Following the achievement of record profits in 2003, the Group enters its 70th year in robust shape. We have attained an enviable performance record with ten years’ successive profit growth. Over the same period, we have significantly enhanced shareholder value, with shareholders’ funds and dividends increasing at compound rates of 10.5% and 25% per annum respectively.

In 2003, profit before tax rose by 47% to £40.2m (2002 – £27.4m) due to strong organic growth from the business as a whole and in particular Housing, which is now firmly established as the backbone of the Group.

Recognising this excellent performance, the Board is pleased to recommend a final dividend of 17.5 pence per share (2002 – 15.1 pence per share), giving a total for the year of 24.8 pence per share (2002 – 21.4 pence per share). This represents a 16% increase over 2002.

Market Overview

Housing plays a major role in the UK economy. As a nation we have high levels of home ownership and it is therefore vital that the drivers of the housing market are fully understood. We support the main conclusions of the Barker review and specifically the need to increase housing volumes to meet current and future demand. The report recognises this will only be achieved by a radical change in the approach and structures governing the planning system. I sincerely hope the moment is seized and these new structures are quickly put in place.

The housing market performed strongly throughout 2003, with consumer confidence remaining high due to continuing low levels of interest rates and unemployment. The market was further boosted by positive investment demand for housing compared with the alternative of the equity markets. Housing remains a simple investment vehicle where the consumer has consistently enjoyed above average returns. Our Housing business responded positively to this environment with an outstanding performance, unit completions, turnover and profits growing by 25%, 42% and 74% respectively.

Outside of London, the commercial property market is displaying some signs of recovery. Retail continues to be the most attractive segment of the market with the major high-street operators quick to take up space in well-located developments. The office market is gradually recovering with surplus space in the provinces being taken up. Against this background, the Property business had a successful year with a major contribution to Group profitability.

Construction activity remains healthy, buoyed by record levels of Government expenditure on both traditional and PPP investment programmes. In the private sector we continue to work closely with our in-house Property and Housing businesses and other major developers in delivering major urban regeneration projects around the country. Operating margins of 2.5% place our Construction Services business at the top end of the national contractors’ performance table.

Funding

The Group has £225m of unsecured but committed bank facilities in place until the spring of 2006. In addition, we have separate non-recourse facilities tailored to specific assets or joint ventures. We value our banking relationships highly both as a source of funding and as joint venture partners.

People

The Board would like to express its gratitude for each employee’s contribution to a record Group performance in 2003. It was especially pleasing to see individual achievements being recognised externally and two in particular merit specific reference. In May, we were delighted to see our Group Chief Executive, Keith Miller, receive the prestigious Scottish Business Achievement Award from the Princess Royal. We were similarly thrilled to finish the year by claiming, for the first time, the NHBC Supreme Pride in the Job Award for Site Manager of the Year. Congratulations to Bill Hughes of our North West region in achieving this tremendous accolade.

Employee share ownership is rising steadily with the Savings Related Share Options Scheme increasing in popularity. At the end of the year nearly 10% of company shares were either owned or held under option by employees.

Finally, I would like to welcome Tim Bowdler, Chief Executive of Johnston Press Plc, to the Board. Tim has a wealth of experience and I look forward to his contribution in the years ahead.

Pensions

The Group has two pension schemes – a defined contribution scheme and a defined benefit scheme, which was closed to new entrants in 1997.

The next triennial valuation of the defined benefit scheme is in July 2004. The scheme is currently in deficit and both the Group’s and employees’ regular contributions have been substantially increased to address this deficit. Also the Group has made additional contributions of £4.5m over the past three years.

Future funding levels will be determined after considering the updated actuarial valuation.

Looking further ahead, the Government is set to change the landscape by imposing revised caps both on an individual’s maximum personal pension fund and also on annual contributions. We are investigating these proposals to ensure we continue to offer an attractive pensions framework to attract and retain key staff.

Corporate Governance

The Board believes it is vital that shareholders and stakeholders are assured that the Group adheres to the highest standards of Corporate Governance. We have reviewed the revised Combined Code and confirm your Board complies with its principal recommendations.

Prospects

Looking forward, we enter the new year with record forward sales for both Housing and Construction Services, and a broadly based Property portfolio of development projects in the UK and Europe. We remain confident of further growth in all our businesses given the underlying imbalance between supply and demand which exists particularly in the Housing market.

Bob Speirs
Chairman