amounts to £22,950 increased to £212.3 million (2014: £162.3 million), with a 12% (2014: £20,700). increase in build activity leading to increased amounts owed to subcontractors and materials suppliers. Details of the Group’s financing arrangements are included on page 105. The Group regards this facility as adequate in terms Pensions of both flexibility and liquidity to cover its medium term cash flow needs. Taking into account the latest estimates provided by the Group’s actuarial advisors, the Group’s pension scheme on an IAS19R basis Financial reporting had a surplus of £7.1 million at 31 December 2015 (2014: deficit of £0.7 million). Scheme assets grew over the year to £109.3 There have been no changes to the Group’s accounting policies. million from £103.4 million and the scheme liabilities decreased to £102.2 million from £104.0 million. The movements on the scheme in the period include a special contribution from the Group into the scheme of £7.8 million and an increase in the discount Earl Sibley rate applied to liabilities as a result of changes in bond yields. Group Finance Director

Bovis Homes Group PLC | 43 Directors and officers

1 Ian Tyler 2 Alastair Lyons 5 David Ritchie

3 Ralph Findlay 4 Chris Browne 6 Earl Sibley

BoardBoardBoard skillsetskillset skillset ConstructionConstructionConstruction and and and property property property (Number(Number(Number of of directors) directors)of directors) RetailRetailRetail

FinancialFinancialFinancial 44 4 55 5 22 2 StrategyStrategyStrategy and and and business business business development development development 33 3 PeoplePeoplePeople and and and culture culture culture 6 6 6 HealthHealthHealth and and and safety safety safety and and and regulation regulation regulation 55 5 PublicPublicPublic sector sector sector 44 4 66 6 EnvironmentEnvironmentEnvironment and and and sustainability sustainability sustainability

7 Martin Palmer TenureTenureTenure DiversityDiversityDiversity (Number(Number(Number of of directors) directors)of directors) (Number(Number(Number of of directors) directors)of directors)

11 1

33 3 33 3

11 1 66 6

0-20-2 0-2years years years 2-42-4 2-4years years years MaleMaleMale FemaleFemaleFemale 5+5+ years5+ years years Our governance

44 | Annual report and accounts | Our governance 1 Ian Tyler (55) 2 Alastair Lyons CBE (62) 5 David Ritchie (46) Non-executive Chairman Independent, Non-executive Deputy Chairman BA (Hons) ACA, Chief Executive and Senior Independent Director Committee membership: Nomination Committee Committee membership: Nomination Committee Date appointed: 29 November 2013 Committee membership: Chairman of the Date appointed: 03 July 2008 (CEO), director since Remuneration Committee, member of the Nomination Experience: Ian was Chief Executive of Balfour 01 July 2002 and Audit Committees Beatty plc from 2005 to March 2013, having joined Experience: David is a chartered accountant and was the company in 1996 as Finance Director and Date appointed: 01 October 2008 Group Managing Director from 2007 to 2008 and becoming Chief Operating Officer in 2002. He is a Experience: Alastair is non-executive chairman of Group Finance Director from 2002 to 2006 Chartered Accountant and prior to 1996 was Financial Admiral Group plc and was non-executive chairman of He joined Bovis Homes in 1998 as Group Financial Comptroller of Hanson and Finance Director of ARC Serco Group plc and Towergate Insurance until June Controller and has gained extensive experience of Ltd, one of its principal subsidiaries, and held financial 2015. Previously in his executive career, Alastair was the house building industry. David was previously roles at Storehouse plc. He was a non-executive Chief Executive of the National Provident Institution and employed by KPMG where he advised on a number of director of Cable & Wireless Communications Plc until the National and Provincial Building Society, Managing commercial transactions September 2015, where he was also chairman of its Director of the Insurance Division of Abbey National audit committee, and a non-executive director of VT plc and Director of Corporate Projects at National Skills: Leadership, strategic focus and implementation, Group plc until 2010. He became a non-executive Westminster Bank plc. He has a broad base of business business growth delivery director of Mediclinic International plc following its experience with a particular focus on mortgage lending External directorships: Non-executive director of reverse takeover of Al Noor Hospitals Group Plc where and insurance industries. He was awarded the CBE in A.G. BARR p.l.c. where he is also chairman of the he was non-executive chairman 2001 for services to social security having served as a Remuneration Committee Skills: Board leadership and debate, construction non-executive director of the Department for Work and health & safety matters, familiarity with dealing with Pensions and the Department of Social Security international shareholders, business growth and Skills: Broad commercial and detailed mortgage 6 Earl Sibley (43) value creation lending and insurance industry experience BA (Hons) ACA, Group Finance Director External directorships: Non-executive director of External directorships: Non-executive chairman of BAE Systems plc and Mediclinic International plc Admiral Group plc Committee membership: None (formerly Al Noor Hospitals Group plc). Non-executive Date appointed: 16 April 2015 Chairman of Cairn Energy PLC. President of CRASH, Experience: Earl is a chartered accountant and rejoined the construction and property industry charity for Bovis Homes in April 2015 having worked as Group the homeless Financial Controller from 2006 to 2008. Earl held a number of senior finance and operational positions with Barratt Developments plc from 2008 to 2015, 3 Ralph Findlay (54) 4 Chris Browne OBE (55) including Regional Finance Director. He previously Independent, Non-executive Director Independent, Non-executive Director worked for Ernst & Young

Committee membership: Chairman of the Audit Committee membership: Nomination, Remuneration Skills: Leadership, strategic focus, financial and Committee and member of the Nomination and and Audit Committees accounting expertise Remuneration Committees Date appointed: 01 September 2014 External directorships: None Date appointed: 07 April 2015 Experience: Chris was Chief Operating Officer, Experience: Ralph is a Chartered Accountant and is Aviation, of TUI Travel plc until September 2015. Chief Executive Officer of Marston’s PLC, a position She was previously managing director of Thomson 7 Martin Palmer (57) he has held since 2001, having been Finance Director Airways from 2007 to May 2014 and managing FCIS, Group Company Secretary from 1996 to 2001 and Group Financial Controller director First Choice Airways from 2002 to 2007. from 1994 to 1996. He previously held roles with She has a Doctorate of Science (Honorary) for Committee membership: Secretary to the Board and Geest plc as Group Chief Accountant, Bass plc as Leadership in Management and was awarded an Board committees Treasury Manager and qualified and worked with Price OBE in 2013 for services to aviation Date appointed: 01 December 2001 Waterhouse as a specialist in financial services Skills: Commercial and general management Experience: Martin is a Fellow of the Institute of Skills: Commercial, financial and general experience in a consumer facing and highly regulated Chartered Secretaries and Administrators. He has management experience in a consumer facing industry. industry, plus leadership and operational skills fourteen years of experience with Bovis Homes and Land acquisition and business growth experience External directorships: Non-executive director of was previously Group Company Secretary of London External directorships: Chief Executive of easyJet plc Forfaiting Company PLC from 1997 to 2001 Marston’s PLC, Pro-Chancellor and Chair of Council Skills: Governance, regulation and compliance of Keele University External directorships: None

Bovis Homes Group PLC | 45 Bramble Chase Honeybourne Our governance

46 | Annual report and accounts | Our governance Corporate governance report

Dear Shareholder,

2015 was another significant year for Bovis Homes, as we delivered record levels of profitability and volume and achieved a further improvement in returns, supported by strong land investment and efficient capital management. Our return on capital employed reached 18.3% and our capital turn was in excess of one times. The Group’s growth strategy remains on track, supported by our approach to governance. We are well positioned to deliver further Ian Tyler volume growth, during 2016 and beyond, with the long term Chairman objective of improving shareholder returns in a sustainable business.

The Board has ultimate responsibility for the success of the Our corporate governance practices were aligned with the latest Company and my task is to ensure that it provides strong version of the UK Corporate Governance Code during 2015 and strategic leadership, monitoring the delivery of strategic priorities the Board reviewed its policy on diversity, which says that we will and objectives, with an eye on the principal risks. In doing so, the always make appointments to the Board based on merit. Board must uphold the highest standards of integrity and probity and promote effective relationships and communication, not only I was pleased to welcome Ralph Findlay, CEO of Marston’s PLC, in the boardroom, but throughout the business and externally to the Board as a non-executive director in April 2015. He took with stakeholders. Building trust is important and high standards over as Chairman of the Audit Committee at the 2015 AGM and of corporate governance underpin this. Embedded standards and has already established himself as a valuable Board member. We behaviours enable the Board to function effectively in supporting were also pleased that Earl Sibley joined us as Group Finance and monitoring senior management and they follow through Director in April 2015, having had previous experience with in the Board’s interactions with regional teams and in visits by the Group. individual non-executive directors to the regional operations. I would like to thank my colleagues on the Board for their strong In turn, the Board expects these standards and behaviours to individual contributions and collective support during 2015 influence and form part of the broader culture of the business, and look forward to a strong performance from the Board driving the right behaviours and helping the operations to during 2016. John Warren retired at the 2015 AGM and I function properly and effectively. would like to thank him for his valuable contribution during The Board had a busy year in 2015 and again made several nine years as a non-executive director and eight years as Audit visits to the regions, which provided the opportunity for closer Committee Chairman. interaction with the regional teams and greater understanding We value dialogue with all our shareholders, institutional of their challenges and concerns. Progress with delivery of the and retail, and I look forward to meeting more of our major Group’s strategy was monitored and it was reviewed, tested and shareholders during the coming year. Our 2016 AGM will be reaffirmed at the Board’s strategy day. Other regular activities held on 10 May 2016 and you will find the Notice at the end of included monitoring of principal risks, scrutiny of health and this Annual Report. safety performance, customer satisfaction performance, cost pressures and the delivery of build production. This report has been approved by the Board and I can confirm that, during 2015, your Company was compliant with the At Board meetings, the non-executive directors were effective in provisions of the UK Corporate Governance Code, with the providing constructive challenge and they tested proposals put exception that incentives schemes did not include withholding forward by the executive directors during the year, together with and recovery provisions (malus and clawback). The Company the supporting assumptions. An internal formal Board evaluation remains compliant with the Code in all other respects and you was carried out at the beginning of 2016, which provided will find further information on the implementation of malus and valuable insights for the future. Further information is provided clawback in 2016 in the remuneration report. on page 51, including the objectives we will be pursuing during 2016. The Committees, likewise, performed effectively during 2015.

Ian Tyler Chairman

Bovis Homes Group PLC | 47 Corporate governance report

Introduction 2016 onwards. Further detail is provided in the remuneration report. The current remuneration policy was approved at the This report sets out the Company’s compliance with the UK 2014 AGM and the Company will include for such provisions in Corporate Governance Code (“the Code”) issued by the the policy to be put to shareholders for approval in 2017. Financial Reporting Council (publicly available at www.frc.org.uk) and also describes how the governance framework, set out in The leadership structure the annex to this report, is applied. The Board is responsible to the Company’s shareholders for The Board is pleased to report that the Company has, the long-term success of the Group and its strategy, values and throughout 2015, complied with and applied the provisions of governance. It provides leadership, sets the Group’s strategic the UK Corporate Governance Code, as set out below, with objectives and approves and monitors progress with business the exception that the Company’s incentive schemes did not plans, budgets and forecasts, applying independent judgment. include provisions that enable the withholding of payment or the recovery of sums paid (malus and clawback). The Board has The schedule of matters reserved for the Board is reviewed and been satisfied that the majority of performance measures are approved annually by the Board and a copy is available on the outcome measures with no forward impact and that the risk of Company’s website (www.bovishomesgroup.co.uk/investor-centre/ circumstances arising in which such provisions may be required corporate-governance). is strictly limited. Intentionally keeping this area under review, The governance structure for 2015 is shown on page 36 of the the Remuneration Committee decided that clawback will apply to 2015 annual bonus payments made in 2016 and that malus 2014 Annual report and accounts. and clawback will apply to annual bonus and LTIP awards from The governance structure in 2016 is shown below.

Bovis Homes Group PLC Board Responsible for leadership, strategy, values and governance Audit Committee Remuneration Committee Nomination Committee • Oversees financial • Sets and reviews • Reviews balance and statements and reporting remuneration policy composition of the Board • Monitors internal controls • Determines remuneration • Maintains focus on Executive Leadership Team and risk management and incentives of the succession planning (formerly the GEC) executive directors and the • Monitors effectiveness • Leads recruitment process Bovis Homes Limited Board Chairman of external and internal for the Board Responsible for the operations of the Group auditors • Sets performance criteria • Recommends for incentive plans appointment of directors

West Division board East Division board Responsible for the operational Responsible for the operational management of the West Division management of the East Division

Northern region West Midlands East Midlands Eastern region board region board region board board

Western region South West Thames Valley Southern region board region board region board board Our governance

48 | Annual report and accounts | Our governance The Board Throughout the year and up to the date of this report, the Board management. John Warren retired from the Board at the 2015 comprised the non-executive Chairman, three independent non- AGM. Jonathan Hill left the Group on 6 March 2015 and Earl Sibley executive and two executive directors. Ralph Findlay was appointed was appointed Group Finance Director on 16 April 2015. an independent non-executive director on 7 April 2015 and with effect from the AGM held on 15 May 2015 was appointed Biographical details for the directors are provided on page 45. Their Chairman of the Audit Committee. A formal, comprehensive dates of appointment / retirement, length of service to the end of and tailored induction was provided for Ralph, which included 2015 and attendance at Board meetings in 2015 are visits to the regional offices, site visits and meetings with senior shown below.

Tenure in Attendance Name Date of appointment Current role current role at meetings

Ian Tyler 29/11/13 Chairman 2 years 8/8

Alastair Lyons 01/10/08 Deputy Chairman 7.25 years 8/8

Chris Browne 01/09/14 Non-executive 1.3 years 8/8

Ralph Findlay 07/04/15 Non-executive 9 months 5/5

John Warren 01/03/06 Non-executive 9 years 4/4 (retired – 15/05/15) David Ritchie 01/07/02 Chief Executive 7.5 years 8/8 (current role – 03/07/08) Jonathan Hill 23/08/10 Group Finance Director 4.5 years 2/2 (resigned – 06/03/15) Earl Sibley 16/04/15 Group Finance Director 9 months 5/5

The Board benefits from a broad range of expertise and experience In accordance with the Companies Act 2006 and as permitted by and has a strong blend of skills, which has allowed it to perform the Company’s Articles of Association, the Board has authorised effectively and to a high level in 2015 during a period in which any conflicts of interest and potential conflicts of interest are membership has been changing. The non-executive Chairman brings reviewed annually. The Board is satisfied that powers to authorise a strong track record of commercial experience in construction and actual and potential conflicts are operating effectively. infrastructure related industries, which benefit the Group in the ongoing execution of its growth strategy. Alastair Lyons has a broad Board meetings base of business experience, with a particular focus on mortgage There were eight meetings during 2015. The Board maintains lending and insurance industries and including chairing listed and reviews a rolling agenda plan, which ensures that all key companies. Chris Browne brings a strong commercial and operational issues and matters reserved to the Board are discussed at the background from a consumer facing industry and the appointment appropriate time. The Chairman reviews meeting agendas with the of Ralph Findlay adds strong commercial, financial and general Chief Executive and Company Secretary and the Company Secretary management expertise, again from a consumer facing industry. maintains a rolling schedule of matters arising which is reviewed at The three non-executive directors have been determined by the each meeting. Board to be independent in character and judgement with no The Board receives a comprehensive electronic meeting pack a relationships or circumstances likely to affect, or that could appear week in advance of each meeting plus other information required to affect, their judgement. to enable it to discharge its duties. Meetings are conducted in an All the directors will be offering themselves for re-election at the atmosphere of open and free flowing discussion and debate, with a forthcoming AGM, in accordance with the Code. The Board strongly questioning approach which enables the non-executive directors to supports all the individual director’s re-elections, taking account of challenge and test the strategy, policy and proposals put forward by the balance of skills and expertise and the performance of the Board the executive directors. The Division Managing Directors attended as a whole. the majority of meetings in 2015 and this increases the range of views available to the non-executive directors. The newly appointed All the directors have service agreements or contracts and the details Chief Operating Officer, Keith Carnegie will be invited to attend all are set out in the approved remuneration policy, which is available at meetings in 2016. www.bovishomesgroup.co.uk.

Bovis Homes Group PLC | 49 Corporate governance report

At each Board meeting during 2015: environment, land acquisitions, land sales, analysis of competitors, investor and analyst feedback, and the process for • the Chief Executive provided a review of business and current the longer term viability statement. Topic specific presentations trading performance, recent developments and strategic issues. were received on the results of an investor perception study • the Group Finance Director provided a financial review, and on ‘modern methods of construction’ and training was including results and latest projections, budgets, forecasts, provided on health and safety practice and governance and Group KPIs, leading market indicators and an analysis of regulatory developments. share price valuation and movements. Five meetings were held in London and three were held in the • the Board received regular reports covering health and safety, regions, providing further opportunity to interact with local customer satisfaction, investor relations, major shareholdings management teams. Three regions provided presentations to and litigation. the Board at these meetings in discussion and question and At particular points in the year, the Board reviewed: answer sessions. One meeting was followed by an evening meeting with the Group Executive Committee (the senior • strategy, principal risks and mitigation, financial statements management below the Board) and the Board also met its and regulatory announcements, dividend policy and members at other points in the year. Visits to sites, including facility refinancing. product viewings, took place in three regions and a strategic • updates on large projects. land site was also visited.

• progress with succession planning and organisational The annual strategy day in July provided the Board with the development. opportunity for an in-depth review of the mid-term strategy for the Group and was preceded by an evening starter session. • the report on the 2014 external independent evaluation of its own performance and the actions arising. The Chairman also held a meeting with the non-executive The Board also reviewed other topics, such as the market directors, without the executives present, during the year.

The Board’s site visit to the Group’s Takeley development At the start of October 2015, the Board visited Eastern region’s Takeley development in Essex, titled The Ashes. Located close to the M11, the site offers two, three, four and five bedroom homes in a rural setting, convenient for local living and for commuters to London. Discussion with sales staff took place in the sales office, covering the local market, sales rates and customer satisfaction, coupled with a viewing of the show homes. Led by the site manager, a tour of the construction site followed, allowing feedback to be given by site staff on the build programme, production issues and health and safety performance. On returning to the sales office, a discussion summarising the site’s overall performance concluded the visit. Our governance

50 | Annual report and accounts | Our governance Ensuring an effective Board The final report was presented to the Board by Independent Audit and discussed and an action plan was developed for 2015. The Board undertook an internal formal evaluation of its own In following this action plan, the Board: performance at the beginning of 2016. A questionnaire was used to capture views on the functioning of the Board in 2015, including • kept its size and structure under review and agreed to do so areas of performance and ongoing effectiveness, composition going forward. and progress since the 2014 external performance evaluation. The Chairman then conducted an interview process, which explored • considered improvements to the Board’s agenda plan and adopted and expanded on the views expressed, and a draft report was a more dynamic approach. prepared and discussed by the Board. • increased focus on leadership development and executive director The overall conclusion was positive. The Board had continued to succession planning. operate effectively as a positive force in 2015 and had maintained • kept the availability and use of further information on competitors continuity with the change in its membership. The Chairman and industry best practice under review. provided strong and effective leadership and meetings had seen an increasing degree of challenge, with open and free flowing The performance evaluation of the Chairman was led by the discussion facilitating decision making. A common sense of Senior Independent Director, with input from all other members purpose, strong communication and positive relationships were of the Board. It was considered that the Board had been effective all maintained and developed. The broad range of expertise and under the Chairman’s leadership with well-planned meetings, experience amongst the non-executive directors remained a appropriate agendas based on a good understanding of the key strength and the size and structure of the Board was kept Company’s business model and strategy, and broad effective under review. Future succession planning would seek to contribution by directors. Board meetings were held in a conducive maintain and enhance the strengths on the Board. environment with a strong focus on the important issues and open debate and constructive challenge. The Chairman had maintained The recommendations, many of which were already under good and effective working relationships with both executive and consideration, were developed into an action plan for 2016. non-executive directors and had spent significant time both on sites An overview Is provided below. and with the Company’s executives and relevant external advisers. He had also maintained constructive dialogue with the Company’s Focus areas Objectives for 2016 principal institutional investors, providing useful feedback to the Culture • Oversee a process to refine and develop Board’s assessment of the Company’s progress. the Group’s culture during a period of growth for the Group. Board committees The Board is supported by standing Audit, Nomination and Board meetings • Continue to improve the Board’s Remuneration Committees and their memberships, roles and agenda plan to enhance meeting activities are set out in separate reports: The Audit Committee effectiveness. report is on pages 73 to 75, the Nomination Committee report is Succession planning • Continue to focus on leadership on pages 78 and 79, and the Remuneration Committee report is development and non-executive and on pages 57 to 72. Each Committee reports to and has terms of executive director succession planning. reference approved by the Board and the minutes of Committee meetings are circulated to and are reviewed by the Board. Business models / • Continue to develop the Board’s competitor activity understanding of market trends and The Audit Committee is chaired by Ralph Findlay, the Remuneration developments as they impact the sector Committee is chaired by Alastair Lyons and the Nomination and our customers. Committee is chaired by Ian Tyler.

The Board completed a performance evaluation of its Committees The Board completed its second external independent performance during early 2016 and all were found to be effective and working evaluation of its own performance towards the end of 2014. well, with all achieving their respective remits. This was conducted by Independent Audit, (who have no other connection with the Company), who undertook a thorough review of Board materials, followed by a confidential interview process which included meetings with the directors, Company Secretary and the Division Managing Directors and the observation of a Board and Committee meetings.

Bovis Homes Group PLC | 51 Corporate governance report

Governance through the business Training is made available to directors when required and the Chairman is responsible for ensuring that directors continually The Board aims to meet governance best practice where it fits update and refresh their knowledge and skills and familiarity with our business. Further details are set out below. with the Company, as appropriate to their role on the Board Amongst matters reserved for the Board are leadership of and on Board Committees. During 2015 the directors received the Group, approval of strategy and budgets, oversight of training on health and safety practice and governance and operations and performance, capital structure, financial regulatory developments. reporting, internal controls and approval of major expenditure The Company has an insurance policy in place which insures and transactions. directors against certain liabilities, including legal costs. The Board has approved a written division of responsibilities between the non-executive Chairman and the Chief Executive Information on share capital is provided on page 81. and the role of the non-executive Deputy Chairman has been similarly defined. Shareholder engagement The Company has a comprehensive investor relations The Chairman is primarily responsible for: programme, which allows the Chief Executive and Group • the effective working of the Board, Finance Director to regularly engage with our major shareholders. In addition to one-to-one meetings through the • taking a leading role in determining the Board’s composition year, the Company holds a series of presentations and meetings and structure, and following the announcement of the final and half-yearly results. • ensuring that effective communications are maintained These presentations are made publicly available so that all with shareholders. shareholders can access them on the Group’s website at www.bovishomesgroup.co.uk. The Chief Executive is responsible for: The Board reviews feedback on investor relations meetings, • the operational management of the Group, visits and presentations, including the matters communicated • developing strategic operating plans and presenting them to and discussed. During 2015, the feedback was positive and the Board, and helpful to the Board and the Chairman held a number of • the implementation of strategy agreed by the Board. meetings with major shareholders.

The Deputy Chairman supports the Chairman in ensuring that The Board also values other channels to obtain shareholders’ the Board is effective and constructive relations are maintained, views. The Chairman is responsible for ensuring that all in addition to acting as the Senior Independent Director, in directors are aware of any issues or concerns that major which capacity he leads the annual performance evaluation shareholders may have. In addition, the Deputy Chairman (also of the Chairman and provides an additional point of contact the Senior Independent Director) is accessible to shareholders. for shareholders. All shareholders are invited to attend the Company’s AGM, The Company’s Management Paper is subject to regular which this year will be held on 10 May 2016. The full Board, Board review. It contains appropriate controls, authorities including all Committee Chairmen, attend and value this and procedures across the range of the Group’s activities and meeting as a means of communicating with private investors includes the authorities and decision making delegated by the and encourages their participation. All shareholders have the Board to management. opportunity to exercise their right to vote and can appoint proxies if they are unable to attend. To facilitate this we provide The advice and services of the Group Company Secretary an electronic voting facility. Shareholders attending the AGM are available to the directors. All directors have access to the have the opportunity to ask questions relevant to the business Company’s professional advisers and can seek independent of the meeting and hear the views of other shareholders before professional advice at the Company’s expense. No such advice casting their vote. After the meeting the results of voting on all was sought during the year. resolutions are published on the Group’s website. Our governance

52 | Annual report and accounts | Our governance Risk management and internal control There are a number of elements of the Company’s internal control and risk management systems that are specifically related to the The Board has responsibility for maintaining and monitoring sound Company’s financial reporting process: risk management and internal control systems. The Board’s role includes responsibility for the risk appetite and the identification, • there is a well understood management structure which allows management and mitigation of risk. Risk is a regular agenda item, for clear accountability and an appropriately granular level of which allows the directors to review the risk appetite and principal financial control. risks and assess the quality of risk management processes and risk mitigation. In setting its approach, the Board aims to ensure that the • the structure is underpinned by documented authority levels Company is neither prevented from taking opportunities nor exposed for business transactions laid out in the Company’s to unreasonable risk. Management Paper.

Monitoring and review forms part of the work undertaken by the • the process is further supported by process documents for both Audit Committee and is based principally on reviewing reports internal management reporting and external reporting which from Internal Audit and from management and covers all material stipulates, amongst other things, reporting timetables and the controls, including financial, operational and compliance controls and contents of key management reports. compliance with risk management processes. The Company maintains computer systems that record financial In reviewing the effectiveness of the Company’s system of internal transactions and whose effectiveness is reviewed by the Internal control and risk management systems, the Board (i) considered the Audit function on a regular basis. Any findings arising from these risk appetite and (ii) reviewed changes in the nature, likelihood and exercises are reported to the Audit Committee and action is taken, impact of the principal risks, their mitigation, the controls placed as appropriate. against them and the Company’s ability to respond to changes at Control over cash expenditure is key. The Company maintains three separate stages during the year and (iii) received reports from tight control in this area through a centralised payment function, the Audit Committee on the operation and effectiveness of the risk regularly maintained authorisation documents and segregation of management and internal controls systems and their integration authorisation accountability. with strategy and the business model, which included review of the minutes of Committee meetings. Recommendations for The Company maintains a regular weekly and monthly financial improvements to internal controls were made during the year and reporting cycle, allowing management to assess financial progress. corrective action was taken, but they did not represent significant This is further supported by a formal budget and monthly control failings or weaknesses. forecasting process which ensures that there is a robust and recent financial forecast in place at all times against which to The Board has complied with Principle C.2 of the Code by completing assess performance. Together with this financial reporting, the a robust assessment of the principal risks facing the Company and it Company requires its Division and regional management teams to has established a continuous process for identifying, evaluating and report key business issues as part of a monthly regional reporting managing the principal risks, in accordance with the FRC’s “Guidance pack on a standardised basis. on Risk Management, Internal Control and Related Financial and Business Reporting”. This process has been in place for the period Finally, there is a process of accounts preparation which ensures under review and up to the date of approval of the Annual Report that there is an audit trail between the output from the Company’s and Accounts and includes compliance with provision C.2.3. It is financial reporting system and the financial statements as they are designed to manage rather than eliminate risk and can only provide prepared for reporting. reasonable and not absolute assurance against material misstatement or loss.

Control framework The Company maintains a robust 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, an Internal Audit function and a comprehensive financial reporting system.

Bovis Homes Group PLC | 53 Corporate governance report

Annex to corporate governance report 5 Number of directors An appropriate balance between executive and non-executive Corporate governance policy guidelines directors is maintained. The number of non-executive directors These guidelines have been adopted by the Board is decided so as to provide the diversity of skills, ability, and provide guidance on how corporate governance vision and experience necessary for a sound independent contribution to the Board and the successful management principles are applied by the Company. of the business. By way of guidance, at least half the Board, 1 Board membership and balance excluding the Chairman, will comprise independent non-executive directors. The structure, size and composition of the Board is reviewed on a regular basis to ensure that it remains appropriate for 6 Length of appointment the successful direction of business activities. Consideration is Executive directors are employed on service contracts with given to boardroom diversity and the mix of experience, skills, notice periods which do not exceed one year. Non-executive ability and vision of executive and non-executive directors by directors’ service agreements set the length of their the Nomination Committee. appointments at periods of up to three years and their The Nomination Committee and the Board give regular notice periods up to twelve months. Their total length of consideration to planning for succession to Board and appointment would not normally exceed nine years from senior management positions, ensuring that appropriate the date of their first AGM election. management development measures are in place. The renewal of service agreements after two three year The Board currently comprises the Chairman, the Deputy terms is subject to rigorous review and based on annual Chairman (also the Senior Independent Director), re-appointment thereafter, with the third term extending until two further independent non-executive directors and the AGM following the ninth anniversary of appointment. two executive directors. Under the Articles of Association, all directors are subject to 2 Board selection retirement by rotation at the AGM at least once in every The Board receives recommendations on the appointment three years. New directors appointed by the Board must be of directors from the Nomination Committee, following an re-appointed by shareholders at the next following AGM. evaluation of the balance of knowledge, skills, experience The Board has agreed that, in accordance with the Code, all and diversity available on the Board. This Board committee directors will offer themselves for re-election at each AGM. comprises the independent non-executive directors, the Chairman and the Chief Executive and meets as required. 7 Training On appointment, new directors are given a comprehensive 3 Non-executive director independence tailored induction to business activities, strategy and methods The non-executive directors are independent in character and of operating, policies, procedures and management structure. judgement and free from any business or other relationship Directors receive training to complement their roles on the which could affect or appear to affect the exercise of their Board and Board Committees, as necessary. independent judgement on matters under consideration by the Board. The receipt of fair remuneration and being a 8 Remuneration shareholder is not considered to prejudice independence or The Remuneration Committee determines, on behalf of prevent a non-executive director from acting independently. the Board, the policy for executive remuneration and remuneration for the Chairman, each of the executive 4 Chairman and Chief Executive directors and senior management in accordance with its terms The roles of Chairman and Chief Executive are separate and of reference. The Remuneration Committee comprises the there is a clear division of responsibilities between the two independent non-executive directors and meets as required. roles which has been set out in writing and approved by External remuneration advice appropriate to the size the Board. It is normal practice for the role of Chairman to be and position of the Company is sought when necessary. a non-executive position. The role of the Deputy Chairman Non-executive director remuneration, excluding that of has also been set out in writing and approved by the Board. the Chairman, is determined by the Board without their participation. Our governance

54 | Annual report and accounts | Our governance 9 Financial information and internal control The review of submissions for Board approval in respect of the Group’s annual report and accounts, half-yearly financial report, preliminary statement and other public financial information is the responsibility of the Audit Committee. The Audit Committee reviews the system of internal control and oversees compliance therewith. The Audit Committee comprises the independent non-executive directors and meets as required.

10 Supply of information Senior management are responsible for providing the Board with appropriate, complete and timely information relevant to the Board’s discharge of its responsibilities, the monitoring of the performance of business activities, including significant variances, principal risks and progress with the implementation of strategies. Directors have reasonable access to senior management to enable them to make further enquiries as they consider in their judgement appropriate.

11 Board procedures and authorities The Chairman, Chief Executive and Group Company Secretary determine the agenda for each Board meeting and papers are circulated in advance so that matters can be properly considered by the directors. A schedule of matters reserved to the Board for decision is maintained. The Board undertakes annual performance evaluations and a formal external performance evaluation every third year.

12 Relations with shareholders The Board as a whole accepts responsibility for ensuring that a satisfactory dialogue is maintained with shareholders. The aim is to ensure that this dialogue is based on a mutual understanding of objectives. Investors are encouraged to attend the AGM and to vote and participate.

13 Corporate policies The Board ensures that corporate policies and procedures on ethical and corporate social responsibility matters, including sustainability, health and safety and the environment are maintained, monitored and reviewed on a regular basis.

Bovis Homes Group PLC | 55 Haversham Gardens Newport Our governance

56 | Annual report and accounts | Our governance Directors’ remuneration report

Dear Shareholder, On behalf of the Board, I am pleased to present the directors’ remuneration report for the financial year ended 31 December 2015. The report is set out in two parts:

• The annual remuneration report which provides details on how directors were paid in 2015 and the link between remuneration and the Company’s performance. This section of the report also outlines how we intend to implement the remuneration policy in 2016. The annual report on remuneration is subject to an advisory shareholder vote at the 2016 AGM; and

Alastair Lyons • The remuneration policy table which was approved by shareholders at the 2014 Chairman of the Annual General Meeting and is available in its entirety on the Company’s website. Remuneration Committee A summary has been set out on pages 71 and 72 for ease of reference.

Remuneration in context Jonathan Hill’s replacement, Earl Sibley, was appointed to the 2015 saw a robust housing market and Bovis Homes delivered further role of Group Finance Director in April 2015 on an initial salary of £250,000. Earl participated in the 2015 bonus plan and was significant revenue and profit growth. Basic earnings per share rose by granted a 2015 LTIP award of 150% of salary, although going 21% to 95.4p and Return on Capital Employed (“ROCE”) reached 18.3% (2014: 16.2%), reflecting both an increase in operating profit margin and forward his usual LTIP opportunity is expected to be 125% of salary. achievement of the targeted improvement in capital turn. During the year Changes in remuneration for 2016 the Group also acquired a significant level of high quality consented land The Committee remains satisfied that the current remuneration and saw the effective conversion of a number of strategic land assets. framework, approved by shareholders at the 2014 AGM, remains We, therefore, enter 2016 well positioned to further improve returns for appropriate given the Group’s current strategy and the regulatory shareholders on a sustainable basis. environment. As a result, no formal changes to the remuneration The achievement of these results and of the long term goals of the Group policy are proposed at this time. However, given that historically the are underpinned by the remuneration policy, which is directly linked to Group’s incentive schemes have not included provisions that enable our strategic objectives. As an example, ROCE features in both the annual the withholding of payment or the recovery of sums paid (malus and bonus and LTIP, sitting alongside other relevant near and longer term clawback), the Committee has decided that both malus and clawback measures that reflect objectives in the Group’s strategic plan. The policy, provisions will be included in respect of bonus payments and LTIP which functioned well during 2015, was reviewed by the Committee during awards from 2016 onwards, being in shareholders’ interests. the year but no formal changes are proposed for 2016. The Committee Following a largely supportive consultation with the Group’s major will continue to keep the policy under review and it will next be put to shareholders at the beginning of 2016, the Committee decided it was shareholders for approval at the 2017 AGM. appropriate to increase progressively the base salary of the newly Remuneration in 2015 appointed Group Finance Director to reflect both his performance and increased experience in order to over time move to the market rate A good performance by the executive directors in 2015 against stretching for an experienced strongly performing incumbent. With effect from financial and operational targets resulted in between 60% and 62% 1 January 2016, Earl Sibley’s salary was therefore increased from of maximum being awarded for the annual bonus key measures. £250,000 to £275,000 (an increase of 10.0%). Further details on the Highlights include growth in pre-tax profit of 20% and the increase in rationale for this increase are provided on page 67. The Committee ROCE to 18.3%. Further explanation of the annual bonus performance assessment can be found on page 61. has not provided the Chief Executive an increase in salary for 2016.

As a result of the earnings per share (“EPS”) performance condition being Conclusion met in full and the ROCE performance condition also being met in full the I hope you find that this report clearly explains the remuneration LTIP awards granted in 2013 will vest to the extent of 66.7%. The delivery approach adopted by Bovis Homes and that it enables you to of strong profit growth has been reflected in the EPS out-performance of appreciate how it links to our strategic objectives and underpins the Group over the past three financial years, against stretching targets, our business growth and returns strategy. The Committee takes an with absolute cumulative EPS reaching 218.9p against a 165p maximum active interest in shareholder views and consults on any significant performance target. ROCE, introduced as a performance measure in 2012 changes being considered. I hope that you will continue to approve to incentivise improving returns, reached 18.3% in 2015 against a 14.5% of the implementation of the Bovis Homes directors’ remuneration maximum performance target. The remaining third of the LTIP award, policy: I will be available to take any questions you may have at based on relative total shareholder return (“TSR”) over the last three years, the 2016 AGM. will lapse despite the Group’s own TSR over this period of 102%, as the comparator group achieved a median TSR of 192%.

In March 2015 Jonathan Hill stepped down from his role as Group Finance Director. The Remuneration Committee determined his remuneration arrangements on leaving in line with the shareholder approved policy. His 2012 LTIP award vested in line with other participants to the extent the performance conditions were met and other outstanding Alastair Lyons LTIP awards lapsed in full. Full details can be found on page 64. Chairman of the Remuneration Committee

Bovis Homes Group PLC | 57 Annual remuneration report

Remuneration report

Introduction This annual remuneration report explains how the remuneration policy has been implemented in the year ended 31 December 2015 and how it will be implemented for 2016. Details of remuneration in 2015 are set out first, followed by the approach for 2016.

At a glance summary

Jonathan Hill - GFD Earl Sibley - GFD Component and where to find David Ritchie - CEO (1 Jan 2015 - 6 Mar 2015) (16 Apr 2015 onwards)

Single figure totals for 2015 (page 60) £1,538k £62k £367k

Annual bonus payments for 2015 (page 61) £329k n/a £155k (59.8% of maximum) (Not eligible for a (61.8% of maximum) Profit before tax: 22.7% of 40% weighting 2015 bonus) Cash flow: 1.1% of 10% weighting ROCE: 20% of 20% weighting Customer service: 0% of 10% weighting Individual performance: 16% of 20% 18% of 20% weighting weighting

LTIP awards vesting in respect of 2015 (page 62) 66.7% of total award n/a n/a (all outstanding EPS: 100% of 33% weighting LTIP awards lapsed ROCE: 100% of 33% weighting upon departure) TSR: 0% of 33% weighting

LTIP awards granted in 2015 (page 62) 150% of basic salary n/a 150% of basic salary

EPS: 33.3% weighting (Not eligible for a 2015 LTIP award) ROCE: 33.3% weighting TSR: 33.3% weighting

Changes to the remuneration policy for 2016 There are no formal changes proposed (the policy table is annexed to this report on pages 71 and 72) Recovery provisions (malus and clawback) will apply to incentive awards from 2016 onwards

Salaries for 2016 (page 67) £550,000 (+0.0%) n/a £275,000 (+10.0%)

Annual bonus for 2016 (page 68) Bonus opportunity remains at 100% of basic salary

Profit before tax: 40% weighting The cash flow measure has been removed, as cash flow is being consistently delivered, and the ROCE weighting has been increased ROCE: 30% weighting from 20% previously, given the importance of this measure to the Customer service: 10% weighting achievement of the Group’s strategic objectives Individual performance: 20% weighting

LTIP awards for 2016 (page 68) 150% of basic salary n/a 125% of basic salary

EPS: 33.3% weighting ROCE: 33.3% weighting TSR: 33.3% weighting

Shareholding as % of salary (page 65) 287% n/a 0.24%

Guideline: 100% of salary Our governance

58 | Annual report and accounts | Our governance Annual remuneration report

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 improving returns, enhancing operating profit, increasing the efficiency of capital employed and delivering strong customer satisfaction. Such objectives are measured by reference to the Group’s reported KPIs of pre-tax profit, ROCE, earnings per share and customer satisfaction scores, all of which are 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 service as performance measures. The LTIP has a longer term perspective and features 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, ensuring that efficiency of earnings is not compromised for the sake of near term returns.

The Committee remains satisfied that current remuneration arrangements effectively support the business strategy.

Key remuneration decisions during 2015 During 2015, the Committee set targets for the 2015 annual bonus (shown on page 61) and approved 2014 bonus payments. It set targets for and approved LTIP awards made in 2015 and approved the level of vesting for the 2012 LTIP awards. A consultation with shareholders took place on the 2015 salary increase for the Chief Executive to a market equivalent level and the Committee approved the remuneration arrangements on the departure of Jonathan Hill and the recruitment of the new Group Finance Director, Earl Sibley.

The Committee also completed the 2016 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 2016). As explained in the Committee Chairman’s letter on page 57, the salary of the Group Finance Director, who joined the Group in April 2015, has been carefully reviewed for 2016, adopting a progressive approach.

Bovis Homes Group PLC | 59 Annual remuneration report

Remuneration report

Implementation of remuneration policy for the year ended 31 December 2015 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 2015 financial year. David Ritchie Jonathan Hill Earl Sibley (appointed CEO 3 July 2008; appointed an (appointed GFD 23 August 2010 and (appointed GFD executive director in 2002) left 6 March 2015) 16 April 2015)

2015 2014 2015 2014 2015 £000 £000 £000 £000 £000

Base salary 550 465 52 280 177

Benefits (1) 22 22 2 8 8

Annual bonus 329 412 (5) n/a 248 155

Long Term Incentives (2) (6) 504 (7) 590 n/a (7) 347 n/a

Sub-total 1,405 1,489 54 883 340

Pension (3) 58 49 8 42 27

Other – pension salary supplement (4) 75 58 - - -

Total remuneration 1,538 1,596 62 925 367

Notes: (1) Taxable benefits include medical insurance and a reconciliation payment relating to membership of the Bovis Homes Regulated Car Scheme, plus income tax and national insurance due on this payment.

(2) The 2012 LTIP measured over the three year period to 31 December 2014 vested to the extent of 66.7% on 28 February 2015. The 2013 LTIP measured over the three year period to 31 December 2015 will vest to the extent of 66.7% on 26 February 2016.

(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 Jonathan Hill and 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) Jonathan Hill did not receive a 2015 bonus due to his departure from the Company in March 2015.

(6) This is an estimated value based on the average share price over the last quarter of 2015 of 1,001.74 pence for the 2013 LTIP awards which vest on 26 February 2016.

(7) This is the actual value delivered under the 2012 LTIP calculated using the share price on the vesting date (966.5 pence on 28 February 2015) and includes 5,144 notional dividend shares for David Ritchie and 2,131 notional dividend shares for Jonathan Hill. Last year’s report included an estimate in respect of the vesting value of the 2012 LTIP (based on the average share price over the last quarter of 2014 of 834.8 pence) as the award had not vested at the date of the report.

David Ritchie was appointed as a non-executive director of A.G. BARR p.l.c. on 1 April 2015 and retained director’s fees of £39,990 during 2015. Earl Sibley does not currently hold any external directorships.

The following table shows the remuneration for the non-executive directors who served during the 2015 financial year. Salary / fees £000

Non-executive directors 2015 2014

Ian Tyler 161 160

Alastair Lyons 74 68 Chris Browne (appointed 01/09/14) 46 14 Ralph Findlay (appointed 07/04/15) 39 - Colin Holmes (retired 16/05/14) - 19

John Warren (retired 15/05/15) 20 51

Total 340 312 Our governance

60 | Annual report and accounts | Our governance Annual remuneration report

Annual bonus payment in respect of 2015 The maximum opportunity for executive directors for the year ended 31 December 2015 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 2015. The full detail of performance targets is disclosed retrospectively.

Weighting Award achieved Measure Threshold On target Stretch (as a % of maximum) (% of maximum)

Financial measures (70%)

Profit before tax 40% 0% of 50% of 100% of 22.7% (pre-Group allowance for bonus charge) maximum maximum maximum £150.8m £162.6m £174.4m

Operating cash flow 10% 0% of 50% of 100% of 1.1% (pre-land expenditure) maximum maximum maximum £324.0m £347.5m £371.0m

ROCE 20% On target is 50% of 100% of 20% threshold maximum maximum 15.5% 16.9% 18.2%

Non-financial measures (30%)

Customer service 10% On target is 50% of 100% of 0% threshold maximum maximum n/a 85% 90%

Individual performance 20% Assessed against the achievement of 16% CEO defined individual objectives 18% GFD

Total bonus for executive directors (% salary) 59.8% CEO 61.8% GFD

Profit before tax (pre-Group allowance for bonus charge): Pre-tax profit of £160.1 million was achieved representing a 20% increase on 57% 2014. After accounting for the bonus charge of £4.6 million, the bonus 57% award was 57% of the 40% weighting for this measure. 0% 25% 57%50% 75% 100% 0% 25% 57%50% 75% 100% 0% 25% 57%50% 75% 100% Cash flow: The Group achieved operating cash flow pre land 0% 25% 50% 75% 100% 0%11% 25% 50% 75% 100% expenditure of £329 million leading to a bonus award of 11% of the 0%11% 25% 50% 75% 100% 10% weighting for this measure. 0%11% 25% 50% 75% 100% 0% 25% 50% 75% 100% 11% 0% 25% 50% 75% 100% 0% 25% 50% 75% 100%100% Return on capital employed: The Group achieved ROCE of 18.3% 0% 25% 50% 75% 100%100% in 2015. Stretch performance was delivered and 100% of the 20% 0% 25% 50% 75% 100%100% 0% 25% 50% 75% 100% weighting to this performance measure was awarded. 100% 0% 25% 50% 75% 100% 0% 25% 50% 75% 100% 0% 25% 50% 75% 100% 0% Customer service: The Group delivered an average customer 0% 25% 50% 75% 100% satisfaction score below 85%. Performance was below on target against 0% 25% 50% 75% 100% 0% 25% 50% 75% 100% this measure and none of the 10% weighting to this performance 0% 25% 50% 75% 100% 0% 25% 50% 75% 100% measure was awarded. 0%David Ritchie25% 50% 80%75% 100% David Ritchie 80% Individual performance: The executive directors were assessed as 0%David Ritchie25% 50% 80%75% 100% 0%David Ritchie25% 50% 80%75% 100% having delivered strongly on the individual objectives agreed by the David Ritchie 80% 0% 25% 50% 75% 100% Committee at the start of the year. 16% of the 20% weighting to this 0% 25% 50% 75% 100% 0% 25% 50% 75% 100% performance measure was awarded for David Ritchie and 18% of the Earl Sibley 90% Earl Sibley 90% 20% weighting was awarded for Earl Sibley. 0%Earl Sibley 25% 50% 75%90% 100% 0% 25% 50% 75% 100% Earl Sibley 90% 0% 25% 50% 75% 100% 0% 25% 50% 75% 100% 0% 25% 50% 75% 100%

Bovis Homes Group PLC | 61 Annual remuneration report

Remuneration report

Executive director Maximum bonus % of salary Target bonus % of salary Actual bonus % of salary Total 2015 bonus £000

David Ritchie 100 50 59.8% 329 Earl Sibley* 100 50 61.8% 155

Jonathan Hill left the Group on 6 March 2015 and was not eligible for a 2015 bonus award.

*The 2015 bonus opportunity for Earl Sibley was based on his annual salary.

The Committee considered this level of bonus fully justified given the performance achieved against each of the specific metrics and in approving the 2015 bonus payments decided that provisions enabling the recovery of sums paid (clawback) should apply for a two year period from the bonus payment date 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; or (iii) gross misconduct.

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 (annexed to this report) and also in the exit payments policy (contained in the remuneration policy in the 2013 Annual Report and available at www.bovishomesgroup.co.uk).

Awards vesting in respect of 2015 The LTIP awards made in 2013 were measured over the three year period to 31 December 2015 and will vest to the extent of 66.7% on 26 February 2016. One third of the award was measured against EPS performance; one third of the award was measured against TSR performance against an index; and one third of the award was measured against ROCE performance.

The threshold EPS target was 130p and the maximum target was 165p measured on a cumulative three year basis. Absolute cumulative EPS over the three year performance period was 218.9p. Therefore, the EPS element will vest in full.

The threshold TSR target was performance equal to the median of the index and the maximum target was performance equal to 10% annual outperformance of the median of the index. Actual TSR was 102% which was below the median of the index of 192% and, therefore, none of the award based on TSR will vest.

The threshold ROCE target was 11.5% and the maximum target was 14.5% measured in the third year of the performance period (2015). Actual ROCE in 2015 was 18.3% and, therefore, the ROCE element will vest in full.

Awards granted during 2015 (audited) An award of 88,093 shares was made to the CEO at 150% of basic salary at a grant price of £9.365 on 24 February 2015, exercisable in 2018 and subject to a three year performance period ending on 31 December 2017, as follows:

Number of shares Face value at date % of face value that Executive director Type of award awarded of grant £000 would vest at threshold

David Ritchie Performance share award 88,093 825 30

An award of 33,215 shares was made to the new GFD at 150% of basic salary* at a grant price of £11.29 on 18 August 2015, exercisable in 2018 and subject to a three year performance period ending on 31 December 2017, as follows:

Number of shares Face value at date % of face value that Executive director Type of award awarded of grant £000 would vest at threshold

Earl Sibley Performance share award 33,215 375 30

*This level of award was granted on an exceptional basis. Future awards will revert to a maximum of 125% of basic salary.

The performance measures for all 2015 awards are unchanged from the prior year, namely TSR (33.3%), EPS (33.3%) and ROCE (33.3%).

The performance targets are:

• TSR – threshold performance equal to the median of the comparator group and maximum performance at median plus 10% per annum (unchanged from the prior year).

• EPS – threshold performance at cumulative EPS of 320 pence and maximum performance at cumulative EPS of 400 pence.

• ROCE – threshold performance at 19.4% and maximum performance at 23.3%. Our governance

62 | Annual report and accounts | Our governance Annual remuneration report

Performance conditions and targets Total Shareholder Return (one-third of total award) One-third of the award vests according to the Company’s TSR performance over a three year period against a bespoke unweighted index of housebuilding comparators. TSR performance relative to an unweighted index has been chosen as a performance measure as the Committee believe that this aligns reward with the delivery of superior market performance over the long term.

TSR Threshold performance Maximum performance

Quantum 10% of the total award One-third of the total award

The 2015 constituents of the TSR index, which may be subject to change, are as listed below:

TSR comparator group

Barratt Developments plc Bellway plc The Berkeley Group plc Crest Nicholson Holdings plc Persimmon plc Redrow plc Taylor Wimpey plc

Earnings per share (one-third of total award) One third of the award vests according to the Company’s EPS performance, measured on a cumulative basis over a three year performance period.

EPS Threshold performance Maximum performance

Quantum 10% of the total award One-third of the total award

Return on Capital Employed (one-third of total award since the 2012 awards) One third of the award vests according to the Company’s ROCE performance, measured in the third year of the performance period.

ROCE Threshold performance Maximum performance

Quantum 10% of the total award One-third of the total award

Historical LTIP awards The table below summarises the historical long term incentive awards made to the executive directors.

Year of grant Performance period Award size (% salary) Performance criteria Percentage of award vesting

2012 01/01/2012 – 31/12/2014 100% (CEO) 33.3% TSR 66.7% 33.3% EPS 33.3% ROCE 2013 01/01/2013 – 31/12/2015 100% (CEO) 33.3% TSR 66.7% 33.3% EPS 33.3% ROCE 2014 01/01/2014 – 31/12/2016 150% (CEO) 33.3% TSR Ongoing 33.3% EPS 33.3% ROCE 2015 01/01/2015 – 31/12/2017 150% (CEO) 33.3% TSR Ongoing 150% (GFD) 33.3% EPS 33.3% ROCE

Bovis Homes Group PLC | 63 Annual remuneration report

Remuneration report

Pensions David Ritchie is a senior executive member of the Bovis Homes Pension Scheme (“BHPS”). This is a contributory funded, defined benefit scheme, approved by HMRC. He receives a pension allowance of 20% of salary and some or all of this allowance can be used in relation to his membership of the BHPS, to the extent that it remains beneficial in light of new pension legislation. The balance is paid as a non-bonusable and non-pensionable salary supplement.

Jonathan Hill was a member of the Bovis Homes Group Personal Pension Plan (“GPP”) until 6 March 2015. The Plan is a contracted-in defined contribution arrangement. The Company’s contribution for Jonathan Hill was 15% of his base salary.

Earl Sibley is a member of the Bovis Homes Group Personal Pension Plan (“GPP”) and the Company’s contribution for Earl Sibley 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 (contained in the remuneration policy in the 2013 Annual Report and available at www.bovishomesgroup.co.uk). Any new appointments would include eligibility for membership of the GPP, unless the appointee was already a member of the BHPS.

Directors’ pension accruals (audited) Employer Director Increase in contributions to contributions to Accumulated total accrued pension Transfer value of pension scheme pension scheme accrued pension during the year accrued pension Single value at during the year during the year at 31 Dec 2015 (net of inflation) at 31 Dec 2015 (1) 31 Dec 2015 (3) Executive director £ £ £ p.a. £ p.a. £ £ David Ritchie 39,570 7,916 69,088 3,303 1,069,238 58,139

Notes: 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 2015.

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.

Payments for loss of office (audited) Jonathan Hill ceased to be an executive director of the Company on 6 March 2015 and no payment for loss of office was made. Jonathan received his base salary, benefits and pension for 2015 up until that date. He did not receive any annual bonus in respect of 2015. Given he was in his role for the full performance period his 2012 LTIP award vested in line with other participants to the extent the performance conditions were met. Other outstanding LTIP awards lapsed in full on his date of leaving.

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 2015 31 Dec 2014

Shares under Shares under the LTIP SAYE options the LTIP SAYE options (shares subject (options subject (shares subject (options subject Ordinary Share to performance to continuous Ordinary Share to performance to continuous shares Options conditions) employment) shares Options conditions) employment)

Executive directors David Ritchie 210,416 - 235,231 1,882 146,063 - 278,043 6,452

Jonathan Hill (left 06/03/15) 56,193* - 80,243* 1,129* 37,135 - 130,900 1,129

Earl Sibley (appointed 16/04/15) 109 - 33,215 - - - - -

Non-executive directors Ian Tyler 2,000 ------Alastair Lyons 25,350 - - - 25,350 - - -

Chris Browne (appointed 01/09/14) 1,026 ------

Ralph Findlay (appointed 07/04/15) ------

Colin Holmes (retired 16/05/14) - - - - 50,000* - - -

John Warren (retired 15/05/15) 2,500* - - - 2,500 - - -

*As at date of departure/retirement (Jonathan Hill’s LTIP awards and SAYE options lapsed on departure). Our governance

64 | Annual report and accounts | Our governance Annual remuneration report

There were no changes in the holdings of ordinary shares of any of the directors between 31 December 2015 and 19 February 2016 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 below and on page 66. There were no changes in the holdings of share options and awards under the Long Term Incentive Plan between 31 December 2015 and 19 February 2016.

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 the executive director holds shares with an historical cost equal to their basic annual salary. A holding period is not prescribed, as this would signal an ability to sell after the end of the holding period and the executive directors have always retained shares received. The executive directors’ shareholdings relative to the guidelines are shown below.

Shareholding Historical Salary at % of shareholding Executive director at 31 Dec 2015 acquisition cost 1 Jan 2016 guideline achieved

David Ritchie 210,416 £1,577,584 £550,000 287%

Jonathan Hill (left 06 /03/15) 56,193* £471,686 £280,000** 168%

Earl Sibley 109 £671 £275,000 0.24%

*As at date of departure. **Salary as at 1 January 2015.

David Ritchie meets the shareholding guidelines and Jonathan Hill met the guidelines prior to leaving on 6 March 2015. Given the length of service of Earl Sibley, there has been limited opportunity during 2015 for him to move towards satisfying the shareholding guidelines.

Directors’ interests in Long Term Incentive Plan shares Value of Market Interest Interest shares at Vesting and value at Gain on Shares as at as at date of award exercised Lapsed vesting exercise retained Executive director Award date Vesting date 31 Dec 2014 31 Dec 2015 (£000) in year in year Expiry date (£000) (£000) on exercise

David Ritchie 15/03/11 15/03/14 47,126 - 415 51,888* - 15/03/21 444 568 27,396

28/02/12 28/02/15 83,779 - 430 60,996* 27,927 28/02/22 590 668 32,205

26/02/13 26/02/16 69,284 69,284 450 - - 26/02/23 ---

25/02/14 25/02/17 50,598 50,598 465 - - 25/02/24 ---

19/08/14 19/08/17 27,256 27,256 232 - - 19/08/24 - - -

24/02/15 24/02/18 - 88,093 825 - - 24/02/25 - - -

Jonathan Hill 28/02/12 28/02/15 50,657 - 260 35,902** 16,886 28/02/22 347 352 19,028 (left 06/03/15) 26/02/13 26/02/16 41,570 - 270 - 41,570 26/02/23 - - -

25/02/14 25/02/17 30,467 - 280 - 30,467 25/02/24 - - -

19/08/14 19/08/17 8,206 - 70 - 8,206 19/08/24 - - -

Earl Sibley 18/08/15 18/08/18 - 33,215 375 - - 18/08/25 - - -

*David Ritchie’s 2011 and 2012 award exercises included 4,762 and 5,144 dividend equivalent shares respectively.

**Jonathan Hill’s 2012 award exercise included 2,131 dividend equivalent shares and his remaining awards lapsed on leaving on 6 March 2015.

Bovis Homes Group PLC | 65 Annual remuneration report

Remuneration report

Directors’ interests in share options Interest as at Granted Lapsed Exercised Interest as at Exercise price Option exercise Executive director Date of grant Scheme 31 Dec 2014 in year in year in year 31 Dec 2015 per share period

David Ritchie 07/04/2010 SAYE 4,570 -- 4,570 - 340.2 06/15 – 12/15

02/05/2014 SAYE 1,882 - - - 1,882 796.95 06/17 – 12/17

Jonathan Hill 02/05/2014 SAYE 1,129 - 1,129* - - 796.95 06/17 – 12/17 (left 06/03/15)

*Lapsed on departure The Save As You Earn (SAYE) options were granted at a 10% discount to the market price on the prevailing 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)

800 731

700 Bespoke home construction index (2) FTSE 250 index Bovis Homes Group PLC 600 509

500 (1) This graph illustrates seven-year TSR performance and therefore does 402 not represent the period under which the Long Term Incentive Plan 400 252 327 is measured 156 288 184 278 300 173 212 149 (2) Median TSR growth of the constituents of the bespoke index. Index 128 312 170 consists of FTSE 250 home construction companies as at 31 December 200 120 255 230 2008 (Barratt Developments, Bellway, The Berkeley Group, Persimmon, TSR Performance 100 155 Redrow, Taylor Wimpey) 131 105 0 Source - DataStream Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2014 Dec 2015

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 seven 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 2015 was £10.15 (2014: £8.845). During the year ended 31 December 2015 the share price recorded a middle market low of £7.50 and a high of £12.06. As at the date of this report the share price stood at £9.105.

Total CEO remuneration David Ritchie 2009 2010 2011 2012 2013 2014 2015

Single figure total £000 518 1,016 836 1,315 1,440 1,596 1,538

Annual bonus against maximum % 0 100 82.4 84.2 97.8 88.7 59.8

Long Term Incentive Plan vesting against maximum % 31 31 0 50 50 66.7 66.7

Change in remuneration of CEO The table below sets out the percentage change in the remuneration awarded to David Ritchie between 2014 and 2015 compared to the average percentage change for employees as a whole.

Executive director Base salary Benefits Annual bonus

David Ritchie 18.3% 0% -20.3%

Employees as a whole 3.7% 0% -38.8%*

*Excludes sales and build functions which have tailored incentive schemes. Our governance

66 | Annual report and accounts | Our governance

David Ritchie Jonathan Hill Chief Executive Group Finance Director

6% 4% 28% 40% 30% 37% 26% 29% Maximum 1,757 Maximum 963

10% 7% 20% 18% 47% 23% 51% 24% In line with 1,037 In line with 578 expectations expectations

18% 13% 82% 87% Annual remuneration report Minimum 595 Minimum 333

0 500 1000 1500 2000 0 500 1000 1500 2000 £000s £000s

Salary and beneﬁts Pensions Bonus LTIP

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

160.1

150 133.5

100 £m

51.1 49.2 50 42.6 28.8 2014 2015 0 Total spend Proﬁt before Dividends on pay tax paid Notes:

• Total spend on pay in 2014 was £42.6 million and in 2015 was £51.1 million, representing an increase of 20.0%.

• Profit before tax in 2014 was £133.5 million and in 2015 was £160.1 million, representing an increase of 20.0%.

• Dividends paid to shareholders totalled £28.8 million in 2014 and £49.2 million in 2015, representing an increase of 71%.

Implementation of remuneration policy for the year ending 31 December 2016 Changes in the way that remuneration policy will be implemented in 2016 versus 2015 include a base salary increase for the GFD, the removal of the cash flow measure and a corresponding increase in the ROCE weighting for the 2016 annual bonus, and the introduction of provisions that enable the withholding of payment or the recovery of sums paid (malus and clawback) in incentive schemes.

Executive directors’ base salaries and benefits The salaries of the executive directors with effect from 1 January 2016 are as follows: % increase Executive directors Position 2016 base salary from 2015

David Ritchie CEO £550,000 0.0%

Earl Sibley (appointed 16/04/15) GFD £275,000 10.0%

The Committee carefully considered the increase for Earl Sibley and the Committee Chairman, Alastair Lyons, wrote to major shareholders in January 2016 to outline the rationale behind the decision. In summary, this was as follows:

(i) 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. The Committee considers that this progressive approach contributes to our executive directors being fully motivated to deliver the Group’s growth strategy to the benefit of shareholders.

(ii) In view of the strong level of performance being delivered by Earl Sibley and the experience he has gained since joining, the Committee decided to progress his salary by 10% for 2016. The resulting level of salary remains below that of the previous GFD on leaving the Group at the beginning of March 2015. It is anticipated that a similar increase will be applied in January 2017, subject to continuation of the GFD’s development, strong performance and contribution to the Group.

The salary of David Ritchie, the Chief Executive, was not increased.

An allowance of just over 3% of salary roll was provided for general staff increases.

Benefits will continue on the same basis as for 2015.

Bovis Homes Group PLC | 67

Annual remuneration report

Remuneration report

Approach to annual bonus Following the annual review, it was concluded that the annual bonus scheme continues to measure key elements of performance that are in line with the Company’s stated strategy over the shorter term, but that the cash flow measure should be removed, as the Group is now consistently delivering strong operating cash flow, and the ROCE measure should instead be increased from 20% to 30%, reflecting the importance of delivering growth in return on capital.

In addition, provisions that enable the withholding of payment or the recovery of sums paid (malus and clawback) have been included for the 2016 annual bonus to apply 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; or (iii) gross misconduct. Malus will apply prior to the bonus payment date and clawback will apply for a two year period thereafter.

There is no change to quantum and the balance of financial and non-financial metrics remains at 70%:30%.

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 growth strategy, but will disclose them retrospectively in the 2016 annual remuneration report. The 2016 performance measures and weightings are described below.

Measure Rationale / link to strategy % weighting

Financial measures (70%)

Profit before tax Explicitly ties reward to financial performance. 40% Challenges management to deliver and out-perform profit target.

ROCE Aligns the way the business is managed with the key interest of 30% shareholders, being the return achieved on invested capital.

Non-financial measures (30%)

Customer service Quality of service is key to reputation and future success, both in 10% terms of customer demand and achieved selling prices.

Individual performance Focuses the executive directors on strategic priorities and the 20% achievement of defined elements within their roles

Total opportunity 100%

Approach for Long Term Incentive Plan awards The key features of the long term incentive arrangements (as outlined on page 63) remain the same as those for 2015, with the addition of provisions that enable the withholding of payment or the recovery of sums paid (malus and clawback) for 2016 awards. These provisions will apply 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; or (iii) gross misconduct. Malus will apply prior to the award vesting date and clawback will apply for a two year period thereafter.

Performance conditions Total Shareholder Return (one-third of total award) The threshold target for maximum vesting, being outperformance of the index by 10% per annum, is historically equal to at least upper quartile performance, and is thus deemed appropriately stretching. TSR will be calculated using a three month averaging period at the start and end of the period to smooth the impact of share price volatility on vesting.

Performance measurement Threshold performance Maximum performance

TSR Equal to the median of the Index Median plus 10% per annum Our governance

68 | Annual report and accounts | Our governance Annual remuneration report

Earnings per share (one-third of total award) The Committee adopted cumulative EPS targets for the 2016 awards. When setting minimum and maximum absolute EPS targets for the 2016 awards, the Committee considered data providing visibility over the three year performance period, including internal forecasts and analysts’ projections, and set absolute minimum and maximum EPS targets of 370p and 440p per share to be measured on a cumulative basis over the three year performance period. Where EPS falls below the minimum, none of the shares in the award judged by reference to EPS can be realised.

Performance measurement Threshold performance Maximum performance

EPS Cumulative EPS of 370p Cumulative EPS of 440p

Return on Capital Employed (one-third of total award) When setting minimum and maximum absolute ROCE targets for the 2016 awards, the Committee again considered data providing visibility over the three year performance period, including internal forecasts and analysts’ projections. The Committee set absolute minimum and maximum ROCE targets for the 2016 awards of 20.5% and 25.3%, to be measured in the third year of the performance period (2018).

Performance measurement Threshold performance Maximum performance

ROCE 20.5% 25.3%

Pensions Pension arrangements (as outlined on page 64) will continue on the same basis as in 2015. Non-executive directors’ remuneration The fees for the non-executive director positions in 2015 and for 2016 are set out below.

Role 2015 2016

Chairman fee £160,000 £170,000

Deputy Chairman fee £66,000 £66,000

Non-executive director base fee £46,000 £46,000

Additional fees:

Audit Committee chair £8,000 £8,000

Remuneration Committee chair £8,000 £8,000

The Chairman’s fee was increased following two years in post and a review which took into account competitive positioning, responsibilities, time commitment for the role and the size and complexity of the Company. The fees for the Deputy Chairman and the other non-executive directors were increased to their current levels with effect from 1 January 2015 and will next be reviewed with effect from 1 January 2017.

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 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.

Bovis Homes Group PLC | 69 Annual remuneration report

Remuneration report

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 45. Attendance Name Date of appointment Role at meetings

Alastair Lyons 01/10/2008 Chairman 8/8

Chris Browne 01/09/2014 Member 8/8

Ralph Findlay 07/04/2015 Member 5/5

John Warren (retired 15/05/15) 01/03/2006 Member 3/3

The Committee met eight times in 2015. In addition to the key activities and decisions mentioned in the introduction to this report, the Committee reviewed and approved the directors’ remuneration report for inclusion in the 2014 Annual Report and reviewed feedback from shareholders and institutions, reviewed the Company Chairman’s fee, approved the vesting of 2012 CSOP options and the grant of 2015 CSOP options to middle management, approved the 2015 offer of the SAYE scheme, and reviewed the Committee’s terms of reference.

The Committee starts its meetings without executive management present. During 2015, the Committee asked Ian Tyler (Chairman) and David Ritchie (Chief Executive) to attend meetings and assist its discussions. This excludes 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 2015 were £2,250.

Shareholder voting at the 2015 AGM At the AGM held on 15 May 2015, shareholder proxy voting on the directors’ remuneration report for the year ended 31 December 2014 was as follows: Resolution For % Against % Total votes Withheld (1)

Directors’ remuneration report 2014 95,578,817 94.08 6,009,308 5.92 101,588,125 2,087,553

(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 19 February 2016 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. Our governance

70 | Annual report and accounts | Our governance Annex to remuneration report

The full remuneration policy is contained in the 2013 Annual Report and available at www.bovishomesgroup.co.uk.

Components of the remuneration policy for executive directors The policy table below summarises the main components of the remuneration framework, a large proportion of which is performance related.

Purpose and link Operation Opportunity Performance metrics to strategy

Fixed pay

Base salary Ordinarily reviewed annually. Whilst we do not consider it Not applicable. appropriate to set a maximum base To attract and retain high The review typically considers salary level, any increases will take performing talent required competitive positioning, the individual’s into account the individual’s skills, to deliver the business role, experience and performance, experience, performance, the external strategy, providing core business performance and salary environment and the pay of employees reward for the role. increases throughout throughout the Group. the Group. Whilst generally the intention is to Market benchmarking exercises are maintain a link with employee pay and undertaken periodically and judgement conditions, in circumstances such as is used in their application. 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.

Benefits Benefits typically include medical We do not consider it appropriate to set Not applicable. insurance, life assurance, membership a maximum benefits value as this may To provide market of the Bovis Homes Regulated Car change periodically. competitive benefits Scheme for Employees or cash car consistent with role. 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.

Pension Executives joining the Group since A pension allowance of up to 20% Not applicable. January 2002 can choose to participate of base salary may be paid to include To attract and retain in a defined contribution arrangement, membership of a pension arrangement, talent by enabling long or may receive a cash equivalent. with any balance payable as a salary term pension saving. A salary supplement may also be supplement. 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.

Bovis Homes Group PLC | 71 Annex to remuneration report

Remuneration report

Purpose and link Operation Opportunity Performance metrics to strategy

Variable pay

Annual bonus The annual bonus scheme is a The annual bonus scheme Performance measures are selected to discretionary scheme and is reviewed offers a maximum focus executives on strategic priorities, To incentivise and prior to the start of each financial opportunity of up to 100% providing alignment with shareholder reward the delivery year to ensure that it appropriately of base salary. Achievement interests and are reviewed annually. of near term business supports the business strategy. of stretching performance Weightings and targets are reviewed and targets and objectives. targets is required to earn Performance measures and stretching set at the start of each financial year. the maximum. targets are set by the Committee. Financial metrics will comprise at least Bonuses are normally paid in cash. 70% of the bonus and are likely to In any year in which no dividend is include one or more of: proposed discretion may be exercised • a profit based measure to pay part, or all, of the bonus in ordinary shares, deferred for • a cash based measure two years. • a capital return measure Actual bonus amounts are Non-financial metrics, key to business determined by assessing performance performance, will be used for the balance. against the agreed targets after the year end. The results are then Below threshold performance delivers no reviewed to ensure that any bonus bonus and target performance achieves a paid accurately reflects the underlying bonus of 50% of base salary. performance of the business.

Long Term Typically, annual awards are made The maximum annual The performance measures applied to LTIP Incentive Plan under the LTIP. award, under normal awards are reviewed annually to ensure circumstances, is as follows: they remain relevant to strategic priorities (“LTIP”) Performance is measured over a and aligned to shareholder interests. performance period of not less • 150% of base salary for Weightings and targets are reviewed and To incentivise, reward than three years. LTIP awards do the CEO. set prior to each award. and retain executives not normally vest until the third • 125% of base salary for over the longer term anniversary of the date of the grant. Performance measures will include long the GFD. and align the interests term performance targets, of which Awards may be granted with the of management and In exceptional circumstances relative TSR will comprise at least one benefit of dividend equivalents, so shareholders. an award may be granted third and financial performance metrics that vested shares are increased under the LTIP rules up to will comprise the balance. by the number of shares equal to 200% of base salary. dividends paid from the date of grant Below threshold performance realises 0% to the date of exercise. of the total award, target performance realises 30% and maximum performance realises 100%.

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. In 2016 the Company introduced provisions for the recovery of sums paid under the annual bonus and LTIP under certain serious circumstances which are summarised on pages 62 and 68. 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 any 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 the policy came into effect; or (ii) 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 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. Our governance

72 | Annual report and accounts | Our governance Audit Committee report “I am pleased to introduce my first Audit Committee report since taking over as Chairman following the 2015 AGM. The Committee continues to play a fundamental role in protecting shareholders’ interests and, during the year, has reviewed the Group’s financial reporting, risk management and internal control systems and acted in oversight of external and Internal Audit.”

Ralph Findlay, Committee Chairman

Overview Responsibilities and terms of reference During the year, the Committee reviewed the integrity of the The key responsibilities of the Committee are: Group’s financial statements, with focus on significant areas • Monitoring the integrity of the financial statements, the of judgement, and kept operating, financial and accounting accompanying reports to shareholders and corporate governance practices under review. The system for internal control, financial statements, including reviewing the findings of the external auditor. reporting and risk management was monitored in the context of the growth of the Group to ensure its ongoing effectiveness • Reviewing and monitoring the effectiveness of systems for and reporting from management, Internal Audit and the internal control, financial reporting and risk management. external auditor was openly debated, testing conclusions and • Overseeing and reviewing the effectiveness of Internal Audit. audit judgements. The Committee was pleased to welcome PricewaterhouseCoopers LLP as external auditor, following their • Making recommendations to the Board in relation to the appointment at the 2015 AGM. appointment and removal of the external auditor and approving their remuneration and terms of engagement. Committee membership and meetings • Reviewing and monitoring the external audit process and the The Committee comprises three independent non-executive independence and objectivity of the auditor, as well as the directors, who between them have the recent and relevant nature and scope of the external audit and its effectiveness. experience required by the UK Corporate Governance Code. Biographical details and information on skillsets are provided on • Developing the policy on the engagement of the external auditor pages 44 and 45. to supply non-audit services, taking into account relevant ethical guidance. Committee membership is determined by the Board following recommendation from the Nomination Committee and it is The Committee’s terms of reference are available on the reviewed as part of the Committee’s performance evaluation. Company’s website (www.bovishomesgroup.co.uk/investor-centre/ Ralph Findlay became a member of the Committee on his corporate-governance). appointment as a non-executive director on 7 April 2015 and Main activities during the year took over as Chairman with the retirement of John Warren at the The Committee followed a programme structured around AGM on 15 May 2015. The Company Chairman, Chief Executive the annual reporting cycle and received reports from Internal and Group Finance Director attend meetings by invitation and Audit, the external auditors and management. The key activities were present at all meetings in 2015. KPMG LLP attended the first undertaken were: meeting of the year and PricewaterhouseCoopers LLP attended two meetings following their appointment as external auditors • Discussed with the external auditors the key accounting at the 2015 AGM. The Internal Audit Director and the Group considerations and judgements reflected in the Group’s results Financial Controller were also in attendance at all meetings. for the year ended 31 December 2014.

Attendance Name Date of appointment Role at meetings • Reviewed the 2014 annual report and accounts, so as to recommend to the Board that, taken as a whole, it was fair, Ralph Findlay 07/04/2015 Chairman 2/2 balanced and understandable. (appointed Chairman 15/05/15) Alastair Lyons 01/10/2008 Member 3/3 • Considered and recommended to the Board the presentations for analysts. John Warren 01/03/2006 Chairman 1/1 (retired 15/05/15) • Assessed the results and effectiveness of the 2014 final audit. Chris Browne 01/09/2014 Member 3/3 • Recommended the appointment of a new external auditor The Committee met three times in 2015 and detailed papers to the Board, following a competitive tender process, and and information were received sufficiently in advance of approved the terms of engagement and remuneration. meetings to allow proper consideration of matters for discussion. • Reviewed and discussed with the external auditor the key The Committee also met with the external auditors and Internal accounting considerations and judgements reflected in the Audit, without executive management present, following the Group’s results for the six months ended 30 June 2015. final audit and the review of the 2014 financial statements and • Evaluated and agreed the external auditor’s audit strategy the 2014 Internal Audit report. No matters of concern were memorandum in advance of their 2015 year-end audit. raised in these discussions. Both John Warren and Ralph Findlay met privately with the audit engagement partner of the external • Received reports from Internal Audit covering various aspects of auditors and the Internal Audit Director during the year. the Group’s operations, controls and processes. The Group Company Secretary acts as secretary to the Committee. An overview of the main activities during 2015 is provided below. Bovis Homes Group PLC | 73 Audit Committee report

• Assessed and agreed the Internal Auditor’s audit plan for 2016, justified by management and the land write down provision based on the agreed risk universe, together with the required remaining at the period end (£6.7 million) was reviewed, level of resource. together with the profit attributable to the reversal of the provision on the sale of written down units during the year, • Reviewed the effectiveness of the system of internal control which was not considered to be material. Following discussion, and risk management systems and reported to the Board that the Committee was satisfied that the judgements exercised were there were no material control weaknesses. appropriate and that the provision was appropriately stated at • Reviewed management’s going concern assessment at each the year end. Details of the movements in the provision are reporting period end, considering detailed financial forecasts, provided in note 3.1 to the accounts on page 101. future cash flow projections and the resources available to the • Available for sale financial assets - the assumptions used to fair Group, including the current banking facility and forecast value available for sale financial assets, (otherwise known as covenant compliance. shared equity and details of which are provided in note 4.2 • Reviewed management’s viability assessment for the year end on page 103), affects the carrying value on the balance sheet. reporting period covering strategic planning, principal risks, These assumptions require the exercise of significant detailed financial forecasts, resources available to the Group, judgement by management. This is assessed through the scenario testing, qualifications and assumptions and the Committee discussing with management and the auditors the period chosen. assumptions adopted and any adjustments made to those assumptions, including, in particular, the long run HPI • Reviewed the Committee’s terms of reference. assumption and the discount rate which are the key determinants of the expected final redemption value. Following • Reviewed the Company’s whistleblowing policy and discussion the Committee considered that the assumptions arrangements. adopted were reasonable. At its meeting in February 2016, the Committee discussed with • Margin recognition - the level of costs attributable to each legal the external auditor the key accounting considerations and completion affects the profit and margin recognised in the judgements reflected in the Group’s results for the year ended income statement. Certain site wide costs including land and 31 December 2015 and reviewed the 2015 annual report and infrastructure are allocated to individual legal completions on a accounts, to be able to recommend to the Board that, taken proportionate basis using an approximate measure for the area as a whole, it was fair, balanced and understandable and of land each housing plot utilises as the basis of allocation. provided the information necessary for shareholders to assess The total costs allocated represent the combination of costs the Company’s performance, business model and strategy. incurred to date and an estimate of the cost to complete. The approach taken was to analyse key areas of progress and The assessment of cost to complete is based on the specific challenge during the year, followed by reviewing the 2015 details of each site and incorporates certain assumptions and annual report and accounts to ensure that all key areas had been judgements by management. The level of profit recognised in reported upon in a balanced and fair way. the income statement is monitored throughout the year via Significant areas the Group’s usual budgeting, forecasting and management The key accounting judgements considered by the Committee in accounts reporting. The methodology adopted and the Group’s relation to the 2015 accounts and discussed with the external performance to date against expectations had been audited by auditors, were: the external auditors.

• Inventory provisioning - the level of inventory provisioning • Land acquisitions - certain land acquisitions incorporate site impacts the carrying value of the most significant balance on specific terms for example overages, conditionality or ongoing the balance sheet. Since the downturn in the land market in obligations with the land owner. The key terms are assessed 2008 the Company has carried a provision to write down the and appropriate accounting entries made for such acquisitions carrying value of the land held within inventories to the lower where they impact the balance sheet land value. The material of cost and net realisable value, less costs to sell, where this and complex land transactions in the year were substantively is less than the historical cost. The assessment of the level of audited by the external auditors. Management review and provision required, requires the exercise of judgement understand the impact of the key terms of each land by management. The Committee receives a regular report on transaction as part of the acquisition process and in line with this provision, updated by management, at relevant Committee an escalating system of approval based on materiality certain meetings. At this year end the paper proposed an immaterial acquisitions are appropriately assessed by the Chairman and adjustment, which was in line with the forecast position and the Board as a whole. The external auditors reported on had been audited by the external auditors. The written down relevant transactions to the Audit Committee and following sites and any adjustments proposed were discussed and discussion the Committee considered the accounting to

Our governance be appropriate.

74 | Annual report and accounts | Our governance

External auditors The related fee level, both separately and relative to the audit fee is also considered. For an analysis of fees paid to both PricewaterhouseCoopers LLP (PwC) were appointed as external KPMG LLP and PwC, for audit and non-audit services, see note auditor at the 2015 AGM, following the completion of a 2.1 on page 99. The non-audit services provided during the competitive audit tender process supervised by the Committee. year related to tax advisory and compliance work. Provision of In doing so, the Committee complied with the provisions of these services is not considered to impair the external auditor’s the Competition & Markets Authority Order. Our 2016 AGM independence or objectivity. Notice contains a resolution for the re-appointment of PwC as auditors to the Company. In making this recommendation, Performance evaluation the Committee took into account, amongst other matters, The Committee undertook a self-assessment process in the independence and objectivity of PwC, the effectiveness of January 2016 to review the Committee’s performance, the the external audit process and cost. There are no contractual effectiveness of the external auditor, and the Group’s Internal restrictions on the choice of external auditor. The AGM Notice Audit function. The Committee is considered to be effective, also contains a resolution to give the directors authority to with members having a good mix of skills and experience to determine the auditor’s remuneration, which provides a provide an appropriate level of challenge when debating the practical flexibility to the Committee. reports, statements and findings presented to them. Prior to the appointment of PwC, the Committee reviewed In reviewing the effectiveness of the external auditor, a the independence and objectivity of KPMG LLP, which was particular focus this year has been the appointment of PwC confirmed in an independence letter containing information in 2015. The Committee considers PwC to have carried on procedures providing safeguards established by the external out a high quality audit in the first year since appointment, auditor. Regulation, professional requirements and ethical established effective working relationships, and gained a standards were taken into account, together with consideration good understanding of the Group’s business. The Committee of all relationships between the Company and KPMG LLP and was satisfied with the scope of the external audit, and that their staff. PwC demonstrate independence having reviewed all services provided to the Group by them. The Committee believes the Relations with the external auditors are managed through a external audit to be effective. In relation to Internal Audit, series of meetings and regular discussions and we ensure a during the year, the Committee considered it appropriate for high quality audit by challenging the key areas of the external the resources and operation of Internal Audit to be reviewed in auditor’s work. the context of the significant growth of the business in recent At its meeting in February 2016, the Committee reviewed years and that there are opportunities for improvement. the effectiveness of the external audit process as part of its This process has commenced and additional external resource consideration of the 2015 final audit. This involved assessing has been incorporated into the Internal Audit plan for 2016. delivery and content against the audit plan for the 2015 year The overall review of the Internal Audit function will be end audit, including determination of audit risks and significant concluded during 2016. Finally, the evaluation also concluded areas of judgement, consideration of the performance and that the Committee had appropriate terms of reference and communication of the audit team, and the quality of reporting, had fulfilled its remit in 2015. observations, recommendations and insight. It also included reviewing comprehensive papers from the external auditors, discussing and challenging their conclusions and audit Ralph Findlay judgements and assessing responses from the external auditor. Chairman of the Audit Committee Lastly, feedback was taken on the effectiveness and conduct of the audit from those involved, including feedback from the 19 February 2016 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 tax advisory and compliance work undertaken in the ordinary course of business and audit related services, which are treated as pre-approved. 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.

Bovis Homes Group PLC | 75

Our governance

76 | Annual report and accounts | Our governance College Green Godalming

Bovis Homes Group PLC | 77 Nomination Committee report

“The Committee has kept the balance and composition of the Board under review, made nominations for appointment and maintained its focus on succession planning.”

Ian Tyler, Committee Chairman

Overview • Monitoring the leadership needs of the Company and leading the process for Board appointments, ensuring they are With the growth of the Group, the Committee maintained conducted on merit, against objective criteria (including diversity), a watching brief on the knowledge, skills and experience using the services of an appropriate external search consultant. available to the Board and its diversity. Two new directors were recommended for appointment. Ralph Findlay joined the Board • Making recommendations to the Board, including on the in April 2015 as a non-executive director and succeeded to the re-appointment of non-executive directors, the re-election of directors at the AGM, and membership of the Audit and Chair of the Audit Committee at the 2015 AGM. Earl Sibley Remuneration Committees. was appointed Group Finance Director, also in April 2015. The Committee will continue to monitor the balance and The Committee also reviews the results of the Board performance composition of the Board as the Group implements its growth evaluation relating to the composition of the Board. External legal strategy. Information on the Board’s skillset is set out on page 44, or other independent professional advice can be obtained at the Company’s expense, although this facility was not utilised during together with biographies. the year. The Committee’s terms of reference are available on the Committee membership and meetings Company’s website (www.bovishomesgroup.co.uk/investor-centre/ All members of the Committee are independent non-executive corporate-governance). directors, with the exception of the Chairman of the Company Main activities during the year and the Chief Executive. Ian Tyler chaired the Committee during The main activities during early 2015 were focused on succession the year and the other members of the Committee were Alastair planning following a long period of stability. The Committee Lyons, John Warren (until 15 May 2015), Chris Browne, Ralph recommended the appointment of Ralph Findlay as a non-executive Findlay (from 7 April 2015) and David Ritchie. director, with the intention that he take over as Chairman of the Attendance Audit Committee following the conclusion of a handover process. Name Date of appointment Role at meetings Ralph was appointed on 7 April 2015 and took over as Audit Ian Tyler 29/11/2013 Chairman 5/5 Committee Chairman at the AGM on 15 May 2015, with the retirement of John Warren from the Board. A formal, comprehensive Alastair Lyons 01/10/2008 Member 5/5 and tailored induction was provided for Ralph, which included visits to Chris Browne 01/09/2014 Member 5/5 the regional offices, site visits and meetings with senior management. Ralph Findlay 07/04/2015 Member 3/3 The Committee also concluded the recruitment of a new Group John Warren 01/03/2006 Member 2/2 Finance Director, which began during the fourth quarter of 2014, (retired 15/05/15) with Earl Sibley being appointed to the Board on 16 April 2015. David Ritchie 03/07/2008 Member 5/5 A summary of the Committee’s activities during 2015 follows: The Committee met five times in 2015, with the key focus in the early part of the year being on Board composition and the • Keeping the structure, size and composition of the Board recruitment of a non-executive director and a new Group Finance under review, concluding that the present Board balance and Director. Recommendations for appointment followed. Later in composition remains appropriate for the time being. the year the Committee reviewed the diversity policy, considered • Running the recruitment process for a new non-executive director, succession planning for the executive directors and senior using objective criteria and the external search services of The Zygos management and noted the publication of the FRC discussion paper Partnership (who have no other connection with the Company), on succession planning and the role of the nomination committee. including recommendation of appointment to the Board. For all meetings, papers and supporting documentation were • Running the recruitment process for the new Group Finance circulated sufficiently in advance to allow proper consideration Director, using objective criteria and the external search services of matters for discussion. The Group Company Secretary acts as of Odgers Berndtson (who have no other connection with the secretary to the Committee. Company), including recommendation of appointment to the Board.

Responsibilities and terms of reference • Considering succession planning as the Group grows in size, with The key responsibilities of the Committee are: a view to future requirements. • Reviewing the structure, size and composition of the Board • Reviewing planning for executive director and senior management (including skills, knowledge, experience and diversity) and to succession, against the background of organisational development. make recommendations to the Board. • Recommending the directors to stand for re-election at the 2015 • Considering succession planning for directors and senior AGM in accordance with the UK Corporate Governance Code. executives, taking into account the challenges and opportunities • Approving the Nomination Committee report for the 2014 facing the Company and the skills and expertise needed in Annual Report. the future. • Reviewing the Committee’s terms of reference.

• Setting a Committee timetable for 2016. Our governance

78 | Annual report and accounts | Our governance Cloakham Lawns Axminster

The Committee also reviewed the results of the 2014 external Board important consideration as part of the objective criteria used to assess performance evaluation relating to the composition of the Board. candidates to achieve a balanced board. A decision has been taken not to set measurable objectives and the Committee continues to Non-executive directors’ service contracts are renewed on an annual consider boardroom diversity in its succession planning discussions. basis following the conclusion of a second three year term, subject to satisfactory performance and there being no need to re-balance Performance evaluation the Board, with the third year of the third term extending until the An evaluation of the performance of the Board Committees was subsequent AGM. Having served for seven years, a recommendation completed as part of the formal evaluation of the Board, completed was made to the Board that the service contract for Alastair Lyons be at the start of 2016. The Committee was found to be effective renewed for a further one year term. This followed a rigorous review, and it was concluded that it had fulfilled its remit in 2015 and had including the contribution, performance and commitment of Alastair appropriate terms of reference. 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 Ian Tyler September 2011. The policy sets out that appointments to the Chairman of the Nomination Committee Board will always be based on merit, so that the Board has the right individuals in place, and explains that diversity is seen as an 19 February 2016

Bovis Homes Group PLC | 79 Directors’ report

The directors have pleasure in submitting their annual report for Annual General Meeting the year ended 31 December 2015. Notice of the 2016 Annual General Meeting to be held on Tuesday, 10 May 2016 is set out on pages 122 to 126. Other disclosures made in the Annual Report Members wishing to vote should return forms of proxy to the The Company is required to disclose certain information in its Company’s Registrar not less than 48 hours, (excluding non- directors’ report which the directors have chosen to disclose working days), before the time for holding the meeting. elsewhere in the Annual Report and is incorporated by reference. Details of where this information can be found are The directors believe that all the resolutions to be considered set out below: at the Annual General Meeting are in the best interests of the Company and its shareholders as a whole. The directors Subject Pages unanimously recommend that all shareholders vote in favour of Likely future developments in the business 12 to 15 the resolutions, as the directors intend to do in respect of their own shares in the Company. Important events since the year end 120

Going concern statement 30 Directors

Directors' interests 64 Details of the directors are shown on pages 44 to 45. John Warren retired from the Board on 15 May 2015 after nine Employee involvement / employment of disabled persons 34 years as a director and eight years as Chairman of the Audit Greenhouse gas emissions 36 Committee. Ralph Findlay was appointed as an independent non-executive director on 7 April 2015 and took over as Corporate governance report 47 to 55 Chairman of the Audit Committee on 15 May 2015. Directors' remuneration 57 to 72 Jonathan Hill resigned as Group Finance Director on 6 March Subsidiaries and associated undertakings 115 2015 and Earl Sibley was appointed Group Finance Director on 16 April 2015. Research and development Details of directors’ pay, pension rights, service contracts and directors’ interests in the ordinary shares of the Company are We continue to undertake research and development to included in the Directors’ Remuneration Report on pages improve the processes, materials and products used in the 57 to 70. construction of our developments and to enhance the energy efficiency of our range of homes. In accordance with the UK Corporate Governance Code, all the current directors will retire at the 2016 Annual Disclosure of information under Listing Rule General Meeting, and, being eligible, offer themselves for 9.8.4R re-appointment. There is no further information to be disclosed in accordance Directors’ indemnities with Listing Rule 9.8.4R. During the financial year and as at the date of this report, Dividends indemnities were in force under which the Company has An interim dividend of 13.7p (2014: 12.0p) net per share was agreed to indemnify the directors, to the extent permitted by paid on 20 November 2015. The Board proposes to pay, subject law and the Company’s Articles of Association, in respect of to shareholder approval at the 2016 Annual General Meeting, all losses arising out of, or in connection with, the execution a final dividend of 26.3p (2014: final dividend of 23.0p) net per of their powers, duties and responsibilities, as directors of the share in respect of the 2015 financial year on 20 May 2016 to Company or any of its subsidiaries. shareholders on the register at the close of business on David Ritchie is a director of Bovis Homes Pension Scheme 29 March 2016. On this basis, the total dividend for 2015 will Trustee Limited (the “Pension Trustee”) and the Company’s be 40p (2014: 35.0p), representing an increase of 14%. subsidiary, Bovis Homes Limited, has granted a qualifying The dividend reinvestment plan gives shareholders the pension scheme indemnity to the directors of the Pension opportunity to reinvest dividends. 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. Our governance

80 | Annual report and accounts | Our governance Powers of the directors Shareholders are entitled to attend, speak and vote at general meetings of the Company, to appoint one or more proxies and, if Subject to the Company’s Articles of Association, UK legislation they are corporations, to appoint corporate representatives. and any directions given by special resolution, the business of the Company is managed by the Board, which may exercise all the On a show of hands at a general meeting of the Company every powers of the Company. The directors have been authorised to shareholder present in person or by proxy and entitled to vote has allot and issue ordinary shares and to make market purchases of one vote and on a poll every shareholder present in person or by the Company’s ordinary shares and these powers may be exercised proxy and entitled to vote has one vote for every ordinary share under authority of resolutions of the Company passed at its Annual held. Further details regarding voting, including the deadlines for General Meeting. The rules in relation to the appointment and voting, at the Annual General Meeting can be found in the notes replacement of directors are set out in the Company’s Articles to the Notice of the Annual General Meeting at the back of this of Association. annual report and accounts. No shareholder is, unless the Board decides otherwise, entitled to attend or vote either personally or Articles of Association 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 prescribed period. Share capital Shareholders may receive a dividend and on a liquidation may share The Company has a premium listing on the London Stock Exchange. in the assets of the Company. None of the ordinary shares of the As at 19 February 2016, its share capital comprised 134,380,184 Company, including those held by the Company’s share schemes, fully paid Ordinary Shares of 50 pence each. At the Company’s carry any special rights with regard to control of the Company. 2015 AGM, the directors were authorised to: 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 £22,348,969; The instrument of transfer of a certificated share may be in any • allot shares up to an aggregate nominal amount of £44,697,938 usual form or in any other form which the Board may approve. for the purpose of a rights issue; and The Board may refuse to register any instrument of transfer of a certificated share which is not fully paid, provided that the refusal • make market purchases up to 13,422,804 shares in the Company does not prevent dealings in shares in the Company from taking (representing approximately 10% of the Company’s issued share place on an open and proper basis. Certain employees and officers capital at the time). of the Company must conform to the Company’s share dealing Shareholders will be asked to renew similar authorities at the rules; these restrict the ability to deal in the Company’s shares at 2016 AGM. certain times and require permission to deal.

During the year the Company allotted 151,618 shares in connection The Board may also refuse to register a transfer of a certificated with the exercise of options under the Company’s employee share unless the instrument of transfer: (i) is lodged, duly stamped share plans. The Employee Benefit Trust purchased 240,000 shares (if stampable), at the registered office of the Company or any during the year in order to satisfy awards under the Company’s other place decided by the Board accompanied by the certificate Long Term Incentive Plan. All share purchases were made in open- for the share to which it relates and such other evidence as the market transactions. 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; The Company has not held any shares in treasury during the period and (iii) is in favour of not more than four transferees. Transfers of under review. uncertificated shares must be carried out using the relevant system and the Board can refuse to register a transfer of an uncertificated All issued shares are fully paid and free from any restrictions on share in accordance with the regulations governing the operation their transfer, except where required by law, such as insider trading of the relevant system and with UK legislation. There are no other rules. The rights and obligations attaching to the Company’s limitations on the holding of ordinary shares in the Company and ordinary shares are set out in the Company’s Articles of Association, the Company is not aware of any agreements between holders of copies of which can be obtained from Companies House in the UK securities that may result in restrictions on the transfer of securities or by writing to the Group Company Secretary. or on voting rights.

Bovis Homes Group PLC | 81 Directors’ report

Substantial shareholdings As at 31 December 2015, the following interests of 3% or more in the Company’s issued share capital had been notified to the Company:

% of voting rights of % direct % indirect % financial Total number of the issued Ordinary shares of 50p each holding holding instruments shares held share capital

BlackRock, Inc - <5.0 - - <5.0

Prudential plc group 5.07 - - 6,817,739 5.07

Standard Life Investments (Holdings) 4.35 5.64 - 13,415,807 9.99

Between 1 January and 19 February 2016, the following interests of 3% or more in the Company’s issued share capital were notified to the Company: % of voting rights of 19 February 2016 % direct % indirect % financial Total number of the issued Ordinary shares of 50p each holding holding instruments shares held share capital

Prudential plc group - 4.94 0.15 6,853,351 5.09

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 • each director has taken all the steps that he/she ought to outstanding options and awards, subject to satisfaction of have taken as a director to make himself/herself aware of performance conditions, as required. 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 This confirmation is given and should be interpreted in material in terms of their potential impact on the Group in accordance with the provisions of Section 418 of the this event. Companies Act 2006.

Financial risk management Following an audit tender process conducted at the end of Details of financial risk management and exposure to credit / 2014, PricewaterhouseCoopers LLP were appointed as auditor liquidity risks are included in note 4.6 to the accounts. with effect from the Annual General Meeting held on 15 May 2015. In accordance with the provisions of the Companies Political donations Act 2006, resolutions concerning the re-appointment of No political donations were made during the year ended PricewaterhouseCoopers LLP and their remuneration will be 31 December 2015 (2014: nil). The Group has a policy of placed before the 2016 Annual General Meeting. not making donations to political parties or incurring political expenditure. Our governance

82 | Annual report and accounts | Our governance Statement of directors’ responsibilities The directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides The directors are responsible for preparing the Annual Report, the the information necessary for shareholders to assess a Company’s Directors’ Remuneration Report and the financial statements in performance, business model and strategy. accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements Each of the directors, whose names and functions are listed on for each financial year. Under that law the directors have prepared page 44 to 45 of the Annual Report confirm that, to the best of the Group and Parent company financial statements in accordance their knowledge: with International Financial Reporting Standards (IFRSs) as adopted • the Group financial statements, which have been prepared in by the European Union. Under company law the directors must not accordance with IFRSs as adopted by the EU, give a true and fair approve the financial statements unless they are satisfied that they view of the assets, liabilities, financial position and profit of the give a true and fair view of the state of affairs of the Group and the Group; and Company and of the profit or loss of the Group for that period. • the Strategic Report contained in the Annual report includes a In preparing these financial statements, the directors are required to: fair review of the development and performance of the business • select suitable accounting policies and then apply them and the position of the Group, together with a description of the consistently; principal risks and uncertainties that it faces.

• make judgements and accounting estimates that are reasonable and prudent;

• state whether applicable IFRSs as adopted by the European Union By Order of the Board have been followed, subject to any material departures disclosed M T D Palmer and explained in the financial statements; Group Company Secretary • prepare the financial statements on the going concern basis 19 February 2016 unless it is inappropriate to presume that the Company will Bovis Homes Group PLC continue in business. Registered number 306718

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.

Bovis Homes Group PLC | 83 The Fairways Leamington Spa Our governance

84 | Annual report and accounts | Our governance Bovis Homes Group PLC | 85 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 2015 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 Balance sheets as at 31 December 2015; • the 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 applicable law and 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. Our audit approach Overview

• Overall Group materiality: £8,000,000 which represents 5% of profit before tax.

Materiality • The Group primarily operates through one main trading entity, structured into six regions, being Central, Eastern, Western, Southern, South West and Northern. The Group financial statements are a consolidation of these six regional reporting units and the centralised group functions. Audit We conducted our audit work at all six regions which together account for 100% of scope Group revenue, 99% of Group profit before tax and 99% of net assets.

• Margin forecasting and recognition Areas of • Carrying value of inventory focus • Valuation of available for sale assets – shared equity • Accounting for complex land acquisitions Our governance

86 | Annual report and accounts | Our governance 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 74 of the Audit Committee Report. • At a regional level we tested managements forecasting and monitoring controls, including attendance at a selection of The Group’s margin recognition is based on the following: the surveyor and financial appraisal meetings. We noted no • Sales price (allocated to each plot on an actual basis) instances where controls were not operating as stated.

• Build costs (allocated to each plot on an actual costs basis) • We have tested a sample of sales prices to receipts to support the revenue recognised, noting no material exceptions. • Site wide costs, including infrastructure costs and land (the total expected cost for the site including an estimated cost to • We have tested a sample of costs incurred to third party complete is allocated to each plot based on the Group’s ‘land supplier invoices, noting no material exceptions. factor’ model) • We gained an understanding of any significant differences Periodic surveyor and financial appraisals are performed to that had arisen between the forecast cost and actual cost determine the costs to date and work in progress based upon incurred on ongoing sites, the drivers for these variances and the stage of completion of each unit and the build costs and checked that the changes had been appropriately reflected in estimated costs to complete are updated accordingly. At each the accounting records. We did not identify any sites where we half year and full year the costs to date and estimated costs to considered the underlying assumptions around site wide costs complete are reconciled to the value of production on site, via for the remainder of the development to be inappropriate. the CV model, in order to provide assurance to the cost of sales • We have assessed the historical accuracy of management’s recognised in the period. forecasting through review of actual margins achieved on If the costs allocated to a unit are expected to exceed the completed sites compared to initial expected margins, noting estimated sales price then a shortfall is recognised in the Income no significant adverse trends. Statement at that time. • We also tested that the CV model correctly recalculated the There is uncertainty within the cost to complete estimate from cost apportionment following cost and stage of completion potential changes in the market conditions (e.g. cost inflation) or amendments made by management. We did not identify any unforeseen circumstances. This could result in the assumptions material exceptions in this regard. being inaccurate and an incorrect margin being recognised.

Bovis Homes Group PLC | 87 Auditor’s report

Area of focus How our audit addressed the area of focus

Carrying value of inventory

Refer to page 74 of the Audit Committee Report and page • We considered margins for all major sites to identify those 101 of the financial statements. with low or eroding margins, for example due to specific issues or underperformance. We discussed the identified Inventory is comprised of land held for development, work sites with management, including considering the level of in progress, raw materials and completed units/part provisions held against these sites and corroborated the exchange properties. explanations with other external evidence in respect of the Land held for development and raw materials are held at carrying value of inventory. cost. Work in progress is made up of the cost of the land • We tested the percentage completion of units across a being built on, direct materials and, where applicable, direct sample of sites and checked that forecasts have been labour costs and those overheads that have been incurred appropriately updated for costs incurred to date and in bringing the inventories to their present location and expected costs to completion. condition. Completed units are held at build cost and part exchange properties are held at the market value determined • We also assessed the historical accuracy of management’s at the time of exchange. forecasting.

Inventories are stated at the lower of cost and net realisable • We considered the composition of the inventory balance value (“NRV”), NRV being the estimated net selling and the level and ageing of completed but unreserved price less estimated costs to complete based on units and part exchange properties in assessing the management’s forecasts. appropriateness of their recoverable amount.

Due to the cyclical nature of the housing industry and issues • We checked that appropriate site acquisition approvals experienced during the build programme, there is a risk that considering site profitability had been obtained for the NRV of the inventory is lower than cost and therefore significant sites. inventory is stated at an incorrect value. Based upon 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.

Valuation of available for sale assets – shared equity

Refer to page 74 of the Audit Committee Report and page • We tested the mechanics and base data of the valuation 104 of the financial statements. model and through discussion with management understood the key assumptions included within the model. Shared equity assets are held at fair value and comprise long- We then evaluated and challenged these assumptions with term receivables from shared equity schemes. The valuation our own independent research on house prices method for these assets is not capable of being based on and on private transactions in mortgage and secured observable market data and therefore the valuation model of loans portfolios. these assets is highly subjective to management judgement and estimates including expected house price movements, • We checked that the current assumptions are reflective credit risk of borrowers, discount rates, recoverability and of any historic trends of redemption of loans. We also expected timing of receipt. benchmarked the shared equity schemes against publicly available information on other shared equity schemes Fluctuations in the underlying assumptions used in to assess whether the assumptions are reasonable, in management’s valuation model could have a material impact particular, focusing on house price inflation and the on the value of these assets. discount rates applied.

Based upon the procedures performed, we noted no reasonable likely alternative assumptions that would result in a material change to the valuation. Our governance Our governance

88 | Annual report and accounts | Our governance Accounting for complex land acquisitions

Refer to page 74 of the Audit Committee Report and page 101 • We tested key controls, including approval for land acquisitions of the financial statements. and approval to enter into or extend a land purchase option, noting no exceptions The Group enters into certain land acquisitions with site specific terms attached such as overages, conditionality, options or • We substantively tested material or complex land acquisitions specific agreements with the purchaser. through examination of contracts and agreements to check that the acquisition and subsequent overage terms have been Acquisitions of land could be incorrectly accounted for due to identified and accounted for appropriately, and that all the the complex manner in which transactions can be structured. related liabilities have been properly recorded within the financial statements.

How we tailored the audit scope In identifying these areas of focus and in ensuring that we performed enough work to be able to give an opinion on the financial statements as a whole, we took into account: the regional structure of the Group; the accounting processes and controls; and the industry in which the Group operates, and tailored the scope of our audit accordingly. The Group consists of one main trading entity and is structured into six regions, being Central, Eastern, Western, Southern, South West and Northern. The Group financial statements are a consolidation of these six regional reporting units and the centralised group functions.

We undertook work across each of the six regions which together account for 100% of the Group revenue and 99% of Group profit before tax.

This, together with 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.

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:

How we determined it 5% of profit before tax

Overall group materiality £8,000,000

Rationale for benchmark applied We believe that profit before tax provides us with the most appropriate benchmark given the business’ listed status and stakeholder focus on profits.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £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.

Bovis Homes Group PLC | 89 Auditor’s report

Other required reporting Consistency of other information Companies Act 2006 opinion In our opinion, 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. 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: We have no − materially inconsistent with the information in the audited financial statements; or exceptions to report. − 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.

• the statement given by the directors on page 83, in accordance with provision C.1.1 of the UK We have no Corporate Governance Code (the “Code”), that they consider the Annual Report taken as a whole to exceptions to report. be fair, balanced and understandable and provides the information necessary for members to assess the Group’s and Company’s 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 73, as required by provision C.3.8 of the Code, describing We have no the 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 30 of the Annual Report, in accordance with provision C.2.1 We have nothing of the Code, that they have carried out a robust assessment of the principal risks facing the Group, material to add or to including those 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 We have nothing managed 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 We have nothing the Code, as to how they have assessed the prospects of the Group, over what period they have material to add or to done so and why they consider that period to be appropriate, and their statement as to whether draw attention to. they have a reasonable 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; or Our governance Our governance

90 | Annual report and accounts | Our governance • 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. 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 83, 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.

Christopher Burns Senior Statutory Auditor for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London February 2016

Bovis Homes Group PLC | 91 2015

The Homelands Cheltenham Financial statements

92 | Annual report and accounts | Financial statements Group income statement

2015 2014 For the year ended 31 December Note £000 £000

Revenue 2.0 946,504 809,365

Cost of sales (714,196) (612,129)

Gross profit 232,308 197,236

Administrative expenses (68,778) (59,672)

Operating profit before financing costs 2.1 163,530 137,564

Financial income 4.4 3,348 3,360

Financial expenses 4.4 (8,583) (7,727)

Net financing costs (5,235) (4,367)

Share of profit of Joint Ventures 5.5 1,770 287

Profit before tax 160,065 133,484

Income tax expense 5.1 (32,057) (28,276)

Profit for the year attributable to equity holders of the parent 128,008 105,208

Earnings per share

Basic 2.3 95.4 78.6p

Diluted 2.3 95.2 78.2p

Group statement of comprehensive income

2015 2014 For the year ended 31 December £000 £000

Profit for the year 128,008 105,208

Other comprehensive income/(expense)

Items that may be subsequently reclassified to profit and loss

Shared equity movement - (2,887)

Deferred tax on shared equity movement - (621)

Items that will not be reclassified to profit and loss

Remeasurements on defined benefit pension scheme 182 (7,166)

Deferred tax on remeasurements on defined benefit pension scheme (17) 1,481

Total comprehensive income for the year attributable to equity holders of the parent 128,173 96,015

Bovis Homes Group PLC | 93 Balance sheets

Group Company

2015 2014 2015 2014 As at 31 December Note £000 £000 £000 £000

Assets

Property, plant and equipment 5.4 13,982 13,634 - -

Investments 5.5 8,987 8,107 6,300 4,769

Restricted cash 1,451 1,426 - -

Deferred tax assets 5.2 2,160 2,645 - -

Trade and other receivables 1,166 2,534 - -

Available for sale financial assets 4.2 35,303 39,433 - -

Retirement benefit asset 5.7 7,117 - - -

Total non-current assets 70,166 67,779 6,300 4,769

Inventories 3.1 1,318,520 1,125,518 - -

Trade and other receivables 3.2 94,843 58,862 412,976 355,662

Cash and cash equivalents 4.1 31,990 52,257 344 344

Total current assets 1,445,353 1,236,637 413,320 356,006

Total assets 1,515,519 1,304,416 419,620 360,775

Equity

Issued capital 4.5 67,190 67,114 67,190 67,114

Share premium 214,368 213,850 214,368 213,850

Retained earnings 676,201 598,154 135,690 77,133

Total equity attributable to equity holders of the parent 957,759 879,118 417,248 358,097

Liabilities

Bank and other loans 4.3 - 47,010 - -

Trade and other payables 3.3 171,306 99,092 781 781

Retirement benefit obligations 5.7 - 668 - -

Provisions 5.6 1,327 1,840 - -

Total non-current liabilities 172,633 148,610 781 781

Bank and other loans 1,999 - - -

Trade and other payables 3.3 363,936 261,436 - 28

Provisions 5.6 2,245 1,236 - -

Current tax liabilities 5.2 16,947 14,016 1,591 1,869

Total current liabilities 385,127 276,688 1,591 1,897

Total liabilities 557,760 425,298 2,372 2,678

Total equity and liabilities 1,515,519 1,304,416 419,620 360,775

These financial statements on pages 93 to 120 were approved by the Board of directors on 19 February 2016 and were signed on its behalf: David Ritchie and Earl Sibley, Directors.

94 | Annual report and accounts | Financial statements Group statement of changes in equity

Own Retirement Other Total shares benefit retained retained Issued Share held obligations earnings earnings capital premium Total £000 £000 £000 £000 £000 £000 £000

Balance at 1 January 2014 (1,941) (17,248) 548,975 529,786 67,048 213,428 810,262

Total comprehensive (expense)/income - (5,685) 101,700 96,015 - - 96,015

Pension retained earnings - (321) 321 - - - -

Issue of share capital - - - - 66 422 488

Own shares disposed 982 - (982) - - - -

Deferred tax on other employee benefits - 302 2 304 - - 304

Share based payments - - 838 838 - - 838

Dividends paid to shareholders - - (28,789) (28,789) - - (28,789)

Balance at 31 December 2014 (959) (22,952) 622,065 598,154 67,114 213,850 879,118

Balance at 1 January 2015 (959) (22,952) 622,065 598,154 67,114 213,850 879,118

Total comprehensive income - 165 128,008 128,173 - - 128,173

Issue of share capital - - - - 76 518 594

Own shares disposed 864 - (864) - - - -

Purchase of own shares (2,386) - - (2,386) - - (2,386)

Deferred tax on other employee benefits - - (31) (31) - - (31)

Share based payments - - 1,531 1,531 - - 1,531

Dividends paid to shareholders - - (49,240) (49,240) - - (49,240)

Balance at 31 December 2015 (2,481) (22,787) 701,469 676,201 67,190 214,368 957,759

Company statement of changes in equity Attributable to equity holders of the parent

Total retained Issued Share earnings capital Premium Total £000 £000 £000 £000

Balance at 1 January 2014 99,524 67,048 213,428 380,000

Total comprehensive income and expense 5,560 - - 5,560

Issue of share capital - 66 422 488

Share based payments 838 - - 838

Dividends paid to shareholders (28,789) - - (28,789)

Balance at 31 December 2014 77,133 67,114 213,850 358,097

Balance at 1 January 2015 77,133 67,114 213,850 358,097

Total comprehensive income and expense 106,266 - - 106,266

Issue of share capital - 76 518 594

Share based payments 1,531 - - 1,531

Dividends paid to shareholders (49,240) - - (49,240)

Balance at 31 December 2015 135,690 67,190 214,368 417,248

Bovis Homes Group PLC | 95 Statement of cash flows

Group Company

2015 2014 2015 2014 For the year ended 31 December Note £000 £000 £000 £000

Cash flows from operating activities

Profit for the year 128,008 105,208 106,265 6,822

Depreciation 2.1 2,065 1,853 - -

Revaluation of available for sale financial assets 67 (1,288) - -

Financial income 4.4 (3,348) (3,360) (7,856) (8,691)

Financial expense 4.4 8,583 7,727 - -

Profit on sale of property, plant and equipment (43) (115) - -

Equity-settled share-based payment expense 5.3 1,531 838 - -

Income tax expense 5.1 32,057 28,276 1,591 1,869

Share of results of Joint Venture 5.5 (1,770) (287) - -

(Increase)/decrease in trade and other receivables (28,031) (13,956) (59,210) 19,610

Increase in inventories (193,000) (154,501) - -

Increase in trade and other payables 168,773 116,475 - -

Decrease in provisions and retirement benefit obligations (7,003) (3,795) - -

Cash generated from operations 107,889 83,075 40,790 19,610

Interest paid (2,470) (3,746) - -

Income taxes paid (28,515) (23,708) - -

Net cash from operating activities 76,904 55,621 40,790 19,610

Cash flows from investing activities

Interest received 75 107 7,856 8,691

Acquisition of property, plant and equipment 5.4 (2,424) (2,084) - -

Proceeds from sale of plant and equipment 55 238 - -

Movement in loans with Joint Ventures 5.5 358 (2,751) - -

Movement of investment in Joint Ventures 397 (373) - -

Dividends received from Joint Ventures 5.5 377 283 - -

(Investment)/reduction in restricted cash (25) 397 - -

Net cash (used in)/generated from investing activities (1,187) (4,183) 7,856 8,691

Cash flows from financing activities

Dividends paid 2.2 (49,240) (28,789) (49,240) (28,789)

Proceeds from the issue of share capital 4.5 594 488 594 488

Purchase of own shares (2,386) - - -

Drawdown of bank and other loans 4.3 - 17,095 - -

Repayment of bank and other loans 4.3 (44,952) - - -

Net cash used in financing activities (95,984) (11,206) (48,646) (28,301)

Net (decrease)/increase in cash and cash equivalents (20,267) 40,232 - -

Cash and cash equivalents at 1 January 4.1 52,257 12,025 344 344

Cash and cash equivalents at 31 December 4.1 31,990 52,257 344 344

96 | 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 2015 comprise the Company and its subsidiaries (together referred to as the “Group”) and the Group’s interest in associates and Joint Ventures. The financial statements were authorised for issue by the directors on 19 February 2016. 1.2 Basis of accounting The consolidated financial statements of the Company and the Group have been prepared in accordance with International Financial Reporting Standards as adopted by the EU (adopted IFRS) and its interpretations as adopted by the International Accounting Standards Board (IASB). On publishing the Company financial statements here together with the Group financial statements, the Company is taking advantage of the exemption in s408 of the Companies Act 2006 not to present its individual income statement and related notes that form a part of these approved financial statements. 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.

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 2016 and summary financial forecasts for the following two years. Having started the year with net cash of £5.2 million, the Group generated increased operating cash flow during 2015, increasing the net cash position to £30.0 million. As at 31 December 2015, the Group held cash and cash equivalents of £32.0 million and had total borrowings of £2.0 million, which were repaid on 5 January 2016. On 3 December 2015, the Group entered into a new £250 million committed revolving credit facility, expiring in December 2020, all of which was available for drawdown at 31 December 2015. 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 those 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 total recognised gains and losses 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 total recognised gains and losses 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 | 97 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 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 2015 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 estimation of the fair value of available for sale financial assets 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. 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.

98 | 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, amendments to standards and interpretations are not yet effective for the year ended 31 December 2015, and have not been applied in preparing these consolidated financial statements. The Group is currently assessing the impact of these standards, with the following changes being those that may potentially have a future impact: IFRS9 ‘Financial Instruments’ is not effective until 2018 (subject to EU endorsement) and the Group is currently assessing the impact of the standard on the Group’s results and financial position and will continue to assess the impact as the standard is revised by the IASB. However, it is possible that this amendment may impact upon the way the Group recognises fair value gains and losses on its Available for Sale assets. IFRS 15 ‘Revenue from contracts with customers’ was issued in May 2014 and will apply to the Group from 1 January 2018 IFRS 16 ‘Leases’ will apply to the Group from 1 January 2019 Amendment to IFRS 11 ‘Joint arrangements on acquisition of an interest in a joint operation’ (effective 1 January 2016) Amendment to IAS 16 ‘Property, Plant and Equipment’ and IAS 38 ‘Intangible Assets’ (effective 1 January 2016) Amendment to IFRS 10 ‘Consolidated financial statements’ and IAS 28 ‘Investments in associates and joint ventures’ (effective 1 January 2016) At this stage, it is not felt that any of these changes would have a significant impact on the Group’s financial statements, and the Group has not early- adopted any standard, amendment or interpretation.

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 sales in bulk, revenue is recognised upon practical completion. 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 cost Operating profit before financing costs is stated after charging/(crediting):

2015 2014 £000 £000

Depreciation of tangible fixed assets 2,065 1,853

Hire of plant and machinery 5,659 4,048

Personnel expenses (see note 5.3) 51,099 42,581

Rental income (included in revenue) (460) (574)

Government grants recognised within cost of sales (see note 4.3) (42) (78)

Auditors’ remuneration 2015 2014 £000 £000

Fees payable to the Company’s auditor for the audit of the Company’s annual financial statements 25 32

The audit of the Company’s subsidiaries, pursuant to legislation 115 119

Non Audit Fees

Interim review work 18 18

Tax services - 96

Other services - 4

Fees charged to operating profit before financing costs 158 269

Bovis Homes Group PLC | 99 Notes to the financial statements continued

2.2 Dividends The following dividends were paid by the Group: 2015 2014 £000 £000

Prior year final dividend per share of 23.0p (2014: 9.5p) 30,838 12,715

Current year interim dividend per share of 13.7p (2014: 12.0p) 18,402 16,074

49,240 28,789

The Board decided to propose a final dividend of 26.3p per share in respect of 2015. The dividend has not been provided for and there are no income tax consequences. 2015 2014 £000 £000

26.3p per qualifying ordinary share (2014: 23.0p) 35,293 30,822

2.3 Earnings per share Profit attributable to ordinary shareholders

2015 2014 £000 £000

Profit for the year attributable to ordinary shareholders 128,008 105,208

Weighted average number of ordinary shares 2015 2014

Weighted average number of ordinary shares at 31 December 134,194,203 133,902,247

Diluted earnings per share The calculation of diluted earnings per share at 31 December 2015 was based on the profit attributable to ordinary shareholders of £128,008,000 (2014: £105,208,000) and a weighted average number of ordinary shares outstanding during the year ended 31 December 2015 of 134,428,802 (2014: 134,573,167). 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) 2015 2014

Weighted average number of ordinary shares at 31 December 134,194,203 133,902,247

Effect of share options in issue which have a dilutive effect 234,599 670,920

Weighted average number of ordinary shares (diluted) at 31 December 134,428,802 134,573,167

100 | 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.

2015 2014 Group £000 £000

Raw materials and consumables 5,224 5,693

Work in progress 270,093 219,802

Part exchange properties 29,528 25,299

Land held for development (net of provision) 1,013,675 874,724

Inventories 1,318,520 1,125,518

Inventories to the value of £713.4 million were recognised as expenses in the year (2014: £620.0 million).

2015 2014 Movement on inventory provision £000 £000

Balance at 1 January 12,904 19,906

Land sales - Utilised on specific sites sold in the year (5,071) (5,314)

- Unutilised on specific sites sold in the year and so reversed (432) (1,426)

(5,503) (6,740)

Provisions recognised on sites still held 755 1,308

Provisions released on sites still held (1,438) (1,570)

Balance at 31 December 6,718 12,904

£6.2 million (2014: £18.6 million) of inventories were valued at net realisable value rather than at historic cost.

Bovis Homes Group PLC | 101 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.

Group Company

2015 2014 2015 2014 £000 £000 £000 £000

Current assets

Trade receivables 63,698 35,340 - -

Amount due from subsidiary undertakings - - 412,975 355,662

Other debtors 25,483 18,619 - -

Prepayments and accrued income 5,662 4,903 - -

Current assets 94,843 58,862 412,975 355,662

The total provision for doubtful receivables is £0.1 million (2014: £0.2 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.

102 | Annual report and accounts | Financial statements Notes to the financial statements continued

Group Company

2015 2014 2015 2014 £000 £000 £000 £000

Non-current liabilities

Trade payables 170,847 98,633 - -

Other creditors 459 459 781 781

171,306 99,092 781 781

Current liabilities

Trade payables 341,579 244,847 - -

Taxation and social security 1,717 1,195 - -

Other creditors 1,576 1,335 - 28

Accruals and deferred income 19,064 14,059 - -

363,936 261,436 - 28

Total trade and other payables 535,242 360,528 781 809

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.

Group Company

2015 2014 2015 2014 £000 £000 £000 £000

Bank balances 363 348 344 344

Call deposits 31,627 51,909 - -

Cash and cash equivalents in the balance sheet and cash flows 31,990 52,257 344 344

4.2 Available for sale financial assets Available for sale financial assets - shared equity

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 | 103 Notes to the financial statements continued

2015 2014 £000 £000

Non-current asset - available for sale assets 35,303 39,433

Key assumptions 2015 2014

Discount rate, incorporating default rate 9.0% 9.0%

Average house price inflation per annum for the next three years 3.4% 3.3%

See note 4.6 for a sensitivity analysis on these assumptions.

2015 2014 £000 £000

Balance at 1 January 39,433 44,844

Redemptions (8,311) (7,211)

Revaluation taken through the income statement 1,320 1,649

Change in discount rate taken through equity - (2,887)

Imputed interest 2,861 3,038

Balance at 31 December 35,303 39,433

Total impairments taken to date are £1,696,000 (2014: £3,016,000). 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.

Non-current liabilities 2015 2014 £000 £000

Bank and other loans - 46,951 Interest rate derivative financial instruments - 59

Bank and other loans - 47,010

104 | Annual report and accounts | Financial statements Notes to the financial statements continued

Interest rate profile of bank and other loans Carrying Carrying value 2015 value 2014 Rate Facility maturity £000 £000

Bank loans LIBOR +100 bps 2015 - 25,000

Revolving credit facility LIBOR +120-225 bps 2020 - 18,000

Interest free loan at fair value LIBOR +158 bps 2016 1,999 3,951

The interest free loan was obtained to facilitate large infrastructure investment at one of the Group’s sites in the South West. The amount available depends on the underlying investment undertaken with repayments on this facility reflecting expectations of cash inflow generation from sales at that site. The maximum facility available is £6 million and the nominal amount at 31 December 2015 was £2,000,000. This has been fair valued using an effective interest rate of LIBOR plus 158bps, creating an inputed interest charge which is accounted for as a government grant (see note 3.3), which decreases the loan position. Interest will effectively be charged on this fair valued position over the life of the facility so at relevant repayment dates the value in the accounts for the loan is reflective of the cash amounts to be repaid. The imputed interest charged in the period was £47,929, which increases the loan value. The final repayment of £2,000,000 was made on 5 January 2016.

Details of facilities On 3 December 2015 the Group repaid its previous facility and term loan, and entered into a new £250 million committed revolving credit facility expiring in December 2020. The facility syndicate comprises six banks. The facility includes a covenant package, featuring three covenants 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 income statement

2015 2014 £000 £000

Interest income (378) (174)

Net pension finance credit (109) (148)

Imputed interest on available for sale assets (2,861) (3,038)

Finance income (3,348) (3,360)

Imputed interest on deferred terms land payables 4,901 3,028

Interest expense 3,563 4,506

Imputed interest on interest free loan 48 155

Hedge ineffectiveness for derivatives 71 38

Finance expenses 8,583 7,727

Net financing costs 5,235 4,367

Bovis Homes Group PLC | 105 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 and share premium Ordinary shares 2015 2014

In issue at 1 January 134,228,043 134,096,425 Issued for cash 151,618 131,618

In issue at 31 December – fully paid 134,379,661 134,228,043

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 198,234 shares awarded under the Group’s long term incentive plan that vested during 2015 and accordingly the balance of the own shares held reserve reduced by £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 121 together with a return on capital employed, which indicates that the Group has delivered strong growth in capital and return on capital employed over the past 5 years. 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.

106 | 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. During the financial year, the £18.6 million interest rate swap which the Group has taken out relating to debt held within a joint venture expired, in line with the underlying exposure within the joint venture. All costs in relation to this were taken directly through income during the year, as the arrangement is not considered a cash flow hedge under IAS39. 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 2015 2014 £000 £000

Opening fair value 59 208

Change in fair value (59) (149)

Closing fair value - 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 2015, it is estimated that 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 £8.8 million (2014: £3.0 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 £22,950 (2014: £20,700), 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:

2015 2014 £000 £000

Consented land 10,092 5,044

Second charge against property 36,469 40,993

Unsecured 84,751 54,792

131,312 100,829

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 | 107 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:

Linked to UK Not linked to UK housing market housing market Total 31 December 2015 £000 £000 £000

Non-derivative financial assets

Restricted cash - 1,451 1,451

Trade and other receivables - 96,009 96,009

Available for sale financial assets 35,303 - 35,303

Cash and cash equivalents - 31,990 31,990

Non-derivative financial liabilities

Bank and other loans - (1,999) (1,999)

Trade and other payables - (535,242) (535,242)

35,303 (407,791) (372,488)

Linked to UK Not linked to UK housing market housing market Total 31 December 2014 £000 £000 £000

Non-derivative financial assets Restricted cash - 1,426 1,426 Trade and other receivables - 61,396 61,396 Available for sale financial assets 39,433 - 39,433 Cash and cash equivalents - 52,257 52,257 Non-derivative financial liabilities Bank and other loans - (46,951) (46,951) Trade and other payables - (360,528) (360,528) Derivative financial liabilities Derivative - (59) (59)

39,433 (292,459) (253,026)

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.

Sensitivity - available for sale financial assets 2015 increase 2015 decrease assumptions assumptions by 1% by 1%

Discount rate, incorporating default rate (1,914) 2,113

House price inflation 1,900 (1,742)

108 | 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.

Balance at Total contracted Due within Between Between Between Between Between 31 Dec cash payment 1 year 1-2 years 2-3 years 3-4 years 4-5 years 5-6 years Land creditor (estimated ageing) £000 £000 £000 £000 £000 £000 £000 £000

2015 322,889 330,435 168,142 107,933 40,120 11,764 2,356 120

2014 198,246 202,153 112,754 37,583 36,255 14,079 1,434 48

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 | 109 Notes to the financial statements continued

Level 1 Level 2 Level 3 Group 31 December 2015 £000 £000 £000 £000

Assets

Available for sale financial assets - - 35,303 35,303

Liabilities

Derivative - - - -

- - 35,303 35,303

Level 1 Level 2 Level 3 Group 31 December 2014 £000 £000 £000 £000

Assets

Available for sale financial assets - - 39,433 39,433

Liabilities

Derivative - (59) - (59)

- (59) 39,433 39,374

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

2015 2014 Note £000 £000

Current tax

Current year 33,117 29,484

Adjustments for prior years (1,497) (878)

31,620 28,606

Deferred tax

Origination and reversal of temporary differences 5.2 627 (158)

Adjustments for prior year 5.2 (190) (172)

Total income tax in income statement 32,057 28,276

110 | Annual report and accounts | Financial statements Notes to the financial statements continued

Reconciliation of effective tax rate

2015 2015 2014 2014 % £000 % £000

Profit before tax 160,065 133,484

Income tax using the domestic corporation tax rate 20.25 32,413 21.50 28,699

Non-deductible expenses 0.1 200 0.1 85

Other 0.7 1,120 (0.1) (147)

Change in tax rate - 11 - 18

Over provided in prior years (1.1) (1,687) (0.3) (379)

Total tax expense 20.0 32,057 21.2 28,276

Recognised directly in equity 2015 2014 Note £000 £000

Relating to actuarial movements on pension scheme 5.2 (17) 1,481

Relating to share-based payments 5.2 (31) 2

Relating to shared equity 5.2 - (621)

Deferred tax recognised directly in equity (48) 862

5.2 Tax assets and liabilities

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 £16,947,000 (2014: £14,016,000) 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

2015 2014 2015 2014 2015 2014 Group £000 £000 £000 £000 £000 £000

Property, plant and equipment - - (258) (332) (258) (332) Non-current trade payables 2,152 1,900 - - 2,152 1,900 Available for sale financial assets 970 411 - - 970 411 Employee benefits - pensions - 134 (1,423) - (1,423) 134 Employee benefits - share-based payments 480 464 - - 480 464 Provisions 18 90 - - 18 90 Interest rate derivative - 12 - - - 12 Inventories - - (216) (273) (216) (273) Adjustment on sale to Joint Venture 437 239 - - 437 239 Tax assets/(liabilities) 4,057 3,250 (1,897) (605) 2,160 2,645

Bovis Homes Group PLC | 111 Notes to the financial statements continued

Movement in temporary differences during the year Balance Recognised Recognised Balance 1 Jan 2015 in income in equity 31 Dec 2015 Group £000 £000 £000 £000

Property, plant and equipment (332) 74 - (258)

Trade payables 1,900 252 - 2,152

Available for sale financial assets 411 559 - 970

Employee benefits - pensions 134 (1,540) (17) (1,423)

Employee benefits - share-based payments 464 47 (31) 480

Provisions 90 (72) - 18

Interest rate derivative 12 (12) - -

Inventories (273) 57 - (216)

Adjustment on sale to Joint Venture 239 198 - 437

Movement in temporary differences 2,645 (437) (48) 2,160

Balance Recognised Recognised Balance 1 Jan 2014 in income in equity 31 Dec 2014 Group £000 £000 £000 £000

Property, plant and equipment (177) (155) - (332)

Trade payables 2,039 (139) - 1,900

Available for sale financial assets 123 909 (621) 411

Employee benefits - pensions (863) (484) 1,481 134

Employee benefits - share-based payments 456 6 2 464

Provisions 130 (40) - 90

Interest rate derivative 42 (30) - 12

Inventories (537) 264 - (273)

Adjustment on sale to Joint Venture 238 1 - 239

Movement in temporary differences 1,451 332 862 2,645

Factors affecting future tax charge On 8 July 2015, it was announced that the UK corporation tax rate will reduce to 19% from 1 April 2017 and to 18% from 1 April 2020. It has not yet been possible to quantify the full anticipated effect of the announced further rate reduction, although this will reduce the company’s future current tax charge accordingly and reduce the company’s deferred tax asset (which has been calculated based on the rate of 20% substantively enacted at the balance sheet date). Non-current trade payables The Group recognises differences between the fair value and nominal value of long term creditors relating to purchases of land for development and charges these differences as finance costs using the effective interest method. The Group does not receive a tax deduction for this difference between fair value and nominal value when it is charged to the income statement, a tax deduction being obtained at a later date when the associated land cost is charged on legal completion of the house sale. As at 31 December 2015, £10,762,000 (2014: £9,498,000) of finance costs had not received a tax deduction. The Group anticipates obtaining a current tax deduction in respect of this in the future and has therefore created a deferred tax asset to reflect this future tax deduction. 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 surplus of £7.1 million (2014: deficit of £0.7 million). As at 31 December 2015, a deferred tax liability of £1,423,000 (2014 deferred tax asset: £134,000) was recognised.

112 | 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

2015 2014

Average staff numbers 1,035 905

A breakdown of staff numbers split by type of role is included on page 35.

2015 2014 Personnel expenses £000 £000

Wages and salaries 42,736 35,916

Compulsory social security contributions 5,047 4,081

Contributions to defined contribution plans 840 722

Increase in expenses related to defined benefit plans 1,117 1,024

Equity-settled share-based payments 1,359 838

Personnel expenses 51,099 42,581

Share-based payments

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.

Share-based payments expense in the income statement 2015 2014 £000 £000

Long Term Incentive Plan 1,053 582

Executive and other share options 117 129

Save As You Earn share options 189 127

Total expense recognised as personnel expenses 1,359 838

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 57 to 72. The directors are considered to be the only key management personnel. A summary of key management remuneration is as follows: 2015 2014 £000 £000

Wages and salaries 1,524 1,507

Compulsory social security contributions 427 242

Contributions to defined contribution plans 74 82

Equity-settled share-based payments 1,568 244

Key management remuneration 3,593 2,075

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. Three grants of awards under this plan were made in 2015. Details of the vesting conditions of these awards are laid out in the directors’ remuneration report which can be found on pages 57 to 72. 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 | 113 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 Freehold Furniture, fittings Plant, machinery buildings and equipment and vehicles Total Year ended 31 December 2014 £000 £000 £000 £000

Opening Net Book Amount 9,557 732 3,116 13,405

Additions - 305 1,779 2,084

Disposals - - (2) (2)

Depreciation charge (181) (255) (1,417) (1,853)

Closing Net Book Amount 9,376 782 3,476 13,634

Freehold Furniture, fittings Plant, machinery buildings and equipment and vehicles Total Year ended 31 December 2015 £000 £000 £000 £000

Opening Net Book Amount 9,376 782 3,476 13,634

Additions 219 333 1,872 2,424

Disposals - (5) (6) (11)

Depreciation charge (177) (304) (1,584) (2,065)

Closing Net Book Amount 9,418 806 3,758 13,982

5.5 Investments Fixed asset investments

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.

Group Company

2015 2014 2015 2014 £000 £000 £000 £000

Subsidiary undertakings

Interest in subsidiary undertakings’ shares at cost (100% ownership of ordinary shares) - - 6,300 4,769

Investments accounted for using the equity method

Interest in Joint Ventures - equity 5,296 4,053 - -

- loan 3,669 4,032 - -

8,965 8,085 6,300 4,769

Other investments 22 22 - -

8,987 8,107 6,300 4,769

114 | 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 not earned any significant profit or loss from its investment in associates during either financial year. The Group has thirty two subsidiaries, which are listed below.

Country of incorporation Ownership interest in ordinary shares

2015 2014 % %

Bovis Homes (Quest) Company Limited United Kingdom 100 100 Bovis Homes Limited United Kingdom 100 100 Bishops Park Limited United Kingdom 50 50 Bovis Country Homes Limited United Kingdom 100 100 Bovis Homes (Broadbridge Heath) Limited United Kingdom 100 100 Bovis Homes (New Ash Green) Limited United Kingdom 100 100 Bovis Homes BVC Limited United Kingdom 100 100 Bovis Homes Cornwall Limited United Kingdom 100 100 Bovis Homes Developments Limited United Kingdom 100 100 Bovis Homes Devon Limited United Kingdom 100 100 Bovis Homes Eastern Limited United Kingdom 100 100 Bovis Homes Freeholds Limited United Kingdom 100 100 Bovis Homes Insulation Limited United Kingdom 100 100 Bovis Homes Midlands And Northern Limited United Kingdom 100 100 Bovis Homes Pension Scheme Trustee Limited United Kingdom 100 100 Bovis Homes Projects Limited United Kingdom 100 100 Bovis Homes Scotland Limited United Kingdom 100 100 Bovis Homes South East Limited United Kingdom 100 100 Bovis Homes Southern Limited United Kingdom 100 100 Bovis Homes Wessex Limited United Kingdom 100 100 Elite Homes Group Limited United Kingdom 100 100 Elite Homes (North West) Limited United Kingdom 100 100 Gigg Lane Limited United Kingdom 100 100 Elite Homes (Yorkshire) Limited United Kingdom 100 100 H.Newbury & Son (Builders) Limited United Kingdom 100 100 Kilbride Tavistock Limited United Kingdom 100 100 Nether Hall Park Open Space Management Company Limited United Kingdom 100 100 Orchard Homes (Pitt Manor) Limited United Kingdom 100 100 Oxford Land Limited United Kingdom 67 67 Page Johnson Properties Limited United Kingdom 100 100 R.T.Warren (Builders, St.Albans) Limited United Kingdom 100 100 Unitpage Limited United Kingdom 100 100

At 31 December 2015 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.

Country of incorporation Ownership interest in entity

2015 2014 % %

Bovis Peer LLP United Kingdom 50 50

IIH Oak Investors LLP United Kingdom 26 26

Bovis Homes Group PLC | 115 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:

2015 2014 £000 £000

At the start of the year 4,811 5,067

Share of revaluation 1,578 -

Capital release re refinance (495) -

Net decrease in loans (1,131) (260)

Share of results 169 287

Dividend received (377) (283)

At the end of the year 4,555 4,811

Summarised financial information relating to the material Joint Venture is as follows: 2015 2014 £000 £000

Non-current assets 32,190 29,034

Current assets 580 806

Current liabilities (318) (18,808)

Non-current liabilities (20,920) -

Net assets of Joint Venture 11,532 11,032

Group share of net assets recognised in the Group balance sheet at 31 December 5,766 5,516

Revenue 1,688 1,668

Costs (646) (514)

Operating profit 1,042 1,154

Revaluation of properties 3,156 -

Interest (704) (580)

Profit for the year 3,494 574

Group share of profit for the year recognised in the Group income statement 1,747 287

Group share of IIH Oak Investors LLP profit for the year recognised in the Group income statement 23 -

Share of profit of Joint Ventures 1,770 287

The material Joint Venture has no significant contingent liabilities to which the Group is exposed and nor has the Group any 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 £153,000 (2014: £148,000). Loans totalling £1,575,355 were provided in prior years at an annual interest rate of LIBOR plus 2.4%. No additional loans or sales of inventory have taken place and all existing loans were repaid in the period. Interest charges made in respect of the loans up to the repayment date were £12,000 (2014: £37,000). 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. During the year 55 homes were sold to the Joint Venture for cash consideration of £11,328,431 and 13% (representing the Group’s effective interest) of the revenue and profit in respect of this sale has been eliminated from the Group results in accordance with IFRS11. Loans of £3,667,675 have been provided to IIH Oak Investors at an interest rate of 6%. 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.

Provisions include onerous contracts of £0.8 million (2014: £1.0 million) and other amounts of £2.8 million (2014: £2.1 million).

116 | 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 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 2015 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.

2015 2014 £000 £000

Present value of funded obligations 102,160 104,020

Fair value of plan scheme assets (109,277) (103,352)

Recognised (asset)/liability for defined benefit obligations (7,117) 668

During the year, the Group made a special contribution to the scheme of £7.8 million, bringing it to a surplus at 31 December 2015.

Bovis Homes Group PLC | 117 Notes to the financial statements continued

Movements in the net (asset)/liability for defined benefit obligations recognised in the balance sheet

2015 2014 £000 £000

Net liability/(asset) for defined benefit obligations at 1 January 668 (3,237)

Contributions received (8,611) (4,137)

Expense recognised in the income statement 1,008 876

(Gain)/loss recognised in equity (182) 7,166

Net (asset)/liability for defined benefit obligations at 31 December (7,117) 668

The cumulative loss recognised in equity to date is £7.7 million.

Change in defined benefit obligation over the year 2015 2014 £000 £000

Defined benefit obligation at beginning of year 104,020 91,456

Interest cost 3,700 4,073

Current service cost 937 765

Actual member contributions 146 149

Actual benefit payments by the scheme (3,610) (2,820)

(Gain)/loss on change of assumptions (3,033) 10,397

Defined benefit obligation at end of year 102,160 104,020

Change in scheme assets over the year

2015 2014 £000 £000

Fair value of scheme assets at beginning of year 103,352 94,693

Interest income 3,809 4,221

Actual benefit payments by the scheme (3,610) (2,820)

Actual Group contributions 8,611 4,137

Actual member contributions 146 149

(Loss)/return on assets (2,851) 3,231

Administration costs (180) (259)

Fair value of scheme assets at end of year 109,277 103,352

The major categories of scheme assets are as follows:

2015 2014 £000 £000

Return seeking

Equities 64,336 43,474

Debt Instruments

Bonds 24,330 27,165 Gilts 9,391 9,494

Debt Instruments subtotal 33,721 36,659

Other Property 10,872 - Cash 348 23,219

Total market value of assets 109,277 103,352

118 | Annual report and accounts | Financial statements Notes to the financial statements continued

Sensitivity analysis Change in defined Assumption Change in assumption benefit obligation

Discount rate +0.5%pa / -0.5%pa -8% / +9%

RPI inflation +0.5%pa / -0.5%pa +3% / -4%

Future salary increases +0.5%pa / -0.5%pa 0%

Assumed life expectancy +1 year +3%

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

2015 2014 £000 £000

Current service cost 937 765

Administration expenses 180 259

Interest (credit) (109) (148)

Expense recognised in the income statement 1,008 876

Assumptions Principal actuarial assumptions at the balance sheet date (expressed as weighted averages): 2015 2014 2013 Group % % %

Discount rate at 31 December 3.8 3.6 4.4

Future salary increases 2.5 2.5 2.5

Inflation - RPI 3.1 3.1 3.5

- CPI 2.1 2.1 2.5

Future pension increases 2.5 2.5 2.7

2015 2014 2013 2012 2011 £000 £000 £000 £000 £000

Present value of defined benefit obligations 102,160 104,020 91,456 88,400 79,140

Fair value of scheme assets 109,277 103,352 94,693 85,229 76,696

Surplus/(deficit) in the scheme 7,117 (668) 3,237 (3,171) (2,444)

Bovis Homes Group PLC | 119 Notes to the financial statements continued

The most recent formal actuarial valuation was carried out as at 30 June 2013. The results have been updated to 31 December 2015 by a qualified independent actuary. As part of this valuation exercise, the mortality assumptions for the scheme are now based on the CMI 2014 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.

Current Current Remaining years of life at 63 age at 43 age at 63

Men 26.7 24.5

Women 29.0 26.7

The 30 June 2013 actuarial valuation on behalf of the pension scheme trustee, showed a deficit of £12.8 million at that date. The difference to the IAS19R basis results from more conservative assumptions on discount rate and mortality, as well as the additional special cash contributions of £2.8 million made during December 2013, £3.0 million made during December 2014 and a further £7.8 million contribution in January 2015.

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 2015 were limited to those relating to remuneration, which are disclosed in the director’s remuneration report (which can be found on pages 57 to 72 and in note 5.3). Transactions between the Group, Company and joint ventures are in note 5.5. In January 2015 Bovis Homes Limited entered into a contract with the Bovis Homes Pension Scheme for the sale of a portfolio of homes. During the twelve months to December 2015 all 54 homes under the contract were legally completed for a total consideration of £10,719,500.

5.9 Post balance sheet events There are no post balance sheet events to disclose as at 19 February 2016.

120 | Annual report and accounts | Financial statements Five year record

2015 2014 2013 2012 2011 IFRS IFRS IFRS IFRS IFRS Years ended 31 December £m £m £m £m £m

Revenue and profit

Revenue 946.5 809.4 556.0 425.5 364.8

Operating profit before financing costs 163.5 137.6 82.8 56.7 36.4

Net financing costs (5.2) (4.4) (4.3) (3.7) (4.5)

Share of result of Joint Ventures 1.8 0.3 0.3 0.2 0.2

Profit before tax 160.1 133.5 78.8 53.2 32.1

Tax (32.1) (28.3) (18.7) (13.0) (8.8)

Profit after tax 128.0 105.2 60.1 40.2 23.3

Balance sheet

Equity shareholders’ funds 957.8 879.1 810.3 758.8 728.6

Net (cash)/debt (30.0) (5.2) 18.0 (18.8) (50.8)

Capital employed 927.8 873.9 828.3 740.1 677.8

Returns

Operating margin (note 1) 17% 17% 15% 13% 10%

Return on shareholders’ funds (note 2) 15% 13% 8% 6% 3%

Return on capital employed (note 3) 18% 16% 11% 8% 5%

Homes (including units sold on third party owned land)

Number of unit completions 3,934 3,635 2,813 2,355 2,045

Average sales price (£’000) 231.6 216.6 195.1 170.7 162.4

Ordinary shares

Earnings per share (p) (note 4) 95.4 78.6 44.9 30.2 17.5

Dividends per share

Paid (p) 36.7 21.5 10.0 6.5 4.5

Interim paid and final proposed (p) 40.0 35.0 13.5 9.0 5.0

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 | 121 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 2016 Annual General Meeting of Bovis Homes Group PLC will be held at The Spa Hotel, Mount Ephraim, Royal Tunbridge Wells, Kent TN4 8XJ on Tuesday 10 May 2016 at 12.30 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 2015 and the reports of the directors and auditors. Remuneration report 2 To approve the directors’ remuneration report in the form set out in the Company’s annual report and accounts for the year ended 31 December 2015 in accordance with section 439 of the Companies Act 2006. Dividend 3 To declare the final dividend recommended by the directors. Directors 4 To re-appoint Ian Paul Tyler as a director of the Company. 5 To re-appoint Alastair David Lyons as a director of the Company. 6 To re-appoint Margaret Christine Browne as a director of the Company. 7 To re-appoint Ralph Graham Findlay as a director of the Company. 8 To re-appoint David James Ritchie as a director of the Company. 9 To re-appoint Earl Sibley as a director of the Company. Auditors 10 To re-appoint PricewaterhouseCoopers LLP as auditors of the Company. 11 To authorise the directors to determine the remuneration of the auditors. Authority to allot shares 12 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 £22,374,300; and (b) comprising equity securities (as defined in the 2006 Act) up to an aggregate nominal amount of £44,748,601 (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 2017 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. Special resolutions Notice of general meetings 13 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 14 That if resolution 12 is passed, and in place of all existing powers, the directors be generally empowered pursuant to section 570 of 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(1) of the 2006 Act did not apply to the allotment, such power: (a) 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 2017 or fifteen months from the date of this resolution, whichever is the earlier, but 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;

Supplementary information

122 | Annual report and accounts | Supplementary information Notice of meeting continued

(b) 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 12(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 12(a), to the allotment of equity securities for cash otherwise than pursuant to paragraph (b) up to an aggregate nominal amount of £3,359,504. Authority to purchase own shares 15 That the Company be and is hereby granted general and unconditional authority, for the purposes of section 701 of 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) 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 13,438,018 ordinary shares and shall expire at the conclusion of the next Annual General Meeting of the Company in 2017 (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); (ii) the maximum 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) the amount stipulated by Article 5(1) of the Buy- back and Stabilisation Regulation 2003 (in each case exclusive of expenses); and (iii) the minimum price which may be paid for an ordinary share shall be 50 pence (in each case exclusive of expenses).

Bovis Homes Group PLC By Order of the Board The Manor House, North Ash Road M T D Palmer New Ash Green, Longfield Group Company Secretary Kent DA3 8HQ 18 March 2016

Notes: (i) Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001 and section 360 B(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 6 May 2016 (or, in the event of any adjournment, on the date which is 48 hours 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. (ii) 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.

Bovis Homes Group PLC | 123 Notice of meeting continued

(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 2016 (being the last practicable date prior to the publication of this Notice) the Company’s issued share capital consists of 134,380,184 ordinary shares, carrying one vote each. Therefore, the total voting rights in the Company as at 1 March 2016 are 134,380,184. (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 29 March 2016, 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) 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 2015 and the proxy form) to communicate with the Company for any purposes other than those expressly stated. (xiv) 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. (xv) 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 12 noon 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; and (c) the register of directors’ interests. (xvi) 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.

124 | Annual report and accounts | Supplementary information 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 and the accounts of the Company for the year ended 31 December 2015. The report of the directors, 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 2015 (the “2015 Annual Report and Accounts”). Item 2: Directors’ annual remuneration report Under section 439 of the 2006 Act, the directors are required to present the directors’ remuneration report 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 57 to 70 of the 2015 Annual Report and Accounts, gives details of the directors’ remuneration for the year ended 31 December 2015 and sets out the way in which the Company will implement its policy on directors’ remuneration during 2016. 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 86 to 91 of the 2015 Annual Report and Accounts. 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. However, if the vote on the directors’ remuneration report is not passed, the directors’ remuneration policy will be presented to shareholders for approval at the next Annual General Meeting. 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. Item 3: Final dividend Subject to the declaration of the final dividend at the meeting, the dividend will be paid on 20 May 2016 to shareholders on the register at the close of business on 29 March 2016. Items 4 to 9: 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 notice of which is first given after their appointment. Accordingly, Ralph Findlay and Earl Sibley will offer themselves 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 and Ralph Findlay as non-executive directors, the Chairman has confirmed following the formal performance evaluation conducted during early 2016 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. 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 44 to 45 of the 2015 Annual Report and Accounts. Items 10 and 11: appointment of auditors and auditors’ remuneration The auditors of a company must be appointed at each general meeting at which accounts are presented. Resolution 10 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 11 gives authority to the directors to determine the auditors’ remuneration. Item 12: 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 £22,374,300 and also gives the Board authority to allot, in addition to these shares, further of the Company’s unissued shares up to an aggregate nominal amount of £44,748,601 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 £22,374,300 represents less than 33.3% of the Company’s total ordinary share capital in issue as at 1 March 2016 (being the latest practicable date prior to publication of this Notice). The amount of £44,748,601 represents less than 66.6% of the Company’s total ordinary share capital in issue as at 1 March 2016 (being the latest practicable date prior to publication of this Notice). The Company did not hold any shares in treasury as at 1 March 2016. 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.

Bovis Homes Group PLC | 125 Explanatory notes to the notice of meeting continued

Item 13: 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 13 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 ability to call a general meeting on 14 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 14: Disapplication of pre-emption rights Resolution 14 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 shares for cash up to an aggregate nominal value of £3,359,504 which represents approximately 5% of the Company’s total ordinary share capital in issue as at 1 March 2016 (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 14 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 15: 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 13,438,018 of its own shares, representing approximately 10% of the Company’s total ordinary share capital in issue as at 1 March 2016 (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 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 2017. As at 1 March 2016 there were options over 719,176 ordinary shares in the capital of the Company which represent 0.54% 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 0.59% 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.

126 | 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 21 March 2016

Annual General Meeting 10 May 2016

Payment of 2015 final dividend 20 May 2016

Announcement of 2016 interim results 15 August 2016

Announcement of 2016 final results February 2017

Analysis of shareholdings - at 31 December 2015 Number of Number of shareholders % ordinary shares %

1 - 5,000 2,578 82.71 2,651,981 1.97

5,001 - 50,000 330 10.59 5,291,464 3.94

50,001 - 250,000 125 4.01 14,921,929 11.10

250,001 - 500,000 36 1.15 12,473,467 9.28

500,001 - 1,000,000 18 0.58 12,022,786 8.95

1,000,001 - and over 30 0.96 87,018,034 64.76

Total 3,117 100.0 134,379,661 100.0

Share price (middle market) - year to 31 December 2015

At end of year: 1015p Lowest: 750p Highest: 1206p

Advisers

Auditors Principal bankers Joint stockbrokers Insurance brokers PricewaterhouseCoopers LLP Abbey National Jefferies Hoare Govett Arthur J Gallagher Treasury Services PLC 68 Upper Thames Street Financial advisers Registrars London EC4V 3BJ Moelis & Company Barclays Bank PLC Computershare Investor Services PLC Deutsche Bank AG London The Pavilions Solicitors Handelsbanken Capital Markets, Winchester House Bridgwater Road Freshfields Bruckhaus Deringer LLP Svenska Handelsbanken AB 1 Great Winchester Street Bristol BS99 6ZZ HSBC Bank plc London EC2N 2DB Lloyds Bank PLC Royal Bank of Scotland plc Registrar

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 | 127 The Fairways Leamington Spa

Victory Fields Rissington Principal offices

Bovis Homes Group PLC The Manor House North Ash Road New Ash Green Longfield Kent DA3 8HQ Tel: (01474) 876200

1 2 5 6 3 7 8 4

West division

1 Northern region 2 West Midlands region 3 Western region 4 South West region Dunston Hall Bromwich Court Cleeve Hall Heron Road Dunston Highway Point Cheltenham Road Sowton Industrial Estate Stafford Gorsey Lane Bishops Cleeve Exeter ST18 9AB Coleshill Cheltenham EX2 7LL Birmingham B46 1JU Gloucestershire GL52 8GD Tel: (01785) 788300 Tel: (01675) 437000 Tel: (01242) 662400 Tel: (01392) 344700

East division

5 East Midlands region 6 Eastern region 75 Thames Valley 8 Southern region Bromwich Court The Manor House The Regus Building The Manor House Highway Point North Ash Road 200 Brook Drive North Ash Road Gorsey Lane New Ash Green Green Par New Ash Green Coleshill Longfield Reading Longfield Birmingham B46 1JU Kent DA3 8HQ Berkshire RG2 6UB Kent DA3 8HQ

Tel: (01675) 437000 Tel: (01474) 876200 Tel: (01189) 253206 Tel: (01474) 876200 Supplementary information

128 | Annual report and accounts | Supplementary information Bovis Homes Group PLC Annual report and accounts 2015

www.bovishomesgroup.co.uk

Bovis Homes Group PLC, The Manor House, North Ash Road, New Ash Green, Longfield, Kent DA3 8HQ. www.bovishomesgroup.co.uk

When you have finished with Annual report and accounts 2015 this pack please recycle it. Bovis Homes Group PLC

When you have finished with this pack please recycle it.