Henry Boot Regulatory News (BOOT)

HENRY BOOT PLC

Henry Boot PLC ('Henry Boot', 'the Company' or 'the Group') (LSE: BHY), a company engaged in land promotion, property investment and development, construction and plant hire, announces its preliminary results for the year ended 31 December 2012.

Commenting on the results, Chairman John Brown said:

"I am pleased to report another year of strong progress throughout the Group in challenging construction and property markets.

"We have invested heavily in the land portfolio which now stands at over 9,000 acres. Furthermore, we achieved a significant number of planning permissions which will feed into sales during 2013 and beyond.

"Strategically we must now capitalise on these valuable assets, whilst at the same time growing the opportunity pipeline to ensure we continue the momentum in years to come.

"We have made a strong start to 2013 across all our businesses. Plant and construction activity is ahead of 2012 and Road Link (A69) Limited is performing to plan. We have a number of profitable developments in progress, have already concluded two land sales and have a significant level of interaction with the planning process which, if successful, will result in a growing number of profitable disposal opportunities to a growing house building industry... we have geared up our balance sheet to take advantage of the nascent recovery, investing in the business opportunities that will generate growing shareholder returns into the future."

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 309 0099

In my second year as Chairman, I am pleased to report another year of strong progress throughout the Group in challenging construction and property markets.

In the early part of the year under review confidence was dented by concerns surrounding the Euro crisis; however, in the second half, as those fears subsided, trading conditions improved and so did our performance. The result in 2011 benefited from comparatively higher land sales and, although 2012 was relatively quiet in sales terms, we have invested heavily in the land portfolio which now stands at over 9,000 acres. Furthermore, we achieved a significant number of planning permissions which will feed into sales during 2013 and beyond. In addition to the successes achieved in gaining planning permissions, we have a significant number of strategic land sites either progressing towards a planning application or already within the planning system. These will provide further good opportunities to grow sales in future years. UK house builders that have announced results in the early part of 2013 have reported increases in build and sale activity, selling prices and building plots purchased. These comments, allied to the slow but steady improvement in mortgage availability and loan to value ratios, indicate an improving trading environment for our land business.

Investment property yields and values have continued to remain relatively stable across our portfolio. The like for like portfolio valuation was marginally down over the year, however, the initial valuation of the development gain on properties finished in the year at Warminster, York and Markham Vale resulted in a net overall valuation gain of £1.4m. At Markham Vale, we built and sold a 100,000 sq ft industrial unit, giving rise to the majority of the profit on disposal achieved in the year. During the year we began a mixed-use development of some 31,000 sq ft on Deansgate in Manchester which is progressing well and is anticipated to complete in 2013. The office element of this development is pre-sold and we have just one retail/restaurant unit remaining to pre-let. We commenced a 58,000 sq ft redevelopment in a joint arrangement with Calderdale and Huddersfield NHS Foundation Trust early in 2013 and have a number of other development opportunities approaching a start on site. We remain cautious in a market where the risk of retailer default is higher, secondary yields are weak, our economy is operating below full capacity and there is vacant space available in all categories. We therefore only commit to development when we have a high proportion of a site pre-let on terms that achieve development returns in excess of our hurdle rate. Our development activities more than achieved this in 2012. We expect to continue to see relatively weak growth and new lettings are, we believe, likely to be with tenants moving to better property in better locations. Therefore, it is probable that older, secondary properties in weaker locations will struggle to maintain their capital values and rental returns. We very carefully review valuation risk and continue to sell assets and recycle capital into newer developments to ensure we maintain the quality of our asset portfolio.

Coming into 2012, industry commentators were forecasting tough trading conditions within construction markets. Whilst this was true, our management pursued every available opportunity diligently and the result, which was slightly better than 2011, reflected that hard work. The value of our typical contract is relatively low and we are undertaking a growing proportion of refurbishment work. At the end of 2012 we had contracted over 70% (2011: 60%) of our budget workload for 2013, the best position achieved for some years. Our plant business performed in line with 2011 and, as confidence began to return to our customers and markets, we saw average weekly turnover increase 13% in the second half compared to the first. Road Link (A69) Limited continued to perform very satisfactorily in line with our concession plan and previous years. Traffic volumes continue to be stable and, despite some awful winter weather and flooding in the summer, we kept the road operational throughout 2012.

FINANCIAL Results

Turnover reduced to £103.1m (2011: £114.6m) due to lower land sales, which in turn reduced trading profit to £12.3m (2011: £20.8m). However, the combination of development gains valued for the first time, along with realised profits on investment properties disposed of, amounted to £2.4m profit compared to a deficit of £4.3m in 2011. Net interest costs were broadly similar in both years, resulting in profit before tax of £13.9m (2011: £16.1m). Profit attributable to shareholders actually increased marginally because tax charges fell to £2.5m (2011: £5.3m). This change arose in part because of lower tax rates on current tax and because revaluation gains are not charged to tax until they are realised and, as they are not sufficient to absorb previously unrecognised deferred tax assets, the tax rate in the year is lower than the statutory rate. Earnings per share increased to 7.3p (2011: 6.9p). Total net assets reduced slightly to £181.9m (2011: £186.0m), as the increase in the IAS 19 pension deficit and dividends paid exceeded retained earnings. Net assets per share were 139p (2011: 142p), though we take comfort from our strategic land portfolio which, as inventories, is valued at the lower of cost or net realisable value and therefore has significant inherent value to the Group. As anticipated, debt levels rose to £21.9m (2011: £2.3m) as we invested over £19m in our land portfolio, successfully progressing more sites swiftly through the planning process.

Dividends

Subject to shareholder approval, the Board recommends a 12% increase in the final dividend to 2.90p (2011: 2.60p). This gives a total for the year of 4.70p (2011: 4.25p), an 11% increase. We remain committed to growing dividends to shareholders as results and market conditions allow.

employees

It is through the dedication, skill and hard work of our employees that we achieve success within our businesses. On behalf of my fellow Directors, I thank all our employees for the results they have achieved and look forward to meeting future challenges and developing our businesses together with confidence.

Strategy

Henry Boot has operated successfully for over 125 years; we take a long-term view of opportunities in the land, property development and construction sectors. We look for parts of our business to generate recurring income and cash flows, whilst others, land and property development, offer higher potential returns but, being deal driven, returns inevitably fluctuate annually. The last two years have seen us reinvest more aggressively in these two cyclical parts of our business and, by the end of 2012, these commitments resulted in more planning successes on land and increasingly worthwhile development opportunities. Furthermore, we created a jointly owned house building business, operating in the north of England, that in 2013 will be operating from three small sites. Strategically we must now capitalise on these valuable assets, whilst at the same time growing the opportunity pipeline to ensure we continue the momentum in years to come. As you read the business review you will see the tangible delivery of this strategy and its ability to drive business growth into the future.

Outlook

We have made a strong start to 2013 across all our businesses. Plant and construction activity is ahead of 2012 and Road Link (A69) Limited is performing to plan. We have a number of profitable developments in progress, have already concluded two land sales and have a significant level of interaction with the planning process which, if successful, will result in a growing number of profitable disposal opportunities to a growing house building industry. The risks to the recovery highlighted above continue to be mortgage and debt availability within the property sector, further cutbacks in capital expenditure by Government and perpetual upheaval and policy changes within the planning system, which place ever-increasing demands on land values.

On balance, these risks have diminished over the year and we have geared up our balance sheet to take advantage of the nascent recovery, investing in the business opportunities that will generate growing shareholder returns into the future.

John Brown

27 March 2013

BUSINESS REVIEW

Our long-term strategic aim - to create shareholder value through land and property development and construction - continues apace. Trading conditions in 2012 followed the trend of the last five years and can still be described as challenging. Global financial concerns really affected activity in the early part of the year and, whilst these issues are not fully resolved, their departure from the media front pages raised confidence levels through the second half of the year, improving trading conditions through to the end of the year. This more encouraging trend seems to have carried over into early 2013 and our management teams are more optimistic than at this stage last year.

This optimism must, however, be taken in context because many underlying issues that have made the last five years so arduous still remain and are only slowly improving. The UK banking sector is smaller, there is less leverage available and it is more costly. The economy is flat; retailers in particular are having a tough time. Where new accommodation is required, typically this results from consolidation and efficiency drives rather than expansion, which in turn puts rental and valuation pressure on older, less well situated property. One brighter horizon is the residential market where the major house builders are slowly growing the number of units produced and replenishing land banks. The mortgage market is slowly improving and Government initiatives to help buyers join the property ladder are aiding that recovery. Planning continues to be a long, convoluted and a very expensive process but it was ever thus. Over the life of the current Government the system has changed significantly and provides an opportunity to bring forward high quality sustainable sites where the supply of permissions in existence falls below a five year supply. We have many such sites and, where applicable, are bringing them forward as quickly as we can. This process adds to the working capital requirement and, when this is included with the house builders' desire to pay for land with permission on deferred terms, we anticipate increasing debt levels throughout 2013.

As with land, we expect to see more property development in 2013. We are on site with two commercial developments, and together with our small house building venture that was formed two years ago, we anticipate completing over £20m of development activity during 2013. We continue to find that as we are able to bring financial capability and a desire to drive schemes forward, we are able to source better quality, more profitable opportunities, which will serve us well in the future.

The construction and plant businesses performed well throughout 2012 and have stronger order books going into 2013 than at this time last year. Markets are still challenging, contracts continue to be won on very tight margins and competition is fierce. We have therefore achieved these results through the provision of a quality product at a competitive price, choosing the right work to go for and win. Maintenance and refurbishment contracts are still the 'bread and butter' of what we do, though we are seeing a little more opportunity in the private sector coming to the market. Road Link (A69) Limited continues to underpin the profits and cash flows of this segment with 13 years left on this franchise arrangement.

The recovery from the immediate aftermath of the 2007 financial crisis and subsequent recession has been pretty flat. However, for the first time since then, the confidence levels in our business, coupled with tangible successes in land planning, developments, construction and plant hire, indicate that mid 2012 may have been something of a turning point. We have now had some eight months of encouraging trading and we are therefore looking forward to the challenges of 2013 and beyond optimistically.

PROPERTY INVESTMENT AND DEVELOPMENT

PROPERTY

Property markets remained relatively stable throughout 2012, albeit at values substantially below their peak. Whilst occupier demand across all sectors remained subdued we achieved considerable success in reducing voids in existing investments with completed lettings at York, where 18,000 sq ft of retail warehousing was taken, and at Bromley, Kent, where 9,000 sq ft of refurbished office space was let. In addition, following significant year on year increases in visitor footfall at Stop 24, our multi-occupancy motorway service area on the M20 in Kent, we saw letting progress with Subway opening a unit; detailed planning permission has also been secured for a significant extension to the existing lorry park operation, which has traded at capacity since opening. These, together with a number of smaller lettings, made a material contribution to the increase in net rental income during the year.

INVESTMENTS

Any improvement in property investment values during the year was only experienced by prime investment properties let on longer leases to financially strong tenants. This describes the majority of the Company's investment portfolio and, as a result, valuations were largely stable throughout the year with the principal increases arising on properties valued for the first time on completion of their development. The external valuation of the investment properties undertaken by Jones Lang LaSalle Limited resulted in a valuation of £102.6m. Of this figure, the value of Group occupied property was £6.8m and the developments concluded in the year were valued at £12.6m. Investment value gains were experienced on prime industrial, retail warehouse investments let to the strongest tenants, such as B&Q, and the supermarket investment let on a long-term lease to Waitrose which experienced yield compression in the year, evidence of strong demand for this type of investment. The softening of investment values for our secondary properties was partially offset by new lettings within these schemes. The overall result saw the value of our investment portfolio remain stable but, after an increase in investment income, the average yield increased marginally during the year.

The investment portfolio is primarily composed of retail and office investments which make up 45% and 38% respectively of the rental income generated. However, it is anticipated that the proportion of rent from leisure and, potentially, industrial investments will increase as development projects, notably hotel and city centre restaurant schemes, complete and industrial developments take place at some of our existing business park locations.

We are not expecting to make any significant changes to the retained property investment portfolio in 2013, although we are in negotiations with a number of existing tenants in respect of significant rent reviews and asset management opportunities which, if successfully concluded, should give rise to improvements in the quality and value of those properties.

DEVELOPMENTS IN PROGRESS

Development activity increased year-on-year with the completion of a supermarket development pre-let to Waitrose at Warminster on programme and budget, providing a very satisfactory return. The letting of two small retail units adjoining the Waitrose store are now well advanced and should be completed in the first half of 2013. At Markham Vale, our 200 acre business park development on Junction 29A of the M1, three significant developments were completed in the year: a 40,000 sq ft design and build warehouse with offices for Squadron Medical, a pre-let McDonald's drive-thru restaurant completed in September and a new 100,000 sq ft national distribution centre, pre-let to automotive parts distributor Andrew Page Limited. This development commenced on site in February 2012 with the fully fitted unit being completed and occupied in September 2012. We decided to sell this property on completion and the deal to do so was finalised in December 2012 at a competitive valuation reflecting the improved demand for well let, well located industrial investments.

During the year we made substantial progress on the mixed-use office and leisure redevelopment of the former County Courthouse, Deansgate, in Manchester city centre by securing planning and listed building consents and exchanging contracts for the sale of the entire office element of the development and pre-letting two of the three restaurant units. Construction work commenced in the middle of 2012 and remains on target to be finished in the second half of 2013. Following its completion, we anticipate retaining the restaurant investment which, along with the assets retained in 2012, will contribute to a further increase in our rent roll.

We reported last year that we entered into the Pennine Property Partnership LLP with Calderdale and Huddersfield NHS Foundation Trust. This innovative joint venture aims to identify and release the development value of surplus Trust property assets and provide a vehicle for the delivery of new accommodation for the Trust's use. The LLP's first development project comprises the conversion of a derelict 56,000 sq ft former wire mill to be used by the Trust as clinical and office space. Detailed planning and listed building consents were finally secured in the second half of 2012 and the Trust exchanged an agreement to lease with the partnership based on a 25 year lease term, enabling building contracts to be let for a start on site early in 2013. The partnership is also actively promoting a mixed-use development on a separate 23 acre former hospital site in Huddersfield, which is surplus to the Trust's needs.

The purchase of a 56 acre site on the edge of Skipton, North Yorkshire, was completed in the first half of 2012 and subject-to-planning contracts were exchanged with a major retailer. The site will be developed as a 40 acre mixed-use scheme incorporating a significant employment use as well as ancillary facilities. The planning application is expected to be submitted by the middle of 2013, following extensive pre-planning consultation work, and we are hopeful that permission will be granted by the end of 2013.

An agreement with Lloyds Bank was exchanged in the second half of 2012 for the development of a prominent six acre site on the edge of Chesterfield town centre with negotiations immediately progressing with a range of prospective occupiers. Contracts were also exchanged to acquire an interest in an existing open A1 retail development on the edge of Belper town centre which has considerable potential for an enlarged food and non-food retail development. Once again, detailed negotiations have commenced with a number of potential occupiers.

FUTURE DEVELOPMENT OPPORTUNITIES

We expect to see a significant increase in the number of developments commencing work on site during 2013. In addition to the sites in Deansgate, Manchester, and Huddersfield, planning consents are expected to be granted later in the year for both our budget hotel developments, one on appeal at Richmond upon Thames and the other by the local planning authority at Malvern. Provided we are successful, these consents will enable the construction of both pre-let hotels to commence in late 2013 and be completed during 2014.

At Thorne, Doncaster, the 23 acre joint venture scheme with the Royal Bank of Scotland, we secured planning permission for a substantial mixed-use development including a 45,000 sq ft supermarket together with supporting mixed uses. We have now exchanged contracts with Tesco for the sale of the foodstore site and detailed negotiations are progressing with a range of other operators to take adjoining space. It is anticipated that infrastructure development works will begin in the second half of 2013.

At sites where we have been bringing forward development for some time now, we are finally achieving results in the following cases:

Negotiations are progressing to acquire a number of other development schemes and it is reasonable to expect that some of these will be taken into our portfolio during 2013, providing development opportunities into the future. During the last few years, significant investment has been made bringing sites through the planning process. This can be a very long and drawn out process, particularly when trying to achieve our hurdle rate of return and high levels of pre-let, however, this hard work is beginning to pay off and we are now seeing more potential development activity for 2013 and beyond. We aim to capitalise on this and begin to release capital from non-income producing sites we hold in the portfolio.

LAND DEVELOPMENT

Hallam Land Management Limited, our strategic land business, had another successful year, despite a quiet year selling land with consent. Site disposals with planning permission were restricted to small sites at Mansfield, Desford and Bishopbriggs. Profit before tax in the land segment was lower than achieved in 2011 which included the profit on sale of a major 700 unit site at Buckingham. Turnover for the year was £8.8m (2011: £30.1m) and the segment profit before tax was £2.0m (2011: £11.1m).

The work we have undertaken to build value into our land holdings has not been reflected in the 2012 pure financial results. During the year, we worked on an unprecedented number of sites within the planning process and were particularly successful in securing planning permissions or minded to grant planning permissions on a large number of sites and further increased our site acreage. At December 2012, we held interests in 9,011 acres in total (2011: 8,051 acres) with 1,765 acres being owned (2011: 1,432 acres), 3,466 acres under option (2011: 3,986 acres) and 3,780 acres under planning promotion agreements (2011: 2,633 acres). The inventory value of these assets was £75.9m (2011: £58.8m) across 125 sites within the portfolio. At the end of 2012, we were in detailed discussions and close to acquiring interests in a further six sites with a number of others identified for acquisition as we move through 2013.

The Government's planning reforms, including the enactment of the Decentralisation and Localism Bill, together with the introduction of the National Planning Policy Framework, have undoubtedly made an impact on the planning system. These changes have created a clear opportunity to secure planning permissions on sustainable sites in locations which do not have an appropriate land supply. Hallam Land has capitalised on the new system, securing planning permissions (or minded to grant resolutions) on over 3,542 plots on 14 sites in the year. These add to long-term sites we hold with planning permission and therefore the Company now has a substantial portfolio of consented sites from which we can make disposals over the forthcoming years.

Of particular note is a site at Blaby, Leicester, where a minded to grant resolution has been approved by the council for a 4,250 house development together with a 50 acre business park, a district centre, two local centres, a secondary school and two primary schools. This will be the largest single permission that Hallam Land has achieved and is a consortium planning promotion agreement of which our share is 37.5%. We are now in a position to begin the Section 106 negotiations.

The planning permissions we achieved were a mixture of success at local level and at national level. We have been successful in seven out of our last nine appeals, including two appeal wins already in 2013, and we anticipate that an increasing number of sites will need to go into the appeal process to obtain permission, as local members reject officer recommendations. We believe that this trend will continue on the large number of sites we have in the process during 2013 and we will report on their progress throughout the year.

The strategic land market remains patchy and difficult in some parts of the country. The south, and particularly the south east, is strong but demand and values generally weaken as one moves north. That said, throughout the country good quality, well located sites still sell very well and generate good returns. As a consequence, sales values will be lower on some of our northern sites but our nationwide coverage is such that our land sales will enable us to make a consistent overall return.

We have also sought to replenish our land stocks during the year and have increased our total landholdings with the addition of twelve new sites totalling 960 acres. Of these sites, planning applications have already been submitted on five (180 plots at Ripley, Derbyshire; 110 plots at Haddington, East Lothian; 90 plots at Handcross, Sussex; 170 plots at East Leake, Staffordshire; and 120 plots at Abingdon, Oxfordshire) and a further three (Buxton, Faversham and Wymondham) are likely to be submitted during 2013.

We have secured planning permission or minded to grant planning permission subject to the signing of a planning agreement on the following sites during 2012 and post year end:

In addition, on the following sites we have already achieved a permission and are working towards a sale:

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

Finally, the following sites are at appeal:

Despite the real and beneficial improvements that the Government has made to speed up the planning system, there remain some troubling aspects to the process. The desire of local authorities to share in the enhanced value of land is well understood and supported in principle. However, the proportion of this value being demanded through Section 106 agreements makes certain permissions unviable, fails to recognise that land values are not what they were several years ago and defeats the Government's objective of creating more construction work and homes. This is particularly true in many lower value areas where, arguably, the need for housing and development is even more acute. Viability studies are, in many cases, making this problem even worse by increasing local authority aspirations and creating unworkable planning permissions. The introduction of Community Infrastructure Levy ('CIL') is a further tax on development land which exacerbates these issues. At a time when Section 106 and affordable housing contributions are being reduced to reflect the economic realities of today's house building costs, CIL is being used to recapture this lost value. There is only so much tax that the profits from the house building cycle can support and we fear that in many cases the current level is stopping potentially good housing sites coming forward.

A further issue is that certain local authorities have still not accepted the Government's desire for more land to be released where housing supply is very tight. Having faced long delays in securing minded to grant consents, we then find that there is further lengthy battle to settle the Section 106 agreement and other contributions; this bureaucratic delay serves to slow up and/or restrict housing delivery. Although the major UK house builders are continuing their recovery, the total number of houses that the nation is producing remains well below 2006 levels. Although there has been some improvement in the mortgage market recently, there seems to be no lasting solution to the fundamental issue, being the availability of high loan to value mortgages at competitive rates, which is holding back the delivery of more units. The recent budget has brought forward measures to support house buyers in this very area and may make a significant contribution to addressing these concerns.

CONSTRUCTION

Whilst the marketplace remained very competitive during 2012, Henry Boot Construction Limited maintained its targeted activity and profit margins. We are also confident that our budgeted profit and turnover levels will be maintained throughout 2013 after carrying a larger order book into this year than when we entered 2012.

Our continued policy of obtaining a good balance of work across a wide range of construction sectors, coupled with our reputation for the delivery of high quality projects, has enabled us to maintain our activity and margin levels in the public sector with partnering and framework agreements in the social housing, health, education and custodial sectors. At the same time, the slight improvement in the private sector has seen us increasing our involvement there with contracts in the retail, industrial, commercial and leisure sectors.

We have maintained and established new partnering agreements both in the public and private sectors and retained a very strong presence in Decent Homes and external wall insulation works. We are continuing to work on long-term, major frameworks for St Leger Homes, Doncaster, North Lincolnshire Homes, Eastlands Homes, Manchester, and Southway Housing Trust, Manchester, and new awards from Wakefield District Housing, EN Procure, Fusion 21, Hull City Council and Yorkshire Housing.

During 2012, we were awarded a further new framework for the Ministry of Justice Strategic Alliance Agreement. This follows on from the successful completion of the existing Ministry of Justice refurbishment framework and will provide new build and refurbishment opportunities for HM Prison Service, HM Court and Tribunals Service, the National Probation Service and Forensic Science Service in the north of England, over the next six years.

The level of work available from the industrial sector has shown signs of growth in recent months and we have secured a major design and build contract with Bifrangi, based in Lincoln, to provide a state-of-the-art Screw Press House. During the year, we also completed works for Tata Steel and London Scandinavian Metallurgical, both in Sheffield.

The education and commercial sectors have continued to provide a steady stream of work with contracts carried out for Calderdale MBC, North Lincolnshire Council, University of Sheffield, Henry Boot Developments Limited, Hammersons Plc, Wickes and Maplin Electricals, together with a managed workspace development in Sheffield for the Manor Development Company. We have also completed works, in conjunction with the Football Association, to provide changing facilities and sports pavilions for Barwell District Council and recently commenced a second scheme for Codnor Sports Charitable Trust.

In the health sector, we continue to undertake schemes for the Sheffield Teaching Hospitals at both the Northern General and Royal Hallamshire Hospitals under a long-term strategic framework. We also completed a major healthcare facility for the joint venture between Rotherham MBC and Rotherham Primary Care Trust.

Civil engineering opportunities have steadily grown from our targeted expansion of the client base. This has included works to a new Lytag Process Plant at Drax Power Station for Fairport Engineering Limited and drainage works for Derbyshire County Council on the Markham Colliery Reclamation Scheme. The YORcivils Framework is also generating good opportunities with works being carried out for East Yorkshire County Council.

We were very pleased with our inclusion as a supply chain partner on the 25 year Amey PFI Sheffield Highways scheme. The first schemes have been successfully completed and further works awarded. We anticipate this project will provide some excellent opportunities for growth in coming years. In association with this, we have also been awarded the civil engineering works for a new rail unloading and asphalt production plant for Aggregate Industries UK Limited.

We have also maintained our presence in the renewable sector, delivering ground source heat pump schemes for Yorkshire Housing and Berneslai Homes and photovoltaic projects for North Lincolnshire Council, North Lincolnshire Homes, Hammersons Plc, The Adsetts Partnership, and Eastlands Homes, Manchester. In November 2012, we launched our new Sustainable Business Strategy 2012-2015. This initiative is designed to align our sustainable credentials with the requirements of public sector procurement and in turn help us be more efficient, competitive and attractive to customers, business partners and employees alike.

ROAD LINK (A69)

The 30 year PFI Contract to maintain the A69 trunk road has now been in operation for 17 years and continues to perform well. In the last year it has been prolonged wet weather rather than the usual cold winter weather that has provided the real challenge to the maintenance teams. However, their expertise, together with the effective drainage maintenance programmes, ensured the A69 remained open throughout the year with minimum disruption to traffic.

In 2012 traffic volumes using the A69 remained static and the price adjustment indices are likely to be very slightly lower than expected. However, 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 maintenance cost plan. The financial forecasts for next year and to the end of the contract in 2026 remain favourable and we are confident that expected levels of profitability will continue.

PLANT HIRE

Banner Plant Limited, our plant and accommodation hire business, experienced the proverbial year of two halves. Up to the end of June 2012, the continued uncertainty surrounding the Euro and the plethora of bank holidays, including the additional Jubilee break, held demand in check, resulting in a reduction in turnover of 5.6% compared to the corresponding period in 2011.

During the second half of 2012, as concerns surrounding the global financial system subsided, a degree of customer confidence returned and this resulted in an average weekly turnover increase of 13.3% over the first half. This improvement in activity, combined with slightly less margin pressure, resulted in the recovery of the first half shortfall and we completed the year with a respectable result, slightly ahead of 2011.

Looking to the future, planned investment in fleet items continued at a rate marginally above 12% of original cost per annum. This conveyor belt of renewals ensures we continue with our goals of maintaining the quality of the fleet, its age profile and the earnings potential of the plant assets. We have committed to further investment in access plant which is used in industry for health and safety reasons as well as within the construction sector. Borrowings within the plant unit ended the year in line with our internal budget and equate to about 12% of the gross cost of the plant in use. In the current business climate we continue to operate cautiously but remain ready to develop and grow when we see definitive signs of a recovery in construction activity. 2013 has started positively, continuing the trend seen in the second half of 2012, and we are optimistic regarding prospects for the year.

FINANCIAL REVIEW

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Turnover reduced to £103.1m (2011: £114.6m) primarily due to lower land sales. The comparatively quiet year in land sales gave rise to a reduction in trading profit to £12.3m (2011: £20.8m), however net revaluation gains of £1.4m (2011: deficit £4.3m), profit on sale of investment properties of £1.0m (2011: £Nil) and loss on sale of assets held for sale of £Nil (2011: profit £0.4m) resulted in operating profit of £14.7m (2011: £16.9m). The revaluation gain and the profit on sale largely result from property development that completed in the year and was either retained and valued externally for the first time or sold on completion. Administrative costs were almost the same at £13.3m compared with £13.4m in 2011.

The segmental result analysis shows that land development produced a significantly reduced operating profit of £2.3m (2011: £11.0m) and property investment and development activities showed a significant improvement in operating profit to £7.4m (2011: £0.3m), the improvement arising from the initial revaluation of developments, higher rental income and improved disposal profits. Construction division operating profits also improved to £7.9m (2011: £7.3m) after a 10% improvement in activity was achieved despite the difficult trading conditions. These results show the benefits of a broadly based operating model which can benefit from opportunities in strategic land and commercial development to augment the relatively stable returns from the construction division.

Basic earnings per share amounted to 7.3p (2011: 6.9p). The total dividend payable for the year has been increased by 10.6% to 4.70p (2011: 4.25p), with the final proposed dividend also increasing by 11.5% to 2.90p (2011: 2.60p), payable on 31 May 2013 to shareholders on the register as at 3 May 2013. The date the shares become ex-dividend is 1 May 2013.

Financing and Gearing

Although debt was reintroduced and further investment was made in the strategic land portfolio, net finance costs remained stable at £0.8m (2011: £0.8m). Average borrowing costs were lower than the previous year and the cost of any increase in borrowing is offset by the equivalent reduction in the non-utilisation fee. Most of the finance costs incurred in both years were non-utilisation fees rather than interest. It is anticipated that interest costs will begin to rise in 2013 as we gear up further, 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 16 times (2011: 26 times). Once again, in accordance with accounting standards, no interest incurred in either year has been capitalised.

Our unprecedented interaction with the planning system saw continued investment in our strategic land holdings and to a lesser extent the development and investment property portfolio. Therefore, total net debt rose to £21.9m (2011: £2.3m). Gearing on net assets of £181.9m increased to a still modest 12% (2011: net assets £186.0m; gearing 1%). This total includes £2.8m (2011: £0.8m) of grant funding which is repayable from the future sale of residential units. All bank borrowings continue to be from facilities linked to floating rates or short‑term fixed commitments. During the year, we maintained three year committed bank facilities totalling £50m renewable in May 2015 and, throughout the year, we operated comfortably within the facility covenants and are forecast to continue to do so.

Tax

The tax charge for the year was £2.5m, with an effective rate of tax of 17.6% (2011: £5.3m, effective rate of tax 33.0%). Taxation on profit for the year was £1.9m (2011: £3.9m) and benefits from prior year adjustments were £0.2m. The reduced effective rate of tax for the year was also due to revaluation gains that were not sufficient to absorb previously unrecognised deferred tax assets. The deferred tax charge was £0.6m (2011: £1.4m) and has been calculated at 23%, being the rate expected to be applicable at the date the tax relief will arise.

CONSOLIDATED STATEMENT OF CASH FLOWS

As anticipated, we reinvested heavily in our strategic land and house build inventories in advance of an improving housing market and the changes to the planning system. This, in addition to a steady build up in commercial development activity, saw our net borrowings increase to £21.9m during the year (2011: £2.3m). We continue to 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 2013 will rise as our forecast increased net investment in land and property investment and development occurs. During 2012, cash outflows from operations increased to £5.2m (2011: £1.1m) after a £19.4m (2011: £3.8m) investment in inventories offset net trading inflows of £14.1m (2011: £21.8m) and reduced receivables offset the payables, interest and tax cash outflows. Cash outflows from investing activities were £6.8m (2011: inflows £16.6m) as we recycled investment capital and committed a little more to the plant fleet than in 2011. Dividends paid, including those to non-controlling interests, totalled £7.6m (2011: £6.7m), a 13% increase on the previous year, as we fulfil our plan to move dividend returns back to pre-recession levels.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Investment property and assets in the course of construction were valued at £140.4m after adjustments for tenant incentives (2011: £138.2m). Additions during the year were the foodstore at Warminster (valued at £9.5m), a McDonald's drive-thru restaurant at Markham Vale, Chesterfield (valued at £1.2m) and a retail unit at Clifton Moor Retail Park, York (valued at £1.9m). The market value of investment property, including assets held for sale, was £102.0m (2011: £90.8m) and the value of investment property under construction, within investment property, was £44.2m (2011: £52.2m) which reduced as we develop out these assets as investment properties.

Intangible assets reflect the Group's asset investment in Road Link (A69) Limited of £9.2m (2011: £10.4m). 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 £6.8m (2011: £6.9m) and plant, equipment and vehicles with a net book value of £9.8m (2011: £8.7m), the increase arising from further investment in the plant business. Non-current trade and other receivables have decreased to £11.5m (2011: £15.8m) due to deferred receipts on land sales already undertaken moving into the current receivables category and not being replaced through sales in the year. Given the higher land sales anticipated in 2013, we expect our investment in receivables to increase by the end of the year. Deferred tax assets have grown as a result of the larger pension deficit. In total, non-current assets have decreased slightly to £186.6m (2011: £187.5m).

Within current assets, inventories of £81.6m (2011: £62.1m) increased due to further significant investment in the land portfolio. Trade and other receivables remained stable at £37.3m (2011: £37.6m). The property included within current assets held for sale in 2012 of £1.9m is the estimated Compulsory Purchase Order value of the part of our Beeston property which will be acquired to facilitate the Nottingham tram extension.

Current liabilities have increased by £18.2m to £80.8m (2011: £62.6m) as the current portion of debt increased to £19.2m (2011: £1.4m); trade payables increased slightly to £51.8m and so did provisions, as amounts provided for the infrastructure work at Bridgwater moved into the current category from non-current provisions and were utilised. Net current assets were £43.3m (2011: £42.3m). Non-current liabilities increased to £48.0m (2011: £43.7m) after IAS 19 pension liabilities increased to £30.5m (2011: £22.6m) after reductions in corporate bond yields increased the scheme's liabilities faster than the strong performance in the scheme's assets.

Net assets reduced by 2.2% to £181.9m (2011: £186.0m) as higher dividends and the increase in the pension deficit exceeded retained profits. Net asset value per share was slightly lower at 139p (2011: 142p).

Pension scheme

The annual IAS 19 valuation of the defined benefit pension scheme showed the deficit increasing to £30.5m (2011: £22.6m) at the year end. The scheme assets performed well in the year with an overall return of 8% and for the fifth year in succession achieved a better than expected return on scheme assets. Therefore, the deficit increase is again due to falling bond yields, which had the effect of reducing the discount rate used to 4.5% (2011: 5.0%). Each 0.1% change in the assumed differential between long-term investment returns and inflation continues to affect the deficit by approximately £2.5m; therefore the change in bond yields in this year more than explains the increase in the deficit. The deferred tax asset related to the deficit was £7.0m (2011: £5.7m). Adding back this net deficit of £23.5m (2011: £16.9m) to net assets, the 2012 deficit equates to 11% of equity shareholders' funds (2011: 8%). The triennial valuation deficit at 1 January 2013 is now in progress and we believe that the recovery plan contributions agreed at the last triennial valuation will continue at about the same level. We expect to conclude negotiations on this funding level in the second half of 2013. The defined benefit scheme is closed to new entrants; active member contribution increases are capped at 1% per annum and new employees are offered entry to a defined contribution scheme. We continue to evaluate cost-effective ways of reducing risk within the scheme and will undertake liability management exercises as appropriate. The revision of the rules regarding accounting for pensions in IAS 19(R) will apply in 2013. At this stage, on adoption in 2013, we estimate that the defined benefit pension expenses figure will be circa £2.2m, compared to £1.6m in 2012.

NOTES