Final Results

RNS Number : 1889D

Galliford Try PLC

11 September 2008

 



07:00 A.M. THURSDAY 11 SEPTEMBER 2008

 

GALLIFORD TRY PLC

 

PRELIMINARY STATEMENT FOR THE YEAR ENDED 30 JUNE 2008

 

HIGHLIGHTS

	2008 £m	2007 £m	Change
Group revenue	1,832	1,410	+30%
Profit before tax
Pre exceptional *	71.8	53.0	+35%
Post exceptional	60.3	60.2	-
Earnings per share	pence	pence
Pre exceptional *	13.6	12.5	+ 9%
Post exceptional	11.4	14.3	- 20%
Dividend per share	3.0	3.0	-

 

·         Return on average shareholders’ funds of 19.1% (2007: 28.0%)

 

·         Record profits from the Group’s building, infrastructure and affordable housing divisions.

 

·         Housebuilding profits hit by severe market conditions, operational restructuring to reduce cost base by £12 million per annum.

 

·         Major focus on cash management resulting in net debt at year end substantially better than expectations at £2 million.

 

·         Public and regulated sectors account for 87% of current contracting order book of £1.9 billion.

 

·         Total housing completions of 2,524 units (housebuilding 1,830, affordable housing and regeneration 694) compared to 1,526 last year (pro forma 2,433 including Linden Homes).

 

·         £62 million (2007: £94 million) of housebuilding sales made in first two months of new financial year.

 

* Stated before a net exceptional loss of £11.5 million comprising writedowns on the carrying value of land and abortive costs relating to site acquisitions of £9.1 million, redundancy costs of £1.9 million and provision for onerous lease commitments of £0.5 million. 

 

Commenting on the results, Greg Fitzgerald, Chief Executive said:

 

“Our construction businesses have delivered a record performance, with increased profits and excellent cash generation. Whilst housebuilding has been affected by the severe downturn in the housing market, its effect has been mitigated by our early adoption of a policy of aggressive selling, our strengths in affordable housing and our concentration on managing our debt. 

 

Throughout these testing times, the Group’s financial strength and broad sector exposure will stand it in good stead. Our strategy is to continue to focus on shareholder value to deliver sustainable growth over the long term.”

 

For further enquiries please contact:

 

Greg Fitzgerald, Chief Executive              Galliford Try plc                                      01895 855219

Frank Nelson, Finance Director               Galliford Try plc                                      01895 855226

Ben Woodford / Dan de Belder                Bell Pottinger Corporate & Financial        020 7861 3232

 

Forward looking statements – certain statements in this preliminary statement are forward looking statements. Such statements should be treated with caution as they are based on current information and expectations and are subject to a number of risks and uncertainties that could cause actual events or outcomes to differ materially from expectations.

 

CHIEF EXECUTIVE’S OVERVIEW

 

Galliford Try has clearly benefited from its business model of operating in both construction and housebuilding markets during the year. Our construction businesses have delivered a record performance, with increased profits and excellent cash generation. Whilst housebuilding has been affected by the severe downturn in the housing market, its effect has been mitigated by our early adoption of a policy of aggressive selling, our strengths in affordable housing and our concentration on managing our debt.

 

Strategy

 

In construction, we operate in both the public and private sector markets. Public expenditure on buildings, particularly in the education, health and custodial sectors, is being maintained although there are signs that reduced economic confidence is starting to affect the private commercial sector. We have an industry leading presence for major building projects in the South, Midlands and Scotland, and aim to increase our share of the markets in the other areas in which we operate, particularly in the North of England. We will continue to invest in public / private partnerships.

 

In our infrastructure businesses there are long term improvement programmes, such as those in the water industry, that are driven by a requirement to improve operational and environmental standards, and we expect these will continue. The leading position in framework and long term relationship contracting that Galliford Try has developed will continue to underpin our strategy.

 

We have taken significant steps to reduce our exposure to the housebuilding market during the current market downturn and will maintain these measures until there are signs of a recovery. We have reduced the work in progress on our sites to a minimum level, priced our homes to maintain an achievable level of sales and have reduced our costs through reductions in our operational structure and by driving savings in our supply chain. Our strategy is geared towards conserving our resources in order to take advantage of the opportunities that will undoubtedly arise when the market improves. 

 

We aim to continue the growth of our regeneration and affordable housing business, building on our relationships with our housing association partners, English Partnerships and the Housing Corporation and controlling our exposure carefully to the homes for sale element of developments during the current market downturn. 

 

Dividend

 

The directors have taken into account the Group’s performance and trading prospects in the light of the current economic environment and decided that the level of total dividend paid for the year should remain the same as in the prior year. Consequently, the directors are recommending a final dividend of 2.1 pence per share (2007: 2.2p), which with the interim dividend of 0.9 pence paid in April, will result in a total dividend for the year of 3.0 pence per share (2007: 3.0p). The final dividend will be paid on 14 November 2008 to shareholders on the register on 17 October 2008. The directors will review the level of future dividends in light of both the performance of the business and the prevailing economic outlook at the time.

 

Outlook

 

Our construction businesses are in excellent shape, with a high proportion of work in the public and regulated sectors that we expect to be least affected by the economic slowdown that we anticipate will in due course affect the private commercial sector. We have demonstrated our ability to grow these businesses successfully, and intend to maintain our position as one of the UK’s leading construction providers.

 

We have seen our strategy over the last three years to become a major affordable and regeneration provider come to fruition. Our leading presence in this sector is expected to continue to provide us with development opportunities, and stand us in good stead for long term expansion. 

 

In housebuilding the strength of our brands, and our market position across the South and East of the country will enable us to take advantage of the opportunities that will arise when the market improves and we are able to re-embark on a positive growth plan. In the meantime, we will maintain the strategy we embarked on early in the downturn to minimise our exposure to the market and maximise our cash position. 

 

Throughout these testing times, the Group’s financial strength and broad sector exposure will stand it in good stead. Our strategy is to continue to focus on shareholder value to deliver sustainable growth over the long term.

 

 

Greg Fitzgerald

Chief Executive

11 September 2008

 

 

FINANCIAL REVIEW

 

Group revenue was up 30% to £1.83 billion (2007: £1.41 billion) on which the Group achieved a pre exceptional profit before tax up 35% to £71.8 million (2007: £53.0 million). Post exceptional profit before tax was virtually unchanged at £60.3 million (2007: £60.2 million). Basic earnings per share (pre exceptional) rose 9% to 13.6 pence with post exceptional earnings per share down 20% to 11.4 pence.

 

The results incorporate a full year’s contribution from Linden Homes. The integration has been successfully completed with synergy savings achieved ahead of forecast at £3.0 million per annum.

 

The housebuilding division was restructured towards the end of the financial year in response to the downturn in the housing market, which will deliver cost savings of £12.0 million per annum. Exceptional costs of £11.5 million (2007: net exceptional profit of £7.2 million) were incurred comprising writedowns on the carrying value of land and abortive costs relating to site acquisitions of £9.1 million, redundancy costs of £1.9 million and provision for onerous lease commitments of £0.5 million. We will continue to keep the carrying value of land under review in the light of potential further deterioration in the housing market. We have also carried out a rigorous impairment review on the carrying value of goodwill and intangibles in respect of the acquisitions made by the Group which do not indicate that there is an impairment of the assets.

 

Cash generation has been, and remains, a key focus. Our construction businesses, aided in particular by an excellent cash performance from the building division, exceeded our forecasts throughout the year which, together with our early and aggressive policy on homes sales and stringent controls applied through our housebuilding business as the market deteriorated, resulted in a better than expected net debt position of £2 million (2007: £99 million) at the year end. Overall debt levels do fluctuate throughout the year and we are not relaxing our disciplines. We continue to operate significantly within the headroom and covenants of our bank facility, with HSBC, Barclays, Royal Bank of Scotland and Bank of Scotland, which does not mature until 2012.

 

The return on average shareholders’ funds in the year was 19.1% and shareholders funds at 30 June 2008 stood at £325.3 million compared to £306.6 million at the end of the previous year.

 

DIVISIONAL REVIEW

 

Construction Overview

 

Our construction business is organised into two divisions, building and infrastructure. Total construction profit from operations, stated before finance costs, exceptional items, amortisation and share of joint ventures interest and tax, rose 24% to £25.7 million on revenue of £1,147 million, including joint ventures, representing a margin of 2.2% (2007: 2.1%). Our total contracting order book (construction plus affordable housing build contracts) currently stands at £1.9 billion compared to £2.1 billion last year. 87% is in the public and regulated sectors and 89% has been secured on a basis other than on pure price competition.

 

Building

 

Profit from operations of £11.9 million on revenue of £605 million, including joint ventures, represented a margin of 2.0% (2007: £11.0 million on £580 million, representing 1.9%). This was underpinned by the generation of exceptional cash balances throughout the year.

 

The market for building works has generally been good over the past year although there are now signs that some private sector clients are reappraising their building programmes as economic confidence reduces. Government investment continues to be made in the public sector markets where Galliford Try has a strong reputation and long term client relationships, in particular in education, health and the custodial sector.

 

The division has almost completed its two major multi school PFI projects, 41 schools for Northamptonshire County Council and 11 schools for the Highland Council in Scotland. Both projects have delivered good performances. We are now carrying out a number of projects in the further education sector, such as the Liverpool Community College, and in secondary education we are working on six academies, completing the Leigh Academy in Dartford and the Westminster Academy, which recently secured the RIBA London Building of the Year Award. In the health sector we have five NHS LIFT partnerships with primary care trusts, completing our sixth project for Liverpool and Sefton in the year. Other public building projects include the £7 million Culloden Battlefield Museum, the £41 million National Museum of Liverpool and the £27 million Corby Cube project.

 

Our project to rebuild the centre court stadium at the All England Lawn Tennis Club at Wimbledon progressed significantly during the year, with the structural work and the fixed perimeter roof completed and in operation for the 2008 championships. We are on course to complete the installation of the translucent retractable central roof for the 2009 championships. We have carried out a number of projects for retail clients, including further work for Marks and Spencer as part of their store refurbishment programme. We have secured our first facilities management framework in the health sector and are expanding our work for insurance companies.

 

The division’s order book is £790 million, of which 88% has been secured on other than a pure price competitive basis and 71% is in the public and regulated sectors.

 

Infrastructure

 

Profit from operations of £13.8 million was achieved on revenue of £541 million, including joint ventures, representing a margin of 2.6% (2007: £9.8 million on £411 million representing 2.4%). The division’s net cash balance increased during the year with average balances substantially higher than in the prior year.

 

In water we continue to deliver asset management improvements through long term framework contracts to 70% of the largest water utilities in the UK. We are currently at the peak of our water clients’ five year AMP4 and Q&S 3 regulatory cycles and as we work through these programmes we have also been successful in securing additional projects outside the existing frameworks for both existing and new clients.

 

Our water clients measure all their contractors through a series of Key Performance Indicators in which we have regularly achieved leading scores. This places us in a good position as the procurement process for the new AMP5 regulatory period commences. 

 

During the year we secured a number of additional emergency flooding schemes for Yorkshire Water and our overall performance for this client was recognised recently when we were awarded their 2008 overall contract partner award. Our British Waterways framework has been extended geographically across the whole of the UK and we are aiming to secure more work within our Flood Prevention Framework for the Environment Agency. 

 

In Civil Engineering the remediation framework at Olympic Park in East London for the Olympic Delivery Authority is performing well and securing growing volumes of work. Our civil engineering work on the largest land based wind farm in Europe at Whitelee, near Glasgow, continues to progress well and is on target to be completed ahead of programme. We have also had a successful year in our new on site renewables operation, with local energy regeneration schemes being carried out for commercial clients such as Tesco and McCain Foods and new projects being planned in the water utilities sector.

 

In the Highways sector we now have over £200 million of road projects currently under construction across the UK. In England we continue to work on several projects under the Early Contractor Involvement scheme of procurement for the Highways Agency and, in a four party consortium, have secured the £445 million scheme to extend the M74 in Glasgow.

 

Following a period in which our telecommunications clients limited their investment we are beginning to see some signs of improved activity in the sector and have secured a 21st Century Network Contract from BT.

 

The absolute size of our future order book depends on the timing of framework awards and revenues, and will reduce as we near the end of long term programmes. Our current order book of £942 million is therefore at a very satisfactory level taking into account the work carried out under the AMP cycle for the water utilities. 83% is in frameworks, 98% is in the public and regulated sector and 93% has been secured on other than a pure price competitive basis.

 

PPP Investments

 

Total revenue, including joint ventures, rose to £5.0 million. The profit from operations was £2.9 million (2007: loss of £1.1 million on revenue of £3.5 million). The loss before tax was £0.2 million (2007: loss of £1.0 million).

 

The major programmes for the Highlands Schools project and the Ministry of Defence Housing in Portsmouth completed their construction phase and entered their long term operational phase. During the year the division achieved financial close on the St Andrews Hospital project in Scotland, with the construction phase commencing and 50% of our initial 100% equity investment successfully sold to an infrastructure investment fund. Further sales in the year included our minority interest in schools projects in Bedford and Coventry.

 

We were not successful in achieving preferred bidder status on the Birmingham Schools BSF Project and, in light of the scale of speculative cost and the resources required in bidding for the largest BSF projects in the UK, we have refocused our approach towards the mid sized projects. We are shortlisted for the Worcester Library and the History Centre project as well as on prison projects at Belmarsh and Maghull. We anticipate a number of public sector accommodation and civil engineering projects being released to the market in the coming year.

 

The directors’ valuation of the Group’s PFI/PPP portfolio as at 30 June 2008 was carried out, as in previous years, on a discounted cash flow basis. The valuation took into account current restricted levels of liquidity within the banking and funding markets for long term PFI projects and the potential impact on refinancing. The result showed a valuation of £20.2 million, which compares to the carrying value in the Group’s accounts of £9.1 million (2007: valuation of £17.9 million and carrying value of £6.9 million).

 

Housebuilding

 

Profit from operations was £53.8 million on revenue of £486 million, including joint ventures, representing a margin of 11.1% (2007: £44.1 million on £304 million representing 14.5%) Completions for the year were 1,830 at an average sales price of £220,000 (2007: 1,209 at £242,000). We have continued to sell aggressively into the new financial year and at the end of August reserved, contracted and completed sales totalled £126 million (2007: £243 million) an increase of £62 million (2007: £94 million) in the first two months of the financial year. Although visitor levels to our sites are down 15% over this period, this is an encouraging level of sales, albeit with the widespread use of incentives. In addition, our cancellation rate has reduced from a peak of over 60% in the spring to around 20%.

 

The results include the first full years trading following the acquisition of Linden Homes in March 2007. The integration has been successfully completed, with annual synergy cost savings of £3.0 million achieved compared to £2.5 million forecast at the time of acquisition.

 

At an early stage in the falling market we vigorously promoted sales and, as the downturn became severe in the second half of the year, conducted a reappraisal of our strategy and operational structure. This regrettably resulted in redundancies throughout our housebuilding business, an office closure and the merging of regions and functions. These actions have reduced our cost base by £12 million per annum. We are maintaining the pressure on our supply chain to improve efficiency and drive our cost base down, helped by an easing in the market for labour.

 

As the market conditions changed, we adapted our sales incentives accordingly and, particularly towards the financial year end, the level of discounts and the cost of incentives increased. These sales tools give us a significant advantage when marketing against the key competition of the second hand market. We continue to have minimal exposure to consortium sites, where we are in competition with other housebuilders offering comparable homes, and currently have 75 active selling sites across the country, which will fall as we complete existing developments. We are controlling carefully the capital we have locked up on properties taken in part exchange and have specific targets in place to minimise the number of unsold stock homes. 

 

Although the market for bulk sales to investors has significantly reduced, we have strong links with many housing associations and, where suitable homes are available, have increased the number of affordable housing sales.

 

A number of our larger developments are being carried out in joint venture, which both reduces the investment required and shares the project risk. We have significant schemes in Epsom, Chichester and, in joint venture with Bank of Scotland, in Colchester, St Albans, East London and Hammersmith. These are primarily long term projects with sales spread over several years. 

 

The land market has become virtually inactive with few transactions. With very limited exceptions, we have ceased buying land, although we are continuing to look for opportunities to secure options or conditional contracts for the longer term, where we retain control over whether we proceed with an ultimate purchase. Our landbank of owned and controlled plots currently stands at 5,400 plots, down from 7,600 a year ago. Our strategic land holdings stand at 1,430 acres compared to 1,500 last year, from which we would ultimately expect to generate over 3,000 units.

 

Throughout the year we have maintained our focus on customer service with over 90% of our purchasers in independent research continuing to state they would recommend us to their best friend. For the fourth consecutive year we received the Building award for Housebuilder of the Year, four of the annual Evening Standard awards, the Regeneration Housebuilder of the Year and three top awards from What House?, including best medium sized housebuilder and best mixed use development. 

 

Affordable Housing and Regeneration

 

Profit from operations of £13.8 million was achieved on revenue of £230 million, including joint ventures, representing a margin of 6% (2007: £6.1 million on £128 million, representing 4.8%). During the year we achieved 694 completions at an average selling price of £123,000, with revenue from build contracts £124 million (2007: 317 completions at £130,000, build contract revenue of £87 million).

 

Our planned growth was delivered in the year, and we anticipate that any pause in the activity levels of housing associations that have some dependence on private sector sales will be short term. We now carry out regeneration developments and affordable housing contracting across the South of England and the Eastern Counties, during the year extending our geographical coverage to the South Midlands, opening an office in Milton Keynes, and to the North East of England. In November 2007, we acquired Kendall Cross Holdings, a long established affordable housing contractor based in Newcastle on Tyne, and are embarking on a strategy to grow the business in the North East using our proven mixed contractor developer model. 

 

During the year we increased our portfolio of English Partnership regeneration sites to six including, in joint venture with Affinity Sutton Housing Association, contracting the 800 unit net carbon neutral development near Chichester that will provide homes over a ten year period. Regeneration schemes at Grimsby and in Plymouth achieved planning consents and started on site with sales to be delivered over the next five years.

 

We have a strong presence in East London, and completed the £26 million contract at Suttons Wharf and the £45 million Tarling Estate regeneration for One Housing Group in the year, both of which are good examples of the projects we carry out in the frameworks we have in place with 33 affordable housing providers.

 

Following an initial award of funding from the Housing Corporation of £15 million, we have now secured a total of £25 million of direct funding for 811 homes, the largest allocation of any private sector provider. The overwhelming majority of this funding is on committed schemes for early development. We aim to build on our strong position as a lead development partner with the Housing Corporation and English Partnerships, which puts us in a good position to secure further investment when they merge to form the Homes and Communities Agency.

 

Our affordable housing landbank now stands at 3,500 plots, compared to 3,600 last year. Since the start of the new financial year we have secured £85 million of work for One Housing Group, Circle Anglia and ASRA Greater London with our order book for affordable housing build contracts currently at £149 million.

 

HEALTH, SAFETY & ENVIRONMENT

 

Galliford Try places the highest priority on the health and safety of everybody affected by its operations. Monitoring and reporting our performance across the Group is a major part of our control system to enable us to target areas for improvement. In the year to 30 June 2008 the Group’s accident incident rate improved to 5.6 (per 1,000 people at risk) from 8.6 in the previous year. Going forward our key objectives include extending the scale and scope of specific senior management health and safety site visits, and rolling out the first phase of our behavioural safety training programme to further reduce our incident rate.

 

During the year we also generated an updated environmental policy and standards. These were published throughout the Group with personal copies of the policy issued to every employee. We also delivered 1,155 training days under our new environmental awareness course.

 

CONSOLIDATED INCOME STATEMENT
For the year ended 30 June 2008

	Note	2008 £m	2007 £m
Continuing operations
Revenue		1,831.9	1,409.7
Cost of sales		(1,669.7)	(1,275.8)
Gross profit		162.2	133.9
Administrative expenses		(93.1)	(67.0)
Share of post tax profits from joint ventures		2.0	1.4
Profit before finance costs		71.1	68.3
Profit before finance costs, amortisation and exceptional items:		84.6	62.5
Amortisation of intangibles		(2.0)	(1.4)
Net exceptional item:	3	(11.5)	7.2
Profit before finance costs		71.1	68.3
Finance income	4	6.5	9.3
Finance costs	4	(17.3)	(17.4)
Profit before income tax		60.3	60.2
Income tax expense	5	(17.8)	(16.6)
Profit for the year from continuing operations		42.5	43.6
Earnings per ordinary share
- basic	7	11.4p	14.3p
- diluted	7	11.4p	14.1p

CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE for the year ended 30 June 2008
		2008 £m	2007 £m
Profit for the year		42.5	43.6
Net (losses)/gains on movement in fair value of available for sale financial assets taken to equity		(0.3)	2.0
Realisation of gains on available for sale financial assets taken to equity		(1.1)	-
Actuarial losses and gains recognised on retirement benefit obligations		(11.8)	3.9
Deferred tax on items credited/(charged) to equity		1.9	(1.9)
Current tax on items credited to equity		-	0.9
Net (losses)/gains recognised directly in equity		(11.3)	4.9
Total recognised income for the year		31.2	48.5

 

 

CONSOLIDATED BALANCE SHEET 

at 30 June 2008

 

	Note	2008 £m	2007 £m
Assets
Non current assets
Intangible assets		10.2	12.0
Goodwill	9	115.0	109.2
Property, plant and equipment		8.0	5.8
Investments in joint ventures		12.5	6.4
Financial assets
- Available for sale financial assets		3.6	3.2
- Derivative financial assets		0.7	1.0
Trade and other receivables		23.0	4.7
Deferred income tax assets		10.7	10.0
Total non current assets		183.7	152.3
Current assets
Inventories		1.7	0.6
Developments		610.3	704.9
Trade and other receivables		308.7	278.5
Financial assets
- Derivative financial assets		-	0.4
Cash and cash equivalents		134.4	39.5
Total current assets		1,055.1	1,023.9
Total assets		1,238.8	1,176.2
Liabilities
Current liabilities
Financial liabilities - borrowings		(15.8)	(50.0)
Trade and other payables		(704.9)	(653.4)
Current income tax liabilities		(10.3)	(6.2)
Provisions for other liabilities and charges		(2.5)	(2.3)
Total current liabilities		(733.5)	(711.9)
Net current assets		321.6	312.0
Non  current liabilities
Financial liabilities – borrowings		(120.3)	(88.2)
Retirement benefit obligations		(27.4)	(25.0)
Deferred income tax liabilities		(17.4)	(20.3)
Other non current liabilities		(14.5)	(24.0)
Provisions for other liabilities and charges		(0.4)	(0.2)
Total non-current liabilities		(180.0)	(157.7)
Total liabilities		(913.5)	(869.6)
Net assets		325.3	306.6
Shareholders’ equity
Ordinary shares	12	18.9	18.8
Share premium	12	190.8	190.6
Other reserves	12	5.3	6.7
Retained earnings	12	110.3	90.5
Total  shareholders’ equity		325.3	306.6

 

 

CONSOLIDATED CASH FLOW STATEMENT

for the year ended 30 June 2008

 

	Notes	2008 £m	2007 £m
Cash flows from operating activities
Net cash generated from operations	10	149.6	10.4
Interest received		4.5	8.0
Interest paid		(14.6)	(16.3)
Income tax paid		(16.0)	(10.0)
Net cash generated from/(used in) operations		123.5	(7.9)
Cash flows from investing activities
Acquisition of subsidiaries (net of cash acquired)		(6.1)	40.1
Acquisition of investments in joint ventures		(4.5)	(2.7)
Income from investments in joint ventures		-	0.2
Acquisition of available for sale financial assets		(2.9)	-
Proceeds from sale of joint ventures		-	0.3
Proceeds from sale of investments		3.9	-
Acquisition of property, plant and equipment		(3.3)	(2.0)
Proceeds from sale of property, plant and equipment		0.3	19.6
Net cash (used in)/generated from investing activities		(12.6)	55.5
Cash flows from financing activities
Net proceeds from issue of ordinary share capital		0.3	147.0
Purchase of own shares		(2.5)	(3.0)
Repayment of borrowings		(34.2)	(1.7)
Increase in borrowings		32.1	99.7
Repayment of borrowing acquired with subsidiary		-	(261.0)
Dividends paid to Company shareholders		(11.7)	(7.1)
Net cash used in financing activities		(16.0)	(26.1)
Net increase in cash and cash equivalents		94.9	21.5
Cash and cash equivalents at 1 July		39.5	18.0
Cash and cash equivalents at 30 June	11	134.4	39.5

 

NOTES TO THE PRELIMINARY STATEMENT

 

1   Basis of preparation

 

This consolidated financial information has been prepared in accordance with the Listing Rules of the Financial Services Authority and uses EU adopted International Accounting Standards (IASs), International Financial Reporting Standards (IFRSs), IFRIC Interpretations, those parts of the Companies Act 1985 applicable to companies reporting under IFRS and accounting policies consistent with those described in the Annual Report and Financial Statements 2007. The financial information set out in this document does not constitute statutory accounts for the years ended 30 June 2007 or 30 June 2008 but is derived from the 2008 Annual Report and Financial Statements. The Annual Report and Financial Statements for 2007 have been delivered to the Registrar of Companies and the Annual Report and Financial Statements for 2008 will be delivered to the Registrar of Companies in due course. The auditors have reported on those accounts and have given an unqualified report which does not contain a statement under section 237(2) or (3) of the Companies Act 1985.

 

2   Business segment reporting

 

Segment reporting is presented in the consolidated financial statements in respect of the Group's business segments, which are the primary basis of segment reporting. The business segment reporting reflects the Group's management and internal reporting structure. Segment results include items directly attributable to the segment as well as those that can be allocated on a reasonable basis. With effect from 1 July 2007, the Group has changed its management and internal reporting structure to include an affordable housing and regeneration segment. The comparative figures for the year ended 30 June 2007 have been restated accordingly. Had the restatement not been made, in 2007 the revenue for construction would have been £1,066.1 million and for housebuilding £340.1 million. As the Group has no material activities outside the UK, segmental reporting is not required by geographical region. Inter-segment revenue is not material.

 

		Building	Infrastructure	Construction Total	PPP Investments	Affordable housing & regeneration	House-building	Group	Total
		£m	£m	£m	£m	£m	£m	£m	£m
Year ended 30 June 2008
Group revenue and share of joint venture revenue		605.4	541.3	1,146.7	5.0	230.4	486.3	0.3	1,868.7
Share of joint ventures’ revenue		(1.6)	(9.4)	(11.0)	(3.5)	(7.0)	(15.3)	-	(36.8)
Revenue		603.8	531.9	1,135.7	1.5	223.4	471.0	0.3	1,831.9
Segment result:
Profit before joint ventures		11.8	13.8	25.6	0.2	12.7	51.0	(6.9)	82.6
Share of joint ventures’ profit		0.1	-	0.1	2.7	1.1	2.8	-	6.7
Profit from operations *		11.9	13.8	25.7	2.9	13.8	53.8	(6.9)	89.3
Share of joint ventures’ interest and tax		-	-	-	(2.6)	(0.8)	(1.3)	-	(4.7)
Profit before finance costs, amortisation and exceptional item		11.9	13.8	25.7	0.3	13.0	52.5	(6.9)	84.6
Amortisation of intangibles		(0.3)	(0.3)	(0.6)	-	(0.2)	(1.2)	-	(2.0)
Net exceptional item		-	-	-	-	-	(11.5)	-	(11.5)
Profit before finance costs		11.6	13.5	25.1	0.3	12.8	39.8	(6.9)	71.1
Net finance costs		5.5	1.3	6.8	(0.5)	(4.5)	(29.2)	16.6	(10.8)
Profit before taxation		17.1	14.8	31.9	(0.2)	8.3	10.6	9.7	60.3
Income tax expense									(17.8)
Profit for the year from continuing operations									42.5

 

2          Business segment reporting (continued)

 

Year ended 30 June 2007 (Restated)
Group revenue and share of joint venture revenue		580.1	410.7	990.8	3.5	128.4	304.4	1.1	1,428.2
Share of joint ventures’ revenue		(2.1)	(9.5)	(11.6)	(1.1)	(0.9)	(4.9)	-	(18.5)
Revenue		578.0	401.2	979.2	2.4	127.5	299.5	1.1	1,409.7
Segment result:
Profit before joint ventures		10.9	9.8	20.7	(1.6)	5.9	43.2	(7.1)	61.1
Share of joint ventures’ profit		0.1	-	0.1	0.5	0.2	0.9	-	1.7
Profit from operations *		11.0	9.8	20.8	(1.1)	6.1	44.1	(7.1)	62.8
Share of joint ventures’ interest and tax		-	-	-	0.4	-	(0.7)	-	(0.3)
Profit before finance costs, amortisation and exceptional item		11.0	9.8	20.8	(0.7)	6.1	43.4	(7.1)	62.5
Amortisation of intangibles		(0.4)	(0.3)	(0.7)	-	-	(0.7)	-	(1.4)
Net exceptional items		1.6	1.4	3.0	-	-	(1.9)	6.1	7.2
Profit before finance costs		12.2	10.9	23.1	(0.7)	6.1	40.8	(1.0)	68.3
Net finance costs		3.0	0.7	3.7	(0.3)	(1.8)	(20.3)	10.6	(8.1)
Profit before taxation		15.2	11.6	26.8	(1.0)	4.3	20.5	9.6	60.2
Income tax expense									(16.6)
Profit for the year from continuing operations									43.6

* Profit from operations is stated before finance costs, exceptional items, amortisation and share of joint ventures’ interest and tax.

		Building	Infrastructure	Construction Total	PPP Investments	Affordable housing & regeneration	House-building	Group	Total
		£m	£m	£m	£m	£m	£m	£m	£m
Year ended 30 June 2008
Assets
Goodwill		18.0	37.2	55.2	1.9	12.5	45.4	-	115.0
Intangibles		0.2	0.9	1.1	-	1.5	7.6	-	10.2
Investment in joint ventures		0.3	-	0.3	9.1	-	3.1	-	12.5
Other assets excluding income taxes and cash		125.7	144.1	269.8	1.5	117.1	551.0	16.6	956.0
Total		144.2	182.2	326.4	12.5	131.1	607.1	16.6	1,093.7
Liabilities
Other liabilities excluding income taxes and debt		275.1	213.0	488.1	3.2	74.3	136.9	47.2	749.7
Net assets/(liabilities) excluding income taxes, net debt, goodwill and intangibles		(149.1)	(68.9)	(218.0)	7.4	42.8	417.2	(30.6)	218.8
Goodwill and intangibles		18.2	38.1	56.3	1.9	14.0	53.0	-	125.2
Net assets/(liabilities) excluding income taxes and net debt		(130.9)	(30.8)	(161.7)	9.3	56.8	470.2	(30.6)	344.0
Income taxes									(17.0)
Net debt									(1.7)
Net assets									325.3

 

2          Business segment reporting (continued)

 

Year ended 30 June 2007 (Restated)
Assets
Goodwill		17.9	37.2	55.1	1.9	6.8	45.4	-	109.2
Intangibles		0.4	1.2	1.6	-	1.5	8.9	-	12.0
Investment in joint ventures		0.4	-	0.4	4.9	-	1.1	-	6.4
Other assets excluding income taxes and cash		150.5	103.2	253.7	3.8	73.4	667.6	0.6	999.1
Total		169.2	141.6	310.8	10.6	81.7	723.0	0.6	1,126.7
Liabilities
Other liabilities excluding income taxes and debt		243.3	126.2	369.5	2.7	52.8	227.7	52.2	704.9
Net assets/(liabilities) excluding income taxes, net debt, goodwill and intangibles		(92.4)	(23.0)	(115.4)	6.0	20.6	441.0	(51.6)	300.6
Goodwill and intangibles		18.3	38.4	56.7	1.9	8.3	54.3	-	121.2
Net assets/(liabilities) excluding income taxes and net debt		(74.1)	15.4	(58.7)	7.9	28.9	495.3	(51.6)	421.8
Income taxes									(16.5)
Net debt									(98.7)
Net assets									306.6

 

 

3   Net exceptional item

 

The net exceptional item relates to the restructuring of the Group’s housebuilding division consequent on the downturn in the housing market. It comprises the write down in the carrying value of land and abortive costs relating to site acquisitions of £9.1 million, redundancy costs of £1.9 million and provision for onerous lease commitments of £0.5 million.

 

The net exceptional item in 2007 was made up of restructuring costs of £1.9 million, profit from property rationalisation of £3.9million and a pension curtailment credit of £5.2million.

 

These amounts have been treated as exceptional items in accordance with the Group's accounting policy. The income tax credit associated with the net exceptional item amounts to £3.4 million (2007: charge £1.8 million).

 

4   Net finance costs

			2008 £m	2007 £m
Interest payable on borrowings			(11.7)	(10.9)
Unwinding of discounted payables			(4.7)	(5.1)
Fair value losses on financing activities – interest rate swaps			(0.7)	-
Net finance cost on retirement benefit obligations			-	(0.7)
Other			(0.2)	(0.7)
Finance costs			(17.3)	(17.4)
Interest receivable on bank deposits			3.2	7.9
Interest receivable on joint venture loans			1.3	0.7
Net finance income on retirement benefit obligations			0.9	-
Fair value gains on financing activities – interest rate swaps			-	0.7
Other			1.1	-
Finance income			6.5	9.3
Net finance costs			(10.8)	(8.1)

 

5   Income tax expense

 

Analysis of charge in year		2008	2007
		£m	£m
Current year’s income tax
Current tax		19.2	17.1
Deferred tax		(1.5)	(0.4)
Adjustment in respect of prior years
Current tax		0.9	(0.1)
Deferred tax		(0.8)	-
Income tax expense		17.8	16.6
Tax on items (credited)/charged to equity		2008	2007
		£m	£m
Current tax credit on share based payments		-	(0.9)
Deferred tax charge/(credit) for share based payments		1.8	(0.9)
Deferred tax (credit)/ charge on retirement benefit obligations		(3.3)	2.2
Deferred tax on movement in fair value of available for sale financial assets		(0.4)	0.6
		(1.9)	1.0
Total taxation		15.9	17.6

 

The income tax expense for the year of £17.8 million is higher (2007: lower) than the year end standard rate of corporation tax in the UK of 28% (2007: 30%). The differences are explained below:
		2008	2007
		£m	£m
Profit before income tax		60.3	60.2
Profit before income tax multiplied by the year end standard rate in the UK of 28% (2007: 30%)		16.9	18.1
Effects of:
Expenses not deductible for tax purposes		1.4	0.6
Non taxable income		(1.6)	-
Change in rate of deferred income tax		-	(0.4)
Change in rate of current income tax		0.9	-
Capital gains tax indexation adjustment		-	(0.6)
Utilisation of capital gains tax losses		-	(0.1)
Adjustments in respect of prior years		0.1	(0.1)
Other		0.1	(0.9)
Income tax expense		17.8	16.6

 

6          Dividends

 

The following dividends were paid by the Company:

 

			Year to 30 June 2008		Year to 30 June 2007
			£m	Pence per share	£m	Pence per share
Previous year final			8.3	2.2	5.0	1.8
Current period interim			3.4	0.9	2.1	0.8
Dividend recognised in the year			11.7	3.1	7.1	2.6
The following dividends were declared by the Company in respect of each accounting period presented:
			Year to 30 June 2008		Year to 30 June 2007
			£m	Pence per share	£m	Pence per share
Interim			3.4	0.9	2.1	0.8
Final			7.9	2.1	8.3	2.2
Dividend relating to the year			11.3	3.0	10.4	3.0

 

 

The directors are proposing a final dividend in respect of the financial year ending 30 June 2008 of 2.1p per share bringing the total dividend in respect of 2008 to 3.0p (2007: 3.0p). The final dividend will absorb an estimated £7.9 million of shareholders’ funds. Subject to shareholder approval at the Annual General Meeting to be held on 7 November 2008, the final dividend will be paid on 14 November 2008 to shareholders on the register at the close of business on 17 October 2008.

 

7   Earnings per share

 

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year, excluding those held by the employee share trust, which are treated as cancelled.

 

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted by the number of potentially dilutive ordinary shares that are expected to be converted. The Group has two classes of potentially dilutive ordinary shares: those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the year and the contingently issuable shares under the group's long term incentive plan.

 

Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below.

 

	2008			2007
	Earnings £m	Weighted average number  of shares	Per share amount  pence	Earnings  £m	Weighted  average  number of shares	Per share amount pence
Basic
Earnings attributable to ordinary shareholders	42.5	372,678,133	11.4	43.6	305,428,612	14.3
Effect of dilutive securities:
Options		974,331	-		4,194,331	(0.2)
Diluted	42.5	373,652,464	11.4	43.6	309,622,943	14.1

 

Earnings adjusted for the post tax exceptional item of £8.1 million (2007: profit £5.4 million) amount to £50.6 million (2007: £38.2 million). The basic earnings per share calculated on this adjusted basis is 13.6p (2007: 12.5p) (diluted: 13.6p (2007:12.3p)).

 

8   Acquisitions

 

On 14 November 2007, the Group acquired the entire share capital of Kendall Cross Holdings Limited, an affordable housing contractor based in the North East of England. The total consideration payable including expenses, was £9.3 million in cash of which £1.8 million was on deferred terms.

 

On 25 January 2008, the Group acquired an additional 10% shareholding in its joint venture Oak Fire Protection Limited, increasing its shareholding from 80% to 90%. With effect from this date, Oak Fire Protection Limited is treated as a subsidiary undertaking. The consideration paid amounted to £95,000 which was paid in cash. There was no difference between the book value and the fair value of the assets acquired. Goodwill of £81,000 arose on the acquisition.

 

From the date of acquisition to 30 June 2008 the acquisitions contributed £16.6 million of revenue and £0.5 million to profit before interest and intangible amortisation and £0.7 million to profit before income tax.

 

Details of the Kendall Cross Holdings Limited acquisition are given below

 

	Carrying value pre acquisition*	Fair value adjustments	Provisional fair value
	£m	£m	£m
Intangibles	-	0.2	0.2
Property, plant and equipment	1.2	-	1.2
Retirement benefit asset	1.3	-	1.3
Trade and other receivables	5.4	-	5.4
Cash and cash equivalents	2.1	-	2.1
Bank loans and overdrafts	(0.7)	-	(0.7)
Trade and other payables	(5.3)	-	(5.3)
Deferred taxation	(0.4)	(0.2)	(0.6)
Net assets acquired	3.6	-	3.6
Goodwill			5.7
Consideration			9.3
* Stated under IFRS The fair value adjustment relates to recognition of an intangible assets being customer contracts.

 

Consideration			£m
Purchase price			9.1
Expenses			0.2
Total consideration			9.3
The total consideration was settled as follows:			£m
At date of acquisition			7.5
On 14 May 2008			0.3
Payable 14 November 2008			0.8
Payable 14 November 2009			0.7
			9.3

 

The outflow of cash and cash equivalents and borrowings on the acquisition is calculated as follows:
Cash consideration			7.8
Cash acquired			(2.1)
Borrowings acquired			0.7
Net cash outflow			6.4

 

 

9.   Goodwill

 

Goodwill is allocated to the Group’s cash-generating units (CGUs) identified according to business segment.

 

The goodwill is attributable to the following business segments:

 

	2008 £m	2007 £m
Building	18.0	17.9
Infrastructure	37.2	37.2
PPP Investments	1.9	1.9
Affordable housing and regeneration	12.5	6.8
Housebuilding	45.4	45.4
Total	115.0	109.2

 

The recoverable amount of a CGU is determined based on value in use calculations. These calculations use pre tax cash flow projections based on future financial budgets approved by the Board based on past performance and its expectation of market developments. The key assumptions within these budgets relate to revenue growth and the future gross margin achievable. Future budgeted revenue is based on management’s knowledge of actual results from prior years, latest forecasts for the current year along with the existing secured work and management’s future expectation of the level of work available within the market sector. In establishing future gross margins, the margins currently being achieved are considered in conjunction with expected inflation rates in each cost category.

 

Cash is monitored very closely on a daily, weekly and monthly basis for the purposes of managing both treasury and the business as a whole. The assumptions used are reviewed regularly and differences between forecast and actual results are closely monitored with variances being investigated fully. The knowledge gained from this past experience is used to ensure that the future assumptions used are consistent with past actual outcome and are management’s best estimate of the future cash flows of each business unit. Cash flows beyond a three year period are extrapolated using an estimated growth rate of 3% per annum within construction and 0% per annum within housebuilding and affordable housing and regeneration. The growth rate used is the Group's estimate of the average long term growth rate for the market sectors in which the CGU operates. A pre tax discount rate of 11.5% (2007: 10.9%) has been applied to the future cash flows.

 

Following the impairment test during the year and the prior year, no impairments have been identified.

 

 

10   Cash flows from operating activities

 

	2008	2007
	£m	£m
Cash generated from operations
Continuing operations
Profit for the year	42.5	43.6
Adjustments for:
Profit on disposal of investments	(2.8)	-
Income tax	17.8	16.6
Depreciation	2.1	2.3
Amortisation of intangible assets	2.0	1.4
Share based payments	1.4	1.1
Profit on sale and leaseback of property, plant and equipment	-	(4.8)
Profit on disposal of property, plant and equipment	(0.1)	(0.6)
Profit on sale of joint venture	-	(0.5)
Finance income	(6.5)	(9.3)
Finance cost	17.3	17.4
Share of post tax profits from joint ventures	(2.0)	(1.4)
Movement in retirement benefit obligations	(7.3)	(18.2)
Increase in provisions for liabilities and charges	0.4	0.1
	64.8	47.7
Changes in working capital (excluding the effects of acquisition of subsidiaries)
(Increase)/decrease in inventories	(1.1)	0.3
Decrease/(increase) in developments	94.6	(98.1)
Increase in trade and other receivables	(41.5)	(73.2)
Increase in payables	32.8	133.7
Cash generated from continuing operations	149.6	10.4

 

 

11   Reconciliation of net debt

 

Net debt
	2008 £m	2007 £m
Cash and cash equivalents	134.4	39.5
Current borrowings
Bank loan	(11.5)	(11.5)
Unsecured loan notes	(4.3)	(38.5)
Non current borrowings
Bank loans	(120.3)	(88.2)
Net debt	(1.7)	(98.7)

 

 

12   Statement of changes in shareholders’ equity

 

	Share capital £m		Share premium £m	Other reserves £m	Retained earnings £m	Total shareholdersequity £m
At 1 July 2006	13.7		48.7	4.7	53.0	120.1
Profit for the year	-		-	-	43.6	43.6
Dividends	-		-	-	(7.1)	(7.1)
Proceeds from shares issued	5.1		141.9	-	-	147.0
Purchase of own shares	-		-	-	(3.0)	(3.0)
Share based payments	-		-	-	1.1	1.1
Actuarial gains recognised in retirement benefit obligations		-	-	-	3.9	3.9
Movement in fair value of available for sale financial assets		-	-	2.0	-	2.0
Deferred tax on movements in equity	-		-	-	(1.9)	(1.9)
Current tax on movements in equity	-		-	-	0.9	0.9
At 1 July 2007	18.8		190.6	6.7	90.5	306.6
Profit for the year	-		-	-	42.5	42.5
Dividends	-		-	-	(11.7)	(11.7)
Proceeds from shares issued	0.1		0.2	-	-	0.3
Purchase of own shares	-		-	-	(2.5)	(2.5)
Share based payments	-		-	-	1.4	1.4
Actuarial losses recognised in retirement benefit obligations		-	-	-	(11.8)	(11.8)
Movement in fair value available for sale financial assets		-	-	(0.3)	-	(0.3)
Released on disposal of available for sale financial assets		-	-	(1.1)	-	(1.1)
Deferred tax on movements in equity	-		-	-	1.9	1.9
At 30 June 2008	18.9		190.8	5.3	110.3	325.3

 

 

END

 

 

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