7th Jun 2007 07:02
Grainger PLC07 June 2007 7 June 2007 Grainger plc ("Grainger"/"Group") Results for the six months ended 31 March 2007 Grainger reports strong progress Grainger plc, the UK's largest quoted residential property owner, announces itsresults for the six months ended 31 March 2007. • Market value of property and property related assets up 10% to £2.2 billion (30 September 2006: £2.0 billion) • Profit before tax £12.1m (30 September 2006: £36.9m); decline due to distortion of valuation gains as a result of disposal of assets to G:res 1 in the six months to 31 March 2006 and the volatile nature of development profits • Dividend up 10% to 2.06p per share in the light of the Board's ongoing confidence in the Company's prospects • £411m invested in the period growing all key business divisions • Major progress across the business: + Capital Appreciation Trust (£72m) and CHARM portfolio (£134m) acquired for the equity release division + G:res1 market rented fund successfully launched; it now owns £420m of property assets and has 7 UK and overseas investors + Significant joint venture agreed with Development Securities for major mixed-use scheme at Curzon Park, Birmingham + Growing portfolio and pipeline in Germany with dedicated team now based in Mannheim. Robin Broadhurst, Chairman of Grainger plc, said: "In my first interim statement as Grainger's Chairman I am pleased to be able toreport on a period of significant progress across all of our business divisions.This progress demonstrates the ability of our management to identify and act onopportunities to further strengthen our portfolio and our position as the UK'slargest listed residential property owner. "Whilst our strategy is founded on a geared long term exposure to the housingmarket we are seeking to diversify our income stream and to improve our returnson capital by leveraging our residential property expertise. "We are confident that we will be able to continue to deliver attractive returnsto shareholders and enhance these by our diversification into a broadly basedbusiness with expertise and involvement across the whole range of theresidential market." For further information: Grainger plc Financial Dynamics Rupert Dickinson/Andrew Cunningham Stephanie Highett/Dido LaurimoreTel: +44 (0) 20 7795 4700 Tel: +44 (0) 20 7831 3113 Chairman's Statement In my first interim statement as Grainger's Chairman, I am pleased to reportconsiderable progress in the Group's business model and ongoing investment bothin assets and our people. In total we have invested some £411m on property or related property assets inthe period and we have strengthened our position as the UK's leading listedresidential company with broad exposure through direct ownership, joint venturesand co-invested funds. The progress has been substantial across all areas of our business • Trading in our core regulated portfolio has produced strong results with average sales values some 7% higher than our September valuation. • Our residential fund, G: res1, was successfully launched in November and it now owns some £420m of property assets. The fund has now raised or received commitments totalling £111m from leading UK and overseas institutional investors. • Two major acquisitions of retirement solutions portfolios (Capital Appreciation Trust ("CAT") and the CHARM portfolio) have almost doubled the asset base in the Equity Release and Retirement Solutions division to £467m. • Grainger Developments has entered into their first joint venture scheme with Development Securities and the end value of its development pipeline now stands at £865m; • We have also furthered our drive into Europe with the opening of a management office in Mannheim, Germany to help accelerate the growth of our operations there. As at 31 March 2007 we had invested some £151m (€222m) into this market. Grainger now owns £2.2 billion of property assets (30 September 2006: £2.0billion) and the reversionary surplus (the difference between the disclosedmarket value of those assets and what we will sell them at, at today's prices)is £632m (30 September 2006: £566m). We now have a financial interest (throughdirect ownership and joint venture or management arrangements) in approximately22,000 properties. The Market UK residential property has continued to show good levels of return forinvestors - the IPD residential index indicates that total returns for 2006amounted to 16.8%. The Halifax House Price Index showed year on year annualgrowth of 11.1% to the end of March and although some weakening in the volume ofmortgage lending of late suggests that the market may be cooling as a result ofrecent interest rate rises, certain areas of the UK illustrate the on-goingimbalance between supply and demand. In particular, Greater London, where wehave 34% of our UK portfolio, has shown growth of 14.9% in the year to end March2007. In Germany the IPD index for 2006 indicated that residential was the bestperforming real estate sector with total annual returns of 6.5%. Although we do not revalue our portfolio at the half year because of the numberof properties involved, the values we have achieved on selling on vacancy givesus confidence in the strength of the market. We are also delighted that theinvestment of UK and overseas institutions in G:res1 indicates the growinginterest in, and appetite for, access to professionally managed residentialproperty. Results The results to 31 March 2006 were distorted by valuation gains of £24m on theestablishment of G: res1 and as a result earnings before interest and tax("EBIT") have fallen from £65.2m to £38.7m. On a like for like basis, adjustingfor these gains and for IFRS adjustments relating to goodwill write-offs andmarking to market our financial instruments, EBIT has fallen by approximately 9%from £42.1m to £38.3m. This decrease is due primarily to the foreseen lowercontribution from our development activities, reflecting the natural volatilityof the profit stream in any development business. For the same reason profit before tax has similarly moved from £36.9m to £12.1m.Again on a like for like basis, the movement is considerably smaller, from£13.8m to £11.7m with increased borrowing and overhead costs incurred in fundingand supporting our significant investment programme being the major factors inthe decrease. Net Assets Assessments of our net asset value are a key indicator of our performance. Asexplained further in the operational review we disclose the following measuresof net asset value: Gross net asset value (before any adjustments for deferred and contingent tax ormarking financial instruments to market): 659p (30 September 2006: 677p). Triple net asset value ("NNNAV") (after full deduction for deferred andcontingent tax and marking to market): 479p (30 September 2006: 487p). Grainger NAV (which adjusts the NNNAV to take into account the present value ofthe taxed reversionary surplus on our long term UK residential portfolios): 597p(30 September 2006: 595p). Dividends In light of our confidence in the Group's prospects, we have increased ourinterim dividend by 10% to 2.06p per share (2006: 1.87p). This will be paid on16 July 2007 to shareholders on the register at the close of business on 15 June2007. People I would like to take this opportunity to thank all of the Grainger staff fortheir support during my first few months as Chairman. I have very much enjoyedgetting closer to the business and the knowledge, skills and commitment of ourstaff have proved invaluable. Prospects and Strategy Whilst we have again enjoyed a relatively strong period of house price growth itseems inevitable that recent interest rate rises will serve to soften the marketalthough this may be more drawn out than in the past because of the greater useof fixed rate mortgages. However, several factors underpin long term house pricegrowth, in particular the shortage of supply in comparison to demand due toplanning constraints, low new build volumes and higher household numbers. It isworth noting that 70% of Grainger's regulated portfolio has a vacant possessionvalue below £250,000 - and it is properties in this price range that tend tohave a high demand from those increasing numbers of households. The large and geographically diverse nature of our portfolio together with itssteady yield profile and large reversionary surplus provides us with a long termresilience rare amongst most property companies. The Grainger business is founded on long term exposure to the residentialhousing market. Historically we have enhanced returns from this business byexploiting advantageous levels of financial gearing. We are now seeking toimprove returns on capital and build the diversification of the business furtherby leveraging our property management infrastructure and the expertise of ourpeople. We commenced this process by the launch and subsequent expansion of G:res1 and will continue to examine whether the efficient use of third partycapital can be introduced to other parts of the business, in particular GraingerEurope. We are confident that our evolving business model will continue to deliverattractive returns to shareholders; and that these returns will be furtherenhanced by our diversification into a broadly based business with expertise andinvolvement across the whole range of the residential market. Robin Broadhurst Chairman, 7 June 2007 Operating and Financial Review Analysis of Grainger portfolio Vacant Reversionary Market possession surplus No of units value £m value £m value £mRegulated 7,698 1,093 1,407 314Equity release 5,519 467 715 248Assured 320 46 52 6*Share of joint ventures/ - 451 500 49associates Vacant 246 41 45 4Other 50 45 56 11 --- --- --- ---UK residential 13,833 2,143 2,775 632UK development (incl. JV) - 113 113 - --- --- --- ---Total UK portfolio 13,833 2,256 2,888 632 --- --- --- ---German portfolio 3,398 151 European development - 11 --- --- Total Europe portfolio 3,398 162 --- --- Total Group portfolio 17,231 2,418 --- --- --- --- --- --- * Note: Share of joint venture and associates represents our share of the marketvalue of the properties held in those entities. The investment value of ourequity stakes in these businesses amounts to £227m. In addition we manage afurther 347 properties for third parties,but without an ownership interest. Analysis of UK residential sales £m Trading profit/ No Sales proceeds profit on disposal of fixed assets Regulated (including APT) 267 43 24Assured 34 8 2Vacant 36 8 3Equity release 51 8 4Other - 1 - --- --- --- 388 68 33 --- --- --- Analysis of UK residential acquisitions £m Vacant No Cost possession valueRegulated (including APT) 225 29 39Assured 79 9 11Vacant 17 2 2Equity release 2,532 226 294Other - 1 1 --- --- --- 2,853 267 347 --- --- --- Core portfolio The majority of our core portfolio comprises residential properties let onregulated tenancies. As at 31 March 2007 these properties accounted for 49% oftotal group property and related assets by value and comprised 7,698 units at amarket value of £1,093m (based on 30 September 2006 values) (30 September 20067,715 units at £1,090m). The vacant possession value of the regulated portfolio(i.e the price which we aim to achieve on sale when vacancy arises, shown attoday's prices) amounts to £1,407m (30 September 2006: £1,403m). We also haveinterests in joint ventures which own significant values of regulated tenanciesand, when we include our share of these joint ventures the total vacantpossession value in which we have an interest amounts to £1,477m (30 September2006: £1,474m). In addition to the regulated assets we also own a further 616 units comprisingvacant properties, assured tenancies, short term lets and other interests with amarket value of £132m (30 September 2006: £141m) and a vacant possession valueof £153m (30 September 2006: £160m). Trading summary - core portfolio 6 months to 6 months to 31 March 2007 31 March 2006 £m £m Value Profit Value ProfitSales on vacancy 53 26 45 20Investment sales 7 3 17 8 --- --- --- --- 60 29 62 28 Net rental income and other income 16 15Divisional overhead costs (8) (6) ---- --- 37 37 ---- --- Total sales from the core portfolio amounted to £59.9m (2006: £61.8m), theslight decline arising from the fact that we have made fewer investment salesthis year. In the six months to 31 March 2006, we sold 157 properties asinvestment sales which produced a profit of £8m; this year we sold 47 suchproperties for a profit of £3m. Investment sales are sales of properties withtenants in place and are generally made as a result of active portfoliomanagement where we feel that the returns would not be significantly enhanced bywaiting for vacancy in the usual way. Investment sales have been relatively high over the last few years as we havecarefully worked through assets acquired in major portfolios. As we are nearingthe end of that process we would expect to see a continued reduction in thelevel of those sales going forward. Acquisitions in the period totalled £40m (31 March 2006: £31m) and included thePortland portfolio which consisted of 110 regulated properties at a cost of £15mand 25 other properties at a cost of £3m. Overall trading performance in this division has been good; the vacancy rate onour regulated portfolio is only circa 9% and although total sales volumes(excluding investment sales) have fallen from 296 units in the first half oflast year to 290 units this year, increased margins (up from 44.0% to 48.7%) andhigher average prices achieved (2007: £183,000 compared to 2006:£168,000 onproperties sold on vacancy) have resulted in trading profits increasing from£27.7m to £29.3m despite the reduction in investment sales referred to above. Net rental income and other income, net of divisional overhead costs amounted to£8m (2006: £9m). Equity Release We have stated previously that our strategy to grow this division is throughthree principal routes: our own Bridgewater brand, the distribution arrangementwith Norwich Union and by opportunistic portfolio acquisition. Whilst all threehave proved successful, in this six month period it is this latter route whichhas been most plentiful with the acquisitions of the CHARM portfolio for £134.5mand The Capital Appreciation Trust ("CAT") for £71.6m. The CHARM portfolio represents a financial interest in a portfolio of some 1,300mortgages granted to retired clergy by the Church of England Pensions Board.Grainger receives annual RPI-linked interest payments (currently representing ayield of approximately 2.3%) and a further payment when the property is sold andthe equity mortgage redeemed. These payments are a proportion of the value ofthe property on sale. Although we have only owned the portfolio for four monthsearly indications are that realisation rates and sales values achieved are inline with our original expectations. The second major acquisition, CAT, provided us with a portfolio of some 912retirement properties, the majority of which are in McCarthy and Stonedevelopments. On vacancy we have the opportunity either to sell a furtherlifetime lease, to let the property on an assured shorthold tenancy or to sellthe property. This acquisition has therefore enabled us to expand our activitiesinto the retirement home sector recognising that a wider offering willundoubtedly increase the market to which we appeal. Once again we have hadownership for only a few months but the signs for the rental side in particularare favourable. Acquisitions through other routes have also progressed well and we have investeda total of £22.4m in the division with a majority through Bridgewater andNorwich Union and the balance through the various distribution arrangements wehave worked hard to create throughout the period. As at 31 March 2007 we owned 5,519 residential units in this division with aninvestment value of £467m and a vacant possession value of £715m (30 September2006: 3,003 units with investment value of £241m, and a vacant possession valueof £421m). Our average vacancy rate is running at about 4.5% and we have sold 51 units for£7.5m to give a trading profit of £3.4m (2006: 62 units for £6.5m, with profitof £3.2m). After adding other income, including interest receipts, and deductingoverheads this division has made an overall contribution to profits of £3m(2006: £2m). Fund Management In November 2006 we launched G: res1, our market rented residential fund, withgross assets of £210m and debt of £125m. Since that date the fund, advised byGrainger, has acquired the Ability Portfolio, a 700 unit market let portfoliofor £213m and raised an additional £105m of debt. In the half year we soldequity stakes totalling £66m leaving Grainger with a holding of 67% at the endof March. We have completed a second closing on 6 June totalling £45m whichreduces Grainger's equity stake to 44%. This additional equity came from acombination of our existing investors and UK and Overseas institutions. We arein advanced negotiations with other similar investors which potentially willreduce our stake further. At 31 March 2007 the fund owned a total of 2,150 residential units in 56 blocksand the portfolio had an investment value of £420m with a potential annualisedrental income of £21.2m. The fund will be revalued at the end of June. In the four and a half month period since external equity acquired stakes in thefund Grainger has received £1.1m in asset and property management fees.Management activities for other third parties (for example Schroders ResPUT)produced additional fee income of £0.9m in that period. We anticipate that annualised fee income from all of our current managementactivities will be in the region of £6m. It is our intention to grow assets under management in this fund and to continueto seek additional third party investment. Grainger Developments At 31 March 2007 the market value of the assets in this division stood at £96.2m(cost: £89.2m) and the development pipeline had a gross end value of £865m, ofwhich £173m has planning permission. Work on our major site at Hornsey Road Baths, Islington continues and gradualprogress is being made on the planning front at our other projects. Inparticular, we have submitted an outline planning application for 1,550residential units, 12 hectares of employment use and 14 hectares of mixed-use atour site at West Waterlooville. We are aiming to obtain a planning consent laterthis year. As announced in November 2006 we entered into a 50:50 joint venture agreement todevelop the 10 acre Curzon Park site in Birmingham with Development Securitiesplc. With an end value of £350m to £400m and a significant residential element,this is the type of large scale mixed-use scheme, often in conjunction withpartners, on which we will be seeking to focus in the future. Gross contribution from this division including share of profit from jointventures, has amounted to £2.5m (2006: £6.0m). This also included profits onsales of fixed assets of £0.2m. A major contributor was our £3.7m share of theprofit realised on the sale of assets in Regen, a joint venture of Grainger,with a development site in North Shields. Grainger Europe We have continued to invest in our German residential portfolio and by 31 March2007 this had grown to 3,398 units with an investment value of £151m (€222m).Acquisitions in the period totalled some £34m and the portfolio now representsc. 7% of total group assets by value. Since 31 March 2007 we have completed onfurther properties worth £14m and notarised on further properties worth £25m. The portfolio is principally funded by non-recourse euro loans of €170.2m,representing a loan to value ratio of approximately 77%. We are constantly reviewing our options for this portfolio, one of which wouldbe to increase it to a size were we can replicate the G: res1 fund structure byselling equity stakes to third parties. We will continue to consider options asour new management in Mannheim increases the size of the portfolio and thepipeline. We have two further smaller European assets, one a subsidiary and the other aninterest in a joint venture, and we will continue to consider new opportunitiesin these entities as they arise. The net yield on the portfolio is 5.1% and after property and operatingexpenses, it contributed £2.3m to group profits (2006: £0.5m). Although incomefrom sales is not yet a significant element of the returns from this division,where we have been selling units generally we have been realising sales pricessignificantly above our acquisition cost. Financial Review Net assets Our gross net asset value per share ("NAV") stood at 659p per share at 31 Marchcompared to 677p at 30 September 2006 and the major movements since that dateare as follows:- Reflected in the Not reflected in accounts £m the accounts £m Total £m p per shareNet assets at 1 October 250 629 879 6772006 Profit after tax 9 - 9 7Revaluation movements - (24) (24) (18)Mark to market 9 (9) - -adjustments Purchase of own shares (3) - (3) (3)Dividends paid (5) - (5) (4)Sundry other 1 (1) - - --- --- --- ---Net assets at 31 March 2007 261 595 856 659 --- --- --- --- Triple net asset value ("NNNAV") after deducting contingent tax of 185p pershare and adding mark to market adjustments for fixed rate debt of 5p (30September 2006: deductions of 187p and 3p respectively) stood at 479p per share(2006: 487p). Contingent tax has been calculated at a rate of 30% but, at theyear-end, the rate will fall to 28% provided the 2007 Finance Act (which isexpected to reduce the rate of corporation tax) is given Royal Assent in thesummer. This rate adjustment will increase NNNAV by 12p per share. As in previous years we present the Grainger NAV which brings in the taxed,discounted reversionary surplus on our core regulated and retirement solutionsportfolios. We show below the Grainger NAV under various assumptions:- No discount of deferred tax Discount deferred tax Discount rate Discount rateHouse price inflation per WACC + 3% WACC WACC + 3% WACCannum 0% 597p 641p 709p 727p 4% 664p 733p 776p 819p 6% 708p 795p 821p 881p WACC at 31 March 2007: 5.75%. A financial model which calculates other permutations and a detailed explanationof Grainger NAV can be found on our website www.graingerplc.co.uk. Financial Performance Operating profit before movements in fair value has increased from £36.0m to£38.3m, major movements being:- £m31 March 2006 result 36.0 Contribution from German residential business (net rents, trading profits, sale of fixed assets) 1.9Contribution from development business (7.2)Administrative expenses 1.6Goodwill impairment loss 6.1Other (0.1) ---31 March 2007 result 38.3 --- Basic earnings per share have decreased from 20.0p to 6.7p, largely as a resultof last year's one-off revaluation surplus on the transfer of properties to G:res1. The main movements have been:- Pence per share Gross £m31 March 2006 EPS 20.0 25.8 Increase in operating profit before fair value 1.8 2.3movements Fair value and valuation movements (22.4) (28.8)Net interest payable (1.0) (1.3)JV's and associates 2.3 3.0Taxation 6.0 7.7 --- ---31 March 2007 EPS 6.7 8.7 --- --- Financing Our net interest cost was £28.9m, compared to £27.6m in 2006 reflecting higherdebt levels and increased costs of borrowing - base rates have, on average, been50 bps higher in the first six months of this year compared with 2006. At 31March 2007 our all in cost of debt was 6.0% (30 September 2006: 5.8%) and ournet borrowings were £1,269m (30 September 2006: £1,051m). Our net debt was 69%hedged or fixed including a £100m 15 year swap at 4.98% taken out in January2007. We have hedges of approximately £840m in place until March 2009. During the first six months of the year we have continued to investsignificantly to a total of £411m including £134m on CHARM, £72m on CAT and netadditional investment in G: res1 (after equity sales) of £45m. This has been funded by a combination of operating cashflow, further drawings onour core facility and a draw down of €147m from the €179m facility establishedfor our German acquisitions. We believe that having sizeable headroom available gives us a substantialcompetitive advantage and ability to be able to bid for and complete onsignificant transactions with funding certainty already in place. At 31 March2007 we had headroom available of £172m on our core facility and €32m on ourEuropean facility and since the period end we have supplemented this with thevery successful launch of a seven year convertible bond. This is unsecured, hasa coupon of 3.625%, a post tax cash cost of approximately 1.5% and a conversionpremium of 35%. Net of costs, the proceeds of the issue were £110m and, attoday's date, available committed funding to the Group stands at over £300m. At31 March 2007 the loan to value ratio was 58% (30 September 2006: 52%). Consolidated income statement For the half year ended 31 March 2007 Unaudited Audited Six months to Year to 31 March 31 March 30 September 2007 2006 2006 Note £m £m £m Group revenue 93.0 104.9 205.7 Net rental income 3 11.4 10.3 28.3 Profit on disposal of trading properties 4 26.9 33.8 55.9 Administrative expenses 5 (4.5) (6.1) (10.4) Other income 2.7 1.1 2.1Goodwill impairment loss - (6.1) (6.4) Net other income/(expense) 2.7 (5.0) (4.3) Profit on disposal of investment 6 1.8 3.0 5.6property Operating profit before net valuation gains on investment properties and changes in fair value 38.3 36.0 75.1 Net valuation gains on investment 9 0.6 24.0 39.9properties Change in fair value of derivatives (0.2) 5.1 10.4Change in fair value through profit or loss financial assets - 0.1 0.4 Operating profit 38.7 65.2 125.8 Interest expense (33.1) (29.3) (60.3)Interest income 4.2 1.7 5.8Share of profit/(loss) of associates 10 0.7 - (0.1)after tax Share of profit/(loss) of joint ventures 11 1.6 (0.7) 0.5after tax Profit before tax 12.1 36.9 71.7 Taxation - current 16 (5.7) (25.7) (30.6)Taxation - deferred 16 2.3 14.6 9.4 Tax charge for the period (3.4) (11.1) (21.2) Profit for the period attributable to equity holders of the company 8.7 25.8 50.5 Basic earnings per share 7 6.70p 20.0p 39.1p Diluted earnings per share 7 6.67p 19.8p 38.9p Dividend per share 8 2.06p 1.87p 5.62p Consolidated Statement of Recognised Income and Expense For the half year ended 31 March 2007 Unaudited Audited Six months to Year to 31 March 31 March 30 September 2007 2006 2006 £m £m £m Profit for the period/year 8.7 25.8 50.5 Actuarial profit on BPT Limited defined benefit pension scheme net of tax - - 0.4 Net exchange adjustments offset in reserves 0.1 - 0.1net of tax Changes in fair value of cash flow hedges net 9.0 - (0.8)of tax ---- ---- ----Total recognised income and expense for the 17.8 25.8 50.2 period/year ---- ---- ---- Effect of adoption of IAS 32 and IAS 39 on 1 October 2005 net of tax - (5.4) (5.4) ---- ---- ---- 17.8 20.4 44.8 ---- ---- ----The total recognised income and expense in the period/year is attributable to: Equity shareholders of the parent 17.8 25.8 50.2Minority interest - - - --- --- --- 17.8 25.8 50.2 --- --- --- Consolidated balance sheet as at 31 March 2007 Unaudited Unaudited Audited 31 March 31 March 30 September 2007 2006 2006 Note £m £m £m ASSETS Non-current assets Investment property 9 329.2 224.8 252.7Property, plant and equipment 2.0 1.9 2.1Investment in associates 10 61.9 2.1 2.0Investment in joint ventures 11 81.7 57.5 71.5Financial interest in property 12 134.1 - -assets At fair value through profit or loss financial assets - 18.8 19.0 Goodwill 4.4 - -Deferred tax assets - 4.4 - 613.3 309.5 347.3 Current assets Inventories - trading properties 978.5 931.1 952.7Trade and other receivables 13 6.8 14.4 5.3Derivative financial instruments 10.2 1.4 2.3Cash and cash equivalents 31.5 64.1 34.5Assets held for sale 14 95.0 160.9 168.3 1,122.0 1,171.9 1,163.1 Total assets 1,735.3 1,481.4 1,510.4 LIABILITIES Non-current liabilities Interest bearing loans and 15 1,281.7 1,019.6 1,070.5borrowings Trade and other payables 8.0 8.0 8.0Retirement benefits 4.6 5.3 4.6Provisions for other liabilities 1.2 1.0 1.3and charges Deferred tax liabilities 16 94.6 90.3 91.1 1,390.1 1,124.2 1,175.5Current liabilities Interest bearing loans and 15 19.2 21.4 19.4borrowings Trade and other payables 17 27.1 58.5 23.3Current tax liabilities 16 35.2 41.0 37.2Derivative financial instruments 2.3 7.7 4.4 83.8 128.6 84.3 Total liabilities 1,473.9 1,252.8 1,259.8 Net assets 261.4 228.6 250.6 EQUITY Capital and reserves attributable to the company's equity holders Issued share capital 18 6.5 6.5 6.5Share premium 18 22.8 22.4 22.6Merger reserve 18 20.1 20.1 20.1Capital redemption reserve 18 0.2 0.2 0.2Cash flow hedge reserve 18 8.2 - (0.8)Retained earnings 18 203.4 179.2 201.8 Total shareholders' equity 261.2 228.4 250.4Equity minority interests 0.2 0.2 0.2 Total Equity 19 261.4 228.6 250.6 Statement of consolidated cash flows For the half year ended 31 March 2007 Unaudited Unaudited Audited 31 March 31 March 30 September 2007 2006 2006 Note £m £m £m Cash flow from operating activities Profit for the period/year 8.7 25.8 50.5Depreciation 0.3 0.3 0.6Impairment of goodwill - 6.1 6.4Net valuation gains on investment properties 9 (0.6) (24.0) (39.9)Net finance costs 28.9 27.6 54.5Share of (profit)/loss of associates and joint 10&11 (2.3) 0.7 (0.4)ventures Gain on disposal of investment properties and 6 (1.8) (3.0) (5.6)other investments Share based payment charge 19 0.5 0.5 0.9Change in fair value of derivatives and fair value through profit or loss financial assets 0.2 (5.2) (10.8) Taxation 16 3.4 11.1 21.2 Operating profit before changes in working 37.3 39.9 77.4capital and provisions (Increase)/decrease in trade and other (1.2) (9.7) 3.2receivables (Decrease)/Increase in trade and other payables (4.7) 3.1 2.7Increase in trading properties (7.4) (7.1) (31.4) Cash generated from operations 24.0 26.2 51.9 Interest paid (29.3) (27.3) (55.0)Taxation paid 16 (7.8) (6.6) (15.4) Net cash outflow from operating activities (13.1) (7.7) (18.5) Cash flow from investing activities Proceeds from sale of investment property and property, plant and equipment 9.5 21.9 42.4 Proceeds from sale of joint venture - 5.4 5.4Disposal of subsidiary net of cash disposed of 158.8 - -Interest received 1.1 1.0 2.6Dividends/distributions received 7.6 0.1 0.4Acquisition of subsidiaries, net of cash acquired (87.1) (1.0) (3.4)Investment in associates and joint ventures 10&11 (96.2) (46.7) (57.8)Acquisition of investment property and property, (55.3) (60.8) (131.8)plant and equipment Acquisition of financial interest in property (134.1) - -assets Acquisition of at fair value through profit or - (0.4) (0.4)loss financial assets Net cash outflow from investing activities (195.7) (80.5) (142.6) Cash flows from financing activities Proceeds from the issue of share capital 19 0.2 0.8 1.0Purchase of own shares 19 (3.4) - (0.5)Proceeds from new borrowings 212.9 111.4 165.2Repayment of borrowings (3.2) (5.0) (12.0)Dividends paid 19 (4.9) (4.4) (6.9)Purchase of financial derivative (0.3) - - Net cash inflow from financing activities 201.3 102.8 146.8 Net (decrease)/increase in cash and cash (7.5) 14.6 (14.3)equivalents Cash and cash equivalents at beginning of period/ 39.0 53.3 53.3year Cash and cash equivalents at end of period/year 31.5 67.9 39.0 Notes to the interim statement 1. Basis of preparation These interim results are unaudited and do not constitute statutory accounts asdefined in section 240 of the Companies Act 1985. The statutory accounts for2006, which were prepared in accordance with International Financial ReportingStandards as endorsed by the European Union (IFRS) and with those parts of theCompanies Act 1985 applicable to companies reporting under IFRS, have beendelivered to the Registrar of Companies. The Auditors' Report on those accountswas unqualified and did not contain a statement under section 237 (2) or 237 (3)of the Companies Act 1985. The financial information contained in these interim results has been preparedin accordance with the Listing rules of the Financial Services Authority and,other than the new accounting policy for financial interest in property assetsset out in note 12, the accounting policies set out on pages 69 to 78 of the2006 Annual Report and Accounts which is available on the Group's website (www.graingerplc.co.uk). The accounting policies have been consistently appliedto all periods presented in the interim results. The Group has chosen not toadopt IAS 34 'Interim Financial Reporting' in preparing this Interim Statement. 2. Gross net asset value (NAV) and NNNAV as at 31 March 2007 £m Market value, deferred tax Gross Statutory and NAV Contingent Triple NAV balance derivatives Balance Tax Balance sheet adjustment sheet Derivatives Sheet Properties 1,308 507 1,815 - - 1,815Investments/other assets 374 12 386 - 3 389Goodwill 4 (4) - - - -Cash 32 - 32 - - 32Total assets 1,718 515 2,233 - 3 2,236 Borrowings/creditors/ (1,301) (8) (1,309) - 6 (1,303)derivative financial instruments Other net liabilities (60) (5) (65) - - (65)Provisions/deferred tax (96) 93 (3) (240) (2) (245)Total liabilities (1,457) 80 (1,377) (240) 4 (1,613) Net assets 261 595 856 (240) 7 623 2007 Net assets per share 201p 458p 659p (185)p 5p 479p(pence) 2006 Net assets per share 193p 484p 677p (187)p (3)p 487p(pence) There is no revaluation exercise carried out at the half year due to the numberof properties inthe portfolio. The market value balance sheets includeproperties at 30 September 2006 values, adjusted for acquisitions and capitalexpenditure at cost, and disposals. In addition,properties that have becomevacant in the period to 31 March are ascribed a higher percentage of theprevious year end vacant possession valuation in recognition that they are morelikely to be sold. This uplift is reflected in the income statement as arevaluation gain. 3. Net rental income Unaudited Unaudited Audited 31 March 31 March 30 September 2007 2006 2006 £m £m £mGross rental income 24.3 25.2 52.6Property repair and maintenance costs (5.9) (7.4) (12.7)Property operating expenses (see note 5) (7.0) (7.5) (11.6) 11.4 10.3 28.3 4. Profit on disposal of trading properties Unaudited Unaudited Audited 31 March 31 March 30 September 2007 2006 2006 £m £m £mProceeds from sale of trading properties 66.0 78.5 151.0Carrying value of trading properties (33.6) (43.4) (85.1)sold Operating expenses (see note 5) (5.5) (1.3) (10.0) 26.9 33.8 55.9 5. Administrative expenses Unaudited Unaudited Audited 31 March 31 March 30 September 2007 2006 2006 £m £m £mTotal Group expenses 17.0 14.9 32.0 Many of the Group's expenses relate directly to either property managementactivities or to staff involved directly with the sale and acquisition ofproperty. Accordingly, total Group expenses shown above have been allocated asfollows:- Unaudited Unaudited Audited 31 March 31 March 30 September 2007 2006 2006 £m £m £mDeducted within net rental income (see 7.0 7.5 11.6note 3) Deducted within profit on disposal of 5.5 1.3 10.0trading properties (see note 4) Administrative expenses 4.5 6.1 10.4 17.0 14.9 32.0 6. Profit on disposal of investment property Unaudited Unaudited Audited 31 March 31 March 30 September 2007 2006 2006 £m £m £mProceeds from sale of investment 9.5 27.3 47.8property Carrying value of investment property (7.7) (24.3) (42.2)sold 1.8 3.0 5.6 7. Earnings per share Unaudited Unaudited Audited 31 March 31 March 30 September 2007 2006 2006 No. of No. of No. of Shares shares shares '000 '000 '000Weighted average number of shares for 129,388 128,723 129,001basic earnings per share Weighted average number of shares for 129,922 130,119 129,804diluted earnings per share Basic Basic earnings per share is calculated by dividing the profit attributable toequity holders of the company by the weighted average number of ordinary sharesin issue during the period, excluding ordinary shares purchased by the group tomeet its obligations under the Long Term Incentive Scheme (LTIS). Diluted Diluted earnings per share is calculated by adjusting the weighted averagenumber of shares outstanding by the dilutive effect of ordinary shares that thecompany may potentially issue relating to its share option schemes andcontingent share awards under the LTIS, based upon the number of shares thatwould be issued if 31 March 2007 was the end of the contingency period. 8. Dividends An interim dividend of 2.06p per share has been proposed by the directors forpayment on 16 July 2007 (31 March 2006: 1.87p per share). This dividend,totalling £2.7m, has not been provided for in the accounts to 31 March 2007. Inthe six months to 31 March 2007, the final proposed dividend for the year ended30 September 2006 of £4.9m has been paid. 9. Investment property Investment property is valued annually at the end of each financial year. It isshown in the balance sheet as at 31 March at the previous year-end valuationadjusted for acquisitions and capital expenditure at cost, and disposals. Inaddition, properties that have become vacant in the period to 31 March areascribed a higher percentage of the previous year-end vacant possessionvaluation in recognition that they are more likely to be sold. This uplift isshown through the income statement as a revaluation gain. Unaudited Unaudited Audited 31 March 31 March 30 September 2007 £m 2006 £m 2006 £m Opening balance 252.7 222.4 222.4 Additions 125.1 114.8 148.1Disposals (7.7) (19.3) (33.3)Disposal as part of disposal of (209.8) - -subsidiary Revaluation gain 0.6 24.0 42.4Transferred from trading properties - 41.4 41.4Transfer from/(to) a disposal group 168.3 (158.5) (168.3)(see note 14) Closing balance 329.2 224.8 252.7 10. Investment in associates Unaudited Unaudited Audited 31 March 31 March 30 September 2007 £m 2006 £m 2006 £m Opening balance 2.0 0.1 0.1 Loans advanced - 2.0 2.0Share of profits/(losses) 0.7 - (0.1)Distributions received (0.2) - -Share of change in fair value of cash 1.6 - -flow hedges taken through equity At fair value through profit or loss 19.0 - -financial assets transferred to investment in associates Net assets of subsidiary transferred to 49.4 - -investment in associates Additional equity invested 84.4 - -Transfer to disposal group (see note 14) (95.0) - -Closing balance 61.9 2.1 2.0 As at 31 March 2007, the Group's interest in associates was as follows:- % of share Country of capital/ units Incorporation held G:res1 Limited 67.0 JerseySchroders Residential Property Unit Trust 22.3 JerseyOu Robbins 43.2 Estonia 11. Investment in joint ventures Unaudited Unaudited Audited 31 March 31 March 30 September 2007 2006 2006 £m £m £mOpening balance 71.5 17.9 17.9 Additions - 6.6 6.6Loans advanced 14.7 38.7 51.7Share of profits/(losses) 1.6 (0.7) 0.5Share of change in fair value of cash 1.3 - (0.2)flow hedges taken through equity Distribution received (7.4) - -Disposals - (5.0) (5.0)Closing balance 81.7 57.5 71.5 As at 31 March 2007, the Group's interest in joint ventures was as follows:- % of share Country of capital/ Incorporation units held Grainger GenInvest LLP 50 United KingdomGrainger GenInvest No. 2 (2006) LLP 50 United KingdomRegen (NT) LLP 33 1/3 United Kingdom 12. Financial interest in property assets Unaudited Unaudited Audited 31 March 31 March 30 September 2007 2006 2006 £m £m £m Financial interest in property assets 134.1 - - Financial interest in property assets are accounted for under IAS 39 inaccordance,with the designation available-for-sale financial assets. They areinitially recognised at fair value plus transaction costs and are subsequentlycarried at fair value. Changes in the fair value are taken through equity. Whengains or losses in the assets are realised the accumulated fair valueadjustments recognised in equity are included in the income statement as gainsand losses from financial interest in property assets. Income received fromfinancial interest in property assets is recognised in the income statement aspart of other income. 13. Trade and other receivables Unaudited Unaudited Audited 31 March 31 March 30 September 2007 2006 2006 £m £m £mTrade receivables 3.9 2.9 2.9Other receivables 2.8 10.3 2.2Prepayments and accrued income 0.1 1.2 0.2 6.8 14.4 5.3 14 Assets held for sale In the six months to 31 March 2007, Grainger disposed of 33% of its equityinterest in G: res1 Limited. Marketing of the equity is continuing and itremains the group's intention to reduce its equity stake to 20% as soon as ispracticable and within 12 months of the balance sheet date. G:res1 is independently managed with the voting rights, and therefore controlover the key operational, financial and strategic decisions, being such that thefund is an associate of the Group at 31 March 2007. The Group's total investment in G:res1 at 31 March 2007 was £135.4m and, as itis intended to reduce the Group's equity stake from the current 67%, to 20%,these statements show a 20% interest as an investment in associates with thebalance shown as a disposal group under assets held for sale within currentassets. As at 31 March 2006 and 30 September 2006, the Group owned 100% of theequity of the fund and, therefore, consolidated the results and net assets ofthe fund. The comparatives show the composition of 80% of the assets andliabilities of the fund which, collectively, have been shown as a disposalgroup. Unaudited Unaudited Audited 31 March 31 March 2006 30 September 2007 2006 £m £m £mInvestment in associates 95.0 - -Investment property - 158.5 168.3Trade and other receivables - 0.7 0.2Cash and cash equivalents - 3.8 4.5Trade and other payables - (2.1) (4.7) 95.0 160.9 168.3 15. Interest bearing loans and borrowings As at 31 March 2007 the maturity profile of the Group's debt, net of financecosts, was as follows:- Unaudited Unaudited Audited 31 March 31 March 30 September 2007 2006 2006 £m £m £mWithin one year 19.2 21.4 19.4Between one and two years 1.0 - 0.4Between two and five years 759.9 756.8 822.3Over five years 520.8 262.8 247.8 1,300.9 1,041.0 1,089.9 16. Tax Audited Payments Acquired Movements Movememts Unaudited As at 30 in the in the recognised recognised As at 31 September period period in income in equity March 2007 2006 £m £m £m £m £m £mCurrent tax 37.2 (7.8) 0.1 5.7 - 35.2 Deferred tax Trading property 73.7 - 2.6 (2.4) - 73.9uplift to fair value on acquisition Investment property 16.5 - - (0.4) - 16.1revaluation Accelerated capital 1.4 - - 0.6 - 2.0allowances Short term timing (0.5) - - (0.1) - (0.6)differences Actuarial surplus on 0.2 - - - - 0.2BPT pension scheme Share-based payments - - - - (0.6) (0.6)Fair value movement in (0.2) - - - 3.8 3.6cash flow hedges 91.1 - 2.6 (2.3) 3.2 94.6Total tax 128.3 (7.8) 2.7 3.4 3.2 129.8 The tax charge for the period of £3.4m comprises:- Unaudited 31 March 2007 £m UK taxation 2.7 Overseas taxation 0.7 3.4 17. Trade and other payables Unaudited Unaudited Audited 31 March 31 March 30 September 2007 2006 2006 £m £m £mDeposits received 0.3 0.5 0.8Trade payables 4.9 3.6 8.4Other taxation and social security 0.3 3.6 1.5Accruals and deferred income 21.6 50.8 12.6 27.1 58.5 23.3 18. Capital and reserves attributable to the Company's equity holders Issued Capital Cash flow share Share Merger redemption hedge Retained capital premium reserve reserve reserve earnings £m £m £m £m £m £m Balance as at 1 October 2006 6.5 22.6 20.1 0.2 (0.8) 201.8(Audited) Retained profit for the - - - - - 8.7period Issue of shares - 0.2 - - - -Changes in fair value of cash - - - - 9.0 -flow hedges net of tax Net exchange adjustments - - - - - 0.1offset in reserves net of tax Purchase of own shares - - - - - (3.4)Share-based payments charge - - - - - 0.5Tax on share-based payments - - - - - 0.6Dividends paid - - - - - (4.9)Balance as at 31 March 2007 6.5 22.8 20.1 0.2 8.2 203.4(unaudited) 19. Consolidated statement of changes in equity Unaudited Unaudited Audited 31 March 31 March 30 September 2007 2006 2006 £m £m £m Opening equity shareholders funds 250.6 211.1 211.1Effect of adoption of IAS 32 and IAS 39 on - (5.4) (5.4)1 October 2005 250.6 205.7 205.7 Retained profit for the period/year 8.7 25.8 50.5Actuarial gain on BPT Limited defined - - 0.4benefit pension scheme net of tax Changes in fair value of cash flow hedges 9.0 - (0.8)net of tax Net exchange adjustment offset in reserves 0.1 - 0.1net of tax Purchase of own shares (3.4) - (0.5)Issue of shares 0.2 0.8 1.0Share based payments charge 0.5 0.5 0.9Tax on share-based payments 0.6 - -Dividends paid (4.9) (4.4) (6.9)Minority interest on business combination - 0.2 0.2 Closing equity shareholders funds 261.4 228.6 250.6 20. Copies of this statement are being sent to all shareholders. Copies may beobtained from the Group's registered office, Citygate, St. James' Boulevard,Newcastle upon Tyne, NE1 4JE. Further details of this announcement can be foundon our website, www.graingerplc.co.uk. 21. The Board of Directors approved this interim statement on 7 June 2007. Thisinterim statement has neither been audited nor reviewed by the auditors. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Grainger plc