RNS No 8178d
WARNER ESTATE HOLDINGS PLC
18th December 1997
WARNER ESTATE HOLDINGS PLC
1997 PRELIMINARY ANNOUNCEMENT
NAV up 19 per cent to 308p, 27th successive annual dividend
increase
* Warner Estate, the diversified UK property investor,
announces its results for the year ended 30 September
1997:
1997 1996 Increase
per cent
Net asset value per share (p) 308 259 18.9
Profit before interest
and tax (#m) 19.44 16.18 20.1
Pre-tax profit:
revenue (#m) 9.67 8.43 14.7
total (#m) 12.25 10.10 21.3
Earnings per share:
revenue (p) 14.26 12.84 11.1
total (p) 19.15 15.92 20.3
Dividends per share (p) 12.90 12.20 5.7
* The increase in NAV from 259p to 308p reflects
improvements in all sectors, particularly residential
investments.
* Rents receivable increased by 12.9 per cent to #15.71
million from #13.91 million.
* Despite increased activity and related borrowings,
gearing and interest cover remain similar to last year at
49 per cent and 2.7x respectively.
* The investment portfolio is well balanced, with shops
representing 42 per cent of value, offices 27 per cent,
industrial 10 per cent and residential 21 per cent.
* Philip Warner, Chairman, stated "I am confident that in
this buoyant market the Company's strategy of
diversification will continue to provide good returns in
the forthcoming year."
Enquiries:
Warner Estate Holdings PLC 0171-493 6480
Philip Warner (Executive Chairman)
David Veaser (Finance Director)
Andrew Batty (Property Director)
Walter Judd Public Relations 0171-236 4541
Charlie Ponsonby
CHAIRMAN'S STATEMENT
FINANCIAL OVERVIEW
I am pleased to report that net asset value per share has
increased by 18.9 per cent to 308p from 259p at 30 September
1996. Whilst this is mainly due to the increase in the value
of both the longstanding substantial investment in The
Bradford Property Trust PLC, the UK's largest listed
residential property company, and our own residential
properties, our commercial properties also contributed.
Pre-tax profits increased by 21.3 per cent to #12.25 million
whilst earnings per share gained 20.3 per cent to 19.15p. In
revenue terms (which exclude profits and losses on sale of,
and provisions against, fixed assets), pre-tax profit was 14.7
per cent higher at #9.67 million and earnings per share were
up 11.1 per cent to 14.26p. I am therefore pleased that the
Board can recommend a further rise in dividends per share, of
5.7 per cent to 12.90p for the year. This represents the
Company's 27th successive annual increase in dividends per
share. The dividends are covered 1.1 times by revenue
earnings and 1.5 times by total earnings.
TURNOVER
Rents receivable improved by 12.9 per cent to #15.71 million,
reflecting in part receipt of rents from the trading
properties including the new subsidiaries for three quarters
of the year. The level of void properties, at 7.2 per cent,
has reduced from last year with a potential of almost #0.8
million to be added to gross rents, mainly from Ellesmere
Port, where the situation continues to improve. The estimated
level of over-renting, at under 14 per cent of gross
commercial investment rents receivable, is also an improvement
on last year's 17 per cent.
Turnover from property trading increased to #24.66 million
from #9.21 million, reflecting increased activity on our own
account following the acquisition of the new trading
subsidiaries referred to below.
OPERATING PROFIT
Operating profit was 18.4 per cent higher at #13.44 million.
Net rents receivable contributed #12.24 million of this, a
healthy rise of 10.0 per cent, whilst property trading
produced a considerably increased #1.23 million profit against
#0.27 million in 1996. The increase in outgoings and
administrative expenses to #3.47 million, a rise of 24.7 per
cent, is largely attributable to the new subsidiaries.
NEW SUBSIDIARIES
As reported at the half year, we acquired Merivale Moore's 50
per cent interest in our former joint ventures with effect
from 31 December 1996. The results of these six companies,
which engage in property trading, are included as associates
for the first quarter of the year and fully consolidated
thereafter.
SHARE OF PROFITS OF ASSOCIATED UNDERTAKINGS
This reflects only one quarter's results of the companies
referred to above. During the year we made further purchases
in joint venture. With Stockbourne plc, a listed property
company, a mixed portfolio of high yielding mainly retail and
industrial properties was purchased for #11 million in
Premierflair Ltd with a view to using Stockbourne's expertise
in intensive management to maximise the return over three
years. With another partner, 99 small industrial units on
three estates were purchased for #3.5 million in Warrington
Industrial Investments Ltd to take advantage of opportunities
to improve the income stream. With a further partner, Trade
Centre Developments Ltd was formed to develop the trade
counter equivalent of small retail parks. None of these
associates had been trading long enough to have a significant
effect on the year just ended. Following the year end, with a
financial partner in Six Acre Investments Ltd we completed the
purchase of a shopping centre in Sale, Greater Manchester for
#15 million.
SURPLUS ON SALE OF FIXED ASSETS
Sales of commercial properties contributed more than half of
this surplus which, with increased sales of residential
properties, rose from #1.70 million to #2.48 million,
significantly exceeding the 1996 valuation.
INVESTMENT INCOME
Dividend income has again risen, to #2.48 million, from #2.11
million, an increase of over 17 per cent, derived mainly from
the investments in The Bradford Property Trust PLC and East
Surrey Holdings plc.
INTEREST PAYABLE
Interest payable increased by 18.2 per cent to #7.19 million,
due to higher interest rates and increased borrowings
reflecting the high gearing of the new subsidiaries. No
interest was capitalised and interest payable was covered 2.7
times by profit before interest and tax, as in 1996.
TAX
Revenue profits chargeable to corporation tax at the standard
rate, after adjustment for depreciation and disallowable
items, are reduced by capital allowances. The standard rate
of corporation tax was reduced to 31 per cent with effect from
1 April 1997. With a low charge on capital profits, because
of indexation, and dividend income charged at 20 per cent, the
effective tax rate was 19.9 per cent (1996: 22.2 per cent).
NET ASSET VALUE
During the year, equity shareholders' funds increased by 18.0
per cent to #157.00 million from #133.07 million and net asset
value per share by 18.9 per cent to 308p from 259p.
INVESTMENT PROPERTIES
It is our policy to revalue substantially all the Group's
commercial investment properties externally each year. This
has again been carried out by Healey & Baker with the
remainder and the residential properties being valued by an
officer of the Group who is an Associate of the Incorporated
Society of Valuers and Auctioneers. After purchases and
sales, the total value of investment properties rose from
#127.52 million to #141.45 million.
In keeping with our aim to improve the geographical spread and
underlying quality of the commercial portfolio, we made sales
and acquisitions of #6.90 million and #11.52 million
respectively during the year. These changes, which included
the purchase of two more retail warehouses, effected an
increase in our proportion of retail to more than 50 per cent
of the commercial portfolio and further improved the prospects
for capital and rental growth. As at the year end, the yield
on the portfolio was 9.8 per cent and on each sector: 8.9 per
cent for retail, 10.6 per cent for offices and 11.6 per cent
for industrial. 31 per cent of the leases have over 15 years
unexpired, a further 11 per cent have over ten years unexpired
and a further 16 per cent have over five years unexpired.
INVESTMENTS
During the year the value of our investment in The Bradford
Property Trust PLC increased from #47.36 million to #57.57
million and that in East Surrey Holdings plc from #6.11
million to #7.71 million. Both these investments are
providing good growth in capital and income and we remain
optimistic that they will continue to do so.
We acquired a further 4,017,857 ordinary shares in Ashquay
Group PLC, a listed property group, in part consideration for
the sale of another portfolio of properties to that company.
This investment provides us with useful exposure to a
development programme and we anticipate that it will show good
appreciation.
TRADING PROPERTIES
Our level of stock rose substantially during the year
following the acquisition of the new subsidiaries. Values are
stated at the lower of cost and net realisable value, #31.03
million against #14.54 million at the previous year end.
Although some fell slightly below cost and have been written
down, we are confident that the overall value is greater than
that shown in the balance sheet. In addition to profit from
sales, trading properties also contribute through the excess
of rents over the cost of funding.
As well as the acquisition of the subsidiaries, activity
included the purchase in March of a portfolio of 20 retail
properties for #8.8 million, the exchange of contracts in May,
with completion deferred at our option until January 1998, for
the purchase of 18 retail properties for #14.0 million, of
which three have been retained as investments, and the
purchase in September of five retail properties for #1.9
million.
At Watford we own a site of more than three acres with
planning permission for retail warehouse development.
Discussions are in hand with adjoining owners to facilitate
the optimum use of our respective interests.
FINANCING
During the year, net debt rose to #76.36 million from #63.58
million but gearing only to 49 per cent from 48 per cent,
constrained by the healthy rise in net asset value. At the
year end, the average cost of borrowing, including hedging,
was approximately 9.2 per cent (1996: 8.8 per cent) with 80
per cent of that cost protected. 32 per cent of borrowings
are not repayable for at least 15 years and a further 24 per
cent for at least five years (1996: 38 per cent and 12 per
cent respectively).
Further long term finance was obtained during the year. #9
million was borrowed from Bradford & Bingley Building Society
for a term of ten years at a variable interest rate linked to
LIBOR which was exchanged for a fixed rate giving an aggregate
cost of 8.52 per cent and a further #5 million was borrowed
from The Canada Life Assurance Company at a fixed rate of 9.06
per cent, maturing in 2014.
SHARE CAPITAL
The Company purchased 367,837 of its own shares at 220p per
share, a significant discount to net asset value, and the
Board continues to believe such purchases to be in
shareholders' interests. Therefore a proposal to renew the
authority to purchase up to 2,500,000 shares will be put to
the Annual General Meeting.
POST BALANCE SHEET EVENTS
Since the year end, we have sold an office property at 30/31
Newman Street, London W1 for #1.4 million.
POLICY AND PROSPECTS
Our policy of both direct and indirect property investment and
trading continues and the year has seen the successful
furtherance of our objectives of improvement in the quality
and value of the Group's assets and of growth in distributable
income. Risk is spread through diversity of property related
activity, including investment in other listed companies and
purchase in joint venture, and through careful management of
our borrowing costs.
The significant changes to the commercial investment portfolio
effected over the last four years should enhance the benefits
from improvements in rental values now being seen. As
suitable opportunities arise, whether to buy or sell, there
will be further activity as our properties are regularly
reviewed to ensure continuing enhancement of the portfolio
which represents some 42 per cent of gross assets.
Trading turnover and stock, all of which is commercial, rose
substantially during the year following the acquisition of
Merivale Moore's half share in our former joint ventures,
which were managed by Jim Neill, who remains with us. I
anticipate a similar level of activity in the current year and
look forward to a further useful contribution to profit.
Trading stock represents some 12 per cent of gross assets.
Our residential property assets, held both directly in
Walthamstow, London E17 where we still retain about 920
dwellings which are sold as they become vacant and indirectly
through shares in The Bradford Property Trust PLC, have
performed well and I am optimistic, given the continued
strength of the market, that they will do so again in the
current year. They represent some 33 per cent of gross
assets.
We have continued to make purchases in joint venture. This
allows us both to spread risk and to benefit from the
specialised abilities of other companies and individuals, thus
complementing our own skills. I expect an improvement in the
contribution to profit from this source.
The secondary market continues to benefit both from the
substantial appetite for prime properties at ever reducing
yields and from higher returns as a result of the current cost
of borrowing which still remains at an historically low level.
Although the ready availability of finance has increased
activity and competition for attractive opportunities, I am
confident that in this buoyant market the Company's strategy
of diversification will continue to provide good returns in
the forthcoming year.
DIVIDENDS
The Board recommends a final dividend per share of 8.75p
(1996: 8.20p), making a total for the year of 12.90p (1996:
12.20p). If approved at the Annual General Meeting, the final
dividend will be paid on 6 April 1998 to shareholders on the
register at the close of business on 6 March 1998.
CONSOLIDATED PROFIT AND LOSS ACCOUNT (UNAUDITED)
Year ended 30 September 1997 1996
Rev- Cap- Rev- Cap-
enue ital Total enue ital Total
#000 #000 #000 #000 #000 #000
Turnover - note 1
Rents receivable
(continuing) - note 2 15,710 -15,710 13,912 -13,912
Property trading
(continuing) 24,661 -24,661 9,210 - 9,210
----- ----- ----- ----- ----- -----
40,371 -40,371 23,122 -23,122
===== ===== ===== ===== ===== =====
Operating profit - note 1
Continuing operations 13,440 -13,440 11,401 -11,401
Discontinued operations - - - (51) - (51)
----- ----- ----- ----- ----- -----
13,440 -13,440 11,350 -11,350
Share of profit
of associated undertakings 602 - 602 915 - 915
Surplus on sale of
fixed assets
Group - 2,481 2,481 - 1,701 1,701
Associated undertakings - 104 104 - 77 77
Release of provision
for discontinued operation - - - 51 - 51
Investment income
and other interest
receivable 2,813 - 2,813 2,196 - 2,196
Provision against land
and buildings
for permanent diminution
in value - - - - (115) (115)
----- ----- ----- ----- ----- -----
16,855 2,58519,440 14,512 1,66316,175
Interest payable
and similar charges (7,187) -(7,187) (6,080) -(6,080)
----- ----- ----- ----- ----- -----
Profit on ordinary
activities
before taxation 9,668 2,58512,253 8,432 1,66310,095
Tax on profit on
ordinary activities (2,358) (77)(2,435) (2,100) (146)(2,246)
----- ----- ----- ----- ----- -----
Profit on ordinary
activities
after taxation 7,310 2,508 9,818 6,332 1,517 7,849
Transfer to other
capital reserve -(2,508)(2,508) -(1,517)(1,517)
----- ----- ----- ----- ----- -----
Profit available for
distribution 7,310 - 7,310 6,332 - 6,332
Dividends (6,583) -(6,583) (6,124) -(6,124)
----- ----- ----- ----- ----- -----
Retained profit
for the year 727 - 727 208 - 208
===== ===== ===== ===== ===== =====
Earnings per share
- note 3 14.26p 4.89p19.15p 12.84p 3.08p15.92p
===== ===== ===== ===== ===== =====
Dividends per share 12.90p -12.90p 12.20p -12.20p
===== ===== ===== ===== ===== =====
ABRIDGED CONSOLIDATED BALANCE SHEET (UNAUDITED)
At 30 September 1997 1996
#000 #000
Fixed Assets
Tangible assets
Land and buildings - note 4, 5 141,446 127,520
Other tangible assets 196 192
------ ------
141,642 127,712
Investments - note 6 76,359 62,352
------ ------
218,001 190,064
Current Assets
Property trading stock 31,034 14,543
Debtors 11,862 3,971
Deferred taxation 1,465 1,434
Investments 772 767
Cash at bank and in hand - note 7 1,424 1,146
------ ------
46,557 21,861
Current Liabilities
Creditors: amounts falling due
within one year - note 7 (57,257) (40,578)
------ ------
Net Current Liabilities (10,700) (18,717)
------ ------
Total Assets less Current Liabilities 207,301 171,347
Creditors
Amounts falling due after more
than one year - note 7 (49,939) (37,913)
Provision for liabilities and charges (361) (361)
------ ------
157,001 133,073
====== ======
Net assets per share 308p 259p
====== ======
NOTES (UNAUDITED)
1 Turnover and operating profit
Special-
Rents Prop- ised
receiv- erty contract-
able trading ing
(contin- (contin- (discont-
uing) uing) inued) Total
#000 #000 #000 #000
1997
Turnover 15,710 24,661 - 40,371
Property outgoings (2,251) - - (2,251)
Cost of sales - (23,044) -(23,044)
Writedown cost of
trading stock - (385) - (385)
------ ------ ------ ------
Gross profit 13,459 1,232 - 14,691
Administrative expenses(1,220) - - (1,220)
Writedown cost of
current asset
investment - (31) - (31)
------ ------ ------ ------
Operating profit 12,239 1,201 - 13,440
====== ====== ====== ======
1996
Turnover 13,912 9,210 - 23,122
Property outgoings (1,753) - - (1,753)
Cost of sales - (8,898) (51)(8,949)
Writedown cost of
trading stock - (40) - (40)
------ ------ ------ ------
Gross profit/(loss) 12,159 272 (51)12,380
Administrative expenses(1,030) - - (1,030)
------ ------ ------ ------
Operating profit/(loss)11,129 272 (51)11,350
====== ====== ====== ======
2 Sectoral analysis of gross rental income
1997 1996
#000 per cent #000 per cent
Shops 6,621 42 4,706 34
Offices 4,607 29 4,684 34
Industrial 2,281 15 2,266 16
Residential 2,201 14 2,256 16
------ ------ ------ ------
15,710 100 13,912 100
====== ====== ====== ======
3 Earnings per share
Earnings per share are calculated on the profit on
ordinary activities after taxation and on the weighted
average number of shares in issue throughout the year,
being 51,264,426 (1996: 49,316,322).
4 Sectoral analysis of investment properties by valuation
1997 1996
#000 per cent #000 per cent
Shops 58,791 42 49,195 39
Offices 39,016 27 38,685 30
Industrial 14,481 10 14,400 11
Residential 29,158 21 25,240 20
------ ------ ------ ------
141,446 100 127,520 100
====== ====== ====== ======
5 Geographical analysis of investment properties by
valuation
1997 1996
per cent per cent
Commercial:
Inner London 10 9
Outer London 23 28
South East (excluding London) 14 13
South West 7 7
East Midlands 6 4
West Midlands 8 9
North West 29 27
Yorkshire & Humberside 3 3
------ ------
100 100
====== ======
Residential:
Substantially all residential investment properties are
located in Outer London.
6 Fixed asset investments
1997 1996
#000 #000
Shares in associated undertakings
at valuation 3,994 4,294
Loans to associated undertakings 4,898 3,110
Listed investments at market value 67,467 54,948
------ ------
76,359 62,352
====== ======
Listed investments at 30 September 1997 comprised
19,260,000 ordinary shares and 214,000 cumulative
preference shares in The Bradford Property Trust PLC,
2,598,414 ordinary shares and 652,287 preference shares
in East Surrey Holdings plc and 7,674,137 ordinary shares
in Ashquay Group PLC.
7 Indebtedness
1997 1996
#000 #000
Falling due within one year:
Bank loans and overdrafts 26,994 26,242
Mortgages and other loans 867 573
------ ------
27,861 26,815
------ ------
Falling due after more than one year:
Mortgages and other loans 44,212 31,211
Bank loan 5,708 6,702
------ ------
49,920 37,913
------ ------
Gross debt 77,781 64,728
Cash at bank and in hand (1,424) (1,146)
------ ------
Net debt 76,357 63,582
====== ======
8 Financial statements
The consolidated profit and loss account and the abridged
consolidated balance sheet do not constitute statutory
accounts within the meaning of section 240 of the
Companies Act 1985. The statutory accounts for 1996
received an unqualified auditors' report and have been
delivered to the Registrar of Companies. The statutory
accounts for 1997 have not been reported on by the
auditors. It is expected that they will be mailed to
shareholders in mid January 1998, when copies will be
available from the Company Secretary, Warner Estate
Holdings PLC, 3 Vere Street, London W1M 0JZ (telephone:
0171-493 6480).
END
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