Final Results
Primary Health Properties PLC
17 September 2003
Primary Health Properties PLC
Embargoed for release at 7am on 17 September 2003
PRIMARY HEALTH PROPERTIES PLC ("PHP")
Modern Accommodation for the Provision of Primary Health
Care Services
Preliminary Results for the year ended
30 June 2003
Highlights
*Pre tax profits increased by 8% to £2,179,000 (2002: £2,015,000)
*Basic NAV increased 25% to 226.8p (2002: 181.3p)
*Portfolio (including finance leases) increased to £96.3m (2002: £80.1m)
*Dividend increased 11% to 10.0p (2002: 9.0p)
*Total return per share increased to 55.5p (2002: 37.8p)
*Increased Government spend on NHS likely to result in uplift in deal flow
*Launch of Share Save Plan
Harry Hyman, Managing Director, commented:
"This was an excellent year for Primary Health Properties with all of our key
indicators on performance increasing significantly. The market that we operate
in is undergoing change. 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."
Enquiries:
Bell Pottinger Financial
David Rydell/Zoe Sanders 020 7861 3232
Primary Health Properties PLC
Harry Hyman
Managing Director 01483 306 912 / 07973 344 768
Chairman's Statement
This was an excellent year for Primary Health Properties. The Group produced
another year of profit growth and its highest ever adjusted diluted net asset
value of 200p per share, a rise of 22%. Group profit before taxation for the
year ended 30 June 2003 totalled £2,179,000 (2002:£2,015,000) an increase of 8%.
The diluted total return per share for the year was 46.0p (2002: 31.4p).
The Board has recommended a final dividend of 5.0p per Ordinary share which with
the interim dividend makes a total of 10.0p per share for the year, an increase
of 11% over the total dividend of 9.0p per share paid in respect of the previous
year.
The year end valuation carried out on behalf of the Board by Lambert Smith
Hampton has resulted in a revaluation surplus of some £7.5 million for the year.
The net asset value per share has risen from 181.3p to 226.8p on an undiluted
basis and from 164.6p to 200.6p on a diluted basis.
The Stamp Duty regulation issued in 2003 removed the ceiling on disadvantaged
areas relief for commercial property. Our valuations have benefited from the
removal of this cap by £1.4 million. This is however a real bonus only if we
choose to sell commercial property assets.
Our rent review process during the year has again been successful and at the
year end our rent roll was £6.9 million, an increase of 11%.
Purchases of properties during the year amounted to £8.6m and our commitments at
the year end totalled £13.3m. Our total portfolio, including commitments,
therefore totalled £109.6m at 30 June 2003 an increase from £83.6m at the
previous year end. We believe that at this level the portfolio offers
possibilities for financing outside those of a conventional full recourse nature
and we will be examining these options during the coming 12 months.
As at 30 June 2003 there were 16,716,977 Ordinary shares in issue. In November
2002 the Joint Managers J O Hambro Capital Management Limited exercised options
over 213,333 Ordinary shares, and in May 2003 18,644 Ordinary shares were issued
to those Shareholders who elected to take shares instead of the cash dividend at
a price of 175.1 p per Ordinary share.
Expansion during the year has in part been financed by the share issues noted
above and further drawings on our committed medium term finance facilities. As
reported at the interim stage we have negotiated an extension of our bank
facilities with The Royal Bank of Scotland. We entered into a new £15 million
term loan commitment and now have the option to convert all our term loan
facilities of £55 million into longer term finance which would mature in 2022
whilst retaining the flexibility to refinance if we so choose. Total facilities
at 30 June 2003 amounted to £65 million including an overdraft facility of £10
million.
During the year we also received approval from shareholders to amend the terms
of the existing management options and to approve the grant of new management
options.
We also commenced the new share save plan and we welcome the new Shareholders
who are investing in the Company through this scheme.
During the year considerable effort and cost have been expended through our
joint venture Primary Health Solutions Ltd (PHS) to participate in the
Government's much heralded NHS Local Improvement Finance Trust (LIFT) scheme.
Although we were successful in being short listed at Sandwell in the West
Midlands, we were not ultimately selected as the preferred bidder. Having taking
into account the costs and prospective benefits of the participation in LIFT and
the outcome of the Sandwell bid we have decided not to seek any further grants
of contracts under LIFT until various issues concerning it have been clarified
and processes streamlined. In the meantime the Group's share of the total costs
of some £178,000 has been expensed.
Since our withdrawal from LIFT we have seen a marked acceleration in the number
of purchases that we have entered into.
We continue to be risk averse and seek to reduce risk by entering into long term
leases with excellent counterparties for a geographical spread of our assets,
and by hedging more than 50% of the relevant financing risk. At present the
investment market remains strong, as do our assets. The Board believes that
Shareholders can have every confidence in the Company and that they hold a fine
income producing investment.
G A Elliot
Chairman 16 September 2003
Managing Director's Report
The table below sets out the development of our portfolio during the year under
review. We took delivery of six new developments and entered into a further
eight development commitments. At the year end the portfolio, when commitments
are included, reached £109.6 million (2002: £83.6 million) as set out below.
Portfolio Movements
30 June 2003 30 June 2002
£m £m
Investment properties 92.3 76.9
Properties in course of development 1.4 0.7
Finance leases 2.6 2.5
Total owned and leased 96.3 80.1
Deposits paid 0.2 -
Committed 13.1 3.5
Total owned, leased and committed 109.6 83.6
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
Lancaster University, Lancaster 0.7 Doctors Practice
Stretford, Manchester 2.5 Three Doctors
Practices, PCT
services and Pharmacy
Penarth, Cardiff 1.5 Doctors Practice
Yeovil, Somerset 0.9 Doctors Practice
Grantham, Lincolnshire 1.0 Doctors Practice
Send, Surrey 1.2 Doctors and Pharmacy
Revaluation
As reported in the Chairman's Statement, the annual portfolio valuation has
resulted in an increase of some £7.5 million which has been incorporated into
the balance sheet, giving a closing property investment valuation (including
finance leases) of £96.3m. This increase amounted to an uplift in net asset
value per share of 44.8p on an undiluted basis and 34.7p on a diluted basis. The
valuation surplus reflects the impact, during the period, of our successful rent
reviews and the Government's decision to exempt certain areas for stamp duty
purposes (See below). There has also been a further hardening of investment
yields during the period.
Stamp Duty Exemption
A proportion of the revaluation increase has arisen through the Government's
decision to exempt certain postcode districts from stamp duty. In value terms
this has affected around 40% of the portfolio giving rise to an additional £1.4
million in valuation increases above those achieved through normal market
forces.
Portfolio Rental Levels
The average rent across the whole portfolio is just above £150 per square metre
(£14 per square foot). The average rent on accommodation let to the NHS (either
directly or through the Doctors Rent and Rates Scheme) is approximately £148 per
square metre (£13.75 per square foot) and the average pharmacy rent is around
£200 per square metre (£18.50 per square foot).
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 £77,000 to
our rent roll. The pace of reviews is now picking up as more evidence is
presented through the market and more premises go through the review process.
Primary Health Solutions (PHS)
As mentioned in the Chairman's Statement, our joint venture with Brackley
Investments Limited submitted a number of bids for LIFT projects each of which
was unsuccessful. Our share of the costs of these bids has been expensed.
Future Accounting Standards
For accounting periods starting after 1 January 2005, all listed companies in
the UK have to comply with International Accounting Standards. These standards
are different from UK GAAP in a number of areas, including IAS40 with regard to
the definition of Investment properties and IAS12 in connection with Deferred
Tax. The Directors are currently assessing the impact that 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 from £40.0 million to £50.2 million during the year.
Including the convertible loan stock of £4.0 million year end borrowings
totalled £54.2 million of which £43.0 million has been hedged as follows:
Convertible 2016 fixed rate of 7.75% £4.0m
Swaps at average rate of 5.35% £39.0m
Total fixed rate and hedged debt £43.0m
The average weighted cost of finance for the fixed element of the debt is 5.60%
(2002: 5.98%) (excluding the lender's margin).
During the period a number of swaps have been entered into extending the
maturity of the Group's cover under hedging arrangements as shown below.
Fixed Rate Funding
Year Swaps (£m) Convertible Loan Total (£m)
Stock (£m)
2003/2004 35.0 4.0 39.0
2004/2005 35.0 4.0 39.0
2005/2006 35.0 4.0 39.0
2006/2007 26.7 4.0 30.7
2007/2008 10.0 4.0 14.0
The table above shows the level of fixed rate financing for each of the next 5
financial years from swaps and the convertible loan stock.
The Group has facilities of £65 million and is discussing the possibility of
adding further bank lines. £10 million is on a 364 day facility basis while the
balance of £55 million is a 7 year bullet facility repayable in 2008. The
Company has negotiated an option to extend its ability to convert all of its
term facilities of £55 million into longer term finance that would mature in
2022, whilst retaining the flexibility to refinance if the Company so chooses.
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% (2002: 99%) of our rent
roll comes directly or indirectly from the NHS and pharmacy operators. The
Board believes that this provides an extremely secure income stream.
Covenant Analysis by Annual Rent
GP's 71%
Health Authorities 5%
NHS Trusts 16%
Pharmacy 7%
Other 1%
100%
Length of Leases
The two tables below show the length of lease by lease expiry and percentage of
today's passing rent. The first table indicates that some 91% (2002: 89.5%) 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 increases and any lease renewals during the subsequent
periods. This shows that in 20 years time at worst the Group would still be
receiving 74% of its current income while at year 18 the figure is 90%.
Analysis of Annual Rent by Term Unexpired
Less than 5 years 1%
6 - 15 years 8%
15 - 20 years 40%
More than 20 years 51%
100%
Security of Income by Lease Expiry
Year % of Passing Rent
1 100%
5 100%
10 96%
15 90%
20 74%
Geographical Spread
The table below shows the percentage of the portfolio by rent roll derived from
each of the NHS regions.
Anglia and Oxford 14%
North Thames 17%
North West 13%
Northern and Yorkshire 14%
South Thames 3%
South and West 10%
Trent 6%
West Midlands 16%
Scotland 4%
Wales 3%
100%
Forthcoming Reviews
The table below shows the annual amount of rent falling due for review in each
of the next 4 years.
Year Rent (£m)
2003/2004 1.6
2004/2005 2.2
2005/2006 3.0
2006/2007 0.1
The Primary Care Market
Since publishing its view of modernising the NHS through the NHS Plan in July
2000, the Government has sought to raise the profile of, and the emphasis on,
Primary Care in the UK. It suggested that by 2008 there would be 15,000 more GPs
and consultants, 30,000 more therapists and scientists, and 35,000 more nurses,
midwives and health visitors. In order to accommodate this increase in the
workforce, the Government pledged increased funding to provide, amongst other
things, the modernisation of 3,000 GP premises.
Several initiatives have been launched by the Government to meet these targets,
including NHS LIFT. In recent months we have also seen individual Primary Care
Trusts, which are located outside of LIFT areas, looking to work with the
private sector investor/developer to improve and redevelop their primary care
estates. These are all positive steps to improving the delivery of primary care
in the UK. However, the ability to increase the rate of delivery lies in our
view not with the private sector, but in the public sectors' ability to
streamline the process. The private sector has the capability, and the desire,
to increase capacity to match whatever is needed to ensure primary care is
placed and kept at the forefront of the NHS service delivery programme.
Primary Health Properties PLC intends to maintain its position as a leader in
the primary care premises market. We are eager to work in partnership with NHS
bodies to meet the aims of the NHS Plan and overcome the difficulties which are
slowing the delivery of modern accommodation.
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.
In the mean time our existing portfolio continues to perform well and we are
working hard to add value from rent reviews and lease re-gearing.
Harry Hyman
Managing Director 16 September 2003
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 30 June 2003
30 June 2003 30 June 2002
£'000 £'000
Turnover 6,711 5,550
Administrative expenses (1,399) (1,118)
Operating profit 5,312 4,432
Share of operating loss in joint venture (178) (3)
5,134 4,429
Interest receivable 55 102
Interest payable (3,010) (2,516)
Profit on ordinary activities before taxation 2,179 2,015
Taxation (226) (203)
Profit on ordinary activities after taxation 1,953 1,812
Interim dividend of 5.00p per share (2002: 4.50p) (835) (742)
Final dividend proposed of 5.00p (2002: 4.50p) (836) (742)
(1,671) (1,484)
Profit retained for the year 282 328
Net profit after tax and dividends for the year retained by:
The Company 450 286
Subsidiary undertakings (after declaring dividends of £6,340,000 (2002: 10 45
£5,215,000))
Joint venture (178) (3)
282 328
Earnings per share - basic 11.8p 11.3p
- diluted 10.8p 10.4p
Dividends per share (net) 10.0p 9.0p
Increase in net asset value per share - basic 45.5p 28.8p
- diluted 36.0p 22.4p
Total return per share - basic 55.5p 37.8p
- diluted 46.0p 31.4p
All activities are continuing.
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the year ended 30 June 2003
30 June 2003 30 June 2002
£'000 £'000
Profit for the financial year excluding share of loss in joint venture 2,131 1,815
Share of joint venture's loss for the year (178) (3)
Profit for the financial year attributable to members of the Parent Company 1,953 1,812
Unrealised surplus on revaluation of properties 7,497 4.469
Total gains and losses relating to the year 9,450 6,281
All activities are continuing.
CONSOLIDATED BALANCE SHEET
as at 30 June 2003
At 30 June At 30 June
2003 2002
£'000 £'000
Fixed Assets
Tangible assets 93,710 77,653
Investment in joint venture:
Share of gross assets 75 50
Share of gross liabilities (106) (3)
(31) 47
93,679 77,700
Current assets
Debtors 658 2,998
Net investment in finance leases (due within one year: 2003: £28,000; 2002: 2,573 2,568
£23,000)
Cash at bank 418 361
3,649 5,927
Creditors: amounts falling due within one year (5,219) (9,738)
Net current liabilities (1,570) (3,811)
Total assets less current liabilities 92,109 73,889
Creditors: amounts falling due after more than one year
Bank loans (50,200) (40,000)
Convertible loan stock 2016 (4,000) (4,000)
(54,200) (44,000)
37,909 29,889
Capital and reserves
Called up share capital 8,358 8,243
Share premium account 6,689 6,563
Capital reserve 1,618 1,618
Revaluation reserve 20,253 12,756
Profit and loss account 991 709
Equity shareholders' funds 37,909 29,889
Net asset value per share - basic 226.77p 181.31p
- diluted 200.61p 164.58p
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 30 June 2003
30 June 2003 30 June 2002
£'000 £'000
Net cash inflow from operating activities 5,916 4,451
Returns on investments and servicing of finance
Interest received 10 20
Interest paid (2,351) (2,459)
(2,341) (2,439)
Taxation
UK corporation tax recovered 3 -
Capital expenditure and financial investment
Payments to acquire tangible fixed assets (8,536) (12,051)
Loan to joint venture (100) -
(8,636) (12,051)
Acquisitions and disposals
Payments to acquire share in joint venture - (50)
Equity dividends paid (1,544) (1,409)
Net cash outflow before financing (6,602) (11,498)
Financing
Ordinary share issue (net of expenses) 209 1,146
Term bank loan 2008 10,200 6,625
Revolving 364 day facility (3,750) 3,750
Net cash inflow from financing 6,659 11,521
Increase in cash 57 23
Reconciliation of net cash flow to movement in net debt 2003 2002
£'000 £'000
Increase in cash in the period 57 23
Cash inflow from loans (6,450) (10,375)
Movement in net debt in period (6,393) (10,352)
Net debt at 1 July (47,389) (37,037)
Net debt at 30 June (53,782) (47,389)
NOTES:
The above results for the year to 30 June 2003 are audited.
1. Earnings per share
The calculation of earnings per share is based on the following:
As at 30 June 2003 As at 30 June 2002
Net profit attributable to Ordinary Net profit attributable to Ordinary
ordinary shareholders shares ordinary shareholders shares
£'000 number £'000 number
Basic earnings 1,953 16,612,427 * 1,812 16,037,657 *
per share
Option - 603,528 - 607,013
conversion**
Convertible 279 3,478,261 279 3,478,261
Loan stock
conversion***
Diluted 2,232 20,694,216 2,091 20,122,931
earnings per
share
* 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.
*** The total number of potential shares on conversion of the convertible loan
stock.
2. Notes to the statement of cash flow
Reconciliation of operating profit to net cash inflow from operating
activities
2003 2002
£'000 £'000
Operating profit 5,312 4,432
Decrease/(increase) in operating debtors and prepayments 272 (168)
Increase in operating creditors and accruals 332 187
Net cash inflow from operating activities 5,916 4,451
3. At the Annual General Meeting, a resolution to declare a final dividend of
5.0p per share will be put to the Members and will be paid on 25 November 2003
to holders registered at close of business on 26 September 2003.
4. The statutory accounts for the year ended 30 June 2003 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. The Annual Report 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 20
November 2003 at 2.30pm at Ground Floor, Ryder Court, 14 Ryder Street, London,
SW1Y 6QB.
5. At the Extraordinary General Meeting held on 21 November 2002, the Directors
were granted authority to offer Ordinary shares instead of cash in respect of
dividends. A Circular, Form of Election and Notice of Entitlement will be
posted to Shareholders on 6 October 2003 offering Shareholders on the Register
of Members on 26 September 2003 the opportunity to elect to receive new Ordinary
shares instead of cash in respect of the final dividend. The latest date for
receipt of the Forms of Election is 3 November 2003.
6. The financial information set out above does not constitute the Company's
statutory financial statements for the years ended 30 June 2003 or 2002 (but is
derived from and has been prepared on the same basis as those financial
statements). Statutory financial statements for 2002 have been delivered to the
Registrar of Companies, and those for 2003 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.
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