The Group has moved up several gears in the last five years. During this period, profits have trebled, and both dividends and shareholders’ funds have doubled. In recognition of this outstanding performance, the Board recommends a final dividend of 21.9 pence per share (2003: 17.5 pence per share), giving a total for the year of 31.0 pence per share (2003: 24.8 pence per share). This represents a 25% increase over 2003.
Market Overview
2004 saw unprecedented levels of ‘expert’ speculation and commentary on the future course of the housing market. It proved to be a year of two contrasting halves. The buoyant trading conditions we enjoyed in 2003 continued throughout the first half of 2004. Following five successive interest rate rises, however, visitor and reservation levels moderated during the second half of the year. We had anticipated the market slowing and, as a result, had deliberately sold forward when the market was at its strongest. This has provided a solid level of forward sales going into 2005.
In the short-term we have returned to ‘normal’ market conditions and have confidence in the quality of our locations and well-proven marketing skills to deliver our financial targets. Looking further ahead, the fundamentals of the housing industry remain positive with high employment and affordability, historically low interest rates, and record, low levels of housing output.
In 2004 the commercial property markets displayed the same characteristics which have prevailed for the previous couple of years.
Overall occupational demand was patchy but with retail and specifically non-food retail performing strongly. Confidence started to return in provincial offices and the West End of London, but demand for both city offices and industrial remained flat. Institutional demand was, however, exceptional. Property is back as a favoured asset class and values are rising as institutions increase their property weightings. In response to an ever lengthening development cycle we are committing greater resource to investment product which now represents our principal trading stock.
Demand in the Construction sector is very strong. The Government is committed to a major capital expenditure programme in education and health and our market penetration is excellent in these sectors. In the private sector we are busy too, predominantly with our retail clients, but we are also seeing property developers resurrect projects that were put on hold a few years ago. Our operating margins are among the best in the industry.
Funding
During 2004, we increased our core funding by £100m and extended the maturity by a further three years until the spring of 2009. The Group now has £325m of committed unsecured facilities. This will accommodate our current organic growth plans. In addition, we have approximately thirty separate non-recourse facilities tailored to specific assets or joint ventures. These are provided by our four core banks and also a further six funders. We value our banking relationships highly, both as funders and as joint venture partners.
People
The Board wishes to thank all employees for their tremendous effort in delivering a record performance in 2004. We are delighted that certain individual performances were recognised externally and especially pleased that Keith Miller, our Group Chief Executive, was awarded the CBE in the New Year’s Honours list, for services to the Construction industry in Scotland and to Charity. Bill Hughes, a site manager in our North West region, won, for the second time, the NHBC’s Supreme Pride in the Job Award. This is an outstanding achievement and unprecedented in the large house-builder category. Bill takes great pride in his job and is prepared to ‘go the extra mile’ to satisfy his customers. We are very proud of Bill and he is a shining example to all of our teams.
Employee share-ownership continues to increase with our Savings Related Share Option Scheme proving very popular, with over 600 employees now participating in the scheme. At the year-end 13% of the company’s shares were either owned or held under option by employees, and this figure is growing year on year.
Pensions
The Group has two pension schemes – a defined contribution (Group Personal Pension) scheme and a defined benefit scheme. The latter was closed to new entrants in 1997.
The Group’s actuaries completed their latest triennial valuation of the defined benefit scheme during 2004 and the scheme remains in deficit. The Group is committed to managing this deficit and has increased its annual funding contribution significantly.
In addition, a specific augmentation payment of £2.5m was made in 2004, taking the total of such additional contributions to £7m over the last four years.
Looking ahead, we are currently assessing the impact of the recent changes to the Pensions’ legislative framework and will continue to discuss matters with the Scheme’s Trustees to ensure we maintain a pension structure appropriate to attract and retain key staff.
Corporate Governance
The Board believes it is vital that the Group adheres to the highest standards of Corporate Governance. We have reviewed the revised Combined Code and confirm that your Board complies with its principal recommendations.
Prospects
Looking forward, we anticipate the economy returning to trend growth. Against this stable economic background with strong forward housing sales, a high quality construction order book, and an excellent portfolio of commercial property projects, we are well placed to continue to grow profits in 2005.
Bob Speirs
Chairman
