Half Yearly Report

Mucklow (A&J) Group plc

Interim Results for the six months to 31 December 2010

Date: 23 February 2011

Embargoed: 7.00am

Financial Summary

The interim dividend of £4,969,083 will be paid on 30 June 2011 to holders registered on 3 June 2011.

* Excludes the mark to market on debt and fair value of financial instruments and includes the surplus on trading properties.

†See the investment/development column in the underlying financial performance tables in note 7 for details.

Rupert Mucklow, Chairman of A & J Mucklow Group plc said:

"I am pleased to report steady progress during the first 6 months of our financial year, with an improvement in underlying pre-tax profit and a further expansion of our investment portfolio, which will generate additional rental income in the second half of the year. The interim dividend is being raised by 3% and we remain positive about prospects for the full year."

Chairman's statement

I am pleased to report steady progress during the first 6 months of our financial year, with an improvement in underlying pre-tax profit† and a further expansion of our investment portfolio, which will generate additional rental income in the second half of the year. The interim dividend is being raised by 3% and we remain positive about prospects for the full year.

Gross annual rental income increased by £2.1m (12.9%) in the period, following the completion of our Coventry development in August 2010 and the acquisition of three more investment properties in November and December 2010. At the same time, our occupancy rate has been maintained at around 92%, supported by high tenant retention and a reduction in the number of insolvencies.

Results for the six months to 31 December 2010

Pre-tax profit for the half year was £4.8m, compared with £18.8m for the corresponding period last year. The previous half year's profit figure included a £11.6m revaluation surplus and a contribution of £1.6m from trading profit. There was no trading activity up to 31 December 2010 and the deficit on the revaluation of the investment properties and development land was £1.0m.

The underlying pre-tax profit†, which excludes fair value movements, the benefit of capitalised interest and profit from sale of investment and trading properties, increased by £0.2m from £5.5m to £5.7m. Annual rental income had risen to £18.5m at 31 December 2010 (30 June 2010: £16.4m).

EPRA (adjusted) net asset value per share* fell slightly during the first six months from 308p to 306p per share, as a result of the small decline in property values. Shareholders' funds were £184.8m (30 June 2010: £185.9m), while borrowing net of cash amounted to £56.8m, representing 31% of shareholders' funds (30 June 2010: £49.7m and 27%).

The directors have declared an interim dividend of 8.27p per Ordinary share, an increase of 3% over last year (31 December 2009: 8.03p), which will be paid as a PID on 30 June 2011 to shareholders on the register at the close of business on 3 June 2011.

Property review

Our current strategy is focused towards maintaining a high occupancy level, in order to protect income, while utilising our strong financial position and low cost of borrowing to expand our portfolio with quality assets and to grow rental income and profits in the short term.

The value of our industrial and commercial properties reduced marginally at 31 December 2010 (0.4%), mainly due to a lull in the investment market. The occupier market was also quiet for much of the period, but started to show signs of improvement towards the end of our half year. Market conditions have been ideal for acquiring attractive investment properties.

During the first six months of our financial year, we secured three further investment properties at a total cost of £11.9m. These were:

·; a 23,000 sq ft office building, at the entrance of the Quinton Business Park, close to junction 3 of the M5 motorway. The property was built in 2004 and is let to the Secretary of State for Transport;

·; a brand new 41,000 sq ft warehouse in Milton Keynes, let to a UK national charity; and

·; a modern, 110,000 sq ft warehouse at junction 6 of the M5 in Worcester, currently used for specialist food distribution.

The combined rental income from these acquisitions is £1.1m per annum, which shows a net return on cost of around 9%. In the same period we also completed our Costco development in Coventry, which is now providing us with a rent of £1.3m per annum. 

The Midlands occupier market remained subdued for the majority of the first six months of our financial year, with very few new letting enquiries, but only a small amount of space being returned. However, the number of enquiries, for pre-let and modern industrial space, picked up a little towards the end of the period and has continued into the second half year.

We have managed to maintain our occupancy rate at around 92%, with most lease renewals and new lettings being concluded above estimated rental value (ERV). The average rent for our let properties is currently: £4.97 psf (industrial); £15.66 (offices); and £9.58 (retail). The current ERV of our void properties is £1.5m per annum.

DTZ Debenham Tie Leung reviewed the value of our investment properties as at 31 December 2010. The investment portfolio, including development land, was valued at £248.9m, which showed a small reduction in value for the period of £1.0m (0.4%). The initial yield on the investment portfolio was 7.5% (30 June 2010: 7.4%) and the equivalent yield was 8.3% (30 June 2010: 8.4%).

Property values stabilised during the first 6 months, after gains of 11% in the previous 12 months. The Midlands investment market became less frantic and prices more realistic, as the number of active investors declined. The volume of investment activity was low, but there was still strong interest for quality investment properties, but very little demand for secondary.

DTZ Debenham Tie Leung also reviewed the value of our trading properties at 31 December 2010. The total value was £3.6m, which showed an unrecognised surplus of £3.0m over book value, equivalent to 5p per share. There were no trading property sales made in the first half year.

Our financial position at the half year end remains strong, with a property portfolio valued at £248.9m and net debt of £56.8m. Undrawn banking facilities amount to £26.0m at 31 December 2010 and our current cost of borrowing from these facilities is around 2.7%.

Non-Executive appointment

In December 2010, we were delighted to welcome Jock Lennox as an Independent Non-Executive Director to the Company. Jock retired from Ernst & Young in 2009, where he was a Partner for 21 years, advising international and UK clients across a range of business sectors.

Jock currently holds Non-Executive positions at a number of other quoted companies and has taken over the role of Chairman of the Audit Committee.

Outlook

We have already seen a slight improvement in the occupier markets since November and are aware of a number of serious requirements in the market. We are hopeful that tenant demand will continue for the rest of this year enabling us to let some of our vacant space and start pre-let development again. There is only a small supply of quality industrial space currently available in the Midlands, so any increase in demand is likely to cause rental values to harden and incentives to reduce, which will benefit the value of our investment portfolio.

We remain positive about prospects for the full year and intend to continue the same strategy of keeping voids and operating costs under control and pursuing suitable investment opportunities.

Rupert J Mucklow

Chairman

22 February 2011

†See the investment/development column in the underlying financial performance tables in note 7 for details.

* EPRA (European Public Real Estate Association) net asset value, including the surplus on trading properties and excluding the mark to market of debt and the fair value of financial instruments. See note 7 for details.

Consolidated Income Statement

for the six months to 31 December 2010

All operations are continuing.

Consolidated Statement of Comprehensive Income

for the six months to 31 December 2010

Consolidated Statement of Changes in Equity

for the six months ended 31 December 2010

*Under IAS 40, with effect from 1 July 2009, revaluation movements on development properties are now taken through the income statement. Following this change in treatment cumulative revaluation movements on development properties have been transferred to retained earnings from the revaluation reserve.

Consolidated Balance Sheet

at 31 December 2010

Consolidated Cash Flow Statement

for the six months to 31 December 2010

Notes to the Interim Report

1 Accounting policies

Basis of preparation of interim financial information

The interim report has been prepared using accounting policies consistent with IFRSs and in accordance with the requirements of IAS 34 "Interim Financial Reporting" and the recognition and measurement criterion of IFRSs, as adopted by the European Union and the disclosure requirements of the Listing Rules.

The Group's interim financial statements for the period ended 31 December 2010 were authorised for issue by the Board of directors on 22 February 2011. The interim financial information is unaudited but has been reviewed by Deloitte LLP and their report is attached.

The information for the year ended 30 June 2010 does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The Auditors' report on those accounts was not qualified, did not include a reference to any matters which the Auditors drew attention by way of emphasis without qualifying the report and did not contain statements under section 498 (2) or (3) of the Companies Act 2006.

The financial statements are prepared under the historical cost convention, except for the revaluation of investment properties, development properties and owner-occupied properties and deferred tax thereon and certain financial assets, with consistent accounting policies to the prior year.

The preparation of financial statements requires the use of estimates and assumptions that affect reported amounts of assets and liabilities during the reporting period. These estimates and assumptions are based on management's best knowledge of the amount, event or actions. Actual results may differ from those amounts.

As at 31 December 2010 the Group had £26.0m of undrawn banking facilities, comprising the £5.0m overdraft and £21.0m of the £40.0m 2014 Revolving Credit Facility, and had fully drawn down £20.0m from its HSBC 2014 Term Loan. The Group's £5.0m overdraft is the only banking facility due for renewal within 12 months of the date of this document. The £20.0m 2023 Lloyds Bank Term Loan remains fully drawn. Given these facilities, the Group's low gearing level of 31% and £99.1m of unencumbered properties, significant capacity exists to raise additional finance or to provide additional security for existing facilities, should property values fall further. Accordingly, the directors continue to adopt the going concern basis in preparing the interim report.

The Group financial statements consolidate the financial statements of the Company and all its subsidiaries. Control is assumed where the Parent Company has the power to govern the financial and operational policies of the subsidiary.

The same accounting policies and presentation methods of computation are followed in the condensed set of financial statements as applied in the Group's latest annual audited financial statements.

2 Revenue

3 Segmental analysis - primary segments

All operations and income are derived from the United Kingdom.

4 Net finance costs

5 Taxation

There is no deferred tax charge or credit for any of the periods stated.

The Company elected to become a Real Estate Investment Trust (REIT) with effect from 1 July 2007. As a result of this, rental income and capital gains of the REIT business are not subject to tax. The tax charge for the six months ended 31 December 2009 shown above represents the tax payable on the non-REIT business, mainly profits on the disposal of trading properties and interest receivable.

6 Dividends

The directors propose an interim dividend of 8.27p (31 December 2009: 8.03p) per Ordinary share.

The interim dividend will be paid on 30 June 2011 to shareholders on the register at the close of business on 3 June 2011.

7 Profit, underlying financial performance, earnings per share and net asset value per share

The adjusted profit before tax has been amended from the profit before tax as follows:

Underlying financial performance (unaudited)

Presented below is an analysis of the underlying rental performance before tax, which excludes the profit on sale of trading properties and other items (capitalised interest, property revaluation movements and the fair value movement on derivatives). The directors consider that this further analysis of our income statement gives shareholders a useful comparison of our underlying performance for the periods shown in the consolidated financial statements. 

Earnings per share

The basic and diluted earnings per share of 8.02p (31 December 2009: 31.29p) has been calculated on the basis of the weighted average of 59,995,572 (31 December 2009: 59,991,990) Ordinary shares and a profit of £4.81m (31 December 2009: £18.77m). The adjusted earnings per share has been amended from the basic and diluted earnings per share by the following:

The Group presents an adjusted earnings per share figure as the directors consider that this is a better indicator of the performance of the Group.

There are no dilutive shares.

Net asset value per share

The net asset value per share of 308p (31 December 2009: 288p) has been calculated on the basis of the number of equity shares in issue of 60,085,646 (31 December 2009: 59,991,990) and net assets of £184.85m (31 December 2009: £172.85m). The number of equity shares in issue has increased during the period by 93,656 due to the exercise of share options under the 2007 performance share plan. The EPRA (adjusted) net asset value per share has been amended as follows:

8 Properties

The properties are stated at market value as at 31 December 2010 and are valued by professionally qualified external valuers in accordance with the RICS Appraisal and Valuation Standards published by the Royal Institution of Chartered Surveyors.

9 Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

10 Post Balance Sheet Events

On 21 February 2011 the Group acquired an investment property for £6.2m.Responsibility Statement

We confirm that to the best of our knowledge:

a) the condensed set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting";

b) the half-yearly report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

c) the half-yearly report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transaction and changes therein).

Signed on behalf of the Board who approved the half-yearly financial report on 22 February 2011.

Rupert J Mucklow

Chairman

David Wooldridge

Finance Director

Independent Review Report to A&J Mucklow Group plc

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 December 2010 which comprises the consolidated income statement, the consolidated balance sheet, the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated cash flow statement and related notes 1 to 10. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 December 2010 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Deloitte LLP

Chartered Accountants and Statutory Auditors

Birmingham, United Kingdom

22 February 2011

www.mucklow.com