Group Results
FINANCIAL REVIEW REPORT
Group Results
Total Group sales were £115.3m (2007: £116.6m) resulting in a profit before tax of £2.3m (2007: £8.9m). After accounting for taxation charges in joint ventures and associated companies of £0.5m, the reported IFRS Group profit before taxation is £1.8m (2007: £9.1m). The trading result for 2008 includes a write down of investment carrying values and residential land holding amounting to £9.2m, which reflects the impact of the downturn in the property market in the wake of the credit crunch.
The Contracting division recorded gross turnover of £84.8m (2007: £84.9m), which included internal sales of £2.5m. Despite the flat year on year activity, margins on contracts completed in the year held up well, with underlying contract profitability in line with the previous year. Profit before tax was £0.3m (2007: £0.5m excluding a pension credit of £1.6m) after charging one-off restructuring costs of £0.6m.
The Property division was the first to see a downturn in market activity and values. As a consequence, the number and the value of anticipated transactions were reduced and investment activity curtailed to safeguard liquidity. However, those transactions successfully completed included the sale of part of the land at Ellesmere, Shropshire to Tesco Stores Limited for retail development and the exchange of contracts for the sale of Reynolds House at Manchester Technopark Limited, a joint venture with Manchester Science Park Limited. Gross rental income from investment properties amounted to £4.1m (2007: £3.6m). Overall, the division, including the Group's share of joint venture income, showed a profit before tax of £4.9m (2007: £7.3m profit) after write downs of £8.6m (2007: £1.5m).
The Construction Services division, providing specialist hire of concrete pumps across the UK, generated sales of £14.7m (2007: £14.2m). Profit before tax was £0.3m (2007: £0.1m). Margins came under severe pressure in the second half due to escalating fuel costs, which proved difficult to pass on in the short term.
The Residential division was the hardest hit by the credit crunch. Sales for the year were £8.1m (2007: £11.0m) from seven operating sites. A downturn in values, consumer confidence and mortgage availability combined to reduce significantly the rate of private house sales in the second half year. Following reappraisal of existing developments and write down of land values, there was a loss for the division of £1.7m (2007: £0.8m profit).
Earnings Per Share and Dividend
Diluted earnings per share were 12.7p (2007: 33.2p).
Overall, the Group benefited from a tax credit of £0.3m (2007: £2.2m tax charge). The company and subsidiaries had a tax credit of £0.8m (2007: £2.3m tax charge) on a loss of £0.5m (2007: £8.8m profit), while joint ventures and associates suffered a tax charge of £0.5m (2007: £0.1m tax credit) on profits of £2.8m (2007: £0.3m). This favourable effective tax rate reflects the utilisation of available tax losses in joint ventures and associates, indexation allowances on revaluation gains and the phasing out of industrial building allowances.
Subject to approval at the AGM, a final dividend of 3.0p per share (2007: 6.25p) will be paid on 31 October 2008, resulting in a full year dividend of 6.0p (2007: 9.25p). This reduced dividend reflects, in part, the Group's efforts to conserve cash resources during challenging economic conditions.
The dividend is covered 2.1 times by earnings (2007: 3.6 times).
Balance Sheet
Net assets have increased to £53.1m (2007: £51.5m) equivalent to 255p per share (2007: 248p).The value of property non-current assets grew in the year to £48.0m (2007: £43.0m) with the addition of the completed Ormskirk retail development. Due regard was made to weakening property markets and the remainder of the Group's property portfolio was accordingly written down by £0.9m. Investment in joint ventures and associated companies increased by £9.8m to £25.4m as a result of the Group's participation in the acquisition of Walker House, Liverpool and continued development of Birkenhead town centre retail project.
Stocks and working progress have reduced by £3.5m,
following completion of the Ormskirk project and write down of
housing stock and residential land values.
In accordance with IAS19 there was a pension surplus of £0.9m
(2007: £0.6m deficit), which is shown in the Group balance
sheet as a current asset.
Joint Ventures and Investments
The Group has continued to support existing projects and despite the lack of short-term opportunity, has maintained its strategic relationship with partners to provide future business when the market improves. Net investment in joint ventures and associated companies has increased in the year by £9.8m to £25.4m.
The Group has traditionally taken a prudent view towards recognising the full value of investments on the balance sheet, especially those at an early stage of development or that are speculative in nature. With the downturn in property yields and hardening economic conditions in mind, joint venture investments have been written down and the charge to profit in the year was £7.7m (2007: £1.5m).
A full list of all Group joint venture interests is provided in Note 14 to the accounts.
The group continues to have investment interests in Manchester Science Park Limited (£1.5m) and UK Land & Property Limited (£0.7m). Prosperity Court Partnership and Keele Park Developments are treated as subsidiary companies in these accounts and third party minority interests are shown in the income statement.
Borrowings, Cashflow and Financing Risk
New borrowing facilities were arranged during the year with The Royal Bank of Scotland (RBS) to provide appropriate funding to support the financial obligations of the group and sufficient liquidity during a period of economic uncertainty. Total facilities of £47m are available from RBS, of which £10m are unsecured. A further £13.5m facility is provided by Bank of Scotland to fund Keele Park Developments Limited.
Net borrowings increased in the year to £42.9m (2007: £31.0m), funding projects at Birkenhead, Walker House in Liverpool and Ellesmere, Shropshire.
There was cash in hand at 31 May of £4.0m (2007: £0.2m).
Net cash movements in the year were:
| 2008 | 2007 | |
| Operating activities | 2.2 | 5.2 |
| Sale/(purchase) of assets | 0.3 | (1.1) |
| Investment in joint ventures | (12.4) | (3.2) |
| Interest and dividends | (1.5) | (1.3) |
| Taxation | (0.5) | (2.4) |
| Increase in borrowings (£m) | (11.9) | (2.8) |
The Group funds its operations through the use of cash, loans and various liquid resources such as debtors and trade creditors. Funding availability and the management of interest rates and liquidity risks are the responsibility of the Finance Committee, which is responsible to the main Board for implementing the Group's treasury policy.
The Group has minimal fixed interest rate borrowings and continually reviews the need to hedge against interest rate movements. During the year the Group entered into a 3 year swap arrangement to fix its LIBOR exposure to 4.98% on £15m of new debt. In addition, there continues to be an interest rate hedge in respect of borrowings in Keele Park Developments Limited. As at 31 May 2008, there was a combined recognised gain on these financial instruments of £0.5m (2007: £0.2m). The favourable movement in the year of £0.3m has been recognised in the income statement of the Group in accordance with IFRS convention.
Certain associated companies are financed by long term repayment loans to finance investment property assets and other joint venture companies are financed by short and medium term bank borrowings. The Group regularly reviews the risk of exposure to interest rate movements with its partners and where appropriate, hedges against that risk on a project by project basis.
The Group continues to have minimal exposure to foreign currency exchange risks and accordingly does not require a policy to hedge such exposure.
Full disclosure of financial instruments, interest rate and liquidity risks are shown in Note 23 to the accounts.
Pensions
The Group operates a defined benefits (DB) scheme and a defined contribution (DC) scheme for its employees. The DB scheme, closed to new members since 31 December 2001, undergoes its scheduled full triennial actuarial valuation in 2008. Following the last valuation in 2005, the Group took action to preserve the long term viability of the scheme, making changes to members' benefits and providing £1.2m as a special contribution to the scheme.
Total contributions paid this year to the DB scheme were £0.4m (2007: £1.2m). Payments to the DC scheme were £0.2m (2007: £0.2m).
Under IAS19 the DB pension obligations are shown in the balance sheet of the Group and the movement in the year reflected in the income statement and statement of recognised income and expense. As a result of the action taken by the Group, referred to above, combined with favourable movements in investment values and bond yields during the year, a surplus for the DB Scheme of £0.9m (2007: £0.6m deficit) is reported.
Full disclosure of all DB scheme assumptions are set out in Note 7 to the accounts.
Financial Reporting
There have been no changes to accounting policies in 2008 and the Group continues to report in accordance with International Financial Reporting Standards.
John Edwards
Finance Director
22 September 2008