Interim Results
Primary Health Properties PLC
20 September 2007
Primary Health Properties PLC
PRIMARY HEALTH PROPERTIES PLC ('PHP')
Modern accommodation for the Provision of Primary Health
Care Services
Interim Results
for the six months ended 30 June 2007
Primary Health Properties PLC, one of the UK's largest providers of modern
primary healthcare facilities, announces its Interim Results for the six months
ended 30 June 2007
Group Financial Highlights - six months ended 30 June 2007
• Portfolio valuation increased by £5.1m to £321.0m
• Diluted NAV per share increased 7% to 449.8p (31 December 2006: 420.9p)
• Dividend increased by 11% to 7.5p (30 June 2006: 6.75p)
• Successful conversion to UK REIT status
• Successful placing of £38.8m (net of expenses)
Group Financial Highlights - twelve months ended 30 June 2007
• Portfolio owned, leased and committed increased by 43% to £321.0m (30 June
2006: £224.8m)
• Basic earnings per share increased by 93% to 135.7p (30 June 2006: 70.3p)
Harry Hyman, Managing Director of Primary Health Properties, commented:
"I am pleased to report another robust first half performance for PHP. The
Group has an excellent portfolio of modern properties with secure long leases
and high quality tenants, backed by the government, and has the prospect of
continued rental growth which should flow through into dividends. Our strategy
of sourcing new investments from several developers will enhance our ability to
continue to enter into new commitments, ensuring the flow of new properties in
coming years.
We remain a leader in our niche market and currently have a strong forward
pipeline of new properties. Future growth will be driven predominantly by
further rental increases from the portfolio which continues to perform well.
Despite recent turmoil in banking and money markets, the Board is optimistic
about the prospects for the Group."
Enquiries:
Bell Pottinger Corporate & Financial
David Rydell/Victoria Geoghegan
Tel: 020 7861 3232
Primary Health Properties PLC
Harry Hyman
Managing Director
Tel: 01483 306912
Mobile: 07973 344768
Chairman's Statement
Accounting period
As announced at the time of our interim results in March, the Group has changed
its accounting reference date to 31 December. These results for the six months
to 30 June 2007 are for the second six month period within the formal accounting
period of eighteen months to 31 December 2007.
Results
The results for the six months ended 30 June 2007 show a profit after tax of
£5.2m compared to £8.2m for the six months ended 30 June 2006. The results for
the twelve months ended 30 June 2007 show a profit after tax of £34.8m compared
to £15.9m for the year ended 30 June 2006.
The results for the twelve months include the impact of the revaluation surplus
and various other matters reported at 31 December 2006, including the goodwill
write off relating to our purchase of Cathedral (£5.5m), the REIT conversion
charge (£5.2m) and the release of deferred tax (£29.6m). None of these items
had comparables in the previous twelve month period.
The revaluation surplus for the twelve month period was £18.5m, of which £13.4m
arose in the first six months. The surplus was due to was due to a small
reduction in yields and higher rent reviews.
At a trading level, revenues for the twelve months to 30 June 2007 increased to
£14.1m (twelve months to 30 June 2006: £11.1m) and operating profit before
financing costs was £21.3m compared to £23.8m. The twelve month period saw the
effect of the inclusion of a management incentive fee rather than the previous
share option scheme.
The diluted earnings per share for the twelve month period were 135.7p (2006:
67.7p). After taking out capital items, adjusted diluted earnings per share
amounted to 14.7p compared to 16.5p in the prior twelve month period.
Diluted net asset value per share in the six months to 31 December 2006 rose 7%
to 449.8p (31 December 2006: 420.9p). While this was mainly due to the
revaluation surplus, the net asset value also benefited from a £6.7m increase in
unrealised gains attributable to our portfolio of swaps taken out to hedge the
impact of higher interest rates.
Portfolio
During the six months to 30 June 2007, the Group has taken delivery of £16.5m of
completed and let properties at Wednesbury, Handcross, Poundbury, Penkridge and
Leslie and has entered into new commitments totalling £18.4m at Sandown,
Lossiemouth, Paisley, Morriston and Kirkentilloch.
The table below sets out the portfolio as at 30 June 2007.
30 June 31December 30 June
2007 2006 2006
£m £m £m
Investment properties 267.8 245.5 197.5
Development properties 9.2 9.5 -
Properties in the course of development 2.6 2.8 2.1
Total investment properties 279.6 257.8 199.6
Finance leases 2.9 2.5 2.5
Total owned and leased 282.5 260.3 202.1
Development Loans 2.8 1.2 1.7
Total owned and leased (including development 285.3 261.5 203.8
loans)
Deposits paid - 0.1 0.1
Committed 35.7 32.2 20.9
Total owned, leased and committed 321.0 293.8 224.8
Following our portfolio development and the Cathedral acquisition in December
2006, the portfolio now has 93 completed properties with a further 11 properties
under construction. The portfolio has performed well over the last twelve months
and the combination of a virtually fully let portfolio, long lease lengths and
covenants backed by the government makes for an attractive portfolio for the
long term. In addition, at 30 June 2007 the Group had £35.7m of future
commitments.
REIT conversion and financing
During the six months ended 30 June 2007, the Group converted to a REIT and also
completed a Placing and Open Offer, raising £38.8m net of expenses and thereby
expanding its shareholder base. The Placing and Open Offer resulted in 9,309,376
new Ordinary Shares being issued on 11 April 2007. Although the UK-REIT sector
has been volatile during the period, the conversion to a REIT has resulted in
greater visibility for the Group and the opening to a wider universe of
shareholders. On 21 September 2006, the Joint Managers exercised their options
to acquire 1.6m Ordinary Shares at a price of £1.71 per share pursuant to the
Management Option Agreement dated 17 September 2003.
As reported at the first interim stage, the Group negotiated a £40.0m increase
in facilities with its bankers. Following the successful placing, the Group has
further capacity to borrow and is in the process of extending its banking lines.
After the period end, and in order to manage its continuing liability management
programme, the Group:
• purchased a £20m interest rate swap at 4.76% covering the period from 2017
to 2027. This will be accounted for as a cash flow hedging instrument.
• entered into a swap of 4.835% for principal amounts of £20m from 11 August
2007 to 11 November 2007, £30m from 11 November 2007 to 11 February 2008,
£40m from 11 February 2008 to 11 May 2008 and £50m to 11 August 2021.
This second swap can be cancelled by the counterparty on any of the future
quarter dates. If not called, the swap runs for the fourteen years to 11 August
2021. Whilst not qualifying for hedge accounting, the instrument significantly
reduces the Group's cash interest costs in place and while the currently
volatile short term interest rates remain above the swap level. The revaluation
gain or loss on this contract, unless cancelled by the period end, will be taken
through the income statement.
Total borrowings at the period end were £135.7m of which £11.8m was being used
to fund development loans. The Group has £90m of fixed rate cover and the
contingent cover referred to above.
Loan to value gearing at the period end was 46% and interest cover was 1.8
times. All UK-REIT conditions were met.
Dividend
The Board proposes to pay a second interim dividend of 7.5p per Ordinary Share,
a rise of 0.75p per Ordinary Share over last year's final dividend of 6.75p. As
explained at the time of the conversion to a UK REIT, distributions from the
Company may comprise property income distributions ("PID"s), ordinary cash
dividends or a combination of the two. The second interim dividend is a cash
dividend and not a PID. The dividend will be paid on 23 November 2007 to
shareholders on the register on 28 September 2007. Further details of the
Company's status and the tax treatment of distributions for shareholders is
given in the Interim Report.
Other matters
The Share Plan allowing investors to purchase the Company's Ordinary Shares by
lump sum or regular payments currently has 38 members holding 99,243 Ordinary
Shares. Further details can be found on the website www.phpgroup.co.uk and
www.capitaregistrars.com/php.
The Notice of the Annual General Meeting and proxy card for the Annual General
Meeting to be held on 15 November 2007 at 10.30am is enclosed with the Interim
Report.
Outlook
Our market remains strong and while there has been uncertainty in other parts of
the property sector, investor and tenant demand for modern primary health care
facilities remain high. The government's agenda sees an increasing role for the
delivery of care in modern primary care buildings.
The Group has an excellent portfolio of modern properties with secure long
leases and high quality tenants, backed by the government, and has the prospect
of continued rental growth which should flow through into dividends. Our
strategy of sourcing new investments from several developers will enhance our
ability to continue to enter into new commitments, ensuring the flow of new
properties in coming years.
We remain a leader in our niche market and currently have a strong forward
pipeline of new properties. Future growth will be driven predominantly by
further rental increases from the portfolio which continues to perform well.
Despite recent turmoil in banking and money markets, the Board is optimistic
about the prospects for the Group.
G A Elliot
Chairman 19 September 2007
GROUP INCOME STATEMENT
for the six months ended 30 June 2007
Note Six months Six months Six months Twelve months Year
ended ended ended ended ended
30 June 31 December 30 June 30 June 30 June
2007 2006 2006 2007 2006
£'000 £'000 £'000 £'000 £'000
(unaudited) (unaudited) (unaudited) (unaudited) (audited)
Rental income 6,985 6,410 5,547 13,395 10,850
Finance lease income 604 141 141 745 281
Rental and related income 7,589 6,551 5,688 14,140 11,131
Net valuation gain on property portfolio 5,055 13,442 7,160 18,497 14,997
Net gain on disposal of property - 44 401 44 401
Administrative expenses (3,450) (2,271) (1,381) (5,721) (2,689)
Exceptional items:
Goodwill impairment 2 (126) (5,339) - (5,465) -
UK-REIT conversion costs - (175) - (175) -
Operating profit before financing costs 9,068 12,252 11,868 21,320 23,840
Finance income 718 110 97 828 258
Finance costs (4,444) (3,394) (2,927) (7,838) (5,695)
Profit before tax 5,342 8,968 9,038 14,310 18,403
Current taxation 7 (103) - 465 (103) 465
Conversion to UK-REIT charge 7 - (5,157) - (5,157) -
Deferred taxation charge for the period 7 - (3,880) (1,292) (3,880) (2,931)
Deferred taxation release on conversion to 7 - 29,622 - 29,622 -
UK-REIT
Taxation (expense)/credit (103) 20,585 (827) 20,482 (2,466)
Profit for the period* 5,239 29,553 8,211 34,792 15,937
Earnings per share - basic 4 18.9p 125.4p 36.2p 135.7p 70.3p
- diluted 4 18.9p 125.4p 34.8p 135.7p 67.7p
Adjusted earnings per share - basic 4 7.8p 6.9p 10.3p 14.7p 17.1p
- diluted 4 7.8p 6.9p 9.9p 14.7p 16.5p
Dividends paid: 6 £'000 £'000 £'000 £'000 £'000
First interim dividend period ending
December 2007 (7.5p) 1,821 - - 1,821 -
Final dividend year ended June 2006
(6.75p) - 1,639 - 1,639 -
Interim dividend year ended June 2006
(6.75p) - - 1,531 - 1,531
Final dividend year ended
June 2005 (6.0p) - - - - 1,359
* Wholly attributable to equity shareholders of Primary Health Properties PLC
All activities are continuing.
GROUP BALANCE SHEET
as at 30 June 2007
Note At 30 At 31 At 30
June December June
2007 2006 2006
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Non current assets
Investment properties 3 270,434 248,316 199,569
Development properties 3 9,174 9,525 -
Development loans 2,826 1,184 1,712
Net investment in finance leases 2,905 2,487 2,492
Derivative interest rate swaps 7,905 1,901 1,415
293,244 263,413 205,188
Current assets
Trade and other receivables 3,459 1,855 1,470
Net investment in finance leases 49 12 12
Cash and cash equivalents 3,692 3,829 3,973
7,200 5,696 5,455
Total assets 300,444 269,109 210,643
Current liabilities
Derivative interest rate swaps - - (74)
Corporation tax payable (289) (201) (181)
UK-REIT conversion charge payable 1 (1,012) (645) -
Deferred rental income (3,138) (2,988) (2,466)
Trade and other payables (5,142) (4,591) (2,604)
(9,581) (8,425) (5,325)
Non current liabilities
Term Loan (135,650) (153,250) (112,800)
Deferred tax 7 - - (21,193)
UK-REIT conversion charge payable 1 (4,145) (4,512) -
Derivative interest rate swaps - (735) -
(139,795) (158,497) (133,993)
Total liabilities (149,376) (166,922) (139,318)
Net assets 151,068 102,187 71,325
Equity
Share capital 16,794 12,139 11,339
Share premium 48,012 13,943 12,022
Capital reserve 1,618 1,618 1,618
Cash flow hedging reserve 7,905 1,166 939
Retained earnings 76,739 73,321 45,407
Total equity * 151,068 102,187 71,325
Net asset value per share Note
- basic 8 449.8p 420.9p 314.5p
- diluted 8 449.8p 420.9p 305.1p
Adjusted net asset value per share **
- basic 8 449.8p 420.9p 408.0p
- diluted 8 449.8p 420.9p 392.4p
* Wholly attributable to equity shareholders of Primary Health Properties PLC.
** Adjusted for deferred taxation at 30 June 2006, prior to REIT conversion
charge.
These financial statements have been prepared in accordance with the accounting
policies set out in the latest Annual Report for the year ended 30 June 2006.
Group Statement of Changes in Equity (unaudited)
for the six months ended 30 June 2007
Cash flow
Share Share Capital hedging Retained
capital premium reserve reserve earnings Total
£'000 £'000 £'000 £'000 £'000 £'000
31 December 2006 12,139 13,943 1,618 1,166 73,321 102,187
Profit for the period - - - - 5,239 5,239
Transfer to income statement on cash flow
hedges - - - 295 - 295
Income and expense recognised directly in
equity:
Gain on cash flow hedges taken to equity - - - 6,444 - 6,444
Total recognised income and expense for the
period - - - 6,739 5,239 11,978
Issue of shares (net of expenses) 4,655 34,069 - - - 38,724
Dividends paid:
First interim dividend for period ending 31
December 2007 (7.5p) - - - - (1,821) (1,821)
30 June 2007 16,794 48,012 1,618 7,905 76,739 151,068
Group Statement of Changes in Equity (unaudited)
for the twelve months ended 30 June 2007
Cash flow
Share Share Capital hedging Retained
capital premium reserve reserve earnings Total
£'000 £'000 £'000 £'000 £'000 £'000
30 June 2006 11,339 12,022 1,618 939 45,407 71,325
Profit for the period - - - - 34,792 34,792
Transfer to income statement on cash flow
hedges - - - 300 - 300
Income and expense recognised directly in
equity:
Gain on cash flow hedges taken to equity - - - 6,264 - 6,264
Deferred tax on loss on cash flow hedges for
the year - - - 52 - 52
Deferred tax on loss on cash flow hedges
released* - - - 350 - 350
Total recognised income and expense for the
year - - - 6,966 34,792 41,758
Issue of shares (net of expenses) 5,455 35,990 - - - 41,445
Dividends paid:
Final dividend for the year ended 30 June
2006 (6.75p) - - - - (1,639) (1,639)
First interim dividend paid or the period
ending 31 December 2007 (7.5p) - - - - (1,821) (1,821)
30 June 2007 16,794 48,012 1,618 7,905 76,739 151,068
* Deferred tax was released in the period to 31 December 2006 due to the
impending conversion to UK-REIT.
Group Statement of Changes in Equity (unaudited)
for the six months ended 31 December 2006
Cash flow
hedging
Share Share Capital hedging Retained
capital premium reserve reserve earnings Total
£'000 £'000 £'000 £'000 £'000 £'000
30 June 2006 11,339 12,022 1,618 939 45,407 71,325
Profit for the period - - - - 29,553 29,553
Transfer to income statement on cash flow
hedges - - - 5 - 5
Income and expense recognised directly in
equity:
Loss on cash flow hedges taken to equity - - - (180) - (180)
Deferred tax on loss on cash flow hedges for
the period - - - 52 - 52
Deferred tax on cash flow hedges released* - - - 350 - 350
Total recognised income and expense for the
period - - - 227 29,553 29,780
Issue of shares (net of expenses) 800 1,921 - - - 2,721
Dividends paid:
Final dividend for the year ended 30 June
2006 (6.75p) - - - - (1,639) (1,639)
31 December 2006 12,139 13,943 1,618 1,166 73,321 102,187
* Deferred tax was released in the period to 31 December 2006 due to the
impending conversion to UK-REIT.
Group Statement of Changes in Equity (audited)
for the year ended 30 June 2006
Cash flow
Share Share Capital hedging Retained
capital premium reserve reserve earnings Total
£'000 £'000 £'000 £'000 £'000 £'000
1 July 2005 11,326 11,952 1,618 (1,292) 32,175 55,779
Profit for the year - - - - 15,937 15,937
Transfer to income statement on cash flow
hedges - - - 238 - 238
Income and expense recognised directly in
equity:
Gains on cash flow hedges taken to equity - - - 2,949 - 2,949
Deferred tax on cash flow hedges taken to
equity - - - (956) - (956)
Total recognised income and expense for the
year - - - 2,231 15,937 18,168
Issue of shares (net of expenses) 13 70 - - - 83
Share based payment charge - - - - 185 185
Dividends paid:
Final dividend for the year ended 30 June
2005 (6.0p) - - - - (1,359) (1,359)
Interim dividend for the year ended 30 June
2006 (6.75p) - - - - (1,531) (1,531)
30 June 2006 11,339 12,022 1,618 939 45,407 71,325
Group Cash Flow Statement
for the six months ended 30 June 2007
Six months Six months Twelve months Year
ended ended ended ended
30 June 30 June 30 June 30 June
2007 2006 2007 2006
£'000 £'000 £'000 £'000
(unaudited) (unaudited) (unaudited) (audited)
Operating activities
Profit before tax 5,342 9,038 14,310 18,403
Less: Finance income (718) (97) (828) (258)
Plus: Finance costs 4,444 2,927 7,838 5,695
Operating profit before financing costs 9,068 11,868 21,320 23,840
Adjustments to reconcile Group operating profit
to net cash flows from operating activities:
Less: Revaluation gains on property (5,055) (7,160) (18,497) (14,997)
Less: Gains on disposal of property - (401) (44) (401)
Plus: Goodwill impairment 126 - 5,465 -
Plus: Share based payment expense - 93 - 185
(Increase)/decrease in trade and other
receivables (1,110) 142 (680) (54)
Increase in trade and other payables 917 52 1,651 212
Cash generated from operations 3,946 4,594 9,215 8,785
Interest received from developments 35 117 142 219
Taxation paid (15) (34) (15) (34)
Net cash flow from operating activities 3,966 4,677 9,342 8,970
Investing activities
Receipts from disposal of investment properties - 7,711 465 7,711
Payments to acquire investment properties (16,824) (15,311) (29,715) (25,770)
Development loans advanced (1,509) (1,863) (2,642) (2,612)
Bank interest received 27 35 55 47
Acquisition of subsidiary (410) - (30,803) -
Net cash flow used in investing activities (18,716) (9,428) (62,640) (20,624)
Financing activities
Proceeds from issue of shares 38,752 - 38,747 (4)
(net of expenses)
Cash received on exercise of Management Options - - 2,726 -
Term bank loan drawdowns 14,900 10,800 55,350 24,000
Term bank loan repayment (32,500) - (32,500) -
Interest paid (4,718) (2,781) (7,846) (6,678)
Equity dividends paid (1,821) (1,531) (3,460) (2,803)
Net cash flow from financing activities 14,613 6,488 53,017 14,515
(Decrease)/increase in cash and cash equivalents
for the period/year (137) 1,737 (281) 2,861
Cash and cash equivalents at start of period/
year 3,829 2,236 3,973 1,112
Cash and cash equivalents at end of period/year 3,692 3,973 3,692 3,973
NOTES:
1. Accounting Policies
Basis of preparation/ Statement of compliance
The interim report for the six months ended 30 June 2007 has been prepared in
accordance with IAS 34 'Interim Financial Reporting'.
The interim report does not include all the information and disclosures required
in the annual financial statements and should be read in conjunction with the
Group's annual financial statements as at 30 June 2006.
The financial information contained in this report does not constitute statutory
accounts within the meaning of Section 240 Companies Act 1985. The auditors'
report on the full financial statements under section 235 Companies Act 1985,
for the year ended 30 June 2006, did not contain a statement under Section 237
(2) or (3) Companies Act 1985. This audit report, which was unqualified, was
delivered to the Registrar of Companies together with financial statements for
the year ended 30 June 2006.
Convention
The financial statements are presented on a historical cost basis in
Sterling rounded to the nearest thousand.
Segmental reporting
The Group operates under one business segment and one geographical segment,
being investment in primary health care property within the United Kingdom.
Basis of consolidation
The Group's financial statements consolidate the financial statements of Primary
Health Properties PLC and its wholly owned subsidiary undertakings. Subsidiaries
are consolidated from the date of their acquisition, being the date on which the
Group obtained control and continue to be consolidated until the date that such
control ceases. Control comprises the power to govern the financial and
operating policies of the investee so as to obtain benefit from its activities
and is achieved through direct or indirect ownership of voting rights; currently
exercisable or convertible potential voting rights; or by way of contractual
agreement. The financial statements of the subsidiary undertakings are prepared
for the accounting reference period ending 31 December each year, using
consistent accounting policies. All intercompany balances and transactions,
including unrealised profits arising from them, are eliminated.
Conversion to UK-REIT
The Group's conversion to UK REIT status was effective from 1 January 2007.
Conversion to a UK-REIT results in, subject to continuing relevant UK-REIT
criteria being met, the Group's property profits, both income and gains, being
exempt from UK taxation from 1 January 2007. The deferred tax liabilities as at
31 December 2006 of £30.0m are therefore released with £29.6m credited to the
Group Income Statement and £0.4m to the cash flow hedging reserve.
On conversion to a UK-REIT, the Group is subject to a one off taxation charge
based on the value of properties as at the date of conversion, amounting to
£5.2m. This amount is payable over four years.
Change of accounting reference date
The Group changed its accounting reference date to 31 December, with effect from
1 January 2007. The current accounting reference period, which commenced on 1
July 2006, will therefore comprise 18 months ending 31 December 2007. In
addition to the interim financial statements for the six months ended 31
December 2006, and this second interim report for the six months ended 30 June
2007, the Group will prepare final financial statements for the 18 month period
ending 31 December 2007.
2. Acquisition of PHIP CHH Limited ("CHH")
On 22 December 2006, the Group exchanged contracts to acquire 100% of the
ordinary share capital of CHH for a cash consideration of £31.0m. CHH was the
holding company of a group of companies that owned nine primary healthcare
facilities across the UK which have been incorporated into the Group's
portfolio.
Of the nine facilities, three are under construction and are expected to be
completed by 31 December 2007. In addition, two of the completed facilities are
undergoing extension work, which is also expected to be finished in 2007.
Consideration of £30.9m was paid upon completion with a further balance of £0.1m
paid in April 2007. Cash acquired upon acquisition of CHH amounted to £0.2m.
The total gross assets acquired once fully developed are expected to amount to
£39.2m. These assets are expected to generate a total annual rental income of
approximately £2.0m, reflecting an initial yield of approximately 5%.
Details of the acquisition of CHH:
£'000
Total cost of acquisition 30,978
Investment and development property acquired (30,825)
Other net liabilities acquired 5,312
Goodwill arising on acquisition 5,465
Prior to the acquisition of CHH, the investment and development properties were
included in the books of CHH at £21.5m. A fair value exercise was carried out by
Lambert Smith Hampton as at 1 December 2006 resulting in an uplift in value of
the properties of £9.3m to £30.8m. A deferred tax liability arose on this
uplift of £2.8m.
As the Group paid consideration equal to the assessed value of the acquired
properties, goodwill arises in respect of the other net liabilities acquired,
principally a deferred tax liability of £4.9m. However, on conversion to
UK-REIT, the deferred tax liability is eliminated resulting in an impairment of
goodwill arising on acquisition.
3 Investment Properties
The freehold, leasehold and development properties have been independently
valued at fair value by Lambert Smith Hampton Chartered Surveyors and Valuers as
at 30 June 2007.
The revaluation gain for the six months ended 30 June 2007 amounted to £5.1m,
giving an overall revaluation gain of £18.5m for the twelve months to 30
June 2007. The revaluation gain for the year ended 30 June 2006 amounted to
£15.0m.
Property additions for the six months ended 30 June 2007 amounted to £16.5m,
giving total additions for the twelve months to 30 June 2007 of £61.9m
(including £30.8m on the PHIP CHH acquisition). There were no properties
disposed of in the six months to 30 June 2007. Properties disposed of during the
twelve months to 30 June 2007, valued at £0.4m as at 30 June 2006, realised a
gain of £0.04m.
Property additions for the year ended 30 June 2006 amounted to £27.5m.
Properties disposed of for the year ended 30 June 2006, valued at £6.8m as at 30
June 2005, realised a gain of £0.4m.
4 Earnings per share
Following the exercise of the Management Options by the Joint Managers on 21
September 2006, there is no dilution and therefore there is no difference
between the basic and the diluted net asset values as at 31 December 2006 and 30
June 2007.
The purpose of calculating an adjusted earnings per share, is to provide a
better indication of dividend cover for the period by excluding capital items
including valuation gains.
(^) Weighted average number of Ordinary Shares in issue during the period.
* Excess of the total number of potential shares on option exercise over the
number that could be issued at fair value (IAS 33: "Earnings per share").
** All Management Options were exercised in full on 21 September 2006.
The calculation of basic and diluted earnings per share as at 30 June 2007 is based on the following:
Earnings per share for the six months ended 30 June 2007
Net profit attributable to Ordinary Ordinary(^)
Shareholders shares Per share
£'000 number pence
Basic and diluted earnings per share 5,239 27,673,730 18.9
Adjusted earnings per share for the six months ended 30 June 2007
Net profit attributable to Ordinary Ordinary(^)
Shareholders shares Per share
£'000 number Pence
Basic and diluted earnings per share 5,239 27,673,730 18.9
Adjustments to remove:
Incentive fee accrual 1,839
Goodwill impairment 126
Net valuation gains on valuation of property (5,055)
Adjusted basic and diluted earnings per share 2,149 27,673,730 7.8
Earnings per share for the six months ended 30 June 2006
Net profit attributable to Ordinary Ordinary(^)
Shareholders shares Per share
£'000 number pence
Basic earnings per share 8,211 22,677,718 36.2
Options exercised* - 917,037 **
Diluted earnings per share 8,211 23,594,755 34.8
Adjusted earnings per share for the six months ended 30 June 2006
Net profit attributable to Ordinary Ordinary(^)
Shareholders shares Per share
£'000 number pence
Basic earnings per share 8,211 22,677,718 36.2
Adjustments to remove:
Deferred tax charge 1,292
Net valuation gains on valuation of
property (7,160)
Adjusted basic earnings per share 2,343 22,677,718 10.3
Options exercised* - 917,037 **
Adjusted diluted earnings per share 2,343 23,594,755 9.9
Earnings per share for the twelve months ended 30 June 2007
Net profit attributable to Ordinary Ordinary(^)
Shareholders shares Per share
£'000 number pence
Basic and diluted earnings per share 34,792 25,631,493 135.7
Adjusted earnings per share for the twelve months ended 30 June 2007
Net profit attributable to Ordinary Ordinary(^)
Shareholders shares Per share
£'000 number pence
Basic and diluted earnings per share 34,792 25,631,493 135.7
Adjustments to remove:
Incentive fee accrual 2,591
Goodwill impairment 5,465
UK-REIT conversion charge 5,157
Deferred tax charge 3,880
Deferred tax release (29,622)
Net valuation gains on valuation of
property (18,497)
Adjusted basic and diluted earnings
per share 3,766 25,631,493 14.7
Earnings per share for the year ended 30 June 2006
Net profit attributable to Ordinary Ordinary(^)
Shareholders shares Per share
£'000 number pence
Basic earnings per share 15,937 22,667,946 70.3
Option exercise* - 861,960 **
Diluted earnings per share 15,937 23,529,906 67.7
Adjusted earnings per share for the year ended 30 June 2006
Net profit attributable to Ordinary Ordinary(^)
Shareholders shares Per share
£'000 number pence
Basic earnings per share 15,937 22,667,946 70.3
Adjustments to remove:
Deferred tax charge 2,931
Net valuation gains on valuation of
property (14,997)
Adjusted basic earnings per share 3,871 22,667,946 17.1
Option exercise* - 861,960 **
Adjusted diluted earnings per share 3,871 23,529,906 16.5
5 Performance incentive scheme
On 16 November 2006, Shareholders approved the amendments to the Management
Agreement whereby the Joint Managers are entitled to a performance incentive fee
of 15% of any performance in excess of an 8% per annum increase in the Company's
"Total Return" as derived from the audited financial statements for the
respective financial period.
The Total Return is determined by comparing the variation in the stated net
asset value per share (on a fully diluted basis, adjusting for deferred tax and
the REIT conversion charge and adding back gross dividends paid or declared in
such period) against the fully diluted net asset value per share from the
previous period's audited accounts.
Included in Administration Expenses within the Income Statement for the twelve
months to 30 June 2007 is a performance incentive fee expense of £2,591,000 (six
months to 30 June 2007: £1,839,000, six months to 31 December 2006: £752,000).
6. Dividends paid
Dividends paid in the period are as follows:
No of shares Six months Six months Twelve
dividend paid to to months to Year to
upon 30 June 30 June 30 June 30 June
2007 2006 2007 2006
£'000 £'000 £'000 £'000
First interim dividend for the
period ending 31 December 2007
(7.5p) 24,277,718 1,821 - 1,821 -
Final dividend for the year
ended 30 June 2006 (6.75p) 24,277,718 - - 1,639 -
Interim dividend for the year
ended 30 June 2006 (6.75p) 22,677,718 - 1,531 - 1,531
Final dividend for the year
ended 30 June 2005 (6.0p) 22,677,718 - - - 1,359
1,821 1,531 3,460 2,890
The Board proposes to pay an interim dividend of 7.5p per Ordinary Share for the six months to 30 June 2007, payable on
23 November 2007, amounting to £2,519,032.
7. Taxation
Taxation in the Income Statement:
Six months Six months Six months Twelve months Year ended
ended 30 June ended 31 ended 30 June ended 30 June 30 June
2007 December 2006 2006 2007 2006
£'000 £'000 £'000 £'000 £'000
(unaudited) (unaudited) (unaudited) (unaudited) (audited)
Current tax
UK Corporation tax on non property
income 30 - 181 30 181
Adjustments in respect of prior period 73 - (646) 73 (646)
103 - (465) 103 (465)
Conversion to UK-REIT charge - 5,157 - 5,157 -
103 5,157 (465) 5,260 (465)
Deferred tax
Deferred tax charge for the period/year - 3,880 1,292 3,880 2,931
Deferred tax release on conversion to - (29,622) - (29,622) -
UK-REIT (see note 1)
- (25,742) 1,292 (25,742) 2,931
Taxation expense/(credit) in the Income
Statement 103 (20,585) 827 (20,482) 2,466
Taxation in the Balance Sheet:
Deferred tax liability
- on timing differences - - 6,186 - 6,186
- on revaluation gains - - 14,605 - 14,605
- on derivative interest rate swaps - - 402 - 402
Deferred tax liability at end of period/ - - 21,193 - 21,193
year
8 Net asset value calculations
There is no difference between the normal and adjusted net asset values as at 31
December 2006 and 30 June 2007, due to the release of all deferred tax
liabilities on conversion to UK-REIT status.
Following the exercise of the Management Options by the Joint Managers on 21
September 2006, there is no dilution and therefore no difference between
adjusted basic and diluted net asset values as at 31 December 2006 and 30 June
2007.
Net asset values have been calculated as follows:
30 June 31 December 30 June
2007 2006 2006
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Net assets per Group Balance Sheet * 151,068 102,187 71,325
Add - Receipts assuming the exercise of
Management Options - - 2,736
Diluted net assets 151,068 102,187 74,061
No. of shares No. of shares No. of shares
Ordinary shares:
Issued share capital * 33,587,094 24,277,718 22,677,718
Add - New shares issued assuming the exercise of the Management Options - - 1,600,000
Diluted number of Ordinary Shares 33,587,094 24,277,718 24,277,718
Net asset value per share 449.8p 420.9p 314.5p
Diluted net asset value per share 449.8p 420.9p 305.1p
* figures for basic net asset value calculations
Calculations assume that the dilution takes place on the respective Balance
Sheet dates.
Adjusted net asset value per share
30 June 31 December 30 June
2007 2006 2006
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Net assets per Group Balance Sheet * 151,068 102,187 71,325
Adjustments to add back:
Deferred tax on timing differences - - 6,186
Deferred tax on revaluation gains - - 14,605
Deferred tax on derivative interest rate swaps - - 402
Adjustment to remove:
Adjusted net assets 151,068 102,187 92,518
Add - Receipts assuming the exercise of
Management Options - - 2,736
Diluted adjusted net assets 151,068 102,187 95,254
No. of shares No. of shares No. of shares
Ordinary shares:
Issued share capital * 33,587,094 24,277,718 22,677,718
Add - New shares issued assuming the exercise of Management Options - - 1,600,000
Diluted number of Ordinary Shares 33,587,094 24,277,718 24,277,718
Adjusted net asset value per share 449.8p 420.9p 408.0p
Diluted adjusted net asset value per share 449.8p 420.9p 392.4p
* figures for basic net asset value calculations
Calculations assume that the dilution takes place on the respective Balance
Sheet dates.
9. The Interim Report will be posted to Shareholders on 3 October 2007 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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