10th Jun 2005 07:00
Grainger Trust PLC09 June 2005 FOR IMMEDIATE RELEASE10th June 2005 GRAINGER TRUST plc: INTERIM RESULTS FOR SIX MONTHS TO 31ST MARCH 2005 Grainger Trust plc is the UK's largest quoted residential investment company andcurrently owns more than 12,000 flats and houses with an investment value ofsome £1.34bn. LAYING THE FOUNDATIONS FOR FUTURE GROWTH AND PROFITABILITY HIGHLIGHTS • Exciting period for company as foundations for future growth laid through: o Norwich Union Home Reversion distribution agreement - purchases could reach £180m by December 2006o £58.5m acquisition of City North increasing our market rented portfolio to £230mo Acquisition of 520 acres of land at West Waterloovilleo European joint venture created to develop homes in Baltic States • £60.3m of residential sales with an average price of £149,000 - 6% higher than in previous year • Investment value of residential portfolio marginally higher at £1.344bn • Reversionary surplus now stands at £560m up from £536m at September 2004 • Net Asset Value at 31 March 2005 slightly lower at 539p per share against 547p at last year end - but no half year portfolio revaluation • "Grainger NAV" higher at 482p per share from 480p at September 2004 • Impact of high level of "one-off" sales last year translates into lower profits before tax and exceptionals of £21.8m against £35.1m last time • Interim dividend more than doubled to 1.70p from 0.81p "We are pleased to report on another exciting period for the Group. Much of ouractivity in the early part of the year focussed on laying foundations for theGroup's future growth and profitability. "At the start of the year we established objectives for our main business areasand it gives us great satisfaction to report that we have made considerableprogress in achieving them. A particularly pleasing theme of these achievementsis our success in working with other partners, using their skills and resourcesto complement our own, to mutual benefit,"Robert Dickinson, Chairman. GRAINGER TRUST plc: INTERIM RESULTS FOR SIX MONTHS TO 31ST MARCH 2005 Chairman's Statement We are pleased to report on another exciting period for the Group. Much of ouractivity in the early part of the year focussed on laying foundations for theGroup's future growth and profitability. At the start of the year we established objectives for our main business areasand it gives us great satisfaction to report that we have made considerableprogress in achieving them. A particularly pleasing theme of these achievementsis our success in working with other partners, using their skills and resourcesto complement our own, to mutual benefit. Activities Tenanted residential Core regulated businessObjective: This is our core business. We will continue to pursue opportunitiesto maintain our stock levels. Achievement: We have completed or exchanged on the purchase of 289 regulatedtenancies for a total cost of £27.6m, including 83 units in a portfolioacquisition, announced in January. Since the end of March we have entered intopartnership with Genesis Housing Group to buy approximately 200 regulated units,as part of an acquisition of some 450 properties from the Church Commissioners. Home reversionsObjective: To expand this business through acquisition and by entering intoagreements or joint ventures with sector leading partners. Achievement: We have acquired or exchanged on 116 home reversions for a totalconsideration of £8.5m and have spent a further £1.1m on incremental equityshares. Shortly after the period end we announced that we have entered into adistribution agreement with Norwich Union ("NU"), the market leading provider ofequity release products, whereby we will acquire newly originated home reversionassets through their nationwide direct and IFA sales and distribution network.Purchases through this source alone could reach £180m by December 2006. Market rented properties and asset and property management activitiesObjective: To build on our asset and property management skills and to takeadvantage of opportunities in the residential fund arena. Achievement: We continue to provide property and asset management services toSchroders ResPUT which has recently announced a return of 8.6% for the yearended 31 March 2005. Since the period end we have acquired City North Group plc,a listed residential investor with some 350 market rented properties in theCentral London area. Together with our own portfolio, we now own approximately£230m of market rented properties - a sufficiently large critical mass for us toconsider seriously how we might maximise value through the use of funds or thirdparty equity input. The acquisition has also significantly strengthened ourproperty management capabilities. Development and trading Land and regenerationObjective: To seek opportunities to add value by developing green and brownfieldsites into residential or mixed use schemes Achievement: In early April, we announced the acquisition of 520 acres near WestWaterlooville, Hampshire previously held under option. It is hoped that thedevelopment of this land will produce a long term profit stream to provide asolid underpinning for this business segment. We have also entered into athree-way joint venture to develop the 30 acre former Smith's Dock on NorthTyneside - a major long term regeneration project. Residential developmentObjective: To use the group's asset base and expertise to undertake profitableresidential development in the South East region. Achievement: We have completed sales activity at the Pimlico development and aremaking good progress on our current sites in Clapham, Putney and Basingstokecomprising a total of 151 units. We continue to work on obtaining planningconsent on three major schemes at Macaulay Road in Clapham and Barnsbury andHornsey Road sites in Islington. Grainger Homes Objective: To grow this business to a sustainable level of turnover and profit. Achievement: We now have some 410 units in the development pipeline on siteseither under construction or which are unconditional. The division hascontributed £1.6m operating profit in the first six months. Europe Objective: To seek opportunities in Europe to reflect the business dynamics ofour existing development and tenanted residential portfolios in the UK. Acheivement: We have created a Joint Venture with two leading European propertycompanies to develop residential property in the Baltic States. Firstly, NPC OU,a development company connected to the Oberhaus Group, a leading Real Estateservices company in the Baltic States and Poland. Secondly, ImmoEast AG, one ofthe largest listed Austrian property companies focused on Central Europe. We believe the combination of Grainger's residential expertise together withImmoEast's experience in the EU accession countries and Oberhaus's local marketknowledge will give us competitive advantages in the region. To date we have conditionally acquired one site in Tallinn, Estonia and have anumber of other sites in the pipeline. In terms of tenanted residential we continue to explore opportunities inGermany. Results The statutory profit and loss account shows that profit before tax andexceptional items has decreased from £35.1m to £21.8m. We noted in our statements on both the March and September 2004 results thatlast year's exceptional trading performance would not be repeated this year.Last year's figures were significantly enhanced by the sale of the final majorland development plots at Kennel Farm, Hampshire and by the one off-profitsarising on the disposal of much of our commercial portfolio - these both fellinto the six month period to 31 March 2004 and contributed profits of £10.8m and£2.8m respectively. Consequently, our earnings before interest and tax havefallen from £54.8m to £44.1m. Adjusting for these items shows an improvement inEBIT performance from £41.2m to £44.1m. Earnings per share before exceptional items were 10.5p (2004: 17.2p). Dividends At the year end we announced a step up increase in our dividends, a change inphasing of payments and an intention to increase the amount payable by 10% perannum. These combined factors have increased the interim dividend to 1.70p pershare (2004: 0.81p) which will be payable on 22 July 2005 to shareholders on theregister at the close of business on 1 July. Performance Tenanted Residential The first six months of this year have seen a tightening in trading conditions.Whilst our trading margins on sales have improved over last year, volumes aredown, reflecting both a slowdown in the sales process and the impact of a largecarry forward position in exchanged sales at the beginning of October 2003 whenwe first consolidated the BPT portfolio. Given the general negative commentaryon the housing market, we are pleased that sales values in the period havemarginally (1.3%) exceeded September 2004 vacant possession values. Thisreflects the robust trading nature of our core portfolio and the benefits ofhaving a geographically wide spread of assets, generally valued below thevolatile top end and new build sectors of the market. In the six months to 31 March we sold 424 properties for £60.3m (2004: 676 for£73.6m) generating trading profits of £29.6m (2004: £30.7m), and profits ondisposal of fixed assets of £0.7m (2004: £1.2m). The average sales valueachieved on normal sales (i.e vacant properties that were once tenanted)amounted to £149,000, compared to £141,000 for the year ended 30 September 2004,a rise of 6%. Rents, net of expenses but including other income, increased to £10.3m from£9.7m. Overall the tenanted residential division produced operating profits(including profits on the sale of residential properties held as fixed assets)3% lower than last year at £40.6m, compared to £41.7m. The investment value of our tenanted residential portfolio at 31 March 2005 was£1,344m (30 September 2004 £1,329m), computed by using September 2004 values andadjusting them for purchases at cost and sales. The portfolio comprises:- Vacant No. of possession Investment properties value £m value £mRegulated 7,869 1,284 929Home reversions 2,703 345 175Assured 1,190 171 147Vacant 400 63 56Other interests 34 40 37 --- --- ---31 March 2005 12,196 1,903 1,344 30 September 2004 12,041 1,865 1,329 The reversionary surplus (the excess of vacant possession value over investmentvalue) now stands at £560m (30 September 2004: £536m). The short term trading outlook for this division will be dominated by thecurrent state of the housing market and this will continue to make it difficultto achieve sales completions. It is our view that house prices between now andthe end of September will remain broadly unchanged. In the medium to long term, however, we retain confidence in the tenantedresidential sector and we believe that the transactions we have alreadyundertaken this financial year will put us in a strong position to capitalise onfuture opportunities. Development and trading Following last year's one-off disposal programme, the first six months of thisyear have seen the division move to more normal levels of sales activity andprofitability. In this period we continued to sell commercial properties, achieving sales valueof £14.0m and profits (including profits on sales of fixed assets) of £2.7m. ThePimlico development, which is now fully sold, has produced further gains of£0.8m and Kennel Farm, through overage payments and sales of small parcels ofland, has contributed £2.3m. Grainger Homes sold 47 units for £5.5m andcontributed £1.6m to operating profit. In total, the development and trading division produced operating profits(including profits on sales of fixed assets) of £7.5m (2004: £17.0m) and at theperiod end the investment value of its portfolio (including investments in jointventures) stood at £109.7m (30 September 2004: £112.3m). The purchase of land at West Waterlooville for an initial consideration of £12m,as announced in April 2005, provides us with an opportunity to secure a longterm income stream, although we do not expect to see sales commence until yearending 30 September 2007, caveated by the usual uncertainties surrounding theplanning process. Financial Position Net assets At 31 March 2005 our net asset value per share ("NAV") stood at 539p (30September 2004: 547p). The movement is as follows:- £m p per shareNAV at 30 September 2004 678.3 547Retained earnings 10.7 9Surpluses eliminated on sale, other valuation (17.8) (14)movementsSundry other (2.2) (3) --- ---NAV at 31 March 2005 669.0 539 --- --- We do not undertake a half year portfolio valuation because of the numbers ofproperties involved. Consequently our market value balance sheet includes assetsat 30 September 2004 values, adjusted for sales and purchases. This tends todepress our reported NAV as valuation surpluses on properties sold since thelast balance sheet date are eliminated. If our portfolio had shown the 1.3%increase in value as evidenced by sales above September 2004 vacant possessionvalues then our NAV at 31 March 2005 would have been 553p per share.Taking account of 168p per share contingent tax (30 September 2004: 175p) andthe effect of marking our long term debt and financial instruments to market of3p per share, (30 September 2004: nil) restates our NAV to triple net of 368pper share (30 September 2004: 372p). However, we do not believe that triple net fully reflects the underlying valueof the Grainger business model. We therefore also disclose 'Grainger NAV', whichwe feel improves comprehension of the value of the group's net asset base bytaking into account the discounted and taxed effect of the reversionary surplus(the difference between tenanted and vacant possession values) within our coretenanted residential portfolios. At 31 March 2005, Grainger NAV was 482p pershare (30 September 2004: 480p). Financing At 31 March 2005 our net debt amounted to £749.1m (30 September 2004: £695.9m).The ratio of our net debt to property and investment assets owned (at marketvalue) was 50.9% (30 September 2004: 47.8%); expressed as gearing the relevantfigures were 112% and 103% respectively. At the period end 78% (30 September 2004: 71%) of our debt was hedged or fixedand the average interest rate was 6.1% (30 September 2004: 6.0%). Recent activity (in particular, the acquisitions of West Waterlooville, CityNorth Group plc and the Genesis joint venture) together with the financialcommitments required for our agreement with Norwich Union have led us to seekadditional funding capacity. Accordingly, on 3rd June we signed a £400m increaseto our existing £900m syndicated bank facility. Major terms and covenants are asbefore, but the interest margin on the additional funding has reduced,reflecting the strength of our relationships with our banks and improvedconditions in the lending markets. The additional facility will provide us withthe financial platform on which to build our ambitious growth plans. International Accounting Standards Grainger will report under IFRS for the first time in the year ending 30September 2006. We therefore benefit from more time than most to prepare andhave the advantage of watching the development of interpretation. Our researchcontinues and we currently expect the main changes in our reported results toarise from differences between IFRS and UK GAAP with respect to valuationmovements, accounting for financial instruments, deferred tax and negativegoodwill. We are familiar with accounting for these requirements, since forseveral years now we have used these concepts in our reconciliations ofstatutory NAV to market value NAV and NNNAV. Our accounts will also be affectedby not providing for final dividends at the year end and by charging for thecost of share-based incentive payments. Prospects We are committed to building a long term business that can withstand the effectof short term market falls. To this end we are pleased with the acquisitions andinitiatives that we are able to report on. However, the recent slowdown in thehousing market has had some impact on Grainger's trading performance. This is a interesting and challenging time, we believe that our core regulatedbusiness will provide a good stream of profits for the foreseeable future. Thegroundbreaking distribution arrangement with NU provides us with an excellentopportunity to make significant progress in a potentially very large market. Weare pleased to note that the recent Queen's speech proposed legislation thatwould regulate the home reversion market. This will place our product on a levelfooting with other equity release products such as lifetime mortgages which havebeen regulated since October 2004. The build up of our market rented portfolio and property and asset managementcapabilities will enable us to consider alternative methods of funding andstructuring such assets. Our development and trading division has a range ofgood quality projects with the potential to make a significant contribution tothe Group's future profitability. This is an interesting and challenging time for the residential development andhousebuilding industries with many changes proposed in the planning andprocurement of new buildings and communities. We believe that our thoroughunderstanding of the wider market, our long term outlook and our managementcapabilities will give us an opportunity to play a part in the inception,funding and development of the residential elements of large mixed use projectsand communities. Despite having mentioned in the past that the proposed REIT legislation may notsuit all of Grainger's activities, we remain positive about the potential launchof legislation in 2006. We have been very engaged in the recent consultationprocess and have endorsed the industry response together with highlighting somekey criteria for the residential sector. We believe that if the Government adopta structure that recognises that the performance of the residential asset classis dominated by capital appreciation, then REITs will enhance not only theprivate rented sector but the critical key worker, shared equity and sociallyrented sub-markets. In the meantime, we will continue to invest in our in-house capabilities toensure we will be in a position to play a leading role in the creation andmanagement of residential REITS We would like to take this opportunity to thank our staff for the expertise andcommitment they have demonstrated during this period.. Robert Dickinson10 June 2005 Consolidated profit and loss account Half year Half year Year ended ended ended Note 31 March 31 March 30 September 2005 2004 2004For the half year ended 31 March £m £m £m2005 Group turnover 99.9 121.9 217.4 Gross rentals 21.1 21.2 41.0Trading profits 36.2 44.5 72.6Other income 1.6 0.5 9.8 58.9 66.2 123.4 Less:Property expenses (11.5) (11.5) (22.7)Administration expenses (4.0) (3.9) (7.5) Group operating profit 43.4 50.8 93.2 Net profit on disposal of& provisions against fixedassets 0.7 4.0 6.5 Profit on ordinaryactivities before interestand taxation 44.1 54.8 99.7Net interest payable and similarcharges - Group normal (22.3) (19.7) (40.1)- Group exceptional - (3.7) (5.4) (22.3) (23.4) (45.5)Profit on ordinaryactivities before taxation 21.8 31.4 54.2Tax on profit on ordinaryactivities 4 (8.9) (12.7) (21.2) Profit on ordinaryactivities after taxation 12.9 18.7 33.0 Dividends 5 (2.2) (1.0) (5.7) Retained profit for theperiod 10.7 17.7 27.3 Earnings per share 10.5p 15.1p 26.8p________________________________________________________________________________Diluted earnings per share 10.4p 15.0p 26.7p________________________________________________________________________________Basic earnings per sharebefore exceptional items 10.5p 17.2p 29.9p________________________________________________________________________________ All results relate to continuing operations. Statement of group total recognised gains and losses Half year Half year Year ended ended ended 31 March 31 March 30 September 2005 2004 2004For the half year ended 31 March £m £m £m2005 Profit for the periodattributable to shareholders 12.9 18.7 33.0Taxation on realisation ofproperty revaluation gains ofprevious years (0.2) (0.3) (0.4)Unrealised surplus onrevaluation of properties 0.1 0.1 4.3 Total gains and lossesrecognised since the lastannual report 12.8 18.5 36.9 Consolidated balance sheet 31 March 31 March 30 September 2005 2004 2004As at 31 March 2005 Note £m £m £m Fixed assetsIntangible assets (81.8) (90.8) (84.8)Tangible assets 103.9 81.8 106.7Investments 16.8 7.0 10.3 38.9 (2.0) 32.2________________________________________________________________________________ Current assetsStocks 950.8 862.8 918.6Debtors: amounts falling due withinone year 6 6.9 14.0 10.6Cash at bank and in hand 51.2 92.8 53.8 1,008.9 969.6 983.0 Creditors: amounts falling due withinone yearShort term borrowings 7 (30.6) (101.1) (31.8)Other creditors 7 (49.2) (55.2) (77.2) Net current assets 929.1 813.3 874.0 Total assets less current liabilities 968.0 811.3 906.2 Creditors: amounts falling due aftermore than one year 7 (769.7) (635.0) (717.9) Provisions for liabilities and charges (9.5) (11.7) (10.4) Net assets 2 188.8 164.6 177.9________________________________________________________________________________ Capital and reservesCalled-up share capital 6.2 6.2 6.2Share premium account 21.6 21.5 21.5Revaluation reserve 13.3 10.1 13.9Capital redemption reserve 0.2 0.2 0.2Profit and loss account 147.5 126.5 136.1 Equity shareholders' funds 188.8 164.5 177.9Minority interests - equity - 0.1 - Total capital employed 188.8 164.6 177.9 Consolidated cash flow statement Half year Half year Year ended ended ended 31 March 31 March 30 September 2005 2004 2004For the half year ended 31 March 2005 £m £m £m Net cash (outflow)/inflow fromoperating activities (see below) (13.1) 48.9 56.7Returns on investments and servicing offinanceInterest received 1.0 1.6 3.3Interest paid - normal (22.2) (21.1) (42.2)- exceptional - (3.7) (5.4)Dividends received 0.1 0.1 0.2 (21.1) (23.1) (44.1)________________________________________________________________________________TaxationUK Corporation tax paid (8.8) (12.7) (24.1) Capital expenditure and financialinvestmentPurchase of fixed asset investments (6.5) (0.3) (4.5)Purchase of tangible fixed assets (1.1) (0.3) (29.8)Sale of fixed asset investments - - 1.2Sale of tangible fixed assets 4.4 31.0 41.1 (3.2) 30.4 8.0________________________________________________________________________________ Acquisitions and disposalsPurchase of subsidiaries (0.3) - (2.3)Cash acquired on purchase ofsubsidiaries - - 0.2 (0.3) - (2.1) Equity dividends paid (4.7) (3.1) (4.2) Cash (outflow)/inflow beforefinancing (51.2) 40.4 (9.8) FinancingNew loans raised 50.0 16.0 726.1Repayment of loans (1.3) (45.4) (743.7)Purchase of shares - - (0.6)Issue of shares - 0.1 0.1 Net cash inflow/(outflow) fromfinancing 48.7 (29.3) (18.1) (Decrease)/increase in cash in theperiod (2.5) 11.1 (27.9)________________________________________________________________________________ Half year Half year Year ended ended ended 31 March 31 March 30 September 2005 2004 2004 £m £m £m Reconciliation of operating profit to netcash (outflow)/inflow fromoperating activitiesOperating profit 43.4 50.8 93.2Depreciation 0.2 0.2 0.4Movement in provisions forliabilities and charges - - (0.2)Amortisation of goodwill (2.8) (3.2) (6.1)Decrease/(increase) in debtors 3.9 (4.4) (2.0)(Decrease)/increase in creditors (26.0) (20.0) 1.7(Increase)/decrease in stocks (31.8) 25.5 (30.3) Net cash (outflow)/ inflow fromoperating activities (13.1) 48.9 56.7________________________________________________________________________________ Notes to the interim statement 1 The interim financial report has been prepared on the basis of the accountingpolicies set out in the Group's 2004 annual report and accounts. 2 Net Asset Value (NAV) and NNNAV £m Market Statutory Market value Contin- NNNAV balance value balance gent balance sheet adjustments sheet FRS13 tax Sheet Properties 1,052.9 396.5 1,449.4 - - 1,449.4Investments/otherassets 18.6 4.9 23.5 - - 23.5Negative goodwill (81.8) 81.8 - - - -Cash 51.2 - 51.2 - - 51.2 Total assets 1,040.9 483.2 1,524.1 - - 1,524.1 Borrowings (800.3) - (800.3) (9.4) - (809.7)Net currentliabilities (42.3) (0.7) (43.0) - - (43.0)Provisions/contingent (9.5) - (9.5) 5.5 (208.1) (212.1)taxMinority interest - (2.3) (2.3) - - (2.3) Totalliabilities/minority (852.1) (3.0) (855.1) (3.9) (208.1) 1,067.1interest Net assetsattributable toshareholders 188.8 480.2 669.0 (3.9) (208.1) 457.0 Net assets penceper 152 387 539 (3) (168) 368share Net assets pencepershare at 30 143 404 547 - (175) 372September2004 - Properties are not revalued at the half year. The market value balance sheetsinclude properties at 30 September 2004 values, adjusted for sales andpurchases. 3 Earnings per shareThe calculation of earnings per share is based on the following number ofshares: 31 March 31 March 30 September 2005 2004 2004 No. of No. of No. of shares Shares shares '000 '000 '000 Weighted average number of shares forbasic earnings per share 122,896 123,910 122,813 Weighted average number of shares fordiluted earnings per share 123,520 124,685 123,533 4 TaxationTax on profit on ordinary activities: 31 March 31 March 30 September 2005 2004 2004 £m £m £m Normal 8.9 13.8 22.8Exceptional - (1.1) (1.6) 8.9 12.7 21.2________________________________________________________________________________ 5 DividendsDividends on ordinary shares: 31 March 31 March 30 September 2005 2004 2004 £m £m £m Interim of 1.70p per share (2004: 0.81p) 2.2 1.0 1.0Final for year ended 30 September 2004of 3.84p per share - - 4.7 2.2 1.0 5.7________________________________________________________________________________ 6 Debtors 31 March 31 March 30 September 2005 2004 2004 £m £m £m Trade debtors 1.9 4.1 5.8Other debtors 0.6 3.6 0.5Prepayments and accrued income 3.0 3.7 2.9Deferred tax 1.4 2.6 1.4 6.9 14.0 10.6________________________________________________________________________________ 7 CreditorsAmounts falling due within one year: 31 March 31 March 30 September 2005 2004 2004 £m £m £m Mortgages and other loans - 3.5 -Loan notes 30.6 39.1 31.8Bank loans - 58.5 -Deposits received 0.7 0.7 0.8Trade creditors 9.8 4.8 22.2Corporation tax payable 20.7 25.1 20.5Other taxation and social security 1.3 1.3 3.2Accruals and deferred income 14.5 22.3 25.8Dividends payable 2.2 1.0 4.7 79.8 156.3 109.0 Amounts falling due after more than oneyearMortgages and other loans - 405.2 -Bank loans 769.7 229.8 717.9 769.7 635.0 717.9________________________________________________________________________________ 8 This announcement does not constitute statutory accounts within the meaning ofSection 240 of the Companies Act 1985. Statutory accounts for the year ended 30September 2004 have been filed with the Registrar of Companies. The auditorshave reported on those accounts; their report was unqualified and did notcontain any statement under Section 237(2) or (3) of the Companies Act 1985. 9 Copies of this statement are being sent to all shareholders. Copies may beobtained from the Company's registered office, Citygate, St. James' Boulevard,Newcastle upon Tyne, NE1 4JE. Further details of this announcement can be foundon our website, www.graingertrust.co.uk. 10 The Board of Directors approved this interim statement on 10 June 2005. Thisinterim report has neither been audited nor reviewed by the auditors. Contact:- Grainger Trust plc Tel: 020 7795 4700 Tel: 0191 261 1819 Rupert Dickinson, Chief ExecutiveAndrew Cunningham, Deputy Chief Executive and Finance Director Baron Phillips Associates Tel: 020 7920 3161Baron Phillips Tel: 07050 124119 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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