29th Nov 2007 08:00
McKay Securities PLC29 November 2007 McKay Securities Group MCKAY SECURITIES PLC INTERIM RESULTS 29TH NOVEMBER 2007 ---------------------- The Directors of McKay Securities PLC announce the results of the Group for thesix months ended 30th September 2007. Highlights---------- * Interim dividend up 30.6% to 4.7 per share (2006 - 3.6 pence per share) * Adjusted profit before tax up 4.7% to £4,062,000 (2006 - £3,878,000) - note 2 * (Loss)/profit before tax (£9,705,000) (2006 - £7,432,000) includes a 3.8%(£13,889,000) revaluation deficit * Investment property income up 9.8% to £8,939,000 (2006 - £8,144,000) * Diluted adjusted earnings per share up 20.7% to 8.74p (2006 - 7.24p) - note 4 * Basic earnings per share (21.19p) (2006 - 13.18p) * Net asset value per share 487p (2006 - 370p) - note 8 * Weighted average cost of borrowing of 5.9% (2006 - 5.9%) * Net debt gearing of 56% (2006 - 52%) David Thomas, Chairman, commented: We continue to focus on those areas of operation that we can directly influenceto ensure that when the market stabilises we are in a good position to benefit.Our balance sheet is strong with modest gearing and substantial long termfinance is in place from established lenders hedged at competitive rates.Operating cash flow is healthy, and the Group is vigilant and well positioned totake advantage of opportunities that are likely to arise during these marketconditions. 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 5th December 2007 Record date 7th December 2007 Interim dividend payment 10th January 2008 The Directors have declared an interim dividend of 4.7 pence per share, anincrease of 30.6% over the 3.6 pence per share paid at the interim stage lastyear. This will be the first dividend since the Group became a REIT in April2007 and is in line with previous guidance to shareholders.Since becoming a REIT, the Group is required to distribute at least 90% ofqualifying income profits each year as a Property Income Distribution (PID), and3.5 pence per share of the Interim Dividend will be paid as part of thisdistribution. Further information is available on the Company's website. CHAIRMAN'S STATEMENT -------------------- Results for the six months to 30th September 2007------------------------------------------------- Adjusted profit before tax increased by 4.7% to £4.06 million, compared to £3.88million for the six months ended 30th September 2006. Adjusted profit before taxis the Group's preferred measure of recurring profit and excludes profit on thesale of investment properties, surrender premiums, movements in the value of theGroup's property portfolio, and in the fair value of interest rate hedginginstruments.Including the adjusted items referred to above, and in particular a 3.8% (£13.89million) reduction in the book value of the Group's property portfolio, therewas a loss before tax of £9.70 million compared with a profit of £7.43 millionfor the corresponding period last year. Profit over book value on the sale ofinvestment properties contributed £267,000 compared with £3.59 million lastyear.Adjusted earnings per share increased by 20.7% to 8.87 pence from 7.35 pence forthe six months ended 30th September 2006. This increase is largely attributableto no tax charge arising following the conversion to REIT status. Basic earningsper share reduced from 13.18 pence for the six months ended 30th September 2006to a negative figure of 21.19 pence predominantly due to the reduction in thevalue of the portfolio.Net asset value per share at 30th September 2007 was 487 pence representing anannual increase of 31.6% over net asset value per share at the interim stage in2006 (370 pence), when there was no portfolio valuation, and a 5.4% reduction incomparison with 31st March 2007 (515 pence).The Directors have declared an interim dividend of 4.7 pence per share (2006 -3.6 pence), an increase of 30.6%, payable on 10th January 2008 to shareholderson the register at the close of business on 7th December 2007. Review------ The results for the half year show good progress in generating income fromcompleted developments and portfolio management, with net income from investmentproperties increasing by 9.8% to £8.94 million (2006 - £8.14 million). Adjustedprofit before tax increased by 4.7% to £4.06 million (2006 - £3.88 million) as aresult of this progress. Headline profit before tax shows a decline despite the strong underlyingperformance at operating level due to the inclusion of the movement in thevaluation of the Group's property portfolio within the Income Statement, asrequired by International Financial Reporting Standards (IFRS) introduced in2005. The independent external valuation at 30th September 2007 was £348.10million, representing a 3.8% (£13.89 million) reduction in the book valuepreceding the valuation. The inclusion of this deficit in the headline resultfor the half year, compared with the inclusion of a valuation surplus of £43.55million in the year to 31st March 2007, illustrates the volatility in headlineresults that shareholders were alerted to when IFRS was introduced. On a sector basis, industrial property reduced in value by 3.6%, offices withincentral London by 2.4%, and offices outside London by 4.9%. Had there been nochange in valuation yields from March 2007, improved levels of rental income andrental values from lettings, refurbishment and redevelopment would have resultedin a £7.6 million valuation surplus (2.4%) for the portfolio as a whole, on alike for like basis. The valuation movement was based on a reversal of the pasttrend of decreasing yields, as recent interest rate rises and tighter creditconditions have resulted in a re-pricing of the risk associated with property. Over the last six months, there has been continued occupier demand for officefloor space and we have seen rents increase, particularly in central London, andother centres where there is a limited supply of grade A stock. Gross rentalincome from the portfolio increased during the half year by 10% to £9.42 millionover the corresponding period in 2006. New lettings with a total contracted rentof £1.43 million per annum contributed £360,000 to this increase, andacquisitions added a further £440,000 net of disposals. The reversionarypotential of the portfolio at current rental values including the floor spacewithin the two acquisitions under refurbishment, properties to let and rentreviews over the next five years is estimated to be in excess of £2 million perannum. Significant lettings over the period were concluded at Dacre House, London, SW1and Lotus Park, Staines. Both are recently completed schemes within thedevelopment and refurbishment programme, where rents achieved were ahead ofexpectations. At Dacre House (17,025 sq ft), lettings in respect of all fivefloors were completed over the period at a total contracted rent of £640,000 perannum, representing a 55% increase in income prior to refurbishment. At Lotus Park, completion of the refurbishment of Lotus 1 (15,190 sq ft) andLotus 2 (19,600 sq ft) took place in May this year. Since then, a 15 year leasehas been completed with Dow Chemical Company Limited in respect of the whole ofLotus 1 with a 10 year term certain at a rent of £425,180 pa, and marketing isgenerating occupier interest in Lotus 2. On other previously completed developments, the ground floor of Pegasus One waslet at a new rental high for the scheme. This leaves only the first floor of5,330 sq ft available within the Pegasus Place development (50,035 sq ft), withno other competing grade A office floor space in the Gatwick market. Afterexperiencing a difficult market along the M3 corridor, we were pleased to havelet the ground floor (10,650 sq ft) of Bartley House, Hook on competitive terms,which leaves the building fully let. Within the future programme is the potential redevelopment of 30/32 LombardStreet, EC2, where after a long period of negotiation, detailed planning consentwas recently granted for a top quality building of 58,000 sq ft, representing a60% increase in net floor space on the site, enhancing the value of this primedevelopment opportunity. Demand in the City, particularly from the financialservices sector, could be adversely affected by the credit and liquidity issuesexperienced since late summer. The market will be kept under close review toassess the impact of these issues and in the meantime, the building willcontinue to be income producing whilst we consider its future. Over the period the Group has maintained close attention to the existingportfolio ensuring that strategies for each property are progressed in order tomaximise potential value through our expertise in management, refurbishment anddevelopment. Recent acquisitions have been successfully integrated into thisprocess, and at Corinthian House, Croydon (44,170 sq ft) the refurbishment ofthe first floor is now complete and extensive works to the ninth and tenthfloors and common areas are due to complete in January 2008. Since ouracquisition in December 2006, rental values have increased by 15%, and there isencouraging interest in the three vacant floors, which total 12,150 sq ft. The Group made two further acquisitions over the period. A good quality 60,000sq ft unit on the Brooklands Industrial Estate, Weybridge, was purchased fromYamaha Motors (UK) Ltd, who had used the building for their head office anddistribution functions since it was built in 1991. Yamaha took a 5 year leaseback of the office element and the remaining 38,000 sq ft warehouse will bemarketed in January once sub-division and refurbishment works have beencompleted. The Lower Cherwell Street Industrial Estate, in central Banbury, wasalso acquired and consists of 40,000 sq ft in 19 units located between the towncentre and mainline railway station. It has a number of management opportunitiesand redevelopment potential for higher value uses in the medium term. These two acquisitions, which were both made off market, totalled £9.55 million,and maintained our selective approach whilst prices on the open market have beenat such high levels. The only sale during the period was the disposal of a longleasehold residential flat at Parkside, London, W1 for £1.06 million,representing an increase over book value of £267,000. Gearing remains low and secured funds are available for further acquisitions.The key consideration for any acquisition will continue to be the potential forrental growth, by a combination of active management, refurbishment orredevelopment. Finance------- Net debt at 30th September 2007 was £124.15 million (2006 - £88.60 million)representing 55.7% of shareholders' funds (2006 - 52.3%), and total facilitiesavailable to the Group remained at £150 million. If fully drawn, balance sheetgearing would increase to 67.2% of shareholders' funds (2006 - 88.6%). Duringthe period, protection against future interest rate rises provided by financialhedging instruments was increased from £110 million to £135 million, whichassisted in maintaining an average cost of debt for the period of 5.9% (2006 -5.9%). As a REIT, there is no corporation tax payable on qualifying rental income or onprofit from the sale of investment properties. The limited amount of residualincome outside the REIT structure is offset by residual expenses. Dividend-------- The Board is pleased to declare an interim dividend of 4.7 pence per share, anincrease of 30.6% over the 3.6 pence per share paid at the interim stage lastyear. This will be the first dividend since the Group became a REIT and is inline with previous guidance to shareholders. Board Changes------------- Shareholders were advised in the Report & Financial Statements for the year to31st March 2007 that Eric Lloyd was to retire as Chairman and from the Board atthe conclusion of the Annual General Meeting held in July this year. I wouldlike to reiterate the vote of thanks given to Eric at the Meeting for theexceptional contribution that he made to the Group's fortunes over the 35 yearsthat he spent as Managing Director and latterly as Chairman, and I am pleasedthat he intends to retain an active interest in the Group as a shareholder. Future Prospects---------------- After a sustained period of strong performance, there has been a generalreassessment of risk across all property markets which, combined with the impactof numerous interest rate rises in the last year, continues to have an adverseimpact on commercial property values. At the same time, the stock market hasreacted to this situation by pricing larger falls into the share prices of manyREITs and other companies within the quoted property sector. We continue to focus on those areas of operation that we can directly influenceto ensure that when the market stabilises we are in a good position to benefit.Our balance sheet is strong with modest gearing and substantial long termfinance is in place from established lenders hedged at competitive rates.Operating cash flow is healthy, and the Group is vigilant and well positioned totake advantage of opportunities that are likely to arise during these marketconditions. D O ThomasChairman 29th November 2007 GROUP INCOME STATEMENT---------------------- 6 months 6 months 12 months to 30th to 30th to 31st September September March 2007 2006 2007 (Unaudited) (Unaudited) (Audited) Notes £'000 £'000 £'000 Gross rents and servicecharges 11,091 9,828 20,295receivableSurrender premiums received - 101 101 ---------- --------- --------- 11,091 9,929 20,396Direct property outgoings (2,152) (1,785) (3,917) ---------- --------- ---------Net property income 8,939 8,144 16,479Administration costs (1,656) (1,623) (4,008) ---------- --------- ---------Operating profit before gainson investment properties 7,283 6,521 12.471Profit on disposal ofinvestment properties 267 3,593 3,592Movement in revaluation of investment properties 6 (14,823) (738) 41,967 ---------- --------- ---------Operating (loss)/profit (7,273) 9,376 58,030Finance costs 5 (2,559) (2,105) (1,218)Finance income 41 67 116Share of profit of associatedundertaking 86 94 527 ---------- --------- ---------(Loss)/profit before taxation (9,075) 7,432 57,455 ---------- --------- ---------Taxation - charge for the 3 - (1,418) (15,445)period - REIT conversion 3 - - 32,164 ---------- --------- --------- 3 - (1,418) 16,719 --------- ---------(Loss)/profit for the period (9,705) 6,014 74,174 ---------- ------- --------Earnings per share 4Basic (21.19)p 13.18p 162.26pDiluted (20.93)p 12.99p 160.28p Adjusted earnings per share 4Basic 8.87p 7.35p 14.73pDiluted 8.74p 7.24p 14.55p GROUP BALANCE SHEET------------------- As at As at As at 30th 30th 31st September September March 2007 2006 2007 (Unaudited) (Unaudited) (Audited) Notes £'000 £'000 £'000Non-current assetsInvestment properties 6 346,968 286,814 351,110Plant and equipment 50 55 48Investments 6,178 5,794 6,092 ---------- ----------- ----------- 353,196 292,663 357,250 ---------- ----------- -----------Current assetsTrade and other receivables 11,395 5,240 9,571Cash and cash equivalents 90 1,490 703 ---------- ----------- ----------- 11,485 6,730 10,274 ---------- ----------- -----------Total assets 364,681 299,393 367,524 ---------- ----------- -----------Current liabilitiesCorporation tax payable (7,244) (3,179) (8,646)Trade and other payables (5,848) (7,098) (6,990) ---------- ----------- ----------- (13,092) (10,277) (15,636) ---------- ----------- -----------Non-current liabilitiesLoans and other borrowings (123,911) (89,754) (111,139)Pension fund liabilities (222) (633) (332)Finance lease liabilities (4,410) (4,427) (4,427)Deferred tax - (24,978) - ---------- ----------- ----------- (128,543) (119,792) (115,898) ---------- ----------- -----------Total liabilities (141,635) (130,069) (131,534) ---------- ----------- -----------Net assets 223,046 169,324 235,990 ---------- ----------- ----------- EquityCalled up share capital 9,159 9,157 9,159Share premium 2,495 2,486 2,495Capital reserves 49,806 48,683 49,147Revaluation reserve 122,396 77,669 137,646Retained earnings 39,190 31,329 37,543 ---------- ----------- -----------Total equity 223,046 169,324 235,990 ---------- ----------- ----------- Net asset value per share 8 487p 370p 515p Adjusted net asset value pershare 8 476p 422p 506p GROUP CASH FLOW STATEMENT------------------------- 6 months to 6 months to 12 months to 30th 30th 31st September September March 2007 2006 2007 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000Operating activities(Loss)/profit before tax (9,705) 7,432 57,455Adjustments for:Depreciation and other non-cashmovements 152 37 304Fair value of share basedpayments 150 34 80Profit on disposal ofinvestment properties (267) (3,593) (3,592)Movement in revaluation ofinvestment properties 14,823 738 (41,967)Net finance costs 2,518 2,038 1,102Share of profit of associateundertaking (86) (94) (527) ---------- ----------- -----------Cash flow from operationsbefore changes in workingcapital 7,585 6,592 12,855Increase in debtors (1,187) (940) (1,398)Decrease in creditors (4,217) (2,661) (1,438) ---------- ----------- -----------Cash generated from operations 2,181 2,991 10,019Interest paid (716) (1,722) (6,375)Interest received 58 60 99Corporation tax paid (1,156) (140) (1,863) ---------- ----------- -----------Cash flows from operatingactivities 367 1,189 1,880 ---------- ----------- -----------Investing activitiesSale of investment properties 1,057 22,573 22,572Dividends from sundryinvestments 1 1 1Dividends from associatedundertaking - - 135Purchase and development ofinvestment properties (11,378) (1,500) (22,818)Purchase of other fixed assets (21) (1) (19) ---------- ----------- -----------Cash flows from investingactivities (10,341) 21,073 (129) ---------- ----------- -----------Financing activitiesProceeds from issue of sharecapital - 314 324Increase / (decrease) inborrowings 12,750 (19,823) 1,539Equity dividends paid (3,389) (3,101) (4,749) ---------- ----------- -----------Cash flows from financingactivities 9,361 (22,610) (2,886) ---------- ----------- ----------- Net decrease in cash and cashequivalents (613) (348) (1,135)Cash and cash equivalents atbeginning of period 703 1,838 1,838 ---------- ----------- -----------Cash and cash equivalents atend of period 90 1,490 703 ---------- ----------- ----------- STATEMENT OF RECOGNISED INCOME AND EXPENSE------------------------------------------ 6 months to 6 months to 12 months to 30th 30th 31st September September March 2007 2006 2007 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 Actuarial movement on definedbenefit pension scheme - - 202Deferred tax on fair value ofshare options - 104 - ---------- ---------- ----------Net income recognised directlyin equity - 104 202(Loss)/profit for the period (9,705) 6,014 74,174 ---------- ---------- ----------Total recognised income andexpense for the period (9,705) 6,118 74,376 ---------- ------- ---------- 1 Principal accounting policies Basis of preparation The accounting policies used for the audited financial statements at 31st March2007 have been used in the preparation of these condensed interim financialstatements. The comparative figures for the financial year ended 31st March 2007 are not theCompany's statutory accounts for that financial year. Those accounts have beenreported on by the Company's auditors and delivered to the Registrar ofCompanies. The report of the auditors was (i) unqualified, (ii) did not includea reference to any matters to which the auditors drew attention by way ofemphasis without qualifying their report, and (iii) did not contain a statementunder Section 237(2) or (3) of the Companies Act 1985. The interim financial statements have been prepared in accordance with IAS 34Interim Financial Reporting as adopted by the EU. Basis of consolidation The consolidated condensed interim financial statements incorporate the resultsof the Company and its subsidiary companies for the six months to 30th September2007. Subsidiary companies are those entities under the control of the Company.Control means the power to govern the financial and operating policies so as toobtain benefits from its activities. Associates An 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 Instruments The 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. Properties The 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 at each reporting date byindependent external valuers and any gain or loss arising from a change in fairvalue is recognised in the income statement and transferred to the revaluationreserve in the balance sheet. Properties purchased are recognised on legal completion in the accountingperiod. Sales of properties are recognised on unconditional exchange ofcontracts in the accounting period when the significant risks and rewards ofownership have been transferred. 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. 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 completed. 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 is recognised as a liability with a corresponding assetadded to the carrying value of the leasehold property. The minimum leasepayments are apportioned between finance charges in the income statement and thereduction 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 the 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 equipment Plant 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. Impairment The carrying amounts of the Group's assets, other than investment propertymeasured at fair value, are reviewed at each balance sheet date to determinewhether there is any indication of impairment. Assets subject to impairmentlosses are stated at their estimated recoverable amount, being the greater ofthe net selling price or value-in-use, the loss being recognised in the incomestatement. Interest-bearing loans and borrowings Interest-bearing loans and borrowings are recognised initially at fair value,which is the fair value of the consideration received, less attributabletransaction costs. Subsequent to initial recognition, interest-bearing loans andborrowings are stated at amortised cost using the effective interest ratemethod. Rental income Rental 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 in accordance with SIC 15"Operating Leases - Incentives". Surrender premiums received from outgoing tenants prior to the expiry of theirlease are included in income from investment properties. The Group engages in only one class of business activity, being propertyinvestment and development. Borrowing costs Interest 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 (see Properties above). The interest expense component of financelease payments is recognised in the income statement over the lease term.Facility arrangement costs are recognised in the income statement over thefacility term. Interest received on short term deposits is recognised in the income statementas it accrues. Share based payments The Group operates share option schemes under which directors and employees areable to acquire shares in the Company. The options are equity settled and thefair value is measured 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 option pricingmodels. The charge is adjusted only for the number of shares expected to vestfor applicable performance criteria. Post employment benefits The 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 Group's net liability in respect of the defined benefit scheme is recognisedin the balance sheet. Actuarial gains and losses arising in respect of theGroup's liabilities are recognised as movements in equity, through the statementof recognised income and expense. The liabilities of the defined benefit pensionscheme are measured at the discounted present value while scheme assets aremeasured at their fair value. 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 but, the Group does not recognise any gains orlosses arising from movements in the value of the personal pension plans. Taxation From 1st April 2007, no current tax arises on property income and no deferredtax is recognised on properties covered by the REIT regime. The 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 orsubstantively 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 or from the initial recognition of other assetsand liabilities 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 tax that would arise in the event of a sale of a property after takingaccount of indexation allowance. This method has been applied as the Group sellsproperties from time to time and ultimately the carrying value of the propertieswill be recovered through sale. 2 Adjusted profit before tax Adjusted profit before tax is the Group's preferred measure to provide a clearerpicture of recurring profits from core rental activities before tax, adjustedfor the items below. 6 months 6 months 12 months to 30th to 30th to 31st September September March 2007 2006 2007 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 (Loss)/profit before tax (9,705) 7,432 57,455Surrender premium received - (101) (101)Change in fair value of derivatives (802) (624) (4,206)Movement in revaluation of investmentproperties 14,823 738 (41,967)Profit on disposal of investmentproperties (267) (3,593) (3,592)Associated undertakings disposals andrevaluation movement 13 26 (369) ---------- ---------- ----------Adjusted profit before tax 4,062 3,878 7,220 ---------- ---------- ---------- 3 Taxation 6 months 6 months 12 months to 30th to 30th to 31st September September March 2007 2006 2007 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 Analysis of charge in period: Current tax: UK corporation tax on profits - 3,042 3,344 for the period Adjustments in respect of prior - 2 (380) periods ---------- ---------- ---------- Total current tax - 3.044 2,964 Deferred tax: Origination and reversal of - (1,626) 1,984 temporary differences On property valuation surpluses - - 12,590 Released on property disposals - - (2,093) during the year ---------- ---------- ---------- - - 12,481 ---------- ---------- ---------- - - 15,445 ---------- ---------- ---------- REIT conversion charge - - 7,025 Deferred tax released on - - (39,189) conversion to REIT status ---------- ---------- ---------- Total tax charge/(credit) in - 1,418 (16,719) the income statement ---------- ---------- ---------- Reconciliation to effective rate of tax: (Loss) / Profit before tax (9,705) 7,432 57,455 ---------- ---------- ---------- Tax (credit) / charge on profit (2,911) 2,230 17,237 at 30% (2006 - 30%) Effects of: REIT conversion charge - - 7,025 Deferred tax released on - - (39,189) conversion to REIT status Property revaluations 4,447 - - Exempt rental income and gains (1,543) - - Permanent differences 33 (97) (35) Associated company (26) (28) (158) Sales of investment properties - (33) (1,219) Utilisation of tax losses - (656) - Adjustment to tax charge in - 2 (380) respect of prior years ---------- ---------- ---------- Tax charge/(credit) for period - 1,418 (16,719) (as above) ---------- ---------- ---------- Factors affecting future tax rate: McKay Securities PLC converted to a Real Estate Investment Trust (REIT) on 1stApril 2007 and no corporation tax is expected to become payable on futurequalifying income or capital gains. The limited amount of residual income forthe period outside the REIT structure is offset by residual expenses. The current Group corporation tax payable of £7,244,000 (2006 - £3,179,000)represents the last payable for prior periods and the REIT conversion chargeprovided, less payments made. 4 Earnings per share 6 months 6 months 12 months to 30th to 30th to 31st September September March 2007 2006 2007 p p p Earnings per share (21.19) 13.18 162.26 Deferred tax on capital allowances - 0.70 0.83 Surrender premiums received - (0.15) (0.15) Change in fair value of derivatives (1.75) (0.96) (9.20) Movement in revaluation of 32.37 1.62 (64.27) investment properties Property on disposal of investment (0.58) (7.02) (7.08) properties after taxation Associated undertaking disposals and 0.02 (0.02) (0.81) revaluation movement REIT entry charge - - 15.37 Write back of deferred tax position - - (82.22) --------- --------- --------- Adjusted earnings per share 8.87 7.35 14.73 --------- --------- --------- Earnings per share on ordinary shares are based on earnings after tax of£9,705,000 loss (2006 - £6,014,000 profit) and 45,792,655 (2006 - 45,633,732)shares, being the weighted average number of ordinary shares in issue during theperiod. 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 2007 2006 2007 2006 p pWeighted number ofordinary shares inissue 45,792,655 45,633,732 (21.19) 13.18Number of sharesunder option 1,656,624 1,447,487 0.74 (0.41)Number of sharesthat would have beenissued at fair value (1,073,459) (791,243) (0.48) 0.22 ------------- ------------- ----------- ----------- 46,375,820 46,289,976 (20.93) 12.99 ------------- ------------- ----------- ----------- 6 months 6 months 12 months to 30th to 30th to 31st September September March 2007 2006 2007 p p pDilutedearnings pershare (20.93) 12.99 160.28 Deferred tax on capital allowances - 0.69 0.82 Surrender premium received - (0.15) (0.15) Change in fair value of derivatives (1.73) (0.94) (9.09) Movement in revaluation of investment 31.96 1.59 (63.48) properties Profit on disposal of investment (0.58) (6.92) (6.99) properties after taxation Associated undertaking disposals and 0.02 (0.02) (0.80) revaluation movement REIT entry charge - - 15.18 Write back of deferred tax provision - - (81.22) --------- -------- ---------Adjusteddilutedearnings pershare 8.74 7.24 14.55 --------- -------- --------- 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 46,375,820 (2006- 46,289,976) 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 profits. 5 Finance costs 6 months 6 months 12 months to 30th to 30th to 31st September September March 2007 2006 2007 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 Interest on bank overdraft and 3,437 3,040 5,943 loans Finance lease interest on 143 144 287 leasehold property obligations Change in fair value of (802) (624) (4,206) derivatives Finance arrangement costs 23 18 41 ---------- --------- --------- 2,801 2,578 2,065 Capitalised interest (242) (473) (847) ---------- --------- --------- 2,559 2,105 1,218 ---------- --------- --------- 6 Investment properties 6 months 6 months 12 months to 30th to 30th to 31st September September March 2007 2006 2007 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 At 1st April 2007 351,110 304,687 304,687 Additions 11,510 1,865 23,515 ---------- --------- --------- Revaluation (deficit)/surplus (13,889) - 43,551 Lease incentives recognised (934) (738) (1,584) ---------- --------- --------- (14,823) (738) 41,967 Disposals (807) (18,980) (18,980) Amortisation of grossed up (22) (20) (79) headlease liabilities ---------- --------- --------- At 30th September 2007 346,968 286,814 351,110 ---------- --------- --------- Adjustment for grossing up of (4,086) (4,429) (4,122) headlease liabilities Lease incentives recognised to 5,214 3,433 4,279 date ---------- --------- --------- Adjusted valuation at 30th 348,096 285,818 351,267 September 2007 ---------- ---------- ---------- Following the Group's conversion to a REIT on 1st April 2007, the Group changedits accounting policy to revalue its properties bi-annually, to fall in linewith IFRS and best practice. Accordingly, there was an external valuation at30th September 2007. This valuation was carried out in England by Mellersh &Harding, Chartered Surveyors and Valuers, and in Scotland by CB Richard Ellis,Chartered Surveyors and Valuers, in accordance with the Appraisal and ValuationStandards of RICS, on an open market basis. Investment properties were not subject to external valuation at 30th September2006. 7 Dividends paid 6 months 6 months 12 months to 30th to 30th to 31st September September March 2007 2006 2007 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 Final dividend Year ended 31st March 2007 3,389 - - Year ended 31st March 2006 - 3,101 3,101 Interim dividend Year ended 31st March 2007 - - 1,648 ---------- ---------- ---------- 3,389 3,101 4,749 ---------- ---------- ---------- 8 Net asset value per share 30th September 2007 30th September 2006 31st March 2007 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 223,046 45,793 487 169,324 45,787 370 235,990 45,793 515 Deferred tax on capital - - - 6,626 - 15 - - - allowances Deferred tax on revaluation - - - 17,507 - 38 - - - Adjustment to fair value of (5,030) - (11) (452) - (1) (4,228) - (9) derivatives -------- -------- -------- -------- -------- -------- -------- -------- -------- Adjusted 218,016 45,793 476 193,005 45,787 422 231,762 45,793 506 -------- -------- -------- -------- -------- -------- -------- -------- -------- Number of shares under option 5,093 1,875 (8) 2,800 1,301 (5) 3,874 1,553 (8) -------- -------- -------- -------- -------- -------- -------- -------- -------- Adjusted 223,109 47,668 468 195,805 47,088 417 235,636 47,346 498 diluted -------- -------- -------- -------- -------- -------- -------- -------- -------- 9 Interim Report The Interim Report is being posted to all shareholders on 7th December 2007. Copies are available to members of the public from the Company's registered office at 20 Greyfriars Road, Reading, Berkshire RG1 1NL, and on the Company's website at www.mckaysecurities.plc.uk. Responsibility Statement of the Directors We confirm that to the best of our knowledge: • the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU: • The interim management report includes a fair review of the information required by: (a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and (b) DTR 4.2.8BR of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performances of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so. S C PerkinsManaging Director A S ChildsFinance Director 29 November 2007 The Interim Report of McKay Securities PLC for the six months to 30th September2007 has been drawn up and presented for the purposes of complying with Englishlaw. If any issue were to arise in relation to any liability under or inconnection with the Interim Report for the six months to 30th September 2007, itwould also be determined in accordance with English law. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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