RESULTS FOR THE SIX MONTHS TO 31 MARCH 2018

Urban&Civic plc

("Urban&Civic", the "Company" or the "Group")

RESULTS FOR THE SIX MONTHS TO 31 MARCH 2018

SOUNDLY POSITIONED WITH DEMONSTRABLE UPSIDE

Urban&Civic plc (LSE: UANC) announces its unaudited results for the six months to 31 March 2018.

Financial highlights - strong financial performance across all key metrics

Project highlights

Commenting on the results, Nigel Hugill, Chief Executive, said:

"There is an unavoidable element of pioneering in creating a new property format. We seem now to be through that with a Master Developer business that continues to grow and is looking more scalable with each successive set of results. Urban&Civic is becoming the serviced land wholesaler of choice to a broad spread of housebuilders. Five years forward licence sales provide us with singular resilience. Demonstrable upside with a good level of asset and income security from strong demographic areas in southern England is precisely what we have been working towards."

For further information, please contact:

A presentation for analysts and investors will be held at 09.00am today at FTI Consulting, 200 Aldersgate, Aldersgate Street, London, EC1A 4HD.

If you would like to attend please contact Alex King at FTI on +44 (0)20 3727 1000 or [email protected]. A live webcast of the presentation will be available at www.urbanandcivic.com or via the following link http://webcasting.brrmedia.co.uk/broadcast/5ac490d38718143e632c4acb and presentation slides will also be available to download.

Alternatively, details for the live dial-in facility are as follows:

Participants: Tel: 0800 358 6377

Passcode: 3028609

Chief Executive's statement

Summary

A happy six months; with maintained asset growth and significant new business generation against a backdrop of struggle for much of the property sector. Taking our preferred measure, EPRA net asset value as at 31 March 2018 reached £458.8 million, or 316.0p per share. The increase was 3.8 per cent per share over 30 September 2017, or a year on year rise from 31 March 2017 of 7.8 per cent. Moreover, the uplift comes after a large site discount of 88p per share (up from 68p per share at 30 September 2017). That figure now has regard for our one third share of Wintringham St. Neots, Cambridgeshire. The discount represents the difference between the open market value of a typical retail parcel of 150 housing plots, as compared with a bulk sale of our entire holdings and constitutes a store of future reversionary value for your Company. Note also that the March 2018 balance sheet accounting of Priors Hall, Northamptonshire, purchased from the Administrators in October 2017, was at acquisition cost. The project will be externally valued for the first time at our September 2018 year end and I am able to confirm is trading ahead of pre purchase forecasts.

Profit before tax to 31 March 2018 came in at £10.1 million, well over twice the figure of £4.2 million recorded in the equivalent period last year. Both revenues and profits were boosted by the £48.3 million sale, soon after opening, of the Hampton by Hilton hotel that we developed on terminal at Stansted Airport. Elsewhere, house sales at Alconbury were in line with our best estimates, with the balance of future development potentially strengthened by the decision from Cambridgeshire County Council earlier this month to move their headquarters and Council Chamber from Shire Hall in Cambridge to Alconbury Enterprise Campus. Initial sales at Rugby were a little slower than we had bargained but have since picked up and are now running at healthy levels. The modest shortfall was more than offset by the number of houses sold at Priors Hall since acquisition. Newark sales are also ahead of budget.

Our Master Developer model has become the reference for large-scale residential projects. Huntingdonshire District Council approved our 4 million sq.ft. application, including 2,800 new homes at Wintringham, St. Neots, Cambridgeshire in just 20 weeks. Conversely, attitudes against smaller sites do seem to have hardened, which impacted negatively on Catesby, our separate land promotion business. First half profits were after £1.7 million of abortive costs on appeals that might well have been decided in the other direction 18 months ago. Should political sentiment against appeal based determinations maintain, the reasonable expectation is for higher values to attach to existing consents across the Group.

Dividend

Having regard for maintaining progress, the Board has approved the payment of an interim dividend of 1.3p per share. The dividend will be payable on 13 July 2018 to shareholders on the register on 8 June 2018. The payment represents an 8 per cent increase over the first half of last year, matching the increase in EPRA NAV per share over the same period.

Master Developer

Significant further endorsement of the emerging status of our way of doing things came in February 2018 when Urban&Civic, along with our partners Wellcome Trust, were announced as having been selected to head the delivery of Manydown as a planned strategic extension to Basingstoke in Hampshire. The first phase includes 3,500 homes, two new primary schools and land for a secondary school but the ultimate scale could be much larger. Our partnership was chosen after a rigorous 18 month process and from an initial long list that included many of the major housebuilders. Basingstoke demonstrates all the core geographic and demographic criteria that we look for in new strategic projects; situated outside the M25 but within 100 miles of London, strong transport connectivity, high employment, consistent population growth and lower house prices relative to the surrounding areas. It also opens up an important new geography for us to the south and west of our existing holdings. 

In announcing the selection outcome, Basingstoke and Deane and Hampshire County Councils were explicit in their evaluation of Urban&Civic as the UK's leading Master Developer. Separate endorsement had come in January when Alconbury was selected as the most appropriate venue for the launch of Homes England by then Secretary of State for Housing, Communities and Local Government, The Rt Hon Sajid Javid, MP. More recently, the Archbishop of Canterbury, the Most Reverend Justin Welby, visited the St Gabriel's Church of England Primary School at Rugby, which will welcome its first intake of pupils in September 2018. We are delighted that the local Curate is amongst the very earliest housing occupants.

Balance sheet gearing

Net debt against EPRA NAV at 31 March, 2018, including consolidating a pro-rata share of the joint ownership at Rugby, was little changed from six months earlier at 22.9 per cent (30 September 2017: 21.3 per cent; 31 March 2017: 11.8 per cent), notwithstanding the considerable levels of large site investment during the period. Much the majority of our borrowings are with Homes England and against facilities designed to accelerate delivery. The average term is over ten years with interest accrued and repayable only out of distributed project proceeds. Undrawn project facilities from Homes England aggregated £34.8 million at 31 March 2018, with additional funding currently under discussion.

The market as we find it: progress by numbers

There has been recent conjecture on housing market prospects. Urban&Civic was established in the knowledge that the stronger areas outside London typically do better in the second half of economic cycles, for which the historic average length is around 15 years. There is no doubt that that is the case at the moment and the reasonable expectation is for continuation. Actions speak louder than words. We are on course to exceed comfortably the 315 completions for the current year to September predicted last December. Moreover, the current evidence from our housebuilding customers gives cause for confidence, both as to how they regard the midterm outlook and the singular resilience of our model.

Housebuilders contract to make annual minimum payments (typically 36-40 units per year) but expect instead, in the normal course, to share with us about one third of actual house sale receipts. We absorb all material planning risk and guarantee the quality of living environments. The attractions to our customers can be charted in the growing number of housebuilder relationships. We are contracted on 1,783 plots (approximately 8.5 per cent of consented), with 14 different housebuilders. For the purposes, we can be regarded as five years forward sold on contracted parcels at our minimum receipts. Those minimums are fixed and if those commitments came to be paid, they would represent down payment with an overage (percentage participation less minimum payment) to come later.

We do carry an implied house price risk, in that lower sales values means that our one third participation reduces correspondingly. The exposure is modest. To place in context; a 10 per cent fall in absolute house prices would mean that we were still receiving on average around 2x existing book value on the sales on our strategic sites. Much the greater immediate sensitivity is to absorption rates but this is where the structure of our contracts provides additional comfort. Above the contracted numbers, Heads of Terms have been agreed on a further five parcels, aggregating 901 additional plots. The housebuilders are a mixture of new and existing customers. Each of the contracts, including those to repeat customers, provides for a minimum drawdown requirement which at least matches the previous annual number of plots and at higher than previous prices. Again the average, at minimum required drawdown rates, is for five years forward contractual commitments.

Wintringham

The opening valuation at Wintringham was £65 million at the project level, giving rise to a £21.7 million pro rata entry for our one third participation, as compared with an acquisition cost of £13.3 million. The valuation equates to £21,300 per plot at 31 March 2018 and a parcel value of £1.35 million per acre on conventional ten acre assumptions. 

The resulting plot figures at Wintringham are lower than Alconbury to take account of the early stages of works on site and a higher level of assumed affordable housing. St. Neots is 14 miles due south of Alconbury and one stop closer to London than Huntingdon on the East Coast Main Line, where the timetable changes now have six peak time trains per hour. The reasonable expectation is that the valuations will move much closer to Alconbury as on site enabling infrastructure commences in earnest. Subject to rapid completion of outstanding s.106 matters, we are continuing to work to a timetable that envisages first completions by the end of 2019.

Alconbury, Rugby and Newark plot values

31 March 2018 carrying values on unserviced plots amounted to £27,500 at Alconbury; £19,300 at Rugby and £6,800 at Newark (30 September 2017: £26,600, £18,100 and £6,500 respectively). In all instances, the March 2018 figures remain below half of current realised sales values; in the case of Rugby and Newark quite materially below. Alconbury average achieved sales cumulatively (all private) to March 2018 of £62,000 per plot; Rugby average £72,000 per plot (all private and a larger average houses). The valuations were prepared on the basis of assumed average house prices of £295 per sq. ft. at Alconbury, £274 per sq.ft. at Rugby and £205 per sq.ft. at Newark representing serviced land values on standard ten acre parcels of £1.4 million per acre, £1.2 million per acre and £670,000 per acre respectively.

Large site discount

The valuation of Wintringham with the benefit of planning consent increases the large site discount within the Group EPRA NAV reported at 31 March 2018. In arriving at EPRA NAV entries, our valuers begin by appraising the current open market value of a standard ten acre parcel of consented and serviced residential land on each of our strategic sites. This can be seen as the retail sale figure. Typically we achieve a little better under our licence participations. The valuers then apply what amounts to a wholesale discount for scale and time to recognise the unusual scale of our strategic projects. As more projects begin to be developed, those discounts really begin to add up. The difference between the current open market retail valuation of standard parcels and the wholesale figures included in our reported EPRA NAV now amounts to an estimated £128 million. This is the equivalent of 88p per share, or almost 28 per cent of EPRA NAV at 31 March 2018. On flat house price and cost assumptions, this discount will unwind automatically with successive future sales.

Priors Hall 

The sale of our recently completed hotel at Stansted for reinvestment into an apparently more speculative £40.5 million purchase from the Administrators of Priors Hall, Northamptonshire, may come to be seen as watershed in the continued advancement of Urban&Civic. Priors Hall straddles Corby Borough and East Northamptonshire District and was already in the process of development, albeit with a somewhat chequered ownership history. We acquired 3,656 uncontracted plots and the benefit of overage receipts from earlier sales estimated as being of the order of £11.8 million. Our expectation is for a minimum of those receipts, giving a net actual purchase consideration of £28.1 million, or £7,700 per plot.

The acquisition and subsequent improvement demonstrates the ability within our business to work through large site challenges that other organisations often find too daunting. We are looking at bringing forward a district centre, including a day nursery, convenience retail and a restaurant/public house, none of which were allocated value in our acquisition appraisals. The process of ground compacting in what were formerly disused quarries is being reconfigured. The density on some parts of the site is relatively low and we are designing revisions for discussion with the two planning authorities. Given prevailing sentiment and the scope for increase, I shall be mightily disappointed if we are not able to get consented numbers up. Current sales are running around 25 per cent higher than the 200 a year quoted on acquisition. Communal residents' events have been initiated. The next round of offers on serviced land parcels has drawn prices that are well up on historic levels. There is still much to be done but the early signs are strongly positive.

Grange Farm, Alconbury

The revised Local Plan options for Huntingdonshire provide for a minimum further 1,500 residential units at Alconbury within a red line boundary that includes our Grange Farm holdings as approved by the Secretary of State in December 2013. The distance round that red line boundary is about 13 miles, providing scope for us to open up a second set of residential plots without measurable impact upon the existing build out. We have secured an additional access directly onto Grange Farm from the A141 for a fixed consideration of £7.5 million, with no overage. The access is four miles from the entrance to the existing housing development and onto a different road system. Formal adoption of the revised Huntingdonshire Local Plan is unlikely to take place before the second half of 2019 but account of emerging policy can be taken beforehand.

Waterbeach

South Cambridgeshire District Council and Cambridgeshire County Council are continuing to target a September 2018 Planning Committee date for the 6,500 home mixed-use development for which application was submitted jointly by Urban&Civic and the Secretary of State for Defence in February 2017. This is as timetabled in the planning performance agreement signed between all parties. In the meantime and as an effective first phase, the £6.5 million conversion of two modern barrack blocks to provide 241 studio rooms for Papworth medical personnel will complete next month with occupation immediately thereafter. The rooms are let on a 25 year lease direct to Papworth Hospital Trust, which then rents on to its staff.

Manchester

Development documentation at Manchester New Square was signed in early April with our funding partners, Greater Manchester Pension Fund. The basis of the arrangements is that the £49 million equity contribution is funded 71 per cent by our partners (plus £51 million project recourse only senior debt) and 29 per cent from Urban&Civic. £8.8 million in preliminary spend had been advanced by Urban&Civic and was returned on completion of the arrangements. No further capital investment is anticipated. A fixed price construction contract has been entered into with Lendlease, whose programme provides for completion and handover of the last of the three residential blocks in September 2020. Early sales continue to go well, with particular demand for the smaller units. At the time of writing, 129 apartments have been exchanged or reserved (37 per cent of the total 351), with an aggregate value of £34 million (29 per cent of forecast base case receipts).

A Strategic Regeneration Framework covering an area substantially constituted by our Renaissance Hotel on Deansgate is on course for adoption by Manchester City Council within the next four weeks, the process of public consultation having now ended. The Framework is akin to an outline allocation that establishes uses, density, layout and approximate heights for the development. It is intended as a material consideration that takes much of the uncertainty out of a detailed application. The progress to date was recognised in a £2.3 million valuation uplift after capitalised costs to £22.5 million at 31 March 2018 (30 September 2017: £20.1 million). Manchester City Council remain freeholders on the site and agreeing a new lease is in train. We continue to manage the income with care. My expectation remains that we should meet the forecast contribution of £1.5 million for the current year.

Civic Living and Catesby

We are on site at Alconbury with the first 56 Civic Living units. First occupations are programmed from autumn 2018 onwards and we already have purchaser interest.

Recognising the less propitious operating conditions, Catesby is moving to those areas where it sees competitive advantage, such as those sites where infrastructure may also be required.

Manydown and Calvert

We were put through the wringer on Manydown. The search began in May 2016 with the formal stages of procurement starting in July 2016. Detailed proposals were required from bidders through four stages of procurement.

An outline planning application for the northern part of Manydown was submitted by the two councils in March 2017, following extensive public involvement in drawing up a masterplan, and is now under consideration. The application, which is expected to be determined in Autumn 2018, sets out the main principles for developing a new community of up to 3,500 new homes, businesses, shops and community facilities, two new primary schools and land for a new secondary school, and a 250 acre country park. The eventual potential is for much more.

Wellcome are a wonderful addition to our list of allies. Our joint selection against really tough competition demonstrates the increasing scalability of the Master Developer approach in meeting housing numbers on strategic projects across South East England.

Calvert in Buckinghamshire is more of an outlier. Urban&Civic has interests in approaching 800 acres straddling the historic alignment of the Oxford Cambridge Varsity Line at the point of crossing with HS2 between Birmingham and London. We are working in cooperation with adjoining owners and expect to enlarge arrangements to cover in excess of 2,500 acres. In our estimation, Calvert is the best location west of Milton Keynes for a new settlement in the CaMkOx corridor that the National Infrastructure Commission and Central Government now prioritise. Much depends on the routing of the associated Oxford to Cambridge road Expressway. The parameters of the preferred route, including the relationship with a reinstated Varsity Line, are due to be decided by the Department for Transport during this coming summer. We await the announcement with corresponding interest. 

Outlook

There is an unavoidable extent of pioneering in creating a new business format. We are now seeing additional high profile entrants looking to pursue a Master Developer formula similar to our own. Competition is healthy and there ought to be sufficient projects going forward for Urban&Civic to capture at least our fair share. Moreover, with increased industry interest will come asset institutionalisation and more direct comparables. 

The business is now also looking more scalable than is usual in the property industry. National housebuilders maintain repeat business with land promoters but not typically with landowners. Urban&Civic is best placed to create cross project relationships as wholesale provider of fully serviced residential plots. Land holdings continue to shorten against annual sales for the quoted majors. The barriers to entry and to expansion remain high for the rest. 

The positioning of your Company as the intermediary of choice in high-growth areas in southern England is prospectively highly significant on a medium time horizon. Should Manydown and Waterbeach both be consented in the current calendar year, the total Urban&Civic strategic project portfolio would amount to 31,000 plots. To put that in context, the number of approved residential units would sit midway between Redrow and Bellway.

Continuing thanks

Continuing thanks to all colleagues for their tireless efforts, with specific mention to our cluster of young recruits. They bring new smiles to long days.

Nigel Hugill

Chief Executive

30 May 2018

Financial review

Introduction

The last six months has seen Hopkins Homes maintain sales momentum and Redrow, Morris Homes and Davidsons complete their first house sales at Alconbury and Rugby. With Crest Nicholson and Avant achieving completions at Rugby and Newark soon after the period end, this tangible progress together with receiving a resolution to grant an outline planning consent at St Neots, Huntingdonshire, in which the Group has a one-third share with trusts associated with Nuffield College, has underpinned our EPRA NAV growth of 4.4 per cent.

With 174 plot completions in the last six months (115 of which were contracted prior our acquisition of the Priors Hall site in October) and a further 180 plots reserved or exchanged, we are well on track to exceed 300 plot completions in the full year.

Reported profit before tax has improved as a result of the sale of our Stansted Hotel development and Skelton retail park, although at the EPRA level these gains had previously been recognised.

Key performance indicators

In line with last year end I have set out the measures we use to evaluate Group performance:

1 Includes 115 post acquisition completions in respect of our Priors Hall site, 49 from Alconbury and ten at Rugby.

Total shareholder return has benefitted considerably over the last 18 months from an improved share price, rising 81p from 225.0p at 30 September 2016 to 306.0p at 31 March 2018. This compares to a 31.8p increase in EPRA NAV per share and 5p of dividends over the same period. 

In the last six months total shareholder return was 19.4 per cent, reflecting a 48.0p rise in share price and the payment of the 2017 final dividend of 2.0p per share. This compares to a 3.38 per cent rise in the FTSE 350 Real Estate Index and a 3.85 per cent fall in the FTSE All Share Index.

The 4.4 per cent (£19.5 million) increase in EPRA NAV in the last six months has been further analysed below and has helped maintain a 9.5 per cent compound annual growth rate since listing.

Net Asset Value - EPRA and IFRS

To maintain consistency and aid comparability I have once again provided a non-statutory, line by line, proportional consolidation of the joint venture balances for movements in EPRA and IFRS NAV and the consolidated statement of comprehensive income and balance sheet.

1 Classified as property revaluations for the purposes of the below commentary.

2 Includes revaluation of the Morris Homes, Redrow, Crest Nicholson and Avant variable considerations classified as financial assets.

3 Profit on property sales on an EPRA basis amount to £0.8 million.

Property revaluation movements continue to feature heavily in our EPRA movement analysis accounting for 18.9p of the 11.6p per share uplift, while overheads, dividends and the dilutive effect of share options net 8.6p from these gains.

Recognising the importance of property values for the Group, CBRE has valued 85 per cent of the property portfolio with the remaining 15 per cent (30 September 2017: 24 per cent) valued by Directors. I have set out the components of our EPRA adjustment in note 18 of these interim financial statements.

Consolidated statement of comprehensive income

The Group's profit before tax was up £5.9 million over the prior comparative period - predominantly as result of higher profits from trading property sales. This increase has been partially offset by a write-off of promotion costs this period compared to trading property write-ups of £1.7 million last; a further explanation is provided below.

1 Including residential property sales as disclosed in note 2.

Revenue

Revenue has been generated through trading property sales (£58.0 million), residential property sales (£19.0 million, including £1.8 million within joint ventures) and rental and other income (£8.8 million). The £53.9 million increase over the prior period is largely the result of the disposal of our Stansted Hotel development (£48.5 million) and sale of Skelton Retail Park (£7.4 million).

Residential property sales have almost mirrored last year (31 March 2017: £19.4 million), with Hopkins Homes generating £8.5 million on the disposal of 23 homes (31 March 2017: £7.9 million), £7.8 million of minimums being recognised following contractual completion on 173 plots with Avant at Newark (31 March 2017: £10.7 million in respect of Morris Homes at Alconbury) and £0.9 million of overage receipts on 26 completions at Alconbury (through our Redrow and Morris Homes licences).

Our Rugby joint venture has also now started to produce income from overages (£1.8 million for our 50 per cent share of ten completions) under arrangements with Davidsons; I have proportionally consolidated this sum in the above table for ease of comparability.

You should note that the 115 completions at Priors Hall in the period related to existing contracts that were in place when we purchased the site and therefore receipts have been credited against the acquisition trade receivable on the balance sheet as opposed to being recognised through the income statement.

The terms minimums, overages and licences have been defined within the glossary on the last page of these interim statements.

Gross profit

Gross profits are £4.2 million higher than reported in the six months to 31 March 2017 having proportionately consolidated £0.3 million of joint venture trading property sales. Like revenue this is the result of the disposal of Stansted and Skelton (£8.9 million), net of a £3.4 million adverse movement in trading property write offs/ups.

The £3.4 million reduction is the result of £1.7 million of trading property write ups last year (£1.2 million in relation to Stansted) and the write off this period of £1.7 million of Catesby promotion costs where a decision has been made not to continue to seek planning for three sites.

Profits from trading property sales also include residential sales at Alconbury (£2.2 million) and Rugby (£0.3 million) and £1.2 million of Catesby land promotion profits.

Residential sales profits at Alconbury comprise £1.3 million generated by the sale of 23 Hopkins homes and overages of £0.9 million on exchanges made by Redrow and Morris. All of Rugby's profits relate to Davidsons sales.

Licence overage receipts continue to be comfortably above the contractual minimums at around £110,000 per serviced market plot. By way of example, and in relation to Alconbury disposals to date, £110,000 equates to selling 101 market plots at a profit of £4.7 million (or £47,000 per plot) with servicing costs and land costs around £48,000 per plot and £15,000 per plot respectively.

Administrative expenses

Administrative costs of £7.1 million (six months to 31 March 2017: £5.9 million), after capitalising £2.8 million into the Group's development projects, were expensed in the period. At the gross level, the £1.7 million increase in overheads is predominantly the result of a larger headcount and one-off reorganisation costs following the acquisition of Priors Hall in October 2017.

Administrative costs also include a £1.8 million charge in relation to the non-cash share-based payment expense (six months to 31 March 2017: £1.6 million). A corresponding credit has been included within retained earnings, resulting in the expense having no NAV impact.

Surplus on revaluation of investment properties

There have been no property reclassifications this period and by way of reminder the Group now holds only the Bradford leisure scheme, a proportion of Alconbury (commercial and unconsented land) and part of Waterbeach as investment properties.

Now that the Group holds a less significant proportion of its assets as investment properties, valuation movements through the income statement have proportionately reduced, although uplifts on trading properties are recognised by EPRA measures.

Investment properties generated £5.6 million of revaluation surpluses in the period (compared to £21.7 million at the EPRA level) and Alconbury was responsible for £4.9 million of that uplift, with Bradford accounting for £0.7 million. Waterbeach continues to be valued at cost.

Given the scale and bifurcation of Alconbury across the Group's balance sheet, I have set out below how CBRE's valuation is incorporated into the Group's NAV.

CBRE's valuation of Alconbury increased from £235.5 million to £251.5 million in the period, based on the consistent assumption that we deliver serviced land parcels.

After allowing for housebuilding and commercial construction expenditure incurred at Alconbury, which CBRE does not take into account, the valuation increases to £263.2 million (or 44.7 per cent of the Group's property portfolio value). The allocation of the value within our year end balance sheet is shown below.

1 £2.1 million EPRA movement in period reflects £39.4 million closing EPRA adjustment less £37.3 million opening EPRA adjustment.

2 Includes valuation of the Morris Homes and Redrow variable considerations classified as a financial assets.

The revaluation movements above reflect on-site progress, including an improved planning position at Grange Farm.

Taxation expense

The effective rate of tax for the six months to 31 March 2018 amounted to 12.1 per cent, lower than the average rate of UK corporation tax, principally due to excess losses generated in the period available to offset realised profits and revaluation surpluses. The charge relates in most part to the utilisation of losses brought forward against the sale of the Stansted Hotel and revaluations of the proportion of Alconbury held as investment.

Dividend

The Board has approved the payment of a 1.3p interim dividend, which represents an annualised increase of 8.3 per cent over last year. Those on the register on 8 June 2018, will receive payment on 13 July 2018 and investors choosing to participate in the dividend reinvestment scheme will need to make their election by 22 June 2018.

The Group paid its 2017 final dividend of 2.0p per share (£2.6 million) in February 2018.

Consolidated balance sheet

Overview

1 All properties held by joint ventures are trading properties.

2 Total property related interests: £589.2 million (31 March 2017: £480.8 million; 30 September 2017: £564.2 million). The 30 September 2017 comparative now incorporates Rugby minimums and overages that were previously classified as other working capital.

Non-current assets

Investment properties

Investment properties at 31 March 2018 amounted to £95.7 million and comprised the Bradford leisure asset (£17.4 million) as well as the commercial development area and unconsented land at Alconbury (£75.2 million) and a proportion of the Waterbeach site that could deliver both commercial buildings and residential properties for rent in due course (£3.1 million).

All investment properties other than Waterbeach, which has been valued by the Directors at cost, have been valued by CBRE.

Investment in equity accounted joint ventures and associates

The Group's joint venture in Rugby has been included in the balance sheet at £64.6 million along with a one-third interest in a 400 acre (162.3 hectares) site at Wintringham Park, St. Neots (£14.6 million) and £2.6 million of other residual interests - see note 11 for further details.

Now that all joint ventures are trading in nature, any revaluations of property are accounted for through EPRA measures. Following a resolution to grant outline planning consent for 2,800 homes at Wintringham in March this year, we have recognised a £7.7 million valuation uplift, together with our £2.3 million share of revaluation in relation to Rugby (the result of improved service land value assumptions by CBRE) through EPRA. This results in joint ventures adding £10.0 million to EPRA values over and above additional loans of £4.4 million (used to fund capital expenditure) and £0.7 million of trading profits generated by Davidsons sales and discount unwind at Rugby.

Deferred tax assets

The Group has recognised an asset of £3.3 million in respect of the Group's tax losses, which are expected to be utilised against future profits of the Group. The £0.9 million reduction from last year end reflects utilisation of the losses brought forward against the Group's profitable activities during the period.

Non-current trade and other receivables

The £22.9 million disclosed on the face of the balance sheet comprises both the non-current proportions of the acquired Priors Hall receivables and the discounted values of the contractual minimums with Morris Homes and Redrow at Alconbury and Avant at Newark.

Equivalent receivables are owed to the Rugby joint venture by Crest Nicholson (£4.3 million) and again Morris Homes (£4.4 million).

All sums due will be received as and when the houses to which they relate are sold.

For reference I have disclosed the current proportions of these arrangements in the table above.

Current assets

Trading properties

The carrying value of trading properties broadly remained unchanged at £289.6 million since the year end, reflecting the trading property element of the £40.5 million acquisition of the Priors Hall site; development expenditure at the strategic land sites of £17.7 million; £3.1 million of Catesby promotion expenditure; and £7.5 million of other property costs. Against this, £63.9 million of disposals have been made including the sale of Stansted Hotel (£40.0 million) and Skelton retail park (£6.8 million) and £16.0 of residential disposals (incorporating the full cost of 173 plots on contract completion with Avant and 23 Hopkins Homes sales).

At period end cumulative capitalised overheads and interest within trading properties amounted to £5.1 million and £2.8 million respectively. All trading properties are carried in the balance sheet at the lower of cost (or acquisition date fair value) and net realisable value.

Cash

Cash reserves increased marginally during the six months to £14.7 million, predominantly due to sales completions in respect of the Stansted Hotel and Feethams leisure schemes, which generated £38 million net of borrowings. These receipts together with other residential trading and further loan drawdowns part-funded significant capital expenditure (in excess of £40 million) in the period as well as the £40.5 million acquisition of Priors Hall in October 2017.

Liabilities

Current and non-current borrowings

The Group has put in place two new facilities in the six months to 31 March 2018: the first a 15 year, £46.2 million Homes England acquisition and infrastructure facility in respect of Priors Hall and the second a ten year, £2.0 million development facility with Huntingdon District Council which will fund the construction of a second incubator commercial building at Alconbury. At the period end the Group had drawn £28.6 million of the Priors Hall facility to fund part of the £40.5 million acquisition cost.

This drawing together with further drawdowns of £9.8 million from the Alconbury (Homes England) facility and £3.5 million from the revolving credit facility saw the Group's new borrowings total £41.9 million. However following the sale of Stansted and Feethams and the required associated loan repayments, borrowings on net basis have only increased £10.5 million since 30 September 2017.

Further drawings during the period of £8.4million (Group's share £4.2 million) were made from the Homes England facility within the Rugby joint venture.

Financial resources and capital management

The Group's net debt position at 31 March 2018 totalled £89.6 million (30 September 2017: £81.7 million), comprising external borrowings of £104.3 million and cash reserves of £14.7 million, producing a net gearing ratio of 23.6 per cent (30 September 2017: 22.0 per cent) on an IFRS NAV basis and 19.5 per cent (30 September 2017: 18.6 per cent) on an EPRA NAV basis.

On a full look-through basis, which additionally includes the Group's share of joint ventures net debt, gearing on an EPRA NAV basis increases to 22.9 per cent (30 September 2017: 21.3 per cent). Gearing on all measures continues to remain within our self-imposed limit of 30 per cent.

Of the £140.5 million of debt drawn at the year end, including all joint venture facilities, £106.4 million (75.7 per cent) relates to Homes England facilities. Undrawn facilities at 31 March 2018 totalled £45.5 million.

The Group's weighted average loan maturity at 31 March 2018 was 7.7 years (30 September 2017: 5.3 years) and weighted average cost of borrowing on drawn debt was 3.1 per cent (30 September 2017: 2.9 per cent). The loans maturing over the next three years, include the £40 million Revolving Credit Facility (the "RCF"), which matures in June 2019, and a £6.1 million amortising investment facility in respect of our Bradford leisure asset and the Newark Homes England facility. The Group will seek to extend these facilities where appropriate.

The Group maintains a comprehensive business plan model which forecasts the cash usage and generation on a project-by-project and consolidated basis for five years, or longer in relation to our strategic land sites. This model is regularly updated and informs the Group as to its cash needs, allowing us to plan ahead. Further information on how the Group assesses long-term viability can be found on page 32 of the 2017 Annual Report and Accounts.

Post balance sheet events

Subsequent to the period end in April, the Group completed its joint venture arrangements with the Greater Manchester Pension Fund. These arrangements saw the Pension Fund acquire a 50 per cent interest in the Group's city centre development (better known as Manchester New Square) at historic book value and also provided for an £8.8 million refund of preliminary monies spent.

The new joint venture simultaneously put in place £51.0 million of senior debt facilities and £24.6 million of mezzanine debt facilities with the Housing Infrastructure Fund and Pension Fund. These facilities are sufficient to complete the development of the 351 residential apartments.

Principal risks and uncertainties

The principal risks of the business are set out on pages 35 to 37 of the 2017 Annual Report and Accounts and include commentary on their potential impact, links to the Group's strategic priorities and the relevant mitigation factors. Since the publication of the 2017 Annual Report and Accounts, the Board believes that there has been no material change to the principal risks and the reported mitigation actions remain appropriate to manage the risks.

Responsibility statement

We confirm that to the best of our knowledge:

(a) the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

(b) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and a description of where to find the principal risks and uncertainties for the remaining six months of the year); and

(c) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

Signed on behalf of the Board on 30 May 2018

David Wood

Group Finance Director

Consolidated statement of comprehensive income

For the six month period ended 31 March 2018

The Group had no amounts of other comprehensive income for the current or prior periods and the profit for the respective periods is wholly attributable to equity shareholders.

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

Consolidated balance sheet

As at 31 March 2018

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

Consolidated statement of changes in equity

For the six month period ended 31 March 2018

Consolidated cash flow statement

For the six month period ended 31 March 2018

Notes to the condensed consolidated interim financial statements

For the six month period ended 31 March 2018

1. Basis of preparation

These condensed consolidated financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting', as adopted by the European Union. They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 2017 Annual Report and Accounts. The financial information for the six months ended 31 March 2018 and 31 March 2017 does not constitute statutory accounts within the meaning of section 434(3) of the Companies Act 2006 and is unaudited.

The statutory annual accounts of Urban&Civic plc for the year ended 30 September 2017 have been reported on by the Company's auditor and have been delivered to the Registrar of Companies. The independent auditor's report on the annual accounts for 2017 was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under sections 498(2) or 498(3) of the Companies Act 2006.

Significant accounting policies

The same accounting policies, presentation and method of computation are followed in these condensed interim financial statements as were applied in the Group's latest audited financial statements and using accounting policies that are expected to be applied for the financial year ending 30 September 2018. Since the 2017 annual accounts were published, the IASB have not issued any amendments or interpretations that are expected to have a material impact on the Group's reporting.

The Group continues to consider the impact of new standards not yet applied (IFRS 9 'Financial Instruments' (effective date: 1 January 2018), IFRS 15 'Revenue from Contracts with Customers' (effective date: 1 January 2018), IFRS 16 'Leases' (effective date: 1 January 2019)) on the financial position and performance of the Group, which will depend on projects undertaken at the time of initial application. There have been no identified changes to the initial assessment set out in the 2017 annual report.

Use of estimates and judgements

There have been no new or material revisions to the nature and amount of estimates reported in the 2017 accounts, other than changes to certain assumptions applied in the valuation of properties. Details of the key assumptions applied at 31 March 2018 are set out in note 9.

Going concern

The Directors are required to make an assessment of the Group's ability to continue to trade as a going concern. The Directors have given this matter due consideration and have concluded that it is appropriate to prepare the interim financial information on a going concern basis.

2. Revenue and gross profit

Included within residential property sales is £7,854,000 in respect of minimum sales proceeds recognised on parcel sales (six months to 31 March 2017: £10,741,000; year ended 30 September 2017: £17,033,000).

3. Operating profit

Operating profit is arrived at after allocating £2,834,000 of administrative expenses to the cost of investment and trading properties (six months to 31 March 2017: £2,373,000; year ended 30 September 2017: £5,219,000).

4. Segmental information

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker and within the 2017 Annual Report and Accounts. The chief operating decision maker has been identified as the Board of Directors.

The segmental results that are monitored by the Board include all the separate lines making up the segmental IFRS operating profit. This excludes central overheads and taxation which are not allocated to operating segments.

Consolidated statement of comprehensive income

For the six month period ended 31 March 2018

Consolidated balance sheet

As at 31 March 2018

Consolidated statement of comprehensive income

For the six month period ended 31 March 2017

Consolidated balance sheet

As at 31 March 2017

5. Finance income and finance costs

Interest is capitalised at the same rate as the Group is charged on respective borrowings.

6. Tax on profit on ordinary activities

(a) Analysis of tax charge in the period

(b) Factors affecting the tax charge for the period

7. Earnings per share

Basic earnings per share

The calculation of basic earnings per share is based on a profit of £8,880,000 (six months to 31 March 2017: £3,988,000; year ended 30 September 2017: £6,811,000) and on 143,422,387 (six months to 31 March 2017: 143,233,996; year ended 30 September 2017: 143,300,624) shares, being the weighted average number of shares in issue during the period less own shares held.

Diluted earnings per share

The calculation of diluted earnings per share is based on a profit of £8,880,000 (six months to 31 March 2017: £3,988,000; year ended 30 September 2017: £6,811,000) and on 145,111,843 (six months to 31 March 2017: 144,736,992; year ended 30 September 2017: 144,244,702) shares, being the weighted average number of shares in issue, less own shares held and the dilutive impact of share options granted.

8. Dividends

An interim dividend of 1.3p per share was approved by the Board on 29 May 2018 and is payable on 13 July 2018 to shareholders on the register on 8 June 2018. Investors choosing to participate in the dividend reinvestment scheme will need to make their election by 22 June 2018. The interim dividend is not recognised as a liability in the interim financial information. Dividends are not paid on the shares held by the Employee Benefit Trust.

9. Investment properties

Transfer of properties

On 30 September 2017, based on the terms of the licensing arrangements being agreed or negotiated with housebuilders, the Group agreed that the strategy for the residential part of Alconbury Weald held within investment properties was to develop it for sale. Accordingly, on 30 September 2017 this element of the property was reclassified as a trading property.

On 30 September 2017, based on the site intention set out in the submitted development plan, the Group agreed that the strategy for part of its interest in Waterbeach, previously held wholly within trading stock, was to hold for long-term capital gain and rental income. Accordingly, 32 per cent of the asset value was transferred to investment properties.

Fair value measurement

The Group's principal investment property, Alconbury Weald, which represents 79 per cent of the period-end carrying value (31 March 2017: 72 per cent; 30 September 2017: 60 per cent), is valued on a semi-annual basis by CBRE Limited, an independent firm of chartered surveyors, on the basis of fair value. The valuation at each period end is carried out in accordance with guidance issued by the Royal Institution of Chartered Surveyors. The Bradford leisure scheme, which represents 18 per cent of the period-end carrying value (31 March 2017: 11 per cent; 30 September 2017: 16 per cent), has also been valued by CBRE Limited, on the basis of fair value. The remaining investment property interests have been valued by the Directors, either with reference to subsequent sales prices achieved or cost incurred to date.

Fair value represents the estimated amount that should be received for selling an investment property in an orderly transaction between market participants at the valuation date.

The Group's investment properties are all classified as level 3 within the fair value hierarchy as some of the inputs used in determining the fair value are based on unobservable market data. The valuation technique used in measuring the fair value of Alconbury Weald, the Group's principal investment property, as well as the significant unobservable inputs, is summarised below.

Valuation technique

Discounted cash flows: the valuation model for the Group's strategic land considers the present value of net cash flows to be generated from a property (reflecting the current approach of constructing the infrastructure and discharging the section 106 cost obligations), taking into account expected land value growth rates, build cost inflation, absorption rates and general economic conditions. The expected net cash flows are discounted using risk-adjusted discount rates and the resultant value is benchmarked against transaction evidence.

Significant unobservable inputs

The key inputs to the valuation of the principal investment property included:

The inter-relationship between the unobservable inputs set out above and the fair value measurement is unchanged from that reported in the 2017 Annual Report and Accounts.

10. Property, plant and equipment

11. Investments 

Investments in joint ventures and associates

At 31 March 2018 the Group's interests in its joint ventures were as follows:

At 31 March 2018 the Group's interest in its principal associate is as follows:

12. Deferred tax

The net movement on the deferred tax account is as follows:

The deferred tax balances are made up as follows:

At 31 March 2018, the Group had unused tax losses of £28,004,000 (31 March 2017: £51,377,000; 30 September 2017: £32,132,000), of which £18,202,000 (31 March 2017: £26,822,000; 30 September 2017: £23,120,000) has been recognised as a deferred tax asset. A further £9,098,000 (31 March 2017: £20,441,000; 30 September 2017: £5,373,000) has been applied to reduce the Group's deferred tax liability recognised at the balance sheet date as required by IAS 12 'Income Taxes' in respect of tax potentially payable on the realisation of investment properties at fair value at the balance sheet date. No deferred tax asset is recognised in respect of realised or unrealised capital losses if there is uncertainty over future recoverability.

Tax losses of £704,000 (31 March 2017: £4,114,000; 30 September 2017: £3,639,000) have not been recognised as it is not considered sufficiently certain that there will be appropriate taxable profits available in the foreseeable future against which these losses can be utilised.

The Group's deferred tax balances have been measured at rates between 17 and 19 per cent (2017: 17 and 19 per cent), being the enacted rates of corporation tax in the UK at the balance sheet date against which the temporary differences giving rise to the deferred tax are expected to reverse. The UK corporation tax rate reduced to 19 per cent from 1 April 2017 and will reduce to 17 per cent from 1 April 2020, which will reduce the amount of UK corporation tax that the Group will have to pay in the future.

13. Trading properties

Capitalised interest of £2,752,000 is included within the carrying value of trading properties as at 31 March 2018 (31 March 2017: £1,156,000; 30 September 2017: £1,768,000).

14. Trade and other receivables

Trade receivables include minimum amounts due from housebuilders on strategic land parcel sales and an amount of £6,352,000 relating to overage entitlements that were acquired with the Priors Hall asset in the period and attributed a purchase price allocation of £9,366,000. The asset is measured at fair value through profit and loss using a discounted cash flow model and is categorised as level 3 in the fair value hierarchy. The key assumptions applied in the valuation at 31 March 2018 are current expectations over future house price values, the timing of housebuilder delivery and a discount rate of 9.6 per cent. The fair value movement since acquisition is £324,000 which has been credited to the income statement for the period. Amounts totalling £3,338,000 have been collected by 31 March 2018.

15. Trade and other payables

16. Borrowings

Other loans comprise borrowings from Homes England and a conditional grant. Interest on borrowings from Homes England is charged between 2.2 and 2.5 per cent above the EC Reference Rate and the facilities are secured against specific land holdings. The £1,000,000 grant is conditional on certain milestones of construction being achieved before 2020. The grant is only repayable if these are not reached.

Bank loans, other than the revolving credit facility, are secured against specific property holdings.

17. Share capital

Movements in share capital in issue

Transactions in own shares

At the end of the period the Employee Benefit Trust held 1,535,868 20p shares in Urban&Civic plc (31 March 2017: 1,569,437; 30 September 2017: 1,569,437) at a cost of £3,930,000 (31 March 2017: £4,003,000; 30 September 2017: £4,003,000), which had a market value of £4,700,000 (31 March 2017: £3,751,000; 30 September 2017: £4,049,000). The movement is as follows:

Share options

During the six month period to 31 March 2018 the Company granted 2,090,636 share options to employees (six months to 31 March 2017: 1,831,953; year ended 30 September 2017: 1,831,953). 153,205 share options were exercised (six months to 31 March 2017: 9,125; year ended 30 September 2017: 9,126) and 1,528,563 options lapsed (six months to 31 March 2017: 22,795; year ended 30 September 2017: 91,439) in the period. The number of share options outstanding at 31 March 2018 was 5,467,912 (31 March 2017: 5,127,689; 30 September 2017: 5,059,044).

18. Net asset value and EPRA net asset value per share

Net asset value and EPRA net asset value per share are calculated as the net assets or EPRA net assets of the Group attributable to shareholders at each balance sheet date, divided by the number of shares in issue and to be issued at that date, adjusted for own shares held and the dilutive effect of outstanding share options.

19. Contingent liabilities, capital commitments and guarantees

Capital commitments relating to the Group's development sites are as follows:

20. Related party transactions

There have been no material changes to the nature of the related party transactions described in the 2017 Annual Report and Accounts.

Details of transactions with and amounts owed from joint ventures and associates are given in note 11.

21. Post balance sheet events

Post balance sheet events are disclosed within project highlights at the beginning of this announcement.

Independent review report to Urban&Civic plc

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half yearly financial report for the six months ended 31 March 2018 which comprise the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement and the related notes.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The half-yearly financial report is the responsibility of and has been approved by the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting its responsibilities in respect of half-yearly financial reporting in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity', issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34, as adopted by the European Union, and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

BDO LLP

Chartered Accountants

London

United Kingdom

30 May 2018

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

Glossary of terms