House building group Abbey has reported a 9 per cent drop in profits to €26 million in the first half of its financial year, blaming rising costs and a softer UK market for the decline.

Abbey, which reported a €28.2 million profit in the same period last year, said these challenging conditions had continued in the UK market into the winter but that the Irish market has continued to be firm. Abbey executive chairman Mr Charles Gallagher said it was expecting a good performance in Ireland in the next few months.

Overall, he said the group was trading steadily and that the board is hopeful of a satisfactory outcome for the year.

The company's shares fell by more than 5 per cent to €7.72 in Dublin on foot of the results which were below analyst expectations. Abbey shareholders will be paid an interim dividend of 11 cents per share, a 10 per cent increase on the previous year.

Abbey said the housing division is on course for more sales in the second half but cautioned that the final outcome depends on its UK sales in the last quarter.

During the six months, Abbey added 423 plots with planning permission to its approved landbank. Mr Gallagher said there are signs of easier land market conditions in the UK in line with the weaker housing market.

In Prague, the company has exchanged contracts for the purchase of a small infill site for 16 flats and an office suite and is pursuing opportunities in Slivenec.

A joint venture adjacent to its development at Clonsilla, Co Dublin generated an operating profit of €328,000.

Its UK plant hire business, M&J Engineers, brought in operating profits of €1.09 million on turnover of €10.4 million. Abbey said trading has been steady throughout the period and a reasonable result for the year can still be achieved.

The group received rental income totalling €116,000. Abbey had commitments for land purchases amounting to €12 million at the end of October.