26th Jan 2005 07:00
Terrace Hill Group PLC26 January 2005 TERRACE HILL GROUP PLC PRELIMINARY ANNOUNCEMENT OF RESULTS FOR YEAR TO 31 OCTOBER 2004 CHAIRMAN'S STATEMENT Year to 31 October 2004 I am pleased to present our results for the Year to 31 October 2004 whichillustrate the progress we continue to make towards our goal of enhancingshareholder value. Profit and Loss account to 31 October 2004 Profit before tax for the Year amounted to £4,083,801 (18 months to 31 October2003: £5,092,831). Operating Profit for the year of £5,259,244 exceededOperating Profit for the previous 18 month period to 31 October 2003 of£3,295,314. Triple Net Asset Value Our Net Asset Value (NAV) increased in the Year from £46.5 million to £70.8million. NAV per share increased in the same period from 30.22p per share to38.12p, an increase of 26.14%. We announced on 13 April 2004 that we would in future provide figures for TripleNet Asset Value ("TNAV") which is common practice amongst quoted companies inthe property sector. Our TNAV per share at 31 October 2004 was 39.99p. Theincrease in TNAV over the year to 31 October 2004 was over 25%. In our case theprincipal adjustments required from Net Asset Value to arrive at TNAV are, on arealistic basis, to revalue current work-in-progress to current realisationvalue and to allow for tax that would be payable were we to realise our assetsat their revalued amounts. This is more fully explained on page 15. At 31 October 2004 our development programme had a total end value approaching£600 million (30 April 2004: £500 million), a figure which includes jointventures. Gearing inside development vehicles and entering into joint venturesallow us to greatly increase the range of our activities while reducing risks.In most joint ventures we are entitled to project coordination fees andenhancement of our equity dependent on results. We anticipate that ourdevelopment programme is capable of providing significant financial returns tothe Group over the next five years. Balance Sheet at 31 October 2004 Total Group assets at 31 October 2004 stood at £180,581,071 compared to£125,315,628 at 31 October 2003, and net assets, after minority interests, at£70,841,074, an increase of 52.24% over net assets at 31 October 2003 of£46,532,000. Bank debt of £75.6 million net of £17.8 million cash stood at 81.6% of equity(2003: 119.1%). Of the bank debt 68.35% was with limited (interest etc.) or norecourse to the parent company. Properties held as investments were £91.3million (£40.4 million residential and £50.9 million commercial) compared to£83.5 million last year. Work-in-progress was £55.7 million (£50.7 millioncommercial and £5 million residential) compared to £18 million last year. Management We have decided to appoint Philip Leech as Managing Director with effect from 26January 2005. Philip joined Terrace Hill in 1993. Aged 41, he is a CharteredSurveyor, having spent seven years with Strutt and Parker before joining DixonsCommercial Properties and then Terrace Hill. Philip has very successfully runthe North East office since 1994 which has been consistently and substantiallyprofitable. Philip has also in recent times procured important new developmentprojects, such as Baltic Business Quarter, Gateshead (expected to be developedout over some 10 years with an end value expected to be well over £100 million)along with other projects referred to in the Operational Review. We all lookforward to a successful future with Philip at the helm. With effect from 26 January Nigel Turnbull and Ross Macdonald will step downfrom their roles of Joint Managing Directors as part of their planned, phasedretirement. Nigel and Ross, now in their 60's, have expressed the wish to havemore leisure time. As you are aware, the Group was formed by the amalgamation inSeptember 2002 of Capitaltech PLC (of which Ross had been Chief Executive sinceits incorporation in 1994) with Westview and Terrace Hill Limited (which Nigelhad joined also in 1994). Nigel and Ross, both with Scottish professionalbackgrounds, have worked very well together. I would like to thank Nigel and Ross for their hard and diligent efforts inestablishing and growing Terrace Hill and their successful efforts in getting usto our current position of strength. I am pleased that both Nigel and Ross willbe remaining as Executive Directors which will greatly assist Philip and me. Dividend Showing our confidence in the future we have decided to recommend a finaldividend for the Year to 31 October 2004 of 0.5p per share (previous periodfinal dividend 0.15p per share) making a total dividend for the year of 0.8p pershare (the total dividend for 18 months to 31 October 2003 was 0.405p pershare). This dividend will be payable on 1 April 2005 to shareholders on theregister at 18 March 2005. Institutional Investment The group placed on 29 April 2004 28,600,000 shares with institutions at 29peach raising £8.128 million net of costs. We were pleased with this as it givesus for the first time a substantial institutional component to our shareholderbase. We are also aware of subsequent substantial institutional purchases ofshares on the market. The largest institutional shareholder is CaledoniaInvestments plc with 7.53%. Current and Future Trading Further details of current activity and projects are given in the OperationalReview following, so I shall not comment further on these in this statement. As we have said before we look forward to continuing to deliver increasedshareholder value over the years ahead. We are now even more confident about ourability to do so. Robert F M Adair, Chairman26 January 2005 OPERATIONAL REVIEW The year to 31 October 2004 has been a period both of considerable growth andprogress. The Commercial Division London office and the South East As was indicated in the last report, West End tenant demand in 2003 wasrelatively subdued and the current year opened on the same note. As the yearprogressed optimism returned to the market induced by a lack of available supplyof category A space and increased business confidence. This has been reflected in the success the Group has had in achieving almost100% occupancy of the joint venture office developments at No. 11 and No. 16Berkeley Street with achieved rents rising through the year. This tenantconfidence is expected to continue in 2005. Similarly, a development in King Street being primarily 10,500 sq ft of officesby Serah Properties plc (in which we earlier acquired a minority interest) injoint venture with Canada Life, although completed in autumn 2002, had lackedtenant or purchaser interest. During the year under review we were able, at anattractive price, to increase our holding in Serah to 83.13% and to arrange asale of the offices to The Royal Bank of Scotland Group plc for £9.2 million forits own occupation. There remain four shops of which two have now been let. The office market around the M25 continued to suffer from relatively limitedtenant interest but subsequent to the year end, the Hertz Corporation committedat £22 psf to take all the space in the 69,000 sq ft office development, UB1, inUxbridge (a joint venture with Liberty Property Trust). The intention is to holdthis investment to benefit from anticipated strong rental growth from thecurrent low base. In contrast to mixed tenant demand there has been strong interest frominstitutional investors. This was reflected in a price of £6.6 million and ayield of 6.65% obtained on the sale of the Southend, Essex leisure facilityoccupied by Virgin Active. In addition, in the light of strong purchaserinterest, an opportunity was taken to dispose of office investments in Sloughand Crawley for £1.6 million and £5.5 million respectively, the latter justafter the year end. A highlight of the year was the acquisition for £6.76 million satisfied inshares and cash of Grosvenor Land Holdings plc. This Company's portfolioconsists of principally serviced business accommodation. As a corporateacquisition the purchase was at a good discount to full property asset value andas at the year end, benefiting from a further fall in investment yields, NAVamounted to £9.25 million. Since acquisition a retail property at Rushden hasbeen sold for £1.3 million. Outside London and the M25 conurbation, demand in the South East has beenstrong. A 43,200 sq ft development of foodstore, fitness centre and children'snursery at Guildford was successfully completed and sold. In phase 1 of thesmall office development at the same site 8 out of 13 units have been sold.Construction on the second phase will commence in early 2005. Particularly strong interest from purchasers has been experienced at TunbridgeWells where construction is well underway on the first two phases of DecimusPark, a 170,000 sq ft industrial park. Looking to the future, commitments have been made to several new developments inthe region. During the year an income producing 4.2 acre industrial estate waspurchased in Edmonton, North London for £5 million. Alternative planning usesincluding residential are being considered. Pinewoods, formerly occupied by Hewlett Packard, a 20 acre site south ofBracknell has been purchased with a view to the development in phases of up to150,000 sq ft of offices. Since the year end the Group has completed the purchase of Davis House,Victoria, for £16.1 million. While planning permission exists for office andresidential redevelopment, Terrace Hill's intention is to improve the existingconsent to create a 130,000 sq ft mixed use scheme. Most recently, the Group has acquired a 17 acre site in Farnborough, adjoiningthe Farnborough Aerospace Centre, suitable for office and industrialdevelopment. The North East and Scotland Good progress has been made over the year in the North East Region, both interms of disposing of mature assets and the start of development of new schemes. On the disposals front Westminster, a multi-let office development at theTeesdale Business Park was sold to private investors for £5.57 million,representing a record net initial yield for the Park of 6.7%. Also at TeesdaleBusiness Park a 0.75 acre site was sold with the benefit of detailed planningconsent for £1.5 million, representing a significant mark up on cost. At KingAlbert Chambers in Hull, work commenced on the refurbishment of the two groundfloor retail units with one being pre let to Ethel Austin. Simultaneously theupper parts have been sold to a residential developer who is carrying out an 11unit apartment scheme. After a long lead in period two significant developments commenced. At BalticBusiness Quarter, a 50 acre site on the south bank of the Tyne at Gateshead,construction has started on the infrastructure for the first phase comprisingapproximately 16 acres. Pre sale agreements for new buildings for GatesheadCollege of Further Education 193,106 sq ft and One North East 60,000 sq ft arenow in solicitors hands and a detailed planning application has also beensubmitted for a further three office buildings totalling 90,000 sq ft. At Middlehaven, Middlesbrough, construction has commenced on the first officebuilding of the Manhattan Gate development which has planning consent for atotal of 160,000 sq ft. This development is being carried out in Joint Ventureand the first building of 30,700 sq ft. will be available for occupation in July2005. In Newcastle City Centre planning consent has been obtained for an 83,000 sq ft.net seven storey office development on Gallowgate. This proposed development isa joint venture with the landowner, Whitehall upon Tyne Ltd. Two industrial investments in Blyth and Bishop Auckland have been acquired witha view to conversion to retail use. Planning applications have been submitted onboth sites for a total of 170,500 sq ft. non-food retail space. Also, on an industrial site in Galashiels, a purchase agreement has beenexchanged with completion conditional upon obtaining retail planning consent for45,000 sq ft. The West Country and Wales The Group's 44,000 sq. ft. office development at 33 Colston Avenue, Bristol (injoint venture with Northridge Capital Ltd) once let, was sold at a better thanexpected sale price of £11.7 million to an institutional investor, reflecting ayield of 7%. Two new developments have started on site. In Bristol demolition is now complete and construction is due to start onTemplar House, 90,000 sq ft of high quality office space located near to TempleMeads Station. This is Terrace Hill's fourth joint venture with NorthridgeCapital Ltd. The Group's first venture in Swansea has resulted, in conjunction with the WelshDevelopment Agency, in the commencement of construction of 40,000 sq ft ofoffices on Swansea Waterfront. At the date of this report, the Group now has a development programmeapproaching £600 million of which approaching £200 million is underway. Astrength for the future is the increasing number of long-term projects notablyBaltic Business Quarter, the Pinewoods purchase and Farnborough. The pipeline offuture activity continues to grow as does the management team employed to runthis expanding range of projects. The Residential Division Residential Property The Group commenced its residential property investment activity in mid 1999,acquiring portfolios of flats and houses at discounts to open market value fromfinancial institutions and former Business Expansion Schemes in what was seen asa rising market. This investment activity peaked in the year ended 30 April2002, the balance sheet at that date having showed residential property heldworth some £75 million. While the overall market continued to rise, higherrental yields, and greater capital growth were achieved, in the North of Englandand Scotland than elsewhere, resulting in the portfolio becoming focused awayfrom the South East. Achieving an improving portfolio by buying large holdingsand retaining the desirable, and shifting the emphasis north, has involved asubstantial turnover in five years of such activity. In the last two years, having expected a slowing in the market, particularly inEngland, the total number of units held, especially in Southern England andLondon has fallen as a result of sales. Although the number of units held has been substantially reduced in our last twofinancial periods, in a rising market the average value of units retained hascontinued to rise and the total amount invested in residential property has notdeclined proportionately to the number of units. During the year, the major residential property acquisition was a traditionalblock of 36 flats in a good quality residential area on the junction of SpathRoad and Holme Road, West Didsbury, Manchester. This property, together withSallyport House, Newcastle, now form the bulk of the English holdings. The Group also acquired 24 flats at Paisley near Glasgow Airport, in an exchangearrangement with at.home nationwide to whom were transferred 12 flats inAberdeen and a number of units in London. Disposed of during the year underreview were 163 units in England and Wales and 63 units in Scotland. The resultant portfolio is now heavily focused on Glasgow and West CentralScotland where values continue to rise. During the year the Group acquired a site adjoining Glasgow Green, in the eastside of Glasgow, for the development of 60 new build flats, targeted at lowerprice levels than existing competition, together with the sympatheticreinstatement of a listed building to create four houses. A joint venture was formed with the long established Scottish Group, LithgowsLtd, to maximise residential development value from a number of Lithgows'brickwork sites in central and western Scotland. These sites have the potentialto deliver around 700 plots which can either be sold to other developers ordeveloped by ourselves for further profit. From this joint venture the Groupacquired an 11.1 acre Annandale Works site at Kilmarnock and has since extendedits ownership to the adjoining Ellerslie Inn. The Group has also commenced asite assembly in North Lanarkshire. Corporate Finance The FSA Regulated Corporate Finance Subsidiary, Mercantile Securities (Scotland)Limited, which, as does the Residential Division, operates out of the GlasgowOffice, acted for the Group in the acquisitions of Grosvenor Land Holdings PLCand of an increased stake in SERAH Properties PLC, and in the Group's buyback bytender of 1,410,022 Ordinary Shares in August 2004. Terrace Hill believes thathaving this capability enhances its ability to make corporate purchases on acost effective basis and minimises the risk of abortive costs. Registrars Park Circus Registrars Limited, the company registrar subsidiary, also operatesfrom Glasgow; currently it acts for 10 publicly traded companies and another 31investment vehicles (see website www.pcregistrars.co.uk). It provides a costeffective service that represents good value compared to competitors. Triple Net Asset Value (unaudited) As indicated in the Chairman's Statement, to arrive at (unaudited) Triple NetAsset Value (TNAV), the following adjustments are made (1) Revaluation of current assets: properties (and rights to properties) held in work-in-progress have been revalued from cost (or if less realisable value) to market value. The valuation has been performed by relevant directors qualified as chartered surveyors based on external evidence and takes account of costs to complete and whether or not the property has been let and/or presold. (2) Taxation: the amount of taxation which would be payable were all of the Group's properties to be sold at the value used for the TNAV calculation has been deducted. This includes Deferred Tax which would be payable on sale of investment properties (as indicated in Note 8 to the Accounts) and additional taxation estimated to be payable on realisation of the uplift of trading properties to market value. (3) Finance: the adjustment required to revalue the group's financial assets and liabilities to current values is immaterial so no adjustment is required this year. No other adjustments are relevant to the Group's calculation. (4) Goodwill: goodwill, positive and negative, is excluded. The Table below shows the calculation in detail. Proforma Triple Net Asset Value per Share 31 October 2004 £ Shareholders' Funds (per Audited ConsolidatedBalance Sheet and after Minority Interests) 70,841,074Revaluation to market value of property etcheld in work-in-progress 17,737,168Less: Minority Interests in Revaluation 1,224,853 Revaluation after Minority Interests 16,512,315Deferred Tax (Note 8 to Accounts) (7,804,824)Estimated taxation on Revaluation (4,690,787)Goodwill (546,256) Proforma Triple Net Asset Value 74,311,522 Proforma Triple Net Asset Value per Share 39.99p D Ross Macdonald, Joint Managing DirectorNigel J C Turnbull, Joint Managing Director GROUP PROFIT AND LOSS ACCOUNTfor the 12 months ended 31 October 2004 12 months 18 months ended ended 31 October 31 October 2004 2003 £ £TURNOVER Group: Continuing operations 24,601,571 39,646,355Acquisitions 2,889,953 - ------------- ------------- 27,491,524 39,646,355Share of joint venture 3,739 - ------------- ------------- 27,495,263 39,646,355 ------------- ------------- GROUP OPERATING PROFIT Continuing operations 4,340,552 3,295,314Acquisitions 962,002 - ------------- ------------- 5,302,554 3,295,314Share of joint venture operating loss (43,310) - ------------- ------------- 5,259,244 3,295,314 Gain on disposal of fixed asset investments 780 22,996Amounts written off other investments (143,796) (201,507)Net gain on disposal of investment property 3,252,070 7,123,244Permanent diminution in value of an (279,436) (300,000)investment property Gain/(loss) on liquidation of former 142,551 (4,321)subsidiary Interest receivable 545,821 490,103Interest payable (4,693,433) (5,332,998) ------------- ------------- PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 4,083,801 5,092,831Taxation credit/(charge) 3,000 (872,196) ------------- -------------PROFIT ON ORDINARY ACTIVITIES AFTER TAX 4,086,801 4,220,635Minority Interest (256,291) (150,123) ------------- -------------PROFIT ATTRIBUTABLE TO MEMBERS OF PARENT 3,830,510 4,070,512COMPANY Dividends (1,486,588) (624,487) ------------- -------------TRANSFER TO RESERVES 2,343,922 3,446,025 ------------- -------------Basic and diluted earnings per share 2.238p 3.033p ------------- ------------- GROUP BALANCE SHEETat 31 October 2004 31 October 31 October 2004 2003 As restated £ £ FIXED ASSETS Intangible assets Positive goodwill 2,467,835 2,583,058 Negative goodwill (1,921,579) (1,307,356) ------------- ------------- 546,256 1,275,702Tangible assets 91,380,965 83,545,057 ------------- ------------- 91,927,221 84,820,759Investments Joint venture-share of gross assets 4,032,545 - Joint venture-share of gross liabilities (3,939,620) - ------------- ------------- 92,925 -Investments in associates - 1,053,516Other fixed asset investments 446,101 84,706 ------------- ------------- 539,026 1,138,222 ------------- ------------- 92,466,247 85,958,981CURRENT ASSETS Work in progress 55,687,146 18,046,537Debtors 14,626,625 7,297,480Cash at bank and in hand 17,801,053 14,012,630 ------------- ------------- 88,114,824 39,356,647CREDITORS:amounts falling due within one (64,222,764) (35,218,287)year ------------- -------------NET CURRENT ASSETS 23,892,060 4,138,360 ------------- -------------TOTAL ASSETS LESS CURRENT LIABILITIES 116,358,307 90,097,341CREDITORS:amounts falling due after more (44,671,808) (42,986,307)than one year PROVISIONS FOR LIABILITIES AND CHARGES (121,618) (476,779) ------------- -------------NET ASSETS 71,564,881 46,634,255 ------------- -------------CAPITAL AND RESERVES Called up share capital 3,716,467 3,079,508Shares to be issued - 192,551Share premium account 19,368,539 11,822,703Revaluation reserves - investment properties 21,474,093 13,396,853Revaluation reserves - other 17,566 6,008Capital redemption reserve 849,430 821,230Merger reserve 8,115,384 8,227,582Profit and loss account 17,299,595 8,985,565 ------------- -------------EQUITY SHAREHOLDERS' FUNDS 70,841,074 46,532,000MINORITY INTERESTS 723,807 102,255 ------------- ------------- 71,564,881 46,634,255 ------------- ------------- Approved by the BoardD R Macdonald T G WalshDirector Director25 January 2005 NOTES 1. The financial information set out in this announcement does not constitute the company's statutory financial statements for the periods ended 31 October 2003 and 31 October 2004. 2. The financial information is extracted from the financial statements of the group for the year ended 31 October 2004 which were approved by the board of directors on 25 January 2004. 3. The calculation of basic and diluted profit per ordinary share is based on the following: 12 months to 18 months to 31-Oct-04 31-Oct-03 £'000 £'000 Surplus 3,831 4,071 The weighted average number of ordinary shares in issue during the period: Basic 171,192,095 134,207,985 Dilutive potential ordinary shares arising from share option schemes - - 171,192,095 134,207,985 4. Copies of this announcement are available, free of charge, for a period of one month from Noble & Company Limited, 1 Frederick's Place, London, EC2R 8AB. Copies of the full financial statements will be posted to shareholders as soon as possible. Contacts: Ross Macdonald, Director, Terrace Hill Group PLC, 0141 332 2014 Alasdair Robinson, Noble & Company Limited, 0131 225 9677 Hugo de Salis, St Brides Media & Finance, 020 7242 4477 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Thg