RNS No 0867a
ORB ESTATES PLC
7 September 1999
PRELIMINARY ANNOUNCEMENT FOR THE YEAR ENDED 30 JUNE 1999
CHAIRMAN'S STATEMENT AND OPERATING AND FINANCIAL REVIEW
On 9 October 1998 I acquired 1,997,337 ordinary shares, representing 29.84% of
the issued share capital of the Company, from Denys Cole, the former chairman.
On the same date, Denys Cole and Roger Maddock resigned from the board and I
was appointed a director together with Charles Helvert and Jacques Delacave.
I was also appointed chairman.
Review of the year ended 30 June 1999
The preliminary announcement for the year ended 30 June 1999 shows no
material change in the net assets from the previous year.
Existing non ring fenced properties
Percy Business Park, the 7,400 sq. m (80,000 sq. ft) industrial estate at
Oldbury, West Midlands has benefited from improved marketing and the
refurbishment works undertaken during 1997. A number of new lettings have
been agreed and annual net rental income has increased by #46,000. In July
1998, the estate was extended by the purchase of an adjacent 0.49 hectare (1.2
acre) open storage site for #170,000. This land provides an important
additional area for future re-development. The site has been let on a short
term basis, and the directors are considering the possibility of changing the
use and planning of the business park with a view to developing it as an out-
of-town retail location.
The group's other investment properties comprise secondary office properties
located in Sheffield and Barnsley, South Yorkshire. The property in Barnsley
is under offer, subject to certain conditions, for #1.6 million and the
Sheffield property is being marketed at its current market value of #2.7
million.
Ring fenced properties and investments
The only ring fenced assets now remaining are the investment in the
Brandywine Limited Partnerships in the USA and an equity investment in a
private UK financial services company.
The Brandywine Partnerships own 160 hectares (400 acres) of land in Prince
George's County, Maryland near Washington DC. The land is zoned for
residential, industrial and retail development. Under a Priorities Agreement
with the relevant ring fenced bank the proceeds from the disposal of the US
ring fenced assets are split 7/9ths to the bank and 2/9ths to the Orb Group.
The existing board of directors has significant concerns around this
investment and, in particular, the long term partnership strategy for
submission of development plans, the ability of Orb to realise value and the
funding commitment required. This uncertainty has led to the decision to
provide fully against the carrying value of the Brandywine Partnerships at 30
June 1999 and is disclosed as an exceptional item.
The equity investment in the English Trust Group Limited, a UK financial
services company is shown in the balance sheet at valuation of #150,000 (1998:
#150,000). Opportunities to dispose of the asset are being pursued although
it is unlikely that the realisation proceeds will exceed the ring fenced debt
outstanding against the investment.
Operating expenses
In order to cut operating expenses, the group has reduced staff and sublet
surplus office space. The group is expected to benefit from future cost
savings following the acquisition of Albemarle Property Investments PLC
("Albemarle").
Treasury policy
All significant treasury policy decisions are made with the approval of the
board. The principal objectives are to ensure the availability of finance to
meet current and anticipated requirements, and to minimise the group's cost of
capital. These objectives are followed by investing the group's surplus cash
balances on interest bearing accounts, maintaining relationships with various
leading banks and other financial institutions in order to provide the group
with access to different sources of finance as it grows, and managing the
maturity profile of the group's borrowings and the group's interest rate
exposure.
The group's borrowings are required for property investment or development and
it aims to obtain the most appropriate form of borrowing to finance its
underlying current or future assets. At 30 June 1999, the majority of the
group's borrowing are medium term secured debt at variable rates of interest.
These borrowings are in respect of investment properties being marketed for
disposal, and there are no plans to refinance these specific borrowings.
The group does not use financial instruments, such as an interest rate swaps,
and the directors consider that the group is not of a sufficient size to
warrant a separate treasury department.
The group's current overseas investments are ring fenced assets and
consequently any foreign currency risk is outside its control.
At 30 June 1999, the group's cash balance including deposits stood at
#3,193,000, and there were no undrawn borrowing facilities.
Events subsequent to 30 June 1999
It is an accepted fact that small property companies suffer from a lack of
investor interest and this is reflected in their share prices which presently
stand at a substantial discount to their net asset values. I have stated at
meetings of shareholders since I became chairman that it is my intention to
build Orb into a substantial property company both by the acquisition of
investment properties and also by undertaking developments.
Acquisition of Albemarle Property Investments PLC
On 22 June 1999, Orb announced the terms and conditions of a recommended offer
for Albemarle, a property investment company. At that date, Orb held 13.5
million Albemarle shares representing 6.07 per cent of Albemarle. The offer
for Albemarle became unconditional in all respects on 10 August 1999 and, as
at 6 September 1999 Orb owned 74 per cent of the issued ordinary share capital
of Albemarle. The terms of the recommended offer were one new Orb share for
every 15 ordinary shares of Albemarle which valued Albemarle's issued ordinary
share capital at approximately #7 million.
The Albemarle group owns 24 freehold and leasehold properties. The portfolio
totals 735,000 square feet, representing 285,000 square feet of offices,
215,000 square feet of industrial space, 105,000 square feet of warehousing
and 130,000 square feet of retail space, with a small element of residential
properties. Vacant space represents approximately 5 per cent of the
portfolio.
The audited financial statements of Albemarle for the year ended 31 December
1998 show a turnover of #6,341,000 compared with #8,093,000 for the
corresponding period ended 31 December 1997. Operating profit in 1998 was
#3,611,000, compared with #6,508,000 in 1997 and the loss on ordinary
activities after taxation was #3,119,000 in 1998 compared with #407,000 in
1997.
Since December 1998, Albemarle has sold 11 properties for an aggregate of
#16.7 million. The purpose of the sales is to reduce Albemarle's gearing which
has been uncomfortably high for many years. In overall terms, the Albemarle
group has realised its properties at above valuation.
Whilst the combination of Orb and Albemarle is small by stock market
standards, the additional critical mass should facilitate the financing of
further acquisitions of properties and property companies, either through the
issue of equity or for cash, in order to increase the scale of the group and
its activities.
Acquisition of Poole Pottery Limited ("Poole Pottery")
Orb has signed an agreement to acquire all the issued share capital of Poole
Pottery for #14,500,000 which is now unconditional in all respects.
Completion is scheduled for 15 September 1999, and of the purchase price
#10,500,000 is payable in cash and #4,000,000 will remain as a convertible
unsecured loan repayable within 15 months of completion with a coupon of 7.5
per cent per annum.
Poole Pottery represents, in the opinion of Orb's directors, an exceptional
property development opportunity. The existing Poole property comprises a
pottery and factory outlet and operates from a leasehold site and 1.6 acre
freehold plot on the quay in the town centre of Poole, Dorset. Orb intends to
develop the freehold site, to sell the pottery business as soon as possible
but to retain a model pottery and visitors centre in the development. Orb has
commenced contractual negotiations with a major national house builder to
sell the residential elements of the scheme and to build an additional 80,000
square feet of factory outlet space, once planning has been established.
Proposed acquisition of Gander Properties Plc ("Gander")
On 11 August 1999 the terms of the recommended proposal under which Orb would
acquire Gander were announced.
Gander is a listed residential property investment and development group
specialising in the Kensington and Chelsea area of London. In its audited
preliminary results for the 18 months ended 30 June 1999, the Gander group
reported turnover, which does not include net rental income, of #1.6 million
(year to 31 December 1997: #1.19 million) and loss before tax of #2.79
million (year to 31 December 1997: profits of #244,000). Its net assets at 30
June 1999 were #59.2 million.
The directors of Orb believe that there is an opportunity for Orb to utilise
its tax losses to maximise the after tax capital gain in the Gander property
portfolio that will result from further development and marketing of that
portfolio.
It is intended that the acquisition will be effected by means of a scheme of
arrangement between Gander and its shareholders ("Scheme"). If the Scheme
becomes effective, Gander Shareholders will receive 10 pence in cash and one
convertible loan note for each ordinary share in Gander held by them, and
would value an ordinary share in Gander at 10.75 pence based on the value of
0.75 pence assessed to the convertible loan note by Grant Thornton, Orb's
sponsor. The total consideration for the entire issued share capital of
Gander, on this basis, would be #56.63 million. It is Orb's intention to
finance the acquisition by way of a term loan facility of #101 million from
The Royal Bank of Scotland International Limited, which would be secured on
the property portfolio of the Gander group.
Conclusion
With the above we have taken the first steps to build Orb into a substantial
property company. I believe that with our management and financial resources
we are well placed to achieve this ambition and I look forward to an exciting
year.
Peter Catto
Chairman
9 September 1999
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 30 June 1999
Non
Non Ring ring Ring
ring fenced Total fenced fenced Total
Fenced
1999 1999 1999 1998 1998 1998
#000 #000 #000 #000 #000 #000
Turnover from 799 6 805 3,121 6,802 9,923
continuing operations
Cost of sales and (103) 9 (94) (2,067)(6,331)(8,398)
property outgoings
Gross profit 696 15 711 1,054 471 1,525
Administrative (537) (25) (562) (545) (47) (592)
expenses
Exceptional item: (265) - (265) - - -
Provision against
investments
Operating (106) (10) (116) 509 424 933
(loss)/profit
from continuing
operations
Profit on sale of - - - 65 - 65
investments
and investment
properties
(Loss)/profit on (106) (10) (116) 574 424 998
ordinary activities
before interest and
taxation
Net interest payable (260) 3 (257) (279) (423) (702)
and similar charges
(Loss)/profit on (366) (7) (373) 295 1 296
ordinary activities
before taxation
Taxation on (4) 7 3 - (1) (1)
(loss)/profit on
ordinary activities
Retained (loss)/profit (370) - (370) 295 - 295
for the financial year
Basic and diluted (5.6p) 4.4p
(loss)/earnings per
share:
BALANCE SHEET
at 30 June 1999
At 30 June 1999 Group
Restated
(Note 6)
1999 1998
#000 #000
Fixed assets:
Tangible assets 6,764 6,264
Investments 555 1,126
7,319 7,390
Current assets:
Debtors 370 2,036
Cash deposits 3,000 -
Cash at bank and in hand 193 2,974
3,563 5,010
Creditors: amounts falling
due within one year
Limited recourse loans (203) (1,406)
Other creditors (999) (1,144)
(1,202) (2,550)
Net current assets 2,361 2,460
Total assets less current 9,680 9,850
liabilities
Creditors: amounts falling (3,775) (3,950)
due after more than one year
Net assets 5,905 5,900
Capital and reserves:
Called up share capital 3,313 3,313
Revaluation reserve 313 (482)
Special reserve 2,381 2,381
Profit and loss account (2,975) (1,145)
Limited recourse reserve 2,873 1,833
Equity shareholders' funds 5,905 5,900
Basic and diluted net asset 89.1p 89.0p
value per share
NOTES
1 Analysis of consolidated profit and loss account
Turnover and
(loss)/profit for Non Non
the year ended Ring Ring Total Ring Ring Total
30 June 1999 fenced fenced fenced fenced
1999 1999 1999 1998 1998 1998
#000 #000 #000 #000 #000 #000
Gross rentals 770 6 776 834 402 1,236
Property outgoings (103) 9 (94) (102) (205) (307)
Net rental income 667 15 682 732 197 929
Trading turnover - - - 2,275 6,400 8,675
Cost of sales - - - (1,965) (4,850) (6,815)
Transfer from - - - - (1,276) (1,276)
Limited Recourse
Reserve
Trading Profit - - - 310 274 584
Other turnover 29 - 29 12 - 12
Gross profit 696 15 711 1,054 471 1,525
Administrative (537) (25) (562) (545) (47) (592)
expenses
Exceptional item:
Provision against (265) (927) (1,192) - - -
investments
Less transfer to - 927 927 - - -
Limited Recourse
Reserve
Total Exceptional (265) - (265) - - -
Item
Operating (106) (10) (116) 509 424 933
(loss)/profit
Sale of investments
and investment
properties:
Sale proceeds - - - 822 - 822
Cost of sales - - - (757) - (757)
Profit on sale of - - - 65 - 65
investments and
investment properties
2 Analysis of consolidated balance sheet
Restated Restated Restated
Non Non
Balance sheet Ring Ring Total Ring Ring Total
at 30 June 1999 Fenced Fenced Fenced fenced
1999 1999 1999 1998 1998 1998
#000 #000 #000 #000 #000 #000
Fixed assets:
Tangible assets 6,764 - 6,764 6,264 - 6,264
Investments 405 150 555 217 909 1,126
7,169 150 7,319 6,481 909 7,390
Current assets:
Debtors 370 - 370 2,036 - 2,036
Cash deposits 3,000 - 3,000 - - -
Cash at bank and 85 108 193 2,416 558 2,974
in hand
3,455 108 3,563 4,452 558 5,010
Creditors:
amounts falling
due within one year
Limited recourse loans - (203) (203) - (1,406) (1,406)
Other creditors (944) (55) (999) (1,083) (61) (1,144)
(944) (258)(1,202) (1,083) (1,467) (2,550)
Net current 2,511 (150) 2,361 3,369 (909) 2,460
assets/(liabilities)
Total assets less 9,680 - 9,680 9,850 - 9,850
current liabilities
Creditors: amounts (3,775) - (3,775) (3,950) - (3,950)
falling due after
more than one year
Net assets 5,905 - 5,905 5,900 - 5,900
Basic and diluted
net asset value per
share 89.1p 89.1p 89.0p 89.0p
3. Earnings per share
In accordance with Financial Reporting Standard 14 Earnings per Share:
(i) the (loss)/earnings per share have been calculated on the loss for
the financial year of #370,000 (1998: #295,000 profit) and a weighted
average number of ordinary shares in issue during the year of 6,626,429
(1998: 6,626,429).
(ii) the net assets per share have been calculated on the equity
shareholder's funds as at 30 June 1999 of #5,905,000 (1998: #5,900,000)
on the number of ordinary shares in issue at that date of 6,626,429
(1998: 6,626,429). As at 30 June 1999 there was no difference between
basic and diluted earnings per share.
4. Financial information
The financial information set out in the announcement does not constitute
the Company's statutory accounts for the years ended 30 June 1999 or 30
June 1998. The financial information for the year ended 30 June 1998 is
derived from the statutory accounts for that year which have been
delivered to the Registrar of Companies. The auditors reported on those
accounts, their report was unqualified and did not contain a statement
under S237(2) or (3) Companies Act 1985. The statutory accounts for the
year ended 30 June 1999 will be finalised on the basis of the financial
information presented by the directors in this preliminary announcement
and will be delivered to the Registrar of Companies following the
Company's annual general meeting.
5. Presentation of accounts
The Group undertook a financial reconstruction in 1993, a significant
part of which was a Master Banking Agreement ("MBA"). Under the terms
of the MBA, the repayment of the ring fenced bank debt was limited to the
realisation proceeds and net rental receipts from the ring fenced
property assets over which those banks had security. These arrangements
are known as "ring fences" or "ring fenced" assets and liabilities.
The notes to the profit and loss account and balance sheet are presented
in three columns to show ring fenced and non ring fenced operations
separately. Notes 1 and 2 to this announcement provides a three column
analysis of the profit and loss account and balance sheet between ring
fenced and non ring fenced. The total column represents the statutory
accounts of the Group as required by the Companies Act and UK accounting
standards.
6. Restatement of comparative information
The comparative financial information has been restated to reflect the
adoption of FRS9, Associates and joint ventures. An undertaking is
regarded as a joint arrangement if the group has joint control over its
operating and financial policies. Under FRS9, the group accounts for
its share of the individual items of income, expenditure, assets,
liabilities and cash flows of incorporated joint arrangements. The
directors consider that this departure from the requirements of the
Companies Act 1985 to account for incorporated joint arrangements as
either associates or trade investments according to whether the group has
significant influence over their operating and financial policies is
necessary for the financial statements to show a true and fair view
because joint arrangements are in substance an extension of the group's
business.
Prior to the adoption of FRS9, the joint arrangements in which the group
is involved were accounted for as associates. Adoption of FRS9 has had
no impact on the net assets of the group or company in the comparative
period, but has resulted in the minor restatement of certain assets and
liabilities of the group and company as at 30 June 1998.
7. Contingent liabilities
a. There are no guarantee liabilities outstanding in either the Group or
the Company in respect of the liabilities of undertakings which have
not been consolidated.
b. The Company has given a fixed charge over its investment in English
Trust Shares shown at a net book value of #150,000 (1998: #150,000) in
respect of the borrowings of a subsidiary company. The Company has no
guarantee liabilities in respect of the bank borrowings of subsidiary
undertakings.
c. The Company has received dividends from its ring-fenced investment in
English Trust Group Limited. Merita Bank PLC, a lender secured
on ring fenced assets, has claimed entitlement to #150,000 of these
dividend payments because it contends that they are covered by the charge
in its favour. Whilst Orb has been advised by its lawyers that the
underlying charging documentation does not give the bank any claim on the
dividends, Merita Bank PLC contends that there ae other factors which
support the bank's claim. For this reason, and until the matter has been
resolved with Merita Bank PLC, these dividend receipts have been held as
deferred income in the company's balance sheet.
d. The Company has given a guarantee dated 10 December 1998 in favour of
Maxcar Finance Limited ("Maxcar Finance") ("Guarantee") limited to
#400,000 in respect of sums due or payable by Maxcar under a current
account agreement dated 24 February 1998 between Maxcar Finance and
Maxcar ("Current Account Agreeement") in relation to any shortfalls in
the value of stocks held by Maxcar. The Company has an indemnity dated
10 December 1998 from General Equity L.P. ("General Equity") against any
sums payable by the company to Maxcar Finance under the terms of the
Guarantee, subject to a maximum limit of #400,000. There are also
agreements dated 28 January 1999, 29 March 1999 and 30 April 1999
between the Company and Maxcar Finance to amend the Guarantee by
extending the date for calculation of the shortfall under the Current
Account Agreement from 31 January 1999 to 31 March 1999 to 30 April 1999
and then to 31 May 1999.
8. Dividend
There is a deficit on the profit and loss account and accordingly the
Directors do not recommend the payment of a dividend.
9. Annual Report
Copies of this report are available from the Company's Registered Office
at 24 Brook's Mews, London W1Y 1LF. The annual report will be sent to
all shareholders shortly.
END
FR UBUUCBBGBGMM
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