Chairman's Statement
Group profit before tax for the half year to 30 June 2000 was up 70% at £27.5
million (1999 - £16.2 million) and earnings per share increased to 19.5 pence
(1999 - 11.1 pence). An increased dividend of 4.50 pence per Ordinary Share
(1999 - 4.25 pence) will be paid on 3 November to shareholders registered at
the close of business on 22 September 2000.
The Group continues with a strategy of investing in infrastructure. This covers
residential and commercial properties, transport related activities, public
buildings and the utilities sectors. In pursuing this strategy we are involved
in the complete life cycle of projects from initial development, through to
financing and construction and on to long-term ownership and operation. Three
of our four Divisions continue to flourish - Homes, Property and Investments.
The Construction Division under-performs as it reorganises.
Laing Homes has had an exceptional first half and has more than doubled profits to
£28.2 million (1999 - £13.1 million). In the UK, average selling prices rose to
£235,000 (1999 - £189,000) on unit sales numbering 583 (1999 - 516). The profile
of sales this year is such that units completed in the first half are likely to
represent around one half of the full year expectation, proportionately much higher
than has been the experience of recent years.
In March 2000 we concluded the acquisition of Beechcroft plc, the specialist
retirement homes business, which has contributed £1.0 million of profit post
acquisition - ahead of our expectations.
The UK housing market has shown signs of stabilising in recent months but our
sales remain well on target to produce a record result this year.
In the US our joint venture company, WL Homes LLC, continues to benefit from
a strong housing market in California and the results are improving across the
other five states in which it operates. The land development project at Forster
Ranch is proceeding to plan and will again contribute to profit in the second half.
Our strategy to exit from the US market remains in place.
Laing Construction continues to suffer from inadequate margins on work secured before
we changed the focus of the business early in 1999, with the result that a loss
of £19.0 million has been reported for the first half year (1999 - £5.0 million).
This result includes reorganisation costs of £4.5 million and we expect
these costs to rise to around £15.0 million, as previously indicated,
by the end of the current year. The result includes the cost of working
out a small number of contracts secured in earlier years. It also
includes some reduction to the value of uncertified claims on work
completed several years ago, and on which we have been forced to commence
arbitration in order to reach final settlements.
While the reported results are disappointing, we remain confident that the actions we have
taken will return the Construction Division to profit. The tough work intake criteria that
have been applied since January 1999 are already delivering improved margins which
will become evident in future years. We are firmly committed to delivering an improved
quality of earnings from Construction but due to the long lead times in this sector it
will, unfortunately, take some time to show through in results.
Laing Property had an outstanding first half, reporting a £9.4 million profit
(1999 - £2.7 million). The result included a contribution of
£3 million from the completion of Heathrow Approach office
development on the M4 near Slough and £5 million from the
refinancing of the revenue stream at Ashford International Passenger Station.
This is the latest in a series of profitable deals from Ashford which so far have netted the
Group close to £10 million.
Property expanded its development portfolio during the first half of the year through the
acquisition of buildings for redevelopment in St James's Square in London and in Reading.
St James's Square will be on site before the end of the year whilst in Reading, the
acquisition of the headquarters of Energis plc offers the potential for over 200,000 sq ft
of new office space over the next five years in partnership with Energis.
Laing Property has over 1 million sq ft of commercial space under development and a further 1.2
million sq ft under option or conditional contract.
Laing Investments has also had an excellent start to the year.
In my last statement I referred to the proposed merger of
Europistas and Eurovias. That merger was concluded in June and
crystallised a value enhancement on the Group's interest in
Eurovias of £20 million. We realised part of this value
enhancement by selling a 2% interest in the enlarged
Europistas at a profit of £8.1 million. We still have a 17.9%
interest in Europistas with a market value of £68 million.
In UK PFI, we continue to work towards
financial close on three projects where we are preferred
bidder, two for the Metropolitan Police and a hospital project
for the Newham Healthcare NHS Trust. We hope to bring these to
financial close over the coming months but there remains much
to do.
Rail is a key point of focus for the
Group and we are delighted to have been selected as preferred
bidder for a 20-year renewal of the Chiltern Line franchise.
We intend to expand our rail activities and have recently
announced a joint venture with Swiss Rail which will bid, in
the near future, for the Thames and Wessex franchises.
In Asia Pacific we purchased interests
in the Northern Territory Airports in Australia - Darwin and
Alice Springs - and in the Gorodok Pipeline from central
Australia to Sydney.
Our Investment Division has grown
rapidly to become a core contributor to Group profits and the
robust quality of the long-term earnings in this sector will
soon become evident as more projects pass through the
development stage and commence operations. The Directors have
valued the portfolio of investments, using discounted cash
flows and market values on listed investments. At 30 June 2000
the Directors' valuation stood at £146 million compared with a
book value of £48.6 million.
Laing Group
strategy remains focused on growing the asset-based businesses
of Homes, Property and Investments while we implement the
necessary changes in Construction. This strategy places
demands on the Group's balance sheet with the result that net
funds have decreased from £37.9 million at 31 December 1999 to
£4.5 million at 30 June 2000 (30 June 1999 - net borrowings of
£8.9 million). We have arranged sufficient medium and
long-term debt facilities to cover the higher levels of
gearing that this strategy will demand.
On 18 May our shareholders approved the
enfranchisement of the Ordinary A (non-voting) Shares and the
holders of Ordinary Shares subsequently received a
compensatory issue of one new Ordinary Share for every 20
held. This historic step demonstrates our determination to
manage the business for growth in shareholder value.
Sir Martin Laing
7th September 2000
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