Annual report and accounts 2013 accounts and report Annual PLC Group Homes Bovis
Annual report and accounts 2013 Bovis Homes Group PLC
www.bovishomesgroup.co.uk
Bovis Homes Group PLC, The Manor House, North Ash Road, New Ash Green, Longfield, Kent DA3 8HQ. www.bovishomesgroup.co.uk
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operational performance summary financialand model, strategyand A review ofourbusiness Strategic report information Supplementary and notes Financial statements statements Financial remuneration policy frameworkand governance Detailed discussionofour Our Governance 108 107 105 102 101 oup incomestatement ectors andofficers Our performance Our business 79 78 77 76 75 75 72 66 64 62 42 33 32 30 26 22 16 14 12 10 8 6 4 2
AGM Notice in equity comprehensive income Principal of Shar Explanatory notestothe 2014 AGMNotice Five yearr Notes tothefinancialstatements Statement ofcashflows Gr Balance sheets Gr Gr Auditor’ Dir Nomination Committeer Audit Committeer Remuneration r Corporate gover Dir Risks anduncertainties Financial r Key performanceindicators Chief Executive’ Business objectives Our businessmodel Housing marketoverview Our strategy Chairman’ Bovis Homesataglance 2013 highlights oup statementofchanges oup statementof ectors’ report eholder information s report ecord eview s statement fices eport s report nance report eport eport
Chairman’s statement Chief Executive’s report 16 well placedforthefuture discusses howtheGroup is Ian Tyler, newChairman, 6 the year. financial performancefor Jonathan Hillreports onthe Financial review 26 discusses theplansahead. overview oftheyearand David Ritchieprovides an
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Contents Annual report and accounts Financial highlights 31% s in revenues s in ROCE to 10.4% 48% s in profit before tax* Net assets per share 50% s in dividends of 604p 2013 highlights 2013
Revenue (£m) Profit before tax (£m) Active sales outlets Net private sales per site £556.0m £78.8m 90 0.59 600 80 100 0.6
70 500 0.5 80 78.8 90 60 0.59
400 82 0.4 556.0 50 60 73 66 0.44 300 40 0.3 0.43 425.5 53.2 0.39 30 40 200 364.8 0.2
298.6 20
32.1 20 100 0.1 10
0 0 18.5 0 0.0 2010 2011 2012 2013 2010 2011 2012* 2013 2010 2011 2012 2013 2010 2011 2012 2013
Gross margin (%) Operating margin (%) Average sales price (£000) Private reservations 23.4% 14.9% £195,100 2,773 25 15 200000 3000
2500 20 12 14.9 150000 23.4 22.8 13.3
2000 2,773 195,100
15 19.8 9
17.9 100000 1500 170,700 10.0 162,400 10 6 160,700 1,873
7.2 1000 50000 1,653
5 3 1,334 500 Our business Our |
0 0 0 0 2010 2011 2012 2013 2010 2011 2012* 2013 2010 2011 2012 2013 2010 2011 2012 2013
ROCE (%) Earnings per share (p) Legal completions Consented land bank 10.4% 44.9p 2,813 14,638 plots 12 50 3000 15000
10 2500 40 12000 44.9 2,813 8 2000 14,638 10.4
30 9000 13,766 13,723 13,776
6 1500 2,355 7.7 2,045 20 30.2 6000 4 1000 1,903 5.0 10 3000
2 17.5 500 3.0
0 0 10.6 0 0 2010 2011 2012* 2013 2010 2011 2012* 2013 2010 2011 2012 2013 2010 2011 2012 2013
*Adjusted for IAS19R Strategic report Strategic
2 | Annual report and accounts | Strategic report | Our business The Group has delivered significant growth in Return on Capital Employed during 2013
Operational highlights 10% s in average active 14% s in average sales price sales outlets 34% s in sales rate per site 48% s in private reservations
RevenueRevenue (£m) (£m) Profit beforeProfit beforetax (£m) tax (£m) Active salesActive outlets sales outlets Net privateNet privatesales per sales site per site £556.0£556.0m m £78.8£78.8m m 90 90 0.590.59 600 600 80 80 100 100 0.6 0.6
70 70 500 500 0.5 0.5 80 80 78.8 78.8 90 90 0.59 60 60 0.59
400 400 82 82 0.4 0.4 556.0 556.0 50 50 60 60 73 73 66 66 0.44 0.44 0.43 300 300 40 40 0.3 0.3 0.43 425.5 425.5 53.2 53.2 0.39 0.39 30 30 40 40 200 200 364.8 364.8 0.2 0.2
298.6 298.6 20 20
32.1 32.1 20 20 100 100 0.1 0.1 10 10
0 0 0 18.5 0 18.5 0 0 0.0 0.0 2010 20112010 2012 2011 2013 2012 2013 2010 20112010 2012* 2011 2013 2012* 2013 2010 20112010 2012 2011 2013 2012 2013 2010 20112010 2012 2011 2013 2012 2013
Gross marginGross margin (%) (%) OperatingOperating margin margin (%) (%) AverageAverage sales price sales (£000) price (£000) Private Privatereservations reservations 23.4%23.4% 14.9%14.9% £195,100£195,100 2,7732,773 25 25 15 15 200000 200000 3000 3000
2500 2500 20 20 12 12 14.9 14.9 150000 150000 23.4 23.4 22.8 22.8 13.3 13.3
2000 2000 2,773 2,773 195,100 195,100
15 15 19.8 19.8 9 9
17.9 17.9 100000 100000 1500 1500 170,700 170,700 10.0 10.0 162,400 162,400 10 10 6 6 160,700 160,700 1,873 1,873
7.2 7.2 1000 1000 50000 50000 1,653 1,653
5 5 3 3 1,334 1,334 500 500
0 0 0 0 0 0 0 0 2010 20112010 2012 2011 2013 2012 2013 2010 20112010 2012* 2011 2013 2012* 2013 2010 20112010 2012 2011 2013 2012 2013 2010 20112010 2012 2011 2013 2012 2013
ROCE (%)ROCE (%) EarningsEarnings per share per (p) share (p) Legal completionsLegal completions ConsentedConsented land bank land bank 10.4%10.4% 44.9p44.9p 2,8132,813 14,63814,638plots plots 12 12 50 50 3000 3000 15000 15000
10 10 2500 2500 40 40 12000 12000 44.9 44.9 2,813 2,813 8 8 2000 2000 14,638 14,638 10.4 10.4
30 30 9000 900013,766 13,723 13,766 13,776 13,723 13,776
6 6 1500 1500 2,355 2,355 7.7 7.7 2,045 2,045 20 20 30.2 30.2 6000 6000 4 4 1000 10001,903 1,903 5.0 5.0 10 10 3000 3000
2 2 17.5 17.5 500 500 3.0 3.0
0 0 0 10.6 0 10.6 0 0 0 0 2010 20112010 2012* 2011 2013 2012* 2013 2010 20112010 2012* 2011 2013 2012* 2013 2010 20112010 2012 2011 2013 2012 2013 2010 20112010 2012 20112013 2012 2013
Bovis Homes Group PLC | 3
Our vision quality
measured through returns customer surveys
measured through return on capital A quality employed over the cycle housebuilder land bank Bovis Homes at a glance a at Homes Bovis delivering high returns generated from measured through profit potential in a strategically bought the land bank land bank and quality homes sold at a premium premium price price quality product measured through high operating measured through margin HBF ratings Our business Our |
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 employs around 800 staff directly and up to a further 3,000 sub-contractors work on its sites on a daily basis. In 2013, the Group legally completed 2,813 homes on a mixture of greenfield and brownfield sites. Strategic report Strategic
4 | Annual report and accounts | Strategic report | Our business Bovis Homes is a builder of high quality homes in England and Wales
Where we operate Midlands North 472 legal completions 298 in 2013 legal completions 2012: 405 in 2013 2012: 270
South 2,043 legal completions in 2013 2012: 1,680
Our homes
Private and social homes legally completed in 2013 Private homes by type legally completed in 2013
Private and social homes legally completedHomes in 2013 Private homes by type legallyProperty completedtype in 2013 Private 2,330 83% 2 Bedroom 299 13%
Social Homes483 17% Property3 Bedroom type 1,015 43% PrivateTotal 2,3302,813 83% 42 &Bedroom 5 Bedroom 573299 25%13%
Social 483 17% Apartments3 Bedroom 1,015 443 19%43%
Total 2,813 Total4 & 5 Bedroom 2,330 573 25% Apartments 443 19%
Total 2,330 Our consentedAgeing of land at 31 December land 2013 bank Location of land at 31 December 2013
Ageing of land at 31 December 2013Plots Location of land at 31 December Plots2013 Post downturn1 9,197 63% South 10,401 71%
1 Pre downturn 3,943Plots 27% Midlands 2,705Plots 19% 1 WrittenPost downturn down 2 1,4989,197 10%63% NorthSouth 10,401 1,532 10%71% 1 TotalPre downturn 14,638 3,943 27% TotalMidlands 14,638 2,705 19% 2 1 PlotsWritten held at costdown (downturn 1,498 being July 10% 2008) North 1,532 10% 2 Plots held below cost at net realisable value Total 14,638 Total 14,638
1 Plots held at cost (downturn being July 2008) 2 Plots held below cost at net realisable value
Demand versus supply | 40 Bovis Homes Group PLC 5 Net balance % Demand versusRICS new supply buyer enquiries 30
RICS new vendor instructions Rising 40 Net balance % Residential land prices 20 RICS new buyer enquiries 150 30
RICS new vendor instructions Rising 10 Residential land prices 20 125 150 0 10 100 125 -10 75
0 Falling -20 100 2010 2011 2012 2013 -10 50 75 Jan 2004 Jul 2011 Falling -20 Source: RICS 2010 2011 2012 2013 Source: DCLG50 Jan 2004 Jul 2011
Source: RICS Source: DCLG Housing market transactions Approvals of mortgages for house purchases
2000 60
Housing market transactions 55Approvals of mortgages for house purchases 1500 2000 60 50 1000 55 ‘000 ‘000 1500 45 50 500 40 1000 ‘000 ‘000 45 30 0 500 Jan 2010 Dec 2012 2007 2008 2009 2010 2011 2012 est 40
Source: DCLG Source: Bank30 of England 0 Jan 2010 Dec 2012 2007 2008 2009 2010 2011 2012 est
Source: DCLG Gross mortgage lending Source: Bank of England 400 350 Gross mortgage lending 300 400 250 350 200
£bn 300 150 250 100 200 £bn 50 150 0 100 2005 2006 2007 2008 2009 2010 2011 2012 50 Source: National Statistics Agency 0 2005 2006 2007 2008 2009 2010 2011 2012
Source: National Statistics Agency Financial performance The Group delivered a strong increase in the return on capital employed by 2.7 ppts to 10.4% in 2013 with both profit margins and capital turn contributing to this improvement. The Group continues to be well capitalised with a strong balance sheet with net debt at the end of 2013 of £18 million.
Earnings per share and dividends Basic earnings per share for the year have grown by 49% to 44.9p. Consistent with the intention to increase dividends progressively as earnings per share increase, the Board will be recommending a final dividend of 9.5p per share, which, when combined with the 2013 interim dividend of 4.0p, totals 13.5p Chairman’s statement Chairman’s Ian Tyler for the year, an increase of 50% on the 2012 dividend. The Chairman final dividend will be payable on 23 May 2014 to shareholders on the register on 28 March 2014. It is the Board’s intention to This is my first report to shareholders continue to pursue this progressive dividend approach. following my appointment as Chairman in November 2013. This is an exciting time for Future prospects Bovis Homes and I have been pleased with While delivering a strong profit result in 2013, the Group has the strong results for 2013, the successful built a significantly improved forward sales position at the start of 2014, which underpins volume growth for this year. With deployment of the growth strategy and the another year of carefully targeted but assertive land investment considerable opportunity that I see for the in 2013 ahead of utilisation and a strong land pipeline going Group going forward. into 2014, sales outlets are expected to grow during 2014 and 2015, supporting further growth in reservation volumes. Assuming current market conditions continue, the location of The economic backdrop has shown signs of improvement these new sales outlets and the nature of the homes being over the last year and this has been reflected in a recovery in developed is expected to further increase the Group’s average the UK housing market. The availability of mortgage finance sales price and improve profit margins. Together with a is increasing in terms of the number of mortgages being continued focus on balance sheet efficiency, this is expected to approved, and the rates being charged on these mortgages deliver further strong growth in both capital turn, profitability, are increasingly competitive. Although indices report that UK and ultimately shareholder returns. house prices increased strongly in 2013, after excluding the effects of London, house price rises are considered to have People been modest across the country. However, the Government Our business Our
| has also provided positive assistance, particularly through the The Board of directors has been delighted with the Help to Buy scheme. As a result of these factors, consumer commitment and skill shown by the Group’s employees in confidence has improved. delivering growth during 2013 and, on behalf of the Board, I would like to thank them for their dedication and hard With this improving backdrop, the management team at Bovis work. The Board would also like to extend its thanks to its Homes has produced a strong set of results in 2013, delivering subcontractors and suppliers. the targeted improvements in return on capital employed. The Group is increasingly benefiting from the compound Corporate governance positive effects of stronger volumes, higher average sales Bovis Homes is committed to high standards of corporate price and improving profit margins, driving profits and return governance, including those related to the role and on capital employed higher. The Group has also set the effectiveness of the Board and compliance with the UK foundations for ongoing growth through its carefully targeted Corporate Governance Code. Details are set out in the land acquisition strategy, continued product development and corporate governance section on pages 33 to 41. focus on balance sheet strength. Strategic report Strategic
6 | Annual report and accounts | Strategic report | Our business The Group has achieved excellent progress in 2013 with improved profitability and is well positioned for further growth
Corporate social responsibility Conclusion The Group remains committed to delivering strong Corporate Looking ahead, I believe that the Group has the right strategy in Social Responsibility performance. During 2013, the Group was place to deliver enhanced, sustainable shareholder returns in the able to maintain its health and safety track record, as measured years ahead and I look forward to working with the Board and by incidence rate, notwithstanding a significant increase in build executive team to continue the Group’s success. activity. In respect of customer satisfaction, 93% of customers were happy to recommend Bovis Homes to their friends. Focus remains high in the Group to make further improvements in both Ian Tyler of these important areas, as part of the overall Corporate Social Chairman Responsibility strategy.
Bovis Homes Group PLC | 7 Revenue (£m) Profit before tax (£m) Active sales outlets Net private sales per site £556.0m £78.8m 90 0.59 600 80 100 0.6
70 500 0.5 80 78.8 90 60 0.59
400 82 0.4 556.0 50 60 73 66 0.44 300 40 0.3 0.43 425.5 53.2 0.39 30 40 200 364.8 0.2
298.6 20
32.1 20 100 0.1 10
0 0 18.5 0 0.0 2010 2011 2012 2013 2010 2011 2012* 2013 2010 2011 2012 2013 2010 2011 2012 2013
Gross margin (%) Operating margin (%) Average sales price (£000) Private reservations 23.4% 14.9% £195,100 2,773 25 15 200000 3000
2500 20 12 14.9 150000 23.4 22.8 13.3
2000 2,773 195,100
15 19.8 9
17.9 100000 1500 170,700 10.0 162,400 10 6 160,700 1,873
7.2 1000 50000 1,653
5 3 1,334 500
0 0 0 0 2010 2011 2012 2013 2010 2011 2012* 2013 2010 2011 2012 2013 2010 2011 2012 2013
Improving returns ROCE (%) Earnings per share (p) Legal completions Consented land bank The Group’s strategy remains to deliver materialRevenue improvement (£m) in shareholder Profit before tax (£m) Active sales outlets Net private sales per site returns in the short term and maintain strong returns over the housing 10.4% 44.9p 2,813 14,638 plots £556.0m 12 £78.8m 50 90 3000 0.59 15000 market cycle. In the foreseeable future the600 Group aims to achieve this by 80 100 0.6 10 2500 40 12000 increasing profitability whilst improving the efficiency of capital employed. 70 500 0.5
80 44.9 2,813 78.8 14,638
8 90 2000 0.59 60 10.4
At the same time the Group will target making investments to enhance 30 9000 13,766 13,723 13,776 400 82 0.4 556.0 Our strategy Our 50 2,355 6 73 1500 future returns potential in the land bank. At a certain point the Group will 7.7 60 66 2,045 0.44 30.2 300 40 20 0.3 0.43 6000 1,903 425.5 53.2
4 1000 0.39 reduce the current assertive level of consented land purchase and drive 40 30 5.0 200 364.8 10 0.2 3000
2 17.5 500
profitability from converting more strategic land assets.298.6 20 3.0 32.1 20 100 0.1 100 0 10.6 0 0
201018.5 2011 2012* 2013 2010 2011 2012* 2013 2010 2011 2012 2013 2010 2011 2012 2013 0 0 0 0.0 Enhanced operating profit 2010 2011 2012 2013 2010 2011 2012* 2013 2010 2011 2012 2013 2010 2011 2012 2013 The Group is aiming to deliver enhanced profits in the foreseeable future from the compound positive effect of: Gross margin (%) Operating margin (%) Average sales price (£000) Private reservations • Volume growth from a greater number of 23.4sales outlets% combined with 14.9% £195,100 2,773 an improving sales rate per site from an25 improvement in the quality of 15 200000 3000
the average active sales outlet. 2500 20 12 14.9 150000 23.4 22.8 13.3
2000 2,773
• Higher average sales price from traditional homes on better located 195,100
15 19.8 9
17.9 100000 1500 170,700
sales outlets. 10.0 162,400 10 6 160,700 1,873
7.2 1000 • Stronger profit margins from an increasing proportion of legal 50000 1,653
5 3 1,334 500 completions from new higher margin sites. 0 0 0 0 2010 2011 2012 2013 2010 2011 2012* 2013 2010 2011 2012 2013 2010 2011 2012 2013 Enhancing future returns potential
The future growth and profitability of the GroupROCE is driven (%) by improving Earnings per share (p) Legal completions Consented land bank the gross profit potential in the consented land bank. The Group aims to Embedded gross margin Embedded gross margin deliver this by: 10.4% 44.9in landp bank 2,813 14,638 plots 12 50 in£727m land bank 3000 15000 • Adding new consented sites to the land10 bank which will achieve higher 2500 80040 £727m 12000 44.9 2,813 profit margins. 8 800700 2000 14,638 10.4
30 9000 13,766 13,723 13,776 700600 2,355
6 727 1500 • Continuing investment in strategic land and delivering strategic7.7 land
600500 2,045 20 30.2 6000 727 1,903 4 600 1000 conversion through achievement of residential planning consent. 500400 5.0 524 10 600 3000 461
2 400300 17.5 500 524 • Progressively trading out older, lower margin sites.3.0 461
300200 10.6 0 0 0 0 2010 2011 2012* 2013 200100 2010 2011 2012* 2013 2010 2011 2012 2013 2010 2011 2012 2013
Our business Our The high quality investments over the past four years have delivered
| 1000 2010 2011 2012 2013 material improvements in the future profit potential of the Group. 0 2010 2011 2012 2013 As the consented land market becomes more competitive, land acquisition Capital turn will reduce closer to replacement level and the Group will source more of Capital turn its land from strategic land conversion. 0.7 0.8 0.7 Increasing efficiency of capital employed 0.80.7 0.70.6 Whilst investing assertively and rapidly growing output capacity, the Group 0.7 0.60.5 0.7 0.6 needs to control the growth of capital employed by: 0.50.4 0.6 0.5 0.40.3 0.4 • Efficient cash utilisation with larger sites being acquired on deferred terms. 0.5 0.30.2 0.4 • Managing the land bank through acquiring mainly smaller sites and 0.20.1 0.10.0 2010 2011 2012 2013 selectively selling consented land parcels on larger sites. 0.0 2010 2011 2012 2013 • Maintaining tight control of work in progress.
*Adjusted for IAS19R Strategic report Strategic
8 | Annual report and accounts | Strategic report | Our business The Group has made good progress having successfully delivered on the strategies set out for 2013
Bovis Homes Group PLC | 9 Private and social homes legally completed in 2012 Private homes by type legally completed in 2012
Homes Property type Private 1,854 79% 1 & 2 Bedroom 260 14%
Social 501 21% 3 Bedroom 839 45%
Total 2,355 4 & 5 Bedroom 411 22%
Apartments 344 19%
Total 1,854
Ageing of land at 31 December 2012 Location of land at 31 December 2012
Plots Plots Post downturn1 7,368 54% South 10,171 74%
Pre downturn 1 4,587 33% Midlands 2,335 17%
Written down 2 1,821 13% North 1,270 9%
Total 13,776 Total 13,776
1 Plots held at cost (downturn being July 2008) 2 Plots held below cost at net realisable value
Private and social homes legally completed in 2012 Private homes by type legally completed in 2012
Demand versus supply Homes Property type 80 Private 1,854 79% 1 & 2 Bedroom 260 14% Net balance % 60 Social 501 21% 3 Bedroom 839 45% Rising 40 Total 2,355 Residential land4 & prices5 Bedroom 411 22% 20 150 Apartments 344 19% 0 125 Total 1,854 -20
-40 100 RICS new buyer enquiries -60 75 RICS new vendor instructions Falling -80 Ageing of land at 31 December 2012 Location of land at 31 December 2012 2007 2013 50 Jan 2004 Jul 2011 Plots Plots Source: RICS Post downturn1 7,368 54% South 10,171 74% Source: DCLG UK housing market in thePre medium downturn 1 term 4,587 33%UK housing market in the shortMidlands term 2,335 17% Written down 2 1,821 13% North 1,270 9% Annual HPI Annual HPI Housing market transactionsTotal 13,776 Approvals of mortgages tforo Dec house 2012 Total purchases to Dec 13,776 2013 2000 1 Plots held at cost (downturn being July 2008)Halifax -0.3% +7.5% 2 Plots held below cost at net realisable value 70 Nationwide -1.1% +8.4% 1500 60 Hometrack -0.3% +4.4% 1000 ‘000 ‘000 50 Pricing 500 40 Demand versus supply During 2013 pricing has moved positively, having been 80 relatively flat30 in nominal terms for the last four years. Net 0balance % Jan 2010 Dec 2013 60 2007 2008 2009 2010 2011 2012 2013 est This positive change is particularly driven by the London Rising Source:40 DCLG market,Source: which Bank of is England estimated to have increased by around 15% Residential land prices according to Nationwide. Excluding London, prices in England The20 total UK housing stock is estimated to be around 150 Gross mortgage lending are estimated to haveResidential increased planning by between approvals 5% and 7%. 0
Housing market overview market Housing 26 million homes. The average activity level over the long term 400 Pricing is driven125 by the factors affecting demand and supply within this market has resulted in 1.1 million transactions per 15 -20 350 within the overall housing market. annum. Post 2007 the housing market suffered a significant 10 -40 300 100 5 fall in activity250 levels initially to betweenRICS new 700,000buyer enquiries and 800,000 -60 Housing 0demand75 RICS new vendor instructions Falling transactions,200 down from circa 1.6 million transactions % -5 -80 £bn Although demand is affected by a range of factors, including during 2007.2007150 During 2013, this is estimated to have increased2013 -10 affordability, confidence50 in the future direction of house prices back above100 one million transactions. The contraction in activity -15 Jan 2004 Jul 2011 and confidence over future employment prospects, Unitsthe key Source:was dueRICS 50to a large reduction in demand, driven by the lack -20 Projects demandSource: determinant DCLG over the last five years has been the of availability0 of mortgage finance, as banks delevered in -25 2005 2006 2007 2008 2009 2010 2011 2012 the aftermath of the financial crisis. The fall in activity was availability of mortgage2007 2008 finance. 2009 2010 2011 2012 H12013
Source:accompanied National Statistics by a fall Agency in the average sales price of homes from Source: HBF a peak of £199,600Housing in August market 2007 transactions to a low point of £154,700 Approvals of mortgages for house purchases in April2000 2009 (according to Halifax), a fall of 22%. Adjusted for inflation, the real decrease has been greater. 70 1500 Underlying demand from household formation, based on the 60 Government’s1000 latest estimates released in April 2013, suggested ‘000 ‘000 50 that English households were expected to grow by 221,000 per year500 through to 2021. In terms of new build supply, the 40
number of new home completions in England as reported by 30 the Government0 for the 12 months to 30 September 2013 Jan 2010 Dec 2013 2007 2008 2009 2010 2011 2012 2013 est
Our business Our was 107,950, an 8% decrease on the previous 12 months.
| Source: DCLG Source: Bank of England
Housing starts according to the Government for the 12 months to 30 September 2013 reached 117,110, an increase of 16% The three years to 31 December 2012 saw highly constrained, Gross mortgage lending Residential planning approvals compared to the year before. Therefore the mismatch between but relatively stable level of mortgage approvals, fluctuating 400 longer term demand and supply continues. primarily15 in the range of 45,000 to 55,000 approvals per 350 month. This10 issue particularly affected customers requiring 300 5 higher loan to value mortgages, many of whom were first 250 0 200 time buyers. The experience during 2013 has been significantly % -5 £bn 150 more positive,-10 with monthly mortgage approvals having 100 reached-15 a high of 71,638 in December 2013. Units 50 -20 Projects The Government announced during March 2013 that two 0 -25 2005 2006 2007 2008 2009 2010 2011 2012 products supported2007 2008 by the 2009 Government 2010 2011 under2012 the nameH12013 Help
Source: National Statistics Agency Source:to Buy HBF would be launched. This announcement gained a high level of customer awareness and interest. The first product, a shared equity scheme, was launched in April 2013 exclusively for new build properties. Strategic report Strategic
10 | Annual report and accounts | Strategic report | Our business Private and social homes legally completed in 2012 Private homes by type legally completed in 2012
Homes Property type Private 1,854 79% 1 & 2 Bedroom 260 14%
Social 501 21% 3 Bedroom 839 45%
Total 2,355 4 & 5 Bedroom 411 22%
Apartments 344 19%
Total 1,854
Ageing of land at 31 December 2012 Location of land at 31 December 2012
Plots Plots Post downturn1 7,368 54% South 10,171 74%
Pre downturn 1 4,587 33% Midlands 2,335 17%
Written down 2 1,821 13% North 1,270 9%
Total 13,776 Total 13,776
1 Plots held at cost (downturn being July 2008) 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 2013 50 Jan 2004 Jul 2011
Source: RICS Source: DCLG
Private and social homes legally completed in 2012 Private homes by type legally completed in 2012 Housing market transactions Approvals of mortgages for house purchases The2000 UK housing market is recovering with greater consumer Homes Property type 70 Private 1,854 79% 1 & 2 Bedroom 260 14% confidence1500 and improved availability of mortgage finance Social 501 21% 60 3 Bedroom 839 45%
1000 Total 2,355 4 & 5 Bedroom 411 22% ‘000 ‘000 50 Apartments 344 19% 500 40 Total 1,854 In the first six months of the scheme, 5,375 properties were Until more30 capital becomes available to the wider new build 0 Jan 2010 Dec 2013 acquired using2007 the product. 2008 200992% of 2010 the purchasers 2011 2012 were2013 firstest time sector, it is unlikely that the number of purchasers will
buyersSource: and DCLG the average price of a property bought was £194,167. increaseSource: Banksubstantially. of England The second element ofAgeing the scheme, of land a mortgage at 31 December guarantee 2012 scheme, Location of land at 31 December 2012
was launched in SeptemberGross mortgage2013, the impact lending of which has yet to Residential planning approvals be understood.400 The overall impact of the announcement andPlots the Plots 15 launch of350 the first product has been positive,Post not downturn only in1 enabling 7,368 54% South 10,171 74% 10 more customers300 to access mortgage finance, but also in increasing Pre downturn 1 4,587 33% 5 Midlands 2,335 17% consumers’250 confidence to purchase. Written down 2 1,821 13% 0 North 1,270 9% 200 % -5 The decision£bn by the Bank of England to withdrawTotal the existing13,776 Total 13,776 150 -10 Funding for Lending Scheme support for mortgages is viewed 100 1 Plots held at cost (downturn being July 2008) -15 positively by the Group, as it shows that2 Plotsthe held mortgage below cost atmarket net realisable is value Units 50 -20 Projects becoming more competitive. 0 -25 2005 2006 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 H12013
Source:Housing National Supply Statistics Agency Source: HBF In terms of the supply of residential land, the quantity of planning Demand versus supply applications made and granted fell significantly from 2008 to 80 Net balance % 2011. With the launch of the National Policy Planning Framework 60 (“NPPF”) in March 2012, the supply of residential land has Rising 40 increased materially in 2012Residential and H1 2013. land prices 20 150 Different types of residential land sites come to market in terms 0 of size, product125 type, location and former use (greenfield or -20 brownfield). Larger sites, particularly in the south of England, tend -40 to attract relatively100 few purchasers due to capital commitments, RICS new buyer enquiries whereas smaller sites up to 50 plots may attract many more. -60 75 RICS new vendor instructions Falling -80 Again, the product mix on a site may attract different levels of 2007 2013 demand with,50 for instance, apartment schemes in city centres Jan 2004 Jul 2011 (outside London) likely to attract a limited number of purchasers, Source: RICS compared to traditional two storey detached housing sites. Source: DCLG From 2010 to 2012 the quantity of buyers and vendors was Overall, the demand and supply dynamic of the land market relatively balanced. With the improving consumer confidence remains favourable for well funded purchasers and residential land supported by the Government Help to Buy scheme, the level of Housing market transactions can Approvalsbe purchased of at mortgages sensible returns. for house purchases demand2000 in the housing market has improved substantially. Competitors70 Residential1500 land The second60 hand market remains the main competition for Bovis The price of residential land is a residual value calculation, with a Homes. In a normal year, the Group would expect around 90% of 1000
developer willing to pay a land price based on expected incomes ‘000 ‘000 50 residential transactions to be second hand, with pricing in the new less costs and a required development margin. When residential build sector being set by reference to that market. The de-stocking house 500prices change, the value of a piece of land tends to move 40 by the housebuilders between 2008 and 2010 led to new build by a factor of two or three. The value of residential land is also 30 contributing a greater proportion of residential transactions. affected 0by the number of purchasers and the amount and type of Jan 2010 Dec 2013 2007 2008 2009 2010 2011 2012 2013 est This was supported by housebuilders providing finance by way residential land coming to market, as well as potential purchasers’ Source: DCLG Source:of shared Bank of equity England products to home buyers, which enabled confidence of future house price movements. certain buyers to acquire homes with lower levels of equity in the Residential planning approvals During the last fourGross years, mortgage the number lending of residential land purchasers new build market compared to the second hand market. 400 in the market has remained relatively stable. Private housebuilders With 15overall consumer confidence improving and transaction 350 have struggled to access bank finance to fund their purchase at numbers10 increasing materially, it is likely that the new build sector 300 the leverage and at the price that they require and have effectively will move5 back towards 10% of total housing market transactions. 250 not been significant market participants. The main purchasers 0 200 % -5 have£bn been publicly listed housebuilders, who have demonstrated a 150 -10 disciplined approach when acquiring land. 100 -15 Units 50 -20 Projects 0 -25 2005 2006 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 H12013 Bovis Homes Group PLC | 11 Source: National Statistics Agency Source: HBF Driving value across the cycle
A quality housebuilder delivering high returns generated from a strategically bought land bank and quality homes sold at a premium price
Our business model business Our 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 Operational Design effectiveness balancing contribution across all operating • Delivering efficient and cost assets effective build to a high standard
• Building strong relationships Build with materials suppliers and Our business Our
| sub-contractors
• Providing great customer service High quality homes sold for a • Delivering a quality home at a premium price Sales premium price Strategic report Strategic
12 | Annual report and accounts | Strategic report | Our business How the business invests in land over time will drive the Return on Capital Employed over the cycle, the key measure of success
ROCE is expected to grow substantially with strong profit growth and material improvements in capital turn, assuming current market conditions continue
Strategic objectives Risks involved Measuring success
1 Delivering enhanced profits through: • Economic recession • Volume growth from increased • Constrained mortgage lending Growth in outlets and improved sales rate absolute profits • Ability to attract and retain • Higher sales prices from traditional good people homes on better located sites • Availability and cost of materials Growth of • Stronger profit margins from • Availability and cost of sub- operating increasing legal completions contract labour margin % on new sites • Unsafe construction practices
2 Enhancing future returns in the land • Insufficient consented land bank by: available at hurdle rates due to: • Adding new higher margin sites - Increased competition Embedded gross • Investing in and converting - Insufficient supply margin in strategic land land bank • Finishing older, lower margin sites
3 Increasing efficiency of capital • Increased competition for land employed: • Lower capital per site through a combination of acquiring smaller Increasing sites, deferring payment on larger capital turn sites and selectively selling land parcels on larger sites
• Maintaining tight control of work in progress
For more information on our strategy, For more information on our risks, For more information on our see page 8 see page 30 KPI’s, see pages 22 to 23
Bovis Homes Group PLC | 13 Objective Key performance indicators Target in foreseeable future
Improving returns ROCE c18%
Enhancing operating profit Operating margin % c18%
• Increasing average active sales outlets
Business objectives Business • Improved net private sales rate per site per week • Growth of private legal completions • Higher average sales price • Cost movements against latest plan
Enhancing future returns in the land bank Embedded gross margin in the Greater than 25% land bank (Gross margin %)
• Number of consented plots and sites acquired • Investment in strategic land • Conversion of strategic land
• Written down land as % of land bank
Increasing efficiency of capital employed Capital turn c1.0
• Average plots per consented site acquired • Average net capital employed per active site • Work in progress capital turn
Our business Our Delivering strong customer satisfaction NHBC customer satisfaction score At least 4 star |
Delivering strong health and safety and HSE Construction Annual Injury Better than HSE environmental standards Incidence Rate (AIIR) Construction AIIR
• Annual incident rate • RIDDOR • Minor injuries • NHBC risk incidence • Waste (tonnes per plot)
For performance against Key Performance Indicators, see pages 22 to 23 Strategic report Strategic
14 | Annual report and accounts | Strategic report | Our business Bovis Homes has a clear business model with a well defined strategy to drive improving returns
Bovis Homes Group PLC | 15 Increase operating profits Operating profit increased in 2013 by 46% to £82.8 million, as a result of the compound positive effect of an increased volume of legal completions sold at a higher average sales price generating a stronger profit margin.
During 2013, the Group achieved 2,773 private reservations, a 48% increase on the 1,873 achieved in 2012. Net private sales per site per week increased by 34% to 0.59 (2012: 0.44), as a result of the improving quality of the Group’s active sales outlets and the benefit of a recovering housing market. Active sales outlets averaged 90 during 2013, an increase of 10% on the 82 achieved during 2012. David Ritchie
Chief Executive’s report Executive’s Chief One effect of the positive sales rate was that some sites were Chief Executive completed more quickly than expected. Also certain sites were launched later than anticipated due to planning delays. Bovis Homes has made significant progress These two factors led to the Group achieving a marginally in 2013, delivering a strong improvement in lower average number of active sales outlets than had been revenue, profits and return on capital employed. expected at the start of 2013.
The higher level of private reservations enabled the Group to
The Group has continued to acquire high quality land assets deliver a 26% increase in private legal completions to 2,330 in the south of England and in prime locations in the midlands (2012: 1,854), as well as carrying forward a significantly and northwest, where it is considered the housing market enhanced private forward order book of 692 private reservations, will be more robust. As a result, the Group has grown active up from 249 at the beginning of 2013. This improved forward sales outlets, leading to higher volumes. With an increasing order book will support the Group’s volume ambitions for proportion of legal completions from post downturn sites, 2014 and enable the Group to deliver a more balanced profile average sales price and profit margins have improved. of legal completions through the year, with an increased Furthermore through an improvement in the efficiency of proportion of its full year legal completions in the first half. capital employed by active management of the land bank and Additionally, this will assist in improving the working capital work in progress, the Group has increased its capital turn. cycle of the Group through the year. The combination of improved profitability and increased capital During 2013, the Group supported new customers accessing turn has delivered a strong improvement in the Group’s return the housing market using the Government’s Help to Buy on capital employed. shared equity scheme. In the year new homes were handed Bovis Homes aims to be a quality housebuilder delivering over to 872 customers who were able to use shared equity Our performance Our
| high returns generated from a strong land bank, much of it products, including the Help to Buy scheme, as part of their
strategically sourced, and quality homes sold at a premium home purchase. During 2012, shared equity products (including price. In order to deliver improved returns, the following Government backed schemes) were used to support customers clear strategic objectives for 2013 were set out and have buying 535 new homes. The Group sees the Help to Buy scheme been delivered: as an attractive replacement for other shared equity products.
• Increase operating profits 483 social homes were legally completed in 2013 (2012: 501), • Enhance future returns through targeted land investment constituting 17% of total legal completions (2012: 21%). The Group decided to prioritise private build over social, • Improve efficiency of capital employed particularly during Q4 2013, to ensure that private production As a result of delivering against these three strategic objectives, was not constrained by tightness in the supply of sub-contract the Group has achieved a significant increase in return on labour or materials lead times. At the beginning of 2014 the capital employed to 10.4% in 2013 from 7.7% in 2012. Group held 685 forward social reservations (2013: 529).
Additionally the Group has focused on the following objectives: In aggregate the Group delivered 2,813 legal completions in 2013, a 19% increase on the 2,355 in 2012. To support this • Deliver strong health, safety and environmental standards significant increase in new home delivery, the Group increased • Deliver a strong customer service experience its construction output in 2013 by 26% to 2,935 homes (2012: 2,322). Strategic report Strategic
16 | Annual report and accounts | Strategic report | Our performance Strategy delivery is on track with further growth in returns supported by land investment
The Group achieved a 13% increase in private average sales price Included in the sites added to date in 2014 is a major new settlement to £212,700 in 2013 (2012: £188,700). This has been driven at Sherford in Devon, where the Group owns 1,658 consented primarily by changes in the Group’s product mix of private legal plots. The land cost of this site is very low, due to the high level of completions with an increase in larger traditional two storey homes infrastructure spend which is phased over the life of the site. As a and a decrease in townhouses. The Group considers that in its result, the peak funding on this long term major project is expected areas of operation sales prices have increased by between 2% and to be between 1% and 2% of the Group’s net assets. Sherford will 3% with stronger gains in the south of England offset by modest be an anchor site within the South West region over many years and movements in the midlands and north of England. Including is expected to deliver a strong margin and an excellent return on social homes, the Group’s average sales price was 14% higher at capital employed. £195,100 (2012: £170,700). The consented land bank amounted to 14,638 plots as at 31 Housing gross margin increased from 22.6% in 2012 to 23.5% December 2013 (2012: 13,776). The Group estimates that the gross in 2013, resulting from the increased contribution from legal profit potential on these consented plots at the 2013 year end, based completions on stronger margin sites acquired post the housing on current sales prices and current build costs, was £727 million with market downturn. This margin progression was impacted by the a gross margin of 24.2% (2012: £600 million at 22.7%). planned incremental year on year cost of circa £3.5 million to promote strategic land assets. At the year end, the consented land bank included 9,197 consented plots (63% of total), which have been acquired since the housing The housing gross margin was also affected for the first time in market downturn (2012: 7,368 plots and 54% of total). The average many years by increases in build costs, mainly from labour rates. consented land plot cost was £45,800 at the start of 2013 and Increased activity in the new homes market has led to demand for increased over the year to £48,900, as a result of a lower number subcontract labour exceeding supply. As a result, subcontractors of written down plots held in the land bank (10% of land plots have seen the ability to renegotiate at higher rates. Given the versus 13% at the start of the year) and the addition of new prime timing of such increases, the Group has been able to limit the cost traditional housing sites where the average plot cost is higher. impact well within the benefit from increasing sales prices. The strategic land bank at 31 December 2013 contained 20,108 As a result of the compound positive effect of volume growth, potential plots (2012: 19,318). The Group converted circa 1,200 higher average sales price and improved gross profit margin, plots of strategic land having achieved consent during 2013. The housing gross profit increased by 41% to £130.2 million Group has continued to invest in new strategic land assets to assist in (2012: £92.1 million). With overheads well controlled, the replenishing its consented land bank at strong margins in the future. operating margin increased to 14.9% (2012*: 13.3%). In addition, the Group has secured resolution to grant planning Enhance future returns through targeted consent on three of its major strategic land assets at Winnersh, land investment Witney and Bishops Stortford. These sites will deliver in aggregate over 1,200 consented plots at a significant discount to market The Group applies rigorous criteria for the acquisition of consented value. Planning consents will be formally released once the planning land, reflecting not only the anticipated margin and return on capital, agreements for each site are signed. Good progress continues to be but also site specific risks and geographic concentration risk. made on a number of other major strategic projects, where material promotion costs are being incurred to achieve planning consents. 2013 was a successful year for land investment. The Group continued This is expected to deliver significant numbers of consented plots to invest in high quality consented land assets, retaining its focus on over the next few years. specific areas of search in the south of England and prime locations in the midlands and northwest. During the year the Group added 3,737 plots on 27 sites to the consented land bank at a cost of Improve efficiency of capital employed £225 million (2012: 2,651 consented plots at a cost of £161 million). Improving capital turn is critical to the Group’s ability to deliver The plots added have an estimated future revenue of £841 million material growth in return on capital employed. Capital turn and an estimated future gross profit potential of £216 million, based has continued to improve from 0.5 in 2011 to 0.7 in 2013. on current sales prices and current build costs, and are expected to The consented land bank is the key element of capital employed. deliver a gross margin of over 25% and a ROCE well in excess of While this has grown in size with the investments made by the the Group’s 20% hurdle rate. A further circa 2,800 plots on 12 Group, the average number of plots per active sales outlet has sites were contracted at the end of 2013, awaiting satisfaction of continued to decrease from 188 in 2011 to 158 in 2013. legal conditions. The average number of plots per site acquired in 2013 was 138 plots, compared to 147 in 2012. In 2014 to date, circa 2,300 consented plots on nine sites have been added to the consented land bank, many of these plots arising from the successful completion of the contracts secured during 2013.
Bovis Homes Group PLC | 17 Work in progress turn increased to 2.7 times in 2013 from During 2013, the Group has continued to focus on waste in 2.5 in 2012. Notional units of production at the end of 2013 order to drive down the quantity of waste produced in building increased to 1,040 (2012: 918), as a result of the increase in a home. The quantity of active waste generated per home in active sales outlets and to facilitate higher legal completion 2013 remained at 3.1 tonnes and the amount sent to landfill volumes in the first half of 2014 over the first half of 2013. was reduced by 12%. The value of work in progress has increased to £202.3 million The Group works with a range of external stakeholders to from £172.7 million. agree and carry out development in a mutually acceptable With the land investment undertaken to date and the strength manner, thereby ensuring that its developments take place in of the ongoing land pipeline, the output capacity of the a way which mitigates the impact on the local environment, business is expected to increase. On the basis of current thereby balancing the needs of local communities for new market conditions, capital turn should improve further in 2014 housing with the requirement to avoid environmental damage. and beyond. Looking forward, the Group is focusing on ways to ensure Deliver strong health, safety and that its products conform to good environmental standards, Chief Executive’s report Executive’s Chief environmental standards including the Code for Sustainable Homes. During 2013, 1,036 of the Group’s homes were constructed to at least The Group is committed to delivering strong health and safety Code 3 of the Code for Sustainable Homes. Reflecting the standards for its employees, subcontractors and other site existing contribution that the Group makes to the communities visitors. It maintains a high level of organisational focus on its and environments in which it operates, the Group is health and safety regime through comprehensive staff training, pleased to report that it continues to be a member of clear and accountable management processes and through the FTSE4Good index.
regular and transparent reporting of performance. Given the nature of our business, scope of operations in This is overseen, firstly, through the operational line, which the UK, business relationships, supply chains and labour takes day to day accountability for this area and, secondly, via practices we have not included information specifically about a Group-wide oversight committee with nominated regional human rights in this report. We have an Ethical Code of directors responsible for safety, run by the Group Director of Conduct and an Equal Opportunities policy which recognise Health and Safety and chaired by a senior Group manager. the importance of high standards and treating our employees The Group also seeks to ensure that all of its employees and fairly. All policies can be found on the Company’s website at subcontractors who operate at or visit sites carry a CSCS card, www.bovishomesgroup.co.uk. indicating its commitment to a fully trained workforce. Further details of the Group’s efforts and achievements during As the Group increased its build activity by 26% during 2013, 2013 in regards to Corporate Social Responsibility will be the health and safety risk incidence rate across the business published in a separate report, available from the Company’s was maintained positively at 22.4 (2012: 23.1), the lower website (www.bovishomesgroup.co.uk). rate meaning stronger performance. This reflects a robust performance given the magnitude of the increase in employee Deliver a strong customer service experience
Our performance Our numbers and subcontractor population during the year. | for Bovis Homes customers
The Group set itself challenging targets at the start of The Group is focused on delivering its customers a high quality 2013 with the ambition to further reduce health and safety home alongside a good level of service through the period the risk incidence over a five year period. Disappointingly, the customer is buying the home and thereafter as the customer performance of the Group in the first year of this five year enjoys their new home. During 2013, 93% of customers period was behind target. The Group continues to develop reported that they would recommend Bovis Homes to a friend its health and safety processes and controls with the aim and this was reinforced by the award during February 2013 of improving performance in line with the targets set for of a five star customer satisfaction rating by the Home Builder 2014. Health and safety will remain a key focus for regional, Federation. During the course of 2013, the Group’s score in divisional and Group management. the Home Builder Federation customer satisfaction survey has dropped marginally below the 90% benchmark for the five The Group continues to regard sustainable development as star rating at 89%. critical to the long term creation of value for its shareholders. The housebuilding industry has an important role to play both Whilst remaining a robust customer satisfaction score, the in mitigating the impact of its building activities on the local Group was disappointed to see this deterioration in its external environment and in the evolution of building techniques customer satisfaction rating and the gap which has opened and advances, which reduce the carbon usage from new between this external score and the customers’ response to the build developments. Group’s internal customer satisfaction survey. Strategic report Strategic
18 | Annual report and accounts | Strategic report | Our performance Strategy delivery is on track with further growth in returns supported by land investment
The Group has reinforced its Customer Journey processes The Board across the business with the view to improving its customer Colin Holmes has decided to retire from the Board at the 2014 satisfaction performance. Annual General Meeting to be held on 16 May 2014 after seven and a half years as a non-executive director and seven years as The focus of the Group’s customer communication has remained Remuneration Committee chairman. The Board would like to thank digitally based during 2013, with the Group using the power of Colin for his valuable contribution during his time on the Board. the internet to directly market its products to consumers, utilising Alastair Lyons will succeed as Remuneration Committee chairman internally generated mailing lists as well as via intermediaries such as Rightmove and Zoopla. Over 70% of customer enquires originate following the AGM. via the web. Market conditions IT connectivity is provided to the sales operations, enabling efficient Housing market conditions improved materially during 2013. and effective customer communication and the utilisation of an An increase in the number of mortgage products including a integrated CRM system. The selling process is supported by the greater availability of high loan to value mortgages has supported Group’s bespoke prospect management system, which delivers a greater number of housing transactions. Bank of England on-site technology whilst integrating the Group’s prospect database mortgage approvals statistics show a significant increase during with brochure fulfilment. the second half of 2013 with monthly figures approaching a level more reflective of a healthy housing market. Employee diversity The following table shows the gender split within the Group as Homebuyer confidence appears to have improved materially at 31 December 2013. At Bovis Homes, 65% of the workforce is with more positive views on the future direction of house prices, male, a relatively common proportion in the construction and employment and security of earnings. With this improving housebuilding industries. While a lower proportion of senior backdrop, trading conditions are expected to remain broadly management and directors are female, the Group encourages positive during 2014, supporting sales rates and sales prices. and supports gender diversity. As at 31 December 2013, there House prices have been rising at a modest rate across many were five senior managers (all male) who were directors of regional markets with stronger rises in the south of England, offset Group subsidiaries. by more modest changes in the midlands and north of England. Male Female As expected, with activity and sales prices rising, the cost of PLC Directors 6 0 building houses is also rising as material suppliers enjoy increased demand for their products and subcontractors see an ability to Senior Managers 15 1 increase rates. All employees 496 270 The Government’s Help to Buy shared equity product, launched in % 65% 35% April 2013, has provided strong impetus to the new build industry, supporting first time buyers in particular. The Help to Buy mortgage Structure indemnity product was also launched in Q4 2013 and, given it In anticipation of increasing activity levels in 2014 and beyond, assists not just new build customers, the Group considers this the Group is now operating from six regions in two divisions with Government backed product to be further support to activity in the plans for two further regions to become operational in the wider housing market. foreseeable future (previously the Group operated through a three As a result of the positive activity in the housing market, the region structure). This new structure will provide the Group with a support provided to banks to facilitate cost effective mortgage business capacity of between 4,000 and 5,000 homes per annum, lending via the Government’s Funding for Lending Scheme is whilst maintaining close alignment to the localities in which it being withdrawn. The Group views this development positively, as operates with significant local knowledge. The geographical focus it signals that the mortgage market is beginning to operate more of the Group remains exactly as before, being in the south of effectively without assistance. England and in prime locations in the midlands and northwest. Although this change will lead to a limited increase in the Group’s overhead expenditure in absolute terms, overhead efficiency is expected to continue to improve in 2014 and beyond.
The two divisions, South and Central, are led by Divisional Managing Directors, Malcolm Pink and Keith Carnegie respectively. The strength and experience of the Group’s existing senior management is demonstrated by six of the eight regional managing directors being internal appointments.
Bovis Homes Group PLC | 19 Current trading This legal completion volume will represent major growth in the Group’s output and will require a material increase in build The Group entered 2014 with a forward sales order position of activity compared to 2013. During a period of constrained 1,377 homes, a 77% improvement on the 778 homes brought capacity in the material and labour supply markets, build costs forward at the start of 2013. Of these, 692 were private homes for 2014 legal completions are expected to increase by between (2013: 249) and 685 were social (2013: 529). 3% and 5%. However with a continuing tight focus on the The Group has delivered 468 private reservations in the Group’s operational performance, market rises in sales prices first seven weeks of 2014 (2013: 285), an increase of 64%. are expected to at least cover such cost increases. Operating from an average of 93 active sales outlets during this The Group expects further growth in the proportion of legal period (2013: 90), the Group has achieved a sales rate per site completions from post downturn sites to increase both the per week of 0.72, a 60% improvement on the 0.45 achieved in average sales price and housing gross margin in 2014. the comparable period in 2013. Sales prices achieved on these When combined with improving overhead efficiency, the private reservations to date have been ahead of the Group’s operating margin is expected to increase to approximately 17%. expectations by circa 2%.
Chief Executive’s report Executive’s Chief With a clear focus on controlling the capital employed of the As at 21 February 2014, the Group held 1,875 sales for legal Group through management of the land bank and control completion in 2014, as compared to 1,064 sales at the same of working capital, improving capital turn is expected to be point in 2013, an increase of 76%. Of these, private sales at least 0.8 in 2014. Based on current market conditions amounted to 1,160 homes (2013: 534), with social housing continuing and excluding any potential volume arising for the sales of 715 homes (2013: 530). PRS transactions, the Group expects to deliver a strong increase in return on capital employed to at least 14% in 2014 with the Build to Rent scheme – private rental sector expectation of further progress thereafter. In 2012, the Government announced its Build to Rent scheme, with the intention of providing funding support to assist in the establishment of PRS vehicles. Whilst not yet contracted, the Group has agreed terms and is at an advanced stage in David Ritchie finalising agreements to deliver new homes under two separate Chief Executive PRS transactions on sites owned by the Group, each using support from the Government’s scheme.
The two transactions involve approximately 500 homes, of which circa 250 would legally complete in 2014 with the remainder in 2015. The profit delivery combined with the acceleration of capital turn enabled by these transactions would act as a further positive contributor to increasing the Group’s return on capital employed in both 2014 and 2015. Our performance Our |
Outlook The successful continued execution of the growth strategy in 2013 has positioned the Group strongly to continue to grow in 2014 and beyond.
The sales achieved in 2014 to date combined with the expected growth in active sales outlets should enable the Group to deliver a strong increase in total reservations during 2014, assuming current market conditions continue. From these reservations excluding any potential volume arising from the PRS transactions (250 homes in 2014), the Group aims to deliver between 3,400 and 3,600 legal completions in 2014 and a stronger forward order book for 2015. Strategic report Strategic
20 | Annual report and accounts | Strategic report | Our performance Bovis Homes Group PLC | 21 Improving returns Building future profit in the land bank
2013 2012* Year ended 31 December % % Split of consented land bank
Return on capital employed (1) 10.4 7.7 2013 2012 Total potential plots as at 31 December Plots % Plots % Operating margin (2) 14.9 13.3 Post downturn at cost 9,197 63 7,368 54 Basic earnings per share (p) 44.9 30.2 Pre downturn at cost 3,943 27 4,587 33 Capital turn 0.7 0.6 Written down 1,498 10 1,821 13 (1) Return on capital employed is calculated as profit before interest and tax over the average of opening and closing shareholders’ funds plus net borrowings Total 14,638 13,776
(2) Operating margin has been calculated as operating profit over revenue
Potential gross profit in land bank £727m 24.2% £600m 22.7% Enhancing operating profit
Analysis of housing margin Group Consented land bank 2013 2012 Year ended 31 December % % 2013 2012 Total plots as at 31 December Plots Plots Key performance indicators performance Key Revenue 100.0 100.0 Brought forward 13,776 13,723 Land costs (24.7) (24.0) Additions 3,737 2,651 Construction costs (51.8) (53.4) Legal completions (2,813) (2,355) Gross profit 23.5 22.6 Disposals (60) (257) Administrative expenses (8.5) (9.9) Other (2) 14 Operating margin 15.0 12.7 Carried forward 14,638 13,776 Average sales price (£000) 195.1 170.7 South 10,401 10,171
Midlands 2,705 2,335 Active sales outlets North 1,532 1,270 Number of active sales outlets 2013 2012 Group 14,638 13,776 Brought forward 90 80 Years’ supply based upon legal completions Outlets opened in year 22 27 in the year 5.2 5.8
Outlets closed in year (18) (17) Number of sites acquired 27 18
Carried forward 94 90 Strategic conversion 32% 45%
Average 90 82
Our performance Our Year on year growth 10% 12% | Strategic land bank
2013 2012 Private reservations Total potential plots as at 31 December Plots Plots
Year ended 31 December 2013 2012 South 12,568 11,236
Brought forward 249 230 Midlands 6,503 7,032
Reservations 2,773 1,873 North 1,037 1,050
Legal completions (2,330) (1,854) Group strategic land bank 20,108 19,318
Carried forward 692 249 Years’ supply based upon legal completions in the year 7.1 8.2 Year on year reservation growth +48% +13%
Net sales rate per site per week 0.59 0.44
*Adjusted for IAS19R Strategic report Strategic
22 | Annual report and accounts | Strategic report | Our performance Bovis Homes has a clear business model with a well defined strategy to drive improving returns
1000 Capital employed Customer satisfaction (internal) 800 Analysis of net assets 600 100 Bovis Homes Group PLC 2013 2013 2012* 90 589 565 400 Year ended 31 December563 Bovis Homes Group PLC 2012 £m £m
80 95% 94% HSE Construction AIIR 2012/13 93% 200 Land bank 750.4 666.2
311 HSE Construction AIIR 2011/12 70
0 Land creditors (123.8) (123.8) 60
Net land bank 626.6 542.4 50 40 Work in progress 202.3 172.7 30 Other assets 131.9 163.8 20 Other liabilities (132.5) (138.9) 10 0 Net (debt)/cash (18.0) 18.8 2011 2012 2013
Net assets at 31 December 810.3 758.8 Would recommend a Bovis Home to a friend Net assets per share 604p 567p
Capital efficiency metrics 2012/2013 2011/2012
Year ended 31 December 2013 2012 HBF rating 5 star 4 star
Capital turn (1) 0.7 0.6
Average plots per site acquired 138 147 Health and safety
Work in progress turn (2) 2.7 2.5 Year ended 31 December 2013 2012 (1) Capital turn is calculated as revenue divided by average capital employed RIDDOR reportables (1) 17 8 (2) Work in progress turn is calculated as revenue divided by work in progress Minor injuries 76 76 Increase in net assets NHBC risk incidence (2) 22.4 23.1 2013 2012* Year ended 31 December £m £m (1) Reporting of Injuries, Diseases and Dangerous Occurrences Regulations
(2) NHBC risk incidence is calculated as the absolute risk score divided by the average annual Net assets at 1 January 758.8 728.6 population multiplied by 100,000 Profit for the year 60.1 40.2
Dividends (13.3) (8.7) Annual injury incidence rate (AIIR)
Share capital issued 1.0 0.6 1000 Net actuarial movement on defined benefits pension scheme 2.9 (2.7) 800
Deferred tax on other employee benefits - (0.1) 600 100 Adjustment to reserves for share-based payments 0.8 0.9 Bovis Homes Group PLC 2013 90 589 565 400 563 Bovis Homes Group PLC 2012
80 95% 94% Net assets at 31 December 810.3 758.8 HSE Construction AIIR 2012/13 93% 200
311 HSE Construction AIIR 2011/12 70
0 60 50 *Adjusted for IAS19R 40 Sustainability 30 Year ended 31 December 2013 2012 20 Number of homes built to Level 3 CSH 1,036 489 10
Active waste generated per plot (tonnes) 3.1 3.1 0 2011 2012 2013 Active waste sent to land fill per plot (tonnes) 0.23 0.26 Would recommend a Bovis Home to a friend
Bovis Homes Group PLC | 23
Our performance Our |
Strategic report Strategic
24 | Annual report and accounts | Strategic report | Our performance
Bovis Homes Group PLC | 25 circa £3 million in 2013 over 2012, which held back the year on year margin growth. This level of cost incurred in 2013 to promote strategic land is expected to remain relatively stable during 2014.
The profit on land sales in 2013 was £0.1 million (2012 benefited from a material profit of £4.8 million at a margin of 27%). Total gross profit was £130.3 million (gross margin: 23.4%), compared with £96.9 million (gross margin: 22.8%)
Financial review Financial in 2012.
Overheads, including all sales and marketing costs, increased in 2013 by 18%, as the Group invested early to support the large number of land assets acquired and the increased number Jonathan Hill of sales outlets. The overheads to revenue ratio improved to Group Finance Director 8.5% in 2013 from 9.5% in 2012*.
The Group has delivered a strong financial Profit before tax and earnings per share performance, with profits and earnings Profit before tax increased by 48% to £78.8 million, growing significantly and with capital comprising operating profit of £82.8 million, net financing employed under control, delivering charges of £4.3 million and a profit from joint ventures of
improved shareholder returns. At the same £0.3 million. This compares to £53.2 million of profit before time the Group has maintained a prudent tax in 2012*, comprising £56.7 million of operating profit, £3.7 million of net financing charges and a profit from joint balance sheet position. ventures of £0.2 million. Basic earnings per share for the year improved by 49% to 44.9p compared to 30.2p in 2012*. Revenue Financing During 2013, the Group generated total revenue of £556.0 Net financing charges during 2013 were £4.3 million million, an increase of 31% on the previous year (2012: (2012*: £3.7 million). Net bank charges were £3.5 million £425.5 million). Housing revenue in 2013 was £548.7 million, (2012: £2.6 million), as a result of higher net debt during 2013 36% ahead of the prior year (2012: £402.0 million) and other compared to 2012. The Group incurred a £3.1 million finance income was £4.3 million (2012: £5.7 million). Land sales charge (2012: £3.1 million charge), reflecting the imputed revenue, associated with one land sale and the recognition of interest on land bought on deferred terms. The Group also deferred income on land sales legally completed in prior years, benefited from a finance credit of £2.3 million (2012: £1.7 was £3 million in 2013, compared to three land sales achieved million) arising from the unwinding of the discount on its in 2012 with a total revenue of £17.8 million.
Our performance Our available for sale financial assets during 2013. There were | Operating profit £0.3 million of other financing credits during 2012. The Group delivered a 46% increase in operating profit for Taxation the year ended 31 December 2013 to £82.8 million The Group has recognised a tax charge of £18.7 million at an (2012*: £56.7 million) at an operating margin of 14.9% effective tax rate of 23.7% (2012*: tax charge of £13.1 million (2012*: 13.3%). Housing operating margin in 2013 was at an effective rate of 24.5%). The Group has a current tax 15.0% (2012: 12.7%) and reached 16.8% in the second liability of £9.2 million in its balance sheet as at 31 December half of 2013. 2013 (2012*: current tax liability of £5.7 million). Housing gross margin increased to 23.5% in 2013 from 22.6% in 2012. The gross margin benefited from the increased contribution from legal completions on sites acquired post the housing market downturn. As previously disclosed, the Group increased the promotional expenditure on strategic land by Strategic report Strategic
26 | Annual report and accounts | Strategic report | Our performance The Group has delivered a strong financial performance, with profits, earnings and shareholder returns improving
Dividends Pensions Given the ongoing material improvement in the Group’s Taking into account the latest estimates provided by the Group’s performance and the confidence of the Board in the continued actuarial advisors, the Group’s pension scheme on an IAS19R delivery of the Group’s strategy, the Board has proposed a 2013 basis had a surplus of £3.2 million at 31 December 2013 final dividend of 9.5p per share. This dividend will be paid on 23 (2012*: deficit of £3.2 million). Scheme assets grew over the year May 2014 to holders of ordinary shares on the register at the close to £94.7 million from £85.2 million and the scheme liabilities of business on 28 March 2014. The dividend reinvestment plan increased to £91.5 million from £88.4 million. Scheme assets gives shareholders the opportunity to reinvest their dividends in benefited from a £2.8 million special cash contribution made by ordinary shares. the Group in December 2013.
Combined with the interim dividend paid of 4.0p, the dividend As at 30 June 2013, an actuarial valuation was undertaken on for the full year totals 13.5p compared to a total of 9.0p paid in behalf of the pension scheme trustee, which showed a deficit 2012, an increase of 50%. The Board expects to grow dividends of £12.8 million at that date. The difference to the IAS19R basis progressively as earnings per share increase. results from more conservative assumptions on discount rate and mortality, as well as the additional special cash contribution of Net assets £2.8 million made during December 2013. A new schedule of
2013 2012* contributions is in the process of being agreed between the Group £m £m and the pension scheme trustee. Net assets at 1 January 758.8 728.6
Profit after tax for the year 60.1 40.2 Net cash and cash flow Share capital issued 1.0 0.6 Having started the year with a net cash balance of £18.8 million,
Net actuarial movement on pension the Group generated an operating cash inflow before land scheme through reserves 2.9 (2.7) expenditure of £204 million (2012: £130 million), demonstrating the strong underlying cash generation from the Group’s existing Deferred tax on other employee benefits - (0.1) assets. Net cash payments for land investment were £203 million Adjustment to reserves for share based payments 0.8 0.9 (2012: £139 million). Non-trading cash outflow was £38 million. Dividends paid to shareholders (13.3) (8.7) As at 31 December 2013 the Group’s net debt balance was Net assets at 31 December 810.3 758.8 £18.0 million with £12.0 million of cash in hand, offset by a
*Adjusted for IAS19R drawn term loan of £25.0 million, £4.8 million of loans received from the Government and £0.2 million being the fair value of an As at 31 December 2013 net assets of £810.3 million were interest rate swap. £51.5 million higher than at the start of the year. Inventories increased during the year by £107.4 million to £971.0 million. At the 31 December 2013, the Group had in place a committed The value of residential land, the key component of inventories, revolving credit facility of £175 million, of which £50 million increased by £84.2 million, as the Group invested ahead of usage. expires in December 2015 and £125 million in March 2017. At the end of 2013, the remaining provision held against land Additionally the Group had a fully drawn three year term loan of carried at net realisable value was £19.9 million, after utilisation £25 million, repayable in January 2016. of £8.7 million during the year. Other movements in inventories were an increase in work in progress of £29.5 million, offset by a Financial risk and liquidity decrease in part exchange properties of £6.3 million. The Group largely sees three categories of financial risk: interest rate risk, credit risk and liquidity risk. Currency risk is not a Trade and other receivables reduced by £23.1 million, with a consideration as the Group trades exclusively in the UK. reduction in debtors related to land sales of £12.7 million and lower amounts owing from housing associations. Available for With regard to interest rate risk, the Group from time to time sale financial assets held as current assets at 2012 year end of will enter into hedge instruments to ensure that the Group’s £7.2 million, relating to units held in an investment fund into exposure to excessive fluctuations in floating rate borrowings is which the Group sold show home properties, were fully recovered adequately hedged. The Group does not have a defined policy for during 2013. Trade and other payables totalling £242.6 million interest rate hedging. (2012: £249.3 million) comprised land creditors of £123.8 million (2012: £123.8 million) and trade and other creditors of £118.8 million (2012: £125.5 million). Net assets per share as at 31 December 2013 were 604p (2012: 567p).
Bovis Homes Group PLC | 27 Credit risk is largely mitigated by the fact that the Group’s sales are generally made on completion of a legal contract at which point monies are received in return for transfer of title. During 2013, the Group made a limited number of sales with the provision of a shared equity investment by the Group as a key part of the Group’s sales incentive packages, either via the Government ‘FirstBuy’ scheme or via the Group’s own ‘Jumpstart’ scheme. This has led to a limited increase in the size of the Group’s long term receivable Available for Sale Financial review Financial Financial Asset balance which at 31 December 2013 was £44.8 million versus £43.9 million at 31 December 2012.
Whilst this does represent an increase in credit risk in total, each individual credit exposure is small given the high number of counter parties. On average, individual shared equity exposure amounts to £21,000 (2012: £20,000).
Details of the Group’s financing arrangements are included on page 27. The Group regards this new facility as adequate in terms of both flexibility and liquidity to cover its medium term cash flow needs.
Financial reporting The Group has adopted IAS19 (Revised 2011) “Employee Benefits”, which outlines the accounting requirements for employee benefits. The application of IAS19 (Revised 2011) has resulted in the interest cost and expected return on assets being replaced by a net interest charge/credit on the net defined benefit pension liability/ surplus. Certain costs previously recorded as part of finance costs or other comprehensive income have now been presented within administrative expenses. The comparative period has been restated with profit being £0.7 million lower and other comprehensive income £0.7 million higher including the tax impact of the changes. The impact on both basic and diluted earnings per share was a reduction of 0.5 pence. The Group records actuarial adjustments immediately so there has been Our performance Our | no effect on the prior year pension deficit.
Other than IAS19R, there have been no changes to the Group’s accounting policies. These accounting policies will be disclosed in full within the Group’s forthcoming financial statements.
Jonathan Hill Group Finance Director Strategic report Strategic
28 | Annual report and accounts | Strategic report | Our performance The Group has delivered a strong financial performance, with profits, earnings and shareholder returns improving
Bovis Homes Group PLC | 29 Risk Change Description Mitigations in 2013
Economic environment
Economic Continued uncertainty in the global • Close monitoring of lead indicators in the housing recession economy and particularly the Euro market, notably visitors to sales outlets, sales rates reducing area adversely affects consumer and ASP. consumer confidence and demand for new • Managing build rates against sales activity. demand homes, with consequential impact • Maintaining a rigorous approach to land acquisition, t on revenues, profits and potentially with spend focused in the south of England, where the asset carrying values. economy is expected to remain more robust. • A cautious gearing position with a conservatively Risks and uncertainties and Risks structured balance sheet is retained.
Political environment
Changes in Changes to Government policies, • Proactive engagement with Government, both directly Government which affect demand ranging from and through industry bodies, primarily the HBF. policy towards policies indirectly affecting consumer • See mitigations above for demand issues.
the housing confidence (such as taxation levels) market affecting to direct policies such as Help to supply or Buy, may affect demand, and thus demand revenues, profits and potentially s asset carrying values. • Proactive engagement with Government, both directly Additionally changes to Government and through industry bodies, primarily the HBF. policies which affect supply, particularly planning, may have an • Maintenance of land bank of at least 4 years to mitigate impact on the Group’s ability to against short term changes. prosecute its growth strategy.
Mortgage finance
Limited The availability of mortgage finance, • Investing in land more suited to traditional homes, with mortgage particularly deposit requirements reduced focus on the first time buyer. Our performance Our
| availability for first time buyers, is fundamental • Providing a range of purchase assistance schemes to
to new home t to customer demand. Further our customers. buyers restrictions on mortgages granted • Continually innovating to find additional ways to assist could reduce demand for homes and customers to purchase a home. therefore revenues and profits.
Land procurement
Insufficient Expansion of the business and • Clearly defined strategy and geographical focus. investment in the delivery of the Group’s strategy • Rigorous due diligence for land acquisition to preserve land to support to improve shareholder returns defined hurdle rates. business strategy from the development of land is • Regular review of the pipeline of new land purchases. = curtailed, with existing activity levels compromised. • Investment in procurement and promotion of strategic land opportunities. • Maintaining larger land bank to deal with periods of reduced investment. Strategic report Strategic
30 | Annual report and accounts | Strategic report | Our performance The availability of mortgage finance and customer deposit requirements are the key issues currently facing the Group
Risk Change Description Mitigations in 2013
Materials and subcontract labour
Inability to Increasing competition with growing • Maintain clear visibility of future production requirements and source adequate industry build volumes may lead it’s impact on suppliers and subcontractors. materials and to shortages of both materials and • Maintain close relationships with key suppliers and subcontract s subcontract labour, which may subcontractors to gain visibility of future supply against need. labour at the constrain the Group’s ability to build right cost and may impact profitability if costs for both rise.
People
An inability to The loss of key staff or the failure to • A reward system that motivates achievement of performance attract, develop attract, develop and retain suitable targets. or retain good s talent may inhibit the Group’s ability • Development programmes individually tailored for our people to achieve its strategy. employees. • Apprenticeship schemes.
Health, safety and environment
Unsafe A loss of trust in the ability of Bovis • A consultative committee reviews performance and regulatory practices in our Homes to build homes safely and requirements for health, safety and environmental matters. construction in an environmentally responsible • Monitoring health, safety and environmental performance activities way. Affecting the reputation and against a standard of excellence. causing injury financial health of the business. = • A requirement for regular training for all staff and site or death to our based personnel. stakeholders and damage to communities
Planning and regulations
Changes in Increased costs and significant delays • Land acquisition costs appropriately reflect latest and impending legislation in production. building regulations that cannot be mitigated. and industry = • Close monitoring of changes in planning policy by experienced regulations 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 approval The strategic report outlined on pages 2 to 31, 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 21 February 2014
Bovis Homes Group PLC | 31 Ian Tyler (53) Alastair Lyons CBE (60) Colin Holmes (48) Non-executive Chairman Non-executive Deputy Chairman Non-executive Director
Directors and officers and Directors Appointed non-executive Chairman on 29 Appointed non-executive Deputy Chairman and Colin was appointed an independent non- November 2013 and Chairman of the Nomination Senior Independent Director in 2008, Alastair is executive director in 2006 and Chairman of the Committee. Ian is a Chartered Accountant and a non-executive Chairman of Admiral, Serco and Remuneration Committee in 2008. He is a member non-executive director of BAE Systems plc, Cairn Towergate Insurance. Previously, Alastair was Chief of both the Audit and Nomination Committees. Energy PLC and Cable & Wireless Communications Executive of the National Provident Institution Colin is also a non-executive director of Admiral Plc, where he is also Chairman of the audit and the National and Provincial Building Society, Group plc, where he is the Chairman of the Audit committee, and non-executive Chairman of Al Managing Director of the Insurance Division of Committee. Additionally, he is the Chairman Noor Hospitals Group Plc. Previously, Ian was Abbey National plc and Director of Corporate of GoOutdoors Ltd, a rapidly growing retailer of outdoor equipment and clothing. Colin is a Chief Executive of Balfour Beatty plc from 2005 to Projects at National Westminster Bank plc. He served Chartered Management Accountant and was March 2013, having joined the company in 1996 as the Senior Independent Director of the Phoenix formerly a member of the Executive Committee as Finance Director and becoming Chief Operating Group until September 2013. He has a broad base of Tesco plc. During his 22 year career at Tesco Officer in 2002. Prior to that, Ian was Financial of business experience with a particular focus on he held a wide range of positions including UK Comptroller of Hanson and Finance Director of mortgage lending and insurance industries. Finance Director and CEO Tesco Express. ARC Ltd, one of its principal subsidiaries, and He was awarded the CBE in 2001 for services to held financial roles at Storehouse plc. He was a social security. 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.
David Ritchie (44) Jonathan Hill (45) BA (Hons) ACA, Chief Executive BSc (Hons) ACA, Group Finance Director
Appointed Chief Executive in 2008, David was Joined Bovis Homes in 2010 as Group Finance John Warren (60) Group Managing Director from 2007 to 2008 Director. Previously, he was employed by TUI Non-executive Director and Group Finance Director from 2002 to 2006. Travel plc in both group finance and divisional He joined Bovis Homes in 1998 as Group roles and held positions with Centrica plc, BT Appointed an independent non-executive director Financial Controller and was previously Group plc and Price Waterhouse. in 2006 and Chairman of the Audit Committee employed by KPMG. David has significant in 2007. John is a Chartered Accountant and a experience and knowledge of the sector, non-executive director of Spectris plc, where he including land acquisition, planning, is the senior independent director, Welsh Water, construction, marketing and customer service. 4imprint Group plc and Greencore Group plc. At all the companies where John is a non- executive director, he chairs the Audit Committee. He was previously Group Finance Director of Martin Palmer (55) WH Smith PLC and United Biscuits plc and a FCIS, Group Company Secretary non-executive director of Arla Foods UK plc, BPP Holdings plc, RAC plc, Uniq plc, Rexam plc and Joined Bovis Homes in 2001 and was previously Rank Group plc. John has detailed financial and Group Company Secretary of London Forfaiting accounting expertise and considerable experience Company PLC from 1997 to 2001. in chairing audit committees. Our governance Our
32 | Annual report and accounts | Our governance Corporate governance report
Dear Shareholder,
Bovis Homes made demonstrable progress during 2013, delivering a further significant improvement in returns, a continuation of substantial land investment and a materially increased forward order book for 2014. I am excited by the Group’s growth strategy and the progress that has been made against a backdrop of improving market conditions. The foundations are in place that will help to Ian Tyler drive growth for the future. Chairman
I am delighted to introduce my first Corporate Governance The non-executive directors provided constructive challenge and Report, following my appointment as Chairman at the end assisted in developing strategy and proposals put forward by of November 2013. Bovis Homes has a reputation for high the executive directors and the balance of non-executive and standards of corporate governance, which enables the executive directors worked well. Board meetings were again held Board to function effectively in supporting and monitoring in all of the operating regions during the year and included open senior management in the implementation of strategy. discussion with management teams on land acquisitions, new Strong growth is being delivered and this is translating into sales outlets and progress with their objectives. increased shareholder returns. I am excited and optimistic about the future at Bovis Homes and have learnt a great deal about There were no changes in our corporate governance best the way it delivers value during my formal tailored induction practice during 2013. During the year, the Board reviewed its and through discussions with the other directors and senior policy on diversity, without making any substantive changes to management. These discussions have reinforced my perception the published version, which states that we will always make of good corporate governance as a strength at Bovis Homes, and appointments to the Board based on merit. my first Board and Committee meetings confirmed my view of a I would like to thank my colleagues on the Board for their warm strong Board and a well managed Group. and open welcome and I look forward to their collective support This report has been prepared and approved by the Board. and strong individual contributions during the coming year. On behalf of the Board, I confirm that during 2013 your My predecessor, Malcolm Harris, retired from the Board at the Company was compliant with the provisions of the UK Corporate end of November 2013 after five and a half years as Chairman, Governance Code (“the Code”), with the exception that a having been Chief Executive for twelve years, and the Board performance evaluation of the previous Chairman, Malcolm would like to recognise and thank him for his enormous Harris, was not carried out at the end of the year, given the contribution to Bovis Homes. On behalf of the Board, I would timing of his retirement from the Board. The Company remains also like to thank Colin Holmes, who is retiring at the AGM after compliant with the Code in all other respects. I personally carried seven years as Remuneration Committee Chairman, both for his out the 2013 Board performance evaluation, which enabled me valuable contribution in this role and as a non-executive director. to gain first-hand knowledge of recent performance and valuable Bovis Homes values its dialogue with all our shareholders, insights for the future. Further information is provided on page whether in meetings and presentations during the year or at 36 including the outcomes that we will be pursuing during 2014. our AGM. I look forward to meeting as many major shareholders 2013 saw the full range of Board activities from review and as possible during the year. Our 2014 AGM will be held on challenge of strategy, including our strategy day, to presentations 16 May 2014 and you will find the Notice at the end of this from regional management, site visits and review of succession Annual Report. I look forward to chairing my first AGM and planning for both our non-executive directors and executives. meeting shareholders that can attend.
Ian Tyler Chairman
Bovis Homes Group PLC | 33 Introduction The Board This report sets out the Company’s compliance with the UK The Board is responsible to the Company’s shareholders for Corporate Governance Code (“the Code”) issued by the the long-term success of the Group and its strategy, values and Financial Reporting Council (publicly available at www.frc.org. governance. It provides leadership, sets the Group’s strategic uk) and also describes how the governance framework, set out objectives and approves and monitors progress with business in the annex to this report, is applied. plans, budgets and forecasts, applying independent judgment. The Board is pleased to report that the Company has, The schedule of matters reserved for the Board is reviewed and throughout 2013, complied with and applied the provisions of approved annually by the Board and a copy is available on the the UK Corporate Governance Code, as set out below, with Company’s website (www.bovishomesgroup.co.uk/investor-centre/ the exception that a performance evaluation of the outgoing corporate-governance). Chairman was not completed at the end of 2013 as a result of his retirement from the Board towards the year end. The governance structure in 2013 is shown below.
Bovis Homes Group PLC Board Audit Remuneration Nomination Committee Committee Committee
Corporate governance report governance Corporate Group Executive Committee (Bovis Homes Ltd Board)
South West South East Central Regional Board Regional Board Regional Board
Throughout the year and up to the date of this report, the A formal, comprehensive and tailored induction was provided, Board comprised the Chairman, who is non-executive, three including visits to the regions and meetings with senior independent non-executives and two executive directors. management. On 29 November 2013, Malcolm Harris retired from the Board and Ian Tyler was appointed as the new non-executive Biographical details for the directors are provided on page 32. Chairman. Ian was considered independent by the Board on Their dates of appointment / retirement, length of service to appointment, which followed a recommendation from the the end of 2013 and attendance at Board meetings in 2013 are Nomination Committee. shown below.
Tenure in Attendance Name Date of appointment Current role current role at meetings
28/06/1996 (retired 29/11/2013) Malcolm Harris Chairman 5.5 years 7/7 (current role – 03/07/2008)
Ian Tyler 29/11/2013 Chairman 1 month 1/1
Alastair Lyons 01/10/2008 Deputy Chairman 5 years 7/8
Colin Holmes 01/12/2006 Non-executive 7 years 8/8
John Warren 01/03/2006 Non-executive 7.5 years 7/8
01/07/2002 David Ritchie Chief Executive 5.5 years 8/8 (current role – 03/07/2008)
Jonathan Hill 23/08/2010 Group Finance Director 3.5 years 8/8 Our governance Our
34 | Annual report and accounts | Our governance The Board benefits from a broad range of expertise and experience At each Board meeting during 2013: and has a strong blend of skills, which has allowed it to perform effectively to a high level during 2013. The new non-executive • the CEO provided a review of business and current trading Chairman brings a strong track record of commercial experience performance, recent developments and strategic issues. in construction and infrastructure related industries which are • the GFD provided a financial review, including results and latest expected to benefit the Group in the ongoing execution of its projections, budgets, forecasts, Group KPIs and an analysis of growth strategy. share price valuation and movements. The three non-executive directors have been determined by the Board to be independent in character and judgement with no • the Board received regular reports covering health and safety, relationships or circumstances likely to affect, or that could appear customer satisfaction, major shareholdings, litigation and to affect, their judgement. human resources.
In accordance with the Code, all the directors will be offering At particular points in the year, the Board reviewed: themselves for re-election at the forthcoming AGM, with the • strategy, management of risk, financial statements and regulatory exception of Colin Holmes who has decided to retire from the announcements, dividend policy and bank facility refinancing. Board at the AGM. The Board strongly supports all the individual director’s re-elections, taking account of the balance of skills and • use of information technology and the marketing programme. expertise and the performance of the Board as a whole. • succession planning and the outcome of the 2012 Board All the directors have service agreements or contracts and the performance evaluation. details are set out in the Remuneration Report on page 47. A further term for John Warren running until the AGM in 2015 The Board also reviewed other topics, such as the market was approved by the Board on 21 January 2014. environment, land acquisitions, land sales, analysis of competitors, investor and analyst feedback, and regulatory and governance In accordance with the Companies Act 2006 and as permitted by developments. the Company’s Articles of Association, the Board has authorised an actual conflict of interest and reviews annually a number of Four meetings were held in London and four were held in the potential conflicts of interest. The Board is satisfied that powers to regions, providing the opportunity to meet and interact with authorise actual and potential conflicts are operating effectively. local management teams. Each of the three regions provided a presentation to the Board at these meetings and question and As mentioned in the Nomination Committee report, a progressive answer sessions followed. One meeting was preceded by an and orderly refreshing of the Board through to 2015 and beyond informal evening meeting with the Group Executive Committee (the is underway, led by the new Chairman, and diversity is one senior management below the Board) and the Board also met its consideration as part of this process. members at other points in the year. Visits to sites and sales outlets, including product viewings, took place in each of the three regions. Board meetings The annual strategy day in July provided the Board with the There were eight meetings during 2013. The Board maintains and opportunity for an in-depth review of the immediate and longer reviews a rolling agenda plan, which ensures that all key issues term strategy for the Group and was preceded by an informal and matters reserved to the Board are discussed at the appropriate evening meeting with external guests. time. The Chairman reviews draft meeting agendas with the CEO and Company Secretary and the Company Secretary maintains a The previous and current Chairmen also held meetings with the schedule of matters arising which is reviewed at each meeting. non-executive directors without the executives present.
The Board receives a comprehensive electronic meeting pack a week in advance of each meeting plus any other information required to enable it to discharge its duties. Meetings are conducted in an atmosphere of open discussion and debate, which enables the non-executive directors to challenge and test the strategy, policy and proposals put forward by the executive directors.
Bovis Homes Group PLC | 35 Board performance evaluation • increased its knowledge of alternative business models and their relative performance. The Board undertook an internal formal evaluation of its own performance towards the end of 2013. This started with a Individual director assessments were carried out by the new questionnaire designed to assess performance and ongoing Chairman towards the end of 2013, using a discussion and effectiveness across key areas in 2013 and to maintain visibility interview process which covered overall understanding of on progress and outcomes since the 2011 external performance the business, effectiveness of contribution and challenge, evaluation. It was followed by an interview process, conducted communications, time commitments and training and by the new Chairman with the directors, which explored and development. The outcomes showed that all the directors are expanded on the views expressed. contributing effectively and are demonstrating commitment to their roles. A report was then presented to the Board and discussed. The overall conclusion was positive. The Board continues to As explained in the introduction, a 2013 performance operate effectively, with meetings being held in an atmosphere evaluation of the outgoing Chairman was not carried out as of open discussion and challenge, which facilitates debate a result of his retirement from the Board at the end of and decision making. A common sense of purpose, strong November 2013. A performance evaluation of the new communication and positive relationships were maintained Chairman will be led by the Senior Independent Director at during 2013. The broad range of expertise and experience the end of 2014. amongst the non-executive directors is a key strength and the Corporate governance report governance Corporate size and structure of the Board was thought appropriate for Board committees the current business. Future succession planning will include The Board is supported by standing Audit, Nomination and consideration of Board diversity, whilst looking to maintain the Remuneration Committees and their memberships, roles and strengths on the Board. activities are set out in separate reports: Audit Committee on The Board undertook the first external independent performance pages 62 and 63, Nomination Committee on page 64, and evaluation towards the end of 2011. This was conducted by Remuneration Committee on pages 43 to 61. Each Committee Independent Audit (who have no other connection with reports to and has terms of reference approved by the Board the Company) using a document review, followed by an and the minutes of Committee meetings are circulated to and interview process. Priority action items were addressed during are reviewed by the Board. 2012 and during 2013 ongoing progress with secondary action The Audit Committee is chaired by John Warren, the items was kept under review. Following the internal formal Remuneration Committee is chaired by Colin Holmes and evaluation completed in 2012 the Board: the Nomination Committee is chaired by Ian Tyler. With the • increased focus on specific strategic issues retirement of Colin Holmes at the AGM, Alastair Lyons will be appointed chairman of the Remuneration Committee. • reviewed the risk appetite and selected past investment decisions, The Board completed a performance evaluation of its Committees during 2013 and it was concluded that they were • continued to review the composition of the Board, including contributing and functioning effectively and all were achieving through the Nomination Committee their respective remits.
Focus areas Objectives for 2014
Strategy • Continue to increase the Board’s focus on specific strategic issues, including early discussion planning input from the non-executivies for the strategy day.
Board meetings • Further increase engagement with regional management teams on visits to the regions.
Succession planning • Continue to focus on non-executive succession planning, and to review the composition of the Board, including skills, experience and with regard to diversity.
Market conditions • Further improve non-executive visibility of changing market trends and anticipated changes in operational performance. Our governance Our
36 | Annual report and accounts | Our governance Governance supporting the business The Company has an insurance policy in place which insures directors against certain liabilities, including legal costs. The Board aims to meet governance best practice where it fits our business and further details are set out below. Information on share capital is provided on page 67.
Amongst matters reserved for the Board are leadership of the Group, approval of strategy and budgets, oversight of operations Shareholder engagement and performance, capital structure, financial reporting, internal The Company has a comprehensive investor relations programme, controls and approval of major expenditure and transactions. which allows the Chief Executive and Group Finance Director to regularly engage with our major shareholders. In addition to one- The Board has approved a written division of responsibilities to-one meetings through the year, the Company holds a series of between the non-executive Chairman and the Chief Executive presentations and meetings following the announcement of the and the role of the non-executive Deputy Chairman has been final and half-yearly results. These presentations are made publicly similarly defined. available so that all shareholders can access them on the Group’s website at www.bovishomesgroup.co.uk. The Chairman is primarily responsible for: At the beginning of June 2013, the Company hosted an analyst • the effective working of the Board, and investor visit to its sales outlets at Filton, which included a site • taking a leading role in determining the Board’s composition tour, product viewings and a presentation focused on progress and structure, and in delivering strategy. Regional management attended and were available for discussion and the event was well received. • ensuring that effective communications are maintained with shareholders. The Board reviews feedback on investor relations meetings, visits and presentations, including the matters communicated and The Chief Executive is responsible for: discussed. During 2013, the feedback was positive and helpful to the Board. • the operational management of the Group, The Board also values other channels to obtain shareholders’ views. • developing strategic operating plans and presenting them to the The Chairman is responsible for ensuring that all directors are Board, and aware of any issues or concerns that major shareholders may have. In addition, the Deputy Chairman (also the Senior Independent • the implementation of strategy agreed by the Board. Director) is accessible to shareholders. During the year, the previous The Deputy Chairman supports the Chairman in ensuring that Chairman and the Deputy Chairman met with the Group’s largest the Board is effective and constructive relations are maintained, shareholder for discussion, which included Chairman succession. in addition to acting as the Senior Independent Director, in The Chairman, Deputy Chairman and the other non-executive which capacity he leads the annual performance evaluation of directors attend analyst and investor presentations, giving major the Chairman and provides an additional point of contact for shareholders the opportunity to put their views and hold discussion shareholders. with them.
The Company’s Management Paper is subject to regular All shareholders are invited to attend the Company’s AGM, which Board review. It contains appropriate controls, authorities and this year will be held on 16 May 2014. The full Board, including procedures across the range of the Group’s activities and includes all Committee chairmen, attend and it values this meeting as a the authorities and decision making delegated by the Board means of communicating with private investors and encourages to management. their participation. All shareholders have the opportunity to exercise their right to vote and can appoint proxies if they are The advice and services of the Group Company Secretary unable to attend. To facilitate this we provide an electronic are available to the directors. All directors have access to the voting facility. Shareholders attending the AGM have the Company’s professional advisers and can seek independent opportunity to ask questions relevant to the business of the professional advice at the Company’s expense. No such advice was meeting and hear the views of other shareholders before voting. sought during the year. After the meeting the results of voting on all resolutions are published on the Group’s website. Training is made available to directors when required and the Chairman is responsible for ensuring that directors continually update and refresh their knowledge and skills and familiarity with the Company, as appropriate to their role on the Board and on Board Committees. During 2013 the directors received governance, regulatory and technical updates.
Bovis Homes Group PLC | 37 Additional information Control framework The Group maintains a control environment, which is regularly Risk management and internal control reviewed by the Board. As new procedures and working The Code states that a board is responsible for determining practices are adopted, risk factors are reviewed and internal the nature and extent of the significant risks it is willing controls embedded into systems. The principal elements of to take in achieving its strategic objectives. The Board has the control environment include regular board meetings, the agreed that this important principle should form part of its regional structure, defined operating controls and authorisation consideration of strategy and all major decisions. The Board limits, an Internal Audit function and a comprehensive financial also has responsibility for maintaining sound risk management reporting system. and internal control systems and, whilst monitoring and review forms part of the work undertaken by the Audit Committee, There are a number of elements of the Group’s internal control the Board is ultimately responsible for the management and risk management systems that are specifically related to the of risk. Risk is a regular agenda item, which allows all directors Group’s financial reporting process: to review the quality of risk management processes, risk • there is a well understood management structure which mitigation and the risk appetite. allows for clear accountability and an appropriately granular The Board has complied with Principle C.2 of the Code by level of financial control. establishing a continuous process for identifying, evaluating • the structure is underpinned by documented authority and managing the risks that are considered significant by the Corporate governance report governance Corporate levels for business transactions laid out in the Group’s Company, in accordance with the FRC’s “Internal Control: Management Paper. Guidance to Directors”. This process has been in place for the period under review and up to the date of approval of • the process is further supported by process documents for the Annual Report and Accounts and includes compliance both internal management reporting and external Group with provision C.2.1. It is designed to manage rather than reporting which stipulates amongst other things reporting eliminate risk and can only provide reasonable and not absolute timetables and contents of key management reports. assurance against material misstatement or loss. Monitoring is based principally on reviewing reports from Internal Audit and The Group maintains computer systems that record financial from management and covers all controls, including financial, transactions and whose effectiveness is reviewed by the Internal operational and compliance controls and risk management Audit function on a regular basis. Any findings arising from processes. The Board operates a robust process of risk reporting these exercises are reported to the Audit Committee. and has clear procedures for identification and monitoring of Control over cash expenditure, which lies at the heart of any key risks. financial reporting process, is key. The Group maintains tight The Audit Committee reviews the system of internal control control in this area through a centralised Group payment and risk management systems annually and reports its findings function, regularly maintained authorisation documents and to the Board. It receives reports from the internal and external segregation of authorisation accountability. auditors and management which assess the effectiveness The Group maintains a regular weekly and monthly financial of internal control and risk management and make reporting cycle, allowing management to assess the financial recommendations for improvements. progress of the Group. This is further supported by a formal Risk assessment budget and forecast process which ensures that there is a As the activities of the Group evolve and grow, the nature of robust and relatively recent financial forecast in place at all the risks on which it focuses evolve. A key part of the system times against which to assess performance. Together with this of internal control is the maintenance of the risk analysis financial reporting, the Group requires its regional management and matrix, compiled using the risk universe as the basis of teams to report key business issues as part of a monthly identification and a process of evaluation that distils the impact regional reporting pack on a standardised basis. of key risks, mitigation measures and residual risk for Board review, leading to assessment of changing risk tolerance and, Finally, there is a process of accounts preparation which ensures ultimately, the risk appetite. During 2013, a full risk review and that there is an audit trail between the output from the Group’s an interim risk review took place. In setting its approach, the financial reporting system and the Group’s financial statements Board aims to ensure that the Company is neither prevented as they are prepared for reporting. from taking opportunities nor exposed to unreasonable risk. Our governance Our
38 | Annual report and accounts | Our governance Going concern After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operation for the foreseeable future. These enquiries consist of the production and review of detailed financial forecasts covering the period January 2014 to December 2016. These forecasts take into account current market trends with reasonable judgements and estimates applied to arrive at future cash flow estimates. As part of this review, the Group has analysed its forecast covenant compliance over this period linked to its banking facility, arriving at an assessment of the headroom evident between the forecast covenant test outcomes and the outcomes necessary to achieve covenant compliance.
The Group entered into a new banking arrangement on 29 January 2013. This arrangement provides a committed revolving credit facility 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 2013, the limit for the committed revolving credit facility was increased by £50 million until 31 December 2015. As at 31 December 2013, the Group had no drawings under the £175 million revolving credit facility, and had net debt of £18 million.
The Group regards the new banking arrangement as adequate in terms of flexibility and liquidity for its needs, particularly as the committed facility was increased by £50 million as recently as August 2013. More details on the Group’s approach to financial risk management are laid out in note 4.6. For these reasons, the Group continues to adopt the going concern basis in preparing its accounts.
Bovis Homes Group PLC | 39 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- principles are applied by the Company. executive directors is maintained and the size of the Board is set as necessary to achieve this. The number of non- 1 Board membership and balance executive 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 Corporate governance report governance Corporate 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 currently comprises the Chairman, the Deputy Chairman (also notice periods up to twelve months. Their total length of the Senior Independent Director), two further independent appointment would not normally exceed nine years from non-executive directors and two executive directors. the 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 at Chairman and the Chief Executive and meets as required in the AGM New directors appointed by the Board must be considering proposed changes to Board membership. 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 Director 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 Director 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 Board, the policy for executive remuneration and the Board. It is normal practice for the role of Chairman to be remuneration for the Chairman, each of the executive a non-executive position. The role of the Deputy Chairman directors and senior management in accordance with its terms has 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 Our
40 | 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, interim management statements 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 | 41 Remuneration report Remuneration Our governance Our
42 | Annual report and accounts | Our governance Directors’ remuneration report
Dear Shareholder,
I am pleased to introduce the 2013 Directors’ remuneration report. It covers the remuneration of the executive and non-executive directors and is divided into two sections, as required by the new remuneration reporting regulations. The policy report contains the three year remuneration policy to be submitted to shareholders in a binding vote at the 2014 AGM and the annual remuneration report Colin Holmes explains the application of the policy in 2013 and 2014. Committee Chairman
Overview the future. As a result, the Committee is proposing that the maximum award under the LTIP be increased from 100% to In 2013 Bovis Homes again delivered significant revenue and 150% of salary for the Chief Executive and to 125% of salary profit growth. In the year, basic earnings per share rose by 49% for the Group Finance Director. and Return on Capital Employed (“ROCE”) reached 10.4% (2012: 7.7%). The Group also acquired significant levels of high All other terms of the LTIP will remain unchanged and vesting quality consented land, entering 2014 well positioned to further will ultimately be dependent on the achievement of stretching improve returns for shareholders. performance targets. A resolution will be put to shareholders at the 2014 AGM to approve this change. Given the importance The remuneration policy of the Group underpins the of this proposal, I have consulted with the Group’s major achievement of these results and the long term goals of the shareholders, who have indicated their support, subject to Group for the coming years. The policy remained unchanged stretching targets being set by the Committee. in the period under review and will do so for 2014, with the exception of the proposed increase to maximum award levels for The Committee also considered the scale of the roles performed the Long Term Incentive Plan (LTIP), which are set out below. by both the Chief Executive and the Group Finance Director, deciding that it was appropriate to increase their base salaries by Remuneration in 2013 3.33% and 3.70% respectively with effect from the start For 2013, the strong performance against the stretching financial of 2014. The Committee is confident that both the salary and operational targets resulted in 98% of maximum being and LTIP award increases are fully justified and commercially awarded for the annual bonus. The year saw the achievement of appropriate for the Group. strong pre-tax profit growth (+48%) and importantly the Return on Invested Capital also increased to 10.4%. Conclusion I do hope you find that this report clearly explains the The LTIP awards granted in 2011 will see 50% of awards vest remuneration approach adopted at Bovis Homes and enables you due to the earnings per share (“EPS”) performance condition to appreciate how it underpins the business growth and returns being met in full. This demonstrates the strong EPS out- strategy. The Committee considers the remuneration policy fair performance of the Group over the past three financial years, and fully aligned with the interests of shareholders and looks against stretching targets, with absolute cumulative EPS reaching forward to your support for the associated AGM votes. 93.1 pence. The second half of the LTIP award, based on relative total shareholder return (“TSR”), will lapse given that the Lastly, I am stepping down from the Board at the AGM on comparator group achieved a median TSR of 188% over the last 16 May 2014, after seven years as Chairman of the three years. Remuneration Committee. The role of Committee chair will be Changes in remuneration for 2014 taken on by Alastair Lyons, whose significant experience will be of great benefit to the position. In retiring from the Board, I The Board is optimistic about the future prospects of the Group would like to thank my colleagues and the Group’s shareholders and wants to ensure that the executive directors are fully for their support during my time at Bovis Homes. motivated to ensure all the potential opportunities are fully realised for the benefit of its shareholders. The Remuneration Committee, as part of an overall review of executive remuneration policy, therefore focused on long term performance related pay to ensure it is appropriately set for Colin Holmes Chairman of the Remuneration Committee
Bovis Homes Group PLC | 43 Policy report
Role of the Remuneration Committee The Committee’s principal responsibilities are to set, review and approve the remuneration policy and to determine the remuneration packages (including incentive plans and their performance criteria) and any changes to service contracts of the Chairman, executive directors and other designated senior executives including the Group Company Secretary. The Committee’s terms of reference are available on the Company’s website (www.bovishomesgroup.co.uk/investor-centre/corporate-governance).
The remuneration policy The Committee’s remuneration policy is designed to provide a market competitive, performance-related package which supports and facilitates the delivery of the Company’s strategy and the creation of long-term shareholder value. This remuneration policy will be proposed for adoption at the 2014 AGM. If approved it will apply on a legislative basis immediately following shareholder approval on 16 May 2014.
The Committee keeps the remuneration policy under review to ensure it promotes the attraction, retention and motivation of the high performing executive talent required to deliver the business strategy. It is required that the policy be put to shareholders for approval every three years. Should any changes be required before the end of a three year period, the amended policy will be put to shareholders, following shareholder consultation as appropriate.
Components of the remuneration framework for executive directors
Remuneration report Remuneration The policy table below summarises the main components of the remuneration framework, as detailed further in the report, 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 Our
44 | Annual report and accounts | Our governance Policy 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 | 45 Policy report
Illustration of the application of the remuneration policy Our aim is to ensure that superior reward is only paid for exceptional performance, with a substantial proportion of executive directors’ reward opportunity being performance related. The charts below set out remuneration scenarios for each executive director at three levels of performance, as a percentage of the total reward opportunity and as a total value.
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 Remuneration report Remuneration 18% 13% 82% 87%
Minimum 595 Minimum 333
0 500 1000 1500 2000 0 500 1000 1500 2000 £000s £000s
Salary and benefits Pensions Bonus LTIP
The following basis of calculation and assumptions have been used in the scenarios above:
• Minimum performance reflects base salary as at 1 January 2014 and benefits and pension paid in 2013 (2014 policy for the defined contribution arrangement) as set out in the single figure on page 50.
• Target performance reflects base salary as at 1 January 2014, benefits and pension paid in 2013 (2014 policy for the defined contribution arrangement) as set out78.8 in the single figure on page 50, cash bonus at 50% of maximum and LTIP vesting at threshold of 80 30% of70 maximum. 60 • Maximum performance reflects53.2 base salary as at 1 January 2014, benefits and pension paid in 2013 (2014 policy for the defined 50 contribution arrangement) as set out in the single figure on page 50, cash bonus at 100% of maximum and LTIP vesting at maximum 40
£m 34.2 of 100%. 32.5 30
20 13.4 • No share price, dividends or discount rate assumptions8.7 have been2012 included in the charts above. 10 2013 0 Non-executiveTotal spenddirector Profit and before chairman Dividends fees on pay tax paid The Board, comprising the Chairman and the executive directors, sets the remuneration of the non-executive directors, without their participation. The Remuneration Committee, with the Chairman absenting himself from discussions, sets the remuneration of the Chairman who receives an all-inclusive fee. The level of fees must be within the limit approved by shareholders, contained in the Articles of Association. Non-executive directors and the Chairman do not participate in the annual bonus scheme or the LTIP and are not eligible to join the Group’s pension schemes. All non-executive director and chairman fees are payable in cash and there are no additional fees or other items in the nature of remuneration.
Purpose and link Operation Opportunity Performance metrics to strategy
To attract and retain Typically reviewed on a Fee increases may be applied in line Not applicable. non-executive directors biennial basis. with the outcome of any review. and a chairman of the appropriate calibre. Market benchmarking exercises A basic fee is paid. Additional are undertaken periodically fees may be paid for additional and judgement is used in responsibilities such as chairmanship their application. / membership of a committee. Fees are set at a level considered appropriate taking account of competitive positioning, the individual’s responsibilities, the time commitment required and the size and complexity of the Company. Our governance Our
46 | Annual report and accounts | Our governance Policy report
Approach to recruitment In agreeing a remuneration package for a new executive director, it would be expected that the structure and quantum of variable pay elements would reflect those set out in the policy table above. However, the Committee would retain the discretion to flex the balance between annual and long-term incentives and the measures used to assess performance for these elements, with the intention that a significant proportion would be delivered in shares. Salary would reflect the skills and experience of the individual, and may be set at a level to allow future progression to reflect performance in the role. On recruitment, relocation benefits may be paid as appropriate. This overall approach would also apply to internal appointments, with the proviso that any commitments entered into before promotion which are inconsistent with this policy can continue to be honoured under the policy. Similarly, if an executive director is appointed following the Company’s acquisition of or merger with another company, legacy terms and conditions would be honoured. An executive director may initially be hired on a contract requiring 24 months’ notice which then reduces pro-rata over the first year of the contract to requiring 12 months’ notice. The Committee may award compensation for the forfeiture of awards from a previous employer in such form as the Committee considers appropriate taking account of all relevant factors including the expected value of the award, performance achieved or likely to be achieved, the proportion of the performance period remaining and the form of the award. There is no specific limit on the value of such awards, but the Committee’s intention is that the value awarded would be equivalent to the value forfeited. Maximum variable pay will be in line with the maximum set out in the policy table above (excluding buy-outs). The Committee retains discretion to make appropriate remuneration decisions outside the standard Policy to meet the individual circumstances when:
• An interim appointment is made to a fill an executive director role on a short-term basis.
• Exceptional circumstances require that the Chairman or a non-executive director takes on an executive function on a short-term basis. For non-executive directors, the Board would consider the appropriate fees for a new appointment taking into account the existing level of fees paid to the non-executive directors, the experience and ability of the new non-executive director and the time commitment and responsibility of the role.
Service contracts and exit payments policy The current executive directors’ service contracts contain the key elements shown below.
Provision Detailed terms
Notice period 12 months by either employer or director
Termination payment Up to 12 months’ salary (excluding bonus or other enhancement)
The executive directors’ service contracts do not contain specific provision for compensation in the event of early termination, with the exception of 12 months’ base salary in the event of removal at an AGM.
When determining exit payments, the Committee would take account of a variety of factors, including individual and business performance, the obligation for the director to mitigate loss (for example, by gaining new employment), the director’s length of service and any other relevant circumstances, such as ill health. A departing director may also be entitled to a payment in respect of statutory rights. Should a departing director be required to retire and be eligible for an early retirement pension under the terms of the defined benefit pension arrangement, an actuarial reduction will only be applied, in accordance with the rules, if the departing director has not reached age 55.
The Committee would distinguish between types of leaver in respect of incentive plans. “Good leavers” (death, ill-health, agreed retirement, redundancy or any other reason at the discretion of the Committee) may be considered for a bonus payment having completed the full year and part year bonus payments may be paid and LTIP awards may vest taking into account performance conditions and pro rating for time in employment during the performance period, unless the Committee determines otherwise. The LTIP rules include discretion for upwards adjustment to the number of shares to be realised for “good leavers” and, in exceptional circumstances, adjustment to the realisation date. In all other leaver circumstances, the Committee would decide the approach taken, which would ordinarily mean that leavers would not be entitled to consideration for a bonus and LTIP awards would lapse.
The appointment of the Chairman and each of the non-executive directors is for an initial period of three years, which is renewable for further terms, and is terminable by the Chairman / non-executive director (as applicable) or the Company on twelve months’ notice. No contractual payments would be due on termination. There are no specific provisions for compensation on early termination for the non-executive directors, with the exception of entitlement to compensation equivalent to 12 months’ fees or, if less, the balance of appointment, in the event of removal at an AGM.
Bovis Homes Group PLC | 47 Policy report
Change of control The LTIP rules include discretion for upwards adjustment to the number of shares to be realised, subject to the performance conditions and awards being pro-rated for service, in the event of a takeover, scheme of arrangement or voluntary winding up.
Additionally, all the Company’s share plans contain provisions relating to change of control. In general, outstanding awards would normally vest and become exercisable on a change of control, to the extent that any applicable performance conditions have been satisfied at that time, reflecting the time period to the date of the event.
External directorships Executive directors may, if so authorised by the Board, accept appointments as non-executive directors of suitable companies and organisations outside the Group.
Remuneration report Remuneration Pay and conditions throughout the Group The pay and conditions of employees throughout the Group are considered by the Committee in setting remuneration policy for the executive directors and senior management. The Committee is kept regularly informed on the pay and benefits provided to employees and base salary increase data from the annual salary review for general staff is considered when reviewing executive directors’ salaries and those of senior management. The Committee does not directly consult with employees when setting remuneration policy for the executive directors.
Difference in the Company’s policy on remuneration of directors compared to employees The remuneration policy for the executive directors is designed with pay and conditions throughout the Group in mind. The Committee believes that some differences are necessary to reflect responsibility and provide appropriate focus and motivation for delivery of the Group’s strategy. Executive directors, therefore, have a higher bonus opportunity than employees generally to motivate them to achieve stretching annual targets and they participate in the LTIP to provide focus on long term sustainable performance. This approach is designed to provide an appropriate emphasis on performance related pay.
Consideration of shareholder views The Company is committed to ongoing dialogue with shareholders and welcomes feedback on directors’ remuneration. Feedback received from meetings during the year and in relation to the AGM is considered, together with guidance from shareholder representative bodies more generally, and taken into account in the annual review of remuneration policy. The Committee believes that it has a responsible approach to directors’ pay and that its policy is appropriate and fit for purpose.
Support from shareholders is evidenced by the 99.3% approval of the 2012 Directors’ Remuneration Report at the 2013 AGM (see the annual remuneration report for further details). A letter was sent to major shareholders on 8 January 2014 setting out the proposed increase to maximum award levels for the LTIP and their feedback indicated that they were supportive of this change. Our governance Our
48 | Annual report and accounts | Our governance Policy report
Bovis Homes Group PLC | 49 Annual remuneration report
This annual remuneration report explains how the remuneration policy has been implemented in the year ended 31 December 2013 and how it will be implemented for 2014. Details of remuneration in 2013 is set out first, followed by the approach for 2014.
Implementation of remuneration policy for the year ending 31 December 2013 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 2013 financial year.
David Ritchie Jonathan Hill (appointed CEO 3 July 2008; appointed an (appointed GFD 23 August 2010) executive director in 2002)
2013 2012 2013 2012 £000 £000 £000 £000
Base salary (5) 450 (5) 430 (6) 270 (6) 260 Remuneration report Remuneration Benefits (1) 22 22 11 11
Annual bonus 440 (7) 362 264 (7) 219
Long Term Incentives – (incl. options) (2) (9) 363 (8) 404 (9) 210 (8) 281
Sub-total 1,275 1,218 755 771
Pension (3) 53 46 41 39
Other – pension salary supplement (4) 55 51 - -
Total remuneration 1,383 1,315 796 810
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 2010 LTIP measured over the three year period to 31 December 2012 vested to the extent of 50% on 9 March 2013. The 2011 LTIP measured over the three year period to 31 December 2013 will vest to the extent of 50% on 15 March 2014. (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, under which £137,480 of salary was sacrificed during 2012 and £108,920 was sacrificed during the period under review, in exchange for equivalent employer contributions to a qualifying personal pension arrangement. For clarity, the pre-sacrifice amounts have 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, under which £13,354 of salary was sacrificed during 2012 and £45,590 was sacrificed during the period under review, in exchange for equivalent employer contributions to the Bovis Homes Group Personal Pension Plan. For clarity, the pre-sacrifice amounts have been shown in the table above. (7) Prior to the consideration of the 2012 bonus awards, David Ritchie and Jonathan Hill requested and were granted bonus sacrifice arrangements. David Ritchie sacrificed £200,000 of performance bonus and Jonathan Hill also sacrificed £200,000 of performance bonus, in exchange for equivalent employer contributions to qualifying personal pension arrangements. For clarity, the pre-sacrifice amounts have been shown in the table above. (8) This is the actual value for the EPS element of the 2010 LTIP calculated using the share prices on the vesting dates (668 pence for David Ritchie on 11 March 2013 and 793 pence for Jonathan Hill on 26 August 2013). Executive share options granted in 2003 vested on 24 February 2012 and a value of £51k, representing the taxable gain, has been included in 2012 for D J Ritchie, calculated using the share price on the vesting date (505.5 pence). (9) This is an estimated value based on the average share price over the last quarter of 2013 of 770.44 pence for the EPS element of the 2011 LTIP which vests on 15 March 2014.
Neither of the executive directors currently has any external directorships. Our governance Our
50 | Annual report and accounts | Our governance Annual remuneration report
The following table shows the remuneration for the non-executive directors who served during the 2013 financial year. Salary / fees £000
Non-executive directors 2013 2012
Malcolm Harris (retired 29.11.13) 124 130
Ian Tyler (appointed 29.11.13) 14 -
Alastair Lyons 63 60
Colin Holmes 51 48
John Warren 51 48
Total 303 286
Annual bonus payment in respect of 2013 The maximum opportunity for executive directors for the year ending 31 December 2013 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 towards the end of 2012. The Committee has decided not to disclose the full detail of performance targets retrospectively as they are considered commercially sensitive and are expected to remain so for some time, being indicative performance indicators closely linked to the Group’s growth strategy.
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 50% maximum maximum maximum
Cash flow 15% 0% of 50% of 100% of 15% maximum maximum maximum
ROIC 25% On target is 50% of 100% of 25% threshold maximum maximum
Non-financial measures (10%)
Customer service 10% On target is 50% of 100% of 7.8% threshold maximum maximum
Total bonus for executive directors (% salary) 97.8% 100% Profit before tax: £78.8 million was achieved representing a 48% 100% 100% increase on 2012. Stretch performance was delivered and 100% of the 0% 25% 50% 75% 100% 0% 25% 50% 75% 100%100% 50% weighting to this performance measure was awarded. 0% 25% 50% 75% 100% 0% 25% 50% 75% 100%
Cash flow: The Group ended the year with £18.8 million of net debt, 100% 100% having achieved stretch performance for the 2013 trading cash flow 100% 0% 25% 50% 75% 100% target. 100% of the 15% weighting to this performance measure 0% 25% 50% 75% 100%100% 0% 25% 50% 75% 100% was awarded. 0% 25% 50% 75% 100%
Return on invested capital: This metric reached 10.4% in 2013. 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 of 87.8%. Performance was between on target (85%) and stretch 78% (90%) against this measure and 78% of the 10% weighting to this 78% 0% 25% 50% 78%75% 100% performance measure was awarded. 0% 25% 50% 78%75% 100% 0% 25% 50% 75% 100% 0% 25% 50% 75% 100%
Bovis Homes Group PLC | 51 Annual remuneration report
Executive director Maximum bonus % of salary Target bonus % of salary Actual bonus % of salary Total 2013 bonus £000
David Ritchie 100 50 97.8% 440
Jonathan Hill 100 50 97.8% 264
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 and also in the exit payments policy. Remuneration report Remuneration Awards vesting in respect of 2013 The LTIP awards made in 2011 were measured over the three year period to 31 December 2013 and will vest to the extent of 50% on 15 March 2014. Half of the award was measured against EPS performance, whilst the other half of the award was measured against TSR performance against an index.
The threshold EPS target was 55p, and maximum target was 80p measured on a cumulative three year basis. Absolute cumulative EPS over the three year performance period was 93.1p. Therefore, all of the part of the award based on EPS will vest.
The threshold TSR target was performance equal to the index and the maximum target was performance equal to 10% annual outperformance of the index. Actual TSR was below the median of the index of 188% and therefore none of the award based on TSR will vest.
Awards granted on 26 February 2013 (audited) Awards of 110,854 shares were made to executive directors at 100% of basic salary at a grant price of £6.495, exercisable in 2016 and subject to a three year performance period ending on 31 December 2015, 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 69,284 450 30
Jonathan Hill Performance share award 41,570 270 30
The performance measures 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 130 pence and maximum performance at cumulative EPS of 165 pence.
• ROCE – threshold performance at 11.5% and maximum performance at 14.5%. Our governance Our
52 | Annual report and accounts | Our governance Annual remuneration report
Performance conditions 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 Target performance Maximum performance
Quantum 10% of the total award One-third of the total award
The 2013 constituents of the TSR index, which may be subject to change, are as listed below:
TSR comparator group
Barratt Developments plc The Berkeley Group plc Taylor Wimpey plc Bellway plc Persimmon plc Redrow 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 Target 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 Target 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
2010 01/01/2010 - 31/12/2012 100% 50% TSR 50% 50% EPS
2011 01/01/2011 - 31/12/2013 100% 50% TSR 50% 50% EPS
2012 01/01/2012 – 31/12/2014 100% 33.3% TSR Ongoing 33.3% EPS 33.3% ROCE
2013 01/01/2013 – 31/12/2015 100% 33.3% TSR Ongoing 33.3% EPS 33.3% ROCE
Bovis Homes Group PLC | 53 Annual remuneration report
Executive Share Option Scheme The Bovis Homes Group PLC Executive Share Option Scheme was established in 1997 and expired in 2007, with the granting of options being suspended in 2004. The last options granted under the Scheme in 2003 vested in 2012.
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.
Remuneration report Remuneration There are no special early retirement or early termination provisions for executive directors, except as noted in the exit payments policy. 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 2013 (net of inflation) at 31 Dec 2013 (1) 31 Dec 2013 (3) Executive director £ £ £ p.a. £ p.a. £ £
David Ritchie 39,646 7,929 60,503 3,042 707,076 52,915
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 2013. 3. The single value has been calculated as 20 times the increase in accured 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 2013 31 Dec 2012
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 120,852 - 247,316 4,570 85,224 34,867 283,852 4,570 Jonathan Hill 19,587 - 146,735 2,341 601 - 176,170 2,341
Non-executive directors Malcolm Harris -- - - 383,426 - - - (retired 29 November 2013) Alastair Lyons 25,350 - - - 25,350 - - - Ian Tyler ------(appointed 29 November 2013) Colin Holmes 50,000 - - - 50,000 - - - John Warren 2,500 - - - 2,500 - - -
There were no changes in the holdings of ordinary shares of any of the directors between 31 December 2013 and 21 February 2014 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 55. There were no changes in the holdings of share options and awards under the Long Term Incentive Plan between 31 December 2013 and
Our governance Our 21 February 2014.
54 | 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’ progress in achieving the guidelines is shown below. % of shareholding Shareholding Historic Salary at guideline achieved Executive director at 31 Dec 2013 aquisition cost 1 Jan 2014 at 31 Dec 2013
David Ritchie 120,852 £677,802 £465,000 146%
Jonathan Hill 19,587 £146,434 £280,000 52%
David Ritchie meets the shareholding guideline and, following exercise of the 2010 LTIP award, Jonathan Hill is making progress towards doing so.
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 2012 31 Dec 2013 (£000) in year in year Expiry date (£000) (£000) on vesting
David Ritchie 09/03/10 09/03/13 105,820 - 400 52,910 52,910 09/09/13 353 377 27,992
15/03/11 15/03/14 94,253 94,253 415 - - 15/03/21 - --
28/02/12 28/02/15 83,779 83,779 430 -- 28/02/22 - --
26/02/13 26/02/16 - 69,284 450 - - 26/02/23 - - -
Jonathan Hill 25/08/10 25/08/13 71,005 - 240 35,502 35,503 25/08/20 281 268 18,782
15/03/11 15/03/14 54,508 54,508 240 - - 15/03/21 - - -
28/02/12 28/02/15 50,657 50,657 260 - - 28/02/22 - - -
26/02/13 26/02/16 - 41,570 270 - - 26/02/23 - - -
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 2012 in year in year in year 31 Dec 2013 per share period
David Ritchie 18/03/2003 Exec 34,867 - - 34,867 - 358.5 03/06 – 03/13 07/04/2010 SAYE 4,570 - - - 4,570 340.2 06/15 – 12/15
Jonathan Hill 13/04/2011 SAYE 2,341 - - - 2,341 385.4 06/14 – 12/14
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 either the Executive Share Option Scheme (‘Exec’) or 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 | 55 500
400
300
200 FTSTSR Performance
100
0 Dec 2008 Dec 2013
FTSE 250 index Bovis Homes Group plc Median of FTSE 250 Housebuilders Annual remuneration report(excluding Bovis Homes)
Source: ???
Total Shareholder Return performance graph*
500
400
300
200 FTSE 250 index
Bovis Homes Group PLC 100 TSR Performance Median of FTSE 250 housebuilders (excluding Bovis Homes) Remuneration report Remuneration 0 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013
*This graph illustrates five 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 five financial years, compared to the FTSE 250 index and the median of the FTSE 250 housebuilders over the same period.
As a constituent of the FTSE 250, 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 2013 was £7.93 (2012: £5.75). During the year ended 31 December 2013 the share price recorded a middle market low of £5.75 and a high of £8.515. As at the date of this report the share price stood at £9.00.
Total CEO remuneration
David Ritchie 2009 2010 2011 2012 2013
Single figure total £000 518 1,016 836 1,315 1,383
Annual bonus against maximum % 0 100 82.4 84.2 97.8
Long Term Incentive Plan vesting against maximum % 31 31 0 50 50
Change in remuneration of CEO The table below sets out the percentage change in the remuneration awarded to David Ritchie between 2012 and 2013 compared to the average percentage change for employees as a whole.
Executive director Base salary Benefits Annual bonus
David Ritchie 4.6% 0% 21.5%
Employees as a whole 3.3% % 0 11.5% Our governance Our
56 | 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.
78.8 80 70
60 53.2 50 40 £m 32.5 34.2 30
20 13.4 8.7 2012 10 2013 0 Total spend Profit before Dividends on pay tax paid
Notes: • Total spend on pay in 2012 was £32.5 million and in 2013 was £34.2 million, representing an increase of 5.2%. • Profit before tax in 2012 was £53.2 million and in 2013 was £78.8 million, representing an increase of 48%. • Dividends paid to shareholders totalled £8.7 million in 2012 and £13.4 million in 2013, representing an increase of 54%.
Implementation of remuneration policy for the year ending 31 December 2014 Changes in the way that remuneration policy will be implemented in 2014 versus 2013 include base salary increases for the executive directors and an increase in the maximum annual award under the LTIP from 100% to 150% of base salary for the CEO and from 100% to 125% of base salary for the GFD.
Executive directors’ base salaries The salaries of the executive directors with effect from 1 January 2014 are as follows:
% increase Executive directors Position 2014 base salary from 2013
David Ritchie CEO £465,000 3.33%
Jonathan Hill GFD £280,000 3.70%
The increase for the CEO, David Ritchie, of 3.33% is warranted given his continued outstanding leadership and contribution to the Group. This is reflected in the strong profit improvement delivered by the Company in 2013 and the excellent positioning of the Group for 2014, following a difficult period for the house building industry.
The Committee decided that given his performance, increased experience and strong contribution to the Group, an increase of 3.70% would be made to the salary of Jonathan Hill, the GFD.
An allowance of just over 3% of salary roll was provided for general staff increases.
Benefits will continue on the same basis as for 2013.
Bovis Homes Group PLC | 57 Annual 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 and so no changes are to be made for 2014 in terms of either performance measures or quantum. 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. It is not intended to provide this information in future years. However, the 2014 performance measures are described below.
Measure (%weighting) Rationale / link to strategy Profit before tax (50%)
Financial measures (90%)
Profit before tax Explicitly ties reward to financial performance. 50% Challenges management to deliver and out-perform profit target. Remuneration report Remuneration
Cash flow Demands tight cash management in the operational running of 15% 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 25% shareholders, being the return achieved on invested capital.
Non-financial measures (10%)
Customer service Quality of service is key to reputation and future success, both in 10% terms of customer demand and achieved selling prices.
Total opportunity 100%
Approach for Long Term Incentive Plan awards The key features of the long term incentive arrangements remain the same as those for 2013 with the exception of:
• Award sizes increased to 150% of salary for the CEO and 125% of salary for the GFD (subject to 2014 AGM approval).
Performance conditions Total Shareholder Return (one-third of total award) The 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 Target performance Maximum performance
TSR Equal to the median of the Index Median plus 10% per annum
The constituents of the TSR index to be used for the 2014 awards have been increased by the addition of Crest Nicholson Holdings plc. Our governance Our
58 | 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 2014 awards. When setting minimum and maximum absolute EPS targets for the 2014 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 230p and 280p 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 Target performance Maximum performance
EPS Cumulative EPS of 230p Cumulative EPS of 280p
Return on Capital Employed (one-third of total award) When setting minimum and maximum absolute ROCE targets for the 2014 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 2014 awards of 17.0% and 20.0%, to be measured in the third year of the performance period (2016).
Performance measurement Target performance Maximum performance
ROCE 17.0% 20.0%
Pensions Pension arrangements will continue on the same basis as in 2013.
Non-executive directors’ remuneration The fees for the non-executive director positions in 2013 and for 2014 are set out below.
2013 2014
Chairman fee £135,000 £160,000*
Deputy Chairman fee £63,000 £63,000
Non-executive director base fee £43,000 £43,000
Additional fees:
Audit Committee chair £8,000 £8,000
Remuneration Committee chair £8,000 £8,000
* The new non-executive Chairman was appointed on 29 November 2013 at a market competitive rate, following the conclusion of a robust recruitment process. In setting the appropriate fee level, the Committee considered competitive positioning, the Chairman’s responsibilities, time commitment for the role and the size and complexity of the Company.
The fees for the non-executive directors were increased to their current levels with effect from 1 January 2013 and will next be reviewed with effect from 1 January 2015.
Bovis Homes Group PLC | 59 Annual remuneration report
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 the same performance measures and targets.
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 32. Attendance Name Date of appointment Role at meetings
Remuneration report Remuneration Colin Holmes 01/12/2006 Chairman 5/5
Alastair Lyons 01/10/2008 Member 5/5
John Warren 01/03/2006 Member 5/5
The Committee met five times in 2013 and an overview of the main activities is provided below. No director or senior executive is involved in any decisions regarding his own remuneration.
Main activities during the year The key activities undertaken were:
• Reviewed the 2013 bonus scheme and set financial and non-financial performance targets
• Reviewed the performance measures and set performance targets for 2013 LTIP awards
• Completed the annual review of remuneration policy
• Assessed performance against 2012 bonus scheme targets and approved bonus payments
• Assessed performance of 2010 LTIP awards against performance targets and approved level of vesting
• Considered and granted 2013 LTIP awards
• Reviewed and approved the directors’ remuneration report for inclusion in the 2012 Annual Report
• Considered and approved the offer of the SAYE scheme in 2013
• Reviewed the performance of 2010 CSOP options and confirmed vesting
• Considered and approved the grant of 2013 CSOP options
• Reviewed mid-year performance against the 2013 bonus scheme targets
• Considered the requirements for the new directors’ remuneration report and reviewed a draft report
• Considered and approved terms and conditions for the appointment of the new Company Chairman
• Considered pay and employment conditions throughout the Group
• Reviewed the remuneration of the executive directors and other senior management and approved changes for 2014
• Reviewed the annual bonus scheme and considered performance targets for 2014
• Reviewed the Committee’s terms of reference Our governance Our
60 | Annual report and accounts | Our governance Annual remuneration report
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 2013 were £26,400.
The Committee starts its meetings without executive management present. During 2013, the Committee asked Malcolm Harris (former Chairman), 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 2013 AGM At the AGM held on 16 May 2013, shareholder proxy voting on the directors’ remuneration report for the year ended 31 December 2012 was as follows:
Resolution For % Against % Total votes Withheld (1)
Directors’ remuneration report 2012 113,919,991 99.38 706,535 0.62 114,626,526 4,218
(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 Colin Holmes Chairman of the Remuneration Committee 21 February 2014
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.
Bovis Homes Group PLC | 61 “ The Committee plays a fundamental role in protecting shareholders’ interests, with a remit that covers financial reporting, risk, internal control and oversight of external and internal audit.”
John Warren Committee Chairman
Committee membership and meetings Main activities during the year The three members of the Committee are independent non- The Committee followed a programme structured around executive directors and have relevant experience as required by the annual reporting cycle and received reports from Internal the UK Corporate Governance Code. Biographical details are Audit, the external auditors and management. The key activities provided on page 32. undertaken were: • Discussed with the external auditors the key accounting Recommendations on Committee membership are made to the considerations and judgements reflected in the Group’s results Board by the Nomination Committee and it is also reviewed as for the 12 months ending 31 December 2012. part of the Committee’s performance evaluation. There were no changes to Committee membership during the year. The Company • Reviewed the 2012 annual report and accounts, to be able Chairman, Chief Executive and Group Finance Director attend to recommend to the Board that they presented a true and meetings by invitation and all were present at all meetings in 2013. fair view. The external auditors, KPMG LLP, and the Internal Audit Director • Considered and recommended to the Board the presentations were also in attendance at all meetings. for analysts. Attendance Audit Committee report Committee Audit Name Date of appointment Role at meetings • Assessed the results and effectiveness of the 2012 final audit.
John Warren 01/03/2006 Chairman 3/3 • Reviewed and discussed with the external auditors the key accounting considerations and judgements reflected in the Alastair Lyons 01/10/2008 Member 3/3 Group’s results for the six months ending 30 June 2013. Colin Holmes 01/12/2006 Member 3/3 • Evaluated and agreed the external auditors’ audit strategy memorandum in advance of their 2013 year-end audit. The Committee met three times in 2013 and an overview of the • Received reports from internal audit covering various aspects of main activities is provided below. Detailed papers and information the Group’s operations, controls and processes. were received sufficiently in advance of meetings to allow proper consideration of matters for discussion. The Committee also met • Assessed and agreed the internal auditor’s audit plan for 2014, with the external auditors and Internal Audit, without executive based on the agreed risk universe, together with the required management, following the final audit and the review of the 2012 level of resource. financial statements and the 2012 Internal Audit report. No matters • Monitored progress against actions from the external formal of concern were raised in these discussions. John Warren also met review of the effectiveness of the Internal Audit function privately with both the audit engagement partner of the external completed in 2012. auditors and the Internal Audit Director during the year. The Group Company Secretary acts as secretary to the Committee. • Reviewed the effectiveness of the system of internal control and risk management systems and reported to the Board that there Responsibilities and terms of reference were no material control weaknesses. • 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 the Group, including the current banking facility and forecast governance statements, including reviewing the findings of covenant compliance. the external auditors. • Assessed and concluded queries and points of clarification raised • Reviewing and monitoring the effectiveness of systems for by the FRC in a letter concerning certain accounting disclosures internal control, financial reporting and risk management. in the 2011 accounts. • Overseeing and reviewing the effectiveness of Internal Audit. • Reviewed the Committee’s terms of reference. • Making recommendations to the Board in relation to the • Reviewed the Company’s whistleblowing policy and arrangements. appointment and removal of external auditors and approving their remuneration and terms of engagement. At its meeting in February 2014, the Committee discussed with • Reviewing and monitoring the external audit process and the the external auditors the key accounting considerations and independence and objectivity of the auditors, as well as the judgements reflected in the Group’s results for the 12 months nature and scope of the external audit and its effectiveness. ending 31 December 2013 and reviewed the 2013 annual report and accounts, to be able to recommend to the Board that, • Developing the policy on the engagement of the external taken as a whole, it was fair, balanced and understandable and auditors to supply non-audit services, taking into account provided the information necessary for shareholders to assess the relevant ethical guidance. Company’s performance, business model and strategy.
The Committee’s terms of reference are available on the Company’s website (www.bovishomesgroup.co.uk/investor-centre/ corporate-governance). Our governance Our
62 | Annual report and accounts | Our governance Significant areas At its meeting in February 2014, the Committee reviewed the effectiveness of the external audit process as part of its consideration The key accounting judgements considered by the Committee of the 2013 final audit. in relation to the 2013 accounts and discussed with the external auditors, were: This included assessing delivery and content against the audit plan for • Inventory provisioning - the level of inventory provisioning impacts the 2013 year end audit, including perceived changes in audit risks, the carrying value of the most significant balance on the balance consideration of the performance of the audit team and the quality of sheet. Since the downturn in the land market in 2008 the Company reporting, reviewing comprehensive papers from the external auditors, has carried a provision to write down the carrying value of the land discussing and challenging conclusions and audit judgements and held within inventories to the lower of cost and net realisable assessing responses from the external auditor, and obtaining feedback value, less costs to sell, where this is less than the historic cost. about the effectiveness and conduct of the audit from those involved. The assessment of the level of provision required, requires the Our 2014 AGM Notice contains a resolution for the re-appointment exercise of significant judgement by management. The Committee of KPMG LLP as auditors to the Company. In making this receives a regular report on this provision, updated by management, recommendation, the Committee took into account, amongst at relevant Committee meetings. At this year end the paper other matters, the independence and objectivity of KPMG LLP, the proposed an immaterial adjustment, which was in line with the effectiveness of the external audit process and cost. The 2014 AGM forecast position and had been audited by the external auditors prior Notice also contains a resolution to give the directors authority to to the year end. The written down sites and any adjustments determine the auditors’ remuneration, which provides a practical proposed were discussed and justified by management and the land flexibility to the Committee. The external auditors have been in post write down provision remaining at the period end (£19.9 million) since flotation in 1997 and there are no contractual restrictions on was reviewed, together with the profit attributable to the reversal of the choice of external auditor. The Committee has considered the the provision on the sale of written down units during the year, length of KPMG’s tenure and the UK Corporate Governance Code which was not considered to be material. Following discussion, the requirements to tender external audit contracts at least every ten years Committee was satisfied that the judgements exercised were and, whilst satisfied with KPMG’s effectiveness and independence, appropriate and that the provision was appropriately stated at the intends to conduct an audit tender process in the second half of 2014. year end. Details of the movements in the provision are provided in In doing so, the Committee would comply with the Competition note 3.1 to the accounts on page 83. Commission Order relating to the statutory audit market for FTSE 350 • Available for sale financial assets - the assumptions used to fair companies expected to come into effect from 1 October 2014. value available for sale financial assets, (otherwise known as shared The Committee keeps under review its policy which requires the equity and details of which are provided in note 4.2 on page 86), Committee to approve all non-audit services proposed to be affects the carrying value on the balance sheet. These assumptions undertaken by the external auditors, with the exception of tax advisory require the exercise of significant judgement by management. This is and compliance work undertaken in the ordinary course of business assessed through the Committee discussing with management and and audit related services, which are treated as pre-approved. the auditors the assumptions adopted and any adjustments made to When an approval request is made, the Committee has due regard those assumptions, including, in particular, the long run HPI to the nature of the non-audit service, whether the external auditor assumption which is a key determinant of the expected final is a suitable supplier, and whether there is likely to be any threat redemption value. Following discussion the Committee considered to independence and objectivity in the conduct of the audit. that the assumptions adopted were reasonable. The related fee level, both separately and relative to the audit fee is External auditors also considered. For an analysis of fees paid to the external auditors, see note 2.1 on page 81. The non-audit services provided during During the year, KPMG Audit Plc resigned as auditors as a result of the year related to tax advisory and compliance work. Provision KPMG’s decision to gradually wind down activity in KPMG Audit Plc of these services is not considered to impair the external auditor’s and the Board appointed KPMG LLP to fill the casual vacancy. independence or objectivity. The Committee reviewed the independence and objectivity of the external auditors, which was confirmed in an independence letter Performance evaluation containing information on procedures providing safeguards established The Committee commenced a performance evaluation towards the by the external auditor. Regulation, professional requirements and end of 2013, using a discussion and interview process designed to ethical standards were taken into account, together with consideration produce an objective assessment of the Committee’s performance of all relationships between the Company and the external auditors and audit effectiveness. The Committee was found to be effective and and their staff. Relations with the external auditors were managed continued to be well run, with the level of accounting and financial through a series of meetings and regular discussions and we ensure expertise providing strong challenge. It was also concluded that the a high quality audit by challenging the key areas of the external Committee had appropriate terms of reference and had fulfilled its auditor’s work. The relationship is kept under review and, following remit in 2013 and that the audit process continued to be effective. adopted practice, the audit engagement partner rotated on completion of the 2011 final audit after five years in the post. John Warren Chairman of the Audit Committee 21 February 2014
Bovis Homes Group PLC | 63 “ The Committee reviews the balance and composition of the Board and maintains a focus on succession planning.”
Ian Tyler Committee Chairman
Committee membership and meetings Main activities during the year All members of the Committee are independent non-executive During 2013, the Committee: directors, with the exception of the Chairman of the Company and • Reviewed the structure, size and composition of the Board and the Chief Executive. Malcolm Harris chaired the Committee until concluded that the present Board balance and composition 29 November 2013 when Ian Tyler was appointed and took over. remained appropriate, but would be kept under review. The other members of the Committee during 2013 were Alastair Lyons, Colin Holmes, John Warren and David Ritchie. • R an the recruitment process for the new Chairman of the Company, using objective criteria and the external search services Attendance of The Zygos Partnership (who have no other connection with the Name Date of appointment Role at meetings Company), and recommended appointment of the new Chairman Malcolm Harris 18/12/1998 Chairman 3/5 to the Board. (retired 29/11/2013) • Considered succession planning for the other non-executive Ian Tyler 29/11/2013 Chairman 1/1 directors looking forward to 2015, including the phasing of new appointments, as part of a progressive and orderly refreshing of Alastair Lyons 01/10/2008 Member 6/6 the Board. Colin Holmes 01/12/2006 Member 6/6 • R eviewed planning for executive director and senior management John Warren 01/03/2006 Member 6/6 succession, against a background of organisational development. David Ritchie 03/07/2008 Member 6/6 • R ecommended that all the directors stand for re-election at Nomination Committee report Committee Nomination the 2013 AGM in accordance with the UK Corporate The Committee met six times in 2013. Alastair Lyons chaired two Governance Code. meetings and parts of other meetings that discussed Chairman • A pproved the Nomination Committee report for the 2012 succession planning. The new Chairman of the Company, Ian Tyler, Annual Report. chaired the final meeting of the year. For all meetings, papers were circulated sufficiently in advance to allow proper consideration • Reviewed and updated the Committee’s terms of reference. of matters for discussion. The Group Company Secretary acts as The Committee also reviewed the results of the 2012 internal Board secretary to the Committee. performance evaluation relating to the composition of the Board and to ensure all the directors had sufficient time to devote to their duties. Responsibilities and terms of reference Non-executive directors’ service contracts are renewed on an The key responsibilities of the Committee are: annual basis following the conclusion of a second three year term, • Reviewing the structure, size and composition of the Board subject to satisfactory performance and no need to re-balance the (including skills, knowledge, experience and diversity) and Board, with the third year of the third term extending until the making recommendations to the Board. subsequent AGM. Recommendations were made to the Board that service contracts for John Warren and Colin Holmes be renewed for • Considering succession planning for directors and senior further terms, following rigorous review, including their respective executives, taking into account the challenges and opportunities contributions, performance and commitment to their roles. facing the Company and the skills and expertise needed in the future. The principle of boardroom diversity is strongly supported and the Committee reviewed the diversity policy, first published in September • Monitoring the leadership needs of the Company and leading 2011. The policy sets out that appointments to the Board will always the process for Board appointments, ensuring they are be based on merit, so that the Board has the right individuals in place, conducted on merit, against objective criteria (including diversity), and explains that diversity is seen as an important consideration as using the services of an appropriate external search consultant. part of the objective criteria used to assess candidates to achieve • Making recommendations to the Board, including on the a balanced board. A decision was taken not to set measurable re-appointment of non-executive directors, the re-election objectives and the Committee will continue to consider boardroom of directors at the AGM, and membership of the Audit and diversity in its succession planning discussions. Remuneration Committees. Performance evaluation The Committee also reviews the results of the Board performance evaluation that relate to the composition of the Board. External The Committee completed a performance evaluation towards the legal or other independent professional advice can be obtained end of 2013 and a report was presented to the Committee and at the Company’s expense, although this facility was not utilised discussed. The Committee was found to be effective and it was during the year. concluded that it had fulfilled its remit in 2013 and had appropriate terms of reference. The Committee’s terms of reference are available on the Company’s website (www.bovishomesgroup.co.uk/investor-centre/ Ian Tyler corporate-governance). Chairman of the Nomination Committee 21 February 2014 Our governance Our
64 | Annual report and accounts | Our governance Bovis Homes Group PLC | 65 The directors have pleasure in submitting their annual report for The directors believe that all the resolutions to be considered the year ended 31 December 2013. at the Annual General Meeting are in the best interests of the Company and its shareholders as a whole. The directors Results and dividends unanimously recommend that all shareholders vote in favour of The Group made a profit after taxation of £60.1 million the resolutions, as the directors intend to do in respect of their (2012: £40.2 million). An interim dividend of 4.0p (2012: 3.0p) own shares in the Company. net per share was paid on 22 November 2013. The Board proposes to pay, subject to shareholder approval at the 2014 Directors Annual General Meeting, a final dividend of 9.5p (2012: final Details of the directors are shown on page 32. Malcolm Harris
Directors’ report Directors’ dividend of 6.0p) net per share in respect of the 2013 financial retired as non-executive Chairman on 29 November 2013 and year on 23 May 2014 to shareholders on the register at the Ian Tyler was appointed on the same date. Colin Holmes has close of business on 28 March 2014. On this basis, the total decided to retire from the Board at the 2014 AGM after seven dividend for 2013 will be 13.5p (2012: 9.0p). The dividend and a half years as a director and seven years as chairman of reinvestment plan, introduced in 2012, gives shareholders the the Remuneration Committee. opportunity to reinvest dividends. Details of directors’ pay, pension rights, service contracts and Annual General Meeting directors’ interests in the ordinary shares of the Company are included in the Directors’ Remuneration Report on pages 43 Notice of the 2014 Annual General Meeting to be held on to 61. Friday 16 May 2014 is set out on pages 102 to 104. Members wishing to vote should return forms of proxy to the In accordance with the UK Corporate Governance Code, all the Company’s Registrar not less than 48 hours before the time directors will retire at the Annual General Meeting, to be held for holding the meeting. Shareholders with internet access may on Friday 16 May 2014, and being eligible, offer themselves for register their voting instructions via the internet by going to re-appointment, with the exception of Colin Holmes. Ian Tyler www.eproxyappointment.com. also offers himself for re-appointment in accordance with the Articles of Association. Following a review of remuneration policy by the Remuneration Committee to ensure an approach to remuneration that Directors’ indemnities underpins the Company’s long term growth and returns As at the date of this report, indemnities are in force under strategy, a resolution will be submitted to shareholders to which the Company has agreed to indemnify the directors, increase the usual maximum award under the Long term to the extent permitted by law and the Company’s Articles Incentive Plan from 100% to 150% of basic salary. of Association, in respect of all losses arising out of or in Following a consultation, major shareholders were supportive connection with, the execution of their powers, duties of this change, which focuses on the long term sustainable and responsibilities, as directors of the Company or any of performance of the Company. its subsidiaries.
As in prior years, it is proposed that a general meeting that is Corporate governance not an Annual General Meeting can be called on not less than The Board remains committed to high standards of corporate 14 clear days’ notice. This resolution is required as a result governance. Details relating to the Company’s compliance with of the implementation of the Shareholder Rights Directive, the UK Corporate Governance Code are given in the Corporate which increased the notice period for general meetings of Governance report on pages 33 to 41. the Company to 21 days, unless shareholders have approved the calling of meetings on 14 days’ notice. Ability to call a general meeting on 14 days’ notice would only be utilised in limited circumstances and where it was to the advantage of shareholders as a whole.
The Board has also resolved that a resolution be submitted to shareholders proposing the renewal of the authority to enable the Company to purchase up to 10% of its own shares. Presently, the directors have no wish to exercise the authority, but consider it appropriate to have the flexibility to do so. Any shares purchased would be cancelled. Our governance Our
66 | Annual report and accounts | Our governance Powers of the directors The instrument of transfer of a certificated share may be in any usual form or in any other form which the Board may approve. Subject to the Company’s Articles of Association, UK legislation The Board may refuse to register any instrument of transfer of a and any directions given by special resolution, the business of the certificated share which is not fully paid, provided that the refusal Company is managed by the Board, which may exercise all the does not prevent dealings in shares in the Company from taking powers of the Company. The directors have been authorised to place on an open and proper basis. allot and issue ordinary shares and to make market purchases of the Company’s ordinary shares and these powers may be exercised The Board may also refuse to register a transfer of a certificated under authority of resolutions of the Company passed at its Annual share unless the instrument of transfer: (i) is lodged, duly stamped General Meeting. The rules in relation to the appointment and (if stampable), at the registered office of the Company or any replacement of directors are set out in the Company’s Articles other place decided by the Board accompanied by the certificate of Association. for the share to which it relates and such other evidence as the Board may reasonably require to show the right of the transferor Share capital to make the transfer; (ii) is in respect of only one class of shares; At the date of this report the Company’s issued share capital and (iii) is in favour of not more than four transferees. Transfers of comprised a single class of share capital which is divided into uncertificated shares must be carried out using the relevant system ordinary shares of 50 pence. As at 21 February 2014, 134,098,952 and the Board can refuse to register a transfer of an uncertificated ordinary shares of 50 pence each have been issued, are fully paid share in accordance with the regulations governing the operation up and are quoted on the London Stock Exchange. of the relevant system and with UK legislation. There are no other limitations on the holding of ordinary shares in the Company and The rights and obligations attaching to the Company’s ordinary the Company is not aware of any agreements between holders of shares are set out in the Company’s Articles of Association, copies securities that may result in restrictions on the transfer of securities of which can be obtained from Companies House in the UK or by or on voting rights. writing to the Group Company Secretary. In particular, subject to applicable statutes, shares may be issued with such rights or restrictions as the Company may by ordinary resolution determine, or (if there is no such resolution or so far as it does not make specific provision) as the Board may determine. Shareholders are entitled to attend, speak and vote at general meetings of the Company, to appoint one or more proxies and, if they are corporations, to appoint corporate representatives.
On a show of hands at a general meeting of the Company every shareholder present in person or by proxy and entitled to vote has one vote and on a poll every shareholder present in person or by proxy and entitled to vote has one vote for every ordinary share 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 Substantial shareholdings As at 31 December 2013, 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 - 13.83 2.38 21,736,629 16.21
BlackRock UK Special Situations Fund 4.06 - - 5,448,553 4.06
Directors’ report Directors’ Legal & General Group 3.04 - - 4,076,171 3.04
Norges Bank 4.96 - - 6,650,077 4.96
Sanderson Asset Management - 4.96 - 6,655,348 4.96
Between 1 January and 21 February 2014, the following interests of 3% or more in the Company’s issued share capital were notified to the Company: % of voting rights of 21 February 2014 % direct % indirect % financial Total number of the issued Ordinary shares of 50p each holding holding instruments shares held share capital
BlackRock, Inc - 13.84 2.13 21,411,383 15.97
Norges Bank 3.81 - - 5,103,967 3.81
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 the environment. to the employment needs of disabled persons (and persons who become disabled whilst employed by the Group) where The Group’s corporate social responsibility policy focuses on requirements may be adequately covered by these persons sustainable development, the environment, health and safety, and to comply with any current legislation with regard to research and development, human resources, an ethical code disabled persons. of conduct and stakeholder engagement. The Group Executive Committee co-ordinates developments in this area and an It is the policy of the Group to train and develop employees established process of risk identification and management is to ensure they are equipped to undertake the tasks for embedded in all activities. The Health, Safety and Environmental which they are employed, and to provide the opportunity Consultative Committee monitors and maintains the high for career development equally and without discrimination. health and safety and environmental standards expected from Employees receive regular training in health, safety and offices and sites. environmental matters. The Board addresses risk in its own decision making and Information about the Group’s performance and other matters takes regular account of the significance of sustainability, is provided regularly by a news magazine and emails and environmental, social and ethical matters through consideration through consultations at staff meetings and personal briefings of relevant information and data in Board reports and other from elected employee representatives. The CEO and GFD documentation provided. Ultimate responsibility rests with the provide presentations to staff at all regional offices at key points Board and induction and training in this area is supported. in the year. Further details of risks and policies and procedures for their The Group operates both a defined benefit pension scheme and management are included in the Group’s Corporate Social a defined contribution pension scheme. Responsibility report dated 21 February 2014, which includes key developments and performance data. A copy of the report The Company has a Share Incentive Plan, a Save As You Earn is available on the Group’s website www.bovishomesgroup. Share Option Scheme, a Share Option Plan and a Long Term co.uk and on request to the Group Company Secretary. Incentive Plan to motivate employees and encourage strong involvement with the Group. Our governance Our
68 | Annual report and accounts | Our governance Greenhouse gas emissions
Greenhouse gas (GHG) emissions data for the period 1 January 2013 to 31 December 2013
Emissions from: Quantity Unit
Combustion of fuel at our facilities and construction sites as well as fleet vehicle use 4,118 Tonnes of CO2e (Scope 1 emissions)
Purchased electricity 1,408 Tonnes of CO2e (Scope 2 emissions)
Total GHG emissions (Scope 1 and Scope 2) 5,526 Tonnes of CO2e
Company’s chosen intensity measurements:
(i) Total GHG emissions per legally completed unit 1.96 Tonnes of CO2e per legally completed unit
(ii) Total GHG emissions per 1,000 sq ft legally completed 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 put in place to collect emissions data from our construction sites for the first time. Where this No political donations were made during the year ended 31 data was incomplete at the year end, we have extrapolated total December 2013. The Group has a policy of not making donations emissions by using (i) an averaging approach to extend data to a to political parties or incurring political expenditure. full year for sites with part-year data, and (ii) applied an average calculated from all sites to sites returning inadequate data. Auditors The calculations allow for sites which opened and closed during Each person who is a director at the date of approval of this report the year. confirms that:
GHG emissions have been calculated using emission factors from • so far as the director is aware, there is no relevant audit UK Government’s GHG Conversion Factors for Company Reporting information of which the Company’s auditors are unaware; and 2013. Scope 1 emissions arise from the consumption of gas at • each director has taken all the steps that he ought to have our facilities, diesel on construction sites and UK business mileage taken as a director to make himself aware of any relevant audit in fleet cars. Emissions from air conditioning in offices have been information and to establish that the Company’s auditors are excluded as not being material. Scope 2 emissions represent aware of that information. purchased electricity. This confirmation is given and should be interpreted in accordance Takeover directive with the provisions of Section 418 of the Companies Act 2006. On a change of control, provisions in the Group’s syndicated banking facility agreements (described in note 4.3 to the accounts) The auditors, KPMG LLP, have indicated their willingness to continue would allow lenders to withdraw the facility. in office and, in accordance with the provisions of the Companies Act 2006, resolutions concerning their re-appointment and All of the Group’s share schemes contain provisions relating to a remuneration will be placed before the Annual General Meeting. change of control. Under these provisions, a change of control would be a vesting event, allowing exercise of outstanding options and awards, subject to satisfaction of performance conditions, as required.
Bovis Homes Group PLC | 69 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. Directors’ report Directors’ 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 Company financial statements on the same basis. on page 32 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 In preparing each of the Group and Parent Company financial under IFRS, give a true and fair view of the assets, liabilities, statements, the directors are required to: financial position and profit or loss of the Company and of • select suitable accounting policies and then apply them the Group taken as a whole; and consistently; b) the strategic report contained in this report includes a fair, • make judgments and estimates that are reasonable balanced and understandable review of the development and prudent; and performance of the business and the position of the Company and the Group taken as a whole, together with a • for the Group and Parent Company financial statements, description of the principal risks and uncertainties they face. state whether they have been prepared in accordance with IFRSs as adopted by the EU;
• prepare the financial statements on the going concern basis By Order of the Board unless it is inappropriate to presume that the Group and the M T D Palmer Parent Company will continue in business. Group Company Secretary 21 February 2014 The directors confirm that they have complied with the above requirements in preparing the financial statements. Bovis Homes Group PLC The directors also confirm that they consider the annual Registered number 306718 report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Parent Company’s 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 Our
70 | Annual report and accounts | Our governance Bovis Homes Group PLC | 71 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 to sales prices achieved and list prices of comparable houses is unmodified as published by estate agents. We compared sales price trends We have audited the financial statements of Bovis Homes plc for forecast recorded in the appraisals to published indices. the year ended 31 December 2013 set out on pages 75 to 100. We also challenged the group’s forecast of build cost per square foot by comparing to the build costs for similar units on In our opinion: other sites and where there were differences we corroborated Auditor’s report Auditor’s • the financial statements give a true and fair view of the state management’s explanations to subcontractor quotes. Our audit of the group’s and of the parent company’s affairs as at work was focused on low margin sites which are considered 31 December 2013 and of the group’s profit for the year to have the most sensitivity to the Directors’ assumptions. then ended; We also considered the adequacy of the group’s disclosures in respect of the provision held against inventory carried at net • the group financial statements have been properly prepared realisable value. in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as Valuation of available for sale financial assets – shared adopted by the EU); equity (£44.8 million)
• the parent company financial statements have been properly Refer to page 63 (Audit committee report), page 85 (accounting prepared in accordance with IFRSs as adopted by the EU policy) and pages 86 and 90 (financial disclosures). 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 • the financial statements have been prepared in accordance transaction where the final amount repayable is dependent with the requirements of the Companies Act 2006 and, upon the value of the house at the repayment date and are as regards the group financial statements, Article 4 of the carried at fair value. The valuation method for these assets is IAS Regulation. not based upon observable market data. Hence, the group uses a valuation model for which a number of assumptions 2 Our assessment of risks of material have to be made, the key ones being expected house price misstatement movements and the discount rate reflecting, inter alia, the In arriving at our audit opinion above on the group financial time value of money and the risk that the borrower is unable statements the risks of material misstatement that had the to repay the amount receivable. Changes in the assumptions greatest effect on our group audit were as follows: used could have a material effect on the output of the valuation model and hence on the carrying value of the assets. Net realisable value of inventories (£971.0 million) • Our response - Our audit procedures in this area included, Refer to page 63 (Audit committee report), page 83 (accounting among others, comparing the discount rate used in the policy) and page 83 (financial disclosures). valuation model to our own research on private transactions • T he risk - Inventories, which principally comprise the group’s in mortgage and secured loans portfolios (with assistance land held for development and work in progress, are stated from our own valuation specialist) and house price at the lower of cost and net realisable value (i.e. the forecast movements to house price forecasts published by real selling price less the remaining costs to build and sell). estate agents. We challenged the group’s estimate of the An assessment of the net realisable value of inventory is fair value by checking profits/losses earned from redemptions carried out at each balance sheet date and is dependent upon in the year and assessing how the experience to date had the group’s estimate of forecast selling prices and build costs been included as part of the reassessment of assumptions. by reference to current prices. £48.6 million of inventory is We also re-performed the group’s sensitivity analysis on the held at net realisable value. Accordingly, a change in the valuation and assessed whether the group’s disclosures about group’s estimate of sales price and build cost could have a the sensitivity of the outcome of the valuation to changes in material impact on the carrying value of inventories in the key assumptions properly reflected the risks inherent in the group’s financial statements. valuation of available for sale assets. • Our response - Our audit procedures in this area included, among others, challenging the group’s forecast sales prices by comparing the forecast sales price of a sample of houses Our governance Our
72 | Annual report and accounts | Our governance 3 Our application of materiality and an overview • the Audit Committee report does not appropriately address of the scope of our audit matters communicated by us to the audit committee. The materiality for the group financial statements as a whole was Under the Companies Act 2006 we are required to report to you if, set at £3.9 million. This has been determined with reference to a in our opinion: benchmark of group profit before taxation (of which it represents • adequate accounting records have not been kept by the parent 5%) which we consider to be one of the principal considerations for company, or returns adequate for our audit have not been members of the company in assessing the financial performance of received from branches not visited by us; or the group. • the parent company financial statements and the part of We agreed with the audit committee to report to it all uncorrected the Directors’ Remuneration Report to be audited are not in misstatements we identified through our audit with a value in agreement with the accounting records and returns; or excess of £0.2 million, in addition to other audit misstatements below that threshold that we believe warranted reporting on • certain disclosures of directors’ remuneration specified by law are qualitative grounds. In addition we considered whether any not made; or misstatements corrected by management identified during • we have not received all the information and explanations we the course of the audit should be communicated to the Audit require for our audit. Committee to assist it in fulfilling its governance responsibilities. Under the Listing Rules we are required to review: The group’s operations are all accounted for at the group’s head office in New Ash Green, Kent. The group audit team performed • the directors’ statement, set out on page 39, in relation to going the audit of the group as if it was a single aggregated set of concern; and financial information. The audit was performed using the materiality • the part of the Corporate Governance Statement on pages 33 level set out above and covered 100% of total group revenue; to 41 relating to the company’s compliance with the nine group profit before taxation; and total group assets. Visits were provisions of the 2010 UK Corporate Governance Code specified made to regional offices for the purposes of performing tests of for our review. controls or making enquiries of regional management). We have nothing to report in respect of the above responsibilities.
4 Our opinion on other matters prescribed by the Scope of report and responsibilities Companies Act 2006 is unmodified As explained more fully in the Directors’ Responsibilities Statement In our opinion: set out on page 70, the directors are responsible for the preparation • the part of the Directors’ Remuneration Report to be audited has of the financial statements and for being satisfied that they give a been properly prepared in accordance with the Companies Act true and fair view. A description of the scope of an audit of 2006; and financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. This report is made • the information given in the Strategic Report and the Directors’ solely to the Company’s members as a body and is subject to Report for the financial year for which the financial statements important explanations and disclaimers regarding our are prepared is consistent with the financial statements. responsibilities, published on our website at www.kpmg.com/uk/ 5 We have nothing to report in respect of auditscopeukco2013a, which are incorporated into this report as if matters on which we are required to report set out in full and should be read to provide an understanding of by exception the purpose of this report, the work we have undertaken and the basis of our opinions. Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have identified other information in the annual report that contains a material inconsistency with either that knowledge or the Stephen Wardell financial statements, a material misstatement of fact, or that is (Senior Statutory Auditor) otherwise misleading. for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants In particular, we are required to report to you if: London • we have identified material inconsistencies between the 21 February 2014 knowledge we acquired during our audit and the directors’ statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the group’s performance, business model and strategy; or
Bovis Homes Group PLC | 73 2013 Financial statements Financial
74 | Annual report and accounts | Financial statements Group income statement
2012 2013 restated note 1.8 For the year ended 31 December £000 £000
Revenue 556,000 425,533
Cost of sales (425,693) (328,634)
Gross profit 130,307 96,899
Administrative expenses (47,476) (40,186)
Operating profit before financing costs 2.1 82,831 56,713
Financial income 4.4 2,815 2,203
Financial expenses 4.4 (7,134) (5,926)
Net financing costs (4,319) (3,723)
Share of profit of Joint Venture 5.5 283 254
Profit before tax 78,795 53,244
Income tax expense 5.1 (18,727) (13,051)
Profit for the period attributable to equity holders of the parent 60,068 40,193
Earnings per share
Basic 2.3 44.9p 30.2p
Diluted 2.3 44.8p 30.1p
Group statement of comprehensive income
2012 2013 restated note 1.8 For the year ended 31 December £000 £000
Profit for the period 60,068 40,193
Other comprehensive income
Items that will not be reclassified to profit and loss
Actuarial gains/(losses) on defined benefit pension scheme 3,693 (3,500)
Deferred tax on actuarial movements on defined benefit pension scheme (748) 797
Total comprehensive income for the period attributable to equity holders of the parent 63,013 37,490
Bovis Homes Group PLC | 75 Balance sheets
Group Company
2012 2013 restated note 1.8 2013 2012 As at 31 December Note £000 £000 £000 £000
Assets
Property, plant and equipment 5.4 13,526 11,910 - -
Investments 5.5 5,089 5,387 5,146 4,381
Restricted cash 1,823 1,152 - -
Deferred tax assets 5.2 1,451 2,881 - -
Trade and other receivables 1,560 1,930 - -
Available for sale financial assets 4.2 44,844 43,869 - -
Retirement benefit asset 5.7 3,237 - - -
Total non-current assets 71,530 67,129 5,146 4,381
Inventories 3.1 971,016 863,597 - -
Trade and other receivables 3.2 41,713 64,844 377,038 383,147
Available for sale financial assets 4.2 - 7,119 - -
Cash and cash equivalents 4.1 12,025 24,396 344 344
Total current assets 1,024,754 959,956 377,382 383,491
Total assets 1,096,284 1,027,085 382,528 387,872
Equity
Issued capital 4.5 67,048 66,908 67,048 66,908
Share premium 213,428 212,550 213,428 212,550
Retained earnings 529,786 479,391 99,524 105,380
Total equity attributable to equity holders of the parent 810,262 758,849 380,000 384,838
Liabilities
Bank and other loans 4.3 30,064 5,606 - -
Other financial liabilities 3.3 - 706 - -
Trade and other payables 3.3 29,631 50,681 459 459
Retirement benefit obligations 5.7 - 3,171 - -
Provisions 5.6 2,052 1,668 - -
Total non-current liabilities 61,747 61,832 459 459
Trade and other payables 3.3 212,926 198,620 28 28
Other financial liabilities 3.3 784 - - -
Provisions 5.6 1,411 2,065 - -
Current tax liabilities 5.2 9,154 5,719 2,041 2,547
Total current liabilities 224,275 206,404 2,069 2,575
Total liabilities 286,022 268,236 2,528 3,034
Total equity and liabilities 1,096,284 1,027,085 382,528 387,872
These financial statements were approved by the Board of directors on 21 February 2014 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 2012 (restated note 1.8) (1,941) (17,490) 469,102 449,671 66,836 212,064 728,571
Total comprehensive income and expense - (2,703) 40,193 37,490 - - 37,490
Issue of share capital - - - - 72 486 558
Deferred tax on other employee benefits - - 33 33 - - 33
Share based payments - - 861 861 - - 861
Dividends paid to shareholders - - (8,664) (8,664) - - (8,664)
Balance at 31 December 2012 (restated note 1.8) (1,941) (20,193) 501,525 479,391 66,908 212,550 758,849
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
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 2012 106,120 66,836 212,064 385,020
Total comprehensive income and expense 7,063 - - 7,063
Issue of share capital - 72 486 558
Share based payments 861 - - 861
Dividends paid to shareholders (8,664) - - (8,664)
Balance at 31 December 2012 105,380 66,908 212,550 384,838
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
Bovis Homes Group PLC | 77 Statement of cash flows
Group Company
2012 2013 restated note 1.8 2013 2012 For the year ended 31 December Note £000 £000 £000 £000
Cash flows from operating activities
Profit for the year 60,068 40,193 6,739 7,063
Depreciation 2.1 1,180 906 - -
(Revaluation)/impairment of available for sale financial assets (47) 889 - -
Financial income 4.4 (2,815) (2,203) (8,781) (9,610)
Financial expense 4.4 7,134 5,926 - -
Profit on sale of property, plant and equipment (24) (14) - -
Equity-settled share-based payment expense 5.3 766 861 - -
Income tax expense 5.1 18,727 13,051 2,042 2,547
Share of results of Joint Venture 5.5 (283) (254) - -
Decrease/(increase) in trade and other receivables 28,737 (3,587) 3,562 (1,504)
Increase in inventories (107,419) (65,841) - -
(Decrease)/increase in trade and other payables (4,911) 1,093 - -
Decrease in provisions and retirement benefit obligations (2,845) (2,401) - -
Cash generated from operations (1,732) (11,381) 3,562 (1,504)
Interest paid (5,781) (1,707) - -
Income taxes paid (14,634) (9,922) - -
Net cash from operating activities (22,147) (23,010) 3,562 (1,504)
Cash flows from investing activities
Interest received 269 773 8,781 9,610
Acquisition of property, plant and equipment 5.4 (2,802) (1,213) - -
Proceeds from sale of plant and equipment 30 25 - -
Movement in loans with Joint Venture 5.5 360 - - -
Dividends received from Joint Venture 5.5 267 243 - -
Investment in restricted cash (671) (493) - -
Net cash from investing activities (2,547) (665) 8,781 9,610
Cash flows from financing activities
Dividends paid 2.2 (13,361) (8,664) (13,361) (8,664)
Proceeds from the issue of share capital 4.5 1,018 558 1,018 558
Increase in borrowings 4.3 24,666 - - -
Net cash from financing activities 12,323 (8,106) (12,343) (8,106)
Net decrease in cash and cash equivalents (12,371) (31,781) - .
Cash and cash equivalents at 1 January 4.1 24,396 56,177 344 344
Cash and cash equivalents at 31 December 4.1 12,025 24,396 344 344
78 | Annual report and accounts | Financial statements Notes to the financial statements
In preparing the 2013 financial statements, Bovis Homes Group PLC has made a number of changes in structure, layout and wording in order to make the financial statements less complex and more relevant for shareholders and other users. 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. Where possible, wording has been simplified to provide clearer commentary on the financial performance of the Group.
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 2013 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 21 February 2014. 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 2014 and summary financial forecasts for the following two years. As at 31 December 2013 the Group held cash and cash equivalents of £12.0 million and had total borrowings of £30.1 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 2013, the full £175 million 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. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. 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. Joint ventures are those entities in which the Group has joint control over the financial and operating policies. 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.
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 21 February 2014 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 details 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 currently developable 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 2013: IFRS13 establishes a single framework for measuring fair value and making disclosures about fair value measurements, when such measurements are required or permitted by other IFRSs. In particular, it unifies the definition of fair value as the price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date. In accordance with the transitional provisions of IFRS13, the Group has applied the new fair value measurement guidance prospectively, and has not provided any comparative information for new disclosures. IAS19 (Revised 2011) “Employee Benefits” outlines the accounting requirements for employee benefits. The Standard establishes the principle that the cost of providing employee benefits should be recognised in the period in which the benefit is earned by the employee, rather than when it is paid or payable, and outlines how each category of employee benefits are measured, providing detailed guidance in particular about post-employment benefits. This impacts the measurement of various components representing movements in the defined benefit pension obligation and associated disclosures, but not the Group’s total obligation. The application of IAS19 (Revised 2011) has resulted in the interest cost and expected return on assets being replaced by a net interest charge/credit on the net defined benefit pension liability/surplus. Certain costs previously recorded as part of finance costs or other comprehensive income have now been presented within administrative expenses. The comparative period has been restated with profit being £0.7 million lower and other comprehensive income £0.7 million higher including the tax impact of the changes. The impact on both basic and diluted earnings per share was a reduction of 0.5 pence. The Group records actuarial adjustments immediately so there has been no effect on the prior year pension deficit. The other standards and interpretations that are applicable for the first time in the Group’s financial statements for the year ended 31 December 2013, 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 2013, and have not been applied in preparing these consolidated financial statements. Comments on specific new standards or amendments are as follows: IFRS10 ‘Consolidated Financial Statements’, IFRS 11 ‘Joint Arrangements’, IFRS 12 ‘Disclosure of interest in Other Entities’, IAS27 (Revised) ‘Separate Financial Statements’ and IAS28 (Revised) ‘Investments in Associates and Joint Ventures’ all cover various aspects of Group Financial Statements but are not expected to have a significant impact on the Group. Amendment to IAS32 will apply to the Group from 1 January 2014. This amendment provides guidance on the application of offsetting in financial statements. The Group is currently assessing the impact of the standard on the Group’s results and financial position. IFRS9 ‘Financial Instruments’ was reissued in October 2010 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. In November 2013 the IASB officially removed the previous mandatory effective date (i.e. 1 January 2015) and decided that it would be no earlier than 1 January 2015. 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. 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-assed tax, rebated 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):
2013 2012 £000 £000
Depreciation of tangible fixed assets 1,180 906
Hire of plant and machinery 3,058 2,275
Rental income (included in revenue) (583) (556)
Government grants recognised within cost of sales (see note 4.3) (481) (2,019)
Auditors’ remuneration 2013 2012 £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 112 112
Non Audit Fees
Interim review work 18 18
Tax services 87 45
Other services 2 2
Fees charged to operating profit before financing costs 251 209
Bovis Homes Group PLC | 81 Notes to the financial statements continued
2.2 Dividends The following dividends were paid by the Group: 2013 2012 £000 £000
Prior year final dividend per share of 6.0p (2012: 3.5p) 8,010 4,663
Current year interim dividend per share of 4.0p (2012: 3.0p) 5,351 4,001
13,361 8,664
The Board decided to propose a final dividend of 9.5p per share in respect of 2013. The dividend has not been provided for and there are no income tax consequences. 2013 2012 £000 £000
9.5p per qualifying ordinary share (2012: 6.0p) 12,712 8,004
2.3 Earnings per share Profit attributable to ordinary shareholders 2012 2013 restated note 1.8 £000 £000
Profit for the period attributable to ordinary shareholders 60,068 40,193
Weighted average number of ordinary shares 2013 2012
Issued ordinary shares at 1 January 133,294,726 132,860,480
Effect of own shares held (288,388) (445,306)
Effect of shares issued in year 636,973 879,552
Weighted average number of ordinary shares at 31 December 133,643,311 133,294,726
Diluted earnings per share The calculation of diluted earnings per share at 31 December 2013 was based on the profit attributable to ordinary shareholders of £60,068,000 (2012: £40,193,000) and a weighted average number of ordinary shares outstanding during the year ended 31 December 2013 of 133,933,279 (2012: 133,432,911). 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) 2013 2012
Weighted average number of ordinary shares at 31 December 133,643,311 133,294,726
Effect of share options in issue which have a dilutive effect 289,968 138,185
Weighted average number of ordinary shares (diluted) at 31 December 133,933,279 133,432,911
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.
2013 2012 Group £000 £000
Raw materials and consumables 3,421 1,511
Work in progress 198,833 171,214
Part exchange properties 18,391 24,655
Land held for development (net of provision) 750,371 666,217
Inventories 971,016 863,597
Inventories to the value of £425.1 million were recognised as expenses in the year (2012: £331.8 million).
2013 2012 Movement on inventory provision £000 £000
Balance at 1 January 28,624 35,858
Recognised in the income statement relating to:
Land sales - Utilised on specific sites sold in the year (8,263) (6,355)
- Unutilised on specific sites sold in the year and so reversed (398) (845)
(8,661) (7,200)
Provisions recognised on sites still held 1,196 2,091
Provisions released on sites still held (1,253) (2,125)
Balance at 31 December 19,906 28,624
£48.6 million (2012: £79.3 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
2013 2012 2013 2012 £000 £000 £000 £000
Current assets
Trade receivables 24,856 53,252 - -
Amount due from subsidiary undertakings - - 377,038 383,147
Other debtors 12,214 10,039 - -
Prepayments and accrued income 4,643 1,553 - -
Current assets 41,713 64,844 377,038 383,147
The total provision for doubtful receivables is £0.3 million (2012: £1.0 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
2013 2012 2013 2012 £000 £000 £000 £000
Non-current liabilities
Other financial liabilities - 706 - -
Trade payables 29,172 50,222 - -
Other creditors 459 459 459 459
29,631 51,387 459 459
Current liabilities
Trade payables 198,678 183,613 - -
Other financial liabilities 784 - - -
Taxation and social security 1,215 782 - -
Other creditors 622 2,161 28 28
Accruals and deferred income 12,411 12,064 - -
213,710 198,620 28 28
Total trade and other payables 243,341 250,007 487 487
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. The Group’s other financial liabilities represent the fair value of a liability, based on the performance of the Lloyds Bank House Price Index from October 2010 to March 2014. Note 4.6 highlights the sensitivity of this value to changes in the index. Deferred income includes £0.7 million of Government grants. This will be released to the income statement as the Group legally completes units on the related sites.
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
2013 2012 2013 2012 £000 £000 £000 £000
Bank balances 356 442 344 344
Call deposits 11,669 23,954 - -
Cash and cash equivalents in the balance sheet and cash flows 12,025 24,396 344 344
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
2013 2012 £000 £000
Non-current asset - shared equity 44,844 43,869
Current asset - quoted investments - 7,119
Available for sale assets 44,844 50,988
Key assumptions 2013 2012
Discount rate, incorporating default rate 7.9% 7.9%
Average house price inflation per annum for the next three years 2.5% 2.5%
See note 4.6 for a sensitivity analysis on these assumptions.
2013 2012 £000 £000
Balance at 1 January 43,869 38,653
Additions 1,684 5,596
Redemptions (3,065) (1,229)
Revaluation/(impairment) taken through the income statement 47 (889)
Imputed interest 2,309 1,738
Balance at 31 December 44,844 43,869
Total impairments taken to date are £4,304,000 (2012: £4,351,000). The impairments relate to changes in expected cash flows as a result of movement in future house price expectations. Available for sale financial assets - quoted investment During the prior year the Group received units in the TM Hearthstone UK Residential Property Fund valued at £7.2 million in exchange for a number of the Group’s showhome properties. In 2013 the units were fully redeemed for cash.
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 2013 2012 £000 £000
Bank and other loans 29,856 5,190 Interest rate derivative financial instruments 208 416
Bank and other loans 30,064 5,606
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 2013 value 2012
Bank loans LIBOR +100 bps 2016 25,000 -
Interest free loan at fair value LIBOR +158 bps 2016 4,856 5,190
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 2013 was £5,000,000. 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 £121,369, 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. This financing arrangement replaced the Group’s previous £150 million committed revolving credit facility. The facility syndicate comprises four existing relationship group banks, one of which is providing the term loan, and one new bank. 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 2012 2013 restated note 1.8 £000 £000
Interest income (298) (465)
Hedge ineffectiveness for derivatives (208) -
Imputed interest on available for sale assets (2,309) (1,738)
Finance income (2,815) (2,203)
Imputed interest on deferred terms land payables 3,144 3,133
Interest expense 3,729 2,379
Net pension finance charge 140 50
Imputed interest on interest free loan 121 195
Hedge ineffectiveness for derivatives - 169
Finance expenses 7,134 5,926
Net financing costs 4,319 3,723
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 2013 2012
In issue at 1 January 133,815,751 133,672,636 Issued for cash 280,674 124,868 Scrip dividend - 18,247
In issue at 31 December – fully paid 134,096,425 133,815,751
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 2013, there were no share purchases. 156,969 shares awarded under the Group’s long term incentive plan vested during 2013 and accordingly the balance of the own shares held reserve reduced by £581,000. 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 and a financial liability are 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 2013, 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 2013 2012 £000 £000
Opening fair value 416 407
Change in fair value (208) 9
Closing fair value 208 416
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 2013, 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 £2.6 million (2012: £5.9 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 £21,000 (2012: £20,000), 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:
2013 2012 £000 £000
Consented land 7,338 22,933
Second charge against property 46,404 45,553
Unsecured 34,375 49,276
88,117 117,762
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 39.
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 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)
Linked to UK Not linked to UK housing market housing market Total 31 December 2012 £000 £000 £000
Non-derivative financial assets Restricted cash - 1,152 1,152 Trade and other receivables - 66,774 66,774 Available for sale financial assets 50,988 - 50,988 Cash and cash equivalents - 24,396 24,396 Non-derivative financial liabilities Bank and other loans - (5,190) (5,190) Trade and other payables - (249,301) (249,301) Derivative financial liabilities Other financial liabilities (706) - (706) Derivative - (416) (416)
50,282 (162,585) (112,303)
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.
Other financial liabilities represent an estimated payment dependent on the growth of the Lloyds Bank House Price Index, from October 2010 to March 2014. This was carried at a fair value of £784,000 (2012: £706,000).
Sensitivity - available for sale financial assets 2013 increase 2013 decrease assumptions assumptions by 1% by 1%
Discount rate, incorporating default rate (3,204) 3,548
House price inflation 2,753 (2,867)
Sensitivity - other financial liabilities 2013 increase 2013 decrease assumptions assumptions by 1% by 1%
Average future Lloyds HPI (76) 76
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
2013 123,805 126,556 96,648 14,827 7,954 3,853 3,068 206
2012 123,820 128,559 76,905 37,481 5,823 3,113 2,218 3,019
Other financial liabilities The Group determines the value dependent on management expectations of growth in the Lloyds Bank House Price Index. The liability is based on a future discounted cash flow for a nominal value tracking the index until March 2014. 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. 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 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
Level 1 Level 2 Level 3 Group 31 December 2012 £000 £000 £000 £000
Assets
Available for sale financial assets 7,119 - 43,869 50,988
Liabilities Other financial liabilities - (706) - (706) Derivative - (416) - (416)
- (1,122) - (1,122)
7,119 (1,122) 43,869 49,866
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 2012 2013 restated note 1.8 Note £000 £000
Current tax
Current year 18,615 12,049
Adjustments for prior years (546) (444)
18,069 11,605
Deferred tax
Origination and reversal of temporary differences 5.2 513 1,322
Adjustments for prior year 5.2 145 124
Total income tax in income statement 18,727 13,051
92 | Annual report and accounts | Financial statements Notes to the financial statements continued
Reconciliation of effective tax rate 2012 2012 2013 2013 restated note 1.8 restated note 1.8 % £000 % £000
Profit before tax 78,795 53,244
Income tax using the domestic corporation tax rate 23 18,326 25 13,045
Non-deductible expenses - (76) 1 116
Other 1 525 - -
Change in tax rate 1 352 1 210
Over provided in prior years (1) (400) (2) (320)
Total tax expense 24 18,727 25 13,051
Recognised directly in equity 2013 2012 Note £000 £000
Relating to actuarial movements on pension scheme 5.2 (748) 797
Relating to share-based payments 5.2 (23) 33
Deferred tax recognised directly in equity (771) 830
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 £9,154,000 (2012: £5,719,000) 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
2013 2012 2013 2012 2013 2012 Group £000 £000 £000 £000 £000 £000
Property, plant and equipment - - (177) (13) (177) (13)
Non-current trade payables 2,039 2,397 - - 2,039 2,397
Available for sale financial assets 123 - - (400) 123 (400)
Employee benefits - pensions - 513 (863) - (863) 513
Employee benefits - share-based payments 456 466 - - 456 466
Provisions 130 143 - - 130 143
Interest rate derivative 42 117 - - 42 117
Inventories - - (537) (618) (537) (618)
Adjustment on sale to Joint Venture 238 276 - - 238 276
Tax assets/(liabilities) 3,028 3,912 (1,577) (1,031) 1,451 2,881
Bovis Homes Group PLC | 93 Notes to the financial statements continued
Movement in temporary differences during the year 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)
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
Balance Recognised Recognised Balance 1 Jan 2012 in income in equity 31 Dec 2012 Group £000 £000 £000 £000
Property, plant and equipment 97 (110) - (13)
Non-current trade payables 2,821 (424) - 2,397
Available for sale financial assets (223) (177) - (400)
Employee benefits - pensions 616 (900) 797 513
Employee benefits - share-based payments 304 129 33 466
Provisions 131 12 - 143
Interest rate derivative 125 (8) - 117
Inventories (672) 54 - (618)
Adjustment on sale to Joint Venture 299 (23) - 276
Movement in temporary differences 3,498 (1,447) 830 2,881
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 2013, £10,194,000 (2012: £10,423,000) of finance costs had not received a tax deduction. The Group anticipates obtaining a current tax deduction in respect of this in the future and has therefore created a deferred tax asset to reflect this future tax deduction. Employee benefits The Group recognises the deficit or surplus on its defined benefits pension scheme under the requirements of IAS19 (Revised): ‘Employee benefits’. This has generated a surplus of £3.2 million (2012: deficit of £3.2 million). As at 31 December 2013 a deferred tax liability of £863,000 (2012 deferred tax asset: £513,000) 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
2013 2012
Average staff numbers 741 639
2013 2012 Personnel expenses £000 £000
Wages and salaries 28,600 27,275
Compulsory social security contributions 3,343 3,046
Contributions to defined contribution plans 615 515
Increase in expenses related to defined benefit plans 922 830
Equity-settled share-based payments 766 861
Personnel expenses 34,246 32,527
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 2013 2012 £000 £000
Long Term Incentive Plan 536 444
Executive and other share options 99 279
Save As You Earn share options 131 138
Total expense recognised as personnel expenses 766 861
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 43 to 61. The directors are considered to be the only key management personnel. A summary of key management remunerations is as follows: 2013 2012 £000 £000
Wages and salaries 1,518 1,307
Compulsory social security contributions 215 165
Contributions to defined contribution plans 126 99
Equity-settled share-based payments 748 183
Key management remuneration 2,607 1,754
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. One grant of awards under this plan was made in each of 2012 and 2013. Details of the vesting conditions of these awards are laid out in the Remuneration Report which can be found on pages 43 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 £9.7 million (2012: £9.9 million) and plant and machinery of £3.8 million (2012: 2.0 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
2013 2012 2013 2012 £000 £000 £000 £000
Subsidiary undertakings
Interest in subsidiary undertakings’ shares at cost (100% ownership of ordinary shares) - - 5,146 4,381
Investments accounted for using the equity method
Interest in Joint Venture - equity 3,676 3,660 - -
- loan 1,391 1,705 - -
5,067 5,365 - -
Other investments 22 22 - -
5,089 5,387 5,146 4,381
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 one subsidiaries, of which there are two principal subsidiary undertakings. 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
2013 2012 % %
Bovis Homes Limited United Kingdom 100 100
Bovis Homes Insurance PCC Limited Guernsey 100 100
At 31 December 2013 the Group had an interest in the following Joint Venture which has been equity accounted to 31 December and is registered and operates in England and Wales.
Country of incorporation Ownership interest in entity
2013 2012 % %
Bovis Peer LLP United Kingdom 50 50
The movement on the investment in the Joint Venture during the year is as follows:
2013 2012 £000 £000
At the start of the year 5,365 5,305
Net (decrease)/increase in loans (314) 49
Share of results 283 254
Dividend received (267) (243)
At the end of the year 5,067 5,365
96 | Annual report and accounts | Financial statements Notes to the financial statements continued
The Group’s share of the Joint Venture’s net assets, income and expenses is made up as follows: 2013 2012 £000 £000
Non-current assets 14,592 14,667
Current assets 457 526
Current liabilities (125) (147)
Non-current liabilities (10,038) (10,188)
Share of net assets of Joint Venture 4,886 4,858
Revenue 814 779
Costs (239) (217)
Operating profit 575 562
Interest (292) (308)
Share of results of Joint Venture 283 254
The 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 Joint Venture. Transactions with Bovis Peer 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 £147,000 (2012: £144,000). 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 £46,000 (2012: £49,000). 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 £1.4 million (2012: £2.1 million) and other amounts of £2.1 million (2012: £1.6 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. 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 2013 was 17 years.
Bovis Homes Group PLC | 97 Notes to the financial statements continued
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.
2012 2013 restated note 1.8 £000 £000
Present value of funded obligations 91,456 88,400
Fair value of plan scheme assets (94,693) (85,229)
Recognised (asset)/liability for defined benefit obligations (3,237) 3,171
The Group has confirmed that it has an unfettered right of return to a surplus, so has recognised this asset under IFRIC 14.
Movements in the net liability for defined benefit obligations recognised in the balance sheet 2012 2013 restated note 1.8 £000 £000
Net liability for defined benefit obligations at 1 January 3,171 2,444
Contributions received (3,775) (3,753)
Expense recognised in the income statement 1,060 980
(Gain)/loss recognised in equity (3,693) 3,500
Net (asset)/liability for defined benefit obligations at 31 December (3,237) 3,171
The cumulative loss recognised in equity to date is £0.7 million. Change in defined benefit obligation over the year 2012 2013 restated note 1.8 £000 £000
Defined benefit obligation at beginning of year 88,400 79,140
Interest cost 3,850 3,830
Current service cost 754 690
Actual member contributions 148 150
Actual benefit payments by the scheme (2,719) (2,710)
Loss on change of assumptions 1,023 7,300
Defined benefit obligation at end of year 91,456 88,400
98 | Annual report and accounts | Financial statements Notes to the financial statements continued
Change in scheme assets over the year 2012 2013 restated note 1.8 £000 £000
Fair value of scheme assets at beginning of year 85,229 76,696
Interest income 3,711 3,780
Actual benefit payments by the scheme (2,719) (2,710)
Actual Group contributions 3,775 3,753
Actual member contributions 148 150
Expected return on plan assets 4,717 3,800
Administration costs (168) (240)
Fair value of scheme assets at end of year 94,693 85,229
Sensitivity analysis Change in defined Assumption Change in assumption benefit obligation
Discount rate +0.5%pa / -0.5%pa -9% / +8%
RPI inflation +0.5%pa / -0.5%pa +1% / -5%
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 Expense recognised in the income statement 2012 2013 restated note 1.8 £000 £000
Current service cost 754 690
Administration expenses 168 240
Interest cost 138 50
Expense recognised in the income statement 1,060 980
Assumptions Principal actuarial assumptions at the balance sheet date (expressed as weighted averages): 2013 2012 2011 Group % % %
Discount rate at 31 December 4.4 4.4 4.9
Future salary increases 2.5 2.5 2.5
Inflation - RPI 3.5 3.1 3.2
- CPI 2.5 2.5 2.2
Future pension increases 2.7 2.6 2.6
2013 2012 2011 2010 2009 £000 £000 £000 £000 £000
Present value of defined benefit obligations 91,456 88,400 79,140 76,390 76,510
Fair value of scheme assets 94,693 85,229 76,696 73,520 67,600
Surplus/(deficit) in the scheme 3,237 (3,171) (2,444) (2,870) (8,910)
Bovis Homes Group PLC | 99 Notes to the financial statements continued
The most recent formal actuarial valuation was carried out as at 30 June 2013. The results have been updated to 31 December 2013 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 24.5 22.3
Women 26.9 24.6
As at 30 June 2013, an actuarial valuation was undertaken on behalf of the pension scheme trustee, which 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 contribution of £2.8 million made during December 2013. A new schedule of contributions is in the process of being agreed between the Group and the pension scheme trustee. 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 2013 were limited to those relating to remuneration, which are disclosed in the director’s remuneration report (which can be found on pages 43 to 61) and in note 5.3. Transactions between the Group, Company and joint ventures are in note 5.5. Malcolm Harris, a Group Director until his resignation on 29 November 2013, is a non-executive Director of the Home Builders Federation (HBF). The Group pays subscription fees and fees for research as required to the HBF. Total net payments were as follows: 2013 2012 £000 £000
HBF 70 93
There have been no related party transactions in the current financial year which have materially affected the financial performance or position of the Group, and which have not been disclosed.
100 | Annual report and accounts | Financial statements Five year record
2012 2013 restated note 1.8 2011 2010 2009 IFRS IFRS IFRS IFRS IFRS Years ended 31 December £m £m £m £m £m
Revenue and profit
Revenue 556.0 425.5 364.8 298.6 281.5
Operating profit before financing costs 82.8 56.7 36.4 21.6 18.9
Net financing costs (4.3) (3.7) (4.5) (3.2) (14.1)
Share of result of Joint Venture 0.3 0.2 0.2 0.1 -
Profit before tax 78.8 53.2 32.1 18.5 4.8
Tax (18.7) (13.0) (8.8) (4.5) (1.3)
Profit after tax 60.1 40.2 23.3 14.0 3.5
Balance sheet
Equity shareholders’ funds 810.3 758.8 728.6 710.8 692.6
Add borrowings stated before issue costs 18.0 - - - -
Capital employed 828.3 758.8 728.6 710.8 692.6
Returns
Operating margin (note 1) 15% 13% 10% 7% 6%
Return on shareholders’ funds (note 2) 7% 5% 3% 2% 1%
Return on capital employed (note 3) 10% 8% 5% 3% 2%
Homes (including units sold on third party owned land)
Number of unit completions 2,813 2,355 2,045 1,901 1,803
Average sales price (£’000) 195.1 170.7 162.4 160.7 154.6
Ordinary shares
Earnings per share (p) (note 4) 44.9 30.2 17.5 10.6 4.4
Dividends per share
Paid (p) 7.5 6.5 4.5 - -
Interim paid and final proposed (p) 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 closing 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. 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 2014 Annual General Meeting of Bovis Homes Group PLC will be held at The Spa Hotel, Mount Ephraim, Royal Tunbridge Wells, Kent TN4 8XJ on Friday 16 May 2014 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 2013 and the reports of the directors and auditors. Remuneration report 2 To approve the directors’ remuneration report (other than the part containing the directors’ remuneration policy referred to in resolution 3 below) in the form set out in the Company’s annual report and accounts for the year ended 31 December 2013 in accordance with section 439 of the Companies Act 2006. 3 To approve the directors’ remuneration policy set out on pages 44 to 48 of the directors’ remuneration report, in the form set out in the Company’s annual report and accounts for the year ended 31 December 2013, in accordance with section 439A of the Companies Act 2006, to take effect immediately following the Annual General Meeting. Dividend 4 To declare the final dividend recommended by the directors. Directors 5 To re-appoint Ian Paul Tyler (appointed since the last Annual General Meeting) as a director of the Company. 6 To re-appoint Alastair David Lyons as a director of the Company. 7 To re-appoint John Anthony Warren as a director of the Company. 8 To re-appoint David James Ritchie as a director of the Company. 9 To re-appoint Jonathan Stanley Hill as a director of the Company. Auditors 10 To re-appoint KPMG LLP as auditors of the Company. 11 To authorise the directors to determine the remuneration of the auditors. Authority to allot shares 12 That the directors be generally and unconditionally authorised to allot shares in the Company and to grant rights to subscribe for or to convert any security into shares in the Company pursuant to section 551 of the Companies Act 2006 (“the 2006 Act”): (A) up to an aggregate nominal amount of £22,327,642; and (B) comprising equity securities (as defined in the 2006 Act) up to an aggregate nominal amount of £44,655,284 (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 2015 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. Amendment to Long Term Incentive Plan 13 That the amendment to the rules of the Bovis Homes Group PLC Long Term Incentive Plan 2010 described in item 13 in the explanatory notes to this Notice of meeting be and is hereby approved and that the directors be and are hereby authorised to do all such acts and things as may be necessary to carry the amendment into effect. Special resolutions Notice of general meetings 14 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 15 That if resolution 12 is passed, and in place of all existing powers, the directors be generally empowered pursuant to section 570 of the 2006 Act to allot equity securities (as defined in the 2006 Act) for cash, under the authority given by that resolution, as if section 561(1) of the 2006 Act did not apply to the allotment, such power: Supplementary information Supplementary
102 | Annual report and accounts | Supplementary information Notice of meeting continued
(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 2015 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; (b) to be limited to the allotment of equity securities in connection with an offer of equity securities (but in the case of the authority granted under resolution 12(B) by way of a rights issue only) to ordinary shareholders in proportion (as nearly as may be practicable) to their existing holdings and so that the directors may impose any limits or restrictions and make any arrangements which they consider necessary or appropriate to deal with fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or any other matter; and (c) to be limited, in the case of the authority granted under resolution 12(A), to the allotment of equity securities for cash otherwise than pursuant to paragraph (b) up to an aggregate nominal amount of £3,352,498. Authority to purchase own shares 16 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 13,409,995 ordinary shares and shall expire at the conclusion of the next Annual General Meeting of the Company in 2015 (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 21 March 2014
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 14 May 2014 (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. The Company will announce the level of proxy votes for and against each resolution and the number of abstentions once the resolution has been voted on by a show of hands, except where a poll is called. When announcing a decision on a poll, 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 3 March 2014 (being the last practicable date prior to the publication of this Notice) the Company’s issued share capital consists of 134,099,952 ordinary shares, carrying one vote each. Therefore, the total voting rights in the Company as at 3 March 2014 are 134,099,952. (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 3 April 2014, 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 2013 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; (c) the register of directors’ interests; and (d) a copy of the rules of the Bovis Homes Group PLC Long Term Incentive Plan 2010, together with a comparison document showing the change proposed to be made to the rules pursuant to Resolution 13. (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 2013. 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 2013 (the “2013 Annual Report and Accounts”). Items 2 and 3: Directors’ remuneration policy and annual remuneration report Under section 439 of the 2006 Act, the directors are required to present the directors’ remuneration report (other than the part containing the directors’ remuneration policy), 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 50 to 61 of the 2013 Annual Report and Accounts, gives details of the directors’ remuneration for the year ended 31 December 2013 and sets out the way in which the Company will implement its policy on directors’ remuneration. 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 2013 Annual Report and Accounts. Under section 439A of the 2006, Act the directors are required to present the directors’ remuneration policy, 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 a binding vote. The directors’ remuneration policy, which may be found on pages 44 to 48 of the 2013 Annual Report and Accounts, sets out the Company’s proposed policy on directors’ remuneration. A copy of the directors’ remuneration policy is also available on the website at www.bovishomesgroup.co.uk. or in hard copy on request from the Group Company Secretary. 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. In contrast, the vote on the directors’ remuneration policy is binding in nature in that the Company may not make a remuneration payment or payment for loss of office to a person who is, is to be, or has been a director of the Company unless that payment is consistent with the approved directors’ remuneration policy, or has otherwise been approved by a resolution of members. If resolution 3 is passed, the directors’ remuneration policy will take effect immediately following the Annual General Meeting. A remuneration policy will be put to shareholders again no later than 3 years from the date of the Annual General Meeting. If resolution 2 in respect of the directors’ remuneration report is not passed, the policy will be presented to shareholders for approval at the next Annual General Meeting. Item 4: Final dividend Subject to the declaration of the final dividend at the meeting, the dividend will be paid on 23 May 2014 to shareholders on the register at the close of business on 28 March 2014. Items 5 to 9: Re-appointment of directors The UK Corporate Governance Code (“the Code”) requires FTSE 350 companies to put all directors forward for re-appointment by shareholders on an annual basis. The purpose of this requirement is to increase accountability to shareholders. Accordingly, all the directors of the Company will retire at the Annual General Meeting and offer themselves for re-appointment, with the exception of Colin Holmes who is retiring from the Board. 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, Ian Tyler will offer himself 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 John Warren as non-executive directors, the Chairman has confirmed following the formal performance evaluation conducted during 2013 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. John Warren provides detailed financial and accounting expertise and has long standing experience in chairing audit committees. Ian Tyler was appointed non-executive Chairman on 29 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 32 of the 2013 Annual Report and Accounts. Items 10 and 11: Re-appointment of auditors and auditors’ remuneration The auditors of a company must be re-appointed at each general meeting at which accounts are presented. Resolution 10 proposes the re-appointment of the Company’s existing auditors, KPMG LLP, for a further year. Resolution 11 gives authority to the directors to determine the auditors’ remuneration. Item 12: Authority to allot shares The authority given to your directors at last year’s Annual General Meeting under section 551 of the 2006 Act to allot shares expires on the date of the forthcoming Annual General Meeting. Accordingly, this resolution seeks to grant a new authority under section 551 to authorise the directors to allot shares in the Company or grant rights to subscribe for, or convert any security into, shares in the Company up to an aggregate nominal amount of £22,327,642 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 £44,655,284 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 Association of British Insurers. 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 £22,327,642 represents less than 33.3% of the Company’s total ordinary share capital in issue as at 3 March 2014 (being the latest practicable date prior to publication of this Notice). The amount of £44,655,284 represents less than 66.6% of the Company’s total ordinary share capital in issue as at 3 March 2014 (being the latest practicable date prior to publication of this Notice). The Company did not hold any shares in treasury as at 3 March 2014.
Bovis Homes Group PLC | 105 Explanatory notes to the notice of meeting continued
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. Item 13: Amendment to Long Term Incentive Plan The Remuneration Committee completed a review of the Company’s remuneration policy with the introduction of the new reporting regulations for directors’ remuneration. This review particularly focused on long term performance related pay to ensure that it is appropriately set for the future and continues to be positioned appropriately in light of both individual and Company performance. As a result, the Board is proposing that the limit on the value of awards that may be granted under the Company’s Long Term Incentive Plan (“LTIP”) in normal circumstances be increased from 100% to 150% of an employee’s basic salary. Currently, the number of shares over which an LTIP award may be granted to an employee in any financial year may not normally have a market value at the date of grant (calculated by reference to the middle market price of a share on the relevant day) exceeding 100% of basic salary (this limit having been applied since 2004). All other terms of the LTIP will remain unchanged, including the ability of the Remuneration Committee to grant LTIP awards in exceptional circumstances with a market value of up to 200% of an employee’s basic salary. The Board is confident that this proposed increase is fully justified and commercially appropriate. Item 14: 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 14 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 15: Disapplication of pre-emption rights Resolution 15 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 £3,352,498 which represents approximately 5% of the Company’s total ordinary share capital in issue as at 3 March 2014 (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 15 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 16: 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 13,409,995 of its own shares, representing approximately 10% of the Company’s total ordinary share capital in issue as at 3 March 2014 (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 ABI 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 2015. As at 3 March 2014 there were options over 627,969 ordinary shares in the capital of the Company which represent 0.47% 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 0.52% 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 24 March 2014
Annual General Meeting 16 May 2014
Payment of 2013 final dividend 23 May 2014
Announcement of 2014 interim results 18 August 2014
Announcement of 2014 final results February 2015
Analysis of shareholdings - at 31 December 2013 Number of Number of shareholders % ordinary shares %
1 - 5,000 1,795 79.78 1,676,690 1.25
5,001 - 50,000 283 12.58 4,998,796 3.73
50,001 - 250,000 87 3.86 11,349,888 8.46
250,001 - 500,000 35 1.56 11,624,915 8.67
500,001 - 1,000,000 24 1.07 17,791,341 13.27
1,000,001 - and over 26 1.15 86,654,795 64.62
Total 2,250 100.0 134,096,425 100.0
Share price (middle market) - year to 31 December 2013
At end of year: 793p Lowest: 575p Highest: 851.5p
Advisers
Auditors Principal bankers Joint stockbrokers Insurance brokers KPMG LLP Abbey National Jefferies Hoare Govett Arthur J Gallagher International 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 Principal
Coleshill
Bishops Cleeve
New Ash Green
Central region Central region Central region South East region BovisSouth Homes East Group region PLC SouthSouth East regionEast region SouthSouth West West region region CentralCentral region region The Manor House The Manor House Cleeve Hall Bromwich Court NorthSouth Ash Road West region NorthSouth Ash Road West region Cheltenham Road HighwaySouth Point East region New Ash Green New Ash Green Bishops Cleeve Gorsey Lane Longfield Longfield Cheltenham ColeshillSouth West region Kent DA3 8HQ Kent DA3 8HQ Gloucestershire GL52 8GD Birmingham B46 1JU Tel: (01474) 876200 Tel: (01474) 876200 Tel: (01242) 662400 Tel: (01675) 437000 Fax: (01474) 876201 Fax: (01474) 876201 Fax: (01242) 662488 Fax: (01675) 437030 DX: 41950 New Ash Green 2 DX: 41950 New Ash Green 2 DX: 137900 Bishops Cleeve 2 DX: 728340 Coleshill 2 The Pines/ 3 The Elms 88 The Pines/ The Pines/ 16 1588 The Elms 88 The Elms 88 The Limes/ 16 1716 1588 1588 88 Manor Fold The Grove The Pines/
Supplementary information Supplementary The Limes/ The Limes/ The Elms 1888 1688 1788 The1788 Grove The Grove Manor Fold Manor Fold 1588 Westminster Place The Limes/ 108 | Annual1888 report and accounts | Supplementary1888 information 1788 Manor Fold The Grove Westminster Place Westminster Place 1488 Portland1888 Great Park Westminster Place 1488 Portland Great Park 1488 Portland Great Park Mallard Quarter 8812
Mallard Quarter 8812 Mallard Quarter 8812 1488 Portland Great Park 885 1388 Nether Hall Park MallardRound Quarter House8812 Park 885 885 1388 Nether Hall Park 1388 NetherRound Hall Park House Park Round House Park 5 Serpentine Walk 88 88 7 Round House Park 13 88Nether6 Hall Park Serpentine Walk Serpentine Walk Gipping View 7 7 886 886 Fairfield Park 8811 Gipping View Gipping View Serpentine Walk 7 Fairfield Park 8811 Fairfield Park882 8811Coopers Edge 886 Gipping View 882 Coopers Edge 882 Coopers Edge Fairfield Park 8811 Bryn Llonydd 884 883 Balmoral Park 882 Coopers Edge 1 Rowling Gate 888 Bryn Llonydd 884 Bryn Llonydd883 Balmoral884 Park 883 Balmoral Park Abbey Place 1 Rowling Gate 1 Rowling Gate 888 888 Bryn Llonydd 884 883 Balmoral Park Abbey Place Abbey Place 1 Rowling Gate 888 Abbey Place 1088 Oak Tree Place Meridian End 889 1088 Oak Tree Place Meridian1088 OakEnd Tree Place Meridian End 889 889 1088 Oak Tree Place Meridian End 889
Annual report and accounts 2013 accounts and report Annual PLC Group Homes Bovis
Annual report and accounts 2013 Bovis Homes Group PLC
www.bovishomesgroup.co.uk
Bovis Homes Group PLC, The Manor House, North Ash Road, New Ash Green, Longfield, Kent DA3 8HQ. www.bovishomesgroup.co.uk
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