Mucklow (A & J) Group plc

6 September 2016

Embargoed: 7.00am

 

Financial Summary

for the year ended 30 June 2016

 

Statement of comprehensive income	Year ended	Year ended
	30 June 2016	30 June 2015
Underlying pre-tax profit (1) Statutory pre-tax profit	£15.0m £25.2m	£13.9m £56.2m
EPRA EPS (2) Basic EPS	23.88p 39.86p	22.21p 89.02p
Ordinary dividend per share	21.47p	20.84p

 

Balance sheet	30 June 2016	30 June 2015
Net asset value	£280.6m	£268.6m
EPRA NAV per share (3) Basic NAV per share	446p 443p	427p 424p
Net debt	£71.2m	£69.0m
Gearing	25%	26%

 

Property portfolio	30 June 2016	30 June 2015
Vacancy rate	3.2%	5.4%
Portfolio value (4)	£364.2m	£349.7m
Valuation gain	£10.2m	£42.4m
Initial yield on investment properties	6.4%	6.3%
Equivalent yield	7.2%	7.2%

 

The Ordinary dividend of 21.47p per share (2015: 20.84p) consists of the interim dividend of 9.59p, a quarterly dividend of 5.00p and a final dividend of 6.88p.

 

1	Underlying profit is defined as investment/development operations of the Group. See the investment/development column in the tables in 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 fair value surplus on trading properties. See note 8.
4	See note 9.
For further information please contact:
Rupert Mucklow, Chairman
David Wooldridge, Finance Director
A & J Mucklow Group plc
Tel: 0121 550 1841
Fiona Tooley
TooleyStreet Communications Tel: 0121 309 0099 Mobile: 07785 703523

 

 

The information contained within the announcement was deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). Upon the publication of this announcement via Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain.

 

 

Chairman's Statement

 

I am pleased to report another solid performance by the Group for the year ended 30 June 2016, which has resulted in further increases in underlying profit, net asset value and Ordinary dividend per share.

Our vacancy rate at 30 June 2016 had reduced to an historic low of 3.2%. Midlands industrial property continued to benefit from strong rental growth, as a consequence of steady occupational demand throughout the year and a diminishing supply of modern space.

Since our year end and post the EU referendum, the regional property market has remained buoyant and, so far, does not appear to have been affected by the decision. Our vacancy rate has subsequently fallen to below 3.0%.

Results

The underlying pre-tax profit, which excludes revaluation movements and profit on the sale of investment and trading properties, increased by 7.9% during the year to £15.0m (2015: £13.9m). EPRA adjusted earnings per Ordinary share was 23.88p (2015: 22.21p).

Statutory pre-tax profit was £25.2m, which included a revaluation surplus of £10.2m (2015: £56.2m, including a revaluation surplus of £42.3m).

EPRA net asset value per Ordinary share increased by 4.4% during the year from 427p to 446p.

Shareholders' funds rose to £280.6m (2015: £268.6m), while borrowings, net of cash, amounted to £71.2m (2015: £69.0m). Debt to equity gearing reduced to 25% (2015: 26%) and LTV remained at 20%.

Dividend

The Board has decided to increase the frequency of dividend payments and move to quarterly dividends with effect from October 2016. Part of the final dividend that would have been paid in January 2017 is being brought forward to October 2016.

Dividends of 11.88p per Ordinary share (2015: 11.53p) are being declared in respect of the 30 June 2016 financial year, making a total for the year of 21.47p (2015: 20.84p), an increase of 3% over the prior year.

The dividends consist of a quarterly dividend of 5.00p per Ordinary share to be paid on 17 October 2016 to Shareholders on the register at the close of business on 16 September 2016 and a final dividend of 6.88p per Ordinary share, if approved by shareholders at the AGM, to be paid on 16 January 2017 to Shareholders on the register at the close of business on 16 December 2016.

Both dividends will be paid as Property Income Distributions (PIDs).

The interim dividend will also be split and paid quarterly in the middle of April and July 2017.

Property Review

The number of active requirements for Midlands industrial property has been maintained at a similar level to the previous 12 months and has continued post the EU referendum result. A declining supply of quality industrial space has enabled us to continue to grow rental levels on new lettings and lease renewals, which in turn has also provided higher reversionary rental evidence for future lease events and property valuations.

Our vacancy rate at 30 June 2016 fell to 3.2% (30 June 2015: 5.4%). We completed 32 new lettings and 26 lease renewals during the year, representing 8.9% of our property portfolio by area. Rental growth from new lettings and lease renewals averaged around 10.0%, approximately 5.0% higher than our estimated rental values set in the previous year.

Two investment properties were bought during the financial year at a total cost of £4.0m. We acquired a 19,200 sq ft retail warehouse in Leicester City centre and a 17,000 sq ft industrial unit in Halesowen, West Midlands. The combined rental income for the two properties was £0.27m.

We also agreed terms to acquire a pre-let development at Grove Park, Leicester for £4.7m, on a forward commitment basis. The property will comprise 20,620 sq ft of high quality offices with 112 car parking spaces. The development is progressing well and is due to be completed in December 2016. The initial rent will be £0.35m pa.

The regional investment market remained stable throughout the year, with only a limited number of suitable buying opportunities available and very little change in property yields. Uncertainty caused by the EU referendum result may provide us with some additional Institutional stock, but early signs are that quality investment properties are still in high demand and will continue to be well supported by investors.

A shortage of vacant industrial property in the Midlands is creating some opportunities for pre-let development. We entered into an option agreement during the year with Wolverhampton City Council and Staffordshire County Council to promote and develop a prime 15 acre industrial site adjacent to the new Jaguar Land Rover engine manufacturing facility at i54 in Wolverhampton. The land can accommodate up to 275,000 sq ft of advanced manufacturing space. We are currently in detailed discussions on the first proposed pre-let building of 43,000 sq ft.

Marketing of our 20 acre industrial site at Tyseley, Birmingham is still on hold, while we wait for Birmingham City Council to resolve a few technical issues on the procurement of a new link road. There remains a real shortage of land around Birmingham which can accommodate buildings over 50,000 sq ft.

Property Valuation

Cushman & Wakefield revalued our property portfolio at 30 June 2016. The investment properties and development land were valued at £364.2m, which showed a revaluation surplus of £10.2m (2.9%).

The initial yield on the investment properties was 6.4% (30 June 2015: 6.3%), rising to 6.7% on the expiry of rent free periods. The equivalent yield was unchanged at 7.2% (30 June 2015: 7.2%).

Cushman & Wakefield also revalued our trading properties at 30 June 2016. The total value was £1.9m (2015: £1.9m), which showed an unrecognised surplus of £1.4m against book value (2015: £1.4m).

Finance

Total net borrowings at 30 June 2016 were £71.2m (2015: £69.0m). Undrawn banking facilities totalled £27.0m, while net debt to equity gearing had reduced to 25% (2015: 26%) and loan to value remained unchanged at 20% (2015: 20%).

Since our year end, we have renewed our £64m banking facilities with HSBC for a further 5 years through to 2021 at a reduced margin.

Board Changes

The following planned changes to Non-Executive Directorships have been made over the last 6 months, with a view to providing succession and continuity in the composition of our Board.

Paul Ludlow retired as Senior Independent Non-Executive Director on 30 June 2016, having completed 9 years' dedicated service to the Company. Paul has been replaced by Ian Cornock, a Chartered Surveyor, who is currently Lead Director for the Midlands Region of Jones Lang LaSalle, with over 30 years' experience in commercial property.

Jock Lennox has advised us that he will be stepping down from the Board at our Annual General Meeting on 15 November 2016 after 6 productive years as Chairman of our Audit Committee.

Since the year end Peter Hartill has been appointed to the Board as an Independent Non-Executive Director and will take over the role of Chairman of the Audit Committee on Jock's retirement. Peter is a retired chartered accountant and is currently Chairman of the Audit Committee at Midlands based The Paragon Group of Companies Plc.

Paul and Jock have made extensive contributions to our Board meetings over the years and I would like to thank them for their commitment. Ian and Peter have settled in well and I am confident that our business will continue to benefit from the wealth of experience and specialist knowledge that all of our Independent Non-Executive Directors offer.

Outlook

High occupancy levels and steady letting enquires for quality industrial property are expected to continue for some time, given the lack of supply in the local Midlands market, despite the anticipated uncertainty caused by the referendum decision.

Over the next 12 months, we intend to continue our strategy of actively managing our investment portfolio to realise the excellent reversionary potential it offers and when opportunities arise, selectively to acquire and develop low risk, income producing properties, in order to grow rental income and expand our property portfolio.

It is too early for us to understand what longer term impact leaving the EU will have on the UK economy and our business, however, we are extremely well placed to respond to any market changes.

 

Rupert Mucklow

Chairman

5 September 2016

 

 

Property and Finance Review

 

Overview

 

The Group has continued to perform positively during the year ended 30 June 2016. Gross rental income increased by 6.0% to £22.9m, underlying profit increased by 7.9% to £15.0m, ordinary dividends have been increased by 3.0%, net assets have increased to over £280m and gearing has reduced to 25% (2015: 26%).

 

Investor demand for commercial property remained relatively strong, albeit with lower transaction volumes in the second half of the financial year. Investment and development properties increased in value by £10.2m (2.9%) over the 12 month period. The EU referendum result was announced a week before our year-end, so there was no transactional evidence between the referendum result and our valuation date for our valuers to reflect in the 30 June 2016 investment and development property valuation.

 

It is too early to assess any potential impact of the referendum result on our property values and occupational demand, although we have not yet experienced any material change in occupational interest.

 

Industrial property, our sector focus, is well placed to deal with current market conditions, given continuing robust occupational interest, particularly from e-commerce and retailers. We will continue to closely monitor economic and political developments and react accordingly to any changes in market conditions.

 

Key performance indicators

 

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.

 

Key Performance Indicators
	2016	2015
Underlying pre-tax profit+ (£m)	15.0	13.9
Vacant space (%)	3.2	5.4
Dividend growth (%)	3.0	3.0
Gearing (net of cash) (%)	25	26

 

+See the table on page 9 for the calculations.

 

Group structure

 

A & J Mucklow Group plc has four 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 these 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.

 

Acquisition and disposal of investment properties

 

The industrial investment market remained competitive during our financial year, with a slowing down in the number of suitable properties in the second half. We have entered into three off-market transactions in the year, acquiring two investment properties and agreeing to buy one property on a forward commitment basis.

 

In August 2015 we completed the purchase of a 19,203 sq ft retail warehouse with 80 car parking spaces at a cost of £2.8m (net initial yield: 6.45%). The building is located in Leicester City Centre, close to Highcross shopping centre. The property is let on a 25 year lease, expiring in 2023, at a current rent of £0.18m.

 

Just before our financial year end we acquired an industrial/warehouse unit close to our offices in Halesowen. Unit D5 at Coombswood Business Park is a 16,974 sq ft building constructed in 2003, let until 2023 at a rent of £4.99 psf, offering reversionary potential. The purchase price of £1.2m reflects an initial yield of 7.0%.

 

In January 2016 terms were agreed to forward fund a 20,620 sq ft pre-let office building at Grove Park, Leicester, for £4.7m (net initial yield: 7.0%). Completion of the high quality office scheme with 112 car parking spaces is due in December 2016. Letting terms have been agreed at an initial rent of £0.35m (£16.95 psf).

 

No properties have been disposed of in the period under review.

 

We continue to look for attractively priced investment properties, focusing on the Midlands property market.

 

Developing new properties for long-term investment

 

We entered into an option agreement for a prime 15 acre industrial site with Wolverhampton City Council and Staffordshire County Council in November 2015. The site is adjacent to the new Jaguar Land Rover engine manufacturing facility at i54 in Wolverhampton. The land can accommodate up to 275,000 sq ft of advanced manufacturing space.

 

We are marketing the site for pre-lets and are in detailed discussions with a potential occupier for a 43,000 sq ft unit.

 

Birmingham City Council are currently expected to commence construction of a new link road running alongside our 20 acre site in Tyseley, Birmingham, in 2017.  Marketing of our development land is still on hold.

 

If the occupational market for industrial property continues to be supportive, our 35 acres of development land at i54 and Tyseley provides the potential for up to 625,000 sq ft of pre-let industrial/warehouse space.

 

Actively managing our assets to enhance value

 

The positive trends in the occupational market have continued in the year. Active management and a shortage of industrial properties available to let has supported rental growth and our vacancy rate decreased to 3.2% (2015: 5.4%) over the period. This growth in income and reduction in voids helped to increase net rental income as well as the capital value of the portfolio, with a revaluation surplus of £10.2m over the year.

 

Further rental growth has been achieved on our industrial unit lease renewals. For instance, renewals at Roman Park, Coleshill, on three units totalling 38,945 sq ft, have been agreed with the annual passing rent increasing by 15.2%, from £0.22m to £0.26m. At Crompton Fields, Crawley, we have achieved a rent increase of 16.7% on a renewal of a 16,967 sq ft unit, to £0.15m pa.

 

Our only retail unit lease renewal in the period, for a 10 year term without break, was agreed at the current passing rent (£0.19m pa). 

 

Over 165,948 sq ft of new leases were completed during the year at a total annual rent of £1.0m. In February 2016 we let our 39,400 sq ft unit at Golden Cross, Aston, on a 10 year lease without break at a rent of £6.25 psf (£0.25m pa). In April we agreed a lease on a 21,313 sq ft industrial unit at our Wednesbury One scheme at a rent of £5.58 psf (£0.12m). The unit was previously let at £5.04 psf.

 

Occupancy

 

Our year-end vacancy rate was 123,976 sq ft (3.2%), compared to 204,334 sq ft (5.4%) at 30 June 2015.

 

In July 2016 we agreed a surrender of a 24,125 sq ft office building close to Birmingham International railway station just over two months before the lease end date.

 

A 11,828 sq ft office building in Henley-on-Thames was returned to us on 21 August 2016 following the exercise of a break option.

 

Although we had limited vacant space when the EU Referendum result was announced, days before our financial year-end, we have not noticed a material decline in occupational trends across our portfolio. In August 2016 we agreed a lease on a 50,238 sq ft unit at Wednesbury One let at the quoting terms of £5.50 psf (£0.28m). 

 

Valuation

 

The external valuation of the Group's investment and development portfolio at 30 June 2016 totalled £364.2m (2015: £349.7m) leading to a valuation surplus of £10.2m being recognised in the statement of comprehensive income.

 

The initial yield on the portfolio was virtually unchanged at 6.4% (2015: 6.3%) and the equivalent yield remained at 7.2%.

 

The revaluation increase of £6.9m recorded in the first half-year represented a surplus of 2.0%. The second half of the financial year saw a further increase of £3.3m (0.9%), after taking into account the impact of the Stamp Duty changes in April 2016, which in isolation reduced our valuation by around £3.5m.

 

Our independent valuers, Cushman & Wakefield, have highlighted a shortage in transactional evidence in the days between the EU referendum result and the valuation date of 30 June 2016. Further details are provided in note 9.

 

Yield breakdown - investment properties

 

	Initial yield 30/06/16	Initial yield 30/06/15	Equivalent yield 30/06/16	Equivalent yield 30/06/15
Industrial	6.5%	6.2%	7.2%	7.3%
Office	7.2%	7.2%	8.0%	7.6%
Retail	5.7%	5.9%	6.4%	6.4%
Total	6.4%	6.3%	7.2%	7.2%

 

 

Finance Review 

 

The Group's underlying business performed well over the year, with rental income increased through a reduction in void levels, rental growth, acquisitions and recognising a full year of income from the development completed half way through the previous financial year.

 

Our cost base was virtually unchanged, leading to a £1.1m increase in underlying profit, which has supported the 3% increase in ordinary dividends.

 

We remain conservatively financed, with a strong balance sheet and a loan to value of only 20%.

 

In August 2016 we refinanced the £64.0m of facilities we have with HSBC Bank plc. The facilities were due to expire in March 2018, but we have now renewed for a five year term expiring in August 2021, and have reduced the margin payable on the facilities by around 30%. 

 

Income

 

Gross rental income increased from £21.6m to £22.9m and property costs, net of service charge income, decreased from £1.0m to £0.9m, leading to an increase in net rental income of £1.4m to £22.0m.

 

Administration expenses increased slightly, by £0.1m to £3.3m.

 

Finance costs increased by £0.1m, with bank debt and loan interest up by £0.2m, a decrease in the fair value movement in the interest rate caps of £0.2m and £0.1m of capitalised interest in the prior year.

 

Underlying profit before tax increased from £13.9m to £15.0m.

 

Statutory pre-tax profit reduced from £56.2m to £25.2m, mainly as a result of the revaluation surplus of £10.2m being £32.1m lower than the prior year's £42.3m.

 

Basic and diluted earnings per share reduced from 89.02p to 39.86p due to the decrease in the non-cash valuation surplus. EPRA earnings per share, which mainly excludes the valuation surplus, increased by 7.5% to 23.88p (2015: 22.21p). 

 

Taxation

 

No current tax charge has been recognised in the year, as the majority of the Group's income is exempt from corporation tax due to our REIT status.

 

We continue to comfortably meet all of the REIT requirements and maintain our REIT status.

 

Dividend

 

The Board has considered the Group's dividend policy in the light of market practice in the REIT sector and following discussions with its advisors, it has been decided to increase the frequency of dividend payments by moving to quarterly dividends with effect from October 2016. Part of the final dividend that would have been paid in January 2017 is being brought forward to October 2016.

 

An interim dividend of 9.59p per share (2015: 9.31p) was paid on 1 July 2016.

 

Dividends totalling 11.88p per share (2015: 11.53p) are being declared in respect of the 30 June 2016 financial year, making the total in respect of the year ended 30 June 2016 21.47p per share (2015: 20.84p), an increase of 3% over the prior year. The dividends consist of a quarterly dividend of 5.00p and a final dividend of 6.88p. The quarterly dividend and final dividend will both be paid as Property Income Distributions (PIDs).

 

The quarterly dividend of 5.00p will be paid on 17 October 2016 to Shareholders on the register at the close of business on 16 September 2016.

 

The final dividend of 6.88p will, if approved by Shareholders at the AGM, be paid on 16 January 2017 to Shareholders on the register at the close of business on 16 December 2016.

 

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.

 

The interim, quarterly and final dividends paid and proposed in respect of the financial year of 21.47p amount to 90% of the EPRA earnings per share figure of 23.88p, and are covered 1.11 times by that earnings measure.

 

Underlying financial performance

 

		Investment/	Trading	Other
	Total	development	properties	items
2016	£m	£m	£m	£m
Gross rental income	22.9	22.9	-	-
Service charge income	0.9	0.9	-	-
Total revenue	23.8	23.8	-	-
Property costs	(1.8)	(1.8)	-	-
Net property income	22.0	22.0	-	-
Sale of trading properties	-	-	-	-
Property outgoings on trading properties	-	-	-	-
Net income from trading properties	-	-	-	-
Administration expenses	(3.3)	(3.3)	-	-
Operating profit before net gains on investment	18.7	18.7	-	-
Net gains on revaluation	10.2	-	-	10.2
Operating profit	28.9	18.7	-	10.2
Gross finance costs	(3.7)	(3.7)	-	-
Fair value movement on derivative financial instruments	-	-	-	-
Total finance costs	(3.7)	(3.7)	-	-
Total finance income	-	-	-	-
Profit before tax	25.2	15.0	-	10.2

 

		Investment/	Trading	Other
	Total	development	properties	items
2015	£m	£m	£m	£m
Gross rental income	21.6	21.6	-	-
Service charge income	1.0	1.0	-	-
Total revenue	22.6	22.6	-	-
Property outgoings	(2.0)	(2.0)	-	-
Net property income	20.6	20.6	-	-
Sale of trading properties	-	-	-	-
Property outgoings on trading properties	-	-	-	-
Net income from trading properties	-	-	-	-
Administration expenses	(3.2)	(3.2)	-	-
Operating profit before net gains on investment	17.4	17.4	-	-
Net gains on revaluation	42.3	-	-	42.3
Profit on disposal of investment and development properties	0.1	-	-	0.1
Operating profit	59.8	17.4	-	42.4
Gross finance costs	(3.5)	(3.5)	-	-
Capitalised interest	0.1	-	-	0.1
Fair value movement on derivative financial instruments	(0.2)	-	-	(0.2)
Total finance costs	(3.6)	(3.5)	-	(0.1)
Total finance income	-	-	-	-
Profit before tax	56.2	13.9	-	42.3

 

 

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 financial statements.

 

Net assets

 

Net assets increased by £12.0m in the year, from £268.6m to £280.6m, due to £15.0m of underlying pre-tax profit, a revaluation surplus of £10.2m and share-based payment charges of £0.2m, offset by ordinary dividends of £13.4m.

 

Net asset value per share increased by 19p, from 424p to 443p, and EPRA net asset value per share also increased by 19p, to 446p.

 

Financing and cash flow

 

Net cash generated from operations was £2.6m higher at £15.3m. Cash outflows in respect of property acquisitions and capital expenditure amounted to £4.1m and borrowings increased by £2.3m.

 

Equity dividends paid in the year totalled £13.2m, compared to £7.1m in the prior year, with the comparative figure being lower due to the interim dividend for the 2015 financial year being paid on 1 July 2015 and therefore included in the 2016 cash flow figures.

	2016	2015
	£m	£m
Net cash generated from operations	18.6	16.0
From investment and development properties	18.6	16.0
From trading properties	-	-
Net interest paid	(3.3)	(3.3)
Taxation	-	-
Operating cash flow	15.3	12.7
Property acquisitions and development	(4.1)	(8.1)
Property disposals	-	0.4
Net expenditure on property, plant and equipment	(0.1)	(0.1)
Movement in borrowings	2.3	2.1
Equity dividends	(13.2)	(7.1)
Net movement in cash	0.2	(0.1)

 

The Group's debt facilities were unchanged in the year. On 31 August 2016 the Group refinanced the HSBC term loan and revolving credit facilities, which now expire in 2021. The table below shows the position as at 30 June 2016.

 

 

Borrowing	Expiry year	Available	Drawn	Undrawn
		£m	£m	£m
HSBC overdraft	2016	1.0	-	1.0
HSBC Revolving Credit Facility	2018	44.0	18.0	26.0
HSBC term loan	2018	20.0	20.0	-
Lloyds 15 year term loan	2023	20.0	20.0	-
Lloyds 10 year term loan	2022	20.0	20.0	-
Preference shares	-	0.7	0.7	-
		105.7	78.7	27.0

 

Of the £78.7m of drawn debt shown in the table above, 96% is at fixed rates or covered by interest rate caps.

 

Our average cost of total debt facilities at 30 June 2016 was 4.1% (2015: 4.1%) or 4.4% on drawn amounts (2015: 4.4%). Following the HSBC refinance in August 2016, the weighted average term remaining on total debt facilities is 5.5 years (2015: 4.6 years).

 

Analysis of borrowings at 30 June 2016

	2016	2015
	£m	£m
Preference Share Capital	0.7	0.7
Lloyds Term Loan 2023	20.0	20.0
Lloyds Term Loan 2022	19.7	19.7
HSBC term loan 2018 Borrowings from revolving credit facility	19.9 18.0	19.8 15.7
Debt and Preference Share Capital	78.3	75.9
Cash and short-term deposits	(7.1)	(6.9)
Net debt and Preference Share Capital	71.2	69.0
Net Assets	280.6	268.6
Gearing (net of cash)	25%	26%

 

The gearing ratio is determined by the proportion of debt (net of cash) to equity.

 

Outlook

 

The outcome of the UK's EU Referendum vote has created uncertainty in the property market, but, so far, there has been limited direct impact on the Group. Although it is too early to predict the medium to long-term effects on the Midlands property market, the combination of our focus on industrial property, a conservative financial position and a low level of voids provides us with a strong foundation as we enter the 2017 financial year.

 

We are encouraged by the lettings completed in the year, the deals that have been signed between the referendum result and the release of these results and the interest in our development land at i54.

 

We are optimistic about prospects for continuing to grow the Group's rental income over the medium and long-term, to support a progressive dividend policy.

 

Justin Parker                          David Wooldridge

Managing Director                     Finance Director

5 September 2016                      5 September 2016

 

 

Group Statement of Comprehensive Income

for the year ended 30 June 2016

				2016	2015
			Notes	£m	£m
Gross rental income			2	22.9	21.6
Service charge income			2	0.9	1.0
Total revenue			2	23.8	22.6
Property costs			3	(1.8)	(2.0)
Net property income				22.0	20.6
Proceeds on sale of trading properties			2	-	-
Carrying value of trading properties sold				-	-
Property outgoings relating to trading properties				-	-
Net income from trading properties				-	-
Administration expenses				(3.3)	(3.2)
Operating profit before net gains on investment and development properties				18.7	17.4
Profit on disposal of investment and development properties				-	0.1
Revaluation of investment and development properties			9	10.2	42.3
Operating profit				28.9	59.8
Total finance income			5	-	-
Total finance costs			5	(3.7)	(3.6)
Net finance costs			5	(3.7)	(3.6)
Profit before tax				25.2	56.2
Tax credit			6	-	0.1
Profit for the financial year				25.2	56.3
Other comprehensive income:
Items that will not be reclassified subsequently to profit and loss:
Revaluation of owner-occupied property				-	0.1
Total comprehensive income for the year attributable to the owners of the parent				25.2	56.4
All operations are continuing.
Basic and diluted earnings per share			8	39.86p	89.02p

Statements of Changes in Equity

for the year ended 30 June 2016

 

	Ordinary	Share	Capital	Revaluation	Share-based	Retained	Total
	share	premium	redemption	reserve	payments	earnings	equity
	capital		reserve		reserve
	£m	£m	£m	£m	£m	£m	£m
Balance at 30 June 2014	15.8	13.0	11.2	0.2	0.3	184.5	225.0
Retained profit	-	-	-	-	-	56.3	56.3
Other comprehensive income	-	-	-	0.1	-	-	0.1
Total comprehensive income	-	-	-	0.1	-	56.3	56.4
Share-based payment	-	-	-	-	0.2	-	0.2
Exercise of share options	-	-	-	-	(0.2)	0.2	-
Dividends paid	-	-	-	-	-	(13.0)	(13.0)
Balance at 30 June 2015	15.8	13.0	11.2	0.3	0.3	228.0	268.6
Retained profit	-	-	-	-	-	25.2	25.2
Other comprehensive income	-	-	-	-	-	-	-
Total comprehensive income	-	-	-	-	-	25.2	25.2
Share-based payment	-	-	-	-	0.2	-	0.2
Expiry of share options	-	-	-	-	(0.2)	0.2	-
Dividends paid	-	-	-	-	-	(13.4)	(13.4)
Balance at 30 June 2016	15.8	13.0	11.2	0.3	0.3	240.0	280.6

 

 

Group Balance Sheet

at 30 June 2016

 

		2016	2015
	Notes	£m	£m
Non-current assets
Investment and development properties	9	363.1	348.6
Property, plant and equipment		1.3	1.3
Derivative financial instruments		-	0.1
Trade and other receivables		0.5	0.5
		364.9	350.5
Current assets
Trading properties		0.5	0.5
Trade and other receivables		2.4	0.8
Cash and cash equivalents		7.1	6.9
		10.0	8.2
Total assets		374.9	358.7
Current liabilities
Trade and other payables		(16.0)	(14.2)
		(16.0)	(14.2)
Non-current liabilities
Borrowings		(78.3)	(75.9)
Total liabilities		(94.3)	(90.1)
Net assets		280.6	268.6
Equity
Called up ordinary share capital		15.8	15.8
Share premium		13.0	13.0
Revaluation reserve		0.3	0.3
Share-based payment reserve		0.3	0.3
Redemption reserve		11.2	11.2
Retained earnings		240.0	228.0
Total equity		280.6	268.6
Net asset value per share
- Basic and diluted	8	443p	424p
- EPRA	8	446p	427p

 

Rupert Mucklow

David Wooldridge

 

 

Group Cash Flow Statement

for the year ended 30 June 2016

			2016	2015
			£m	£m
Cash flows from operating activities
Operating profit			28.9	59.8
Adjustments for non-cash items
-	Unrealised net revaluation gains on investment and development properties		(10.2)	(42.3)
-	Profit on disposal of investment properties		-	(0.1)
-	Depreciation		0.1	0.1
-	Share based payments		0.2	0.2
-	Profit on sale of property, plant and equipment		-	-
-	Amortisation of lease incentives		(0.3)	(0.7)
Other movements arising from operations
-	Increase in trading properties		-	-
-	(Increase)/decrease in receivables		(1.6)	0.5
-	Increase/(decrease) in payables		1.5	(1.5)
Net cash generated from operations			18.6	16.0
Interest received			-	-
Interest paid			(3.3)	(3.3)
Preference dividends paid			-	-
Corporation tax refunded			-	-
Net cash inflow from operating activities			15.3	12.7
Cash flows from investing activities
Acquisition of and additions to investment and development properties			(4.1)	(8.1)
Proceeds on disposal of investment and development properties			-	0.4
Net expenditure on property, plant and equipment			(0.1)	(0.1)
Net cash outflow from investing activities			(4.2)	(7.8)
Cash flows from financing activities
Net increase in borrowings			2.3	6.3
Repayment of debenture stock			-	(4.2)
Equity dividends paid			(13.2)	(7.1)
Net cash outflow from financing activities			(10.9)	(5.0)
Net increase/(decrease) in cash and cash equivalents			0.2	(0.1)
Cash and cash equivalents at beginning of year			6.9	7.0
Cash and cash equivalents at end of year			7.1	6.9

 

 

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 30 September 2016.

 

The preliminary announcement was approved by the board of directors on 5 September 2016. The financial information set out in this announcement does not constitute the Company's statutory accounts for the years ended 30 June 2016 or 2015 as defined under Section 435 of the Companies Act 2006. The financial information previously set out does not constitute the Company's statutory accounts for the years ended 30 June 2016 or 30 June 2015 but is derived from those accounts. Statutory accounts for 2015 have been delivered to the Registrar of Companies, and those for 2016 will be delivered in due course.

 

The auditors, KPMG LLP for year ended 30 June 2016 and Deloitte LLP for the year ended 30 June 2015, have reported on these respective statutory accounts; their reports were:

i.      unqualified;

ii.    did not include references to any matters to which the auditor drew attention by way of emphasis without qualifying their report; and

iii.   did not contain a statement 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 2016 the Group had £27.0m of undrawn banking facilities and had drawn down £18.0m 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, which have been subsequently refinanced for a further five year term, the Group's low gearing level of 25% and £138.4m 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.

 

In making their judgement over the valuation of properties, which 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 and interpretations which have not yet been applied in these financial statements, were in issue, but not yet effective:

 

•           IFRS 9 - Financial Instruments

•           Annual Improvements to IFRSs 2012-2014 cycle

•           IFRS 15 - Revenue from Contracts with Customers

•           IFRS 16 - Leases

•           Amendments to IAS 1 - Disclosure Initiative

•           Amendments to IAS 7 - Disclosure Initiatives (effective date 1 January 2017)

•           Amendments to IFRS 10 and IAS 28 - Sale of Contribution of Assets between Investor and its Associate of Joint Venture

•           Amendments to IFRS 11 - Accounting for Acquisitions of Interests in Joint Operations (effective date 1 January 2016)

•           Amendments to IAS 12 - Recognition of Deferred Tax Assets for Unrealised Losses (effective date 1 January 2017)

•           Amendments to IAS 16 and IAS 38 - Clarification of Acceptable Methods of Depreciations and Amortisation

•           Amendments to IAS 27- Equity Method in Separate Financial Statements

 

The Directors anticipate that adoption of these standards and interpretations in future periods will have no material impact on the financial statements of the Group.

 

Significant accounting policies

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.

 

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

Revenue and profits on sale of investment, development and trading properties are recognised 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.

 

Costs associated with properties

Costs associated with properties under the course of development include 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 the original book cost of investment property under development or refurbishment is not included in the calculation of interest. 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 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.

 

Capital 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 of 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     

 

	2016	2015
	£m	£m
Gross rental income from investment and development properties	22.9	21.6
Service charge income	0.9	1.0
Income received from trading properties	-	-
Total revenue	23.8	22.6

 

3 Property costs

                                                                                                                                                      

	2016	2015
	£m	£m
Service charge expenses	1.0	1.0
Other property expenses	0.8	1.0
	1.8	2.0

 

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.

 

		2016	2015
		£m	£m
Investment and development properties
-	Net property income	22.0	20.6
-	Profit on disposal	-	0.1
-	Gain on revaluation of investment properties	8.2	37.3
-	Gain on revaluation of development properties	2.0	5.0
		32.2	63.0
Trading properties
-	Income received from trading properties	-	-
-	Carrying value on sale	-	-
-	Property outgoings	-	-
		-	-
Net income from the property portfolio before administration expenses		32.2	63.0
Administration expenses		(3.3)	(3.2)
Operating profit		28.9	59.8
Net financing costs		(3.7)	(3.6)
Profit before tax		25.2	56.2
The property revaluation gain has been recognised as follows:
Within operating profit
-	Investment properties	8.2	37.3
-	Development properties	2.0	5.0
		10.2	42.3
Within other comprehensive income
-	Owner-occupied properties	-	0.1
Total revaluation gain for the period		10.2	42.4

 

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

		2016		2015
		£m		£m
Balance sheet
Investment and development properties
-	Segment assets	365.5		349.2
-	Segment liabilities	(6.8)		(5.1)
-	Net borrowings	(71.2)		(69.0)
		287.5		275.1
Trading properties
-	Segment assets	0.5		0.5
-	Segment liabilities	-		-
		0.5		0.5
Other activities
-	Unallocated assets	1.8		2.1
-	Unallocated liabilities	(9.2)		(9.1)
		(7.4)		(7.0)
Net assets		280.6		268.6
Capital expenditure
Investment and development properties		4.0		7.9
Other activities		0.1		0.1
		4.1		8.0
Depreciation
Other activities			0.1		0.1
			0.1		0.1

 

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

 

5 Net finance costs

 

	2016	2015
	£m	£m
Finance costs on:
Preference share dividend	0.1	0.1
Fair value movement of derivative financial instruments	-	0.2
Capitalised interest	-	(0.1)
Bank overdraft and loan interest payable	3.6	3.4
Total finance costs	3.7	3.6
Finance income on:
Short-term deposits	-	-
Fair value movement of derivative financial instruments	-	-
Bank and other interest receivable	-	-
Total finance income	-	-
Net finance costs	3.7	3.6

 

6 Taxation

 

	2016	2015
	£m	£m
Current tax
- Corporation tax	-	-
- Adjustment in respect of previous years	-	0.1
	-	0.1
Deferred tax	-	-
Total tax credit in the statement of comprehensive income	-	0.1

 

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:

	2016	2015
	£m	£m
Profit before tax	25.2	56.2
Profit before tax multiplied by the standard rate of
UK corporation tax of 20.0% (2015: 20.75%)	5.0	11.7
Effect of:
REIT exempt income and gains	(5.2)	(11.9)
Losses not recognised	0.1	0.1
Share based payments	0.1	0.1
Adjustments in respect of prior years	-	0.1
	-	0.1

 

Reductions in the UK corporation tax rate from 23% to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013.  Further reductions to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) were substantively enacted on 26 October 2015.  Deferred tax has been calculated based on these rates as at 30 June 2016. 

 

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 £14.1m (2015: £13.6m) of properties which have completed development during the previous three years.  If these properties had been disposed of at their 30 June 2016 valuation, then tax of £0.5m (2015: £0.4m) 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

 

	2016	2015
	£m	£m
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 30 June 2015 of 11.53p (2014: 11.19p) per share	7.3	7.1
Interim dividend for the year ended 30 June 2016 of 9.59p (2015: 9.31p) per share	6.1	5.9
	13.4	13.0

 

The Board has decided to move to quarterly dividend payments with effect from October 2016.  The quarterly dividend payment of 5.00p (2015: nil) will be paid on 17 October 2016 to shareholders on the register at the close of business on 16 September 2016, totalling £3.2m.

 

The directors propose a final dividend for the year ended 30 June 2016 of 6.88p (2015: 11.53p) per Ordinary share, totalling £4.4m.  Both dividends will be paid as PIDs.

 

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 16 January 2017 to shareholders on the register at the close of business on 16 December 2016.

 

8 Earnings per share and net asset value per share

 

Earnings per share

The basic and diluted earnings per share of 39.86p (2015: 89.02p) has been calculated on the basis of the weighted average of 63,294,833 Ordinary shares (2015: 63,273,435 Ordinary shares) and profit of £25.2m (2015: £56.3m).

 

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:

	2016	2015
	£m	£m
Earnings	25.2	56.3
Profit on disposal of investment and development properties	-	(0.1)
Net gains on revaluation of investment and development properties	(10.2)	(42.3)
Fair value movement on derivative financial instruments	-	0.2
EPRA earnings	15.0	14.1
EPRA earnings per share	23.88p	22.21p

 

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 94,445 Ordinary shares were granted in the year (2015: 105,418 Ordinary shares) under the 2015 Performance Share Plan (2015: 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 fifth three year award under the 2007 Performance Share Plan vested in the period, with no Ordinary shares being issued and with 112,583 shares lapsed.

 

Net asset value per share

The net asset value per share of 443p (2015: 424p) has been calculated on the basis of the number of equity shares in issue of 63,294,833 (2015: 63,294,833) and net assets of £280.6m (2015: £268.6m). The EPRA net asset value per share has been calculated as follows:

 

	2016	2015
	£m	£m
Equity shareholders' funds	280.6	268.6
Valuation of land held as trading properties	1.9	1.9
Book value of land held as trading properties	(0.5)	(0.5)
Fair value of derivative financial instruments	-	(0.1)
EPRA net asset value	282.0	269.9
EPRA net asset value per share	446p	427p

 

9 Investment and development properties

 

	Investment	Development	Total
Group	£m	£m	£m
At 30 June 2014	288.2	9.7	297.9
Additions	4.4	3.5	7.9
Lease incentives	0.6	0.1	0.7
Capitalised interest	-	0.1	0.1
Transfer	12.3	(12.3)	-
Disposals	(0.3)	-	(0.3)
Revaluation gain	37.3	5.0	42.3
At 1 July 2015	342.5	6.1	348.6
Additions	4.0	-	4.0
Lease incentives	0.3	-	0.3
Revaluation gain	8.2	2.0	10.2
At 30 June 2016	355.0	8.1	363.1

 

The closing book value shown above comprises £340.7m (2015: £327.2m) of freehold and £22.4m (2015: £21.4m) of leasehold properties.

 

	Freehold	Leasehold	Total
	£m	£m	£m
Properties held at valuation on 30 June 2016:
Cost	208.6	22.9	231.5
Valuation surplus/(deficit)	132.1	(0.5)	131.6
Valuation	340.7	22.4	363.1
	Freehold	Leasehold	Total
	£m	£m	£m
Properties held at valuation on 30 June 2015:
Cost	205.6	21.6	227.2
Valuation surplus/(deficit)	121.6	(0.2)	121.4
Valuation	327.2	21.4	348.6

 

The properties are stated at their 30 June 2016 fair value and are valued by Cushman & Wakefield, professionally qualified external valuers, in accordance with the RICS Valuation Professional Standards published by the Royal Institution of Chartered Surveyors. Cushman & Wakefield have recent experience in the relevant location and category of the properties being valued. Cushman & Wakefield is the trading name of DTZ Debenham Tie Leung Limited.

 

Following the Referendum held on 23 June 2016 concerning the UK's membership of the EU, a decision was taken to exit the EU.  Since that date Cushman & Wakefield have monitored market transactions and market sentiment in arriving at their opinion of Market Value/Fair Value.

 

There is still a shortage of comparable evidence of arm's length transactions since the Referendum in many sectors of the market.  Cushman & Wakefield had, therefore, to exercise a greater degree of judgement than would be applied under more liquid market conditions. 

 

	2016	2015
	£m	£m
Cushman & Wakefield valuation	364.2	349.7
Owner-occupied property included in property, plant and equipment	(1.1)	(1.1)
Other adjustments	-	-
Investment and development properties as at 30 June	363.1	348.6

 

Additions to freehold and leasehold properties include capitalised interest of £nil (2015: £0.1m). The total amount of interest capitalised included in freehold and leasehold properties is £5.4m (2015: £5.4m). Properties valued at £225.8m (2015: £221.5m) were subject to a security interest.

 

10	Directors and Company Secretary
Rupert Mucklow BSc		-	Chairman
Justin Parker BSc FRICS		-	Managing Director
David Wooldridge FCCA ACIS		-	Finance Director and Company Secretary
Ian Cornock MRICS*		-	Senior Independent Non-Executive
Stephen Gilmore LLB*		-	Independent Non-Executive
Jock Lennox LLB CA*		-	Independent Non-Executive
Peter Hartill FCA *		-	Independent Non-Executive
	*Member of Remuneration Committee and Audit Committee.

 

 

Responsibility statement of the directors

 

We confirm that to the best of our knowledge:

·     the financial statements, prepared in accordance with the applicable set of accounting standards, 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; and

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

We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the group's position and performance, business model and strategy.

This responsibility statement was approved by the board of directors on 5 September 2016 and is signed on its behalf by:

 

Rupert Mucklow	David Wooldridge
Chairman	Finance Director and Company Secretary

 

 

 

DATES:

 

Annual General Meeting

The Group's Annual General Meeting will be held on Tuesday 15 November 2016 at 11.30 a.m. at the Birmingham Botanical Gardens, Westbourne Road, Edgbaston, Birmingham, B15 3TR.

 

Dividend

Dividends of 11.88p per Ordinary share are being declared in respect of the 30 June 2016 financial year, making a total for the year of 21.47p.

The dividends consist of a quarterly dividend of 5.00p per Ordinary share to be paid on 17 October 2016 to Shareholders on the register at the close of business on 16 September 2016 and a final dividend of 6.88p per Ordinary share, if approved by shareholders at the AGM, to be paid on 16 January 2017 to Shareholders on the register at the close of business on 16 December 2016.

 

Report and Accounts

The full report and accounts for the year ended 30 June 2016 will be available on 30 September 2016.

 

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