CONSOLIDATED INCOME STATEMENT
Profits
Profits before tax decreased to £0.2 million (2006: £22.8 million) primarily due to lower revaluation surpluses and higher net finance costs compared to 2006.
Rental income
Net rental income for the year fell to £6.9 million (2006: £7.4 million), reflecting the sale of let investment properties and their replacement with vacant or partially let properties with refurbishment and development prospects. During the year, £6.0 million of investment properties, yielding £0.4 million of rental income per annum, were sold.
Rental costs increased from £1.6 million to £2.5 million, reflecting a £0.5 million onerous lease provision and additional property related costs.
Trading and development profits
| 2007 £m |
2006 £m |
|
| Trading and development profits | 7.8 | 7.9 |
| Project management fees | 1.2 | 0.6 |
| 9.0 | 8.5 |
Trading and development profits remained constant at £7.8 million (2006: £7.9 million) arising from the sale and development of the hotel and office land site at CityPark, Manchester, and development profit at West Quay III, Southampton. The development programme also produced project management fees from the office schemes at PaddingtonCentral and Southampton.
Operating expenses
Operating expenses increased to £11.4 million (2006: £10.3 million) principally as the result of increased bonus payments and legal and professional costs.
Gain on sale and revaluation of investment properties
During the year to 31st December 2007 the Group sold investment properties with book values of £6.0 million (2006: £45.2 million) on which it broke even (2006: £0.1 million loss). The properties sold included a retail warehouse in Formby and a number of small residential units. The revaluation surplus for the year was £5.1 million (2006: £21.8 million).
Finance costs and finance income
Increases in interest rates on higher levels of debt during most of the year led to an increase in interest costs. This was partially offset by the increase in interest earned, resulting in net finance costs of £6.5 million (2006: £4.4 million).
| 2007 £m |
2006 £m |
|
| Net finance costs Interest payable on bank loans and other borrowings |
11.0 | 8.1 |
| Capitalised interest | (0.7) | (0.7) |
| 10.3 | 7.4 | |
| Finance income | (3.8) | (3.0) |
| Net finance cost | 6.5 | 4.4 |
Subsequent to the year end, a fixed rate loan facility of £34.5 million was repaid, incurring an early repayment fee of £5.9 million, or £4.1 million after tax. The facility was replaced with a £38.0 million floating rate loan.
Taxation
The corporation tax charge and deferred tax movements for 2007 are more than the standard 30.0 per cent due to permanent differences and tax adjustments in respect of prior years.
The deferred tax charge for the year reflects a provision for tax on revaluations and on other temporary differences between the carrying amount of assets and liabilities in the financial statements and their corresponding tax bases in accordance with IFRS.
Dividends
The Board will recommend to shareholders at the Annual General Meeting on 21st May 2008 a final dividend of 4.8 pence per share (2006: 4.5 pence) to be paid on 3rd July 2008 to shareholders on the register on 6th June 2008. This final dividend, amounting to £1.9 million (2006: £1.8 million) has not been included as a liability at 31st December 2007, in accordance with IFRS.
| 2007 pence |
2006 pence |
|
| Dividends Interim |
2.40 | 2.25 |
| Prior period final | 4.50 | 4.25 |
| Total dividends paid in the year | 6.90 | 6.50 |
During 2007, 400,000 shares were purchased for £2.0 million at 499.7 pence per share and 254,000 shares issued under options for £0.9 million.
Earnings per share
Earnings per share in the year to 31st December 2007 were nil pence (2006: 63.4 pence per share) and on a diluted basis were nil pence per share (2006: 63.0 pence per share).
CONSOLIDATED BALANCE SHEET
Investment portfolio
During the year investment properties with a book value of £6.0 million were sold and partly replaced by £1.4 million of new properties. In addition, £4.0 million of capital expenditure was spent on refurbishing various office, industrial and retail buildings. At 31st December 2007, there was a revaluation surplus of £5.1 million (2006: £21.8 million) on the investment portfolio.
| 2007 £m |
2006 £m |
|
| Investment portfolio and assets held for sale Valuation at 1st January |
144.8 | 159.6 |
| Additions at cost | 5.4 | 7.1 |
| Disposals | (6.0) | (45.2) |
| Transfer from operating properties |
5.5 | 1.5 |
| Revaluation | 5.1 | 21.8 |
| Valuation at 31st December |
154.8 | 144.8 |
Net asset values
The performance of the Group in the year to 31st December 2007 has marginally reduced equity shareholders’ funds on which the net asset value per share is calculated, by £2.5 million to £228.9 million, leading to a 0.7 per cent decrease in net assets per share to 564 pence (2006: 568 pence), principally as a consequence of £2.0 million share buy-back programme.
Borrowings and financial risk
The Group’s purchases of development sites have increased debt and, at 31st December 2007, net debt had increased from £14.4 million to £71.5 million.
Together with a decrease in net assets of £2.5 million and higher net debt, the Group’s net gearing* increased from 6.2 per cent to 31.2 per cent.
| 2007 | 2006 | |
| Net debt and gearing Gross debt £'m |
144.6 | 102.9 |
| Net debt £'m | 71.5 | 14.4 |
| Gearing % | 31.2 | 6.2 |
The Group seeks to manage financial risk by ensuring that there is sufficient financial liquidity to meet foreseeable needs and by investing cash prudently and profitably. At the year end, Development Securities PLC had £55.5 million of undrawn bank facilities of which £7.5 million is collaterised (2006: £42.8 million and £5.4 million respectively) and cash of £73.1 million (£27.8 million excluding pledged collateral cash balances) (2006: £88.5 million and £81.6 million excluding pledged cash).
The Group partly manages its interest rate exposure through the use of fixed rate debt and debenture instruments. The proportion of fixed, floating and hedged debt and the Group’s interest profile is analysed in note 16 of the financial statements.
Performance measures
Key performance indicators as highlighted in the Review of operations are set out below:
| Year ended 31st December | 2007 | 2006 |
| Net asset value growth % | (1.1) | 23.4 |
| IPD total return % | 3.7 | 18.5 |
| Gearing % | 31.2 | 6.2 |
| Total shareholder return % | (28.2) | 33.5 |
Michael Marx
Finance Director
8th April 2008
*refer note 1(q)
