Serviced Office Group plc (AIM: SVO)

Transcription

1 Serviced Office Grp Final Results RNS Number : 5263B Serviced Office Group PLC 04 April 2013 Serviced Office Group plc (AIM: SVO) Preliminary Results for the year ended 31 December Serviced Office Group plc ("SVO" or the "Group") is an AIM-listed provider of flexible office space and IT solutions, which operates 22 business centres, predominantly in London and the South East. Its IT division, Streamwire, offers end-to-end infrastructure and technology solutions to SMEs Financial highlights for the year The Group made a profit before tax of 4.3 million for the year ended 31 December. This included gains on the Group refinancing of 9.4 million offset by revaluation losses of 4.8 million. Change Revenue 15,993 12,276 Up 30.3% Like-for-like revenue 9,817 9,436 Up 4.0% Operating loss 1 (4,115) (7,482) Improved 45% EBITDA 2 6,466 (6,578) Significant increase Adjusted EBITDA 3 2,824 1,697 Up 66.4% 666 (545) Significant increase Profit / (loss) before tax 2 4,308 (8,820) Significant increase Adjusted profit / (loss) before tax 3 Net Assets 11,677 (2,505) Significant increase Cash at year end 2,694 2,278 Up 18.3% Net debt at year end 3,714 21,735 Down 82.9% Earnings / (loss) per share p (5.76p) Significant increase Adjusted EPS p (0.31p) Significant increase Impacted by negative property revaluations ( 4.8 million). Impacted by gains from refinancing ( 9.4 million), negative property revaluations ( 4.8 million) and share-based payments ( 1.0 million). excludes gains from refinancing ( 9.4 million) and negative property revaluations ( 4.8 million). excludes short-term impact of Covent Garden opening loss ( 1.0 million), negative property revaluations ( 7.9 million) and profit made on sale of Teddington ( 0.6 million). Dan Taylor, Chairman, comments: " marked a watershed for the Group, in which we successfully refinanced the business and repaired the balance sheet to secure a firm foundation on which to grow. Following completion of this degearing exercise the Group is on a strong footing as it seeks to expand its London based operations. Looking at 2013, our focus is on sensible organic growth and exploring acquisition growth where it can demonstrably add value. On both fronts I believe there to be interesting opportunities." 1/23

2 4 April 2013 ENQUIRIES: Serviced Office Group plc Michael Kingshott, Managing Director Tel: Elizabeth Scannell, Finance Director Tel: Shore Capital & Corporate Tel: Stephane Auton / Patrick Castle Cubitt Consulting Tel: Gareth David / Cebuan Bliss Chairman's Statement I am pleased to be writing to you on the anniversary of my first year as Chairman with encouraging results for and attractive prospects for the Group, looking ahead. marked a watershed for the Group, in which we successfully refinanced the business and repaired the balance sheet to secure a firm foundation on which to grow. As reported in last year's accounts, the Group's property loans and accrued interest of some 23.7 million could not 'be extended on a loan-to-value basis that the company could support'. In negotiations with Royal Bank of Scotland plc ("RBS") we agreed an attractive refinancing in which the 23.7 million debt was settled with a one-off payment of 12.5 million accompanied by RBS receiving warrants exercisable into 5% of the Group's ordinary shares, and a 50% share of any profits the Group achieves from future sale of the seven freehold properties above a basis of 12.5 million. The consideration for this settlement was met by a 9.0 million share placement and a new banking facility with HSBC for 6.5 million. The ability of the Group to raise such a sum in the current economic climate is a credit to all those involved. After the fund raising and payment of the consideration the Group had an additional 1.7 million in cash at its disposal. Following completion of this de-gearing exercise the Group is on a strong footing as it seeks to expand its London based operations. Our strategy for growth is to focus on Central London sites where the margins between achievable workstation rates and running costs are healthy and the market demand from a 'new generation' of tenants seeking shorter commitments is strong. Moreover, the stock of buildings suitable for serviced offices remains high in Central London, as so many buildings earmarked for re-development have had to extend their development time frame in light of financing constraints. This confluence of factors provides us with a healthy marketplace for the foreseeable future. Demand for serviced office accommodation outside London may yet rebound, although we are comfortable waiting for tangible signs of this before venturing back into those markets. In the meantime, we intend to complete the disposal of our seven freeholds in the near future. At the time of writing this, one of our properties is under negotiation for sale and several others are being actively marketed. The financial highlights for are summarised below and, I will defer to the Managing Director's and Finance Director's Reports to comment on our trading and earnings in more detail, but I am pleased with the results which underscore the improving industry trend. It should be borne in mind, however, that our figures are inevitably clouded by the extraordinary gains arising from our debt renegotiation. In view of the extraordinary gains, these figures do not represent sustainable 2/23

3 levels to be matched from our current portfolio of properties. Furthermore, it should be noted that we have prudently reduced the value of our freehold portfolio to 15 million, which we believe to be a sensible level that reflects fair value in today's market. Nonetheless, I firmly believe we can continue to grow our 'normalised' earnings and cash flow in coming years. I would like to extend my thanks again, as Chairman and shareholder, to all our employees, supporting shareholders both old and new, and to HSBC our new bankers, in contributing to our recent success and our future aspirations. Looking at 2013, our focus is on sensible organic growth and exploring acquisition growth where it can demonstrably add value. On both fronts I believe there to be interesting opportunities. DAN TAYLOR Chairman 3 April 2013 Managing Director's Report Serviced Office Group plc continued to go from strength-to-strength during. In addition to the refinancing which significantly improved the Group's statement of financial position, the Group grew both in the number of work stations it operates and the services it provides. The IT Division and Project and Facilities Management Team continued to generate increased revenue and grow in both stature and productivity. Highlights of the year included: Opening of 33,000 square foot of new serviced offices at the Mermaid Theatre in Blackfriars, adding 396 work stations to the Group. Successful move of over 60% of our clients from Quay House to 5 Harbour Exchange at Canary Wharf. This building is now being redesigned to increase the number of work stations it provides from 214 to 241. Successful tender and subsequent award of a significant, multi-year, IT services and support project for Costain plc, a supplier to Network Rail for the London Bridge station development. Appointment to manage the 3.8 million redevelopment of Nena House, Great Eastern Street, which will create 23,000 sq ft of conventional office space and, subject to planning, seven luxury apartments. A 5% increase in the number of work stations operated by the Group from 5,394 in December to 5,678 in December. Development and installation of a bespoke Customer Relationship Management (CRM) system which enables us to run our business more efficiently and focus on our clients' needs. Separation of the Chairman and Managing Director roles bringing Dan Taylor's experience further into the Group. Appointment of a new Managing Director for the IT Division, Anne Stokes, and subsequent roll out of a number of new IT services including Cloud-based services and a sales management and business optimisation system. Occupancy levels across the Group have been maintained at 81% (31 December : 81%) while the average rate per workstation has increased from 309 to 319. Pleasingly the regional sites have experienced increased rates this year but the disparity in rates between Central London and the rest of the country continues to widen. As a result, we are focussing our growth within Central London and plan to dispose of the Group's regional properties as and when the time is right. The Project and Facilities Management Team has enjoyed increased success 3/23

4 with landlords, due to its ability to reduce build costs and deliver a quality product on time and in a cost-effective manner. This generates an additional revenue stream for the Group which stems from the expertise and skills which are necessary for the maintenance of the Group's own estate. The ability of our management team to design and convert existing, older properties thereby extending their profitable lives for periods in excess of ten years, enables the Group to progressively extend its serviced office operations in buildings and locations which it may not otherwise be able to access. The skills of our IT division, coupled with our strong building management FM facility offering, places the Group in a very interesting position in the face of considerable economic difficulties which continue to impact major landlords throughout the country. There is steadily increasing demand from SMEs for short to medium term lets of office space ranging from 1,500 to 5,000 square feet and Serviced Office Group plc is responding to that demand by seeking to manage larger buildings, which offer the ability to combine short term lets with semiconventional office space. Our growth continues to be on an organic basis with the addition of individual sites having a significant impact on the Group's results. The Group benefitted from this in with a full year's occupation of Covent Garden generating a profit of 0.7 million compared to an opening year loss of 1 million in. Following the Group's refinancing, the Group now has a much stronger position from which to expand and our available cash resources mean we can be more selective about the properties opened. Going forward the focus will be on properties in Central London which will increase the Group's profitability. Within the serviced office industry, the fixed-cost base is relatively stable whether a property is in Central London or in a small, regional town. Profitability is driven by the number of workstations in the building and the rate which can be commanded. By focussing on larger, higher-grade buildings in Central London, the profitability of the Group will increase over the longer-term. MICHAEL KINGSHOTT Managing Director 3 April 2013 Finance Director's Report was a pivotal year for Serviced Office Group plc, with the fundraising and refinancing of the Group significantly improving its statement of financial position and forming a solid foundation for expansion of the Group in the future. As a result the Group has moved from a net liability position in to having net assets of 11.7 million at 31 December. The Group's profit before tax for the year of 4.3 million was driven by the 9.4 million gain made on the refinancing, offset by revaluation losses on the Group's properties of 4.8 million and share-based payments of 1.0 million. Excluding these items, the Group made an underlying profit before tax of 0.7 million, a 2.2 million improvement on prior year (: 1.5 million underlying loss excluding property revaluation losses and profit on sale of Teddington). The improvement in underlying profit before tax was generated from: positive impact from Covent Garden which generated profit before tax of 0.7 million compared to opening loss of 1 million in the prior year increase in fees from Project and Facilities Management contracts of 0.3 million 4/23

5 increase in fees generated from managed centres of 0.2 million Financing and cash During the year, the Group undertook a 9.0 million fundraising from new and existing shareholders. At the same time, the Group's existing bankers, Royal Bank of Scotland plc, agreed to write-off part of the Group's 23.7 million loan and accrued interest. As a result the loan from Royal Bank of Scotland plc has been replaced with a three-year, term loan of 6.25 million from HSBC. The refinancing and fundraising generated cash of 1.7 million net of fees and gains of 9.4 million. The Group's Project and Facilities Management business continued to have a positive impact on the Group's cash balance as well as its profitability. Such projects are self-financed, enabling the Group to better manage its cash resources and drive operating cash flow. The Group's operating cash in-flow for the year was 0.4 million (: 3.3 million) and the Group ended the year with a healthy cash balance of 2.7 million (: 2.3 million). The injection of 1.7 million from the fundraising was offset by a decrease in cash held for building projects due to the timing of projects being carried out. As a result of the refinancing and the associated reduction in debt, the Group's interest charge for the year decreased to 1.0 million (: 1.3 million) and is expected to decrease further going forwards. Earnings per share The Group generated a profit per share of 2.20p in the year ended 31 December (: 5.76p loss). The improvement on prior year was significantly impacted by the refinancing and reduced revaluation losses. Excluding these items and the one-off items incurred in (Covent Garden loss, revaluation movements and profit on sale of Teddington), underlying earnings per share improved to 0.33p (: 0.31p loss). Revenue and operating profit Revenue increased 30.3% ( 3.7 million) in the year ended 31 December to 16.0 million (: 12.3million). 1.9 million of this increase was generated by Covent Garden with the remainder coming from Hanover Square following the full year effect of opening of a new floor in April. Operating loss has improved to 4.1 million (: 7.5 million loss). The key drivers of the improvement were the reduction in negative revaluations to a loss of 4.8 million (: 7.9 million loss) and reversal of the loss generated in the prior year by Covent Garden during its opening phase ( 1.0 million). Excluding the one off items in (gains from refinancing, revaluation losses and share-based payment expenses) and in (loss on Covent Garden, profit on sale of Teddington, revaluation losses and share-based payment expenses), underlying operating profit increased 0.8 million to 1.7 million. Reconciliations of revenue and operating profit from to are provided below. '000 Revenue Operating loss Year ended 31 December 12,276 (7,482) Like-for-like change 382 (154) New centres opened in 2,093 1,742 New centres opened in Centres closed in (633) (651) Increase in fees from IT projects 950 (36) Increase in management fees Increase in project management fees /23

6 Other business (75) - Increase in central costs Revaluation change - 3,098 Profit on sale of property in prior year - (637) Year ended 31 December 15,993 (3,123) Administrative expenses Administrative expenses increased by 1.9 million to 4.4 million (: 2.5 million). Of the 1.9 million increase, 1.0 million related to a one-off charge for the share options which were primarily to Directors at the time of the fundraising, 0.3 million related to IT and Project and Facilities Management projects and 0.6 million to increases in central payroll and Director costs. An analysis of the movement in administrative expenses is shown below. '000 Administrative expenses Year ended 31 December 2,475 Increased costs on like-for-like business 31 New centres opened in 100 New centres opened in 1 Centres closed in (174) Increased share-based payment expenses 951 Increased costs of IT contracts 157 Increased costs of Project and Facilities Management 181 contracts Increase in other central costs 650 Year ended 31 December 4,372 Management fees The Group's business of operating management contracts on behalf of third parties continued to grow during the year with the opening of serviced offices above the Mermaid Conference Centre in Blackfriars, transfer to a new site in Hemel Hempstead and the opening of Sevenoaks. Management fees have increased primarily as a result of improved performance at our existing centres as two of the three new centres were opened at the end of the year and one is subject to a deferred fee basis. A reconciliation of the increase in management fee revenue is shown below. '000 Management fees Year ended 31 December 524 Like-for-like increase 24 Increase generated by centres opened in 266 Increase generated by centres closed in (40) Fees generated from centres closed in (63) Year ended 31 December 711 Taxation The tax credit for the year was 0.1 million (: 0.07 million credit) which is lower than the standard rate of 24.5% due to the revaluation losses being subject to deferred tax only. ELIZABETH SCANNELL Finance Director 3 April 2013 Consolidated statement of comprehensive income 6/23

7 Continuing operations Revenue 15,993 12,276 Cost of sales (10,964) (10,050) Gross profit 5,029 2,226 Net loss from investment properties (4,772) (7,233) Administrative expenses (4,372) (2,475) Loss from operations (4,115) (7,482) Finance income 9,407 - Finance expense (984) (1,338) Profit / (loss) before income tax 4,308 (8,820) Income tax credit Profit / (loss) for the year and total comprehensive income for the year 4,430 (8,753) Earnings per share: Basic 2.20p (5.76p) Diluted 2.16p (5.76p) Consolidated statement of financial position ASSETS Non-current assets Investment property 15,000 19,685 Property, plant & equipment 2,974 3,347 Goodwill & intangibles 1,343 1,294 Deferred tax asset Current assets 19,439 24,326 Inventories Trade and other receivables 3,177 2,473 Cash and cash equivalents 2,694 2,278 6,005 4,912 Total assets 25,444 29,238 EQUITY Capital and reserves attributable to equity holders of the Company Called up share capital 9,540 5,040 Share premium account 9,422 5,510 Reserves (7,285) (13,055) Total equity / (deficit) 11,677 (2,505) LIABILITIES Non-current liabilities Borrowings 5, Provisions for liabilities 33 - Trade and other payables 1,256-7, /23

8 Current liabilities Trade and other payables 6,070 7,730 Borrowings ,664 6,482 31,394 Total liabilities 13,767 31,743 Total equity and liabilities 25,444 29,238 These financial statements and notes thereto were approved by the Board of Directors on 3 April 2013 and signed on behalf of the Board. Michael Kingshott Director Elizabeth Scannell Director Consolidated statement of changes in equity Attributable to equity holders of the Company Group Share Share Reserves Total Capital Premium Equity Balance at 1 January 5,040 5,510 (4,355) 6,195 Loss and total comprehensive income for the year - - (8,753) (8,753) Share based payment Balance at 31 December 5,040 5,510 (13,055) (2,505) Balance at 1 January 5,040 5,510 (13,055) (2,505) Profit and total comprehensive income for the year - - 4,430 4,430 Share based payment - - 1,008 1,008 Issue of warrants in the year Issue of shares in the year 4,500 4,500-9,000 Share issue cost - (588) - (588) Balance at 31 December 9,540 9,422 (7,285) 11,677 Consolidated Cash Flow Statement Profit / (loss) before tax 4,308 (8,820) Adjustment for : Interest expense 905 1,338 Depreciation of plant and equipment 1, Amortisation of intangibles 4 - Increase in dilapidation provision Revaluation loss on investment properties 4,772 7,870 Profit on disposal of investment property - (637) Amortisation of bank loan arrangement costs Provision for deferred consideration 1, /23

9 Warrants issued during the year Professional fees associated with financing activities Forgiveness of loan (10,168) - Forgiveness of interest (1,014) - Share based payment 1, Operating cash flow before movement in working capital 2, Decrease/(increase)in inventories 27 (98) Increase in trade receivables (144) (366) Increase in other current assets (560) (796) (Decrease)/ increase in payables (1,658) 3,836 Cash generated from operations 385 3,301 Interest paid (794) (1,119) Net cash from operating activities (409) 2,182 Cash flows from investing activities Purchases of plant and equipment (758) (1,240) Disposal of investment property - 3,900 Net cash (used in) / from investment activities (758) 2,660 Cash flows from financing activities Proceeds from issue of shares (net of professional fees) 8,036 - New bank loan 6,250 - Repayment of bank loan (12,500) (3,302) Finance lease capital repayments (203) (178) Net cash generated by / (used in) financing activities 1,583 (3,480) Net increase in cash and cash equivalents 416 1,362 Cash and cash equivalents at the beginning of the year 2, Cash and cash equivalents 2,694 2,278 The increase in finance leases in was nil (: 65,000) which is a non-cash movement included within the increase in payables balance. NOTES TO THE FINANCIAL STATEMENTS 1 BASIS OF PREPARATION The financial information set out in this announcement does not constitute the Group's statutory accounts for the years to 31 December or 31 December but is derived from the Group's Annual Report. Statutory accounts for the years ended 31 December and 31 December have been reported on by the Independent Auditors. The Independent Auditors' Report on the Financial Statements for and were both unqualified and did not contain a statement under section 498(2) or 498(3) 9/23

10 of the Companies Act In their report on the financial statements the Auditors drew attention by way of emphasis of matter to going concern matters in relation to those financial statements as described below. The directors at the time of the sign off of the 31 December financial statements were in on-going discussions with the Group's bankers in relation to the 23.5m bank loan which was due for repayment in December and on which the covenants were in breach resulting in it being repayable on demand. The directors were confident that the outcome of these discussions at sign off would be successful in securing the necessary finance for the Group, however, at that time there was no guarantee that such an outcome would be reached. Statutory accounts for the year ended 31 December have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December will be delivered to the Registrar in due course. The Annual Report, which will contain the financial statements for the year ended to 31 December and the notice of Annual General Meeting, will be posted to shareholders shortly and will also be available on the Company's website In preparing the financial information in this announcement the Group has applied accounting policies in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial statements are prepared on the historical cost convention, as modified by the revaluation of investment property and the fair valuation of financial instruments. 2 REVENUE ANALYSIS The Group's revenue for the year was comprised as shown below. Licence fees & rental income 10,664 8,548 Other services income 4,044 3,122 Management fees Project management fees ,993 12,276 3 SEGMENTAL REPORTING The Group's business is the provision of serviced office accommodation. Following growth of the Group's external IT services business, the Directors now consider the Group to have four segments as follows: Serviced office business undertaken in the Group's freehold and leasehold properties;; Serviced office business undertaken under management contracts on behalf of third parties;; Project management fees earned for managing refurbishment projects and facilities management contracts on behalf of third parties;; and IT services business providing IT and telecoms in excess of the standard serviced office services to clients both within the Group's properties and external to the Group. The basis for this conclusion is that in order to spread the Group's exposure to the property market, it has expanded its services to utilize its skills on behalf of third parties and, as such, these revenue streams have different risks and rewards. Management fees are recognised in respect of serviced office management 10/23

11 contracts whereby the Group earns a fee for operating a third party's building as a serviced office. Since the risks and rewards of the serviced office business and property ownership are borne by the third party, the Directors consider this a separate segment to the rest of the portfolio. Project management fees are recognised whereby the Group earns a fee for managing large refurbishment projects on behalf of third parties, most commonly in buildings that the Group will subsequently run under serviced office management contracts. Since the risks and rewards of these contracts are different to those of running a serviced office, the Directors consider this a separate segment to the rest of the portfolio. IT services fees are recognized in respect of IT and telecoms contracts whereby the Group earns fees for the initial set-up of a client's IT requirements and ongoing fees for the subsequent support of their IT. The Directors receive financial and operational information on a propertyby-property basis and all properties are located within the south of England. The economic and operational risks associated with each of the properties is similar and the information for each property is aggregated for the Board and reviewed as one portfolio. The Directors do not, therefore, believe that there are any other segments on either a geographic or operational perspective. ServicedManaged Project and IT office serviced facilities services business offices management Total '000 '000 '000 '000 '000 Revenue 11, ,878 15,993 Cost of sales (8,823) (75) (109) (1,957)(10,964) Gross profit 3, ,029 Net (loss) from investment properties (4,772) (4,772) Administrative expenses (3,388) (66) (85) (833) (4,372) (Loss)/profit from operations (5,153) (4,115) Finance income 9, ,407 Finance expense (969) (15) - - (984) Profit before tax 3, ,308 Income tax charge Profit after tax 3, ,430 Serviced office business Managed Project and IT serviced facilities services offices management Total '000 '000 '000 '000 '000 Revenue 10, ,567 12,276 Cost of sales (8,839) (22) - (1,189)(10,050) Gross profit 1, ,226 Net (loss) from investment properties (7,233) (7,233) Administrative expenses (1,809) (125) - (541) (2,475) (Loss)/profit from operations (7,778) (163) (7,482) Finance expense (1,321) (17) - - (1,338) 11/23

12 (Loss)/profit tax before (9,099) (163) (8,820) Income tax credit (Loss)/profit after tax (9,032) (163) (8,753) Since the only financial impact of the managed properties, project management contracts and IT services contracts is the revenue received by the Group, there are no associated assets or liabilities to disclose in relation to these segments. As a result of the significant IT contract entered into during the year and the consequential expansion of this area of the business, the Directors consider that this has become a separate reportable segment and have consequently restated the segment disclosure to provide comparatives for this segment of the business. 4 LOSS FROM OPERATIONS The following items have been charged at arriving at the loss from operations Depreciation of owned assets Depreciation of assets under finance leases Amortisation of intangibles 4 - Amortisation of loan arrangement fee Employee benefit expense 3,183 2,101 5 EMPLOYEE BENEFIT EXPENSE Wages and salaries 1,971 1,850 Social security costs Share options granted to employees and directors 1, Pension costs - defined contribution plans Total employee benefit expense 3,183 2,101 Number of employees FINANCE INCOME The refinancing of the group as described in the Finance Director's report resulted in a profit after fees of 9.4 million. This was derived as shown below. Debt forgiven by bank 11,182 Provision for warrant (332) Provision for deferred consideration (1,250) Amortisation of remaining arrangement fee (12) Professional fees and associated costs (181) Profit on refinancing 9, /23

13 7 FINANCE EXPENSE Interest expense on bank borrowings 905 1,276 Interest expense on finance lease ,338 8 INCOME TAX Current tax - - Deferred tax credit (122) (67) (122) (67) The tax on the Group's profit before tax differs from the theoretical amount that would arise using the tax rate of 24.5% (: 26.5%) applicable to profits of the UK companies as follows: Profit / (loss) before tax 4,308 (8,820) Tax calculated at domestic rate applicable to profits in the UK 1,055 (2,337) Movement in fair value losses not recognised as deferred tax assets 1,169 2,315 Capital allowances for period in excess of depreciation 109 (79) Recognition of deferred tax assets (118) - Utilisation of bought forward losses - (47) Expenses not deductible for tax purposes Income not taxed (2,739) (294) Profit on disposal of investment property - (126) Movement in fair value of gains Tax credit (122) (67) 9 EARNINGS PER SHARE Earnings used for calculating earnings per share ( '000) Profit/(loss) attributable to equity holders of the Company 4,430 (8,753) Number of shares used for calculating earnings per share (thousands) Weighted average number of shares in issue 201, ,029 Dilution due to share option schemes and warrants 4,132 (8,753) Weighted average number of shares for diluted earnings per share 205,476 (143,276) Earnings / (loss) per share (pence) Basic 2.20 (5.76) Diluted 2.16 (5.76) In the prior year, as a result of the loss incurred all options were antidilutive in this period. 10 INVESTMENT PROPERTY 13/23

14 Fair Value At 1 January 19,685 30,460 Additions Disposals - (3,000) Net loss from fair value adjustments of investment properties (4,772) (7,870) At 31 December 15,000 19,685 The Group's investment properties were revalued at 31 December by the Directors with regard to external valuations obtained by the Group during the year and other market evidence. Valuations are based on current prices in an active market and also the revenue from the serviced office business. In the prior year the Group sold its freehold at Teddington to a property developer. The profit on the transaction net of costs was 637,000 which was recognised within the net loss from investment properties in the Statement of Comprehensive Income. The net loss from investment properties of 7,233,000 for the year ended 31 December was comprised of the loss on revaluation of 7,870,000 as above less the profit on the sale of Teddington of 637,000. The split of rental income, revaluation gains and costs between freehold and long-leasehold properties is provided below. Rental income generated by freehold properties 2,323 2,825 Rental income generated by long-leasehold properties Total rental income generated by investment properties 2,764 3,227 Direct operating expenses incurred on freehold properties 1,691 1,738 Direct operating expenses incurred on long-leasehold properties Total direct operating expenses incurred on investment properties ,984 1,939 Revaluation losses on freehold properties (2,075) (9,118) Revaluation profit on long-leasehold properties (2,697) 1,248 Total revaluation losses on investment properties (4,772) (7,870) There were no investment properties held by the Group which did not generate any income during the year ended 31 December (31 December : none). 11 PROPERTY, PLANT AND EQUIPMENT '000 Cost Leasehold improvements Fixtures & fittings Furniture Motor vehicles Computer equipment & IT Total As at 1 January 50 3,949 1, ,793 6,972 Additions Disposals - - (3) - - (3) 14/23

15 As at 31 December 50 4,349 1, ,963 7,642 Accumulated depreciation As at 1 January 50 2, ,019 3,625 Depreciation charge ,053 for the year Disposals - (3) (7) - - (10) As at 31 December Carrying amount at 31 December Carrying amount at 1 January 50 2, ,348 4,668-1, ,974-1, ,347 '000 Cost Leasehold improvements Fixtures & fittings Furniture Motor vehicles Computer equipment & IT Total As at 1 January 50 3, ,562 5,707 Additions ,405 Disposals - (5) (85) - (50) (140) As at 31 December 50 3,949 1, ,793 6,972 Accumulated depreciation As at 1 January 40 1, ,875 Depreciation charge for the year Disposals - - (34) - (44) (78) As at 31 December Carrying amount at 31 December Carrying amount at 1 January 50 2, ,019 3,625-1, , , ,832 The net book value of assets held under finance leases at 31 December was 304,922 (: 505,000). 12 GOODWILL AND INTANGIBLE ASSETS Goodwill Development Costs Total As at 1 January 1,294-1,294 Additions Amortisation charge for the year As at 31 December 1,294-1,294 As at 1 January 1,294-1,294 Additions Amortisation charge for the year As at 31 December 1, ,343 The goodwill balance relates to the serviced office business which was 15/23

16 acquired along with the original properties in It represents the premium which was paid to acquire the business in addition to the properties. The goodwill balance is reviewed for impairment at each reporting date. The goodwill is tested for impairment against the cashflows generated by the leased and managed properties as these are generated as a direct result of acquiring the business. Cashflows from owned properties are excluded as they are included within the valuation of investment property. The assumptions used in the Group's assessment of impairment at 31 December were a discount rate of 11.9% (: 5.24%), growth rate of 3% (: 3%) and inflation of 1% (: 1%). The Group has undertaken sensitivity analysis which demonstrates that there is no indication of impairment even if the discount rate applied is increased by 10% and assuming no growth or inflation. The group has no contractual commitments for development costs in or Current estimates of useful economic live of intangible assets are as follows: Goodwill indefinite Development costs (internally generated) 3 years 13 DEFERRED TAX Deferred income tax assets and liabilities are offset when there is a legally enforceable right to and when the deferred income taxes relate to the same fiscal authority. The offset amounts are as follows: Deferred tax liabilities - 9 Deferred tax assets (122) (9) Net position at 31 December (122) - The gross movement for the year on the Group's net deferred income tax account is as follows: At 1 January - 67 (Credited) / charged to the profit or loss (122) (67) At 31 December (122) - Deferred tax has been calculated at a rate of 23% (: 26.5%). The movement for the year in deferred tax liabilities and assets recognised by the Group is as follows: Deferred tax liabilities Accelerated tax depreciation Property Revaluations Total At 1 January Credited to the profit or loss - (283) (283) At 31 December /23

17 At 1 January Credited to the profit or loss - (9) (9) At 31 December Deferred tax assets Tax losses Accelerated tax depreciation Property Revaluations Total At 1 January (225) - - (225) Charged to the profit or loss At 31 December (9) - - (9) At 1 January (9) - - (9) Credited to the profit or loss 9 (122) - (113) At 31 December - (122) - (122) Deferred income tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit through the future taxable profits is probable. On the basis of forecast profitability, the Group did not recognise deferred income tax assets of 4,441,000 (: 4,245,000) in respect of tax losses and timing differences that can be carried forward against future taxable income. In addition, the Group did not recognise deferred tax assets of 3,131,000 (: 2,581,000) in respect of unrealised capital losses of 13,614,000 (: 10,324,000). 14 INVENTORIES Land held for resale Furniture stock TRADE AND OTHER RECEIVABLES Trade receivables Prepayments 1,259 1,244 Other receivables 1, There is little concentration of credit risk with respect to trade receivables as the Group has a large number of customers within its buildings. All amounts are due within one year. 16 CASH AND CASH EQUIVALENTS 3,177 2,473 Cash at bank and in hand 2,694 2,278 2,694 2, SHARE CAPITAL Ordinary shares Deferred shares Share Total 17/23

18 premium Number Value Number Value At 1 January 152,029,164 1,520 88,006,334 3,520 5,510 10,550 Shares issued in the year At 31 December 152,029,164 1,520 88,006,334 3,520 5,510 10,550 At 1 January 152,029,164 1,520 88,006,334 3,520 5,510 10,550 Shares issued in the year 450,000,000 4, ,912 8,412 At 31 December 602,029,164 6,020 88,006,334 3,520 9,422 18,962 All issued shares are fully paid. The deferred shares were created as part of the restructuring of the Group's capital in 2009 and do not have any voting rights, preferences, dividend rights, restrictions or rights on wind up of the Company. Shares issued in the year are net of associated costs of 588,000 which have been recognised within the share premium reserve. Share options: The Group's policy is to reward staff and Directors with share options to ensure that the best quality staff are recruited and retained. Options granted under the approved part of the Scheme are exercisable after 3 years' service and all options have a contractual term of 10 years. The Group has no legal or constructive obligation to repurchase or settle options in cash. During the year, share options which were exercisable at 31 December have been issued to certain Directors. Movements in the number of share options and their related weighted average exercise price is as follows: Outstanding as at 1 January Forfeited during the year Weighted Average Exercise Price in pence Per share Weighted Average Options Exercise (Thousands) Price in pence Per share Options (Thousands) , , (920) 3.76 (1,230) Granted during the year , ,613 Outstanding as at 31 December Exercisable as at 31 December , , , ,526 During the financial year, options were granted on 23 November. Share options outstanding at the end of the year have the following expiry dates and exercise prices: Exercise price (pence per share) Options (thousands) Options (thousands) 22 February October August May ,820 6, December ,967 2, April ,613 3, /23

19 22 November ,500 - At 31 December 86,995 12,415 The Group recognised a total expense of 1,008,000 (: 53,000) in relation to share options. Share options are valued at the date of grant using the Black-Scholes valuation model. The factors used to value the options granted during the current and previous period were as shown below. Date of grant Share price on date of grant (pence) Strike price of option (pence) Number of years to maturity Risk free interest rate Volatility of the Group's shares 23 November 2.62p 2.00p % 30.0% 20 April 2.62p 2.62p % 39.0% Volatility is calculated based on the movement of the Group's share price over the 3 years prior to the option being issued. 18 RESERVES Sharebased payment reserve Warrant reserve Retained losses Total At 1 January 18 - (4,373) (4,355) Share option charge Retained loss for the year At 31 December - - (8,753) (8,753) 71 - (13,126) (13,055) At 1 January 71 - (13,126) (13,055) Share option charge 1, ,008 Warrants issued during the year Retained profit for the year At 31 December ,430 4,430 1, (8,696) (7,285) Warrants over shares - as part of the refinancing of the Group in the year ended 31 December, West Register Number 2 Limited (a subsidiary of Royal Bank of Scotland plc) was granted warrants over shares in the Company to the value of 5% of the share capital. The warrants expire on 21 November 2017 and the cost has been charged to the profit for the period. The fair value of the warrants issued at the date of the grant has been determined using the Black-Scholes valuation model. The inputs used to determine the values were as follows: Date of grant 19 November Share price on date of grant (pence) Strike price of option (pence) Number of years to maturity 2.62p 1.94p 5 Risk free interest rate Volatility of the Group's shares 1.80% 31.0% 19/23

20 19 BORROWINGS Following discussions with RBS, the Group's borrowing facilities were restructured in November. At this time, the Group's loans to RBS were partially repaid and the full balance was eliminated. The Group has arranged a new, three year, term loan with HSBC for 6.25 million which expires on 21 November As part of the refinancing, the Group has entered into a hedge agreement on 75% of the HSBC loan value. The hedge is a three-year collar arrangement with a floor of 0.6% and a cap of 1%. Including the interest rate premium on the loan the maximum payable by the Group on this portion of the loan will be 4.25%. The write-off by Royal Bank of Scotland plc has been off-set by an instrument which entitles them to 50% of the upside on future sales of the Group's properties over 12.5 million. The associated cost of this has been recognised within finance income and is recognised on the Statement of Financial Position within non-current trade and other payables. Furthermore, RBS holds warrants over 5% of the Group's share capital and the associated cost of issuing these has been recognised within finance income and within reserves. Current Finance lease obligations Bank borrowings ,667 Interest accruing to loan balance Less: unamortised costs of arrangement (68) (76) Non-current ,664 Bank borrowings 5,950 - Less: unamortised costs of arrangement (124) - 5,826 - Finance lease obligations The investment properties over which the bank borrowings are secured have a value of 15.0 million (: 19.7 million). As announced on 17 August, the interest rate covenant on one of the Group's loans had been breached resulting in the borrowings being repayable on demand at the prior year end. Following the refinancing in the year this issue was resolved. Maturity of financial liabilities The maturity profile of the carrying amount of the Group's non-current liabilities at 31 December was as follows: 5, In more than one year but not more than two years In more than two years but not more than five years 5, /23

21 6, The maturity profile of the future payments due on the Group's borrowings at 31 December was as follows: In less than one year ,740 In more than one year not more than five years 6, ,600 24,089 The effective interest rates at the reporting date were as follows: % % Bank borrowing Finance lease TRADE AND OTHER PAYABLES Current Trade payables 671 1,532 Social security and other taxes 589 1,302 Customer deposits 1,940 1,900 Accruals 2,870 2,996 6,070 7,730 Non-current Derivatives used for hedging 6 - Other financial liabilities 1,250-1,256 - Other financial liabilities - as part of the refinancing of the Group in the year ended 31 December, the Group's subsidiaries entered into a contract with RBS whereby if the Group's investment properties are sold for more than 12.5 million, the subsidiaries are required to pay to RBS 50% of the difference between this and the sales proceeds. The cost has been recognised as 50% of the difference between the value of the investment property at 31 December and 12.5 million. The main uncertainty relates to how much the Group's properties will be sold for and accordingly, how much will be payable to RBS. 21/23

22 21 PROVISIONS FOR LIABILITIES Leasehold dilapidations '000 At 1 January 16 Charged to profit or loss 17 At 31 December 33 Leasehold dilapidations - these relate to the estimated cost of returning a leasehold property to its original state at the end of the lease in accordance with the lease terms. The cost is recognised as depreciation of leasehold improvements over the remaining term of the lease. The main uncertainty relates to estimating the cost that will be incurred at the end of the lease. 22 COMMITMENTS Capital commitments At 31 December and 31 December the Group was not committed any capital expenditure. Neither was the Group committed to any other expenditure contracted but not provided (: none). Operating lease commitments - where a Group company is the lessee The Group leases various buildings under non-cancellable operating lease agreements, all of which have varying terms and break clauses. Operating lease rental charges for the year ended 31 December totalled 2,755,920 (: 1,694,000). The future aggregate minimum lease payments under non-cancellable operating leases are as follows: No later than 1 year 2,598 1,850 Later than 1 year and no later than 5 years 3,693 4,890 Later than 5 years Operating lease commitments - where a Group company is the lessor The Group has determined that all tenant leases are operating leases within the meaning of IAS 17. The majority of the Group's tenant leases are generally short-term (3-18 months long) and with a 3 month break clause at the end of the contract. The future minimum rental receipts under noncancellable operated leases granted to tenants as at 31 December are as follows: 6,693 6,740 No later than 1 year 7,303 10,393 Later than 1 year and no later than 5 years 2,308 3,056 Later than 5 years Finance lease commitments - where a Group company is the lessee The Group leases various items of IT and communications equipment under finance lease agreements, all of which have varying terms. 9,820 13, /23

23 The present value of future aggregate minimum finance lease payments are as follows: '000 Future minimum lease payments Present value of future minimum lease payments Future minimum lease payments Present value of future minimum lease payments No later than 1 year Later than 1 year and no later than 5 years Interest (155) (136) (209) (198) Finance lease liabilities POST BALANCE SHEET EVENTS There have been no post balance sheet events. 24 POSTING OF REPORT & ACCOUNTS The Group's Annual Report & Accounts will be posted to shareholder shortly. The Annual General Meeting will take place at 11.00am on 22 May 2013 at 22 Long Acre, London WC2E 9LY. This information is provided by RNS The company news service from the London Stock Exchange END FR NKNDNFBKDQQK 23/23