22nd Mar 2005 07:02
City North Group PLC22 March 2005 City North Group plc22 March 2005 Preliminary announcement of audited results for the year ended 31 December 2004 Highlights: - Turnover up 9% to £5.833 million (2003 - £5.352 million) - Expenses increased by 5% to £2.175 million (2003 - £2.070 million) - Operating profit up 11% to £3.658 million (2003 - £3.282 million) - Tenant occupancy averaged above 97% - Fixed assets valued at £111.712 million (2003 - £102.299 million) - Net asset value per share totalled 302p (2003 - 272p) - Proposed second interim dividend of 1.85p (final 2003 - 1.75p) Commenting on the results and the cash offer for the Company, John Cobb,Chairman said: "City North has completed its sixth full year since flotation, with its bestever performance in margins and new highs in turnover and operating profits inthat period. Asset value per share has resumed an upward path and shareholders'funds have increased by 10%." "In a separate announcement made today, the Directors are unanimouslyrecommending a 270p per share cash offer from Grainger Trust plc, with a partialcash and share alternative worth 275p per share." Enquiries Michael Sherley-Dale 020 7932 0403Managing Director [email protected] Chairman's statement City North has completed its sixth full year since flotation, with its best everperformance in margins and new highs in turnover and operating profits in thatperiod. Asset value per share has resumed an upward path and shareholders' fundshave increased by 10%. Rental income grew by 9% in markets which continued to be competitive, with someacceleration in the second half of the year. Expenses increased by 5%, enablinga rise in operating profits of 11%. Tenant occupancy averaged close to 98% forthe year. Following a disappointing year for development site values in 2003, City Northbenefited from a recovery in 2004. The Company's two biggest sites at City Roadand Prescot Street added several million pounds of value as office marketsrecuperated and investment values hardened. Residential values grew modestly,mainly in those properties which achieved the best increase in rental income. 2004 was a better year for share price performance with a rise of 20%. Onceagain this was overshadowed by a stellar rise of 42% in the Real Estate Sector,but City North comfortably outpaced the FTSE All Share Index, which rose by 9%. Recommended offer Between Flotation in May 1998 and 31 December 2004, the Company's shares haveoutperformed the FTSE All Share Index by 73% and the Real Estate Index by 6%.There is however frustration that it has been difficult to eliminate thediscount between asset value and share price. Shareholders's funds have grownsince May 1998 by 80% to £65 million (May 1998: £36 million) whereas our marketcapitalisation at the time of writing remains in the region of £51 million. In a separate announcement made today, the Directors are unanimouslyrecommending a 270p per share cash offer from Grainger Trust plc, with a partialcash and share alternative worth 275p per share. For City North shareholders,the Directors believe that this offer fairly reflects the value of the Group ata time when there are anxieties about house prices and some concerns aboutraising debt much higher through acquisition or development. The details of theoffer are shown in the announcement and a formal offer document will be sent toshareholders in due course. I would like to thank my fellow Directors for their success in building up thebusiness over the past six years. J M CobbChairman22 March 2005 Operational and financial review 2004 was successful for City North in both income and capital growth. Against abackground of economic stability, but slowing expectations on house priceinflation, the Group more than held its ground. Rents were increased throughrenovation and active management, while expenses continued to be strictlymonitored. The result was a cost-income ratio of under 30% and operating profitgrowth of 11%. Tenant occupancy hardened throughout the year, averaging nearly 98% for 2004.This was 1% up on 2003 and benefited from a greater willingness to rent, aswariness increased about house prices. The highest rental growth came fromproperties where refurbishment enhanced income, though underlying rentals tendedto keep pace with wage inflation. Property values had a better year. Generally residential prices increased withina range of 2-6%, with most of the gains being made in the first half of theyear. City North benefited, however, from a further gain on its development sitevalues. Having suffered from falling office prices in 2003, the Group recoupedits position in 2004 as investment interest strengthened, enabling an 11%recovery in asset value to 302p per share. As the year came to a close, the Company secured an option deal on its City Roadsite, which may lead to a sale substantially in excess of current value. TheGroup also progressed with a new planning application for Prescot Street, whichis expected to lead to a joint venture with a leading London hotel operator.Both deals reflect a growing confidence in the development site values withinCity North's portfolio. The Directors have devoted much attention to ways of reducing City North's shareprice discount to asset value and are aware that the Company's marketcapitalisation of £51 million is currently trading well below Shareholders'Funds of £65 million. As noted in the Chairman's Statement and by me below, theBoard has unanimously recommended an offer from Grainger Trust plc as a means ofrealising shareholder value. The remainder of my Report concentrates onOperations, Development and Balance Sheet for the year to 31 December 2004. Operations Group income grew by 9% in 2004 to £5.833 million (2003: £5.352 million) and iscurrently £6 million annualised. The Company was successful in letting theground floor and basement of its office restoration at the Pump House, HooperStreet, London E1, in October 2004 at a rent of £100,000. The upper floors havesubsequently been completed and are being marketed. Other highlights in 2004 included a roof renovation at Caslon House inFarringdon, London EC1, which resulted in the enlargement of a tele-sales areaof 1,600 square feet and a rental uplift of £30,000 per annum. Vincent Square, London SW1, continued to be a star performer with a rentalincrease of 9% over 2003. This reflected the conclusion of a conversionprogramme of studios into self-contained flats at 48-55 Vincent Square andfurther refurbishment of Kimmerston House. Average tenant occupancy of 97% in the first half of 2004 exceeded 98% in thesecond half of the year. Advertising response strengthened in Autumn as tenantsappeared to defer buying decisions in favour of renting. Bad debts continued tobe low at less than 0.25% of income. The Company achieved its best ever full year cost-income ratio of 29.9%,compared to 30.6% a year ago. Administrative expenses grew by 5% to £2.175million (2003: £2.070 million) and this containment of expenses contributed toan 11% rise in operating profits to £3.658 million (2003: £3.282 million). Interest costs increased as the Company's development programme continued,albeit at the lower level of £2-3 million spending per annum, consistent withbudgets for the past eighteen months. Interest charges of £2.658 million remained covered 1.38 times by operatingprofits. Pre-tax profits of £1 million were 6% higher (2003: £947,000) and donot include the £486,000 net proceeds from granting the option on City Road. Development The main feature of 2004 was the completion of the Pump House as detailed above,where the Irish stockbroker NCB was introduced as a tenant in October. It waspleasing to see City North complete the design, architecture and fit-out of thebuilding in-house to the point of letting. The scheme has recently beensubmitted to the RIBA as a candidate for an architectural award. In addition to the projects mentioned at Caslon House and Victoria, a great dealof work was carried out on two other sites on new planning applications. AtPrescot Street, a scheme for 250 hotel bedrooms and 150 serviced apartments wassubmitted and this is expected to go to Planning Committee in summer 2005. At14-20 Alie Street, a mixed scheme of residential and office accommodation wassubmitted, but following onerous social housing demands by the local authority,the decision was made to proceed with a 46 unit commercial scheme which carriesno obligation to the Borough. Much thought was given in 2004 to the future of the Group's City Road site. Manyweeks of negotiation went into the possible sale of the investment. A number ofpotential buyers expressed interest at prices between £11-13.5 million, comparedto our 31 December 2003 valuation of £8.98 million. This difference reflectsthe significant change in sentiment towards City sites in the interveningperiod. In the end, given some delay and failure to perform by buyers, wedecided to hedge our position through an option sale. City North agreed to grantan option on the property for £0.5 million, on a non-refundable basis, providinga buyer with the right to purchase the site by December 2006 for a further£13.25 million. Allsop & Co valued the property in December 2004 at £11.5million and the Directors believe there is a strong possibility of furtherproceeds over the coming two years. Balance sheet, debt and valuations Allsop & Co completed their valuation of the Group's portfolio at the year end,showing the Company's properties to be worth £110.850 million (2003: £101.309million) valued on a Market Value Basis. Net asset value per share rose 11% to302p on a fully diluted basis (2003: 272p) reflecting recovery on the Group'sdevelopment sites and a steady performance in the core residential portfolio. Allsop & Co's valuation provides a discount to reflect existing tenancies,mostly ranging from 5-8% for residential properties let on assured shortholds.The lettable stock comprises approximately 350 units ranging from studios tohouses, as well as a small number of commercial premises and live-work units.The rental portfolio totals around 270,000 square feet of net lettable spacewith a value of £89 million. The value of the residential stock averages around£350 per square foot on the basis of Gross Internal area. In addition to the rented portfolio, the Group's prospective development spacetotals over 325,000 net square feet on three sites, valued at around £22million. At 31 December 2004, Group debt totalled £44.1 million, representing 39% oftotal assets and 68% of shareholders' funds. Borrowings will increase in linewith prudent development spending and excluding any other transactions, arelikely to end the year in the region of £47 million. Approximately 68% of debtis hedged and the Directors will continue to seek a prudent cover of interestcosts by operating profits. Dividends The Directors recommend a second interim dividend of 1.85p per share in lieu ofa final dividend (final 2003: 1.75p) taking the total payment for the year to2.85p per share (2003: 2.75p). This represents an increase of 3.6% and will bepayable on 26 April 2005 to shareholders on the Register on 1 April 2005. Future Prospects It is with a mixture of emotions that the Board is unanimously recommending anoffer for City North. Many of you have been shareholders since the Company'sinception as a Business Expansion Scheme business in 1988. I am most gratefulfor your loyalty and confidence over many years and I am proud that we havecreated a letting and development business with an excellent reputation. I amconfident that, having read the Offer Document, you will agree with ourrecommendation. I would like to thank Directors, staff and shareholders for their support andcontribution over past years. M B Sherley-DaleManaging Director22 March 2005 Consolidated profit and loss account for the year ended 31 December 2004 2004 2003 £'000 £'000 £'000 £'000 Turnover 5,833 5,352Administrative expenses Repairs and maintenance 472 355 Salaries, wages and social security 638 666 Professional fees 260 199 Depreciation 429 432 Property expenses 209 216 Office expenses 156 160 Bank charges 11 42 --------------------------------------------------------------- (2,175) (2,070) ---------------------------------------------------------------Operating profit 3,658 3,282Interest payable and similar charges (2,658) (2,335) ---------------------------------------------------------------Profit on ordinary activities 1,000before taxation 947Taxation on profit on ordinary (270)activities (293) ---------------------------------------------------------------Profit on ordinary activities after taxation 730 654Dividends (599) (574) ---------------------------------------------------------------Retained profit for the year 131 80 =============================================================== Earnings per ordinary share - Basic 3.48p 3.10p- Diluted 3.45p 3.09p =============================================================== All amounts shown above relate to continuing operations. Consolidated statement of total recognised gains and losses for the year ended31 December 2004 Group 2004 2003 £'000 £'000Profit on ordinary activities for the year after 730 654taxationUnrealised surplus/(deficit) on revaluation of 5,989 (4,402)properties -----------------------------Total recognised gains and losses for the year 6,719 (3,748) ============================= Note of historical cost profits and losses for the year ended 31 December 2004 2004 2003 £'000 £'000Reported profit on ordinary activities before taxation 1,000 947 -----------------------------Historical cost profit on ordinary activities before taxation 1,000 947 =============================Historical cost profit for the year retained after taxation and 131 80dividends ============================= Consolidated balance sheet at 31 December 2004 2004 2003 £'000 £'000 £'000 £'000Fixed assetsTangible assets 111,712 102,299Current assetsDebtors 269 147Creditors: amounts falling (2,119) (1,729)due within one year ---------------------------------------------Net current liabilities (1,850) (1,582) ----------------------------------------------Total assets less current 109,862 100,717liabilitiesCreditors: amounts falling due (44,100) (41,300)after more than one year Provision for liabilities (1,242) (1,017)and charges --------------------------------------------Net assets 64,520 58,400 =============================================Capital and reservesCalled up share capital 10,501 10,501Share premium account 8,329 8,329Revaluation reserve 36,726 30,737Merger reserve 5,081 5,081Capital redemption reserve 512 512Profit and loss account 3,371 3,240 --------------------------------------------Equity shareholders' funds 64,520 58,400 ============================================Diluted net assets per 302p 272pshare ============================================ Consolidated cash flow statement at 31 December 2003 2004 2003 £'000 £'000Net cash inflow from operating activities 4,169 3,485Returns on investments and servicing of finance (2,704) (2,502)Taxation (140) (233)Capital expenditure (3,368) (3,503)Equity dividends paid (578) (557) -------------------------------------Cash outflow before financing (2,621) (3,310)Financing 2,800 3,423 -------------------------------------Increase in cash during the year 179 113 ===================================== Notes 1. Earnings per share Earnings per ordinary share have been calculated using the weighted averagenumber of shares in issue during the relevant financial periods. The weightedaverage number of equity shares in issue is 21,001,170 (2003: 21,064,731) andthe earnings, being profit after tax, are £730,000 (2003: £654,000). The diluted earnings per share is calculated allowing for the full exercise ofoutstanding share options at the beginning of the period where those shareoptions are dilutive and their performance conditions have been met. Theadjusted weighted average number of shares is 21,132,313 (2003: 21,148,313). Theearnings are as above. 2. Reconciliation of operating profit to operating cash flows 2004 2003 £'000 £'000Operating profit 3,658 3,282Depreciation 429 432Decrease/(increase) in debtors 24 (51)Increase/(decrease) in creditors 58 (178) --------------------------------------Net cash inflow from operating activities 4,169 3,485 ====================================== 3. Analysis of cash flows for headings netted in the cash flow statement 2004 2003 £'000 £'000Net cash outflow from returns on investment and serving of financeInterest paid 2,704 2,502 ========================Net cash outflow from Capital expenditurePayment to acquire tangible fixed assets 3,854 3,503Granting of option to dispose of property (486) - ------------------------ 3,368 3,503 ========================Net cash inflow from financingIncrease in bank loans due after more than one year 2,800 4,100Purchase of ordinary shares for cancellation - (677) ------------------------ 2,800 3,423 ======================== 4. Reconciliation of net cash flow to movement in net debt 2004 2003 £'000 £'000Increase in cash 179 113Add: Cash inflow from increase in debt (2,800) (4,100) ------------------------Change in net debt (2,621) (3,987)Net debt at 1 January (41,616) (37,629) ------------------------Net debt at 31 December (44,237) (41,616) ======================== 5. Analysis of changes in net debt At At 1 January 31 December 2004 Cash flow 2004 £'000 £'000 £'000Overdrafts (316) 179 (137)Debt due after one year (41,300) (2,800) (44,100) ---------------------------------------------------------------Total (41,616) (2,621) (44,237) =============================================================== 6. Fixed assets The Group's investment property portfolio was revalued on 31 December 2004 byAllsop & Co., a firm of professional external valuers, at Market Value. Thesurplus arising of £5,989,000 has been credited to the revaluation reserve 7. Diluted net assets per share The calculation of diluted net assets per share at 31 December 2004 is based on21,001,170 (2003: 21,001,170) shares in issue, plus 688,255 (2003: 973,080)shares held under option at an exercise price of £1.45, and net assets of£64,520,000 (2003: £58,400,000) plus the proceeds receivable on the exercise ofall outstanding share options. This preliminary announcement was approved by the Board on 22 March 2005. The financial information contained in this preliminary announcement does notconstitute statutory accounts within the meaning of Section 240 of the CompaniesAct 1985. The results for the year ended 31 December 2004 and 2003 have been extractedfrom the audited financial statements for these years. The auditors' reports onthese accounts were unqualified and did not contain statements under s237(2) or(3) of the Companies Act 1985. The accounts for the year ended 31 December 2003have been filed with the Registrar of Companies. The accounts for the yearended 31 December 2004 will be sent to shareholders shortly and filed with theRegistrar of Companies. Copies will be available from Mrs Sue Wavell atShillington Old School, 181 Este Road, London SW11 2TB. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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