Interim Results
Derwent Valley Holdings PLC
19 September 2000
Interim results
Six months ended 30th June 2000
* Derwent Valley announces a 10.4% increase in net asset value per share for
the half year ended 30th June 2000.
Half year Half year Year to
30.6.00 30.6.99 31.12.99 Increase
Net asset 795 N/A * 720 10.4%
value per
share (p)
Net rental 16.7 12.7 27.1 31.5%
income (£m)
Adjusted 5.2 5.6 11.5 (7.1)%
profit before
tax (£m)
FRS3 profit 5.6 10.8 16.6 (48.1)%
before tax
(£m)
Adjusted 7.90 8.87 18.89 (10.9)%
earnings per
share (p)
Dividend per 2.50 2.35 7.70 6.4%
share (p)
* no interim valuation
* First interim valuation.
* Investment portfolio valued at £682 million.
* Prelettings of developments at Broadwick House to Ford Motor Company Ltd
and Oliver's Yard to Globix were announced.
* Capital expenditure for 18 months to December 2001 projected at £50
million.
* Four properties acquired totalling £68.5 million, including purchases of
New Garden House, Hatton Garden and Telstar House, Paddington.
* Disposals realised £44 million.
John Ivey, Chairman, commented:
'Our focus on Central London, which remains one of the most sought after
areas for both tenants and investors, together with the rental growth
apparent since the half year, enables me to look forward with confidence to
reporting further progress at the year end.'
The Derwent Valley group is a specialist investor and refurbisher of Central
London commercial property.
For further information, contact:
John Burns, Managing Director
Derwent Valley Holdings plc 020 7659 3000
John Rudofsky
Helsen Communications 020 8481 7681
Chairman's statement
Results
An independent valuation of the property portfolio was undertaken as at 30th
June 2000. This is the first time the group has reported an interim
valuation. The result is an increase in the net asset value per share to 795p
from the 720p announced at the 1999 year end. This 10.4% rise reflects the
continued growth seen in the Central London property market. The increase
does not include any gains from the two development properties which were
pre-let during the year, details of which can be found in the interim
property review.
Before taking account of profits on disposal of investment properties, the
group's profit before tax showed a small decrease to £5.2 million compared
with the same period in 1999. This is due to the absence of trading profits
and a provision for an onerous lease that was required following the
relocation of the group's head office. Together, these items reduced the half
year's profit by £0.9 million. Disposals made from the investment portfolio
in the half year realised a profit of £0.5 million, compared with £5.2
million in 1999. Consequently, the Financial Reporting Standard 3 profit
before tax showed a reduction from £10.8 million to £5.6 million.
Lettings and rent reviews agreed during last year and this half year have
added £2.4 million to net rental income, while acquisitions and disposals
added a further net £2.6 million. As a consequence, net rental income has
increased by 31% from £12.7 million in the first half of 1999 to £16.7
million this half year.
A more detailed review of the acquisitions, capital expenditure programme and
lettings can be found in the interim property review which follows my
statement.
Dividend
The board has declared an interim dividend of 2.50p per share, an increase of
6.4% on the 2.35p paid at this stage last year.
Financing
During the first six months of the year, £68.5 million, before costs, was
spent on acquisitions, and a further £12 million on capital expenditure. This
cash outflow was financed by the proceeds from property disposals which
amounted to £44 million, and an increase in borrowings of £36 million. At the
half year, debt stood at £245 million, of which £115 million was either at
fixed rates or covered by hedging instruments. Currently, the weighted
annualised cost of borrowings is approximately 7.8%. After the half year
revaluation, balance sheet gearing was 58.2%, compared with 54.8% at the
year-end, while profit and loss gearing increased to 61.7% from the 50.8%
reported for 1999.
The fair value adjustment, arising as a result of the revaluation of the
group's fixed rate debt and interest rate hedging instruments, was a negative
£13.7 million (31st December 1999 : negative £13.3 million) which is
equivalent to a reduction in the group's net asset value per share of 26p
(31st December 1999 : 25p).
Prospects
The first half of the year has seen further growth in both rental and capital
values. This has been driven by an exceptionally strong letting market that
has resulted from the continued shortage of office space in Central London,
especially the West End. At present, this shows no sign of slowing down,
although growth at the levels achieved over the last few years may not be
sustainable in the longer term.
The risk inherent in the development programme has been reduced through the
pre-letting of two large capital intensive projects. The group already has a
number of exciting refurbishment and redevelopment schemes underway, and is
encouraged now to extend the development programme further into the future.
To this effect, feasibility studies are being undertaken on two of the
properties acquired since the year-end.
Our focus on Central London, which remains one of the most sought after areas
for both tenants and investors, together with the rental growth apparent
since the half year, enables me to look forward with confidence to reporting
further progress at the year-end.
J C Ivey 19 September 2000
Interim property review
Valuation
The investment portfolio was valued at £681.8 million at the half year, a
surplus of £37.5 million. Development properties with a carrying value of
£38.1 million were not revalued. The uplift, excluding these and properties
acquired in the first half, was 6.2%. Making the same adjustments, the best
performing properties were those in the City borders of Clerkenwell and
Holborn, which increased by 7.2%, while the West End properties rose 6.1%.
Acquisitions
The group had an active first half with purchases totalling £68.5 million.
The two principal acquisitions, New Garden House, Hatton Garden, EC1, for £29
million and Telstar House, Eastbourne Terrace, Paddington, W2, for £22.1
million, followed the group's policy of buying in improving locations.
New Garden House is a freehold office complex of 11,716 square metres on a
0.47 hectare site, currently producing a rental income of £2.94 million per
annum. The property comprises four multi-occupied buildings, with all leases
potentially expiring by September 2003. Hatton Garden, which lies between
Clerkenwell and Holborn, is experiencing substantial rental growth as it is
transformed from the traditional jewellery centre to a more established
office location. Feasibility studies have commenced to identify the
redevelopment and refurbishment possibilities for this under-utilised site.
Telstar House is a 14 storey, 8,012 square metres office property on 0.29 of a
hectare which is freehold with the exception of a small area held on a long
lease. The entire building is let to London Regional Transport for a 17-year
unexpired term at £1.55 million per annum. This low rent of £194 per square
metres is due for review in 2003. The acquisition offered reversionary
prospects in the short term, and refurbishment and redevelopment opportunities
over the medium to long term. The property is located adjacent to Paddington
Station, and is well placed to benefit from the proposed regeneration of
Paddington Basin which is due to start later this year.
The strategic acquisition of Birkbeck College, 7/15 Gresse St, W1, was
completed in June 2000 for £8.6 million. The property is adjacent to 16/19
Gresse St and 7/8 Rathbone Place, which were acquired by the group last year.
This 4,145 square metres building, in Noho, the area to the north of Soho
Square, is leased to Birkbeck College to September 2003 at £632,000 per annum,
and is currently used for educational purposes. It is held on a 128-year lease
at a ground rent of £35,000 per annum, rising in June 2004 to the higher of
£125,000 per annum or 15% of the rents received. The combined ownership has
created further opportunities for refurbishment or development in one of the
group's core areas, and an architectural study has been commissioned to
exploit this potential.
Lettings
At the year end, 34,600 square metres of space was vacant, 5,600 square metres
available for letting and 29,000 square metres under refurbishment or
development. To date, 77% of this has been let. This includes the two major
projects, Broadwick House, Soho, W1, and Oliver's Yard, EC2 (the former
Companies House), which have both been pre-let. Broadwick House, the new
development of 3,020 square metres of offices and retail, has been taken by
Ford Motor Company Ltd on a 20-year lease, without breaks, at £1.75 million
per annum with a six month rent free period. The rent equates to £592 per
square metres which is the highest level achieved for offices in this area.
This landmark building has received critical acclaim and endorses management's
commitment to high quality, contemporary design and architecture. Practical
completion is scheduled to occur prior to the year end.
Oliver's Yard, where work only started in March on the 16,635 square metres
refurbishment, has been pre-let to Globix Ltd and Globix Corporation at £5.3
million per annum on a 30-year lease, with a tenant's break after 20 years.
Globix, who has provided a rental deposit, has a 12-month rent-free period
phased over the first two years.
Lettings of both these schemes have been achieved ahead of expectations and
there will be a consequent benefit to the group, not only in the timing of
the receipt of rental income, but also in reduced void costs. However, in
accordance with the group's accounting policy, neither will be revalued until
practical completion. Therefore, it is anticipated Broadwick House will be
revalued at the forthcoming year end and Oliver's Yard in 2001.
Of the other lettings during the half year, the most important was that of
the new 1,013 square metres penthouse floor at Greencoat House, Victoria, SW1.
This has been let to Channel Four Television Corporation on a 20-year lease,
with no breaks, at £420,000 per annum, which equates to £415 per square
metres, a new level in this building.
Sales
In the first half year, seven properties were sold for £44.1 million, of
which £15.8 million arose from provincial properties. The sales reflected a
gross yield of 7.76% and showed a small increase on last year's book value.
The properties sold were those where no further opportunity to add value was
apparent, or where the investment objectives had been achieved.
Current Projects
A very successful half year of major pre-lets and strong demand for all the
group's space, is encouraging for the current and future schemes:
* Tower House, Covent Garden, WC2. Vacant possession will be obtained early
next year for an office and retail development of 8,755 square metres.
Covent Garden continues to be one of the most popular areas in London and
this scheme should be available by 2003.
* Panton House, Haymarket, SW1. Works are in progress at this 2,630 square
metres office, retail and restaurant refurbishment with completion expected
in August next year.
* 6 Greencoat Place, SW1. The first phase of a rolling refurbishment
programme has commenced at this 2,892 square metres building which adjoins
Greencoat and Gordon House. The initial phase of 930 square metres will be
available at the year end, with works to the remainder of the space to be
phased as leases expire.
GROUP PROFIT AND LOSS ACCOUNT
Half year Half year Year
to 30.6.00 to 30.6.99 to 31.12.99
Notes £m £m £m
Gross rental income:
Group and share of joint 18.4 14.4 30.0
ventures
Less: Share of joint ventures (0.1) (0.1) (0.2)
------- ------- -------
Group gross rental income 18.3 14.3 29.8
Property outgoings net of
recoveries 2 (1.6) (1.6) (2.7)
------- ------- -------
Net revenue from properties 16.7 12.7 27.1
Profit from property trading 3 - 0.2 0.2
Administrative costs (2.9) (2.0) (4.3)
-------- -------- -------
Operating profit 13.8 10.9 23.0
Share of operating results of 0.1 0.2 0.3
joint ventures
Profit on disposal of investment 4 0.4 5.2 5.1
properties
-------- -------- --------
14.3 16.3 28.4
Interest receivable - - 0.1
Interest payable 5 (8.7) (5.5) (11.9)
-------- -------- --------
Profit on ordinary activities 5.6 10.8 16.6
before taxation
Taxation on profit on ordinary 6 (1.1) (1.5) (2.3)
activities
-------- -------- --------
Profit on ordinary activities 4.5 9.3 14.3
after taxation
Dividend 7 (1.3) (1.3) (4.1)
-------- -------- --------
Retained profit 10 3.2 8.0 10.2
-------- -------- --------
Adjusted earnings per share 8 7.90p 8.87p 18.89p
Adjustment for disposal of
investment properties 0.56p 8.62p 8.00p
-------- -------- --------
Basic earnings per share 8 8.46p 17.49p 26.89p
Adjustment for dilutive share options (0.01)p (0.03)p (0.05)p
-------- -------- ---------
Diluted earnings per share 8 8.45p 17.46p 26.84p
-------- -------- ---------
Dividend per share 2.50p 2.35p 7.70p
Total return 14 10.8% N/A 20.7%
GROUP BALANCE SHEET
30.6.00 31.12.99
Notes £m £m
Fixed assets:
Tangible assets 9 682.1 604.3
-------- --------
Investments in joint ventures:
Share of gross assets 3.2 2.8
Share of gross liabilities (3.0) (3.0)
-------- --------
0.2 (0.2)
-------- --------
682.3 604.1
-------- --------
Current assets:
Properties held for resale 2.1 2.2
Debtors 7.8 8.5
-------- --------
9.9 10.7
Creditors: Amounts falling due within one year
Bank loans and overdrafts (1.7) (2.0)
Other current liabilities (24.6) (23.3)
-------- --------
Net current liabilities (16.4) (14.6)
-------- --------
Total assets less current liabilities 665.9 589.5
Creditors: Amounts falling due
after more than one year
Bank loans (209.5) (173.0)
10 1/8% First Mortgage Debenture (34.3) (34.3)
Stock 2019
-------- --------
422.1 382.2
-------- --------
Capital and reserves - equity 10
Called up share capital 2.6 2.6
Share premium account 153.7 153.6
Revaluation reserve 215.5 186.4
Capital reserve arising on consolidation 0.7 0.7
Profit and loss account 49.6 38.9
-------- --------
422.1 382.2
-------- --------
Net asset value per share 11 795p 720p
Gearing 58.2% 54.8%
GROUP CASH FLOW STATEMENT
Half year Half year Year
to 30.6.00 to 30.6.99 to 31.12.99
Notes £m £m £m
Net cash inflow from operating 12 15.6 10.5 23.1
activities
Net cash outflow from return on
investments and servicing of finance (9.2) (5.7) (10.0)
Tax paid (0.9) (0.3) (2.2)
Net cash (outflow)/inflow from capital
expenditure and financial investment (39.0) 23.8 (73.3)
Equity dividends paid (2.8) (2.7) (4.0)
------ ------ ------
Cash (outflow)/inflow before management
of liquid resources and financing (36.3) 25.6 (66.4)
------ ------ ------
Financing
Net proceeds of share issue 0.1 0.4 0.4
Movement in bank loans 13 36.5 (26.5) 64.5
------ ------ ------
Net cash inflow/(outflow) from financing 36.6 (26.1) 64.9
------ ------ ------
Increase/(decrease) in cash in 13 0.3 (0.5) (1.5)
the period
------ ------ ------
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Half year Half year Year
to 30.6.00 to 30.6.99 to 31.12.99
£m £m £m
Profit for financial year 4.5 9.3 14.3
Unrealised surplus on revaluation of
investment properties 37.6 - 53.5
Unrealised surplus on revaluation of
joint venture's investment property 0.3 - -
Tax on realisation of property revaluation
gains of previous years (1.3) (0.5) (0.8)
-------- -------- --------
41.1 8.8 67.0
-------- -------- --------
Notes
1. The results for the six months ended 30th June 2000 include those for
the holding company and all of its subsidiary undertakings, together with the
group's share of the results of its joint ventures. During the period, the
group adopted FRS15, Tangible Fixed Assets. This had no material effect on
previously reported profits or reserves. The results are prepared on the
basis of the accounting policies set out in the 1999 annual report and
accounts.
2. Property outgoings net of recoveries
Half year Half year Year
to 30.6.00 to 30.6.99 to 31.12.99
£m £m £m
Ground rents 0.4 0.4 0.8
Other property outgoings net of 1.2 1.2 1.9
recoveries
------ ------ ------
1.6 1.6 2.7
------ ------ ------
3. Profit from property trading
Half year Half year Year
to 30.6.00 to 30.6.99 to 31.12.99
£m £m £m
Sales 0.1 0.9 1.9
Cost of sales (0.1) (0.7) (1.7)
------ ------ ------
- 0.2 0.2
------ ------ ------
4. Profit on disposal of investment properties
Half year Half year Year
to 30.6.00 to 30.6.99 to 31.12.99
£m £m £m
Disposals 43.5 38.3 45.4
Cost/valuation (43.0) (33.1) (40.1)
------ ------ ------
Profit on disposal of investment 0.5 5.2 5.3
properties
Permanent diminution in value of
investment properties (0.1) - (0.2)
------ ------ ------
0.4 5.2 5.1
------ ------ ------
5. Interest payable
Half year Half year Year
to 30.6.00 to 30.6.99 to 31.12.99
£m £m £m
Group 8.5 5.3 11.6
Share of joint ventures 0.2 0.2 0.3
------ ------ ------
8.7 5.5 11.9
------ ------ ------
6. Tax reconciliation
Half year Half year Year
to 30.6.00 to 30.6.99 to 31.12.99
£m £m £m
Profit adjusted for the surplus
on disposal of investment properties
taxed at 30% (1999 - 31%) 1.6 1.7 3.5
Capital allowances (0.6) (0.7) (1.3)
Other differences - (0.1) (0.4)
------ ------ ------
1.0 0.9 1.8
Tax on profit on disposal of investment
properties 0.1 0.6 0.9
------ ------ ------
Tax charge in respect of current 1.1 1.5 2.7
year profits
Adjustments in respect of prior years - - (0.4)
------ ------ ------
1.1 1.5 2.3
------ ------ ------
Tax on recognised gains and losses 1.3 0.5 0.8
------ ------ ------
7. Dividend
The interim dividend will be paid on 6th November 2000 to those
shareholders on the register at the close of business on 20th October
2000.
8. Earnings per share
Earnings per ordinary share have been computed on the basis of profit
after tax of £4,492,000 (1999 interim - £9,259,000; 1999 full year -
£14,251,000) and the weighted average number of ordinary shares in issue
during the period of 53,081,000 (1999 interim - 52,937,000; 1999 full
year - 53,005,000).
The adjusted earnings per share have been calculated using a profit
after tax of £4,192,000 (1999 interim - £4,694,000; 1999 full year -
£10,015,000). This figure excludes the profit after tax arising from the
disposal of investment properties in order to show the recurring element
of the group's profit.
The diluted earnings per share have been calculated based on a weighted
average number of shares of 53,154,000 (1999 interim - 53,015,000; 1999
full year - 53,087,000) which includes the number of dilutive share
options outstanding at the end of the period.
9. Tangible assets
Freehold Other
land and Leasehold fixed
buildings property assets Total
£m £m £m £m
Cost or valuation:
At 1st January 2000 431.1 173.1 1.1 605.3
Additions 72.3 11.0 0.2 83.5
Disposals (43.0) - (0.1) (43.1)
Revaluation 26.6 10.9 - 37.5
------- ------- ---- -------
At 30th June 2000 487.0 195.0 1.2 683.2
------- ------- ---- -------
Amortisation and depreciation:
At 1st January 2000 - 0.1 0.9 1.0
Disposals - - (0.1) (0.1)
Provision for year - 0.1 0.1 0.2
------- ------- ---- -----
At 30th June 2000 - 0.2 0.9 1.1
------- ------- ---- -----
Net book value:
At 30th June 2000 487.0 194.8 0.3 682.1
At 31st December 1999 431.1 173.0 0.2 604.3
------- ------- ---- -------
Assets stated at cost or valuation:
30th June 2000 487.0 194.8 - 681.8
valuation
Cost - - 0.3 0.3
------- ------- ---- -------
487.0 194.8 0.3 682.1
------- ------- ---- -------
Short leasehold property with a value of £18.1m (December 1999 - £17.1m)
is included in leasehold property above. Investment property in the course of
development with a carrying value of £38.1m (December 1999 - £32.3m) is
included in freehold land and buildings above.
The freehold land and buildings and leasehold property, other than those
in the course of development, were revalued by Keith Cardale Groves
(Commercial) Limited and CB Hillier Parker Limited, chartered surveyors, at
open market value on 30th June 2000. At 30th June 2000, the historical cost
of the freehold land and buildings and leasehold property owned by the group
was £466.7 m (December 1999 - £417.6m).
10. Capital and reserves
Share Profit
Share premium Revaluation Other and loss
capital account reserve reserves account
£m £m £m £m £m
At 1st January 2000 2.6 153.6 186.4 0.7 38.9
Premium on issue of shares - 0.1 - - -
Surplus on property - - 37.6 - -
revalutation
Surplus on joint venture's
property revaluation - - 0.3 - -
Profit realised on disposal
of investment properties - - (8.8) - 8.8
Tax attributable to revaluation
surplus realised on disposal
of investment properties - - - - (1.3)
Retained profit for the - - - - 3.2
six months
---- ------- ------- ---- -----
At 30th June 2000 2.6 153.7 215.5 0.7 49.6
---- ------- ------- ---- -----
11. Net asset value per share
Net asset value per share has been calculated on the basis of net assets
at 30th June 2000 of £422,124,000 (December 1999 - £382,201,000) and the
number of shares in issue at 30th June 2000 of 53,105,000 (December 1999 -
53,072,000).
12. Reconciliation of operating profit to net cash inflow from operating
activities
Half year Half year Year
to 30.6.00 to 30.6.99 to 31.12.99
£m £m £m
Operating profit 13.8 10.9 23.0
Depreciation charge 0.1 0.1 0.5
Decrease/(increase) in debtors 0.7 (0.9) (1.8)
Increase in creditors 1.2 1.3 3.1
Decrease/(increase) in properties
held for resale 0.1 (0.5) 0.4
Effect of other deferrals and
accruals on operating activity
cash flow (0.3) (0.4) (2.1)
----- ----- -----
Net cash inflow from operating 15.6 10.5 23.1
activities
----- ----- -----
13. Reconciliation of net cash flow to movement in net debt
Half year Half year Year
to 30.6.00 to 30.6.99 to 31.12.99
£m £m £m
(Increase)/decrease in cash in
the period (0.3) 0.5 1.5
Cash inflow/(outflow) from movement
in debt financing 36.5 (26.5) 64.5
----- ----- -----
Movement in net debt in the period 36.2 (26.0) 66.0
Net debt at 1st January 2000 209.3 143.3 143.3
------- ------- -------
Net debt at 30th June 2000 245.5 117.3 209.3
------- ------- -------
14. Total return
Total return is the increase in net asset value per share plus dividend
per share expressed as a percentage of the net asset value per share at the
beginning of the year. No comparative figure is included at 30th June 1999 as
the investment portfolio was not revalued at this date.
15. This statement does not comprise statutory accounts as defined in
Section 240 of the Companies Act 1985. The financial information for the
year ended 31st December 1999 is an extract from the latest group accounts.
The accounts received an unqualified auditor's report and have been filed
with the Registrar of Companies. The results for the half years ended 30th
June 1999 and 2000 are unaudited.
16. Copies of this announcement are being posted to shareholders on 27th
September 2000 and are available from the Company Secretary, Derwent Valley
Holdings plc, 25 Savile Row, London, W1S 2ER.
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