Half Yearly Report

Mucklow (A & J) Group plc

Half-Yearly Report

22 February 2012

 Embargoed: 7.00am

Rupert Mucklow, Chairman commented: "I am pleased to report good progress being made in the first six months of our financial year, with a 19% improvement in underlying pre-tax profit and a 3% increase in the interim dividend."

Financial Summary

for the six months ended 31 December 2011

The interim dividend of £5,127,280 will be paid on 29 June 2012 to holders registered on 1 June 2012.

For further information please contact:

Rupert Mucklow, Chairman Tel: 0121 504 2121 Fiona Tooley Tel: 0121 362 4009

David Wooldridge, Finance Director Tel: 0121 504 2108 Citigate Dewe Rogerson

A & J Mucklow Group plc

Chairman's Statement

50th Anniversary

 In April 2012, A & J Mucklow Group will be celebrating 50 years as a listed company. Its principal objective has always been to deliver steady, long-term income and capital growth for its shareholders.

The Group's financial performance has been exemplary since it was floated on the London Stock Exchange in 1962. The ordinary dividend has increased in 45 out of the last 50 years and never been cut.

An investment of £1,000 in Mucklow shares in 1962 would today be worth around £1.6m, assuming dividends were reinvested. The total shareholder return has averaged over 16% per annum for the last 50 years‡.

Current overview

I am pleased to report good progress being made in the first six months of our financial year, with a 19% improvement in underlying pre-tax profit and a 3% increase in the interim dividend.

The occupancy level has risen to 93.5%, despite the current economic environment; however, property values have started to drift, reflecting a decline in investor appetite for risk and uncertainty in the debt markets.

Results for the six months to 31 December 2011

The underlying pre-tax profit†, which excludes revaluation movements and profits from the sale of investment and trading properties, increased by £1.1m during the first six months to £6.8m (2010: £5.7m). Net rental income received from investment properties rose by £1.2m to £9.7m (2010: £8.5m).

Pre-tax profit for the half year was lower at £1.9m (2010: £4.8m). The reduction was mainly due to a £6.6m deficit on the revaluation of investment properties and development land at 31 December 2011 (2010: deficit £1.0m). A trading profit of £1.5m was realised in the first six months (2010: £0.0m).

EPRA net asset value per share* reduced marginally during the half year from 318p to 309p per share as a result of the decline in property values. Shareholders' funds were £184.3m at 31 December 2011 (30 June 2011: £188.6m), while borrowings net of cash amounted to £61.6m, representing 33% of shareholders' funds (30 June 2011: £67.7m and 36%).

Dividend

The directors have declared an interim dividend of 8.52p per Ordinary share, an increase of 3% over last year (31 December 2010: 8.27p), which will be paid as a PID on 29 June 2012 to shareholders on the register at the close of business on 1 June 2012.

Property review

After a very quiet summer, letting activity surprisingly picked up a little before Christmas and has continued into the New Year. As a consequence, we managed to reduce our void rate to 6.5% at 31 December 2011 (30 June 2011: 7.3%), our lowest level since 2007.

Most of our lettings were to existing tenants, looking to consolidate or expand into modern properties. A shortage of good quality industrial space in the Midlands continues to help us maintain rental levels and a high occupancy rate. 

The regional investment market was relatively quiet during the first half year, with few properties becoming available or transactions being concluded. Towards the end of the period, there was an increase in the number of older, secondary properties being released by Banks and distressed sellers, at heavily discounted prices, which started to affect property values.

The yield gap between prime and non-prime assets is widening, as concerns grow over the risk of secondary properties becoming vacant and potentially difficult to re-let. The values of modern properties with short leases (less than 5 years) have also deteriorated over the last few months, due to a lack of available bank finance to fund short-term income.

Prime properties with long leases (20 years +) are hotly contested by institutional investors, but very little stock is available. A modern building, in a prime location, could be valued on a yield of between 5% and 15% in the current market, depending on the lease terms.

DTZ Debenham Tie Leung reviewed the value of our investment properties at 31 December 2011. The investment portfolio, including development land was valued at £255.8m, which showed a revaluation deficit for the period of £6.7m (2.5%).

The initial yield on our investment properties was 7.8% (30 June 2011: 7.5%), increasing to 8.1% on the expiry of rent free periods, while the equivalent yield was 8.5% (30 June 2011: 8.3%).

We did not acquire any investment properties during the period. However, since the half year end, we have bought a 15,800 sq ft office building in Coventry, with 81 car parking spaces, for £1.5m. The property is adjacent to an existing holding and was built in 2000 to a high specification and is currently let at a rent of £237,500 pa, on a lease expiring in 2015. The initial yield was 14.7%.

A joint outline planning application with Helical Retail has been submitted for a mixed use development including our 20 acre site at Tyseley, in Birmingham. The combined area of the land is 33 acres and the proposal is to regenerate the area with much needed highway improvements; a supermarket; non food retail; housing and industrial units, which would create over 1,000 jobs.

DTZ Debenham Tie Leung also reviewed the value of our trading properties at 31 December 2011. The total value was £1.9m, which showed an unrecognised surplus of £1.4m over book value. We sold a farm at Penn, near Wolverhampton, in September 2011 for £1.7m, realising a trading profit of £1.5m. The property comprised a farm house, barn and approximately 270 acres of land.

Our total net borrowings reduced at our half year end, from £67.7m at the beginning of the period, to £61.6m at 31 December 2011. Undrawn banking facilities totalled £21.5m and net debt to equity gearing was 33% (30 June 2011: 36%).

Principal risks and uncertainties

There have been no changes to the principal risks and uncertainties of the Group, which remain as disclosed on page 20 of the Annual Report for the year ended 30 June 2011.

Outlook

We are entering our second half century as a listed company in very good shape. We are not anticipating any significant change in occupancy levels during the next six months and remain on target for another satisfactory year to 30 June 2012.

Property values may fluctuate a little during these uncertain times, but current market conditions provide us with opportunities to acquire modern investment properties on attractive yields and allow us to continue to maximise income and value from our other assets.

Rupert J Mucklow

Chairman

21 February 2012

‡ Source: Daily Official List and Datastream.

† 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 8 for details.

Group Condensed Statement of Comprehensive Income

for the six months to 31 December 2011

All operations are continuing.

Group Condensed Statement of Changes in Equity

for the six months ended 31 December 2011

Group Condensed Balance Sheet

at 31 December 2011

Group Condensed Cash Flow Statement

for the six months to 31 December 2011

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 2011 were authorised for issue by the Board of directors on 21 February 2012. The half-yearly financial information is unaudited but has been reviewed by Deloitte LLP and their report appears on page 17 of this half-yearly report.

The information for the year ended 30 June 2011 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 2011 the Group had £21.5m of undrawn banking facilities, comprising the £5.0m overdraft and £16.5m 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 £20.0m 2023 Lloyds Bank Term Loan remains fully drawn. Given these facilities, the Group's low gearing level of 33% and £110.2m 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, except that in accordance with IAS 1 "Presentation of Financial Statements" the Group has elected to present a single statement of comprehensive income.

2 Revenue

3 Segmental analysis

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

The property revaluation 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 six months ended 31 December 2011 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 8.52p (2010: 8.27p) per Ordinary share. This dividend has not been included as a liability in these financial statements.

The interim dividend will be paid on 29 June 2012 to shareholders on the register at the close of business on 1 June 2012.

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 3.15p (31 December 2010: 8.02p) has been calculated on the basis of the weighted average of 60,102,542 (31 December 2010: 59,995,572) Ordinary shares and a profit of £1.89m (31 December 2010: £4.81m).

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

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 137,432 Ordinary shares were granted in the period (2010: 136,172 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 second three-year award under the 2007 Performance Share Plan vested in the period, with 93,696 Ordinary shares being issued and 11,715 shares lapsed (2010: 93,656 issued and 26,772 lapsed).

Net asset value per share

The net asset value per share of 306p (31 December 2010: 308p) has been calculated on the basis of the number of equity shares in issue of 60,179,342 (31 December 2010: 60,085,646) and net assets of £184.33m (31 December 2010: £184.85m). The number of equity shares in issue has increased during the period by 93,696 due to the exercise of share options under the 2007 Performance Share Plan.

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 2011 and are valued by DTZ Debenham Tie Leung, professionally qualified external valuers, in accordance with the RICS Appraisal and Valuation Standards published by the Royal Institution of Chartered Surveyors.

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.

11 Post-Balance Sheet Events

On 6 February 2012 the Group acquired an investment property for £1.5m.

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 21 February 2012.

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 2011 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 11. 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 2011 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

21 February 2012