4th Apr 2008 07:01
Public Service Properties Inv Ltd04 April 2008 4 April 2008 Public Service Properties Investments Limited ("PSPI", "the Group" or "the Company") Preliminary Results for the Year to 31 December 2007 PSPI (AIM: PSPI), the specialist European care home real estate investment andfinancing company, announces preliminary results for its financial year to 31December 2007. Highlights: Financial• Gross assets increased to £256 million (2006: £186 million) as a result of the increased value of the investment portfolio, the acquisition of Stonelea Healthcare and receipt of IPO proceeds. • Net asset value per share at 156.3p at 31 December 2007 with an adjusted net asset value per share at 196.1p as described in note 8 below. • Conservative leverage strategy maintained - total debt to portfolio investment value stood at 58% at 31 December 2007. • Recommended final dividend of 4p per share, payable on 30 May 2008 to shareholders on the record date on 16 May 2008, making a total for the year of 6p per share. Operational• Rental income increased by 13.3% to £12.6 million (2006: £11.1 million) • Successful IPO in March 2007 raised £31 million (net) of new capital to acquire care home assets in Germany and the UK and to expand capacity within the existing UK portfolio. • First four acquisitions made in Germany (including two since the year end) at an investment of €20 million - further acquisitions planned. • Acquisition of Stonelea Healthcare in September 2007 for £24 million added three high quality care homes to the UK portfolio. • Projects to commence in 2008 to increase bed capacity at two existing UK care homes for an expected cost of £6.6 million - completion of both expected in 1Q 2009. Commenting on the results, chairman Patrick Hall, said, "To a significantextent, retirement care is supported by local and central government expenditureand demographic trends point to continued growth and expansion. "The ownership and leasing of retirement care homes to experienced operators onlong term leases therefore provides a secure and growing income stream for ourshareholders, particularly when combined with the Company's conservative levelsof debt, much of it at fixed interest rates. I therefore view the Company'sfuture with confidence." For further information, please visit www.pspiltd.com or contact: Dr D Srinivas Tim Worlledge Simon HudsonRalph Beney Jeremy Ellis Paul YouensRichard Borg Chris Clarke Gemma BradleyRP&C International Evolution Securities Limited Tavistock Communications(Asset Managers) (Nomad and Brokers)Tel: 020 7766 7000 Tel: 020 7071 4300 Tel: 020 7920 3150 Chairman's Statement I am pleased to report the Group's consolidated financial results for the yearended 31 December 2007, covering the first trading year following the admissionof the Company's shares to the Alternative Investment Market ("AIM") of theLondon Stock Exchange on 26 March 2007. At the time of flotation the challenges of the credit crisis were yet to emerge;however the Group remains well placed to withstand the current marketdifficulties and to continue its steady growth strategy. Continued rental growthin 2008, conservative leverage and the availability of working capital andcredit lines to support new acquisitions all support a positive outlook for theCompany. Whilst we do not underestimate that, in the current environment, accessto credit will remain a key factor to the Group's growth strategy, I remainconfident that the Group's assets will retain value due to the specific dynamicsrelating to the healthcare sector that are not evident in other areas of thereal estate market. Financial Review The Group's consolidated operating profit for the year ended 31 December 2007was £21.6 million (2006 - £25.6m), including fair value adjustments of £8.6million (2006 - £15.3m) to investment properties. Revenue rose by 13.3% to £12.6million, including a 7.5% increase in cash rental revenues as a result of strongindexed linked rental increases for the UK property portfolio and additionalrental income following the acquisition of the Stonelea Healthcare Group inSeptember 2007. The uplift in rental income, combined with improved capitalisation rates, led toan increase in the value of our UK investment property portfolio, whichrepresented 85% of the Group's investment property at the year end. The Group's profit after tax for the year was £5.6 million, after a charge of£3.5 million in respect of professional fees and deferred taxation directlyattributable to the Company's flotation on AIM. Adjusted basic and fully dilutedearnings per share was 6.20 p per share. In October 2007 the Company paid an interim dividend to shareholders at the rateof 2p per share. I am pleased to confirm that the Board has recommended a finaldividend of 4p per share, making a total of 6p per share for the year. Gross assets at 31 December 2007 increased to £256 million (2006 - £186 m) as aresult of the increased value of the investment portfolio, the acquisition ofStonelea Healthcare, and receipt of net proceeds from the IPO. Shareholdersequity increased to £104 million (2006: £67 m) at 31 December 2007, and NetAsset Value to 156.3 pence per share. The adjusted net asset value was 196.1pence per share. The first two acquisitions in Germany are included in the results to 31 December2007, and I am pleased to confirm that the Group exchanged on two furtheracquisitions in March 2008, reflecting our continued progress in building ourinvestment base. The first four acquisitions were acquired at an average grossyield of 7.98% and a net yield of 7.40% on the initial rent. The pipeline ofpotential acquisitions remains strong and I look forward to reporting furtherprogress during 2008 as the Group continues its investment strategy of acquiringcare homes in Germany and developing the UK portfolio through capitalexpenditure programmes to enhance the value of its existing assets. I refer youto the Asset Manager's Review below for further details on the Company'sperformance and development. To a significant extent, retirement care is supported by local and centralgovernment expenditure and demographic trends point to continued growth andexpansion. The ownership and leasing of retirement care homes to experiencedoperators on long term leases therefore provides a secure and growing incomestream for our shareholders, particularly when combined with the Company'sconservative levels of debt, much of it at fixed interest rates. I thereforeview the Group's future with confidence. Patrick Hall, Chairman2 April 2007 Asset Manager's Review The Group's results for 2007 continued to demonstrate solid performance for itsproperty assets. The increase in the Group's reported rental income from £11.1million in 2006 to £12.6 million in 2007 reflected both indexed increases on theleases of its existing investment properties in the UK and Switzerland as wellas rental income from the Stonelea portfolio of three UK care homes acquired inSeptember 2007 on which income has been accrued based on future guaranteedminimum annual increases. Underlying cash rental income increased 7.5% from £9.6million in 2006 to £10.3 million in 2007, of which 89% was the subject ofindexation. All of the Group's properties remain leased to third parties with aweighted average unexpired lease term of 28 years. Net gains from fair value adjustments on investment properties in 2007 were £8.7million (2006 - £15.3 million). These gains reflect the increased rentsmentioned above, as well as a reduction to 6.00% in the capitalisation rateapplied in valuing the majority of the UK investment properties, and 5.75% invaluing the Stonelea portfolio. The Group's UK investment properties represented85% of the total investment property portfolio at 31 December 2007. Interest income increased from £2.1 million in 2006, to £3.3 million in 2007,primarily as a result of an increase in interest receivable on cash depositsraised from the IPO. On 21 December 2007, Esquire Consolidated Group repaid anoutstanding £2.75 million mezzanine loan which increased the Group's cash inhand and provided an effective return of approximately 20% p.a. Administrative expenses increased from £3.0 million in 2006 to £3.2 million in2007. Finance costs increased from £7.6 million to £9.8 million afterrecognising a non cash charge of £1.4 million from marking to market a portionof the Group's sterling interest rate swaps following refinancing of a portionof the Group's senior debt. Finance costs also included £1.4 million of fees inrespect of the Company's initial public offering ("IPO") completed in March2007. Discounting the effect of these non cash and one-off charges, financecosts decreased by £0.7 million due to a combination of lower interest chargesfollowing amortisation of senior debt, repayments of £3.75 million ofsubordinated debt and the re-financing mentioned below. In September 2007 a new five year, interest only £84 million facility was agreedwith the Bank of Scotland ("BoS"). As part of this agreement, the Grouprefinanced £39 million of its existing facilities with BoS and achieved anoverall saving on the average interest margin. The Group borrowed an additional£24.5 million to fund the acquisition of the Stonelea care homes, leavingapproximately £20 million of undrawn credit facilities available for future use.It is expected that part of this credit line will be drawn to fund capitalexpenditure/expansion plans in the UK as well as additional acquisitions inGermany. Income tax expense increased from £4.1 million to £6.3 million in 2007. Theincrease includes £2.0 million which has been taken as a non cash adjustmentbased on the assumed loss of in net operating losses for tax purposes on theGroup's US properties which resulted from the change in beneficial ownership atthe time of the IPO. Provision for deferred taxation on fair value gains andaccrued income for 2007 was £6.1 million (2006 - £4.3 million). As a result, theGroup has provided for £0.2 million of tax to be paid in 2008. Net Asset Value The Group's net asset value per share at 31 December 2007 is 156.3 pence. Theadjusted net asset value per share, as described in Note 8 below, is 196.1 penceper share. Dividend payments On 24 October 2007 an Interim Dividend of 2 pence per share was paid, resultingin a total distribution to shareholders of £1,336,175. The Board has recommendedthat a final dividend of 4 pence per share be approved at the Annual GeneralMeeting of the Company on 6 May, making a total of 6 pence per share for theyear. This amount represents a 4% dividend based on the IPO price and is in linewith indications made at the time of the IPO. Adjusted earnings for 2007, based on the weighted average number of shares for2007, is 6.20 pence per share which represents a 35% increase over the 4.58pence per share earned in 2006. If approved at the Annual General Meeting, the final dividend will be paid on 30May 2008 based on a record date of 16 May 2008. Business Outlook We remain confident that the Group's investment portfolio will continue toperform well in 2008. 100% of the Group's leases in the UK are subject toindexation based on annual changes in the retail price index ("RPI"). Thisindexation gave rise to an average year-on-year increase in rent of 4.31% overthe prior year, and will lead to increases in cash flow during the currentfinancial year. German acquisitions Included in the year end balance sheet is the Group's share of the first twocare home acquisitions in Germany which are located in Flensburg, (close to theDanish border) and Berlin. Since the year end, the Group has exchanged on twofurther acquisitions located to the south west of Hanover and to the west ofBremen. These acquisitions represent an aggregate of 325 beds which the Grouphas leased to three separate operators on lease terms of between 20 and 25years. The Berlin property was subject to an existing lease with six yearsremaining. Should the tenant not renew this lease in 2014, however, the Grouphas negotiated a stand by arrangement with an established operator which hasagreed to renew the lease in 2014 for a further 19 years at an initial rent 11%higher than the current level. The gross acquisition cost of these fourtransactions was approximately €20 million and provided a weighted average grossyield of 7.98% and a net initial yield of 7.4% on the gross acquisition cost.Acquisitions to date have been funded from the Group's working capitalresources; however, senior debt financing will be obtained as the number ofacquisitions increases during 2008. The Group's investment programme for 2008 should result in a series of furtheracquisitions of single care homes which meet the Group's investment criteria. Inaddition, the Group continues to pursue several potential portfolioacquisitions. Developments in the UK The Group will continue to review potential acquisitions on an opportunisticbasis and to pursue the development of additional bed capacity at existingproperties. The first capital expenditure project has been commenced on two of the Group'scare homes located on adjacent sites in Yorkshire. The project involves joiningthe two homes, increasing bed capacity by 50% and upgrading the facilities. Theproject is budgeted to cost £4.2 million and is due to be completed by February2009. The Group has agreed to capitalise rent on the properties during thedevelopment period. On completion, rents will be increased to provide an initialreturn of 8% p.a. on the gross capital expenditure. A second project in respect of a property located near Sunderland is budgeted atapproximately £2.2 million and is expected to begin in the second quarter of2008. Completion is scheduled for the first quarter of 2009. The projectinvolves the demolition of an existing 23 bed converted nursing home and theconstruction of a purpose built 40 bed care home to cater for patients withdementia. In this case, rent will be increased to provide an initial return of7% p.a. on the gross capital expenditure. There are a number of other projects under construction which involve existingassets under consideration, including 4 for which planning consent already hasbeen obtained. Balance Sheet strength The Group's non current assets and total assets increased from £178 million and£186 million, respectively, at the end of 2006 to £222 million and £256 million,respectively, at the end of 2007. The increases primarily reflect theacquisition of the Stonelea portfolio, the fair value gains mentioned above andnet cash raised from the IPO. The Group has net current assets of £27 million at 31 December 2007 which wasprimarily cash. Together with the £20 million of undrawn credit facilities withBoS, the Group is well placed to take advantage of attractive acquisitions. The Group's total equity increased from £67 million at the end of 2006 to £104million at the end of 2007. In addition to increases in Share Capital, SharePremium and retained earnings, the Group recognised movements in fair valuehedging and translation reserves. The former primarily relates to the marking tomarket of interest rate swaps and the latter primarily reflects foreign exchangemovements on the carrying value of the Company's investments in the US,Switzerland and Germany. The Group will continue to monitor exposure to foreigncurrency risk on an on-going basis. The Group's short and long term borrowings at 31 December 2007 wereapproximately £2 million and £112 million, respectively. Total debt to equityratio is 1.10:1 compared to 1.43:1 at 31 December 2006. In addition, total debtto portfolio investment value stood at 58% at 31 December 2007, which weconsider to be conservative bearing in mind the strength of the Group'sunderlying cash flows which are earned under long term leases. We believe that 2008 should provide attractive opportunities for expansion inthe care home sector in Germany and we look forward to reporting on acquisitionsand operational improvements in the months ahead. RP&C International Inc.2 April 2008 CONSOLIDATED INCOME STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2007 Note 2007 2006 £ £ Revenue 5 12,558,158 11,081,482 Net gain from fair value adjustments on investment properties 10 8,650,606 15,294,592 Net Gain on fair value adjustment on loans 13 - 202,750 Negative Goodwill 27 310,011 - Administrative expenses 6 (3,161,819) (3,002,512) Finance income 7(a) 3,295,182 2,062,940 -------------------------Operating profit 21,652,138 25,639,252 Finance costs 7(b) (9,791,129) (7,623,757) -------------------------Profit before income tax 11,861,009 18,015,495 Income tax expense 21 (6,296,392) (4,070,183) -------------------------Profit for the period 5,564,617 13,945,312 ========================= Attributable to: Equity holders of the Company 5,564,617 13,945,312 Basic earnings per share (£ per share) 8 0.09 0.32 Diluted earnings per share (£ per share) 8 0.09 0.32 CONSOLIDATED BALANCE SHEETFOR THE YEAR ENDED 31 DECEMBER 2007 Note 2007 2006 £ £ASSETSNon current assetsInvestment property 10 197,057,229 155,650,387Receivable from finance lease 12 8,143,701 7,870,146Loans and receivables 13 4,351,500 7,304,250Intangible Assets - Goodwill 14 3,090,249 -Accrued income 15 9,721,855 7,479,003 -------------------------- 222,364,534 178,303,786Current assetsReceivables and prepayments 17 6,305,382 6,008,076Derivative financial instruments 16 325,129 512,763Cash 26,686,185 1,213,463 -------------------------- 33,316,696 7,734,302 --------------------------Total assets 255,681,230 186,038,088 ========================== EQUITYCapital and reservesShare Capital 18 344,853 16,633Share Premium 18 64,038,167 31,728,823Cashflow hedging reserve 1,519,227 512,763Translation reserve (1,569,764) (1,177,602)Retained Earnings 40,084,420 35,855,978 --------------------------Total equity 104,416,903 66,936,595 --------------------------LIABILITIESNon current liabilitesBorrowings 19 112,308,006 88,762,232Derivative financial instruments 16 238,671 -Deferred income tax 20 32,606,715 19,332,699 -------------------------- 145,153,392 108,094,931Current liabilitiesBorrowings 19 2,233,098 6,881,387Trade and other payables 22 2,706,119 2,871,501Current income tax liabilities 283,313 -Accruals 23 888,405 1,253,674 ========================== 6,110,935 11,006,562 --------------------------Total liabilities 151,264,327 119,101,493 --------------------------Total equity and liabilities 255,681,230 186,038,088 ========================== CONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2007 Note 2007 2006 £ £ Cash flow from operating activitiesCash generated from operations 24 7,668,387 11,196,945Interest paid (6,129,554) (6,516,271) -------------------------Net cash generated by operating activities 1,538,833 4,680,674 Cash flow from investing activitiesBusiness Combination 25 (23,565,317) -Purchase of investment property 10 (4,848,963) (146,623)Cash received/(paid) for loans and receivables 13 2,952,750 (2,750,000)Interest received 1,706,326 496,681 -------------------------Net cash used in investing activities (23,755,204) (2,399,942) Cash flow from financing activitiesProceeds from borrowings-Initial Amount 23,750,000 11,961,258-Associated Costs (363,067) (379,665)Repayments of borrowings (5,582,888) (16,700,941)Transaction Costs relating to Capital Raising 18, 7(b) (3,010,128) (913,000)Dividends paid 9 (1,336,175) -Capital increases 18 34,212,692 - -------------------------Net cash generated / (used) by financing activities 47,670,434 (6,032,348) Increase/(Decrease) in cash and cash equivalents 25,454,063 (3,751,616) =========================Movement in cash and cash equivalentsAt start of year 1,213,463 4,584,567Increase/(Decrease) 25,454,063 (3,751,616)Foreign currency translation adjustments 18,659 380,512 -------------------------At end of year 26,686,185 1,213,463 ------------------------- CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITYFOR THE YEAR ENDED 31 DECEMBER 2007 Notes Share Share Cashflow Translation Retained Total capital premium hedging reserve earnings Equity reserve £ £ £ £ £ £ Balance as of 1 January 2006 16,633 32,358,823 (1,068,782) (799,728) 21,910,666 52,417,612 Cash flow hedges - net 16 - - 1,581,545 - - 1,581,545 Foreign currency translation - - - (377,874) - (377,874) ----------------------------------------------------------------------------Net income/(expense) recognised directlyin equity - 32,358,823 512,763 (1,177,602) 21,910,666 53,604,650 Transaction costs relatingto CapitalRaising - (630,000) - - - (630,000) Profit for the ---------------------------------------------------------------------------- year - - - - 13,945,312 13,945,312 ----------------------------------------------------------------------------Total recognised income for 2006 - 31,728,823 512,763 (1,177,602) 35,855,978 66,919,962 Balance as of 31 ----------------------------------------------------------------------------December 2006 16,633 31,728,823 512,763 (1,177,602) 35,855,978 66,936,595 ----------------------------------------------------------------------------Balance as of 1 January 2007 16,633 31,728,823 512,763 (1,177,602) 35,855,978 66,936,595 Cash flow hedges - net 16 - - 1,006,464 - - 1,006,464 Proceeds from Shares Issued 328,220 33,884,472 - - - 34,212,692 ----------------------------------------------------------------------------Foreign currency translation - - - (392,162) - (392,162) Net income/ (expense)recogniseddirectly inequity 328,220 33,884,472 1,006,464 (392,162) - 34,826,994 Transaction costs relating to CapitalRaising 18 - (1,575,128) - - - (1,575,128) Profit for the ---------------------------------------------------------------------------- year - - - - 5,564,617 5,564,617 ----------------------------------------------------------------------------Dividends relating to 2007 9 - - - - (1,336,175) (1,336,175) Total recognised income for 2007 328,220 32,309,344 1,006,464 (392,162) 4,228,442 37,480,308 Balance as of 31 ----------------------------------------------------------------------------December 2007 344,853 64,038,167 1,519,227 (1,569,764) 40,084,420 104,416,903 ============================================================================ NOTES 1. BASIS OF PREPARATION The consolidated financial statements of the Group have been prepared in accordance with and comply with International Financial Reporting Standards (IFRS), published by the International Accounting Standards Board (IASB). The consolidated financial statements are reported in Pounds Sterling unless otherwise stated and are based on the annual accounts of the individual subsidiaries at 31 December 2007 which have been drawn up according to uniform Group accounting principles. The consolidated financial statements are prepared under the historical cost convention as modified by the revaluation of investment properties, other financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results can differ from those estimates. 2. FINANCIAL AND OTHER RISK MANAGEMENT 2.1 Financial risk factors The Group's activities expose it to a variety of financial risks: market risk (including currency and price risk), cash flow and fair value interest rate risk, credit risk and liquidity rate risk. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance. The group uses derivative financial instruments to hedge certain risk exposures Risk management is carried out by the senior management of the asset manager under policies approved by the board of directors. Senior management identifies, evaluates and hedges financial risks. The board provides principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity (a) Market risk (i) Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US Dollar, Euros and the Swiss Franc. Limited foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. However most operating entities have limited exposure to exchange risk outside their functional currencies. As a consequence, management considers foreign exchange risk to be immaterial to the Group. The Group has investments in foreign operations, whose net assets are exposed to foreign currency translation risk. Currency exposure arising from the net assets of the Group's foreign operations in the US and Continental Europe are managed primarily through borrowings denominated in the relevant foreign currencies, although the directors monitor and permit currency exposure in this regard as an element of its financing strategy. Historically the Group has not entered into any hedging transactions in respect of the net assets of subsidiaries denominated in currencies other than Pounds Sterling. The Group will review this policy from time to time. (ii) Cash flow and fair value interest rate risk The Group's interest-rate risk mainly arises from long-term borrowings, derivative financial instruments and to a limited extent, from cash and cash equivalents. Borrowings issued at variable rates expose the Group to interest-rate risk. Borrowings issued at fixed rates and derivative financial instruments expose the Group to fair value interest-rate risk. Group policy is to maintain a significant percentage of its borrowings in fixed rate instruments. The Board regularly meet to review levels of fixed and variable borrowings and takes appropriate action as required. The table below shows the sensitivity of profit and equity to movements in market interest rates: £ £ $ $ CHF CHF 2007 2006 2007 2006 2007 2006 Shift in basis points 0.5 0.5 0.5 0.5 0.5 0.5 Profit impact of increase (125,298) (343,870) (57,448) (62,399) (75,586) (81,420) Profit impact of decrease 128,298 343,870 57,448 62,399 75,586 81,420 Equity impact of increase 71,176 104,718 - - - - Equity impact of decrease (71,176) (104,718) - - - - (b) Credit Risk Credit risk arises from cash, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to rental customers, including outstanding receivables. For banks and financial institutions, only independently rated parties with a minimum rating of 'A' are accepted. The table below shows the credit limit and balance of the three major bank counterparties at the balance sheet date. 31 December 2007 31 December 2006 Counterparty Rating Credit limit Balance Credit limit Balance Bank A A - 24,605,611 - 702,734 Bank B A - 1,626,689 - 275,667 Bank C A - 12,863 - (43,770) The Group's concentration of credit risk with non financial institutions is primarily with its rental customers. Management has assessed that the credit risk is low as the rental contracts are granted to customers with good credit history and due to the good record of recovery of receivables. As a result the Group has not incurred any significant losses. (c) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. Due to the nature of the underlying businesses, the group maintains flexibility in funding by maintaining availability under committed credit lines. Management monitors rolling forecasts of the group's liquidity reserve on the basis of expected cash flow. The table below analyses the group's financial liabilities and net-settled derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant. Note Less than Between 1 Between 2 Over 5 At 31 December 2007 1 year and 2 years and 5 years Years Borrowings 8,689,684 8,897,044 112,076,551 16,920,058 Trade and other payables 22 2,706,119 - - - Total 11,395,803 8,897,044 112,076,551 16,920,058 At 31 December 2006 Borrowings 12,204,389 8,793,842 55,718,508 57,937,363 Trade and other payables 22 2,871,501 - - - Total 15,075,890 8,793,842 55,718,508 57,937,363 Borrowings in the above table includes future interest payable. Where an interest rate swap is in place, the fixed rate implicit in the agreement has been used to calculate future payments, consequently the position is shown after any cashflows arising from interest rate swaps. (d) Capital risk management The group's objectives when managing capital are to safeguard the group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Consistent with others in the industry, the group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including 'current and non-current borrowings' as shown in the consolidated balance sheet) less cash and cash equivalents. Total capital is calculated as 'equity' as shown in the consolidated balance sheet plus net debt. During 2007, the group's intention is to maintain the gearing ratio below 75%. The gearing ratios at 31 December 2007 and 2006 were as follows: Note £ £ 2006 2007 Total borrowings 19 114,541,104 95,643,619 Less: cash and cash equivalents (26,686,185) (1,213,463) ------------------------- Net debt 87,854,919 94,430,156 Total equity 104,416,903 66,936,595 ------------------------- Total capital 192,271,822 161,366,751 Gearing ratio 45.69% 58.52% The decrease in the gearing ratio during 2007 resulted primarily from the issue of share capital during the year as detailed in Note 18. 2.2 Other risk factors Price risk and market rental risks The Group is exposed to property price and market rental risks. Wherever possible the Group builds into the terms of its leases indexation linked to consumer price indices, in order to manage its market rental risk. 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgments are continually evaluated and are based on historical experiences and other factors, including expectations of future events that are believed to be reasonable under the circumstance. The Group makes estimates and assumptions concerning the future. By definition, the resulting accounting estimates may not equal the related actual results. The estimates and assumptions that may have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are described below. (a) Estimate of fair value of investment properties The best evidence of fair value is current prices in an active market for similar lease and other contracts. In the absence of such information, the Group determines the amount within a range of reasonable fair value estimates. In making this judgement, the Group considers information from a variety of sources including: i) current prices in an active market for properties of different nature, condition or location (or subject to different lease or other contracts), adjusted to reflect those differences; ii) recent prices of similar properties in less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and iii) discounted cash flow projections based on reliable estimates of future cash flows, derived from the terms of any existing lease and other contracts, and (where possible) from external evidence such as market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of cash flows. (b) Principal assumptions for management's estimations of fair value If information on current or recent prices or assumptions underlying the discounted cash flow approach for investment properties are not available, the fair values of investment properties are determined using discounted cash flow valuation techniques. The Group uses assumptions that are mainly based on market conditions existing at each balance sheet date. The principal assumptions underlying management's estimation of fair value are those related to: the receipt of contractual rentals; expected future market rentals; void periods; maintenance requirements; and appropriate discount rates. These valuations are regularly compared to actual market yield data and actual transactions by the Group and those reported by the market. Management rely on valuations prepared by qualified independent valuation companies. Was the discounted rate used in preparing the independent valuation reports to differ by 5% to the rate used by the independent valuer, the net affect of the carrying amount of investment properties after deferred taxation would be an estimated £7.1million lower (2006 - £5.7 million) or £6.5 million higher (2006 - £5.2 million). The expected future market rentals are determined based on the specific terms of the rental contracts. (c) Lease classification The Group determines the classification of leases on each asset having regard to whether substantially all risks and rewards incidental to ownership of the asset are transferred to the lessee. The Group has determined that all of its leases are operating leases except for a business under licence agreement. The key factor in making the classification between finance leases and operating leases is the estimated life of the properties. The Group estimated the life of the buildings between 70 years and 75 years. The lease periods are between 7 years and 35 years. 4. FOREIGN EXCHANGE RATES --------------------------------------------- Balance Sheet Income Statement and cash flow statement average average 31.12.2007 31.12.2006 2007 2006 £ £ £ £ --------------------------------------------- CHF 1.00 2.24980 2.3890 2.40157 2.30802 USD 1.00 1.99730 1.9591 2.00181 1.84295 EUR 1.00 1.35710 - 1.46206 - ============================================= 5. REVENUE 2007 2006 £ £ Rental income 12,558,158 11,081,482 ========================== Rental income is stated after reallocation of £523,912 (2006 - £500,720) to interest income as referred to in Note 13. Rental income includes accrued income provided to recognise guaranteed future income over the period of the leases, see Note 15. The future aggregate minimum rentals receivable under non-cancellable operating leases are as follows: As of 31 As of 31 December December 2007 2006 £ £ Less than 1 year 12,052,272 10,082,046 More than 1 year and less than 5 years 48,878,009 41,608,626 More than 5 years 263,117,021 262,369,710 -------------------------- 324,047,302 314,060,382 ========================== A majority of the Investment Properties in the UK are leased for an initial period of 35 years. The leases terminate between 2036 and 2039, although the lessee has the right to renew the leases two years before their expiry, for a further period of 35 years subject to agreement on the revised rent. The remaining Investment Properties in the UK are leased for an initial period of 7 years, with the leases terminating in 2012. These leases have the same renewal rights as those described above. The rent on each lease increases on its anniversary at the rate of inflation in the UK, subject to minimum and maximum increases of 1.5% and 5% of the prior year's rent, respectively. In the event that a UK property is damaged or destroyed by any insured risk and is not reinstated by the Group within a period of 3 years, the lessee has the right to terminate the lease in respect of that UK property. The lessor may terminate each lease, subject to the senior lender's consent, for various reasons including the breach of material clauses of the lease. The investment property in Switzerland is leased for a term of 20 years expiring on 30 June 2023. The lessor may terminate the lease prior to the end of the term in accordance with Swiss law and on 3 months written notice in the event of a change in control of the lessee. The lease rental payments are adjusted annually on 1 July of each year, in accordance with movements in the Swiss Index of Consumer Prices. Investment properties in the United States of America are leased to the United States Postal Service under a master lease executed in March 1997 and amended on 29 January 1999. The lease expires on 28 February 2022. The rent under the lease is fixed for the entire period of the lease. The lessee has the right to unilaterally relinquish use of up to 25 of the post office properties provided that the resultant reduction in annual rent payable under the lease does not exceed a maximum of $300,000 per annum or 13% of the annual rental. Management have factored this into their analysis of minimum lease payments, and have no reason to believe that this right will be exercised in the foreseeable future. 6. ADMINISTRATIVE EXPENSES 2007 2006 £ £ Property rent, maintenance and office expenses 78,711 216,379 Administration of group companies 114,322 53,403 Management fees 1,456,575 1,824,309 Professional fees 1,086,659 685,651 Audit fees 152,016 171,187 Sundry expenses 273,536 51,583 ------------------------- 3,161,819 3,002,512 ========================= Certain reclassifications have been made to confirm prior year's balances to the current year presentation. 7. a) FINANCE INCOME Note 2007 2006 £ £ Interest Income - Finance Lease 1,007,255 1,004,483 Interest Income - Other Third Party 2,230,427 1,058,457 Other interest income 57,500 - ------------------------- 24 3,295,182 2,062,940 ========================= b) FINANCE COSTS Note 2007 2006 £ £ Interest on mortgages 4,408,697 4,119,605 Other interest and borrowing expenses 686,000 1,106,317 Interest on pre IPO notes 418 90,987 Interest on notes 1,079,016 1,153,680 ------------------------- 24 6,174,131 6,470,589 Amortisation of loan notes 24 - 86,608 Fair value gains on financial instruments: - Interest rate swaps: ineffective element of cash flow hedges 16,24 1,432,769 - Credit enhancement insurance premiums 749,229 922,913 Capital Raising Fees 24 1,435,000 283,000 Exchange gains - (139,353) ------------------------- 9,791,129 7,623,757 ========================= Certain reclassifications have been made to confirm prior year's balances to the current year presentation. 8. EARNINGS PER SHARE Basic earnings per share are calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares outstanding during the period. As of 31 As of 31 December December 2007 2006 £ £ Net profit attributable to shareholders 5,564,617 13,945,312 Weighted average number of ordinary shares outstanding 61,530,199 44,142,071 Basic earnings per share (pence per share) 9.0 31.6 In December 2002 the Company issued warrants to a third party for an amount of up to $4 million. Under the terms of the warrants, the holder is entitled to exercise the warrants at any time during a two year period following completion of a public offering of shares in the Company at the same share price as that offered at the time of flotation. During 2006 these warrants were assumed by an affiliated company outside of the PSP group. In January 2004 the Company issued CHF 7 million of 4% Senior Unsecured Pre-IPO Notes due in 2011. CHF 6.47 million of these notes were redeemed in October 2006 and a further CHF 0.51 million were redeemed in February 2007. Each note holder received warrants attached to the notes which may be exercised up to two years after a public offering of the Company's shares. The warrants entitle the note holders to subscribe for the Company's shares at a discount to the public offering of shares between 5% - 20% depending on the timing of a public flotation of the Company's shares. Management has estimated that the maximum number of additional ordinary shares that could be issued at 31 December 2007 as 610 (2006 - 12,960). Based on this, the diluted earnings per share at December 2007 was 9.0 pence (2006- 31.6 pence). The weighted average number of ordinary shares outstanding in 2006 and respective earnings per share has been adjusted to reflect the impact of the share capital increase in 2007. Adjusted Earnings per Share The Directors have chosen to disclose "adjusted earnings per share" in order to provide an indication of the groups' underlying business performance. Accordingly it excludes the effect of items as detailed below. Note As of 31 As of 31 December December 2007 2006 £ £ Net profit attributable to shareholders 5,564,617 13,945,312 Fair Value Gains on Investment Properties 10 (8,650,606) (15,294,592) Negative Goodwill 27 (310,011) - Deferred Taxation on Fair Value Gains 20 3,629,271 3,896,733 Loss of Tax Losses due to change in beneficial ownership of subsidiary 20 2,006,548 - Capital Raising Fees 7b) 1,435,000 283,000 Amortisation of Debt Issue Costs 24 274,848 198,557 Interest Rate Swap charge to income statement 7b) 1,432,769 - Accrued Income 15 (2,242,852) (1,486,382) Deferred Taxation on Accrued ---------------------------- Income 20 672,856 479,600 ---------------------------- Adjusted Earnings 3,812,440 2,022,228 Weighted average number of ordinary shares outstanding 61,530,199 44,142,071 Basic adjusted earnings per share (pence per share) 6.20 4.58 Dilutive Shares 610 12,960 Diluted adjusted earnings per share (pence per share) 6.20 4.58 The weighted average number of ordinary shares outstanding in 2006 and respective earnings per share has been adjusted to reflect the impact of the share capital increase in 2007. 9. DIVIDENDS The Directors approved an interim dividend for 2007 in the amount of 2p per share which was paid in October 2007, this resulted in a distribution of £1,336,175. The Directors have recommended a final dividend in the amount of 4p per share, such dividend to be paid on 30 May 2008 to shareholders of record on 16 May 2008; this will result in a distribution of £2,672,350. No dividends were paid in 2006. 10. INVESTMENT PROPERTY 2007 2006 £ £ As at 1 January 155,650,387 142,753,825 Additions and extension of properties 1,323,222 146,623 Additions from business combinations (Note 27) 27,478,261 - Share of additions from Joint Ventures (Note 28) 3,525,741 - Net gains on fair value adjustment (Note 26) 8,650,606 15,294,592 Net changes in fair value adjustments due to exchange differences 429,012 (2,544,653) ------------------------------- As at 31 December 197,057,229 155,650,387 =============================== Bank borrowings are secured on investment property as outlined in Note 19. Valuations of the investment properties were made as at 31 December 2007 by independent Property Consultants. The valuation of the investment properties in the UK was conducted by Colliers CRE, UK. Based on the detailed review of relevant information, Colliers CRE concluded that capitalisation rates of between 5.75% - 6.00% were appropriate under market conditions prevailing at 31 December 2007. PSP has used 6.00% in preparation of the consolidated financial statements. However, investment property acquired in the acquisition of Stonelea Healthcare Limited has been valued using a capitalisation rate of 5.75%. The valuation of the investment properties in the US was conducted by Real Estate Asset Counselling Inc, US, using the direct capitalisation of the NOI (Net Operating Income) approach in their valuation. Based on the most recent transactions in the sector reviewed by REAC, the overall direct capitalisation rates ranged between 6.00% and 7.19%. The Company applied the mean capitalisation rate of 6.86% The valuation of the investment properties in Switzerland was conducted by Botta Management AG, using a discounted cash flow analysis. A discount factor of 4.6%-4.8% was used for the valuation at 31 December 2007. The valuation of the investment properties in Germany were conducted by IMMAC Holding AG, Hamburg. Based on the duration of the leases, the future cash flows and after due consideration of transaction activity in the market, IMMAC concluded that the market value of the properties equated to an effective capitalisation rate of 7.35%. Included in property rent, maintenance and office expenses, as detailed in Note 6, are repairs of £78,711 (2006 - £100,746) in respect of investment properties generating rental income. These costs were incurred in respect of investment properties where the Group is responsible for structural and roof repairs. There were no repairs and maintenance costs incurred in respect of investment properties that did not generate rental income. 11. FINANCIAL INSTRUMENTS BY CATEGORY The accounting policies for financial instruments have been applied to the line items below: Notes Assets at fair value the profit Derivatives Total Loans and and loss used for receivables designated hedging31 December 2007 £ £ £ £ Assets as per balancesheet Derivative financial instruments 16 - - 325,129 325,129 Trade receivables 17 325,281 - - 325,281 Receivables from FinanceLease 12 8,143,701 - - 8,143,701 Loans and Receivables 13 4,351,500 - - 4,351,500 Receivables andPrepayments 17 4,679,385 - - 4,679,385 Cash and cashequivalents 26,686,185 - - 26,686,185 -----------------------------------------------------Total 44,186,052 - 325,129 44,511,181 ===================================================== Other Derivatives used financial for hedging liabilities Total £ £ £Liabilities as perbalance sheetBorrowings 19 - 114,541,104 114,541,104Derivative financial 16 238,671 - 238,671instruments ----------------------------------------------Total 238,671 114,541,104 114,779,775 ============================================== Notes Assets at fair value the profit Derivatives Total Loans and and loss used for receivables designated hedging 31 December 2006 £ £ £ £Derivative financial instruments 16 - - 512,763 512,763 Trade and other receivables 17 384,537 - - 384,537 Receivables from FinanceLease 12 7,870,146 - - 7,870,146 Loans and Receivables 13 4,351,500 2,952,750 - 7,304,250 Receivables and Prepayments 17 4,392,474 - - 4,392,474 Cash and cash equivalents 1,213,463 - - 1,213,463 -----------------------------------------------------Total 18,212,120 2,952,750 512,763 21,677,633 ===================================================== Other financial liabilities Total £ £Liabilities as perbalance sheet Borrowings 19 95,643,619 95,643,619 ----------------------Total 95,643,619 95,643,619 ====================== 12. RECEIVABLE FROM FINANCE LEASES 2007 2006 £ £Non-currentFinance leases - gross receivables 28,522,121 29,240,845Unearned finance income (20,316,332) (21,309,955) ------------------------------- 8,205,789 7,930,890 -------------------------------CurrentFinance leases - gross receivables 737,772 718,665Unearned finance income (799,860) (779,409) ------------------------------- (62,088) (60,744) -------------------------------Total receivable from finance leases 8,143,701 7,870,146 ===============================Gross receivables fromfinance leases:- no later than 1 year 737,772 718,665- later than 1 year and no 3,063,426 2,984,048 later than 5 years- later than 5 years 25,458,695 26,256,797 ------------------------------- 29,259,893 29,959,510 Unearned future finance income on finance leases (21,116,192) (22,089,364) -------------------------------Total receivable from finance leases 8,143,701 7,870,146 =============================== The net receivable from finance leases may beanalysed as follows: - no later than 1 year (67,044) (62,524)- later than 1 year and no (228,929) (198,032) later than 5 years- later than 5 years 8,439,674 8,130,702 ------------------------------- 8,143,701 7,870,146 =============================== 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. The maximum exposure to credit risk at the reporting date is the fair value ofeach class of receivable mentioned above. The group does not hold any collateralas security. All receivables from finance leases are denominated in PoundsSterling. None of the receivable from finance leases were past due nor impaired. 13. LOANS AND RECEIVABLES 2007 2006 £ £As at 1 January 7,304,250 4,351,500Additions - 2,750,000Repayment of mezzanine loan (2,952,750)Net gains on fair value adjustment of mezzanine loan - 202,750 -----------------------------As at 31 December 4,351,500 7,304,250 ============================= Loans consist of 100% of the issued redeemable preference shares in lesseecompanies. These companies lease the investment properties as referred to inNote 11. These preference shares are redeemable at any time. The preferenceshares are non-voting, not entitled to a dividend, are cancelled on thetermination of the leases written with the relevant lessee companies and arerepayable at par. Interest income, implicit on the Loans is treated as interestincome, as referred to in Note 5, on the same basis as specified in the leaseagreements. During the year ended 31 December 2007 £523,912 (2006 - £500,720)has been deducted from rental income and included in interest income. Thevarious rental contracts are referred to in Note 5. 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 Group is entitledto 5% of the capital appreciation of the investment properties acquired over thegross acquisition cost, up to maturity of the loan. In the period to 31 December2006 the Company recognised £202,750 as its proportionate share in respect ofthe properties. The Group has a second mortgage on the investment properties anda charge over the shares of the company owning the investment properties. In December 2007 the mezzanine loan was repaid in full. The fair values of loans and receivables are as follows: 31 December 31 December 2007 2006 £ £ Preference shares 6,098,783 6,043,131Mezzanine loans - 2,952,750 --------------------------- 6,098,783 8,995,881 =========================== The fair values are based on cash flows discounted using a rate based on theborrowing rate of 10.42% for the preference shares (2006 - 9.96% preferenceshare). The effective interest rates on non-current receivables were as follows:- 31 December 31 December 2007 2006Preference shares 12.65% 12.35%Mezzanine loans - 15.89% ============================ The maximum exposure to credit risk at the reporting date is the fair value ofeach class of loans and receivables mentioned above. The group does not hold anycollateral as security. All loans and receivables are denominated in poundssterling. None of the loans and receivables were past due nor impaired. 14. INTANGIBLE ASSETS - GOODWILL 2007 2006 £ £As at 1 January - -Additions (Note 25) 3,090,249 - ---------------------------As at 31 December 3,090,249 - =========================== Goodwill arose on the acquisition of the issued share capital of StoneleaHealthcare Limited as detailed in Note 27 and represents the excess of the totalpurchase consideration over the fair value of the net assets acquired. The goodwill has arisen due to the provision of deferred taxation on thebusiness combination in respect of the fair value of the property over its' basecost. However, given that any future disposal would be performed in a taxefficient manner it is considered unlikely that any liability will crystallise. Goodwill acquired through business combinations has been allocated forimpairment testing purposes to the individual cash generating unit (CGU) towhich it relates. In this instance that is the investment property acquired (seeNote 10). This represents the lowest level within the Group at which goodwill ismonitored by management for internal reporting purposes. In accordance with IAS 36 Impairment of Assets, the carrying amount of the CGUhas been compared with its recoverable amount to ensure no impairment hasoccurred. The recoverable amount of the CGU is based on its fair value lesscosts to sell as this exceeds its value in use. This has indicated that noimpairment has occurred. 15 ACCRUED INCOME 2007 2006 £ £ As at 1 January 7,479,003 5,992,621Recognition of straight-line income 2,242,852 1,486,382 ---------------------------As at 31 December 9,721,855 7,479,003 =========================== Accrued income is provided to recognise guaranteed future income over the periodof the lease as referred to in Note 5. 16. DERIVATIVE FINANCIAL INSTRUMENTS 2007 2006 ----------------------------------------- Assets Liabilities Assets Liabilities £ £ £ £ Interest rate swaps - cash flow hedges 325,129 238,671 512,763 - Interest rate swaps The notional principal amounts of the outstanding interest rate swap contractsat 31 December 2007 were £61.521 million (2006 - £39.367 million). At 31December 2007 the fixed interest rates vary from 6.115% to 6.800% (2006 - from6.115% to 6.800%). The interest rate swap in respect of the Bonds referred to in Notes 2 & 19 hasfixed the interest rate from August 2003 to August 2006 to match the maturity ofthe bonds. 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 19 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. The movement between these dates, reflecting a move to market of the interestrate swaps of £426,305 (2006 - £1,581,545), of this movement £1,006, 464 wasadjusted directly against equity. This represents the movement to 4 September2007 at which point a number of the swaps became ineligible for hedge accountingdue to refinancing of mortgage borrowing. The movement since this date has beenadjusted against the income statement and totals £(1,432,769) in Note 7. 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. The maximum exposure to credit risk at the reporting date is the fair value ofeach class of derivative financial instruments mentioned above. The group doesnot hold any collateral as security. 17. RECEIVABLES AND PREPAYMENTS 2007 2006 £ £ Trade receivables 325,281 384,537Receivables from related parties - 1,360,910Other receivables 2,824,082 1,351,128Prepayments 3,156,019 2,911,501 --------------------------- 6,305,382 6,008,076 =========================== The balance receivable from related parties was repaid in the year and relatedto amounts owed by the previous ultimate parent undertaking USI Group HoldingsAG. 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 £211,049 (2006 - £218,432) 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 £1,207,977 in respect of moniesowed by the fellow joint venturer of PSPI in respect of the joint venture PSPIElliott Celle Limited (see Note 26) Included in other receivables is an amount of £938,640 (2006 - £648,610)including accrued interest, lent to European Care as short term working capital.The loan is repayable in May 2008. As at 31 December 2007, trade receivables of £384,968 were past due however notconsidered to be impaired. It was assessed that this receivable is expected tobe recovered. The ageing of this receivable is as follows £ £ 2007 20063 to 6 months - -Over 6 months 384,968 204,459 The maximum exposure to credit risk at the reporting date is the fair value ofeach class of receivable and prepayment mentioned above. The group does not holdany collateral as security. None of the receivables and prepayments are impaired. 18. SHARE CAPITAL 31 December 31 December 2007 2006 £ £Authorised:Equity interests:150,000,000 Ordinary shares of $0.01 each 786,081 786,081 ===========================Allotted, called up and fully paid:Equity interests: 66,808,738 Ordinary shares of $0.01 each 344,853 16,633 ============================ Number of Ordinary Share shares shares premium Total £ £ £ -----------------------------------------------At 31 December 2005 2,816,022 16,633 32,358,823 32,375,456 -----------------------------------------------Transaction costs in relation to capitalraising - - (630,000) (630,000) -----------------------------------------------At 31 December 2006 2,816,022 16,633 31,728,823 31,745,456 -----------------------------------------------Issue of new shares (20th March 2007) 41,326,049 212,692 - 212,692 Transaction costsrelating tocapital raising - - (1,575,128) (1,575,128) Issue of new shares (26th March 2007) 22,666,667 115,528 33,884,472 34,000,000 -----------------------------------------------At 31 December 2007 66,808,738 344,853 64,038,167 64,383,020 ----------------------------------------------- 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. On 20 March 2007, 41,326,049 shares were issued to USIGH Limited at par valueresulting in the amount of $413,260.49. On 26 March 2007 22,666,667 shares were issued upon admission to the AlternativeInvestment Market of the London Stock Exchange ("AIM"). These shares were issuedat a placing price of 150 pence per share. The Directors approved an interim dividend for 2007 in the amount of 2p pershare which was paid in October 2007, this resulted in a distribution of£1,336,175. 19 BORROWINGS 2007 2006 £ £Non-currentMortgages 83,567,592 60,132,469Bonds 11,240,289 11,382,047Other 17,489,744 17,025,866Senior Pre-IPO Notes 10,381 221,850 ---------------------------- 112,308,006 88,762,232 ----------------------------CurrentMortgages 1,533,074 2,621,253Other 700,024 4,260,134 ---------------------------- 2,233,098 6,881,387 ----------------------------Total borrowings 114,541,104 95,643,619 ============================ Total borrowings include secured liabilities (Mortgages, bonds and otherborrowings) of £103,807,918 (2006 - £ 85,342,019). These borrowings are securedby the assets of the Group (Note 10 and 17). At 31 December 2007 the group hadsubordinated borrowings of CHF 23 million (2006 - CHF 23 million) which areprimarily secured by a pledge of shares of various subsidiary undertakings. The maturity of borrowings is as follows: 2007 2006 £ £Current borrowings 2,233,098 6,881,387 ============================= Between 1 and 2 years 1,533,074 3,096,752Between 2 and 5 years 94,781,713 28,841,978Over 5 years 15,993,219 56,823,502 -----------------------------Non-current borrowings 112,308,006 88,762,232 ============================= The carrying amounts and fair value of the non-current borrowings are asfollows: Carrying amounts Fair values ---------------------- ------------------------ 2007 2006 2007 2006 £ £ £ £Mortgages 83,567,592 60,132,469 79,604,496 58,498,330Bonds 11,240,289 11,382,047 11,931,724 12,456,507Other 17,489,744 17,025,866 16,553,525 15,840,773Senior Pre-IPO Notes 10,381 221,850 10,381 510,523 ---------------------- ------------------------ 112,308,006 88,762,232 108,100,126 87,306,133 ====================== ======================== The fair values are based on cash flows discounted using a rate based upon arange of borrowings rate between 3.56% and 8.50% (2006 - 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: 2007 2006 £ £ Pound sterling 87,437,586 68,819,204US dollar 11,240,289 11,382,047Swiss franc 15,863,229 15,442,368 ---------------------------- 114,541,104 95,643,619 ============================ 20. 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. 2007 2006 £ £Deferred tax liabilities to be recovered after more than 12 months 32,606,715 19,332,699 ============================ The gross movement on the deferred income tax account is as follows: 2007 2006 £ £ Beginning of the year 19,332,699 14,956,366Income statement charge (Note 21) 6,137,784 4,310,530Acquisition of subsidiary (Note 25) 7,058,452 -Net changes due to exchange differences 77,780 65,803 ----------------------------End of the year 32,606,715 19,332,699 ============================ Deferred income tax liabilities of £577,179 (2006: £327,554) 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 £1,923,930 at 31 December 2007 (2006:£1,091,845). 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 the 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 Straight liabilities: line recognition Business Fair value of lease combinations gains income Total £ £ £ £ At 31 December 2006 4,788,625 12,266,688 2,277,386 19,332,699 -------------------------------------------------Charged to the income statement (93,111) 5,558,039 672,856 6,137,784 Arising on acquisition 7,058,452 - - 7,058,452 Net changes due to exchangedifferences - 77,780 - 77,780 -------------------------------------------------At 31 December 2007 11,753,966 17,902,507 2,950,242 32,606,715 ================================================= Charges to the income statement include £2,006,548 in respect of the loss of taxlosses due to the change in the beneficial ownership of a subsidiary. 21. INCOME TAXES 2007 2006 £ £ Current tax 158,608 (240,347)Deferred tax (Note 20) 6,137,784 4,310,530 ----------------------- 6,296,392 4,070,183 ======================= 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: Note 2007 2006 £ £ Profit before tax per consolidated income statement 11,861,009 17,385,495 ========================= Tax calculated at domestic tax rates applicable to profits in therespective countries 3,556,896 4,910,067 Expenses not deductible for tax purposes 1,143,805 467,849 Tax relating to prior years 28,320 (240,347) Utilisation of previously unrecognised capital allowances andtax losses (439,177) (1,067,386) Loss of tax losses due to change of beneficial ownership of subsidiary 8,20 2,006,548 - ------------------------Tax charge (Note 26) 6,296,392 4,070,183 ======================== The weighted average applicable tax rate was 29.99% (2006: 28.24%). The decreasein the effective tax rate is caused by a change in the profitability of certainof the Group's subsidiaries. 22. TRADE AND OTHER PAYABLES 2007 2006 £ £Trade payables - -Social security and other taxes 86,597 84,374Other payables 2,619,522 (118,148)Amounts owed to Parent Company - 2,905,275 ---------------------- 2,706,119 2,871,501 ====================== 23. ACCRUALS 2007 2006 £ £Interest and other finance costs 608,758 556,505Amounts owed to Related Parties 34,748 193,392Other accrued expenses 244,899 503,777 ----------------------- 888,405 1,253,674 ======================= 24. CASH GENERATED FROM OPERATIONS Note 2007 2006 £ £Profit for the year: 5,564,617 13,945,312 Adjustments for: - Interest expense 7b) 6,174,131 6,470,589- Capital Raising Fees 7b) 1,435,000 283,000- Interest income 7b) (3,295,182) (2,062,940)- Tax 21 6,296,392 4,070,183- Ineffective element of cash flow hedge 7b) 1,432,769 -- Amortisation of Loan Notes 7b) - 86,608- Changes in fair value of Investment Property and Loans 10, (8,650,606) (15,497,342) 13 - Amortisation of Debt Issue Costs 8 274,848 198,557- Changes in receivables and prepayments 1,581,750 2,427,427- Changes in accrued income 15 (2,242,852) (1,486,382)- Changes in trade and other payables (649,954) 2,773,456- Changes in accruals (252,526) (11,523) ---------------------------Cash generated from operations 7,668,387 11,196,945 =========================== Certain reclassifications have been made to confirm prior year's balances to thecurrent year presentation. 25. BUSINESS COMBINATIONS On 4 September 2007, the Group acquired 100% of the issued share capital ofStonelea Healthcare Limited, an owner and operator of nursing and residentialcare home facilities in the United Kingdom. On the same day the assets andbusiness were leased to a third party operator at an initial rent of £1.58million per annum. The lease is for an initial period of 35 years, with thelessee having options to renew for a further periods up to 35 years from thedate of the initial lease. The lease contributed revenues of £817,454 and netloss of £133,455 to the Group for the period from 4 September 2007 to 31December 2007. If the acquisition had occurred on 1 January 2007, the leasewould have contributed revenues of £2,505,095 and net profit of £199,635. TheGroup borrowed £23.75 million from the Bank of Scotland to finance theacquisition. The loan requires payment of interest only during the whole fiveyear period. The additional borrowings are secured by the land and buildingsacquired and by cross guarantees with other group entities that already hadexisting facilities outstanding from the same lender. Details of net assets acquired and goodwill are as follows: Note £Purchase consideration:- Cash paid 22,815,167- Direct costs relating to acquisition 915,558 -----------Total purchase consideration 23,730,725Fair value of net assets acquired 20,640,476 -----------Goodwill on business combinations 14 3,090,249 =========== The assets and liabilities arising from theacquisition are as follows: Acquiree's Carrying Fair value amount £ £ 2007 2007 Cash and cash equivalents 165,408 165,408Investment property 10 27,478,261 23,000,000Receivables 539,831 539,831Payables (484,572) (484,572)Deferred tax 20 (7,058,452) (93,111) ------------------------------Net assets acquired 20,640,476 23,127,556 ============================== £ Purchase consideration settled in cash 23,730,725 Cash and cash equivalents in subsidiary acquired (165,408) ----------Cash outflow on acquisition 23,565,317 ========== There were no business combinations during 2006. 26. JOINT VENTURES The group has a 50% interest in a joint venture, PSPI Elliott Celle Limited, acompany registered in the British Virgin Islands and incorporated on 11 July2007. The company's principle activity is that of an investment company. The following amounts represent the Groups' 50% share of the assets andliabilities, and sales results of the joint venture. They are included in thebalance sheet and income statement. Note 2007 £AssetsInvestment Properties 10 3,525,741Other Non Current Assets -Current Assets 119,030 ----------- 3,644,771LiabilitiesNon Current Liabilities -Current Liabilities 2,461,311 ----------- 2,461,311 Net Assets 1,183,460 Income - Expenses (79,557) -----------Profit after income tax (79,557) -----------Proportionate interest in joint -venture's commitments There are no contingent liabilities relating to the group's interest in thejoint venture and no contingent liabilities of the venture itself. 27. NEGATIVE GOODWILL In 2007 the Group received an amount of £310,011 in respect of the acquisitionof 100% of the issued share capital of Hollygarth Care Homes Limited on 5 May2005. This represented an adjustment to the purchase consideration and as suchhas been treated as additional negative goodwill. 28. SUBSEQUENT EVENTS In March 2008 the Group exchanged contracts on two transactions relating to theacquisition of additional care homes in Germany. The estimated gross acquisitioncost for each transaction was €5.0 million and €5.9 million, respectively. Thefirst transaction completed on 3 April 2008 and was purchased using the Group'sworking Capital. The second transaction is scheduled to complete on 1 May 2008. 29. SEGMENT INFORMATION For the year ended 31 December 2007 -------------------------------------------------------------- SEGMENT UK US Germany Switzerland Total Note £ £ £ £ £ Revenue 5 10,904,532 1,152,857 - 500,769 12,558,158 Net gain on fair value adjustment ofinvestment property 10 9,312,961 (354,679) - (307,676) 8,650,606 Negative Goodwill 27 310,011 - - - 310,011 Administrative expenses 6 (2,013,930) (666,178) (79,557) (402,154) (3,161,819) Interest income 7a) 3,271,363 23,805 - 14 3,295,182 --------------------------------------------------------------Segment result / operating profit 21,784,937 155,805 (79,557) (209,047) 21,652,138 Finance costs - net 7b) (8,732,053) (862,568) - (196,508) (9,791,129) --------------------------------------------------------------Profit / (loss) before income tax 13,052,884 (706,763) (79,557) (405,555) 11,861,009 Income Taxes 21 (6,253,250) - - (43,142) (6,296,392) --------------------------------------------------------------Profit for the year 6,799,634 (706,763) (79,557) (448,697) 5,564,617 ============================================================== Attributable to:Equity holders of the Company 5,564,617 Minority interests - --------- 5,564,617 =========ASSETSSegment assets 195,045,794 15,779,486 3,644,771 13,033,518 227,503,569Unallocated assets 28,177,661 ----------- 255,681,230 ===========Total assets LIABILITIESSegment liabilities (118,599,151) (11,320,662) (3,724,327) (7,260,393) (140,904,533)Unallocated liabilities (10,359,794) ------------Total liabilities (151,264,327) ============Capital expenditure 10,14 30,568,510 - - - 30,568,510 ============ 6 At the 31 December 2007, the Group's business segment is organised on aworldwide basis into four main geographical areas. The nature of operations inthe US is that of Postal Offices and in the UK, Germany and Switzerland that ofNursing Homes, although geographical segments are considered primary. Investmentproperties are leased on the bases described in Note 5. Capital expenditure includes investment property and goodwill acquired throughbusiness combinations related to the UK Healthcare Property segment (Note 27).(2006: £Nil) For the year ended 31 December 2006 -------------------------------------------------------------- SEGMENT UK US Switzerland Total Note £ £ £ £ Revenue 5 9,317,812 1,248,311 515,359 11,081,482 Net gain on fairvalue adjustmentof investment 10,property and loans 13 15,869,077 364,922 (736,657) 15,497,342 Administrativeexpenses 6 (2,643,182) (266,058) (93,272) (3,002,512) Interest income 7a) 2,033,669 29,271 - 2,062,940 --------------------------------------------------------------Segment result /operating profit 24,577,376 1,376,446 (314,570) 25,639,252 Finance costs - net 7b) (6,259,813) (1,093,246) (270,698) (7,623,757) --------------------------------------------------------------Profit / (loss)before income tax 18,317,563 283,200 (585,268) 18,015,495 Income Taxes 21 (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 ===========ASSETSSegment assets 152,975,982 16,509,205 11,593,750 181,078,937 Unallocated assets 4,959,151 ----------- 186,038,088 ===========Total assets LIABILITIESSegment 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 itemsAmortisation ofloan notes 7b) - 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 5. Certain reclassifications have been made to confirm prior year's balances to thecurrent year presentation. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
PSPI.L