Interim Results
Workspace Group PLC
20 November 2006
WORKSPACE UPBEAT AT INTERIMS
AS IT CONFIRMS REIT CONVERSION
Workspace Group PLC ('Workspace') today announces its interim results for the
six months to 30 September 2006. Workspace provides 5 million sq. ft of flexible
business accommodation to over 4,000 small and medium size enterprises ('SMEs')
in London and the South East.
• Adjusted Net Asset Value (NAV) per share at 30 September 2006 £3.40*, up
9.0% over the six months and up 33% over 12 months (31 March 2006: £3.12; 30
September 2005: £2.55)
• NAV per share at 30 September 2006 £2.58* up 9.0% over the six months
and up 33% over 12 months (31 March 2006: £2.37; 30 September 2005:£1.94)
• Valuation surplus for half year £59.0m (2005: £40.2m)
• Pre-tax profits £69.4m (2005: £45.8m)
• Pre-tax profits on trading operations £5.1m (2005: £6.3m restated)
• Basic earnings per share 29.4p (2005: 19.6p)
• Joint venture with Glebe established
• Total rent roll £43.0m up 8.3% (excluding Glebe JV but including
acquisitions) (31 March 2006: £39.7m restated)
• Acquisitions £42.3m since 31 March 2006 to date, with others under
negotiation
• Disposals of £171.7m (including £146.0m to the Glebe JV) since 31 March
2006
• Interim dividend 1.38 pence (2005: 1.25 pence)
* Adjusted NAV per share and NAV per share were affected by the conversion of
the loan stock during the period.
Commenting on the results, Harry Platt, Chief Executive, said,
' We have made great strides in the management of our portfolio and, we
anticipate an acceleration in rental growth. Our space remains extremely
affordable and the average rent per sq.ft has moved forward to £10.58. The start
of the JV with Glebe has been encouraging and we are already well advanced on a
number of improvement and intensification schemes.'
' We plan to convert to a REIT on 1 January 2007. This structure will enable
shareholders to benefit from a significantly higher dividend stream, whilst not
impairing the group's strategic progress.'
' London remains the powerhouse for SME activity in the UK. We are at the centre
of this vibrant market. The improvements we have made to our portfolio and our
customer offering has created a first class platform from which we will continue
our growth. The future for the group remains excellent.'
-ends-
Date: 20 November 2006
For further information:
Workspace Group PLC cityPROFILE
Harry Platt, Chief Executive Simon Courtenay
Mark Taylor, Finance Director 020-7448-3244
020-7247-7614
e-mail: info@workspacegroup.co.uk
web: www.workspacegroup.co.uk
Chairman's Statement
Progress over the first six months has been sound.
Adjusted NAV per share increased by 9.0% over the six months assisted by a
record valuation surplus for the first half. The 11.0% increase in diluted
adjusted NAV per share was restricted by the conversion of the balance of the
Group's 11% convertible loan stock. The valuation uplift has been driven both by
continued yield compression and rental improvements. The average rental value
per square foot increased (on a like-for-like basis) by 3.6% from £10.21 to
£10.58. We have also seen encouraging signs of the return of stronger levels of
market rental growth (ERVs).
It appears likely that the yield compression that has made the principal
contribution to the growth in valuation over recent periods is now drawing to a
close. It is reassuring, therefore, to see rental growth playing a more active
part, particularly since this yield compression has resulted in initial yields
that are commonly below the cost of money. We will purchase property at these
levels, but only where we can see good growth potential. However, such
acquisitions are dilutive to earnings initially. We have targeted purchases of
at least £60m this year and with £42.3m completed to date, we are well on the
way to achieving this target.
The most significant event of the first half year was the establishment of a
joint venture with Glebe for the promotion of change of use and other
opportunities on 11 of the Group's estates. More details on the joint venture
are given in the Chief Executive's Statement. The joint venture with Glebe is only
a part of the opportunity for 'value adding' activity and just half of that in
immediate prospect. The remainder of the opportunities will continue to be
promoted by the Group.
We have today issued a Circular advising shareholders of the Group's intention
to convert to a REIT (Real Estate Investment Trust) and calling a general
meeting to amend the Company's Articles to provide safe harbour provisions for
the Group against tax penalties arising from distributions to certain
shareholdings in excess of 10% within a REIT. Your Board has monitored carefully
the evolution and development of the REIT protocol and considers that conversion
to a tax exempt environment offers very real advantages to shareholders through
receipt of higher dividend distributions at modest cost to the Company. The
conversion charge of approximately £20m should be covered relatively quickly by
tax liabilities that will no longer arise as a REIT. Aside from these tangible
benefits to shareholders, our analysis shows that the regulatory framework for
REITs should not constrain the growth of the Group's current business model and
delivery of its strategic plan.
As noted in our first quarter statement, I am delighted to welcome Rupert
Dickinson, the Chief Executive of Grainger Trust, to the Board as a
non-executive director. Rupert brings a wealth of knowledge and skills in the
housing and mixed-use arenas, a key area of expertise as we increasingly pursue
the mixed-use opportunities on our estates. I would also like to take this
opportunity to thank Chris Pieroni who has retired from the Board after six
years of service as a non-executive director during which time the Group has
grown substantially. Bernard Cragg now takes over his duties as Senior
Independent Non-Executive Director and John Bywater has become Chairman of the
Remuneration Committee.
An interim dividend of 1.38 pence per share (an increase of 10.4%) has been
declared with these accounts and will be paid on 1 February 2007.
Chief Executive's Statement
Summary
The good progress of the first quarter has extended through to the half year
stage with pre-tax profits of £69.4m up 52% on last year (30 September 2005:
£45.8m). This growth has again been driven by the substantial growth of the
portfolio valuation. The surplus for the half year of £59.0m is the highest ever
recorded in the first half. Pre-tax profits on trading operations at £5.1m were
down on 2005 (2005: £6.3m, restated). This is attributable partly to the change
in mix of the portfolio after the disposals over the last year and partly due to
increased net interest charges. These are described in more detail in the
Financial Review.
Following the valuation surplus, adjusted NAV per share increased by 9% over the
half year to £3.40. This increase was tempered by the conversion of the
remainder of the Group's 11% convertible loan stock during the first half. More
details of this are given in the Financial Review.
At the time of announcement of the preliminary results for 2005/6 we advised
also of the formation of a 50:50 joint venture with Glebe. This joint venture
has been established to promote the 'added value' opportunities of a portfolio
of properties, 11 of which were contributed (for a consideration of £146m) by
the Group, alongside 3 from Glebe (at £9.1m). The joint venture is backed by
Bank of Scotland who have provided £126m of debt finance alongside the £20m of
equity provided by each partner. The properties were sold to the joint venture
at a surplus of £8.6m (before costs). Proposals for the first phase at three
properties are well advanced.
As described in our June statement, entry into the joint venture has enabled the
Group:
• To crystallise a portion of the value in our current portfolio at a
surplus;
• To de-gear and increase substantially our financial capacity for new
acquisitions in London;
• To retain a significant interest and participation in the gains
resulting from the change of use and intensification of these properties
with a partner with proven experience in this area;
• To maintain our focus on our key skills.
Excluding the joint venture properties, the rent roll increased to £43.01m (31
March 2006: £39.71m restated). Excluding acquisitions and improvement properties
the like-for-like rent roll has increased by £0.29m over the half year. This
increase was driven by a 3.6% increase in average rents (compared with a growth
rate of 3.6% for the whole of 2005/6) tempered to a degree by reductions in
occupancy, more details of which are given later.
Earnings per share at 29.4p are 50% up on last year.
Valuation
As usual an independent valuation of the Group's portfolio has been undertaken.
The valuation, which totalled £932.5m, showed a surplus of £59m for the half
year, a 6.8% increase attributable approximately 75% to yield compression and
25% to rental increases. After a period when rental growth, and its impact on
valuation, has been limited, it is pleasing to see a more significant
contribution returning.
Movements in the portfolio may be analysed:
£m
Valuation as at 31 March 2006 964.3
Book value of disposals (145.9)
Acquisitions 41.4
Other expenditure on properties 13.7
Valuation surplus 59.0
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932.5
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Portfolio
In the first half the Group made acquisitions (excluding costs) of £39.1m, with
another £3.2m following the period end. Once again these acquisitions have been
identified partly through opportunities offered to us from the marketplace and
partly from our continued research into target acquisitions through our
acquisitions database and are in locations we know well. We consider that this
year's acquisitions offer an attractive blend of good initial returns with the
opportunity for growth. The Leyton properties are located just three miles north
of the Olympic zone and, costing just £97 per square foot, offer interesting
longer term growth prospects. Morie Street SW18 and Greville Street EC1, both of
which had substantial voids on acquisition, offer the potential to grow income
through asset improvement and active management leading to better rents. T
Marchant offers both the prospect for improving current returns but also, in the
medium term, the opportunity for intensification and change of use particularly
if the southern extension of the East London line progresses. Spectrum House
provides an entry to the Kentish Town market, an area in which the Group has
sought a presence for some time. Seven Sisters, being located at a transport
node, the intersection of Seven Sisters Road and the A10 at Seven Sisters
Underground Station, should benefit as intensification around such hubs
increases.
The table following shows our acquisitions and disposals to date in the year:
Acquisitions and Disposals
Name of Property Description Price Income Market rent at
30 September
2006
£m £000 £000
Acquisitions
Acquired during the first half
Leyton Industrial Village, 3 small unit industrial 16.0 826.4 1,148.1
Fairways Business Centre and estates of 168,000 sq. ft
Leyton Studios, London E10
1, Morie Street, Multi let offices of 4.4 178.0 377.1
London SW18 22,000 sq.ft
14, Greville Street, Vacant building of 3.8 Nil 670.0
London EC1 14,000 sq.ft
T Marchant Trading 14 unit industrial estate 6.1 300.5 382.7
Estate, Verney totalling 51,000 sq. ft over
Road, SE16 2.1 acres
Spectrum House, Gordon 22 unit business centre of 8.8 544.4 621.8
House Road, 48,100 sq. ft
London NW5
----
39.1
Purchases completed
following the first
half
Seven Sisters, 7 self-contained office buildings 3.2 188.8 246.9
214-218 Seven Sisters totalling 20,300 sq.ft
Road, London N15
-----------------------------------------------------------------------------------------------------------------
42.3 2,038.1 3,446.6
-----------------------------------------------------------------------------------------------------------------
Yield 4.82% 8.15%
-----------------------------------------------------------------------------------------------------------------
Disposals 11 Properties 11 estates with improvement or 146.0 7,183.0
disposed to the Glebe change of use potential. Total
joint venture. lettable floor area
1.2 million sq.ft
Riverside Business Centre, SW18;
Bow Enterprise Park, E3;
Grand Union Centre, W10;
Highway Business Park, E1;
Hamilton Road Industrial Estate, SE27;
Parkhall Road Trading Estate, SE21;
Rainbow Industrial Estate, SW20;
Tower Bridge Business Complex, SE16
and Tower Bridge Block F, SE16;
Wandsworth Business Village; SW18;
Zennor Road Industrial Estate, SW12
Stevenage Enterprise Park, Industrial estate of 27,000 3.2 167.0
Stevenage, SG1 sq.ft, deferred part of
Magenta Portfolio sale
of last year.
Wharf Road, London, N1 Part of property sold for £1.9m 10.4 Nil
with consent for mixed
residential and commercial
accommodation. Interest
retained in commercial element
(worth £8.5m).
-----
159.6
Sales completed following
the half year
Park Avenue, Luton, LU3 203,000 sq. ft industrial estate 12.1 653.4
-----------------------------------------------------------------------------------------------------------------
171.7 8,003.4
-----------------------------------------------------------------------------------------------------------------
Yield 4.66%
-----------------------------------------------------------------------------------------------------------------
Following the acquisitions and disposals completed in the period, and the
establishment of the joint venture, the portfolio statistics and progress
through the period may be summarised as follows:-
Portfolio Statistics (excluding joint venture with Glebe)
September 2006 June 2006 March 2006
Restated*
Number of estates 99 96 93
Total floor space (million sq.ft) of which 4.98 4.89 4.69
Like-for-like portfolio (million sq.ft) 4.30 4.30 4.30
Disposals (million sq.ft) - - 0.03
Acquisitions (million sq. ft) 0.35 0.23 -
Improvement properties (million sq. ft) 0.33 0.36 0.36
Lettable units 4,215 4,286 4,108
Annual rent roll of occupied units (£m) 43.01 40.88 39.71
Average rent (£/sq.ft) 10.56 10.22 10.21
Overall occupancy (%) 81.7% 81.8% 83.0%
Like-for-like Occupancy (%) 85.1% 86.4% 87.7%
Like-for-like Average rent (£/sq.ft) 10.58 10.32 10.21
Like-for-like Net rent roll (£m) 38.77 38.28 38.48
(*restated for disposal to joint venture)
Workspace Glebe Joint Venture Portfolio Statistics
Number of estates 14 14 11
Total floor space (million sq.ft) 1.15 1.14 1.08
Lettable units 810 806 797
Annual rent roll of occupied units (£m) 7.76 7.50 6.87
Average rent (£/sq.ft) 7.39 7.13 7.06
Overall occupancy (%) 91.57% 92.45% 89.75%
Comparisons of overall occupancy and rent roll are distorted by acquisitions,
disposals and transfers. The 'like for like' portfolio is defined as those
properties that have been held throughout the year to date and which are not
subject to a refurbishment programme.
Occupancy during the first half, has declined at an overall level by 1.3%, 2.6%
by reference to the 'like for like' portfolio. This change, and movements within
the 'like for like' portfolio may be analysed as follows:
March September Difference
2006 2006
Overall occupancy 83.0% 81.7% 1.3%
Disposals (4 estates, see table below) (0.1)% -
Acquisitions - 0.2%
Improvement properties 4.8% 3.2%
-----------------------------------------------------------------------------------------------------------------
'Like for like' occupancy 87.7% 85.1% 2.6%
Future improvement or added value
estates (4 estates, see details below) (0.1%) 1.3%
Other significant movements (5 estates listed below) 0.5% 1.6%
-----------------------------------------------------------------------------------------------------------------
'Adjusted like for like' 88.1% 88.0% 0.1%
Disposals (Stevenage) were at a higher than average occupancy level (97.1%)
whereas acquisitions were lower (79.2%). These are ideal relative levels since
they confirm that the disposal had little scope for improvement whereas the
acquisitions offered more substantial opportunity. Improvement properties
progressed well during the half year, as is illustrated in the table below:
Completion dates March 2006 September 2006
Occupancy Rent Occupancy Rent
£000 £000
Clerkenwell Workshops June 2006 0.0% 14 49.8% 645
Enterprise House May 2006 59.5% 652 71.2% 1,320
Power Road October 2006 33.3% 166 33.3% 150
Lombard House Due February 2007 25.9% 205 23.4% 189
The improved occupancy at Clerkenwell Workshops and Enterprise House was the
driver of the reduction in the improvement occupancy adjustment from 4.8% to
3.2% over the 6 months as occupancy in improvement properties improved from
26.2% to 40.6%.
As may be seen from the earlier table the 'Adjusted Like for Like' portfolio
totals show occupancy only marginally changed (being down just 0.1%). As such,
the fall in 'like for like' occupancy may be attributed principally to falls in
occupancy on the four sites earmarked for future improvement or disposal
(Greenheath, Park Avenue, Parmiter & Kennington Park) where the change in
occupancy has little long term impact (indeed in the case of improvement
properties is beneficial) or at five other estates (Buzzard, Uplands, Homesdale,
Barratt Way and Westminster) where larger voids have arisen. Such voids are
commonplace in the Group's business and can reasonably be expected to be covered
by re-letting in the near future.
In addition to the disposals into the joint venture, the disposal of Stevenage
Enterprise Park concluded the sale of the portfolio of properties outside the
M25 announced last year. The sale of Wharf Road to United House marks the
completion of our initiative to add value at this site. We achieved planning
consent here in March 2005 for a mixed-use scheme. The consent provides for the
demolition of the existing 44,000 sq. ft centre to be replaced by buildings
comprising 30,000 sq. ft of workspace in addition to 77 residential units in
properties of up to 10 storeys in height. The consideration, partly in cash and
partly through construction of a new commercial building for Workspace, supports
an overall value for the site in excess of £10m. The sale of Park Avenue, Luton
marks a further stage in the Group's progressive refocusing away from properties
outside of the M25 towards London based property.
Proposals for the intensification of the Group's Thurston Road property in
central Lewisham have progressed as have those for part of the Group's property
at Greenheath in Bethnal Green and that at Aberdeen Studios, Islington.
Financial Review
Profits before tax at £69.4m were 52% up on last year (September 2005: £45.8m).
The performance was driven by another good valuation surplus taking the total
for the half year to £59.0m (2005: £40.2m). However, at a trading level the
performance was lower with PBT of £5.1m (2005: £6.3m, restated), being reduced
by a combination of factors:
- Two significant portfolio disposals were made over the last 12
months. Firstly, the majority of the Group's properties outside the M25 were
sold last year, followed this year by the disposal of properties into the JV
with Glebe. These disposals reduced earnings growth with revenue for the period
increasing by just 1% to £29.6m (2005: £29.2m). Whilst borrowings fell due to
these disposals, leading to reductions in interest costs, these reductions were
impacted by short term treasury inefficiencies as the funds released were
reinvested. Furthermore, average interest rates over the period were greater
than last year and, on a weighted basis, impacted more on the periods where debt
levels were greater as described below. Consequently, earnings suffered during
this period of reorganisation. However, following these disposals the Group now
has a portfolio that is more closely aligned to its strategic objectives in
London and with greater income growth potential.
- A further factor impacting earnings has been the low average of 5.4%
(over the last 12 months) of initial yield from acquisitions. The properties
have been purchased with voids providing good capacity for rental growth over
the coming periods. This has been compounded by the management steps taken at
certain properties over the last year to enhance earnings in the medium/long
term. For example, at Kennington Park a significant void arose shortly following
purchase. This event had been anticipated; indeed it was a key factor in the
property's acquisition since it gave the opportunity to reconfigure the space to
provide more small unit accommodation suiting our customers' needs. Likewise, at
Lombard House, the acceptance of the surrender of the Vodafone lease last year
has depressed returns. Both these properties (together with 111 Power Road and
Greville Street, bought this year) will contribute to rental growth going
forward.
- Administration charges have increased on last year due, mainly
(£0.3m), to a further significant increase in the share price giving rise to a
substantial increase in the provision for National Insurance on the exercise of
options.
- Finance charges in the 6 months were up £0.3m to £11.3m (2005:
£11.0m) whilst overall debt levels at £350m were substantially down on those
last year (2005: £432m). This has only arisen in the second quarter following
the disposal of the JV portfolio. Debt levels during the first quarter were
broadly in line with the September 2005 levels. As noted above, interest rates
have increased with the average for the half year costing £0.1m. As noted
earlier, acquisitions over the last 12 months at 5.4% initial yield have not
made a significant contribution to profits and more recently have not achieved
the cost of money.
Many of these factors will turn to the Group's favour going forward. The current
voids in the portfolio present an opportunity at a time where good demand is
expected. Further, with City/West End rents rising sharply, rental growth should
be achieved. Against these, market forecasts of interest rates show them rising
to a peak over the next year and then declining. As these changes are absorbed
revenue growth should return.
Net Assets increased from £390.3m to £437.4m (up 12.1%) over the half year,
mainly as a result of the valuation surplus. Adjusted (basic) net assets per
share increased by 9% from £3.12 to £3.40. Some dilution in the growth of NAV
per share arose due to the conversion of the remaining 11% Convertible Loan
Stock 2011. At 31 March 2006 £2.2m of this stock remained outstanding. This was
converted into 4,400,000 shares. The residue of the Group's other historic
borrowings, the £19.5m 11 1/8% and 11 5/8% Debenture Stock are due for repayment
on 30 June 2007, at which time the Group's borrowing costs will reduce by
approximately £1m pa. The timing of this is fortunate since it is likely that
the Group will have converted to a REIT and consequently elimination of such
expensive debt is of increased significance, as the Group will no longer benefit
from a tax deduction on the interest expense.
Following a detailed review of its business and the REIT proposals, your Board
has concluded that it is in the interest of shareholders to convert. A circular
calling an EGM on 15 December accompanies this statement. At 30 September 2006,
the Group's total deferred tax liabilities were £141.3m (note 16 to the
accounts). If the Group's properties had been sold at the values in the
September valuation, then a liability to tax of £111.1m would have arisen. With
the significant numbers of properties upon which intensification and change of
use proposals are being promoted, it is likely that a significant portion of
this deferred tax liability would accrue as a current charge in the relatively
near future. As a result, pay back of the conversion charge (which will be of
the order of £20m) will be relatively short. At this stage, no provisions for
the inclusion of Group JVs (i.e. joint ventures that comprise more than one
company) have been enacted in the REIT legislation. Consequently, the Group's JV
with Glebe will remain outside the REIT ring fence initially. Representations to
HMRC over 'Group JVs' have been made by the property industry and it is believed
that further legislation will follow to accommodate them. In the short term,
this should not present problems. Further details on the conversion are given in
the circular issued with this statement.
The most significant single event of the first half was the entry into the joint
venture with Glebe and the associated transfer of £137.4m (March 2006 valuation)
of investment property into it at a valuation of £146m showing a surplus of
£8.6m. The joint venture has been structured on a ring-fenced standalone basis
with a new £125.6m loan facility from Bank of Scotland, of which £119.2m was
drawn at 30 September, and the joint venture parties providing the balance of
the funding equally. The transfer and refinancing of the assets released
approximately £123m in cash after the Workspace equity contribution and costs
had been accounted for. This was applied in paying down portions of the Group's
facilities with Natwest and Bradford & Bingley. In the case of Natwest, the
drawn portion of the Group's revolving loan facility was repaid, preserving
availability, whilst with Bradford & Bingley £70m was repaid but a right to
redraw the repaid portion was negotiated. As a result, the Group's gearing
(based on adjusted net assets) has reduced to 63% whilst preserving the
availability of these facilities. This provides the capacity not only for
funding prospective acquisitions in the next year or so, but also for the
repayment of the Group's debenture stock that falls due in June 2007 and payment
of the taxation liability that will arise should the Group convert, as planned,
to a REIT next year.
Entry into the joint venture was accomplished by merging the Group's interests
with those held by Glebe. In this manner, no tax liability on the assets
contributed to the joint venture was triggered, and the incidence of the
liability has been deferred until the investment properties are disposed of by
the joint venture.
Key financial statistics, reported both on an IFRS and former UK GAAP basis are:
6 months to 3 months to Year to 6 months to
30 September 30 June 31 March 30 September
2006 2006 2006 2005
Net rental income: revenue 71% 72% 73% 73%
Trading operating profit: revenue 55% 57% 59% 59%
Trading PBT: revenue 17% 18% 24% 23%
EPS per share (pence) 29.4 18.4 65.1 19.6
NAV per share (£) - IFRS 2.58 2.56 2.37 1.94
- Adjusted IFRS 3.40 3.36 3.12 2.55
Trading interest cover 1.46 1.45 1.69 1.65
Gearing - IFRS 80% 77% 110% 137%
- UK GAAP 63% 62% 85% 105%
Available facilities (£m) 93.9 145.7 15.7 13.6
Prospects
Enquiry levels and conversions to lettings remain good. The rent roll increases
recorded in the latter stages of the period have continued into the third
quarter and overall the market indicators are for a period of growth in rentals.
We continue to track a significant number of opportunities for acquisitions and
expect that our target of £60m for the year will be exceeded, albeit that these
acquisitions may be at lower initial yields with good prospects for growth.
Your Board considers that the Group will be a significant beneficiary from
conversion to a REIT. It will facilitate more substantial distributions to
shareholders without significant impact on the development of the business.
Further, there is every prospect of a more active property market following the
creation of REITs, which should create more opportunities for the Group.
Independent review report to Workspace Group PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 September 2006 which comprises a consolidated income
statement, a consolidated statement of recognised income and expense, a
consolidated balance sheet as at 30 September 2006, a consolidated cash flow
statement and related notes. We have read the other information contained in the
interim report and considered whether it contains any apparent misstatements or
material inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The Listing Rules
of the Financial Services Authority require that the accounting policies and
presentation applied to the interim figures should be consistent with those
applied in preparing the preceding annual accounts except where any changes, and
the reasons for them, are disclosed.
This interim report has been prepared in accordance with the basis set out in
Note 24.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of management and applying analytical
procedures to the financial information and underlying financial data and, based
thereon, assessing whether the disclosed accounting policies have been applied.
A review excludes audit procedures such as tests of controls and verification of
assets, liabilities and transactions. It is substantially less in scope than an
audit and therefore provides a lower level of assurance. Accordingly we do not
express an audit opinion on the financial information. This report, including
the conclusion, has been prepared for and only for the company for the purpose
of the Listing Rules of the Financial Services Authority and for no other
purpose. We do not, in producing this report, accept or assume responsibility
for any other purpose or to any other person to whom this report is shown or
into whose hands it may come save where expressly agreed by our prior consent in
writing.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 September 2006.
PricewaterhouseCoopers LLP
Chartered Accountants
London
17 November 2006
Consolidated Income Statement
Audited Unaudited Unaudited
Year ended 6 months ended 6 months ended
31 March 2006 30 September 2006 30 September 2005
£m Notes Trading Other items* Total £m
operations*
£m £m £m
63.2 Revenue 1 29.6 - 29.6 29.2
(16.8) Direct costs 1 (8.5) - (8.5) (7.7)
-------------------------------------------------------------------------------------------------------
46.4 Net rental income 1 21.1 - 21.1 21.5
(9.1) Administrative (4.7) 0.2 (4.5) (4.2)
expenses
131.3 Gain from change in - 59.0 59.0 40.2
fair value of
investment property
- Other income 8d - 1.6 1.6 -
3.4 Profit on disposal 2 - 4.4 4.4 -
of investment
properties
-------------------------------------------------------------------------------------------------------
172.0 Operating profit 16.4 65.2 81.6 57.5
0.2 Finance income - 0.1 - 0.1 -
interest receivable
(23.6) Finance costs - 3 (11.3) - (11.3) (11.0)
interest payable
0.4 Change in fair value 14d - 0.4 0.4 (0.7)
of derivative
financial
instruments
- Share of joint 22 (0.1) (1.3) (1.4) -
venture post tax losses
-------------------------------------------------------------------------------------------------------
149.0 Profit before tax 5.1 64.3 69.4 45.8
(42.4) Taxation 4 (1.5) (19.1) (20.6) (13.7)
-------------------------------------------------------------------------------------------------------
106.6 Profit for the 3.6 45.2 48.8 32.1
period after tax and
attributable to
equity shareholders
-------------------------------------------------------------------------------------------------------
65.1p Basic earnings per 6 2.2p 27.2p 29.4p 19.6p
share
62.7p Diluted earnings per 6 2.1p 26.2p 28.3p 18.8p
share
*Trading Operations and Other Items are defined in the glossary of terms below.
Consolidated Statement of Recognised Income and Expense (SORIE)
Audited Unaudited Unaudited
Year ended 6 months ended 6 months ended
31 March 2006 30 September 30 September
2006 2005
£m £m £m
106.6 Profit for the financial period 48.8 32.1
--------------------------------------------------------------------------------
106.6 Total recognised income and 48.8 32.1
expense for the period
--------------------------------------------------------------------------------
There is no difference between the profit for the financial period and the total
recognised income and expense for the period.
Consolidated Balance Sheet
Audited Unaudited Unaudited
31 March 2006 30 September 30 September
2006 2005
(restated*)
£m Notes £m £m
Non-current assets
954.0 Investment properties 8 930.4 865.1
0.2 Intangible assets 0.2 0.2
3.6 Property, plant and equipment 9 3.5 3.5
- Investment in joint venture 22 16.2 -
--------------------------------------------------------------------------------
957.8 950.3 868.8
Current assets
6.7 Trade and other receivables 10 10.0 8.1
0.1 Financial assets - derivative 14d 0.1 0.1
financial instruments
8.2 Investment properties held 8a - -
for sale
1.7 Cash and cash equivalents 11 1.8 1.8
--------------------------------------------------------------------------------
16.7 11.9 10.0
--------------------------------------------------------------------------------
Current liabilities
(3.6) Financial liabilities - 14a (22.3) (1.9)
borrowings
(1.2) Financial liabilities - 14d (0.8) (2.3)
derivative financial
instruments
(29.0) Trade and other payables 12 (30.5) (28.8)
(1.7) Current tax liabilities 13 (2.7) (0.4)
--------------------------------------------------------------------------------
(35.5) (56.3) (33.4)
--------------------------------------------------------------------------------
(18.8) Net current liabilities (44.4) (23.4)
Non-current liabilities
(426.1) Financial liabilities - 14a (327.2) (430.0)
borrowings
(122.6) Deferred tax liabilities 16 (141.3) (98.2)
--------------------------------------------------------------------------------
(548.7) (468.5) (528.2)
--------------------------------------------------------------------------------
390.3 Net assets 437.4 317.2
--------------------------------------------------------------------------------
Shareholders' equity
16.9 Ordinary shares 17 17.4 16.9
28.7 Share premium 19 30.5 28.4
(5.1) Investment in own shares 20 (4.9) (5.4)
0.8 Other reserves 18 0.7 0.7
349.0 Retained earnings 19 393.7 276.6
--------------------------------------------------------------------------------
390.3 Total shareholders' equity 437.4 317.2
--------------------------------------------------------------------------------
£2.37 Net asset value per share 7 £2.58 £1.94
(basic)
£2.29 Diluted net asset value per 7 £2.53 £1.87
share
£3.12 Adjusted net asset value per 7 £3.40 £2.55
share (basic)
£3.01 Diluted adjusted net asset 7 £3.34 £2.45
value per share
*Cash and cash equivalents and trade and other receivables have been restated
(see note 11)
Consolidated Cash Flow Statement
Audited Unaudited Unaudited
Year ended 6 months ended 6 months ended
30 September
2005
31 March 2006 30 September (restated)
2006
£m Notes £m £m
Cash flows from operating
activities
39.0 Cash generated from 15a 17.8 17.8
operations
0.2 Interest received 0.1 -
(22.9) Interest paid (12.0) (10.5)
(1.9) Tax refunded/(paid) 0.6 (1.7)
--------------------------------------------------------------------------------
14.4 Net cash from operating 6.5 5.6
activities
Cash flows from investing
activities
(132.8) Purchase of investment (41.0) (99.8)
properties
(20.9) Capital expenditure on (9.2) (10.4)
investment properties
44.2 Net proceeds from disposal 148.0 2.3
of investment properties
(4.8) Tax paid on disposal of (2.3) (2.0)
investment properties
(0.1) Purchase of intangible (0.1) -
assets
(0.7) Purchase of property, (0.3) (0.3)
plant and equipment
- Investment and loan to (19.5) -
joint venture
--------------------------------------------------------------------------------
(115.1) Net cash from investing 75.6 (110.2)
activities
Cash flows from financing
activities
103.9 Net proceeds from issue of - 107.7
bank borrowings
- Net repayment of bank (77.4) -
borrowings
0.4 Net distribution of own 0.2 0.1
shares
(0.1) Finance lease principal - -
payments
- Issue of share capital 0.1 -
(5.8) Dividends paid to 5 (4.1) (3.7)
shareholders
--------------------------------------------------------------------------------
98.4 Net cash from financing (81.2) 104.1
activities
--------------------------------------------------------------------------------
(2.3) Net increase/(decrease) in 0.9 (0.5)
cash and cash equivalents
--------------------------------------------------------------------------------
0.4 Cash and cash equivalents 15 (1.9) 0.4
at start of period
(1.9) Cash and cash equivalents 15 (1.0) (0.1)
at end of period
Notes to the Half Year Interim Report
For the 6 months ended 30 September 2006
1. Analysis of net rental income
Year ended 6 months ended 6 months ended
31 March 2006 30 September 2006 30 September 2005
Revenue Direct costs Net rental Revenue Direct costs Net rental Revenue Direct costs Net rental
income income income
£m £m £m £m £m £m £m £m £m
49.2 (0.2) 49.0 Rental income* 22.5 (0.1) 22.4 23.1 (0.1) 23.0
12.3 (15.9) (3.6) Service 6.3 (8.0) (1.7) 5.5 (7.5) (2.0)
charges and
other
recoveries
----------------------------------------------------------------------------------------------------------------------
1.7 (0.7) 1.0 Services, fees, 0.8 (0.4) 0.4 0.6 (0.1) 0.5
commissions
and sundry
income
----------------------------------------------------------------------------------------------------------------------
63.2 (16.8) 46.4 29.6 (8.5) 21.1 29.2 (7.7) 21.5
----------------------------------------------------------------------------------------------------------------------
*Rental income includes surrender premia of £0.2m (31 March 2006: £2.2m, 30
September 2005: £0.2m).
The Group operates a single business segment, providing business accommodation
for rent in London and the South East of England, which is continuing.
2. Profit on disposal of investment properties
Year ended 6 months ended 6 months ended
31 March 2006 30 September 30 September
2006 2005
£m £m £m
44.5 Gross proceeds from sale of 156.2 2.1
investment properties
(41.1) Book value at time of sale plus (149.1) (2.1)
sale costs
--------------------------------------------------------------------------------
3.4 7.1 -
- Group's share of unrealised (2.7) -
profits on sale of properties to
joint venture
--------------------------------------------------------------------------------
3.4 Pre tax profit on sale 4.4 -
(4.7) Current taxation (3.3) (0.2)
4.9 Deferred tax released on sale 1.4 0.2
- Group's share of tax on 0.8 -
unrealised profits on sale of
properties to joint venture
--------------------------------------------------------------------------------
0.2 Net tax (1.1) -
--------------------------------------------------------------------------------
3.6 Net profit on disposal after tax 3.3 -
--------------------------------------------------------------------------------
3. Finance costs
Year ended 6 months ended 6 months ended
31 March 2006 30 September 30 September
2006 2005
£m £m £m
21.0 Interest payable on bank loans 10.1 9.7
and overdrafts
0.5 Amortisation of issue costs of 0.3 0.2
bank loans
0.1 Interest payable on finance - -
leases
1.4 Interest payable on 11.125% First 0.7 0.7
Mortgage Debenture Stock 2007
0.8 Interest payable on 11.625% First 0.4 0.4
Mortgage Debenture Stock 2007
0.3 Interest payable on 11% 0.1 0.2
Convertible Loan Stock 2011
(0.5) Interest capitalised (note 8a) (0.3) (0.2)
--------------------------------------------------------------------------------
23.6 11.3 11.0
--------------------------------------------------------------------------------
4. Taxation
Year ended Analysis of charge in period 6 months ended 6 months ended
31 March 2006 30 September 30 September
2006 2005
£m £m £m
5.9 Current tax 2.7 1.6
36.5 Deferred tax 17.9 12.1
--------------------------------------------------------------------------------
42.4 Total taxation 20.6 13.7
--------------------------------------------------------------------------------
The charge in the period is analysed as
follows:
Current tax:
6.8 UK corporation tax 2.7 1.6
(0.9) Adjustments to tax in respect of previous - -
periods
--------------------------------------------------------------------------------
5.9 2.7 1.6
--------------------------------------------------------------------------------
Deferred tax:
34.5 On fair value gains of investment 17.1 11.8
properties
1.2 On accelerated tax depreciation 0.5 0.5
0.1 On derivative financial instruments 0.2 (0.2)
0.5 Adjustments to tax in respect of previous - -
periods
0.2 Others 0.1 -
--------------------------------------------------------------------------------
36.5 17.9 12.1
--------------------------------------------------------------------------------
42.4 Total taxation 20.6 13.7
--------------------------------------------------------------------------------
The tax on the Group's profit for the period differs from the standard
applicable corporation tax rate in the UK (30%). The differences are explained
below:
149.0 Profit on ordinary activities before 69.4 45.8
taxation
- Add share of post tax losses in joint 1.4 -
venture
--------------------------------------------------------------------------------
149.0 70.8 45.8
--------------------------------------------------------------------------------
44.7 Tax at standard rate of corporation tax in 21.2 13.7
the UK of 30% (2005: 30%)
Effects of:
(0.4) Income taxed as capital gains (0.4) -
(0.3) Contaminated land relief - -
(1.2) Capital gains adjustments on property (0.2) -
disposals
(0.4) Adjustments to tax in respect of previous - -
periods
--------------------------------------------------------------------------------
42.4 Total taxation 20.6 13.7
--------------------------------------------------------------------------------
5. Dividends paid
Year ended 6 months ended 6 months ended
31 March 2006 30 September 30 September
£m 2006 2005
£m £m
3.7 Final dividend 2004/5 - 2.28p per - 3.7
ordinary share
2.1 Interim dividend 2005/6 - 1.25p - -
per ordinary share
- Final dividend 2005/6 - 2.51p per 4.1 -
ordinary share
--------------------------------------------------------------------------------
5.8 4.1 3.7
--------------------------------------------------------------------------------
In addition the directors have declared an interim dividend in respect of the
financial year ending 31 March 2007 of 1.38p per ordinary share which will absorb
an estimated £2.3m of shareholders' funds. It will be paid on 1 February 2007 to
shareholders who are on the register of members on 5 January 2007.
6. Earnings per share
Basic earnings per share is calculated by dividing the earnings attributable to
ordinary shareholders by the weighted average number of ordinary shares
outstanding during the period, excluding those held in the employee share
ownership trust (ESOT).
For diluted earnings per share the weighted average number of ordinary shares in
issue is adjusted to assume conversion of all dilutive potential ordinary
shares. Following the conversion of the 11% Convertible Loan Stock the Group has
only one class of dilutive potential ordinary shares: those share options
granted to employees.
Reconciliations of the earnings and weighted average number of shares used in
the calculations are set out below.
Profit Earnings Profit Earnings per share
per share
Year ended Year ended Earnings used 6 months ended 6 months ended 6 months ended 6 months ended
31 March 31 March for calculation 30 September 30 September 30 September 30 September
2006 2006 of earnings per 2006 2005 2006 2005
share
£m pence £m £m pence pence
106.6 65.1 Earnings used 48.8 32.1 29.4 19.6
for basic
earnings per share
0.2 (1.5) Interest saving 0.1 0.1 (0.6) (0.5)
net of taxation
on 11%
Convertible Loan
Stock dilution
Share option
- (0.9) scheme dilution - - (0.5) (0.3)
-------------------------------------------------------------------------------------------------------------
106.8 62.7 Total diluted 48.9 32.2 28.3 18.8
earnings
(94.9) (55.7) Less non (45.2) (27.4) (26.2) (16.0)
trading items
-------------------------------------------------------------------------------------------------------------
11.9 7.0 Trading diluted 3.7 4.8 2.1 2.8
earnings
-------------------------------------------------------------------------------------------------------------
Year ended Weighted average number of shares 6 months ended 6 months ended
31 March 2006 used for calculating earnings per 30 September 30 September
share 2006 2005
Number Number Number
163,629,157 Weighted average number of shares 165,761,714 163,375,024
(excluding shares held in the
ESOT)
2,538,531 Dilution due to Share Option 3,330,327 2,622,343
Schemes
4,400,000 Dilution due to Convertible Loan 3,845,480 5,000,000
Stock
------------------------------------------------------------------------------------
170,567,688 Used for calculating diluted 172,937,521 170,997,367
earnings per share
------------------------------------------------------------------------------------
7. Net assets per share
31 March 2006 Net assets used for calculation 30 September 30 September
of net assets per share 2006 2005
£m £m £m
390.3 Net assets at end of period (basic) 437.4 317.2
2.2 Dilution due to Convertible Loan Stock - 2.4
--------------------------------------------------------------------------------
392.5 Diluted net assets 437.4 319.6
1.1 Derivative financial instruments at 0.7 2.2
fair value
8.3 Deferred tax on accelerated tax 8.8 7.0
depreciation
114.2 Deferred tax on fair value change of 130.5 91.5
investment properties
(0.4) Deferred tax on derivative financial (0.2) (0.7)
instruments
--------------------------------------------------------------------------------
515.7 Diluted adjusted net assets 577.2 419.6
--------------------------------------------------------------------------------
513.5 Adjusted net assets (basic) 577.2 417.2
--------------------------------------------------------------------------------
31 March 2006 Number of shares used for 30 September 30 September
Number calculating net assets per share 2006 2005
Number Number
169,509,640 Shares in issue at period end 174,035,087 168,909,640
(4,940,960) Less ESOT shares (4,393,410) (5,340,370)
--------------------------------------------------------------------------------
164,568,680 Number of shares for calculating 169,641,677 163,569,270
basic net assets per share
2,538,531 Dilution due to Share Option 3,330,327 2,622,343
Schemes
4,400,000 Dilution due to Convertible Loan - 5,000,000
Stock
--------------------------------------------------------------------------------
171,507,211 Number of shares for calculating 172,972,004 171,191,613
diluted net assets per share
--------------------------------------------------------------------------------
8(a). Investment properties
31 March 2006 30 September 30 September
2006 2005
£m £m £m
716.5 Balance at beginning of period 954.0 716.5
154.5 Additions during the period 54.8 110.3
0.5 Capitalised interest (note below) 0.3 0.2
(40.6) Disposals during the period (137.7) (2.1)
131.3 Net gain from fair value adjustments 59.0 40.2
on investment property
(8.2) Investment property held for sale - -
(note below)
--------------------------------------------------------------------------------
954.0 Balance at end of period 930.4 865.1
--------------------------------------------------------------------------------
Property held for sale at the balance sheet date is shown separately under
current assets as required by IFRS 5.
Capitalised interest is included at a rate of capitalisation of 5.67% (31 March
2006: 5.73%; 30 September 2005: 5.86%). The total amount of capitalised interest
included in investment properties was £1.8m (31 March 2006 £1.5m; 30 September
2005 £1.4m).
8(b). Valuation
The Group's investment properties were revalued at 30 September 2006 by CB
Richard Ellis, Chartered Surveyors, a firm of independent qualified valuers. The
valuations were undertaken in accordance with the Royal Institution of Chartered
Surveyors Appraisal and Valuation Standards on the basis of market value. Market
value is defined as the estimated amount for which a property should exchange on
the date of valuation between a willing buyer and willing seller in an arm's
length transaction.
The reconciliation of the valuation report to the total shown in the
Consolidated Balance Sheet as non-current assets, investment properties, is as
follows:
31 March 30 September 30 September
2006 2006 2005
£m £m £m
964.3 Total per CB Richard Ellis valuation 932.5 867.0
report
(2.4) Owner occupied property (2.4) (2.3)
(8.2) Property held for sale (shown as current - -
assets)
0.7 Head leases treated as finance leases 0.7 0.8
under IAS 17
(0.4) Other (0.4) (0.4)
--------------------------------------------------------------------------------
954.0 Total per balance sheet 930.4 865.1
--------------------------------------------------------------------------------
8(c). During the period part of the property at Wharf Road was sold for
residential development. The consideration for this sale was £1.86m in cash plus
the provision by the developer of a new 30,000 sq.ft business centre to be
constructed on the retained portion of the site. The commitment to deliver the
building over the next two years (costing £5.8m including interest and fees) by
the developer has been secured by a charge over the land sold to it; which was
considered, on valuation by CBRE, to be worth more than the construction
liability. On this basis, and on the assumption that the construction works are
completed, the profit on this disposal has been recognised in the period (see
note 2) and the present value of the retained land and replacement buildings
(also valued by CBRE) has been included in investment property.
8(d). Following a fire that destroyed part of the Westwood Business Centre, it
has been decided that the damaged portion of the property will not be replaced.
As a result the £1.6m net insurance proceeds has been recognised as other income
in the Income Statement in the period. A reduction in fair value of the
investment property of £0.7m has been recognised in the valuation surplus for
the period.
9. Property, plant and equipment
Owner occupied Owner occupied Equipment Total
land buildings and fixtures
£m £m £m £m
Cost Balance at 1 April 2005 0.5 1.5 4.1 6.1
Additions during the period - 0.1 0.2 0.3
--------------------------------------------------------------------------------
Balance at 30
September 2005 0.5 1.6 4.3 6.4
--------------------------------------------------------------------------------
Additions during the period - - 0.4 0.4
--------------------------------------------------------------------------------
Balance at 31 March 2006 0.5 1.6 4.7 6.8
--------------------------------------------------------------------------------
Additions during the period - - 0.2 0.2
Disposals during the period - - (1.2) (1.2)
--------------------------------------------------------------------------------
Balance at 30 September 2006 0.5 1.6 3.7 5.8
--------------------------------------------------------------------------------
Cumulative depreciation to 30
September 2005 - 0.1 2.8 2.9
--------------------------------------------------------------------------------
Net book amount at 30
September 2005 0.5 1.5 1.5 3.5
--------------------------------------------------------------------------------
Cumulative depreciation
to 31 March 2006 - 0.1 3.1 3.2
--------------------------------------------------------------------------------
Net book amount at 31
March 2006 0.5 1.5 1.6 3.6
--------------------------------------------------------------------------------
Cumulative depreciation
to 30 September 2006 - 0.1 2.2 2.3
--------------------------------------------------------------------------------
Net book amount at 30
September 2006 0.5 1.5 1.5 3.5
--------------------------------------------------------------------------------
10. Trade and other receivables
31 March 2006 30 September 30 September
2006 2005
£m £m (restated)
£m
3.8 Trade debtors 4.4 4.1
(0.3) Less provision for impairment of (0.4) (0.4)
receivables
----------------------------------------------------------------------------------
3.5 Trade debtors - net 4.0 3.7
0.3 Taxation and social security - -
2.9 Prepayments and accrued income 6.0 4.4
----------------------------------------------------------------------------------
6.7 10.0 8.1
----------------------------------------------------------------------------------
11. Cash and cash equivalents
31 March 2006 30 September 30 September
2006 2005
£m £m (restated)
£m
- Cash at bank and in hand - -
1.7 Restricted cash - tenants' deposit 1.8 1.8
----------------------------------------------------------------------------------
1.7 1.8 1.8
----------------------------------------------------------------------------------
September 2005 comparatives have been restated for the inclusion of restricted
cash. This was previously reported in trade and other receivables.
Tenants' deposit deeds represent returnable cash security deposits received from
tenants and are ring-fenced under the terms of the individual lease contracts.
Bank overdrafts are included within cash and cash equivalents for the purpose of
the cash flow statement (see note 15b).
12. Trade and other payables
31 March 2006 30 September 30 September
2006 2005
£m £m £m
2.4 Trade payables 3.1 3.2
0.4 Taxation and social security payable 0.3 1.1
1.7 Tenants' deposit deeds (see note 11) 1.8 1.8
5.3 Tenants' deposits 5.8 5.1
13.9 Accrued expenses 14.8 11.1
5.3 Deferred income-rent and service 4.7 6.5
charges
--------------------------------------------------------------------------------
29.0 30.5 28.8
--------------------------------------------------------------------------------
There is no material difference between the above amounts and their fair values
due to the short term nature of the payables.
13. Current tax liabilities
31 March 2006 30 September 30 September
2006 2005
£m £m £m
1.7 Current tax liabilities 2.7 0.4
--------------------------------------------------------------------------------
14. Financial liabilities - borrowings
a) Balances
31 March 2006 30 September 30 September
2006 2005
£m £m £m
Current
3.6 Bank overdraft due within one year or 2.8 1.9
on demand (secured)
- 11.125% First Mortgage Debenture Stock 12.5 -
2007 (secured)
- 11.625% First Mortgage Debenture Stock 7.0 -
2007 (secured)
3.6 22.3 1.9
Non -current
2.2 11% Convertible Loan Stock 2011 - 2.4
(unsecured)
12.5 11.125% First Mortgage Debenture Stock - 12.5
2007 (secured)
7.0 11.625% First Mortgage Debenture Stock - 7.0
2007 (secured)
403.7 Other loans (secured) 326.5 407.4
0.7 Finance lease obligations (secured) 0.7 0.7
--------------------------------------------------------------------------------
426.1 327.2 430.0
--------------------------------------------------------------------------------
429.7 349.5 431.9
--------------------------------------------------------------------------------
The Debenture Stocks are repayable on 30 June 2007.
b) Maturity
31 March 2006 30 September 30 September
2006 2005
£m £m £m
Secured (excluding finance leases)
3.6 Repayable in less than one year 22.3 1.9
19.5 Repayable between one year and two years - 19.5
- Repayable between two years and three 127.3 -
years
134.7 Repayable between three years and four 200.0 148.1
years
270.0 Repayable between four years and five - 260.4
years
--------------------------------------------------------------------------------
427.8 349.6 429.9
(1.0) Less cost of raising finance (0.8) (1.1)
--------------------------------------------------------------------------------
426.8 348.8 428.8
Unsecured
2.2 Repayable in five years or more - 2.4
Finance leases (secured)
0.7 Repayable in five years or more 0.7 0.7
--------------------------------------------------------------------------------
429.7 349.5 431.9
--------------------------------------------------------------------------------
c) Financial instruments held at fair value through the profit and loss
The following interest rate collars are held:
Amount hedged Interest cap Interest floor Expiry
£m % %
Interest rate collar
(amortising amount) 97.5 8.00% 4.50% July 2009
Interest rate collar 75.0 6.95% 4.05% July 2009
Interest rate collar
(increasing amount) 37.5 7.00% 2.99% Oct 2010
The above instruments are treated as financial instruments at fair value with
changes in value dealt with in the income statement during each reporting
period.
At the period end 6% (31 March 2006: 5%, 30 September 2005: 5%) of the Group's
borrowings were fixed with a further 60% (31 March 2006: 50%, 30 September 2005:
49%) subject to a collar.
d) Fair values of financial instruments
31 March 2006 31 March 2006 30 September 30 September 30 September 30 September
2006 2006 2005 2005
Book Value Fair Value Book Value Fair Value Book Value Fair Value
£m £m £m £m £m £m
Financial liabilities not
atfair value through
profit or loss
3.6 3.6 Bank overdraft 2.8 2.8 1.9 1.9
2.2 2.5 11% Convertible - - 2.4 2.9
Loan Stock 2011
12.5 13.1 11.125% First 12.5 12.9 12.5 13.4
Mortgage Debenture
Stock 2007
7.0 7.4 11.625% First 7.0 7.2 7.0 7.5
Mortgage Debenture
Stock 2007
403.7 403.7 Other loans 326.5 326.5 407.4 407.4
0.7 0.7 Finance lease 0.7 0.7 0.7 0.7
obligations
-----------------------------------------------------------------------------------------------------
429.7 431.0 349.5 350.1 431.9 433.8
Financial liabilities at
fair value through
profit or loss
Derivative financial
instruments:
1.2 1.2 Liabilities 0.8 0.8 2.3 2.3
(0.1) (0.1) Assets (0.1) (0.1) (0.1) (0.1)
-----------------------------------------------------------------------------------------------------
1.1 1.1 0.7 0.7 2.2 2.2
-----------------------------------------------------------------------------------------------------
430.8 432.1 350.2 350.8 434.1 436.0
-----------------------------------------------------------------------------------------------------
The total gain recorded in the income statement was £0.4m (31 March 2006: £0.4m;
30 September 2005: £0.7m loss) for changes of fair value of derivative financial
instruments.
The fair value of the interest rate collars has been determined by reference to
market prices and discounted expected cash flows at prevailing interest rates.
All other fair values have been calculated by discounting expected cash flows at
prevailing interest rates. The total fair value adjustment equates to 0.4p per
share (31 March 2006: 0.8p, 30 September 2005: 1.1p).
15. Notes to cash flow statement
a) Reconciliation of profit for the period to cash generated from operations:
Year ended 6 months ended 6 months ended
31 March 2006 30 September 30 September
2006 2005
(restated)
£m £m £m
106.6 Profit for the period 48.8 32.1
42.4 Tax 20.6 13.7
0.6 Depreciation 0.3 0.3
0.1 Amortisation of intangibles 0.1 -
(3.4) Profit on disposal of investment (4.4) -
properties
(131.3) Net gain from fair value (59.0) (40.2)
adjustments on investment property
(0.4) Fair value gains on financial (0.4) 0.7
instruments
(0.2) Interest income (0.1) -
23.6 Interest expense 11.3 11.0
- Share of joint venture 1.4 -
- Share based payment (0.2) -
Changes in working capital:
(1.7) Increase in trade and other (3.1) (3.1)
receivables
2.7 Increase in trade and other 2.5 3.3
payables
---------------------------------------------------------------------------------
39.0 Cash generated from operations 17.8 17.8
---------------------------------------------------------------------------------
b) Reconciliation of cash and cash equivalents:
For the purposes of the cash flow statement, the cash and cash equivalents
comprise the following:
31 March 2006 30 September 30 September
2006 2005
(restated)
£m £m £m
- Cash at bank and in hand - -
1.7 Restricted cash - tenants' deposit 1.8 1.8
deeds
(3.6) Bank overdrafts (2.8) (1.9)
--------------------------------------------------------------------------------
(1.9) (1.0) (0.1)
--------------------------------------------------------------------------------
September 2005 comparatives have been restated for the inclusion of restricted
cash. This was previously reported in trade and other receivables.
16. Deferred tax liabilities
31 March 2006 30 September 30 September
2006 2005
£m £m £m
86.1 Balance at start of period 122.6 86.1
36.5 Deferred tax charge 17.9 12.1
- Group's share of tax on unrealised profits 0.8 -
on sale of properties to joint venture
--------------------------------------------------------------------------------
122.6 Balance at end of period 141.3 98.2
--------------------------------------------------------------------------------
Deferred tax recognised in the balance sheet by each category of temporary
timing difference is as follows:
31 March 2006 30 September 30 September
2006 2005
£m £m £m
114.2 Fair value gains on investment 130.5 91.5
properties
- Profit on sale to joint venture 1.6 -
0.4 Capitalised interest 0.5 0.4
8.3 Accelerated tax depreciation 8.8 7.0
(0.4) Derivative financial instruments (0.2) (0.7)
0.1 Other 0.1 -
--------------------------------------------------------------------------------
122.6 141.3 98.2
--------------------------------------------------------------------------------
If the investment properties were sold for their revalued amount there would be
a potential liability to corporation tax of £111.1m (31 March 2006: £95.6m, 30
September 2005: £74.9m). Under IFRS no account is taken of indexation relief on
capital gains resulting in the difference between expected corporation tax to be
paid and the provision made for deferred tax.
17. Share capital
31 March 2006 30 September 30 September
2006 2005
Number Number Number
240,000,000 Authorised :Ordinary shares 40,000,000 240,000,000
of 10p each
169,509,640 Issued: Fully paid ordinary shares 174,035,087 168,909,640
of 10p each
£ £ £
16,950,964 Issued: Fully paid ordinary shares 17,403,509 16,890,964
of 10p each
Number Number Number
Movements in share capital were as
follows:
168,839,660 Number of shares at start of period 169,509,640 168,839,660
69,980 Save as You Earn share options 125,447 69,980
exercised
600,000 Convertible Loan Stock converted 4,400,000 -
--------------------------------------------------------------------------------
169,509,640 Number of shares at end of period 174,035,087 168,909,640
--------------------------------------------------------------------------------
18. Other reserves
31 March 2006 Equity element Equity settled 30 September 30 September
of convertible share based 2006 2005
loan stock payments Total Total
£m £m £m
£m £m
0.5 Balance at start 0.2 0.6 0.8 0.5
of period
- Loan stock (0.2) - (0.2) -
conversion
0.3 Value of - 0.1 0.1 0.2
employee services
---------------------------------------------------------------------------------------
0.8 Balance at end - 0.7 0.7 0.7
of period
---------------------------------------------------------------------------------------
19. Statement of changes in shareholders' equity
31 March 2006 Share Share Investment in Other reserves Retained 30 September 30 September
capital premium own shares earnings 2006 2005
Total Total
Total equity equity equity
£m £m £m £m £m £m £m £m
288.5 Balance at start 16.9 28.7 (5.1) 0.8 349.0 390.3 288.5
of period
0.3 Share issues 0.1 - - - - 0.1 -
0.4 Distribution of - - 0.2 - - 0.2 0.1
own shares
(5.8) Dividends paid - - - - (4.1) (4.1) (3.7)
- Loan stock 0.4 1.8 - (0.2) - 2.0 -
- conversion
0.3 Value of - - - 0.1 - 0.1 0.2
employee
services
106.6 Profit for the - - - - 48.8 48.8 32.1
period
-------------------------------------------------------------------------------------------------------------------
390.3 Balance at end 17.4 30.5 (4.9) 0.7 393.7 437.4 317.2
of period
-------------------------------------------------------------------------------------------------------------------
20. Investment in own shares
The Company has established an Employee Share Ownership Trust (ESOT) to purchase
shares in the market for distribution at a later date in accordance with the
terms of the 1993 and 2000 Executive Share Option Schemes. The shares are held
by an independent trustee and the rights to dividend on the shares have been
waived. During the period the Trust transferred 547,550 shares to employees on
exercise of options. At 30 September 2006, the number of shares held by the
Trust totalled 4,393,410 (31 March 2006: 4,940,960, 30 September 2005:
5,340,370). The shares have been included at cost in shareholders' equity.
4,373,110 shares held by the Trust are subject to option awards.
21. Capital commitments
At the period end the estimated amounts of contractual commitments for future
capital expenditure not provided for were:
31 March 2006 30 September 30 September
2006 2005
£m £m £m
Under contract:
6.5 Purchases, construction or 18.3 6.5
refurbishment of investment property
0.2 Repairs, maintenance or enhancement of 1.3 1.0
investment property
--------------------------------------------------------------------------------
6.7 19.6 7.5
--------------------------------------------------------------------------------
Authorised by directors but not
contracted :
0.2 Property, plant and equipment 0.1 0.2
0.1 Intangible assets - 0.1
6.9 Purchases, construction or 4.3 -
refurbishment of investment property
8.5 Repairs, maintenance or enhancement of 5.6 3.4
investment property
--------------------------------------------------------------------------------
15.7 10.0 3.7
--------------------------------------------------------------------------------
22. Joint Venture
On 12 June 2006 the Group merged its interests in Workspace 12 Limited, a wholly
owned subsidiary which held 11 properties valued at £146m with those of Glebe
Three Limited, a wholly owned subsidiary of Glebe Two Limited, a third party,
creating a joint venture, Workspace Glebe Limited, a company incorporated in
England. The purpose of the joint venture is to invest in properties contributed
by Workspace and Glebe with potential for intensification and improvement.
Workspace Group plc holds 50% of the ordinary share capital of Workspace Glebe
Limited. Its interest in this joint venture has been equity accounted for in the
Group's consolidated financial statements.
The Group's share of amounts of each of current assets, long term assets,
current liabilities and long term liabilities, income and expenses are shown
below:
30 September
2006
£m
Investment property 74.9
Current assets 2.3
--------------------------------------------------------------------------------
Total assets 77.2
--------------------------------------------------------------------------------
Current liabilities (1.9)
Non-current liabilities (59.1)
--------------------------------------------------------------------------------
Total liabilities (61.0)
--------------------------------------------------------------------------------
Group share of joint venture net assets 16.2
--------------------------------------------------------------------------------
Revenue 1.5
Direct costs (0.4)
--------------------------------------------------------------------------------
Net Rental Income 1.1
Administrative expenses -
Change in fair value of investment property (1.6)
Finance costs - interest payable (1.2)
Change in fair value of derivative financial instruments (0.2)
--------------------------------------------------------------------------------
Loss before tax (1.9)
Taxation 0.5
--------------------------------------------------------------------------------
Loss after tax (1.4)
--------------------------------------------------------------------------------
30 September
2006
£m
Share of joint venture at start of period -
Share of joint venture loss after tax for the period (1.4)
Net equity movements in joint venture 1.0
Net loan movements with joint venture 18.5
Group's share of unrealised profits after tax on sale of
properties to the joint venture (1.9)
--------------------------------------------------------------------------------
Share of joint venture at end of period 16.2
--------------------------------------------------------------------------------
Comprising:
Unlisted shares at cost 1.0
Group's share of post acquisition retained losses after
tax (1.4)
Group's share of unrealised profits after tax on sale of
properties to the joint venture (1.9)
Loan to joint venture 18.5
--------------------------------------------------------------------------------
16.2
--------------------------------------------------------------------------------
The Group's share of capital commitments of the Workspace Glebe joint venture
were £0.1m for commitments under contract and £0.3m authorised by directors but
not contracted.
23. Post balance sheet events
On 2 November 2006 the Group acquired Seven Sisters, London N15, a 20,000 sq.ft.
office building, for a cash consideration of £3.2m.
On 3 November 2006 the Group completed the sale of Park Avenue, Luton for a cash
consideration of £12.1m being £0.3m over the book value at 31 March 2006.
24. Basis of preparation
The financial information reflects the current versions of the standards of the
International Accounting Standards Board (IASB) and interpretations of the
International Financial Reporting Interpretations Committee (IFRIC) as currently
adopted by the European Union.
The interim financial statements have been prepared in accordance with the
Listing Rules of the Financial Services Authority. The accounting policies set
out in the Annual Report and Financial Statements for the year ended 31 March
2006 have been applied in preparing the financial information contained in this
report.
The Group has not adopted IAS 34 'Interim Financial Reporting' in these interim
financial statements.
This report was approved by the Board on 17 November 2006.
This report is unaudited and does not constitute statutory accounts within the
meaning of Section 240 of the Companies Act 1985. The financial statements for
the year to 31 March 2006, which were prepared under IFRS have been delivered to
the Registrar of Companies. The auditors' opinion on those financial statements
was unqualified and did not contain a statement made under Section 237(2) or
Section 237(3) of the Companies Act 1985.
25. Interim Report
Copies of this statement will be dispatched to shareholders on 20 November 2006
and will be available from the Group's registered office at Magenta House, 85
Whitechapel Road, London, E1 1DU and on the Group's website
www.workspacegroup.co.uk from 9.00am on that day.
Glossary of Terms
Adjusted NAV per share is NAV excluding deferred tax on revaluation surpluses
and capital allowances, and the fair value of derivative financial instruments
(net of tax).
Adjusted net assets are shareholders' funds excluding deferred tax on
revaluation surpluses and capital allowances and the fair value of derivative
financial instruments(net of tax).
Comparator IPD Index is a benchmark index computed by IPD of comparable
properties in comparable locations to those held by the Group.
Core portfolio (like-for-like portfolio) are those properties that have been
held throughout the period and which are not subject to significant
improvement/refurbishment works.
Diluted NAV per share is NAV adjusted for the effect of those shares potentially
issuable under convertible loan stock or employee share schemes.
Earnings per share (EPS) is the profit after taxation divided by the weighted
average number of shares in issue during the period. Diluted and Adjusted EPS
are determined as set out under NAV.
Employee Share Ownership Trust (ESOT) is the trust created by the Group to hold
shares pending exercise of employee share options.
Equivalent Yield is a weighted average of the initial yield and reversionary
yield and represents the return a property will produce based upon the timing of
the income received.
Estimated rental value (ERV) or market rental value is the Group's external
valuers' opinion as to the open market rent, which on the date of valuation,
could reasonably be expected to be obtained on a new letting or rent review.
Gearing is the Group's net debt as a percentage of net assets.
Initial yield is the net rents generated by a property or by the portfolio as a
whole expressed as a percentage of its valuation.
Interest cover is the number of times net interest payable is covered by
operating profit.
IPD is the Investment Property Databank Ltd, a company that produces an
independent benchmark of property returns.
Like-for-like (see core portfolio).
Market rental values (see ERV).
Net assets per share (NAV) are shareholders' funds, divided by the number of
shares in issue at the period end (excluding shares held in the ESOT).
Net rents are current rents excluding any contracted increases and after
deduction of inclusive service charge revenue.
Occupancy percentage is the area of space let divided by the total net lettable
area (excluding land used for open storage).
Open market value is an opinion of the best price at which the sale of an
interest in the property would complete unconditionally for cash consideration
on the date of valuation (as determined by the Group's external valuers).
Other Items in the Income Statement include profits and losses (together with
their related taxation) on sales of investment properties and items of a non
trading nature such as: valuation adjustments arising from the fair valuing of
investment properties and derivative financial instruments; adjustments arising
from the treatment of head lease payments as interest; insurance claim proceeds;
and certain adjustments arising from the estimation of the cost of employee
share based payments.
Profit before tax (PBT) is income less all expenditure other than taxation.
REIT Real Estate Investment Trust is a tax transparent property investment
vehicle as enacted in the Finance Act 2006 and due to come into being on 1
January 2007.
Rent per sq ft is the current net rent divided by the occupied area.
Reversion is the increase in rent estimated by the Group's external valuers,
where the net rent is below the current estimated rental value. The increases to
rent arise on rent reviews, letting of vacant space and expiry of rent free
periods or rental increase steps.
Reversionary yield is the anticipated yield, which the initial yield will rise
to once the rent reaches the estimated rental value. It is calculated by
dividing the ERV by the valuation.
SEE means Social Ethical and Environmental matters. The Group produces a
separate SEE report, the most recent report was titled Sustainability Report
2006.
Small and Medium Sized Enterprises (SMEs) are those businesses with a turnover
of less than £1m p.a. or staff of less than 50. Most Workspace customers are SME
businesses with staffing of up to 20.
Total Shareholder Return (TSR) is the return obtained by a shareholder
calculated by combining both share price movements and dividend receipts.
Trading Operations/earnings/PBT etc is that element of earnings/PBT that arises
from trading activity alone. It therefore excludes Other Items (above).
Valuation Surplus and growth rate is measured as the valuation surplus for the
period divided by the total value of the portfolio before revaluation.
This information is provided by RNS
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