Bovis reports boost in half year profits as sales rise 18% with prices up 6%

Taylor Wimpey, Persimmon and Barratt Developments have also reported strong profit growth this year

Bovis Homes on Monday joined a growing list of housebuilders to report a strong rise in profits over the last six months from a surprise rise in prices and sales.

Bovis said prices were 6% higher and sales up 18% on the same period in 2011 despite the weakening economic outlook and lack of mortgage lending.

The company, which has shifted most of its building to the south of England, said it had enough land with consents to last three to four years in normal trading and much longer if the trend for low levels of transactions persists for another year.

Chief executive David Ritchie said the firm had 30,600 plots that could be used for house building, "but I'll only build as many as I can sell".

The company's profitability has also been boosted by a strategy to buy up development plots whose value had been depressed in the financial crisis, along with an increase in the number of its sales outlets and its focus on building in regions where house prices have stayed strong.

Ritchie said it was financially safer to build below a line drawn from Cheltenham in the west to Cambridge in the east after a severe slowdown in the northern half of the country.

Like most building firms, Bovis has scaled back the number of homes it builds each year and restored margins by reducing staffing levels and other outgoings.

In the first half of 2007, at the height of the boom, the company built 1,250 homes compared with 944 completions in the last six months.

Bovis builds mainly three to five bedroom family homes on greenfield sites north and west of London where the demand for new homes has remained robust.

Rivals Taylor Wimpey, Persimmon and Barratt Developments also reported strong profit growth this year after a torrid four years during which many housebuilders have gone out of business and others, hugely indebted after a pre-crisis spending spree, were only saved by the forgiveness of their banks.

Taylor Wimpey reported an increase in first half profit up 50%, helped by strong demand for its properties, and said it expected full-year 2012 returns to be in line with its expectations.

Britain's second largest builder by market value, Taylor Wimpey saw operating profit jump to £100.9m against £67.2m in the same period last year.

Bovis, which also builds social housing for housing associations, celebrated a 27% increase in revenues to £170m compared to £133m in the same period last year. Last year it built only 844 homes in the first six months.

Brokers have put buy notices on much of the industry, believing in the potential for growth after a sharp reduction in debts and the potential for further increases in sales should the economy recover. Some analysts believe house prices could fall further outside central London.

Ritchie said initiatives to support extra lending in the economy by the Bank of England had failed to reach its customers, who were still considered high risks by lenders, but more specific government initiatives were having a positive effect.

He praised the NewBuy scheme that acts as an insurance bond to protect lenders against the default of a new mortgage. So far only a trickle of customers have successfully come through the scheme, though he expects momentum to grow over the next couple of years.

He poured cold water on plans to jettison requirements for social housing in major developments, saying the lack of financial underpinning from housing associations may undermine the projects.

"If that was to come to fruition as a policy, one of the concerns would be, how are the banks going to support an increased level of private development?" Richie said. "In the short term it could potentially be difficult ... to see volumes growing."

Bovis and its rivals are required under UK law to set aside a proportion of their schemes to be sold as affordable, cheaper homes. But recent reports have suggested a review by Sir Adrian Montague, the chairman of venture capital group 3i will suggest this stipulation is relaxed.


Phillip Inman

The GuardianTramp

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