Last checked at 26 Apr 2010 07:00
Panther Securities PLC
Final Results
Year ended 31 December 2009
ANNUAL FINANCIAL REPORT ANNOUNCEMENT
In accordance with the Disclosure and Transparency Rules, we set out below the extracts from the 2009 Annual Financial Report in un-edited full text.
CHAIRMAN'S STATEMENT
The year under review has been difficult for many property companies BUT NOT FOR US. Rent receivable during the year ending December 2009 rose to £7,380,000 compared to £7,064,000 the previous year.
These are also difficult times for many traders and other occupiers. Many tenants either go bankrupt or fail to renew leases. Over the year we lost about 16 tenants with a total rental income of £400,000 p.a. However, I am pleased to say that during this period we have also carried out 60 new lettings totalling £900,000 p.a., of which 15 required some form of rent free period to conclude a letting. Of the 16 tenants lost in 2009, seven are now let. These figures do not include the rental income from purchased properties in the year. On top of this our level of arrears has not deteriorated and is carefully monitored.
I have been the major shareholder, Chief Executive and Chairman of our Group for over thirty five years and I have always been able and pleased to report our results. However, under the present International Financial Reporting Standards (I.F.R.S.) it becomes less easy to do so, as ever, I will give a little story to illustrate why!
After returning from a very recent short break in the South of France, whilst driving home from Luton Airport I had a sudden panic attack. I thought that I had left my draft figures and Chairman's ramblings in the plane seat pocket. I told my wife and said I wasn't too worried about the notes because they were on the computer at the office but the year's figures could be found and traded upon with this inside information. I pondered these thoughts for a few minutes and then laughed out loud and said (probably to myself) "that's ridiculous. I can't understand the 'bl***y' figures so how can any stranger understand them". This is because the I.F.R.S. are trying to have a 'one hat fits all policy' and very recently the Financial Reporting Review Panel (F.R.R.P.) have taken an interest in how we present our figures and insisted we make various changes, which obviously we have done. They have asked us to point out the details and their involvement with our printed accounts and this, of course, I am pleased to do.
I appreciate that we were not protected from the foolishness of some banks and thus the regulators wish to close the stable door after the horse has bolted. However, for most companies, especially smaller companies, reliability and clarity of accounts can be judged by a cursory glance at the management. Thus our record would have shown that not only do I, as the Chief Executive, not receive an unjustified bonus, I have not received a salary for five years and have not received any payment into my pension fund for thirteen years although it would have been personally tax efficient to have done so. My benefits are directly proportionate to every shareholders individual holding. I do not trade in our shares and have never personally sold any, thus our shareholders' interests are well looked after. We are a relatively small company with most of our shareholders private individuals who should be entitled to receive simple, understandable accounts which until recent years they did.
Thus it is my personal opinion that the regulators' input has produced no meaningful benefit for the vast majority of our 500 shareholders. In particular, I feel the accounting under the I.F.R.S. has made the accounts unintelligible on first reading and less easy to understand for the following reasons.
a) the temporary rise and fall in values of a property company's unsold investments are taken through the Income Statement (Profit & Loss Account) but I feel the revised value should be shown on the Statement of Financial Position (Balance Sheet) with appropriate notes, and with unrealised movements taken to reserves.
b) fair value adjustments on financial derivatives are taken to the profit and loss account. However, in our case these have little likelihood of ever being crystallised, and I feel should be dealt with by way of suitable note to the accounts. These derivatives have been so volatile that the values have fluctuated £1.5m up or down over a period of two or three months which is significant for a company of our size. Until realised it is neither a profit or loss but a factor that should be appropriately noted and as our accounts are announced at least three months after the accounting year end date meaning the value is invariably very different at the time of announcement.
These two accounting policies distort the true trading and business activity by completely overshadowing the results within the income statement (profit and loss account).
Also, as you can see from my earlier comments, in an effort to 'simplify' accounts, the I.F.R.S. body has decided, in their great wisdom, to change the titles of key accounts statements. For your information, the profit and loss account is now called the Income Statement (this was changed a few years ago).
For the current year, the balance sheet is now called the Statement of Financial Position.
Although the 'balance sheet' has been used for over 4000 years (such as by the Sumerians) the word for this and profit and loss account can be traced back to Renaissance Italy.
Given this long history, it is no wonder that the previous titles were so widely accepted and understood, so why they have renamed these is beyond my understanding.
I am therefore leaving the I.F.R.S. & F.R.R.P. main account figures and changes to be presented and explained in our Financial Director's Operations Report & Review whereas I will report in terms whereby all shareholders should be able to understand how the business is doing, what we have done over the accounting year and how we see the future progress of the Group.
VALUATIONS
We did not feel it appropriate, necessary or cost effective to have an outside valuation at this date so a panel made up of John Doyle, Simon Peters and Bryan Galan carefully considered the values of our entire property portfolio and afterwards their conclusions were reviewed by myself and, of course, duly audited. A total reduction in values of £6.2 million was approved as appropriate. This included downs and ups. The new figures being provided in our Statement of Financial Position (Balance Sheet) and also as required the changes in total value have been incorporated in our income statement where appropriate.
Our derivatives, which fixes the majority of our interest payments, fluctuated quite wildly during the year but by Balance Sheet date had improved by £5.2 million on the previous year's £12 million liability and thus is brought in as a fair value adjustment in the income statement.
Property Acquisitions & Trading
In the early part of the year the Group contracted to buy five vacant freehold properties, all former Woolwich branches. Two were sold at an aggregate profit of £77,000, and two properties were let and sold for an aggregate profit of £152,000. This produced a combined profit of £229,000. The fifth one, at 19 Queen Street, Ramsgate, was purchased for £105,000 and is currently being offered to the market.
We acquired a freehold vacant shop and upper part at 5 High Street, Southampton for £260,000, which is close to our recent purchase of investment properties in East Street, Southampton. This property was immediately offered to the market and was sold shortly thereafter for £430,000. We helped the purchasers finance the acquisition by way of a £60,000 secured loan.
Even though small profits, these demonstrate that there is still an active market and added value can be created by an experienced property team.
We acquired a freehold triple shop unit at 98-102 High Street, Margate, formerly let at £70,000 per annum. The price paid was approximately £350,000, effectively with vacant possession, as the tenant was in receivership. Also, a freehold vacant shop/office/residential property at 214 High Street, Bromley, which adjoins existing substantial property holdings in Bromley, and will hopefully assist in utilising their full potential.
Corporate Acquisitions
In July 2009 we acquired TRS Developments Limited. This is a small group of companies which owned five properties (former petrol stations), where permissions for change of use and redevelopment had been obtained. A nominal value was paid for the shares of the holding company of the group of companies and £1.4 million was paid to acquire debt due to the holding company of the Group (which was at a discount to its book value).
The five properties included two recently completed freehold developments virtually fully let. The first was a convenience store located in Stoke-on-Trent, currently let to United Co-Operative Foodstores. The second, located in Stockton-on-Tees, was a development of three retail units and six flats. The commercial properties had new 15 year leases and the residential properties, on assured short-hold tenancies, produced a rental income in total of approximately £120,000 per annum.
We saw this as a further trading situation and sold the two investment properties for £1.3 million leaving the remaining properties at minimal cost and returning the majority of our original cash investment.
The three undeveloped freehold sites all have the following planning permissions as detailed and have been valued in our books at £0.5 million, but we feel that there are angles to profit even further.
Dynefor Terrace, Nelson, Cardiff, South Wales - a mixed residential planning scheme of 11 units on a site of approximately 0.88 acres.
55-81 Stratford Road, Sparkbrook, Birmingham - a 6,000 sq ft convenience store with 18 flats above on a site of approximately 0.57 acres.
60-62 Paisley Road, Barrhead, Glasgow - outline planning for a retail unit with seven flats above on a site of approximately 0.30 acres.
Melodybright Limited
In July 2009 we also acquired this company which owns a leisure complex in the centre of East Grinstead. This property is let to various tenants, including J D Wetherspoon, Domino's Pizza and a triple screen cinema. It produces a total annual income of £240,000. Panther acquired Melodybright Limited for nominal consideration but purchased for £470,000 (a discounted price) the debt due to the original developer, this being the approximate net asset value of the company after adjustments based on the negotiated valuation of the property (approximately £2.2 million). We retained the existing company term bank loan of approximately £1.7 million on favourable terms (compared to the current market). The property contains two vacant units which provide an opportunity to increase the rental return, although one of the units' rent is currently covered by way of a guarantee. The year-end Directors' revaluation of this property provided a substantial uplift.
Development Progress
Guildhall Street, Folkestone
All twenty flats are now let. Shop will be occupied by our new associated shoe retailer (see below).
Top Cat Estate, Grimsby
Only half let but negotiations in hand for a further unit.
Brackla Shopping Centre Extension, Bridgend
Two units are now let and negotiations in hand for the remaining triple unit.
199/203 & 205/207 High Street, Perth
199/203 development completed. Increased interest in units. One under offer to pawnbroker.
205/207 under offer to a turf accountant if they can obtain a licence.
Queens Road, Southend
HMV vacated after their lease ended. A development scheme for a new 5,000 sq ft shop and 44 units of student accommodation above has been prepared and submitted for planning.
High Street, Broadstairs
An attractive Tudor style development scheme for a 4,000 sq ft shop unit with twelve flats above has been submitted for planning approval.
Holloway Head, Birmingham
For more years than I care to remember we have been working with our architects to produce a comprehensive scheme for this island site close to the centre of Birmingham. We own about 80% of the site and the other owner has in principle agreed to be re-housed in a new, slightly larger and more suitable building. After three years of detailed discussions with the planners when the vast array of publicly interested parties had been consulted and concerns dealt with, an outline planning application for a 500,000 sq ft mixed use i.e., residential/social housing/car showroom/club/hotel/restaurant/Association headquarters was submitted. Three days before the application was due to go to committee we were asked to temporarily withdraw the application as the planning department had been so snowed under they could not complete their report in time. We hope to resubmit shortly and possibly get a fast track decision.
If we receive a favourable decision it could crystallise a substantial increase in the value of our site.
POST YEAR END ACTIVITY
New associated shoe retailer
Since the year end we have formed a joint company with Daniel Footwear who are a successful quality multiple shoe retailer with over twenty branches. The new company is aimed at the value end of the market with a view to utilising some of our vacant units and taking advantage of the many other retail opportunities that are available. This new company is currently trading from four units and has a positive cashflow.
Investments
Since the year end we have acquired 20% equity in Beale PLC at a cost of approximately £1.6 million where I personally also hold 10%. Beales is an old established group of department stores owning some large freeholds and we are currently in discussions with the Board to obtain representation with a view to assisting them with any potential expansion plans they may have.
Finance
We are fully drawn down on our £42.5 million facility with HSBC Bank plc which we have in place until 30 November 2011. We believe the general lending situation is recovering and we hope and prefer to be able to refinance with HSBC Bank plc with whom we have had a twenty seven year unbroken and cordial relationship.
We have had discussions with four other banks regarding additional financing facilities. All have offered us loan facilities in principle. As we have still not fully utilised our significant cash funds (£14.8 million at the balance sheet date) we have not actively pursued these potential new facilities.
I would remind our shareholders that at 31st December 2009 we held approximately £22 million of uncharged properties and over £5 million by value of uncharged quoted securities.
Dividends
In the year we paid one quarterly dividend of 3p (October 2009), and have also since the year end paid a further 5p (February 2010). We expect to pay a final dividend of 4p in July, subject to shareholder approval, bringing the total for the year under review to 12p.
In February 2010 we paid a 10p interim dividend for the year ending 31st December 2010 and anticipate a final dividend of not less than 2p per share.
Political Donation
This year I have not asked for a donation for the Conservative Party as I did not believe it would arrive early enough to help with the forthcoming election. However, most shareholders will be delighted to know I personally gave an equivalent donation to help try and remove this dreadfully incompetent government.
Prospects
As I write this last part of my Chairman's Statement, I have just heard on the radio that our Prime Minister was on his way to see the Queen to ask her to disband the current Band of Bureaucratic Bounders, Brigands and Bare Faced Liars, and throw their expense accounts, hidden agendas, general incompetence, political correctness and failures in practically everything that counts for most people to the people's judgement. Please, please may it be swift and harsh.
Our prospects are affected to a degree by the outcome of this election. The best outcome for nearly all businesses including the property business is a Conservative win with a good working majority. On the current government's record over thirteen wasted years guiding the country practically into bankruptcy, it should be a walkover.
But, of course, life's not like that. People's subservience has been bought with sinecures such as the 1,000 quangos who employ many, many thousands of people. Many are paid for failure or lie on a claim form and many can't even acknowledge that their cushy job is not really necessary, i.e., bat-finders, newt-watchers and traffic flow improvement planners. For them, the question is not "What can I do for my country" but "How much longer can I squeeze the state for my entitlements". Thus, many voters will vote for continued profligacy - we may receive either the same continuation of failures, or a hung Parliament when coalition will produce another period of decision delays. In either of these cases, the world's financial markets would then vote with their feet. Probably dump the £, dump our government bonds, halt major investment in UK PLCs and then wait and see. This scenario can't be good. Our company is small and nimble and financially robust enough to profit from short term opportunities that may come our way. However, for long term success, we need stability, which only comes from a government with the ability to pull back the country from the precipice of bankruptcy, and then continue to manage without constantly resorting to financially bleeding the successful parts of the economy to squander on hair-brained politically correct agendas.
Either way, I am confident we will continue to prosper. A report in Property Week (dated 18th December 2009) put our company at number two for overall increase in shareholder return over the previous 10 years out of 28 of the fully listed property companies.
For this, I apologise - we should have been top!!
We will, of course, try to do better in the next ten years.
Finally, I would like to thank our financial advisers, legal advisers, agents, accountants and, of course, our tenants - to all of whom I am most grateful.
A special thanks to our small dedicated team of staff, all of whom helped way beyond the normal call of duty in successfully arranging our office move from Panther House, Mount Pleasant - where we were part of the fixtures and fittings - to Deneway House, Potters Bar during October 2009. We all now have a much improved environment in which to work, to the benefit of our shareholders.
Andrew S Perloff
CHAIRMAN
26th April 2010
For further information please contact:
| Panther Securities PLC | +44 (0) 1707 667 300 |
| Andrew Perloff, Chairman |
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| Panther Securities PLC | +44 (0) 1707 667 300 |
| Simon Peters, Finance Director |
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CHAIRMAN'S SUPPLEMENTARY RAMBLINGS
VIVA LAS VEGAS
You probably recently read about the G8 Summit on climate change, when leaders of the eight "rich" countries of the world discussed ways to reduce global warming and advise poorer nations about their CO2 emissions.
Shareholders already know my views on "climate change" and the first part of my scepticism has been proved correct, with some leading scientists having been exposed doctoring their research reports to give the results they want us to hear. The rich nations proposed granting billions of Dollars/Pounds/Euros in aid to help the poor nations produce more efficiently (i.e. cheaply) with less CO2 release.
Of course, they already have much cheaper labour costs, so added aid will help them to undercut goods currently produced in the UK, thus closing many of our factories and putting UK workers onto state aid. Our Prime Minister was one of the first to promise £1.5 billion of aid - perhaps he does not talk to his Chancellor, who might have told him the country is practically bankrupt, living off IOUs and in no fit state to help others.
However, I saw a newspaper photo of the leaders at the G8 Summit Table and the eight people sitting round a table reminded me of one of my memories of nearly 30 years ago.
I was in Las Vegas with a small group of friends for a 10 day holiday. Las Vegas, built in a desert as everyone knows with mob money as a gambling destination, has boomed as few other towns have over a similar period. Shareholders will know I am not a particularly enthusiastic gambler, but the town has fantastic weather, great facilities, huge choice of food, late night entertainment and exceptional hotels, all of which were at reasonable prices (obviously subsidised by the gambling). I stayed at Caesar's Palace Hotel (appropriately named). Whichever way you approached the lifts to take you to your bedroom, you had to pass through the gambling rooms which were operational 24 hours a day. The second night after seeing a show, as I was passing the poker tables at about 2am, I decided to play. Poker was a game I had played once a week with my friends for about 10 years, when I was aged 17 to 27, but it was 10 years since that time.
At the casino there are usually eight people round a horseshoe shaped table (hence the reminder when I saw the G8 photo shot). The dealer sits in the inner middle of the horseshoe and the seven punters round the outside. The first time I played for a couple of hours to get a feel for the game again. The next night I took my place also at about 2am. Six other gamblers were there - three men, who could have fitted in well at any accountants' or lawyers' convention; but to my left was a very large and very jovial widow from Minnesota, who told us her life story before five hands had been dealt and played. Her late husband obviously had committed suicide. To my right sat a Texan husband and wife team. He looked like an elderly Buffalo Bill with long grey hair and big hat, big belt with empty gun holster and big boots and she was a young pretty trailer park Calamity Jane with big blonde hair, big blue eyes, big boots and big boobs. I initially thought she was there as a nubile distraction to benefit her husband, but she herself in fact played well.
The casino made its money by taking two dollars from each player each round they played and stayed in. We were playing stud poker, which is where the first card is dealt to each player face down, which only the individual player can see, and then four more cards are dealt face up - one at a time, which everyone else sees - and then bets on each round. You either have to keep up with the betting or you fall out, leaving your earlier bets in the pot until there are only two players left, one matches the last bet to see the cards of his or her opponent - the best hand wins the entire pot but even though playing for small stakes ($1 to $10 a bet), the pot could still amount to $200 or $300. After about two hours of uneventful play and constant joviality from the Minnesota widow, I was suddenly dealt an excellent hand with my hidden card and first open card matching. The widow seemed even happier than usual and was making the running with the betting, which I went along with. There were only three people left after all the cards had been laid down. It was my turn to make the first bet. The widow had a good hand showing, and the other man less so, my hand showing was reasonable but with the hidden card made it unbeatable whatever combination of hidden cards the other two players could muster. I said "check", which means I would leave the betting to the next man, usually done when one has a weak hand. The next man also checked. The widow bet $20 and I then bet her $20 and raised it $30. The next man pulled out. The widow thought I was bluffing and bet $50. I raised $50. She bet $50 and raised it $50. I knew it was impossible for her to have a better hand so I continued two or three more rounds. The widow finally paid to see me. Of course, I won. The pot was $800, the largest of the night. The widow's joviality vanished instantly. Bright red in the face, she shouted at me that I shouldn't have checked with such a good hand. She then stood up, pushed her chair over and stalked off. Buffalo Bill smiled at me and said in his Texan drawl "That ain't no way to treat a lady, sonny".
I played on for another half hour or so and then stopped with most of my winnings intact. When I stopped playing, so did Buffalo Bill and Calamity Jane, and we chatted at the bar for a while. He told me that he had been a poker player for most of his life and said: "Whenever you sit down at a poker table, after a few rounds, look at the people - there are always one or two mug players - if you can't see who they are, then it's you." He then went on to say "I thought you and the big widow were the mug punters, but it was only her."
We all know who the mug punter was at the G8 Table; it always seems to me whenever there is a round table conference on European trade or agricultural subsidy policies or asylum seekers or human rights or mutual extradition treaties our representatives come off worst with a rotten deal for our country and thus appear to be the "mug punters".
BUILDINGS - LITTLE & LARGE
Firstly, the large.
This is Dolphin Square, with which I have only a tenuous link. The first connection was many years ago in 1963, when I was the most junior of junior office boys at Marcus Leaver & Co, the Mayfair agents with instructions to sell the block by auction. Another time, over 20 years later I made enquiries via solicitors to try to find out whether Westminster Council would sell their long leasehold interest!
Dolphin Square is a massive brick built block of about 1,250 flats, divided into 13 sections, all named after former British admirals or navigators. It is situated along the north bank of the Thames, close to Vauxhall Bridge, and conveniently within walking distance of the Houses of Parliament and some of the most important government buildings. Its location therefore makes it ideal and thus extremely sought after by members of the House of Lords, MPs and other well-paid bureaucrats who work in Whitehall or very central London.
Dolphin Square was built by the speculator builders Richard Costain Limited, between the years 1935-1937, when the country was still recovering from the Wall Street Crash of 1929 and the years of depression that followed when materials and labour was cheap. The flats were all let and Costain was able to retain it as an investment for about 20 years although because of Rent Control Legislation it was not a particularly profitable investment. In 1958 they sold the block to one of the greatest property dealers of all time, Max Joseph, whom I had met on four occasions, three times taking him up in the lift to see Marcus Leaver and once 12 years later when I tried to sell him a two acre site containing about 100 freehold Georgian buildings in W1 - however, I am drifting.
Max Joseph paid £2.4 million, giving Costain a £1 million profit on its 20 year investment. Within a short space of time he sold it, along with another block of property called the Hyde Park North Estate (which Marcus Leaver also later dealt with by auction), on to a newly formed company called Lintang Investments, which was then floated on the Stock Exchange. There was a property and share boom/bubble at that time, and Lintang was a roaring success reflected in its increasing share price. Max Joseph then started to unload some of his shares at a huge profit while cleverly maintaining 50% control.
So far so good, but there is now a new twist and new direction to the story…..
Harry Jasper was a pre-war refugee from Berlin. He had owned and ran a successful currency trading business. However, he served in the British Army and afterwards built up an even more successful merchant bank called H Jasper & Co. Sometime in the mid 50's he was joined by another refugee from Berlin, a young and clever lawyer called Friedrich Grunwald.
I have no doubt that after the war there were huge opportunities for adventurous entrepreneurs who could take advantage of the shortages, government rationing and licensing. Following the frugal years of war, there was an escalating demand for practically everything - especially property - due to the destruction. At the same time, many old established businesses faced ruin due to excessive taxation and heavy death duties and also the devastation caused by war.
In this scenario, the Jasper Group prospered. They acquired controlling interests in asset rich public companies, selling off or selling and leasing back properties from which their new company traded and moved on to bigger and better deals so that by the late 50's they controlled about 16 quoted companies. However, it was a little strange that although Britain was going through a credit squeeze they never seemed to have any trouble in finding cash. They had a distinct advantage in that Grunwald was solicitor to the State Building Society, a small (40th largest society) but not inconsequential building society, with over £12 million in assets. To give an idea of values at that time, it must be remembered that a substantial detached house in London could have been bought for £5,000. Out of the State Building Society total funds half, i.e. about £6 million, was lent to the Jasper Group and of this, half of the loans was completely unsecured without any proper documentation.
Even then, building societies were regulated and they needed either special approval or had to list any individual loan over £5,000. This was easily surmounted, as Jasper/Grunwald had created well over 500 companies to make their purchases and each was lent just under the £5,000 limit by the State Building Society.
Success however eventually went to their heads and they over-reached themselves. They bought 51% of Lintang Investments from Max Joseph and bid for the rest of the company (valuing the company at about £7,500,000) a premium to market price and the then stated asset value. They might have just survived this deal as Max Joseph helped by providing some short term finance but another irresistible opportunity came their way. The £1,500,000 Ely Brewery Company of Cardiff, with 260 freehold pubs was available. They just had to bid for it but they ran out of cash and were unable to pay the various accepting shareholders their money. Like a house of cards, their whole edifice collapsed. Grunwald fled the country and Jasper and Murray (the Chairman of the State Building Society), were temporarily left to carry the can.
The sixteen companies' shares were suspended. The State Building Society suspended redemptions of deposits to its 26,000 depositors but, and unlike today, the government acted quickly and appointed a top Q.C. to investigate the Jasper affair and arranged for one of the leading and most honourable solicitors of the day to become Chairman of 10 of the companies with a view to sorting out the complexity and difficult ownerships in nearly 1,000 separate companies.
We now revert to the junior office boy who had his desk at the front of the office in Bruton Street. It was not my place to deal with visitors but that of an elderly sergeant who, in his uniform, looked like an under-nourished survivor of the Boer War. He was never at his desk, he was either in the basement having a drink and smoke, out on an errand or flirting with the secretaries on the first floor.
It thus fell to me to deal with all and sundry visitors. One morning a tall, grey haired old cadaverous and serious looking man arrived. He was wearing a black jacket, grey striped trousers and black bowler hat - obviously a solicitor. He approached my desk. "I have an appointment with Marcus Leaver". "Ooh shall I says 'ere?" I asked from my slouched position in my chair, he replied "SIR DINGWALL BATESON"!
I jumped to attention and executed a magnificent bow that would have done justice to the Emperor Hirohito if he had deigned to grace us with his presence.
"YES SIR!!, I will take you to him right away" and so I did. Sir Dingwall came on many occasions but by then I had been informed although he was important, he did not warrant the full royal treatment I had delivered, although he deserves immortality for his quote "A solicitor is a man who calls in a person he doesn't know, to sign a contract he hasn't seen, to buy a property he doesn't want, with money he hasn't got.
Another visitor who arrived at my desk connected to Dolphin Square was a very small man with a big head, big glasses and an enormous smile. He asked to see "Marcus". I knew his name, Arthur Askey, a well-known and popular comedian. He was a Dolphin Square resident and represented the Tenants Association. Of course, over the years, as well as many bureaucrats and MPs etc., many famous people lived there including Harold Wilson and comedians Ben Lyon and Bud Flanagan, Peter Finch and also Christine Keeler and John Vassall (a Soviet Spy), Charles de Gaulle, Donald Campbell etc and, of course, many persons on the public payroll.
With such high-powered and well connected tenants, they managed to convince Westminster Council to provide public funds to purchase the property.
The then 70 year head lease was purchased before the auction for £4,500,000, well above the £3.5 million originally expected. Westminster Council loaned the money to a new non-profit making Dolphin Square Management Trust, which was created by two of Westminster's council officials, who interestingly, were both residents of Dolphin Square and one later became chairman and the other vice chairman of the Trust. The rents were reduced. The Trust was accountable only to itself. Gradually, over the years, the block seemed to be subsidised accommodation for the rich or well connected. By the late 90's, Westminster Council began to realise their dreadful mistake and tried to extricate itself from the arrangement with the Trust.
Finally, after failing to rectify the situation, Westminster sold its remaining 27 year leasehold interest in 2005 to an American equity and property trading fund for £190 million. Of course, if the block was freehold it would have been worth about £400 million.
Friends Provident own the freehold on behalf of one of their long-term funds, almost certainly a great investment. They obviously had tried to buy the Westminster lease, but failed, possibly by virtue of the Trust's disinclination for change. American funds, however, are made of sterner stuff and having bought the leasehold, moved to acquire the freehold unilaterally by taking advantage of the leasehold enfranchisement acts (which had been badly drafted and allowed investors, as well as occupiers, to enfranchise if they owned a lease of more than 21 years at a ground rental). To utilise the legislation, the American fund then reverted back to the old Jasper/Grunwald trick of creating 600 companies, each owning one or two Dolphin Square flats and serving enfranchisement notice on Friends Provident, which could have allowed each company to buy its freehold. Its attempt rightly failed.
It is reported that of Westminster's £190 million sale price, £52 million went to its general fund. The balance of £138 million went to the Trust, of which £84 million was used to set up the Dolphin Trust Foundation Charity to support affordable housing. The £54 million left was set aside to protect the tenants and pension obligations!
THE STORY IS FAR FROM OVER, as Friends Provident recently merged with another recently created company, and I have no doubt this major asset will somehow be involved in the reorganisations that will take place over the forthcoming years. The American Fund temporarily thwarted in its effort to buy the freehold presumably to enable it to sell off individual flats, decided to maximise their return. Probably over 50% of the residents of Dolphin Square had some form of controlled or regulated rent payment (which means they pay very low rents) and have security of tenure, so it was worth while for the leasehold owners to either buy out tenants' leases at a fat premium and obtain vacant possession, or even pay a premium of anywhere between £30,000 to £120,000, and then grant the tenant a new lease at a modern market rent of maybe £200 - £300 per week higher without the security. There were many people who took the offer and I suspect that a good proportion of them were either politicians or bureaucrats who have their rent paid by us, the taxpayer. I wonder how many of them took the capital sum offer for themselves (tax free as their principal home), then started to charge the higher rents to the taxpayer as a second home "expenses" - I suspect this building story, which has been running longer than "The Mouse Trap" is not yet finished.
Secondly, the little building - PANTHER HOUSE
On Friday, 16th October 2009, my wife had her best nights' sleep for a very long time. I did not sleep at all that night and she therefore didn't suffer the usual snoring, fidgeting and general discomfort that is part of the "for better or for worse" of being my wife. The reason for my sleeplessness? I had finally moved out of my office after 35 years and the enormity of the occasion had just begun to sink in. Although the move had been planned for many months, most of the work and effort had been dealt with by others. As always I was too busy to focus on the gradual changes going on around me. That Friday evening, leaving our now desolate empty offices and saying goodbye to many long-term friends and tenants, I admit to feeling a tinge of sadness and nostalgia.
At night, however, as I lay there in the long dark watches of the night, sleep remained elusive and my mind was free to wander back 38 years to when the story began.
The year was 1971 and our business was on the way up. We were about to move from our pleasant but utilitarian offices in Grays Inn Road to our palatial offices in Park Street, Mayfair. Around this time, whilst reading the Financial Times, I read an article about a property company that had acquired 18 per cent of a small old-established quoted optical concern called Levers Optical Company Limited, and was in talks to merge its property interests with that company. Levers occupied a building then called Leveroptic House, at 38 Mount Pleasant, just three hundred yards from our existing offices, so Harold, Malcolm and I took a stroll up the road to look at their building. I had already studied their accounts - any novice could have seen that their huge building, despite its age and location, was far more valuable than the £85,000 freehold value shown in their accounts. With practically no debt and showing £240,000 net assets, the company was easily worth double the £160,000 at which it was valued in the Stock Market. We bought some shares and a few months later it was announced that the merger talks were off, so I instantly phoned the jilted property company offering to buy their shareholding, which we did, giving them a small profit.
We thus became a large minority shareholder in the family-controlled company and initiated our own merger discussions which, of course, politely went nowhere. We continued to make small purchases of shares and were by now prospering and enjoying life in our palatial Mayfair office. Gradually the optical company began to suffer so we approached two of the founding family members who held 18 per cent of the company's shares. Neither worked in the company nor received salaries, only a very meagre dividend. We offered them 110p per share which, at nearly twice the market price was a very generous price, but, of course, Leveroptic House had risen in value. They accepted and, having reached 42 per cent of the ordinary shares of the company in September 1972, we were obliged to and made a successful bid. Finally we obtained 54 per cent of the company allowing us to take full control.
For three years we were absentee owners in Mayfair, leaving the existing management in place. In 1974/5 the property market collapsed precipitously with the secondary banks all failing. Our Magnificent Mayfair mansion was forced onto the market and we had to move into two rooms in Leveroptic House. Times were tough in both property and optics. We took effective management control and reorganised the optical company, moving production into about 10,000 square feet on the top two floors. We then decided to try to let the remaining 27,000 square feet. Any sensible property surveyor or investor will know that you must let entire clear space floors on full repairing and insuring leases. This proved impossible because of the age of the building and its unusual layout etc. Even the floors we had speculatively refurbished found no tenants.
One day in 1977, a young American who was travelling round the world walked in to ask if we had a small room he could rent. He explained that he earned enough to pay for his travels by making small leather goods which he then sold from a makeshift stall on Oxford Street and the Kings Road. Fortuitously, he saw my brother, Harold, who had some years earlier been in a similar position as a world traveller, and was therefore more sympathetic than Malcolm or I would have been for such an inconsequential letting. Harold agreed to rent our young American an empty office at £50 per month plus a month's deposit. I was not particularly happy with this as it didn't seem worth the trouble for such a small amount. However, after a day or two, I realised that we had at least 10 existing rooms available to let without needing to spend any money. We consequently put an advert in Time Out magazine offering "small rooms to let" - and we were happily surprised by the response. All rooms were let within three weeks. We did not use a lawyer for such small lettings but created our own three paragraph all inclusive licence which lasted trouble free for nearly 30 years.
Our next move was to chalk out a corridor down the middle of each of our vacant floors and re-advertise. The responses came pleasingly and surprisingly quickly. We decided that we would offer them a one window, two window or three window room. Prospective tenants would then pay one month's rent plus two months' deposit, whereupon we would chalk out their reserved unit, give their money to our workman who rushed out and used the money to buy the breeze blocks and materials needed to carry out the division. It should be remembered that, at this time, banks would not lend money for anything to do with property.
It took 18 months or so before the whole building was fully converted, and this became the first business centre. We were first in the field and for many, many, years it was a cash-flow goldmine. Eventually we had over 110 rooms, nearly always fully let. The occupants were all small businesses, and entrepreneurs of all ages, sizes, colours, abilities, trades and experience. Trades varied from jewellery workshops, art restoration, frame guilders, sewing repairs and alterations, tailors, dress-makers, dance studio, photographic studio/modelling agency/Page Three girls photo studio, phoney modelling agency, silk screen printers, cartoon comics production, film-maker, recording studio, office equipment supplier. Then there were the office uses - specialist oil analyst, journalists, employment agency, microfiche inventor, film/magazine importer (porno), travel agency, fashion designers, who invariably went bust, charity sales promotions, actors' co-operatives, writers and cartoonists, an office for planning a bank vault heist, an office planning the toppling of the Shah of Persia regime - both of these I believe were successful.
This was also the era of the GLC grant backed Group Organisation, which predominantly included homosexuals' rights organisations, women against rape, lesbian meeting house, anti-racial prejudice, anti-immigration unit, Saving the World charity, etc.
However, a building is merely bricks, mortar and, in our case, also breeze blocks. It is the people that gave the building its life interest and character. Many memories are amusing, some occasionally sad.
The saddest story was of a young "musician", who one night, having been on drugs, thought he could fly and jumped off the roof into the courtyard. The messy aftermath of this incident had thankfully all been dealt with by the time I arrived for work.
I remember the helpful travel agent. He had a small business, but a very large body, and when a tenant disappeared, owing rent - he offered to help us open the vacated locked room. "A little pressure on the door would force it open", he said, then took a short run and shouldered the door and it opened - the doorframe and three square metres of breeze-blocks were also opened and he reversed the IKEA process by flat-packing the desk inside.
On holiday in Thailand, I met a photographer taking topless shots of a young nubile model under a palm tree near our hotel pool. Of course, I enquired what magazine he was working for and where his studio was situated. He came from Liverpool, but said that he was keen to come to London. He became one of our best and favourite tenants for about 10 years photographing Page Three girls, until he became so successful that he was able to purchase his own freehold central London studio. His high profile studio attracted two or three other different photographic studios to our building.
One of these photographers wrote a book about photography and then presented a television series on the subject. This photographer also launched me into my rather short modelling career, which lasted one afternoon, when I was the cover boy for a book about magicians - I don't think it was a big seller!
One of our offices was occupied by an old black jazz pianist called "Slim Gaillard" which, for some time, we assumed he used for writing music - but in reality was his very cheap living accommodation. He had played with many of the big black bands of New Orleans and Harlem, as well as Charlie Parker and other jazz legends. On occasion he even played to us on our office piano. He was famous for the "Flat Foot Floogie", the "Floy Floy" and "Dunkin the Beigel" songs. He was now destitute and occasionally paid a little rent when he could afford it. He was such an interesting and entertaining tenant that we gave him a lot of leeway. A TV company made a programme about his life which was aired posthumously, unfortunately a little too late for him to benefit.
Another office was occupied by Sydney Lipton, the post-war band leader who often used to chat about the "Old Days" of the "Big Band" and his two starlet daughters, one of whom married an American multi-millionaire and became the most philanthropic society hostess in southern Florida. Also on the music front, Elmer Bernstein's son occupied a room for his business of film animation.
One of the larger basement units had to be repossessed for arrears and, upon entering, we found the remnants of a "pot plant" factory - Panther House electricity bills were considerably reduced after they disappeared.
The Sunday Times supplement once had an article about the top ten most successful British fashion designers -out of the 10, three were based in Panther House and, although highly acclaimed and feted by the press - were always short of money and eventually failed.
Kate Garner, now a highly respected photographer and Jeremy Healey, a successful DJ, originated from our basement recording studio. Unfortunately eventually the studio had to go as practically all "rock groups" felt the need to smash up everything around them to achieve their creative genius - which is not conducive to good tenant relationships.
A young female impoverished artist, who excelled in painting very detailed pictures of crumbling old buildings, occupied one of our garret studios. We were often able to help her with locations by allowing her the use of some of our other properties. I am pleased to say that nowadays she exhibits at the Royal Academy Summer Exhibitions where her works command prices of over £5,000!
And finally there was the jewellers' workshop where one of the apprentices left after deciding that there was more future in the property business and about 15 years later purchased Panther House and our adjoining property for £9 million, which has a rather pleasing symmetry.
With all these memories swilling around my head like autumn leaves, I must have finally fallen asleep sometime near dawn with a nostalgic tear or two drying on my cheek, knowing that when I am just dust and hopefully memories, my spirit will float around the corridors of Panther House, beaming like the Cheshire Cat in Alice in Wonderland, smiling on all the late-night workers, I will be the happiest ghost in all of London.
Pleased to still be with you.
Andrew S Perloff
CHAIRMAN
26th April 2010
| CONSOLIDATED INCOME STATEMENT For the year ended 31 December 2009 |
|
| Notes | 31 December 2009 | 31 December 2008 (restated) |
|
|
| £'000 | £'000 |
|
| |||
|
|
|
| |
| Revenue | 1 | 9,251 | 9,296 |
|
|
|
|
|
| Cost of sales | 1 | (2,828) | (2,551) |
|
|
|
|
|
| Gross profit |
| 6,423 | 6,745 |
|
|
|
|
|
| Other income |
| 77 | 311 |
| Administrative expenses |
| (1,838) | (2,328) |
|
|
|
|
|
|
|
| 4,662 | 4,728 |
|
|
|
|
|
| Profit on the disposal of investment properties |
| 574 | 1,400 |
| Movement in fair value of investment properties | 6 | (6,216) | (6,062) |
|
|
| (980) | 66 |
|
|
|
|
|
| Finance costs |
| (2,111) | (1,897) |
| Investment income |
| 117 | 683 |
| Profit/ (Loss) on disposal of available for sale |
|
|
|
| investments (shares) |
| 650 | (64) |
| Impairment in available for sale investments (shares) |
| - | (3,461) |
| Fair value gain/ (loss) on derivative financial liabilities | 9 | 5,277 | (12,018) |
| Premium received on disposal of derivative financial asset |
|
- |
2,360 |
|
|
|
|
|
|
|
|
|
|
| Profit or loss before income tax |
| 2,953 | (14,331) |
|
|
|
|
|
| Income tax (expense)/ credit | 2 | (427) | 4,672 |
|
|
|
|
|
| Profit or loss for the year |
| 2,526 | (9,659) |
|
|
|
|
|
| Attributable to: |
|
|
|
| Equity holders of the parent |
| 2,488 | (9,687) |
| Minority interest |
| 38 | 28 |
|
|
|
|
|
| Profit or loss for the year |
| 2,526 | (9,659) |
|
|
|
|
|
| Earnings per share |
|
|
|
| Basic and diluted | 4 | 14.7p | (57.3)p |
|
|
|
|
|
| CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December 2009 |
|
| Notes | 31 December
2009 | 31 December (restated) 2008 |
|
|
| £'000 | £'000 |
|
|
|
| |
| Profit and loss for the year |
| 2,526 | (9,659) |
|
|
|
| |
| Other comprehensive income Movement in fair value of available for |
|
|
|
| sale investments (shares) taken to equity | 8 | 1,657 | (1,220) |
| Deferred tax relating to movement in fair value of |
|
|
|
| available for sale investments (shares) taken to equity |
| (463) | 342 |
|
|
|
|
|
|
|
|
|
|
| Other comprehensive income for the year, net of tax |
| 1,194 | (878) |
|
|
|
|
|
| Total comprehensive income for the year |
| 3,720 | (10,537) |
|
|
|
|
|
| Attributable to: |
|
|
|
| Equity holders of the parent |
| 3,682 | (10,565) |
| Minority interest |
| 38 | 28 |
|
|
|
|
|
|
|
| 3,720 | (10,537) |
|
|
|
|
|
| CONSOLIDATED STATEMENT OF FINANCIAL POSITION Company number 293147 As at 31 December 2009 |
|
| Notes | 31 December 2009 | 31 December 2008 |
| ASSETS |
| £'000 | £'000 |
| Non-current assets |
|
|
|
| Property, plant and equipment |
| 95 | 21 |
| Investment property | 6 | 96,658 | 97,092 |
| Goodwill |
| 8 | - |
| Available for sale investments (shares) | 8 | 4,651 | 3,794 |
|
|
| 101,412 | 100,907 |
| Current assets |
|
|
|
| Inventories |
| 214 | 159 |
| Stock properties |
| 8,098 | 8,863 |
| Trade and other receivables |
| 2,376 | 3,278 |
| Cash and cash equivalents |
| 14,847 | 13,922 |
|
|
| 25,535 | 26,222 |
|
|
|
|
|
| Total assets |
| 126,947 | 127,129 |
|
|
|
|
|
| EQUITY AND LIABILITIES |
|
|
|
| Equity attributable to equity holders of the parent |
|
|
|
| Capital and reserves |
|
|
|
| Share capital |
| 4,217 | 4,217 |
| Share premium account |
| 2,886 | 2,886 |
| Capital redemption reserve |
| 604 | 604 |
| Retained earnings | 10 | 60,303 | 58,139 |
|
|
| 68,010 | 65,846 |
| Minority interest |
| 90 | 58 |
| Total equity |
| 68,100 | 65,904 |
|
|
|
|
|
| Non-current liabilities |
|
|
|
| Long-term borrowings |
| 43,970 | 42,500 |
| Derivative financial liability | 9 | 6,744 | 12,021 |
| Deferred tax liabilities |
| 2,670 | 2,290 |
| Obligations under finance leases | 11 | 1,051 | - |
|
|
| 54,435 | 56,811 |
| Current liabilities |
|
|
|
| Trade and other payables |
| 4,412 | 4,414 |
|
|
|
|
|
|
|
| 4,412 | 4,414 |
|
|
|
|
|
| Total liabilities |
| 58,847 | 61,225 |
|
|
|
|
|
| Total equity and liabilities |
| 126,947 | 127,129 |
The accounts were approved by the Board of Directors and authorised for issue on 26 April 2010. They were signed on its behalf by:
A.S. Perloff
Chairman
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2009
|
|
| Share | Share | Capital | Retained | Total |
|
| Notes | capital | premium | Redemption | earnings |
|
|
|
| £'000 | £'000 | £'000 | £'000 | £'000 |
| Balance at 1 January 2008 |
| 4,230 | 2,886 | 591 | 70,901 | 78,608 |
| Total comprehensive income for the year |
| - | - | - | (10,565) | (10,565) |
| Shares purchased for cancellation |
| (13) | - | 13 | (173) | (173) |
| Dividends paid | 3 | - | - | - | (2,024) | (2,024) |
|
|
|
|
|
|
|
|
| Balance at 1 January 2009 |
| 4,217 | 2,886 | 604 | 58,139 | 65,846 |
| Total comprehensive income for the year |
| - | - | - | 3,682 | 3,682 |
| Dividends paid | 3 | - | - | - | (1,518) | (1,518) |
| Balance at 31 December 2009 |
| 4,217 | 2,886 | 604 | 60,303 | 68,010 |
Within retained earnings are losses of £122,000 and deferred tax asset of £34,000 (2008 - losses of £3,461,000 and a deferred tax asset of £969,000) reserves relating to fair value of available for sale investments (shares).
| CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 December 2009 |
|
| Notes | 31 December 2009 | 31 December 2008 |
|
|
| £'000 | £'000 |
| Cash flows from operating activities |
| ||
| Profit before interest, investment income and tax |
| 4,662 | 4,728 |
| Add: Depreciation charges for the year |
| 30 | 13 |
| Less: Profit on appropriation of stock to fixed assets |
| - | (12) |
| Profit before working capital change |
| 4,692 | 4,729 |
| (Increase)/ decrease in inventory |
| (55) | 217 |
| Decrease in stock properties |
| 288 | 302 |
| Decrease in receivables |
| 902 | 183 |
| (Decrease) in payables |
| (255) | (409) |
| Cash generated from operations |
| 5,572 | 5,022 |
|
|
| ||
| Interest paid |
| (2,037) | (1,767) |
| Income tax paid |
| (511) | (6,358) |
| Net cash generated from/ (used in) operating activities |
| 3,024 | (3,103) |
|
|
| ||
| Cash generated from/ (used in) investing activities |
| ||
| Purchase of plant and equipment |
| (104) | (10) |
| Purchase of investment properties |
| (2,608) | (4,442) |
| Purchase of available for sale investments (shares) |
| ||
| - non current assets |
| (909) | (6,532) |
| Purchase of additional equity in group subsidiary |
| (11) | - |
| Purchase of equity and debt in corporate acquisition |
| (1,811) | - |
| Premium on cancellation of financial derivatives |
| - | 2,360 |
| Proceeds from sale of investment property |
| 2,446 | 3,900 |
| Proceeds from the disposal of available for sale investments (shares) - non current assets |
|
2,360 | 3,202 |
| Dividend income received |
| 21 | 234 |
| Interest income received |
| 96 | 449 |
| Net cash from investing activities |
| (520) | (839) |
|
|
| ||
| Financing activities |
| ||
| Repayments of loans |
| (61) | - |
| Draw down on loans |
| - | 7,489 |
| Purchase of own shares for cancellation |
| - | (173) |
| Dividends paid |
| (1,518) | (2,024) |
| Net cash used in financing activities |
| (1,579) | 5,292 |
|
|
| ||
| Net increase in cash and cash equivalents |
| 925 | 1,350 |
|
|
| ||
| Cash and cash equivalents at the beginning of year |
| 13,922 | 12,572 |
| Cash and cash equivalents at the end of year |
| 14,847 | 13,922 |
|
General Information While the financial information included in this preliminary announcement has been prepared in accordance with International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Company expects to publish full financial statements that comply with IFRSs in April 2010.
The financial information set out in the announcement does not constitute the company's statutory accounts for the years ended 31 December 2009 or 2008. The financial information for the year ended 31 December 2008 is derived from the statutory accounts for that year, which were prepared under IFRSs, which have been delivered to the Registrar of Companies. The auditors' opinion on those accounts was unqualified and did not contain a statement under s237(2) or (3) Companies Act 1985 and did not contain an emphasis of matter paragraph.
The statutory accounts for the year ended 31 December 2009 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the company's annual general meeting.
The accounting policies adopted in the preparation of these condensed consolidated preliminary results are consistent with those set out in the latest Group's Annual financial statements.
There is no material seasonality associated with the Group's activities.
Going concern The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Business Review sections to these accounts. The financial position of the Group, including key financial ratios is set out in the Operating and Financial Review. In addition, the notes to the Report of Directors includes the Group's objectives, policies and processes for managing its capital; the corporate governance section includes details financial risk management objectives; and the notes to the accounts provide details of its financial instruments and hedging activities, and its exposures to credit risk and liquidity risk. The Group is strongly capitalised, has considerable liquidity together with a number of long term contracts with its customers many of which are household names. The Group also has strong diversity in terms of customer spread, investment location and property sector. As a consequence, the Directors believe the Group is very well placed to manage its business risks successfully and have a good expectation that both the Company and the Group have adequate resources to continue their operations. For these reasons they continue to adopt the going concern basis in preparing the financial statements.
Principal risks and uncertainties The Company and Group operations expose it to a variety of financial risks the main two being the effects of changes in credit risk of tenants and interest rate movement exposure on borrowings. The Company and Group has in place a risk management programme that seeks to limit the adverse effects on the financial performance of the Company and Group by monitoring levels of debt finance and the related finance costs. The Company and Group also use interest rate swaps to protect against adverse interest rate movements, no hedge accounting is applied. In the year mark to market valuations on our financial instruments have been erratic, and these large swings are shown within the income statement adding to the year's financial accounting loss. However, the actual cash outlay effect is nil when considered with the loan as the instruments are used to protect increases in cash outlays.
Given the size of the Company and Group, the Directors have not delegated the responsibility of monitoring financial risk management to a sub-committee of the Board. The policies set by the Board of Directors are implemented by the Company and Group's finance department.
Price risk The Company and Group are exposed to price risk due to normal inflationary increases in the purchase price of the goods and services it purchases in the UK. The Company and Group also have price exposure on listed equities that are held as investments. Due to current economic climate the share portfolio fell in value. The Group has a policy of holding only a small proportion of its assets as listed investments.
Credit risk The Company and Group have implemented policies that require appropriate credit checks on potential tenants before lettings are agreed. In most cases a deposit is requested unless the tenant can provide a strong personal or other guarantee. The amount of exposure to any individual counterparty is subject to a limit, which is reassessed annually by the Board. Exposure is also reduced significantly as the Group has a large spread of tenants who operate in different industries.
Liquidity risk The Company and Group actively ensure liquidity by maintaining a long-term finance facility and also hold significant cash deposits which are both to ensure the Company and Group has sufficient available funds for operations and planned expansions.
Interest rate risk The Company and Group have both interest bearing assets and interest bearing liabilities. Interest bearing assets include only cash balances which earn interest at fixed rate. The Company and Group have a policy of only borrowing debt to finance the purchase of cash generating assets (or the potential to generate cash). The Directors will revisit the appropriateness of this policy should the Company and Group operations change in size or nature.
Other non financial risks The Directors consider that there are no material non financial risks.
Responsibility statements under the disclosure and transparency rules The Annual Financial Report for the year ended 31 December 2009 contains the following statements:
The directors confirm that to the best of their knowledge: ·; The financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and loss of the company and the undertakings included in the consolidation taken as a whole; and ·; The Directors' Report and the Chairman's statement include a fair review of the development and performance of the business and 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 directors of Panther Securities plc are listed in the latest Panther Securities plc Annual Report and a list of current directors is maintained on the Panther Securities plc website, together with the full financial statements: www.panthersecuritiesplc.com
By order of the board
…………………………………… Andrew Perloff Dated: 26/04/2010 Chairman
………………………………….. Simon Peters Dated: 26/04/2010 Finance Director
NOTES TO THE CONSOLIDATED ACCOUNTS For the year ended 31 December 2009 |
| |
|
|
| |
|
| ||
1. Revenue and cost of sales
The Groups main operating segment is investment and dealing in property and securities. The majority of the revenue, cost of sales and profit or loss before taxation being generated in the United Kingdom.
M.R.G. Systems Ltd is an operating business segment whose principal activity is that of electronic designers, engineers and consultants. 70% of its revenues arose in the United Kingdom and 100% of its cost of sales. Its net contribution to profit or loss before interest and tax in the year was a profit of £150,000 (2008 -£98,000).
The split of assets, tax effect and cash flow of each segment is not shown as these are not material in relation to M.R.G. Systems Limited.
| Turnover arose as follows: | 2009 | 2008 |
|
| £'000 | £'000 |
|
|
|
|
| Rental income from investment properties | 6,619 | 6,236 |
| Rental income from stock properties | 761 | 828 |
| Income from sale of stock properties | - | 390 |
| Income from trading (M.R.G. Systems Ltd) | 1,871 | 1,842 |
|
| 9,251 | 9,296 |
| Cost of sales arose as follows: | 2009 | 2008 |
|
| £'000 | £'000 |
|
|
|
|
| Cost of sales - from rental income | 1,671 | 1,310 |
| Stock properties recognised as an expense | 288 | 378 |
| Cost of sales - trading (M.R.G. Systems Ltd) | 869 | 863 |
|
| 2,828 | 2,551 |
| Gross profit/(loss) -before tax: | 2009 | 2008 |
|
| £'000 | £'000 |
|
|
|
|
| Gross profit - investment and dealing in properties | 2,804 | (14,429) |
| Gross profit - trading (M.R.G. Systems Ltd) | 149 | 98 |
|
| 2,953 | (14,331) |
2. Income tax expense
The charge for taxation comprises the following:
|
| 2009 | 2008 |
|
|
£'000 | (restated) £'000 |
| Current year UK corporation tax | 693 | 2,316 |
| Prior year UK corporation tax | (183) | (299) |
|
| 510 | 2,017 |
| Current year deferred tax credit | (83) | (6,689) |
| Income tax expense for the year | 427 | (4,672) |
Domestic income tax is calculated at 28.0% (2008 - 28.5%) of the estimated assessable profit or loss for the year. The future provision for deferred tax has been calculated on the basis of 28% (2008 - 28%).
The total charge for the year can be reconciled to the accounting profit or loss as follows;
|
| 2009
£'000 | 2009
% | 2008 (restated) £'000 | 2008
% |
|
|
|
|
|
|
| Profit or loss before taxation | 2,953 |
| (14,331) |
|
| Profit or loss on ordinary activities before tax multiplied by the average of the standard rate of UK corporation tax of 28.0% (2008 - 28.5%) | 827 | 28 | (4,084) | 29 |
| Tax effect of expenses that are not deductible in determining taxable profit | 26 | 1 | 34 | - |
| Dividend income not allowable for tax purposes | (6) | - | (66) | - |
| Capital allowances for the year in excess of depreciation | (35) | (1) | (46) | - |
| Non taxable movement in fair value of investment properties | 1,741 | 59 | 1,728 | (12) |
| Non taxable/ (non deductible) movement in fair value of available for sale investments (shares) | (471) | (16) | 986 | (7) |
| Non taxable/ (non deductible) movement in fair value of financial instruments | (1,478) | (50) | 3,425 | (23) |
| Tax losses utilised | - | - | (29) | - |
| Unutilised losses carried forward | 310 | 10 |
|
|
| Disposal of properties or shares | (221) | (7) | 368 | (3) |
| Current year UK corporation tax | 693 | 24 | 2,316 | (16) |
| Prior year UK corporation tax | (183) | (6) | (299) | 2 |
|
|
|
|
|
|
| Tax expense and effective tax rate for the year | 510 | 18 | 2,017 | (14) |
| Current year deferred tax | (83) | (3) | (6,689) | 47 |
| Income tax expense for the year | 427 | 15 | (4,672) | 33 |
3. Dividends
Amounts recognised as distributions to equity holders in the period:
|
| 2009 £'000 | 2008 £'000 |
|
|
|
|
| Final dividend for the year ended 31 December 2007 of 6p per share | - | 1,012 |
| Interim dividend for the year ended 31 December 2008 of 6p per share | - | 1,012 |
| Interim dividend (quarterly) for the year ended 31 December 2008 of 3p per share | 506 | - |
| Final dividend (quarterly) for the year ended 31 December 2008 of 3p per share | 506 | - |
| Interim dividend (quarterly) for the year ended 31 December 2009 of 3p per share | 506 | - |
|
|
|
|
|
| 1,518 | 2,024 |
The Directors recommend a payment of a third and final dividend of 4p per share (2008 - 3p), following the quarterly interim dividends paid on 16 October 2009 of 3p per share and 5 February 2009 of 5p per share (2008 - 3p also interim of 6p). The final 4p dividend will be payable on 25 June 2010 to shareholders on the register at the close of business on 21 May 2010. The full dividend for the year ended 31 December 2009 is anticipated to be 12p. An interim dividend for the year ended 31 December 2010 of 10p per share was also paid on 5 February 2010.
4. Earnings per ordinary share (basic and diluted)
The calculation of earnings per ordinary share is based on earnings, after excluding minority interests, being a profit of £2,488,000 (2008 - restated loss of £9,687,000) and on 16,869,000 ordinary shares being the weighted average number of ordinary shares in issue during the year (2008 - 16,893,826). There are no potential ordinary shares in existence.
5. Net assets per share
|
| 2009
| 2008
|
| Total equity attributable to shareholders per 25p ordinary share |
403p |
390p |
The calculation of net asset per ordinary share is based on the equity attributable to share holders of the equity in the parent company, and on 16,869,000 ordinary shares being number of ordinary shares in issue at 31 December 2009 and 31 December 2008.
6. Investment property
|
| Investment Properties |
|
| £'000 |
| Fair value |
|
| At 1 January 2008 | 101,200 |
| Additions | 4,454 |
| Disposals | (2,500) |
| Revaluation decrease | (6,062) |
| At 1 January 2009 | 97,092 |
| Additions | 2,608 |
| Transferred from stock | 477 |
| Additions on purchase of corporate acquisitions | 3,550 |
| Grossing up of investment property held under operating leases* | 1,148 |
| Disposals | (2,001) |
| Revaluation decrease | (6,216) |
| At 31 December 2009 | 96,658 |
|
|
|
| Carrying amount |
|
| At 31 December 2009 | 96,658 |
|
|
|
| At 31 December 2008 | 97,092 |
At 31 December 2009, £77,634,000 (2008 - £74,977,000) and £19,024,000 (2008 - £22,115,000) included within investment properties relates to freehold and leasehold properties respectively.
* Investment property held under an operating lease is initially accounted for as if it were a finance lease, recognising as an asset and a liability the present value of the minimum lease payments due. Subsequently and as described in accounting policies, the fair value model of accounting for investment property is applied to these interests.
On the historical cost basis, investment properties would have been included as follows:
|
| 2009 | 2008 |
|
| £'000 | £'000 |
|
|
|
|
| Cost | 66,262 | 61,628 |
| Cumulative depreciation | - | - |
| Net book amount | 66,262 | 61,628 |
Costs relating to ongoing and potential developments are included in additions to investment properties and in the year ended 31 December 2009 amounted to £346,000 (2008 - £878,000).
The group did not have any contractual obligations at the balance sheet date to purchase, or develop investment property. Its only contractual obligations are shown in note 10 and relate to the completing of constructions.
At 31 December 2008 and 31 December 2009, the investment properties were revalued at their open market value as at that date by the Directors, in accordance with the Statement of Asset Valuation Practice and Guidance Notes published by the R.I.C.S. and in accordance with international valuation standards. For the year ended 31 December 2010, there will be an independently revaluation of the investment properties.
The property rental income earned by the Group from its investment property, all of which is leased out under operating leases, amounted to £6,619,000 (2008 - £6,236,000).
7. Acquisition of subsidiary undertakings
Effective from 1 May 2009 the group purchased 100% of Melodybright Limited an individual property investment company for cash of £470,000. On the 13 July 2009 the group purchased 100% of TRS Developments Limited being a small property investment group for cash of £1,400,000. These companies were both purchased by way of minimal value attributed to equity (£5 but rounded in the above figures) and by purchasing the debt owed to the owners of the company/ group at a discount (Melodybright Limited £0.70 million of debt was purchased for £0.47 million, and for the TRS group debt of £3.7 million was purchased for £1.4 million). These transactions have been grouped below and accounted for by the purchase method of accounting.
| Net assets acquired: |
| Book value
£'000 | Fair value adjustments £'000 | Fair value
£'000 |
|
|
|
|
|
|
| Investment properties |
| 4,808 | (1,258) | 3,550 |
| Plant and equipment |
| 69 | (69) | - |
| Debtors |
| 67 | (7) | 60 |
| Cash at bank |
| 101 | - | 101 |
| Trade and other payables |
| (170) | (3) | (173) |
| Bank loans |
| (1,671) | - | (1,671) |
| Total |
| 3,204 | (1,337) | 1,867 |
|
|
|
|
|
|
| Goodwill on acquisitions |
|
|
| 3 |
|
|
|
|
|
|
| Total cash consideration excluding legal fees |
|
|
|
1,870 |
Legal fees on the above corporate acquisitions totalled £42,000 (and included due diligence on the properties).
The profit contributed by the acquired subsidiaries since acquisition date was £67,000.
If the acquisition had been completed on the first day of the financial year the additional contribution to group revenues would have been £131,000 and the additional contribution to profits would not be material to the group.
Also within the year further shares were purchased in MRG Systems Limited bringing the holding from 72% to 75% for cash consideration of £11,000. This company is already a subsidiary so is not dealt with in the above note.
| Reconciliation of goodwill: |
| £'000 |
| Goodwill arising on acquisitions of subsidiary undertakings (above) |
|
3 |
| Goodwill arising on purchase of additional shares in MRG Systems Limited |
|
5 |
| Total goodwill |
| 8 |
8. Available for sale investments (shares)
|
| Non-current assets |
|
| £'000 |
| Cost or valuation |
|
| At 1 January 2008 | 5,209 |
| Additions | 6,532 |
| Disposals | (3,266) |
| Revaluation decrease | (1,220) |
| Impairment loss | (3,461) |
| At 1 January 2009 | 3,794 |
| Additions | 909 |
| Disposals | (1,709) |
| Revaluation increase | 1,657 |
| At 31 December 2009 | 4,651 |
|
|
|
| Comprising at 31 December 2009: |
|
| At cost | 529 |
| At valuation / net realisable value | 4,122 |
|
|
|
| Carrying amount |
|
| At 31 December 2009 | 4,651 |
|
|
|
| At 31 December 2008 | 3,794 |
The available for sale investments represent investments in listed and unquoted equity securities that offer the Group the opportunity for return through dividend income and fair value gains. They have no fixed maturity or coupon rate. The fair values of the listed securities are based on quoted market prices. The fair value of available for sale investments in unquoted equity securities, which are not publically traded, cannot be measured and have therefore been shown at cost. The valuation of the available for sale investments is sensitive to stock exchange conditions. The available for sale securities carried at fair value are classified as level 1 in the fair value hierarchy specified in IFRS 7.
|
|
9. Derivative financial instruments
The main risks arising from the Group's financial instruments are those related to interest rate movements. Whilst there are no formal procedures for managing exposure to interest rate fluctuations, the Board continually reviews the situation and makes decisions accordingly. Hence, the Company will, as far as possible, enter into fixed interest rate swap arrangements. The purpose of such transactions is to manage the interest rate risks arising from the Group's operations and its sources of finance.
|
| 2009 | 2008 | ||
| Bank loans | £'000 | £'000 | ||
| Interest is charged as to: |
| Rate |
| Rate |
| Fixed/ Hedged |
|
|
|
|
| HSBC Bank plc* | 35,000 | 6.05% | 35,000 | 6.05% |
|
|
|
|
|
|
| Floating element |
|
|
|
|
| HSBC Bank plc | 7,500 |
| 7,500 |
|
| Natwest Bank plc | 1,606 |
| - |
|
|
| 44,106 |
| 42,500 |
|
Bank loans totalling £35,000,000 (2008 - £35,000,000) are fixed using interest rate swaps reducing the Group exposure to fair value interest rate risk. Other borrowings are arranged at floating rates, thus exposing the Group to cash flow interest rate risk.
Financial instruments for Group and Company
The derivative financial assets and liabilities are designated as held for trading.
|
| Hedged amount | Average rate | Duration of contract remaining | 2009 Fair value | 2008 Fair value |
|
| £'000 |
| 'years' | £'000 | £'000 |
| Derivative Financial Liability |
|
|
|
|
|
| Interest rate swap | 35,000 | 5.06% | 29.75 | (5,840) | (9,970) |
| Interest base rate swap | 30,000 | 3m to 1m | 0.25 | - | (121) |
| Interest rate swaption** | 25,000 | 4.63% | N/a | (904) | (1,930) |
|
|
|
|
| (6,744) | (12,021) |
|
|
|
|
|
| |
| Net fair value gain/ (loss) on derivative financial assets | 5,277 | (12,018) | |||
* Fixed rate came into effect on 1 September 2008. Rate includes 1% margin. The contract includes mutual breaks, the first one being on 23 November 2014 (and every 5 years thereafter).
** HSBC has the option to enter the Group into a further interest swap arrangement which is exercisable on 1/12/2011. This arrangement would be at the rate and hedged amount as shown above and the duration would be until 1 March 2021.
Interest rate derivatives are shown at fair value in the income statement, and are classified as level 2 in the fair value hierarchy specified in IFRS 7.
The vast majority of the derivative financial liabilities are due in over one year and therefore they have been disclosed as all due in over one year.
The above fair values are based on quotations from the Group's banks and directors valuation.
|
|
Interest rate risk
For the year ended 31 December 2009, if on average the 3 month LIBOR over the year had been 100 basis points (1%) higher with all other variables held constant, under the financing structure in place at the year end, post-tax profit for the year would been approximately £91,000 higher (2008 - the loss would have been lower by £75,000). This analysis excludes any affect this rate adjustment might have on expectations of future interest rates movements which is likely to effect the estimation of the fair value of the derivative financial assets/ liabilities (as this movement would also be shown within the income statement affecting post-tax profit or loss), but indicates the likely cash saving/ (cost) a 100 basis points (1%) movement would have had for the Group.
Treasury management
The long-term funding of the Group is maintained by three main methods, all with their own benefits. The Group has equity finance, has surplus profits which can be utilised, and also has loan facilities with financial institutions. The various available sources provide the Group with more flexibility in matching the suitable type of financing to the business activity and ensure long-term capital requirements are satisfied.
10. Retained earnings
|
| 2009 | 2008 |
|
| £'000 | £'000 |
|
|
|
|
| At 1 January | 58,139 | 70,901 |
| Retained profit or loss for the year | 2,488 | (9,687) |
| Purchase of own shares for cancellation | - | (173) |
| Movement in fair value of available for sale investments (shares) |
1,657 |
(1,220) |
| Deferred tax relating to the movement in fair value of available for sale investments (shares) |
(463) |
342 |
| Dividends paid | (1,518) | (2,024) |
| At 31 December | 60,303 | 58,139 |
11. Operating lease arrangements and obligations under finance leases
The Group as lessor
The Group rents out its investment properties under operating leases. Rental income for the Group is disclosed in note 1. The group paid rent under non-cancellable operating leases in the year of £255,000 (2008 - £285,000).
The majority of these non-cancellable lease obligations are long leasehold investments in which the group receives a profit rent. These investments often have rents payable, often with a contingent element (for example paying a proportion of collected rents), and a minimum rent obligation that is due to the superior landlord.
The average lease length is 76 years. The minimum rental payment obligations due under these operating leases and anticipated rental income derived from these investments are shown below. The difference between the rents paid in the year of £255,000 and the minimum for the year of £96,000 is related to the contingent element only payable out of rents receivable.
|
|
Minimum future payments under non-cancellable operating leases
| (Lessee) | 2009 | 2008 |
|
| £'000 | £'000 |
|
|
|
|
|
|
|
|
| Payable within one year | 96 | 74 |
| Payable between one year and five years | 386 | 296 |
| Payable in more than five years | 4,760 | 4,883 |
|
| 5,242 | 5,253 |
Anticipated rental income derived under non-cancellable operating leases
| (Lessor) | 2009 | 2008 |
|
| £'000 | £'000 |
|
|
|
|
|
|
|
|
| Payable within one year | 1,711 | 1,711 |
| Payable between one year and five years | 6,844 | 6,844 |
| Payable in more than five years | 129,815 | 131,526 |
|
| 138,370 | 140,081 |
Obligations under finance leases
As explained in note 6, investment property held under an operating lease is initially accounted for as if it were a finance lease, recognising as an asset and a liability the present value of the minimum lease payments due by the group to the freeholder. Subsequently and as described in accounting policies, the fair value model of accounting for investment property is applied to these interests.
|
| 2009 | 2008 |
|
| £'000 | £'000 |
|
|
|
|
| Obligations under finance leases due within one year |
|
|
| (included within current liabilities) | 96 | - |
|
|
|
|
| Obligations under finance leases due within one to five years |
328 |
- |
| Obligations under finance leases due in more than five years |
723 |
- |
| (included within non-current liabilities) | 1,051 |
|
|
|
|
|
| Total obligations under finance leases | 1,147 | - |
The prior year total obligations under finance leases were £1,094,000, (£74,000 relating to current liabilities and £1,020,000 relating to non-current liabilities). As at 31 December 2008, this obligation was netted against the carrying value of investment properties and not recognised separately.
12. Events after the balance sheet date
There were no material transactions after the balance sheet date.
13. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on Consolidation and are not disclosed in this note. The compensation of the company's key management personnel is the same as directors' remuneration, as shown in the Directors' Remuneration Report in the full set of Financial Statements.
There were no further transactions with other related parties.
14. Prior year adjustment
The movement in the fair value of available for sale investments (shares) was taken to equity in the prior year as the impairment was judged not to be significant or prolonged. Following advice received from the Financial Reporting Review Panel it has been decided to adjust the prior year's comparison so that the impairment of the available for sale investments (shares) is shown within the income statement as they felt this better reflected the requirements of IAS 39. This impairment was previously shown within the Consolidated Statement of Recognised Income and Expense as well as within the notes to the accounts. For further details please see the Operational and Financial Review section of these accounts.
In accordance with IAS 8 this correction has been accounted for retrospectively and the comparative statements for 2008 restated.
|
|
| Group 2008 £'000 | Company 2008 £'000 |
| Profit or loss for the year as previously reported (after tax) |
|
(7,190) |
3,391 |
| Movement in fair value of available for sale investments (shares) - previously taken to equity |
|
(3,461) |
(3,461) |
| Deferred tax relating to movement in fair value of available for sale investments (shares) - previously taken to equity |
|
992 |
- |
| Restated loss for the year (after tax) |
| (9,659) | (70) |
|
|
| Group 2008 £'000 |
|
Income tax expense as previously reported |
|
(3,680) |
| Deferred tax relating to movement in fair value of available for sale investments (shares) - previously taken to equity |
|
(992) |
|
|
| (4,672) |
This change has reduced the basic and diluted earnings per share by 14.6p.
There is no effect on previously reported net assets as a result of this change, neither is there any impact on the opening balance sheet. Accordingly, we have not presented three balance sheets as required under IAS 1 as this would provide no additional useful information for the users of the accounts.
The net effect of this change does not have any impact on cash flows previously reported.
15. Copies of the full set of Report and Accounts will be posted to shareholders shortly and will be available from the Company's registered office at Deneway House, 88-94 Darkes Lane, Potters Bar, Hertfordshire, EN6 1AQ and also now available for download on the Group's website www.panthersecurities.co.uk.