Farmer Business Developments, the investment holding company with roots going back to the foundation of FBD Insurance in the late 1960s, has reported operating profits of €5.6m for its 2017 financial year.

Operating profits from continuing operations increased 46% to €5.5m. During the year, turnover increased 5% to €53.8m from its continuing operations. The group made a pre-tax profit of €20.1m, up from €7.2m in 2016 which included a once-off revaluation gain of €13.6m.

During the year, the group revalued its hotels, golf and investment assets. The group wrote down its hotel and golf assets by almost €1m during the year. Farmer Business Developments assumed full control of FBD Hotels in 2015 when it purchased the remaining 50% stake in the business from FBD Holdings for a total of €48.5m.

The group also revalued its investment property assets, which include the Berlin airport lands and development lands at LaCala, Spain, by €14.5m to €40m.

Overall, 2017 was a year of strong balance sheet growth for Farmer Developments. The net asset value (shareholder funds) of the group’s investments increased by almost a quarter (+23%), or €42m, to €223.4m.

Padraig Walshe, chair of Farmer Business Developments, described the group’s performance in 2017 as a strong one.

“Our company has a growing balance sheet with the value of shareholders’ funds benefitting in particular from the recovery of FBD Holdings plc and an excellent performance from our FBD Hotels subsidiary,” said Walshe.

The majority of the balance sheet growth for Farmer Business Developments last year was a result of the strong recovery in the share price at FBD Holdings, the insurance company in which Farmer Business Developments holds a 25% stake.

In 2017, shares in FBD Holdings increased in price from €6.89 to €10.11 at year-end 2017.

Shares in FBD Holdings are this week trading at €10.65. Farmer Business Developments’ stake in FBD Holdings is valued at €88.9m, or 40% of the company’s net asset value at year-end.

No dividend was received from FBD Holdings in 2017. This is set to resume in 2018 and will be worth €2.2m when reinstated.

Hotels

Farmer Business Developments’ single largest investment is FBD Hotels and Resorts, which accounts for 43%, or €97m, of the group’s total asset portfolio. FBD Hotels operates two hotels in Ireland, Castleknock Hotel and Faithlegg, and two resorts located in the Costa del Sol in Spain.

Revenues at FBD Hotels increased 4% in 2017 to €49.5m, on the back of increased room rates in Ireland and Spain. Despite the increased rates, earnings (EBITDA) for the year declined 6% to €9.3m.

In 2017, FBD Hotels entered its fourth joint venture agreement with British construction firm Taylor Wimpey to build an additional 280 units at its 1,000ac site at LaCala resort in Spain. This latest investment, valued at €100m, brings the number of units being developed by FBD Hotels and Taylor Wimpey at the LaCala site to 658.

Gross sales of these units is expected to exceed €200m, with FBD Hotels set to receive between €42m and €43m of the proceeds. On the back of strong property sales, FBD Hotels has increased its valuation of the LaCala land bank by €13.6m.

Berlin airport

Land zoned for development at Schonefeld, which is adjacent to the new Berlin airport, is the third largest investment of Farmer Business Developments, representing 14% of net assets at a value of almost €31m.

During 2017, Farmer Business Developments invested a further €7.1m to increase its stake from 40% to 61% in Bulberry Properties Ltd, the investment vehicle used to buy the lands at Schonefeld which includes Mayo’s McEvaddy brothers as shareholders.

Originally meant to open in 2011, the new Berlin airport has been long delayed after a series of safety setbacks and construction faults. The most recent update estimates the airport will open in October 2020, although senior executives at Germany’s largest airline Lufthansa have said the airport will probably never open.

Despite the cloud of uncertainty hanging over the completion of the airport, Farmer Business Developments remains confident that its investment in development lands beside the airport will deliver returns for shareholders in the longer term.

The remaining €7m, or 3%, of Farmer Business Developments’ asset portfolio is tied up in smaller investments and cash. These include international equities and private equity funds, together with an Irish venture capital fund.

Dividend

Directors in Farmer Business Developments have recommended paying a dividend to shareholders of 6c per share, which would be an increase on the 5c per share dividend paid last year. In the past year, shares have traded on the grey market at an average price of €0.95. With a dividend of 6c, this represents a return of 6%.

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