Final Results

BIRKBY PLC 27 July 1999 BIRKBY PLC PRELIMINARY RESULTS FOR THE YEAR TO 31 MARCH 1999 KEY POINTS * Bill Cran, Chairman of Birkby plc, said; 'Birkby has delivered an excellent performance against a background of economic uncertainty. All divisions performed strongly, boosted by good levels of demand throughout the year. I am particularly pleased to highlight the announcement made today regarding the proposed merger of Birkby and Mentmore Abbey to be effected by a recommended offer for Birkby by Mentmore Abbey. This merger between our two companies is set to create a major space management group with significant growth prospects in the UK and Europe.' * Pre-tax profit increased by 20% to £13.2m (1998: £11.0m) * Earnings per share rose by 20% to 20.2p (1998: 16.8p) * Operating cash increased to £17.1m (1998: £16.8m) * Substantial expansion of national network of service centres with 1.5m sq ft of space added for a total of £22.7m * Good level of demand for space throughout year across both workspace and retailspace divisions - led to increases in occupancy levels and fee income - Workspace division profit before interest and tax up 28% to £11.7m - Retailspace division profit before interest and tax up 17% to £3.8m * 20% stake in Workspace Group PLC acquired for £16.2m (509p per share) on 22 April 1999. * Birkby portfolio of managed centres now total 200. Enquiries: Birkby plc: Bill Cran Tel: 01484 545151 Chairman Kim Taylor-Smith Tel: 0121 778 2233 Chief Executive Dresdner Kleinwort Benson: Ben Thorne Tel: 0171 623 8000 Biddick Associates: Katie Tzouliadis Tel: 0171 377 6677 BIRKBY PLC - PRELIMINARY RESULTS 1999 Announcing Birkby's PLC's preliminary results, Bill Cran, Chairman, said, 'It is with great pleasure that I present my first statement to you as Chairman. The year to 31 March 1999 saw the Group deliver another excellent performance against a background of economic uncertainty. All divisions performed strongly, boosted by good levels of demand throughout the year. I am particularly pleased to highlight the announcement made today regarding the proposed merger of Birkby and Mentmore Abbey to be effected by a recommended offer for Birkby by Mentmore Abbey. This merger between our two companies is set to create a major space management group with significant growth prospects in the UK and Europe. Our two companies have a natural synergy of concepts. Mentmore Abbey provides individuals and industry with specialised storage space and item management where customer service and access are critical. The Birkby workspace centres lend themselves readily to the storage concept, providing the potential to increase income, particularly where there is under utilised space on upper floors. In addition, a merger will increase our acquisition potential with considerable resources available to fund future growth. Results I am delighted to announce a 20% increase in Group pre-tax profits to £13.2m for the year ended 31 March 1999 (1998: £11.0m), with earnings per share rising by 20% to 20.2p (1998:16.8p). This year's result includes a one-off charge of £449,000 arising from the closure of three underperforming retail centres. Cash inflow from operations remains very strong, with £17.1m generated in the period (1998: £16.8m). During the year, the Group invested £23.4m in capital expenditure. Net borrowings were £44.3m, including £8.4m associated with the instalment credit division, Manor Credit. This equates to gearing of 46% (1998: 38%), with interest cover remaining at a very comfortable 5.3 times. Dividend In view of the proposed merger of Birkby and Mentmore Abbey, the Board is not proposing a final dividend. Board and Staff Birkby has an enthusiastic and capable workforce whose dedication and commitment to servicing our customers underpins the Group's success. In recognition of this, at the beginning of 1999, we introduced a share save scheme and a share option scheme for all our employees, which has been very well received. In addition, during the year, we awarded 32 employees with long service awards and I would like to pay particular tribute to them. Finally, I would like to thank my fellow directors for their support over the last year and all our staff who have contributed to these excellent results. Increase in Service Centres We have added a further 36 centres to the network, comprising over 1.5 million sq.ft of space during the year, at a cost of £22.7m. This easily exceeded the acquisition target of one million sq.ft set last year. Much of this space has been acquired from local authorities, reflecting the close working relationships we have forged over time within the regions. In addition, we have provided new units on surplus land and regenerated under utilised space within our existing portfolio. The Birkby portfolio of managed space now totals 200 centres, comprising 7.7 million sq.ft, split into 7,100 individual units. We now accommodate over 4,300 small and medium sized enterprises throughout the UK, producing annual income of £41m. Birkby remains the UK's largest provider of serviced managed workspace and retailspace. On 22 April 1999, the Group acquired 20% of the current issued share capital of Workspace Group PLC ('Workspace') at a price of 509p per share, for a total consideration of £16.2m. This consideration was satisfied in cash from Birkby's existing resources. The Directors intend to keep under review the optimal level of Birkby's shareholding in Workspace but, in the meantime, regard the shares as a good medium to long term investment. REVIEW OF OPERATIONS Overview It has been an excellent year for Birkby, with pleasing progress achieved across all divisions. Despite mixed market conditions over the reporting period, demand has remained high overall and we have continued to provide a flexible service to our customers, increase occupancy levels and generate high levels of cash. In the first half of the financial year, we experienced greater movement of customers within our centres. This movement, where we accommodated existing occupiers into smaller units while new customers move in, attracted by the flexibility and services we offer, is typical of the type of service we can offer even in times associated with economic uncertainty. As the second half progressed, we saw a slow down in this movement, which may be an early indication of an increase in confidence within the small business sector. Our success in raising occupancy levels is testimony to our ability to replace customers quickly, often at enhanced income levels. In addition, as our track record indicates, the market in which we operate has proved particularly resilient in the face of less favourable economic conditions. Operations The existing operating structure of the Group enables us to achieve optimal operating efficiencies in locating, integrating and letting new sites whilst incurring minimal incremental cost. During the past twelve months, we have made further improvements to our infrastructure and central services to ensure each operating division receives comprehensive and efficient support in the areas of Sales and Marketing, Personnel, Administration and Property. The Imex regional offices have all been linked to the central management information systems, allowing operators to access reports immediately and respond accordingly. The databases are updated from the flow of information returned by the regional offices, which in turn assists head office departments, such as marketing and tele-sales, to target their activity where it is most needed. The majority of the In Shops centres have also been computerised with the result that the key performance areas of the business can be monitored closely and new initiatives implemented accordingly Under the direction of Bob Bloomfield, Group Personnel Director, the personal development of our employees is a high priority. A comprehensive programme of training courses has been devised to help ensure individuals develop their skills in order to meet the company's objectives. Initiatives such as these have been rewarded through improved staff performance and a low level of staff turnover. Stuart Kirkwood, Group Property Director, is responsible for day-to-day property management issues, including centre purchase and the development and maintenance of our business estates. The Sales and Marketing department, under the management of Jayne Herritty, Group Sales and Marketing Director, provides vital support to our network of centre managers throughout the country. This support includes telesales and dedicated salesmen who assist centre managers in selling space. Property Valuation Our strategy is to invest solely for income growth. As a result, a short leasehold agreement achieves the same objective as long term ownership whilst minimising our capital investment and generating a higher return. In addition, income is increasingly derived from the management of third party centres, which provides a valuable revenue stream without requiring capital outlay. Whilst we are obliged to revalue our portfolio on a regular basis, the resultant improvement in property values are a positive by-product, not the main concern of the Group. Accordingly the Directors, in conjunction with external valuers, Messrs King Sturge, have revalued the property portfolio, giving an uplift of £10.6m. Future Acquisition Strategy The Board intends to continue its policy of investing in centres and land where we consider that we can generate a return of 20% per annum on invested capital within 12 to 18 months from the date of acquisition. Given our conservative level of borrowings, we currently have ample resources available to continue with our investment programme. However, should the need arise, we will consider disposing of some of our mature centres where an optimum occupancy has been achieved, in order to re- invest the proceeds in higher yielding centres. Many of our centres are full but generally we consider optimum occupancy to be in excess of 90%. Finance The Group has increased net assets from £76.9m to £95.6m, representing an increase of 24%. Gearing has increased from 38% to 46%, with interest cover remaining very comfortable at 5.3 times. The Group maintains a policy of fixing the costs on a proportion of our debt using interest rate hedging products. The highest of these products, at 8%, expires in November 1999. The Group will therefore benefit further from the current low rates of interest. The cash flow of the Group remains extremely strong with £17.1m generated from operations. One particular feature of the business is that new acquisitions actually improve working capital as customers typically pay both deposits and fees in advance. IMEX - Workspace Division IMEX, our workspace division, is our principal operation and accounts for 72% (1998: 69%) of Group operating profit. In the year to 31 March 1999, IMEX returned an excellent performance achieving a profit before interest and tax of £11.7m (1998: £9.2m), an increase of 27% on the previous year. Under the supervision of the Managing Director, Bob Chapman, the division has developed rapidly in the past twelve months with the portfolio now comprising 141 centres (1998: 107), generating an annual licence fee income of £19.0m (1998: £15.3m). In aggregate, IMEX currently manages over 6.4 million sq.ft of space, divided into 3,810 units, housing 2,463 businesses. Demand for workspace units has remained strong. Occupancy levels and fees have been increased throughout the existing sites. Excluding new centres purchased during the period, the cash equivalent occupancy rate has risen by 3.8% during the year to 89.3%. Adjusted for new centres, the cash equivalent rate at 31 March 1999 was 88.0%. Growth in fees throughout the year has been good, on a like-for-like basis, the average fee per sq.ft increased by 4.0% to £3.53 per sq. ft. Key statistics for the workspace division are given below: 31 March 31 March 1999 1998 No. of workspace centres 141 107 Total sq.ft. 6.4m 4.9m Number of units 3,789 3,658 Maximum annualised licence fee income £21.5m £18.1m Actual licence fee income £18.9m £15.3m Cash equivalent occupancy rate 88.0% 84.6% In the year under review, the operational structure of IMEX has been altered to absorb new centres, ensure greater efficiencies and react more quickly to customer needs. The north of England has been divided into two regions, east and west and a regional office established in Glenfield Park, Blackburn, acquired in the first part of the year. Margaret Taylor, formerly an employee of British Coal Enterprise, has been appointed Regional Director for the north west, which now encompasses 19 centres. Acquisitions and Disposals We are delighted with the substantial progress made this year with our acquisitions programme. In aggregate, £20.5m was invested during the period in the 34 centres, adding 1.5 million sq.ft of space to the network. This excellent performance exceeds the stated acquisition target for the Group of purchasing one million sq.ft of space annually. The focus of our acquisitions programme has been in areas where demand is buoyant. Of 34 centres purchased, 23 are located in Scotland and the North East. Historically these areas have performed well and should allow us to increase our range of accommodation and services in a region where demand is strong. The increase in fee income from these sites should be reflected in enhanced cash flows in the current year. The IMEX acquisition programme was particularly active in the final quarter of the year when 11 centres were added to the network. Denton Business Centre in Manchester was acquired from Tameside Metropolitan Borough and provides 102,000 sq.ft of space, sub-divided for a mix of workspace and offices. We also purchased our first centre in Glasgow, the Cotton Street Business Centre. This is a well located, fully operational centre comprising single and double storey units of varying sizes, with an initial occupancy level of 94%. Development of our existing portfolio has been on going throughout the year. Derelict areas have been converted to workspace in Burton on Trent and at Glenfield Park, Lancashire and eighteen new units have been created at Bilston Glen in Scotland. The development of Traction House Business Centre, Motherwell, is scheduled to be completed at the end of July 1999 for a total cost of £1.5m. The centre now consists of 115,000 sq.ft and 51 units, generating a net income of £278,000, well on the way to producing a 20% return on capital. Current Trading Following our success in redeveloping a redundant factory in Greenhill, Glasgow last year, a similar project is underway in Birtley, Gateshead. Works have commenced at part of the site of the former Royal Ordnance Ammunitions factory to create 60 workshops and 20 offices. The site was acquired in March 1999 and work is well advanced and due for completion in August 1999. Advance reservations on units account for approximately one quarter of income and demonstrate our ability to complete such projects quickly without suffering a dilution to earnings. Since the year end, we have added a further 38,400 sq.ft to the Scottish network with the purchase of Motherwell Business Centre from Scottish Enterprise. Serviced Offices In February 1999, we transferred our serviced offices operation, Bridge House (Bewdley) Limited, to Citib@se plc, leaving the Group more clearly focused on the servicing of workspace and retailspace. Citib@se plc, a serviced office specialist, has leased the portfolio, paying a fixed rental with stepped increases for the first two years and open rent reviews every five years. The company has also acquired the fixtures and fittings of the six Bridge House centres for their net book value. Part of the consideration has been satisfied by the issue of new Citib@se plc shares, giving Birkby a 15% stake in Citib@se plc. The agreement was immediately earnings enhancing and gives us the opportunity to benefit as a shareholder from future growth. IN SHOPS - RETAILSPACE DIVISION Results John O'Malley, Managing Director, and his team have made tremendous progress through the year, trading ahead of expectations to achieve a record profit. For the year to 31 March 1999, profit before interest and tax has increased by 17% to £3.8m (1998: £3.3m). This represents 24 % of Group profits (1998: 24%). Despite a background of fluctuating consumer spending, we achieved a creditable increase in income of 3.8% with a rise in fees to £25.7m from £24.1m last year. The increase in enquiries for retailspace is reflected in an increase in occupancy rates across the regions. The cash equivalent occupancy rate improved during the period by 1.4% to 80.7% and is currently 81.6%. Each percentage increase generates approximately an additional £273,000 of income. In addition, the good level of demand for space offered the opportunity to reduce subsidies and improve the retail mix within the centres. The division now operates 59 centres divided into 3,276 units from which 1,841 retailers trade. Key statistics for the retailspace division are given below: 31 March 31 March 1999 1998 No. of retail centres 60 61 Number of units 3,309 3,444 Maximum annualised licence fee income £27.3m £25.9m Actual annualised licence fee income £22.0m £20.5m Average cash equivalent occupancy 80.7% 79.3% rate for period Current cash equivalent occupancy rate 81.6% 80.8% Acquisitions We have continued to focus principally on increasing income from the existing retailspace network. However, in the year under review, In Shops acquired two arcades. The purchase of these two arcades represented a shift in our buying strategy but we believe the concept is similar to our retail centres. The Eldon Arcade in Barnsley, acquired in June 1998 is already proving to be a viable operation and progress is being made on filling the Accrington Arcade purchased in September 1998 following an initial fall in occupancy when a number of long term leases expired. Disposals We have disposed of three under performing In Shops centres; Grays in Essex, the Wellington Centre in Aldershot and the Wellgate Centre, Dundee. The aggregate closure costs of £449,000 are included in the segmental analysis under central services. The lease of Old Hill centre expired on 23 June 1999 and we shall be handing back the premises to our landlords. Refurbishments It is important to ensure that our centres are designed to attract retailers and their customers. Following the success of the refurbishments undertaken last year, our programme of upgrading centres has been increased, with five centres completed in the year under review and six currently under way. Two of the refurbishment programmes were undertaken in conjunction with the introduction of large space users. At the Swan Centre in Birmingham, 6000 sq.ft of space has been let to Grattan plc, trading as Scoops. The centre was re-launched in November 1998 and is currently trading ahead of expectations. In November 1998 BeWise Limited commenced trading from the upper floor of our Greenock Centre in Scotland. The centre is visibly more appealing, trading strongly and has remained fully occupied since works were undertaken. In addition, upgrades have been undertaken at our centres in Stratford, East London, Edmonton, North London, Huyton in Liverpool, Washington, Tyne and Wear and works have commenced in Chatham, Kent. Work at two of the Midland centres in Perry Barr and Sutton Coldfield is underway. INSTALMENT CREDIT DIVISION - MANOR CREDIT Manor Credit was originally set up to provide instalment credit to the workspace client base. With the rapid expansion of the workspace portfolio it was decided to limit the lending to the Yorkshire area with the result that the majority of the agreements are now with external customers. Given that we restricted borrowings during the year to £8.4m, Manor Credit has returned a strong performance, achieving a profit before interest and tax of £1,134,000 (1998; £960,000), an increase of 18% on the previous year. Under the direction of the Managing Director, John Helliwell, the company operates a tight lending policy, which has resulted in a profitable loan book with an exceptionally low level of bad debts and negligible arrears. As at 31 March 1999, Manor Credit's outstanding loan book amounted to £11.5m (1998: £11.3m) over 706 agreements. PROSPECTS Birkby is a highly cash generative business with an excellent track record of identifying and acquiring new centres. We have a very capable management team with a clear strategy. Following the large number of recent acquisitions, refurbishments and developments we have started the new financial year with a substantial amount of under utilised new space, a high level of enquiries, a strong balance sheet and sufficient resources to continue our expansion both organically and by acquisition. In short we are on an extremely firm footing. We have had an excellent year and are confident that the business has tremendous potential for continued growth, either following the combination with Mentmore Abbey or as a stand alone business.' Bill Cran, Chairman CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 31 March 1999 1999 1998 Note £'000 £'000 Turnover: Continuing operations 47,960 46,946 Discontinued operations - 3,499 1 47,960 50,445 Cost of sales (26,683) (32,322) Gross profit 21,277 18,123 Administration expenses (5,052) (4,771) Other operating income 37 41 2 16,262 13,393 Operating profit Continuing operations 16,262 13,393 Discontinued operations - - Profit on ordinary activities before interest 16,262 13,393 Net interest payable (3,042) (2,380) Profit on ordinary activities before taxation 13,220 11,013 Tax on profit on ordinary activities (3,305) (2,752) Profit for the financial year 9,915 8,261 Dividends 3 (1,268) (4,425) Profit retained for the year 8,647 3,836 Earnings per share: FRS 14 basis (basic and diluted) 4 20.2p 16.8p CONSOLIDATED BALANCE SHEET As at 31 March 1999 1999 1999 1998 1998 £'000 £'000 £'000 £'000 Fixed assets Tangible fixed asset 143,680 110,281 Investments 371 - 144,051 110,281 Current assets Stocks 1,139 1,544 Debtors due after more than one 4,749 6,451 year Debtors due within one year 8,867 8,698 Cash at bank and in hand 12 357 14,767 17,050 Creditors : amount falling due within one year (30,022) (23,514) Net current liabilities (15,255) (6,464) Total assets less current 128,796 103,817 liabilities Creditors: amount falling due after more than one year (29,760) (24,200) Provisions for liabilities and charges (753) (248) Accruals and deferred income Licencees' deposits (2,671) (2,478) Net assets 95,612 76,891 Capital and reserves Called up share capital 2,441 2,458 Share premium account 22,080 21,975 Revaluation reserve 24,646 14,065 Merger reserve 10,340 10,340 Capital reserves 722 701 Profit and loss account 35,383 27,352 Equity shareholders' funds 95,612 76,891 CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 March 1999 1999 1998 £'000 £'000 Operating profit 16,262 13,393 Depreciation 1,526 1,346 (Profit)/loss on sale of fixed assets (52) 11 Movements in working capital (654) 2,060 Cash inflow from operating activities 17,082 16,810 Returns on investments and servicing of finance (3,174) (2,380) Taxation (1,780) (1,737) Capital expenditure (17,845) (2,470) Acquisitions and disposals (5,521) (4,943) Equity dividends paid (3,189) (5,409) Cash outflow before financing (14,427) (129) Financing 5,384 5,995 (Decrease)/increase in cash in year (9,043) 5,866 RECONCILIATION OF CASH FLOW TO MOVEMENT IN NET DEBT 1999 1998 £'000 £'000 (Decrease)/increase in cash in the financial year (9,043) 5,866 Cash outflow from increase in debt (6,000) (5,962) Exchange movement (171) - Movement in net debt during the financial year (15,214) (96) Net debt at beginning of financial year (29,115) (29,019) Net debt at end of financial year (44,329) (29,115) FINANCIAL NOTES 1.Analysis of turnover by business segment: 1999 1998 £'000 £'000 Managed workspace 20,183 17,059 Managed retailspace 25,742 24,129 Discounted retailing - discontinued - 3,499 Instalment credit 1,435 1,281 Property and other 600 4,477 47,960 50,445 Inter segmental sales are not a material part of total group turnover. All of the above turnover is supplied in the UK with the exception of £687,000 (1998: £210,000) which is supplied in Holland by IMEX Holland BV. 2.Analysis of profit before interest and taxation by business segment is as follows: 1999 1998 £'000 £'000 Managed workspace 11,712 9,180 Managed retailspace 3,827 3,260 Instalment credit 1,134 960 Property and other (411) (7) Group profit before interest and taxation 16,262 13,393 Property and other is shown net of certain overheads incurred by the Group. 3.Due to the proposed merger between Birkby and Mentmore Abbey, no final dividend is proposed. 4.The calculation of earnings per share under FRS 14 is based on the profit for the period after taxation of £9.92m (1998: £8.26m) and on the average weighted number of ordinary shares in issue during the year of 48,966,000 (1998: 49,147,000 ordinary shares). Earnings per share under FRS 14 Year ended 31 March 1999 20.2p Year ended 31 March 1998 16.8p 5.The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 1998 or 31 March 1999 but is derived from those accounts. Statutory accounts for 1998 have been delivered to the Registrar of Companies and 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 statements under Section 237 (2) or (3) of the Companies Act 1985. 6.Copies of the Annual Report and Accounts for the year ended 31 March 1999 will be despatched to shareholders in due course. Copies will be available from the Company Secretary, Birkby PLC, Warwick House, Spring Road, Hall Green, Birmingham, B11 3EA and the Company's Registered Office.

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