Final Results
Derwent Valley Holdings PLC
18 March 2004
DERWENT VALLEY HOLDINGS PLC
Preliminary results for the year ended 31st December 2003
Derwent Valley, a specialist investor and refurbisher of Central London
commercial property, announces its results for the year ended 31st December
2003.
Highlights
2003 2002 % Increase/
(decrease)
Adjusted net asset value per share (p) 920 982 (6.3)
Gross rental income (£m) 47.9 46.5 3.0
Net rental income (£m) 41.5 41.9 (1.0)
FRS3 profit before tax (£m) 17.1 15.4 11.0
Adjusted profit before tax (£m)* 16.2 17.4 (6.9)
Adjusted earnings per share (p) 26.62 25.50 4.4
Dividend per share (p) 11.40 10.40 9.6
*Adjusted profit before tax excludes the exceptional cost of the possible offer
for the group and the profit or loss on the disposal of investment properties.
• Adjusted net asset value per share showed a second half rise to 920p
from 906p at the half year due to stabilising rents and a strong investment
market.
• gross rental income increased £1.4m, with 29,800m2 of vacant space let
during 2003 at an annualised rental of £7.7 million per annum.
• FRS 3 profit rose £1.7m to £17.1m despite a decline in adjusted profit
to £16.2m.
• the total dividend has been increased by 9.6% to 11.40p per share.
• acquisitions and capital expenditure totalled £59m and £23m respectively
while disposals realised £76m.
John Ivey, chairman, commented
"Excellent progress has been achieved in 2003 with the letting of over 29,800m2
of vacant space. This demonstrates our ability to make lettings in a testing
market and endorses the distinctive product that Derwent Valley creates.
The group owns an enviable portfolio of properties that has been strategically
assembled in one of the most sought after investment locations in the world -
Central London. We are confident that a return to growth in our key West End
market is close at hand."
18th March 2004
Enquiries:
DERWENT VALLEY HOLDINGS PLC 020 7659 3000 - after 12:30 pm
John Burns, Managing Director
Derwent Valley Holdings plc
www.derwentvalley.co.uk
COLLEGE HILL 020 7457 2020
Gareth David Email: gareth.david@collegehill.com
CHAIRMAN'S STATEMENT
Results and valuation
Excellent progress has been achieved during 2003 in reducing the group's level
of vacant space. Our success in letting over 29,800m2 demonstrates our ability
to make lettings in a testing market and endorses the distinctive product that
Derwent Valley creates.
As the year progressed, sentiment improved and demand for space increased,
particularly in the West End. This underpinned rental levels and caused values
to stabilise. Consequently, the adjusted net asset value per share, which
declined 7.7% in the first half from 982p to 906p per share, recovered to 920p
per share by the year end, an overall decrease for the year of 6.3%. Adjusted
profit before tax was reduced from £17.4 million to £16.2 million as a
consequence of the slower letting market in the first half and costs associated
with letting transactions. However, FRS 3 profit before tax increased by £1.7
million to £17.1 million from £15.4 million last year.
At the year end, the group's investment portfolio was revalued at £812.1
million, a reduction for the full year of £34 million before the UITF 28
adjustment of £5.6 million. In the first half, the valuation decrease reflected
the difficult letting market that existed during that period. However, the
second half saw strong letting activity across the portfolio including in the
City borders, and with rents in the West End no longer under downward pressure,
there was a valuation uplift of £4.4 million after adjusting for second half
disposals.
Those investment properties which were held throughout the full year fell in
value by 4.7% compared to a decrease of 3.5% in the previous year. As expected,
the West End and its villages were more resilient than the City and its borders.
Properties in the West End, which comprise 73% of the portfolio, fell in value
by 3.6%. Focusing on specific areas, there was a minimal decline of 0.2% in the
value of our Covent Garden and Soho properties which benefited from the letting
activity at Tower House and the first revaluation of the Davidson Building,
following completion of its redevelopment during the year. Similar results were
seen with the Belgravia holdings. However, North of Oxford Street, where a
number of properties were emptied as a precursor to future schemes, values
declined by 6.4%.
The balance of the portfolio, mainly located in the City's borders, fell in
value by 8.0% over the year. This contrasts with the 10.5% reduction in the
first half, the recovery being due to the lettings made at Oliver's Yard and the
Tea Building.
Dividend
The directors propose a final dividend of 8.10p per share, which would give a
total for the year of 11.40p. This is an increase of 9.6% from last year's
payment. The final dividend will be paid on 9th June 2004 to shareholders on the
register on 18th May 2004.
Review of the year
Shareholders will be aware that, during the year, the board received and
rejected an unsolicited takeover approach from Winten Limited, a private company
based in Gibraltar. Winten indicated that it was interested in acquiring Derwent
Valley at a price of 800p per share subject to a number of conditions, which
included your board's recommendation. Its proposal was based on the group's
"triple net asset value". This figure is calculated by deducting from the
published net asset value both the potential capital gains tax liability and the
fair value adjustment in respect of financial instruments, such as long term
debt. In your board's opinion, this is a totally inappropriate method by which
to value Derwent Valley. The two most apparent reasons are, firstly, that it
fails to recognise the value and potential inherent within the group's property
portfolio and, secondly, that in an ongoing business, neither adjustment is
likely to wholly crystallise into a real liability. In summary, your board felt
this approach was an attempt to buy your company "on the cheap". On 12th January
2004, Winten announced that it would not be making a formal offer for the group.
The property investment market continued to be highly competitive during the
year. Nevertheless, we succeeded in adding a number of properties to the
portfolio. In addition to the Islington Estate purchased for £39.4 million in
the first half, we acquired Portobello Dock and Kensal House, London, W10, which
is close to our existing holdings in Paddington, for £10.8 million and, south of
the River Thames, we bought Wedge House, Blackfriars Road, SE1 for £9.1 million.
Both properties illustrate the group's dual acquisition strategy of buying into
locations early and identifying buildings where a disconnection can be seen
between the property's price and the value that can be created. To preserve the
group's ability to act quickly when such opportunities arise, we are consistent
recyclers of capital when value has been added and mature investments created.
Therefore, disposals of £76 million of such properties have been made. Capital
expenditure of £23 million was incurred during the year on a number of projects,
details of which are included in the property review. A further £31 million is
budgeted for the current year when the principal scheme will be at New Garden
House, Hatton Garden, EC1 where a decision to implement a valuable planning
permission has been made. This scheme will be completed in 2006.
Prospects
There has been considerable commentary on the anticipated introduction to the
United Kingdom of a tax transparent investment vehicle similar to the real
estate investment trusts found in the U.S.A., Asia and a number of European
countries. This will offer prospects of lower tax and increased dividends and
undoubtedly make the property sector more attractive to investors. However, it
will only be possible to assess the precise impact of the new regime on Derwent
Valley's business model once the full details have been published. At that time
your board will decide on the most appropriate response in order to enhance
shareholder value.
After two difficult years, during which management has responded resolutely and
successfully to both economic and market challenges, we are confident that a
return to growth in our key West End market is close at hand. Derwent Valley
owns an enviable portfolio of properties that has been strategically assembled
in one of the most sought after investment locations in the world - Central
London. Moreover, the portfolio contains numerous and diverse opportunities from
which your management team will continue to create value for shareholders.
J. C. Ivey
18th March 2004
PROPERTY REVIEW
Introduction
Derwent Valley had a busy and productive year pursuing the core activities
associated with actively managing a portfolio. The key achievements in what has
been a difficult Central London office market include:
• A total of 79 lettings comprising 29,800m2 at an annualised rental of
£7.7 million per annum.
• 26,000m2 of refurbishments completed with 10,900m2 of this space already
let by the year end.
• 26 lease renewals concluded and 26 rent reviews settled.
• A significant planning permission obtained at New Garden House, Hatton
Garden for a 15,400m2 scheme.
• Completion of feasibility studies on 55-65 North Wharf Road, Paddington
and the submission of a planning application for a substantial new
development.
• Acquisition of 45,800m2 of new investment properties with refurbishment
and redevelopment potential at a cost of £59 million.
• £76 million of disposals, achieving a surplus above book value.
• £23 million spent on refurbishment and redevelopment.
Portfolio strategy and performance
Derwent Valley's business model is based on the ownership of a Central London
commercial portfolio that, through active management and refurbishment, delivers
rental and capital appreciation. Our operational strategy has three constituent
parts:
• Acquiring properties, in improving locations, which are let on short to
medium term leases and characterised by low capital values and rental
levels.
• Adding value through lease management, planning enhancement and
refurbishment/redevelopment.
• Disposing of those properties where further opportunities for our active
management approach are limited.
Over the last five years the portfolio has grown from £472 million to £812
million, and from 186,000m2 to 244,200m2 of floor space. During this period, we
have made £333 million of acquisitions, £290 million of sales and undertaken
£144 million of capital expenditure.
We have assembled a portfolio, concentrated in the West End and its villages,
with current and future opportunities for asset growth. There are approaching
500 tenancies, a varied lease length profile and a broad tenant base. The rental
income is well spread, avoiding a dependence on a few principal tenants. The
group's average lease length, after adjusting for potential tenant break
options, is 7.7 years, which is consistent with our preference for acquiring
properties with shorter lease profiles and disposing of those that have been
improved and let on longer leases. During 2003 the number of properties
increased from 48 to 77, principally through the purchase of 39 properties from
the London Borough of Islington. A number of the smaller properties from this
acquisition have since been sold and this will continue, until we retain the
core properties that have refurbishment/redevelopment potential.
Our strategy of constantly recycling capital through disposals maintains the
portfolio's reversionary and growth prospects. Overall, the portfolio's average
passing rent is £255 per m2, rising to £275 per m2 for the West End properties.
Looking forward, these levels provide an excellent foundation for rental and
capital growth, in what is envisaged to be an improving Central London market.
At the year end, the annualised contracted rental income, net of ground rents,
was £48.6 million, with a rental value, as assessed by the external valuers, of
£63.3 million. This potential £14.7 million of reversion is derived from £10.8
million of income from letting vacant space and £3.9 million from the rent
reviews and lease reversions due over the next few years. Based on this income,
the portfolio's initial yield was 6.0% rising to 7.7% at full reversion. Even
with the decline in rental values over the last couple of years, there is only a
small element of over-renting within the portfolio. This equates to only £2.6
million or 5% of the contracted rental income and further illustrates our
ownership of a portfolio with potential.
Portfolio management
Our major priority for 2003 was to minimise the level of vacant space. This was
achieved. Over 29,800m2 was let, which included 16,700m2 or 72% of the space
available for letting at the beginning of the year. The momentum increased
during the course of the year, with 12,000m2 let in the first half and 17,800m2
in the second half. By comparison, lettings were 11,700m2 in 2002 and 5,500m2 in
2001.
Principal lettings included those at Oliver's Yard on the City borders, The
Courtyard in Soho, Tower House in Covent Garden and the recently completed 8
Greencoat Place in Victoria. The success of these lettings is a consequence of
the Derwent Valley design led brand and our experience in anticipating tenants'
varied requirements. We continually invest in the buildings to enhance their
profile, through refurbishing entrances and common areas, and infrastructure
improvement.
We aim to be seen as the preferred landlord by offering good value to tenants,
with well planned, stylish contemporary space at affordable rents. This
reputation is enhanced through communication, marketing and tenant services. As
an example, in the autumn we launched DV01, the first issue of our biannual
newsletters. This source of information covers our refurbishment and development
philosophy, the space we have available, and future schemes.
Additionally, DerwentXtra, a tenant-focused marketing initiative was launched in
2003. This involves fitting out suites in refurbished buildings such as Tower
House and The Courtyard to show how the space planning could work to help
prospective tenants in their decision making. This co-ordinated fit out service
is intended to save incoming occupiers both time and cost.
A key feature of our business is managing vacant space. The average vacancy rate
over the last five years was 17% of the total floor area but this falls to only
6% if space actually available for letting is measured. The group's business
model is based on having a supply of schemes. Consequently, we will usually have
a high vacancy level in comparison with peer companies. At the year end, there
was 47,900m2 of vacant space compared to 56,700m2 last year, a decrease of 16%.
Of this total, 24,900m2 was available for letting. This included a number of
schemes completed during the year such as the Davidson Building (2,850m2), a
phase of the Tea Building (7,650m2) and Berkshire House (2,100m2). The available
space at year end represented 10.2% of the total floor area or 9.9% of the
portfolio's estimated rental value. Since the year end 4,500m2 of the available
space has been let. Space under refurbishment or identified for refurbishment
was 23,000m2 and included 7,300m2 from the recently vacated Birkbeck College and
part of New Garden House. These were planned lease expiries and provide the next
generation of schemes.
In addition to securing new rental income, 26 rent reviews were settled during
the year, increasing an annualised income from £4.2 million to £5.6 million, an
uplift of 33%. We work closely with our tenants to retain them and 26 lease
renewals were concluded. Also, a number of lease restructures were completed in
order to improve the investment or to enable future schemes. Progress at North
Wharf Road illustrates this, with leases restructured to contain break clauses
in 2008, thus allowing for future redevelopment.
Refurbishment and redevelopment
During 2003, the Davidson Building, a new award winning office and retail
building in Covent Garden, was completed. This 3,900m2 project demonstrates the
all round strength of our approach. We acquired the original income producing
building in 1997 and subsequently restructured the leases to obtain possession
in 2001. Simultaneously, we designed a new retail and office building behind a
retained facade, working closely with our architects and engineers to achieve
planning consent. A technically innovative design produced an architecturally
distinguished, high specification building in a relatively restricted planning
context. As a result, the building won the 2003 IAS/OAS Property Week award for
the best Central London office development. The project has been successful with
the retail unit let to Sainsburys and three of the five office floors let since
the year end.
A different approach is enabling us to progress a low cost refurbishment of the
Tea Building in Shoreditch, while retaining long term redevelopment
opportunities. The project illustrates an inventive and rapid response to
changes in the market. An original scheme was adapted to provide lower cost,
flexible offices, galleries and studio space in this prominent 20,000m2 building
located on the edge of the City near Broadgate. The catalyst to establishing
this building as an important media and design complex was the pre-letting of
4,100m2 to cutting edge advertising agency, Mother. The balance of the space is
being refurbished to provide smaller suites and letting is progressing well.
Other refurbishment projects completed during 2003 included 8 Greencoat Place,
Victoria and Berkshire House, Holborn.
Asset evaluation is a constant element of our refurbishment and development
process, enabling us to programme the delivery of space to the market. The
difficult market of the last two years has not deterred us from appraising our
holdings and investigating future options while at the same time completing
existing schemes.
During the year, an important planning consent was obtained at New Garden House,
Hatton Garden. Since acquiring this 8,700m2 income producing building in 2000,
time has been spent improving the planning ratios and working up a redevelopment
scheme to extend into the under-utilised courtyard. Permission has now been
obtained for 13,700m2 of offices and a 1,700m2 residential building. This is a
77% increase in existing floor area. Construction is expected to start during
2004, with completion in 2006, when an improved letting market is anticipated.
At North Wharf Road in Paddington Basin, we have recently submitted a planning
application to redevelop the existing 7,800m2 leasehold building, which is
located in the heart of this highly successful regeneration area. The
application is for a significant office and residential development of
approximately 34,000m2. Negotiations with Westminster City Council continue and
the earliest start would be in 2008. In the meantime, the building remains
income producing.
As reported at half year, Telstar House, our other Paddington holding, was
recently fire damaged. This 8,300m2 building, which is let to London Underground
until 2018, was fully insured and the rent remains payable. We are reviewing our
options while the extent of the damage is being assessed. These include possible
redevelopment with a more modern and efficient building of a similar size. A
planning application for a new building has been submitted as part of this
study.
Acquisitions and disposals
Acquisitions supply our future refurbishment and redevelopment programme, while
disposals ensure that management energies are directed only towards those
properties with growth potential. Both activities are fundamental to owning a
portfolio with a high proportion of inherent opportunities. Despite the
generally weak office letting market in 2003, the investment market remained
strong, which meant that making acquisitions at realistic prices was difficult.
However, we were still able to make a number of purchases that were compatible
with our buying criteria.
Our principal purchase during the year was a £39.4 million portfolio of 39
commercial properties from the London Borough of Islington. Our reputation as
specialist property managers contributed to us winning preferred bidder status.
The portfolio offered numerous opportunities for improvement and we are
currently bringing the various lease structures up to date and exploring the
planning potential on the many under-utilised buildings. A number of properties
were identified for early sale and nine disposals were made by the year end.
Other purchases included an office complex off Ladbroke Grove and Wedge House in
Southwark. Portobello Dock and Kensal House, Ladbroke Grove, are let short term
and occupy two interesting sites either side of the Grand Union Canal. There are
early opportunities to enhance the value inherent in this property, which has
low site coverage and is in an improving location. The recent softening of rents
enabled us to acquire Wedge House which is let to the Government until 2008.
This property offers opportunity for lease management and possible long term
redevelopment.
The buoyant investment market has enabled us to make opportune sales of those
properties that have been through the Derwent Valley refurbishment and
management process, and now offer the group limited growth prospects. The sale
of Panton House, Haymarket in December was a good example. Having bought the
building in 1999 for £5.1 million, we undertook a comprehensive refurbishment at
a cost of £7.1 million and completed the re-letting before it was sold for £17.5
million, before costs.
J. D. Burns
FINANCIAL REVIEW
Results
The letting activity referred to in the property review kept gross rental income
moving ahead. Year on year this added £2.6 million with rent reviews
contributing a further £1.8 million. Void space reduced income by £4.0 million
compared with 2002. This was virtually all due to space that was either under
refurbishment during 2003 or was vacated for schemes which will commence this
year, such as the one at New Garden House. Income from acquisitions almost
exactly replaced that lost due to disposals so that, in total, gross rental
income rose by £1.4 million. The cost of carrying the void space increased £1.1
million over the previous year while the success in achieving lettings meant
that the associated letting and legal fees increased by over £1 million. As a
number of the lettings were concluded towards the end of the year, 2003 received
little benefit from these while the costs were fully expensed in the year. The
outcome was that with property expenditure in total rising £1.8 million, net
rental income fell by £0.4 million.
A general rise in administrative costs and a small increase in interest payable,
due to higher average borrowings year on year, led to profit before tax,
adjusted for investment profits and the exceptional costs associated with
Winten's potential bid, being reduced to £16.2 million compared with £17.4
million in 2002. The strong investment market in 2003 is reflected in the profit
realised on the disposal of investment properties. This, despite the
aforementioned exceptional costs, increased the FRS 3 profit before tax to £17.1
million, an uplift on the prior year of £1.7 million.
The board has proposed a final dividend of 8.10p per share. This gives a total
for the year of 11.40p per share, an increase of 9.6%. The compound growth of
the dividend over five years is now 9.6% which compares favourably with that of
the Retail Price Index of 2.2%.
Net assets at 31st December 2003 were £477.6 million which, after adding back
the deferred taxation provision of £11.5 million, gave a net asset value per
share of 920p compared with that of the previous year of 982p. This fall in
value inevitably gave rise to a negative total return for the year of 5.2%.
However, the group has still achieved an annualised five year return of 9.9%.
Taxation
The total tax charge was £5.8 million compared with £4.5 million in 2002 due to
an increase in capital gains tax payable. The profit and loss account bore £2.3
million of the total while £3.5 million was passed through the statement of
total recognised gains and losses. A reconciliation of the tax charge is shown
in note 5 which illustrates the extent that the group benefits from capital
allowance claims. A further £1.3 million of deferred tax has been provided in
accordance with FRS 19, bringing the total to £11.5 million. It is difficult to
justify this provision as it is considered unlikely that the tax will ever
become payable.
Cash flow
The group had a cash outflow of £5.0 million in 2003. As always, the inflow from
operating activities after interest of £11.7 million was dominated by the
capital cashflows of acquisitions, £59.1 million, capital expenditure, £24.0
million, and disposals £76.5 million. These bring the net investment in the
portfolio over the last 5 years to £187 million. The investment continues with
capital expenditure of £31.4 million budgeted for 2004 and £34.1 million for
2005.
Debt and gearing
The cash outflow resulted in a marginal increase in the group's debt to £302
million, compared with £297 million at the previous year end. This increase,
together with the decline in net assets, resulted in balance sheet gearing
rising to 63% from 58% at December 2002. The profit and loss gearing (interest
cover), which is of more relevance to the group, also rose from 51% to 53% year
on year. Both these measures may appear conservative but the group's average
lease length of 7.7 years is probably shorter than the sector average. This
itself reflects the group's strategy of buying short to medium term income for
future refurbishment, and over time disposing of the completed product.
Financing
There has been no change in the group's financing strategy during the year, nor
in its debt facilities with the exception of the unsecured facility used to
finance the purchase of the Islington Estate, which was repaid in February 2004.
After the refinancings undertaken in 2001 and 2002, there are no facilities due
to expire until 2006. The group currently has £465 million of debt facilities
which allows it to act swiftly when acquisition opportunities appear.
Interest rate hedging
The only derivatives used by the group are to protect it from the risks of
adverse interest rate movements. Generally, the total of fixed rate debt and
that fixed using derivatives moves within a range of 40% to 75% of debt,
dependent on the perceived risk to the group. At the year end, 61% of borrowings
were either fixed or hedged. At the same date, the weighted average cost of debt
was 6.2%. The fair value adjustment figure, arising from the valuation of fixed
rate debt and derivatives in accordance with FRS 13, was a negative £13.8
million (31st December 2002 : negative £17.0 million), equivalent to a reduction
of 18p per share after tax (31st December 2002 : 22p). There is no obligation or
present intention to reduce the fixed rate debt or any of the hedging
instruments other than at normal maturity. Therefore, this amount is unlikely to
be realised.
Financial reporting under new accounting standards
All listed companies in the European Union are required to prepare consolidated
accounts under International Financial Reporting Standards (IFRS) from 1st
January 2005 with comparative figures for 2004. While many of these new IFRS are
similar to existing UK standards, there will be fundamental changes. Some of
these will impact particularly property companies, for example, in the treatment
of leasehold property and capital gains taxation, while others, such as those
dealing with financial instruments, will affect companies generally. The new
standards are likely to make company results more volatile. Therefore, it will
be more difficult to identify underlying business trends and to value a
business. It is perhaps ironic that when so many stakeholders are calling for
the annual accounts to be more transparent, the implementation of IFRS are
likely to make them more opaque for the majority of readers.
Group profit and loss account
2003 2002
Note £m £m
------- -------
Gross rental income
Group and share of joint ventures 48.2 46.8
Less share of joint ventures (0.3) (0.3)
------- -------
Group gross rental income 47.9 46.5
Property outgoings net of recoveries 2 (6.4) (4.6)
------- -------
Net revenue from properties 41.5 41.9
Administrative costs
Exceptional cost of possible offer for the group (0.7) -
Other administrative costs (6.9) (6.3)
------- -------
Operating profit 33.9 35.6
Share of operating results of joint ventures 0.3 0.3
Profit/(loss) on disposal of investments 3 1.6 (2.0)
------- -------
35.8 33.9
Interest receivable 0.3 -
Interest payable 4 (19.0) (18.5)
------- -------
Profit on ordinary activities before taxation 17.1 15.4
Taxation on profit on ordinary activities 5 (2.3) (3.9)
------- -------
Profit on ordinary activities after taxation 14.8 11.5
Dividend (6.1) (5.5)
------- -------
Retained profit 13 8.7 6.0
------- -------
Adjusted earnings per share 6 26.62p 25.50p
Adjustment for cost of possible offer for the group (1.29p) -
Adjustment for disposal of investments 2.36p (3.82p)
------- -------
Basic earnings per share 6 27.69p 21.68p
Adjustment for dilutive share options (0.06p) (0.04p)
------- -------
Diluted earnings per share 6 27.63p 21.64p
------- -------
Dividend per share 7 11.40p 10.40p
------- -------
Group balance sheet
2003 2002
Note £m £m
--------- -------
Fixed assets
Tangible assets 10 807.1 832.7
Investments in joint ventures
Share of gross assets 3.1 3.1
Share of gross liabilities (2.9) (2.9)
--------- -------
0.2 0.2
--------- -------
807.3 832.9
--------- -------
Current assets
Cash and deposits 4.5 -
Properties held for resale - 6.6
Debtors 15.8 14.1
--------- -------
20.3 20.7
Creditors falling due within one year
Bank loans and overdrafts (35.4) (1.4)
Other current liabilities (29.9) (32.0)
--------- -------
Net current liabilities (45.0) (12.7)
--------- -------
Total assets less current liabilities 762.3 820.2
Creditors falling due after more than one year
Bank loans (236.5) (261.0)
10 1/8% First Mortgage Debenture Stock 2019 (34.4) (34.4)
Other creditors (1.2) (1.6)
Provisions for liabilities and charges
Deferred tax 11 (11.5) (10.2)
Other provisions 12 (1.1) (1.0)
--------- -------
477.6 512.0
--------- -------
Capital and reserves - equity 13
Called up share capital 2.6 2.6
Share premium account 153.7 153.7
Revaluation reserve 208.7 262.9
Profit and loss account 112.6 92.8
--------- -------
477.6 512.0
--------- -------
Adjusted net asset value per share 14 920p 982p
--------- -------
Net asset value per share 14 898p 963p
--------- -------
Group cash flow statement
2003 2002
Note £m £m
------- -------
Net cash inflow from operating activities 15 30.2 41.6
Net cash outflow from return on investments and
servicing of finance (18.5) (18.1)
Corporation tax paid (4.2) (9.8)
Net cash outflow from capital expenditure and
financial investment (6.8) (34.3)
Equity dividends paid (5.7) (5.2)
------- -------
Cash outflow before management of liquid
resources and financing (5.0) (25.8)
Management of liquid resources 16 (4.5) -
Financing 16 8.9 26.0
------- -------
(Decrease)/increase in cash in the year 16 (0.6) 0.2
------- -------
Group statement of total recognised gains and losses
2003 2002
£m £m
------- -------
Profit for financial year 14.8 11.5
Unrealised deficit on revaluation of
investment properties (39.6) (27.1)
Taxation on realisation of property revaluation
gains of previous years (3.5) (0.6)
------- -------
Total recognised gains and losses relating to the year (28.3) (16.2)
------- -------
Notes
1. The results for the year ended 31st December 2003 include those for the
holding company and all of its subsidiary undertakings together with the group's
share of the results of its joint ventures. The results are prepared on the
basis of the accounting policies set out in the 2002 annual report and accounts.
2. Property outgoings net of recoveries
2003 2002
£m £m
-------- -------
Ground rents 1.1 1.1
Other property outgoings net of recoveries 5.3 3.5
-------- -------
6.4 4.6
-------- -------
3. Profit/(loss) on disposal of investments
2003 2002
£m £m
------- -------
Investment properties
Disposals 76.1 16.9
Cost/valuation (74.5) (16.7)
------- -------
Profit on disposal of investment properties 1.6 0.2
Permanent diminution in value of
investment properties - (2.2)
------- -------
1.6 (2.0)
------- -------
The permanent diminution in value in 2002 related to a valuation deficit
realised on the disposal of an investment property in 2003.
4. Interest payable
2003 2002
£m £m
------- -------
Group interest payable 18.7 18.2
Share of joint ventures' interest payable 0.3 0.3
------- -------
19.0 18.5
------- -------
5. Taxation on profit on ordinary activities
2003 2002
£m £m
--------- -------
UK corporation tax on profit, adjusted for the
disposal of investments, at 30% (2002 - 30%) 4.6 5.2
Capital allowances (2.7) (2.5)
Tax on disposal of investments 3.9 0.6
Other reconciling items (0.9) 0.1
--------- -------
Corporation tax payable on current year's profit 4.9 3.4
Less amount allocated to the statement of
total recognised gains and losses (3.5) (0.6)
--------- -------
Corporation tax charge in respect of current year's profit 1.4 2.8
Adjustments in respect of prior years' corporation tax (0.4) (0.3)
--------- -------
Corporation tax charge 1.0 2.5
Deferred tax charge 1.3 1.4
--------- -------
2.3 3.9
--------- -------
6. Earnings per share
Earnings per ordinary share have been computed on the basis of profit after tax
of £14,721,000 (2002 - £11,525,000) and the weighted average number of ordinary
shares in issue during the year of 53,166,000 (2002 - 53,158,000).
An adjusted earnings per share has been calculated using a profit after tax of
£14,154,000 (2002 - £13,557,000). This figure excludes the profit or loss after
tax arising from the disposal of investments and the exceptional item in order
to show the recurring element of the group's profit.
The diluted earnings per share have been calculated based on a weighted average
number of shares of 53,270,000 (2002 - 53,268,000) which includes the number of
dilutive share options outstanding at the year end.
7. Dividend
2003 2002
£m £m
------- -------
Ordinary shares of 5p each
Paid - interim dividend of 3.30p per share (2002 - 3.05p) 1.8 1.6
Proposed - final dividend of 8.10p per share (2002 - 7.35p) 4.3 3.9
------- -------
6.1 5.5
------- -------
The final dividend will be payable on 9th June 2004 to those shareholders on the
register at the close of business on 18th May 2004.
8. Total return
The total return for 2003 is a negative 5.2% (2002 - negative 2.7%). This is
defined as the annual movement in adjusted net asset value per share plus the
dividend per share expressed as a percentage of the adjusted net asset value per
share at the beginning of the year.
9. Gearing
Profit and loss gearing for 2003 is 1.87 (2002 - 1.96). This is defined as net
rental income less administrative costs divided by group net interest payable.
The administrative costs exclude the exceptional item in order to show only the
recurring elements of the group's activity.
Balance sheet gearing for 2003 is 63.2% (2002 - 58.0%). This is defined as net
debt divided by net assets.
10. Tangible assets
Freehold Other
land and Leasehold fixed
buildings property assets Total
£m £m £m £m
-------- ------- ------- -------
Cost or valuation:
At 1st January 2003 548.5 283.4 1.2 833.1
Additions 73.4 8.6 0.2 82.2
Appropriation from trading stock 6.7 - - 6.7
Disposals (21.7) (52.8) (0.1) (74.6)
Revaluation (26.3) (13.3) - (39.6)
-------- ------- ------- -------
At 31st December 2003 580.6 225.9 1.3 807.8
-------- ------- ------- -------
Amortisation and depreciation:
At 1st January 2003 - - 0.4 0.4
Disposals - - - -
Provision for year - - 0.3 0.3
-------- ------- ------- -------
At 31st December 2003 - - 0.7 0.7
-------- ------- ------- -------
Net book value:
At 31st December 2003 580.6 225.9 0.6 807.1
At 31st December 2002 548.5 283.4 0.8 832.7
-------- ------- ------- -------
Assets stated at cost or valuation:
31st December 2003 valuation 581.7 226.2 - 807.9
Prior years' valuation plus subsequent
costs 4.2 - - 4.2
Cost - - 0.6 0.6
-------- ------- ------- -------
585.9 226.2 0.6 812.7
Adjustment for UITF 28 - lease
incentive
debtors (5.3) (0.3) - (5.6)
-------- ------- ------- -------
580.6 225.9 0.6 807.1
-------- ------- ------- -------
Short leasehold property with a value of £37.7 million (2002 - £16.5 million) is
included in leasehold property above. Investment property in the course of
development with a carrying value of £4.2 million (2002 - £24.7 million) is
included in freehold land and buildings above.
The freehold land and buildings and leasehold property, other than those in the
course of development, were revalued at 31st December 2003 by either CB Richard
Ellis Limited or Keith Cardale Groves (Commercial) Limited, as external valuers,
on the basis of market value as defined by the Appraisal and Valuation Manual
published by the Royal Institution of Chartered Surveyors. At 31st December
2003, the historical cost of the freehold land and buildings and leasehold
property owned by the group was £598.5 million (2002 - £572.0 million).
11. Deferred tax
£m
--------
At 1st January 2003 10.2
Provided during the year 1.3
--------
At 31st December 2003 11.5
--------
The provision for deferred tax relates to timing differences on accelerated
capital allowances and other reversing timing differences.
A taxation liability of approximately £52.7 million (2002 - £62.8 million) would
arise on the disposal of land and buildings at the valuation shown in the
balance sheet. This is equivalent to 99p per share (2002 - 118p). In accordance
with FRS 19, no provision has been made for this.
12. Other provisions
£m
-------
At 1st January 2003 1.0
Released during the year (0.4)
Provided during the year 0.5
-------
At 31st December 2003 1.1
-------
The provision relates to an onerous lease which expires in 2014 and reflects the
discounted present value of future net payments under that lease.
13. Capital and reserves
Share Profit
Share premium Revaluation and loss
capital account reserve account
£m £m £m £m
-------- -------- -------- --------
At 1st January 2003 2.6 153.7 262.9 92.8
Deficit on property revaluation - - (39.6) -
Profit realised on disposal of investment
properties - - (14.6) 14.6
Tax attributable to revaluation surplus
realised on disposal of investments - - - (3.5)
Retained profit for year - - - 8.7
-------- -------- -------- --------
At 31st December 2003 2.6 153.7 208.7 112.6
-------- -------- -------- --------
14. Net asset value per share
Net asset value per share has been calculated on the basis of net assets at 31st
December 2003 of £477,589,000 (2002 - £512,003,000) and the number of shares in
issue at 31st December 2003 of 53,167,000 (2002 - 53,161,000).
An adjusted net asset value per share figure has been calculated using net
assets of £489,092,000 (2002 - £522,138,000). This figure excludes the deferred
tax provided in accordance with FRS 19 on the basis that it is unlikely that
this liability will crystallise.
15. Reconciliation of operating profit to net cash inflow from operating
activities
2003 2002
£m £m
------- -------
Operating profit 33.9 35.6
Depreciation charge 0.3 0.1
Increase in debtors (1.7) (4.1)
(Decrease)/increase in creditors (3.1) 4.8
Increase in properties held for resale - (1.2)
Effect of other deferrals and accruals
on operating activity cash flow 0.8 6.4
------- -------
Net cash inflow from operating activities 30.2 41.6
------- -------
16. Reconciliation of net cash flow to movement in net debt
2003 2002
£m £m
------- -------
Decrease/(increase) in cash in the year 0.6 (0.2)
Increase in cash on deposit (4.5) -
Cash inflow from movement in bank loans 8.9 26.0
------- -------
Movement in net debt in the year 5.0 25.8
Opening net debt 296.8 271.0
------- -------
Closing net debt 301.8 296.8
------- -------
17. Post balance sheet events
On 20th February 2004, the group sold a property for a consideration of £28.3
million before costs.
18. The announcement set out above does not constitute a full financial
statement of the group's affairs for the year ended 31st December 2003. The
auditors have reported on the full accounts for the said year and have
accompanied them with an unqualified report. The accounts have yet to be
delivered to the Registrar of Companies. The annual report and accounts will be
posted to shareholders on 14th April 2004, and will also be available on the
company's website, www.derwentvalley.co.uk, from that date. The annual general
meeting of the company will be held on 20th May 2004.
This information is provided by RNS
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