26th Apr 2007 07:03
Public Service Properties Inv Ltd26 April 2007 26 April 2007, Embargoed until 07:01 Public Service Properties Investments Limited ("PSPI", or "the Company") Preliminary results for the year ended 31 December 2006 Public Service Properties Investments Limited (AIM: PSPI), a specialist Europeanreal estate investment and financing company, announces preliminary results forthe year ended 31 December 2006. Highlights: * Operating profit £25.4 million (2005: £23.8 million) * Profit after tax was £13.9 million (2005: £10.5 million) * Gross assets were £186.0 million (2005: £172.8 million) * Cash rental income was £10.1 million (2005: £9.5 million) * Asset manager in advanced discussions on first acquisitions for expansion of the portfolio in Germany * Plans progressed to expand UK portfolio capacity Post period events * Successful IPO in March 2007 raised £31 million (net) of new capital to allow the Company to extend its portfolio by: - acquiring properties, primarily in the German care homes market - expanding capacity within the existing UK portfolio Commenting on the results, chairman Patrick Hall, said, "PSPI operates in aniche but undeniably growing market place, and its core portfolio, allied withthe experience of our asset manager, is expected to produce value forshareholders going forward. "Following PSPI's successful fundraising and Admission to AIM, our primary focusis to acquire care homes in Germany where cash flows are underpinned by stateagency support. We look forward to delivering informative and positive news onthis subject in the months ahead." Dr D Srinivas Tim Worlledge Rachel Drysdale Ralph Beney Jeremy Ellis Richard Sunderland Richard Borg Chris Clarke Simon Hudson RP&C International Evolution Securities Tavistock Communications Limited Tel: 020 7766 7000 Tel: 020 7071 4300 Tel: 020 7920 3150 Chairman's Statement I am pleased to report the Company's financial results for the year ended 31December 2006, Public Service Properties Investments Limited's first since itsshares were admitted to trading on the AIM market of the London Stock Exchangeon 26 March 2007. At that time, the Company raised £31 million (net) from institutionalinvestors in the UK and Continental Europe to allow the Company to extend its portfolio by acquiring further properties, primarily in the German care homes market. This is a market where there has been an appreciably positive shift from home-based/outpatient care to institutionalised nursing care and where cash flows are supported by state agencies. Financial Review The Company's consolidated operating profit, including fair value adjustments toinvestment properties, for the year ended 31 December 2006 was £25.4 millioncompared to £23.8 million for 2005. Our results reflect an improvement in thecapitalisation rate used for valuing our UK investment property portfolio, whichrepresented more than 80% of the Group's investment property portfolio at theyear end. This improvement was further reflected in the Group's profit after tax, whichgrew 32.5% to £13.9 million (2005: £10.5 million). Gross assets at 31 December 2006 were £186.0 million compared to £172.8 millionat 31 December 2005. Total equity increased to £66.9 million (2005:£52.4 million). I refer you to the Asset Manager's Review included in this document for furtherdetail on the Company's performance and development. I would also like to take this opportunity to welcome all of our newshareholders into the Company and I look forward to an exciting period ahead asthe Company progresses its investment strategy in line with the goals set at thesuccessful IPO. Our primary focus is to acquire care homes in Germany and welook forward to delivering informative and positive news on this subject in theweeks and months ahead. Patrick HallChairman25 April 2007 Asset Manager's Review Financial Review The Company's underlying cash rental income increased from £9.5 million in 2005to £10.1 million in 2006, representing an increase of 5.9%. This increasereflected both indexation on the leases in respect of investment properties inthe UK and Switzerland plus a full year recognition of rental income in respectof the Hollygarth portfolio of eight UK care homes acquired in May 2005. Net gains from fair value adjustments on investment properties increased from£13.3 million in 2005, to £15.3 million in 2006. These gains primarily reflect areduction to 6.25% in the capitalisation rate applied in valuing the UKinvestment properties, which represented 81% of the investment propertyportfolio at 31 December 2006. We believe that there may be further yieldcompression in respect of the UK portfolio in 2007, in the absence of any material increase in long term interest rates during the year. Administrative expenses increased from £2.6 million in 2005 to £3.3 million in2006, partly due to recognition of £0.3 million of fees in respect of theCompany's initial public offering ("IPO") completed in March 2007. Although feespaid under the Asset Management Agreement increased by £0.3 million for 2006, itshould be noted that post IPO, annual management fees will be lower on a likefor like basis. Interest income increased from £1.2 million in 2005, to £2.1 million in 2006,primarily as a result of interest receivable on the £2.75 million mezzanine loanadvanced in January 2006. This mezzanine loan is secured by a second mortgage onfour investment properties and a charge over the shares of the company whichowns them. Finance costs were reduced from £7.5 million to £7.3 million as a result of arefinancing completed in late 2005. Moreover, the Company intends to repay £3.75million of credit enhanced debt in July 2007, which will further reduce interestcosts in the current financial year. Income tax expense fell from £5.8 million to £4.1 million in 2006. The vastmajority of this expense relates to deferred taxation associated with fair valueadjustments on investment properties and, as such, is a non-cash item. The Company's profit for the year was £14.0 million compared to £10.5 millionfor 2005, representing an increase of 32.5%. Business Outlook We remain confident that the Company's investment portfolio will continue toperform well in 2007. All of the Company's UK leases are subject to indexation based on changes in the retail price index ("RPI"). The UK RPI has reflected year-on-year increases of between 3.6% and 4.8% for the months between December 2006 and March 2007, which we expect will lead to increases in cash flow during the current financial year. The Company's investment programme for the remaining months of 2007 is likely toresult in a series of acquisitions of care homes in Germany, both as singleassets and as portfolio transactions. A first acquisition is anticipated thisSummer, following completion of due diligence and Board approval. In the UK, we intend to review potential acquisitions, to pursue the development of additional bed capacity at existing locations and explore other asset management opportunities. In addition, we intend to carefully review refinancing opportunities with the Group's senior lenders, which may also involve raising additional debt for a portion of the Company's acquisitions in Germany. The Company's long term assets and total assets increased from £161 million and£173 million, respectively, at the end of 2005 to £178 million and £186 million,respectively, at the end of 2006, primarily as a result of the fair value gainsmentioned above. The Company's total equity increased from £52.4 million at the end of 2005, to£66.9 million at the end of 2006. In addition to the increase in retainedearnings, the Group recognised an improvement in fair value hedging reserve froma deficit of £1.1 million at the end of 2005 to a surplus of £0.5 million atthe end of 2006. These increases reflect a mark to market valuation on theinterest rate swaps associated with senior lending on some of the Company'sinvestment properties in the UK. Against this improvement the Group alsorecognised an increase in the translation reserve from £0.8 million at the endof 2005, to £1.2 million at the end of 2006, primarily reflecting foreignexchange losses on the carrying value of the Company's investments in the US andSwitzerland. The Board intends to monitor exposure to foreign currency risk onan on-going basis. The Company's short and long term borrowings at 31 December 2006 where estimatedat approximately £6.9 million and £88.8 million, respectively, reflecting atotal debt to equity ratio of approximately 1.43:1 compared to 1.96:1 at 31December 2005. The Company's leverage, before the additional capital raised inMarch 2007, could be considered to be conservative bearing in mind the qualityof the underlying assets and the cash flows. The Board will continue to monitorthe overall debt to equity ratio as the Group invests in new assets in Germany. The Company's share capital and share premium increased by approximately £34million following the Company's IPO in March 2007, reflecting a book value of approximately £100 million. In the Asset Manager's view, 2007 and 2008 should provide attractiveopportunities for expansion into the care home sector in Germany. We lookforward to reporting on the acquisitions and operational improvements in themonths ahead. RP&C International Inc.April 2007 PUBLIC SERVICE PROPERTIES INVESTMENTS LIMITEDCONSOLIDATED INCOME STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2006 Note 2006 2005 £ £ Revenue 3 11,081,482 11,435,993 Net gain from fair value adjustments on 6 investment properties 15,294,592 13,307,339 Net Gain on fair value adjustment on loans 8 202,750 - Negative goodwill - 522,211 Administrative expenses (3,285,512) (2,634,781) Interest income 2,062,940 1,189,575 ------------- -------------Operating profit 25,356,252 23,820,337 Finance costs 4 (7,340,757) (7,452,747) ------------- -------------Profit before income tax 18,015,495 16,367,590 Income tax expense 15 (4,070,183) (5,843,341) ------------- -------------Profit for the period 13,945,312 10,524,249 ============= ============= Attributable to: Equity holders of the Company 13,945,312 10,524,249 ============= ============= Basic earnings per share (£ per share) 5 4.95 3.97 ============= ============= Diluted earnings per share (£ per share) 5 4.92 3.72 ============= ============= PUBLIC SERVICE PROPERTIES INVESTMENTS LIMITEDCONSOLIDATED BALANCE SHEETFOR THE YEAR ENDED 31 DECEMBER 2006 Note 2006 2005 £ £ ASSETS Non current assets Investment property 6 155,650,387 142,753,825Receivable from finance lease 7 7,870,146 7,571,426Loans and receivables 8 7,304,250 4,351,500Accrued income 7,479,003 5,992,621 ------------- ------------- 178,303,786 160,669,372Current assets Receivables and prepayments 11 4,777,011 6,067,859Derivative financial instruments 10 512,763 242,111Cash 2,444,528 5,810,560 ------------- ------------- 7,734,302 12,120,530 ------------- -------------Total assets 186,038,088 172,789,902 ============= =============EQUITY Capital and reserves Share Capital 12 16,633 16,633Share Premium 12 31,728,823 32,358,823Fair value hedging reserve 512,763 (1,068,782)Translation reserve (1,177,602) (799,728)Retained Earnings 35,855,978 21,910,666 ------------- -------------Total equity 66,936,595 52,417,612 ------------- -------------LIABILITIES Non current liabilites Borrowings 13 88,762,232 87,173,419Derivative financial instruments 10 - 1,310,893Deferred income tax 14 19,332,699 14,956,366 ------------- ------------- 108,094,931 103,440,678 Current liabilities Borrowings 13 6,881,387 15,357,756Trade and other payables 2,871,501 22,630Current income tax liabilities - 83,272Accruals 1,253,674 1,467,954 ------------- ------------- 11,006,562 16,931,612 ------------- -------------Total liabilities 119,101,493 120,372,290 ------------- ------------- ------------- -------------Total equity and liabilities 186,038,088 172,789,902 ============= ============= PUBLIC SERVICE PROPERTIES INVESTMENTS LIMITEDCONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2006 Note 2006 2005 £ £ Cash flow from operating activities Cash generated from operations 10,715,388 2,347,250Interest paid (6,516,271) (7,581,356)Tax paid - (639,702) ------------- ------------ Net cash generated / (used) by operating 4,199,117 (5,873,808)activities Cash flow from investing activities Business Combination - (13,006,904)Purchase of investment property 6 (146,623) (340,971)Cash paid for loans and receivables 8 (2,750,000) -Interest received 501,753 1,231,445 ------------- ------------ Net cash used in investing activities (2,394,870) (12,116,430) Cash flow from financing activities Proceeds from borrowings 11,581,593 22,753,566Repayments of borrowings (16,502,384) (10,156,073)Transaction Costs relating to Capital Raising 12 (630,000) - Capital increases 12 - 2,153,992 ------------- ------------ Net cash (used) / generated by financing (5,550,791) 14,751,485activities Decrease in cash and cash equivalents (3,746,544) (3,238,753) ============= ============== Movement in cash and cash equivalents At start of year 5,810,560 8,665,131Decrease (3,746,544) (3,238,753)Foreign currency translation adjustments 380,512 384,182 ------------- ------------At end of year 2,444,528 5,810,560 ============= ============== PUBLIC SERVICE PROPERTIES INVESTMENTS LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2006 1. Basis of preparationThe consolidated financial statements of the Group have been prepared inaccordance with and comply with International Financial Reporting Standards(IFRS), published by the International Accounting Standards Board (IASB). Theconsolidated financial statements are reported in British Pounds unlessotherwise stated and are based on the annual accounts of the individualsubsidiaries at 31 December 2006 which have been drawn up according to uniformGroup accounting principles. The consolidated financial statements are prepared under the historical costconvention as modified by the revaluation of investment properties, otherfinancial assets and financial liabilities (including derivative instruments) atfair value through profit or loss. The preparation of financial statements inconformity with IFRS requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenue and expenses during the reporting period. Actualresults can differ from those estimates. 2. FINANCIAL RISK MANAGEMENT Financial risk factorsThe Group's activities expose it to a variety of financial risks: market risk(including currency and price risk), cash flow and fair value interest raterisk, credit risk and liquidity rate risk. The Group's overall risk managementprogramme focuses on the unpredictability of financial markets and seeks tominimise potential adverse effects on the Group's financial performance. (a) Market risk (i) Foreign exchange riskThe Group operates internationally and is exposed to foreign exchange riskarising from various currency exposures, primarily with respect to the US Dollarand the Swiss Franc. Foreign exchange risk arises from future commercialtransactions, recognised assets and liabilities and net investments in foreignoperations. The Group has investments in foreign operations, whose net assets are exposed toforeign currency translation risk. Currency exposure arising from the net assetsof the Group's foreign operations in the US and Switzerland are managedprimarily through borrowings denominated in the relevant foreign currencies,although the directors monitor and permit currency exposure in this regard as anelement of its financing strategy. Historically the Group has not entered into any hedging transactions in respectof the net assets of subsidiaries denominated in currencies other than PoundsSterling. The Group will review this policy from time to time. (ii) Price risk and market rental risksThe Group is exposed to property price and market rental risks. Whereverpossible the Group buildsinto the terms of its leases indexation linked toconsumer price indices, in order to manage its market rental risk. (b) Cash flow and fair value interest rate riskThe Group's interest-rate risk arises from long-term borrowings. Borrowingsissued at variable rates expose the Group to interest-rate risk. Borrowingsissued at fixed rates expose the Group to fair value interest-rate risk. Grouppolicy is to maintain a significant percentage of its borrowings in fixed rateinstruments. Strategy in using financial instruments Cash flow hedges The Group hedges a portion of cash flows from floating-rate bank borrowing usinginterest rate swaps. At 31 December 2006 interest rate swaps with an aggregateprincipal amount of £39.367 million (2005: £54.287 million) and a positive fairvalue of £512,763 (2005: £1,068,782) were designated as interest rate hedges.The movement between these dates, reflecting a move to market of the interestrate swaps of £1,581,545 (2005: negative £1,018,179), was adjusted directlyagainst the fair value hedging reserve. These cash flows are not expected tocrystallise as the borrowings will be held to maturity. There were no transactions for which cash flow hedge accounting ceased in 2006and 2005 as a result of the highly probable cash flows no longer expected tooccur. Interest rate swaps are commitments to exchange one set of cash flows foranother. Swaps result in an economic exchange of interest rates (for example,fixed rate for floating rate). No exchange of principal takes place. The Group'scredit risk represents the potential cost to replace the swap contracts ifcounterparties fail to perform their obligation. This risk is monitored on anongoing basis with reference to the current fair value, a portion of thenotional amount of the contracts and the liquidity of the market. The Groupassesses counterparties using the same techniques as for its lending activitiesto control the level of credit risk taken. (c) Credit Risk The Group's concentration of credit risk is primarily with its rental contractswith a limited number of customers in the UK, US and Switzerland. Management hasassessed that the credit risk is low as the rental contracts are granted tocustomers with good credit history and due to the good record of recovery ofreceivables. Cash transactions are limited to high-credit-quality financialinstitutions. The Group has policies in place that limit the amount of creditexposure to specific financial institutions. (d) Liquidity Risk Prudent liquidity risk management implies maintaining sufficient cash andmarketable securities, the availability of funding through an adequate amount ofcommitted credit facilities and the ability to close out market positions. Dueto the dynamic nature of the Group's underlying business, Group Treasury aims tomaintain flexibility in funding by maintaining sufficient levels of workingcapital. 3. REVENUE 2006 2005 £ £ Rental income 11,081,482 11,435,993 ============ ============ Rental income is stated after reallocation of £500,720 (2005 - £509,770) tointerest receivable as referred to in Note 8. Rental income includes accrued income provided to recognise guaranteed futureincome over the period of the leases. The future aggregate minimum rentals receivable under non-cancellable operatingleases are as follows: As of 31 As of 31 December December 2006 2005 £ £ Less than 1 year 10,082,046 10,054,608More than 1 year and less than 5 years 41,608,626 41,465,711More than 5 years 262,369,710 272,264,183 ------------- ------------ 314,060,382 323,784,502 ============= ============ The Group's income is not affected by seasonal factors. A majority of the Investment properties in the UK are leased for an initialperiod of 35 years. The leases terminate between 2036 and 2039, although thelessee has the right to renew the leases two years before their expiry, for afurther period of 35 years subject to agreement on the revised rent. Theremaining Investment Properties in the UK are leased for an initial period of 7years, with the leases terminating in 2012. These leases have the same renewalrights as those described above. The rent on each lease increases on itsanniversary at the rate of the UK RPI, subject to minimum and maximumincreases of 1.5% and 5% of the prior year's rent, respectively. In the eventthat a UK property is damaged or destroyed by any insured risk and is notreinstated by the Group within a period of 3 years, the lessee has the right toterminate the lease in respect of that UK property. The lessor may terminateeach lease, subject to the senior lender's consent, for various reasonsincluding the breach of material clauses of the lease. The investment property in Switzerland is leased for a term of 20 years expiringon 30 June 2023. The lessor may terminate the lease prior to the end of the termin accordance with Swiss law and on 3 months written notice in the event of achange in control of the lessee. The lease rental payments are adjusted annuallyon 1 July of each year, in accordance with movements in the Swiss Index ofConsumer Prices. Investment properties in the United States of America are leased to the UnitedStates Postal Service under a master lease executed in March 1997 and amended on29 January 1999. The lease expires on 28 February 2022. The rent under the leaseis fixed for the entire period of the lease. The lessee has the right tounilaterally relinquish use of up to 25 of the post office properties providedthat the resultant reduction in annual rent payable under the lease does notexceed a maximum of $300,000 per annum or 13% of the annual rental. Managementhave factored this into their analysis of minimum lease payments, and have noreason to believe that this right will be exercised in the foreseeable future. 4. FINANCE COSTS 2006 2005 £ £ Interest on mortgages 4,119,605 3,837,129Interest on bonds - 242,069Other interest and borrowing expenses 1,106,317 2,398,448Interest on pre IPO notes 90,987 123,637Interest on preference shares - 54,054Interest on notes 1,153,680 338,458 ------------- ------------ 6,470,589 6,993,795Amortisation of loan notes 86,608 140,294Credit enhancement insurance premiums 922,913 510,650Exchange gains (139,353) (293,717)Exchange losses - 101,725 ------------- ------------ 7,340,757 7,452,747 ============= ============ 5. EARNINGS PER SHARE Basic earnings per share are calculated by dividing the net profit attributableto shareholders by the weighted average number of ordinary shares outstandingduring the period. As of As of 31 December 31 December 2006 2005 £ £ Net profit attributable to shareholders 13,945,312 10,524,249 Weighted average number of ordinary shares outstanding 2,816,022 2,648,521 Basic earnings per share (£ per share) 4.95 3.97 In December 2002 the Company issued warrants to a third party for an amount ofup to $4 million. Under the terms of the warrants, the holder is entitled toexercise the warrants at any time during a two year period following completionof a public offering of shares in the Company at the same share price as thatoffered at the time of flotation. During 2006 these warrants were assumed by anaffiliated company outside of the PSP group. In January 2004 the Company issued CHF 7 million of 4% Senior Unsecured Pre-IPONotes due in 2011. CHF 6.47 million of these notes were redeemed in October2006. Each noteholder received warrants attached to the notes which may beexercised up to two years after a public offering of the Company's shares. Thewarrants entitle the noteholders to subscribe for the Company's shares at adiscount to the public offering of shares between 5% - 20% depending on thetiming of a public flotation of the Company's shares. Management has estimated that the maximum number of additional ordinary sharesthat could be issued at 31 December 2006 as 12,960 (2005: 203,199). Based onthis, the diluted earnings per share at December 2006 was £4.92 (2005: £3.72). 6. INVESTMENT PROPERTY 2006 2005 £ £ As at 1 January 142,753,825 111,323,885 Extension of properties 146,623 340,971Additions from business combinations - 16,000,000Net gains on fair value adjustment 15,294,592 13,307,339Net changes in fair value adjustments due to exchange differences (2,544,653) 1,781,630 ------------- ------------As at 31 December 155,650,387 142,753,825 ============= ============Fire Insurance Value 101,291,193 101,902,572 ============= ============ Bank borrowings are secured on investment property as outlined in note 13. Valuations of the investment properties were made as at 31 December 2006 byindependent Property Consultants. The valuation of the investment properties in the UK was conducted by ColliersCRE, UK. Based on the detailed review of relevant information, Colliers CREconcluded that capitalisation rates of between 6.0% - 6.25% were appropriateunder market conditions prevailing at 31 December 2006. PSPI has used 6.25% inpreparation of the consolidated financial statements. The valuation of the investment properties in the US was conducted by RealEstate Asset Counselling Inc, US, using the direct capitalisation of the NOI(Net Operating Income) approach in their valuation. Based on the most recenttransactions in the sector reviewed by REAC, the overall direct capitalisationrates ranged between 6.33% and 7.50%. The Company applied the meancapitalisation rate of 6.92%. The valuation of the investment properties in Switzerland was conducted by BottaManagement, AG, using a discounted cash flow analysis. A discount factor of4.5%-4.7% was used for the valuation at 31 December 2006. Included in property rent, maintenance and office expenses, are repairs of£100,746 (2005 - £63,098) in respect of investment properties generating rentalincome. These costs were incurred in respect of investment properties where theGroup is responsible for structural and roof repairs. There were no repairs andmaintenance costs incurred in respect of investment properties that did notgenerate rental income. 7. RECEIVABLE FROM FINANCE LEASES 2006 2005 £ £Non-current Finance leases - gross receivables 29,240,845 29,948,879Unearned finance income (21,309,955) (22,377,453) ------------ ------------ 7,930,890 7,571,426 ------------ ------------Current Finance leases - gross receivables 718,665 691,440Unearned finance income (779,409) (691,440) ------------ ------------ (60,744) - ------------ ------------ ------------ ------------Total receivable from finance leases 7,870,146 7,571,426 ============ ============ Gross receivables from finance leases: - no later than 1 year 718,665 691,440- later than 1 year and no later than 5 years 2,984,048 2,896,501- later than 5 years 26,256,797 27,052,378 29,959,510 30,640,319 Unearned future finance income on finance leases (22,089,364) (23,068,893) ------------ ------------Total receivable from finance leases 7,870,146 7,571,426 ============ ============ The net receivable from finance leases may be analysed as follows: - no later than 1 year (62,524) (81,021)- later than 1 year and no later than 5 years (198,032) (244,331)- later than 5 years 8,130,702 7,896,778 ------------ ------------ 7,870,146 7,571,426 ============ ============ The Group has leased out a business under a licence agreement. The business isin respect of the provision of domiciliary care to clients in their ownproperties which has been licensed to an independent third party for 35 yearswith annual increases in line with the RPI index - minimum increase of 1.5%,maximum increase of 5%. The operator maintains the right to run the Business andreceive any benefits/losses derived from running the business. The remaininglife of this licence is 32 years. 8. LOANS AND RECEIVABLES 2006 2005 £ £ As at 1 January 4,351,500 4,351,500Additions 2,750,000 -Net gains on fair value adjustment of 202,750 -mezzanine loan ------------ ------------As at 31 December 7,304,250 4,351,500 ============ ============= Loans consist of 100% of the issued redeemable preference shares in lesseecompanies. These companies lease the investment properties as referred to innote 6. These preference shares are redeemable at any time. The preference shares are non-voting, not entitled to a dividend, are cancelledon the termination of the leases written with the relevant lessee companies andare repayable at par. Interest income, implicit on the Loans is treated asinterest income, as referred to in note 6, on the same basis as specified in thelease agreements. During the year ended 31 December 2006 £500,720 (2005 -£509,770) has been deducted from rental income and included in interest income.The various rental contracts are referred to in note 3. In January 2006 a subsidiary of the Company invested £2.75 million into amezzanine loan and this loan has been designated at fair value with any changesrecognised through the income statement. The funds were used by the borrower aspart of the acquisition of five nursing and residential care homes in the UnitedKingdom. The mezzanine loan matures the earlier of January 2010 or on the saleof the care homes acquired. Interest accrues at 15% per annum, although 6% perannum will be paid on maturity of the loan. In addition, the PSPI Group isentitled to 5% of the capital appreciation of the investment properties acquiredover the gross acquisition cost, up to maturity of the loan. In the period to 31December 2006 the Company recognised £202,750 as its proportionate share inrespect of the properties. The PSPI Group has a second mortgage on the investmentproperties and a charge over the shares of the company owning the investmentproperties. The fair values of loans and receivables are as follows: +-------------------------------------------+---------------+--+--------------+| | 31 December| | 31 December|| | 2006| | 2005|| | £| | £|+-------------------------------------------+---------------+--+--------------+| | | | |+-------------------------------------------+---------------+--+--------------+|Preference shares | 5,243,493| | 5,215,845|+-------------------------------------------+---------------+--+--------------+|Mezzanine loans | 2,952,750| | -|+-------------------------------------------+---------------+--+--------------+| | | | |+-------------------------------------------+---------------+--+--------------+| | 8,196,243| | 5,215,845|+-------------------------------------------+---------------+--+--------------+| | | | |+-------------------------------------------+---------------+--+--------------+ The fair values are based on cash flows discounted using a rate based on theborrowing rate of 9.5% for the preference shares and 15% for the mezzanine loans(2005: 9.5% preference share). However, if the increase of the underlying indexis higher than 1.5%, the interest rate will be equivalent increased. The effective interest rates on non-current receivables were as follows:- +-------------------------------------------+---------------+--+--------------+ | | 31 December| | 31 December| | | 2006| | 2005| | | | | | | | | | | +-------------------------------------------+---------------+--+--------------+ | | | | | +-------------------------------------------+---------------+--+--------------+ |Preference shares | 12.40%| | 11.17%| +-------------------------------------------+---------------+--+--------------+ |Mezzanine loans | 15.89%| | -| +-------------------------------------------+---------------+--+--------------+ | | | | | +-------------------------------------------+---------------+--+--------------+ 9. INVESTMENTS IN SUBSIDIARIES +------------------------------------------+-------------+------------------+ |The subsidiaries are: | Country of| Ownership| | |Incorporation| Percentage| | | | | +------------------------------------------+-------------+------+-----------+ | | | 2006| 2005| +------------------------------------------+-------------+------+-+---------+ |USI AG | Switzerland| 100%| 100%| +------------------------------------------+-------------+--------+---------+ |United Properties Holdings Incorporation | USA| 100%| 100%| +------------------------------------------+-------------+--------+---------+ |United Post Office Investments | USA| 100%| 100%| |Incorporation | | | | +------------------------------------------+-------------+--------+---------+ |United Properties Finance Incorporation | USA| 100%| 100%| +------------------------------------------+-------------+--------+---------+ |USI Healthcare Investment Company Limited | BVI| 100%| 100%| +------------------------------------------+-------------+--------+---------+ |Healthcare Properties UK (Holdings) | BVI| 100%| 100%| |Limited | | | | +------------------------------------------+-------------+--------+---------+ |Healthcare Properties UK Limited | Guernsey| 100%| 100%| +------------------------------------------+-------------+--------+---------+ |Healthcare Properties (Ashlea) Limited | Guernsey| 100%| 100%| +------------------------------------------+-------------+--------+---------+ |Healthcare Properties (Oxford) Limited | UK| 100%| 100%| +------------------------------------------+-------------+--------+---------+ |The Manor House Nursing Home Limited | UK| 100%| 100%| +------------------------------------------+-------------+--------+---------+ |Healthcare Properties LDK Limited | Guernsey| 100%| 100%| +------------------------------------------+-------------+--------+---------+ |Healthcare Properties Etzelgut Limited | Guernsey| 100%| 100%| +------------------------------------------+-------------+--------+---------+ |HCP Wellcare Holdings Limited | Guernsey| 100%| 100%| +------------------------------------------+-------------+--------+---------+ |HCP Wellcare Group Holdings Limited | BVI| 100%| 100%| +------------------------------------------+-------------+--------+---------+ |Healthcare Properties (Wellcare) Limited | UK| 100%| 100%| +------------------------------------------+-------------+--------+---------+ |HCP Wellcare Progressive Lifestyles | UK| 100%| 100%| |Limited | | | | +------------------------------------------+-------------+--------+---------+ |HCP Community Support Services Limited | UK| 100%| 100%| +------------------------------------------+-------------+--------+---------+ |HCP Wellcare One Limited | UK| 100%| 100%| +------------------------------------------+-------------+--------+---------+ |HCP Wellcare Two Limited | UK| 100%| 100%| +------------------------------------------+-------------+--------+---------+ |HCP Wellcare Three Limited | UK| 100%| 100%| +------------------------------------------+-------------+--------+---------+ |HCP Wellcare Four Limited | UK| 100%| 100%| +------------------------------------------+-------------+--------+---------+ |HCP Wellcare Five Limited | UK| 100%| 100%| +------------------------------------------+-------------+--------+---------+ |HCP Wellcare Six Limited | UK| 100%| 100%| +------------------------------------------+-------------+--------+---------+ |Hollygarth Care Homes Limited (acquired 5 | UK| 100%| 100%| |May 2005) | | | | +------------------------------------------+-------------+------+-+---------+ +------------------------------------------+-------------+------+-+---------+ All of the above entities were subsidiaries of the Company for the whole of theyear unless otherwise stated. 10. DERIVATIVE FINANCIAL INSTRUMENTS 2006 2005 ------------------------------------------------- Assets Liabilities Assets Liabilities £ £ £ £ Interest rate swaps - cash flow hedges 512,763 - 242,111 1,310,893 ================================================== Interest rate swapsThe notional principal amounts of the outstanding interest rate swap contractsat 31 December 2006 were £39.367 million (2005: £54.287 million). At 31 December2006 the fixed interest rates vary from 6.115% to 6.800% (2005: from 2.59% to6.88%). The interest rate swap in respect of the Bonds referred to in note 13 has fixedthe interest rate from August 2003 to August 2006 to match the maturity of thebonds. The interest rate swap has therefore been classified as current. The interest rate swaps in respect of aggregate mortgage borrowings on the UKinvestment properties referred to in note 13 match the interest payment andprincipal repayment profile of the various facilities. The interest rate swapshave been classified as non current as the relevant Group companies have noautomatic right to cancel the instruments. 11. RECEIVABLES AND PREPAYMENTS 2006 2005 £ £ Rents receivable 384,537 98,551Receivables from related parties 1,360,910 2,159,266Other receivables 1,351,128 1,267,287Prepayments 1,680,436 2,542,755 ---------- ---------- 4,777,011 6,067,859 ========== ========== In July 2003 Healthcare Properties UK (Holdings) Limited deposited £1 million asa prepayment of insurance premia with the QBE Insurance Group ("QBE") as part ofa £3.75 million collateralised borrowing described under Mortgages in note 13.Funds are released from the deposit in the same amount as principal repaymentson the relevant mortgage obligations. At 31 December 2006 the balance remainingwith QBE was £nil (2005: £500,000), which is included in prepayments. In December 2005 the Company deposited £500,000 as a prepayment of insurancepremia with QBE as part of a CHF 23 million borrowing. In accordance with theterms of the agreement with QBE, the deposit was increased to £1,000,000 during2006, which is included in prepayments. On full repayment of the borrowings theprepaid insurance premia will be returned to the Company. Included under prepayments is an amount of £218,432 (2005: £997,324) in respectof funds held by a trustee in respect of maintenance and amortisation reserves,which will be utilised on maturity of the bonds issued by United Post OfficeInvestments Inc. Included in other receivables is an amount of £648,610 (2005: £500,000)including accrued interest, lent to European Care as short term working capital.The loan is repayable in May 2007. 12. SHARE CAPITAL 31 December 31 December 2006 2005 £ £ Authorised: Equity interests: 150,000,000 Ordinary shares of $0.01 each 786,081 33,878 =========== ============ Allotted, called up and fully paid: Equity interests: 2,816,022 Ordinary shares of $0.01 each 16,633 16,633 =========== ============ Number of Ordinary Share Total shares shares premium £ £ £ At 31 December 2004 2,182,280 13,154 21,158,923 21,172,077 Issue of new shares 423,571 2,328 7,532,356 7,534,684 Issue of new shares - cash 122,500 665 2,153,327 2,153,992 New shares issued in lieu of dividends 87,671 486 1,514,217 1,514,703 ------------------------------------------------------- At 31 December 2005 2,816,022 16,633 32,358,823 32,375,456 ------------------------------------------------------- Transaction costs in relation to capital raising - - (630,000) (630,000) ------------------------------------------------------- At 31 December 2006 2,816,022 16,633 31,728,823 31,745,456 On 15 February 2005, 37,500 shares were issued by PSPI pursuant to a privateplacement ("PPM") at CHF 40 per share for cash. On 3 March 2005, 379,448 shares were issued by PSPI pursuant to the PPM at CHF 40per share. These shares were issued in exchange for the cancellation ofpreference shares of a subsidiary plus a share of the unrealised capitalappreciation up to the date of conversion. The issuance of these shares is anon-cash transaction in the amount of CHF 15,177,920 (£6,757,455). On 16 June 2005, 35,312 shares were issued at CHF 40 by PSPI as a fee foridentifying an acquisition. The issuance of these shares is a non-cashtransaction in the amount of CHF 1,412,480 (£625,000). On 8 June 2005, 60,000 shares were issued pursuant to the PPM at CHF 40 pershare for cash. On 16 June 2005, 25,000 shares were issued by PSPI pursuant to the PPM at CHF 40per share for cash. On 16 June 2005, 8,811 shares were issued by PSPI in respect of management feespaid to Dr. Lanfranconi valued at CHF 40 per share. The issuance of these sharesis a non-cash transaction in the amount of CHF 352,440 (£152,229). On 16 June 2005, 87,671 of shares were issued at CHF 40 per share by PSPI in lieuof dividends. New issuance costs associated with the 2005 share issues were assumed by theCompany's ultimate controlling party, USI Group Holdings AG. Pursuant to a written resolution passed on 22 November 2006, the amount ofshares the company is authorised to issue was increased from 5,000,000 to150,000,000 ordinary shares of US $0.01 each. 13. BORROWINGS 2006 2005 £ £ Non-current Mortgages 60,132,469 62,812,665 Bonds 11,382,047 - Other 17,025,866 21,269,289 Senior Pre-IPO Notes 221,850 3,091,465 ----------- ----------- 88,762,232 87,173,419 ----------- ----------- Current Mortgages 2,621,253 1,773,866 Other 4,260,134 13,583,890 ----------- ----------- 6,881,387 15,357,756 ----------- ----------- Total borrowings 95,643,619 102,531,175 =========== =========== Total borrowings include secured liabilities (Mortgages, bonds and otherborrowings) of £85,342,019 (2005: £ 89,147,946). These borrowings areprincipally secured by the land and buildings of the Group (Note 6). At 31December 2006 the group had subordinated borrowings of CHF 23 million (2005: CHF23 million) which are primarily secured by a pledge of shares of varioussubsidiary undertakings. On 3 March 2005, shares were issued by PSPI in exchange for the cancellation ofpreference shares (Note 12). The maturity of borrowings is as follows: 2006 2005 £ £ Current borrowings 6,881,387 15,357,756 =========== =========== Between 1 and 2 years 3,096,752 1,817,062 Between 2 and 5 years 28,841,978 11,476,330 Over 5 years 56,823,502 73,880,027 ----------- ----------- Non-current borrowings 88,762,232 87,173,419 =========== =========== The effective interest rates at the balance sheet date were as follows: 2006 2005 ---------------------------------------------------------- £ USD CHF £ USD CHF Mortgages 6.45% - 3.56% 6.55% - 3.56% Bonds - 7.21% - - 5.48% - Other 9.31% - 6.11% 9.12% - 6.11% Senior Pre-IPO Notes - - 4.33% - - 4.60% The carrying amounts and fair value of the non-current borrowings are asfollows: Carrying amounts Fair values ----------------------- ----------------------- 2006 2005 2006 2005 £ £ £ £ Mortgages 60,132,469 62,812,665 58,498,330 61,435,630 Bonds 11,382,047 - 12,456,507 - Other 17,025,866 21,269,289 15,840,773 20,323,904 Senior Pre-IPO Notes 221,850 3,091,465 510,523 2,979,351 ----------------------- ----------------------- 88,762,232 87,173,419 87,306,132 84,738,885 ======================= ======================= The fair values are based on cash flows discounted using a rate based upon arange of borrowings rate between 3.56% and 8.50% (2005: 3.56% and 8.50%). The carrying amounts of short-term borrowings approximate their fair-value. The carrying amounts of the Group's total borrowings are denominated in thefollowing currencies: 2006 2005 £ £ Pound sterling 68,819,206 69,647,721 US dollar 11,382,047 13,365,876 Swiss franc 15,442,368 19,517,578 ----------- ---------- 95,643,621 102,531,175 =========== ========== 14. DEFERRED INCOME TAX Deferred income tax assets and liabilities are offset when there is a legallyenforceable right to offset current tax assets against current tax liabilitiesand when the deferred income taxes relate to the same fiscal authority. 2006 2005 £ £Deferred tax liabilities to be recovered after more than 12 months 19,332,699 14,956,366 =========== ========== The gross movement on the deferred income tax account is as follows: 2006 2005 £ £ Beginning of the year 14,956,366 6,257,769Income statement charge (Note 15) 4,310,530 5,797,731Acquisition of subsidiary - 2,964,664Net changes due to exchange differences 65,803 (63,798) ---------- -----------End of the year 19,332,699 14,956,366 =========== ========== Deferred income tax liabilities of £327,554 (2005: £226,095) have not beenrecognised for the withholding tax and other taxes that would be payable on theun-remitted earnings of certain subsidiaries. Such amounts are permanentlyreinvested. Un-remitted earnings totalled £1,091,845 at 31 December 2006 (2005:£753,649). No deferred income tax liabilities have been recognised for thewithholding tax and other taxes concerning un-remitted earnings of subsidiariesas these liabilities will not crystallise due to the tax structure of group. The movement in deferred tax assets and liabilities during the year, withouttaking into consideration the offsetting of balances within the samejurisdiction, is as follows: Deferred tax liabilities: Business Fair value Straight Total combinations gains line recognition of lease income £ £ £ £ At 31 December 2005 4,788,625 8,369,955 1,797,786 14,956,366 -------------------------------------------------Charged to the income statement - 3,830,930 479,600 4,310,530 Net changes due to exchange differences - 65,803 - 65,803 -------------------------------------------------At 31 December 2006 4,788,625 12,266,688 2,277,386 19,332,699 ================================================= 15. INCOME TAXES 2006 2005 £ £ Current tax (240,347) 45,610 Deferred tax (Note 14) 4,310,530 5,797,731 -------------- ------------- 4,070,183 5,843,341 ============== ============= The tax on the Group's profit before tax differs from the theoretical amountthat would arise using the weighted average tax rate applicable to profits ofthe consolidated companies as follows: 2006 2005 £ £ Profit before tax per consolidated income statement 17,385,495 16,367,590 -------------- ------------- Tax calculated at domestic tax rates applicable to profits in the respective countries 4,910,067 4,910,277 Income not subject to tax (472,688) (414,806) Expenses not deductible for tax purposes 467,849 218,368 Tax relating to prior years (240,347) 880,331 Utilisation of previously unrecognised capital allowances and tax losses (594,698) - Tax losses for which no deferred tax income asset has been recognised - 249,171 -------------- ------------- Tax charge 4,070,183 5,843,341 ============== ============= The weighted average applicable tax rate was 28.24% (2005: 30%). The decrease inthe effective tax rate is caused by a change in the profitability of certain ofthe Group's subsidiaries. As at 31 December 2006 the Group had unused tax losses of £0.3 million, (2005:£0.4million) which expires between 2008 and 2009, these losses were notcapitalised as it was considered unlikely that the group would generatesufficient taxable profits in the appropriate tax jurisdictions for them toenable them to be utilised before expiry. 16. SEGMENT INFORMATION For the year ended 31 December 2006 -------------------------------------------------- SEGMENT UK US Switzerland Total NOTE £ £ £ £ Revenue 3 9,317,812 1,248,311 515,359 11,081,482Net gain on fair value adjustment of investment property and loans 6 15,869,077 364,922 (736,657) 15,497,342Administrative expenses (2,946,182) (266,058) (93,272) (3,285,512)Interest income 2,033,669 29,271 - 2,062,940 --------------------------------------------------Segment result / operating profit 24,294,376 1,376,446 (314,570) 25,359,252 Finance costs - net 4 (5,976,813) (1,093,246) (270,698) (7,340,757) -------------------------------------------------- Profit / (loss) before income tax 18,317,563 283,200 (585,268) 18,015,495 Income Taxes 15 (4,330,321) - 260,138 (4,070,183) ----------- Profit for the year 13,987,242 283,200 (325,130) 13,945,312 =========== Attributable to: Equity holders of the Company 13,945,312Minority interests - ----------- 13,945,312 ===========ASSETS Segment assets 152,975,982 16,509,205 11,593,750 181,078,937Unallocated assets 4,959,151 ----------- Total assets 186,038,088 ===========LIABILITIES Segment liabilities (90,746,201) (11,522,702) (6,912,867) (109,181,770)Unallocated liabilities (9,919,723) ----------- Total liabilities (119,101,493) ===========Other segment items Amortisation of loan notes 4 - 86,608 - 86,608 -------------------------------------------------- At the 31 December 2006, the Group's business segment is organised on aworldwide basis into three main geographical areas. The nature of operations inthe US is that of Postal Offices and in the UK and Switzerland that of NursingHomes, although geographical segments are considered primary. Investmentproperties are leased on the bases described in note 3. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
PSPI.L