Interim Results
Derwent Valley Holdings PLC
17 September 2002
DERWENT VALLEY HOLDINGS PLC
Interim results for the six months ended 30th June 2002
Derwent Valley, a specialist investor and refurbisher of Central London
commercial property, announces an increase in net asset value per share to 1016p
for the half year ended 30th June 2002.
Half year Half Year Year to Change
30.6.02 30.6.01 31.12.01
(restated) (%)
Net asset value per share (p) 1016 971 1004 1.2 *
Net rental income (£m) 20.9 20.5 43.0 2.0
Adjusted profit before tax (£m) 9.0 7.9 17.9 13.9
FRS3 profit before tax (£m) 9.1 9.4 21.7 (3.2)
Adjusted earnings per share (p) 12.02 11.75 27.73 2.3
Dividend per share (p) 3.05 2.75 9.35 10.9
* Increase based on December 31, 2001
• Lettings made at the group's major schemes at
Panton House, SW1; 21 Grosvenor Place, SW1 and 5-8 Southampton Street, WC2.
• 13.9% growth in adjusted profit before tax to
£9.0 million and a 10.9% increase in the interim dividend to 3.05p.
• Investment portfolio valued at £845 million.
• Capital expenditure of £19.4 million incurred
in the half year with a further £36.5 million projected for the 18 months to
December 2003.
John Ivey, Chairman, commented
"In tougher conditions than experienced for a number of years, good progress was
made with letting vacant space. In what continue to be challenging times, the
group's refurbishment opportunities and the substantial reversionary income
stream, will enable the board to drive the business forward".
17 September 2002
ENQUIRIES:
Derwent Valley Holdings plc Tel: 020 7659 3000
John Burns, Managing Director
College Hill Tel: 020 7457 2020
Gareth David Email: gareth.david@collegehill.com
CHAIRMAN'S STATEMENT
Results
Net asset value at the half year increased to 1016p per share from 1004p at last
year end. This performance was achieved against the background of a widespread
downturn in world financial markets and demonstrates the resilience of the
group's portfolio of Central London commercial property. In tougher conditions
than experienced for a number of years, good progress was made with letting
vacant space and, since the half year, a further 1,640m(2) has been let at 21
Grosvenor Place, SW1.
Profit before tax, excluding disposals, was £9.0 million against £7.9 million
for the corresponding period, an increase of nearly 14%. However, FRS3 profit
at £9.1 million was lower than the £9.4 million last time, reflecting reduced
profits from disposals of investments.
Gross rental income increased by £0.8 million to £22.8 million with lettings and
rent reviews, net of development voids, contributing £0.4 million, while
acquisitions less disposals added £0.4 million.
Capital expenditure on current projects amounted to £19.4 million with a further
£21.1 million anticipated in the second half and £15.4 million for 2003. A
single acquisition of an office building in Holborn was completed in the first
half for £5.2 million.
Dividend
The board has declared a dividend of 3.05p per share, an increase of nearly 11%
on the 2.75p paid at this stage last year.
Valuation
In 2002, a weaker Central London occupational market was evidenced by increased
vacancy levels and lower rents. At the same time, well let property was sought
by investors as a stable alternative to the volatile equity market. As a
consequence, there was a buoyant investment market which resulted in a slight
improvement in yields on the group's portfolio. These opposing factors are
reflected in the half year valuation of the investment portfolio which, at
£844.7 million, shows a small surplus of £1.9 million. Excluding the
development properties of £40.7 million, the underlying performance of
properties held throughout the half year was an increase of 0.2%.
Financing
Following the renegotiation of the group's facilities last year, there has been
little change in its financial position since the year end. With a net cash
inflow of under £0.1 million, group debt remained at £271 million. The
significant cash inflows were the £14.4 million realised on disposal of
properties and the assignment inducement payment of £11.3 million received from
Globix at Oliver's Yard. These were offset by capital expenditure on
acquisitions and developments of £24.6 million and £3.5 million on the payment
of dividends.
Approximately £236 million of the debt was in the form of medium term, floating
rate, bank facilities of which 51% has been converted to fixed rate through
various hedging instruments. The current weighted average cost of borrowing is
6.4%. Committed, but unutilised, bank facilities continue to exceed £150
million.
Lower average interest rates during the first half have improved the interest
cover from 1.83 for the comparable period last year to 2.01. Balance sheet
gearing at just over 50% is virtually unchanged from the December year-end.
There are two adjustments required to the basic net asset value to calculate the
"triple net asset value" used by analysts. The first is the fair value
adjustment arising as a result of the application of FRS13, "Financial
Instruments", which at the half year was a negative £12.9 million (31st December
2001: negative £12.5 million). This is equivalent to a reduction in the group's
net asset value per share before and after tax of 24p and 17p respectively (31st
December 2001: 24p and 17p respectively). The second adjustment is that
required for the capital gains tax that the group would have to pay if its land
and buildings were sold at their June 2002 values. This amounts to £72.9
million (31st December 2001: £74.3 million), equivalent to 137p per share (31st
December 2001: 140p). Together these adjustments result in a "triple net asset
value" of 862p (31st December 2001: 847p).
While on the subject of taxation, the group's success in claiming capital
allowances has required it to provide, in accordance with FRS19, "Deferred Tax",
a further £0.7 million in respect of such allowances. The total deferred tax
provision at the half-year amounted to £9.5 million of which little, if any, is
likely to be paid. This provision amounts to 17p per share and gives rise to
the adjusted net asset value per share of 1033p.
Prospects
The directors have assembled a portfolio of properties in London's West End and
surrounding areas where planning regulations are becoming increasingly
restrictive. Consequently, successful development will become more difficult and
protracted to achieve and the management's skill in implementing well-designed,
imaginative schemes on existing buildings will become an even more essential
component in generating increased asset value.
In what are undoubtedly challenging times, your company is soundly financed and
has a management team which is both experienced enough to deal with current
market conditions, and is poised to take advantage of future improvements in
business sentiment. Our medium term programme of refurbishment opportunities
and the substantial reversionary income stream together with further
acquisitions, will enable your board to drive the business forward.
J C Ivey
CHAIRMAN
17th September 2002
INTERIM PROPERTY REVIEW
Portfolio performance
The portfolio is concentrated in the Central London mid market rental range of
£30-£50 per sq ft (£320 -£540 per m(2)), and the valuation performance
reflected that this sector has been less vulnerable than prime West End to the
current economic environment. The West End properties, comprising 73% of the
portfolio, saw an underlying increase in value of 1.2%, with the best performing
areas being Soho/Covent Garden at 3.5% and Victoria at 2.7%. Paddington
increased by 1.7% as the major regeneration schemes continued to attract tenants
to this location whilst the higher rental locations of Mayfair/Belgravia fell by
1.9%. The properties in the City and its borders, which comprise the balancing
27% of the portfolio, fell by 2.2%.
Lettings
The group's strategy of providing well designed office space through innovative
refurbishment continued to be successful in attracting tenants, despite a
difficult letting market. The following are the principal lettings in the
period:
• At Panton House, 25-27 Haymarket, SW1, which has undergone
extensive refurbishment and includes a striking new atrium entrance, 760m(2)
has been let at rental levels in the region of £540 per m(2) on ten-year
terms. The remaining 1,420m(2) of this 2,700m(2) building is being marketed.
• A new image has been created at 21 Grosvenor Place, SW1,
with the offices refurbished to a high specification. Hicks Muse Tate & Furst
Ltd have leased 1,640m(2) of the 3,110m(2) space available, at £540 per m(2),
for a minimum term of ten years.
• In Covent Garden, Sainsbury's Supermarkets Ltd have pre-let the retail element
of the new development at 5-8 Southampton Street, WC2 for a 25 year term at
£575,000 per annum.
The group currently has 5,200m(2) of space available for letting, including the
above mentioned completed schemes at Panton House and 21 Grosvenor Place. This
represents 2.3% by floor area of the investment portfolio. Properties under
refurbishment/development comprise a further 26,800m(2) with a number of the
schemes due to be completed in the second half. Plans are also being formulated
for several schemes, including the 31,700m(2) Centric House, E1 where, as
planned, vacant possession was obtained in June 2002.
In addition to the rental income from recent lettings and that expected from the
refurbishment programme, the portfolio offers good reversionary prospects
through rent reviews and lease renewals over the next few years. This is
despite the difficult rental market and is a consequence of the group's strategy
of acquiring and retaining properties in improving locations that are let at
modest rental levels.
Current projects
Development
• Tower House and 5-8 Southampton Street, WC2 - Tower House,
the refurbishment element of this project, will be completed ahead of the new
build and consists of a substantial retail unit of 1,300m(2), offices of
3,500m (2) and 300m(2) of residential space. As part of the scheme a new
double height office entrance has been created for this prominent building,
which is close to the Covent Garden piazza. At 5-8 Southampton Street, there
will be 2,900m(2) of innovative new build offices designed and constructed
behind a retained facade and atrium. Additionally, there is a 1,100m(2)
retail unit which is to be occupied by Sainsbury's Supermarkets Ltd.
Refurbishments
• 135-155 Charing Cross Road, WC2 - This imaginative 3,200m (2) project, which
refocuses the building around a new courtyard entrance adjacent to Soho
Square, is nearing completion. There will be 2,400m(2) of
offices, to include a new penthouse office floor, and 800m(2) of retail space.
• Greencoat and Gordon House, SW1 - The 11,200m(2) complex
has undergone a rolling refurbishment programme over the last 5 years. The
latest phase of work, due to be completed shortly, involves a 1,500m(2) office
refurbishment and the conversion of a loading area into a new, spacious
entrance to Gordon House.
• Centric House, Shoreditch High Street, E1 - Occupying a prominent corner
location, the 31,700m(2) building is adjacent to the Bishopsgate Goods Yard,
which is the focal point of major commercial development
and transport proposals for the area. This improving location, just north of
Broadgate, is emerging as a new London village. Permission has been obtained
for a change in planning use from warehouse to offices and proposals are being
formulated for the phased refurbishment of the building to allow short term
letting whilst the long term development plans are evaluated.
• 1 Oliver's Yard, EC2 - In April, Globix's lease of the 17,400m(2) building was
restructured and the group received a payment of £11.3 million. Globix now
occupy 6,400 m(2) on a new 15 year lease at a similar
rental level to that prior to the restructure. On the reduced space, this
produces rental income of £1.6 million per annum. The remaining 11,000m(2) of
the space is undergoing a £6.8 million fitout and will be available for
occupation in the new year.
Acquisitions and sales
The group continued to seek acquisitions where value could be added by utilising
its management and refurbishment skills. However, it remained discerning in a
competitive investment market and the only purchase in the first half was that
of 12 Roger Street, WC1 for £5.2 million, a 1,660m(2) office building, let at
£225 per m(2) on a lease expiring in 2005. This low rental provides a future
opportunity for active lease management.
During the half year, Caledonia House, N1 and Dragon Court, WC2 were sold for
£14.4 million, net of costs and realised slightly above book value. These sales
reflected an exit yield of 6.6%.
GROUP PROFIT AND LOSS ACCOUNT
Half year Half year Year
to 30.6.02 to 30.6.01 to 31.12.01
(restated)
Notes £m £m £m
Gross rental income
Group and share of joint ventures 23.0 22.2 47.3
Less share of joint ventures (0.2) (0.2) (0.4)
Group gross rental income 22.8 22.0 46.9
Property outgoings net of recoveries 3 (1.9) (1.5) (3.9)
Net revenue from properties 20.9 20.5 43.0
Administrative costs (3.1) (2.9) (6.2)
Operating profit 17.8 17.6 36.8
Share of operating results of joint ventures 0.2 0.1 0.3
Profit on disposal of investments 4 0.1 1.5 3.8
18.1 19.2 40.9
Interest receivable - 0.1 0.1
Interest payable 5 (9.0) (9.9) (19.3)
Profit on ordinary activities before taxation 9.1 9.4 21.7
Taxation on profit on ordinary activities 6 (2.6) (1.9) (4.8)
Profit on ordinary activities after taxation 6.5 7.5 16.9
Dividend (1.6) (1.4) (5.0)
Retained profit 12 4.9 6.1 11.9
Adjusted earnings per share 7 12.02p 11.75p 27.73p
Adjustment for disposal of investment 0.27p 2.43p 3.95p
properties
Basic earnings per share 7 12.29p 14.18p 31.68p
Adjustment for dilutive share options (0.03p) (0.04p) (0.07p)
Diluted earnings per share 7 12.26p 14.14p 31.61p
Dividend per share 8 3.05p 2.75p 9.35p
Total return 9 1.5% 11.9% 16.5%
GROUP BALANCE SHEET
30.6.02 31.12.01
Notes £m £m
Fixed assets
Tangible assets 10 845.4 834.1
Investments in joint ventures
Share of gross assets 3.1 3.1
Share of gross liabilities (2.9) (2.9)
0.2 0.2
845.6 834.3
Current assets
Properties held for resale 6.4 5.4
Debtors 9.4 10.0
15.8 15.4
Creditors falling due within one year
Bank loans and overdrafts (0.5) (1.6)
Other current liabilities (40.4) (35.4)
Net current liabilities (25.1) (21.6)
Total assets less current liabilities 820.5 812.7
Creditors falling due
after more than one year
Bank loans (236.0) (235.0)
10 1/8% First Mortgage Debenture Stock 2019 (34.4) (34.4)
Provisions for liabilities and charges
Deferred tax 11 (9.5) (8.8)
Other provisions (0.8) (0.8)
539.8 533.7
Capital and reserves - equity 12
Called up share capital 2.6 2.6
Share premium account 153.7 153.7
Revaluation reserve 291.9 294.0
Profit and loss account 91.6 83.4
539.8 533.7
Net asset value per share 13 1016p 1004p
Adjusted net asset value per share 13 1033p 1020p
GROUP CASH FLOW STATEMENT
Half year Half year Year to
to 30.6.02 to 30.6.01 31.12.01
Notes £m £m £m
Net cash inflow from operating activities 14 30.0 16.5 34.9
Net cash outflow from return on
investments and servicing of finance (9.7) (10.1) (19.7)
Corporation tax paid (6.3) (0.5) (6.5)
Net cash (outflow)/inflow from capital
expenditure and financial investment (10.4) 6.8 8.4
Equity dividends paid (3.5) (3.2) (4.6)
Cash inflow before management
of liquid resources and financing 0.1 9.5 12.5
Financing
Net cash inflow/(outflow)from financing
Movement in bank loans 15 1.0 (13.5) (14.0)
Increase/(decrease) in cash in the period 15 1.1 (4.0) (1.5)
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Half year Half year Year
to 30.6.02 to 30.6.01 to 31.12.01
(restated)
£m £m £m
Profit for financial period 6.5 7.5 16.9
Unrealised surplus on revaluation of
investment properties 1.9 53.3 69.2
Taxation on realisation of property revaluation
gains of previous years (0.7) (5.8) (9.7)
7.7 55.0 76.4
Notes
1. The results for the six months ended 30th June 2002 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. The results are prepared on
the basis of the accounting policies set out in the 2001 annual report and
accounts.
At the 2001 year end, the group adopted Financial Reporting Standard 19,
"Deferred Tax" (FRS19). Accordingly, it has been necessary to restate the
results for the half year ended 30th June 2001. The effect of the revised
accounting policy on the current period results, the results to 30th June 2001
and the results to 31st December 2001 is shown below.
Half year Half year Year
to 30.6.02 to 30.6.01 to 31.12.01
£m £m £m
Taxation on profit on ordinary activities
Deferred tax 0.7 0.6 1.1
The additional provision for deferred tax required to be deducted from the
balance sheet at 30th June 2001 amounted to £8.3 million. The resulting net
asset value per share of 971p gives a restated total return of 11.9% for the
period.
2. During the period, the group received £11.3 million net of VAT in
respect of the assignment of a lease which has been accounted for in accordance
with the group's accounting policy relating to reverse premiums.
3. Property outgoings net of recoveries
Half year Half year Year
to 30.6.02 to 30.6.01 to 31.12.01
£m £m £m
Ground rents 0.6 0.5 1.4
Other property outgoings net of recoveries 1.3 1.0 2.5
1.9 1.5 3.9
4. Profit on disposal of investments
Half year Half year Year
to 30.6.02 to 30.6.01 to 31.12.01
£m £m £m
Investment properties
Disposals 14.4 73.3 73.3
Cost/valuation (14.3) (71.8) (71.8)
Profit on disposal of investment properties 0.1 1.5 1.5
Permanent diminution in value of
investment properties - - (0.8)
0.1 1.5 0.7
Subsidiary undertaking
Disposal - - 31.2
Net assets on disposal - - (28.1)
Profit on disposal of subsidiary undertaking - - 3.1
Total profit on disposal of investments 0.1 1.5 3.8
5. Interest payable
Half year Half year Year
to 30.6.02 to 30.6.01 to 31.12.01
£m £m £m
Group 8.8 9.7 19.0
Share of joint ventures 0.2 0.2 0.3
9.0 9.9 19.3
6. Taxation on profit on ordinary activities
Half year Half year Year
to 30.6.02 to 30.6.01 to 31.12.01
(restated)
£m £m £m
UK Corporation tax on profit, adjusted for
the surplus on disposal of investments,
at 30% (2001 - 30%) 2.7 2.6 4.5
Capital allowances (0.8) (1.3) (2.3)
Deferred tax 0.7 0.6 1.1
Other differences - (0.2) -
2.6 1.7 3.3
Tax on profit on disposal of investments 0.7 6.0 11.4
Less amount allocated to the statement of
total recognised gains and losses (0.7) (5.8) (9.7)
Tax charge in respect of current period profit 2.6 1.9 5.0
Adjustments in respect of prior periods - - (0.2)
2.6 1.9 4.8
7. Earnings per share
Earnings per ordinary share have been computed on the basis of profit after tax
of £6,535,000 (2001 interim - £7,536,000 as restated; 2001 full year -
£16,841,000) and the weighted average number of ordinary shares in issue during
the period of 53,157,000 (2001 interim - 53,157,000; 2001 full year -
53,157,000).
The adjusted earnings per share have been calculated using a profit after tax of
£6,390,000 (2001 interim - £6,246,000 as restated; 2001 full year -
£14,740,000). This figure excludes the profit after tax arising from the
disposal of investments 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 53,289,000 (2001 interim - 53,301,000; 2001 full year -
53,285,000) which includes the number of dilutive share options outstanding at
the end of the period.
8. Dividend per share
The interim dividend will be paid on 4th November 2002 to those shareholders on
the register at the close of business on 18th October 2002.
9. 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.
10. Tangible assets
Freehold Other
land and Leasehold fixed
buildings property assets Total
£m £m £m £m
Cost or valuation:
At 1st January 2002 540.6 292.9 1.0 834.5
Additions 20.4 3.2 0.2 23.8
Disposals (14.3) - (0.1) (14.4)
Revaluation 2.2 (0.3) - 1.9
At 30th June 2002 548.9 295.8 1.1 845.8
Amortisation and depreciation:
At 1st January 2002 - - 0.4 0.4
Provision for period - - 0.1 0.1
Disposals - - (0.1) (0.1)
At 30th June 2002 - - 0.4 0.4
Net book value:
At 30th June 2002 548.9 295.8 0.7 845.4
At 31st December 2001 540.6 292.9 0.6 834.1
Assets stated at cost or valuation:
30th June 2002 valuation 508.2 295.8 - 804.0
Prior years' valuation plus
subsequent costs 40.7 - - 40.7
Cost - - 0.7 0.7
At 30th June 2002 548.9 295.8 0.7 845.4
Short leasehold property with a value of £19.2 million (December 2001 - £16.7
million) is included in leasehold property above. Investment property in the
course of development with a carrying value of £40.7 million (December 2001 -
£34.4 million) 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 either Keith Cardale Groves (Commercial)
Limited or CB Hillier Parker Limited, chartered surveyors, at open market value
on 30th June 2002. At 30th June 2002, the historical cost of the freehold land
and buildings and leasehold property owned by the group was £554.0 million
(December 2001 - £540.6 million).
11. Deferred tax
£m
At 1st January 2002 8.8
Provided during period 0.7
At 30th June 2002 9.5
The provision for deferred tax relates to timing differences on accelerated
capital allowances and other reversing timing differences.
A taxation liability of approximately £72.9 million (December 2001 - £74.3
million) would arise on the disposal of land and buildings at the valuation
shown in the balance sheet. This is equivalent to 137p per share (December 2001
- 140p). In accordance with FRS19, no provision has been made for this.
12. Capital and reserves
Share Profit
Share premium Revaluation and loss
capital account reserve account
£m £m £m £m
At 1st January 2002 2.6 153.7 294.0 83.4
Surplus on property revaluation - - 1.9 -
Profit realised on disposal of
investment properties - - (4.0) 4.0
Tax attributable to revaluation
surplus realised on disposal
of investment properties - - - (0.7)
Retained profit for the six months - - - 4.9
At 30th June 2002 2.6 153.7 291.9 91.6
13. Net asset value per share
Net asset value per share has been calculated on the basis of net assets at 30th
June 2002 of £539,853,000 (December 2001 - £533,657,000) and the number of
shares in issue at 30th June 2002 of 53,157,000 (December 2001 - 53,157,000).
An adjusted net asset value per share figure has been calculated using net
assets of £549,299,000 (December 2001 - £542,415,000). This figure excludes the
deferred tax provided in accordance with FRS19 on the basis that it is unlikely
that this liability will crystallise.
14. Reconciliation of operating profit to net cash inflow from operating
activities
Half year Half year Year
to 30.6.02 to 30.6.01 to 31.12.01
£m £m £m
Operating profit 17.8 17.6 36.8
Depreciation charge 0.1 0.1 0.1
Decrease/(increase) in debtors 0.6 (2.8) (0.2)
Increase/(decrease) in creditors 10.7 (1.0) (1.3)
Increase in properties held for resale (1.0) (0.7) (2.8)
Effect of other deferrals and accruals
on operating activity cash flow 1.8 3.3 2.3
Net cash inflow from operating activities 30.0 16.5 34.9
15. Reconciliation of net cash flow to movement in net debt
Half year Half year Year
to 30.6.02 to 30.6.01 to 31.12.01
£m £m £m
(Increase)/decrease in cash in the period (1.1) 4.0 1.5
Cash inflow/(outflow) from movement
in debt financing 1.0 (13.5) (14.0)
Amortisation of discount and costs
on issue of debenture - 0.1 0.1
Movement in net debt in the period (0.1) (9.4) (12.4)
Net debt at 1st January 2002 271.0 283.4 283.4
Net debt at 30th June 2002 270.9 274.0 271.0
16. Valuation of financial instruments
The group's fixed rate debt and interest rate hedging instruments were revalued
at 30th June 2002. The fair value adjustment, arising as a result of this
revaluation, which is not reflected in the financial statements, was a negative
£12.9 million (December 2001 - negative £12.5 million). After tax relief this
would reduce the group's net asset value per share by 17p (December 2001 - 17p).
17. Post balance sheet events
On the 13th August 2002, the group sold a leasehold property for £2.5 million
before costs. On the 14th August 2002, the group purchased a freehold property
for £9.4 million before costs.
18. 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 2001 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 2001 and
2002 are unaudited.
19. Copies of this announcement are being posted to shareholders on 18th
September 2002 and are available from the Company Secretary, Derwent Valley
Holdings plc, 25 Savile Row, London, W1S 2ER.
This information is provided by RNS
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