RNS Number:3913J
Development Securities PLC
31 March 2003
DEVELOPMENT SECURITIES PLC - PRELIMINARY RESULTS
Profit before tax of #10.0 million
Net assets per share of 423p meets expectations
Earnings per share up 12% to 26.9 pence
Special Dividend of 28.5 pence per share
Development Securities PLC today announced an increase in earnings per share of
12% to 26.9p for the year ended 31 December 2002 (2001: 24.0p). Profit before
tax was consistent with the prior year at #10.0 million (2001: #10.2 million)
and in line with Company expectations.
The Ordinary Dividend increased for the seventh successive year to 5.0p per
share (2001: 4.5p). Together with the Special Dividend of 28.5p per share, the
total distribution for the year is 33.5p per share.
* Financial Highlights
31 Dec 2002 31 Dec 2001
* Profit before tax #10.0 million #10.2 million
* Earnings per share 26.9p 24.0p
* Shareholders' funds #121.5 million #119.3 million
* Net assets per share 423p 423p
* Ordinary dividend 5.0p 4.5p
* Net gearing Nil 24%
* PaddingtonCentral - All Phase One office space fully pre-let prior to
completion at the end of 2002 at rents higher than initially anticipated.
Planning consent for the initial 400,000 sq ft office building for Phase
Two is expected soon.
* Royals Business Park - Completed agreement with Standard Life Investments
and London Development Agency to develop Phase One of the 50-acre Business
Park in London's Docklands. Construction commenced in late 2002.
* 333 Oxford Street - Achieved practical completion in January 2003 on the
78,000 sq ft prime office and retail development. The 45% retail element
was pre-let to Zara UK Limited.
* Investment property portfolio - Total investment return of 12.8% compared
to 9.5% for the market, an out-performance of 35%.
Development Portfolio
The Company's development activities focused mainly on the office market in
London and the South East of England. Current projects under management
comprise approximately one million sq ft, with an ultimate market value of in
excess of #0.5 billion. There is close to an additional three million sq ft in
the pipeline for future development.
Development Securities is able to focus its efforts on large and complex
developments in which it has recognised expertise through forward-funding with
leading financial institutions.
Forward-funding is also consistent with an emphasis on reducing risk that is at
the heart of the Company's management philosophy and which helps to minimise
Development Securities' exposure during a period of weakening tenant demand.
PaddingtonCentral
Construction of the Phase One 330,000 sq ft office element achieved completion
at the end of 2002, with all space having been pre-let to Visa International
Service Association, The Prudential Assurance Company Limited, Kingfisher plc
and WJB Chiltern plc. Of the 110,000 sq ft retail and leisure space, agreements
to lease were signed with Cannons Group Limited and J Sainsbury Supermarkets
Limited. Detailed planning consent is expected shortly in respect of the
initial 400,000 sq ft office building for Phase Two.
The Royals Business Park
In August 2002, Development Securities completed an agreement with joint
development partners Standard Life Investments and London Development Agency for
the development of the 237,000 sq ft first office phase. Construction has
commenced and completion is planned for mid-2004. This phase marks the start of
a #500 million, 50-acre regeneration project.
333 Oxford Street
In January 2003, this prime development, located at the junction of Oxford
Street and New Bond Street, achieved practical completion. In May 2002, the
retail element was leased to Zara UK Limited, which began trading in October.
The 43,000 sq ft office accommodation is currently being marketed.
Cambourne Business Park
Despite the difficulties facing the out of London business park market,
Cambourne Business Park attracted the two largest deals in the Cambridge area.
In January 2002, Campbell Grocery Products signed an agreement to lease 19,000
sq ft of office space and in October Development Securities signed an agreement
with South Cambridgeshire District Council for its new Headquarters building and
civic centre, for which completion is expected in the second quarter of 2004.
Also in October, Cambourne Business Park launched a new Research and Development
phase, potentially providing 320,000 sq ft of high quality office and laboratory
accommodation.
Broughton Park
Following the success of the 298,000 sq ft Shopping Centre, demand by retailers
for additional accommodation has resulted in Development Securities and
development partner Pillar Property PLC submitting an outline planning
application for a 126,500 sq ft extension as well as a 350,000 sq ft business
park.
Investment Portfolio
2002 saw the completion of the recent programme to restructure the investment
portfolio, such that the Company now possesses a core investment portfolio
capable of providing above-average performance over the medium-term. As in the
prior year the Development Securities portfolio comfortably out-performed the
market. The total investment return on the investment portfolio was 12.8%,
comprising an income return of 7.7% and capital growth of 5.1%, including a
revaluation surplus of #2.9 million. This compares to a market return, as
measured by Investment Property Databank Limited, of 9.5%.
Development Securities now has 10% less office and London exposure than last
year and 50% fewer assets in number. These strategic adjustments to the
portfolio should serve to enhance performance over the coming year. The Company
has no investment property exposure in the City of London and only 13%, by
value, in the West End.
Hugh Jenkins CBE, Chairman of Development Securities PLC, commented:
"This is a strong set of results and in line with City expectations. These
results, combined with the Company's sound financial position, have enabled us
to recommend both a significant increase in the Ordinary Dividend as well as the
recently announced Special Dividend.
"Our forward-funding strategy, a key part of our successful Business Model, has
stood us in good stead to withstand the economic downturn and the current
volatility leaves our balance sheet unscathed.
"The economic outlook remains uncertain and we do not foresee an early recovery
in the main UK markets in which we operate. Our view continues to be one of
prudence, further illustrated by the reduction in net gearing to nil. Despite
the prevailing economic environment, we remain hopeful of maintaining good
performance and improving our profile and financial strength. Our pipeline of
projects provides us with a strong platform for the future."
Enquiries:
Michael Marx/Julian Barwick
Development Securities PLC Tel: 020 7828 4777
Daniel de Belder/Michael Holmes
The Communication Group plc Tel: 020 7630 1411
Or visit www.developmentsecurities.com
CHAIRMAN'S STATEMENT 2002
It is with satisfaction that I am again able to report strong financial results
for your Company, in line with our expectations. Profit before tax for the year
was #10.0 million, compared to #10.2 million in the previous year. Earnings per
share increased by 12 per cent to 26.9 pence per share.
In view of these results and the Company's sound financial position, the Board
has resolved to recommend the payment of a final ordinary dividend of 3.35 pence
per share payable on 3rd July 2003 to shareholders on the register on 6th June
2003. This brings the total ordinary distribution for the year to 5.0 pence per
share, an advance of 11.1 per cent over the previous year. Together with the
special dividend of 28.5 pence per share, which we announced on 19th February
2003, the total distribution for the year is 33.5 pence per share.
Shareholders' funds, prior to the special dividend, continued to advance for a
seventh consecutive year, reaching #129.5 million, equivalent to 451 pence per
share; this compares with #119.3 million and 423 pence per share 12 months
earlier. After taking into account both the special dividend and the
recommended final ordinary dividend in respect of 2002, shareholders' funds at
31st December 2002 stood at #121.5 million, equivalent to 423 pence per share.
The special dividend is the second we have declared, following the payment of
5.0 pence per share by your Company in 2001. These payments are consistent with
our policy of recycling an element of our development gains to shareholders as
long as such distribution remains consistent with prudent financial management.
We see no reason to change this policy, although shareholders will recognise
that future special distributions must await development successes. In addition
to the latest special dividend, which represents a distribution to shareholders
of #8.0 million, or six per cent of the Company's net assets, we also utilised
#2.0 million in January 2003 to buy back, for cancellation, 640,000 of our
ordinary shares at an average price of 314.7 pence per share. This has the
effect of raising our balance sheet efficiency and increasing the net asset
value per share by 2.8 pence.
Strategy
Our performance in 2002 in both of the key sectors in which we operate, property
development in London and the South East of England and property investment
portfolio management, is likely to exceed the industry norms. Future development
phases of the substantial projects with which we are involved, for which each
current phase is wholly or substantially forward-funded, offer some prospect of
either escaping the more severe effects of the current economic slowdown, or are
well positioned to capitalise on the next cyclical upswing. The majority of our
pipeline of significant projects involves some degree of urban regeneration and
that, we believe, offers a pointer for the future of development businesses such
as ours. The two out-of-town exceptions are the greenfield development at
Cambourne, near Cambridge, and the proposed second phase at Broughton Shopping
Centre, near Chester. It is the responsibility of local and central Government
to ensure that adequate infrastructure improvements are in place in our major
cities to enable the efforts of private enterprise to secure the upgrading and
regeneration of the urban environment in which the majority of our population
live and work.
In 2002, as with the previous year, our property investment portfolio achieved
superior results; we delivered a 12.8 per cent total return, which compares
favourably with an average of 9.5 per cent for the market. Important
contributions to this consistent performance came from realised gains on
property sold during the year and from revaluation surpluses arising on those
properties held within the portfolio at the year-end. These were in addition to
the rental income generated from the portfolio, which makes a significant
contribution to meeting the cost of our annual, net operational expenses and net
debt service costs each year.
Our confidence in the prospects for the global economy has weakened further
since I reported to you 12 months ago. The outlook for the US economy, the
engine of world growth through many cycles, remains uncertain with little
tangible prospect of a sustainable upturn in 2003. The economies of mainland
Europe are similarly anaemic. Business confidence, the key driver of the next
cyclical upswing, remains absent in most of the important world markets with the
strength of consumer demand a likely insecure cornerstone of the weak economic
outlook. We do not foresee an early recovery in the main UK markets in which we
operate. For some time, our posture against the likelihood of such an economic
environment has been to reduce the level of net debt to which we are exposed.
Shareholders will be pleased to note that your Company had no net debt at 31st
December 2002. Gearing is one of the main levers of our business model and is
available to management to regulate the Company's exposure to risk. Our view
continues to be one of prudence.
Board composition
In August 2002, we appointed Victoria Mitchell and Michael Soames to the Board
of your Company as Non-executive Directors, also serving on the Audit and
Remuneration Committees of the Board. Victoria and Michael have extensive
experience and expertise, as well as current involvement, in the property
industry, and they are already making a valuable contribution to the continuing
success of your Company.
At the end of the year, in line with original expectations, Martin Landau stood
down from the Board as a Non-executive Director after nearly ten years of
service both in that capacity and, prior thereto, as Executive Deputy Chairman.
Martin, the original proponent of risk-averse large-scale development that is
now so embedded in our culture, will be missed. We wish him well in his other
continuing activities.
Conclusion
This is my last annual statement as your Chairman, as I am retiring from the
Board at the end of 2003. I believe that your Board has a right to be proud of
what has been achieved in recent years and, after four years of service on your
behalf, I feel it is now time for me to hand over the Chair. The Nominations
Committee is currently giving consideration to the appointment of a successor.
We remain hopeful of maintaining good performance, although given the prevailing
economic environment it is not surprising that the prospects for your Company in
the current year are perhaps less certain than those at the commencement of
previous years. Nevertheless, I am confident that our profile, financial
strength and pipeline of projects could hardly be a stronger platform from which
to approach the challenging years ahead.
It remains for me to thank all our Directors, management and staff for their
valued contributions to our endeavours. The professionalism of our team has
been the undoubted key feature of our success over many years.
H R Jenkins CBE
Chairman
31st March 2003
Review of operations
The market trend is clear. 2002 began in a much subdued atmosphere compared to
the bullish tone of early 2001. The continued slow down of economic activity in
the US throughout 2002 fed into the European economies in a way that has marked
previous world wide recessionary trends.
Economic overview
Weakening business confidence in the UK became more apparent as the year
unfolded; the economy outperformed its major, global rivals in 2001 and looks
set to have done so again in the year under review. However, the cautionary
tone, already established by the significant weakening of certain sectors of the
information technology and high-tech industries, was reinforced by downward
pressure on the global investment banking community in the City of London which
responded by significantly reducing its workforce. Simultaneously, the UK
manufacturing sector continued, without much success, to struggle against the
strength of sterling and again looks likely to contribute negatively to overall
GDP growth. A number of contrasting factors have emerged to influence the
direction of the economy:
the strength of consumer demand, established in recent years on the back of
relatively full employment and rising house prices, is likely to weaken as the
economic fundamentals reassert themselves during 2003;
public sector investment has grown strongly in recent years and is likely to
continue to do so in the medium-term as the Government addresses the apparent
historic under-investment in infrastructure for transport and communication,
health and education; and
the weakening inflationary threat that has characterised recent years of low
interest rates is likely to diminish further until an effective rebalancing of
economic activity has been achieved.
The next few years will be challenging for Development Securities as we
implement our strategy to exploit those niches that become apparent within our
areas of expertise. We believe we are well positioned to capitalise on these
opportunities.
First and foremost, we entered these uncertain times in a strong condition;
having long pursued a consistent, risk-averse strategy in most aspects of our
business. The manner in which we carry out substantial, complex developments by
forward-funding with institutional partners is key. This technique has ensured
that our balance sheet is largely bereft of substantial, loss-making development
projects that could represent a drain on future cash flow. We continue to
believe that this is an appropriate risk profile.
Current development programme
In 2002, our development activities remained focussed on the office sector in
the South East of England, with particular emphasis on Central London.
PaddingtonCentral
A satisfactory conclusion has been attained at the first phase of our flagship
PaddingtonCentral project, the 11-acre site immediately adjacent to Paddington
Railway Station. This major, mixed-use regenerative development in the centre
of our capital city will ultimately provide 1.7 million sq. ft. of prime office,
retail and leisure accommodation and 0.2 million sq. ft. of residential
apartments. The entire 330,000 sq. ft. office component of the first phase was
fully pre-let prior to completion at the end of 2002 to Visa International
Service Association, The Prudential Assurance Company Limited, Kingfisher PLC
and WJB Chiltern Group on long lease terms ranging from #35 per sq. ft.
initially up to #45 per sq. ft. in respect of the final letting. Of the 110,000
sq. ft. retail and leisure space in the same phase, agreements to lease were
signed with Cannons Group Limited for the 25,000 sq. ft. health and leisure unit
and with J Sainsbury Supermarkets Limited for the 7,250 sq. ft. food retail
unit. It is expected that the remaining accommodation will be taken up once the
210 residential units, being constructed by a third-party developer, are
completed. The early letting of the office accommodation at rents significantly
above initial expectations has enabled us both to agree and receive the bulk of
our profit entitlement, with the retained balance to be released as outstanding
accounts from suppliers are settled.
With the approval of our joint forward-funding partners, Morley Fund Management
and The Equitable Life Assurance Society, work on future aspects of the scheme
has continued during the year. Detailed planning consent is anticipated shortly
in respect of the initial 400,000 sq. ft. office building for the second phase.
However, engineering and costing preparations have largely been finalised for
the extensive piling and decking of the remainder of the site, where
construction is expected to begin during 2003. This latter work is extensive
and is required to be completed by the end of 2005, not only as a pre-requisite
for allowing construction on the adjacent Crossrail project to commence shortly
thereafter, but also for continued development of most of the future phases of
PaddingtonCentral. Present, softer letting market conditions suggest that
funding of a wholly speculative development of the next phase will be delayed
somewhat and, accordingly, we do not anticipate that construction work on the
first building of phase two at PaddingtonCentral will commence before the end of
2003.
Paddington's strategic location as a major, new West End business district has
been established, not only by our success, but also by the progress achieved by
other development activity on nearby sites. Regeneration of this long-neglected
area of Central London is now well underway.
333 Oxford Street
In January 2003, this strategically located 78,000 sq. ft. development at the
junction of Oxford Street and New Bond Street in London's West End, achieved
practical completion. The site was jointly acquired with our funding partner
DEKA Immobilien GmbH from Sears Group Properties for #38 million in April 2001.
Zara UK Limited, to whom the 35,000 sq. ft. retail unit was pre-let in May 2002,
began trading from the lower ground, ground and first floors well ahead of the
key Christmas shopping season. Marketing of the remaining 43,000 sq. ft. of
prime office accommodation, configured over four floors has now begun.
Broughton Park
The success of the 298,000 sq. ft. Shopping Centre developed by ourselves at
Broughton Park, near Chester, has led to demand by retailers for additional
accommodation in the area. Accordingly, in May 2002, together with Pillar
Property PLC, we submitted an outline planning application for a 126,500 sq. ft.
extension to the retail park together with an outline planning application for a
350,000 sq. ft. business park and an extensive highways improvement programme.
Having completed the appropriate retail and environmental impact studies, we
hope to receive planning consent in the second quarter of this year.
Slough Town Centre
Working with our partner, Berkeley Homes, good progress has been made on this
long-term regeneration scheme to transform the centre of Slough. A framework
agreement is in the final stages of being negotiated with Slough Borough Council
that will secure our exclusive position on the site and prepare the way for an
environmental impact assessment and outline planning application for the overall
development, which consists of 1.4 million sq. ft. split almost equally between
office and residential accommodation. In addition, there will be some 200,000
sq. ft. of public accommodation for the Council, including a new library.
Building work is not expected to commence on this long-term project until 2004
at the earliest.
Cambourne Business Park
The inherent flexibility of site configuration and layout as well as the
unrestricted planning consent at the 750,000 sq. ft. business park at Cambourne,
near Cambridge has provided some welcome relief from the difficulties of the
out-of-London office market caused by the current economic slowdown. In October
2002, we signed an agreement with South Cambridgeshire District Council for the
development of its new headquarters and civic centre, which will provide the
business park with an enhanced profile and status in the region. Construction
has already commenced on the new building, which is being acquired by the local
authority on a freehold basis. Completion is expected in the second quarter of
2004. Also in October, we announced the launch of a new Research and
Development phase at Cambourne, which could ultimately provide some 320,000 sq.
ft. of high-quality office and laboratory accommodation developed over three
phases. The first of these is planned to comprise 125,000 sq. ft. in three or
four buildings, targeted at the various requirements of the biotechnology
industry based in and around Cambridge.
Elsewhere on the Park, leasing activity on the 64,000 sq. ft. of unlet office
accommodation on the completed second phase of 132,000 sq. ft., funded with
Morley Fund Management, has slowed significantly since the letting, early in
2002, of 19,000 sq. ft. to Campbell Grocery Products. We remain cautiously
optimistic that the quality of location, design and environment will ultimately
prove attractive to the market.
Other Business Parks
Following the successful letting of three units at the first phase of 115,000
sq. ft. on Globeside Business Park, in 2001, only one unit of 38,500 sq. ft.
remains to be let. Interest at this 11-acre scheme, near Marlow in the Thames
Valley, is not strong and the timing of the 85,000 sq. ft. second phase is under
review with The Equitable Life Assurance Society, with whom we acquired the site
in August 1999. Meanwhile the second phase site is income producing on a
short-term basis.
It is disappointing to report that letting prospects are equally soft at our
180,000 sq. ft. Frimley Square business park in Surrey where practical
completion was achieved in the summer of 2002. This scheme, also forward-funded
in partnership with The Equitable Life Assurance Society, is configured over
four office buildings on a 7.6-acre, landscaped site.
Development activity has been concluded at our 43-acre site at Birmingham
International Park, adjacent to Birmingham International Airport. This follows
the completion in May 2002 of the 24,000 sq. ft. office building pre-let to our
Executive Communication Centres business. The building was forward-funded in
2001 with United Bank of Kuwait. Only one building now remains materially
unoccupied on this business park, a 45,000 sq. ft. industrial unit
forward-funded with The Legal & General Assurance Society. We continue to
believe that the quality of the product will prove attractive, although current
letting conditions remain challenging.
Royals Business Park
The #500 million, 50-acre Royals Business Park is the second of our major
regeneration projects in London and is ideally located on the Royal Albert Dock
opposite London City Airport. With phased development planned over a seven-year
period, this site will eventually comprise 1.6 million sq. ft. of office
accommodation and 100,000 sq. ft. of ancillary and leisure accommodation, for
which outline planning consent already exists. When complete, it will be East
London's leading business park.
In August 2002, we completed an agreement with our joint development partners,
Standard Life Investments and the London Development Agency, for the development
of the 237,000 sq. ft. first office phase comprising two buildings, both
designed by Aukett Europe, linked by an internal winter garden. Construction has
commenced and completion is planned for the second quarter of 2004.
The Royals Business Park has a one-mile waterside frontage and is expected to
secure high-quality tenants attracted by its cost-effective and strategic
location so close to the City, as well as its excellent road links to the M11
and M25 motorways.
Investment property portfolio
We continue to base our investment strategy for out-performance on three key
principles: sector rotation, stock selection and proactive management. We
target assets with a core income return and the potential to improve value
through active management.
2002 saw the completion of the recent programme to restructure the investment
portfolio, such that the Company now possesses a core portfolio capable of
providing above-average performance over the medium-term.
During 2002 the total investment return of the investment portfolio was 12.8 per
cent, comprising an income return of 7.7 per cent and capital growth of 5.1 per
cent. This compares to a market return, as measured by Investment Property
Databank Limited, of 9.5 per cent, following our returns in 2001 of 11.5 per
cent against 7.0 per cent market return, representing another year of
significant out-performance.
We now have ten percent less office and London exposure and fifty per cent fewer
assets in number. These strategic adjustments to the portfolio should serve to
enhance performance over the coming year. The focus of the strategy on building
specification and location over lease length and covenant should, in the
medium-term, provide out-performance potential.
We continue to base our investment strategy on three key principles:
proactive management of the portfolio by rotating between sectors, to maximise
exposure to growth stock. This has led, during the course of the year, to a
reduction in the Company's office holdings, most notably in Central London, and
an increase in retail and industrial assets, where performance remains
satisfactory;
the average number of properties has been significantly reduced and will now be
kept at these levels to facilitate repositioning through the market cycle and to
allow management focus on key assets. During 2002, the number of assets within
the portfolio was reduced from 46 to 23 with the average lot size increasing
from #2.4 million to #4.1 million; and
a preference for multi-let assets where value can be added through lease
restructuring and limited refurbishment. During 2002, a number of single-let "
dry" assets were disposed of. We continue to seek opportunities which allow
active management on the occupational profile to generate performance.
Transaction activity during 2002 was focused primarily on disposals, as
advantage was taken of what transpired to be a strong investment market to
complete the final stage of the portfolio restructuring. In addition, we acted
upon what we perceived to be an asset pricing "bubble" to crystallise
significant valuation surpluses on assets which we felt did not meet our
performance objectives. In total, 26 properties were sold for #34.7 million,
generating a 6.1 per cent surplus of #2.1 million. The sale of Fetter Lane,
London EC3 was a notable success, achieving a gain of 12.5 per cent at a time
when property market indices showed negative capital growth in the City of
London sub-market. We no longer have any investment property exposure in the
City market.
The effective de-gearing of the portfolio means that we are well placed to take
advantage of acquisition opportunities as they arise.
Since the year-end, a further two properties have been sold for #3.8 million, in
line with book values, serving to further reduce our London office weighting and
marking the completion of the disposals programme. Moving forward, sales will be
considered in accordance with market conditions and the completion of asset
initiatives.
In 2002, more than #14.0 million was invested through a combination of capital
expenditure on the existing portfolio and, more significantly, on three
acquisitions. At #6.3million, the largest single acquisition was the Kingsland
Shopping Centre, Thatcham, a district shopping scheme anchored by a Waitrose
supermarket. The property achieves significant capital growth over the course
of the year, and offers a combination of a solid income return and active
management opportunities. Further asset-management initiatives currently
underway should generate additional capital uplifts.
Since the year-end, a further shopping centre asset, with similar performance
characteristics to our Thatcham centre, was purchased for #9.0 million. It is
intended to target such assets for further investment acquisitions.
Proactive management accounted for #1.5million of value creation on three
investment properties held throughout the course of the year. At Great West
Trading Estate, Brentford we achieved lease renewals on 4 units at improved
rental values, incorporating Landlord's opportunities for redevelopment in 2006.
The impact of these renewals was an increase in capital value of #0.7million.
At The Genesis Centre, Warrington, a combination of lease re-structuring and
re-lettings at improved rental values has led to an uplift in capital value of
#0.4million, despite an overall increase in the level of void accommodation.
Finally, at 1/5 New Street, Huddersfield, we took a surrender of the existing
lease and simultaneously re-let the accommodation at an increased rent,
achieving 35 per cent capital growth of #0.4 million for that particular asset.
As we move into a period of limited market growth in rental values, the process
of letting up voids and securing reversions at rent review will continue to
significantly enhance future capital uplifts.
In 2001, we embarked on a strategy of purchasing assets with short-term
reversionary potential or vacant elements. Notwithstanding the declines in
rental values seen, particularly in Central London, in the last 12 months, we
believe that the portfolio remains well positioned to benefit from the
completion of these initiatives and this was, to some extent, borne out by the
increases achieved in the portfolio valuation at the year-end. The current
portfolio void rate of ten per cent is at its upper limit, although just under
half of this space is currently under offer. We intend to be rigorous in the
application of the asset management skills required to capture value.
Looking forward, 2003 will see the continued, selective, reinvestment of the
cash generated from disposals. Given limited rental growth prospects, where
capital values are likely to come under pressure, we will target acquisitions
that are not dependent on market momentum to deliver attractive returns,
preferring assets with a core income return and the potential to improve value
through active management. Stock selection on acquisitions will continue to be a
principal driver of future performance.
We have now achieved two, consecutive years of strong performance from the
investment portfolio and, leveraging from this base, we will start to explore
methods for utilising shareholders' funds more efficiently, in partnership, thus
increasing the value of funds under management. The objective, apart from
improving our overall performance, is to establish an enhanced financial
presence in a market dominated by a small number of larger, financially robust
participants.
Other activities
The net income of #0.3million from our operational properties relates to both
the Executive Communication Centres serviced office business and the indoor
retail licensee operation at Blackpool. This result was achieved after making
appropriate allowances for start up and refurbishment activity of approximately
#0.2 million at one serviced office centre and an operating loss of #0.1 million
in respect of the now closed centre at Sheffield. We are hopeful that Executive
Communications Centres should achieve break even in the current year from its
five operational units, notwithstanding the weak market conditions prevailing in
this sector.
Finance
Part of our strategy in recent years has been to reduce significantly our level
of net indebtedness in anticipation of a degree of economic and market
uncertainty; it is pleasing therefore that net debt at the year-end was nil. In
addition to cash balances of #85.1 million held at the year-end, we had #34.5
million of unutilised, medium-term, committed facilities with HSBC Property
Finance and Barclays Bank PLC. For a company with our modest balance sheet
size, the existing financial resources available to us are more than adequate to
capitalise on appropriate investment or development acquisitions that might
arise. Your Company has experienced strong, positive cash flow in recent years,
derived from both the major development projects in which we have been involved
and the exercise to re-structure our investment property portfolio. Whilst we
are unlikely to witness a repeat of these exceptionally strong cash flows in the
near-term, we are cautiously optimistic that the next phases of our existing,
large-scale schemes, together with additional projects, will lead to similar
returns for shareholders as have been achieved in recent years.
C J Barwick M H Marx
31st March 2003
Consolidated profit and loss account
for the year ended 31st December 2002 (unaudited)
Note 2002 2001
#'000 #'000
Turnover 33,462 39,133
Direct costs (12,648) (14,804)
Gross profit 20,814 24,329
Operating expenses (7,798) (7,200)
Exceptional item (d) - (3,000)
Total operating expenses (7,798) (10,200)
Operating profit 13,016 14,129
Profit/(loss) on disposal of fixed assets 1,767 (110)
Profit on ordinary activities before interest 14,783 14,019
Net interest payable (4,768) (3,867)
Profit on ordinary activities before taxation 10,015 10,152
Tax on profit on ordinary activities (2,338) (3,385)
Profit on ordinary activities after taxation 7,677 6,767
Dividends on equity shares (9,425) (1,269)
Retained (loss)/profit for the year (1,748) 5,498
Earnings per share 26.9p 24.0p
Diluted earnings per share 26.7p 23.6p
All turnover, profits and losses derive from continuing operations
Consolidated balance sheet
31st December 2002 (unaudited)
2002 2001
#'000 #'000 #'000 #'000
Fixed assets
Investment properties 104,799 115,311
Operating properties 7,240 9,750
Other tangible assets 4,182 4,237
Investments 905 965
117,126 130,263
Current assets
Land, developments and trading properties 10,284 9,512
Debtors 22,411 35,992
Cash at bank and in hand 85,063 45,197
117,758 90,701
Creditors: amounts falling due within one
year
(29,736) (29,703)
Net current assets 88,022 60,998
Total assets less current liabilities 205,148 191,261
Creditors: amounts falling due after more
than one year
Borrowings (83,630) (71,996)
Net assets 121,518 119,265
Financed by:
Capital and reserves
Called up share capital 14,353 14,110
Share premium account 62,779 61,692
Revaluation reserve 2,376 1,959
Other reserves 45,299 45,299
Profit and loss account - deficit (3,289) (3,795)
Total equity shareholders' funds 121,518 119,265
Net assets per share 423p 423p
Diluted net assets per share 419p 417p
Approved by the Board of Directors on 31st March 2003
and signed on its behalf
M H Marx
Director
Consolidated cash flow statement
for the year ended 31st December 2002 (unaudited)
2002 2001
#'000 #'000
Cash inflow from operating activities 22,215 25,988
Returns on investments and servicing of finance (4,938) (3,891)
Taxation (4,815) (4,030)
Capital expenditure and financial investment 16,748 (31,500)
Equity dividends paid (1,333) (2,606)
Cash inflow/(outflow) before financing 27,877 (16,039)
Financing:
Issue of new shares 1,330 804
Repayment of debt (1,246) (1,284)
Proceeds from new borrowings 12,653 9,134
Increase/(decrease) in pledged cash (5,920) 13,137
Increase in cash in the year 34,694 5,752
Reconciliation of net cash flow to movement in net funds/(debt)
for the year ended 31st December 2002 (unaudited)
2002 2001
#'000 #'000
Increase in cash in the year 34,694 5,752
Cash outflow from reduction in debt 1,016 1,284
Cash inflow from new borrowings (12,653) (9,134)
Cash outflow/(inflow) from movement in pledged cash 5,920 (13,137)
Change in net debt resulting from cash flow 28,997 (15,235)
Non cash adjustment - (193)
(15,428)
Movement in net funds/(debt) in the year 28,977
Net debt at 1st January (28,645) (13,217)
Net funds/(debt) at 31st December 332 (28,645)
Reconciliation of operating profit to net cash inflow from operating activities
for the year ended 31st December 2002 (unaudited)
2002 2001
#'000 #'000
Operating profit 13,016 14,129
Provision against investments and loans - 3,000
Loss on disposal of tangible fixed assets 15 50
Capitalised interest charged to cost of sales 70 -
(Increase)/decrease in developments and trading properties (772) 3,700
Decrease/(increase) in debtors 14,206 (12,264)
(Decrease)(increase in creditors (5,197) 16,733
Depreciation charges 877 588
Other items - non-cash - 52
22,215 25,988
Analysis of net debt
for the year ended 31st December 2002 (unaudited)
Balance at Other Balance at
1 January non-cash 31 December
2002 Cash flow changes 2002
#'000 #'000 #'000 #'000
Cash in hand, at bank 23,608 33,946 - 57,554
Bank overdraft (830) 748 - (82)
34,694
Debt falling due within one year (1,016) 1,016 (1,019) (1,019)
Debt falling due after more than one year (71,996) (12,653) 1,019 (83,630)
Pledged cash 21,589 5,920 - 27,509
(5,717)
(28,645) 28,977 - 332
Consolidated statement of total recognised gains and losses
for the year ended 31st December 2002 (unaudited)
2002 2001
#'000 #'000
Profit on ordinary activities after taxation 7,677 6,767
Unrealised surplus on revaluation of property portfolio 2,671 3,781
Total recognised gains for the financial year 10,348 10,548
Reconciliation of movements in total equity shareholders' funds
for the year ended 31st December 2002 (unaudited)
2002 2001
#'000 #'000
Profit on ordinary activities after taxation 7,677 6,767
Dividends on equity shares (9,425) (1,269)
Retained (loss)/profit for the financial year (1,748) 5,498
Net proceeds of issue of new shares 1,330 311
Surplus on revaluation of property portfolio 2,671 3,781
Net movement in total equity shareholders' funds 2,253 9,590
Opening total equity shareholders' funds 119,265 109,675
Closing total equity shareholders' funds 121,518 119,265
Development Securities PLC
for the year ended 31st December 2002 (unaudited)
Basis of preparation
This announcement is prepared on the basis of the accounting policies stated in
the financial statements for the year ended 31st December 2001.
The financial information set out in this announcement does not constitute the
Company's statutory accounts for the years ended 31st December 2002 and 31st
December 2001. The financial information for the year ended 31st December 2001
is derived from the statutory accounts for that year which have been delivered
to the Registrar of Companies. The auditors reported on these accounts; their
report was unqualified and did not contain a statement under Sections 237(2) or
(3) of the Companies Act 1985. The statutory accounts for the year ended 31st
December 2002 will be finalised on the basis of the financial information
presented by the Directors in this Preliminary Announcement and will be
delivered to the Registrar of Companies following the Annual General Meeting.
Turnover, profits and net assets
a) Analysis of turnover and gross profit
All turnover and profits derive from continuing property operations in the
United Kingdom, except #107,000 (2001: #838,000) included in direct costs in
respect of a development property in France.
(b) Analysis of gross profit
2002 2001
Direct Gross Direct Gross
Turnover costs profit Turnover costs profit
#'000 #'000 #'000 #'000 #'000 #'000
Rental income 9,164 (1,832) 7,332 8,307 (2,190) 6,117
Operating property income 4,539 (4,267) 272 4,151 (3,329) 822
Project management fee income 1,009 - 1,009 1,681 - 1,681
Land, developments and trading
properties 18,750 (6,549) 12,201 24,994 (9,285) 15,709
33,462 (12,648) 20,814 39,133 (14,804) 24,329
c) Operating profit
2002 2001
#'000 #'000
The operating profit is stated after charging/(crediting):
Depreciation 877 588
Impairment (credit)/charge - equity investment (refer note (d)) - 1,000
- loans (refer note (d)) (500) 2,000
Operating leases in respect of land and buildings 577 309
Auditors' remuneration in respect of audit work
- current year 103 101
- prior year - 35
Auditors' remuneration in respect of non-audit work amounted to #109,000 (2001:
#88,000).
d) Investments
The exceptional item in 2001 represents an impairment in the book value of the
Group's equity investment in, and the majority of loans to, Stead & Simpson
Group Limited, arising from the Directors' evaluation of the amounts recoverable
from the investment and associated loans. A provision of #0.5m against the loans
to Stead & Simpson Group Limited was released in 2002.
e) Fixed rate debt
The fair value adjustment at 31st December 2002 in respect of the Group's fixed
rate debt, calculated on a replacement basis, taking into account the
differences between fixed interest rates of the Group's borrowings and the
market value and prevailing interest rates of appropriate debt instruments, was
#15.9m (2001: #11.9m), equivalent to a decrease in net assets of 38.8 pence
after tax (2001: 29.6 pence).
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SELFUASDSELD