Final Results

RNS Number : 4040P

Boot(Henry) PLC

25 March 2009

 



HENRY BOOT PLC

Land promotion, property development & investment, construction and plant hire

PRELIMINARY STATEMENT OF RESULTS FOR THE YEAR ENDED 31 DECEMBER 2008

HIGHLIGHTS

	Trading profits increased by 53% to £44.0m (2007: £28.8m)
	Property impairments and revaluation deficit of £22.4m (2007: surplus £18.1m)
	Profit before tax reduced by 59% to £19.3m (2007: £46.5m)
	Earnings per share 10.8p (2007: 24.5p)
	Maintained final dividend proposed of 3.75p, giving a total for the year of 5.0p (2007: 5.0p)
	Net asset value per share increased by 5% to 146p (2007: 139p)
	Debt reduced to £49.3m (2007: £70.9m)
	Gearing reduced to 26% (2007: 39%)

Commenting on the results, Chairman, John Reis, said:

'Given the very difficult market conditions that have arisen in the UK property market during 2008, I am pleased to report a further set of solid results, with the exception of our investment property portfolio where we have seen falling values throughout the year.'

'Our broad mix of businesses and prudently geared balance sheet, allied to a cautious strategy, gives the Board confidence that we will manage the next phase of the cycle successfully and deliver growing value to shareholders once again.'

For further information, please contact:

Henry Boot PLC

Jamie Boot, Group Managing Director

John Sutcliffe, Group Finance Director

Tel: [phone]

www.henryboot.co.uk

Evolution Securities Limited

Joanne Lake, Corporate Finance

Tel: [phone]

Citigate Dewe Rogerson

Fiona Tooley

Tel: [phone]

Mobile: [phone]

Chairman's statement

Given the very difficult market conditions that have arisen in the UK property market during 2008, I am pleased to report a further set of solid results, with the exception of our investment property portfolio where we have seen falling values throughout the year. The year under review saw the economic backdrop in which we operate become very difficult indeed; successive rises in interest rates through 2007 and into 2008, followed by a dramatic tightening of liquidity, have severely affected both the housing and property investment markets. 

Against this backdrop we are pleased to report:

	completion of several large land sales
	a very strong year in our construction division
	completion of most developments in progress at the start of 2008
	gearing reduced by a third, with the prospect of making further reductions in 2009

We continued to operate through our national network of offices, creating valuable long-term opportunities in land promotion and property investment or development. We recognise that it will be some time before house builders are able to replenish their land banks or that property yields make development the profitable business it had historically become. Our construction division and the investment property rentals generate a growing level of recurring income, though this will not replace the scale of the 'deal-driven' profits previously achieved by our property development and land promotion activities.

We expect to face a very difficult market for some considerable time, however, the key strategic focus of the business is:

	to protect the retained asset value we have created
	to continue to manage debt levels down from the prudent levels currently carried
	to continue to improve the planning position of the land and development portfolios and realise profits where possible
	to continue the profitable operation of our construction division

I firmly believe that this combination of actions will allow us to manage our way constructively through this recessionary phase and in due course benefit from the recovery. Our quality development opportunities and a number of well located, consented green field land sites will be in demand by house builders when confidence and stability returns to the market.

Results

Revenue was £193.7m (2007: £124.8m) arising from larger land transactions and strong construction division activity in the period. Gross trading profit increased by 53% to £44.0m (2007: £28.8m) after a strong contribution from land trading activities. However, profit before tax decreased by 59% to £19.3m (2007: £46.5m) as the revaluation surplus of £18.1m achieved in 2007 was reversed by a deficit of £19.6m in 2008. Of this deficit £14.9m (2007: surplus £16.8m) arose from the revaluation of our shopping centre at Ayr. Property disposal profit of £0.5m (2007: £3.5m) was attributable to a number of small sales. Basic earnings per share decreased 56% to 10.8p (2007: 24.5p). Total net assets increased 4% to £190.1m (2007: £182.2m), representing a net asset value per share of 146p (2007: 139p). Gearing reduced by a third to 26%, with net debt of £49.3m at the year end (2007: gearing 39%, net debt £70.9m), as the cash generated from land sales was offset by the completion of the majority of our current development programme.

Dividends 

The excellent trading result and strong cash generation in a difficult market allow the Directors to recommend a maintained final dividend of 3.75p per share (2007: 3.75p) which, together with the interim dividend of 1.25p per share (2007: 1.25p), gives an unchanged total dividend for the year of 5.0p (2007: 5.0p). Dividend cover has reduced due to the revaluation deficit to 2.2 times (2007: 4.9 times). The final dividend, which is subject to shareholder approval at the AGM on 21 May 2009, will be paid on 28 May 2009 to shareholders on the Register on 15 May 2009. The Board recognise that we must in these unprecedented, challenging times continually review our dividend policy. However, they also acknowledge the importance of the dividend to our shareholders and will therefore endeavour to generate profit and cash sufficient to continue to provide stakeholders with an attractive yield on their investment.

Performance benchmarking and returns

Total Shareholder Value (TSV), calculated as the increase in net asset value plus dividends per share, created in the year was 12.0p per share (2007: 28.1p), a 9% (2007: 24%) return on opening net assets. Although the Group achieved a record trading profit and, despite the impact of revaluation deficits, positive net profit before tax, increased net assets and a maintained dividend, it has continued to feel the effects of negative sentiment towards the publicly quoted property and construction sector. As a consequence, Total Shareholder Return (TSR) in the period was -105.0p (2007: -41.9p), a -62% return on the opening price on 1 January 2008 of 169p. TSR is calculated as the change in share price plus dividends per share. These returns compare to an average TSR of -42% on the FTSE Construction Sector, -47% on the Real Estate Sector and -44% on the FTSE Small Cap Index. These sectors have been chosen as the best comparative benchmarks against which to monitor our Company.

Employees

On behalf of my fellow Directors, I express my sincere thanks to all the Group's employees for their contribution in achieving yet another excellent trading performance. There is little doubt that the next phase in the economic cycle is going to be very difficult for the UK. It is our people who, through their commitment, skill and hard work, will help us manage our way through this period to be in a good position to capitalise on the opportunities arising as the UK recovers from this recession.

Strategy

The Group strategy continues to focus on land promotion, property investment and development, with the support of construction, PFI and plant hire activities. We recognise that profit from land promotion and property development is affected by the cyclical nature of the property market, and is a business opportunity where the timing and scale of profitability is difficult to predict in the short-term, but should again be attractive in the long-term.

It remains our objective that, as our subsidiaries create surplus funds and as prudent cash management allows, we will invest in those developments which, in our view, offer the best rental and capital growth opportunities. However, investment property yields are currently at such a level that it is more beneficial to acquire rather than develop. Therefore, in the short-term, it is our intention to reduce our development pipeline and manage our investment portfolio to generate cash whilst protecting the net asset value created over the last ten years. We will also focus on achieving planning consents on our greenfield land sites to profit from the eventual recovery in the housing sector. The defensive, cash-generative qualities of our businesses will come to the fore in the recessionary phase of the economic cycle, a period from which we intend to emerge with our balance sheet and cash position in good order and ready to take advantage of the cyclical upturn when it occurs.

Outlook

As I said last year, the general economic climate within which our business operates will be very turbulent for some considerable time. I believe that the aforementioned strategy is the right one for the long-term success of our business. We continue to benefit from the recurring profit, cash generation and return on assets provided by our construction, PFI and plant hire businesses. We have a strategic land portfolio of the highest quality, in the right locations, steadily moving through the planning process. We strongly believe that, although land values have reduced significantly, so too have house builder inventories, and this gives us a great opportunity to profit as house builders restock their land banks and move away from the town centre apartment market.

Our broad mix of businesses and prudently geared balance sheet, allied to a cautious strategy, gives the Board confidence that we will manage the next phase of the cycle successfully and deliver growing value to shareholders once again.

John S Reis

25 March 2009

BUSINESS REVIEW

OPERATIONS REVIEW

Our long-term strategy of adding value to land either through development, planning promotion or construction, remains in place. Real estate has been affected by the well publicised problems in the financial arena and the lack of liquidity in the debt markets that is currently affecting all sectors of the property market. This lack of funding can be seen at an individual level in the mortgage market all the way through to weakness in institutional grade investments.

Consequently this lack of liquidity, in conjunction with the recession and attendant rises in unemployment, is affecting real estate prices to such an extent that profitable development is now difficult to achieve. In many cases completion yields are higher than the return on cost and, therefore, with the exception of the schemes currently in progress, we will restrict further development until the market and the certainty of profitability returns.

The long-term nature of land promotion means that periods of readjustment will feature from time to time and we are dealing with this by pushing hard on the planning front, selling where we can achieve fair value and warehousing sites where the market is not receptive to the scale or location at the current time.

On the whole, our construction, PFI and plant hire businesses performed well in 2008. A significant proportion of activity within our construction business is linked to locally and centrally funded frameworks such as Decent Homes and Prison Alliance and has therefore been insulated to some extent from the worst effects of current market trends. The PFI business, operating the A69 between Newcastle and Carlisle also continues to deliver steady returns. Plant Hire had a reasonable year but experienced more difficult trading conditions as the year progressed, as many house builders and private sector developers found conditions increasingly difficult and mothballed their sites until the market improves.

Taking each area of the business in detail -

PROPERTY

In common with the rest of the property industry during 2008, Henry Boot Developments experienced markets in which property values reduced significantly. This was particularly evident in the last quarter when commercial property values fell by around 15%. According to IPD, the annual decline in all property values was 26.3% and therefore, whilst we suffered a 12.6% revaluation deficit at £19.6m (2007: £18.1m surplus), this result was cushioned by the developments that were completed during the year and valued for the first time. We started the year with the expectation that these schemes would contribute to profitability in 2008 as they moved into fixed assets. However, the outward yield shift has been so rapid that these properties were valued in December 2008 at or around cost.

Looking forward, it is very difficult to predict when, and at what valuation level, the commercial property market will start to recover. Commentators have suggested that values could halve from the peak in 2006/7 and that any recovery will be reliant on a higher level of UK bank debt funding. As yet, there is little sign of this happening in the short-term and currently the risks associated with the development of commercial property far outweigh the benefits. In many cases the yield on cost is below the market yield on the fully let completed development; added to this are the risks of prospective tenant default before completion and empty rates liabilities. Against this backdrop, our development activities during 2009 and 2010 will be limited to those schemes which generate substantial positive cash flow and are fully pre-let at the outset.

Whilst some progress has been made letting vacant space in previously completed developments this year, we have not been as successful as we had hoped and a higher level of tenant incentive has had to be offered to secure the lettings achieved.

Investments

At Clifton Moor, York, we have two retail warehouse units. The first, a 25,000 sq ft unit, was built during 2008 and was occupied late in the year by PC World. A second 18,000 sq ft unit that requires fit-out is currently empty although we have a number of retailers expressing interest. Our non-food retail units at South Shields have traded well and have an excellent tenant line up. Work has commenced on the balance of the land with the construction of an ASDA food store which will have a positive effect on our investment when it is completed. Our mixed-use retail and office scheme at Bromley is now complete. Good progress has been made during the year with new lettings for this project and we are hopeful of securing tenants in 2009 for the remaining available retail and office units.

The Axis, our mixed-use scheme in Nottingham, was completed and brought into the valuation for the first time in 2008. The final small café unit is currently being marketed and, with all other tenants now in occupation, we anticipate a total rental income of over £1.8m per annum up to the first review date. Our two retail units at Bromborough, Wirral, totalling 37,000 sq ft are also complete and our two tenants, Magnet and Homebase, are both installed and trading. These units currently produce a total of £0.46m per annum of rental income.

Letting of the empty space at our Ayr retail scheme remains difficult, nonetheless we have a number of deals in negotiation and are hopeful that these will be successfully concluded. The value of this investment has fallen during the year effectively reversing the valuation uplift seen in the previous year.

At Carver Street in Sheffield we have a mixed use retail and office scheme which we have owned for some 30 years. The retail space has seen reasonable rent increases during the year where reviews have been completed and therefore the fall in value of this property is less marked than others within the portfolio. At Chesterfield, we have owned two relatively small industrial estates for over twenty years. The first, at Pottery Lane West, is almost fully let and remains in our ownership, whilst the second, Vanguard Trading Estate, was sold for £2.55m in November 2008.

Developments in Progress

There are a small number of situations where we are progressing with the construction or refurbishment of a development site but only where we have an existing site cost and, with the benefit of pre-lets, additional investment will yield an excellent rental return on that expenditure. There are also several developments in progress that have already incurred the majority of the cost and which will complete in 2009.

Work on the 27,620 sq ft retail warehouse scheme in Port Talbot completed in early 2009. We have three of the four units let to Pets at Home, Halfords and Dreams and our efforts are now directed towards letting the remaining empty space. Work continued throughout the year at our 147 acre Priory Park development in Hull. We completed land, office and industrial unit sales in addition to a number of design and build schemes directly for clients and we also developed a small office scheme in association with a local developer. On our large industrial site, adjacent to the A50 at Stoke-on-Trent, we completed a 123,000 sq ft production unit for Recticel (UK) Limited, manufacturers of insulation products. On the same site we have now commenced the construction of a 190,000 sq ft warehouse for the pharmaceutical distribution arm of the Co-op which should be completed in the first half of 2009. When fully rent producing, these two units will provide income of almost £1.5m per annum.

At Worksop, Nottinghamshire, we had hoped to complete the sale of a food store site linked to a leisure scheme in late 2008; this will now occur early in 2009. At Beeston, Nottingham, we have an existing fully let 70,000 sq ft retail scheme, some of which is expected to be acquired through a compulsory purchase order arrangement as part of the Nottingham tram extension programme. We expect to lead the future redevelopment of this site, including some adjacent land, to form a new, enlarged retail development. At Rotherham, work is underway on a 50,000 sq ft retail warehouse unit for B&Q, with completion scheduled for the second half of 2009. In the current market other retail units totalling 50,000 sq ft and four acres of land with planning permission for employment uses will only be developed once we have obtained pre-lets that will ensure a profitable development.

During the year the new Junction 29A was opened giving direct access from the M1 onto our 200 acre Markham Vale site. Our development agreement with Derbyshire County Council allowed for the speculative development of eight small office/industrial units totalling 51,000 sq ft which should complete in the first half of 2009. We have also completed the first of a series of design and build industrial units, a 31,000 sq ft unit which we recently handed over to Industrial Ancillaries Limited. Even in this difficult market, Markham Vale is a prime industrial site with great transport links and we are seeing good levels of interest in both the speculatively built units and further design and build schemes. It is anticipated that activity on this site will continue for many years into the future and will take over from Priory Park as our main industrial development site.

At Junction 11 on the M20, near the Channel Tunnel train terminal, we have developed port waiting facilities and a service area, Stop 24, which is largely made up of retail and restaurant units. Our focus is currently on increasing the number of drivers using the facility. We have made a fair value provision in our 2008 results against this site.

Future Development Opportunities

In Bodmin, we purchased two pieces of land some time ago where we planned to develop a 37,000 sq ft retail park and a 50,000 sq ft trade park. Due to the poor market conditions these plans have currently been put on hold until we are able to formalise the third-party interest currently being expressed in these schemes. At Tamworth, we acquired a dated retail centre scheme in 2006 where we have now largely created a vacant site and, in conjunction with some adjacent land, plan to develop a substantial retail scheme. More longer-term, we are also progressing retail schemes in partnership with local authorities at Abergavenny, Burnley and Daventry.

We have two development sites in Falkirk, Scotland. First, we own a small parade of retail units which we plan to include in a much larger future redevelopment scheme incorporating additional land to the rear of our site. We are also in discussion with the local council regarding the partial development of Falkirk Football Club along with a large development site around the ground. In Cumbernauld, Scotland, we own a 7.5 acre industrial site where we plan to install infrastructure and subsequently sell individual development plots, probably on a design and build basis, but if tenant covenants are good we may consider building for lease.

We own a small plot of land at Longwell Green, Bristol, where we have planning permission for a 20,000 sq ft office development. Once again, current market conditions mean that we do not expect to progress on with this site until interest is confirmed. This approach also applies to a 20,000 sq ft trade park site that we control in Malvern. We have two office schemes planned for development at Maidenhead and Richmond. Scheme details are being prepared for each but construction will not start until pre-lets are obtained and investment values allow us to proceed. During the year we acquired the vacant former County Court building on Deansgate, Manchester. We have seen a considerable amount of occupier interest in this landmark building and this, with the necessary pre-lets and resolution of the planning issues, even in the current market, may allow us to proceed with the refurbishment.

Henry Boot Developments is currently focussed on reducing voids and maximising rental income from its investment properties, completing the developments in progress to budget, ensuring they are fully let and selling those properties that do not fit within our long-term investment property portfolio. As a developer it is essential that we recycle cash back into our business and we do not intend to reinvest this into either development or investment property purchases until the market stabilises or we identify an exceptional opportunity from which to create shareholder value.

LAND

Hallam Land Management Limited, our land business, continues to promote and market an extensive pipeline of sites throughout the country. At 31 December 2008 it held interests in 7,635 acres (2007: 6,725 acres) with 1,679 acres owned (2007: 1,660 acres), 3,982 acres optioned (2007: 3,712 acres) and 1,974 acres held under agency agreements (2007: 1,353 acres). At 31 December 2008 the inventory value of these land assets was £53.9m (2007: £73.5m) on 130 sites. Some 90% of these interests are in the Midlands, Southern England and Scotland. Most are greenfield and for residential development, although we also have industrial, commercial and wind farm sites within the portfolio.

We concluded four key land sales in the period under review at Milton Keynes, Bowburn, Syston and Melksham and these, together with other smaller transactions, combined to generate record trading profits within land development of £35.5m (2007: £22.7m).

Historically, difficulties in the planning process contributed to a shortage of residential development sites leading, in part, to housing shortages. Over the last decade these shortages, allied to freely available, inexpensive credit, fuelled steep increases in house prices. The UK Government recognised the planning bottleneck late in the day and is now relaxing the planning system to address this shortage in housing provision.

UK house builders are currently suffering a much more serious threat. The lack of mortgage funding, allied to stricter lending criteria and requirements for larger deposits from the banks, resulted in the collapse of the already depleted first-time buyer market in 2008 and resulted in over-leveraged house builders trading down their stock properties and reducing debt. We are anticipating only a slow and steady recovery from this as the banks are recapitalised and more normal lending practice returns. In tandem with this, much of the consented land in the house builders' portfolios has attendant local authority infrastructure and community benefit provision agreements that were negotiated in a historic market where demand, profit and selling prices were substantially higher. Therefore many of these Section Agreements are no longer affordable for the developers and will require renegotiation. As a consequence, UK house building has dramatically reduced, with the 2008 total production at some 130,000 units and the 2009 figure expected to fall well short of that level. In both cases, these figures are significantly below the Government target of 250,000 units per year. 

For Hallam Land this means that trading in 2009 and 2010 will be undertaken against a backdrop of very difficult market conditions. Land values have fallen and we anticipate this trend continuing until house prices stabilise. We also anticipate that sales receipts will be spread over a longer period as house builders look to match land purchase costs with cash inflows. Despite this, we are working on a number of sites that we hope to bring to the market between 2009 and 2011.

In Bedfordshire, we have interests in three land holdings. The first, at Norse Road, Bedford, where with contract negotiations well advanced, it is reasonable to expect a sale in 2009. The second much larger site of 184 acres at Biddenham is also well advanced in planning terms and should begin to contribute to sales from 2011 onwards. The third, at Ampthill, is a prime residential location for some 200 units and, subject to the satisfactory completion of all agreements, we are working towards achieving a disposal of our interest this year.

We own five acres of land at Bishopbriggs in Scotland and, if we can successfully obtain a timely residential planning permission, we should be able to sell this site later in the year. We also own 90 acres of land at Kilmarnock and 45 acres at Tillicoultry which, in both cases, we plan to bring forward to achieve initial land sales during 2010 or 2011.

At Mansfield, Nottinghamshire, we have two pieces of land available for development. First, at Rushpool Farm, we have a consented residential site of 27 acres where we intend to commence land sales during 2009. The second site, Penniment Farm, is earmarked for commercial development and we hope to commence sales in 2010 or 2011. We have jointly owned land at Rugby for many years and over the next three years we aim to achieve the disposal of a commercial site which is part of a large completed residential development and also, subject to planning, release a further land holding for residential development. Planning permission has been obtained on part of a large site we have under option at Worcester and we aim to sell this section at some stage during 2009. The balance of the site is currently progressing through the planning process and, in due course, we hope to receive a major housing allocation of up to 1,500 units. Another attractive site, at Chudleigh in Devon, has a residential permission for some 100 units and we aim to conclude negotiations with one of the interested parties this year, with a view to making a sale in late 2009 or 2010. In Dewsbury we own a three acre site allocated for residential development which we plan to market and achieve a sale during 2009 or 2010.

Last year we obtained our first wind farm planning permission at High Haswell in County Durham and we hope to sell this interest during 2009. We are pursuing other wind farm interests and have secured an opportunity near Selby, which we hope to be able to take through the planning process sufficiently quickly to allow a sale in 2011.

We have already won planning permission for a care home and retirement community on land at St. Albans, which we promoted under an agency agreement. A further application has recently been submitted for residential development on the balance of the land under this agreement.

We own a large 160 acre site in Bridgewater. An outline planning application for 2,000 dwellings, 450,000 sq ft of B1 and B2 industrial development, creating a significant number of new jobs, and a 750,000 sq ft distribution unit was submitted to Sedgemoor District Council at the end of 2008. If a positive planning decision can be secured, we aim to commence work on the development in late 2010. This major application covers a number of other ownerships in addition to ours.

At Kettering a further major application has been submitted for 5,500 dwellings. Whilst not leading this application, we do have a substantial joint interest in 76 acres which would be developed if the application succeeds. An early 'Resolution to Grant' is expected at some stage in 2009 and this will initiate Section Agreement negotiations leading to a full permission before the site is marketable.

We are one of the lead investors in the newly planned Cranbrook settlement outside Exeter. This is the major urban expansion location for Exeter and will include residential, retail and industrial land uses. Our investment in this project is substantial and we expect it to grow steadily over the next three years, offset by land sales which are expected to commence late in 2010 or 2011.

Crowmarsh Gifford, located in South Oxfordshire, has a housing land supply deficit and we are promoting land we have optioned there to satisfy this shortfall. Matters are progressing steadily and we are working towards a positive outcome during 2010 or 2011.

The immediate future is challenging and we believe land values will remain depressed for sometime but we remain confident, even in this very difficult housing market, that we will continue to prosper. Furthermore, we believe that we retain a portfolio of opportunities which should provide healthy returns when the market recovers to normal levels.

CONSTRUCTION

Henry Boot Construction (UK) Limited performed well throughout the year, achieving both its targeted growth and profit. We have a healthy forward order book in an increasingly competitive market place and we are well placed to consolidate our position in our chosen industry sectors. We continue to follow our policy of carefully selecting both the type of contract and the clients worked for, in order to reduce our exposure to risk as far as possible. The continuing strategy of targeting work within the public sector has served us well. Activity this year primarily focussed on Decent Homes, education and local authority frameworks and the Prison Alliance, in addition to private sector commercial development and avoided completely the residential new build sector. This meant we were not exposed to the difficulties in that part of the industry.

We continue to work alongside partner contractors on major Decent Homes schemes in the North of England, for Sheffield City Council on the largest project of its type in the country being managed by Sheffield Homes, for Rotherham Metropolitan Borough Council on a 22,500 homes programme being administered by 2010 Rotherham and 22,000 homes for St Leger Homes on behalf of Doncaster Metropolitan Borough Council. 2008 saw us upgrade over 3,000 units during the second year of these frameworks and we expect a similar number to be completed in 2009.

During the year we also completed works on three multi-storey tower blocks and returned 336 refurbished flats to Hull City Council. We also completed repairs to 137 properties at Toll Bar, which was the scene of devastating flooding in 2007, for Doncaster MBC.

As the result of our Preferred Alliance Contractor Agreement with the National Offenders Management Service, we have carried out a large number of upgrade and refurbishment contracts within secure establishments, including a major £11.0m improvement programme at HM Prison Leeds. There are a number of projects currently being negotiated under this agreement which should provide us with healthy growth within this sector in coming years.

Our work in the education sector continued to grow during the year with facilities either in progress or completed under partnering framework agreements with Cheshire County Council, Derby City Council and Rotherham MBC. With the Government's commitment to maintain expenditure in this sector, we expect these frameworks will provide us with more work in the coming years. We also completed a very successful fast-track refurbishment contract for Sheffield Hallam University to provide consolidated facilities. A large number of school extension and modernisation projects were also undertaken for Rotherham MBC through our involvement in the Rotherham Construction Partnership. This arrangement also provided us with the opportunity to construct a 60-bed residential care home which was completed during the year.

Our strength and experience within the retail and commercial sectors continues to grow with the construction of a B&Q store at Northfields Retail Park, Rotherham, which is due for completion in June 2009, along with new offices and an aircraft refurbishment centre at Robin Hood Airport, Doncaster, again due to complete in the first half of 2009.

Our general works section achieved further growth in its mainstream activity of civil engineering contracts in the industrial and water sectors. This growth was augmented by increasing activity in smaller value general building work contracts. As ever, a key feature of the division's success was its ability to secure repeat work under Partnering Agreements with a number of long-term clients.

Environmental management and our impact on the environment, as a result of construction activities, is a key management focus. During 2008 we achieved our Key Performance Indicator targets of zero pollution incidents, zero breaches of legislation, no enforcement notices and we met all other best practice measures.

The application and monitoring of health and safety legislation is a prime objective in our drive towards safer working practices for all employees. Our specialist in-house team was busy throughout the year making 259 construction site safety check visits, and delivering on and off site training to our operatives and staff. It is pleasing to report that over 85% of Henry Boot Construction employees are now registered Construction Skills Certification Scheme card holders as appropriate to their trade or profession. Accreditation with Contractors Health and Safety Assessment (CHAS) has been maintained throughout the year.

ROAD LINK (A69) HOLDINGS LIMITED

Road Link has had yet another successful year, with the majority of its financial and performance targets either met or beaten. This was achieved despite a fall in vehicle numbers using the A69 as a consequence of higher fuel prices. Whilst these have reduced recently, we believe traffic numbers have not returned to previous levels due to weaker economic activity. The Company recently undertook a review of its financial plans for the remainder of the concession period, which ends in 2026 and we expect a continued solid financial performance during the period. It is particularly pleasing that the proactive maintenance of this road is yielding efficiency savings by maintaining higher road usage and income at a lower cost.

PLANT HIRE

Banner Plant Limited's performance has mirrored the current volatility in the market place in which it operates. Trade during the first half was marginally ahead of expectations, while in the second half the widely reported fall in national activity affected both the turnover and profitability of the business. That said, the business remained profitable for the year, has a broad spread of equipment and is able to rein back capital expenditure to create strong cash generation going forward. We recognised the reduction in workload early, and in the third quarter implemented a cost cutting exercise. Employee numbers have been realigned along with the size of our hire fleet. Fleet additions have reduced considerably with purchases being limited to those fulfilling specific customer needs. We have also accelerated the disposal of older redundant fleet items.

Within this difficult market there have been some bright spots. The powered access section has traded briskly all year, producing a strong profit. Customer loyalty has been encouraging, enabling our fleet utilisation levels to be consistently at the top end of the industry and our own expectations. In addition, accommodation, comprising unit and serviced utilities hire and temporary accommodation unit sales, was out performed only by the powered access section. Our plant and power tool depots have traded in line with national conditions. Buoyant first half activity levels were followed by a gradual slowdown in the second as, in particular, the workload levels for groundworkers and subcontractors in the house building and commercial development sector began to slow rapidly.

We have retained a comprehensive sales team throughout the year. Their brief is to maintain strong links with existing customers and search out work less likely to be affected by the downturn. Administration costs have been trimmed, however, we recognise the importance of key functions such as credit control. Debtor days have been kept at the same level all year by the vigorous approach of the team, although the volume of customers defaulting has increased slightly.

Banner Plant is well positioned to deal with the challenges ahead, although we do forecast that 2009 and 2010 will be difficult years. We entered 2009 with a modern, well maintained fleet delivered by an experienced workforce and we expect to generate a strong positive cash flow and reduce debt levels in 2009.

FINANCIAL REVIEW

Profit and Loss 

Net revenue for the year increased substantially to £193.7m (2007: £124.8m) as a result of higher construction revenues and land sales. This gave rise to a record trading profit of £44.0m (2007: £28.8m), however, profit before tax decreased to £19.3m (2007: £46.5m) after the property revaluation deficit of £19.6m (2007: surplus £18.1m). Realised profits on the sale of investment properties and properties under construction were £0.5m (2007: £3.5m). In light of the valuation fall seen in the investment portfolio, we made provision of £2.8m (2007: £nil) against two assets in the course of construction where we believe that market value on completion will be below cost. Administrative and pension expenses were 8% higher at £14.7m (2007: £13.6m) as pension scheme costs increased by £0.8m and share-based payments increased by £0.7m. We anticipate the general overheads in the business to reduce in 2009 as we actively control our cost base wherever we consider it appropriate to do so.

Review of the segmental profit analysis shows that land development profits increased by 56% to £35.5m (2007: £22.7m) whilst property development and investment activities produced a loss of £17.3m (2007: profit £24.6m). Construction division profit was 12% higher at £9.4m (2007: £8.4m) and central costs higher at £5.5m (2007: £4.5m) after higher pension costs and share-based payments noted above.

Basic earnings per share were 56% lower at 10.8p (2007: 24.5p). Total dividend payable for the year remains unchanged at 5.0p (2007: 5.0p), with dividend cover reducing to 2.2 times (2007: 4.9 times).

Financing and Gearing

As anticipated, net finance costs fell to £2.8m (2007: £3.8m) as we reduced our average debt levels but suffered from higher interest rates until the dramatic falls experienced towards the end of the year. Interest cover, expressed as the ratio of profit from operations (excluding the valuation movement on investment properties and disposal profits) to interest, was 15 times (2007: 8 times). Interest expenses are likely to reduce further in 2009 as lower base rates, albeit offset by higher bank margins, work to reduce overall costs. No interest incurred during the year under review or the previous year has been capitalised into the cost of developments in progress.

The land sales achieved in the year, partially offset by the continued investment in our investment property portfolio, helped us reduce year end borrowings to £49.3m (2007: £70.9m). Gearing on net assets of £190.1m was also reduced by a third to 26% (2007: net assets £182.2m, gearing 39%). All borrowings continue to be from facilities linked to floating rates or shortߛterm fixed commitments. We have recently received approval for three year committed facilities totalling £94m with our three banking partners. In the current uncertain market we feel this longer-term facility, unchanged in size, is more appropriate than the annually renewed bilateral facilities with which we have been operating.

Taxation

The tax charge for the year is £3.7m (2007: £13.7m) after the significant reduction in net profit and represents a charge of 19.0% (2006: 29.4%). The lower percentage charge primarily arises from claims for capital allowances on the significant increase in our investment portfolio over the last three years. Taxation payable will be higher than the Income Statement charge as a result of the deferred tax credit on the revaluation deficit. Deferred tax has been calculated at 28%, being the rate expected to be applicable at the date the actual tax will arise.

Cash flow

The strong trading performance fed through to cashflow with cash generated from operations at £73.9m (2007: £20.6m). Operating cash inflows increased to £49.5m (2007: £33.7m) after the add back of impairment and revaluation losses, which totalled £22.7m, highlighting the cash generative nature of our operating activities. The 2007 increase in inventories of £23.9m was almost completely reversed in 2008 as land acquired in 2007 was sold. The strategy of retaining developments is reflected in the investment in property, plant and equipment at £40.8m (2007: £59.3m). This investment was offset by higher property disposals of £13.2m (2007: £7.5m) reflecting a net investment of £27.6m (2007: £51.8m). It is anticipated that the level of property related capital expenditure will fall further in 2009 as development work in progress is largely completed by the end of the third quarter. Total dividends paid were £8.0m (2007: £7.2m). The net increase in cash was £21.7m (2007: outflow £55.0m) leaving closing net debt at £49.3m (2007: £70.9m).

Balance sheet 

The policy of progressive investment in the development portfolio noted in this Business Review has been mostly offset by the revaluation deficit on investment property of £19.6m and the fair value adjustment taken against properties under construction of £2.8m. The £44.8m increase in investment property to £126.3m is largely offset by the £43.7m reduction in property, plant and equipment to £111.2m as a number of properties under construction were completed and moved to investment property. These included developments at Bromley, Nottingham, South Shields, Bromborough, York and Stoke-on-Trent. The total investment in non-current assets stood at £253.0m (2007: £248.5m). Net current liabilities increased £3.3m to £22.9m (2007: £19.6m) largely due to reductions in land in stock and short-term borrowings and a lower tax creditor. This increase is offset by a reduction in non-current liabilities to £40.1m (2007: £46.7m) as longer-term borrowings fell and certain trade payables were moved from current liabilities. Net assets increased £7.9m to £190.1m (2007: £182.2m) and net asset value per share increased 5% to 146p (2007: 139p).

Pension scheme

The annual IAS 19 valuation of the defined benefit pension scheme showed the scheme deficit increasing slightly to £22.6m (2007: £22.5m) at the year end. The deferred tax asset associated with this was £6.3m (2007: £6.3m). Adding back this net deficit of £16.3m (2007: £16.2m) to net assets, the 2008 deficit equates to 7.9% of equity shareholders' funds (2007: 8.2%). The deficit benefited from an increase in long-term corporate bond yields, offset by a fall in value of the scheme's assets resulting from turmoil in the financial markets. The Scheme Actuary will be performing the next triennial valuation at 1 January 2010. The previous valuation performed on 1 January 2007 showed a deficit of £8.8m. Current trends in the mortality assumptions used and the differential in yields between gilts and corporate bonds indicate that this deficit will have grown and may be higher than the IAS 19 valuation at 31 December 2009. On receipt of the 2007 triennial valuation the Company agreed a recovery plan with the trustees of the scheme, which includes the provision of an 'on demand' letter of credit for £7.0m and additional annual contributions of £0.7m. In our scheme each 0.1% change in the assumed long-term investment return changes the scheme deficit by about £3.0m. The defined benefit scheme is closed to new entrants and new employees are offered a defined contribution scheme.

Group Income Statement	2008	2007
for the year ended 31 December 2008	Unaudited	Audited
	£'000	£'000
Revenue	193,679	124,782
Cost of sales	(134,992)	(82,419)
Gross profit	58,687	42,363
Other income	31	49
Administrative expenses	(12,518)	(12,133)
Pension expenses	(2,211)	(1,460)
	43,989	28,819
(Decrease) increase in fair value of investment properties	(19,592)	18,063
Impairment of properties under construction	(2,812)	-
Profit on sale of properties under construction	-	3,379
Profit on sale of investment properties	530	120
Profit from operations	22,115	50,381
Investment income	585	361
Finance costs	(3,427)	(4,195)
Profit before tax	19,273	46,547
Tax	(3,671)	(13,677)
Profit for the year from continuing operations	15,602	32,870
Attributable to:
Equity holders of the Parent Company	13,861	31,428
Minority interest	1,741	1,442
	15,602	32,870
Basic earnings per ordinary share	10.8p	24.5p
Diluted earnings per ordinary share	10.6p	24.1p
Dividend	5.0p	5.0p

GROUP BALANCE SHEET	2008	2007
at 31 December 2008	Unaudited	Audited
	£'000	£'000
ASSETS
Non-current assets
Goodwill	3,188	3,392
Property, plant and equipment	111,215	154,937
Investment property	126,279	81,458
Investments	-	-
Trade and other receivables	5,344	-
Deferred tax assets	7,006	8,709
	253,032	248,496
Current assets
Inventories	59,011	83,403
Trade and other receivables	27,229	28,809
Cash and cash equivalents	2,579	2,326
	88,819	114,538
LIABILITIES
Current liabilities
Trade and other payables	51,885	55,259
Current tax liability	3,285	11,886
Borrowings	45,463	55,702
Provisions	11,057	11,291
	111,690	134,138
Net current (liabilities)	(22,871)	(19,600)
Non-current liabilities
Trade and other payables	7,233	-
Borrowings	6,394	17,556
Employee benefits	22,636	22,454
Deferred tax liabilities	3,778	6,523
Provisions	20	144
	40,061	46,677
Net assets	190,100	182,219
Equity
Share capital	13,424	13,424
Revaluation reserve	4,438	4,809
Retained earnings	168,868	160,759
Other reserves	2,577	2,623
Cost of shares held by ESOP trust	(764)	(1,033)
Equity attributable to equity holders of the Parent Company	188,543	180,582
Minority interests	1,557	1,637
Total equity	190,100	182,219

GROUP STATEMENT OF CHANGES IN EQUITY	2008	2007
at 31 December 2008	Unaudited	Audited
	£'000	£'000
Profit for the year	13,861	31,428
Equity dividends	(6,448)	(5,881)
Dividends from subsidiaries	-	-
Revaluation of Group occupied property	(490)	2,778
Deferred tax on property revaluations	107	(695)
Tax on realised surplus	-	(33)
Actuarial (loss) gain on defined benefit pension scheme	(182)	3,359
Deferred tax on actuarial loss (gain)	51	(1,457)
Movement in fair value of cash flow hedges	(69)	62
Share-based payments	269	(293)
Arising on employee share schemes	862	688
Movement in equity	7,961	29,956
Equity at 31 December 2007	180,582	150,626
Equity at 31 December 2008	188,543	180,582

GROUP CASH FLOW STATEMENT		2008	2007
for the year ended 31 December 2008		Unaudited	Audited
		£'000	£'000
Cash flows from operating activities
Profit from operations		22,115	50,381
Adjustments for non-cash items:
Depreciation of property, plant and equipment		5,067	4,858
Property impairment		2,862	157
Goodwill impairment		204	203
Share-based payment expense		862	-
Revaluation decrease (increase) in investment properties		19,592	(18,063)
Movements in fair value of cash flow hedge		(307)	-
Gain on disposal of property, plant and equipment		(354)	(3,701)
Gain on disposal of investment properties		(500)	(120)
Operating cash flows before movements in working capital		49,541	33,715
Decrease (increase) in inventories		23,750	(23,890)
(Increase) in receivables		(3,495)	(11,510)
Increase in payables		4,119	22,308
Cash generated from operations		73,915	20,623
Interest received		585	361
Interest paid		(4,110)	(3,434)
Tax		(13,156)	(13,545)
Net cash from operating activities		57,234	4,005
Cash flows from investing activities
Purchase of property, plant and equipment		(38,687)	(58,275)
Purchase of investment property		(2,101)	(983)
Proceeds on disposal of property, plant and equipment		7,445	6,719
Proceeds on disposal of investment properties		5,729	739
Dividends received from subsidiaries		-	-
		(27,614)	(51,800)
Cash flows from financing activities
Dividends paid	- ordinary shares	(6,431)	(5,860)
	- minorities	(1,514)	(1,358)
	- preference	(21)	(21)
		(7,966)	(7,239)
Net increase (decrease) in cash and cash equivalents		21,654	(55,034)
Opening net debt		(70,932)	(15,898)
Closing net debt		(49,278)	(70,932)

NOTES

1.	Business and Geographical Segments

		2008 Unaudited				2007 Audited
			Inter-				Inter-
	External		segment		External		segment
	sales		sales	Total	sales		sales	Total
Revenue	£'000		£'000	£'000	£'000		£'000	£'000
Property investment and development	21,338		346	21,684	11,741		267	12,008
Land development	74,692		140	74,832	36,049		-	36,049
Construction	97,649		2,459	100,108	76,988		4,546	81,534
Group overheads and other	-		628	628	4		573	577
	193,679		3,573	197,252	124,782		5,386	130,168
Eliminations	-		(3,573)	(3,573)	-		(5,386)	(5,386)
	193,679		-	193,679	124,782		-	124,782

	2008	2007
	Unaudited	Audited
	Total	Total
Result	£'000	£'000
Property investment and development	(17,345)	24,573
Land development	35,478	22,700
Construction	9,388	8,430
Group overheads and other	(5,460)	(4,534)
Segment result	22,061	51,169
Eliminations	54	(788)
Operating profit	22,115	50,381
Investment income	585	361
Finance costs	(3,427)	(4,195)
Profit before tax	19,273	46,547
Tax	(3,671)	(13,677)
Profit for the year	15,602	32,870

2.

Dividends

	2008	2007
	Unaudited	Audited
	£'000	£'000
Amounts recognised as distributions to equity holders in year:
Preference dividend on cumulative preference shares	21	21
Final dividend for the year ended 31 December 2007 of 3.75p per share (2006: 3.32p)	4,823	4,257
Interim dividend for the year ended 31 December 2008 of 1.25p per share (2007: 1.25p)	1,608	1,603
	6,452	5,881

The proposed final dividend for the year ended 31 December 2008 of 3.75p per share (2007: 3.75p) makes a total dividend for the year of 5.0p (2007: 5.0p). The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. The total estimated dividend to be paid is £4,823,000. The final dividend will be paid on 28 May 2009, with a record date of 15 May 2009.

3.	The comparative figures for the year ended 31 December 2007 have been extracted from the Company's statutory accounts which received an unqualified Auditors' report and did not contain a statement under Section 237(2) or (3) of the Companies Act 1985. Statutory accounts for the year ended 31 December 2007 have been delivered, and those for the year ended 31 December 2008 will be delivered, to the Registrar of Companies.
4.	The Preliminary Statement was approved by the Board of Directors on 24 March 2009 and authorised for issue.
5.	The Annual Report 2008 is to be published and sent to shareholders by no later than Monday 20 April 2009. Copies will be available from The Company Secretary, Henry Boot PLC, Banner Cross Hall, Sheffield, S11 9PD and on the Company's website www.henryboot.co.uk.
6.	The financial information has been prepared using accounting policies consistent with those adopted by the Group in its financial statements for the year ended 31 December 2007.
7.	The Annual General Meeting of the Company is to be held at Baldwins Omega, Brincliffe Hill, Off Psalter Lane, Sheffield, S11 9DF on Thursday 21 May 2009 commencing at 12 noon.

 

END

 

 

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