Kier Homes

Kier Homes provides mixed tenure and affordable housing, specialising in urban regeneration with the skills and experience to deliver innovative and environmentally sustainable construction and finance solutions. These include leveraging multiple funding and investment sources and providing cross-subsidy options. We have reduced the scale of our private sales operation to maintain a stable 500 to 600-unit per year business focused on the south-east and East Midlands area.

There remains uncertainty in the housing market although a modest demand for newly built homes supported an improved underlying performance for the year for the Homes business.

In the private sector, the housing market continues to be constrained by the lack of mortgage availability, which is affecting housing demand throughout the country. In the affordable housing sector, following the Government’s Comprehensive Spending Review, the change from social rent to an affordable rent structure will transform the way that affordable housing is financed.

Overall, we completed 998 units this year (2010: 1,060) a similar mix to last year, with 466 arising from private development sales and 532 through affordable housing sales (2010: 499 private and 561 affordable homes).

These unit sales, together with land sales, generated revenues of £153m (2010: £158m) and operating profits improved to £4.2m in 2011 (2010: £2.8m excluding Homes land transaction).

Our cash investment in this division has slightly increased to £259m (June 2010: £248m), reflecting the settlement of deferred land payments, which have now been made in full, increased investment in work in progress on apartment schemes, which have a different cash profile to a typical housing scheme, partially offset by the first instalment proceeds on land sales.

The instalments represent part of a committed £20m (350 plots) of completed land sales on deferred cash terms. Having completed these sales, and following a review of our land and work in progress, we have written down the value of our land and work in progress and it now better reflects our strategy for the private housing business and the current market conditions. Whilst it remains our intent to sell further land over time, we do not anticipate realising profit from these transactions, the emphasis being on cash generation.

Our land bank at 30 June 2011 is carried at a value of £159m (June 2010: £214m), after the current year’s write-down and is represented by 4,800 plots (2010: 5,700 plots), all with planning consent. Our strategy to position our land bank so that it supports a 500 to 600-unit business continues with the aim of having a land bank equivalent to approximately four to five years’ supply. This will release cash, which is available for investment in the Group’s future growth. All new housing is being built primarily on land acquired prior to the market correction in 2008 and we therefore anticipate modest margins through this business over the next few years.

Housing Association Registered Providers (HARPs) have responded positively to the challenge of funding future development using an affordable rental income stream to leverage finance and a strong pipeline of development opportunities, to be delivered over the next four years, is emerging.

Through our partnerships with key public housing funding bodies and registered providers of affordable housing, and working with our investment and development specialists within the Group, we are well positioned to provide a comprehensive delivery solution to the UK’s current housing challenges.

Our membership of the HCA DPP framework continues to provide a steady supply of public sector land for the development of affordable and mixed-tenure housing. All of these types of projects involve free land provided by the HCA; one such example is our development at Balaam Wood, Egg Hill, which has progressed well and we have delivered our first sales reservations alongside the affordable housing on the site.

Our strategy continues to focus on reducing the cash investment in our land bank by developing homes for sale, or disposing of parts of the land bank as opportunities arise. The private homes market remains challenging, as mortgage finance still requires significant deposits, and there remains a low level of public confidence given the current economic conditions. We therefore expect overall private sales for the year to 30 June 2012 to be at a similar level to those for this year at this stage.

Our focus is the development of mixed-tenure affordable housing through our well-established relationships with local authorities and housing associations. In the recent allocation of AHP funding, we were delighted to receive the entire allocation of grant requested (£12.5m) which will help us deliver in excess of 1,000 new affordable homes alongside our HARPs over the next four years. This excellent result combined with our relationships with our framework partners and our position on the HCA DPP set us well to exploit opportunities in the affordable housing market in the medium term.

We will remain flexible and responsive to the uncertain private housing market and will pursue growth in our affordable housing business and the opportunities that it presents.