8th Apr 2008 07:01
Hansteen Holdings plc07 April 2008 8 April 2008Embargoed 0700hrs Hansteen Holdings PLC ("Hansteen" or "the Group" or "the Company") Preliminary Results Hansteen Holdings PLC (AIM: HSTN), the investor in continental European realestate, announces preliminary results for the twelve months ended 31 December2007 Highlights • Net Asset Value of 138 pence per share (2006 114 pence per share) an increase of 21%* • Pre-tax profits £20.4 million (2006 £22.1 million for a 14 month period) • Dividend of 3.2 pence per share (2006 3.0 pence per share) an uplift of 7% • Property assets of £411.9 million (2006 £145.6 million) an increase of 183% • Net debt of £150 million, 36% net debt to value • Equity increased through placing of £68.5 million net • Normalised returns £9.8 million (2006 £6.3 million)** *Diluted EPRA basis **Pre tax profit excluding foreign currency contractual effects and gains on investment properties Hansteen Chairman, James Hambro commented: "2007 has been an active andsuccessful year for Hansteen with net asset value per share increasing by 21%.The Group has started 2008 with a widely spread, high yielding portfolio and lowgearing levels. Hansteen's strategy is to continue to develop its portfolio oflogistical and warehouse properties and, during the year, we expect to see moreinteresting and attractively priced buying opportunities." Morgan Jones/Ian Watson David Davies Jeremy CareyHansteen Holdings plc KBC Peel Hunt Tavistock CommunicationsTel: 020 7016 8820 Tel: 020 7418 8900 Tel: 020 7920 3150 CHAIRMAN'S STATEMENT 2007 has been an active and successful year for Hansteen with net asset valueper share (diluted EPRA NAV basis) of the Group increasing by 21% to 138 pencefrom 114 pence in the previous year and the board is recommending a 7% increasein dividend to 3.2 pence per share. This achievement is primarily as a result ofHansteen's focus on the continental European logistics and warehouse investmentmarket which, currently, is proving robust when compared to other countries andinvestment sectors. Profits for the year were £20.4 million compared to £22.1 million for theprevious 14 month period. Under IFRS accounting, the 2007 profits include adeduction of £11 million for forward currency hedging; this is matched by anequal currency gain shown in the balance sheet. Underlying profitability growthis more accurately reflected by normalised returns which were £9.8 millioncompared to £6.3 million in 2006. The dividend of 3.2 pence per share will be paid on 16 May 2008 to shareholderson the register at close of business on 18 April 2008. This dividend will becharged to the 2008 financial statements. 2007 was a year in which Hansteen showed substantial growth in terms of itscapital, property portfolio and operational capability. On 23 March 2007 the Group raised approximately £68.5 million of cash net ofexpenses through a placing of an additional 53,435,115 shares at a price of 131pence per share. Since flotation, the capital raised by the Group has amountedto £192.1 million. This compares to a net asset value on an IFRS basis at 31December 2007 of £231 million. The Group's property portfolio has grown substantially in 2007. An additional 66properties have been acquired in 37 separate transactions investing over €300million. At 31 December 2007 the portfolio comprised 875,511 sq. m. of propertywith a value of €561 million producing an annual rent roll of €40.6 millionrepresenting an initial yield, including the land and residential investments,of 7.25%. This compares with average borrowing cost of 5.6%. During the year the area of significant growth was in Germany where the Groupinvested €148 million. As a result of increased experience, greater knowledgeand access to local markets, Hansteen has been able to select good qualitybuildings at reasonable prices. We continue to invest heavily in the Netherlandswhere our activities included investing in approximately €70 million of primelogistic property alongside the more traditional secondary buildings. A new areaof investment for Hansteen is Belgium where we successfully concluded theacquisition of 14 properties for approximately €54.5 million. As at 31 December 2007 Hansteen had net debt of £150 million, a net debt tovalue ratio of 36%. Annualised interest on those borrowings is currentlyapproximately £8.4 million compared to the current annualised rent roll of £29.8million. The Group has further committed but undrawn facilities of £60 million.These facilities are committed until July 2011. If fully drawn, this debt wouldonly represent a net debt to value ratio of 45%. The team at Hansteen has expanded to manage the growth in the business and tooptimise returns on the Group's properties. We have increased from eightemployees at the start of the year to seventeen today and this has been matchedwith strengthened relationships with our managing agents, accountants, advisorsand brokers in each country. In the second half of 2007 and during 2008 the financial environment has beendominated by the credit and banking problems. In the UK in particular, and insome sectors in Europe, there have also been declining property values. In theopinion of the board, 2008 and 2009 may well be difficult years for propertycompanies, but may also create some interesting investment opportunities,probably in the UK. Hansteen's joint chief executives were previously founders and directors ofAshtenne Holdings Plc, a company which specialised in UK industrial propertyinvestments. They built Ashtenne during the early nineties property downturn andengineered the sale of the business in 2005 when, in the opinion of the Ashtenneboard, the fundamental drivers for investing in industrial property had leftlittle scope for continued growth at that time. This experience is likely to beof great value to Hansteen over the next two years. The Group has started 2008 with a widely spread, high yielding portfolio and lowgearing levels. Hansteen's strategy is to continue to develop its portfolio oflogistical and warehouse properties and, during the year, we expect to see moreinteresting and attractively priced buying opportunities. James HambroChairman7 April 2008 JOINT CHIEF EXECUTIVE'S REVIEW We started last year's review by restating Hansteen's strategy to provideinvestors with consistent high and, where possible, realised returns through thecreation of a high yielding property portfolio in continental Europe. We alsoconfirmed that having created a robust cash positive core of properties we wouldthen seek out some more management intensive, opportunistic transactions withthe capacity for greater capital growth than the core properties. During 2007 the Group moved a long way towards achieving these objectives.Hansteen achieved substantial profits and NAV growth and has declared a prudentdividend increase. We grew the portfolio from a total of 366,000 sq m with anannual rent roll of €15.8 million and a value of €216 million to 876,000 sq mwith an annual rent roll of €40.6 million and a value of €561 million. A numberof our purchases present value adding opportunities such that in addition to aninitial yield of 7.25% our portfolio offers 110.5 acres of development land andapproximately 82,000 sq m of vacant, non income producing but lettable space. Ifthat vacant space was let at our average rent per sq m of €46 per sq m per annumwe would add €3.7 million to our annual rent roll. In our view the key to building value was to acquire very selectively at thelocal level. Last year we completed 37 purchases spread throughout our fourtarget countries: Germany, the Netherlands, Belgium and France. This requiredfocused hard work and dedication from the entire Hansteen team together with theadvice and support of our pan-European network of partners and advisors all ofwhom are justifiably proud of this achievement. However despite these excellent results shareholders will no-doubt be concernedby the back drop against which the Group in common with its peers is nowoperating. We refer to the "credit crunch", the falling commercial propertyvalues evident in the UK and the possibility of negative spill over into thegeneral economy. In our view all of these are very real concerns. However havinggrown Ashtenne, our previous company, through the severe property downturn ofthe early 1990's we believe we have a real appreciation of both the risks andthe opportunities of such an era. Our experience during that downturn was that with vigorous hands-on management,secondary industrial property was a robust and resilient investment medium.Then, as now, an industrial building was the most flexible, adaptable and lowcost form of commercial accommodation. The problem in the UK is that industrialproperty values reached unsustainably high levels driven by cheap and plentifulcapital rather than investment fundamentals. The fundamentals which gave Ashtenne such defensive security in the UKindustrial property market in the early 1990's apply equally today to ourportfolio in Europe. At 7.25% the average initial yield of our properties issignificantly higher than our average cost of borrowing which is around 5.6%.The income surplus this creates enables the Group to pay a dividend and stillgrow the business even if asset value growth slows. In our view in today'smarket conditions a key and reassuring measure of Hansteen's performance isnormalised annual returns which excludes the currency contract valuation effect,which hedges our currency exposure, and property investment gains. This figureimproved from £6.3 million in 2006 to £9.8 million in 2007 an increase of over50%. At our current low level of gearing our interest bill is 3.5 times covered byour rent. Even at a 60% loan to value, which we would still regard ascomfortable, at today's rates our annual interest bill would be over 2 timescovered by our rent roll. That rent roll comes from 303 different tenants in 103different blocks of property spread throughout four countries. In each of ourcountries our average capital value per sq m is materially less than replacementvalue and our average rent per sq m is significantly less than what one wouldneed to charge for a new build. Furthermore, as is normal in continental Europe,the vast majority of our rents are index linked creating an element of rentalgrowth reflecting inflation. The Portfolio At 31 December 2007 the portfolio including investment trading properties wasvalued at £411.9 million analysed as follows: Euros No. of Annualised Properties sq. m. Rent •m Valuation •m Netherlands 34 360,551 15.5 215 Germany 46 347,728 17.2 228.2 France 4 79,042 2.2 27.7 Belgium 14 52,708 4 54.5 Other Assets 5 35,482 1.7 35.6 ---------------------------------------------------------Total 103 875,511 40.6 561 Sterling No. of Annualised Properties sq. m. Rent •m Valuation •m Netherlands 34 360,551 11.4 157.9 Germany 46 347,728 12.6 167.5 France 4 79,042 1.6 20.4 Belgium 14 52,708 2.9 40 Other Assets 5 35,482 1.2 26.1 ---------------------------------------------------------Total 103 875,511 29.7 411.9 Overall the year end valuation showed a yield of 7.25% on the total portfolioand 7.4% excluding the land and residential investments. Over the last year wehave seen a valuation uplift of £19.5 million or 5% on our investmentproperties. Since the year end we have completed five further acquisitions all in Germanyfor approximately €19 million with a cumulative current rent roll of €1.87million p.a. and sold our residential portfolio in Wiesbaden for approximately€22 million. The acquisitions comprised the following: 1. A small retail parade in Rosswein, anchored by EDEKA and Kik and generating €104,000 p.a. rent. 2. A business park in Paderborn near Dortmund constructed in 1993 by a German company Weidmuller as their headquarters and subsequently vacated and let on flexible terms to Telefonica and Massong. The current income is €417,000 p.a. 3. A group of office and industrial buildings on a 4.8 acre segment of central Hanau comprising 48,425 sq m of which 12,083sq m is let producing €604,000 p.a. and the rest vacant. Many of the vacant buildings require substantial refurbishment. The property was bought at auction from IKB Bank. 4. The second half of the Freising Portfolio which consists of two buildings substantially let to the Montessori School producing €393,000 p.a. 5. Finally an industrial building in Wurmlingen let to a variety of tenants on predominantly short leases currently yielding €351,000 p.a. in rent. This property was also bought at auction from IKB Bank. The sale of our residential portfolio in Wiesbaden was to a company in theCORESTATE Capital AG for approximately €22 million, a small profit over the yearend valuation. Whilst in our view the portfolio had considerable furtheropportunities for growth we came to the conclusion that as a very managementintensive portfolio with significant ongoing refurbishment requirements it isbest suited to residential specialists and we believe we can more efficientlydeploy the proceeds in opportunistic commercial acquisitions. The Group was extremely active in 2007 and we set out below a geographicalbreakdown of that activity. Germany We started 2007 with eight commercial properties with a total value of €57.2million and a rent roll of €4.49 million p.a. We ended the year with 46different blocks of commercial property with a total value of €228.2 million anda rent roll of €17.2 million p.a. We completed 22 transactions spread throughoutGermany but with groupings in the Ruhrgebiet area, the larger Frankfurt area andthe Baden-Wurttemberg area. Details of all the purchases have been press released and are available on theHansteen website. We set out here some updates in relation to those purchases: 1. At the beginning of the year we purchased two warehouse properties based in Rodgau and Muhlheim for a total cost of €7.5 million producing an annual rent of €0.66 million p.a. The Muhlheim building was let to Alibert a packaging company until 2010 paying €260,000 per annum. Since the purchase Alibert has become part of the Linpack Group and as a result of negotiations with Linpack the company has decided to make Muhlheim its European headquarters. As a result they have taken a new lease until 2025 with a tenants break at the end of 2015 at an increased rent of €277,000 p.a. Linpack are investing a substantial amount in the building and we have recognised this commitment by granting them a six month rent free period. 2. Also in the first half we bought for approximately €16 million a portfolio of 13 properties at Neckarsulm, several of which were vacant with a total rent roll at the time of €1.26 million p.a. During the year we have successfully let three of the units increasing the rent from the portfolio to just over €1.4 million p.a. 3. Around the middle of last year we purchased a portfolio known as the "Engler Portfolio" comprising four blocks of properties providing nearly 40,000 sq m of space within the Ruhr region. The predominantly industrial portfolio was purchased for €14.1 million and generated a total rent of €1.32 million p.a. Since the acquisition we have renewed the leases on the two large industrial buildings in Herne with Rexam for a further two years and have grown the total rent to €1.43 million per annum. 4. In the second half of the year we bought a two-storey warehouse building in Babenhausen near Darmstadt at auction from a bank in possession. The building was 50% occupied and producing an income of €327,960 p.a. Since purchase we have managed to let approximately 50% of the remaining vacant space albeit on short leases and the current income is €480,576. 5. Lastly we would highlight two purchases made in the second half of last year which present a significant opportunity to add value although we have not owned them long enough to make progress to date. The first is the office and residential complex in Halle purchased in Novemberlast year. The complex was developed in the mid 1990's at a cost ofapproximately €28 million. We purchased it from a controlling bank for €6.2million. The rent at purchase is €437,392 p.a. with approximately 40% of theoffice space vacant. At current market levels the property would generate annualincome in excess of €650,000 if fully occupied and even then would be let offvery low rents. Secondly at the end of the year we purchased a 7,000 sq m property in Leonbergadjacent to Stuttgart also from a bank in possession. The building was recentlyconstructed by an owner-occupier to a very high specification in an excellentposition with direct motorway connections to the A81 and the A8. The building iscompletely vacant but in our view should be lettable within the next 18 monthsbecause of its excellent quality and location. We continue to look at opportunities in Germany but are being more selective interms of the opportunities we are pursuing. Netherlands Investing in the Netherlands is a core part of Hansteen's strategy. In early2007 we were witnessing downward yield shift but by midyear this has levelledand has been stable since then. We continue to have confidence in the Dutchmarket on the fundamental basis that yields remain well above the cost of moneyand the occupational market has been steadily improving. During 2007 we saw the best value for new acquisitions in single let properties,sale and leasebacks and in prime logistics. Within our core secondary marketbest value was achieved in buying units individually rather than acquiringportfolios which tended to be more widely marketed and subject to greatercompetition. In our case each acquisition made was of single units and were atsensible rental levels and yields between 7.5% and 9%. In the first half of 2007 we acquired properties at Doetinchem, Emmeloord,Hardenberg and Milsbeek for a total of €16.1 million. In the second halfadditional acquisitions were made in Drachten, Kerkrade, Waalwijk andWinterswijk, totalling €15.7 million. The weighted average lease length of these properties was 7.2 years whichincluded a two year rental guarantee at Drachten which was purchased vacant fromthe prior owner-occupier. This building has since been let on a five year leaseto a new tenant. As reported in last year's review, during 2007 we established a business withjoint venture partners Ormix to build a portfolio of prime logistic propertiesin the Netherlands. During 2007 five prime logistic buildings were acquired withOrmix along with an opportunistic secondary industrial property purchase. The first prime purchase was made at Houten of a newly developed logisticsfacility let to Vialis B.V. and PGZ Int. B.V. on leases of five and ten years.Three further acquisitions added to the portfolio with the largest being atTilburg which has two properties which are let to UPS and Haans Tilburg B.V. andhas a value of €27.5 million. Other acquisitions include a building let toLowland Fashion in 'sHeerenberg and BAS in Almere. The average lease lengths ofthese properties until the first break or expiry is 6.2 years and all buildingsare newly built and well located for the logistic market. The average yield onthis portfolio is 6.8%. In addition we concluded a joint purchase of a propertyin Bunschoten which was identified by the Ormix team and was acquired atopportunistic pricing with the tenant having only a very short period left onits lease. The tenant has now renewed for a longer period and as a result hasadded value to the property. The portfolio in the Netherlands has a 10% vacancy rate and we expect netoccupancy to improve in 2008. The market remains robust for storage anddistribution units and we will increasingly be looking for more activemanagement type properties where we can add value through marketing, letting andrefurbishment work. Belgium 2007 saw our first property investments in Belgium with the acquisition of the"Diamond Portfolio". The purchase was made through the acquisition of ninecompanies in Belgium which held investments in 14 different properties with avalue of approximately €54.5 million. The yield on the portfolio isapproximately 7.4%, although the running cash yield is greater as the purchaseprice was reduced so as to reflect a sharing of the inherent capital gains taxpotential burden with the vendor. Approximately half the portfolio is offices and half warehousing. The buildingsare substantially modern and of a high quality. The vacancy rate is 12% althoughwe have negotiated rental guarantees for two years on the majority of thesevacancies. We are optimistic of achieving lettings during this period. The office investments are well located. Two are based in Zaventem close toBrussels airport another two are in central Brussels and the fifth in theScience Park in Louvain-La-Neuve. The industrial properties also included two in the Brussels area, a centrallylocated property in Anderlecht let to Hospithera N.V. and Transinter BVBA aswell as a newly developed industrial unit in Asse in the outskirts of Brusselslet to Stannah BVBA. The remaining warehouse units are in Heist-op-den-Berg,Kontich, Mechelen, Namur, Westerlo, Wommelgem and Naninne. Having acquired this portfolio and established the management and marketinglinks in Belgium we will seek to grow the portfolio further. France One addition has been made to our portfolio in France which is a warehouse uniton the outskirts of Marseille. The property is let to Lidl on a 3/6/9 year leaseand was acquired close to the year end in a situation where our readyavailability of capital and ability to move quickly ensured the vendor couldachieve a sale in a short period of time and we could obtain a well pricedinvestment. The property was valued at €5.7 million at 31 December 2007 which gives arunning yield in excess of 8% per annum and is itself an uplift in value fromour acquisition price. Whilst we have seen fewer opportunities in France we remain keen to buyopportunistically. Indexation of leases in France have been particularlysignificant during the year adding to the income surplus generated from theseproperties. Overall the French portfolio is currently valued at approximately €28 millioncomprising four properties. The average period to a lease break or expiry is 6.2years. Other assets As noted in last year's review, the Group owned some residential investments inWiesbaden in Germany. During 2007 we added to this portfolio with threeadditional acquisitions of apartment blocks in Magdeburg. Together these addedaround €6 million of residential properties. We have seen values improved forour residential portfolio and continue to believe that German residentialproperty is out of line with other countries in its values and that growth willcontinue. However at the end of 2007 we received an offer for the Wiesbadenportfolio of approximately €22 million which crystallized a good profit on cost.We have taken the view that the release of capital and management time made thisa sensible deal for the Group to undertake. The other non core holding is of our 90 acre land plot in Gilston near Falkirk,Scotland. During 2007 the Government confirmed our site as a strategicdevelopment site and it is one of the very few in the mid Scotland area that canbe delivered in the medium term both planning wise and technically. Again thirdparty interest has been shown in acquiring the site and we are considering ouroptions going forward. Finance At 31 December 2007 the balance sheet shows shareholder's funds of £231 million.There are currently 178.4 million shares in issue and therefore the basic NAV inaccordance with international financial reporting standards amounts to 129 penceper share. The diluted EPRA NAV which takes into consideration the Director'svaluation uplift of trading properties and the dilution through share optionsand adding back deferred tax on a revaluation of investment properties is 138pence per share compared to the 2006 figure of 114 pence per share. At 31 December there were bank borrowings of £169 million which along withretained cash results in net gearing for the Group of 65% or a loan to value ofapproximately 36%. The Group has significant borrowing capacity part of which is already in placewith our €230 million revolving debt facility with the Bank of Scotland. Our funding policy, where borrowing is used is to utilise prudent interest ratehedging which includes an element of short term fixed interest rates. At 31December 2007 the average gross cost of borrowing for Hansteen was 5.6%.€636,000 of financing costs were amortised in the period. Today the Group hasthree interest rate caps covering total borrowings of €100 million. The caps areset at 4%, 4.5% and 5%. The interest rate caps originally cost £128,000 and wererevalued in the 31 December 2007 balance sheet at £235,000. Additional hedging includes €50 million of interest rate swaps. At 31 December2007 there were €25 million swapped at 4.16% and €25 million swapped at 4.29%.In the Balance Sheet these instruments showed a fair value of £144,000. The Group finances its activities primarily through a mixture of equity,retained earnings, borrowings and surplus cash arising directly from itsoperations. During 2007 operations were largely transacted in Euros. In order tomitigate the currency risk borrowings have been arranged in Euro denomination,but for the equity funded investments the Group endeavours to substantiallycover its risk through hedging instruments. The Group has three forward currencypurchases to acquire Sterling on 27 July 2009. The forward currency is toacquire £200 million for €282 million. These transactions cover approximately90% of the equity invested in Europe. During early 2007 Sterling was strong and the value of these hedging instrumentswas positive and the value of property investments was reduced. However in thesecond half of 2007 there has been a significant strengthening of the Euroagainst the Pound which means that our property investments have significantlyimproved in value but the hedging instruments have reduced to negative value.Whilst the hedging arrangements are working perfectly for our requirements underIFRS accounting there is a mismatch in that the property value growth caused bycurrency movement is a balance sheet item and the movement in fair value of thecurrency hedging instrument is shown on the face of the profit and loss account. As a result our profit and loss account includes a charge of £11 million on thevalue of currency contracts, significantly reducing the stated profit beforetax. In addition to the accounting mismatch there is also a mismatch in terms ofdistributability of the gains and losses on currency. Despite the excellentresults for the year, under IFRS accounting the gains in value of propertiesthrough currency movement are non distributable whereas the losses on thehedging instrument to match those gains reduce distributable profits. As a result of this we sought shareholder's approval to a reduction of sharepremium account which was confirmed at the EGM of 18 February 2008. Followingthis meeting the Court approved a £60 million reduction on the 19 March 2008,the result of which is to transfer £60 million from share premium reserves toprofit and loss reserves enabling the Group to continue its dividend policywhich in May 2008 will result in the payment of a dividend of 3.2 pence pershare. Outlook We have assembled a focused and experienced team to carry the business forwardover the next years supplemented by a number of tried and tested advisors andassociates in our core European countries. Our portfolio is high yielding withthat income coming from a large spread of tenants and locations. We have astrong Balance Sheet with low gearing, committed facilities and scope forfurther prudent borrowings to enable us to grow the portfolio. We believe thatthe era we are entering should favour professional, experienced management teamsprepared to work their assets hard to add value rather than simply accumulatethem in the hope of prices rising. We are happy that the fundamentals continueto validate our investment approach in continental Europe and we are convincedthat significant opportunities in the UK in the secondary industrial sector willarise in the foreseeable future. Morgan Jones and Ian WatsonJoint Chief Executives7 April 2008 Income statementfor the year ended 31 December 2007 Period from 27 October Year 2005 ended to 31 December 31 December 2007 2006 £'000 £'000GroupRevenue 18,400 16,012Cost of sales (1,751) (8,395) ---------------------Gross profit 16,649 7,617 Administrative expenses (4,159) (2,847) ---------------------Operating profit before gains on investment properties 12,490 4,770 Gains on investment properties 19,614 14,789 ---------------------Operating profit 32,104 19,559 (Losses)/gains on forward currency contract (11,014) 1,304 Finance income 1,649 1,996Finance costs (4,549) (490)Change in fair value of interest rate swaps 238 13Foreign exchange gains/(losses) 1,946 (260) ---------------------Profit before tax 20,374 22,122 Tax (6,799) (6,792) ---------------------Profit for the period 13,575 15,330 =====================Attributable to:Equity holders of the parent 13,472 15,330Minority interests 103 - ---------------------Profit for the period 13,575 15,330 ===================== Earnings per shareBasic 8.1p 13.3pDiluted 8.1p 13.3p All results derive from continuing operations Balance sheets31 December 2007 Group Group 2007 2006 £'000 £'000Non-current assetsGoodwill 2,252 -Property, plant and equipment 31 28Investment property 391,242 139,593Investment property held for sale 15,417 -Deferred tax asset 2,885 -Derivative financial instruments 379 1,434 --------------------- 412,206 141,055 ---------------------Current assetsTrading properties 5,260 5,151Trade and other receivables 3,781 2,485Cash and cash equivalents 19,562 14,395 --------------------- 28,603 22,031 ---------------------Total assets 440,809 163,086 =====================Current liabilitiesTrade and other payables (6,916) (3,333)Current tax liabilities (2,563) (1,675)Borrowings (2,579) -Obligations under finance leases (279) - --------------------- (12,337) (5,008) ---------------------Non-current liabilitiesBorrowings (166,957) (15,689)Obligations under finance leases (3,218) -Derivative financial instruments (9,710) -Deferred tax liabilities (17,194) (4,517) --------------------- (197,079) (20,206) ---------------------Total liabilities (209,416) (25,214) =====================Net assets 231,393 137,872 ===================== EquityShare capital 17,843 12,500Share premium account 174,312 111,133Translation reserve 13,287 (1,142)Retained earnings 25,772 15,381 ---------------------Equity attributable to equityholders of the parent 231,214 137,872Minority interest 179 - ---------------------Total equity 231,393 137,872 ===================== These financial statements were approved by the Board of Directors on 7 April2008. Statement of changes in equityfor the year ended 31 December 2007 Share Share Translation Retained capital premium reserves earnings Total £'000 £'000 £'000 £'000 £'000GroupExchange differencesarising on translationof overseas operations - - 16,143 - 16,143 Tax on items takendirectly to equity - - (1,714) - (1,714) --------------------------------------------------- Net gain recogniseddirectly in equity - - 14,429 - 14,429 Profit for the year - - - 13,472 13,472 --------------------------------------------------- Total recognised incomeand expense for theyear - - 14,429 13,472 27,901 Ordinary shares issuedat a premium 5,343 64,657 - - 70,000 Cost of issue of shares at a premium - (1,478) - - (1,478) Share based payments - - - 669 669 Dividends paid - - - (3,750) (3,750) Equity shareholdersfunds at 31 December 2006 12,500 111,133 (1,142) 15,381 137,872 --------------------------------------------------- Equity shareholdersfunds at31 December 2007 17,843 174,312 13,287 25,772 231,214 =================================================== Cash flow statementfor the year ended 31 December 2007 Period from 27 October Year 2005 ended to 31 December 31 December 2007 2006 £'000 £'000 GroupNet cash inflow from operating activities 8,475 292 -------------------------Investing activitiesInterest received 1,649 1,996Additions to property, plant and equipment (19) (39)Additions to investment properties (193,367) (126,823)Proceeds on sale of investment properties 460 118Additions to derivative financialinstruments (71) (117)Acquisition of subsidiaries (12,339) - -------------------------Net cash used in investing activities (203,687) (124,865) -------------------------Financing activitiesDividend paid (3,750) -Proceeds from issue of shares at a premium 70,000 125,000Costs of issue of shares at a premium (1,478) (1,367)Repayments of obligations under finance leases (30) -New bank loans raised (net of expenses) 132,800 15,335Increase in bank overdrafts 1,826 -Capital contribution from minority shareholders 69 - -------------------------Net cash from financing activities 199,437 138,968 -------------------------Net increase in cash and cash equivalents 4,225 14,395 Cash and cash equivalents at beginning of period 14,395 - Effect of foreign exchange rates 942 - -------------------------Cash and cash equivalents at end of period 19,562 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 comparative figures in these financial statementstherefore cover the period from its date of incorporation on 27 October 2005 to31 December 2006. The Company was listed on AIM on 29 November 2005. 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 note3. The financial information for the year ended 31 December 2007 and the periodended 31 December 2006 does not constitute the statutory accounts as defined insection 240 of the Companies Act 1985 but is derived from those accounts.Statutory accounts for the period ended 31 December 2006 have been delivered tothe Registrar of Companies and those for 2007 will be delivered following theCompany's annual general meeting. The auditors have reported on these accounts;their reports were unqualified and did not contain statements under Section 237(2) or (3) of the Companies Act 1985. 2. Adoption of new and revised standards Standards, amendments and interpretations that became effective in 2007 and wereadopted by the Group: IFRS 7, Financial Instruments: Disclosures and the associated revisions to IAS1: Presentation of Financial Statements and IAS 32: Financial Instruments:Presentation and Disclosure. The impact of the adoption of IFRS 7 and the changes to IAS 1 has been to expandthe disclosures provided in these financial statements regarding the Group'sfinancial instruments and management of capital. Standards, amendments and interpretations that became effective in 2007 but haveno effect on the Group's operations:IFRIC 7 Applying the restatement approach under IAS 29, Financial reporting in hyperinflationary economies.IFRIC 8 Scope of IFRS 2IFRIC 9 Reassessment of embedded derivativesIFRIC 10 Interim financial reporting and impairment Standards, amendments and interpretations to existing standards that are not yeteffective and have not been adopted early by the Group:IFRS 8 Operating segmentsIFRS 3 Amendment Business CombinationsIAS 1 (Amendment) Presentation of financial statementsIAS 23 (Amendment) Borrowing costsIAS 27 (Amendment) Consolidated and separate financial statements Published interpretations to existing standards that are not yet effective andnot relevant to the Group's operations:IFRIC 11 Group and treasury share transactionsIFRIC 12 Service concession arrangementsIFRIC 13 Customer loyalty programmesIFRIC 14 The limit on a defined benefit asset, minimum funding requirements and their interaction The Directors anticipate that the adoption of the standards and interpretationsin future periods will have no material impact on the financial statements ofthe Group except for additional segment disclosures when IFRS 8 comes intoeffect for periods commencing on or after 1 January 2009. 3. Significant accounting policies Basis of preparation: Whilst the preliminary announcement has been prepared inaccordance with International Financial Reporting Standards (IFRS) adopted foruse by the European Union and with those parts of the Companies Act 1985applicable to companies reporting under IFRS, this announcement does not itselfcontain sufficient information to comply with IFRS. The Group will publish fullfinancial statements that comply with IFRS in the near future. The financialstatements have been prepared under the historical cost convention as modifiedby the revaluation of investment property and certain financial instruments. The preparation of the financial statements in conformity with generallyaccepted accounting principles requires the use of estimates and assumptionsthat affect the reported amounts of assets and liabilities at the date of thefinancial statements and the reported amounts of revenues and expenses duringthe reporting period. Although these estimates are based on management's bestknowledge of the amount, event or actions, actual results ultimately may differfrom those estimates. The principal accounting policies are set out below. Basis of consolidation: The consolidated financial statements incorporate thefinancial statements of the Company and entities controlled by the Company (itssubsidiaries) made up to 31 December. Control is achieved where the Company hasthe power to govern the financial and operating policies of an investee entityso as to obtain benefits from its activities. Minority interests in the net assets of consolidated subsidiaries are identifiedseparately from the Group's equity therein. Minority interests consist of theamount of those interests at the date of the original business combination (seebelow) and the minority's share of changes in equity since the date of thecombination. Losses applicable to the minority in excess of the minority'sinterest in the subsidiary's equity are allocated against the interests of theGroup except to the extent that the minority has a binding obligation and isable to make an additional investment to cover the losses. The results of subsidiaries which commenced trading or which were acquiredduring the period are included in the consolidated income statement from thedate on which trading commenced or the date from which they were acquired, asappropriate. Where necessary, adjustments are made to the financial statements ofsubsidiaries to bring the accounting policies used into line with those used bythe Group. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. Business combinations: The acquisition of subsidiaries is accounted for usingthe purchase method. The cost of the acquisition is measured at the aggregate ofthe fair values, at the date of exchange, of assets given, liabilities incurredor assumed, and equity instruments issued by the Group in exchange for controlof the acquiree, plus any costs directly attributable to the businesscombination. The acquiree's identifiable assets, liabilities and contingentliabilities that meet the conditions for recognition under IFRS 3 are recognisedat their fair value at the acquisition date except for non-current assets (ordisposal groups) that are classified as held for sale in accordance with IFRS 5Non Current Assets Held for Sale and Discontinued Operations, which arerecognised and measured at fair value less costs to sell. Goodwill arising on consolidation represents the excess of the cost ofacquisition over the Group's interest in the fair value of the identifiableassets and liabilities of a subsidiary, associate or jointly controlled entityat the date of acquisition. Goodwill is initially recognised as an asset at costand is subsequently measured at cost less any accumulated impairment losses.Goodwill which is recognised as an asset is reviewed for impairment annually.Any impairment is recognised immediately in profit or loss and is notsubsequently reversed. For the purpose of impairment testing, goodwill is allocated to the relevantcash-generating units of the Group expected to benefit from the synergies of thecombination. Cash-generating units to which goodwill has been allocated aretested for impairment annually, or more frequently when there is an indicationthat the unit may be impaired. If the recoverable amount of the cash-generatingunit is less than the carrying amount of the unit, the impairment loss isallocated first to reduce the carrying amount of any goodwill allocated to theunit and then to the other assets of the unit pro-rata on the basis of thecarrying amount of each asset in the unit. An impairment loss recognised forgoodwill is not reversed in a subsequent period. On disposal of a subsidiary, associate or jointly controlled entity, theattributable amount of goodwill is included in the determination of profit orloss on disposal. Non-current assets held for sale: Non-current assets (and disposal groups)classified as held for sale, except investment properties, are measured at thelower of carrying amount and fair value less costs to sell. Investment properties classified as held for sale are carried at fair value inaccordance with IAS 40 "Investment Properties". Non-current assets and disposal groups are classified as held for sale if theircarrying amount will be recovered through a sale transaction rather than throughcontinuing use. This condition is regarded as met only when the sale is highlyprobable and the asset (or disposal group) is available for immediate sale inits present condition. Management must be committed to the sale which should beexpected to qualify for recognition as a completed sale within one year from thedate of classification. 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 properties: Investment properties, which comprises freehold andleasehold property held to earn rentals and/or for capital appreciation, aretreated as acquired when the Group assumes the significant risks and rewards ofownership. Acquisitions of investment properties including related transactioncosts and subsequent additions of a capital nature are initially recognised inthe accounts at cost. At each reporting date the investment properties arere-valued to their fair values based on a professional valuation at the balancesheet date. Gains or losses arising from changes in the fair value of investmentproperty are included in the income statement for the period in which theyarise. Investments in subsidiary undertakings: Investments in subsidiary undertakingsare stated at cost less 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: Trade receivables are not interest bearing and are stated attheir nominal value. Trade receivables are reduced by appropriate allowances forestimated irrecoverable amounts. Such allowances are raised based on anassessment of debtor ageing, past experiences and known tenant circumstances. Trade payables: Trade payables are not interest bearing and are stated at theirnominal value until settled. Financial obligation including bank overdrafts: Debt instruments are stated attheir net proceeds on issue. Finance charges including premiums payable onsettlement or redemption and direct issue costs are spread over the period toredemption using the effective interest method. Finance charges and issue costsare added to the carrying value of the financial instrument to the extent thatthey are not settled in the period in which they arise. 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 for theEmployee Share Option Scheme. The expected life used in the model has beenadjusted based on management's best estimate, for the effects ofnon-transferability, exercise restrictions and behavioural considerations. The fair value of the shares to be awarded under the Long Term Incentive Plan isdetermined at the measurement date by reference to the current share price atthat date less the discounted value of estimated future dividends. 4. Business and geographical segments Business segments The 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. The Company's business is to invest in its subsidiaries and therefore itoperates in a single segment. a) Totals by business segment Period from 27 October 2005 to Year ended 31 December 2007 31 December 2006 Trading Investment Trading Investment properties properties Total properties properties Total £'000 £'000 £'000 £'000 £'000 £'000 Group Property rental income - 18,400 18,400 2 7,758 7,760Sales of trading properties - - - 8,252 - 8,252 ---------------------------------------------------------------------Revenue - 18,400 18,400 8,254 7,758 16,012 Direct propertyoperating expenses (62) (1,696) (1,758) (58) (757) (815) Cost of sales oftrading properties 7 - 7 (7,580) - (7,580) Administrative expenses (59) (2,954) (3,013) (139) (2,120) (2,259) ---------------------------------------------------------------------Operating profit/(loss) before gainson investment properties (114) 13,750 13,636 477 4,881 5,358 Gains on investment properties - 19,614 19,614 - 14,789 14,789 ---------------------------------------------------------------------Segment result (114) 33,364 33,250 477 19,670 20,147 ========== ========== ========== ========== Unallocated corporate expenses (1,146) (588) ---------- ----------Operating profit 32,104 19,559 (Losses)/gains onforward currencycontract (11,014) 1,304 Net finance (costs)/ income (716) 1,259 ---------- ----------Profit before tax 20,374 22,122 Tax (6,799) (6,792) ---------- ----------Profit for the period 13,575 15,330 ========== ========== Direct property operating expenses relating to investment properties that didnot generate any rental income were £35,200 (Period from 27 October 2005 to 31December 2006: £10,000). Balance sheet Trading Investment Trading Investment properties properties Total properties properties Total 2007 2007 2007 2006 2006 2006 £'000 £'000 £'000 £'000 £'000 £'000 GroupGoodwill - 2,252 2,252 - - -Property assets 5,260 406,659 411,919 5,151 139,593 144,744Other assets 2 9,487 9,489 - 5,849 5,849 -------------------------------------------------------------------Segment assets 5,262 418,398 423,660 5,151 145,442 150,593 ======== ======== ======== ======== ========Unallocated corporate assets 17,149 12,493 -------- --------Consolidated total assets 440,809 163,086 ======== ======== Segment liabilities (11) (9,105) (9,116) (28) (2,317) (2,345) ======== ======== ======== ======== Unallocated corporateliabilities (200,300) (22,869) -------- --------Consolidated total liabilities (209,416) (25,214) ======== ========Additions to properties 109 218,880 218,989 5,151 126,380 131,531 ======== ======== ======== ======== ======== ======== b) Totals by geographic segment The Group's property operations are located in Belgium, France, Germany, theNetherlands and the United Kingdom. The following table provides an analysis ofthe Group's revenue by geographical market: Period from Year 27 October 2005 ended to 31 December 31 December 2007 2006 £'000 £'000GroupBelgium 946 -France 1,145 429Germany 7,960 2,077Netherlands 8,349 13,149United Kingdom - 357 ---------------------------------- 18,400 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 Carrying Period from amount of amount of 27 October 2005 segment Additions to segment to assets properties assets 31 December 2007 2007 2006 2006 £'000 £'000 £'000 £'000GroupBelgium 44,093 36,880 - -France 21,144 3,757 14,905 13,058Germany 192,777 106,965 55,506 47,816Netherlands 160,384 71,278 75,031 65,506United Kingdom 5,262 109 5,151 5,151 ----------------------------------------------------------- 423,660 218,989 150,593 131,531 =========================================================== 5. Gains on investment properties Period from Year 27 October 2005 ended to 31 December 31 December 2007 2006 £'000 £'000 Increase in fair value of investment properties 19,595 14,759Profit on disposal of investment properties 19 30 ------------------------------- 19,614 14,789 =============================== 6. Tax Period from 27 October Year 2005 ended to 31 December 31 December 2007 2006 £'000 £'000 UK Current tax 1,024 1,665Foreign current tax 1,242 566 -------------------------------Total current tax 2,266 2,231Deferred tax 4,533 4,561 -------------------------------Total tax charge 6,799 6,792 =============================== UK Corporation tax is calculated at 30 per cent (Period from 27 October 2005 to31 December 2006: 30%) of the estimated assessable profit 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 Year 2005 ended to 31 December 31 December 2007 2006 £'000 £'000 Profit before tax 20,374 22,122 ===============================Tax at the UK corporation tax rate of 30% 6,112 6,637 Tax effect of:Expenses that are not deductible in determining taxable profit 68 116Short term timing differences 1 5Marginal relief - (8)Effect of different tax rates of overseas subsidiaries 576 42Effect on deferred tax balances due tothe change in UK tax rate from 30% to 28%effective from 6 April 2008. 335 -Prior year tax credit (293) - ------------------------------- 6,799 6,792 =============================== In addition to the amount charged to the income statement in the year to 31December 2007, tax amounting to £1,714,000 (Period from 27 October 2005 to 31December 2006: £439,000) relating to the unrealised exchange losses ontranslation of overseas operations has been credited directly to translationreserves (see statement of changes in equity). 7. 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 Year ended 31 December Weighted 31 December Weighted 2006 average 2007 average Earnings number of Earnings number of per Earnings shares share Earnings shares share £'000 000's p £'000 000's p Basic EPS 13,472 166,430 8.1 15,330 115,223 13.3Dilutive share options - 67 - - 43 - -----------------------------------------------------------------------Diluted EPS 13,472 166,497 8.1 15,330 115,266 13.3 ========== ========== ========== ========== Adjustments:Revaluation gains oninvestment properties (19,595) (14,759)Profit on the sale ofinvestment properties (19) (30)Tax on the sale ofinvestment properties 6 9Change in fair value offinancial instruments 10,776 (1,317)Current tax on thechange in fair value offinancial instruments (395) 395Deferred tax 4,814 4,529 --------- --------- --------- ---------Diluted EPRA EPS 9,059 5.4 4,157 3.6 ========= ========= ========= ========= The calculations for net asset value per share are shown in the table below: 31 December 31 December 2007 2006 Equity Net asset Equity Net asset shareholder's Number of value shareholder's Number of value funds shares per share funds shares per share £'000 000's p £'000 000's p Basic NAV 231,214 178,435 129.6 137,872 125,000 110.3Unexercised share options 428 400 n/a 428 400 n/a ------------------------------------------------------------------------------Diluted NAV 231,642 178,835 129.5 138,300 125,400 110.3 ========= ========= ========= ========= Adjustments:Goodwill (2,252) -Fair value of trading properties 740 849Deferred tax 17,272 4,529 --------- --------- ---------Diluted EPRA NAV 247,402 138.3 143,678 114.6 ========= ========= ========= ========= 8. Investment property £'000 At 31 December 2006 139,593 Additions - property purchases 196,705- capital expenditure 689 Acquisition of subsidiaries 36,847 Disposals (440) Transfer to investment property held for sale (15,417) Revaluations included in income statement 19,595 Exchange adjustment 13,670 --------At 31 December 2007 391,242 ======== 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 ======== £'000Investment property held for sale At 31 December 2006 - Transfer from investment property 15,417 --------At 31 December 2007 15,417 ======== All investment properties are stated at market value as at 31 December 2007 andhave been valued by independent professionally qualified external valuers, KingSturge LLP. The valuations have been prepared in accordance with the Appraisaland Valuation Standards published by The Royal Institute of Chartered Surveyorsand with IVA1 of the International Valuation Standards. The Group has pledged certain of its investment properties to secure bank loanfacilities and a finance lease granted to the Group. 9. Trading properties 2007 2006 £'000 £'000Land and related costs 5,260 5,151 ================== The trading properties were valued at fair market value by the Directors at 31December 2007 at £6,000,000. 10. Cash and cash equivalents Group Group 2007 2006 £'000 £'000 Cash and cash equivalents 19,562 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. 11. Borrowings 2007 2006 £'000 £'000 Secured at amortised costBank overdrafts 1,825 -Bank loans 169,088 16,845Unamortised borrowing costs (1,377) (1,156) ------------------ 169,536 15,689 ==================Total borrowingsAmount due for settlement within 12 months 2,579 -Amount due for settlement after 12 months 166,957 15,689 ------------------Bank loans 169,536 15,689 ================== The principal borrowing represents Euros 149,000,000 drawn down under a fiveyear Euros 230,000,000 revolving bank loan facility entered into on 25 July 2006by Hansteen 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%. Hansteen Ormix BV, a Dutch subsidiary has a number of bank loans secured on itsproperties in the Netherlands with an expiry date of 31 December 2009 charged atEuribor plus 0.9%. The aggregate amount outstanding at 31 December 2007 inrespect of these bank loans was £42,881,000 (2006: £nil). The Belgian subsidiaries have a number of facilities secured on all of theBelgian properties with expiry dates ranging from 31 December 2009 to 31March 2026 charged at Euribor plus 0.75% to 1.5%. The aggregate amountoutstanding at 31 December 2007 in respect of these bank loans was £16,800,000(2006: £nil). The Directors estimate that the book value of the Groups' bank loansapproximates to their fair value. 2007 2006 £'000 £'000 MaturityThe bank loans are repayable asfollows:Within one year or on demand 753 -Between one and two years 45,152 -In the third to fifth years inclusive 114,079 16,845 Over five years 9,104 ------------------- 169,088 16,845 ===================Undrawn committed facilitiesExpiring after more than two years 59,475 138,131 =================== Floating rate borrowings 2007 2006 % £'000 % £'000 Interest rate and currencyprofileEuros 5.31 169,088 4.35 16,845 ======================================== A number of interest rate caps and swaps have been entered into in respect ofthe amounts drawn under the loan facility at 31 December 2007 to hedge Euroborrowings at an average rate of rate at 4.39%. 12. Deferred tax Certain deferred tax assets and liabilities have been offset. The following isthe analysis of the deferred tax balances (after offset) for financial reportingpurposes: Group Group 2007 2006 £'000 £'000 Deferred tax assets 2,885 -Deferred tax liabilities (17,194) (4,517) ------------------- (14,309) (4,517) =================== The following are the major deferred tax liabilities and assets recognised andmovements 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 GroupAt 31 December 2006 4,136 346 64 343 (372) 4,517 Acquired 4,185 - 459 - (486) 4,158 Charge/(credit) to income 6,696 777 (2,904) (23) (13) 4,533 Exchange differences 1,048 85 44 - (76) 1,101 -----------------------------------------------------------------------At 31 December 2007 16,065 1,208 (2,337) 320 (947) 14,309 ======================================================================= At the balance sheet date the Group has unused tax losses amounting to£2,796,000 (2006: £1,206,000) available for offset against future profits. Theselosses arose principally due to the non-recurring start up costs of overseasoperations. It is expected that the tax losses will be utilised in theforeseeable future and a deferred tax asset has been recognised in respect ofthese losses. At the balance sheet date, the amount of temporary differences associated withundistributed earnings of subsidiaries for which deferred tax liabilities havebeen fully provided is £320,000 (2006: £343,000). 13. Acquisition of subsidiaries On 31 August 2007 the Group acquired 100% of the issued share capital of aportfolio of nine companies incorporated and registered in Belgium for cashconsideration of £11,880,000. Each of these companies is engaged in propertyinvestment and management in Belgium. This transaction has been accounted for bythe purchase method of accounting. Book Fair value value £'000 £'000 Net assets acquired:Investment properties 24,534 36,847Trade and other receivables 311 311Cash and cash equivalents 70 70Trade and other payables (724) (724)Current tax liabilities (419) (419)Bank loans (18,568) (18,568)Obligations under finance leases (3,202) (3,202)Deferred tax liabilities (458) (4,158) -------- -------- 1,544 10,157 ========Goodwill 2,252 --------Total consideration 12,409 ========Satisfied by:Cash 11,880Directly attributable costs 529 -------- 12,409 ========Net cash outflow arising on acquisitionCash consideration 12,409Cash and cash equivalents acquired (70) -------- 12,339 ======== The difference between book value and fair value at acquisition relates to therevaluation of investment properties by independent valuers in accordance withthe requirements of IAS 40 and the related deferred tax. The goodwill arising on the acquisition of the subsidiaries is attributable toa sharing of the inherent capital gains tax potential burden with the vendor. The subsidiaries contributed £946,000 revenue and £302,000 to the Group's profitbefore tax for the period between the date of acquisition and the balance sheetdate. If the acquisition of the subsidiaries had been completed on the first day ofthe financial year, Group revenues for the period would have been £20,607,000.The accounts of the subsidiaries acquired were prepared according to BelgianGAAP and no fair valuations of the investment properties were carried out on 1January 2007. For this reason it is not practical to determine what the Groupprofit attributable to equity holders of the parent on an IFRS basis would havebeen if the acquisition of the subsidiaries had been completed on the first dayof the financial year. 14. Notes to the cash flow statement Group Period from 27 October 2005 to Group 31 December 2007 2006 £'000 £'000 Profit/(loss) for the period 13,575 15,330Adjustments for:Share-based employee remuneration 669 51Depreciation of property, plant and equipment 16 10 Gains on investment properties (19,614) (14,789)Losses/(gains) on forward currency contracts 11,014 (1,304)Net finance costs/(income) 1,720 (1,259)Tax 6,799 6,792 ------- -------Operating cash flows beforemovements in working capital 14,179 4,831 Increase in trading properties (109) (5,151)Increase in receivables (1,107) (2,255)Increase in payables 2,908 3,334 ------- -------Cash generated by/(used in) operations 15,870 759 Income taxes paid (3,559) (330)Interest paid (3,837) (137) ------- -------Net cash inflow/(outflow) fromoperating activities 8,475 292 ======= ======= 15. Gearing ratio The Group's management reviews the capital structure on a semi-annual basis inconjunction with the Board. As part of this review, management considers thecost of capital and the risks associated with each class of capital and debt. The gearing ratio at the year end is as follows: 2007 2006 £'000 £'000 Debt 169,536 15,689Cash and cash equivalents (19,562) (14,395) ------- -------Net debt 149,974 1,294 ------- -------Equity 231,214 137,872 ======= ======= Net debt to equity ratio 64.9% 0.9% ======= =======Carrying value of investment and trading properties 411,919 144,744 ======= =======Net debt to value ratio 36.4% 0.9% ======= =======Debt is defined as long-and short-term borrowings. 16. Events after the balance sheet date On 19 March 2008 the High Court of Justice, Chancery Division, Companies Courtapproved the reduction of the Company's Share Premium Account by a sum of£60,000,000. The reduction in the Share Premium Account will result in anincrease in the Company's distributable reserves. On 7 April 2008 the Board declared that an interim dividend of 3.2 pence perordinary share will be paid on 16 May 2008 to shareholders on the register atthe close of business on 18 April 2008. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
HSTN.L