Mucklow (A & J) Regulatory News (MKLW)

6 Sep 2006 07:01

Mucklow(A.& J.)Group PLC06 September 2006 Mucklow (A & J) Group plc6 September 2006 Results for the year ended 30 June 2006 Financial Highlights •Profit before tax of £36.4m (2005: £9.4m) •Earnings per share 45.24p (2005: 16.68p) •Ordinary dividend per share*1 up 7.4% to 13.71p (2005: 12.76p) •Adjusted net asset value per share*2 up 14.8% at 441p (2005: 384p) •Net assets £215.7m (2005: £193.1m) •Gearing (net of cash) 3% (2005: 3%) *1 Recommended final dividend of 7.48p (2005: 6.96p), making the total for the year 13.71p (2005: 12.76p).*2 Excluding deferred tax and including the surplus on trading properties, see note 7 for details. Rupert Mucklow (Chairman) commented:"I am pleased to report another successful year for the Group. An increase indevelopment activity, culminating in the pre-letting of 87,314 sq ft of newindustrial space in the first half year, combined with a strong investmentmarket, have contributed towards a healthy rise in profit and asset value. The restructuring of our business over the last couple of years and the recentmove to modern offices, has enabled us to become a more progressive company,with a forward thinking strategy and an enthusiastic team. We feel positiveabout future prospects." For further information please contact: Rupert Mucklow, Chairman Tel 0121 504 2121 (direct)A & J Mucklow Group plc 07815 151254 (mobile) Fiona Tooley Tel 0121 455 8370Citigate Dewe Rogerson 07785 703523 (mobile) CHAIRMAN'S STATEMENT I am pleased to report another successful year for the Group. An increase indevelopment activity, culminating in the pre-letting of 87,314 sq ft of newindustrial space in the first half year, combined with a strong investmentmarket, have contributed towards a healthy rise in profit and asset value. Pre-tax profit for the year ended 30 June 2006 under IFRS (InternationalFinancial Reporting Standards), was £36.4m, compared with £9.4m for thecorresponding period last year. The adjusted pre-tax profit*, excluding gains onthe revaluation of the investment property portfolio, profit on the disposal ofinvestment properties and the premium on redemption of debenture stock was£12.0m (2005: £11.9m). Adjusted net asset value per share*, which includes the current value of tradingproperties but excludes deferred taxation, increased during the year by 14.8%,from 384p to 441p per share. A large part of the gain was due to a 12.2%increase in the value of the property investment portfolio. The Group's financial position at the year end remains robust. Net assets were£215.7m (2005: £193.1m), while borrowings (net of cash) amounted to £6.8m (2005:£6.0m). Dividend The Board is recommending the payment of a final dividend of 7.48p per Ordinaryshare, making a total for the year of 13.71p, an increase of 7.4% over lastyear's total of 12.76p per share. If approved by Shareholders, the dividend willbe paid on 29 December 2006, to Shareholders on the register at the close ofbusiness on 1 December 2006. Business Review Over the last couple of years, the Group has taken advantage of the stronginvestment market and subdued letting conditions to restructure its propertyportfolio and balance sheet, by selling assets with limited growth prospects andbuying back its high coupon debenture stock. During the past 12 months, we have seen an improvement in the number of activerequirements to lease new properties, so our main focus has been towardsincreasing the development programme in order to rebuild our property portfolioand achieve higher returns. We have also taken the opportunity to implement someoperational changes to our business, which will make us more competitive andefficient going forward. As a consequence, the Group has strengthened its development team, with therecruitment of another experienced surveyor and started to acquire a number ofprominent sites for development. It has also moved from its Victorian home ofthe last 70 years, to a modern, open plan office, which provides a betterworking environment and is more conducive for team work. At the same time, rental values on our industrial and commercial properties haveremained stable and occupancy levels have been maintained at around 93%. We havecontinued to add value to our investment portfolio through active management,however, the key driver for asset growth during the year has come from a furtherreduction in property yields. This is mainly due to strong Institutional demandand a shortage of quality investment stock. DTZ Debenham Tie Leung reviewed the value of our investment properties at 30June 2006. The investment portfolio, which includes new developments, was valuedat £258.75m+ (2005: £228.05m), an increase over book value of £28.16m. Proceeds from the disposal of investment properties during the year amounted to£11.7m, comprising three office buildings in Edgbaston, Birmingham and an officebuilding in Farnborough, Hampshire. The properties produced an income of £0.83mper annum. The development of two speculative industrial units, at Aston, Birmingham(87,314 sq ft) was completed in August 2006. As mentioned in my interimstatement, the units were both let during construction, at a combined rent of£0.5m per annum. Building works are also well advanced on a further twospeculative industrial units, at Middlemarch, Coventry (44,174 sq ft), which aredue to complete later this year. We acquired three new development sites during the year at Dudley (8.5 acres),Worcester (8.5 acres) and Wakefield (6 acres), which are all currently awaitingplanning consent and are likely to be built in phases. The sites are located inestablished employment areas, either adjacent to motorway junctions, or next tomain arterial roads. DTZ Debenham Tie Leung also reviewed the value of our trading properties as at30 June 2006. The total value was £18.9m (2005: £14.7m), which showed a surplusof £17.7m over the balance sheet book value. We sold a 2.4 acre residential siteat Wigan, in the first half year for £2.3m. Since the year end, we have sold afurther 2.2 acres for £2.7m. Real Estate Investment Trusts (REITs) The 2006 Finance Bill has recently been passed, allowing for the introduction ofa REIT structure, starting from January 2007. A REIT is a tax advantaged companywhich pays no corporation tax on rental income, or any capital gains on the saleof investment properties, providing certain conditions are met. The cost of conversion has been set at 2% of the market value of the investmentproperties at the date of transfer, which based on the current value of ourinvestment portfolio would be approximately £5.1 million. REITs will be requiredto distribute to shareholders at least 90% of the net taxable profits derivedfrom the property letting business and must hold investment properties for aminimum of three years. We believe that a REIT structure would be beneficial to our Shareholders and arecurrently taking professional advice. There are a few rules and regulationswhich require further clarification and we hope to be in a position to make anannouncement later this year. Outlook The strength of the investment market is showing no signs of subsiding. ManyInstitutional Investors remain underweight in commercial property and with theintroduction of REITs next year, the demand for good quality, investmentproperty is likely to continue. The restructuring of our business over the last couple of years and the recentmove to modern offices, has enabled us to become a more progressive company,with a forward thinking strategy and an enthusiastic team. We feel positiveabout future prospects. We intend to use this new, fresh impetus and our strong financial position, toexpand the business over the next 12 months and remain confident that we cancontinue to deliver income and capital growth for Shareholders. Rupert J MucklowChairman 6 September 2006 *See note 7 for details of the adjustments.+See note 8 for a reconciliation to the financial statements. MANAGING DIRECTOR'S PROPERTY AND FINANCIAL REVIEW This year has seen exciting and substantial progress in the execution of theGroup's stated strategy. A strong set of results has been achieved against thebackground of a fiercely competitive property market. The Group's resultscontinue to demonstrate the fundamental benefits of a financially sound and wellmanaged asset-based business. As a result of the implementation of a series of initiatives, it has been a yearof positive transition for the business. We have continued to reposition theGroup's portfolio for growth, having realised £11.7m from the disposal ofnon-core properties, added significant value through robust asset management andcontinued the build up of the investment portfolio through our ever increasingdevelopment programme. In addition, we have relocated our head office to one ofour nearby investment properties, where we have recently completed a highquality refurbishment and introduced a new corporate image. These changes haveprovided a better working environment for our employees and strengthened ourposition in the market place. The strength of the property investment market continues to be supported by thehistorically low costs of borrowing for the private investor, together withstrong UK institutional money allocation and extensive international demand. We have once again benefited from this strong investment market by selling anumber of properties with limited growth prospects. These comprise three officebuildings in Edgbaston, Birmingham and an office building in Farnborough,Hampshire. The combined proceeds from these disposals amounted to £11.7m, whichcontributed £0.7m to profit before tax. In October 2005 we commenced the development of two speculative industrial unitsat Star Gate, Birmingham, with a total floor area of 87,314 sq ft. Practicalcompletion was reached in early August 2006. Since starting on site, both ofthese units were pre-let on 15 year leases at a combined rent of £0.5m perannum. By the year end, the development showed a surplus over cost in excess of£2.5m. In March 2006, we commenced the development of a further two speculativeindustrial units at Middlemarch, Coventry. The total floor area will be 44,174sq ft and the construction cost is expected to be in the region of £1.7m. Theseunits will be completed later this year. We expect rental income from thedevelopment to be £0.25m per annum and the investment value to be in the regionof £3.5m. The acquisition of a prime 8.5 acre site, close to junction 6 of the M5 motorwayat Worcester was completed in the first half year for £4.9m. We have recentlysubmitted a planning application for 42,000 sq ft of offices on part of thesite. The land could accommodate a further 120,000 sq ft of offices. We have also been working on a number of major projects, to unlock value fromexisting properties held in the investment portfolio. Our planning applicationfor a mixed use scheme, totalling 500,000 sq ft, on the site of our Bull RingTrading Estate, Birmingham is likely to be considered by Birmingham City Councillater this year. We are currently processing an application for another mixeduse scheme comprising around 140,000 sq ft, on a 2.6 acre industrial site, atTewkesbury Road, Cheltenham. Following the completion of the land acquisition at Worcester in October 2005,we have successfully secured a further two additional prime development sites inthe last six months. Firstly, Yorks Park, Dudley an 8.5 acre site located next to the Black CountrySpine Road. This will accommodate a total of 170,000 sq ft of new businessspace. A planning application has been submitted for two industrial units,totalling approximately 40,000 sq ft on 2.2 acres. Secondly, a prominent 6 acre site has been acquired for £2.2m at the entrance toWakefield Europort, close to junction 31 of the M62 close to Leeds. We shallshortly be submitting a planning application for the development of a 125,000 sqft industrial estate. Group objectives We remain committed to pursuing the Group's main activity of developing andinvesting in commercial and industrial properties in prominent locations, aroundthe Midlands. We will also consider investing in other established employmentareas, close to motorway junctions or main arterial routes. Our policy is to actively manage our existing properties and continually explorenew investment and development opportunities, in order to grow our business. The Group's main objective is to provide Shareholders with long-term stabilityand growth in earnings, dividends and net asset value per share, through carefulproperty selection and by adopting a low/medium risk profile. The strategy Our long-term investment strategy is to maintain a balanced portfolio of modernproperties, with potential for long-term rental and capital growth. We also lookto expand our portfolio as and when appropriate, through selective developmentof and investment in new properties and by actively managing existing buildings,to improve income and capital appreciation. Mature assets with limited growthprospects are sold and the proceeds either reinvested in new property, or usedin other ways to enhance shareholder value. Our short-term investment strategy is determined by market conditions. Webelieve that the precise timing of acquisitions and disposals is crucial forboosting returns from our property portfolio. We are constantly monitoringtenant demand and investor confidence for signs of changes in the property cycleand are well positioned to capitalise on any opportunities that may arise. Weaim to acquire modern, securely let investment properties when the demand frominvestors is weak and values are low and only commit ourselves to newspeculative developments when economic conditions are stable. Property disposalsare made when the investment market is robust and rental levels have eitherpeaked or are unlikely to improve in the foreseeable future. Investor demand remains extremely strong from both the domestic andinternational markets. Prime and secondary yields are reaching historically lowlevels. Against this background we believe it is inappropriate to acquirerecently developed investment property at the current stage of the cycle.However, we continue to look for opportunistic deals where we can increasevalues through active management. Investment portfolio performance The strong investment market and reduction in property yields has significantlyenhanced the value of our investment portfolio over the last twelve months. Thetotal revaluation surplus for the year was £28.16m, showing a valuation increaseof 12.2%. Industrial property increased by 12.7%, offices by 9.1% and retail by15.29%. Summary of portfolio as at 30 June 2006 Developed area Vacant space Rent Value Sq ft Sq m Sq ft Sq m £m pa £m Industrial 2,304,246 214,070 177,854 16,523 10.54 176.66Office 181,470 16,859 16,609 1,543 2.36 39.71Retail 171,557 15,938 - - 1.50 26.61Land - - - - - 15.77---------------------------------------------------------------------------Total 2,657,273 246,867 194,463 18,066 14.40 258.75--------------------------------------------------------------------------- Average rent on let space as at 30 June 2006 Midlands South East Total Sq ft Sq m Sq ft Sq m Sq ft Sq m Industrial £4.72 £50.82 £6.48 £69.75 £4.95 £53.33Office £13.28 £142.93 £19.82 £213.36 £14.29 £153.77Retail £8.73 £93.92 - - £8.73 £93.92 Rental income on the retained portfolio during the year decreased by £0.02m(0.14%) while vacant space remained virtually unchanged at 7.3% (2005: 6.6%).The retained portfolio saw increases in annual rent due to rent reviews of£0.1m, lettings of £1.3m and vacancies reduced rents by £1.4m. Completeddevelopments added £0.3m to passing rent. Trading properties The Group's trading properties mainly comprise residential land and were valuedby DTZ Debenham Tie Leung as at 30 June 2006 at £18.9m (2005: £14.7m), whichshows a surplus over book value of £17.7m. The value of our residential land bank continues to grow, mainly due to demandfrom housebuilders and the scarcity of sites with planning. Land sales totalling£2.4m were concluded during the year. Financial performance This is our first preliminary announcement prepared under InternationalFinancial Reporting Standards. Operating profit is significantly higher this year at £37.91m (2005: £27.35m),mainly due to a substantial increase in investment property revaluation gains,up from £11.3m in 2005 to £23.7m in 2006. Gross rental income fell by £1.69m, asa result of property disposals. Last year's decision to repurchase £33.60m ofthe 11.5% First Mortgage Debenture Stock 2014 has reduced interest payable by£2.4m. Interest receivable has decreased from £1.4m in 2005 to £0.6m in 2006,mainly due to the debenture repurchase and development acquisitions. Net incomefrom the sale of trading properties increased to £2.3m (2005: £1.2m). Profits on the disposal of investment property added £0.7m (2005: £1.1m) tooperating profit. The deferred tax charge to the profit and loss account of £5.7m (2005 credit:£1.3m) is largely due to the surplus on revaluation of properties during theyear. Current tax increased from £0.8m to £3.6m, mainly due to the tax relief onthe debenture buy back in the prior year. Our year end cash balance was £9.8m (2005: £10.6m) and gearing (net of cash)remained at 3% (2005: 3%). ANALYSIS OF BORROWINGS AT 30 JUNE 2006 2005 £000 £000-------------------------------------------------------------------------------11 1/2% First Mortgage Debenture Stock 2014 15,903 15,903Preference Share Capital 675 675Cash and Short-Term Deposits (9,767) (10,554)-------------------------------------------------------------------------------Net Debt and Preference Share Capital 6,811 6,024------------------------------------------------------------------------------- Net assets 215,672 193,134------------------------------------------------------------------------------- Gearing 3% 3%------------------------------------------------------------------------------- Outlook The investment portfolio is our foundation and we aim to maximise long-termreturns for Shareholders through actively managing income and keeping voidlevels low. The Group is constantly refurbishing units to maintain the qualityof the portfolio, to enhance letting opportunities and increase rental levels.Our preferred method of growing the investment portfolio is through a controlleddevelopment programme, although we would also consider acquiring incomeproducing properties which match our strict investment criteria. Looking ahead, our quality portfolio and strong financial position enables us tobuild on our solid foundation and grow the business to achieve our objectives. CONSOLIDATED INCOME STATEMENTFor the year ended 30 June 2006 Notes 2006 2005 £000 £000--------------------------------------------------------------------------------Gross rental income 2 14,351 16,045 Property outgoings (741) (337)--------------------------------------------------------------------------------Net rental income 13,610 15,708-------------------------------------------------------------------------------- Proceeds on sale of trading properties 2 2,384 1,256 Carrying value of trading properties sold (125) (65) Property outgoings relating to trading properties (5) (29)--------------------------------------------------------------------------------Net income from trading properties 2,254 1,162-------------------------------------------------------------------------------- Profit on disposal of investment properties 707 1,096Gain on revaluation of investment properties 23,739 11,330Administration expenses (2,401) (1,944)--------------------------------------------------------------------------------Operating profit 3 37,909 27,352 Finance income 4 561 1,418 -------------------Finance costs (2,036) (4,408)Exceptional loss on redemption of debenture - (14,918) -------------------Total finance costs 4 (2,036) (19,326)--------------------------------------------------------------------------------Profit before tax 36,434 9,444 Taxation 5 (9,290) 564--------------------------------------------------------------------------------Profit for the financial period 27,144 10,008-------------------------------------------------------------------------------- Earnings per share- basic and diluted 7 45.24p 16.68p-------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETAs at 30 June 2006 2006 2005 Notes £000 £000--------------------------------------------------------------------------------Non-current assetsInvestment and development properties 8 257,406 225,973Property, plant and equipment 1,602 2,193Trade and other receivables 366 418-------------------------------------------------------------------------------- 259,374 228,584-------------------------------------------------------------------------------- Current assetsTrading properties 1,282 1,292Held for sale assets - -Trade and other receivables 2,685 1,979Cash and cash equivalents 11,065 10,554-------------------------------------------------------------------------------- 15,032 13,825-------------------------------------------------------------------------------- Total assets 274,406 242,409 Current liabilitiesTrade and other payables (8,037) (6,624)Borrowings (1,298) -Tax liabilities (1,873) (1,904)-------------------------------------------------------------------------------- (11,208) (8,528)-------------------------------------------------------------------------------- Non-current liabilitiesBorrowings (16,578) (16,578)Deferred tax (30,948) (24,169)-------------------------------------------------------------------------------- (47,526) (40,747)-------------------------------------------------------------------------------- Total liabilities (58,734) (49,275)--------------------------------------------------------------------------------Net assets 215,672 193,134-------------------------------------------------------------------------------- EquityCalled up ordinary share capital 14,998 14,998Revaluation reserve 3,424 2,322Redemption reserve 11,162 11,162Retained earnings 186,088 164,652--------------------------------------------------------------------------------Total equity 9 215,672 193,134-------------------------------------------------------------------------------- Net assets per Ordinary share- Basic and diluted 7 360p 322p- Adjusted 7 441p 384p Group gearing (net of cash) 3% 3%-------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEFor the year ended 30 June 2006 2006 2005 £000 £000--------------------------------------------------------------------------------Gain on revaluation of property 4,415 1,772 Deferred tax liability on items taken to equity (1,108) (547)--------------------------------------------------------------------------------Net gain recognised directly in equity 3,307 1,225 Profit for the year 27,144 10,008--------------------------------------------------------------------------------Total recognised income and expense for the year 30,451 11,233-------------------------------------------------------------------------------- CONSOLIDATED CASH FLOW STATEMENTFor the year ended 30 June 2006 2006 2005 £000 £000--------------------------------------------------------------------------------Cash flows from operating activitiesOperating profit 37,909 27,352Adjustments for non-cash items- Unrealised revaluation gains on investment properties (23,739) (11,330)- Profit on disposal of investment properties (707) (1,096)-Depreciation and other non-cash items 71 (69)Other movements arising from operations- Decrease/(increase) in trading properties 10 (76)- Increase in debtors (670) (601)- Increase/(decrease) in creditors 644 (2,180)--------------------------------------------------------------------------------Net cash generated from operations 13,518 12,000Interest received 578 1,413Interest paid (1,863) (19,279)Preference dividends paid (47) (47)Corporation tax paid (3,008) (2,092)--------------------------------------------------------------------------------Net cash inflow/(outflow) from operating activities 9,178 (8,005) Cash flows from investing activitiesAcquisition and property development (13,006) (4,401)Sales of investment properties 11,643 29,581Expenditure on property, plant and equipment (689) (121)--------------------------------------------------------------------------------Net cash (outflow)/inflow from investing activities (2,052) 25,059 Cash flows from financing activitiesNet decrease in borrowings - (33,597)Equity dividends paid (7,913) (7,367)--------------------------------------------------------------------------------Net cash outflow from financing activities (7,913) (40,964) Net decrease in cash and cash equivalents (787) (23,910) Cash and cash equivalents at 1 July 10,554 34,464--------------------------------------------------------------------------------Cash and cash equivalents at 30 June 9,767 10,554--------------------------------------------------------------------------------Cash and cash equivalents consists of:Cash at bank (1,298) 1,213Short-term deposits 11,065 9,341-------------------------------------------------------------------------------- 9,767 10,554-------------------------------------------------------------------------------- NOTES TO THE ACCOUNTS 1 Accounting policies Basis of preparation of financial information The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) for the first time. The disclosures required by IFRS 1 concerning the transition from UK GAAP to IFRSs are given in note 10. The financial statements have also been prepared in accordance with IFRSs adopted for use in the European Union and therefore comply with Article 4 of the EU IAS regulation. The preliminary accounts were approved by the board of directors on 5 September 2006. The financial information set out in the announcement does not constitute the company's statutory accounts for the years ended 30 June 2006 or 2005 (as restated for IFRS). The financial information for the year ended 30 June 2005 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not contain a statement under s237(2) or (3) Companies Act 1985. The statutory accounts for the year ended 30 June 2006 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 company's annual general meeting. While the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Company expects to publish full financial statements that comply with IFRSs in Sepetember 2006. The financial statements are prepared under the historical cost convention, except for the revaluation of investment properties, development properties and owner occupied properties and deferred tax thereon. The preparation of financial statements requires the use of estimates and assumptions that affect reported amounts of assets and liabilities during the reporting period. These estimates and assumptions are based on management's best knowledge of the amount actual results may differ from those amounts. The Group financial statements consolidate the financial statements of the Company and all its subsidiaries. Control is assumed where the parent company has the power to govern the financial and operational policies of the subsidiary. Unrealised gains and losses on intra group transactions and intra group balances are eliminated from the consolidated results. Rental income Gross rental income represents rents receivable for the year. Rent increases arising from rent reviews due during the year are taken into account only to the extent that such reviews have been agreed with tenants at the accounting date. Lease incentives are amortised on a straight line basis over the lease term. Property operating expenses are expensed as incurred. Service charges and other recoverables are credited against the related expense. Profits on sale of investment and trading properties Profits on sale of investment properties and trading properties are taken into account on the completion of contracts. The amount of profit recognised is the difference between sale proceeds and the carrying amount. Cost of properties An amount equivalent to the total development outgoings, including interest, attributable to properties held for development is added to the cost of such properties. A property is regarded as being in the course of development until Practical Completion. Valuation of properties Investment properties are valued at the balance sheet date at open market value. Where investment properties are being redeveloped the property continues to be treated as an investment property. Surpluses and deficits attributable to the Group arising from revaluation are recognised in the income statement. Valuation surpluses reflected in retained earnings are not distributable until realised on sale. Properties under development, which were not previously classified as investment properties, are valued at open market value until practical completion, when they are transferred to investment properties. Valuation surpluses and deficits attributable to properties under development are taken to revaluation reserve until completion, when they are transferred to retained earnings. Where the valuation is below historic cost, the deficit is recognised in the income statement. Owner occupied properties are valued at the balance sheet date at open market value. Valuation changes in owner occupied property are taken to revaluation reserve. Trading properties held for resale are stated at the lower of cost and net realisable value. Depreciation Depreciation is provided on buildings, motor vehicles and fixtures and fittings on a straight-line basis over the estimated useful lives of between two and twenty five years. Investment properties are not depreciated. Government grants Capital grants received relating to the cost of building or refurbishing investment properties are deducted from the cost of the relevant property. Revenue grants are deducted from the related expenditure. Deferred taxation Deferred taxation is provided in full on temporary differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Temporary differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the financial statements. Deferred tax is provided on temporary differences arising from the revaluation of fixed assets. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Taxation The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income and expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantially enacted by the balance sheet date. Tax is recognised in the income statement except for items that are reflected directly in equity, where the tax is also recognised in equity. Pension costs The cost to the Group of contributions made to defined contribution plans are expensed as they fall due. Acquisitions On the acquisition of a business, including an interest in an associated undertaking, fair values are attributed to the Group's share of separable net assets. Where the cost of acquisition exceeds the fair value attributable to such assets, the difference is treated as purchased goodwill and capitalised in the balance sheet in the year of acquisition. Goodwill is reviewed annually for impairment. Under the Group's previous policy, £134,728 of goodwill has been written off directly to reserves as a matter of accounting policy. This would be credited to the profit and loss account on disposal of the business to which it related. 2 Segmental analysis - revenue 2006 2005 £000 £000 ---------------------------------------------------------------------------- Total rental income from investment and development 14,351 16,045 properties Proceeds on sale of trading properties 2,384 1,256 Interest receivable (see note 4) 561 1,418 ---------------------------------------------------------------------------- Total revenue 17,296 18,719 ---------------------------------------------------------------------------- 3 Segmental analysis - primary segments 2006 2005 £000 £000 ---------------------------------------------------------------------------- Investment and development properties -------------------- - Net rental income 13,610 15,708 - Profit on disposal 707 1,096 - Gain on revaluation 23,739 11,330 --------------------- 38,056 28,134 Trading properties --------------------- - Proceeds on sales 2,384 1,256 - Carrying value on sales (125) (65) - Property outgoings (5) (29) --------------------- 2,254 1,162 Administration expenses (2,401) (1,944) ---------------------------------------------------------------------------- Operating profit 37,909 27,352 ---------------------------------------------------------------------------- The property revaluation surplus has been recognised as follows: Income statement - Investment properties 23,739 11,330 Statement of recognised income and expense - Development and owner occupied properties 4,415 1,772 ---------------------------------------------------------------------------- Total revaluation surplus for the period 28,154 13,102 ---------------------------------------------------------------------------- All operations and income are derived from the United Kingdom. 4 Net financing costs 2006 2005 £000 £000 Interest payable on: Debenture stock 1,829 4,361 Preference share dividend 47 47 Other interest payable 160 - ---------------------------------------------------------------------------- Total interest payable - ordinary 2,036 4,408 Premium on redemption of debenture stock - 14,918 ---------------------------------------------------------------------------- Total interest payable 2,036 19,326 ---------------------------------------------------------------------------- Interest receivable on: Short-term deposits 22 18 Other interest receivable 539 1,400 ---------------------------------------------------------------------------- Total interest receivable 561 1,418 ---------------------------------------------------------------------------- Net finance costs 1,475 17,908 ---------------------------------------------------------------------------- On 1 February 2005 the group redeemed £2.40m of its 11.5% First Mortgage Debenture Stock 2014 at a price of £142.01 per £100 of stock. A further £17.89m was redeemed on 21 February 2005 at a price of £144.56 and £13.31m was redeemed on 22 February 2005 at a price of £144.61. This exceptional item has reduced the tax charge for 2005 by £4.48m. The total amount of stock redeemed in 2005 was £33.60m, at a price of £48.52m, incurring a premium on redemption of £14.92m. No stock was redeemed in 2006. 5 Taxation 2006 2005 £000 £000 Tax charge Current tax - Corporation tax charged at 30% 2,998 (1,367) - Tax in respect of property disposals 621 2,145 ---------------------------------------------------------------------------- 3,619 778 ---------------------------------------------------------------------------- Deferred tax - Deferred tax on property revaluations 5,221 73 - Other deferred tax 450 (1,415) ---------------------------------------------------------------------------- 5,671 (1,342) ---------------------------------------------------------------------------- Total tax recognised in the income statement 9,290 (564) ---------------------------------------------------------------------------- Tax recognised in equity Deferred tax 1,108 547 ---------------------------------------------------------------------------- 6 Dividends 2006 2005 £000 £000 Amounts recognised as distributions to equity holders in the year: Final dividend for the year ended 30 June 2005 4,175 3,887 of 6.96p (2004: 6.48p) per share Interim dividend for the year ended 30 June 2006 3,738 3,480 of 6.23p (2005: 5.80p) per share ---------------------------------------------------------------------------- 7,913 7,367 ---------------------------------------------------------------------------- The directors propose a final dividend for the year ended 30 June 2006 of 7.48p (2005: 6.96p) per Ordinary share, totaling £4,487,401. The proposed final dividend is subject to approval by Shareholders at the Annual General Meeting and has therefore not been included as a liability in these financial statements. The final dividend, if approved, will be paid on 29 December 2006 to Shareholders on the register at the close of business on 1 December 2006. 7 Profit, earnings per share and net asset value per share Profit The adjusted profit before tax has been amended from the profit before tax as follows: 2006 2005 £000 £000 Profit before tax 36,434 9,444 Premium on redemption of debenture stock - 14,918 Profit on disposal of investment properties (707) (1,096) Gain on revaluation of investment properties (23,739) (11,330) ---------------------------------------------------------------------------- Adjusted profit before tax 11,988 11,936 ---------------------------------------------------------------------------- Earnings per share The basic and diluted earnings per share of 45.24p (2005: 16.68p) has been calculated on the basis of the weighted average of 59,991,990 Ordinary shares and earnings of £27.15m (2005: £10.01m). The adjusted earnings per share has been amended from the basic and diluted earnings per share by the following: 2006 2005 £000 £000 Earnings 27,144 10,008 Profit on disposal of investment properties (707) (1,096) Tax charged on profit on disposal of investment properties 621 2,145 Gain on revaluation of investment properties (23,739) (11,330) Premium on redemption of debenture stock (net of tax) - 10,443 Deferred tax 5,671 (1,342) ---------------------------------------------------------------------------- Adjusted earnings 8,990 8,828 ---------------------------------------------------------------------------- Adjusted (and adjusted diluted) earnings per share 14.99p 14.71p ---------------------------------------------------------------------------- The Group presents an adjusted earnings per share figure as the directors consider that this is a better indicator of the performance of the Group. There are no dilutive shares. Net asset value per share The net asset value per share has been calculated on the basis of the number of equity shares in issue of 59,991,990 and net assets of £215.67m (2005: £193.13m). The adjusted net asset value per share has been calculated as follows: 2006 2005 £000 £000 Net assets 215,672 193,134 Valuation of land held as trading properties 18,947 14,657 Book value of land held as trading properties (1,282) (1,292) Deferred tax 30,948 24,169 ---------------------------------------------------------------------------- 264,285 230,668 ---------------------------------------------------------------------------- Adjusted net asset value per share 441p 384p ---------------------------------------------------------------------------- 8 Investment properties and development properties Freehold Leasehold Total £000 £000 £000 At 1 July 2004 217,562 20,260 237,822 Additions 4,444 75 4,519 Disposals (28,322) - (28,322) Transfer to owner occupied property (680) - (680) Revaluation surplus 11,789 845 12,634 ---------------------------------------------------------------------------- At 1 July 2005 204,793 21,180 225,973 Additions 11,673 1,105 12,778 Disposals (3,150) (7,790) (10,940) Transfer from owner occupied property 1,980 - 1,980 Revaluation surplus 25,720 1,895 27,615 ---------------------------------------------------------------------------- At 30 June 2006 241,016 16,390 257,406 ---------------------------------------------------------------------------- Investment and development properties have been included at market value after having deducted an amount of £0.22m (2005: £Nil) in respect of lease incentives and letting fees included in trade and other receivables. The properties are stated at their 30 June 2006 market value and are valued by DTZ Debenham Tie Leung, professionally qualified external valuers in accordance with the RICS Appraisal and Valuation Standards published by the Royal Institution of Chartered Surveyors. A reconciliation to the amount included above is set out below. £000 DTZ valuation as at 30 June 2006 258,750 Owner-occupied property included in property, plant and (1,151) equipment Lease inducements (223) Other adjustments 30 ---------- Investment and development properties as at 30 June 2006 257,406 ---------- 9 Reconciliation of movements in equity 2006 2005 £000 £000 Opening net assets 193,134 189,268 Total recognised income and expense 30,451 11,233 Dividends (7,913) (7,367) ---------------------------------------------------------------------------- Closing net assets 215,672 193,134 ---------------------------------------------------------------------------- 10 Adoption of International Financial Reporting Standards This is the first year that the company has presented its financial statements under IFRS. The following disclosures are required in the year of transition. The last financial statements under UK GAAP were for the year ended 30 June 2005 and the date of transition to IFRSs was therefore 1 July 2004. In preparing the IFRS accounts, the Group has adjusted amounts reported previously in the financial statements prepared in accordance with UK GAAP. An explanation of how the transition has effected the Group's financial performance and position is set out in the following tables and accompanying narrative. Changes to the income statement 2005 Notes £000 --------------------------------------------------------------------------- Profit after tax reported under UK GAAP 678 Valuation surplus on investment properties a 11,330 Preference dividend reclassified as interest b (47) Deferred tax on valuation surplus c (73) Tax on realised revaluation gains d (1,946) Operating lease incentives e 95 Deferred tax on operating lease incentives e (29) -------- Profit after tax reported under IFRS 10,008 -------- Notes (a) The valuation surplus on investment properties was previously shown in the statement of total recognised gains and losses. (b) The dividend on the preference shares is now treated as an interest cost to the Group, rather than as a non-equity dividend under UK GAAP. (c) The movement on the deferred tax for contingent chargeable gains is now reflected in the income statement. Previously only the year end balance was shown in a note to the accounts. (d) The tax on investment property disposals was previously split between the profit and loss account and the statement of total recognised gains and losses reflecting the split of profit between the two. (e) Operating lease incentives, including the direct cost of arranging new leases, are spread over the lease term under IFRS, rather than the period to the first review (rent frees) or written off as incurred (direct costs of arranging new leases). The deferred tax impact has also been recognised. Changes to net assets - opening balance sheet at 1 July 2004 Notes £000 Net assets under UK GAAP as at 1 July 2004 203,242 IFRS adjustments: --------- Non-equity (preference) shares a (675) Deferred tax on revaluation surplus b (17,327) Removal of proposed dividends c 3,888 Lease incentives d 200 Deferred tax on lease incentives d (60) --------- Total IFRS adjustments (13,974) --------- Net assets under IFRS as at 1 July 2004 189,268 --------- Changes to net assets - comparatives 2005 Notes £000 --------------------------------------------------------------------------- Net assets under UK GAAP 207,374 Non-equity (preference) shares a (675) --------------------------------------------------------------------------- Equity shareholders' funds under UK GAAP 206,699 Deferred tax on revaluation surpluses b (17,946) Removal of proposed dividend c 4,175 Lease incentives d 295 Deferred tax on lease incentives d (89) --------------------------------------------------------------------------- Net assets under IFRS 193,134 --------------------------------------------------------------------------- Notes (a) Preference shares are treated as debt under IFRS (b) The deferred tax on contingent chargeable gains is now reflected in net assets. Previously this was shown in a note to the accounts. (c) Dividends are recognised when approved. The final dividend for the year ended 30 June 2005 has been reflected in the 30 June 2006 results as it was approved by shareholders in November 2005. (d) Operating lease incentives, including the direct cost of arranging new leases, are spread over the lease term under IFRS, rather than the period to the first review (rent frees) or written off as incurred (direct costs of arranging new leases). The deferred tax impact has also been recognised. 11 Directors and Company Secretary Rupert J Mucklow BSc - Chairman Justin Parker BSc MRICS - Managing Director Peter M Petherbridge - Executive David F Austin FRICS* - Senior Independent Non-Executive David C Groom FCIB* - Independent Non-Executive *Member of Remuneration Committee and Audit Committee. David Wooldridge FCCA ACIS - Company Secretary DATES Annual General Meeting The Annual General Meeting will be held on Tuesday 7 November 2006 at theBirmingham Botanical Gardens, Westbourne Road, Edgbaston, Birmingham, B15 3TR. Dividend The final dividend, if approved, will be paid on 29 December 2006 to Ordinaryshareholders on the register on 1 December 2006. Report and Accounts The full report and accounts for the year ended 30 June 2006 will be availableon 1 October 2006. A copy of this document is available on the Company's website, www.mucklow.com. This information is provided by RNS The company news service from the London Stock Exchange