RNS No 4829r
CRESTON LAND & ESTATES PLC
19th October 1998
CHAIRMAN'S STATEMENT
I am pleased to report that the group has enjoyed another successful year.
Net asset value per share, which the board regards as the principal measure
of financial performance, increased by 25% from 10.27 pence to 12.87 pence.
Profit before taxation on ordinary activities amounted to #1,803,000, an
increase of 9% compared with the previous year. There was again no charge for
taxation owing to the availability of tax losses and allowances.
Consequently, profit for the financial year amounted to #1,803,000 and
earnings per share were 1.95 pence compared with 1.8 pence for the previous
year.
In light of these good results, particular consideration has been given to
whether a dividend should be proposed. The board decided that it would be
prudent not to pay dividends until the remaining #2,425,000 of the company's
6% convertible redeemable unsecured loan stock has been redeemed early next
year. The board's intent is to return to the dividend list, but only when it
is prudent and in the company's best interests to do so.
During the year the board's strategy has remained unchanged. The group has
maintained a portfolio of high yielding property intended to produce
sufficient net rental and other income to fund overheads and interest. The
balance of its financial resources have been used for other investments that
provide potential for significant dealing profits. By this process the group
has assembled projects that provide the basis for sustaining meaningful growth
in profits and in net asset value per share. The progress on these projects is
described in the Operating Review.
The group's financial base has strengthened during the year. Gearing has
fallen to 208% from 354% and the overall cost of bank and other debt,
excluding convertible securities, has fallen from 9.95% to 9.57%. Much of the
group's debt continues to comprise medium term facilities, mainly at fixed
rates, which provide a measure of stability to the group's base cash flow.
Of concern to the board over recent months has been the high discount to net
asset value per share at which the company's shares have traded. In response,
advantage has been taken of two opportunities to repurchase a total of
4,724,809 ordinary shares through the market at an average price of 8.22 pence
per share, representing a discount of 36% compared with net assets per share
at the year end of 12.87 pence. Such purchases are regulated by the company's
articles of association and, in the interests of the remaining shareholders,
it is the board's intention, should suitable opportunities arise, to make
further market purchases whilst a significant discount to net asset value per
share remains.
The board is also concerned by the poor liquidity in the company's shares,
which affects most small capitalisation stocks. With the aim of encouraging a
more active market with a reduced dealing spread, a one for ten share
consolidation is proposed. A circular will be sent to shareholders on 27
October 1998 setting out further information. A resolution will also be
proposed at the annual general meeting to change the name of the company to
Creston plc, the name by which the company is most commonly known.
Looking ahead to the current year, the board remains confident of the
company's prospects despite the poor outlook for the UK economy. Property
values are likely to be pulled in opposite directions, but the negative effect
of reduced tenant demand and the absence of rental growth should be offset by
the impact of progressively lower short and medium term interest rates. The
basis for the board's confidence, however, stems from current projects
underway that provide the basis for sustained growth in profits and in net
asset value per share.
I would like to record the board's appreciation for the considerable efforts
of all employees, particularly those based in the London office where working
conditions for part of the year were far from perfect.
RONALD G HOOKER CBE F Eng
Chairman
OPERATING REVIEW
During the year activity continued at a high level and with growth in net
asset value per share of 25% the financial results were good. This
performance underlines the strength of the group's strategy over the last
three years, which is set out in the Chairman's Statement. One of the main
reasons for our success is that we have focused on projects that provide
profit opportunities across all sectors of the property market rather than
limiting ourselves to a market niche where competition for investments may be
intense and reduce the potential returns.
Market conditions during the year were more in favour of property disposals
rather than purchases. During the year property disposals totalled
#18,726,000 whereas property acquisitions totalled #10,545,000. The
favourable conditions allowed us to realise assets at attractive prices that
possessed little further potential for above average growth and enabled us to
re-shape our portfolio away from property that could be vulnerable in a poorer
market. The resulting net release of funds has primarily been applied in
reducing gearing, although this now provides the scope to raise fresh funds as
and when new opportunities arise.
Following a lengthy delay, the disposal of Dougalston Golf Course was
completed and provided an important contribution to the group's results.
Approximately 80 acres of land were retained from the sale at a book value of
#200,000. We believe that about 30 acres of this land is suitable for low
density residential development in the medium term with the possibility of
substantial gain.
Several other properties were sold during the year, each of which produced an
attractive trading profit. These properties were Brighouse Court, Gloucester,
approximately seven acres of land at Springhill, Glasgow and Houndsmill,
Basingstoke. A further seven acres of land remain at Springhill, which may be
sold this year. The Industrial Centre, Maidstone, was also sold as its value
could unduly suffer in a poorer market. A small amount of land was retained
from this disposal that has potential for residential use.
Creska Limited was acquired during the year for #1 in cash, whereas the fair
value of its net assets on acquisition was greater by #516,000, leading to a
corresponding increase in the group's net assets. Following acquisition,
three of Creska Limited's portfolio of six properties were sold, leaving
properties in Hammersmith, Durham and Mansfield that possess potential for
further enhancement in value. In particular, Hammersmith, which consists of
20,400 square feet of offices, should benefit from the significantly higher
rents being achieved in the area once the outstanding rent review with
Hammersmith & Fulham London Borough Council, the property's major tenant, has
been settled. An option has been granted over Mansfield that would result in
a useful profit should the option be exercised.
Excellent progress has been achieved with the retail warehouse acquired last
year at Shirley Road, Southampton. Following the reverse premium received last
year on the lease surrender by MFI, the premises have now been relet to
produce an annual rental income of #260,000. The upper floor was let to
Fitness First plc for a period of 25 years and the remainder let after the
year end on a 20 year lease to the Post Office. The property, which has a
current book value of #1,800,000, should show a considerable surplus on
disposal or revaluation in the current year.
The leasehold interest in 26 Grosvenor Gardens, London SW1 was purchased
during the year. The property, excluding the mews cottage, has been
comprehensively refurbished to a high specification to provide approximately
6,000 square feet of office space. It is now being marketed for either
letting or sale of the leasehold interest. In light of the demand for office
space in this area, rental levels for the best space have improved to
approximately #33 per square foot, leading to the prospect of a significant
enhancement in value. An application has been submitted for change of use of
the mews cottage from office to residential. To take further advantage of
rental growth in the area, two further properties at 9/11 Grosvenor Gardens,
were acquired and since the year end the mews building of 7 Grosvenor Gardens
was also purchased. 9/11 Grosvenor Gardens consists of 16,500 square feet of
office space and two mews buildings.
Steps are being taken to enhance the value of the ground floor units at St.
George's Court, New Malden. Vacant possession of two of the three restaurants
has been obtained along with an option enabling us to require the tenant of
the third unit to surrender their lease. A conditional agreement for a 35
year lease has been exchanged with SFI plc subject to planning for a Bar Med
restaurant. Planning permission was initially declined, but an appeal has
been made that has a good prospect of succeeding. If consent is received, the
property, which also includes 13,500 square feet of offices let to Hays on a
long lease, would show an attractive enhancement in value.
A decision has been taken to carry out a comprehensive refurbishment of
Premier House, Woking to provide 32,000 square feet of offices alongside the
existing ground floor retail space currently let on a long lease at #80,000
per annum. This property will be refurbished at a cost in the region of #2
million to give a completed cost of about #3.6 million. With strong tenant
demand and current rental expectations of at least #16 per square foot for the
office space, this investment provides considerable profit potential with
containable risk.
Following interest by HM Prison Service, a public inquiry was held to consider
the use of Middleton Towers as a category C prison. The outcome was
successful with consent being granted for a short term facility. HM Prison
Service are currently considering their requirements, which should become
clear over the next few months.
With the rise in property values last year and the deteriorating outlook for
the UK economy, we have acquired and will continue to acquire property
only on a selective basis where above average potential future value can
be demonstrated. In light of the projects currently in hand we are, as
reported in the Chairman's Statement, confident of the group's prospects
for the current year.
THOMAS P KING
Managing Director
FINANCIAL REVIEW
The group's principal financial objective is to increase consistently net
asset value per share which rose by 25% last year following substantial
increases in the previous two years. The purpose of the group's financial
policies is to set a framework within which further growth can be achieved
with an acceptable level of risk.
As noted in the Chairman's Statement, it is an important part of the group's
strategy to maintain a portfolio of high yielding property producing
sufficient net rental and other income to fund overheads and interest. Looking
ahead it continues to be a priority to build a recurring surplus, although
during the year progress towards this end was constrained by a significant
proportion of the group's time and resources being committed to projects with
modest running yields, but high potential profitability.
Gearing fell considerably during the year, though mainly in the last few
months. At the year end net debt represented 208% of shareholders' funds
compared with 354% at the end of the previous year. This reduction was mainly
due to a higher level of property disposals than acquisitions, although
increased shareholders' funds was also a factor. Whilst the fall in gearing is
welcome, higher future levels of gearing would not be ruled out so long as
above average financial returns can be achieved on the assets acquired with
only modest risk.
Following the refinancing in March 1997 of a large part of the group's debt
with Bank of Scotland under a #17 million revolving credit facility, the group
is now in discussions to increase the size of the facility on acceptable
pricing terms. The principal advantage of this facility is that it enables
the group to react rapidly to acquisition opportunities by eliminating the
need to negotiate new facilities for each transaction.
The average cost of bank and other debt, excluding convertible securities,
fell to 9.57% at the year end from 9.95% at the end of the previous year. The
main reason for this was the disposal of a subsidiary company with long term
debt of #3,731,835 at an average interest rate of 13.40%. The group now has
only one long term facility that is at a high fixed interest rate, comprising
a loan of #2,862,425 at a fixed interest rate of 13.13% repayable quarterly
over the period to 1 January 2011. The balance sheet includes a substantial
provision to reduce the effective rate of this facility to bring it into line
with the cost of the group's bank debt. Looking ahead it is our view that
interest rates, particularly those at the short end, are likely to fall over
the next year and any new borrowings for the time being will be at variable
rates.
The company's outstanding #2,425,000 of 6% convertible redeemable unsecured
loan stock is due for redemption in March 1999. During the year, #575,000 was
repurchased leading to a gain of #165,000. A letter will be sent to the
holders of the loan stock early in 1999 notifying them of the company's
proposals for redemption.
At the year end the group's investment property portfolio was valued by the
directors. As a result a small surplus of #7,000 arose.
CARL D FRY FCA
Finance Director
Consolidated Profit and Loss Account
for the year ended 30 June
1998 1997
#000 #000
Turnover 11,348 5,952
Existing activities 10,774 5,952
Acquisitions 574 -
Cost of sales (6,119) (587)
Gross profit 5,229 5,365
Existing activities 5,099 5,365
Acquisitions 130 -
Administrative expenses (1,363) (1,541)
Operating profit 3,866 3,824
Existing activities 3,733 3,824
Acquisitions 133 -
Profit on disposal of investment properties 873 424
Profit on ordinary activities before interest 4,739 4,248
Net interest payable (2,936) (2,591)
Profit on ordinary activities before taxation 1,803 1,657
Existing activities 1,786 1,657
Acquisitions 17 -
Tax on profit on ordinary activities - -
Profit for the financial year #1,803 #1,657
Earnings per share 1.9p 1.8p
Fully diluted earnings per share 1.8p 1.6p
Dividends - -
Consolidated Balance Sheet
at 30 June
1998 1997
#000 #000
Fixed assets
Investment properties 27,733 29,257
Other tangible fixed assets 47 88
27,780 29,345
Current assets
Stocks 10,339 14,421
Debtors 1,884 3,313
Cash at bank and in hand 892 355
13,115 18,089
Creditors: amounts falling due within
one year including convertible debt (6,408) (4,178)
Net current assets 6,707 13,911
Total assets less current liabilities 34,487 43,256
Creditors: amounts falling due after more
than one year including convertible debt (22,479)(33,452)
Provisions for liabilities and charges (219) (153)
Net assets #11,789 #9,651
Capital and reserves
Called up share capital 916 940
Share premium account 2,541 2,540
Revaluation reserve 1,181 1,420
Special reserve 1,386 1,386
Other reserve 1,562 1,046
Capital redemption reserve 24 -
Profit and loss account 4,179 2,319
Total equity shareholders' funds #11,789 #9,651
Net asset value per share 12.9p 10.3p
Statement of Total Recognised Gains and Losses
for the year ended 30 June
1998 1997
#000 #000
Profit for the financial year 1,803 1,657
Transfer of deferred fees to the
revaluation reserve - 1,000
Unrealised surplus on revaluation of
properties 7 210
Total recognised gains and losses for the year #1,810 #2,867
Reconciliation of Movements in Shareholders' Funds
for the year ended 30 June
1998 1997
#000 #000
Total recognised gains and losses for the year 1,810 2,867
Issue of new ordinary shares 1 1,832
Repurchase of ordinary shares (189) -
Negative (positive) goodwill on acquisition 516 (293)
Net addition to shareholders' funds 2,138 4,406
Opening total equity shareholders' funds 9,651 5,245
Closing total equity shareholders' funds #11,789 #9,651
Historical Cost Profits and Losses
for the year ended 30 June
1998 1997
#000 #000
Reported profit on ordinary activities
before taxation 1,803 1,657
Realisation of property revaluation
surplus of previous years 246 52
Difference between historical cost depreciation
charge and the depreciation charge for the year
based on the revalued amount - 2
Historical cost profit on ordinary
activities before taxation 2,049 1,711
Historical cost profit for the year #2,049 #1,711
Consolidated Cash Flow Statement
for the year ended 30 June
1998 1997
#000 #000
Net cash inflow (outflow) from operating activities 7,777 (4,286)
Returns on investments and servicing of finance
Interest received 55 103
Interest paid (3,221) (3,918)
Net cash outflow from returns on
investments and servicing of finance (3,166) (3,815)
Taxation - -
Capital expenditure and financial investment
Purchase of property (1,070) (3,296)
Purchase of plant, vehicles and equipment (23) (45)
Sale of property 7,957 4,519
Sales of plant, vehicles and equipment 32 16
Net cash inflow from capital expenditure
and financial investment 6,896 1,194
Acquisitions and disposals
Purchase of a subsidiary undertaking:
Cash, including costs of acquisition - (1,159)
Share issue expenses written off to other reserve - (80)
Cash at bank acquired with subsidiary 66 1,197
Cash balance forgone net of sale proceeds
on disposal of subsidiary (74) -
Net cash outflow from acquisitions and disposals (8) (42)
Net cash inflow (outflow) before financing 11,499 (6,949)
Financing
Issue of share capital for cash consideration 1 301
Purchase of own shares (189) -
New medium term loans - 22,192
Repayment of bank loans (10,367)(16,373)
Repurchase of 6% convertible redeemable
unsecured loan stock (407) -
Net cash (outflow) inflow from financing (10,962) 6,120
Increase (decrease) in cash #537 #(829)
NOTE
The financial information set out in the announcement does not constitute the
Company's statutory accounts for the years ended 30 June 1998 or 1997. The
financial information for the year ended 30 June 1997 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 section 237(2) or (3) of the
Companies Act 1985. The statutory accounts for the year ended 30 June 1998
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.
The announcement is prepared on the basis of the accounting policies as stated
in the previous year's financial statements. There have been no changes to
these accounting policies.
The audit report on the full financial statements has yet to be signed. The
announcement was approved by the directors on 16 October 1998.
END
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