Mucklow (A & J) Regulatory News (MKLW)

Mucklow (A & J) Group plc

8 September 2015

Embargoed: 7.00am

Financial Summary

for the year ended 30 June 2015

Recommended final dividend of 11.53p per share (2014: 11.19p), making the total in respect of the year ended 30 June 2015 20.84p per share (2014: 20.23p). The final dividend will be paid as a Property Income Distribution (PID).

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

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

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

(4) See note 9.

Chairman's Statement

Rupert Mucklow

I am pleased to report another strong performance by the Group for the year ended 30 June 2015.

Results

Statutory pre-tax profit was 38.1% higher at £56.2m, compared with £40.7m for the corresponding period last year.

The underlying pre-tax profit, which excludes revaluation movements and profit on the sale of investment and trading properties increased by 7.6% to £13.9m (2014: £12.9m). EPRA adjusted earnings per Ordinary share was 22.21p (2014: 21.09p).

EPRA net asset value per Ordinary share increased by 19.3% during the year from 358p to 427p.

Shareholders' funds rose to £268.6m (2014: £225.0m), while borrowings net of cash amounted to £69.0m (2014: £66.8m). Debt to equity gearing reduced to 26% (2014: 30%) and LTV to 20% (2014: 22%).

Dividend

The Board is recommending the payment of a final dividend of 11.53p per Ordinary share, an increase of 3% over last year (2014: 11.19p), making a total for the year of 20.84p (2014: 20.23p). Following the approval by shareholders at the AGM, the final dividend will be paid on 4 January 2016, to shareholders on the register at the close of business on 4 December 2015. The final dividend will be paid as a PID.

Property Review

The regional occupier and property investment markets have continued to improve over the last 12 months. A shortage of quality industrial space has enabled us to start increasing rental levels on our vacant properties and when negotiating lease renewals. Property values have also continued to rise on the back of strong investor demand and evidence of rental growth.

Our vacancy rate at 30 June 2015 had reduced from 6.7% to 5.4%. We completed 31 new lettings and 23 lease renewals during the year, representing 12.8% of our investment portfolio by area. We achieved average rental levels on new lettings and lease renewals approximately 3% above our estimated rental values and 11% higher than when the properties were previously let respectively.

Two investment properties were acquired during the year at a total cost of £4.2m. We bought a 28,000 sq ft industrial unit at Meridian Business Park, Leicester and a 30,192 sq ft industrial unit at Nexus Point, Birmingham. The combined rental income for the two properties is currently £0.24m pa (£4.14psf), with an estimated rental value of £0.34m pa (£5.75psf).

We have acquired a small investment property for £2.8m since the year end, and we are still actively looking to acquire further investment properties, but it has become more difficult to source suitably priced opportunities. As a consequence, our focus has now shifted towards pre-let development, where we are able to create our own investment properties, on more attractive returns.

We completed our 116,000 sq ft development for Worcester Bosch at Apex Park, Worcester in December 2014, which is now on rent. Our proposed 350,000 sq ft industrial development at Mucklow Business Park, Tyseley, Birmingham has been delayed, while we wait for Birmingham City Council to commence construction on a new link road alongside our 20 acre site. We hope to start marketing for pre-let buildings later this year and are looking for further development opportunities.

Valuation

DTZ Debenham Tie Leung Ltd revalued our property portfolio at 30 June 2015. The investment properties and development land were valued at £349.7m, which showed a revaluation surplus of £42.5m (13.8%).

The initial yield on the investment properties was 6.3% (30 June 2014: 6.8%), increasing to 6.7% on the expiry of the rent free periods. The equivalent yield was 7.2% (30 June 2014: 7.9%). Our industrial property increased in value by 16.1% during the year; offices by 13.0% and retail by 7.8%.

DTZ Debenham Tie Leung Ltd also revalued our trading properties at 30 June 2015. The total value was £1.9m, which showed an unrecognised surplus of £1.5m.

Finance

Total net borrowings at 30 June 2015 were £69.0m (30 June 2014: £66.8m). Undrawn banking facilities totalled £29.2m, while net debt to equity gearing had reduced to 26% (30 June 2014: 30%) and loan to value 20% (30 June 2014: 22%).

Outlook

Our investment portfolio is just starting to benefit from rental growth and should continue to perform well over the next few years as we continue to renew and re-let space at higher rental levels, as leases expire.

We are not expecting any significant changes in the Midlands property market over the next 12 months and remain optimistic about our future prospects.

Rupert Mucklow

Chairman

7 September 2015

Property and Finance Review

Justin Parker, Managing Director

David Wooldridge, Finance Director

Overview

The Group has delivered a robust performance in 2015. Revaluation uplifts on the investment and development portfolio have increased statutory pre-tax profit to £56.2m. We have acquired two further investment properties, completed the pre-let 116,000 sq ft distribution depot in Worcester, increased occupancy levels and enhanced the existing portfolio through refurbishment, leading to a £1.5m increase in annual rent roll.

The high level of investor demand for property in our markets has made it more difficult to acquire investment properties on long leases at an entry price that that will provide the Group with long-term growth in income and capital to support a progressive dividend policy. Our focus has been to acquire properties with opportunities to enhance income through asset management. Two investment properties, with a combined annual rental income of £0.2m, were acquired in the year in off-market transactions. In addition, we let the Redfern Park unit, acquired with vacant possession in March 2014, at an annual rent of £0.2m.

Given the weight of money chasing investment properties, and the lack of supply of industrial stock, our intention is to pursue pre-let development. During the year we completed the pre-let 116,000 sq ft unit at Worcester in December 2014, increasing our annual rent roll by £0.7m. We are continuing to progress our 20 acre development site at Tyseley, Birmingham.

Occupational demand and a lack of available stock in our core market of Midlands industrial, along with our asset management initiatives, have led to a reduction in our vacancy rate from 6.7% to 5.4% over the year, and provided rental evidence for growth on new lettings and lease renewals. Rental incentives offered to new and existing tenants have also contracted.

We have continued to invest in refurbishing the existing portfolio to achieve higher returns from new lettings. This has resulted in our property outgoings continuing at the elevated £1.0m level we reported last year, but the results are apparent in our increased occupancy and annual rent roll.

The property investment market has gone from strength to strength due to continued investor demand for real estate. The equivalent yield on our portfolio compressed by 0.7%, from 7.9% to 7.2%, increasing the capital value by 13.8% (£42.5m) to £349.7m. This led to an increase in our statutory pre-tax profit to £56.2m (2014: £40.7m), shareholders' funds by 19.4% (£43.6m) and reduced our balance sheet gearing by 4% to 26%.

Strategy and Business Model

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

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

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

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

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

The three areas of our strategy are:

· Selectively acquiring and disposing of investment properties;

· Developing new properties for long-term investment; and

· Actively managing our assets to enhance value.

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

The core of our business is the investment property portfolio, which represents 98% of the value of the investment and development properties held. The investment portfolio consists of 58 properties/estates, with 343 units, totalling 3.8m sq ft.

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

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

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

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

Key performance indicators

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

+See the table on page 9 for the calculations.

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

Group structure

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

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

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

Acquisition and disposal of investment properties

In January 2015 we acquired a 28,000 sq ft industrial unit at Meridian Business Park, Leicester at a total cost of £2.1m (£75 psf capital value). The unit was built in 1995 and is prominently located on Meridian East, adjacent to Junction 21 of the M1. A ten year lease was agreed in August 2014 at an annual rent of £0.15m (£5.18 psf).

We completed the purchase of a 30,192 sq ft unit at Nexus Point, Holford, Birmingham in June 2015. The total cost of the acquisition of £2.1m equates to a capital value of £69 psf. The ten year old unit was let on a five year lease in November 2013 at a rent of £0.10m (£3.19 psf), which offers significant reversionary potential. The building is well-located close to Junctions 6 and 7 of the M6, three miles to the north of Birmingham City Centre.

Both of these modern industrial units were acquired at capital values below their replacement cost. Combined with the potential for significant increases in rental income to current market rates, these buildings have the potential for long-term growth in income and capital value.

In August 2015 we acquired a well-located 19,203 sq ft retail unit in Leicester City Centre for £2.8m in an off-market transaction. The unit is let to Matalan Retail Limited with an unexpired term of 8 years with an annual rent of £0.18m.

In September 2014 we disposed of a 5,400 sq ft stand-alone industrial unit forming part of the larger Coleshill Industrial Estate for £0.4m (capital value of £74 psf) to a special purchaser. The unit was previously let at an annual rent of £32,400. A profit on disposal of £0.1m has been recognised in the statement of comprehensive income.

Developing new properties for long-term investment

Completion of the 116,000 sq ft pre-let distribution unit at Apex Park was achieved in December 2014. Worcester Bosch took occupation and are paying £0.72m pa in rent.

Birmingham City Council will hopefully commence the construction of a new link road adjacent to our 20 acre Mucklow Business Park, Tyseley site within the next 12 months. The site will accommodate up to 350,000 sq ft of industrial and warehouse buildings. We shall initially be targeting pre-let development.

Actively managing our assets to enhance value

In the first half of the financial year we let a 36,000 sq ft industrial unit at Redfern Park, Tyseley. The property was acquired with vacant possession in the second half of the 2014 financial year for £1.54m (including Stamp Duty and costs) and was refurbished to a high standard at a cost of £0.2m. The property was let in October 2014 on a 20 year lease without breaks at an annual rent of £0.21m (£5.75 psf).

As part of the relocation of Worcester Bosch to the Apex Park development, the tenant vacated our Knightsbridge Park, Worcester unit (48,145 sq ft) in January 2015. The unit was re-let in April at £0.25m pa (£5.19 psf) to Yamazaki Mazak UK Limited on a 10 year lease.

Due to lack of available industrial space in the Midlands, we agreed the early surrender of a December 2015 lease end of one of the units at our Wednesbury One estate in order to refurbish the 50,359 sq ft unit and bring the property back to the market early. The unit was previously let at £0.24m pa (£4.84 psf). Refurbishment works were completed in July and marketing is ongoing.

The first real signs of rental growth started to come through in the year. Increases of 25-50p psf have been achieved on 25 year old buildings, which we have not seen for over 10 years.

In order to obtain those higher rents and attract longer leases, we have invested in the existing portfolio, particularly at our smaller, multi-let industrial estates.

In July 2014 we surrendered a lease on a 15,000 sq ft unit at Mucklow Hill Trading Estate, Halesowen, let at £70,000 pa. Following a refurbishment costing £0.1m, including splitting the unit into two, we agreed lettings on ten year leases to Screwfix and Toolstation at a combined rent of £84,500 pa.

Occupancy

In last year's report we targeted a void level of below 6% by the end of the current financial year. We ended the year with a rate of 5.4%, despite taking back the 50,359 sq ft unit at Wednesbury One (amounting to 1.3% of the investment portfolio).

Valuation

The external valuation of the Group's investment and development portfolio at 30 June 2015 totalled £349.7m (2014: £298.9m) leading to a valuation surplus of £42.5m of which £42.4m is recognised in the statement of comprehensive income.

The uplift in value was seen throughout the year, with £20.9m recognised in the interim results to 31 December 2014 and the balance of £21.6m in the second half of the financial year.

Yield breakdown - investment properties

Finance Review 

The Group has had another successful year, with profit before tax hitting a record £56.2m, compared with £40.7m last year, and underlying profit before tax increasing by £1.0m to £13.9m. EPRA earnings per share increased by 5.3% to 22.21p (2014: 21.09p).

Basic net asset value per share increased by 19.1% to 424p, mainly as a result of the property valuation surplus of £42.5m.

Over the two years under review our net assets have increased by £86.1m (47%) to £268.6m. In the same period we have paid dividends to Ordinary shareholders of £19.3m, with a further payment of £5.9m in July 2015, and raised £14.2m of new equity capital in March 2014.

Income

Gross rental income increased by £0.45m to £21.6m, with the income from development (£0.38m), acquisitions (£0.07m) and lettings and reviews (£0.28m) offset by the sale of the Century House, Worcester office in May 2014 (2014 rental income: £0.28m).

Property outgoings are virtually unchanged from the prior year, as we continue to invest in repositioning existing properties to reap the benefits of rental income and capital value growth in an improved occupier and investment market.

Net rental income increased by £0.46m, from £20.12m to £20.58m.

Administration expenses have remained at £3.2m.

Interest costs have decreased by £0.5m in the year, mainly due to the redemption of the £4.2m of remaining 11.5% Debenture Stock on 1 July 2014.

As a result of the above, underlying profit before tax increased from £12.9m to £13.9m (7.6%).

No trading properties were disposed of in the year. A small investment property was disposed of in the first half-year for £0.4m, generating a profit of £0.1m.

As the Group does not hedge account its derivatives, a fair value decrease of £0.2m (2014: £0.1m) in respect of the Group's interest rate caps has been recognised in the year.

Unrealised property revaluation surpluses increased profit before tax by £42.4m (2014: £27.6m) to £56.2m (2014: £40.7m).

Taxation

No current tax charge has been recognised in the year, as the majority of the Group's income is exempt from corporation tax due to our REIT status. A prior year tax provision of £0.1m has been released in the year under review as the potential liability has been removed.

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

Dividend

An interim dividend of 9.31p per share was paid as a Property Income Distribution ("PID") on 1 July 2015, just after our financial year end.

The Board proposes a 3% increase in final dividend, in line with the increase at the interim stage, to 11.53p per share (2014: 11.19p). The final dividend will be paid as a PID.

If approved, the dividend will be paid on 4 January 2016 to Shareholders on the register at the close of business on 4 December 2015.

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

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

The interim dividend paid and proposed final dividend for the financial year (20.84p) are covered 1.07 times by EPRA earnings per share.

Underlying financial performance

Presented above is an analysis of the underlying rental performance before tax, as shown in the investment/development column, which excludes the impact of EPRA adjustments and capitalised interest. The directors consider that this further analysis of our profit before tax gives shareholders a useful comparison of our underlying performance for the periods shown in the financial statements.

Net assets

Total equity increased from £225.0m to £268.6m in the 2015 financial year mainly due to profits before revaluation surplus of £14.0m and investment and development property revaluations of £42.5m, offset by dividends of £13.0m.

Financing, cash flow and going concern

Strong cash generation continued in the current year, with operating cash flow of £12.7m (2014: £13.3m).

Property acquisitions and developments, net of disposal proceeds, increased by 16.5% to £7.7m (2014: £6.6m) and borrowings increased by £2.0m.

Equity dividend payments were lower in 2015 as the interim dividend was paid on 1 July 2015, just after the balance sheet date.

The Group's debt facilities have remained unchanged since the redemption of the 11.5% Debenture Stock on 1 July 2014.

Of the £76.5m of drawn debt at 30 June 2015, 99% is at fixed rates or covered by interest rate caps.

Our average cost of drawn debt at 30 June 2015 was 4.4% (2014: 4.5%) or 4.1% on total debt facilities

(2014: 4.0%). The weighted average term remaining is 5.3 years, or 4.6 years on total debt facilities.

Analysis of borrowings at 30 June 2015

As at 30 June 2015 the Group had £28.2m of undrawn term bank facilities and had drawn £15.8m from its HSBC £44m 2018 Revolving Credit Facility. The Group's £1.0m overdraft, which is due for renewal within 12 months of the date of this report, was undrawn. The Group has substantial headroom in its debt covenants and has a secure income stream from a diversified source pool of occupiers, without undue reliance on a single tenant.

Given these facilities, the Group's low level of balance sheet gearing of 26% and £128.1m of unencumbered properties, significant capacity exists to raise additional finance or to provide additional security for existing facilities, should property values fall.

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

Outlook

The quality and size of the Group's investment portfolio has been significantly enhanced since we converted to a REIT in 2007, with the floor area increasing from 2.8m sq ft to 3.8m sq ft, the annual rent from £15.0m to £23.1m and the Ordinary dividend per share from 14.73p to 20.84p (41%).

The 6.3% initial yield on our portfolio has compressed significantly over the last two years, but still looks very attractive in the current low interest rate environment. The property portfolio valuation remains at a discount to both the 5.6% yield as at June 2007 and the replacement cost of the buildings.

We expect the rate of yield compression to moderate, but the weight of money that is targeting real estate and the growth in rental levels should continue to support valuation increases.

Our existing portfolio offers rental growth potential and our low gearing provides us with the opportunity to enhance our underlying profits through continued investment and development to support the continuation of our progressive dividend policy.

Group Statement of Comprehensive Income

for the year ended 30 June 2015

Statements of Changes in Equity

for the year ended 30 June 2015

Group Balance Sheet

at 30 June 2015

Group Cash Flow Statement

for the year ended 30 June 2015

NOTES TO THE FINANCIAL STATEMENTS

1 Accounting policies

Basis of preparation of financial information

The Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) adopted for use in the European Union and therefore comply with Article 4 of the EU IAS regulation. Whilst the financial information included in this preliminary announcement has been computed in accordance with IFRSs, this announcement itself does not contain sufficient information to comply with IFRSs. The Company expects to publish full financial statements that comply with IFRSs on 1 October 2015.

The preliminary announcement was approved by the board of directors on 7 September 2015. The financial information set out in this announcement does not constitute the Company's statutory accounts for the years ended 30 June 2015 or 2014 as defined under Section 435 of the Companies Act 2006. The financial information for the year ended 30 June 2014 is derived from the statutory accounts for that year which has been delivered to the Registrar of Companies and those for 2015 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

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

Basis of consolidation

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

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

Going concern

As at 30 June 2015 the Group had £29.25m of undrawn banking facilities and had drawn down £15.75m from its HSBC £44m 2018 Revolving Credit Facility. The Group's £1.0m overdraft, which is due for renewal within 12 months of the date of this document, was undrawn. Given these facilities, the Group's low gearing level of 26% and £128.1m of unencumbered properties, significant capacity exists to raise additional finance or to provide additional security for existing facilities, should property values fall. Accordingly, the directors continue to adopt the going concern basis in preparing the annual report and financial statements.

Critical accounting judgements and key sources of estimation uncertainty

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

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

Standards in issue but not yet effective

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

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

Revenue recognition

Rental income

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

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

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

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

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

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

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

Dividends and interest income

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

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

Cost of properties

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

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

Valuation of properties

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

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

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

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

Property, plant and equipment

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

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

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

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

Depreciation

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

Capital grants

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

Share-based payments

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

Deferred taxation

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

Taxation

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

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

Pension costs

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

Acquisitions

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

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

Group undertakings

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

Financial instruments

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

Trade receivables

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

Available-for-sale assets

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

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

Financial assets at FVTPL

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

Cash and cash equivalents

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

Financial liabilities and equity

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

Bank borrowings

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

Trade payables

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

Equity instruments

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

2 Revenue

3 Property costs

4 Segmental analysis

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

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

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

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

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

5 Net finance costs

6 Taxation

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

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

A reduction in the main rate of corporation tax from 21% to 20% with effect from 1 April 2015 was substantively enacted on 2 July 2013 and as such deferred tax at the balance sheet date has been recognised at the reduced rate and current tax for the year ended 30 June 2015 has been calculated at the blended rate of 20.75%.

The Group became a Real Estate Investment Trust (REIT) on 1 July 2007. Under the tax rules which apply to REITs properties which are developed and sold within three years of completion do not benefit from the normal REIT tax exemption on disposal gains. The Group currently owns £13.6m (2014: £Nil) of properties which have completed development during the previous three years. If these properties had been disposed of at their 30 June 2015 valuation, then tax of £0.4m (2014: £Nil) would have become payable. No deferred tax has been provided in respect of this potential tax liability as the Group had no plans to dispose of these properties at the balance sheet date.

7 Dividends

The directors propose a final dividend for the year ended 30 June 2015 of 11.53p (2014: 11.19p) per Ordinary share, totalling £7.3m.

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

The final dividend, if approved, will be paid on 4 January 2016 to shareholders on the register at the close of business on 4 December 2015.

8 Earnings per share and net asset value per share

Earnings per share

The basic and diluted earnings per share of 89.02p (2014: 66.45p) has been calculated on the basis of the weighted average of 63,273,435 Ordinary shares (2014: 61,250,268 Ordinary shares) and profit of £56.3m (2014: £40.7m).

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

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

The Group presents an EPRA earnings per share figure as the directors consider that this is a better indicator of the performance of the Group.

There are no dilutive shares. Options over 105,418 Ordinary shares were granted in the year (2014: 87,606 Ordinary shares) under the 2007 Performance Share Plan. The vesting conditions for these shares have not been met, so they have not been treated as dilutive in these calculations. The fourth three year award under the 2007 Performance Share Plan vested in the period, with 53,495 Ordinary shares being issued and with 69,965 shares lapsed.

Net asset value per share

The net asset value per share of 424p (2014: 356p) has been calculated on the basis of the number of equity shares in issue of 63,294,833 (2014: 63,241,338) and net assets of £268.6m (2014: £225.0m). The EPRA net asset value per share has been calculated as follows:

9 Investment and development properties

The closing book value shown above comprises £327.2m (2014: £279.1m) of freehold and £21.4m (2014: £18.8m) of leasehold properties.

The properties are stated at their 30 June 2015 fair value and are valued by DTZ Debenham Tie Leung Limited, professionally qualified external valuers, in accordance with the RICS Valuation Professional Standards published by the Royal Institution of Chartered Surveyors. DTZ Debenham Tie Leung Limited have recent experience in the relevant location and category of the properties being valued.

Additions to freehold and leasehold properties include capitalised interest of £0.07m (2014: £0.01m). The total amount of interest capitalised included in freehold and leasehold properties is £5.4m (2014: £5.3m). Properties valued at £221.5m (2014: £205.3m) were subject to a security interest.

Responsibility statement of the directors on the annual report

The responsibility statement below has been prepared in connection with the company's full annual report for the year ending 30 June 2015. Certain parts thereof are not included within this announcement.

We confirm to the best of our knowledge:

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

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

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

This responsibility statement was approved by the board of directors on 7 September 2015 and is signed on its behalf by:

DATES

Annual General Meeting

The Group's Annual General Meeting will be held on Tuesday 10 November 2015 at 11.30 a.m. at the Birmingham Botanical Gardens, Westbourne Road, Edgbaston, Birmingham, B15 3TR.

Dividend

The final dividend, if approved, will be paid on 4 January 2016 to Ordinary shareholders on the register on 4 December 2015.

Report and Accounts

The full report and accounts for the year ended 30 June 2015 will be available on 1 October 2015.

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