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Chairman's Statement
To All
Shareholders:
Profit before tax for the half year to 30 June 1999 was £16.2 million
(1998 - £18.4 million) and earnings per share were 11.4 pence (1998 -
13.6 pence). An increased interim dividend of 4.25 pence (1998 - 3.75
pence) will be paid.
The Group
is pursuing its strategy as investor, developer and construction manager
of accommodation and infrastructure. Three of our Divisions - Homes, Property
and Investments - are all ahead of their budget projections for the first
half year and are set to produce impressive results for the full year.
The fourth, Construction, is redefining its strategy, markets and operations
to secure robust and sustainable profits for the future - nevertheless,
in the first half year, the results from Construction have been disappointing.
Homes Division has enjoyed favourable
market conditions in the UK and has consolidated
its position as a quality housebuilder in terms
of both product and profitability. The widening
of the product range over the last four years is
now complete and the average selling price in
the half year was £189,000 (1998 -
£162,000). Unit reservations for
completion in the second half year are strong
and give us the confidence to predict a very
satisfactory outturn for the full year. We are
pleased with our 20% investment in Octagon
Developments Ltd. which is performing in line
with our expectations. Octagon's new development
of luxury apartments and mews houses at
Bryanston Square in London, W1, opened in May
and 22 of the 28 units have already been sold.
In the USA, WL Homes LLC recorded a profit on
our 50% interest for the first half year of
£1.1 million (1998 £0.8 million).
The land development project at the 1,000 acre
Forster Ranch site in San Clemente (California)
has obtained the necessary permits and earth moving
has commenced. This secures the potential for
future land sales as well as building plots for
WL Homes. The Californian market, in particular,
remains strong and our projections place us on
track to achieve the planned exit from the US
markets as part of our long term
strategy.
Property Division has again made a
significant contribution to the Group result,
notwithstanding the cessation of deferred
profits from Castlecourt. Last year I reported
profits on our retail development in Stirling
and the factory outlet scheme at Ashford, both
of which have returned additional profit in the
first half year.
Property now has
several new schemes which will deliver profits
in the future. During the first half our 80,000
sq ft headquarters office scheme on the M4 at
Slough was let to Honda UK Limited having been
pre-sold to MEPC with completion set for
January. This should deliver profit in 2000. A
tenant was also signed up for a refurbished
office development in Epsom and good progress is
being made towards pre-letting one of our two
office schemes in central Reading.
The first half year
also saw considerable activity in identifying
and securing new schemes for the future. Over 23
acres of development land was purchased in
Bicester, Swindon and Camberley, all for
business space use, whilst our involvement in
town centre retail seems set to continue with
selection as preferred developer for a 400,000
sq ft scheme in Derby, following selection last
year for a smaller scheme in Enfield.
The Investment Division has had another
successful period. Laing Hyder, formed in
September 1998, achieved its first financial
close with the Enfield School PFI project, and
is now preferred bidder on the Newham Hospital
PFI project. Our consortium bidding for the A130
road scheme for Essex County Council has been
selected as preferred bidder. In
heavy rail, we have purchased a controlling
interest in M40 Trains Ltd, which holds the
Chiltern Line franchise, at a cost of £7.2
million, taking our total interest to 85%. The
Midland Metro light rail system commenced
operations on 14 June 1999 after a difficult
development phase. We have formed a new company,
Laing Rail Ltd, to manage our light and heavy
rail investments and to pursue further
investment opportunities.
Overseas, our
investment in the Europistas toll road in Spain
continues to make capital repayments,
contributing £5.7 million to profits in
the first half year, and we anticipate, a
similar amount in the second half year. The
Europistas concession company now holds several
investments - among which is an investment in
the Eurovias toll road in which Laing also holds
a 13% direct interest. Recent analyst reports
support our view that Eurovias provides
potential for considerable value
enhancement.
In the Asia Pacific
region we have sold one half of our interest in
YTL Power International Bhd at a profit of
£1.0 million and, in Adelaide, the airport
company in which the Group holds 14.5% of the
equity has advanced the negotiations that should
result in the development of a AUS$ 200 million
Multi User Integrated Terminal. Passenger
traffic continues to grow at an acceptable
level.
Construction Division has reported a
loss of £5.0 million for the first half
year. Additional costs have been incurred to
achieve the completion of the Cardiff Millennium
Stadium where, despite the very difficult
circumstances, we will deliver an impressive
project on time.
The construction
industry continues to suffer from over capacity and poor earnings and, in this context, a
fundamental review of our strategy is nearing
completion. We will focus on the areas of
business where we can add value to projects and
generate premium margins. Controls over work
intake have already been instituted and these
will lead to a lower level of turnover.
Opportunities and capabilities will be brought
into closer alignment to ensure that we deliver
a professional level of service that is more
appropriate to clients' needs. The rigorous
criteria that we have applied for work intake
throughout the year, together with the
objectives within our new business plan, will
ensure the recovery in profitability.
Further investment in Homes and Property assets, coupled with operating costs in Construction, have resulted in a cash outflow in the first half year. At 30 June 1999 the Group had net borrowings of £8.9 million compared to net cash of £43.8 million at 31 December 1998. Our strategy to place greater emphasis on asset based businesses that present long term robust profit streams will lead to continued net cash outflows in the short and medium term. We are, therefore, arranging long term debt facilities to cover the higher levels of gearing that we are likely to experience.
An interim dividend
for 1999 of 4.25 pence (1998 - 3.75 pence) per
Ordinary and Ordinary A (non-voting) share will
be paid on 19 November 1999 to shareholders
registered at the close of business on 24
September 1999. A Scrip Dividend Option will
again be available to Ordinary and Ordinary A
(non-voting) shareholders - enabling them to
acquire further shares without incurring dealing
costs.
While we continue to
work through the programme of reshaping the
Construction division the other three Divisions
are performing exceptionally well and their
markets show no signs of weakening. We have
increased the interim dividend by 13.3% in anticipation
of reporting a good result for the full
year.
Sir Martin Laing
9th September 1999
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