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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Thg Plc | LSE:THG | London | Ordinary Share | GB00BMTV7393 | ORD GBP0.005 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -1.08 | -2.51% | 42.00 | 41.56 | 41.94 | 43.80 | 41.56 | 43.80 | 2,288,220 | 16:35:07 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Misc Retail Stores, Nec | 2.05B | -248.37M | -0.1866 | -2.25 | 573.41M |
From Nov 2019 to Nov 2024
TIDMTHG
RNS Number : 3368V
Terrace Hill Group PLC
12 December 2013
12 December 2013
Terrace Hill Group PLC
("Terrace Hill" or the "group")
FULL YEAR RESULTS DEMONSTRATE TRANSFORMATIONAL YEAR FOR THE GROUP
Terrace Hill Group plc (AIM: THG), a leading UK property investment and development group, today announces its results for the year ended 30 September 2013.
Financial Highlights:
-- EPRA Net Asset Value (NAV) per share increased by 1.7% to 28.8 pence (30 September 2012: 28.3 pence) while EPRA Triple NAV per share increased by 3.2% to 27.7p (30 September 2012: 26.8p)
-- IFRS Profit before tax including discontinued operations of GBP6.2 million (30 September 2012: GBP1.8 million)
-- IFRS net assets increased by 10.6% to GBP55.5 million from GBP50.2 million at 30 September 2012
-- Significant reduction in the group's level of debt and gearing: - Net debt reduced by 62.9% to GBP17.5 million, from GBP47.2 million at 30 September 2012
- Gearing* percentage of 28.6%, down from 78.2% at 30 September 2012 and 86.0% at 30 September 2011
- Look through net gearing (including its share of joint ventures and associated undertakings) fell sharply to 29.0%, from 142.1% at 30 September 2012
* As a percentage of EPRA net assets
Operational highlights:
-- Sale of virtually all residential assets, in line with stated strategy, including a portfolio of 901 residential properties to the RSL Places for People for GBP68.0 million
-- Significant progress with commercial development programme, with completion of three foodstore developments in Sunderland, Sedgefield and Skelton
-- Completion of development at Howick Place, Victoria, in November 2012, comprising 135,000 sq ft of offices and 25,300 sq ft of residential apartments. The majority of the residential apartments either let or sold and the top office floor let as the UK head office of Giorgio Armani
-- 1,104 room student accommodation development at Mayflower Halls, Southampton, on track to be delivered for 2014 academic year. Scheme forward funded by Legal & General Property, which was attracted to the 38 year lease entered into by the University of Southampton
-- Resolution to grant planning consent received for a 125,000 sq ft foodstore and retail development in Middlesbrough, which has been conditionally pre-let to Sainsbury's, a Marston's public house, a drive through KFC and a coffee outlet
-- Strong pre-letting activity at our planned leisure scheme in Darlington, with agreements signed with Vue Cinemas, Whitbread and Prezzo
-- Conditional contract signed with Glasgow City Council to develop a 35,000 sq ft restaurant led scheme at Broomielaw, on the river Clyde
Commenting, Robert Adair, chairman of Terrace Hill, said: "During 2013 we have achieved significant success in delivering against our strategy, making excellent progress with our development pipeline, while at the same time positioning the group strongly for the future by reducing debt and gearing levels and disposing of almost all of our residential assets. In an increasingly positive economic environment, we look forward with confidence and growing optimism."
Philip Leech, chief executive of Terrace Hill, added: "Over the course of the year we have achieved real momentum within our development pipeline, both in our core foodstore business as well as in the leisure, student accommodation and London office sectors. As the recovery in investor and occupier interest for property outside of London continues to gain pace, we are well positioned to utilise our network of regional offices to benefit from that demand."
For further information, please visit www.terracehill.co.uk, or contact:
Terrace Hill Group plc +44 (0)20 7631 1666 Robert Adair, chairman Philip Leech, chief executive Oriel Securities Limited (Nominated Adviser and Broker) +44 (0)20 7710 7600 David Arch/Mark Young FTI Consulting +44 (0)20 7831 3113 Richard Sunderland Will Henderson terracehill@fticonsulting.com Nick Taylor
Chairman's statement
I have great pleasure in presenting our financial results for the year ended 30 September 2013.
The past 12 months have been transformational for the group with the completion of the sale of the majority of the remaining residential assets and significant progress with the commercial development programme.
The group made an IFRS profit before tax including discontinued operations of GBP6.2 million in the year (2012: GBP1.8 million) and a pre-tax revenue profit in the year (which is profit before valuation movements and contributions from associates) of GBP6.4 million compared with GBP11.8 million for the year ended 30 September 2012, the reduction largely due to lower foodstore profits in the year. The majority of our profits on our Sunderland, Sedgefield and Skelton foodstore projects were recognised in 2012. This year the profits were mostly earned in the first half, with the final elements of profit on the three foodstore developments and the recognition of profits on the forward funding of our Southampton student accommodation scheme all happening in the first half of the year. The group's EPRA Net Asset Value (NAV) increased by 1.7% to 28.8 pence per share at 30 September 2013 (28.3 pence per share at 30 September 2012) and our EPRA Triple NAV rose by 3.2% to 27.7 pence per share (26.8 pence per share at 30 September 2012). The EPRA NAV includes adjustments to reflect the market value of our development properties, where value is above cost and our EPRA Triple NAV makes an adjustment for goodwill.
In February 2013, we completed the sale of a portfolio of 901 residential properties to the RSL Places for People for GBP68.0 million, which included both wholly owned properties and those held by our associate, Terrace Hill Residential PLC. The sale price reflected a discount of less than 1% of carrying value. The group subsequently bought the remaining properties from Terrace Hill Residential PLC in a transaction valued at GBP5.3 million, the majority of which have subsequently been sold to owner occupiers and investors at prices reflecting a small uplift on their purchase price. These residential sales have had a meaningful effect on the group's overall gearing which, due also to the successful commercial development activities during the year, has fallen to 29.0% at 30 September 2013 on a look-through basis (142.1% at 30 September 2012). We are comfortable with this gearing level.
Our commercial development programme has produced some extremely good returns over the year. I am also encouraged by the increasing levels of activity and opportunity in the regions, which plays to the strengths of our regional office network.
Of particular note has been the completion of the three foodstore developments in Sunderland, Sedgefield and Skelton as mentioned above. In aggregate these amounted to a total of 189,000 sq ft of new floor space reflecting a gross development value of GBP64.5 million. Since the year end we have received a resolution to grant planning consent for a 125,000 sq ft foodstore and retail development in Middlesbrough, which has been conditionally pre-let to Sainsbury's, along with a Marston's public house, a drive-through KFC and a coffee outlet. We expect to start construction in spring 2014. Other significant foodstore schemes are for a 99,653 sq ft store at Herne Bay in Kent, where, after some delay, we expect to gain consent early next year, a site in Midsomer Norton in Somerset, with potential for retail, and residential uses and a smaller foodstore site in Stokesley, North Yorkshire. Our EPRA NAV at 30 September 2013 includes 0.7 pence per share in respect of market value adjustments relating to these developments.
We are constantly evaluating a large number of foodstore opportunities and despite certain retailers' pronouncements about restraining large store expansion, we have found there remains good demand for the optimal sized store in the right location. Our expertise in this field through our regional offices and strong track record will continue to sustain our pipeline of developments in this profitable sector.
Elsewhere in the regions we are seeing increased activity, particularly in the leisure and student accommodation sectors. At Southampton we are on programme to complete our GBP91.0 million pre-let and forward funded 1,104 student room scheme which we are due to handover to the University next summer. We have also been appointed the preferred developer of a 450 room student scheme in another south coast town.
Demand from leisure operators is strong and in Darlington, where we expect planning to be granted before the end of the year, we have pre-let part of our planned leisure scheme to Vue Cinemas, Whitbread and Prezzo. We have also entered into a conditional contract with Glasgow City Council to develop a restaurant led scheme of 35,000 sq ft at Broomielaw, fronting the Clyde, and we are close to conditionally acquiring another leisure site in a North West town.
In central London, our development at Howick Place in Victoria, which we carried out in association with Doughty Hanson, is attracting letting interest and we have let the top floor to Giorgio Armani for its UK head office. With the rapid increase in the capital values of office and residential space in London we expect to see good returns to us from this GBP170.0 million mixed-use development. Our other exposure in Central London is a 29,000 sq ft retail and office development in Mayfair, on the corner of Conduit Street and Savile Row, where we act as development managers for the owners. Our performance related remuneration on this scheme is likely to exceed our initial expectations as this area of the London market continues to attract strong investor and occupier interest.
It is apparent that the Central London market is now attracting investors from most corners of the globe and this has led to a highly competitive market with escalating values. Whilst we are finding it hard to compete for new opportunities in this environment, we continue to assess situations where we believe we can add value.
It is very clear to me that the group is now well positioned for growth. The sale of the residential assets has allowed us to focus on our core strength of commercial development and reduce our gearing while strengthening our balance sheet. As the overall economy starts to improve we are seeing increased activity across sectors and regions, which plays to our particular strengths of cross sector skills and our regional presence. We will give increasing attention to building up an investment portfolio which will provide recurring income to help cover our administrative costs.
The re-rating of our share price, which has recently traded above our EPRA NAV, is a pleasing indication that investors are beginning to recognise the strength of our business and underlying value, and with the reduction in financial gearing and improved financial performance, we expect shortly to recommence payment of dividends.
Finally, I would like to thank all who have helped the group during this transformational period, especially the hard working directors and staff who always work with great skill and enthusiasm.
Robert F M Adair
Chairman
12 December 2013
Strategic report
Introduction
The group strategic report provides a review of the development and performance of the business for the financial year, discusses the group financial position at the year end and explains the principal risks and uncertainties facing the business and how we manage those risks. We also outline the group's business model and strategy.
Business model and strategy
Our business is focused on commercial property development, which we execute through our five offices in key areas of the UK. We have property professionals in these offices whose expertise and detailed knowledge of their local markets gives us a competitive edge over those without such coverage. We pursue our commercial property development activity in a risk controlled but opportunistic way, which has proved to be resilient and profitable over the last 20 years.
We limit risk in our development activity by typically entering into conditional site purchases, pre-letting agreements, forward fundings and joint ventures. In this way our capital commitment to any one project is limited while careful structuring of the agreements that we enter into ensures that our exposure and return is commensurate with the risks we take.
Our main areas of development are currently foodstores, central London offices and regional opportunities.
Foodstores
We have built a recognised expertise in out of town foodstore development since 2008, having completed deals involving seven stores with a total area of over 500,000 sq ft and an estimated gross development value of over GBP180 million. Our historic success in this sector has been due to several factors, but especially our local knowledge gained through our regional offices and our excellent relationships with the food retailers.
There has been much written and spoken recently of the reduction in food retailers' appetite for growing the number of large format stores and their shift towards expanding their portfolio of convenience stores whilst also reducing their capital expenditure. Notwithstanding this we remain successful in using our knowledge to help retailers meet their new store needs, in particular as most have gaps in their geographic coverage that they want to fill. We are cognisant of the impact that the internet has on how people shop and in light of this, we continue to source the optimal size stores in the right locations for our foodstore clients. Our ability to navigate national and local planning policy remains a core skill of the group and is a key driver of demand from the food retailers. The food retailers' reduction in capital expenditure means that they are more likely to lease than own their new stores, which also increases their requirement for external help from developers.
Our financial model for developing foodstores has typically been to conditionally acquire sites. While this results in us sharing some land value accretion with the landowner, it also reduces our risk and exposure significantly and allows us to pursue more transactions simultaneously than would be the case if we acquired sites outright. We then use our expertise in securing pre-let agreements with the food retailers and obtaining planning consent. Neither of these activities is straightforward, but our significant experience gives us a competitive advantage. When we have secured the pre-let and planning consent we typically enter into forward funding agreements with investors who are attracted to the bond-like income that these leases typically generate.
We have a number of foodstore opportunities underway that are discussed later.
Central London offices
The group has a long track record of successful office development in Central London with nine schemes completed over the past 12 years, representing approximately 350,000 sq ft and GBP290 million of gross development value.
We typically acquire sites in joint venture with equity-rich partners who recognise and want our expertise. We structure these joint ventures so that our returns are boosted by extra returns over agreed hurdles and through development and project management fees.
The Central London office property investment market has been characterised recently by the weight of overseas capital which is relatively indifferent to the immediate returns available from such investment. This has had the effect of pushing up prices to very high levels, making it more difficult for us to secure opportunities. In addition, especially in the West End, supply is very constrained due to geography and planning restrictions resulting in increasing rents which underpin values.
Our response to this has been to appraise office opportunities for refurbishment and changes of use, with the conversion of outdated office buildings to residential or hotel use being a recurring theme. During the last year we have bid on several such opportunities but have frequently been outbid by the overseas investors noted above. However, we remain confident of securing such opportunities in the near future and believe that the returns available to us justify our continued presence in this market. We have two such schemes in place at the moment, described in more detail later.
Regional opportunities
The group's regional office network gives it advanced and knowledgeable insight into regional markets and opportunities. Over more than 20 years the group has a track record of commercial development in the office, retail and industrial sectors in the regions. We believe that the regional markets are now recovering from the recent deep recession in several aspects.
During the recession, investor and occupational demand for offices slumped resulting in yields increasing to double figures. This in turn made development unviable with the result that in many areas as the markets recover there is a shortage of new office stock.
Investor demand, particularly from those looking for return (rather than capital security) is increasing and this is having the effect of pushing values up in the regions. According to CBRE, yields have reduced for good secondary offices from around 9.0% at the peak to 8.0% in November 2013. These improved yields make office development more viable. In addition, occupier demand is returning which will translate into increased rents in the more established office markets.
We are also focused on two other areas where we believe there are opportunities for us: student accommodation and leisure.
Demand for new student accommodation from universities is strong as they compete to attract new students and therefore need to replace older stock. The experiences from our project at Southampton (described in more detail later) have led us to find a number of new opportunities and our established skills in dealing with the planning issues that accompany such developments are attractive to the universities.
The leisure sector is one that has proved robust through the recession and schemes centred around cinemas and restaurant chains have been able to able to attract customers who appreciate the value for money such schemes offer them. We believe our development and planning skills are particularly valuable here because, in order to make these schemes work, it is often necessary to demonstrate to planners and prospective tenants that we can create an attractive scheme with an appropriate tenant mix. We are currently working on one such scheme and have a number of others under review.
Operational review
Foodstores
During 2013 we completed three foodstore schemes in the North East of England at Sunderland, Sedgefield and Skelton. The stores at Sunderland and Sedgefield are leased to Sainsbury's and were forward funded by third parties and developed by the group. The store at Skelton was sold to Asda which now trades from there.
We have four new sites in the planning process, as follows:
Middlesbrough - we submitted a planning application in August 2013 for a 125,000 sq ft foodstore for Sainsbury's along with a public house for Marston's, a KFC and a coffee outlet. In November we were very pleased to receive a "minded to grant" decision from the Council and we have recently heard that the Secretary of State will not call it in. We expect this scheme to be attractive to funding institutions and hope to be on site commencing construction by the middle of 2014.
Herne Bay, Kent - we submitted a planning application for this c100,000 sq ft Sainsbury's store in November 2012 and expect the application to be heard early in 2014. We are confident of receiving consent and, if successful hope to be on site by the middle of 2014.
Midsomer Norton - we entered into a conditional contract to acquire a 12.2 acre former industrial site on the edge of Midsomer Norton in 2012. We are master planning a redevelopment of this site to provide a mix of uses including a foodstore and residential area. We are negotiating the pre-letting of the foodstore with a retailer and intend to sell the residential element to a housebuilder following the grant of planning permission.
Stokesley, North Yorkshire - we entered into a conditional contract to acquire 5.2 acres on the edge of this historic market town in July 2013 and are in detailed discussions with a food retailer for a 25,000 sq ft store.
We have decided not to appeal the refusal of planning consent at the St Austell site and changing occupier requirements at Prestwich have led us to abandon the original scheme, although we are working on a proposition for an alternative site in the town.
We continue to appraise a large number of other foodstore sites and are confident of securing new opportunities in the near future.
Central London offices
The development at Howick Place, Victoria completed in November 2012. The development comprises 135,000 sq ft of offices and 25,300 sq ft of residential apartments. The majority of the residential apartments have either been let or sold and the top office floor has now been let as the UK head office of Giorgio Armani. Interest in the remaining floors is strong and we expect to conclude further lettings shortly. We have carried out this development in association with Doughty Hanson.
We act as development manager for a prestigious new office and retail development on the corner of Conduit Street and Savile Row in London's Mayfair. This will be a 29,000 sq ft scheme and construction has now started. Office and retail rents have grown strongly during 2013 and we expect this trend to continue and be reflected in rents achieved at this well-placed development. We expect the returns from this development to exceed our original expectations.
Regional opportunities
Our 1,104 room student accommodation scheme at Mayflower Halls, Southampton is progressing well with the last of three buildings expected to be topped out by the end of January 2014. Fitting out of the rooms has already commenced and we are on track to deliver this scheme to the university in readiness for the commencement of the 2014 academic year. As noted previously, this development is being forward funded by Legal & General Property, which was attracted to the 38 year lease entered into by the University of Southampton.
Our leisure scheme at Darlington is progressing well. This scheme will include a nine screen cinema operated by Vue Cinemas, an 80 bedroom hotel operated by Whitbread and six restaurants. Terms have been agreed on four of the restaurant units and we expect our planning application to be heard in December 2013.
During the year we acquired an agreement with Glasgow City Council for the development of four restaurant units on the bank of the Clyde, close to the central business district of Glasgow. The scheme has planning consent and we are receiving strong interest from operators who want exposure at this well located site.
Our industrial scheme at Christchurch is now virtually complete, with the construction of a second 60,000 sq ft warehouse for Kondor having reached practical completion in November 2013 and the last remaining plots either sold or under offer.
Business review - Finance
Financial results and Net Asset Value
The group's EPRA NAV increased by 1.7% in the year ended 30 September 2013 to GBP61.3 million (28.8 pence per share) from GBP60.3 million (28.3 pence per share) at 30 September 2012. The group's IFRS NAV also increased by 10.6% in the year to GBP55.5 million (26.2 pence per share) from GBP50.2 million at 30 September 2012.
EPRA NAV is a Key Performance Indicator for the group as it reflects the market value of our development properties and is therefore a better indicator of the true value of the group, whereas the IFRS NAV includes those properties at the lower of cost and net realisable value.
During the year, the increase in our EPRA NAV resulted principally from the following:
Hot Features
Premium
-- 0.3 pence per share increase from operations;
-- 0.9 pence per share increase resulting from the part release
of our provision for financial guarantee for debts of an
associate;
-- 0.4 pence per share decrease resulting from movement in the
value of our development properties;
-- 0.5 pence per share decrease arising from the movement in
value and sales of our residential investment properties;
and
-- 0.2 pence per share increase in other movements including
tax and share-based payments.
The group's EPRA Triple NAV, which takes into account any tax payable on profits arising if all the group's properties were sold at the values used for EPRA NAV and the write off of goodwill , increased by 3.2% to GBP58.9 million (27.7 pence per share) from GBP57.1 million (26.8 pence per share) at 30 September 2012.
Statement of comprehensive income
Revenue for the year ended 30 September 2013 includes:
1. recognition of revenue under construction contracts and
related site sales of GBP44.5 million in respect of our
sites at Sunderland, Skelton, Sedgefield, Southampton and
Christchurch;
2. rental income of GBP2.2 million in respect of commercial
properties; and
3. rental income of GBP0.5 million in respect of residential
properties.
Rental income of GBP1.1 million and related costs of GBP1.6 million are included in revenue and direct costs in respect of the group's head office in London, where it owns a head lease.
Direct costs include directly attributable costs in respect of those revenue items mentioned above and a net charge of GBP0.9 million relating to the write off or provision in respect of various properties. In particular we have written off our costs of GBP0.6 million on the projects at Prestwich and St Austell which we are no longer pursuing.
The gross profit includes GBP12.5 million in respect of our sites at Sunderland, Skelton, Sedgefield, Southampton and Christchurch.
Administrative expenses for the year ended 30 September 2013 amounted to GBP6.1 million (2012: GBP4.7 million). The increase is largely due to increased variable remuneration costs.
As the group has substantially exited from the residential investment property activity, the results attributable to this have been treated as discontinued operations and the prior year comparison restated. The group reported a profit on these discontinued operations for the year ended 30 September 2013 of GBP0.6 million (2012: loss of GBP5.7 million). This profit was achieved after having written off goodwill of GBP0.8 million that had been previously recognised in respect of the residential activities of the group and writing back GBP1.8 million of a provision that had been made in earlier years in respect of the group's bank guarantee exposure to the bank that had lent to Terrace Hill Residential PLC. While the sale prices achieved on the property sales were at around our carrying value, we had to write off costs attributable to associated finance facilities and incurred selling costs. As reported in the interim statement, the group's associate, Terrace Hill Residential PLC, sold the majority of its assets in the spring this year and subsequently sold the remaining assets, valued at GBP5.3 million, to the group in May. This facilitated a favourable negotiation with the bank that had lent to its associate such that the group's exposure under its bank guarantee was settled at GBP4.2 million, which was financed by the parent company with a short term loan from the bank of which GBP0.7 million was outstanding at the year end.
The group has been successful in disposing of the properties it bought from Terrace Hill Residential PLC. At the year end, GBP1.3 million of such properties remained to be sold of which GBP0.7 million had been sold by the end of November 2013. The properties sold during the financial year achieved prices in excess of the purchase price. The group entered into arrangements with its co-shareholder in Terrace Hill Residential PLC whereby any profits or losses arising on the disposal of these properties would be shared equally with its co-shareholder. At 30 September 2013 the group had provided GBP0.1 million in respect if these arrangements.
Finance income less finance costs from continuing operations amounted to GBP0.9 million (2012: GBP1.1 million). Finance income less finance costs for discontinued operations amounted to GBP0.7 million (2012: GBP0.5 million). The group paid GBP1.5 million of interest in the year of which GBP0.4 million was in respect of projects where work is currently underway and which has been capitalised.
The group's tax charge for the period of GBP1.3 million (2012: charge of GBP0.06 million) reflects principally the restatement of our deferred tax asset to current rates of corporation tax, the utilisation of losses reflected in the deferred tax asset to shelter tax profits arising on the property sales noted above and recognition of other tax losses in the deferred tax asset.
Balance sheet
The group's IFRS net assets at 30 September 2013 were GBP55.5 million, an increase of 10.6% on the amount reported at 30 September 2012 of GBP50.2 million. Investment properties fell substantially from GBP15.2 million at 30 September 2012 to GBP0.2 million at 30 September 2013 due principally to the sale of the majority of the wholly owned residential investment properties during the year as reported earlier. The sale of the investment properties also resulted in the release of GBP0.8 million of goodwill attributed to the residential sector. The deferred tax asset of GBP5.2 million is lower than 2012 due to losses being utilised in the year and partially offset by previously unrecognised losses recognised due to increased certainty that they will be utilised in future years. Development properties fell from GBP70.3 million at 30 September 2012 to GBP58.2 million at 30 September 2013 principally due to the sale of the Southampton student accommodation site to Legal & General Property as part of its forward funding of that project. Trade and other receivables have reduced by GBP2.7 million to GBP14.6 million at 30 September 2013 due principally to amounts included at 30 September 2012 in respect of the three foodstores (Sunderland, Skelton and Sedgefield) having been received during the year. At 30 September 2013, there is GBP6.6 million due under the funding agreement for the Southampton student accommodation project. Trade and other payables have reduced from GBP16.5 million at 30 September 2012 to GBP8.9 million at 30 September 2012, reflecting the GBP6.0 million guarantee over the debts of its associate that has now been fulfilled or released to the income statement as noted above. Other movements are due to amounts included at 30 September 2012 in respect of the three foodstores that have been satisfied in the year.
The group regards its gearing level as a Key Performance Indicator and is pleased that its gearing has improved considerably during the year. Net debt as a percentage of EPRA net assets was 28.6% at 30 September 2013 compared with 78.2% at 30 September 2012. The quantum of net debt has also reduced significantly to GBP17.5 million at 30 September 2013 from GBP47.2 million at 30 September 2012. The group's look through net gearing, which includes its share of the net debt in those joint ventures and associated undertakings in which it has ongoing liabilities, fell substantially from 142.1% at 30 September 2012 to 29.0% at 30 September 2013 with the group's net debt, including its share of joint ventures and associated undertakings as above, also falling sharply, from GBP85.7 million at 30 September 2012 to GBP17.8 million at 30 September 2013. The reasons for these substantial improvements are that firstly, the group completed three foodstore developments during the year, secondly, entered into the forward funding of the Southampton student accommodation scheme and lastly, sold the vast majority of the residential properties both wholly owned and in the group's associate, Terrace Hill Residential PLC. Net debt and gearing have increased slightly since the half year as the group bought in the last residential properties owned by Terrace Hill Residential PLC as noted above which were financed largely by a bank loan of GBP4.2 million and the residual liability under a guarantee in respect of the associate's bank facility was discharged and financed by another loan.
Financial resources and capital management
The group funds itself through its share capital, cash and debt facilities. As the group has not raised new share capital for some time, the group focuses its attention on the management of its cash and debt position. The group is not subject to externally imposed capital requirements and meets its objectives for managing its capital by ensuring that it operates within the constraints imposed by the availability of cash and debt and by ensuring that it meets the various financial covenants that apply to its debt. The group regards its gearing ratios as key ratios for the purposes of managing its financial resources and the 24-month cash forecast as a key management tool.
Our net debt reduced in the period by GBP29.7 million and our gross debt by GBP27.0 million for the reasons mentioned above. The most significant cash outflows were in relation to development expenditure on our active development projects and our administrative expenses.
We have achieved a number of re-financings during the year. In particular, we have re-financed one loan of GBP14.8 million for a further two years and which now matures on 30 September 2015.
The average maturity of group debt is now 19 months (2012: 12.5 months) with a weighted average margin of 3.25% (2012: 3.3%). The maturity of joint ventures and associated undertaking debt is now 18.4 months (2012: 19.9 months) with a weighted average margin of 3.5% (2012: 2.9%), represented by one loan.
We have noticed a significant increase in the appetite of banks to lend to development groups, concentrating on projects which are pre-let or pre-sold, with loan to value or loan to cost ratios approaching more normal levels and competition among banks is returning. It is refreshing to be able to write about such matters after several years of very difficult times and we expect to be able to take advantage of the current market conditions.
The group continues to monitor interest rates closely and continues to believe that the risk of rates rising in the short term is limited although greater than before as the economy improves. With the group's bank debt at relatively low levels and with specific debt strategies in place for that debt, the group has not entered into any interest rate hedging agreements and consequently continues to benefit from the very low current LIBOR rates. The joint venture and associated undertaking debt loan is not hedged.
The group also monitors its cash resources and future cash flows very closely through its comprehensive 24-month rolling cash forecast. The group regularly updates the cash forecast and stress tests the underlying assumptions to ensure that the group has sufficient resources to execute its strategy for the foreseeable future.
Summary of debt position
September 2013 September
2012
-------------------------------------------------------- -----------
Net debt GBP17.5m GBP47.2m
Net gearing 28.6% 78.2%
Net debt including share of joint venture GBP17.8m GBP85.7m
and associated undertaking debt
Total net gearing 29.0% 142.1%
Loan to value 28.3% 49.2%
-------------------------------------------- ---------- -----------
The net gearing and loan to value percentages shown above are in relation to our EPRA NAV. The majority of joint venture and associated undertaking debt is of limited recourse to the group.
Debt expiry profile
On balance sheet Off balance
sheet*
GBPm GBPm
------------------------------------------------ -------------
Bank loans and overdraft repayable in 7.4 -
one year
Bank loans repayable in more than one
year 18.7 0.3
---------------------------------------- ------ -------------
Total 26.1 0.3
---------------------------------------- ------ -------------
*Group share
Summary of loan to value ratios of group property
September 2013 September
2012
-------------------------------- -----------
Commercial property 29.0% 52.2%
Residential property -% 76.7%
Total 28.3% 49.2%
----------------------- ------- -----------
Calculation of EPRA NAV and EPRA Triple NAV (unaudited)
30 September 2013 30 September 2012
-------------------------- ------------------------------------- -------------------------------------
Number Number
of shares Pence of shares Pence
GBP'000 000s per share GBP'000 000s per share
-------------------------- --------- ------------ ------------ --------- ------------ ------------
Audited Net Asset
Value 55,549 211,971 26.21 50,213 211,971 23.69
Revaluation of property
held as current
assets 5,711 10,026
Shares to be issued
under the LTIP 12 595 12 595
-------------------------- --------- ------------ ------------ --------- ------------ ------------
EPRA NAV 61,272 212,566 28.82 60,251 212,566 28.35
Increase % 1.7%
Goodwill (2,365) (3,188)
-------------------------- --------- ------------------------------------- --------------------------
EPRA Triple NAV 58,907 212,566 27.71 57,063 212,566 26.85
-------------------------- --------- ------------ ------------ --------- ------------ ------------
Increase % 3.2%
-------------------------- ------------------------------------- -------------------------------------
The principal risks and uncertainties facing the business, and how we manage those risks, are set out below:
Risk Description Mitigant Change in year
Strategy Implementing The group board meets No change.
a strategy quarterly to consider This process is
inconsistent strategy and review unchanged from
with the market progress against objectives. last year and we
environment, The chairman and directors believe we have
skillset and use both their market the right strategy
experience knowledge and experience setting procedure
of the business to ensure consistency in place to deliver
with these objectives. robust returns
to investors.
------------------------ --------------------------------- ----------------------------
Market and A deterioration Detailed financial appraisals No change.
economic in the market are undertaken to determine Our ability to
Risk in which we the benefit to the group analyse appraisals
operate resulting of each development. and robustly challenge
in a negative These are flexed and them has resulted
impact on various scenarios are in optimum capital
our results modelled to establish allocation.
or financial the financial outcome
condition on a worst-case basis.
Collapse of Detailed counterparty No change.
a funding credit due diligence Our various funding
partner is undertaken prior partners are financially
to entering into a financing strong.
arrangement with a party.
Our legal agreements
are binding but also
flexible.
------------------------ --------------------------------- ----------------------------
Development Paucity of The group is geographically No change.
new business diverse with regional We have a strong
opportunities offices and strong local pipeline of future
connections to facilitate developments.
new business opportunities.
Failure or The group has a wealth No change.
delays in of experience in gaining We have dealt with
obtaining consent within desired all planning issues
planning consent timescales. Our local in a timely manner.
office network ensures
we have direct knowledge
of local planning authorities
and consultants, to
develop products matching
local needs.
Construction Our in-house project One foodstore was
delivery delays- management team use handed over eight
The risk that their experience to weeks late due
we may become ensure that timescales to a construction
financially have sufficient contingency issue. Careful
liable for and that risks are transferred documentation of
delays due to contractors. contractual arrangements
to unforeseen ensured we did
circumstances not suffer financially.
Counterparty Detailed counterparty No change.
risk- contractor due diligence is undertaken No contractors
insolvency prior to the contractor we have used have
or bankruptcy selection process. gone into receivership
or become bankrupt
during the year.
Construction Our in-house project No change.
cost inflation management team are All contracts were
responsible for negotiating fixed during the
fixed price construction year.
contracts.
Letting risk We pre-let wherever No change.
possible, but in developments All foodstores
where this is not possible, have been pre-let
we include a market and the group has
driven void period and enjoyed good letting
tenant incentives in success in its
the financial appraisals. other developments.
Our local offices have
close relationships
with local and national
agents to ensure lettings
success.
Reputational The group has an excellent Improvement.
risk reputation from being Our reputation
in existence for over has been enhanced
quarter of a century this year following
and benefits from the on from the disposal
transparency arising of our residential
from an AIM-listing. portfolio and subsequent
deleveraging.
------------------------ --------------------------------- ----------------------------
Completed Devaluation Our in-house asset management No change.
and let buildings due to lower team ensure that buildings
rental rates, are kept in good condition,
increased thereby minimising the
voids, yield risk of devaluation.
shift and
building condition
------------------------ --------------------------------- ----------------------------
Financial Solvency The group's net worth No change.
position is monitored The group has managed
on a monthly basis and its liquidity well
stress-tested, to determine during the year
the extent by which benefitting from
assets exceed liabilities the timely receipts
and to assess the likelihood of cash from disposing
of converting these of foodstores.
assets into cash. There have been
no unanticipated
interest costs
and the group has
been proactive
in discussing refinancing
with banks.
----------------------------
Liquidity The group maintains
a rolling, stress-tested
cashflow forecast as
a key management tool,
to ensure funds are
available when required.
----------------------------
Interest rate Our in-house treasury
team model various scenarios
including interest rate
shocks, to ascertain
the optimal mix of fixed
to floating rate debt.
Refinancing Banks are approached
well in advance of debt
maturity in order to
refinance debt.
Covenant breach Covenants are reported
regularly to banks and
the board. Modelling
is undertaken to determine
the impact on covenants
as part of the group's
regular decision making
process.
------------------------ --------------------------------- ----------------------------
Personnel Attracting We offer a competitive No change.
and retaining remuneration package There have been
the right which includes both no problems with
people short and long-term regards to recruiting
incentives. or retaining personnel.
We have short reporting
lines and delegate authority
to ensure all staff
feel they are contributing
to the success of the
group.
Succession The group has a small No change.
planning- head-count and as a No issues to report.
over-reliance result personnel work
on key people in project-teams, where
knowledge is shared.
Health and Our contractors are No change.
safety- the compliant with relevant No issues to report.
risk of damage legislation. The group
or death resulting also carries appropriate
in delays insurance.
and cost
------------------------ --------------------------------- ----------------------------
Environment Not compliant Our developers are up Improvement.
with customer to date with both legislation The group has plans
requirements and customer requirements in place to address
or legislation and the group uses specialist new legislation.
environmental consultants
where necessary. We
endeavour to achieve
BREEAM rating of not
less than "very good"
for all new developments.
------------------------ --------------------------------- ----------------------------
Regulatory The risk of The executive directors Improvement.
reduced profitability and senior management We are confident
due to legislation are active participants that the group
in relevant bodies who has adequate plans
represent the industry in place to proactively
to legislators. manage new legislation.
------------------------ --------------------------------- ----------------------------
Approved by the board
P A J Leech J M Austen Director Director
12 December 2013
Consolidated statement of comprehensive income
For the year ended 30 September 2013
Year ended Year ended
30 September 30 September
2013 2012
Notes GBP'000 GBP'000
---------------------------------------------------------- ------- --------------- ---------------
Revenue 2 48,486 65,899
Direct costs (35,913) (51,743)
---------------------------------------------------------- ------- --------------- ---------------
Gross profit 12,573 14,156
Administrative expenses 5 (6,074) (4,747)
Loss on disposal of investment properties (35) -
Impairment of joint venture and associated undertakings 12 - (219)
Loss on revaluation of investment properties 11 - (500)
---------------------------------------------------------- ------- --------------- ---------------
Operating profit 6,464 8,690
Finance income 4 204 251
Finance costs 4 (1,096) (1,277)
Share of joint venture and associate undertakings
post tax profit/(loss) 12 43 (200)
---------------------------------------------------------- ------- --------------- ---------------
Profit before tax 5,615 7,464
---------------------------------------------------------- ------- --------------- ---------------
Tax 6 (1,271) (58)
---------------------------------------------------------- ------- --------------- ---------------
Profit from continuing operations 4,344 7,406
---------------------------------------------------------- ------- --------------- ---------------
Profit/(loss) from discontinued operations 8 586 (5,664)
---------------------------------------------------------- ------- --------------- ---------------
Total comprehensive income 4,930 1,742
---------------------------------------------------------- ------- --------------- ---------------
Profit/(loss) attributable to:
Equity holders of the parent from continuing
operations 4,344 7,406
Equity holders of the parent from discontinued
operations 586 (5,664)
---------------------------------------------------------- ------- --------------- ---------------
4,930 1,742
---------------------------------------------------------- ------- --------------- ---------------
Total comprehensive income attributable to:
Equity holders of the parent from continuing
operations 4,344 7,406
Equity holders of the parent from discontinued
operations 586 (5,664)
---------------------------------------------------------- ------- --------------- ---------------
4,930 1,742
---------------------------------------------------------- ------- --------------- ---------------
Basic earnings per share from continuing operations 7 2.06p 3.51p
Diluted earnings per share from continuing operations 7 2.05p 3.50p
---------------------------------------------------------- ------- --------------- ---------------
Total basic earnings per share 7 2.34p 0.83p
Total diluted earnings per share 7 2.33p 0.82p
---------------------------------------------------------- ------- --------------- ---------------
The notes form part of these financial statements.
Consolidated balance sheet
At 30 September 2013
30 September 30 September
2013 2012
Notes GBP'000 GBP'000
--------------------------------------------- ------- -------------- --------------
Non-current assets
Investment properties 11 162 15,178
Property, plant and equipment 10 95 145
Investments in equity accounted associates
and joint venture 12 1,000 1,000
Other investments 12 4,279 4,279
Intangible assets 9 2,365 3,188
Deferred tax assets 17 5,213 6,467
--------------------------------------------- ------- -------------- --------------
13,114 30,257
--------------------------------------------- ------- -------------- --------------
Current assets
Development properties 13 58,200 70,284
Trade and other receivables 14 14,573 17,251
Cash and cash equivalents 8,644 5,999
--------------------------------------------- ------- -------------- --------------
81,417 93,534
--------------------------------------------- ------- -------------- --------------
Total assets 94,531 123,791
--------------------------------------------- ------- -------------- --------------
Non-current liabilities
Bank loans 16 (18,745) (12,466)
Deferred tax liabilities 17 (867) (851)
--------------------------------------------- ------- -------------- --------------
(19,612) (13,317)
--------------------------------------------- ------- -------------- --------------
Current liabilities
Trade and other payables 15 (8,937) (10,537)
Other payables - guarantee 15 - (6,011)
Current tax liabilities (3,049) (3,014)
Bank overdrafts and loans 16 (7,384) (40,699)
--------------------------------------------- ------- -------------- --------------
(19,370) (60,261)
--------------------------------------------- ------- -------------- --------------
Total liabilities (38,982) (73,578)
--------------------------------------------- ------- -------------- --------------
Net assets 55,549 50,213
--------------------------------------------- ------- -------------- --------------
Equity
Called up share capital 19 4,240 4,240
Share premium account 20 18,208 18,208
Own shares 20 (609) (609)
Capital redemption reserve 20 849 849
Merger reserve 20 7,088 7,088
Retained earnings 20 25,773 20,437
--------------------------------------------- ------- -------------- --------------
Total equity 55,549 50,213
--------------------------------------------- ------- -------------- --------------
The financial statements were approved by the board and authorised for issue on 12 December 2013 and were signed on its behalf by:
P A J Leech J M Austen Director Director
Consolidated statement of changes in equity
At 30 September 2013
Capital
Share Share Own redemption Merger Retained
capital premium shares reserve reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ---------- ---------- ---------- ------------- ---------- ----------- ----------
Balance at 30 September 2011 4,240 43,208 (609) 849 7,088 (6,642) 48,134
Total comprehensive income
for the year - - - - - 1,742 1,742
Share-based payments - - - - - 337 337
Capital reduction - (25,000) - - - 25,000 -
------------------------------ ---------- ---------- ---------- ------------- ---------- ----------- ----------
Balance at 30 September 2012 4,240 18,208 (609) 849 7,088 20,437 50,213
------------------------------ ---------- ---------- ---------- ------------- ---------- ----------- ----------
Total comprehensive income
for the year - - - - - 4,930 4,930
Share-based payments - - - - - 406 406
Balance at 30 September 2013 4,240 18,208 (609) 849 7,088 25,773 55,549
------------------------------ ---------- ---------- ---------- ------------- ---------- ----------- ----------
Consolidated cash flow statement
For the year ended 30 September 2013
Year ended Year ended
30 September 30 September
2013 2012
GBP'000 GBP'000
----------------------------------------------------------- --------------- ---------------
Cash flows from operating activities
Profit before taxation 6,201 1,800
Adjustments for:
Finance income (215) (261)
Finance costs 1,808 1,768
Share of joint venture and associated undertakings post
tax loss 43 200
(Release of)/provision for financial guarantee for debts
of associate (1,811) 5,094
Depreciation charge 47 59
Impairment charge 823 148
Loss on revaluation of investment properties 11 530
Impairment of associated undertakings - 219
Loss on disposal of investment properties 271 570
Loss on sale of tangible fixed assets 11 -
Share-based payments 406 337
----------------------------------------------------------- --------------- ---------------
Cash flows from operating activities before change in
working capital 7,595 10,464
Decrease in property inventories 12,432 3,289
Decrease/(increase) in trade and other receivables 2,635 (7,334)
Decrease in trade and other payables (5,800) (3,475)
----------------------------------------------------------- --------------- ---------------
Cash generated from operations 16,862 2,944
Finance costs paid (1,887) (4,380)
Finance income received 215 261
Tax received/(paid) 36 (59)
----------------------------------------------------------- --------------- ---------------
Net cash flows from operating activities 15,226 (1,234)
----------------------------------------------------------- --------------- ---------------
Investing activities
Sale of investment property and tangible fixed assets 14,744 5,115
Purchase of property, plant and equipment (18) (28)
----------------------------------------------------------- --------------- ---------------
Net cash flows from investing activities 14,726 5,087
----------------------------------------------------------- --------------- ---------------
Financing activities
Borrowings drawn down 2,744 10,426
Borrowings repaid (30,212) (19,824)
----------------------------------------------------------- --------------- ---------------
Net cash flows from financing activities (27,468) (9,398)
----------------------------------------------------------- --------------- ---------------
Net increase/(decrease) in cash and cash equivalents 2,484 (5,545)
Cash and cash equivalents at 1 October 2012 5,998 11,543
----------------------------------------------------------- --------------- ---------------
Cash and cash equivalents at 30 September 2013 8,482 5,998
----------------------------------------------------------- --------------- ---------------
Cash at bank and in hand 30 September 2013 8,644 5,999
Bank overdraft at 30 September 2013 (162) (1)
----------------------------------------------------------- --------------- ---------------
Cash and cash equivalents at 30 September 2013 8,482 5,998
----------------------------------------------------------- --------------- ---------------
1 Accounting policies
Basis of preparation
The financial information set out in this announcement does not constitute the group's statutory accounts for the year ended 30 September 2013 under the meaning of s434 Companies Act 2006, but is derived from those accounts. Statutory accounts for the year ended 30 September 2013 have been reported on by the Independent Auditors. Their report was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under s498(2) or s498(3) of the Companies Act 2006. The statutory accounts for the year ended 30 September 2013, prepared under IFRS, will be delivered to the Registrar in due course.
The comparative financial information set out in this announcement does not constitute the group's statutory accounts for the year ended 30 September 2012 under the meaning of s434 Companies Act 2006, but is derived from those accounts. Statutory accounts for the year ended 30 September 2012 have been reported on by the Independent Auditors. Their report was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under s498(2) or s498(3) of the Companies Act 2006. Statutory accounts for the period ended 30 September 2012 have been filed with the Registrar of Companies
Changes in accounting policies
The group has not adopted any new or amended IFRS and IFRIC interpretations in the year.
New standards and interpretations not applied
IASB and IFRIC have issued the following standards and interpretations relevant to the group. These standards and interpretations are mandatory for accounting periods beginning on or after the date of these financial statements and will become effective for future reporting periods.
IAS 19 Employee Benefits IAS 27 Consolidated and Separate Financial statements IAS 28 Investments in Associates and Joint Ventures IAS 32 Financial Instruments: Presentation IAS 36 Impairment of Assets IAS 39 Financial Instruments: recognition and Measurement IFRS Financial Instruments: Disclosures 7 IFRS Financial Instruments 9 IFRS Consolidated Financial statements 10 IFRS Joint Arrangements 11 IFRS Disclosure of Interests in Other Entities 12 IFRS Fair Value Measurement 13
None of the new standards and interpretations noted above, which are effective for accounting periods beginning on or after 1 October 2013 and which have not been adopted early, are expected to have a material effect on the group's future financial statements.
2 Revenue
2013 2012
GBP'000 GBP'000
----------------------------------------------- ---------- ----------
Development sales and construction contracts 45,121 62,583
Rents receivable 2,162 2,451
Project management fees and other income 1,203 865
----------------------------------------------- ---------- ----------
48,486 65,899
----------------------------------------------- ---------- ----------
Construction contracts
2013 2012
----------------------------------- ------ ------
Number of construction contracts 5 4
----------------------------------- ------ ------
GBP'000 GBP'000
------------------------------------ ---------- ----------
Revenue on construction contracts 28,687 47,004
Costs of construction contracts (21,197) (33,141)
------------------------------------ ---------- ----------
Profit on construction contracts 7,490 13,863
------------------------------------ ---------- ----------
Construction contract revenue is recognised in the accounts in line with contract stage of completion determined as the proportion of total estimated development costs incurred at the reporting date. No advances or retentions have been received for construction contracts.
Development sales
2013 2012
GBP'000 GBP'000
---------- ---------- ----------
Revenue 16,434 15,579
---------- ---------- ----------
3 Segmental information
The operating segments are identified on the basis of internal financial reports about components of the group that are regularly reviewed by the chief operating decision maker (which in the group's case is its Executive board comprising the three Executive directors) in order to allocate resources to the segments and to assess their performance. The internal financial reports received by the group's Executive board contain financial information at a group level as a whole and there are no reconciling items between the results contained in these reports and the amounts reported in the financial statements.
The group operates in two principal segments, being commercial property development and investment and residential property investment. The commercial segment includes foodstores, central London office developments and regional developments. The group does not operate outside the UK. The residential property investment segment has been treated as discontinued. More detail is given in note 8.
Unallocated Unallocated
Residential Commercial items Total Residential Commercial items Total
2013 2013 2013 2013 2012 2012 2012 2012
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------- ------------- ------------ ------------- ---------- ------------- ------------ ------------- ----------
Statement of comprehensive income
Revenue 5,144 48,486 - 53,630 1,066 65,899 - 66,965
Direct costs (4,598) (35,913) - (40,511) (407) (51,743) - (52,150)
----------------- ------------- ------------ ------------- ---------- ------------- ------------ ------------- ----------
Gross profit 546 12,573 - 13,119 659 14,156 - 14,815
Administrative
expenses - - (6,074) (6,074) - - (4,747) (4,747)
Goodwill
impairment (823) - - (823) (148) - - (148)
Loss on
disposal
of investment
properties (236) (35) - (271) (570) - - (570)
Impairment of
associated
undertakings
and joint
venture - - - - - (219) - (219)
Provision for
financial
guarantee
over debts of
associate 1,811 - - 1,811 (5,094) - - (5,094)
Loss on
revaluation
of investment
properties (11) - - (11) (30) (500) - (530)
----------------- ------------- ------------ ------------- ---------- ------------- ------------ ------------- ----------
Operating
profit/(loss) 1,287 12,538 (6,074) 7,751 (5,183) 13,437 (4,747) 3,507
Net finance
costs (701) (892) - (1,593) (481) (1,033) 7 (1,507)
Share of
results
of joint
venture
before tax - 43 - 43 - (200) - (200)
Profit before
tax from
continuing
operations - 11,689 (6,074) 5,615 - 12,204 (4,740) 7,464
----------------- ------------- ------------ ------------- ---------- ------------- ------------ ------------- ----------
Profit before
tax from
discontinued
operations 586 - - 586 (5,664) - - (5,664)
----------------- ------------- ------------ ------------- ---------- ------------- ------------ ------------- ----------
Profit before
tax 586 11,689 (6,074) 6,201 (5,664) 12,204 (4,740) 1,800
----------------- ------------- ------------ ------------- ---------- ------------- ------------ ------------- ----------
The segmental results that are monitored by the board include all the separate lines making up the segmental IFRS operating profit. This excludes central overheads and taxation which are not allocated to operating segments.
During the year, three major commercial customers generated GBP34,652,000 of revenue. Each of these represented 10% or more of the total revenues. The amounts were GBP9,242,000, GBP7,785,000 and GBP17,625,000.
In the year ended 30 September 2012, there were four major commercial customers that generated GBP54,751,000 of revenue. Each of these represented 10% or more of the total revenues. The amounts were GBP9,826,000, GBP26,256,000, GBP8,896,000 and GBP9,773,000.
Unallocated Unallocated
Residential Commercial items Total Residential Commercial items Total
2013 2013 2013 2013 2012 2012 2012 2012
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------- ------------- ------------ ------------- ---------- ------------- ------------ ------------- ----------
Balance
sheet
Investment
properties 162 - - 162 12,928 2,250 - 15,178
Property,
plant and
equipment - - 95 95 - 17 128 145
Investments
-
associates
and joint
venture - 1,000 - 1,000 - 1,000 - 1,000
Other
investments - 4,279 - 4,279 - 4,279 - 4,279
Intangible
assets - 2,365 - 2,365 823 2,365 - 3,188
Deferred tax
assets - - 5,213 5,213 - - 6,467 6,467
-------------- ------------- ------------ ------------- ---------- ------------- ------------ ------------- ----------
162 7,644 5,308 13,114 13,751 9,911 6,595 30,257
-------------- ------------- ------------ ------------- ---------- ------------- ------------ ------------- ----------
Development
properties 1,273 56,927 - 58,200 - 70,284 - 70,284
Trade and
other
receivables 24 14,549 - 14,573 231 17,020 - 17,251
Cash 145 8,499 - 8,644 493 5,506 - 5,999
-------------- ------------- ------------ ------------- ---------- ------------- ------------ ------------- ----------
1,442 79,975 - 81,417 724 92,810 - 93,534
-------------- ------------- ------------ ------------- ---------- ------------- ------------ ------------- ----------
Borrowings - (26,129) - (26,129) (9,987) (43,178) - (53,165)
Trade and
other
payables (285) (8,652) - (8,937) (6,515) (10,033) - (16,548)
Current tax - - (3,049) (3,049) - - (3,014) (3,014)
Deferred tax
liabilities - - (867) (867) - - (851) (851)
-------------- ------------- ------------ ------------- ---------- ------------- ------------ ------------- ----------
(285) (34,781) (3,916) (38,982) (16,502) (53,211) (3,865) (73,578)
-------------- ------------- ------------ ------------- ---------- ------------- ------------ ------------- ----------
Net assets 1,319 52,838 1,392 55,549 (2,027) 49,510 2,730 50,213
-------------- ------------- ------------ ------------- ---------- ------------- ------------ ------------- ----------
4 Finance costs and finance income
2013 2012
GBP'000 GBP'000
------------------------------------------------------------- ---------- ----------
Interest payable on borrowings 1,452 1,890
Interest capitalised (356) (613)
------------------------------------------------------------- ---------- ----------
Finance costs 1,096 1,277
------------------------------------------------------------- ---------- ----------
Interest receivable from cash deposits and other financial
assets 204 251
------------------------------------------------------------- ---------- ----------
Finance income 204 251
------------------------------------------------------------- ---------- ----------
Interest is capitalised at the same rate as the group is charged on the respective borrowings. There were no interest rate swaps during the year.
5 Administrative expenses
Is arrived at after charging:
2013 2012
GBP'000 GBP'000
---------------------------------------------------- ---------- ----------
Depreciation of property, plant and equipment 47 59
Impairment of goodwill 823 148
Loss on disposal of property, plant and equipment 11 -
Operating lease charges - rent of properties 1,400 1,393
Share-based payment remuneration 406 337
Fees paid to BDO LLP in respect of:
- audit of the group 100 119
Other services:
- audit of subsidiaries and associates 35 35
- audit-related assurance services 25 35
- non-audit services 32 40
---------------------------------------------------- ---------- ----------
6 Tax on profit on ordinary activities
(a) Analysis of charge in the year
2013 2012
GBP'000 GBP'000
---------------------------------------------------- ---------- ----------
Current tax
UK corporation tax on profit for the period - -
Adjustment in respect of prior periods - (36)
---------------------------------------------------- ---------- ----------
Total current tax - (36)
---------------------------------------------------- ---------- ----------
Deferred tax
Impact of rate change 361 222
Origination and reversal of temporary differences 910 (128)
---------------------------------------------------- ---------- ----------
Total deferred tax charge 1,271 94
---------------------------------------------------- ---------- ----------
Total tax charge 1,271 58
---------------------------------------------------- ---------- ----------
(b) Factors affecting the tax charge for the year
The tax assessed for the period is lower than the standard rate of corporation tax in the UK of 23.5% (2012: 25%). The differences are explained below:
2013 2012
GBP'000 GBP'000
---------------------------------------------------------------- ---------- ----------
Profit before tax from continuing and discontinued operations 6,201 1,800
---------------------------------------------------------------- ---------- ----------
Plus joint venture and associates - 200
---------------------------------------------------------------- ---------- ----------
Profit attributable to the group before tax 6,201 2,000
---------------------------------------------------------------- ---------- ----------
Profit multiplied by the average rate of UK corporation
tax of 23.5% (2012: 25%) 1,457 500
Disallowables 321 (181)
Other temporary differences (1,085) (447)
Impact of rate change 361 222
---------------------------------------------------------------- ---------- ----------
1,054 94
Adjustments in respect of prior periods 217 (36)
---------------------------------------------------------------- ---------- ----------
Total tax charge 1,271 58
---------------------------------------------------------------- ---------- ----------
(c) Associates and joint venture
The group's share of tax on the associates and joint venture is GBPNil (2012: GBPNil).
7 Earnings per ordinary share
The calculation of basic earnings per ordinary share is based on a profit of GBP4,930,000 (2012: GBP1,742,000) and on 210,951,299 (2012: 210,951,299) ordinary shares, being the weighted average number of shares in issue during the year.
The calculation of diluted earnings per ordinary share for 2013 is based on earnings of GBP4,930,000 (2012: GBP1,742,000) and on 211,545,352 (2012: 211,426,546) ordinary shares being the weighted average number of shares in issue during the period adjusted to allow for the issue of ordinary shares in connection with a share award.
8 Discontinued operations
The post tax gain/(loss) on disposal of discontinued operations was determined as follows:
2013 2012
GBP'000 GBP'000
------------------------------------ ---------- ----------
Revenue 5,144 1,066
Expenses other than finance costs (3,857) (6,249)
Finance costs (701) (481)
Profit/(loss) for the year 586 (5,664)
------------------------------------ ---------- ----------
Earnings per share from discontinued operations
2013 2012
------------------------------------ ------- ---------
Basic earnings/(loss) per share 0.28p (2.68)p
Diluted earnings/(loss) per share 0.28p (2.68)p
------------------------------------ ------- ---------
Statement of cash flows
2013 2012
GBP'000 GBP'000
---------------------------------------- ---------- ----------
Operating activities (701) (481)
Investing activities 12,590 5,367
Financing activities (12,237) (4,486)
---------------------------------------- ---------- ----------
Net cash from discontinued operations (348) 400
---------------------------------------- ---------- ----------
9 Intangible fixed assets - goodwill
GBP'000
----------------------- ---------
Cost
At 1 October 2011 5,997
----------------------- ---------
At 1 October 2012 5,997
----------------------- ---------
At 30 September 2013 5,997
----------------------- ---------
Impairment
At 1 October 2011 (2,661)
Charge for the year (148)
----------------------- ---------
At 1 October 2012 (2,809)
Charge for year (823)
----------------------- ---------
At 30 September 2013 3,632
----------------------- ---------
At 30 September 2013 2,365
----------------------- ---------
At 30 September 2012 3,188
----------------------- ---------
Impairment tests for goodwill
Goodwill arising on acquisition is allocated to the group's cash-generating units identified according to business activity.
2013 2012
GBP'000 GBP'000
------------------------ ---------- ----------
Commercial properties 2,365 2,365
Investment properties - 823
------------------------ ---------- ----------
2,365 3,188
------------------------ ---------- ----------
The value of goodwill allocated to the investment activity is directly related to a number of residential units held. As these units are disposed of an impairment charge is made. During the period the vast majority of properties were sold and an amount of GBP823,000 was charged to the consolidated statement of comprehensive income.
The recoverable amount of goodwill allocated to commercial property activities has been determined from value-in-use calculations based on cash flow projections of the cash-generating unit. These are reviewed to ensure that the cash-generating units in respect of which the goodwill arose continue to generate cash flows in excess of the carrying value of the goodwill. The cash flow period considered is 24 months and is based on forecast asset sales which take into consideration management's assessment of past experience and future economic benefits in light of anticipated economic and market conditions. As the period considered is greater than 12 months discounting is applied. The discount rate applied is 15%, which takes into account not only the time value of money but also management's assessment of the specific risks related to the cash-generating unit. If this recoverable amount is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Any impairment loss is recognised as an expense.
The carrying value of the group's goodwill is reassessed at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
10 Property, plant and equipment
Leasehold Motor Office Furniture
improvements vehicles equipment and fittings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- --------------- ----------- ------------ --------------- ----------
Cost
At 1 October 2011 159 15 186 212 572
Additions - 2 16 10 28
Disposals - - - - -
----------------------- --------------- ----------- ------------ --------------- ----------
At 1 October 2012 159 17 202 222 600
Additions - - 13 - 13
Disposals - (17) - (47) (64)
----------------------- --------------- ----------- ------------ --------------- ----------
At 30 September 2013 159 - 215 175 549
----------------------- --------------- ----------- ------------ --------------- ----------
Depreciation
At 1 October 2011 70 14 117 195 396
Charge for period 16 - 31 12 59
Disposals - - - - -
----------------------- --------------- ----------- ------------ --------------- ----------
At 1 October 2012 86 14 148 207 455
Charge for year 16 - 30 1 47
Disposals - (14) - (34) (48)
----------------------- --------------- ----------- ------------ --------------- ----------
At 30 September 2013 102 - 178 174 454
----------------------- --------------- ----------- ------------ --------------- ----------
Net book value
At 30 September 2013 57 - 37 1 95
----------------------- --------------- ----------- ------------ --------------- ----------
At 30 September 2012 73 3 54 15 145
----------------------- --------------- ----------- ------------ --------------- ----------
At the year end there were no assets held under finance leases.
11 Investment properties
GBP'000
----------------------- ----------
Valuation
At 1 October 2011 21,393
Disposals (5,685)
Loss on revaluation (530)
----------------------- ----------
At 1 October 2012 15,178
Additions 5
Disposals (15,010)
Loss on revaluation (11)
----------------------- ----------
At 30 September 2013 162
----------------------- ----------
Residential investment properties owned by the group have been valued during the year by qualified valuers from Allsop LLP, an independent firm of chartered surveyors, on an investment value basis. The valuations were carried out in accordance with guidance issued by the Royal Institution of Chartered Surveyors.
2013 2012
GBP'000 GBP'000
--------------------------------------------------- ---------- ----------
Rental income generated from investment property 633 1,023
Direct rental operating costs 262 (447)
--------------------------------------------------- ---------- ----------
371 576
--------------------------------------------------- ---------- ----------
The group did not incur any direct operating expenses arising from investment property that did not generate rental income.
12 Investments
Associates and joint venture
Joint
Associates venture Total
GBP'000 GBP'000 GBP'000
------------------------------------------------ ------------ ---------- ----------
Cost or valuation
At 1 October 2011 1,000 419 1,419
Share of results - (200) (200)
Impairment - (219) (219)
At 1 October 2012 1,000 - 1,000
Share of results - 43 43
Losses for period applied against receivables
forming part of net investment - (43) (43)
------------------------------------------------ ------------ ---------- ----------
At 30 September 2013 1,000 - 1,000
------------------------------------------------ ------------ ---------- ----------
The group's interests in its associates were as follows:
Terrace Hill Residential PLC 49% Property investment Castlegate House Partnership 30% Property development Devcap 2 Partnership 26% Property development Terrace Hill Development Partnership 20% Property development -------------------------------------- ----- ----------------------
Terrace Hill Residential PLC is incorporated in Scotland.
Summarised information 2013
Terrace Terrace
Hill Devcap Castlegate Hill
Development 2 House Residential
Partnership Partnership Partnership PLC Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- -------------- -------------- -------------- -------------- -----------
Revenue 1,486 2,788 827 1,832 6,933
(Loss)/profit after taxation (41) (1,451) 94 7,297 5,899
-------------------------------------- -------------- -------------- -------------- -------------- -----------
Total assets 23,495 39,704 7,392 70 70,661
-------------------------------------- -------------- -------------- -------------- -------------- -----------
Bank debt (1,980) (40,643) (8,222) - (50,845)
Other liabilities (23,533) (14,666) (2,734) (35,535) (76,468)
-------------------------------------- -------------- -------------- -------------- -------------- -----------
Total liabilities (25,513) (55,309) (10,956) (35,535) (127,313)
-------------------------------------- -------------- -------------- -------------- -------------- -----------
Net liabilities (2,018) (15,605) (3,564) (35,465) (56,652)
-------------------------------------- -------------- -------------- -------------- -------------- -----------
Opening carrying amount of interest
under equity method 1,000 - - - 1,000
Closing carrying amount of interest
under equity method 1,000 - - - 1,000
Capital commitments - - - - -
Share of current year unrecognised
profit/(loss) (8) (379) 28 3,575 3,216
Cumulative share of unrecognised
profit/(loss) 1,596 (4,069) (391) (2,585) (5,449)
-------------------------------------- -------------- -------------- -------------- -------------- -----------
Terrace Hill Group plc has no legal or constructive obligations to fund the losses of these associates. Terrace Hill Development Partnership has not been equity accounted for as the entity has preferential investors that will receive their return before Terrace Hill Group plc. When the entity can satisfy the obligations to those investors equity accounting will resume. Terrace Hill Development Partnership is classified as an associate due to significant influence over its operating activities.
Summarised information 2012
Terrace Terrace
Hill Devcap Castlegate Hill
Development 2 House Residential
Partnership Partnership Partnership PLC Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- -------------- -------------- -------------- -------------- -----------
Revenue 16,592 2,752 615 7,144 27,103
Profit/(loss) after taxation 896 (2,821) 17 (8,718) (10,626)
-------------------------------------- -------------- -------------- -------------- -------------- -----------
Total assets 24,474 39,360 7,284 71,762 142,880
-------------------------------------- -------------- -------------- -------------- -------------- -----------
Bank debt (6,892) (40,653) (8,238) (80,847) (136,630)
Other liabilities (19,558) (12,860) (2,704) (33,677) (68,799)
-------------------------------------- -------------- -------------- -------------- -------------- -----------
Total liabilities (26,450) (53,513) (10,942) (114,524) (205,429)
-------------------------------------- -------------- -------------- -------------- -------------- -----------
Net liabilities (1,976) (14,153) (3,658) (42,762) (62,549)
-------------------------------------- -------------- -------------- -------------- -------------- -----------
Opening carrying amount of interest
under equity method 1,000 - - - 1,000
Closing carrying amount of interest
under equity method 1,000 - - - 1,000
Capital commitments - - - - -
Share of current year unrecognised
profit/(loss) 179 (736) 5 (4,272) (4,824)
Cumulative share of unrecognised
profit/(loss) 1,605 (1,592) (420) (6,011) (6,418)
-------------------------------------- -------------- -------------- -------------- -------------- -----------
The group's interest in its joint venture which has been equity accounted in the consolidated financial statements was as follows:
Achadonn Limited 50% Property development
------------------ ----- ----------------------
2013 2012
Achadonn Achadonn
Limited Limited
GBP'000 GBP'000
-------------------------------------------------------- ----------- -----------
Revenue - 31
Loss 86 (399)
-------------------------------------------------------- ----------- -----------
Total assets 14,169 14,652
-------------------------------------------------------- ----------- -----------
Bank debt (8,110) (8,110)
Other liabilities (5,547) (6,104)
-------------------------------------------------------- ----------- -----------
Total liabilities (13,657) (14,214)
-------------------------------------------------------- ----------- -----------
Net assets 512 438
-------------------------------------------------------- ----------- -----------
At 1 October 2012 - 419
Share of results for the period 43 (200)
Losses for period applied against receivables forming
part of net investment (43) -
Impairment of joint venture - (219)
-------------------------------------------------------- ----------- -----------
At 30 September 2013 - -
-------------------------------------------------------- ----------- -----------
Other investments
2013 2012
GBP'000 GBP'000
-------------------- ---------- ----------
Other investments 4,279 4,279
-------------------- ---------- ----------
Included in other investments is a balance due from Howick Place JV S.a.r.l. totalling GBP4,273,000 (2012: GBP4,273,000) that has a final maturity date of 31 December 2014.
13 Development properties
2013 2012
GBP'000 GBP'000
-------------------------------------------------------------- ---------- ----------
At 1 October 2012 70,284 72,961
Additions 25,266 28,807
Disposals (36,404) (30,919)
Amounts written back on the value of development properties 1,316 4,410
Amounts written off the value of development properties (2,262) (4,975)
-------------------------------------------------------------- ---------- ----------
At 30 September 2013 58,200 70,284
-------------------------------------------------------------- ---------- ----------
Included in these figures is capitalised interest of 7,774 8,614
-------------------------------------------------------------- ---------- ----------
No amounts are held in development properties in respect of construction contracts and retentions on such contracts are GBPNil.
14 Trade and other receivables
2013 2012
GBP'000 GBP'000
------------------------------------------------------ ---------- ----------
Trade receivables 1,146 2,507
Other receivables 3,552 2,216
------------------------------------------------------ ---------- ----------
Trade and other receivables 4,698 4,723
Amounts recoverable under construction contracts 8,249 7,558
Prepayments and accrued income 1,626 4,970
Amounts due from associates and joint venture 32,897 28,605
Provision for amounts due from associates and joint
venture (32,897) (28,605)
------------------------------------------------------ ---------- ----------
14,573 17,251
------------------------------------------------------ ---------- ----------
Amounts recoverable under construction contracts
2013 2012
GBP'000 GBP'000
------------------------------------------------------- ---------- ----------
Contract costs incurred plus recognised profits less
recognised losses to date 38,240 44,979
Less: progress billings (29,991) (37,421)
------------------------------------------------------- ---------- ----------
Contracts in progress at balance sheet date 8,249 7,558
------------------------------------------------------- ---------- ----------
The ageing of trade and other receivables was as follows:
2013 2012
GBP'000 GBP'000
---------------------- ---------- ----------
Up to 30 days 2,476 3,228
31 to 60 days 1 2
61 to 90 days 489 7
Over 90 days 174 77
---------------------- ---------- ----------
Total 3,140 3,314
Amounts not yet due 1,558 1,409
---------------------- ---------- ----------
Closing balance 4,698 4,723
---------------------- ---------- ----------
No amounts were overdue at the year end.
The movement in the allowance for impairment in respect of amounts due from associates and joint venture during the year was as follows:
2013 2012
GBP'000 GBP'000
------------------------------------------------------- ---------- ----------
At 1 October 2012 28,605 25,665
Increase in allowance on amounts due from associates
and joint venture 4,292 2,940
------------------------------------------------------- ---------- ----------
Closing balance 32,897 28,605
------------------------------------------------------- ---------- ----------
The allowance is based on falling asset values in the associates and joint venture.
The IAS 39 categories of financial asset included in the balance sheet and the headings in which they are included are as follows:
Loans and Non-financial Loans and Non-financial
receivables assets Total receivables assets Total
2013 2013 2013 2012 2012 2012
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- -------------- --------------- ---------- -------------- --------------- -----------
Current assets
Trade receivables 1,146 - 1,146 2,507 - 2,507
Other receivables 3,552 - 3,552 2,216 - 2,216
Amounts recoverable under
construction contracts 8,249 - 8,249 7,558 - 7,558
Prepayments and accrued
income - 1,626 1,626 - 4,970 4,970
Cash and cash equivalents 8,644 - 8,644 5,999 - 5,999
--------------------------- -------------- --------------- ---------- -------------- --------------- -----------
21,591 1,626 23,217 18,280 4,970 23,250
--------------------------- -------------- --------------- ---------- -------------- --------------- -----------
Non-current assets
Other investments 4,279 - 4,279 4,279 - 4,279
--------------------------- -------------- --------------- ---------- -------------- --------------- -----------
4,279 - 4,279 4,279 - 4,279
--------------------------- -------------- --------------- ---------- -------------- --------------- -----------
15 Trade and other payables
2013 2012
GBP'000 GBP'000
------------------------------------------- ---------- ----------
Trade payables 1,613 3,487
Other taxation and social security costs 115 284
Accruals and deferred income 3,626 4,210
Other payables 3,583 2,556
Other payables - guarantees - 6,011
------------------------------------------- ---------- ----------
8,937 16,548
------------------------------------------- ---------- ----------
In 2012 the group fully provided for its share of net liabilities in its associate and an amount of GBP6.0 million was included in other payables in respect of a guarantee for a maximum of GBP15.0 million. In 2013 the group assumed GBP4.2 million of bank debt in exchange for the discharge of the guarantee, resulting in the release of GBP1.8 million to the statement of comprehensive income.
The IAS 39 categories of financial liabilities included in the balance sheet and the headings in which they are included are as follows:
Financial Liabilities Financial Liabilities
liabilities not within liabilities not within
at amortised scope of at amortised scope of
cost IAS 39 Total cost IAS 39 Total
2013 2013 2013 2012 2012 2012
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ --------------- ------------- ---------- --------------- ------------- ----------
Current payables
Trade payables 1,613 - 1,613 3,487 - 3,487
Other tax and social
security costs - 115 115 - 284 284
Accruals and deferred
income 3,626 - 3,626 4,210 - 4,210
Other payables 3,583 - 3,583 8,567 - 8,567
------------------------ --------------- ------------- ---------- --------------- ------------- ----------
8,822 115 8,937 16,264 284 16,548
------------------------ --------------- ------------- ---------- --------------- ------------- ----------
16 Bank overdrafts and loans
2013 2012
GBP'000 GBP'000
------------------------------- ---------- ----------
Bank loans 26,242 53,624
Bank overdrafts 162 1
------------------------------- ---------- ----------
26,404 53,625
Unamortised loan issue costs (275) (460)
------------------------------- ---------- ----------
26,129 53,165
Amounts due:
Within one year 7,384 40,699
After more than one year 18,745 12,466
------------------------------- ---------- ----------
26,129 53,165
------------------------------- ---------- ----------
An analysis of interest rates and information on fair value and security is given in note 18.
17 Deferred tax
Details of the deferred tax charged/(credited) to the consolidated statement of comprehensive income are as follows:
2013 2012
GBP'000 GBP'000
-------------------------------- ---------- ----------
Trade losses 1,289 749
Share-based payments - 163
Short-term timing differences (18) (818)
-------------------------------- ---------- ----------
1,271 94
-------------------------------- ---------- ----------
The consolidated deferred tax assets and liabilities are as follows:
2013 2012
GBP'000 GBP'000
-------------------------------- ---------- ----------
Deferred tax liability
Short-term timing differences 867 851
-------------------------------- ---------- ----------
867 851
-------------------------------- ---------- ----------
2013 2012
GBP'000 GBP'000
-------------------------------- ---------- ----------
Deferred tax asset
Short-term timing differences - 1,382
Trade losses 5,213 5,085
-------------------------------- ---------- ----------
5,213 6,467
-------------------------------- ---------- ----------
Under IAS 12, deferred tax is recognised for tax potentially payable on the realisation of investment properties at fair values at the balance sheet date. No deferred tax asset is recognised in respect of losses if there is uncertainty over future recoverability.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. In assessing the future recoverability of the deferred tax asset an asset sales forecast covering a three-year period is prepared and the assessment of available taxable profits takes into account the group's overheads and finance costs. Sales are included where the group assess the sale as probable. The group has a history of utilising tax losses brought forward from prior periods and has a policy of utilising prior period losses in priority to any current year losses.
A deferred tax asset has not been recognised for unused tax losses of GBP14,028,000 (2012: GBP17,813,000).
18 Financial instruments
The group's principal financial instruments comprise loans, overdrafts, cash and short-term deposits. The main purpose of these financial instruments is to provide finance for the group's operations. Further information on the group's financial resources and capital management is given in the strategic report.
The group has various other financial instruments such as trade receivables and trade payables that arise directly from its operations and unlisted investments.
The main risks arising from the group's financial instruments are interest rate risk, credit risk and liquidity risk. The board reviews and agrees policies for managing each of these risks and they are summarised below. The magnitude of the risk that has arisen over the year is detailed below.
Interest rate risk
The group holds cash balances on short-term deposit. The group's policy is to monitor the level of these balances to ensure that funds are available as required, recognising that interest earnings will be subject to interest rate fluctuations.
The group borrows cash in the form of loans and overdrafts, which are subject to interest at floating rates, recognising that rates will fluctuate according to changes in LIBOR and the bank base rate. The group is cognisant at all times of movements in interest rates and will, as appropriate, enter into interest rate swaps to maintain a balance between borrowings that are subject to floating and fixed rates.
Credit risk
The group's principal financial assets are cash, trade receivables, amounts recoverable under construction contracts and other investments. Our cash deposits are placed with a range of banks to minimise the risk to the group. The principal risk therefore arises from trade receivables and amounts recoverable under construction contracts. Trade receivables from the sale of properties are secured against those properties until the proceeds are received. Rental receivables are unsecured but the group's exposure to tenant default is limited as no tenant accounts for more than 10% of total rent. Rental cash deposits and third party guarantees are obtained as a means of mitigating financial loss from defaults. Amounts recoverable under construction contracts are funded by the ultimate purchaser of the development, on whom extensive financial due diligence is carried out. Other investments represent amounts advanced to an entity undertaking a property development in central London. The group is entitled to a priority return and the board annually reviews the business plan of that entity.
Liquidity risk
The group's objective is to maintain a balance between continuity of funding and flexibility through the use of bank balances and loans. Cash flow and funding needs are regularly monitored.
Categories of financial assets and financial liabilities
2013 2012
GBP'000 GBP'000
--------------------------------------------------- ---------- ----------
Current financial assets
Trade and other receivables 2,809 4,723
Amounts recoverable under construction contracts 8,249 7,558
Cash and cash equivalents 8,482 5,998
--------------------------------------------------- ---------- ----------
Total current financial assets 19,540 18,279
--------------------------------------------------- ---------- ----------
Non-current financial assets
Other investments 4,279 4,279
--------------------------------------------------- ---------- ----------
Total non-current financial assets 4,279 4,279
--------------------------------------------------- ---------- ----------
Total financial assets 23,819 22,558
--------------------------------------------------- ---------- ----------
There are no financial assets held at fair value (2012: GBPNil).
The maximum exposure to credit risk in financial assets, excluding cash and cash equivalents, is GBP15,338,000 (2012: GBP16,560,000). The maximum amount due from any single party is GBP4,279,000 (2012: GBP4,279,000) included in other investments.
Financial liabilities measured at amortised cost
2013 2012
GBP'000 GBP'000
------------------------------------------ ---------- ----------
Current financial liabilities
Trade and other payables 8,129 15,464
Loans and borrowings 7,323 40,745
------------------------------------------ ---------- ----------
Total current financial liabilities 15,452 56,209
------------------------------------------ ---------- ----------
Non-current financial liabilities
Loans and borrowings 18,919 12,879
------------------------------------------ ---------- ----------
Total non-current financial liabilities 18,919 12,879
------------------------------------------ ---------- ----------
Total financial liabilities 34,371 69,088
------------------------------------------ ---------- ----------
There are no financial liabilities designated at fair value (2012: GBPNil).
Interest rate risk profile of financial assets and liabilities
The interest rate profile of financial assets and liabilities of the group at 30 September 2013 was as follows:
Financial
Floating assets
rate Fixed rate on which
financial financial no interest
Total assets assets is earned
GBP'000 GBP'000 GBP'000 GBP'000
----------- ---------- ------------ ------------ --------------
Sterling 23,820 8,482 3,480 11,858
----------- ---------- ------------ ------------ --------------
Financial
Floating liabilities
rate Fixed rate on which
financial financial no interest
Total liabilities liabilities is charged
GBP'000 GBP'000 GBP'000 GBP'000
----------- ---------- -------------- -------------- --------------
Sterling 35,179 26,242 - 8,937
----------- ---------- -------------- -------------- --------------
Floating rate financial liabilities bear interest at LIBOR or base rate plus margins of between 1% and 4%.
There are no amounts included in floating rate financial liabilities that are subject to interest rate swaps (2012: GBPNil).
The interest rate profile of financial assets and liabilities of the group at 30 September 2012 was as follows:
Financial
Floating assets
rate Fixed rate on which
financial financial no interest
Total assets assets is earned
GBP'000 GBP'000 GBP'000 GBP'000
----------- ---------- ------------ ------------ --------------
Sterling 15,000 5,998 3,480 5,522
----------- ---------- ------------ ------------ --------------
Financial
Floating liabilities
rate Fixed rate on which
financial financial no interest
Total liabilities liabilities is charged
GBP'000 GBP'000 GBP'000 GBP'000
----------- ---------- -------------- -------------- --------------
Sterling 69,088 53,624 - 15,464
----------- ---------- -------------- -------------- --------------
The floating rate financial assets comprise:
-- cash on deposit.
The floating rate financial liabilities comprise:
-- Sterling denominated bank loans that bear interest based on LIBOR and
bank base rates; and
-- Sterling denominated bank overdrafts that bear interest based on bank
base rates.
The fair value of the financial assets and liabilities is equal to the book value.
Borrowings
The group's bank borrowings and overdrafts are repayable as follows:
2013 2012
GBP'000 GBP'000
-------------------------------------------- ---------- ----------
On demand or within one year 7,485 40,745
In more than one year but less than two 18,919 9,949
In more than two years but less than five - 2,931
-------------------------------------------- ---------- ----------
26,404 53,625
-------------------------------------------- ---------- ----------
The bank loans are secured by legal charges over the group's investment and development properties together with guarantees from certain subsidiary undertakings with a limited guarantee from the parent company. Loans with principal guarantees from the parent company were repaid during the year and after the balance sheet date.
Borrowing facilities
The group has the following undrawn committed bank borrowing facilities available to it at the year end:
2013 2012
GBP'000 GBP'000
------------------------------- ----------- ----------
Expiring in one year or less - 2,500
------------------------------- ----------- ----------
Guarantees
Refer to note 21 for details.
Market rate sensitivity analysis
Financial instruments affected by market risk include borrowings, deposits and derivative financial instruments. The analysis below shows the sensitivity of the statement of comprehensive income and net assets to a 0.5% change in interest rates on the group's financial instruments.
The sensitivity analysis is based on the sensitivity of interest to movements in interest rates and is calculated on net floating rate exposures on debt and deposits.
0.5% decrease 0.5% increase
in interest in interest
rates rates
GBP'000 GBP'000
---------------------------------------------- --------------- ---------------
Impact on interest payable - gain/(loss) 597 (597)
Impact on interest receivable - (loss)/gain (189) 189
---------------------------------------------- --------------- ---------------
Total impact on pre-tax profit and equity 408 (408)
---------------------------------------------- --------------- ---------------
The analysis below shows the sensitivity of the consolidated statement of comprehensive income and net assets to a 0.5% change in interest rates on the group's financial instruments for 2012.
0.5% decrease 0.5% increase
in interest in interest
rates rates
GBP'000 GBP'000
---------------------------------------------- --------------- ---------------
Impact on interest payable - gain/(loss) 442 (442)
Impact on interest receivable - (loss)/gain (64) 64
---------------------------------------------- --------------- ---------------
Total impact on pre-tax profit and equity 378 (378)
---------------------------------------------- --------------- ---------------
19 Called up share capital
2013 2012
GBP'000 GBP'000
-------------------------------------------------------- ---------- ----------
Authorised:
500,000,000 (2012: 500,000,000) ordinary shares of 2
pence each 10,000 10,000
200,000 cumulative 8% redeemable preference shares of
GBP1 each 200 200
44,859 convertible shares of 20 pence each 9 9
32,551,410 deferred shares of 2 pence each 651 651
-------------------------------------------------------- ---------- ----------
10,860 10,860
-------------------------------------------------------- ---------- ----------
Allotted, called up, and fully paid:
211,971,299 (2012: 211,971,299) ordinary shares of 2
pence each 4,240 4,240
-------------------------------------------------------- ---------- ----------
20 Reserves
Capital
Share Own redemption Merger Retained
premium shares reserve reserve earnings
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- ---------- ---------- ------------- ---------- -----------
At 1 October 2011 43,208 (609) 849 7,088 (6,642)
Total comprehensive income and
expense for the year - - - - 1,742
Share-based payments - - - - 337
Capital reduction (25,000) - - - 25,000
--------------------------------- ---------- ---------- ------------- ---------- -----------
Balance at 1 October 2012 18,208 (609) 849 7,088 20,437
Total comprehensive income and
expense for the year - - - - 4,930
Share-based payments - - - - 406
Balance at 30 September 2013 18,208 (609) 849 7,088 25,773
--------------------------------- ---------- ---------- ------------- ---------- -----------
The following describes the nature and purpose of each reserve within owners' equity:
Share premium - represents the excess of value of shares issued over their nominal amount.
Own shares - represents amount paid to purchase issued shares for the employee share-based payment plan.
Capital redemption reserve - represents amount paid to purchase issued shares for cancellation at their nominal value.
Merger reserve - the merger reserve has arisen following acquisitions where the group's entity has formed all or part of the consideration and represents the premium on the issued shares less costs.
Retained earnings - represents cumulative net gains and losses recognised in the consolidated statement of comprehensive income.
21 Contingent liabilities, capital commitments and guarantees
The group has given a guarantee of GBP600,000 (2012: GBP600,000) as part of its development obligations.
Capital commitments relating to development sites are as follows:
2013 2012
GBP'000 GBP'000
---------------------------------- ---------- ----------
Contracted but not provided for 27,765 10,854
---------------------------------- ---------- ----------
This information is provided by RNS
The company news service from the London Stock Exchange
END
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