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I am pleased to report a further solid set of results for the year ended 31 December 2009, particularly given the difficult conditions in the UK property market during the period.
Whilst the general economic background and the property market, in particular, remains tough, I believe that the market is beginning to recover from its low point.
I am pleased to report a further solid set of results for the year ended 31 December 2009, particularly given the difficult conditions in the UK property market during the period.
The first half of 2009 was characterised by decreasing investment yields, however, the second half has seen some stabilisation, with yields even firming up slightly towards the end of the year. Commercial property development remains difficult; the combination of construction, tenant and valuation risk means that it is still very hard to generate development profits. However, on the positive side, we completed all of the developments in progress at the beginning of the year and a more stable market should allow us to bring other development opportunities forward. We are currently working to bring forward a foodstore development at Warminster in the latter part of 2010. Despite the current depressed market, we continue to identify other opportunities for the longer term and are making good progress with our major town centre redevelopment at Daventry. As anticipated, Hallam Land had a quiet year. House builders had working capital issues to deal with and, until recently, were continuing to buy land only very selectively. Towards the end of the year, there were indications that the new build market had started to pick up and we are now finding that house builders are beginning to replenish their land banks once again.
Our construction division had another good year as we concluded the Decent Homes programme in Sheffield and continued work on the Rotherham and Doncaster programmes. We recognise that much of the construction division's work is centrally funded by Government and therefore potentially at risk given the likelihood of public spending cuts following the forthcoming General Election. As expected, activity levels at our plant hire business were adversely affected by the contraction in house building but we cut our capital expenditure accordingly, downsized the fleet size and generated over £2m in cash from the business during the year. Road Link A69 continued to perform in line with expectations and previous years.
We continue to operate through our UK-wide network of offices, creating future land, planning and development opportunities in a cost-effective way and as prudent cash management allows. The construction and property investment income streams provide steady profits and cash flows, which underpin our performance, despite the reduction in the more cyclical development and land profits. Our strategic focus during this recessionary period has been to preserve our asset values and reduce our debt. We have made further progress during 2009 on debt reduction from £49.3m at the start of the year to £32.1m at the end and despite the largest property valuation adjustment for many years, our net asset value (NAV) of 135p per share at December 2009 is only marginally below the 139p achieved at the top of the cycle in December 2007.
Turnover was £116.5m (2008: £193.7m) arising from fewer land transactions and weaker construction division and development activity during the period. Gross trading profit decreased to £11.5m (2008: £44.0m), largely because the contribution from land trading activities this year was, as expected, significantly less than that in 2008. The loss before tax was £11.9m (2008: profit £19.3m) after the revaluation deficit of £22.4m (2008: combined investment and assets in course of construction revaluation deficit £22.4m). Property disposal profits were £0.9m (2008: £0.5m), attributable to a number of small disposals. Basic earnings per share decreased to a loss of 5.7p (2008: earnings 10.8p). Total net assets decreased 7% to £176.2m (2008: £190.1m), representing 135p per share (2008: 146p). As we planned, gearing again reduced by a third, for the second year in a row, as the cash generated from investment property rentals and development sales, less that used for the completion of the current development programme, was used to reduce debt. Gearing at the year end stood at 18% based on net debt of £32.1m (2008: gearing 26%, net debt £49.3m).
As stated in our half year results, the market continues to be difficult. I believe we have managed the downward phase of this recessionary cycle well. It now remains to be seen how long it will be before the recovery phase takes hold. As previously notified, the Directors felt it unlikely that the recovery would be strong enough in 2009 to recommend a final dividend in excess of 1.25p (2008: 3.75p). As announced, the Directors decided that 1.25p should be paid as a second interim dividend on 31 March 2010 in place of a final dividend payment which would normally have been paid in May 2010. This gives a total dividend for the year of 2.5p (2008: 5.0p).
On behalf of my fellow Directors, I express my thanks to all our employees who have worked tremendously hard to achieve a creditable result in very difficult markets. Regrettably, the tough trading conditions have also meant that we have had to make a number of people redundant during the year.
After an exceptional 55 years of sterling service with the Group, my fellow Director, Douglas Greaves, will retire in June 2010 and, on behalf of the Board, I wish him a long, happy and well deserved retirement. After his retirement, the Board will then consist of myself as Non-executive Chairman, Independent Non-executive Directors, John Brown and Michael Gunston, and Executive Directors, Jamie Boot and John Sutcliffe.
We continue to invest for the long-term in land promotion, property investment and development, with our performance underpinned by the recurring profit and cash flows generated by our construction, PFI and plant hire activities. We stated last year that we aimed to release capital by completing developments in progress and disposing of certain assets in the portfolio to reduce net debt. We have been successful in this aim and whilst other sales are planned, we are now comfortable with our debt levels going forward. We will continue to invest in securing planning consents on our greenfield land portfolio to enable us to supply the recovering housebuilding market and where commercial development is capable of creating a viable long-term investment. We therefore continue to retain a strong portfolio of opportunities which we will bring forward as markets improve and when we are comfortable that the expected returns are commensurate with the risks associated with these activities.
Whilst the general economic background and the property market, in particular, remains tough, I believe that the market is beginning to recover from its low point. I also believe, however, that the recovery will be patchy and relatively long drawn out. Therefore, the prudent strategy outlined above is the correct one until we can see clear evidence of a sustained recovery. We retain significant headroom in our three year debt facilities and this, along with the support of our long-term banking partners, will allow us to gear up again as the recovery takes hold, using the potential we already have in our portfolio to generate healthy shareholder returns once again.
JOHN REIS
CHAIRMAN
1 APRIL 2010
