Half Yearly Report to December 2012

Mucklow (A & J) Group plc

Half-Yearly Report

20 February 2013

Embargoed: 7.00am

Rupert Mucklow, Chairman commented:

"I am pleased to report steady progress being made during the first six months of our financial year, with a slight improvement in underlying pre-tax profit and net asset value per share."

Financial Summary

for the six months ended 31 December 2012

The interim dividend of £5.3m will be paid on 28 June 2013 to holders registered on 31 May 2013.

For further information please contact:

A & J Mucklow Group plc

Rupert Mucklow, Chairman Fiona Tooley

David Wooldridge, Finance Director Tooley Street Communications

Tel: 0121 550 1841 Tel: 07785 703523

Chairman's Statement

I am pleased to report steady progress being made during the first six months of our financial year, with a slight improvement in underlying pre-tax profit and net asset value per share.

Results for the six months to 31 December 2012

The underlying pre-tax profit†, which excludes revaluation movements and profit on the sale of investment and trading properties, increased marginally during the first six months, from £6.8m to £6.9m.

Statutory pre-tax profit for the half year increased to £8.1m, compared with £1.9m for the corresponding period last year, mainly due to a swing in property revaluation. There was no trading profit during the period (31 December 2011: £1.5m).

EPRA net asset value per Ordinary share* increased to 300p at 31 December 2012 (30 June 2012: 297p). Shareholders' funds were £179.4m (30 June 2012: £177.6m), while borrowings net of cash amounted to £63.7m and gearing was 35% (30 June 2012: £69.0m and 39%).

Dividend

The Directors have declared an interim dividend of 8.78p per Ordinary share, an increase of 3% over last year (31 December 2011: 8.52p), which will be paid as a PID on 28 June 2013, to Shareholders on the register at the close of business on 31 May 2013.

Property review

Our occupancy rate during the first half year was maintained at 93.5% of total available space, with a further 1.5% reserved at 31 December 2012.

We continued to experience encouraging levels of enquiries for our vacant, Midlands industrial space, but the processes to secure decisions and legal commitments remain slow.

Leasing incentives are starting to harden for the better quality properties, due to the lack of available space. However, market conditions generally remain fragile and tenants are still benefitting from some very attractive deals on older, secondary properties, which continue to suppress rental growth.

There has been an increase in the number of regional investment transactions over the last six months. We have seen an improvement in investor demand for grade A and better quality, second hand industrial space, but very little interest in older, secondary and tertiary properties.

DTZ Debenham Tie Leung reviewed the value of our property portfolio at 31 December 2012. The investment properties and development land were valued at £254.5m, which showed a revaluation surplus of £1.2m for the period.

The initial yield on our investment portfolio was 7.8% (30 June 2012: 8.1%), increasing to 8.1% on the expiry of rent free periods. The equivalent yield was 8.5% (30 June 2012: 8.7%).

Our industrial properties, which account for approximately 62% of our investment portfolio, increased in value by 1.9% in the first half year, whilst our office and retail properties declined in value by 2.1% and 0.6% respectively.

The majority of the increase in value for our industrial properties came from asset management initiatives, rather than any rental growth or notable yield movement.

The most significant changes in value came from two industrial properties at Worcester and Birmingham:-

First, a new 5 year lease was completed on our 110,000 sq ft distribution warehouse, at Shire Business Park, Worcester. The property was acquired in 2010 for £4.1m, off an initial yield of 13.8%, to reflect a lease expiry in December 2012. The passing rent has been maintained at £565,000 per annum.

Secondly, conditional contracts were exchanged before Christmas to sell a vacant 40,000 sq ft industrial unit at Golden Cross, Birmingham. The sale is subject to planning consent for a data centre and the purchaser obtaining funding. The price agreed is significantly above 30 June 2012 book value. Only part of the potential surplus was reflected in the December valuation.

We did not acquire any investment properties during the period, but have continued actively to monitor the market for suitable opportunities. We remain extremely selective on acquisitions and are well positioned to capitalise on any potential investment propositions that may arise.

DTZ Debenham Tie Leung also reviewed the value of our trading properties at 31 December 2012. The total value was £1.9m, which showed an unrecognised surplus of £1.4m over book value. No disposals of trading properties were made during the period.

Finance

We completed a new £20m term loan with Lloyds TSB Bank plc during the half year, which has been used to free up our existing revolving credit facility that we have with HSBC. The loan is for a period of 10 years and is fixed at a rate of 5.23%.

We also commenced early discussions with HSBC over renewing our principal banking facilities for a further 5 years, which are due to expire in September 2014.

Our total net borrowings reduced in the half year from £69.0m to £63.7m at 31 December 2012. Undrawn banking facilities totalled £38.5m, while net debt to equity gearing was 35% (30 June 2012: 39%).

Principle risks and uncertainties

There have been no changes to the principal risks and uncertainties of the Group, which remain as disclosed on page 19 of the Annual Report for the year ended 30 June 2012. 

Outlook

There are encouraging signs that the Midlands industrial occupier and investment markets are slowly improving. Economic conditions remain challenging and I am sure we will continue to experience some volatility during the recovery period.

Property values appear to have stabilised for now and offer very attractive returns over our current cost of borrowing. We expect to benefit from the improved liquidity in the investment market over the next six months and utilise some of our increased banking facilities.

Rupert J Mucklow

Chairman

19 February 2013

† 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 fair value of financial instruments. See note 8 for details.

Group Condensed Statement of Comprehensive Income

for the six months to 31 December 2012

All operations are continuing.

Group Condensed Statement of Changes in Equity

for the six months ended 31 December 2012

Group Condensed Balance Sheet

at 31 December 2012

Group Condensed Cash Flow Statement

for the six months to 31 December 2012

Notes to the Half-Yearly Report

1. Accounting policies

Basis of preparation of half-yearly financial information

The annual financial statements of A & J Mucklow Group plc are prepared in accordance with IFRS's 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 and the disclosure requirements of the Listing Rules.

The Group's condensed set of financial statements for the period ended 31 December 2012 were authorised for issue by the Board of directors on 19 February 2013. The half-yearly financial information is unaudited but has been reviewed by Deloitte LLP and their report appears on page 16 of this half-yearly report.

The information for the year ended 30 June 2012 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 auditor reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

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

As at 31 December 2012 the Group had £38.5m of undrawn banking facilities, comprising the £5.0m overdraft and £33.5m 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 Lloyds Bank 2023 £20.0m Term Loan remains fully drawn. During the period the Group secured a further £20.0m 10 year Lloyds Bank Term Loan, expiring in 2022, which has been fully drawn. Given these facilities, the Group's low gearing level of 35% and £71.1m of unencumbered properties, significant capacity exists to raise additional finance or to provide additional security for existing facilities, should property values fall. Accordingly, the directors continue to adopt the going concern basis in preparing the condensed set of financial statements.

The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest annual audited financial statements other than the adoption of the amendments to IAS1 "Presentation of Items of Other Comprehensive Income". The Group has applied the amendments to IAS 1 "Presentation of Items of Other Comprehensive Income" with effect from 1 July 2012. This amendment increased the required level of disclosure within the statement of comprehensive income.

The impact of this amendment has been to analyse items within the statement of comprehensive income between items that will not be reclassified subsequently to profit or loss and items that will be reclassified subsequently to profit or loss in accordance with the respective IFRS standard to which the item relates. The amendments have been applied retrospectively, and hence the presentation of items of comprehensive income have been restated to reflect the change. Other than the above mentioned presentation changes, the application of the amendments to IAS 1 do not result in any impact on profit or loss, comprehensive income and total comprehensive income.

2. Revenue

3. Segmental analysis

The Group has two reportable segments: investment and development property and trading property.

The property revaluation gain/(deficit) has been recognised as follows:

3. Segmental analysis (continued)

Segmental information on assets and liabilities, including a reconciliation to the results reported in the Group condensed balance sheet, are as follows:

All operations and income are derived from the United Kingdom and therefore no geographical segmental information is provided.

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 periods 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 8.78p (2011: 8.52p) per Ordinary share. This dividend has not been included as a liability in these financial statements.

The interim dividend will be paid on 28 June 2013 to shareholders on the register at the close of business on 31 May 2013.

7. Underlying financial performance

Presented below is a non-statutory analysis of the underlying rental performance before tax, as shown in the investment/development column, which excludes the profit on sale of investment and trading properties and other items (capitalised interest, property revaluation movements and the fair value movement on derivative financial instruments). The directors consider that this further analysis of our statement of comprehensive income gives shareholders a useful comparison of our underlying performance for the periods shown in the condensed set of financial statements.

7. Underlying financial performance (continued)

8. Earnings per share and net asset value per share

Earnings per share

The basic and diluted earnings per share of 13.52p (31 December 2011: 3.15p) has been calculated on the basis of the weighted average of 60,193,841 (31 December 2011: 60,102,542) Ordinary shares and a profit of £8.14m (31 December 2011: £1.89m).

The European Public Real Estate Association (EPRA) has issued recommended bases for the calculation of earnings and net asset value per share information and these are included in the following tables.

The EPRA earnings per share has been amended from the basic and diluted earnings per share by the following:

8. Earnings per share and net asset value per share (continued)

The Group presents an EPRA 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. Options over 112,583 Ordinary shares were granted in the period (2011: 137,432 Ordinary shares) under the 2007 Performance Share Plan. The vesting conditions for these shares have not been met, so they have not been treated as dilutive in these calculations. The third three-year award under the 2007 Performance Share Plan vested in the period, with 63,176 Ordinary shares being issued and 22,978 shares lapsed.

Net asset value per share

The net asset value per share of 298p (31 December 2011: 306p) has been calculated on the basis of the number of equity shares in issue of 60,242,518 (31 December 2011: 60,179,342) and net assets of £179.43m (31 December 2011: £184.33m).

The EPRA net asset value per share has been calculated as follows:

9. Properties

The properties are stated at market value as at 31 December 2012 and are valued by DTZ Debenham Tie Leung, professionally qualified external valuers, in accordance with the RICS Valuation - Professional Standards published by the Royal Institution of Chartered Surveyors. DTZ Debenham Tie Leung have recent experience in the relevant location and category of the properties being valued.

10. 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.

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 report on 19 February 2013.

Rupert J Mucklow

Chairman

David Wooldridge

Finance Director

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 2012 which comprises the Group condensed statement of comprehensive income, the Group condensed statement of changes in equity, the Group condensed balance sheet, the Group condensed 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 inquiries, 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 2012 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 Auditor

Birmingham, United Kingdom

19 February 2013