Interim Results Presentation, Half Year to 31 December 2008 Greg Fitzgerald - Chief Executive

Interim Results Presentation – February 20091

Interim Results Presentation, Half Year to 31 December 2008

Greg Fitzgerald - Chief Executive

Frank Nelson - Finance Director


This presentation is being made only to and is directed at (a) persons who have professional experience in matters relating to investments falling within Article 19(1) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (b) any other persons to who it may otherwise lawfully be communicated, falling within Article 49(2) of the Order (all such persons being referred to as “relevant persons”).

Any person who is not a relevant person should not act or rely on this presentation or any of its comments.

The financial information set out in this document does not constitute the Company’s statutory accounts. Statutory accounts for 2008, which received an auditors’ report that was unqualified and did not contain any statement concerning accounting records or failure to obtain necessary information and explanations, have been filed with the Registrar of Companies.

Disclaimer


Agenda

• Highlights

• Financial Review

• Operating Review

• Key Strengths and Outlook

Bermondsey Square, London


Highlights


Highlights

• Operational strengths from hybrid model

• Record profits and strong cash generation from construction

• Net cash at period end

• In compliance with bank covenants

• Significant cost reductions achieved

• Construction market more competitive

• Construction order book 90% public and regulated


Highlights

• Difficult housing market

• £48m housing write down

• Reduced land bank and number of stock properties

• Geographic coverage maintained in Housebuilding

• Excellent relationship with Homes and Communities Agency

• New divisional management in place


Highlights

Group Structure


Financial Review


Financial Review

• Group revenue £774m, down 14%

• Profit before tax

• Pre-exceptional £11.2m profit, down 67%

• Post-exceptional £37.5m loss

• Earnings per share

• Pre-exceptional 2.2p, down 66%

• Post-exceptional (7.0)p

• Net cash £2m (Dec 2007: £46m net debt)

• Interim dividend 0.45p per share

Highlights


Financial Review

Financing

• Total bank facility £432m

• £300m until 2012

• £132m amortising to £90m in 2012

• Significant headroom over projected requirements

• Projections within banking covenants

• Substantial contract bonding facilities

• Rigorous working capital management


Income Statement

Financial Review

2008 2007

£m £m

Revenue 773.8 897.9

Profit from operations* 23.5 47.2

JV interest and tax (5.3) (3.7)

Profit before finance costs, amortisation and exceptionals

18.2 43.5

Intangibles amortisation (1.0) (1.0)

Profit before exceptionals and finance costs 17.2 42.5

Net finance costs (6.0) (8.7)

Profit before exceptionals 11.2 33.8

Exceptional items (48.7) -

(Loss)/profit before tax (37.5) 33.8

* Profit from operations is stated before finance costs, exceptional items, amortisation and share of joint ventures’ interest and tax


Financial Review

Exceptional loss

• £48.7m exceptional loss taking account of:

• Sites (including JVs) with negative margins

• Further deflationary price assumptions

• Abortive costs relating to conditional contracts

• Reorganisation costs

• Land write down equivalent to 14% of land bank


Segmental Analysis: Profit from Operations

Revenue (including JVs) £m

Profit/(Loss)£m

2008 2007 2008 2007

Building 274.6 339.2 6.7 6.5

Infrastructure 265.4 250.1 7.8 6.2

Construction 540.0 589.3 14.5 12.7

PPP Investments 4.9 2.4 1.9 0.4

Affordable Housing & Regeneration 99.5 94.5 6.7 5.7

Housebuilding 141.7 230.0 3.5 32.6

Group 0.9 0.2 (3.1) (4.2)

787.0 916.4 23.5* 47.2*


Less JV interest and tax (5.3) (3.7)

Net interest payable (6.0) (8.7)




Financial Review

*Profit from Operations


Segmental Analysis: Profit Before Tax

Revenue (including JVs)£m

Profit/(Loss)£m

2008 2007 2008 2007

Building 274.6 339.2 9.1 9.2

Infrastructure 265.4 250.1 8.8 6.8

Construction 540.0 589.3 17.9 16.0

PPP Investments 4.9 2.4 1.6 0.1

Affordable Housing & Regeneration 99.5 94.5 3.0 3.5

Housebuilding 141.7 230.0 (8.3) 16.7

Group 0.9 0.2 3.3 2.2

787.0 916.4 17.5* 38.5*


Less JV interest and tax (5.3) (3.7)




Financial Review

*PBT is stated before intangibles amortisation and JV interest and tax


Finance Costs

Financial Review

Half year to 31 Dec 2008

Half year to 31 Dec 2007

Year to

30 June 2008

£m £m £m

Net interest payable 0.9 4.0 6.3

On unwinding of discount on creditors 0.9 3.1 4.7

Net return on asset of pension fund 0.5 (0.4) (0.9)

Fair value losses on financial activities – interest rate swaps

3.7 2.0 0.7

6.0 8.7 10.8


Balance Sheet Highlights

Financial Review

Half year to

31 Dec 2008

Half year to

31 Dec 2007

Year to

30 June 2008

Shareholders’ funds £m 302.8 * 317.1* 325.3*

Net cash/(debt) £m 1.8 (45.7) (1.7)

Gearing n/a 14% 0.5%

Interest cover - total (inc IFRS and swap) 3 x 5 x 6.6 x

- bank 19 x 10 x 8.4 x

Land pre June 08 £m 292.4

Land post June 08 £m 50.2**

Total Land 342.6 498.2 426.5

Work in progress £m 146.0 180.6 183.8

Land creditors £m (33.2) (122.4) (76.5)

Net Developments 455.4 556.4 533.8

Deferred payment – Linden Homes & Chartdale £m - (42.9) (0.8)

* Includes £6m net pension deficit (Dec 2007: £19m, June 2008: £20m)

**Includes land agreed & acquired, replanned, renegotiated


2008 2007

£m £m

Operating cash flow 12.5 86.0

Interest, tax and dividends (5.0) (20.9)

Net proceeds from issue of shares - 0.1

Acquisitions (net of cash acquired) - (6.0)

Capital expenditure and investments (6.5) (3.7)

Other 2.5 (2.5)

Net cash inflow 3.5 53.0

Opening net debt (1.7) (98.7)

Closing net cash/(debt) 1.8 (45.7)

Cash Flow Summary

Financial Review


Actual ytd

Dec 2008

£m

Estimated

H2 2008/9

£m

Total 2008/9

£m

Estimated 2009/10

£m

Payments made to date 36.7 36.7

Expected payments in respect of existing contracts 14.9 14.9 16.4

Forecast payments in respect of uncommitted land 1.4 1.4 55.1

Total 36.7 16.3 53.0 71.5

Land Payments Profile

Financial Review


Balance Sheet/Debt Profile by Sector – Illustrative Only

Financial Review

Tangible

Net Assets

£m

Cash/(Debt)

£m

Accepted

Valuation

Methodology

Construction (60) 200 P/E

Affordable Housing 40 (40) P/E

Investments - (10)Directors’ Valuation

Housebuilding and Group

(NAV after deduction of debt)200 (210) Discount to NAV

180* (60)**

£m* Total net assets per B/S 303 Less intangibles (123) Net tangible assets 180

** Assume average net debt £60m


Financial Review

• Strong focus on business efficiency and cost savings

• Housebuilding £19m

• 4 day week

• 43% head count reduction

• Office and overhead savings

• Construction £2.6m

• Overhead savings

• Group £3.4m

• IT and communication costs

• Corporate and central costs

• Vehicle fleet expenses

• National Insurances savings

• Total targeted annualised savings £25m to meet current market conditions

Cost Savings


Operating Review - Building



• Strong trading performance

• Excellent cash generation

• Successful completion of Highland & Northampton Schools PFIs

• Key projects progressing well

• Market conditions more competitive

• Easing in supply chain

Highlights

Museum of Liverpool



• Selected for Scottish Health framework

• Appointed on £103m St Pancras contract

• 45% of workload secured for next year

• 80% of order book within public and regulated sectors

Highlights

Wimbledon


Forward Order Book: February 2009

Sectors £m

Health 123

Education 129

Prisons 155

Commercial 112

Interiors 17

FM 146

Other Public Sector 89

771


NB - Excludes £200m at preferred bidder stage - Excludes affordable housing contracting


Operating Review - Infrastructure



• Strong trading performance

• Excellent cash generation

• Renewables prospects good

• Industry leading performance in Water

• AMP 5 procurement process underway

Spen Valley Waste Water Treatment Works, Yorkshire

Highlights



• Whitelee Windfarm and A595 successfully completed

• Good progress at Olympic Park and on M74

• 52% of workload secured for next year

• Over 95% of order book within public and regulated sectors

A595 Parton to Lillyhall, West Cumbria

Highlights



Forward Order Book: February 2009

Sectors £m

Water 315*

Highways 234

Flood Alleviation 98

Rail 5

Waterways 7

Remediation 53

Communications 23

Renewable Energy 34

International 10

Ground Engineering 1

780

* Excludes AMP5 renewals


Operating Review - Investments


Operating Review - Investments

• Investments in projects performing well

• Bid decisions expected shortly

• Belmarsh and Maghull prisons

• Worcester Library & History Centre

• Moray Schools, Scotland

• Good pipeline of future projects in longer term

Milburn Academy, Inverness

Highlights


Operating Review -

Affordable Housing and Regeneration


Operating Review - Affordable Housing and Regeneration

Homes and Communities Agency

• Excellent relationships with Homes and Communities Agency (HCA)

• £28m of National Affordable Housing Programme grant

• £10m (419 plots) HomeBuy Direct awarded

• Secured first HCA site disposal

Highlights



TR1, Truro, Cornwall

• Speculative sales to Registered Social Landlords (RSLs) continuing

• Re-planning schemes for current market

• Contracting market subdued

• Good position to gain accelerated and gap funding from HCA

Highlights


Key Statistics: excluding spec sales to RSLs, including share of joint ventures


6 months to December 2008

2008 2007Increase/

(decrease) %

Units Total 292 284 3%

- Affordable 216 248 (13)%

- Regeneration 76 36 111%

Av. Selling Price £000 Total 125 118 6%

-Affordable 115 113 2%

- Regeneration 153 183 (16)%

Revenue £m Total 99.5 94.5 5%

- Affordable 24.7 27.0 (9)%

- Regeneration 11.7 18.0 (35)%

- Contracting 63.1 49.5 28%

Profit/loss from Operations before exceptionals £m 6.7 5.7 17%

Margin % 6.7% 6.0% -

In hand position Feb 09 £m - Afford. & Regeneration 101.0 135.1 (26)%

- Contracting Order Book 156.6 153.1 2%

Land bank February 09 units 2,788 4,100 (32)%


Operating Review - Housebuilding


Market Conditions

Banstead Wood, Surrey


• Difficult market conditions

• Consumer confidence and mortgage availability key constraints

• No new build premium

• House price deflation from peak to trough of circa 25%

• Sub-contract cost reductions from peak to trough circa 12%

• Significant reduction in land prices

• Cancellation rates stabilised



Whittington’s Meadow, Nassington, Northants

• Aggressive sales policy maintained

• 43% reduction in head count

• Successful implementation of 4 day working week

• Geographical coverage maintained

• Land spend and work in progress strictly controlled.

Highlights


Market Quarter, Chippenham, Wiltshire


• Renegotiations of major land acquisitions and existing planning approvals ongoing

• Industry leading customer satisfaction maintained

• Part exchange and stock levels at historically low levels

Highlights



Key Statistics: including share of joint ventures

6 months to December 2008

2008 2007

Increase/(Decrease)

%

Units 671 890 (25)%

Average Selling Price £000 201 231 (13)%

Income per sq. ft £ 219 259 (15)%

Revenue £m 141.7 230.0 (38)%

Profit from operations £m 3.5 32.6 (89)%

Margin % 2.5% 14.2% -

ROCE % * 4% 18% -

In hand position February 09 £m 205 415 (51)%

Land bank February 09 units 4,840 7,000 (31)%

Strategic land February 09 acres 1,313 1,512 (13)%

*Includes private housing, S106 and regeneration (excluding contracting)


Market Outlook


• Continue to reduce exposure to the apartment market

• Strong cash management being maintained

• Prudent land procurement policy to continue

• Well positioned to take advantage of opportunities

• Evidence of investors returning to the market

• Encouraging start to 2009

Watercolour, Redhill, Surrey


Key Strengths and Outlook



• £432m banking facility negotiated in early 2007 - runs to 2012

• Continue to work within bank covenants

• Low levels of debt with ability to gear up

• Interim dividend declared

• Construction

• 90% in public and regulated sector

• Industry leader in water

• Upper quartile cash generation



• Housebuilding

• Maintained geographic coverage with southern bias

• Low levels of stock

• Leader in affordable housing

• Greater revenues from lower land bank than key competitors

• Well placed to take advantage of opportunities

• Experienced management team


Interim Results Presentation, Half Year to 31 December 2008

Greg Fitzgerald - Chief Executive

Frank Nelson - Finance Director

Documents

Interim Results Presentation, Half Year to 31 December 2008 Greg Fitzgerald - Chief Executive