Half Year Results 2008

RNS Number : 1406C

Boot(Henry) PLC

28 August 2008

 



HENRY BOOT PLC

HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2008

Henry Boot PLC, the land promotion, property development and investment, construction and plant hire business, today announces its half year results for the six months ended 30 June 2008.

HIGHLIGHTS

Turnover of £119.3m (2007: £47.1m)

Trading profits increased to £30.2m (2007: £10.0m)

Revaluation deficit on investment properties of £8.2m (2007: revaluation surplus £13.0m)

Profit before tax of £20.4m (2007: £21.9m)

Basic earnings per share 10.5p (2007: 11.6p)

Maintained interim dividend of 1.25p (2007: 1.25p)

Substantial cash generation in the period resulted in reduced gearing of 21% (31 December 2007: 39%)

Net asset value per share marginally increased to 140p (31 December 2007: 139p)

Commenting on the results, Chairman John Reis said:

I am delighted to report on another good set of results for the half year to 30 June 2008 which have been achieved in what is acknowledged as the most difficult market the property industry has faced for many years. 

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

Tel: [phone]

Citigate Dewe Rogerson

Keith Gabriel

Tel: [phone]

Mobile: [phone]

CHAIRMAN'S INTERIM MANAGEMENT REPORT

RESULTS

I am delighted to report on another good set of results for the half year to 30 June 2008 which have been achieved in what is acknowledged as the most difficult market the property industry has faced for many years. 

Income Statement

Trading profits after interest were significantly higher at £30.2m (2007: £10.0m) on turnover of £119.3m (2007: £47.1m), largely resulting from land sales and a positive contribution from the construction division. Administrative costs, including pensions, were higher at £7.7m (2007: £6.8m) after increased payroll and defined benefit pension contributions, while other administrative costs were broadly in line with 2007. Net interest costs at £2.0m (2007: £1.1m) are still well covered by profits and, after incurring higher interest charges on higher debt in the first quarter, borrowings, and therefore interest costs, are currently expected to be much lower in the second half. The revaluation of investment properties resulted in a deficit of £8.2m (2007: surplus £13.0m) as, in common with many other property investment companies, the values ascribed to investments in late 2007 reversed in the first half of 2008. Profit before taxation was £20.4m (2007: £21.9m), with profit attributable to equity shareholders of £13.6m (2007: £14.9m) and basic earnings per share lower at 10.5p (2007: 11.6p).

Balance Sheet

We continue to invest in the property portfolio and, despite incurring an £8.2m revaluation deficit, have still increased the value of property, plant and equipment and investment property to £250.0m (31 December 2007: £236.4m) after further expenditure on schemes in Nottingham, Bromley, Stoke-on-Trent and the acquisition of land at Cumbernauld. Land inventories fell back after the sale of holdings at Milton Keynes, Market Harborough and Bowburn to £57.1m (31 December 2007: £83.4m). The combination of these transactions reduced net borrowings to £38.0m (31 December 2007: £70.9m) and gearing to 21% (31 December 2007: 39%). At 30 June 2008, the Group had total facilities of £105.6m available, of which £30.4m (31 December 2007: £18.1m) were undrawn committed facilities and £37.2m (31 December 2007: £24.2m) were undrawn uncommitted facilities.

Defined benefit pension liabilities under IAS 19 increased to £34.6m (31 December 2007: £22.5m), which offset most of the increase in net assets achieved through our trading performance. The benefit on the scheme liabilities resulting from higher long-term interest rates was offset by a higher inflation assumption and negative investment returns from the pension scheme's equity and bond assets. The calculation also reflects the more aggressive mortality assumptions applied in the last triennial valuation. 

Net assets now stand at £182.6m (31 December 2007: £182.2m) and net asset value per share increased to 140p (31 December 2007: 139p).

Cash Flows

Operating cash inflows were £32.7m (2007: £12.3m), helped by the high level of land sales achieved in the period. The reduction in inventories of £25.8m reflected the sales of land carried in stock and one development property. The £10.1m decrease in receivables arose because we did not carry any transactions in debtors over the period end. These movements resulted in a significant increase in cash generated from operating activities to £72.1m (2007: £0.5m) and, after interest and taxation payments, net operating cash inflows were £61.8m (2007:outflows £9.5m). The net investment in property development and investment and plant and equipment, offset by disposal proceeds, equated to £23.5m (2007: £33.4m) as expenditure on developments eased with the completion of a number of projects. After dividend payments of £5.4m (2007: £4.8m), total net cash inflows in the period were £32.9m compared with net outflows of £47.8m in the same period and £55.0m for the full year last year.  

Dividend

Whilst the results achieved in the first half show the resilience provided by the spread of different profit streams in the Group, the economic background to these is undoubtedly the most difficult facing us in recent years. We expect land and commercial property values to remain under pressure whilst interest rates remain high and the availability of credit is curtailed due to the credit crunch. The Directors have therefore decided to declare an unchanged interim dividend of 1.25p per share (2007: 1.25p). The interim dividend will be paid on 23 October 2008 to shareholders on the register at the close of business on 3 October 2008.

REVIEW OF ACTIVITIES

Land

Hallam Land, our land promotion business, continues to promote the extensive portfolio of opportunities it has available to it. At 30 June 2008 it held interests in 7,140 acres of land, up from 6,725 at 31 December 2007, with 1,716 acres owned, 3,539 acres optioned and 1,885 acres under agency agreements in over 160 sites throughout the UK. The total inventory value of this land is £51.6m (31 December 2007: £73.0m) and our impairment review at the half year resulted in write downs of £0.8m against four sites where the chance of planning success is considered to be slim.

Whilst there is no doubt that the land market has become much more difficult than at any time for some years, Hallam Land aims to add value over the long term by securing the best land opportunities and promoting those sites through the planning system to gain the most valuable consents possible. It is only at this point that sites are sold, with this process taking up to 15 years.

During the period under review, we received encouraging news in the Regional Spatial Strategy report for the South West, which recommended 7,500 additional dwellings at Exeter and some 12,000 at East Swindon, where we have major interests, and made positive comments in respect of our sites at Bridgewater and Tuffley. In Scotland our 90 acre site at Kilmarnock has been allocated in the local plan for some 650 houses, a district centre and some 20 acres of industrial land. Planning applications were submitted for sites in Ashford (804 units) and Harrogate (200 units) and a revised application was made at Rushpool Farm, Mansfield. Planning approval was received for 214 units at a site in Worcester, a retirement community at St Albans and for our first wind farm site in County Durham.

Land acquisitions agreed in the period included the purchase of 11 acres at Bilston, 38 acres at Moulton and 60 acres at Marston Mortaine. In addition to this, we concluded agency agreements on sites at Aylesbury, Fareham and Warminster adding to the future pipeline of opportunities.

Though the major housebuilders have highlighted the difficulties in the new build arena, the four sites we brought to the market in the first half have all sold at prices in line with expectations. The largest, Milton Keynes, where we had approximately a third share of a major 2,500 unit scheme, concluded in March, and smaller disposals were made at Bowburn, County Durham, Market Harborough where we sold our interest in a 10 acre industrial site and Mansfield, where we concluded a site sale to KFC.

Whilst we still believe that the long term underlying demand for housing continues to exist, we recognise that new house sales will only begin to improve when the credit squeeze eases, less expensive mortgages become available and the level of deposit required falls. Our past experience of downturns such as this is that on recovery housebuilders initially focus on the best sites. In our view, these will be sites for family homes in the most prosperous areas of each region and this is where we feel we are well represented. 

Developments and investments

After many years of increasing property values, the last year has seen them decline quite sharply. In common with many property investment companies we have seen the value of our investment property reduce in the last six months. In part, this reflects the lower valuation being applied to vacant space at both Ayr and Bromley, as we work to let the final units in these two developments, with the valuation at Ayr declining by £6.2m since December 2007.

We concluded two property sales in the period, a parade of shops at Pheasey, Birmingham, for £1.8m and three industrial units at Europa Boulevard, Warrington, for £4.2m. In addition, we made further land sales at Priory Park, Hull, and expect these to continue through this year and beyond.

We commenced building work at Clifton Moor, York, after agreeing terms with PC World for a 25,000 sq ft retail unit. The unit is expected to be built by the end of the year and we have a further 18,000 sq ft retail unit still to be redeveloped on this site. We completed the 37,000 sq ft Tebay Retail Park on the Wirral which is fully let to Homebase and Magnet. The redevelopments at Bromley and The Axis, Nottingham, are now almost finished, as is the factory and warehouse development for Recticel in Stoke-on-Trent. Furthermore, we concluded the Stop 24 Service Area sited on the M20 close to the Channel Tunnel link.

We acquired two sites during the period. The first is a one acre site at Longwell Green in Bristol, where we expect to develop 25,000 sq ft of small office units of between 1,500 and 3,000 sq ft. The second site is a 7.5 acre site within the Westfield Industrial area of Cumbernauld for future office and industrial accommodation.

We continue to investigate opportunities throughout the UK. However, the weakening investment picture makes it more difficult for any new scheme to meet our stringent investment criteria. Indeed, the development risk premium has reduced and pre-lets are more difficult to secure at competitive values. That said, we have recently secured a pre-let with the Co-op for the 186,000 sq ft warehouse that we have consent for at Meir Park, Stoke-on-Trent, and we recently launched Markham Vale, our 200 acre industrial park at Junction 29a of the M1, to the market. We still firmly believe that it is through selectively developing sites with a high proportion of pre-lets in good locations that will allow us to continue to generate decent returns in this difficult market.

Construction

Our construction division achieved another very solid result. Henry Boot Construction carried a record order book into the year and has maintained the momentum through the first half. We have secured further Decent Homes allocations from Sheffield and Hull and we continue to work with Doncaster and Rotherham on major schemes to improve their social housing. It is anticipated this work will continue through to 2011 and beyond in some cases. 

In addition, our work for the Prison Service Framework is now growing and is expected to continue to do so for the next 3 to 5 years, and so is the work for the Rotherham and the Lancashire and Cheshire Local Authority Frameworks where we anticipate higher levels of activity feeding through later this year and into 2009. Finally, we are still seeing good opportunities within general contracting, though margins and levels of activity are probably tighter than was the case a year ago. 

Road Link A69 has continued to perform in line with expectations. Fuel costs and a slowing economy have marginally reduced the flow of traffic, but this has been offset by higher toll tariffs which reflect our higher bitumen costs. We remain confident that our efficient maintenance programme will continue to improve its profitability through the remaining years of the concession.

Banner Plant, our plant hire subsidiary, had a solid first half with activity and financial performance in line with expectations. We saw strong performances from accommodation, big air compressors and access equipment, although general plant, especially that aimed at residential development and groundworks, has been affected by the weak housing market. 

OUTLOOK

Land 

It is expected that housebuilders will complete and sell half the number of houses in 2008 than they did in 2007. On this basis, their land banks will have doubled, when compared to current build rates, and their land requirements, in the short term, will be much lower. However we strongly believe that well located, good quality land will continue to be in highest demand and this is exactly what Hallam Land has. Indeed, we have concluded two sales since the half year end at pricing in line with expectations. Therefore our focus, in the short term, is to secure as many planning consents as possible to be in a position to meet housebuilders' requirements when the market recovers and to promote land on our wind farm, retail and industrial sites.  

Developments and investments  

We believe that the best relative and absolute property returns will be achieved through judicious development and retention of assets which have the best prospects for rental and therefore capital growth. We have a number of such opportunities within our development portfolio which we will bring forward over the next two years. However, we recognise that the outward yield movement will make some of the current opportunities uneconomic and tactically we will remain very cautious about committing to progress any development unless it is substantially pre-let and offers a return on cost which provides an adequate return should yields rise and, therefore, capital values fall.

Construction

Current trading remains robust, underpinned by public sector spending on social housing, prisons and local authority frameworks. We are seeing some slowdown in the number of general private sector contracts although we are securing a satisfactory level of work. Our PFI project Road Link A69 continues to perform well and we are confident of improving the return this asset provides into the longer term. Our plant hire business is currently trading in line with expectations, however, it is likely to see weaker demand for general plant until the new build housing market improves. 

Group risks and uncertainties

The Directors set out the key risks that could have a material impact on the Group in the Annual Report and Financial Statements 2007. Since then, the impact of the banking sector credit crunch, higher raw material and energy costs and higher unemployment have led to a decline in consumer confidence, recessionary pressures and talk of stagflation. These factors have impacted on the property and construction industries in general and housebuilders in particular. In the short term we will maximise our returns from the work we have in hand whilst carefully managing both cash and the net asset position. In the longer term, Henry Boot has a good mix of property related businesses, which are well funded and possess a portfolio of opportunities that are capable of generating excellent profits as our markets improve.

John S Reis

Chairman

28 August 2008

CONDENSED GROUP INCOME STATEMENT (UNAUDITED)

For the half year ended 30 June 2008

	Half year	Half year	Year
	ended	ended	ended
	30 June	30 June	31 December
	2008	2007	2007
	Unaudited	Unaudited	Audited
	£'000	£'000	£'000
Revenue	119,273	47,149	124,782
Cost of sales	(81,391)	(30,418)	(82,419)
Gross profit	37,882	16,731	42,363
Other income	-	5	49
Administrative expenses	(6,951)	(6,215)	(12,133)
Pension expenses	(764)	(557)	(1,460)
	30,167	9,964	28,819
(Decrease) increase in fair value of investment properties	(8,189)	13,014	18,063
Profit on sale of properties under construction	-	-	3,379
Profit on sale of investment properties	481	4	120
Profit from operations	22,459	22,982	50,381
Investment income	230	212	361
Finance costs	(2,252)	(1,337)	(4,195)
Profit before tax	20,437	21,857	46,547
Taxation	(6,009)	(6,235)	(13,677)
Profit for the period from continuing operations	14,428	15,622	32,870
Attributable to:
Equity holders of the parent	13,566	14,890	31,428
Minority interests	862	732	1,442
	14,428	15,622	32,870
Basic earnings per ordinary share	10.5p	11.6p	24.5p
Diluted earnings per ordinary share	10.4p	11.4p	24.1p
Dividend	1.25p	1.25p	5.00p

CONDENSED GROUP BALANCE SHEET (UNAUDITED)

At 30 June 2008

	30 June	30 June	31 December
	2008	2007	2007
	Unaudited	Unaudited	Audited
	£'000	£'000	£'000
ASSETS
Non-current assets
Goodwill	3,290	3,493	3,392
Property, plant and equipment	177,765	127,455	154,937
Investment property	72,196	80,137	81,458
Deferred tax assets	12,118	7,394	8,709
	265,369	218,479	248,496
Current assets
Inventories	57,111	87,284	83,403
Trade and other receivables	18,732	29,918	28,809
Cash and cash equivalents	2,957	3,409	2,326
	78,800	120,611	114,538
LIABILITIES
Current liabilities
Trade and other payables	57,599	58,082	55,259
Current tax liability	12,784	5,432	11,886
Borrowings	34,028	38,972	55,702
Provisions	11,221	12,547	11,291
	115,632	115,033	134,138
Net current (liabilities) assets	(36,832)	5,578	(19,600)
Non-current liabilities
Borrowings	6,975	28,138	17,556
Employee benefits	34,606	19,116	22,454
Deferred tax liabilities	4,230	8,862	6,523
Provisions	144	144	144
	45,955	56,260	46,677
Net assets	182,582	167,797	182,219
SHAREHOLDERS' EQUITY
Share capital	13,424	13,424	13,424
Revaluation reserve	4,657	2,787	4,809
Retained earnings	160,475	147,618	160,759
Other reserves	2,902	2,943	2,623
Cost of shares held by ESOP trust	(764)	(678)	(1,033)
Equity attributable to equity holders of the Parent Company	180,694	166,094	180,582
Minority interests	1,888	1,703	1,637
Total Equity	182,582	167,797	182,219

CONDENSED BUSINESS SEGMENTS (UNAUDITED)

For the half year ended 30 June 2008

	Half year ended 30 June 2008 Unaudited				Half year ended 30 June 2007 Unaudited				Year ended 31 December 2007 Audited
		Inter-				Inter-				Inter-
	External	segment		External		segment		External		segment
	sales	sales	Total	sales		sales	Total	sales		sales	Total
Revenue	£'000	£'000	£'000	£'000		£'000	£'000	£'000		£'000	£'000
Property and land development	69,000	115	69,115	17,929		121	18,050	47,790		242	48,032
Construction	50,273	840	51,113	29,216		2,987	32,203	76,988		4,546	81,534
Other	-	327	327	4		325	329	4		573	577
	119,273	1,282	120,555	47,149		3,433	50,582	124,782		5,361	130,143
Eliminations	-	(1,282)	(1,282)	-		(3,433)	(3,433)	-		(5,361)	(5,361)
Group turnover	119,273	-	119,273	47,149		-	47,149	124,782		-	124,782
Result			£'000				£'000				£'000
Property and land development			20,241				22,548				47,275
Construction			5,300				2,653				7,641
Other			(3,082)				(2,219)				(4,535)
Segment result			22,459				22,982				50,381
Investment income			230				212				361
Finance costs			(2,252)				(1,337)				(4,195)
Profit before tax			20,437				21,857				46,547
Taxation			(6,009)				(6,235)				(13,677)
Profit for the period			14,428				15,622				32,870

NOTES

1.	For management purposes, the Group is currently organised into three business segments: Property and land development, Construction and Other.
2.	As operations are carried out entirely within the UK, there is no secondary segmental information.
3.	Inter-segmental pricing is done on an arm's length open market basis and represents the only inter-company related transactions within the Group.

CONDENSED GROUP CASH FLOW STATEMENT (UNAUDITED)

For the half year ended 30 June 2008

				Half year	Half year	Year
				ended	ended	ended
				30 June	30 June	31 December
				2008	2007	2007
				Unaudited	Unaudited	Audited
				£'000	£'000	£'000
Cash flows from operating activities
Profit from operations				22,459	22,982	50,381
Adjustments for non-cash items:
Depreciation of property, plant and equipment				2,530	2,438	4,858
Property impairment				40	-	157
Goodwill impairment				102	102	203
Revaluation decrease (increase) in investment properties				8,189	(13,014)	(18,063)
Gain on disposal of property, plant and equipment				(95)	(160)	(3,701)
Gain on disposal of investment properties				(481)	(4)	(120)
Operating cash flows before movements in working capital				32,744	12,344	33,715
Decrease (increase) in inventories				25,810	(26,255)	(23,890)
Decrease (increase) in receivables				10,077	(12,240)	(11,510)
Increase in payables				3,449	26,665	22,308
Cash generated from operations				72,080	514	20,623
Interest received				230	188	361
Interest paid				(3,161)	(1,245)	(3,434)
Taxation				(7,355)	(8,990)	(13,545)
Net cash from operating activities				61,794	(9,533)	4,005
Cash flows from investing activities
Purchase of property, plant and equipment				(25,722)	(32,110)	(59,258)
Purchase of investment property				-	(3,787)	-
Proceeds on disposal of property, plant and equipment				500	1,972	6,719
Proceeds on disposal of investment properties				1,758	505	739
				(23,464)	(33,420)	(51,800)
Cash flows from financing activities
Dividends paid	- ordinary shares			(4,823)	(4,258)	(5,860)
	- minorities			(611)	(582)	(1,358)
	- preference			(10)	(10)	(21)
				(5,444)	(4,850)	(7,239)
Net increase (decrease) in cash and cash equivalents				32,886	(47,803)	(55,034)
Opening net debt				(70,932)	(15,898)	(15,898)
Closing net debt				(38,046)	(63,701)	(70,932)

CONDENSED Group statement of changes in equity (unaudited)

At 30 June 2008

	30 June	30 June	31 December
	2008	2007	2007
	Unaudited	Unaudited	Audited
	£'000	£'000	£'000
Profit for the period	13,566	14,890	31,428
Equity dividends	(4,833)	(4,268)	(5,881)
Revaluation of Group occupied properties	(197)	-	2,778
Deferred tax on property revaluations	55	-	(695)
Tax on realised surplus	-	-	(33)
Actuarial (losses) gains on defined benefit pension scheme	(12,152)	6,722	3,359
Deferred tax on actuarial loss (gain)	3,403	(1,882)	(1,457)
Movements in fair value of cash flow hedges	270	333	62
Share-based payments	269	62	(293)
Arising on employee share schemes	(269)	-	688
Deferred tax rate adjustment	-	(389)	-
Movement in equity	112	15,468	29,956
Equity at start of period	180,582	150,626	150,626
Equity at end of period	180,694	166,094	180,582

NOTES

1.	The interim financial information has been prepared in accordance with IAS 34 'Interim Financial Reporting' using the same accounting policies and methods of computation as compared with the annual financial statements for the year ended 31 December 2007.
2.	The financial statements for the year ended 31 December 2007, which were prepared under IFRS, have been reported on by the Group's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified and did not contain statements under Section 237(2) or (3) of the Companies Act 1985.
3.	The financial information set out above ('the Condensed Set of Financial Statements') does not comprise statutory accounts within the meaning of Section 240 of the Companies Act 1985 and is unaudited.
4.	Earnings per ordinary share are calculated on the weighted average number of shares in issue.
5.	The interim dividend amounting to £1,607,792 (2007: £1,602,850) will be paid on 23 October 2008 to shareholders whose names are on the register at the close of business on 3 October 2008. The proposed interim dividend has not been approved at the balance sheet date and so has not been included as a liability in these financial statements.
6.	Corporation tax is calculated at 28.5% (2007: 30.0%) of the estimated assessable profit for the year.
7.	The assumptions that have been used in the calculations of the defined benefit pension scheme by our actuaries were as follows:
	30 June 2008 31 December 2007 Rate of inflation 4.00% 3.30% Rate of general increases in salaries 5.00% 4.75% Rate of increase to pensions in payment liable for Limited Price Indexation (LPI) 3.80% 3.20% Revaluation of deferred pensions 4.00% 3.30% Liabilities discount rate 6.50% 5.90% Expected rate of return on scheme assets 6.64% 6.65%
8.	At the Board Meeting on 27 August 2008 the Directors formally approved the issue of these statements which have not been reviewed by the auditors.

RESPONSIBILITY STATEMENTS OF THE DIRECTORS

We confirm that to the best of our knowledge:

a)	the unaudited Condensed Set of Financial Statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';
b)	the Interim Management Report includes a fair review of the information required by Section DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and
c)	the Interim Management Report includes a fair review of the information required by Section DTR 4.2.8R (disclosure of related parties transactions and changes therein).

By order of the Board

E J Boot

Director

J T Sutcliffe

Director

27 August 2008

 

END

 

 

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