Bovis sets sights on South to keep cash flowing

HOUSEBUILDER Bovis Homes said it expects to continue growing amid a “stable but unexciting” housing market after self-help measures such as building more family homes increased its annual profits.

The group added it continues to shift its focus away from the North and the Midlands to the South, where the housing market remains more buoyant.

But the builder warned not to expect much improvement from the wider market, which remains mired in uncertainty as the eurozone sovereign debt crisis, rising unemployment, flat wages and higher bills keep housing activity depressed.

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“It’s been a very long and rather stable period,” said Bovis chief executive David Ritchie. “We were concerned as to what reaction we would get from customers around the end of last year with the eurozone crisis, but they seem to have demonstrated a fair degree of resilience and even in the first two weeks of this year we’ve been pleasantly surprised with the visitor traffic.

“A lot of people, once they have made the decision they want to buy their property, they get on with it. Steady as you go I would describe it. Our most likely result (is) stability in (the) market, whilst unexciting in terms of driving everything up.”

Bovis said it expects to post pre-tax profits in line with City expectations of £31m. Mr Ritchie said sales held up in the autumn through to the end of December, a trend which has continued in recent weeks, echoing comments from larger peers Barratt Developments and York-based Persimmon.

The housebuilder said it built 2,045 homes during the year, up eight per cent on a year earlier. Its average selling price increased one per cent to £162,400, and average prices for its private homes rose 4.5 per cent to £180,100. “This increase was almost entirely due to the improved mix of homes as the group increases the contribution from family homes in the south of England,” said Bovis.

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The builder started 2012 working from 80 sites and expects to work from an average of 85 sites through the year, increasing to 100 in 2013. This year Mr Ritchie said he expects about three quarters of its activity to be in the South.

“We believe the market is more robust in the South,” he said. “These sites are generally more southerly based.”

But he added Bovis will continue opening some sites in the North and Midlands, such as in Selby, Chester and Stafford.

“It (the housing market in the North) is not dead. We’ve got sites that are long-standing in the Midlands and North that we will continue to support.

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“We need to drive profits and sales out of each of our sites.”

Bovis said forward sales at the start of the year were 35 per cent up on a year ago at 568 homes. It expects to grow profits this year as margins are boosted by opening more sites, focusing sales on the South and selling more family homes. “When you put these three things together, your profits do grow very significantly,” said Mr Ritchie.

Shares in the company edged up 0.5p to 453.6p.

The group’s land bank stands at just under 14,000 plots, enough for at least six years’ output at present levels. Mr Ritchie said Bovis “never planned to have six years’ land supply”. “We planned to have three to four years’ land supply. We’ve been selling land to re-balance capital.”

The group ended 2011 with cash of £51m, in line with a trend of housebuilders recapitalising. Persimmon last week said it ended 2011 with net cash of about £40m.

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“A housebuilder in principle should not have cash on its balance sheet,” admitted Mr Ritchie. “We’re a long-term investor in long land assets. It would be unusual for us to run a cash balance for a long time. Return on equity is a key focus for us. We’ve no plans to hoard cash. We need to invest that cash.”

Shore Capital analyst Jon Bell said the company has “some way to go, in our view, to achieve an acceptable level of return on capital employed (ROCE)”.

“The combination of net cash, on which returns are negligible, and a long land bank, is dilutive to ROCE.”

Small firms face dearth of work

CONFIDENCE in the building industry has collapsed, with only five per cent of small building firms expecting an increase in work this year, according to trade association the Federation of Master Builders.

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The FMB’s survey showed workloads in the small and medium-sized construction sector declined in each of the 16 quarters to the end of December 2011, and that confidence in the repair, maintenance and improvement (RM&I) market is set to plunge.

Brian Berry, director of external affairs at the FMB, said: “Clearly, robust incentives for householders are needed.”

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