Homebuilder Abbey reported a 14.5 per cent decline in first-half profit after increases in the cost of land in the Republic dented the group's margins. The stagnation of house prices in the UK also held back profit.

Charles Gallagher, the group's chairman, said that while the housing market in southern England remains challenging, as it was for most of last year, there was a slight improvement towards the end of the year.

Figures released earlier this week by UK mortgage lender Halifax showed that house prices in the UK rose by 2.1 per cent in the final three months of 2005, indicating a modest recovery in the latter part of the year.

However, Mr Gallagher said the Irish property market continues to be firm and that the group hopes to start constructing its first properties in the Czech Republic later this year.

"Overall this gives us a bit of encouragement for 2006," he said, adding that the company is on course for more sales in the second half of the company's accounting year.

The interim accounts released yesterday showed that Abbey delivered pretax profit of €22.32 million in the six months ended October 31, compared with €23.12 million in the year-earlier period. Turnover slipped 2 per cent to €96.99 million.

The company raised its interim dividend 9 per cent to 12 cent.

Abbey's housebuilding division completed 330 sales in the period, compared with 353 a year earlier. The UK accounted for 194 of those, while 136 were in Ireland. Combined, the sales generated turnover of €86.53 million.

In a note to investors, NCB analyst Paul Meade said Abbey's results had come in about 6 per cent below the broker's expectations.

However he noted the company's indications that the UK market had shown some improvement towards the end of the year and that the Irish market remains strong. NCB is currently reviewing its price target for Abbey, which currently stands at €10.50.The group's shares slipped 20 cent, to close at €10.30.

In Prague, Abbey said it plans to start construction on 95 plots for which it already has planning permission some time after June.

Mr Gallagher said that seven years from now he hopes the Czech business will be as big as the group's Irish and UK operations.

He also reiterated his intention to expand into other parts of eastern Europe in the future.