1
Hansteen Holdings PLC
(“Hansteen” or “the Group” or “the Company”)
Final Results
Hansteen Holdings PLC (LSE: HSTN), the investor in continental European and UK real estate, announces its
final results for the twelve months ended 31 December 2009.
Highlights
-
Normalised Profit increased by 30% to £15.4 million (FY 08 £11.8 million) *
-
£200 million new equity raised
-
Launch of £90 million UK Industrial Property Unit Trust
-
Admission to the official list and conversion to Real Estate Investment Trust
-
Net Assets at 31 December 2009 £380 million, (2008: £213 million)
-
December 2009 IFRS Net Asset Value of 84p per share (2008: 91p per share)**
-
December 2009 diluted EPRA Net Asset Value of 84p per share (2008: 95p per share **)
-
Portfolio initial yield at 31 December 2009 of 8.6% (2008 8.4%)
-
2010 acquisition of German portfolio for €330 million with 9.2% yield and 24% vacancy ***
-
Combined existing portfolio and HBI portfolio rent at March 2010 approximately €68 million per annum
-
A maintained dividend of 3.2p per share(FY 08: 3.2p per share)
-
Promotion to the FTSE 250 index
*: Normalised Profit represents a pre tax profit excluding gains and losses on investment properties, profit on
sale of subsidiaries, foreign currency and interest rate derivatives hedge valuations.
**: Comparative figure adjusted to reflect the issue of 267,768,451 new shares at a net price of 73p per share
under the Placing and Open offer of 10 July 2009.
***: The acquisition is subject to shareholders’ approval at the EGM on 1 April 2010.
Hansteen Chairman, James Hambro commented: “The group is very well positioned with no debt issues, a
strong diversified income flow, and real opportunities to grow that income. The HPUT has nearly £90 million of
available equity to invest and after the HBI purchase Hansteen itself also has approximately £100 million of
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equity to invest, which together with prudent borrowing still leaves us with purchasing fire power of close to
£400 million.
“We are also beginning to see value returning on a selective basis to the industrial property sector in the UK
and, although the real economy will undoubtedly remain difficult the Board is optimistic for the medium term
prospects to add shareholder value here as well .”
Morgan Jones/Ian Watson
Matt Goode / Simon Brown
Jeremy Carey
Hansteen Holdings plc
Tel: 020 7016 8820
KBC Peel Hunt
Tel: 020 7418 8900
Tavistock Communications
Tel: 020 7920 3150
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CHAIRMAN’S STATEMENT
Faced with a most difficult economic environment at the beginning of 2009, we set out three key objectives for
the year under review; to maintain the strong and secure financial position we had established for the Group; to
grow Normalised Profits; and to position the business for growth. Despite little improvement in the economic
environment we have achieved these objectives and produced a creditable set of results.
RESULTS
Normalised Profit before tax for the year to 31 December 2009 improved 30% to £15.4 million compared to
£11.8 million in 2008 and £9.8 million in 2007. Normalised Profit is the traditional measure of profit akin to that
which would have been reported under the Historical Cost Accounting regime. We set out below a pro-forma
Profit and Loss Account reflecting this approach.
Normalised Profit and Loss Account (£m)
2009
2008
Turnover
38.9
34.9
Cost of Sales
(5.5)
(8.2)
Admin Costs
(7.2)
(3.9)
(10.8)
(11.0)
15.4
11.8
Interest
Normalised Profit before Tax
Under IFRS rules, Hansteen shows a £21.3 million loss before tax (2008: loss of £60.9 million) but this is after
£40.2 million of non cash charges including a £33.3 million (2008: £41.9 million) decline in the value of the
Group’s investment properties, and is therefore fully reflected in the Net Asset Value.
NEW EQUITY
In July 2009, Hansteen raised £194.6 million, net of expenses, in new equity, at a narrow discount to the
Group’s Net Asset Value and the share price at the time. The new equity was raised in order to pursue
opportunistic property acquisitions resulting from the economic downturn, which had significantly depressed
prices. At the time, our expectation was that the bulk of this capital would be invested in UK based investment
property opportunities. However, since raising the new equity, the number of value opportunities that have
become available at attractive prices in the UK has been very limited, although we believe that this is likely to
change in due course. A number of such opportunities are currently under review.
NET ASSET VALUE
The Group’s Net Assets at 31 December 2009 were £380 million compared to £213 million in the prior year.
The increase was largely due to the equity raising from shareholders in July 2009 described in more detail
below.
Net Asset Value calculated on a diluted EPRA basis, as at 31 December 2009, was 84p per share compared to
87p at 30 June 2009, and 95p at 31 December 2008. Both comparables are adjusted figures, to reflect the new
capital raised. The 3% fall in the second half is mainly due to a valuation drop in the Netherlands where we
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experienced increased tenant vacancy levels. The valuation at 31 December 2009 reflected a yield of 8.6%
compared to the Group’s average cost of borrowing, currently running at approximately 3% per annum.
DIVIDEND
Earlier this month, the Group declared a dividend of 3.2p including a PID of 0.34p (2008: 3.2p) in respect of
2009, which will be paid on 1 April 2010 to shareholders who were on the register at close of business on 19
March 2010. In the Board’s view being able to pay a dividend fully covered by Normalised Profit, despite a
virtual doubling of the share capital is testament to the strength of the business.
FINANCIAL
In the current difficult banking environment the Board has maintained a close watch on the Group’s bank
borrowing levels to ensure they are well within covenants.
In November, the Group signed terms for the extension of its revolving facility with Bank of Scotland, which
principally finances its property portfolios in Germany and France, details of which are outlined in the Chief
Executives’ Review.
Net borrowings as at 31 December 2009 were £55 million (2008: £253 million),
representing a loan to value ratio of just 13% (2008: 51%). As the new equity is invested the Board expects net
borrowings to increase materially.
Following completion of the purchase of the BHI portfolio in Germany on a pro-forma basis, the loan to value
ratio of the Group will increase to 49%. However, the non-recourse nature of the debt assumed as part of this
deal means that the Group still has significant resources to invest in new opportunities.
PROPERTY PORTFOLIO
As at 31 December 2009, the Group’s property portfolio comprised 945,286 sqm (2008: 942,367 sqm) with a
value of £421 million (2008: £495 million) and a rent roll of £36 million. The Group started the year with 134,000
sqm of vacant property representing 13.9% by size, and at the year end this had increased 14.0% to 152,805
sqm however, the rent roll only fell 5% to €40.6 million (31 December 2008 €42.9 million). As stated at the
time of the Interim Results, the Board expects the occupational market to continue to be challenging for the
foreseeable future but as a result of its low capital values and rents, and its vigorous management approach,
Hansteen expects to outperform its peers in terms of attracting and retaining occupiers.
NEW FUND
In early August 2009, Hansteen announced the launch of Hansteen UK Industrial Property Unit Trust (HPUT), a
fund of £90 million of equity of which Hansteen is providing £30 million from the fund raising and the balance
from five institutional investors. With prudent gearing of 50% loan to value, HPUT has a potential total fund size
of £180 million which will be used only to buy UK industrial properties with a maximum lot size of £15 million
and, until fully invested, will be Hansteen’s sole dedicated vehicle for such properties.
As asset manager of HPUT, we will receive an ongoing management fee, a performance fee and a return on
our investment.
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As a result of the dearth of value opportunities already referred to initial progress with acquisitions has been
slow, however, since the beginning of 2010 HPUT has purchased one industrial estate and is in due diligence
on three others with a total value of approximately £10 million.
OFFICIAL LIST/REIT STATUS
On 6 October 2009, Hansteen was admitted to the Official List of the London Stock Exchange having previously
traded on AIM. This move was a reflection of the growing size and maturity of the business and has increased
the Group’s profile, improved the liquidity of its shares and enlarged the potential universe of investors. In
March 2010 Hansteen was promoted to the FTSE 250 Index, which should extend these benefits further.
The move to the Official List also enabled Hansteen to become a REIT, the benefits of which are that the Group
will not pay any corporation tax on UK investments and will not have to pay UK tax on its European
investments. These benefits will outweigh the roughly £4.3 million cost of conversion, made up primarily of a
2% entry tax charge payable on the market value of Group properties that were subject to UK tax at the time of
conversion.
CORPORATE PURCHASES
In August 2009, Hansteen acquired a strategic stake of approximately 18.5% in Warner Estate Holdings Plc
(WEH), which acquired Ashtenne Holdings Plc, the previous company founded and managed by Morgan Jones
and Ian Watson, your joint chief executives. The stake was exchanged for Hansteen shares to the value of £2.9
million issued to the vendor.
In November 2009, Hansteen acquired approximately a 12% stake in Kenmore European Industrial Fund
(“KEIF”) in for £6.81 million, of which £3.36 million was paid in cash and the balance in new Hansteen shares.
As a result of the purchase of the HBI portfolio described below, the Board announced that it was no longer
considering making an offer for KEIF, although, in accordance with Rule 2.8 of the Takeover Code reserved the
right to announce an offer or possible offer for KEIF in certain circumstances.
HBI PORTFOLIO
Hansteen announced on 16 March 2010, that it had entered into a conditional agreement to acquire an 861,000
sqm German industrial portfolio from HBI Holding S.àr.l and HBI Delta GP S.àr.l for an effective acquisition cost
of approximately €330 million, financed by approximately €70 million from existing cash resources and the
balance of approximately €260 million from debt, on very beneficial terms. This transaction is subject to
Shareholder approval at a General Meeting of shareholders on 1 April 2010, notice of which is included in a
comprehensive Circular sent to Shareholders on 16 March 2010.
The Board believes this is a particularly attractive opportunity. Our Executive Team know the portfolio well, as it
was acquired during the time they were assembling Hansteen’s German portfolio and the two are very
compatible. The portfolio has suffered significant capital constraints and management change, which means
Hansteen is buying it at an historical low point in relation to both value and occupancy.
Applying an active asset management strategy to this portfolio - improving occupancy, evaluating sales and
change of use potential and prudent capital investment - will create significant added property value. The Board
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believes that this acquisition coupled with the new five-year loan on very attractive terms, granted as a part of
the transaction, should add shareholder value.
OUTLOOK
The Group is very well positioned with a strong balance sheet, a high, diversified income flow, and real
opportunities to grow that income. HPUT has nearly £90 million of available equity to invest and after the HBI
purchase, Hansteen itself also has approximately £100 million of equity to invest, which together with prudent
borrowing still leaves us with purchasing fire power of close to £400 million.
The continual European economies in which Hansteen is invested will probably remain subdued throughout
2010 and 2011. It will require Hansteen’s management expertise and hands on approach in these markets to
ensure that our occupancy and income remains secure throughout this period.
We also expect to see continued volatility in the Sterling/ Euro Exchange rate and will monitor the benefit and
cost of hedging the currency exposure.
We are also beginning to see value returning on a selective basis to the industrial property sector in the UK
and, although the real economy will undoubtedly remain difficult the Board is optimistic for the medium term
prospects to add shareholder value here as well.
James Hambro
Chairman
23 March 2010
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JOINT CHIEF EXECUTIVES’ REVIEW
In last year’s review, the Board’s two broad targets for 2009, were to maintain the Company’s strong financial
position and to find ways to benefit from the market’s weakness. Notwithstanding difficult economic conditions
in both the UK and Continental Europe during last year, we have achieved these aims. Hansteen raised new
equity to pursue opportunistic property acquisitions, launched a new fund, moved from AIM to the Official List,
converted to REIT status and renegotiated its banking facilities. Furthermore, during the year the Company’s
Normalised Profits improved by 30% to £15.4 million after approximately £2 million of extraordinary costs
relating to the move up to the Main Market and the extension of our banking facility with Lloyds. This result
enabled the Company to pay a dividend fully covered by Normalised Profit of 3.2p a share on the increased
share capital although none of the new capital had been invested for the period in question. As the new monies
are invested we would expect to be able to progressively, albeit prudently, increase the dividend.
MARKET REVIEW
The economies of the UK and Continental Europe were extremely difficult during 2009. This impacted to a
lesser or greater extent on both the investment market and the occupier market.
In Continental Europe, the industrial property investment market saw a decline but one which was relatively
gentle compared with that experienced in the UK and other sectors. In our view this is because the market did
not reach the same high levels of pricing or borrowings as the UK and therefore did not decline to the same
extent.
In the UK, ownership of industrial property has largely been in the hands of private and corporate investor’s
financed by bank borrowings. During 2006 and 2007 most purchases were at high prices and with high gearing
and, following the steep decline in values, has meant that a significant part of the market is currently, in reality,
under the control of the banks. Other owners of industrial property include institutions, some of which were
suffering net redemptions from their property funds and public companies with debt and refinancing problems
which, in the first half of 2009, also contributed to the potential flood of distressed sales. In reality, however,
very little industrial property was actually sold during this period.
In the second half of 2009, although there were low valuations on properties, very little was brought to the
market. The main reason for this was that the banks were focused on assessing the vast amounts of property
over which they now had control and were recruiting staff to manage out the problem loans. At the same time,
the institutions experienced a swing away from redemptions and many of the public companies reduced their
pressure to sell through equity raisings.
Nevertheless, we believe that the bulk of properties are either controlled by the banks, or by companies with
high gearing and refinancing problems looming. For this reason, we are beginning to see opportunities emerge
in 2010, both at the estate by estate level and also at a corporate or portfolio level.
In the occupier market, our experience in Germany and Belgium is that these markets have been tough but
reasonably stable. We experienced a number of vacancies in the Netherlands and are expecting a fall in
occupancy in France. Whilst there is some rental pressure in Europe, given our low capital values, the pricing is
not a significant issue and we are hopeful of achieving re-lettings over 2010 and 2011 of the properties which
became vacant in 2009.
In the UK there appears to be significant pressure on landlords from tenants to reduce rents and corporate
reorganisations are resulting in vacant properties. For this reason, it is vital that we continue with our very
stringent acquisition due diligence, which examines tenant strength and attitudes at any estate before
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progressing a purchase. In a number of cases this investigation has resulted in us rejecting potential
acquisitions.
We believe there will be significant opportunities to acquire well priced property in the UK in due course but we
need to be cautious in our assessment and our due diligence.
HANSTEEN POSITIONING
As a result of the problems described above, the Board decided to position Hansteen to be able to take
advantage of opportunities during this low point in the cycle and to benefit as markets improve.
On 8 July 2009, we announced that the Group had raised an additional £195 million in new equity after costs to
devote to new purchase opportunities. A further £60 million was raised from institutional investors in the
Hansteen Property Unit Trust (HPUT) giving us total additional equity of £255 million which, with gearing,
represents considerable fire power. After acquiring the HBI Portfolio, we estimate our spending capacity is still
in the order of £400 million.
The increased size of the Group and broadening of the shareholder base persuaded the Board to review the
listing and tax status of Hansteen, and on 6 October 2009, we announced that Hansteen had moved from AIM
to the Official List and had become a Real Estate Investment Trust (REIT). These changes improve the tax
efficiency of the Group and hopefully increase the liquidity of the shares to investors. As a result of the
changes, in March 2010, another milestone was passed as Hansteen became a constituent of the FTSE250
Index. (More information on the financial position of the Company is set out below.) On the management front,
we have strengthened our team to enable us to benefit from the anticipated opportunities. We have steadily
increased our management resources for the German portfolio, and in the UK we recruited Mark Ovens and
James Havery, who previously ran the Ashtenne Industrial Fund, to spearhead the return to the UK market. We
have focused our efforts on discussions with banks, receivers, companies and funds with high gearing where
we believe better value opportunities can be obtained. Again, details of new opportunities are set out below.
THE PROPERTY PORTFOLIO
At 31 December 2009, the portfolio comprised of 945,286 sqm with an annualised rent roll of €40.6 million per
annum and a value of €474 million. The average capital costs of the built portfolio is €501 per sqm. The
property yield at 31 December 2009 was 8.6%. This is substantially higher than the average cost of our
borrowings which is currently approximately 3% per annum. The portfolio is at an undemanding capital value,
high yielding and spread amongst a wide range of tenancies giving a strong cash flow.
During the year, two properties were purchased, both from ‘distressed’ vendors, one at Friedberg and the other
at Gross Rohrheim in Germany. The combined cost of these properties was €7.5 million and at 31 December
2009, they were valued at €8.7 million. Also in the year, we achieved individual sales for a combined sales price
of €11.7 million. These were above original cost and book value.
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An analysis of the portfolio at 31 December 2009 is shown in the following table:
No of
Euros
Area Sqm
Annualised Rent
€m
Properties
Valuation
€m
Netherlands
33
369,641
14.5
180.7
Germany
50
437,781
19.8
220.1
Belgium
13
49,973
3.4
42.7
France
4
79,042
2.4
20.7
Other Assets
5
8,849
0.5
9.6
105
945,286
40.6
473.8
Area Sqm
Annualised Rent £m
Valuation £m
No of
Sterling
Properties
Netherlands
33
369,641
12.9
160.6
Germany
50
437,781
17.6
195.6
Belgium
13
49,973
3.0
37.9
France
4
79,042
2.1
18.4
Other Assets
5
8,849
0.4
8.5
105
945,286
36.0
421
In Germany, the rent roll at the start of the year moved from €20.0 million per annum to €20.2 million per annum
at 31 December 2009. Vacancy levels moved from 22% to 18%. The valuation fell by 4.38% over the year
although the bulk of this reduction took place in the first half of the year.
In Germany we have largely
maintained occupancy and value and we are encouraged that the outlook seems relatively stable.
As was the case last year, the best performing properties in Germany were the properties we had acquired
either completely or substantially vacant.
A property in Leonberg was purchased in December 2007 for an acquisition cost of €3.9 million and at the time
was completely vacant. During 2008, we were able to let the property and in autumn 2009 sell it for €5.03
million.
We continued selling properties from the portfolio in Freising which we bought at the end of 2007. In January
2009, we sold two buildings to a local investor for €4.5 million and in February 2010 another building for
€930,000.
Other similarly successful sales of small plots of land at Offenburg, Herne and Witten, were achieved, totalling €
430,000.
Our property at Hanau acquired for €5.7 million continues to flourish with the rent growing from €855,000 to
€926,000 per annum and a number of interesting new opportunities emerging albeit requiring additional capital
expenditure.
In the Netherlands, the annualised rent roll fell from €16.8 million to €14.5 million per annum during 2009.
Vacancy increased from 8.8% to 16.9% of the portfolio and the valuation fell from €200.1 million to €180.7
million.
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During the course of the year we sold one property in Wezep, which achieved a price of €1.875 million, above
cost and carrying value. Occupancy in the Netherlands has fallen significantly as some of our larger
warehouses have become vacant. This explains the reduced rent roll and there has been a further reduction of
€2.1 million per annum in the first quarter of 2010. Fortunately, the diversity of our portfolio has meant that the
vacancies have not significantly impacted the Group’s performance and the low capital values enable us to feel
confident that the properties can be re-let in the course of the next 12 -18 months. Nevertheless, the vacancies
demonstrate the fragile nature of occupiers generally.
In Belgium and France, the rent roll has fallen from €6.1 million to €5.8million per annum over the course of
2009 with vacancy up from 3.8% at the start of the year to 8.1% at the year end. Values have fallen from €71.9
million to €63.3 million. There were no purchases or sales in these countries during the year. The portfolio in
Belgium has proved robust in terms of occupancy, but in France, however, the property in Lyon is expected to
become vacant and we have already started marketing.
As noted above, we believe that current market dynamics mean that we should be able to buy properties at
historically low prices, high yields and with the potential to add significant value through letting vacant
properties. The Board’s strategy is to establish a focused Industrial REIT which will generate a high dividend
yield and capital growth over the medium term.
Our first significant acquisition was announced on 16 March 2010 and is conditional on shareholders’ approval
at a General Meeting of shareholders on 1 April 2010. The purchase comprises 34 industrial estates across
Germany at a price of €330 million. The portfolio provides 860,000 sqm of lettable industrial property. The
annual rent roll is €30.3 million per annum equating to an initial yield of 9.2% but with significant upside
potential through letting the 24% vacancy currently within the portfolio.
The portfolio was purchased for a nominal €4 from HBI Sarl, a company that was in significant financial
difficulty. The company’s borrowing had breached its covenants, the business was under capital constraints
and there was considerable management turnover, and as a result, the banks were effectively in control of the
portfolio. Hansteen has invested €70 million of its own equity and the remainder is funded by stapled debt
which is being provided by UniCredit, the incumbent bank, on very favourable terms. The margin on the loan is
110 basis points which currently equates to an all in cost of funds below 4%; the covenants are also favourable.
We believe the project will be significantly income enhancing as well as offering an opportunity for capital
growth through the letting of the vacant space
In the UK, the team responsible for HPUT have recently begun to see evidence of value emerging in industrial
properties being offered for sale. Our first acquisition is an estate in Birmingham, bought for £1.4million and a
further three acquisitions are under negotiation. This will bring the total acquired to approximately £10million.
The properties are well located, yielding approximately 8% and are good quality buildings. On a larger scale,
we continue to pursue various other opportunities including those from banks which have taken possession of
properties in loan default and from property funds where gearing is unsustainably high and the business is
facing a refinancing problem. Likewise we continue to monitor the position in relation to our stakes in Warner
Estate Holdings and Kenmore European Industrial Fund.
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FINANCE
Net Asset Value
As at 31 December 2009 the balance sheet shows shareholders funds of £380 million (2008 £213 million).
There are currently 453.6 million shares in issue and therefore, the basic net asset value in accordance with the
International Financial Reporting Standards, amounts to 84p per share. On a diluted EPRA NAV basis, this also
amounts to 84p per share.
The key factors behind this reduction in NAV per share are a fall in the value in the property portfolio of
approximately 8% and a change in the value of the Euro from €1.03 per £1 to €1.13 per £1 over the course of
the year. In addition the Company paid a dividend of 3.2p per share.
Gearing
The Net Debt to value at 31 December 2009, is 13% compared with 51% at December 2008. The low gearing
level provides us with the capacity to grow the business significantly. Following the purchase of the HBI portfolio
in Germany, the net debt to value, on a pro forma basis, increases to 49%. However, the non-recourse nature
of the stapled debt on this acquisition means that the Group still has substantial resources to invest in new
opportunities.
From the £195 million raised in July 2009 we have committed £30 million to the JPUT which has a capacity to
invest up to £180million in new purchases in the UK, and approximately £64 million (€70 million) to the HBI
purchase in Germany. The Group therefore still has the capacity to invest approximately a further £100 million
of equity which could be geared comfortably to £200 million.
The bank debt in relation to the HBI portfolio purchase was specially negotiated as a stapled part of the
transaction. The loan is for €260 million and is non- recourse to the Hansteen Group. The loan is for five years
and has generous terms with no loan to value covenants for the first year, 95% in years two and three, 85% in
year four and 75% in year five. Similarly the interest covenant has significant headroom being set at 132% in
year one, 144% in year two and 155% thereafter. The margin on the loan is sub –current market at 110 basis
points.
At 31 December 2009 our existing bank loan facilities had €127 million available to draw down with no
restrictions on the use of those funds. An analysis of those facilities by provider is set out below:
In Germany and France we have a Lloyds Bank facility of €150 million. At 31 December 2009 we had drawn
€23 million and a further €100 million has been drawn post year end. This loan is available until October 2014
and has a loan to value covenant of 75% and income cover covenant of 175%.
The properties in the Netherlands are financed by a loan from FGH Bank expiring in June 2013. There is no
loan to value covenant on this loan and the interest cover covenant is 155%. For both loans the covenants
currently have significant headroom.
In Belgium there are a series of mortgages for a total of €20 million, the vast majority of which are available for
more than five years.
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Equity Capital
On 9 July 2009, Hansteen completed an equity fundraising of £195 million net of expenses through the issue of
267,768,451 new shares. The placing qualified for merger relief under section 131 of the Companies’ Act 1985
so that the premium arising was not required to be credited to share premium account and resulted in
distributable reserves, creating additional significant dividend capacity. This Placing and Open Offer provides
the Group with the financial fire power to benefit from depressed prices in the property market. The new equity
was raised at 75p per share, a small discount to the share price and the Net Asset Value at the time.
As a result of this share issue, Hansteen now has 453.6 million shares in issue, a Net Asset Value of£380
million, and a market capitalisation as at 17 March 2010 of£382 million.
On 15 July 2009, Hansteen also launched the Hansteen UK Industrial Property Unit Trust (HPUT), a fund of
£90 million of equity of which £30 million was provided by Hansteen and the remainder from five institutional
investors. HPUT will be prudently geared to a maximum of 50% loan to value giving a total fund size of £180
million and will be used only to buy UK industrial properties with a maximum lot size of £15 million and, until
fully invested, will be Hansteen’s dedicated vehicle for such purchases. As asset manager, as well as a
substantial investor, Hansteen will receive an ongoing management fee, a performance fee and a return on its
investment.
Currency
Hansteen reports its results in Sterling although at present the vast majority of its investments are denominated
in Euros. Our investments in Europe are partly matched with Euro borrowings and to that extent there is a
natural currency hedge. However, the equity invested in Continental Europe is currently un-hedged. Following
the acquisition of the HBI portfolio approximately 65% of our net assets is denominated in Euros and is
currently un-hedged. The Board will continue to review the Sterling/ Euro balance of Net Assets and consider
appropriate hedging strategies from time to time.
REAL ESTATE INVESTMENT TRUST
On the 6 October 2009, Hansteen became a Real Estate Investment Trust (REIT). The benefit of this move is
that any investments we undertake, in the UK, in the future, will be free from Corporation tax and, furthermore,
any properties the Group holds in Europe which are subject to UK tax, will also now no longer be subject to UK
tax. This is the case for our existing German properties which are held in UK Limited companies, although it will
not be the case for the HBI portfolio. The conversion charge for becoming a REIT is approximately £4.3 million:
however we expect to recoup that payment through tax savings over two to three years.
MAIN MARKET
On the 6 October 2009, Hansteen moved its listing to the Official List of the London Stock Exchange from AIM.
On 22 March 2010, Hansteen became a member of the FTSE All Share Index and the FTSE 250 Index.
OUTLOOK
The HBI portfolio purchase marks the beginning of our investments during this depressed stage in the property
investment market. The Group’s combined rent roll at the end of March will be approximately €68 million per
annum and, the annualised interest payable will be approximately €15.5 million. We are therefore in a position
to generate a significant cash flow surplus from the combined portfolio and there are significant opportunities to
add income through letting the vacancies. At the same time, the new purchase has utilised only a portion of our
new capital and we fully expect to be able to invest the remainder in similarly attractive opportunities during the
remainder of 2010 and 2011.
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Morgan Jones and Ian Watson
Joint Chief Executives
23 March 2010
14
Consolidated income statement
for the year ended 31 December 2009
2009
2008
£’000
£’000
Revenue
38,885
34,884
Cost of sales
(5,540)
(8,174)
Gross profit
33,345
26,710
Administrative expenses
(6,979)
(3,934)
Note
Share of results of associates
(216)
-
26,150
22,776
(32,512)
(41,655)
Operating profit before losses on investment
properties and before profit on sale of subsidiaries
Losses on investment properties
5
Profit on sale of subsidiaries
24
Operating loss
161
(6,338)
(18,718)
currency options
4,532
(45,006)
Finance income
1,049
2,111
Gains/(losses) on forward currency contracts and
Finance costs
(11,822)
(13,050)
Change in fair value of interest rate derivatives
(1,017)
(4,579)
Foreign exchange (losses)/gains
(7,704)
18,299
(21,300)
(60,943)
Loss before tax
Tax
6
Loss for the year
9,054
1,388
(12,246)
(59,555)
(12,096)
(59,571)
Attributable to:
Equity holders of the parent
Non-controlling interest
(150)
Loss for the year
16
(12,246)
(59,555)
Earnings per share
Basic*
7
(3.9)p
(31.7)p
Diluted*
7
(3.9)p
(31.7)p
All results derive from continuing operations
* Comparative Earnings per share have been restated following the issue of new shares at a discount to fair
value during the year (see note 7).
15
Consolidated statement of comprehensive income
for the year ended 31 December 2009
2009
2008
£'000
£'000
(12,246)
(59,555)
(15,755)
45,855
Translation differences recognised on sale of subsidiaries
(10)
211
Movement in fair value of available for sale assets
761
Loss for the year after tax
Other comprehensive income:
Exchange differences on translating foreign operations
Income tax relating to components of other comprehensive income
Total other comprehensive (expense)/income for the period, net of income
tax
TOTAL COMPREHENSIVE EXPENSE FOR THE YEAR
-
(244)
1,275
(15,248)
47,341
(27,494)
(12,214)
(27,279)
(12,375)
Total comprehensive expense attributable to:
Owners of the parent
Non-controlling interest
(215)
(27,494)
161
(12,214)
16
Consolidated balance sheet
31 December 2009
2009
2008
Note
£'000
£'000
Non-current assets
Goodwill
Property, plant and equipment
Investment property
Investment in associates
Other investments
Deferred tax asset
Derivative financial instruments
8
9
10
18
11
2,004
55
417,974
14,792
9,511
1,167
163
445,666
2,241
32
492,357
273
494,903
Current assets
Trading properties
Trade and other receivables
Cash and cash equivalents
Derivative financial instruments
12
13
14
11
2,996
11,339
100,970
53
115,358
2,750
5,831
80,240
13,747
102,568
561,024
597,471
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Borrowings
Obligations under finance leases
Derivative financial instruments
Non-current liabilities
Borrowings
Obligations under finance leases
Derivative financial instruments
Deferred tax liabilities
Total liabilities
15
16
17
11
16
17
11
18
(9,244)
(4,906)
(1,608)
(342)
(385)
(16,485)
(9,919)
(4,907)
(926)
(372)
(68,407)
(84,531)
(150,546)
(3,586)
(4,735)
(5,490)
(164,357)
(180,842)
(280,318)
(4,071)
(4,509)
(10,678)
(299,576)
(384,107)
Net assets
380,182
213,364
Equity
Share capital
Share premium account
Translation reserve
Retained earnings
Equity attributable to equity holders of the parent
Non-controlling interest
Total equity
45,365
112,731
44,783
176,692
379,571
611
380,182
17,843
114,312
60,483
19,907
212,545
819
213,364
These financial statements were approved by the Board of Directors on 23 March 2010.
17
Consolidated statement of changes in equity
for the year ended 31 December 2009
NonMerger
Share
controlli
Share
Translation
reserve Retained
capital premium
reserves
£’000 earnings
Total
interest
ng
Total
£'000
£'000
£'000
£'000
£'000
£'000
£'000
17,843
174,312
13,287
-
25,772
231,214
Reduction of share
premium account
-
(60,000)
-
-
60,000
-
-
-
Costs of reduction in
share premium
account
-
-
-
(22)
(22)
-
(22)
Dividends
-
-
-
(5,710)
(5,710)
-
(5,710)
Share-based
payments
-
-
-
(562)
(562)
-
(562)
Total comprehensive
income/(expense) for
the year
-
-
47,196
(59,571)
(12,375)
161
(12,214)
Capital invested by
non-controlling
interest
-
-
-
-
-
493
493
Dividends paid to
non-controlling
interest
-
-
-
-
-
-
(14)
(14)
17,843
114,312
60,483
-
19,907
212,545
819
213,364
27,522
4,559
-
174,049
-
206,130
-
206,130
-
(6,140)
-
-
(6,140)
-
(6,140)
-
-
-
174,049
(5,710)
(5,710)
-
(5,710)
Share-based
payments
-
-
-
25
25
-
25
Total comprehensive
expense for the year
-
Capital invested by
non-controlling
interest
-
45,365
Balance at 1
January 2008
Balance at 1
January 2009
Issue of share capital
Costs of issuing
share capital
Transfer to retained
earnings
Dividends
Balance at 31
December 2009
179 231,393
-
-
(174,049)
-
(15,700)
-
(11,579)
(27,279)
(215)
(27,494)
-
-
-
-
-
7
7
112,731
44,783
-
176,692
379,571
611
380,182
18
The merger reserve comprises the share premium on shares issued to acquire Hansteen (Jersey) Limited
under the arrangement for the Placing and Open Offer in July 2009. No share premium is recorded in the
Company’s financial statements through the operation of the Merger Relief provisions of the Companies Act
1985. The subsequent redemption of these shares gave rise to distributable profits of £174,049,000, which
have been transferred to retained earnings. Costs of £6,140,000 in relation to this share issue have been
written off against existing share premium as permitted by the Companies Act 1985.
19
Consolidated cash flow statement
for the year ended 31 December 2009
Net cash inflow from operating activities
2009
2008
Note
£’000
£’000
19
13,679
17,925
Investing activities
Interest received
Additions to property, plant and equipment
Additions to investment properties
Proceeds on sale of investment properties
Disposal of subsidiaries
Acquisition of associates
Acquisition of other investments
1,048
(46)
(8,284)
10,292
10
(15,008)
(3,447)
2,111
(25)
(30,461)
22,659
531
-
Net cash used in investing activities
(15,435)
(5,185)
(5,710)
194,686
(5,710)
-
(155)
(109,851)
(609)
(49,628)
7
-
(22)
(138)
165,839
(114,566)
(2,041)
(464)
493
(14)
Net cash from financing activities
28,740
43,377
Net increase in cash and cash equivalents
26,984
56,117
Cash and cash equivalents at beginning of year
80,240
19,562
Financing activities
Dividend paid
Proceeds from issue of shares at a premium net of
expenses
Costs of reduction of share premium account
Repayments of obligations under finance leases
New bank loans raised (net of expenses)
Bank loans repaid (net of expenses)
Repayment of bank overdrafts
Additions to derivative financial instruments
Settlement of forward currency contract
Capital contribution from non-controlling shareholders
Dividend paid to non-controlling shareholders
Effect of foreign exchange rates
Cash and cash equivalents at end of year
(6,254)
100,970
4,561
80,240
20
Notes to the financial statements for the year ended 31 December 2009
1. General information
Hansteen Holdings PLC is a company which was incorporated in the United Kingdom and registered in England
and Wales on 27 October 2005. The Company is required to comply with the provisions of the Companies Act
2006. The address of the registered office is 6th Floor, Clarendon House, 12 Clifford Street, London, W1S 2LL.
The Company was listed on AIM on 29 November 2005 and subsequently moved from AIM to the Official List
on 6 October 2009.
The Group’s principal activities are those of a property group investing mainly in industrial properties in
Continental Europe and the United Kingdom.
These financial statements are presented in Pounds Sterling because that is the currency of the primary
economic environment in which the Company operates. Foreign operations are included in accordance with the
policies set out in note 3.
The financial information for the year ended 31 December 2009 does not constitute statutory accounts as
defined in sections 435 (1) and (2) of the Companies Act 2006. Statutory accounts for the year ended 31
December 2008 have been delivered to the Registrar of Companies and those for 2009 will be delivered
following the Company’s AGM. The auditors have reported on these accounts; their reports were unqualified,
did not include a reference to any matters to which the auditors drew attention by way of emphasis of matter
and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
2. Adoption of new and revised standards
Standards, amendments and interpretations that became effective and were adopted, where applicable,
in 2009 but have no effect on the Group’s operations:
IAS 1 (revised 2007)
Presentation of Financial Statements
IAS 1 (revised) requires the presentation of a statement of changes in equity as a primary statement, separate
from the income statement and statement of comprehensive income. As a result, a consolidated statement of
changes in equity has been included in the primary statements, showing changes in each component of equity
for each period presented.
IFRS 8
Operating segments
IFRS8 ‘Operating Segments’ has resulted in a change to the presentation and disclosure of the Group’s
segmental analysis whereby segment information is now presented on the basis of geographical location. This
restatement has not impacted the income statement or the balance sheet. Since there is no change from the
previously reported consolidated figures, a balance sheet at 31 December 2007 has not been presented.
IFRS 7 (amended)
Financial Instruments: Disclosures - Improving Disclosures about Financial Instruments
IFRS 7 (amended) has resulted in the Group categorising its financial instruments held at fair value into a three
level hierarchy based on the priority of the inputs to the valuation technique.
21
Standards, amendments and interpretations to existing standards that are not yet effective and have
not been adopted early by the Group:
IFRS 2(amended)
IFRS 3 (revised 2008)
IFRS 9
IAS 24 (revised 2009)
IAS 27 (revised 2008)
IAS 28 (revised 2008)
IAS 32 (amended)
IAS 39 (amended)
IFRIC 12
IFRIC 14 (amended)
IFRIC 17
IFRIC 18
IFRIC 19
Share-based Payment - Group cash-settled share-based payment transactions
Business Combinations
Financial Instruments
Related Party Disclosures
Consolidated and Separate Financial Statements
Investments in Associates
Financial Instruments: Presentation- Classification of Rights Issues
Financial Instruments: Recognition and Measurement - Eligible Hedged Items
Service Concession Arrangements
IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements
and their Interaction: Prepayments of Minimum Funding Requirements
Distributions of Non-cash Assets to Owners
Transfer of Assets from Customers
Extinguishing Financial Liabilities with Equity Instruments
The Directors anticipate that the adoption of the standards and interpretations in future periods will have no
material impact on the financial statements of the Group except for the treatment of acquisition of subsidiaries
and associates when IFRS 3 (revised 2008), IAS 27 (revised 2008) and IAS 28 (revised 2008) come into effect
for business combinations for which the acquisition is on or after 1 January 2010, whereby all transaction costs
will be expensed as incurred.
3. Significant accounting policies
Basis of accounting.
Whilst the preliminary announcement (the Condensed financial statements) has been prepared in accordance
with IFRS and International Financial Reporting Interpretation Committee (IFRIC) interpretations adopted for
use by the European Union, with those parts of the Companies Act 2006 applicable to companies reporting
under IFRS and with the requirements of the United Kingdom Listing Authority (UKLA) Listing rules, these
Condensed financial statements do not contain sufficient information to comply with IFRS. The Group will
publish full financial statements that comply with IFRS in the near future.
The accounting policies applied, as set out below, are consistent with those adopted and disclosed in the
Group’s financial statements for the year ended 31 December 2008, with the exception of the adoption of IFRS
8 Operating Segments, IAS 1 Presentation of Financial Statements – Revised, IAS 1 Presentation of Financial
Statements – Improvements and IFRS 7 Financial Instruments: Disclosures – Amendment.
The financial statements have been prepared on the historical cost basis, except for the revaluation of
investment properties and certain financial instruments.
The preparation of financial statements in conformity with generally accepted accounting principles requires the
use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Although
these estimates are based on management’s best knowledge of the amount, event or actions, actual results
ultimately may differ from those estimates.
The principal accounting policies are set out below:
Basis of consolidation. The consolidated financial statements incorporate the financial statements of the
Company and entities controlled by the Company (its subsidiaries) made up to 31 December. Control is
achieved where the Company has the power to govern the financial and operating policies of an investee entity
so as to obtain benefits from its activities.
Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the
Group’s equity therein. Non-controlling interests consist of the amount of those interests at the date of the
original business combination (see below) and the non-controlling interest’s share of changes in equity since
22
the date of the combination. Losses applicable to the non-controlling interest in excess of the non-controlling
interest in the subsidiary’s equity are allocated against the interests of the Group except to the extent that the
non-controlling has a binding obligation and is able to make an additional investment to cover the losses.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income
statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting
policies used into line with those used by the Group.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Business combinations. The acquisition of subsidiaries is accounted for using the purchase method. The cost
of the acquisition is measured at the aggregate of the fair values at the date of exchange of
assets
given,
liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the
acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets,
liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their
fair value at the acquisition date except for non-current assets (or disposal groups) that are classified as held
for sale in accordance with IFRS 5 ‘Non-Current Assets Held for Sale and Discontinued Operations’, which are
recognised and measured at fair value less costs to sell.
Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the
cost of the business combination over the Group’s interest in the net fair value of the identifiable assets,
liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of
the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business
combination, the excess is recognised immediately in profit or loss.
Non-current assets held for sale. Non-current assets (and disposal groups) classified as held for sale, except
investment properties, are measured at the lower of carrying amount and fair value less costs to sell.
Investment properties classified as held for sale are carried at fair value in accordance with IAS 40 ‘Investment
Properties’.
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered
through a sale transaction rather than through continuing use. This condition is regarded as met only when the
sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition.
Management must be committed to the sale which should be expected to qualify for recognition as a completed
sale within one year from the date of classification.
Goodwill. Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s
interest in the fair value of the identifiable assets and liabilities of a subsidiary, associate or jointly-controlled
entity at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently
measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is
reviewed for impairment annually. Any impairment is recognised immediately in profit or loss and is not
subsequently reversed.
For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units
expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been
allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be
impaired. If the recoverable
amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated
first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit
pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for
goodwill is not reversed in a subsequent period.
On disposal of a subsidiary, associate or jointly-controlled entity, the attributable amount of goodwill is included
in the determination of profit or loss on disposal.
Revenue recognition. Revenue is measured at the fair value of the consideration received or receivable and
represents amounts receivable for goods and services provided in the normal course of business, net of
discounts, VAT and other sales-related taxes.
Rental income is recognised on an accruals basis. Where a lease incentive is granted, which does not enhance
the value of the property, or a rent-free period is granted, the effective cost is amortised on a straight-line basis
over the period from the date of lease commencement to the earliest termination date.
Property management fees are recognised in the period to which they relate.
23
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest
rate applicable.
Revenue from the sale of trading and investment properties is recognised when the significant risks and returns
have been transferred to the buyer. This is generally on unconditional exchange of contracts. The profit on
disposal of trading and investment properties is determined as the difference between the sales proceeds and
the carrying amount of the asset at the commencement of the accounting period plus additions in the period.
Leasing. Leases are classified as finance leases whenever the terms of the lease transfer substantially all the
risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Where a
property is held under a head lease it is initially recognised as an asset as the sum of the premium paid on
acquisition and the present value of minimum ground rent payments. The corresponding rent liability to the
head leaseholder is included in the balance sheet as a finance lease obligation. Where only the buildings
element of a property lease is classified as a finance lease, the ground rent payments for the land element are
shown within operating leases. Rentals payable under operating leases are charged to the income statement
on a straight-line basis over the term of the relevant lease.
Foreign currencies. The individual financial statements of each Group company are presented in the currency
of the primary economic environment in which it operates (its functional currency). For the purpose of the
consolidated financial statements, the results and financial position of each Group company are expressed in
pounds Sterling, which is the functional currency of the Company, and the presentation currency for the
consolidated financial statements.
In preparing the financial statements of the individual companies, transactions in currencies other than the
entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of
the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign
currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair
value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair
value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency
are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items,
are included in profit or loss for the period in which they arise. Exchange differences arising on the retranslation
of non-monetary items carried at fair value are included in profit or loss for the period in which they arise except
for differences arising on the retranslation of non-monetary items in respect of which gains and losses are
recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is
also recognised directly in equity.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign
operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items
are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during
that period, in which case the exchange rates at the date of transactions are used. Exchange differences
arising, if any, are classified as equity and transferred to the Group’s foreign currency translation reserve. Such
translation differences are recognised as income or as expenses in the period in which the operation is
disposed of.
Share-based payments. The fair value of equity-settled share-based payments to employees is determined at
the date of grant and is expensed on a straight-line basis over the vesting period based on the Company’s
estimate of options that will eventually vest. Fair value is measured by use of a binomial model for the
Employee Share Option Scheme. The expected life used in the model has been adjusted based on
management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural
considerations.
The fair value of the shares to be awarded under the Long-Term Incentive Plan is determined at the
measurement date by reference to the current share price at that date less the discounted value of estimated
future dividends.
Taxation. The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported
in the income statement because it excludes items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or deductible. On 6 October 2009, the Group elected
to join the UK REIT regime. As a REIT, the Group will be exempt from UK corporation tax on profits and gains
of its property rental business, provided it meets certain conditions. Overseas property rental income, gains and
non-qualifying profits and gains of the Group (the residual business) will continue to be subject to taxation. The
REIT entry charge is expensed on the date of entry to the REIT regime. The Group’s liability for current tax is
calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
24
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of
assets and liabilities in the financial statements and the corresponding tax bases used in the computation of
taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally
recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which deductible temporary differences can be utilised.
Deferred tax is measured on a non-discounted basis.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or
the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to
items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets
against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the
Group intends to settle its current tax assets and liabilities on a net basis.
Property, plant and equipment. This comprises computer and office equipment. Computers and office
equipment are stated at cost less accumulated depreciation and any recognised impairment loss.
Depreciation is charged so as to write off the cost or valuation of computers and office equipment, over their
estimated useful lives, using the straight-line method, on the following bases:
Computers
three years
Office equipment
three years
Investment properties. Investment properties, which comprises freehold and leasehold property held to earn
rentals and/or for capital appreciation, are treated as acquired when the Group assumes the significant risks
and rewards of ownership. Acquisitions of investment properties including related transaction costs and
subsequent additions of a capital nature are initially recognised in the accounts at cost. At each reporting date
the investment properties are re-valued to their fair values based on a professional valuation at the balance
sheet date. Gains or losses arising from changes in the fair value of investment property are included in profit or
loss for the period in which they arise.
Investments in subsidiary undertakings. Investments in subsidiary undertakings are stated at cost less
provisions for impairment.
Investments in associates. An associate is an entity over which the Group is in a position to exercise
significant influence, but not control or joint control, through participation in the financial and operating policy
decisions of the investee. Significant influence is the power to participate in the financial and operating policy
decisions of the investee but is not control or joint control over those policies.
The results and assets and liabilities of associates are incorporated in these financial statements using the
equity method of accounting. Investments in associates are carried in the balance sheet at cost as adjusted by
post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the
value of individual investments. Losses of an associate in excess of the Group’s interest in that associate
(which includes any long-term interests that, in substance, form part of the Group’s net investment in the
associate) are recognised only to the extent that the Group has incurred legal or constructive obligations or
made payments on behalf of the associate.
Where a Group company transacts with an associate of the Group, profits and losses are eliminated to the
extent of the Group’s interest in the relevant associate. Losses may provide evidence of an impairment of the
asset transferred in which case appropriate provision is made for impairment.
Trading properties. Trading properties are included in the balance sheet at the lower of cost and net realisable
value and are treated as acquired when the Group assumes the significant risks and rewards of ownership.
Cost includes development costs specifically attributable to properties in the course of development. Net
realisable value represents the estimated selling price less further costs expected to be incurred to completion
and disposal.
Financial instruments. Financial assets and financial liabilities are recognised in the Group’s balance sheet
when the Group becomes a party to the contractual provisions of the instrument.
Financial Assets. All financial assets are recognised and derecognised on a trade date where the purchase or
sale of an investment is under a contract whose terms require delivery of the investment within the timeframe
established by the market concerned, and are initially measured at fair value, plus transaction costs, except for
those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.
Financial assets are classified into the following specified categories: financial assets ‘at fair value through profit
or loss’ (FVTPL), ‘held-to-maturity’ investments, ‘available-for-sale’ (AFS) financial assets and ‘loans and
25
receivables’. The classification depends on the nature and purpose of the financial assets and is determined at
the time of initial recognition.
Financial assets at FVTPL. Financial assets are classified as at FVTPL where the financial asset is either held
for trading or it is designated as at FVTPL. A financial asset is classified as held for trading if:
 it has been acquired principally for the purpose of selling in the near future; or
 it is a part of an identified portfolio of financial instruments that the Group manages together and has a
recent actual pattern of short-term profit-taking; or
 it is a derivative that is not designated and effective as a hedging instrument.
A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial
recognition if:
 such designation eliminates or significantly reduces a measurement or recognition inconsistency that would
otherwise arise; or
 the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed
and its performance is evaluated on a fair value basis, in accordance with the Group's documented risk
management or investment strategy, and information about the Group is provided internally on that basis; or
 it forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments:
Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at
FVTPL; or
 Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss.
The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial
asset.
Loans and receivables. Trade receivables, loans, and other receivables that have fixed or determinable
payments that are not quoted in an active market are classified as loans and receivables. Loans and
receivables are measured at amortised cost using the effective interest method, less any impairment. Interest
income is recognised by applying the effective interest rate, except for short-term receivables when the
recognition of interest would be immaterial.
AFS financial assets. Non-derivative financial assets that are not classified as loans and receivables or heldto-maturity investments, are not held for trading and are not designated as FVTPL on initial recognition are
classified as AFS. AFS financial assets are measured at fair value with fair value gains or losses recognised in
other comprehensive income. On sale or impairment of the asset, the cumulative gain or loss previously
recognised in other comprehensive income is reclassified to profit or loss as a reclassification adjustment.
Impairment losses on AFS financial assets are recognised in profit or loss. Dividends on an AFS equity
instrument are recognised in profit or loss when the entity’s right to receive payment is established.
Impairment of financial assets. Financial assets, other than those at FVTPL, are assessed for indicators of
impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that,
as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated
future cash flows of the investment have been impacted. Objective evidence of impairment could include:
 significant financial difficulty of the issuer or counterparty; or
 default or delinquency in interest or principal payments; or
 it becoming probable that the borrower will enter bankruptcy or financial re-organisation.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with
the exception of trade receivables, where the carrying amount is reduced through the use of an allowance
account. When a trade receivable is considered uncollectible, it is written off against the allowance account.
Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes
in the carrying amount of the allowance account are recognised in profit or loss.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognised, the previously recognised impairment
loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the
impairment is reversed does not exceed what the amortised cost would have been had the impairment not
been recognised.
Where an AFS financial asset is considered to be impaired, cumulative gains previously recognised in other
comprehensive income are reclassified to profit and loss in the period. In the case of AFS equity instruments, if,
in a subsequent period the amount of impairment loss decreases and the decrease can be related objectively to
an event occurring after the impairment was recognised, the previously recognised impairment loss is not
reversed through profit and loss. Any increase in fair value subsequent to an impairment loss is recognised
directly in equity.
26
Cash and cash equivalents. Cash and cash equivalents comprise cash on hand and demand deposits and
other short-term highly liquid investments that are readily convertible to a known amount of cash and are
subject to an insignificant risk of changes in value.
De-recognition of financial assets. The Group derecognises a financial asset only when the contractual rights
to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and
rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all
the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its
retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains
substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to
recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.
Financial liabilities and equity. Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into.
Equity instruments. An equity instrument is any contract that evidences a residual interest in the assets of the
Group after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds
received, net of direct issue costs.
Financial guarantee contract liabilities. Financial guarantee contract liabilities are measured initially at their
fair values and are subsequently measured at the higher of:
 the amount of the obligation under the contract, as determined in accordance with IAS 37 Provisions,
Contingent Liabilities and Contingent Assets; and
 the amount initially recognised less, where appropriate, cumulative amortisation recognised in accordance
with the revenue recognition policies set out above.
Financial liabilities. Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial
liabilities’.
Financial liabilities at FVTPL. Financial liabilities are classified as at FVTPL where the financial liability is
either held for trading or it is designated as at FVTPL. A financial liability is classified as held for trading if:
 it has been incurred principally for the purpose of disposal in the near future; or
 it is a part of an identified portfolio of financial instruments that the Group manages together and has a
recent actual pattern of short-term profit-taking; or
 it is a derivative that is not designated and effective as a hedging instrument.
A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial
recognition if:
 such designation eliminates or significantly reduces a measurement or recognition inconsistency that would
otherwise arise; or
 the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed
and its performance is evaluated on a fair value basis, in accordance with the Group's documented risk
management or investment strategy, and information about the Group is provided internally on that basis; or
 it forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments:
Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at
FVTPL.
Financial liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss.
The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability.
Other financial liabilities. Other financial liabilities, including borrowings, are initially measured at fair value,
net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the
effective interest method, with interest expense recognised on an effective yield basis. The effective interest
method is a method of calculating the amortised cost of a financial liability and of allocating interest expense
over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash
payments through the expected life of the financial liability, or, where appropriate, a shorter period to the net
carrying amount on initial recognition.
De-recognition of financial liabilities. The Group derecognises financial liabilities when, and only when, the
Group’s obligations are discharged, cancelled or they expire. Where an existing financial liability is replaced by
another from the same lender on substantially different terms or the terms of an existing liability are
substantially modified, such an exchange or modification is treated as a de-recognition of the original liability
and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the
income statement.
27
Derivative financial instruments. The Group enters into a variety of derivative financial instruments to
manage its exposure to interest rate and foreign exchange rate risk, including foreign exchange forward
contracts and options and interest rate swaps and caps.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are
subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised
in profit or loss immediately.
A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the
instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other
derivatives are presented as current assets or current liabilities.
4. Operating segments
The Group has adopted IFRS 8 Operating Segments with effect from 1 January 2009. IFRS 8 requires
operating segments to be identified on the basis of internal reports about components of the Group that are
regularly reviewed by the Joint Chief Executives to allocate resources to the segments and to assess their
performance. In contrast, the predecessor Standard (IAS 14 Segment Reporting) required the Group to identify
two sets of segments (business and geographical), using a risks and rewards approach, with the Group's
system of internal financial reporting to key management personnel serving only as the starting point for the
identification of such segments. As a result, following the adoption of IFRS 8, the identification of the Group's
reportable segments has changed.
In prior years, segment information reported externally was analysed primarily on the basis of the classification
of its properties based on whether they were held for investment or trading and secondly on the basis of
geographic location. However, information reported to the Group's Joint Chief Executives for the purposes of
resource allocation and assessment of segment performance is more specifically focused on the Group's level
of investment in property assets and the related net rental income according to geographic location. The
Group's reportable segments under IFRS 8 are therefore determined by geographic location.
Information regarding the Group's operating segments is reported below. Amounts reported for the prior year
have been restated to conform to the requirements of IFRS 8.
28
Segment revenues and results
the Group's revenue and results by reportable segment:
Year ended
Year ended
31 December 2009
31 December 2008
Revenue
Result
Revenue
Result
£'000
£'000
£'000
£'000
Belgium
3,374
3,156
3,495
3,192
France
2,126
2,132
1,863
1,817
Germany
18,605
14,598
16,212
12,275
Netherlands
14,574
13,317
13,314
12,293
206
142
-
38,885
33,345
34,884
UK
Administrative expenses*
(6,979)
Share of results of associate
(2,867)
26,710
(3,934)
(216)
-
Operating profit before losses on investment
properties and before profit on sale of subsidiaries
26,150
22,776
Losses on investment properties by segment:
Belgium
(4,460)
(2,823)
France
(3,145)
(2,856)
(9,529)
(15,759)
(16,211)
(20,551)
Germany
Netherlands
UK
Total losses on investment properties
Profit on disposal of investment properties
-
-
(33,345)
(41,989)
833
334
(32,512)
Profit on sale of subsidiaries
Operating loss
24
(41,655)
161
(6,338)
(18,718)
Net finance costs*
(14,962)
(42,225)
Loss before tax
(21,300)
(60,943)
* Administrative expenses and net finance costs are substantially managed as central costs and are therefore
not allocated to segments.
29
Segment assets
2009
Additions
Investment
France
Non-
Total investment
current
Total
Other
properties properties properties
assets
assets
properties
assets
£’000
£’000
£'000
£'000
£’000
£’000
37,893
-
37,893
5,158
43,051
£'000
Belgium
Trading
to
6
39,898
18,354
-
18,354
852
19,206
-
18,354
Germany
201,189
-
201,189
10,201
211,390
7,850
201,264
Netherlands
160,538
-
160,538
8,585
169,123
429
161,369
-
2,996
2,996
92
3,088
-
-
417,974
2,996
420,970
24,888
445,858
8,285
420,885
UK
Unallocated
assets
115,166
24,781
Entity total
561,024
445,666
2008
Additions
Investment
Total
Other
Total
to
Non-
properties properties properties
assets
assets
investment
current
£’000
£’000
properties
assets
£’000
£’000
26
48,315
£'000
Belgium
France
Trading
£'000
46,074
-
£'000
46,074
5,072
51,146
23,442
-
23,442
1,157
24,599
-
23,442
Germany
229,392
-
229,392
19,522
248,914
18,217
229,392
Netherlands
193,449
-
193,449
6,614
200,063
12,218
193,449
-
2,750
2,750
58
2,808
-
-
492,357
2,750
495,107
32,423
527,530
30,461
494,598
UK
Unallocated
assets
Entity total
69,940
305
597,471
494,903
30
5. Losses on investment properties
Decrease in fair value of investment properties
Profit on disposal of investment properties
2009
2008
£’000
£’000
(33,345)
833
(41,989)
334
(32,512)
(41,655)
6. Tax
UK current tax
On net income of the current year
(Credit)/charge in respect of prior years
Foreign current tax
On net income of the current year
Credit in respect of prior years
2009
2008
£’000
£’000
4,718
(8,636)
6,444
1,629
(3,918)
8,073
(361)
(156)
1,368
(2,300)
(517)
(932)
Total current tax
Deferred tax
(4,435)
(4,619)
7,141
(8,529)
Total tax credit
(9,054)
(1,388)
UK Corporation tax is calculated at 28% (2008: 28.5%) of the estimated assessable profit for the year.
Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
31
The tax (credit)/charge for the year can be reconciled to the loss per the income statement as follows:
2009
2008
Loss before tax
Tax at the UK corporation tax rate of 28% (2008: 28.5%)
Tax effect of :
Gain on investment properties caused by movement in exchange
rates
UK deferred tax on investment properties released on REIT
conversion
Overseas tax not deductible due to REIT conversion
Overseas deferred tax
REIT entry charge
Increase/(reduction) in liabilities due to weakening/strengthening of
Euro exchange rate
Deferred tax assets not recognised
Effect of different tax rates in overseas subsidiaries
Indexation relief
Expenses that are not deductible in determining taxable profit
Effect on deferred tax balances due to the change in UK tax rate from
30% to 28% effective from 1 April 2008
Short-term timing differences
Prior year adjustment
£’000
£’000
(21,300)
(60,943)
(5,964)
(17,369)
184
14,812
(15,667)
-
219
1,096
4,316
-
1,295
8,007
(1,502)
6
(2,221)
2,111
458
(393)
268
(108)
(936)
320
72
554
(9,054)
(1,388)
In addition to the amount credited to the income statement in the year to 31 December 2009, tax amounting to
£nil relating to realised exchange gains on loans to overseas operations has been credited directly to
translation reserves (2008: £1,275,000 tax credit on realised exchange gains on loans to overseas operations).
The Group elected to be treated as a UK REIT with effect from 6 October 2009, following admission to the
Official List. The UK REIT rules exempt the profits of the Group’s UK property rental business from UK
corporation tax. Gains on UK properties are also exempt from tax, provided they are not held for trading. The
Group is otherwise subject to UK corporation tax. On entering the REIT regime, entry tax became payable
equal to 2% of the market value of the Group’s qualifying UK properties at 5 October 2009. To remain a UK
REIT there are a number of conditions to be met in respect of the principal company of the Group, the Group’s
qualifying activity and its balance of business which are set out in the UK REIT legislation in the Finance Act
2006.
32
7. Earnings per share and net asset value per share
The calculations for earnings per share, based on the weighted average number of shares, are shown in the
table below. The European Public Real Estate Association (‘EPRA’) has issued recommended bases for the
calculation of certain per share information and these are included in the following tables. Following the Placing
and Open Offer in July 2009, where shares were issued at a discount to fair value, the comparative Earnings
per share and NAV per share calculations have been restated. This restatement has not impacted the balance
sheet. Since it has not changed from the previously reported figures, a balance sheet as at 31 December 2007
has not been presented.
2009
2008
Weighted
average
Weighted
Earnings
average
Earnings
number of
per
number of
per
Earnings
shares
share
Earnings
shares
share
£’000
000’s
pence
£’000
000’s*
pence*
(12,096)
-
312,610
(3.9)
(59,571)
187,899
(31.7)
Dilutive share options
38
-
-
-
-
Diluted EPS
(12,096)
312,648
(3.9)
(59,571)
187,899
(31.7)
Basic EPS
Adjustments:
Revaluation losses on
investment properties
Profit on the sale of investment
properties
Profit on the sale of subsidiary
undertakings
Tax on the sale of investment
properties
Change in fair value of financial
instruments
Deferred tax on the above
items
Diluted EPRA EPS
33,345
41,989
(833)
(334)
(24)
(161)
143
456
(3,515)
(2,131)
49,585
(10,200)
4.8
14,889
11.6
21,764
The calculations for net asset value (“NAV”) per share are shown in the table below:
2009
Equity
Basic NAV
Unexercised share
options
Diluted NAV
Adjustments:
Goodwill
Fair value of interest rate
derivatives
Deferred tax
Diluted EPRA NAV
* As restated
Number
Net asset
Equity
value shareholders’
2008
Number
Net asset
shareholders’
of
of
value
funds
shares
per share
funds
shares
per share
£’000
000’s
pence
£’000
000’s*
pence*
379,571 453,648
83.7
212,545 187,899
113.1
850
n/a
-
-
n/a
380,174 454,498
83.6
212,545
187,899
113.1
603
(2,004)
(2,241)
1,017
4,035
4,180
13,193
383,222
84.3
227,677
121.2
33
8. Investment property
At 1 January
Additions – property purchases
– capital expenditure
Revaluations included in income statement
Disposal of subsidiary
Disposals
2009
2008
£’000
£’000
492,357
391,242
6,718
1,567
29,758
562
(33,345)
(41,956)
(9,459)
(2,668)
(4,979)
Exchange adjustment
(39,864)
120,398
At 31 December
417,974
492,357
2009
2008
£’000
£’000
At 1 January
-
15,417
Additions – capital expenditure
-
141
Revaluations included in income statement
-
(33)
Disposals
-
(17,345)
Exchange adjustment
-
1,820
At 31 December
-
-
Investment property held for sale
All investment properties are stated at market value as at 31 December 2009 and have been valued by
independent professionally qualified external valuers, King Sturge LLP. The valuations have been prepared in
accordance with the Valuation Standards (6th Edition) published by The Royal Institute of Chartered Surveyors
and with IVA1 of the International Valuation Standards.
The Group has pledged certain of its investment properties to secure bank loan facilities and a finance lease
granted to the Group.
9. Interests in associates
Total
£'000
Cost and net book value:
Balance at 1 January 2009
Additions
Share of loss after tax for the year
At 31 December 2009
15,008
(216)
14,792
34
Details of all of the Group’s interests in associates at 31 December 2009 are as follows:
Proportion
Hansteen UK Industrial Property Unit Trust
Proportion
of
of
voting
Place
ownership
power
of
interest
held
establishment
%
%
33.3
30%
Jersey
Hansteen UK Industrial Property Unit Trust is involved in property management. The interest in Hansteen UK
Industrial Property Unit Trust is held indirectly via Hansteen LP Limited. The interest in Hansteen UK Property
Unit Trust is stated at cost adjusted for movement in the Group’s share of net assets post acquisition.
10. Other investments
Total
£'000
Available for sale investments carried at fair value
Fair value
Balance at 1 January 2009
-
Additions
8,750
Fair value remeasurement
761
At 31 December 2009
9,511
On 20 August 2009, Hansteen issued 3,296,347 new ordinary shares of ten pence each at a premium of 77
pence per share, in consideration for the acquisition of 10,377,389 ordinary shares in the capital of Warner
Estate Holdings plc which were acquired from Trefick Limited, representing a strategic stake of approximately
18.5%. The fair value is based on quoted market price.
On 30 November 2009, Hansteen issued 4,148,149 new ordinary shares of ten pence each at a premium of
73.25 pence per share, and paid £3,360,000 in cash for the acquisition of 16,800,000 ordinary shares in the
capital of Kenmore European Industrial Fund Limited which were acquired from Knowe Properties Limited,
representing a strategic stake of approximately 12%. The fair value is based on quoted market price.
11. Derivative financial instruments
Derivative financial instruments are included in the balance sheet as follows:
2009
2008
£'000
£'000
163
53
(385)
(4,735)
273
13,747
(68,407)
(4,509)
(4,904)
(58,896)
Financial assets and liabilities held for trading
Non-current assets
Current assets
Current liabilities
Non-current liabilities
35
The movements on derivative financial instruments are as follows:
Financial assets and liabilities held for
trading
Interest
Interest
currency
Currency
rate
rate
contract
£’000
option
caps
swaps
Total
£’000
£’000
£’000
£’000
(54,716)
-
329
(4,509)
(58,896
)
-
609
-
-
609
49,628
(609)
-
-
49,019
5,088
53
(151)
(866)
4,124
Exchange difference
-
-
(15)
255
240
Fair value at 31 December 2009
-
53
163
(5,120)
(4,904)
Fair value at 1 January 2009
Additions at cost
Disposals/amortisation
Revaluations included in income statement
Forward
12. Trading properties
Land and related costs
2009
2008
£’000
£’000
2,996
2,750
The trading properties were valued by the Directors at 31 December 2009. The carrying amount approximates
its fair value.
13. Trade and other receivables
Trade receivables
Amounts owed by subsidiary undertakings
Amounts owed by related parties
Other receivables
Prepayments and accrued income
2009
2008
£'000
£'000
1,860
162
8,354
963
11,339
2,226
1,258
2,347
5,831
Group trade receivables are shown after deducting a provision for bad and doubtful debts of £1,040,000 (2008:
£688,000). The movement in the provision during the year was recognised entirely in income.
The carrying amount of trade and other receivables approximate their fair value.
36
14. Cash and cash equivalents
Cash and cash equivalents
2009
2008
£'000
£'000
100,970
80,240
Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original
maturity of three months or less. The carrying value of these assets approximates to their fair value.
15. Trade and other payables
Trade payables
Other payables
Accruals
Deferred income
2009
2008
£'000
£'000
1,019
1,014
3,604
3,607
1,882
1,440
3,145
3,452
9,244
9,919
Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs.
The average credit period taken for trade purchases by the Company is 8 days (2008: 23 days). For most
suppliers no interest is charged on the trade payables for the first 30 days from the date of the invoice.
Thereafter, interest is charged on the outstanding balances at various interest rates. The Directors consider that
the carrying amount of trade and other payables approximates to their fair value.
16. Borrowings
Secured at amortised cost
Bank loans
Unamortised borrowing costs
Total borrowings
Amount due for settlement within 12 months
Amount due for settlement after 12 months
Bank loans
2009
2008
£'000
£'000
152,491
(337)
283,329
(2,085)
152,154
281,244
1,608
150,546
926
280,318
152,154
281,244
On 25 July 2006 Hansteen Holdings PLC and certain of its subsidiary undertakings entered into a five year
Euros 230,000,000 revolving bank loan facility with an expiry date of 25 July 2011. On 29 May 2008, following
the re-financing of the Dutch portfolio of investment properties, this facility was reduced to Euros 200,000,000.
On 30 October 2009, the facility was extended and reduced to Euros 150,000,000. The revised facility has an
expiry date of 30 October 2014. The loan is secured on the shares of the borrowing subsidiaries and their
investment properties and is guaranteed by Hansteen Holdings PLC and the borrowing subsidiaries. Interest on
the amounts drawn under the original loan facility was charged at EURIBOR plus 0.8%. Following renegotiation
of the facility, interest on amounts drawn down from 30 October 2009 is charged at EURIBOR plus 1.75%.
Interest of 1% (previously 0.3%) is charged on undrawn amounts. The Group has drawn down Euros
23,000,000 under this facility at 31 December 2009 (2008: Euros 141,000,000). Fees paid in respect of the
revised loan facility, in addition to unamortised bank loan fees on the original loan, amounting to £1,464,000,
have been written-off to profit and loss during the year.
On 25 May 2008 Hansteen Netherlands B.V. and Hansteen Ormix B.V., both Dutch subsidiaries, entered into a
five year Euros 130,000,000 bank loan facility with an expiry date of 1 June 2013. The Euros 130,000,000
drawn down under the facility was used to repay existing borrowings of the Dutch subsidiaries. The loan is
secured on the properties of Hansteen Netherlands B.V. and Hansteen Ormix B.V. The net sales proceeds
arising from sales of investment properties are required to be used to reduce the bank loan unless re-invested
in investment properties. Interest on the amounts drawn under the loan facility is charged at EURIBOR plus
37
1.55%. At 31 December 2009 the Group has drawn down Euros 128,565,000 under this facility (2008: Euros
130,000,000).
The Belgian subsidiaries have a number of facilities secured on the Belgian investment properties with expiry
dates ranging from 30 June 2010 to 31 March 2026 and interest charged at EURIBOR plus 0.75% to 2.25%.
The aggregate amount outstanding at 31 December 2009 in respect of these bank loans is Euros 20,064,000
(2008: Euros 22,019,000).
Security for secured borrowings at 31 December 2009 is provided by charges on property with an aggregate
carrying value of £389,000,000 (2008: £462,000,000).
The Directors estimate that the book value of the Group’s bank loans approximates to their fair value.
Maturity
The bank loans are repayable as follows:
Within one year or on demand
Between one and two years
In the third to fifth years inclusive
Over five years
Undrawn committed facilities
Expiring after more than two years
2009
2008
£'000
£'000
1,786
2,384
137,366
10,955
926
2,958
267,952
11,493
152,491
283,329
112,839
57,049
Floating rate borrowings
2009
Interest rate and currency profile
Euros
2008
%
£’000
%
£’000
4.29
152,491
4.71
283,329
A number of interest rate caps and swaps have been entered into in respect of the amounts drawn under the
loan facilities at 31 December 2009 to hedge Euro borrowings at an average rate of 4.59% (2008: 4.53%).
38
17. Obligations under finance leases
Minimum lease
Present value of
payments
lease payments
2009
2008
2009
2008
£
£
£
£
342
372
160
168
In the second to fifth years inclusive
1,369
1,490
705
739
After five years
4,008
4,734
3,063
3,536
5,719
6,596
3,928
4,443
(1,791)
(2,153)
n/a
n/a
3,928
4,443
3,928
4,443
Amounts payable under finance leases:
Within one year
Less: future finance charges
Present value of lease obligations
Less: amount due for settlement within 12 months
(shown under current liabilities)
Amount due for settlement after 12 months
(342)
3,586
(372)
4,071
The lease is held in I.P.I. Nossegem NV, a Belgian subsidiary and is denominated in Euros. The lease term
outstanding at 31 December 2009 is 14 years (2008: 15 years). For the year ended 31 December 2009, the
interest rate implicit in the lease was 4.7452% (2008: 5.045%). Interest rates are fixed every five years and
interest rate and capital repayments adjusted to reflect this.
The fair value of the Group’s lease obligations approximates their carrying amount.
The Group’s obligations under the finance lease are secured by the lessors’ rights over the leased assets.
18. Deferred tax
Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax
balances (after offset) for financial reporting purposes:
Deferred tax assets
Deferred tax liabilities
2009
2008
£'000
£'000
1,167
(5,490)
(10,678)
(4,323)
(10,678)
39
The following are the major deferred tax liabilities and assets recognised and movements thereon during the
reporting period.
At 1 January 2009
Credit/(charge) to
income
Charge to reserves
Exchange
differences
At 31 December
2009
Company
At 1 January 2009
Credit/(charge) to
income
Charge to reserves
At 31 December
2009
Currency
UK tax on
Revaluation
Depreciation
Exchange
Indexation
contracts
retained
of
of
gains on
on
and interest
earnings in
Short-term
investment
investment
investment
investment
rate
overseas
timing
properties
properties
properties
properties
derivatives
subsidiaries
Losses
differences
Total
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
(7,329)
(3,042)
(17,196)
1,530
16,286
(1,496)
1,196
(627)
(10,678)
8,554
573
(6,070)
260
15,836
1,360
(1,409)
(121)
(14,780)
(46)
1,496
-
582
(95)
410
(244)
49
4,619
(244)
1,980
1,798
(8,852)
-
-
1,460
-
1,683
(412)
(4,323)
-
-
-
-
15,732
-
-
30
15,762
-
-
-
-
(15,314)
-
-
214
-
(244)
(15,100)
(244)
-
-
-
-
418
-
214
(214)
418
At 31 December 2009 the Group has unutilised tax losses amounting to £43,093,000 (2008: £11,709,000)
available for offset against future profits. A deferred tax asset has been recognised in respect of £6,415,000
(2008: £3,528,000) of such losses. No deferred tax asset has been recognised in respect of the remaining
£36,678,000 (2008: £8,181,000) due to the unpredictability of future profit streams. Included in recognised tax
losses are losses of £3,494,000 (2008: £nil) that will expire in 2015. Included in unrecognised tax losses are
losses of £7,625,000 (2008: £7,383,000) that will expire in 2017. Other losses may be carried forward
indefinitely.
At 31 December 2009 no provision (2008: £1,196,000) has been made for temporary differences associated
with undistributed earnings of overseas subsidiaries.
40
19. Notes to the cash flow statement
2009
2008
£’000
£’000
(12,246)
(59,555)
25
23
227
216
32,512
(24)
(4,532)
16,582
(9,054)
(562)
24
2,802
41,655
(161)
45,006
6,678
(1,388)
23,729
34,499
Increase in trading properties
Decrease/(increase) in receivables
Increase in payables
(246)
632
10
(292)
(305)
764
Cash generated from operations
24,125
34,666
Income taxes paid
Interest paid
(1,998)
(8,448)
(4,339)
(12,402)
Net cash inflow from operating activities
13,679
17,925
Loss for the year
Adjustments for:
Share-based employee remuneration
Depreciation of property, plant and equipment
Impairment of trading properties
Impairment of goodwill
Share of losses of associate
Losses on investment properties
Gain on sale of subsidiaries
(Gains)/losses on forward currency contracts and currency options
Net finance costs
Tax
Operating cash inflows before movements in working capital
20. Gearing ratio
The Group’s management reviews the capital structure on a semi-annual basis in conjunction with the Board.
As part of this review, management considers the cost of capital and the risks associated with each class of
capital and debt.
The gearing ratio at the year end is as follows:
Debt
Cash and cash equivalents*
Net debt
Equity
Net debt to equity ratio
Carrying value of investment and trading properties
Net debt to value ratio
2009
2008
£’000
£’000
156,082
(100,970)
285,687
(32,367)
55,112
253,320
379,571
212,545
14.5%
119.2%
420,970
495,107
13.1%
51.2%
Debt is defined as borrowings and obligations under finance leases, as detailed in notes 16 and 17.
*In 2008, cash and cash equivalents excluded deposits given as collateral for known liabilities.
41
21. Going concern
The Group’s business activities, together with the factors likely to affect its future development, performance
and position as well as the financial position of the Group, its cash flows, liquidity position and the borrowing
facilities are described in the Joint Chief Executives’ Report on pages 7 to 13. In addition note 36 to the
financial statements includes the Group’s objectives, policies and processes for managing its capital; its
financial risk management objectives; details of its financial instruments and hedging activities; and its
exposures to credit risk and liquidity risk.
The Group has a good debt maturity profile with long-term funding in place. The current economic conditions
have created further uncertainty as to the principal risks and uncertainties facing the Group as noted above. In
light of these risks the Group has considered its forecast cash flows and forecast covenant compliance taking
into account:

the impact on the various loan covenants of further reductions in the property valuations, decline in
rental income and increase in interest rates:

the potential impacts of the current economic uncertainty over the Group’s operating cash flow
generation, including tenancy failures and increased vacancies.
These forecasts show that the Group has sufficient headroom and available finance to manage its business
risks successfully despite the current uncertain economic outlook. Based on this assessment, the Directors
have a reasonable expectation that the Company and the Group have adequate resources to continue in
operational existence for the foreseeable future. Thus they continue to adopt the going concern basis in
preparing the Annual Report and Accounts.
22. Events after the balance sheet date
On 11 March 2010, the Company declared a dividend of 3.2 pence per share which will be paid on 1 April 2010
to ordinary shareholders on the register on 19 March 2010. Of this dividend 0.34 pence per share is a REIT
Property Income Distribution (PID) in respect of the Group's tax exempt property rental business.
On 16 March 2010, the Company entered into a conditional agreement to acquire an 886,000 sq m German
industrial property portfolio from HBI S.à r.l. and HBI Delta Sub S.à r.l for an effective acquisition cost of up to
Euros 330,000,000, financed by using Euros 70,000,000 from the Group’s existing cash reserves and the
balance of Euros 260,000,000 in debt. The transaction is subject to shareholder approval at a General Meeting
to be held on 1 April 2010.