Full Year Results

RNS Number : 3368V

Terrace Hill Group PLC

12 December 2013

 



12 December 2013

Terrace Hill Group PLC

("Terrace Hill" or the "group")

FULL YEAR RESULTS DEMONSTRATE TRANSFORMATIONAL YEAR FOR THE GROUP

Terrace Hill Group plc (AIM: THG), a leading UK property investment and development group, today announces its results for the year ended 30 September 2013.

Financial Highlights:

·      EPRA Net Asset Value (NAV) per share increased by 1.7% to 28.8 pence (30 September 2012: 28.3 pence) while EPRA Triple NAV per share increased by 3.2% to 27.7p (30 September 2012: 26.8p)

·      IFRS Profit before tax including discontinued operations of £6.2 million (30 September 2012: £1.8 million) 

·      IFRS net assets increased by 10.6% to £55.5 million from £50.2 million at 30 September 2012

·      Significant reduction in the group's level of debt and gearing:

-       Net debt reduced by 62.9% to £17.5 million, from £47.2 million at 30 September 2012

-       Gearing* percentage of 28.6%, down from 78.2% at 30 September 2012 and 86.0% at 30 September 2011

-       Look through net gearing (including its share of joint ventures and associated undertakings) fell sharply to 29.0%, from 142.1% at 30 September 2012

* As a percentage of EPRA net assets

Operational highlights:

·      Sale of virtually all residential assets, in line with stated strategy, including a portfolio of 901 residential properties to the RSL Places for People for £68.0 million

·      Significant progress with commercial development programme, with completion of three foodstore developments in Sunderland, Sedgefield and Skelton

·      Completion of development at Howick Place, Victoria, in November 2012, comprising 135,000 sq ft of offices and 25,300 sq ft of residential apartments.  The majority of the residential apartments either let or sold and the top office floor let as the UK head office of Giorgio Armani

·      1,104 room student accommodation development at Mayflower Halls, Southampton, on track to be delivered for 2014 academic year. Scheme forward funded by Legal & General Property, which was attracted to the 38 year lease entered into by the University of Southampton

·      Resolution to grant planning consent received for a 125,000 sq ft foodstore and retail development in Middlesbrough, which has been conditionally pre-let to Sainsbury's, a Marston's public house, a drive through KFC and a coffee outlet

·      Strong pre-letting activity at our planned leisure scheme in Darlington, with agreements signed with Vue Cinemas, Whitbread and Prezzo

·      Conditional contract signed with Glasgow City Council to develop a 35,000 sq ft restaurant led scheme at Broomielaw, on the river Clyde

Commenting, Robert Adair, chairman of Terrace Hill, said:  "During 2013 we have achieved significant success in delivering against our strategy, making excellent progress with our development pipeline, while at the same time positioning the group strongly for the future by reducing debt and gearing levels and disposing of almost all of our residential assets. In an increasingly positive economic environment, we look forward with confidence and growing optimism."

Philip Leech, chief executive of Terrace Hill, added:  "Over the course of the year we have achieved real momentum within our development pipeline, both in our core foodstore business as well as in the leisure, student accommodation and London office sectors. As the recovery in investor and occupier interest for property outside of London continues to gain pace, we are well positioned to utilise our network of regional offices to benefit from that demand."

For further information, please visit www.terracehill.co.uk, or contact:

Terrace Hill Group plc	[phone]
Robert Adair, chairman
Philip Leech, chief executive
Oriel Securities Limited (Nominated Adviser and Broker)	[phone]
David Arch/Mark Young
FTI Consulting	[phone]
Richard Sunderland
Will Henderson Nick Taylor	[e-mail]

 

Chairman's statement

I have great pleasure in presenting our financial results for the year ended 30 September 2013.

The past 12 months have been transformational for the group with the completion of the sale of the majority of the remaining residential assets and significant progress with the commercial development programme.

The group made an IFRS profit before tax including discontinued operations of £6.2 million in the year (2012: £1.8 million) and a pre-tax revenue profit in the year (which is profit before valuation movements and contributions from associates) of £6.4 million compared with £11.8 million for the year ended 30 September 2012, the reduction largely due to lower foodstore profits in the year.  The majority of our profits on our Sunderland, Sedgefield and Skelton foodstore projects were recognised in 2012. This year the profits were mostly earned in the first half, with the final elements of profit on the three foodstore developments and the recognition of profits on the forward funding of our Southampton student accommodation scheme all happening in the first half of the year.  The group's EPRA Net Asset Value (NAV) increased by 1.7% to 28.8 pence per share at 30 September 2013 (28.3 pence per share at 30 September 2012) and our EPRA Triple NAV rose by 3.2% to 27.7 pence per share (26.8 pence per share at 30 September 2012).  The EPRA NAV includes adjustments to reflect the market value of our development properties, where value is above cost and our EPRA Triple NAV makes an adjustment for goodwill.

In February 2013, we completed the sale of a portfolio of 901 residential properties to the RSL Places for People for £68.0 million, which included both wholly owned properties and those held by our associate, Terrace Hill Residential PLC.  The sale price reflected a discount of less than 1% of carrying value.  The group subsequently bought the remaining properties from Terrace Hill Residential PLC in a transaction valued at £5.3 million, the majority of which have subsequently been sold to owner occupiers and investors at prices reflecting a small uplift on their purchase price.  These residential sales have had a meaningful effect on the group's overall gearing which, due also to the successful commercial development activities during the year, has fallen to 29.0% at 30 September 2013 on a look-through basis (142.1% at 30 September 2012).  We are comfortable with this gearing level.

Our commercial development programme has produced some extremely good returns over the year.  I am also encouraged by the increasing levels of activity and opportunity in the regions, which plays to the strengths of our regional office network.

Of particular note has been the completion of the three foodstore developments in Sunderland, Sedgefield and Skelton as mentioned above.  In aggregate these amounted to a total of 189,000 sq ft of new floor space reflecting a gross development value of £64.5 million.  Since the year end we have received a resolution to grant planning consent for a 125,000 sq ft foodstore and retail development in Middlesbrough, which has been conditionally pre-let to Sainsbury's, along with a Marston's public house, a drive-through KFC and a coffee outlet.  We expect to start construction in spring 2014.  Other significant foodstore schemes are for a 99,653 sq ft store at Herne Bay in Kent, where, after some delay, we expect to gain consent early next year, a site in Midsomer Norton in Somerset, with potential for retail, and residential uses and a smaller foodstore site in Stokesley, North Yorkshire.  Our EPRA NAV at 30 September 2013 includes 0.7 pence per share in respect of market value adjustments relating to these developments.

We are constantly evaluating a large number of foodstore opportunities and despite certain retailers' pronouncements about restraining large store expansion, we have found there remains good demand for the optimal sized store in the right location.  Our expertise in this field through our regional offices and strong track record will continue to sustain our pipeline of developments in this profitable sector.

Elsewhere in the regions we are seeing increased activity, particularly in the leisure and student accommodation sectors.  At Southampton we are on programme to complete our £91.0 million pre-let and forward funded 1,104 student room scheme which we are due to handover to the University next summer.  We have also been appointed the preferred developer of a 450 room student scheme in another south coast town.

Demand from leisure operators is strong and in Darlington, where we expect planning to be granted before the end of the year, we have pre-let part of our planned leisure scheme to Vue Cinemas, Whitbread and Prezzo.  We have also entered into a conditional contract with Glasgow City Council to develop a restaurant led scheme of 35,000 sq ft at Broomielaw, fronting the Clyde, and we are close to conditionally acquiring another leisure site in a North West town.

In central London, our development at Howick Place in Victoria, which we carried out in association with Doughty Hanson, is attracting letting interest and we have let the top floor to Giorgio Armani for its UK head office.  With the rapid increase in the capital values of office and residential space in London we expect to see good returns to us from this £170.0 million mixed-use development.  Our other exposure in Central London is a 29,000 sq ft retail and office development in Mayfair, on the corner of Conduit Street and Savile Row, where we act as development managers for the owners.  Our performance related remuneration on this scheme is likely to exceed our initial expectations as this area of the London market continues to attract strong investor and occupier interest.

It is apparent that the Central London market is now attracting investors from most corners of the globe and this has led to a highly competitive market with escalating values.  Whilst we are finding it hard to compete for new opportunities in this environment, we continue to assess situations where we believe we can add value.

It is very clear to me that the group is now well positioned for growth. The sale of the residential assets has allowed us to focus on our core strength of commercial development and reduce our gearing while strengthening our balance sheet.  As the overall economy starts to improve we are seeing increased activity across sectors and regions, which plays to our particular strengths of cross sector skills and our regional presence.  We will give increasing attention to building up an investment portfolio which will provide recurring income to help cover our administrative costs.

The re-rating of our share price, which has recently traded above our EPRA NAV, is a pleasing indication that investors are beginning to recognise the strength of our business and underlying value, and with the reduction in financial gearing and improved financial performance, we expect shortly to recommence payment of dividends.

Finally, I would like to thank all who have helped the group during this transformational period, especially the hard working directors and staff who always work with great skill and enthusiasm.

Robert F M Adair

Chairman

12 December 2013

Strategic report

Introduction

The group strategic report provides a review of the development and performance of the business for the financial year, discusses the group financial position at the year end and explains the principal risks and uncertainties facing the business and how we manage those risks.  We also outline the group's business model and strategy.

Business model and strategy

Our business is focused on commercial property development, which we execute through our five offices in key areas of the UK.  We have property professionals in these offices whose expertise and detailed knowledge of their local markets gives us a competitive edge over those without such coverage.  We pursue our commercial property development activity in a risk controlled but opportunistic way, which has proved to be resilient and profitable over the last 20 years.

We limit risk in our development activity by typically entering into conditional site purchases, pre-letting agreements, forward fundings and joint ventures.  In this way our capital commitment to any one project is limited while careful structuring of the agreements that we enter into ensures that our exposure and return is commensurate with the risks we take.

Our main areas of development are currently foodstores, central London offices and regional opportunities.

Foodstores

We have built a recognised expertise in out of town foodstore development since 2008, having completed deals involving seven stores with a total area of over 500,000 sq ft and an estimated gross development value of over £180 million.  Our historic success in this sector has been due to several factors, but especially our local knowledge gained through our regional offices and our excellent relationships with the food retailers.

There has been much written and spoken recently of the reduction in food retailers' appetite for growing the number of large format stores and their shift towards expanding their portfolio of convenience stores whilst also reducing their capital expenditure.  Notwithstanding this we remain successful in using our knowledge to help retailers meet their new store needs, in particular as most have gaps in their geographic coverage that they want to fill.  We are cognisant of the impact that the internet has on how people shop and in light of this, we continue to source the optimal size stores in the right locations for our foodstore clients.  Our ability to navigate national and local planning policy remains a core skill of the group and is a key driver of demand from the food retailers.  The food retailers' reduction in capital expenditure means that they are more likely to lease than own their new stores, which also increases their requirement for external help from developers.

Our financial model for developing foodstores has typically been to conditionally acquire sites. While this results in us sharing some land value accretion with the landowner, it also reduces our risk and exposure significantly and allows us to pursue more transactions simultaneously than would be the case if we acquired sites outright.  We then use our expertise in securing pre-let agreements with the food retailers and obtaining planning consent.  Neither of these activities is straightforward, but our significant experience gives us a competitive advantage.  When we have secured the pre-let and planning consent we typically enter into forward funding agreements with investors who are attracted to the bond-like income that these leases typically generate.

We have a number of foodstore opportunities underway that are discussed later.

Central London offices

The group has a long track record of successful office development in Central London with nine schemes completed over the past 12 years, representing approximately 350,000 sq ft and £290 million of gross development value.

We typically acquire sites in joint venture with equity-rich partners who recognise and want our expertise.  We structure these joint ventures so that our returns are boosted by extra returns over agreed hurdles and through development and project management fees.

The Central London office property investment market has been characterised recently by the weight of overseas capital which is relatively indifferent to the immediate returns available from such investment.  This has had the effect of pushing up prices to very high levels, making it more difficult for us to secure opportunities.  In addition, especially in the West End, supply is very constrained due to geography and planning restrictions resulting in increasing rents which underpin values.

Our response to this has been to appraise office opportunities for refurbishment and changes of use, with the conversion of outdated office buildings to residential or hotel use being a recurring theme.  During the last year we have bid on several such opportunities but have frequently been outbid by the overseas investors noted above.  However, we remain confident of securing such opportunities in the near future and believe that the returns available to us justify our continued presence in this market.  We have two such schemes in place at the moment, described in more detail later.

Regional opportunities

The group's regional office network gives it advanced and knowledgeable insight into regional markets and opportunities.  Over more than 20 years the group has a track record of commercial development in the office, retail and industrial sectors in the regions.  We believe that the regional markets are now recovering from the recent deep recession in several aspects. 

During the recession, investor and occupational demand for offices slumped resulting in yields increasing to double figures.  This in turn made development unviable with the result that in many areas as the markets recover there is a shortage of new office stock.

Investor demand, particularly from those looking for return (rather than capital security) is increasing and this is having the effect of pushing values up in the regions.  According to CBRE, yields have reduced for good secondary offices from around 9.0% at the peak to 8.0% in November 2013.  These improved yields make office development more viable.  In addition, occupier demand is returning which will translate into increased rents in the more established office markets.

We are also focused on two other areas where we believe there are opportunities for us: student accommodation and leisure.

Demand for new student accommodation from universities is strong as they compete to attract new students and therefore need to replace older stock.  The experiences from our project at Southampton (described in more detail later) have led us to find a number of new opportunities and our established skills in dealing with the planning issues that accompany such developments are attractive to the universities.

The leisure sector is one that has proved robust through the recession and schemes centred around cinemas and restaurant chains have been able to able to attract customers who appreciate the value for money such schemes offer them.  We believe our development and planning skills are particularly valuable here because, in order to make these schemes work, it is often necessary to demonstrate to planners and prospective tenants that we can create an attractive scheme with an appropriate tenant mix.  We are currently working on one such scheme and have a number of others under review.

Operational review

Foodstores

During 2013 we completed three foodstore schemes in the North East of England at Sunderland, Sedgefield and Skelton.  The stores at Sunderland and Sedgefield are leased to Sainsbury's and were forward funded by third parties and developed by the group.  The store at Skelton was sold to Asda which now trades from there.

We have four new sites in the planning process, as follows:

Middlesbrough - we submitted a planning application in August 2013 for a 125,000 sq ft foodstore for Sainsbury's along with a public house for Marston's, a KFC and a coffee outlet.  In November we were very pleased to receive a "minded to grant" decision from the Council and we have recently heard that the Secretary of State will not call it in. We expect this scheme to be attractive to funding institutions and hope to be on site commencing construction by the middle of 2014.

Herne Bay, Kent - we submitted a planning application for this c100,000 sq ft Sainsbury's store in November 2012 and expect the application to be heard early in 2014.  We are confident of receiving consent and, if successful hope to be on site by the middle of 2014.

Midsomer Norton - we entered into a conditional contract to acquire a 12.2 acre former industrial site on the edge of Midsomer Norton in 2012.  We are master planning a redevelopment of this site to provide a mix of uses including a foodstore and residential area.  We are negotiating the pre-letting of the foodstore with a retailer and intend to sell the residential element to a housebuilder following the grant of planning permission.

Stokesley, North Yorkshire - we entered into a conditional contract to acquire 5.2 acres on the edge of this historic market town in July 2013 and are in detailed discussions with a food retailer for a 25,000 sq ft store.

We have decided not to appeal the refusal of planning consent at the St Austell site and changing occupier requirements at Prestwich have led us to abandon the original scheme, although we are working on a proposition for an alternative site in the town. 

We continue to appraise a large number of other foodstore sites and are confident of securing new opportunities in the near future.

Central London offices

The development at Howick Place, Victoria completed in November 2012.  The development comprises 135,000 sq ft of offices and 25,300 sq ft of residential apartments.  The majority of the residential apartments have either been let or sold and the top office floor has now been let as the UK head office of Giorgio Armani.  Interest in the remaining floors is strong and we expect to conclude further lettings shortly.  We have carried out this development in association with Doughty Hanson.

We act as development manager for a prestigious new office and retail development on the corner of Conduit Street and Savile Row in London's Mayfair.  This will be a 29,000 sq ft scheme and construction has now started.  Office and retail rents have grown strongly during 2013 and we expect this trend to continue and be reflected in rents achieved at this well-placed development.  We expect the returns from this development to exceed our original expectations.

Regional opportunities

Our 1,104 room student accommodation scheme at Mayflower Halls, Southampton is progressing well with the last of three buildings expected to be topped out by the end of January 2014.  Fitting out of the rooms has already commenced and we are on track to deliver this scheme to the university in readiness for the commencement of the 2014 academic year.  As noted previously, this development is being forward funded by Legal & General Property, which was attracted to the 38 year lease entered into by the University of Southampton.

Our leisure scheme at Darlington is progressing well.  This scheme will include a nine screen cinema operated by Vue Cinemas, an 80 bedroom hotel operated by Whitbread and six restaurants.  Terms have been agreed on four of the restaurant units and we expect our planning application to be heard in December 2013.

During the year we acquired an agreement with Glasgow City Council for the development of four restaurant units on the bank of the Clyde, close to the central business district of Glasgow.  The scheme has planning consent and we are receiving strong interest from operators who want exposure at this well located site.

Our industrial scheme at Christchurch is now virtually complete, with the construction of a second 60,000 sq ft warehouse for Kondor having reached practical completion in November 2013 and the last remaining plots either sold or under offer.

Business review - Finance

Financial results and Net Asset Value

The group's EPRA NAV increased by 1.7% in the year ended 30 September 2013 to £61.3 million (28.8 pence per share) from £60.3 million (28.3 pence per share) at 30 September 2012.  The group's IFRS NAV also increased by 10.6% in the year to £55.5 million (26.2 pence per share) from £50.2 million at 30 September 2012.

EPRA NAV is a Key Performance Indicator for the group as it reflects the market value of our development properties and is therefore a better indicator of the true value of the group, whereas the IFRS NAV includes those properties at the lower of cost and net realisable value.

During the year, the increase in our EPRA NAV resulted principally from the following:

•	0.3 pence per share increase from operations;
•	0.9 pence per share increase resulting from the part release of our provision for financial guarantee for debts of an associate;
•	0.4 pence per share decrease resulting from movement in the value of our development properties;
•	0.5 pence per share decrease arising from the movement in value and sales of our residential investment properties; and
•	0.2 pence per share increase in other movements including tax and share-based payments.

The group's EPRA Triple NAV, which takes into account any tax payable on profits arising if all the group's properties were sold at the values used for EPRA NAV and the write off of goodwill , increased by 3.2% to £58.9 million (27.7 pence per share) from £57.1 million (26.8 pence per share) at 30 September 2012.

Statement of comprehensive income

Revenue for the year ended 30 September 2013 includes:

1.	recognition of revenue under construction contracts and related site sales of £44.5 million in respect of our sites at Sunderland, Skelton, Sedgefield, Southampton and Christchurch;
2.	rental income of £2.2 million in respect of commercial properties; and
3.	rental income of £0.5 million in respect of residential properties.

Rental income of £1.1 million and related costs of £1.6 million are included in revenue and direct costs in respect of the group's head office in London, where it owns a head lease.

Direct costs include directly attributable costs in respect of those revenue items mentioned above and a net charge of £0.9 million relating to the write off or provision in respect of various properties.  In particular we have written off our costs of £0.6 million on the projects at Prestwich and St Austell which we are no longer pursuing.

The gross profit includes £12.5 million in respect of our sites at Sunderland, Skelton, Sedgefield, Southampton and Christchurch.

Administrative expenses for the year ended 30 September 2013 amounted to £6.1 million (2012: £4.7 million).  The increase is largely due to increased variable remuneration costs.

As the group has substantially exited from the residential investment property activity, the results attributable to this have been treated as discontinued operations and the prior year comparison restated.  The group reported a profit on these discontinued operations for the year ended 30 September 2013 of £0.6 million (2012: loss of £5.7 million).  This profit was achieved after having written off goodwill of £0.8 million that had been previously recognised in respect of the residential activities of the group and writing back £1.8 million of a provision that had been made in earlier years in respect of the group's bank guarantee exposure to the bank that had lent to Terrace Hill Residential PLC.  While the sale prices achieved on the property sales were at around our carrying value, we had to write off costs attributable to associated finance facilities and incurred selling costs.   As reported in the interim statement, the group's associate, Terrace Hill Residential PLC, sold the majority of its assets in the spring this year and subsequently sold the remaining assets, valued at £5.3 million, to the group in May. This facilitated a favourable negotiation with the bank that had lent to its associate such that the group's exposure under its bank guarantee was settled at £4.2 million, which was financed by the parent company with a short term loan from the bank of which £0.7 million was outstanding at the year end.

The group has been successful in disposing of the properties it bought from Terrace Hill Residential PLC.  At the year end, £1.3 million of such properties remained to be sold of which £0.7 million had been sold by the end of November 2013.  The properties sold during the financial year achieved prices in excess of the purchase price.  The group entered into arrangements with its co-shareholder in Terrace Hill Residential PLC whereby any profits or losses arising on the disposal of these properties would be shared equally with its co-shareholder.  At 30 September 2013 the group had provided £0.1 million in respect if these arrangements.

Finance income less finance costs from continuing operations amounted to £0.9 million (2012: £1.1 million).  Finance income less finance costs for discontinued operations amounted to £0.7 million (2012: £0.5 million).  The group paid £1.5 million of interest in the year of which £0.4 million was in respect of projects where work is currently underway and which has been capitalised.

The group's tax charge for the period of £1.3 million (2012: charge of £0.06 million) reflects principally the restatement of our deferred tax asset to current rates of corporation tax, the utilisation of losses reflected in the deferred tax asset to shelter tax profits arising on the property sales noted above and recognition of other tax losses in the deferred tax asset.

Balance sheet

The group's IFRS net assets at 30 September 2013 were £55.5 million, an increase of 10.6% on the amount reported at 30 September 2012 of £50.2 million.  Investment properties fell substantially from £15.2 million at 30 September 2012 to £0.2 million at 30 September 2013 due principally to the sale of the majority of the wholly owned residential investment properties during the year as reported earlier.  The sale of the investment properties also resulted in the release of £0.8 million of goodwill attributed to the residential sector.  The deferred tax asset of £5.2 million is lower than 2012 due to losses being utilised in the year and partially offset by previously unrecognised losses recognised due to increased certainty that they will be utilised in future years.  Development properties fell from £70.3 million at 30 September 2012 to £58.2 million at 30 September 2013 principally due to the sale of the Southampton student accommodation site to Legal & General Property as part of its forward funding of that project.   Trade and other receivables have reduced by £2.7 million to £14.6 million at 30 September 2013 due principally to amounts included at 30 September 2012 in respect of the three foodstores  (Sunderland, Skelton and Sedgefield) having been received during the year.  At 30 September 2013, there is £6.6 million due under the funding agreement for the Southampton student accommodation project.  Trade and other payables have reduced from £16.5 million at 30 September 2012 to £8.9 million at 30 September 2012, reflecting the £6.0 million guarantee over the debts of its associate that has now been fulfilled or released to the income statement as noted above. Other movements are due to amounts included at 30 September 2012 in respect of the three foodstores that have been satisfied in the year.

The group regards its gearing level as a Key Performance Indicator and is pleased that its gearing has improved considerably during the year.  Net debt as a percentage of EPRA net assets was 28.6% at 30 September 2013 compared with 78.2% at 30 September 2012.  The quantum of net debt has also reduced significantly to £17.5 million at 30 September 2013 from £47.2 million at 30 September 2012.  The group's look through net gearing, which includes its share of the net debt in those joint ventures and associated undertakings in which it has ongoing liabilities, fell substantially from 142.1% at 30 September 2012 to 29.0% at 30 September 2013 with the group's net debt, including its share of joint ventures and associated undertakings as above, also falling sharply, from £85.7 million at 30 September 2012 to £17.8 million at 30 September 2013.  The reasons for these substantial improvements are that firstly, the group completed three foodstore developments during the year, secondly, entered into the forward funding of the Southampton student accommodation scheme and lastly, sold the vast majority of the residential properties both wholly owned and in the group's associate, Terrace Hill Residential PLC.  Net debt and gearing have increased slightly since the half year as the group bought in the last residential properties owned by Terrace Hill Residential PLC as noted above which were financed largely by a bank loan of £4.2 million and the residual liability under a guarantee in respect of the associate's bank facility was discharged and financed by another loan. 

Financial resources and capital management

The group funds itself through its share capital, cash and debt facilities.  As the group has not raised new share capital for some time, the group focuses its attention on the management of its cash and debt position.  The group is not subject to externally imposed capital requirements and meets its objectives for managing its capital by ensuring that it operates within the constraints imposed by the availability of cash and debt and by ensuring that it meets the various financial covenants that apply to its debt.  The group regards its gearing ratios as key ratios for the purposes of managing its financial resources and the 24-month cash forecast as a key management tool.

Our net debt reduced in the period by £29.7 million and our gross debt by £27.0 million for the reasons mentioned above.  The most significant cash outflows were in relation to development expenditure on our active development projects and our administrative expenses. 

We have achieved a number of re-financings during the year.  In particular, we have re-financed one loan of £14.8 million for a further two years and which now matures on 30 September 2015.

The average maturity of group debt is now 19 months (2012: 12.5 months) with a weighted average margin of 3.25% (2012: 3.3%). The maturity of joint ventures and associated undertaking debt is now 18.4 months (2012: 19.9 months) with a weighted average margin of 3.5% (2012: 2.9%), represented by one loan.

We have noticed a significant increase in the appetite of banks to lend to development groups, concentrating on projects which are pre-let or pre-sold, with loan to value or loan to cost ratios approaching more normal levels and competition among banks is returning.  It is refreshing to be able to write about such matters after several years of very difficult times and we expect to be able to take advantage of the current market conditions.

The group continues to monitor interest rates closely and continues to believe that the risk of rates rising in the short term is limited although greater than before as the economy improves.  With the group's bank debt at relatively low levels and with specific debt strategies in place for that debt, the group has not entered into any interest rate hedging agreements and consequently continues to benefit from the very low current LIBOR rates.  The joint venture and associated undertaking debt loan is not hedged.

The group also monitors its cash resources and future cash flows very closely through its comprehensive 24-month rolling cash forecast.  The group regularly updates the cash forecast and stress tests the underlying assumptions to ensure that the group has sufficient resources to execute its strategy for the foreseeable future.

Summary of debt position

September 2013		September 2012
Net debt	£17.5m	£47.2m
Net gearing	28.6%	78.2%
Net debt including share of joint venture and associated undertaking debt	£17.8m	£85.7m
Total net gearing	29.0%	142.1%
Loan to value	28.3%	49.2%

The net gearing and loan to value percentages shown above are in relation to our EPRA NAV.  The majority of joint venture and associated undertaking debt is of limited recourse to the group.

Debt expiry profile

On balance sheet		Off balance sheet*
£m		£m
Bank loans and overdraft repayable in one year	7.4	-
Bank loans repayable in more than one year	18.7	0.3
Total	26.1	0.3

*Group share

Summary of loan to value ratios of group property

September 2013		September 2012
Commercial property	29.0%	52.2%
Residential property	-%	76.7%
Total	28.3%	49.2%

Calculation of EPRA NAV and EPRA Triple NAV (unaudited)

	30 September 2013			30 September 2012
	£'000	Number of shares 000s	Pence per share	£'000	Number of shares 000s	Pence per share
Audited Net Asset Value	55,549	211,971	26.21	50,213	211,971	23.69
Revaluation of property held as current assets	5,711	10,026
Shares to be issued under the LTIP	12	595		12	595
EPRA NAV	61,272	212,566	28.82	60,251	212,566	28.35
Increase %	1.7%
Goodwill	(2,365)	(3,188)
EPRA Triple NAV	58,907	212,566	27.71	57,063	212,566	26.85
Increase %	3.2%

The principal risks and uncertainties facing the business, and how we manage those risks, are set out below:

Risk	Description	Mitigant	Change in year
Strategy	Implementing a strategy inconsistent with the market environment, skillset and experience of the business	The group board meets quarterly to consider strategy and review progress against objectives. The chairman and directors use both their market knowledge and experience to ensure consistency with these objectives.	No change. This process is unchanged from last year and we believe we have the right strategy setting procedure in place to deliver robust returns to investors.
Market and economic Risk	A deterioration in the market in which we operate resulting in a negative impact on our results or financial condition	Detailed financial appraisals are undertaken to determine the benefit to the group of each development. These are flexed and various scenarios are modelled to establish the financial outcome on a worst-case basis.	No change. Our ability to analyse appraisals and robustly challenge them has resulted in optimum capital allocation.
	Collapse of a funding partner	Detailed counterparty credit due diligence is undertaken prior to entering into a financing arrangement with a party.  Our legal agreements are binding but also flexible.	No change. Our various funding partners are financially strong.
Development	Paucity of new business opportunities	The group is geographically diverse with regional offices and strong local connections to facilitate new business opportunities.	No change. We have a strong pipeline of future developments.
	Failure or delays in obtaining planning consent	The group has a wealth of experience in gaining consent within desired timescales. Our local office network ensures we have direct knowledge of local planning authorities and consultants, to develop products matching local needs.	No change. We have dealt with all planning issues in a timely manner.
	Construction delivery delays- The risk that we may become financially liable for delays due to unforeseen circumstances	Our in-house project management team use their experience to ensure that timescales have sufficient contingency and that risks are transferred to contractors.	One foodstore was handed over eight weeks late due to a construction issue. Careful documentation of contractual arrangements ensured we did not suffer financially.
	Counterparty risk- contractor insolvency or bankruptcy	Detailed counterparty due diligence is undertaken prior to the contractor selection process.	No change. No contractors we have used have gone into receivership or become bankrupt during the year.
	Construction cost inflation	Our in-house project management team are responsible for negotiating fixed price construction contracts.	No change. All contracts were fixed during the year.
	Letting risk	We pre-let wherever possible, but in developments where this is not possible, we include a market driven void period and tenant incentives in the financial appraisals. Our local offices have close relationships with local and national agents to ensure lettings success.	No change. All foodstores have been pre-let and the group has enjoyed good letting success in its other developments.
	Reputational risk	The group has an excellent reputation from being in existence for over quarter of a century and benefits from the transparency arising from an AIM-listing.	Improvement. Our reputation has been enhanced this year following on from the disposal of our residential portfolio and subsequent deleveraging.
Completed and let buildings	Devaluation due to lower rental rates, increased voids, yield shift and building condition	Our in-house asset management team ensure that buildings are kept in good condition, thereby minimising the risk of devaluation.	No change.
Financial	Solvency	The group's net worth position is monitored on a monthly basis and stress-tested, to determine the extent by which assets exceed liabilities and to assess the likelihood of converting these assets into cash.	No change. The group has managed its liquidity well during the year benefitting from the timely receipts of cash from disposing of foodstores. There have been no unanticipated interest costs and the group has been proactive in discussing refinancing with banks.
	Liquidity	The group maintains a rolling, stress-tested cashflow forecast as a key management tool, to ensure funds are available when required.
	Interest rate	Our in-house treasury team model various scenarios including interest rate shocks, to ascertain the optimal mix of fixed to floating rate debt.
	Refinancing	Banks are approached well in advance of debt maturity in order to refinance debt.
	Covenant breach	Covenants are reported regularly to banks and the board. Modelling is undertaken to determine the impact on covenants as part of the group's regular decision making process.
Personnel	Attracting and retaining the right people	We offer a competitive remuneration package which includes both short and long-term incentives. We have short reporting lines and delegate authority to ensure all staff feel they are contributing to the success of the group.	No change. There have been no problems with regards to recruiting or retaining personnel.
	Succession planning- over-reliance on key people	The group has a small head-count and as a result personnel work in project-teams, where knowledge is shared.	No change. No issues to report.
	Health and safety- the risk of damage or death resulting in delays and cost	Our contractors are compliant with relevant legislation. The group also carries appropriate insurance.	No change. No issues to report.
Environment	Not compliant with customer requirements or legislation	Our developers are up to date with both legislation and customer requirements and the group uses specialist environmental consultants where necessary. We endeavour to achieve BREEAM rating of not less than "very good" for all new developments.	Improvement. The group has plans in place to address new legislation.
Regulatory	The risk of reduced profitability due to legislation	The executive directors and senior management are active participants in relevant bodies who represent the industry to legislators.	Improvement. We are confident that the group has adequate plans in place to proactively manage new legislation.

Approved by the board

P A J Leech	J M Austen
Director	Director

12 December 2013

Consolidated statement of comprehensive income

For the year ended 30 September 2013

	Notes	Year ended 30 September 2013 £'000	Year ended 30 September 2012 £'000
Revenue	2	48,486	65,899
Direct costs		(35,913)	(51,743)
Gross profit		12,573	14,156
Administrative expenses	5	(6,074)	(4,747)
Loss on disposal of investment properties		(35)	-
Impairment of joint venture and associated undertakings	12	-	(219)
Loss on revaluation of investment properties	11	-	(500)
Operating profit		6,464	8,690
Finance income	4	204	251
Finance costs	4	(1,096)	(1,277)
Share of joint venture and associate undertakings post tax profit/(loss)	12	43	(200)
Profit before tax		5,615	7,464
Tax	6	(1,271)	(58)
Profit from continuing operations		4,344	7,406
Profit/(loss) from discontinued operations	8	586	(5,664)
Total comprehensive income		4,930	1,742
Profit/(loss) attributable to:
Equity holders of the parent from continuing operations		4,344	7,406
Equity holders of the parent from discontinued operations		586	(5,664)
		4,930	1,742
Total comprehensive income attributable to:
Equity holders of the parent from continuing operations		4,344	7,406
Equity holders of the parent from discontinued operations		586	(5,664)
		4,930	1,742
Basic earnings per share from continuing operations	7	2.06p	3.51p
Diluted earnings per share from continuing operations	7	2.05p	3.50p
Total basic earnings per share	7	2.34p	0.83p
Total diluted earnings per share	7	2.33p	0.82p

The notes form part of these financial statements.

Consolidated balance sheet

At 30 September 2013

	Notes	30 September 2013 £'000	30 September 2012 £'000
Non-current assets
Investment properties	11	162	15,178
Property, plant and equipment	10	95	145
Investments in equity accounted associates and joint venture	12	1,000	1,000
Other investments	12	4,279	4,279
Intangible assets	9	2,365	3,188
Deferred tax assets	17	5,213	6,467
		13,114	30,257
Current assets
Development properties	13	58,200	70,284
Trade and other receivables	14	14,573	17,251
Cash and cash equivalents		8,644	5,999
		81,417	93,534
Total assets		94,531	123,791
Non-current liabilities
Bank loans	16	(18,745)	(12,466)
Deferred tax liabilities	17	(867)	(851)
		(19,612)	(13,317)
Current liabilities
Trade and other payables	15	(8,937)	(10,537)
Other payables - guarantee	15	-	(6,011)
Current tax liabilities		(3,049)	(3,014)
Bank overdrafts and loans	16	(7,384)	(40,699)
		(19,370)	(60,261)
Total liabilities		(38,982)	(73,578)
Net assets		55,549	50,213
Equity
Called up share capital	19	4,240	4,240
Share premium account	20	18,208	18,208
Own shares	20	(609)	(609)
Capital redemption reserve	20	849	849
Merger reserve	20	7,088	7,088
Retained earnings	20	25,773	20,437
Total equity		55,549	50,213

The financial statements were approved by the board and authorised for issue on 12 December 2013 and were signed on its behalf by:

P A J Leech	J M Austen
Director	Director

Consolidated statement of changes in equity

At 30 September 2013

	Share capital £'000	Share premium £'000	Own shares £'000	Capital redemption reserve £'000	Merger reserve £'000	Retained earnings £'000	Total £'000
Balance at 30 September 2011	4,240	43,208	(609)	849	7,088	(6,642)	48,134
Total comprehensive income for the year	-	-	-	-	-	1,742	1,742
Share-based payments	-	-	-	-	-	337	337
Capital reduction	-	(25,000)	-	-	-	25,000	-
Balance at 30 September 2012	4,240	18,208	(609)	849	7,088	20,437	50,213
Total comprehensive income for the year	-	-	-	-	-	4,930	4,930
Share-based payments	-	-	-	-	-	406	406
Balance at 30 September 2013	4,240	18,208	(609)	849	7,088	25,773	55,549

Consolidated cash flow statement

For the year ended 30 September 2013

	Year ended 30 September 2013 £'000	Year ended 30 September 2012 £'000
Cash flows from operating activities
Profit before taxation	6,201	1,800
Adjustments for:
Finance income	(215)	(261)
Finance costs	1,808	1,768
Share of joint venture and associated undertakings post tax loss	43	200
(Release of)/provision for financial guarantee for debts of associate	(1,811)	5,094
Depreciation charge	47	59
Impairment charge	823	148
Loss on revaluation of investment properties	11	530
Impairment of associated undertakings	-	219
Loss on disposal of investment properties	271	570
Loss on sale of tangible fixed assets	11	-
Share-based payments	406	337
Cash flows from operating activities before change in working capital	7,595	10,464
Decrease in property inventories	12,432	3,289
Decrease/(increase) in trade and other receivables	2,635	(7,334)
Decrease in trade and other payables	(5,800)	(3,475)
Cash generated from operations	16,862	2,944
Finance costs paid	(1,887)	(4,380)
Finance income received	215	261
Tax received/(paid)	36	(59)
Net cash flows from operating activities	15,226	(1,234)
Investing activities
Sale of investment property and tangible fixed assets	14,744	5,115
Purchase of property, plant and equipment	(18)	(28)
Net cash flows from investing activities	14,726	5,087
Financing activities
Borrowings drawn down	2,744	10,426
Borrowings repaid	(30,212)	(19,824)
Net cash flows from financing activities	(27,468)	(9,398)
Net increase/(decrease) in cash and cash equivalents	2,484	(5,545)
Cash and cash equivalents at 1 October 2012	5,998	11,543
Cash and cash equivalents at 30 September 2013	8,482	5,998
Cash at bank and in hand 30 September 2013	8,644	5,999
Bank overdraft at 30 September 2013	(162)	(1)
Cash and cash equivalents at 30 September 2013	8,482	5,998

1 Accounting policies

Basis of preparation

The financial information set out in this announcement does not constitute the group's statutory accounts for the year ended 30 September 2013 under the meaning of s434 Companies Act 2006, but is derived from those accounts. Statutory accounts for the year ended 30 September 2013 have been reported on by the Independent Auditors. Their report was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under s498(2) or s498(3) of the Companies Act 2006. The statutory accounts for the year ended 30 September 2013, prepared under IFRS, will be delivered to the Registrar in due course.

The comparative financial information set out in this announcement does not constitute the group's statutory accounts for the year ended 30 September 2012 under the meaning of s434 Companies Act 2006, but is derived from those accounts. Statutory accounts for the year ended 30 September 2012 have been reported on by the Independent Auditors. Their report was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under s498(2) or s498(3) of the Companies Act 2006. Statutory accounts for the period ended 30 September 2012 have been filed with the Registrar of Companies

Changes in accounting policies

The group has not adopted any new or amended IFRS and IFRIC interpretations in the year.

New standards and interpretations not applied

IASB and IFRIC have issued the following standards and interpretations relevant to the group. These standards and interpretations are mandatory for accounting periods beginning on or after the date of these financial statements and will become effective for future reporting periods.

IAS 19	Employee Benefits
IAS 27	Consolidated and Separate Financial statements
IAS 28	Investments in Associates and Joint Ventures
IAS 32	Financial Instruments: Presentation
IAS 36	Impairment of Assets
IAS 39	Financial Instruments: recognition and Measurement
IFRS 7	Financial Instruments: Disclosures
IFRS 9	Financial Instruments
IFRS 10	Consolidated Financial statements
IFRS 11	Joint Arrangements
IFRS 12	Disclosure of Interests in Other Entities
IFRS 13	Fair Value Measurement

None of the new standards and interpretations noted above, which are effective for accounting periods beginning on or after 1 October 2013 and which have not been adopted early, are expected to have a material effect on the group's future financial statements.

2 Revenue

	2013 £'000	2012 £'000
Development sales and construction contracts	45,121	62,583
Rents receivable	2,162	2,451
Project management fees and other income	1,203	865
	48,486	65,899

Construction contracts

	2013	2012
Number of construction contracts	5	4

	£'000	£'000
Revenue on construction contracts	28,687	47,004
Costs of construction contracts	(21,197)	(33,141)
Profit on construction contracts	7,490	13,863

Construction contract revenue is recognised in the accounts in line with contract stage of completion determined as the proportion of total estimated development costs incurred at the reporting date. No advances or retentions have been received for construction contracts.

Development sales

	2013 £'000	2012 £'000
Revenue	16,434	15,579

3 Segmental information

The operating segments are identified on the basis of internal financial reports about components of the group that are regularly reviewed by the chief operating decision maker (which in the group's case is its Executive board comprising the three Executive directors) in order to allocate resources to the segments and to assess their performance. The internal financial reports received by the group's Executive board contain financial information at a group level as a whole and there are no reconciling items between the results contained in these reports and the amounts reported in the financial statements.

The group operates in two principal segments, being commercial property development and investment and residential property investment. The commercial segment includes foodstores, central London office developments and regional developments. The group does not operate outside the UK. The residential property investment segment has been treated as discontinued. More detail is given in note 8.

	Residential 2013 £'000	Commercial 2013 £'000	Unallocated items 2013 £'000	Total 2013 £'000	Residential 2012 £'000	Commercial 2012 £'000	Unallocated items 2012 £'000	Total 2012 £'000
Statement of comprehensive income
Revenue	5,144	48,486	-	53,630	1,066	65,899	-	66,965
Direct costs	(4,598)	(35,913)	-	(40,511)	(407)	(51,743)	-	(52,150)
Gross profit	546	12,573	-	13,119	659	14,156	-	14,815
Administrative expenses	-	-	(6,074)	(6,074)	-	-	(4,747)	(4,747)
Goodwill impairment	(823)	-	-	(823)	(148)	-	-	(148)
Loss on disposal of investment properties	(236)	(35)	-	(271)	(570)	-	-	(570)
Impairment of associated undertakings and joint venture	-	-	-	-	-	(219)	-	(219)
Provision for financial guarantee over debts of associate	1,811	-	-	1,811	(5,094)	-	-	(5,094)
Loss on revaluation of investment properties	(11)	-	-	(11)	(30)	(500)	-	(530)
Operating profit/(loss)	1,287	12,538	(6,074)	7,751	(5,183)	13,437	(4,747)	3,507
Net finance costs	(701)	(892)	-	(1,593)	(481)	(1,033)	7	(1,507)
Share of results of joint venture before tax	-	43	-	43	-	(200)	-	(200)
Profit before tax from continuing operations	-	11,689	(6,074)	5,615	-	12,204	(4,740)	7,464
Profit before tax from discontinued operations	586	-	-	586	(5,664)	-	-	(5,664)
Profit before tax	586	11,689	(6,074)	6,201	(5,664)	12,204	(4,740)	1,800

The segmental results that are monitored by the board include all the separate lines making up the segmental IFRS operating profit. This excludes central overheads and taxation which are not allocated to operating segments.

During the year, three major commercial customers generated £34,652,000 of revenue. Each of these represented 10% or more of the total revenues. The amounts were £9,242,000, £7,785,000 and £17,625,000.

In the year ended 30 September 2012, there were four major commercial customers that generated £54,751,000 of revenue. Each of these represented 10% or more of the total revenues. The amounts were £9,826,000, £26,256,000, £8,896,000 and £9,773,000.

	Residential 2013 £'000	Commercial 2013 £'000	Unallocated items 2013 £'000	Total 2013 £'000	Residential 2012 £'000	Commercial 2012 £'000	Unallocated items 2012 £'000	Total 2012 £'000
Balance sheet
Investment properties	162	-	-	162	12,928	2,250	-	15,178
Property, plant and equipment	-	-	95	95	-	17	128	145
Investments - associates and joint venture	-	1,000	-	1,000	-	1,000	-	1,000
Other investments	-	4,279	-	4,279	-	4,279	-	4,279
Intangible assets	-	2,365	-	2,365	823	2,365	-	3,188
Deferred tax assets	-	-	5,213	5,213	-	-	6,467	6,467
	162	7,644	5,308	13,114	13,751	9,911	6,595	30,257
Development properties	1,273	56,927	-	58,200	-	70,284	-	70,284
Trade and other receivables	24	14,549	-	14,573	231	17,020	-	17,251
Cash	145	8,499	-	8,644	493	5,506	-	5,999
	1,442	79,975	-	81,417	724	92,810	-	93,534
Borrowings	-	(26,129)	-	(26,129)	(9,987)	(43,178)	-	(53,165)
Trade and other payables	(285)	(8,652)	-	(8,937)	(6,515)	(10,033)	-	(16,548)
Current tax	-	-	(3,049)	(3,049)	-	-	(3,014)	(3,014)
Deferred tax liabilities	-	-	(867)	(867)	-	-	(851)	(851)
	(285)	(34,781)	(3,916)	(38,982)	(16,502)	(53,211)	(3,865)	(73,578)
Net assets	1,319	52,838	1,392	55,549	(2,027)	49,510	2,730	50,213

4 Finance costs and finance income

	2013 £'000	2012 £'000
Interest payable on borrowings	1,452	1,890
Interest capitalised	(356)	(613)
Finance costs	1,096	1,277
Interest receivable from cash deposits and other financial assets	204	251
Finance income	204	251

Interest is capitalised at the same rate as the group is charged on the respective borrowings. There were no interest rate swaps during the year.

5 Administrative expenses

Is arrived at after charging:

	2013 £'000	2012 £'000
Depreciation of property, plant and equipment	47	59
Impairment of goodwill	823	148
Loss on disposal of property, plant and equipment	11	-
Operating lease charges - rent of properties	1,400	1,393
Share-based payment remuneration	406	337
Fees paid to BDO LLP in respect of:
- audit of the group	100	119
Other services: - audit of subsidiaries and associates	35	35
- audit-related assurance services	25	35
- non-audit services	32	40

6 Tax on profit on ordinary activities

(a) Analysis of charge in the year

	2013 £'000	2012 £'000
Current tax
UK corporation tax on profit for the period	-	-
Adjustment in respect of prior periods	-	(36)
Total current tax	-	(36)
Deferred tax
Impact of rate change	361	222
Origination and reversal of temporary differences	910	(128)
Total deferred tax charge	1,271	94
Total tax charge	1,271	58

(b) Factors affecting the tax charge for the year

The tax assessed for the period is lower than the standard rate of corporation tax in the UK of 23.5% (2012: 25%). The differences are explained below:

	2013 £'000	2012 £'000
Profit before tax from continuing and discontinued operations	6,201	1,800
Plus joint venture and associates	-	200
Profit attributable to the group before tax	6,201	2,000
Profit multiplied by the average rate of UK corporation tax of 23.5% (2012: 25%)	1,457	500
Disallowables	321	(181)
Other temporary differences	(1,085)	(447)
Impact of rate change	361	222
	1,054	94
Adjustments in respect of prior periods	217	(36)
Total tax charge	1,271	58

(c) Associates and joint venture

The group's share of tax on the associates and joint venture is £Nil (2012: £Nil).

7 Earnings per ordinary share

The calculation of basic earnings per ordinary share is based on a profit of £4,930,000 (2012: £1,742,000) and on 210,951,299 (2012: 210,951,299) ordinary shares, being the weighted average number of shares in issue during the year.

The calculation of diluted earnings per ordinary share for 2013 is based on earnings of £4,930,000 (2012: £1,742,000) and on 211,545,352 (2012: 211,426,546) ordinary shares being the weighted average number of shares in issue during the period adjusted to allow for the issue of ordinary shares in connection with a share award.

8 Discontinued operations

The post tax gain/(loss) on disposal of discontinued operations was determined as follows:

	2013 £'000	2012 £'000
Revenue	5,144	1,066
Expenses other than finance costs	(3,857)	(6,249)
Finance costs	(701)	(481)
Profit/(loss) for the year	586	(5,664)

Earnings per share from discontinued operations

	2013	2012
Basic earnings/(loss) per share	0.28p	(2.68)p
Diluted earnings/(loss) per share	0.28p	(2.68)p

Statement of cash flows

	2013 £'000	2012 £'000
Operating activities	(701)	(481)
Investing activities	12,590	5,367
Financing activities	(12,237)	(4,486)
Net cash from discontinued operations	(348)	400

9 Intangible fixed assets - goodwill

	£'000
Cost
At 1 October 2011	5,997
At 1 October 2012	5,997
At 30 September 2013	5,997
Impairment
At 1 October 2011	(2,661)
Charge for the year	(148)
At 1 October 2012	(2,809)
Charge for year	(823)
At 30 September 2013	3,632
At 30 September 2013	2,365
At 30 September 2012	3,188

Impairment tests for goodwill

Goodwill arising on acquisition is allocated to the group's cash-generating units identified according to business activity.

	2013 £'000	2012 £'000
Commercial properties	2,365	2,365
Investment properties	-	823
	2,365	3,188

The value of goodwill allocated to the investment activity is directly related to a number of residential units held. As these units are disposed of an impairment charge is made. During the period the vast majority of properties were sold and an amount of £823,000 was charged to the consolidated statement of comprehensive income.

The recoverable amount of goodwill allocated to commercial property activities has been determined from value-in-use calculations based on cash flow projections of the cash-generating unit. These are reviewed to ensure that the cash-generating units in respect of which the goodwill arose continue to generate cash flows in excess of the carrying value of the goodwill. The cash flow period considered is 24 months and is based on forecast asset sales which take into consideration management's assessment of past experience and future economic benefits in light of anticipated economic and market conditions. As the period considered is greater than 12 months discounting is applied. The discount rate applied is 15%, which takes into account not only the time value of money but also management's assessment of the specific risks related to the cash-generating unit. If this recoverable amount is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Any impairment loss is recognised as an expense.

The carrying value of the group's goodwill is reassessed at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

10 Property, plant and equipment

	Leasehold improvements £'000	Motor vehicles £'000	Office equipment £'000	Furniture and fittings £'000	Total £'000
Cost
At 1 October 2011	159	15	186	212	572
Additions	-	2	16	10	28
Disposals	-	-	-	-	-
At 1 October 2012	159	17	202	222	600
Additions	-	-	13	-	13
Disposals	-	(17)	-	(47)	(64)
At 30 September 2013	159	-	215	175	549
Depreciation
At 1 October 2011	70	14	117	195	396
Charge for period	16	-	31	12	59
Disposals	-	-	-	-	-
At 1 October 2012	86	14	148	207	455
Charge for year	16	-	30	1	47
Disposals	-	(14)	-	(34)	(48)
At 30 September 2013	102	-	178	174	454
Net book value
At 30 September 2013	57	-	37	1	95
At 30 September 2012	73	3	54	15	145

At the year end there were no assets held under finance leases.

11 Investment properties

	£'000
Valuation
At 1 October 2011	21,393
Disposals	(5,685)
Loss on revaluation	(530)
At 1 October 2012	15,178
Additions	5
Disposals	(15,010)
Loss on revaluation	(11)
At 30 September 2013	162

Residential investment properties owned by the group have been valued during the year by qualified valuers from Allsop LLP, an independent firm of chartered surveyors, on an investment value basis. The valuations were carried out in accordance with guidance issued by the Royal Institution of Chartered Surveyors.

	2013 £'000	2012 £'000
Rental income generated from investment property	633	1,023
Direct rental operating costs	262	(447)
	371	576

The group did not incur any direct operating expenses arising from investment property that did not generate rental income.

12 Investments

Associates and joint venture

	Associates £'000	Joint venture £'000	Total £'000
Cost or valuation
At 1 October 2011	1,000	419	1,419
Share of results	-	(200)	(200)
Impairment	-	(219)	(219)
At 1 October 2012	1,000	-	1,000
Share of results	-	43	43
Losses for period applied against receivables forming part of net investment	-	(43)	(43)
At 30 September 2013	1,000	-	1,000

The group's interests in its associates were as follows:

Terrace Hill Residential PLC	49%	Property investment
Castlegate House Partnership	30%	Property development
Devcap 2 Partnership	26%	Property development
Terrace Hill Development Partnership	20%	Property development

Terrace Hill Residential PLC is incorporated in Scotland.

Summarised information 2013

	Terrace Hill Development Partnership £'000	Devcap 2 Partnership £'000	Castlegate House Partnership £'000	Terrace Hill Residential PLC £'000	Total £'000
Revenue	1,486	2,788	827	1,832	6,933
(Loss)/profit after taxation	(41)	(1,451)	94	7,297	5,899
Total assets	23,495	39,704	7,392	70	70,661
Bank debt	(1,980)	(40,643)	(8,222)	-	(50,845)
Other liabilities	(23,533)	(14,666)	(2,734)	(35,535)	(76,468)
Total liabilities	(25,513)	(55,309)	(10,956)	(35,535)	(127,313)
Net liabilities	(2,018)	(15,605)	(3,564)	(35,465)	(56,652)
Opening carrying amount of interest under equity method	1,000	-	-	-	1,000
Closing carrying amount of interest under equity method	1,000	-	-	-	1,000
Capital commitments	-	-	-	-	-
Share of current year unrecognised profit/(loss)	(8)	(379)	28	3,575	3,216
Cumulative share of unrecognised profit/(loss)	1,596	(4,069)	(391)	(2,585)	(5,449)

Terrace Hill Group plc has no legal or constructive obligations to fund the losses of these associates. Terrace Hill Development Partnership has not been equity accounted for as the entity has preferential investors that will receive their return before Terrace Hill Group plc. When the entity can satisfy the obligations to those investors equity accounting will resume. Terrace Hill Development Partnership is classified as an associate due to significant influence over its operating activities.

Summarised information 2012

	Terrace Hill Development Partnership £'000	Devcap 2 Partnership £'000	Castlegate House Partnership £'000	Terrace Hill Residential PLC £'000	Total £'000
Revenue	16,592	2,752	615	7,144	27,103
Profit/(loss) after taxation	896	(2,821)	17	(8,718)	(10,626)
Total assets	24,474	39,360	7,284	71,762	142,880
Bank debt	(6,892)	(40,653)	(8,238)	(80,847)	(136,630)
Other liabilities	(19,558)	(12,860)	(2,704)	(33,677)	(68,799)
Total liabilities	(26,450)	(53,513)	(10,942)	(114,524)	(205,429)
Net liabilities	(1,976)	(14,153)	(3,658)	(42,762)	(62,549)
Opening carrying amount of interest under equity method	1,000	-	-	-	1,000
Closing carrying amount of interest under equity method	1,000	-	-	-	1,000
Capital commitments	-	-	-	-	-
Share of current year unrecognised profit/(loss)	179	(736)	5	(4,272)	(4,824)
Cumulative share of unrecognised profit/(loss)	1,605	(1,592)	(420)	(6,011)	(6,418)

The group's interest in its joint venture which has been equity accounted in the consolidated financial statements was as follows:

Achadonn Limited

50%

Property development

	2013 Achadonn Limited £'000	2012 Achadonn Limited £'000
Revenue	-	31
Loss	86	(399)
Total assets	14,169	14,652
Bank debt	(8,110)	(8,110)
Other liabilities	(5,547)	(6,104)
Total liabilities	(13,657)	(14,214)
Net assets	512	438
At 1 October 2012	-	419
Share of results for the period	43	(200)
Losses for period applied against receivables forming part of net investment	(43)	-
Impairment of joint venture	-	(219)
At 30 September 2013	-	-

Other investments

	2013 £'000	2012 £'000
Other investments	4,279	4,279

Included in other investments is a balance due from Howick Place JV S.a.r.l. totalling £4,273,000 (2012: £4,273,000) that has a final maturity date of 31 December 2014.

13 Development properties

	2013 £'000	2012 £'000
At 1 October 2012	70,284	72,961
Additions	25,266	28,807
Disposals	(36,404)	(30,919)
Amounts written back on the value of development properties	1,316	4,410
Amounts written off the value of development properties	(2,262)	(4,975)
At 30 September 2013	58,200	70,284
Included in these figures is capitalised interest of	7,774	8,614

No amounts are held in development properties in respect of construction contracts and retentions on such contracts are £Nil.

14 Trade and other receivables

	2013 £'000	2012 £'000
Trade receivables	1,146	2,507
Other receivables	3,552	2,216
Trade and other receivables	4,698	4,723
Amounts recoverable under construction contracts	8,249	7,558
Prepayments and accrued income	1,626	4,970
Amounts due from associates and joint venture	32,897	28,605
Provision for amounts due from associates and joint venture	(32,897)	(28,605)
	14,573	17,251

Amounts recoverable under construction contracts

	2013 £'000	2012 £'000
Contract costs incurred plus recognised profits less recognised losses to date	38,240	44,979
Less: progress billings	(29,991)	(37,421)
Contracts in progress at balance sheet date	8,249	7,558

The ageing of trade and other receivables was as follows:

	2013 £'000	2012 £'000
Up to 30 days	2,476	3,228
31 to 60 days	1	2
61 to 90 days	489	7
Over 90 days	174	77
Total	3,140	3,314
Amounts not yet due	1,558	1,409
Closing balance	4,698	4,723

No amounts were overdue at the year end.

The movement in the allowance for impairment in respect of amounts due from associates and joint venture during the year was as follows:

	2013 £'000	2012 £'000
At 1 October 2012	28,605	25,665
Increase in allowance on amounts due from associates and joint venture	4,292	2,940
Closing balance	32,897	28,605

The allowance is based on falling asset values in the associates and joint venture.

The IAS 39 categories of financial asset included in the balance sheet and the headings in which they are included are as follows:

	Loans and receivables 2013 £'000	Non-financial  assets 2013 £'000	Total 2013 £'000	Loans and receivables 2012 £'000	Non-financial assets 2012 £'000	Total 2012 £'000
Current assets
Trade receivables	1,146	-	1,146	2,507	-	2,507
Other receivables	3,552	-	3,552	2,216	-	2,216
Amounts recoverable under construction contracts	8,249	-	8,249	7,558	-	7,558
Prepayments and accrued income	-	1,626	1,626	-	4,970	4,970
Cash and cash equivalents	8,644	-	8,644	5,999	-	5,999
	21,591	1,626	23,217	18,280	4,970	23,250
Non-current assets
Other investments	4,279	-	4,279	4,279	-	4,279
	4,279	-	4,279	4,279	-	4,279

15 Trade and other payables

	2013 £'000	2012 £'000
Trade payables	1,613	3,487
Other taxation and social security costs	115	284
Accruals and deferred income	3,626	4,210
Other payables	3,583	2,556
Other payables - guarantees	-	6,011
	8,937	16,548

In 2012 the group fully provided for its share of net liabilities in its associate and an amount of £6.0 million was included in other payables in respect of a guarantee for a maximum of £15.0 million. In 2013 the group assumed £4.2 million of bank debt in exchange for the discharge of the guarantee, resulting in the release of £1.8 million to the statement of comprehensive income.

The IAS 39 categories of financial liabilities included in the balance sheet and the headings in which they are included are as follows:

	Financial liabilities  at amortised cost 2013 £'000	Liabilities not within scope of IAS 39 2013 £'000	Total 2013 £'000	Financial liabilities  at amortised cost 2012 £'000	Liabilities not within scope of IAS 39 2012 £'000	Total 2012 £'000
Current payables
Trade payables	1,613	-	1,613	3,487	-	3,487
Other tax and social security costs	-	115	115	-	284	284
Accruals and deferred income	3,626	-	3,626	4,210	-	4,210
Other payables	3,583	-	3,583	8,567	-	8,567
	8,822	115	8,937	16,264	284	16,548

16 Bank overdrafts and loans

	2013 £'000	2012 £'000
Bank loans	26,242	53,624
Bank overdrafts	162	1
	26,404	53,625
Unamortised loan issue costs	(275)	(460)
	26,129	53,165
Amounts due:
Within one year	7,384	40,699
After more than one year	18,745	12,466
	26,129	53,165

An analysis of interest rates and information on fair value and security is given in note 18.

17 Deferred tax

Details of the deferred tax charged/(credited) to the consolidated statement of comprehensive income are as follows:

	2013 £'000	2012 £'000
Trade losses	1,289	749
Share-based payments	-	163
Short-term timing differences	(18)	(818)
	1,271	94

The consolidated deferred tax assets and liabilities are as follows:

	2013 £'000	2012 £'000
Deferred tax liability
Short-term timing differences	867	851
	867	851

	2013 £'000	2012 £'000
Deferred tax asset
Short-term timing differences	-	1,382
Trade losses	5,213	5,085
	5,213	6,467

Under IAS 12, deferred tax is recognised for tax potentially payable on the realisation of investment properties at fair values at the balance sheet date. No deferred tax asset is recognised in respect of losses if there is uncertainty over future recoverability.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. In assessing the future recoverability of the deferred tax asset an asset sales forecast covering a three-year period is prepared and the assessment of available taxable profits takes into account the group's overheads and finance costs. Sales are included where the group assess the sale as probable. The group has a history of utilising tax losses brought forward from prior periods and has a policy of utilising prior period losses in priority to any current year losses.

A deferred tax asset has not been recognised for unused tax losses of £14,028,000 (2012: £17,813,000).

18 Financial instruments

The group's principal financial instruments comprise loans, overdrafts, cash and short-term deposits. The main purpose of these financial instruments is to provide finance for the group's operations. Further information on the group's financial resources and capital management is given in the strategic report.

The group has various other financial instruments such as trade receivables and trade payables that arise directly from its operations and unlisted investments.

The main risks arising from the group's financial instruments are interest rate risk, credit risk and liquidity risk. The board reviews and agrees policies for managing each of these risks and they are summarised below. The magnitude of the risk that has arisen over the year is detailed below.

Interest rate risk

The group holds cash balances on short-term deposit. The group's policy is to monitor the level of these balances to ensure that funds are available as required, recognising that interest earnings will be subject to interest rate fluctuations.

The group borrows cash in the form of loans and overdrafts, which are subject to interest at floating rates, recognising that rates will fluctuate according to changes in LIBOR and the bank base rate. The group is cognisant at all times of movements in interest rates and will, as appropriate, enter into interest rate swaps to maintain a balance between borrowings that are subject to floating and fixed rates.

Credit risk

The group's principal financial assets are cash, trade receivables, amounts recoverable under construction contracts and other investments. Our cash deposits are placed with a range of banks to minimise the risk to the group. The principal risk therefore arises from trade receivables and amounts recoverable under construction contracts. Trade receivables from the sale of properties are secured against those properties until the proceeds are received. Rental receivables are unsecured but the group's exposure to tenant default is limited as no tenant accounts for more than 10% of total rent. Rental cash deposits and third party guarantees are obtained as a means of mitigating financial loss from defaults. Amounts recoverable under construction contracts are funded by the ultimate purchaser of the development, on whom extensive financial due diligence is carried out. Other investments represent amounts advanced to an entity undertaking a property development in central London. The group is entitled to a priority return and the board annually reviews the business plan of that entity.

Liquidity risk

The group's objective is to maintain a balance between continuity of funding and flexibility through the use of bank balances and loans. Cash flow and funding needs are regularly monitored.

Categories of financial assets and financial liabilities

	2013 £'000	2012 £'000
Current financial assets
Trade and other receivables	2,809	4,723
Amounts recoverable under construction contracts	8,249	7,558
Cash and cash equivalents	8,482	5,998
Total current financial assets	19,540	18,279
Non-current financial assets
Other investments	4,279	4,279
Total non-current financial assets	4,279	4,279
Total financial assets	23,819	22,558

There are no financial assets held at fair value (2012: £Nil).

The maximum exposure to credit risk in financial assets, excluding cash and cash equivalents, is £15,338,000 (2012: £16,560,000). The maximum amount due from any single party is £4,279,000 (2012: £4,279,000) included in other investments.

Financial liabilities measured at amortised cost

	2013 £'000	2012 £'000
Current financial liabilities
Trade and other payables	8,129	15,464
Loans and borrowings	7,323	40,745
Total current financial liabilities	15,452	56,209
Non-current financial liabilities
Loans and borrowings	18,919	12,879
Total non-current financial liabilities	18,919	12,879
Total financial liabilities	34,371	69,088

There are no financial liabilities designated at fair value (2012: £Nil).

Interest rate risk profile of financial assets and liabilities

The interest rate profile of financial assets and liabilities of the group at 30 September 2013 was as follows:

	Total £'000	Floating rate financial assets £'000	Fixed rate financial assets £'000	Financial assets on which no interest is earned £'000
Sterling	23,820	8,482	3,480	11,858

	Total £'000	Floating rate financial liabilities £'000	Fixed rate financial liabilities £'000	Financial liabilities on which  no interest is charged £'000
Sterling	35,179	26,242	-	8,937

Floating rate financial liabilities bear interest at LIBOR or base rate plus margins of between 1% and 4%.

There are no amounts included in floating rate financial liabilities that are subject to interest rate swaps (2012: £Nil).

The interest rate profile of financial assets and liabilities of the group at 30 September 2012 was as follows:

	Total £'000	Floating rate financial assets £'000	Fixed rate financial assets £'000	Financial assets on which no interest is earned £'000
Sterling	15,000	5,998	3,480	5,522

	Total £'000	Floating rate financial liabilities £'000	Fixed rate financial liabilities £'000	Financial liabilities on which  no interest is charged £'000
Sterling	69,088	53,624	-	15,464

The floating rate financial assets comprise:

•	cash on deposit.

The floating rate financial liabilities comprise:

•	Sterling denominated bank loans that bear interest based on LIBOR and bank base rates; and
•	Sterling denominated bank overdrafts that bear interest based on bank base rates.

The fair value of the financial assets and liabilities is equal to the book value.

Borrowings

The group's bank borrowings and overdrafts are repayable as follows:

	2013 £'000	2012 £'000
On demand or within one year	7,485	40,745
In more than one year but less than two	18,919	9,949
In more than two years but less than five	-	2,931
	26,404	53,625

The bank loans are secured by legal charges over the group's investment and development properties together with guarantees from certain subsidiary undertakings with a limited guarantee from the parent company. Loans with principal guarantees from the parent company were repaid during the year and after the balance sheet date.

Borrowing facilities

The group has the following undrawn committed bank borrowing facilities available to it at the year end:

	2013 £'000	2012 £'000
Expiring in one year or less	-	2,500

Guarantees

Refer to note 21 for details.

Market rate sensitivity analysis

Financial instruments affected by market risk include borrowings, deposits and derivative financial instruments. The analysis below shows the sensitivity of the statement of comprehensive income and net assets to a 0.5% change in interest rates on the group's financial instruments.

The sensitivity analysis is based on the sensitivity of interest to movements in interest rates and is calculated on net floating rate exposures on debt and deposits.

	0.5% decrease in interest rates £'000	0.5% increase in interest rates £'000
Impact on interest payable - gain/(loss)	597	(597)
Impact on interest receivable - (loss)/gain	(189)	189
Total impact on pre-tax profit and equity	408	(408)

The analysis below shows the sensitivity of the consolidated statement of comprehensive income and net assets to a 0.5% change in interest rates on the group's financial instruments for 2012.

	0.5% decrease in interest rates £'000	0.5% increase in interest rates £'000
Impact on interest payable - gain/(loss)	442	(442)
Impact on interest receivable - (loss)/gain	(64)	64
Total impact on pre-tax profit and equity	378	(378)

19 Called up share capital

	2013 £'000	2012 £'000
Authorised:
500,000,000 (2012: 500,000,000) ordinary shares of 2 pence each	10,000	10,000
200,000 cumulative 8% redeemable preference shares of £1 each	200	200
44,859 convertible shares of 20 pence each	9	9
32,551,410 deferred shares of 2 pence each	651	651
	10,860	10,860
Allotted, called up, and fully paid:
211,971,299 (2012: 211,971,299) ordinary shares of 2 pence each	4,240	4,240

20 Reserves

	Share premium £'000	Own shares £'000	Capital redemption reserve £'000	Merger reserve £'000	Retained earnings £'000
At 1 October 2011	43,208	(609)	849	7,088	(6,642)
Total comprehensive income and expense for the year	-	-	-	-	1,742
Share-based payments	-	-	-	-	337
Capital reduction	(25,000)	-	-	-	25,000
Balance at 1 October 2012	18,208	(609)	849	7,088	20,437
Total comprehensive income and expense for the year	-	-	-	-	4,930
Share-based payments	-	-	-	-	406
Balance at 30 September 2013	18,208	(609)	849	7,088	25,773

The following describes the nature and purpose of each reserve within owners' equity:

Share premium - represents the excess of value of shares issued over their nominal amount.

Own shares - represents amount paid to purchase issued shares for the employee share-based payment plan.

Capital redemption reserve - represents amount paid to purchase issued shares for cancellation at their nominal value.

Merger reserve - the merger reserve has arisen following acquisitions where the group's entity has formed all or part of the consideration and represents the premium on the issued shares less costs.

Retained earnings - represents cumulative net gains and losses recognised in the consolidated statement of comprehensive income.

21 Contingent liabilities, capital commitments and guarantees

The group has given a guarantee of £600,000 (2012: £600,000) as part of its development obligations.

Capital commitments relating to development sites are as follows:

	2013 £'000	2012 £'000
Contracted but not provided for	27,765	10,854

 

END

 

 

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