Turnover
Turnover from continuing operations increased by 43% to £575m as a result of increases of 55% and 48% in Construction Services and Housing respectively. Following the disposal of Civil Engineering and Mining, we are on target to achieve our strategic aspiration of delivering two thirds of turnover from our Property and Housing operations.

Profit Before Tax
Operating profits from continuing businesses increased by 30% to £35.6m, again due to strong growth in Housing and Construction Services.

Joint Ventures continue to make a significant contribution to the Group, delivering operating profits of £8.2m.

The Group disposed of Miller Civil Engineering Services Limited and Miller Mining (UK) Limited during the year. The disposals generated a net cash inflow of £16.1m and a total gain of £19.6m. Further details are disclosed at Note 26. The trading results of both businesses prior to their disposal are disclosed as ‘discontinued’.

Taxation
The tax charge of £10.8m is split £6.6m on continuing operations and the balance relating to discontinued operations. There is a low tax charge on the gain due to the base cost having the benefit of a 1982 indexed value. There are no significant permanent or temporary timing differences.

Balance Sheet
Net debt at 31 December 2001 of £148m was 1% higher than last year despite a year of major investment. Gearing has fallen from 129% to 104% due to a combination of a significant increase in retained earnings and efficient cash management in all our divisions.

£54m of our net debt is secured against specific assets which currently yield 10%.

Group Funding and Treasury Policy
Core Facility
The Group has an unsecured but committed 5 year revolving credit facility of £225m with its principal bankers. At the year end £120m was not utilised and the average utilisation during the year was 57%. In addition there are facilities of £54m to fund specific wholly-owned property projects which have a different cash profile from the rest of the Group.

Joint Venture Financing
The Group has a small number of major joint venture facilities which finance large commercial development and PPP projects. They have no recourse to the Group. In addition there are a large number of small joint venture facilities which accommodate our residential partnership business. They have limited recourse to the Group, and only crystallise in the event of our partner defaulting in his obligations.

Hedging
Our policy is to have the interest on 50-75% of our anticipated borrowings hedged. We currently have £50m hedged at a weighted average cost of debt
of 5.73%. A further £50m is fixed for less than one year at an average cost of debt of 5.2%. The balance is on a floating rate.

Foreign Currency
We have no significant foreign currency exposure.

Accounting Policies
Revenue and Cost Recognition
The Enron situation has undoubtedly raised new questions specifically on profit recognition and accounting for off balance sheet activities. The Group adopts a prudent policy towards profit recognition. In Property and Housing, turnover is only recognised following both legal completion and receipt of cash. Costs are written off in line with the most recent appraisal with forecast out-turn costs re-assessed monthly. Prudent assumptions of both future costs and revenues are made in all out-turn calculations. Construction Services follows the same principles with profits recognised in line with the stage of completion of projects – prudent assumptions being made on forecast costs to complete.

Investments and Off Balance Sheet Activity
Details of major joint ventures, associates, investments and joint arrangements are listed in Note 28 to the accounts.

Housing and Property
All joint ventures are accounted for in accordance with the gross equity accounting basis laid down in FRS 9. Accounting policies for profit recognition are identical to our wholly owned activities. In particular, profits are only recognised following both legal completion and receipt of cash by the joint venture, potentially abortive costs are immediately written off, and all interest costs and management fees are expensed by the joint venture. Management fees received from joint ventures are only taken to profit where received in cash.

Construction Services – PFI/PPP
Investments in PFI/PPP special purpose companies are accounted for in accordance with the provisions of FRS 9. Our financial exposure to such vehicles is restricted to the small amounts of equity invested. Bid costs for prospective PFI/PPP projects are written off as incurred until such time as preferred bidder status is achieved.

Construction Services – Joint arrangements
Unincorporated joint ventures established for specific construction projects are accounted for as joint arrangements in accordance with FRS 9. The Group recognises its share of assets, liabilities, profits, losses and cashflows in proportion to the interest held.

Pensions
The Group operates two pension schemes - a funded defined benefit scheme (which closed to new entrants in 1997) and a defined contribution scheme.

Following the disposal of our Civil Engineering and Mining businesses, the membership profile of the defined benefit scheme changed significantly. As a consequence of this and volatility in equity markets we decided to accelerate our triennial actuarial valuation by 12 months. The combination of negative equity returns on the scheme’s assets and weakening bond yields, together with more conservative actuarial assumptions, has resulted in a funding valuation deficit of £9.0m as 1 July 2001. In addition to a one-off enhancement payment of £1m, the Group has increased its ongoing contribution level to rectify this deficit over the next 6 years.

2001 is the first year that the provisions of FRS 17 - Retirement Benefits come into effect. We have adopted in full the transitional provisions of the standard and the required disclosures are provided in Note 5. Under the transitional provisions, the pension charge for the year continues to be calculated in line with SSAP 24.

Risk Management
A complete statement on the Group’s approach to risk management and Corporate Governance is provided on the Corporate Governance page. In line with best practice, we operate defined delegated authority approval procedures which govern contract, land and property procurement at business unit and divisional level, as well as the selection of joint venture partners and financing methods. All are subject to predetermined investment hurdle rates set by the Group Board. These are regularly updated to take into account prevailing market conditions. The objective is to provide a focused, upfront approach to risk and investment. In addition, each division operates within annual borrowing limits.

We have fully implemented the Turnbull recommendations. Each business routinely reviews its key operational and financial risks and prepares and monitors action plans to improve risk awareness, management and control. We have an out-sourced internal audit function, which utilises both internal resources and external specialists to review risk management and control across the business. The results of these exercises are reported to the Audit Committee, which meets twice a year.

John Richards Finance Director