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Article Excerpt
Original Source: FD (FAIR DISCLOSURE) WIRE
TOM CHANDOS, CHAIRMAN, CAPITAL & REGIONAL PLC: Good morning. Welcome and thank you very much for coming to the presentation for the interim results for Capital & Regional this year. I think you all know that we can blame the disclosure and transparency rules for you being here rather than on the beach this year and I know that there's a lot of companies reporting in a short space of time, so everybody's very busy.
So, I'm just going to introduce Hugh Scott-Barrett, who as you know started as Chief Executive at the beginning of April. This year, the formal presentation's going to be done by just him and William Sunnucks, but the full team is here in front of you and will be available for questions both during the Q&A session and afterwards. Hugh?
HUGH SCOTT-BARRETT, CEO, CAPITAL & REGIONAL PLC: Tom, thank you. Good morning, everybody. I've been thinking how best to characterize the last five months since I joined and in order not to offend sensibilities, I've opted for the word eventful, so perhaps that's an appropriate starting point to discuss what we have been doing. I'd like to characterize the last five months as having taken some decisive steps to strengthen the balance sheets and improve financial flexibility. I will talk about that in some detail during the course of the presentation.
At the same time, however, we've been very focused on ensuring that we deliver high-quality service to our partners and tenants and amidst all the focus on the group balance sheets, I hope that some of the successes that we've achieved in these difficult market circumstances again will come through from the presentation.
We've also been thinking long and hard about strategy and although we still remain very focused on ensuring that we have a robust financial structure, we have at the same time begun to identify areas where we think we can begin to grow as and when we can feel comfortable to do so and the right opportunities arise. And again, I will talk about that a little later in the presentation.
I think that you know we are on a journey and today's announcements is the latest in a series of announcements which demonstrate the progress that we're making. William in his presentation will talk in detail about the impact of the renegotiation agreed, documented, effective that we have secured for our core banking facility. And I don't think one can underestimate that in conjunction with the other actions that have been taken the improved financial flexibility that that results. I will, therefore, talk very briefly about the financial highlights and then quickly pass on to William.
Before I talk about the financial highlights, I would just like to thank William for his huge contribution. You will have seen from this morning's press release that he has decided to step down. When I joined the firm, he made it clear to me that that was his intention, to pursue his family business in Rumford, markets business, almost if not more challenging than property. But he and I agreed that it made sense for him to stay, a, to allow me to settle in and b, so that we could address some of the challenges that we've been dealing with these last five months.
And he's committed himself with great energy, enthusiasm, even gusto to solving -- helping to solve these issues. So, it does seem a very logical moment for him to approach me once again to agree the terms of a transition and a smooth transition it will be since the individual whom he has groomed for succession -- Charles Staveley who's here in the front row -- will take over as Group Finance Director at the end of the third quarter and I hope you all will have a chance to meet him afterwards if you've not already done so.
I don't want to dwell at length on the highlights. I think there are probably two key observations to make over and above an acknowledgement that we have seen a sizeable reduction in net asset value per share. I'd really like to comment on two things.
Firstly, one which we'll come back to which is relative resilience in terms of recurring pretax profit for the six month period. And to make a comment around the significant cut in dividend, I, we, the Board feel that in the current market environment, it is prudent to preserve cash, to preserve financial flexibility and it's against that background in a very challenging and potentially more challenging environment that we have taken the decision to cut the interim dividend 5p.
And on that, I will hand over to William and we'll come back to address operations and strategy after the presentation that William will now give. William?
WILLIAM SUNNUCKS, GROUP FINANCE DIRECTOR, CAPITAL & REGIONAL PLC: Thank you very much, Hugh. I'll talk about the income statements a little bit. Net asset value, not very much about the earnings businesses. I think we've heard that before. We'll just have a quick think about those. The Apollo joint venture, we'll give you some of the financial statistics there and the bit that probably people are most interested in, that position with the debt and covenants. I cannot work the machine.
The income statement. I think it's no surprise that there's a large minus figure on the bottom line and that it's mainly driven by the valuation losses GBP205.5 million. Quite encouraging is that the recurring profit before tax is pretty solid. The same sort of level as last year, slightly down and we'll have a look at why on the next slide.
First thing to notice is that the German -- the cash flow from the German portfolio very strong again. It's actually the same cash flow in euros but magnified by the strength of the euro. The property management business very slightly down. Could have been down more, but our costs have come down and our fee income has come down a little bit just with the value of the portfolios and the fact that less transactions going around. But still a very good cash flow coming out of that.
And SNO!zone a valuable business being contributing consistently to our cash flows over the years. No investment in it. Nothing on the balance sheet for it, but a very nice cash generator and surprising stable given that it's a consumer-type business and you've got three different places who's fortune seem to vary at different times. But overall, we've got a very attractive cash flow coming out of that.
The UK property investment income is down a little bit. That is more to do with group interest considerations and interest rates than it is to do with any problems at the portfolio level. If you dig down in the very long interim statement we've given you, you'll see that the income from the funds and from other parts of the portfolio is actually quite stable. Tenant placing business has produced.
Give you a little bit more of a breakdown of that very large minus GBP208 million and of course, it's basically a 9.9% fall in values over the six month period and the biggest fall in Mall Fund 15.1%. Rarely, some of that is a timing issue on the sale of the Carlyle -- sale of the three shopping centers to Carlyle which happens -- it's exchanged contracts before the half year end and completed just after, so we picked up the implications of that -- the [re-ducross] implications of that on the whole portfolio at the end of June. That weren't necessary. We've got into other parts of the market.
If we go down below the reevaluation deficit, the fair value of the interest rate swaps. Interest rates, medium term rates went up to a peak in June, came slightly off. I think 6.2% was the peak in about the second week of June and then they came off to about 5.8% or something at the end of June and that gave us a very large gain, GBP24 million over the first half of the year. They've come down again and so some of that would have reversed by now, but of course interest -- medium term interest rates coming down is encouraging for the liquidity of the market and possibly in the longer term for property values.
There's a...
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