Interim Results

RNS Number : 3387I

Sutton Harbour Holdings PLC

18 November 2008

 



Sutton Harbour Holdings plc

('Sutton Harbour' or the 'Company')

Interim Results for the six months ended 30 September 2008

Sutton Harbour Holdings plc announces its results for the six months ended 30 September 2008.

Chairman's Statement

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Since I reported to shareholders in July that the company could not remain immune from the pressures on the property and transport sectors, we have experienced an exceptionally difficult general economic environment: the problems in the UK banking system and global capital markets; and, virtual paralysis in the commercial and residential property sectors have impacted the economy to the extent we now face the possibility of a serious recession together with the attendant pressures on Government finances, currency and bond markets. In spite of these conditions I am pleased that we have been able to generate a profit in the period under review.

Results and dividend

Profit before tax for the six months to 30 September 2008 was £505,000 (2007: £2,176,000). This was achieved after charging a fair value deficit on an independent revaluation of investment properties of £519,000. This deficit offsets, in part, the revaluation surplus of £2,828,000 which was reported as at 31 March 2008 and represents only a modest decline in the value of our investment portfolio reflecting positively on the underlying quality of our asset base. The reduction in reported profit for the period also reflects the challenging trading conditions facing our transport business and the expected variability in accounting for profits from regeneration projects which we have referred to in previous statements.

During the period gearing has increased from 46% to 62%. This was anticipated as the Salt Quay offices development nears completion and the group continues to progress other schemes. The group continues to balance overall gearing levels and financing considerations against the intention to grow its investment property portfolio and may sell selected investments where judged to be commercially beneficial.

Your board proposes to maintain an interim dividend of 0.9p per share (2007: 0.9p) reflecting the realisation of profits on the sale of the investment in the LIFT joint venture, which is referred to later in this statement, and the underlying strength of our regeneration pipeline. It remains our long term policy to pursue a progressive dividend policy although we must have regard to the rate of progress we can achieve in current market conditions. Specifically, certain milestones will have to be achieved in our development activities. The dividend will be paid on 6 January 2009 to shareholders on the register on 9 December 2008. The shares are expected to go ex-dividend on 5 December 2008.

Transport

The transport sector has performed in line with expectations.  During the first half year we carried 164,500 passengers giving a 65% network load factor, a very encouraging performance in view of the fact that we started new routes to Newcastle, Glasgow, Cork and Dublin in April 2008. Over the summer months we have incurred the start-up costs of the new routes and contended with high fuel prices but we will see some relief from high fuel prices during the second half as oil prices have fallen. We have progressively hedged 100% of fuel requirements at improving rates to secure budgets and we have secured all of our US dollar requirements through to March 2010 at good rates. With the recession affecting spending decisions we might expect some slackening of demand for tickets during the winter although to date we have seen no strong trend and we have flexibility to adjust capacity as necessary. 

Marine

The marine sector has traded well during the first half year with a record marina season for both annual berths and visitors. High fuel prices have deterred some sea trips and as a result we have seen a small decline in fisheries profit during the period. With fuel prices now abating and with the new lock gates in place we are hopeful for a good winter fishery season.

Regeneration

The 42,000 sq ft office building pre-let to Foot Anstey solicitors at Salt Quay is nearing completion and we have started on site with the first phase of the development in Portland in preparation for the 2012 Olympic and Paralympic sailing events. This phase comprises 16,000 sq ft space pre-sold to the Royal Yachting Association due for completion in Autumn 2009. We are also progressing the planning application for development of 22 surplus acres of land at Plymouth City Airport. This application is for a mixed-use development including residential allocation. Due to the complexity of the application we do not expect to hear the outcome until early 2009. Our other interests in schemes at East Quays (Boatyard) and in Exeter, St Austell and Swansea are all continuing although the pace of progress and the level of achievable profit will be influenced by the state of market conditions. The group has already secured valuable planning permissions for both the East Quays and Exeter developments.

The group's portfolio comprises quality commercial and specialist operating facilities, much overlooking Sutton Harbour, with secure covenants and long leases in place. Since the year end demand for quality commercial space has fallen and property rental yields have declined. Against these factors we have achieved good rent reviews on a number of properties and we have taken over management of our car parks to improve returns. The valuation of property was updated by the company's independent valuers (Lambert Smith Hampton) at 30 September 2008 resulting in a deficit of £519,000 on investment properties and a deficit of £353,000 on owner occupied properties. Valuation movements on the former are dealt with in the income statement and are taken directly to reserves in the case of owner occupied properties.

Our income continues to comprise a mix of recurring revenues and one-off transactions. During the period the group sold its interest in the joint venture, through which investments in Local Investment Finance Trust (LIFT) initiatives were held, resulting in a profit of £902,000 in addition to the profit on the share exchange of £1,106,000 recorded at 31 March 2008. 

Corporate Governance and personnel

I am pleased to announce the appointment of two new non-executive directors with effect from 1 December 2008. This coincides with the decision by Sheridan Brimacombe to retire at that date after 7 years service. I would like to express my and my colleagues' gratitude for her wise counsel and support during this period. The first new appointment is John Heawood who was for 11 years a group board director of SEGRO plc (Formerly Slough Estates plc), a major listed property company. Prior to that he spent 20 years advising on all aspects of UK commercial property including 11 at DTZ where he was a director. John Heawood is a chartered surveyor and a past member of the CBI property group. I am also pleased to announce that Keith Sykes will also be joining the board. He is currently a director of two companies and has been chief executive of Watts Blake Bearne & Co Plc and a non-executive director of TSW - Television South West Holdings Plc. He is also a substantial shareholder in your company.  Both John Heawood and Keith Sykes will serve on the remuneration and audit committees. I am also pleased to announce that Tony Everett has been appointed deputy chairman of the group.

I am very sorry to report that Jim Cameron, chief executive of Air Southwest, died in August 2008 after a period of illness. He quickly gained the respect of his colleagues at Air Southwest and he will be sadly missed. We have appointed Mike Coombes, the deputy chief executive, to acting chief executive whilst we undertake the process for finding a replacement.

In addition, we decided to review the group's audit and tax compliance services. Four major firms were invited to take part in a tender process led by the chairman of the audit committee and the board have decided to engage PricewaterhouseCoopers LLP with immediate effect with a team led from their Bristol office. The board wishes to thank KPMG Audit Plc for their work and their professional advice since 2002.

Summary and Outlook 

During the first half year your board has focused on maintaining a stable base for our core activities as the economic downturn deepens and volatility in fuel price, currency exchange and interest rates prevail. Under the prevailing conditions each of our activities has performed satisfactorily, although as expected delivery of profits from regeneration activities in the first six months has slowed reflecting trends in this sector. Our priorities have been to:

Secure banking facilities - we have renegotiated an increase in our general facilities to £25 million at competitive rates. Of this £16.5m was drawn at 30 September 2008.

Review activities - we have scaled back our development capacity as we see less demand for quality new commercial buildings for a minimum of eighteen months. This has been accompanied by a review of our overhead expenditure and staff costs. 

Hedging risk - we have secured US dollar requirements until March 2010 at good rates and we have secured airline fuel requirements until October 2009 at rates we consider satisfactory.

Going forward, the group has an experienced management team who have taken early action to protect the business and secure a stable platform from which to progress our activities. They are supported by dedicated staff who have worked very hard in these challenging times. Whilst we expect uncertain conditions to continue, your company has a core of secure profitable income streams through rental and marine activities; a good pipeline of regeneration projects to bring forward as conditions dictate; and, is backed with a high quality asset base. 

Michael Knight

Chairman

18 November 2008

  Consolidated Income Statement

	Note	6 months to 30 September 2008 (unaudited) £000	6 months to 30 September 2007 (unaudited) £000	Year Ended 31 March 2008 (audited) £000
Continuing operations
Revenue	3	16,191	17,576	29,237
Cost of sales		(14,984)	(14,436)	(25,527)
Gross Profit		1,207	3,140	3,710
Other operating income		10	9	20
Administrative expenses		(520)	(603)	(1,465)
Other operating expenses		(16)	(24)	(33)
Operating profit before fair value adjustments of investment property		681	2,522	2,232
Fair value adjustments of investment property	7	(519)	-	2,828
Operating profit	3	162	2,522	5,060
Financial income		84	146	251
Financial expense		(548)	(448)	(835)
Net financing costs		(464)	(302)	(584)
Realised gain on disposal of interest in joint venture company	9	902	-	-
Unrealised gain on exchange of shares in associate company	9	-	-	1,106
Share of loss of joint venture using the equity accounting method		(95)	-	-
Share of loss of associate using the equity accounting method		-	(44)	(125)
		807	(44)	981
Profit before tax		505	2,176	5,457
Taxation	4	(141)	(492)	(884)
Profit for the period attributable to the equity shareholders		364	1,684	4,573
Basic earnings per share	6	0.72p	3.36p	9.10p
Diluted earnings per share	6	0.71p	3.31p	8.94p

Consolidated Statement of Recognised Income and Expense

		6 months to 30 September 2008 (unaudited) £000	6 months to 30 September 2007  (unaudited) £000	Year Ended 31 March 2008 (audited) £000
Revaluation of property, plant and equipment		(353)	-	(2,036)
Deferred taxation on income and expenses recognised directly in equity		(15)	180	575
Effective portion of changes in fair value of cash flow hedges		(374)	-	-
Profit for the period		364	1,684	4,573
Total recognised income and expense for the period attributable to the equity shareholders		(378)	1,864	3,112

  Consolidated Balance Sheet

	Note	As at 30 September 2008 (unaudited) £000	As at 30 September 2007 (unaudited)* £000	As at 31 March 2008 (audited) £000
Non-current assets
Property, plant and equipment	7	33,665	33,383	33,853
Intangible assets		524	559	541
Investment property	7	32,560	20,102	28,131
Investment in associate		-	847	-
Investment in joint venture		-	-	2,020
Other financial assets		130	130	130
		66,879	55,021	64,675
Current assets
Inventories		8,370	3,922	5,448
Trade and other receivables		3,110	4,174	3,950
Cash and cash equivalents	8	6	5	6
Derivatives		424	83	82
Tax receivable		38	74	481
		11,948	8,258	9,967
Total assets		78,827	63,279	74,642
Current liabilities
Bank overdraft	8	16,320	8,621	13,406
Other interest-bearing loans and borrowings		1,013	1,047	1,013
Trade and other payables		7,246	3,948	6,808
Deferred income		2,383	2,338	3,362
Deferred government grants		19	21	20
Derivatives		390	97	-
Provisions		292	-	229
		27,663	16,072	24,838
Non-current liabilities
Other interest-bearing loans and borrowings		6,630	1,813	3,718
Deferred government grants		304	331	314
Derivatives		-	-	-
Provisions		-	58	-
Deferred tax liabilities		5,648	6,128	6,088
		12,582	8,330	10,120
Total liabilities		40,245	24,402	34,958
Net assets		38,582	38,877	39,684
Equity and reserves
Share capital	10	12,622	12,621	12,622
Share premium	10	3	-	3
Other reserves	10	9,085	11,468	9,827
Retained earnings	10	16,872	14,788	17,232
Total equity		38,582	38,877	39,684

* Restated as described in the financial statements for the year ended 31 March 2008.  

Consolidated Cash Flow Statement

	Note	6 months to 30 September  2008 (unaudited) £000	6 months to 30 September 2007 (unaudited) £000	Year Ended 31 March 2008 (audited) £000
Cash flows from operating activities
Profit for the period		364	1,684	4,573
Adjustments for:
Taxation		141	492	884
Share of loss of associate		-	44	125
Share of loss of joint venture		95	-	-
Financial income		(84)	(146)	(251)
Financial expense		548	448	835
Fair value adjustments of investment property		519	-	(2,828)
Unrealised gain on exchange of shares in associate company		-	-	(1,106)
Gain on disposal of interest in joint venture company		(902)	-	-
Gain on remeasurement of derivative financial instruments to fair value		(326)	-	-
Depreciation and amortisation		497	433	723
Amortisation of grants		(10)	(9)	(20)
Loss on sale of property, plant and equipment		16	24	33
Equity settled share-based payment expenses		33	35	44
Operating profit before changes in working capital and provisions		891	3,005	3,012
(Increase) in loan to associate		-	(63)	-
(Increase) in inventories		(2,922)	(692)	(3,553)
Decrease/(increase) in trade and other receivables		840	(97)	127
Increase/(decrease) in trade and other payables		428	(520)	989
(Decrease)/increase in deferred income		(979)	(998)	26
Increase in provisions		63	18	189
Cash (used in)/generated from operations		(1,679)	653	790
Tax paid		(154)	(138)	(578)
Net cash (used in)/from operating activities		(1,833)	515	212
Cash flows from investing activities
Proceeds from sale of property, plant and equipment		13	5	18
Acquisition of investment property		(4,848)	(2,948)	(7,088)
Acquisition of property, plant and equipment		(652)	(1,048)	(2,402)
Interest received		36	73	162
Net proceeds from disposal of interest in joint venture		2,732	-	-
Equalisation receipt in relation to joint venture		111	-	-
Costs relating to new joint venture company		-	-	(40)
Net cash (used in) investing activities		(2,608)	(3,918)	(9,350)
Cash flows from financing activities
Proceeds from the issue of share capital		-	2,424	2,427
Issue costs relating to the issue of share capital		-	(94)	(94)
Proceeds from new loan		3,368	-	2,350
Interest paid		(628)	(344)	(812)
Repayment of borrowings		(456)	(500)	(980)
Dividends paid		(757)	(644)	(1,098)
Net cash from financing activities		1,527	842	1,793
Net (decrease) in cash and cash equivalents		(2,914)	(2,561)	(7,345)
Cash and cash equivalents at beginning of period		(13,400)	(6,055)	(6,055)
Cash and cash equivalents at end of period	8	(16,314)	(8,616)	(13,400)

Notes to Interim Report

1.       General information

This consolidated interim financial information does not comprise statutory accounts within the meaning of section 240 of the Companies Act 1985. Statutory accounts for the year ended 31 March 2008 were approved by the board of directors on 9 June 2008 and delivered to the Registrar of Companies.  The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 237 of the Companies Act 1985. 

Copies of the group's financial statements are available from the company's registered office, North Quay House, Sutton Harbour, Plymouth, PL4 0RA and on the company's website www.sutton-harbour.co.uk.

This consolidated interim financial information has not been audited.

2. Basis of preparation

The consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 March 2008, which have been prepared in accordance with IFRSs as adopted by the European Union.

Accounting policies

Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 31 March 2008, as described in those annual financial statements.

As at 31 March 2008, the group had not applied hedge accounting. The fair value movement of all hedges was therefore recorded in the income statement. From 1 April 2008, the group has applied hedge accounting for all hedge contracts entered into from 1 April 2008.  The effective part of any gain or loss on the cash flow hedges is recognised directly in the hedging reserve. Any ineffective portion of the hedge is recognised immediately in the income statement.  This has resulted in a gain of £326,000 being recorded in the income statement for hedge contracts in place prior to 31 March 2008 and a negative hedge reserve of £374,000 in the balance sheet for hedge contracts entered into since 1 April 2008.

The following new standards, amendments to standards or interpretations are mandatory for the first time for the financial year beginning 1 April 2008, but are not currently relevant for the group: 

·            IFRIC 12 – not applicable to current activity

·            IFRIC 14 – not applicable to current activity

The following new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year beginning 1 April 2008 and have not been adopted early:

·           IFRS 8 ‘Operating Segments’ effective for year ends beginning on or after 1 January 2009 – not going to adopt early. The group is currently reviewing whether IFRS 8 will mean that the group has more or less reportable segments.

·           IFRIC 13 – not applicable to current activity

·           IFRIC 15 – based on current activity it is not believed that this will impact on the current accounting policies

·           IFRIC 16 – not applicable to current activity

Accounting estimates and judgements

The preparation of financial statements in conformity with Adopted IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

With the exception of the change to the accounting treatment of hedges described above, estimates and judgements have not been changed since the signing of the financial statements for the year ended 31 March 2008.

  Notes to Interim Report

3. Segment results

The group's primary format for segment reporting is based on business segments. All of the group's operations are carried out in the United Kingdom. The group therefore has only one geographical segment.

Business segments:

	6 months to 30 September 2008	6 months to 30 September 2007	12 months to 31 March 2008
	(unaudited)	(unaudited)	(audited)
	£000	£000	£000
External revenue:
Marine activities	2,620	2,632	4,315
Regeneration	647	2,583	3,710
Transport	12,924	12,361	21,212
Total external revenue	16,191	17,576	29,237
Total intersegment revenue	-	-	-
Total revenue	16,191	17,576	29,237
Segment result:
Marine activities	696	707	1,101
Regeneration prior to fair value adjustment of investment property	231	1,486	2,187
Fair value adjustment of investment property	(519)	-	2,828
Regeneration after fair value adjustment of investment property	(288)	1,486	5,015
Transport	274	932	409
	682	3,125	6,525
Unallocated expenses:
Administrative expenses	(520)	(603)	(1,465)
Group operating profit	162	2,522	5,060
Financial income	84	146	251
Financial expense	(548)	(448)	(835)
Realised gain on disposal of interest in joint venture company	902	-	-
Unrealised gain on exchange of shares in associate company	-	-	1,106
Share of loss of joint venture	(95)	-	-
Share of loss of associate	-	(44)	(125)
Taxation	(141)	(492)	(884)
Profit for the period	364	1,684	4,573
Assets and liabilities
Segment assets:
Marine activities	20,778	22,544	21,117
Regeneration	41,267	25,230	34,600
Transport	16,208	14,401	15,933
Unallocated assets	536	1,030	2,511
Tax assets	38	74	481
Total assets	78,827	63,279	74,642
Segment liabilities:
Marine activities	863	755	1,511
Regeneration	8,258	1,678	5,413
Transport	8,894	4,350	8,184
Unallocated liabilities	16,582	11,491	13,762
Tax liabilities	5,648	6,128	6,088
Total liabilities	40,245	24,402	34,958

 

 

Notes to Interim Report 

4. Taxation 

The company has applied an effective tax rate of 28% (2007: 30%) based on management's best estimate of the tax rate expected for the full financial year.

5. Dividends 

	6 months to 30 September  2008 (unaudited) £000	6 months to 30 September  2007 (unaudited) £000	Year Ended 31 March  2008 (audited) £000
Final Dividend in respect of the year ended 31 March 2008 (31 March 2007)	757	644	644
Interim Dividend in respect of the year ended 31 March 2008	-	-	454
	757	644	1,098

The interim ordinary dividend of 0.9p (net) per share (2007: 0.9p) totalling £454,405 (2007: £454,405) was approved by the board of directors on 17 November 2008. This interim dividend will not be provided against profits until paid and will be paid on 6 January 2009 to shareholders on the register on 9 December 2008.

6. Earnings per share

	6 months to 30 September 2008 (unaudited) pence	6 months to 30 September 2007 (unaudited) pence	Year Ended 31 March 2008 (audited) pence
Basic earnings per share	0.72p	3.36p	9.10p
Diluted earnings per share	0.71p	3.31p	8.94p

Basic earnings per share have been calculated using the profit for the period of £364,000 (2007: £1,684,000) and the 50,489,400 (2007: 50,066,411) average number of ordinary shares in issue, excluding those options granted under the SAYE scheme.

Diluted earnings per share uses an average number of 51,569,811 (2007: 50,933,025) ordinary shares in issue, and takes account of the outstanding options under the SAYE scheme in accordance with IAS 33 'Earnings per share'.  

7. Property valuation

Freehold land and buildings and investment property have been independently valued by Lambert Smith Hampton as at 30 September 2008 in accordance with the Practice Statements in the Valuations Standards (The Red Book) published by the Royal Institution of Chartered Surveyors.  

The basis for determining the property values is as described in the financial statements for the year ended 31 March 2008.

Notes to Interim Report 

8. Cash and cash equivalents

	As at 30 September 2008 (unaudited) £000	As at 30 September 2007 (unaudited) £000	As at 31 March 2008 (audited) £000
Cash and cash equivalents per balance sheet	6	5	6
Bank overdraft	(16,320)	(8,621)	(13,406)
Cash and cash equivalents per cash flow statement	(16,314)	(8,616)	(13,400)

9. Realised gain on disposal of interest in joint venture company

On 30 September 2008, the group disposed of its 50% interest in JV UK Company Limited, a joint venture with Community Solutions for Primary Care (Holdings) Limited. Although the group has retained its 50% shareholding in JV UK Company Limited, it no longer has any voting rights in relation to these shares and no entitlement to receive any income from JV UK Company Limited. The voting rights and entitlement to receive income have been assigned to Community Solutions for Primary Care (Holdings) Limited.

As at the date of the transaction, the realised gain on the disposal was calculated as follows:

	£000
Proceeds received	2,745
Share of net assets of joint venture	(1,827)
Transaction costs	(16)
Realised gain on disposal of interest in joint venture	902

The unrealised gain of £1.106m recognised in the year to 31 March 2008 has now become realised.

  Notes to Interim Report 

10. Statement of changes in equity

	Share capital	Share premium	Revaluation reserve	Merger reserve	Hedging reserve	Retained earnings
			---------Other reserves---------
	£000	£000	£000	£000	£000	£000
As at 1 April 2007	6,112	2,843	11,037	251	-	15,050
Issue of shares less costs	198	2,131	-	-	-	-
One for one capitalisation issue	6,311	(4,974)	-	-	-	(1,337)
Deferred taxation on revaluation of property, plant and equipment	-	-	180	-	-	-
Cost relating to share-based payment schemes	-	-	-	-	-	35
Dividends	-	-	-	-	-	(644)
Profit for the period	-	-	-	-	-	1,684
As at 30 September 2007	12,621	-	11,217	251	-	14,788
Issue of shares	1	3	-	-	-	-
Revaluation of property, plant and equipment	-	-	(2,036)	-	-	-
Deferred taxation on revaluation of property, plant and equipment	-	-	395	-	-	-
Cost relating to share-based payment schemes	-	-	-	-	-	9
Dividends	-	-	-	-	-	(454)
Profit for the period	-	-	-	-	-	2,889
As at 31 March 2008	12,622	3	9,576	251	-	17,232
Revaluation of property, plant and equipment	-	-	(353)	-	-	-
Deferred taxation on revaluation of property, plant and equipment	-	-	(15)	-	-	-
Effective portion of changes in fair value of cash flow hedges	-	-	-	-	(374)	-
Cost relating to share-based payment schemes	-	-	-	-	-	33
Dividends	-	-	-	-	-	(757)
Profit for the period	-	-	-	-	-	364
As at 30 September 2008	12,622	3	9,208	251	(374)	16,872

 

 

For further information please contact:

Natasha Gadsdon                Tel: [phone]

Finance Director

Bobbie Hilliam                 Tel: [phone]

Evolution Securities

 

END

 

 

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