Business Review

Our Group key performance indicators

Our Group key performance indicators (KPIs)

Given the significant changes in our operating environment during the course of 2008, our focus has been on the short term performance of the business. As such, our performance against our KPIs for the year is weak.

We believe that these KPIs remain the most appropriate indicators of business performance in the long term, but are less relevant in the current environment. As such, we will amend our suite of KPIs in next year's Annual Report.

      (Loss)/profit before tax       (Loss)/earnings per share  
  Objective   We strive to achieve the highest level of profit before tax in the housebuilding sector.   Objective   We seek to provide continuous growth in earnings per share.  
  Definition   Profit on ordinary activities from continuing operations, excluding exceptional items and before charging tax.   Definition   The basic earnings per share from continuing operations based upon the profit attributable to ordinary shareholders before exceptional items divided by the average number of shares in issue during the year.  
      (Loss)/profit before tax, 2008 - (74.7), 2007 - 346.1       (Loss)/earnings per share, 2008 - (9.4), 2007 - 29.5  
      £(74.7)mfor 2008
(£346.1m profit for 2007)
      (9.4)pfor 2008
(29.5p earnings for 2007)
      Return on average capital employed      
Dividend per share
  Objective   We aim to deliver a return on capital employed above the level of our cost of funding.   Objective   We aim to deliver an attractive progressive dividend.  
  Definition   Profit on ordinary activities before finance costs, exceptional items and amortisation of brands divided by the average of opening and closing capital employed (excluding goodwill and brands).   Definition   The sum of the interim dividend per share and the final proposed dividend per share for the year.  
      Return on average capital employed, 2008 - 2.6%, 2007 - 14.8%       Dividend per share, 2008 - nil, 2007 - 15.75  
      2.6%for 2008
(14.8% for 2007)
      nil for 2008
(15.75p for 2007)
      Average number of employees          
  Objective   We endeavour to attract and retain the highest calibre of employees and strive to be a company that people want to work for.          
  Definition   The average number of people employed across the Group during the year.          
      Average number of employees, 2008 - 8,069, 2007 - 9,727          
      8,069for 2008
(9,727 for 2007)

As the UK housing market deteriorated sharply in the second quarter of 2008, it became clear that in the absence of a market recovery there was a risk of breaching the interest cover covenants which were contained in both our bank debt and the private placement notes. Having reviewed the options available to us with our advisers, we decided to approach the banks to seek a revision to the covenant package to reflect the challenging market conditions. We indicated to the banks that we intended to raise additional equity on the stock market and the banks indicated their intention to amend the covenant package, subject to a successful equity raise.

Due to the difficulties being experienced by companies attempting to raise equity through traditional rights issues in the early summer of 2008, we proposed to use a structure known as private placing with clawback. This involved initial discussions with a number of large existing shareholders and potential new investors on a confidential basis to establish their level of support for the equity raise. The intention was to obtain sufficient support to underwrite the full level of the proposed equity raise from these investors prior to making the transaction public. Existing shareholders would then have been entitled to subscribe for new shares in proportion to their existing holdings, reducing the number of shares available to the underwriting investors. Unfortunately, we were not able to obtain sufficient support due to the uncertain nature of both the UK housing market and the stock markets.

We therefore commenced negotiations with our banks and private placement holders with a view to agreeing a revised covenant package on the basis of no new equity being raised. These talks have been lengthy and complicated, requiring significant resource from the Company's perspective to provide financial due diligence to our debt providers.

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