Last checked at 10 Jul 2008 07:00
FLETCHER KING PLC
PRELIMINARY RESULTS
Full year impacted by the UK property market recession
Fletcher King PLC ("Fletcher King"), the London based property fund managers, asset managers and chartered surveyors, announces today its preliminary results for the year ended 30 April 2008.
Financial highlights:
Profit before tax: £759,000 (2007: £1,027,000)
Turnover: £6,410,000 (2007: £7,438,000)
Basic earnings per share: 5.97p (2007: 7.34p)
Total dividend for the year 3.0p per share (2007: 4.75p per share)
Operational highlights:
Conditions in the UK property market very tough in the 2nd half with capital values continuing to fall.
Fund management and investment performed well in the first 6 months, transacting over £100 million of sales, but the department was unable to escape the effects of the recession in the 2nd half.
The Asset Management department performed in line with expectation.
Valuation and ratings had a busy year but the current year will be impacted by a slow down in new lending valuations.
Fletcher King Howard ended the year with a relatively healthy order book.
Commenting David Fletcher, Chairman of Fletcher King said:
"As the results show, despite a strong first six months, the company was not immune from the impact of the UK property sector recession, which started towards the end of 2007. We believe that the UK property market should start to bottom out towards the end of 2008 and buyers with cash will be able to benefit from the opportunities that will then exist. Although the current year will be tough, Fletcher King benefits from tight management, a reduced fixed overhead, business diversity and a strong balance sheet."
END
For further information:
David Fletcher, Fletcher King 020 7493 8400
Christopher Joll, Brown Lloyd James Financial 020 7259 0503
James Caithie, Dowgate Capital Advisers Limited 020 7492 4777
CHAIRMAN'S STATEMENT
Summary
Turnover for the year was £6.410m (2007: £7.438m) with profit before tax of £759,000 (2007: £1.027m). The board is proposing a final dividend of 1.75p per share (2007: 3.75p). The final dividend is subject to shareholders' approval at the AGM and will be paid on 26 September 2008 to those shareholders on the register at the close of business on 29 August 2008. With an interim dividend of 1.25p per share (2007: 1.00p) already paid, the total ordinary dividend for the year will amount to 3.00p per share. (2007: 4.75p). During the year the Group disposed of its shareholding in First Property Group at a significant profit.
The UK Commercial Property Market
Generally speaking conditions in the UK commercial property market remain very tough. Whilst capital values continue their descent, rents have remained relatively robust but downward pressure is now being felt. The rate at which values have been falling has slowed but there is almost universal belief that we have not yet reached the bottom. We are experiencing the steepest decline in values in forty years and it is likely to continue for much of 2008.
A number of factors differentiate this recession from those of the 1970's and 1990's. Most notably there are now relatively low interest rates and inflation together with low unemployment. There has not been an explosion in speculative development with the resultant oversupply of space. However, we have not previously experienced a situation where banks will not to lend to each other. In previous recessions the time taken for the market to go from top to bottom was roughly the time it took to recover, whether that will be replicated this time will depend, to a large extent, on liquidity in the banking system and an end to the current financial turbulence.
Towards the end of 2008 we estimate that values will have fallen in the range of 20%-30% across the board, by which time property should be fair value. Further significant short term falls should be unlikely but one cannot rule out a double dip. Sometime towards the end of Q4/08, but maybe not until Q1/09, will be, in our current view, the time to buy. However, it will be cash buyers or those who require low levels of debt that will be the ones to take advantage of the opportunities presented and there are significant funds waiting to enter the market when it is at or near the bottom. When they do enter they are likely to provide a floor to falling values. In our view, debt financing is likely to remain difficult for some time to come.
On rentals we expect growth to become subdued and rent falls are already being reported in City offices and retail through the country.
Outlook
The current year, ending 30 April 2009, is going to be difficult for the company and our turnover and profits will fall significantly, as advised in the Trading Statement announced on 26 June.
As already stated, we do not believe that transaction levels in the investment market will increase before the year end and this lack of activity will, therefore, impact our financial year.
However, there is strength in our diversity and we expect fund management, property management, valuations and rating to continue to perform. We have a strong balance sheet and a positive cash position. Our salary/ bonus remuneration policy allows us flexibility in a market downturn and we have already adjusted our fixed overhead to take account of current market conditions.
DIVISIONAL REVIEW
Fund Management and Investment
Last year was one of two halves. The first was one of enormous activity and a very buoyant market and the second produced the well publicised dramatic fall in values, referred to earlier, resulting in a significant reduction in transaction volume.
The department had one of its most successful years in terms of sales volumes, having transacted in excess of £100m worth of sales. As in previous years the sales were widely spread geographically including an £8m shop on the Isle of Man and £17m worth of retail warehousing in Darlington and Halifax, together with two large leisure portfolios. The department continues to earn significant fees from its fund management which will hold it in good stead in the declining market.
The transaction business in the coming year is likely to be significantly lower although we are hopeful that activity will pick up towards the end of 2008.
Asset Management
The department met its targets and the operational efficiencies referred to in the Interim Report continue to be implemented.
The team has recently been strengthened by the appointment of Clare James as head of Property Management Accounts.
With declining values and a softening economy great emphasis is being placed upon early receipt of rents and service charges and the letting up of vacant space.
Valuation and Rating
In each reporting period we give news of an appointment to a further valuation panel and, since the Interim Report, Clydesdale Bank has appointed us.
In spite of the credit crunch we have been very busy and it is only in the last few weeks that the volume of valuation instructions has begun to slow. To date the majority of our valuations in the year have been on new lending but we are increasingly seeing requests for revaluations.
Each year we are asked to value properties outside the general "run-of-the-mill". This year has been no exception and we have valued a portfolio of garden centres, a portfolio of car showrooms and a number of private schools.
The resolution of the 2005 Rating List appeals has continued apace. Although a large number have been settled we still have significant unresolved cases to deal with in the coming year.
We achieved a number of outstanding savings for clients during the year, most notably a 40% reduction in assessment for WSP in Bristol resulting in a saving of £320,000, £1.3m saving for Standard Bank in the City, £275,000 saving for Travelex at Heathrow and a 50% reduction in rate liability on the Dreamland Leisure Park in Margate.
The Valuation Office has announced the Antecedent Date of Valuation (AVD) as 1 April 2008 for the 2010 list. As it diverts resources to the revaluation, the settlement rate of outstanding 2005 appeals will slow and have some impact on the department in the coming year.
Landlord and Tenant
The department had a reasonably successful year but it has struggled for some time to make an appropriate contribution to profit and a decision was taken by the Board to close it down.
Some of the department's work has been transferred to the Asset Managers, and other rent reviews will be dealt with by those external valuers that we consider to be best for the particular job in hand.
We believe that our new way of working will deliver an equal or better service to our clients and enhance the net profit of the company.
Fletcher King Howard
The new management team, to which we referred last year, has continued to take the company forward.
The company's hotel work included the completion of further property for Travelodge in Blackpool and their new hotel in Uxbridge is scheduled for completion in August. This year will see work start on a new 160 bed hotel in Glasgow.
The company completed its second full year's involvement with VOSA (Vehicle Testing Station refurbishment programme) and there will be at least a further year's work for this client.
Fletcher King Howard have a tradition of building sports stadiums and in the current financial year the Llanelli Scarlets' new £20m rugby stadium is programmed for completion. The company is also acting for Milton Keynes Council on the £20m Bletchley Leisure Centre.
Headquarters office projects are currently under construction in Maidenhead for Sanofi-Pasteur and in Burton on Trent for Punch Taverns.
Work continues on Berkhamstead Collegiate School and the construction of a new sports hall and swimming complex for St Albans School is well advanced.
Fletcher King Howard's order book for the coming financial year is relatively healthy despite clients delaying capital expenditure as a result of the credit crunch.
CONSOLIDATED INCOME STATEMENT
for the year ended 30 April 2008
| 2008 | 2007 | ||
| £000 | £000 | ||
| Revenue | 6,410 | 7,438 | |
| Employee benefits expense | (3,796) | (4,602) | |
| Depreciation expense | (79) | (114) | |
| Other operating expenses | (2,115) | (1,951) | |
| Operating profit | 420 | 771 | |
| Profit on disposal of available-for-sale investments | 236 | 132 | |
| Impairment of available-for-sale investments | (71) | -- | |
| Income from investments | 37 | 18 | |
| Finance income | 137 | 106 | |
| Profit before taxation | 759 | 1,027 | |
| Taxation | (209) | (351) | |
| Profit for the year after taxation attributable to equity shareholders | 550 | 676 | |
| Basic earnings per share | 5.97p | 7.34p | |
| Diluted earnings per share | 5.96p | 7.33p |
CONSOLIDATED BALANCE SHEET
as at 30 April 2008
| 2008 | 2007 | ||
| £000 | £000 | ||
| Assets | |||
| Non-current assets | |||
| Property, plant and equipment | 457 | 125 | |
| Available-for-sale investments | 428 | 897 | |
| Deferred tax assets | 58 | 24 | |
| 943 | 1,046 | ||
| Current assets | |||
| Trade and other receivables | 1,462 | 1,600 | |
| Amounts recoverable on contracts | 154 | 222 | |
| Cash and cash equivalents | 2,773 | 2,990 | |
| 4,389 | 4,812 | ||
| Total assets | 5,332 | 5,858 | |
| Liabilities | |||
| Current liabilities | |||
| Trade and other payables | 508 | 395 | |
| Current taxation liabilities | 132 | 187 | |
| Other creditors and provisions | 1,325 | 1,605 | |
| 1,965 | 2,187 | ||
| Non-current liabilities | |||
| Deferred taxation liabilities | -- | 118 | |
| Total liabilities | 1,965 | 2,305 | |
| Shareholders' equity | |||
| Share capital | 921 | 921 | |
| Share premium | 140 | 140 | |
| Reserves | 2,306 | 2,492 | |
| Total shareholders' equity | 3,367 | 3,553 | |
| Total equity and liabilities | 5,332 | 5,858 | |
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 30 April 2008
| 2008 | 2007 | |
| £000 | £000 | |
| Cash flows from operating activities | ||
| Profit before taxation | 759 | 1,027 |
| Adjustments for: | ||
| Depreciation expense | 79 | 114 |
| Profit on disposal of non-current assets held for sale | (236) | (132) |
| Impairment of available-for-sale investments | 71 | -- |
| Income from investments | (37) | (18) |
| Finance income | (137) | (106) |
| Cash flows from operating activities before movement in working capital | 499 | 885 |
| Decrease / (increase) in trade and other receivables | 138 | (115) |
| (Decrease) / increase in trade and other payables | (167) | 556 |
| Decrease / (increase) in work in progress | 68 | (20) |
| Cash generated from operations | 538 | 1,306 |
| Finance expense |
| |
| Taxation paid | (296) | (299) |
| Net cash flows from operating activities | 242 | 1,007 |
| Cash flows from investing activities | ||
| Purchases of property, plant and equipment | (427) | (95) |
| Sale of property, plant and equipment | 16 | -- |
| Purchase of investments | -- | (250) |
| Sale of investments | 238 | 383 |
| Finance income | 137 | 106 |
| Income from investments | 37 | 18 |
| Net cash flows from investing activities | 1 | 162 |
| Cash flows from financing activities | ||
| Dividends paid to shareholders | (460) | (322) |
| Net cash flows from financing activities | (460) | (322) |
| Net (decrease) / increase in cash and cash equivalents | (217) | 847 |
| Cash and cash equivalents at start of year | 2,990 | 2,143 |
| Cash and cash equivalents at end of year | 2,773 | 2,990 |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
|
| Share capital | Share premium | Profit and loss reserve | Fair value reserve | Total Reserves | TOTAL EQUITY |
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Balance at 1 May 2006 | 921 | 140 | 1,862 | 340 | 2,202 | 3,263 |
| Net profit for the year | -- | -- | 676 | -- | 676 | 676 |
| Transfer of realised gains on disposal | -- | -- | -- | (142) | (142) | (142) |
| Deferred taxation adjustment | -- | -- | -- | 43 | 43 | 43 |
| Fair value gain on investments | -- | -- | -- | 50 | 50 | 50 |
| Deferred taxation adjustment | -- | -- | -- | (15) | (15) | (15) |
| Total income and expense for the year | -- | -- | 676 | (64) | 612 | 612 |
| Equity dividends paid | -- | -- | (322) | -- | (322) | (322) |
| Balance at 30 April 2007 | 921 | 140 | 2,216 | 276 | 2,492 | 3,553 |
| Net profit for the year | -- | -- | 550 | -- | 550 | 550 |
| Transfer of realised gains on disposal | -- | -- | -- | (342) | (342) | (342) |
| Deferred taxation adjustment | -- | -- | -- | 102 | 102 | 102 |
| Fair value gain/(loss) on investments | -- | -- | -- | (52) | (52) | (52) |
| Deferred taxation adjustment | -- | -- | -- | 16 | 16 | 16 |
| Total income and expense for the year | -- | -- | 550 | (276) | 274 | 274 |
| Equity dividends paid | -- | -- | (460) | -- | (460) | (460) |
| Balance at 30 April 2008 | 921 | 140 | 2,306 | -- | 2,306 | 3,367 |
NOTES
1. Basis of preparation
The financial information set out above, which has been prepared on the basis of the accounting policies as set out in the prior year's accounts and in accordance with International Financial Reporting Standards, does not comprise the company's statutory financial statements. Statutory financial statements for the previous financial year ended 30 April 2007 have been delivered to the Registrar of Companies. The auditors' report on those financial statements was unqualified and did not contain any statement under section 237(2) or (3) of the Companies Act 1985. The auditors have not yet reported on financial statements for the year ended 30 April 2008, nor have any such financial statements been delivered to the Registrar of Companies.
2. Dividends
| Year ended 30 April | 2008 | 2007 |
| £000 | £000 | |
| Equity dividends on ordinary shares: | ||
| Declared and paid during year | ||
| Ordinary final dividend for the year ended 30 April 2007: 3.75p per share (2006: 2.5p) | 345 | 230 |
| Interim dividend for the six months ended 31 October 2007: 1.25p per share (2006: 1.0p) | 115 | 92 |
| 460 | 322 | |
| Proposed ordinary final dividend for the year ended 30 April 2008: 1.75p per share | 161 | |
3. Earnings per share
Basic earnings per share is calculated by reference to the result attributable to equity shareholders of £550,000 (2007: £676,000) and the number of 9,209,779 shares (2007: 9,209,779) in issue throughout the year.
Diluted earnings per share is calculated by reference to the result attributable to equity shareholders of £550,000 (2007: £676,000) and the number of 9,221,475 shares (2007: 9,221,475) in issue throughout the year, being the number of shares adjusted for the number of share options outstanding at the end of each year.