Preliminary results - year ended 30 June 2014

Mucklow (A & J) Group plc

3 September 2014

Embargoed: 7.00am

Rupert Mucklow, Chairman commented:

"I am pleased to report another strong performance by the Group for the year ended 30 June 2014. Property values have risen by 10.2% on the back of improved occupier and investor demand, which has helped increase our pre-tax profit by 150% and net asset value per share by 17%."

Financial Summary

for the year ended 30 June 2014

Recommended final dividend of 11.19p per share (2013: 10.86p), making the total in respect of the year ended 30 June 2014 20.23p per share (2013: 19.64p). The final dividend will be paid as a Property Income Distribution (PID).

(1) See the property and finance review for the calculations.

(2) Excludes the profit on disposal of investment, development and trading properties and the revaluation of investment and development properties and derivative financial instruments and tax adjustments. See note 8.

(3) Excludes the fair value of derivative financial instruments and includes the surplus on trading properties. See note 8.

(4) See note 9.

Chairman's Statement

Rupert J Mucklow

I am pleased to report another strong performance by the Group for the year ended 30 June 2014. Property values have risen by 10.2% on the back of improved occupier and investor demand, which has helped increase our pre-tax profit by 150% and net asset value per share by 17%.

Results

Statutory pre-tax profit for the 12 months was £40.7m, compared with £16.3m for the corresponding period last year. There was a small contribution of £0.03m from trading profit (2013: nil).

The underlying pre-tax profit, which excludes revaluation movements and profit on the sale of investment and trading properties was £12.9m (2013: £13.5m). The previous year's underlying pre-tax profit figure included a one off premium of £0.36m from the surrender of a lease.

Additional expenditure on various industrial properties, to assist the marketing of vacant space and higher finance costs, following the extension of our principal banking facilities in the previous year, contributed towards a slightly lower underlying pre-tax profit. EPRA adjusted earnings per share was 21.09p (2013: 22.43p).

EPRA net asset value per Ordinary share increased by 53p, from 305p to 358p. Shareholders' funds rose to £225.0m (2013: £182.5m), while borrowings net of cash amounted to £66.8m (2013: £74.9m). Debt to equity gearing was lower at 30% (2013: 41%).

Dividend

The Board is recommending the payment of a final dividend of 11.19p per ordinary share, an increase of 3% over last year (2013: 10.86p), making a total for the year of 20.23p (2013: 19.64p). Following the approval by shareholders at the AGM, the final dividend will be paid on 2 January 2015, to shareholders on the register at the close of business on 28 November 2014. The final dividend will be paid as a PID.

Performance

The Group's principal objective is the long-term enhancement of shareholder value through dividend and capital appreciation. The Board are proud of the fact that the Ordinary dividend has increased in 47 of the last 52 years as a Public Company and has never been cut.

The Directors have the responsibility of making strategic decisions, which will benefit the performance of the property portfolio and value of the business over the long-term. Timing of decisions and minimising risks are the key factors influencing investment returns, which are necessary in order to maintain income and asset growth.

The Group's low gearing and strong financial position over the last 7 years, has enabled us to acquire a number of quality investment properties, on attractive terms, which combined with our existing modern property portfolio, are now starting to show signs of rental and capital growth.

Longer term decisions made to refinance banking facilities and invest in upgrading some of our older industrial properties have impacted underlying pre-tax profit over the last 12 months. However, the Ordinary dividend is still covered by the lower underlying pre-tax profit, which is likely to improve as rental income grows.

Shareholders may be interested to know that an investment of £1,000 in Mucklow Ordinary shares on flotation in 1962 would be worth £2.36m at 30 June 2014, assuming dividends had been reinvested. The total shareholder return has averaged over 16% per annum for the last 52 years.

Property Review

The value of our property investment portfolio has benefited significantly over the last 12 months from improving economic conditions and a resurgence in confidence and activity from both occupiers and Investors.

We acquired two investment properties in the first half year in Halesowen and Kings Heath, Birmingham for £6.71m. We started our pre-let development at Worcester in the second half year, with an end value of around £10m; acquired and refurbished a vacant industrial building in Tyseley, Birmingham for £1.74m and sold an office building in Worcester for £3.85m.

The property investment market became very competitive in the second half of the year. We found it more difficult to acquire suitably priced investment properties, so we shifted our focus towards development and are looking for other opportunities to add value.

We have invested over £0.5m of additional non-recoverable expenditure on various industrial properties over the last 12 months, mainly to assist lettings and improve rents. This has had a small impact on our underlying pre-tax profit, but is reflected in valuation improvements.

Regional Occupier Market

Occupational demand for modern industrial property in the Midlands has been steadily improving for the last 18 months and we are starting to achieve rental growth in certain locations, on the back of a shortage of available space.

Our average industrial rent on let space at 30 June 2014 was £5.13 psf (2013: £5.07 psf). Rental levels achieved on new lettings and lease renewals during the year increased by approximately 3%.

We acquired a vacant 36,000 sq ft industrial building at Redfern Park, Tyseley, Birmingham in the second half of our financial year for £1.48m. The property was built in the 1990's and adjoins an existing holding. We have refurbished the building to a high standard and it is now available for rent at £0.21m per annum (£5.75 psf). The total cost, including stamp duty was £1.74m.

Our vacancy rate at 30 June 2014 was maintained at 6.7% (2013: 6.7%). The void rate would have been 5.7% if we had not acquired the above mentioned vacant building at Redfern Park in the second half of the year. There is strong interest in a number of our vacant properties.

Regional Investment Market

There has been a significant adjustment in property yields during our second half year. A shortage of investment opportunities and a large increase in the amount of capital available to invest in regional property has caused yields to compress.

We acquired a modern 62,000 sq ft industrial unit with an acre of expansion land in Halesowen, West Midlands for £3.66m in September 2013. The property is let on a long lease at a rent of £0.34m per annum.

We also acquired three modern retail units with car parking totalling 16,226 sq ft in December 2013. The retail properties were built in 2001 and are located next to a large Sainsburys food store, on a busy High Street in Kings Heath, Birmingham. The current rent is £0.27m per annum and the cost was £3.05m.

A 23,061 sq ft office building at Worcester was sold towards the end of our financial year for £3.85m. The property was let on a short lease at a rent of £0.31m per annum. We acquired the property in 1999 for £2.83m. It was sold for £0.23m above book value.

Development

Construction of our 116,000 sq ft pre-let distribution warehouse at Apex Park, Worcester, started in March 2014. The cost to complete the development will be around £5.5m and the project is expected to be operational by Worcester Bosch and producing rent (£0.72m per annum) in December 2014.

Given the strength of the occupier market and lack of available stock, we are actively promoting our 20 acre site at Tyseley, Birmingham for pre-let development, where we have outline planning consent for 360,000 sq ft of industrial/warehouse space.

Valuation

DTZ Debenham Tie Leung revalued our property portfolio at 30 June 2014. The investment properties and development land were valued at £298.9m, which showed a revaluation surplus of £27.7m (10.2%).

The initial yield on the investment properties was 6.8% (30 June 2013: 7.8%), increasing to 7.3% on the expiry of rent free periods. The equivalent yield was 7.9% (30 June 2013: 8.5%). Our industrial property increased in value by 10.9%; offices by 9.6% and retail by 11.1%.

DTZ Debenham Tie Leung also revalued our trading properties at 30 June 2014. The total value was £1.9m, which showed an unrecognised surplus of £1.5m. There was a small disposal during the year realising a profit of £0.03m.

Placing of New Shares

In March 2014, we placed 2.9m new shares with Institutional Investors, representing 4.8% of our issued share capital. The shares were placed at 490p each, realising £13.8m net of costs.

The proceeds have been used to redeem the remaining £4.2m of our 11.5% debenture stock which matured in July 2014 and to fund the development at Apex Park, Worcester (approximately £5.5m). The balance is being used to fund future investment or development opportunities.

Finance

Total net borrowings at 30 June 2014 were £66.8m (30 June 2013: £74.9m). Undrawn banking facilities totalled £35.5m, while net debt to equity gearing had reduced to 30% (30 June 2013: 41%) and loan to value 22% (30 June 2013: 28%).

Our gross finance costs, including arrangement fees, have increased by £0.5m over the last 12 months, as a consequence of renewing our principal banking facilities in the previous year. Following the redemption of our debenture stock on 1 July 2014, the average cost of debt has fallen to 4.0% (30 June 2013: 4.3%).

Employees

Mucklow has a small team of 12 employees and three independent Non-Executive Directors. I wish to thank them all for their hard work and commitment over the last 12 months.

Our Non-Executive Directors attend 11 Board meetings a year and make a considerable contribution to the success of our business. Their work load has increased considerably in recent years, to comply with new Corporate Governance requirements.

Shareholders will see in the Annual Report that Non-Executive Directors fees have risen by over 28% this year, from £27,186 to £35,000, following a review of comparable companies by the Executive Directors. I had no hesitation in supporting this increase and I believe we are fortunate to have such a strong Board.

Outlook

The Company is in good shape with a quality investment portfolio and a strong balance sheet. We expect the regional occupier and investment markets to continue to improve over the next 12 months and rental growth to accelerate as the limited supply of available space falls.

We may struggle to acquire any further investment properties, while the market is so competitive and we are not prepared to compromise on quality. However, I am sure our team will continue to find ways to grow rental income and improve the value of the property portfolio over the next twelve months.

Property and Finance Review

Justin Parker, Managing Director

David Wooldridge, Finance Director

Overview

Occupational and investment markets have continued to improve during the financial year, leading to a £27.7m revaluation increase and an increase in pre-tax profit from £16.3m to £40.7m.

Three investment properties have been acquired in the year, works are well underway at our pre-let 116,000 sq ft industrial/warehouse unit in Worcester and in May 2014 we have disposed of an office property in Worcester at a 6.5% premium to the last valuation.

We have maintained our high occupancy rate of 93.3% and increased our gross rental income by 3.6%. The Midlands industrial market continues to improve, with a lack of available stock leading to a rise in rental levels. During the year we have carried out refurbishments at a number of properties in our existing portfolio in order to benefit from increased occupier demand in future financial years.

Our balance sheet remains strong, with gearing decreasing from 41% to 30%, mainly as a result of the increase in property values and the issue of around 5% of our share capital in March 2014, to provide funds for the Worcester development and the redemption of our 11.5% Debenture Stock on 1 July 2014.

Strategy and Business Model

The Group's main objective is the long-term enhancement of shareholder value through dividend and capital appreciation, whilst adopting a conservative financial structure.

As a Real Estate Investment Trust, we are committed to distributing 90% of the profits of our tax exempt business. We therefore expect dividends to be an important part of the total shareholder return.

Our long-term objective remains focused on accumulating a portfolio of high quality, well-located, modern, income producing properties, with potential for long-term rental and capital growth and that are attractive to both occupiers and investors.

The Group's primary sector focus is industrial. We believe that by investing mainly in industrial property, which tends to offer a higher level of income return than offices and retail, at an attractive margin to our cost of debt, we are able to provide shareholders with a higher level of dividend yield and the prospect of long-term dividend growth. Our office and retail properties also offer an attractive income return and capital growth prospects, as well as diversifying our income stream and customer base.

We continue to primarily invest and develop in the Midlands region, an area we consider to offer attractive long-term rental and capital growth potential, and where we have over 75 years' experience. The geographic concentration of our portfolio, and range of unit sizes and lease expiries, means that we can work closely with our existing customers to satisfy their space requirements as their business expands, or their requirements reduce, within our existing portfolio.

The three areas of our strategy are:

· Selectively acquiring and disposing of investment properties;

· Developing new properties for long-term investment; and

· Actively managing our assets to enhance value.

We continue to be a counter-cyclical investor in modern, well located, quality investment properties, where we expect to achieve attractive returns. Given the long-term and cyclical nature of the property market, we believe that the precise timing of acquisitions and disposals is crucial in boosting returns from our existing property portfolio.

The core of our business is the investment property portfolio, which represents 96% of the value of the investment and development properties held. The investment portfolio consists of 56 properties/estates, with 340 units, totalling 3.6m sq ft.

We are also a selective developer of well located, high quality property, developing properties when the occupier market is strong.

In addition, the proactive approach to the management of our assets allows us additional opportunity to enhance overall value.

Our low cost base, including only twelve employees, as well as three non-executive directors, enables us to pay a high proportion of our profits as dividends. In addition, the small size of the team enables us to react quickly to changing market conditions, and the liquidity of our financing provides us with the ability to transact quickly on investment acquisitions.

A conservative financial structure leads to a lower cost base, in terms of interest payable, and reduces the Group's exposure to volatility in interest rates and property valuations.

Key performance indicators

As stated above, the Group's main objective is the long-term enhancement of shareholder value through dividend and capital appreciation, whilst adopting a conservative financial structure. As a result, the key performance indicators we use to reflect the achievement of that objective on an annual basis are: underlying pre-tax profit; vacant space; dividend growth; and gearing.

+See the table on page 11 for the calculations.

Relative total shareholder return, over a three year period, is the performance measure used for the Group's Performance Share Plan, aligning the remuneration of the Managing Director and Finance Director with returns received by shareholders.

Group structure

A & J Mucklow Group plc has five main subsidiaries for property development and investment. All of the Group's properties are wholly owned.

Properties let to a single tenant are tenant managed, and portfolio managers at A & J Mucklow Group plc monitor the management of the sites regularly.

On multi-let properties the day-to-day management is outsourced to managing agents, who report to portfolio managers at A & J Mucklow Group plc.

Market Review

The signs of greater investor demand and increased depth and liquidity in the Midlands industrial market that were apparent at the end of our last financial year have continued, particularly in the last few months of our financial year.

There is currently strong demand for regional industrial property from investors, as risk appetite increases, and the weight of money chasing a limited amount of stock is pushing down yields. This trend in declining yields has been seen across all of our property types in the second half of the financial year.

Whilst occupier demand has increased, tenant choice, particularly for buildings over 50,000 sq ft, has reduced, and speculative development remains limited.

This lack of supply is leading to an increase in rental levels for industrial properties and we are starting to see this reflected in new leases and lease renewals and expect this trend to continue.

Acquisition and disposal of investment properties

Whilst property values have been depressed over the last five years, we have taken advantage of weaker investor demand, and our low level of gearing, to acquire eleven investment properties, mainly industrial, with a total cost of £41.6m. During the year under review we have acquired two further investment properties and a vacant industrial unit.

Amber Way, acquired in September 2013 for £3.66m, is a modern 62,000 sq ft industrial unit with an acre of expansion land. The property is let to Wyko Group Limited on a fifteen year lease expiring in 2021, with an annual rent of £0.34m. The net initial yield was 8.8%.

Three modern retail units (16,226 sq ft) on a busy high street in Kings Heath, Birmingham, were acquired in December 2013. The properties, located next to a Sainsbury's store, were built in 2001. The units are let to Poundstretcher, Dreams and Carphone Warehouse. The combined rent is currently £0.27m and the cost was £3.05m, offering a net initial yield of 8.4%.

Given increased investor appetite for industrial investment property in the Midlands during the second half of our financial year, particularly the last few months, it has been more difficult to acquire standing investments at attractive rates of return. We have, however, managed to acquire a vacant 36,000 sq ft industrial building at Tyseley (Birmingham) for £1.48m, a capital value of only £41 per square foot. Refurbishment works costing £0.16m have been carried out to the unit and we are marketing the unit for an annual rent of £0.2m. The property is in a corner plot, bordering our existing holdings at Redfern Park, totalling 41,500 sq ft.

We disposed of Century House, a 23,061 sq ft office building close to junction 6 of the M5 at Worcester let on a rent of £305,900 pa with five years remaining on the lease, to an owner occupier in May 2014 at a yield of 7.5%. The proceeds of £3.85m represented a 6.5% premium to the 31 December 2013 valuation of £3.62m. The property was acquired by the Group in 1999 for £2.83m (including costs).

Developing new properties for long-term investment

In November 2013 we agreed terms with Worcester Bosch Group to build a new 116,000 sq ft distribution unit on our Apex Park, Worcester land, to be let on a 12.5 year lease. The deal is conditional on us taking back their existing 50,000 sq ft at Knightsbridge Park, Worcester, which was subject to a break option in October 2015, on completion of the development. Planning consent was granted in January 2014 and construction started on site in March.

The construction cost is expected to be £5.5m and the building is due to be complete in December 2014. Annual rent of £0.72m commences on completion.

Our only other remaining development land is the 20 acre site at Tyseley, Birmingham, suitable for up to 360,000 sq ft of industrial/warehouse space. There is currently a shortage of larger industrial units (in excess of 50,000 sq ft) available in the Midlands and the Tyseley site is one of the few remaining larger development land sites in the Birmingham area. We are promoting the site for pre-lets of high quality industrial/warehouse units, with a very good BREEAM rating.

Actively managing our assets to enhance value

We continue to look for opportunities to increase rental and capital values, and improve the unexpired term of leases, on our existing investment portfolio. Given the strength of occupier interest, we have invested in the vacant units, to make them more attractive for potential customers and to support and grow rental income.

Our aim is to keep our occupancy levels high, in order to improve our income and reduce our void costs. An occupancy rate above 90% is targeted throughout the property cycle.

In the first half of the financial year we invested over £0.3m of non-recoverable expenditure, in particular at our Enterprise Trading Estate (Dudley) and Hazelwell Mills (Stirchley) industrial estates. In the second half, further refurbishment works have commenced at our Forward Park Trading Estate, to split a 26,000 sq ft unit, and on a 25,000 sq ft unit at Long Acre Trading Estate, for a new lease that commenced in July 2014.

We agreed lease renewals and extensions over £0.75m of annual rental income in the first six months of our financial year, and over £0.81m of annual rental income in the second half. The rent free periods given on those leases will have a short-term impact on our cash flow, but the leases improve the security of our income streams.

We extended an existing lease on our retail property at Tewkesbury Road, Cheltenham for a further ten years, to expire in June 2033. The lessee, in turn, has substantially re-configured the dealership to create a modern Audi showroom and servicing depot at a cost to themselves of £1.5m. The annual rent remained unchanged and is due to be reviewed in June 2018.

Occupancy

Our vacancy rate has remained unchanged from the prior year, due to the acquisition of the vacant unit at Redfern Park (Tyseley) representing 1% of the portfolio three months before our financial year end.

We expect our void level to fall below 6% by the end of our 2015 financial year.

Valuation

The external valuation of the Group's investment and development portfolio at 30 June 2014 totalled £298.9m, leading to a valuation surplus of £27.7m, of which £27.6m is recognised in the statement of comprehensive income. The majority of the uplift (£20.0m) came in the second half of the financial year, reflecting the strength of the investment market in the second half.

Industrial properties increased in value by 10.9%, offices by 9.6% and retail by 11.1%. The initial yield of the portfolio decreased by 100 bps, and the equivalent yield by 60 bps.

Yield breakdown - investment properties

Finance Review 

The results for the financial year ended 30 June 2014 show the continuation of the Group's healthy performance, with a further increase in rent roll from acquisitions. We have improved the quality of the existing portfolio through refurbishment programmes and lease renewals and new leases, which have increased our underlying cost base, but those actions, in conjunction with the strength of investor demand for property assets, have helped to deliver a strong capital value performance from our existing property assets.

Income

Statutory pre-tax profit has increased by 150% to £40.7m (2013: £16.3m), mainly as a result of the £27.6m revaluation uplift (2013: £2.8m). Our underlying pre-tax profit has reduced by 4.1% to £12.9m (2013: £13.5m), with higher rental income being offset by the investment in our existing portfolio, administration costs relating to new leases, renewals and regears and higher net finance costs.

Gross rental income has increased by £0.7m to £21.1m, with the two income producing acquisitions in the year contributing £0.6m to our gross annual rent roll. As a result of increased property outgoings from the refurbishment costs referred to above, and the £0.4m premium from the surrender of a lease recognised in the prior year, net rental income has increased by £0.3m, from £19.8m to £20.1m.

Administration expenses increased by £0.2m (8%), the main reasons being legal, professional and agents fees for the new leases, renewals and re-gears in the period. Total salary costs increased by £0.05m (2.6%) and bad debts remain low at 0.1% of gross rental income.

Our net finance costs increased by £0.7m, with interest on bank facilities increasing by £0.5m, mainly due to higher levels of drawdown during the year and level of fixed rate debt. Interest receivable reduced by £0.1m. The Group's interest rate caps are not accounted for as hedges, leading to a £0.1m movement in fair value included in the interest cost.

A profit of £0.3m, over the 31 December 2013 valuation, has been realised on the sale of the Century House office building in Worcester.

Taxation

The Group continues to operate as a Real Estate Investment Trust, so profits and gains from the property investment business are normally exempt from corporation tax. No corporate tax charge has arisen in the 2014 financial year.

Dividend

An interim dividend of 9.04p per share was paid as a Property Income Distribution ("PID") on 30 June 2014.

The Board proposes a 3% increase in final dividend, in line with the increase at the interim stage, to 11.19p (2013: 10.86p). The final dividend will be paid as a PID.

If approved, the dividend will be paid on 2 January 2015 to Shareholders on the register on the close of business on 28 November 2014.

The allocation of future dividends between PID and non-PID may vary.

The Board's continued intention is to grow the rent roll to enable a sustainable, covered, increase in dividends over the long-term, with a view to distributing around 90% of our recurring profit.

Underlying financial performance

Presented above is an analysis of the underlying rental performance before tax, as shown in the investment/development column, which excludes the impact of EPRA adjustments and capitalised interest.

The directors consider that this further analysis of our profit before tax gives shareholders a useful comparison of our underlying performance for the periods shown in the Group financial statements.

Net assets

Net assets have increased by £42.5m due to the £27.7m revaluation of the investment and development properties and the £13.8m raised, net of costs, from the placing in March 2014.

We issued 2,900,000 Ordinary shares at a price of 490p each on 4 March 2014, raising £14.2m (gross) in order to fund the development of the pre-let industrial/warehouse unit at Worcester and the redemption of the Group's 11.5% Debenture Stock on 1 July 2014.

The uplift in valuation of the properties, the funds raised from the placing and the sale of Century House have led to a decrease in gearing to 30% (2013: 41%) or loan to value of 22% (2013: 28%) at our financial year-end.

Financing, cash flow and going concern

The Group continues to generate a strong cash flow from its property assets, with net operating cash flow increasing by £0.5m to £13.32m in the year and net capital expenditure on property assets increased by 11%, from £6.0m to £6.6m.

Following the repayment of the Group's 11.5% Debenture Stock on 1 July 2014, the Group's available facilities consisted of:

The repayment of the Debenture Stock has reduced our average cost of debt for our drawn term debt facilities to 4.5% (or 4.0% for our total term debt facilities), compared to the 4.8% (4.3% on total debt facilities) reported last year. The weighted average term remaining is 6.5 years, or 5.6 years on total debt facilities.

Of the total debt of £105.7m shown above, £40.7m is at fixed rates. All of the remaining drawn debt of £29.5m (post the Debenture Stock redemption) is at floating rate, fully covered by interest rate caps.

Analysis of borrowings at 30 June 2014

As at 30 June 2014 the Group had £35.5m of undrawn banking facilities and had drawn down £9.5m from its HSBC £44m 2018 Revolving Credit Facility. The Group's £1.0m overdraft, which is due for renewal within 12 months of the date of this document, was undrawn. Given these facilities, the Group's low gearing level of 30% and £93.6m of unencumbered properties, significant capacity exists to raise additional finance or to provide additional security for existing facilities, should property values fall.

The directors have reviewed the current and projected financial position of the Group and compliance with its debt facilities, including a sensitivity analysis. On the basis of this review, the directors continue to adopt the going concern basis in preparing the annual report and financial statements.

Outlook

The reduction in gearing to 30%, well within our self-imposed gearing limit of 50%, and £35.5m of undrawn facilities provides us with significant headroom. We continue to look for opportunities to increase our rent roll.

Group Statement of Comprehensive Income

for the year ended 30 June 2014

Statements of Changes in Equity

for the year ended 30 June 2014

Group Balance Sheet

at 30 June 2014

Group Cash Flow Statement

for the year ended 30 June 2014

NOTES TO THE FINANCIAL STATEMENTS

1 Accounting policies

Basis of preparation of financial information

The Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) adopted for use in the European Union and therefore comply with Article 4 of the EU IAS regulation. Whilst the financial information included in this preliminary announcement has been computed in accordance with IFRSs, this announcement itself does not contain sufficient information to comply with IFRSs. The Company expects to publish full financial statements that comply with IFRSs on 1 October 2014.

The preliminary announcement was approved by the board of directors on 2 September 2014. The financial information set out in this announcement does not constitute the Company's statutory accounts for the years ended 30 June 2014 or 2013 as defined under Section 435 of the Companies Act 2006. The financial information for the year ended 30 June 2013 is derived from the statutory accounts for that year which has been delivered to the Registrar of Companies and those for 2014 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

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

Basis of consolidation

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

Unrealised gains and losses on intra-Group transactions and intra-Group balances are eliminated from the consolidated results.

Going concern

As at 30 June 2014 the Group had £35.5m of undrawn banking facilities and had drawn down £9.5m from its HSBC £44m 2018 Revolving Credit Facility. The Group's £1.0m overdraft, which is due for renewal within 12 months of the date of this document, was undrawn. Given these facilities, the Group's low gearing level of 30% and £93.6m 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 annual report and financial statements.

Critical accounting judgements and key sources of estimation uncertainty

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

Management has made judgements over the valuation of properties that has a significant effect on the amounts recognised in the financial statements. Management has used the valuation performed by its independent valuers as the fair value of its investment, development, owner-occupied and trading properties. The valuation is based upon assumptions including future rental income and an appropriate discount rate. The valuers also use market evidence of transaction prices for similar properties.

Standards in issue but not yet effective

At the date of authorisation of these financial statements, the following Standards, Amendments and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):

The adoption of these Standards, Amendments and Interpretations will either result in changes to presentation and disclosure, or are not expected to have a material impact on the financial statements.

In the current financial year, the Group has adopted IFRS 13 "Fair Value Measurement". Otherwise, the same accounting policies, presentation and methods of computation are followed in the financial statements as applied in the 2013 annual report and financial statements. IFRS 13 has impacted the measurement of fair value for certain assets and liabilities, as well as introducing new disclosures as set out in note 23 to the Annual Report. No retrospective changes were necessary as a result of the adoption of this standard.

Revenue recognition

Rental income

Gross rental income represents rents receivable for the year. Rent increases arising from rent reviews due during the year are taken into account only to the extent that such reviews have been agreed with tenants at the accounting date.

Rental income from operating leases is recognised on a straight-line basis over the term of the lease.

Lease incentives are amortised on a straight-line basis over the lease term.

Property operating expenses are expensed as incurred. Service charges and other recoverables are credited against the related expense.

Revenue and profits on sale of investment, development and trading properties

Revenue and profits on sale of investment, development and trading properties are taken into account on the completion of contracts.

The amount of profit recognised is the difference between sale proceeds and the carrying amount.

Dividends and interest income

Dividend income from investments in subsidiaries is recognised when shareholders' rights to receive payment have been established.

Interest income is recognised on an accruals basis when it falls due.

Cost of properties

An amount equivalent to the total development outgoings, including interest, attributable to properties held for development is added to the cost of such properties. A property is regarded as being in the course of development until practical completion.

Interest associated with direct expenditure on investment properties which are undergoing development or major refurbishment and development properties is capitalised. Direct expenditure includes the purchase cost of a site or property for development properties, but does not include the original book cost of investment property under development or refurbishment. Interest is capitalised gross from the start of the development work until the date of practical completion, but is suspended if there are prolonged periods when development activity is interrupted. The rate used is the rate on specific associated borrowings or, for that part of the development costs financed out of general funds, the average rate.

Valuation of properties

Investment properties are valued at the balance sheet date at fair value. Where investment properties are being redeveloped the property continues to be treated as an investment property. Surpluses and deficits attributable to the Group arising from revaluation are recognised in the statement of comprehensive income. Valuation surpluses reflected in retained earnings are not distributable until realised on sale.

Properties under development, which were not previously classified as investment properties, are valued at fair value until practical completion, when they are transferred to investment properties. Valuation surpluses and deficits attributable to properties under development are recognised in the statement of comprehensive income.

Owner-occupied properties are valued at the balance sheet date at fair value. Valuation changes in owner-occupied property are taken to revaluation reserve through other comprehensive income. Where the valuation is below historic cost, the deficit is recognised in the statement of comprehensive income.

Trading properties held for resale are stated at the lower of cost and net realisable value.

Property, plant and equipment

Land and buildings held for use in the production or supply of goods or services, or for administrative purposes, are stated in the balance sheet at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations are performed with sufficient regularity such that the carrying amount does not differ materially from that which would be determined using fair values at the balance sheet date.

Any revaluation increase arising on the revaluation of such land and buildings is credited to the properties revaluation reserve through other comprehensive income, except to the extent that it reverses a revaluation decrease for the same asset previously recognised as an expense, in which case the increase is credited to the statement of comprehensive income to the extent of the decrease previously charged. A decrease in carrying amount arising on the revaluation of such land and buildings is charged as an expense to the extent that it exceeds the balance, if any, held in the properties revaluation reserve relating to a previous revaluation of that asset.

Depreciation on revalued buildings is charged to income. On the subsequent sale or retirement of a revalued property, the attributable revaluation surplus remaining in the properties revaluation reserve is transferred directly to retained earnings.

Plant and equipment is stated at cost less accumulated depreciation, less any recognised impairment.

Depreciation

Depreciation is provided on buildings, motor vehicles and fixtures and fittings on a straight-line basis over the estimated useful lives of between two and twenty-five years. Investment properties are not depreciated.

Government grants

Capital grants received relating to the cost of building or refurbishing investment properties are deducted from the cost of the relevant property. Revenue grants are deducted from the related expenditure.

Share-based payments

The cost of granting equity-settled share options and other share-based remuneration is recognised in the statement of comprehensive income at their fair value at grant date. They are expensed straight-line over the vesting period, based on estimates of the shares or options that eventually vest. Options are valued using the Monte Carlo simulation model.

Deferred taxation

Deferred taxation is provided in full on temporary differences that result in an obligation to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Temporary differences arise from the inclusion of items in taxation computations in periods different from when they are included in the financial statements. Deferred tax is provided on temporary differences arising from the revaluation of fixed assets. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered.

Taxation

The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the statement of comprehensive income because it excludes items of income and expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Tax is recognised in the statement of comprehensive income except for items that are reflected directly in equity, where the tax is also recognised in equity.

Pension costs

The cost to the Group of contributions made to defined contribution plans is expensed when the contributions fall due.

Acquisitions

On the acquisition of a business, including an interest in an associated undertaking, fair values are attributed to the Group's share of separable net assets. Where the fair value of the cost of acquisition exceeds the fair value attributable to such assets, the difference is treated as purchased goodwill and capitalised in the balance sheet in the year of acquisition.

Under the Group's previous policy, £0.13m of goodwill has been written off directly to reserves as a matter of accounting policy. This would be credited to the statement of comprehensive income on disposal of the business to which it related.

Group undertakings

Investments are included in the balance sheet at cost less any provision for impairment.

Financial instruments

Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for any amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled, or they expire.

Trade receivables

Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in the statement of comprehensive income when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset's carrying amount and the present value of future cash flows discounted at the effective rate computed at initial recognition.

Available-for-sale assets

Mortgage receivables held by the Group are classified as being available-for-sale and are stated at fair value. Fair value is determined in the manner described in note 13 to the Annual Report. Gains and losses arising from changes in fair value are recognised directly in equity in the investments revaluation reserve with the exception of impairment losses, which are recognised directly in the statement of comprehensive income.

Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss recognised in the investments revaluation reserve is included in profit or loss for the period.

Financial assets at FVTPL

Financial assets are classified as at 'fair value through profit or loss' where it is a derivative that is not designated and effective as a hedging instrument. The interest rate caps are classified as FVTPL.

Cash and cash equivalents

Cash and cash equivalents comprise cash in hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Financial liabilities and equity

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.

Bank borrowings

Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlements or redemption and direct issue costs, are accounted for on an accrual basis in the statement of comprehensive income using the effective interest rate method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

Trade payables

Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

2 Revenue

3 Property costs

4 Segmental analysis

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

These two segments are considered appropriate for reporting under IFRS 8 "Operating Segments" as these are regularly reviewed by the chief operating decision maker to allocate resources to the segments and to assess their performance. The Group has a large and diverse customer base and there is no significant reliance on any single customer.

The measure of profit or loss that is reported to the Board of Directors for the segments is profit before tax. A segmental analysis of income from the two segments is presented below, which includes a reconciliation to the results reported in the Group statement of comprehensive income.

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

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

5 Net finance costs

6 Taxation

The tax credit in the previous financial year reflects the removal of provisions in respect of prior year liabilities.

The tax credit for the year can be reconciled to the profit per the statement of comprehensive income as follows:

A reduction in the main rate of corporation tax from 23% to 21% with effect from 1 April 2014 and from 21% to 20% from 1 April 2015 was substantively enacted on 2 July 2013 and as such deferred tax at the balance sheet date has been recognised at the reduced rate and current tax for the year ended 30 June 2014 has been calculated at the blended rate of 22.5%.

The Group became a Real Estate Investment Trust (REIT) on 1 July 2007. Under the tax rules which apply to REITs properties which are developed and sold within three years of completion do not benefit from the normal REIT tax exemption on disposal gains. The Group currently owns £Nil (2013: £21.3m) of properties which have completed development during the previous three years. If these properties had been disposed of at their 30 June 2014 valuation, then tax of £Nil (2013: £1.4m) would have become payable. No deferred tax has been provided in respect of this potential tax liability as the Group had no plans to dispose of these properties at the balance sheet date.

7 Dividends

The directors propose a final dividend for the year ended 30 June 2014 of 11.19p (2013: 10.86p) per Ordinary share, totalling £7.1m.

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has therefore not been included as a liability in these financial statements.

The final dividend, if approved, will be paid on 2 January 2015 to shareholders on the register at the close of business on 28 November 2014.

8 Earnings per share and net asset value per share

Earnings per share

The basic and diluted earnings per share of 66.45p (2013: 27.21p) has been calculated on the basis of the weighted average of 61,250,268 Ordinary shares (2013: 60,218,113 Ordinary shares) and profit of £40.7m (2013: £16.4m).

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

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

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 87,606 Ordinary shares were granted in the year (2013: 112,583 Ordinary shares) under the 2007 Performance Share Plan. The vesting conditions for these shares have not been met, so they have not been treated as dilutive in these calculations. The third three year award under the 2007 Performance Share Plan vested in the period, with 98,820 Ordinary shares being issued and with 19,768 shares lapsed.

Net asset value per share

The net asset value per share of 356p (2013: 303p) has been calculated on the basis of the number of equity shares in issue of 63,241,338 (2013: 60,242,518) and net assets of £225.0m (2013: £182.5m). The EPRA net asset value per share has been calculated as follows:

9 Investment and development properties

The closing book value shown above comprises £279.1m (2013: £244.4m) of freehold and £18.8m (2013: £17.4m) of leasehold properties.

The properties are stated at their 30 June 2014 fair value and are valued by DTZ Debenham Tie Leung Limited, professionally qualified external valuers, in accordance with the RICS Appraisal and Valuation Standards published by the Royal Institution of Chartered Surveyors. DTZ Debenham Tie Leung Limited have recent experience in the relevant location and category of the properties being valued.

Additions to freehold and leasehold properties include capitalised interest of £0.01m (2013: £Nil). The total amount of interest capitalised included in freehold and leasehold properties is £5.3m (2013: £5.3m). Properties valued at £205.3m (2013: £187.5m) were subject to a security interest.

Responsibility statement of the directors on the annual report

The responsibility statement below has been prepared in connection with the company's full annual report for the year ending 30 June 2014. Certain parts thereof are not included within this announcement.

We confirm to the best of our knowledge:

· the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

· the strategic report includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face;

· the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the company's performance, business model and strategy;

This responsibility statement was approved by the board of directors on 2 September 2014 and is signed on its behalf by:

DATES

Annual General Meeting

The Annual General Meeting will be held on Tuesday 11 November 2014 at 11.30 a.m. at the Birmingham Botanical Gardens, Westbourne Road, Edgbaston, Birmingham, B15 3TR.

Dividend

The final dividend, if approved, will be paid on 2 January 2015 to Ordinary shareholders on the register on 28 November 2014.

Report and Accounts

The full report and accounts for the year ended 30 June 2014 will be available on 1 October 2014.

A copy of this document is available on the Company's website, www.mucklow.com