Post Close Trading Update

This announcement contains inside information as defined in Article 7 of the Market Abuse Regulation No. 596/2014 and is disclosed in accordance with the Company's obligations under Article 17 of those Regulations.

15 April 2020

U and I Group PLC

Post Close Trading Update

U+I (LSE:UAI), the specialist regeneration developer and investor, today announces an update on trading for the year ended 31 March 2020 and the impact of Covid-19 on the business. All figures disclosed in this announcement are unaudited and therefore remain subject to review.

Key points

· Challenging year has caused delays in delivery and third party decision-making - project timelines have been impacted by economic and political uncertainties, caused initially by Brexit and the General Election, and compounded more recently by the Covid-19 pandemic

· U+I expects to have achieved c.£16 million of gross development and trading gains against its target of £35-45 million for FY2020

· Decisive, proactive action taken on expenditure - all non-essential development expenditure stopped or deferred improving cashflow by £30 million over the next twelve months; all discretionary spend eliminated and expected staff cost savings to be made totalling £1.2 million on an annualised basis

· Strong balance sheet with good liquidity - in excess of £45 million free and £26 million restricted cash will be available, including £15 million cash to be drawn against previously uncharged assets

· Dividend suspended - to further ensure financial flexibility, the Board is no longer recommending the final dividend, preserving c.£4.4 million of cash and, similarly, is not proposing any supplemental dividend for FY2020

· Financial guidance withdrawn - until clarity returns to the market, U+I is suspending all financial guidance relating to expected future development and trading gains

Sound cash position and disciplined cost management

As outlined in its trading update on 20 March 2020, U+I has increased its focus on managing its cash resources and liquidity as the Covid-19 disruption continues. Delays in third party decision-making, coupled with restricted site working practices, will impact on the rate of development expenditure on our projects. Following a comprehensive review of these projects, the Group estimates a reduction in development expenditure of c.£30 million over the coming year. It will continue to monitor this on a monthly basis.

In addition to this necessary action, U+I has accelerated its efficiencies programme, announced at the October 2019 Capital Markets Day (CMD), which targeted c.£4 million of cost savings to FY2022 and which included a 20% overhead reduction in the period. This acceleration will result in £1.2 million of additional cost savings in FY2021, compared to the CMD target, and will achieve the full cost savings target twelve months earlier than previously planned. The business will still be able to execute on its substantial pipeline, through a more efficient approach.

The measures we have implemented are three-fold.

1. Salaries have been consensually reduced for three months as follows: Executive Directors by a collective 50%; Non-Executive Directors by 25%; and we are consulting with all senior staff about a 10% reduction. We are grateful for the sacrifices by our team in these trying times.

2. FY2020 discretionary bonus payments have been cancelled and Executive Directors have waived their FY2020 contractual bonus entitlements.

3. Given the increased economic uncertainty created by the spread of the Covid-19 pandemic and the impact of stopping or deferring development expenditure, the Group has taken immediate steps to make further cost savings through a redundancy programme. This is expected to deliver annualised savings of £1.4 million and reflects a more prudent approach to resourcing. In addition, seventeen members of the team have been furloughed.

Strong Balance Sheet

U+I is well capitalised and benefits from a good degree of financial flexibility. It will have over £70 million of free and restricted cash available imminently and an additional £11 million of undrawn facilities. As part of this liquidity, the Company will shortly draw £15 million against previously uncharged assets which it expects to repay on monetisation of these assets in FY2021. U+I's cash overhead, excluding depreciation, is now set to a recurring £15.5 million per annum.

The Group estimates that, post March, it could withstand a further fall in overall capital values of the assets in its investment portfolio of c.25%, subject to audit, before requiring renegotiation of LTV covenants with the relevant lenders. Following the sale of three investment portfolio assets, as announced on 27 March 2020, U+I has £26 million in restricted cash within its facility with Aviva as available to reinvest when conditions normalise. This facility has a maturity date of 2032.

We remain in constant contact with our banking partners, all of whom are supportive of the business and we are in compliance with all covenants. U+I is also working with its advisors in investigating the applicability for the Group of all Government assistance schemes announced.

The Board has decided to temporarily suspend any future dividend payments, preserving c.£4.4 million of cash in respect of the final dividend. The Board recognises the importance of the dividend for its shareholders and will revisit the position for future dividends once there is greater clarity on the impact of Covid-19 on the business.

Development and Trading

As previously stated, Brexit, and then the General Election, impacted upon timing of several of our key projects by delaying third party decision-making processes. In particular, these factors led to delays in securing planning consents due to the election purdah and also caused a slowdown in transaction timetables with capital partners. The unprecedented Covid-19 pandemic has compounded an already challenging market backdrop, with decision-making and economic activity grinding to a virtual halt in the final month of our financial year.

These factors, most of which were outside of our control, have meant that our FY2020 gross development and trading gains are c.£16 million, below the low end of our £35-45 million target.

As announced on 2 April 2020, we were pleased to complete the disposal of Harwell Campus, our joint venture internationally renowned innovation and science campus in Oxfordshire, to Brookfield Capital Partners, on behalf of Brookfield Strategic Real Estate Partners III, delivering to U+I an initial cash payment of £28 million, plus deferred cash payments of £13.74 million. Subject to formal audit, we expect accounting profit for the transaction to be approximately £11 million and realised in FY2020. We announced at our interims that we had brought this into our target guidance for this year, seeing the potential to recapitalise the asset at a time when the real estate market for science and research led facilities was strong and occupational demand for space high. This has partially mitigated the other projects that have been delayed.

We outline below our progress across the projects targeted for FY2020. This table includes projects from our flexible and substantial portfolio on which we were in negotiations and had the potential to deliver gains in FY2020, ahead of previous timing assumptions. As well as Curzon Park and 8 Albert Embankment, these included an industrial estate in Dublin and our site at Beeston Park in Norwich. Understandably, negotiations on these assets slowed during February and March and ultimately did not conclude for FY2020 but, in the normal course of events, we would remain hopeful of concluding many of them in the year ahead. This is subject to a return to normal business conditions and the speed at which the development sector can recover from its backlog, following cancelled planning committee meetings and the closure of construction sites.

In the light of this current ongoing uncertainty, the Group is currently unable to quantify the impacts of Covid-19 on its future financial and trading performance. It is therefore suspending all guidance relating to expected future development and trading gains until such time as clarity returns. We remain confident in the Group's market positioning and our long-term ambition to become the UK's leading regeneration developer and investor.

*Held in joint venture

Investment Portfolio

At the start of the second half of our financial year our investment portfolio was trading well with limited voids. However, the impact of Covid-19 has resulted in non-essential shops and leisure outlets being forced to close temporarily and we expect valuations across our convenience retail portfolio to have materially declined in the last month. Against this backdrop, it makes it almost impossible to accurately determine investment valuations. We will therefore, in accordance with the guidelines issued by RICS, be subject to "material uncertainty" clauses in our year end valuations.

Our focus on convenience retail has meant that 17% of our retail and 23% of our shopping centre units remain open for trade. In terms of our collection for March Quarter, we have achieved the following at close of business on 8 April 2020:

*'Remains outstanding' are occupiers that have yet to respond to our attempts to discuss payment.

In addition to the support provided above, we have calculated that our qualifying occupiers have received, from the twelve month suspension of business rates, a saving equivalent to approximately five months' rent.

In conjunction with the Harwell transaction, the Group sold its interest in The Gemini Building, adjacent to Harwell Campus, for £7.5 million, marginally above book value, repaying £4.9 million of debt and adding £2.6 million to the Group's cash balances.

Safety and Wellbeing

In this unprecedented situation, the safety and wellbeing of U+I employees, tenants and partners are our priorities. We are committed to working with our tenants during this difficult period, and our contingency planning is in place and working effectively to ensure business continuity.

Preliminary Results

In the light of the current market backdrop and the consequent guidance by the Financial Conduct Authority, U+I will announce its preliminary results date in due course. We will continue to provide any material business updates as appropriate.

Matthew Weiner, Chief Executive, said:

"2020 started with a strong sense of confidence, which has been disappointingly short lived as we now experience the impact of Covid-19. U+I's business model benefits from close relationships with Government, both central and local, due to the significant socio-economic growth delivered by our £11.5 billion portfolio of complex, mixed-use, community-focused regeneration projects. As such our projects secure substantial grants and loans from government bodies and we expect will continue to attract such support in the medium to long term.

In the short term, we have taken decisive action to preserve cash and mitigate the impact of Covid-19, on both our people and our projects. We have also made the decision to bring forward the efficiencies programme we announced in October 2019, which will result in £1.4 million of savings this year. Over the coming months these cost reductions will strengthen the fundamentals of the business and enable U+I to deliver on its pipeline through a more efficient approach.

We are committed to working with our tenants during this difficult period, and our contingency planning is in place and working effectively to ensure business continuity. We remain committed to our successful growth strategy for the long term and I am grateful to everyone at U+I for their continued hard work and resilience in these unprecedented times.

I am confident that the Group's strategy, supported by a talented team, will see U+I emerge from the near term uncertainties in a strong position and we will see the return of the undoubted structural demand for regeneration from both end users, central and local governments and capital partners."

ENDS 

For further information, please contact: 

U+I

Nicola Krafft

+44 (0) 20 7828 4777

[email protected]

Camarco (Financial PR Adviser)

Geoffrey Pelham-Lane / Tom Huddart

+44 (0)20 3757 4985 / 4991

[email protected] 

About U+I

U+I is a specialist regeneration developer and investor.

With a >£11.5 billion portfolio of complex, mixed-use, community-focused regeneration projects including a £147.1 million investment portfolio, we are unlocking urban sites bristling with potential in the London City Region (within one hour's commute from Central London), Manchester and Dublin. We exist to create long-term socio-economic benefit for the communities in which we work, delivering sustainable returns to our shareholders.

To find out more, visit www.uandiplc.com or follow us @uandiplc