Henry Boot Regulatory News (BOOT)

19 Mar 2008 07:00

Boot(Henry) PLC19 March 2008 HENRY BOOT PLC Land promotion, property development & investment, construction and plant hire PRELIMINARY STATEMENT OF RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007 HIGHLIGHTS • Profit before tax increased by 14% to £46.5m (2006: £40.8m) • Basic earnings per share increased by 24% to 24.5p (2006: 19.8p) • Final dividend proposed of 3.75p (2006: 3.32p), up 13%. Total for the year 5.0p, an increase of 14% (2006: 4.4p) • Return on average capital employed 28% (2006: 30%) • Net asset value per share increased 20% to 139p (2006: 116p) • Group's investment portfolio externally valued at £81.5m (2006: £30.1m) with revaluation surplus of £18.1m (2006: £3.0m) • Solid contribution from all Group activities (Note: Earnings, dividends and net asset values per share have been adjusted for the 4 for 1 bonus share issue in May 2007) Commenting on the results, Chairman, John Reis, said: "I am very pleased to report on a further set of impressive results. All ourbusiness streams have performed well in a year which saw the economic backdropto our business become more uncertain. Successive rises in interest rates havedampened both the housing and property investment markets. However, as yet, wehave not seen any impact on the demand for quality land or on the prudent yieldswe have used in our development appraisal process." "We have a strategic land portfolio of the highest quality, in the rightlocations, which is steadily moving through the planning process and which willadd to an already strong property development pipeline. Allied to this, wecontinue to benefit from the recurring profit, cash generation and return onassets provided by our construction, PFI and plant hire businesses." "This healthy mix of business opportunities, coupled with our robust financialposition, gives me great confidence in our long-term future prospects and thecontinuing delivery of value to shareholders." For further information, please contact: Henry Boot PLCJamie Boot, Group Managing DirectorJohn Sutcliffe, Group Finance DirectorTel: 0114 255 5444www.henryboot.co.uk Evolution Securities LimitedJoanne LakeTel: 0113 243 1619 Citigate Dewe RogersonFiona TooleyTel: 07785 703523Tel: 0121 455 8370 CHAIRMAN'S STATEMENT I am very pleased to report on a further set of impressive results. All ourbusiness streams have performed well in a year which saw the economic backdropto our business become more uncertain. Successive rises in interest rates havedampened both the housing and property investment markets. However, as yet, wehave not seen any impact on the demand for quality land or on the prudent yieldswe have used in our development appraisal process. Throughout our national network of offices, our teams use their local knowledgeto create valuable opportunities in land promotion and property development.Whilst profits from our construction division and the investment propertyrentals add an ever increasing, recurring annual income, we are, at heart, adeal driven business in both our property development and long-term landpromotion activities. On the whole, our markets in 2007 remained fairly robust. Land with planningconsent that we brought to the market was in strong demand and values achievedwere as anticipated. The yields on property developments completed during theyear were in line with those used in the development appraisals and, therefore,we achieved the capital values expected at the outset. Our construction companyhad a very good year with Decent Homes Initiatives, work for the Prison Serviceand general contracting work all contributing to a solid result. Our PFI projectrunning the A69 again provided a healthy return and plant hire benefited fromstrong construction activity and a stable depot line-up. Results Turnover was £124.8m (2006: £142.3m) reflecting fewer land transactions withlower acreages and values completed in the period. Profit before tax increased14% to £46.5m (2006: £40.8m) as these lower sales were offset by valuation gainsand development sales demonstrating our broad-based mix of profit drivers.Included within pre-tax profit, the investment portfolio showed a revaluationsurplus of £18.1m (2006: £3.0m) of which £16.8m arose from the valuation of ourshopping centre at Ayr. Property disposal profits were £3.5m (2006: £1.4m),mostly attributable to the sale of our Ripon Gateway site prior to development.Basic earnings per share increased 24% to 24.5p (2006: 19.8p), helped by a lowerpercentage tax charge compared to 2006. Total net assets increased 20% to£182.2m (2006: £152.2m), representing 139p per share (2006: 116p). As expected,gearing rose to 39% with debt of £70.9m at the year end (2006: gearing 10%, debt£15.0m), as we made further investments in our land and development assets. Dividends These excellent results allow the Directors to continue the progressive dividendpolicy adopted over recent years and recommend a final dividend of 3.75p pershare (2006: 3.32p) which, together with the interim dividend of 1.25p per share(2006: 1.08p), gives a total for the year of 5.0p (2006: 4.4p), a 14% increase.Dividend cover remains strong at 4.9 times (2006: 4.5 times). The final dividendwill be paid on 22 May 2008 to Shareholders on the Register on 9 May 2008. Performance benchmarking and returns Total Shareholder Value (TSV), calculated as the increase in net asset valueplus dividends per share, created in the year ended 31 December 2007 was 28.1pper share (2006: 25.8p), a 24% (2006: 27%) return on opening net assets.Although the Group achieved record profits, earnings, net assets and dividendpayments, it has not been immune to the change in sentiment towards quotedproperty and construction company equity prices. As a consequence, TotalShareholder Return (TSR) in the period was -41.9p (2006: 84.4p), a -19% returnon the opening price on 1 January 2007 of 215p. TSR is calculated as the changein share price plus dividends per share. These returns compare to an average TSRof -8% on the FTSE Construction Sector, -41% on the Real Estate Sector and 12%on the FTSE Small Cap Index. These sectors have been chosen as the bestcomparative benchmarks against which to monitor our Company. Employees On behalf of my fellow Directors, I express my sincere thanks to all the Group'semployees for their contribution towards achieving yet another excellentperformance. It is our people who, through their commitment, skill and hardwork, enable us to continue to build upon our outstanding long-term resultsrecord and I look forward to working with the team to achieve further success in2008. Strategy The Group strategy continues to focus on land promotion and propertydevelopment, with the support of construction and plant hire activities. Werecognise that the timing of profits from land promotion and propertydevelopment depends on market conditions and is therefore uncertain. This canlead to variability in our income stream in any one accounting period. Tocounter this, as our subsidiaries create surplus funds, after each unit's owninvestment requirements are met, and as prudent cash management allows, we willinvest in those developments which, in our view, offer the best rental andcapital growth opportunities. This, in turn, improves the balance of incomearising from more stable, enduring activities with that from land promotion anddevelopment deals. Outlook The general economic climate in which the business is currently operating willresult in the property sector having to endure a more turbulent period than ithas had for some time. That said, much of this uncertainty has already beenfactored into property equity prices, including ours. In the current, more challenging environment, I believe that our outlinedstrategy continues to be the right one for the long-term growth of our business.As we progress through 2008, the Group remains very well positioned to continueto profit from its broadly-based portfolio of assets and opportunities. We havea strategic land portfolio of the highest quality, in the right locations, whichis steadily moving through the planning process and which will add to an alreadystrong property development pipeline. Allied to this, we continue to benefitfrom the recurring profit, cash generation and return on assets provided by ourconstruction, PFI and plant hire businesses. This healthy mix of business opportunities, coupled with our robust financialposition, gives me great confidence in our long-term future prospects and thecontinuing delivery of value to shareholders. John S Reis19 March 2008 OPERATIONS REVIEW Our long-term strategy remains largely unaffected by the difficult propertymarket arising in 2007 and which is expected to continue throughout 2008. Inthis market, our ability to create profit by adding value to our land, eitherthrough development, land promotion or construction, should allow the Company tocontinue to prosper. The acquisition of new opportunities through our regionaloffice network should see us enter the next positive cycle with a strongerportfolio of sites to capitalise on. The promotion of land through the planning system can take up to 20 years andshort-term market corrections will always be a factor in such a long-termprocess. We remain on track to achieve results on an increasing number of sites,at the same time adding more land than we sell to our growing portfolio. Our development process is underpinned by prudent market yield assumptions atthe time of acquisition or appraisal. Therefore, whilst we will not escape theeffects of lower market values, we remain comfortable with the appraisals ofthose properties currently progressing through the development phase. Although the occupational market continues to be difficult in some quarters, wehave found it still offers opportunities to a developer creating new, highquality space. Retailer interest in our relevant sites remains good. The officemarket, particularly for well located, smaller units which are also available toowner occupiers, is also holding up well. The industrial market remains solidand once again our experience is that developments of smaller units for owneroccupiers have sold well. The construction and plant hire businesses saw strong demand throughout 2007with a broad spread of work across their markets and we expect this trend tocarry forward into 2008. Our PFI business which operates the A69 betweenNewcastle and Carlisle has also performed well and in line with expectations. Taking each area of the business in detail: PROPERTY Our property division, Henry Boot Developments, made solid progress during theyear and delivered improved results compared with 2006. This was achievedthrough a combination of land sales, higher rental income, as the investmentproperty portfolio increases, the initial valuation of new developments and fromrevaluation surpluses on our existing investment properties. Although we have been aware that confidence in the wider property market hadbeen weakening, particularly in the second half of 2007, we continued toidentify opportunities in our property development portfolio to createshareholder value. Our development schemes have to pass a tough initialappraisal process intended to target high returns based on prudent completionyield assumptions. This process is further supported by a stringent ongoingreview in order to ensure schemes remain profitable on their progression throughto completion. Therefore, we have a number of significant schemes in progress,some due for completion and initial valuation in 2008, on which we expect toachieve a profitable outcome. The most notable land sale in the year was at Ripon where we agreed a sale tothe food retailer, Morrisons, which yielded a better profit than had beenexpected from the previously planned mixed-use development. Progress continuedon our Priory Park site in Hull and further profitable land disposals were made.We expect to make additional land and property sales from this site during 2008. Ayr Central Shopping Centre Our new 220,000 sq ft retail scheme in Ayr achieved a £16.8m revaluation surplusthat was largely booked at the half year and further uplifted at the year end.Further lettings have been achieved to quality retailers such as River Islandand JD Sports. Though the Centre was not fully income producing at the year end,we expect to let the few remaining units during 2008 and to derive a progressiveincrease in car parking income as the scheme moves towards a fully let position. The Axis, Nottingham This award-winning development is due for completion in mid-2008 with the final17,000 sq ft phase of offices, where a letting has been contracted toaccountants, Tenon Group Plc. We expect an uplift in valuation to arise at theend of 2008. We have identified this 220,000 sq ft, well let, mixed-usedevelopment as having good rental growth prospects and plan to retain it withinthe Group's investment portfolio. The residential element of the scheme was soldin 2007 to a specialist developer. The Mall, Bromley Completion of the final construction phase of our 100,000 sq ft retail andoffice development in Bromley was achieved early in 2008 and the anchor tenant,Sportsworld, has opened for trade. Once again, it is anticipated that thisdevelopment will generate a valuation uplift when first valued at the half-year2008. The office accommodation and certain of the shop units remain unlet but weare currently seeing good levels of interest and anticipate that the remainingspace, mainly competitively priced office areas, will be taken during 2008. Stop 24 Motorway Service Area, M20 Stop 24, on Junction 11 of the M20 motorway in Kent, became the largest motorwayservice area in the country when the development completed and opened forbusiness in January 2008. The retail and fast food areas are far more extensivethan those at traditional service areas, with WH Smith, Julian Graves,Starbucks, Burger King and KFC amongst the nine tenants so far signed up. Thereis also strong interest in a further three of the remaining five units and weexpect to see this investment property fully let during 2008. Bromborough Retail Scheme This 37,000 sq ft retail warehouse scheme in Bromborough is fully pre-let toHomebase and Magnet. On completion, provided market conditions allow, this is adevelopment we intend to market for sale. However, if the price offered does notmeet with our expectations, we will retain this asset which will, therefore,contribute to profit either by initial valuation or sale during 2008. Markham Vale Business Park, M1 Work has continued through 2007 on site preparation for this 200 acre schemethat we are developing in partnership with Derbyshire County Council which willbe providing both the new motorway Junction 29a and the site infrastructure.Under our agreement, we acquire land after it has been brought to a standardwhereby it can be developed and during 2007, we completed the initial purchaseof 61 acres. We expect the first sites to be developed in 2008. Markham Vale isan ideal location, situated adjacent to the M1 almost in the centre of thecountry, and detailed negotiations are progressing with a number of occupiersand also with potential partners to construct a 585,000 sq ft distribution unit. Our involvement on the Waterloo Square retail scheme in South Shields progressedfurther with preliminary site works being undertaken prior to the constructionof a new 60,000 sq ft ASDA store which will be completed by late 2008. In themeantime, the retail complex let to BHS, Debenhams, Next and River Islandcontinues to perform well. Two schemes are in hand at Clifton Moor Retail Park, York, where the Company isconverting a former 18,000 sq ft nightclub into retail accommodation andcontracts have been exchanged with PC World to lease a 25,000 sq ft retail unit.Construction is due to commence shortly and will be completed early in 2009. Further infrastructure investment was made to access additional land at thePriory Park scheme in Hull where we are developing a further 60,000 sq ft ofindustrial space and, in partnership, a further 30,000 sq ft of offices.Additional accommodation is being developed on a design-and-build basis forfreehold sale. In Stoke-on-Trent, a sophisticated new 123,000 sq ft manufacturing facility isbeing developed on our 18 acre Meir Park scheme, leased to Recticel (UK) Limitedas their UK headquarters. We have a further planning permission on this site for200,000 sq ft of industrial warehouse development and are in discussion withprospective tenants for this property. Detailed planning permission has been granted for our retail and leisure schemein Worksop. Presently, we are resolving some technical design issues andanticipate a start on site in the second half of 2008. Tesco has taken theretail element of this development which will now enable the cinema, fast foodand other leisure outlets to proceed. We have completed the purchase of a 16 acre development site in Rotherham, withplanning consent for 100,000 sq ft of retail and 90,000 sq ft of industrialspace. The site is adjacent to British Land's Parkgate retail park and we arecurrently in discussion with prospective tenants with the intention of securingoccupiers in time to allow a start on site in late 2008. Two development sites have been acquired in Bodmin, Cornwall, one of which hasplanning consent for development as a 37,000 sq ft retail park and the second asa 50,000 sq ft trade park. Interest has been received, not only from retailersand trade park occupiers, but from other types of prospective tenants and atthis stage all development options are being investigated with a view tosecuring the highest scheme return. At Tamworth we are extending our land interests beyond the Lower Gungate retailscheme which we already own, with the aim of undertaking a substantialredevelopment including a large decked car park. Discussions are ongoing withpotential tenants and the planning authority and we expect this to become asignificant future development. We acquired a development site with detailed planning consent to create a 27,000sq ft extension to the Baglan Bay Retail Park at Port Talbot. We are on sitewith completion scheduled for June 2008. Two of the four units have been pre-letto Halfords and Dreams and negotiations are taking place with other partiesconcerning the remaining space. After many years of discussion, it is hoped that 2008 will see the finalisationof council plans for the redevelopment of Beeston town centre which will enableus to modernise and expand our existing retail and residential development.Beeston is a prosperous satellite town very close to Nottingham University and,as a consequence, we are seeing strong interest from high quality retailers. We purchased a small, well-located site in Bristol where we plan to develop andsell eight two-storey offices totalling 25,000 sq ft to owner-occupiers. It isintended to proceed with similar developments on land purchased at Maidenhead.On the retail side, we are looking to progress sizeable schemes in partnershipwith local authorities at Falkirk, Burnley and Abergavenny, though these aremore likely to come forward after 2008. In addition, we have exchanged adevelopment agreement with Daventry District Council for a multi-site, mixed-usetown centre redevelopment. At Weston-super-Mare we are working with the localauthority on the 196,000 sq ft Tropicana Leisure Centre scheme which has alreadyseen very good tenant interest and we are also purchasing a small retail sitefor redevelopment. Finally, towards the 2007 year end we acquired a 7.5 acreindustrial site in Cumbernauld which we intend to develop for a range ofcommercial uses. Whilst we continue to investigate many more opportunities throughout thecountry, any new scheme has to meet our stringent investment criteria before acommitment is made to develop the site. There is little doubt that the currentuncertainty over funding, particularly for speculative or highly leveragedsituations, allied to a marketplace characterised by softer property yields andfewer buyers, will produce opportunities to acquire interests with potential forfuture development, but we remain very mindful of the risk reward equation whenconsidering these opportunities. Investment Property The Group's investment and owner-occupied properties were valued externally byJones Lang LaSalle at 31 December 2007. The Group's investment portfolio wasvalued at £81.5m (2006: directors' valuation £30.1m). The increase during theyear largely arose from the completion and initial valuation of our Ayr ShoppingCentre at £50.5m which gave rise to much of the increase in the revaluationsurplus to £18.1m (2006: £3.0m). The Group's owner occupied properties werevalued at £9.6m (2006: £7.4m) with the revaluation surplus being taken directlyto reserves. Rental Income We expect our rental income to increase significantly during 2008 as morelettings are secured and the schemes noted above reach completion. Gross rentsin 2008 should exceed £7.0m and are therefore well on the way to our initialinternal target of £10.0m. It is anticipated that rental income will continue toincrease as rent-free periods on retail and office properties expire so that2009 should see us another step closer to the target. LAND Following the record profit level achieved in 2006, Hallam Land ManagementLimited again produced a strong set of results and is well placed for a furthergood performance in 2008. After many years when operating within the planningregime has been very difficult, there are now signs that Government actions andinitiatives are releasing more planning consents and are having some impact onthe backlog. We have been more successful in taking a number of opportunitiesthrough the planning system during 2007, with the majority of our applicationsand appeals achieving success. Although the absolute values were lower than in 2006, profitable land sales werecompleted at Prestonpans, Bathgate, Syston, Rotherham, Sheffield, Retford andPeterborough during the year, whilst at Bognor Regis a significant agency feewas received in respect of the planning promotion agreement for a site of over80 acres with consent for 700 units. Land sold for residential development at Swallownest (Rotherham), Oxclose(Sheffield) and Retford provided a favourable return on our investment in thelatter part of the year. The 54 acres of land optioned at Peterborough were soldto an adjacent land owner/developer achieving a satisfactory result after elevenyears of planning promotion. A major planning permission was granted and, late in 2007, successfully passedthrough the judicial review period without challenge for our holding within theeastern expansion area of Milton Keynes. Our interests here form approximatelyone-third of a very important 2,500-dwelling scheme and a sale was concluded inearly March 2008. Following the receipt of a planning consent for 23 acres of employment land atMarket Harborough, a part sale to our joint partner should be completed in thefirst half of 2008. We expect to jointly promote and subsequently develop afurther 240 acres of land held in this area in future years. Outline terms have been agreed with a national house builder for the sale of our30% interest in an 84 acre site at Melksham, Wiltshire. At the year end, thedetailed agreement for sale had yet to be formalised. However, we anticipatecompletion of this transaction later in 2008. We purchased land with outlineplanning permission for 114 houses at Tillicoultry, Clackmannanshire and, afterenhancement, anticipate a sale during 2008. Planning has progressed well for an 18 acre site at Ampthill, Bedfordshire whichwe have under option. Provided the consent is granted in our favour, it isprobable that we will conclude the purchase and sale of this land late in 2008or early 2009. A very large and complex land deal, bringing together a number of landowners, iswell advanced at Biddenham, Bedfordshire, for a major 1,200-dwelling scheme forwhich planning consent is expected to be received in 2008. As a result of thesecomplexities, it is likely that it will be 2009 before the agreements arecompleted and a sale is achieved. Planning permission has been won on appeal for a residential development on a 30acre site in Bedford and we expect to market this land during 2008. Following aresidential allocation, we are pressing for an early planning consent forindustrial and residential development on part of the 92 acres of land in ourownership and 480 acres jointly optioned at Kilmarnock. If we are successful inthis respect, a land sale may be possible during 2009. We are also close tobeing awarded planning permission for a residential development on our 41 acresite in Banbury. If successful, a sale of this land may be achieved during 2008although a 2009 disposal is more likely. Planning consent for 214 dwellings hasbeen granted on a 10 acre site at Worcester and sale of the land is planned inthe second half of 2008. On appeal, our jointly owned 30 acre, mixed-use site close to the A1 at Bowburn,County Durham, has been granted planning permission for residential development.Significant land decontamination and remediation work will be required to enablefull implementation of the consent. However, outline terms have been agreed witha regional house builder and a sale is anticipated during 2008. A revised application has been submitted for residential development on 27 acresof land at Rushpool Farm, Mansfield. The land was acquired some years ago and ifwe obtain a planning consent this site should generate a particularly healthyreturn on sale. During the year, we expanded our interests in land allocated for a 2,900 homescheme outside Exeter. These large schemes involve complex negotiations withplanning authorities and land owners before they are available for sale.Therefore, it is likely that this major scheme will come forward in themedium-term. There has been much press speculation with regard to the state of the UK housingmarket and the conflicting comments regarding short-term demand and long-termundersupply. House builders are reporting weaker market conditions after thesignificant rise in interest rates, the problems in the sub-prime lending marketand the effect this has had on Inter-Bank interest rates and the availability ofmortgage credit. In addition, house builders are having to pay for localauthority Section 106 requirements which often equate to a de facto developmenttax of up to 20% of land value, provide an affordable housing content of up to50% of all the dwellings in a development and will, from Spring 2009, have tocontend with the Community Infrastructure Levy. These and other cost burdensbeing loaded onto residential developers will put pressure on their margins. Inthis environment, we believe house builders will attack their cost base in aneffort to safeguard their margins. We anticipate that the price of land islikely to become more competitive, although we believe the market will continueto bid strongly for well located sites. Therefore, a land bank of high quality, desirable and deliverable sites, as webelieve the Company's to be, is vital to achieve success in the more difficultmarket conditions anticipated over the next year or two. At the end of 2007, weheld interests in a total of 6,725 acres of land, of which 1,660 were owned,3,712 were optioned and 1,353 were held under agency agreements in over 170schemes throughout the country. Having disposed of 184 acres in 2007, we added409 acres to our portfolio to show a net increase of 225 acres during the year.We continue to actively seek out further opportunities and, almost withoutexception, good progress is being made taking schemes through the planningprocess. Our teams throughout the country endeavour to acquire interests in landwhich, even in the most difficult of markets, house builders would put at thetop of their acquisition lists and we remain optimistic that we can continue toachieve attractive returns into the future. CONSTRUCTION Henry Boot Construction (UK) Limited achieved another operationally successfuland profitable year as we continued to benefit from our policy of carefullyselecting the type of building sector contracts carried out and minimising ourexposure to risk wherever possible. Competition in the marketplace remained strong, but we were well served bycontinuing to deliver high levels of quality workmanship, customer service andsatisfaction through a well trained and experienced workforce. We were shortlisted for the 2007 Regional Contractor of the Year by 'Contract Journal', thenational industry magazine. The development of company operations during theyear was enhanced by the further expansion of key partnering, framework andnegotiated contracts, predominantly in the Decent Homes, prison and educationsectors. Our involvement in social housing refurbishment increased substantially when wewere appointed as one of the construction partners to deliver a six year, £300mDecent Homes improvement programme involving the upgrade of some 22,000 housesfor St Leger Homes, a company formed by Doncaster Metropolitan Borough Council.In addition, we continue to work alongside partner contractors on three othermajor Decent Homes schemes - for Sheffield City Council on the largest projectof its type in the country managed by Sheffield Homes, for RotherhamMetropolitan Borough Council on a 22,500 homes programme being administered by2010 Rotherham and for Hull City Council on the improvement of 336 flats withinthree multi-storey tower blocks. With the exception of Hull, it is anticipatedthat these projects will continue over a three to six year period. As a result of our Preferred Alliance Contractor Agreement with the NationalOffenders Management Service, we carried out a number of upgrade andrefurbishment contracts within secure establishments during the year. Lookingahead, we have secured several new projects, with others currently innegotiation, and these will provide good levels of growth within this sector. The year also saw new educational facilities completed under a FrameworkAgreement with Cheshire County Council, with others in the course ofconstruction. We are also partners under similar agreements with Derby CityCouncil and Lancashire County Council for non-housing and educationalrefurbishment and new build schemes. In Rotherham, we undertook a number ofschool extension and modernisation projects through our involvement in theRotherham Construction Partnership. In addition, work started on theconstruction of a new 60-bed residential care home at Dinnington, nearRotherham. Our General Works Division achieved further growth in its mainstream activity ofcivil engineering contracts in the industrial and water sectors. This was onceagain augmented by increasing business in smaller contracts across varioussectors. As ever, a key feature of the division's success was its ability tosecure repeat work for satisfied clients. Important contract completions achieved in the year included an 11 acrestate-of-the-art garden centre and retail scheme for Dobbies Garden Centres atBarlborough, Sheffield, and a major refurbishment of the Drakehouse Retail Park,Sheffield for Hammerson Plc. These projects were completed on time and budgetand we hope to undertake further projects for these clients in the future. ROAD LINK (A69) Our 30 year PFI contract to operate and maintain the A69 Newcastle-Carlisletrunk road for the Highways Agency in which we have a 61.2% stake continues toperform well. The planned maintenance programme continues to be implemented inboth an efficient and cost effective manner and the priority objective ofproviding a safe, free-flowing highway is being achieved. Throughout the contract we have been prompt in attending to repair whenmaintenance items have arisen. As a result, the indications are that we arebenefiting from a reduction in the rate of deterioration in both the road'ssurfacing and underlying structure. This will enable us to fulfil our futurecontractual repair obligations more cost effectively than was envisaged in theoriginal project plan. Statistics show that, during year eleven of our 30 year contract, that part ofthe A69 for which Road Link is responsible carried vehicles over a total of 553million vehicle kilometres. PLANT Our plant hire business, Banner Plant Limited, delivered a strong tradingperformance, particularly in the second half, arising from healthy demand fromall segments of the construction industry, allied to targeted capital investmentand increased efficiency which resulted in high levels of plant utilisation. Increasing capital investment within key product categories - large industrialair compressors, accommodation units and powered access equipment - hasundoubtedly expanded the company's client base and its reputation as a leadingregional operator in its field. We also continued our replacement programme forgeneral plant items, increasing the unit hire fleet by a further 10% overall. The year's outstanding depot performance was from the powered access centrebased in Rotherham which, helped by strong capital investment, posted a recordprofit for any of our hire centres. We relocated and enlarged our hire centresin Wakefield and Derby during the first half of the year and, although turnoverwas affected because of the initial inconvenience of the relocation, by mid-yearboth centres had re-established their operational base and were trading well.Towards the end of the year, we efficiently integrated the Leeds and Bradfordtool hire depots onto one location. As ever, efficient administration is at the heart of any successful businessand, having introduced new financial systems in 2006, we reorganised our financefunction which, together with a much improved credit control system, led tolower bad debts and receivables as a percentage of turnover and thereforeimproved cash flow over the year. Looking to 2008 our customers have carried good construction order books intothe current year and we feel we are well positioned to cope with anyuncertainties in the market in 2008. FINANCIAL REVIEW RESULTSProfit and Loss Net revenue for the year was £124.8m (2006: £142.3m) as higher constructionrevenues were offset by lower land sales as fewer transactions were brought tomarket. Profit before tax increased 14% to £46.5m (2006: £40.8m) after inclusionof the property revaluation surplus of £18.1m (2006: £3.0m), largely arisingfrom Ayr. Realised profits on the sale of investment properties and propertiesunder construction, mostly arising from the sale of Ripon, were £3.5m (2006:£1.4m). Administrative and pension expenses were £0.3m higher at £13.6m (2006:£13.3m) primarily resulting from the investment in additional headcount acrossthe Group, offset by slightly lower pension expenses. Comparing the segmental profit analysis shows that the property and landdevelopment profits, including the initial revaluation of completeddevelopments, increased by 23% to £47.3m (2006: £38.6m). Within this caption,land trading profits were £22.9m (2006: £28.0m) and property development andinvestment profits were £24.4m (2006: £10.6m). Construction division profitswere stable at £7.6m (2006: £7.6m) and central costs slightly higher at £4.5m(2006: £4.3m). Basic earnings per share were 24% higher at 24.5p (2006: 19.8p). Total dividendpayable for the year rises 14% to 5.0p (2006: 4.4p), with dividend coverincreasing to 4.9 times (2006: 4.4 times). Financing and Gearing As anticipated, net interest costs increased to £3.8m (2006: £1.1m) as we madesignificant investments in the land, development and investment portfolios.Interest cover, expressed as the ratio of profit from operations (excluding thevaluation movement on investment properties and disposal profits) to interest,was eight times (2006: 35 times). Although higher than last year, interestexpenses are likely to fall in 2008 as the combination of lower average debtlevels and anticipated interest rates combine to reduce cost. No interest,incurred during the year or the previous year, has been capitalised intodevelopment costs. The aforementioned investment in our asset base saw year end borrowings increaseto £70.9m (2006: £15.9m). Gearing, on net assets of £182.2m was 39% (2006: netassets £152.2m, gearing 10%). All borrowings continue to be from facilitieslinked to floating rates or short-term fixed commitments. Consideration is givento the need for alternative, longer-term funding as and when appropriate.However, longer-term funding is currently not considered necessary as strongoperational cash flows anticipated in 2008 are expected to reduce debt andtherefore gearing during the year. Taxation The tax charge for the year is £13.7m (2006: £14.0m) representing a charge of29.4% (2006: 34.3%). The lower percentage charge primarily arises from lowerlevels of disallowed construction expenses compared with 2006. Deferred tax hasbeen calculated at 28%, being the rate expected to be applicable at the date theactual tax will arise. Cash flow The strategy of retaining investment properties alongside the developmentportfolio resulted in cash outflows of £55.0m after net expenditure of £52.5m onproperty, plant and equipment and £23.9m on land holdings, in particular MiltonKeynes. Net cash inflow from operating activities reduced to £4.0m (2006:£26.2m) after significantly higher net investment in working capital of £13.1m(2006: £4.0m), increased interest costs and higher taxation payments of £13.5m(2006: £11.0m), primarily arising from higher taxable profits in 2006, andpayments on account for 2007 profits. These outflows were only marginally offsetby property disposals of £7.5m, compared to £16.3m in 2006. Dividends paid,including those to minorities, totalled £7.2m (2006: £6.1m) as we continued ourprogressive dividend policy. Balance sheet The policy of progressive investment in the development portfolio noted in thisbusiness review underlies the £55.3m increase in property, plant and equipmentto £154.9m. It is anticipated that this investment will continue during 2008 aswe finally complete developments at Bromley, Nottingham, Saltwood, Bromboroughand Stoke-on-Trent, whilst commencing developments at Markham Vale, Port Talbot,Bristol and Maidenhead. The inclusion of Ayr in the investment portfolio was themain change behind the increase in value to £81.5m (2006: £30.1m). The totalinvestment in non-current assets stood at £248.5m (2006: £143.3m). Net currentassets reduced £88.2m to become net current liabilities of £19.6m (2006: netcurrent assets £68.6m) due to the increase in trade payables and borrowings.Non-current liabilities also reduced by £13.0m as non-current borrowings reducedto £17.6m (2006: £28.1m) and the pension scheme deficit fell to £22.5m from£25.8m. Net assets increased £30.0m to £182.2m (2006: £152.2m) and net assetvalue per share increased 20% to 139p (2006: 116p). Pension scheme The annual IAS 19 valuation of the defined benefit pension scheme showed thescheme deficit reducing to £22.5m (2006: £25.8m) at the year end. The deferredtax asset associated with this was £6.3m from £7.7m last year. Adding back thisnet deficit of £16.2m (2006: £18.1m) to net assets, the 2007 deficit equates to8.2% of equity shareholders funds (2006: 10.7%). The reduction in the deficitbenefited from an increase in long-term interest rates and the level ofcommutation, offset by increases in the scheme mortality assumptions. Thescheme's assets performed well in the period and the trustees took theopportunity to switch part of the scheme's holdings from equities to debt duringthe year. The Scheme Actuary performed the triennial valuation at 1 January 2007which showed a deficit of £8.8m. The comparatively lower deficit than thatcalculated under IAS 19 is principally due to the allowance for equityout-performance in the triennial valuation (not allowed in the IAS 19calculation). In the scheme each 0.1% increase in assumed long-term investmentreturn reduces the scheme deficit by about £3.0m. The Company has agreed arecovery 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, with the 2007 contribution charged in the year. The defined benefitscheme is closed to new entrants and new employees are offered a definedcontribution scheme. Group Income Statement 2007 2006for the year ended 31 December 2007 £'000 £'000_________________________________________________________________________________________________ Revenue 124,782 142,284Cost of sales (82,419) (91,496)_________________________________________________________________________________________________Gross profit 42,363 50,788Other income 49 27Administrative expenses (12,133) (11,479)Pension expenses (1,460) (1,855)_________________________________________________________________________________________________ 28,819 37,481Increase in fair value of investment properties 18,063 3,032Profit on sale of properties under construction 3,379 -Profit on sale of investment properties 120 1,381_________________________________________________________________________________________________Profit from operations 50,381 41,894Investment income 361 641Finance costs (4,195) (1,740)_________________________________________________________________________________________________Profit before tax 46,547 40,795 Taxation (13,677) (14,008)_________________________________________________________________________________________________Profit for the year from continuing operations 32,870 26,787_________________________________________________________________________________________________Attributable to:Equity holders of the parent 31,428 25,415Minority interest 1,442 1,372_________________________________________________________________________________________________ 32,870 26,787_________________________________________________________________________________________________Basic earnings per ordinary share 24.5p 19.8p_________________________________________________________________________________________________Diluted earnings per ordinary share 24.1p 19.5p_________________________________________________________________________________________________Dividend 5.0p 4.4p_________________________________________________________________________________________________ Group Balance Sheet 2007 2006at 31 December 2007 £'000 £'000_________________________________________________________________________________________________ ASSETS Non-current assets Goodwill 3,392 3,595Property, plant and equipment 154,937 99,595Investment property 81,458 30,130Deferred tax assets 8,709 9,941_________________________________________________________________________________________________ 248,496 143,261_________________________________________________________________________________________________ Current assets Inventories 83,403 94,736Trade and other receivables 28,809 17,592Cash and cash equivalents 2,326 15,044_________________________________________________________________________________________________ 114,538 127,372_________________________________________________________________________________________________ LIABILITIES Current liabilities Trade and other payables 55,259 31,830Current tax liability 11,886 11,739Borrowings 55,702 2,801Provisions 11,291 12,401_________________________________________________________________________________________________ 134,138 58,771_________________________________________________________________________________________________Net current (liabilities) assets (19,600) 68,601_________________________________________________________________________________________________ Non-current liabilities Borrowings 17,556 28,141Employee benefits 22,454 25,813Deferred tax liabilities 6,523 5,585Provisions 144 144_________________________________________________________________________________________________ 46,677 59,683_________________________________________________________________________________________________Net assets 182,219 152,179_________________________________________________________________________________________________ EQUITY Share capital 13,424 3,005Revaluation reserve 4,809 2,908Retained earnings 160,759 142,843Other reserves 2,623 2,610Cost of shares held by ESOP trust (1,033) (740)_________________________________________________________________________________________________Equity shareholders' funds 180,582 150,626Minority interests 1,637 1,553_________________________________________________________________________________________________TOTAL EQUITY 182,219 152,179 Group Statement of Changes in Equity 2007 2006at 31 December 2007 £'000 £'000_________________________________________________________________________________________________ Profit for the year 31,428 25,415Equity dividends (5,881) (5,016)Revaluation of group occupied property 2,778 140Deferred tax on property revaluations (695) (28)Tax on realised surplus (33) -Actuarial gain on defined benefit pension scheme 3,359 11,918Deferred tax on actuarial gain (1,457) (3,575)Movement in fair value of cash flow hedges 62 506Share based payments (293) 55Arising on employee share schemes 688 206_________________________________________________________________________________________________Movement in equity 29,956 29,621Equity at 1 January 150,626 121,005_________________________________________________________________________________________________Equity at 31 December 180,582 150,626_________________________________________________________________________________________________ Group Cash Flow Statement 2007 2006for the year ended 31 December 2007 £'000 £'000_________________________________________________________________________________________________ Cash flows from operating activities Profit from operations 50,381 41,894Adjustments for non-cash items:Depreciation of property, plant and equipment 4,858 4,701Property impairment 157 -Goodwill impairment 203 204Revaluation increase in investment properties (18,063) (3,032)Gain on disposal of property, plant and equipment (3,701) (263)Gain on disposal of investment properties (120) (1,381)_________________________________________________________________________________________________Operating cash flows before movements in working capital 33,715 42,123Increase in inventories (23,890) (11,355)(Increase) decrease in receivables (11,510) 4,847Increase in payables 22,308 2,532_________________________________________________________________________________________________Cash generated from operations 20,623 38,147Interest received 361 636Interest paid (3,434) (1,599)Taxation (13,545) (10,976)_________________________________________________________________________________________________Net cash from operating activities 4,005 26,208_________________________________________________________________________________________________ Cash flows from investing activities Purchase of property, plant and equipment (59,258) (32,228)Proceeds on disposal of property, plant and equipment 6,719 1,391Proceeds on disposal of investment properties 739 14,872_________________________________________________________________________________________________Cash flows from investing activities (51,800) (15,965)_________________________________________________________________________________________________ Cash flows from financing activities Dividends paid:Ordinary shares (5,860) (4,995)Minorities (1,358) (1,067)Preference (21) (21)_________________________________________________________________________________________________Cash flows from financing activities (7,239) (6,083)_________________________________________________________________________________________________Net (decrease) increase in cash and cash equivalents (55,034) 4,160Opening net debt (15,898) (20,058)_________________________________________________________________________________________________Closing net debt (70,932) (15,898)_________________________________________________________________________________________________ NOTES 1. Business and geographical segments Year ended 31 December 2007 Year ended 31 December 2006 Inter- Inter- External segment External segment sales sales Total sales sales Total £'000 £'000 £'000 £'000 £'000 £'000RevenueProperty and landdevelopment 47,790 242 48,032 80,938 241 81,179Construction 76,988 4,546 81,534 61,285 4,950 66,235Group overheads andother 4 573 577 61 528 589__________________________________________________________________________________________________ 124,782 5,361 130,143 142,284 5,719 148,003Eliminations - (5,361) (5,361) - (5,719) (5,719)__________________________________________________________________________________________________ 124,782 - 124,782 142,284 - 142,284__________________________________________________________________________________________________ 2007 2006 Total Total £'000 £'000_________________________________________________________________________________________________________ResultProperty and land development 47,275 38,586Construction 7,641 7,610Group overheads and other (4,535) (4,302)_________________________________________________________________________________________________________Segment result 50,381 41,894Investment income 361 641Finance costs (4,195) (1,740)_________________________________________________________________________________________________________Profit before tax 46,547 40,795Taxation (13,677) (14,008)_________________________________________________________________________________________________________Profit for the year 32,870 26,787_________________________________________________________________________________________________________ For management purposes, the Group is currently organised into three businesssegments: Property and Land Development, Construction and Group overheads andother. As operations are carried out entirely within the UK, there is nosecondary segmental information. Inter segmental pricing is done on an armslength open market basis. 2. Dividends 2007 2006 £'000 £'000___________________________________________________________________________________________________________Amounts recognised as distributions to equity holders in year:Preference dividend on cumulative preference shares 21 21Final dividend for the year ended 31 December 2006 of 3.32p per share(2005: 2.82p) 4,257 3,612Interim dividend for the year ended 31 December 2007 of 1.25p per share(2006: 1.08p) 1,603 1,383___________________________________________________________________________________________________________ 5,881 5,016___________________________________________________________________________________________________________ The proposed final dividend for the year ended 31 December 2007 of 3.75p per share (2006: 3.32p) makes a total dividend for the year of 5.0p (2006: 4.4p). 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 £4,802,000. The final dividend will be paid on 22 May 2008, with a record date of 9 May 2008. 3. The financial information above has been extracted from the group's statutory accounts for the years ended 31 December 2006 and 2007. Statutory accounts for the year ended 31 December 2006 have been delivered, and those for the year ended 31 December 2007 will be delivered, to the Registrar of Companies. The auditors of the Company have given unqualified reports on those accounts and such reports did not contain a statement under Section 237(2) or (3) of the Companies Act 1985. 4. The financial statements were approved by the Board of Directors on 18 March 2008 and authorised for issue. 5. The Annual Report 2007 is to be published and sent to shareholders by no later than Friday 11 April 2008. 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 2006. 7. The Annual General Meeting of the Company is to be held at Baldwins Omega, Brincliffe Hill, Off Psalter Lane, Sheffield, S11 9DF on Wednesday 14 May 2008 commencing at 11.30 a.m. This information is provided by RNS The company news service from the London Stock Exchange