There are signs that, selectively, the market is recovering in certain areas which may allow profitable development to take place in 2010 and beyond.
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There are signs that, selectively, the market is recovering in certain areas which may allow profitable development to take place in 2010 and beyond.
Our long-term aim remains the value enhancement of land through development, planning promotion and construction. Throughout the period under review, all sectors of our business have been affected by the recession so well publicised and resulting from the banking crisis from September 2007 onwards.
The property market continues to suffer from a lack of liquidity, at an individual level in the mortgage market where high deposit levels continue to be the norm, through to institutional grade investments where lower loan to value covenants reduce the scope to raise debt against the value of property. Coupled with this are the property holdings that the banks have taken 'on balance sheet' which will have to be dealt with. This means that most traditional funders to the UK property market are seeking to reduce their exposure to the market rather than increase it.
In many cases development returns on cost are below market yields and therefore we are very cautious of committing to development on the sites we hold. However, there are signs that, selectively, the market is recovering in certain areas which may allow profitable development to take place in 2010 and beyond.
Our land planning and promotion business, Hallam Land, is a very long-term operation with planning consents taking between five and 20 years to achieve. 2009 proved to be a very difficult year as house builders de-stocked land as the demand for new housing declined quickly. The outlook appears to be a little better with almost all major house builders who have reported indicating that they are looking to replenish their land banks at current market prices in anticipation of a growing market from now onwards.
The construction division, with its performance underpinned by the solid recurring revenues from our PFI project, Road Link A69, performed very well, helped by a large provision release of £8.2m arising from the settlement of the Office of Fair Trading (OFT) investigation into cover pricing which concluded at the end of the year. The current uncertainty as to the scale of cutbacks in capital spending by Central Government, arising from the need to reduce the budget deficit, is the major future concern in this business. Plant hire had a very difficult year but we curtailed all but essential capital expenditure and downsized the hire fleet during the year so that the business was cash generative, despite making a small operating loss.
Our key focus at Group level over this very difficult two years has been to retain as much of the NAV created in the period up to the end of 2007 as possible and to reduce our borrowings. NAV at December 2009 is about £6.0m lower (3%), and debt has been reduced from £70.9m (39% gearing) to £32.1m (18% gearing) during the period, overall a creditable performance.
The second half of 2009 showed some stability in investment property and land values. It is hoped that the downward valuation phase is over, though we believe any recovery will be slow and patchy. It will be the focused management teams who can work the opportunities available to them who will generate cash and profit over the next few years and we believe we have the team and opportunities to do that.