Trading performance
Turnover from continuing operations increased by 14% to £657m, driven principally by a 19% increase in Housing, where we achieved a significant increase in average selling price per unit.

Operating profits increased by 19% to £42.4m, again due to strong growth in Housing and Construction Services. Housing profits increased by £7.7m (38%) to £28.0m, with operating margin increasing to 10%. Further margin improvement is expected in 2003 as we drive more cost out the business and improve both design and build processes. In Construction Services, operating profits increased by 24% to £6.2m on turnover unchanged at £255m, representing an operating margin of 2.4%, which compares favourably with our peer group. Operating profits in Property dropped to £11.2m (2001: £13.0m) which in a difficult occupational market was an excellent performance.

Joint ventures continue to make a significant contribution to the Group, delivering operating profits of £9.7m, with a strong performance from our more recent Housing joint ventures.

Taxation
We have adopted FRS 19 as a prior year adjustment. The tax charge of £7.8m represents an overall effective tax rate of 28%. A reconciliation of the tax charge is provided in accordance with the new standard in Note 8.

Cashflow
As a consequence of strong cash management and substantial trading activity in Property, we generated a record net cash inflow from operating activities of £63.8m. Allowing for the repayment of property specific financing, total net borrowings have decreased by £30.7m to £116.9m (2001: £147.6m). Group gearing has fallen substantially from 102% to 73% at the year end.

Capital Employed
Total capital employed has decreased by £15.4m to £276.4m. In Property, capital employed reduced by £49.1m as we took advantage of the strong retail sector and sold stock development properties. This was offset by increased capital employed in Housing, specifically with our joint venture partners and in Construction Services where there were lower advanced payments.

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 £133m was not utilised and the average utilisation during the year was 55%. In addition there are facilities of £27m 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
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
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.

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, in accordance with UITF Abstract 34.

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. Details of major joint ventures, investments and joint arrangements are listed in Note 27 to the accounts.

Pensions
We continue to adopt in full the transitional provisions of FRS 17 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. 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.

Each business routinely reviews its key operationaland 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