1st Sep 2005 07:00
Workspace Group PLC01 September 2005 WORKSPACE CONTINUES GROWTH IN FIRST QUARTER Workspace Group PLC ("Workspace"), the leading provider of flexible businessaccommodation to small and medium sized enterprises ("SMEs") in London and theSouth East today announces its results for the three months ended 30 June 2005. • Net Asset Value (NAV) per share £1.85 (under IFRS) at 30 June 2005, up 4.5% on the quarter and up 21% over twelve months (31 March 2005: £1.77) (30 June 2004: £1.53). • NAV per share £2.35 (under former UK GAAP) at 30 June 2005 (31 March 2005: £2.24; 30 June 2004: £1.83). • Valuation surplus for quarter £18.1m (2004: £14.2m). • Pre-tax profits £19.82m (2004: £18.60m). • Pre-tax profits on trading operations £3.14m (2004: £3.49m). • Basic earnings per share 8.5p (2004: 8.1p). • Earnings per share on trading activities 1.3p (2004: 1.5p). • Turnover £13.95m for the quarter, up 4.1% (2004: £13.40m). • Total rent roll £43.2m up 2.1% on the quarter (31 March 2005: £42.3m). • Acquisitions £95.7m since 31 March 2005 with Annual Income of £6.1m. Harry Platt, Chief Executive of Workspace commented, " We have seen a sound start to the year. We have made acquisitions totalling£95.7m, offering excellent prospects for growth in line with the Group'sdevelopment plan. " We have continued to make progress on our "added value" schemes. Our majorrefurbishments are continuing as planned, and should produce good earningsgrowth next year. " Enquiry levels remain robust and the award of the 2012 Olympics to London willoffer significant opportunities for the Group going forward. As the marketleader we are ideally positioned to capitalise on the growing demand for spacefrom small and medium sized businesses." -ends-Date: 1 September 2005For further information: Workspace Group PLC City Profile GroupHarry Platt, Chief Executive Simon CourtenayMark Taylor, Finance Director Oliver Winters020-7247-7614 020-7448-3244e-mail: [email protected]: www.workspacegroup.co.uk Operating & Financial Review Chairman's Statement We have made a good start to the current year with NAV per share up 4.5% overthe quarter and 21% over the last 12 months. In particular, after a year inwhich our acquisitions levels, in a competitive market, were lower than planned,I am pleased to report sound progress in the current period. Since 31 March 2005£95.7m of acquisitions have been completed or contracted, showing a combinedinitial yield of 6.4% and a yield on current market rental levels at fulloccupancy of 8.85%. These properties have potential for further growth. These are the first financial statements that we have released prepared underthe new International Financial Reporting Standards (IFRS). In common with mostother companies, the introduction of IFRS has a profound impact on our financialreporting. As a UK based property company, the two main changes are theincorporation of valuation surpluses in the Income Statement, which has theimpact of increasing earnings per share substantially to 6.5 times that underthe former accounting principles, and the full recognition of deferred taxliabilities principally on valuation surpluses, which has reduced Net Worth andNet Asset Value per share, with NAV per share 21% lower under these principles.Another significant impact will be the increased level of volatility in reportedperformance. This and the related impacts on Earnings per Share (EPS) arecommented upon more fully in the Financial Review. This is the first time that the Group has undertaken an independent quarterlyvaluation of its portfolio. A valuation surplus of £18.1m, an increase of 2.47%on the portfolio value immediately prior to the revaluation, was recorded in thequarter, taking Net Asset Value per share to £1.85 (31st March 2005 £1.77)(under former UKGAAP £2.35 at 30th June 2005 and £2.24 at 31st March 2005). Going forward, it seems that the immediate prospects for some parts of theeconomy have recently become more uncertain, which has had the effect of slowingactivity in these sectors. As yet, we see no evidence of a change to theactivity pattern of our SME customer base, with occupancy rates little changed.In the longer term, the award of the 2012 Olympics to London must presentopportunities. We believe that this will act as an important stimulant to thewhole of the London economy; extending beyond the Lea Valley in East London,where the principal stadiums are to be located. As a major investor in Londonservicing the SME business community in the city, the Group should benefitsubstantially from the Olympiad. Chief Executive's Statement The first quarter shows the Group making further progress. Net rental income,including acquisitions, was up 2.45% at £10.06m for the quarter (2004: £9.82m)with overheads down 4.2%. Net asset value per share is up 4.5% on the opening 31March 2005 value. Earnings per share, at 8.5p are up 4.9% on the first quarter of 2004/5. Of this7.2p per share relates to Other Items, arising principally from the valuationsurplus net of the change in fair value of the financial derivatives. As noted above, five acquisitions, totalling £95.7m, have been achieved in theyear to date, a period in which competition for property continued to be high.These acquisitions have been secured at values that, we anticipate, will providegood support for earnings and net asset value growth in the future. With theGroup's increasing focus on the London metropolitan area, the Board isundertaking a review of its portfolio. It is possible that the disposal ofcertain properties outside this areas may follow, particularly where the Boardconsiders that these properties are unlikely to contribute to growth at thelevels comparable with those anticipated for similar properties within London. Taking into account the acquisitions completed or contracted following thequarter end, the Group's portfolio now stands at over £830.0m, well on the wayto the target set in September 2003 of £1bn by September 2008. Valuation The financial results include, for the first time, an independent valuation ofthe Group's portfolio at the quarter end. This valuation showed a surplus of£18.1m for the quarter, a 2.47% increase. This increase was largely attributableto yield movements in the sector over the period with just 10% arising from netrental improvements. Portfolio The following acquisitions and disposals have been made or contracted in theyear to date: Name of Property Description Acquisition Initial/Exit Market rent / Sale Income at 30 June Price £000 pa 2005 £000 paAcquired duringquarter: 111 Power Road, Factory complexChiswick, of 98,000 sq.ft. £7.50m 151.8 1,349.1London, W4 Marshgate Multi-letBusiness Centre, industrial £5.59m 347.3 483.0London, E15 estate of 93,400 sq.ft. Acquiredfollowingquarter end: Evelyn Court, 16,000 sq.ft.,Deptford, 18 unit offices £2.64m 210.0 209.5SE8 5AD Uplands Business 287,500 sq.ft.Park, industrialWalthamstow, E17 estate with 45 £24.0m 1,711.0 1,889.0 units Contractsexchangedfollowingquarter end: 333,100 sq.ft. business park £56.0m 3,705.4 4,545.0Kennington Park, arranged over 11Kennington, SW9 buildings with 71 lettable units. £95.73m 6,125.5 8,475.6 Yield 6.40% 8.85% Sold: Payne Road Site sold withStudios, London, consent forE3 mixed residential and £2.10m 97.4 - commercial accommodation. Exit Yield 4.64% 111 Power Road, Chiswick was identified following the acquisition last year ofChiswick Studios, which is located nearby. It is a former costume jewelleryfactory complex. The previous owners had commenced a phased programme to convertit to a business centre use, with the result that only 32% of the space wasoccupied. We plan to invest a further £4.5m to accelerate and complete thisconversion, following which it should provide over time an income of £1.35m(yielding in excess of 10% on our total investment). Marshgate Business Centre and Uplands Business Park are located in East Londonand will be directly impacted by the Olympics in 2012. Marshgate Business Centreis situated on the edge of the Olympic zone and could potentially be subject toa compulsory purchase order. This was recognised at the time of purchase (beforethe Olympics announcement) but we believe that, given its inexpensive purchaseprice at £60 per sq.ft., we will, in any event, see a good return from ourinvestment in the property. Uplands is located further north in the Lea Valley.It is positioned well to benefit from lettings to those businesses that willneed to be relocated from the core Olympic zone. Evelyn Court, Deptford is a small office scheme, which is highly visible beinglocated on the A200, Evelyn Street. This is an improving area and we expectrental and capital values to advance over time in reflection of this. Kennington Park will be a significant acquisition. Contracts were exchanged forthe purchase of this estate on 19th August 2005 and it will complete on 15thSeptember 2005. It is well located on an island site fronting the A23 adjacentto the Oval tube station in an area which we believe will change substantiallyin the medium term. It comprises a development of 11 separate buildings, usedformerly for a mixture of industrial activities. It is now subdivided andoccupied by a range of activities. It is just 2 miles from Westminster andcompliments the cluster of other properties that the Group has acquired nearbyover recent periods in the Southwark/Lambeth districts. Following the acquisitions and disposals completed in the quarter, the portfoliostatistics, and progress through the year to date may be summarised as follows: 30 June 2005 31 March 2005Number of estates 105 104 Total floor space at end of period 5.33 5.16(million sq. ft.) of which:Like for like portfolio (million sq. ft.) 4.97Net Acquisitions/Disposals (million sq. ft.) 0.18Developments (million sq. ft.) 0.18 Lettable units (number) 4,748 4,717 Annual rent roll of occupied units (£m) 43.17 42.28 Average rent (£/sq. ft) 9.35 9.29 Average rent of like-for-like 9.26 9.11portfolio (£/sq. ft) Occupancy overall 86.65% 88.26% Occupancy of like-for-like portfolio 89.40% 90.27% Comparisons of overall occupancy and rent roll are distorted by acquisitions,disposals and transfers. The "like-for-like portfolio" is defined as thoseproperties that have been held throughout the year to date and which are notsubject to refurbishment/ redevelopment programmes. Like-for-like occupancy declined slightly during the quarter from 90.3% to89.4%, although it remains at levels that are regarded as effective fulloccupancy by the Group. There has been some attrition since the quarter end withexpected tenant departures which may result in a further reduction in occupancylevels in the next two quarters. For example, the Inland Revenue is departingfrom Surrey House which is making 16,900 sq.ft. of space available for lettingin conjunction with our Great Guilford Street Business Centre. Against this,average rental income per square foot (on a like-for-like basis) increased by1.6% over the quarter, equivalent to an annual rate of increase of 6.75%,comfortably ahead of our target growth level of 5.0%. Progress on the Group's programme to add value to its properties continues.Following the receipt of planning consent to redevelop its Wharf Road property,the Group invited tenders from residential developers to acquire the site for aconsideration comprising the provision of a replacement business centre on thesite, together with a cash lump sum. Negotiations are now in progress with thepreferred bidder. Despite being recommended for approval by officers, our planning application forthe mixed-use development at Aberdeen Studios was rejected by Islington Council.We are now preparing to appeal the decision. Negotiations continue on our planning application for a major mixed-use schemeat Thurston Road in Lewisham. We anticipate a decision during the currentfinancial year. Financial Review As noted in the Chairman's Statement, these are the first financial statementsthat have been prepared using the International Financial Reporting Standards(IFRS). Under IFRS, the focus of the accounts has moved from the P & L Account (nowcalled the Income Statement) to the Balance Sheet with this being prepared byreference to "fair values" of assets and liabilities rather than their historiccosts as formerly. This fair valuing of assets will cause greater volatility asthe valuation differences pass through the Income Statement. We have decided topreserve our practice of analysing our Income Statement between "TradingOperations" and non trading "Other Items". The valuation adjustments have beenclassified under other items alongside profits/losses on disposals of investmentproperties and other exceptional items. This approach has the advantage ofpresenting a trading performance which accords broadly with that presentedpreviously under former UK GAAP in the "Trading Operations" column whilstdrawing together the fair value adjustments made to these values under the"Other Items" column. Consequently, a more consistent pattern should bepreserved in the Trading Operations column with the higher volatility itemsfocussed in Other Items. This approach also serves to spotlight the impact that these adjustments have,with trading earnings per share of 1.5p increasing by 7.2p (554%) to 8.5p as aresult of these adjustments. This Other Item total has arisen principally due tothe valuation surplus of £18.12m in the quarter (2004: £14.18m), less thedifference arising from the revaluation of derivative financial instruments (theinterest rate hedges used to shelter the Group from the impact of excessivechanges in interest rates) which last year contributed £1.04m but this timeshowed a cost of £1.22m. We propose reporting on this basis for the foreseeable future, whilstunderstanding of IFRS reporting develops. We will also continue to provideunaudited statements prepared under former UK GAAP on our website. Accompanyingthis report is a fuller statement advising on the changes under IFRS andproviding a restatement of last years accounts. A copy of this will be placed onour website also. Profits before tax, at £19.82m are up 6.6% (2004: £18.60m). However, at aTrading Operations level, there was a reduction from £3.49m in 2004/5 to £3.14min the current year. Interest charges for the quarter were up £0.74m on lastyear, £0.35m being due to increases in interest rates. The average rate of LIBORfor the quarter was 0.46% higher than that for the comparable period last year.Since the quarter end LIBOR rates have declined and so, with the increases thatoccurred in the comparable periods last year, it is anticipated that year onyear interest rate comparisons will show reductions for the remainder of theyear. Adjusting for this increase in interest rates leaves Trading PBT levelwith that for the first quarter last year. Earnings growth in the period hasalso been impacted by reductions in net income on redevelopment andrefurbishment projects which are not of a recurrent nature. The other significant impact of the implementation of IFRS is that on reportednet worth and net asset value per share. Here the key influence is the fullrecognition of deferred tax liabilities on valuation surpluses. This deferredtax liability will only accrue if the related assets are sold, which asinvestment properties is unlikely to any substantial degree in the foreseeablefuture. The deferred tax liability increased from £7.35m to £86.08m onrestatement of the 31 March 2005 Balance Sheet (an adjustment of 47 pence pershare), increasing to £91.15m at 30 June once the valuation surplus and otheritems in the quarter were accounted for (amounting to 54 pence per share). Theimpact of this adjustment has been exacerbated by the requirement under IFRSthat indexation allowances, ordinarily allowable under UK tax law, be ignored incomputing the deferred tax liability. As a result, the reported deferred taxliability overstates the tax liability estimated on the basis of gains measuredat the reporting date by £15.6m (9.6 pence per share). The following table summarises the impacts of these changes: Net Assets per share 31st March 2005 Movements 30th June 2005 Under former UKGAAP £2.24 £0.11 £2.35 Adjustments £(0.47) £(0.03) £(0.50) Under IFRS £1.77 £0.08 £1.85 During the quarter acquisitions totalling £13.1m were made. Following thequarter end a further £82.6m have been completed or contracted taking the totalfor the year to date to £95.7m. These acquisitions have been financed using theGroup's existing facilities with Natwest and Bradford & Bingley. The latter ofthese has been increased by £70m to £270m, renewing the term to a fresh 5 yearperiod maturing in July 2010. Once these acquisitions are complete, then theGroup will have approximately £10m of available facilities. Negotiations are inhand for a further facility to support acquisitions. In addition, the review ofthe Group's portfolio may lead to receipts from disposals. The reduction in net worth referred to earlier has a consequent impact ongearing. Your Board considers that gearing measurement should continue to bemonitored under the former UK GAAP principles. As a result, both IFRS and formerUK GAAP measures are incorporated in the following table of key financialstatistics and indicators:- 3 months to Year to 31 3 months to 30 June 2005 March 2005 30 June 2004Net rental income: turnover 72% 74% 73%Trading operating profit: 58% 60% 59%turnoverTrading PBT: turnover 22% 26% 26%EPS per share (pence) 8.5 36.1 8.1NAV per share (£) - IFRS 1.85 1.77 1.53- UK GAAP 2.35 2.24 1.83Trading interest cover 1.63 1.77 1.79Gearing - IFRS 112% 112% 123%- UK GAAP 87% 88% 100%Available facilities (£m) *38.0 49.2 20.5 *Following the quarter end, available facilities were increased by £70m. If the acquisitions completed or contracted following the quarter end had beencompleted at the quarter end then the gearing level under IFRS would have been141% and under former UKGAAP 111%. Prospects The Group has made a sound start to the year. In particular, it has secured anumber of acquisitions that offer good prospects for growth and which keep theGroup on target for its overall development plan. Other acquisitions are undernegotiation. Earnings growth will be tempered in the immediate future, partly due to thelargely neutral initial impact of new acquisitions and partly due to plannedtenant departures at particular estates. Our schemes at Southbank, Clerkenwelland Enterprise should produce good earnings growth next year. Enquiries continue to be good with high levels of occupancy, and the rent reviewprogramme is meeting the Group's targets. Longer term, we believe that the decision on the Olympics and the related widerinfrastructure investment will assist growth in London and that our customerbase of small and medium size businesses will benefit from this. Our marketplace is very substantial and growing and we are well placed to capitalise onthis as the leading supplier of space for new and small businesses in London. Consolidated Income Statement (unaudited)for the 3 months ended 30 June 2005 Year ended 3 months ended 30 June 2005 31 March 3 months 2005 Trading Other ended 30 (restated) Operations Items Total (restated) £000 Notes £000 £000 £000 £000 55,039 Revenue 1 13,947 - 13,947 13,404 (14,071) Direct costs 1 (3,899) 13 (3,886) (3,584) 40,968 Net Rental Income 1 10,048 13 10,061 9,820 (7,643) Administrative expenses (1,940) 65 (1,875) (1,958) 67,923 Gain from change in fair - 18,117 18,117 14,181 value of investment property (75) (Loss)/profit on disposal of 2 - (14) (14) 23 investment properties 101,173 Operating Profit 8,108 18,181 26,289 22,066 73 Finance income - Interest 7 - 7 18 receivable (19,523) Finance costs - Interest 3 (4,979) (280) (5,259) (4,524) payable 1,097 Change in fair value of - (1,217) (1,217) 1,036 derivative financial instruments 82,820 Profit before tax 3,136 16,684 19,820 18,596 (24,342) Taxation 4 (951) (4,988) (5,939) (5,624) 58,478 Profit for the period after 2,185 11,696 13,881 12,972 tax and attributable to equity shareholders 36.1p Basic earnings per share 6 1.3p 7.2p 8.5p 8.1p 34.8p Diluted earnings per share 6 1.3p 6.9p 8.2p 7.8p Other Items above include items, such as profits and losses (together with theirrelated taxation) on sales of investment properties, of a non trading naturetogether with valuation adjustments arising from the fair valuing of financialassets and liabilities. The adjustment to direct costs arises from the treatmentof head lease payments as interest, with the adjustment to administrativeexpenses from the estimation under IFRS2 of the services cost arising from thegrant of share options and other non-cash remuneration to staff. Consolidated Statement of Recognised Income and Expense (unaudited)for the 3 months ended 30 June 2005 Year ended 3 months 3 months 31 March ended 30 ended 30 2005 June 2005 June 2004(restated) (restated) £000 £000 £000 58,478 Profit for the financial period 13,881 12,972 (15) Convertible loan stock conversion - (15) 231 Value of employee services 80 38 58,694 Total recognised income and expense 13,961 12,995 for the period Consolidated Balance Sheet (unaudited)As at 30 June 2005 31 March 2005 30 June 30 June (restated) 2005 2004 £000 Notes (restated) £000 £000 Assets Non-current assets 716,537 Investment properties 8 751,201 636,426 143 Intangible assets 139 185 3,523 Property, plant and equipment 10 3,600 3,443 720,203 754,940 640,054 Current assets 5,159 Trade and other receivables 11 8,124 13,849 Financial assets - derivative 187 financial instruments 91 710 1,251 Financial assets - tenant 12 1,298 1,146 deposits 3 Cash and cash equivalents 4 2,235 6,600 9,517 17,940 Liabilities Current Liabilities 817 Financial liabilities - 14 203 22 borrowings 24,816 Trade and other payables 13 29,380 29,239 2,507 Current tax liabilities 1,520 4,354 28,140 31,103 33,615 (21,540) Net current liabilities (21,586) (15,675) Non Current Liabilities 322,402 Financial liabilities - 14 336,936 304,601 borrowings Financial liabilities - 1,729 derivative financial 2,850 2,313 instruments 86,075 Deferred tax liabilities 16 91,150 70,215 410,206 430,936 377,129 288,457 Net Assets 302,418 247,250 Shareholders' equity 16,884 Ordinary shares 17 16,884 1,686 28,388 Share premium 19 28,388 43,469 (5,519) Investment in own shares 20 (5,519) (6,096) 461 Other reserves 18 541 268 248,243 Retained earnings 19 262,124 207,923 288,457 Total Shareholders' equity 19 302,418 247,250 £1.77 Net asset value per share 7 £1.85 £1.53 (basic) £2.22 Adjusted net asset value per 7 £2.33 £1.89 share (diluted) Consolidated Cash Flow Statement (unaudited)for the 3 months ended 30 June 2005 Year ended Notes 3 months 3 months 31 March 2005 ended 30 ended 30 (restated) June 2005 June 2004 (restated) £000 £000 £000 Cash flows from operating activities 33,870 Cash generated from operations 15 8,735 9,965 73 Interest received 7 18 (19,714) Interest paid (4,412) (4,024) (3,179) Tax paid (850) (813) 11,050 Net cash from operating activities 3,480 5,146 Cash flows from investing activities (44,944) Purchase of investment property (13,627) (4,890) (9,543) Capital expenditure on investment (4,790) (1,800) property 35,362 Proceeds from sales of investment 2,312 6,721 property (2,745) Taxation on disposal of investment (1,000) (407) property (44) Purchase of intangible assets (19) (15) (823) Purchase of property, plant and (228) (145) equipment (22,737) Net cash used in investing (17,352) (536) activities Cash flows from financing activities 287 Net proceeds from issue of ordinary - 170 share capital 16,300 Net proceeds from issue of new bank 14,500 - loan - Repayment of borrowings - (1,500) 687 Net distribution of own shares - 110 (51) Finance lease principal payments (13) (13) (5,186) Dividend paid to shareholders - - 12,037 Net cash from/(used in) financing 14,487 (1,233) activities 350 Net increase in cash and cash 615 3,377 equivalents (1,159) Cash and cash equivalents at start (809) (1,159) of period (809) Cash and cash equivalents at end of 15 (194) 2,218 period Notes to the Quarterly Results 1. Analysis of net rental income The Group operates a single business segment providing business accommodationfor rent in London and the South East of England, which is continuing. Year ended 3 months ended 3 months ended31 March 2005 (restated) 30 June 2005 30 June 2004 (restated) Net Net Net Rental Rental Rental Revenue Costs Income Revenue Costs Income Revenue Costs Income £000 £000 £000 £000 £000 £000 £000 £000 £000 43,270 (278) 42,992 Rental income 10,950 (47) 10,903 10,721 (105) 10,616 Service 9,865 (13,482) (3,617) charges and 2,634 (3,720) (1,086) 2,398 (3,490) (1,092) other recoveries Services, 1,904 (311) 1,593 fees, 363 (119) 244 285 11 296 commissions and sundry income 55,039 (14,071) 40,968 13,947 (3,886) 10,061 13,404 (3,584) 9,820 2. (Loss)/profit on disposal of investment properties Year ended 3 months 3 months 31 March ended 30 ended 30 2005 June 2005 June 2004(restated) (restated) £000 £000 £000 34,721 Proceeds from sale of investment properties 2,100 11,880 (34,796) Book value at time of sale plus sales costs (2,114) (11,857) (75) (Loss)/profit on sale (14) 23 (4,007) Current tax (220) (2,489) 4,485 Deferred tax released on sale 278 2,497 478 Net tax 58 8 403 Net profit on disposal after tax 44 31 On 27 May 2005 the Group disposed of Payne Road Studios and 5 Payne Road,London, E3 for £2.1m. 3. Finance costs - interest payable Year ended 3 months 3 months 31 March ended 30 ended 30 2005 June 2005 June 2004(restated) (restated) £000 £000 £000 Interest expense: 16,806 Interest payable on bank borrowings 4,589 3,892 391 Amortisation of issue costs of bank loans 101 90 51 Interest payable on finance leases 13 13 1,391 Interest payable on 11.125% First Mortgage 347 347 Debenture Stock 2007 814 Interest payable on 11.625% First Mortgage 204 204 Debenture Stock 2007 284 Interest payable on 11% Convertible Loan Stock 71 70 2011 (214) Interest capitalised on investment property (66) (92) re-developments 19,523 5,259 4,524 4. Taxation Year ended 3 months 3 months 31 March ended 30 ended 30 2005 June 2005 June 2004(restated) (restated) £000 £000 £000 Analysis of charge in period: 6,190 Current tax 864 3,332 18,152 Deferred tax (see note 16) 5,075 2,292 24,342 Total taxation 5,939 5,624 The tax on the Group's profit for the period is lower than the standardapplicable corporation tax rate in the UK (30%). The differences are explainedbelow: - 82,820 Profit before taxation 19,820 18,596 24,846 Tax at standard rate of corporation tax in the 5,946 5,579 UK of 30% (2004/5: 30%) 14 Expenses not deductible for tax purposes 10 25 64 Other differences (mainly re: share based 38 35 payments) (408) Capital gains adjustments on property disposals (55) (15) (5) Reductions due to application of small companies - - rate (169) Adjustment in respect of previous periods - - 24,342 Tax expense 5,939 5,624 5. Dividends paid Year ended 3 months 3 months 31 March ended 30 ended 30 2005 June 2005 June 2004 (restated) (restated) £000 £000 £000 3,349 Final dividend for year ended 31 March 2004 - - of 2.07p* per ordinary share paid 2 August 2004 1,837 Interim dividend for year ended 31 March - - 2005 of 1.13p* per ordinary share paid 1 February 2005 5,186 Dividends paid out of retained earnings - - (note 19) *Figures adjusted to reflect bonus share issue made in March 2005. 6. Earnings per share a) Earnings used in calculating earnings per share Year ended 3 months 3 months 31 March ended 30 ended 30 2005 June 2005 June 2004 (restated) (restated) £000 £000 £000 58,478 Earnings for basic earnings per share 13,881 12,972 191 Interest saving net of taxation on 11% 30 8 Convertible Loan Stock 58,669 Diluted earnings 13,911 12,980 (48,229) Less non trading other items (11,696) (10,557) 10,440 Trading diluted earnings 2,215 2,423 b) Weighted average number of shares used for calculating earnings per share Year ended 3 months 3 months 31 March ended 30 ended 30 2005 June 2005 June 2004 (restated) (restated) No No No 161,931,920 Weighted average number of shares 163,256,213 16,053,769 - Increase due to capitalisation (March - 144,483,921 2005) 161,931,920 Used for calculating basic earnings 163,256,213 160,537,690 per share (excluding shares held in the ESOT) 1,682,780 Dilution due to Share Option Scheme 1,750,575 190,022 5,000,000 Dilution due to Convertible Loan 5,000,000 500,000 Stock - Increase due to capitalisation (March - 6,210,198 2005)168,614,700 Used for calculating diluted earnings 170,006,788 167,437,910 per share 7. Net assets per share a) Net assets used in calculating net assets per share 31 March 30 June 30 June 2005 2005 2004 (restated) (restated) £000 £000 £000 288,457 Net assets at end of period 302,418 247,250 2,484 Dilution due to Convertible Loan Stock 2,417 2,407 290,941 Diluted net assets 304,835 249,657 6,541 Deferred tax on accelerated tax 6,766 4,932 depreciation 80,029 Deferred tax on fair value change of 85,206 65,858 investment properties (463) Deferred tax on derivative financial (828) (481) instruments 377,048 Adjusted diluted net assets 395,979 319,966 b) Number of shares used for calculating net assets per share 31 March 30 June 30 June 2005 2005 2004 (restated) (restated) No No No 168,839,660 Shares in issue at end of period 168,839,660 16,863,811(5,620,370) Less ESOT shares (5,380,370) (667,066) - Increase due to capitalisation (March - 145,770,705 2005)163,219,290 Number of shares for calculating basic 163,459,290 161,967,450 net assets per share 1,682,780 Dilution due to Share Option Scheme 1,750,575 190,022 5,000,000 Dilution due to Convertible Loan Stock 5,000,000 500,000 - Increase due to capitalisation (March - 6,210,198 2005) Number of shares for calculating169,902,070 diluted net assets per share 170,209,865 168,867,670 8. Investment properties 31 March 30 June 30 June 2005 2005 2004 (restated) (restated) £000 £000 £000 626,817 Balance at beginning of period 716,537 626,817 55,973 Additions during the period 18,582 7,117 214 Capitalised interest on 66 92 re-developments (34,385) Disposals during the period (2,100) (11,780) 67,923 Gain from fair value adjustments on 18,117 14,181 investment property (5) Amortisation of finance leases (1) (1) 716,537 Balance at end of period 751,201 636,426 Capitalised interest is included as an addition in the period, the rate ofcapitalisation is 5.94% (31 March 2005: 5.79%; 30 June 2004: 5.48%). 9. Valuation The Group's investment properties were revalued at 30 June 2005 by CB RichardEllis, Chartered Surveyors, a firm of independent qualified valuers. Thevaluations were undertaken in accordance with the Royal Institution of CharteredSurveyors Appraisal and Valuation Standards on the basis of market value. Marketvalue is defined as the estimated amount for which a property should exchange onthe date of valuation between a willing buyer and willing seller in an arm'slength transaction. A full valuation of the portfolio was not undertaken by CBRichard Ellis at 30 June 2004 and has not been undertaken retrospectively. Thevalue for 30 June 2004 has been arrived at by CB Richard Ellis on a pro-ratabasis using the actual valuations that were undertaken by CB Richard Ellis bothat 31 March 2004 and 30 September 2004, taking into account properties purchasedand sold, the actual change in total income and consideration of the performanceof the IPD Property Index over this period. Included in the CB Richard Ellis valuations is an amount in respect of theCompany's short leasehold interest (expiring 11 February 2011) in the AlphaBusiness Centre, Walthamstow. For accounts purposes, as the unexpired term ofthe leasehold interest in Alpha Business Centre is less than 20 years, thevaluation of the property has been retained at a nominal £1. The adjustment fromthe valuation report total to the accounts total may be reconciled as follows: - 31 March 30 June 30 June 2005 2005 2004 (restated) (restated) £000 £000 £000 718,425 Total per CB Richard Ellis valuation 753,090 638,185 report (350) Alpha Business Centre (350) (400) (2,290) Owner occupied property (2,290) (2,115) 752 Head leases treated as finance leases 751 756 under IAS17 716,537 Total per Accounts 751,201 636,426 10. Property, plant and equipment Owner Owner Motor Equipment Total occupied occupied Vehicles and land buildings Fixtures £000 £000 £000 £000 £000CostBalance at 1 April 2004 500 1,525 25 4,165 6,215(restated)Additions - 5 - 140 145Disposals - - - - -Balance at 30 June 2004 500 1,530 25 4,305 6,360(restated) Balance at 1 April 2004 500 1,525 25 4,165 6,215(restated)Additions - 9 - 813 822Disposals - - - (939) (939)Balance at 31 March 2005 500 1,534 25 4,039 6,098(restated) Balance at 1 April 2005 500 1,534 25 4,039 6,098Additions - 60 1 168 229Disposals - - - - -Balance at 30 June 2005 500 1,594 26 4,207 6,327 Cumulative Depreciation to 30 June - 7 13 2,897 2,9172004 (restated) Net Book Value at 30 June 2004 500 1,523 12 1,408 3,443(restated) Cumulative Depreciation to 31 - 30 15 2,530 2,575March 2005 (restated) Net Book Value at 31 March 2005 500 1,504 10 1,509 3,523(restated) Cumulative Depreciation to 30 June - 38 16 2,673 2,7272005 Net Book Value at 30 June 2005 500 1,556 10 1,534 3,600 At 1 April 2004, the fair value of owner occupied land and buildings was adoptedas the deemed cost of those assets. The fair value of owner occupied land andbuildings was £2,025,000 and the carrying value at 1 April 2004 under UK GAAPwas £2,036,401. 11. Trade and other receivables - current 31 March 30 June 30 June 2005 2005 2004 (restated) £000 (restated) £000 £000 3,484 Trade debtors 3,630 5,129 (385) Less: provision for impairment of (523) (439) receivables 3,099 Trade debtors - net 3,107 4,690 - Deferred consideration on sale of - 5,000 property - Taxation and social security - 4 2,060 Prepayments and accrued income 5,017 4,155 5,159 8,124 13,849 12. Tenant deposits Financial assets - tenant deposits represent returnable cash security depositsreceived from tenants. These deposit deeds are ring-fenced under the terms ofthe individual lease contracts and cannot be used to fund the working capital ofthe Group. They are accordingly held separately from other cash balances andexcluded from cash and cash equivalents. 13. Trade and other payables - current 31 March 30 June 30 June 2005 2005 2004 (restated) (restated) £000 £000 £000 2,219 Trade payables 4,449 4,092 1,111 Taxation and social security payable 2,370 4,328 1,251 Tenants' deposit deeds 1,298 1,146 4,869 Tenants' deposits 4,975 4,492 10,525 Accrued expenses 11,421 10,191 4,841 Deferred income-rent and service charges 4,867 4,990 24,816 29,380 29,239 14. Financial liabilities - borrowings a) Balances 31 March 30 June 30 June 2005 2005 2004 (restated) (restated) £000 £000 £000 Current 812 Bank loan and overdrafts due within one 198 17 year or on demand (secured) 5 Finance lease obligations 5 5 817 203 22 Non -current 2,484 11% Convertible Loan Stock 2011 2,417 2,407 (unsecured) 12,500 11.125% First Mortgage Debenture Stock 12,500 12,500 2007 (secured) 7,000 11.625% First Mortgage Debenture Stock 7,000 7,000 2007 (secured) 299,671 Other loans (secured) 314,273 281,943 747 Finance lease obligations 746 751 322,402 336,936 304,601 323,219 337,139 304,623 b) Maturity 31 March 30 June 30 June 2005 2005 2004 (restated) (restated) £000 £000 £000 Secured 812 Less than one year 198 17 - Between one year and two years - - 219,500 Between two years and three years 219,500 83,000 - Between three years and four years - 219,500 100,800 Between four years and five years 115,300 - 321,112 334,998 302,517 (1,129) Less cost of raising finance (1,027) (1,057) 319,983 333,971 301,460 Unsecured 2,484 In five years and more 2,417 2,407 Finance Leases 752 In five years and more 751 756 323,219 337,139 304,623 c) Financial instruments held at fair value The following interest rate caps and collars are held: Amount Interest Interest Expiry hedged Rate Cap Rate £ 000 Floor Interest rate cap and collar 104,200 8.00% 4.50% July 2009 Interest rate cap and collar 75,000 6.95% 4.05% July 2009 Both these instruments are treated as financial instruments at fair value withchanges in value dealt with in the income statement at each reporting date. d) Fair values of financial instruments 31 March 2005 30 June 2005 30 June 2004 (restated) (restated) Book Fair Book Fair Book Fair Value Value Value Value Value Value £000 £000 £000 £000 £000 £000 Financial instruments not at fair value through profit and loss 812 812 Bank overdraft 198 198 17 17 2,484 8,800 11% Convertible Loan 2,417 8,930 2,407 8,524 Stock 2011 12,500 13,474 11.125% First Mortgage 12,500 13,376 12,500 13,549 Debenture Stock 2007 7,000 7,601 11.625% First Mortgage 7,000 7,535 7,000 7,652 Debenture Stock 2007 299,671 299,671 Other loans 314,273 314,273 281,943 281,943 752 752 Finance lease 751 751 756 756 obligations 323,219 331,110 337,139 345,063 304,623 312,441 Financial instruments at fair value through profit and loss Derivative financial instruments:- 1,729 1,729 Liabilities 2,850 2,850 2,313 2,313 (187) (187) Assets (91) (91) (710) (710) 1,542 1,542 2,759 2,759 1,603 1,603 324,761 332,652 339,898 347,822 306,226 314,044 The total gain/loss recorded in the income statement was £1,217,000 loss (31March 2005: £1,097,000 gain, 30 June 2004: £1,036,000 gain) for changes of fairvalue of derivative financial instruments. The fair value of the interest rate collars has been determined by reference tomarket prices and discounted expected cash flows at prevailing interest rates.All other fair values have been calculated by discounting expected cash flows atprevailing interest rates. The total fair value adjustment equates to 4.9p pershare (31 March 2005: 4.8p, 30 June 2004: 3.8p). Comparatives have been restatedfor bonus issue in March 2005. 15. Cash generated from operations Reconciliation of profit for the period to cash generated from operations Year ended 3 months to 3 months 31 March 30 June to 30 June 2005 2005 2004 (restated) (restated) £000 £000 £000 58,478 Profit for the period 13,881 12,972 24,342 Tax 5,939 5,624 567 Depreciation 151 150 96 Amortisation of intangible assets 23 24 (15) Share based payments (credit)/expense (65) 26 75 Profit on disposals of investment 14 (23) property Net gain from fair value adjustments (67,923) on investment property (18,117) (14,181) (1,097) Fair value gains on financial 1,217 (1,036) instruments (73) Interest income (7) (18) 19,523 Interest expense 5,259 4,524 Changes in working capital: 46 (Increase)/decrease in trade and other (3,030) (2,616) receivables (149) Increase/(decrease) in trade and other 3,470 4,519 payables 33,870 Cash generated from operations 8,735 9,965 For the purposes of the cash flow statement, the cash and cash equivalentscomprise the following: 31 March 30 June 30 June 2005 2005 2004 (restated) (restated) £000 £000 £000 3 Cash and bank balances 4 2,235 (812) Bank overdrafts (note 14) (198) (17) (809) (194) 2,218 Total tax paid in the period was £1,850,000 (31 March 2005: £5,924,000; 30 June2004 £1,220,000). 16. Deferred tax liabilities 31 March 30 June 30 June 2005 2005 2004 (restated) (restated) £000 £000 £000 67,934 Balance at start of period 86,075 67,934 18,152 Deferred tax charge to Income Statement 5,075 2,292 Deferred tax (credit) to equity re: (11) conversion of convertible loan stock - (11) 86,075 Balance at end of period 91,150 70,215 Deferred tax liability recognised in the balance sheet by each category oftemporary timing difference is as follows: 31 March 30 June 30 June 2005 2005 2004 (restated) (restated) £000 £000 £000 80,029 Fair value gains on investment 85,206 65,858 properties 6,541 Accelerated tax depreciation 6,766 4,932 (463) Derivative financial instruments (828) (481) (32) Other 6 (94) 86,075 91,150 70,215 If the investment properties were sold for their revalued amount, there would bea potential liability to corporation tax of £69,579,000 (31 March 2005:£64,456,000, 30 June 2004: £48,175,000). Under IFRS no account is taken ofindexation relief on capital gains resulting in the difference between expectedcorporation tax to be paid and the provision made for deferred tax. 17. Share Capital 31 March 30 June 30 June 2005 2005 2004 (restated) (restated) No No No 240,000,000 Authorised: ordinary shares of 10p 240,000,000 21,500,000 each168,839,660 Issued: fully paid ordinary shares of 168,839,660 16,863,811 10p each £ £ £ 16,883,966 Issued: fully paid ordinary shares of 16,883,966 1,686,381 10p each Movements in share capital were as follows: 31 March 30 June 30 June 2005 2005 2004 (restated) (restated) No No No 16,733,811 No shares at start of period 168,839,660 16,733,811 151,955,694 Bonus issue - - 50,000 Executive Share Options exercised - 50,000 20,155 Employee Share Options exercised - - 80,000 Convertible Loan Stock converted - 80,000 168,839,660 No shares at end of period 168,839,660 16,836,811 18. Other reserves 31 March Equity Equity 30 June 30 June 2005 element of settled 2005 2004(restated) convertible share based Total (restated) Total loan stock payments Total £000 £000 £000 £000 £000Related Shares:
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