REG - Boot(Henry) PLC - Half-year Report
19/09/2023 07:00
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RNS Number : 8302M Boot(Henry) PLC 19 September 2023
19 September 2023
HENRY BOOT PLC
('Henry Boot', the 'Company' or the 'Group')
Ticker: BOOT.L: Main market premium listing: FTSE: Real Estate Investment and
Services.
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2023
A resilient operational performance driven by land promotion disposals and
property development completions, despite economic headwinds
Henry Boot PLC, a Company engaged in land promotion, property investment and
development, and construction, announces its unaudited interim results for the
six months ended 30 June 2023.
Tim Roberts, Chief Executive Officer, commented:
"The first half of the year has seen our markets slow as interest rates have
continued to rise, but, as these results show, our focus on prime strategic
sites, high quality development and premium homes has provided us with a
degree of resilience. This has helped us to report a very respectable
underlying profit before tax of £23.3m, an increase in NAV of 3%, plus the
confidence to grow our interim dividend by 10%.
Whilst uncertainty in our markets has increased, we believe we have enough
momentum to carry us through the year, although the outlook for 2024 for the
time being is not so clear. However, we have conviction in our three markets
which are driven by structural trends and I am pleased to report that we
remain on track to hit our strategic growth and return targets over the medium
term."
Financial highlights
· 24.5% increase in revenue to £179.8m (June 2022: £144.4m)
driven by land disposals and housing completions
· Underlying profit before tax¹ of £23.3m (June 2022: £37.8m) or
£25.0m (June 2022: £38.8m) on a statutory basis, supported by the resilient
performance of residential land sales and industrial development activity
· ROCE² of 6.3% (June 2022: 10.1%), expected to be around the
lower end of our medium-term target of 10%-15% by the year-end
· NAV³ per share is up by 2.6% to 303p (December 2022: 295p), due
to robust operational performance. Excluding the defined benefit pension
scheme surplus, the NAV per share showed an underlying increase of 2.9% to
298p (December 2022: 291p)
· Strong balance sheet, with net debt(4) of £70.8m (December 2022:
£48.6m) reflecting continued investment in committed developments and a
decision to limit further acquisitions. Gearing remains within our optimal
stated range of 10%-20% at 17.5% (December 2022: 12.3%)
· EPS of 14.0p (June 2022: 24.1p); Interim dividend of 2.93p
declared (June 2022: 2.66p), an increase of 10%, reflecting the Group's
resilient operational performance and progressive dividend policy
Operational highlights
· £129.3m of property sales led by our land promotion, development
and housebuilding businesses, despite weakening markets. Only £3.9m of
acquisitions. £22.1m of investment in our high quality committed development
programme where costs are 98% fixed
· Land promotion
o 1,900 plots sold (June 2022: 3,447), increased profit per plot to £11,400
(December 2022: £6,066) due to significant sale at Tonbridge, offsetting the
volume reduction
o The total land bank has grown to 97,095 plots (December 2022: 95,704
plots)
o 8,335 plots with planning permission (December 2022: 9,431), all held at
cost
· Property investment & development
o High quality committed development programme of £186m, with 52% pre-sold
or pre-let
o c.700,000 sq ft of Industrial & Logistics development underway (HB
share: £96m GDV)
o £1.5bn development pipeline (HB share £1.26bn GDV), 62% of which is
focused on Industrial & Logistics markets, where occupier demand remains
robust
o The investment portfolio value increased to £112m (December 2022:
£106m). Total return of 3.3% continues to be ahead of the CBRE index for the
six months to June 2023
o £11.1m post H1 23 investment sales, including Banner Cross Hall our Head
Office, at a combined 19% above book value
o Stonebridge Homes during H1 sold 99 units (30 June 2022: 39 units) and at
the end of August has secured 97% of its annual sales target of 250 units for
2023, with a total owned and controlled land bank at 997 plots (December 2022:
1,094 plots) keeping us on track to scale up this business
· Construction
o The construction segment achieved turnover of £56.2m (June 2022: £66.5m)
in a challenging market
o Henry Boot Construction remains focused on delivering its current projects
with 72% of its 2023 target order book secured following delays in bringing
activity to site as customers proceed cautiously
· Responsible Business
o Making good progress against our Responsible Business Strategy targets set
in January 2022, with the launch of our Health and Wellbeing programme and
continued progress in achieving our GHG emissions target to support reaching
NZC by 2030
NOTES:
(1 ) Underlying profit before tax is an alternative performance
measure (APM) and is defined as profit before tax excluding revaluation
movements on completed investment properties. Revaluation movement on
completed investment properties includes gains of £1.4m (2022: £1.0m gain)
on wholly owned completed investment property and gains of £0.3m (2022:
£0.6m gains) on completed investment property held in joint ventures. This
APM provides the users with a measure that excludes specific external factors
beyond management's controls and reflects the Group's underlying results. This
measure is used in the business in appraising senior management performance
(2 ) Return on Capital Employed (ROCE) is an APM and is defined
as operating profit/ average of total assets less current liabilities
(excluding DB pension surplus) at the opening and closing balance sheet dates
(3 ) Net Asset Value (NAV) per share is an APM and is defined
using the statutory measures net assets/ordinary share capital
(4 ) Net (debt)/cash is an APM and is reconciled to statutory
measures in note 14
For further information, please contact:
Enquiries:
Henry Boot PLC
Tim Roberts, Chief Executive Officer
Darren Littlewood, Chief Financial Officer
Daniel Boot, Group Communications Manager
Tel: 0114 255 5444
www.henryboot.co.uk
Numis Securities Limited
Joint Corporate Broker
Ben Stoop/Will Rance
Tel: 0207 260 1000
Peel Hunt LLP
Joint Corporate Broker
Ed Allsopp/Charles Batten
Tel: 0207 418 8900
FTI Consulting
Financial PR
Giles Barrie/Richard Sunderland
Tel: 020 3727 1000
henryboot@fticonsulting.com (mailto:henryboot@fticonsulting.com)
A webcast for analysts and investors will be held at 9.30am today and
presentation slides will be available to download via www.henryboot.co.uk
(https://eur01.safelinks.protection.outlook.com/?url=http%3A%2F%2Fwww.henryboot.co.uk%2F&data=04%7C01%7Cdboot%40henryboot.co.uk%7C3047ba2e3e124f89e90508da0c453adc%7C4a6f086a81e542f197c2f8470d12d61d%7C0%7C0%7C637835788744426781%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000&sdata=4sRskhTQwO77WteakjZGIfafow9n1GJw7e1Xwsozt98%3D&reserved=0)
. Details for the live dial-in facility and webcast are as follows:
Participants (UK): Tel: +44 (0) 33 0551 0200
Password: Henry Boot
Webcast link: https://stream.brrmedia.co.uk/broadcast/64b59edbedb1b705b3cdcddd
(https://stream.brrmedia.co.uk/broadcast/64b59edbedb1b705b3cdcddd)
About Henry Boot PLC
Henry Boot PLC (BOOT.L) was established over 135 years ago and is one of the
UK's leading and long-standing property investment and development, land
promotion and construction companies. Based in Sheffield, the Group is
comprised of the following three segments:
Land Promotion:
Hallam Land Management Limited
(http://www.henryboot.co.uk/our-businesses/hallam-land-management/)
Property Investment and Development:
HBD (https://hbd.co.uk/) (Henry Boot Developments Limited), Stonebridge Homes
Limited (http://www.henryboot.co.uk/our-businesses/stonebridge-homes/)
Construction:
Henry Boot Construction Limited
(http://www.henryboot.co.uk/our-businesses/henry-boot-construction/) , Banner
Plant Limited (http://www.henryboot.co.uk/our-businesses/banner-plant/) , Road
Link (A69) Limited (http://www.henryboot.co.uk/our-businesses/road-link-a69/)
The Group possess a high-quality strategic land portfolio, an enviable
reputation in the property development market backed by a substantial
investment property portfolio and an expanding, jointly owned, housebuilding
business. It has a construction specialism in both the public and private
sectors, a long-standing plant hire business, and generates strong cash flows
from its PFI contract through Road Link (A69) Limited.
www.henryboot.co.uk (http://www.henryboot.co.uk)
CEO Review
Henry Boot traded in line with the Board's expectations over the half year,
achieving an underlying profit before tax of £23.3m (June 2022: £37.8m), or
£25.0m (June 2022: £38.8m) on a statutory basis. Our expectations for the
full year remain in line with market consensus*. The Group's balance sheet
remains strong, with NAV per share increasing by 2.6% to 303p (Dec 2022:
295p), or by 2.9% to 298p (Dec 2022: 291p) excluding the defined benefit
pension scheme surplus. Whilst the first half of the year has been impacted by
continued economic uncertainty, principally as a result of persistent
inflation and rising interest rates, we have delivered a resilient
performance, completing £129.3m of sales within our land promotion,
development and housebuilding businesses. Acquisitions have only been £3.9m.
According to JLL, in H1 23 the volume of UK commercial property transactions
has slowed markedly to £14.2bn, down 53% on the same period in 2022. Much of
the reduction has been driven by fewer large deals with demand remaining more
resilient in those sectors benefiting from rental growth such as Industrial
& Logistics (I&L) and build to rent (BtR), both are sectors that we
focus on. House prices have been more resilient than many commentators
predicted having reduced by 1.2% during the six months to June according to
Nationwide and are now 5.3% below the peak in August 2022. Reductions in the
price of new homes have generally been smaller than this. Whilst strategic
land sale volumes have reduced housebuilders continue to selectively acquire
land, with an emphasis on sites in prime locations which remains a focal point
for our land promotion business. In support of this, we currently have nine
sites under offer to housebuilders.
With this backdrop in mind, we have had a good six months, supported by the
resilience of our three long-term markets, I&L, Residential and Urban
Development. In the half-year:
· Hallam Land Management (HLM) disposed of 1,900 plots (June 2022:
3,447 plots). Although plots sold in the period has decreased, we have
increased profit per plot to £11,400 (December 2022: £6,066), offsetting the
volume reduction. This was due to a significant and very profitable freehold
sale at Tonbridge, which has shown an ungeared internal rate of return of 27%
p.a. HLM continue to receive selective bids for its land, especially on
smaller prime sites from national and regional housebuilders. The total land
bank has grown to 97,095 plots (December 2022: 95,704 plots), of which 8,335
plots have planning permission.
· HBD completed on a total Gross Development Value (GDV) of £70m
(HBD share) - of which 100% has been pre-let/ pre-sold with a committed
development programme of £186m GDV (HBD share) - 52% of which is pre-let or
pre-sold. The part which is not pre-let/ pre-sold comprises three high quality
schemes; Island our NZC office scheme in the heart of Manchester; Setl which
offers premium apartments in the Jewellery Quarter in the centre of Birmingham
and; Momentum an NZC I&L scheme in Rainham serving Greater London. All
three complete at various times in 2024 and we continue to expect good
customer interest. To replenish the committed development programme, we have a
number of I&L schemes which we are looking to commit to providing we can
appropriately manage risk through pre-letting or forward sales.
· Stonebridge Homes (SH) secured 88% of its 250-unit sales target
for this year during H1 23, achieving a slightly reduced sales rate of 0.48
houses per week per outlet, alongside a firm average selling price of
£499,000. Post half-year, we have secured a further 21 units, achieving a
sales rate of 0.52 houses per week per outlet in the months from July to
August. This takes us to 97% secured for the year. Despite a slower market,
price against budget has up to the end of August been running at plus 0.8%. We
believe this is due to the high quality of our homes and the prime locations
of our sites.
· Henry Boot Construction (HBC) has experienced challenging trading
conditions with industry wide supply constraints and subcontractor and
material availability issues giving rise to delays and budget challenges on
two of its largest projects - the £47m BtR residential scheme Kangaroo Works
in Sheffield and Block H, the £42m urban development scheme also in
Sheffield. The £47m Cocoa Works, York, remains on time and budget.
Despite low economic growth and slowing markets, we have maintained our
strategic ambition to grow and are still looking to invest into prime
opportunities. Rightly, we have been cautious during H1 23 towards
acquisitions, with our main focus on investment in building out HBD's
committed development programme. Investment in this area totals £22.1m, with
a further £3.9m made on land purchases for both HLM and SH's land bank.
We have also continued to invest in other strategic objectives that support
our long-term ambitions. For our people, we have launched a refreshed reward
strategy which offers more clarity on career progression and remuneration, and
we continue to invest in modernising both digital and technology capabilities
and our marketing and customer relationship functions.
An example of this, is our imminent head office relocation to the Isaac's
Building in Sheffield city centre. The building offers strong ESG credentials
and will provide our people with a more open and collaborative workspace. In
regard to Banner Cross Hall, our current head office, after receiving strong
interest, we have completed the sale of the building, retaining a short-term
lease on the premises until we relocate. The buyer intends to refurbish the
Hall primarily into serviced office space.
Overall, these investments have resulted in our gearing increasing to 17.5%,
which is still within our stated optimal range of 10%-20%. Whilst the Group's
£105m banking facility runs until January 2025 we have already had positive
conversations with our existing lenders about its renewal and expect to agree
terms during Q4 23, with an aim to have renewed facilities in place in Q2 24.
*Market expectations being the average of current analyst consensus of £37.8m
profit before tax, comprising three forecasts from Numis, Peel Hunt and
Panmure Gordon.
Dividend
The Board has declared an interim dividend of 2.93p (June 2022: 2.66p), an
increase of 10%, which reflects our progressive dividend policy. This will be
paid on 13 October 2023 to shareholders on the register at the close of
business on 29 September 2023.
Strategy
The Group set a medium-term strategy in 2021 to grow the size of the business
by increasing capital employed by 40% focusing on its three key markets:
I&L, Residential and Urban Development, whilst maintaining ROCE within a
10-15% range. Since setting this strategy, we have successfully grown our
capital employed by 13% to £413m. Good progress has been made against our
stated medium-term targets as set out below:
Measure Medium term target H1 23 Performance Progress
Capital employed To over £500m £413m as at 30 June 2023 On track to grow capital employed to over £500m
Return on average capital employed 10-15% pa 6.3% in H1 23 We maintain our aim to be within the target range for FY23
Land promotion plot sales c.3,500 pa 1,900 plots in H1 23 The running five year average has increased to 3,175 plots pa. So, we remain
on track to achieve our medium-term target.
Development completions Our share c.£200m pa Our share: £70m in H1 23, with committed programme of £186m for 2023 We are on course to carry on growing our completed developments to £200m pa
as we look to draw down on our future pipeline of £1.26bn.
Grow investment portfolio To around £150m £112m as at 30 June 2023 Value increased primarily due to retained I&L developments. We have made
accretive tactical sales and will be patient building the portfolio back up to
its target.
Stonebridge Homes sales Up to 600 units pa 99 homes completed in H1 23, out of a delivery target of 250 homes Already looking to expand our annual target in 2024, in line with overall
strategic objective of 600 units.
Construction order book secured Minimum of 65% for the following year 18% at H1 23 for 2024 Difficult market conditions impacting order book for 2024. In response, the
opportunity pipeline has been refocused, with £85m PCSA's in progress.
Responsible Business
We launched our Responsible Business Strategy in January 2022, with our
primary aim to be NZC by 2030 with respect to Scopes 1 & 2. I am pleased
with the progress we have made so far against our 2025 objectives and targets.
Our strategy is guided by three principal objectives:
· To further embed ESG factors into commercial decision making so
that the business adapts, ensuring long-term sustainability and value creation
for the Group's stakeholders.
· To empower and engage our people to deliver long term meaningful
change and impact for the communities and environments Henry Boot works in.
· To focus on issues deemed to be most significant and material to
the business and hold ourselves accountable by reporting regularly on
progress.
18-month performance against our 2025 target
Our People Performance Our Places Performance
Develop and deliver a Group-wide Health and Wellbeing Strategy The Health and Wellbeing Strategy and Programme was launched to the Group in Contribute £1,000,000 of financial (and equivalent) value to our charitable We contributed (financial and equivalent value of) over £400,000 to our
February 2023 with a range of resources, activities and guidance delivered partners charitable and community
throughout 2023.
partners.
Increase gender representation in the business, aiming for 30% of our team and We have made progress, with female representation across our workforce Contribute 7,500 volunteering hours to a range of community, charity, and More than 3,500 volunteering hours have been delivered.
line managers being female increasing to 27% (2022: 26%). education projects
Our Planet Performance Our Partners Performance
Reduce Scope 1 and 2 GHG emissions by over 20% to support reaching NZC by 2030 Total direct GHG emissions (Scopes 1 and 2) in 2022 were 2,930 tonnes which Pay all of our suppliers the real living wage and secure accreditation with The Living Wage Foundation has been engaged and a review is currently being
equates to a 12% reduction from the 2019 baseline. Remain on course to achieve the Living Wage Foundation undertaken of the requirements to secure membership.
the decarbonisation trajectory.
Reduce consumption of avoidable Sustainability audits completed and a reduction action plan is in Collaborate with all our partners to reduce our environmental impact We continue to engage with membership organisations (including Yorkshire
development. Climate Action
plastic by 50%
Coalition and the UK Green Building Council) and our supply chain to share
knowledge and best practice.
The Group is also committed to ensuring that all the properties within the
investment portfolio have a minimum EPC rating of 'C'. Currently 73% (December
2022: 70%) of these properties have a rating of 'C' or higher, of which 45%
(December 2022: 39%) of the total portfolio are rated 'A-B'. The majority of
the remaining 27% of the portfolio that are currently below a 'C' rating, have
redevelopment potential with a target range of 'A' or 'B'.
Outlook
There is no doubt that the rapid increase in short term rates is slowing the
economy, reducing customer demand across our markets, and putting pressure,
not least due to the funding costs, on the viability of residential and
commercial schemes. As its designed to do, tighter monetary policy is curbing
cost pressures, and we have seen the rate of inflation come down throughout
the Group with the prospect of more to come by the year end giving us a degree
of confidence in being able to achieve our current year ambitions. Henry Boot
is not immune to these pressures, but its focus on high quality real
estate and customer care affords us some resilience:
· HLM promotes high quality, significant sites, with the majority
in the South of England, and c.24,000 plots around the golden growth triangle
demarked by London, Cambridge and Oxford. Whilst uncertainty around the timing
of disposals has increased over the short-term we have no doubt that the
structural demand for homes in the UK will continue to outstrip supply and
that these sites will be in demand from housebuilders.
· HBD delivers institutional quality development in and around the
major regional cities and the main road networks, offering high ESG
credentials. 64% of its speculative committed development is NZC. The majority
of our pipeline is industrial where structural occupier demand endures.
· SH builds premium homes, in affluent locations, and over the year
whilst it's been harder work to sell, as mortgage rates and uncertainty have
increased, sales rates have remained resilient. By the end of August, in
effect, 97% of this year's target has been sold and we have increased overall
volume by 43%, in line with our ambition to scale up this business.
Our balance sheet offers the same quality and resilience, with development and
land promotion opportunities held at the lower of cost or value whilst gearing
is managed over the cycle at between 10-20%. Our NAV has shown consistent
growth through cycles. This allows us to invest in opportunities, such as
land, both to promote in the medium term and to build houses as we scale up
SH. It also allows us to build out our high quality committed development
programme.
We have confidence in the long-term fundamentals of our market, supported by
our people and their skillsets, plus the financial resources to meet the
business's strategic growth and return ambitions.
Business Review
Land Promotion
HLM had a good first half, achieving an operating profit of £17.0m (June
2022: £17.2m) from selling 1,900 plots (June 2022: 3,447 plots). Although the
number of plots sold in the year has decreased, average gross profit per plot
increased to £11,400 (December 2022: £6,066) due primarily to a significant
freehold sale of land at Tonbridge, Kent, offsetting the volume reduction.
UK greenfield land values decreased by 2.8% in the six months to June 2023
according to Savills Research. Transactions slowed significantly relative to
the same period in 2022, with downward pressures on land values reflecting
many housebuilders more modest new build sales rates. However, with 17% fewer
homes granted planning consent in H1 23 compared to the same period in 2022,
the reduction in land supply coming forward has resulted in selective demand
for prime deliverable sites.
HLM's land bank has grown to 97,095 plots (December 2022: 95,704 plots), of
which 8,335 plots (December 2022: 9,431 plots) have planning permission (or
Resolution to Grant subject to S106). The decrease in plots with planning
permission reflects the continued delays in the planning system due to a
growing number of complexities. One such complexity is the emerging Draft
National Planning Guidance, which looks to be slowing down local authority
development plan making and planning application determination with 58
development plans having been withdrawn or paused since the December 2022
announcements. Notwithstanding this, HLM has gained planning permission on 804
plots over H1 23, which is a significant increase from the 435 plots granted
in 2022. During the period, there were 689 plots submitted for planning,
taking the total plots awaiting determination to 12,182 (December 2022: 12,297
plots).
HLM's land bank remains well positioned to benefit from the delays and
complexities in the planning system due to the high levels of stock both with
planning and awaiting determination, and the team's specialist skill set and
its strategically placed regional coverage. Despite the challenges, the number
of plots in the portfolio continues to increase, giving us confidence in the
medium term that our stock levels with planning will return to similar levels
seen in previous years.
There is significant latent value in the Group's strategic land portfolio,
which is held as inventory at the lower of cost or net realisable value. As
such, no uplift in value is recognised within our accounts relating to any of
the 8,335 plots with planning, and any increase in value created from securing
planning permission will only be recognised on disposal.
Residential Land Plots
With permission In planning Future Total
b/f granted sold c/f
2023 9,431 804 (1,900) 8,335 12,182 76,578 97,095
2022 12,865 435 (3,869) 9,431 12,297 73,976 95,704
2021 15,421 452 (3,008) 12,865 11,259 68,543 92,667
2020 14,713 2,708 (2,000) 15,421 8,312 64,337 88,070
2019 16,489 1,651 (3,427) 14,713 10,665 51,766 77,144
· In relation to significant schemes:
o At Tonbridge, Kent, we concluded an agreement for the sale of 125 plots to
national housebuilder Cala Homes. The site was originally contracted under
option in 2004, with the freehold subsequently purchased by HLM in 2021. The
scheme includes additional community benefits such as new cycle and pedestrian
links to a local railway station and a contribution to improved public
transport infrastructure. The sale will complete in two phases across 2023 (81
plots) and 2024 (44 plots). The final completion will result in an ungeared
internal rate of return of 27% p.a in 2024.
o At Pickford Gate, Coventry (formerly known as Eastern Green), a 2,400 plot
site, a 250 plot sale concluded to the Vistry Group in April. Marketing will
commence for the next tranche in September, which will comprise up to 1,000
plots.
o At Swindon, the 2,000-plot site with outline consent that is being
promoted through an option agreement jointly held with Taylor Wimpey (TW), as
previously reported, terms for acquisition were nearly settled with the
landowners, but stalled due to the market disruption in Q4 2022. Alongside TW,
HLM is now working to exchange on the purchase later this year, with
completion expected to fall into 2024.
Property Investment and Development
Property Investment and Development, which includes HBD and Stonebridge Homes,
delivered a combined operating profit of £8.5m (June 2022: £19.6m).
According to the CBRE Monthly Index, commercial property values declined by
0.4% in the six months to June 2023. Industrial property was the best
performing sector with values up 1.4% during the first half of the year ahead
of retail up 1.0%, whilst offices declined by 3.5%. The rate of yield
expansion has slowed during 2023 following the significant capital value
correction in the second half of 2022. Industrial continues to deliver the
highest rental growth at 3.2% in six months to June 2023. Whilst take up has
slowed from record levels during the pandemic, occupier demand is proving
resilient due to the longer-term structural drivers and limited supply of
high-quality space. At the same time the outlook for BtR remains positive with
rental growth for multifamily assets of 8.2% in the year to March 2023
according to CBRE driven by continued strong demand and a lack of available
units.
HBD completed on two developments with a total GDV of £70m (HBD share), with
100% of these either sold or let:
· Completed on a £54m (GDV) I&L scheme, Power Park, located on
the former Imperial Tobacco plant in Nottingham. The 426,000 sq ft scheme,
comprising seven units, was pre-sold to Oxenwood Logistics Fund, on a forward
funding basis in 2021. Each of the seven units meet BREEAM "Very Good"
standards.
· Completed an 85,000 sq. ft. building at the 83-acre Butterfield
Business Park in Luton, Bedfordshire. The £16m (GDV) unit was pre-let to
Shoal Group, an electrical component supplier, and has been retained within
the investment portfolio.
The committed development programme now totals a GDV of £341m (HBD share:
£186m GDV) of which 52% is currently pre-let or pre-sold, with 98% of the
development costs fixed.
2023 Committed Programme
Scheme GDV HBD Share of GDV (£m) Commercial Residential Size Status Completion
(£m) ('000 sq ft) (Units)
Industrial
Rainham, Momentum 120 24 380 - Speculative Q1 24
Southend, Ipeco2 and Cama, 20 20 156 - Pre-Sold Q1 24
Walsall, SPARK Remediation 37 37 - - Forward funded Q2 24
Preston, East DPD & DHL 30 15 150 - Pre-let and forward Q4 23
funded
207 96 686 -
Urban Residential
Birmingham, Setl 32 32 - 102 Speculative Q1 24
York, TDT 22 22 54 - Pre-sold Q3 23
Aberdeen, Bridge of Don 12 1 - TBC Under-offer Q2 24
Aberdeen, Cloverhill 2 2 - 500 Pre-sold and DM fee Q4 23
68 57 54 602
Urban Commercial
Manchester, Island 66 33 91 - Speculative Q3 24
Total for the Year 341 186 831 602
% sold or pre-let (incl Island) 36% 52%
Within the committed programme there is currently nearly 700,000 sq ft of
I&L space (HBD share: £96m GDV), a total of 602 urban residential units
(HBD share: £57m GDV) and 91,000 sq ft of commercial space (HBD share: £33m
GDV). In this regard:
· Two freehold Design and Build transactions, at HBDs 52 acre
I&L scheme in Southend, Essex, have been added and agreed at a total price
of £20m and a combined c.156,000 sq ft of warehouse space. A 129,000 sq ft
headquarters facility will be developed for Ipeco Holdings, the world leader
in aircraft seating. CAMA Asset Store, specialists in sustainable storage
for the creative industries, will take occupation of a 27,600 sq ft warehouse
facility with ancillary office accommodation.
· SETL, the 102 premium apartment scheme in Birmingham, is on track
to complete in Q1 24 and marketing of selective apartments will start shortly
with the remainder to be sold post PC during 2024. Although the market has
slowed, the aim is to achieve sales in line with our stated £32m GDV.
· At Momentum, Rainham (in an 80:20 JV with Barings) a 380,000 sq
ft speculative I&L development targeting NZC serving Greater London, is
ahead of building schedule and is now targeting completion in Q1 24. Marketing
of the scheme is underway and is attracting encouraging occupier interest.
· HBD and Greater Manchester Pension Fund are working in a 50:50 JV
to deliver 91,000 sq ft of NZC offices within Manchester City Centre. Island
will include 12,500 sq ft of amenity areas including social, meeting and event
spaces and a communal roof terrace. The scheme is on track to be completed in
Q3 24 and is again generating occupier interest.
· Post half-year, HBD has completed The Disabilities Trust, York
(HBD share: £22m GDV), a 54,000 sq ft scheme with state of the art care
facilities. The building is low carbon and has achieved BREEAM 'Excellent'
rating. This is the fourth phase of our highly successful Chocolate Works
development, in York.
· HBD are looking to replenish the programme by committing to
further schemes such as the development of I&L schemes at Walsall Spark,
Roman Way, Preston and Welwyn, subject to demand and viability.
HBD's total development pipeline has been maintained at a GDV of £1.5bn (HBD
share: £1.26bn GDV). All of these opportunities sit within the Company's
three key markets of I&L (62%), Urban Commercial (21%) and Urban
Residential (17%). Significant schemes include:
· At Golden Valley, Cheltenham, HBD continues preparations to
submit a planning application for the first phase of the scheme (HBD share:
£50m GDV), with the council signing off the Funding Agreement in Q3 2023. The
scheme comprises a mixed-use campus clustered around 150,000 sq ft of
innovation space.
· At Neighbourhood, Birmingham (HBD share: £140m GDV), after
securing planning approval for a 414-unit BtR development, HBD are continuing
preparatory works but have delayed seeking funding until the new year.
The total value of the investment portfolio (including share of properties
held in JVs) has increased to £112m (December 2022: £106m). Following the
significant repricing of UK commercial real estate in Q4 2022, capital values
have stabilised in the first six months of 2023 with an underlying valuation
increase of 0.8% for the investment portfolio, principally as a result of the
growth in rental values for I&L assets with the equivalent yield unchanged
at 6.2%. The total property return of 3.3% for the six months to June 2023,
was ahead of the return from the CBRE UK Monthly Index (2.5%). During the
period occupancy increased to 89% (December 2022: 88%) with the weighted
average unexpired lease term now 10.6 years (8.9 years to first break).
Post half year, the Group has also completed four sales of smaller assets for
a total of £11.1m including Banner Cross Hall, at an average 19% premium to
December 2022 valuation.
The UK housing market remained subdued during H1 23 as homebuyer demand
continued to be impacted by higher mortgage rates. According to Nationwide UK
house prices decreased by 1.2% during the six months to June and are now 5.3%
below the August 2022 peak. Whilst higher mortgage rates are suppressing
activity with monthly housing transactions around 15% below pre-pandemic
levels unemployment is expected to remain low by historic standards which
should provide some support to house prices.
Against this backdrop demand for housing has remained resilient, with pricing
remaining firm, leaving SH still on track to meet its annual sales target
having secured 88% (144 private/77 social) of its 2023 delivery target of 250
units at 30 June. The average selling price for private units to 30 June is
£499k (June 2022: £512k) alongside an average sales rate of 0.48 (June 2022:
0.6) units per week per outlet, for private houses (PH), in line with target.
Sales prices achieved were 1.2% above budget whilst build cost inflation has
started to moderate, reducing from c.10% in 2022 to 8% currently. Negotiations
with suppliers and subcontractors are ongoing and are likely to lead to
further falls in cost inflation.
Post H1 23, SH have secured an additional 21 units (PH) taking them to 97%
(164 private/78 social) secured for the year, meaning only a further eight
units (PH) need to be secured between 1 September and the end of October to
achieve its annual sales target. The year to date sales rate achieved to the
end of August was 0.49 houses per week per outlet.
SH total owned and controlled land bank comprises 997 plots (June 2022: 1,164)
of which 775 plots have detailed or outline planning and has 2.21 years supply
based on a one-year rolling forward sales forecast for land with planning or
2.38 years for its full land bank. SH have a number of sites where terms are
agreed in order to grow its land bank in line with stated scale up plans.
However, the business is being patient in negotiations, in light of the
slowing house sales market and the more subdued land market.
The strategic objective of growing the business to achieve 600 completions per
annum over the medium term remains on track.
Construction
Trading in the Group's construction segment has been below expectations in H1
23, achieving an operating profit of £4.4m (2022: £6.3m).
UK construction activity slowed during the first half of 2023, with monthly
output increasing by 1.0% following the strong increase of 6.2% in 2022. All
new work decreased by 2.1% with the most significant reduction of 6.7% for
private housing. Construction output in June 2023 was 7.3% above the February
2020 pre-CV-19 level.
HBC is trading below management's expectations, having experienced difficult
operating conditions in line with the UK construction market. The slowdown in
UK construction has resulted in HBC securing only 72% of its turnover for 2023
(94% of its costs have fixed price orders placed or contractual inflation
clauses) and has experienced several delays on Pre-Construction Services
Agreements (PCSAs). However, there is a healthy pipeline of opportunities that
HBC is actively pursuing, with a target of £85m PCSA's across urban
development and residential opportunities.
Despite both schemes suffering delays, subcontractor and material availability
issues, the Kangaroo Works, a £47m BtR scheme, completed in August 2023, with
the Heart of the City, Sheffield Block H, a £42m urban development scheme,
due to complete in phases between August and October 2023. The Cocoa Works, a
£47m residential development in York, remains on time and to budget.
Banner Plant is trading slightly below expectations, seeing a slight reduction
in demand in line with the wider slowdown in construction activity. The
business has refocused on core hire products and cost management. Road Link is
performing in line with management expectations.
FINANCIAL REVIEW
Consolidated statement of comprehensive income
Group revenue for the period increased by 24.5% to £179.8m (30 June 2022:
£144.4m) as the Land Promotion business completed additional freehold sales
and Stonebridge continued to grow completions, achieving 99 unit sales in H1
(30 June 2022: 39 unit sales). The Group continued to generate strong revenues
from property development activity and construction work during the period.
Gross profit was slightly below that of the prior period at £40.8m (30 June
2022: £43.9m) and shows the ongoing resilience of the Group despite
challenging market conditions. Other income of £4.8m relates to a legal
settlement on a property development contract completed in 2016.
Administrative expenses (excluding pension costs) increased by £2.2m (30 June
2022: increased £2.5m) reflecting the current and future growth ambitions of
the business, and includes investment in our people, systems, marketing and
ESG.
Fair value of investment properties increased by £0.6m (30 June 2022:
increase £3.4m) with Group assets continuing to outperform the CBRE index.
Profits on sale of investment properties were £0.1m (30 June 2022: £nil).
The Group's share of profit from joint ventures and associates was £0.2m (30
June 2022: £10.4m), including investment property valuation gains of £0.3m
(30 June 2022: £0.6m), the prior year included an individually significant
disposal of a residential site in Aberdeen.
Property revaluation gains/(loss) H1 23 H1 22 2022
£'m £'m £'m
Wholly owned investment property:
- Completed investment property 1.4 1.0 (7.3)
- Investment property in the course of construction (0.8) 2.4 2.4
0.6 3.4 (4.9)
Joint ventures and associates:
- Completed investment property 0.3 0.6 (3.2)
- Investment property in the course of construction - - -
0.3 0.6 (3.2)
0.9 4.0 (8.2)
This results in a 34% reduction in operating profit to £25.7m (30 June 2022:
£39.1m) which generated an underlying profit before tax(1) of £23.3m or
£25.0m on a statutory basis (30 June 2022: £37.8m underlying or £38.8m
statutory), which remains a robust result given current market conditions.
Earnings per share followed, reducing to 14.0p (30 June 2022: 24.1p).
Return on capital employed
Lower operating profits in the period resulted in a decreased return on
capital employed (ROCE) of 6.3% over a six-month period (30 June 2022: 10.1%).
Over a 12-month period we continue to believe a target return of 10-15% is
appropriate for our current operating model, although in current market
conditions we would expect to be at the lower end of this range.
Finance and gearing
Financing costs were £2.5m (30 June 2022: £0.9m) reflecting the impact of
rising interest rates on borrowings. This is partially offset by finance
income of £1.8m (30 June 2022: £0.5m) as an element of financing costs are
recovered through our joint venture arrangements.
At 30 June 2023, net debt was £70.8m (31 December 2022: £48.6m). This
reflects an increase in deferred land sale receipts as well as continued
investment in strategic land, property development and our growing
housebuilder.
Gearing levels have increased to 17.5% (31 December 2022: 12.3%) and remain
within our preferred operating range of 10%-20%. We remain selective on new
investments in an uncertain market but ready to react to any compelling
opportunities that might arise.
Cash flows
Operating cash inflows before movements in working capital were £22.0m (30
June 2022: £23.4m).
Working capital requirements have increased as a result of land transactions
on deferred payment terms and from investment in inventory, resulting in
working capital outflows of £15.8m (30 June 2022: £22.9m outflow) which, in
turn, meant that operations generated funds of £6.1m (30 June 2022: £0.5m).
After interest paid of £1.9m (30 June 2022: £0.5m) and tax paid of £0.9m
(30 June 2022: £1.0m) net cash inflows from operating activities were £3.3m
(30 June 2022: £1.1m outflows).
Including expenditure on investment properties of £7.0m (30 June 2022:
£0.3m) and advances to joint ventures and associates of £6.8m (30 June 2022:
£2.1m), net cash outflows from investing activities were £12.3m (30 June
2022: £7.8m inflow).
The final dividend on ordinary shares for 2022 increased by 10% to £5.3m (30
June 2022: £4.8m).
Statement of financial position
Total non-current assets were £206.1m (31 December 2022: £183.3m).
Significant movements arose as follows:
- a £5.5m increase in right of use assets (30 June 2022: £0.3m
decrease) due to investment in plant acquired on hire purchase and a lease on
the Group's new head office;
- a £5.6m increase (30 June 2022: decrease £3.4m) in the value of
investment properties, being subsequent capital expenditure of £7.0m (30 June
2022: £nil), transfers from inventory £nil (30 June 2022: £4.5m) a
revaluation gain of £0.6m (30 June 2022: gain of £3.4m), disposals of £1.0m
(30 June 2022: £nil), and transfers to assets held for sale of £1.0m (30
June 2022: £11.1m);
- Investments in joint ventures and associates increased by £0.2m to
£10.2m (31 December 2022: £10.0m), being profits generated of £0.2m;
- an increase in non-current trade receivables of £14.6m (30 June
2022: £1.3m decrease) following a number of strategic land sales made on
deferred terms;
- The pension scheme asset has increased £1.9m to £8.1m (31 December
2022: £6.2m) largely due to the effect of the increasing liabilities discount
rate offset by asset returns during the period; and a deferred tax asset which
remains consistent at £0.2m (30 June 2022: £3.1m decrease).
Current assets were £8.9m higher at £404.0m (31 December 2022: £395.0m)
resulting from:
- an uplift in inventories to £297.7m (31 December 2022: £291.8m)
due to growth in housebuilding inventory;
- lower trade and other receivables of £65.2m (31 December 2022:
£66.6m);
- cash and cash equivalents which were £3.1m higher at £20.5m (31
December 2022: £17.4m) due to current cash requirements and timing on loan
repayments; and
- assets held for sale of £3.1m (31 December 2022: £nil) which
relates to two property assets, one in Southend and a second being the Group's
Head Office building in Sheffield (as the Group prepares to relocate to
Sheffield City Centre in Q4).
Total liabilities rose to £204.7m (31 December 2022: £156.6m) with the most
significant changes arising from:
- trade and other payables, including contract liabilities, decreased
£8.5m to £95.9m (31 December 2022: £104.4m); and,
- borrowings, including lease liabilities, increased to £91.3m (31
December 2022: £66.0m) as the Group continues to invest in operational assets
and transact on deferred payment terms.
Retained earnings increased net assets to £405.4m (31 December 2022:
£394.3m) with the net asset value per share increasing by 2.6% to 303p (31
December 2022: 295p), an underlying increase of 2.9% to 298p (Dec 2022: 291p)
when excluding the defined benefit pension scheme surplus net of tax
liability.
NOTES:
(1 ) Underlying profit before tax is an alternative performance
measure (APM) and is defined as profit before tax excluding revaluation
movements on completed investment properties. Revaluation movement on
completed investment properties includes gains of £1.4m (2022: £1.0m gain)
on wholly owned completed investment property and gains of £0.3m (2022:
£0.6m gains) on completed investment property held in joint ventures. This
APM provides the users with a measure that excludes specific external factors
beyond management's controls and reflects the Group's underlying results. This
measure is used in the business in appraising senior management performance.
(2 ) Return on Capital Employed (ROCE) is an APM and is defined
as operating profit/ average of total assets less current liabilities
(excluding DB pension surplus) at the opening and closing balance sheet dates
(3 ) Net Asset Value (NAV) per share is an APM and is defined
using the statutory measures net assets/ordinary share capital
(4 ) Net (debt)/cash is an APM and is reconciled to statutory
measures in note 14
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
for the half year ended 30 June 2023
Half year Half year Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
Unaudited Unaudited Audited
£'000 £'000 £'000
Revenue 179,756 144,414 341,419
Cost of sales (138,909) (100,528) (259,829)
Gross profit 40,847 43,886 81,590
Other income 4,800 - -
Administrative expenses (20,831) (18,596) (40,455)
24,816 25,290 41,135
Increase/(decrease) in fair value of investment properties 595 3,443 (4,921)
Profit on sale of investment properties 86 16 646
Loss on sale of assets held for sale - - (149)
Profit on disposal of joint ventures - - 667
Share of profit of joint ventures and associates 188 10,376 9,079
Operating profit 25,685 39,125 46,457
Finance income 1,769 535 1,641
Finance costs (2,495) (883) (2,503)
Profit before tax 24,959 38,777 45,595
Tax (5,805) (6,071) (7,725)
Profit for the period from continuing operations 19,154 32,706 37,870
Other comprehensive (expense)/income not being reclassified to profit or loss
in subsequent periods:
Revaluation of Group occupied property (86) - 315
Deferred tax on property revaluations 15 - (23)
Actuarial (loss)/gain on defined benefit pension scheme (2,049) 18,842 14,994
Deferred tax on actuarial loss/(gain) 512 (4,710) (3,749)
Total other comprehensive (expense)/income not being reclassified to profit or (1,608) 14,132 11,537
loss in subsequent periods
Total comprehensive income/(expense) for the period 17,546 46,838 49,407
Profit for the period attributable to:
Owners of the Parent Company 18,661 32,065 33,319
Non-controlling interests 493 641 4,551
19,154 32,706 37,870
Total comprehensive income attributable to:
Owners of the Parent Company 17,053 46,197 44,856
Non-controlling interests 493 641 4,551
17,546 46,838 49,407
Basic earnings per ordinary share for the profit attributable 14.0p 24.1p 25.0p
to owners of the Parent Company during the period
Diluted earnings per ordinary share for the profit attributable 13.7p 23.7p 24.6p
to owners of the Parent Company during the period
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED)
as at 30 June 2023
30 June 30 June 31 December
2023 2022 2022
Restated(1)
Unaudited Unaudited Audited
£'000 £'000 £'000
Assets
Non-current assets
Intangible assets 2,552 3,321 2,933
Property, plant and equipment 24,210 27,975 28,766
Right of use assets 6,476 1,290 997
Investment properties 102,716 100,740 97,116
Investment in joint ventures and associates 10,178 15,581 9,990
Retirement benefit asset 8,108 8,361 6,188
Trade and other receivables 51,648 34,827 37,029
Deferred tax assets 249 332 249
206,137 192,427 183,268
Current assets
Inventories 297,664 252,894 291,778
Contract assets 17,421 12,761 19,257
Trade and other receivables 65,207 74,296 66,601
Cash and cash equivalents 20,538 21,526 17,401
Assets classified as held for sale 3,142 11,137 -
403,972 372,614 395,037
Liabilities
Current liabilities
Trade and other payables 90,243 82,250 95,827
Contract liabilities 1,468 7,730 4,006
Current tax liabilities 7,664 2,876 3,793
Borrowings 85,000 60,000 65,000
Lease liabilities 1,539 559 426
Provisions 2,836 4,511 4,003
188,750 157,926 173,055
Net current assets 215,222 214,688 221,982
Non-current liabilities
Trade and other payables 4,235 2,571 4,568
Lease liabilities 4,770 791 607
Deferred tax liability 4,878 6,573 4,401
Provisions 2,057 855 1,385
15,940 10,790 10,961
Net assets 405,419 396,325 394,289
Equity
Share capital 13,798 13,747 13,763
Property revaluation reserve 2,281 2,060 2,352
Retained earnings 378,213 370,229 365,692
Other reserves 8,246 7,139 7,482
Cost of shares held by ESOP trust (966) (966) (967)
Equity attributable to owners of the Parent Company 401,572 392,209 388,322
Non-controlling interests 3,847 4,116 5,967
Total equity 405,419 396,325 394,289
(1) See 'Prior year restatements' for further details in the 'Basis of
preparation and accounting policies'
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
for the half year ended 30 June 2023
Attributable to owners of the Parent Company
Cost of
Property shares held Non-
Share revaluation Retained Other by ESOP controlling Total
capital reserve earnings reserves trust Total interests equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2022 13,732 2,060 328,348 6,744 (1,044) 349,840 5,446 355,286
Profit for the period - - 32,065 - - 32,065 641 32,706
Other comprehensive income - - 14,132 - - 14,132 - 14,132
Total comprehensive income - - 46,197 - - 46,197 641 46,838
Equity dividends - - (4,833) - - (4,833) (1,971) (6,804)
Proceeds from shares issued 15 - - 395 - 410 - 410
Share-based payments - - 517 - 78 595 - 595
15 - (4,316) 395 78 (3,828) (1,971) (5,799)
At 30 June 2022 (unaudited) 13,747 2,060 370,229 7,139 (966) 392,209 4,116 396,325
At 1 January 2022 13,732 2,060 328,348 6,744 (1,044) 349,840 5,446 355,286
Profit for the year - - 33,319 - - 33,319 4,551 37,870
Other comprehensive income - 292 11,245 - - 11,537 - 11,537
Total comprehensive income - 292 44,564 - - 44,856 4,551 49,407
Equity dividends - - (8,383) - - (8,383) (4,030) (12,413)
Proceeds from shares issued 31 - - 738 - 769 - 769
Share-based payments - - 1,163 - 77 1,240 - 1,240
31 - (7,220) 738 77 (6,374) (4,030) (10,404)
At 31 December 2022 (audited) 13,763 2,352 365,692 7,482 (967) 388,322 5,967 394,289
Profit for the period - - 18,661 - - 18,661 493 19,154
Other comprehensive expense - (71) (1,537) - - (1,608) - (1,608)
Total comprehensive income/(expense) - (71) 17,124 - - 17,053 493 17,546
Equity dividends - - (5,347) - - (5,347) (2,613) (7,960)
Proceeds from shares issued 35 - - 764 - 799 - 799
Share-based payments - - 744 - 1 745 - 745
35 - (4,603) 764 1 (3,803) (2,613) (6,416)
At 30 June 2023 (unaudited) 13,798 2,281 378,213 8,246 (966) 401,572 3,847 405,419
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
for the half year ended 30 June 2023
Half year Half year Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
Unaudited Unaudited Audited
£'000 £'000 £'000
Cash flows from operating activities
Cash generated from operations 6,140 518 (16,549)
Interest paid (1,949) (549) (1,829)
Tax paid (930) (1,030) (2,918)
Net cash flows from operating activities 3,261 (1,061) (21,296)
Cash flows from investing activities
Purchase of property, plant and equipment (926) (335) (971)
Purchase of investment property (6,975) 283 (9,301)
Purchase of investment in associate - - (2,112)
Proceeds on disposal of property, plant and equipment (excluding assets held 21 184 10,987
for hire)
Proceeds on disposal of assets held for hire - - 270
Proceeds on disposal of investment properties 1,013 - 8,146
Repayment of loans from joint ventures and associates - 2,483 10,904
Advances to joint ventures and associates (6,752) (2,101) (8,560)
Proceeds on disposal of investment in joint ventures - - 6,873
Distributions received from joint ventures and associates - 6,960 7,160
Interest received 1,299 372 1,153
Net cash flows from investing activities (12,320) 7,846 24,549
Cash flows from financing activities
Proceeds from shares issued 801 410 769
Movement in payables from joint ventures and associates 4 358 355
Decrease in borrowings (15,000) (30,000) (70,000)
Increase in borrowings 35,000 40,000 85,000
Principal element of lease payments (648) (339) (679)
Dividends paid - ordinary shares (5,336) (4,822) (8,362)
- non-controlling interests (2,614) (1,971) (4,030)
- preference shares (11) (11) (21)
Net cash flows from financing activities 12,196 3,625 3,032
Net increase in cash and cash equivalents 3,137 10,410 6,285
Net cash and cash equivalents at beginning of period 17,401 11,116 11,116
Net cash and cash equivalents at end of period 20,538 21,526 17,401
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
for the half year ended 30 June 2023
1. GENERAL INFORMATION
The Company is a public limited company, listed on the London Stock Exchange
and incorporated and domiciled in the United Kingdom. The address of its
registered office is Banner Cross Hall, Ecclesall Road South, Sheffield,
United Kingdom, S11 9PD.
The financial information set out above does not comprise statutory accounts
within the meaning of Section 434 of the Companies Act 2006 and is neither
audited nor reviewed. The Financial Statements for the year ended 31 December
2022, which were prepared in accordance with UK-adopted International
Accounting Standards, have been reported on by the Group's auditors and
delivered to the Registrar of Companies. The Independent Auditors' Report was
unqualified and did not contain any statement under Section 498 of the
Companies Act 2006.
2. Basis of preparation and accounting policies
The half-yearly financial information has been prepared in accordance with the
Disclosure and Transparency Rules of the Financial Conduct Authority and with
UK adopted International Accounting Standard IAS 34 'Interim Financial
Reporting'.
The half-yearly financial information has been prepared using the same
accounting policies and methods of computation as compared with the annual
Financial Statements for the year ended 31 December 2022.
A number of other standards, amendments and interpretations became effective
from 1 January 2023, which do not have a material impact on the Group's
financial statements or accounting policies.
Prior year restatements
Amounts owed by joint ventures and associates
Amounts owed by joint ventures and associates have been restated for the
period ended 30 June 2022. The Group previously recognised amounts owed by
joint ventures and associates as being entirely due within one year on the
basis these amounts were repayable on demand. Following a review of the
Group's historic practice and future plans not to call on all intercompany
receivables in the short term, £22,824,000 of amounts owed by joint ventures
and associates at 30 June 2022 have been reclassified to non-current in line
with IAS 1. There is no impact on the Consolidated Statement of Comprehensive
Income, Statement of Changes in Equity or Statement of Cash Flows.
Government loans
The Group's borrowings and trade receivables have been restated for the period
ended 30 June 2022. The Group previously recognised a government loan payable
to the Homes and Communities Agency (HCA) amounting to £2,941,000 and a
corresponding trade receivable from the related housebuilder. Following legal
guidance on the nature of the agreement it has been concluded that the Group
has no residual obligation to the HCA in respect of the loan which is payable
directly by the related housebuilder and therefore no rights to receive a
corresponding trade receivable from the related housebuilder. This has
resulted in previously reported borrowings reducing by £2,941,000 and trade
receivables decreasing by the same. There is no impact on the Consolidated
Statement of Comprehensive Income, Statement of Changes in Equity or Statement
of Cash Flows.
Going Concern
The Group meets its day-to-day working capital requirements through a secured
loan facility. The facility was renewed on 23 January 2020, at a level of
£75m, for a period of three years and extended by one year in January 2021
and a further year in January 2022 taking the facility renewal to 23 January
2025 on the same terms as the existing agreement. The facility includes an
accordion to increase the facility by up to £30m, which was called on by the
Group on 9 October 2022, increasing the overall facility to £105m.
The Directors have considered the Group's principal risk areas, including the
risk of continued economic slowdown, that they consider material to the
assessment of going concern.
The Directors have prepared forecasts to 31 December 2024 covering a base case
and severe downside scenario.
Having conducted significant stress testing at the year-end they have further
considered the outcome of our half year position and their latest forecasts,
whilst taking into account the current trading conditions, the markets in
which the Group's businesses operate and associated credit risks together with
the available committed banking facilities and the potential mitigations that
can be taken, to protect operating profits and cash flows.
The severe downside scenario considered includes short-term curtailment in
transactional activity and percentage reductions in other activities mirroring
recent downturn experiences. This is followed by a short to medium-term
recovery, coupled with the ability to manage future expenditure as described
in the 2022 Annual Report.
As reported in the 2022 Annual Report, the most sensitive covenant in our
facilities relates to the ratio of EBIT (Earnings Before Interest and Tax) on
a 12-month rolling basis to senior facility finance costs. Our downside
modelling, which reflects a near 50% reduction in revenue and near 67%
reduction in profit before tax from our base case for 2023, demonstrates
significant headroom over this covenant throughout the forecast period to the
end of December 2024.
Their review supports the view that the Group will have adequate resources,
liquidity and available bank facilities to continue in operational existence
for the foreseeable future. Accordingly, they continue to adopt the going
concern basis of accounting in preparing the half-yearly financial
information.
Estimates and Judgements
The preparation of half-yearly financial information requires management to
make judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets, liabilities, income
and expense. Actual results may differ from these estimates.
In preparing these half-yearly financial statements, the significant
judgements made by management in applying the Group's accounting policies and
the key sources of estimation uncertainty were the same as those that applied
to the Consolidated Financial Statements for the year ended 31 December 2022.
Goodwill
Goodwill is subjected to an impairment test at the reporting date or when
there has been an indication that the goodwill should be impaired, any loss is
recognised immediately through the Consolidated Statement of Comprehensive
Income and is not subsequently reversed.
3. Segment information
For the purpose of the Board making strategic decisions, the Group is
currently organised into three operating segments: Property Investment and
Development; Land Promotion; and Construction. Group overheads are not a
reportable segment; however, information about them is considered by the Board
in conjunction with the reportable segments.
Operations are carried out entirely within the United Kingdom.
Inter-segment sales are charged at prevailing market prices.
The accounting policies of the reportable segments are the same as the Group's
accounting policies as detailed above.
Segment profit represents the profit earned by each segment before tax and is
consistent with the measure reported to the Group's Board for the purpose of
resource allocation and assessment of segment performance.
Half year ended 30 June 2023 Unaudited
Property
investment
and Land Group
development promotion Construction overheads Eliminations Total
£'000 £'000 £'000 £'000 £'000 £'000
Revenue
External sales 71,517 52,645 55,594 - - 179,756
Inter-segment sales 144 - 585 156 (885) -
Total revenue 71,661 52,645 56,179 156 (885) 179,756
Gross profit/(loss) 11,117 21,143 8,467 134 (14) 40,847
Other income 4,800 - - - - 4,800
Administrative expenses (8,297) (4,168) (4,087) (4,293) 14 (20,831)
Other operating income/(expense) 872 (3) - - - 869
Operating profit/(loss) 8,492 16,972 4,380 (4,159) - 25,685
Finance income 4,219 529 229 140 (3,348) 1,769
Finance costs (2,455) (263) (217) (2,163) 2,603 (2,495)
Profit/(loss) before tax 10,256 17,238 4,392 (6,182) (745) 24,959
Tax (2,338) (4,076) (1,098) 1,707 - (5,805)
Profit/(loss) for the period 7,918 13,162 3,294 (4,475) (745) 19,154
Half year ended 30 June 2022 Unaudited
Property
investment
and Land Group
development promotion Construction overheads Eliminations Total
£'000 £'000 £'000 £'000 £'000 £'000
Revenue
External sales 56,837 24,741 62,836 - - 144,414
Inter-segment sales 145 - 3,685 214 (4,044) -
Total revenue 56,982 24,741 66,521 214 (4,044) 144,414
Gross profit/(loss) 13,042 20,409 10,368 85 (18) 43,886
Administrative expenses (7,233) (3,250) (4,040) (4,091) 18 (18,596)
Other operating income 13,835 - - - - 13,835
Operating profit/(loss) 19,644 17,159 6,328 (4,006) - 39,125
Finance income 724 310 482 5 (986) 535
Finance costs (740) (77) (190) (1,074) 1,198 (883)
Profit/(loss) before tax 19,628 17,392 6,620 (5,075) 212 38,777
Tax (1,904) (3,304) (1,717) 854 - (6,071)
Profit/(loss) for the period 17,724 14,088 4,903 (4,221) 212 32,706
Year ended 31 December 2022 Audited
Property
investment
and Land Group
development promotion Construction overheads Eliminations Total
£'000 £'000 £'000 £'000 £'000 £'000
Revenue
External sales 168,990 43,820 128,609 - - 341,419
Inter-segment sales 290 - 4,453 386 (5,129) -
Total revenue 169,280 43,820 133,062 386 (5,129) 341,419
Gross profit/(loss) 36,488 24,320 20,720 99 (37) 81,590
Administrative expenses (16,142) (6,971) (8,636) (8,743) 37 (40,455)
Other operating income 5,322 - - - - 5,322
Operating profit/(loss) 25,668 17,349 12,084 (8,644) - 46,457
Finance income 4,015 744 1,507 26,576 (31,201) 1,641
Finance costs (2,226) (213) (374) (3,373) 3,683 (2,503)
Profit/(loss) before tax 27,457 17,880 13,217 14,559 (27,518) 45,595
Tax (3,411) (3,451) (2,771) 1,908 - (7,725)
Profit/(loss) for the year 24,046 14,429 10,446 16,467 (27,518) 37,870
30 June 30 June 31 December
2023 2022 2022
Restated(1)
Unaudited Unaudited Audited
£'000 £'000 £'000
Segment assets
Property investment and development 375,023 336,185 355,491
Land promotion 152,251 139,678 149,598
Construction 48,116 55,395 45,766
Group overheads 5,826 3,564 3,612
581,216 534,822 554,467
Unallocated assets
Retirement benefit assets 8,108 8,361 6,188
Deferred tax assets 249 332 249
Cash and cash equivalents 20,536 21,526 17,401
Total assets 610,109 565,041 578,305
Segment liabilities
Property investment and development 52,955 35,104 59,113
Land promotion 14,183 10,753 13,114
Construction 28,427 48,035 36,994
Group overheads 5,274 4,025 568
100,839 97,917 109,789
Unallocated liabilities
Current tax liabilities 7,664 2,876 3,793
Deferred tax liabilities 4,878 6,573 4,401
Current lease liabilities 1,539 559 426
Current borrowings 85,000 60,000 65,000
Non-current lease liabilities 4,770 791 607
Total liabilities 204,690 168,716 184,016
Total net assets 405,419 396,325 394,289
(1) See 'Prior year restatements' for further details in the 'Basis of
preparation and accounting policies'
4. REVENUE
The Group's revenue is derived from contracts with customers. In the following
table, revenue is disaggregated by primary activity, being the Group's
operating segments and timing of revenue recognition:
Timing of revenue Timing of revenue
recognition recognition
Activity in the United Kingdom 30 June At a point in time Over 30 June At a point in time Over
2023 time 2022 time
Unaudited Unaudited
£'000 £'000
Construction contracts:
- Construction 41,096 - 41,096 48,004 - 48,004
- Property investment and development 24,663 - 24,663 12,356 - 12,356
Sale of land and properties:
- Property investment and development 12,836 12,836 - 26,509 26,509 -
- House builder unit sales 31,012 31,012 - 15,007 15,007 -
- Land promotion 52,502 52,502 - 24,645 24,645 -
PFI concession 6,502 6,502 - 6,162 6,162 -
Revenue from contracts with customers 168,611 102,852 65,759 132,683 72,323 60,360
Plant and equipment hire 7,996 8,670
Investment property rental income 3,002 2,914
Other rental income - property development 4 51
Other rental income - land promotion 143 96
179,756 144,414
5. Earnings per ordinary share
Earnings per ordinary share is calculated on the weighted average number of
shares in issue being 133,386,168 (30 June 2022: 132,978,061). Diluted
earnings per ordinary share is calculated on the weighted average number of
shares in issue adjusted for the effects of any dilutive potential ordinary
shares.
6. Dividends
Half year Half year Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
Unaudited Unaudited Audited
£'000 £'000 £'000
Amounts recognised as distributions to equity holders in period:
Preference dividend on cumulative preference shares 11 11 21
Interim dividend for the year ended 31 December 2022 of 2.66p per share (2021: - - 3,540
2.42p)
Final dividend for the year ended 31 December 2022 of 4.00p per share (2021: 5,336 4,822 4,822
3.63p)
5,347 4,833 8,383
An interim dividend amounting to £3,910,000 (2022: £3,540,000) will be paid
on 13 October 2023 to shareholders whose names are on the register at the
close of business on 29 September 2023. The proposed interim dividend has not
been approved at the date of the Consolidated Statement of Financial Position
and so has not been included as a liability in these Financial Statements.
7. Tax
Half year Half year Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
Unaudited Unaudited Audited
£'000 £'000 £'000
Current tax:
UK corporation tax on profits for the period 4,886 5,733 8,690
Adjustment in respect of earlier periods (85) - (152)
Total current tax 4,801 5,733 8,538
Deferred tax:
Origination and reversal of temporary differences 1,004 338 (813)
Total deferred tax 1,004 338 (813)
Total tax 5,805 6,071 7,725
Corporation tax is calculated at 23.5% (31 December 2022: 19%) of the
estimated assessable profit for the period being management's estimate of the
weighted average corporation tax rate for the period. The Group's effective
rate of tax of
23.3% is lower than the standard rate of corporation tax due to non-taxable
property valuation increases.
In the Spring Budget 2021, the Government announced that from 1 April 2023 the
main rate of UK corporation tax would increase to 25%. This new law was
substantively enacted on 24 May 2021; deferred tax balances at the period end
have been measured at 25% (2022: 25%), being the rate at which timing
differences are expected to reverse.
8. Investment properties
Investment
Completed property
investment under
property construction Total
£'000 £'000 £'000
Fair value
At 1 January 2023 (audited) 87,198 9,918 97,116
Subsequent expenditure on investment property 83 6,892 6,975
Disposals (928) - (928)
Transfer to assets held for sale (1,042) - (1,042)
Increase/(decrease) in fair value in period 1,405 (810) 595
At 30 June 2023 (unaudited) 86,716 16,000 102,716
Adjustment in respect of tenant incentives (2,213) - (2,213)
Market value at 30 June 2023 84,503 16,000 100,503
Fair value
At 1 January 2022 95,177 9,000 104,177
Subsequent expenditure on investment property (48) - (48)
Disposals (3) - (3)
Transfer from inventory 4,542 - 4,542
Transfer to assets held for sale - (11,371) (11,371)
Increase in fair value in period 1,072 2,371 3,443
At 30 June 2022 (unaudited) 100,740 - 100,740
Adjustment in respect of tenant incentives (2,132) - (2,132)
Market value at 30 June 2022 98,608 - 98,608
Fair value
At 1 January 2022 95,177 9,000 104,177
Subsequent expenditure on investment property 8 9,265 9,273
Capitalised letting fees 2 26 28
Amortisation of capitalised letting fees (25) - (25)
Disposals (7,500) - (7,500)
Transfer from inventory 6,827 391 7,218
Transfer to assets held for sale - (11,134) (11,134)
Increase/(decrease) in fair value in period (7,291) 2,370 (4,921)
At 31 December 2022 (audited) 87,198 9,918 97,116
Adjustment in respect of tenant incentives 2,234 - 2,234
Market value at 30 June 2023 89,432 9,918 99,350
At 30 June 2023, the Group had entered into contractual commitments for the
acquisition and repair of investment property amounting to £711,000 (31
December 2022: £nil).
9. Borrowings
Half year Half year Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
Restated(1)
Unaudited Unaudited Audited
£'000 £'000 £'000
Bank loans 85,000 60,000 65,000
Lease liabilities 6,309 1,350 1,033
91,309 61,350 66,033
(1) See 'Prior year restatements' for further details in the 'Basis of
preparation and accounting policies'
Movements in borrowings are analysed as follows:
£'000
At 1 January 2023 66,033
Secured bank loans 35,000
Repayment of secured bank loans (15,000)
New leases 5,851
Repayment of lease liabilities (575)
At 30 June 2023 91,309
Bank loans include the Group's revolving loan facility which runs to January
2025 and is drawn for durations of up to six months.
10. Provisions for liabilities and charges
Since 31 December 2023, the following movements on provisions for liabilities
and charges have occurred:
· The road maintenance provision represents management's best estimate of the
Group's liability under a five-year rolling programme for the maintenance of
the Group's PFI asset. During the period £867,000 has been utilised and
additional provisions of £583,000 have been made, all of which were due to
normal operating procedures.
· The Land promotion provision represents management's best estimate of the
Group's liability to provide infrastructure and service obligations, which
remain with the Group following the disposal of land. During the period,
£887,000 has been utilised and additional provisions of £23,000 have been
made.
11. Defined benefit pension scheme
The main financial assumptions used in the valuation of the liabilities of the
scheme under IAS 19 are:
30 June 30 June 31 December
2023 2022 2022
% % %
Retail Prices Index (RPI) 3.30 3.90 3.20
Consumer Prices Index (CPI) 2.70 2.75 2.60
Rate in increase to pensions in payment liable for Limited Price Indexation 2.70 2.75 2.60
(LPI)
Revaluation of deferred pensions 2.70 2.75 2.60
Liabilities discount rate 5.40 3.90 4.90
Amounts recognised in the Consolidated Statement of Comprehensive Income in
respect of the scheme are as follows:
Half year Half year Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
Unaudited Unaudited Audited
£'000 £'000 £'000
Service cost:
Ongoing scheme expenses 439 266 644
Net interest (income)/expense (196) 112 209
Pension Protection Fund 45 98 136
Pension expenses recognised in profit or loss 288 476 989
Remeasurement on the net defined benefit liability:
Return on plan assets (excluding amounts included in net interest expense) 6,451 32,573 50,365
Actuarial losses/(gains) arising from changes in demographic assumptions 986 - (1,070)
Actuarial losses/(gains) arising from experience adjustments 2,138 (721) (721)
Actuarial gains arising from changes in financial assumptions (7,526) (50,694) (63,568)
Actuarial losses/(gains) recognised in other comprehensive income 2,049 (18,842) (14,994)
Total 2,337 (18,366) (14,005)
The amount included in the Statement of Financial Position arising from the
Group's obligations in respect of the scheme is as follows:
Half year Half year Year
Ended ended ended
30 June 30 June 31 December
2023 2022 2022
Unaudited Unaudited Audited
£'000 £'000 £'000
Present value of scheme obligations 147,410 168,369 152,576
Fair value of scheme assets (155,518) (176,730) (158,764)
(8,108) (8,361) (6,188)
12. Related party transactions
There have been no material transactions with related parties during the
period.
There have been no material changes to the related party arrangements as
reported in note 28 to the Annual Report and Financial Statements for the year
ended 31 December 2022.
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note.
13. SHARE CAPITAL
Half year Half year Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
Unaudited Unaudited Audited
£'000 £'000 £'000
400,000 5.25% cumulative preference shares of £1 each (31 December 2022: 400 400 400
400,000)
133,984,551 ordinary shares of 10p each (31 December 2022: 133,627,922) 13,398 13,347 13,363
13,798 13,747 13,763
14. Cash generated from operations
Half year Half year Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
Unaudited Unaudited Audited
£'000 £'000 £'000
Profit before tax 24,959 38,777 45,595
Adjustments for:
Amortisation of PFI asset 279 293 579
Goodwill impairment 102 102 203
Depreciation of property, plant and equipment 2,125 1,926 3,957
Depreciation of right-of-use assets 287 298 597
Revaluation (increase)/decrease in investment properties (595) (3,443) 4,921
Amortisation of capitalised letting fees - - 25
Share-based payment expense 744 595 1,241
Pension scheme credit (3,969) (1,747) (3,422)
(Profit)/loss on disposal of property, plant and equipment (excluding 14 (113) (176)
equipment held for hire)
Profit on disposal of equipment held for hire (596) (389) (1,070)
Loss on disposal of right-of-use assets - 1 -
Profit on disposal of investment properties (85) - (646)
Loss on disposal of assets held for sale - - 150
Gain on disposal of joint ventures - - (667)
Finance income (1,769) (535) (1,641)
Finance costs 2,495 883 2,503
Share of profit of joint ventures and associates (188) (10,376) (9,079)
Operating cash flows before movements in equipment held for hire 23,803 26,272 43,070
Purchase of equipment held for hire (2,538) (3,450) (5,454)
Proceeds on disposal of equipment held for hire 722 550 1,343
Operating cash flows before movements in working capital 21,987 23,372 38,959
Increase in inventories (5,886) (22,140) (63,701)
Increase in receivables (6,005) (7,619) (3,763)
Increase/(decrease) in contract assets 1,836 (5,205) (11,701)
(Increase)/decrease in payables (3,252) 9,413 24,684
(Increase)/decrease in contract liabilities (2,540) 2,697 (1,027)
Cash generated from operations 6,140 518 (16,549)
Net debt is an alternative performance measure used by the Group and comprises
the following(1):
Analysis of net debt(1):
Cash and cash equivalents 20,538 21,526 17,401
Bank overdrafts - - -
Net cash and cash equivalents 20,538 21,526 17,401
Bank loans (85,000) (60,000) (65,000)
Lease liabilities (6,309) (1,350) (1,033)
Net debt (70,771) (39,824) (48,632)
( )
(1) See 'Prior year restatements' for further details in the 'Basis of
preparation and accounting policies'
15. GROUP RISKS AND UNCERTAINTIES
The Directors consider that the principal risks and uncertainties which could
have a material impact on the Group's performance over the remaining six
months of the 2023 financial year remain consistent with those set out in the
Strategic Report on pages 52 to 56 of the Group's Annual Report and Financial
Statements. These risks and uncertainties include:
Safety; Environmental and climate change; Economic; People and culture;
Funding; Cyber; Pensions; Construction contracts; Property assets; Property
development; Land sourcing; Land demand; Political.
The Group is mindful of sustained inflation, increasing interest rates and the
low levels of growth in the UK economy, and particularly the impact this has
on the residential housing market. This continues to be mitigated by
maintaining a robust balance sheet, prudent levels of gearing and being
selective of the opportunities we progress.
The Group operates a system of internal control and risk management in order
to provide assurance that it is managing risk while achieving our business
objectives. No system can fully eliminate risk and therefore the understanding
of operational risk is central to the management process within Henry Boot.
The long-term success of the Group depends on the continual review, assessment
and control of the key business risks it faces.
16. Approval
The issue of these statements was formally approved by a duly appointed
committee of the Board on 19 September 2023.
RESPONSIBILITY STATEMENTS OF THE DIRECTORS
The Directors confirm that these condensed interim Financial Statements have
been prepared in accordance with International Accounting Standard 34,
'Interim Financial Reporting', as adopted by the European Union and that the
interim management report includes a fair review of the information required
by DTR 4.2.7 and DTR 4.2.8, namely:
· an indication of important events that have occurred during the first six
months and their impact on the condensed set of financial statements, and a
description of the principal risks and uncertainties for the remaining six
months of the financial year; and
· material related-party transactions in the first six months and any material
changes in the related-party transactions described in the last Annual Report.
The Directors of Henry Boot PLC are listed in the Henry Boot PLC Annual Report
for the year ended 31 December 2022. A list of current Directors is maintained
on the Henry Boot PLC Group website: www.henryboot.co.uk
(http://www.henryboot.co.uk) .
On behalf of the Board
T A ROBERTS D L LITTLEWOOD
Director Director
19 September 2023 19 September 2023
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