14th Dec 2005 08:00
McKay Securities PLC14 December 2005 MCKAY SECURITIES PLC INTERIM RESULTS 14TH DECEMBER 2005 ------------------------------------ The Directors of McKay Securities PLC announce the results of the Group for thesix months ended 30th September 2005. Highlights * Adjusted net asset value per share up 11% to 330p (2004 - 297p) - note 9 * Adjusted profit before tax up 13% to £3,867,000 (2004 - £3,417,000) - note 5 * Profit before tax of £3,020,000 (2004 - £3,825,000) - note 5 * Diluted adjusted earnings per share up 7% to 6.03p (2004 - 5.66p) - note 7 * Investment property income up 11% to £7,267,000 (2004 - £6,571,000) * Developments totalling 80,000 sq ft reaching completion * Interim dividend up 6% to 3.4 pence per share (2004 - 3.2 pence per share) Eric Lloyd, Chairman, commented: "Notable progress overall has been made during the first half of the financialyear, which leaves the Group well placed to move ahead strongly. There arepositive signs that demand for high quality buildings from occupiers in oursector is picking up, borne out by the encouraging interest being shown in ourtwo new developments which, when let, will add significantly to shareholdervalue." For further information please contact: McKay Securities PLC - 01189 502333 Simon Perkins (Managing Director)Alan Childs (Finance Director) www.mckaysecurities.plc.uk Details of the programme for the payment of the interim dividend is as follows: Ex-dividend date 21st December 2005 Record date 23rd December 2005 Interim dividend payment 12th January 2005 CHAIRMAN'S STATEMENT ------------------------------------- Results for the six months to 30th September 2005These are the first results to be presented to shareholders in accordance withthe requirements of International Financial Reporting Standards (IFRS). Thereare significant changes, now obligatory for all listed companies, which areexplained in note 11 to the accounts. Under IFRS, shareholders are likely to see greater volatility in reportedprofits as movements in the annual revaluation of the Group's investmentportfolio and interest rate hedging instruments are now included in the incomestatement, formerly known as the profit and loss account. In order to provide aclearer picture of recurring profits from the core activities of the Group, ourpreferred measure is profit before tax adjusted to exclude both the two itemsmentioned above and any surplus on the sale of investment properties. Theresultant figure for the six months to 30th September 2005 shows an encouragingstart to the year, with a 13% increase to £3,867,000, compared with £3,417,000for the comparable period last year. Declared pre-tax profit for the half year under IFRS amounted to £3,020,000compared with £3,825,000 last year. The reduced figure results from a charge of£851,000 (2004 - £nil) representing the change in the fair value of interestrate hedging instruments, and a charge of £228,000 (2004 - £128,000) in respectof lease incentives and letting cost adjustments which is shown as a reductionin the book value of investment properties. Profit from the sale of investmentproperties included within pre-tax profit was £221,000 (2004 - £578,000). The Directors have declared an interim dividend of 3.4p (2004 - 3.2p), anincrease of 6.3%, payable on 12th January 2006 to shareholders on the registerat the close of business on 23rd December 2005. ReviewThe Group's net income from investment properties increased by £696,000 to£7.27m compared with the same period last year. This improvement arises from acombination of new lettings, rent reviews, acquisitions and a reduction innon-recoverable property expenditure following the completion of upgrading workson a number of portfolio properties. Contributing to the increase were new lettings achieved at Castle Lane, SW1;Portsoken House, EC3; 3 and 5 Acre Estates, Folkestone; Oakwood Trade Park,Crawley, and Coombe Square, Thatcham; all of which, with the exception of asmall unit in Folkestone, are now fully let. In addition, the successfulsettlement of the December 2004 rent review with one of our major tenants at 100Bothwell Street, Glasgow (offices - 100,265 sq ft), has resulted in a 15%increase in rent payable, well ahead of expectations. The acquisition of LotusPark, Staines in late July also made a positive contribution to income in thelatter part of the period and is referred to in more detail below. The pace of further growth in net income and profits will be largely determinedby progress in securing tenants for the Group's two major ongoing developmentprojects and the limited number of recently completed schemes that remainunoccupied. The larger of the two major projects is Wimbledon Gate, the Group's58,500 sq ft office redevelopment in the centre of Wimbledon. The building,completed in September, provides an office headquarters to compete with the bestavailable elsewhere in Central London. Its quality, appearance and specificationhave been well received by the market. Our other major scheme is theredevelopment of 1 Old Queen Street, SW1, which will provide an attractive highquality office building of 21,500 sq ft following the partial demolition andreconfiguring of the two buildings acquired in 2001. The external works are nowfinished and internal works are well under way with completion due early in theNew Year. Both these schemes have already attracted considerable tenantinterest, and we are at an advanced stage in negotiations with prospectiveoccupiers. Work commenced at the end of the period on the comprehensive refurbishment ofDacre House, SW1 (offices - 15,350 sq ft). The refurbishment includes theconversion of plant rooms at roof level to add additional office space, alongwith the reconfiguration of the reception area and office floors to providefully air conditioned open floor plates. The works are due to be completed nextSummer, when a full marketing programme will commence. Unoccupied floor space within recently completed schemes is limited to a totalof 37,300 sq ft at Pegasus Place, Crawley and Bartley House, Hook. We continueto market these buildings, and we have a number of interesting enquiries fromprospective tenants. The purchase of Lotus Park, Staines at the end of July for £27.65m was asignificant acquisition for the Group. The investment comprises four prominentoffice buildings totalling 77,045 sq ft, with excellent car parking in a primelocation close to the town centre and is let in its entirety to IBM until 2013.Staines is an attractive office centre with good prospects for rental growth dueto its limited supply of quality office stock and its close proximity toHeathrow Airport and the M25. The sale of Newminster House, Bristol (offices - 27,520 sq ft) in May for£5.12m, net of sale costs, resulted in a profit over book value of £221,000 andan historic profit over cost of £1.25m. After recent refurbishment work and theletting of vacant space, future growth prospects were considered to be limitedin what has proved to be a difficult market in the past. At the year end I also reported positive news in respect of the Group's propertyat Chobham. Since then, detailed planning consent has been granted for 54residential units following completion of the S106 Agreement and we expect tomarket the site next year. FinanceNet debt at 30th September 2005 was £108.73m (2004 - £74.10m) representing 80%of shareholders' funds (2004 - 60%). Facilities available to the Group increasedduring the period to £128.45m following the agreement of a new 10 year £30mfully revolving facility with Bradford & Bingley. If fully drawn down, balancesheet gearing would increase to 94% of shareholders' funds. The Group's exposureto interest rate rises in respect of £52m of its borrowings is protected byfinancial hedging instruments, providing cover over 48% of net debt as at theend of the half year, reducing to 40% of net debt if fully drawn. Theseinstruments provide strategic protection at competitive levels over the mediumterm against future increases in interest rates. The average cost of borrowingfor the period was 6.0% (2004 - 5.9%) and the possibility of providingadditional cover will be kept under review as the facilities available to theGroup increase. We continue to monitor the possibility of the introduction of tax efficient realestate investment trusts (REITs). Their introduction has been delayed for sometime as the Government has continued to review various issues. It would appearthat progress is now being made towards the introduction of REITs in the 2006Finance Bill, although a number of details including the cost of entry, incomedistribution and development flexibility, will be key considerations todetermine the benefit to the Group. Future prospectsNotable progress overall has been made during the first half of the financialyear which leaves the Group well placed to move ahead strongly. The completionof developments at Wimbledon Gate and 1 Old Queen Street will add two top classoffice buildings to the portfolio, in keeping with our philosophy of developingschemes of quality in established and improving locations in the South-East. Weare already seeing benefits arising from the significant acquisition of LotusPark, Staines and have made further progress towards the disposal of the land atChobham. There are positive signs that demand for high quality buildings from occupiersin our sector is picking up, borne out by the encouraging interest being shownin our two new developments which, when let, will add significantly toshareholder value. ESG LloydChairman 14th December 2005 CONSOLIDATED INCOME STATEMENT-------------------------------------------------------- 6 months to 6 months to 12 months to 30th 30th 31st September September March 2005 2004 2005 Restated Restated (Unaudited) (Unaudited) (Unaudited) Notes £'000 £'000 £'000 Gross rents and service 9,080 8,539 17,241charges receivableDirect property outgoings (1,813) (1,968) (3,896) ------- ------- --------Income from investment properties 7,267 6,571 13,345Administration costs (1,304) (1,210) (2,665) ------- -------- ---------Operating profit before gains on investment properties 5,963 5,361 10,680Profit on disposal of investment properties 221 578 568Movement in revaluation ofinvestment properties 3 (228) (128) 13,253 ------ ------ --------Operating profit 4 5,956 5,811 24,501Finance costs 8 (3,052) (2,084) (4,094)Share of profit of associated undertaking 116 98 541 ------- ------- --------Profit before taxation 3,020 3,825 20,948Taxation 6 (795) (806) (4,058) ------- ------- ---------Profit for period 2,225 3,019 16,890 ------- ------- --------Earnings per share 7Basic 4.89p 6.65p 37.16pDiluted 4.87p 6.64p 36.96p Adjusted earnings per sharefigures are shown in note 7. CONSOLIDATED BALANCE SHEET-------------------------------------------------- As at As at As at 30th 30th 31st September September March 2005 2004 2005 Restated Restated (Unaudited) (Unaudited) (Unaudited) Notes £'000 £'000 £'000Non-current assetsInvestment properties 264,473 214,722 234,196Plant and equipment 76 65 64Investments 5,135 4,662 5,019 ---------- ---------- ---------- 269,684 219,449 239,279 ---------- ----------- -----------Current assetsTrade and other receivables 3,211 3,143 2,992Cash and cash equivalents 2,676 1,364 2,271 ---------- ----------- ----------- 5,887 4,507 5,263 ---------- ----------- -----------Total assets 275,571 223,956 244,542 ---------- ----------- -----------Current liabilitiesLoans and other borrowings (797) (3,200) (792)Corporation tax payable (716) (1,248) (688)Trade and other payables (7,142) (5,754) (6,328) ---------- ----------- ----------- (8,655) (10,202) (7,808) ---------- ----------- -----------Non-current liabilitiesLoans and other borrowings (110,468) (72,260) (80,195)Pension fund liabilities (1,148) (1,271) (1,189)Finance lease liabilities (4,469) (4,469) (4,469)Deferred tax (14,966) (11,998) (14,697) ---------- ----------- ----------- (131,051) (89,998) (100,550) ---------- ----------- -----------Total liabilities (139,706) (100,200) (108,358) ---------- ---------- -----------Net assets 135,865 123,756 136,184 ---------- ---------- ---------- EquityCalled up share capital 9,111 9,110 9,110Share premium account 2,124 2,115 2,115Capital reserves - distributable 35,724 34,341 34,523Retained earnings - distributable 26,188 24,944 25,720Retained earnings - non distributable 62,718 53,246 64,716 ---------- ----------- -----------Equity shareholders' funds 135,865 123,756 136,184 ---------- ---------- ---------- Net asset value per share 9 298p 272p 299p Adjusted net asset value per share 9 330p 297p 330p CONSOLIDATED CASH FLOW STATEMENT-------------------------------------------------------------- 6 months to 6 months to 12 months to 30th 30th 31st September September March 2005 2004 2005 Restated Restated (Unaudited) (Unaudited) (Unaudited) £'000 £'000 £'000Operating activitiesOperating profit 5,956 5,811 24,501Adjustments for:Depreciation and othernon-cash movements (2) 8 17Profit on disposal ofinvestment properties (221) (578) (568)Movement in revaluation ofinvestment properties 228 128 (13,253) ---------- ----------- -----------Cash flow from operations before changes in working capital 5,961 5,369 10,697Increase in debtors (191) (155) (3)Decrease in creditors (386) (662) (81) ---------- ----------- -----------Cash generated from operations 5,384 4,552 10,613Interest paid (2,239) (2,759) (5,251)Interest received 17 27 44Corporation tax paid (545) (447) (1,519) ---------- ----------- -----------Cash flows from operating activities 2,617 1,373 3,887 ---------- ----------- -----------Investing activitiesSale of investment properties 5,121 4,673 4,663Dividends from sundry investments 1 1 1Dividends from associated undertaking - - 117Purchase and developmentof investment properties (34,766) (3,084) (8,846)Purchase of other fixedassets (31) (2) (21) ---------- ----------- -----------Cash flows from investingactivities (29,675) 1,588 (4,086) ---------- ----------- -----------Financing activitiesProceeds from issue of share capital 9 366 366Increase in borrowings 30,278 (900) 4,627Equity dividends paid (2,824) (2,670) (4,130) ---------- ----------- -----------Cash flows from financingactivities 27,463 (3,204) 863 ---------- ----------- ----------- Net increase/(decrease) incash and cash equivalents 405 (243) 664Cash and cash equivalents at 1st April 2,271 1,607 1,607 ---------- ----------- -----------Cash and cash equivalents at end of period 2,676 1,364 2,271 ---------- ----------- ----------- CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE-------------------------------------------------------- 6 months to 6 months to 12 months to 30th 30th 31st September September March 2005 2004 2005 Restated Restated (Unaudited) (Unaudited) (Unaudited) £'000 £'000 £'000 Actuarial movement on definedbenefit pension scheme (11) (63) (143)Deferred tax on fair value of share options 54 45 117Fair value of derivatives 202 - -Exchange gain - - 8 ---------- ----------- ----------- Net income recognised directly inequity 245 (18) (18)Profit for the period 2,225 3,019 16,890 ---------- ----------- -----------Total recognised income and expense for the period 2,470 3,001 16,872 ---------- ----------- ----------- CONSOLIDATED STATEMENT OF CHANGES IN EQUITY-------------------------------------------- 6 months to 6 months to 12 months to 30th 30th 31st September September March 2005 2004 2005 Restated Restated (Unaudited) (Unaudited) (Unaudited) £'000 £'000 £'000 Opening shareholders' funds as previously reported 143,796 128,471 128,471Effect of adopting IFRS (7,612) (5,430) (5,430) ---------- ---------- ---------Opening shareholders' funds restated under IFRS 136,184 123,041 123,041Fair value of share options granted 35 18 35Premium arising on issue of shares under share option scheme - 307 307Nominal value of issue of shares under share option scheme - 59 59 ---------- ---------- ---------- 136,219 123,425 123,442 Total recognised income and expense for the period 2,470 3,001 16,872 ---------- ---------- ---------- 138,689 126,426 140,314 Dividends (2,824) (2,670) (4,130) ---------- ---------- ----------Closing shareholders' funds 135,865 123,756 136,184 ---------- ---------- ---------- 1 International Financial Reporting Standards The results for the six months ended 30th September 2005 are the first to beprepared on the basis of the recognition and measurement requirements ofapplicable International Financial Reporting Standards (IFRS), which have beenadopted by the Group and incorporated into the principal accounting policies setout in note 2. From 1st January 2005, all listed companies trading on aregulated market in any European Union Member state are required to adopt thisbasis of accounting. Note 11 to these accounts shows the differences inaccounting treatment as compared to the previous UK GAAP basis of accounting. The financial information included in this document is unaudited and does notcomprise statutory accounts within the meaning of Section 240 of the CompaniesAct 1985. The statutory accounts for the year ended 31st March 2005 prepared inaccordance with UK GAAP have been filed with the Registrar of Companies. Theauditors have reported on the 2005 accounts; their report was unqualified anddid not contain a statement under Section 237(2) or (3) of the Companies Act1985. Basis of preparationThe results have been prepared using applicable IFRS, which includesInternational Accounting Standards (IAS) and Interpretations issued byInternational Accounting Standards Board (IASB) and its committees, which areexpected to be endorsed by the European Union and apply to the 2006 full yearresults. In preparing these results, certain of the exemptions allowed by IFRS 1,First-time Adoption of IFRS, have been taken. These are: • The comparative periods have not been restated for IAS 39, Financial Instruments; Recognition and Measurement. The fair value of these instruments at 1st April 2005 was passed through reserves, and the subsequent movement in the first half year of 2006 is reported in the Group's income statement. • IFRS 2, Share-based Payment, has not been applied to share options granted on or before 7th November 2002, unless they had vested by 1st January 2005. • Goodwill arising prior to 1st April 2004, the date of transition to IFRS, which was previously written off against reserves, has not been reconsidered in preparing the Group's opening balance sheet under IFRS at 1st April 2004. Key changesThe main differences from UK GAAP are: • Annual revaluation surpluses or deficits on investment properties are included in the income statement, whereas previously this was reported as a movement on the balance sheet through the revaluation reserve. • Capital gains tax payable in the event that all the Group's investment properties were sold at the balance sheet date is included as an additional deferred tax liability in the balance sheet, having previously been disclosed as a note to the accounts. The movement in valuation of the investment properties during the year will affect the tax charge in the income statement. • Leasehold property valuations are grossed up to incorporate the future head lease payments and a corresponding financial liability is recognised. This is an accounting treatment and does not impact on the external valuation of investment properties. • The value of lease incentives is spread over the life of the lease, or to the first tenant's break, rather than to the first rent review. • Movement in the fair value of derivatives is reported in the income statement. • No provision is made for proposed dividends. Cash flowDespite all the changes to the reporting of assets, liabilities and performance,the cash flows that underlie the business remain the same. The cash flowstatement reported under IFRS differs in presentation from UK GAAP. The effectof the change in categorisation is to reduce the number of headings in the cashflow statement. Interest payments and receipts are now reported within operatingactivities, and tax payments and receipts are split between operating andinvesting activities. 2 Principal accounting policies The principal accounting policies set out below have been applied consistentlyto all periods presented in these consolidated financial statements. In applyingthe policies, management has made judgements, based on measurement concepts andassumptions using historical experience and other sources, which are reviewedperiodically. Any changes in accounting estimates are recognised in the periodaffected and may differ from actual results. Basis of consolidationThe consolidated financial statements incorporate the results of the Company andits subsidiary companies for the six months to 30th September 2005. Subsidiarycompanies are those entities under control of the Company. Control means thepower to govern the financial and operating policies so as to obtain benefitsfrom its activities. All subsidiary companies accounts have been prepared under IFRS. AssociatesAn associate is an undertaking over which the Group exercises significantinfluence, but not control, through participation in the financial and operatingpolicies. The Group's share of the total recognised gains and losses ofassociates are included in the consolidated financial statements on an equityaccounted basis. Investments in associates are carried in the balance sheet atcost as adjusted by the post-acquisition changes in the Group's share of the netassets of the associate, less any impairment in the value of individualinvestments. Financial InstrumentsThe Group uses derivative financial instruments, such as interest rate swaps, tomanage its exposure to interest rate risk. The differences between the interestpayable by the Group and the interest payable to the Group by the swapcounterparties are dealt with on an accruals basis. The instruments are stated at fair value at the balance sheet date which is theestimated amount that the Group would receive or pay to terminate theinstruments. The Group has not applied hedge accounting for any financialinstrument in place and any movement in fair value is reported in the incomestatement. PropertiesThe Group's properties are held as investments to earn rental income and forcapital appreciation and are stated at fair value at the balance sheet date. Thevalue, based on market values, is determined annually by independent externalvaluers and any gain or loss arising from a change in fair value is recognisedin the income statement. When an existing investment property is redeveloped for continued future use asan investment property it remains an investment property whilst in development. Subsequent expenditure on investment properties is capitalised only when itincreases the future economic benefits associated with the property. All otherexpenditure is charged in the income statement. Interest and other outgoings less rental income relating to investmentproperties in the course of development are capitalised, before tax relief, andadded to the cost of the property. Interest capitalised is calculated ondevelopment expenditure, including material refurbishments to investmentproperties, using the weighted average cost of general Group borrowings for theyear. A property ceases to be treated as being in the course of development whensubstantially all the activities that are necessary to prepare the property foruse are complete. The Group's investment properties held on long leases are accounted for asfinance leases and carried at fair value. The present value of the futureminimum lease payments are recognised as a liability with a corresponding assetadded to the carrying value of the leasehold property. The minimum leasepayments are apportioned between a finance charge in the income statement andthe reduction of the balance sheet liability. Contingent rents are charged as anexpense in the income statement in the period incurred. Any accrued rent receivable recognised as a separate asset in accordance withthe Group's accounting policy on lease incentives is deducted from externalvaluation. Gains and losses arising on the disposal of investment properties are recognisedin the income statement, being the difference between net sale proceeds and thecarrying value of the property. These gains and losses are then allocated to thecapital reserve in the movements in capital and reserves. Plant and equipmentPlant and equipment assets are depreciated on a straight line basis at ratescalculated to write off the cost less estimated residual value over their usefullives, which are estimated to be between 3 and 5 years. GoodwillGoodwill arising on acquisition of a subsidiary represents the excess of costover the net fair value of the separable assets acquired. Goodwill arising onacquisitions is capitalised at cost and carried in the balance sheet less anyaccumulated impairment losses. Negative goodwill, where the fair value of theassets acquired exceeds cost, is recognised immediately in the income statement. ImpairmentThe carrying amounts of the Group's assets, other than investment propertymeasured at fair value and deferred tax assets, are reviewed at each balancesheet date to determine whether there is any indication of impairment. Assetssubject to impairment losses are stated at their estimated recoverable amount,being the greater of the net selling price or value-in-use, the loss beingrecognised in the income statement. Rental incomeRental income received under operating leases from investment properties isrecognised in the income statement on a straight line basis over the term of thelease. The Group treats the aggregate value of incentives given to lessees as areduction of rental income over the lease term. Surrender premiums received from outgoing tenants prior to the expiry of theirlease are included in rental income. Borrowing costsInterest on overdrafts and other bank borrowings, is recognised in the incomestatement in the period during which it is incurred, except for interestcapitalised in accordance with the Group's policy on properties underdevelopment. The interest expense component of finance lease payments isrecognised in the income statement over the lease term. Facility arrangementcosts are recognised in the income statement over the facility term. Interest received on short term deposits is recognised in the income statementas it accrues. Share option schemeThe Group operates a share option scheme under which directors and employees areable to acquire shares in the Company. The option exercise price is equal to themid-market price of the underlying shares at the date of the grant. The fair value of the benefit of the options awarded is recognised in the incomestatement over the vesting period of the award by reference to a binomial optionpricing model, adjusted only for the number of shares expected to vest. Inaccordance with IFRS transitional provisions, retained earnings have beenadjusted for the fair value of options granted after 7th November 2002 and notyet vested at 1st January 2005. Post employment benefitsThe Group operates a defined benefit pension scheme providing benefits based onfinal pensionable pay. The assets of the scheme are held separately from thoseof the Group being externally invested. The value of the defined benefit scheme obligations is recognised in the balancesheet. Changes in actuarial gains and losses arising in respect of the Group'sobligations are recognised as movements in equity, through the statement ofrecognised income and expense. Current service cost and interest on schemeliabilities less the expected return on scheme assets are recognised as anexpense in the income statement. The Group also contributes to certain eligible employees' defined contributionpersonal pension plans and does not accept any responsibility for the benefitsgained from these plans. The contributions are recognised as an expense in theincome statement as incurred. TaxationThe tax charge in the income statement comprises current and deferred tax exceptto the extent that it relates to items recognised directly in reserves, in whichcase the related tax is recognised in reserves. Current tax is based on the taxable income for the year and any adjustment totax payable in respect of previous years. Taxable income may exclude income andexpenses in the income statement that are taxable or deductible in other yearsand items that are never taxable or deductible. The tax rate is that enacted orsubstantially enacted at the balance sheet date. Deferred tax is recognised using the balance sheet liability method, withoutdiscounting, on temporary differences arising between the carrying amounts ofassets and liabilities for financial reporting purposes and their tax base usedfor taxation purposes. Deferred tax liabilities are recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that future taxable profitswill be available against which the asset can be utilised. Such assets andliabilities are not recognised if the temporary difference arises from goodwillnot deductible for tax purposes, and the initial recognition of other assets andliabilities that affect neither accounting nor taxable profit. Deferred taxassets are reviewed at each balance sheet date and reduced to the extent that itis no longer probable that there will be future taxable profits against whichthe asset can be utilised. Deferred tax is calculated at the rate enacted orexpected to apply in the period when the liability is settled or the assetrealised. Deferred tax on property valuation movements has been calculated on the basis ofthe contingent tax that would arise in the event of a sale of a property. Themethod has been applied as the Group sells properties from time to time andultimately the carrying value of the properties will be recovered through sale. 3 Properties The Group's properties are valued at the end of each financial year and were notrevalued at 30th September 2005. The consolidated balance sheet reflects thevalues as at 31st March 2005 adjusted for additions (including lease set upcosts) and disposals during the period, and any adjustments resulting fromspreading lease incentives over the lease term. The movement in property valuation in the period under review relates tocapitalisation of lease set up costs and a net increase in the lease incentivedebtor. 4 Operating profit Operating profit is identified in the income statement and represents the profiton activities before finance costs, share of associated undertakings andtaxation. 5 Adjusted profit before tax Adjusted profit before tax is the Group's preferred measure to provide a clearerpicture of recurring profits from core activities before tax, adjusted toexclude the items below. 6 months to 6 months to 12 months to 30th 30th 31st September September March 2005 2004 2005 (Unaudited) (Unaudited) (Unaudited) £'000 £'000 £'000 Profit before tax 3,020 3,825 20,948Change in fair value of derivatives 851 - -Movement in revaluation ofproperties 228 128 (13,253)Profit on disposal of investmentproperties (221) (578) (568)Associated undertakings (11) 42 (347) -------- ------- -------Adjusted profit before tax 3,867 3,417 6,780 -------- ------- ------- 6 Taxation 6 months to 6 months to 12 months to 30th 30th 31st September September March 2005 2004 2005 (Unaudited) (Unaudited) (Unaudited) £'000 £'000 £'000 Analysis of charge in period: Current tax: UK corporation tax on profits for the period 568 604 1,070 Adjustments in respect of prior periods (3) (38) (33) ----- ---- ------- Total current tax 565 566 1,037 Deferred tax: Origination and reversal of temporary differences 230 240 3,021 ----- ----- ------- Total tax charge in the income statement 795 806 4,058 ----- ----- ------- Reconciliation to effective rate of tax: Current tax reconciliation: Profit before tax 3,020 3,825 20,948 ------- ------ --------- Tax on profit at 30% (2004 - 30%) 906 1,147 6,284 Effects of: Expenses not deductible for tax purposes 18 5 14 Pension liabilities (26) (32) (50) Deferred tax released on sale of investment properties (67) (111) (88) Associated company (35) (29) (162) Chargeable gains on sale of investment properties (66) (174) (170) Movement on revaluation of investment properties 68 38 (1,737) Adjustment to tax charge in respect of prior years (3) (38) (33) ----- ----- ------- Tax charge for period (as above) 795 806 4,058 ----- ----- ------ 7 Earnings per share 6 months to 6 months to 12 months to 30th 30th 31st September September March 2005 2004 2005 p p p Earnings per share 4.89 6.65 37.16 Deferred tax on capital allowances 0.44 0.30 0.87 Change in fair value of derivatives 1.31 - - Movement in revaluation of investment properties - - (24.81) Property sales after taxation (0.58) (1.28) (1.44) ------ ------ ------- Adjusted earnings per share 6.06 5.67 11.78 ------ ------ ------- Earnings per share on ordinary shares are based on earnings after tax of£2,225,515 (2004 - £3,019,842) and 45,552,512 (2004 - 45,364,819) shares, beingthe weighted average number of ordinary shares in issue during the period. Reconciliation of earnings per share to diluted earnings per share: 6 months to 6 months to 6 months to 6 months to 30th 30th 30th 30th September September September September 2005 2004 2005 2004 p pWeighted number of ordinary shares inissue 45,552,512 45,364,819 4.89 6.65Number of sharesunder option 1,556,201 620,182 (0.15) (0.09)Number of sharesthat would have beenissued atfair value (1,334,698) (549,385) 0.13 0.08 --------------- --------------- ------ ------ 45,774,015 45,435,616 4.87 6.64 --------------- --------------- ------ ------ 6 months to 6 months to 12 months to 30th 30th 31st September September March 2005 2004 2005 p p pDiluted earnings per share 4.87 6.64 36.96 Deferred tax on capital allowances 0.44 0.30 0.87 Change in fair value of derivatives 1.30 - - Movement in revaluation of investment properties - - (24.68) Property sales after taxation (0.58) (1.28) (1.43) ------ ------ -------Adjusted diluted earnings per share 6.03 5.66 11.72 ----- ------ ------- Diluted earnings per share are based on the same earnings after tax and on theweighted average number of shares in issue during the period of 45,774,015 (2004- 45,435,616) shares, which takes into account the number of potential ordinaryshares arising from the exercise of share options. Adjusted earnings per share excludes the after tax effect of profit from thedisposal of investment properties, the change in the fair value of derivativesand the movement in revaluation of investment properties, as well as thedeferred tax provided on capital allowances on development and investmentproperties, where no tax payment is expected to crystallise. These adjustmentsare made in order to show the recurring element of the Group's profit. 8 Finance costs 6 months to 6 months to 12 months to 30th 30th 31st September September March 2005 2004 2005 (Unaudited) (Unaudited) (Unaudited) £'000 £'000 £'000 Interest expense: Interest on bank overdraft and loans 2,735 2,261 4,640 Finance lease interest on leasehold property obligations 144 144 289 Change in fair value of derivatives 851 - - Amortisation of facility fees 7 - - -------- ------- ------- 3,737 2,405 4,929 Capitalised interest (665) (291) (786) -------- ------- ------- 3,072 2,114 4,143 Interest income: Interest on short term deposits (13) (14) (22) Other interest receivable (7) (16) (27) -------- -------- -------- (20) (30) (49) -------- -------- -------- 3,052 2,084 4,094 -------- -------- -------- 9 Net asset value per share 30th September 2005 30th September 2004 31st March 2005 Net Net Net asset asset Asset value value Value Net per Net per Net Per assets Shares share assets Shares share assets Shares Share £'000 '000 p £'000 '000 p £'000 '000 p Basic 135,865 45,556 298 123,756 45,551 272 136,184 45,551 299 Deferred tax on capital allowances 5,535 - 12 5,204 - 11 5,342 - 12 Deferred tax on revaluation movements 8,771 - 19 6,466 - 14 8,771 - 19 Fair value of derivatives net of deferred tax 396 - 1 - - - - - - ---------- --------- ----- ---------- -------- ------ ---------- -------- ----- Adjusted 150,567 45,556 330 135,426 45,551 297 150,297 45,551 330 ---------- --------- ----- ---------- --------- ------ ---------- -------- ----- Adjusted net assets excludes the deferred tax arising on revaluation movementsand the fair value of derivatives, as this is considered to better represent theliabilities of the Group. In addition the deferred tax arising on capitalallowances in respect of development and investment properties is excluded, asthis is not expected to crystallise. 10 Interim statement The Interim Statement is being posted to all shareholders today. Copies areavailable to members of the public from the Company's registered office at 20Greyfriars Road, Reading, Berkshire RG1 1NL, and on the Company's website atwww.mckaysecurities.plc.uk. 11 Reconciliation of UK GAAP to IFRS To illustrate the changes introduced by International Financial ReportingStandards ("IFRS"), and the impact on Group results when compared to UK GAAP,the transitional requirements are for a set of detailed reconciliations goingback to the balance sheet as at 31st March 2004. These reconciliations aretherefore set out in the published Interim Statement and available from today onthe Company's website for the six months ended 30th September 2005 and also forthe restated comparative results for the year ended 31st March 2005, and the sixmonths ended 30th September 2004. The balance sheet as at 31st March 2004 isalso included. The IFRS accounting standards that impact on the Group's results are identifiedin the reconciliations, and are as follows: IAS 17 - LeasesUnder IFRS 17 the Group's investment properties held on long leases areaccounted for as finance leases, as the risks and rewards under the lease aretransferred to the Group and carried at fair value. A liability is recognised inthe balance sheet equivalent to the present value of the future minimum leasepayments at inception and a corresponding amount added back to the valuation. The rent paid under the leases, previously reported as ground rent underproperty outgoings, is reclassified and split between interest payable andrepayment of the lease liability. Any additional rent arising due to a rentreview over that payable at the lease inception is included in propertyoutgoings. All the leases granted by the Group, to date, are classified as operatingleases. Under UK GAAP letting costs of development properties were capitalised but allother letting costs were expensed as incurred. Under IFRS all letting costs arecapitalised and amortised over the lease term. SIC 15 - Operating leases - incentivesThe aggregate value of incentives given to tenants at the beginning of a leaseis treated as a reduction of rental income over the lease term. Under UK GAAPincentives were spread to the earlier of the first rent review or lease expiry.SIC 15 has the effect of changing the duration over which the incentive isspread but not the aggregate value of amounts recognised as lease incentives. IAS 1 - Presentation of financial statements The Group's share of associates profit or loss after tax is now shown under asingle heading in the income statement. Under UK GAAP, the Group's share ofassociates profit or loss on property sales and taxation were added to the Groupfigures under those headings. IAS 19 - Employee benefitsThe defined benefit pension scheme liability and attached deferred tax asset isnow recognised in the balance sheet. Future actuarial gains and losses arisingin respect of the Group's obligations are recognised as movements in equity,through the statement of recognised income and expense. Service costs andinterest on scheme liabilities less the expected return on scheme assets arerecognised as an expense in the income statement. The Group has taken advantage of the exemption in IAS 19 for defined benefitpension schemes and not adopted the corridor approach but has recognised thescheme deficit immediately in equity. IAS 10 - Events after the balance sheet dateDividends declared after the balance sheet date but not yet approved byshareholders are not recognised as a liability under IFRS. They are reportedwhen approved in the notes in movements in retained earnings. Previously, underUK GAAP, dividends declared were shown as an appropriation from the profit andloss account. IFRS 2 - Share-based paymentThe fair value of share options granted to directors and employees as part oftheir remuneration is charged to the income statement over their vesting period,usually three years, and is adjusted only for changes in the number of sharesexpected to vest. This change from UK GAAP, under which no cost was recognisedin the financial statements, covers those share options granted after 7thNovember 2002 but which had not vested on 1st January 2005. IAS 12 - Income taxesUnder IFRS deferred taxation is calculated on the temporary differences betweenthe carrying amount of assets and liabilities in the balance sheet and theamount at which they are recognised for tax purposes; their tax base. Under UKGAAP, the tax was accounted for on timing differences between the period inwhich items of income or expenditure appeared in the profit and loss account andwhen they were recognised for tax purposes. Provision is made for the tax that would be payable if the investment propertieswere sold at their year end valuations which has the effect of reducing netassets. The deferred tax provision on the balance sheet as at 30th September2005 has increased by £8,771,000. Any year on year change is recognised in theincome statement. Previously, under UK GAAP, this contingent liability wasdisclosed as a note. IAS 40 - Investment propertyUnder IFRS movements in property valuations are accounted for in the incomestatement rather than as a direct movement in reserves as previously under UKGAAP. The revaluation reserve is amalgamated into retained earnings attransition to IFRS and remains unrealised and therefore has no effect on theGroup's distributable reserves. Properties under development which were held prior to development as investmentproperties are required to be recorded at fair value. IAS 32 - Financial instruments: disclosure and presentationIAS 39 - Financial instruments: recognition and measurementInterest rate derivatives are recognised at fair value and the gain or lossarising is recognised in the income statement. The Group has taken advantage of the exemption under IFRS 1 to defer theadoption of IAS 32 and 39 until 1st April 2005 for the accounting of itsinterest rate derivatives. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
MCKS.L