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Serviced Office Group plc AIM (SVO)

Preliminary Results for the year ended 31 December 2007

Serviced Office Group plc ('the Group') is an AIM-listed provider of flexible office space, which now operates from 12 centres providing a total of 1,913 workstations

HIGHLIGHTS

• Successful launch of joint venture with UBS - Consort Property Holdings

• Increase in total group turn over to £6.4 million (2006: £5.3 million)

• Profit before tax of £100,000 (2006: £808,000) after exceptional costs

• Net asset value per share of 7.7p (2006: 7.6p) 

• Basic earnings per share 0.04p (2006: 0.57p)

Michael Kingshott, Chairman, comments:

'Our strategy continues to be one of growth by acquisition. We have seen convincing evidence of an easing in market values of freehold premises and we are confident that current circumstances will provide opportunities to expand our portfolio at sensible prices. Our Joint Venture Company, Consort Property Holdings Ltd, provides the Group with exceptional equity resources to take advantage of current market conditions.' 

2 June 2008

Enquiries:

Serviced Office Group plc                                                Tel: 020 7583 8833

Michael Kingshott, Chairman

Stephen Clague, Finance Director  

Evolution Securities                                                         Tel: 020 7071 4300

Bobbie Hilliam

College Hill                                                                       Tel: 020 7457 2020

Gareth David

  

CHAIRMAN'S STATEMENT

Against a background of sharply deteriorating economic conditions, I am presenting the results of Serviced Office Group plc ('the Group') for the year to December 2007.  

The Group achieved turnover of £6.4 million (2006: £5.3 million) and a pre-tax profit of £100,000 (2006: profit of £808,000), after providing for the initial formation costs of Consort Property Holdings amounting to £96,000, and for £207,000 of increased depreciation on our leasehold properties. Earnings were also impacted by costs of the refurbishment programme referred to in last year's report, and by fit-out costs in new properties which of course take some time to let up and achieve their planned revenue potential. Basic earnings per share were 0.04p, compared to 0.57p in 2006. 

It has always been our practice to carry out an external valuation of our properties but in view of the widely recognised uncertainty in property markets your board commissioned a full detailed valuation of the Group's freehold assets. This was carried out as before by Atisreal.

This assessment reveals an overall uplift in the value of our properties by an amount of £624,000 after providing for a write down of £445,300 for some older properties. Accordingly, our net asset value per share at the year-end was 7.7p, representing a 1.3 per cent increase over the previous year's figure. By contrast, the value of office properties across the country as measured by Investment Property Databank fell by more than 9 per cent during the period. Seen in this context and in the light of steeply reported falls in asset values by listed property companies I think our Group's performance is far from discouraging and justifies the cautious acquisition programme we have pursued.

When your company's asset value is seen against a backdrop of this significant reported fall in office property values concentrated in the final quarter of 2007, I hope shareholders can draw some comfort from the transaction prices we achieved over the past two years when markets were exceptionally strong.

Shareholders will be aware that we completed the formation of Consort Property Holdings Ltd (Consort), our new joint venture (JV) with UBS Investment Bank earlier in the year. We now hold 4 properties within the JV and are carefully screening the market for new opportunities in the current more realistic pricing climate. During the year, we successfully completed the refurbishment of our properties in Kingston, Harrow, Hayes and the market is proving receptive to our improved facilities.

In the course of the year our new properties at Chiswick and Teddington also completed their fit out and have proved to be attractive locations in the market place adding 320 workstations to our portfolio. These are let at budgeted rates and both are held within the JV. 

I am very pleased with the progress made at County House in Beckenham, our new 46,000 square feet office building which is held in the JV. Work continues on the second floor following successfully letting the entire first floor which was completely refurbished. The lettable space in this centre is currently 100% occupied.

  

On 2nd January 2008, we made a key appointment with the recruitment of Catherine McEwan as Managing Director. I am confident that Catherine will make a valuable contribution to the group team, bringing considerable property management skills and experience. She will enable the company to take full advantage of the current market conditions including further expansion in our serviced office portfolio. Catherine has a formidable track record in successfully managing companies operating in this sector. 

Current Trading and Future Prospects

Whilst there is clearly uncertainty given the current state of the global and UK economies, it is predicted that the serviced office market will continue to expand due to the relatively short term commitment required by each occupant. 

We have been actively managing the risks associated with debt, and I can confirm that we have recently negotiated interest rates below those for 2007. Within Consort, we have sought to reduce our risks further by hedging against interest rate fluctuations for 50% of the borrowings, all of which are secured long term.

Our strategy continues to be one of growth by acquisition. We have seen convincing evidence of an easing in market values of freehold premises and we are confident that current circumstances will provide opportunities to expand our portfolio at sensible prices. Our Joint Venture Company, Consort Property Holdings Ltd, provides the Group with exceptional equity resources to take advantage of current market conditions. 

MICHAEL KINGSHOTT

Chairman

2 June 2008

 

  Consolidated Income Statement for the year ended 31 December 2007

	Notes	2007	2006
		£000	£000
Continuing operations
Sales		6,382	5,273
Cost of Sales		(4,342)	(3,244)
Gross profit		2,040	2,029
Net gain from revaluation of investment properties		624	755
Administrative expenses		(1,347)	(999)
Operating profit		1,317	1,785
Finance costs		(1,248)	(843)
Interest received		31	28
Profit before income tax		100	970
Income tax expense		(64)	(304)
Profit for the year from continuing operations		36	666
Loss for the year from discontinued operations		-	(162)
Profit for the year		36	504
Earnings per share:
Continued operations
Basic	7	0.04p	0.76p
Diluted	7	0.04p	0.76p
Including discontinued operations
Basic	7	0.04p	0.57p
Diluted	7	0.04p	0.57p

  

Consolidated Balance Sheet as at 31 December 2007

	Notes	2007	2006
		£000	£000
ASSETS
Non current assets
Investment property	2	25,141	22,908
Property, plant & equipment	3	3,297	2,478
Intangible assets		1,489	1,482
Investments	4	493	-
		30,420	26,868
Current assets
Inventories		63	63
Trade and other receivables		1,121	817
Cash and cash equivalents	5	275	335
		1,459	1,215
Total assets		31,879	28,083
EQUITY
Capital and reserves attributable to equity holders of the company
Called up share capital		4,400	4,400
Share premium account		4,200	4,194
Profit and loss account		(1904)	(1,940)
Total equity		6,696	6,654
LIABILITIES
Non current liabilities
Borrowings	6	20,909	18,540
Deferred income tax		896	889
		21,805	19,429
Current liabilities
Trade and other payables		3,346	1,977
Borrowings	6	32	23
		3,378	2,000
Total liabilities		25,183	21,429
Total equity and liabilities		31,879	28,083

Consolidated cash Flow Statement for the year ended 31 December 2007

	2007	2006
	£000	£000
Profit from operations	1,317	1,785
Adjustment for:
Depreciation of plant and equipment	437	230
Revaluation of investment properties	(624)	(755)
Expense arising from grant of share options	6	4
Operating cash flow before movement in working capital	1,136	1,264
Decrease in receivables	160	119
(Increase) in other current assets	(492)	(116)
(Decrease) / Increase in payables	777	349
Cash generated from operations	1,581	1,616
Interest Paid	(657)	(1,219)
Net cash from operating activities	924	397
Cash flows from investing activities
Interest received	4	28
Purchase of investment property	(5,909)	(5,209)
Proceeds from sale of investment property	4,300	-
Purchases of plant and equipment	(1,928)	(1,349)
Proceeds from sale of plant and equipment	672	-
Loans to JV	(493)	-
Acquisition of subsidiaries, net of cash acquired	(7)	-
	(3,361)	(6,530)
Proceeds received from available-for-sale investments (discontinued operations)	-	212
Net cash (used in) investment activities	(3,361)	(6,318)
Cash flows from financing activities
Proceeds from shareholder loans	1,480	-
Repayment of long-term borrowings	(5,250)	-
Proceeds from long-term borrowings	6,147	4,500
Net (decrease) in cash and cash equivalents	(60)	(1,427)
Cash and cash equivalents at the beginning of the year	335	1,762
Cash and cash equivalents	275	335
Bank balances and cash	275	335

 

Consolidated Statement of Changes in Equity for the Year ended 31 December 2007

	Share Capital	Share Premium	Retained Earnings	Total Equity
	£000	£000	£000	£000
Group
Balance at 1 January 2006	4,400	4,190	(2,444)	6,146
Profit for the year	-	-	504	504
Grant of employee share options	-	4	-	4
Balance at 31 December 2006	4,400	4,194	(1,940)	6,654
Balance at 1 January 2007	4,400	4,194	(1,940)	6,654
Profit for the year	-	-	36	36
Grant of employee share options	-	6	-	6
Balance at 31 December 2007	4,400	4,200	(1,904)	6,696

  

Selected notes on the Financial Statements for the year ended 31 December 2007

                  

 1    Profit for the financial period

As permitted by Section 230 of the Companies Act 1985, the Holding Company's income statement has not been included in these financial statements. The profit for the year ended 31st December 2007 is £209,000 (2006: Loss: £185,000)

2    Investment property    

                

	2007	2006
	£000	£000
Group:
Fair Value
At 1 January 2007	22,908	16,944
Disposals to the JV	(4,300)	-
Arising on acquisition of investment properties	5,909	5,209
Net gain from fair value adjustments of investment properties	624	755
At 31 December 2007	25,141	22,908

The Group's investment properties were revalued at 31 December 2007 by independent professionally qualified valuers (Atisreal). Valuations were based on current prices in an active market.  

3    Property, plant and equipment 

	Plant & Equipment
	£000
Group:
Cost
At 1 January 2007	3,501
Additions	1,928
Disposals to the JV	(672)
At 31 December 2007	4,757
Accumulated Depreciation
At 1 January 2007	1,023
Charge for the year	437
At 31 December 2007	1,460
Carrying Amount
At 31 December 2007	3,297
At 31 December 2006	2,478

  4    Investments    

    

	2007	2006
	£000	£000
Shareholder loans	493	-

The loans by the Group to the JV, Consort Property Holdings Limited, are unsecured.

Interest in joint venture

The Group has a 50% interest in a JV, Consort Property Holdings Limited, which owns and operates serviced office accommodation. The following amounts represent the Group's 50% share of the assets and liabilities, and sales and results of the JV. They are included in the balance sheet and income statement:

    

	2007
	£000
Assets:
Non-current assets	9,088
Current assets	324
	9,412
Liabilities:
Non-current liabilities	8,472
Current liabilities	644
	9,116
Net assets	296
Income	1,213
Expenses	918
Profit after income tax	295

There are no contingent liabilities relating to the Group's interest in the JVs.

  Available-for-sale investments and discontinued operations

	2007	2006
	£000	£000
Available-for-sale investments and discontinued operations
Group and Company:
Beginning of year	-	374
Exchange differences	-	-
Additions	-	-
Investment returned	-	(212)
Loss on sale	-	(162)
	-	-

Available-for-sale investments are equity securities registered in Israel which have been fully written off.

Following the acquisition of KBC Holdings Limited and subsidiaries in January 2005 the Group's principal activity became the ownership and operation of serviced office accommodation. It ceased actively investing in Israeli technology companies. With the exception of one investment which has been fully provided, the investments remaining at the start of 2006 had been sold for £212,000 resulting in a loss of £162,000. 

5    Cash and cash equivalents    

    

	2007	2006
	£000	£000
Cash at bank and in hand	275	(80)
Short term bank deposits	-	415
	275	335

6    Borrowings    

            

	2007	2006
	£000	£000
Current
Finance lease obligations	32	23
Non-current
Bank borrowings	19,409	18,500
Less: unamortised costs of arrangement	(10)	-
	19,399	18,500
Loans from shareholders of the JV	1,479	-
Finance lease obligations	31	40
	20,909	18,540

Bank borrowings are secured by the freehold and long leasehold investment properties.

The borrowings include amounts secured on investment property to the value of £19,409,000. This represents the value of the loans from The Royal Bank of Scotland plc which has been provided to KBC Holdings Limited and the JV, Consort Property Holdings Limited.

The loans to the JV by its shareholders, which are Serviced Office Group plc and UBS Investment Bank, are unsecured. Taking into account current market conditions the directors of Consort Property Holdings Limited consider that the most appropriate classification of the loan is in the 'more than two years but not more than five years' category.  

Maturity of financial liabilities

The maturity profile of the carrying amount of the Group's non-current liabilities, at 31 December 2007, was as follows:

 

	2007	2006
	£000	£000
In more than one year but not more than two years	26	23
In more than two years but not more than five years	20,883	18,517
	20,909	18,540

The effective interest rates at the balance sheet date were as follows:

	2007	2006
	%	%
Bank borrowing	7.0	6.9
Loans from shareholders	15.0	-
Finance lease	0.0	0.0

7    Earnings per share    

	2007	2006
Weighted average number of shares in issue (thousands)	88,006	88,006
Profit attributable to equity holders of the company	36	504
Basic earnings per share (pence)	0.04	0.57

There is no difference between the basic and diluted earnings per share.

8    Disposal of subsidiaries

On 5th July 2007 the Group disposed of the entire share capital of KBC Beckenham Limited, KBC Chiswick Limited, KBC Crawley Holdings Limited and KBC Teddington Limited for a consideration of the nominal value of their issued share capital to Consort Property Holdings Limited, a JV owned 50% by the company.

On 3rd July 2007 KBC Crawley Holdings Limited had acquired the entire share capital of KBC Crawley for a consideration of £183,000.  

The net book value of the assets and liabilities of these subsidiaries disposed of by the Group to the partner in the JV at 5th July 2007 were as follows: 

	2007
	£000
Investment property	4,300
Property, plant & equipment	672
Cash at bank and in hand	43
Creditors	(43)
Amounts owed to Group companies	(4,824)
Deferred tax	(57)
Net assets disposed	91

  9    Commitments

    

	2007	2006
	£000	£000
Capital commitments
Capital expenditure contracted but not provided	-	300

Operating lease commitments - where a Group company is the lessee        

The Group lease various buildings under non cancellable operating lease agreements, all of which have varying terms and break clauses.

The future aggregate minimum lease payments under non cancellable operating leases are as follows:

	2007	2006
	£000	£000
No later than 1 year	342	-
Later than 1 year and no later than 5 years	-	331
Later than 5 years	668	659
	1,010	990

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