Interim Results
Derwent Valley Holdings PLC
06 September 2005
DERWENT VALLEY HOLDINGS PLC
Interim results for the six months ended 30th June 2005
Derwent Valley, a specialist investor and redeveloper of Central London
commercial property, reports its results for the half year ended 30th June 2005,
which are prepared under International Financial Reporting Standards (IFRS).
Half year Year to
Half year 30.6.04 31.12.04 Change
30.6.05 Restated Restated %
Adjusted net asset value per share (p) 1,176 966 1,074 9.5*
Net property income (£m) 23.5 22.8 48.0 3.1
Adjusted profit before tax (£m)+ 8.7 9.1 18.3 (4.4)
IFRS profit before tax (£m) 61.5 30.2 91.1 103.6
Adjusted earnings per share (p)+ 13.25 14.13 29.91 (6.2)
Dividend per share (p) 3.925 3.60 12.50 9.0
Total return (%) 10.3 5.2 17.2
* Change based on 31st December 2004
+ Excludes the revaluation movement on investment properties and financial
instruments, and the profit on disposal of investment properties and related
tax effects for earnings per share.
• Adjusted net asset value per share up 9.5% since the year end to 1,176p
demonstrating the strength of the Central London property investment
market.
• Interim dividend increased 9.0% to 3.925p.
• IFRS profit before tax £31.3 million higher at £61.5 million.
• Net property income rose £0.7 million to £23.5 million although adjusted
profit before tax was £0.4 million lower at £8.7 million.
• Lettings of 4,900m2 made in the first half of 2005 at a contracted rent of
£1.4 million per annum; second half to date, further lettings agreed with
an annual rental value of £2.6 million.
• Contracts exchanged to acquire two properties for £39.2 million plus costs.
• Sales of £58.6 million exceeding the year end valuation by 8%.
• Delivery of project pipeline continues with two major developments underway
(25,000m2) and two further planning permissions obtained (8,100m2).
John Ivey, Chairman, commented
"We are now seeing a trend of upward rental movement and increased tenant
activity. This augers well for the refurbishment and redevelopment projects
scheduled to be delivered to the market in the near future."
6th September 2005
For further information, contact:
Derwent Valley Holdings plc 7:00 - 10:30 and p.m.
John Burns, Managing Director 020 7659 3000
www.derwentvalley.co.uk
College Hill 020 7457 2020
Gareth David Email: gareth.david@collegehill.com
CHAIRMAN'S STATEMENT
Half year review
Adjusted net asset value per share, the principal measure of the group's
performance, increased by 9.5% to 1,176p in the first half, more than double the
4.3% achieved under International Financial Reporting Standards (IFRS) in the
same period last year. This result is evidence of the strength of the Central
London property investment market. Rents, having been flat for some time,
picked up encouragingly towards the end of the half year and have experienced
further momentum since then. This augurs well for those of our refurbishment
and redevelopment projects which are scheduled to be delivered to the market in
the near future.
The appetite for Central London investment opportunities remains voracious. In
the six month period, the net proceeds of the 6 properties we sold totalled
£58.6 million and produced a profit of £4.5 million. The principal sales were
Berkshire House, Holborn, WC1, an early refurbishment project of the group,
which realised £23.6 million, and the more recently acquired Woburn Place,
Bloomsbury, WC1. Here, with the tenant not renewing its lease, we successfully
tested a hungry market and the property was sold for £22.3 million.
Despite new opportunities being in short supply, we have still been able to
source two typical Derwent-style acquisitions. Following letting success at
Oliver's Yard, EC2, and the Tea Building, E1, we have exchanged contracts to
purchase a further property in the City borders. This £6.8 million purchase is
a 3,640m2 office building in City Road, EC1 which will be completed no later
than March 2006. Since the half year, Horseferry House, Victoria, SW1, a
building of 13,940m2, has been purchased for £32.4 million. Both add to our
refurbishment and redevelopment pipeline and will provide excellent
opportunities over the next two years.
New projects play a significant role in our continuing drive for net asset
growth. At Hatton Garden, EC1 the 13,800m2 Johnson Building is on target for
completion in early 2006 and is a paradigm of what your company seeks to create
- an innovative product in an improving location that, until now, has not been
fully exploited. Whilst we are prepared to undertake projects speculatively,
such as the Johnson Building, we have to balance risk against reward.
Accordingly, at Telstar House, Paddington W2, having won consent to replace the
fire damaged 1960's offices with a larger building, we have, since the half
year, entered into a conditional sale and funding agreement with the Prudential
Assurance Company Limited. This allows the group to realise a profit on the
building's disposal whilst maintaining a participation in future development
profit. This transaction is linked to the acquisition from Prudential of the
3,875m2 freehold interest at 25 Savile Row, Mayfair, W1, which, with the merger
of our 48 year lease of the building, will create further value.
Valuation
The investment portfolio was valued at June 2005 at £917.5 million which gave
rise to a first half surplus of £50.8 million, before the lease incentive
adjustment of £1.1 million. This strong performance came through a combination
of lettings and an increase in rental values which added £17.2 million and yield
compression which contributed £28.6 million. The balance of £5.0 million arose
from the half year valuation of properties in the course of development, which
is now required under IFRS. There was an underlying increase in rental values of
2.8% in the first half, a similar level to that achieved over the whole of last
year.
A breakdown of the revaluation surplus, which produced an overall uplift of
5.9%, shows that the West End properties, which account for 74% of the
portfolio, increased by 6.0%. The best performing sub-sectors were Soho/Covent
Garden, which represents 20% of the portfolio, at 8.8%, followed by Paddington
(6.7%), Victoria (5.6%) and Noho (5.1%). Properties in the City borders and
surrounding areas, which comprise the balance of the portfolio, rose by 5.5%,
with strong performances from Oliver's Yard and the Tea Building which continued
to benefit from both letting activity and yield compression.
Results
These are the group's first results reported under IFRS although an explanation
and reconciliation of its 2004 results restated to an IFRS basis were published
in its last annual report. Profit before tax, adjusted to show the recurring
element of the group's profit as explained below, was £8.7 million against £9.1
million for the same period last year. This figure reflected an increase in
administration costs and higher interest charges offset by reduced vacant
property and transaction costs. The latter factors resulted in an increase in
net property income from £22.8 million to £23.5 million although gross property
income decreased marginally to £24.8 million from £25.0 million for the same
period in 2004.
IFRS profit before tax was £61.5 million against £30.2 million for the
equivalent period last year. This figure includes, in addition to the profit
realised on disposal of investment properties of £4.5 million, the revaluation
surplus of £49.7 million and the movement in the fair value of interest rate
hedging instruments which in the half year to June 2005 amounted to a charge of
£1.4 million. It is these three items which are excluded when calculating the
adjusted profit before tax. Total return was 10.3%, against 5.2% for the first
half of 2004. A comparison of the group income statement and group balance sheet
under IFRS and UK GAAP can be found in note 17 of the interim accounts.
Dividend
The board has declared a dividend of 3.925 pence per share, an increase of 9.0%
on the 3.60 pence paid at this stage last year. Further details concerning the
dividend are given in note 6 of the interim accounts.
Financing
At the half year, net debt was £290.7 million. This is a decrease of £50.8
million from the £341.5 million reported at the 2004 year end. The cash inflow
arose from property disposal proceeds of £62.3 million exceeding capital
expenditure in the half year of £12.2 million and deposits on acquisitions of
£4.0 million. With the £32.4 million purchase of Horseferry House and "capex"
forecast for the second half of nearly £20 million, the picture has changed
since the half year. The linked sale of Telstar House and purchase of the
Savile Row freehold will bring in approximately £10 million when the transaction
is completed.
The combined effect of a reduction in debt and a rise in asset values has
reduced gearing from 69% at the last year end to 54% at the half year. This is
higher than it would have been under the old accounting rules because of the
inclusion in borrowings of the leasehold liability arising from the
capitalisation of head leasehold rents. The profit and loss gearing is less
affected by IFRS and for the half year was 1.86 compared with 1.93 for the
equivalent period in 2004 and 1.85 for the whole of that year.
Currently, 67% of net debt is either at fixed rates or hedged using various
interest rate derivative products. The weighted average cost of borrowing is
6.4%.
Prospects
Whilst yield compression, spurred by investor demand and manageable interest
rates, has undoubtedly been one of the principal drivers of recent value
increases, we are now seeing a trend of upward rental movement and increased
tenant activity. This has finally converted the overdue promise of rental growth
into increased valuation performance and this should reduce the market's
dependence on yield improvement for future increases in value.
Although the business is moving forward satisfactorily, experience has taught us
not to take existing market conditions for granted and to be aware of the effect
that outside factors, such as terrorist activity, might have on the sentiment of
both occupiers and investors.
Looking forward, our pipeline of opportunities, throughout the portfolio, gives
us a strong hand to play in the Central London market, which can only be
enhanced by the activity generated in the lead up to the 2012 Olympic Games. I
believe that the second half of the year will see the creation of further value
for shareholders.
JOHN IVEY
Chairman
6th September 2005
INTERIM PROPERTY REVIEW
Current and future projects
As the Central London office market enjoys encouraging levels of tenant demand,
with limited new development coming through and an increasingly demanding
planning environment, our efforts continue on project delivery and the pipeline
of future schemes. In particular, two major developments are underway to
provide over 25,000m2 over the next two years and two planning permissions for
8,100m2 of development stock have recently been obtained.
Projects in progress include:
Developments
• Johnson Building, Hatton Garden, EC1
Construction is well advanced to provide 13,800m2 of high quality offices,
400m2 of workshop space and a 1,700m2 residential building. The structural
envelope is now complete, revealing a spectacular reception area and the
interesting spaces that are being created around the central atrium. The
air-conditioned offices will provide large, yet flexible floor plates,
allowing for multiple occupancy. Completion of the offices is scheduled for
early next year and expressions of interest for the space are positive.
The 14 residential units will be finished this autumn and then sold.
• Telstar House, Eastbourne Terrace, Paddington, W2
Vacant possession of this fire damaged building was obtained in November
2004, allowing the 9,750m2 office planning permission to be implemented.
Demolition is under way, the new building is fully designed and the
construction contract is out to tender. This development will provide the
next new building in Paddington, with completion anticipated in autumn
2007. The design allows ultra efficient use of the site to provide larger
floor plates, which are associated with this corporate and international
office location.
As outlined in the Chairman's statement, since half year, conditional
contracts have been exchanged with Prudential whereby our role changes from
being owners to managers of the project. This is our first development
funding venture and it allows us to reduce our risk profile through the
sale, yet remain fully involved in this exciting scheme. The agreement
contains a profit sharing arrangement which operates following completion
and letting. This project commitment endorses Paddington as an important
West End office location and it is encouraging for the future redevelopment
of 55-65 North Wharf Road, our other large holding in the area. Here we
press on with our planning negotiations to determine the size of this
office and residential opportunity.
Refurbishments
• Holden House, 54-68 Oxford Street, Noho, W1
Work is nearing completion on the 2,500m2 final phase at this 8,400m2
office and retail building. The refurbishment includes returning redundant
areas to stylish office spaces, accessed off a new entrance in Rathbone
Place. We are pleased with the level of interest shown and, following a
410m2 pre-letting in the first half, the balance of the office space has
either been let or is under offer. The rental achieved was £409 per m2, a
level higher than anticipated at the project commencement, and indicates
the good level of demand for interesting space in the West End.
• 6-7 St Cross Street, EC1
This 3,000m2 building is being refurbished in phases to provide open plan
air-conditioned space. The initial phase involves 900m2 and will be
completed this autumn. The property is located adjacent to the Johnson
Building.
Planning permissions
• 16-19 Gresse Street, Noho, W1
Following lengthy planning negotiations, a consent was obtained in May 2005
for 4,500m2 of offices. This will replace the 2,900m2 existing building, a
55% floor area increase. The residential planning requirement for 11 units
is to be located in our adjacent property, 7-8 Rathbone Place. We are now
progressing the scheme's design and have structured all the occupational
leases to allow a 2006 project commencement.
• Portobello Dock and Kensal House, Ladbroke Grove, W10
Having identified this as an improving area, we have been evaluating our
options for this income producing, 4,600m2, canal side office campus. A
planning permission has recently been obtained on part of our ownership for
a 3,600m2 scheme, a 64% improvement on the 2,200m2 of existing space.
Offices and residential units will be provided. The balance of 2,400m2
will be subject to a separate planning application for part residential
conversion. The occupational lease expires later this year and it is
proposed to start on site early next year.
Lettings
The strong tenant interest for our contemporary space has translated into
buoyant letting activity, a continuation of the success achieved last year.
Letting terms have generally been for 5 to 10 years, with typically 6 to 9
months rent free. Headline rents have increased at a number of our buildings
over recent months. In the first half, there were 32 lettings on 4,900m2 of
space at a combined rent roll of £1.4 million. This included the final floors
at Tower House, the Davidson Building, and Charing Cross Road. Two lettings
were made at Oliver's Yard and with further space now under offer, only a 330m2
office suite remains in this 17,400m2 building. The picture is similar at the
refurbished 20,000m2 Tea Building, following the letting of 10 suites in the
first half and subsequent transactions.
Lettings have continued since the half year, with terms agreed on a further
12,100m2 at a combined rental income of £2.6 million per annum. In addition, we
have exchanged contracts for the sale of The College (4,400m2) our largest
available vacant building. After adjusting for this activity, the amount of
space currently available for letting in the portfolio is only a minimal 4,300m2
or close to 1% of the portfolio's rental value. This compares favourably to the
16,900m2 or a 6% vacancy rate last year end.
With this activity level, a programme to deliver new space to the market is
important so as to benefit from the improving Central London office conditions.
The principal near term completion is at the Johnson Building, but there is also
the balance of space at the Tea Building and floors at St Cross Street.
Overall, at the half year, vacant space identified for refurbishment or under
refurbishment was 33,300m2, down slightly from 36,800m2 at last year end due
mainly to lettings and space being transferred to the available category
following completions.
Acquisitions and disposals
The first half saw no let up in the quest for Central London investments, with
yields continuing their downward movement, as the rental growth outlook
improved. Whilst value acquisitions were harder than ever to source, we were
pleased to have exchanged contracts on two acquisitions in the first half for
£39.2 million plus costs. Both offer the opportunity to add value through
refurbishment and a rental improvement play.
The properties are:
• Horseferry House, Horseferry Road, SW1
Contracts were exchanged in June and completed in July on this £32.4
million acquisition. This 1930's office building occupies a substantial
island site in one of our principal operating areas, Victoria, and is near
to our successfully refurbished Greencoat and Gordon House complex. The
13,940m2 building is subject to a two year lease to a Government department
with a break option from next year. The office rental is low at £143 per
m2. Architect's studies have been initiated and we envisage a comprehensive
refurbishment when the tenant vacates. Options include improving the
building's identity, enlarging entrances and centralising the circulation
routes. In addition, we are exploring the possibility of converting the
ground floor to retail/gallery space. From initial studies, capital
expenditure is estimated to be £11.5 million.
• 186-188 City Road, EC1
Contracts were exchanged in March, with completion no later than March
2006, on this 3,640m2 air-conditioned office building, which is located
near to Oliver's Yard. The building is let short-term at a low rental of
£192 per m2 and will be refurbished when the lease expires. The purchase
price was £6.8 million.
We have taken advantage of the strong inflow of funds to the sector to re-cycle
capital by disposing of those properties where our active management options are
limited. In the first half, sales totalled £58.6 million and realised a surplus
of £4.5 million, approximately 8% above the book value. The principal disposal
was Berkshire House, Holborn, WC1. Following a phased building upgrade, and
before concluding final lettings, an off market approach was received, which
enabled an earlier disposal than was originally anticipated. We also sold 19-29
Woburn Place, Bloomsbury, WC1, one of the properties acquired from Chelsfield
last year. This 9,400m2 building was subject to a lease expiry this year and,
having evaluated our options, the sale enabled us to book an early profit, which
we felt was more attractive than undertaking a refurbishment. Other sales were
28-29 Dover Street, W1, and three properties from the Islington portfolio.
Since half year, activity has continued on both the sale and acquisition front.
Simultaneously with the Telstar House funding commitment, contracts were
exchanged, also with Prudential, for the freehold acquisition of 25 Savile Row
for £5.0 million. We currently hold a 48-year lease at a fixed ground rent of
£4,000 per annum on this building and the merger of the interests at completion
will release substantial marriage value on this prime Mayfair asset. As noted
previously, contracts have also been exchanged on the disposal of The College
for £11.7 million. This educational building had recently undergone
comprehensive refurbishment.
JOHN BURNS
Managing Director
6th September 2005
Group income statement (unaudited)
Half year Year
Half year to 30.06.04 to 31.12.04
to 30.06.05 Restated Restated
Note £m £m £m
Gross property income 24.8 25.0 52.1
Property outgoings (1.3) (2.2) (4.1)
Net property income 23.5 22.8 48.0
Administrative costs (4.1) (3.5) (7.1)
19.4 19.3 40.9
Group revaluation surplus 49.7 18.5 46.4
Profit on disposal of investment properties 2 4.5 1.1 24.9
Operating profit 73.6 38.9 112.2
Interest receivable 0.2 0.1 0.3
Interest payable (10.9) (10.3) (23.0)
Movement in fair value of derivative
financial instruments (1.4) - -
Share of results of joint ventures 3 - 1.5 1.6
Profit before taxation 61.5 30.2 91.1
Income tax 4 (13.1) (3.0) (18.5)
Profit for the period 12 48.4 27.2 72.6
Basic earnings per share 5 90.71p 51.15p 136.64p
Diluted earnings per share 5 89.94p 50.92p 135.76p
Total Return 7 10.3% 5.2% 17.2%
Group balance sheet (unaudited)
30.06.04 31.12.04
30.06.05 Restated Restated
Note £m £m £m
Assets
Non-current assets
Investment properties 9 926.2 908.1 915.6
Investments in joint ventures 1.8 1.7 1.8
Property, plant and equipment 10 0.4 0.6 0.6
928.4 910.4 918.0
Current assets
Cash and cash equivalents 7.9 4.5 4.5
Other current assets 26.4 22.8 23.9
34.3 27.3 28.4
Total assets 962.7 937.7 946.4
Liabilities
Current liabilities
Bank loans and overdrafts - (1.8) (1.3)
Other current liabilities (32.4) (30.3) (25.6)
(32.4) (32.1) (26.9)
Non-current liabilities
Bank loans (242.0) (331.5) (288.0)
10 1/8% First Mortgage Debenture Stock 2019 (34.5) (34.4) (34.5)
Leasehold liability (22.1) (23.8) (22.2)
Derivative financial instruments (4.5) - -
Deferred tax 11 (88.4) (63.3) (78.4)
Other non-current liabilities - (0.4) -
Provisions (0.8) (1.0) (0.9)
(392.3) (454.4) (424.0)
Total liabilities (424.7) (486.5) (450.9)
Net assets 538.0 451.2 495.5
Equity 12
Share capital 2.6 2.6 2.6
Share premium 154.9 153.7 154.1
Other reserves 0.6 - 0.3
Retained profit 379.9 294.9 338.5
538.0 451.2 495.5
Adjusted net asset value per share 13 1,176p 966p 1,074p
Net asset value per share 13 1,007p 849p 930p
Group cash flow statement (unaudited)
Half year Year
Half year to 30.06.04 to 31.12.04
to 30.06.05 Restated Restated
Note £m £m £m
Operating activities
Cash received from tenants 27.0 22.5 47.1
Direct property expenses (1.7) (3.0) (6.3)
Wages and salaries (2.7) (1.9) (3.7)
Administrative costs (1.4) (2.1) (3.5)
Interest receipts 0.2 0.1 0.2
Interest payments (10.3) (9.5) (20.9)
Tax (payments)/receipts in respect of
operating activities (0.4) 0.8 (0.6)
10.7 6.9 12.3
Investment activities
Acquisitions (4.0) (88.1) (88.7)
Capital expenditure on properties (12.2) (13.3) (26.1)
Disposal of properties 62.3 40.0 76.9
Capital insurance receipt - - 18.7
Purchase of other fixed assets - - (0.1)
Tax payments in respect of investment activities (2.1) (2.6) (4.7)
44.0 (64.0) (24.0)
Financing activities
Movement in bank loans 14 (46.0) 61.6 18.1
Net proceeds of share issue 0.8 - 0.5
Equity dividends paid (4.8) (4.3) (6.2)
(50.0) 57.3 12.4
Increase in cash and cash equivalents
in the period 14 4.7 0.2 0.7
Notes
1 Basis of preparation
The results for the six months ended 30th June 2005 include those for the
holding company and all of its subsidiary undertakings together with the
group's share of the results of its joint ventures.
The results are prepared in accordance with those International Financial
Reporting Standards (IFRS) which are expected to be endorsed by the
European Union and to apply to the 2005 full year results. The comparative
period results, previously reported under UK GAAP, have been restated on
this basis. In preparing these results, certain of the exemptions allowed
by IFRS1, First-time Adoption of IFRS, have been taken. These are:
i) the comparative periods have not been restated for IAS39, Financial
Instruments: Recognition and Measurement, particularly in respect of
the fair value of derivative financial instruments. The fair value of
these instruments at the start of 2005 was passed through reserves, as
disclosed in note 12, and the subsequent movement in the first half of
2005 is reported in the group income statement. The group has not
applied the hedge accounting treatment that would allow such movements
to be deferred in equity.
ii) IFRS2, Share Based Payment, has not been applied to share options
granted on or before 7th November 2002.
A comparison to UK GAAP is included in note 17 for the group income
statement and group balance sheet. A more detailed reconciliation,
together with the accounting policies that have been applied, is included
in "Derwent Valley Holdings plc - Conversion from UK GAAP to International
Financial Reporting Standards", which is published on the company's
website, www.derwentvalley.co.uk. Copies can also be obtained from the
Company Secretary, Derwent Valley Holdings plc, 25 Savile Row, London,
W1S 2ER.
Half year Year
Half year to 30.06.04 to 31.12.04
to 30.06.05 Restated Restated
£m £m £m
2 Profit on disposal of investment properties
Disposal proceeds 58.6 42.4 78.9
Carrying value (54.1) (41.3) (72.5)
4.5 1.1 6.4
Insurance receipt from fire damaged building - - 18.5
4.5 1.1 24.9
Half year Year
Half year to 30.06.04 to 31.12.04
to 30.06.05 Restated Restated
£m £m £m
3 Share of results of joint ventures
Operating profit before investment property profit - - 0.1
Investment property revaluation surplus - 1.5 1.5
- 1.5 1.6
Half year Year
Half year to 30.06.04 to 31.12.04
to 30.06.05 Restated Restated
£m £m £m
4 Income tax
Adjusted profit before taxation 8.7 9.1 18.3
UK corporation tax on adjusted profit
at 30% (2004 - 30%) 2.6 2.7 5.5
Capital allowances (1.4) (1.2) (2.8)
Tax on disposal of investment properties 0.7 3.5 4.2
Other reconciling items (0.5) (0.2) (0.6)
Corporation tax charge in respect of current
period's profit 1.4 4.8 6.3
Adjustment in respect of prior periods' corporation tax 0.8 - (1.1)
Corporation tax charge 2.2 4.8 5.2
Deferred tax 10.9 (1.8) 13.3
13.1 3.0 18.5
Profit before taxation has been adjusted to exclude the revaluation
movement on investment properties and financial instruments and the profit
on disposal of investment properties.
Weighted
Profit after average Earnings
taxation shares per share
£m '000 p
5 Earnings per share
Half year to 30th June 2005
Adjusted 7.1 53,303 13.25
Adjustment for deferred tax on capital allowances 0.1 - 0.22
Adjustment for disposal of investment properties 3.0 - 5.71
Adjustment for group revaluation surplus less
contingent tax 39.2 - 73.40
Adjustment for derivative fair value movement (1.0) - (1.87)
Basic 48.4 53,303 90.71
Adjustment for dilutive share options and
LTIP awards - 455 (0.77)
Diluted 48.4 53,758 89.94
Half year to 30th June 2004
Adjusted 7.5 53,167 14.13
Adjustment for deferred tax on capital allowances (0.3) - (0.56)
Adjustment for disposal of investment properties (2.4) - (4.49)
Adjustment for group revaluation surplus less
contingent tax 20.9 - 39.25
Adjustment for share of joint ventures' revaluation
surplus less contingent tax 1.5 - 2.82
Basic 27.2 53,167 51.15
Adjustment for dilutive share options and
LTIP awards - 245 (0.23)
Diluted 27.2 53,412 50.92
Year to 31st December 2004
Adjusted 15.9 53,195 29.91
Adjustment for deferred tax on capital allowances (2.2) - (4.13)
Adjustment for disposal of investment properties 20.7 - 38.89
Adjustment for group revaluation surplus
less contingent tax 36.7 - 69.15
Adjustment for share of joint ventures' revaluation
surplus less contingent tax 1.5 - 2.82
Basic 72.6 53,195 136.64
Adjustment for dilutive share options and
LTIP awards - 346 (0.88)
Diluted 72.6 53,541 135.76
The adjusted earnings per share excludes the after tax effect of fair value
adjustments to the carrying value of assets and liabilities, together with
the profit or loss after tax arising from the disposal of investment
properties, in order to show the underlying element of the group's profit.
The adjusted earnings per share figure also excludes the deferred tax
charge provided in respect of capital allowances claimed, on the basis that
it is unlikely that a liability will ever crystallise.
6 Dividend
The results for the six months ended 30th June 2005 do not include the
dividend declared after the end of the accounting period. In respect of
these results a dividend of 3.925p per share (2004 interim - 3.60p; 2004
final - 8.90p) will be paid on 7th November 2005 to those shareholders on
the register at the close of business on 14th October 2005.
7 Total return
Total return is the movement in adjusted net asset value per share plus
dividend per share paid during the period, expressed as a percentage of the
adjusted net asset value per share at the beginning of the year.
8 Gearing
Balance sheet gearing is 54.0% (2004 interim - 85.8%; 2004 full year -
68.9%) This is defined as net debt divided by net assets.
Profit and loss gearing is 1.86 (2004 interim - 1.93; 2004 full year -
1.85). This is defined as net property income less administrative costs
divided by net interest payable, having reversed the reallocation of ground
rent payable on leasehold investment properties to interest payable of
£0.7 million (2004 interim - £0.5 million; 2004 full year - £1.2 million).
Freehold Leasehold Total
£m £m £m
9 Investment properties
Carrying value
At 1st January 2005 595.4 320.2 915.6
Acquisitions - - -
Capital expenditure 13.6 0.9 14.5
Additions 13.6 0.9 14.5
Disposals (31.9) (21.7) (53.6)
Revaluation 40.3 9.4 49.7
At 30th June 2005 617.4 308.8 926.2
Adjustments from carrying value to fair value
At 1st January 2005
Carrying value 595.4 320.2 915.6
Adjustment for rents recognised in advance
included in current assets 11.0 1.8 12.8
Adjustment for grossing up of headlease liabilities - (22.2) (22.2)
Fair value 606.4 299.8 906.2
At 30th June 2005
Carrying value 617.4 308.8 926.2
Adjustment for rents recognised in advance
included in current assets 12.0 1.4 13.4
Adjustment for grossing up of headlease liabilities - (22.1) (22.1)
Fair value 629.4 288.1 917.5
Short leasehold property of £59.8 million (December 2004 - £40.7 million)
is included in the fair value of leasehold property above. Investment
property in the course of development of £66.4 million (December 2004 -
£50.3 million) is included in the carrying value of freehold property
above.
The investment properties were revalued at 30th June 2005 at £917.5 million
(December 2004 - £906.2 million) by either CB Richard Ellis Limited or
Keith Cardale Groves (Commercial) Limited, as external aluers, on the basis
of market value as defined by the Appraisal and Valuation Manual published
by the Royal Institution of Chartered Surveyors.
At 30th June 2005, the historical cost of investment property owned by the
group was £617.5 million (December 2004 - £652.3 million).
£m
10 Property, plant and equipment
Cost
At 1st January 2005 1.4
Disposals (0.1)
At 30th June 2005 1.3
Depreciation
At 1st January 2005 0.8
Provision for the period 0.1
At 30th June 2005 0.9
Net book value
At 30th June 2005 0.4
At 1st January 2005 0.6
Revaluation Capital
surplus allowances Other Total
£m £m £m £m
11 Deferred tax
At 1st January 2005 62.4 14.4 1.6 78.4
Adjustment to reserves in respect
of deferred tax on fair value
of derivative financial instruments
at 31st December 2004 - - (0.9) (0.9)
Provided during the period 10.5 (0.1) 0.5 10.9
At 30th June 2005 72.9 14.3 1.2 88.4
Deferred tax on the revaluation surplus is calculated on the basis of the
chargeable gains that would crystallise on the sale of the investment
property portfolio as at 30th June 2005. The calculation takes account of
indexation on the historic cost of the properties and any available capital
losses.
Share Share Other Retained
capital premium reserves profit
£m £m £m £m
12 Equity
At 1st January 2005 2.6 154.1 0.3 338.5
Fair value of derivative financial
instruments at 31st December 2004 - - - (3.1)
Deferred tax asset in respect of the fair
value of derivative financial instruments
at 31st December 2004 - - - 0.9
Premium on issue of shares - 0.8 - -
Share based payments expense transferred
to reserves - - 0.3 -
Profit for the period - - - 48.4
Dividend - - - (4.8)
At 30th June 2005 2.6 154.9 0.6 379.9
Net asset
Net value per
assets Shares share
£m '000 p
13 Net asset value per share
At 30th June 2005
Basic 538.0 53,425 1,007
Adjustment for deferred tax on capital allowances 14.3 - 26
Adjustment for contingent tax on revaluation surplus 72.9 - 137
Adjustment for post tax fair value of derivative
financial instruments
3.2 - 6
Adjusted 628.4 53,425 1,176
At 30th June 2004
Basic 451.2 53,167 849
Adjustment for deferred tax on capital allowances 11.8 - 22
Adjustment for contingent tax on revaluation surplus 50.3 - 95
Adjusted 513.3 53,167 966
At 31st December 2004
Basic 495.5 53,268 930
Adjustment for deferred tax on capital allowances 14.4 - 27
Adjustment for contingent tax on revaluation surplus 62.4 - 117
Adjusted 572.3 53,268 1,074
Adjusted net assets excludes the deferred tax provided in respect of
capital allowances claimed, on the basis that it is unlikely that this
liability will ever crystallise. The contingent tax on the revaluation
surplus and the post tax fair value of derivative financial instruments are
also excluded, on the basis that these amounts are not relevant when
considering the group as an ongoing business.
Half year Year
Half year to 30.06.04 to 31.12.04
to 30.06.05 Restated Restated
£m £m £m
14 Reconciliation of net cash flow to movement in net debt
Increase in cash and cash equivalents in the period (4.7) (0.2) (0.7)
Cash (outflow)/inflow from movement in bank loans (46.0) 61.6 18.1
Amortisation of discounts and costs on issue of
debenture - - 0.1
Leasehold liabilities acquired in the period - 11.2 11.2
Leasehold liabilities disposed of in the period (0.1) - (1.6)
Movement in net debt in the period (50.8) 72.6 27.1
Opening net debt 341.5 314.4 314.4
Closing net debt 290.7 387.0 341.5
15 This statement does not comprise statutory accounts as defined in Section
240 of the Companies Act 1985. The results for the half year ended
30th June 2005, and the comparative period for the half year to 30th June
2004, which has been restated to IFRS, have not been audited. The auditors
reviewed the results to 31st December 2004, as restated to IFRS, and
confirmed that they were not aware of any material modifications that were
required to these. The results to 31st December 2004, as originally
prepared under UK GAAP, received an unqualified independent auditor's
report and have been filed at the Registrar of Companies.
16 Copies of this announcement are being posted to shareholders on
14th September 2005, and will be available on the company's website,
www.derwentvalley.co.uk, from the date of this statement. Copies will also
be available from the Company Secretary, Derwent Valley Holdings plc,
25 Savile Row, London W1S 2ER.
17 Comparison to UK GAAP
The subsequent pages show the results prepared under IFRS restated to the
previous UK GAAP for the group income statement, previously the group
profit and loss account, and the group balance sheet. A group cash flow
statement is not included. Whilst the overall cash flow is the same for
these periods under UK GAAP and IFRS, IFRS categorises specific cash flows
under just three headings, operating, investing and financing. Under the
previous UK GAAP, they were reported under six headings. The change to
IFRS means interest payments and receipts are now reported within operating
activities and dividend payments are reported within financing activities.
Tax payments and receipts are split between operating and investing
activities.
As described in note 1, a detailed reconciliation from IFRS back to UK GAAP
of the group income statement and group balance sheet, for the current and
comparative periods, is published on the company's website,
www.derwentvalley.co.uk. Copies of this can be obtained from the Company
Secretary, Derwent Valley Holdings plc, 25 Savile Row, London, W1S 2ER.
Group income statement
IFRS and UK GAAP
Half year to 30th June 2005
IFRS UK GAAP
£m £m
Gross property income 24.8 24.0
Property outgoings (1.3) (1.8)
Net property income 23.5 22.2
Administrative costs (4.1) (4.1)
19.4 18.1
Group revaluation surplus 49.7 -
Profit on disposal of investment properties 4.5 2.3
Operating profit 73.6 20.4
Interest receivable 0.2 0.2
Interest payable (10.9) (10.4)
Movement in fair value of derivative
financial instruments (1.4) -
Share of results of joint ventures - 0.2
Profit before taxation 61.5 10.4
Income tax (13.1) (2.8)
Profit for the period 48.4 7.6
Adjusted profit before tax 8.7 8.1
Group income statement
IFRS and UK GAAP
Half year to 30th June 2004
IFRS UK GAAP
£m £m
Gross property income 25.0 24.3
Property outgoings (2.2) (2.5)
Net property income 22.8 21.8
Administrative costs (3.5) (3.5)
19.3 18.3
Group revaluation surplus 18.5 -
Profit on disposal of investment properties 1.1 1.1
Operating profit 38.9 19.4
Interest receivable 0.1 0.1
Interest payable (10.3) (10.0)
Movement in fair value of derivative
financial instruments - -
Share of results of joint ventures 1.5 0.2
Profit before taxation 30.2 9.7
Income tax (3.0) (2.0)
Profit for the period 27.2 7.7
Adjusted profit before tax 9.1 8.6
Group income statement
IFRS and UK GAAP
Year to 31st December 2004
IFRS UK GAAP
£m £m
Gross property income 52.1 49.9
Property outgoings (4.1) (5.1)
Net property income 48.0 44.8
Administrative costs (7.1) (7.0)
40.9 37.8
Group revaluation surplus 46.4 -
Profit on disposal of investment properties 24.9 6.4
Operating profit 112.2 44.2
Interest receivable 0.3 0.3
Interest payable (23.0) (22.1)
Movement in fair value of derivative
financial instruments - -
Share of results of joint ventures 1.6 0.4
Profit before taxation 91.1 22.8
Income tax (18.5) (4.8)
Profit for the period 72.6 18.0
Adjusted profit before tax 18.3 16.4
Group balance sheet
IFRS and UK GAAP
At 30th June 2005
IFRS UK GAAP
£m £m
Assets
Non-current assets
Investment properties 926.2 920.2
Investments 1.8 1.8
Property, plant and equipment 0.4 0.4
928.4 922.4
Current assets
Cash and cash equivalents 7.9 7.9
Other current assets 26.4 21.2
34.3 29.1
Total assets 962.7 951.5
Liabilities
Current liabilities
Bank loans and overdrafts - -
Other current liabilities (32.4) (50.5)
(32.4) (50.5)
Non-current liabilities
Bank loans (242.0) (242.0)
10 1/8% First Mortgage Debenture Stock 2019 (34.5) (34.5)
Leasehold liability (22.1) -
Derivative financial instruments (4.5) -
Deferred tax (88.4) (15.0)
Other non-current liabilities - -
Provisions (0.8) (0.8)
(392.3) (292.3)
Total liabilities (424.7) (342.8)
Net assets 538.0 608.7
Equity
Share capital 2.6 2.6
Share premium 154.9 154.9
Revaluation reserve - 308.7
Other reserves 0.6 0.5
Retained profit 379.9 142.0
538.0 608.7
Adjusted NAV per share 1176p 1166p
Group balance sheet
IFRS and UK GAAP
At 30th June 2004
IFRS UK GAAP
£m £m
Assets
Non-current assets
Investment properties 908.1 888.0
Investments 1.7 1.7
Property, plant and equipment 0.6 0.6
910.4 890.3
Current assets
Cash and cash equivalents 4.5 4.5
Other current assets 22.8 19.1
27.3 23.6
Total assets 937.7 913.9
Liabilities
Current liabilities
Bank loans and overdrafts (1.8) (1.8)
Other current liabilities (30.3) (32.2)
(32.1) (34.0)
Non-current liabilities
Bank loans (331.5) (331.5)
10 1/8% First Mortgage Debenture Stock 2019 (34.4) (34.4)
Leasehold liability (23.8) -
Derivative financial instruments - -
Deferred tax (63.3) (11.8)
Other non-current liabilities (0.4) (0.4)
Provisions (1.0) (1.0)
(454.4) (379.1)
Total liabilities (486.5) (413.1)
Net assets 451.2 500.8
Equity
Share capital 2.6 2.6
Share premium 153.7 153.7
Revaluation reserve - 216.2
Other reserves - -
Retained profit 294.9 128.3
451.2 500.8
Adjusted NAV per share 966p 964p
Group balance sheet
IFRS and UK GAAP
At 31st December 2004
IFRS UK GAAP
£m £m
Assets
Non-current assets
Investment properties 915.6 916.6
Investments 1.8 1.8
Property, plant and equipment 0.6 0.6
918.0 919.0
Current assets
Cash and cash equivalents 4.5 4.5
Other current assets 23.9 19.2
28.4 23.7
Total assets 946.4 942.7
Liabilities
Current liabilities
Bank loans and overdrafts (1.3) (1.3)
Other current liabilities (25.6) (48.9)
(26.9) (50.2)
Non-current liabilities
Bank loans (288.0) (288.0)
10 1/8% First Mortgage Debenture Stock 2019 (34.5) (34.5)
Leasehold liability (22.2) -
Derivative financial instruments - -
Deferred tax (78.4) (14.4)
Other non-current liabilities - -
Provisions (0.9) (0.9)
(424.0) (337.8)
Total liabilities (450.9) (388.0)
Net assets 495.5 554.7
Equity
Share capital 2.6 2.6
Share premium 154.1 154.1
Revaluation reserve - 265.7
Other reserves 0.3 0.2
Retained profit 338.5 132.1
495.5 554.7
Adjusted NAV per share 1074p 1068p
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