Sutton Harbour Holdings Regulatory News (SUH)

14 December 2023

Sutton Harbour Group plc

("Sutton Harbour" or the "Company")

Sutton Harbour Group plc, the AIM-quoted marine and waterfront regeneration specialist, announces its unaudited interim results for the six-month period to 30 September 2023.

Financial Highlights

· Gross profit £1.620m (6 months to 30 September 2022: gross profit £1.415m)

· Loss before taxation £0.119m (6 months to 30 September 2022: profit before tax £0.223m)

· Gross assets £98.859m (31 March 2023: £96.049m)

· Net assets £58.850m (31 March 2023: £56.067m)

· Net asset value per share 41.2p (31 March 2023: 43.1p)

· Net debt £30.468m (31 March 2023: £29.259m)

· Gearing 51.8% (31 March 2023: 52.2%)

Company Highlights

· Completion of Harbour Arch Quay and sale of all 14 apartments completed by early November 2023

· Full occupancy of the newly refurbished Old Barbican Market

· Marinas' occupancies at near capacity

· North Quay House redevelopment programmed for 2024 delivery

· Debt reduction strategy plan to reduce interest burden to commence in 2024

Philip Beinhaker, Executive Chairman, commented:

"In the period under review and into recent months, the Company has delivered the construction work and full occupation of two major projects in Sutton Harbour, both which have already added to the quality of the local built environment and are the first significant developments in more than a decade around Sutton Harbour. The Company is committed to continuing with its development programme to ensure the future quality and sustainability of the area and delivery of medium to long term value for investors."

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Executive Chairman's Statement

For the six-month period to 30 September 2023

Results and Financial position

Trading during the first six months of the financial year was robust with gross profit up 14.4% to £1.620m from £1.415m for the comparable period to 30 September 2022 ("H1 2022"). This reflects continued occupancy of the marinas at near-capacity rates and strength of the car parks and property rental activities. Bottom line results have been materially affected by progressive interest rate rises giving rise to the net loss for the period. The loss before taxation for the six-month period to 30 September 2023 was £0.119m compared to £0.223m profit before taxation for H1 2022.

As at 30 September 2023, net assets were £58.850m (equal to 41.2 pence per share), up from £56.067m (equal to 43.1 pence per share) as at 31 March 2023. The increase in net assets of £2.783m is largely attributable to the issue of 12,994,407 new ordinary shares at 22.5 pence each by way of a subscription by the Company's major shareholder, raising gross proceeds of £2.9m, in May 2023.

Net Debt has increased to £30.468m, being £1.209m more than the net debt position as at 31 March 2023 of £29.259m. Notable components of this change were the £2.9m share subscription cash inflow offset by £1.6m bank loan repayments and investments into the active development projects. Gearing, measured as net debt as a percentage of net assets, was broadly unchanged at 51.8% as at 30 September 2023 (31 March 2023: 52.2%).

Trading and Operations Report

During the six-month reporting period, the marinas have been occupied at levels very close to full capacity. The Company held prices for berthing at Sutton Harbour at the previous season's rates as consideration to berth-holders for the disruption of the Environment Agency's planned lock gate cill replacement works which started after this interim reporting period. Berthing rates charged at King Point Marina were increased by inflation and this marina's results also reflect the new five-year lease with Princess Yachts on improved terms. Fishing results show a slight improvement to the comparative period with an increase in the amount of fuel sold. Overall, contribution from the Marine trading segment was £0.895m in the six-month period to 30 September 2023 (H1 2022: £0.681m).

The Environment Agency is funding the costs of the lock works. The intermittent disruption caused by these works started in early October 2023 and will run until mid December 2023. A second 10 week long tranche of these works will take place in early 2024. The direct financial impact of the lock works will be accounted in the results for the second half year and will incorporate the costs of providing alternative landing and temporary berthing facilities.

Starting in November 2023, selling of marina berths for the 2024/25 season has begun. Rates for King Point Marina have been increased by inflation, whereas rates at Sutton Harbour Marina have been increased by only a modest amount, adjusted to recognise the ongoing lock works disruption. Rates will increase to market norms from 2025/26. To date, sales are very encouraging showing strong levels of berth bookings at this stage in the selling season.

During the first half of this financial year, overall results from the Real Estate segment were slightly up on the comparative period at £0.505m gross profit (2022: £0.480m gross profit). These results take account of the new lettings in the newly refurbished Old Barbican Market, countering the loss of rents from North Quay House, the largely decanted office building now proposed for redevelopment to a new waterfront residential development. Occupancy of the Company's retail and industrial business space continues to be resilient.

The Company has now secured its power requirements by way of a capped buying strategy to avoid future power cost shocks as was acutely experienced in the second half of the previous financial year. Power costs have now reduced from the winter 2022/23 peak, but are still considerably higher than pre October 2022.

Development / Regeneration

Harbour Arch Quay

The building was completed in October 2023 with sales completions of all 14 apartments taking place by early November 2023. The development loan of £4.5m was repaid and the Company has now also repaid £3.2m against the NatWest term loan. The ground floor offices will be made ready for the Company to occupy in 2024 and letting of the existing offices will then follow.

The Company is pleased to have recommenced active property development after more than a decade's hiatus and the sales of all units during construction demonstrates demand for high quality property in the environment of Sutton Harbour.

Whilst the property sales achieved some of the highest prices recorded for apartments in Plymouth, the Company expects a construction project result just below breakeven once all costs are finally accounted. The full accounting result will show a loss in the second half year after taking into account all other costs including historical site holding costs, costs of re-design and time of Company personnel spent on the project. The Company had projected a profitable result but encountered delays and additional costs due to the complex ground conditions, resolution of party wall agreements, change in fire safety regulations necessitating some supplementary works and additional costs arising from supply chain shortages, materials inflation and labour rate increases. Nonetheless, the Company has now identified a team of experienced, reliable professionals and tradespeople most suited to delivering high quality waterfront property in this area and now has current experience to benefit improved cost management for the delivery programme of future projects.

Old Barbican Market

After completing the full refurbishment of this listed property early in 2023, all three units are now occupied with national covenant tenants whose draw to the Barbican has benefited footfall to the area, thereby supporting other tenants and businesses, and creating greater appeal to the wider public, both local people and visitors. This development has demonstrated that targeted investment can deliver the opportunity for value growth and future sustainability of the area.

North Quay House

The next development proposed by the Company is the delivery of a high quality 10 apartment building at North Quay House. North Quay House is an, office building overlooking the harbour, now largely decanted. The proposed development will incorporate retail space and parking. Subject to planning consent and financing, this development is programmed for delivery in 2024 and following on from the success of Harbour Arch Quay, already has interest from prospective apartment purchasers.

Sugar Quay

Since gaining planning consent for a single building at Sugar Quay, the Company is working on adapting the design to enable development in phases. This approach is more appropriate in the current market and will allow staged financing and development at a pace to suit absorption of the finished apartments. Additionally, there are a number of design improvements that will be incorporated into this proposal including provision of harbour views to significantly more units and an improved off street unloading and reception access. The Company expects to submit this updated application to the Local Planning Authority later in 2024.

Former Airport Site

The planning freeze of the former airport site to protect it against alternative use expires in March 2024. It is expected that the Company will submit a masterplan to the Local Planning Authority in the near future.

Financial Structure

With interest rates now expected to persist at or around current levels (5.25% current Bank of England rate) for the immediately foreseeable future, the Company recognises that its gearing level is high. The Board is focused on reducing its debt level significantly within the next year to manage debt servicing costs down to a more comfortable level. At present the Company has banking facilities of £21.7m (after having a repaid a further £1.6m subsequent to this reporting period in addition to a £1.6m repayment during the first half year period) secured by a property asset portfolio valued at 31 March 2023 of £58.9m. The former airport site is not included in this security figure.

The Company has therefore begun exploring options to realise the value of some of its asset portfolio within the next year to reduce bank debt and to provide some working capital for essential investment into operational assets and for pre-construction project costs. The Company has identified assets for disposal which are more easily separable from the Group and have reached their valuation potential from the Group's perspective. This is in line with the Group's stated Business Plan in the last published Annual Report. Divestment of between c.8-12% of the total asset base is under consideration. The Company will update on divestments as and when agreements for disposals are entered into. In due course, acquisition and retention of strategic assets, whether bought or developed, is expected to increase.

The Company is actively working with its current bank, NatWest, other banks and specialist development funders to support the debt reduction plan and future funding needs. The current banking facility expires in December 2024. The related party loans with Beinhaker Design Services Ltd and Rotolok (Holdings) Limited expire in May 2024 and whilst part of the liability is expected to be repaid at maturity, the Company is exploring options to extend and/or convert to equity a portion of the liability.

Summary

In the period under review and into recent months, the Company has delivered the construction work and full occupation of two major projects in Sutton Harbour, both of which have already added to the quality of the local built environment and are the first significant developments in more than a decade around Sutton Harbour. Economic conditions, changing regulations and supply side factors have presented challenges to the development process and there have been points that have been learned in the delivery of both these projects which will enhance management of future projects. With the benefit of this current experience, the Company is committed to continuing with its development programme to ensure the future quality and sustainability of the area and delivery of medium to long term value for investors.

Philip Beinhaker

EXECUTIVE CHAIRMAN

Consolidated Statement of Comprehensive Income

Consolidated Balance Sheet

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement

Notes to Interim Report

General information

This consolidated interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 March 2023 were approved by the Board of Directors on 31 July 2023 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified and did not contain any statement under section 498 of the Companies Act 2006.

Copies of the Group's financial statements are available from the Company's registered office, Sutton Harbour Office, Guy's Quay, Sutton Harbour, Plymouth, PL4 0ES and on the Company's website www.sutton-harbour.co.uk.

This consolidated interim financial information has not been audited.

Basis of preparation

The consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 March 2023, which have been prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretation Committee (IFRIC) interpretations as endorsed by the European Union, and those parts of the Companies Acts 2006 as applicable to companies reporting under IFRS.

Accounting policies

Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 31 March 2023, as described in those annual financial statements.

Accounting estimates and judgements

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods, if the revision affects both current and future periods.

Segment information

Management has determined the operating segments based on the reports reviewed by the Board of Directors that are used to make strategic decisions.

The Board of Directors considers the business from an operational perspective as having only one geographical segment, with all operations being carried out in the United Kingdom.

The Board of Directors considers the performance of the operating segments using operating profit. The segment information provided to the Board of Directors for the reportable segments for the period ended 30 September 2023 is as follows:

Segment Information (continued)

Segment Information (continued)

Segment Information (continued)

Unallocated assets included in total assets and unallocated liabilities included in total liabilities are not split between segments as these items are centrally managed.

Taxation

The Company has applied an effective tax rate of 25% (2022: 19%) based on management's best estimate of the tax rate expected for the full financial year and is reflected in a movement in deferred tax.

Dividends

The Board of Directors do not propose an interim dividend (2022: nil).

 Earnings per share

Basic Earnings per Share:

Basic earnings per share have been calculated using the loss for the period of £119,000 (2022: profit £223,000; year ended 31 March 2023: loss £2,036,000). The average number of ordinary shares in issue, excluding those options granted under the SAYE scheme, of 140,506,216 (2022: 129,944,071; year ended 31 March 2023: 129,944,071) has been used in our calculation.

Diluted Earnings per Share:

Diluted earnings per share uses a weighted average number of 140,774,968 (2022: 130,182,220; year ended 31 March 2023) ordinary shares after adjusting for the effects of share options in issue: 257,972 ordinary shares (2022: 237,972; year ended 31 March 2023). If the inclusion of potentially issuable shares would decrease loss per share, the potentially issuable shares are excluded from the weighted average number of shares outstanding used to calculate diluted earnings per share.

Property valuation

Freehold land and buildings and investment property have been independently valued by Jones Lang LaSalle as at 31 March 2023, in accordance with the Practice Statements in the Valuations Standards (The Red Book) published by the Royal Institution of Chartered Surveyors. 

A further valuation will be commissioned for the year ending 31 March 2024, as in previous years.

Cash and cash equivalents

Cash flow statements