Final Results

RNS Number : 3362I

Terrace Hill Group PLC

10 March 2010

 

10 March 2010

 

 

Terrace Hill Group plc

("Terrace Hill", the "Company" or the "Group")

 

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 OCTOBER 2009

 

Terrace Hill Group plc (AIM: THG), a leading UK property development and investment group, today announces its preliminary results for the year to 31 October 2009.

 

Financial highlights

 

·; Triple Net Asset Value per share of 40.8p (30 April 2009: 40.4p, 31 October 2008: 53.4p)

·; Adjusted Diluted Net Asset Value per share of 44.6p (30 April 2009: 44.4p, 31 October 2008: 58.0p)

·; Adjusted pre-tax profit (before property provisions) £2.6 million (31 October 2008: £1.0 million)

·; £335.6 million1 of debt refinanced since October 2008

·; Balance sheet loan to value gearing of 59.4%2

 

Operational highlights

 

·; Completed or contracted sales of £56.1 million

·; Contracted lettings with annual rent roll of £3.6 million

·; Lettings and sales of 293,275 sq ft

·; Forward funding and sale agreement of Sainsbury's foodstore in Bishop Auckland

·; Completion of sale of Helston site to Sainsbury's

·; Pre-let of 38,500 sq ft office to Middlesbrough Primary Care Trust, now under construction

·; Planning consent gained for 135,000 sq ft of offices and 33 apartments in Howick Place, Victoria, SW1

 

Post period events

·; Kean House office scheme in Covent Garden, London sold in December 2009 for £16.0 million

·; Detailed planning consent obtained for 71 residential units at Carluke, Scotland

·; Announcement today of exchange of contracts for the acquisition of a six acre site in Sunderland and a nine acre site in Whitchurch, Shropshire. These are intended for development into supermarkets and negotiations for pre-lets are currently underway.

 

Commenting, Robert Adair, Chairman of Terrace Hill, said: "We were very encouraged to see some stability and positive sentiment returning to the market in the second half of the year and, more so, by the fact that this has continued into 2010. We took advantage of this renewed confidence through the sale of Kean House and the forward funding and sale of our Bishop Auckland Sainsbury's development. This trend can be clearly seen by comparing the first half results, which show the impact of the recessionary economic environment at the time, with a more positive second half, during which yields began to harden and we were able to make a small pre-tax profit. We successfully refinanced around £335 million of debt since 31 October 2008, and have noticed a definite increase in appetite for lending from the banks, even for development.

 

"Our commercial focus remains firmly on pre-let developments and we are particularly strong in the foodstore sector, where we concluded three deals during the year, with a further two announced this morning. We are also making solid progress with our strategic landbank in Scotland, with planning permission for 374 units now consented and applications for around 650 more being processed. Our residential investment portfolio continues to perform ahead of its IPD benchmark and we are now actively considering the launch of a residential fund which has the potential to provide further scope to create value."

 

For further information:

 

Terrace Hill Group plc Tel: +44 (0)20 7631 1666

Robert Adair, Chairman

Philip Leech, Chief Executive

Jon Austen, Group Finance Director

 

Oriel Securities (Nominated Adviser) Tel: +44 (0)20 7710 7600

Tom Durie/Mark Young/Gareth Price

 

Financial Dynamics Tel: +44 (0)20 7831 3113

Stephanie Highett/Richard Sunderland

Rachel Drysdale/Olivia Goodhall

[email protected]

1 includes 100% of associate and joint venture undertaking debt re-financed

2 calculated by reference to adjusted NAV

Chairman's statement

 

I am pleased to report our financial results for the year ended 31 October 2009. The period saw some stability returning to the economy and a renewed confidence in the prime commercial property investment markets. We took advantage of this with the sale of Kean House, a completed office development in Covent Garden, where we achieved an attractive price, and with the institutional forward funding of our Sainsbury's foodstore scheme at Bishop Auckland.

 

The improved market has resulted in the yields of our commercial property portfolio hardening and values improving in the second half of the year. A similar stabilising of values has also been seen in our residential portfolio.

 

On the banking side we have also continued to be successful in re-financing our debt and extending due dates for repayment.

 

Notwithstanding our operational successes our results were affected by the significant falls in the market value of our assets in the first half of the year. Our adjusted diluted NAV (ADNAV, as defined by EPRA) has decreased by 22.7% to 44.6 pence per share (31 October 2008: 58.0 pence per share) and our triple NAV (TNAV, as defined by EPRA) has fallen by 23.5% to 40.8 pence per share (31 October 2008: 53.4 pence per share). The TNAV takes account of any valuation movements above book value of assets held as trading stock as well as contingent tax on prospective gains and other fair value adjustments.

 

Our dividend policy has been to vary the amount of our dividend in line with the movement in our TNAV. Given the fall in TNAV since 31 October 2008, the Board has decided to continue the suspension of dividend payments which was announced with our interim results. We keep this policy under review and wish to resume a progressive dividend policy when market conditions improve.

 

The Group's loss before tax for the year, stated after accounting for changes in the value of our investment properties and reductions in the value of our trading stock, was £26.7 million. Excluding these, we made a profit before tax in the year of £2.6 million, compared with £1.0 million in the year ended 31 October 2008, calculated on the same basis. The business review contains further analyses of our results and a reconciliation of these amounts.

 

All Group and joint venture and associated undertaking debt that required re-financing in the period has been agreed. The banking climate has been challenging and I am pleased with the achievements we have made and that our bank financings are on a sound footing.

 

We are very focused on our cash flow and have achieved a number of operational efficiencies during the last year, with reductions in headcount and salary reductions for senior staff and directors. We continue to exercise tight control over our discretionary expenditure.

 

Property overview

In the commercial arena our focus on new business has been on pre-let developments, in particular foodstores, where we have concluded three deals during the financial year, and offices let to strong covenants such as the Primary Care Trust pre-letting at Teesside. We have an extensive pipeline of similar developments which should provide highly profitable low-risk returns over a sustained period.

 

Within our existing commercial portfolio we have managed to conclude a number of lettings despite a difficult occupational market as well as selling Kean House at a price above its April 2009 valuation.

 

Our residential investment portfolios fell in value by 4% in the first half but recovered by 1.5% at the year end. I am pleased with the consistently high occupancy levels and with rental levels which have remained constant over the period. I now believe that there is scope for value growth. We are now actively considering launching a residential property fund.

 

During the course of the year we decided to focus our residential development activity on site assembly and planning gain and away from housebuilding in Scotland. As a result of this decision we were able to reduce our central overhead by £0.5 million on an annualised basis and focus investment in our core areas of commercial development and residential investment. The landbank in Scotland now extends to 175 acres with the potential to accommodate over 1,200 units. We continue to work towards obtaining planning consent for development over the remaining un-consented sites. I envisage that these will either be sold or developed in joint venture with other housebuilders.

 

Outlook

I view the future with considerably more confidence than I did a year ago. In particular, I am pleased our TNAV increased in the second half of the year and we have been successful in creating value through development. I look forward to further TNAV growth and am confident that we can generate strong returns for our shareholders over the medium term.

 

Robert F M Adair

Chairman

10 March 2010

Business review - operations

 

Commercial property strategy

During the second half of the year we began to see improving sentiment in the investment markets which translated fairly quickly into an increase in prices paid for well let properties in good locations. This has not been supported by increased occupier demand in most areas but there is now a feeling that the worst of rental falls may be over in some markets, allowing investors to value assets with more certainty.

 

This improvement has allowed us to sell some completed schemes more quickly and at better values than we had expected. It has also opened up an equity funding market for pre-let property to good covenants which is aiding our new development programme.

 

Our pre-let development strategy can be divided into the two defined areas of foodstores and offices.

 

Foodstores

Demand from the major foodstore operators has continued unabated and we have been successful in concluding three foodstore development transactions during the year:

 

·; In September we completed the sale of our 5.25 acre site to Sainsbury's at Helston in Cornwall having obtained planning consent for a 55,750 sq ft unit.

·; During the summer we obtained all the necessary outstanding approvals for our 92,333 sq ft Sainsbury's foodstore at Bishop Auckland in Co. Durham. Subsequently, we entered into a forward funding and sale agreement with Aviva Investors Pensions Limited to develop the scheme. The sale price reflects a net initial yield to the investor of 5.7%.

·; At Heaton in North Manchester we acquired, in a joint venture, a retail park adjacent to an existing Sainsbury's store. Both sites will be redeveloped in their entirety by Sainsbury's with the benefit of planning and vacant possession.

 

Our focus on this sector means that we now have a substantial pipeline of new foodstore development opportunities which will mature over the next few years.

 

Offices

Although the office occupational market has been weak, there are a number of occupiers who are unable to satisfy their requirements through existing stock. This is particularly true in the regions outside London where we have seen demand for pre-lets coming from occupiers with strong covenants from a variety of sectors.

 

·; A recent example of this has been our pre-letting of a 38,500 sq ft office building on Teesside to the Middlesbrough Primary Care Trust, where the tenant has contracted to enter into a 15-year lease without breaks.

 

Our network of regional offices gives us insight into these requirements and we are now working on a pipeline of similar deals across the UK.

 

The portfolio

 

Commercial property

Despite a difficult occupational market we have let and sold further space within our portfolio of completed developments and made progress with our early stage developments. In other areas we have advanced and improved planning consents.

 

·; We sold Kean House, our multi-let office development in Covent Garden, to a UK institution for £16.0 million representing an initial yield of 6.4%.

·; At Quantum 1 in Maidenhead we let 26,000 sq ft to Compuware at £25 per sq ft which, in addition to the earlier letting to Biogen, means that this scheme is now 78% let.

·; AFEX took the entire fifth floor at 129 Wilton Road, Victoria, for a 10-year term at an initial rent of £45.00 per sq ft.

·; Six new lettings were achieved at Brampton Business Park in Eastbourne leaving only a single unit of 3,500 sq ft available. Four units were also sold to investors.

·; At Brabazon Business Park, Filton in North Bristol, Sovereign Housing completed the purchase of 8,000 sq ft for their own occupation and a further 3,000 sq ft was let to Merlin Claims Management.

·; There was increased letting activity at Canningford House in Bristol city centre and this property is now 90% let.

·; At Howick Place in Victoria we have now won consent for a scheme comprising 135,000 sq ft of offices and 33 apartments. It is envisaged that a development start will be made during the course of this year, with particular focus on the date of completion to maximise its impact within the wider economic recovery.

 

Residential investment

In the second half of the year we have seen average values stabilise across our portfolios. The actual movements in value depend very much on the geographical location of the properties, but small rises in the values of our assets in London and the South East, where we have a 50% weighting, have offset declines elsewhere. In addition, through active management, we have maintained healthy occupational rates at consistently steady rental levels.

 

We are cautious about the immediate outlook for the value of residential property but, over the medium-term, we foresee a steady return to capital growth and good opportunities for us to trade parts of our portfolios as well as acquire new, attractively priced properties.

 

Strategic land

Following our decision to suspend new housebuilding in Scotland, we have been concentrating on maximising value from the landbank through the planning process. During the period, we have obtained planning for 20 units at our three acre site at Fenwick and for 71 units at our 12 acre site in Carluke. We are expecting to win a new consent at Kilmarnock during the early part of 2010.

 

The total landbank in Scotland now extends to 175 acres with the potential to accommodate over 1,200 residential units and we envisage that these sites will either be sold or developed in joint venture with other housebuilders.

 

Business review - finance

 

Financial results and net asset value

The Group's NAV fell by 24.1% in the year to 31 October 2009 to £78.2 million (36.9 pence per share) from £103.0 million (48.6 pence per share) at 31 October 2008 and our adjusted NAV (equivalent to that defined by EPRA) fell by 22.7% to £94.8 million (44.6 pence per share) from £124.2 million (58.0 pence per share) at 31 October 2008.

 

The fall in our adjusted NAV was caused principally by the reduction in the carrying value of our properties and by the reduction in the market value of those properties held on the balance sheet at the lower of cost and market value. Other factors resulting in movements in the adjusted NAV are set out below:

 

·; fall of 12.3 pence per share in the value of properties reflected in our balance sheet;

·; fall of 1.7 pence per share in the value above cost of our trading properties;

·; rise of 0.8 pence per share arising from trading activity.

 

The Group's NAV and adjusted NAV increased by 1% since 30 April 2009, reflecting the hardening of values in the second half of the year and increased trading activity in that period.

 

The Group's TNAV, which takes into account any tax payable on profits arising if all the Group's properties were sold at the values used for our adjusted NAV, the write off of goodwill and other fair value adjustments, fell by 23.5% to £86.8 million (40.8 pence per share) from the £114.3 million (53.4 pence per share) at 31 October 2008.

 

Calculation of ADNAV and TNAV (unaudited)

 

31 October 2009					31 October 2008
Number				Number
of shares			Pence per	of shares			Pence per
£'000		000s	share		£'000	000s	share
Audited net asset value	78,156	211,971	36.9	103,047		211,971	48.6
Revaluation of property held as current assets	16,633		20,324
Shares to be issued under the LTIP	12	595	41			2,038
Deferred taxation in respect of investment properties	-	781
Adjusted diluted net asset value	94,801	212,566	44.6		124,193	214,009	58.0
Decrease %	(22.7)%				(39.8)%
unrealised gains and availability of tax losses	(4,657)	(6,472)
Goodwill	(3,336)	(3,456)
Triple net asset value	86,808	212,566	40.8		114,265	214,009	53.4
Decrease %	(23.5)%				(36.2)%

 

 

Income statement

Revenue for the year is below that recorded in 2008 due largely to lower commercial development activity as a consequence of the economic situation. Commercial property development transactions in the period include the sale of the property in Helston to Sainsbury's and part of the sale of the Bishop Auckland property to Aviva Investors. The Group earned £6.6 million in rental income (2008: £4.8 million), an increase of 37.5%, while development management fees and other income generated £1.3 million (2008: £2.6 million), a decrease of 50.0%. Sales revenue of £4.4 million on the sale of houses is also included in revenue.

 

The year has been characterised by a radical shift in the rate of change in the valuation of our properties, reflecting movement in the underlying property market. This is particularly evident in a comparison of the movements in our property values, wherever held, for the first half year with the same for the second half year. The income statement, as required by accounting standards, includes movements in the carrying value of our investment and trading properties, whether held directly or in joint venture and associated undertakings. The table below sets out the amounts included in the income statement, split between what was reflected in the first and second halves of the year.

 

Administrative expenses for the year were £5.2 million (2008: £6.5 million). Included within administrative expenses is a credit of £0.7 million in respect of the Group's share-based payment scheme (2008: £1.0 million credit). Ignoring this, underlying administrative expenses have reduced by £1.6 million. As noted in the Interim Report, we continue to seek ways of reducing costs while not affecting the operational effectiveness of the business. Executive directors and senior staff agreed to a reduction in their base salaries of 10%. In addition, no bonuses were paid and headcount has reduced by 12 (21%) since 31 October 2008.

 

Net finance costs amounted to £1.2 million (2008: £5.0 million) and reflect the cost of our Group debt. The figure for 2009 includes the reversal of £2.1 million in respect of a development funding agreement which was charged to the income statement in 2008. Ignoring these adjustments, net finance costs increased by £0.4 million (14%) during the period, reflecting the higher average net debt figures and funding costs during the year.

 

A consequence of all these facts is that the Group traded profitability in the second half of the year.

 

Our investment in joint venture and associated undertakings incurred a loss in the year of £5.6 million (2008: £12.4 million). Of the £5.6 million, £5.2 million reflects our share of the downward movement in property valuations which occurred during the period.

 

Adjusted profit

Year ended		Year ended
31 October 2009		31 October 2008
£m		£m
Reported loss before tax	(26.7)	(31.6)
Write downs in respect of trading properties	22.0	12.6
Revaluation of investment properties	2.1	3.8
Write downs in respect of development and investment properties
held in joint venture and associated undertakings	5.2	16.2
Adjusted profit before tax	2.6	1.0

 

Movements in the carrying value of our investment and trading properties included in the income statement

Six months ended		Six months ended	Year ended
30 April 2009		31 October 2009	31 October 2009
£m		£m	£m
Trading properties1	(19.5)	(2.5)	(22.0)
Investment properties2	(3.4)	1.3	(2.1)
Development and investment properties
held in joint venture and associated undertakings3	(6.8)	1.6	(5.2)
Total	(29.7)	0.4	(29.3)

 

Notes:

1 included in direct costs;

2 included in loss on revaluation of investment properties; and

3 included in share of joint venture and associated undertakings post tax loss.

 

 

Balance sheet

The Group's total assets at 31 October 2009 were £204.2 million, a decrease of 12.1% on the amount reported at 31 October 2008 of £232.4 million. Net assets, after accounting for minority interests, were £78.2 million at 31 October 2009, a reduction of 24.1% compared to the equivalent figure in 2008 (£103.0 million).

 

Financial resources and capital management

The Group's financial resources are principally its cash balances, bank loans and overdrafts.

 

The Group continues to fund itself with retained cash and bank derived debt capital. This debt falls into two categories, loans secured on wholly owned assets and debt secured on assets owned by joint ventures and associated undertakings.

 

All Group and joint venture and associated undertaking debt that required re-financing in the period has been agreed.

 

The loans which have been re-financed during the year are characterised by higher interest rate margins, but with an overall funding cost remaining broadly similar due to reductions in both LIBOR and swap rates. Where these bank loans are in joint ventures they are arranged on an asset-by-asset basis, discrete from each other and with limited recourse to the Group. Where necessary, and where there is a common lender, some of the Group loan facilities have been cross collateralised in order to increase security to that lender and facilitate re-financings.

 

In addition to these re-financings, new development debt of £4.7 million was also negotiated during the year, reinforcing our view that development debt capital for the right pre-let opportunities is more readily available now than this time last year. This has been further evidenced by several banks, with whom we have had no previous relationship, approaching us to fund future developments.

 

Summary of debt position

October 2009		October 2008
Net debt	£98.1m	£85.8m
Net gearing	103.4%	69.1%
Net debt including share of joint venture and associated undertaking debt	£235.3m	£231.1m
Total net gearing	248.2%	186.1%
Loan to value	59.4%	45.7%
Loan to value including share of joint venture and associated undertaking debt	73.1%	63.3%

The net gearing and loan to value percentages shown above are in relation to our adjusted NAV. The majority of joint venture and associated undertaking debt is of limited recourse to the Group.

 

Debt expiry profile

On-balance		Off-balance
sheet		sheet*
£m		£m
Bank loans and overdraft repayable in one year	11.7	117.6
Bank loans repayable after more than one year	91.7	19.6
Total	103.4	137.2

* Group share

 

At 31 October 2009, 39.3% of Group debt and 38.3% of debt in joint venture and associated undertakings was subject to interest rate hedging. Last year these figures were 16.8% and 74.8% respectively. The reason for the large change in joint venture and associated undertaking debt is that hedging expired during the year on a £208.1 million loan. The interest rate risk associated with this expiry has been actively managed and we have benefited from prevailing low LIBOR rates.

 

There are no loans in place measuring on an aggregated basis loan to value ratios. A number of loans have loan to value covenants based on the value of the assets secured against them and where required, these have been amended or removed entirely. Again, we believe this is further evidence of our relationship banks' continued desire to support the Group.

 

Summary of average loan to value ratios of Group property

October 2009		October 2008
%		%
Commercial property	63.9	53.6
Residential property	72.4	71.4
Strategic land	46.6	34.3
All property	59.4	45.7

 

Cash is monitored using a 24-month rolling forecast and the Group, together with its joint venture and associated undertakings, have no unfunded commitments. The Group undertakes regular stress tests to determine the effects on our cash forecast of falls in value and potential capital calls on debt. The Group believes it has adequate resources to continue trading for the foreseeable future.

 

Dividends

The final 2008 dividend of 0.54 pence per share was paid to shareholders on 7 April 2009. Since then the Group has decided to conserve its cash and has therefore not paid an interim dividend in respect of the current year and will not recommend a final dividend. The Board hopes to resume its progressive dividend policy as soon as market conditions allow.

 

Philip Leech	Jon Austen
Chief executive	Group finance director

10 March 2010

 

 

 

Consolidated income statement

For the year ended 31 October 2009

 

Year ended			Year ended
31 October			31 October
2009			2008
Notes		£'000	£'000
Revenue	2	29,065	63,366
Direct costs	(41,584)		(67,134)
Gross loss	(12,519)		(3,768)
Administrative expenses	(5,174)		(6,499)
Loss on disposal of investment properties	-		(20)
Loss on revaluation of investment properties	(2,141)		(3,846)
Operating loss	(19,834)		(14,133)
Finance income	4	1,202	467
Finance costs	4	(2,423)	(5,488)
Share of joint venture and associated undertakings post tax loss	(5,625)		(12,448)
Loss before tax	(26,680)		(31,602)
Tax	6	3,135	4,327
Loss from continuing operations	(23,545)		(27,275)
Attributable to:
Equity holders of the parent	(23,517)		(27,253)
Minority interest	(28)		(22)
	(23,545)		(27,275)
Basic earnings per share	8	(11.15)p	(12.90)p
Diluted earnings per share	8	(11.15)p	(12.90)p

 

The notes below form part of this financial information.

 

 

 

 

Consolidated statement of changes in equity

For the year ended 31 October 2009

 

 

Capital					Unrealised
Share		Share	Own	redemption	Merger	gains and	Retained		Minority
capital		premium	shares	reserve	reserve	losses	earnings	Total	interest	Total
£'000		£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 October 2007	4,240	43,208	-	849	8,386	-	80,196	136,879	306	137,185
Loss for the year	-	-	-	-	-	-	(27,253)	(27,253)	(22)	(27,275)
Unrealised losses on
available-for-sale investments	-	-	-	-	-	(498)	-	(498)	-	(498)
Total recognised income
and expense for the year	-	-	-	-	-	(498)	(27,253)	(27,751)	(22)	(27,773)
Acquisition of minority interest	-	-	-	-	-	-	-	-	(26)	(26)
Own shares	-	-	(609)	-	-	-	-	(609)	-	(609)
Share-based payment	-	-	-	-	-	-	(997)	(997)	-	(997)
Merger reserve release	-	-	-	-	(1,298)	-	1,298	-	-	-
Interim ordinary dividends	-	-	-	-	-	-	(1,684)	(1,684)	-	(1,684)
Final ordinary dividends	-	-	-	-	-	-	(2,791)	(2,791)	-	(2,791)
Balance at 31 October 2008	4,240	43,208	(609)	849	7,088	(498)	48,769	103,047	258	103,305
Loss for the year	-	-	-	-	-	-	(23,517)	(23,517)	(28)	(23,545)
Loss on investments transferred
to income statement on disposal	-	-	-	-	-	498	-	498	-	498
Total recognised income
and expense for the year	-	-	-	-	-	498	(23,517)	(23,019)	(28)	(23,047)
Share-based payment	-	-	-	-	-	-	(718)	(718)	-	(718)
Final ordinary dividends	-	-	-	-	-	-	(1,154)	(1,154)	-	(1,154)
Balance at 31 October 2009	4,240	43,208	(609)	849	7,088	-	23,380	78,156	230	78,386

 

 

 

 

 

Consolidated balance sheet

At 31 October 2009

 

 

31 October			31 October
2009			2008
Notes		£'000	£'000
Non-current assets
Investment properties	10	46,758	49,160
Property, plant and equipment	9	350	590
Investments in equity accounted associates and joint ventures	11	2,846	7,145
Available-for-sale investments	11	-	442
Other investments	11	147	109
Intangible assets		3,336	3,456
Deferred tax assets	17	7,439	4,327
60,876			65,229
Current assets
Development properties	12	101,719	120,488
Trade and other receivables	13	36,331	28,612
Cash and cash equivalents	5,290		18,022
143,340			167,122
Total assets	204,216		232,351
Non-current liabilities
Bank loans	16	(91,678)	(40,890)
Other payables	15	(3,370)	(3,370)
Deferred tax liabilities	17	(73)	(782)
(95,121)			(45,042)
Current liabilities
Trade and other payables	14	(17,862)	(20,878)
Current tax liabilities	(1,176)		(153)
Bank overdrafts and loans	16	(11,671)	(62,973)
(30,709)			(84,004)
Total liabilities	(125,830)		(129,046)
Net assets	78,386		103,305
Equity
Called up share capital	19	4,240	4,240
Share premium account	20	43,208	43,208
Own shares	20	(609)	(609)
Capital redemption reserve	20	849	849
Merger reserve	20	7,088	7,088
Unrealised losses	20	-	(498)
Retained earnings	20	23,380	48,769
Equity attributable to equity holders of the parent	78,156		103,047
Minority interests	230		258
Total equity	78,386		103,305

 

The financial information was approved and authorised for issue by the board of directors on 10 March 2010 and was signed on its behalf by:

 

P A J Leech	J M Austen
Director	Director

 

 

 

 

Consolidated cash flow statement

For the year ended 31 October 2009

 

Year ended		Year ended
	31 October	31 October
2009		2008
£'000		£'000
Cash flows from operating activities
Loss before taxation	(26,680)	(31,602)
Adjustments for:
Finance income	(1,202)	(467)
Finance costs	2,423	5,488
Share of joint venture and associated undertakings post tax loss	5,625	12,448
Depreciation and impairment charge	22,813	20,777
Loss on revaluation of investment properties	2,141	3,846
Loss on disposal of investment properties	-	20
Loss on sale of tangible financial assets	26	-
Share-based payment credit	(718)	(997)
Cash flows from operating activities before change in working capital	4,428	9,513
Increase in property inventories	(2,054)	(3,634)
(Increase)/decrease in trade and other receivables	(11,101)	6,419
Decrease in trade and other payables	(2,389)	(22,295)
Cash absorbed by operations	(11,116)	(9,997)
Income from investments	1	7
Finance costs	(1,669)	(4,087)
Finance income	577	1,615
Tax refund/(paid)	338	(1,500)
Net cash flows from operating activities	(11,869)	(13,962)
Investing activities
Purchase of investment property	(4)	-
Sale of investment property and tangible fixed assets	289	1,137
Purchase of investments	-	(4,011)
Sale of investments	448	1,982
Purchase of property, plant and equipment	(16)	(236)
Net cash flows from investing activities	717	(1,128)
Financing activities
Borrowings drawn down	35,084	39,813
Borrowings repaid	(28,982)	(34,516)
Purchase of own shares	-	(609)
Equity dividends paid	(1,154)	(4,475)
Net cash flows from financing activities	4,948	213
Net decrease in cash and cash equivalents	(6,204)	(14,877)
Cash and cash equivalents at 1 November 2008	11,494	26,371
Cash and cash equivalents at 31 October 2009	5,290	11,494

 

 

Notes to the consolidated financial INFORMATION

For the year ended 31 October 2009

 

1 Accounting policies

Basis of preparation

While the financial information included in the preliminary announcement has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards as endorsed for use in the European Union (IFRSs), this announcement does not contain sufficient information to comply with IFRSs. The Company expects to publish full financial statements that comply with IFRSs in March 2010.

Changes in accounting policies

The accounting policies adopted are consistent with those of the previous financial year.

 

New standards and interpretations not applied

IASB and IFRIC have issued the following standards and interpretations relevant to the Group. These standards and interpretations are mandatory for accounting periods beginning on or after the date of these financial statements and will become effective for future reporting periods:

 

International Accounting Standards (IFRSs/IAS)		Effective date
IFRS 2	Amendment to IFRS 2 - Vesting Conditions and Cancellations	1 January 2009
IFRS 3	Business Combinations (revised January 2008)	1 July 2009
IFRS 8	Operating Segments	1 January 2009
Improvements to IFRSs (2009) (2010)		1 January 2009
IAS 1	Presentation of Financial Statements: A Revised Approach	1 January 2009
IAS 23	Borrowing Costs (revised March 2007)	1 January 2009
IAS 27	Consolidated and Separate Financial Statements (revised January 2008)	1 July 2009

 

International Financial Reporting Interpretations Committee (IFRIC)		Effective date
IFRIC 15	Agreements for the Construction of Real Estate	1 January 2009
IFRIC 17	Distribution of Non-cash Assets to Owners	1 January 2009

 

The directors currently anticipate that the adoption of certain of these standards and interpretations will have a material impact on the Group's financial statements in the period of initial application primarily in terms of presentation and disclosure. The significant changes are:

 

IAS 1 will introduce a single "statement of comprehensive income" incorporating both realised profits and losses currently reported in the income statement and unrealised profits and losses currently reported in the statement of changes in equity. The revised statement of changes in equity will only in future report transactions with shareholders, for example capital raised and dividends. The standard is a presentational standard and adoption will not affect reported results.

 

IFRS 8 introduces a management approach that will require segment disclosure based on the components of the Group that management monitors in making decisions about operating matters. No significant differences in the identification of segments is envisaged as a result of the implementation of IFRS 8.

 

The impact of the other standards and interpretations are not considered to be significant either because their impact is not likely to be material or that the Group already adopts the accounting policy proposed in the new or revised standard or interpretation.

 

Going concern

The directors are required to make an assessment of the Group's ability to continue to trade as a going concern. Due to the difficult market conditions prevailing, this assessment has been subject to more uncertainties than are usual. The directors have given this matter due consideration and have concluded that it is appropriate to prepare the Group financial statements on a going concern basis. The two main considerations were as follows:

 

Cash flow - the Group maintains a rolling 24 month cash forecast that takes account of all known inflows and outflows. The cash flow is regularly stress tested to ensure that the Group can withstand reasonable changes in circumstances that could adversely affect its cash flow. The key potential changes that the Group has considered include: possible falls in value of the portfolio which could result in margin calls or increased funding costs if future loan to value covenants were breached; and possible reductions in anticipated cash flows from re‑financing properties after planning permission has been obtained. Having considered the headroom in the Group's forecasts and its previous success in extending finance terms when required, the Group believes that it has sufficient resources to continue trading for the foreseeable future.

 

Bank facilities - the Group maintains a regular dialogue with its lenders and keeps them informed of how the Group is trading. Since 31 October 2008, £88.5 million of Group debt and £247.1 million of joint venture and associated undertaking debt has been refinanced. The Group has a further £47.2 million of debt and overdraft facilities due to be re‑financed in 2010, of which £11.7 million is due to be re-financed by 31 October 2010. In the normal course of business, developments will be completed and disposed of and so the actual requirement to renew financing is expected to be at a lower level than this. None of the facilities have reached their due dates for renewal but the Group has opened discussions with each lender to gauge their appetite for their renewal. In all cases the lenders concerned have been supportive and have indicated their desire to renew the facilities subject to mutually acceptable terms being agreed.

 

Investment and development property

In relation to the investment and development properties, the directors have relied upon the external valuations and advice provided by professionally qualified valuers in accordance with the Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors.

 

 

2 Revenue

	Total	Total
	2009	2008
	£'000	£'000
Sales of development properties	21,195	55,982
Rents receivable	6,612	4,777
Fees and other income	1,258	2,607
29,065		63,366

 

Sales of development properties includes £7,088,000 (2008: £Nil) of revenue recognised on the project management of the construction of a property on behalf of a third party.

 

3 Segmental information

The Group operates in three principal segments being commercial property development and investment, residential property investment and strategic land. The Group does not operate outside the UK.

Strategic				Unallocated	Strategic				Unallocated
Residential		Commercial	land	items	Total	Residential	Commercial	land	items	Total
2009		2009	2009	2009	2009	2008	2008	2008	2008	2008
£'000		£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Income statement
Revenue	1,663	23,020	4,382	-	29,065	1,451	58,925	2,990	-	63,366
Direct costs	(615)	(33,137)	(7,832)	-	(41,584)	(584)	(57,554)	(8,996)	-	(67,134)
Gross profit/(loss)	1,048	(10,117)	(3,450)	-	(12,519)	867	1,371	(6,006)	-	(3,768)
Administrative expenses	-	-	-	(5,174)	(5,174)	-	-	-	(6,499)	(6,499)
Loss on disposal of
investment properties	-	-	-	-	-	(20)	-	-	-	(20)
Loss on revaluation of investment properties	(446)	(1,695)	-	-	(2,141)	(2,182)	(1,664)	-	-	(3,846)
Operating profit/(loss)	602	(11,812)	(3,450)	(5,174)	(19,834)	(1,335)	(293)	(6,006)	(6,499)	(14,133)
Net finance costs	(1,180)	(118)	48	29	(1,221)	(1,580)	(3,576)	115	20	(5,021)
Share of results of joint venture before tax	-	-	(72)	-	(72)	-	-	(138)	-	(138)
Share of results of associated
undertakings before tax	(5,137)	(416)	-	-	(5,553)	(16,200)	451	-	-	(15,749)
Associated undertakings tax	-	-	-	-	-	3,439	-	-	-	3,439
Loss before tax	(5,715)	(12,346)	(3,474)	(5,145)	(26,680)	(15,676)	(3,418)	(6,029)	(6,479)	(31,602)
Balance sheet
Investment properties	28,187	18,571	-	-	46,758	28,633	20,262	265	-	49,160
Property, plant and equipment	-	6	23	321	350	-	34	67	489	590
Investments - associates and joint ventures	147	2,001	698	-	2,846	3,938	2,437	770	-	7,145
Other investments	3	45	-	99	147	3	449	-	99	551
Goodwill	860	2,476	-	-	3,336	975	2,481	-	-	3,456
Deferred tax assets	-	-	-	7,439	7,439	-	-	-	4,327	4,327
29,197		23,099	721	7,859	60,876	33,549	25,663	1,102	4,915	65,229
Development properties	-	76,824	24,895	-	101,719	-	92,372	28,116	-	120,488
Trade and other receivables	13,833	19,109	2,768	621	36,331	14,554	11,278	1,903	877	28,612
Cash	49	4,755	486	-	5,290	102	17,024	896	-	18,022
13,882		100,688	28,149	621	143,340	14,656	120,674	30,915	877	167,122
Borrowings	(20,401)	(70,864)	(12,084)	-	(103,349)	(20,444)	(72,878)	(10,541)	-	(103,863)
Trade and other payables	(575)	(18,784)	(1,391)	(482)	(21,232)	(515)	(18,331)	(4,282)	(1,120)	(24,248)
Current tax	-	-	-	(1,176)	(1,176)	-	-	-	(153)	(153)
Deferred tax liabilities	-	-	-	(73)	(73)	-	-	-	(782)	(782)
(20,976)		(89,648)	(13,475)	(1,731)	(125,830)	(20,959)	(91,209)	(14,823)	(2,055)	(129,046)
Net assets	22,103	34,139	15,395	6,749	78,386	27,246	55,128	17,194	3,737	103,305

 

 

 

4 Finance costs and finance income

2009		2008
£'000		£'000
Interest payable on borrowings	6,233	7,558
Interest (credited)/payable under a development funding agreement	(2,050)	2,050
Interest capitalised	(1,760)	(4,120)
Finance costs	2,423	5,488
Interest receivable from cash deposits and other financial assets	1,202	467
Finance income	1,202	467

 

Interest is capitalised at the same rate as the Group is charged on the respective borrowings. Fair value adjustments to financial liabilities totalled £962,000 (2008: £Nil), comprising losses on interest rate swaps.

 

5 Administrative expenses

2009		2008
£'000		£'000
Depreciation of property, plant and equipment	206	204
Loss on disposal of property, plant and equipment	26	-
Operating lease charges - rent of properties	1,332	1,311
Impairment of goodwill	120	133
Share-based payment remuneration	(718)	(997)
Fees paid to BDO LLP in respect of:
- audit of the Group's annual accounts	175	175
- audit of the Group's associates	16	16
- other services	30	29

 

6 Tax on loss on ordinary activities

(a) Analysis of charge in year

2009		2008
£'000		£'000
Current tax
UK corporation tax on loss for the year	53	376
Adjustment in respect of prior periods	633	44
Total current tax	686	420
Deferred tax
Origination and reversal of temporary differences	(3,821)	(4,747)
Total deferred tax credit	(3,821)	(4,747)
Total tax credit	(3,135)	(4,327)

 

(b) Factors affecting the tax credit for the year

The tax assessed for the year is lower than the standard rate of corporation tax in the UK of 28% (2008: 28%). The differences are explained below:

2009		2008
£'000		£'000
Loss before tax	(26,680)	(31,602)
Less joint ventures and associates	5,625	12,448
Loss attributable to the Group before tax	(21,055)	(19,154)
Loss multiplied by the average rate of UK corporation tax of 28% (2008: 28.83%)	(5,895)	(5,522)
Disallowables	2,049	376
Other temporary differences	78	(397)
Utilisation of losses	-	1,172
(3,768)		(4,371)
Adjustments in respect of prior periods	633	44
Total tax credit	(3,135)	(4,327)

 

(c) Associates and joint ventures

The Group's share of tax on the associates is £Nil (2008: £3,439,000 credit). No tax charge arises on the results of the joint ventures.

 

7 Dividends

2009		2008
£'000		£'000
Ordinary shares
Final dividend of 0.54 pence (2008: final dividend for 2007 of 1.3 pence)
per share for the year ended 31 October 2008	1,139	2,756
Interim dividend paid of 0.0 pence (2008: interim dividend for 2008 of 0.8 pence) per share
for the year ended 31 October 2009	-	1,684
1,139		4,440
Final dividend after the year of 0.0 pence (2008: 0.54 pence) per share	-	1,139

 

8 Earnings per ordinary share

The calculation of basic earnings per ordinary share is based on a loss of £23,517,000 (2008 loss: £27,253,000) and on 210,951,299 (2008: 211,187,902) ordinary shares, being the weighted average number of shares in issue during the period.

 

The calculation of diluted earnings per ordinary share for 2009 and 2008 is the same as the calculation of the basic earnings per ordinary share.

 

 

9 Property, plant and equipment

Leasehold		Motor	Office	Furniture
improvements		vehicles	equipment	and fittings	Total
£'000		£'000	£'000	£'000	£'000
Cost
At 1 November 2007	151	296	86	189	722
Additions	8	109	32	86	235
Disposals	-	(35)	(5)	(14)	(54)
At 1 November 2008	159	370	113	261	903
Additions	-	-	4	32	36
Disposals	-	(78)	(5)	(64)	(147)
At 31 October 2009	159	292	112	229	792
Depreciation
At 1 November 2007	9	43	15	61	128
Charge for period	14	84	45	61	204
Disposals	-	(7)	(5)	(7)	(19)
At 1 November 2008	23	120	55	115	313
Charge for period	16	89	24	77	206
Disposals	-	(47)	(5)	(25)	(77)
At 31 October 2009	39	162	74	167	442
Net book value
At 31 October 2009	120	130	38	62	350
At 31 October 2008	136	250	58	146	590

 

At the year end there were no assets held under finance leases.

 

10 Investment properties

£'000
Valuation
At 1 November 2007	53,887
Transfer from inventory	220
Disposals	(1,101)
Loss on revaluation	(3,846)
At 1 November 2008	49,160
Additions	4
Disposals	(265)
Loss on revaluation	(2,141)
At 31 October 2009	46,758

 

The investment properties situated in Scotland owned by the Group have been valued as at 31 October 2009 by qualified valuers from Allied Surveyors, an independent firm of Chartered Surveyors, on the basis of open market value. The valuations were carried out in accordance with guidance issued by the Royal Institution of Chartered Surveyors.

 

The commercial investment properties situated in England owned by the Group have been valued as at 31 October 2009 by qualified valuers from CB Richard Ellis, an independent firm of Chartered Surveyors, on the basis of open market value. The valuations were carried out in accordance with guidance issued by the Royal Institution of Chartered Surveyors.

 

Residential investment properties situated in England owned by the Group have been valued as at 31 October 2009 by suitably qualified valuers from Allsops LLP, an independent firm of chartered surveyors, on the basis of open market value. The valuations were carried out in accordance with guidance issued by the Royal Institution of Chartered Surveyors.

 

11 Investments

Associates and joint venture

Joint
Associates		venture	Total
£'000		£'000	£'000
Cost or valuation
At 1 November 2007	18,766	(147)	18,619
Investment write off	(81)	-	(81)
Share of results	(12,310)	(138)	(12,448)
Unrealised profit	-	1,055	1,055
At 1 November 2008	6,375	770	7,145
Disposals	(6)	-	(6)
Transfer to other investments	(14)	-	(14)
Share of results	(5,553)	(72)	(5,625)
Share of results for period applied against long-term receivables forming part of net investment	1,346	-	1,346
At 31 October 2009	2,148	698	2,846

 

The Group's interest in its principal associates which have been equity accounted in the consolidated financial statements were as follows:

Terrace Hill Residential PLC	49%	Property investment
Castlegate House Partnership	30%	Property development
Devcap 2 Partnership	26%	Property development
Terrace Hill Development Partnership	20%	Property development
Two Orchards Limited	20%	Property development

 

Terrace Hill Residential PLC is incorporated in Scotland.

 

Summarised information 2009

Terrace Hill		Castlegate		Terrace Hill	Two
Development		Devcap 2	House	Residential	Howick	Orchards
Partnership		Partnership	Partnership	PLC	Place	Limited	Total
£'000		£'000	£'000	£'000	£'000	£'000	£'000
Revenue	5,304	1,824	605	12,515	-	-	20,248
(Loss)/profit after taxation	(1,023)	(8,765)	83	(10,484)	-	(18,840)	(39,029)
Total assets	39,981	40,127	9,480	236,888	-	59,982	386,458
Bank debt	(25,009)	(40,291)	(8,568)	(206,363)	-	(73,652)	(353,883)
Other liabilities	(6,034)	(2,344)	(2,344)	(32,972)	-	(5,160)	(48,854)
Total liabilities	(31,043)	(42,635)	(10,912)	(239,335)	-	(78,812)	(402,737)
Net assets/(liabilities)	8,938	(2,508)	(1,432)	(2,447)	-	(18,830)	(16,279)
Opening carrying amount
of interest under equity method	2,416	-	-	3,938	20	1	6,375
Disposals	-	-	-	-	(6)	-	(6)
Transfer to other investments	-	-	-	-	(14)	-	(14)
Share of results for period	(416)	-	-	(5,137)	-	-	(5,553)
Share of results for period applied
against long-term receivables
forming part of net investment	-	-	-	1,346	-	-	1,346
Closing carrying amount
of interest under equity method	2,000	-	-	147	-	1	2,148
Capital commitments	-	-	-	-	-	630	630

 

Summarised information 2008

Terrace Hill		Castlegate		Terrace Hill	Two
Development		Devcap 2	House	Residential	Howick	Orchards
Partnership		Partnership	Partnership	PLC	Place	Limited	Total
£'000		£'000	£'000	£'000	£'000	£'000	£'000
Revenue	7,012	308	610	12,265	1,502	-	21,697
(Loss)/profit after taxation	(2,119)	(1,793)	92	(26,043)	(1,708)	-	(31,571)
Total assets	56,285	46,367	9,398	247,724	72,278	59,805	491,857
Bank debt	(27,604)	(38,962)	(8,558)	(207,502)	(50,523)	(52,273)	(385,422)
Other liabilities	(16,602)	(9,190)	(2,355)	(32,184)	(25,530)	(7,531)	(93,392)
Total liabilities	(44,206)	(48,152)	(10,913)	(239,686)	(76,053)	(59,804)	(478,814)
Net assets/(liabilities)	12,079	(1,785)	(1,515)	8,038	(3,775)	1	13,043
Share of results for period	-	-	451	(12,761)	-	-	(12,310)
Share of net assets	2,416	-	-	3,938	20	1	6,375
Capital commitments	2,424	-	-	-	-	13,485	15,909

 

 

The Group's interest in its joint venture which has been equity accounted in the consolidated financial statements was as follows:

Achadonn Limited

50%

Property development

 

2009		2008
Achadonn		Achadonn
Limited		Limited
£'000		£'000
Revenue	157	2,803
(Loss)/profit	(143)	1,834
Total assets	14,337	14,332
Bank debt	(8,110)	(9,436)
Other liabilities	(4,831)	(3,356)
Total liabilities	(12,941)	(12,792)
Net assets	1,396	1,540
Share of results for the period	(72)	917
Share of net assets	698	770

 

Available-for-sale investments and other investments

Available-for-sale		Other
investments		investments	Total
£'000		£'000	£'000
Valuation
At 1 November 2007	-	147	147
Additions	3,987	1	3,988
Disposals	(3,047)	(15)	(3,062)
Decrease in fair value	(498)	(24)	(522)
At 1 November 2008	442	109	551
Transfer from associates	-	14	14
Disposals	(442)	-	(442)
Change in fair value	-	24	24
At 31 October 2009	-	147	147

 

2009		2008
£'000		£'000
UK unlisted investments at fair value	59	45
UK listed investments at fair value	88	506
147		551

 

12 Development properties

2009		2008
£'000		£'000
At 1 November 2008	120,488	126,950
Additions	17,116	43,301
Disposals	(13,852)	(36,978)
Transfers to investment properties	-	(220)
Amounts written off the value of development properties	(22,032)	(12,565)
At 31 October 2009	101,719	120,488
Included in these figures is capitalised interest of	9,536	8,269

 

No amounts are held in development properties in respect of construction contracts and retentions on such contracts is nil.

 

13 Trade and other receivables

2009		2008
£'000		£'000
Trade receivables	801	1,257
Other receivables	9,608	5,404
Trade and other receivables	10,409	6,661
Amounts recoverable under construction contracts	8,000	-
Prepayments and accrued income	2,289	2,247
Share of associate's loss (see note 11)	(1,346)	-
Amounts due from associates and joint ventures	25,867	27,480
Provision for amounts due from associates and joint ventures	(8,888)	(7,776)
36,331		28,612

 

Included in other receivables and prepayments and accrued income is a balance due from Howick Place JV S.a.r.l. of £4.3 million that has a final maturity date of 31 December 2014.

 

The ageing of trade and other receivables was as follows:

2009		2008
£'000		£'000
Up to 30 days	305	1,676
31 to 60 days	175	846
61 to 90 days	6	107
Over 90 days	231	451
Total	717	3,080
Amounts not yet due	9,692	3,581
Closing balance	10,409	6,661

 

No amounts were overdue at the year end.

 

The movement in the allowance for impairment in respect of amounts due from associates and joint ventures during the year was as follows:

2009		2008
£'000		£'000
At 1 November 2008	7,776	-
Amounts written off in year	-	-
Increase in allowance on amounts due from associates	2,458	7,776
Closing balance	10,234	7,776

 

The allowance is based on falling asset values in the associates.

 

14 Trade and other payables

2009		2008
£'000		£'000
Trade payables	1,958	2,452
Other taxation and social security costs	702	650
Accruals and deferred income	10,088	8,168
Derivative liabilities	962	-
Other payables	4,152	9,608
17,862		20,878

 

15 Other payables (non-current)

2009		2008
£'000		£'000
Other payables	3,370	3,370

 

16 Bank overdrafts and loans

	2009	2008
	£'000	£'000
Bank loans	103,744	97,680
Bank overdrafts	-	6,528
	103,744	104,208
Unamortised loan issue costs	(395)	(345)
	103,349	103,863
Amounts due:
Within one year	11,671	62,973
After more than one year	91,678	40,890
103,349		103,863

 

An analysis of interest rates and information on fair value and security is given in note 18.

 

17 Deferred tax

Details of the deferred tax credited to the Consolidated income statement are as follows:

2009		2008
£'000		£'000
Investment property revaluations	(275)	(1,515)
Trade losses	(4,335)	(3,084)
Share-based payments	201	279
Short-term timing differences	588	(427)
(3,821)		(4,747)

 

The Consolidated balance sheet deferred tax assets and liabilities are as follows:

2009		2008
£'000		£'000
Deferred tax provision
Investment property revaluations	-	(782)
Other timing differences	(73)	-
	(73)	(782)
Deferred tax asset
Share option scheme	20	221
Investment property revaluations	-	434
Trade losses	7,419	3,084
Other timing differences	-	588
7,439		4,327

 

Under IAS 12, deferred tax is recognised for tax potentially payable on the realisation of investment properties at fair values at the balance sheet date. No deferred tax asset is recognised in respect of losses if there is uncertainty over future recoverability.

 

18 Financial instruments

The Group's principal financial instruments comprise loans, overdrafts, cash and short-term deposits. The main purpose of these financial instruments is to provide finance for the Group's operations. Further information on the Group's financial resources and capital management is given in the Business Review - Finance.

 

The Group has various other financial instruments such as trade receivables and trade payables that arise directly from its operations, listed and unlisted investments.

 

The main risks arising from the Group's financial instruments are interest rate risk, credit risk and liquidity risk. The board reviews and agrees policies for managing each of these risks and they are summarised below. The magnitude of the risk that has arisen over the period is detailed below.

 

Interest rate risk

The Group holds cash balances on short-term deposit. The Group's policy is to monitor the level of these balances to ensure that funds are available as required, recognising that interest earnings will be subject to interest rate fluctuations.

 

The Group borrows cash in the form of loans and overdrafts, which are subject to interest at floating rates, recognising that rates will fluctuate according to changes in libor and the bank base rate. The Group is cognisant at all times of movements in interest rates and will, as appropriate, enter into interest rate swaps to maintain a balance between borrowings that are subject to floating and fixed rates.

 

Credit risk

The Group's principal financial assets are cash and trade receivables. Our cash deposits are placed with a range of banks to minimise the risk to the Group. The principal risk therefore arises from trade receivables. Trade receivables from the sale of properties are secured against those properties until the proceeds are received. Rental receivables are unsecured but the Group's exposure to tenant default is limited as no tenant accounts for more than 10% of total rent. Rental cash deposits and third party guarantees are obtained as a means of mitigating financial loss from defaults.

 

Liquidity risk

The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of bank balances and loans. Cash flow and funding needs are regularly monitored. Further information is given in note 1.

 

Categories of financial assets and financial liabilities

2009		2008
£'000		£'000
Current financial assets
Available-for-sale investments	-	442
Other investments	147	109
Trade and other receivables	10,409	3,792
Amounts due from associates and joint ventures	15,633	22,555
Cash and cash equivalents	5,290	18,022
	31,479	44,920

 

Financial liabilities measured at amortised cost

2009		2008
£'000		£'000
Current financial liabilities
Trade and other payables	14,889	20,228
Loans and borrowings	11,673	63,099
Total current financial liabilities	26,562	83,327
Non-current financial liabilities
Other payables	3,370	3,370
Loans and borrowings	92,071	41,109
Total non-current financial liabilities	95,441	44,479
Total financial liabilities	122,003	127,806

 

The maximum exposure to credit risk in financial assets is £31,479,000 (2008: £44,920,000). The maximum amount due from any single party is £14,948,000 (2008: £14,595,000) included in amounts due from associates and joint ventures.

 

Financial liabilities measured at fair value amount to £962,000 (2008: £Nil) in respect of financial derivatives.

 

Interest rate risk profile of financial assets and liabilities

The interest rate profile of financial assets and liabilities of the Group at 31 October 2009 was as follows:

Floating rate			Fixed rate	Financial assets on which
Total		financial assets	financial assets	no interest is earned
£'000		£'000	£'000	£'000
Sterling	31,479	5,290	3,480	22,709

 

Floating rate			Fixed rate	Financial liabilities on which
Total		financial liabilities	financial liabilities	no interest is charged
£'000		£'000	£'000	£'000
Sterling	122,003	103,744	-	18,259

 

Floating rate financial liabilities bear interest at LIBOR or base rate plus margins of between 1% and 4%.

 

Included in floating rate financial liabilities is £40,660,000 (2008: £17,517,000) subject to interest rate swaps.

 

The interest rate profile of financial assets and liabilities of the Group at 31 October 2008 was as follows:

 

Floating rate			Fixed rate	Financial assets on which
Total		financial assets	financial assets	no interest is earned
£'000		£'000	£'000	£'000
Sterling	44,920	18,022	3,480	23,418

 

Floating rate			Fixed rate	Financial liabilities on which
Total		financial liabilities	financial liabilities	no interest is charged
£'000		£'000	£'000	£'000
Sterling	127,806	104,208	-	23,598

 

The floating rate financial assets comprise:

 

·; cash on deposit.

 

 

The floating rate financial liabilities comprise:

 

·; Sterling denominated bank loans that bear interest based on LIBOR and bank base rates; and

 

·; Sterling denominated bank overdrafts that bear interest based on bank base rates.

 

The fair value of the financial assets and liabilities is equal to the book value.

 

Borrowings

The Group's bank borrowings and overdrafts are repayable as follows:

2009		2008
£'000		£'000
On demand or within one year	11,673	63,099
In more than one year but less than two	75,546	8,924
In more than two years but less than five	16,525	32,185
103,744		104,208

 

The bank overdraft is secured by way of debenture and cross guarantee from certain subsidiaries.

 

The bank loans are secured by legal charges over the Group's investment and development properties together with guarantees from certain subsidiary undertakings with a limited guarantee from the parent company and in one case a floating charge from the parent company.

 

Borrowing facilities

The Group has the following undrawn committed bank borrowing facilities available to it at the year end:

2009		2008
£'000		£'000
Expiring in one year or less	2,514	5,375
Expiring in more than one year but not more than two	8,825	12,756
Expiring in more than two years but not more than five	977	8,187
12,316		26,318

 

Guarantees

The Group has given a guarantee of £15.0 million as part of the security arrangements for the bank facilities of Terrace Hill Residential PLC, one of its associated undertakings.

 

Market rate sensitivity analysis

Financial instruments affected by market risk include borrowings, deposits and derivative financial instruments. The analysis below shows the sensitivity of the income statement and net assets to a 0.5% change in interest rates on the Group's financial instruments.

 

The sensitivity analysis is based on the sensitivity of interest to movements in interest rates and is calculated on net floating rate exposures on debt and deposits.

0.5% decrease		0.5% increase
in interest rates		in interest rates
£'000		£'000
Impact on interest payable - gain/(loss)	472	(472)
Impact on interest receivable - (loss)/gain	(58)	79
Total impact on pre-tax loss and equity	414	393

 

19 Called up share capital

2009		2008
£'000		£'000
Authorised:
500,000,000 (2008: 500,000,000) ordinary shares of 2 pence each	10,000	10,000
200,000 cumulative 8% redeemable preference shares of £1 each	200	200
44,859 convertible shares of 20 pence each	9	9
32,551,410 deferred shares of 2 pence each	651	651
10,860		10,860
Allotted, called up, and fully paid:
211,971,299 (2008: 211,971,299) ordinary shares of 2 pence each	4,240	4,240

 

20 Reserves

Capital					Unrealised
Share		Own	redemption	Merger	gains and	Retained
premium		shares	reserve	reserve	losses	earnings
£'000		£'000	£'000	£'000	£'000	£'000
At 1 November 2007	43,208	-	849	8,386	-	80,196
Loss for the year	-	-	-	-	-	(27,253)
Unrealised loss on available-for-sale investments	-	-	-	-	(498)	-
Own shares	-	(609)	-	-	-	-
Share-based payment	-	-	-	-	-	(997)
Merger reserve release	-	-	-	(1,298)	-	1,298
Interim ordinary dividends	-	-	-	-	-	(1,684)
Final ordinary dividends	-	-	-	-	-	(2,791)
At 1 November 2008	43,208	(609)	849	7,088	(498)	48,769
Loss for the year	-	-	-	-	-	(23,517)
Loss on investments transferred to income
statement on disposal	-	-	-	-	498	-
Total recognised income and expense for the year	-	-	-	-	498	(23,517)
Share-based payment	-	-	-	-	-	(718)
Final ordinary dividends	-	-	-	-	-	(1,154)
Balance at 31 October 2009	43,208	(609)	849	7,088	-	23,380

 

The following describes the nature and purpose of each reserve within owners' equity:

 

Share premium - represents the excess of value of shares issued over their nominal amount.

 

Own shares - represents amount paid to purchase issued shares for the employee share-based payment plan.

 

Capital redemption reserve - represents amount paid to purchase issued shares for cancellation at their nominal value.

 

Merger reserve - the Merger reserve has arisen following acquisitions where the Group's equity has formed all or part of the consideration and represents the premium on the issued shares less costs.

 

Unrealised gains and losses - represents unrealised loss on available-for-sale investments.

 

Retained earnings - represents cumulative net gains and losses recognised in the Consolidated income statement.

 

21 Contingent liabilities and capital commitments

On the acquisition by Terrace Hill Group PLC of a subsidiary company, amounts were repayable in the event of:

 

(a) disposal of the property/ies prior to an agreed cut-off point; or

 

(b) the discontinuation of rental income from the property/ies.

 

The directors are of the opinion that neither of these contingencies will crystallise, since the principal activity of the subsidiary concerned is the letting of the properties for rental income and it is not anticipated that the properties will be disposed of within the timeframe of (a) above. In the event of crystallisation of (a) and/or (b), the subsidiary concerned will be obligated to pay an amount calculated with reference to the properties disposed of/not let out. The maximum sum repayable is £337,000 (2008: £381,000).

 

Capital commitments relating to development sites are as follows:

2009		2008
£'000		£'000
Contracted but not provided for	3,349	-

 

22 Leases

Operating lease commitments where the Group is the lessee

The future aggregate minimum lease rentals payable under non-cancellable operating leases are as follows:

Land and		Land and
buildings		buildings
2009		2008
£'000		£'000
In one year or less	1,374	1,373
Between two and five years	5,351	5,490
In five years or more	7,951	6,982
14,676		13,845

 

Operating lease commitments where the Group is the lessor

The future aggregate minimum rentals receivable under non-cancellable operating leases are as follows:

Land and		Land and
buildings		buildings
2009		2008
£'000		£'000
In one year or less	3,784	1,997
Between two and five years	14,589	7,746
In five years or more	11,964	8,346
	30,337	18,089

 

 

Statutory information

 

The financial information set out in this announcement does not constitute the company's statutory accounts for 2008 or 2009. Statutory accounts for the years ended 31 October 2008 and 31 October 2009 have been reported on by the Independent Auditors. The Independent Auditors' Report on the Annual Report and Financial Statements for 2008 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 237(2) or 237(3) of the Companies Act 1985. The Independent Auditors' Report on the Annual Report and Financial Statements for 2009 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006. Statutory accounts for the year ended 31 October 2008 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 October 2009 will be delivered to the Registrar in due course.

 

Copies of the full financial statements will be posted to those shareholders who requested them as soon as possible and will also be available on the company's website, www.terracehill.co.uk. The financial statements for the year ended 31 October 2009 will be delivered to the Registrar of Companies following the Annual General Meeting