19th Mar 2007 07:01
Hansteen Holdings plc19 March 2007 19 March 2007 Hansteen Holdings PLC ("Hansteen" or "the Group" or "the Company") Preliminary Results Hansteen Holdings PLC (AIM: HSTN), the investors in Continental European realestate, announces preliminary results for the period 27 October 2005 to 31December 2006. Highlights • Admission to AIM November 2005 - Raised £123.6 million (net) • Pre-tax profit for the period of £22.1 million • Maiden dividend of 3.0 pence per share • Property assets of £145.6 million as at 31 December 2006* • Net Asset Value of 114 pence per share as at 31 December 2006** • Property investments valuation uplift of £14.8 million Post period events • Secondary placing of £68.5 million (net) at a price of 131 pence per share *** announced 28 February 2007 • Additional acquisitions in Netherlands and Germany • Strong acquisitions pipeline James Hambro, Chairman, commented: "We are delighted that, in its first year,Hansteen has acquired a substantial portfolio of well priced properties. Theoutlook for industrial and logistics property in Continental Europe is verygood, with increased investor demand and the continuing recovery of the majoreconomies. The board believes that, as a result of our current acquisitionstrategy, Hansteen will be well placed to benefit from the increasing valuesthat should ensue." Morgan Jones/Ian Watson David Davies Jeremy Carey/Rachel DrysdaleHansteen Holdings plc KBC Peel Hunt Tavistock CommunicationsTel: 020 7016 8820 Tel: 020 7418 8900 Tel: 020 7920 3150 * Includes current valuation of investment properties and trading properties** Diluted EPRA Basis (see note 8)*** Secondary Placing subject to shareholder approval at the EGM on 23 March 2007 CHAIRMAN'S STATEMENT I am pleased to report the first set of results for Hansteen Holdings Plc since its incorporation on 27 October 2005 and subsequent admission to the AIM marketon 29 November 2005, when the Company raised £123.6 million (net). Results forthe period have exceeded the Board's expectations with profits before tax achieved of £22.1 million and a Net Asset Value of 114 pence per share. A dividend of 3 pence per share will be paid on 1 May 2007 to shareholders onthe register at close of business on 30 March 2007 excluding those shares issued pursuant to the placing to be approved at the Extraordinary General Meeting on 23 March 2007. This dividend will be charged to the 2007 financial statements. It is the Board's current intention to continue making similar dividend payments, subject to available reserves on an annual basis going forward. The Hansteen Group was established by Ian Watson and Morgan Jones who were previously founders and directors of Ashtenne Holdings Plc. Our non-executive directors are Stephen Gee and Richard Mully. The strategy for Hansteen is derived from the directors' previous experience in the UK property market, where investment demand for industrial property has greatly increased over the past decade leading to lower yields, higher prices and a broad acceptance of the merits of the sector. The Board believed that this process was likely to be repeated in Continental Europe and that there was a good opportunity to create an industrial property portfolio using the experience gained in the UK market. Hansteen has to date acquired over £150 million of properties at yields in excess of 8% per annum. At 31 December the properties owned at that time were revalued to £145.6 million. They were purchased in 21 separate transactions at a cost of approximately £130 million. The portfolio at 31 December 2006 included investment properties of £139.6 million with a rent roll of approximately £10.6 million per annum. Trading properties were valued at £6 million although shown in the balance sheet at cost of £5.15 million. Following the year end, the Company has made further acquisitions in the Netherlands and Germany and there is a strong pipeline of new opportunities. The Board's strategy is to continue to build a substantial portfolio across Western Europe over the next 18 months. Since formation, the Hansteen team has grown to eight employees. In addition we have established a network of contacts throughout Europe providing agency, brokerage, management and financial support which has been an important achievement during the period. In order to fund the continued growth of the portfolio, on 28 February the Board announced a conditional placing of a further 53,435,115 shares at a price of 131 pence per share raising approximately £68.5 million of new cash net of expenses. The placing is conditional on the approval of shareholders at the Extraordinary General Meeting on 23 March 2007. The Board is very encouraged by the progress of Hansteen in its first year. Despite a competitive market, the Company has acquired an excellent high yielding portfolio of logistics and industrial properties. With the experiencegained to date and the additional funds from the recent placing it is well placed to increase the size and value of the portfolio over the coming years. James HambroChairman16 March 2007 JOINT CHIEF EXECUTIVE'S REVIEW In its AIM admission document, Hansteen stated that its business strategy was toprovide investors with consistent high and realised returns. It was envisagedthat this would be achieved through acquisition of properties over time tocreate a high yielding property portfolio in Continental Europe, combined withother more opportunistic and management intensive acquisitions which, whilelower yielding, would provide greater capital growth potential. We believe thatwe have begun to achieve these objectives during 2006. Business Model Over the year the key parts of Hansteen's business model have been the following:- 1) The positive yield gap in Continental Europe between the rental income yields on industrial property and Euro borrowing costs. This provides a positive cash flow surplus and in our view will lead to capital profits, as we believe yields will fall to nearer the cost of money as has happened in the UK. 2) Asset management activities which enhance the returns. In particular in certain locations we will be prepared to acquire vacant properties, which have been bought at discounted prices where we feel confident that our active marketing approach would lead to the properties becoming let and the values increasing. 3) Portfolio premium. A large portfolio of logistics and industrial properties should command a premium price compared to the single unit acquired on its own. This may be due to the risk spread in a portfolio and also the interest of investors who wish to invest substantial monies in Continental European property. Our strategy is to acquire the properties in smaller lot sizes to assemble a large portfolio which should achieve the premium valuation. 4) Corporate outsourcing of industrial and logistics properties creating a new and larger market for the investor in Europe. For example, approximately one third of Hansteen's acquisitions during 2006 were sale and leaseback investments and many of the other properties purchased had only recently come out of owner occupier hands. The Portfolio At 31 December 2006 the Portfolio including investment and trading propertieswas valued at £145.6 million and comprised the following geographical spread. Euros No. of Sqm Rent Valuation Properties •m •mNetherlands 21 210,147 8.4 106.0 Germany 8 66,905 4.5 57.2 France 3 61,492 1.6 21.6 Other Assets 2 27,000 1.3 31.2 ------------------------------------------------------- Total 34 365,544 15.8 216.0 Sterling No. of Sqm Rent Valuation Properties £m £mNetherlands 21 210,147 5.7 71.4 Germany 8 66,905 3.0 38.5 France 3 61,492 1.1 14.6 Other Assets 2 27,000 0.9 21.1 ------------------------------------------------------- Total 34 365,544 10.7 145.6 Overall the year end valuation is showing yields of 7.3% on the portfolio intotal and 7.84% yields on the industrial and logistics core portfolio. Theproperties were purchased on average yields of around 8% per annum and thereforewe have seen a valuation uplift of £14.8 million on the investment propertiesand approximately £0.8 million on the trading properties. This represents avaluation uplift of approximately 12%, a substantial movement in value whentaking account of the high acquisition costs in Europe and the fact that many ofthe properties have only been owned for part of the year. In the first months of 2007, the Company has added to the portfolio with theacquisition of a sale and leaseback property in Hardenberg, in the Netherlandsfor approximately €4.2 million. The property is subject to a 15 year leasebackat an annual rent of €0.35 million per annum. In Germany, two logisticswarehouse properties based in Rodgau and Mulheim have been acquired for a totalcost of €7.5 million currently producing an annual rent of €0.66 million perannum. Additionally, in Germany we have acquired 13 properties at Neckarsulm forapproximately €16 million and a rent roll of €1.26 million per annum. At Houtenin the Netherlands, we have acquired a prime logistics property at a value ofapproximately €17 million generating rental income of €1.15 million per annum. In addition to these properties, Hansteen has an active pipeline of newacquisitions. In some cases these are at the legal due diligence stage and inothers we are actively investigating the opportunities. We describe below theactivities in each of our main geographical sectors. Netherlands Hansteen has made the most rapid progress in assembling a portfolio in theNetherlands. This partly reflects the contacts and track record of themanagement in the Netherlands which has generated more opportunities. Highlightsin the Netherlands during the period were as follows: Two small portfolios provided the foundations for our portfolio. The firsttransaction, known as the Zwolle portfolio, comprised six properties across theNetherlands totalling 45,300 square metres for a gross cost of €25.5 million anda yield of 8%. The properties were acquired from a Dutch private investor. Thesecond portfolio comprised four distribution properties in the Netherlands, witha value of approximately €18 million. Tenants included Shell, TGB Post, MurataElectronics and Briggs and Stratton. Again, the initial yield was around 8%. Two properties were acquired in Amersfoort that presented asset managementopportunities. The first was a 51,000 square metre logistics warehouse parkpurchased from Warner Estate Holdings Plc. This building had 34% vacancy onacquisition. Over the year we have increased occupancy to over 95% byaccommodating the expansion of existing tenants and through active marketing tonew occupiers. As a result of the confidence gained in this transaction later inthe year we acquired a further 7,384 square metre logistics warehouse in Neonwegin Amersfoort. This property was 40% vacant on acquisition and again throughactive marketing and negotiations is now fully occupied. As a result of thisactivity both properties saw uplifts in their valuation at December 2006. In May 2006, we announced the acquisition of a portfolio of eight distributionwarehouses from DHL at a cost of approximately €21 million. The 64,000 squaremetre portfolio was leased back to DHL for a rent of approximately €2.1 millionper annum. The properties are on short leases as DHL is looking to reorganiseits occupational requirements following its takeover by Deutsche Post. The Dutch property market for logistics and industrial buildings has seensignificant changes over the last 15 months. Firstly, the occupational markethas materially improved. Our experience in Amersfoort is that, whereas threeyears ago there were many vacancies and "to-let" boards visible, the situationtoday is very different with occupiers finding it hard to find appropriatewarehousing. There has also been in our view, a significant yield compression inthe Netherlands over this period. As values have increased this has benefitedour portfolio but made it more difficult to acquire value. To date however wehave succeeded in acquiring properties at capital costs below replacement costwhich gives a competitive advantage to our stock. Looking forward in the Netherlands, we see a short term opportunity to acquiremore prime logistics properties, which we believe show good value now relativeto the pricing of more secondary properties. This was a phenomenon we noted inthe UK market for a period before yields on those more prime propertiescompressed further. We are proposing to take advantage of the situation bytargeting new and prime logistics properties. To facilitate this move we haveentered into a venture with specialist partners, Ormix BV, who have considerableexperience in the Dutch logistics market. Together with them we expect to buildup a separate pool of prime assets which we believe will show significant valueincrease over the coming 24 months. Germany At 31 December 2006 the portfolio in Germany comprised eight properties with avaluation of €57.2 million and a rent roll of €4.49 million per annum. Theseproperties are concentrated broadly in the south west of Germany, located in theFrankfurt and Stuttgart areas. These areas have strong economies and excellentbusiness infrastructure. In 2007 we expect to expand our holdings throughout therest of Germany. Each of the properties in Germany has been acquired on aproperty by property basis, the more significant ones being as follows: 1) At Heilbronn we acquired a 7,700 square metre modern logistics warehouse let to DPD German Parcels on a 10 year lease terminating in April 2016. The annual rent roll is €853,000 per annum and in our view this represents a prime logistics investment. 2) In July 2006 Hansteen acquired Heinrich Hertz Park. The building, which includes 7,000 square metres of offices and 6,500 square metres of storage, is set on approximately two acres of land at a business park location some 20 kilometres south of Frankfurt. The property has approximately 10 tenants and 14% vacancy. 3) Other major assets include a 10,480 square metre multi-let warehouse in Remseck near Stuttgart, a distribution and logistics warehouse let to three tenants at Leinfelden-Echterdingen also near Stuttgart and a sale and leaseback property comprising 13,718 square metres at Otigheim near Frankfurt. Again, in the main we have managed to acquire properties at prices and rentsbelow replacement cost. Overall our feeling is that the German economy has shown positive signs ofrecovery over the last twelve months and the confidence of businesses andinvestors appears to be improving. In such a large property market there arestill opportunities to acquire properties at good prices and we will endeavourto grow our portfolio significantly during 2007. France In France we have so far acquired three buildings. The first is a bottling plantin Bordeaux and the other two are standard logistics buildings in theSaint-Priest region of Lyon. These properties were acquired at average rents persquare metre of €26 and capital values considerably below replacement cost. France has proved a challenging country in which to acquire properties for ourportfolio. Properties within the Ile de France region of Paris are alreadyhighly valued and in other parts of France the acquisition process can be slow.However, we continue to search for opportunities and hope to build up theportfolio more quickly in 2007. Other Assets In June 2006 Hansteen acquired 38 apartment buildings from the municipality ofWiesbaden, Germany for approximately €20 million (£14.5 million). The buildingshave a total of 392 mainly two and three bedroom apartments together with 17commercial units together producing rental income of approximately €1.4 millionper annum. Wiesbaden is a prosperous city and the state capital of Hessen and inour view this investment represented a unique opportunity to acquire aresidential portfolio at low capital values (averaging approximately €50,000 perapartment), from a local authority vendor. During 2006 three apartments havebeen sold, and following the year end, one of the larger apartment blocks and afurther three flats have also been sold. In each case this has been achieved atapproximate 10% profit. Hansteen also acquired a 90 acre site in Gilston near Falkirk, Scotland for £5million from Warner Estate Holdings Plc. The site, which was a part of theAshtenne portfolio prior to its acquisition by Warner, is close to Junction 4 ofthe M9 and has planning consent for a mixed use development scheme. Hansteen isin discussion with the planners to bring forward an exciting development here.The site has recently been adopted in the Structure Plan for that area ofScotland as a strategic development site which secures the planning status forthe site and is a significant step forward in creating value from this project. Finance At 31 December 2006 the Balance Sheet shows shareholders funds of £137.9million. As shown in Note 18 there are currently 125,000,002 shares in issue andtherefore the basic NAV in accordance with International Financial ReportingStandards amounts to 110 pence per share. The more widely used definition is thediluted EPRA NAV which takes into consideration the revaluation of tradingproperties, the dilution due through share options and the adding back ofdeferred tax on the revaluation of investment properties. On this basis thediluted EPRA NAV is 114 pence per share. At 31December there were bank borrowings of €25 million, (£16.8 million). Withretained cash the net gearing of the Group was only 1%. The Group has significant borrowing capacity given its €230 million, 5 yearrevolving credit facility with the Bank of Scotland. Our funding policy, where borrowing is used, is to utilise prudent interest ratehedging which may in the future include an element of short term fixed interestrates. At 31 December 2006 the average gross cost of borrowing for Hansteen was4.35%, in addition €353,000 of financing costs were amortized in the period. TheGroup has an interest rate cap for €25 million covering the three year period to26 November 2009 set at Euribor of 4%. This interest rate cap cost £84,000 andwas revalued in the balance sheet at 31 December 2006 at £97,000. The Group finances its activities primarily through a mixture of equity,retained earnings, borrowings and surplus cash arising directly from itsoperations. During 2006 operations were largely transacted in Euros. In order tomitigate currency risk borrowings have also been arranged in Euro denomination,but for equity funded investments the Group will endeavour to substantiallycover its risk through hedging instruments. On 25 July 2006 the Group took out aforward currency contract for the sale of €155 million into Sterling to takeplace on 27 July 2009. The contract was set at a Euro/Sterling rate of 0.70895or 1.41 Euros to the Pound. The forward currency contract was fixed at no costbut at the 31 December had a value reflected in the Balance Sheet of £1.34million. Outlook 2006 saw the Hansteen Group evolve from a start up business to one with asubstantial high yielding property portfolio, an excellent deal flow and contactbase throughout Continental Europe together with a solid management team to takethe business forward. In the last 12 months there have been an increasing number of propertyinvestment funds, and more recently Western Europe has become a focus for manyof these. The Board's judgement is that the high yields in Continental Europe,compared to borrowing costs, together with the recovering economies in thesecountries will make these markets increasingly attractive. Given this situationwe believe it is important to accelerate our business plan. The secondaryplacing on 28 February if approved by shareholders, will allow us to build asubstantial geographically diversified portfolio. Morgan Jones and Ian WatsonJoint Chief Executives16 March 2007 Financial StatementsIncome statementfor the period from 27 October 2005 to 31 December 2006 Period from 27 October 2005 to 31 December 2006 Note £'000GroupRevenue 3 16,012Cost of sales (8,395) ------------ Gross profit 7,617 Administrative expenses (2,847) ------------ Operating profit before gains on investment properties 4,770 Gains on investment properties 4 14,789 ------------Operating profit 3 19,559 Gains on forward currency contract 5 1,304 Finance income 6 1,996Finance costs 6 (490)Change in fair value of interest rate swaps 6 13 Foreign exchange losses 6 (260) ------------ Profit before tax 22,122 Tax 7 (6,792) ------------Profit for the period 15,330 ============ Earnings per share Basic 8 13.3p ============Diluted 8 13.3p ============ All results derive from continuing operations. Balance sheet31 December 2006 Group Note 2006 £'000 Non-current assetsProperty, plant and equipment 9 28Investment property 10 139,593Derivative financial instruments 11 1,434 ------------ 141,055 ------------ Current assetsTrading properties 12 5,151Trade and other receivables 13 2,485Cash and cash equivalents 14 14,395 ------------ 22,031 ------------Total assets 163,086 ============ Current liabilitiesTrade and other payables 15 (3,333)Current tax liabilities (1,675) ------------ (5,008) ------------ Non-current liabilitiesBank loans 16 (15,689)Deferred tax liabilities 17 (4,517) ------------ (20,206) ------------Total liabilities (25,214) ============ Net assets 137,872 ============ EquityShare capital 18 12,500Share premium account 111,133Translation reserves (1,142)Retained earnings 15,381 ------------Total equity 137,872 ============ These financial statements were approved by the Board of Directors on 16 March2007. Statement of changes in equityfor the period from 27 October 2005 to 31 December 2006 Share Share Translation Retained capital premium reserves earnings Total £'000 £'000 £'000 £'000 £'000GroupExchange differencesarising on translationof overseas operations - - (1,581) - (1,581) Tax on items takendirectly to equity - - 439 - 439 --------------------------------------------------------- Net loss recogniseddirectly in equity - - (1,142) - (1,142) Profit for the period - - - 15,330 15,330 ---------------------------------------------------------Total recognised incomeand expense for theperiod - - (1,142) 15,330 14,188 Ordinary shares issuedat a premium 12,500 112,500 - - 125,000 Cost of issue of sharesat a premium - (1,367) - - (1,367) Share based payments - - - 51 51 Equity shareholdersfunds at 27 October 2005 - - - - - ---------------------------------------------------------Equity shareholdersfunds at 31 December 2006 12,500 111,133 (1,142) 15,381 137,872 ========================================================= Cash flow statementfor the period from 27 October 2005 to 31 December 2006 Period from 27 October 2005 to 31 December 2006 Note £'000Group Net cash inflow from operating activities 19 292 Investing activitiesInterest received 1,996Additions to property, plant and equipment (39)Additions to investment properties (126,823)Proceeds on sale of investment properties 118Additions to derivative financial instruments (117) ------------Net cash used in investing activities (124,865) ============ Financing activitiesProceeds from issue of shares at a premium 125,000Costs of issue of shares at a premium (1,367)New bank loans raised (net of expenses) 15,335 ------------Net cash from financing activities 138,968 ------------ Net increase in cash and cash equivalents 14,395 Cash and cash equivalents at beginning of period - ------------Cash and cash equivalents at end of period 14,395 ============ 1. General information Hansteen Holdings PLC was incorporated in the United Kingdom under the CompaniesAct 1985 on 27 October 2005. The address of the registered office is 1 BerkeleyStreet, London W1J 8DJ. The Company was listed on AIM on 29 November 2005 and these financial statementscover the period from its date of incorporation on 27 October 2005 to 31December 2006. As these are the Company's maiden results there are nocomparative figures. The Group's principal activities are those of a property group investing mainlyin industrial properties in Continental Europe. These financial statements are presented in pounds sterling because that is thecurrency of the primary economic environment in which the Company operates.Foreign operations are included in accordance with the policies set out in note2. The financial information set out in this preliminary announcement does notconstitute the Company's statutory accounts for the period from 27 October 2005to 31 December 2006 but is derived from those accounts. Whilst the financialinformation has been computed in accordance with International FinancialReporting Standards (IFRSs) this announcement does not itself contain sufficientinformation to comply with IFRSs. Statutory accounts for the period from 27October 2005 to 31 December 2006 will be delivered to the Registrar of Companiesfollowing the Company's annual general meeting. The auditors have reported onthose accounts; their reports were unqualified and did not contain statementsunder s. 237 (2) or (3) Companies Act 1985. 2. Significant accounting policies Property, plant and equipment. This comprises computer and office equipment.Computers and office equipment are stated at cost less accumulated depreciationand any recognised impairment loss. Depreciation is charged so as to write off the cost or valuation of computersand office equipment, over their estimated useful lives, using the straight-linemethod, on the following bases: Computers 3 yearsOffice equipment 3 years Investment property. Investment property, which is property held to earn rentalsand/or for capital appreciation are treated as acquired when the Group assumesthe significant risks and rewards of ownership. Acquisitions of investmentproperties including related transaction costs and subsequent additions of acapital nature are initially recognised in the accounts at cost. At eachreporting date the investment properties are re-valued to their fair valuesbased on a professional valuation at the balance sheet date. Gains or lossesarising from changes in the fair value of investment property are included inthe income statement for the period in which they arise. Investments in subsidiary undertakings. Investments in subsidiary undertakingsare stated at cost less, where appropriate, provisions for impairment. Leasing. Leases are classified as finance leases whenever the terms of the leasetransfer substantially all the risks and rewards of ownership to the lessee. Allother leases are classified as operating leases. Where a property is held undera head lease it is initially recognised as an asset as the sum of the premiumpaid on acquisition and the present value of minimum ground rent payments. Thecorresponding rent liability to the head leaseholder is included in the balancesheet as a finance lease obligation. Where only the buildings element of aproperty lease is classified as a finance lease, the ground rent payments forthe land element are shown within operating leases. Trading properties. Trading properties are included in the balance sheet at thelower of cost and net realisable value and are treated as acquired when theGroup assumes the significant risks and rewards of ownership. Cost includesdevelopment costs specifically attributable to properties in the course ofdevelopment. Net realisable value represents the estimated selling price lessfurther costs expected to be incurred to completion and disposal. Financial Instruments. Trade receivables and payables. Trade receivables and payables are stated attheir nominal value. Trade receivables are reduced by appropriate allowances forestimated irrecoverable amounts. Financial obligations. Debt instruments are stated at their net proceeds onissue. Finance charges including premiums payable on settlement or redemptionand direct issue costs are spread over the period to redemption using theeffective interest method. Cash and cash equivalents. Cash and cash equivalents comprise cash on hand anddemand deposits and other short-term highly liquid investments that are readilyconvertible to a known amount of cash and are subject to an insignificant riskof changes in value. Derivative financial instruments. The Group's activities expose it primarily tothe financial risks of changes in foreign currency exchange rates and interestrates. The Group uses foreign exchange forward contracts and interest rate swapcontracts to hedge these exposures. The Group does not use derivative financialinstruments for speculative purposes. The use of financial derivatives is governed by the Group's policies approved bythe board of directors. The Group does not hedge account its current forward currency contracts andinterest rate swaps and states them at fair value with changes in fair valueincluded in the income statement. Revenue recognition. Revenue is measured at the fair value of the considerationreceived or receivable and represents amounts receivable for goods and servicesprovided in the normal course of business, net of discounts, VAT and other salesrelated taxes. Rental income is recognised on an accruals basis. Where a lease incentive isgranted, which does not enhance the value of the property, or a rent free periodis granted, the effective cost is amortised on a straight-line basis over theperiod from the date of lease commencement to the earliest termination date. Interest income is accrued on a time basis, by reference to the principaloutstanding and at the effective interest rate applicable. Revenue from the sale of trading and investment properties is recognised whenthe significant risks and returns have been transferred to the buyer. This isgenerally on unconditional exchange of contracts. The profit on disposal oftrading and investment properties is determined as the difference between thesales proceeds and the carrying amount of the asset at the commencement of theaccounting period plus additions in the period. Foreign Currencies. The individual financial statements of each group companyare presented in the currency of the primary economic environment in which itoperates (its functional currency). For the purpose of the consolidatedfinancial statements, the results and financial position of each group companyare expressed in pounds sterling, which is the functional currency of theCompany, and the presentation currency for the consolidated financialstatements. In preparing the financial statements of the individual companies, transactionsin currencies other than the entity's functional currency (foreign currencies)are recorded at the rates of exchange prevailing on the dates of thetransactions. At each balance sheet date, monetary assets and liabilities thatare denominated in foreign currencies are retranslated at the rates prevailingon the balance sheet date. Non-monetary items carried at fair value that aredenominated in foreign currencies are translated at the rates prevailing at thedate when the fair value was determined. Non-monetary items that are measured interms of historical cost in a foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on theretranslation of monetary items, are included in profit or loss for the period.Exchange differences arising on the retranslation of non-monetary items carriedat fair value are included in profit or loss for the period except fordifferences arising on the retranslation of non-monetary items in respect ofwhich gains and losses are recognised directly in equity. For such non-monetaryitems, any exchange component of that gain or loss is also recognised directlyin equity. For the purpose of presenting consolidated financial statements, the assets andliabilities of the Company's foreign operations are translated at exchange ratesprevailing on the balance sheet date. Income and expense items are translated atthe average exchange rates for the period, unless exchange rates fluctuatesignificantly during that period, in which case the exchange rates at the dateof transactions are used. Exchange differences arising, if any, are classifiedas equity and transferred to the Company's translation reserve. Such translationdifferences are recognised as income or as expenses in the period in which theoperation is disposed of. Operating leases. Rentals payable under operating leases are charged to incomeon a straight-line basis over the term of the relevant lease. Taxation. The tax expense represents the sum of the tax currently payable anddeferred tax. The tax currently payable is based on taxable profit for the year. Taxableprofit differs from net profit as reported in the income statement because itexcludes items of income or expense that are taxable or deductible in otheryears and it further excludes items that are never taxable or deductible. TheCompany's liability for current tax is calculated using tax rates that have beenenacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferredtax liabilities are generally recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporary differencescan be utilised. Deferred tax is measured on a non-discounted basis. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised. Deferred tax ischarged or credited in the income statement, except when it relates to itemscharged or credited directly to equity, in which case the deferred tax is alsodealt with in equity. Deferred tax assets and liabilities are offset when thereis a legally enforceable right to set off current tax assets against current taxliabilities and when they relate to income taxes levied by the same taxationauthority and the Company intends to settle its current tax assets andliabilities on a net basis. Share-based payments. The fair value of equity-settled share-based payments toemployees is determined at the date of grant and is expensed on a straight-linebasis over the vesting period based on the Company's estimate of options thatwill eventually vest. Fair value is measured by use of a binomial model. Theexpected life used in the model has been adjusted based on management's bestestimate, for the effects of non-transferability, exercise restrictions andbehavioural considerations. 3. Business and geographical segments Business segmentsThe Group's primary reporting segments are the classification of its propertiesbased on whether they are held for investment or trading. The secondaryreporting segments are the classification of its properties based on geographiclocation. a) Totals by business segment Period from 27 October 2005 to 31 December 2006 Trading Investment properties properties Total £'000 £'000 £'000Group Property rental income 2 7,758 7,760Sales of trading properties 8,252 - 8,252 ----------------------------------- Revenue 8,254 7,758 16,012 Direct propertyoperating expenses (58) (757) (815) Cost of sales of trading properties (7,580) - (7,580) Administrative expenses (139) (2,120) (2,259) ----------------------------------- Operating profit before gains on investment properties 477 4,881 5,358 Gains on investment properties - 14,789 14,789 -----------------------------------Segment result 477 19,670 20,147 =========================Unallocated corporate expenses (588) ---------- Operating profit 19,559 Gains on forward currency contract 1,304 Net finance income 1,259 ----------Profit before tax 22,122 Tax (6,792) ----------Profit for the period 15,330 ========== Direct property operating expenses relating to investment properties that didnot generate any rental income were £10,000. 3. Business and geographical segments continued a) Totals by business segment continued Balance sheet Trading Investment Properties Properties Total 2006 2006 2006 £'000 £'000 £'000Group Property assets 5,151 139,593 144,744Other assets - 5,849 5,849 -----------------------------------Segment assets 5,151 145,442 150,593 =========================Unallocated corporate assets 12,493 ---------Consolidated total assets 163,086 ========= Segment liabilities (28) (2,317) (2,345) ========================= Unallocated corporate liabilities (22,869) --------- Consolidated total liabilities (25,214) ========= Additions to properties 5,151 126,380 131,531 =================================== b) Totals by geographic segment The Group's property operations are located in France, Germany, the Netherlandsand the United Kingdom. The following table provides an analysis of the Group'srevenue by geographical market: Period from 27 October 2005 to 31 December 2006 £'000 Group France 429Germany 2,077Netherlands 13,149United Kingdom 357 ----------- 16,012 =========== The following is an analysis of the carrying amount of segment assets andadditions to properties analysed by the geographical area in which the assetsare located: Additions to properties Carrying Period from amount of 27 October segment 2005 assets to 2006 31 December £'000 2006 £'000Group France 14,905 13,058Germany 55,506 47,816Netherlands 75,031 65,506United Kingdom 5,151 5,151 ------------------------ 150,593 131,531 ======================== 4. Gains on investment properties Period from 27 October 2005 to 31 December 2006 £'000 Increase in fair value of investment properties 14,759Profit on disposal of investment properties 30 ----------- 14,789 =========== 5. Gains on forward currency contract Period from 27 October 2005 to 31 December 2006 £'000 Increase in fair value of forward currency contract 1,304 =========== 6. Net finance income Period from 27 October 2005 to 31 December 2006 £'000 Interest receivable on bank deposits 1,977Other interest receivable 19 -----------Finance income 1,996 Interest payable on bank loans and overdrafts (490) -----------Finance costs (490) -----------Net interest received 1,506 Increase in fair value of interest rate swaps 13 Foreign exchange losses on retranslationof inter-company loan balances (260) -----------Net finance income 1,259 =========== 7. Tax Period from 27 October 2005 to 31 December 2006 £'000 UK Current tax 1,665Foreign current tax 566 -----------Total current tax 2,231Deferred tax (see note 17) 4,561 -----------Total tax charge 6,792 =========== UK Corporation tax is calculated at 30 per cent of the estimated assessableprofit for the period. Taxation for other jurisdictions is calculated at the rates prevailing in therespective jurisdictions. The tax charge for the year can be reconciled to the profit per the incomestatement as follows: Period from 27 October 2005 to 31 December 2006 £'000 Profit before tax 22,122 ===========Tax at the UK corporation tax rate of 30% 6,637 Tax effect of :Expenses that are not deductible in determining taxable profit 116Short term timing differences 5Marginal relief (8)Effect of different tax rates of overseas subsidiaries 42 ----------- 6,792 =========== In addition to the amount charged to the income statement, tax relating to theunrealised exchange losses on translation of overseas operations has beencredited directly to translation reserves (see statement of changes in equity). 8. Earnings per share and net asset value per share The calculations for earnings per share, based on the weighted average number ofshares, are shown in the table below. The European Public Real Estate Association ('EPRA') has issued recommendedbases for the calculation of certain per share information and these areincluded in the following tables: Period from 27 October 2005 to 31 December Weighted 2006 average Earnings number of per Earnings shares share £'000 000's p Basic EPS 15,330 115,223 13.3Dilutive share options - 43 - ----------------------------------------Diluted EPS 15,330 115,266 13.3 ========================== Adjustments:Revaluation gains on investmentproperties (14,759)Profit on the sale of investmentproperties (30)Tax on the sale of investmentproperties 9Change in fair value of financialinstruments (1,317)Tax on the change in fair value of financial instruments 395Deferred tax 4,529 --------- ---------Diluted EPRA EPS 4,157 3.6 ========= ========= The calculations for net asset value per share are shown in the table below: 31 December 2006 Equity Number Net asset shareholder's of value funds shares per share £'000 000's p Basic NAV 137,872 125,000 110.3Unexercised share options 428 400 n/a ---------------------------------------Diluted NAV 138,300 125,400 110.3 ======================= Adjustments:Fair value of trading properties 849Deferred tax 4,529 --------- ---------Diluted EPRA NAV 143,678 114.6 ========= ========= 9. Property, plant and equipment Office Computer equipment equipment Total £'000 £'000 £'000 Cost:At 27 October 2005 - - -Additions 1 37 38 -------------------------------- At 31 December 2006 1 37 38 --------------------------------Accumulated depreciation:At 27 October 2005 - - -Charge for the period - 10 10 --------------------------------At 31 December 2006 - 10 10 --------------------------------Net book value:At 31 December 2006 1 27 28 ================================At 27 October 2005 - - - ================================ 10. Investment property £'000 Balance at 27 October 2005 - Additions - property purchases 126,137 - capital expenditure 244 Disposals (88) Revaluations included in income statement 14,759 Exchange adjustment (1,459) -----------At 31 December 2006 139,593 =========== All investment properties are stated at market value as at 31 December 2006 andhave been valued by independent professionally qualified external valuers, KingSturge LLP. The valuations have been prepared in accordance with the Appraisaland Valuation Manual published by The Royal Institute of Chartered Surveyors andwith IVA1 of the International Valuation Standards. The Group has pledged certain of its investment properties to secure a bank loanfacility granted to the Group. 11. Derivative financial instruments Forward Interest currency rate contract cap Total £'000 £'000 £'000 GroupFair value at 27 October 2005 - - - Additions at cost 33 84 117 Revaluations included in income statement 1,304 13 1,317 -------------------------------Fair value at 31 December 2006 1,337 97 1,434 =============================== Currency derivativesThe Group utilises currency derivatives to hedge significant future transactionsand cash flows. On 26 August 2006 the Company entered into a forward currency contract to sellEuros 155,159,000 for £110,000,000 on 27 July 2009. The fair value of the Company's forward currency contract is based on market values of equivalent instruments at the balance sheet date. Interest rate capThe Group uses interest rate derivatives to manage its exposure to interest ratemovements on its bank borrowings. On 6 November 2006 the Company entered into a Euro 25,000,000 interest rate capat 4% with a start date of 26 January 2007 and a maturity date of 26 October2009. The fair value of the Company's interest rate cap is based on marketvalues of equivalent instruments at the balance sheet date. 12. Trading properties 2006 £'000 Land and related costs 5,151 ======= The trading properties were valued at 31 December 2006 at open market value at£6,000,000. 13. Trade and other receivables Group 2006 £'000 Trade receivables 356Other receivables 1,754Prepayments and accrued income 375 ------- 2,485 ======= The carrying amount of trade and other receivables approximate their fair value. The Group's credit risk is primarily attributable to its trade receivables. Theamounts presented in the balance sheet are net of allowances for doubtfulreceivables. An allowance for impairment is made where there is an identifiedloss event which, based on previous experience, is evidence of a reduction inthe recoverability of the cash flows. The Group has no significant concentrationof credit risk, with exposure spread over a large number of counterparties andcustomers. 14. Cash and cash equivalents Group 2006 £'000Cash and cash equivalents 14,395 ======= Cash and cash equivalents comprise cash held by the Group and short-term bankdeposits with an original maturity of three months or less. The carrying valueof these assets approximates to their fair value. The credit risk on liquid funds is limited because the counterparties are bankswith high credit ratings assigned by international credit-rating agencies 15. Trade and other payables Group 2006 £'000 Trade payables 597Other payables 710Accruals and deferred income 2,026 ------- 3,333 ======= The carrying amount of trade and other payables approximates to their fairvalue. 16. Bank loans 2006 £'000 SecuredBank loan 16,845Unamortised borrowing costs (1,156) -------Bank loan 15,689 ======= The bank loan represents Euro 25,000,000 drawn down under a five year Euro230,000,000 revolving bank loan facility entered into on 25 July 2006 byHansteen Holdings PLC and certain of its subsidiary undertakings. The loan issecured on the shares of the borrowing subsidiaries and their investmentproperties and is guaranteed by Hansteen Holdings PLC and the borrowingsubsidiaries. Interest on the amounts drawn under the loan facility is chargedat Euribor plus 0.8%. The Directors estimate that the book value of the Groups bank loans approximatesto their fair value. 2006 £'000 MaturityThe bank loan is repayable as follows:In the third to fifth years inclusive 16,845 =======Undrawn committed facilitiesExpiring after more than two years 138,131 ======= Floating rate borrowings 2006 % £'000Interest rate and currency profileEuros 4.35 16,845 ======================== The bank loan drawn down at 31 December 2006 under the Euro 230,000,000revolving bank loan facility was arranged at floating rates until 26 January2007. An interest rate cap has been entered into in respect of the entire amount drawnunder the loan facility at 31 December 2006 to cap the Euribor rate at 4% forthe period from 27 January 2007 to 26 October 2009 (see note 11). 17. Deferred tax liabilities The following are the major deferred tax liabilities and assets recognised bythe Group and movements thereon during the reporting period. UK tax on Revaluation retained of Accelerated Short-term earnings in investment tax timing overseas Tax properties depreciation differences subsidiaries losses Total £'000 £'000 £'000 £'000 £'000 £'000 At 27 October 2005 - - - - - - Charge to income 4,179 350 64 343 (375) 4,561 Exchange differences (43) (4) - - 3 (44) ----------------------------------------------------------------------At 31 December 4,136 346 64 343 (372) 4,517 ====================================================================== At the balance sheet date the Group has unused tax losses available for offsetagainst future profits. These losses arose principally due to the non-recurringstart up costs of overseas operations. The start-up costs are non-recurring andit is expected that the tax losses will be utilised in the foreseeable future. At the balance sheet date, the amount of temporary differences associated withundistributed earnings of subsidiaries for which deferred tax liabilities havebeen fully provided is £372,000. 18. Share capital 2006 £'000 Authorised200,000,000 ordinary shares of 10p each 20,000 Issued and fully paid125,000,002 ordinary shares of 10p each 12,500 =======The share capital comprises one class of ordinary shares carrying no right tofixed income. Movements in issued share capital Date 2006 2006 Number £'000 Issued on incorporation 2 shares of £1 each 27/10/2005 2 -Sub-division of £1 shares to 10p shares 14/11/2005 18 -Shares issued for cash 14/11/2005 499,980 50Shares issued in consideration for sharesin Hansteen Limited 22/11/2005 2 -Shares issued for cash 27/11/2005 124,500,000 12,450 -------------------- 125,000,002 12,500 ==================== 19. Notes to the cash flow statement Group Period from 27 October 2005 to 31 December 2006 £'000 Profit for the period 15,330Tax 6,792 -------------Profit before tax 22,122Dividends from subsidiaries -Net finance income (1,259)Gains on forward currency contract (1,304) -------------Operating profit 19,559 Adjustments for:Gains on investment properties (14,789)Share-based employee remuneration 51Depreciation of property, plant and equipment 10 -------------Operating cash flows before movements in working capital 4,831 Increase in trading properties (5,151)Increase in receivables (2,255)Increase in payables 3,334 -------------Cash generated by operations 759 Income taxes paid (330)Interest paid (137) -------------Net cash inflow from operating activities 292 ============= 20. Events after the balance sheet date On 28 February 2007 the Company announced its intention to raise additionalequity of £70,000,000, before expenses, by way of a placing of 53,435,115 fullypaid new ordinary shares of 10p each for cash consideration of 131p per share.The placing of the new ordinary shares is conditional, inter alia, upon thepassing of a special resolution at an Extraordinary General Meeting of theCompany on 23 March 2007 and the admission of the new ordinary shares to tradingon AIM. The new ordinary shares, when issued, will rank pari passu with the existingordinary shares, including the right to receive all dividends and otherdistributions, save in respect of the dividend of 3p per existing ordinary sharepayable to shareholders on 1 May 2007. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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