Interim Results - Pre-tax Profit Up 15%

Workspace Group PLC 16 November 1999 WORKSPACE GROUP PLC - INTERIM RESULTS TO 30 SEPTEMBER 1999 WORKSPACE GROWTH BOOSTED BY LONDON ACQUISITION Workspace Group PLC ('Workspace'), today announces its interim results for the six months to 30 September 1999. Workspace provides 5.7 million sq. ft of flexible accommodation to over 3000 small and medium size enterprises ('SMEs') in London, the South East and the Midlands. * Pre-tax profits up 15% to £3.6 million (1998: £3.1 million) (- excludes profits arising from sale of properties and exceptional costs) * Net Asset Value per share increased 12% to £7.65 (31 March 1999: £6.83) * Earnings per share up 12.6% to 16.0p (1998: 14.2p) (-excludes property sales and exceptional costs) * Turnover increased by 16.8% to £12.8 million (1998: £10.9 million) * Annual rent roll up 45% to £25.1 million including acquisition portfolio (31 March 1999: £17.4 million) Rent roll of Core Portfolio up 3.4% * Acquisition of £74.7 million Tonex portfolio completed (with £6.5 million deferred) * Union Street, SE1 Development, pre-let to Sainsbury at £2 million per annum * Interim Dividend increased by 9% to 6.0p (1998: 5.5p) Commenting on the results, Harry Platt, Chief Executive said, 'The Group has made good progress during the half year. Demand for Workspace style property remains strong. The £81m Tonex portfolio acquisition has consolidated our position as the leading provider of business space for SMEs in London. This 2 million sq. ft portfolio is now bedding down well. New enquiries for space remain strong and we are achieving good rental growth at many of our estates'. 'The Sainsbury preletting in Southwark, demonstrates the alternative use potential of some of our properties. The building was earmarked for development as a business centre for SMEs. However, it offered better returns let to a single occupier. The deal significantly enhances the value of the building'. 'In September Alan Porter, the Chairman of the Board retired and was succeeded by Phillip Rhodes. Workspace is indebted to Alan for his contribution in its founding and development to its present size'. 'We continue to look closely at acquisition opportunities where we can 'add value' with our style of management. Our portfolio is located in regions with excellent prospects for further growth. The alternative use potential of many of our properties underpins the capital growth of our assets. We remain confident about our prospects'. Date: 16 November 1999 For further information contact: Harry Platt, Chief Executive Workspace Group PLC 020-7247-7614 Mark Taylor, Finance Director Workspace Group PLC 020-7247-7614 Jonathan Gillen City Profile Group 020-7726-8588 Simon Courtenay City Profile Group 020-7726-8588 Operating and Financial Review Review of Activities During the second quarter the Group secured two major transactions:- - On 23 July the Group completed its purchase from Tonex of a portfolio of 23 estates, primarily in London, for £74.7 million (with a further £6.5 million which is deferred to January 2001). This together with the repayment of £40 million existing debts was financed through a new £122 million loan arranged by WestLB. - On 14 September the Group concluded the pre-letting of its property at Union Street, Southwark, to J. Sainsbury for an annual rental of £2 million. Including new acquisitions, and major refurbishment/development schemes, the total rent roll has increased from £17.36 million to £25.11 million during the half year. Occupancy of the core portfolio, excluding development/major refurbishment schemes remained steady at 91.8%. The core rent roll improved by 3.4%. Pre-tax profits for the half year, before net exceptional costs of £0.9 million, are £3.6 million, up 15% on the same period in 1998. The half-yearly external valuation by Richard Ellis St. Quintin at 30 September 1999, which has been incorporated in the interim accounts, produced a surplus of £10.5 million representing an uplift of 5.7% on the assets revalued. Excluded from the valuation is the Tonex acquisition which, having only been acquired on 23 July, is included in the accounts at cost. Also, Union Street and Wilton Road, Camberley are included at cost whilst they remain under development. Following the external valuation the net asset value per share has increased to £7.65 compared with £6.83 at 31 March 1999 and £5.66 at 30 September 1998 (an uplift of 12.0% for the half year and 35.2% year on year). Acquisitions and Disposals The table below shows the main details of the Tonex portfolio acquired during the quarter: - Property Area Rent Acquisition sq. ft per annum £ Valuation £ ------------------------------------------------------------------------------ Tonex portfolio, full details of which are included in the Circular to Shareholders dated 22 June 1999. Acquired 23 July 1999 1,881,302 6,807,754 76,365,000 Deferred Purchase: 142,000 325,000 5,400,000 ------------------------------------------------------------------------------ TOTAL 2,023,302 7,132,754 81,765,000 ------------------------------------------------------------------------------ In addition, a parcel of land adjacent to the Group's existing holding in Redhill was acquired for a consideration of £250,000. Part of this property is let at a rent of £20,000 p.a. Following the quarter end contracts were exchanged for the sale of Malham Road Industrial Estate for a consideration of £1.1 million, an exit yield of 9.9% on passing rentals and showing a £120,000 surplus on its March 1999 valuation. 1-10 Union Street, Southwark The Group acquired this 95,000 sq. ft. vacant building on Union Street, Southwark in April 1998 for £4.1 million with the intention of refurbishing it for a business centre for small and medium sized businesses - building upon the Group's experience at the nearby Leathermarket and Southwark Business Village. Whilst proceeding with enabling building works, and a planning application, the Group marketed the building for sole occupancy and has secured a pre-letting to J Sainsbury for £2 million rent per annum. Through both the capping of its financial liabilities under the development agreement with J. Sainsbury and the limited recourse financing arrangements agreed with NatWest, the Group has eliminated much of the development risk associated with this project. The building works are programmed for completion in August 2000. On commencement of rent payment (at 31 March 2001) the development will yield almost 12% return on total development expenditure (including original building cost). Cash Flow and Financing There was a cash outflow of £(2.16) million during the quarter and £(1.81) million for the half year (1998 outflow of £(1.13) million and £(1.85) million respectively). Net cash flow from operating activities was an inflow of £5.02 million for the quarter and £7.96 million for the half year (1998 £3.69 million and £7.25 million for the half year). Capital expenditure in the half year net of proceeds totalled £82.47 million (1998 £4.45 million). At the quarter end gearing stood at 124% with interest cover for the half year of 1.91 times (1998 1.95 times). Occupancy and Trading Statistics The Group's key statistics relating to its trading operations are given in the table below:- 30 September 30 June 31 March 1999 1999 1999 ------------------------------------------------------------------------------ Number of Estates 96 73 73 ------------------------------------------------------------------------------ Total Floorspace at end of period (sq ft) 5,733,125 3,851,622 ------------------------------------------------------------------------------ of which: Available for letting 4,743,613 2,862,312 Undergoing development /refurbishment 989,512 989,512 ------------------------------------------------------------------------------ Lettable Floorspace of core portfolio (sq ft) 2,839,560 2,839,194 2,840,106 ------------------------------------------------------------------------------ Lettable Units (number) 3,514 2,717 2,682 ------------------------------------------------------------------------------ Annual Rent Roll of Occupied Units (£/sq ft) 25,113,742 17,777,821 17,361,828 ------------------------------------------------------------------------------ Average Rent (£/sq ft) 4.95 5.34 5.20 ------------------------------------------------------------------------------ Average Rent of Core Portfolio (£/sq ft) 6.23 6.19 5.99 ------------------------------------------------------------------------------ Occupancy: overall 88.55% 86.45% 87.31% ------------------------------------------------------------------------------ Occupancy of Core Portfolio 91.81% 91.11% 92.31% ------------------------------------------------------------------------------ Comparisons of overall occupancy and rent roll are distorted by acquisitions, disposals and transfers. The 'core portfolio' is defined as those properties that have been held throughout the year and which are not subject to major refurbishment/development programmes (the properties subject to such programmes in the year were Three Mills, Kingsland Viaduct, 1-10 Union Street and Wilton Road Camberley). In addition, it should be noted that the rent agreed on Union Street is excluded from the above figures. Current Trading The positive trends of improvements in the rent roll recorded in the first half have continued since 30 September 1999 albeit at a slower rate. Meanwhile good progress continues to be made absorbing the Tonex acquisition into the Group. Centralised marketing has been established and a re-branding of all estates is underway with a rent review programme initiated. A number of new lettings at improved rentals have already been secured. Disposals of some smaller estates with limited growth potential are planned for the second half of the year. Board Changes On 30 September 1999 the Executive Chairman of the Board, Alan Porter retired and was succeeded by Phillip Rhodes as Non-Executive Chairman. The Company is indebted to Alan for his contribution since its founding. Phillip Rhodes has been a non-executive director of the Group since 1992. Harry Platt, previously Managing Director, has now been appointed Chief Executive. Interim Dividend The Board has declared an interim dividend in respect of the six months ended 30 September 1999 of 6.0p per ordinary share payable on 1 February 2000 to shareholders on the register at 10 January 2000. This compares with an interim dividend of 5.5p per ordinary share paid for the same period in 1998 and is an increase of 0.5p or 9%. Unaudited Consolidated Profit and Loss Account for the 3 months ended 30 September 1999 3 months ended 6 months ended 30th September 30 September Trading Other Operations Items Total 1999 1998 1999 1998 £000 £000 £000 £000 £000 £000 ------------------------------------------------------------------------------ Turnover - continuing operations 7,166 5,477 12,767 - 12,767 10,927 Rent payable and direct costs (1,843) (1,497) (3,330) - (3,330) (2,833) ------------------------------------------------------------------------------ Gross profit 5,323 3,980 9,437 - 9,437 8,094 Administrative expenses (1,204) (758) (2,129) - (2,129) (1,615) ------------------------------------------------------------------------------ Operating profit - continuing operations 4,119 3,222 7,308 - 7,308 6,479 Loss on Disposal of Investment Property (1) 222 - (5) (5) 203 Interest receivable 34 36 60 - (60) 104 Interest payable and similar charges (3,340) (1,740) (3,802) (937) (4,739) (3,484) ------------------------------------------------------------------------------ Profit on ordinary activities before taxation 812 1,740 3,566 (942) 2,624 3,302 Taxation on profit on ordinary activities (282) (469) (1,018) 283 (735) (891) ------------------------------------------------------------------------------ Profit attributable to shareholders 530 1,271 2,548 (659) 1,889 2,411 Dividends (941) (873) (941) - (941) (873) ------------------------------------------------------------------------------ Retained for the period (411) 398 1,607 (659) 948 1,538 ------------------------------------------------------------------------------ Earnings per share (basic) 3.4p 8.0p 16.0 (4.0) 12.0p 15.2p Diluted earnings per share 3.7p 7.7p 12.3p 15.2p Statement of Total Recognised Gains and Losses 6 months ended 30 September 1999 1998 £000 £000 ------------------------------------------------------------------------------ Profit for the financial period 1,889 2,411 Unrealised surplus on revaluation of investment properties 10,491 5,315 ------------------------------------------------------------------------------ Total gains relating to the financial period 12,380 7,726 Consolidated Balance Sheet Unaudited Audited 30 September 31 March 1999 1999 £000 £000 ------------------------------------------------------------------------------ Fixed assets Tangible assets Investment properties 278,734 185,978 Other fixed assets 1,130 1,179 Investment in own shares 999 1,024 ------------------------------------------------------------------------------ 280,863 188,181 ------------------------------------------------------------------------------ Current assets Debtors 6,050 2,514 Investments 5,631 2,332 Cash at bank and in hand 491 2 ------------------------------------------------------------------------------ Creditors: amounts falling due within one year loans and overdrafts (5,942) (4,726) others (18,268) (13,983) ------------------------------------------------------------------------------ Net current liabilities (12,038) (13,861) ------------------------------------------------------------------------------ Total assets less current liabilities 268,825 174,320 Creditors: amounts falling due after more than one year (148,915) (65,866) ------------------------------------------------------------------------------ 119,910 108,454 ------------------------------------------------------------------------------ Capital and reserves Called up share capital 1,588 1,588 Share premium account 39,685 39,668 Revaluation reserve 66,630 56,043 Profit and loss account 12,007 11,155 ------------------------------------------------------------------------------ Shareholders' funds - equity interests 119,910 108,454 ------------------------------------------------------------------------------ Net asset value per share (basic) £7.65 £6.83 ------------------------------------------------------------------------------ Movement in shareholders' funds Profit for the financial period 1,889 6,536 Dividends (941) (2,989) ------------------------------------------------------------------------------ 948 3,547 Issue of Shares 2 Share premium account 17 17 Revaluation reserve - increase 10,491 21,843 ------------------------------------------------------------------------------ Net movement in shareholders' funds for the financial period 11,456 25,409 Shareholders' funds as at 1 April 1999/1998 108,454 83,045 ------------------------------------------------------------------------------ Shareholders' funds as at 30 September 1999 /31 March 1999 119,910 108,454 ------------------------------------------------------------------------------ Consolidated Cash Flow Statement for the six months ended 30 September 1999 6 months ended 30 September 1999 1998 £000 £000 ------------------------------------------------------------------------------ Net cash inflow from operating activities 7,963 7,246 Return on investment and servicing of finance (3,575) (3,563) Taxation (218) (193) Capital expenditure (net) (82,474) (4,451) Equity dividends paid (2,116) (1,904) ------------------------------------------------------------------------------ Net cash outflow before use of liquid resources and financing (80,420) (2,865) Management of liquid resources (3,299) 4,228 Financing 81,910 491 ------------------------------------------------------------------------------ Net cash inflow/(outflow) (1,809) 1,854 ------------------------------------------------------------------------------ Reconciliation of net cash flow to movement in net debt Increase/(decrease) in cash (1,809) 1,854 Increase/(decrease) in liquid resources 3,299 (4,228) Cash inflow from (increase)/decrease in debt (81,893) (492) ------------------------------------------------------------------------------ Changes in debt resulting from cash flows (80,403) (2,866) ------------------------------------------------------------------------------ Net debt at 1 April (68,457) (70,436) Net debt at 30 September (148,860) (73,302) ------------------------------------------------------------------------------ Notes to the Quarterly Results 1. Basis of Preparation The unaudited financial information contained in this quarterly report does not comprise statutory accounts within the meaning of Section 240 of the Companies Act 1985. The statutory accounts for the year ended 31 March 1999 included an unqualified report of the auditors. The Group's unaudited accounts for the period ended 30 September 1999 have been prepared on the basis of the accounting policies set out in the Annual Report and Accounts for the year ended 31 March 1999. 2. Segmental Analysis 3 months ended 6 months ended 30 September 30 September 1999 1998 1999 1998 £000 £000 £000 £000 ------------------------------------------------------------------------------ Rental income 5,911 4,378 10,375 8,753 Service charge and other recoveries 937 915 1,871 1,823 Fees, commissions, and sundry income 318 184 521 351 ------------------------------------------------------------------------------ 7,166 5,477 12,767 10,927 ------------------------------------------------------------------------------ 3. Interest Payable and similar charges 3 months ended 6 months ended 30 September 30 September 1999 1998 1999 1998 £000 £000 £000 £000 ------------------------------------------------------------------------------ Convertible loan stock and debenture stock interest 662 662 1,324 1,324 Mortgage interest 1,874 1,183 2,662 2,365 Bank and other interest 37 48 134 106 Net development interest capitalised (170) (153) (318) (311) Loan breakage costs 937 - 937 - ------------------------------------------------------------------------------ Charged to profit and loss account 3,340 1,740 4,739 3,484 ------------------------------------------------------------------------------ 4. Taxation The taxation charge for the six months ended 30 September 1999 is based on the estimated effective tax rate for the year ending 31 March 2000 of 28% (1998: 27%). The charge has increased from the effective tax rate of 23.8%, excluding property disposals, for the year ended 31 March 1999 because the benefits of the recovery of ACT previously written off have come to an end. 5. Earnings Per Share and Net Assets Per Share Earnings per share have been calculated by dividing the profit after tax for each period attributable to shareholders by the weighted average number of ordinary shares in issue during the period. Net assets per share have been calculated by dividing net assets at the end of each period by the number of ordinary shares in issue at that time (adjusted for shares held in the Group's ESOT). 6. Valuation The Group's investment properties were valued by Richard Ellis St Quintin Chartered Surveyors at 30 September 1999 on an open market existing use basis in accordance with the guidance notes issued by the Royal Institute of Chartered Surveyors. Only valuation changes on investment properties held throughout the period have been booked. 7. Creditors Creditors falling due within one year include tenants' deposits of £2.0 million (31 March 1999: £1.66 million) and deferred rental and service charges of £4.44 million (31 March 1999: £2.34 million). 8. Financial Instruments Book Value Fair Value Difference £ Million £ Million £ Million Short term borrowings and current part of long term borrowings (6.1) (6.1) - Long term borrowings (148.9) (158.3) (9.4) --------------------------------------------------------------------------- (155.0) (164.4) (9.4) --------------------------------------------------------------------------- This represents 59 pence per issued ordinary share and if applied to net asset value per share at 30 September 1999 would reduce the latter to £7.06. However, the Group has no obligation or present intention to repay its Debenture and Convertible borrowings other than at maturity, when they will be repaid at par. Cash outflows arising from these borrowings will be limited to the future fixed interest payments and redemption at par. These outflows are unaffected by the notional market or fair values referred to above. 9. Interim Statement Copies of this statement will be dispatched to shareholders on Tuesday 16 November 1999 and will be available from the Group's registered office at Magenta House, 85 Whitechapel Road, London E1 1DU from 9.00am on that day.

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