Final Results - Year Ended 31 Dec 1999, Part 1
Hammerson PLC
6 March 2000
PART ONE
HAMMERSON plc- RESULTS FOR YEAR ENDED 31 DECEMBER 1999
- AND ACQUISITION IN PARIS
Results Percentage
changes
- Net asset value per share 586 pence (1998: 485 pence) +20.8%
Diluted net asset value per share 573 pence (1998: 481 pence) +19.1%
- Net rental income £123.3 million (1998: £127.9 million) -3.6%
- Profit before taxation (FRS 3 basis) £94.5 million
(1998: £88.9 million) +6.3%
Adjusted profit before taxation* £73.2 million
(1998: £68.8 million) +6.4%
- Earnings per share (FRS 3 basis) 30.7 pence (1998: 23.1 pence) +32.9%
Adjusted earnings per share* 21.6 pence (1998: 21.1 pence) +2.4%
- Recommended final dividend of 9.11 pence (1998: 8.68 pence)
making a total for the year of 13.3 pence, an underlying
increase of5.0%
- Gearing 51% (1998: 64%)
* Excluding exceptional items
Acquisition in Paris
- Hammerson has exchanged contracts to acquire Les Trois Quartiers, 21
boulevard de la Madeleine, Paris 1er for £122 million. Built in 1991, the
28,500 sq m mixed use retail and office property occupies a prime location
in central Paris.
Ronald Spinney, Chairman, said:
'I am very pleased to report on a particularly strong performance from the
group's portfolio, the successful completion of two major development
projects, the acquisition of several properties offering excellent growth
potential and a number of disposals.
The group entered 2000 with a high quality investment portfolio offering
good growth prospects. In addition it has an exciting development
programme. The successful completion of several major developments in the
last few years is evidence of Hammerson's expertise in this area and the
current programme provides considerable potential. The outlook for the
markets in which Hammerson operates remains healthy and I am confident
that the momentum achieved in recent years will be maintained in 2000.'
For further information:
John Richards Tel: 020 7887 1000
Chief Executive Fax: 020 7887 1010
Simon Melliss
Group Finance Director
Christopher Smith
Director of Corporate Affairs
Copies of the preliminary results statement, profit & loss account, balance
sheet and cash flow statement are attached.
CHAIRMAN'S STATEMENT
Results and Dividend
In this my first statement to you since becoming Chairman, I am very pleased
to report on a particularly strong performance from the group's portfolio, the
successful completion of two major development projects, the acquisition of
several properties offering excellent growth potential and a number of
disposals.
Adjusted profit before taxation increased by 6.4% to £73.2 million, whilst
adjusted earnings per share increased by 2.4% to 21.6 pence. There was an
underlying increase of 9.1% in the value of the group's investment portfolio
and this, coupled with development surpluses, was the principal reason for an
increase of 92 pence, or 19.1%, in diluted net asset value per share to
573 pence.
The directors are recommending a final dividend of 9.11 pence, compared with
8.68 pence last year. This makes a total dividend for the year of 13.3 pence
and represents an effective increase of 5.0%, as last year's interim dividend
included 0.14 pence to allow for its deferral until April 1999.
Portfolio and Balance Sheet
At 31 December 1999, Hammerson's portfolio had a book value of £2,657 million,
compared with £2,163 million at the end of 1998. Properties in the UK
accounted for 73% of the total and the French and German portfolios for 21%
and 6% respectively. Retail properties represented 59% of the portfolio and
offices the balance.
Gearing at the year end was 51%, compared with 64% at the end of 1998 (or 41%
after taking into account the proceeds from the sale of the Canadian business
which were received in January 1999) and the group had cash and undrawn
committed borrowing facilities of some £377 million. Hammerson's financial
position remains strong and it has the resources both to complete the existing
development programme and make further investments.
Since the year end, Hammerson has completed the purchase of Forum Steglitz, a
major shopping centre in a prime retail location in Berlin, for £80 million
and exchanged contracts to buy a mixed use retail and office property, Les
Trois Quartiers, in central Paris for £122 million.
Markets and Outlook
The competitive pressures facing many retailers have been well publicised.
Nevertheless, retailers recognise the attractions of well managed shopping
centres which give consumers a wide choice and which dominate their catchment
areas. Hammerson's retail portfolio is weighted towards this category of
property.
In the UK, rents for prime shopping centres increased in 1999 and have
continued to do so since the year end. Investment demand remains buoyant. In
France, retail rents rose strongly in 1999 and the outlook is for continued
growth in both rents and values.
In Germany, an increase in demand in some prime retail areas is now apparent.
The outlook is improving in line with better economic forecasts and in the
context of a relatively limited supply of large retail units. Investor
interest in shopping centres remains strong, particularly from domestic
institutions.
Demand for office accommodation in central London remained healthy with take
up maintained at the high level seen in the previous two years. In the City
there was a modest increase in prime rents, whilst in the West End and
Docklands rents continued to advance strongly. Since the year end, there has
been a noticeable increase in demand for good quality accommodation in central
London, which together with a limited supply of new space, should lead to
further rises in rental values. Investment demand for prime UK offices
remains healthy.
Prospects are also good for prime modern office space in central Paris, where
take up in 1999 was very strong. Investment demand for such properties is at a
record level and the outlook remains encouraging.
Direct property is performing well in all our markets. I am confident that we
can manage Hammerson's business in a way which will continue to generate
attractive returns on shareholders' equity and produce real growth in the
value of the business. At present, the UK publicly-quoted property sector is
amongst those out of favour with investors. Nevertheless, over time, I believe
that Hammerson's enhanced performance will be reflected in its share price.
Board Changes and Management
Geoffrey Maitland Smith, who was appointed a non-executive director in 1990
and Chairman in 1993, retired from the Board on 30 September 1999. Under his
Chairmanship, Hammerson has been transformed into the successful company it is
today and I would like to thank him for his major contribution.
John Richards succeeded me as Chief Executive on 1 October 1999. John joined
Hammerson in 1981 and was appointed to the Board in 1990. He has considerable
experience of all aspects of Hammerson's business. Two other Board
appointments also came into effect on 1 October. Peter Cole and Gerard
Devaux, who each have over ten years experience with the group, became
Development Director and Managing Director for continental Europe
respectively.
I am very pleased that Graham Pimlott, a non-executive director since 1993,
was appointed non-executive Deputy Chairman on 1 January 2000.
With the new Board structure and strong management teams in place throughout
the group, I am confident that Hammerson has the skills necessary both to
realise the potential in the existing portfolio and secure new opportunities.
Conclusion
Hammerson is a focused business which operates in two sectors - shopping
centres and offices - in the UK, France and Germany.
The group entered 2000 with a high quality investment portfolio offering good
growth prospects. In addition it has an exciting development programme. The
successful completion of several major developments in the last few years is
evidence of Hammerson's expertise in this area and the current programme
provides considerable potential. The outlook for the markets in which
Hammerson operates remains healthy and I am confident that the momentum
achieved in recent years will be maintained in 2000.
Ronald Spinney
Chairman
6 March 2000
CHIEF EXECUTIVE'S REVIEW
Becoming Hammerson's Chief Executive is an exciting challenge. It has been a
privilege to work with Ron Spinney in reshaping Hammerson's business over the
last few years. The strategy, on which the substantial improvement in
Hammerson's recent performance has been based, remains unchanged.
Objectives and Strategy
Our objective is to achieve good income and capital growth with a strategy of
focusing on high quality shopping centres and offices in a small number of
major European markets where we have considerable expertise. The principles
that Hammerson will continue to follow, which should deliver strong
performance in the years ahead, are fourfold.
- To monitor the performance of all properties in the portfolio against
clear financial targets. As part of this process, research is used
extensively to monitor markets and anticipate future trends, both in
rents and values. This enables us to make appropriate decisions
regarding the overall portfolio structure, acquisitions and disposals.
- To deliver attractive income and capital returns from the portfolio by
creative management of each individual property and by carrying out
programmes of improvements, where appropriate, to ensure that properties
continue to meet the specification and requirements of occupiers.
- To create high quality properties through development, thereby generating
valuation surpluses and increasing rental income. Development usually
carries higher risks than investment in income-producing properties. We
evaluate and control these risks by rigorous management and by phasing
the programme.
- To ensure that Hammerson has the financial resources to meet its
commitments and the flexibility to pursue attractive new opportunities,
whilst optimising its cost of capital.
Progress in 1999
Our success in each of these areas is demonstrable. The total returns from
our portfolio in 1999 were 17.5%. We invested £362 million in acquiring new
assets and received £511 million from disposals, of which £320 million related
to the sale of Hammerson Canada. We continued to invest in the existing
portfolio and programmes of improvements or refurbishment were initiated at
several of the group's properties.
Excellent progress was also made with the development programme on which
capital expenditure totalled £159 million in 1999. Two major projects were
completed, The Oracle, a 65,000 sq m regional shopping centre in Reading and
40 rue de Courcelles, Paris 8eme, a 17,700 sq m prime office building.
The development surpluses relating to these two schemes amounted to some
£69 million, an uplift of 45% on our costs, and both now produce high
quality rental income.
During 1999, the group raised Euro 300 million through an eight year unsecured
bond issue at an interest rate of 5.0% per annum, evidence of the group's
strong financial position and its continuing ability to raise finance on
attractive terms.
A Changing Environment
Hammerson operates in a rapidly changing environment which is being influenced
by new technologies and this has implications for the way in which our
customers do business and their evolving requirements for property.
The development of e-commerce is receiving a high profile, although as yet,
its impact on traditional forms of retailing has been limited. Indeed, it is
apparent that many retailers, whilst planning to use the internet, recognise
the importance of a physical shop presence to support their brands. We
continue to see a good future for those centres which provide the consumer
with a wide range of retailers, as part of an attractive shopping and leisure
experience.
We are taking advantage of the opportunities presented by new technologies to
enhance the services we provide to our customers and tenants. We are
incorporating information systems that support our occupiers and assist them
to run their businesses more effectively. At the same time, we are providing
shoppers with a broader range of services that make a visit to a Hammerson
centre more enjoyable . We shall continue to work closely with all our
occupiers to understand their requirements and provide them with a service of
the highest quality.
Achieving Our Objectives
The achievement of our objectives requires a rigorous approach to risk
management in all areas of our business. Hammerson has a clear and formalised
approach to risk management under which the Board receives regular reports and
presentations on all key aspects of the group's operations and activities.
We have set ourselves demanding business objectives. To achieve them it is
vital that we continue to attract and retain skilled people. The
repositioning of Hammerson's portfolio over the past few years, the successful
completion of several major developments and the forging of strong business
links with our partners, demonstrate the expertise of the current team. We
shall continue to give all our staff every opportunity to enhance their skills
and provide them with the framework within which they can maximise their
contributions to the business. This, I believe, will be vital to Hammerson's
continuing success.
John Richards
Chief Executive
6 March 2000
FINANCIAL REVIEW
Operating Results
- Net rental income for the year was £123.3 million compared with £127.9
million in 1998. On a like-for-like basis rental income grew by 7.0%.
Net rental income 1999 1998
£m £m
Properties owned throughout 80.9 75.6
Properties acquired in 1998 and 1999 25.3 5.5
Properties sold in 1998 and 1999 9.6 40.2
Development properties 7.5 5.2
Exchange translation - 1.4
Total 123.3 127.9
- In the UK, net rental income increased by £14.7 million to £94.7 million.
This was due to acquisitions, rental growth at the shopping centres, the
first contribution from Globe House, London WC2, and the end of rent free
periods at 99 Bishopsgate, London EC2.
- In France, net rental income was unchanged at £20.7 million, but at
constant exchange rates, it rose by £2.5 million. There was an increase
of £5.4 million at the shopping centres, including the first full year of
ownership of Italie 2, Paris 13eme and Place des Halles, Strasbourg. This
was offset by a reduction of £2.9 million due to office disposals.
- In Germany, net rental income increased by £1.2 million, or £2.0 million
at constant exchange rates. This was due to the acquisition in late 1998
of the Luisen Center, Darmstadt, which more than offset the impact of the
disposal of Saar Galerie, Saarbruecken.
- Administration costs fell by £2.0 million to £14.3 million in 1999,
mainly because of the disposal of Hammerson Canada and the consequent
saving of the Canadian office costs.
- Net interest was £7.0 million lower than in 1998 at £35.8 million. The
average cost of borrowing in 1999 was 6.7%, compared with 7.1% the
previous year. Interest capitalised increased by £7.2 million to £19.0
million in 1999 reflecting expenditure on the development programme.
- Profit before tax in 1999 included a gain of £21.3 million arising on
property disposals. The profit on the disposal of Holborn Links Limited
amounted to £11.3 million after deducting a premium of £3.7 million which
arose on the early redemption of a mortgage.
- The taxation credit of £0.1 million is comprised of two elements: first,
the tax charge on profits before exceptional items of £9.0 million, an
effective rate of 12.3% that reflects the benefit of using surplus
advance corporation tax ('ACT') previously written off; second, an
exceptional credit of £9.1 million relating to the recovery of Canadian
taxation.
Earnings per share
- Earnings per share for 1999 were 30.7 pence. After excluding profits
from investment property disposals, the Canadian tax recovery and
adjusting for the minority share of the profit on disposal of Holborn
Links, adjusted earnings per share were 21.6 pence, an increase of 2.4%
on the previous year.
Dividend per share
- The proposed final dividend of 9.11 pence per share, together with the
interim dividend of 4.19 pence per share, makes a total for the year of
13.3 pence per share. This represents an underlying increase of 5.0% as
last year's interim dividend included 0.14 pence per share to allow for
its deferral until April 1999.
Diluted net asset value per share
- Diluted net asset value per share rose to 573 pence at 31 December 1999,
an increase of 19.1% from 481 pence at the end of the previous year.
- The increase in diluted net asset value in the second half of 1999 was
10.4%, when compared with 519 pence at 30 June 1999.
- Developments in progress are included in the balance sheet at cost.
Unrecognised surpluses on developments in progress amounted to 10 pence
per share at the year end, compared with 15 pence per share at the end of
1998. Surpluses above cost equivalent to 22 pence per share were
achieved on the developments completed during 1999.
Return on shareholders' equity
- The return on shareholders' equity for 1999 amounted to 23.7% compared
with 13.4% achieved in 1998. The return on shareholders' equity for 1999
includes the development surpluses arising on completion of The Oracle,
Reading and 40 rue de Courcelles, Paris 8eme , which together contributed
5.0% of the overall return.
Balance Sheet
- At the year-end, the book value of the property portfolio amounted to
£2,657 million, of which £368 million represented properties held for or
in the course of development. The increase in the year was £494 million
and comprised valuation surpluses of £240 million, additions of £537
million, partly offset by property disposals of £205 million, and a
reduction of £78 million due to foreign exchange translation movements.
Included within capital expenditure is £64 million for the acquisitions
of 51/53 Quai d'Orsay and 8/12 rue Surcouf, Paris 7eme, of which £58
million will become payable when the vendor vacates the property in late
2000.
- Properties held for or in the course of development, are included in the
balance sheet at a cost of £368 million and were valued at the year end
at £400 million. The group does not intend to dispose of any of its
developments and management believes that, in current market conditions,
the future surpluses from these projects should be substantially in
excess of £32 million.
Retail Offices Total
Investment Development Investment Development
Properties properties
£m £m £m £m £m
UK 849 173 861 63 1,946
France 327 60 109 64 560
Germany 143 8 - - 151
Total 1,319 241 970 127 2,657
Cash flow
- During the year, capital expenditure totalled £478 million. Property
acquisitions represented £304 million, expenditure on developments £159
million, and refurbishment and other works on the investment portfolio a
further £15 million.
- The disposal of Hammerson Canada Inc. raised total net proceeds of £320
million. A further six properties were sold in 1999 realising proceeds
of £191 million. Amongst these was the Holborn Links Estate in central
London, in which Hammerson held a 65.22% interest, which was sold in
September 1999 realising £81 million.
- Hammerson's operating cash flow for the year was £120 million. Tax
payments in 1999 of £53 million included £31 million in respect of the
disposal of the Canadian business.
Cash and borrowings
- At 31 December 1999, the group's borrowings amounted to £1,005 million.
Hammerson had cash balances of £146 million and undrawn committed
facilities of £231 million. Capital commitments at the year-end were
£171 million.
- In June 1999 Hammerson arranged a Euro 300 million unsecured eight year
bond at a coupon of 5.0% per annum.
- At the year-end, the weighted average term of maturity of the group's
borrowings was 11 years and 75% of borrowings were at fixed rates of
interest.
- Gearing at the year end stood at 51%, which compares with 64% reported at
31 December 1998. Interest cover during the year was 2.3 times.
- The market value of borrowing and financial instruments at the year-end
was £1,083 million, £78 million greater than the actual liability. At
the end of 1998, the equivalent difference was £141 million.
Year 2000
- Hammerson has experienced no disruption to any of its operations since
the millennium date change. The overall cost of the group's compliance
project was approximately £1.5 million. The majority of this expenditure
was incurred in updating and improving Hammerson's own IT systems and
management systems and equipment at its properties.
Purchase of own shares
- The Board currently has authority to purchase 14,413,104 of the Company's
shares, representing 5.0% of the current issued share capital. The Board
is keeping the exercise of that authority under review in the light of
the Company's current share price.
- At the forthcoming Annual General Meeting, the Board intends to seek to
renew and to increase that authority to permit purchases of up to 14.9%
of the then issued share capital. The Board will review the exercise of
such increased authority in the context of the Company's share price at
that time and the long term interest of shareholders.
MORE TO FOLLOW
FR UOVWRRNRORAR