Final Results

Terrace Hill Group PLC 26 January 2005 TERRACE HILL GROUP PLC PRELIMINARY ANNOUNCEMENT OF RESULTS FOR YEAR TO 31 OCTOBER 2004 CHAIRMAN'S STATEMENT Year to 31 October 2004 I am pleased to present our results for the Year to 31 October 2004 which illustrate the progress we continue to make towards our goal of enhancing shareholder value. Profit and Loss account to 31 October 2004 Profit before tax for the Year amounted to Â£4,083,801 (18 months to 31 October 2003: Â£5,092,831). Operating Profit for the year of Â£5,259,244 exceeded Operating Profit for the previous 18 month period to 31 October 2003 of Â£3,295,314. Triple Net Asset Value Our Net Asset Value (NAV) increased in the Year from Â£46.5 million to Â£70.8 million. NAV per share increased in the same period from 30.22p per share to 38.12p, an increase of 26.14%. We announced on 13 April 2004 that we would in future provide figures for Triple Net Asset Value ('TNAV') which is common practice amongst quoted companies in the property sector. Our TNAV per share at 31 October 2004 was 39.99p. The increase in TNAV over the year to 31 October 2004 was over 25%. In our case the principal adjustments required from Net Asset Value to arrive at TNAV are, on a realistic basis, to revalue current work-in-progress to current realisation value and to allow for tax that would be payable were we to realise our assets at their revalued amounts. This is more fully explained on page 15. At 31 October 2004 our development programme had a total end value approaching Â£600 million (30 April 2004: Â£500 million), a figure which includes joint ventures. Gearing inside development vehicles and entering into joint ventures allow us to greatly increase the range of our activities while reducing risks. In most joint ventures we are entitled to project coordination fees and enhancement of our equity dependent on results. We anticipate that our development programme is capable of providing significant financial returns to the Group over the next five years. Balance Sheet at 31 October 2004 Total Group assets at 31 October 2004 stood at Â£180,581,071 compared to Â£125,315,628 at 31 October 2003, and net assets, after minority interests, at Â£70,841,074, an increase of 52.24% over net assets at 31 October 2003 of Â£46,532,000. Bank debt of Â£75.6 million net of Â£17.8 million cash stood at 81.6% of equity (2003: 119.1%). Of the bank debt 68.35% was with limited (interest etc.) or no recourse to the parent company. Properties held as investments were Â£91.3 million (Â£40.4 million residential and Â£50.9 million commercial) compared to Â£83.5 million last year. Work-in-progress was Â£55.7 million (Â£50.7 million commercial and Â£5 million residential) compared to Â£18 million last year. Management We have decided to appoint Philip Leech as Managing Director with effect from 26 January 2005. Philip joined Terrace Hill in 1993. Aged 41, he is a Chartered Surveyor, having spent seven years with Strutt and Parker before joining Dixons Commercial Properties and then Terrace Hill. Philip has very successfully run the North East office since 1994 which has been consistently and substantially profitable. Philip has also in recent times procured important new development projects, such as Baltic Business Quarter, Gateshead (expected to be developed out over some 10 years with an end value expected to be well over Â£100 million) along with other projects referred to in the Operational Review. We all look forward to a successful future with Philip at the helm. With effect from 26 January Nigel Turnbull and Ross Macdonald will step down from their roles of Joint Managing Directors as part of their planned, phased retirement. Nigel and Ross, now in their 60's, have expressed the wish to have more leisure time. As you are aware, the Group was formed by the amalgamation in September 2002 of Capitaltech PLC (of which Ross had been Chief Executive since its incorporation in 1994) with Westview and Terrace Hill Limited (which Nigel had joined also in 1994). Nigel and Ross, both with Scottish professional backgrounds, have worked very well together. I would like to thank Nigel and Ross for their hard and diligent efforts in establishing and growing Terrace Hill and their successful efforts in getting us to our current position of strength. I am pleased that both Nigel and Ross will be remaining as Executive Directors which will greatly assist Philip and me. Dividend Showing our confidence in the future we have decided to recommend a final dividend for the Year to 31 October 2004 of 0.5p per share (previous period final dividend 0.15p per share) making a total dividend for the year of 0.8p per share (the total dividend for 18 months to 31 October 2003 was 0.405p per share). This dividend will be payable on 1 April 2005 to shareholders on the register at 18 March 2005. Institutional Investment The group placed on 29 April 2004 28,600,000 shares with institutions at 29p each raising Â£8.128 million net of costs. We were pleased with this as it gives us for the first time a substantial institutional component to our shareholder base. We are also aware of subsequent substantial institutional purchases of shares on the market. The largest institutional shareholder is Caledonia Investments plc with 7.53%. Current and Future Trading Further details of current activity and projects are given in the Operational Review following, so I shall not comment further on these in this statement. As we have said before we look forward to continuing to deliver increased shareholder value over the years ahead. We are now even more confident about our ability to do so. Robert F M Adair, Chairman 26 January 2005 OPERATIONAL REVIEW The year to 31 October 2004 has been a period both of considerable growth and progress. The Commercial Division London office and the South East As was indicated in the last report, West End tenant demand in 2003 was relatively subdued and the current year opened on the same note. As the year progressed optimism returned to the market induced by a lack of available supply of category A space and increased business confidence. This has been reflected in the success the Group has had in achieving almost 100% occupancy of the joint venture office developments at No. 11 and No. 16 Berkeley Street with achieved rents rising through the year. This tenant confidence is expected to continue in 2005. Similarly, a development in King Street being primarily 10,500 sq ft of offices by Serah Properties plc (in which we earlier acquired a minority interest) in joint venture with Canada Life, although completed in autumn 2002, had lacked tenant or purchaser interest. During the year under review we were able, at an attractive price, to increase our holding in Serah to 83.13% and to arrange a sale of the offices to The Royal Bank of Scotland Group plc for Â£9.2 million for its own occupation. There remain four shops of which two have now been let. The office market around the M25 continued to suffer from relatively limited tenant interest but subsequent to the year end, the Hertz Corporation committed at Â£22 psf to take all the space in the 69,000 sq ft office development, UB1, in Uxbridge (a joint venture with Liberty Property Trust). The intention is to hold this investment to benefit from anticipated strong rental growth from the current low base. In contrast to mixed tenant demand there has been strong interest from institutional investors. This was reflected in a price of Â£6.6 million and a yield of 6.65% obtained on the sale of the Southend, Essex leisure facility occupied by Virgin Active. In addition, in the light of strong purchaser interest, an opportunity was taken to dispose of office investments in Slough and Crawley for Â£1.6 million and Â£5.5 million respectively, the latter just after the year end. A highlight of the year was the acquisition for Â£6.76 million satisfied in shares and cash of Grosvenor Land Holdings plc. This Company's portfolio consists of principally serviced business accommodation. As a corporate acquisition the purchase was at a good discount to full property asset value and as at the year end, benefiting from a further fall in investment yields, NAV amounted to Â£9.25 million. Since acquisition a retail property at Rushden has been sold for Â£1.3 million. Outside London and the M25 conurbation, demand in the South East has been strong. A 43,200 sq ft development of foodstore, fitness centre and children's nursery at Guildford was successfully completed and sold. In phase 1 of the small office development at the same site 8 out of 13 units have been sold. Construction on the second phase will commence in early 2005. Particularly strong interest from purchasers has been experienced at Tunbridge Wells where construction is well underway on the first two phases of Decimus Park, a 170,000 sq ft industrial park. Looking to the future, commitments have been made to several new developments in the region. During the year an income producing 4.2 acre industrial estate was purchased in Edmonton, North London for Â£5 million. Alternative planning uses including residential are being considered. Pinewoods, formerly occupied by Hewlett Packard, a 20 acre site south of Bracknell has been purchased with a view to the development in phases of up to 150,000 sq ft of offices. Since the year end the Group has completed the purchase of Davis House, Victoria, for Â£16.1 million. While planning permission exists for office and residential redevelopment, Terrace Hill's intention is to improve the existing consent to create a 130,000 sq ft mixed use scheme. Most recently, the Group has acquired a 17 acre site in Farnborough, adjoining the Farnborough Aerospace Centre, suitable for office and industrial development. The North East and Scotland Good progress has been made over the year in the North East Region, both in terms of disposing of mature assets and the start of development of new schemes. On the disposals front Westminster, a multi-let office development at the Teesdale Business Park was sold to private investors for Â£5.57 million, representing a record net initial yield for the Park of 6.7%. Also at Teesdale Business Park a 0.75 acre site was sold with the benefit of detailed planning consent for Â£1.5 million, representing a significant mark up on cost. At King Albert Chambers in Hull, work commenced on the refurbishment of the two ground floor retail units with one being pre let to Ethel Austin. Simultaneously the upper parts have been sold to a residential developer who is carrying out an 11 unit apartment scheme. After a long lead in period two significant developments commenced. At Baltic Business Quarter, a 50 acre site on the south bank of the Tyne at Gateshead, construction has started on the infrastructure for the first phase comprising approximately 16 acres. Pre sale agreements for new buildings for Gateshead College of Further Education 193,106 sq ft and One North East 60,000 sq ft are now in solicitors hands and a detailed planning application has also been submitted for a further three office buildings totalling 90,000 sq ft. At Middlehaven, Middlesbrough, construction has commenced on the first office building of the Manhattan Gate development which has planning consent for a total of 160,000 sq ft. This development is being carried out in Joint Venture and the first building of 30,700 sq ft. will be available for occupation in July 2005. In Newcastle City Centre planning consent has been obtained for an 83,000 sq ft. net seven storey office development on Gallowgate. This proposed development is a joint venture with the landowner, Whitehall upon Tyne Ltd. Two industrial investments in Blyth and Bishop Auckland have been acquired with a view to conversion to retail use. Planning applications have been submitted on both sites for a total of 170,500 sq ft. non-food retail space. Also, on an industrial site in Galashiels, a purchase agreement has been exchanged with completion conditional upon obtaining retail planning consent for 45,000 sq ft. The West Country and Wales The Group's 44,000 sq. ft. office development at 33 Colston Avenue, Bristol (in joint venture with Northridge Capital Ltd) once let, was sold at a better than expected sale price of Â£11.7 million to an institutional investor, reflecting a yield of 7%. Two new developments have started on site. In Bristol demolition is now complete and construction is due to start on Templar House, 90,000 sq ft of high quality office space located near to Temple Meads Station. This is Terrace Hill's fourth joint venture with Northridge Capital Ltd. The Group's first venture in Swansea has resulted, in conjunction with the Welsh Development Agency, in the commencement of construction of 40,000 sq ft of offices on Swansea Waterfront. At the date of this report, the Group now has a development programme approaching Â£600 million of which approaching Â£200 million is underway. A strength for the future is the increasing number of long-term projects notably Baltic Business Quarter, the Pinewoods purchase and Farnborough. The pipeline of future activity continues to grow as does the management team employed to run this expanding range of projects. The Residential Division Residential Property The Group commenced its residential property investment activity in mid 1999, acquiring portfolios of flats and houses at discounts to open market value from financial institutions and former Business Expansion Schemes in what was seen as a rising market. This investment activity peaked in the year ended 30 April 2002, the balance sheet at that date having showed residential property held worth some Â£75 million. While the overall market continued to rise, higher rental yields, and greater capital growth were achieved, in the North of England and Scotland than elsewhere, resulting in the portfolio becoming focused away from the South East. Achieving an improving portfolio by buying large holdings and retaining the desirable, and shifting the emphasis north, has involved a substantial turnover in five years of such activity. In the last two years, having expected a slowing in the market, particularly in England, the total number of units held, especially in Southern England and London has fallen as a result of sales. Although the number of units held has been substantially reduced in our last two financial periods, in a rising market the average value of units retained has continued to rise and the total amount invested in residential property has not declined proportionately to the number of units. During the year, the major residential property acquisition was a traditional block of 36 flats in a good quality residential area on the junction of Spath Road and Holme Road, West Didsbury, Manchester. This property, together with Sallyport House, Newcastle, now form the bulk of the English holdings. The Group also acquired 24 flats at Paisley near Glasgow Airport, in an exchange arrangement with at.home nationwide to whom were transferred 12 flats in Aberdeen and a number of units in London. Disposed of during the year under review were 163 units in England and Wales and 63 units in Scotland. The resultant portfolio is now heavily focused on Glasgow and West Central Scotland where values continue to rise. During the year the Group acquired a site adjoining Glasgow Green, in the east side of Glasgow, for the development of 60 new build flats, targeted at lower price levels than existing competition, together with the sympathetic reinstatement of a listed building to create four houses. A joint venture was formed with the long established Scottish Group, Lithgows Ltd, to maximise residential development value from a number of Lithgows' brickwork sites in central and western Scotland. These sites have the potential to deliver around 700 plots which can either be sold to other developers or developed by ourselves for further profit. From this joint venture the Group acquired an 11.1 acre Annandale Works site at Kilmarnock and has since extended its ownership to the adjoining Ellerslie Inn. The Group has also commenced a site assembly in North Lanarkshire. Corporate Finance The FSA Regulated Corporate Finance Subsidiary, Mercantile Securities (Scotland) Limited, which, as does the Residential Division, operates out of the Glasgow Office, acted for the Group in the acquisitions of Grosvenor Land Holdings PLC and of an increased stake in SERAH Properties PLC, and in the Group's buyback by tender of 1,410,022 Ordinary Shares in August 2004. Terrace Hill believes that having this capability enhances its ability to make corporate purchases on a cost effective basis and minimises the risk of abortive costs. Registrars Park Circus Registrars Limited, the company registrar subsidiary, also operates from Glasgow; currently it acts for 10 publicly traded companies and another 31 investment vehicles (see website www.pcregistrars.co.uk). It provides a cost effective service that represents good value compared to competitors. Triple Net Asset Value (unaudited) As indicated in the Chairman's Statement, to arrive at (unaudited) Triple Net Asset Value (TNAV), the following adjustments are made (1) Revaluation of current assets: properties (and rights to properties) held in work-in-progress have been revalued from cost (or if less realisable value) to market value. The valuation has been performed by relevant directors qualified as chartered surveyors based on external evidence and takes account of costs to complete and whether or not the property has been let and/or presold. (2) Taxation: the amount of taxation which would be payable were all of the Group's properties to be sold at the value used for the TNAV calculation has been deducted. This includes Deferred Tax which would be payable on sale of investment properties (as indicated in Note 8 to the Accounts) and additional taxation estimated to be payable on realisation of the uplift of trading properties to market value. (3) Finance: the adjustment required to revalue the group's financial assets and liabilities to current values is immaterial so no adjustment is required this year. No other adjustments are relevant to the Group's calculation. (4) Goodwill: goodwill, positive and negative, is excluded. The Table below shows the calculation in detail. Proforma Triple Net Asset Value per Share 31 October 2004 Â£ Shareholders' Funds (per Audited Consolidated Balance Sheet and after Minority Interests) 70,841,074 Revaluation to market value of property etc held in work-in-progress 17,737,168 Less: Minority Interests in Revaluation 1,224,853 Revaluation after Minority Interests 16,512,315 Deferred Tax (Note 8 to Accounts) (7,804,824) Estimated taxation on Revaluation (4,690,787) Goodwill (546,256) Proforma Triple Net Asset Value 74,311,522 Proforma Triple Net Asset Value per Share 39.99p D Ross Macdonald, Joint Managing Director Nigel J C Turnbull, Joint Managing Director GROUP PROFIT AND LOSS ACCOUNT for the 12 months ended 31 October 2004 12 months 18 months ended ended 31 October 31 October 2004 2003 Â£ Â£ TURNOVER Group: Continuing operations 24,601,571 39,646,355 Acquisitions 2,889,953 - ------------- ------------- 27,491,524 39,646,355 Share of joint venture 3,739 - ------------- ------------- 27,495,263 39,646,355 ------------- ------------- GROUP OPERATING PROFIT Continuing operations 4,340,552 3,295,314 Acquisitions 962,002 - ------------- ------------- 5,302,554 3,295,314 Share of joint venture operating loss (43,310) - ------------- ------------- 5,259,244 3,295,314 Gain on disposal of fixed asset investments 780 22,996 Amounts written off other investments (143,796) (201,507) Net gain on disposal of investment property 3,252,070 7,123,244 Permanent diminution in value of an (279,436) (300,000) investment property Gain/(loss) on liquidation of former 142,551 (4,321) subsidiary Interest receivable 545,821 490,103 Interest payable (4,693,433) (5,332,998) ------------- ------------- PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 4,083,801 5,092,831 Taxation credit/(charge) 3,000 (872,196) ------------- ------------- PROFIT ON ORDINARY ACTIVITIES AFTER TAX 4,086,801 4,220,635 Minority Interest (256,291) (150,123) ------------- ------------- PROFIT ATTRIBUTABLE TO MEMBERS OF PARENT 3,830,510 4,070,512 COMPANY Dividends (1,486,588) (624,487) ------------- ------------- TRANSFER TO RESERVES 2,343,922 3,446,025 ------------- ------------- Basic and diluted earnings per share 2.238p 3.033p ------------- ------------- GROUP BALANCE SHEET at 31 October 2004 31 October 31 October 2004 2003 As restated Â£ Â£ FIXED ASSETS Intangible assets Positive goodwill 2,467,835 2,583,058 Negative goodwill (1,921,579) (1,307,356) ------------- ------------- 546,256 1,275,702 Tangible assets 91,380,965 83,545,057 ------------- ------------- 91,927,221 84,820,759 Investments Joint venture-share of gross assets 4,032,545 - Joint venture-share of gross liabilities (3,939,620) - ------------- ------------- 92,925 - Investments in associates - 1,053,516 Other fixed asset investments 446,101 84,706 ------------- ------------- 539,026 1,138,222 ------------- ------------- 92,466,247 85,958,981 CURRENT ASSETS Work in progress 55,687,146 18,046,537 Debtors 14,626,625 7,297,480 Cash at bank and in hand 17,801,053 14,012,630 ------------- ------------- 88,114,824 39,356,647 CREDITORS:amounts falling due within one (64,222,764) (35,218,287) year ------------- ------------- NET CURRENT ASSETS 23,892,060 4,138,360 ------------- ------------- TOTAL ASSETS LESS CURRENT LIABILITIES 116,358,307 90,097,341 CREDITORS:amounts falling due after more (44,671,808) (42,986,307) than one year PROVISIONS FOR LIABILITIES AND CHARGES (121,618) (476,779) ------------- ------------- NET ASSETS 71,564,881 46,634,255 ------------- ------------- CAPITAL AND RESERVES Called up share capital 3,716,467 3,079,508 Shares to be issued - 192,551 Share premium account 19,368,539 11,822,703 Revaluation reserves - investment properties 21,474,093 13,396,853 Revaluation reserves - other 17,566 6,008 Capital redemption reserve 849,430 821,230 Merger reserve 8,115,384 8,227,582 Profit and loss account 17,299,595 8,985,565 ------------- ------------- EQUITY SHAREHOLDERS' FUNDS 70,841,074 46,532,000 MINORITY INTERESTS 723,807 102,255 ------------- ------------- 71,564,881 46,634,255 ------------- ------------- Approved by the Board D R Macdonald T G Walsh Director Director 25 January 2005 NOTES 1. The financial information set out in this announcement does not constitute the company's statutory financial statements for the periods ended 31 October 2003 and 31 October 2004. 2. The financial information is extracted from the financial statements of the group for the year ended 31 October 2004 which were approved by the board of directors on 25 January 2004. 3. The calculation of basic and diluted profit per ordinary share is based on the following: 12 months to 18 months to 31-Oct-04 31-Oct-03 Â£'000 Â£'000 Surplus 3,831 4,071 The weighted average number of ordinary shares in issue during the period: Basic 171,192,095 134,207,985 Dilutive potential ordinary shares arising from share option schemes - - 171,192,095 134,207,985 4. Copies of this announcement are available, free of charge, for a period of one month from Noble & Company Limited, 1 Frederick's Place, London, EC2R 8AB. Copies of the full financial statements will be posted to shareholders as soon as possible. Contacts: Ross Macdonald, Director, Terrace Hill Group PLC, 0141 332 2014 Alasdair Robinson, Noble & Company Limited, 0131 225 9677 Hugo de Salis, St Brides Media & Finance, 020 7242 4477 This information is provided by RNS The company news service from the London Stock Exchange AR

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