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Sun September 27 2020

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Cost reduction doubles profits for Bovis Homes

30 Aug 11 Bovis Homes has more than doubled its first-half profits thanks to significant build cost reduction and the development of sites bought cheaply after the crash.

Revenue for the first six months of 2011 was up 15.6% to £133.6m (2010: £115.6m).

Operating profit of £10.0m was more than double the £4.8m made in H1 2010, while pre-tax profit also rose strongly from £3.5m last time to £8.1m this time.

The number of legal completions at 801 was similar to the 803 completed in the same period last year, and the average sales price increased by 3.2% to £163,400 (2010: £158,400).

The primary driver of the profits growth was a significant reduction in build costs on sites bought before recession, squeezing suppliers and trade contractors, coupled with the development of ‘higher margin sites’ acquired at lower cost after the downturn.

Operating margin in H1 2011 was 7.5%, up from 4.2% in H1 2010.

Housing gross margin reached 20.1% and is expected to stay at this level for the full year, up from 17.9% last year.

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Bovis expects house prices to remain stable in the short term, with little change in either housing market supply or overall customer demand.

With 19 new active sales outlets opened in the first six months of 2011 and a further eight opened since 30 June 2011, the Group remains on course to open 33 new active sales outlets in 2011.

Chief executive David Ritchie said: "The group has delivered a strong performance during the first half of 2011 with profit before tax more than doubling, against the backdrop of stable, but challenging, market conditions. This increase has been delivered through improved profit margins generated from reduced construction costs on existing sites and the initial contribution from new higher margin sites acquired since the housing market downturn.

"As a result of opening a significant number of the new, more profitable sites, active sales outlets will grow through 2011, supporting higher sales. Subject to current market conditions continuing, the group's profit margins will continue to improve, particularly in 2012 when a significant proportion of housing completions will come from these new sites.

"Further investments in high quality, consented residential land are continuing, which will support further sales outlet growth in 2012. Additionally, land sales are progressing well, which will enable the group to improve the efficiency of its capital employed.”

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