Chairman and
Chief Executive's statement

Robust performance in line with expectations

We delivered a robust performance for 2009, despite experiencing some challenging trading conditions across our chosen sectors. The 13% decrease in revenue to £2,214m (2008: £2,548m) and the 28% decrease in profit before tax and amortisation to £51.5m (2008: £71.4m) were principally due to a decline in higher margin activities in the Fit Out and Affordable Housing divisions, although this was partly offset by record results from our Construction and Infrastructure Services divisions.

Earnings per share before amortisation of intangible assets fell by 27% to 93.9p (2008: 127.8p). Profit before tax (after amortisation of intangible assets) fell by 28% to £44.7m (2008: £62.3m). We have declared a second interim dividend of 30.0p payable on 1 April 2010. This is in place of the final dividend, which for 2008 was 30.0p and was paid on 8 May 2009. This gives a total dividend for the year of 42.0p (2008: 42.0p).

Our year end cash balance was £118m (2008: £120m) and we achieved, as expected, an average cash balance throughout the year of £31m (2008: £77m). This lower level of average cash reflects the higher levels of working capital required as construction activity has slowed. The Group’s financial position remains strong which, combined with our debt facilities of £100m available through to mid-2012, leaves us well placed to take advantage of opportunities presented by our markets.

Long-term strategy supported by emphasis on robust financial disciplines

Our long-term strategy continues to be the achievement of leading positions in all our chosen markets. Delivering a quality construction service in close collaboration with our clients is a key component in achieving this aim.

In 2009 the Fit Out division experienced a considerable contraction in the commercial office sector, resulting in reductions in revenue and operating profit. In challenging market conditions the division remained focused on securing profitable opportunities rather than securing revenue at any cost and it is our view that the division performed well in maintaining its market leading position and healthy operating profit margin.

The Construction and Infrastructure Services divisions both delivered record results, increasing operating profit and margin in 2009, based largely on the strength of their positions in the public and regulated sectors, combined with an increased capability to take on larger and more complex projects. The Construction division also benefited from further improvements resulting from its continuing Perfect Delivery quality programme.

The Affordable Housing division maintained its revenue and generated an excellent operating profit during the year given the difficult market conditions for open market housing. This was due to strong new build contracting and refurbishment demand for social housing which helped to counteract reductions in profitability from sales of open market housing.

The Urban Regeneration division delivered a satisfactory performance in 2009 and contributed a small profit in a very subdued market, aided in some part by the recovery in sales of open market housing. The business remains ideally positioned to take advantage of future opportunities as occupier demand recovers.

The Investments unit secured a number of new projects during the year and is currently at preferred bidder stage on several high value schemes. The directors’ valuation of the investment portfolio held by the division increased during the year to £38m (2008: £28m).

We report more fully on each division in the business review that follows this statement.

Since the beginning of 2008 we have realised annualised savings of £38m and we continue to focus on working capital management, cost reduction and supply chain improvements, as well as responding to market growth opportunities where they present themselves.

Changes to the Board

We welcomed Patrick De Smedt to the Board as a non-executive director in December 2009. In addition, we are pleased to announce that Simon Gulliford will join the Board as a non-executive director on 1 March 2010. Simon has particular experience in the area of strategic marketing both as a consultant and in an executive capacity.

Patrick and Simon’s experience will further enhance the range of skills and abilities our non-executive directors bring to the Board.

Jon Walden will leave the Board at the forthcoming annual general meeting after nine years as a non-executive director; we thank him for his valuable contribution during his time with the Group.

Opportunities are presented in continued challenging markets

Whilst we expect that our markets will remain challenging in 2010, as many of them continue to be impacted by the effects of the economic downturn, we are seeing some signs of recovery in demand for open market housing and demand for fit out from the financial services sector. This, combined with the strength of our order book and projects progressed to preferred bidder stage, should help to offset some of the effect of the expected further weakening of public sector spending. We have taken positive and timely action as overall construction activity has slowed and we will continue to take the necessary steps to shape our business as the market changes.

At the same time, however, we will continue to assess all new market opportunities that arise and use our track record, expertise and operational and financial strength to exploit them where appropriate.

Fit Out is well positioned to respond to signs of improved demand for major projects in the commercial office market, especially demand from the financial services sector, and will focus on growing its share of the retail banking, hotel and education sectors.

Construction’s focus on sectors with growth potential such as prisons, airports, defence and rail and its capability to deliver larger projects will help counter the effects of a subdued commercial market and any future public sector spending reductions.

Infrastructure Services’ medium and longer-term growth potential in the energy and transport sectors, driven by investment in key infrastructure projects, will complement the division’s strong presence in the utilities market.

Affordable Housing will focus on exploiting the improving open market housing sector and on the latest round of social housing PFI opportunities, as well as growing its new responsive maintenance offering alongside its existing refurbishment expertise.

Having secured substantial regeneration projects in the past few years, Urban Regeneration will continue to progress each of its current schemes, although we expect its market to remain subdued in the short-term. With its quality portfolio the division retains an excellent platform for growth as occupier demand returns in the medium-term.

The Investments unit has a healthy pipeline of PPP/PFI schemes to pursue alongside the five operating divisions. In addition to the construction revenue to be created for the other divisions, these schemes are expected to increase the unit’s long-term investment income.

Our forward order book at the start of 2010 stood at £3.2bn (2008: £3.7bn). We also started 2010 with over £0.9bn (2008: £nil) of projects at preferred bidder stage. This element of potential work was created entirely during 2009 and reflects our capability to deliver large and more complex schemes. In addition, Urban Regeneration’s forward development pipeline (its share of regeneration projects in which it has an interest) was valued at £1.4bn (2008: £1.3bn).

The Group produced a robust performance in 2009 against a backdrop of challenging trading conditions. Although we face similar conditions in 2010, our breadth of capability gives us confidence that we are well placed to capitalise on the opportunities presented by our markets.