Final Results - Part 2

BENCHMARK GROUP PLC 20 September 1999 Part 2 FINANCIAL REVIEW OPERATING RESULTS We made an after tax profit of £13.2 million for the year to 30 June 1999 compared with £15.4 million in 1998, a drop of 14%. Net rental income for the year was £19.5 million compared to £21.5 million in the previous year. The reduction in the after tax profit in the financial year can be attributed to the following: - (i) A reduced profit achieved on the sale of trading and investment properties - £4.09 million compared to £7.0 million in the previous year. These profits arise from the sale of both trading and investment properties and for the latter, the historical cost profit is a more appropriate performance measurement for year to year comparative purposes. On an historical cost profit comparison basis, the profits achieved in 1999 were £10.5 million compared to £8.2 million in 1998 as sales of investment properties were much higher in 1999 (£48.1 million sales proceeds compared to £3.3 million in 1998). (ii) An increase in irrecoverable property costs of £1.0m, the bulk of which is agency fees paid on new lettings. (iii)A reduction of £0.6m in gross rental income due to disposals and rent-free periods given on new lettings. Earnings per share dropped from 13.0p per share to 10.9p but if net profits on disposal of trading and investment properties are excluded, the reduction is only 7% (from 8.8p per share to 8.2p). OVERHEADS Total overheads for the year amounted to £3.3 million (1998 - £2.5 million) and this included Nexus' overheads of £99,000. Excluding this amount, it represents 16.6% of net rental income (1998 - 11.8%). Due to the large development programme in progress during the year, no income was generated from the developments, which included Stirling Square and The Panoramic. FINANCE The Group finances its operations by a mixture of equity, convertible bonds and bank borrowings. The Group's objective is to maintain sufficient resources to meet its financing requirements at the lowest achievable cost and minimal risk, whilst maintaining sufficient flexibility to meet the requirements of property purchases, sales and developments. No speculative treasury transactions are undertaken. At the year end, net borrowings amounted to £175.9 million (1998 - £165.8 million) representing a gearing of 54% (1998 - 57%). The borrowings include £49.2 million (net of costs) of 5.75% Convertible Unsecured Loan Stock 2013, £95.6 million from Midland Bank and £28.1 million from Rheinhyp. The Midland Bank loan expires in June 2004 whilst that from Rheinhyp expires in February 2007. We continue to have a self-imposed Group gearing level of 100% which is periodically reviewed by the Board taking into account prevailing and future market conditions. The £50 million 2013 Convertible Unsecured Loan Stock issue during the year served to increase the proportion of fixed interest rate and at the year end, 74% of the total borrowings were at fixed interest rates. Our weighted average cost of funds is currently at 6.8% per annum. We will continuously monitor the situation to ensure that we are not affected materially by adverse interest rate movements in the near future. TAXATION The taxation charge of £1.97 million (1998 - £4.3 million) represents 13.0% of our pre-tax profits (1998 - 21.8%). The low tax charge is a consequence of capital allowances claimed and the utilisation of brought forward losses. REVALUATION OF INVESTMENT PORTFOLIO/NET ASSETS PER SHARE The investment portfolio was revalued by DTZ Debenham Thorpe Chartered Surveyors at the year end and based on those figures, there is a revaluation surplus of £24.1 million (1998 - £49.9 million) and this represents a 5.1% uplift on the investment properties held as at the year end (1998 - 13.5%). However, if the development properties, which are held at cost, are excluded, the uplift is 6.9%. Correspondingly, the net assets per share have increased from 243.4 pence as at 30 June 1998 to 270.5 pence at the year end, an increase of 11.1% (1998 - 28.6%). MANAGEMENT During the year we have added 1 professional member of staff to the head office team giving a total staff of 20. YEAR 2000 ISSUES The Board and management rigorously continue to monitor the year 2000 compliance programme, to ensure that problems are identified and corrected, and that the business of the Company continues without interruption as we enter 2000. The potential risks to the Company have been assessed as being with the systems within the properties for which the Group is responsible, and with our own internal computer systems. The action taken to address these risks is as follows: - * The team of independent consultants we appointed has completed their inspections, assessment and categorisation of all the critical items of plant throughout our property portfolio. The replacement of any such non-compliant systems is expected to be completed by early October. The cost of the programme is unlikely to exceed £75,000. * We have advised those of our tenants, who occupy buildings on full repairing terms, of the problems that could occur and have requested their confirmation of the measures they are undertaking to deal with any potential problems. * The testing of our internal computer-systems has been undertaken, and these systems have been confirmed as year 2000 compliant. * To prevent unexpected problems arising on new property acquisitions, we are seeking appropriate assurances from the vendors at the time of purchase. * There can be no absolute assurances that the steps taken will eliminate all problems associated with the year change. We have, therefore, developed contingency plans the turn of the year, so that we can speedily resolve problems and minimise inconvenience should any problems arise. 3 YEAR REVIEW Since the recapitalisation of Benchmark in October 1996, it has undergone rapid transformation into a specialist Central London property company. It is helpful to look back at the achievements over the three year period in terms of property acquisitions, disposals and capital expenditure. 1996/97 1997/98 1998/99 Post year end Total Acquisitions 176.9 222.0 35.3 81.5 515.7 Disposals - 49.0 85.9 63.0 197.9 Capital Expenditure 2.4 31.4 63.8 10.4 108.0 During this period, a total gross area of 680,000 sq ft has been or is being refurbished or redeveloped. As Benchmark is primarily a property investment company, one key performance indicator is the net asset value (NAV) per share growth. Year Ended 30 June 1996 30 June 1997 30 June 1998 30 June 1999 NAV per share, p 168.1 189.3 243.3 270.5 During this period, the annual compound growth in NAV per share is 17.2% per annum and by including the dividend per share that has been paid out, the growth is 18.6%. CONSOLIDATED PROFIT AND LOSS ACCOUNT Year ended 30 June 1999 1999 1998 Note £'000 £'000 Gross rental income 23,221 23,787 Ground rents (1,361) (1,192) Irrecoverable property costs (1,967) (941) Amortisation of leasehold property (390) (120) ______ ______ Net rental income 19,503 21,534 Profit on disposal of trading properties 1 2,491 6,615 Administration expenses (3,346) (2,538) ______ ______ Operating profit 18,648 25,611 Profit on disposal of investment properties 1 1,603 387 Profit on termination of discontinued operations - 40 ______ ______ Profit on ordinary activities before interest 20,251 26,038 Interest receivable 2 345 548 Interest payable and similar charges 3 (5,458) (6,892) ______ ______ Profit on ordinary activities before taxation 15,138 19,694 Taxation 4 (1,974) (4,298) ______ ______ Profit on ordinary activities after taxation 13,164 15,396 Dividends 5 (4,521) (4,219) ______ ______ Retained profit for the year 8,643 11,177 ===== ===== Earnings per share on operating activities excluding net profits on disposal of trading and investment properties 6 8.2p 8.8p ===== ===== Earnings per share - basic and diluted 6 10.9p 13.0p ===== ===== All items in the Consolidated Profit and Loss Account relate to continuing operations within the United Kingdom except where otherwise stated. CONSOLIDATED BALANCE SHEET As at 30 June 1999 1999 1998 Note £'000 £'000 Fixed assets Tangible assets Investment and development properties 495,821 419,600 Other tangible assets 1,564 197 Investments 3,048 3,048 ______ ______ 500,433 422,845 ______ ______ Current assets Trading properties 9,321 44,020 Debtors 8,235 12,937 Investments 750 - Cash at bank and in hand 282 3,870 ______ ______ 18,588 60,827 Creditors - amounts falling due within one year (19,267) (20,521) ______ ______ Net current assets (679) 40,306 ______ ______ Total assets less current liabilities 499,754 463,151 Creditors - amounts falling due after more than one year (123,713) (169,669) Convertible unsecured loan stock (49,210) - Provisions for liabilities and charges (705) (80) ______ ______ Net assets 326,126 293,402 ______ ______ Capital and reserves Called up share capital 7 60,280 60,280 Share premium account 8 149,737 149,737 Revaluation reserve 8 83,693 66,056 Other reserves 8 51 51 Profit and loss account 8 32,365 17,278 ______ ______ Total capital employed 326,126 293,402 ====== ===== Net assets per share 6 270.5p 243.4p CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Year ended 30 June 1999 1999 1998 £'000 £'000 Profit for the financial year after taxation 13,164 15,396 Unrealised surplus on revaluation of investment properties 24,081 49,236 ______ ______ Total recognised gains and losses for the year 37,245 64,632 ______ ______ NOTE OF HISTORICAL COST PROFITS AND LOSSES Year ended 30 June 1999 1999 1998 £'000 £'000 Profit on ordinary activities before taxation 15,138 19,694 Realisation of property revaluation gains in prior periods 6,444 1,178 ______ ______ Historical cost profit on ordinary activities before taxation 21,582 20,872 ______ ______ Historical cost profit retained after tax and dividends 15,087 12,355 ______ ______ RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS Year ended 30 June 1999 1999 1998 £'000 £'000 Total recognised gains and losses for the year 37,245 64,632 Dividends (4,521) (4,219) Issue of shares - 118,881 ______ ______ Increase in total capital employed 32,724 179,294 Opening shareholder's funds 293,402 114,108 ______ ______ Closing shareholders funds 326,126 293,402 ______ ______ CONSOLIDATED CASH FLOW STATEMENT Year ended 30 June 1998 1999 1998 Note £'000 £'000 Operating activities Net cash inflow before sales of and additions to trading properties 9(a) 12,676 23,601 Net cash inflow/(outflow) from sales of and additions to trading properties 9(a) 44,724 (43,707) ______ ______ Net cash inflow/(outflow) from operating activities 9(a) 57,400 (20,106) Returns on investments and servicing of finance Interest received 361 524 Interest paid (11,480) (10,927) ______ ______ Net cash outflow for returns on Investments and servicing of finance (11,119) (10,403) ______ ______ Taxation Corporation tax paid (4,379) (531) ______ ______ Capital expenditure Acquisition of investment properties (92,498) (175,793) Disposals and other capital 46,288 22,246 receipts Purchase of other fixed assets (1,407) (108) ______ ______ Net cash outflow for capital expenditure (47,617) (153,655) ______ ______ Equity dividends paid (4,340) (1,989) ______ ______ Cash outflow before use of liquid resources and financing (10,055) (186,684) Management of liquid resources Decrease / (increase) in cash deposit held as security 2,700 (1,249) Financing Issue of shares - 118,881 Increase in debt 9(b) 6,467 68,024 ______ ______ Net inflow from financing 6,467 186,905 ______ ______ (Decrease) / increase in cash in the period 9(b) (888) (1,028) ______ ______ Notes to the Accounts 1. Profit on disposal of trading and investment properties Trading Investment Properties properties Total £'000 £'000 £'000 Aggregate consideration 37,745 48,128 85,873 Less: sales costs (266) (414) (680) ______ ______ ______ Net proceeds 37,479 47,714 85,193 Less: historical cost of properties (34,988) (39,667) (74,655) ______ ______ ______ Historical cost profit 2,491 8,047 10,538 Less: revaluation surplus in prior period - (6,444) (6,444) ______ ______ ______ 2,491 1,603 4,094 ______ ______ ______ 2. Interest receivable 1999 1998 £'000 £'000 Loan notes - related company 84 119 Bank deposits 88 226 Deposits held as security against loans 77 152 96 51 ______ ______ 345 548 ______ ______ The loan notes were issued by Agnew's Property Investments Limited in which the Company has a 25% interest. 3. Interest payable and similar charges 1999 1998 £'000 £'000 Amounts payable on bank loans and overdrafts: Not wholly repayable within five years 2,039 10,173 Wholly repayable within five years 6,950 584 5.75% Convertible Unsecured Loan Stock 2013 2,836 - Less: interest capitalised (6,367) (3,865) ______ ______ 5,458 6,892 ______ ______ 4. Taxation 1999 1998 £'000 £'000 Corporation tax at 30.75% (1998 - 31%) 1,349 4,218 Deferred tax 625 80 ______ ______ 1,974 4,298 ______ ______ The tax charge has benefited from the utilisation of brought forward losses and capital allowances claimed. No tax charge has arisen from the disposal of investment properties. Relief has been taken during the year for interest capitalised of £4.3 million (1998 - £3.4 million). 5. Dividend 1999 1998 £'000 £'000 Interim dividend paid of 1.75p (1998: - 1.65p) per share 2,110 1,989 Final dividend proposed of 2.0p (1998: - 1.85p) per share 2,411 2,230 ______ ______ Total dividends payable for the year of 3.75p (1998 - 3.50p) per share 4,521 4,219 ______ ______ 6. Earnings/net assets per share The weighted average number of shares in issue during the year was 120,559,542 (1998: 118,335,299) and the earnings attributed to ordinary shares was £13,164,000 (1998 - £15,396,000). The earnings on ordinary activities excluding net profits on disposal of trading and investment properties comprises net rental income less administration expenses less net interest payable and attributable taxation and amounted to £9,836,000 (1998: - £10,404,650). The number of shares in issue at 30 June 1999 was 120,559,542 (1998: - 120,559,542) and the net assets attributable to shareholders at 30 June 1999 were £326,126,000 (1998: - £293,402,000). Diluted earnings per share have been calculated for all periods adopting the method set out in Financial Reporting Standard 14 - Earnings per Share. In calculating diluted earnings per share, the weighted average number of shares has been increased to 120,668,531 to take into account the dilutive effect of share options. The 5.75% Convertible Unsecured Loan Stock 2013 do not dilute earnings and are therefore excluded from the diluted earnings per share calculation. 7. Share capital The share capital outstanding at the year end was: 1999 1998 £'000 £'000 Ordinary shares of 50p each: Authorised: 88,500 80,000 ______ ______ Allotted, called up and fully paid 60,280 60,280 ______ ______ On 6 July 1998 the authorised share capital was increased to £88.5 million following the Placing and Open Offer of 50 million units of 5.75% Convertible Unsecured Loan Stock 2013. 8. Reserves Share Revalua- Other Profit premium tion reserves and loss Total reserve account £'000 £'000 £'000 £'000 £'000 Group As at 1 July 1998 149,737 66,056 51 17,278 233,122 Revaluation surplus - 24,081 - - 24,081 Revaluation surplus written back on property disposals - (6,444) - 6,444 - Retained profit for the year - - - 8,643 8,643 ______ ______ ______ ______ ______ As at 30 June 1999 149,737 83,693 51 32,365 265,846 ______ ______ ______ ______ ______ 9. Notes to the consolidated cashflow statement (a) Reconciliation of operating profit to operating cash flows 1999 1998 £'000 £000 Operating profit 18,648 25,611 Depreciation 40 23 Profit on sale of trading properties (2,491) (6,615) Amortisation of leasehold properties 390 120 Increase in debtors (1,705) (1,182) Increase in investments (750) - (Decrease)/increase in creditors (1,456) 5,644 ______ ______ Net cash inflow before trading properties 12,676 23,601 Net cash inflow/(outflow) from trading properties 44,724 (43,707) ______ ______ Net cash inflow/(outflow) from operating activities 57,400 (20,106) ______ ______ (b) Reconciliation of net cash flow to movement in net debt 1999 1998 £'000 £'000 Decrease in cash in the period (888) (1,028) (Decrease)/increase in cash held as security against loans (2,700) 1,249 Cash inflow from increase in debt (6,467) (68,024) ______ ______ Change in net debt resulting from cash flows (10,055) (67,803) Net debt at start of period (165,799) (97,996) ______ ______ Net debt at end of period (175,854) (165,799) ______ ______ (c) Net debt movements: 1999 Cashflow 1998 £'000 £000 £'000 Cash at bank and in hand 282 (888) 1,170 Cash held as security against loans - (2,700) 2,700 ______ ______ ______ Cash per balance sheet 282 (3,588) 3,870 Bank loans less than one year (3,213) (3,213) - Bank loans more than one year (172,923) (3,254) (169,669) ______ ______ ______ Net debt (175,854) (10,055) (165,799) ______ ______ ______ 10. Basis of preparation The above financial information does not constitute the company's full statutory accounts for the years ended 30 June 1998 or 1999 but is derived from these accounts. Statutory accounts for the year ended 30 June 1998 have been delivered to the Registrar of Companies, whereas those for 1999 will be delivered following the company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain a statement under Section 237 (2) or (3) of the Companies Act 1985. The Annual Report and Accounts will be posted to shareholders on or before 5 October 1999 and will be available from the Company's Registered Office at: 25 Sackville Street, London W1X 1DA.

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