Preliminary Results

RNS Number : 6768J

The MedicX Fund Limited

08 December 2008

 



For Immediate Release

8 December 2008

MedicX Fund Limited

('MedicX Fund', 'the Fund' or 'the Company')

Results for the year ended 30 September 2008

MedicX Fund Limited (LSE: MXF), the specialist primary care infrastructure investor in modern purpose-built primary healthcare properties in the United Kingdom, today announces its results for the year ended 30 September 2008.    

Interim Highlights

Investments

• Successfully delivering investment strategy of investing in modern purpose-built primary healthcare properties

• £166.0m of committed investment in 45 primary healthcare properties including new committed investment during the year of £26.5m1  

• Committed investment at a cash yield of 5.7% compared to fixed debt cost of 5.0% and ten year gilt rate of 4.5%2. 

  
  

• Annualised rent roll now £9.6m with 4.8% per annum average increase from rent reviews agreed in the year and no voids in the portfolio.1 

• Seven properties under construction completed during the year; only two remaining under construction

• Strong pipeline of further opportunities 

Financial results

• Dividend of 2.6p per share, making a total of 5.2p per share, an increase of 4% on the previous year's dividends of 5p per share 3

• Adjusted earnings of £1.1m excluding revaluation impact, an increase of £1.0m, equivalent to 1.4p per share (30 September 2007: £0.1m; 0.1p per share)4,5

• Discounted cash flow net asset value of £85.5m equivalent to 107.3p per share (30 September 2007: £87.5m; 109.9p per share)

• Adjusted net asset value of £56.0m equivalent to 70.3p per share (30 September 2007: £77.2m; 96.9p per share) reflecting a 5.90% net initial yield compared with 5.22% at 30 September 2007, equivalent to a 13% fall in property valuations but comparing favourably to the 30% movement in IPD All Property net initial yield4

• Adjusted net asset value plus the estimated benefit of fixed rate debt of £72.3m equivalent to 90.8p per share (30 September 2007: £88.8m; 111.5p per share)4 

Funding

• Debt service coverage ratio of 1.9 against 1.4 covenant requirement

• Loan to value 65% against 75% covenant which will be first tested 30 April 2009

• Headroom on debt covenants expected to increase as rents grow

• Net debt £77.0m (54.9% adjusted gearing4)

• £100m Norwich Union 5.0% fixed rate, 30 year interest only, loan now fully committed

• 7.9 million shares available for issue following approval of block listing in June 2008

 Commenting on the annual results and the outlook David Staples, Chairman, said 'The last year has been an exceptional time for global financial markets.  

Whilst the MedicX Fund share price has not suffered as much as some, it has not escaped the general decline in property and equity values. Prior to the announcement of these results, the dividend yield and discount to the discounted cash flow Net Asset Value were 9% and 48% respectively. 

This is disappointing given the Fund's investments, its predictable long-term income streams, government funded counter-parties and fixed rate debt. The portfolio has continued to perform as expected and there has been no adverse material operational impact from the worsening economic environment.

There have been few transactions in the investment market during the last six months and this has made it particularly difficult for King Sturge LLP, the Fund's valuer, to value the individual properties this time around. We believe the properties remain good investments at current yield levels.

Attractive opportunities continue to exist in the sector which would complement the Fund's portfolio and enhance earnings further, however the pace of new investments will continue to depend upon our ability to access further capital.  

The directors have approved a dividend of 2.6p, bringing the total for the year to 5.2p or an increase of 4% which is in line with our aim of delivering a progressive return.

The Fund remains an attractive proposition for long-term investors.'

Contacts for the Investment Adviser on behalf of the Board:

Keith Maddin [phone]

Mike Adams  [phone]

Contacts for Buchanan Communications:

Charles Ryland / Lisa Baderoon / Mary-Jane Johnson [phone]

Information on MedicX Fund Limited

MedicX Fund Limited ('MXF', the 'Fund' or the 'Company', or together with its subsidiaries, the 'Group') the specialist primary care infrastructure investor in modern purpose-built primary healthcare properties in the United Kingdom, listed on the London Stock Exchange in November 2006. It has committed investment of £166.0 million and a portfolio of 45 properties.

The Investment Adviser to the Company is MedicX Adviser Ltd, which is authorised and regulated by the Financial Services Authority, and is a subsidiary of the MedicX Group. The MedicX Group is a specialist investor, developer and manager of primary healthcare properties with 32 people operating across the UK.

The Company's website address is www.medicxfund.com

1 As at 8 December 2008; completed properties and properties under construction

2 Net rents divided by total acquisition price and costs; cash yield on gross rents 5.8%

3 Ex dividend date 17 December 2008, Record date 19 December 2008, Payment date 16 January 2009

4 Adjusted to exclude goodwill and the impact of deferred tax not expected to crystallise

5 Revaluation impact including £0.5 million prepayment write off in each period

Chairman's statement

Having been appointed as Chairman on 1 November 2008, I am pleased to present my first annual report and the second for MedicX Fund, on behalf of the Board.

Results overview 

The Group now has committed investment of £166.0 million across 45 properties of which only two remain under construction.1  There are no material operational issues to report regarding the portfolio properties which continue to perform in line with our long-term objectives.

The cash yield on investments is currently 5.7% compared to the Group's fixed rate debt of 5.0% and the ten year gilt rate of 4.5%.1,2  The cash yield will continue to grow with rent increases. 

In line with other infrastructure investors and given the Group's long-term predictable cash flows, a net asset value has been calculated based upon discounted cash flow analysis of the Group's investments. On this basis the net asset value as at 30 September 2008 was £85.5 million or 107.3p per share only marginally lower than the 109.9p per share as at 30 September 2007. 

Primary care property valuations have been impacted by a continued softening of asset prices in the general commercial property markets. The property valuations carried out by King Sturge LLP, the Group's valuer, and adopted in the adjusted net asset value, reflect a 5.90% net initial yield compared with 5.22% at the beginning of the year equivalent to a 13% fall in property valuations during the year.  The Group's adjusted net asset value at 30 September 2008 was £56.0 million, equivalent to 70.3p per share4, a decrease of 26.6p per share from 30 September 2007. Of this decrease 22.5p per share is due to the revaluation which has a non-cash impact.

The benefit of the Group's fixed rate debt as at 30 September 2008 is estimated at £16.3 million or 20.5p per share which has not been included in the adjusted net asset value4. This benefit takes into account the movement in underlying lending rates and bank margins.  The adjusted net asset value plus the estimated benefit of debt is therefore £72.3 million, equivalent to 90.8p per share (30 September 2007: £88.8 million; 111.5p per share).  

For the year to 30 September 2008, the Group reports adjusted earnings excluding the revaluation impact of £1.1 million equivalent to 1.4p per share, an increase of £1.0 million and 1.3p per share from £0.1 million or 0.1p for the period to 30 September 20074,5. The adjusted loss including revaluation impact is £16.8 million, equivalent to 21.0p per share (30 September 2007: earnings of £1.1 million; 1.4p per share).

The annualised rent roll is now £9.6 million and the equivalent of 4.8% per annum increase has been achieved from rent reviews agreed in the year. 

Overheads have been reduced from £0.6 million for the six months ended 31 March 2008 to £0.4 million for the six months to 31 September 2008. Target annual overheads are £650,000 including allowance for additional initiatives of research by Edison Investment Research, the introduction of an internal audit programme and an IPD index specific to UK healthcare properties which MedicX Fund has initiated.

Overall there has been an improvement on a half yearly basis in adjusted earnings, excluding the revaluation impact, which were £0.7 million for the six months ended 30 September 2008, £0.4 million for the six months ended 31 March 2008 and £0.0 million for the six months ended 30 September 2007.4

Funding

As at 30 September 2008, the Group had net debt of £77.0 million (30 September 2007: £52.4 million) equating to 54.9% of the adjusted gross asset value, excluding cash, reported on a consolidated basis and under International Financial Reporting Standards4. The £100 million Norwich Union 5.0% fixed rate, 30 year interest-only, loan has now been fully committed.  

All covenants have been satisfied. The debt service coverage is 1.9 against the covenant of 1.4 and the loan to value 65% against the covenant of 75% which will be first tested on 30 April 2009. The headroom on covenants is expected to increase as rents grow. Headroom can be further enhanced if required through depositing cash as security as well as amortising the interest only loan. 

On 27 June 2008 an application to the UK Listing Authority and the London Stock Exchange was approved for the block listing of 7,900,000 Ordinary shares of no par value. The Company may issue any or all of these shares for cash from time to time provided that no such issue will be made at prices below the then prevailing adjusted net asset value per share. There is no guarantee that the Company will issue all or any of these new shares.

As previously announced, the C shares converted to ordinary shares on 12 December 2007 at a Conversion Ratio of one ordinary share for each C share held. 

Dividend

The directors have approved a further dividend of 2.6p per ordinary share, bringing the total for the year to 5.2p per ordinary share, an increase of 4% compared with the previous year's dividends.  This is in line with the Fund's investment objective of targeting a progressive long-term return.  The dividend will be paid on 16 January 2009 to ordinary shareholders on the register as at 19 December 2008.

Taking into account the investment required to complete the two properties currently under construction the Group has around £12 million surplus cash. Dividend cover from adjusted earnings has increased during the year to 36% for the second half of the year and now exceeds the assumption made at the time of the IPO. This is targeted to increase to 50% and then further following future capital raising. Earnings shortfall is expected to be met by surplus cash and the increase in capital values over time as a result of the increase in the rental income generated from investment properties.

Goodwill

The Board has carried out its annual impairment review of goodwill. The goodwill arose on acquisition of subsidiary property investment companies and largely as a result of the requirement of accounting standards to recognise deferred tax liabilities on the latent gains within those subsidiaries. As a result of the outward movement of yields, these deferred tax liabilities have reduced by £2.0 million with the result that the goodwill has been impaired by the same amount.  These changes do not impact adjusted earnings or net asset value which exclude goodwill and deferred tax not expected to crystallise. 

Share price and outlook

At the time of writing the Fund's share price stood at 56.0p, this represents a 9% dividend yield based upon the 5.2p per share dividends declared for the year and a discount ranging from 20% to the adjusted net asset value of 70.3p per share to a discount of 48% against the discounted cash flow net asset value of 107.3p per share.  

The share price has declined 28% since last December prior to the announcement of our first year's results compared with respective falls in the FTSE All Share Index and FTSE Real Estate Index of 38% and 53%. 

Primary care infrastructure with its secure long-term cash flow offers defensive characteristics that in the current economic climate represent an attractive long-term investment proposition.  With its high quality portfolio and forward pipeline of acquisition opportunities the MedicX Fund is well positioned to deliver progressive long-term returns to shareholders.  

Retirement of Jorge Tavares

Jorge Tavares retired as Chairman on 31 October 2008. On behalf of the Board, I would like to thank Jorge for his contribution to the establishment and growth of MedicX Fund.

David Staples

Chairman

8 December 2008

Investment Adviser's report

Market

Lord Darzi's Next Stage Review final report 'High Quality Care For All' was published in June this year.  The key findings were as anticipated with renewed emphasis on more services being delivered in the community, close to patients in primary care.  The report has focussed on reinforcing a new range of buildings for community health services that embrace new boundaries of service delivery, including diagnostics and healthcare normally delivered from hospital.  In addition Lord Darzi signalled a new range of building design regulations that would ensure better utilisation of room space (to accommodate multiple users), greater flexibility in design (to incorporate the many new areas of healthcare delivery) and more effective design engineering to make sure that the buildings remain sufficiently reactive to changing healthcare need.  The Fund has been anticipating many of these changes, and incorporating them in the buildings being delivered or in the pipeline, to ensure the portfolio remains at the forefront of primary care design. 

There have been few transactions in the investment market in the last six months. The turmoil in the financial markets has added to the difficulty for valuers in assessing the impact on property values in the sector. This was particularly the case with the events in the weeks running up to the Fund's year end date of 30 September. Although the IPD All Property Index has seen further weakness since the year end the impact of base rate reductions which started in October and accelerated in November and December is likely to provide support to property yields.  

Portfolio update

The MedicX Fund has committed investment of £166.0 million at today's date in 45 primary healthcare properties at a cash yield of 5.7%2. The annualised rent roll of the portfolio properties is £9.6 million1.

As at 30 September 2008, the completed portfolio properties had an average age of 3.6 years, remaining lease length of 20.0 years and an average value of £3.0 million. Of the rents payable 91% are from government-funded doctors and Primary Care Trusts/Local Health Boards, 6% from pharmacies and 3% from other parties. There are no voids in the portfolio.

Seven properties under development, at Wollaton, Evesham, Rothwell, Warwick, Edgware, Gosberton, and Alsager were successfully completed during the year. The Castlecroft property has also been completed after the end of the year. Further forward funding arrangements were entered into during the year for construction of properties at Lytham and Ossett for a total investment of £21.5m, and these properties are scheduled to complete in April 2009 and October 2009 respectively. The pace of new investments will depend upon the ability to access further capital.

During the year the Fund completed the sale of the Aird Medical Centre, Beauly for £1.37 million. The property was one of the smaller and older properties in the portfolio. The sale price exceeded the valuation by DTZ Debenham Tie Leung of £1.33 million at 30 September 2007 and demonstrates the attractiveness of the asset class to investors. Further selective disposals will be targeted where properties do not match the long-term strategy of focussing on the larger, modern purpose-built properties. 

Asset management

During the year to 30 September 2008 twelve rent reviews were completed, adding £88,000 to the rent roll, representing average increases in rent (as a percentage of passing rent) of 13.0% equating to 4.8% per annum. Passing rents of £1,260,000 were under negotiation at the year end. 

Moving forward around one third of the portfolio will be the subject of rent reviews every year.

Asset management opportunities have also been identified in respect of a number of the properties in the portfolio, which will generate increases in income and asset values. These involve the introduction of pharmacies, extensions and income from providing facilities management services.

The Investment Adviser has also, where possible, pooled insurance arrangements across properties and realised insurance savings of 30%. 

Pipeline and investment opportunity

The Investment Adviser has access to a pipeline, subject to contract, which is estimated to be worth approximately £110 million in value when fully developed, including MedicX Group's own pipeline of projects with a value of approximately £85 million.  

Valuation

Primary care property valuations have been impacted by a continued softening of asset prices in the general commercial property markets. The property valuations carried out by King Sturge LLP, the Fund's valuer, and adopted in the adjusted net asset value reflect a 5.90% net initial yield compared with 5.22% at the beginning of the year equivalent to a 13% fall in property valuations.  

The yield shift comes despite the long-term secure income, typical three yearly effective upward only rent reviews and lack of voids in the MedicX Fund portfolio, but compares favourably to the 30% movement over the year in the IPD All Property Index net initial yield from 4.64% to 6.05%6. The Fund has initiated the formation of an IPD index specifically for healthcare properties and this is expected to be reporting for the first time after the 2009 interim announcement.

The Investment Adviser, on the Fund's behalf, has separately carried out a discounted cash flow valuation of the Group's investments as at 30 September 2008. The valuation has been prepared in a similar way to other quoted infrastructure funds.

The discount rates used for valuing the projects in the portfolio are 7% for completed and occupied properties and 8% for properties under construction. There has been no change in these discount rate assumptions over the year. These represent 2.5% to 3.5% risk premiums to an assumed 4.5% long-term gilt rate. The weighted average discount rate is 7.15% representing a slight reduction over the year from 7.22% and reflecting the increase in the proportion of completed properties in the portfolio.

The discounted cash flows assume an average 3% per annum increase in individual property rents at their respective review dates, residual values based upon capital growth at 1% per annum from current valuation until the expiry of leases and 65% gearing of assets.

The Fund's portfolio was valued on a discounted cash flow basis as at 30 September 2008 at £85.5 million or 107.3p per share compared with £87.5 million or 109.9p per share as at 30 September 2007. The reduction of 2.6p per share is after a 5.1p dividend payment and 9.4p per share reduction due to the impact of property revaluation. Around half of this revaluation impact is due to more equity being required to finance the acquisitions whilst remaining at 65% loan to value.

Further, the Investment Adviser has carried out sensitivities to the discounted cash flow net asset value. For the discounted cash flow net asset value to equate to the share price at 5 December of 56.0p, the discounted cash flow calculation would have to assume a 4.3% reduction in rents per annum, or a 9.8% capital reduction per annum, or a weighted average discount rate of 14.6%. These reductions in rents and capital values would need to take place every year until the expiry of the individual property leases.

Investment Adviser developments

MedicX Group as a whole has 32 people, and has offices in Godalming, Nottingham, Warrington and Edinburgh.

The MedicX Group acquired 600,000 shares of MedicX Fund in January 2008.  

With effect from 1 April 2008, the Investment Adviser has taken over the accounting of the Fund and has agreed to absorb the costs within its existing fees.  

Keith Maddin Chairman

Mike Adams  Chief Executive Officer

MedicX Adviser Ltd

1 As at 8 December 2008; completed properties and properties under construction

2 Net rents divided by total acquisition price and costs; cash yield on gross rents 5.8%

3 Ex dividend date 17 December 2008, Record date 19 December 2008, Payment date 16 January 2009

4 Adjusted to exclude goodwill and the impact of deferred tax not expected to crystallise

5 Revaluation impact including £0.5 million prepayment write off in each period

6 September 2008 IPD

Consolidated income statement

For the year ended 30 September 2008

		Year ended  30 September 2008	Restated Period ended  30 September 2007
	Notes	£'000	£'000
Income
Rent receivable	2	7,467	4,747
Finance income	2	1,906	2,280
Other income		769	236
Total income		10,142	7,263
Valuation and impairment adjustments
Net valuation (loss)/gain on investment properties	9	(15,164)	2,061
Impairment of properties under construction	9	(2,209)	(540)
Charge for impairment of goodwill	8	(1,961)	-
Total valuation and impairment adjustments		(19,334)	1,521
Expenses
Property advisory fee	20	2,269	1,996
Property management fee	20	211	137
Direct property expenses		313	82
Administrative fees	20	340	231
Audit fees	4	88	98
Professional fees		397	146
Directors' fees	3	158	147
Other expenses		669	602
Finance costs	5	5,077	4,246
Total expenses		(9,522)	(7,685)
(Loss)/profit before tax		(18,714)	1,099
Taxation	6	2,880	(585)
(Loss)/profit after taxation		(15,834)	514
Earnings per ordinary share (2, 3) Basic and diluted	7	(21.0)p	1.1p
Earnings per C share (4)
Basic and diluted	7	n/a	(0.1)p

1. All items in the above statement are derived from continuing operations. The accompanying notes on pages 26 to 46 form an integral part of the financial statements.

2. Included in Note 7 is an adjusted earnings per share calculation that adjusts for the impact of deferred tax which, based on the expected manner of realisation of the carrying amount of investment properties, is unlikely to crystallise.

3. There were no material transactions between the date of incorporation, 25 August 2006, and 2 November 2006, the date on which the Company's ordinary shares were listed on the London Stock Exchange.

4. The C shares were converted into ordinary shares on 12 December 2007 at a conversion ratio of 1.0000:1.

Consolidated balance sheet

As at 30 September 2008

		30 September 2008	Restated 30 September 2007
	Notes	£'000	£'000
Non-current assets
Goodwill	8	7,698	9,283
Investment properties	9	126,937	112,325
Properties under construction	9	10,220	19,569
Total non-current assets		144,855	141,177
Current assets
Trade and other receivables	10	3,048	2,983
Cash and cash equivalents	16	24,061	48,825
Total current assets		27,109	51,808
Total assets		171,964	192,985
Current liabilities
Trade and other payables	11	7,234	5,354
Non-current liabilities
Long-term loan	12	101,046	101,166
Deferred tax provision	6	6,796	9,682
Total non-current liabilities		107,842	110,848
Total liabilities		115,076	116,202
Net assets		56,888	76,783
Equity
Share capital	13	-	-
Share premium	13	1,585	1,585
Distributable reserves	14	70,623	74,684
Retained earnings		(15,320)	514
Total equity		56,888	76,783
Net asset value per share  Ordinary - Basic and diluted	7	71.4 p	96.3p
C - Basic and diluted	7	n/a	96.8p

The financial statements were approved and authorised for issue by the board of directors on 

8 December 2008 and were signed on its behalf by

The accompanying notes form an integral part of the financial statements.

Consolidated changes in equity

For the year ended 30 September 2008

	Notes	Share Premium £'000	Distributable Reserve £'000	Retained Earnings £'000	Total £'000
Proceeds on issue of shares		79,710	-	-	79,710
Share issue costs		(2,005)	-	-	(2,005)
Transfer from share premium	14	(76,120)	76,120	-	-
Profit attributable to equity holders for the period		-	-	514	514
Dividend paid	17	-	(1,436)	-	(1,436)
Balance at 30 September 2007		1,585	74,684	514	76,783
Loss attributable to equity holders for the year		-	-	(15,834)	(15,834)
Dividend paid	17	-	(4,061)	-	(4,061)
Balance at 30 September 2008		1,585	70,623	(15,320)	56,888

The accompanying notes form an integral part of the financial statements.

Consolidated cash flow statement

For the year ended 30 September 2008

		Year ended  30 September 2008	Period ended  30 September 2007
	Notes	£'000	£'000
Operating activities
(Loss)/profit before taxation		(18,714)	1,099
Adjustments for:
Net valuation losses/(gains) on investment property		15,164	(2,061)
Impairment of properties under construction		2,209	540
Goodwill impairment		1,961	-
Profit on disposal of investment property		(20)	-
Financial income receivable		(1,906)	(2,280)
Finance costs payable and similar charges		5,077	4,246
		3,771	1,544
Increase in trade and other receivables		(141)	(1,214)
Increase in trade and other payables		1,877	2,809
Interest paid		(5,081)	(3,189)
Interest received		1,982	2,268
Taxation paid		(6)	-
Net cash inflow from operating activities		2,402	2,218
Investing activities
Acquisitions net of cash acquired	16	(376)	(11,981)
Proceed from sale of investment properties		3,553	-
Additions to investment properties and properties under construction		(26,169)	(38,082)
Net cash outflow from investing activities		(22,992)	(50,063)
Financing activities
Net proceeds from issue of share capital		-	76,116
Bank loans repaid on acquisition		-	(37,849)
Other loan repaid on acquisition		-	(41,363)
Net proceeds of long-term borrowings		(113)	101,202
Dividends paid		(4,061)	(1,436)
Net cash inflow from financing activities		(4,174)	96,670
(Decrease)/increase in cash and cash equivalents		(24,764)	48,825
Opening cash and cash equivalents		48,825	-
Closing cash and cash equivalents	16	24,061	48,825

The accompanying notes form an integral part of the financial statements

Notes to the financial statements 

For the year ended 30 September 2008

1. Business and investment objective

MedicX Fund Limited was incorporated in Guernsey on 25 August 2006 and commenced trading on 2 November 2006 on listing on the London Stock Exchange. No transactions took place between the date of incorporation and the date of listing.

MedicX Fund Limited ('the Company') and its subsidiaries (together 'the Group') have been established for the purpose of investing in primary healthcare properties in the United Kingdom. The Group's investment objective is to achieve rising rental income and capital growth from the ownership of a portfolio of mainly modern, purpose built, primary healthcare properties. The Group is self-managed and receives investment and property advice and management services from MedicX Adviser Ltd, a member of the MedicX Group, an independent group of companies which is a specialist developer of, investor in, and manager of primary healthcare properties.

The Group's investment policy is to acquire primary healthcare properties in the United Kingdom, some of which may have potential for enhancement, which will be sourced in the market by MedicX Adviser Ltd. Acquisitions may include properties that form part of the MedicX Group's own pipeline of development and investment opportunities. 

2. Principal accounting policies

Basis of preparation and statement of compliance

The financial statements of the Group have been prepared in conformity with International Financial Reporting Standards ('IFRS') issued by the International Accounting Standards Board ('IASB'') and as adopted by the European Union, interpretations issued by the International Financial Reporting Interpretations Committee ('IFRIC'') and applicable legal and regulatory requirements of Guernsey Law. The financial statements have been prepared on a going concern basis. The principal accounting policies are set out below.

Impact of revision to International Financial Reporting Standards

In preparing these financial statements, the Board have chosen not to adopt early any revisions to International Financial Reporting Standards.

Those standards which have been revised or introduced and that are relevant to the activities of the Group are IAS 1 Presentation of financial statements and IFRS 7 Financial Instrument: Disclosures, which replaces IAS 30 'Disclosures in the financial statements of banks and other institutions' and the disclosure requirements of IAS 32: 'Financial instruments: Presentation'. Both of these revisions deal with disclosures and presentation of financial statements and will not have an impact on the Group's equity.

The IASB and IFRIC have issued the following standards and interpretations with an effective date after the date of these financial statements:

International Accounting Standards (IAS/IFRS):		Effective date
IFRS 8	Operating Segments	1 January 2009

International Financial Reporting Interpretations Committee

IFRIC 15

Agreements for the construction of Real Estate

1 January 2009

The directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group's financial statements in the period of initial application.

Basis of consolidation

The Group financial statements consolidate the financial statements of MedicX Fund Limited and entities controlled by the Company (its subsidiary undertakings) made up to 30 September 2008. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to benefit from its activities. The results of subsidiaries acquired during the year are included in the consolidated income statement from the effective date of acquisition. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Business combinations

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values at the date of exchange of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquired company, plus any costs directly attributable to the business combination. The acquired companies' assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 'Business combinations' are recognised at their fair value at the acquisition date. The details of the companies acquired and how they have been treated are dealt with in Note 15.

Change of comparative amounts

As reported in the statutory financial statements for the period ended 30 September 2007 and shown in note 15, the Group made several significant acquisitions of property companies which included both completed investment properties, many of which had been developed several years prior to acquisition, and properties in the course of construction. Due to the specialist nature of the properties acquired and limited availability of build cost details at the time of acquisition, it was necessary, when initially accounting for the acquisitions, to make provisional estimates of the latent gains attributable to and the capital allowance capacity of the properties held by the Group's UK companies. On acquisition, the Board commissioned a detailed review by its tax advisers of the tax position of the Group's acquired companies with one of the principal objectives being to calculate the latent gain position as at the date of acquisition.

It has taken a considerable amount of time to retrieve and analyse the underlying building costs and previously submitted tax computations and, as a consequence, the review was not completed until early May 2008. The results of the detailed review indicate that the tax due on the latent gains which existed at the date of acquisition is £3,330,000 higher than previously reported. As the increase in latent gain relates entirely to conditions which existed at the date of acquisition of the UK companies, this impacts equally on the amount of deferred tax liability and goodwill recognised when accounting for the business combinations. In accordance with the International Financial Reporting Standards, the comparative figures for both goodwill and deferred tax have been restated accordingly by £3,330,000. There has been no impact on net assets, the results or the earnings per share reported in either the audited financial statements for the period ended 30 September 2007 or the interim financial statements for the six months ended 31 March 2008.

The directors have reclassified £1,350,000 of a mortgage taken out prior to acquisition by the subsidiary MedicX (Verwood) Ltd from current to non-current liabilities. The reclassification was considered appropriate because repayment of the mortgage, other than as currently disclosed, does not fall due for repayment within the next year and in the directors' opinion there is no intention to repay the mortgage in the next financial year. The reclassification resulted in no impact on net assets or the results reported in either the audited financial statements for the period ended 30 September 2007 or the interim financial statements for the six months ended 31 March 2008.

The directors have also taken the opportunity to re-present the Income Statement to better reflect the nature of the Group's income and expenditure. As a consequence comparative amounts have been re-presented, but the results reported in the previous period have not been altered.

  Segmental reporting 

The directors are of the opinion that the Group is engaged in a single segment of business, being  investment in primary healthcare properties in the United Kingdom.

Revenue recognition

Rent receivable comprises rent and service charges receivable for the year in relation to the Group's investment properties exclusive of value added tax. 

Other income includes licence fee income which is receivable on properties under construction, this being a lease charge to developers for access to the construction site. Licence fee income is recognised on an accruals basis exclusive of value added tax. 

Finance income is included in the financial statements on an accruals basis.

Expenses 

All expenses are accounted for on an accruals basis.

Employees

The Company has no employees.

Taxation

The tax liability represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year.

Deferred tax is the tax which may become payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent it is probable that taxable profits will be available against which deductible temporary differences can be utilised. 

Deferred taxation

Full provision is made for deferred tax assets and liabilities arising from all timing differences between the recognition of gains and losses in the financial statements and recognition in the tax computation.

A net deferred tax asset is recognised only if it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.

Deferred tax assets and liabilities are calculated at the tax rates expected to be effective at the time the timing differences are expected to reverse. 

Deferred tax assets and liabilities are not discounted.

Goodwill

Goodwill arising on acquisition is accounted for as the difference between the fair value of the consideration given and the fair value of the Group's share of identifiable net assets of the entity acquired. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill arising on acquisition has an indefinite useful life and is subject to annual review for any impairment. 

Investment properties

The Group's completed properties are held for long-term investment. Freehold properties are initially recognised at cost, being fair value of consideration given including transaction costs associated with the property. After initial recognition, freehold properties are measured at fair value, with unrealised gains and losses recognised in the consolidated income statement. Both the base costs and valuations take account of integral core fixtures and fittings. Fair value is based upon the valuations of the properties as provided by King Sturge LLP, an independent firm of chartered surveyors, as at the balance sheet date.

Long leasehold properties are accounted for as freehold properties and, after initial recognition at cost, are measured at fair value on the same basis as freehold properties above.

Properties under construction

Freehold properties under construction are valued at cost until such time as a certificate of practical completion has been issued from which date they are treated as investment properties as set out above. At each balance sheet date an assessment is made of whether provision is required to reflect any impairment in the value of development work in progress. Any impairment is taken to the consolidated income statement. This assessment is based on whether the costs to date plus estimated future costs to completion exceed an independent valuer's estimate of the value of the property following completion. Costs of financing development are capitalised and included in the cost of development. During the year there were no material borrowing costs on development work in progress and none were capitalised. 

Derivative financial instruments and hedging activities

The Group has no derivative financial instruments.

Cash and cash equivalents

Cash on hand and deposits in banks are carried at cost. Cash and cash equivalents are defined as cash in hand, demand deposits, and highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value. For the purposes of the Consolidated Cash Flow Statement, cash and cash equivalents consist of cash in hand and deposits in banks.

Trade and other receivables

Trade and other receivables are measured at initial recognition at their invoiced value inclusive of any value added taxes that may be applicable. Provision is made for any doubtful debts which are not deemed recoverable.

Trade and other payables

Trade and other payables are recognised and carried at their invoiced value inclusive of any value added taxes that may be applicable.

Bank loans and borrowings

All bank loans and borrowings are initially recognised at cost, being fair value of the consideration received, less issue costs where applicable. After initial recognition, all interest-bearing loans and borrowings are subsequently measured at amortised cost. Amortised cost is calculated by taking into account any discount or premium on settlement.

Finance costs

Borrowing costs are taken to the consolidated income statement in the year to which they relate on an accruals basis.

Use of estimates

In the process of applying the Group's accounting policies described above, the directors are required to make certain judgements and estimates to arrive at fair carrying value for its assets and liabilities. Significant areas requiring judgement include the fair value of the assets and liabilities of subsidiaries acquired and the assessment of the fair value of investment properties and properties under construction described above. The deferred tax provision required on latent gains is itself an estimate as it relies on the valuations and on an assessment of the nature of expenditure for taxation purposes. The valuations are performed by a firm of independent chartered surveyors applying current Appraisal and Valuation Standards of The Royal Institution of Chartered Surveyors.

3. Directors' fees

	Year ended  30 September 2008	Period ended 30 September 2007
	£'000	£'000
During the year each of the directors received the following fees:
J M S Tavares	54	25
S Mason	26	32
C Bennett	26	30
A Simpson	26	30
J Hearle	26	30
	158	147

4. Auditors' remuneration

The amount disclosed in the consolidated income statement relates to an accrual for audit fees for the year ending 30 September 2008, payable to PKF (UK) LLP.

Fees paid to PKF (UK) LLP and PKF (Guernsey) Limited include the following amounts:

	Year ended  30 September 2008	Period ended 30 September 2007
	£'000	£'000
Completing financial due diligence on the acquisition of subsidiaries and included in the cost of purchase	-	92
For acting as reporting accountants in respect of the initial listing and set off against share premium	-	50
For acting as reporting accountants in respect of the C Share issue and included in other debtors and prepayments	-	55
For acting as auditors for the non-statutory audit in respect of the C Share issue and included in other debtors and prepayments	-	47
Audit fees for the current year/period	70	98
Audit fees for the prior period	18	-
Review of the interim report	15	-
Tax compliance	33	-
Other tax services	88
Other professional services	25	26
Total audit and other fees	249	368

  5. Finance costs

	Year ended  30 September 2008	Period ended  30 September 2007
	£'000	£'000
Interest payable on long-term loan	5,077	4,246

6. Taxation

	Year ended  30 September 2008	Period ended 30 September 2007
	£'000	£'000
Current Tax
Corporate tax charge for the year	-	-
Corporate tax charge for prior periods	(6)	-
Deferred Tax
On fair value movement for the year/period	2,886	585
Total tax charged in the income statement	2,880	585

The Board have estimated that for the year under review the Group does not have any profits chargeable to tax in jurisdictions outside Guernsey.  

The Company and its Guernsey registered subsidiaries, MedicX Properties I Limited and MedicX Properties V Limited, have obtained exempt company status in Guernsey under the terms of Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 so that they are exempt from Guernsey taxation on income arising outside Guernsey and on bank interest receivable. Each Guernsey company is, therefore, only liable to a fixed fee of £600 per annum. The directors intend to conduct the Group's affairs such that these companies continue to remain eligible for the exemption. Guernsey companies are taxable on UK net rental income. During the year no tax arose in respect of the income of any of the Guernsey companies. The Company's UK subsidiaries, MedicX Properties II Ltd, MedicX Properties III Ltd, MedicX Properties IV Ltd, MedicX (Verwood) Ltd and MedicX (Istead Rise) Ltd are subject to United Kingdom corporation tax on their profits less losses.

  A reconciliation of the current tax charge/credit to the notional tax charge/credit applying the Schedule A income tax rate of 22% (2007: 22%) is set out below: 

	Year ended  30 September 2008	Period ended 30 September 2007
	£'000	£'000
(Loss)/profit before tax	(18,714)	1,099
UK income tax at 22%	(4,117)	242
Net revaluation losses/(gains) not taxable	4,368	(221)
Income not taxable	(297)	(200)
Losses arising not relievable against current tax	46	179
Under provision in prior year	(6)	-
Current taxation	(6)	-

The calculation of the Group's tax charge necessarily involves a degree of estimation in respect of certain items whose tax treatment cannot be finally determined until a formal resolution has been reached with the relevant tax authorities.

Deferred tax liability/(asset) in respect of:
	Fair value gain on acquisition	Fair value gains post acquisition	Accelerated capital allowances	Unrelieved management expenses	Total
	£'000	£'000	£'000	£'000	£'000
On acquisition	8,904	-	379	(186)	9,097
Released/provided  in period	-	585	-	-	585
At 30 September 2007 (as restated)	8,904	585	379	(186)	9,682
Released/provided  in year	(1,961)	(585)	949	(1,289)	(2,886)
At 30 September 2008	6,943	-	1,328	(1,475)	6,796

As required by IAS 12 'Income taxes', full provision has been made for the temporary timing differences arising on the fair value gain of investment properties held by UK resident companies that have passed through the Group's consolidated income statement. In the opinion of the directors, this provision is only required to ensure compliance with IAS 12. It is the directors' view that the deferred tax attributable to the fair value gain on the Group's investment property portfolio is unlikely to crystallise as, in common with practice in the sector, the Group would sell the company that holds the property portfolio rather than sell an individual property. Had the provision not been previously made, the Group's earnings for the year would be £2,546,000 lower (2007: £585,000 higher)

7. Earnings and net asset value per ordinary share

The basic and diluted earnings per ordinary share are based on the loss for the year attributable to ordinary shares of £15,834,000 (2007: £539,000) and on 75,249,829 (period from incorporation on 25 August 2006 to 30 September 2007: 47,431,316) ordinary shares being the weighted average aggregate of ordinary shares in issue calculated over the year. This gives rise to a basic and diluted earnings per share of (21.0) pence (2007: 1.1 pence) per share.  

The basic and diluted earnings per C share for the prior period were based on the loss for the period attributable to C shareholders of £24,000 and on 22,160,500 shares being the weighted average aggregate of C shares in issue calculated over the period from issue on 4 June 2007 to the 30 September 2007. This gave rise to a basic and diluted loss of (0.1) pence per share. 

The basic and diluted net asset value per ordinary share are based on the net asset position at the balance sheet date attributable to ordinary shares of £56,888,000 (2007: £55,338,000) and on 79,621,215 (2007: 57,460,715) ordinary shares being the aggregate of ordinary shares in issue at the balance sheet date. This gives rise to a basic and diluted net asset value per share of 71.4 pence per share (2007: 96.3 pence per share).

The basic and diluted net asset value per C share are based on the net asset position at the balance sheet date attributable to the C shares of £nil (2007: £21,445,000) and on nil (2007: 22,160,500) shares being the aggregate of C shares in issue at the balance sheet date. This gives a basic and diluted net asset value per share of nil pence per share (2007: 96.8 pence per share).

Adjusted earnings per share and net asset value per share

The directors believe that the following adjusted earnings per share and net asset value per share are more meaningful key performance indicators for the Group.

	2008	2007
Adjusted basic and diluted earnings per ordinary share	(22.3)p	1.9p
Adjusted net asset value per ordinary share - basic and diluted	70.3p	97.0p
Adjusted basic and diluted earnings per C share	n/a	(0.0)p
Adjusted net asset value per C share - basic and diluted	n/a	96.9p

The adjusted earnings per ordinary share is based on the loss for the period of £15,834,000 (2007: profit of £539,000) attributable to ordinary shares, adjusted for the impact of the deferred tax credit and goodwill impairment attributable to ordinary shares for the period of £2,886,000 (2007: charge £563,000) and £1,961,000 (2007: £nil), respectively, giving an adjusted earnings figure of £16,759,000 (2007: profit of £1,102,000) and on 75,249,829 (period from incorporation on 2 November 2006 to 30 September 2007: 57,289,028) ordinary shares being the weighted average number of ordinary shares in issue in the year.  

The adjusted net asset value per ordinary share is based on the net asset position attributable to ordinary shares at the balance sheet date of £56,888,000 (2007: £55,338,000) as adjusted for deferred tax of £6,796,000 (2007: £9,439,000) and goodwill of £7,698,000 (2007: £9,062,000), giving an adjusted net assets figure of £55,986,000 (2007: £55,715,000) and on 79,621,215 (2007: 57,460,715) ordinary shares, being the aggregate of ordinary shares in issue at the balance sheet date. 

The adjusted earnings per C share for the prior period to 30 September 2007 is based on the loss for the period attributable to C shares of £24,000 adjusted for the impact of deferred tax charge attributable to C shares for the period of £22,000 giving an adjusted loss figure of £2,000 and on 22,160,500 C shares, being the weighted average number of C shares in issue in the period from issue to the balance sheet date.

The adjusted net asset value per C share is based on the net asset position at the balance sheet date attributable to the C shares of £nil (2007: £21,445,000) as adjusted for deferred tax of £nil (2007: £243,000) and goodwill of £nil (2007: £221,000), giving an adjusted net assets figure of £nil (2007: £21,467,000) and on nil (2007: 22,160,500) shares being the aggregate of C shares in issue at the balance sheet date. 

In common with practice in the sector, the Group would sell the UK company or companies that hold the properties rather than sell an individual property. Consequently, it is the directors' view that the liability represented by the deferred tax provision is unlikely to crystallise.   

8. Goodwill 

		30 September 2008	As restated 30 September 2007
		£'000	£'000
Brought forward		9,283	-
Recognised on acquisitions of subsidiaries		376	9,283
Impairment recognised in year		(1,961)	-
Carried forward		7,698	9,283

The goodwill arose on the prior period acquisition of MedicX Properties III Ltd, MedicX Properties IV Ltd and MedicX (Istead Rise) Ltd and was due to the recognition of deferred tax on fair value gains on acquisition. Due to the specialist nature of the properties acquired and limited availability of build cost details at the time of acquisition, it was necessary, when initially accounting for the acquisitions, to make provisional estimates for deferred taxation within these companies.

Goodwill for the period ended 30 September 2007 was restated following a detailed review of the latent gains within the subsidiaries. The results of the detailed review indicate that the tax due on the latent gains which existed at the date of acquisition is £3,330,000 higher than previously reported. As the increase in latent gain relates entirely to conditions which existed at the date of acquisition of the UK companies, this impacts equally on the amount of deferred tax liability and goodwill recognised when accounting for the business combinations. In accordance with the International Financial Reporting Standards, the comparative figures for both goodwill and deferred tax have been restated accordingly by £3,330,000.

Additional consideration of £218,000 was paid during the year in respect of MedicX Properties IV Ltd and an adjustment of £158,000 on MedicX Properties IV Ltd was also made.

The Board have reviewed the carrying value of goodwill and consider it to be impaired to the extent of the movement in the deferred tax liability relating to fair value gains on acquisition, refer to Note 6.

  9. Investment properties 

Investment properties are initially recognised at cost, being fair value of consideration given including transaction costs associated with the property. After initial recognition, investment properties are measured at fair value, which has been determined based on valuations performed by King Sturge LLP as at 30 September 2008. In accordance with industry standards, the valuation is net of purchaser costs which are approximately 5.75% of purchase price.

	Completed investment properties	Properties under construction	Total
	£'000	£'000	£'000
Acquisitions at cost/fair value	94,414	35,959	130,373
Transfer to completed properties	15,850	(15,850)	-
Fair value revaluation	2,061	-	2,061
Impairment	-	(540)	(540)
Fair value/cost 30 September 2007	112,325	19,569	131,894
Additions	45	26,537	26,582
Adjustment to base cost	(413)	-	(413)
Disposals at valuation	(1,337)	(2,196)	(3,533)
Transfer to completed properties	31,481	(31,481)	-
Fair value revaluation	(15,164)	-	(15,164)
Impairment	-	(2,209)	(2,209)
Fair value/cost 30 September 2008	126,937	10,220	137,157

The investment properties are security for the long-term loan as disclosed in note 12.

Of the completed investment properties £26,650,000 (2007: £27,275,000) are long-leasehold properties.

10. Trade and other receivables

	Year ended  30 September 2008	Period ended 30 September 2007
	£'000	£'000
Rent receivable	2,038	535
Other debtors and prepayments	1,010	1,403
VAT recoverable	-	1,045
	3,048	2,983

Included in other debtors and prepayments is £50,000 (2007: £50,000) due from MedicX Adviser Limited, a related party of the Group as the Group's Investment Adviser.

  11. Trade and other payables

	Year ended  30 September 2008	Period ended 30 September 2007
	£'000	£'000
Mortgage	44	37
Trade creditors	1,282	978
Deferred rental income	1,695	1,402
Interest payable and similar charges	1,053	1,057
Accruals	1,965	1,166
Social security and other taxes	197	-
Other creditors	998	714
	7,234	5,354

The mortgage is secured on one investment property and has a remaining term of 11 years.  

12. Long-term loan

	Year ended  30 September 2008	Period ended 30 September 2007
	£'000	£'000
£100 million loan facility:
Amount drawn down	100,000	100,000
Loan issue costs	(245)	(185)
Amortisation of loan issue costs	4	1
	99,759	99,816
Mortgage due after one year	1,287	1,350
	101,046	101,166

Included in the above are amounts falling due as follows:

		Year ended  30 September 2008	Period ended 30 September 2007
		£'000	£'000
Due within one year		44	37
Between one and two years		47	34
Between two and five years		160	116
Over five years		100,839	101,016
		101,090	101,203

  Creditors include amounts not wholly repayable within five years as follows:

		Year ended  30 September 2008	Period ended 30 September 2007
		£'000	£'000
Repayable by instalments		100,839	101,016

In the prior year, previous loan facilities taken out by MedicX Properties I Limited were refinanced and replaced by loans to MedicX Properties I Limited; £30,000,000, MedicX Properties II Ltd; £33,000,000, MedicX Properties III Ltd; £9,000,000 and MedicX Properties IV Ltd; £28,000,000 with The General Practice Finance Corporation Limited ('GPFC') at a fixed rate of 5.008% on an interest only basis which was fully drawn down on 1 December 2006, with the cash held on deposit to meet future investment requirements. This loan is due for repayment in its entirety on 1 December 2036. GPFC is now trading as Norwich Union Commercial Finance.

Under the terms of the loans, further charges are incurred when amounts are taken off deposit and utilised for investment purposes. The charges for these withdrawals depends on the quantum of the withdrawal and will be recognised as and when withdrawals are made, and are added to the loan issue costs.

The value of the loan on an amortised cost basis at 30 September 2008 was £99,759,000 (2007: £99,816,000).

The Group does not mark to market its £100 million fixed interest debt in its financial statements. A mark to market calculation gives an indication of the benefit or cost to the Group of the fixed rate debt given the prevailing cost of debt over the remaining life of the debt. An approximate mark to market calculation has been undertaken following advice from the Group's bankers, with reference to the fixed interest rate on the £100 million debt, and the fixed interest rate, including margin, achievable on the last business day of the financial year. The debt benefit is calculated as the difference between the present values of the debt cash flows at the two rates over the remaining term of the loan, discounting the cash flows at the prevailing LIBOR rate. The approximate mark to market benefit to the Group is £16,335,000 (2007: £11,605,000). 

The Group's bank borrowings are subject to the following financial covenants:

(i) long-term rental income from the properties charged must cover 140% of projected finance costs;

(ii) monies released from deposit must not exceed 65% of the property value charged; and

(iii) the net loan amount must not exceed 75% of the market value of mortgaged property (to be first tested 30 April 2009).

The Group has been in compliance with the financial covenants throughout the year since issue. At 30 September 2008, the debt service coverage ratio was 194% against a covenant of 140%. 

The loan is secured on the Group's investment properties. As at 30 September 2008 the Group had £12.4 million (2007: £33.8 million) on deposit secured against the loan.

The mortgage was taken out by the subsidiary MedicX (Verwood) Limited and is secured on that company's investment property. Interest on the mortgage is charged at 6.25%. 

  13. Share capital

2008	Number of shares	Share Capital £'000
Authorised
Ordinary shares of no par value	Unlimited
Issued and fully paid
Ordinary shares of no par value	79,621,215	-
C shares of no par value	-	-

2007	Number of shares	Share Capital £'000
Authorised
Ordinary shares of no par value	Unlimited	-
Issued and fully paid
Ordinary shares of no par value	57,460,715	-
C shares of no par value	22,160,500	-

The Company issued 2 ordinary shares for £1 each on incorporation on 25 August 2006 and a further 55,960,713 ordinary shares for £1 each on 2 November 2006 pursuant to an offering and listing on the London Stock Exchange. A further 1,500,000 shares were issued on 26 February 2007 for a fair value of £1,588,750 in connection with the purchase of subsidiaries.

On 4 June 2007 22,160,500 C shares were issued for £1 each.

The C shares were converted into ordinary shares on 12 December 2007, at a conversion ratio of 1.0000:1, in accordance with the terms set out in the Placing and Offer Document of May 2007. They did not carry the right to attend or vote at any general meeting of the Company except in respect of certain specific circumstances as set out in the C share Placing and Offer document. On conversion the shares had the same rights as ordinary shares.

Share premium	Year ended  30 September 2008	Period ended 30 September 2007
	£'000	£'000
At 1 October 2007/25 August 2006	1,585	-
Proceeds arising on issue of ordinary shares on 2 November 2006	-	55,961
Proceeds arising on issue of ordinary shares on 26 February 2007	-	1,589
Proceeds arising on issue of C shares on 4 June 2007	-	22,160
Allocation of issue costs	-	(2,005)
Transfer to distributable reserve (note 15)	-	(76,120)
Share premium at 30 September	1,585	1,585

  14. Distributable reserve

In the prior period, the Company applied to the Royal Court in Guernsey on 8 November 2006 to transfer its entire share premium account on that date (£54,651,000) to a distributable reserve and this was approved on 10 November 2006. On 20 July 2007 the company applied to the Royal Court of Guernsey to transfer the amount standing to the credit of the share premium account attributable to the C shares (£21,469,000) to a distributable reserve. Approval was granted on 3 August 2007. The distributable reserve is freely distributable with no restrictions having been applied by the Court. 

15. Acquisition of subsidiaries (as restated)

	MedicX Properties II Ltd		MedicX Properties III Ltd		MedicX Properties IV Ltd		MedicX (Istead Rise) Ltd		Total
	Book value	Fair value	Book value	Fair value	Book value	Fair value	Book value	Fair value	Book value	Fair value
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Net assets acquired
Investment properties Properties under construction	32,936 7,653	32,936 7,653	9,412 -	12,405 -	16,760 4,989	26,937 10,790	1,385 -	2,100 -	60,493 12,642	74,378 18,443
Trade and other receivables	20	20	245	245	867	596	55	55	1,187	916
Cash and cash equivalents	1,196	1,196	87	87	1,797	1,797	-	-	3,080	3,080
Trade and other payables	(814)	(814)	(209)	(209)	(398)	(398)	(43)	(43)	(1,464)	(1,464)
Current tax liabilities	368	368	(59)	(59)	203	203	-	-	512	512
Bank loans and other loans	(41,359)	(41,359)	(7,559)	(7,559)	(28,880)	(28,880)	(1,410)	(1,410)	(79,208)	(79,208)
Deferred tax liabilities	-	(3,302)	(32)	(1,154)	(160)	(4,419)	-	(221)	(192)	(9,096)
	-	(3,302)	1,885	3,756	(4,822)	6,626	(13)	481	(2,950)	7,561
Goodwill		3,302		1,167		4,969		221		9,659
Total consideration		-		4,923		11,595		702		17,220
Satisfied by:
Cash		-		3,515		10,051		702		14,268
Directly attributable costs		-		363		1,000		-		1,363
Issue of shares		-		1,045		544		-		1,589
		-		4,923		11,595		702		17,220
Number of shares issued		-		1,000		500		-		1,500
Net cash outflow arising on acquisition
Cash consideration		-		(3,515)		(10,051)		(702)		(14,268)
Cash and cash equivalents acquired		1,196		87		1,797		-		3,080
		1,196		(3,428)		(8,254)		(702)		(11,188)

Other than additional consideration of £218,000 paid in respect of MedicX Properties IV Ltd and an adjustment in respect of completion accounts of £158,000 on MedicX Properties IV Ltd, all of the acquisitions took place in the comparative period.

  16 Cash flow notes

	Year ended  30 September 2008	Period ended 30 September 2007
	£'000	£'000
Acquisition of subsidiaries
Cash		3,080
Trade and other receivables		1,074
Goodwill	376	9,283
Investment properties	-	74,378
Properties in the course of construction	-	18,443
Trade and other payables	-	(10,048)
Long-term debt	-	(79,208)
Total purchase price	376	17,002
Less:
Shares issued as part of consideration	-	(1,589)
Cash acquired	-	(3,080)
Acquisition costs accrued not yet paid	-	(352)
Net cost of acquisition	376	11,981

	Year ended  30 September 2008	Period ended 30 September 2007
	£'000	£'000
Cash in hand and balances with banks	24,061	48,825

Cash and cash equivalents comprise cash held by the Group and short term bank deposits with an original maturity of three months or less. The carrying amount of these assets approximates their fair value.

17 Dividends

	Year ended  30 September 2008	Period ended 30 September 2007
	£'000	£'000
Dividend paid during the year	1,991	-
Dividend per share	2.5p	-
Interim dividend paid during the year	2,070	1,436
Interim dividend per share	2.6p	2.5p

The directors have approved a further dividend for the year ended 30 September 2008 of 2.6 pence per ordinary share, which equates to £2,070,000.

 18. Financial instruments risk management

The Group's operations expose it to a number of financial instrument risks. A risk management programme has been established to protect the Group against the potential adverse effects of these financial instrument risks. There has been no significant change in these financial instrument risks since the prior year.

The financial instruments of the Group at both 30 September 2008 and 30 September 2007 comprised trade receivables, other debtors and prepayments, cash and cash equivalents, non-current borrowings and current borrowings. It is the directors' opinion that the carrying value of all financial instruments on the balance sheet is equal to their fair value.

Credit risk

The Group invests some of its surplus funds in high quality liquid market instruments. Such investments have a maturity of no greater than six months. To reduce the risk of counterparty default the Group deposits the remainder of its surplus funds in AA rated banks.

Concentrations of credit risk with respect to customers are limited due to the Group's revenue being largely payable from government derived sources. As at the year end 91% of rental income was derived from NHS tenants, who are spread across several Primary Care Trusts to further reduce credit risk from this area. The default risk is considered low due to the nature of Primary Care Trusts funding for GP practices.

The Group's maximum exposure to credit risk on financial instruments is as follows:

	Year ended  30 September 2008	Period ended 30 September 2007
	£'000	£'000
Financial assets
Trade receivables	2,038	535
Other current assets	1,010	2,448
Cash and cash equivalents	24,061	48,825

It is the Group's policy to assess debtors for recoverability on an individual basis and to make provision where it is considered necessary. Of the Group's trade receivables balance £1.6 million (2007: £nil) is neither impaired nor past due. £0.4 million (2007: £0.5 million) is past due and of this £0.2 million (2007: £0.2 million) is more than 120 days past due. The Board takes active steps to recover all amounts and does not consider any debts to be impaired. 

Market risk

Market risk is the risk that the fair value or future cash flows of our financial instruments will fluctuate because of changes in market prices. The Group is exposed to the following market risks: interest rate risk; and equity price risk. The Group operates solely within the United Kingdom; therefore the directors do not feel the Group is exposed to foreign currency risk.

  Interest rate risk

Interest rate risk is the risk that the value of a financial instrument or cash flows associated with the instrument will fluctuate due to changes in market interest rates. Interest rate risk arises on interest bearing financial assets and liabilities the Group uses, these comprise long-term borrowings.

The Group's borrowing facilities of £99,759,000 were negotiated at a fixed rate of interest of 5.0008%, these facilities represent 99% of the borrowing facilities at year end. The directors consider interest rate risk to be negligible and do not consider it appropriate to perform sensitivity analysis on these items.

Liquidity risk

Liquidity risk is the risk that the Group will encounter in realising assets or otherwise raising funds to meet financial commitments. Investments in property are relatively illiquid however the Group has tried to mitigate this risk by investing in desirable properties which are let to General Practitioners and Primary Care Trusts. Furthermore the directors also review cash flow forecasts on a regular basis to determine whether the Group has sufficient cash reserves to meet future working capital requirements.

Contractual maturity analysis for financial liabilities at 30 September:

	Due or due less than one month	Due between 1 to 3 months	Due between 3 months to 1 year	Due between 1 to 5 years	Due after 5 years	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Trade and other payables	362	616	-	-	-	978
Non-current borrowings	-	-	-	150	101,016	101,166
Current portion of non-current borrowings	37	-	-	-	-	37
Balances at 30 September 2007	399	616	-	150	101,016	102,181
Trade and other payables	1,130	152	-	-	-	1,282
Non-current borrowings	-	-	-	207	100,839	101,046
Current portion of non-current borrowings	44	-	-	-	-	44
Balances at 30 September 2008	1,174	152	-	207	100,839	102,372

19. Commitments

At 30 September 2008 the Group had commitments of £12.4 million (2007: £9.4 million) to complete properties under construction.

20. Material contracts and related party transactions

Investment Adviser

MedicX Adviser Ltd is appointed to provide property advice under the terms of an agreement dated 17 October 2006 and amended on 2 May 2007 and 10 January 2008. Fees payable under this agreement are (i) 1.5% per annum on gross assets excluding cash by way of property advisory fee; (ii) a property management fee of 3% of gross rental income; (iii) a corporate transaction fee of 1% of the gross asset value of any property owning subsidiary company acquired; and (iv) a performance fee of 15% of the amount by which the return to shareholders in terms of share price growth plus cumulative dividends paid exceeds the initial offer price compounded annually by 10% in each accounting period.  

During the year MedicX Adviser Ltd also received £nil (2007: £24,000) for providing administrative services to MedicX Properties II Ltd, MedicX Properties III Ltd and MedicX Properties IV Ltd.

During the year, the agreements with MedicX Adviser gave rise to £2,480,000 (2007: £2,693,000) of fees, of which £nil (2007: £600,000) remained outstanding at the end of the year, as follows:

	Year ended  30 September 2008	Period ended 30 September 2007
	£'000	£'000
Expensed to the consolidated income statement:
Property advisory fee	2,269	1,996
Property management fees	211	137
Administrative fees	-	24
Added to cost of acquisition of properties:
Corporate fees for purchase of subsidiaries	-	536
Total Fees	2,480	2,693

Administration agreements

From 1 April 2007, each Group company entered into a separate administration agreement with International Administration (Guernsey) Limited for the provision of administrative services for fees totalling £58,000 for the provision of corporate secretarial services to all Group companies plus fees at time spent rates for other administrative services.

In the prior period, International Administration (Guernsey) Limited, the Company's administrator and company secretary, was entitled during the period to receive a fee of £55,000 per annum for carrying out administrative services for the Company under the terms of an agreement dated 17 October 2006; a further £25,000 per annum under an agreement of the same date for the provision of administrative services to MedicX Properties I Limited, and £15,000 per annum under an agreement dated 12 March 2007 with MedicX Fund Limited.  Alison Simpson is a director of the administrator.

  A further fee of £10,000 arose in respect of work performed by the administrator in connection with the C share issue. This has been deducted from share premium.

During the year, the agreements with International Administration (Guernsey) Limited gave rise to the following fees, of which £6,000 (2007: £nil) remained outstanding at the year end:

	Year ended  30 September 2008	Period ended 30 September 2007
	£'000	£'000
Administrative fees	340	207

Other transactions

During the year fees of £26,000 (2007: £2,000) were paid to Aitchison Raffety Limited. John Hearle is Group Chairman of Aitchison Raffety Limited.

During the year property development costs of £10,688,000 were paid to Primary Asset Limited, a member of the same group of companies as MedicX Adviser Limited. At the year end £342,000 was outstanding for these amounts.

21. Post balance sheets events

Since 30 September 2008 there have been no post balance sheet events.

22. Subsidiary companies

The following were the subsidiary companies in the Group at 30 September 2008:

Name	Country of incorporation	Principal activity	Ownership percentage	Nominal value of shares in issue	Type of share held
MedicX Properties I Ltd	Guernsey	Acquisition of properties	100%	2	Ordinary
MedicX Properties II Ltd	England & Wales	Acquisition of properties	100%	2	Ordinary
MedicX Properties III Ltd	England & Wales	Acquisition of properties	100%	1,000	Ordinary
MedicX Properties IV Ltd	England & Wales	Acquisition of properties	100%	25,000	Ordinary
MedicX Properties V Ltd	Guernsey	Acquisition of properties	100%	2	Ordinary
MedicX (Verwood) Ltd*	England & Wales	Acquisition of properties	100%	1,000	Ordinary
MedicX (Istead Rise) Ltd*	England & Wales	Acquisition of properties	100%	1,000	Ordinary

*Held indirectly

23. Operating leases

At 30 September 2008 the Group had entered into leases in respect of investment properties for the following rental income:

	Year ended  30 September 2008	Period ended 30 September 2007
	£'000	£'000
Amounts receivable under leases
Within one year	8,125	6,114
Between one and five years	32,466	24,441
After more than five years	121,552	86,525
Total	162,143	117,080

24. Capital management

The Group's objectives when managing capital are:

• To safeguard the Group's ability to continue as a going concern, so that it can continue as a going concern and continue to provide returns for shareholders and benefits for other stakeholders; and

• To provide an adequate return to shareholders by pricing services and setting rents commensurately with the level of risk.

The Group sets the amount of capital in proportion to risk. The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

The Group monitors capital on the basis of the adjusted gearing ratio. This is calculated as net debt divided by adjusted capital. Net debt is calculated as total debt, per the balance sheet, less cash and cash equivalents. Adjusted capital comprises all equity components less cash and cash equivalents and goodwill.

  The adjusted gearing ratios at 30 September 2007 and 30 September 2008 were as follows:

	Year ended  30 September 2008	Period ended 30 September 2007
	£'000	£'000
Total debt	101,090	101,203
Less: cash and cash equivalents	(24,061)	(48,825)
Net debt	77,029	52,378
Total assets	171,964	192,985
Less: cash and cash equivalents	(24,061)	(48,825)
Less: goodwill	(7,698)	(9,283)
Adjusted capital	140,205	134,877
Adjusted gearing ratio	0.55:1	0.39:1

The increase in debt to adjusted capital during the financial year resulted primarily from the reduction in net assets due to the revaluation losses recognised through the income statement in

 

END

 

 

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