27th Apr 2010 07:00
27 April 2010
Public Service Properties Investments Limited
("PSPI", "the Group" or "the Company")
Final Results for the year to 31 December 2009
PSPI (AIM: PSPI), the specialist European care home real estate investment and financing company, announces final results for the year to 31 December 2009.
Highlights:
Financial
§ Operating profit¹ up 12% to £16.5 million (31 December 2008 - £14.8 million).
§ Investment properties valued at £256.9 million, reflecting a net decline of £2.2 million from fair value adjustments.
§ Adjusted earnings before tax of £6.4 million (9.53p per share) compared to £4.8 million (7.11p per share) in 2008, an increase of 34%.
§ A second interim dividend (in lieu of a final dividend) of 4.5p per share (31 December 2008 - final 4p), fully covered by cash earnings, making a total dividend for the year of 6.5p (2008 - 6p), an increase of 8%. The second interim dividend will be paid on 10 May 2010 to shareholders on the register on 9 April 2010.
§ Net asset value per share at 154.6p (31 December 2008 - 155.1p) and adjusted net asset value per share² at 195.8p at 31 December 2008 (31 December 2008 - 196.9p).
§ Conservative leverage - 53% Loan to Value3 at 31 December 2009 (31 December 2008 - 56%) and compliant with all banking covenants.
Operational
§ Cash rental income increased by 16% to £16.3 million for the year (31 December 2008 - £14.1 million) reflecting a full year of rental income from assets acquired in Germany in 2008 and increases in UK rental income.
§ On 14 April 2010 the Company completed an Open Offer to shareholders, raising net proceeds of £24 million by the issuance of 35.6 million shares at 70p.
§ In April 2010 the Companysecured €18 million of senior three year debt, secured against investment properties in Germany. Interest on the debt has been fixed at a rate, including margin, of 3.8% per annum.
Commenting on the results, Chairman Patrick Hall, said, "The Group's performance remains robust despite recent difficulties in global financial markets. Our primary focus on care home property assets has resulted in a stable net asset value, as values in this sector have seen only modest volatility.
Taking the transactions completed after the year end into account, the Company now has consolidated net assets of £127 million, gross debt of £165 million and cash of £43 million, which makes the Company extremely well placed to accelerate the capital expenditure programme on care home assets in the UK, and create additional value for shareholders over the medium term."
Notes:
¹ Operating profit excluding adjustment for fair value adjustments to investment properties.
² Adjusted net asset value per share is represented by net assets less goodwill plus deferred tax provided on business combinations and fair value gains divided by the number of ordinary shares issued at 31 December 2009.
³ Loan to Value is represented by total short and long term borrowings expressed as a percentage of total non-current assets, excluding goodwill and loans & receivables.
For further information, please visit www.pspiltd.com or contact:
|
Dr D Srinivas Ralph Beney |
Jeremy Ellis Chris Clarke |
Simon Hudson Gemma Bradley |
|
RP&C International |
Evolution Securities Limited |
Tavistock Communications |
|
(Asset Managers) |
(Nomad and Broker) |
|
|
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 year ended 31 December 2009 and to comment on the positive developments so far in 2010.
The Group's performance remains robust despite recent difficulties in global financial markets. Our primary focus on care home property assets has resulted in a stable net asset value, as values in this sector have seen only modest volatility. The Group benefits from indexed rental growth under long-term lease contracts with good covenants, a conservative Loan to Value¹ ratio of 53% and a fully let property portfolio with a weighted average unexpired lease length of 22 years. In addition, 2009 reflected the first full year of rental income from the German investment property portfolio.
The stability of cash flow from the investment portfolio fully supports the Group's financial and operating expenses, as well as providing cover for the dividend to shareholders.
Financial Review
Consolidated operating profit, excluding fair value adjustments to investment properties, for the year ended 31 December 2009 was £16.5 million, representing an increase of 12% over that generated in 2008. Cash rental income of £16.3 million was 16% higher in 2009 than in 2008, and adjusted earnings before tax showed a profit of £6.4 million (9.53p per share) compared to £4.8 million (7.11p per share) in 2008, an increase of 34%.
The Group's investment property portfolio was valued at the year end at £256.9 million compared to £258.5 million at 31 December 2008. This is after charging £2.2 million of fair value losses, equivalent to 0.8% of the value of investment properties at the beginning of the year.
Net assets at 31 December 2009 were £103.3 million, an effective net increase of £3.7 million or 3.6% from the end of 2008 after adjusting for £4.0 million paid in dividends to shareholders. In conjunction with an Open Offer to shareholders as mentioned below, the Board of Directors approved a second interim dividend (in lieu of a final dividend) of 4.5p per share for the year ended 31 December 2009, which will be paid on 10 May 2010 to shareholders on the register on 9 April 2010. Dividends for 2009 therefore totalled 6.5p per share compared to 6p per share for 2008, an increase of 8%.
The net asset value per share at 31 December 2009 after the payment of dividends was 154.6p compared to 155.1p per share at 31 December 2008, whilst the Adjusted Net Asset Value Per Share² at the end of the year was 195.8p compared to 196.9p at 31 December 2008.
Post year end developments
On 14 April 2010 the Company completed an Open Offer to shareholders, raising net proceeds of £24 million by the issuance of 35.6 million new shares at 70p per share. In addition, the Group secured €18 million of senior three year debt secured against investment properties in Germany. Interest on this debt has been fixed for the term at a rate, including margin, of 3.8% per annum.
Taking these transactions into account, the Company now has consolidated net assets of £127 million, gross debt of £165 million and cash of £43 million, which makes your Company extremely well placed to accelerate the capital expenditure programme on care home assets in the UK, and create additional value for shareholders over the medium term.
Patrick Hall
Chairman
26 April 2010
¹Loan to Value is represented by total short and long term borrowings expressed as a percentage of total non current assets, excluding goodwill and loans & receivables.
² Adjusted Net Asset Value Per Share is represented by the net assets less goodwill plus deferred tax provided on business combinations and fair value gains divided by the number of ordinary shares in issue at 31 December 2009.
Asset Manager's Review
Business Outlook
The Group's geographical asset exposure remained stable during the course of 2009. 68% of investment properties, including accrued income on straight line lease recognition, were owned in the UK, 20% in Germany and 6% in each of Switzerland and the United States.
Operators in the care home markets in both the UK and Germany have been under some pressure, partly as a result of weaker government and personal finances. Occupancy levels are approximately 3% points lower in 2009 than 2008 across the Group's markets. However, we believe that the Company's chosen operators are well placed to deal with these difficult markets and will continue to adapt their own operations to address some of these pressures. As the Group has entered into long term leases with operators that have demonstrated strong rent cover from earnings which are primarily derived directly or indirectly from local and national governments, the Group's asset valuations have remained relatively stable.
The UK care home market
Colliers CRE are the independent valuer of the Group's healthcare assets in the UK and Germany. Colliers is generally regarded as a market leader for valuing UK healthcare properties and is the valuer of choice for many senior lending institutions. In its 2009 autumn care homes review, Colliers stated that "With the broader economy showing signs of recovery, there is a continuing strong interest in healthcare space. The sector continues to face a number of challenges…. There is a need to increase income levels, which will require both an increase in standards and the quality of care, in order to maintain previously healthy profit margins."
We believe that European Care, tenant and operator of the Group's UK portfolio, is ideally situated to adapt to the challenges identified by Colliers, and the Group will play its part by providing enhanced and enlarged assets from which European Care will deliver its services. Up to 80% of the proceeds from the Open Offer are designated to fund capital expenditure projects identified together with European Care to extend, renew and upgrade the physical space at several of the Group's investment properties. Several projects will commence over the next few months with build times of between two and fifteen months.
At the end of 2009, the Group's UK assets were valued by Colliers at running yields of between 6.0% and 7.5%, with an average running yield of 6.3%, which is broadly the same as at the end of 2008. All of the Group's UK leases are subject to indexation based on changes in the retail price index ("RPI"), which was reported as negative for most of 2009; however, the benefit of the Group's minimum annual increases resulted in rental growth on the UK portfolio of just over 1.5% compared to 4% in 2008. It is worth noting that RPI has risen strongly in 2010 as a result of the rate of VAT increase in January as well as other inflationary factors. As a result, more than one third of the leases on the UK portfolio have already been reviewed in 2010 at increases of 3.7% with some rent reviews shortly to be implemented at an annual increase of 4.4%.
Operators in the UK care home sector are responding to challenges caused by constraints on government spending and increasing costs, notably from a reduced opportunity to employ non European Union carers, who have provided a lower cost resource in recent years. In order to protect revenue, operators may seek to raise the quality and acuity of homes and services, and this strategy is assisted by the Group's capital expenditure programme referred to above.
The Group's first capital expenditure project in Yorkshire was completed in the middle of 2009 at a construction cost of £4.8 million. Colliers increased the valuation on this facility by £6.8 million at the end of 2009, thereby generating an uplift of 42% on the capital expenditure incurred. The operator is steadily building occupancy at this enlarged and refurbished home.
A second project at a property near Durham has a budgeted cost of approximately £2.6m. The project involves the demolition of an existing 23 bed converted nursing home, and the construction of a purpose built 40 bed care home to cater for patients with dementia. The project has been slightly delayed because of the weather conditions last winter and partially due to a re-assessment to increase the quality of the fit-out phase. The majority of the construction has now completed and the fit out is now expected to be finished in May with the home expected to be operational from mid-June. The rent will be increased to provide an additional return of 7% p.a. on the gross capital expenditure which should result in a projected property value uplift of approximately 25% on the capital expenditure.
The German care home market
Transactional yields in the German care home market have remained relatively stable during the course of 2009. There are opportunities to purchase single assets, but portfolio opportunities are difficult due to the lack of senior debt for these types of transactions. The challenge to the Group's further expansion will be linked to the availability of senior debt financing. We remain confident that single asset transactions are possible, but loan to value on senior debt is likely to be restricted to approximately 60% of the gross acquisition cost and the maturity of loans is limited to 2-5 years.
The German investment property portfolio was valued by Colliers at 31 December 2009 at running yields of between 6.35% and 8.5% with an average of 6.7%. Six of the Group's German properties are leased to the Marseille Kliniken group ("Marseille"), listed on the Xetra, Frankfurt and Hamburg stock exchanges, and Germany's second largest operator of private care homes. Marseille operates more than 85 homes in Germany comprising just under 9,000 beds. The Marseille portfolio represents 63% of the annual lease income derived from Germany and has been valued at running yields between 6.35% and 6.45% on net rental income. Seven of the properties at three locations representing 31% of annual German lease income are leased to Meritus, a privately owned operator, and have been valued using running yields between 7.35% and 7.5%. The remaining property in Germany is leased to Pflegeheim Huttenstrasse, a private operator in Berlin, and has been valued at a running yield of 8.5% at the end of the year, primarily due to the short term of the lease which expires in 2013. The Group has agreed that Meritus will take over the lease in 2013 if the incumbent lessee does not wish to renew, but this has not been reflected in the year end valuation.
Financial Review
The Group's reported rental income increased from £16.8 million in 2008 to £18.6 million for the year ended 31 December 2009 representing an increase of 11%. This increase reflects a full year of rental income on assets acquired in Germany during the course of 2008, indexation in respect of investment properties in the UK and Switzerland plus adjustment of straight line lease income on the UK investment portfolio arising from guaranteed minimum rent increases. The Group's underlying cash rental income increased 16% from £14.1 million in 2008 to £16.3 million in 2009. In addition, the Group received £0.8 million of finance lease income derived from a domiciliary care business in the UK.
Net losses from fair value adjustments on investment properties were £2.2 million in 2009 compared to net losses of £1.3 million in 2008. The UK investment portfolio is 3.6% higher at the end of 2009 compared to the end of 2008 primarily as a result of capital expenditure on completed and in progress projects. The German and US investment property portfolios were 2.2% and 2.1% lower in their local currency, whilst the Swiss investment property was 6.9% lower in local currency.
Finance income for the year was £2.0 million compared to £2.5 million for 2008. The reduction reflects the investment of working capital leading to lower cash balances as well as a general reduction in interest rates.
Administrative expenses remained stable at £4.1 million for 2009 compared to £4.0 million in 2008. There was a reduction in professional fees of £0.3 million which was partly offset by an increase of £0.2 million of one-off repair and maintenance costs in respect of the German properties.
Finance costs decreased from £13.9 million in 2008 to £6.5 million in 2009. Interest on mortgage financings decreased from £7.9 million to £7.4 million reflecting lower interest rates on the Group's floating rate debt. Non cash items, which include mark to market adjustments on interest rate swaps and net foreign exchange movements on certain foreign currency borrowings, improved from a charge of £5.2 million in 2008 to a credit of £1.7 million in 2009.
Income tax expense is reported at £1.9 million for 2009 compared to a nominal charge in 2008. Current tax was stated at £1.1 million (2008 - £0.4 million) and deferred tax is reported at £0.8 million (2007 credit - £0.4 million). The utilisation of brought forward UK tax losses has resulted in an increase in the current tax charge. The charge for deferred taxation for 2009 includes £0.6 million relating to straight line recognition of lease income. Additional capital expenditure will create additional capital allowance claims to reduce the level of current tax in the years ahead.
The Group's total assets decreased from £302.5 million at 31 December 2008 to £294.4 million at 31 December 2008, primarily as a result of reduction in cash balances of £4.9 million during the course of 2009, partly from payment of dividends, as well as the reductions in investment properties referred to above.
The Group had net current liabilities of £15.7 million at 31 December 2009, largely due to a £14.0 million (Chf 23 million) loan facility which matures in December 2010. In April 2010 the Group negotiated £16.4 million (€18 million) senior debt financing, secured against assets leased to Marseille. This facility has been fixed until its maturity on 31 March 2013 at a rate of 3.8% compared to the net initial yield of 7.35% on the Marseille portfolio.
The Group's short and long term borrowings at 31 December 2009 were approximately £19.0 million and £129.6 million, respectively, reflecting a total debt to equity ratio of approximately 1.44:1 (2008 - 1.52:1), which we believe is conservative given the strength of the Group's underlying cash flow from its long term leases. The Group is compliant with all of its senior debt covenants both in terms of debt service and loan to value tests. We and the directors will continue to closely monitor the overall debt to equity ratio as the Group's business develops.
Deferred taxation, which consists of deferred taxation on fair value gains, business combinations and recognition of straight-line income, has increased from £34.0 million at 31 December 2008 to £34.2 million at the end of 2009. A net increase of £0.8 million on fair value adjustments to the portfolio, including straight line lease recognition, was offset by a decrease of £0.6 million arising from changes in foreign currency exchange rates.
The Group's total equity decreased from £103.6 million at 31 December 2008 to £103.3 million at 31 December 2009. The decrease is after payment of £4.0 million in dividends during the year and a decrease of £2.4 million in foreign currency translation reserves. After the year end, net assets increased in April 2010 by approximately £24 million from the net proceeds of the Open Offer, and the number of shares in issue increased from 66.8 million to 102.4 million.
Earnings per share, adjusted to exclude non cash and one off items, increased by 34% from 7.11p per share for 2008 to 9.53p per share for 2009. As a result, the directors approved a second interim dividend in March 2010 of 4.5p per share.
The interim dividends for the year total 6.5p per share (2008 - 6p) and are fully covered by adjusted earnings as reflected in note 9 to the audited financial statements. The Company stated in the Prospectus issued in connection with the Open Offer that the expected dividend yield for 2010, in the absence of unforeseen circumstances, would be 10% of the issue price of 70p.
In our opinion, the year ahead will present excellent opportunities to create additional value for shareholders. The Group remains well placed to increase underlying earnings, to continue the expansion of the UK portfolio, to actively manage its exposure to foreign currencies and leverage, whilst remaining alert to other opportunities that may arise during the course of the next year.
RP&C International Inc.
26 April 2010
PUBLIC SERVICE PROPERTIES INVESTMENTS LIMITED
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2009
|
|
|
|
|
|
|
Note |
2009 |
2008 |
|
|
|
£ |
£ |
|
|
|
|
|
|
Revenue |
6 |
18,644,988 |
16,846,594 |
|
|
|
|
|
|
Net loss from fair value adjustments on investment properties |
11 |
(2,217,907) |
(1,253,733) |
|
|
|
|
|
|
Impairment of Goodwill |
15 |
- |
(531,000) |
|
|
|
|
|
|
Administrative expenses |
7 |
(4,055,224) |
(4,014,905) |
|
|
|
|
|
|
Finance income |
8 (a) |
1,959,774 |
2,485,699 |
|
|
|
|
|
|
Operating profit |
|
14,331,631 |
13,532,655 |
|
|
|
|
|
|
Finance costs |
8 (b) |
(6,482,343) |
(13,905,819) |
|
|
|
|
|
|
Profit/(Loss) before income tax |
|
7,849,288 |
(373,164) |
|
|
|
|
|
|
Income tax expense |
22 |
(1,910,457) |
(571) |
|
|
|
|
|
|
|
|
|
|
|
Profit/(Loss) for the year |
|
5,938,831 |
(373,735) |
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
|
|
|
|
Equity holders of the Company |
|
5,938,831 |
(373,735) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings/(loss) per share (pence per share) |
9 |
8.89 |
(0.56) |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings/(loss) per share (pence per share) |
9 |
8.89 |
(0.56) |
|
|
|
|
|
|
|
|
|
|
PUBLIC SERVICE PROPERTIES INVESTMENTS LIMITED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2009
|
|
Notes |
2009 |
2008 |
|
|
|
£ |
£ |
|
|
|
|
|
|
Profit/(loss) for the year |
|
5,938,831 |
(373,735) |
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
Cash flow hedges |
17 |
159,978 |
(1,852,462) |
|
Currency translation differences |
|
(2,413,226) |
5,450,259 |
|
|
|
|
|
|
Other comprehensive income for the year |
|
(2,253,248) |
3,597,797 |
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the year |
|
3,685,583 |
3,224,062 |
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
|
|
|
|
Equity holders of the Company |
|
3,685,583 |
3,224,062 |
|
|
|
|
|
|
|
|
|
|
PUBLIC SERVICE PROPERTIES INVESTMENTS LIMITED
CONSOLIDATED BALANCE SHEET
FOR THE YEAR ENDED 31 DECEMBER 2009
|
|
Note |
2009 |
2008 |
|
|
|
£ |
£ |
|
ASSETS |
|
|
|
|
Non current assets |
|
|
|
|
Investment property |
11 |
256,911,121 |
258,450,196 |
|
Receivable from finance lease |
13 |
8,475,494 |
8,413,212 |
|
Loans and receivables |
14 |
4,351,500 |
4,351,500 |
|
Intangible Assets - Goodwill |
15 |
2,538,832 |
2,538,832 |
|
Accrued income |
16 |
14,854,128 |
12,495,127 |
|
|
|
287,131,075 |
286,248,867 |
|
Current assets |
|
|
|
|
Receivables and prepayments |
18 |
5,363,059 |
9,463,647 |
|
Cash |
|
1,908,958 |
6,752,736 |
|
|
|
7,272,017 |
16,216,383 |
|
Total assets |
|
294,403,092 |
302,465,250 |
|
|
|
|
|
|
EQUITY |
|
|
|
|
Capital and reserves |
|
|
|
|
Share Capital |
19 |
344,853 |
344,853 |
|
Share Premium |
19 |
64,038,167 |
64,038,167 |
|
Cashflow hedging reserve |
|
(173,257) |
(333,235) |
|
Translation reserve |
|
1,467,269 |
3,880,495 |
|
Retained Earnings |
|
37,632,468 |
35,702,161 |
|
|
|
|
|
|
Total equity |
|
103,309,500 |
103,632,441 |
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
Non current liabilites |
|
|
|
|
Borrowings |
20 |
129,562,407 |
141,384,776 |
|
Derivative financial instruments |
17 |
4,313,387 |
5,556,580 |
|
Deferred income tax |
21 |
34,229,570 |
33,966,478 |
|
|
|
168,105,364 |
180,907,834 |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
Borrowings |
20 |
18,964,472 |
15,917,389 |
|
Trade and other payables |
|
161,603 |
142,785 |
|
Current income tax liabilities |
|
1,360,587 |
518,085 |
|
Accruals |
|
2,501,566 |
1,346,716 |
|
|
|
22,988,228 |
17,924,975 |
|
Total liabilities |
|
191,093,592 |
198,832,809 |
|
|
|
|
|
|
Total equity and liabilities |
|
294,403,092 |
302,465,250 |
|
|
|
|
|
PUBLIC SERVICE PROPERTIES INVESTMENTS LIMITED
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2009
|
|
Note |
2009 |
2008 |
|
|
|
£ |
£ |
|
|
|
|
|
|
Cash flow from operating activities |
|
|
|
|
Cash generated from operations |
23 |
14,450,115 |
10,544,975 |
|
Taxation paid |
|
(288,879) |
(189,018) |
|
Interest paid |
|
(7,473,855) |
(7,729,918) |
|
|
|
|
|
|
Net cash generated by operating activities |
|
6,687,381 |
2,626,039 |
|
|
|
|
|
|
Cash flow from investing activities |
|
|
|
|
Purchase of investment property |
11 |
- |
(40,145,135) |
|
Capital expenditure |
|
(4,353,977) |
(2,880,560) |
|
Interest received |
|
595,551 |
820,751 |
|
|
|
|
|
|
Net cash used in investing activities |
|
(3,758,426) |
(42,204,944) |
|
|
|
|
|
|
Cash flow from financing activities |
|
|
|
|
Proceeds from borrowings |
|
|
|
|
-Initial Amount |
|
9,177,177 |
26,867,090 |
|
Repayments of borrowings |
|
(13,059,156) |
(2,961,859) |
|
Dividends paid |
10 |
(4,008,524) |
(4,008,524) |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used)/generated by financing activities |
|
(7,890,503) |
19,896,707 |
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents |
|
(4,961,548) |
(19,682,198) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Movement in cash and cash equivalents |
|
|
|
|
At start of year |
|
6,752,736 |
26,686,185 |
|
Decrease |
|
(4,961,548) |
(19,682,198) |
|
Foreign currency translation adjustments |
|
117,770 |
(251,251) |
|
|
|
|
|
|
At end of year |
|
1,908,958 |
6,752,736 |
|
|
|
|
|
|
|
|
|
|
PUBLIC SERVICE PROPERTIES INVESTMENTS LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2009
Attributable to equity holders of the Company
|
|
Notes |
Share capital
£ |
Share premium
£
|
Cashflow hedging reserve £ |
Translation reserve
£
|
Retained earnings
£
|
Total Equity
£
|
|
|
|
|
|
|
|
|
|
|
Balance as of 1 January 2008 |
|
344,853 |
64,038,167 |
1,519,227 |
(1,569,764) |
40,084,420 |
104,416,903 |
|
Comprehensive income |
|
|
|
|
|
|
|
|
Loss for the year |
|
- |
- |
- |
- |
(373,735) |
(373,735) |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
Cash flow hedges - net |
17 |
- |
- |
(1,852,462) |
- |
- |
(1,852,462) |
|
Foreign currency translation |
|
- |
- |
- |
5,450,259 |
- |
5,450,259 |
|
Total comprehensive income |
|
- |
- |
(1,852,462) |
5,450,259 |
(373,735) |
3,224,062 |
|
Transactions with owners |
|
|
|
|
|
|
|
|
Dividends paid in 2008 |
10 |
- |
- |
- |
- |
(4,008,524) |
(4,008,524) |
|
Balance as of 31 December 2008
|
|
344,853 |
64,038,167 |
(333,235) |
3,880,495 |
35,702,161 |
103,632,441 |
|
|
|
|
|
|
|
|
|
|
Balance as of 1 January 2009 |
|
344,853 |
64,038,167 |
(333,235) |
3,880,495 |
35,702,161 |
103,632,441 |
|
Comprehensive income |
|
|
|
|
|
|
|
|
Profit for the year |
|
- |
- |
- |
- |
5,938,831 |
5,938,831 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
Cash flow hedges - net |
17 |
- |
- |
159,978 |
- |
- |
159,978 |
|
Foreign currency translation |
|
- |
- |
- |
(2,413,226) |
- |
(2,413,226) |
|
Total comprehensive income |
|
- |
- |
159,978 |
(2,413,226) |
5,938,831 |
3,685,583 |
|
Transactions with owners |
|
|
|
|
|
|
|
|
Dividends paid in 2009 |
10 |
- |
- |
- |
- |
(4,008,524) |
(4,008,524) |
|
Balance as of 31 December 2009
|
|
344,853 |
64,038,167 |
(173,257) |
1,467,269 |
37,632,468 |
103,309,500 |
|
|
|
|
|
|
|
|
|
PUBLIC SERVICE PROPERTIES INVESTMENTS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2009
1. GENERAL INFORMATION
Public Service Properties Investments Limited, domiciled in the British Virgin Islands (registered office at Nerine Chambers, Road Town, Tortola, British Virgin Islands), is the parent company of the PSPI Group. Public Service Properties Investments Limited and its international subsidiaries (together the Group), is an investment property Group with a portfolio in the USA, the UK and Continental Europe. It is principally involved in leasing out real estate where the rental income is primarily generated directly or indirectly from governmental sources. Public Service Properties Investments Limited was formed in February 2001.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these consolidated financial statements have been consistently applied to all the years presented, unless otherwise stated.
2.1 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 2009 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.
The group has adopted the following new standards, amendments to standards and interpretations which are mandatory for the financial year ended 31 December 2009, the impact of which is detailed in note 2.3.
IFRS 7 'Financial instruments - Disclosures' (amendment) - effective 1 January 2009. The amendment requires enhanced disclosures about fair value measurement and liquidity risk. In particular, the amendment requires disclosure of fair value measurements by level of a fair value measurement hierarchy. The change in accounting policy only results in additional disclosures
IAS 1 (revised). 'Presentation of financial statements' - effective 1 January 2009. The revised standard prohibits the presentation of items of income and expenses (that is,' on-owner changes in equity') in the statement of changes in equity, requiring 'non-owner changes in equity' to be presented separately from owner changes in equity in a statement of comprehensive income. As a result the group presents in the consolidated statement of changes in equity all owner changes in equity, whereas all non-owner changes in equity are presented in the consolidated statement of comprehensive income. Comparative information has been re-presented so that it also is in conformity with the revised standard. The change in accounting policy only impacts presentation.
IAS 23 (amendment), 'Borrowing costs' (effective from 1 January 2009). The amendment requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. The option of immediately expensing those borrowing costs is removed.
IFRS 8 'Operating segments '(effective from 1 January 2009). IFRS 8 replaces IAS 14. The new standard requires a 'management approach', under which segment information is presented on the same basis as that used for internal reporting purposes. The Group has applied IFRS 8 from 1 January 2009.
IAS 40 'Investment properties'(effective from 1 January 2009) IAS 40 requires investment property under construction to be measured at fair value with changes in the fair value being recognised in the income statement when fair value can be determined readily. However, where fair value is not readily determinable, the property is measured at cost until the earlier of the date the construction is completed and the date at which the fair value becomes readily determinable.
The following new standards, amendments to standards and interpretations have been issued but are not effective for 2009 and have not been early adopted:
• Amendments to IFRS 3 - Business combinations (applicable to business combinations occurring in accounting periods beginning or after 1 July 2009, prospective application. Early application permitted if IAS 27R also adopted.). The amendment entails several changes in the application of the acquisition method. Subsequent changes to the purchase price which depend on future events are recognised in profit or loss (when a liability) instead of goodwill. A step acquisition will result in re-measurement of the previous investment to fair value, through the income statement. All transaction costs will be expensed. It is possible that future purchases of PSPI Ltd. will be considered a business acquisition and as such will need to be reviewed closely against the amendments to the standard.
• Amendments to IAS 27 - Consolidated and separate financial statements (effective as from 1 July 2009, prospective for measurement of non-controlling interest. Early application permitted if IFRS 3R also adopted.) Choice of whether to account for non-controlling interest at time of a business combination at fair value (i.e. incl. goodwill) or based on their proportionate share of the net assets (i.e. excl. goodwill). The amendment requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control ("economic entity model"). When control over a previous subsidiary is lost. Any remaining non-controlling interest in the entity is re-measured to fair value and the resulting gain or loss is recognised in the income statement. This change is not expected to have any material impact on the group's financial statements.
• IAS 38 (amendment), 'Intangible Assets'. The amendment is part of the IASB's annual improvements project published in April 2009 and the Group will apply IAS 38 (amendment) from the date IFRS 3 (revised) is adopted. The amendment clarifies guidance in measuring the fair value of an intangible asset acquired in a business combination and it permits the grouping of intangible assets as a single asset if each asset has similar useful economic lives. The amendment will not result in a material impact on the Group's financial statements.
• IFRS 9 'Financial Instruments' (effective from 1 January 2013). The standard will replace IFRS 39 and introduces new requirements for classifying and measuring financial assets that must be applied starting 1 January 2013, with early adoption permitted. The Group has not early adopted IFRS 9. The new standard will not result in a material impact on the Group's financial statements.
• IFRIC 17, 'Distribution of non-cash assets to owners' (effective on or after 1 July 2009). The interpretation is part of the IASB's annual improvements project published in April 2009. This interpretation provides guidance on accounting for arrangements whereby an entity distributes non- cash assets to shareholders either as a distribution of reserves or as dividends. IFRS 5 has also been amended to require that assets are classified as held for distribution only when they are available for distribution in their present condition and the distribution is highly probable. The Group will apply IFRIC 17 from 1 January 2010. It is not expected to have a material impact on the Group's financial statements.
• IFRS 5 (amendment), 'Measurement of non-current assets (or disposal groups) classified as held-for-sale'. The amendment is part of the IASB's annual improvements project published in April 2009. The amendment provides clarification that IFRS 5 specifies the disclosures required in respect of non-current assets (or disposal groups) classified as held for sale or discontinued operations. It also clarifies that the general requirement of IAS 1 still apply, particularly paragraph 15 (to achieve a fair presentation) and paragraph 125 (sources of estimation uncertainty) of IAS 1. The Group will apply IFRS 5 (amendment) from 1 January 2010. It is not expected to have a material impact on the Group's financial statements.
• IAS 1 (amendment), 'Presentation of financial statements'. The amendment is part of the IASB's annual improvements project published in April 2009. The amendment provides clarification that the potential settlement of a liability by the issue of equity is not relevant to its classification as current or non current. By amending the definition of current liability, the amendment permits a liability to be classified as non-current (provided that the entity has an unconditional right to defer settlement by transfer of cash or other assets for at least 12 months after the accounting period) notwithstanding the fact that the entity could be required by the counterparty to settle in shares at any time. The Group will apply IAS 1 (amendment) from 1 January 2010. It is not expected to have a material impact on the Group's financial statements.
• IFRIC 19 'Extinguishing Financial Liabilities with Equity Instruments' (effective for annual periods beginning or after 1 July 2010. The interpretation clarifies the requirements of IFRS when an entity renegotiates the terms of a financial liability with its creditor and the creditor agrees to accept the entity's shares or other equity instruments to settle the financial liability fully or partially. IFRIC 19 is not relevant for the Group as it is not the Group's intention to settle financial liabilities with equity instruments.
2.2 Principles of consolidation
The results of subsidiary undertakings, which are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has power to exercise control over the operations, are consolidated. Subsidiaries are consolidated from the date on which control is transferred to the Group and they cease to be consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. All intercompany transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated. Where necessary, accounting policies for subsidiaries have been changed to ensure consistency with the policies adopted by the Group.
2.3 Amendments to accounting and valuation principles
In connection with the application of IFRS 8 and IAS 40, the following accounting and valuation principles were amended:
Segmental Reporting
Segmental reporting has been prepared in accordance with IFRS 8 (Segment Reporting)
The chief operating decision maker has been identified as the board of directors, who review the group's internal reporting and management information in order to assess performance and allocate resources. Management has determined the operating segments based on these reports.
It has been determined that the board of directors reviews management information, considers the business and makes decisions from a geographic perspective. As such, the group has been organised into the following segments
·; Activities in the United Kingdom
·; Activities in Germany
·; Activities in Switzerland
·; Activites in the United States of America
A geographical segment is one that is engaged in providing products or services within a particular economic area which are subject to risks and returns that are different from those of segments operating in other economic areas. Revenues are wholly derived from operating leases and finance leases, sales between segments are carried out at arms length.
The board of directors assess the performance of the business using a number of measures; however particular emphasis is placed on "adjusted net profit" (as shown in Note 9). This excludes the effects of any non-cash and exceptional one-off non-recurring expenses and income to give an indication of the groups' underlying business performance.
Total segment assets excludes certain assets which are managed on a central basis, these form the reconciliation to total balance sheet assets.
Investment Property Development
The amendment of IAS 40 has resulted in capital expenditure of £2,885,186 on properties under construction being accounted for under "investment properties", which in the prior year were shown under "receivables and prepayments".
2.4 Foreign currency transactions and translation
Functional and presentation currency
Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). The consolidated financial statements are presented in Pounds Sterling, which is the Company's functional and presentation currency.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except where deferred in equity as qualifying cash flow hedges.
Group Companies
The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
(i) assets and liabilities for each balance sheet are translated at the closing rate at the date of the balance sheet.
(ii) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates in which case income and expenses are translated at the rates on those dates of the transactions); and
(iii) all resulting exchange differences are recognised as a separate component of equity.
On consolidation, exchange differences arising from the translation of net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to comprehensive income. When a foreign entity is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale.
The translation rates used are disclosed in Note 5 to the consolidated financial statements.
2.5 Investment Property
Property held for long-term rental yields or for capital appreciation or both and not occupied by the Group is classified as investment property.
Investment property comprises freehold land and buildings. Investment property is initially recognised at historic cost including related transaction costs. After initial recognition investment property is held at fair value. Fair value is based on active market prices, adjusted if necessary, for any difference in the nature, location or condition of the specific asset. If this information is not available, the Group uses alternative valuation methods such as recent prices on less active markets or discounted cash flow projections. These valuations are performed in accordance with guidance issued by the International Valuation Standard Committee and are prepared annually by external valuers.
The fair value of investment property reflects, among other things, rental income from current leases and assumptions about rental income from future leases in the light of current market conditions. The fair value also reflects on a similar basis, any cash outflows that could be expected in respect of the property.
Subsequent expenditure is charged to the asset's carrying amount only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the income statement during the financial period in which they are incurred.
Changes in fair values are recorded in the income statement. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in the income statement.
2.6 Leases
Finance lease:
When assets are leased out under a finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income.
Lease income is recognised over the term of the lease using the net investment method, which reflects a constant periodic rate of return.
The Group has leased out a business under a licence agreement. The business is in respect of the provision of domiciliary care to clients in their own properties which has been licensed to an independent third party for 35 years with 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 and receive any benefits/losses derived from running the business.
Operating lease:
See Notes 2.10 and 2.19
Lease classification:
See Note 4.c
2.7 Loans and receivables
Loans are classified as non-current assets unless management has the express intention of holding the loans for less than 12 months from the balance sheet date, in which case they are included in current assets. The directors determine the classification of the loans at initial recognition and re-evaluate the designation at every reporting date.
Purchases and sales of loans are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset. Loans are initially recognised at fair value plus transaction costs and are subsequently carried at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of loans is established when there is evidence that the Group will not be able to collect all amounts due according to the original terms of loans. In the case of loans, the financial position of the underlying companies and their ability to repay the preference share capital is considered in determining whether the loans are impaired.
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement. Loans are derecognised when the rights to receive cash flows from the loans have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. When investments are sold the resulting gains and losses are included in the income statement as gains and losses from loans.
2.8 Impairment of assets for non-financial assets
The recoverable amounts of assets such as intangible assets are estimated whenever there is an indication that the asset may be impaired.
Goodwill is not subject to amortisation but is tested annually for impairment. An impairment loss is recognised for the amount by which the assets carrying value exceeds its recoverable amount. The recoverable amount is the higher of an assets fair value less costs to sell and its value in use. For the purposes of assessing impairment, assets are grouped at the levels for which there are separately identifiable cash flows (cash generating units).
Non financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of impairment at each reporting date.
2.9 Accounting for derivative financial instruments and hedging activities
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement.
Amounts accumulated in equity are recognised in the income statement in the periods when the hedged item will affect profit or loss (for instance when the forecast sale that is hedged takes place). However, if the forecast transaction that is hedged results in the recognition of a non-financial asset or a liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the costs of the asset or liability.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement.
2.10 Accounting for leases and accrued income
The Group currently treats all of its investment property leases as operating leases, however this classification is considered by the directors for each property on acquisition. An operating lease is a lease in which substantially all the risks and rewards of the asset (investment property) remain with the lessor and as such these assets remain in the Group's balance sheet. Lease payments from the lessee are recognised as rental income and as such disclosed in the income statement on a straight-line basis over the period of the lease.
Accrued income is provided to recognise guaranteed future income over the period of the lease. Accrued income is recognised under non-current assets for all amounts not released to the income statement within 12 months of the balance sheet date and not receivable within 12 months. Amounts due to be released within 12 months of the balance sheet date are recognised in receivables under current assets.
2.11 Trade Receivables and Prepayments
Trade receivables and prepayments are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original term of the trade receivables. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement.
2.12 Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise cash in hand; deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. In the balance sheet, bank overdrafts are included in borrowings under current liabilities.
2.13 Share capital
Ordinary shares are classified as equity.
Any transaction costs of an equity transaction are accounted for as a deduction from equity to the extent they are incremental costs directly attributable to the equity transaction that otherwise would have been avoided. The costs of an equity transaction that is abandoned are recognised as an expense.
2.14 Trade payables and other payables
Trade payables and other payables are recognised initially at fair value.
2.15 Dividends
Dividends are recorded as a liability in the Company's financial statements in the period in which they are approved by the Company's shareholders.
2.16 Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.
2.17 Deferred Income Tax
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using the tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Due to the tax jurisdictions of the Group companies no tax impact is anticipated.
2.18 Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.
2.19 Revenue recognition
Revenue consists of minimum lease rentals payable over the terms of the operating leases, recognised on a straight line basis, and incremental lease rentals payable under rent escalation clauses in the leases recognised as they arise. Every investment property is accounted for individually. Operating lease agreements are based on long-term leasing contracts of 7 to 35 years.
2.20 Business Combinations
Business combinations are accounted for using the purchase method of accounting. The costs of a business combination are equivalent to the fair value, valid at the time of purchase, of the assets paid and the liabilities entered into or assumed. Any difference between the acquisition costs of the business combination and the Group's share of the net fair value of the identifiable assets, liabilities and contingent liabilities is recognised as goodwill (see Note 15).
If the Group's interest in the net fair value of identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the Group
(a) reassesses the identification and measurement of the Group's identifiable assets, liabilities and contingent liabilities and the measurement of the cost of the combination, and
(b) recognises immediately in the profit and loss any excess remaining after that reassessment.
2.21 Borrowing costs
In respect of borrowings relating to qualifying assets for which the commencement date for capitalisation is on or after 1 January 2009, the group capitalises borrowing costs directly attributable to the acquisition or construction of a qualifying asset as part of the cost of the asset. Other borrowing costs are charged to the income statement.
2.22 Joint Ventures
The Group's interests in jointly controlled entities are accounted for by proportionate consolidation. The Group combines its share of the joint ventures' individual income and expenses, assets and liabilities and cash flows on a line by line basis with similar items in the Group's financial statements. The Group recognises the portion of gains or losses on the sale of assets by the Group to the joint venture that is attributable to the other venturers. The Group does not recognise its share of profits or losses from the joint venture that result from the Group's purchase of assets from the joint venture until it resells the assets to an independent party. However, a loss on the transaction is recognised immediately if the loss provides evidence of a reduction in the net realisable value of current assets, or an impairment loss.
2.23 Earnings per Share
The group has chosen to disclose an adjusted earnings per share figure. This provides an indication of the groups underlying business performance and excludes significant "non cash" items such as fair value movements on investment properties, the recognition of accrued income, foreign exchange movements and movements in the value of derivative financial instruments charged to the income statement.
3. FINANCIAL AND OTHER RISK MANAGEMENT
3.1 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.
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 cash flow 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 |
€ |
€ |
|||
|
|
|
2009 |
2008 |
2009 |
2008 |
2009 |
2008 |
2009 |
2008 |
|||
|
Shift in basis points |
|
|
|
|
|
|
|
|
|
|||
|
Profit impact of increase |
0.5 |
(239,626) |
(194,856) |
(73,439) |
(61,989) |
(104,965) |
(90,737) |
(102,839) |
(31,702) |
|||
|
Profit impact of decrease |
0.5 |
239,626 |
194,856 |
73,439 |
61,989 |
104,965 |
90,737 |
102,839 |
31,702 |
|||
|
Equity impact of increase |
0.5 |
118,750 |
118,750 |
- |
- |
- |
- |
- |
- |
|||
|
Equity impact of decrease |
0.5 |
(118,750) |
(118,750) |
- |
- |
- |
- |
- |
- |
|||
(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' (as per Standard & Poor's credit rating) are accepted.
The table below shows the balance of the three major bank counterparties at the balance sheet date.
|
|
31 December 2009 |
31 December 2008 |
31 December 2009 |
31 December 2008 |
|
Counterparty |
Rating |
Rating |
Balance 574,028 410,155 652,645 |
Balance 4,676,389 998,461 828,067 |
|
Bank A |
A- |
A |
||
|
Bank B |
A+ |
A+ |
||
|
Bank C |
A |
A- |
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.
|
At 31 December 2009 |
Note |
Less than 1 year |
Between 1 and 2 years |
Between 2 and 5 years |
Over 5 Years |
|
Borrowings |
|
25,446,560 |
31,156,604 |
102,159,904 |
10,777,597 |
|
Trade and other payables |
24 |
161,603 |
- |
- |
- |
|
Total |
|
25,608,163 |
31,156,604 |
102,159,904 |
10,777,597 |
|
At 31 December 2008 |
|
|
|
|
|
|
Borrowings |
|
9,770,096 |
20,969,868 |
113,478,514 |
15,507,030 |
|
Trade and other payables |
24 |
142,785 |
- |
- |
- |
|
Total |
|
9,912,881 |
20,969,868 |
113,478,514 |
15,507,030 |
Borrowings in the table above include 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.
The Group monitors capital on the basis of the loan to value ratio. This ratio is calculated as total debt divided by total non current assets less goodwill and loans and receivables. Debt is calculated as total borrowings (including 'current and non-current borrowings' as shown in the consolidated balance sheet).
The Group's intention is to maintain the loan to value ratio below 70%. The loan to value ratios at 31 December 2009 and 2008 were as follows:
|
|
Note |
£ 2009
|
£ 2008 |
|
Total borrowings |
21 |
148,526,879 |
157,302,165 |
|
Total non current assets |
|
287,131,075 |
286,248,867 |
|
Less: Goodwill |
15 |
(2,538,832) |
(2,538,832) |
|
Less: Loans and receivables |
14 |
(4,351,500) |
(4,351,500) |
|
Adjusted non current assets |
|
280,240,743 |
279,358,535 |
|
Loan to value ratio |
|
52.99% |
56.31% |
3.2 Fair value estimation
Effective 1 January 2009, the group adopted the amendment to IFRS 7 for financial instruments that are measured in the balance sheet at fair value, this requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:
·; Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
·; Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).
·; Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
The following table presents the group's liabilities that are measured at fair value at 31 December 2009:
|
|
Level 1 |
Level 2 |
Level 3 |
Total balance |
|
Liabilities |
|
|
|
|
|
Financial liabilities at fair value through profit or loss |
|
|
|
|
|
Derivatives used for hedging |
- |
4,313,387 |
- |
4,313,387 |
|
Total liabilities |
- |
4,313,387 |
- |
4,313,387 |
The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. The quoted market price used for financial assets held by the group is the current bid price. These instruments are included in level 1.
The fair value of financial instruments that are no traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.
If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.
Specific valuation techniques used to value financial instruments include:
·; Quoted market prices or dealer quotes for similar instruments.
·; The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves.
·; The fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date, with the resulting values discounted back to present value.
·; Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining financial instruments.
3.3 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.
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
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 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 £10.6 million lower (2008 - £10.7 million) or £9.6 million higher (2008 - £9.7 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 (see Note 2.6). 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.
5. FOREIGN EXCHANGE RATES
|
|
Balance Sheet |
Income Statement and cash flow statement |
||
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
average |
average |
|
|
31.12.2009 |
31.12.2008 |
2009 |
2008 |
|
|
£ |
£ |
£ |
£ |
|
CHF 1.00 |
1.65330 |
1.52860 |
1.69580 |
2.00056 |
|
USD 1.00 |
1.59280 |
1.44790 |
1.56593 |
1.85518 |
|
EUR 1.00 |
1.11130 |
1.02720 |
1.12297 |
1.25968 |
|
|
|
|
|
|
6. REVENUE
|
|
2009 |
2008 |
|
|
£ |
£ |
|
|
|
|
|
Rental income |
18,644,988 |
16,846,594 |
|
|
|
|
Rental income is stated after reallocation of £552,741 (2008 - £545,980) to interest income as referred to in Note 14.
Rental income includes accrued income provided to recognise guaranteed future income over the period of the leases, see Note 17.
The future aggregate minimum rentals receivable under non-cancellable operating leases are as follows:
|
|
As at 31 |
As at 31 |
|
|
December |
December |
|
|
2009 |
2008 |
|
|
£ |
£ |
|
|
|
|
|
Less than 1 year |
16,904,768 |
17,233,800 |
|
More than 1 year and less than 5 years |
49,303,541 |
51,749,559 |
|
More than 5 years |
318,336,705 |
341,026,017 |
|
|
|
|
|
|
384,545,014 |
410,009,376 |
|
|
|
|
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 by the annual increase in the UK Retail Price Index, 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.
The majority of Investment Properties in Germany are leased for an initial period of 25 years; however the lessee has the right to renew the leases for a further period of 5 years, subject to the agreement of the revised rent. The rent on the leases is changed at least every three years from the anniversary of inception, with reference to the German Consumer Price Index.
7. ADMINISTRATIVE EXPENSES
|
|
2009 £ |
2008 £ |
|
|
|
|
|
Property rent, maintenance and office expenses |
95,135 |
73,878 |
|
Administration of group companies |
196,517 |
123,177 |
|
Management fees |
2,083,110 |
2,019,594 |
|
Professional fees |
1,091,884 |
1,358,359 |
|
Audit fees |
221,537 |
198,210 |
|
Sundry expenses |
367,041 |
241,687 |
|
|
|
|
|
|
4,055,224 |
4,014,905 |
|
|
|
|
8. a) FINANCE INCOME
|
|
Note |
2009 £ |
2008 £ |
|
|
|
|
|
|
Interest Income - Finance Lease |
|
833,198 |
1,040,494 |
|
Interest Income - Other Third Party |
|
1,126,576 |
1,445,205 |
|
|
|
|
|
|
|
26 |
1,959,774 |
2,485,699 |
|
|
|
|
|
b) FINANCE COSTS
|
|
Note |
2009 £ |
2008 £ |
|
|
|
|
|
|
Interest on mortgages |
|
6,129,034 |
6,457,921 |
|
Other interest and borrowing expenses |
|
612,850 |
504,755 |
|
Interest on pre IPO notes |
|
588 |
522 |
|
Interest on notes |
|
566,778 |
905,243 |
|
|
|
|
|
|
|
26 |
7,309,250 |
7,868,441 |
|
Interest rate swaps: ineffective element of cash flow hedges |
18,26 |
(1,083,215) |
3,790,576 |
|
Credit enhancement insurance premiums |
|
860,647 |
758,290 |
|
Net Exchange (gains)/losses |
|
(604,339) |
1,488,512 |
|
|
|
|
|
|
|
|
6,482,343 |
13,905,819 |
|
|
|
|
|
9. 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 December 2009 £ |
As of 31 December 2008 £ |
|
|
|
|
|
Net profit/(loss) attributable to shareholders |
5,938,831 |
(373,735) |
|
Weighted average number of ordinary shares outstanding |
66,808,738 |
66,808,738 |
|
Basic earnings/(loss) per share (pence per share) |
8.89 |
(0.56) |
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 2009 as 610 (2008 - 610). Based on this, the diluted earnings/(loss) per share at 31 December 2009 was 8.89 pence (2008 - (0.56) pence).
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 at 31 December 2009 £ |
As at 31 December 2008 £ |
|
Net profit/(loss) attributable to shareholders
|
|
5,938,831 |
(373,735) |
|
Fair Value Loss on Investment Properties |
11 |
2,217,907 |
1,253,733 |
|
Impairment of Goodwill |
15 |
- |
531,000 |
|
Deferred Taxation on Fair Value Gains |
22 |
115,047 |
504,075 |
|
Amortisation of Debt Issue Costs |
26 |
348,399 |
311,470 |
|
Interest Rate Swap charge to income statement |
8b) |
(1,083,215) |
3,790,576 |
|
Accrued Income |
17 |
(2,359,001) |
(2,773,272) |
|
Deferred Taxation on Accrued Income |
22 |
664,030 |
766,018 |
|
Credit re: Deferred Tax change in taxation rate |
22 |
- |
(1,693,883) |
|
Foreign Exchange (Gains)/Losses |
8b) |
(604,339) |
1,488,512 |
|
One off acquisition costs |
|
- |
522,236 |
|
Current Taxation |
23 |
1,131,380 |
423,790 |
|
|
|
|
|
|
Adjusted Earnings |
|
6,369,039 |
4,750,520 |
|
|
|
|
|
|
Number of ordinary shares outstanding
|
|
66,808,738 |
66,808,738 |
|
Basic adjusted earnings per share (pence per share) |
|
9.53 |
7.11 |
10. DIVIDENDS
A final dividend for 2008 in the amount of 4p per share was paid in May 2009; this resulted in a distribution of £2,672,350 (2008 - £2,672,350).
The Directors approved an interim dividend for 2009 in the amount of 2p per share which was paid in November 2009; this resulted in a distribution of £1,336,174 (2008 - £1,336,174).
The Directors approved a second interim dividend for 2009 in the amount of 4.5p per share which will be paid on 10 May 2010.
11. INVESTMENT PROPERTY
|
|
2009 £ |
2008 £ |
|
|
|
|
|
As at 1 January |
258,450,196 |
197,057,229 |
|
|
|
|
|
Additions resulting from subsequent expenditure |
8,292,022 |
- |
|
Additions resulting from acquisitions |
- |
40,145,135 |
|
Net loss on fair value adjustment (Note 26) |
(2,217,907) |
(1,253,733) |
|
Net changes in fair value adjustments due to exchange differences |
(7,613,190) |
22,501,565 |
|
|
|
|
|
As at 31 December |
256,911,121 |
258,450,196 |
|
|
|
|
Bank borrowings are secured on investment property as outlined in Note 21.
Valuations of the investment properties were made as at 31 December 2009 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 6.0% - 7.5% (2008 - 6.0% - 6.60%) were appropriate under market conditions prevailing at 31 December 2009. PSPI has applied individual capitalisation rates as advised by Colliers CRE to each investment property in preparation of the consolidated financial statements.
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 7.35% and 7.73% (2008 - 6.00% and 8.01%). The Company applied the mean capitalisation rate of 7.53% (2008 - 6.92%).
The valuation of the investment properties in Switzerland was conducted by Botta Management AG, using a discounted cash flow analysis. A discount factor of 4.5% (2008 - 4.5%) was used for the valuation at 31 December 2009.
The valuation of the investment properties in Germany were conducted by Colliers CRE, UK. Based on the duration of the leases, the future cash flows and after due consideration of transaction activity in the market, Colliers CRE concluded that capitalisation rates of 6.35% to 8.50% were appropriate under the market conditions prevailing at 31 December 2009 (2008: 6.25% to 8.50%). PSPI has applied individual capitalisation rates as advised by Colliers CRE to each investment property in preparation of the consolidated financial statements.
Included in property rent, maintenance and office expenses, as detailed in Note 7, are repairs of £95,135 (2008 - £73,878) 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.
Additions resulting from subsequent expenditure consist of £5,406,838 in relation to capital expenditure on properties in the United Kingdom which has been completed during the year. The balance of £2,885,184 relates to capital expenditure on properties still under construction. This has been reflected under Investment Properties in accordance with IAS 40 (see Note 2.3).
12. FINANCIAL INSTRUMENTS BY CATEGORY
The accounting policies for financial instruments have been applied to the line items below:
|
|
Notes |
Loans and receivables |
Assets at fair value through the profit and loss designated |
Derivatives used for hedging |
Total |
|
|
31 December 2009 |
|
£ |
£ |
£ |
£ |
|
|
Assets as per balance sheet |
|
|
|
|
|
|
|
Trade receivables |
19 |
1,409,478 |
- |
- |
1,409,478 |
|
|
Receivables from Finance Lease |
13 |
8,475,493 |
- |
- |
8,475,493 |
|
|
Loans and Receivables |
14 |
4,351,500 |
- |
- |
4,351,500 |
|
|
Receivables and Prepayments |
19 |
3,953,581 |
- |
- |
3,953,581 |
|
|
Cash and cash equivalents |
|
1,908,958 |
- |
- |
1,908,958 |
|
|
|
|
|
|
|
|
|
|
Total |
|
20,099,010 |
- |
- |
20,099,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives used for hedging |
Other financial liabilities |
Total |
|
|
|
|
|
£ |
£ |
£ |
|
|
Liabilities as per balance sheet |
|
|
|
|
|
|
|
Borrowings |
21 |
|
- |
148,529,879 |
148,529,879 |
|
|
Derivative financial instruments |
18 |
|
4,313,387 |
- |
4,313,387 |
|
|
|
||||||
|
Total |
|
|
4,313,387 |
148,529,879 |
152,843,266 |
|
The accounting policies for financial instruments have been applied to the line items below:
|
|
Notes |
Loans and receivables |
Assets at fair value through the profit and loss designated |
Derivatives used for hedging |
Total |
|
31 December 2008 |
|
£ |
£ |
£ |
£ |
|
Assets as per balance sheet |
|
|
|
|
|
|
Trade receivables |
19 |
638,854 |
- |
- |
638,854 |
|
Receivables from Finance Lease |
13 |
8,413,211 |
- |
- |
8,413,211 |
|
Loans and Receivables |
14 |
4,351,500 |
- |
- |
4,351,500 |
|
Receivables and Prepayments |
19 |
8,824,793 |
- |
- |
8,824,793 |
|
Cash and cash equivalents |
|
6,752,736 |
- |
- |
6,752,736 |
|
|
|
|
|
|
|
|
Total |
|
28,981,094 |
- |
- |
28,981,094 |
|
|
|
|
|
|
|
|
|
|
|
Derivatives used for hedging |
Other financial liabilities |
Total |
|
|
|
|
£ |
£ |
£ |
|
Liabilities as per balance sheet |
|
|
|
|
|
|
Borrowings |
21 |
|
- |
157,302,165 |
157,302,165 |
|
Derivative financial instruments |
18 |
|
5,556,580 |
- |
5,556,580 |
|
|
|||||
|
Total |
|
|
5,556,580 |
157,302,165 |
162,858,745 |
13. RECEIVABLE FROM FINANCE LEASES
|
|
2009 |
2008 |
|
|
£ |
£ |
|
Non-current |
|
|
|
Finance leases - gross receivables |
27,691,854 |
28,483,078 |
|
Unearned finance income |
(19,157,195) |
(20,011,013) |
|
|
8,534,659 |
8,472,065 |
|
|
|
|
|
Current |
|
|
|
Finance leases - gross receivables |
779,532 |
768,012 |
|
Unearned finance income |
(838,697) |
(826,865) |
|
|
(59,165) |
(58,853) |
|
|
|
|
|
Total receivable from finance leases |
8,475,494 |
8,413,212 |
|
|
|
|
|
|
|
|
|
Gross receivables from finance leases: |
|
|
|
- no later than 1 year |
779,533 |
768,012 |
|
- later than 1 year and no later than 5 years |
3,236,826 |
3,188,911 |
|
- later than 5 years |
24,455,027 |
25,294,167 |
|
|
28,471,386 |
29,251,090 |
|
|
|
|
|
Unearned future finance income on finance leases |
(19,995,892) |
(20,837,878) |
|
Total receivable from finance leases |
8,475,494 |
8,413,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The net receivable from finance leases may be analysed as follows: |
|
|
|
|
|
|
|
- no later than 1 year |
(49,421) |
(63,894) |
|
- later than 1 year and no later than 5 years |
(197,684) |
(255,574) |
|
- later than 5 years |
8,722,599 |
8,732,680 |
|
|
8,475,494 |
8,413,212 |
|
|
|
|
The Group has leased out a business under a licence agreement. The business is in respect of the provision of domiciliary care to clients in their own properties which has been licensed to an independent third party for 35 years with 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 and receive any benefits/losses derived from running the business. The remaining life of this licence is 30 years.
The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable mentioned above. The Group does not hold any collateral as security. All receivables from finance leases are denominated in Pounds Sterling.
None of the receivable from finance leases were past due nor impaired.
14. LOANS AND RECEIVABLES
|
|
2009 £ |
2008 £ |
|
|
|
|
|
As at 1 January |
4,351,500 |
4,351,500 |
|
Repayment of mezzanine loan |
- |
- |
|
|
|
|
|
As at 31 December |
4,351,500 |
4,351,500 |
|
|
|
|
Loans consist of 100% of the issued redeemable preference shares in lessee companies. These companies lease the investment properties as referred to in Note 11. These preference shares are redeemable at any time.
The preference shares are non-voting, not entitled to a dividend, are cancelled on the termination of the leases written with the relevant lessee companies and are repayable at par. Interest income, implicit on the Loans is treated as interest income, as referred to in Note 6, on the same basis as specified in the lease agreements. During the year ended 31 December 2009, £552,741 (2008 - £545,980) has been deducted from rental income and included in interest income. The various rental contracts are referred to in Note 6.
The fair values of loans and receivables are as follows:
|
|
31 December 2009 £ |
31 December 2008 £ |
|
|
|
|
|
Preference shares |
5,504,949 |
6,213,956 |
|
|
|
|
|
|
5,504,949 |
6,213,956 |
|
|
|
|
The fair values are based on cash flows discounted using a rate based on the borrowing rate of 11.17% for the preference shares (2008 - 10.63% preference share).
The effective interest rates on non-current receivables were as follows:-
|
|
31 December 2009
|
31 December 2008
|
|
|
|
|
|
Preference shares |
12.94% |
12.88% |
|
|
|
|
The maximum exposure to credit risk at the reporting date is the fair value of each class of loans and receivables mentioned above. The Group does not hold any collateral as security. All loans and receivables are denominated in pounds sterling.
None of the loans and receivables were past due nor impaired.
15. INTANGIBLE ASSETS - GOODWILL
|
|
2009 £ |
2008 £ |
|
|
|
|
|
As at 1 January |
2,538,832 |
3,090,249 |
|
Adjustment due to final completion receipt |
- |
(20,417) |
|
Impairment recognised in the year |
- |
(531,000) |
|
|
|
|
|
As at 31 December |
2,538,832 |
2,538,832 |
|
|
|
|
Goodwill arose on the acquisition of the issued share capital of Stonelea Healthcare Limited on 4 September 2007 and represents the excess of the total purchase consideration over the fair value of the net assets acquired.
The goodwill has arisen due to the provision of deferred taxation on the business combination in respect of the fair value of the property over its' base cost. However, any future disposal may be performed in a manner such that any liability is unlikely to crystallise.
Impairment tests for goodwill
Goodwill acquired through business combinations has been allocated for impairment testing purposes to the group of cash generating units (CGU) to which it relates. In this instance that is the 3 investment properties acquired within HCP Stonelea Limited (see Note 11 - UK Properties). This represents the lowest level within the Group at which goodwill is monitored by management for internal reporting purposes.
In accordance with IAS 36 Impairment of Assets, the carrying amount of the CGU has been compared with its recoverable amount to test if impairment has occurred. The recoverable amount is defined as the higher of value in use and fair value less costs to sell.
The recoverable amount of the CGU has been based upon fair value less costs to sell calculations. These calculations, use the independent property valuation performed by Colliers CRE, UK as at 31 December 2009 as their basis. It is assumed that it is normal practice for such properties to be sold within its "corporate wrapper" and consequently that any deferred taxation liability in relation to the property should be included in the calculation of the value of the CGU. As such it is assumed that any future buyer of the investment properties would assume a share of the deferred taxation liability.
This test indicated that no impairment of goodwill had occurred in 2009 (2008: £531,000).
16. ACCRUED INCOME
|
|
2009 £ |
2008 £ |
|
|
|
|
|
As at 1 January |
12,495,127 |
9,721,855 |
|
Recognition of straight-line income |
2,359,001 |
2,773,272 |
|
|
|
|
|
As at 31 December |
14,854,128 |
12,495,127 |
|
|
|
|
Accrued income is provided to recognise guaranteed future income over the period of the lease as referred to in Note 6.
17. DERIVATIVE FINANCIAL INSTRUMENTS
|
|
2009 |
2008 |
||
|
|
Assets |
Liabilities |
Assets |
Liabilities |
|
|
£ |
£ |
£ |
£ |
|
|
|
|
|
|
|
Interest rate swaps - cash flow hedges |
- |
4,313,387 |
- |
5,556,580 |
|
|
|
|
|
|
Interest rate swaps
The notional principal amounts of the outstanding interest rate swap contracts at 31 December 2009 were £57.372 million (2008 - £59.881million). At 31 December 2009 the fixed interest rates vary from 6.115% to 6.800% (2008 - from 6.115% to 6.800%).
The interest rate swaps in respect of aggregate mortgage borrowings on the UK investment properties referred to in Note 21 match the interest payment and principal repayment profile of the various facilities. The interest rate swaps have been classified as non current as the relevant Group companies have no automatic right to cancel the instruments.
The movement between these dates, reflecting a move to market of the interest rate swaps of £(1,243,193) (2008 - £5,643,038), of this movement £(159,978) was adjusted directly against equity. This represents the movement of those swaps deemed effective. Swaps that are no longer effective and therefore ineligible for hedge accounting has been adjusted against the income statement and totals £(1,083,215) in Note 8.
Interest rate swaps are commitments to exchange one set of cash flows for another. Swaps result in an economic exchange of interest rates (for example, fixed rate for floating rate). No exchange of principal takes place. The Group's credit risk represents the potential cost to replace the swap contracts if counterparties fail to perform their obligation. This risk is monitored on an ongoing basis with reference to the current fair value, a portion of the notional amount of the contracts and the liquidity of the market. The Group assesses counterparties using the same techniques as for its lending activities to control the level of credit risk taken.
The maximum exposure to credit risk at the reporting date is the fair value of each class of derivative financial instruments mentioned above. The Group does not post any collateral as security.
18. RECEIVABLES AND PREPAYMENTS
|
|
2009 £ |
2008 £ |
|
|
|
|
|
Trade receivables |
1,409,478 |
1,387,090 |
|
Other receivables |
1,586,311 |
1,808,279 |
|
Prepayments |
2,367,270 |
6,268,278 |
|
|
|
|
|
|
5,363,059 |
9,463,647 |
|
|
|
|
In December 2005 the Company deposited £500,000 as a prepayment of insurance premia with QBE as part of a CHF 23 million borrowing. In accordance with the terms of the agreement with QBE, the deposit was increased to £1,000,000 during 2006, which is included in prepayments. On full repayment of the borrowings the prepaid insurance premia will be returned to the Company.
Included under prepayments is an amount of £Nil (2008 - £3,184,862) in respect of capital expenditure on building works and extensions to properties. An amount of £2,885,186 has been shown under "additions due to subsequent expenditure" within Investment Properties (see Note 11).
Included under prepayments is an amount of £248,713 (2008 - £273,560) in respect of 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 Office Investments Inc.
Included in other receivables is an amount of £1,151,142 (2008 - £1,167,810) including accrued interest, lent to European Care as short term working capital.
As at 31 December 2009, trade receivables of £722,565 (2008 - £748,236) were past due however not considered to be impaired. It was assessed that this receivable is expected to be recovered. The ageing of this receivable is as follows:
|
|
£ 2009 |
£ 2008 |
|
|
|
|
|
3 to 6 months |
- |
- |
|
Over 6 months |
722,565 |
748,236 |
The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable and prepayment mentioned above. The Group does not hold any collateral as security.
None of the receivables and prepayments are impaired.
19. SHARE CAPITAL
|
|
31 December 2009 £ |
31 December 2008 £ |
|
Authorised: |
|
|
|
Equity interests: |
|
|
|
500,000,000 Ordinary shares of $0.01 each |
2,569,974 |
2,569,974 |
|
|
|
|
|
|
|
|
|
Allotted, called up and fully paid: |
|
|
|
Equity interests: |
|
|
|
|
|
|
|
66,808,738 Ordinary shares of $0.01 each |
344,853 |
344,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares
|
Ordinary shares £ |
Share premium £
|
Total
£
|
|
At 31 December 2007 |
66,808,738 |
344,853 |
64,038,167 |
64,383,020 |
|
|
|
|
|
|
|
At 31 December 2008 |
66,808,738 |
344,853 |
64,038,167 |
64,383,020 |
|
|
|
|
|
|
|
At 31 December 2009 |
66,808,738 |
344,853 |
64,038,167 |
64,383,020 |
Pursuant to a written resolution passed on 22 November 2006, the amount of shares the company is authorised to issue was increased from 5,000,000 to 150,000,000 ordinary shares of US $0.01 each.
On 20 March 2007, 41,326,049 shares were issued to USIGH Limited at par value resulting in the amount of $413,260.49.
On 26 March 2007 22,666,667 shares were issued upon admission to the Alternative Investment Market of the London Stock Exchange ("AIM"). These shares were issued at a placing price of 150 pence per share.
The Directors approved an interim dividend for 2009 in the amount of 2p per share which was paid in November 2008; this resulted in a distribution of £1,336,175 (see Note 10).
On 13 April 2010 the Company issued 35,631,326 shares at 70p per share on completion of an open offer to priority shareholders (see Note 32).
20. BORROWINGS
|
|
2009 £ |
2008 £ |
|
Non-current |
|
|
|
Mortgages |
107,778,371 |
103,373,713 |
|
Bonds |
14,285,263 |
15,610,117 |
|
Other |
7,488,392 |
22,390,565 |
|
Senior Pre-IPO Notes |
10,381 |
10,381 |
|
|
|
|
|
|
129,562,407 |
141,384,776 |
|
|
|
|
|
Current |
|
|
|
Mortgages |
1,641,289 |
1,608,950 |
|
Other |
17,323,183 |
14,308,439 |
|
|
|
|
|
|
18,964,472 |
15,917,389 |
|
|
|
|
|
Total borrowings
|
148,526,879 |
157,302,165 |
Total borrowings include secured liabilities (Mortgages, bonds and other borrowings) of £131,193,315 (2008 - £128,070,458). These borrowings are secured by the assets of the Group. At 31 December 2009 the Group had subordinated borrowings of CHF 23 million (2008 - CHF 23 million) which are primarily secured by a pledge of shares of various subsidiary undertakings.
The maturity of borrowings is as follows:
|
|
2008 £ |
2008 £ |
|
|
|
|
|
Current borrowings |
18,964,472 |
15,917,389 |
|
|
|
|
|
|
|
|
|
Between 1 and 2 years |
9,129,682 |
1,608,950 |
|
Between 2 and 5 years |
98,970,822 |
122,836,642 |
|
Over 5 years |
21,461,903 |
16,939,184 |
|
|
|
|
|
Non-current borrowings |
129,562,407 |
141,384,776 |
|
|
|
|
The carrying amounts and fair value of the non-current borrowings are as follows:
|
|
Carrying amounts |
Fair values |
||
|
|
2009 |
2008 |
2009 |
2008 |
|
|
£ |
£ |
£ |
£ |
|
Mortgages |
107,778,371 |
103,373,713 |
102,024,489 |
96,998,178 |
|
Bonds |
14,285,263 |
15,610,117 |
14,246,019 |
16,100,626 |
|
Other |
7,488,392 |
22,390,565 |
6,868,749 |
20,937,286 |
|
Senior Pre-IPO Notes |
10,381 |
10,381 |
10,381 |
10,381 |
|
|
|
|
|
|
|
|
129,562,407 |
141,384,776 |
123,149,638 |
134,046,471 |
|
|
|
|
|
|
The fair values are based on cash flows discounted using a rate based upon a range of borrowings rate between 2.50% and 8.50% (2008 - 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 the following currencies:
|
|
2009 £ |
2008 £ |
|
|
|
|
|
Pound sterling |
86,334,898 |
86,606,211 |
|
US dollar |
14,285,263 |
15,610,117 |
|
Swiss franc |
21,357,044 |
23,284,031 |
|
Euro |
26,549,674 |
31,801,806 |
|
|
|
|
|
|
148,526,879 |
157,302,165 |
|
|
|
|
21. DEFERRED INCOME TAX
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority.
|
|
2009 £ |
2008 £ |
|
Deferred tax liabilities to be recovered after more than 12 months |
34,229,570 |
33,966,478 |
|
|
|
|
The gross movement on the deferred income tax account is as follows:
|
|
2009 £ |
2008 £ |
|
|
|
|
|
Beginning of the year |
33,966,478 |
32,606,715 |
|
Income statement charge (Note 23) |
779,076 |
(423,219) |
|
Net changes due to exchange differences |
(515,984) |
1,782,982 |
|
|
|
|
|
End of the year |
34,229,570 |
33,966,478 |
|
|
|
|
Deferred income tax liabilities of £1,599,224 (2008: £1,179,812) have not been recognised for the withholding tax and other taxes that would be payable on the un-remitted earnings of certain subsidiaries. Such amounts are permanently reinvested. Un-remitted earnings totalled £5,711,514 at 31 December 2009 (2008: £4,213,615). No deferred income tax liabilities have been recognised for the withholding tax and other taxes concerning un-remitted earnings of subsidiaries as these liabilities will not crystallise due to the tax structure of the Group.
The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same jurisdiction, is as follows:
|
Deferred tax liabilities: |
Fair value gains from business combinations
|
Fair value gains
|
Straight line recognition of lease income |
Total
|
|
|
£ |
£ |
£ |
£ |
|
|
|
|
|
|
|
At 31 December 2008 |
11,057,273 |
19,412,750 |
3,496,455 |
33,966,478 |
|
|
|
|
|
|
|
Charged to the income statement |
- |
115,046 |
664,030 |
779,076 |
|
Net changes due to exchange differences |
- |
(515,984) |
- |
(515,984) |
|
|
|
|
|
|
|
At 31 December 2009 |
11,057,273 |
19,011,812 |
4,160,485 |
34,229,570 |
|
|
|
|
|
|
22. INCOME TAXES
|
|
2009 £ |
2008 £ |
|
|
|
|
|
Current tax |
1,131,381 |
423,790 |
|
Deferred tax (Note 22) |
779,076 |
(423,219) |
|
|
|
|
|
|
1,910,457 |
571 |
|
|
|
|
The tax on the Group's profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated companies as follows:
|
|
2009 £ |
2008 £ |
|
|
|
|
|
Profit/(Loss) before tax per consolidated income statement |
7,849,288 |
(373,735) |
|
|
|
|
|
|
|
|
|
Tax calculated at domestic tax rates applicable to profits in the respective countries |
2,093,550 |
(93,215) |
|
|
|
|
|
Expenses not deductible for tax purposes |
356,918 |
339,277 |
|
Tax relating to prior years |
- |
48,353 |
|
Utilisation of previously unrecognised capital allowances and tax losses |
(540,011) |
(293,844) |
|
|
|
|
|
Tax charge (Note 26) |
1,910,457 |
571 |
|
|
|
|
The weighted average applicable tax rate was 26.67% (2008: 24.94%). The increase in the effective tax rate is caused by a change in the profitability of certain of the Group's subsidiaries.
23. CASH GENERATED FROM OPERATIONS
|
|
Note |
2009 £ |
2008 £ |
|
|
|
|
|
|
Profit/(Loss) for the year: Adjustments for: |
|
5,938,831 |
(373,735)
|
|
- Interest expense |
8b) |
7,309,250 |
7,868,441 |
|
- Net Foreign Exchange Losses |
8b) |
(604,339) |
1,488,512 |
|
- Interest income |
8a) |
(1,959,774) |
(2,485,699) |
|
- Tax |
23 |
1,910,457 |
571 |
|
- Ineffective element of cash flow hedge |
8b) |
(1,083,215) |
3,790,576 |
|
- Changes in fair value of Investment Property |
11 |
2,217,907 |
1,253,733 |
|
- Impairment of Goodwill |
15 |
- |
531,000 |
|
- Amortisation of Debt Issue Costs |
9 |
348,399 |
311,470 |
|
- Changes in receivables and prepayments |
|
1,310,888 |
453,777 |
|
- Changes in accrued income |
17 |
(2,359,001) |
(2,773,272) |
|
- Changes in trade and other payables |
|
18,818 |
159,815 |
|
- Changes in accruals |
|
1,401,894 |
319,786 |
|
|
|
|
|
|
Cash generated from operations
|
|
14,450,115 |
10,544,975 |
24. SUBSEQUENT EVENTS
In March 2010 the Company announced an 8 for 15 Open Offer to raise gross proceeds of £25 million by the issue of 35,631,326 shares at a price of 70 pence per share. The net proceeds are intended to be used primarily to fund a capital expenditure programme to increase bed capacity in the UK investment property portfolio.
In March 2010 the Group signed a facility agreement to borrow €18 million of senior debt financing secured against a portion of the Group's German investment property portfolio. The facility was drawn down in April 2010 with the interest rate fixed until maturity on 31 March 2013.
25. SEGMENT INFORMATION
|
|
UK |
US |
Germany |
Switzerland |
Total |
|
Year ended 31 December 2009 |
£ |
£ |
£ |
£ |
£ |
|
|
|
|
|
|
|
|
Revenue (Note 6) |
12,728,979 |
1,474,680 |
3,709,165 |
732,164 |
18,644,988 |
|
|
|
|
|
|
|
|
Adjusted profit after tax |
2,729,720 |
913,500 |
2,329,833 |
395,986 |
6,369,039 |
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment properties (Note 11) |
170,920,697 |
17,383,225 |
53,098,822 |
15,508,377 |
256,911,121 |
|
(including capital expenditure) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill (Note 15) |
2,538,832 |
- |
- |
- |
2,538,832 |
|
Cash |
986,328 |
335,391 |
558,619 |
28,620 |
1,908,958 |
|
|
|
|
|
|
|
|
Accrued income (Note 17) |
14,854,128 |
- |
- |
- |
14,854,128 |
|
|
|
|
|
|
|
|
Segment assets for reportable segments |
189,299,985 |
17,718,616 |
53,657,441 |
15,536,997 |
276,213,039 |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Borrowings (Note 21) |
118,716,794 |
14,285,263 |
8,012,573 |
7,512,249 |
148,526,879 |
|
|
|
|
|
|
|
|
Segment liabilities for reportable segments |
118,716,794 |
14,285,263 |
8,012,573 |
7,512,249 |
148,526,879 |
|
|
UK |
US |
Germany |
Switzerland |
Total |
|
Year ended 31 December 2008 |
£ |
£ |
£ |
£ |
£ |
|
|
|
|
|
|
|
|
Revenue (Note 6) |
12,884,613 |
1,244,831 |
2,108,497 |
608,653 |
16,846,594 |
|
|
|
|
|
|
|
|
Adjusted profit after tax |
2,802,931 |
497,743 |
1,105,863 |
343,983 |
4,750,520 |
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment properties (Note 11) |
162,162,781 |
19,537,434 |
58,733,495 |
18,016,486 |
258,450,196 |
|
(including capital expenditure) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill (Note 15) |
2,538,832 |
- |
- |
- |
2,538,832 |
|
Cash |
5,675,817 |
173,760 |
828,067 |
75,092 |
6,752,736 |
|
|
|
|
|
|
|
|
Accrued income (Note 17) |
12,495,127 |
- |
- |
- |
12,495,127 |
|
|
|
|
|
|
|
|
Segment assets for reportable segments |
182,872,557 |
19,711,194 |
59,561,562 |
18,091,578 |
280,236,891 |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Borrowings (Note 21) |
119,952,365 |
15,610,117 |
13,378,909 |
8,360,774 |
157,302,165 |
|
|
|
|
|
|
|
|
Segment liabilities for reportable segments |
119,952,365 |
15,610,117 |
13,378,909 |
8,360,774 |
157,302,165 |
Revenues derived from the UK, US and Swiss segments relate entirely to one external customer. German segment revenues derive from three external customers, one of which represents 12.6% of total group revenue.
A reconciliation of total adjusted profit after tax to profit after tax as per the consolidated income statement is provided as follows:
|
|
31 December 2009 £ |
31 December 2008 £ |
|
Adjusted profit for reportable segments |
6,369,039 |
4,750,520 |
|
|
|
|
|
Fair value movement on investment properties |
(2,217,907) |
(1,253,733) |
|
Impairment of Goodwill |
- |
(531,000) |
|
Deferred Taxation on Fair Value Gains |
(115,047) |
(504,075) |
|
Credit re: Deferred taxation change in tax rate |
- |
1,693,883 |
|
Amortisation of debt issue costs |
(348,399) |
(311,470) |
|
Interest rate swap charge to income statement |
1,083,215 |
(3,790,576) |
|
Accrued Income |
2,359,001 |
2,773,272 |
|
Deferred Taxation on Accrued Income |
(664,030) |
(766,018) |
|
One off acquisition costs |
- |
(522,236) |
|
Current taxation |
(1,131,380) |
(423,790) |
|
Foreign Exchange movement |
604,339 |
(1,488,512) |
|
|
|
|
|
Profit for the year per income statement |
5,938,831 |
(373,735) |
Reportable segments' assets are reconciled to total assets as follows:
|
|
31 December 2009 £ |
31 December 2008 £ |
|
|
|
|
|
Total reportable segment assets |
276,213,039 |
280,236,891 |
|
|
|
|
|
Receivable from Finance Lease (Note 13) |
8,475,494 |
8,413,212 |
|
Receivables and Prepayments (Note 19) |
5,363,059 |
9,463,647 |
|
Loans and Receivables (Note 14) |
4,351,500 |
4,351,500 |
|
|
|
|
|
Total assets per balance sheet |
294,403,092 |
302,465,250 |
Reportable segments' liabilities are reconciled to total liabilities as follows:
|
|
31 December 2009 £ |
31 December 2008 £ |
|
|
|
|
|
Total reportable segment liabilities |
148,526,879 |
157,302,165 |
|
|
|
|
|
Deferred Taxation (Note 22) |
34,229,570 |
33,966,478 |
|
Current Taxation |
1,360,587 |
518,085 |
|
Derivatives (Note 18) |
4,313,387 |
5,556,580 |
|
Trade Payables and Accruals (Note 24 and 25) |
2,663,169 |
1,489,501 |
|
|
|
|
|
Total liabilities per balance sheet |
191,093,592 |
198,832,809 |
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