SAF.L Regulatory News (SAF)

22 August 2016

Safeland PLC

("Safeland", "the Company" or "the Group") 

Audited Final Results

For the Year to 31 March 2016

Managing Director's Statement

Key achievements

I am pleased to report a successful year to 31 March 2016, with a significant increase in turnover and profit. The year brought considerable sadness too, however, as our Chairman Ray Lipman passed away in June 2015. Ray - my father - co-founded the Group and led it for many years.

In the prior year, we were able to make a first distribution to shareholders for more than a decade, and we were pleased to continue this new trend with an interim dividend of 1.5p for the half-year to 30 September 2015. No final dividend is proposed.

In November 2014 we exchanged on the sale of 31 residential units in Wimbledon for a total of £10.23m, of which the first block of 17 flats was completed and sold in July 2015; the remaining flats were completed and sold in the year to 31 March 2016 and are reflected in these results.

Just before Christmas 2015, the Group agreed the purchase of a substantial detached freehold house in London, N2, for £6.225 million in cash, funded from existing bank facilities and its own cash reserves, with the acquisition being completed on 31 March 2016. The property is being refurbished.

Since the balance sheet date, a detached house in Golders Green, London NW11, which was bought by the Group in 2014, has been split into two semi-detached houses, both of which were sold.

Planning permission has recently been received for the conversion into 18 apartments of a hotel in Muswell Hill, London N10, owned by the Group. The hotel recently ceased trading and is now under refurbishment.

During the year, we participated in a placing of shares by Safestay plc, acquiring 1,070,864 new shares in Safestay at a cost of £663,935, bringing our total holding to 1,420,864 shares, being 4.3% of the issued share capital of Safestay.

There were two purchases of own shares for cancellation during the year: 1,160,800 shares at 57p per share on 1 October 2015, and 130,000 shares at 60p per share on 17 November 2015. The directors considered that the acquisition and cancellation of these shares would enhance the value of the remaining shares in issue.

Financial review

Group revenue for the year to 31 March 2016 of £21.1 million comprises sales of development properties, rental income, management fees, and hotel revenue from the north London hotel (now closed), and was significantly in excess of the £10.3 million in the year to 31 March 2015. We increased gross profit from £2.8 million to £7.1 million though operating profit fell from £6.9 million in the year to 31 March 2015 to £5.9 million in the year to 31 March 2016.

The value of our trading stock has increased from £12.7 million at 31 March 2015 (as restated) to £14.8 million at 31 March 2016. The statement of financial position shows gearing at 31 March 2016 of 45%, reduced from 54% at 31 March 2015.

Net assets - our total balance sheet value or NAV - rose from £14.8 million at 31 March 2015 (equivalent to 87p per share) to £17.7 million equivalent to 114p per share at 31 March 2016 - a 29% year-on-year increase, albeit with fewer shares in issue following the buyback and cancellation of shares in the year.

Total shareholder returns decreased from 150.2% in the year ended 31 March 2015 to 16.0% in the year to 31 March 2016, as the year to 31 March 2015 included the benefit of the sale of Chandos Tennis Club and the dividend in specie from Safestay.

Outlook

We have entered an extremely volatile environment, therefore shareholders should be aware that as an opportunistic trading and investment company, turnover and profit flow can fluctuate significantly.

We shall continue to monitor the market closely and, as always, seek to take advantage of any opportunities as they arise.

Larry Lipman

Managing Director

22 August 2016

Strategic Report

Principal activities

The principal activities of the Group comprise property trading, property refurbishment (including redevelopment), property investment and property fund management.

Review of business and future prospects

The Group's key achievements and financial review are detailed in the Managing Director's statement. The results for the year are set out in detail below.

An interim dividend of 1.5p per share (totalling £233,400) was paid by the Company during the year to 31 March 2016. No final dividend is proposed.

Key performance indicators

The Group's key performance indicators are net asset value per share and total shareholder return and are detailed in the financial review section of the Managing Director's Statement.

The directors were pleased to see the increase in the share price from 50p to 56.5p in the year to 31 March 2016 which, together with dividends, gave a shareholder return of 16.0%, down from 150.2% in the year to 31 March 2015 for the reasons stated in the managing director's statement.

Net asset value per share is calculated by dividing net assets per the consolidated statement of financial position by the number of shares in issue at that date. Total shareholder return measures the return to shareholders from share price movements supplemented by other returns such as dividends.

Principal risks and uncertainties

The principal risks and uncertainties that could potentially have an impact on the Group's performance are detailed below.

Business risk

Safeland operates in the property market, which over the years has always been liable to price fluctuations, dependent upon the state of the UK economy. In the event that there was a drop in the value of property throughout the country, this would obviously affect the properties held by Safeland at that time, but would also present an opportunity for buying at distinctly lower levels than exist at present. The Group mitigates the risk of downturns in property values by ensuring diversity within its property portfolio.

An assessment of the eventual value of four houses in a development to be constructed has been made by the directors using their knowledge of the current property market in the relevant geographic area and their assessment of that market over the period to completion of the development.

That value has been discounted to a present-day value using a discount rate which comprises the weighted average cost of capital.

It is conceivable that the impending exit of the UK from the EU may affect tax rates that exist at present, which could erode the margins that Safeland is able to attain on its trades, and may adversely impact upon property values.

Over the years, Safeland has added value by obtaining change of permitted use of properties. Adverse changes to the planning requirements could affect this methodology.

Financial risk

In order to finance the purchase of properties that Safeland trades in, it uses bank loans with variable interest rates that track LIBOR. Increases in the LIBOR rate will adversely affect the profit that Safeland is able to make. This has been partially mitigated by the use of interest rate swaps and caps.

The determining factor as to how much Safeland is able to buy at any one time is limited by cash and there may be times when opportunities are not able to be taken advantage of as all available monies have been allocated elsewhere. Strict financial controls are in operation to ensure that monies cannot be expended above the available limits.

Larry Lipman

Managing Director

22 August 2016 

Safeland plc

Consolidated Income Statement

Year Ended 31 March 2016

The revenue and operating result for the year is derived from continuing operations in the United Kingdom.

Safeland plc

Consolidated Statement of Comprehensive Income

Year ended 31 March 2016

Safeland plc Company Registration Number: 2012015

Consolidated Statement of Financial Position

31 March 2016

(i) Restated (see notes 5 & 6)

Safeland plc

Consolidated Statement of Changes in Equity

31 March 2016

Safeland plc

Consolidated Statement of Cash Flows

Year ended 31 March 2016

Safeland plc

Notes

31 March 2016

1. Basis of preparation

On 22 August 2016, the Directors approved this preliminary announcement for publication. Copies of this announcement are available from the Company's registered office at 1a Kingsley Way, London, N2 0FW and on its website, www.safeland.co.uk. The Annual Report and Accounts will be sent to shareholders in due course and will be available on the Company's website, www.safeland.co.uk.The financial information presented above does not constitute statutory financial statements as defined by section 435 of the Companies Act 2006 for the year ended 31 March 2016.

The financial information for the year ended 31 March 2016 is derived from the statutory financial statements for that year, prepared under IFRS, upon which the auditors have reported. The audit report was unqualified, did not include references to matters to which the auditor drew attention by way of emphasis without qualifying their report and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The statutory financial statements for the year ended 31 March 2016 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

The accounting policies applied in this announcement are consistent with those of the annual financial statements for the year ended 31 March 2016, as described in those annual financial statements.

2. Significant Accounting Policies

Revenue

Revenue is stated net of VAT and comprises rental income, proceeds from sales of trading properties, fees, commissions and other income.

Sales of trading properties are recognised on legal completion of a contract. This reflects the point of transfer of risk and rewards when trading property is sold.

Rental income from investment and trading properties leased out under operating leases is recognised in the Income Statement on a straight-line basis over the term of the lease. Contingent rents which comprise turnover rents are recognised as income in the periods in which they are earned. Rent reviews are recognised when such reviews have been agreed with tenants. Lease incentives are recognised as an integral part of the net consideration for the use of the property and amortised on a straight-line basis over term of lease, or the period to the first tenant break, if shorter.

Revenue in the previous year arising from deferred consideration in the form of four completed houses in a residential development to be undertaken on the site of the Chandos Tennis Club in the next two to three years is based on a valuation by the directors, discounted to a present-day value using the weighted average cost of capital.

Other fees in relation to property management are recognised on a straight-line basis over the term of management contracts.

Hotel revenue comprises revenues from overnight hotel accommodation, banqueting facility hire and sales of food and beverages. All revenues are recognised when the service is provided.

Investment properties

Investment properties are those properties that are held either to earn rental income or for capital appreciation or both.

Investment properties are measured and stated at fair value in the statement of financial position. Valuation surpluses and deficits arising in the period are included in profit or loss.

The gain or loss arising on the disposal of a property is determined as the difference between the sales proceeds and the fair value of the asset at the beginning of the period and is recognised in the income statement.

Investment properties may be freehold properties or leasehold properties. For leasehold properties that are classified as investment properties, the associated leasehold obligations, if material, are accounted for as finance lease obligations.

Available-for-sale investments

Available-for-sale investments are non-derivative financial assets that are designated as available-for-sale.

The investments are recognised initially at fair value plus transaction costs and thereafter carried at fair value with gains and losses taken to other comprehensive income. The gains and losses taken to other comprehensive income are recycled through the income statement on realisation. If there is objective evidence that the asset is impaired, the cumulative loss that had been recognised in other comprehensive income is removed from equity and recognised in the income statement. The amount removed from equity and recognised in the income statement is the difference between the acquisition cost (net of any principal repayment and amortisation) and current fair value, less any impairment loss on that financial asset previously recognised in the income statement.

Impairment losses recognised in the income statement are not reversed through profit or loss.

Trading properties

Properties held for development and resale are classified as trading properties and are shown at the lower of cost and net realisable value. Cost comprises purchase price, acquisition costs and direct expenditure.

Restatement of stock as investment property

Triangle Estates Limited (TEL) was acquired by the Group on 19 December 2014. It was trading as an investment company on acquisition and in the opinion of the directors has continued to do so.

As properties owned by TEL became vacant, the directors decided to sell each of them after undertaking limited works to bring them into an improved state of disposal.

The directors intend to continue holding the remaining property assets within the portfolio as investments for the foreseeable future, and undertook a refurbishment of the ground floor retail unit, from which rent is currently being earned.

At 31 March 2015, the carrying value of the Group's trading properties included an amount of £1.97m that should have been classified as investment properties. This has now been restated for that year ended 31 March 2015 in the comparative figures.

During the year ended 31 March 2016, the Group continued to hold the remaining commercial units and the directors' estimate of the carrying value of these remaining investment properties in TEL at 31 March 2016 was £0.4m.

This is further set out in more detail in notes 5 and 6 below.

3. Operational Segments

The Group complies with IFRS 8 Operating segments, which requires operating segments to be identified on the basis of internal reports about components of the Group that are reviewed regularly by the chief operating decision maker, identified as the executive directors, to allocate resources to the segments and to assess their performance.

The segments are defined by the types of product and services which each reportable segment derives its revenue.

The measure of segment result is considered to be the IFRS measure of operating profit before administrative expenses. The Board reviews administrative expenses, finance expenses and tax at Group level and does not allocate these costs to segments.

The information reviewed by the chief operating decision maker, or otherwise regularly provided to the chief operating decision maker does not include information on net assets. The cost to develop this information would be excessive in comparison to the value that would be derived.

All activities are based in the United Kingdom.

The segmental information of the Group's results for the year ended 31 March 2016 was as follows:

The segmental information of the Group's results for the year ended 31 March 2015 was as follows:

4. Earnings per Share

The calculation of the basic and diluted earnings per share is based on the following data:

Net asset value at 31 March 2016 was £17,746,000 (2015: £14,754,000), equivalent to 114p per ordinary share (2015: 87p), though there were fewer shares in issue at 31 March 2016 than a year previously.

5. Investment Properties

(i) Restated

The fair value of the investment properties at 31 March 2016 comprises freehold properties of £665,000 (2015: £2,235,000) and long leasehold properties of £458,000 (2015: £458,000).

The leasehold and freehold investment property have been classified within level 3 of the fair value hierarchy (unobservable inputs).

The investment properties consist of residential property located in North London and have been valued by the Directors. The methodology to value these properties is to compare historical comparable market transactions less a percentage reduction to reflect the limitations of restrictive tenancies. Based on valuations at 31 March 2016, if the percentage reduction was 5% higher or lower and all other variables were held constant, the Group's net profit would increase or decrease immaterially.

The Group has pledged investment properties with a carrying value of £1,110,000 (2015: £2,673,000) to secure banking facilities granted to the Group.

The fair value of the Group's investment properties at 31 March 2016 had been arrived at on the basis of market value as defined in the Apportionment and Valuation Manual of the Royal Institution of Chartered Surveyors. The valuations were performed by directors.

Property rental income earned by the Group from its investment properties amounted to £132,000 (2015: £146,000). Direct operating expenses arose on these properties during the year of £1,000 (2015: £1,000).

The historical cost of investment properties included in the financial statements at 31 March 2016 is £1,081,000 (2015: £2,693,000 as restated) of which £665,000 (2015: £2,148,000 as restated) are freehold and £458,000 (2015: £545,000) are long leasehold properties.

6. Trading Properties

(i) Restated

The Group has pledged properties for resale with carrying value of £14,838,000 (2015: £12,748,000) to secure banking facilities granted to the Group.

Properties for resale were reviewed for impairment as at 31 March 2016; the Directors are satisfied that no impairment is necessary.

Trading properties are properties acquired or developed and held for sale and are shown at the lower of cost or net realisable value. The cost of trading properties are those costs directly associated with the acquisition and development of a specific site. Net realisable value is the estimated selling price in the ordinary course of business less estimated costs to completion and the estimated costs necessary to make the sale.

7. Trade and Other Receivables

The directors consider that the carrying amount of trade and other receivables approximates to their fair value. Of the other receivables, £8,503,000 (2015: £7,985,000) is deferred consideration on the sale of the Chandos Tennis Club and is shown as a non-current asset.

8. Bank Loans

There were no breaches of bank loan covenants as at 31 March 2016 or 31 March 2015.

All of the Group's bank loans and overdrafts disclosed above comprise borrowings in sterling. The bank loans are secured on investment and trading properties owned by the Group totalling £15,948,000 (2015: £15,421,000 as restated).

The Group had undrawn committed borrowing facilities as at 31 March 2016 of £1,500,000 (2015: £5,200,000).