Interim Results
Primary Health Properties PLC
10 March 2005
Primary Health Properties PLC
09 March 2005
Embargoed for release at 7am on 10 March 2005
PRIMARY HEALTH PROPERTIES PLC ('PHP')
Modern accommodation for the Provision of Primary Health
Care Services
Interim Results for the six months ended
31 December 2004
Group Financial Highlights
*Pre tax profits increased by 8% to £1,343,000 (2003: £1,239,000)
*Portfolio (including finance leases) increased to £145.8m (2003: £106.3m)
*Basic earnings per share increased by 2% to 6.5p (2003: 6.4p)
*Diluted earnings per share increased by 5% to 6.2p (2003: 5.9p)
*Dividend increased by 9% to 6.0p (2003: 5.5p)
*Fully diluted NAV per share increased 8% to 263.1p (30 June 2004: 243.7p)
*Portfolio revaluation increase of £4.7m
Harry Hyman, Managing Director, commented:
"We are pleased to report strong progress for the first half of the financial
year. The business has performed well from an income and a capital standpoint.
Our portfolio now consists of 66 properties with a value, including commitments,
of £160 million. We are pleased to increase the interim dividend by 9%.
With healthcare being high on both the political and public agenda the demand
continues apace to bring primary health facilities into the twenty-first
century. We have a strong pipeline of deals for the remainder of the calendar
year and beyond to continue to participate in this transformation."
Enquiries:
Bell Pottinger Corporate & Financial
David Rydell/Zoe Sanders
Tel: 020 7861 3232
Primary Health Properties PLC
Harry Hyman
Managing Director
Tel: 01483 306912
Mobile: 07973 344768
Chairman's Statement
Group profit before taxation for the six months to 31 December 2004 totalled
£1,343,000 (2003: £1,239,000), an increase of 8.4%.
Profit after taxation for the six months to 31 December 2004 totalled £1,343,000
(2003: £1,116,000), an increase of 20.3%, yielding basic earnings per share of
6.5p (2003: 6.4p) and fully diluted earnings per share of 6.2p (2003: 5.9p), an
increase of 5.1%.
As a result of the six monthly review of the property portfolio the value of the
property portfolio has increased by £4.7m, with the fully diluted net asset
value per share increasing to 263.1p per share compared to 243.7p at 30 June
2004. This reflects both rental increases and current yields in the market. The
net asset value was also affected by the issue of 3,478,260 shares following the
conversion of the Loan Stock held by Royal Bank of Scotland, which were
subsequently placed with other institutions, and also the issue of 27,383
Ordinary shares pursuant to the scrip dividend scheme. The basic net asset value
per share was 269.9p (30 June 2004: 274.7p). The number of Ordinary shares in
issue as at 31 December 2004 was 21,652,776.
The Board proposes to pay an interim dividend of 6.0p per share (2003: 5.5p) on
26 May 2005, to Shareholders on the Register of Members on 18 March 2005.
The Directors have the authority to offer Ordinary shares instead of cash in
respect of the dividend. A circular offering Shareholders on the Register of
Members on 18 March 2005 the opportunity to elect to receive new Ordinary shares
instead of the cash dividend in respect of the interim dividend together with a
Form of Election and/or Notice of Entitlement will be posted to Shareholders
with the Interim Report on 8 April 2005. The latest date for receipt of the
Forms of Election is 9 May 2005.
During the six months ended 31 December 2004 we have taken delivery of £12m of
completed and fully let properties at Dalkeith, Burton Latimer, Northamptonshire
and Bentley, West Midlands and entered into new commitments totalling £5.5m
during the period at St Helens, Stafford, Bilsthorpe, and Cardiff. Since 31
December 2004 we have entered into a further £2.2m of commitments.
The table below sets out the portfolio at 31 December 2004:
31 December 2004 30 June 31 December 2003
£m 2004 £m
£m
Investment properties 139.2 122.5 99.4
Properties in the course of development 2.4 2.8 2.6
Finance Leases 2.5 2.5 2.6
Development Loans 1.7 3.3 1.7
Total owned and leased 145.8 131.1 106.3
Deposit Paid 0.1 - 0.1
Committed 14.1 18.2 21.0
Total owned, leased and committed 160.0 149.3 127.4
We have a strong forward pipeline of transactions.
The annualised rent roll has increased from £8.4m at 30 June 2004 to £9.8m at 31
December 2004, representing both new deliveries and rental increases. Rental
increases secured during the period amounted to some £215,000. Work continues on
outstanding rent reviews. On balance we continue to obtain satisfactory rent
reviews although the process is time consuming.
We have continued to monitor our exposure to interest rates and have entered
into a new £10m swap for 10 years from 2005 to 2015; and a new £20m swap from
2010 to 2015. From 2 January 2005 we have covered approximately 65% of our
exposure to interest rates for the year 2005.
We have reached agreement with our principal bankers to extend and increase the
amount of our committed term loan facility from 2008 to 2013. Including new
commitments from AlB this takes our total available term loan facilities to
£115m rising to £125m in 6 months time.
We are continuously reviewing our ability to maximise gearing and sources of
funding within current parameters and to balance this with our desire to grow
our investment portfolio.
The share save scheme has 38 members representing 46,368 shares.
Our joint venture relating to LIFT has been dormant during the period.
The portfolio now has 66 properties with a further 8 contracted for delivery.
The portfolio has performed well and we believe that the combination of the high
quality property portfolio, long lease lengths and strong covenant quality make
a very desirable portfolio for future income and capital appreciation.
G A Elliot
Chairman
9 March 2005
International Financial Reporting Standards
The European Commission has directed that all listed companies in the European
Union must present their consolidated group results in accordance with
International Financial Reporting Standards (IFRS) for accounting periods
commencing on or after 1 January 2005. Primary Health Properties PLC will,
therefore, apply IFRS for the first time to our financial year ending 30 June
2006. Our first report to Shareholders under IFRS will be the Interim Report
for the six months ending 31 December 2005.
The new accounting standards will represent a fundamental change in accounting
and reporting. The Group has been considering the challenges of implementing
IFRS for some time and is advanced in its planning and preparations to
successfully make the transition from UK Generally Accepted Accounting
Principles (UK GAAP).
The Group will present quantified details of the accounting impact of adopting
IFRS following publication of the Group's 30 June 2005 final UK GAAP annual
results. The principal areas where IFRS differs from UK GAAP that will affect
the Group's results are considered below.
Accounting for Investment Property
Property revaluation movements are recorded in the profit and loss account (or
income statement as it will become) under IFRS. Currently under UK GAAP they
are treated as a movement in reserves. Reported profits will therefore be
subject to greater volatility.
The Group expects that all of its leasehold properties will be classified as
operating leases under IFRS. They will continue to be revalued every six months
and shown as investment properties.
Deferred Tax Accounting
IFRS requires full deferred tax provision to be made for all taxable temporary
differences between cost values for tax purposes and accounting values. UK GAAP
on the other hand does not require any provision to be made where there is no
obligation to pay additional tax at some future date. As a result net assets
will be reduced under IFRS accounting.
For our Group, the most significant difference between base cost values for tax
purposes and accounting values comes from the revaluation of investment
properties. The Group will only potentially suffer a payment of tax if it sells
these investments. The amount of tax then to be paid will reflect the sale
price achieved, the structure of the sale transaction, and any other allowances
for tax that may be available at that time. Therefore, the deferred tax
provision that the Group will be required to provide within its opening balance
sheet reserves under IFRS, and the subsequent provision movements arising on
future valuation changes in its income statement, will not necessarily represent
an amount of tax that the Group will suffer at a future date.
Derivatives
Primary Health Properties has entered into a number of interest rate swap
contracts to manage its risk exposure to changes in interest rates charged on
its' floating rate loan facilities. UK GAAP as it applies to the Group's current
financial year does not require these derivatives when used as a hedge to be
valued in the balance sheet. Under our present policy, gains and losses on
these hedges are deferred until the underlying hedged item is recognised in the
profit and loss account. IFRS requires all derivatives, whether cash flow
hedges or fair value hedges, to be carried at their fair values in the balance
sheet. The hedge accounting provisions of IFRS provide for changes in the value
of these interest rate swap contracts to be recorded as a movement in reserves,
thus reducing the sensitivity of the income statement to their fair value
movements. IFRS requires the effectiveness of these hedges to be regularly
tested, with ineffective portions of the hedges not treated as a reserve
movement but as a charge to the income statement. The Group expects all of its
interest rate swap contracts to be fully effective and to account for them as
cash flow hedges.
Dividends
IFRS only allows for a dividend declared for distribution to shareholders to be
recorded in a company's accounts when its declaration is within the accounting
period it represents. Similarly, final dividends that must be approved by
shareholders in general meeting cannot be recorded in the accounting period they
represent. UK GAAP, prior to its partial convergence with IFRS, requires
proposed final dividends to be accrued. A one-off increase in net asset value
will result from this change equivalent to the net cost of the proposed
dividend.
Share Based Payments
The Group has incentivised its Joint Managers with the granting of an option to
subscribe for a fixed amount of shares at a fixed price, exercisable at ant time
between 31 March 2006 and 31 March 2013 where performance criteria have been
achieved. Under UK GAAP as applied to the Group's current financial year, this
share option is accounted for prospectively. The number of shares issued and
the funds received from the exercise of options are included in the calculation
of fully diluted net asset value. IFRS will require the option granted to be
measured at its fair value with an equivalent amount charged over the vesting
period to the income statement.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the six months ended 31 December 2004
Six months ended Year ended Six months
31 December 2004 30 June ended 31
2004 December 2003
£'000 £'000 £'000
(unaudited) (audited) (unaudited)
Turnover 4,580 7,661 3,641
Administrative expenses (1,032) (1,738) (823)
Operating profit 3,548 5,923 2,818
Share of operating profit in joint venture - 4 -
3,548 5,927 2,818
Interest receivable 162 183 46
Interest payable (2,367) (3,638) (1,625)
Profit on ordinary activities before taxation 1,343 2,472 1,239
Taxation - - (123)
Profit on ordinary activities after taxation 1,343 2,472 1,116
Interim dividend of 6.0p per share (2004: interim (1,299) (1,995) (997)
5.5p and final 5.5p)
Additional final dividend 2003 - (69) (69)
(1,299) (2,064) (1,066)
Profit retained for the period 44 408 50
Earnings per share - basic 6.5p 13.9p 6.4p
- diluted 6.2p 12.8p 5.9p
All activities are continuing.
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the six months ended 31 December 2004
Six months ended Year ended Six months
31 December 2004 30 June 2004 ended 31
December 2003
£'000 £'000 £'000
(unaudited) (audited) (unaudited)
Profit for the period excluding share of profit in 1,343 2,468 1,116
joint venture
Share of joint venture's profit for the period - 4 -
Profit for the period attributable to members of the 1,343 2,472 1,116
Parent Company
Unrealised surplus on revaluation of properties 4,694 10,050 4,000
Total gains and losses relating to the period 6,037 12,522 5,116
All activities are continuing.
CONSOLIDATED BALANCE SHEET
as at 31 December 2004
At 31 December At 30 June At 31 December
2004 2004 2003
£'000 £'000 £'000
(unaudited) (audited) (unaudited)
Fixed Assets
Tangible assets 143,323 128,612 103,680
Current assets
Debtors 1,453 1,104 1,312
Net investment in finance leases: amounts falling due in 2,536 2,549 2,561
more than one year
Cash at bank 3,340 709 1,989
7,329 4,362 5,862
Creditors: amounts falling due within one year (7,742) (6,911) (5,048)
Net current (liabilities) /assets (413) (2,549) 814
Total assets less current liabilities 142,910 126,063 104,494
Creditors: amounts falling due after more than one year
Bank loans (84,460) (72,210) (57,100)
Convertible loan stock 2016 - (4,000) (4,000)
(84,460) (76,210) (61,100)
58,450 49,853 43,394
Capital and reserves
Called up share capital 10,826 9,074 9,063
Share premium account 9,566 7,459 7,419
Capital reserve 1,618 1,618 1,618
Revaluation reserve 34,997 30,303 24,253
Profit and loss account 1,443 1,399 1,041
Equity shareholders' funds 58,450 49,853 43,394
Net asset value per share - basic 269.94p 274.72p 239.40p
- diluted 263.13p 243.65p 216.04p
CONSOLIDATED CASH FLOW STATEMENT
for the six months ended 31 December 2004
Six months ended Year ended Six months ended
31 December 2004 30 June 2004 31 December 2003
£'000 £'000 £'000
(unaudited) (audited) (unaudited)
Net cash inflow from operating activities 3,488 6,167 2,506
Returns on investments and servicing of finance
Interest received 11 16 6
Interest paid (1,898) (3,157) (1,882)
Net cash outflow from return on investments (1,887) (3,141) (1,876)
and servicing of finance
Capital expenditure and financial investment
Payments to acquire tangible fixed assets (8,741) (21,077) (4,820)
Development loans advanced (1,171) (3,223) (1,637)
Deposits paid (172) - -
Loan to joint venture - (27) (27)
(10,084) (24,327) (6,484)
Equity dividends paid (932) (1,804) (857)
Net cash outflow before financing (9,415) (23,105) (6,711)
Financing
Expenses of listing particulars (200) - -
Ordinary share issue (net of expenses) (4) 1,386 1,382
Term bank loan 2013 12,250 22,010 6,900
Net cash inflow from financing 12,046 23,396 8,282
Increase in cash 2,631 291 1,571
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
Six months Year ended Six months ended
ended 30 June 31 December 2003
31 December 2004 2004
£'000 £'000 £'000
(unaudited) (audited) (unaudited)
Increase in cash in the period 2,631 291 1,571
Cash inflow from loans (12,250) (22,010) (6,900)
Loan Stock conversion into Ordinary shares 4,000 - -
Movement in net debt in the period (5,619) (21,719) (5,329)
At the beginning of the period (75,501) (53,782) (53,782)
At the end of the period (81,120) (75,501) (59,111)
Net debt comprises:
Cash at bank and in hand 3,340 709 1,989
Term loan (84,460) (72,210) (57,100)
Convertible Loan Stock 2016 - (4,000) (4,000)
(81,120) (75,501) (59,111)
Reconciliation of operating profit to net cash inflow from operating activities
Six months ended Year ended Six months ended
31 December 2004 30 June 31 December 2003
2004
£'000 £'000 £'000
(unaudited) (audited) (unaudited)
Operating profit 3,548 5,923 2,818
Increase in operating debtors and prepayments (177) (289) (380)
Increase in operating creditors and accruals 117 533 68
Net cash inflow from operating activities 3,488 6,167 2,506
NOTES:
1. The interim financial information has been prepared on the basis of the
accounting policies set out in the Group's 2004 statutory accounts.
2. The freehold and leasehold properties are included at valuation as at 31
December 2004.
Fixed assets consist of:
31 December 30 June 31 December
2004 2004 2003
£'000 £'000 £'000
(unaudited) (audited) (unaudited)
Tangible assets:
Investment properties 141,561 125,266 102,001
Development Loans 1,762 3,346 1,679
143,323 128,612 103,680
Investments:
Investment in joint venture
Share of gross assets - 4 39
Share of gross liabilities - (4) (39)
- - -
143,323 128,612 103,680
JOINT VENTURE
Primary Health Properties PLC owns 50% of the issued Ordinary share capital of
Primary Health Solutions Limited, a company created for the purpose of
developing properties for sale and leaseback and to tender for contracts under
the Government's LIFT (Local Improvement Finance Trust) initiative. The
remaining 50% of the issued Ordinary share capital is owned by Brackley
Investments Limited.
3. Following the exercise of Management options to purchase 1,386,667 Ordinary
shares on 17 September 2003, the Joint Managers were on the Register of
Members as at 26 September 2003, and accordingly received the final dividend
in respect of the year ended 30 June 2003.
4. Earnings per share
The calculation of earnings per share is based on earnings of £1,343,000 (30
June 2004: £2,472,000; 31 December 2003: £1,116,000) and 20,704,623 Ordinary
shares (30 June 2004: 17,824,559; 31 December 2003: 17,520,993) being the
weighted average number of shares in issue during the period. Diluted
earnings per share is calculated in accordance with Financial Reporting
Standard No. 14: Earnings per Share. It is based on earnings of £1,384,000
(30 June 2004: £2,782,000; 31 December 2003: £1,257,000) and 22,161,857
Ordinary shares (30 June 2004: 21,741,893; 31 December 2003: 21,235,897)
being the weighted average number of Ordinary shares in issue during the
period.
The calculation of diluted earnings per share as at 31 December 2004 is
based on the following:
Earnings: Weighted Average Number of Ordinary Shares:
£ Number
Profit on ordinary activities after 1,343,000 Issued share capital 20,704,623
taxation
Dilutive effect of 530,958
options
Interest saved on conversion of Loan Stock 41,000 Dilutive effect of 926,276
Convertible Loan Stock
1,384,000 22,161,857
5. Fully diluted net asset value has been calculated as follows:
31 December 2004 30 June 31 December 2003
2004
£'000 £'000 £'000
(unaudited) (audited) (unaudited)
Net assets:
Per Consolidated Balance Sheet 58,450 49,853 43,394
Add - Loan Stock conversion - 4,000 4,000
- Receipts from the exercise of
options 2,736 2,736 2,736
61,186 56,589 50,130
No. of shares No. of shares No. of shares
Ordinary shares:
Issued share capital 21,652,776 18,147,133 18,126,313
Add - Loan Stock conversion into shares - 3,478,260 3,478,260
- New shares issued on exercise of 1,600,000 1,600,000 1,600,000
options
23,252,776 23,225,393 23,204,573
Calculations assume that the dilution takes place on the respective balance
sheet dates.
6. On 19 August 2004, the holder of the Convertible Loan Stock 2016 converted
all of the Loan Stock held into Ordinary shares of 50p each. As a result
3,478,260 Ordinary shares were issued.
7. The financial information set out above does not constitute the Company's
statutory accounts as defined in Section 240 of the Companies Act 1985. The
financial information for the year ended 30 June 2004 is based on the statutory
accounts for the year. Those accounts, upon which the auditors issued an
unqualified opinion, have been delivered to the Registrar of Companies.
The Interim Report will be posted to Shareholders with the Scrip Dividend
Circular offering Shareholders the opportunity to elect to receive new Ordinary
shares instead of the cash dividend on 8 April 2005, and to those on the mailing
list as soon as practicable thereafter. It 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.
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