Final Results

Primary Health Properties PLC 18 September 2002 Primary Health Properties PLC 17 September 2002 PRIMARY HEALTH PROPERTIES PLC Providing Accommodation for Primary Health Care Services Preliminary Results for the year ended 30 June 2002 Group Financial Highlights *Dividend increased 13% to 9.0p (2001: 8.0p) *NAV increased 19% to 181.3p (2001: 152.5p) *Portfolio increased to £80.1m (2001: £63.5m) *Total return per share increased to 37.8p (2001: 30.8p) *Pre tax profits increased by 27% to £2,015,000 (2001: £1,582,000) Harry Hyman, Managing Director said: "PHP is committed to the restructuring of primary healthcare and believes that through the increased resources made available by the Government to the NHS that it is in a strong position to contribute to this process, which in turn will deliver good shareholder returns." Enquiries: Primary Health Properties PLC Harry Hyman Managing Director Tel: 01483 306912 Mobile: 0973 344768 Bell Pottinger Financial David Rydell/Zoe Sanders Tel: 020 7861 3887 Chairman's Statement I am delighted to be able to report another year of substantial progress for your Group. The total basic return per Ordinary share rose from 30.8p to 37.8p, and from 25.2p to 31.4p on a fully diluted basis. Group profit before taxation for the year ended 30 June 2002 totalled £2,015,000 (2001: £1,582,000), an increase of 27%. The Board has recommended a final dividend of 4.5p per Ordinary share which, with the interim dividend, makes a total of 9.0p per share for the year, an increase of 13% over the total dividend of 8.0p per share paid in respect of the previous year. During the year the Company took advantage of strong demand for its shares by placing 785,000 shares at 148p in January 2002 to raise around £1.1 million after expenses. The year end valuation carried out on behalf of the Board by Lambert Smith Hampton has resulted in a revaluation surplus of some £4.5 million for the year. The net asset value per share has risen from 152.5p to 181.3p on an undiluted basis and from 142.2p to 164.6p on a fully diluted basis. The Group has again been successful in negotiating rent reviews that have exceeded inflation on a medium term basis and there have been some strong performances from properties located in the south of England. During the year the Group's portfolio of investment properties, finance leases and properties in the course of development has increased to £80.1 million including revaluation surpluses. In addition, at the balance sheet date the Group had commitments to purchase a further £3.5 million of property, which has subsequently increased by further additions of £1.7 million at the date of the announcement of results. At the year end our rent roll had increased from £5,014,000 at 30 June 2001 to £6,190,000, an increase of 23%. Our expansion has been financed by the share issue referred to above and further drawings on our committed long term bank lines. At the year end, total debt including the convertible loan stock stood at £47.75 million. We continue to monitor the Group's interest rate exposure carefully and maintained our hedging position with approximately 50% of total debt at the period end with an average fixed rate before margin of some 6.0%. Although our shares have stood at a modest premium to basic net asset value during the period the Board wishes to retain the option to effect repurchases and accordingly a resolution enabling the Group to do this is included in the Notice for this year's Annual General Meeting. We remain on track to expand our portfolio to the £100 million level when we believe that further non-recourse methods of finance will be available to us. During the period we established a joint venture, Primary Health Solutions Ltd, with one of our major developers, Brackley Investments Ltd. This joint venture is designed to enable PHP to take part in developments both of Primary Care Trust sale and leasebacks and the Government's new LIFT programme. To date, several tenders have been made, but success has not been forthcoming. We will continue to strive for selection on these types of projects. Our maximum commitment to the project is some £2.5 million and during the year we spent £50,000 on share capital. At this time of market volatility it is important to note that 92% of our income derives directly or indirectly from the Government via the NHS, with pharmacy operators making up the majority of the balance. The Government has earmarked substantial new funds for the modernisation of the NHS and we stand poised to make our contribution to the radical restructuring of the NHS that is in progress, in a way that should continue to deliver good shareholder returns. G A Elliot Chairman 17 September 2002 Managing Director's Report Portfolio Movements The table below sets out the development of our portfolio during the year under review. We took delivery of a number of new developments and purchased an investment in June leased to Northumbria Ambulance Service NHS Trust. At the year end the portfolio, when commitments are included, reached £83.6 million (2001: £72.7 million) as set out below. 30 June 2002 30 June 2001 £m £m Investment properties 76.9 59.2 Properties in course of development 0.7 1.8 Finance leases 2.5 2.5 Total owned and leased 80.1 63.5 Committed 3.5 9.2 Total owned, leased and committed 83.6 72.7 Portfolio Purchases During the Year The Group completed the purchases of a number of properties during the year, details of which are set out below: Property Acquisition Cost Occupational Tenants £m Buckingham Road, Bicester 1.60 Doctors and Physiotherapist Faringdon, Oxon 2.11 Two Doctors Practices Swinton, Manchester 1.53 Doctors and Pharmacy Coppice Farm, Walsall 1.23 Doctors and Pharmacy Arthurstone Terrace, Dundee 2.14 Two Doctors Practices Monks Lane, Newbury 1.76 Doctors and Pharmacy Scotswood House, Newcastle 2.63 NHS Trust 13.00 Revaluation As reported in the Chairman's Statement, the annual portfolio valuation has resulted in an uplift of some £4.5 million which has been incorporated into the balance sheet, giving a closing property investment valuation of £80.1 million, including property in the course of development. This increase amounted to 27.1p per share on an undiluted basis and 20.7p per share on a fully diluted basis. The valuation surplus reflects the impact, during the period, of our successful rent reviews. There has also been a slight hardening of investment yields during the period. Rent Reviews The Group completed a number of rent reviews during the year and there are a number of reviews outstanding that we expect to see resolved during the coming year. The results of the reviews completed during the year added some £150,000 to our rent roll. The table below shows the timing of reviews across our portfolio. We are still hampered by the long timescale that reviews follow, although we are fully protected through the chargeability of interest. Rent Roll and Yield on Cost At 30 June 2002, our portfolio had a rent roll over of some £6.2million (2001: £5.0 million), producing a yield on cost of 9.3% (2001: 9.4%). Yield on valuation was around 7.3% (2001: 7.8%). Primary Health Solutions (PHS) As announced at the time of our interim results, PHP has set up a joint venture company with Brackley Investments Ltd. This company, PHS, has been set up to tender for projects that involve whole estate properties and projects being advanced under the Government's LIFT initiative. Our maximum capital commitment is £2.5 million and, during the year, £50,000 had been spent as our share of share capital. To date we have submitted bids for three LIFT projects, been invited to interview on two of these, but have not yet been short listed. Although it is early days, we believe that our involvement in PHS will enable PHP to participate in development opportunities and to secure future purchase opportunities. Tax Charge and Accounting Policy Changes Financial Reporting Standard (FRS)19 "Deferred Tax" requires that deferred tax should now be provided in full on most timing differences. The FRS does not normally require deferred tax to be recognised on the revaluation surplus. Our accounting policy was previously to recognise deferred tax only to the extent that liabilities or assets were expected to crystallise. FRS19 has no effect on actual tax payments. We have therefore changed our accounting policy to make full provision for timing differences which, in our case, arise primarily from capital allowances. As allowed by FRS19, the Group has discounted the potential deferred tax liability and considers there to be no material impact on the tax charge for the year. As a result, there is no material impact on the prior year and therefore no restatement has been made. Future Accounting Standards For accounting periods starting after 1 January 2005, all listed companies in the UK have to comply with International Accounting Standards ("IAS"). The Directors are currently assessing the impact this will have on the Group. The extent to which the change to IAS will have on UK Company Law is currently the subject of consultation by the DTI. The Directors will address these proposals in due course. Finance and Interest Rate Hedging Bank borrowings increased during the year from £33.4 million to £43.75 million. Including the convertible loan stock of £4 million year end borrowings totalled £47.75 million of which £29 million has been hedged (e.g. swapped from floating rate to fixed rate) as follows: Convertible-fixed rate of 7.75% £4.0m Swaps at average rate before margin of 5.69% £25.0m Total hedged debt £29.0m The weighted average cost of finance for the fixed element of the debt is 5.98%, before margin on the swaps (2001: 6.02%). The Group has facilities of £50 million, £10 million is on a 364 day facility basis while the balance of £40 million is a 7 year bullet facility repayable in 2008. Portfolio Characteristics Users The table below shows the percentage of our portfolio by rent roll derived from each of our major tenant classes, GPs, NHS Trusts including PCTs, Health Authorities, pharmacy operators and others. Some 99% (2001: 99%) of our rent roll comes directly or indirectly from the NHS and pharmacy operators. Covenant Analysis by Annual Rent GP's 70.00% Health Authorities 5.00% NHS Trusts 17.00% Pharmacy 7.00% Other 1.00% 100.00% Length of Leases The two tables below show the length of lease by lease expiry and percentage of today's passing rent. The table shows that some 89.5% (2001: 91%) of the lease income has more than 15 years unexpired whilst the security of the income table shows the contracted cash flow as a percentage of the year end rent roll, ignoring any increase during the subsequent periods. This shows that by year 20 the Group would still be receiving 71% of its current income. Analysis of Annual Rent by Term Unexpired Less than 5 years 0.50% 6 - 15 years 10.00% 15 - 20 years 18.50% More than 20 years 71.00% 100.00% Security of Income by Lease Expiry Year % of Passing Rent 1 100% 5 100% 10 96% 15 89% 20 75% Geographical Spread The table below shows the percentage of the portfolio by rent roll derived from each of the NHS regions. Annual Rent by Region Anglia and Oxford 16.00% North Thames 19.00% North West 10.00% Northern and Yorkshire 15.00% South Thames 2.00% South and West 10.00% Trent 6.00% West Midlands 17.00% Scotland 4.00% Wales 1.00% 100.00% Forthcoming Reviews The table below shows the annual amount of rent falling due for review in each of the next 4 years. As at 30 June 2002, rent reviews outstanding which were due in the year 2001/2002, in rental terms, totalled £998,000. Rent Reviews by Annual Rent 2002/2003 1,725 2003/2004 1,364 2004/2005 2,118 2005/2006 887 2006/2007 95 Future Prospects We are optimistic that the increased resources made available by the Government to the NHS will assist in the modernisation of the Primary Care Estate, and that this will result in an increased flow of deals for PHP. At the same time the areas of the country covered by LIFT should provide exciting prospects for our joint venture, PHS, to invest to its advantage. In the meantime our existing portfolio continues to perform well and we are working hard to add value from rent reviews and other situations as they arise. Harry Hyman Managing Director 17 September 2002 CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 30 June 2002 30 June 2002 30 June 2001 £'000 £'000 Turnover 5,550 4,626 Administrative expenses (1,118) (972) Operating profit 4,432 3,654 Share of operating loss in joint venture (3) - 4,429 3,654 Interest receivable 102 115 Interest payable (2,516) (2,187) Profit on ordinary activities before taxation 2,015 1,582 Taxation (203) (158) Profit on ordinary activities after taxation 1,812 1,424 Interim dividend of 4.50p per share (2001: 3.75p) (742) (589) Final dividend proposed of 4.50p (2001: 4.25p) (742) (667) (1,484) (1,256) Profit retained for the year 328 168 Net profit after tax and dividends for the year retained by: The Company 286 140 Subsidiary undertakings (after declaring dividends of £5,215,000) 45 28 Joint venture (3) - 328 168 Earnings per share - basic 11.3p 9.1p - diluted 10.4p 8.7p Dividends per share (net) 9.0p 8.0p Increase in net asset value per share - basic 28.8p 22.8p - fully diluted 22.4p 17.2p Total return per share - basic 37.8p 30.8p - fully diluted 31.4p 25.2p All activities are continuing. CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES for the year ended 30 June 2002 30 June 2002 30 June 2001 £'000 £'000 Profit for the financial year excluding share of loss in joint venture 1,815 1,424 Share of joint venture's loss for the year (3) - Profit for the financial year attributable to members of the Parent Company 1,812 1,424 Unrealised surplus on revaluation of properties 4,469 3,415 Total gains and losses relating to the year 6,281 4,839 All activities are continuing. CONSOLIDATED BALANCE SHEET as at 30 June 2002 At 30 June At 30 June 2002 2001 £'000 £'000 Fixed Assets Tangible assets 77,638 61,028 Investments: Development loans 15 31 Investment in joint venture Share of gross assets 50 - Share of gross liabilities (3) - 47 - 77,700 61,059 Current assets Debtors 2,998 539 Net investment in finance leases: amounts falling due in more than one year 2,568 2,490 (due within one year: 2002: £23,000; 2001: £12,000) Cash at bank 361 338 5,927 3,367 Creditors: amounts falling due within one year (9,738) (3,105) Net current (liabilities) / assets (3,811) 262 Total assets less current liabilities 73,889 61,321 Creditors: amounts falling due after more than one year Bank loans (40,000) (33,375) Convertible loan stock 2016 (4,000) (4,000) (44,000) (37,375) 29,889 23,946 Capital and reserves Called up share capital 8,243 7,850 Share premium account 6,563 5,810 Capital reserve 1,618 1,618 Revaluation reserve 12,756 8,287 Profit and loss account 709 381 Equity shareholders' funds 29,889 23,946 Net asset value per share - basic 181.31p 152.52p - fully diluted 164.58p 142.20p CONSOLIDATED CASH FLOW STATEMENT for the year ended 30 June 2002 30 June 2002 30 June 2001 £'000 £'000 Net cash inflow from operating activities 4,451 3,828 Returns on investments and servicing of finance Interest received 20 43 Interest paid (2,459) (1,845) (2,439) (1,802) Taxation UK corporation tax paid - (9) Capital expenditure Payments to acquire tangible fixed assets (12,051) (8,789) Acquisitions and disposals Payments to acquire share in joint venture (50) - Equity dividends paid (1,409) (1,154) Net cash outflow before financing (11,498) (7,926) Financing Ordinary share issue (net of expenses) 1,146 - Term bank loan 2008 6,625 7,875 Revolving 364 day facility 3,750 - Net cash inflow from financing 11,521 7,875 Increase/(decrease) in cash 23 (51) Reconciliation of net cash flow to movement in net debt 2002 2001 £'000 £'000 Increase/(decrease) in cash in the period 23 (51) Cash inflow from loans (10,375) (7,875) Movement in net debt in period (10,352) (7,926) Net debt at 1 July (37,037) (29,111) Net debt at 30 June (47,389) (37,037) NOTES: The above results for the year to 30 June 2002 are audited. 1. Earnings per share The calculation of earnings per share is based on the following: As at 30 June 2002 As at 30 June 2001 Net profit attributable to Ordinary Net profit attributable to Ordinary ordinary shareholders shares ordinary shareholders shares £'000 number £'000 number Basic earnings per share 1,812 16,037,657 * 1,424 15,700,000 * Option conversion** - 607,013 - 395,951 Convertible Loan stock conversion*** 279 3,478,261 279 3,478,261 Diluted earnings per share 2,091 20,122,931 1,703 19,574,212 * Weighted average number of Ordinary shares in issue during the year. **Excess of the total number of potential shares on option exercise over the number that could be issued at fair value as calculated in accordance with Financial Reporting Standard No. 14: Earnings per share. *** Excess of the total number of potential shares on conversion of the loan stock over the number that could be issued at fair value as calculated in accordance with Financial Reporting Standard No. 14: Earnings per share. 2. Notes to the statement of cash flow Reconciliation of operating profit to net cash inflow from operating activities 2002 2001 £'000 £'000 Operating profit 4,432 3,654 (Increase)/decrease in operating debtors and prepayments (168) 28 Increase in operating creditors and accruals 187 146 Net cash inflow from operating activities 4,451 3,828 3. At the Annual General Meeting, a resolution to declare a final dividend of 4.5p per share will be put to the members and if passed will be paid on 29 November 2002 to shareholders on the Register of Members at the close of business on 1 November 2002. 4. The statutory accounts for the year ended 30 June 2002 will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement and will be delivered to Registrar of Companies following the Company's Annual General Meeting. Copies will be sent to shareholders shortly and will also be available on request from the Company Secretary, J O Hambro Capital Management Limited, Ground Floor, Ryder Court, 14 Ryder Street, London, SW1Y 6QB. The Annual General Meeting is to be held on 21 November 2002 at 2.30pm at Ground Floor, Ryder Court, 14 Ryder Street, London, SW1Y 6QB. 5. The financial information set out above does not constitute the Company's statutory financial statements for the years ended 30 June 2002 or 2001 (but is derived from and has been prepared on the same basis, as those financial statements except that FRS19 has been adopted and there is no impact on either the financial statements of this or the previous year). Statutory financial statements for 2001 have been delivered to the Registrar of Companies, and those for 2002 will be delivered following the Company's Annual General Meeting. The auditors have reported on those financial statements; their reports were unqualified and did not contain statements under section 237 (2) or (3) of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock Exchange

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