Annual report and accounts 2014 Bovis Homes Group PLC
www.bovishomesgroup.co.uk
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 28 Principal risksanduncertainties 28 Strategic priorities 22 Business objectives 20 Our businessmodel 18 108 107 105 102 Fiveyearrecord 101 79 78 77 76 75 75 72 66 64 62 45 35 34 Financialreview 32 Our financialperformance Our businessandstrategy Housingmarketoverview 10 Reasonstoinvest 8 Whatwedo 6 Chairman’s statement 4 2014highlights 2 Business overview 12 12 Chief Executive’s report Principal offices Shareholder information AGM Notice Explanatory notestothe 2015 AGMNotice Notes tothefinancialstatements Statement ofcashflows in equity Group statementofchanges Balance sheets comprehensive income Group statementof Group incomestatement Auditor’s report Directors’ report Nomination Committeereport Audit Committeereport Remuneration report reportCorporate governance Directors andofficers Annual report and accounts and report Annual Chairman’s statement Chief Executive’s report 12 the future Group iswellplacedfor Ian Tyler discusseshowthe 4 the year financial performancefor Jonathan Hillreports onthe Financial review 32 discusses theplansahead overview oftheyearand David Ritchieprovides an
Contents 2014 highlights
Financial highlights 46% s in revenues 53% s in ROCE to 16.2% 69% s in profit before tax Net assets per share 159% s in dividends of 655p
Revenue (£m) Profit before tax (£m) Active sales outlets Private reservations £809.4m £133.5m 97 3,218 809.400024 133.499984 97.00 3218.0 97
647.520020 90 133.5 809.4 100.124988 72.75 2413.5 3,218 82 73
485.640015 2,773 66.749992 48.50 1609.0 556.0
323.760010 78.8 1,873 425.5 33.374996 24.25 804.5 1,653 53.2 161.880005 364.8 32.1 0.000000 0.000000 0.00 0.0 2011 2012 2013 2014 2011 2012 2013 2014 2011 2012 2013 2014 2011 2012 2013 2014
Housing gross margin (%) Net margin (%) Average sales price (£) Legal completions 24.5% 17.0% £216,600 3,635 24.500 216600 3635.00 17.0 24.5 23.5 2726.25 3,635
18.375 22.6 12.750002 162450 14.9 20.8 216,600 13.3 195,100 12.250 8.500001 108300 1817.50 2,813 170,700 2,355 162,400 10.0 2,045 6.125 4.250001 54150 908.75 Business overview Business
| 0.000 0.000000 0 0.00 2011 2012 2013 2014 2011 2012 2013 2014 2011 2012 2013 2014 2011 2012 2013 2014
ROCE (%) Earnings per share (p) Sites added to land bank Consented land bank 16.2% 78.6p 42 sites 18,062 plots 16.200001 78.599998 42.0 18063.00 42 78.6 16.2 12.150001 58.949999 31.5 13547.25 18,062 27 8.100000 39.299999 21.0 9031.50 14,638 13,723 13,776 10.6 44.9 8.0 19 18 4.050000 19.650000 10.5 4515.75 30.2 5.5
0.000000 0.000000 17.5 0.0 0.00 2011 2012 2013 2014 2011 2012 2013 2014 2011 2012 2013 2014 2011 2012 2013 2014 Strategic report Strategic
2 | Annual report and accounts | Strategic report | Business overview The Group has delivered significant growth in Return on Capital Employed during 2014
Operational highlights 8% s in average active 286 PRS homes legally sales outlets completed 11% s in average sales price 16% s in private reservations
RevenueRevenue (£m) (£m) Profit beforeProfit taxbefore (£m) tax (£m) Active salesActive outlets sales outlets Private reservationsPrivate reservations £809.4£809.4m m £133.5£133.5m m 97 97 3,2183,218 809.400024 809.400024 133.499984 133.499984 97.00 97.00 3218.0 3218.0 97 97 90 647.520020 647.520020 90 133.5 133.5 809.4 809.4 100.124988 100.124988 72.75 72.75 2413.5 2413.5 3,218 3,218 82 82 73 73
485.640015 485.640015 2,773 2,773 66.749992 66.749992 48.50 48.50 1609.0 1609.0 556.0 556.0
323.760010 323.760010 78.8 78.8 1,873 1,873 425.5 425.5 33.374996 33.374996 24.25 24.25 804.5 804.51,653 1,653 53.2 53.2 161.880005 161.880005364.8 364.8 32.1 32.1 0.000000 0.000000 0.000000 0.000000 0.00 0.00 0.0 0.0 2011 20122011 2013 2012 2014 2013 2014 2011 20122011 2013 2012 2014 2013 2014 2011 20122011 2013 2012 2014 2013 2014 2011 20122011 2013 2012 2014 2013 2014
HousingHousing gross margin gross (%)margin (%) Net marginNet (%)margin (%) AverageAverage sales price sales (£) price (£) Legal completionsLegal completions 24.5%24.5% 17.0%17.0% £216,600£216,600 3,6353,635 24.500 24.500 216600 216600 3635.00 3635.00 17.0 17.0 24.5 24.5 23.5 23.5 2726.25 2726.25 3,635 3,635
18.375 18.375 22.6 22.6 12.750002 12.750002 162450 162450 14.9 14.9 20.8 20.8 216,600 216,600 13.3 13.3 195,100 195,100 12.250 12.250 8.500001 8.500001 108300 108300 1817.50 1817.50 2,813 2,813 170,700 170,700 2,355 2,355 162,400 162,400 10.0 10.0 2,045 2,045 6.125 6.125 4.250001 4.250001 54150 54150 908.75 908.75
0.000 0.000 0.000000 0.000000 0 0 0.00 0.00 2011 20122011 2013 2012 2014 2013 2014 2011 20122011 2013 2012 2014 2013 2014 2011 20122011 2013 2012 2014 2013 2014 2011 20122011 2013 2012 2014 2013 2014
ROCE (%)ROCE (%) EarningsEarnings per share per (p) share (p) Sites addedSites to added land bankto land bank ConsentedConsented land bank land bank 16.2%16.2% 78.6p78.6p 42 sites42 sites 18,06218,062 plots plots 16.200001 16.200001 78.599998 78.599998 42.0 42.0 18063.00 18063.00 42 42 78.6 78.6 16.2 16.2 12.150001 12.150001 58.949999 58.949999 31.5 31.5 13547.25 13547.25 18,062 18,062 27 27 8.100000 8.100000 39.299999 39.299999 21.0 21.0 9031.50 9031.50 14,638 14,638 13,723 13,723 13,776 13,776 10.6 10.6 44.9 44.9 8.0 8.0 19 19 18 18 4.050000 4.050000 19.650000 19.650000 10.5 10.5 4515.75 4515.75 30.2 30.2 5.5 5.5
0.000000 0.000000 0.000000 0.00000017.5 17.5 0.0 0.0 0.00 0.00 2011 20122011 2013 2012 2014 2013 2014 2011 20122011 2013 2012 2014 2013 2014 2011 20122011 2013 2012 2014 2013 2014 2011 20122011 2013 20122014 2013 2014
Bovis Homes Group PLC | 3 Chairman’s statement
number of consented sites, combined with ongoing constraints for smaller housebuilders to access funding.
Improving performance During 2014, the Group has made significant improvements in returns, both profit margins and capital turn contributed positively. In a year of record legal completions, the targeted return on capital employed has been achieved with a 53% improvement year on year to 16.2%.
While delivering these excellent results in 2014, the Group is in a strong position for 2015, continuing to be well capitalised with a strong balance sheet. In line with our strategy, the record year of Ian Tyler land investment in 2014 and the pipeline of land for acquisition in 2015 will lead to growth in business capacity during 2015 and Chairman 2016. The Board has confidence that, assuming a stable market, this will deliver further strong growth in capital turn, profitability, Having completed my first full year as and ultimately shareholder returns. Chairman, I have been pleased with the Group’s excellent progress during 2014. Updated strategic plan While the market moderated during 2014 During 2014, the Group laid out a clear and robust strategic to a more sustainable level, the Group has plan. The Board recognises the fact that the housing market is delivered a strong result with an increase in cyclical in nature and that our strategic plan needs, therefore, earnings per share of 75% and achieved our to deliver strong returns across the cycle. We continue to view targeted return on capital employed. this as being an early point in the housing cycle and believe that this is an excellent time to invest positively in a disciplined The ambitious strategic plan laid out during 2014 provides real manner to grow towards our optimal scale. Our business model clarity as to the future direction of the Group. Delivery of this is clear with a well defined geographic and product focus. Above plan is on track and I see considerable opportunity for the Group all, we recognise that our success depends on delivering high going forward. quality homes to our customers, built in a safe way by motivated employees and suppliers. A robust market Dividends While the UK economic backdrop has remained relatively robust throughout 2014, the housing market has evolved during the In light of the Group’s strong performance in 2014 and our year, with strong demand and pricing in the first half of the year, confidence in the progress in delivering the strategic plan, as followed by more moderate activity in the second half. previously indicated, a final dividend of 23.0 pence per share
Business overview will be recommended, which, when combined with the interim | Demand has been impacted by the mortgage market in the dividend, totals 35.0 pence for the year, an increase of 159% on year. Whilst mortgage rates are increasingly competitive and are the 2013 dividend. The final dividend will be payable on 22 May approaching historic lows, mortgage underwriting standards 2015 to shareholders on the register on 27 March 2015. have become more disciplined following the Mortgage Market Review, leading in turn to a modest reduction in mortgage The Board is also maintaining its guidance for 2015 with the approvals. However, we continue to believe that a disciplined intention to recommend a dividend of at least 35 pence per mortgage market is a prerequisite for a healthy housing market share. Thereafter, in this phase of the cycle the Board plans to in the long term. operate a regular payout ratio of one third of earnings with supplementary dividend payments to shareholders of cash The key challenge for the industry during 2014 was the surplus to requirements as we move towards optimal scale. availability and cost of subcontract labour. The increase in activity in the new homes market, combined with the exit of skills in People certain trades over recent years has led to resource shortages As a Board, we have continued to be impressed with the and resulted in cost increases for key trades, although this commitment and skill shown by the Group’s employees in pressure seems to be abating. delivering the growth during 2014 and, on behalf of the Board, I would like to thank them all for their dedication and hard work. The land market remains positive, with participants I would also like to extend its thanks to our subcontractors and demonstrating discipline and planning providing an increasing suppliers who are such a key component of our business. Strategic report
4 | Annual report and accounts | Strategic report | Business overview The Group has achieved excellent progress in 2014 with improved profitability and is well positioned for further growth
The Board Having joined the Board in November 2013 I would like to thank I would also thank Jonathan Hill, who is leaving the Group in March, my colleagues for their support and positive challenge during this for his huge contribution to the Group during his time as Group period. I would like to welcome Chris Browne, who joined the Board Finance Director. in September 2014 and also thank John Warren, who will retire While it has been a time of change, the Board is confident that the from the Board at the AGM, for his service to Bovis Homes both as Group is well positioned to deliver growth and value to shareholders a non executive director and as Audit Committee Chairman. He will as we implement our strategic plan. be replaced by Ralph Findlay, currently Chief Executive Officer of Marston’s PLC, who will join the Board on 7 April 2015 and will Ian Tyler chair the Audit Committee from the conclusion of the 2015 AGM. 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 928 staff directly at the end of 2014 and up to a further 3,000 sub-contractors work on its sites on a daily basis. In 2014, the Group legally completed 3,635 homes predominately on greenfield sites.
Where we operate
Midlands North 477 440 legal completions legal completions in 2014 in 2014 2013: 472 2013: 298
South Business overview
| 2,718
legal completions in 2014 2013: 2,043 Strategic report
6 | Annual report and accounts | Strategic report | Business overview The Group has made good progress having successfully delivered on the strategies set out for 2014
Bovis Homes Group PLC | 7 Strategic report | Business overview Reasons to invest to Reasons 8 | Annual report and accounts and report Annual Optimal scale Optimal Geography Strategic land Strategic Growth Product mix Product • • • • • • • • • • Delivering • • • Short spans of control to make to control of spans Short flexible and Nimble deliver to Strategy market London to exposed Not west north and midlands the on Focused strategic land bank land strategic quality High strategic as originating bank land consented current quality high of History housebuilder with housebuilder growing Fastest of proportion increasing an Selling in 2014 in apartments of delivery Minimal standard as with product excellent an Delivering sites greenfield | Strategic report Strategic active sales outlet growth outlet sales active south of England and prime locations in the in locations prime and England of south 5,000 to 6,000 units 6,000 to 5,000 | Business overview Business operating model operating strategic land conversion land strategic
better decisions better traditional family houses family traditional all inclusive specification inclusive all 29% annual volume growth volume annual 29% of circa 10% circa of per annum per with 45% of the of 45% with on on
Bovis Homes Group PLC | 9 Private and social homes legally completed in 2014 Private homes by type legally completed in 2014
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 2014 Location of land at 31 December 2014
Plots Plots Post downturn1 13,700 76% South 13,565 75%
Pre downturn 1 3,334 18% Midlands 3,024 17%
Private and social homes legallyWritten completed down 2 1,028 in 2014 6% Private homes by type legallyNorth completed 1,473 in 2014 8%
Total 18,062 Total 18,062 Homes Property type See map on page 6 Private1 Plots held at cost (downturn 2,330 being 83%July 2008) 2 Plots held below cost at net realisable value 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 Demand versus supply 80 Net balance % 60 Rising 40 Ageing of land at 31 December 2014 LocationResidential of land landat 31 prices December 2014 20 150
0 Plots Plots 125 Post downturn1 13,700 76% South 13,565 75% -20 1 -40 Pre downturn 3,334 18% 100 Midlands 3,024 17% RICS newWritten buyer down enquiries 2 1,028 6% North 1,473 8% -60 75 RICS new vendor instructions Falling -80 Total 18,062 Total 18,062 2007 2014 Housing market overview 50 See map on page 6 1 Plots held at cost (downturn being July 2008) Jan 2004 Jul 2011 2 Plots held below cost at net realisable value Source: RICS Source: DCLG UK housing market in the medium term Pricing During 2014 pricing has moved strongly upwards. 2013 Housing market transactions was the firstApprovals year of material of mortgages price movements, for house havingpurchases been 2000 Demand versus supply relatively 120flat in nominal terms for four years. This 2014 80 Net balance % increase is driven by the London market, with an estimated 100 60 1500 increase of around 18% according to Nationwide. Excluding Rising 40 London, prices80 in England are estimated to have increased Residential land prices 1000
by between‘000 5% and 7%. The pace of house price inflation 20 ‘000 60 150 reduced in the second half of 2014 towards a more sustainable 0 500 level. Pricing40 is125 driven by the factors affecting demand and -20 supply within20 the overall housing market. 100 -40 0 Jan 2007 Dec 2014 2007 2008 2009 2010RICS20 new11 buyer2012 enquiries2013 2014 est -60 Housing demand75 Source: DCLG RICS new vendor instructions Falling Source: Bank of England -80 Although demand is affected by a range of factors, including 2007 2014 The total UK housing stock is estimated to be around 26 million affordability, confidence50 in the future direction of house Gross mortgage lending GrowthJan 2004 in residential planning approvalsJul 2011 homes. The average activity level over the long term within this prices and 30confidence over future employment prospects, the Source: RICS400 market has resulted in 1.1 million transactions per annum. Post 350 key demandSource:20 DCLG determinant over the last six years has been the 2007 the housing market suffered a significant fall in activity availability of mortgage finance. 300 10 levels initially250 to between 700,000 and 800,000 transactions, 0 down from200 circa 1.6 million transactions during 2007. During % £bn Housing market transactions Approvals-10 of mortgages for house purchases 2014,2000 this150 increased to circa 1.2 million transactions. The 120 -20 contraction100 in activity was due to a large reduction in demand, Units 100 -30 driven1500 by50 the lack of availability of mortgage finance, as banks Projects delevered0 in the aftermath of the financial crisis. The fall in 80 -40 2005 2006 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 2013 H12014 activity1000 was accompanied by a fall in the average sales price ‘000 ‘000 60 Source:of homes National from Statistics a peak Agency of £199,600 in August 2007 to a low Source: HBF point500 of £154,700 in April 2009 (according to Halifax), a fall 40
of 22%. Adjusted for inflation, the real decrease has been 20 0 Jan 2007 Dec 2014 greater. House2007 prices 2008 2009have accelerated 2010 2011 over2012 the2013 last 2014 two est years with Halifax reporting an average sales price of £188,900 In Source: DCLG Source: Bank of England December 2014, however this is still well below the 2007 peak. The three years to 31 December 2012 saw highly constrained, Gross mortgage lending Growth in residential planning approvals Underlying demand from household formation, based on the but relatively stable level of mortgage approvals, fluctuating 400 30 Government’s latest estimates released in April 2013, suggested primarily between 45,000 and 55,000 approvals per month. 350 20 that English households are expected to grow by 221,000 This particularly affected customers requiring higher loan 300 10 per year through to 2021. In terms of new build supply, the to value mortgages, many of whom were first time buyers. 250
Business overview 0
| number of new home completions in England as reported by Monthly mortgage approvals increased through 2013 reaching 200 %
the£bn Government for the 12 months to 30 September 2014 a high of-10 76,947 in January 2014. However, this moderated 150 during 2014-20 with average approvals of circa 65,000. was 117,070,100 an 8% increase on the previous 12 months. Units Housing starts according to the Government for the 12 months -30 50 The Government launched Help to Buy shared equityProjects in April to 30 September 2014 reached 139,500, an increase of 19% 0 2013 exclusively-40 for new build properties and the Government compared2005 to the 2006 year 2007 before. 2008 Therefore 2009 2010 the20 mismatch11 2012 between 2007 2008 2009 2010 2011 2012 2013 H12014 confirmed in March 2014 that this scheme will continue until Source:longer National term Statistics demand Agency and supply continues. This coupled with Source: HBF 2020. The overall impact of this product has been positive, not the wider affordability issue highlights the importance of only in enabling more customers to access mortgage finance, speeding up the supply of new homes over the coming years. but also in increasing consumers’ confidence to purchase.
UK housing market in the short term The Help to Buy mortgage guarantee product was launched in September 2013, the impact of which has been limited on the
Annual HPI Annual HPI new build sector. to Dec 2013 to Dec 2014 During 2014 the Mortgage Market Review laid out new Halifax +7.5% +7.8% requirements requiring that lenders undertake a thorough Nationwide +8.4% +7.2% assessment of affordability which should ensure borrowers are Hometrack +4.4% +8.3% less likely to have difficulties meeting their commitments. In the Strategic report
10 | Annual report and accounts | Strategic report | Business overview Private and social homes legally completed in 2014 Private homes by type legally completed in 2014
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 2014 Location of land at 31 December 2014
Plots Plots Post downturn1 13,700 76% South 13,565 75%
Pre downturn 1 3,334 18% Midlands 3,024 17%
Written down 2 1,028 6% North 1,473 8%
Total 18,062 Total 18,062
1 Plots held at cost (downturn being July 2008) See map on page 6 2 Plots held below cost at net realisable value
Demand versus supply 80 Net balance % 60 Rising 40 Residential land prices 20 150
0 125 -20
-40 100 RICS new buyer enquiries -60 75 RICS new vendor instructions Falling -80 2007 2014 50 Private and social homes legally completed in 2014 PrivateJan homes 2004 by type legally completedJul in 20 201411 TheSource: RICSUK housing market is robust with strong consumer Source: DCLG Homes Property type confidence and competitivePrivate 2,330 83%mortgage finance available2 Bedroom 299 13%
Social 483 17% 3 Bedroom 1,015 43% Housing market transactions Approvals of mortgages for house purchases 2000 Total 2,813 4 & 5 Bedroom 573 25% 120 Apartments 443 19% 100 long term1500 this should provide stability to the housing market but During the last six years, the number of residentialTotal land purchasers 2,330 it has had a short term impact with some mortgage offers taking in the market80 has remained relatively stable. Private housebuilders 1000 ‘000 longer‘000 and more people being declined mortgages. have struggled60 to access bank finance to fund their purchase at the leverage and at the price that they require. The main purchasers In June 2014, the Government announced that additional powers 40 500 Ageing of land at 31 December 2014 have been publicly listedLocation housebuilders, of land whoat 31 have December demonstrated 2014 a would be granted to the Bank of England to guard against disciplined20 approach. Until more capital becomes available to the financial stability0 risks from the housing market. These powers Jan 2007 Dec 2014 Plots wider new build sector, it is unlikely that the number of purchasersPlots include setting2007 limits 2008 on debt 2009 to 20income10 20 11ratios2012 and2013 loan 2014to value est Post downturn1 13,700 76% will increase substantially. South 13,565 75% ratiosSource: for DCLG mortgages. The application of these powers is likely Source: Bank of England to have a moderating effect on housing demandPre downturn and pricing, 1 3,334 18% Midlands 3,024 17% particularly at the latterGross stages mortgage of the cycle. lendingWritten down 2 1,028 6% Growth in residential planningNorth approvals 1,473 8% 400 30 Recently, the Government has announcedTotal reform of Stamp18,062 Total 18,062 350 20 duty, which is likely to provide a boost 1to Plots the held market at cost (downturn with lower being July 2008) See map on page 6 300 2 Plots held below cost at net realisable value 10 transaction costs for the vast majority of purchasers. The full 250 impact of this is yet to be fully understood. 0 200 % £bn -10 150 Housing supply -20 100 Units 50 -30 Demand versus supply Projects 0 -40 80 2005 2006 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 2013 H12014 Net balance % Source:60 National Statistics Agency Source: HBF Rising 40 Residential land prices In terms of the supply of residential land, the quantity of planning 20 150 applications made and granted fell significantly from 2008 to 0 2011. With125 the launch of the National Policy Planning Framework -20 (“NPPF”) in March 2012, the supply of residential land has -40 increased materially100 in 2013 and 2014. RICS new buyer enquiries -60 75 RICS new vendor instructions Falling Different types of residential land sites come to market in terms -80 of size, product type, location and former use (greenfield or 2007 2014 50 brownfield). LargerJan 2004sites, particularly in the south of JulEngland, 2011 tend to attract relatively few purchasers due to capital commitments, Source: RICS whereasSource: DCLGsmaller sites up to 50 plots may attract many more. Again, From 2010 to 2012 the quantity of buyers and vendors was the product mix on a site may attract different levels of demand relatively balanced. With the improving consumer confidence with, for instance, apartment schemes in city centres (outside supported by theHousing Government market Help transactions to Buy scheme, the level of London)Approvals likely to of attract mortgages a limited for number house ofpurchases purchasers, compared demand2000 in the housing market improved substantially in 2013 to traditional two storey detached housing sites. 120 although this has moderated during 2014. Overall,100 the demand and supply dynamic of the land market 1500 Lack of supply to the housing market remains a challenge but remains favourable for well funded purchasers and residential land 80 there has been an increase in new house building projects over can be purchased at sensible returns. 1000 ‘000 the‘000 last three years with RICS forecasting housing starts to rise to 60 Competitors 155,000500 in England during 2015 compared to 125,000 in 2013 40 and only around 100,000 in 2012. However this is still insufficient The second hand market remains the main competition for Bovis to address the growth in households and will continue to leave a Homes.20 In a normal year, the Group would expect around 90% of 0 Jan 2007 Dec 2014 significant shortfall2007 2008 in supply. 2009 2010 2011 2012 2013 2014 est residential transactions to be second hand, with pricing in the new build sector being set by reference to that market. The de-stocking Source: DCLG Source: Bank of England Residential land by the housebuilders between 2008 and 2011 led to new build contributing a greater proportion of residential transactions. This The price of residentialGross land mortgage is a residual lending value calculation, with a Growth in residential planning approvals was supported30 by housebuilders providing finance by way of developer400 willing to pay a land price based on expected incomes 350 shared equity products to home buyers, which enabled certain less costs and a required development margin. When residential 20 300 buyers to acquire homes with lower levels of equity in the house prices change, the value of a piece of land tends, therefore, 10 250 new build market compared to the second hand market. With to move by a factor of two or three. The value of residential land 0 200 overall consumer confidence improving and transaction numbers % is also£bn affected by the number of purchasers and the amount and -10 150 increasing materially, it is likely that the new build sector will move type of residential land coming to market, as well as potential -20 100 back towards 10% of total housing market transactions. Units purchasers’ confidence in future house price movements. -30 50 Projects 0 -40 Bovis Homes Group PLC | 11 2005 2006 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 2013 H12014
Source: National Statistics Agency Source: HBF Chief Executive’s report
• Enabling motivated and engaged employees and business partners to work ethically within a safe and healthy environment
With the excellent progress made during 2014 delivering on these strategies, the Group is confident that its strategic plan is on track.
Acquiring, designing and developing quality traditional housing sites 2014 was the Group’s most successful year for land investment, acquiring high quality consented land assets focused on specific search areas in the south of England and prime locations in the midlands and northwest. The Group has David Ritchie maintained strong discipline in its approach to land investment Chief Executive and applies rigorous criteria for the acquisition of consented land, reflecting not only the anticipated profit margin and Bovis Homes has made considerable progress return on capital employed, but also site specific risks and during 2014, achieving a record number of legal geographic concentration risk. completions with a further strong improvement During the year the Group added 7,300 plots on 42 sites to in profit and driving a significant improvement in the consented land bank at a cost of £340 million (2013: 3,737 return on capital employed. plots on 27 sites at a cost of £225 million). The plots added have an estimated future revenue of £1,717 million and an estimated future gross profit potential of £447 million, based Profit before tax has increased by 69% to £133.5 million on appraisal sales prices and build costs. On average the plots and the Group has achieved a return on capital employed of are expected to deliver a gross margin of circa 26% and a 16.2%, 53% higher than 2013. Basic earnings per share has return on capital employed between 25% and 30%. Of these increased by 75% to 78.6 pence (2013: 44.9 pence). plots, 82% were located in the south of England, taking the The Group has delivered a record year, acquiring high quality proportion of plots in the consented land bank to 75% in the land assets in its target areas, while maintaining a robust south. On the sites acquired during 2014, traditional homes balance sheet with year end net cash of £5.2 million. represented 86% of the private homes to be built.
Strategic plan The strong performance in purchasing land has continued in The strategic plan communicated at the time of the 2014 Half 2015, with circa 575 consented plots on four sites added to Year Results laid out the ambitions for the Group. The Group date in 2015, and a significant pipeline of sites with terms aims to deliver market leading performance over the cycle from agreed being positively progressed.
Our business and strategy long term land investment with a focus on building and selling | In order to drive improved use of capital, the Group completed quality family homes. The Group’s strategies to achieve this are three land sales totalling 237 plots during 2014. The selected as follows: land sale parcels were on some of the Group’s larger sites. • Acquiring, designing and developing quality traditional Further land sales are planned in 2015. housing sites, focusing primarily in the south of England (excluding London) The consented land bank was approximately five years supply at 2014 legal completion volume, amounting to 18,062 plots • Creating aspirational homes using its well specified Portfolio as at 31 December 2014 (2013: 14,638). The gross profit traditional housing range in desirable settings, delivered with potential on these consented plots at the 2014 year end, excellent customer service based on current sales prices and current build costs, was • Growing to an optimal scale to suit the selected geography estimated at £1,017 million with a gross margin of 25.2% and product range, which enables ongoing high quality (2013: £727 million at 24.2%). At that point, the consented management of risk and reward through short lines of land bank contained 128 sites with 25 of these sites still to management control be launched for sale. This provides confidence in the Group’s growth for 2015 as these sites progress to being active • Managing the business across the housing cycle to maximise sales outlets. returns, while effectively stewarding shareholders’ capital Strategic report
12 | Annual report and accounts | Strategic report | Our business and strategy Strategy delivery is on track with further growth in returns supported by land investment
Creating aspirational homes in desirable settings, As well as cost increases, the industry has faced challenges to deliver delivered with excellent customer service adequate levels of production during the last eighteen months. This has resulted primarily from shortages in subcontract labour, During 2014 the Group achieved record production of circa 3,500 which has impacted Bovis Homes, given the Group’s significant homes, a 20% increase on 2013 to support the delivery of new growth. Production delays have also had an adverse effect on the homes, whilst effectively managing housing work in progress. customer experience leading to the Group’s internal “recommend Work in progress turn increased to 3.6 times (2013: 2.7). a friend” score reducing to 82% in 2014 from 90% in 2013. Housing work in progress ended 2014 at 923 units worth of Actions plans have been put in place to improve performance in this production (2013: 1,040), equivalent to less than one quarter’s important area. worth of anticipated volume at the start of 2015.
During 2010, the Group reviewed its private housing range and Growing to an optimal scale to suit the selected designed the “Portfolio” range of traditional homes for modern geography and product range living, incorporating great space with efficient design and build. Not The Group has laid out its ambitious plan to grow annual volume only have these homes been excellently received by customers, but to between 5,000 and 6,000 homes, through an increase in active they are also highly efficient to build. The Group has migrated across sales outlets which can be delivered through the acquisition of to the Portfolio range, where planning allows. During 2014, 38% of circa 40 consented sites annually. the private homes legally completed were from the Portfolio range, up from 23% in 2013. This percentage is expected to grow further In 2014 the Group has taken a major step forward in scale, in 2015. delivering a 29% increase in legal completions to 3,635 homes (2013: 2,813). Private legal completions, including 286 PRS homes, The Portfolio range is ideally suited to edge of town and village increased by 26% to 2,931 (2013: 2,330). Legal completions of locations, which are precisely the locations where the Group has social homes were 704 (2013: 483), representing 19% of total invested in 2014, including attractive market towns from Bovey legal completions (2013: 17%). Tracy and Ottery St Mary in Devon and Tetbury and Kemble in Gloucestershire, to Godalming in Surrey, Salisbury and Bursledon in Average active sales outlets of 97 were 8% higher than the 90 Hampshire and Elsenham and Takeley in Essex. in 2013. This combination of active sales outlet growth in 2014 supported by PRS reservations enabled the Group to achieve As a result of moving towards a more traditional housing mix, the 3,218 private reservations, a 16% increase on the 2,773 achieved proportion of traditional private homes sold has increased to 66% in 2013. Net private reservations per site per week was 0.64 in 2014 from 59% in 2013. Three storey homes reduced to 21% of and, excluding the PRS reservations, was 0.54 (2013: 0.59). This legal completions (2013: 22%) and apartments have decreased to reduction resulted from a more normal seasonal market during the 13% (2013: 19%). summer period of 2014 compared to 2013, which benefited from the first year of Help to Buy, as well as a moderating of the overall In 2014, the average sales price of homes legally completed increased housing market in the second half of the year. by 11% to £216,600 (2013: £195,100). The average sales price of private legal completions, excluding private rental sector (“PRS”), This level of private reservations enabled the Group to carry was 18% higher at £250,800 (2013: £212,700), benefiting from forward into 2015 a significantly enhanced private forward order the mix effect of higher sales prices on new sites and market pricing book of 979 private reservations (2014: 692). When combined improvements of circa 5% ahead of expectations set prior to the with increased active sales outlets of 103 at the start of 2015 and start of 2014. The average sales price for PRS homes was £166,900, the expected site openings in 2015 driven by the 42 consented reflecting their location and the smaller product delivered under sites acquired in 2014, the Group is confident that further growth these agreements. towards its optimal scale can be achieved during 2015. The sites acquired in 2015 to date and the pipeline of further sites either Improving activity levels and higher sales prices in the new homes already contracted or at an advanced stage of negotiation should market has led to increasing construction costs, with the main driver support further growth into 2016. being subcontract labour. The Group’s average construction cost for legal completions in 2014 was 12% higher than in 2013, compared The Group’s new organisational structure which became effective to an increase in private sales prices of 14%. The Group estimates at the start of 2014 has bedded in well and the six operating the market driven element of this build cost increase to be circa businesses are functioning effectively. The two developing 7% with other cost increases arising from the increasing size of the businesses in Thames Valley and South Midlands, which continue Group’s average home, specification improvements and the ongoing to be run on modest overheads, are progressing towards being impact of switching the mix of homes to the south of England where fully operational and are expected to deliver their first legal subcontractor rates are higher. completions during 2016.
Bovis Homes Group PLC | 13 Chief Executive’s report
Managing the business across the housing strategic land is approaching a point where planning consents cycle to maximise returns, while effectively are expected to be achieved. This strategic land will allow the stewarding shareholders’ capital Group to continue to be highly selective in the consented land market, especially important as and when this market shows Driving shareholder value across the housing cycle requires signs of increased competition. The Group anticipates that strong land acquisition at the bottom of the cycle and slowing circa 50% of its land bank in the future is likely to be sourced investment before the peak. The Group continues to view from strategic land. The combined effect of consented land the housing market, excluding London, as being at an early market investment with strategic land conversion is expected stage of its growth phase in this cycle. After a long period to provide the Group with a strong pipeline of sites with of stable pricing and activity between 2009 and H1 2013, profit margins and returns at the point of investment above its significant market house price increases have only occurred in the last year and a half. While there continues to be a existing hurdle rates. shortage of credit to smaller housebuilders, discipline is being demonstrated by those participating in the consented land Enabling motivated and engaged employees market. This is evidenced by the recently published view by and business partners to work ethically Knight Frank that greenfield residential land values increased within a safe and healthy environment by only 2.3% in 2014, reflecting the interplay between sales The Group recognises the critical role that its people play in prices and build costs and the competitive landscape. The the delivery of the strategic plan. The increased activity in the Group continues to believe that this is the right time to be new build market has made attracting and retaining talent ever investing assertively in consented land. more important. With a growing business, employees have Demand for new housing remains strong with UK household increased from 771 at the start of 2014 to 928 at the end formation continuing to be projected above 200,000 per 2014, which has been supported by higher levels of investment annum and new housing targeted by the Government for to support recruitment, training and development. delivery above this number while completions fall significantly In the build department where staff turnover is most short of this target. The UK planning system has increased its pronounced, a site manager training programme has been delivery of planning consents leading to an improving flow established during 2014, which welcomed its first cohort of available, cost effective residential consented land. The of trainees primarily from military backgrounds with further opportunity exists for well capitalised housebuilders to invest programmes to be run in the future. Additionally, the in this land to increase housing supply. apprentice programme is being expanded in 2015 to increase Strategic land is critical to the Group to contribute to the the intake across the business. supply of land into the consented land bank through the housing cycle. During 2014 the Group made a strong Employee diversity investment in new strategic land with the addition of circa The following table shows the gender split within the Group as 4,500 new plots to the strategic land bank. Circa 3,000 plots at 31 December 2014. At Bovis Homes, 62% of the workforce were converted to the consented land bank, making up 41% is male, a relatively common proportion in the construction of plots added during the year. and housebuilding industries. While a lower proportion of
Our business and strategy senior management and directors are female, the Group | As a result, the strategic land bank at 31 December 2014 had increased to 21,350 potential plots (2013: 20,108). encourages and supports gender diversity. As at 31 December These plots are spread across 76 sites. The Group’s long-term 2014, there were five senior managers (all male) who were investment in and promotion of strategic land has resulted directors of Group subsidiaries. in the consented land bank as at 31 December 2014 having Male Female been sourced 45% from the strategic land bank (2013: 49%). Within the Group’s strategic land bank are 2,900 plots across PLC Directors 5 1 nine sites where residential planning consent has already been Senior Managers 13 1 agreed and progress is being made by the Group to finalise All employees 581 353 planning agreements and acquire these sites. Additionally, a plan for the Group’s controlled land for 3,200 plots at % 62% 38% Wellingborough, Northamptonshire is being developed. This is expected to lead to site development commencing with the The Board first new homes being completed in 2016. Jonathan Hill, the Group Finance Director, announced his The Group continues to promote effectively its existing intention in September 2014 to leave the Group in order to strategic sites, working with local stakeholders to secure pursue other career options. Jonathan will continue serving planning consent. A good proportion of the Group’s existing with the Group until 6 March 2015. The Board would like Strategic report
14 | Annual report and accounts | Strategic report | Our business and strategy Strategy delivery is on track with further growth in returns supported by land investment
to thank Jonathan for his significant contribution to both the Board Current trading and to the strong performance of the Group during his period of The Group entered 2015 with forward sales of 1,752 homes, a service. The Board is pleased to confirm that the search process for 27% improvement on the 1,377 homes brought forward at the Jonathan’s replacement is close to finalisation. An announcement is start of 2014. Of these, 979 were private homes (2014: 692) and expected to be made in the near future. 773 were social (2014: 685). John Warren will retire from the Board at the 2015 AGM to be The Group has delivered 479 private reservations in the first seven held on 15 May 2015 after the allotted nine years as a non- weeks of 2015, modestly ahead of the 468 private reservations executive director and eight years as Audit Committee Chairman. achieved in the strong market conditions enjoyed in early 2014. The Board would like to thank John for his valuable contribution Operating from an average of 101 active sales outlets during this during his time on the Board. The Board is pleased to announce period (2014: 93), the Group has achieved a sales rate per site per that Ralph Findlay, currently Chief Executive Officer of Marston’s week of 0.68 (2014: 0.72). Sales prices achieved on these private PLC, will be appointed as a non-executive director with effect reservations to date have been ahead of the Group’s expectations from 7 April 2015 and will chair the Audit Committee from the set prior to the start of 2015 by circa 2%. conclusion of the 2015 AGM.
As at 20 February 2015, the Group held 2,336 sales for legal Market conditions completion in 2015, as compared to 1,875 sales at the same point The first half of 2014 was a period of strong levels of customer in 2014, an increase of 25%. Of these, private sales amounted to demand in the housing market supported by good availability of 1,458 homes (2014: 1,160), with social housing sales of 878 homes mortgage finance. Monthly mortgage approvals, according to the (2014: 715). Bank of England, averaged 67,500 during the first half of 2014. The summer period returned to a more typical seasonal pattern Overall this represents a robust start to 2015. with lower activity during July and August. At the same time consumer confidence reduced resulting in a weaker autumn Outlook trading period. During the second half of 2014, monthly mortgage The strong sales position brought forward from 2014 combined approvals reduced to an average of 61,700. with robust trading in the first seven weeks of 2015 has positioned the Group well for 2015. With the expectation of further growth The extension of Help to Buy through to 2020, announced in March in active sales outlets during 2015 driven by the land acquisitions 2014, provided the industry with increased certainty of support in achieved in 2014, the Group is confident that it can deliver its the medium term. The Group views this development positively, expected legal completion growth in 2015. providing further time for the mortgage market to develop under the positive control delivered by the Mortgage Market Review. The housing market is demonstrating a strong correlation between sales prices and costs, such that further increases in build costs House prices have been rising at a positive rate across many are expected to be at least covered by increases in sales prices. regional markets with stronger rises in the south of England, offset The Group continues to benefit from an increasing proportion of by more modest changes in the midlands and north of England. The Group experienced an increase in sales prices during 2014 legal completions from post downturn sites which are in better compared to its expectations set prior to the start of the year of locations with a stronger product offering and have higher returns. circa 5% due to market pricing improvements. These legal completions are expected to contribute to a stronger profit margin. With firm control of capital employed, capital turn is With the improvements in activity levels and higher sales prices, expected to improve to in excess of 1.0 in 2015. Based on stable the cost of building new homes has increased and the supply of market conditions, the Group expects to deliver a further positive additional labour to fully support the higher production levels step in 2015 towards its ambition of at least 20% return on capital remained constrained in 2014. The main driver of the increase in employed in 2016. costs has been subcontract labour, but material prices have also contributed to the increase. The pressure experienced during 2014 The Group anticipates 2015 being another successful year of seems to be reducing at the start of 2015. growth and strong returns.
Customer demand appears robust at the start of 2015. Mortgage rates are at historic low rates and real wages are growing, supporting affordability. The changes to stamp duty announced David Ritchie by the Government in 2014 are also positive for consumers. Chief Executive The forthcoming general election brings a period of uncertainty. History would suggest that sales activity will moderate for a few weeks before the election, followed by a rebound after. The Group is aware of this likely impact and is presently working to maximise the current positive sales activity to grow the order book.
Bovis Homes Group PLC | 15 Chief Executive’s report Our business and strategy and business Our |
Strategic report Strategic
16 | Annual report and accounts | Strategic report | Our business and strategy 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 • 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 (excluding and materials 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 desirable settings, delivered with Customer satisfaction excellent customer service scores
3 Growing to an optimal scale to • Lack of availability of mortgage suit the selected geography and finance Growth in legal product range, which enables completions • Insufficient consented land ongoing high quality management available at hurdle rates of risk and reward through short Increasing average lines of management control • Availability and cost of both active sales outlets materials and sub-contract labour
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 For more information on our risks, For more information on our strategic priorities, see pages 22 see pages 28 to 31. KPI’s, see pages 22 to 26. to 26.
Bovis Homes Group PLC | 19 Business objectives
Performance Long term
measured through measured through return on capital percentage of employed over land bank sourced the cycle Aiming to deliver strategically market leading performance over the cycle from long term land investment with a focus on building and selling quality family homes Land Quality investment measured through customer surveys measured through Our business and strategy |
profit potential in the land bank
For details on our strategic priorities that set out how we achieve these objectives see pages 22 to 26. Strategic report
20 | Annual report and accounts | Strategic report | Our business and strategy Bovis Homes is a builder of high quality homes in England
Bovis Homes Group PLC | 21 Strategic priorities
Acquiring, designing and developing quality traditional housing sites, focusing primarily in the south of England (excluding London)
Our approach Progress in 2014
The Group adopts a regional approach to the The Group achieved the following during 2014: acquisition, design and development of housing sites • The group acquired a record 7,300 plots on 42 to ensure the appropriate level of focus during the sites in 2014 with 82% of these plots in the south lifecycle of each site. of England Every land investment must meet rigorous criteria around margin, return on capital and site specific risk. • In order to manage capital the Group delivered three land sales totalling 263 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 £727m to £1,017m housing projects of all sizes through from start to finish.
Priorities for 2015 KPIs
The Group is focussed on delivering the following Gross margin potential in consented land bank in 2015:Private and social homes legally completed in 2014 Private homes by type legally completed in 2014 • The acquisition of at least 40 sites with the majority £1,017m (2013: £727m) Homes Property type in the south of England Private 2,330 83% 2 Bedroom 299 13% % of consented land bank in south • Further growth in the sizeSocial and gross profit483 17%potential 3 Bedroom 1,015 43% Total 2,813 4 & 5 Bedroom 573 25% of the landbank (2013: 71%) 75% Apartments 443 19% Total 2,330 Our consented land bank Growing gross profit potential from land bank Private and social homes legally completed in 2014 Private homes by type legally completed in 2014 Our business and strategy | Consented Revenue ASP Gross Gross
Ageing of land at 31 December 2014 Location of land at 31 December 2014 Homes Property type Plots profit margin £m £000 £m % Private 2,330 83% 2 Bedroom 299 13% Plots 2012 additions* 2,651 561 207.5Plots 146 26.0% Social 483 17% 3 Bedroom 1 1,015 43% Post downturn 13,700 76% 31 December 2012* 13,776South 2,641 13,565191.7 75%600 22.7% Total 2,813 4 & 5 Bedroom1 573 25% Pre downturn 3,334 18% 2013 additions* 3,737Midlands 841 3,024225.0 17%216 25.7% Apartments 443 19% Written down 2 1,028 6% 31 December 2013* 14,638North 3,007 1,473205.4 8%727 24.2% Total 2,330 Total 18,062 2014 additions 7,300Total 1,717 18,062235.2 447 26.0%
1 Plots held at cost (downturn being July 2008) 31 December 2014 18,062See map on 4,040page 6 223.7 1,017 25.2% 2 Plots held below cost at net realisable value
Estimates based on prevailing sales prices and prevailing build costs Ageing of land at 31 December 2014 Location of land at 31 December 2014 *As previously disclosed
Plots Plots 1 Post downturn 13,700 76% Demand versus supplySouth 13,565 75% Pre downturn 1 3,334 18% 80 Midlands 3,024 17% Net balance % Written down 2 1,028 6% 60 North 1,473 8% Rising 40 Total 18,062 Total 18,062 Residential land prices
1 Plots held at cost (downturn being July 2008) 20 See map on page 6 150 2 Plots held below cost at net realisable value 0
Strategic report 125 -20
-40 22 | Annual report and accounts | Strategic report | Our business and strategy100 RICS new buyer enquiries -60 75 RICS new vendor instructions Falling Demand versus supply -80 2007 2014 50 80 Net balance % Jan 2004 Jul 2011 60 Source: RICS Rising 40 Source: DCLG Residential land prices 20 150
0 125 Housing market transactions Approvals of mortgages for house purchases -20 2000 120 -40 100 RICS new buyer enquiries 100 1500 -60 75 RICS new vendor instructions Falling 80 -80 2007 2014 1000 50 ‘000 ‘000 60 Jan 2004 Jul 2011
Source: RICS 500 40 Source: DCLG 20 0 Jan 2007 Dec 2014 2007 2008 2009 2010 2011 2012 2013 2014 est
Housing market transactions Source:Approvals DCLG of mortgages for house purchases Source: Bank of England 2000 120 Gross mortgage lending Growth in residential planning approvals 100 1500 400 30 80350 20
1000 300 10 ‘000 ‘000 60 250 0 40200
500 % £bn -10 150 20 -20 0 100 Jan 2007 Dec 2014 Units 2007 2008 2009 2010 2011 2012 2013 2014 est -30 50 Projects Source: DCLG Source: Bank 0of England -40 2005 2006 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 2013 H12014
Gross mortgage lending Source: NationalGrowth Statistics in Agency residential planning approvals Source: HBF 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 2014
Bovis Homes differentiates itself with its internally The Group achieved the following during 2014: 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 38% from 23% in 2013 The Group has a clear customer journey to ensure that each customer’s experience is a positive one, • The business increased production by 20% during 2014 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 2015 KPIs
The Group is focussed on delivering the following Customer satisfaction in 2015: (2013: 93%) • A further increase in the proportion of private legal 82% completions from the Portfolio range % private homes from Portfolio range • Improving customer satisfaction scores 38% (2013: 23%)
Our homes
100 Private and social homes legally completed
20% Homes 2014 2013 32% 29% 80 39% Private 2,931 81% 2,330 83% 49% Social 704 19% 483 17% 3 storey Total 3,635 2,813 60 Traditional Apartments Private homes by type legally completed
49% 58% 76% *Acquisition since Homes 2014 2013 40 42% 1 January 2012 28% 2 bedroom 342 12% 299 13% 3 bedroom 1,352 46% 1,015 43% 20 4 & 5 bedroom 858 29% 573 25% 23% 19% 19% 13% Apartments 379 13% 443 19% 4% 0 2011 2012 2013 2014 Acquired* Total 2,931 2,330 LC’s LC’s LC’s LC’s
Bovis Homes Group PLC | 23 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 2014
In 2014 the Group set out a strategic plan • The Group has delivered a 29% increase in which in a stable housing market expects to completions to 3,635 homes deliver 5,000 to 6,000 new homes annually with • Private reservations (including PRS) increased by premium profit margins benefiting from the 16% during the year to 3,218 effectiveness of the operating model. • The number of operating regions in the business The Group will continue to evolve its organisational increased from three to six structure to manage effectively this increased annual volume and will augment its resources to • Created two developing regions support growth as further land investment occurs.
Priorities for 2015 KPIs
• Further growth towards optimal scale with an Number of legal completions increasing number of legal completions and private reservations 3,635 (2013: 2,813) • An increase in the average number of active Average active sales outlets sites in line with previous years
• Progression of two developing regions to 97 (2013: 90) commence delivery of legal completions in 2016 Our business and strategy |
Active sales outlets Private reservations
Number of active sales outlets 2014 2013 Year ended 31 December 2014 2013
Brought forward 94 90 Brought forward 692 249
Outlets opened in year 25 22 Reservations 3,218 2,773
Outlets closed in year (16) (18) Legal completions (2,931) (2,330)
Carried forward 103 94 Carried forward 979 692
Average 97 90 Year on year reservation growth +16% +48%
Year on year growth 8% 10% Net sales rate per site per week 0.54 0.59 Strategic report
24 | 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 2014
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, the • With capital well controlled ROCE has increased Group will invest assertively in consented land. The significantly in the period to 16.2% from 10.6% in 2013 Group aims to limit or halt investment in the consented • Circa 4,500 plots have been added to the strategic land market well before the housing market peaks and landbank to support the record investment in a cyclical correction occurs. As competition increases in consented land the consented land market the conversion of strategic land is critical. The Group has the experience to deal • 41% of consented plots added in the year were with a downturn, reducing the capacity of its business in converted from the strategic land bank the short term and generating surplus cash.
Priorities for 2015 KPIs
• Continued improvement in ROCE towards the Capital turn Group’s ambition of delivering 20% ROCE in 2016 (2013: 0.7) • Conversion of key targeted sites to consented 0.95 land bank % of consented land bank from strategic conversion • Further incremental investment in the strategic land bank 45% (2013: 49%)
Return on capital employed
16.2% (2013: 10.6%)
Capital efficiency metrics Strategic land bank
2014 2013 Year ended 31 December 2014 2013 Total potential plots as at 31 December Plots Plots
Capital turn (1) 0.95 0.7 South 13,946 12,568
Average plots per site acquired 174 138 Midlands 6,450 6,503
Work in progress turn (2) 3.6 2.7 North 954 1,037
(1) Capital turn is calculated as revenue divided by average capital employed excluding Group strategic land bank 21,350 20,108 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 7.1
Bovis Homes Group PLC | 25 Strategic priorities
Enabling motivated and engaged employees and business partners to work ethically within a safe and healthy environment
Our approach Progress in 2014
The Group recognises the critical role that its • The business has grown from 771 employees at the people play in the delivery of the strategic plan. start of 2014 to 928 at the end of 2014 Business growth has been supported by higher levels of investment to support recruitment, • An employee survey showed engagement at 78% training and development of staff. • Continuing strong health and safety performance, Health and safety is a core value within our albeit with an increase in RIDDORs in the year business.
Priorities for 2015 KPIs
• Improve employee engagement Employee engagement
• Expand the assistant site manager and apprentice programme to increase the intake 78% in 2015 NHBC risk incidence • Focus on ensuring all sites adopt our stringent health and safety procedures, enabling an 3 9.1 (2013: 22.4) improving NHBC risk incidence and a reduction in RIDDORs RIDDOR reportables Our business and strategy
| (2013: 17)
24
Annual injury incidence rate (AIIR) Sustainability
1000 Year ended 31 December 2014 2013
800 Number of homes built to Level 3 CSH 1,605 1,036 Active waste generated per plot (tonnes) 2.8 3.1 600 100
663 Bovis Homes Group PLC 2014 Active waste sent to land 90fill per plot (tonnes) 0.28 0.23
400 565 560 Bovis Homes Group PLC 2013 549
80 95% 94% HSE Construction AIIR 2013/14 93% 200 HSE Construction AIIR 2012/13 70
0 60 50
40
30
Strategic report 20
10 26 | Annual report and accounts | Strategic report | Our business and strategy 0 2011 2012 2013
Would recommend a Bovis Home to a friend
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
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 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 • Maintaining a rigorous approach to land acquisition, housing and falling house prices 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 • Continually innovating to find additional ways to assist customers to purchase a home
Operational risk
Land Insufficient land acquired with outline Expansion of the business and delivery • Clear 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 of defined hurdle rates land is curtailed, with existing activity levels • Regular review of the pipeline of new land purchases compromised • Investment in procurement and promotion of strategic Our business and strategy | land opportunities
• Maintaining larger land bank to deal with periods of reduced investment
Materials and Increasing competition with growing The Group’s ability to build is constrained • Maintain clear visibility of future production subcontract industry build volumes may lead and may impact profitability if costs rise requirements and its impact on suppliers and = s labour to shortages of both materials and subcontractors subcontract labour • Maintain close relationships with key suppliers and subcontractors to gain visibility of future supply against need Strategic report
28 | Annual report and accounts | Strategic report | Our business and strategy The availability of quality employees and sub contract labour are the key issues currently facing the Group
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 LOW higher interest rates and increasing impact on revenues, profits and potentially and ASP = = HIGH unemployment, leading to decreased asset carrying values • Managing build rates against sales activity affordability, reducing demand for • Maintaining a rigorous approach to land acquisition, housing and falling house prices 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 = = HIGH 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 • Continually innovating to find additional ways to assist customers to purchase a home
Operational risk
Land Insufficient land acquired with outline Expansion of the business and delivery • Clear 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 LOW = t HIGH assets to support housing development shareholder returns from the development of defined hurdle rates land is curtailed, with existing activity levels • Regular review of the pipeline of new land purchases compromised • Investment in procurement and promotion of strategic land opportunities • Maintaining larger land bank to deal with periods of reduced investment
Materials and Increasing competition with growing The Group’s ability to build is constrained • Maintain clear visibility of future production subcontract industry build volumes may lead and may impact profitability if costs rise requirements and its impact on suppliers and LOW = s HIGH labour to shortages of both materials and subcontractors subcontract labour • Maintain close relationships with key suppliers and subcontractors to gain visibility of future supply against need
Bovis Homes Group PLC | 29 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
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 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 the • Monitoring health, safety and environmental 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 = 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
Planning policy Changes in the regulatory framework Increased costs and significant delays • Land acquisition costs appropriately reflect latest and regulation in production and impending building regulations that cannot t t Our business and strategy be mitigated |
• Close monitoring of changes in planning policy by experienced team • New building techniques and advances continue to be investigated, in response to the Code for Sustainable Homes
As the activities of the Group evolve, the nature of the risks on which it is focused change. For instance, as the Group has acquired land successfully, the operational risk shifts to the progression of these sites into the build and sales phase, with the challenges of gaining detailed planning and of operationally gearing up the Group to increase build and sales activity. With sales conditions improving, risks move to our people and the stresses within the supply chain. Strategic report
30 | Annual report and accounts | Strategic report | Our business and strategy The availability of quality employees and sub contract labour are the key issues currently facing the Group
Risk Description Impact Link to strategic Mitigations Impact change Likelihood change Residual risk after mitigation priorities from last year from last year
Operational risk
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 LOW s s HIGH 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 LOW = s HIGH environmental our stakeholders and damage to environmentally responsible way. Affecting environmental matters communities the reputation and financial health of the • Monitoring health, safety and environmental 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 LOW = s HIGH 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
Planning policy Changes in the regulatory framework Increased costs and significant delays • Land acquisition costs appropriately reflect latest and regulation in production and impending building regulations that cannot LOW t t HIGH be mitigated • Close monitoring of changes in planning policy by experienced team • New building techniques and advances continue to be investigated, in response to the Code for Sustainable Homes
Strategic report approval The strategic report outlined on pages 2 to 33, incorporates the financial highlights, the chairman’s statement, the strategic review, the chief executive’s review, the financial review and the risks and uncertainties review.
By Order of the Board Jonathan Hill Group Finance Director 20 February 2015
Bovis Homes Group PLC | 31 Financial review
Total gross profit was £197.2 million (gross margin: 24.4%), compared with £130.3 million (gross margin: 23.4%) in 2013. The profit on land sales in 2014 was £3.9 million (2013: £0.1 million).
Overheads, including sales and marketing costs, increased by 26% in 2014, as the Group invested early to support the large number of land assets acquired and the increased number of sales outlets. The overheads to housing revenue ratio improved to 7.5% in 2014 from 8.5% in 2013.
Profit before tax and earnings per share Profit before tax increased by 69% to £133.5 million, comprising operating profit of £137.6 million, net financing Jonathan Hill Group Finance Director charges of £4.4 million and a profit from joint ventures of £0.3 million. This compares to £78.8 million of profit before The Group has delivered an excellent tax in 2013, which comprised £82.8 million of operating profit, £4.3 million of net financing charges and a profit from joint financial performance, with profits and ventures of £0.3 million. Basic earnings per share for the year earnings growing strongly and capital turn improved by 75% to 78.6p compared to 44.9p in 2013. increasing.
This has resulted in the Group achieving its Financing target for return on capital employed. Net financing charges during 2014 were £4.4 million (2013: £4.3 million). Net bank charges were £4.5 million (2013: £3.5 million), as a result of higher net debt during 2014 Revenue compared to 2013. The Group incurred a £3.0 million finance charge (2013: £3.1 million charge), reflecting the imputed During 2014, the Group generated total revenue of interest on land bought on deferred terms. The Group £809.4 million, an increase of 46% on the previous year also benefited from a finance credit of £3.0 million (2013: £556.0 million). Housing revenue was £783.6 million, (2013: £2.3 million) arising from the unwinding of the 43% ahead of the prior year (2013: £548.7 million) and other discount on its available for sale financial assets during 2014 income was £4.2 million (2013: £4.3 million). Land sales and other credits of £0.1 million. revenue, associated with three land sales, was £21.6 million in 2014, compared to one land sale achieved in 2013 with a total Taxation revenue of £3.0 million. The Group has recognised a tax charge of £28.3 million at an effective tax rate of 21.2% (2013: tax charge of £18.7 million
Our financial performance Profit before interest and tax | at an effective rate of 23.7%). The Group has a current tax The Group delivered a 66% increase in profit before interest liability of £14.0 million in its balance sheet as at 31 December and tax for the year ended 31 December 2014 to £137.9 2014 (2013: current tax liability of £9.2 million). million (2013: £83.1 million) at a net profit margin of 17.0% (2013: 14.9%). Housing net profit margin in 2014 was 17.0% Dividends (2013: 15.0%) and reached 17.7% in the second half of 2014. As previously communicated the Board will propose a 2014 Housing gross margin increased to 24.5% in 2014 from 23.5% final dividend of 23.0p per share. This dividend will be paid in 2013, in line with the circa 1% improvement expected by on 22 May 2015 to holders of ordinary shares on the register the Group. The gross margin benefited from the increased at the close of business on 27 March 2015. The dividend contribution from legal completions on sites acquired post the reinvestment plan gives shareholders the opportunity to housing market downturn. During 2014, market sales price reinvest their dividends in ordinary shares. Combined with the gains enabled the Group to cover construction cost increases, interim dividend paid of 12.0p, the dividend for the full year supporting a continuing strong profit margin. totals 35.0p compared to a total of 13.5p paid in 2013, an increase of 159%. Strategic report
32 | Annual report and accounts | Strategic report | Our financial performance The Group has delivered a strong financial performance, with profits, earnings and shareholder returns improving
Net assets completions. Net cash payments for land investment grew to £246 million (2013: £203 million), as a result of the increased land
2014 2013 investment offset by higher land creditors. Non-trading £m £m cash outflow increased to £67 million (2013: £38 million) with Net assets at 1 January 810.3 758.8 the greater dividend and corporation tax payments. As at
Profit after tax for the year 105.2 60.1 31 December 2014 the Group’s net cash balance was £5.2 million with £52.3 million of cash in hand, offset by bank loans of Share capital issued 0.5 1.0 £43.0 million, £4.0 million of loans received from the Government Net actuarial movement on pension and £0.1 million being the fair value of an interest rate swap. scheme through reserves (5.7) 2.9
Deferred tax on other employee benefits 0.3 - At 31 December 2014, the Group had in place a committed revolving credit facility of £175 million, of which £50 million Adjustment to reserves for share based payments 0.8 0.8 expires in December 2015 and £125 million in March 2017. Net movement in shared equity (3.5) - Additionally, the Group had a fully drawn three year term loan of Dividends paid to shareholders (28.8) (13.3) £25 million, repayable in January 2016. Net assets at 31 December 879.1 810.3 Financial risk and liquidity As at 31 December 2014 net assets of £879.1 million were The Group largely sees three categories of financial risk: interest £68.8 million higher than at the start of the year. Net assets per rate risk, credit risk and liquidity risk. Currency risk is not a share as at 31 December 2014 were 657p (2013: 604p). consideration as the Group trades exclusively in the UK.
Inventories increased during the year by £154.5 million to With regard to interest rate risk, the Group from time to time £1,125.5 million. The value of residential land, the key component will enter into hedge instruments to ensure that the Group’s of inventories, increased by £124.3 million, as the Group invested exposure to excessive fluctuations in floating rate borrowings is ahead of usage. At the end of 2014, the remaining provision held adequately hedged. The Group does not have a defined policy for against land carried at net realisable value was £12.9 million, after interest rate hedging. utilisation of £6.7 million during the year. Other movements in inventories were an increase in work in progress of £23.3 million Credit risk is largely mitigated by the fact that the Group’s sales are and an increase in part exchange properties of £6.9 million. generally made on completion of a legal contract at which point monies are received in return for transfer of title. During 2014, Trade and other receivables increased by £17.1 million, primarily the Group made no shared equity sales. With redemptions taking due to higher amounts owing from housing associations. Trade place, the Group’s long term receivable Available for Sale Financial and other payables totalled £360.5 million (2013: £242.6 million). Asset balance at 31 December 2014 was £39.4 million versus Land creditors increased to £198.2 million (2013: £123.8 million) £44.8 million at 31 December 2013. with the Group taking advantage of the opportunity to defer payments to land vendors. Trade and other creditors increased to Whilst this remains a credit risk in total, each individual credit £162.3 million (2013: £118.8 million), with higher build activity exposure is small given the high number of counter parties. leading to increased amounts owed to subcontractors and On average, individual shared equity exposure amounts to £20,700 material suppliers. (2013: £21,000).
Details of the Group’s financing arrangements are included on Pensions page 87. The Group regards this facility as adequate in terms Taking into account the latest estimates provided by the Group’s of both flexibility and liquidity to cover its medium term cash actuarial advisors, the Group’s pension scheme on an IAS19R basis flow needs. had a deficit of £0.7 million at 31 December 2014 (2013: surplus of £3.2 million). Scheme assets grew over the year to £103.3 Financial reporting million from £94.7 million and the scheme liabilities increased to There have been no changes to the Group’s accounting policies. £104.0 million from £91.5 million.
Net cash and cash flow Having started the year with net debt of £18.0 million, the Jonathan Hill Group generated an increased operating cash inflow before Group Finance Director land expenditure of £336 million (2013: £204 million), owing to higher profitability and increased land recovery on record legal
Bovis Homes Group PLC | 33 Directors and officers
Ian Tyler (54) Non-executive Chairman
Appointed non-executive Chairman on 29 November 2013 and Chairman of the Nomination Committee. Ian is a Chartered Accountant and a non-executive director of BAE Systems plc and Cable & Wireless Communications Plc, where he is also Chairman of the audit committee, and non-executive Chairman of Al Noor Hospitals Group Plc and Cairn Energy PLC. Previously, Ian was Chief Executive of Balfour Beatty plc from 2005 to March 2013, having joined the company in 1996 as Finance Director and becoming Chief Operating Officer in 2002. Prior to that, Ian was Financial Comptroller of Hanson and Finance Director of ARC Ltd, one of its principal subsidiaries, and held financial roles at Storehouse plc. He was a non-executive director of VT Group plc until 2010 and is president of CRASH, the construction and property industry charity for the homeless. Ian has considerable international business experience.
Alastair Lyons CBE (61) John Warren (61) Chris Browne OBE (54) Non-executive Deputy Chairman Non-executive Director Non-executive Director
Appointed non-executive Deputy Chairman and Senior Appointed an independent non-executive director in Appointed an independent non-executive director Independent Director in 2008 and Chairman of the 2006 and Chairman of the Audit Committee in 2007. on 1 September 2014, Chris sits on the Nomination, Remuneration Committee in 2014, Alastair is non- John is a Chartered Accountant and a non-executive Remuneration and Audit Committees. Chris was executive Chairman of Admiral, Serco, and Towergate director of Spectris plc, Welsh Water, 4imprint Group appointed Chief Operating Officer, Aviation, of TUI Insurance. Previously in his executive career, Alastair was plc and Greencore Group plc. At all the companies Travel plc in June 2014 and was previously Managing Chief Executive of the National Provident Institution and where John is a non-executive director, he chairs the Director, Thomson Airways from 2007 to May 2014 the National and Provincial Building Society, Managing Audit Committee. He was previously Group Finance and Managing Director, First Choice Airways from Director of the Insurance Division of Abbey National Director of WH Smith PLC and United Biscuits plc and 2002 to 2007. Chris has over 25 years’ commercial plc and Director of Corporate Projects at National a non-executive director of Arla Foods UK plc, BPP and general management experience in a consumer Westminster Bank plc. He has a broad base of business Holdings plc, RAC plc, Uniq plc, Rexam plc and Rank facing industry and previously held roles with Carlson experience with a particular focus on mortgage lending Group plc. John has detailed financial and accounting Worldwide and Iberia Airways. She has a Doctorate and insurance industries. He was awarded the CBE in expertise and considerable experience in chairing of Science (Honorary) for Leadership in Management 2001 for services to social security having served as a audit committees. and was awarded an OBE in 2013 for services non-executive director of the Department for Work and to aviation. Pensions and the Department of Social Security.
David Ritchie (45) Jonathan Hill (46) Martin Palmer (56) BA (Hons) ACA, Chief Executive BSc (Hons) ACA, Group Finance Director FCIS, Group Company Secretary
Appointed Chief Executive in 2008, David was Group Joined Bovis Homes in 2010 as Group Finance Joined Bovis Homes in 2001 and was previously Managing Director from 2007 to 2008 and Group Director. Previously, he was employed by TUI Travel Group Company Secretary of London Forfaiting Finance Director from 2002 to 2006. He joined Bovis plc in both group finance and divisional roles and Company PLC from 1997 to 2001. Homes in 1998 as Group Financial Controller and was held positions with Centrica plc, BT Group plc and previously employed by KPMG. David has significant Price Waterhouse. experience and knowledge of the sector, including land acquisition, planning, construction, marketing and customer service. Our governance
34 | Annual report and accounts | Our governance Corporate governance report Directors and officers Dear Shareholder,
Bovis Homes has performed strongly, delivering on its growth ambitions for 2014 with a further significant improvement in returns and record land investment, backed by strong capital management. During the year, we announced the Group’s updated strategic plan and enhanced dividend guidance. The Group’s growth prospects are exciting and good progress has been made Ian Tyler in 2014 towards the achievement of the Group’s medium term Chairman targets, designed to drive improved shareholder returns.
Having been Chairman of Bovis Homes since November Board meetings rotated through the operating regions and 2013, I know that your Company works hard to ensure that included open discussion with regional management teams its reputation for high standards of corporate governance is on their local market, new sales outlets, land acquisitions and deserved. Embedded standards and behaviours enable the Board progress with their objectives. to function effectively in supporting and monitoring senior management in the implementation of strategy. Increasing There were no changes in our corporate governance best practice shareholder returns are being delivered by the Group’s growth during 2014. The Board reviewed its policy on diversity, without strategy and I am excited and optimistic about the future at making any changes to the published version, which states that we Bovis Homes. A full cycle of meetings, plus visits to the regions will always make appointments to the Board based on merit. With and discussions with senior and regional management, have this approach in mind, I was delighted to welcome Chris Browne deepened my knowledge of the Group and its operations and to the Board as a non-executive director in September 2014. my perception of good corporate governance as a strength I would like to thank my colleagues on the Board for their supporting a cohesive Board and a well managed Group. collective support and strong individual contributions during This report has been prepared and approved by the Board. 2014 and look forward to their strong performance during the On behalf of the Board, I confirm that during 2014 your coming year. John Warren retires at the 2015 AGM and, on Company was compliant with the provisions of the UK Corporate behalf of the Board, I would like to recognise John’s significant Governance Code (“the Code”), with the exception that the contibution during nine years as a non-executive director and Audit and Remuneration Committees had two rather than three eight years as Audit Committee Chairman. I would also like to independent non-executive directors from the 2014 AGM in May thank Colin Holmes, who retired at the 2014 AGM after seven until the end of August 2014. The Company remains compliant years as Remuneration Committee Chairman for his valuable with the Code in all other respects. An external Board evaluation contribution in this role and as a non-executive director and was carried out towards the end of 2014, which provided Jonathan Hill, who leaves the Group in March 2015, for his valuable feedback and insights for the future. Further information strong performance as Group Finance Director over four and a is provided on page 39 including the outcomes that we will be half years. pursuing during 2015. Dialogue with all our shareholders is valued, whether in During 2014, the Board carried out a full range of activities from individual meetings, presentations or at our AGM. I look forward the review and development of mid-term strategy, including to meeting as many major shareholders as possible during the at our strategy day, to regional site visits, receiving regional coming year. Our 2015 AGM will be held on 15 May 2015 and management presentations, and review of risk, health and safety you will find the Notice at the end of this Annual Report. I look performance and customer satisfaction performance. forward to chairing the AGM and to meeting the shareholders able to attend. The non-executive directors continued to provide constructive challenge and assisted in the development of the mid-term strategy. They tested proposals put forward by the executive directors during the year and the supporting assumptions.
Ian Tyler Chairman
Bovis Homes Group PLC | 35 Corporate governance report
Introduction been satisfied that the majority of performance measures are outcome measures with no forward impact, that flexibility This report sets out the Company’s compliance with the UK is retained to amend bonus outcomes if they do not reflect Corporate Governance Code (“the Code”) issued by the business performance and that the risk of circumstances arising Financial Reporting Council (publicly available at www.frc.org.uk) in which such provisions may be required is strictly limited. The and also describes how the governance framework, set out in remuneration policy was approved at the 2014 AGM and the the annex to this report, is applied. Company will include for such provisions in the policy to be put The Board is pleased to report that the Company has, to shareholders for approval in 2017. throughout 2014, complied with and applied the provisions of the UK Corporate Governance Code, as set out below, with The leadership structure the exception that the Audit and Remuneration Committees The Board is responsible to the Company’s shareholders for had two rather than three independent non-executive directors the long-term success of the Group and its strategy, values and from the close of the AGM on 16 May 2014 until 31 August governance. It provides leadership, sets the Group’s strategic 2014. There was one meeting of the Audit Committee and one objectives and approves and monitors progress with business meeting of the Remuneration Committee during this period. There was also one meeting of the Nomination Committee plans, budgets and forecasts, applying independent judgment. where the non-executive directors comprised half the The schedule of matters reserved for the Board is reviewed and membership, as opposed to a majority. approved annually by the Board and a copy is available on the Company’s website (www.bovishomesgroup.co.uk/investor-centre/ The Company’s incentive schemes do not currently include corporate-governance). provisions that enable the withholding of payment or the recovery of sums paid (malus and clawback) as the Board has The governance structure in 2014 and for 2015 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 Group Executive Committee and risk management and incentives of the succession planning executive directors and the (Board of Bovis Homes Ltd) • Monitors effectiveness • Leads recruitment process Chairman of external and internal Responsible for the operations of the Group • Recommends auditors • Sets performance criteria appointment of directors for incentive plans
Central Division board South Division board Responsible for the operational Responsible for the operational management of the Central Division management of the South Division
Northern region Central region Eastern region Southern region Western region South West region board board board board board board Our governance
36 | Annual report and accounts | Our governance From the start of the year until the AGM held on 16 May 2014, the comprehensive and tailored induction was provided for Chris Board comprised the non-executive Chairman, three independent Browne, which included visits to the regional offices, site visits and non-executives and two executive directors. From the 2014 AGM, meetings with senior management. following the retirement of Colin Homes, until 31 August 2014 there were two independent non-executive directors. With the Biographical details for the directors are provided on page 34. Their appointment of Chris Browne on 1 September 2014 the number dates of appointment / retirement, length of service to the end of again increased to three independent non-executive directors 2014 and attendance at Board meetings in 2014 are shown below. and has remained so up to the date of this report. A formal,
Tenure in Attendance Name Date of appointment Current role current role at meetings
Ian Tyler 29/11/2013 Chairman 1 year 9/9
Alastair Lyons 01/10/2008 Deputy Chairman 6 years 9/9
01/12/2006 Colin Holmes Non-executive 7.5 years 4/4 (retired 16/05/2014)
John Warren 01/03/2006 Non-executive 8.5 years 9/9
Chris Browne 01/09/2014 Non-executive 6 months 2/2
01/07/2002 David Ritchie Chief Executive 6.5 years 9/9 (current role – 03/07/2008)
Jonathan Hill 23/08/2010 Group Finance Director 4.5 years 9/9
The Board benefits from a broad range of expertise and experience As mentioned in the Nomination Committee report, a progressive and has a strong blend of skills, which has allowed it to perform and orderly refreshing of the Board is being completed, led by the effectively and to a high level in 2014 during a period of transition. Chairman, and diversity has been one consideration as part of The non-executive Chairman brings a strong track record of this process. commercial experience in construction and infrastructure related industries which benefit the Group in the ongoing execution of Board meetings its growth strategy and the appointment of Chris Browne as a There were nine meetings during 2014. The Board maintains and non-executive director adds a strong commercial and general reviews a rolling agenda plan, which ensures that all key issues management background in a consumer facing industry. and matters reserved to the Board are discussed at the appropriate time. The Chairman reviews meeting agendas with the CEO and The three non-executive directors have been determined by the Company Secretary and the Company Secretary maintains a Board to be independent in character and judgement with no schedule of matters arising which is reviewed at each meeting. relationships or circumstances likely to affect, or that could appear to affect, their judgement. The Board receives a comprehensive electronic meeting pack a In accordance with the Code, all the directors will be offering week in advance of each meeting plus other information required themselves for re-election at the forthcoming AGM, with the to enable it to discharge its duties. Meetings are conducted in an exception of John Warren who will retire at the AGM having atmosphere of open and free flowing discussion and debate, with a served nine years on the Board. The Board strongly supports all the questioning approach which enables the non-executive directors to individual director’s re-elections, taking account of the balance of challenge and test the strategy, policy and proposals put forward by skills and expertise and the performance of the Board as a whole. the executive directors. In a new development for 2014, the Division Managing Directors attended the majority of meetings and this All the directors have service agreements or contracts and the increases the range of views available to the non-executive directors. details are set out in the approved remuneration policy, which is available at www.bovishomesgroup.co.uk.
In accordance with the Companies Act 2006 and as permitted by the Company’s Articles of Association, the Board has authorised an actual conflict of interest and this and potential conflicts of interest are reviewed annually. The Board is satisfied that powers to authorise actual and potential conflicts are operating effectively.
Bovis Homes Group PLC | 37 Corporate governance report
At each Board meeting during 2014: The Board also reviewed other topics, such as the market environment, land acquisitions, land sales, analysis of • the CEO provided a review of business and current trading competitors, investor and analyst feedback, and regulatory and performance, recent developments and strategic issues. governance developments. • the GFD provided a financial review, including results and Four meetings were held in London and five were held in the latest projections, budgets, forecasts, Group KPIs, leading regions, providing the opportunity to meet and interact with market indicators and an analysis of share price valuation and local management teams. Four regions provided presentations movements. to the Board at these meetings and question and answer • the Board received regular reports covering health and safety, sessions were followed by informal interaction. One meeting customer satisfaction, major shareholdings and litigation. was preceded by an evening meeting with the Group Executive Committee (the senior management below the Board) and the At particular points in the year, the Board reviewed: Board also met its members at other points in the year. Visits to • strategy, principal risks and mitigation, financial statements sites and sales outlets, including product viewings, took place in and regulatory announcements, dividend policy and facility four regions. refinancing. The annual strategy day in July provided the Board with the • updates on product and specification, customer service and opportunity for an in-depth review of the mid-term strategy for human resources. the Group and was preceded by an evening starter session.
• progress with succession planning and the outcome and The Chairman also held meetings with the non-executive actions arising from the 2013 Board performance evaluation. directors, without the executives present, during the year.
The Board’s site visit to the Group’s Wantage development
At the end of November 2014, the Board visited Western region’s Wantage development, titled Letcombe Fields. The sales office and a viewing of the show homes provided the backdrop for discussion with sales staff covering the local market, sales rates and customer satisfaction. A tour of the construction site led by the site manager then followed, allowing feedback to be obtained from site staff on the build programme, production issues and health and safety performance. Returning to the sales office, the visit concluded with a discussion summarising the site’s overall performance. Our governance
38 | Annual report and accounts | Our governance Ensuring an effective Board The Board undertook an internal formal evaluation of its own performance towards the end of 2013 and, as outcomes, during 2014 The Board completed its second external independent evaluation the Board: of its own performance towards the end of 2014. The Chairman and Company Secretary first considered the approach to be taken • increased the focus on strategic issues, including the mid-term and a shortlist of candidates was prepared. Following meetings, strategy at the strategy day and communication to shareholders. Independent Audit (who have no other connection with the Company) • increased the number of visits to the regions and engagement with were recommended to the Board. On appointment, Independent the regional management teams. Audit undertook a thorough review of Board materials, followed by • continued to focus on non-executive succession planning, including a confidential interview process which included meetings with the consideration of diversity. directors, Company Secretary and the Division Managing Directors and the observation of a Board and Committee meetings. A draft report • introduced leading market indicators to further improve non- was then prepared and review findings were fully discussed with the executive visibility of changing market trends. Chairman in a briefing session. The final report was circulated with the Individual director assessments were carried out by the Chairman, using next meeting pack and was presented to the Board by Independent a discussion and interview process which covered overall understanding Audit and discussed. of the business, effectiveness of contribution and challenge, The overall conclusion was very positive and the review was considered communications, time commitments and training and development. rigorous and fully independent. The Board was found to have increased The outcomes showed that all the directors are contributing effectively its effectiveness as a positive force, despite undergoing change and and are demonstrating commitment to their roles. transition after a long period of stability. The Chairman is providing The performance evaluation of the Chairman was led by the Senior strong and effective leadership and relationships are developing Independent Director, with input from all other members of the based on mutual trust and respect. There is a sense of strong forward Board. Recognising that the Chairman had recently been appointed momentum, arising from a number of positive developments, including (in November 2013) directors felt that he had settled very well into the clarity on the mid-term strategy and communication to shareholders role, establishing good and effective working relationships with both and focus being brought to areas where operational performance can executive and non-executive directors. The Chairman was considered be improved. Meetings are providing an increased degree of challenge, to have fostered a conducive environment for Board meetings with with more open and free flowing discussion, which facilitates decision open debate and constructive challenge and a focus on the key issues making. A common sense of purpose, strong communication and for consideration. Directors felt that he had applied himself diligently positive relationships were all developed during 2014. The broad to learn the Company’s business, spending significant time both range of expertise and experience amongst the non-executive directors on sites and with the Company’s executives, and relevant external remains a key strength and the size and structure of the Board was advisers and stakeholders, and had developed a strong understanding thought appropriate for the current business, but would be kept of the strategy and operations of the Company. It was considered under review. Future succession planning should continue to include that the Board had been effective under the Chairman’s leadership diversity as a consideration, whilst seeking to maintain and enhance with well-planned meetings, appropriate agendas and broad effective the strengths on the Board. contribution by directors. The report was well received and the recommendations, many of Board committees which were already under consideration, were developed into an action plan for 2015. An overview Is provided below. The Board is supported by standing Audit, Nomination and Remuneration Committees and their memberships, roles and activities are set out in separate reports: Audit Committee on pages 62 and Focus areas Objectives for 2015 63, Nomination Committee on pages 64 and 65, and Remuneration Committee on pages 45 to 61. Each Committee reports to and Board composition • Keep the size and structure of the has terms of reference approved by the Board and the minutes of Board under review. Committee meetings are circulated to and are reviewed by the Board. Board meetings • Consider improvements to the Board’s agenda plan. The Audit Committee is chaired by John Warren, the Remuneration Succession planning • Increase focus on leadership Committee is chaired by Alastair Lyons and the Nomination Committee development and executive director is chaired by Ian Tyler. A new Audit Committee chair, Ralph Findlay, has succession planning. been recruited to succeed John Warren who will retire at the AGM. Market conditions • Explore availability and use of further information on competitors and industry A performance evaluation of the Committees was completed as part of best practice. the external independent evaluation and all were found to be effective and working well, with all achieving their respective remits.
Bovis Homes Group PLC | 39 Corporate governance report
Governance through the business Shareholder engagement The Board aims to meet governance best practice where it fits The Company has a comprehensive investor relations programme, with our business and further details are set out below. which allows the Chief Executive and Group Finance Director to regularly engage with our major shareholders. In addition to one- Amongst matters reserved for the Board are leadership of the to-one meetings through the year, the Company holds a series of Group, approval of strategy and budgets, oversight of operations presentations and meetings following the announcement of the and performance, capital structure, financial reporting, internal final and half-yearly results. These presentations are made publicly controls and approval of major expenditure and transactions. available so that all shareholders can access them on the Group’s The Board has approved a written division of responsibilities website at www.bovishomesgroup.co.uk. between the non-executive Chairman and the Chief Executive The Board reviews feedback on investor relations meetings, visits and the role of the non-executive Deputy Chairman has been and presentations, including the matters communicated and similarly defined. discussed. During 2014, the feedback was positive and helpful to The Chairman is primarily responsible for: the Board.
• the effective working of the Board, The Board also values other channels to obtain shareholders’ views. • taking a leading role in determining the Board’s composition The Chairman is responsible for ensuring that all directors are and structure, and aware of any issues or concerns that major shareholders may have. In addition, the Deputy Chairman (also the Senior Independent • ensuring that effective communications are maintained Director) is accessible to shareholders. with shareholders. All shareholders are invited to attend the Company’s AGM, which The Chief Executive is responsible for: this year will be held on 15 May 2015. The full Board, including all • the operational management of the Group, Committee Chairmen, attend and value this meeting as a means • developing strategic operating plans and presenting them to of communicating with private investors and encourages their the Board, and participation. All shareholders have the opportunity to exercise their right to vote and can appoint proxies if they are unable to • the implementation of strategy agreed by the Board. attend. To facilitate this we provide an electronic voting facility. The Deputy Chairman supports the Chairman in ensuring that Shareholders attending the AGM have the opportunity to ask the Board is effective and constructive relations are maintained, questions relevant to the business of the meeting and hear the in addition to acting as the Senior Independent Director, in views of other shareholders before casting their vote. After the which capacity he leads the annual performance evaluation meeting the results of voting on all resolutions are published on of the Chairman and provides an additional point of contact the Group’s website. for shareholders. Additional information The Company’s Management Paper is subject to regular Board review. It contains appropriate controls, authorities and Risk management and internal control procedures across the range of the Group’s activities and The Code states that a board is responsible for determining includes the authorities and decision making delegated by the the nature and extent of the principal risks it is willing to take Board to management. in achieving its strategic objectives. The Board has agreed that The advice and services of the Group Company Secretary this important principle should form part of its consideration of are available to the directors. All directors have access to the strategy and all major decisions. The Board also has responsibility Company’s professional advisers and can seek independent for maintaining sound risk management and internal control professional advice at the Company’s expense. No such advice systems and, whilst monitoring and review forms part of the was sought during the year. work undertaken by the Audit Committee, the Board is ultimately responsible for the risk appetite and management of risk. Risk is Training is made available to directors when required and the a regular agenda item, which allows all directors to review the Chairman is responsible for ensuring that directors continually quality of risk management processes, risk mitigation and the update and refresh their knowledge and skills and familiarity risk appetite. with the Company, as appropriate to their role on the Board and on Board Committees. During 2014 the directors received The Board has complied with Principle C.2 of the Code by governance, regulatory and technical updates. completing a robust assessment of the principal risks facing the Company, including those that would threaten its business The Company has an insurance policy in place which insures model, future performance, solvency or liquidity. These risks and directors against certain liabilities, including legal costs. mitigations are set out in the Strategic Report on pages 28 to 31. Information on share capital is provided on page 67. It has established a continuous process for identifying, evaluating and managing the principal risks, in accordance with the FRC’s Our governance
40 | Annual report and accounts | Our governance “Guidance on Risk Management, Internal Control and Related Financial The Group maintains computer systems that record financial and Business Reporting”. This process has been in place for the period transactions and whose effectiveness is reviewed by the Internal Audit under review and up to the date of approval of the Annual Report and function on a regular basis. Any findings arising from these exercises Accounts and includes compliance with provision C.2.3. It is designed are reported to the Audit Committee. to manage rather than eliminate risk and can only provide reasonable Control over cash expenditure, which lies at the heart of any and not absolute assurance against material misstatement or loss. financial reporting process, is key. The Group maintains tight control Monitoring is based principally on reviewing reports from Internal in this area through a centralised Group payment function, regularly Audit and from management and covers all material controls, maintained authorisation documents and segregation of including financial, operational and compliance controls and risk authorisation accountability. management processes. The Group maintains a regular weekly and monthly financial reporting The Audit Committee reviews the effectiveness of the Company’s cycle, allowing management to assess the financial progress of the system of internal control and risk management systems annually and Group. This is further supported by a formal budget and forecast reports its findings to the Board. It receives reports from the internal process which ensures that there is a robust and relatively recent financial and external auditors and management which assess the effectiveness forecast in place at all times against which to assess performance. of internal control and risk management and make recommendations Together with this financial reporting, the Group requires its Division for improvements. and regional management teams to report key business issues as part Risk assessment of a monthly regional reporting pack on a standardised basis. As the Group’s grows and activities evolve, the nature of the risks on which it focuses evolve. A key part of the system of internal control is Finally, there is a process of accounts preparation which ensures that the maintenance of the risk analysis and matrix, compiled using the risk there is an audit trail between the output from the Group’s financial universe as the basis of identification and a process of evaluation that reporting system and the Group’s financial statements as they are distils the impact of key risks, mitigation measures and residual risk for prepared for reporting. Board review. This leads to an assessment of changing risk tolerance Going concern and, ultimately, the risk appetite. During 2014, a full risk review and After making enquiries, the directors have a reasonable expectation an interim risk review took place. In setting its approach, the Board that the Group has adequate resources to continue in operation for aims to ensure that the Company is neither prevented from taking the foreseeable future and for at least a twelve month period from the opportunities nor exposed to unreasonable risk. date of approval of these financial statements. These enquiries consist Control framework of the production and review of detailed financial forecasts covering The Group maintains a control environment, which is regularly the period January 2015 to December 2017. These forecasts take reviewed by the Board. As new procedures and working practices are into account current market trends with reasonable judgements and adopted, risk factors are reviewed and internal controls are embedded estimates applied to arrive at future cash flow estimates. As part of this into systems. The principal elements of the control environment include review, the Group has analysed its forecast covenant compliance over regular board meetings, the Division and regional structure, defined this period linked to its banking facility, arriving at an assessment of the operating controls and authorisation limits, an Internal Audit function headroom evident between the forecast covenant test outcomes and and a comprehensive financial reporting system. the outcomes necessary to achieve covenant compliance.
There are a number of elements of the Group’s internal control and The Group entered into its current banking arrangement on 29 January risk management systems that are specifically related to the Group’s 2013. This arrangement provides a committed revolving credit facility financial reporting process: with a limit of £125 million maturing in March 2017 and a three year term loan of £25 million maturing in January 2016. On 23 August • there is a well understood management structure which allows 2013, the limit for the committed revolving credit facility was increased for clear accountability and an appropriately granular level of by £50 million until 31 December 2015. The Group regards its current financial control. banking arrangement as adequate for its needs in terms of flexibility • the structure is underpinned by documented authority levels for and liquidity and will renew it during 2015. As at 31 December business transactions laid out in the Group’s Management Paper. 2014, the Group had drawings of £18 million under the £175 million revolving credit facility and had net cash of £5 million. • the process is further supported by process documents for both internal management reporting and external Group reporting For these reasons, the Group continues to adopt the going concern which stipulates amongst other things reporting timetables and the basis in preparing its accounts. contents of key management reports. More details on the Group’s approach to financial risk management are laid out in note 4.6.
Bovis Homes Group PLC | 41 Corporate governance report
Annex to corporate governance report Corporate governance policy guidelines
These guidelines have been adopted by the Board 5 Number of directors and provide guidance on how corporate governance An appropriate balance between executive and non-executive principles are applied by the Company. directors is maintained and the size of the Board is set as necessary to achieve this. The number of non-executive 1 Board membership and balance directors is decided so as to provide the diversity of skills, ability, vision and experience necessary for a sound The composition of the Board is reviewed on a regular independent contribution to the Board and the successful basis to ensure that it remains appropriate for the management of the Group’s business. By way of guidance, successful direction of the business activities of the Group. at least half the Board, excluding the Chairman, will comprise Consideration is given to boardroom diversity and the mix independent non-executive directors. of experience, skills, ability and vision of executive and non-executive directors by the Nomination Committee. 6 Length of appointment The Nomination Committee and the Board give regular Executive directors are employed on service contracts with consideration to planning for succession to Board and notice periods which do not exceed one year. Non-executive senior management positions, ensuring that appropriate directors’ service agreements set the length of their management development measures are in place. The Board appointments at periods of up to three years and their notice currently comprises the Chairman, the Deputy Chairman (also periods up to twelve months. Their total length of the Senior Independent Director), two further independent appointment would not normally exceed nine years from the non-executive directors and two executive directors. date of their first AGM election.
2 Board selection The renewal of service agreements after two three year terms is subject to rigorous review and based on annual The Board receives recommendations on the appointment re-appointment thereafter, with the third year of the third of directors from the Nomination Committee, following an term extending until the next following AGM. evaluation of the balance of knowledge, skills, experience and diversity available on the Board. This Board committee Under the Articles of Association, all directors are subject to comprises the independent non-executive directors, the retirement by rotation at least once in every three years Chairman and the Chief Executive and meets as required in at the AGM. New directors appointed by the Board must considering proposed changes to Board membership. be re-appointed by shareholders at the following AGM. The Board has agreed that, in accordance with the Code, all 3 Non-executive director independence directors will offer themselves for re-election at each AGM. The non-executive directors are independent in character and judgement and free from any business or other relationship 7 Training which could affect or appear to affect the exercise of their On appointment, new directors are given a comprehensive independent judgement on matters under consideration tailored induction to the Group’s business activities, by the Board. The receipt of fair remuneration and being a strategy and methods of operating, policies, procedures shareholder is not considered to prejudice independence or and management structure. Directors receive training to prevent a non-executive director from acting independently. complement their roles on the Board and Board Committees, as necessary. 4 Chairman and Chief Executive The roles of Chairman and Chief Executive are separate and 8 Remuneration there is a clear division of responsibilities between the two The Remuneration Committee determines, on behalf of roles which has been set out in writing and approved by the the Board, the policy for executive remuneration and Board. It is normal practice for the role of Chairman to be a remuneration for the Chairman, each of the executive non-executive position. The role of the Deputy Chairman has directors and senior management in accordance with its terms also been set out in writing and approved by the Board. of reference. The Remuneration Committee comprises the independent non-executive directors and meets as required. Our governance
42 | Annual report and accounts | Our governance External remuneration advice appropriate to the size and position of the Company is sought when required. Non-executive director remuneration, excluding that of the Chairman, is determined by the Board without their participation.
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 Group’s system of internal control and oversees compliance therewith. The Audit Committee comprises the independent non-executive directors.
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, 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 and detailed authorities and associated procedures have been established for individual directors in the performance of their duties. 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 | 43 Remuneration report Our governance Our
44 | Annual report and accounts | Our governance Directors’ remuneration report
Dear Shareholder, I am pleased to introduce the 2014 Directors’ remuneration report, my first since taking over as Chairman of the Remuneration Committee following the 2014 AGM. The report covers the remuneration of the executive and the non-executive directors, as required by the remuneration reporting regulations, and explains the application of remuneration policy in 2014 and 2015. For ease of reference, the remuneration policy table, extracted from Alastair Lyons the remuneration policy approved at the 2014 AGM and which Chairman of the summarises the remuneration framework for executive directors, is Remuneration Committee annexed to the report.
Overview Changes in remuneration for 2015 In a year in which the housing market was stable and moderated The Committee remains satisfied that the current remuneration towards the close, Bovis Homes delivered further significant framework, as approved by shareholders at the 2014 AGM, revenue and profit growth. Basic earnings per share rose by continues to be appropriate in light of the current Group 75% and Return on Capital Employed (“ROCE”) reached 16.2% strategy and regulatory environment. As a result, no changes to (2013: 10.6%). The Group also acquired record levels of high the remuneration policy are proposed at this time. quality consented land and entered 2015 well positioned to Following consultation with the Group’s major shareholders at further improve returns for shareholders. the end of 2014, the Committee decided to increase the base The remuneration policy of the Group continues to underpin salary of the Chief Executive to reflect his expanded role given the achievement of these results and the long term goals of the the significant increase in scale and complexity of the business Group and is directly linked to strategic objectives. The policy, in recent years. In coming to this conclusion the Committee which functioned well during 2014, was kept under review by also took account of the fact that David Ritchie’s salary the Committee and no changes are proposed for 2015. remained below that of his predecessor, despite over six years of experience in the role. Responses to the consultation were Remuneration in 2014 largely supportive and with effect from 1 January 2015, David The strong performance against the stretching financial and Ritchie’s salary increased to £550,000 (an increase of 18.3%). operational targets in 2014 resulted in 89% of maximum being Further details on the rationale for this increase are provided on awarded for the annual bonus. The year saw the achievement page 55. of strong pre-tax profit growth (+69%) and an increase in the A new Group Finance Director is currently being recruited. Return on Invested Capital to 16.2%. Conclusion The LTIP awards granted in 2012 will vest to the extent of 66.6% as a result of the earnings per share (“EPS”) performance I hope you find that this report clearly explains the remuneration condition being met in full and the ROCE performance approach adopted at Bovis Homes and enables you to appreciate condition also being met in full. The delivery of strong EPS out- how it underpins the business growth and returns strategy performance of the Group over the past three financial years, and how it links to strategic objectives. The Committee was against stretching targets, has reflected strong profit growth pleased that the remuneration policy received the approval of with absolute cumulative EPS reaching 153.7 pence. ROCE was shareholders at the 2014 AGM and continues to consider the introduced as a performance measure in 2012 to drive improving policy fair and fully aligned with the interests of shareholders. returns and it reached 16.2% in 2014. The remaining third Lastly, I would like to thank Colin Holmes for his effective of the LTIP award, based on relative total shareholder return leadership of the Committee over seven years prior to stepping (“TSR”), will lapse, given that the comparator group achieved a down at the 2014 AGM. median TSR of 167% over the last three years.
Alastair Lyons Chairman of the Remuneration Committee
Bovis Homes Group PLC | 45 Annual remuneration report
Remuneration report
Introduction This annual remuneration report explains how the remuneration policy has been implemented in the year ended 31 December 2014 and how it will be implemented for 2015. Details of remuneration in 2014 are set out first, followed by the approach for 2015.
At a glance summary
Component and where to find David Ritchie - CEO Jonathan Hill* - GFD
Single figure totals for 2014 (page 48) £1,502k £878k
Annual bonus payments for 2014 (page 49) £412k (88.7% of 100% maximum) £248k (88.7% of 100% maximum)
Profit before tax 49.1% of 50% weighting
Cash flow 14.6% of 15% weighting
ROIC 25% of 25% weighting
Customer service 0% of 10% weighting
LTIP awards vesting re 2014 (page 50) 66.6% of total award 66.6% of total award
EPS 100%
ROCE 100%
TSR 0%
LTIP awards granted in 2014 (page 50) 150% of basic salary 125% of basic salary
EPS 1/3 of award
ROCE 1/3 of award
TSR 1/3 of award
Changes in policy for 2015 There are no changes proposed (the policy table is annexed to this report on pages 60 to 61)
Salaries for 2015 (page 55) £550,000 (+18.3%) £280,000
Annual bonus for 2015 (page 56) Bonus opportunity remains at 100% of basic salary
Profit before tax 40% weighting Includes a new measure for individual performance and a rebalancing of metrics Cash flow 10% weighting
ROIC 20% weighting
Customer service 10% weighting
Individual performance 20% weighting
LTIP awards for 2015 (page 56) 150% of basic salary n/a
EPS 1/3 of award
ROCE 1/3 of award
TSR 1/3 of award
Shareholding as % of salary (page 53) 159% 102%
Guideline: 100% of salary
* Jonathan Hill leaves the Group on 6 March 2015 Our governance
46 | 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 developed an updated strategic plan containing near term 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 measurable via the Group’s reported KPIs of ROCE, earnings per share and customer satisfaction scores, all of which are built into the Group’s incentive schemes.
Annual bonus arrangements are demonstrably linked to the Group’s near term strategy via the inclusion of profit before tax, ROIC, cash flow and customer service as performance measures. The LTIP has a longer term perspective and features performance measures of total shareholder return and earnings per share, both of which are measured over a three year period. The inclusion of ROCE as a measure in the LTIP also ensures that efficiency of earnings is not compromised for the sake of near term returns.
The Committee is, therefore, satisfied that current arrangements clearly support the business strategy.
Key remuneration decisions during 2014 During 2014, the Committee set targets for the 2014 annual bonus (shown on page 49) and approved 2013 bonus payments. It set targets for and approved LTIP awards made in 2014 and approved the level of vesting for the 2011 LTIP awards. A consultation with shareholders took place on the increase in the maximum award under the LTIP, which was approved at the 2014 AGM.
The Committee also completed the 2015 remuneration review, which included consideration of the link between executive remuneration and the pay and employment conditions throughout the Group (including the proposals for general staff for 2015). The salary of the Chief Executive was carefully reviewed for 2015 in conjunction with advice from Deloitte which showed that CEO salary levels had moved significantly at comparable companies in the housebulding sector leaving the CEO out of line by some margin. In reaching its decision for 2015 the Committee noted that, following the increase, the CEO’s total remuneration arrangements continue at the lower end of the sector range, reflecting the size and complexity of the Group relative to peers. As explained in the Committee Chairman’s letter, the response from major shareholders in engagement has been largely supportive.
Bovis Homes Group PLC | 47 Annual remuneration report
Remuneration report
Implementation of remuneration policy for the year ending 31 December 2014 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 2014 financial year.
David Ritchie Jonathan Hill (appointed CEO 3 July 2008; appointed an (appointed GFD 23 August 2010) executive director in 2002)
2014 2013 2014 2013 £000 £000 £000 £000
Base salary 465 (5) 450 280 (6) 270
Benefits (1) 22 22 8 11
Annual bonus 412 440 248 264
Long Term Incentives (2) (8) 496 (7) 420 (8) 300 (7) 243
Sub-total 1,395 1,332 836 788
Pension (3) 49 53 42 41
Other – pension salary supplement (4) 58 55 - -
Total remuneration 1,502 1,440 878 829
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 2011 LTIP measured over the three year period to 31 December 2013 vested to the extent of 50% on 15 March 2014. The 2012 LTIP measured over the three year period to 31 December 2014 will vest to the extent of 66.6% on 28 February 2015. (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 has been calculated as the employer’s cash contribution. (4) David Ritchie receives a non-bonusable and non-pensionable salary supplement. (5) In May 2012, David Ritchie requested and was granted a salary sacrifice arrangement, which commenced in June 2012 and under which £108,920 was sacrificed during 2013, in exchange for equivalent employer contributions to a qualifying personal pension arrangement. For clarity, the pre- sacrifice amount has been shown in the table above. (6) In September 2012, Jonathan Hill requested and was granted a salary sacrifice arrangement, which commenced in October 2012 and under which £45,590 was sacrificed during 2013, in exchange for equivalent employer contributions to the Bovis Homes Group Personal Pension Plan. For clarity, the pre-sacrifice amount has been shown in the table above. (7) This is the actual value delivered under the 2011 LTIP calculated using the share price on the vesting date (885 pence on 15 March 2014) and includes 1,969 notional dividend shares for David Ritchie and 1,138 notional dividend shares for Jonathan Hill. Last year’s report included an estimate in respect of the value of the EPS element of the 2011 LTIP (based on the average share price over the last quarter of 2013 of 770.44 pence) as the award had not vested at the date of the report. (8) This is an estimated value based on the average share price over the last quarter of 2014 of 834.8 pence for the 2012 LTIP which vests on 28 February 2015.
Neither of the executive directors currently hold any external directorships. Our governance
48 | Annual report and accounts | Our governance Annual remuneration report
The following table shows the remuneration for the non-executive directors who served during the 2014 financial year. Salary / fees £000
Non-executive directors 2014 2013
Ian Tyler (appointed 29/11/13) 160 14
Alastair Lyons 68 63
Chris Browne (appointed 01/09/14) 14 -
Colin Holmes (retired 16/05/14) 19 51
John Warren 51 51
Malcolm Harris (retired 29/11/13) - 124
Total 312 303
Annual bonus payment in respect of 2014 The maximum opportunity for executive directors for the year ending 31 December 2014 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 2014. Following feedback on last year’s report, the Committee has decided to disclose the full detail of performance targets retrospectively.
Weighting (as a Award achieved Measure Threshold On target Stretch % of maximum) (% of maximum) Financial measures (90%)
Profit before tax 50% 0% of 50% of 100% of 49.1% maximum maximum maximum £116.9m £122.8m £138.95m
Cash flow 15% 0% of 50% of 100% of 14.6% maximum maximum maximum £294.2m £306m £337.6m
ROIC 25% On target is 50% of 100% of 25% threshold maximum maximum 13.5% 14.1% 16.0% Non-financial measures (10%)
Customer service 10% On target is 50% of 100% of 0% threshold maximum maximum n/a 85% 90%
Total bonus for executive directors (% salary) 88.7% 98.2% Profit before tax: £133.5 million was achieved representing a 69% 98.2% 98.2% 0% 25% 50% 75% 100% increase on 2013. A result close to stretch performance was delivered 0% 25% 50% 75% 98.2%100% and 98.2% of the 50% weighting to this performance measure 0% 25% 50% 75% 100% 0% 25% 50% 75% 100% was awarded.
Cash flow: The Group ended the year with £5 million of net cash, 97.6% 97.6% having achieved close to stretch performance for the 2014 trading cash 97.6% 0% 25% 50% 75% 97.6%100% flow target. 97.6% of the 15% weighting to this performance measure 0% 25% 50% 75% 100% 0% 25% 50% 75% 100% was awarded. 0% 25% 50% 75% 100%
Return on invested capital: This metric reached 16.2% in 2014. 100% Stretch performance was delivered and 100% of the 25% weighting to 100% 100% this performance measure was awarded. 0% 25% 50% 75% 100% 0% 25% 50% 75% 100%100% 0% 25% 50% 75% 100% 0% 25% 50% 75% 100% Customer service: The Group delivered an average customer satisfaction score below 85%. Performance was below on target against this 0% measure and 0% of the 10% weighting to this performance measure 0% 0% 25% 50% 75% 100% was awarded. 0% 25% 50% 75% 100% 0% 25% 50% 75% 100% 0% 25% 50% 75% 100% Bovis Homes Group PLC | 49 Annual remuneration report
Remuneration report
Executive director Maximum bonus % of salary Target bonus % of salary Actual bonus % of salary Total 2014 bonus £000
David Ritchie 100 50 88.7% 412
Jonathan Hill 100 50 88.7% 248
The Committee considered this level of bonus fully justified given the performance achieved against each of the specific metrics.
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 2014 The LTIP awards made in 2012 were measured over the three year period to 31 December 2014 and will vest to the extent of 66.6% on 28 February 2015. 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 100p and the maximum target was 136p measured on a cumulative three year basis. Absolute cumulative EPS over the three year performance period was 153.7p. 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 94.1% which was below the median of the index of 167% and, therefore, none of the award based on TSR will vest.
The threshold ROCE target was 8.9% and the maximum target was 12.4% measured in the third year of the performance period (2014). Actual ROCE in 2014 was 16.2% and, therefore, the ROCE element will vest in full.
Awards granted on 25 February 2014 and 19 August 2014 (audited) Awards of 81,065 shares were made to executive directors at 100% of basic salary at a grant price of £9.19 on 25 February 2014, exercisable in 2017 and subject to a three year performance period ending on 31 December 2016, 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 50,598 465 30
Jonathan Hill Performance share award 30,467 280 30
Following approval of the increased maximum award under the LTIP at the 2014 AGM, awards of 35,462 shares were made to executive directors at 50% of basic salary for the CEO and 25% of basic salary for the GFD at a grant price of £8.53 on 19 August 2014, exercisable in 2017 and subject to a three year performance period ending on 31 December 2016, 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 27,256 232 30
Jonathan Hill Performance share award 8,206 70 30
The performance measures for all 2014 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 230 pence and maximum performance at cumulative EPS of 280 pence.
• ROCE – threshold performance at 17.0% and maximum performance at 20.0%. Our governance
50 | 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 2014 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
2011 01/01/2011 - 31/12/2013 100% 50% TSR 50% 50% EPS
2012 01/01/2012 – 31/12/2014 100% 33.3% TSR 66.6% 33.3% EPS 33.3% ROCE
2013 01/01/2013 – 31/12/2015 100% 33.3% TSR Ongoing 33.3% EPS 33.3% ROCE
2014 01/01/2014 – 31/12/2016 150% (CEO) 33.3% TSR Ongoing 125% (CEO) 33.3% EPS 33.3% ROCE
Bovis Homes Group PLC | 51 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 is a member of the Bovis Homes Group Personal Pension Plan (“GPP”). The Plan is a contracted-in defined contribution arrangement. The Company’s contribution for Jonathan Hill 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 2014 (net of inflation) at 31 Dec 2014 (1) 31 Dec 2014 (3) Executive director £ £ £ p.a. £ p.a. £ £
David Ritchie 39,601 7,920 65,005 2,869 784,485 49,460
Notes: 1. The transfer value has been calculated using the transfer basis introduced in January 2012. 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 2014. 3. The single value has been calculated as 20 times the increase in accrued pension during the year (net of inflation), less the director’s own contributions
Directors’ shareholdings and share interests (audited) Directors’ beneficial share interests The directors’ interests in the share capital of the Company are shown below. All interests are beneficial.
31 Dec 2014 31 Dec 2013
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 146,063 - 278,043 6,452 120,852 - 247,316 4,570 Jonathan Hill 37,135 - 130,900 1,129 19,587 - 146,735 2,341
Non-executive directors Ian Tyler ------(appointed 29 November 2013) Alastair Lyons 25,350 - - - 25,350 - - - Chris Browne ------(appointed 1 September 2014) Colin Holmes 50,000* - - - 50,000 - - - (retired 16 May 2014) John Warren 2,500 - - - 2,500 - - -
* As at date of retirement
There were no changes in the holdings of ordinary shares of any of the directors between 31 December 2014 and 20 February 2015 other than the normal monthly investment in partnership shares through the Bovis Homes Group Share Incentive Plan.
The directors’ interests in share options and awards under the Long Term Incentive Plan are detailed on page 53. There were no changes in the holdings of share options and awards under the Long Term Incentive Plan between 31 December 2014 and 20 February 2015. Our governance
52 | Annual report and accounts | Our governance Annual remuneration report
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 historic cost equal to their basic annual salary. The executive directors’ shareholdings relative to the guidelines are shown below.
Shareholding Historic Salary at % of shareholding Executive director at 31 Dec 2014 aquisition cost 1 Jan 2015 guideline achieved
David Ritchie 146,063 £873,043 £550,000 159%
Jonathan Hill 37,135 £286,401 £280,000 102%
Both David Ritchie and Jonathan Hill meet 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 2013 31 Dec 2014 (£000) in year in year Expiry date (£000) (£000) on vesting
David Ritchie 15/03/11 15/03/14 94,253 47,126 415 - 47,127 15/03/21 403 - -
28/02/12 28/02/15 83,779 83,779 430 - - 28/02/22 - - -
26/02/13 26/02/16 69,284 69,284 450 - - 26/02/23 ---
25/02/14 25/02/17 - 50,598 465 - - 25/02/24 ---
19/08/14 19/08/17 - 27,256 232 - - 19/08/24 - - -
Jonathan Hill 15/03/11 15/03/14 54,508 - 240 28,392* 27,254 15/03/21 243 244 15,021
28/02/12 28/02/15 50,657 50,657 260 - - 28/02/22 - - -
26/02/13 26/02/16 41,570 41,570 270 - - 26/02/23 - - -
25/02/14 25/02/17 - 30,467 280 - - 25/02/24 - - -
19/08/14 19/08/17 - 8,206 70 - - 19/08/24 - - -
* Jonathan Hill’s 2011 award exercise included 1,138 dividend equivalent shares 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 2013 in year in year in year 31 Dec 2014 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 13/04/2011 SAYE 2,341 -- 2,341 - 385.4 06/14 – 12/14
02/05/2014 SAYE - 1,129 - - 1,129 796.95 06/17 – 12/17
All of the share options granted by the Company were granted at the market price prevailing on the date of grant, with the exception of Save As You Earn options which 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 Save As You Earn Scheme (‘SAYE’) during the financial year.
Share options held in the Save As You Earn Option Scheme, which are not subject to performance conditions, may under normal circumstances be exercised during the six months after maturity of the savings contract.
Bovis Homes Group PLC | 53 500
400
300
200 FTSTSR Performance
100
0 Dec 2008 Dec 2013
FTSE 250 index Bovis Homes Group plc Median of FTSE 250 Housebuilders (excluding Bovis Homes) Annual remuneration report Source: ??? Remuneration report
Total Shareholder Return performance graph*
600
500
400
300
200 FTSE 250 index
100 TSR Performance Bovis Homes Group PLC
Median of FTSE 250 housebuilders 0 (excluding Bovis Homes) Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2014
*This graph illustrates six year TSR performance and therefore does not represent the period under which the Long Term Incentive Plan is measured.
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 six financial years, compared to the FTSE 250 index and the median of the FTSE 350 housebuilders (as listed at 31 December 2008) over the same period.
As a constituent of the FTSE 250 operating in the housebuilding 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 2014 was £8.845 (2013: £7.93). During the year ended 31 December 2014 the share price recorded a middle market low of £7.325 and a high of £9.435. As at the date of this report the share price stood at £9.475.
Total CEO remuneration
David Ritchie 2009 2010 2011 2012 2013 2014
Single figure total £000 518 1,016 836 1,315 1,440 1,502
Annual bonus against maximum % 0 100 82.4 84.2 97.8 88.7
Long Term Incentive Plan vesting against maximum % 31 31 0 50 50 66.6
Change in remuneration of CEO The table below sets out the percentage change in the remuneration awarded to David Ritchie between 2013 and 2014 compared to the average percentage change for employees as a whole.
Executive director Base salary Benefits Annual bonus
David Ritchie 3.3% 0% -6.3%
Employees as a whole 5.8% 0% 5.9%*
* Excludes sales and build functions which have tailored incentive schemes. Our governance
54 | 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% Annual remuneration report 82% 87% 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.
150 133.5
120
90 78.8 £m 60 42.6 34.2 28.8 30 13.4 2013 2014 0 Total spend Profit before Dividends on pay tax paid Notes: • Total spend on pay in 2013 was £34.2 million and in 2014 was £42.6 million, representing an increase of 24.6%. • Profit before tax in 2013 was £78.8 million and in 2014 was £133.5 million, representing an increase of 69%. • Dividends paid to shareholders totalled £13.4 million in 2013 and £28.8 million in 2014, representing an increase of 115%.
Implementation of remuneration policy for the year ending 31 December 2015 Changes in the way that remuneration policy will be implemented in 2015 versus 2014 include a base salary increase for CEO and the introduction of a measure for individual performance, as a non-financial metric key to business performance, for the 2015 annual bonus.
Executive directors’ base salaries and benefits The salaries of the executive directors with effect from 1 January 2015 are as follows:
% increase Executive directors Position 2015 base salary from 2014
David Ritchie CEO £550,000 18.3%
Jonathan Hill GFD £280,000 0.0%
The Committee carefully considered the above increase for David Ritchie, with Alastair Lyons writing to major shareholders in December 2014 to outline the rationale behind this decision. In summary, this was as follows:
(i) The Chief Executive was appointed in July 2008 on a salary significantly below that of his predecessor. The expectation was that this salary would be moved progressively forward with experience, the creation of a successful track record, the delivery of shareholder value and increasing returns. However, due to the downturn in the housing market which followed his appointment, the Committee felt that until now that it was inappropriate to implement this progression. Instead, a pattern of inflationary increases was applied between 2008 and 2014.
(ii) Under the Chief Executive’s tenure the Group has been successfully steered through a very challenging period for the housebuilding industry. This has resulted in a significant increase in the scale and complexity of the business under his leadership.
(iii) Following a material movement in salaries amongst peers, the Committee concluded that David Ritchie’s salary was no longer appropriately positioned against the wider UK housebuilder sector. Prior to this increase, David Ritchie was also still positioned below that of his predecessor despite over six years of experience in the role.
The salary of Jonathan Hill, the GFD, was not increased, given his departure from the Group on 6 March 2015.
An allowance of just over 3% of salary roll was provided for general staff increases.
Benefits will continue on the same basis as for 2014.
Bovis Homes Group PLC | 55 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 introduction of a measure for individual performance would enhance the executive directors’ focus on strategic priorities, to be assessed against defined individual attributes agreed by the Committee at the start of the year. These attributes will be measurable and will be linked to the financial measures in a way that facilitates the delivery of the financial performance targets. There is no change to quantum but weightings are amended to allow for a rebalancing of financial and non-financial metrics to 70%:30% as permitted by the approved remuneration policy. The Committee has decided not to disclose the detail of performance targets in advance as they are considered commercially sensitive, being indicative performance indicators closely linked to the Group’s growth strategy, but will disclose them retrospectively in the 2015 Annual Remuneration Report. The 2015 performance measures 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.
Cash flow Demands tight cash management in the operational running of 10% the business. A strong balance sheet is a key determinant of the Company’s ability to invest for the future, and thus deliver future profitability.
ROIC Aligns the way the business is managed with the key interest of 20% 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 attributes 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 51) remain the same as those for 2014.
Performance conditions Total Shareholder Return (one-third of total award) The threshold target for maximum vesting of 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
56 | 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 2015 awards. When setting minimum and maximum absolute EPS targets for the 2015 awards, the Committee considered data providing visibility over the three year performance period, including internal forecasts and analysts’ forecasts, and set absolute minimum and maximum EPS targets of 320p and 400p 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 320p Cumulative EPS of 400p
Return on Capital Employed (one-third of total award) When setting minimum and maximum absolute ROCE targets for the 2015 awards, the Committee again considered data providing visibility over the three year performance period, including internal forecasts and analysts’ forecasts. The Committee set absolute minimum and maximum ROCE targets for the 2015 awards of 19.4% and 23.3%, to be measured in the third year of the performance period (2017).
Performance measurement Threshold performance Maximum performance
ROCE 19.4% 23.3%
Pensions Pension arrangements (as outlined on page 52) will continue on the same basis as in 2014.
Non-executive directors’ remuneration The fees for the non-executive director positions in 2014 and for 2015 are set out below.
Role 2014 2015
Chairman fee £160,000 £160,000
Deputy Chairman fee £63,000 £66,000
Non-executive director base fee £43,000 £46,000
Additional fees:
Audit Committee chair £8,000 £8,000
Remuneration Committee chair £8,000 £8,000
The fees for the Deputy Chairman and other non-executive directors were increased to their current levels with effect from 1 January 2015, following a review which considered competitive positioning, responsibilities, time commitment for the roles and the size and complexity of the Company. The fees for non-executive directors will next be reviewed with effect from 1 January 2017.
Remuneration of senior management and other below board employees In addition to its responsibility for executive directors, the Committee is also involved in the consideration of the remuneration arrangements for the senior management team, 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 | 57 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 34. Attendance Name Date of appointment Role at meetings
Alastair Lyons (appointed Committee Chairman on 16/05/14) 01/10/2008 Chairman 6/6
Colin Holmes (retired 16/05/14) 01/12/2006 Chairman 3/3
Chris Browne 01/09/2014 Member 2/2
John Warren 01/03/2006 Member 6/6
The Committee met six times in 2014. 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 2013 Annual Report and reviewed feedback from shareholders and institutions, approved the vesting of 2011 CSOP options and the grant of 2014 CSOP options to middle management, approved the 2014 offer of the SAYE scheme and reviewed the Committee’s terms of reference. No director or senior executive is involved in any decisions regarding his own remuneration. 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 2014 were £30,450.
The Committee starts its meetings without executive management present. During 2014, 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 Group Company Secretary acts as secretary to the Committee.
Shareholder voting at the 2014 AGM At the AGM held on 16 May 2014, shareholder proxy voting on the directors’ remuneration report for the year ended 31 December 2013 was as follows:
Resolution For % Against % Total votes Withheld (1)
Directors’ remuneration report 2013 82,746,516 95.53 3,868,150 4.47 86,614,666 21,676,986
Directors’ remuneration policy 104,567,017 96.64 3,632,595 3.36 108,199,612 92,040
(1) A vote withheld is not a vote in law and is not counted in the calculation of votes for and against.
The Company is committed to ongoing shareholder dialogue and seeks to understand any concerns investors may have. Should there be a significant level of votes against resolutions relating to directors’ remuneration, the Company will seek to understand the reasons for this and will set out any actions taken in response.
By order of the Board Alastair Lyons Chairman of the Remuneration Committee 20 February 2015
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
58 | Annual report and accounts | Our governance Annual remuneration report
Bovis Homes Group PLC | 59 Annex to remuneration report
Remuneration report
The full remuneration policy is contained in the 2013 Annual Report and available at www.bovishomesgroup.co.uk.
Components of the remuneration framework for executive directors The policy table below summarises the main components of the remuneration framework, a large proportion of which is performance related.
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 The review typically considers To attract and retain base salary level, any increases will competitive positioning, the high performing talent take into account the individual’s individual’s role, experience and required to deliver skills, experience, performance, the performance, business performance the business strategy, external environment and the pay of and salary increases throughout providing core reward employees throughout the Group. for the role. the Group. Whilst generally the intention is to Market benchmarking exercises maintain a link with employee pay are undertaken periodically and conditions, in circumstances such and judgement is used in their as significant changes in responsibility application. 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 Not applicable. insurance, life assurance, membership set a maximum benefits value as this To provide market of the Bovis Homes Regulated Car may 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 A pension allowance of up to Not applicable. since January 2002 can choose to 20% of base salary may be paid to To attract and retain participate in a defined contribution include membership of a pension talent by enabling long arrangement, or may receive a cash arrangement, with any balance term pension saving. equivalent. A salary supplement may payable as a salary supplement. also be paid as part of a pension allowance arrangement. Executives who joined the Group prior to January 2002 can continue to participate in the defined benefit pension arrangement, which is closed to new members. Our governance
60 | Annual report and accounts | Our governance Annex to 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 offers Performance measures are selected to discretionary scheme and is reviewed a maximum opportunity of up to focus executives on strategic priorities, To incentivise and prior to the start of each financial 100% of base salary. Achievement providing alignment with shareholder reward the delivery year to ensure that it appropriately of stretching performance targets is interests and are reviewed annually. of near term business supports the business strategy. required to earn the maximum. targets and objectives. Weightings and targets are reviewed and Performance measures and stretching set at the start of each financial year. 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 award, under The performance measures applied to LTIP Incentive Plan under the LTIP. normal circumstances, is as follows: awards are reviewed annually to ensure they remain relevant to strategic priorities (“LTIP”) Performance is measured over a • 150% of base salary for the CEO. and aligned to shareholder interests. performance period of not less • 125% of base salary for the GFD. Weightings and targets are reviewed and To incentivise, reward than three years. LTIP awards do set prior to each award. and retain executives not normally vest until the third In exceptional circumstances an over the longer term anniversary of the date of the grant. award may be granted under the Performance measures will include long and align the interests LTIP rules up to 200% of base salary. term performance targets, of which Awards may be granted with the of management and relative TSR will comprise at least one benefit of dividend equivalents, so shareholders. third and financial performance metrics that vested shares are increased will comprise the balance. by the number of shares equal to 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. There are no provisions for the recovery of sums paid. The Company does not operate malus or clawback because the majority of measures approved by the Committee are outcome measures. Flexibility is retained to amend bonus outcomes if they do not reflect business performance. 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.
Bovis Homes Group PLC | 61 Audit Committee report
“ The Committee has a remit that covers financial reporting, risk, internal control and oversight of external and internal audit and it plays a fundamental role in protecting shareholders’ interests.” John Warren, Committee Chairman
Committee membership and meetings The Committee’s terms of reference are available on the Company’s website (www.bovishomesgroup.co.uk/investor-centre/ The three members of the Committee are independent non-executive corporate-governance). directors and have relevant experience as required by the UK Corporate Governance Code. Biographical details are provided on Main activities during the year page 34. The Committee followed a programme structured around Recommendations on Committee membership are made to the the annual reporting cycle and received reports from Internal Board by the Nomination Committee and it is also reviewed as part Audit, the external auditors and management. The key activities of the Committee’s performance evaluation. Colin Holmes retired at undertaken were: the 2014 AGM and Chris Browne was appointed on 1 September • Discussed with the external auditors the key accounting 2014. The Company Chairman, Chief Executive and Group Finance considerations and judgements reflected in the Group’s results Director attend meetings by invitation and all were present at for the 12 months ending 31 December 2013. all meetings in 2014. The external auditors, KPMG LLP, and the Internal Audit Director were also in attendance at all meetings. • Reviewed the 2013 annual report and accounts, to be able to
Attendance recommend to the Board that, taken as a whole, it was fair, Name Date of appointment Role at meetings balanced and understandable.
John Warren 01/03/2006 Chairman 3/3 • Considered and recommended to the Board the presentations for analysts. Alastair Lyons 01/10/2008 Member 3/3 • Assessed the results and effectiveness of the 2013 final audit. Colin Holmes 01/12/2006 Member 1/1 (retired 16/05/14) • Reviewed and discussed with the external auditors the key accounting considerations and judgements reflected in the Chris Brown 01/09/2014 Member 1/1 Group’s results for the six months ending 30 June 2014.
The Committee met three times in 2014 and an overview of the • Evaluated and agreed the external auditors’ audit strategy main activities is provided below. Detailed papers and information memorandum in advance of their 2014 year-end audit. were received sufficiently in advance of meetings to allow proper • Supervised and completed a competitive audit tender process consideration of matters for discussion. The Committee also met • Received reports from internal audit covering various aspects of with the external auditors and Internal Audit, without executive the Group’s operations, controls and processes. management, following the final audit and the review of the 2013 financial statements and the 2013 Internal Audit report. No matters • Assessed and agreed the internal auditor’s audit plan for 2015, of concern were raised in these discussions. John Warren also met based on the agreed risk universe, together with the required privately with both the audit engagement partner of the external level of resource. auditors and the Internal Audit Director during the year. The Group • Reviewed the effectiveness of the system of internal control and Company Secretary acts as secretary to the Committee. risk management systems and reported to the Board that there were no material control weaknesses. Responsibilities and terms of reference • Reviewed the management’s going concern assessment at each The key responsibilities of the Committee are: reporting period end, considering detailed financial forecasts, • Monitoring the integrity of the financial statements, the future cash flow projections and the resources available to accompanying reports to shareholders and corporate governance the Group, including the current banking facility and forecast statements, including reviewing the findings of the external auditors. covenant compliance. • Reviewing and monitoring the effectiveness of systems for • Reviewed the Committee’s terms of reference. internal control, financial reporting and risk management. • Reviewed the Company’s whistleblowing policy and • Overseeing and reviewing the effectiveness of Internal Audit. arrangements. • Making recommendations to the Board in relation to the At its meeting in February 2015, the Committee discussed with appointment and removal of external auditors and approving the external auditors the key accounting considerations and their remuneration and terms of engagement. judgements reflected in the Group’s results for the 12 months ended 31 December 2014 and reviewed the 2014 annual report • Reviewing and monitoring the external audit process and the and accounts, to be able to recommend to the Board that, independence and objectivity of the auditors, as well as the taken as a whole, it was fair, balanced and understandable and nature and scope of the external audit and its effectiveness. provided the information necessary for shareholders to assess • Developing the policy on the engagement of the external the Company’s performance, business model and strategy. auditor’s to supply non-audit services, taking into account The approach taken was to analyse key areas of progress and relevant ethical guidance. challenge during the year, followed by reviewing the 2014 annual report and accounts to ensure that all identified areas had been reported upon in a balanced and fair way and were reflected in
Our governance the Group’s KPIs.
62 | Annual report and accounts | Our governance Significant areas from the external auditors, discussing and challenging conclusions and audit judgements and assessing responses from the external auditor, The key accounting judgements considered by the Committee in and obtaining feedback about the effectiveness and conduct of the relation to the 2014 accounts and discussed with the external audit from those involved. auditors, were:
• Inventory provisioning - the level of inventory provisioning impacts During the last quarter of 2014, the Committee supervised the the carrying value of the most significant balance on the balance completion of a competitive audit tender process, having considered sheet. Since the downturn in the land market in 2008 the Company KPMG’s tenure since flotation in 1997 and the UK Corporate has carried a provision to write down the carrying value of the land Governance Code requirements to tender external audit contracts held within inventories to the lower of cost and net realisable value, at least every ten years. In doing so, the Committee complied with less costs to sell, where this is less than the historic cost. The the provisions of the Competition & Markets Authority Order. Three assessment of the level of provision required, requires the exercise of shortlisted firms were invited to tender, (KPMG LLP, Deloitte LLP and significant judgement by management. The Committee receives a PricewaterhouseCoopers LLP) and a process of document submission regular report on this provision, updated by management, at and review was followed by presentations and question and answer relevant Committee meetings. At this year end the paper proposed sessions. The Committee considered the merits of the three strong an immaterial adjustment, which was in line with the forecast candidates and, following debate, selected the provider expected position and had been audited by the external auditors prior to the to deliver the best external auditing services in terms of quality, year end. The written down sites and any adjustments proposed professionalism and overall experience. The Committee recommended were discussed and justified by management and the land write the appointment of PricewaterhouseCoopers LLP to the Board at its down provision remaining at the period end (£12.9 million) was meeting in February 2015 and, in doing so, satisfied itself that an reviewed, together with the profit attributable to the reversal of the orderly transition could be achieved. provision on the sale of written down units during the year, which Our 2015 AGM Notice, therefore, contains a resolution for the was not considered to be material. Following discussion, the appointment of PricewaterhouseCoopers LLP as auditors to the Committee was satisfied that the judgements exercised were Company. The AGM Notice also contains a resolution to give the appropriate and that the provision was appropriately stated at the directors authority to determine the auditors’ remuneration, which year end. Details of the movements in the provision are provided in provides a practical flexibility to the Committee. note 3.1 to the accounts on page 83.
• Available for sale financial assets - the assumptions used to fair value The Committee keeps under review its policy which requires the available for sale financial assets, (otherwise known as shared equity Committee to approve all non-audit services proposed to be and details of which are provided in note 4.2 on page 85), affects the undertaken by the external auditors, with the exception of tax advisory carrying value on the balance sheet. These assumptions require the and compliance work undertaken in the ordinary course of business exercise of significant judgement by management. This is assessed and audit related services, which are treated as pre-approved. When through the Committee discussing with management and the auditors an approval request is made, the Committee has due regard to the assumptions adopted and any adjustments made to those the nature of the non-audit service, whether the external auditor assumptions, including, in particular, the long run HPI assumption and is a suitable supplier, and whether there is likely to be any threat the discount rate which are the key determinants of the expected final to independence and objectivity in the conduct of the audit. The redemption value. Following discussion the Committee considered related fee level, both separately and relative to the audit fee is also that the assumptions adopted were reasonable. considered. For an analysis of fees paid to KPMG LLP, both audit and non-audit, see note 2.1 on page 81. The non-audit services provided External auditors during the year related to tax advisory and compliance work. Provision During the year, the Committee reviewed the independence and of these services is not considered to impair the external auditor’s objectivity of the external auditors, which was confirmed in an independence or objectivity. independence letter containing information on procedures providing safeguards established by the external auditor. Regulation, professional Performance evaluation requirements and ethical standards were taken into account, together An evaluation of the performance of the Board Committees was with consideration of all relationships between the Company and the completed as part of the second external independent evaluation of external auditors and their staff. Relations with the external auditors the Board, completed towards the end of 2014. The Committee was were managed through a series of meetings and regular discussions found to be effective and continued to be well run, with the level and we ensure a high quality audit by challenging the key areas of the of accounting and financial expertise providing strong challenge. It external auditor’s work. The audit engagement partner last rotated on was also concluded that the Committee had appropriate terms of completion of the 2011 final audit after five years in the post. reference and had fulfilled its remit in 2014 and that the audit process continued to be effective. At its meeting in February 2015, the Committee reviewed the effectiveness of the external audit process as part of its consideration of the 2014 final audit. This included assessing delivery and content against the audit plan for the 2014 year end audit, including perceived John Warren changes in audit risks, consideration of the performance of the audit Chairman of the Audit Committee team and the quality of reporting, reviewing comprehensive papers 20 February 2015
Bovis Homes Group PLC | 63 Nomination Committee report
“ The Committee has maintained its focus on success planning and the balance and composition of the Board.” IanTyler, Committee Chairman
Committee membership and meetings The Committee’s terms of reference are available on the 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 and the Chief Executive. Ian Tyler chaired the Committee during the year and the other members of the Committee were Alastair Lyons, Main activities during the year Colin Holmes (until 16 May 2014), John Warren, Chris Browne The main activities during 2014 focussed on succession planning (from 1 September 2014) and David Ritchie. following a long period of stability for the Board. The Nomination Committee recommended to the Board that Alastair Lyons take Attendance Name Date of appointment Role at meetings over as Chairman of the Remuneration Committee, following the decision of Colin Holmes to retire from the Board at the 2014 Ian Tyler 29/11/2013 Chairman 5/5 AGM, and the search for a new non-executive director commenced, Alastair Lyons 01/10/2008 Member 3/5 taking into account the principle of boardroom diversity, amongst the other requirements for the role. The search culminated in the Colin Holmes 01/12/2006 Member 6/6 recommendation of the appointment of Chris Browne to the Board. (retired 16/05/2014) Chris was appointed as a non-executive director on 1 September 2014.
John Warren 01/03/2006 Member 6/6 John Warren will retire as a non-executive director and as Chris Browne 01/09/2014 Member 2/2 Chairman of the Audit Committee at the AGM on 15 May 2015. The Committee commenced a recruitment process in October 2014 David Ritchie 03/07/2008 Member 5/5 and has recommended an appointment to the Board which allows for a smooth handover of the role of Audit Committee Chairman. The Committee met five times in 2014, with the key focus being on succession planning and the specification and recruitment of two non- Following Jonathan Hill’s decision to resign and leave the Group, executive directors to replace those stepping down. The recruitment the Committee also commenced the recruitment of a new Group of a new Group Finance Director was also a priority, following Finance Director in the fourth quarter of 2014 and this process is well Jonathan Hill’s decision to resign at the end of September 2014, advanced and expected to conclude in the near future. with a subsequently agreed departure date of 6 March 2015. For A summary of the Committee’s activities during 2014 comprises: all meetings, papers and supporting documentation were circulated sufficiently in advance to allow proper consideration of matters for • Keeping the structure, size and composition of the Board discussion. The Group Company Secretary acts as secretary to the under review, concluding that the present Board balance and composition remains appropriate. Committee. • Running recruitment processes for two new non-executive Responsibilities and terms of reference directors of the Company, using objective criteria and the external search services of The Zygos Partnership (who have no other The key responsibilities of the Committee are: connection with the Company), including recommendation of • Review the structure, size and composition of the Board appointment to the Board. (including skills, knowledge, experience and diversity) and make recommendations to the Board. • Running the recruitment processes for the new Group Finance Director, using objective criteria and the external search services • Considering succession planning for directors and senior of Odgers Berndtson (who have no other connection with the executives, taking into account the challenges and opportunities Company). facing the Company and the skills and expertise needed in the future. • Considering succession planning, including the phasing of new appointments, as part of a progressive and orderly refreshing of • Monitoring the leadership needs of the Company and leading the Board. the process for Board appointments, ensuring they are conducted on merit, against objective criteria (including diversity), • Reviewing planning for executive director and senior management using the services of an appropriate external search consultant. succession, against the background of organisational development. • Making recommendations to the Board, including on the re-appointment of non-executive directors, the re-election • Recommending the directors to stand for re-election at the 2014 of directors at the AGM, and membership of the Audit and AGM in accordance with the UK Corporate Governance Code. Remuneration Committees. • Approving the Nomination Committee report for the 2013 The Committee also reviews the results of the Board performance Annual Report. evaluation relating to the composition of the Board. External legal • Reviewing the Committee’s terms of reference. or other independent professional advice can be obtained at the Company’s expense, although this facility was not utilised during • Setting a Committee timetable for 2015. the year. Our governance
64 | Annual report and accounts | Our governance The Committee also reviewed the results of the 2013 internal Board balanced board. A decision was taken not to set measurable objectives performance evaluation relating to the composition of the Board. and the Committee continues to consider boardroom diversity in its succession planning discussions. Non-executive directors’ service contracts are renewed on an annual basis following the conclusion of a second three year term, subject Performance evaluation to satisfactory performance and there being no need to re-balance 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. Recommendations were made to the Board that completed as part of the second external independent evaluation of the service contracts for John Warren and Alastair Lyons be renewed for Board, completed towards the end of 2014. The Committee was found further terms, following rigorous review, including their respective to be effective and it was concluded that it had fulfilled its remit in contributions, performance and commitment to their roles. 2014 and had appropriate terms of reference.
The principle of boardroom diversity is strongly supported and the Committee reviewed the diversity policy, first published in September 2011. The policy sets out that appointments to the Board will always be based on merit, so that the Board has the right individuals in place, Ian Tyler and explains that diversity is seen as an important consideration as Chairman of the Nomination Committee part of the objective criteria used to assess candidates to achieve a 20 February 2015
Bovis Homes Group PLC | 65 Directors’ report
The directors have pleasure in submitting their annual report for Directors the year ended 31 December 2014. Details of the directors are shown on page 34. Colin Holmes Results and dividends retired as a non-executive director and as Chairman of the Remuneration Committee on 16 May 2014. Alastair Lyons The Group made a profit after taxation of £105.2 million (2013: became Chairman of the Remuneration Committee on the £60.1 million). An interim dividend of 12.0p (2013: 4.0p) net same date and Chris Browne was appointed as a non-executive per share was paid on 21 November 2014. The Board proposes director on 1 September 2014. John Warren will retire from to pay, subject to shareholder approval at the 2015 Annual the Board at the 2015 AGM after nine years as a director and General Meeting, a final dividend of 23.0p (2013: final dividend eight years as Chairman of the Audit Committee. Jonathan Hill of 9.5p) net per share in respect of the 2014 financial year on resigned as Group Finance Director at the end of September 22 May 2015 to shareholders on the register at the close of 2014 and, as previously announced, will leave the Company on business on 27 March 2015. On this basis, the total dividend 6 March 2015. for 2014 will be 35.0p (2013: 13.5p), representing an increase of 159%. The dividend reinvestment plan, introduced in 2012, Details of directors’ pay, pension rights, service contracts and gives shareholders the opportunity to reinvest dividends. directors’ interests in the ordinary shares of the Company are included in the Directors’ Remuneration Report on pages 45 Annual General Meeting to 58.
Notice of the 2015 Annual General Meeting to be held on In accordance with the UK Corporate Governance Code, all Friday 15 May 2015 is set out on pages 102 to 104. Members the current directors will retire at the Annual General Meeting, wishing to vote should return forms of proxy to the Company’s to be held on Friday 15 May 2015, and being eligible, offer Registrar not less than 48 hours before the time for holding themselves for re-appointment, with the exception of John the meeting. Shareholders with internet access may register Warren and Jonathan Hill. Chris Browne also offers herself for their voting instructions via the internet by going to re-appointment in accordance with the Articles of Association. www.eproxyappointment.com. Directors’ indemnities Following approval of the remuneration policy at the 2014 Annual General Meeting, there are no changes proposed for As at the date of this report, indemnities are in force under submission to shareholders. which the Company has agreed to indemnify the directors, to the extent permitted by law and the Company’s Articles As in prior years, it is proposed that a general meeting that is of Association, in respect of all losses arising out of or in not an Annual General Meeting can be called on not less than connection with, the execution of their powers, duties and 14 clear days’ notice. This resolution is required as a result responsibilities, as directors of the Company or any of its of the implementation of the Shareholder Rights Directive, subsidiaries. which increased the notice period for general meetings of the Company to 21 days, unless shareholders have approved Corporate governance the calling of meetings on 14 days’ notice. Ability to call a The Board remains committed to high standards of corporate general meeting on 14 days’ notice would only be utilised in governance. Details relating to the Company’s compliance with limited circumstances and where it was to the advantage of the UK Corporate Governance Code are given in the Corporate shareholders as a whole. Governance report on pages 35 to 43. The Board has also resolved that a resolution be submitted to shareholders proposing the renewal of the authority to Powers of the directors enable the Company to purchase up to 10% of its own shares. Subject to the Company’s Articles of Association, UK legislation Presently, the directors have no wish to exercise the authority, and any directions given by special resolution, the business of but consider it appropriate to have the flexibility to do so. Any the Company is managed by the Board, which may exercise shares purchased would be cancelled. all the powers of the Company. The directors have been authorised to allot and issue ordinary shares and to make The directors believe that all the resolutions to be considered market purchases of the Company’s ordinary shares and these at the Annual General Meeting are in the best interests of powers may be exercised under authority of resolutions of the the Company and its shareholders as a whole. The directors Company passed at its Annual General Meeting. The rules in unanimously recommend that all shareholders vote in favour of relation to the appointment and replacement of directors are the resolutions, as the directors intend to do in respect of their set out in the Company’s Articles of Association. own shares in the Company. Our governance
66 | Annual report and accounts | Our governance Share capital The instrument of transfer of a certificated share may be in any usual form or in any other form which the Board may approve. At the date of this report the Company’s issued share capital The Board may refuse to register any instrument of transfer of a comprised a single class of share capital which is divided into certificated share which is not fully paid, provided that the refusal ordinary shares of 50 pence. As at 20 February 2015, 134,228,043 does not prevent dealings in shares in the Company from taking ordinary shares of 50 pence each have been issued, are fully paid place on an open and proper basis. up and are quoted on the London Stock Exchange. The Board may also refuse to register a transfer of a certificated The rights and obligations attaching to the Company’s ordinary share unless the instrument of transfer: (i) is lodged, duly stamped shares are set out in the Company’s Articles of Association, copies (if stampable), at the registered office of the Company or any of which can be obtained from Companies House in the UK or other place decided by the Board accompanied by the certificate by writing to the Group Company Secretary. In particular, subject for the share to which it relates and such other evidence as the to applicable statutes, shares may be issued with such rights or Board may reasonably require to show the right of the transferor restrictions as the Company may by ordinary resolution determine, to make the transfer; (ii) is in respect of only one class of shares; or (if there is no such resolution or so far as it does not make and (iii) is in favour of not more than four transferees. Transfers of specific provision) as the Board may determine. Shareholders uncertificated shares must be carried out using the relevant system are entitled to attend, speak and vote at general meetings of and the Board can refuse to register a transfer of an uncertificated the Company, to appoint one or more proxies and, if they are share in accordance with the regulations governing the operation corporations, to appoint corporate representatives. of the relevant system and with UK legislation. There are no other On a show of hands at a general meeting of the Company every limitations on the holding of ordinary shares in the Company and shareholder present in person or by proxy and entitled to vote has the Company is not aware of any agreements between holders of one vote and on a poll every shareholder present in person or by securities that may result in restrictions on the transfer of securities proxy and entitled to vote has one vote for every ordinary share or on voting rights. held. Further details regarding voting, including the deadlines for voting, at the Annual General Meeting can be found in the notes to the Notice of the Annual General Meeting at the back of this annual report and accounts. No shareholder is, unless the Board decides otherwise, entitled to attend or vote either personally or by proxy at a general meeting or to exercise any other shareholder rights if he or any person with an interest in shares has been sent a notice under section 793 of the Companies Act 2006 and has failed to supply the Company with the requisite information within the prescribed period.
Shareholders may receive a dividend and on a liquidation may share in the assets of the Company. None of the ordinary shares of the Company, including those held by the Company’s share schemes, carry any special rights with regard to control of the Company. Employees participating in the Bovis Homes Group Share Incentive Plan may direct the trustee to exercise voting rights on their behalf at any general meeting.
Bovis Homes Group PLC | 67 Directors’ report
Substantial shareholdings As at 31 December 2014, 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 - 10.39 1.59 16,067,363 11.98
JP Morgan Asset Management (UK) - 5.43 - 7,279,947 5.43
Norges Bank 3.81 - - 5,103,967 3.81
Royal London Asset Management 3.01 - - 4,037,598 3.01
Standard Life Investments (Holdings) 4.67 5.44 - 13,566,142 10.11
Between 1 January and 20 February 2015, the following interests of 3% or more in the Company’s issued share capital were notified to the Company: % of voting rights of 20 February 2015 % direct % indirect % financial Total number of the issued Ordinary shares of 50p each holding holding instruments shares held share capital
BlackRock, Inc - 9.79 1.11 14,631,969 10.90
Prudential plc group 5.07 - - 6,817,739 5.07
Standard Life Investments (Holdings) 4.52 5.47 - 13,418,699 9.99
Employees Corporate social responsibility The Group’s employment policies do not discriminate between The Group continues to pursue its commitment to sustainable employees, or potential employees, on the grounds of gender, development and transparent corporate conduct in social and sexual orientation, age, colour, creed, ethnic origin or religious ethical matters, corporate governance, health and safety and belief. It is Group policy to give full and fair consideration to the the environment. employment needs of disabled persons (and persons who become disabled whilst employed by the Group) where requirements may The Group’s corporate social responsibility policy focuses on be adequately covered by these persons and to comply with any sustainable development, the environment, health and safety, current legislation with regard to disabled persons. research and development, human resources, an ethical code of conduct and stakeholder engagement. The Group It is the policy of the Group to train and develop employees to Executive Committee co-ordinates developments in this area ensure they are equipped to undertake the functions and tasks and an established process of risk identification, mitigation and for which they are employed, and to provide the opportunity management is embedded in all activities. The Health, Safety for career development equally and without discrimination. and Environmental Steering Group monitors and seeks to Employees receive regular training in health, safety and maintain the high health, safety and environmental standards environmental matters. and performance expected from offices and sites.
Information about the Group’s performance and matters of The Board addresses risk in its own decision making and concern or interest to employees is provided regularly by a news takes regular account of the significance of sustainability, magazine, emails and through consultations at staff meetings environmental, social and ethical matters through consideration and personal briefings from elected employee representatives. of relevant information and data in Board reports and other The CEO and GFD provide presentations to staff at all the documentation provided. Ultimate responsibility for these regional offices at key points in the year. matters rests with the Board and induction and training in this area is supported. The Group operates both a defined benefit pension scheme and a defined contribution pension scheme. Further details of risks and policies and procedures for their management are included in the Group’s Corporate Social The Company has a Share Incentive Plan, a Save As You Earn Responsibility report dated 20 February 2015, which includes Share Option Scheme, a Share Option Plan and a Long Term key developments and performance data. A copy of the report Incentive Plan to motivate employees and encourage strong is available on the Group’s website www.bovishomesgroup.co.uk involvement with the Group. and on request to the Group Company Secretary. Our governance
68 | Annual report and accounts | Our governance Greenhouse gas emissions
Greenhouse gas (GHG) emissions data for the period 1 January 2014 to 31 December 2014 (with prior year comparatives)
Emissions from: 2014 qty 2013 qty Unit
Combustion of fuel at our facilities and construction sites as well as fleet 4,168 4,118 Tonnes of CO2e vehicle use (Scope 1 emissions)
Purchased electricity (Scope 2 emissions) 1,527 1,408 Tonnes of CO2e
Total GHG emissions (Scope 1 and Scope 2) 5,695 5,526 Tonnes of CO2e
Company’s chosen intensity measurements:
(i) Total GHG emissions per legally completed unit 1.57 1.96 Tonnes of CO2e per legally completed unit
(ii) Total GHG emissions per 1,000 sq ft legally completed 1.57 2.02 Tonnes of CO2e per 1,000 sq ft legally completed
Methodology There are a number of commercial contracts that could alter in the GHG emissions have been reported from all sources required under event of a change of control. None is considered to be material in the Companies Act 2006 (Strategic Report and Directors’ Report) terms of their potential impact on the Group in this event. Regulations 2013. These sources fall within the Group’s operational control and the consolidated statements. The Group does not have Financial risk management responsibility for any emission sources that are not included in the Details of financial risk management and exposure to credit / consolidated financial statements and are outside the boundary of liquidity risks are included in note 4.6 to the accounts. operational control. Political donations During the year, measures were operated to collect emissions data No political donations were made during the year ended from our construction sites for the second year running. Where this 31 December 2014. The Group has a policy of not making data was incomplete at the year end, we have extrapolated total donations to political parties or incurring political expenditure. emissions by using (i) an averaging approach to extend data to a full year for sites with part-year data, and (ii) applied an average Auditors calculated from all sites to sites returning inadequate data. Each person who is a director at the date of approval of this report The calculations allow for sites which opened and closed during confirms that: the year. • so far as the director is aware, there is no relevant audit GHG emissions have been calculated using emission factors from information of which the Company’s auditors are unaware; and UK Government’s GHG Conversion Factors for Company Reporting • each director has taken all the steps that he ought to have 2014. Scope 1 emissions arise from the consumption of gas at taken as a director to make himself aware of any relevant audit our facilities, diesel on construction sites and UK business mileage information and to establish that the Company’s auditors are in fleet cars. Emissions from air conditioning in offices have been aware of that information. excluded as not being material. Scope 2 emissions represent purchased electricity. This confirmation is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006. Takeover directive The Audit Committee conducted an audit tender process On a change of control, provisions in the Group’s syndicated towards the end of 2014 and recommended the appointment banking facility agreements (described in note 4.3 to the accounts) of PricewaterhouseCoopers LLP to the Board for submission to would allow lenders to withdraw the facility. shareholders, in place of KPMG LLP, who will resign as auditor with effect from 15 May 2015 pursuant to section 516 of the All of the Group’s share schemes contain provisions relating to a Companies Act 2006. In accordance with the provisions of the change of control. Under these provisions, a change of control Companies Act 2006, resolutions concerning the appointment of would be a vesting event, allowing exercise of outstanding options PricewaterhouseCoopers LLP and their remuneration will be placed and awards, subject to satisfaction of performance conditions, before the Annual General Meeting. as required.
Bovis Homes Group PLC | 69 Directors’ report
Directors’ responsibilities statement Under applicable law and regulations, the directors are also responsible for preparing a strategic report, a directors’ report, The directors are responsible for preparing the annual report, a directors’ remuneration report and a report on corporate the directors’ remuneration report and the Group and Parent governance that comply with that law and those regulations. Company financial statements, in accordance with applicable law and regulations. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company law requires the directors to prepare Group and Company’s website. Legislation in the UK governing the Parent Company financial statements for each financial year. preparation and dissemination of financial statements may Under that law the directors are required to prepare the Group differ from legislation in other jurisdictions. financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the Parent Each of the directors, whose names and functions are listed on Company financial statements on the same basis. page 34 of this annual report confirm that, to the best of their knowledge: Under company law, the directors must not approve the financial statements unless they are satisfied that they give a) the Group and Parent Company financial statements in this a true and fair view of the state of affairs of the Group and report, which have been prepared in accordance with IFRS Parent Company and of their profit or loss for that period. as adopted by the EU, IFRIC interpretation and those parts of the Companies Act 2006 applicable to companies reporting • select suitable accounting policies and then apply them under IFRS, give a true and fair view of the assets, liabilities, consistently; financial position and profit or loss of the Company and of • make judgments and estimates that are reasonable the Group taken as a whole; and and prudent; b) the strategic report contained in this report includes a fair, • for the Group and Parent Company financial statements, balanced and understandable review of the development state whether they have been prepared in accordance with and performance of the business and the position of the IFRSs as adopted by the EU; Company and the Group taken as a whole, together with a description of the principal risks and uncertainties they face. • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Parent Company will continue in business. By Order of the Board The directors confirm that they have complied with the M T D Palmer above requirements in preparing the financial statements. Group Company Secretary The directors also confirm that they consider the annual 20 February 2015 report and accounts, taken as a whole, is fair, balanced and Bovis Homes Group PLC understandable and provides the information necessary for Registered number 306718 shareholders to assess the Group and Parent Company’s position and performance, business model and strategy.
The directors are responsible for keeping proper accounting records that are sufficient to show and explain the Parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Our governance
70 | Annual report and accounts | Our governance Bovis Homes Group PLC | 71 Auditor’s report
Independent auditor’s report to the members of Bovis Homes Group PLC Opinions and conclusions arising from our audit
1 Our opinion on the financial statements the appraisals to published indices. We also challenged the is unmodified group’s forecast of build cost per square foot by comparing We have audited the financial statements of Bovis Homes Group to the build costs for similar units on other sites and where PLC for the year ended 31 December 2014 set out on pages 75 there were differences we corroborated the finance team’s to 100. In our opinion: explanations against subcontractor quotes. Our audit work was focused on low margin sites which are considered to • the financial statements give a true and fair view of the state have the most sensitivity to the Directors’ assumptions. We of the group’s and of the parent company’s affairs as at also considered the adequacy of the group’s disclosures in 31 December 2014 and of the group’s profit for the year respect of the provision held against inventory carried at net then ended; realisable value.
• the group financial statements have been properly prepared Valuation of available for sale financial assets – shared in accordance with International Financial Reporting Standards equity (£39.4 million) as adopted by the European Union (IFRSs as adopted by the EU); Refer to page 63 (Audit committee report), page 85 (accounting • the parent company financial statements have been properly policy) and pages 86 to 90 (financial disclosures). prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the • The risk - Available for sale financial assets are amounts Companies Act 2006; and receivable on extended terms granted as part of a sales transaction where the final amount repayable is dependent • the financial statements have been prepared in accordance upon the value of the house at the repayment date, and with the requirements of the Companies Act 2006 and, as are carried at fair value. The valuation of these assets is regards the group financial statements, Article 4 of the not based upon observable market data. Hence, the group IAS Regulation. uses a valuation model for which a number of assumptions have to be made, the key ones being expected house price 2 Our assessment of risks of material movements and the discount rate reflecting, inter alia, the misstatement time value of money and the risk that the borrower is unable In arriving at our audit opinion above on the financial to repay the amount receivable. Changes in the assumptions statements the risks of material misstatement that had the used could have a material effect on the output of the greatest effect on our audit were as follows: valuation model and hence on the carrying value of Net realisable value of inventories (£1,125.5 million) the assets.
Refer to page 63 (Audit committee report), page 83 (accounting • Our response - Our audit procedures in this area included policy) and pages 83 (financial disclosures). comparing the discount rate used in the valuation model to our own research on private transactions in mortgage • The risk - Inventories, which principally comprise the group’s and secured loans portfolios (with assistance from our own land held for development and work in progress, are stated valuation specialist) and expected house price movements at the lower of cost and net realisable value (i.e. the forecast to house price forecasts published by real estate agents. We selling price less the remaining costs to build and sell). An challenged the group’s estimate of the fair value by reference assessment of the net realisable value of inventory is carried to profits/losses earned from redemptions in the year and out at each balance sheet date and is dependent upon the assessing how the experience to date had been included as group’s estimate of forecast selling prices and build costs by part of the group’s reassessment of assumptions. We also reference to current prices. £18.6 million of inventory is held re-performed the group’s sensitivity analysis on the valuation at net realisable value. Accordingly, a change in the group’s and assessed whether the group’s disclosures about the estimate of sales price and build cost could have a material sensitivity of the outcome of the valuation to changes in key impact on the carrying value of inventories. assumptions appropriately reflected the risks inherent in the • Our response - Our audit procedures in this area included valuation of available for sale assets. challenging the group’s forecast sales prices by comparing the forecast sales prices of a sample of houses to sales prices achieved and list prices of comparable houses as published by estate agents. We compared sales price trends forecast in
Our governance
72 | Annual report and accounts | Our governance 3 Our application of materiality and an overview Under the Companies Act 2006 we are required to report to you if, of the scope of our audit in our opinion: The materiality for the group financial statements as a whole was • adequate accounting records have not been kept by the parent set at £6.7 million, determined with reference to a benchmark of company, or returns adequate for our audit have not been group profit before taxation (of which it represents 5%). received from branches not visited by us; or
We report to the audit committee any corrected or uncorrected • the parent company financial statements and the part of identified misstatements exceeding £0.3 million, in addition to the Directors’ Remuneration Report to be audited are not in other identified misstatements that warranted reporting on agreement with the accounting records and returns; or qualitative grounds. • certain disclosures of directors’ remuneration specified by law are The group’s operations are all accounted for at the group’s head not made; or office in New Ash Green, Kent. The group audit team performed • we have not received all the information and explanations we the audit of the group as if it was a single aggregated set of require for our audit. financial information. The audit was performed using the materiality level set out above and covered 100% of total group revenue, Under the Listing Rules we are required to review: group profit before taxation, and total group assets. Visits were • the directors’ statement, set out on page 41, in relation to going made to regional offices for the purposes of performing audit concern; and fieldwork, tests of controls and making enquiries of regional management. • the part of the Corporate Governance Statement on pages 35 to 43 relating to the company’s compliance with the ten 4 Our opinion on other matters prescribed by the provisions of the 2012 UK Corporate Governance Code specified Companies Act 2006 is unmodified for our review. In our opinion: We have nothing to report in respect of the above responsibilities. • the part of the Directors’ Remuneration Report to be audited has Scope of report and responsibilities been properly prepared in accordance with the Companies Act 2006; and As explained more fully in the Directors’ Responsibilities Statement set out on page 70, the directors are responsible for the preparation • the information given in the Strategic Report and the Directors’ of the financial statements and for being satisfied that they give a Report for the financial year for which the financial statements true and fair view. A description of the scope of an audit of are prepared is consistent with the financial statements. financial statements is provided on the Financial Reporting Council’s 5 We have nothing to report in respect of website at www.frc.org.uk/auditscopeukprivate. This report is made matters on which we are required to report solely to the Company’s members as a body and is subject to important explanations and disclaimers regarding our by exception responsibilities, published on our website at www.kpmg.com/uk/ Under ISAs (UK and Ireland) we are required to report to you if, auditscopeukco2014a, which are incorporated into this report as if based on the knowledge we acquired during our audit, we have set out in full and should be read to provide an understanding of identified other information in the annual report that contains a the purpose of this report, the work we have undertaken and the material inconsistency with either that knowledge or the financial basis of our opinions. statements, a material misstatement of fact, or that is otherwise misleading.
In particular, we are required to report to you if:
• we have identified material inconsistencies between the Stephen Wardell knowledge we acquired during our audit and the directors’ (Senior Statutory Auditor) statement that they consider that the annual report and financial for and on behalf of KPMG LLP, Statutory Auditor statements taken as a whole is fair, balanced and understandable Chartered Accountants and provides the information necessary for shareholders to assess London the group’s performance, business model and strategy; or 20 February 2015
• the Audit Committee report does not appropriately address matters communicated by us to the audit committee.
Bovis Homes Group PLC | 73 2014 Financial statements Financial
74 | Annual report and accounts | Financial statements Group income statement
2014 2013 For the year ended 31 December £000 £000
Revenue 809,365 556,000
Cost of sales (612,129) (425,693)
Gross profit 197,236 130,307
Administrative expenses (59,672) (47,476)
Operating profit before financing costs 2.1 137,564 82,831
Financial income 4.4 3,360 2,815
Financial expenses 4.4 (7,727) (7,134)
Net financing costs (4,367) (4,319)
Share of profit of Joint Venture 5.5 287 283
Profit before tax 133,484 78,795
Income tax expense 5.1 (28,276) (18,727)
Profit for the period attributable to equity holders of the parent 105,208 60,068
Earnings per share
Basic 2.3 78.6p 44.9p
Diluted 2.3 78.2p 44.8p
Group statement of comprehensive income
2014 2013 For the year ended 31 December £000 £000
Profit for the period 105,208 60,068
Other comprehensive income
Items that will be 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 (7,166) 3,693
Deferred tax on remeasurements on defined benefit pension scheme 1,481 (748)
Total comprehensive income for the period attributable to equity holders of the parent 96,015 63,013
Bovis Homes Group PLC | 75 Balance sheets
Group Company
2014 2013 2014 2013 As at 31 December Note £000 £000 £000 £000
Assets
Property, plant and equipment 5.4 13,634 13,526 - -
Investments 5.5 8,107 5,089 4,769 5,146
Restricted cash 1,426 1,823 - -
Deferred tax assets 5.2 2,645 1,451 - -
Trade and other receivables 2,534 1,560 - -
Available for sale financial assets 4.2 39,433 44,844 - -
Retirement benefit asset 5.7 - 3,237 - -
Total non-current assets 67,779 71,530 4,769 5,146
Inventories 3.1 1,125,518 971,016 - -
Trade and other receivables 3.2 58,862 41,713 355,662 377,038
Cash and cash equivalents 4.1 52,257 12,025 344 344
Total current assets 1,236,637 1,024,754 356,006 377,382
Total assets 1,304,416 1,096,284 360,775 382,528
Equity
Issued capital 4.5 67,114 67,048 67,114 67,048
Share premium 213,850 213,428 213,850 213,428
Retained earnings 598,154 529,786 77,133 99,524
Total equity attributable to equity holders of the parent 879,118 810,262 358,097 380,000
Liabilities
Bank and other loans 4.3 47,010 30,064 - -
Trade and other payables 3.3 99,092 29,631 781 459
Retirement benefit obligations 5.7 668 - - -
Provisions 5.6 1,840 2,052 - -
Total non-current liabilities 148,610 61,747 781 459
Trade and other payables 3.3 261,436 212,926 28 28
Other financial liabilities 3.3 - 784 - -
Provisions 5.6 1,236 1,411 - -
Current tax liabilities 5.2 14,016 9,154 1,869 2,041
Total current liabilities 276,688 224,275 1,897 2,069
Total liabilities 425,298 286,022 2,678 2,528
Total equity and liabilities 1,304,416 1,096,284 360,775 382,528
These financial statements were approved by the Board of directors on 20 February 2015 and were signed on its behalf: David Ritchie and Jonathan Hill, Directors.
76 | 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 2013 (1,941) (20,193) 501,525 479,391 66,908 212,550 758,849
Total comprehensive income and expense - 2,945 60,068 63,013 - - 63,013
Issue of share capital - - - - 140 878 1,018
Deferred tax on other employee benefits - - (23) (23) - - (23)
Share based payments - - 766 766 - - 766
Dividends paid to shareholders - - (13,361) (13,361) - - (13,361)
Balance at 31 December 2013 (1,941) (17,248) 548,975 529,786 67,048 213,428 810,262
Balance at 1 January 2014 (1,941) (17,248) 548,975 529,786 67,048 213,428 810,262
Total comprehensive income and expense - (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
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 2013 105,380 66,908 212,550 384,838
Total comprehensive income and expense 6,739 - - 6,739
Issue of share capital - 140 878 1,018
Share based payments 766 - - 766
Dividends paid to shareholders (13,361) - - (13,361)
Balance at 31 December 2013 99,524 67,048 213,428 380,000
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
Bovis Homes Group PLC | 77 Statement of cash flows
Group Company
2014 2013 2014 2013 For the year ended 31 December Note £000 £000 £000 £000
Cash flows from operating activities
Profit for the year 105,208 60,068 6,822 6,739
Depreciation 2.1 1,853 1,180 - -
Revaluation of available for sale financial assets (1,288) (47) - -
Financial income 4.4 (3,360) (2,815) (8,691) (8,781)
Financial expense 4.4 7,727 7,134 - -
Profit on sale of property, plant and equipment (115) (24) - -
Equity-settled share-based payment expense 5.3 838 766 - -
Income tax expense 5.1 28,276 18,727 1,869 2,042
Share of results of Joint Venture 5.5 (287) (283) - -
(Increase)/decrease in trade and other receivables (13,956) 28,737 19,610 3,562
Increase in inventories (154,501) (107,419) - -
Increase/(decrease) in trade and other payables 116,475 (4,911) - -
Decrease in provisions and retirement benefit obligations (3,795) (2,845) - -
Cash generated from operations 83,075 (1,732) 19,610 3,562
Interest paid (3,746) (5,781) - -
Income taxes paid (23,708) (14,634) - -
Net cash from operating activities 55,621 (22,147) 19,610 3,562
Cash flows from investing activities
Interest received 107 269 8,691 8,781
Acquisition of property, plant and equipment 5.4 (2,084) (2,802) - -
Proceeds from sale of plant and equipment 238 30 - -
Movement in loans with Joint Ventures 5.5 (2,751) 360 - -
Purchase of investment in Joint Ventures (373) - - -
Dividends received from Joint Ventures 5.5 283 267 - -
Reduction/(investment) in restricted cash 397 (671) - -
Net cash from investing activities (4,183) (2,547) 8,691 8,781
Cash flows from financing activities
Dividends paid 2.2 (28,789) (13,361) (28,789) (13,361)
Proceeds from the issue of share capital 4.5 488 1,018 488 1,018
Increase in borrowings 4.3 17,095 24,666 - -
Net cash from financing activities (11,206) 12,323 (28,301) (12,343)
Net increase/(decrease) in cash and cash equivalents 40,232 (12,371) - -
Cash and cash equivalents at 1 January 4.1 12,025 24,396 344 344
Cash and cash equivalents at 31 December 4.1 52,257 12,025 344 344
78 | 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 2014 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 20 February 2015. 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 foreseeable future. The Directors reviewed detailed financial and covenant compliance forecasts covering the period to December 2015 and summary financial forecasts for the following two years. As at 31 December 2014 the Group held cash and cash equivalents of £52.3 million and had total borrowings of £47.0 million. On 29 January 2013 the Group entered into a £125 million committed revolving credit facility expiring in March 2017 and a three year term loan of £25 million expiring in January 2016. This financing arrangement replaced the Group’s previous £150 million committed revolving credit facility. During August 2013, the committed revolving credit facility was increased by an additional £50 million, expiring on 31 December 2015. As at 31 December 2014, £157 million of the committed revolving credit facility was available for drawdown. 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 | 79 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 20 February 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. 1.6 Segment reporting
As 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 Exceptional items
Items that are both material in size and unusual or infrequent in nature are presented as exceptional items in the income statement. The Directors are of the opinion that the separate recording of exceptional items provides helpful information about the Group’s underlying business performance. Examples of events that, inter alia, may give rise to the classification of items as exceptional are the restructuring of existing and newly-acquired businesses, gains or losses on the disposal of businesses or individual assets and asset impairments, including land, work in progress and goodwill.
1.8 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 2014: IFRS10 ‘Consolidated Financial Statements’, IFRS 11 ‘Joint Arrangements’, IFRS 12 ‘Disclosure of interest in Other Entities’ all cover various aspects of Group Financial Statements but have not had a significant impact on the Group. Amendment to IAS 32 provides guidance on the application of offsetting in Financial Statements. This has not had a significant impact on the Group. The other standards and interpretations that are applicable for the first time in the Group’s financial statements for the year ended 31 December 2014, have no effect on these financial statements.
80 | Annual report and accounts | Financial statements Notes to the financial statements continued
1.9 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 2014, and have not been applied in preparing these consolidated financial statements. Comments on specific new standards or amendments are as follows: IFRS9 ‘Financial Instruments’ was reissued in 2014 as the second step in the IASB project to replace IAS39 ‘Financial Instruments: Recognition and Measurement’. IFRS9 (2010) now includes new requirements for classifying and measuring financial assets and financial liabilities and the derecognition of financial instruments. The IASB is continuing the process of expanding IFRS9 to add new requirements for impairment and hedge accounting. IFRS 9 is not effective until 2018 (subject to EU endorsement). 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. IFRS15 ‘Revenue from contracts with customers’ was issued in May 2014 and will apply to the Group from 1 January 2017. The Group is currently assessing the impact of the standard on the Group’s results and financial position. The Group has not early adopted any standard, amendment or interpretation. Of the above, IFRS9 ‘Financial Instruments’ has not yet been endorsed by the EU.
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):
2014 2013 £000 £000
Depreciation of tangible fixed assets 1,853 1,180
Hire of plant and machinery 4,048 3,058
Rental income (included in revenue) (574) (583)
Government grants recognised within cost of sales (see note 4.3) (78) (481)
Auditors’ remuneration 2014 2013 £000 £000
Fees payable to the Company’s auditor for the audit of the Company’s annual financial statements 32 32
The audit of the Company’s subsidiaries, pursuant to legislation 119 112
Non Audit Fees
Interim review work 18 18
Tax services 96 87
Other services 4 2
Fees charged to operating profit before financing costs 269 251
Bovis Homes Group PLC | 81 Notes to the financial statements continued
2.2 Dividends The following dividends were paid by the Group: 2014 2013 £000 £000
Prior year final dividend per share of 9.5p (2013: 6.0p) 12,715 8,010
Current year interim dividend per share of 12.0p (2013: 4.0p) 16,074 5,351
28,789 13,361
The Board decided to propose a final dividend of 23.0p per share in respect of 2014. The dividend has not been provided for and there are no income tax consequences. 2014 2013 £000 £000
23.0p per qualifying ordinary share (2013: 9.5p) 30,822 12,712
2.3 Earnings per share Profit attributable to ordinary shareholders
2014 2013 £000 £000
Profit for the period attributable to ordinary shareholders 105,208 60,068
Weighted average number of ordinary shares 2014 2013
Issued ordinary shares at 1 January 133,643,311 133,294,726
Effect of own shares held (241,111) (288,388)
Effect of shares issued in year 500,047 636,973
Weighted average number of ordinary shares at 31 December 133,902,247 133,643,311
Diluted earnings per share The calculation of diluted earnings per share at 31 December 2014 was based on the profit attributable to ordinary shareholders of £105,208,000 (2013: £60,068,000) and a weighted average number of ordinary shares outstanding during the year ended 31 December 2014 of 134,573,167 (2013: 133,933,279). The average number of shares is increased by reference to the average number of potential ordinary shares held under option during the period. 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 period. Only share options which have met their cumulative performance criteria have been included in the dilution calculation. Weighted average number of ordinary shares (diluted) 2014 2013
Weighted average number of ordinary shares at 31 December 133,902,247 133,643,311
Effect of share options in issue which have a dilutive effect 670,920 289,968
Weighted average number of ordinary shares (diluted) at 31 December 134,573,167 133,933,279
82 | 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 goods. 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. Regular reviews are completed for impairment in the value of these options, and provisions made accordingly to reflect loss of value. The impairment reviews consider the period elapsed since the date of purchase of the option given that the option contract has not been exercised at the review date. Further, the impairment reviews consider the remaining life of the option, taking account of any concerns over whether the remaining time available will allow successful exercise of the option. The carrying cost of the option at the date of exercise is included within the cost of land purchased as a result of the option exercise. 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.
2014 2013 Group £000 £000
Raw materials and consumables 5,693 3,421
Work in progress 219,802 198,833
Part exchange properties 25,299 18,391
Land held for development (net of provision) 874,724 750,371
Inventories 1,125,518 971,016
Inventories to the value of £620.0 million were recognised as expenses in the year (2013: £425.1 million).
2014 2013 Movement on inventory provision £000 £000
Balance at 1 January 19,906 28,624
Recognised in the income statement relating to:
Land sales - Utilised on specific sites sold in the year (5,314) (8,263)
- Unutilised on specific sites sold in the year and so reversed (1,426) (398)
(6,740) (8,661)
Provisions recognised on sites still held 1,308 1,196
Provisions released on sites still held (1,570) (1,253)
Balance at 31 December 12,904 19,906
£18.6 million (2013: £48.6 million) of inventories were valued at net realisable value rather than at historic cost.
Bovis Homes Group PLC | 83 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.
Group Company
2014 2013 2014 2013 £000 £000 £000 £000
Current assets
Trade receivables 35,340 24,856 - -
Amount due from subsidiary undertakings - - 355,662 377,038
Other debtors 18,619 12,214 - -
Prepayments and accrued income 4,903 4,643 - -
Current assets 58,862 41,713 355,662 377,038
The total provision for doubtful receivables is £0.2 million (2013: £0.3 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.
84 | Annual report and accounts | Financial statements Notes to the financial statements continued
Group Company
2014 2013 2014 2013 £000 £000 £000 £000
Non-current liabilities
Trade payables 98,633 29,172 - -
Other creditors 459 459 780 459
99,092 29,631 780 459
Current liabilities
Trade payables 244,847 198,678 - -
Other financial liabilities - 784 - -
Taxation and social security 1,195 1,215 - -
Other creditors 1,335 622 28 28
Accruals and deferred income 14,059 12,411 - -
261,436 213,710 28 28
Total trade and other payables 360,528 243,341 808 487
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
2014 2013 2014 2013 £000 £000 £000 £000
Bank balances 348 356 344 344
Call deposits 51,909 11,669 - -
Cash and cash equivalents in the balance sheet and cash flows 52,257 12,025 344 344
4.2 Available for sale 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 | 85 Notes to the financial statements continued
2014 2013 £000 £000
Non-current asset - available for sale assets 39,433 44,844
Key assumptions 2014 2013
Discount rate, incorporating default rate 9.0% 7.9%
Average house price inflation per annum for the next three years 3.3% 2.5%
See note 4.6 for a sensitivity analysis on these assumptions.
2014 2013 £000 £000
Balance at 1 January 44,844 43,869
Additions - 1,684
Redemptions (6,850) (3,065)
Revaluation taken through the income statement 1,288 47
Change in discount rate taken through equity (2,887) -
Imputed interest 3,038 2,309
Balance at 31 December 39,433 44,844
Total impairments taken to date are £3,016,000 (2013: £4,304,000). 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 2014 2013 £000 £000
Bank and other loans 46,951 29,856 Interest rate derivative financial instruments 59 208
Bank and other loans 47,010 30,064
86 | Annual report and accounts | Financial statements Notes to the financial statements continued
Interest rate profile of bank and other loans Carrying Carrying Rate Facility maturity value 2014 value 2013
Bank loans LIBOR +100 bps 2016 25,000 25,000
Revolving credit facility LIBOR +200-275 bps 2017 18,000 -
Interest free loan at fair value LIBOR +158 bps 2016 3,951 4,856
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 of this facility reflecting expectations of cash inflow generation from sales at that site, the maximum facility available is £6 million. The nominal amount at 31 December 2014 was £4,000,000. 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 £95,793, which increases the loan value. The long stop repayment date for this facility is 5 January 2016.
Details of facilities On 29 January 2013 the Group has entered into a £125 million committed revolving credit facility expiring in March 2017 and a three-year term loan of £25 million expiring in January 2016. The facility syndicate comprises five banks, one of which is providing the term loan. During August 2013 the committed revolving credit facility was increased by an additional £50 million, expiring on 31 December 2015. The facility and the term loan include a covenant package, featuring three covenants tested semi-annually as per the previous facility agreement. The overall financing cost of the new arrangement is in line with the existing 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
2014 2013 £000 £000
Interest income (174) (298)
Net pension finance credit (148) -
Hedge ineffectiveness for derivatives - (208)
Imputed interest on available for sale assets (3,038) (2,309)
Finance income (3,360) (2,815)
Imputed interest on deferred terms land payables 3,028 3,144
Interest expense 4,506 3,729
Net pension finance charge - 140
Imputed interest on interest free loan 155 121
Hedge ineffectiveness for derivatives 38 -
Finance expenses 7,727 7,134
Net financing costs 4,367 4,319
Bovis Homes Group PLC | 87 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 2014 2013
In issue at 1 January 134,096,425 133,815,751 Issued for cash 131,618 280,674
In issue at 31 December – fully paid 134,228,043 134,096,425
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 2014, there were no share purchases. 68,245 shares awarded under the Group’s long term incentive plan vested during 2014 and accordingly the balance of the own shares held reserve reduced by £982,000. 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 stated before issue costs. A five year record of its capital employed is displayed on page 101 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, subsequent to the housing market downturn. The sharp market movements in 2008, saw a fall in the Group’s capital employed, as inventory provisions reduced the asset base of the Group, leading to a reduction in retained earnings and thus shareholders equity. This was partially reversed in 2009 following a successful equity placing. 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. 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.
88 | 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. At 31 December 2014, the Group had a £18.6 million interest rate swap relating to debt held within a joint venture. The Group pays a fixed interest rate of 1.505% and receives one month LIBOR. All costs are being taken directly through income, because the arrangement is not considered a cash flow hedge under IAS39. The fair value measurement of the Group’s derivative financial instruments include inputs which are based on observable market data. In July 2013 the Group entered into a £25.0 million cash flow hedge to protect against movements in interest rates. This hedge expires on 29 January 2016. Interest rate derivative financial instruments 2014 2013 £000 £000
Opening fair value 208 416
Change in fair value (149) (208)
Closing fair value 59 208
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 2014, 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 £3.0 million (2013: £2.6 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 £20,700 (2013: £21,000), 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 are secured against the following:
2014 2013 £000 £000
Consented land 5,044 7,338
Second charge against property 40,993 46,404
Unsecured 54,792 34,375
100,829 88,117
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 41.
Bovis Homes Group PLC | 89 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 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)
Linked to UK Not linked to UK housing market housing market Total 31 December 2013 £000 £000 £000
Non-derivative financial assets Restricted cash - 1,823 1,823 Trade and other receivables - 43,273 43,273 Available for sale financial assets 44,844 - 44,844 Cash and cash equivalents - 12,025 12,025 Non-derivative financial liabilities Bank and other loans - (29,856) (29,856) Trade and other payables - (242,557) (242,557) Derivative financial liabilities Other financial liabilities (784) - (784) Derivative - (208) (208)
44,060 (215,500) (171,440)
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 2014 increase 2014 decrease assumptions assumptions by 1% by 1%
Discount rate, incorporating default rate (2,448) 2,707
House price inflation 2,462 (2,191)
90 | 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
2014 198,246 202,153 112,754 37,583 36,255 14,079 1,434 48
2013 123,805 126,556 96,648 14,827 7,954 3,853 3,068 206
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 | 91 Notes to the financial statements continued
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
Level 1 Level 2 Level 3 Group 31 December 2013 £000 £000 £000 £000
Assets
Available for sale financial assets - - 44,844 44,844
Liabilities Other financial liabilities - (784) - (784) Derivative - (208) - (208)
- (992) - (992)
- (992) 44,844 43,852
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 are 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. In our view, these disclosures are less important and/or material to the core operations of Bovis Homes Group PLC and as such they have been grouped together in section 5. 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
2014 2013 Note £000 £000
Current tax
Current year 29,484 18,615
Adjustments for prior years (878) (546)
28,606 18,069
Deferred tax
Origination and reversal of temporary differences 5.2 (158) 513
Adjustments for prior year 5.2 (172) 145
Total income tax in income statement 28,276 18,727
92 | Annual report and accounts | Financial statements Notes to the financial statements continued
Reconciliation of effective tax rate
2014 2014 2013 2013 % £000 % £000
Profit before tax 133,484 78,795
Income tax using the domestic corporation tax rate 22 28,699 23 18,326
Non-deductible expenses - 85 - (76)
Other - (147) 1 525
Change in tax rate - 18 1 352
Over provided in prior years (1) (379) (1) (400)
Total tax expense 21 28,276 24 18,727
Recognised directly in equity 2014 2013 Note £000 £000
Relating to actuarial movements on pension scheme 5.2 1,481 (748)
Relating to share-based payments 5.2 2 (23)
Relating to shared equity 5.2 (621) -
Deferred tax recognised directly in equity 862 (771)
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 £14,016,000 (2013: £9,154,000) represents the remaining balance of income taxes payable in respect of current and prior periods. Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Assets Liabilities Net
2014 2013 2014 2013 2014 2013 Group £000 £000 £000 £000 £000 £000
Property, plant and equipment - - (332) (177) (332) (177) Non-current trade payables 1,900 2,039 - - 1,900 2,039 Available for sale financial assets 411 123 - - 411 123 Employee benefits - pensions 134 - - (863) 134 (863) Employee benefits - share-based payments 464 456 - - 464 456 Provisions 90 130 - - 90 130 Interest rate derivative 12 42 - - 12 42 Inventories - - (273) (537) (273) (537) Adjustment on sale to Joint Venture 239 238 - - 239 238 Tax assets/(liabilities) 3,250 3,028 (605) (1,577) 2,645 1,451
Bovis Homes Group PLC | 93 Notes to the financial statements continued
Movement in temporary differences during the year 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
Balance Recognised Recognised Balance 1 Jan 2013 in income in equity 31 Dec 2013 Group £000 £000 £000 £000
Property, plant and equipment (13) (164) - (177)
Non-current trade payables 2,397 (358) - 2,039
Available for sale financial assets (400) 523 - 123
Employee benefits - pensions 513 (628) (748) (863)
Employee benefits - share-based payments 466 13 (23) 456
Provisions 143 (13) - 130
Interest rate derivative 117 (75) - 42
Inventories (618) 81 - (537)
Adjustment on sale to Joint Venture 276 (38) - 238
Movement in temporary differences 2,881 (659) (771) 1,451
Factors affecting future tax charge The 2013 Budget on 20 March 2013 announced a fall in the UK Corporation tax rate from 24% to 21% from 6 April 2014. In 2015 this will fall again to 20%. 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 2014, £9,498,000 (2013: £10,194,000) 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 deficit of £0.7 million (2013: surplus of £3.2 million). As at 31 December 2014 a deferred tax asset of £134,000 (2013 deferred tax liability: £863,000) was recognised.
94 | 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
2014 2013
Average staff numbers 905 741
2014 2013 Personnel expenses £000 £000
Wages and salaries 35,916 28,600
Compulsory social security contributions 4,081 3,343
Contributions to defined contribution plans 722 615
Increase in expenses related to defined benefit plans 1,024 922
Equity-settled share-based payments 838 766
Personnel expenses 42,581 34,246
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 2014 2013 £000 £000
Long Term Incentive Plan 582 536
Executive and other share options 129 99
Save As You Earn share options 127 131
Total expense recognised as personnel expenses 838 766
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 45 to 61. The directors are considered to be the only key management personnel. A summary of key management remunerations is as follows: 2014 2013 £000 £000
Wages and salaries 1,507 1,518
Compulsory social security contributions 242 215
Contributions to defined contribution plans 82 126
Equity-settled share-based payments 244 748
Key management remuneration 2,075 2,607
Details of the equity settled share based schemes are set out below. Long term incentive plan A long term incentive plan for executive directors and senior executives was approved by shareholders at the 2010 Annual General Meeting. Two grants of awards under this plan was made in each of 2013 and 2014. Details of the vesting conditions of these awards are laid out in the directors’ remuneration report which can be found on pages 45 to 61. 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 | 95 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 10% discount to the market price of the shares at the date of grant. 5.4 Property,plant and equipment Property, plant and equipment includes land and buildings at £9.5 million (2013: £9.7 million) and plant and machinery of £4.1 million (2013: 3.8 million). 5.5 Investments Fixed asset investments
Investments in subsidiaries are carried at cost less impairment. Following the issue of IFRIC11 in 2007, 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
2014 2013 2014 2013 £000 £000 £000 £000
Subsidiary undertakings
Interest in subsidiary undertakings’ shares at cost (100% ownership of ordinary shares) - - 4,769 5,146
Investments accounted for using the equity method
Interest in Joint Ventures - equity 4,053 3,676 - -
- loan 4,032 1,391 - -
8,085 5,067 - -
Other investments 22 22 - -
8,107 5,089 4,769 5,146
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, of which there are two principal subsidiary undertakings. Bovis Homes Insurance PCC Limited, was dissolved on 26 November 2014. A full list of the Group’s subsidiaries will be filed with the Company’s next annual return.
Country of incorporation Ownership interest in ordinary shares
2014 2013 % %
Bovis Homes Limited United Kingdom 100 100
Bovis Homes Insurance PCC Limited (dissolved 26 November 2014) Guernsey 100 100
At 31 December 2014 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
2014 2013 % %
Bovis Peer LLP United Kingdom 50 50
IIH Oak Investors LLP United Kingdom 26 -
The movement on the investment in the material Joint Venture (Bovis Peer LLP) during the year is as follows:
2014 2013 £000 £000
At the start of the year 5,067 5,365
Net decrease in loans (260) (314)
Share of results 287 283
Dividend received (283) (267)
At the end of the year 4,811 5,067
96 | Annual report and accounts | Financial statements Notes to the financial statements continued
The Group’s share of the material Joint Venture’s net assets, income and expenses is made up as follows: 2014 2013 £000 £000
Non-current assets 14,517 14,592
Current assets 403 457
Current liabilities (9,404) (125)
Non-current liabilities - (10,038)
Share of net assets of material Joint Venture 5,516 4,886
Revenue 834 814
Costs (257) (239)
Operating profit 577 575
Interest (290) (292)
Share of results of material Joint Venture 287 283
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 £148,000 (2013: £147,000). Loans totalling £1,575,355 were provided in prior years at an annual interest rate of LIBOR plus 2.4%. No other loans or sales of inventory have taken place. Interest charges made in respect of the loans were £37,000 (2013: £46,000). 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 129 homes were sold to the Joint Venture for cash consideration of £28,787,381 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. A loan of £2,901,109 was 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 £1.0 million (2013: £1.4 million) and other amounts of £2.1 million (2013: £2.1 million). 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.
Bovis Homes Group PLC | 97 Notes to the financial statements continued
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 2014 was 17 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.
2014 2013 £000 £000
Present value of funded obligations 104,020 91,456
Fair value of plan scheme assets (103,352) (94,693)
Recognised liability/(asset) for defined benefit obligations 668 (3,237)
Movements in the net liability for defined benefit obligations recognised in the balance sheet
2014 2013 £000 £000
Net (asset)/liability for defined benefit obligations at 1 January (3,237) 3,171
Contributions received (4,137) (3,775)
Expense recognised in the income statement 876 1,060
Loss/(gain) recognised in equity 7,166 (3,693)
Net liability/(asset) for defined benefit obligations at 31 December 668 (3,237)
The cumulative loss recognised in equity to date is £7.9 million.
Change in defined benefit obligation over the year 2014 2013 £000 £000
Defined benefit obligation at beginning of year 91,456 88,400
Interest cost 4,073 3,850
Current service cost 765 754
Actual member contributions 149 148
Actual benefit payments by the scheme (2,820) (2,719)
Loss on change of assumptions 10,397 1,023
Defined benefit obligation at end of year 104,020 91,456
98 | Annual report and accounts | Financial statements Notes to the financial statements continued
Change in scheme assets over the year
2014 2013 £000 £000
Fair value of scheme assets at beginning of year 94,693 85,229
Interest income 4,221 3,711
Actual benefit payments by the scheme (2,820) (2,719)
Actual Group contributions 4,137 3,775
Actual member contributions 149 148
Return on assets 3,231 4,717
Administration costs (259) (168)
Fair value of scheme assets at end of year 103,352 94,693
The major categories of scheme assets are as follows:
2014 2013 £000 £000
Return seeking
Equities 43,474 58,646
Debt Instruments
Bonds 27,165 25,221
Gilts 9,494 7,805
Debt Instruments subtotal 36,659 33,026
Other
Cash 23,219 3,021
Total market value of assets 103,352 94,693
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%
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
Bovis Homes Group PLC | 99 Notes to the financial statements continued
Expense recognised in the income statement
2014 2013 £000 £000
Current service cost 765 754
Administration expenses 259 168
Interest cost (credit)/cost (148) 138
Expense recognised in the income statement 876 1,060
Assumptions Principal actuarial assumptions at the balance sheet date (expressed as weighted averages): 2014 2013 2012 Group % % %
Discount rate at 31 December 3.6 4.4 4.4
Future salary increases 2.5 2.5 2.5
Inflation - RPI 3.1 3.5 3.1
- CPI 2.1 2.5 2.5
Future pension increases 2.5 2.7 2.6
2014 2013 2012 2011 2010 £000 £000 £000 £000 £000
Present value of defined benefit obligations 104,020 91,456 88,400 79,140 76,390
Fair value of scheme assets 103,352 94,693 85,229 76,696 73,520
(Deficit)/surplus in the scheme (668) 3,237 (3,171) (2,444) (2,870)
The most recent formal actuarial valuation was carried out as at 30 June 2013. The results have been updated to 31 December 2014 by a qualified independent actuary. As part of this valuation exercise, the mortality assumptions for the scheme are now based on the CMI 2013 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 65.
Current Current Remaining years of life at 65 age at 45 age at 65
Men 24.6 22.4
Women 27.1 24.7
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 and £3.0 million made during December 2014. A new schedule of contributions has been agreed between the Group and the pension scheme trustee resulting in 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 period. Transactions between the Group, Company and key management personnel in the year ending 31 December 2014 were limited to those relating to remuneration, which are disclosed in the director’s remuneration report (which can be found on pages 45 to 61) and in note 5.3. Transactions between the Group, Company and joint ventures are in note 5.5.
100 | Annual report and accounts | Financial statements Five year record
2014 2013 2012 2011 2010 IFRS IFRS IFRS IFRS IFRS Years ended 31 December £m £m £m £m £m
Revenue and profit
Revenue 809.4 556.0 425.5 364.8 298.6
Operating profit before financing costs 137.6 82.8 56.7 36.4 21.6
Net financing costs (4.4) (4.3) (3.7) (4.5) (3.2)
Share of result of Joint Venture 0.3 0.3 0.2 0.2 0.1
Profit before tax 133.5 78.8 53.2 32.1 18.5
Tax (28.3) (18.7) (13.0) (8.8) (4.5)
Profit after tax 105.2 60.1 40.2 23.3 14.0
Balance sheet
Equity shareholders’ funds 879.1 810.3 758.8 728.6 710.8
Net (cash)/debt (5.2) 18.0 (18.8) (50.8) (51.8)
Capital employed 873.9 828.3 740.1 677.8 659.0
Returns
Operating margin (note 1) 17% 15% 13% 10% 7%
Return on shareholders’ funds (note 2) 13% 8% 6% 3% 2%
Return on capital employed (note 3) 16% 11% 8% 5% 3%
Homes (including units sold on third party owned land)
Number of unit completions 3,635 2,813 2,355 2,045 1,901
Average sales price (£’000) 216.6 195.1 170.7 162.4 160.7
Ordinary shares
Earnings per share (p) (note 4) 78.6 44.9 30.2 17.5 10.6
Dividends per share
Paid (p) 18.0 7.5 6.5 4.5 -
Interim paid and final proposed (p) 35.0 13.5 9.0 5.0 3.0
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 pre-exceptional profit before interest and tax over the average of opening and closing shareholders’ funds plus net debt or less net cash. Note 4: Earnings per share is calculated on a pre-exceptional basis.
Bovis Homes Group PLC | 101 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 2015 Annual General Meeting of Bovis Homes Group PLC will be held at Grocers’ Hall, Princes Street, London EC2R 8AD on Friday 15 May 2015 at 12 noon for the following purposes: Ordinary resolutions Reports and accounts 1 To receive the audited accounts of the Company for the year ended 31 December 2014 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 2014 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 (appointed since the last Annual General Meeting) as a director of the Company. 7 To re-appoint David James Ritchie as a director of the Company. Auditors 8 To appoint PricewaterhouseCoopers LLP as auditors of the Company. 9 To authorise the directors to determine the remuneration of the auditors. Authority to allot shares 10 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 £22,348,969; and (b) comprising equity securities (as defined in the 2006 Act) up to an aggregate nominal amount of £44,697,938 (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 2016 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 11 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 12 That if resolution 10 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 2016 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
102 | 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 10(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 10(a), to the allotment of equity securities for cash otherwise than pursuant to paragraph (b) up to an aggregate nominal amount of £3,355,701. Authority to purchase own shares 13 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 13,422,804 ordinary shares and shall expire at the conclusion of the next Annual General Meeting of the Company in 2016 (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 20 March 2015
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 6.00pm on 13 May 2015 (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.eproxyappointment.com) (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 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 | 103 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 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 2 March 2015 (being the last practicable date prior to the publication of this Notice) the Company’s issued share capital consists of 134,228,043 ordinary shares, carrying one vote each. Therefore, the total voting rights in the Company as at 2 March 2015 are 134,228,043. (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 2 April 2015, 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 2014 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 11.30am 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.
104 | 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 2014. 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 2014 (the “2014 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 45 to 58 of the 2014 Annual Report and Accounts, gives details of the directors’ remuneration for the year ended 31 December 2014 and sets out the way in which the Company will implement its policy on directors’ remuneration during 2015. The Company’s auditors, KPMG LLP, have audited those parts of the directors’ remuneration report capable of being audited and their report may be found on pages 72 to 73 of the 2014 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 22 May 2015 to shareholders on the register at the close of business on 27 March 2015. Items 4 to 7: 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, with the exception of John Warren who is retiring from the Board, having served nine years since his first re-appointment. The Company’s Articles of Association require that any director appointed by the Board since the last Annual General Meeting shall hold office only until the next Annual General Meeting and, accordingly, Chris Browne will offer herself 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 and Chris Browne as non-executive directors, the Chairman has confirmed following the formal performance evaluation conducted during 2014 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. Ian Tyler was appointed non-executive Chairman in November 2013 and 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 page 34 of the 2014 Annual Report and Accounts. Items 8 and 9: appointment of auditors and auditors’ remuneration The auditors of a company must be appointed at each general meeting at which accounts are presented. Resolution 8 proposes the appointment of PricewaterhouseCoopers LLP as the Company’s auditors, following a competitive audit tender process led by the Audit Committee. Resolution 9 gives authority to the directors to determine the auditors’ remuneration. Item 10: 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 £22,348,969 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 £44,697,938 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 £22,348,969 represents less than 33.3% of the Company’s total ordinary share capital in issue as at 2 March 2015 (being the latest practicable date prior to publication of this Notice). The amount of £44,697,938 represents less than 66.6% of the Company’s total ordinary share capital in issue as at 2 March 2015 (being the latest practicable date prior to publication of this Notice). The Company did not hold any shares in treasury as at 2 March 2015. 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 | 105 Explanatory notes to the notice of meeting continued
Item 11: 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 11 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 12: Disapplication of pre-emption rights Resolution 12 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 £3,355,701 which represents approximately 5% of the Company’s total ordinary share capital in issue as at 2 March 2015 (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 12 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 13: 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 13,422,804 of its own shares, representing approximately 10% of the Company’s total ordinary share capital in issue as at 2 March 2015 (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 2016. As at 2 March 2015 there were options over 666,333 ordinary shares in the capital of the Company which represent 0.50% 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 0.55% 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.
106 | 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 23 March 2015
Annual General Meeting 15 May 2015
Payment of 2014 final dividend 22 May 2015
Announcement of 2015 interim results 17 August 2015
Announcement of 2015 final results February 2016
Analysis of shareholdings - at 31 December 2014 Number of Number of shareholders % ordinary shares %
1 - 5,000 2,167 81.35 2,137,167 1.59
5,001 - 50,000 316 11.86 5,220,847 3.89
50,001 - 250,000 93 3.49 11,275,922 8.40
250,001 - 500,000 35 1.31 12,526,330 9.33
500,001 - 1,000,000 25 0.94 17,098,347 12.74
1,000,001 - and over 28 1.05 85,969,430 64.05
Total 2,664 100.0 134,228,043 100.0
Share price (middle market) - year to 31 December 2014
At end of year: 884.5p Lowest: 732.5p Highest: 943.5p
Advisers
Auditors Principal bankers Joint stockbrokers Insurance brokers KPMG 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 HSBC Bank plc Winchester House Bridgwater Road Freshfields Bruckhaus Deringer LLP Royal Bank of Scotland plc 1 Great Winchester Street Bristol BS99 6ZZ Svenska Handelsbanken AB London EC2N 2DB 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: 0870 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 0870 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: 0870 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 | 107 Principal offices
Bovis Homes Group PLC Southern region Western region South West region The Manor House The Manor House Cleeve Hall Camberwell House North Ash Road North Ash Road Cheltenham Road Grenadier Road New Ash Green New Ash Green Bishops Cleeve Exeter Longfield Longfield Cheltenham EX1 3QF Kent DA3 8HQ Kent DA3 8HQ Gloucestershire GL52 8GD Tel: (01474) 876200 Tel: (01474) 876200 Tel: (01242) 662400 Tel: (01392) 344700 Fax: (01474) 876201 Fax: (01474) 876201 Fax: (01242) 662488 Fax: (01392) 369087 DX: 41950 New Ash Green 2 DX: 41950 New Ash Green 2 DX: 137900 Bishops Cleeve 2 DX 314701 Exeter 30
3 Northern region Central region Eastern region Dunston Hall Bromwich Court The Manor House Dunston Highway Point North Ash Road Stafford Gorsey Lane New Ash Green ST18 9AB Coleshill Longfield Birmingham B46 1JU Kent DA3 8HQ Tel: (01785) 788300 Tel: (01675) 437000 Tel: (01474) 876200 Fax: (01785) 788366 Fax: (01675) 437030 Fax: (01474) 876201 DX: 311601 Stafford 10 DX: 728340 Coleshill 2 DX: 41950 New Ash Green 2 3
Supplementary information
108 | Annual report and accounts | Supplementary information
Bovis Homes Group PLC Group Homes Bovis Annual report and accounts and report Annual 2014
Bovis Homes Group PLC, The Manor House, North Ash Road, New Ash Green, Longfield, Kent DA3 8HQ. www.bovishomesgroup.co.uk
Designed and produced by the Bovis Homes Graphic Design Department. Printed by Tewkesbury Printing Company Limited accredited with ISO 14001 Environmental Certification. Printed using bio inks formulated from sustainable raw materials.
Printed on Revive 50:50 silk a recycled paper containing 50% recycled waste and 50% virgin fibre and manufactured at a mill certified with ISO 14001 environmental management standard. The pulp used in this product is bleached using an Elemental Chlorine Free process (ECF).
When you have finished with this pack please recycle it.
When you have finished with this pack please recycle it.