Half Yearly Report

RNS Number : 2998G

Terrace Hill Group PLC

05 June 2013

 



Terrace Hill Group PLC

("Terrace Hill" or the "Group" or the "Company")

HALF-YEAR RESULTS SHOW SIGNIFICANT OPERATIONAL AND FINANCIAL PROGRESS FOLLOWING TRANSFORMATIONAL PERIOD

Terrace Hill Group plc (AIM: THG), a leading UK property development and investment group, today announces its results for the six months ended 31 March 2013 (the "Period").

Highlights

Financial highlights:

·      EPRA Net Asset Value (NAV) per share increased by 3.0% to 29.2 pence (30 September 2012: 28.3 pence) while EPRA Triple NAV per share increased by 4.6% to 28.1 pence (30 September 2012: 26.8 pence).

·      Increase in revenue profit to £9.5 million⁽¹⁾ compared to £0.2 million in the six month period ended 31 March 2012 and £11.8 million for the full year to 30 September 2012.

·      IFRS profit before tax increased to £10.2 million compared to £1.8 million for the year ended 30 September 2012.

·      Significant progress on strategy of reducing the Group's level of debt and gearing, with:

·     net debt reduced by £36.8 million to £10.4 million during the Period; and

·     EPRA gearing at 16.8% at 31 March 2013, down from 78.2% at 30 September 2012 and 28.9% on a look-through basis compared with 142.1% at 30 September 2012.

Operational highlights:

·      919 units of the Group's and associate's residential assets sold for £70.8 million, including a £68.0 million portfolio sold to Places for People, largely completing the sale of the Group's residential portfolio.

·      Three new foodstores comprising 189,265 sq ft of aggregate floor area completed at Sunderland, Sedgefield and Skelton, all pre-let and forward funded for a total capital value of £64.6 million. Another four substantial foodstores are in the planning process as well as further opportunities in the pipeline.

·      Acquisition of the remaining 47 residential assets post Period-end from Terrace Hill Residential PLC, resulting in a release of £1.8 million of a previous £6.0 million provision. These assets are expected to be sold over the next 12 to 18 months.

·      Completion of £91.0 million forward funding agreement with Legal & General for the Group's 1,104-bed student accommodation scheme in Southampton with the development due for delivery in June 2014.

·      Plans well advanced to develop a £30.0 million leisure complex in Darlington town centre, which will include a nine-screen cinema, an 80-bedroom hotel and six restaurant units.

·      Completion of 135,000 sq ft office building with 25,300 sq ft of residential space at Howick Place in Victoria. Start on site at the 29,000 sq ft office and retail development at Conduit Place expected this summer.

·      Pre-sale and development agreement secured with Kondor to develop a 60,000 sq ft warehouse at the Group's Christchurch Business Park in Dorset.

(1) Profit before tax and valuation movements on investment and development properties and before contributions from our joint venture and associated undertakings.

Commenting, Robert Adair, Chairman of Terrace Hill, said: "The first half of the year has been transformational for Terrace Hill both in terms of significantly improving the Group's financial position and in the delivery of a very solid operational performance. In line with our previously stated strategy, we have almost entirely completed the sale of our residential assets, which not only had a major positive impact on our levels of gearing and debt, but also allowed us to focus almost solely on our development projects where we have also made very strong progress. This, coupled with the sales and forward funding agreements we have transacted, gives me great confidence for the future prospects of the Group and I believe we now have a very solid base from which to deliver sustainable growth for shareholders."

Philip Leech, Chief Executive of Terrace Hill, added: "We are now undoubtedly one of the market leaders of foodstore developments in the UK, with an impressive track record of completed schemes and a strong pipeline of sites in planning or under review. However, I am also pleased that we have been very active in other market sectors. We recently completed construction of a substantial central London office and residential development, with a further project in Mayfair due to start in the summer. In Southampton, we are on site building a major new student accommodation scheme, which we have already pre-let and forward sold, while in Darlington we expect to begin construction of a significant leisure complex later this year."

For further information, please visit www.terracehill.co.uk or contact:

Terrace Hill Group plc	[phone]
Robert Adair, Chairman
Philip Leech, Chief Executive Jon Austen, Group Finance Director
Oriel Securities Limited (Nominated Adviser and Broker)	[phone]
Gareth Price Mark Young
FTI Consulting	[phone]
Richard Sunderland
Stephanie Highett
Faye Walters	[e-mail]

Chairman's statement

It gives me great pleasure to announce our financial results for the six months ended 31 March 2013, during which time we have made significant progress both operationally and financially. We have sold the majority of the group's remaining residential assets, mostly in a single transaction for a total consideration of £68.0 million, which has led to a significant reduction in the overall level of debt and gearing. In addition good progress has been made with the foodstore development programme with the recent completion of three large supermarkets. We have also completed forward funding with Legal & General Property of our 1,104-unit student accommodation scheme in Southampton.

The group made a pre-tax revenue profit (which is profit before valuation movements and contributions from associates) in the six-month period of £9.5 million compared with a revenue profit of £11.8 million for the year ended 30 September 2012. The group's IFRS profit before tax of £10.2 million for the period is significantly ahead of the equivalent figure of £1.8 million for the year ended 30 September 2012. This strong performance results from the completion of the Sunderland foodstore transaction, the forward funding of the Southampton student accommodation scheme and good progress with other foodstore projects.

The group's EPRA Net Asset Value (NAV) has increased by 3.0% to 29.2 pence per share at 31 March 2013 (28.3 pence per share at 30 September 2012) and our EPRA Triple NAV has risen by 4.6% to 28.1 pence per share at 31 March 2013 (26.8 pence per share at 30 September 2012). The EPRA NAV includes adjustments to reflect the market value of the group's development properties where value is above cost and the EPRA Triple NAV makes an adjustment for goodwill.

As I predicted in my last statement which accompanied our 2012 annual results, we have continued to be very successful in reducing the level of debt within the group. Transactions during the period have enabled us to achieve a significant reduction in net debt in the period of £36.8 million. This has had the effect of substantially reducing our gearing as a percentage of our EPRA Net Assets to 16.8% at 31 March 2013 (78.2% at 30 September 2012) and on a look-through basis to 28.9% at 31 March 2013 compared with 142.1% at 30 September 2012.

Since the period end, the group has completed the purchase of the remaining £5.3 million residential assets from its associate, Terrace Hill Residential PLC, which enabled the group to negotiate a favourable settlement with its lender over the group's guarantee exposure. This settlement resulted in a release of £1.8 million of its previous £6.0 million provision, which has been reflected in these results. The group proposes to sell the remaining assets to owner occupiers and investors over the next 12 to 18 months.

Foodstore development continues to form an important part of the group's development programme and since our last reported results we have completed three new stores at Sunderland, Sedgefield and Skelton. These were all pre-let and forward funded for a total capital value of £64.6 million. We have another four substantial foodstores in the planning process and a large pipeline of new opportunities. We continue to experience good demand for the right sized store in the right locations despite some retailers declaring a slowdown in the expansion of large format stores and expect this sector to continue to provide strong growth for the group.

In January, we completed the forward funding of our student accommodation scheme in Southampton with Legal & General Property for £91.0 million. The development will comprise 1,104 units and has been pre-let in its entirety to Southampton University for a 38-year term and the scheme is due for completion by June 2014. This has proved to be a profitable venture for us and we are looking at further development opportunities in the thriving student housing sector.

Leisure is another sector where we are seeing strong occupier demand. In Darlington we are planning a town centre leisure complex which will include a nine-screen cinema, an 80-bedroom hotel and a number of restaurant units. We intend to submit a planning application shortly with a view to completing the scheme by the end of 2014. We are also working on a number of similar leisure development opportunities in other parts of the country.

Capital and rental values in central London continue to rise and we should benefit from this at our schemes at Howick Place in Victoria and Conduit Street in Mayfair. The construction of Howick Place has now completed and strong interest is being shown in the 135,000 sq ft of offices by occupiers. At Conduit Street we expect to make a start on site this summer and are already experiencing strong demand for the retail element of the 29,000 sq ft development. We continue to evaluate new opportunities in central London; however, it is a fiercely competitive market and challenging to find good value. We believe that interest will start to return to prime regional markets in which the group has always been strong and where we are alive to opportunities.

Finally, at our industrial development in Christchurch, Dorset we are developing a 60,000 sq ft turnkey distribution facility for Kondor. This is the second building we have developed for Kondor at the site and largely completes the Christchurch scheme.

Outlook

I am delighted that we have completed the sale of our interest in the majority of our residential assets and the consequent reduction in the group's level of gearing and debt. This, coupled with the very strong progress being made across a range of development projects and sectors, gives me great confidence for the future prospects of the group. The last period has been transformational in terms of the group's financial position, which provides us with a solid base from which to provide our shareholders with sustainable growth.

Robert F M Adair

Chairman

5 June 2013

Business review

Operations

Residential Investment

The period under review has been defined by the completion of the sale of the vast majority of our residential assets being all the wholly owned properties and most of those in our joint venture, Terrace Hill Residential PLC ("THR"). These sales comprised a total of 919 units for a sum of £70.8 million. The majority of the properties were sold in a single portfolio transaction to Places for People for £68.0 million, following on from last year's sale of another portfolio to Akelius for £75.35 million, leaving THR with just 52 units valued at £5.9 million. Since the end of the period under review, THR has sold a number of these units on the open market and the group has purchased the remainder of the properties for a consideration of £5.3 million which was determined by independent valuers. We intend to sell these remaining properties over the next 12 to 18 months to owner occupiers and investors. In completing these sales we have largely fulfilled our strategy of exiting the residential investment sector ahead of our anticipated schedule and at an aggregate loss of £0.7 million to book value. This has had a dramatic impact on our overall level of debt and net gearing, which are explained in more detail in the finance review below and it has also allowed us to completely refocus our business on our core strength of commercial development.

Foodstores

We are now undoubtedly one of the market leaders of foodstore developments in the UK, with an impressive track record of completed schemes and a strong pipeline of sites in planning or under review. Despite the public announcement by Tesco of the slowdown of their expansion of large format stores, we are finding that there remains good demand from all the main grocery retailers for the right sized store in the right location. There are still large geographical gaps in the portfolios of Sainsbury's, Asda, Morrisons and Waitrose who are dwarfed by Tesco, which still dominates the UK grocery market with about double the market share of its nearest rival, Asda. This is demonstrated by Sainsbury's revealing that around 22% of the UK population do not live within a 15-minute drive of a Sainsbury's store and that they have less than 5% market share in 35% of UK postcodes. It is also interesting to note that whilst online grocery sales are increasing, the rate of home deliveries is static and that therefore Click & Collect is becoming a significant feature of online grocery sales. This not only provides convenience for customers but is significantly cheaper for the grocers to fulfil as it eliminates delivery costs. In summary, it is therefore clear that "Clicks" require "Bricks" and that the growth of large format foodstores remains an important part of most food retailer's strategies.

Since the end of the period under review we have completed three new foodstores: two for Sainsbury's at Sunderland and Sedgefield and one for Asda at Skelton in Cleveland. These comprise an aggregate floor area of 189,265 sq ft and a total capital value of £64.6 million. These investments have all been sold by the group.

In Kent we expect our planning application for a 99,653 sq ft Sainsbury's at Herne Bay to go before the planning committee in the summer this year.  On Teesside we will be submitting a planning application in the middle of June for a 125,000 sq ft Sainsbury's store along with a public house for Marston's, a KFC and a coffee bar. Also at Midsomer Norton in Somerset and Prestwich in Greater Manchester we have ongoing discussions with occupiers with a view to submitting planning applications later in the year.

At St Austell in Cornwall our planning application for a 70,000 sq ft foodstore on a council-owned site was refused by the planning committee despite the planning officer's recommendation for approval. We are currently considering our options for appeal against this decision.

We are continuing to appraise a large number of new foodstore sites and are confident of securing new opportunities in the near future.

Central London offices/mixed use

Our investment in the development at Howick Place in Victoria completed during the period and the majority of the 25,300 sq ft of residential has now been let or sold. There is a good level of occupier interest in the 135,000 sq ft of office space and we are confident of securing lettings in the near future.

At Conduit Street, where we are acting as development managers on a 29,000 sq ft office and retail scheme, we expect a start on site during the summer with completion programmed for the end of 2014. Both office and retail rents continue to grow in Mayfair and there is an outstanding level of demand for well-let investments. We expect this development to perform above initial expectations.

Mayflower Halls, Southampton

In July 2012 we obtained detailed planning consent for a 1,104-bed student residential scheme on our site in the centre of Southampton and at the same time pre-let the development in its entirety to Southampton University. Since then we have entered into an agreement with Legal & General Property to forward fund and purchase the completed development for approximately £91.0 million. Construction is underway and completion is scheduled for June 2014. This successful and profitable scheme has led us to actively pursue new opportunities in the thriving student accommodation market.

Leisure Development, Darlington

We have entered into a conditional contract with Darlington Borough Council, the town centre site's landowners, to develop a leisure complex which will include a nine-screen cinema, an 80-bedroom hotel and six restaurant units. Terms have been agreed with Vue Cinemas and Whitbread and we intend to submit a planning application in mid-2013, with anticipated completion of the £30.0 million development towards the end of 2014. There is strong demand from occupiers in the leisure sector and we are evaluating a number of similar opportunities across the country.

Christchurch

A 60,000 sq ft industrial development is being carried out for Kondor on one of the last remaining plots of land at the site. The construction is being funded by Kondor which will also ultimately own the building. This follows an earlier development we carried out for Kondor and the very successful development and sale of 17 smaller industrial units at this site.

Finance

Financial results and Net Asset Value

The group's EPRA NAV increased by 3.0% to £62.0 million (29.2 pence per share) from £60.3 million (28.3 pence per share) at 30 September 2012 and our IFRS NAV also increased by 17.8% in the six-month period ended 31 March 2013 to £59.1 million (27.9 pence per share) from £50.2 million (23.7 pence per share) at 30 September 2012.

EPRA NAV is a key performance indicator for the group as it reflects the market value of our development properties and is therefore a better indicator of the true value of the group, whereas the IFRS NAV includes those properties at the lower of cost and net realisable value.

During the period, our EPRA NAV increased due to the following reasons:

·      1.1 pence per share increase from development profits less recurring overheads; and

·      0.9 pence per share increase resulting from the part release of our provision for financial guarantee for debts of associate,

and decreased for the following reasons:

·      0.5 pence per share decrease arising from the movement in value and sales of our residential investment properties; and

·      0.6 pence per share decrease in other movements including tax.

Statement of comprehensive income

Revenue for the six-month period ended 31 March 2013 includes:

(i)	recognition of revenue under foodstore construction contracts of £18.3 million in respect of our sites at Sunderland, Skelton and Sedgefield;
(ii)	recognition of revenue in respect of the student accommodation scheme at Southampton of £15.6 million;
(iii)	rental income of £1.6 million; and
(iv)	sales income of £3.6 million in respect of the sales of completed developments.

Rental income of £0.5 million and related costs of £0.8 million are included in revenue and direct costs in respect of the group's head office in London, where it owns a head lease.

Direct costs include directly attributable costs in respect of those revenue items mentioned above. Administrative expenses for the six-month period ended 31 March 2013 amounted to £2.5 million (2012 full year: £4.9 million).

The group incurred a loss of £1.1 million on the disposal of the majority of its wholly owned residential investment properties, £0.8 million of which was in respect of the write-off of the goodwill previously recognised in respect of the residential activities of the group. The group has now sold substantially all of its residential properties.

Following the sale by its associate Terrace Hill Residential PLC of substantially all of its assets, the group was able to negotiate a favourable position with regard to its bank guarantee exposure, leading to a reduction of £1.8 million in its provision such that the total amount provided at 31 March 2013 is now £4.2 million.

Finance income less finance costs amounted to £0.9 million (2012 full year: £1.5 million). The group paid £1.0 million of interest in the period of which £0.2 million was in respect of projects where work is currently underway and which has been capitalised. There are no abnormal items in the current period.

The group's tax charge for the period of £1.4 million (2012 full year: £0.1 million) reflects principally the deferred tax charge arising on the recognition of profit under IFRS on the Southampton site.

Balance sheet

The group's IFRS net assets at 31 March 2013 were £59.1 million, an increase of 17.8% on the amount reported at 30 September 2012 of £50.2 million. Investment properties fell from £15.2 million at 30 September 2012 to £0.4 million at 31 March 2013 due principally to the sale of substantially all of the group's wholly owned residential investment properties as mentioned above. Development properties fell from £70.3 million at 30 September 2012 to £57.4 million at 31 March 2013 principally due to the sale of the Southampton site as a consequence of the forward funding agreement with Legal & General Property. Trade and other receivables have increased by £2.6 million to £19.9 million at 31 March 2013 due principally to the inclusion in the results of the sales of the Southampton site and two foodstores (Skelton and Sedgefield) where under IFRS, profit is recognised ahead of the receipt of cash, the balance sheet reflecting amounts still owed under those contracts. Sunderland reached practical completion in the first half of 2013 and all related cash was received by 31 March 2013; however, amounts due in respect of Skelton and Sedgefield were received after the period end.

The group's gearing has improved considerably and net debt as a percentage of EPRA net assets was 16.8% at 31 March 2013 compared with 78.2% at 30 September 2012. The amount of net debt has also reduced substantially to £10.4 million at 31 March 2013 from £47.2 million at 30 September 2012. The group's look-through net gearing, which includes its share of the net debt in those joint ventures and associated undertakings in which it has ongoing liabilities, fell substantially from 142.1% at 30 September 2012 to 28.9% at 31 March 2013. The group's net debt, including its share of joint ventures and associated undertakings as above, also fell sharply, from £85.7 million at 30 September 2012 to £17.9 million at 31 March 2013.

Financial resources and capital management

The group funds itself through its equity capital, cash and debt facilities. As the group has not raised new equity capital for some time, the group focuses its attention on the management of its cash and debt position. The group is not subject to externally imposed capital requirements and meets its objectives for managing its capital by ensuring that it operates within the constraints imposed by the availability of cash and debt and by ensuring that it meets the various financial covenants that apply to its debt. The group regards its gearing ratios as key ratios for the purposes of managing its financial resources and the 24-month cash forecast as a key management tool. Comments on both these items are elsewhere in this review.

Our net debt reduced in the period by £36.8 million. This was largely due to the completion of a forward funding agreement on our Southampton site, the sale of substantially all of our wholly owned residential property and the completion of our Sunderland foodstore project with the receipt of all remaining proceeds all of which generated strong cash inflows for the group.

The group has £22.5 million of outstanding loan re-financings to complete in 2013, of which £4.7 million is credit approved for extension from 12 to 18 months and is awaiting documentation. We have opened discussions with the other relevant lenders and are confident that we shall negotiate new, extended maturities in the same way that we have done successfully in the past.

The average maturity of group debt is now 8.1 months with a weighted average margin of 3.3%, with the weighted maturity extending to 25.4 months if we take into account loans where the expected terms have been agreed but not yet documented. The average maturity of joint ventures and associated undertaking debt is now 8.1 months with a weighted average margin of 3.1%.

The group continues to monitor interest rates closely and continues to believe that the risk on the upside is limited. As a result, only 11.9% of group debt is hedged at an all-in rate of 3.75% until August 2015. 11% of joint venture debt was hedged at 1.15% and expired in April 2013.

The group held large cash balances at 31 March 2013 which are earmarked for further investment in our development projects and the running costs of the business. The group monitors its cash resources and future cash flows very closely through its comprehensive 24-month rolling cash forecast. The group regularly updates the cash forecast and stress tests the underlying assumptions to ensure that the group has sufficient resources to execute its strategy for the foreseeable future.

Since the period end, the group has agreed to purchase the remaining assets owned by its associate, Terrace Hill Residential PLC, at open market value of £5.3 million, financed through a new bank loan of £4.6 million and equity. The group agreed to do this to facilitate a negotiation with the lenders to Terrace Hill Residential PLC with whom the group had a guarantee exposure, which as reported above has led to a reduction in the provision made by the group of £1.8 million. The group's guarantee exposure of £4.2 million has also been financed by a new bank loan repayable over 15 months. The group is planning an orderly disposal of the residential assets and expects to have completed the sale of these assets over the next 12 to 18 months. On a pro-forma basis, the group's net gearing increases to 29.1% as a consequence of this transaction and decreases to 28.7% on a look-through basis.

Summary of debt position

	31 March	30 September
	2013	2012
Net debt	£10.4m	£47.2m
Net gearing	16.8%	78.2%
Net debt including share of joint venture and associated undertaking debt	£17.9m	£85.7m
Total net gearing	28.9%	142.1%
Loan to value	17.1%	49.2%

The net gearing and loan to value percentages shown above are in relation to our EPRA NAV. The majority of joint venture and associated undertaking debt is of limited recourse to the group.

Debt expiry profile

	On balance	Off balance
	sheet	sheet*
	£m	£m
Bank loans and overdraft repayable in one year	25.8	7.2
Bank loans repayable in more than one year	3.1	0.3
Total	28.9	7.5

*Group share

Calculation of EPRA NAV and EPRA Triple NAV (Unaudited)

		31 March 2013					30 September 2012
		£'000	Number of shares 000s	Pence per share		£'000		Number of  shares 000s	Pence per share
Net Asset Value		59,133	211,971	27.90		50,213		211,971	23.69
Revaluation of property held as current assets		2,896				10,026
Shares to be issued under LTIP		12	595			12		595
EPRA NAV		62,041	212,566	29.19		60,251		212,566	28.34
Increase %				3.0%
Goodwill		(2,365)				(3,188)
EPRA triple NAV		59,676	212,566	28.07		57,063		212,566	26.84
Increase %				4.6%

Philip Leech	Jon Austen
Chief executive	Group finance director
5 June 2013

Independent review report

to Terrace Hill Group plc

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2013 which comprises the unaudited consolidated statement of comprehensive income, the unaudited consolidated statement of changes in equity, the unaudited consolidated balance sheet, the unaudited consolidated cash flow statement and related explanatory notes.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The interim report, including the financial information contained therein, is the responsibility of and has been approved by the directors. The directors are responsible for preparing the interim report in accordance with the rules of the London Stock Exchange for companies trading securities on AIM which require that the half-yearly report be presented and prepared in a form consistent with that which will be adopted in the company's annual accounts having regard to the accounting standards applicable to such annual accounts.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Our report has been prepared in accordance with the terms of our engagement to assist the company in meeting the requirements of the rules of the London Stock Exchange for companies trading securities on AIM and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'', issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2013 is not prepared, in all material respects, in accordance with the rules of the London Stock Exchange for companies trading securities on AIM.

BDO LLP

Chartered Accountants and Registered Auditors

London

United Kingdom

5 June 2013

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

Unaudited consolidated statement of comprehensive income

for the six months ended 31 March 2013

	Notes	Unaudited six months to 31 March 2013 £'000	Audited year to 30 September 2012 £'000	Unaudited six months to 31 March 2012 £'000
Revenue		39,308	66,965	16,375
Direct costs		(26,340)	(52,150)	(12,827)
Gross profit		12,968	14,815	3,548
Administrative expenses		(2,528)	(4,747)	(2,928)
Goodwill impairment		(823)	(148)	(46)
Total administrative expenses		(3,351)	(4,895)	(2,974)
Loss on disposal of investment properties		(326)	(570)	(507)
Impairment of associated undertakings and joint ventures	5	-	(219)	(3,960)
Reversal of/(increase in) provision for financial guarantee for debts of associate		1,811	(5,094)	-
(Loss)/profit on revaluation of investment properties	4	(11)	(530)	129
Operating profit/(loss)		11,091	3,507	(3,764)
Finance income		161	261	160
Finance costs		(1,104)	(1,768)	(1,144)
Share of joint venture and associated undertakings post tax profit/(loss)	5	43	(200)	(3,615)
Profit/(loss) before tax		10,191	1,800	(8,363)
Tax		(1,360)	(58)	(869)
Profit/(loss) from continuing operations/total comprehensive income/(loss)		8,831	1,742	(9,232)
Attributable to:
Equity holders of the parent		8,831	1,742	(9,232)
		8,831	1,742	(9,232)
Basic earnings per share	2	4.19p	0.83p	(4.38)p
Diluted earnings per share	2	4.18p	0.82p	(4.38)p

Unaudited consolidated balance sheet

at 31 March 2013

	Notes	Unaudited 31 March 2013 £'000	Audited 30 September 2012  £'000	Unaudited 31 March 2012 £'000
Non-current assets
Investment properties	4	420	15,178	16,245
Property, plant and equipment		112	145	167
Investments in equity accounted associates and joint venture	5	1,000	1,000	1,000
Other investments	5	4,279	4,279	4,279
Intangible assets		2,365	3,188	3,290
Deferred tax assets		5,407	6,467	4,841
		13,583	30,257	29,822
Current assets
Development properties	6	57,389	70,284	72,805
Trade and other receivables	7	19,908	17,251	18,331
Cash and cash equivalents		18,494	5,999	1,424
		95,791	93,534	92,560
Total assets		109,374	123,791	122,382
Non-current liabilities
Bank loans	8	(3,141)	(12,466)	(41,331)
Other payables		-	-	(5,315)
Deferred tax liabilities		(1,151)	(851)	-
		(4,292)	(13,317)	(46,646)
Current liabilities
Trade and other payables		(12,981)	(10,537)	(18,199)
Other payables - guarantee		(4,200)	(6,011)	-
Current tax liabilities		(3,016)	(3,014)	(3,109)
Bank overdrafts and loans	8	(25,752)	(40,699)	(14,963)
		(45,949)	(60,261)	(36,271)
Total liabilities		(50,241)	(73,578)	(82,917)
Net assets		59,133	50,213	39,465
Equity
Called up share capital		4,240	4,240	4,240
Share premium account		18,208	18,208	43,208
Own shares		(609)	(609)	(609)
Capital redemption reserve		849	849	849
Merger reserve		7,088	7,088	7,088
Retained earnings		29,357	20,437	(15,311)
Total equity		59,133	50,213	39,465

Unaudited consolidated statement of changes in equity

for the six months ended 31 March 2013

	Share capital £'000	Share premium £'000	Own shares £'000	Capital redemption reserve £'000	Merger reserve £'000	Retained earnings £'000	Total £'000
Balance at 1 October 2011	4,240	43,208	(609)	849	7,088	(6,642)	48,134
Total comprehensive profit for the period	-	-	-	-	-	1,742	1,742
Share-based payment	-	-	-	-	-	337	337
Capital reduction	-	(25,000)	-	-	-	25,000	-
Balance at 30 September 2012	4,240	18,208	(609)	849	7,088	20,437	50,213
Total comprehensive profit for the period	-	-	-	-	-	8,831	8,831
Share-based payment	-	-	-	-	-	89	89
Balance at 31 March 2013	4,240	18,208	(609)	849	7,088	29,357	59,133

Unaudited consolidated cash flow statement

for the six months ended 31 March 2013

	Unaudited six months to 31 March 2013 £'000	Audited year to 30 September 2012 £'000	Unaudited six months to 31 March 2012  £'000
Cash flows from operating activities
Profit/(loss) before taxation	10,191	1,800	(8,363)
Adjustments for:
Finance income	(161)	(261)	(160)
Finance costs	1,104	1,768	1,144
Share of joint venture and associated undertakings post tax (profit)/loss	(43)	200	3,615
(Reversal of)/increase in provision for financial guarantee for debts of associate	(1,811)	5,094	-
Depreciation charge	24	59	31
Impairment charge	823	148	46
Loss/(profit) on revaluation of investment properties	11	530	(129)
Impairment of associated undertakings and joint ventures	-	219	3,960
Loss on disposal of investment properties	326	570	507
Share-based payment charge	89	337	563
Cash flows from operating activities before change in working capital	10,553	10,464	1,214
Decrease in property inventories	13,157	3,289	369
Increase in trade and other receivables	(2,657)	(7,334)	(11,171)
Increase/(decrease) in trade and other payables	2,444	(3,475)	3,985
Cash generated/(absorbed) by operations	23,497	2,944	(5,603)
Finance costs paid	(997)	(4,380)	(2,857)
Finance income received	161	261	160
Tax paid	-	(59)	-
Net cash flows from operating activities	22,661	(1,234)	(8,300)
Investing activities
Sale of investment property and tangible fixed assets	14,484	5,115	4,769
Purchase of tangible fixed assets	(7)	(28)	(21)
Net cash flows from investing activities	14,477	5,087	4,748
Financing activities
Borrowings drawn down	-	10,426	3,208
Borrowings repaid	(24,643)	(19,824)	(11,575)
Net cash flows from financing activities	(24,643)	(9,398)	(8,367)
Net increase/(decrease) in cash and cash equivalents	12,495	(5,545)	(11,919)
Cash and cash equivalents at 1 October 2012	5,998	11,543	11,543
Cash and cash equivalents at 31 March 2013	18,493	5,998	(376)
Cash at bank and in hand at 31 March 2013	18,494	5,999	1,424
Bank overdraft at 31 March 2013	(1)	(1)	(1,800)
Cash and cash equivalents at 31 March 2013	18,493	5,998	(376)

Notes to the half-yearly financial statements

for the six months ended 31 March 2013

1 Accounting policies

Basis of preparation

The financial information in this half-yearly report does not constitute the full statutory annual accounts within the meaning of Section 434(3) of the Companies Act 2006 and is unaudited.

The statutory annual accounts of Terrace Hill Group plc for the year ended 30 September 2012 have been reported on by the company's auditors and have been delivered to the Registrar of Companies. The independent auditors' report on the annual accounts for 2012 was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under Section 498(2) or 498(3) of the Companies Act 2006.

The half-yearly report has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRS) as endorsed by the European Union.

The same accounting policies, presentation and method of computation are followed in these financial statements as were applied in the group's latest annual audited financial statements and using accounting policies that are expected to be applied for the financial year ending 30 September 2013. Although there are a number of IFRS and IFRIC amendments or interpretations issued since the 2012 annual accounts were published, none are expected to have a material impact on the group's reporting.

Going concern

The directors are required to make an assessment of the group's ability to continue to trade as a going concern. The directors have given this matter due consideration and have concluded that it is appropriate to prepare the interim financial information on a going concern basis.

The group maintains a rolling 24-month cash forecast that takes account of all known inflows and outflows. The cash flow includes estimates of a number of key variables including the assumed dates and amounts relating to property disposals and amounts that may be required to reduce indebtedness as a consequence of falling property values and re-financing. The cash flow is regularly stress tested to ensure that the group can withstand reasonable changes in circumstances that could adversely affect its cash flow. The key potential changes that the group has considered include: (i) the possible falls in value of the portfolio which could result in margin calls; (ii) increased funding costs if future loan to value covenants were breached; (iii) reduced debt facility levels on renewed facilities; and (iv) possible delays in the timing and reductions in proceeds from sales. The group has £22.5 million of outstanding loan re-financings to complete in 2013, of which £4.7m is credit approved for extension from 12 to 18 months and is awaiting documentation. We have opened discussions with the other relevant lenders and are confident that we shall negotiate new, extended maturities in the same way that we have done successfully in the past. After considering the potential cash flow sensitivities the directors believe that the group has sufficient resources to continue trading for the foreseeable future.

2 Earnings per ordinary share

The calculation of basic earnings per ordinary share is based on a profit of £8,831,000 (30 September 2012: £1,742,000 and 31 March 2012: loss of £9,232,000) and on 210,951,299 ordinary shares, being the weighted average number of shares in issue during the period (30 September 2012 and 31 March 2012: 210,951,299).

The calculation of diluted earnings per share for 31 March 2013 is based on a profit of £8,831,000 (30 September 2012: £1,742,000) and on 211,426,546 (30 September 2012: 211,426,546) ordinary shares, being the weighted average number of shares in issue during the period adjusted to allow for the issue of ordinary shares in connection with a share award. For 31 March 2012 the calculation of diluted earnings per ordinary share is the same as that for basic earnings per share because of the loss in both periods.

3 Analysis of divisions

The group operates in two principal divisions, being commercial property development and residential property investment. The group does not operate outside the UK.

	Residential March 2013 £'000	Commercial March 2013 £'000	Unallocated items March 2013 £'000	Total March 2013 £'000	Residential September 2012 £'000	Commercial September 2012 £'000	Unallocated items September 2012 £'000	Total September 2012 £'000
Balance sheet
Investment properties	420	-	-	420	12,928	2,250	-	15,178
Property, plant and equipment	-	-	112	112	-	17	128	145
Investments - associates and joint ventures	-	1,000	-	1,000	-	1,000	-	1,000
Other investments	-	4,279	-	4,279	-	4,279	-	4,279
Intangible assets	-	2,365	-	2,365	823	2,365	-	3,188
Deferred tax assets	-	-	5,407	5,407	-	-	6,467	6,467
	420	7,644	5,519	13,583	13,751	9,911	6,595	30,257
Development properties	-	57,389	-	57,389	-	70,284	-	70,284
Trade and other receivables	61	19,847	-	19,908	231	17,020	-	17,251
Cash	482	18,012	-	18,494	493	5,506	-	5,999
	543	95,248	-	95,791	724	92,810	-	93,534
Borrowings	-	(28,893)	-	(28,893)	(9,987)	(43,178)	-	(53,165)
Trade and other payables	(4,432)	(12,749)	-	(17,181)	(6,515)	(10,033)	-	(16,548)
Current tax	-	-	(3,016)	(3,016)	-	-	(3,014)	(3,014)
Deferred tax liabilities	-	-	(1,151)	(1,151)	-	-	(851)	(851)
	(4,432)	(41,642)	(4,167)	(50,241)	(16,502)	(53,211)	(3,865)	(73,578)
Net assets	(3,469)	61,250	1,352	59,133	(2,027)	49,510	2,730	50,213

4 Investment properties

	£'000
Valuation
At 1 October 2011	21,393
Disposals	(5,685)
Loss on revaluation	(530)
At 30 September 2012	15,178
Disposals	(14,747)
Loss on revaluation	(11)
At 31 March 2013	420

The group's residential investment properties including the residential investment properties held in Terrace Hill Residential PLC were valued on the basis of Market Value by Allsop LLP ("Allsop"), external valuers, as at 31 March 2013 in accordance with the Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors and have been primarily derived using comparable recent market transactions on arm's-length terms. The total fees, including the fees for this assignment, earned by Allsop from the group are less than 5.0% of the total UK revenues of Allsop. The principal signatories of the Allsop valuation reports have continuously been the signatories of valuations for the same addressee and valuation purpose as this report since 2010. Allsop have continuously been carrying out valuation instructions for the group for the same period. Allsop have carried out Valuation, Agency and Professional services on behalf of the group for in excess of three years.

5 Investments

Associates and joint ventures

	Associates £'000	Joint venture £'000	Total £'000
Cost or valuation
At 1 October 2011	1,000	419	1,419
Share of results	-	(200)	(200)
Impairment	-	(219)	(219)
At 30 September 2012	1,000	-	1,000
Share of results	-	43	43
Losses for period applied against receivables forming part of net investment	-	(43)	(43)
At 31 March 2013	1,000	-	1,000

Other investments

	31 March 2013 £'000	30 September 2012 £'000	31 March 2012 £'000
Other investments	4,279	4,279	4,279

Included in other investments is a balance due from Howick Place JV S.a.r.l. totalling £4,273,000 (30 September 2012 and 31 March 2012: £4,273,000) that has a final maturity date of 31 December 2014.

6 Development properties

	£'000
At 1 October 2011	72,961
Additions	28,807
Disposals	(30,919)
Amounts written back on the value of development properties	4,410
Amounts written off the value of development properties	(4,975)
At 30 September 2012	70,284
Additions	25,880
Disposals	(38,591)
Amounts written back on the value of development properties	-
Amounts written off the value of development properties	(184)
At 31 March 2013	57,389

No amounts are held in development properties in respect of construction contracts and retentions on such contracts are £Nil.

7 Trade and other receivables

	31 March 2013 £'000	30 September 2012 £'000	31 March 2012 £'000
Trade receivables	2,738	2,507	5,192
Other receivables	2,268	2,216	1,750
Trade and other receivables	5,006	4,723	6,942
Amounts recoverable under construction contracts	9,558	7,558	-
Prepayments and accrued income	5,344	4,970	11,389
Amounts due from associates and joint ventures	28,717	28,605	28,423
Provision for amounts due from associates and joint ventures	(28,717)	(28,605)	(28,423)
	19,908	17,251	18,331

The movement in the allowance for impairment in respect of amounts due from associates and joint ventures during the period was as follows:

	2013 £'000
At 1 October 2012	28,605
Increase in allowance on amounts due from associates and joint ventures	112
At 31 March 2013	28,717

The allowance is based on the directors' assessment of recoverability of amounts due from associates and joint ventures.

Amounts recoverable under construction contracts

	31 March 2013 £'000	30 September 2012 £'000	31 March 2012 £'000
Contract costs incurred plus recognised profits less recognised losses to date	32,178	44,979	-
Less: Progress billings	(22,620)	(34,421)	-
Contracts in progress at balance sheet date	9,558	7,558	-

8 Bank overdrafts and loans

	31 March 2013 £'000	30 September 2012 £'000	31 March 2012 £'000
Bank loans	29,021	53,624	54,720
Bank overdrafts	1	1	1,800
	29,022	53,625	56,520
Unamortised loan issue costs	(130)	(460)	(226)
	28,893	53,165	56,294
Amounts due:
Within one year	25,752	40,699	14,963
After more than one year	3,141	12,466	41,331
	28,893	53,165	56,294

9 Post balance sheet events

On 22 May 2013, the group acquired 47 units at an open market value of £5.3 million from its associate Terrace Hill Residential PLC. The purchase was funded by a bank loan of £4.6 million and cash from the Groups own resources.

The group had previously given a guarantee of £15.0 million as part of the security arrangements for the bank facilities of Terrace Hill Residential PLC, one of its associated undertakings. In the March 2013 results the group has included within payables an amount of £4,200,000 (30 September 2012: £6,011,000), being its share of the agreed liability to the bank.

Half-yearly report

The half-yearly report is available, free of charge, from the company secretary, Terrace Hill Group PLC, 1 Portland Place, London W1B 1PN.

 

END

 

 

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