Final Results

Workspace Group PLC 23 June 2003 WORKSPACE REPORTS ROBUST PERFORMANCE Workspace Group PLC ('Workspace') today announces its preliminary results for the year ended 31 March 2003. Workspace provides approximately 5.5 million sq. ft of flexible business accommodation for over 3,600 small and medium size enterprises ('SMEs') in London and the South East. • Trading pre-tax profits up 9.1% to £12.5 million (2002: £11.5 million) • Pre-tax profits up 11.5% to £13.4 million (2002: £12.0 million) • Net asset value per share up 11.6% to £15.10 (31 March 2002: £13.53) • Trading earnings per share up 13.8% to 60.1p (2002: 52.8p) • Earnings per share up 16.1 % to 64.3p (2002: 55.4p) • Annual rent roll £35.9 million (31 March 2002: £29.6 million) • Average rents increased to £8.21 per sq. ft (31 March 2002: £7.20 per sq. ft) • Like for like occupancy levels remain stable at 88.7% • Turnover up 15.1% to £45.0 million (2002: £39.1 million) • Final dividend of 20.6p - Total dividend up 10.2% to 28.1p (2002: 25.5p) • Leading IPD performance continues Commenting on the results, Harry Platt, Chief Executive, said, ' This is another set of record results, making ten years of consistent performance. Our successful business model provides simple, flexible affordable space, a core need of the SME market. These results demonstrate again the resilience of the SME sector despite the wider adverse economic conditions. ' As the largest provider of space to SMEs in London and the South East, we understand the SME sector very well. Our customer base covers a diverse spectrum of activities, with a bias towards new creative and technical businesses, a very important part of London's economy. The potential of our market is significant. Of the 1.1 million businesses in the UK, which employ 1 to 25 people, 35% are based in London and the South East. ' We are committed to grow the scale of the business in London and the South East and to be the number one choice for any small business in this area. In the last year, we have acquired properties worth £60 million and we anticipate investing similar amounts in the current year. The Board is confident that Workspace will continue to deliver growth in earnings and asset values as the business develops. ' The overall business environment for some of our customers remains tough. However, these results demonstrate the robustness of Workspace's business. Growth in the forthcoming year will be achieved by continuing to work the assets hard and through targeted acquisitions.' -ends- Date: 23 June 2003 For further information: Workspace Group PLC City Profile Group Harry Platt, Chief Executive Simon Courtenay Mark Taylor, Finance Director 020-7448-3244 020-7247-7614 web: www.workspacegroup.co.uk High resolution images are available for the media to view and download free of charge from: www.vismedia.co.uk Chairman's Statement This is my first statement as Chairman of your company. Workspace is a robust, fascinating and successful company. It is a property based business, but the diversity and dynamism of its customer base, and the way it manages its customer relationships actively makes it very different to the typical property company. Meeting our customers is a very stimulating experience. I have seen enterprises of all shapes and sizes with an entrepreneurial spirit and adaptability that is often lacking in larger organisations. Amongst our customers are a number of world leading businesses in their sector with others operating at the leading edge of technology and creativity, as well as the more traditional service providers. Our location in London and the South East places us at the heart of a particularly dynamic region of business activity. The management team has done much over recent periods to improve understanding of the dynamics of this market and this is addressed further in the Operating Review that follows. From what I have seen, it is clear that the small and medium-sized enterprises (SME) sector is more robust than is often perceived. Workspace's intensive management systems enable it to meet its customers' space requirement needs in a simple straightforward and profitable manner. I am convinced that the Company's model is and will remain relevant in an increasingly competitive marketplace. Results Once again, Workspace has delivered another set of record results - the tenth set published since flotation in December 1993. Year-end rentals increased to £35.9m, an increase of 21.5% over the year. Like-for-like occupancy remained stable and, at the year end, was a healthy 88.7%. Profit before tax from trading operations was £12.5m, with earnings per share from trading operations 60.1p, increases of 9.1% and 13.8% respectively, although this latter increase was assisted to a degree by a lower tax charge for the year following settlement of computations for earlier periods. As part of the regular activity to maximise value, a number of properties were sold generating a profit before tax of £2.77m. Net profit before tax for the year was £13.4m, up 11.5% on the year. I am pleased to report that our focus on managed 'workspace' properties has continued to generate capital growth with net asset per share rising 157p or 11.6% to £15.10. This is despite some property valuations which have fallen during the year, particularly in the office sector. Against the Investment Property Databank (IPD) the standard industry benchmark covering all property - we have continued to perform well. This benchmark shows us in the top 20 percentile in the current year (a time when retail warehouse investments have seen particularly good performance) with top percentile performance when measured over a longer 3,5 or 9 years horizon. Finally, in terms of the results, I am pleased to report that on the key measure of total shareholder return (TSR) we have outperformed the FTSE Small Cap Index by a wide margin over the last five years. Dividend The Board recommends a final dividend payment of 20.6p making 28.1p for the year an increase of 10.2% over last year. The proposed dividend will be payable on 1st August 2003 to shareholders on the register on 4th July 2003. The Board also intends to rebalance the split of payment between the interim and final dividend in the coming year to a ratio of approximately 1:2. Strategy The Group's strategy has provided the right framework for another good set of results. The strategy is to invest in property that can provide good value small unit accommodation on flexible terms, where initial yields are attractive and there is scope for the Group to improve value using its systems and infrastructure thereby driving growth in earnings and asset values. Our small and medium enterprise customer base covers a remarkably wide spectrum of activities, from architects, artists, media services, sound engineers, IT companies and distributors to vehicle repairers and craftsman and small manufacturers. We have a bias towards new creative and technical activities that are regarded as critical to London's future. SMEs as a group are very resilient. While some individual businesses fail, collectively the process of continuous regeneration and responsiveness to adapt to changing markets has made SMEs robust in both times of economic buoyancy and economic difficulty. Our understanding of the SME sector has been aided by the collaborative work we have done with the highly respected Small Business School at Kingston University, some of which is described later. Our product meets a core need of the SME market - affordable (on average £8.21 per sq. ft), small unit (on average 1,200 sq ft) space without the potential millstone of a long lease. In addition, the flexibility of our product with the same space having the capability of providing the workspace for very different businesses, reduces the risk incumbent in more tightly defined properties. This product, delivered by proven systems and people, supported by a strong culture has made Workspace not only a valued supplier to our customers but a valued corporate partner with Government and non-government organisations, in turn aiding economic activity in both established and regenerating commercial areas. The Group also continues to develop a range of flexible services geared to meet our customers' needs. Securing long-term finance at the right price, underpins the Group's development strategy. The new arrangements put in place this year leaves the Group with secure bank finance of £300m (at an average margin over LIBOR of 0.94%). Although the implementation of these new arrangements gave rise to a non-cash charge to the profit and loss account of £1.86m in the year, the long-term benefits provide the capital base for our investment programme. People Let me thank Phil Rhodes who retired as Chairman in November 2002. Phil was appointed to the Board in 1992 as non-executive director and served as Chairman for 3 years from 1999. The excellent results speak for the valuable contribution Phil has made over ten years. He leaves with the Board's thanks and good wishes. I am pleased that the Board has been strengthened in June 2003 by the appointment of Bernard Cragg as a non-executive director. He will become Chairman of the Audit Committee in August. Finally, let me thank all our management and staff led by Harry Platt, be they working with and supporting our customers at our individual centres or at our head office, Magenta House, for their dedication in delivering an effective and efficient service in a very human way. Current Trading and Prospects Enquiries continue to be at good levels despite the current uncertainty in the wider environment. Occupancy remains stable at high levels and good progress is being made on our refurbishment programme which we anticipate will deliver further rental growth. We plan to make further acquisitions in the near future consolidating our position as the leading supplier of space to our small business customers. These are the foundations for continued growth in earnings and assets as your Company goes forward. Tony Hales Chairman 23 June 2003 Operating Review Continuing its strong pattern of growth the Group has once again exceeded the targets which it set for the year. This is a significant achievement given the background economic and international uncertainties that have clouded the year. This is the tenth report and accounts since the Group became a public company. It has demonstrated consistent and high-level growth throughout this time, showing an average annual return on equity of 30%. A summary of the Group's achievements over this period is given later in this review. Trading Review Again, this year, we are able to report improvements in rental levels, stable occupancy and growing asset values. This has been achieved despite a year of heightened uncertainty and general weakened economic confidence. The consistency of our results is due in part to the resilience, size and dynamics of our market and in part to our affordable, flexible product that is relevant to our customers' needs. The continued growth in rents from a stable occupancy base has been the principal driver in the increase of Trading Profit Before Tax of 9.1% from £11.46m to £12.51m. At a headline level, profits from the disposal of properties helped Profit Before Tax increase by 11.5% from £12.03m to £13.41m. At a time when Central London property markets are showing declines in values our evidence of disposals at above 31 March 2002 valuations demonstrates the robustness of our valuations and provides support for the current year-end valuation. Following this valuation and investments made during the year, the Group's investment property portfolio stood at a total of £505.5m, an increase of £90.8m over the year. The average value of the Group's property was £91 per sq. ft, with an immediate income yield on current rents passing of 7.31% and a yield at estimated current market rental values of 9.86%. We consider these to be robust and defendable values with continuing scope and opportunity for growth. Following the disposal of the Midlands portfolio in July 2001 we set out our plan in September that year to double the value of our portfolio over a five-year period through organic growth and reinvestment. After 18 months we have seen a 43% uplift and so we are on course to achieve this goal. We consider that this illustrates the solid and consistent base of the Group's business model. Benchmarking against IPD illustrates not only the Group's substantial outperformance of sector averages, but also the lower levels of volatility in its particular sector compared with commercial property more generally. This outperformance has been achieved consistently over a nine-year period. During the year we made acquisitions totalling £60.4m. With a total reversionary income of £7.02m, it is anticipated that the return from these properties will attain a yield of 10.5% over the next few years. Following this investment activity, the Group held at 31 March 2003 92 properties comprising 5.5m sq. ft with an average capital value of £91 per sq. ft and an average passing rental value of £8.21 per sq. ft. Of this portfolio nearly 49% (by area) is located within 5 miles of the London Eye and 80% within the M25. Our Business We have continued the investigative work undertaken in the past to develop and improve our understanding of our customers. In the past this has been based mainly on internal surveys and reviews. This year we have extended it to include an external perceptions survey, and, more significantly, a developing relationship with the Small Business Research Centre, at Kingston Business School, Kingston University. The School is one of the premier UK business school departments engaged in research into small and medium sized enterprises (SMEs). Key findings from its research and research by others of importance to our business include:- (i) the serial nature of SME ownership: past customers are often potential future customers; (ii) financial failure accounts for a small proportion of exits by owners: our historic track record of bad debts of no more than 0.25% of turnover mirrors this; (iii) business closure rates reduce as businesses mature: most of our customers have been in business for more than 3 years and are therefore more resilient (iv) SME finances have improved progressively over time: for example, cash deposits held by SMEs have increased from 1.22 to 4.00 times their overdraft borrowings over the period from 1992 to 2002, again showing the resilience of our customer base. Presentations on Kingston's and our own research were given to stock analysts and investors in January this year. This presentation may be viewed at the investor relations section of the Group's website (www.workspacegroup.co.uk). The Group's business model is simple. We focus on providing small unit accommodation for new and small businesses. There are 3.7m businesses in the UK, of which 1.1m employ between one and twenty five people. 35% of these are based in London and the South East, with over half of these in London itself. London alone accounts for 20% of business start-ups and closures in the UK each year and sees greatest growth in the higher 'value-added' activities. Therefore, the Group is focused on those areas where its target markets are most active. By a significant margin the Group is the largest provider of mixed accommodation to SMEs in London and the South East However, with just 3,640 customers at 31 March 2003 its market penetration is still very low. By focusing its activities in London and the South East the Group has increased brand awareness which has had a ratchet effect on tenant enquiries. With clusters of properties now held in key locations throughout London the Group is able to offer greater choice to its customers and is better able to support their changing requirements as their businesses develop. Our customer mix reflects the London economy with a significant representation in the service and media sectors, the areas that have seen greatest growth over recent periods. Our new customers are often people looking to move from a home environment to more formal business premises. Many of them will, in time, relocate within our portfolio as their need for space changes. Churn - the formation, expansion, reduction and closure of businesses - is a key characteristic of the SME market and source of opportunity to us. It provides us with new tenants, the opportunity to relocate others, each allowing us to review and increase rents. During the year under review we received 6,171 enquiries which yielded 819 new lettings. The principal generators of enquiries continued to be estate signboards and referrals from existing tenants. These enquiries are crucial to the Group's success: not only do they provide new lettings but they are also an indication of levels of activity within the SME sector and industry sub-sectors, enabling us to focus our offer effectively on emerging 'value-adding' businesses - those best able to pay improving rents. With its in-house management operations - lettings, estate management and credit control - the Group is attuned to the flexibility needed by the SME marketplace. This enables us to foster close contact with our customers, to monitor changes in the market and to maintain exacting standards. We try to work closely with our customers and to understand and be responsive to their needs. This is reflected in our flexible leasing approach and through a combination of entry and exit interviews and active centre management. In many respects, the Group's operations may be compared with those of an hotelier, from the pricing of our product, the focus on occupancy and actual achieved rates for rentals, to the 'front of house' management (easy-in-easy-out lettings and on-site management) and the provision of 'add-on' services. Our intensive management skills have been essential in a year of many challenges for our customers, during which we have been able to maintain like-for-like occupancy in the 87% to 90% range - a level which the Group regards as effective full occupancy. Low vacancy rates and continuing high levels of enquiries have aided the rental review programme and improved rents on re-lettings (approximately 40% of the Group's portfolio is subject to rental review or re-letting each year) with the result that rents have again increased strongly throughout the year. On a like-for-like basis, the increase over the year was 7.4% (2002: 9.0%) from £7.40 to £7.95 per sq. ft. The rolling rent review and lease renewal programme continued and in the year had an impact on 15.5% of the opening rent roll. The uplift achieved of £1.02m on reviews and renewals represents a 22.2% increase on previous passing levels. 10 Year Summary Since 1994 the portfolio (by area) has increased to 2.6 times its original level with the rent roll increasing to 4.45 times. NAV per share has increased by 369%. Shareholder funds have increased by 740%. These statistics show a consistent pattern of growth. Portfolio As part of its routine activity in portfolio development the Company has for many years monitored competing property and other potential acquisitions. At present this monitoring extends to 200 properties with a total value of approximately £500m located in London and the South East. Over half of our acquisitions this year are properties we have monitored in this way. During the year the Group secured eleven acquisitions and three disposals. Acquisitions Darin Court was acquired to complement Caxton Court, the Group's other holding in Milton Keynes. Darin Court, a courtyard development of brick-clad office/ industrial buildings, offers a slightly higher quality product compared with the profiled steel-clad space at Caxton Court nearby. Between them the Group now offers a wide range of accommodation for small businesses in Milton Keynes. Enterprise House is an existing business centre located close to the OXO Tower, between the Group's Great Guildford Street and Westminster Business Square properties in Southwark. On acquisition the property was partly occupied by IPC but offered the opportunity for extension of the business centre on termination of their lease. Refurbishment works for this are now in progress. The Stratford Office Village is a courtyard development of small office units in Stratford, East London. The property is well located at the anchor point linking the Lea Valley region and the East Thameside growth corridor, both identified in the Mayor's Plan for London as core areas for growth. Farnborough Business Centre is an estate of B1 (office over workshop) space located near to the site of the major airfield redevelopment in Farnborough. Canalot Studios is a business centre located in Ladbroke Grove close to the Group's existing Pall Mall, Grand Union, Ladbroke Hall and Westbourne Studios centres. Close to White City and the BBC, the Studios service mainly those in the creative arts and media sectors. It is a property that is well known to the Group having been monitored by us for many years. Charles House and Aladdin House are business centres in the Southall and Greenford districts of West London. They comprise small-unit estates established through the subdivision of former industrial buildings and service their respective local communities. The Seedbed Centre, Romford, is one of the original Seedbed centre developments. It is an established small unit industrial/trading estate. Disposals The Lea Road Trading Estate (Waltham Abbey) and an adjacent ownership at 33 Lea Road were sold. These properties showed little prospect of growth and provided little additionality to the Group's ownerships elsewhere. It was therefore resolved that they should be sold and the proceeds reinvested in locations with greater potential. Land holdings were also sold both at the Bridport Site at 3 Mills and at Brook Street, Redhill. The Bridport disposal was the successful completion of a lengthy process to obtain planning consent for residential accommodation on a small portion of unoccupied land at 3 Mills undertaken jointly with Copthorn Homes (part of Countryside Properties PLC). With consent, the value of the land improved from its book cost of £0.15m to a sale price of £2.55m. The sale is subject also to a profit sharing formula under which the Group will participate in returns in excess of a base level on the development of the site. The Brook Street site in Redhill was acquired to facilitate earlier plans for a development on the Group's nearby Hooley Lane site. The final residential scheme for Hooley Lane, which has now received planning consent subject to finalising a S106 agreement, does not include this land making it surplus to requirements. An adjacent property was acquired and the entire holding traded on immediately at a substantial £362,000 (93%) margin. Shortly before the year end an option was granted for £0.15m for the purchase of the Group's Payne Road Studios and 5 Payne Road properties. These properties were valued at a combined £1.6m at 31 March 2002, with a consideration receivable on exercise of the option of £2.10m. Valuation Following these acquisitions and disposals the total value of the Group's portfolio was £507.7m. As a short leasehold asset, the Alpha Business Centre is included in the accounts at cost (cost £1, value £0.3m). Further, property used for Group occupation (Magenta House, value £1.9m) is reported as a fixed asset. Adjusting for these the net value of the Group's portfolio for accounts purposes was £505.5m. The valuation was conducted by Insignia Richard Ellis in compliance with the Practice Statements contained in the Appraisal and Valuation Manual prepared by the Royal Institution of Chartered Surveyors on the basis of open market valuation as defined in Statement 4. For properties held throughout the year (comparing their value at 31 March 2002 plus additions and improvements at cost, with that at 31 March 2003) the uplift was £20.40m or 4.93%. Acquisitions during the year showed a shortfall on valuation of £0.70m mainly due to planned reduction in occupancy at Enterprise and Clerkenwell in anticipation of the refurbishment and re-letting of these properties Following the year end, the Chancellor announced the exemption from stamp duty of transfers of property in certain areas. 53% of the Group's properties (by value) fall in these areas. If one were to assume that the full benefit of the duty saving accrues to the owner of the property then this would enhance portfolio values by £10.6m. Inevitably, there will be some sharing of the benefit of this change in taxation. However, there will nevertheless be an increment to value that will be reflected in the September 2003 interim valuation. Again, the Group's performance exceeded the IPD (Investment Property Databank) March Universe 2003 benchmark. This year, funds holding retail warehouse investments showed very good performance so the Group's comparative performance was lower than previously but still significantly ahead of the IPD Universe. However, as may be seen from the table below, the ungeared performance of our portfolio, when compared with IPD returns, has been top percentile over all of 3, 5, and 9 year basis periods. One Three Five Nine Total Return (p.a.) Year Years Years Years Workspace Group 12.1% 16.9% 19.5% 17.9% IPD Universe 8.7% 8.4% 10.1% 10.2% Workspace Group Percentile 20 top top top Rank The Group has consistently outperformed the IPD index since this benchmarking was initiated. Improvements in valuation arise partly from market movements but also as a result of value-adding activity through acquisition, management and refurbishment/redevelopment. Comparison against indices such as these segregates simple market movement from our value-adding activity. With its top-ranking performance the Group has demonstrated its consistent ability to generate enhanced returns from its investments. Adding Value The Group's core activity is investment in, and the letting of, small-unit accommodation. As such, it is not a property development company but will, when appropriate, engage and work with partners in development activities to improve the quality of the assets it holds, and hence the return from these assets. Reference was made in last year's report to the Group's activities at Bridport, 3 Mills; Hooley Lane, Redhill; Thurston Road, Lewisham; Barley Mow Centre, Chiswick; and the Leathermarket, Southwark. As described earlier, the Bridport property has now been sold at a good surplus and we have also been advised of the planning authority's resolution to grant a consent at Redhill subject to finalising a S106 agreement. This will crystallise significant value for the site. Once vacant possession of the land has been obtained it will be disposed of to a residential developer. At Thurston Road, following a setback when the Mayor of London rejected our initial proposals due to insufficient development density, a residential element has been added to the original retail proposal which the planning authority had resolved to approve. This improved package is now back with the planning authority and progress is expected on this site in the current year. Projects for the refurbishment of the Barley Mow Centre and the extension of the Leathermarket are scheduled for the current year. Other 'value-adding' proposals include an application for a mixed-use scheme at the Group's Wharf Road property. The Board is keen to ensure that by taking these opportunities, where and when they present themselves, it does not erode the core business either by damaging rental flows and growth or by being identified as a property developer, rather than a provider of accommodation to SMEs. These projects will therefore steadily accrete value for the Group but will not change its focus. Services The Group has continued its services offering to its customers through the year. It regards these services as an adjunct to its core accommodation provision. While they provide a useful supplement to core earnings, their principal objective is to underpin core earnings by ensuring that the spectrum of accommodation and related services offered to customers encourages them to take the Group's space. At 31 March 2003 the Group supplied gas and electricity to customers at 1072 units and had 627 business insurance customers. Energy turnover totalled £1.34m and insurance commission £0.4m in the year. During the year the rollout of the Vylan network was completed providing broadband internet connectivity to 1800 units in 17 properties covering 1.71m sq. ft. The properties connected are the Group's principal business centre properties located in Inner London areas. At 31 March 2003 Vylan had 153 customers and over the year its sales penetration included 33% of new lettings to connected units. Whilst slower than anticipated, due to delays in completion of the optic fibre circuits by BT, customer take-up has been fair despite strong price competition from broadband service providers offering a more highly contended (and therefore lower quality) service. The Group has begun trials of the internet telephony offer that it proposes to make over the same network. Plans are in hand to widen the offering to customers through the current financial year. Once Vylan is able to offer a combined package, it is anticipated that sales penetration rates should increase further. Acquisitions and Disposals Acquisitions 2002/2003 Name of Property Description Purchase Initial Actual Market rent at Price Income £000 31/03/03 £000 £000 Darin Court, Milton Keynes Freehold 29,983 sq ft business centre 3,000.0 255.3 275.0 MK8 Stratford Office Village, 51,986 sq ft office park 8,800.0 666.0 886.0 London E15 Enterprise House, London SE1 68,674 sq. ft business centre and 16,025.0 1,196.0 1,756.9 office buildings Farnborough Business Centre, 24,268 sq. ft. industrial and office 3,800.0 327.1 365.6 Farnborough GU14 park Clerkenwell Workshops, London Acquisition of head leasehold interest 700.0 390.0 758.4 EC1R (freehold already owned) Alpine Way, Beckton, London E6 Purchase of building works under 2,337.0 350.0 350.0 funding agreement Brook Road, Redhill Land, adjacent to existing holding. 185.0 nil - Acquired to secure marriage value Canalot Studios, London NW10 51,945 sq ft. business centre (plus 10,800.0 890.4 1,065.9 purchase of adjacent land for deferred consideration of £1.5m) (centre only) Charles House, Southall 75,730 sq. ft business centre 5,250.0 507.2 603.7 UB2 Aladdin Business Centre, 46,033 sq. ft business centre 5,100.0 462.8 557.1 Greenford, Middlesex UB6 Seedbed Centre, Romford 31,620 sq. ft business centre 4,400.0 397.4 404.5 RM7 Total 60,397.0 5,442.2 7,023.1 Disposals 2002/2003 Name of Property Disposal Price Exit Annual Income £000 £000 Brook Road, Redhill 750.0 20.0 Lea Road Trading Estate and 33 Lea Road 2,350.0 191.4 Bridport Site, 3 Mills, Stratford 2,550.0 Nil Total 5,650.0 211.4 Financial Review Profits Trading profits before tax at £12.51m are 9.1% ahead of last year. In addition, profits on disposals yielded £2.77m (2002: £0.57m). Against this, a non-cash charge of £1.86m was incurred due to the write-off of financing costs. Further details of this charge are given later. Trading earnings per share increased by 7.3p (13.8%) to 60.1p. However, this improvement was assisted to a degree by the reduced effective tax rate as described below. Elimination of the prior year tax adjustment would result in a higher 29.5% tax rate which when applied to earnings would have resulted in trading earnings per share of 55p per share. The valuation surplus of £19.70m represents £1.23 per share, taking the net asset value at 31 March 2003 to £15.10 per share (2002: £13.53), an increase of 11.6%. This continues the unbroken pattern of growth delivered by the Group since its flotation in December 1993. 2002/2003 2001/2002 Compound annual growth 1998 - 2003 growth growth Improvement in Trading PBT 9.1% 21.1% 17.4% Improvement in Trading EPS 13.8% 19.7% 17.3% Improvement in dividends per share 10.2% 10.4% 10.6% Improvement in NAV 11.6% 15.3% 23.6% Overheads have reduced as a percentage of turnover from 15.3% to 14.6%. Net interest increased during the year by £4.17m. This increase was attributable to the acquisition and capital expenditure programme of £75m, together with the exceptional £1.86m refinancing charge offset to a degree by lower interest rates. Interest costs of £0.56m (2002: £0.24m) were capitalised during the year on properties in process of development. The Group considers that, with its careful focus on asset values underpinned by six-monthly independent valuations, its policy of capitalising interest presents no risk of overstatement of asset values. Taxation The effective rate of Corporation Tax in 2003 was 22.7% (2002: 25.5%). The effective rate excluding surpluses on property disposals was 22.5% (2002: 25.5%). The current year's charge was reduced by a prior year adjustment of £0.92m (2002: £0.13m) arising from the settlement of tax liabilities in previous years. Leaving aside disposals the tax rate next year should be of the order of 30%. Dividend A final dividend of 20.6p per share is proposed. The interim dividend was 7.5p per share, and so the total dividend proposed for the year is 28.1p (an increase of 10.2%). The dividends are covered 2.32 times (2002: 2.14 times ) by earnings (2.17 times (2002: 2.04 times) if based on trading income only). Internal performance measures Internal benchmark comparison shows: Performance measures 2003 2002 2001 2000 1999 Turnover per member of staff (£000) 314 294 272 277 277 Year-end investment in property per member of staff 3,261 2,984 2,581 2,340 2,268 (£000) Administration costs as a percentage of revenue 14.6% 15.3% 13.8% 14.5% 15.1% Total return on equity 15.0% 20.6% 40.7% 36.9% 36.3% Return on equity is computed by reference to pre-tax profits plus valuation surpluses/deficits divided by opening shareholders' funds (allowing for share capital increases during the year). Our target is to achieve a strong double digit return on equity year on year, and in due course (with expansion of the portfolio), to maintain administration costs as a percentage of revenue at below 12%. Return on equity was lower this year due to a lower than average, by comparison with previous periods, contribution from valuation surpluses. Clearly, as the equity base increases from value-adding in previous years the challenge to achieve high levels of return increases proportionately. Financing The Group replaced its £122m securitised facility with WestLB with a new loan facility with Bradford & Bingley of £200m with a maturity of 5 years at an interest rate margin of 0.94% over LIBOR. This refinancing completed the round of fundraising which was initiated immediately prior to the previous year end when the facility with National Westminster Bank was increased to £100m. The new funding arrangements provide the Group not only with the capacity to resource its current investment plans but also with a platform for expansion going forward. In particular, the refinancing with Bradford & Bingley provided the Group with immediate access to approximately £60m of additional investment capacity. It also attracted a lower interest charge than that likely to be payable under any replacement bond issue for the existing commercial paper arrangement. The refinancing obliged the non-cash write-off of £1.86m of financing costs expended and capitalised on establishment of the previous WestLB facilities. The benefits to the Group of accessing additional financing to enable its expansion, without recourse to shareholders for additional funds, together with the lower cost of funds compensated for this write-off. The Group also holds a £100m property loan facility and a £2.5m overdraft with National Westminster Bank at an interest margin of 0.95% over LIBOR and 1.1% over base respectively. At the year-end the Group's facilities and drawings thereon were: 2003 2003 2003 2002 Facility Amount Drawn % of Debt Drawn £m £m £m Debenture Stock 19.5 19.5 8% 19.5 Convertible Loan Stock 2.9 2.9 1% 2.9 WestLB Loan - - - 114.5 Bradford & Bingley Loan 200.0 160.0 66% - NatWest Property Loan 100.0 65.0 27% 44.5 NatWest Overdraft 2.5 - - 2.8 Deposits - (3.6) (2%) (5.8) ______ ______ ______ ______ 324.9 243.8 100% 178.4 ______ ______ ______ ______ The available resources of approximately £81m are equivalent to 13 months spend at the capital investment rate for 2002/03. Borrowings over recent years 2003 2002 2001 2000 1999 1998 % Fixed/hedged 75% 77% 89% 93% 93% 59% Average interest rate (year end) 5.8% 5.8% 7.0% 8.5% 8.9% 9.6% Interest cover 2.04 2.15 2.70 1.87 2.32 1.98 Trading Interest Cover 1.72 2.09 1.82 1.72 2.11 1.88 Year-end gearing % 98% 81% 83% 104% 63% 85% Year end gearing increased to 98% due to investment during the year, reduced to a degree by valuation surpluses. Both gearing and interest cover levels are within the levels historically set by the Board of 120% and 1.5 times. The Debenture and Convertible Loan Stock which attract an average 11.3% interest charge represent just 9% of total borrowings. The maturity of net debt at 31 March 2002 is shown below: - 2003 2002 2001 Maturity of net debt % % % Under 12 months - 1% - 1 - 5 years 99% 34% 23% 5 - 10 years 1% 65% 29% 10 years + - - 48% Total 100% 100% 100% In renewing its NatWest facility and replacing its WestLB facility with the Bradford & Bingley loan the Group has raised funds with five years maturity. With its continued and rapid growth the Group has found it necessary to refinance all of its facilities on a regular basis, with these facilities generally not being retained for more than three years before replacement. It is anticipated that these circumstances will remain. Under the structures now in place the Group can more readily extend and renew facilities to meet this growth. The average weighted life of its bank borrowings at 31 March 2003 was 4.2 years. At 31 March 2003 the average cost of floating rate funds was a margin of 0.94% over LIBOR or base rate (2002:1.00%). At 31 March 2003 the secured borrowings were covered 1.80 times by the value of charged property (with a further £67.4m uncharged giving an overall cover of 2.08 times). Balance Sheet and Cash Flow The Group's net current liabilities at 31 March 2003 were £17.88m (2002: £18.84m). Current liabilities include tenants' deposits in the form of advance rent payments and quarterly and monthly rents and service charge payments in advance amounting in aggregate to £10.4m (2002: £9.2m). The directors consider that in the normal course of business these liabilities are unlikely to require payment and properly form part of the working capital of the Group. Net cash inflow from operating activities at £29.1m (2002: £23.4m) improved, principally due to the contribution from the newly acquired properties together with increased profitability from existing properties. Consolidated Profit and Loss Account for the year ended 31 March 2003 2003 2002 Notes Trading Other Total Trading Other Total Operations Items £000 Operations Items £000 £000 £000 £000 £000 Turnover - continuing operations 2 44,965 - 44,965 39,083 - 39,083 Rent payable and direct costs 2 (12,944) - (12,944) (11,172) - (11,172) _______ _______ _______ _______ _______ _______ Gross Profit 32,021 - 32,021 27,911 - 27,911 Administrative expenses (6,554) - (6,554) (5,964) - (5,964) _______ _______ _______ _______ _______ _______ Operating profit 25,467 - 25,467 21,947 - 21,947 Surplus on disposal of investment 3 - 2,766 2,766 - 567 567 properties Interest receivable 4 173 - 173 333 - 333 Interest payable and similar charges 5 (13,132) (1,861) (14,993) (10,819) - (10,819) _______ _______ _______ _______ _______ _______ Profit on ordinary activities before 12,508 905 13,413 11,461 567 12,028 taxation Taxation on profit on ordinary activities 6 (2,812) (234) (3,046) (2,927) (141) (3,068) _______ _______ _______ _______ _______ _______ Profit on ordinary activities after 9,696 671 10,367 8,534 426 8,960 taxation Equity Minority Interests - - - - - - _______ _______ _______ _______ _______ _______ Profit for the Financial Year 9,696 671 10,367 8,534 426 8,960 Dividends 7 (4,471) - (4,471) (4,192) - (4,192) _______ _______ _______ _______ _______ _______ Retained profit for the year 5,225 671 5,896 4,342 426 4,768 _______ _______ _______ _______ _______ _______ Basic earnings per share 8 60.1p 4.2p 64.3p 52.8p 2.6p 55.4p Diluted earnings per share 8 58.8p 4.0p 62.8p 51.7p 2.5p 54.2p Statement of total recognised gains and 2003 2002 losses £000 £000 for the year ended 31 March 2003 Profit for the financial year 10,367 8,960 Unrealised surplus on revaluation of investment 19,701 26,863 properties Taxation on valuation surpluses realised on sale - (150) of properties _______ _______ Total recognised gains relating to the 30,068 35,673 financial year ====== ====== Note of historical cost profits and losses 2003 2002 for the year ended 31 March 2003 £000 £000 Reported profits on ordinary activities before taxation 13,413 12,028 Realisation of property revaluation gains/(losses) of previous years 15 5,014 Taxation on valuation surpluses realised on sale - (150) of properties _______ _______ Historical cost profit on ordinary activities before taxation 13,428 16,892 ====== ====== Historical cost profit for the year retained after taxation and dividends 5,911 9,632 ====== ====== BALANCE SHEETS As at 31 March 2003 Group Group Company Company 2003 2002 2003 2002 Notes £000 £000 £000 £000 Fixed assets Tangible assets Investment properties 9 505,490 414,707 13,535 12,810 Other fixed assets 3,866 3,540 197 233 Shares in subsidiary undertakings - - 24 24 Investment in own shares 10 6,234 1,015 6,234 1,015 _______ ______ _____ _____ 515,590 419,262 19,990 14,082 Current assets Stock: properties for sale - 150 - 150 Debtors 11 7,386 6,189 194,915 204,227 Investments 12 3,109 5,443 - - Cash at bank and in hand 456 340 - - _______ ______ _______ _______ 10,951 12,122 194,915 204,377 Creditors: amounts falling due within one year 13 (28,835) (30,964) (85,125) (54,011) _______ _______ _______ _______ Net current (liabilities)/assets (17,884) (18,842) 109,790 150,366 _______ _______ _______ _______ Total assets less current liabilities 497,706 400,420 129,780 164,448 Creditors: amounts falling due after more than one year (including Convertible Loan Stock) 14/15 (245,990) (175,730) (22,400) (66,457) Provision for liabilities and charges 16 (4,107) (3,365) (1,086) (1,252) _______ _______ _______ _______ 247,609 221,325 106,294 96,739 ====== ====== ====== ====== Capital and reserves Called up share capital 1,668 1,648 1,668 1,648 Share premium account 42,697 42,030 42,697 42,030 Revaluation reserve 164,274 144,588 1,115 355 Profit and loss account 38,970 33,059 60,814 52,706 _______ _______ _______ _______ Shareholders' funds - equity interests 247,609 221,325 106,294 96,739 Equity minority interests - - - - _______ _______ _______ _______ Capital employed 247,609 221,325 106,294 96,739 ====== ====== ====== ====== Net asset value per share 8 £15.10 £13.53 The financial statements were approved by the Board of Directors on 23 June 2003 H Platt R M Taylor Directors CASH FLOW STATEMENT for the year ended 31 March 2003 Notes 2003 2002 To Cashflow £000 £000 Net cash inflow from operating activities 1 29,112 23,429 Returns on investments and servicing of finance 2 (13,454) (11,261) Taxation (2,372) (5,564) Net Capital expenditure 2 (75,225) (23,278) Equity Dividends paid (4,227) (3,796) ______ ______ Net cash outflow before use of liquid resources and financing (66,166) (20,470) Management of liquid resources 2 2,334 (70) Financing 2 66,715 19,751 ______ ______ Net cash inflow/(outflow) 3 2,883 (789) ===== ===== Reconciliation of net cash flow to movement in net debt Increase/(Decrease) in cash 2,883 (789) (Decrease)/Increase in liquid resources (2,334) 70 Outflow from movements in debt financing (66,907) (18,201) ______ ______ Changes in net debt resulting from cash flows 3 (66,358) (18,920) Net debt at 1 April 2002 (176,067) (157,147) ______ ______ Net debt at 31 March 2003 (242,425) (176,067) ===== ===== Notes to the Cash Flow Statement for year ended 31 March 2003 2003 2002 £000 £000 1. Reconciliation of operating profit to operating cash flows Operating profit 25,467 21,947 Depreciation charges 742 554 Profit on sale of tangible fixed assets (3) - Decrease/(Increase) in debtors 1,339 (976) Increase in creditors 1,567 1,904 ______ ______ 29,112 23,429 ===== ===== 2. Analysis of cash flow: Notes 2003 2002 To cashflow £000 £000 Returns on investments and servicing of finance Interest received 191 347 Interest paid (including financing costs) (13,645) (11,608) ______ ______ Net cash outflow (13,454) (11,261) ===== ===== Capital expenditure Purchase of tangible fixed assets (73,192) (71,761) Net purchase of own shares (5,219) - Sale of tangible fixed assets 3,037 48,300 Grants Received 149 183 ______ ______ Net cash outflow (75,225) (23,278) ===== ===== Management of liquid resources Decrease/(Increase) in short term deposits 3 2,334 (70) ______ ______ Net Cash inflow/(outflow) 2,334 (70) ===== ===== Financing Issue of ordinary share capital 687 1,394 Drawdown of Bank Loans 3 180,500 23,000 Repayment of Convertible Loan Stock 3 - (1,140) Repayment of securitised loan 3 (114,472) (3,503) ______ ______ Net cash inflow 66,715 19,751 ===== ===== 3. Analysis of Net Debt At 1.4.02 Cash Flow At 31.3.03 At 1.4.01 Cash Flow At 31.3.02 £000 £000 £000 £000 £000 £000 Cash at bank and in hand 340 116 456 206 134 340 Bank Overdrafts (2,767) 2,767 - (1,844) (923) (2,767) _____ _____ _____ _____ _____ _____ (2,427) 2,883 456 (1,638) (789) (2,427) _____ _____ _____ _____ _____ _____ Debt due within one year: Securitised Loan (3,660) 3,660 - (2,798) (862) (3,660) Less Cost of raising finance 307 (307)* - 287 20* 307 Debt due after one year: 11% Convertible Loan Stock (2.900) - (2,900) (4,040) 1,140 (2,900) 11.125% First Mortgage Debenture (12,500) - (12,500) (12,500) - (12,500) 11.625% First Mortgage Debenture (7,000) - (7,000) (7,000) - (7,000) Securitised Loan (110,812) 110,812 - (115,177) 4,365 (110,812) Bank Loans (44,500) (180,500) (225,000) (21,500) (23,000) (44,500) Less Cost of raising finance 1,982 (572)* 1,410 1,846 136* 1,982 _____ _____ _____ _____ _____ _____ (179,083) (66,907) (245,990) (160,882) (18,201) (179,083) _____ _____ _____ _____ _____ _____ Short term deposits 5,443 (2,334) 3,109 5,373 70 5,443 _____ _____ _____ _____ _____ _____ Total (176,067) (66,358) (242,425) (157,147) (18,920) (176,067) ====== ===== ===== ===== ===== ===== * Includes non-cash write-downs of financing costs. Notes to the Financial Statements for the year ended 31 March 2003 1. Basis of Preparation The audited financial information contained in this preliminary announcement report does not comprise statutory accounts within the meaning of Section 240 of the Companies Act 1985. The figures in this preliminary announcement have been prepared under generally accepted accounting policies in the United Kingdom. The accounting policies adopted are those set out in the Annual Report and Accounts for the year ended 31 March 2002. 2. Segmental Analysis 2003 2002 Gross Gross Turnover Costs Profit Turnover Costs Profit £000 £000 £000 £000 £000 £000 Rental income 35,667 (934) 34,733 30,864 (628) 30,236 Service charges and other recoveries 7,410 (11,311) (3,901) 6,877 (10,211) (3,334) Services, fees, commissions and sundry income 1,888 (699) 1,189 1,342 (333) 1,009 _____ _____ _____ _____ _____ _____ 44,965 (12,944) 32,021 39,083 (11,172) 27,911 ====== ===== ===== ===== ===== ===== The Group operates a single business which is continuing and occurs wholly in the United Kingdom. 3. Surplus on Disposal of Investment Properties The profit arising on the sale of properties is calculated by reference to the book value at the date of sale. Book value comprises the valuation as at 31 March 2002 plus additions at cost since that date. Proceeds from the sale of investment properties totalled £5,679,000. Book value of these assets plus costs of sale totalled £2,913,000 yielding a surplus of £2,766,000. 4. Interest Receivable The following amounts were earned during the year: 2003 2002 £000 £000 Short term deposits 106 325 Other 67 8 ______ ______ 173 333 ====== ====== 5. Interest Payable and Similar Charges The following amounts were payable during the year: 2003 2002 £000 £000 11% Convertible Loan Stock 2011 361 361 11.125% First Mortgage Debenture Stock 2007 1,391 1,391 11.625% First Mortgage Debenture Stock 2007 814 814 Mortgage interest on securitised loan not wholly repayable within five years* 1,884 7,486 Bank and other interest on amounts wholly repayable within five years* 9,241 1,007 Finance costs written off 1,861 - ______ ______ 15,552 11,059 Interest capitalised on development properties (559) (240) ______ ______ Charged to profit and loss account 14,993 10,819 ====== ====== *Includes amortisation of cost of raising finance £343,100 (2002: £549,800) 6. Taxation 2003 2002 £000 £000 Current tax: UK corporation tax on profit for the year 3,225 2,956 Adjustment in respect of previous periods (921) (125) _______ _______ Total current tax 2,304 2,831 Deferred tax: Origination and reversal of timing differences 742 237 _______ _______ Taxation on profit on ordinary activities 3,046 3,068 ====== ====== Timing differences are mainly in respect of capital and industrial building allowances and capitalised interest. Of the total charge for the year £792,300 (2002: £141,000) related to exceptional items (arising from profits on property sales) as disclosed on the face of the Profit and Loss Account. The tax assessed for the period is lower than the standard rate of corporation tax in the UK. The differences are explained below: - 2003 2002 £000 £000 Profit on ordinary activities before taxation 13,413 12,028 _______ _______ Profit on ordinary activities at standard rate of corporation tax in the UK of 30% 4,024 3,608 (2002: 30%) Capital allowances in excess of depreciation (485) (510) Expenses not deductible for tax purposes 17 13 Interest capitalised (178) (72) Other timing differences (107) 20 Capital gains adjustments (46) (103) Adjustment in respect of previous periods (921) (125) _______ _______ 2,304 2,831 ====== ====== 7. Dividends 2003 2002 £000 £000 Interim dividend of 7.5p (2002 - 7.0p) per Ordinary Share 1,193 1,143 Proposed final dividend of 20.6p (2002 - 18.5p) per Ordinary Share 3,292 3,049 Over provision in prior year (14) - _______ _______ 4,471 4,192 ====== ====== The interim dividend was paid on 3 February 2003 and the proposed final dividend is payable on 1 August 2003 to shareholders on the register at the close of business on 4 July 2003. 8. Earnings Per Share and Net Assets Per share The following table shows a reconciliation of profit used in calculating earnings per share. Profit Earnings per share 2003 2002 2003 2002 £000 £000 pence pence Profit for the year attributable to shareholders 10,367 8,960 64.3 55.4 Other items (671) (426) (4.2) (2.6) _______ ______ ______ ______ Profit for the year attributable to shareholders used for calculating earnings per share excluding other items 9,696 8,534 60.1 52.8 ====== ====== ====== ====== Reconciliation of profit used in calculating diluted earnings per share Profit Earnings per share 2003 2002 2003 2002 £000 £000 pence pence Profit for the year attributable to shareholders used for calculating basic earnings per share 10,367 8,960 Interest saving net of taxation on 11% Convertible Loan Stock 223 253 Profit for the year attributable to shareholders used in calculating the underlying diluted earnings per share 10,590 9,213 62.8 54.2 Other items (671) (426) (4.0) (2.5) ______ ______ ______ ______ Profit for the year attributable to shareholders used in calculating the diluted earnings per share excluding other items 9,919 8,787 58.8 51.7 ====== ====== ====== ====== The following table shows a reconciliation of the weighted average number of shares used for calculating the basic and diluted earnings per share. 2003 2002 Used for calculating basic earnings per share 16,119,277 16,161,670 Dilution due to Share Option Scheme 158,075 263,166 Dilution due to Convertible Loan Stock 580,000 580,000 _______ _______ Used for calculating diluted earnings per share 16,857,352 17,004,836 ======= ======= Net assets per share have been calculated by dividing net assets of £247,609,000 (2002: £221,325,000) less investment in own shares of £6,233,500 by 15,982,233 (2002: 16,279,405) being the number of shares in issue at 31st March 2003 less investment in own shares of 695,842 (2002: 200,000). Other items in both years comprise profits on disposal of investment properties less (in 2003) previously capitalised finance charges written off on refinancing loans. 9(a) Investment Properties-Group Mainly Long Short Freehold Freehold Leasehold Leasehold Total £000 £000 £000 £000 £000 Balance at 1 April 2002 302,755 66,077 45,875 - 414,707 Additions during the year 64,840 1,028 7,812 - 73,680 Disposals during the year (2,598) - - - (2,598) Revaluation during the year 12,938 3,955 2,808 - 19,701 _______ _______ _______ _______ _______ Balance at 31 March 2003 377,935 71,060 56,495 - 505,490 ====== ====== ====== ====== ====== The historical cost of investment properties Balance at 1 April 2002 187,170 47,577 34,605 7 269,359 ====== ====== ====== ====== ====== Balance at 31 March 2003 249,443 48,605 42,417 7 340,472 ====== ====== ====== ====== ====== The directors are advised that the value of the properties at 31 March 2003 was not less than their book cost (see Note 9b). Additions during the year are stated net of £139,800 relating to grants receivable (2002 - £91,705) and include capitalised interest, gross of tax element, of £559,000. 9(b) Valuation The Group's investment properties were valued by Insignia Richard Ellis, Chartered Surveyors, at 31 March 2003 on the basis of open market existing use value and in accordance with the guidance notes issued by the Royal Institution of Chartered Surveyors. The valuation at that date amounted to 507,690,000 (2002 - £418,517,000). This included £300,000 (2002: £300,000) in respect of the Company's short leasehold interest (expiring 11 February 2011) in the Alpha Business Centre, Walthamstow. For accounts purposes, as the unexpired term of the leasehold interest in Alpha Business Centre is less than 20 years, the valuation of the property has been retained at a nominal £1. The adjustment from the valuation total to accounts total may be reconciled as follows: - 2003 2002 £000 £000 Total per valuation 507,690 418,517 Alpha (300) (300) 3 Mills Bridport (Trading Stock) - (1,740) Magenta House (Fixed Asset) (1,900) (1,770) _______ ______ Total per Accounts 505,490 414,707 ====== ===== 10. Investment in Own Shares The Company has established an Employee Share Ownership Trust (ESOT) to purchase shares in the market for distribution at a later date in accordance with the terms of the 1993 and 2000 Executive Share Option Schemes The shares are held by an independent trustee and the rights to dividend on the shares have been waived. During the year the Trust purchased 506,770 shares in the Company at a price of £10.30 per share and transferred 10,928 shares to employees on exercise of options. At 31 March 2003, the number of shares held by the Trust totalled 695,842 (2002: 200,000) with a nominal value of £69,584 (2002: £20,000) and the book value of the shares amounted to £6,233,500 (2003: £1,015,000). The shares, whilst legally not the property of the Company, have been included in fixed asset investments. At 31 March 2003 the market value of the shares held by the Trust was £6,923,628. 592,782 shares held by the trust are subject to option awards. 11. Debtors Group Company 2003 2002 2003 2002 £000 £000 pence pence Amounts falling due within one year: Trade debtors 6,294 4,214 - - Amounts owed by subsidiary undertakings - - 193,616 202,096 Taxation and social security 37 724 - - Corporation Tax - payment on account - - 1,299 2,131 Prepayments and accrued income 1,055 1,104 - - ______ ______ ______ ______ 7,386 6,042 194,915 204,227 ===== ===== ===== ===== Amounts falling due after one year: Advance Commissions - 147 - - ______ ______ ______ ______ Total Debtors 7,386 6,189 194,915 204,227 ===== ===== ===== ===== 12. Investments Investments of £3,109,000 (2002 - £5,443,000) comprise short-term deposits of £2,000,000 (2002: £4,596,000) with an original maturity date of less than three months and other deposits of £1,109,000 (2002: £847,000). 13. Creditors: Amounts falling due within one year Group Company 2003 2002 2003 2002 £000 £000 £000 £000 Secured mortgage borrowings - 3,353 - - Bank Loan and overdraft (secured) - 2,767 - - Trade creditors 3,026 2,462 - - Amounts owed to subsidiary undertakings - - 81,696 50,812 Corporation tax payable 1,925 1,993 - - Taxation and social security 1,946 909 - - Tenants' deposits 5,154 4,163 - - Accruals 8,231 7,203 137 150 Deferred income-rent and service charges 5,261 5,065 - - Dividends 3,292 3,049 3,292 3,049 ______ ______ ______ ______ 28,835 30,964 85,125 54,011 ===== ===== ===== ===== 14. Creditors: Amounts falling due after more than one year. Group Company 2003 2002 2003 2002 £000 £000 £000 £000 Long-term borrowings consist of: Unsecured: 11% Convertible Loan Stock 2011 2,900 2,900 2,900 2,900 Secured: 11.125% First Mortgage Debenture Stock 2007 12,500 12,500 12,500 12,500 11.625% First Mortgage Debenture Stock 2007 7,000 7,000 7,000 7,000 Other secured loans 223,590 156,683 - 44,057 ______ ______ ______ ______ 245,990 179,083 22,400 66,457 Less: amount falling due within one year - (3,353) - - ______ ______ ______ ______ 245,990 175,730 22,400 66,457 ===== ===== ===== ===== The secured loans are secured on properties with values totalling £440,275,000. Interest on the Debenture Stocks is payable on 31 March and 30 September each year. Interest on the 11% Convertible Unsecured Loan Stock 2011 is payable on 30 June and 31 December each year. Other secured loans include a loan of £160,000,000 carrying an interest rate of 0.94% over LIBOR and repayable in July 2007 and a loan totalling £65,000,000 carrying an interest rate margin of 0.95% over LIBOR repayable in March 2007. Workspace Holdings Ltd holds an interest rate collar on £110.6m which has a cap of 8% and a floor of 4.5% each until 15 July 2009. Workspace 2 Ltd holds an interest rate collar on £50m which has a cap of 7.5% and a floor of 4.55% each until April 2007. The 11% Convertible Unsecured Loan Stock 2011 holders have the option to convert in each year on the basis of one ordinary share for every £5 of stock held. Loans totalling £2,900,000 (2002: £116,726,600) have a maturity of five years or more. (See note 15). 15. Borrowings and Financial Instruments (i) Policies The Group finances its operations through a mixture of retained profits and borrowings. The Group borrows at both fixed and floating rates of interest and then uses interest rate swaps and caps to generate the desired interest and risk profile. Details of the interest rate collars held by the Group to manage interest rate exposures are given in Note 14. No premium payment was made for either of these collars. However, the £110.6m collar is financed by a 0.22% adjustment to the interest rate margin paid on the borrowings. The Group's policy is to fix or cap interest rates on at least 50% of its borrowings. At the year-end 9% (2002: 13%) of the Group's borrowings were fixed with a further 66% (2002: 64%) subject to a collar. During the year the Board reviewed the Group's policy with regard to maturity of its debt. It was recognised that over recent years its bank loan facilities, whilst of a longer term, invariably did not run for the full term. It was agreed therefore that on re-negotiating these facilities a shorter five year term was appropriate. It is anticipated that these facilities will be renewed during this term, increasing the facility amount and renewing the facility period. At 31 March 2003 weighted average life of the Group's bank loan facilities was 4.2 years and 99% of the Group's total debt had a maturity of 1 - 5 years. The Group has taken advantage of the exemption for disclosure of short-term debtor and creditor balances. (ii) Financial Assets All of the Group's financial assets are denominated in sterling. The interest rate profile at 31 March 2003 was: 2003 2002 £000 £000 Cash at bank and in hand (no interest) 456 340 Fixed rate short term deposits 2,000 4,596 Floating rate short term deposits 1,109 847 _______ ______ 3,565 5,783 ====== ====== iii. Financial Liabilities All of the Group's financial liabilities are denominated in sterling. The interest rate profile of the Group's financial liabilities at 31 March 2003 was: 2003 2002 £000 £000 Floating rate financial instruments 225,000 161,432 Fixed rate financial liabilities 22,400 22,400 _______ _______ 247,400 183,832 ====== ====== As noted above (note 14) the Group has the benefit of interest rate collars operating in respect of each of its principal bank loan facilities. For its fixed rate financial liabilities: Weighted average interest rate 11.3% Weighted average period fixed 4.5 years Floating rate financial liabilities comprise bank loans that bear interest at rates based upon 1, 3, 6 or 12 month LIBOR. The average margin on these borrowings at 31 March 2003 was 0.94%. (iv) Maturity of Financial Liabilities A maturity analysis of loans is shown below: Group Company 2003 2002 2003 2002 £000 £000 £000 £000 Less than one year - 6,120 - - Between one year and two years - 3,660 - - Between two years and three years - 3,670 - - Between three years and four years - 4,275 - - Between four years and five years 244,500 49,380 19.500 44,500 In five years and more 2,900 116,727 2,900 22,400 ______ ______ ______ ______ 247,400 183,832 22,400 66,900 Less cost of raising finance (1,410) (1,982) - (443) ______ ______ ______ ______ 245,990 181,850 22,400 66,457 ===== ===== ===== ===== Cost of raising finance is being amortised over 5 years (2002: £1,539,00 amortised over ten years and £443,000 over 5 years). (v) Borrowing Facilities At 31 March 2003 the Group had undrawn borrowing facilities of £42,200,000 which conditions precedent had been met (total undrawn facilities £77,500,000). Of the total undrawn facilities £2,500,000 had a maturity of less than 12 months with the remainder having a maturity of in excess of two years. (vi) Fair Value of Financial Assets and Liabilities Book and fair values of financial assets and liabilities are: 2003 2003 2002 2002 Book Value Fair Value Book Value Fair Value £000 £000 £000 £000 Primary Financial Instruments Short term liabilities - - (6,120) (6,120) Long term borrowing (245,990) (251,093) (175,730) (181,293) Financial Assets 3,565 3,565 5,783 5,783 Derivative Financial Instruments Interest Rate Swaps 244 (6,724) 283 (2,298) ______ ______ ______ ______ (242,181) (254,252) (175,784) (183,928) ===== ===== ===== ====== The fair value of the interest rate cap/collar swaps have been determined by reference to market prices and discounted expected cash flows at prevailing interest rates. All other fair values have been calculated by discounting expected cash flows at prevailing interest rates. The total fair value adjustment equates to 75.5 pence per share (59.3 pence based on diluted share capital). 16. Provision for Liabilities and Charges Group Company 2003 2002 2003 2002 £000 £000 £000 £000 Deferred Taxation: Balance at 1 April 2002 3,365 3,128 1,252 1,279 Deferred tax charge/(credit) for the year 742 237 (166) (27) Balance at 31 March 2003 4,107 3,365 1,086 1,252 The provision for deferred tax comprises: Accelerated capital allowances 3,677 3,218 806 1,067 Capitalised Interest 474 296 296 296 Other short term timing differences (44) (149) (16) (111) 4,107 3,365 1,086 1,252 If the investment properties were sold for their revalued amounts there would be a potential liability to corporation tax of £39,986,000 (2002: £37,597,000). In accordance with FRS 19 no provision has been made for these amounts. This information is provided by RNS The company news service from the London Stock Exchange

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