Bovis builds up its cash to swoop for land bargains

Nick Goodway
10 Jul 2009

David Ritchie, chief executive of Bovis Homes, is filling the housebuilder's coffers during the recession in the hope of picking up some bargains as distressed rivals are forced to sell building plots at knockdown prices.

He said: “We will be the only housebuilder, apart from Berkeley Homes who are in a very different part of the market, which will become debt free during 2009.

“We expect land prices to become much more attractive as distressed sellers try to raise cash. There are already clear signs that lenders are encouraging companies with big debts to sell off land.”

Ritchie doesn't expect to make any major moves this year although he is identifying potential purchases, probably for early 2010.

He said: “It's a great opportunity to invest in assets which will produce good profits in the future.”

To that end Bovis, which issued two profit warnings and axed 600 staff last year, has switched its emphasis to generating cash. Net debt fell from £108 million to £14 million in the six months to end-June.

Having tried to hold prices up in the first half of 2008 Bovis went into 2009 keen to shift homes. The 901 reservations seen in the first half was 92% up on the same period in 2008 but average selling prices for private homes were 18.5% lower, which is far greater than the recent 12.5% fall in the Halifax house price index earlier this week.

Ritchie admitted: “We got it wrong in the first half of 2008 when we held price in anticipation of a V-shaped recovery. Now we are pursuing sales and generating cash. There are signs that prices are stabilising.”

One key area of cash generation has been selling the firm's stock of completed houses. This had risen to 1000 on 1 January but is down to 480 now.

Scrapping the dividend has also saved more than £20 million a year and was a move which Ritchie said investors supported on the grounds that the cash should be spent on land.

He added his voice to those of rivals like Barratt and Persimmon complaining about the lack of mortgages available especially because Bovis is so reliant on first-time buyers.

“Let's not kid ourselves,” he said. “Even when you've got a willing buyer and a willing seller getting a mortgage approved is still very difficult. We have had quite a bit of success with our shared equity product where we effectively give the buyer a 25% deposit for 10 years.”

Ritchie said that the firm's strategy meant its profit margins would be lower but it still expects to generate an underlying profit for the first half before a “small number of writedowns on a few specific sites”. He added: “With improved home affordability and growing consumer confidence, homebuyer activity will in time increase creating an improvement in demand for the group's homes.

“At the same time the banks will realise that in the current interest rate environment mortgage lending is a very profitable business and they will come back which will help approval rates to improve. But huge levels of mortgage capacity have disappeared for good.”