Henry Boot Regulatory News (BOOT)

HENRY BOOT PLC

Henry Boot PLC ('Henry Boot' or 'the Group') (LSE: BHY), a company engaged in land promotion, property development & investment, construction and plant hire, announces its preliminary results for the year ended 31 December 2011.

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

"I am pleased to report, given the continued challenging conditions in the UK property and construction markets, Henry Boot once again produced a solid performance."

"We continue to invest significant time and resource to secure planning consents on our greenfield land portfolio, in order to be able to supply the recovering housebuilding market. We retain, and will continue to add to, a strong portfolio of land opportunities which we are working through the challenges of the new planning regime and will bring forward commercial developments on the basis of pre-letting and where the expected financial returns are commensurate with the associated development risk."

"Whilst still challenging, we have worked hard to adapt and improve our land and development sites so that they deliver acceptable returns for the Group in the more competitively priced market in which we now operate."

"I believe we are adapting well to the issues that affect our sector and, though it is likely that the recovery will be patchy and protracted, our strategy will allow us to make further strides as a business."

"We have low levels of gearing and retain significant facility headroom and the support of our long-term banking partners. A new three year bank facility, recently agreed and commencing in May 2012, will allow us to invest in order to unlock the potential, inherent in our businesses, for the benefit of shareholders."

For further information, please contact:

Henry Boot PLC

Jamie Boot, Group Managing Director

John Sutcliffe, Group Finance Director

Tel: 0114 255 5444

www.henryboot.co.uk

Investec Bank plc

Garry Levin

Tel: 020 7597 5000

TooleyStreet Communications

Fiona Tooley

Mobile: 07785 703523

Tel: 0121 362 4009

I am pleased to report, given the continued challenging conditions in the UK property and construction markets, Henry Boot once again produced a solid performance for the year ended 31 December 2011.

As anticipated, the results of Hallam Land, our land management company, improved on 2010, but still have further to go to match those achieved in better market conditions. UK house builders are acquiring land with planning permission and, in our most active year for some time, we successfully concluded a number of transactions. These included a significant sale of optioned land at Buckingham for 700 homes to Barratt Developments PLC and Bovis Homes Group PLC, the sale of the first homes at Clyst Hayes to Bovis Homes Group PLC and other smaller sites at Rugby and Countesthorpe. In 2012, UK house builders continue to report that the new-build housing market remains reasonably flat in terms of unit numbers, at historically very low levels, though margins are recovering, as a higher proportion of more recently acquired land feeds into the sales mix. The planning regime is undergoing substantial change and we are working with the new Localism Bill, National Planning Policy Framework, which is undergoing public consultation. It remains to be seen whether the more permissive policy framework will, as many hope, facilitate a greater number of planning permissions. We have been working to apply for and obtain planning consents (or minded to grant consents) in anticipation of the long-awaited recovery in house building. This, I am pleased to report, has resulted in consents being achieved on ten sites, a further six where applications remain undetermined at Appeal and a further eight awaiting decisions. In addition, we have some 20 new sites coming through where we are in the process of preparing applications for submission within the next two years. We have broadly maintained the site acreage in our portfolio over the period and are actively engaged in acquiring eight new sites to promote over the longer term.

Property investment yields have, on the whole, remained relatively stable although we witnessed a slight weakening in secondary property during the year. Yields on prime properties such as our retail development in Warminster have shown continued resilience. This foodstore-led, retail development, pre-let to Waitrose completes in early 2012 and will achieve our target development return. However, we have reviewed the fair value of our development sites to reflect our current estimated returns. This review has resulted in a valuation deficit of £4.3m compared to a small surplus of £0.6m in 2010. During 2011, we concluded the sales of several investment properties, including our shopping centre at Ayr, a Tesco Express in Bradford and two small industrial units at our site in Rotherham. Although commercial property development remains challenging, with the combination of construction, tenant and valuation risk still at historically high levels, we have selectively started development activity once again. As values and occupier demand stabilised during 2011, we committed resources to prepare a number of sites for development in 2012 where we have now secured substantial pre-let or pre-sale agreements with good quality tenants.

Construction activity remains very subdued with difficult market conditions and we do not expect any change to either activity or competitive tender pricing levels in the short term. We continue to be selective in the opportunities we pursue and focus on work streams where higher margins are still achievable. We are also being proactive in sourcing work and this has led to a reasonable level of enquiries and tender opportunities such that we have secured more than 60% of our budgeted workload for 2012; consistent with prior years. In general, we have seen a reduction in the value of individual contracts as new build schemes have been replaced by a growing proportion of refurbishment projects. We continue to focus on work within our core sectors of housing, education, health, retail and custodial, supplemented by initial workloads in renewable technology installations, a new section within our construction division. Activity levels at our plant hire business in 2011 were about 10% higher than 2010, which was impacted by the bad weather in January and December of that year and it was cash generative once again. Capital expenditure remained at a similar level to that in 2010. Road Link (A69) continued to perform in line with expectations and previous years, contributing solidly to both underlying profit and cash generation in the year. Traffic volumes were relatively stable compared with prior years and revenues were in line with our concession plan.

We continue to operate a national network of offices, creating future land, planning and development opportunities in a cost-effective way and as prudent cash management allows. Road Link (A69) and our property rental income streams provide steady profits and cash flows, which underpin our performance and we are beginning to see a slightly improved return from the more cyclical property development and land management activities. Our strategic focus during this prolonged recessionary period has been to preserve asset values and reduce debt. For much of 2011, we traded in a cash positive position before beginning to reinvest in land and developments towards the end of the period, ending the year with a small net debt position. We expect to be net investors in property in 2012 as we begin to develop investment property and commit further capital to acquiring and moving residential land through the planning process.

FINANCIAL Results

Turnover reduced to £114.6m (2010: £131.9m), primarily due to lower construction division turnover and less land development turnover during the period. Trading profit increased to £20.8m (2010: £18.0m), with an improved contribution from land trading activities this year. Trading profit before tax in 2011 was unaffected by any one-off pension liability management credits (2010: £4.5m). Property revaluation movements and profits on asset sales together amounted to a net loss of £3.9m compared with a gain of £3.0m in 2010. In part, the revaluation deficit reflects write-downs on development sites, including Tamworth, Rotherham, Burnley and Rochdale, of £1.9m reflecting continued weakness in the occupier markets applicable to those sites. Profits on investment property disposals were £0.4m (2010: £2.4m), largely attributable to the sale of Ayr. Basic earnings per share amount to 6.9p (2010: 9.1p), as last year's profits exceeded 2011 and benefited from non taxable pension adjustments resulting in the comparative tax charge being lower. Total net assets decreased by 1% to £186.0m (2010: £188.6m), equating to 142p per share (2010: 145p), due primarily to the impact of an increase in the IAS 19 pension deficit to £22.6m (2010: £16.2m). This resulted from a rise in our pension scheme's liabilities linked to the reductions in gilt yields witnessed during the year. As we planned, and for the fourth year in succession, gearing was reduced as the cash generated from land and property investment sales was applied to reduce debt. Gearing at 31 December 2011 stood at 1% based on net debt of £2.3m (2010: gearing 6%; net debt £11.4m).

Dividends

The Board has set a target of building the dividend back to the pre-recession level of 5.0p per share, as market conditions allow. The business performance in 2011 and our prospects for 2012 give us confidence that we can make further progress towards this aim. Therefore, subject to shareholder approval, the Board recommends a 21% increase in the 2011 final dividend to 2.60p (2010: 2.15p). This gives a total dividend for the year of 4.25p (2010: 3.50p), also an increase of 21%.

employees

On behalf of my fellow Directors, I would like to express my thanks to all our employees who continue to work tremendously hard to achieve creditable results in the challenging markets in which we are operating. I believe that the prevailing market conditions will remain for the foreseeable future and respectable results are only achieved through the ongoing dedication, hard work and skill of all our people. We look forward to continuing to work with them to develop our business in the future.

Strategy

We continue to invest for the long term in land promotion, property investment and development, with our performance underpinned by the recurring profit and cash flows generated by our construction, road management and plant hire activities. Having succeeded in our objective to reduce debt levels over the last four years, we have now created the resources to begin to reinvest once again in land and property development, without the need for expensive sources of funding associated with high levels of leverage. We continue to invest significant time and resource to secure planning consents on our greenfield land portfolio, in order to be able to supply the recovering housebuilding market. We retain, and will continue to add to, a strong portfolio of land opportunities which we are working through the challenges of the new planning regime and will bring forward commercial developments on the basis of pre-letting and where the expected financial returns are commensurate with the associated development risk.

Outlook

Whilst still challenging, we have worked hard to adapt and improve our land and development sites so that they deliver acceptable returns for the Group in the more competitively priced market in which we now operate. It is clear that there are still risks to the slowly emerging recovery in the property market; in our view these include the availability of mortgages and bank debt, further upheaval in the planning regime and ongoing cutbacks in Government spending. However, I believe we are adapting well to the issues that affect our sector and, though it is likely that the recovery will be patchy and protracted, the strategy outlined above will allow us to make further strides as a business. We have low levels of gearing and retain significant facility headroom and the support of our long-term banking partners. A new three year bank facility, recently agreed and commencing in May 2012, will allow us to invest in order to unlock the potential, inherent in our businesses, for the benefit of shareholders.

John Brown

28 March 2012

BUSINESS REVIEW

Our aim remains the creation of value in land and property through development, planning promotion and construction. Our marketplace throughout the year remained challenging but relatively stable compared to the previous period. It continues to suffer from a lack of liquidity, at an individual level in the mortgage market, at the commercial development level where high equity commitment and pre-let percentages are necessary to gain funding, through to institutional grade investments where lower loan to value covenants reduce the capacity to raise debt against the value of property. Coupled with this, most traditional funders to the UK property market are seeking to reduce their exposure to property and, in many cases, have unwanted assets which they are intending to put onto the market.

We remain cautious about commercial development and continue to push for a high level of certainty on pre-lets to tenants with decent covenants, before committing ourselves to development risk. However, we have worked hard to achieve selected projects with profitable opportunities which we are prepared to undertake. These include the 26,000 sq ft Waitrose in Warminster and we anticipate starting several other projects in 2012. During the year, we took advantage of a relatively stronger investment market to dispose of our shopping centre development in Ayr and other smaller properties in order to recycle capital back into new potential future developments.

Our land planning and promotion business, Hallam Land, is a very long-term operation with planning consents taking between 5 and 20 years to achieve. 2011 proved to be our most successful year for some time with the sale of four sites in particular, at Buckingham, Clyst Hayes, Rugby and Countesthorpe, contributing to the result. UK house builders continued to build houses at roughly half the average rate of the previous 20 years as the demand for new housing settled at a revised lower level. The outlook appears to be a little better with almost all major house builders who have reported results recently, indicating that they are looking to replenish their land banks at current market prices in anticipation of their need to open new sites in a growing market. The changes to the planning system are enshrined in the Localism Bill, within which the new Planning Framework appears to be supportive of more development, and we have been working hard to achieve more planning consents in this potentially more supportive regime. Housing demand continues to be held back, in our view, by the availability of affordable mortgage funding. We therefore regard the announcement by the Government in relation to a Mortgage Indemnity Guarantee Scheme as a very positive move and see some indications that this may revitalise the first time buyer market.

The construction division, with its performance underpinned by the recurring revenues from Road Link (A69) performed well, despite activity and profit levels being lower than those achieved in 2010. There continues to be little work emanating from the private sector and ongoing uncertainty over the level of local authority capital expenditure following cutbacks in Government spending. Refurbishment and maintenance work is still being undertaken but larger, more valuable projects are often subject to delay or cancellation; sadly this has necessitated further downsizing of our staffing levels during the year. However, Plant Hire performed relatively well with profitability slightly ahead of the prior year and once again, tight control on capital expenditure resulted in further cash generation.

PROPERTY INVESTMENT AND DEVELOPMENT

PROPERTY

Property values in the year continued to show a fair degree of stability, however the unresolved issues relating to the Euro coupled with weak economic growth continued to affect confidence towards the end of 2011. The impact of this has largely been felt within secondary property investments which saw a further softening of investment yields. Prime property investment values have proved more resilient although there are fewer transactions to gauge the trends. The occupier market has largely reflected wider economic conditions. Retail demand for space is concentrated on foodstores, where retailers remain active, and on non-foodstores, where retailers are seeking to replace outdated, often small, retail units with larger modern space in good locations. Demand for bulky goods retail warehousing remains at very low levels. Industrial and warehouse occupiers are still acquiring space, though increasingly this is pre-let or design and build activity, reflecting the scarcity of new, speculatively built accommodation. Good quality, well located stock is attracting occupiers but secondary, poorer quality accommodation continues to struggle. The office market is seeing an increasingly wide valuation gap between city centre and out of town locations.

INVESTMENTS

We concluded one major property sale during the year; that of our retail investment in Ayr, Scotland, which we completed early in the year at a price of £33.8m, slightly ahead of its 2010 valuation. It was felt that this asset represented too high a proportion of our portfolio and we agreed to accept a reasonable offer. The sale of a Tesco Express supermarket in Bradford was also completed at £0.8m, immediately following completion of its development, and the sale of a 10,000 sq ft industrial unit in Rotherham let to Travis Perkins and a regional plastics company was agreed at the end of the year and completed in January 2012 at £0.8m.

We have made further progress in reducing the number of voids within the portfolio, which continues to be a priority. Lettings were secured on all the speculatively built industrial space in Rotherham and we concluded lettings on 9,000 sq ft of office space within our retail and office investment in Bromley, leaving only 3,000 sq ft of office space, which is being refitted following a lease expiry, still to let. Unconditional agreements for lease have been exchanged on a previously vacant 18,000 sq ft retail warehouse unit in York and the occupier, an outdoor clothing retailer, is due to commence trading early in 2012. It was also pleasing to have let a further two new food retail units within our motorway service area in Kent which experienced a further significant rise in year on year footfall. This was helped by the letting of the 80 space lorry park, built during the year at a cost of £1m. The lessee has since reported very high occupancy rates and negotiations are now underway to expand the operation on the site. The Axis in Nottingham, our 175,000 sq ft mixed-use office, leisure and retail scheme, is now our largest single investment and we concluded an uplifted rent review on the 58,000 sq ft occupied by a key tenant, which increased by £78,000 p.a. The joint venture arrangement between Henry Boot and Stonebridge Homes Limited substantially completed the development of 19 homes in the year. In total, 15 have been sold and two further small residential sites have been acquired, along with an investment property with redevelopment potential in Leeds.

DEVELOPMENTS IN PROGRESS

As values and occupier demand stabilised and we were successful in improving planning or development viability, we saw an increase in development activity across a range of retained sites which are secured by pre-let or pre-sale agreements. It is anticipated that 2012 will see us commence work on several sites where we can achieve better returns than our hurdle requirement. Our supermarket development in Warminster was well underway by the end of 2011, having relocated the original industrial occupier earlier in the year, and the 26,500 sq ft retail scheme, substantially pre-let to Waitrose, will complete in the first quarter of 2012.

The strategic location of Markham Vale, our 200 acre business park developed in partnership with Derbyshire County Council, on Junction 29a of the M1 motorway, continued to attract significant investment. We commenced construction of a 41,000 sq ft warehouse and office for Squadron Medical in the second half of the year and are on schedule to complete in early 2012. By the end of 2011, pre-let agreements had been exchanged with automotive parts distributor, Andrew Page Limited, which is to take 100,000 sq ft of warehouse space for its new UK distribution centre. The development will commence on site in the first quarter of 2012. In addition, having successfully obtained detailed planning permission, contracts were exchanged with McDonalds for a pre-let, drive-through restaurant just off the motorway junction and we hope to report further agreements as 2012 progresses.

FUTURE DEVELOPMENT OPPORTUNITIES

Planning permission was secured during the year for the final phase of development of land at Priory Park, Hull. We are currently marketing the increased amount of office, industrial and warehouse accommodation that has been achieved with this consent.

We have made substantial progress on the 31,000 sq ft city centre, mixed-use conversion of the former County Court building on Deansgate, Manchester. We obtained detailed planning permission and listed building consent and agreed terms to pre-let two of the three retail and leisure units and sell all the office space to an owner occupier. Building work is expected to commence in mid 2012 and take a year to complete.

We have successfully concluded a pre-let agreement for lease with Travelodge to take a 78 bed hotel on our town centre site in Richmond upon Thames and, subject to a planning appeal, we expect building work on site to start in 2013 and complete early in 2014. Negotiations on a smaller pre-let budget hotel development in Malvern are also expected to be concluded shortly with that project taking place in 2012/13.

We have also had success with our 335,000 sq ft mixed-use planning application, including a 45,000 sq ft supermarket, on a 23 acre site at Thorne, Doncaster, just off the M18, where we have a development agreement with RBS. The permission secured also includes a hotel, a petrol station, restaurants and industrial and office space. Terms are being finalised with a number of prospective occupiers, which should enable development work to begin late in 2012.

During the year we also formed a joint venture company, Pennine Property Partnership LLP, with Huddersfield & Calderdale NHS Foundation Trust following our selection as the Trust's preferred development partner. Design work will soon be finalised on the 56,000 sq ft first phase of clinical and office accommodation, with construction work involving the conversion of a listed, derelict mill building expected to begin in the second half of 2012 and to be completed in 2014. Planning work on a second site, a 23 acre former hospital, is also now underway and aims to maximise the site value ahead of development and disposal. We are also appraising other surplus trust properties with a view to maximising the value of these opportunities.

In addition to the specific projects mentioned above, we have made good progress to secure or improve planning consent with other sites we already control and with new sites controlled via conditional contracts, development agreements or options. Of these, a number are earmarked for large supermarket developments, which continue to see strong demand from occupiers and investors. In order to maximise our returns in the current uncertain market, we aim initially to secure such opportunities at minimal cost, only committing larger capital sums once the letting and planning risks have been mitigated.

LAND

Hallam Land Management Limited, our strategic land business, had a very successful year, both in terms of its trading activity and also in securing new planning commitments. This success is especially pleasing at a time when the market for housing land is constrained by the modest scale of new house building activity and there is considerable change occurring in the planning system.

The trading performance for the year has significantly improved on the last two years, though still below levels achieved from 2006 to 2008, with external turnover of £30.1m (2010: £33.9m) and a profit before tax of £11.1m (2010: £0.1m). At December 2011, we held interests in over 8,051 acres in total (2010: 8,052 acres) with 1,432 acres being owned (2010: 1,409 acres), 3,986 acres under option (2010: 4,076 acres) and 2,633 acres under planning promotion agreement (2010: 2,567 acres). The inventory value of these assets was £58.8m (2010 £55.0m) representing 120 sites within the portfolio (2010: 120). At the year end, we were close to securing a further eight new sites for the portfolio.

The majority of the UK's major house builders have now stabilised their businesses at lower levels of activity. Funding to the sector remains constrained and continues to be affected by the ongoing uncertainties regarding sovereign debt within Europe. The ability of first time buyers to fund house purchases is also restricted and we believe this too is having an impact on the land market. Notwithstanding this environment, we completed profitable land sales on our sites at Winsick, Mansfield, Rugby, Countesthorpe, Clyst Hayes and Buckingham. The prices achieved, particularly on the four southern sites, were very pleasing, demonstrating that good sites in prime locations can still command premium prices.

We have also made very good progress during the year in relation to the planning prospects of many of our sites. Although the full impact of the new planning system will take some time to assess and bed down, the indications so far are encouraging. Local planning authorities, planning inspectors and the Secretary of State have all shown a greater willingness to grant planning permissions in areas where there is an evident undersupply of housing land and where all technical matters have been properly dealt with.

As a consequence, we have secured planning permission or minded to grant planning permission, subject to the signing of a planning agreement, on the following sites during 2011 and post year end:

In addition, on the following sites we have already achieved a permission but, with the exception of Rushpool Farm, are still working towards a sale:

We have also made applications at the following sites, which at this stage remain undetermined:

Finally, the following sites have had the initial application rejected and we are in the process of an appeal:

*On sites where we are working in conjunction with other developers, only the Hallam Land share is noted.

The Coalition Government announced a major overhaul of the planning system through the introduction of the Decentralisation and Localism Bill. This bill will remove the regional tier of the planning system and introduce a new local layer of complexity. Local authority cutbacks have seen staff numbers in already overloaded departments reduced further. It is still unclear how the bill and the new system will eventually impact on planning delivery but, as we are working on many applications throughout the country, the indications are that planners are reacting differently, depending on the authority. The planning process now needs more careful management than ever before and we are working as closely as possible with the planners, local politicians and the local community, reflecting the localism agenda in order to maximise our prospects of success on each individual site.

Despite these difficulties, once again we improved the number of planning allocations and permissions on our site portfolio during the year. It is worth noting that six years ago Hallam Land's total land bank was 6,194 acres of which 651 acres (10.5%) had either a planning permission or were allocated for development. At 31 December 2011, the land bank stood at 8,051 acres of which some 1,800 acres (22%) either has a planning consent or a local plan allocation. We expect to bring this acreage forward over the next three to four years, as we interact with the new planning regime in earnest. As these sites gain full consent, this should be reflected in increased sales values notwithstanding the challenging market. We continue to believe that land price increases will remain subdued until there is a stronger recovery in the volume and pricing of new house sales. In our opinion, it is vital that mortgage availability improves, particularly for first time buyers, and it will be interesting to see how successful the Mortgage Guarantee Scheme will be in encouraging people from the tenanted sector into home ownership.

CONSTRUCTION

Henry Boot Construction continued to trade in line with expectations in 2011, in what remains a very challenging marketplace with activity levels down on 2010. At the end of December we held a healthy forward order book for 2012 at levels we would usually expect for the time of year. At this stage, the work secured, combined with our industry view on 2012, leads us to believe activity will be at a similar level to 2011, although we expect margins will remain tight. Our approach continues to be underpinned by an assessment of the risk profile of opportunities and careful selection of types of contracts and clients, retaining our focus on key partnering, framework and negotiated contracts, predominantly in social housing, education, health and prison sectors.

Our proactive tender strategy targets a mix of public sector projects and private sector leisure, commercial and industrial opportunities. This is supported by the ongoing expansion and delivery of our integrated regeneration agenda, offering high quality, innovative and modern construction processes, to deliver value for our customers, whilst also incorporating the social and green agendas. During the year, we established a team to focus on the renewable energy sector, which has now begun to build some sales momentum and is being considered for larger contracts in 2012. We have noted a reduction in the value of schemes available for tender as clients move away from new build to less capital intensive maintenance or refurbishment of their existing stock.

We continue to work alongside partner contractors on major Decent Homes schemes and environmental programmes in Rotherham and for Doncaster Metropolitan Borough Council. We expect to see a reasonable flow of work in 2012 and these schemes will continue in some form for several years. The partnering contract, secured in 2010 with Eastlands Homes, Manchester, is going well and we recently won a further contract to refurbish three high rise tower blocks alongside the Decent Homes and environmental work programmes. In addition, we are working on other Decent Homes programmes with Southway Housing Trust, Manchester, North Lincolnshire Homes, Leicester City Council and the Nottingham City Homes maintenance programme.

New work was secured during the year at several high security prisons. We anticipate that several new projects will arise during 2012 which, if we are successful in winning, will maintain our strong presence within this sector. In addition we have been appointed to undertake refurbishment work at a number of law courts in the north west of England, which we expect to commence in 2012. Our education workload includes a £5.5m contract at Westcliffe Primary School in Scunthorpe and a £2.4m contract at Arboretum Primary School in Derby. We are also working with both Sheffield University and Sheffield Hallam University on a number of potential projects. Other school extension and modernisation projects are also in progress, including a £1.7m extension and refurbishment at Heptonstall School for Calderdale Metropolitan Borough Council.

Our health sector experience continues to expand with work in progress at the Northern General Hospital and at the Hallamshire Hospital under the Sheffield Teaching Hospitals framework for major refurbishment works to existing facilities. Work is also in progress on the £5m Rawmarsh Joint Service Centre incorporating a doctor's surgery, pharmacy, library and sports facilities for Rotherham Metropolitan Borough Council and the Rotherham Primary Care Trust.

Notably during 2011, Henry Boot Construction received the following awards:

ROAD LINK (A69)

On 31 March 2012, Road Link (A69) will complete 16 years of its 30 year contract to operate and maintain the (A69) between Newcastle and Carlisle for the Highways Agency. Traffic volumes on the road have remained stable during the year but we have benefited from an uplift in the revenue price adjustment indices, which has enabled our financial targets to be achieved. Planned and proactive maintenance of the (A69) road and bridges, including the use of innovative maintenance techniques, continues to provide savings against the original, long-term cost plan. In addition, there have been no significant problems with traffic flows due to severe weather this year. Whilst predicting far into the future is always difficult, at this stage we continue to believe that the financial forecasts for the foreseeable future will be in line with management expectations.

PLANT HIRE

Trading in 2011 proved to be more buoyant than we had forecast internally, with activity about 10% higher than the previous year, although pricing remained intensely competitive. We continue to aim to maximise turnover and profit through high plant utilisation levels, whilst also targeting positive cash flow, cost control and fleet realignment to reflect the current market. The unit performed well in the year achieving or exceeding all its targets. The hire fleet, at original cost, grew by 4.3% during the year as investments were made to match the increased activity. New plant items acquired ensured we continued to offer a modern, technically strong and competitively priced fleet. Investment was targeted towards powered access equipment accommodation units and mechanical plant and, in total, amounted to £2.37m.

FINANCIAL REVIEW

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Turnover reduced to £114.6m (2010: £131.9m) primarily due to lower construction division revenues and land sales. The strong results from land sales gave rise to an improvement in trading profit to £20.8m (2010: £18.0m), operating profit was £16.9m (2010: £20.9m) after a net revaluation deficit of £4.3m (2010: surplus £0.6m), profit on sale of investment properties of £Nil (2010: £2.4m) and profit on sale of assets held for sale of £0.4m (2010: loss £0.1m). The revaluation deficit was a combination of fair value adjustments on development sites including Burnley, Tamworth, Rotherham and Rochdale, totalling £1.9m and valuation adjustments of £2.4m on investment properties, but particularly affecting the secondary properties. Administrative costs increased to £13.4m compared with £12.2m in 2010. Costs in 2011 include £0.3m from our joint venture with Stonebridge Homes, and under recovered overhead within construction, in addition, 2010 benefited from £0.6m of provision releases which did not recur. Pension expenses were £1.7m in the year, compared to a credit of £2.7m in 2010. In particular, 2010 benefited from a number of one off liability management exercises, which, under IAS 19, are treated as a credit to the Statement of Comprehensive Income rather than to reserves.

The segmental result analysis shows that land development produced a significantly improved operating profit of £11.0m (2010: £0.6m) and property development and investment activities showed a small operating profit of £0.3m (2010: £10.5m), the reduction arising from revaluation changes and lower profit on sales. Construction division operating profits were lower at £7.3m (2010: £9.2m) after activity levels reduced by 15% in difficult trading conditions.

Basic earnings per share amount to 6.9p (2010: 9.1p). The total dividend payable for the year has been increased by 21% to 4.25p (2010: 3.50p), with the final proposed dividend also increasing by 21% to 2.60p (2010: 2.15p) payable on 1 June 2012 to shareholders on the Register as at 4 May 2012. The date the shares become ex-dividend is 2 May 2012.

Financing and Gearing

As debt has been reduced, indeed we have been cash positive at times during the year, net finance costs fell to £0.8m (2010: £2.0m). Most of the actual costs incurred during 2011 were non-utilisation fees rather than interest. It is anticipated that interest costs will begin to rise in 2012 as we start to gear up once again, investing in both our land and development assets. Interest cover, expressed as the ratio of operating profit (excluding the valuation movement on investment properties and disposal profits) to net interest, was 26 times (2010: 9 times). No interest incurred in either year has been capitalised.

Receipts from land and property sales achieved in the year were partially reduced by deferred payment arrangements on those sales and were also offset by the requirement for continued investment in our development and investment property portfolio. Notwithstanding this, net debt fell to £2.3m (2010: £11.4m). Gearing on net assets of £186.0m fell to 1% (2010: net assets £188.6m; gearing 6%). All borrowings continue to be from facilities linked to floating rates or short‑term fixed commitments. Included in debtors are £5.4m (2010: £7.7m) of negotiable instruments, arising from deferred payment arrangements on land sales, which have not been forfaited. During the year, we maintained three year committed bank facilities totalling £50m and have agreed renewed facilities for a further three years from May 2012 on improved terms. Throughout the year, we operated comfortably within the facility covenants and continue to do so, with the new facilities retaining the same covenants as previously.

Tax

The tax charge for the year is £5.3m (effective rate of tax: 33.0%) (2010: £5.4m). Taxation on profit for the year is £3.9m (2010: £2.2m) and benefits from prior year adjustments of £0.3m. The increased effective rate of tax for the year arises, in the main, from the decrease in fair value of investment properties which is not tax deductible. The deferred tax charge was £1.4m (2010: £3.2m) and arose largely from the revaluation deficit and change in IAS 19 pension deficit. Deferred tax has been calculated at 25%, being the rate expected to be applicable at the date the actual tax will arise.

CONSOLIDATED STATEMENT OF CASH FLOWS

One of our key aims for 2011 was to further reduce debt levels whilst selectively investing in each of our businesses. We were successful in this aim and bank debt was reduced by a further £9.7m during the year (2010: £21.2m). We believe it is vital that we retain the flexibility to undertake developments and land deals without reference to the lending institutions, who are unwilling to lend against assets that represent the speculative phase of the property cycle. We must therefore retain the ability to fund these from our own resources, reserving investment assets as the covenant support for our bank facilities. It is likely that debt levels by the end of 2012 will rise as our forecast increased net investment in land and property investment and development occurs. During 2011, cash generated from operations reduced to £4.0m (2010: £20.1m) after a £3.8m increase in inventories and deferred receivables offset the operating cash flows derived from land sales. These operating cash inflows were augmented by an inflow from investing activities of £16.6m (2010: £11.1m) as we recycled investment capital. This net figure included cash outflows from asset purchases and developments in progress of £12.5m (2010: £5.7m), offset by cash flows from property and asset disposals totalling £29.0m (2010: £16.5m). Dividends paid, including those to non-controlling interests, totalled £6.7m (2010: £5.3m) a 26% increase on the previous year.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Investment property and assets in the course of construction are valued at £138.2m after adjustments for tenant incentives (2010: £135.1m). The only additions of note in the year were the development costs of a foodstore at Warminster and the creation of a lorry park at the motorway service area at Saltwood. The market value of investment property including assets held for sale is £90.8m (2010: £122.1m) and the value of investment property under construction within investment property is £52.2m (2010: £48.4m).

Intangible assets reflect the Group's asset investment in Road Link (A69) of £10.4m (2010: £11.7m). The treatment of this asset as an intangible asset is a requirement of IFRIC 12 and arises because the underlying road asset reverts to the Highways Agency at the end of the concession period. Property, plant and equipment comprises Group occupied buildings valued at £6.9m (2010: £6.9m) and plant, equipment and vehicles with a net book value of £8.7m (2010: £8.3m). Non-current trade and other receivables have increased to £15.8m (2010: £10.4m) due to deferred receipts on land sales already undertaken. This arises, and has increased, as house builders defer payment for land, more closely reflecting their cash flows and build-out periods. In particular, deferred payment arrangements on land sales at Buckingham and Clyst Hayes contributed to the increase in the year. Deferred tax assets have grown as a result of the larger pension deficit. In total, non-current assets have increased to £187.5m (2010: £179.1m).

Within current assets, inventories of £62.1m (2010: £58.0m) increased due to further investment in the land portfolio. Trade and other receivables at £37.6m (2010: £27.3m) again reflect higher deferred land receipts. The Ayr investment property which was included within current assets held for sale in 2010 was sold during 2011 at slightly better than valuation. The balance sheet value of £0.9m in 2011 relates to two investment properties which were sold following the year end.

Current liabilities have reduced by 22% to £62.6m (2010: £80.0m) as the current portion of debt fell to £1.4m (2010: £11.4m), trade creditors fell by £5.0m and provisions fell by £2.8m as amounts provided for the infrastructure work at Bridgwater were utilised. Net current assets were £42.3m (2010: £37.1m). Non-current liabilities increased to £43.7m (2010: £27.6m) after increased IAS 19 pension liabilities (£6.4m) and increased land infrastructure cost provisions were made for sites at Clyst Hayes and Bridgwater (£7.6m).

Net assets reduced by 1.4% to £186.0m (2010: £188.6m) as dividends paid and the increase in the pension deficit exceeded retained profits. Net asset value per share was 2% lower at 142p (2010: 145p).

Pension scheme

The annual IAS 19 valuation of the defined benefit pension scheme showed the deficit increasing to £22.6m (2010: £16.2m) at the year end. This increase is due to the impact of the Bank of England's quantitative easing programme on gilt yields, which had the effect of reducing the discount rate used to 5.0% (2010: 5.4%). Each 0.1% change in the assumed differential between long-term investment returns and inflation affects the deficit by approximately £2.5m; therefore the change in gilt yields this year has had a marked effect. The attributable deferred tax asset was £5.7m from £4.4m in 2010. Adding back this net deficit of £16.9m (2010: £11.8m) to net assets, the 2011 deficit equates to 8% of equity shareholders' funds (2010: 5.9%). The triennial valuation deficit, calculated at 1 January 2010, was £25m and this gave rise to an agreed recovery plan under which the Company contributes £3.8m per annum in addition to its normal contributions. The defined benefit scheme is closed to new entrants and new employees are offered a defined contribution scheme. The Directors undertook a programme of liability management exercises during 2010 to reduce scheme risk. We offered enhanced transfer value terms to certain deferred members, we capped future salary increases at 1% and offered a pension increase and exchange alternative to pensioners. We continue to evaluate cost-effective ways of reducing risk and liabilities within the scheme and will undertake further exercises as appropriate.

NOTES