Serviced Office Group plc (AIM: SVO)

Interim Results for the six months ended 30 June 2010

Serviced Office Group ("SVO" or "the Company") is an AIM-Listed provider of flexible office space, which currently operates a total of 20 centres, providing a total of 3,610 workstations.

HIGHLIGHTS

·    Total revenues for the six months ended 30 June 2010 of £4.6 million (2009: £3.3 million) an increase of 41 per cent.

·    Operating profit of £414,000 (2009: £214,000) an increase of 93 per cent.

·    Loss before tax of £272,000 (2009: £207,000).

·    Net asset value per share of 3.0p compared to 3.2p at 31 December 2009 and 1.1p at 30 June 2009.

·    Basic loss per share of 0.25p (2009: loss of 0.17p).

Michael Kingshott, Chairman, comments:

"The last six months has continued to be a very challenging time for the general economy and for our market.  Despite this, we have reacted swiftly to maintain occupancy and rate levels.

Since January we have opened two new properties at 7 Hanover Square and Wallington and we are currently in advanced negotiations with regards to three other buildings.  Opening new buildings has associated costs and the loss before tax of £272,000 for the six months to 30 June 2010 is an encouraging result considering £107,000 of this arose on the opening of Hanover Square. 

In addition to opening new buildings, we have made significant progress in strengthening our management team with the appointment of two new directors, a Facilities Manager, and the development of a dedicated sales team.  As a result we have significantly improved our lead to viewing conversion rate, are driving down costs and continue to develop our Property Management services. 

The changes we have made, coupled with the result to date, indicate a future return to profitability and I have great confidence in continued improvement going forwards."

29 July 2010

Enquiries:

CHAIRMAN'S STATEMENT

A year ago I wrote: "Whilst the period under review continued to be extremely challenging, there are signs of improvement in our market place and in the economy as a whole".  A year later and that seems as appropriate as it did then.  While we continue to see signs of improvement in the economy and in our sector, there is still a long way to go.

The last six months at Serviced Office Group has seen significant progress of the company with the opening of new buildings at Hanover Square, W1, and Wallington, strengthening the management team and development of a dedicated sales team.

The addition of new buildings, management deals and the contribution of 100% of the old Consort joint-venture sites resulted in top-line revenue increasing 41% compared to the same period last year.  Like-for-like revenue has increased 23% in the same period.

Cost of sales and overheads increased as a percentage of revenue but a reduction in direct costs resulted in an overall increase in EBITDA margin to 16.6% (2009: 14.5%).  Operating profit has increased to £414,000 but refinancing costs and an unfavourable hedge position (due to expire in January 2011) has led to a loss before tax of £272,000 (2009: £207,000).

Total assets are now £33.6 million, which takes into account the write down of £226,000 on our freehold assets recognised at the year end and announced in the annual report.  We do not believe that there has been any significant movement in the value of our freeholds since December and accordingly have recognised no further change.

Over the last six months, key changes have taken place in the company's management team.  Stephen Clague has retired from the Board after three years service as Finance Director and recently as a Non-Executive Director.  We would like to thank Stephen for the commitment and enthusiasm that he showed during his time with the company and wish him every success with his new venture.  Following the growth of the group in 2009 (8 sites at the start of the year to 18 sites by December) we have taken the opportunity to strengthen the management team and have appointed a Facilities Manager and a Sales Manager as well as two new Directors.  All these individuals are now contributing positively to the group and significant improvements have been made in the conversion of leads to viewings, reduction of cleaning and utilities costs, quality of reporting to management and development of our property management services which add to the improvement in operational processes we continue to drive.  Our powerful IT team continues to make an increasing contribution to Group performance by improving our range of services and offering clients flexible, tailor-made solutions.

The addition of two new Directors provides us with additional resource to focus on the assessment of new opportunities and growth of the company.  We continue to be presented with buildings for consideration as serviced offices and we are currently in advanced negotiations regarding properties in Knightsbridge, Maidstone and Sevenoaks as well as considering several other sites.

Whilst we are focussed on growing the group through the addition of new sites, the addition of new sites comes with associated costs and funding requirements.  Capital expenditure, professional fees and management time are all a pressure on resources as well as the initial operating cost which will be experienced before a solid client base is built up.  As an example of this, since taking on the lease for 7 Hanover Square in February 2010, this site has generated a loss of £107,000 but we are very pleased with the rate of occupation by new clients.  To ensure that we only take on opportunities which ultimately will be beneficial to the group we are selective in the sites we choose and have developed a thorough assessment process to review an opportunity before we accept a building on either a management deal or another structure. 

In my annual statement I described the refinancing that the group had undertaken in December 2009.  Whilst this enabled the acquisition of the remaining 50% of Consort Property Holdings Limited, it resulted in a refinancing cost of £200,000 and an increase in our interest expense.  As a result our current focus on funding to grow the group is based on private investment and we are currently in discussions with potential investors to raise funds in order to be able to capitalise on opportunities that have recently been presented to the group.

The prospects for the future of your company are good and whilst we are experiencing an increase in the competitiveness of our marketplace we are reacting positively to this and continue to offer packages which present good value-for-money.  We have made significant advances over the past six months and I believe that the company is well positioned to deliver further improvements and a return to profitability going forward.

MICHAEL KINGSHOTT

Chairman

29 July 2010

Consolidated Statement OF COMPREHENSIVE INCOME

for the SIX MONTHS ended 30 JUNE 2010

Consolidated Balance Sheet

AS AT 30 JUNE 2010

Consolidated statement of changes in equity

FOR THE SIX MONTHS ENDED 30 JUNE 2010

Consolidated cash flow statement

                   for the SIX MONTHS ended 30 JUNE 2010

Notes to the Preliminary Results for the SIX MONTHS ended 30 JUNE 2009

1.    Basis of preparation

The financial information in this half-yearly report does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006.  The statutory accounts of Serviced Office Group plc for the year ended 31 December 2009 have been reported on by the company's auditors and have been delivered to the Registrar of Companies.   The auditors' report was unqualified, did not include a reference to matters which the auditors drew attention by way of emphasis and did not contain a statement under section 498(2) or section 498(3) of the Companies Act 2006.

The half-yearly report has been prepared in accordance with the recognition and measurement principals of International Financial Reporting Standards (IFRSs) as endorsed by the European Union using accounting policies that are expected to be applied for the financial year ended 31 December 2010.

2.    Revenue

Revenue is derived from the Group's serviced office business.

3.    Other income

The other income earned in 2009 arose primarily due to the acquisition of KBC Consort Limited, bringing the remaining 50% of the Consort companies into the Group.  This transaction resulted in an uplift in the value of investments (£1.3m) and recognition of negative goodwill (£987,000).  Netted off against this was impairment of goodwill in relation to KBC Willowbank Limited (£202,000).

4.    Basic (loss) / earnings per share - pence

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

5.    Income tax expense

6.    This financial information was approved by the Board on 28 July 2010.

7.      Copies of this interim report are being sent to all of the Company's shareholders.  Further copies can be obtained from the Company's registered office at Fleet House, 8 - 12 New Bridge Street, London, EC4V 6AL.