Panther Securities Regulatory News (PNS)

Panther Securities P.L.C.

("Panther" or "the Company")

Final Results for the

year ended 31 December 2012

For further information please contact:

Chairman's Statement

As always, I am pleased to present our figures for the year ended 31st December 2012, this being my 39th annual Chairman's statement. Every year we are obliged to provide shareholders with more information and each year it becomes less understandable to you and slightly harder for me to explain what is happening in our accounts.

Our loss for the current year which is shown as £2,948,000 compared to £850,000 the previous year, was heavily influenced by an almost £5,000,000 reduction in value of our investment portfolio and £777,000 deterioration in our swaps liability. The reduction in the value of our entire portfolio following the directors' revaluation was mainly a result of a slowdown in property values. After two years of increases totalling £9,700,000 a deteriorating market sentiment warrants an appropriate reduction in values.

I have reiterated ad infinitum my views regarding the foolishness of including property revaluation and derivative revaluations in the Income Statement. For instance, if our accounts had been produced for the period that ended just four days later, our swaps liability would have been approximately £2,000,000 less. Unfortunately, they are now approximately back again to about the Balance Sheet valuation, this probably caused by the American Christmas budget failure and then by the financial crisis in Cyprus, both factors way out of our control.

Reporting on the more relevant parts of the business, our rental income receivable for this period increased to £10,781,000 compared to £8,961,000 the previous year which is mainly due to additional property investment. Worth noting is the fact that investment purchases of approximately £7,300,000 completed towards the end of the year will subsequently contribute a full gross rental income of over £1,600,000 p.a. and net income after ground rent of about £1,100,000 p.a. as opposed to only one month in the period under review.

Our finance costs are up considerably this year rising from £2,954,000 to £4,466,000, due to our increased banking borrowings with higher margins, as well as increased interest rate fixing costs due to a swap that crystallised in 2011, which was payable for only part of the previous year. It is worthy of note that our remaining finance costs are relatively cheap as they are not fixed with historic fixing instruments and if we continue to buy high yielding property investments it will contribute to a strong increase in our profits. When we are fully invested our gross rents should be approaching three times the cost of finance.

Once again this has been a very active year for our Group. We disposed of two separate freeholds in Eastleigh and Southampton for a total of £595,000 and giving us a profit of approximately 50% of book value.

Acquisitions during this accounting year

Our purchases are far more extensive and brief details are as follows with all prices stated to include stamp duty:-

Lowestoft, Suffolk

This Beale PLC department store is in London Road North, Lowestoft. It is a modern store with 21,000 square feet of selling space spread over two floors, situated on the town's main pedestrianised shopping street close to Tesco Metro Supermarket, Sports Direct, BHS department store and Peacocks.

Wisbech, Cambs

This Beale PLC department store in Little Church Street, just off The Market Place, is a modern, two storey store containing 26,000 square feet of selling space and sited in the centre of town.

Beccles, Suffolk

This is another Beale PLC department store which is an older building consisting of two separate sections adjoining but separated by a small vehicular service road. It comprises approximately 17,000 square feet over the ground floor with some footage on the first floor. The property fronts through from Smallgate to The Walk and is close to the centre of this market town and also to the Tesco superstore.

The above three freehold properties are let on similar leases to Beale PLC, whereby the rent is a share of department store profits until May 2014, when there is a mutual break which we are likely to utilise to negotiate a market rent which would produce an acceptable return on our investment.

The price paid for these three properties was £2,347,000 of which £300,000 was deferred, payable in February 2015.

Huntingdon, Cambs

In February 2012 we acquired a modern factory premises on 5.5 acre site on the Stukeley Meadows Industrial Estate, one mile north of Huntingdon town centre. It comprises 96,000 square feet, of which 90,000 feet is on the ground floor.

The property is currently let VIP Polymers Ltd on an FR&I lease for 15 years from February 2005 at £190,000 p.a. exclusive with rent reviews in 2015 to 65% of open market rental value. The property cost £1,278,000 and is held on a long lease for a term of 999 years from February 2005 at a fixed rent of one peppercorn.

Scunthorpe

In August we acquired a vacant, double-fronted freehold shop unit in Scunthorpe for £250,000. This property is situated in a prime corner position in the High Street. Half the unit is now let to William Hill PLC and when fully let we anticipate a high return and an increased capital value.

Bradford

In September the freehold of 26 Darley Street, Bradford was acquired for £494,000. This unit was let to Textiles Direct Limited at a rent of £35,000 per annum and comprises 1,900 sqft ground floor sales and a total of 7,700 sq ft. It is located in a prime location in Bradford adjoining M&S and gives us enhanced synergies on management being next to an existing large investment block. Textiles Direct have since vacated and we hope to re-let on better terms. 

Liverpool

In November we acquired 14-26 Williamson Street for £1,007,000. This is a modern 30,000 sq ft long leasehold investment held at a fixed nominal ground rent and is located in a prime, central pedestrianised retail district of Liverpool. The current rental income is £214,000 from the two retail tenants.

Glasgow

Also in November we acquired a feuhold (Scottish equivalent of freehold) office and industrial site totalling 2.26 acres in Ruchill Street, Glasgow. It has 8 tenancies, a number of buildings and 88 parking spaces. It cost £504,000 and produces an income of £271,000 per annum. This high return was possible due to the fact that there were six leases due to expire in March 2013. The Group took the view that it could negotiate lease extensions with enough of these tenants to provide a decent return and re-let some of the vacant space. Most of the tenants are still there but it is likely the rent will fall from the initially exceptionally high level.

Coatbridge

Also in the same month, the long leasehold interest of 18-80 & 84-106 Main Street, Coatbridge was acquired for £5,760,000. The two neighbouring, well located and prominent parades are key retail hubs within Coatbridge, near Glasgow. Together, the parades provide 88,000 sqft across 42 retail units. Current tenants include Specsavers, Boots, Co-op Travel, Superdrug, Phones 4 U and the Royal Bank of Scotland. The parade currently produces a gross income of approximately £1,230,000 per annum with ground rent payable as a proportion of rents collected. Our initial net income after all costs will be approximately £730,000. This investment offers strong returns as well as opportunities for asset management through the letting of vacant units and further development.

Progress on Developments

Holloway Head, Birmingham

Approximately half of this site has recently received permission for demolition and temporary use as a car park. This will at least allow for a financial return pending the eventual comprehensive development of this huge scheme which may proceed when the Birmingham residential market picks up.

High Street, Croydon

This property has partially completed its transformation with over half the ground floor successfully now trading as a Sainsbury's Local mini market with an adjoining shop unit available for letting. The upper part has received planning permission for six large flats. We originally wanted to create twelve small flats as there is little demand for large family units without parking or gardens in the town centre. However, there is excellent demand for smaller units. Of course, to build large units costs more proportionally making the scheme less viable. We will therefore try to obtain an amended planning permission.

Wolverhampton

I have previously mentioned our properties in Victoria Street which are located in the very heart of Wolverhampton. These properties, purchased some years ago for improvement and letting, unfortunately did not live up to expectations. This was due to the failure of a proposed grandiose comprehensive town centre scheme that was caused by the financial meltdown, and unfortunately not before a Compulsory Purchase Order ("CPO") was placed on the entire block. This meant any money invested in the property would not be reimbursed under the terms of the eventual compensation paid. In due course the CPO was lifted but not before the local vandals and petty thieves of building materials such as lead, tiles etc., had done their worst. We are now discussing with the Council the partial or total demolition of the buildings in the parade and some new uses which will bring the property back into use to the benefit of us, the Council and an important part of Wolverhampton town centre. Our current ideas are along the lines of suggestions submitted in the Mary Portas High Street Regeneration Report.

This brings us to High Street, Margate which, because it was one of the most depressed High Streets in the country, was chosen by Mary Portas as her first pilot scheme to rejuvenate tired, dying high streets. We were asked to lend a triple fronted vacant unit for fifteen months, rent free, which we willingly did under licence, after spending approximately £15,000 on minor repairs.

The Margate town centre rejuvenation team created about 20 individual stall units, out of a possible 30, which were quickly occupied by small, local start up businesses to showcase their wares.

There was a grand opening ceremony attended by Mary Portas, The Margate Council leader, various local dignitaries, a local college choir, a few minor celebrities and, of course, television cameras. Margate High Street had probably not seen such a huge crowd for over 40 years!

About half of the initial pop-up stores are still there but there has been disquiet in the Town Centre Team when they discovered that the project does not qualify as a charity and may have to pay full rates. The rates are enormous for the unit and the project may struggle. The previous tenant was in administration and did not have to pay them but once the Town Team took over, rates became payable. These rates may be three times the correct level, which will obviously hinder their efforts but may be corrected on appeal.

I actually read the whole Portas report and found for the most part it was excellent although lacking in understanding from a landlords' perspective and the problems and constraints faced by them. Her particular genius is in the retailing, merchandising and publicity generation that is essential with any new ideas and also in galvanising the locals in trying to help themselves. She was there to help in all this, whilst the cameras were still rolling.

St Aldate Street, Gloucester

Above this block of 17 shops, which are mostly let, this property contains 21 flat units that have been vacant for some time. Our refurbishment of them is now complete and we have provisionally agreed to let them in their entirety to a Housing Association at £72,500 per annum. This will mean a great improvement to the profitability and capital value of this property.

High Street, Perth

After tenant requirement works had been carried outat this shop, it was let to Sainsbury's Plc at £45,000 per annum as a convenience store. We have a similar sized unit next door whose desirability will now have improved.

Wimbledon Studios

Our associated company's first year turnover was £1 million. In its second year it reached £2 million and is still increasing. Whilst it has not yet reached the profitability breakthrough point, the facilities it offers and the huge publicity it generates are bringing more and more business its way. I am hopeful that in due course this may prove to be one of our more successful investments.

Residential Development Opportunities

The Budget proposals to encourage new residential development may help some of the schemes which we already have under consideration on existing properties/sites.

Ramsgate High Street - Thirty flat units; Broadstairs High Street - Two large shops plus eleven flats; Wickford, together with adjoining owners, a possible 60 houses on redundant factories adjoining a residential area; Heybridge, Maldon - Two acres of surplus industrial land adjoining a residential area suitable for housing.

Under the new attitude and desire to promote residential development, there are also one or two other larger sites suitable for development.

Tenant Activity

During the accounting year we lost a total of 29 tenants who produced approximately £470,000 per annum net. During the same period we let to 48 tenants at rents totalling £742,000 per annum yielding a net gain of approximately £272,000, before allowing for tenant incentives etc. We also concluded 16 lease renewals or extensions. These figures do not include income from new acquisitions or disposals.

Tax

This year our Corporation Tax payable is £372,000. We also paid around £450,000 in stamp duty tax, approximately £450,000 in vacant rates, £172,000 National Insurance tax and also £85,000 in non-recoverable VAT thus contributing approximately £1.5 million to government coffers. As I said last year, a 1% cut in Corporation Tax on profits is of minor significance but welcome.

High stamp duty inhibits investment, and so in this most recent Budget, mindful of this, the Chancellor reduced stamp duty on investing in equities on the AIM market from ½% to nil with a view to assisting growing companies raise finance. Where is the logic then in charging 4% stamp duty on commercial property investment over £500,000, when a company raises money by selling and leasing back the property it occupies, either for expansion or repaying finance costs?

A Budget that helps people buy their own homes is always welcome and if it encourages new house building our economy will also benefit. Charging stamp duty of 7% on high value and 5% on slightly less valuable residential properties considerably reduces the amount of high value sales. Virtually all people selling high value properties either move up or down the property ladder, freeing up another purchaser to do the same causing activity in the market and so on and so on whereas a first time buyer creates a single unit purchase of economic activity.

A wealthy new purchaser is more likely to spend money on redecoration and refurbishment including the purchase of new furniture, beds and appliances. Unfortunately, rapacious, greedy and daft high taxation policies that affect the upper level housing market means less house sales, less retail sales, less manufacturing, less employment and thus less taxes are collected overall. 

Any sensible business makes profitable use of its assets, and governments should try to do the same for the country it claims to govern. Throughout the UK, 12.5% of this country's shops are vacant, depressing our High Streets. We all know the changing sales pattern of the modern era, due to the non shop-rent paying internet websites and super-duper large, out of town stores with free parking, and also all not subjected to vengeful personnel in uniforms persecuting drivers who want to shop - all play a large part in this change!

But what does our listening government do? It puts the retail property industry into its "care pathway" charging ever rising uncommercial rates which increase annually due to inflation which is caused by government mismanagement. THESE CHARGES ARE PAYABLE WHETHER A PROFIT IS MADE OR NOT. It delays a rating revaluation that is due because practically all properties outside of the M25 would have a big reduction in their rateable value due to falling values.

Hundreds of companies go bankrupt because they are unable to close non-profit making shops which would still bear full rates, often more than the rent paid to a Landlord who will have invested hard earned tax paid money to purchase the property and is often willing to make temporary concessions. Cautious people who have wisely invested in property for their retirement who then have the misfortune to lose a tenant are then perniciously and doubly punished by being forced to pay vacant rates. This is iniquitous. I could go on for much longer on this subject showing how dreadfully foolish it is for the well-being not just of the British economy, but also social cohesion, but instead I will move onto the next subject!

Political Donations or "Funds For Fighting Fiscally Foolish Fiddling Fibbers"

Most of you will know I have been a supporter of the Conservative Party since Winston Churchill led the party which was obviously well before I could vote! For many years I have asked shareholders to support them financially. Last year the resolution to pay £25,000 to their funds was supported by approximately 4 out of 5 shareholders who voted (I never vote my family's holdings on these resolutions). I was already having my doubts and feeling unhappy about all the anti-property and anti-enterprise measures formulated by the previous government and sadly increased by this new one (too boring to list). I therefore decided not to give the approved donation.

To say I am disappointed with progress since the Conservatives and their civil partners have been in control of the commanding heights of our economy is an understatement. Whilst I still have Conservative sympathies, this coalition or marriage between the Conservatives and Liberal Democratic parties appears to have the European Union as a third party to the marriage which is an even worse basket case than our own government. I believe the majority of this country's problems stem from our membership of the European Union. Although we have been promised a referendum on the subject, it has so many caveats that it is unlikely to ever happen.

Any shareholder with over 5% equity in a public company can requisition the company to include a resolution for consideration at an AGM. My personal holding is well in excess of this level.

Therefore, this year I have put forward a resolution to donate £25,000 to the UK Independence Party in the hope they can generate some new blood and guts into our government. As with all other votes on political donations, I will not vote the shares I control.

Dividends

On 30th November 2012 we paid an interim dividend of 3p per share. This year we are proposing a final dividend of 9p per share.

I have often been asked by shareholders if we could give a share alternative to the cash dividend because many found it difficult or disproportionately costly to purchase a few hundred extra shares. In the last three accounting years we have invested £40,000,000 in what we believe are good long term property investments. Therefore, we have decided to henceforth offer a scrip dividend. A scrip dividend will assist the company by keeping funds within the business to invest in other opportunities. The scrip dividend also has the advantage for shareholders by providing them with the flexibility of choosing between their usual cash dividend or to take the share alternative without the cost of brokers fees or stamp duty. The value of the shares that would be received would have the equivalent value of the dividend due, based on an average share price over 5 working days from the ex-dividend date. 

Shareholders with approximately 10,000,000 shares combined have already indicated that they will take up the share allocation. Personally, I will take up approximately one quarter of my maximum allocation as my dividend is my major source of income (I take no salary, or drawdown on my pension fund). I believe in being in the same boat as my shareholders. I just have a much larger paddle!

The appropriate forms will be included with the accounts when posted to shareholders.

Prospects

Those of you who read my ramblings may recall my "chopped liver syndrome" story that I recounted in our accounts for the year ended 31st December 2008. Briefly put, it was that after a severe case of chopped liver poisoning, it took me at least three years before I could face eating it again. I likened this to the investment market suggesting that those who had suffered severe financial shocks and indigestion would take at least three or more years before they recovered their appetite to invest. This is now happening. With the stock market rising with renewed confidence, the normal course of events would be for property investment to follow.

One of our independent valuers once suggested to me that much of our portfolio comprised opportunity property, meaning that if certain action is taken successfully the values rise disproportionately upward to normal inflation adjustments. These changes could be re-letting a vacant property, obtaining planning permission for a different use, acquiring an adjoining property (back land), utilising the space better (vacant upper parts), changing the lease terms or tenant covenant and many other possibilities, all of which our Group understand well. Current times are more difficult than in the past because not only are we facing a feeble financial recovery, but also battling against uncomprehending government incompetence, both centrally and locally.

However, I still believe we can face the future with confidence because of our basic corporate mantra which is to have a large spread of different types of property i.e., department stores, shops, factories, offices and residential investments, spread over more than 100 different locations from Perth to Plymouth with a huge variety of tenants ranging from household names down to one-man band operations. From Sainsbury's, Poundland and William Hill covenants to tattoo artists and nail bars or garage repair workshops, all of which provide desirable services to the community and most of whom are capable of paying their rent which produces a substantial rental income, for us, with prospects of growth.

Finally, I wish to thank our small but dedicated teams of staff, financial advisers, legal advisers, agents and accountants for all their hard work during the past year which has been even busier and more intensive than usual and, of course, our tenants, most of whom pay their rents despite a difficult trading environment.

Andrew S Perloff

CHAIRMAN

24 April 2013

CHAIRMAN'S RAMBLINGS

There was much excitement in the archaeological world last September. Researchers believed that beneath a council car park in Leicester they had unearthed the bones of one of England's most famous kings, Richard III.

Richard III supposedly died in 1485 at the Battle of Bosworth Field bringing an end to his two year reign. It is widely believed that he was the last English King to die in battle.

Nowadays, most perceptions about Richard III are based on Shakespeare's version of events or upon Laurence Olivier's portrayal of the king as a limping, hunchbacked, cunning killer, responsible for the death of his two young nephews in the Tower of London, along with many others who may have been an impediment to his ascent to the Throne.

I have however long felt that history had misjudged Richard III and finding his bones in a council car park was the final clue to what I believe happened.

Shakespeare wrote his play based on verbal stories that had been passed down from generation to generation as there was little written unbiased, factual reporting at that time - no Daily Mail or Telegraph. English as we know it would be barely comprehensible to today's ears and regional accents were particularly hard to understand. It makes sense therefore that when Shakespeare was told that Richard III's dying words were "A HORSE, A HORSE, MY KINGDOM FOR A HORSE" he actually misheard and mistakenly assumed that Richard fell from his horse and was killed in battle and so Shakespeare's play ended Richard III's reign in that way.

We know Richard III liked to build castles. I believe it was much more likely he had applied for permission to build a very large turreted, fortified house for himself and his huge retinue somewhere in Leicestershire to defend his northern estates.

I believe he had been waiting for many, many months for permission to be granted and that whilst engaged in the Battle at Bosworth Field he received a message that the permission certificate was almost ready. So excited was he that he rushed off on his trusty steed, leaving a King's double at the battle in his place. His haste was to be in vain as when he reached the council's parking field he had to wait, and wait and wait…….

He was a king - certainly not accustomed to being kept waiting. After a week his patience finally ran out and in a burst of frustrated anger he bellowed loudly "A HOUSE, A HOUSE, MY KINGDOM FOR A HOUSE". The strain unfortunately proved too much, for he then fell down dead with a heart attack.

What happens next is easy to imagine. He lay there for weeks because the gravediggers were on strike wanting a reduction in their 120 hour working week for in those days there were plagues galore, wars, much killing and death came often and early.

Almost certainly the rubbish gatherers were also on strike because the councillors wanted a share of the profits from the rubbish collectors' scavenging rights.

Thus the body of Richard III was gradually swallowed up beneath piles of rubbish and forgotten about. No doubt in due course the council built over the site with a prestigious tavern and luxurious wenching hall for visiting councillors, or dignitaries from towns with which they were twinned and entwined.

Over 500 years later not much has changed. Pickles, son of Yorkshire, a modern day lord, bestrides the country like a mighty colossus loudly berating all councillors "100,000 houses, 100,000 houses, our kingdom needs 100,000 more houses" and of course, with little effect.

Many thousands of people wait and wait and wait for planning permissions in months and years of agonising frustration whilst the councillors and bureaucrats live the high life, in easy jobs with generous pensions, partly paid for when they collect their share of the scavenging rights now called parking revenues (charges and fines).

Was it Shakespeare who said "A plague on both your houses"? He obviously meant the Lords and the Commons not the Montagues and Capulets as widely believed.

My ramblings can leap through time and so we now arrive in April 1942 and war-torn France is occupied by Germany's front line Panzer Divisions. Hitler was visiting his troops in preparation for a special awards ceremony in celebration of his birthday the following day.

He decided to take an early evening stroll along the banks of the River Seine with his faithful Labrador, Heinz.

Although Heinz was generally a well-behaved dog, he had been trained by Hitler. So when a black swan swam past them, the dog instantly jumped into the river to attack it, pulling Hitler in behind him. Hitler could not swim and began thrashing around in the water, sinking and resurfacing time after time. The only person to witness his distress was Hymie Le Cohen who immediately threw off his coat and jacket, jumped in and saved both Hitler and his dog.

Hitler's aides came running to help their spluttering and soaking Fuhrer. They were instructed to take Hymie to the camp, let him have a bath, dry and iron his clothes and the following morning a special birthday award would be bestowed upon him.

At nine a.m., the Panzer's 1st , 2nd & 3rd Division were all lined up for inspection and additionally the four people who were to receive Hitler's special award were in the front line ready to receive the extra special personal service award of the Fuhrer.

The first was Heinrich, a 6'6", big muscle-bound soldier with blue eyes, blonde hair and a look of utter devotion.

Hitler walked up to him, pinned an iron cross to his chest and announced "You single-handedly wiped out a gypsy camp whose wedding party kept me awake for two nights running. A great General cannot plan battles without his sleep! Name your greatest wish and it shall be yours."

"My Fuhrer, after the war I would like a magnificent schloss in Bavaria with a 1,000 hectare forest surrounding it where I can hunt and shoot every day at my leisure". Hitler replied "Your wish is noted and will be granted". 

Hitler moved to the next person, a rotund man with rosy cheeks wearing a clean butcher's apron, this being his profession as well as being Hitler's personal chef. Hitler approached him, pinned an iron cross on his chest and said "Fleishman, you have been an exceptional chef providing wonderful meals and always tasting my food before me. What is your greatest wish?"

Fleishman replied "After our great victory I want to retire to a farm with 1,000 hectares and a herd of fine Friesian cattle in Austria". Hitler replied "Your wish is noted and will be granted".

The next man, slender but smart, was Hitler's tailor. He wanted and was promised the largest department store situated on the main shopping street in Dresden.

Finally, Hitler came to the last and smallest man in the line, Hymie Le Cohen. Hitler looked at Hymie and instantly realised he was a Jew, his powers of observation helped by the fact Hymie had a large yellow Star of David sewn onto his coat lapel. Hitler looked at Hymie and announced "A Jew could not possibly be so brave as to jump into the fast flowing river and save the Fuhrer, there must be a mistake on your papers". Hitler then strode up to Hymie, tore off the yellow Star of David, threw it to the ground and loudly announced "You are now an Honorary Aryan. What is your greatest wish?" "Please Herr Fuhrer, I would love to have a plate of pickled herrings and gefilte fish". "Is that all?" Hitler replied. "It is my greatest wish", Hymie answered. Hitler ordered his aide to deal with this wish immediately. 

Hitler turned round and to the sound of trumpets blowing and three stupendously loud siegheil salutes from his troops, Hitler left the parade ground. The three other award winners crowded round Hymie Le Cohen. They mocked him and laughed at him saying how stupid he was to ask for so little from the most powerful man in the world. Hymie replied "Mark my words, Heinrich, you won't get your schloss and 1,000 hectare forest, Fleishman, you won't get your big farm and cattle. Mr Tailor, you won't get your Dresden department store but I might, just might, get my plate of pickled herring and gefilte fish!"

Across our country those who have survived the long wait for planning permission find that in return for the right to develop - the local petty Hitlers are demanding the use of either half the block of flats or houses to be built for community use (i.e., at a loss), a new library, road, public hall, meeting room, money for parking places (never built), new parks, statues, grants, even mini tunnels for newts!

These are called Section 106 payments. The correct term is blackmail - and like the soldier, the butcher and the tailor, they rarely get them.

Unfortunately, as always, the real loser is the community who do not obtain the extra homes needed to house future generations or the better shops, offices and factories to work in and the boost to the economy that extra jobs from development and building creates.

So councils' please note. LESS MIGHT MEAN MORE!!

In his penultimate Budget, our Chancellor announced that the year after tax rates for high earners were increased to 50% from 40%, the number of people declaring an income in excess of £1,000,000 per annum fell from 16,000 people to 6,000 people.

To paraphrase Lady Bracknell: "For a government to lose just one tax payer earning over £1,000,000 per year is unfortunate. To lose ten such high tax payers smacks of carelessness but to lose 10,000 of these enormously high earning tax payers shows colossal incompetence, passing through insanity and reaching on financial suicide."

The disclosure of this golden nugget of information is of course only the tip of the iceberg of the stupidity of our taxation system.

Much of the legislation regarding taxation, employment rights, health & safety, environmental concerns etc., are equally dysfunctional and would appear to have been created by a team of vindictive idiots who have been locked up in an asylum for the insane with the brief of creating laws and regulations for the whole country which very, very few people can understand.

However, over the years I have encountered many of our MPs, former MPs and legislators, not just Conservatives but also those from other parties. You may be surprised to learn that I have found most of them pleasant and intelligent people, often with a keen sense of humour, earnestly dedicated to their beliefs after consideration of their own personal interests.

So how come they make such a 'balls-up' of our laws and regulation systems? As always, I look way back into my past experiences to see if I can find a reason for this dichotomy between the pleasant and reasonable legislator and the ridiculous outcomes of the laws they implement.

Many years ago, when our Group was originally a manufacturing optical company, which was gradually making a change to be a property company, our then Board decided, in view of the constant and increasing losses from the optical manufacturing operations, that this part of the business should go. It was sold in a complicated transaction (brief details of which I mentioned in my ramblings in the Interim Report of 30 June 2009).

The Contract for Sale contained an agreement that on the completion date, all our stocks of lenses and frames would be valued at current value and paid over to the optical subsidiary companies that were selling all of their assets, the Group retaining the quoted holding company and property owning subsidiaries.

Most of the stock value was in glass and plastic lenses, which don't go out of fashion and are probably much the same as today. We were comfortable with this methodology of dealing with the stock payment as our stock was valued regularly. We had estimated we would receive over £200,000 for this stock.

However, when all the other initial payments had been paid and the stock figure came in, calculated by independent optical stock assessors, we were surprised to learn that it was over £50,000 less than anticipated.

I was, of course, furious. My initial reaction was that a mistake had been made. I wondered whether stock had been stolen or was a stock fraud possible? It transpired that none of these things had happened.

We examined the contract more closely and realised that the clause for assessing stock value - which was perfectly normal - stated that stock was priced at current wholesale prices but only one year's normal usage would be included as current stocks and paid for.

A large part of our stock was more than a year's usage. We had always been short of cash so how could this have happened? 

I made enquiries about stock security and ordering systems which appeared very simple and secure. The stock was kept in a large locked room, all daily optical orders were delivered to the stockroom in small shallow boxes with the appropriate order for the frame and the prescription of the lenses required. The Stock Manager would allocate the lenses and frame and then distribute the boxes to the various finishing departments to be worked on and assembled prior to dispatch to the opticians.

I am sure most of you know that depending how short or long sighted you are, the glass lenses become progressively thicker. The lenses for short-sightedness range from -1 up to -20 diopters in ¼ diopter stages. 

The vast majority of people need between -1 to -6 and the higher the number the thicker the lens (at -20 nearly 1 inch thick). The higher the number the more expensive and less commonly used the lens.

The lenses were delivered in cardboard boxes of 20. When a box of stock was down to only two or three units the Stock Manager would order another box from the lens manufacturer. It transpired that when the Stock Manager was on his twice a year holidays, the former Chairman's teenage son would deputise and take his place.

He was, I am reliably informed, honest and quite bright. Whenever a box of lenses neared the end he industriously did what he had been instructed to do and would promptly order another box of lenses. No-one had told him not to order the very thick lenses in whole box loads but only to order one or two pairs of these lenses at a time. Therefore, over the course of about four school holidays we had over £50,000 of slow moving stock that may have taken more than five years to use up.

With this unexpected and substantial loss, we were unable to pay all of the manufacturing subsidiary companies creditors and the parent company had no spare money to chip in, hence the optical companies were put into receivership and many long term optical business suppliers and service providers went unpaid.

The Chairman's son was honest and trustworthy, with nothing but the best intentions but he had absolutely NO EXPERIENCE of optical stocktaking. The lawyer who dealt with the sale on our behalf also had LITTLE EXPERIENCE of the optical business and was not therefore able to advise on the particular stock valuation clause.

And one more lazy sod took for granted that the stock valuation clause would correctly provide the appropriate value, i.e., ME - I WAS THAT LAZY SOD HAVING INSUFFICIENT EXPERIENCE of our stock systems and I assumed previous valuations were correct!

You can therefore see what a 'balls-up' you can make if you have NO EXPERIENCE of the matter in hand.

To the best of my knowledge none of our legislators or their advisers despite their expensive educations and degrees have the slightest experience of running a business or indeed any experience of the matters they legislate upon and that's why we're in the mess they have created.

Andrew S Perloff

CHAIRMAN

24 April 2013

Key features of the year

The year ended 31 December 2012 was another year in which we continued to invest strongly with a further £11.4 million of property acquisitions (£21.0 million in 2011), utilising £8.5 million of our loan facility. Many of these acquisitions were high yielding, bought from keen sellers, and were purchased using our floating facility (not fixed like the bulk of our loan facility) which has a relatively lower interest rate. Three of these high yielding properties were purchased in November 2012, with a combined purchase price of £7.3 million, producing approximately £1.1 million of annual net rental income. We were previously paying a non-utilisation fee, for non-draw down of our loan facility and as such our marginal increase in financing costs on these properties is only approximately £150,000. This year we only received a month of benefit, due to the completion in late November. We look forward to enjoying a full year's benefit of the income over our financing costs, (after taking account of any additional costs involved of management) which should improve overall profits. 

After two years of small growth in valuation of our portfolio, unfortunately we have seen a reversal of some of that value due to a weakening property investment market.

Our rental income was £10.8 million in 2012 compared to £9.0 million prior year. As mentioned above we expect our rental income to continue to increase following acquisitions.

Financing

The Group entered into facilities in July 2011 of £75.0 million with HSBC and Santander under a club loan facility. We drew down a further £8.5 million in the year.

The Group still has £6.5 million of this facility available and at the year end had £2.8 million cash for future investment and trading activities. We are also looking to dispose of non-core properties where we can get a good price, to provide us with more funds to seek higher yielding assets. Once we have utilised our remaining loan facilities we may consider other alternative finance, including raising new bank loans or bond issues.

Financial derivative

Unfortunately we have seen a further increase in our long term liability on these financial instruments of £777,000 (£10.6 million in 2011) with the total long term liability on our balance sheet being £20.7 million. We are hoping that this has now plateaued and post year end we have seen some reversal of this liability.

These financial instruments (shown at note 30) are our interest rate swaps that were entered into to remove the risk of interest rates increasing, by fixing our interest costs. However, in economic uncertain times, as we have seen over the last few years, there can be large swings in the accounting valuations, as small movements in the expectation of future interest rates can have a significant impact on their market value; this is partly due to their long dated nature.

These contracts were entered into in 2008 when long term interest rates were significantly higher than at the balance sheet date. In a hypothetical world if we could fix our interest at current rates and term we would overall have much lower interest rate costs. Of course we cannot undo these contracts that were entered into historically but for accounting purposes these financial instruments are compared to current market rates, with the additional liability compared to the market shown on our balance sheet.

Key Ratios

* Debt in short and long term loans, excluding any liability on financial derivatives

**Profit before taxation excluding interest, less movement on investment propertiesand on financial instruments, divided by interest

Financial risk management

The review of financial risk management is contained within the Corporate Governance statement.

Other non financial risks

The Directors consider that the following are potentially material non financial risks.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2012

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2012

Within retained earnings are unrealised loss of £156,000 and deferred tax credit of £448,000 (2011 - unrealised gains of £170,000 and a deferred tax credit of £423,000) relating to fair value of available for sale investments (shares).

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. The Group is not reliant on any key customers.

M.R.G. Systems Limited 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.

Tunnel Limited was an operating segment whose principal activity was that of value shoe retailer. Its activities were discontinued in 2011. 100% of its revenues arose in the United Kingdom. 50% of the company was owned by the Group as a joint venture and only the Group's share was represented in these accounts. 

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 or Tunnel Limited.

2. Income tax credit

The charge for taxation comprises the following:

Domestic income tax is calculated at 24.5% (2011 - 26.5%) of the estimated assessable profit or loss for the year. The future provision for deferred tax has been calculated on the basis of 23.25% (2011 - 25%).

The total charge for the year can be reconciled to the accounting profit or loss as follows;

3. Dividends

Amounts recognised as distributions to equity holders in the period:

The Directors recommend a payment of a final dividend of 9p per share (2011 - 9p), following the interim dividends paid on 30 November 2012 of 3p per share. The final dividend of 9p will be payable on 31 July 2013 to shareholders on the register at the close of business on 21 June 2013 (Ex dividend on 19 June 2013). The full dividend for the year ended 31 December 2012 is anticipated to be 12p per share.

We are proposing to give shareholders the option of a scrip dividend for the 2012 final dividend of 9p per share, with the default option being cash.

4. Loss per ordinary share (basic and diluted)

The calculation of earnings per ordinary share is based on earnings, after excluding non-controlling interests, being a loss of £2,898,000 (2011- loss of £865,000) and on 16,869,000 ordinary shares being the weighted average number of ordinary shares in issue during the year (2011 - 16,869,000). There are no potential ordinary shares in existence.

5. Net assets per share

The calculation of net asset per ordinary share is based on the equity attributable to shareholders of the equity in the parent company, and on 16,869,000 ordinary shares being number of ordinary shares in issue at 31 December 2012 and 31 December 2011.

6. Investment property

At 31 December 2012, £114,616,000 (2011 - £123,791,000) and £38,540,000 (2011 - £21,700,000) included within investment properties relates to freehold and leasehold properties respectively.

On the historical cost basis, investment properties would have been included as follows:

The Group has pledged £139,419,000 of investment property (2011 - £122,938,000) as security for the loan facilities granted to the Group.

Costs relating to ongoing and potential developments are included in additions to investment properties and in the year ended 31 December 2012 amounted to £13,000 (2011 - £59,000).

The Group did not have contractual obligations at the statement of financial position date to purchase investment properties, (2011- £1,257,000 obligation at year end to purchase investment properties)and also a commitment to spend £40,000 (2011- £180,000) on developing investment property. At the year end deferred consideration of £300,000 (2011 - £nil) was payable.

The market value shown at 31 December 2012and 2011 was valued internally by the Directors. As at 31 December 2010, the investment properties were valued independently at their open market value, by GL Hearn, Chartered Surveyors. 

The property rental income earned by the Group from its investment property, all of which is leased out under operating leases, amounted to £10,139,000 (2011 - £8,253,000).

7. Available for sale investments (shares)

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 available for sale securities carried at fair value are classified as level 1 in the fair value hierarchy specified in IFRS 7. 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. 

Panther Securities PLC holds 19.9% of the issued share capital of Beale PLC at the year end. This has been treated as an investment rather than as an associate under IAS 28, since, apart from holding less than 20% of the issued share capital, the Group does not have the ability to exercise significant influence.

Price risk

For the year ended 31 December 2012 if the average share price of the portfolio was 10% lower there would be a further impairment charge in the year of £84,000 to the Income Statement and £40,000 of valuation movements charged to equity. Corresponding gains would be seen for a 10% uplift.

8. 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.

Bank loans totalling £60,000,000 (2011 - £60,000,000) are fixed using interest rate swaps removing 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.

* Fixed rate came into effect on 1 September 2008. Rate includes 2% margin. The contract includes mutual breaks, the first one being on 23 November 2014 (and every 5 years thereafter).

** This arrangement came into effect on 1 December 2011 when HSBC exercised an option to enter the Group into this interest swap arrangement. The rate shown includes a 2% margin. This contract includes a mutual break on the fifth anniversary and its duration is until 1 December 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.

9. Events after the balance sheet date

There were no material transactions after the statement of financial position date.

10. Investment in joint venture

Until November 2011, the Group owned 50% of the two £1 issued equity shares in Tunnel Limited, a company incorporated in England and Wales, which is a retailer of value shoes. 

The Group's share of joint venture revenue, expenses and losses excluding the loan write off are shown at note 1.

The disposal of Tunnel Limited has not been disclosed as a discontinued operation as it is not considered to be material to the Financial Statements.

11.  Investment in associate undertaking

The Group purchased 25% being 150,000 ordinary shares of £1 each (newly issued share capital for cash) in Wimbledon Studios Limited for £150,000 in August 2010. The company operates as an independent film studio letting out sets and offices to media and television organisations. The entity operates out of a Group wholly owned property for which a market rental has been agreed (with one year's rent free). 

In accordance with IAS 28 (revised 2008) - Investments in Associates, the Group has equity accounted for its share of the profits and losses and assets and liabilities of this entity.

The aggregated financial information of Wimbledon Studios Limited for the period ended 31 December 2012 is set out below:

In accordance with IAS 28 (revised 2008) Investment in Associates, where the Group's share of losses in the associate exceeds its equity investment, the carrying value of that equity investment is reduced to £nil and the remaining loss is taken against any further long term interest that in substance forms part of the investors net investment in the associate.

Accordingly, the £196,000 share of net liabilities referred to above has been allocated against the carrying value of the £400,000 overdraft provided by the Group to the associate as noted below.

Group transactions with associate:

12. 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 Group's key management personnel is shown in the accounts (see online) as well as the Directors' emoluments in the notes and within the Directors' Remuneration Report. 

Note 11 details the Group's transactions with its associate.

Included in other receivables Panther Securities PLC has a loan to a director of Wimbledon Studios Limited of £62,500, in order for them to be able to purchase their shareholding in that company. The loan is unsecured for a maximum term of 3 years and attracts interest of 4% per annum. The fair value of this loan is assessed to be the same as its carrying value.

13. Copies of the full set of Report and Accounts will be posted to shareholders shortly, will be available from the Company's registered office at Deneway House, 88-94 Darkes Lane, Potters Bar, Hertfordshire, EN6 1AQ and also will be available for download on the Group's website www.panthersecurities.co.uk in due course.