On Behalf of: First Property Group plc ("First Property", the "Company" or the "Group")
Embargoed: 0700hrs
First Property Group plc
Preliminary results for the twelve months to 31 March 2023
First Property Group plc (AIM: FPO), the property fund manager and investor with operations in the United Kingdom and Central Europe, today announces its preliminary results for the twelve months ended 31 March 2023.
Highlights since interim results:
· Sold two directly owned supermarkets in Poland for £5.50 million generating a profit of £0.68 million.
· 5th Property Trading Ltd (5PT), a fund in which the Group gained a controlling interest following the purchase of an additional 6.57% in shares, has been consolidated into the Group's accounts.
· Post the year end, launched a senior debt product for secured lending against commercial property.
· Second interim dividend, in lieu of a final dividend, of 0.25 pence per share paid on 5 April 2023, to make a total dividend of £0.50 pence for the year (2022: £0.50 pence).
Financial summary:
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Unaudited year to 31 March 2023 | Restated Audited year to 31 March 2022 | Percentage change |
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Income Statement: |
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Statutory profit before tax | £2.49m | £7.08m | -64.83% |
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Diluted earnings per share | 1.70p | 6.01p | -71.71% |
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Total dividend per share | 0.50p | 0.50p | -% |
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Average €/£ exchange rate | 1.1567 | 1.1754 | - |
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Financial Position at the year-end: |
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Investment properties at book value* | £47.01m | £36.20m | +29.86% |
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Investment properties at market value* | £53.97m | £42.24m | +27.77% |
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Associates and investments at book value | £22.13m | £26.58m | -16.74% |
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Associates and investments at market value | £25.27m | £30.60m | -17.42% |
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Cash balances | £7.65m | £6.42m | +19.16% |
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Cash per share | 6.82p | 5.81p | +17.38% |
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Gross debt** | £29.66m | £23.66m | +25.36% |
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Net debt** | £22.00m | £17.24m | +27.61% |
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Gearing ratio at book value*** | 40.57% | 35.62%^ | - |
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Gearing ratio at market value*** | 36.08% | 31.25%^ | - |
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Net assets at book value**** | £43.44m | £42.77m^ | +1.57% |
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Net assets at market value | £52.54m | £52.05m^ | +0.94% |
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Adjusted net assets per share (EPRA basis) | 46.50p | 46.07p^ | +0.93% |
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Year-end €/£ rate | 1.1381 | 1.1834 | - |
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*Investment properties includes properties of 5PT, previously classed as an associate **Debt comprises financial liabilities, including those of 5PT | ||||
***Gearing ratio = Gross debt divided by gross assets | |
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****Attributable to the owners of the parent, excludes non-controlling interests ^Restated, further details within the basis of preparation section of the notes to the accounts. | |
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Commenting on the results, Ben Habib, Chief Executive of First Property Group plc, said:
"These are a creditable set of results in extremely challenging times.
"The end of lockdowns should have ushered in a more normal trading environment. Instead, we are experiencing the severe impact of broken supply chains and labour markets. Together with the war in Ukraine, the result has been rocketing inflation and a concomitant increase in interest rates.
"Consequently, investment markets have been hit hard, with a sharp reduction in debt availability and the volumes of property being traded.
"Occupational demand is generally holding up better than investment markets and we are making some inroads in letting the space available at our office blocks in Warsaw and Gdynia.
"Given the general withdrawal of financing from the market, we have established a platform for the provision of debt to finance commercial property investments. It is too early to determine the likely success of this venture but we believe it to be the right product, launched at the right time."
A briefing for analysts and shareholders will be held at 11.00hrs today via Investor Meet Company. To participate it is necessary to register at https://www.investormeetcompany.com/first-property-group-plc/register-investor and select to meet the Company. Those who have already registered and selected to meet the Company will be automatically invited. A copy of the accompanying investor presentation and a recording of the call will be posted on the Company's website.
For further information please contact:
First Property Group plc | Tel: +44 (20) 7340 0270 |
Ben Habib (Chief Executive Officer) Laura James (Group Finance Director) Jeremy Barkes (Director, Business Development) | |
Jill Aubrey (Company Secretary)
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Allenby Capital (NOMAD & Broker) | Tel: + 44 (0) 20 3328 5656 |
Nick Naylor / Daniel Dearden-Williams (Corporate Finance) Amrit Nahal (Equity Sales) | |
Notes to Investors and Editors:
First Property Group plc is an award-winning property fund manager and investor with operations in the United Kingdom and Central Europe. Its focus is on higher yielding commercial property with sustainable cash flows. The Company is flexible and takes an active approach to asset management. Its earnings are derived from:
· Fund Management - via its FCA regulated and AIFMD approved subsidiary, First Property Asset Management Ltd ("FPAM"), which earns fees from investing for third parties in property. FPAM currently manages twelve funds which are invested across the United Kingdom, Poland and Romania.
· Group Properties - principal investments by the Group, to earn a return on its own capital, usually in partnership with third parties. Investments include six directly held properties in Poland, one in Romania, and non-controlling interests in nine of the twelve funds.
Quoted on AIM, the Company has offices in London and Warsaw. Around one third of the shares in the Company are owned by management, directors and their families. Further information about the Company and its properties can be found at: www.fprop.com.
CHIEF EXECUTIVE'S STATEMENT
Financial performance
I am pleased to report the Company's preliminary results for the year ended 31 March 2023.
Revenue earned by the Group during the year amounted to £7.25 million (31 March 2022: £8.65 million) yielding a profit before tax of £2.49 million (31 March 2022: £7.08 million). The profit for the prior year, as explained in the accounts for that year, was bolstered by the restructuring of the loan secured on the Group's property in Gdynia.
The Group's profit was lower than in previous years due to the sale of income producing properties and the re-investing of some of these proceeds in the office block in Gdynia and in a further 32% of Blue Tower in Warsaw. Both investments were largely vacant at the time the investments were made and are now being leased up. Further details on these investments are set out below.
The Group ended the year with net assets calculated under the cost basis of accounting, excluding non-controlling interests, of £43.44 million (2022: restated £42.77 million), equating to 39.18 pence per share (2022: restated 38.74 pence per share). It is the accounting policy of the Group to carry its properties and interests in associates at the lower of cost or market value.
The net assets of the Group when adjusted to their market value less any deferred tax liabilities (EPRA basis), amounted to £52.54 million or 46.50 pence per share (31 March 2022: restated £52.05 million or 46.07 pence per share).
Gross debt amounted to £29.66 million at the year-end (31 March 2022: £23.66 million), £17.02 million of which was non-interest bearing and represents deferred consideration payable for the purchase of two properties in Poland (in Gdynia and Warsaw, as referenced above). Net debt stood at £22.00 million (31 March 2022: £17.24 million). The debt was secured against six properties in Poland and one in Romania.
The Group's gearing ratio with its properties at their book value was 40.57% (31 March 2022: restated 35.62%) and with its properties at their market value was 36.08% (31 March 2022: restated 31.25%).
Group cash balances at the year-end stood at £7.65 million (31 March 2022: £6.42 million), equivalent to 6.82 pence per share (31 March 2022: 5.81 pence per share).
Diluted earnings per share was 1.70 pence (2022: 6.01 pence).
As set out in previous accounts, the profit share earned by Fprop Offices LP is subject to clawback. As a result of reductions in the value of commercial property, an adjustment has been made to the net assets of the Group as at 31 March 2022 to reflect the likelihood of this clawback. No cash repayment has yet been made but the Directors consider it prudent to make this adjustment. In addition, the results for the year to 31 March 2023 include a provision of £0.59 million which represents the balance of any potential clawback.
Dividend
Instead of a final dividend (usually paid in September), a second interim dividend of 0.25 pence per share was paid on 5 April 2023 (2022: Final dividend 0.25 pence per share), which together with the first interim dividend of 0.25 pence per share equates to a dividend for the year of 0.50 pence per share (2022: 0.50 pence per share).
REVIEW OF OPERATIONS
PROPERTY FUND MANAGEMENT
Third party assets under management ended the year at £400.4 million (31 March 2022: £516.5 million).
The decrease was attributable to:
1. The sale by three funds of seven properties in the United Kingdom valued at £69.0 million offset by the purchase by another fund of one property, also in the United Kingdom, for £6.2 million;
2. A decrease in the value of the remainder of the portfolio of some £52.4 million offset by foreign exchange gains of £4.8 million; and
3. The consolidation of 5PT into the Group's accounts, a fund invested in three commercial properties in Poland with a value at the date of acquisition of £7.62 million.
Fund management fees are generally levied monthly by reference to the value of properties. In the case of Fprop Offices LP, the Group is entitled to a share of total profits in lieu of fund management fees and to receive annual payments on account equivalent to 10% of total cumulative income profits and capital gains. These payments are adjusted annually.
Revenue earned by this division decreased by 38% to £2.52 million (2022: £4.04 million), resulting in profit before unallocated central overheads and tax decreasing by £1.32 million to £0.12 million (2022: £1.44 million). The decrease was due to the sale of properties held by three funds invested in the United Kingdom, a reduction in value of properties generally, and a provision for the possible clawback by Fprop Offices LP of £0.59 million in profit share.
At the year end fund management fee income, excluding performance fees, was being earned at an annualised rate of £2.55 million (31 March 2022: £2.66 million).
The weighted average unexpired fund management contract term at the year-end was 2 years, 9 months (31 March 2022: 3 years, 7 months).
The reconciliation of movement in third party funds managed by FPAM during the year is shown below:
| Funds managed for third parties (including funds in which the Group is a minority shareholder) | |||
| UK £m | CEE £m | Total £m | No. of properties |
As at 1 April 2022 | 345.5 | 171.0 | 516.5 | 62 |
Purchases | 6.2 | - | 6.2 | 1 |
Property sales | (69.0) | - | (69.0) | (7) |
Reclassified as Group properties | - | (7.6) | (7.6) | (3) |
Capital expenditure | 0.3 | 1.6 | 1.9 | - |
Property revaluation | (41.6) | (10.8) | (52.4) | - |
FX revaluation | - | 4.8 | 4.8 | - |
As at 31 March 2023 | 241.4 | 159.0 | 400.4 | 53 |
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An overview of the value of assets and maturity of each of the funds managed by FPAM is set out below:
Fund | Country of investment | Fund expiry | Assets under management at market value at 31 March 2023 | No. of properties | % of total third-party assets under management | Assets under management at market value at 31 March 2022 | |||||
| | £m. | | | £m. |
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SAM & DHOW | UK | Rolling | * | * | * | * | |||||
5PT** | Poland | Dec 2025 | - | - | - | 7.7 | |||||
OFFICES | UK | Jun 2024 | 84.9 | 4 | 21.2 | 136.4 | |||||
SIPS | UK | Jan 2025 | 104.7 | 21 | 26.1 | 140.6 | |||||
FOP | Poland | Oct 2025 | 64.5 | 5 | 16.1 | 64.5 | |||||
FGC | Poland | Mar 2026 | 22.0 | 1 | 5.5 | 21.3 | |||||
UK PPP | UK | Jan 2027 | 28.1 | 10 | 7.0 | 41.5 | |||||
SPEC OPPS | UK | Jan 2027 | 14.9 | 4 | 3.7 | 17.0 | |||||
FKR | Poland | Mar 2027 | 16.8 | 1 | 4.2 | 19.4 | |||||
FCL | Romania | Jun 2028 | 8.7 | 1 | 2.2 | 8.5 | |||||
FPL | Poland | Jun 2028 | 47.0 | 4 | 11.8 | 49.6 | |||||
FULCRUM | UK | Indefinite | 8.8 | 2 | 2.2 | 10.0 | |||||
Total Third-Party AUM | | | 400.4 | 53 | 100.0 | 516.5 | |||||
* Not subject to recent revaluation.
** The Group gained control of this fund in May 2022, consolidating its Net Assets into the Group.
The sub sector weightings of investments in FPAM funds is set out in the table below:
| UK | Poland | Romania | Total | % of Total |
| £m. | £m. | £m. | £m. | |
Offices | 150.5 | 85.9 | 8.7 | 245.1 | 61.2% |
Retail warehousing | 62.3 | - | - | 62.3 | 15.6% |
Supermarkets | 28.6 | 12.6 | - | 41.2 | 10.3% |
Shopping centres | - | 51.8 | - | 51.8 | 12.9% |
Total | 241.4 | 150.3 | 8.7 | 400.4 | 100.0% |
% of Total Third-Party AUM | 60.3% | 37.5% | 2.2% | 100% | |
GROUP PROPERTIES
At 31 March 2023, Group Properties comprised seven directly owned commercial properties in Poland and Romania valued at £53.97 million (31 March 2022: seven valued at £42.24 million) and interests in nine of the twelve funds managed by FPAM (classified as Associates and Investments) in which the Group's share is valued at £25.27 million (31 March 2022: £30.60 million).
The contribution to Group profit before tax and unallocated central overheads from the Group Properties division was £3.43 million (31 March 2022: £8.60 million), representing 97% of Group profit before unallocated central overheads and tax. The profit in the prior year included the benefit of a £7.81 million debt restructuring. In addition, the Group's investments in largely vacant office property in Gdynia and Blue Tower with the proceeds from the sale of income producing property have not yet turned cashflow positive, though reasonable leasing progress is being made.
The contribution to Group profit before tax and unallocated central overheads from directly owned properties was £2.56 million (31 March 2022: £7.48 million) and the Associates and Investments contributed £0.87 million (31 March 2022: £1.12 million).
1. Directly owned Group Properties (all accounted for under the cost model):
The book value of the Group's seven directly owned properties was £47.01 million (31 March 2022: seven properties with a book value of £36.20 million). The increase was mainly due to an additional investment of £7.44 million in Blue Tower, Warsaw and the consolidation of 5PT, which owns three properties in Poland valued at £8.45 million, into the Group's accounts. Their market value, based on valuations at 31 March 2023, was £53.97 million (31 March 2022: seven properties valued at £42.24 million).
Country | Sector | Property/ Fund Name | No. of props 31 March 2023 | Book value 31 March 2023 | Market value 31 March 2023 | *Contribution to Group profit before tax 31 March 2023 | *Contribution to Group profit before tax 31 March 2022 |
| | | | £m. | £m. | £m. | £m. |
Poland | Office | Gdynia | 1 | 14.20 | 14.50 | (0.39) | (0.86) |
Poland | Office | Blue Tower | 1 | 20.50 | 24.20 | 1.13 | 1.20 |
Poland | Supermarket | Praga | 1 | 1.98 | 2.95 | 0.12 | 0.20 |
Romania | Office | Dr Felix | 1 | 2.36 | 3.87 | 0.27 | 0.37 |
Poland | Multi use | 5PT*** | 3 | 7.97 | 8.45 | 0.28 | - |
Total* |
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| 7 | 47.01 | 53.97 | 1.41 | 0.91 |
Profit from the sale of three investment properties | 1.78 | - | |||||
Debt restructuring on finance lease** | | | | - | 7.81 | ||
Other overhead costs allocated to the Group Property division | (0.63) | (1.24) | |||||
Total contributions to PBT from Group Properties | 2.56 | 7.48 |
* Prior to the deduction of direct overhead and unallocated central overhead expenses.
**Includes €9.00 million (£7.81 million) debt reduction following restructuring of the finance lease at Gdynia.
***5PT, a fund in which the Group gained a controlling interest (previously recognised as an associate).
Two of the Group's seven directly owned properties account for 72% (£38.70 million) of their total market value. Both are office buildings in Poland of which one is Blue Tower (in which the Group's 80.3% share totals circa 18,000 square metres) and the other is in Gdynia (circa 13,500 square metres).
On 12 August 2022 the Group acquired some 7,171 square meters in Blue Tower in Warsaw at a price of £7.20 million. The purchase resulted in the Group's interest in the building increasing from 48.2% to 80.3%. Some 5,159 square metres of the newly acquired space was vacant at purchase.
The Group's office property in Gdynia is now 28% leased, up from 20% at 31 March 2022. When fully let it is anticipated that the building should generate net operating income of over £1.90 million per annum.
The Group's other directly owned properties include an office block in Bucharest, Romania valued at £3.87 million, and four properties in Poland held by consolidated undertakings valued at £11.40 million. These comprise a mini-supermarket in Warsaw held by E and S Estates Sp. Zo.o (E&S) (in which the Group owns an aggregate 88.5% interest), and two retail units in Warsaw, a mixed-use building in Warsaw, and an office block in Poznan all held by 5PT (in which the Group owns 47.2% but is deemed to have control).
In August 2022 the Group sold a warehouse in Tureni, Romania for £3.11 million which realised a profit of £1.10 million.
In December 2022 the Group sold two supermarkets in Poland held by E&S for £5.50 million which realised a profit of £0.68 million. The Group also refinanced the last remaining property held by E&S, a supermarket valued at £2.95 million, releasing some £1.50 million in cash.
The debt secured against these seven properties totalled £29.66 million (31 March 2022: £23.66 million), of which only £12.64 million was interest bearing. The remainder (£17.02 million) represents deferred consideration in respect of the Group's purchase of its additional share in Blue Tower and for the office block in Gdynia.
Interest costs on the Group's debt amounted to £0.53 million (2022: £0.33 million). This equates to an average borrowing cost of 1.8% per annum when expressed as a percentage of total outstanding Group debt of £29.66 million, or 4.2% per annum if the deferred consideration of £17.02 million, on which no interest is payable, is excluded.
| 31 March 2023 | 31 March 2022 |
| £m. | £m. |
Book value of directly owned properties | 47.01 | 36.20 |
Market value of directly owned properties | 53.97 | 42.24 |
Gross debt undiscounted (all non-recourse to Group) | 29.66 | 23.66 |
LTV at book value | 63.09% | 65.35% |
LTV at market value | 54.96% | 56.01% |
Average borrowing cost | 1.8% | 1.4% |
The average vacancy rate across all seven properties is 23.60%.
The weighted average unexpired lease term (WAULT) as at 31 March 2023 was 5 years, 2 months (2022: 5 years, 7 months).
2. Associates and Investments
These comprise non-controlling interests in nine of the twelve funds managed by FPAM and are valued at £25.27 million (31 March 2022: £30.60 million). Of these, five are accounted for as Associates and held at the lower of cost or fair value (the "cost model"), and four are accounted for as Investments in funds and held at fair value.
The contribution to Group profit before tax and unallocated central overheads from its Associates and Investments decreased by 22.3% to £0.87 million (31 March 2022: £1.12 million). The contribution was impacted by aggregate impairment provisions of £0.90 million in the value of Fprop Krakow Ltd (FKR) and Fprop Opportunities plc (FOP). In addition, another Associate, Fprop Phoenix Ltd (FPL), made a loss after tax of which the Group's share amounted to £0.85 million (2022: loss of £0.62 million).
An overview of the Group's Associates and Investments is set out in the table below:
Fund | % owned by First Property Group | Book value of First Property's share in fund | Current market value of holdings | Group's share of post-tax profits earned by fund 31 March 2023 | Group's share of post-tax profits earned by fund 31 March 2022 |
| % | £'000 | £'000 | £'000 | £'000 |
a) Associates (all invested in Poland and Romania) | |||||
5PT | * | - | - | - | 97 |
FRS | ** | - | - | - | 47 |
FOP | 45.7 | 12,679 | 12,679 | 293 | 1,044 |
FGC | 29.1 | 3,058 | 3,303 | 289 | 221 |
FKR | 18.1 | 1,155 | 1,155 | (426) | (12) |
FPL | 23.4 | 60 | 2,682 | (848) | (617) |
FCL | 21.2 | 636 | 908 | 64 | 67 |
Sub Total | 17,588 | 20,727 | (628) | 847 |
*Consolidated into the Group from May 2022
**In liquidation
b) Investments (all invested in the United Kingdom) | |||||
UK PPP | 0.9 | 272 | 272 | 40 | 100 |
FULCRUM | 2.5 | 185 | 185 | 9 | - |
SPEC OPPS | 11.1 | 2,624 | 2,624 | 1,353 | 23 |
OFFICES | 1.6 | 1,463 | 1,463 | 95 | 148 |
Sub Total | 4,544 | 4,544 | 1,497 | 271 |
Total | 22,132 | 25,271 | 869 | 1,118 |
3. New product: secured lending against commercial property
Post the year end the Group launched a senior debt product for secured lending against commercial property.
With interest rates increasing and banks retreating from lending to commercial property, the returns available in making relatively safe loans are potentially more attractive than investing in the underlying property.
The loans will likely be up to £20 million in value; 65% of loan to value (LTV); and interest only.
No new employees will, initially, be required to be employed to roll out this product and the Group does not intend to use its own cash to make such loans. It may, however, invest alongside third parties in any fund structures set up to make such loans.
Commercial Property Markets Outlook
Poland:
The rate of growth in Poland's GDP is expected to slow from a rate of 5.1% in 2022 to 1.5% in 2023, compared to a pre-pandemic 10-year average of 3.6% per annum, amidst high inflation, which peaked at over 17% per annum, and tighter monetary conditions. The rate of inflation has, since its peak, reduced to some 13% per annum.
The National Bank of Poland's key policy interest rate is currently at 6.75% per annum.
Commercial property markets in Poland have slowed dramatically as interest rates have increased and banks have withdrawn from lending to the sector. The development of new buildings has similarly reduced.
However, continued economic growth and the influx of refugees and businesses from Ukraine is sustaining occupational demand.
Rent review provisions in Polish leases are mostly contractually linked either to the rate of inflation in Poland or the Eurozone. This offers landlords some protection from inflation as long as the economy remains buoyant.
United Kingdom:
Economic growth in the United Kingdom is barely perceptible, compared to growth rates of 1-3% per annum in the years leading up to the pandemic. Inflation is the highest in the G7 group of developed nations, running at over 8% on an annualised basis. This in turn has led to successive increases in the Bank of England base interest rate to 4.5% at the date of these results with further rises forecast.
The investment market for commercial property has weakened in the face of these headwinds. Offices have been particularly hard hit due to lockdowns and the development of a work from home culture. The cost of ensuring that buildings comply with net zero legislation is exacerbating the situation and is resulting in wide value dispersion between those buildings which do comply, those that can be made to comply and those for which compliance is too costly.
Rental values should over time be sustained by inflation and a reduction in the supply of property in sectors which are over supplied, such as offices.
Current Trading and Prospects
These are a creditable set of results in extremely challenging times.
The end of lockdowns should have ushered in a more normal trading environment. Instead, we are experiencing the severe impact of broken supply chains and labour markets. Together with the war in Ukraine, the result has been rocketing inflation and a concomitant increase in interest rates.
Consequently, investment markets have been hit hard, with a sharp reduction in debt availability and the volumes of property being traded.
Occupational demand is generally holding up better than investment markets and we are making some inroads in letting the space available at our office blocks in Warsaw and Gdynia.
Given the general withdrawal of financing from the market, we have established a platform for the provision of debt to finance commercial property investments. It is too early to determine the likely success of this venture but we believe it to be the right product, launched at the right time.
Ben Habib
Chief Executive
22 June 2023
GROUP FINANCE DIRECTOR'S REVIEW
Profit before tax for the year was £2.49 million (2022: £7.08 million) largely driven by 'one off' sales of properties owned directly by the Group which generated a profit of £1.78 million.
The profit in the prior year was bolstered due to an exceptional gain of €9.00 million (£7.81 million) from the restructuring of the finance lease secured against the Group's office block in Gdynia, Poland.
Group net assets excluding non-controlling interests increased to £43.44 million (31 March 2022 Restated: £42.77 million).
During the year the Group gained control of 5PT, a fund managed by FPAM in which it owns a 47.2% share but is considered to have control in accordance with the provisions of IFRS 10, resulting in its consolidation into these accounts. The Group's share of its net assets at consolidation was £1.54 million. Previously, the Group's investment in this fund was accounted for as an associate (31 March 2022: £1.34 million).
On 31 March 2023, the Group granted to employees the option to subscribe to 10,450,000 new ordinary shares in the Company at an exercise price of 23.5 pence per Ordinary Share, being the mid-market closing price on 30 March 2023. The options granted resulted in an increase to 12,560,000 in the number of outstanding options over Ordinary Shares, representing approximately 11.33% of the Company's issued share capital. See note 6 of the financial statements for further information on the terms of the options granted.
Gross debt, excluding lease liabilities, increased to £29.66 million (31 March 2022: £23.66 million) mainly due to the purchase of additional space in Blue Tower, Warsaw. Of this gross debt, £17.02 million is deferred consideration on which no interest is payable. Net debt, excluding lease liabilities, reduced to £22.00 million (31 March 2022: £17.24 million).
GOING CONCERN
Information on our approach and the result of our assessment is included in note 1 of the Financial Statements.
FPROP OFFICES LP CLAWBACK
The Group is entitled to a share of total profits in Fprop Offices LP in lieu of fund management fees and to receive annual payments on account equivalent to 10% of total cumulative income profits and capital gains. These payments are adjusted annually, if necessary, for any overpayments made in previous years up to a maximum of total past cumulative payments received. As at 31 March 2022, the Group had recognised a cumulative total of £1.97 million as revenue in 2022 and prior years.
The combination of inflationary pressures, higher interest rates, a cost of living crisis in the UK and an increase in employees working from home has caused severe disruption to economic activity and a reduction in the value of commercial property. During the period between 1 April 2022 and 31 March 2023, the properties held by Fprop Offices LP reduced in value by 18%. As a result, the Group considers that £1.97 million of revenue previously recognised will need to be clawed back, with £1.38 million being the cumulative amount of revenue recognised to 31 March 2021, being shown as a restatement of the Financial Year 2022 and £0.59 million being reflected as a reduction to revenue for the year to 31 March 2023.
See further information on the impact of this adjustment in the notes to the financial statements.
INCOME STATEMENT
A review of the operating and financial performance of the two trading divisions are included in the Chief Executive's Statement.
Revenue and Gross Profit
Revenue for the year decreased by £1.40 million or 16% to £7.25 million (2022: £8.65 million).
Gross profit (revenue less the cost of sales) reduced by £0.73 million or 13% to £4.99 million (2022: £5.72 million).
Performance fee income
Performance fees totalled a negative £0.37 million (2022: positive £0.58 million). It comprised £0.22 million earned from the sale of two properties by two of the UK funds managed by FPAM and a provision for the clawback of revenue of £0.59 million by Fprop Offices LP.
Operating expenses
Operating expenses decreased by £2.69 million or 36% to £4.77 million (2022: £7.46 million) mainly due to a reduction in incentives paid to employees to £0.11 million (2022: £2.03 million).
Share of results in associates
The contribution from the Group's associates amounted to a loss of £0.63 million (2022: profit £0.85 million) mainly due to an impairment provision of £0.43 million in respect of the Group's 18.1% holding in Fprop Krakow Ltd (FKR) and an impairment provision of £0.47 million in respect of the Group's 45.7% holding in Fprop Opportunities plc (FOP).
Fprop Phoenix Ltd (FPL), in which the Group owns 23.4%, made a loss after tax of which the Group's share amounted to £0.85 million (2022: loss of £0.62 million).
Investment income (from other financial assets and investments)
Investment income from the Group's four investments in five of the UK funds managed by FPAM increased by 455% to £1.50 million (2022: £0.27 million), of which £1.35 million represented distributions from Fprop UK Special Opportunities LP (Spec Opps).
Financing costs
Finance costs increased to £0.53 million (2022: £0.33 million) mainly due to higher interest rates payable on our floating rate loans. All bank loans are denominated in Euros, and all are used to finance properties valued in Euros.
Taxation
The tax charge increased to £0.45 million (2022: £0.25 million) of which £0.38 million was in respect of the profit from the sale of two directly held properties by E&S, a consolidated undertaking (2022: £Nil).
The charge includes Polish and Romanian corporation tax where headline rates remain at 19% and 16% respectively.
STATEMENT OF FINANCIAL POSITION
Investment Properties (held using the cost model)
The Group has adopted the "cost model" of valuation whereby investment properties are accounted for at the lower of cost less accumulated depreciation and impairments or fair market value.
During the year the Group acquired an additional 7,171 square metres of office space in Blue Tower for a consideration of £7.20 million, which is payable in seven instalments over a six year period. Following this purchase, the Group's interest in Blue Tower now amounts to 80.3% (2022: 48.2%) of the building. As a result of this acquisition the Group reclassified the building from Inventory to Investment Property. Following this reclassification, no properties were held under inventory.
Following the Group's purchase of 6.57% of the shares in issue of 5PT during the year, its interest in 5PT increased to 47.2%. The Group is now considered to have a controlling interest in this fund (previously held as an associate). As a result, the three commercial properties held by the fund were added to Investment Properties with a fair value at the date of consolidation of £7.62 million.
The Group also disposed of three properties during the year. In August 2022 it sold a warehouse in Tureni, Romania for £3.11 million which generated a profit of £1.10 million after accounting for disposal costs.
In December 2022 E&S sold two supermarkets in Poland for £5.50 million (€6.20 million) generating a profit after sale of £0.68 million.
At the year end the Group held seven properties. Their book value was £47.01 million (31 March 2022: seven properties valued at £36.20 million). Their fair market value was £53.97 million (31 March 2022: £42.24 million).
Capital expenditure incurred on the Group's seven directly owned properties amounted to £1.02 million (2022: seven properties, £1.76 million).
Foreign exchange revaluations amounted to a debit of £1.32 million (2022: credit £0.22 million).
Borrowings
Bank and other borrowings (including deferred consideration) increased to £29.66 million (31 March 2022: £23.66 million) mainly due to the purchase of the additional space at Blue Tower but also due to the consolidation of 5PT (£3.60 million) into these financial statements.
The ratio of debt to gross assets at their market value (the gearing ratio) increased to 36.08% (31 March 2022: 31.25%).
All bank loans are denominated in Euros and are non-recourse to the Group's assets.
Deposits of £0.64 million (31 March 2022: £0.55 million) are held by lending banks in respect of four bank loans (31 March 2022: four) as security for Debt Service Cover Ratio (DSCR) covenants and consequently this amount of cash and cash equivalents was restricted as at 31 March 2023.
Trade and Other Receivables
Trade and other receivables decreased by £0.60 million to £3.73 million (31 March 2022: £4.33 million).
Provisions
Provisions decreased to £0.16 million (31 March 2022: £0.92 million) and are entirely in respect of the space at Chalubinskiego (CH8), Warsaw, over which commitments in respect of fit-out and rent guarantees were granted at its sale in the Financial Year 2021. Payments of £0.37 million (2022: £1.93 million) pursuant to this were made in the year. The reduction in the provision is due to some 85% (2022: 73%) of the office space which is subject to the guarantee having been leased. The provision represents our best estimate of the Group's remaining liability over the life of the rent guarantee (until April 2025).
Non-controlling Interests
The value of the Group's three non-controlling interests increased to £2.03 million (31 March 2022: £0.23 million). Non-controlling interests consist of:
1. 10% of the share capital of Corp Sp. z o. o., the property management company to Blue Tower, Warsaw;
2. 23% of the share capital of E and S Estates Ltd, a fund invested in one property in Poland; and
3. 52.80% of the share capital of 5th Property Trading Ltd, a fund invested in three commercial properties in Poland.
Investment Revaluation Reserve
The investment revaluation reserve decreased by £1.41 million (2022: increased by £1.04 million) to a debit balance of £0.73 million mainly due to a decrease in the value of the Group's investment in Fprop UK Special Opportunities LP (Spec Opps) resulting from property sales by the UK Pension Property Portfolio LP (UKPPP), a fund in which it holds an investment.
Foreign Exchange Translation Reserve
A strengthening of the Polish Zloty against Sterling to PLN 5.3267/ GBP (31 March 2022: PLN 5.4868/ GBP) resulted in a reduction in the deficit in the foreign exchange translation reserve to £2.35 million (31 March 2022: £3.30 million).
Cash and cash equivalents
The Group's cash balance increased to £7.65 million (31 March 2022: £6.42 million) mainly as a result of investing and financing activities.
Laura James
Group Finance Director
22 June 2023
CONSOLIDATED INCOME STATEMENT
for the year ended 31 March 2023
|
Notes |
Year ended 31 March 2023
Total results £'000 |
Year ended 31 March 2022
Total results £'000 |
Revenue | 2 | 7,249 | 8,645 |
Cost of sales | | (2,257) | (2,928) |
Gross profit
| | 4,992 | 5,717 |
Debt reduction following restructuring of finance lease | 3 | - | 7,809 |
Profit on sale of investment properties | | 1,779 | - |
Operating expenses | | (4,767) | (7,464) |
Operating profit | | 2,004 | 6,062 |
Share of associates' profit/(loss) after tax | 9 | 273 | (29) |
Share of associates' revaluation (losses)gains | 9 | (901) | 876 |
Investment income | | 1,497 | 271 |
Interest income | 4 | 145 | 230 |
Interest expense | 4 | (530) | (330) |
Profit before tax | | 2,488 | 7,080 |
Tax charge | 5 | (449) | (245) |
Profit for the year | | 2,039 | 6,835 |
| |
| |
Attributable to: | |
| |
Owners of the parent | | 1,919 | 6,779 |
Non-controlling interests | | 120 | 56 |
| | 2,039 | 6,835 |
Earnings per share: | |
| |
Basic | 6 | 1.73p | 6.14p |
Diluted | 6 | 1.70p | 6.01p |
All operations are continuing.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 March 2023
|
Year ended 31 March 2023 Total results |
Year ended 31 March 2022 Total results |
| £'000 | £'000 |
Profit for the year | 2,039 | 6,835 |
Other comprehensive income Items that may subsequently be reclassified to profit or loss |
| |
Exchange differences on retranslation of foreign subsidiaries | 944 | (189) |
Net(loss)/ profit on financial assets at fair value through other comprehensive income | (1,412) | 1,039 |
Taxation | - | - |
Total comprehensive income for the year | 1,571 | 7,685 |
|
| |
Total comprehensive income for the year attributable to: |
| |
Owners of the parent | 1,324 | 7,623 |
Non-controlling interests | 247 | 62 |
| 1,571 | 7,685 |
All operations are continuing.
STATEMENT OF FINANCIAL POSITION
First Property Group plc
Registered No. 02967020
As at 31 March 2023
| |
2023 |
2022 | |
| Notes | Group £'000 | Group £'000 | |
Non-current assets |
|
| | |
Investment properties | 7 | 47,009 | 23,849 | |
Right of use assets | 8 | 197 | 1,018 | |
Property, plant and equipment | | 80 | 128 | |
Investment in Group undertakings | | - | - | |
Investment in associates | 9a) | 17,588 | 19,135 | |
Other financial assets at fair value through OCI | 9b) | 4,544 | 7,445 | |
Other receivables | 14 | - | 95 | |
Goodwill | 11 | 153 | 153 | |
Deferred tax assets | 12 | 930 | 1,599 | |
Total non-current assets | | 70,501 | 53,422 | |
| |
| | |
Current assets | |
| | |
Inventories - land and buildings | 13 | - | 12,352 | |
Current tax assets | | 79 | 14 | |
Right of use assets | 8 | 457 | 446 | |
Trade and other receivables | 14 | 3,729 | 4,329 | |
Cash and cash equivalents | | 7,647 | 6,419 | |
Total current assets | | 11,912 | 23,560 | |
| |
| | |
Current liabilities | |
| | |
Trade and other payables | 15 | (3,310) | (4,764) | |
Provisions | 16 | (158) | (922) | |
Lease Liabilities | 8 | (469) | (410) | |
Financial liabilities | 17 | (1,116) | (4,212) | |
Other financial liabilities | 18 | (939) | - | |
Current tax liabilities | | (28) | (20) | |
Total current liabilities | | (6,020) | (10,328) | |
Net current assets | | 5,892 | 13,232 | |
Total assets less current liabilities | | 76,393 | 66,654 | |
| |
| | |
Non-current liabilities | |
| | |
Financial liabilities | 17 | (11,519) | (9,309) | |
Other financial liabilities | 18 | (16,082) | (10,141) | |
Lease Liabilities | 8 | (267) | (1,098) | |
Deferred tax liabilities | 12 | (3,050) | (3,112) | |
Net assets |
| 45,475 | 42,994 | |
|
|
| | |
Equity |
|
| | |
Called up share capital | | 1,166 | 1,166 | |
Share premium |
| 5,635 | 5,791 | |
Share-based payment reserve |
| 179 | 179 | |
Foreign exchange translation reserve |
| (2,353) | (3,297) | |
Purchase of own shares reserve |
| (2,440) | (2,653) | |
Investment revaluation reserve |
| (728) | 684 | |
Retained earnings |
| 41,983 | 40,895 | |
Equity attributable to the owners of the parent |
| 43,442 | 42,765 | |
Non-controlling interests |
| 2,033 | 229 | |
Total equity |
| 45,475 | 42,994 | |
|
|
| | |
Net assets per share | 6 | 39.18p | 38.74p | |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2023
Group | Share capital | Share premium | Share-based payment reserve | Foreign exchange translation reserve | Purchase of own shares | Investment revaluation reserve | Retained earnings | Non-controlling interests | Total |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
At 1 April 2022 | 1,166 | 5,791 | 179 | (3,297) | (2,653) | 684 | 40,895 | 229 | 42,994 |
Profit for the year | - | - | - | - | - | - | 2,039 | - | 2,039 |
Net loss on financial assets at fair value through other comprehensive income | - | - | - | - | - | (1,412) | - | - | (1,412) |
Purchase from treasury shares | - | (156) | - | - | 213 | - | - | - | 57 |
Exchange differences arising on translation of foreign subsidiaries | - | - | - | 944 | - | - | - | 127 | 1,071 |
Transfer 5PT to subsidiary undertaking | - | - | - | - | - | - | - | 1,606 | 1,606 |
Total comprehensive income | - | (156) | - | 944 | 213 | (1,412) | 2,039 | 1,733 | 3,361 |
Non-controlling interests | - | - | - | - | - | - | (120) | 120 | - |
Dividends paid | - | - | - | - | - | - | (831) | (49) | (880) |
At 31 March 2023 | 1,166 | 5,635 | 179 | (2,353) | (2,440) | (728) | 41,983 | 2,033 | 45,475 |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Restated)
for the year ended 31 March 2022
Group | Share capital | Share premium | Share-based payment reserve | Foreign exchange translation reserve | Purchase of own shares | Investment revaluation reserve | Retained earnings | Non-controlling interests | Total |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
At 1 April 2021 | 1,166 | 5,791 | 179 | (3,108) | (2,653) | (355) | 34,392 | 201 | 35,613 |
Profit for the year | - | - | - | - | - | - | 6,835 | - | 6,835 |
Net gain on financial assets at fair value through other comprehensive income | - | - | - | - | - | 1,039 | - | - | 1,039 |
Exchange differences arising on translation of foreign subsidiaries | - | - | - | (189) | - | - | - | 6 | (183) |
| | | | | | | | | |
Total comprehensive income | - | - | - | (189) | - | 1,039 | 6,835 | 6 | 7,691 |
Non-controlling interests | - | - | - | - | - | - | (56) | 56 | - |
Dividends paid | - | - | - | - | - | - | (276) | (34) | (310) |
At 31 March 2022 | 1,166 | 5,791 | 179 | (3,297) | (2,653) | 684 | 40,895 | 229 | 42,994 |
Foreign Exchange Translation Reserve
The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign Group companies. This reserve is non distributable.
Share Based Payment Reserve
The Group grants certain of its employees' rights to its equity instruments as part of its share-based payment incentive plans. The value of these rights has been charged to the Income Statement and has been credited to the share-based payment reserve (which is a distributable reserve).
Purchase of Own Ordinary Shares
The cost of the Company's Ordinary Shares purchased by the Company for treasury purposes is held in this reserve. The reserve is non distributable.
Investment Revaluation Reserve
The change in fair value of the Group's financial assets measured at fair value through Other Comprehensive Income is held in this reserve and is non distributable.
CASH FLOW STATEMENTS
for the year ended 31 March 2023
|
|
2023 | Restated 2022 |
| Notes | Group £'000 | Group £'000 |
Cash flows from operating activities | |
| |
Operating profit/(loss) | | 2,004 | 6,062 |
Adjustments for: | |
| |
Depreciation of investment property and property, plant & equipment | | 99 | 90 |
Debt reduction following restructuring of finance lease | 3 | - | (7,809) |
Profit on the sale of investment properties | | (1,779) | - |
Impairment loss on an investment property | | - | - |
Decrease/(increase) in inventories | | - | 38 |
Decrease/ (increase) in trade and other receivables | | 777 | 1,208 |
(Decrease)/ increase in trade and other payables | | 4,189 | (1,213) |
Other non-cash adjustments | | 215 | 65 |
Cash generated from operations | | 5,505 | (1,559) |
Taxes paid | | (616) | 118 |
Net cash flow from/(used in) operating activities | | 4,889 | (1,441) |
| |
| |
Cash flow (used in)/ from investing activities | |
| |
Capital expenditure on investment properties | 7 | (1,017) | (1,642) |
Purchase of property, plant & equipment | 2 | (10) | (33) |
Proceeds from the sale of investment property | 7 | 8,612 | - |
Purchase of investment property | 13 | (7,443) | - |
Investment in shares of new associates | | (606) | - |
Investment in funds | 9b) | (3) | (3,633) |
Proceeds from funds | 9b) | 1,492 | 290 |
Proceeds from investments in associates | 9a) | 176 | 48 |
Interest received | | 145 | 187 |
Dividends from associates | 9a) | - | 241 |
Distributions received | | - | 266 |
Net cash flow from/(used in) investing activities | | 1,346 | (4,276) |
| |
| |
Cash flow (used in)/ from financing activities | |
| |
Proceeds from bank loan | | 1,474 | 1,289 |
Repayment of bank loans | | (5,215) | (1,297) |
Repayment of finance lease | | - | (3,434) |
Sale of shares held in Treasury | | 58 | - |
Interest paid | 4 | (530) | (330) |
Dividends paid | | (831) | (276) |
Dividends paid to non-controlling interests | | (49) | (34) |
Net cash flow (used in)/ from financing activities | | (5,093) | (4,082) |
| |
| |
Net /increase/decrease in cash and cash equivalents | | 1,142 | (9,799) |
Cash and cash equivalents at the beginning of the year | | 6,419 | 16,244 |
Currency translation gains/(losses) on cash and cash equivalents | | 86 | (26) |
Cash and cash equivalents at the year end | | 7,647 | 6,419 |
Basis of Preparation
These preliminary financial statements have not been audited and are derived from the statutory accounts within the meaning of section 434 of the Companies Act 2006. They have been prepared in accordance with the Group's accounting policies that will be applied in the Group's annual financial statements for the year-ended 31 March 2023. The policies have been consistently applied to all years presented unless otherwise stated below. These accounting policies are drawn up in accordance with UK-adopted International Accounting Standards ('IFRS'). Whilst the financial information included in this preliminary statement has been prepared in accordance with IFRS, this announcement does not itself contain sufficient information to fully comply with IFRS. The comparative figures for the financial year ended 31 March 2022 have been restated as set out below under prior year adjustment and are not the statutory accounts for the financial year but are derived from those accounts prepared under IFRS which have been reported on by the Group's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified, did not include references to any matter to which the auditors drew attention by way of emphasis without qualifying their report and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
Going Concern
The Directors have carried out an analysis to support their view that the Group is a going concern and under which basis these financial statements have been prepared.
Analysis and scenario testing, was carried out on the Group's main divisional income streams, being asset management fees from the asset management division, rental income from its seven directly owned group properties and cash returns from its associates and investments.
a) Asset Management Fee Income
Asset management fee income is primarily derived from its UK funds (52%), four of which are limited partnerships whose limited partners are a mix of pension funds and registered charities. With one exception, fees are invoiced monthly and are calculated based on a percentage of the latest valuation, which for the UK funds is performed quarterly.
In the one fund from which fees are not levied by reference to the properties valuation (Fprop Offices LP) a clawback of income can be triggered. As at 31 March 2022, a performance fee totalling of £1.97 million had been recognised of which £1.41 million has been received in cash. As a result of falls in the value of the properties held in this fund, the Group considers that £1.97 million will be clawed back in line with the contract. This is reflected in the financial statements in the following manner;
· £1.38 million, being the cumulative amount of income recognised to 31 March 2021. This amount is shown as a restatement of the 31 March 2022 Statement of Financial Position as set out in the Prior Year Adjustment note below
· £0.59 million clawed back as a reduction in the performance fee revenue included as part of the asset management revenue in the year ended 31 March 2023
· The Group will repay £0.25 million to Fprop Offices LP. At the year end this amount was recognised in Trade and Other payables
Asset management fees on the Group's Polish and Romanian managed funds are also levied as a percentage of funds under management, with reference to the most recent valuations, again with one exception where the fee is fixed (Fprop Phoenix Ltd (FPL)). These funds are set up under the ownership of a UK limited company which in turn owns the company domiciled in the country that owns the property. Each of these local companies has borrowing secured on the property and is therefore ring fenced from the Group.
The longevity of this asset management fee income is determined by the fund's life which is fixed by agreement when each fund is first established. The weighted average unexpired fund management contract term is 2 years, 9 months.
b) Rental Income from Group Properties
All seven Group Properties are located in Poland or Romania. These properties consist of four office blocks, a mini-supermarket, one multi-let property and ground-floor retail property. All were independently valued on 31 March 2023 at £53.97 million (31 March 2022: seven properties £42.24 million).
The rental income has been reviewed and evaluated and no significant falls in collection rates are expected. The tenants are of good quality, as proven by excellent cash collection rates through and after the lockdown periods. Any renegotiation of rental payment terms that have been agreed are reflected in the analysis.
On 12 August 2022 the Group acquired some 7,171 square meters in Blue Tower in Warsaw at a price of £7.20 million. The purchase resulted in the Group's interest in the building increasing from 48.2% to 80.3%. Some 5,159 square metres of the newly acquired space was vacant at purchase.
The Group's office property in Gdynia is now 28% leased, up from 20% at 31 March 2022. A further 72% of the office space in the building remains to be leased. When fully let it is anticipated the building should generate net operating income of over £1.90 million per annum.
c) Income from Associates and Investments
Analysis was also conducted on the returns from the Group's investment in its four (2022: five) Associates.
All bank loan covenants were reviewed and tested against future decreases in valuation and net operating income.
Dividend income from the Group's UK investments was also stress tested and found not to have a significant impact.
Going Concern Statement
Based on the results of the analysis conducted as outlined above the Board believes that the Group has the ability to continue its business for at least twelve months from the date of approval of the financial statements and therefore has adopted the going concern basis in the preparation of this financial information.
Prior year adjustment
Fund management fees are generally levied monthly by reference to the value of properties. In the case of Fprop Offices LP, the Group is entitled to a share of total profits in lieu of fund management fees and to receive annual payments on account equivalent to 10% of total cumulative income profits and capital gains. These payments are adjusted annually, if necessary, for any overpayments made in previous years up to a maximum of total past cumulative payments received.
As at 31 March 2022, the Group had reflected cumulative revenue of £1.97 million. The Group recognised its share of the total profits of Fprop Offices LP as performance fee income within asset management revenue.
The combination of inflationary pressures, higher interest rates, a cost of living crisis in the UK and an increase in employees working from home has caused severe disruption to economic activity and a reduction in the value of commercial property. During the period between 1 April 2022 and 31 March 2023, there was a 18% fall in the value of the properties held by Fprop Offices LP. As a result, the Group considers that £1.38 million of the previously recognised revenue should be reversed as a prior year adjustment to the 31 March 2022 financial statements and £0.59 million should be reflected as a reduction to revenue for the year to 31 March 2023.
For the purposes of revenue recognition under IFRS 15, the profit share due to the Group is a "variable consideration". Paragraph 56 of IFRS 15 places a constraint upon the recognition of variable consideration, requiring that it should only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
The IFRS rules require that the reduction in previously recognised variable consideration should be presented as a prior period adjustment.
The following line items in the Statement of Financial Position in the financial statements were impacted.
| Year ended 31 March 2022 |
Retained Earnings | |
Retained Earnings as reported in the 2022 financial statements. | 42,271 |
Prior year restatement due to IFRS 15 accounting treatment | (1,376) |
Retained Earnings as restated | 40,895 |
| |
Trade and other payables | |
Trade and other payables as reported in the 2022 financial statements. | (3,388) |
Prior year restatement due to IFRS 15 accounting treatment | (1,376) |
Trade and other payables | (4,764) |
| |
Net Assets | |
Net assets excluding non-controlling interests as reported in the 2022 financial statements | 44,141 |
Prior year restatement due to IFRS 15 accounting treatment | (1,376) |
Net assets as restated | 42,765 |
| |
Net Assets per share | |
Net assets per share as reported in the 2022 financial statements | 40.00p |
Prior year restatement due to IFRS 15 accounting treatment | (1.26p) |
Net assets per share as restated | 38.74p |
New Standards and Interpretations
New standards impacting the Group have been adopted in the preliminary financial statements for the year-ended 31 March 2023, none of which have had a significant impact to the financial statements:
· Annual Improvements to IFRS Standards 2018-2020 Cycle
· Amendments to IFRS 3 - Reference to the Conceptual Framework
· Amendments to IAS 16 - Property, Plant and Equipment: Proceeds before Intended Use
· Amendment to IAS 37 - Onerous Contracts: Cost of Fulfilling a Contract
The Group has not adopted any new IFRSs that are issued but not yet effective and it does not expect any of these changes to impact the group.
These preliminary financial statements were approved by the Board of Directors on 21 June 2023.
1. Revenue
Revenue from continuing operations consists of revenue arising in the United Kingdom 12% (2022: 27%), Poland 75% (2022: 59%) and Romania 13% (2022: 14%). All revenue relates solely to the Group's principal activities.
2. Segment Reporting 2023
| Fund Management Division | Group Properties Division |
| ||
| Property fund management | Group properties | Associates and investments | Unallocated central overheads | Total |
| £'000 | £'000 | £'000 | £'000 | £'000 |
Rental income | - | 3,614 | - | - | 3,614 |
Service charge income | - | 1,115 | - | - | 1,115 |
Sale of a property held in inventory | - | - | - | - | - |
Asset management fees | 2,892 | - | - | - | 2,892 |
Performance related fee income | (372) | - | - | - | (372) |
Total revenue | 2,520 | 4,729 | - | - | 7,249 |
| | | | |
|
Depreciation and amortisation | (36) | (24) | - | - | (60) |
| | | | |
|
Operating profit | 120 | 3,069 | - | (1,185) | 2,004 |
Share of results in associates | - | - | 273 | - | 273 |
Fair value adjustment on associates | - | - | (901) | - | (901) |
Investment income | - | - | 1,497 | - | 1,497 |
Interest income | - | 20 | - | 125 | 145 |
Interest payable | - | (530) | - | - | (530) |
Profit/(loss) before tax | 120 | 2,559 | 869 | (1,060) | 2,488 |
| |||||
Analysed as: | |||||
Underlying profit/(loss) before tax before adjusting for the following items: | 513 | 752 | 273 | (1,089) | 449 |
Provision in respect of rent guarantee | - | 511 | - | - | 511 |
Profit on the sale of investment properties | - | 1,779 | - | - | 1,779 |
Interest received on loan to FOP @12% | - | 125 | - | - | 125 |
Fair value adjustment on associates | - | - | (901) | - | (901) |
UK fund distributions following sales of properties | - | - | 1,497 | - | 1,497 |
Performance related fee income | 222 | - | - | - | 222 |
Clawback of Office income | (594) | | | | (594) |
Staff incentives | (44) | (65) | - | - | (109) |
Realised foreign currency (losses)/gains | 23 | (543) | - | 29 | (491) |
Total | 120 | 2,559 | 869 | (1,060) | 2,488 |
| |||||
Assets - Group | 795 | 54,525 | 4,544 | 4,727 | 64,591 |
Share of net assets of associates | - | - | 17,588 | - | 17,588 |
Liabilities | (71) | (36,574) | - | (59) | (36,704) |
Net assets | 724 | 17,951 | 22,132 | 4,668 | 45,475 |
| |||||
Additions to non-current assets | |||||
Property, plant and equipment | 8 | 2 | - | - | 10 |
Investment properties | - | 1,017 | - | - | 1,017 |
Trading stock | - | 7,443 | - | - | 7,443 |
Segment Reporting 2022
| Fund Management Division | Group Properties Division |
| ||
| Property fund management | Group properties | Associates and investments | Unallocated central overheads | Total |
| £'000 | £'000 | £'000 | £'000 | £'000 |
Rental income | - | 2,926 | - | - | 2,926 |
Service charge income | - | 1,678 | - | - | 1,678 |
Asset management fees | 3,463 | - | - | - | 3,463 |
Performance related fee income | 578 | - | - | - | 578 |
Total revenue | 4,041 | 4,604 | - | - | 8,645 |
| | | | |
|
Depreciation and amortisation | (36) | (24) | - | - | (60) |
| | | | |
|
Operating profit | 1,437 | 7,781 | - | (3,156) | 6,062 |
Share of results in associates | - | - | (29) | - | (29) |
Fair value adjustment on associates | - | - | 876 | - | 876 |
Investment income | - | - | 271 | - | 271 |
Interest income | - | 29 | - | 201 | 230 |
Interest payable | - | (330) | - | - | (330) |
Profit/(loss) before tax | 1,437 | 7,480 | 1,118 | (2,955) | 7,080 |
| |||||
Analysed as: | |||||
Underlying profit/(loss) before tax before adjusting for the following items: | 1,182 | 401 | 242 | (1,449) | 376 |
Provision in respect of rent guarantee | - | (629) | - | - | (629) |
Debt reduction following restructuring of finance lease | - | 7,809 | - | - | 7,809 |
Interest received on loan to FOP @12% | - | 202 | - | - | 202 |
Fair value adjustments on associates | - | - | 876 | - | 876 |
Performance related fee income | 578 | - | - | - | 578 |
Staff incentives | (305) | (251) | - | (1,472) | (2,028) |
Realised foreign currency (losses)/gains | (18) | (52) | - | (34) | (104) |
Total | 1,437 | 7,480 | 1,118 | (2,955) | 7,080 |
| |||||
Assets - Group | 891 | 44,693 | 7,445 | 4,818 | 57,847 |
Share of net assets of associates | - | - | 19,135 | - | 19,135 |
Liabilities | (143) | (33,348) | - | (547) | (34,038) |
Net assets | 748 | 11,345 | 26,580 | 4,271 | 42,994 |
| |||||
Additions to non-current assets | |||||
Property, plant and equipment | 5 | 28 | - | - | 33 |
Investment properties | - | 1,642 | - | - | 1,642 |
Trading stock | - | 119 | - | - | 119 |
3. Debt Reduction following Restructuring of Finance Lease
The prior year results reflect the reduction of €9.00 million (£7.81 million) in the amount owed to ING Bank (from €25 million to €16 million) in final settlement of the finance lease secured against the Group's directly held property in Gdynia. As part of the transaction ING was paid €4.00 million in June 2021. The remainder of the finance lease liability was replaced by interest free deferred consideration of €12.00 million (£10.54 million) repayable by June 2024. The deferred consideration is reflected as an Other Financial Liability in the Statement of Financial Position.
4. Interest Income
| 2023 | 2022 |
| Group £'000 | Group £'000 |
Interest income - bank deposits | - | - |
Interest income - other | 145 | 230 |
Total interest income | 145 | 230 |
| 2023 | 2022 |
| Group £'000 | Group £'000 |
Interest expense - property loans | (516) | (326) |
Interest expense - bank and other | (14) | (4) |
|
| |
Total interest expense | (530) | (330) |
5. Tax Expense
| 2023 Group £'000 | 2022 Group £'000 |
Analysis of tax charge for the year |
|
|
Current tax | (559) | (172) |
Deferred tax | 110 | (73) |
Total tax charge for the year | (449) | (245) |
The tax charge includes current and deferred tax for continuing operations.
As in prior years, brought forward and current UK tax losses have not been recognised as a deferred tax asset due to insufficient foreseeable taxable income being earned in the UK.
6. Earnings/NAV per Share
| 2023 | 2022 |
Basic earnings per share | 1.73p | 6.14p |
Diluted earnings per share | 1.70p | 6.01p |
The following earnings have been used to calculate both the basic and diluted earnings per share: |
| |
| £'000 | £'000 |
Basic earnings | 1,919 | 6,779 |
Notional interest on share options assumed to be exercised | 2 | 7 |
Diluted earnings assuming full dilution | 1,921 | 6,786 |
The following numbers of shares have been used to calculate the basic and diluted earnings per share and the net assets and adjusted net assets per share:
| 2023 Number | 2022 Number |
Weighted average number of Ordinary shares in issue (used for basic earnings per share calculation) | 110,875,483 | 110,382,332 |
Number of share options | 2,110,000 | 2,610,000 |
Total number of Ordinary shares used in the diluted earnings per share calculation | 112,985,483 | 112,992,332 |
On 5 April 2022, an employee exercised 500,000 share options which had an exercise price of 11.50p.
On 31 March 2023, the Group granted to employees the option to subscribe to 10,450,000 new ordinary shares in the Company at an exercise price of 23.50 pence per Ordinary Shares, being the mid-market closing price on 30 March 2023. The options have a term of ten years and unexercised options will expire at midnight on 31 March 2033. The options granted will result in an increase from 2,110,000 to 12,560,000 in the number of outstanding options over Ordinary Shares, which represents approximately 11.33% of the Company's issued share capital.
For the purpose of calculating diluted earnings per share, the number of Ordinary Shares shall be the weighted average number of Ordinary Shares, plus the weighted average number of Ordinary Shares that would be issued on the conversion of all the dilutive potential Ordinary Shares into Ordinary Shares. Options have a dilutive effect only when the average market price of the Ordinary Shares during the period exceeds the exercise price of the options and thus they are 'in the money'. Given the share options were granted on 31 March 2023 they have not been included in the diluted EPS calculation or the adjusted net assets per share calculations.
| 2023 | Restated 2022 |
Net assets per share | 39.18p | 38.74p |
Adjusted net assets per share | 46.50p | 46.07p |
The following numbers have been used to calculate both the net assets and adjusted net assets per share:
| |||
| 2023 | Restated 2022 | |
| £'000 | £'000 | |
For net assets per share |
| | |
Net assets excluding non-controlling interests | 43,442 | 42,765 | |
|
| | |
| £'000 | £'000 | |
For adjusted net assets per share |
| | |
Net assets excluding non-controlling interests | 43,442 | 42,765 | |
Uplift of investment properties at fair value net of deferred tax | 5,639 | 2,486 | |
Uplift of inventories at fair value net of deferred tax | - | 2,403 | |
Uplift of investments in associates and other financial investments to fair value | 3,139 | 4,016 | |
Other items | 324 | 381 | |
Total | 52,544 | 52,051 | |
7. Investment Properties
| 2023 | 2022 |
| Group £'000 | Group £'000 |
Investment properties |
| |
At 1 April | 23,849 | 22,456 |
Reclassification of Inventory | 19,795 | - |
Additions arising on consolidation | 7,621 | - |
Capital expenditure | 1,017 | 1,642 |
Disposal | (6,459) | - |
Depreciation | (134) | (30) |
Foreign exchange translation | 1,320 | (219) |
At 31 March | 47,009 | 23,849 |
During the year the Group acquired an additional 7,171m2 of office space in Blue Tower for a consideration of £7.20 million, which is payable in seven instalments over a six year period. Following this purchase, the Group's interest in Blue Tower (an office block in Warsaw) now represents 80.3% (2022: 48.2%) of the building. As a result of this acquisition the Group reclassified the building from Inventory to Investment Property.
During the year the Group took control of 5th Property Trading Ltd, a fund in which it previously held as a share of associate, as a result three additional commercial properties were added to investment properties with a fair value at the date of consolidation of £7.62 million (€9.07 million).
During the period the Group disposed of three properties. The first sale, in August 2022, was of a warehouse in Tureni, Romania for £3.11 million which generated a profit of £1.10 million after accounting for disposal costs. In December 2022, the Group also disposed of two supermarkets in Poland on behalf of a fund managed by the Group and in which the Group has an 88.5% interest. These two properties sold for £5.50 million (€6.20 million) generating a profit after sale of some £0.68 million.
At the year end the Group held seven properties.
Investment properties owned by the Group are stated at cost less depreciation and any accumulated impairment in value. The properties were valued at the Group's financial year end at €61.43 million (31 March 2022: €50.43 million including the property transferred from inventory), the Sterling equivalent at closing foreign exchange rates being £53.97million (31 March 2022: £42.24 million including the property transferred from inventory).
Amounts recognised in the income statement:
| 2023 | 2022 |
| Group £'000 | Group £'000 |
Rental income from operating leases | 3,614 | 2,926 |
|
| |
i. Leasing arrangements where the group is a lessor:
| 2023 | 2022 |
| Group £'000 | Group £'000 |
Minimum lease receipts under non-cancellable operating leases to be received: |
| |
Not later than one year | 2,113 | 2,043 |
Later than one year and not later than five years | 5,190 | 6,790 |
Later than five years | 2,546 | 3,758 |
| 9,849 | 12,591 |
Investment properties are comprised of commercial properties that are leased to third parties. The Group has approximately 51 leases granted to its tenants. These vary depending on the individual tenant and the respective property and demise but typically are let for a term of five years. The weighted average lease length of the leases granted was 5 years and 2 months (2022: 5 years and 7 months). No contingent rents are charged.
8. Right of Use Assets and Lease Liabilities
This note provides information for leases where the group is a lessee. For leases where the group is a lessor, see note 7.
The amounts recognised in the financial statements in relation to the leases are as follows:
i. Amounts recognised in the balance sheet:
| 31 Mar 2023 £'000 | 31 Mar 2022 £'000 |
Right of use assets |
|
|
Current | 457 | 446 |
Non-current | 197 | 1,018 |
| 31 Mar 2023 £'000 | 31 Mar 2022 £'000 |
Lease Liabilities |
| |
Current | 469 | 410 |
Non-current | 267 | 1,098 |
There was no additions (2022: one, £0.75 million) to the right of use assets and no additions (2022: one, £77 million) to the lease liability) during the financial year. There was one disposal of the 5PT right of use asset and liability due to fact that 5PT has been consolidated in the current financial year.
ii. Amounts recognised in the Income Statement:
| 2023 | 2022 |
| £'000 | £'000 |
Depreciation/ Rent charge of right-of use-assets |
| |
Buildings | 457 | 446 |
| 457 | 446 |
| 2023 | 2022 |
| £'000 | £'000 |
Interest expense |
| |
Buildings | 154 | 186 |
| 154 | 186 |
iii. Summary of the groups leasing activity:
The Group has reviewed the terms of its leases and has identified:
A lease of the UK office on St. James's Street, London, SW1A 1HD and a lease by First Property Poland Sp. z o. o. (FPP) for an office in Poland.
As at 31 March 2023 the Group has recognised a lease liability under IFRS 16 of £0.74 million (31 March 2022: £1.51 million) and a right of use asset of £0.65 million (2022: £1.46 million). The net debit to the Income Statement was £39,000. Rental contracts are typically made for fixed periods of six months to four years but may have extension options.
9. Investment in Associates and Other Financial Assets and Investments
The Group has the following investments:
| 2023 | 2022 |
| Group £'000 | Group £'000 |
a) Associates |
| |
At 1 April | 19,135 | 18,577 |
Additions | 606 | - |
Disposals | (1,349) | - |
Shareholder loan repayments | (176) | (48) |
Share of associates' profit (loss) after tax | 273 | (29) |
Share of associates' revaluation gains/ (losses) | (901) | 876 |
Dividends received | - | (241) |
At 31 March | 17,588 | 19,135 |
The disposal during the year represents the Group gaining control of 5th Property Trading Ltd, a fund which at 31 March 2022 it held 40.63%. Following the purchase of additional shares in this company the Group is now deemed to have control and has consolidated this fund into the Group. For further information please see note 10.
The Group's investments in associated companies are accounted for under the "cost model" under IAS40 whereby the Group's share is held at cost plus its share of subsequent accumulated profits less dividends received. It comprises the following:
| 2023 | 2022 |
| Group £'000 | Group £'000 |
Investment in associates |
| |
5th Property Trading Ltd | - | 1,652 |
Fprop Galeria Corso Ltd | 3,058 | 2,700 |
Fprop Krakow Ltd | 1,154 | 1,580 |
Fprop Cluj Ltd | 636 | 615 |
Fprop Phoenix Ltd | 61 | 913 |
Fprop Opportunities plc | 12,679 | 11,983 |
| 17,588 | 19,443 |
Less: Share of profit after tax withheld on sale of property to 5th Property Trading Ltd in 2007 | - | (308) |
| 17,588 | 19,135 |
If the Group had adopted the alternative "fair value" model for accounting for investment properties, the carrying value of the investments in the remaining five associates would be £20.73 million (31 March 2022: six associates - £23.15 million).
| 2023 | 2022 |
| Group £'000 | Group £'000 |
b) Other financial assets and investments |
| |
At 1 April | 7,445 | 3,061 |
Additions | 3 | 3,633 |
Disposals | - | - |
Repayments | (1,492) | (290) |
Increase/ (decrease) in fair value during the year | (1,412) | 1,041 |
At 31 March | 4,544 | 7,445 |
The Group holds four (2022: four) unlisted investments in funds managed by it. Each is designated at fair value through "Other Comprehensive Income" (OCI) as per IFRS 9. The Directors' consider their fair value to be not materially different from their carrying value. Fair value has been calculated by applying the Group's percentage holding in the investments to the fair value of their net assets.
10. Business Acquisitions
At 1 April 2022, the Group held a 40.63% investment in 5th Property Trading Ltd (5PT), a fund it manages on behalf of clients. This fund was accounted for as a share of associate which had a book value of £1.34 million at 31 March 2022.
On 23 May 2022, following the purchase of additional shares in this fund, the Group's holding increased to 46.59%, this combined with a Director, Ben Habib's personal interest in the fund of 5.96%, the Group is considered to have control. As a result, FPG consolidated these companies into the Group.
A further purchase of additional shares (0.61%) during the year brought the Group's holding to 47.2%. At the year-end the Group is deemed to control 53.16% of the fund when including Ben Habib's personal interest.
Net assets acquired at acquisition:
| £'000 |
Non- current assets | |
Investment properties | 7,621 |
Property, plant and equipment | 1 |
Investment in Group undertakings | 1 |
Deferred tax asset | 96 |
Total Non-current assets | 7,719 |
Current assets | |
Trade and other receivables | 106 |
Cash and cash equivalents | 80 |
Total current assets | 186 |
Current liabilities | |
Trade and other payables | (139) |
Current tax liabilities | (3) |
Total current liabilities | (142) |
Net current assets | 44 |
Total assets less current liabilities | 7,763 |
Non-current liabilities |
|
Financial liabilities | (3,745) |
Deferred tax liabilities | (708) |
Net Assets | 3,310 |
Equity attributable to the owners of the parent | 1,542 |
Non-controlling interest | 1,768 |
11. Goodwill
| 2023 | 2022 |
| Group £'000 | Group £'000 |
At 1 April | 153 | 153 |
At 31 March | 153 | 153 |
The Directors have conducted an annual impairment test and concluded that no impairment was necessary because the estimated value in use was higher than the value stated.
12. Deferred Tax
Deferred tax assets and liabilities are attributable to the following items:
| 2023 | 2023 | 2023 | 2022 | 2022 | 2022 |
| Group net assets £'000 | Group assets £'000 | Group liabilities £'000 | Group net assets £'000 | Group assets £'000 | Group liabilities £'000 |
Accrued interest payable | 106 | 106 | - | 117 | 117 | - |
Accrued income | (5) | - | (5) | (4) | - | (4) |
Foreign bank loan | (480) | 130 | (610) | (212) | 203 | (415) |
Investment properties and inventories | (1,476) | 604 | (2,080) | (1,476) | 1,119 | (2,595) |
Other temporary differences | (265) | 90 | (355) | 62 | 160 | (98) |
At 31 March | (2,120) | 930 | (3,050) | (1,513) | 1,599 | (3,112) |
13. Inventories - Land and Buildings
| 2023 | 2022 |
| Group £'000 | Group £'000 |
Group properties for resale at cost |
| |
At 1 April | 12,352 | 12,494 |
Additions | 7,443 | - |
Reclassified as Investment Property | (19,795) | - |
Capital expenditure | - | 119 |
Disposal | - | - |
Depreciation | - | (157) |
Foreign exchange translation | - | (104) |
At 31 March | - | 12,352 |
During the year the Group acquired an additional 7,171m2 of office space in Blue Tower for a consideration of £7.20 million, which is payable in seven instalments over a six year period. Following this purchase, the Group's interest in Blue Tower (an office block in Warsaw) now represents 80.3% (2022: 48.2%) of the building. As a result of this acquisition the Group reclassified the building from Inventory to Investment Property.
14. Trade and Other Receivables
| 2023 | 2022 |
| Group £'000 | Group £'000 |
Current assets |
| |
Trade receivables | 1,130 | 1,003 |
Less provision for impairment of receivables | (242) | (73) |
Trade receivables net | 888 | 930 |
Other receivables | 1,820 | 2,299 |
Prepayments and accrued income | 1,021 | 1,100 |
At 31 March | 3,729 | 4,329 |
| 2023 Group | 2022 Group |
Non-current assets | £'000 | £'000 |
Other receivables | - | 95 |
Other receivables, under non-current assets, relates to the deferred consideration from the sale of an investment property located in Romania. This has all been repaid.
15. Trade and Other Payables
| 2023 | Restated 2022 |
| Group £'000 | Group £'000 |
Current liabilities |
| |
Trade payables | 1,227 | 1,105 |
Other taxation and social security | 254 | 313 |
Other payables and accruals | 1,701 | 3,293 |
Deferred income | 128 | 53 |
At 31 March | 3,310 | 4,764 |
16. Provisions
| 2023 Group | 2022 Group |
Current liabilities | £'000 | £'000 |
At 31 March | 158 | 922 |
The provision at 31 March 2023 represents a rent guarantee of £0.16 million (31 March 2022: £0.52 million) and fit-out costs of £Nil (31 March 2022: £0.40 million). These provisions are in respect of the rent guarantee given as part of the sale of a property, CH8, which completed in April 2020.
17. Financial Liabilities
| 2023 Group £'000 | 2022 Group £'000 |
Current liabilities |
| |
Bank loan | 1,116 | 4,212 |
At 31 March | 1,116 | 4,212 |
|
| |
Non-current liabilities |
| |
Bank loans | 11,519 | 9,309 |
At 31 March | 11,519 | 9,309 |
| 2023 Group £'000 | 2022 Group £'000 |
Total obligations under bank loans |
| |
Repayable within one year | 1,116 | 4,212 |
Repayable within one and five years | 8,080 | 7,364 |
Repayable after five years | 3,439 | 1,945 |
At 31 March | 12,635 | 13,521 |
Five bank loans all denominated in Euros and totalling £12.64 million (31 March 2022: £13.52 million), included within financial liabilities, are secured against investment properties owned by the Group. These bank loans are otherwise non-recourse to the Group's assets.
The interest rate profile of the Group's financial liabilities at 31 March 2023 and 31 March 2022 was as follows:
| Interest bearing £'000 | Non- interest bearing £'000 | Total
£'000 |
Bank loans | 12,635 | - | 12,635 |
Other financial liabilities | - | 17,021 | 17,021 |
At 31 March 2023 | 12,635 | 17,021 | 29,656 |
Bank loans | 13,521 | - | 13,521 |
Other financial liabilities | - | 10,141 | 10,141 |
At 31 March 2022 | 13,521 | 10,141 | 23,662 |
A one percentage point increase in interest rates would increase the annual interest bill by £0.13 million per annum (2022: £0.14 million).
18. Other Financial Liabilities
| 2023 Group £'000 | 2022 Group £'000 |
Current liabilities | 939 | - |
Non-current liabilities | 16,082 | 10,141 |
| 2023 Group £'000 | 2022 Group £'000 |
Total obligations under Other Financial Liabilities |
| |
Repayable within one year | 939 | - |
Repayable within one and five years | 14,317 | 10,141 |
Repayable after five years | 1,765 | - |
At 31 March 2023 | 17,021 | 10,141 |
This non-current liability includes the balance of €12.00 million which was a result of the restructuring of a finance lease secured against the office tower in Gdynia. The restructuring resulted in the amount owed to ING bank in final settlement reducing by €9.00 million (£7.81 million). As part of the deal, the Group acquired the freehold of the property for €16.00 million of which €4.00 million has been paid and €12.00 million is repayable by June 2024. No interest is payable on this non-current liability.
Non-current liabilities also includes the Group's new investment in Blue Tower, Warsaw, which was financed by deferred consideration of PLN 40.40 million (£7.44 million). This liability, which is non-interest bearing, is payable in seven instalments over six years. The first instalment of PLN 6.0 million (£1.07 million) was paid in September 2022.
The preliminary results are being circulated to all shareholders and can be downloaded from the Company's web-site (www.fprop.com). Further copies can be obtained from the registered office at 32 St James's Street, London, SW1A 1HD.
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