Mucklow (A & J) Regulatory News (MKLW)

5 Sep 2007 07:00

Mucklow(A.& J.)Group PLC05 September 2007 Mucklow (A & J) Group plc 5 September 2007 Embargoed: 7.00am Results for the year ended 30 June 2007 Financial Highlights • Profit before tax of £33.4m (2006: £36.4m) • Earnings per share 86.62p (2006: 45.24p) • Ordinary dividend per share*1 up 7.4% to 14.73p (2006: 13.71p) • Adjusted net asset value per share*2 up 3.2% at 445p (2006: 431p) • Net assets £259.3m (2006: £215.7m) • Year end gearing (net of cash) 7% (2006: 3%) *1 Recommended final dividend of 8.04p (2006: 7.48p), making the total for the year ended 30 June 2007 14.73p (2006: 13.71p). *2 EPRA (European Public Real Estate Association) net asset value, excluding deferred tax and including the surplus on trading properties and the mark to market of debenture stock; see note 7 for details. Rupert Mucklow (Chairman) commented: "I am pleased to report another strong performance by the Group and excellentprogress made during the year towards refocusing our business, in readiness forconversion to a Real Estate Investment Trust ("REIT") on 1 July 2007". For further information please contact:Rupert Mucklow, Chairman Tel: 0121 504 2121 (direct)A & J Mucklow Group plc Mobile: 07815 151254 Fiona Tooley Tel: 0121 455 8370Citigate Dewe Rogerson Mobile: 07785 703523 CHAIRMAN'S STATEMENT I am pleased to report another strong performance by the Group and excellentprogress made during the year towards refocusing our business, in readiness forconversion to a Real Estate Investment Trust ("REIT") on 1 July 2007. Pre-tax profit for the year ended 30 June 2007 was £33.4m, compared with £36.4mfor the corresponding period last year. The adjusted pre-tax profit*, excludinggains on the revaluation of the property portfolio, profit on the sale ofinvestment properties and the premium paid on the redemption of debenture stockwas £19.7m (2006: £12.0m). Shareholders' funds increased from £215.7m to £259.3m as at 30 June 2007.Borrowings net of cash amounted to £17.6m (2006: £6.8m), representing 7% ofShareholders' funds. The EPRA# net asset value per share, which includes thesurplus in the value of trading properties, rose from 431p to 445p per share+. The Board is recommending the payment of a final dividend of 8.04p per Ordinaryshare, making a total for the year of 14.73p per share, an increase of 7.4% overlast years' total of 13.71p per share. If approved by Shareholders, the dividendwill be paid on 31 December 2007, to Shareholders on the register at the closeof business on 30 November 2007. The Group elected to become a REIT with effect from 1 July 2007, followingShareholder approval to amend the Articles of Association at an EGM on 23 May2007. The anticipated cost of conversion is £5.9m, based on 2% of the value ofthe investment and development properties at our year end (£5.7m) andprofessional fees (£0.2m) incurred, which has been reserved in the accounts,reducing our net asset value per share by 10p. Also included in these accounts is a net contribution of £31.4m to Shareholders'funds, from the write back of our deferred tax liability, amounting to 52p pershare. In future, the Group will no longer pay corporation tax on qualifyingrental income, or gains from the disposal of investment properties, providing90% of its income profits are distributed as dividends to Shareholders andcertain other conditions are met. The tax savings should allow us to increasethe Ordinary dividend by around 20% next year. The first REIT dividend will bepaid in June 2008. Property Review The last 12 months have been an exciting period for the Group. We have acquireda further 29 acres of commercial land and increased the development programme.We have also bought for cancellation the majority of our high coupon debt andsold a large tranche of our trading stock. At the same time, we have continued to actively manage our investment portfolio,to enhance property values and have pursued a number of strategic investmentacquisitions and disposals, which should benefit us in the future. Our core investment portfolio has continued to perform well. Most of ourproperties are modern, in prime locations and provide steady rental and capitalgrowth. Occupancy levels have been maintained at around 94%, while additionalrent from reviews and lease renewals has increased annual rental income by £0.4m(2.7%). Investment acquisitions and new developments added £0.9m to the rentroll, while disposals reduced it by £0.7m. As reported at the interim stage, we sold our Wates Way Industrial Estate,Mitcham, Surrey, in September 2006 for £13.8m and obtained outline planningconsent for a large mixed use development, on the site of our Bull Ring TradingEstate, Birmingham. We also acquired a prominent investment property during theyear, close to the Bull Ring Trading Estate, for £5.4m. The property currentlyproduces a rent of £400,000 per annum and offers long term redevelopmentpotential. Construction has started on three new speculative developments at Worcester(28,000 sq ft offices), Dudley (41,000 sq ft industrial) and Wednesbury (40,000sq ft industrial), with completions due between December 2007 and February 2008.When the buildings are fully let, they are forecast to add £0.9m per annum ofrental income. The anticipated cost of the current development programme is£10m. The completed end value is estimated to be around £13.7m. One of thebenefits of being a REIT, is that no capital gains tax will be payable by theGroup on the disposal of investment properties, providing the properties areheld for a minimum period of 3 years. Our commercial land bank now extends to over 50 acres, with potential to developin excess of 1m sq ft of new business space. We are currently marketing a numberof sites for pre-let buildings and intend to maintain a rolling developmentprogramme of speculative units, where occupier demand is strong. DTZ Debenham Tie Leung valued our investment properties at 30 June 2007. Theinvestment portfolio, which includes commercial land and new developments underconstruction, was valued at £288.3m (2006: £258.7m), leading to a revaluationincrease of £16.5m (2006: £28.2m) for the year (6.0%). As a REIT, we will focus on the development and long term investment ofcommercial and industrial property, mainly around our traditional area of theMidlands. We shall be restricted on the amount of profit that can be generatedfrom trading activities. As a consequence, we decided to reduce the level of ourtrading stock during the year, selling 11 acres of residential land, for £10.7m,which produced a trading profit of £10.2m. Since the year end, we have sold afurther 2.3 acres of residential land for £2.6m. DTZ Debenham Tie Leung also valued our trading properties as at 30 June 2007.The majority of trading properties comprise land with planning permission forresidential use. The trading properties were valued at £10.0m (2006: £18.9m),which showed a surplus over book value of £9.0m, equivalent to 15p per share. In the first half of the year, we bought in for cancellation £11.7m of our 11.5%First Mortgage Debenture Stock, at a cost of £16.6m. The debt was due to maturein 2014 and the interest saving is £1.3m per annum. The premium paid to redeemthe debenture stock early was £4.9m (£3.5m post-tax), which reduced our netasset value per share by 6p. There remains £4.2m of the original £60m debentureissue outstanding. Board Changes On 1 March 2007 we welcomed Paul Ludlow FRICS as a Non-Executive Director. Paulwas previously Managing Director of Severn Trent Properties and has considerableexperience and knowledge of the Midlands property market. On 30 June 2007, PeterPetherbridge (60) retired as an Executive Director and on 1 July 2007 DavidWooldridge (35) FCCA ACIS was appointed to the Main Board. Peter Petherbridge joined the Company in 1974 as Group Solicitor and became adirector in 1990. Peter has made a valuable contribution towards the success ofthe business over the last 33 years and we wish him well in his retirement. TheGroup's legal property work will now be carried out by Messrs Wragge & Co. Peterwill remain as a consultant for a period of 12 months. I am delighted that David Wooldridge has been promoted to the Board as FinanceDirector. David joined us as an Accountant in 1996 and was appointed to theposition of Company Secretary in 2002. Since the year end, David Groom (68) has notified the board that he will not beseeking re-election as a Non-Executive Director at this year's AGM and willretire from the Board on 31 October 2007. I have had the pleasure of workingclosely with David over the last eleven years, first as Managing Director, thenas Chairman, and would like to thank him for his wise counsel and commitment tothe Group. Outlook After a couple of years of exceptional growth in capital values, there are signsthat higher interest rates and a change in Investor sentiment are slowing theproperty market and providing more modest returns for Investors. Over the next12 months we expect a widening of the yield gap between prime and secondaryproperties. However, we do not anticipate any significant correction in thevalue of our modern investment portfolio and remain positive about continuing togrow the business. Our low gearing and new REIT status will provide us with opportunities tocapitalise on any potential slowdown in the market, and our selectivedevelopment programme should continue to generate additional revenue. Rupert J MucklowChairman5 September 2007 *See note 7 for the adjustments.#European Public Real Estate Association.+See note 7 for the calculations. PROPERTY AND FINANCIAL REVIEW 2006/07 was another year of re-organisation within the Group. Against thebackground of a strong financial performance, we have continued to shape ourbusiness in preparation for becoming a REIT with effect from 1 July 2007. Strategy Our long-term objective remains focused on accumulating a quality portfolio ofmodern, income producing properties, with potential for long-term rental andcapital growth. The three main areas of our strategy are: • Selectively acquiring and disposing of investment properties • Developing new properties for long term investment • Actively managing our assets to enhance value Whilst asset management is an ongoing process, we are continually monitoring theproperty market for investment and development opportunities and adapting ourshort term strategy accordingly. Investment We are now concentrating our market focus on the Midlands Region, where thefundamental economic and property drivers remain strong. It is this inherentspecialisation and focus of the Group's existing portfolio that will position uswell to take full advantage of the REIT status. As a part of this realignment ofassets we have, during the year, taken advantage of the strength of theinvestment market to dispose of an industrial estate in Mitcham, Surrey for£13.8m. This disposal contributed £2.2m to profit before tax and was sold on ayield of 5.25%. We purchased one investment property during the year for £5.4m, producing a rentof £400,000 per annum. The property occupies a prominent site of 4 acres onDigbeth High Street, Birmingham, close to our Bull Ring Trading Estate andoffers excellent long term redevelopment potential. Since the year end, we have acquired a modern 48,000 sq ft industrialinvestment, in Leamington Spa for £3.7m. The property has recently been let at arent of £252,500 per annum and offers good growth prospects. We remain ever mindful of the evolving property market. It seems clear that thedownward yield shift that has so typified the investment market over recentyears has slowed to such an extent that it could be argued that thisextraordinary period of growth in UK commercial property values has now run itscourse. We regard this slow down as a clear opportunity to use our strongfinancial position to acquire prime investment properties, or properties withlong term redevelopment potential. Development Even though the investment market is showing signs of cooling down, occupierdemand remains strong for quality, well located modern business space. It isthrough our on-going development programme that we continue to capitalise onthis demand to increase the value of our property portfolio and rental incomestream, therefore enabling us to continue our progressive dividend policy. The commercial land bank for future development has continued to grow. We nowhave 50 acres of land in 7 different locations, 29 acres having been acquiredduring the year. All sites are being actively marketed for pre-lets. We arecurrently working through the planning process on the latest land acquisitionsand started new developments and major refurbishments in Dudley, Worcester,Wednesbury and Coleshill. Our current development programme comprises 4 industrial units totaling 81,000sq ft and 4 office buildings with a combined area of 28,000 sq ft. We also have32,000 sq ft of industrial property being substantially refurbished to create atrade park. When completed and let, the properties should contribute in excessof £1.1m to the annual rent roll. CURRENT DEVELOPMENT PROGRAMME Area UnitProperty sq ft Acreage ERV £ pa Complete Units Sizes (sq ft)------------------------------------------------------------------------------------- Industrial Yorks Park,Dudley (phase 1) 41,000 2.5 200,000 Dec 07 2 18,000/23,000 Wednesbury One,Wednesbury 40,000 2.2 210,000 Feb 08 2 2 x 20,000 Trade ParkColeshillTrade Park,Coleshill 32,000 2.2 260,000 May 08 11 3,300-3,600 OfficeApex Court,Worcester(phase 1) 28,000 1.5 450,000 Dec 07 4 4,500-13,000-------------------------------------------------------------------------------------Total 141,000 8.4 1,120,000 19------------------------------------------------------------------------------------- Two additional sites were acquired during the year, in Tyseley, Birmingham andTorrington Avenue, Coventry. In September 2006 we acquired a strategic 20 acre site in the establishedTyseley industrial area, three miles South East of Birmingham City Centre for£8.9m. Outline planning consent for 360,000 sq ft of industrial/warehouse spacehas recently been approved and demolition of the existing buildings commenced. We also acquired 9 acres of prime development land at Torrington Avenue,Coventry in November 2006 for £4.8m. The site has potential for a number ofcommercial uses. Asset Management Proactive property asset management remains a fundamental key to the Group'spresent and future strategy. As a result of our robust approach to thismanagement aspect we have driven additional value in terms of both rental andcapital growth. The portfolio continues to perform well and our customer facingapproach has resulted in a high occupancy rate of our buildings, reflecting a94% occupancy level. Lease renewals and additional rent from reviews accountedfor an increase in income of 2.7% (£0.4m). During the year we obtained outline planning consent for a 500,000 sq ft mixeduse scheme on the site of our existing Bull Ring Trading Estate, as mentioned atthe interim stage. Our investment portfolio was valued by DTZ Debenham Tie Leung as at 30 June 2007.The properties were valued at £288.3m, to show an increase of £16.5m (6%) overclosing book value. The planning enhancement for Bull Ring Trading Estate added£3.9m, the remainder of the gain was spread across the portfolio, mainlyreflecting improvements in rent and occupancy levels. The net equivalent yield on our investment portfolio, excluding developmentland, was 6.0% at the year end. Industrial property was valued on a yield of6.1%, offices on 6.2% and retail on 5.2%. The average rent for the Midlandindustrial properties was £4.53 per square foot (psf), offices £14.05 psf andretail £8.68 psf. The estimated rental value for the portfolio is currently£1.9m higher than the passing rent. Trading properties We disposed of half of our trading properties by value during the year, ahead ofconverting to a REIT. Residential land in Wigan, Lancashire and Tipton, WestMidlands were sold for a profit of £10.2m. The proceeds have been reinvestedinto our commercial development programme, where we can add capital value andcreate rental income. DTZ Debenham Tie Leung valued our remaining trading properties as at 30 June2007. The value was £10.0m. Since the year end, we have realised £2.6m from thedisposal of residential land. Financial performance Rental income from investment properties remained unchanged at £14.3m, withrental income from properties disposed being offset by investment acquisitions,completed developments and asset management. As mentioned above, we havedisposed of a significant amount of our trading properties, increasing the netincome from trading properties from £2.3m to £10.2m. Administration expenses are significantly higher than the previous year, mainlydue to the professional fees incurred for REIT conversion and the termination ofPeter Petherbridge's directorship. Profits on the disposal of investment properties were also higher, at £2.2mcompared to £0.7m in 2006. As mentioned above, this relates to the disposal ofour Wates Way Trading Estate. Net gains on the revaluation of the investment and developments of £16.3m (2006:£23.7m) were reflected in the income statement. Our financing costs reflect the redemption of £11.7m of our 11.5% First MortgageDebenture Stock 2014, at a cost of £16.6m, leading to a premium of £4.9m. Aftertax relief the net cost of redemption is £3.5m. This redemption was funded outof our existing banking facilities. To increase our availability of financialresources we have taken out a further £20m revolving credit facility with HSBCBank plc, of which £14m was utilised at 30 June 2007. Interest costs of £0.5m (2006: £nil) have been capitalised to developmentproperties, reducing the interest charge to the income statement. We intend to seek approval from Shareholders for the Board to issue new Ordinaryshares. Further details are included in the circular to Shareholders to bereleased shortly. The Board only intends to raise funds from a share issue whereit would increase net asset value per share. Profit before tax reduced from £36.4m to £33.4m, reflecting the above. A tax credit of £18.6m (2006: charge £9.3m) has been recognised in the incomestatement, which is broken down as follows: Tax (credit)/charge in the Income Statement: 2007 2006 £000 £000Current tax - on income profits 4,154 2,998 - on property disposals 2,340 621-------------------------------------------------------------------------------- 6,494 3,619-------------------------------------------------------------------------------- Current tax - REIT conversion charge 5,736 ---------------------------------------------------------------------------------Total current tax 12,230 3,619-------------------------------------------------------------------------------- Deferred tax - charge for year 579 5,671 - released on REIT conversion (31,409) --------------------------------------------------------------------------------- (30,830) 5,671-------------------------------------------------------------------------------- Total tax (credit)/charge (18,600) 9,290-------------------------------------------------------------------------------- ANALYSIS OF BORROWINGS AT 30 JUNE 2007 2006 £000 £000--------------------------------------------------------------------------------11.5% First Mortgage Debenture Stock 2014 4,203 15,903Preference Share Capital 675 675Cash and Short-Term Deposits (1,252) (9,767)Borrowings from revolving credit facility 14,000 ---------------------------------------------------------------------------------Net Debt and Preference Share Capital 17,626 6,811--------------------------------------------------------------------------------Net Assets 259,292 215,672--------------------------------------------------------------------------------Gearing (net of cash) 7% 3%-------------------------------------------------------------------------------- We have stated our net asset value and earnings per share figures on an EPRAbasis for the first time. This has been done to adopt the market definition forthese numbers. For net asset value this has resulted in us taking into account the fair valueadjustment of our debenture stock, reducing net asset value by 2p per share in2007 and 10p in 2006. We have included three earnings per share (eps) figures in the report andaccounts: the income statement (unadjusted) eps; EPRA eps; and adjusted eps. Theadjusted eps is the EPRA eps after removing the effect of the redemption of thedebenture stock. The Board consider that the adjusted eps is a good benchmarkfor the underlying performance of the Group. Calculations for net asset value and earnings per share are shown in note 7 tothe accounts. Outlook The Group has had an excellent year in terms of both financial performanceand the repositioning of the business in readiness for its entry in to the REITstructure. Our quality investment portfolio and strong financialposition provide the perfect platform from which to grow the businessthrough our main initiatives of selective investment, controlled development andproactive asset management. This strategy soundly supports the Group's main objective ofproviding Shareholders with long-term stability whilst seeking tomaximise growth in earnings, dividends and net asset value. We are confident with our approach and feel extremely positive about the future. Justin ParkerManaging Director5 September 2007 CONSOLIDATED INCOME STATEMENTFor the year ended 30 June 2007 Notes 2007 2006 £000 £000--------------------------------------------------------------------------------Revenue 2 24,965 16,735--------------------------------------------------------------------------------Gross rental income relating to investment 2 14,285 14,351properties Property outgoings (748) (741)--------------------------------------------------------------------------------Net rental income relating to investment properties 13,537 13,610-------------------------------------------------------------------------------- Proceeds on sale of trading properties 2 10,680 2,384 Carrying value of trading properties sold (518) (125) Property outgoings relating to trading properties (4) (5)--------------------------------------------------------------------------------Net income from trading properties 10,158 2,254--------------------------------------------------------------------------------Administration expenses (2,996) (2,401)--------------------------------------------------------------------------------Operating profit before net gain on investments 20,699 13,463 Profit on disposal of investment properties 2,247 707 Net gains on revaluation of investment anddevelopment properties 16,322 23,739--------------------------------------------------------------------------------Operating profit 3 39,268 37,909 Finance income 4 209 561--------------------------------------------------------------------------------Finance costs (1,159) (2,036)Exceptional loss on redemption of debenture (4,949) ---------------------------------------------------------------------------------Total finance costs 4 (6,108) (2,036)--------------------------------------------------------------------------------Profit before tax 33,369 36,434--------------------------------------------------------------------------------Current tax (6,494) (3,619)Current tax - REIT entry charge (5,736) -Deferred tax charge (579) (5,671)Deferred tax released on REIT conversion 31,409 ---------------------------------------------------------------------------------Total tax credit/(charge) 5 18,600 (9,290)--------------------------------------------------------------------------------Profit for the financial period 51,969 27,144-------------------------------------------------------------------------------- Basic and diluted earnings per share 7 86.62p 45.24p--------------------------------------------------------------------------------All operations are continuing. CONSOLIDATED BALANCE SHEETat 30 June 2007 2007 2006 Notes £000 £000--------------------------------------------------------------------------------Non-current assetsInvestment and development properties 8 286,768 257,406Property, plant and equipment 1,726 1,602Trade and other receivables 370 366-------------------------------------------------------------------------------- 288,864 259,374-------------------------------------------------------------------------------- Current assetsTrading properties 921 1,282Held for sale assets - -Trade and other receivables 4,306 2,685Cash and cash equivalents 1,252 11,065-------------------------------------------------------------------------------- 6,479 15,032-------------------------------------------------------------------------------- Total assets 295,343 274,406 Current liabilitiesTrade and other payables (7,745) (8,037)Borrowings - (1,298)Tax liabilities (9,295) (1,873)-------------------------------------------------------------------------------- (17,040) (11,208)-------------------------------------------------------------------------------- Non-current liabilitiesBorrowings (18,878) (16,578)Deferred tax (133) (30,948)-------------------------------------------------------------------------------- (19,011) (47,526)-------------------------------------------------------------------------------- Total liabilities (36,051) (58,734)--------------------------------------------------------------------------------Net assets 259,292 215,672-------------------------------------------------------------------------------- EquityCalled up ordinary share capital 14,998 14,998Revaluation reserve 927 3,424Redemption reserve 11,162 11,162Retained earnings 232,205 186,088--------------------------------------------------------------------------------Total equity 9 259,292 215,672-------------------------------------------------------------------------------- Net assets per Ordinary share- Basic and diluted 7 432p 360p- Adjusted 7 445p 431p CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEFor the year ended 30 June 2007 2007 2006 £000 £000-------------------------------------------------------------------------------- Gain on revaluation of development and owneroccupied 167 4,415propertiesDeferred tax liability on items taken to equity (34) (1,108)Reversal of deferred tax on REIT conversion 19 ---------------------------------------------------------------------------------Net gain recognised directly in equity 152 3,307Profit for the year 51,969 27,144--------------------------------------------------------------------------------Total recognised income and expense for the year 52,121 30,451-------------------------------------------------------------------------------- CONSOLIDATED CASH FLOW STATEMENTFor the year ended 30 June 2007 2007 2006 £000 £000--------------------------------------------------------------------------------Cash flows from operating activities Operating profit 39,268 37,909 Adjustments for non-cash items - Unrealised net revaluation gains on investment and development properties (16,322) (23,739)- Profit on disposal of investment properties (2,247) (707)- Depreciation and other non-cash items 35 71 Other movements arising from operations - Decrease in trading properties 361 10- Increase in receivables (1,608) (670)- (Decrease)/increase in payables (268) 644--------------------------------------------------------------------------------Net cash generated from operations 19,219 13,518Interest received 192 578Interest paid (1,535) (1,863)Premium on redemption of debenture stock (4,949) -Preference dividends paid (47) (47)Corporation tax paid (4,919) (3,008)--------------------------------------------------------------------------------Net cash inflow from operating activities 7,961 9,178Cash flows from investing activitiesAcquisition and property development (24,401) (13,006)Sales of investment properties 14,136 11,643Expenditure on property, plant and equipment (11) (689)--------------------------------------------------------------------------------Net cash outflow from investing activities (10,276) (2,052)Cash flows from financing activitiesNet decrease in borrowings 2,301 -Equity dividends paid (8,501) (7,913)--------------------------------------------------------------------------------Net cash outflow from financing activities (6,200) (7,913)Net decrease in cash and cash equivalents (8,515) (787)Cash and cash equivalents at 1 July 9,767 10,554--------------------------------------------------------------------------------Cash and cash equivalents at 30 June 1,252 9,767-------------------------------------------------------------------------------- NOTES TO THE ACCOUNTS 1 Accounting policies Basis of preparation of financial informationThe financial statements have been prepared in accordance with InternationalFinancial Reporting Standards (IFRSs) adopted for use in the European Union andtherefore comply with Article 4 of the EU IAS regulation. Whilst the financialinformation included in this preliminary announcement has been computed inaccordance with IFRSs, this announcement itself does not contain sufficientinformation to comply with IFRSs. The Company expects to publish full financialstatements that comply with IFRSs on 1 October 2007. The preliminary accounts were approved by the board of directors on 4 September2007. The financial information set out in the announcement does not constitutethe company's statutory accounts for the years ended 30 June 2007 or 2006 asdefined under Section 240 of the Companies Act 1985. The financial informationfor the year ended 30 June 2006 is derived from the statutory accounts for thatyear which have been delivered to the Registrar of Companies. The auditorsreported on those accounts; their report was unqualified and did not contain astatement under s237(2) or (3) of the Companies Act 1985. The statutory accountsfor the year ended 30 June 2007 will be finalised on the basis of the financialinformation presented by the directors in this preliminary announcement and willbe delivered to the Registrar of Companies following the company's annualgeneral meeting. The financial statements are prepared under the historical cost convention,except for the revaluation of investment properties, development properties andowner occupied properties and deferred tax thereon, with consistent accountingpolicies to the prior year. The preparation of financial statements requires the use of estimates andassumptions that affect reported amounts of assets and liabilities during thereporting period. These estimates and assumptions are based on management's bestknowledge of the amount, events or actions. Actual results may differ from thoseamounts. The Group financial statements consolidate the financial statements of theCompany and all its subsidiaries. Control is assumed where the parent companyhas the power to govern the financial and operational policies of thesubsidiary. Unrealised gains and losses on intra-group transactions and intra-group balancesare eliminated from the consolidated results. At the date of authorisation of these financial statements, the followingStandards and Interpretations which have not been applied in these financialstatements were in issue but not yet effective: IFRS 7 Financial instruments: Disclosures; and the related amendment to IAS 1 on capital disclosuresIFRIC 4 Determining whether an Arrangement contains a leaseIFRIC 5 Rights to Interests Arising from Decommissioning Restoration and Environmental Rehabilitation FundsIFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary EconomiesIFRIC 8 Scope of IFRS 2IFRIC 9 Reassessment of embedded derivativesIFRIC 10 Interim reporting and impairmentsIFRIC 11 IFRS 2 - Group and Treasury Share TransactionsIFRIC 12 Service Concession Arrangements The directors anticipate that the adoption of these Standards andInterpretations in future periods will have no material impact on the financialstatements of the Group except for additional disclosures on capital andfinancial instruments when the relevant standards come into effect for periodscommencing on or after 1 January 2007. Revenue recognition Rental incomeGross rental income represents rents receivable for the year. Rent increasesarising from rent reviews due during the year are taken into account only to theextent that such reviews have been agreed with tenants at the accounting date. Rental income from operating leases is recognised on a straight-line basis overthe 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 otherrecoverables are credited against the related expense. Revenue and profits on sale of investment and trading properties Revenue and profits on sale of investment properties and trading properties aretaken into account on the completion of contracts. The amount of profitrecognised is the difference between sale proceeds and the carrying amount. Interest income Interest income is recognised on an accruals basis as and when it falls due. Cost of propertiesAn amount equivalent to the total development outgoings, including interest,attributable to properties held for development is added to the cost of suchproperties. A property is regarded as being in the course of development untilPractical Completion. Interest associated with direct expenditure on investment properties, which areundergoing development or major refurbishment and development properties iscapitalised. Direct expenditure includes the purchase cost of a site or propertyfor development properties, but does not include the original book cost ofinvestment property under development or refurbishment. Interest is capitalisedgross from the start of the development work until the date of practicalcompletion, but is suspended if there are prolonged periods when developmentactivity is interrupted. The rate used is the rate on specific associatedborrowings or, for that part of the development costs financed out of generalfunds, the average rate. Valuation of propertiesInvestment properties are valued at the balance sheet date at open market value.Where investment properties are being redeveloped the property continues to betreated as an investment property. Surpluses and deficits attributable to theGroup arising from revaluation are recognised in the income statement. Valuationsurpluses reflected in retained earnings are not distributable until realised onsale. Properties under development, which were not previously classified as investmentproperties, are valued at open market value until practical completion, whenthey are transferred to investment properties. Valuation surpluses and deficitsattributable to properties under development are taken to revaluation reserveuntil completion, when they are transferred to retained earnings. Where thevaluation is below historic cost, the deficit is recognised in the incomestatement. Owner occupied properties are valued at the balance sheet date at open marketvalue. Valuation changes in owner occupied property are taken to revaluationreserve. Trading properties held for resale are stated at the lower of cost and netrealisable value. Critical accounting judgements and key sources of estimation uncertaintyManagement have made judgements over the valuation of properties that has asignificant effect on the amounts recognised in the financial statements.Management have used the valuation performed by its independent valuers as thefair value of its investment, development, owner-occupied and tradingproperties. The valuation is based upon assumptions including future rentalincome and an appropriate discount rate. The valuers also use market evidence oftransaction prices for similar properties. Property, plant and equipmentLand and buildings held for use in the production or supply of goods orservices, or for administrative purposes, are stated in the balance sheet attheir revalued amounts, being the fair value at the date of revaluation, lessany subsequent accumulated depreciation and subsequent accumulated impairmentlosses. Revaluations are performed with sufficient regularity such that thecarrying amount does not differ materially from that which would be determinedusing fair values at the balance sheet date. Any revaluation increase arising on the revaluation of such land and buildingsis credited to the properties revaluation reserve, except to the extent that itreverses a revaluation decrease for the same asset previously recognised as anexpense, in which case the increase is credited to the income statement to theextent of the decrease previously charged. A decrease in carrying amount arisingon the revaluation of such land and buildings is charged as an expense to theextent that it exceeds the balance, if any, held in the properties revaluationreserve relating to a previous revaluation of that asset. Depreciation on revalued buildings is charged to income. On the subsequent saleor retirement of a revalued property, the attributable revaluation surplusremaining in the properties revaluation reserve is transferred directly toretained earnings. Plant and equipment is stated at cost less accumulated depreciation, less anyrecognised impairment. DepreciationDepreciation is provided on buildings, motor vehicles and fixtures and fittingson a straight-line basis over the estimated useful lives of between two andtwenty-five years. Investment properties are not depreciated. Government grantsCapital grants received relating to the cost of building or refurbishinginvestment properties are deducted from the cost of the relevant property.Revenue grants are deducted from the related expenditure. Deferred taxationDeferred taxation is provided in full on temporary differences that result in anobligation at the balance sheet date to pay more tax, or a right to pay lesstax, at a future date, at rates expected to apply when they crystallise based oncurrent tax rates and law. Temporary differences arise from the inclusion ofitems of income and expenditure in taxation computations in periods differentfrom those in which they are included in the financial statements. Deferred taxis provided on temporary differences arising from the revaluation of fixedassets. Deferred tax assets are recognised to the extent that it is regarded asmore likely than not that they will be recovered. TaxationThe tax expense represents the sum of the tax currently payable and deferredtax. The tax currently payable is based on taxable profit for the year. Taxableprofit differs from net profit as reported in the income statement because itexcludes items of income and expense that are taxable or deductible in otheryears and it further excludes items that are never taxable or deductible. TheGroup's liability for current tax is calculated using tax rates that have beenenacted or substantially enacted by the balance sheet date. Tax is recognised in the income statement except for items that are reflecteddirectly in equity, where the tax is also recognised in equity. Pension costsThe cost to the Group of contributions made to defined contribution plans isexpensed when the contributions fall due. AcquisitionsOn the acquisition of a business, including an interest in an associatedundertaking, fair values are attributed to the Group's share of separable netassets. Where the fair value of the cost of acquisition exceeds the fair valueattributable to such assets, the difference is treated as purchased goodwill andcapitalised in the balance sheet in the year of acquisition. Goodwill is reviewed annually for impairment. Under the Group's previous policy,£134,728 of goodwill has been written off directly to reserves as a matter ofaccounting policy. This would be credited to the income statement on disposal ofthe business to which it related. Financial instrumentsFinancial assets and financial liabilities are recognised on the Group's balancesheet when the Group becomes a party to the contractual provisions of theinstrument. Trade receivablesTrade receivables are measured at initial recognition at fair value, and aresubsequently measured at amortised cost using the effective interest ratemethod. Appropriate allowances for estimated irrecoverable amounts arerecognised in the income statement when there is objective evidence that theasset is impaired. The allowance recognised is measured as the differencebetween the asset's carrying amount and the present value of future cash flowsdiscounted at the effective rate computed at initial recognition. Cash and cash equivalentsCash and cash equivalents comprise cash in hand and demand deposits, and othershort-term highly liquid investments that are readily convertible to a knownamount of cash and are subject to an insignificant risk of changes in value. Financial liabilities and equityFinancial liabilities and equity instruments are classified according to thesubstance of the contractual arrangements entered into. An equity instrument isany contract that evidences a residual interest in the assets of the Group afterdeducting all of its liabilities. Bank borrowingsInterest-bearing bank loans and overdrafts are recorded at the proceedsreceived, net of direct issue costs. Finance charges, including premiums payableon settlements or redemption and direct issue costs, are accounted for on anaccrual basis in profit or loss using the effective interest rate method and areadded to the carrying amount of the instrument to the extent that they are notsettled in the period in which they arise. Trade payablesTrade payables are initially measured at fair value, and are subsequentlymeasured at amortised cost, using the effective interest rate method. Equity instrumentsEquity instruments issued by the Company are recorded at the proceeds received,net of direct issue costs. 2 Revenue 2007 2006 £000 £000-------------------------------------------------------------------------------- Total rental income from investment and development 14,285 14,351 properties Proceeds on sale of trading properties 10,680 2,384-------------------------------------------------------------------------------- 24,965 16,735 Finance Income (note 4) 209 561-------------------------------------------------------------------------------- Total revenue 25,174 17,296-------------------------------------------------------------------------------- 3 Segmental analysis - primary segments 2007 2006 £000 £000-------------------------------------------------------------------------------- Investment and development properties ----------------------- - Net rental income 13,537 13,610 - Profit on disposal 2,247 707 - Gain on revaluation of investment properties 16,754 23,739 - Deficit on revaluation of development properties (432) - ----------------------- 32,106 38,056 Trading properties ----------------------- - Proceeds on sales 10,680 2,384 - Carrying value on sales (518) (125) - Property outgoings (4) (5) ----------------------- 10,158 2,254 Administration expenses (2,996) (2,401)-------------------------------------------------------------------------------- Operating profit 39,268 37,909 Net financing costs - ordinary (950) (1,475) - exceptional (4,949) --------------------------------------------------------------------------------- Profit before tax 33,369 36,434-------------------------------------------------------------------------------- The property revaluation surplus has been recognised as follows: Income statement - Investment properties 16,754 23,739 - Development properties (432) --------------------------------------------------------------------------------- 16,322 23,739 Statement of recognised income and expense - Development and owner occupied properties 167 4,415-------------------------------------------------------------------------------- Total revaluation surplus for the period 16,489 28,154-------------------------------------------------------------------------------- All operations and income are derived from the United Kingdom. 4 Net financing costs 2007 2006 £000 £000 Finance costs on: Debenture stock 1,068 1,829 Preference share dividend 47 47 Capitalised interest (508) - Other interest payable 552 160-------------------------------------------------------------------------------- Total finance costs - ordinary 1,159 2,036 Premium on redemption of debenture stock 4,949 --------------------------------------------------------------------------------- Total finance costs 6,108 2,036-------------------------------------------------------------------------------- Finance income on: Short-term deposits 13 22 Other interest receivable 196 539-------------------------------------------------------------------------------- Total finance income 209 561-------------------------------------------------------------------------------- Net finance costs 5,899 1,475-------------------------------------------------------------------------------- In December 2006 the group redeemed £11.70m of its 11.5% First Mortgage Debenture Stock 2014 at a price of £141.81 per £100 of stock. The total cost of redemption was £16.65m, leading to a premium on redemption of £4.95m. This exceptional premium has reduced the tax charge for 2007 by £1.48m. 5 Taxation 2007 2006 £000 £000 Tax charge Current tax - Corporation tax charged at 30% 4,154 2,998 - Tax in respect of property disposals 2,340 621-------------------------------------------------------------------------------- 6,494 3,619-------------------------------------------------------------------------------- Current tax - REIT conversion charge 5,736 --------------------------------------------------------------------------------- Total current tax 12,230 3,619-------------------------------------------------------------------------------- Deferred tax - Deferred tax on property revaluations 922 5,221 - Other deferred tax (166) 173 - Prior year adjustment (177) 277 - Release on conversion to REIT (31,409) --------------------------------------------------------------------------------- Deferred tax (credit)/charge (30,830) 5,671-------------------------------------------------------------------------------- Total tax recognised in the income statement (18,600) 9,290-------------------------------------------------------------------------------- Tax recognised in equity Deferred tax 15 1,108-------------------------------------------------------------------------------- 6 Dividends 2007 2006 £000 £000 Amounts recognised as distributions to equity holders in the year: Final dividend for the year ended 30 June 4,487 4,175 2006 of 7.48p (2005: 6.96p) per share Interim dividend for the year ended 30 June 4,014 3,738 2007 of 6.69p (2006: 6.23p) per share-------------------------------------------------------------------------------- 8,501 7,913-------------------------------------------------------------------------------- The directors propose a final dividend for the year ended 30 June 2007 of 8.04p (2006: 7.48p) per Ordinary share, totaling £4,823,356. 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 31 December 2007 to Shareholders on the register at the close of business on 30 November 2007. 7 Profit, earnings per share and net asset value per share Profit The adjusted profit before tax has been amended from the profit before tax as follows: 2007 2006 £000 £000 Profit before tax 33,369 36,434 Premium on redemption of debenture stock 4,949 - Profit on disposal of investment properties (2,247) (707) Net gain on revaluation of investment and (16,322) (23,739) development properties-------------------------------------------------------------------------------- Adjusted profit before tax 19,749 11,988-------------------------------------------------------------------------------- Earnings per share The basic and diluted earnings per share of 86.62p (2006: 45.24p) has been calculated on the basis of the weighted average of 59,991,990 Ordinary shares and earnings of £51.97m (2006: £27.14m). The adjusted earnings per share has been amended from the basic and diluted earnings per share by the following: 2007 2006 £000 £000 Earnings 51,969 27,144 Profit on disposal of investment (2,247) (707) properties Tax charged on profit on disposal of investment 2,340 621 properties (note 5) Net gain on revaluation of investment and (16,322) (23,739) development properties REIT conversion charge 5,736 - Deferred tax (30,830) 5,671-------------------------------------------------------------------------------- EPRA adjusted earnings 10,646 8,990 Premium on redemption of debenture stock 4,949 - Tax thereon at 30% (1,485) ----------------------------------------- --------------------------------------- Adjusted earnings 14,110 8,990-------------------------------------------------------------------------------- EPRA diluted earnings per share 17.75p 14.99p Adjusted (and adjusted diluted) earnings 23.52p 14.99p per share-------------------------- ----------------------------------------------------- The Group presents an adjusted 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. Net asset value per share The net asset value per share has been calculated on the basis of the number of equity shares in issue of 59,991,990 and net assets of £259.29m (2006: £215.67m). The adjusted net asset value per share has been calculated as follows: 2007 2006 £000 £000 Net assets 259,292 215,672 Valuation of land held as trading 9,995 18,947 properties Mark to market on debt (1,341) (5,470) Book value of land held as trading (921) (1,282) properties Deferred tax 133 30,948-------------------------------------------------------------------------------- 267,158 258,815-------------------------------------------------------------------------------- EPRA (adjusted) net asset value per 445p 431p share-------------------------------------------------------------------------------- 8 Investment and development properties Freehold Leasehold Total £000 £000 £000 At 1 July 2005 204,793 21,180 225,973 Acquisitions 7,859 - 7,859 Additions 3,814 1,105 4,919 Disposals (3,150) (7,790) (10,940) Transfer from owner occupied 1,980 - 1,980 property Revaluation surplus 25,720 1,895 27,615------------------------------------------------------------------------------- At 1 July 2006 241,016 16,390 257,406 Acquisitions 20,489 - 20,489 Additions 3,255 684 3,939 Capitalised interest 508 - 508 Disposals (11,889) - (11,889) Revaluation surplus 16,549 (234) 16,315------------------------------------------------------------------------------- At 30 June 2007 269,928 16,840 286,768------------------------------------------------------------------------------- Investment and development properties have been included at market value after having deducted an amount of £0.22m (2006: £0.22m) in respect of lease incentives and letting fees included in trade and other receivables. The properties are stated at their 30 June 2007 market value and are valued by DTZ Debenham Tie Leung and CBRE, professionally qualified external valuers, in accordance with the RICS Appraisal and Valuation Standards published by the Royal Institution of Chartered Surveyors. DTZ Debenham Tie Leung and CBRE have recent experience in the relevant location and category of the properties being valued. A reconciliation to the amount included above is set out below. £000 DTZ and CBRE valuation as at 30 June 2007 288,266 Owner-occupied property included in property, plant and (1,407) equipment Lease inducements (216) Other adjustments 125 -------- Investment and development properties as at 30 June 2007 286,768 -------- 9 Reconciliation of movements in equity 2007 2006 £000 £000 Opening net assets 215,672 193,134 Total recognised income and expense 52,121 30,451 Dividends (8,501) (7,913)-------------------------------------------------------------------------------- Closing net assets 259,292 215,672-------------------------------------------------------------------------------- 10 Directors and Company Secretary Rupert J Mucklow BSc - Chairman Justin Parker BSc MRICS - Managing Director David I Wooldridge FCCA ACIS - Finance Director and Company Secretary David F Austin FRICS* - Senior Independent Non-Executive David C Groom FCIB* - Independent Non-Executive Paul A Ludlow FRICS* - Independent Non-Executive *Member of Remuneration Committee and Audit Committee. DATES Annual General Meeting The Annual General Meeting will be held on Tuesday 13 November 2007 at theBirmingham Botanical Gardens, Westbourne Road, Edgbaston, Birmingham, B15 3TR. Dividend The final dividend, if approved, will be paid on 31 December 2007 to Ordinaryshareholders on the register on 30 November 2007. Report and Accounts The full report and accounts for the year ended 30 June 2007 will be availableon 1 October 2007. A copy of this document is available on the Company's website, www.mucklow.com. This information is provided by RNS The company news service from the London Stock Exchange