The Group reported a profit before tax and exceptional items in 2008 of £3.3m.  The reported profit is comparable to the prior year profit of £5.5m after allowing for the profit on disposal of Daresbury Park Developments Limited and the sale of Miller Arcade totalling £2.7m demonstrating that the underlying trading pattern of the Group remains consistent as the country moves into extremely difficult economic circumstances.

After charging exceptional items of £4.9m however, the Group has reported its first ever loss before tax of £1.6m; (2007: £5.5m profit).  The exceptional items relate to provisions made against the carrying value of certain commercial and residential development schemes which at 31 December 2008 are complete and available for disposal.  The Group was fortunate not to have part complete projects at the year end which required funding to build out in an increasingly uncertain market.  The provision made by the Directors to reduce the carrying value of these schemes reflects a realistic current market value which ought to be achievable despite the continued deterioration in market conditions.  Of the total £4.9m write down two office developments account for £2.9m of the write down and £1.2m relates to residential developments.  The remainder, £0.8m, relates to mixed use commercial development projects where the Directors have assessed the realisable value of the assets in today’s market and reduced values downwards based on development appraisals and income forecasts.

Reported turnover is £109m compared to £152m reported in 2007.  The fall in turnover is due mainly to the downturn in construction activity throughout 2008.  Construction turnover fell £29m from £125m to £96m however the fall is line with many other construction based organisations and as noted below the portfolio of contracts in 2008 all generated positive returns which is a key performance indicator for management.  In addition the 2007 reported turnover included the sale of Miller Arcade contributing £8.6m to turnover.  A development sale of this size has not been repeated in 2008.

The bank facilities were renewed for three years in December 2008.  This gives a degree of certainty in difficult trading times.

Property investment

The Group’s long term strategy remains that of retaining a substantial investment portfolio of commercial property.  One of the principal reasons is to provide a stable platform against which the Group can secure much of its core borrowings.  Management has always maintained a decision not to gear up to the maximum potential capacity and this policy is particularly relevant in the current investment market where there has been a very significant downgrading of property as an asset class.  The portfolio is very actively managed and to date has suffered from remarkably little void space and indeed the like for like rental income 2007 compared with 2008 sees a rise of 3% (2008 rental income £5.9m).  There is little doubt that 2009 is likely to see increases in voids but the diversity of tenant activities and their underlying covenant strength offers reasonable projection.

Despite the continuing high performance of the portfolio it was not immune to external market forces and as a result the valuation fell £14m from £76m in 2007 to £62m.  Other significant portfolio movements included the disposal of an asset valued at £1.95m replaced by the capitalisation of a retail investment asset at Ripon valued at £4.1m.

Eric Wright Construction

In line with all other construction based organisations 2008 proved to be a difficult trading year.  The ability to win work in a deteriorating market proved to be extremely difficult.  Indeed the trading year commenced with a number of projects already secured becoming delayed, and in many cases abandoned due to the lack of available funding particularly for developer clients.  As a result of this the company suffered a downturn in turnover from £125.4m (2007) to £96.4m (2008).  Notwithstanding this reduction the company’s management initiatives allowed good returns to be made from the smaller order book seeing profits rise to £2.2m, (2007: £1.8m).  The company is also fortunate in being able to rely on significant public sector relationships notably East Lancs. LIFT, Wigan LIFT and BRAHM LIFT.  All of these produced major contributions both to turnover and profitability within the company and at the same time significantly reduced the potential impact on the business seen by other contractors from customer insolvency or financial distress.

Eric Wright Civil Engineering

This important and growing subsidiary had another excellent year which saw turnover increase to £25.1m, (2007: £19.9m) with profits before tax of £0.52m.  An enthusiastic management team is building an excellent track record in highway and utilities civil engineering and although competition is increasing in this market a number of previously secured framework agreements are providing substantial contributions, but with significant further work being won in competition.  The Government’s stated intention to bring forward capital expenditure particularly in relation to maintenance of infrastructure is holding firm and is clearly benefiting this sector. 

Property Development

The Group principally trades in property development under the name of Maple Grove Developments, which although very active on a number of commercial projects, found the year difficult in relation to the disposal of speculatively developed space. 

The Group was fortunate during 2008 in that it had sufficient cash reserves and did not need to seek further external funding to complete both its residential and commercial developments begun in late 2007.  The board have also deliberately halted both residential and commercial development schemes and effectively mothballed sites acquired in order to further preserve the strong cash position and prevent building out schemes in a deteriorating market.

The challenge going forward will be to secure an orderly disposal of the built out development stock in order to provide further working capital which will fund the business going forward. The write downs made at the end of 2008 should enable the Group to achieve this without incurring further significant trading losses.

The acquisition of specialist Lakeland residential operator, Robert Hughes Limited, referred to in my previous report completed in March 2008 and although this is a difficult period for residential development the terms of the acquisition to a large extent took into account a major market correction and the company managed to maintain its unit sales disposal profile albeit with higher levels of discount to achieve sales.  The company has a number of mothballed opportunities which will be available for commencement as soon as there are signs of market improvement.  There is also continuing enthusiasm for the provision of social housing with some early signs of success in this field.

On the public sector side the year saw the successful financial close of Heywood & Wardleworth and Breightmet under BRAHM, Rawstenstall under East Lancs. LIFT, and the PFI scheme at Whitegate Drive Blackpool.  Significant schemes continue to be rolled out in both East Lancashire and BRAHM, with this work stream contributing considerably to construction turnover and group profitability.  Having a public sector client base also introduces stability into the revenue flows.

Facilities Management

Eric Wright Facilities Management continues to expand by virtue of the completed public sector schemes year on year being made available to the company in addition to its existing long term contractual commitments on previous schemes.

Turnover in 2008 was £4.3m (2007: £3.1m) with profits before tax £0.7m (2007: £0.2m).  Total value of properties now under the management of the division is approximately £200m and growth is expected to continue.

2009 and Beyond

The cautious development write downs made in the 2008 accounts has provided a realistic platform for recovery of the development business streams.  Construction order book remains strong and both Civil Engineering and Facilities Management continue to grow in all respects.  The Group is also fortunate to have long term relationships with a number of public sector partners and continues to be active in trying to seek additional relationships.  An early success was the inclusion of the company in the Express LIFT framework being only one of seven contractors nationally who have been appointed by the Department of Health as being capable of undertaking Express LIFT arrangements with appropriate Primary Care Trusts.

The trading for the Group in 2009 therefore looks promising with a projected return to reasonable levels of profitability.  The board recognises however that this to some extent is subject of course to there being no unexpected levels of bad debt over and above the sensible provisions already made and continued progress in the disposal of built out development stock.

As noted earlier we have the continued support of our bank with a three year facility in place.  Cash flow projections show us operating well within our headroom throughout the forthcoming year and the Board will continue to adopt a conservative borrowing policy.

To download the Eric Wright Group Ltd Company Accounts to December 2008, click here