Henry Boot Regulatory News (BOOT)

20 September 2022

HENRY BOOT PLC

('Henry Boot', the 'Company' or the 'Group')

Ticker: BOOT.L: Main market premium listing: FTSE: Real Estate Investment and Services.

UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2022

Strong operational performance driven by land disposals and development completions driving 10% dividend increase, with material progress made towards medium-term strategic targets

Henry Boot PLC, a Company engaged in land promotion, property investment and development, and construction, announces its unaudited interim results for the six months ended 30 June 2022.

Tim Roberts, Chief Executive Officer, commented:

"We have had one of our best ever first half years with materially rising profits and good progress achieved against our strategic targets. Taking advantage of our three key markets we have made significant sales whilst being selective on purchases. This has allowed us to keep gearing low, despite continued investment in our high-quality committed development programme and our growing housebuilder, and at the same time increase our interim dividend by 10%. We have worked hard to do our best to adjust to supply restrictions, inflation and an increasingly complex planning system. This work, together with our committed team of people and the relatively high level of forward sales for 2023, see us well placed as we enter what seems yet another period of economic uncertainty."

Financial highlights

· 11.9% increase in revenue to £144.4m (June 2021: £129.0m) driven by land disposals and property development completions

· Profit before tax grew 68.0% to £38.8m (June 2021: £23.1m) due to strong performance of residential land sales and industrial development activity

· Increased ROCE¹ of 10.1% (June 2021: 6.3%), up 60.3%, expect to be in top half of our medium-term target of 10%-15% by the year-end

· EPS increased significantly to 24.1p (June 2021: 14.1p), up 70.9%

· NAV² per share grew to 297p (December 2021: 267p), an increase of 11%, due to strong operational performance. Excluding the defined benefit pension scheme surplus an underlying increase of 9% to 291p.

· Robust balance sheet, with Net Debt³ of £42.8m (December 2021: Net Debt £43.5m) after making the decision to limit further site acquisitions. Gearing remains prudent at 11% (December 2021: 12%)

· Declared an interim dividend of 2.66p (June 2021: 2.42p), an increase of 10%, reflecting the Group's strong operational performance and in line with our progressive dividend policy

Operational highlights

· Land promotion

o  3,447 plots sold (June 2021: 2,288), higher due to a major disposal at Didcot of 2,170 plots

o  Land bank maintained at 92,981 plots (December 2021: 92,677)

o  9,615 (December 2021: 12,865) plots with planning permission, all held at cost, following disposals and continued delays in the planning system, with c.30% of the 11,694 plots currently awaiting determination timetabled for a decision in H2

· Property investment & development

o  Committed developments of £262m, with 73% pre-sold or pre-let and 97% of the development costs fixed

o  Approximately 1m sq ft of industrial & logistics development underway (97% pre-sold or pre-let)

o  £1.5bn development pipeline (HB share: £1.2bn), 68% focused on industrial & logistics

o  Investment portfolio value increased to £134m (including JVs) (December 2021: £126m), delivering a total property return of 4.6% over the period

o  Stonebridge Homes has secured 96% of its annual sales target of 200 units for 2022, with a total owned and controlled land bank at 1,164 plots (December 2021: 1,119), We are on track to scale up this business

· Construction

o  The construction segment achieved turnover of growth of 21.6% to £66.5m (June 2021: £54.7m)

o  Henry Boot Construction remains focused on delivering its fully secured order book for 2022 with 52% of 2023 order book secured

· Responsible Business

o  Making good progress on the second phase of our recently launched, Responsible Business Strategy

NOTES:

1 Return on Capital Employed is an alternative performance measure (APM) and is defined as operating profit/ average of total assets less current liabilities (excluding DB pension surplus) at the opening and closing balance sheet dates

2 Net Asset Value (NAV) per share is an APM and is defined using the statutory measures net assets/ordinary share capital

3 Net (debt)/cash is an APM and is reconciled to statutory measures in note 14

For further information, please contact:

Enquiries:

Henry Boot PLC

Tim Roberts, Chief Executive Officer

Darren Littlewood, Chief Financial Officer

Daniel Boot, Group Communications Manager

Tel: 0114 255 5444

www.henryboot.co.uk

Numis Securities Limited

Joint Corporate Broker

Ben Stoop/Will Rance

Tel: 0207 260 1000

Peel Hunt LLP

Joint Corporate Broker

Charles Batten/Harry Nicholas

Tel: 0207 418 8900

FTI Consulting

Financial PR

Giles Barrie/Richard Sunderland

020 3727 1000

henryboot@fticonsulting.com

A webcast for analysts and investors will be held at 9.30am today and presentation slides will be available to download via www.henryboot.co.uk. Details for the live dial-in facility and webcast are as follows:

About Henry Boot PLC

Henry Boot PLC (BOOT.L) was established over 135 years ago and is one of the UK's leading and long-standing property investment and development, land promotion and construction companies. Based in Sheffield, the Group is comprised of the following three segments:

Land Promotion: Hallam Land Management Limited

Property Investment and Development: HBD (Henry Boot Developments Limited), Stonebridge Homes Limited

Construction: Henry Boot Construction Limited, Banner Plant Limited, Road Link (A69) Limited

The Group possess a high-quality strategic land portfolio, an enviable reputation in the property development market backed by a substantial investment property portfolio and an expanding, jointly owned, housebuilding business. It has a construction specialism in both the public and private sectors, a long-standing plant hire business, and generates strong cash flows from its PFI contract through Road Link (A69) Limited.

www.henryboot.co.uk

CEO Review

Henry Boot has had a very good first half and our expectations for the full year remain in line with market consensus*. Profit before tax has increased significantly to £38.8m (June 2021: £23.1m) up 68%, driven by land disposals and property development activity. The Group's NAV per share has materially increased by 11% to 297p (Dec 2021: 267p). Excluding the defined benefit pension scheme surplus of £8.4m, this still represents an underlying increase of 9% to 291p. ROCE solely in H1 22 was 10.1% (June 2021: 6.3%). These strong results have given us the confidence to increase the half year dividend by 10% to 2.66p.

The Group's performance is driven by a mixture of our strategic and operational actions and the ongoing strength of our three key markets, Industrial & Logistics (I&L), Residential and Urban Development, which continue to provide attractive opportunities.

Hallam Land Management (Hallam Land) and Henry Boot Developments (HBD) have completed or exchanged on contracts with gross sales of £130m (including £21m of forward funding developments) in buoyant markets, whilst being very selective on acquisitions of new opportunities. We have made total purchases of only £10m during the period (June 2021: £55m), which reflects a conscious decision by the Group to slow acquisition spend in a particularly competitive market for assets and in advance of what we anticipate being yet another period of economic uncertainty.

We are taking a balanced approach between responding to short-term market opportunities and continuing to focus on our medium-term objective of growing the business. We have continued to fuel our strategic objectives to grow our committed development programme by investing £18m during the period and to gain scale in Stonebridge Homes by buying £14m of land.

Financially, this puts us in a strong position. The recycling of capital and strong cash flow means, even though we have grown our capital employed to £399m, or by 6%, gearing has reduced, albeit marginally, to a very conservative 11% (net debt of £42.8m) (December 2021: £43.5m), which is at the bottom of our preferred range of 10%-20%. Together with banking facilities that are secured up to January 2025, we are in a good position to trade through, whilst also having the flexibility and resources to identify and act on compelling opportunities to create value, as we did successfully coming out of COVID-19 in late 2020 and early 2021.

Whilst we expect this year's results will be heavily weighted to H1 22 and that some of our markets will adjust as economic output falls, we have had a busy summer and expect to benefit from this momentum in the second half and into 2023, when much of this activity will, from a revenue and profit basis, start to be recognised.

Key highlights for the Group include:

· Hallam Land benefitted from continued demand from housebuilders, selling 3,447 plots (June 2021: 2,288 plots) and, in response to these very strong sales, we have continued to invest in our land bank, replenishing it to 92,981 potential plots (December 2021: 92,667) - all held at cost.

· HBD completed on £37m Gross Development Value (GDV) (HB share) of development properties (all of which has been pre-let or sold) and we now have a committed programme of £262m (HB share) - 73% of which is pre-let/presold. 97% of the development costs have been fixed. Our development pipeline has grown to £1.2bn (HBD share) boosted by being selected to develop the mixed use cyber-led campus at Golden Valley, Cheltenham.

· The investment portfolio, including JVs, increased in value by 2.5% on a like-for-like basis to £134m (December 2021: £126m) and has generated a total return of 4.6% over six months. Having sold the Kitwave unit, Wakefield, post H1 22 for £11.4m (3.3% net initial yield) and with other potential sales identified we are likely to reduce the size of the portfolio in the short term, but with upcoming developments completing next year there are a number of opportunities to replenish the portfolio.

· Stonebridge Homes has already secured 96% of its 200-unit sales target for the year, reflecting the continued strong demand for the premium houses it delivers. Furthermore, with sales prices averaging over 11% ahead of budget, the Group has been able to absorb build-cost inflation of 9%.

· With a full order book, Henry Boot Construction continues to manage cost inflation, and remains on track to hit full year targets, and is selectively winning work for 2023. Banner Plant is trading well in line with the UK construction market. 

On a separate note, I am delighted to welcome Serena Lang to the business, who was appointed to the Board as a Non-executive Director with effect from 1 August 2022. Serena brings a wealth of experience and diversity of thought to the Board, having worked across multiple industries.

*Market consensus being the average of current analyst consensus of £47.8m profit before tax, comprising three forecasts from Numis, Peel Hunt and Panmure Gordon.

Dividend

The Board has declared an interim dividend of 2.66p (June 2021: 2.42p), an increase of 10%, which reflects our progressive dividend policy, the Group's strong operational performance and the Board's confidence in the outlook for the Group. This will be paid on 14 October 2022 to shareholders on the register at the close of business on 30 September 2022.

Strategy

In the beginning of 2021, we set out a medium-term strategy focused around three key markets: I&L, Residential and Urban Development. These markets are driven by long-term structural trends and have all continued to perform well. Demand for I&L space is being driven by an increasingly diverse occupier base, while rising residential land prices reflect the continued appetite amongst housebuilders as planning restricts land availability and the country continues to suffer from a shortage of housing. Urban Development in the form of Build-to-Rent (BtR) is seeing strong rental growth and take up of office space in the key regional cities is recovering with increasing occupier focus on modern stock with the best environmental credentials.

Our ambition is to grow the business, by increasing capital employed from our starting point in 2021 by over 40% to £500m, whilst at the same time continuing to generate a ROCE of 10%-15% per annum and maintaining a progressive dividend policy.

Responsible Business

We recently launched Phase 2 of our Responsible Business Strategy, which aims to align ESG with our commercial strategy, and is guided by three principal objectives:

o  To further embed ESG factors into commercial decision making, so that the business adapts, ensuring long-term sustainability and value creation for the Group's stakeholders.

o  To empower and engage its people to deliver long-term meaningful change and impact for the communities and environments Henry Boot works in.

o  To focus on issues deemed to be most significant and material to the business and hold ourselves accountable by reporting regularly on progress.

Alongside these objectives, the strategy sets out targets, which we aim to achieve by the end of 2025. I am pleased to report that even though they have only recently been set, we are making good progress against them. 

Six-month performance against our medium-term targets

In conjunction with our strategy, we are also committed to ensuring that all the properties within the investment portfolio have a minimum EPC rating of 'C'. Currently 90% of these properties have a rating of 'C' or higher of which 45% are rated either 'A' or 'B'. Out of the properties that have a 'C' rating or lower, 42% of properties have redevelopment potential with a target range of 'A' or 'B'.

Outlook

The Group has begun the second half of 2022 positively and, whilst performance is expected to be heavily H1 22 weighted, we anticipate achieving a year-end ROCE in the upper half of our target range of 10%-15%. We are also building up forward sales for 2023 and beyond. Hallam Land has exchanged on 1,282 residential plots, which will complete in 2023/24. This includes exchanging on a 125-plot site in Tonbridge for a significant sale price showing an ungeared internal rate of return of 27% p.a. In HBD, we have 73% of our committed programme pre-let or pre-funded and have taken advantage of strong pricing in industrial, by selling the Kitwave Unit, Wakefield at £11.4m reflecting a net initial yield of 3.3% and 23% premium to its December 21 book value. Stonebridge Homes is making the most of strong demand and has already secured 21% of pre-sales for 2023.

Whilst our markets, to varying degrees, adjust to the uncertainty in the economy, and we continue to mitigate against supply restrictions plus associated cost inflation as well as a planning system, which is becoming more complex to navigate, our strong balance sheet, low gearing and a portfolio rich with opportunity leave us in a good position. Moreover, we continue to have confidence in the long-term strength of our markets, our people's high level of commitment and skills, plus our ability to grow and realise clear strategic objectives.

Tim Roberts

Chief Executive Officer

Business Review

Land Promotion

Hallam Land has traded very well in H1 22, achieving an operating profit of £17.2m (June 2021: £14.8m) from selling 3,447 plots (June 2021: 2,288 plots) at 6 locations. Total plot sales are materially higher this year due to a major disposal at Didcot of 2,170 plots to Taylor Wimpey and Persimmon Homes.

UK greenfield land values increased by 3.6% in the six months to 30 June 2022 and are up 9.9% over the last year according to Savills Research. A strong housing market has underpinned robust demand for sites as many housebuilders are actively seeking land to supply their pipeline, to meet customer needs and their growth targets.

Despite a high level of plot sales, Hallam Land's land bank grew to 92,981 plots (December 2021: 92,667 plots), of which 9,615 plots (December 2021: 12,865 plots) have planning permission (or Resolution to Grant subject to S106). The decrease in plots with planning permissions reflect disposals in the period and continued delays in the planning system. In H1 22, there were 669 plots submitted for planning, taking the total plots awaiting determination to 11,694 (December 2021: 11,259 plots).

Whilst the planning system has seen delays caused by COVID-19, we continue to encounter other complexities including biodiversity net gain, nutrient neutrality and water neutrality, all of which add additional time to the planning process. However, c.30% of the 11,694 plots awaiting determination are timetabled for a decision this year, plus on top of this, there will be another 625 plots submitted for planning by the end of the year.

There is significant latent value in the Group's strategic land portfolio which is held as inventory at the lower of cost or net realisable value. As such, no uplift in value is recognised within our accounts relating to any of the 9,615 plots and any increase in value created from securing planning permission will only be recognised on disposal. The average gross profit per plot has reduced to £5,962 (December 2021: £7,820) during H1 22 due to the large-scale sale at Didcot.

In relation to other significant schemes, at Eastern Green, Coventry, which comprises 2,400 plots and 37 acres of commercial development, we are negotiating towards the sale of the first phase of 250 plots which we expect to complete later this year. Furthermore, at Swindon, the 2,000 plot site with outline consent that we control jointly with Taylor Wimpey, we have settled terms with the landowners and hope to complete the acquisition in the Autumn.

Hallam Land's immediate trading outlook is positive and remains firmly on track to achieve its annual target, however, activity over H2 will be more aimed at sales for 2023 and beyond. In this regard, Hallam Land already has a total of 1,282 plots unconditionally exchanged for completion in 2023 and 2024, including the significant transaction at Tonbridge, where we recently exchanged on the sale of 125 plots to Cala Homes.

Property Investment and Development

Property Investment and Development, which includes HBD and Stonebridge Homes, delivered a combined operating profit of £19.6m (June 2021: £8.2m).

According to the CBRE Monthly Index, commercial property values increased by 7.1% in the six months to 30 June 2022. Industrial property continued to outperform the retail and office sectors driven by rental value growth of 5.6% reflecting strong occupier take-up, which totalled 22.6m sq ft in H1 22 as the vacancy rate reached a new low of 1.2% (units above 100,000 sq ft). Whilst property yields are expected to soften in H2 2022, due to increased pressure from rising interest rates, the rental growth outlook for I&L space remains positive given the level of active demand and lack of available space.

HBD completed four developments with a total GDV of £51m (HBD share: £37m), with 100% of these either sold or let:

o  Two industrial units with a combined 147,000 sq ft of space completed in H1 22. At Luton, HBD completed an 82,000 unit, while at our flagship Wakefield Hub, Kitwave took occupation of a 65,000 sq ft warehouse unit, which has subsequently been acquired by ABRDN for £11.4m, with the sale price reflecting a Net Initial Yield of 3.3%, a 23% premium to December 21 book valuation.

o  Two land sales have also completed, comprising a 184-unit housing scheme in Skipton, which was pre-sold to Bellway, as well as a land sale in Aberdeen to the City Council for the construction of 536 council houses.

In total, HBD has a committed development pipeline with a total GDV of £343m (HBD share: £262m), with 73% currently pre-let or pre-sold and 97% of the development costs fixed.

2022 Committed Programme

Within the committed programme, there is currently c.1m sq ft of I&L space (HBD Share: £164m GDV), a total of 542 urban residential units (HBD Share £65m GDV) and 91,000 sq ft of commercial space (HBD Share: £33m GDV). In this regard:

o  In H1 22, work commenced on a 260,000 sq ft unit at Wakefield Hub, which has been pre-let to a German pharmaceutical company and forward-funded to an institution. Completion is due H1 2023.

o  Remediation works on site at Phoenix 10, Walsall are progressing well, in readiness for the first phase (620,000 sq ft) of development to commence in Q4 2023.

o  85,000 sq ft pre-let to Diploma (part of The Shoal Group), was granted planning permission in H1 22 and is expected to start on site in Oct 2022.

o  At Preston East, following pre lets to DPD & DHL, an extra 122,000 sq ft of industrial development has been added to the committed programme.

o  Following completion of the land sale at Cloverhill, Aberdeen in January 2022, HBD has been retained as development manager for the duration of the construction.

HBD's total development pipeline has grown to a GDV of £1.5bn (HBD share: £1.2bn). All of these opportunities sit within the Company's three key markets of I&L (68%), Urban Residential (21%) and Urban Commercial (11%). In the first half, HBD was appointed as development partner on the first phase (HBD share: £50m GDV) of Cheltenham Borough Council's £1 billion Golden Valley development which comprises the delivery of a mixed-use campus clustered around a 150,000 sq ft innovation space that will serve as the new National Cyber Innovation Centre. 

In the near-term development pipeline, there are two significant I&L schemes totalling £150m GDV (HBD share: £46m), located at Rainham (in JV with Barings) and Welwyn. Both projects are looking to commit to developing subject to a final review of occupier demand and looking to manage risk through appropriate levels of pre-let or forward-funding.

Within the total development pipeline there are several developments that showcase the Group's ESG ambitions and credentials by targeting both EPC 'A' rating and BREEAM Excellent. These include, Island, Manchester, which will see the sustainable development of a 10-storey building providing c.100,000 sq ft of net zero carbon, smart-enabled office accommodation; and at Rainham, the industrial developments which will be built using low carbon and/or recycled materials and be 100% electric buildings using no fossil fuels by design.

The total value of the Group's investment portfolio (including share of properties held in JVs) has increased to £134m (December 2021: £126m). The underlying valuation of 2.5% was principally as a result of the growth in rental values for I&L assets, with the portfolio also increasing through the retention of the completed development at Butterfield Business Park, Luton (£5.4m). During the period occupancy increased to 92% (December 2021: 85%) primarily reflecting lettings at Montagu 406, Enfield and City Court, Manchester Estates.

Rent collection for H1 22 stands at 98% with the weighted average unexpired lease term now 15.0 years (13.5 years to first break). The total property return of 4.6% for the six months to 30 June 2022, was below the return from the CBRE UK Monthly Index (9.4%) largely as a result of a modest increase in the portfolio equivalent yield over the period, whilst the wider market continued to see overall yield compression. It is believed the yield movement was largely a timing issue with some valuers reflecting outward yield shift before others in light of rising interest rates.

Stonebridge Homes has now secured 96% of its 2022 delivery target of 200 units. The average selling price for private units to date has increased 7% over the past year £512k (June 2021: £487k) alongside an average sales rate of 0.6 units per week per outlet in line with our target (June 2021: 0.9), which was adjusted due to stock reducing as a result of a strong performing market in 2021.

As a result of sales prices being 11.3% ahead of budget, a 9% building cost inflation has been effectively managed. However, material supply difficulties have impacted the current rate of build, but this is starting to ease, so there is anticipation that the build programme will catch up during the year.

Stonebridge Homes' total owned and controlled land bank has grown marginally to 1,164 units (June 2021: 1,125). 919 units have either detailed or outline planning, with 245 units without planning. In H1 22, planning permission was secured for 145 new homes across two sites, at Barnard Castle and Masham, following which we finalised their purchase for £7.3m in total. Post half year, a further site located at Great Ouseburn, has achieved planning and been acquired for £3.1m, with the potential of delivering 46 units.

As a result of these activities, there is now 3.6 years' supply in Stonebridge Homes' land bank, based on a one-year rolling forward sales forecast for land with planning, or 4.6 years for its full land bank.

Looking ahead, Stonebridge Homes will focus on securing forward sales for 2023 target, which is to deliver 250 units. Currently, despite the increase seen in the cost of living, there has not been a reduction in customer demand. Finally, marketing has recently begun at Barnard Castle, making it Stonebridge Homes' first site in the North-East to do so.

Construction

Trading in the Group's construction segment has been strong, achieving an operating profit of £6.3m (June 2021: £4.3m).

Henry Boot Construction is trading in line with expectations and remains focused on delivering its fully secured order book for 2022 and securing contracts for 2023's order book, which is currently 52% secured. 96% of this year's order book has fixed price orders placed or contractual inflation clauses.

Work on the £38.9m BtR residential scheme Kangaroo Works in Sheffield is on track to be completed in Spring 2023. Good progress has also been made on the £47m urban residential development, Cocoa Works, in York, with the seven-storey 279 apartment scheme due for completion at the end of 2023.

Work on Block H at the Cambridge Street Collective, a £42m urban development contract in Sheffield, has experienced archaeology and supply issues and, unfortunately, this has resulted in the target completion date being pushed back by 3 months to Q2 2023.

Public sector work remains a key focus for the order book, with the business currently sitting on 11 frameworks. As previously reported earlier this year, Henry Boot Construction secured a place on both the P23 NHS Framework, for projects up to £20m and the new regional YORbuild3 medium value framework for projects between £4m and £10m. Following this, a place on the STHFT Framework has been secured for projects between £1m and £5m.

Banner Plant is performing well, achieving an asset utilisation rate of 75% on its plant hire equipment. Road Link (A69) is also performing well with traffic levels remaining stable and are anticipating a slight uplift in revenues during H2 as current inflation feeds into its pricing formula.

FINANCIAL REVIEW

Consolidated statement of comprehensive income

Group revenue for the period increased by 11.9% to £144.4m (30 June 2021: £129.0m) following an increase in the number of live development contracts, along with land and property sales and the ongoing delivery of construction contracts. Revenue from Land Promotion decreased despite increasing profits, as the business delivered returns through agency agreements rather than from owned land sales, generating less revenue but with much higher margins.

Gross profit was 24.4% higher at £43.9m (30 June 2021: £35.3m) and was supported by increasing profit levels in all three operating segments. Administrative expenses increased by £2.5m (30 June 2021: increased £0.4m). This reflects the current and future growth ambitions of the business, and includes investment in our people, systems, automation and ESG.

Pension costs decreased to £2.2m (30 June 2021: £4.1m) as the prior year included one-off closure costs of the Group's defined benefit pension scheme to future accrual of £2.1m, reducing the Group's risk exposure to future fluctuations.

Fair value of investment properties increased by £3.4m (30 June 2021: increase £2.1m) largely from development profits on self-built retained assets with marginal net uplifts on existing assets. Profits on sale of investment properties were £nil (30 June 2021: £1.2m). The Group's share of profit from joint ventures and associates grew significantly to £10.4m (30 June 2021: £2.5m) reflecting the increasing amount of property development activities undertaken with our partners and, in particular, the disposal of a residential site in Aberdeen.

This helped drive a 69% increase in operating profit to £39.1m (30 June 2021: £23.1m) which flowed through to a profit before tax of £38.8m (30 June 2021: £23.1m), reflecting the growth in activity and transactions across all three operating segments. Earnings per share followed, growing 70.9% to 24.1p (30 June 2021: 14.1p).

Return on capital employed

Higher operating profit in the period saw an increased return on capital employed (ROCE) of 10.1% over a six-month period (30 June 2021: 6.3%). Over a 12-month period we continue to believe a target return of 10-15% is appropriate for our current operating model although at current activity levels, we expect to be in the upper half of our medium-term target by the year-end.

Finance and gearing

Net financing costs were £0.3m (30 June 2021: £0.1m income) reflecting continued low interest rates and the Group's prudent debt levels.

At 30 June 2022, net debt was £42.8m (31 December 2021: net debt of £43.5m). The Group continues to recycle profits back into existing schemes and opportunities, growing investments in joint ventures, inventory and investment property (including assets held for sale).

Gearing levels have slightly decreased to 11.0% (31 December 2021: 12.2%) at the bottom end of our preferred operating range of 10%-20% as we remain selective on new investments in an uncertain market but ready to react to compelling opportunities which might arise.

Cash flows

Operating cash inflows before movements in working capital were £23.4m (30 June 2021: £16.8m).

Working capital requirements have increased in line with trading activity levels, including transactions on deferred payment terms and from investment in inventory, resulting in working capital outflows of £22.9m (30 June 2021: £41.4m outflow) which, in turn, meant that operations generated funds of £0.5m (30 June 2021: utilised £24.6m). After interest paid of £0.5m (30 June 2021: £0.3m) and tax paid of £1.0m (30 June 2021: £1.7m) net cash outflows from operating activities were £1.1m (30 June 2021: £26.6m).

Including distributions received from joint ventures and associates of £7.0m (30 June 2021: £0.2m), net cash inflows from investing activities were £7.8m (30 June 2021: £8.7m outflow).

The final dividend on ordinary shares for 2021 increased by 10% to £4.8m (30 June 2021: £4.4m).

Statement of financial position

Total non-current assets were £169.6m (31 December 2021: £164.7m). Significant movements arose as follows:

- a £3.4m decrease (30 June 2021: increase £11.8m) in the value of investment properties, being acquisitions of £nil (30 June 2021: £6.2m), subsequent capital expenditure of £nil (30 June 2021: £8.7m), transfers from inventory £4.5m (30 June 2021: £nil) a revaluation gain of £3.4m (30 June 2021: gain of £2.1m), disposals of £nil (30 June 2021: £5.2m), and transfers to assets held for sale of £11.1m (30 June 2021: £nil);

- Investments in joint ventures and associates increased by £3.4m to £15.6m (31 December 2021: £12.2m), being profits generated of £10.4m less distributions of £7.0m;

- the increase of the liabilities discount rate applied to the defined benefit pension scheme valuation under IAS 19 to 3.9% (31 December 2021: 2.0%), has eliminated scheme net liabilities and resulted in a scheme surplus of £8.4m (31 December 2021: £12.2m liability). The pension scheme asset is recognised on balance sheet as scheme rules require any excess surplus after settlement of all scheme liabilities be returned to the sponsoring employer; and

- a decrease in deferred tax assets of £3.1m (30 June 2021: £1.5m increase) arising from the decrease in retirement benefit obligations relating to the Group's defined benefit pension.

Current assets were £51.2m higher at £398.4m (31 December 2021: £347.2m) resulting from:

- an uplift in inventories to £252.9m (31 December 2021: £235.3m) mainly resulting from growth in the Groups housebuilder inventory while replenishing property development and strategic land WIP;

- higher trade and other receivables of £100.1m (31 December 2021: £91.4m) as transactional activity increases in property development and construction;

- cash and cash equivalents which were £10.4m higher at £21.5m (31 December 2021: £11.1m) due to current cash requirements and timing on loan repayments; and

- assets held for sale of £11.1m (31 December 2021: £nil) which relates to a single property asset in Wakefield that was well progressed through the sales process at the half year and completed in August.

Total liabilities rose to £171.7m (31 December 2021: £156.6m) with the most significant changes arising from:

- trade and other payables, including contract liabilities, increased £13.7m to £92.6m (31 December 2021: £78.9m);

- borrowings, including lease liabilities, increased to £64.3m (31 December 2021: £54.6m) as the Group continues to invest in operational assets; and

- the elimination of the defined benefit pension scheme liability (31 December 2021: £12.2m) noted in the asset section above.

Retained earnings, along with the pension surplus, saw net assets increase to £396.3m (31 December 2021: £355.3m) with the net asset value per share increasing by 11.2% to 297p (31 December 2021: 267p), an underlying increase of 9.4% to 292p (Dec 2021: 267p) when excluding the defined benefit pension scheme surplus net of tax liability.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

for the half year ended 30 June 2022

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED)

as at 30 June 2022

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

for the half year ended 30 June 2022

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

for the half year ended 30 June 2022

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

for the half year ended 30 June 2022

1. GENERAL INFORMATION

The Company is a public limited company, listed on the London Stock Exchange and incorporated and domiciled in the United Kingdom. The address of its registered office is Banner Cross Hall, Ecclesall Road South, Sheffield, United Kingdom, S11 9PD.

The financial information set out above does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006 and is neither audited nor reviewed. The Financial Statements for the year ended 31 December 2021, which were prepared in accordance with UK-adopted International Accounting Standards, have been reported on by the Group's auditors and delivered to the Registrar of Companies. The Independent Auditors' Report was unqualified and did not contain any statement under Section 498 of the Companies Act 2006.

2. Basis of preparation and accounting policies

The half-yearly financial information has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with UK adopted International Accounting Standard IAS 34 'Interim Financial Reporting'.

The half-yearly financial information has been prepared using the same accounting policies and methods of computation as compared with the annual Financial Statements for the year ended 31 December 2021.

A number of other standards, amendments and interpretations became effective from 1 January 2022, which do not have a material impact on the Group's financial statements or accounting policies.

Going Concern

The Group meets its day-to-day working capital requirements through a secured loan facility. The facility was renewed on the 23 January 2020, at a level of £75m, for a period of three years and extended in January 2021 and January 2022 by a further two years to 23 January 2025 on the same terms as the existing agreement. The facility includes an accordion to increase the facility by a further £30m.

The Directors have considered the Group's principal risk areas, including the impact of price inflation and interest rate rises, that they consider material to the assessment of going concern.

The Directors have prepared forecasts to 31 December 2023 covering base case and a severe downside scenario.

Having conducted significant stress testing at the year-end they have further considered the outcome of our half year position and their latest forecasts, whilst taking into account the current trading conditions, the markets in which the Group's businesses operate and associated credit risks together with the available committed banking facilities and the potential mitigations that can be taken, to protect operating profits and cash flows.

The severe downside scenario considered includes short-term curtailment in transactional activity and percentage reductions in other activities mirroring recent downturn experiences. This is followed by a short to medium-term recovery, coupled with the ability to manage future expenditure as described in the 2021 Annual Report.

As reported in the 2021 Annual Report, the most sensitive covenant in our facilities relates to the ratio of EBIT (Earnings Before Interest and Tax) on a 12-month rolling basis to senior facility finance costs. Our downside modelling, which reflects a near 16% reduction in revenue and near 70% reduction in PBT from our base case for 2022, demonstrates significant headroom over this covenant throughout the forecast period to the end of December 2023.

Their review supports the view that the Group will have adequate resources, liquidity and available bank facilities to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis of accounting in preparing the half-yearly financial information

Estimates and Judgements

The preparation of half-yearly financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may differ from these estimates.

In preparing these half-yearly financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the Consolidated Financial Statements for the year ended 31 December 2021.

Goodwill

Goodwill is subjected to an impairment test at the reporting date or when there has been an indication that the goodwill should be impaired, any loss is recognised immediately through the Consolidated Statement of Comprehensive Income and is not subsequently reversed.

3. Segment information

For the purpose of the Board making strategic decisions, the Group is currently organised into three operating segments: Property Investment and Development; Land Promotion; and Construction. Group overheads are not a reportable segment; however, information about them is considered by the Board in conjunction with the reportable segments.

Operations are carried out entirely within the United Kingdom.

Inter-segment sales are charged at prevailing market prices.

The accounting policies of the reportable segments are the same as the Group's accounting policies as detailed above.

Segment profit represents the profit earned by each segment before tax and is consistent with the measure reported to the Group's Board for the purpose of resource allocation and assessment of segment performance.

4. REVENUE

The Group's revenue is derived from contracts with customers. In the following table, revenue is disaggregated by primary activity, being the Group's operating segments and timing of revenue recognition:

5. Earnings per ordinary share

Earnings per ordinary share is calculated on the weighted average number of shares in issue. Diluted earnings per ordinary share is calculated on the weighted average number of shares in issue adjusted for the effects of any dilutive potential ordinary shares.

6. Dividends

An interim dividend amounting to £3,550,000 (2021: £3,216,000) will be paid on 14 October 2022 to shareholders whose names are on the register at the close of business on 30 September 2022. The proposed interim dividend has not been approved at the date of the Consolidated Statement of Financial Position and so has not been included as a liability in these Financial Statements.

7. Tax

Corporation tax is calculated at 19% (31 December 2021: 19%) of the estimated assessable profit for the period being management's estimate of the weighted average corporation tax rate for the period. The Group's effective rate of tax of

15.7% is lower than the standard rate of corporation tax due to relief for pension contribution being on a cash basis and non-taxable property valuation increases.

In the Spring Budget 2021, the Government announced that from 1 April 2023 the main rate of UK corporation tax would increase to 25%. This new law was substantively enacted on 24 May 2021; deferred tax balances at the period end have been measured at 25% (2021: 25%), being the rate at which timing differences are expected to reverse.

8. Investment properties