21st Mar 2005 07:28
Development Securities PLC21 March 2005 DEVELOPMENT SECURITIES PLC - PRELIMINARY RESULTS Development Securities PLC, the leading property development and investmentcompany, today announces profits before tax of £4.6 million and earnings pershare of 12.5 pence per share for the year ended 31st December 2004, compared to£1.2 million and 4.2 pence per share for the previous year. Financial highlights 31 Dec 2004 31 Dec 2003 Profit before tax £4.6 million £1.2 million Earnings per share 12.5p 4.2p Shareholders' funds £171.0 million £125.1 million Net assets per share 466p 444p Dividend per share 6.0p 5.4p Net gearing* 18% 15% As anticipated, the mainstream development business did not generate anyappreciable earnings during the period under review. However, the propertyportfolio contributed a revaluation surplus of £15 million as it continued todeliver enhanced investment returns, outperforming the market for the fourthsuccessive year. There were also exceptionally good returns at Stead & Simpson, the specialistfootwear retailer in which the Company has held a long-term 38% interest.Development Securities' share of attributable pre-tax profits rose to £3.3million from £0.5 million in the previous year. Stead & Simpson's recent announcement of the appointment of Clearwater CorporateFinance to explore options for the company in order to release existingshareholders' equity and to secure further funds for expansion of the businessis consistent with Development Securities' stated objective of securing anorderly exit from the investment in the short to medium term. Development Portfolio Since the Firm Placing and Placing and Open Offer in August 2004, when £28.3million net proceeds were raised, a substantial amount of these funds have beenallocated to new development projects. PaddingtonCentral The second phase of development moved closer with grant of planning permission;construction is expected to start later this year on 250,000 sq ft of officeaccommodation The construction of the CrossRail deck commenced in January The major Bishops Bridge Road improvement scheme is scheduled to complete inSpring 2006 Morley Fund Management take over as single development partner CityPark, Manchester This mixed-use development site was acquired from Crosby Homes for £3 million CityPark has an outline planning consent for 177,000 sq ft of offices and 94,000sq. ft. of hotel accommodation. A detailed planning application is to besubmitted to Manchester City Council in the short term Cavendish Walk, Huyton This retail development site was acquired for £5 million in February 2005 A pre-let of the scheme's anchor store is already secured This project is not scheduled to be retained long term in the property portfolio Significant competition from property developers and institutional investors forCentral London sites has tended to raise prices to levels which already discountsignificant future rental growth. Whilst still seeking new Central Londonprojects, the Company will also compete for development opportunities inprovincial markets, where its skills in complex regeneration schemes can beutilised. By virtue of the London Plan, development in London outside the City nowfrequently requires an element of affordable housing. Accordingly, in September2004, a joint venture with Genesis Housing Corporation was established toprovide assistance with any affordable housing provision. Property Investment Portfolio 2004 represented a year of further advance as the investment portfolio continuedto deliver enhanced returns which have outperformed the market. This wasnotwithstanding the continuing strong property investment market, which has madeacquiring stock at realistic prices increasingly challenging. The market remainsdifficult to call and there is little doubt that it is in uncharted territory. Total portfolio return of 23.0% achieved in 2004 compared to IPD total return of18.3%.* Board composition In March 2004 Matthew Weiner and Paul Willis were appointed to the Board asExecutive Directors. With effect from today's date, Michael Marx becomes Executive Deputy Chairmanand continues as Finance Director. Paul Willis is appointed to Joint ManagingDirector alongside Julian Barwick. Roy Dantzic, Chairman, Development Securities PLC, commented, "I am pleased to report a more profitable year, together with an increaseduplift in shareholders' funds at the year end. "2004, like 2003, was not an easy year for development-orientated businessesoperating in our preferred sectors. However, like the previous year, we wereable to benefit from improved returns deriving from a diversification ofresources into our investment portfolio and elsewhere. "Whilst it would not be prudent to expect these levels of performance tocontinue as a matter of course into 2005, we remain cautiously optimistic thatsound contributions from all parts of our business will be achieved in the yearahead. "With available cash resources of £35 million and £28 million of unutilisedcommitted bank facilities, we remain well placed to capitalise on availableopportunities." For further enquiries: Michael Marx / Julian Barwick Development Securities PLC020 7828 4777 Alison Howard The Communication Group plc020 7630 1411 www.developmentsecurities.com Chairman's statement I am pleased to report a more profitable year for your Company, together with anincreased uplift in shareholders' funds at the year-end. For a year in which, much as anticipated, our mainstream development businessdid not generate any appreciable earnings for your Company, it is satisfying forme to report profits before tax for the year to 31st December 2004 of £4.6million and earnings per share of 12.5 pence per share, compared to £1.2 millionand 4.2 pence per share for the previous year. Shareholders' funds rose for the ninth successive year, reaching £171.0 million,equivalent to 466 pence per share. This compares with £125.1 million and 444pence per share 12 months earlier. The revaluation uplift on our propertyportfolio of £15.1 million and the £28.3 million net proceeds from the August2004 Firm Placing and Placing and Open Offer were clearly the main contributorsto the increase. In view of this improved positive performance and the Company's sound financialfooting, the Board has resolved to recommend the payment of a final Ordinarydividend for the year of 4.0 pence per share, payable on 6th July 2005 toshareholders on the register on 10th June 2005. This brings the total Ordinarydividend for the year to 6.0 pence per share, an advance of 11 per cent over theprevious year. Strategy For over a decade now, we have consistently adhered to our business model ofavoiding any significant development risk that was likely, or had the potential,to threaten our financial stability. This strategy enabled us to increase ourshareholders' funds on an annual basis throughout the recent developmentdownturn. In the light of current prospects for an improving occupier market inCentral London, the South East of England and key provincial markets, we intendto invest funds raised from shareholders in 2004 as seed equity into variousdevelopment projects. Our first class track record in complex, mixed-use regeneration schemes willassist us in alternative marketplaces, as our CityPark site acquisition inManchester last October clearly indicates. Since last year's equity issue, overa third of the funds so raised have been allocated to new development projectsat CityPark, Manchester and Cavendish Walk, Huyton and the second phase atPaddingtonCentral. Although two out of these three development projects are outside of CentralLondon, early indicators of employment growth in the City of London were evidentin 2004. We anticipate this positive trend strengthening in the next few yearsas activity in the Square Mile responds to continuing global and United Kingdomeconomic growth. The current comparative shortage of available prime officeaccommodation in London's West End market augurs well for an earlier return tofavourable market conditions, but this optimism in both the City of London andWest End markets needs to be tempered in the face of strong competitive factorsthat currently exist in both the development and investment markets. Yet again it is particularly pleasing for me to report the exceptional returnsgenerated by our property investment portfolio, delivering a 23.0 per cent IPDTotal Portfolio Return (refer note (i)), which compares favourably with anaverage of 18.3 per cent for the market. This was the fourth consecutive year inwhich the total return from our investment portfolio exceeded marketperformance. Broadly, one third of our return was generated by rental incomearising from the properties themselves, with the balance contributed by realisedgains from the disposal of property assets as well as from revaluation surpluseson those properties retained within the portfolio. There were also exceptionally good returns at Stead & Simpson, the footwearretailer in whom we hold a 40 per cent equity interest. Your Company's share ofattributable post-tax profits rose to £3.6 million from £0.5 million in theprevious year. We continue to consider an orderly exit from this business in theshort to medium term. Outlook Our view remains that, as business moves into the next phase of the economiccycle, investor and occupier demand for high specification new mixed-use schemeswill strengthen rather than diminish. Our target is the delivery of completedschemes into the latter part of this decade, coinciding with what we believewill be optimum market conditions. In addition, we will pursue other provincial,urban regeneration initiatives where appropriate. Our balance sheet is strong,especially after the successful issue of 8.3 million Ordinary shares at 360pence per share in August last year. With available cash resources of £35million and £28 million of unutilised committed bank facilities, we remain wellplaced to finance existing projects and to capitalise on availableopportunities. Our net gearing, 18 per cent at the year-end (refer note (i)), isrelatively low for the sector but this will inevitably increase once ouravailable liquid resources are deployed into the market. Board composition As shareholders will be aware, in March 2004 we welcomed the appointment of bothMatthew Weiner and Paul Willis to our Board as Executive Directors. Matthewcontinues to be responsible for the investment portfolio which he has run withoutstanding success for over four years. Paul, previously Head of Knight Frank'sCity of London office is spearheading the expansion of the developmentprogramme. Below Board level, the management teams of both activities wasfurther strengthened by the appointment of six senior developers and investmentprofessionals. I am also pleased to inform you that, with effect from today's date, MichaelMarx becomes our Executive Deputy Chairman and continues as Finance Director,with Paul Willis appointed to Joint Managing Director alongside Julian Barwick. Conclusion 2004, like 2003, was not an easy year for development-orientated businessesoperating in our preferred sectors. However, like the previous year, we wereable to benefit from improved returns deriving from a diversification ofresources into our investment portfolio and elsewhere. Whilst it would not beprudent to expect these levels of performance to continue as a matter of courseinto 2005, we remain cautiously optimistic that sound contributions from allparts of our business will be achieved in the year ahead. It remains for me to thank all our Directors, management and staff for theirvalued contributions to our endeavours. Their professionalism and standing inthe marketplace has been the undoubted key feature of our success over manyyears. Roy Dantzic Chairman 21st March 2005 Review of Operations The contrast that featured through most of 2003 between the strength of theproperty investment market and the subdued levels of the occupier market inLondon and the South East continued throughout 2004. Economic and business environment Whilst further yield compression, due to a favourable medium-term interest rateenvironment and increasing investor appetite, drove investment values higherthan most market participants had imagined possible a year ago, the occupationalmarkets continued largely to move sideways as businesses hesitated to commit toexpansion. That hesitation, most discernible in the City of London in the earlypart of the year, gave way slightly towards a sense of forward momentum as theyear progressed. Alongside encouraging global growth, the United Kingdom economy grew at an abovetrend 3.2 per cent in 2004, with consumer demand strong and unemployment low.Global expansion is set to continue, albeit at a reduced pace, 2005 should stillprovide the opportunity for the United Kingdom economy to return anotherrespectable year of growth in a low inflation environment. However, thepotentially vulnerable housing market and the high level of personal debt remaina concern. Interest rates are likely to remain stable at or around currentlevels and occupational demand should increase as the year unfolds. In the City of London, demand for development sites became increasinglycompetitive in anticipation of firm rental growth in the medium term.Availability of prime office space is likely to decline from current levels of15 per cent; little further tenant space is coming onto the market and theexisting development programme commenced some years ago is drawing to a close.These factors, combined with increasing occupier demand, should lead to acontinued fall in availability and to rental growth. Current development programme In the recent past, the principle focus of your Company's development activityhas been the provision of large, high value office buildings in London and theSouth East, increasingly involving complex urban regeneration and mixed uses,such as residential and retail components. This is where our reputation andprofile is the highest. By virtue of the London Plan, development in Londonoutside the City now frequently requires an element of affordable housing.Accordingly, in September 2004, we established a joint venture with GenesisHousing Corporation to assist us in the affordable housing provision. Lookingfurther ahead, mixed-use schemes in which we are involved may well include aleisure or hotel element, as well as private housing provision. Significant competition from property developers and institutional investors forCentral London sites has tended to raise prices to levels which already discountsignificant future rental growth. Whilst we are still seeking new Central Londonprojects, we will continue to compete for developments in provincial markets aswell as on the fringes of the City and West End. We have provisionally allocated a minimum of £13 million of equity for the twonew projects recently won at CityPark, Manchester and Cavendish Walk, Huyton, inaddition to our likely commitment to the next phases of development atPaddingtonCentral. We are currently bidding for a number of mixed-useregeneration development projects in London and across the country. PaddingtonCentral The first phase of the 1.75 million sq. ft. prime office, retail and leisuredevelopment was completed successfully in 2002. During 2004, significantmilestones were reached as PaddingtonCentral moved closer to the beginning ofthe next phase of active development. Towards the end of 2004, Morley FundManagement became our sole partner on the remaining development site when theyacquired the 50 per cent interest previously held by Equitable Life AssuranceSociety. With any uncertainty of funding capacity for the next phase thussignificantly reduced, we are now proceeding with the construction of theCrossRail deck. Since the entrance to the proposed CrossRail tunnel will lieimmediately to the west of our PaddingtonCentral site, completion of the deckwill allow future phases of our development to proceed independently ofCrossRail. The deck will provide a horizontal separation between the plannedCrossRail work area and the new PaddingtonCentral structures. In November, the Government announced its intention to introduce a Bill in thepresent session of Parliament to promote the CrossRail scheme. CrossRail, whichis set to provide a high-speed link to the City and beyond, will further improvePaddington's excellent transport connections. Additionally, in January 2004, construction began on the widening of theadjacent Bishops Bridge Road from two to five lanes. This project, to becompleted in March 2006, will not only significantly improve vehicular access toPaddington Station, but, perhaps more importantly for ourselves, will alsoprovide the main road access to PaddingtonCentral itself, directly opposite tothe new station entrance. By the time the new bridge is completed, we expect tohave made a start on the next phase of development, which is likely to be a250,000 sq. ft. office building, designed by Sheppard Robson, for which detailedplanning permission has already been received. Whilst the rental and investmentvalues anticipated at the outset of the project for the second phase nowappeared to be conservative, the value improvement presently emerging atPaddingtonCentral carries with it additional costs associated with enhanceddesign. The next generation of buildings at PaddingtonCentral will be ofsignificantly improved specification arising partly from legislation, partlyfrom our sustainability policies and partly from the growing recognition thatPaddingtonCentral is now a proven head office location. Royal Business Park In July, we achieved practical completion of the 245,000 sq. ft. first phase ofthis planned £500 million, 50-acre business park. Marketing of the prime officeaccommodation to the occupational market has now begun in earnest and we arecautiously positive that some success will be achieved in 2005. The terms of theDevelopment Agreement with our partner, Standard Life Investments, have enabledus to participate in cost savings arising out of value engineering initiativesand cost management which broadly correlate to our share of the profitability wehad anticipated on this phase. CityPark, Manchester In November 2004, we acquired for £3.0 million a 999-year leasehold interest inCityPark, a 290,000 sq. ft. mixed-use development, from Crosby Homes. Thedevelopment is the commercial element of Greenquarter, a mixed-use, one millionsq. ft. development in the northern quadrant of Manchester City Centre.CityPark, located immediately to the North East of Victoria Station, oppositethe Manchester Evening News Arena, has an outline planning consent for 177,000sq. ft. of offices and 94,000 sq. ft. of hotel accommodation together withassociated car parking. A detailed planning application is to be submitted toManchester City Council shortly. Heart of Slough This project took a significant step forward in 2004 with a commitment byEnglish Partnerships to finance infrastructure works at a cost in excess of £15million. English Partnerships will also fund the necessary environmental impactassessments. An ongoing review of the Heart of Slough masterplan has generated arevised road layout, resulting in some changes to the individual developmentplots. This, together with the continuing weakness of the Slough office market,has led to a reduction in the proposed office content, albeit with theflexibility to increase again if market conditions justify. The 'bus station'site, over which the Company will have exclusive development rights, canaccommodate approximately 300,000 sq. ft. of floor space, together withassociated car parking. Cambourne Business Park The status of our 750,000 sq. ft. business park was significantly improved bythe completion, in May 2004, of the 60,000 sq. ft. Headquarters and Civic Centrefor South Cambridgeshire District Council. Road infrastructure improvements, inparticular along the adjacent A428, have enhanced accessibility to the businesspark and helped to raise its profile even further in the Cambridge occupationalmarket. The Civic Centre, designed by Aukett Europe, has achieved highsustainability recognition, winning top BREEAM and Environmental PerformanceIndex Ratings. Whilst further lettings were achieved in 2004 with Bovis Limitedand Cambridge Display Technologies Limited, the occupational market for officeaccommodation remains challenging, with 47,000 sq. ft. of accommodation stillavailable on the second phase of this development. Broughton In June 2004, together with Hercules Unit Trust, we submitted a joint planningapplication for a new 90,000 sq. ft. Marks & Spencer store and a 26,000 sq. ft.extension for Tesco, an existing tenant of the first phase of this development,together with a 54,000 sq. ft. of new retail space and additional car parking,landscaping, road improvements and cycle routes. This application is underactive consideration by Flintshire County Council, who are awaiting the resultsof both the Transport Impact and Retail Impact Studies, which they commissionedrecently. In July, we submitted a planning application in respect of 27.7 acres of our ownland for a residential development. This site, a short walk from the retailpark, the British Aerospace facility and adjacent to existing housingdevelopments, was designated by Flintshire County Council as land suitable forhousing in their 2003 Draft Urban Development Plan. In September, we enteredinto a contract to dispose of this land to Westbury Homes, conditional upon theresolution of a satisfactory planning consent and associated matters. Notwithstanding some remaining local issues, we are hopeful that planningconsent will be achieved in 2005 with regard to both planning applications.Shareholders will appreciate the complexities and uncertainties often associatedwith the planning application process and its related timing. Lancaster Your Company, together with CTP Limited, has been selected as preferreddeveloper for a 16-acre regeneration project on the western side of Lancaster.There is much to be done before a start on site can be envisaged. In themeantime, we will work in close partnership with Lancaster City Council tocomplete the land assembly and remediation strategy prior to commencing the newriverside quarter of 350 homes, 90,000 sq. ft. of commercial space and a2.5-acre urban park. English Partnerships, the North West Development Agency andthe European Regional Development Fund will provide some of the funding tofacilitate the redevelopment. Property Portfolio 2004 represented a year of further advance within our investment portfolio as wecontinued to deliver enhanced investment returns, out-performing the market inthe process. Our investment team has moved further away from simple, long-leasedproperty towards assets which contain an element of increased risk and,consequently, an additional return. Having recently strengthened the management team, we have the internal expertiseand resources to evaluate these risks and, through this process, secure furtheropportunities for value creation. This was notwithstanding the continuing strong property investment market, whichhas made acquiring stock at realistic prices increasingly challenging. Themarket remains difficult to call and there is little doubt that it is inuncharted territory. Never before have we seen such a prolonged period ofrising capital values whilst the occupier market, the long-term driver ofperformance, remains subdued at best. The total 2004 investment return on ourportfolio totalled 23.0 per cent compared to the market return as measured byIPD of 18.3 per cent. The portfolio has now out-performed the market over athree-year period by 4.7 per cent and is ranked on the fifth percentile overthis period. The 2004 total return includes an income return of 6.3 per centand capital growth of 16.7 per cent. We remain committed to our three key investment principles of sector rotation,stock selection and proactive management. This led, during the course of theyear, to a further reduction of 20 per cent in our exposure to the office sectorwhere the impact of the downturn in occupational demand has been most keenlyfelt and where we believe the investment market is over-pricing the emergingsigns of rental recovery. We believe that the office sector will offerinvestment opportunities as the bottom of the cycle has been reached, but we arecautious about the pace of recovery in the occupier market. A careful return tothe office investment market may be made over the next 12 months. The incorporation of a further tactical element to our investment strategy,namely the acceptance of a marginally higher degree of certain categories ofrisk within the investment portfolio, reflects increasing confidence in both ourstock selection ability and a recognition that we possess the core skills tosuccessfully capitalise on these opportunities. We have continued to increase exposure to certain parts of the retail sector.We do not discount the impact of the probable slowdown in consumer expenditureon the retail market, but believe that our investment properties attractconvenience and not comparison expenditure, enabling us to benefit from itsinherently solid demand characteristics. The strategic decision made some years ago to increase the retail assetweighting has proved to be good as the gains seen on the investments acquired inthe retail sector since 2001 have evidenced capital growth of 12 per cent duringthis year. Transaction activity during 2004, with acquisitions outweighing disposals,totalled £71.2 million. In total, nine properties were sold for £33.8 million,generating a 15 per cent net surplus over book value. We perceived there to bean asset pricing bubble and subsequently moved to crystallise significantvaluation surpluses on certain assets. Most notably we took the decision to offer our two West End holdings to theinvestment market and secured the disposals of both buildings, on sub-six percent yields, for a combined surplus of £3.1 million, some 23 per cent above bookvalue. By way of comparison, the office market showed 8.6 per cent capitalgrowth over 2004. The sale of Lowesmoor Trading Estate, Worcester, generated a net surplus of £0.6million. The estate formed a small part of a complex redevelopment projectbeing undertaken by a local developer. We also secured the disposal for £5.5million of a further three units from the Carpetworld portfolio acquired in2003. Prices achieved reflected a further 10 per cent capital gain over bookvalues, realising a 20 per cent gain on these assets since acquisition. Sincethe year-end, we have acquired two further Carpetworld units by way of sale andleaseback from the vendor at an 8.0 per cent initial yield. In 2004, £45.0 million was invested through a combination of capital expenditureon the existing portfolio and on five purchases. The largest acquisition was thePrincess of Wales Centre, Dewsbury for £20.2 million. The Centre comprises thedominant retail offer within the town and provides a solid income return withattractive asset management opportunities to drive rental values higher. We arehopeful of receiving an offer for a unit in the scheme at a level which wouldset a new rental tone, some six per cent higher than has been achieved to date.At the year-end, the Centre had already increased in value by 14 per cent,driven by yield compression. If rental levels improve further, enhancedinvestment performance should be realised. In May 2004, we acquired a site in Liverpool for £2.8 million with planningpermission for either a food store or a non-food retail offer. Havingdetermined a strategy to secure an improved planning consent for a non-foodretail warehouse scheme and then develop the site, we obtained a revisedplanning consent in September. Almost immediately thereafter, we accepted anunconditional offer for the site from ASDA which allowed us to realise themajority of the potential development profit without any of the associatedrisks. We crystallised a net surplus of over £1.0 million, representing areturn of 34 per cent over the six-month period of ownership. In October, we acquired Swanley Shopping Centre for £13.9 million. The propertyhas outstanding asset management opportunities, having been in a relativelyinactive single ownership since 1989. We are currently formulating our assetmanagement plan, which will incorporate redevelopment of existing units toincrease density as well as re-positioning the retail offer. We believe therental tone, ranging from £25 to £35 Zone A, offers significant potential forimprovement. Our existing holdings now include over £65 million invested in convenience andfood based shopping centre assets. Additionally, in early 2005, the Companyacquired a £5 million site for a retail development project to be known asCavendish Walk, Huyton. This is a new 105,000 sq. ft. retail development, wherewe are working with a local development company. A pre-let of the scheme'sanchor store to Wilkinson Hardware is already secured, representing 15 per centof the scheme's rent roll. Occupier interest in the remaining accommodation isstrong and we hope to have achieved a high level of pre-letting prior topractical completion in the first quarter of 2006. In the medium-term, weintend to secure additional projects of this type as we seek to capitalise onour internal investment and development skills. Other acquisitions during 2004 illustrate our willingness to accept differentcategories of risk. At Vector Point, Redditch, a vacant 110,000 sq. ft.warehouse, we took void risk, and having refurbished the unit, are now offeringit for re-letting. Once let, we expect the property to achieve an attractiveyield in excess of 10 per cent on cost. At Austen House, Fleet, a primarily retail property acquired for £2.1 million inOctober, we accepted planning risk in seeking a conversion of the vacant officeupper parts to residential use and residential market and construction risk inthe disposal of these units. We hope that this venture, which was undertakenwith a smaller developer, will lead to the location of similar opportunitiesduring the course of 2005. The Company also acquired 1/9 Caroline Street, Bridgend, during 2004. This is amore defensive acquisition in that it comprises a block of good secondary retailunits with the majority of the income let to national multiples. The seven percent income return represents good value and we are pleased to report avaluation uplift of seven per cent at year-end. Further proactive management accounted for significant value creation on twoinvestment properties acquired in previous years. At The Furlong Centre,Ringwood, we have seen the culmination of several initiatives, most notably theagreement with Waitrose to extend their food store anchor by 15,000 sq. ft. andsimultaneously restructure their lease to a new 20-year term at an enhancedrental level. Development works are well underway, with practical completionscheduled for May 2005. This extended store will also improve the potential ofthe adjacent retail units. We have already seen an improvement in the rentaltone of the Centre with the arrival of certain new national multiple occupiers,most importantly the women's fashion retailer Hobbs. The value creation hasbeen £2.3 million over two years. At our 94,000 sq. ft. Genesis Centre in Warrington, we introduced a moreproactive and responsive marketing strategy, emphasising the flexibility of thebuilding and offering a semi-serviced offer for the price of traditional leasedoffice accommodation. This initiative, together with refurbishment of thereception area, enabled us to lease 10,000 sq. ft. of void space during 2004,contributing to the asset's £1.2 million increase in capital value during theyear. We have now achieved four consecutive years of strong performance from theinvestment portfolio, and leveraging from this base, will now give seriousconsideration to utilising shareholders' funds more efficiently, in partnershipwith others, to expand the quantum of assets under management. Our objective isto create a more significant financial presence in a marketplace increasinglydominated by a small number of larger, financially robust participants. Stead & Simpson Increased revenues and improved margins at Stead & Simpson, the footwearretailer in which we hold a 40 per cent investment, resulted in pre-taxprofitability of £8.9 million, increased from £4.5 million in the previous year.This excellent trading performance enabled us to incorporate £3.6 million ofthis post-tax profit within our 2004 results. In March 2005, the shareholders ofStead & Simpson resolved to explore options for the company, in order to realiseexisting shareholders' equity and to secure further funds for expansion of thebusiness. Julian Barwick Joint Managing Director 21st March 2005 Consolidated profit and loss account for the year ended 31st December 2004 (audited) Total Total 2004 2003 Notes £'000 £'000 Turnover (a,b) 23,598 32,237 Direct Costs (a,b) (14,236) (22,862) Gross Profit (a,b) 9,362 9,375Operating expenses (c) (8,386) (7,792)Exceptional item (e) - 2,000Total operating expenses (8,386) (5,792) Operating profit (c) 976 3,583Share of operating profit of associate (f) 4,223 537Income from other fixed asset investments (f) 125 495Profit on disposal of fixed assets 4,057 1,214 Profit on ordinary activities before interest 9,381 5,829 Net interest payable (4,796) (4,649) Profit on ordinary activities before taxation 4,585 1,180 Tax on profit on ordinary activities (347) - 4,238 1,180Profit on ordinary activities after taxationDividends on equity shares (2,025) (1,520) Retained profit/(loss) for the year 2,213 (340) Earnings per share 12.45p 4.20pDiluted earnings per share 12.42p 4.19p All turnover and profits derive from continuing operations. Consolidated balance sheet 31st December 2004 (audited) 2004 2003 Note £'000 £'000 £'000 £'000Fixed assets Investment properties (h) 156,572 115,355Operating properties 10,573 6,991Other tangible assets 3,793 3,745Investments 7,704 3,104 178,642 129,195Current assets Land, developments and trading properties 21,235 15,318 Debtors 18,029 13,863Cash at bank and in hand 53,766 56,339 93,030 85,520Creditors: amounts falling due within oneyear (17,853) (14,703) Net current assets (d) 75,177 70,817 Total assets less current liabilities 253,819 200,012 Creditors: amounts falling due after morethan one year (82,829) (74,950) Net assets 170,990 125,062 Financed by: Capital and reservesCalled up share capital 18,334 14,091Share premium account 87,417 63,016Revaluation reserves 22,538 6,048Other reserves 45,619 45,619Profit and loss account - deficit (2,918) (3,712) Total equity shareholders' funds 170,990 125,062 Net assets per share 466p 444p Diluted net assets per share 463p 441p Approved by the Board of Directors on 21st March 2005 and signed on its behalf M H Marx Director Consolidated cash flow statement for the year ended 31st December 2004 (audited) 2004 2003 £'000 £'000 Cash (outflow)/inflow from operating activities (9,210) 773 Returns on investment and servicing of finance (5,240) (5,245) Taxation 1,088 716 Capital expenditure and financial investment (25,578) (4,068) Equity dividends paid (1,574) (9,443) Cash outflow before financing (40,514) (17,267)Financing:Purchase of own shares - (2,029)Issue of new shares 28,644 295Repayment of debt (7,227) (17,384)Proceeds from new borrowings 15,169 7,644(Increase)/decrease in pledged cash (10,191) 18,579 Decrease in cash in the year (14,119) (10,162) Reconciliation of consolidated net cash flow to movement in net debt for the year ended 31st December 2004 (audited) 2004 2003 £'000 £'000 Decrease in cash in the year (14,119) (10,162)Cash outflow from reduction in debt 7,227 17,135Cash inflow from new borrowings (15,169) (7,644)Cash outflow/(inflow) from movement in pledged cash 10,191 (18,579) Movement in net debt in the year (11,870) (19,250) Net (debt)/funds at 1 January (18,918) 332 Net debt at 31 December (30,788) (18,918) Reconciliation of operating profit to net cash inflow from operating activities for the year ended 31st December 2004 (audited) 2004 2003 £'000 £'000 Operating profit 976 3,583Release of provision against preference shares and loans in - (2,000)associated undertaking (refer note (e))(Profit)/loss on disposal of tangible fixed assets (5) 180Capitalised interest charged to direct costs 71 250Increase in developments and trading properties (5,736) (5,034)(Increase)/decrease in debtors (4,378) 8,076Decrease in creditors (1,112) (5,170)Depreciation charges 974 888 (9,210) 773 Analysis of net debt for the year ended 31st December 2004 (audited) Balance at Other Balance at 1 January non-cash changes 31 December 2004 Cash flow £'000 2004 £'000 £'000 £'000 Cash in hand, at bank 47,409 (12,764) - 34,645Bank overdraft (99) (1,355) - (1,454) (14,119) Debt falling due within one year (208) 208 (271) (271)Debt falling due after more than one year (74,950) (8,150) 271 (82,829)Pledged cash 8,930 10,191 - 19,121 2,249 (18,918) (11,870) - (30,788) Consolidated statement of total recognised gains and losses for the year ended 31st December 2004 (audited) 2004 2003 £'000 £'000 Profit on ordinary activities after taxation 4,238 1,180Unrealised surplus on revaluation of property portfolio 15,071 5,618 Total recognised gains and losses for the financial year 19,309 6,798 Reconciliation of movement in consolidated total equity shareholders' funds for the year ended 31st December 2004 (audited) 2004 2003 £'000 £'000 Profit on ordinary activities after taxation 4,238 1,180Dividends on equity shares (2,025) (1,520) Retained profit/(loss) for the financial year 2,213 (340)Net proceeds of issue of new shares 28,644 295Purchase and cancellation of own shares - (2,029)Net surplus on revaluation of property portfolio 15,071 5,618 Net movement in equity shareholders' funds 45,928 3,544Opening total equity shareholders' funds 125,062 121,518Closing total equity shareholders' funds 170,990 125,062 Development Securities PLC Notes for the year ended 31st December 2004 (audited) Turnover, profits and net assets a) Analysis of turnover and gross profit All turnover and profits derive from continuing property operations in theUnited Kingdom. (b) Analysis of gross profit 2004 2003 Direct Gross Direct Gross costs costs Turnover profit Turnover profit £'000 £'000 £'000 £'000 £'000 £'000 Rental Income 9,121 (1,790) 7,331 8,732 (2,640) 6,092Operating property income 5,107 (4,802) 305 4,817 (4,495) 322Project management fee income 496 - 496 896 - 896Land, developments and tradingproperties 8,874 (7,644) 1,230 17,792 (15,727) 2,065 23,598 (14,236) 9,362 32,237 (22,862) 9,375 c) Operating profit 2004 2003 £'000 £'000The operating profit is stated after charging/(crediting): Depreciation 974 888Reversal of impairment - investment (refer note (e)) - (1,500) - loans (refer note (e)) - (500)Operating leases in respect of land and buildings 2,260 2,765Auditors' remuneration - audit 119 107 - audit related reporting 15 - - other 150 113 Audit fees stated above include £77,000 in respect of the Company (2003:£70,000). During the year £55,000 was paid in respect of audit-related reportingin connection with the issues of new shares. This amount was charged to theshare premium account. Prior year figures shown above in respect of operating leases have been restatedto aid comparability. d) Analysis of net assets 2004 2003 £'000 £'000 Property 170,990 125,062 Net assets are all in the United Kingdom except £1,021,000 (2003: £1,021,000) inrespect of a development property in France and £755,000 (2003: £805,000) inrespect of an associated company incorporated and registered in The Netherlands. e) Exceptional items The exceptional item in 2003 represented the release of provisions against thebook value of the Group's investment in the preference shares of, and loans to,Stead & Simpson Group Limited, arising from the Directors' evaluation of theamounts recoverable from the investment and associated loans (refer note (f)below). f) Associated undertakings The Group held a 19.9 per cent interest in Stead & Simpson Group Limited ('Stead& Simpson') for a number of years, which was accounted for as a tradeinvestment. In November 2003, Development Securities PLC entered into aconditional share purchase agreement, which went unconditional on 31st December2003, whereby it increased its interest to 38 per cent. The Directors believethat Development Securities PLC began to exercise significant influence overStead & Simpson, which therefore became an associate, in November 2003, and hasaccounted for its 19.9 per cent share of the profit after tax of Stead & Simpsonfrom that date, and its increased share of profits from 1st January 2004. M HMarx was appointed to the Board of Stead & Simpson Group Limited on 1st December2003. The Group acquired a further two per cent of the share capital of Stead &Simpson Group Limited in December 2004. g) Fixed rate debt The fair value adjustment at 31st December 2004 in respect of the Group's fixedrate debt, calculated on a replacement basis, taking into account the differencebetween fixed interest rates of the Group's borrowings and the market value andthe prevailing interest rates of appropriate debt instruments, was £14.2 million(2003: £13.0 million), equivalent to a decrease in net assets of 27.1 pence pershare after tax (2003: 32.3 pence per share). h) Investment portfolio analysis (as at 28th February 2005) Tenant profile Lease profile Government 5% 0 - 5 years 29%FTSE 100 1% 5 - 10 years 30%PLC/nationals 59% 10 - 15 years 26%Regional multiples 8% 15 - 20 years 8%Local traders 27% 20 years + 7% Location profile Analysis by sector North 45% Retail 63%South East 37% Office 20%London 12% Industrial 17%Wales 3%Midlands 3% i) Definitions and disclosure Total Portfolio Return: The total return from the investment property portfolio,comprising net rental income or expenditure and capital gains or losses fromdisposals and revaluation surpluses or deficits, divided by the average capitalemployed during the financial period, as defined and measured by InvestmentProperty Databank Limited, a company that produces independent benchmarks ofproperty returns. Financial Gearing: Financial gearing, expressed as a percentage, is measured asnet debt divided by total shareholders' funds. j) Basis of preparation This announcement is prepared on the basis of the accounting policies stated inthe financial statements for the year ended 31st December 2004. The financial information set out above does not constitute the Company'sstatutory accounts for the years ended 31 December 2004 or 2003, but is derivedfrom those accounts. Statutory accounts for 2003 have been delivered to theRegistrar of Companies and those for 2004 will be delivered following theCompany's Annual General Meeting. The auditors have reported on those accounts;their reports were unqualified and did not contain statements under s237(2) or(3) Companies Act 1985. -------------------------- * refer note (i) * refer note (i) This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
UAI.L