First Property Regulatory News (FPO)

11 Jun 2008 07:00



Date: 11 June 2008

On behalf of: First Property Group plc ("First Property" or "the Group")

Embargoed: 0700hrs 

First Property Group plc

Preliminary results for the year ended 31 March 2008

First Property Group plc (AIM: FPO), the AIM-listed property services group specialising in commercial property fund management, today announces its preliminary results for the year ended 31 March 2008.

Financial Highlights:

Turnover doubled to £15,573,000 (2007: £7,854,000)

Profit on ordinary activities before taxation up over five times at £6,285,000 (2007: £1,186,000)

Profit on ordinary activities before performance fees and taxation up over three times at £2,924,000 (2007: £867,000)

Diluted earnings per ordinary share were similarly up nearly five times at 3.81 pence (2007: 0.80 pence)

Operational Highlights:

Over £290 million of property assets under management (2007: £150 million) 

95% by number and value of property investments are located in Central and Eastern Europe, of which 88% are located in Poland and 7% in Romania

Over 50% rate of return earned for clients' funds

Annual fees from property fund management running at £3.7 million per annum 

Now invested approximately 50% of the £100 million fund management mandate given to the Group by the Universities Superannuation Scheme in 2005 and 2007. The remaining capital of £50 million provides buying power of some £200 million

Pipeline: approximately Eur 50 million (£40 million) of properties currently under offer

A briefing for analysts will be held at 09:30hrs today at Redleaf Communications, 9-13 St Andrew Street, London EC4A 3AF 

Commenting on the results, Ben Habib, Chief Executive of First Property, said:

"I am delighted to report excellent progress across the Group's divisions in the year ended 31 March 2008. Despite the global economic slowdown, we earned excellent results for our clients as well as dramatically increasing our own profit. 

"We continue to make progress with our core fund management division and during the period we doubled the size of our portfolio of property assets under management to £290 million. Our funds under management and revenues will grow substantially as the remaining £200 million fund management mandate, given to us by the Universities Superannuation Scheme, is invested. 

"As a result of the Group's increased fee income, we are delighted to be in a position to announce an increased full year dividend payment of 0.8 pence per share, payable to shareholders in September. With the increased predictability of our property fund management income, our policy is to increase the Group's dividend progressively in line with net profits.

"I look forward to 2009 with continued confidence." 

For further information contact:

First Property Group plc	Tel: 020 7731 2844
Ben Habib (Chief Executive)	www.fprop.com
Redleaf Communications	Tel: 020 7822 0200
Adam Leviton/Kathryn Hurford	firstproperty@redleafpr.com
Arden Partners	Tel: 020 7398 1630
Chris Hardie

Publication quality photos are available from Redleaf Communications

Notes to Editors:

• First Property Group plc was established in March 2000 by Chief Executive Ben Habib, to provide a number of property services which include property fund management, property trading, and facilities management.

• The Company listed its shares on the Alternative Investment Market (AIM) in December 2000.

• First Property Group plc is a property services group which consists of the following core services:

- Property Fund Management: established in August 2002 and provided by a wholly owned subsidiary, First Property Asset Management Ltd (FPAM), now with operations in the UK, Central and Eastern Europe;

- Property Trading: established in August 2001 also provided by FPAM, now with operations in the UK, Central and Eastern Europe;

- Facilities Management: acquired 60% of First Property Services Ltd in February 2006, with operations in the UK and clients including: Credit Suisse, Canary Wharf, the BBC, Coutts Bank and Exxon Mobil.

• Further information about the Company and its products can be found at: www.fprop.com

CHIEF EXECUTIVE'S STATEMENT

Results and dividend

I am pleased to report the results for the year to 31 March 2008, which reflect the benefits that have accrued to the Group as a result of the transformation which has taken place over the last two years. 

Turnover has doubled to £15,573,000 (2007: £7,854,000), yielding a profit on ordinary activities before taxation up over five times at £6,285,000 (2007: £1,186,000). As announced on 1 April 2008 the fund management division earned a significant performance fee in respect of the three years that the Universities Superannuation Scheme fund has been in existence, which boosted profits by £3.4 million.

Diluted earnings per ordinary share were similarly up nearly five times at 3.81 pence (2007: 0.80 pence). 

The Group ended the year with net assets of over £12 million (2007:£7.7 million) and a cash balance of £6.2 million. The Group does not have any borrowings.

Assets under management also almost doubled to over £290 million (2007: £150 million).

 

Dividend

On the basis of these results, and our confidence in the Company's future, the Directors have reviewed the Company's dividend policy and have resolved to recommend an increased final dividend for the year of 0.65 pence per share, which together with the interim dividend of 0.15 pence per share equates to a dividend for the year of 0.8 pence per share (2007: 0.175 pence per share), which, if approved, will be paid on 26 September 2008 to shareholders on the register at 22 August 2008.

With the increased predictability of our property fund management income our policy is to increase the dividend progressively in line with net profits. 

 

Review of operations

Property fund management 

Revenue earned by this division amounted to £8,341,000 (2007: £1,362,000). Of the fees earned, £5,650,000 (2007: £319,000) was in respect of performance fees and £2,691,000 in respect of annual management fees. Our annual management fees are now running at £3.7 million per annum. The benefit to our profits of this higher level of annual fees will be experienced in the current year.

We now have over £290 million of property assets under management (2007: £150 million). Of these, 95% by number and value are located in Central and Eastern Europe, of which 88% are located in Poland.

Our experience of the Central and Eastern European property markets continue to bear out our expectations of the region, particularly in Poland where the bulk of the assets are located. We have always been cautious investors and in view of the credit crunch, will continue to be so. Whilst the speed of increase in our assets under management has recently slowed somewhat, we believe that Poland remains fundamentally attractive as a location for property investments.

At a macro-economic level Poland continues to grow at a rapid rate, with GDP increasing at a rate of some 6% per annum. Retail spend, which is a key driver for growth in retail rents, is increasing by some 15% to 20% per annum and wages are also rising at some 12% per annum, with reducing levels of unemployment. Inflation, in common with the rest of the World has risen, from its lows of 1.5% per annum to some 4.1% per annum but the Polish Monetary Policy Committee has sensibly increased local borrowing rates to curb it. In spite of its rapid growth, Poland's Budget and Current Account Deficits have not increased materially. Poland has taken full advantage of the benefits that EU membership brought them in 2004 and capitalised on EU funding, foreign direct investment and of course remittances from Poles living abroad. Given the relatively low economic base of Poland in 2004, their high growth rate is likely to continue. All of the above is positive for property.

In addition, at a property market level, we are still able to acquire properties on yields which exceed borrowing costs therefore providing a positive yield gap and rents are rising in most classes of properties in many regions of Poland. Most importantly, banks are still lending on property investment, although spreads have, in our experience, increased by some 25 basis points since the credit crunch set in.

Virtually every macro-economic indicator for Poland stands in stark contrast to those of the UK which make depressing reading. The rate of growth in GDP in the UK is rapidly slowing, consumers are tightening their belts and consumers and the Government are debt laden. 

At a property market level, UK yields have increased as a result of falling prices but there is not yet a clear yield gap and occupational rental growth is negligible, if not in decline. Property values in the UK are likely to fall further. We are hugely relieved not to be materially exposed to the UK and are going to continue to concentrate our efforts in Poland. 

The pre-tax rates of return on equity earned from rental streams on properties in our portfolio remains healthy at an average of 8% per annum, notwithstanding the recent increases in interest rates. When combined with the increases in capital value of the properties over the last year, this rate of return increases to over 50% per annum.

Our most recent purchase on behalf of our funds was on 31 March 2008, when we acquired a multi-let secondary office block in Krakow at a price of Eur 8.5 million, representing a yield on purchase of 7.5%. In the short time that we have owned this asset, we have increased the net operating income by 10%, so that it is now yielding over 8.2%.

Our best performing asset in the year under review was the Oxford Tower, located in Warsaw, which was acquired for Eur 41.5 million in August 2007 representing a yield on purchase of 6%. Since acquiring the property we have increased the net operating income by over 50% thereby significantly increasing the value of the property. 

We expect further rental growth on both these properties, which serve to illustrate well the opportunities available in Poland.

As a result of our excellent performance and the performance of our fund management activities over the prior two years we earned performance fees of £5.7 million during the year, which netted down to £3.4 million after deducting staff bonuses and foreign exchange hedging costs. Naturally, we cannot rely on earning such high performance fees every year. 

We have now invested some 50% of the £100 million fund management mandate given to us by the Universities Superannuation Scheme in 2005 and 2007. The remaining capital of £50 million affords us buying power of some £200 million, which we are in the process of investing. The current year has started well and whilst we are being particularly cautious at the moment, we have under offer some interesting properties amounting to a total value of some Eur 50 million (£40 million).

Property trading 

Turnover from this activity was £2,116,000 (2007: £3,252,000), producing an operating profit of £771,000 (2007: £415,000). This result includes a profit before tax of £549,000 earned on the sale of a property to an associated company (further details of which are set out in Note 5 below) and a realised currency gain of £78,000.

Towards the end of 2007 we acquired an exciting trading opportunity in Warsaw for some £2 million, being a dysfunctional office block in need of redevelopment. Subject to gaining planning consent, for which we have applied, we would expect to make a healthy return on our purchase. We may be able to crystallise this return in the current financial year, depending on the progress of our planning application. Shareholders should note that we hold trading properties in the balance sheet at the lower of cost or value and we have not assumed any gain in the value of this property.

First Property Services Ltd (FPS)

FPS, in which we acquired a 60% interest in February 2006, is engaged in the provision of facilities maintenance and building services to clients in the commercial property sector. 

For the year to 31 March 2008, its second full year in the Group, FPS earned revenues of £4,938,000 (2007: £2,870,000) and an operating profit of £737,000 (2007: £136,000). This is an excellent result for a nascent business.

FPS has a healthy book of clients and an experienced work force and has made a good start to the current financial year.

 

Strategy

Our strategy remains to grow our sustainable lines of revenue, most notably through our fund management division. We will also aim to create further value through the trading of suitable properties.

We have always been judicious in our buying decisions and given the current turmoil in the financial markets will continue to be so.

In our view, if the value of Polish properties decrease as a result of the tighter financing climate, they will not decrease a great deal as the fundamentals for that market remain positive. We will use any weakness in the market as a buying opportunity.

 

Current trading and prospects

I am delighted by the rate of return we earned for our clients during the year to 31 March 2008 and by the growth in our profit. We have successfully navigated our clients' funds safely round the troubles in the UK and have earned for them excellent results in turbulent markets. 

The fund management division should continue to grow at a rapid rate, further adding to our revenue streams and improving the visibility and security of our income.

We have a strong balance sheet, with no debt and a large and growing cash balance.

Given the above I remain very confident about the Group's prospects.

Ben Habib

Chief Executive

11 June 2008

CONSOLIDATED INCOME STATEMENT 

for the year ended 31 March 2008

		2008	2007
	Notes
	1
		£'000	£'000
Revenue	2	15,573	7,854
Cost of sales		(4,948)	(5,216)
Gross profit		10,625	2,638
Operating expenses		(4,648)	(1,611)
Operating profit	2	5,977	1,027
Share of associated company's profit after tax		109	76
Income from fixed asset investments		-	116
Interest income		225	99
Interest expense		(26)	(132)
Profit on ordinary activities before taxation		6,285	1,186
Taxation on ordinary activities		(1,624)	(227)
Profit for the year		4,661	959
Earnings per Ordinary 1p share -
- basic	4	4.04p	0.82p
- diluted	4	3.81p	0.80p

 

CONSOLIDATED BALANCE SHEET

at 31 March 2008

		2008		2007
	Notes	Group £'000		Group £'000 RESTATED
Non-current Assets
Goodwill		25		25
Tangible assets		125		139
Investments - including share of associates net assets	5	(39)		274
Deferred tax assets		11		-
Total Non - current Assets		122		438
Current Assets
Inventories - land and buildings		2,912		2,314
Trade and other receivables	6	8,155		4,267
Cash and cash equivalents		6,245		2,522
Total current assets		17,312		9,103
Current liabilities :  Trade and other payables	7	(4,216)		(1,699)
Current tax liabilities		(315)		(69)
Total current liabilities		(4,531)		(1,768)
Net current assets		12,781		7,335
Total assets less current liabilities		12,903		7,773
Non -Current Liabilities: other payables		(36)		(41)
Deferred tax liabilities		(798)		-
Net assets		12,069		7,732
Equity
Called up share capital	8,9	1,116		1,116
Share premium	9	5,298		5,298
Merger reserve	9	5,823		5,823
Foreign Exchange Translation Reserve	9	780		80
Share-based payment reserve	9	71		44
Retained earnings	9	(1,102)		(4,653)
Equity minority interest	9	83		24
Equity shareholders' funds	10	12,069		7,732

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

at 31 March 2008

Group	Share  capital £'000	Share premium £'000	Merger reserve £'000	Share-based payment reserve   £'000	Foreign Exchange Translation Reserve  £'000	Purchase of own Shares   £'000	Retained Earnings     £'000	Equity Minority Interest £'000
At 1 April 2007	1,116	5,298	5,823	44	80	(86)	(4,567)	24
Profit for the period	-	-	-	-	-	-	4,661	-
Movement on Foreign Exchange	-	-	-	-	700	-	-	-
Translation Reserve
Purchase of Treasury Shares	-	-	-	-	-	(548)		-
Equity Share options issued	-	-	-	27	-	-	-	-
Equity Minority Interest	-	-	-	-	-	-	(203)	203
Dividends Paid	-	-	-	-	-	-	(359)	(144)
At 31 March 2008	1,116	5,298	5,823	71	780	(634)	(468)	83
At 1 April 2006	1,116	5,298	5,823	13	70		(5,315)	(20)
Profit for the period	-	-	-		-	-	959	-
Movement on Foreign Exchange	-	-	-	-	10	-	-	-
Translation Reserve
Purchase of Treasury Shares	-	-	-	-	-	(86)	-	-
Equity Share options issued	-	-	-	31	-	-	-	-
Equity Minority Interest	-	-	-	-	-	-	(44)	44
Dividends Paid	-	-	-		-	-	(167)	-
At 31 March 2007	1,116	5,298	5,823	44	80	(86)	(4,567)	24

 

 

CONSOLIDATED CASH FLOW STATEMENT

for the year ended 31 March 2008

		2008		2007
	Notes	Group £'000		Group £'000
Cash flows from operating activities
Operating profit		5,977		1,027
Adjustments for:
Depreciation of tangible assets		73		62
Profit/loss on sale of tangible assets		17		(11)
Profit/loss on sale of investments		(30)		(46)
Impairment loss on investments		13		-
Share based payments		27		31
Share of profit before tax in associate not recognized		378		-
Foreign currency translation		700		10
Increase/decrease in inventories		(598)		384
Increase/decrease in trade and other receivables		(3,888)		1,419
Increase/decrease in trade and other payables		3,142		(338)
Cash generated from operations		5,811		2,538
Income taxes paid		(645)		(367)
Share of tax paid in associate not recognized		(44)		-
Net cash flow from operating activities		5,122		2,171
Cash flow from investing activities
Proceeds on disposal of investments		106		132
Purchase of investments		-		(54)
Proceeds on disposal of tangible assets		5		54
Purchase of tangible assets		(28)		(45)
Purchase of goodwill		-		(9)
Interest received		225		99
Interest paid		(26)		(132)
Net cash flow from investing activities		282		45
Cash flow from financing activities
Repayment of bank borrowings		(645)		(659)
Repayment of finance lease		15		(84)
Purchase of shares held in Treasury		(548)		(86)
Dividends received		-		116
Dividends paid		(359)		(167)
Dividends paid to minority interest		(144)		-
Net cash flow from financing activities		(1,681)		(880)
Net increase in cash and cash equivalents		3,723		1,336
Cash and cash equivalents at the beginning of period		2,522		1,186
Cash and cash equivalents at the end of the period	11	6,245		2,522

 

 

ABBREVIATED NOTES TO THE FINANCIAL STATEMENTS

1. Basis of preparation and presentation of financial statements 

The figures for the year ended 31 March 2008 are unaudited and are not full financial statements. The figures for the years ended 31 March 2008 and 31 March 2007 are non-statutory. The figures for the year ended 31 March 2007 are extracts from the full financial statements delivered to the Registrar of Companies, as restated to comply with FRS 21. The report of the auditors on those financial statements was unqualified and contained no statements under either Section 237(2) or 237(3) of the Companies Act 1985.

The consolidated financial statements have been prepared in accordance with applicable International Financial Reporting Standards as adopted by the EU and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). These financial statements are presented in Sterling since that is the currency in which the Group transacts a substantial part of its business and is the currency considered most convenient for shareholders.

 

In preparing these financial statements the Group started from an opening balance sheet as at 1 April 2006, the Group's effective date of transition to IFRS, and considered those changes in accounting policies and other restatements required by IFRS.

2. Segmental analysis

Segment Reporting 2008

	Property fund Management	Property Trading	Property facilities management	Other fees & income	Unallocated central overheads	TOTAL
	£'000	£'000	£'000	£'000	£'000	£'000
Revenue	8,341	2,116	4,938	178	-	15,573
Operating profit	5,735	771	737	(36)	(1,230)	5,977
Analysed as:
Before performance fees and related items	2,305	771	806	(36)	(1,230)	2,616
Performance fees	5,650	-	-	-	-	5,650
Staff bonus	(1,734)	-	(69)	-	-	(1,803)
Hedging cost	(486)	-	-	-	-	(486)

 

Segment Reporting 2007

	Property fund Management	Property Trading	Property facilities management	Other fees & income	Unallocated central overheads	TOTAL
Revenue	1,362	3,252	2,870	370	-	7,854
Operating profit	1,166	415	136	227	(917)	1,027
Analysed as:
Before performance fees and related items:	847	415	136	227	(917)	708
Performance fees	319	-	-	-	-	319
Staff bonus	-	-	-	-	-	-
Hedging cost	-	-	-	-	-	-

 

3. Dividend on ordinary shares

	2008	2007
	£'000	£'000
Interim dividends paid during year (2008:0.15pence, 2007: nil)	166	-
Approved final Dividend for the year ended 31 March 2007 0.175 pence  (2006: 0.15 pence per share)	193	167
	359	167

 

4. Earnings per share

 

	2008	2007
Basic earnings per share	4.04p	0.82p
Diluted earnings per share	3.81p	0.80p

The calculation of basic earnings per share is based on the profit for the year after taxation and minority interest, and on the weighted average number of ordinary shares in issue during the period (excluding shares held as Treasury Shares).

The figures in the tables below have been used in the calculations.

	2008	2007
	Number	Number
Weighted average number of ordinary shares in issue	110,223,796	111,556,731
Potentially dilutive share options	7,437,500	8,437,500
	117,661,296	119,994,231

	2008 £'000	2007 £'000
Basic earnings	4,458	915
Diluted earnings assuming full dilution	4,488	956

  5. Investments

The Group had the following investments:

	2008		2007
	Group £'000		Group £'000
Unlisted securities
At 1 April	274		230
Additions	-		24
Disposals	(75)		(56)
Impairment loss	(13)		-
Share of associated company's profit after tax	109		76
Less: Share of profit after tax on sale of property in associate	(334)		-
At 31 March	(39)		274
	(39)		274

During the year the Group sold a multi-let office block in Poznan, Poland, yielding a net operating income of some £260,000 per annum for a cash consideration of £2,963,000. The proceeds from the sale have been retained by the Group for use as additional capital.

The sale was made to an associated company, 5th Property Trading Poland Sp. z o.o., in which the Group has a 40.79% equity interest and the results for the year therefore only recognize 59.21% of the revenue and profit before tax arising on the sale, being £1,754,000 and £549,000 respectively. 

6. Trade and other receivables

	2008		2007
	Group £'000		Group £'000
Trade receivables	1,794		3,198
Amounts due from undertakings in which the company has a participating interest	203		800
Other receivables	422		11
Prepayments and accrued income	5,736		247
Other taxation	-		11
	8,155		4,267

Trade receivables include £252,000 (2007: £1,863,000) due from 366 HS Ltd an undertaking in which the company has a participating interest.

7. Payables

	2008		2007
	Group £'000		Group £'000
Amounts falling due within one year
Bank loans	-		645
Trade payables	914		411
Other taxation and social security	269		260
Other payables and accruals	2,910		278
Deferred income	83		85
Finance Leases	40		20
	4,216		1,699

	2008 £'000	2007 £'000
Amounts falling due after more than one year
Finance leases	36	41
	36	41

	2008  £'000	2007 £'000
Net obligations under finance leases
Repayable within one year	44	26
Repayable within one and five years	42	42
	86	68
Finance charges and interest allocated in future accounting periods	(10)	(7)
	76	61
Included in liabilities falling due within one year	(40)	(20)
	36	41

Bank loans totalling Nil (2007: £645,000) included within creditors are secured against properties owned by the Group shown under inventories at the lower of purchase cost, together with incidental costs of acquisition and any subsequent development costs, and net realisable value.

 

 

8. Called-up share capital

	2008 £'000	2007 £'000
Authorised
240,000,000 (2007: 240,000,000) Ordinary shares of 1p each	2,400	2,400
Allotted, called up and fully paid
111,601,115 (2007: 111,601,115) Ordinary shares of 1p each	1,116	1,116

Of the issued share capital, 3,757,685 Ordinary shares (2007: 450,000) are held in treasury.

The Company had 8,437,500 options outstanding at 31 March 2008 (2007: 8, 437, 500).

9. Share premium account and reserves

 

 

10. Reconciliation of movements in equity shareholders' funds

	Group
	2008 £'000	2007 £'000 (Restated)
Opening shareholders' funds as previously reported	7,664	6,992
Prior Period Adjustment (IFRS - minority interest)	24	(20)
Prior period adjustment (IFRS - share-based payments)	44	13
Opening shareholders' funds as restated	7,732	6,985
Profit for the financial year before dividends after minority interest	4,458	915
Equity minority interest	59	44
Increase in Foreign Exchange Translations Reserve	700	10
Equity Share options issued  Purchase of own treasury shares	27 (548)	31 (86)
Dividends paid	(359)	(167)
Closing shareholders' funds	12,069	7,732

11. Reconciliation of movement in net funds

 

	1 April 2007   £'000	Cash flow £'000	31 March 2008 £'000
Cash at bank and in hand	2,522	3,723	6,245
Short term deposits	(1,812)	(2,160)	(3,972)
Cash (excluding short term deposits)	710	1,563	2,273
Short term deposits	1,812	2,160	3,972
Debt due within one year
Finance leases	(20)	(20)	(40)
Property loan	(645)	645	-
Debt due after one year
Finance leases	(41)	5	(36)
	1,816	4,353	6,169

12. Report circulation

Copies of this preliminary results announcement are available from the Company's registered office at 17 Quayside, William Morris Way, London SW6 2UZ.

Copies of the Annual Report and Accounts will be sent to shareholders by 6 August 2008 for approval at the Annual General Meeting to be held on 4 September 2008 and will also be available at the Company's registered office.

ENDFR SFEFASSASEFM