It is very satisfying to report a record performance by the Group in 2003. Operating profits increased by 33% to £56.6m on turnover up 13% to £743m. Return on capital was a very creditable 19% which is in line with our long-term strategic target. We also managed our cash efficiently with gearing reducing to 68% (2002 – 73%) as a result.

Reflecting on the past ten years, the most striking aspect has been our ability to embrace transformational change and continually improve the quality of earnings – over this period we have increased profit before tax at a compound rate of 33% per annum.

Strategy

Group strategy and the shape of the business are now firmly established. We have three equally valued businesses that are major players in their respective markets. Targets and strategic aspirations are communicated internally at regular senior executive briefings, and externally to our bankers and the corporate finance community who help us source acquisition opportunities.

Our goal is to deliver long-term sustainable profit growth and by doing so maximise shareholder value. All businesses are reviewed on a quarterly basis with the emphasis on looking to the future in terms of our landbank quality, development opportunities and order book.

Housing

The Housing business made a step change in activity in 2003 with turnover approaching £400m. This growth was planned and the reward for the recent investment in strengthening the landbank and improving build processes.

We constantly ensure that there is an adequate spread in our portfolio and cover a broad range of the market from 1 bed apartments to 5 bed executive homes. We continue to increase the weighting of the business towards the higher value end of the market where we enjoy better margins. As a result, the average selling price increased by 18% to £154,000.

Operating margins have grown by 20% to 12% which is very encouraging. Our five established regions actually achieved a 16% operating margin which is in line with some of the industry’s better performers, whilst our two smallest regions are addressing the challenge to carefully build up volume, which will bring them up to the same performance level as the rest.

Building on these solid foundations we have opened an eighth region based in Basingstoke to concentrate on the fastest growing market in the UK. An experienced team has already been assembled.

Property

The Property business had a busy year despite weak occupational markets. We sold over 200,000 sq ft of offices throughout the UK, the scheme at Whitehall Quay, Leeds being the highlight.

Retail remains the largest segment of the business. We currently have 1 million sq ft of retail developments in the UK and Portugal in the planning or build phase, with a substantial element pre-let.

We remain a trader developer but going forward envisage a higher proportion of our portfolio comprising investment product where we can add value through improving the tenant quality. This product will complement traditional developments where lead times have lengthened considerably.

Although the markets are likely to remain challenging in the short-term, the business has established for the future a pipeline of large mixed-use projects at various stages such as Omega in Warrington (7.4m sq ft), Edinburgh Park (2.2m sq ft) and Arena Central in Birmingham (2m sq ft). Allied to our investment trading business, these projects ensure we have a well balanced portfolio of good quality developments for the future.

Construction Services

We are currently enjoying a very active construction market with a good balance of work from both the private and public sector.

The majority of our private sector work emanates from successful retailers and residential developers focusing on inner city urban regeneration projects. This is a very active market and replaces commercial property work which has been in decline in recent years.

Public sector projects are being procured from both traditional sources and PPP. We currently have framework agreements with local authorities in Barnsley, Derbyshire, Warwickshire and Middlesbrough and have been appointed to build city academies at Peckham and Northampton.

We are fully committed to the Government’s PPP programme and recently achieved financial close on Barking and Havering NHS LIFT (Local Improvement Finance Trust) to provide a large number of primary healthcare facilities with a projected build value in excess of £130m over a 20-year period. We have also been appointed preferred bidder on Leeds NHS LIFT, potentially the largest in England with a projected out-turn value of over £200m.

Information Technology

We are currently completing a project to enhance communication and data links across all of our housing and construction sites. This involves nearly 100 locations and will vastly improve internal communications with our regional offices and externally with suppliers, subcontractors and professional teams.

In today’s fast-moving business environment, it is vital we equip our people with up-to-date technology. This is a major commitment for the business.

Environment

All three businesses take their responsibility towards the environment very seriously. In Housing we support the Government’s policy of affording priority to develop brownfield sites ahead of the greenbelt – in 2003 65% of our sales were from brownfield locations. Our Property business is actively involved in large inner city regeneration projects in the following major UK cities – Edinburgh, Glasgow, Leeds, Manchester, Birmingham, Nottingham, London, Maidstone and Portsmouth. These projects will each significantly enhance the local environment. Construction Services focuses on using sustainable materials and the sensitive treatment of off-site traffic flows and waste, and is registered under ISO 9001, ISO 14001 and OHSAS18001.

Health & Safety

This is a major priority for all of our businesses. We continue to work within the Major Contractors Group to formalise the accreditation of our supply chain. Rigorous annual targets are set for each business which are subject to regular external audit and Group Board review.

Outlook

We do not anticipate a substantial change in our markets in 2004 but do expect a slight moderation in housing demand as consumer expenditure eases. However, with 70% of target housing sales secured, £30m of property sales in the first quarter, and a £310m Construction order book, we are well placed to deliver future growth.

Keith Miller
Group Chief Executive