8th Jun 2005 08:00
McKay Securities PLC08 June 2005 McKAY SECURITIES PLC PRELIMINARY ANNOUNCEMENT - 8TH JUNE 2005 The Directors of McKay Securities PLC announce the results of the Group for theyear ended 31st March 2005. FINANCIAL HIGHLIGHTS * Net asset value per share up 11.3% to 316p (2004 - 284p). * Adjusted net asset value per share up 11.2% to 328p (2004 - 295p). * Final dividend up 5% to 6.2 pence per ordinary share (2004 - 5.9p) making a total ordinary dividend for the year up 4.4% to 9.4 pence (2004 - 9.0p). * Investment portfolio valuation up 6.8 % to £210.6 million. * Pre-tax profit, adjusted to exclude profit on the sale of investment property of £6,469,500 (2004 - £6,882,500). * Investment property sale proceeds of £4,700,000 with a profit of £653,464 over book value. * Weighted average cost of borrowing of 6.1% (2004 - 5.4%). * Total shareholder return for the year of 27% (2004 - 42%) and for the five year period ended 31st March 2005 of 139% (2004 - 120%). EnquiriesMcKay Securities PLCTel: 0118 950 2333Simon Perkins (Managing Director)Alan Childs (Finance Director) CHAIRMAN'S STATEMENT Pre-tax profit for the year to 31st March 2005 amounted to £7,123,000 comparedwith £7,456,000 for the same period last year. At operating level, pre-taxprofit after interest and excluding the surplus on the sale of investmentproperties totalled £6,470,000 compared with £6,883,000 for the previous year. A final dividend of 6.2 pence per ordinary share is recommended by the board(2004 - 5.9 pence) payable on 11th August 2005. This takes the total dividendfor the year to 9.4 pence (2004 - 9.0 pence); an increase of 4.4 %. The annual external valuation of the Group's property portfolio at 31st March2005 excluding those properties in the course of development, totalled£210,605,000, resulting in a surplus of £13,442,000, representing an increase of6.8% (2004 - 2.9%) after adjusting for disposals and capitalised expenditureduring the year. Adjusted net asset value per share after taking into account valuation gains,together with retained capital and revenue profits and the dividends referred toabove, increased by 11.2% from 295 pence to 328 pence. Review of the Year The increase in the net asset value of the Group reflects a good year, duringwhich improvements undertaken within the portfolio and active management havegenerated new lettings, increased rental values and contributed to a 6.8% upliftin valuation. The office developments under construction at Wimbledon andWestminster are on schedule for completion later this year and a selective salesprogramme has successfully generated profit over book value of £653,000. Pre-tax profits have fallen just short of last year's figures mainly due to areduced level of income as a result of sales and properties moving intodevelopment; there was also a one off benefit in 2004 of a £200,000 servicecharge recovery associated with the head lease surrender at Portsoken House,EC3. On a like for like basis, income from the portfolio increased over the yearbut after taking into account the loss of income of £779,000 from thoseproperties sold since last year or now being redeveloped, the net shortfall ingross rental income for the year was only £141,000. Within a letting market where occupiers continue to have a range of options, thequality, location and presentation of our buildings have played an importantpart in the successful completion of 25 lettings, with a contractual rentalincome of £1.52 million per annum. Many of these lettings have benefited fromthe £2.60 million of refurbishment expenditure incurred over the last two years. At Castle Lane, SW1 (offices - 14,035 sq ft) the rolling refurbishment of thebuilding was completed in the first half of the year, with the two lower groundfloor suites being let prior to completion at rental levels ahead ofexpectations. The interest in the remaining floor reported at the half yearstage did proceed to a letting and the four leases completed during the yearresults in the building being fully income producing at a rent 38% higher thanthat payable when purchased in December 2000. It was also reported at the halfyear stage that Albion House, Newbury (offices - 6,715 sq ft) and two floors ofPegasus One, Crawley (offices - 10,650 sq ft) were in solicitors' hands. I ampleased to say that both lettings progressed to completion, which together withCastle Lane amount to additional rents of £628,500 pa. Further progress has also been made at the Oakwood Trade Park, Crawley(warehousing - 51,085 sq ft), where a refurbishment programme of the yard areas,the facades, the entrance and signage was implemented following the off-marketpurchase in 2003. These works have considerably improved the quality of theinvestment and enabled us to renew or let those units falling vacant, movingrents on from £7 psf to £9.25 psf. Concurrent lease terms are being agreed toallow us to review the possibility in due course of redeveloping the site foroffices as a second phase to Pegasus Place, the Group's adjoining 50,710 sq ftoffice park. Improvement works have also been completed at the 3 Acre and 5 Acre IndustrialEstates in Folkestone (warehousing - 104,545 sq ft). These properties have beenin the portfolio for some time and we are now enjoying the result of havingtargeted the trade counter market and the benefit of a proposal for a major DIYstore on adjoining land. Rental values have increased on completion of the worksand at the 3 Acre Estate further value has been created by securing planningconsent for change of use to retail on the frontage; a lease surrender has beennegotiated with the existing tenant and the unit is now in solicitors hands at arental value which has improved from £5 psf to £15 psf. For some time we have been trying to obtain a change of planning use for a highquality residential development on our 3.9 acre site situated on the edge of thevillage of Chobham, Surrey which at present comprises a 50,000 sq ft warehousedeveloped by the Group in 1975. I am pleased to say that, following two planningappeals, a revised planning application for 54 residential units has resulted ina successful outcome. The change of use to residential has now been accepted byThe Secretary of State and Woking Borough Council have resolved to grantconsent, subject to a S.106 Agreement. This should be finalised later this yearwhen the site will be put on the market for sale. The annual external valuation of the Group's investment properties as at 31stMarch 2005 was £210.61 million, generating an increase of £13.44 million (6.8%)over book value . In accordance with the Group's accounting policies, propertiesunder construction are not included in the valuation. There were increasesacross many of the properties, but particularly in those cases referred toabove, such as Castle Lane, SW1, Pegasus Place and Oakwood Trade Park, Crawley,the two Folkestone Estates and also at The McKay Trading Estate, Poyle(warehousing - 74,695 sq ft), where new lettings and increased rents haveoptimised the benefit arising from improved valuation yields. The enhancedplanning position at Chobham has resulted in a substantial uplift over bookvalue. During the year, advantage was taken of the continued strength of the investmentmarket to sell The Arcade, Aldershot (retail and offices - 33,580 sq ft) and 27Summers Road, Burnham (offices - 797 sq ft), releasing net sale proceeds of£4.66 million. As noted at the half year stage the growth prospects for theseproperties were considered to be limited and their disposal is in keeping withour intention to increase the average lot size within the portfolio. Since theyear end a further disposal has taken place at Bristol, where contracts havebeen exchanged for the sale of Newminster House (offices - 27,520 sq ft) for£5.12 million net of sale costs - a figure in excess of the March 2005valuation. Having completed a refurbishment programme and let the vacant spaceat full rents, in what has historically proved to be a difficult letting market,the decision was taken to dispose of the property before lease breaks in a fewyears' time impacted on value. The possibility of making further sales will bekept under review, but the Group's current policy remains that sales should belimited until we can assess the timing and strength of income to be secured fromcompleted developments and new acquisitions. Prudent acquisitions in this market have been difficult to secure, although wecontinue our search for the right product and have increased funds availablefrom recent disposals for this purpose. Bank lending for UK commercial propertyis reported by the Bank of England to have risen by a record £7.7 billion in thefirst quarter of this year to £122.7 billion, an 18% increase over the samequarter last year. When combined with institutional investors, the weight ofmoney in the market has resulted in a further hardening of yields and in thisenvironment we remain selective. The current development programme includes office schemes in Wimbledon andWestminster. At Wimbledon Gate (offices - 58,500 sq ft), due for completion thissummer, the polished granite cladding and glazing is now in place and theinstallation of internal services is well underway over the six floors. Thequality of the building is beginning to show through, and details are welladvanced for the marketing launch at the end of the summer. In Westminster, 1Old Queen Street (offices - 21,530 sq ft) is also making good progress andcompletion is programmed for the end of this year. The frame is complete on theStoreys Gate frontage and the construction of the Portland stone facade is wellunderway. We are encouraged by the initial market response in both cases. Inaddition, we have the refurbishment of Dacre House, SW1 (offices - 15,350 sq ft)in hand as a result of the lease expiry at the end of this month and it isanticipated that this building will be brought to the market next spring. The redevelopment of 30/32 Lombard Street, EC3 (offices - 36,975 sq ft) had beenscheduled to commence at the end of this year but a decision was taken to extendthe current leases and maintain income while seeking an improved planningconsent for the future redevelopment of this high profile City of Londonproperty. The existing building was purchased in 2000 with planning consent fora scheme of 53,820 sq ft, and our architects believe that there is potential forimproving the quality of design, together with an increase in floor area.Securing a revised consent will delay redevelopment, but this will allow timefor further improvement in the City market and letting progress at our otherschemes. Financial Net debt at the year end stood at £79 million (2004 - £75 million). Despite thehigher level of debt, gearing as a proportion of shareholders' funds fell to 55%(2004 - 58%) due to the growth in the value of net assets. The Group has totalbank facilities available of £108 million, which if fully drawn down wouldincrease balance sheet gearing to 75%. These facilities are secured with a range of established lenders on a fullyrevolving, interest only basis. Exposure to a rise in interest rates isprotected by financial instruments in respect of £52 million of the Group'sfacilities representing 66% of net debt at the year end, and 47% if fully drawndown. The average cost of borrowing for the year was 6.1% (2004 - 5.4%). International Financial Reporting Standards (IFRS) Along with all listed companies, we are obliged to change from our current UKaccounting standards (UK GAAP), to meet the requirements of internationalfinancial reporting standards (IFRS). Our conversion to IFRS is well underwayand shareholders' first exposure to the full impact of IFRS on the Group will bein December 2005 on publication of the interim results for the six month periodto 30th September 2005. The new standards will significantly change the presentation of the Group'sfinancial statements, but will not impact on strategy, cashflow or alter thefundamental financial position of the Group. The standards, which in some casesare still evolving, introduce significant changes to the content and appearanceof the profit and loss account (to be renamed the Income Statement) and thebalance sheet, which will lead to increased volatility and potential forconfusion in analysing reported profits and there will be a need for areconciliation to UK GAAP for the next year or so to assist with theirinterpretation. With the interim results we will present comparative figures to illustrate theimpact of the new standards in detail, but at this stage it is worth noting thefollowing main differences which will affect the presentation of the Group'sresults:- * Annual valuation surpluses or deficits on investment properties will be included in the income statement for the first time, directly affecting profits. * Capital gains tax payable in the event that all the Group's investment properties were sold at the same time will be included as an additional deferred tax liability on the balance sheet, having previously been disclosed as a note to the accounts, thus reducing net asset value. The movement in the year will affect the tax charge in the income statement. * No provision will be made for proposed dividends in the income statement. * The cost of lease incentives will be spread over the life of a lease, or to the first break, rather than to the first rent review. * Leasehold property valuations are to be grossed up to incorporate future head lease payments and a corresponding financial liability will be set up. This is an accounting treatment and does not impact on the external valuation of investment properties. * Movement in the fair value of derivatives will be reported in the income statement unless they qualify for hedge accounting. Real Estate Investment Trusts In the March 2005 budget the Government confirmed its commitment to putting inplace tax efficient property investment funds, to be known as real estateinvestment trusts (REITs). It seems likely that these vehicles, within whichproperty can be held with reduced levels of tax on income and capital gains,will be introduced in 2006 and a further statement from the Government isexpected later this year with information on the conditions and cost of entry.We welcome the progress being made by the Government and will continue to followevents closely as a flexible REIT structure would remove a layer of taxation. Future Prospects The Group is well placed for the next stage of growth. Funds have been releasedfrom the sale of a number of properties increasing the amount available forreinvestment. High quality developments are to be completed this year and theletting market continues to recover. In the short term we expect that profitswill be held back until the remaining space at Crawley and in due course atWimbledon and Westminster is let, at which point additional rental income in theregion of £3 million per annum will have a marked impact on earnings. We will begin to see an increase in rental values if the improvement in demandexperienced last year, particularly for better quality buildings, continues toreduce the extent of over supply in the market. Rising rents will help sustaininvestment values and property returns as yield driven growth slows and it isencouraging to note that so far this year the number of viewings has picked upand letting incentives are beginning to decrease in scale. The board is confident that the increase in value from completed and ongoingdevelopment projects, together with the benefits arising from new acquisitionsand an active approach to portfolio management, will result in continued incomeand capital growth. E.S.G. Lloyd Chairman Details of the programme for the payment of the final dividend on the OrdinaryShares is as follows: Ex dividend date 15th June 2005 Record Date for the final dividend 17th June 2005 Report and Financial Statements dispatched toshareholders and also Notice of AGM 27th June 2005 Annual General Meeting to be held at12 noon at The Royal Thames Yacht Club, 27th July 200560 Knightsbridge, London SW1 Final dividend paid 11th August 2005 The summary of the consolidated results of McKay Securities PLC and itssubsidiary undertakings (the "Group") for the year ending 31st March 2005 are asfollows: 1. SUMMARY OF THE CONSOLIDATED RESULTS ------------------------------------- 2005 2004 £'000 £'000 ------- ------- Gross rents and service charges receivable 16,964 17,365 Direct Property Outgoings (4,216) (4,260) ------- ------- Income from investment properties 12,748 13,105 ------- ------- Administration costs (2,730) (2,701) Operating profit 10,018 10,404 ------- ------- Share of operating profit of associated undertakings 257 305 Profit on disposal of investments and properties 653 573 ------- ------- Profit on ordinary activities before interest and taxation 10,928 11,282 Net interest payable (3,805) (3,826) ------- ------- Profit on ordinary activities before taxation 7,123 7,456 Taxation (1,824) (1,549) ------- ------- Profit on ordinary activities after taxation 5,299 5,907 Dividends (4,284) (4,073) ------- ------- Net increase in reserves 1,015 1,834 Transfer to capital reserve on disposal of properties (653) (556) Net amount transferred to profit and loss account reserve 362 1,278 ======= ======= Earnings per share (note 1) Basic 11.66p 13.05p Diluted 11.60p 13.01p Adjusted earnings per share (note 1) Basic 12.53p 14.06p Diluted 12.47p 14.02p Operating earnings per share (note 1) Basic 10.22p 11.82p Diluted 10.17p 11.78p Adjusted operating earnings per share (note 1) Basic 11.09p 12.83p Diluted 11.04p 12.79p Dividend per share 9.4p 9.0p 2. CONSOLIDATED BALANCE SHEET 2005 2004 ---------------------------- £'000 £'000 ------- ------- Fixed assets Tangible assets - properties and other fixed assets 231,037 211,975 Investments 5,019 4,564 ------- ------- 236,056 216,539 ------- ------- Current assets Debtors 2,461 2,660 Cash at bank and in hand 2,271 1,607 ------- ------- 4,732 4,267 Creditors Amounts falling due within one year (10,632) (22,324) ------- ------- Net current liabilities (5,900) (18,057) ------- ------- Total assets less current liabilities 230,156 198,482 Creditors Amounts falling due after more than one year (80,195) (64,520) Provisions for liabilities and charges Deferred taxation (6,165) (5,491) ------- ------- Net assets 143,796 128,471 ======= ======= Capital and reserves Called up share capital 9,110 9,051 Share premium account 2,115 1,808 Revaluation reserve 73,793 56,983 Other capital reserves 34,523 36,677 Profit and loss account 24,255 23,952 ------- ------- Equity shareholders' funds 143,796 128,471 ======= ======== Net asset value per share 316p 284p Effect of FRS 19 12p 11p Adjusted net asset value per share 328p 295p 3. CONSOLIDATED STATEMENT OF TOTAL --------------------------------- RECOGNISED GAINS AND LOSSES 2005 2004 ----------------------------- £'000 £'000 ------- ------- Profit for the year 5,299 5,907 Unrealised surplus on revaluation of properties 13,604 5,291 Unrealised surplus on revaluation of 332 2,149 properties in associated undertaking Share of associated undertaking prior - (191) year adjustment to deferred tax provision Taxation on previously recognised gains - (36) ------- ------- Total recognised gains relating to the year 19,235 13,120 ======= ======= 4. CONSOLIDATED HISTORICAL PROFITS AND ------------------------------------- LOSSES -------- Reported profit before taxation 7,123 7,456 Realisation of property revaluation (deficits)/ surpluses of previous years (2,863) 464 ------ ------- Historical cost profit before taxation 4,260 7,920 ------ ------- Historical cost (loss)/profit for year retained after (1,848) 2,262 taxation and dividends ====== ======= 5. CONSOLIDATED RECONCILIATION OF -------------------------------- MOVEMENTS IN SHAREHOLDERS' FUNDS ---------------------------------- Profit for the year 5,299 5,907 Dividends (4,284) (4,073) ------ ------- 1,015 1,834 Unrealised surplus on revaluation of properties 13,604 5,291 Unrealised surplus on revaluation of properties in associated undertaking 332 2,149 Exchange gain 8 - Share of associated undertaking prior year adjustment to deferred tax provision - (191) Taxation on previously recognised gains - (36) Premium arising on issue of shares under share option scheme 307 - Nominal value of issue of shares under share option scheme 59 - ------- ------- Net addition to shareholders' funds 15,325 9,047 Opening shareholders' funds 128,471 119,424 ------- ------- Closing shareholders' funds 143,796 128,471 ======= ======= 6. CONSOLIDATED CASH FLOW STATEMENT ---------------------------------- Net cash inflow from operating activities 10,263 15,532 Dividends received from associated Undertaking 117 103 Returns on investments and servicing of finance Interest received 44 85 Interest paid (4,962) (3,651) Dividends received 1 1 ------- ------- Net cash outflow from returns on investments and servicing of finance (4,917) (3,565) Taxation Corporation tax refund 38 189 Corporation tax paid (1,557) (1,923) ------- ------- (1,519) (1,734) Capital expenditure Purchase and development of investment properties (8,785) (8,578) Purchase of other fixed assets (21) (30) Sales of investment properties 4,663 3,268 ------- ------- Net cash outflow for capital expenditure (4,143) (5,340) Equity dividends paid (4,130) (3,983) ------- ------- Cash (outflow)/inflow before financing (4,329) 1,013 Financing Issue of ordinary share capital 366 - Increase/(decrease) in debt 4,627 (2,820) ------- ------- Net cash inflow/(outflow) from financing 4,993 (2,820) Increase/(decrease) in cash in year 664 (1,807) ======= ======= 7. NET INTEREST PAYABLE ---------------------- Bank loans, overdrafts and other loans repayable 2,090 2,511 within five years All other loans 2,550 1,516 ------- ------- 4,640 4,027 Less: Interest relating to properties in the course of development (786) (113) ------- ------- 3,854 3,914 Interest receivable Bank and other short term deposits (49) (88) ------- ------- 3,805 3,826 ======= ======= 8. REVALUATION OF PROPERTIES --------------------------- The Group's properties were valued by external professional valuers at 31st March 2005. The overall increase in value as at 31st March 2005 was £13,441,728, equal to 6.8%, which has been credited to the Revaluation Reserve in the financial statements. A further £331,821, being the revaluation surplus from our associated undertaking, has also been taken to the Revaluation Reserve. After taking into account retained profits and dividends, the Group's net asset value per share has increased to 316p (2004 - 284p). Notes ------- 1. Earnings per share -------------------- Basic earnings per share on ordinary shares are based on profit after tax of £5,299,464 (2004 - £5,907,794) and 45,458,192 (2004 - 45,255,555) shares, being the weighted average number of ordinary shares in issue during the year. Diluted earnings per share are based on the same profit after tax and on the weighted average number of shares in issue during the period of 45,704,522 (2004 - 45,392,396), which takes into account the number of potential ordinary shares arising from the exercise of share options. Operating earnings of £4,646,000 (2003 - £5,351,239) exclude the profits (net of tax) on the sale of investment properties, investments and other income; operating earnings per share are calculated on the basis of the same number of shares in issue as for earnings per share noted above. 31 March 2005 31 March 2004 Basic Diluted Basic Diluted P P P P Earnings per share 11.66 11.60 13.05 13.01 Effect of FRS 19 0.87 0.87 1.01 1.01 ------ ------ ------ ------ Adjusted earnings per share 12.53 12.47 14.06 14.02 ======= ======= ======= ======= Earnings per share 11.66 11.60 13.05 13.01 Property sales after taxatio (1.44) (1.43) (1.23) (1.23) ------ ------ ------ ------ Operating earnings per share 10.22 10.17 11.82 11.78 Effect of FRS 19 0.87 0.87 1.01 1.01 ------ ------ ------ ------ Adjusted operating earnings per 11.09 11.04 12.83 12.79 share ======= ======= ======= ======= Operating earnings per share have been disclosed to show earnings that reflect the core operating activities of the Group. Adjusted earnings per share exclude the deferred tax provided in accordance with FRS19, on capital allowances on properties in development and completed investment properties, where no tax payment is expected to crystallise. Where on the sale of an investment property the agreed value for the plant and machinery disposed of is less than original cost, there is a release of part of the provision. However, in practice it is expected that the full capital allowance provision would be released. 2. The Report and Financial Statements will be posted to shareholders on 27th June 2005 with copies available from the Group's registered office at 20 Greyfriars Road, Reading, RG1 1NL from the same date, and from the Group's website www.mckaysecurities.plc.uk. 3. The financial information set out above does not constitute the Company's statutory accounts for the years ended 31st March 2005 but is derived from those accounts. Statutory accounts for 2004 have been delivered to the Registrar of Companies, and those for 2005 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
MCKS.L