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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| U And I Group Plc | LSE:UAI | London | Ordinary Share | GB0002668464 | ORD 50P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 148.50 | 148.50 | 149.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMUAI
RNS Number : 3303D
U and I Group PLC
26 April 2017
U and I Group PLC
("U+I" or "the Company" or "the Group")
Results for the year ended 28 February 2017
U+I reports full year development and trading gains in line with guidance with a strong outlook for the year ahead
Financial highlights - strong performance in second half and third consecutive supplemental dividend declared
-- GBP35.0m of development and trading gains realised in line with guidance
-- 8.7 pence per share of total dividends (2016: 13.9p) including declared supplemental dividend of 2.8 pence per share, to be paid on 16 June 2017
Hot Features
Premium
-- Basic net asset value ("NAV") of 278 pence per share (2016: 291 pence per share)
Operational highlights - delivering against strategy with portfolio strengthened to drive future growth
-- Four new large-scale PPP projects won, adding GBP90m to pipeline of gains from 2020 and GBP1.5bn of gross development value to portfolio
-- Investment portfolio values stabilised in H2 - overall decline of GBP6.8m during the year (2016: GBP1.7m valuation increase). GBP18.0m of non-core investment asset disposals in line with strategy to reposition investment portfolio and drive higher returns.
-- Two specialist platforms established - joint ventures with Proprium Capital Partners and Colony NorthStar to leverage our equity and intellectual capital and generate fees
Outlook - visibility on strong pipeline of gains from regeneration activity
-- GBP65m - GBP70m of development and trading gains set to be delivered in FY2018 and visibility on more than GBP150m of development and trading gains in the next three years from existing projects alone
-- Investment portfolio total return of 10% targeted for FY2018 through non-core asset disposals (FY2018 target: GBP50m), reinvestment (FY2018 target: GBP50m) and asset management (FY2018 target: GBP5m). Since year end terms agreed on GBP10m acquisition and GBP8m of further disposals
-- Targeting a GBP2m reduction in net recurring overheads in FY2018 through cost savings and management fees from specialist platforms
-- Business on track to deliver a 12% post tax total return per annum in the next three years
Matthew Weiner, Chief Executive said:
"I am encouraged by our performance. We delivered GBP35 million of development and trading gains from our planning-led regeneration activities, notwithstanding the substantial hit to transaction activity following the EU referendum. This result, which was within our guidance range, has enabled us to declare a third consecutive supplemental dividend in addition to our ordinary dividend. In the year ahead, we are set to deliver our highest level of development and trading gains to date - GBP65-70 million - from a mix of large-scale public private partnership (PPP) projects and shorter-term trading opportunities, delivering our target 12% post-tax return to shareholders.
We have made good progress on our strategy. During the year, we secured four significant PPP projects totalling GBP1.5 billion of gross development value and adding GBP90 million of development and trading gains in FY2020 and beyond. This reflects our stated focus on large-scale PPP regeneration opportunities and underlines our leading reputation in this market. We were pleased to establish two specialist platforms during the year with Proprium Capital Partners and Colony NorthStar. These platforms allow us to acquire and deliver projects off-balance sheet, in line with our equity efficient approach, leveraging our equity and intellectual capital whilst generating fees to the business to offset overhead.
Improving the performance of our investment portfolio remains a key priority. We are focused on delivering a 10% total return from our investment activities in the year ahead as we transition our portfolio to better align to our core regeneration expertise. We are targeting GBP100 million of transactional activity this year with GBP18 million already in hand, and are set to deliver GBP5 million of value gain as a result of our proactive asset management.
The potential in the UK for mixed-use regeneration is significant and the number of opportunities is growing. Based on our extensive expertise in planning and development, we are confident that we can deliver sustainable returns to shareholders as we create long lasting social and economic change for the communities in which we work."
Financial summary:
28 Feb 2017 29 Feb 2016
-------------------------- ------------ ------------
Development and trading GBP35.0m GBP51.1m
gains
-------------------------- ------------ ------------
Profit before tax GBP0.4m* GBP25.8m
-------------------------- ------------ ------------
Basic NAV GBP347.6m GBP363.3m
-------------------------- ------------ ------------
Basic NAV per share 278p 291p
-------------------------- ------------ ------------
Basic (loss)/earnings
per share (2.4)p 17.5p
-------------------------- ------------ ------------
Total declared dividends
per share including
supplemental dividend 8.7p 13.9p
-------------------------- ------------ ------------
Net debt GBP120.9m GBP161.4m
-------------------------- ------------ ------------
Gearing ratio 34.8% 44.4%
-------------------------- ------------ ------------
*Before exceptional items of GBP2.1m relating to impairment of serviced office business
Conference call for analysts and investors
A presentation will be held for equity analysts and investors today at 10.00 a.m. at U+I's offices at 7A Howick Place, London SW1P 1DZ. The live audio webcast and presentation slides can be accessed via the following link:
http://www.investis-live.com/uandi/58eb4ebf8178d01500d23d99/f5t2d with conference call details as below. A recording of the conference call and archive version will be made available later in the day.
Conference Call details:
United Kingdom 020 3059 8125 All other locations + 44 20 3059 8125 Joining your call: Participant Password: U and I Replay information: United Kingdom 0121 260 4861 United States + 1 844 2308 058 All other locations + 44 121 260 4861 Joining the replay: Replay password: 5843664 followed by #
Forthcoming announcement dates
The Group intends to hold its Annual General Meeting on 11 July 2017 and announce its Interim Results for the six months ended 31 August 2017 on 18 October 2017.
For further information, please contact:
U and I Group PLC
Lucy Grimble, Head of
Investor Relations Tel: +44 20 7828 4777
E-mail: lucygrimble@uandiplc.com
Camarco (Financial PR
adviser)
Geoffrey Pelham-Lane
/ Rebecca Nelson Tel: +44 20 3757 4996
E-mail: uandi@camarco.co.uk
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.
Chief Executive's Statement
Confident in our ambitious targets
As I look back over the past year, I am proud of what we have achieved and even more excited about what is yet to come. We are making measurable progress in our ambition to build a sustainable business, centred on mixed-use regeneration. These projects respond to real needs within our society and are recognised as a priority by central and local government. There are growing opportunities in the regeneration market within which we play a leading role, with a strengthening competitive advantage in our chosen regions.
In the year to February 2017, we delivered development and trading profits of GBP35.0 million (2016: GBP51.5 million) and a profit before tax and exceptional items of GBP0.4 million (2016: GBP25.8 million). The reduction in profit before tax was principally caused by a lower level of development and trading gains, a negative valuation performance of our investment portfolio in H1 and lower rental income as we disposed of non-core assets from our investment portfolio. After paying GBP17.4 million of dividends (13.9 pence per share), our net asset value (NAV) decreased to GBP347.6 million/278 pence (2016: GBP363.3 million/291 pence).
The Board has recommended the payment of a final dividend of 3.5 pence per share payable on 17 August 2017 to all shareholders on the register on 21 July 2017 bringing the total dividend for the financial year to 5.9 pence per share. In addition, we will pay a supplemental dividend of 2.8 pence per share on 16 June 2017 to all shareholders on the register on 12 May 2017. This will be the third supplemental dividend paid to shareholders in the past three years and underlines our confidence in continuing to generate strong cash flows from our development and trading activities.
Navigating the market
I am particularly pleased with our performance, given the unusual and unpredictable economic and political backdrop. The decision, last June, to leave the European Union temporarily stalled the UK property market, creating headwinds throughout the summer and beyond. Although we have seen little evidence of a permanent impact on prices, we have experienced delays on the realisation of a number of projects as businesses paused to assess the revised environment.
Looking ahead, even as market conditions remain uncertain, we are confident that we can make significant progress. The need for creative, well-executed regeneration projects is clear. The UK faces a growing structural housing deficit, while consumers increasingly favour mixed-use real estate, where they can live, work, play and forge real communities. These are the schemes that U+I is focused on and where we are developing an increasingly competitive edge.
Strengthening our portfolio
During the year, we were highly focused, concentrating on: growing our portfolio of larger projects; improving our investment portfolio; and building efficient, capital-light specialist platforms. Our ambition remains unchanged: to generate robust, long-term, sustainable growth, quantified by our target to achieve annual post-tax total returns of 12%.
This ambition is centred on delivering a balance of PPP and trading projects, with a focus on mixed-use regeneration schemes in our chosen regions: the London City Region, Manchester and Dublin. Winning large, complex projects is a crucial element of our strategy and they are the foundations around which our business is based.
Against that backdrop, winning four large-scale Public Private Partnership (PPP) projects during the year was particularly pleasing, namely 8 Albert Embankment, Cockpit Yard and the Westminster Industrial Estate in London, and Mayfield in Manchester. These projects were won in competitive situations, underscoring our growing reputation in the mixed-use regeneration space. They add more than GBP1.5 billion of Gross Development Value (GDV) to our portfolio and an additional GBP90 million of development and trading gains to our pipeline in 2020 and beyond.
These projects also indicate the extent to which U+I is functioning as a single, unified Group, capable of winning business that we would not have been able to secure in the past. Mayfield alone is valued at GBP850 million, testament to our ability to take on even the most sizeable regeneration projects. Notably too, these partnerships are built on trust and quality of execution, developed over the long-term by forming genuine partnerships with public bodies and local communities. This blend of skill and reputation creates high barriers to entry, only overcome through genuine commitment and proven results.
The GBP35.0 million of development and trading gains that we delivered this year were achieved through consistent effort and hard work on a number of projects. In each case, we have delivered tangible gains by buying well and then adding value through the planning and development processes. The full breakdown of projects that underpin this year's gains is provided in the portfolio review. I am particularly proud of these results, which reflect genuine value uplift, evidenced by cash profits.
I have every confidence that we will produce a record result in the current year, targeting GBP65-GBP70 million of development and trading gains. Over the next three years, we are targeting more than GBP150 million of gains.
I am optimistic too about our investment portfolio, which is being steadily realigned to reflect the Group's strategic focus on regeneration. Having assessed each of the assets within this portfolio, we are progressing the disposal of non-core assets, optimising the value of those we are retaining and reinvesting in new assets that make best use of our regeneration expertise.
During the year, we formed two specialist platforms - strategic joint ventures with majority capital partners. In August 2016, we signed a GBP200 million joint venture agreement with Proprium Capital Partners to secure income-generating assets in the London City Region. In November, we formed a EUR300m partnership with Colony NorthStar, focused on adding value to underperforming office buildings in London, Manchester and Dublin. These platforms give us the ability to acquire and deliver projects off-balance sheet, leveraging our equity and intellectual capital, whilst generating fees to the business which offset overhead. In effect, they enable us to do more than we could on our own.
A market-leading team
None of this would be possible without our people. This year, we formed our Executive Committee (ExCo), a step that should tangibly improve the way we do business and the results we achieve. Created to support the Company's development, the ExCo is responsible for implementing our strategy on a day to day basis. As such, this committee plays a central role in helping the business to deliver results today and to ensure it is positioned for growth tomorrow.
We have selectively strengthened this team with the appointment of Mark Richardson as Head of Delivery and Brenda Bates as Head of Communications and Business Services. Mark, previously pre-construction director at Laing O'Rourke, has worked on some of the most prestigious projects in London whilst Brenda, who joined U+I from the World Gold Council, brings significant strategic expertise. We have also strengthened our team in Manchester with the appointment of experienced development professionals to oversee our Mayfield regeneration site, deepening our roots in this city.
While our senior people provide direction within our Company, they are supported by an experienced team bringing talent, enthusiasm and energy to the projects we undertake. Our work is not easy - if it were, we would not be in the unique position we are in - combining long-term regeneration, short-term trading and investment. But our work is exciting, audacious and rewarding. It demands intelligence and imagination. It delivers tangible change.
As a result, we attract people at every level who share our vision, our desire for progress and our commitment to delivering returns both to our investors and the communities in which we work.
Well-positioned for the future
Our team's energy and combination of skills will help us achieve our targets this year and beyond: growing our pipeline, driving value, delivering returns and maintaining capital efficiency.
Having built a substantial regeneration platform, we are in a position where we can remain selective about the future projects we take on. We have a range of specific criteria that need to be satisfied before we consider new projects and we will only undertake those where we can deliver meaningful social change and significant shareholder value.
Looking ahead, I am optimistic that we can succeed in our ambitions. We operate in markets that will continue to grow, where we have built a genuine competitive advantage that will only intensify over time. We operate an equity-efficient model, designed to minimise balance sheet risk and maximise shareholder returns. As our business expands and develops, the combination of our operational leverage and our financial model should deliver consistent, long-term value, driven by a dynamic blend of development, trading and investment activity.
We are highly ambitious, not for ambition's sake, but because we are clear about the need for these projects; we are proud of our ability to deliver them and we understand the value, both financial and social, that can be generated from them. Our targets are stretching but, based on the work we have done so far, the team that we have created, the relationships we have built and the pipeline of opportunities ahead, I am confident of success.
Matthew Weiner
Chief Executive
26 April 2017
Our strategy at a glance
Priority Overview Case study FY2017 Outlook Key risks
highlights
-------------- --------------- ----------------- ------------ ------------------------------------------------------------- -----------------------------------------------------
1. GROW Our core This year we won GBP6bn
PIPELINE skills as a 4 major PPP gross * We will continue to grow our pipeline of trading and * Scarcity of viable investment and development
Build a business lie regeneration development PPP assets, with a strict focus on projects within opportunities
pipeline of in smart land projects value of our core markets that match our returns profile and
regeneration acquisition including 8 our whole suit our regeneration focus.
projects that and adding Albert portfolio
deliver value through Embankment and including
superior the planning Mayfield joint * Within the investment portfolio, our target for the
returns process. Our in Manchester ventures year ahead is to reinvest to build a portfolio of
focus is to GBP1.5bn regeneration-focused investment assets.
build a of GDV
pipeline of added from
PPP and 4 new PPP
trading wins
projects that
generate
excellent
shareholder
returns
through the
property cycle
as we realise
profits from
asset
disposals.
Our large
scale
developments
are structured
to limit our
upfront equity
investment and
we
de-risk the
development
process
through
forward sales
and forward
funding. This
allows us
to build a
pipeline of
projects that
are
through-cycle
with an
appropriate
balance of
risk
and return.
-------------- --------------- ----------------- ------------ ------------------------------------------------------------- -----------------------------------------------------
2. DRIVE We are experts Having completed >90%
VALUE in generating The Deptford success * Planning remains the key value driver across all of * Market risk
Optimise the value by Project, we rate in our activity. Our focus for the year ahead is to
value within transforming retained planning secure planning consent on a number of projects
our portfolio overlooked Deptford Market including Blackhorse Road, Preston Barracks and * Planning risk
through an sites into Yard within our Kensington Church Street
integrated distinctive, investment
business vibrant portfolio and * Construction risk
model new places will be * We will also continue to focus on optimising the
that deliver proactively value of our investment portfolio through proactive
substantial managing this asset management and enhancement, with a medium-term * Counterparty risk
socio-economic asset to drive target of driving 10% return per annum.
value. The value
combination of
skills within
the business
enables us to
maximise the
value across
our portfolio
and offer
different but
connected
routes to
market.
-------------- --------------- ----------------- ------------ ------------------------------------------------------------- -----------------------------------------------------
3. DELIVER The business Birmingham GBP35m
RETURNS has the International of * The Board has established a medium-term target to * Scarcity of viable investment and development
Deliver capacity to Park was a development deliver over GBP50 million of development and trading opportunities
excellent generate non-income trading gains per annum and a minimum of GBP150 million over
returns on a consistent producing legacy gains the next three years
through-cycle returns asset. We * Planning risk
basis through the realised GBP8.4
property cycle million of gains * For FY 2018, our target for development and trading
from upon disposal gains is GBP65-GBP70 million. The Board is also * Construction risk
a balance of having added targeting a post-tax total returns target of 12%.
longer-term value through
PPP projects, planning change * Counterparty risk
shorter-term of use.
trading
activity and * Bank funding risk
improving the
value
of our
investment
portfolio.
-------------- --------------- ----------------- ------------ ------------------------------------------------------------- -----------------------------------------------------
4. MAINTAIN We do not In November 2016 34.8%
CAPITAL hoard capital we formed gearing * We will continue to maintain our gearing within our * Counterparty risk
EFFICIENCY on our Balance a JV with Colony 4.6% target range of 40%-50% and redistribute surplus
Maintain Sheet but use Northstar Inc to average capital in accordance with our dividends policy
capital our strong target office cost of * Bank funding risk
discipline cash flows to repositioning debt
and a strong reinvest, pay opportunities in 8.7p
balance sheet down debt or London, dividend
with a return capital Manchester per share
rigorous to and Dublin. declared
approach to shareholders. We also formed a
risk We maintain an JV with Proprium
efficient Capital Partners
Balance Sheet to target
with income-producing
appropriate long-term
gearing levels development
and a sizeable sites within the
cash buffer to London City
keep us stable Region.
throughout the
property
cycle.
The creation
of specialist
platforms
allows us to
deliver
projects in a
capital
efficient
manner through
joint ventures
with majority
capital
partners.
These generate
management
fees
which enable
us to offset
overhead costs
and to
monetise the
land within
our portfolio.
Risk review
Our business model is shaped by the risks that the Directors consider significant to our strategy, size and capabilities
Risk management structure
The Group's risk profile is maintained under continual review by its Audit and Risk Committee and by the Board. In addition, the Group has a Risk Management Committee, which oversees the Group's risk register and risk control processes on behalf of the Audit and Risk Committee. The Risk Management Committee comprises senior employees from across the Group, covering all areas of the Group's operations.
Mapping our risks
The Group categorises risks according to the likelihood of occurrence and the potential impact on the Group. The Directors consider the following to be the principal risks and uncertainties facing the Group.
These risks have been grouped as either:
- External risks - whose occurrence is beyond the control of the Group; or
- Business risks - which the Directors choose to manage as part of the Group's operations.
EXTERNAL RISKS:
------------------
Risk Impact Mitigation Risk exposure
change year on
year
---------------- ------------------------------------------------------------- --- ------------------------------------------------------------- ---------------
a. Market risk - The UK
The real estate * Lack of liquidity available to prospective purchasers * Risk-averse property development strategy whereby economy
market is of completed projects may delay ability to realise projects are pre-funded, pre-let, or pre-sold where remains
directly linked planned disposals or reduce prices, leading to appropriate. supportive to
to the health significantly reduced cash inflows. our
of the local, activities
national and * Long maturities of debt finance facilities. however,
increasingly * Higher occupier risk leading to significantly reduced continuing
international values. political
economies. Lack * Moderate level of gearing. uncertainty
of economic following the
growth, * Lack of occupier demand resulting in inability to result of the
recessionary realise gains. * Regular meetings with economic forecasters to gauge EU referendum
conditions or economic trends. and the
economic triggering of
uncertainty can Article 50 by
translate into the UK
negative Government,
sentiment together with
towards escalating
theperformance geopolitical
of real estate. risks
continue to
overshadow
the market.
---------------- ------------------------------------------------------------- --- ------------------------------------------------------------- ---------------
b. Scarcity of - Opportunities
viable * Inability to source new deals leads to decline in * Flexible approach to market opportunities, seeking continue to
investment and development and trading profits in future years. out sectors where value can be generated and seeking be sourced
development funding partners with different return requirements. for
opportunities development,
The Group's * Higher pricing of acquisition opportunities leads to trading and
business is reduced ability to add value. * Stringent deal underwriting procedures with minimum investment
predominantly return hurdles. which satisfy
transactional Group
and requires a underwriting
flow of PPP, * Maintaining broad industry contacts for acquisitions criteria.
trading and rather than being dependent on a single source of The Group is
investment opportunity. now focusing
opportunities on increasing
to generate the number of
consistent * Use of PPP model to secure regeneration opportunities short-term
returns. The in an innovative way. trading
risk is that opportunities
the flow of following
suitably the
priced successful
opportunities PPP wins
either reduces during the
or stops. year. Due to
its deep
relationships
and
acquisition
expertise,
the Group is
able to
source a
steady stream
of
opportunities
despite lower
cost overseas
capital
making the
market more
'expensive'.
---------------- ------------------------------------------------------------- --- ------------------------------------------------------------- ---------------
c. Counterparty - The Group
risk * Failure of sales transaction counterparties may lead * Proof of funding required prior to agreeing sales continues to
Transaction to an inability to produce trading profits. contracts. have exposure
counterparties, to the
be they joint private
venture * Failure of financial counterparties may impact on * The Board regularly assesses the credit worthiness of residential
partners, effectiveness of hedging or recoverability of financial counterparties prior to placing deposits market
purchasers deposits. and hedging transactions. through the
under sale development
contracts of pre-sold
or banks in * Substantial deposits are required for pre-sold residential
respect of cash residential developments. units both on
deposits or and off
derivative balance
arrangements, sheet. The
may suffer or risk of
fail purchasers
financially. failing
to complete
has not
changed to
any material
extent during
the year.
---------------- ------------------------------------------------------------- --- ------------------------------------------------------------- ---------------
d. Bank funding - The lending
risk * Inability to secure funding for new opportunities. * The Group maintains relationships with a wide range market
The pressure on of both bank and non-bank lenders, reducing over continues to
a large number reliance on any one partner. see new
of traditional * Inability to refinance existing facilities leading to entrants.
real estate disposals at the wrong time in business plans and Competitive
lending banks failing to maximise profits. * The Group is constantly seeking to widen its range of pressures
to reduce their funding sources and liaises with new entrants into have led to a
exposure the real estate lending market. reduction
to real estate * Unpredictability of cash flows. in margins
reduces the and an
capacity and increase in
liquidity * Inability for buyers to complete maturities
within the available.
lending market Through the
and can impact year there
upon the has been a
availability of gradual
debt to deliver reduction in
business plans. lenders'
appetite for
development
risk
particularly
on a
speculative
basis post
the EU
Referendum
result.
---------------- ------------------------------------------------------------- --- ------------------------------------------------------------- ---------------
BUSINESS
RISKS:
--------------- --------------------------------------------------------------------------------------------------------------------------------------------------------
Risk Impact Mitigation Risk exposure
change year on
year
--------------- ------------------------------------------------------------- --- ------------------------------------------------------------- -----------------
e. - Since the
Construction * Reduced profitability or potential loss on individual * The Group retains in-house experienced project result of the
risk projects and/or guarantees being called. managers throughout the life of individual projects EU referendum
There is a to ensure that costs are appropriately budgeted, in June 2016,
risk of being timetables are adhered to and hence the impact of there has been
unable to * Projects becoming unviable leading to loss of WIP. these risks is minimised. a fall in the
secure a value of
viable sterling
construction * Construction work ceasing whilst a suitable * The Group performs appropriate pre-contract due against the
contract post replacement contractor is found leading to delays in diligence on the capabilities and financial security Euro which has
receipt of project completion and a reduction in profit. of its material contractors and key sub-contractors. resulted in an
planning increase in
permission. construction
Real estate * The Group continually monitors the financial position material
construction of key contractors to anticipate financial prices.
is subject difficulties. At the same
to the risk time,
of cost construction
overruns, * If issues arise with contractors, the Group uses its workforce
delay and professional teams and in-house expertise to mitigate shortages and
the financial the impact. increasing
failure of labour costs
an appointed are
contractor. * The Group requires detailed design and specification anticipated,
throughout the tender process to enable it to reflecting
maximise the risk transfer to contractors. uncertainty
about the
long-term
* The Group requires that all construction contracts status of EU
include provisions for Liquidated Ascertained Damages nationals
in the case of performance failures by contractors working in the
and that contractors provide performance bonds, UK. These
typically to a level of 100% of the contract sum. are both
impacting upon
pricing and
making the
placement of
construction
contracts more
difficult
in terms of
cost certainty
with a
resulting
impact on
margin.
Tender periods
are also under
pressure, as
more detailed
designs are
required before
a viable
construction
contract can be
agreed.
The time and
cost of the
provision of
supporting off
site
infrastructure
is often
outside
our direct
control
--------------- ------------------------------------------------------------- --- ------------------------------------------------------------- -----------------
f. Planning - The ability to
risk * Failure to secure planning consent can either cause * The Group retains a team with extensive experience of obtain clear
Procuring delay or render a project unviable/unprofitable and achieving planning consents and local knowledge, planning
an appropriate lead to the write off of considerable costs or supplemented by advisors and sector specialist decisions is
and valuable reduced profit potential. partners, to maximise the chance of success and increasingly
planning reduce the risks and costs of failure. compromised by
consent key political
is often a * Delay in the period between consent and start on site events such as
key element can reduce profitability * An alternative exit strategy is always considered in the constant
of the case of planning failure. cycle of
creation regional and
of value national
through * The Group's PPP model seeks to build partnerships elections. It
property with local statutory and planning authorities as a is also
development. way of mitigating risk. hampered
Securing by under-
planning resourced
permission planning
in a changing departments. As
political projects and
and regulatory planning
environment regulations
is a complex become ever
and uncertain more complex,
process, with particularly
applications where more
subject to dense mixed-use
objection schemes are
from a wide concerned,
range of there is an
potential urgent
stakeholders, need to
and hence, professionalise
consent is planning
prone to departments and
delay, decision making
modification committees.
and rejection. This was
Even when ignored
consent has by the recent
been granted, White Paper.
the time and
cost taken
to agree local
infrastructure
issues is
impacted by
a lack of
capacity which
can lead to
considerable
delays in
implementing
consent.
--------------- ------------------------------------------------------------- --- ------------------------------------------------------------- -----------------
Portfolio review
Developing a leading edge
Regeneration can be hard work, particularly in the unloved, overlooked and neglected suburban areas in which we often work. It requires a blend of creativity, experience, understanding and integrity.
But it is rewarding work - changing the lives of those who live and work in these revitalised places; inspiring public landowners who act as enablers for change and delivering value for shareholders, who benefit as we realise gains through planning and development.
This is where U+I is building a leading edge. Projects that are all too often dismissed as dull and distant by Central London developers or considered too large and complicated for local or regional developers. Projects which require imagination, innovation and connection to unlock value.
For the Government, these projects are a priority and local authorities are under pressure to deliver them - in partnership with private sector developers. Given that these local authorities own GBP370 billion of developable land - 40% of the total - the scale of the opportunity is immense, particularly in our chosen areas, the London City Region, Manchester and Dublin.
These cities are peppered with industrial and retail wastelands, overlooked spaces that can become thriving places, where people genuinely want to live and work. In essence, the sites are there and the need is clear - the need for affordable homes, the need to improve productivity, the need to stimulate local economies and drive value. Successful, mixed-use regeneration projects can address all these issues, while generating returns for our shareholders too.
Not everyone can do this work and many have chosen not to - so how do we unlock potential and deliver value where others cannot?
As seasoned property entrepreneurs, we hunt better than many, looking in places that have been ignored by others. As creative, imaginative thinkers, we see value in places that may not always be obvious to others. As responsible partners, we recognise that the best way to unlock potential is by engaging with communities and public bodies in a way that builds trust and understanding.
PPP projects rely on trust and the more we prove our ability to deliver places of lasting value, the more we become a partner of choice for the public sector with whom we work, and the more we create barriers to entry for our competitors. And the more we foster that virtuous circle, the more opportunities come our way and the more we can deliver great places and long-lasting shareholder value.
Our portfolio, with a GDV of GBP6 billion, comprises a mix of major PPP projects, our trading schemes and investment assets, all centred on value creation through regeneration. This pipeline is well balanced, combining large-scale, longer-term PPP projects, which provide sustainable growth with shorter-term trading projects, which deliver consistent, strong cash flows. We have won four major projects in the past year. These give us a pipeline of growth stretching out to 2020 and beyond.
Our portfolio also carries significant latent value, given that value enhancement within regeneration projects is not reflected in our NAV until profit is realised.
The moving parts are many - buying well, having the imagination to see how the grey can be transformed to the great, and digging deep into the provenance of the places where we build to deliver schemes that are truly relevant to those who live and work there. We are not afraid to challenge convention in pursuit of the best results. We are not afraid to engage with local authorities and local people to build a true partnership. And we are not afraid to admit that we care about the outcome.
We made real progress this year and we intend to do even better as we move forward - unlocking potential to create value for our shareholders and the communities in which we work.
Richard Upton
Deputy Chief Executive
26 April 2017
How we manage our portfolio
The mixed-use nature of our portfolio is one of our biggest advantages. It gives us several routes to market and different options for driving value from our projects. As outlined in the following diagram, we deliver growth as we realise gains from development and trading activity, and drive income and capital growth through our investment activities. Importantly, these portfolios are not run in isolation. By thinking about our portfolio as one, we apply our skills in land buying, planning, asset management and development across all of our projects, driving maximum value and creating more routes to market.
For example, we hold income-producing assets with longer-term regeneration potential within our investment portfolio that can ultimately feed our development pipeline (warehouse assets). We also retain elements of our completed developments within our investment portfolio where we see opportunities for medium to long-term asset management potential (retained assets). In this way, our investment activities feed our development activities and vice versa, capitalising on the mix of skills within the business.
% of
Capital gross Key value
value* assets Delivers drivers
------------ --------- --------- ----------------------------------------------------------- ---------------------------
Development PPP: PPP: 22%
and trading GBP116m Trading: * Longer-term development profit * Planning gain
portfolio Trading: 39%
GBP206m
* Shorter-term trading profit * Arbitrage/mispricing
* High quality development assets for our investment * Development margin
portfolio (retained assets)
------------ --------- --------- ----------------------------------------------------------- ---------------------------
Investment GBP211m 39%
portfolio * Income return/growth * Asset management
* Capital growth * Planning gain
* Future development opportunities (warehouse assets)
------------ --------- --------- ----------------------------------------------------------- ---------------------------
*Capital value includes all property interests held both directly and indirectly
Development and trading portfolio
Our development and trading portfolio comprises long-term, large scale PPP projects and shorter-term trading opportunities. The combination of these different projects allows us to balance the 'lumpier' profits generated from PPP development with shorter-term profit realisations, allowing us to deliver a consistent level of aggregate returns.
The balance of this activity has enabled us to deliver another strong year of gains as outlined below, building on our strong track record over the past years. Going forwards, in line with our overall returns target of 12%, we are focused on driving GBP50 million plus of profits from our development and trading activities per annum, with a minimum of GBP150 million to be delivered over the next three years.
Anticipated gains to FY2020
3-5 year target:
* GBP50m development and trading gains
* Minimum of GBP150m in next 3 years
* 12% annual post-tax total return
----------------------------------------- -------------------------------------------------
Realised Guidance range
------------- -------------------------- -------------------------------------------------
FY2015 FY2016 FY2017* FY2018 FY2019 FY2020
------------- ------- ------- -------- ------------------ -------------- -------------
Development GBP46m GBP51m GBP35m GBP65m-GBP70m GBP45m-55m GBP50m-60m
and trading
gains
------------- ------- ------- -------- ------------------ -------------- -------------
*A reconciliation of the development and trading gains for the year is included in the finance review
The following table shows the main projects driving our development and trading gains for the year. The majority of these profits are driven by the value gain captured from planning improvements.
Gains
Anticipated realised
FY17 gains* in FY17 Profit trigger
------------------------------ ------------- ---------- -----------------------------------------------------------
Dublin projects:
------------------------------ ------------- ---------- -----------------------------------------------------------
The Vertium Building GBP4-5m GBP4m Entire building let to a global brand triggering profit
share
------------------------------ ------------- ---------- -----------------------------------------------------------
Other GBP5-6m GBP5m Sale of Percy Place and commercial and residential units
across two projects
------------------------------ ------------- ---------- -----------------------------------------------------------
Birmingham International Park GBP8m GBP8m Planning secured and sale of site completed
------------------------------ ------------- ---------- -----------------------------------------------------------
Maidstone GBP2-4m GBP2m Sale completed on phase 1 of project; planning secured on
phase 2
------------------------------ ------------- ---------- -----------------------------------------------------------
Ashford (Powergen site) GBP4m GBP4m Site disposal completed
------------------------------ ------------- ---------- -----------------------------------------------------------
Woking GBP2-6m GBP5m Sale of site completed
------------------------------ ------------- ---------- -----------------------------------------------------------
Other (8 projects) GBP8m GBP7m
------------------------------ ------------- ---------- -----------------------------------------------------------
Total GBP35-40m GBP35m
------------------------------ ------------- ---------- -----------------------------------------------------------
* As at 19 October 2016
PPP development
The PPP model reflects our core strengths as a business and is responding to a real need within the UK regeneration market. We are experts in this field in which there are significant barriers to entry. One of the keys to this form of development is that the public sector is not completely price sensitive. It is driven by its definition of 'best value' which differs from project to project. This plays to our strengths and focus on delivering places that put people at their heart and which embrace good design at their foundation. The mixed-use nature of these sites is also best suited to development partners such as ourselves with a 25-year track record of delivering complex urban regeneration projects.
One of the benefits of the PPP model to U+I lies in the equity-light nature of these partnerships. Typically the public sector partner seeds the partnership with land and U+I applies its planning and development expertise to deliver a completed, regenerated place. Importantly, risk and equity is spread across the development phases. U+I commits a maximum of GBP20 million of equity in any one project spread across the planning, viability and development phases and manages the associated risks. Ultimately, the public and private sector partners share in the profit delivered by the development. This allows us to control risk, limit our equity exposure in any one project and deliver large scale projects in a capital efficient manner.
This has been a highly successful year for the business, winning four PPP projects: 8 Albert Embankment, Mayfield, Cockpit Yard and Westminster Industrial Estate. These projects taken together have added more than GBP1.5 billion of GDV to our pipeline and further cemented our reputation as a leading regeneration developer and the public sector's partner of choice.
Trading
We also apply our core skills to a pipeline of trading activity, whereby we source undervalued land and buildings with potential for value creation through improved planning consents. Typically these projects allow us to acquire assets and realise gains over the short-term. We focus on opportunities where terms of trade are in our favour and where we can efficiently unlock value via planning and/or asset management. We have a strong track record in being able to source well-priced land, drive value through planning and monetise this value through disposals.
Birmingham International Park exemplifies this approach, generating GBP8.4 million of gains to the Company this year, with the profitable realisation demonstrating the importance of planning as the value trigger, enabling us to capture gain from the land and assets within our portfolio.
Investment portfolio
Our investment portfolio size reduced from GBP203.3 million to GBP179.2 million, largely as a result of disposing of GBP18.0 million of non-core assets. On a like for like basis, our portfolio valuation declined by 5.1%. Though values stabilised in the second half of the year, our portfolio suffered a 4.6% decline in H1 as a result of weakness in the regional retail markets in which we operate, partly impacted by the slowdown after the EU referendum. We expect values to remain stable across the market in the next 12 months. Disposing of non-core assets was a focus for us during the year and a key part of our strategy to transition the portfolio.
On a like for like basis, our rental income increased to GBP12.7 million and we maintained low void rates of 4.7% across the portfolio through our proactive asset management activities. To support our strategy of transitioning our investment portfolio our focus for the year ahead is as follows:
- Acquisitions: Target a minimum of GBP50m of new assets that align to our regeneration focus and retention of assets from our development portfolio
- Drive value: Continue to create value through selective planning change of use and proactive asset management - GBP5.0m of management-driven value uplift to be delivered in FY2018
- Disposals: Where we have reached the end of our asset business plan, we will dispose of mature assets, targeting a further GBP50m of sales in the year ahead
Number of assets
18
Feb 2016: 20
Valuation change (inc JVs)
(GBP6.8m)
Feb 2016: GBP1.7m
Size of portfolio
GBP179.2m
Feb 2016: GBP203.3m
Initial yield*
6.6%
Feb 2016: 6.8%
Contracted rental income
GBP12.7m
Feb 2016: GBP13.6m
Estimated rental value*
GBP13.7m
Feb 2016: GBP13.5
Void rate
4.7%
Feb 2016: 4.5%
Equivalent yield*
7.5%
Feb 2016: 7.1%
* on a like-for-like basis and core portfolio only
Investment portfolio strategy
We are repositioning our investment portfolio over the next four years, with the following objectives:
- Drive growth from our investment portfolio with a target of 10% return per annum to support our overall 12% total returns target
- Use our collective intellectual capital and regeneration expertise to drive value from overlooked and undervalued investment assets
- Provide the business with a stable rental income stream - Provide greater optionality within our portfolio:
- Store income-producing assets with longer-term potential for regeneration (warehouse assets)
- Retain elements of our completed developments or acquire assets close to development projects that will benefit from the halo effect of our regeneration
Rationalisation: This year, within our current portfolio, we have made continued progress to dispose of mature assets. During the year we sold GBP18.0 million of investment assets, disposing of a number of properties and elements of schemes that no longer fit our strategic objectives for the overall business plan for the asset. Since the year end, we have agreed terms on a further GBP8.0 million of non-core asset disposals and a new acquisition of GBP10.0 million.
Optimisation: We have also made good progress to optimise the value of specific assets for example at our retail scheme in Killingworth. Matalan currently occupy a large unit within the scheme that no longer fits their space requirements. Terms have now been agreed with Matalan to split this unit, downsize their store, and to re-let the remaining space to a national retailer, with an anticipated resultant yield shift from 7.75% to 6.75% on this element. There are also two drive-through restaurants within the site which were valued at a 7.5% yield in line with the whole scheme. However, these well-let, self-contained assets can be separated from the scheme, allowing us to sell into the strong private investor market. By carving out these units from the overall scheme, we will realise disposals at a yield of circa 5.8%.
Reinvestment: Going forward, our investment strategy is aligned with our core strengths as a regeneration specialist.
We will continue to invest in our core markets, focusing on assets where performance can be driven through a specific regeneration process. We will look to reposition assets through active asset management, refurbishment and development whilst also focusing on investment assets where there is redevelopment upside that can be unlocked in the future via the planning process (warehouse assets). We will also retain elements of our completed regeneration projects where we believe there is more value to be created, allowing us to benefit from the positive impact we have created in that location (retained assets).
Top five occupiers as at 28 February 2017
% of
Annual rent contracted
GBP'm rent
------------------------ ------------ ------------
1. Waitrose 1.59 12.48
------------------------ ------------ ------------
2. Matalan 0.72 5.61
------------------------ ------------ ------------
3. J Sainsbury 0.49 3.85
------------------------ ------------ ------------
4. Ricardo-Aea Limited 0.39 3.06
------------------------ ------------ ------------
5. Wilkinson 0.28 2.23
------------------------ ------------ ------------
Income generating properties - Like-for-like rental income received
Property
owned Total
throughout rental
Year ended 28 February the year Acquisitions Disposals income
2017 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ------------ ------------- ---------- ---------
Investment 12,035 390 311 12,736
Development and trading 2,494 552 315 3,361
Joint ventures 2,050 431 403 2,884
------------------------- ------------ ------------- ---------- ---------
16,579 1,373 1,029 18,981
------------------------- ------------ ------------- ---------- ---------
Year ended 29 February
2016
------------------------- ------- ---- ------ -------
Investment 12,313 297 1,632 14,242
Development and trading 2,679 452 1,518 4,649
Joint ventures 1,984 93 1,462 3,539
------------------------- ------- ---- ------ -------
16,976 842 4,612 22,430
------------------------- ------- ---- ------ -------
Core investment portfolio - 28 February 2017
Gross rental income- tenant profile
1. PLC/nationals - (63.1%)
2. Local traders - (26.9%)
3. Regional multiples - (4.3%)
4. Government - (1.8%)
5. FTSE 100 - (3.9%)
Gross rental income- lease term profile
1. 0 - <5 years - (48.3%)
2. 5 - <10 years - (29.5%)
3. 10 - <15 years - (11.0%)
4. 15 - <20 years - (1.6%)
5. 20 years+ - (9.6%)
Capital value- location profile
1. South East - (37.8%)
2. South West - (25.1%)
3. North - (19.2%)
4. London - (6.3%)
5. Wales - (4.7%)
6. Northern Ireland - (4.4%)
7. Midlands - (2.5%)
Specialist platforms
As set out in our strategic objectives, specialist platforms are a way for us to deliver a greater number of projects in a capital-efficient manner.
By creating off balance sheet funding with large-scale capital partners, we focus on building a portfolio of opportunities within a specific asset class where we have a competitive advantage. We invest a minority equity stake in the joint venture (JV) and take responsibility for development, planning, letting and asset management in order to complete the business plan for each asset within the JV. In return, we receive a promoted position and annual management fees. The management fees help to offset central overhead costs, effectively allowing us to leverage our existing overhead more productively.
Financial Review
Results for the year
During the year, the Group focused on delivering on its strategic initiatives of fewer, larger projects, improving the performance of the investment portfolio and launching specialist platforms. At the same time, it continued to deliver gains from its development and trading portfolio albeit within the context of greater economic and political uncertainty resulting from the EU referendum.
Below is a summary of the Group's results for the year ended 28 February 2017:
2017 2016
------------------------------------ ----------- ----------
Development and trading gains GBP35.0m GBP51.1m
------------------------------------ ----------- ----------
Basic net asset value (NAV) GBP347.6m GBP363.3m
------------------------------------ ----------- ----------
Basic NAV per share 278p 291p
------------------------------------ ----------- ----------
Total declared dividends per share 8.7p 13.9p
------------------------------------ ----------- ----------
(Loss)/profit before tax GBP(1.7)m* GBP25.8m
------------------------------------ ----------- ----------
Total return 0.2% 7.2%
------------------------------------ ----------- ----------
Balance sheet gearing 34.8% 44.4%
------------------------------------ ----------- ----------
* After an exceptional item of GBP2.1m.
The loss before tax for the year to 28 February 2017 is GBP1.7 million (2016: GBP25.8 million profit), a reduction of GBP27.5 million from the previous year, after an exceptional charge of GBP2.1 million in respect of the Group's serviced office business (refer note 2b).
The total development and trading gains for the year were GBP35.0 million (2016: GBP51.1million), at the lower end of our guidance, but once again demonstrating the benefit of a diversified portfolio of projects in a challenging market.
As reported in the first half of the year, we suffered a valuation decline of GBP8.6 million in our investment portfolio. Capital values have stabilised over the second half of the year to deliver a full-year valuation decline of GBP9.5 million (2016: GBP0.2 million gain). The challenge now for our investment portfolio is to reinvest proceeds from the strategic disposals during the year into assets more closely aligned with our regeneration model. During the year, delays in the ability to reinvest approximately GBP24.4 million of restricted cash reserves has meant that rental income has been approximately GBP1.5 million less than in 2016. This should be addressed during the first half of our 2018 financial year.
The movement in net assets for the year are shown below:
Pence per
share
------------------------------------------------------ ----------
Net assets per share at
29 February 2016 291
* Supplemental dividend declared in 2016 (8)
------------------------------------------------------ ----------
Restated net assets per
share at 29 February 2016 283
* Contribution from investment segment 8
* Loss on disposal of investment assets (2)
* Revaluation deficit (5)
* Development and trading gains 28
* Operating costs (18)
* Exceptional item (2)
* Net interest costs (7)
* Taxation (1)
* Dividends (final 2016 and interim 2017) (6)
------------------------------------------------------ ----------
Net assets per share at
28 February 2017 278
------------------------------------------------------ ----------
Development and trading gains
During the year, we have realised a total of GBP35.0 million of trading and development gains. The key components of these gains are:
- GBP8.4 million - Birmingham International Park: disposal of a land holding post receipt of planning permission for GBP9.6million
- GBP5.3 million - Elizabeth House, Woking: surrender premium from the existing tenant and subsequent disposal of the office building with residential consent.
- GBP4.3 million - The Vertium Building, Dublin: pre-letting of the building in course of construction.
- GBP3.8 million - Ashford Powergen site: disposal of land post receipt of residential planning consent.
- GBP2.3 million - Maidstone: disposal of land post receipt of residential planning consent.
- GBP3.0 million - Percy Place, Dublin: disposal of mixed-use scheme post construction and letting.
These results were achieved against a backdrop of both political and economic uncertainty following the EU referendum vote in June 2016. This led to a slowdown in investment markets as sources of capital waited to consider the impact of the referendum. Businesses were also reluctant to commit new funds to investment in either real estate or their businesses.
Development and trading gains can be analysed as follows:
2017 2016
GBPm GBPm
---------------------------------------- ------ ------
Included in segmental analysis:
Development and trading segment result 28.5 39.0
Share of results of joint ventures 3.0 (0.3)
Sale of investment 0.6 2.2
Other income 0.7 0.2
Included in net finance costs:
Interest from financial asset 1.1 1.7
Other asset realisations 1.1 8.3
---------------------------------------- ------ ------
35.0 51.1
---------------------------------------- ------ ------
Overheads
We have announced that, during 2018 we intend to produce savings of GBP2.0 million in our net recurring overheads from a combination of cost efficiencies and the generation of management fees from specialist platforms.
During the year, the launch of specialist platforms with Colony NorthStar and Proprium Capital Partners has set us well on the way to delivering the fee target and we continue to look at ways to drive efficiencies across the business, focusing particularly on simplifying our corporate structure, reducing the number of corporate entities and leveraging our intellectual capital.
The overheads during 2017 comprised:
2017
GBPm
----------------------------------------- ------
Core recurring overheads 20.3
----------------------------------------- ------
Non-recurring staff costs 0.5
----------------------------------------- ------
LTIP charge (net) 0.9
----------------------------------------- ------
Closedown of historical tax structuring 0.4
----------------------------------------- ------
22.1
----------------------------------------- ------
Net finance costs
Net finance costs for the year of GBP10.8 million (2016: GBP12.9 million) include foreign exchange deficit of GBP3.4 million (2016: GBP3.2 million deficit) in respect of the retranslation of Euro-denominated loans and deposits.
For entities where the reporting currency is in Euros, retranslation differences are charged to reserves. The movement for 2017 was a gain of GBP3.0 million (2016: GBP2.4 million gain). The net impact of these movements on NAV during the year was GBP0.4 million loss (2016: GBP0.8 million loss).
Debt
We use debt finance to leverage the use of our equity in property transactions. We continue to borrow from a wide range of financial institutions, including UK clearing banks, insurance company-backed lenders, debt funds and financial institutions. The availability of debt finance has not impacted our ability to transact new property deals. We are currently seeking to negotiate greater flexibility into our investment property facility with Aviva so as to facilitate the restructure of our investment portfolio in line with Group strategy.
During the year, the following facilities were re-negotiated or drawn down:
On balance sheet
- Refinance of the GBP28.0 million Lloyds facility, secured on investment assets in Ringwood and Thatcham. This is a two-year investment facility with substitution rights and a cost of 2.5%.
- New development funding from Quadrant for the build-out of Valentine House, Ilford: a facility of GBP30.7 million at a fixed rate of 7.5%. This facility is for the build-out of the pre-sold residential units.
In joint venture
- In our Office Repositioning Platform with Colony NorthStar, we have signed a EUR42.2 million facility with Quadrant to fund the acquisition and refurbishment of the first three properties.
- In our Income Producing Development Assets Platform with Proprium Capital Partners, we have signed a GBP11.3 million loan facility with RBS.
Details of our debt facilities are shown in the table below:
Group's bank facilities
Principal financial highlights
----------------------------------------------------------------------------------------------------------------------
Utilised as
at Minimum(1)
Facility Total 28 Feb 2017 Interest Loan to Interest(1) net worth
type Notes facility GBP'000 rate Maturity value ratio cover ratio GBP'000
------------- ------ ----------- ------------ --------- ---------- ------------- ------------- -----------
Loans financing longer-term assets
----------------------------------------------------------------------------------------------------------------------
Revolving
credit GBP28,000 28,000 Variable 16-Dec-18 65% 200% -
------------- ------ ----------- ------------ --------- ---------- ------------- ------------- -----------
Term loan GBP12,000 11,839 Cap 05-Jan-19 50% 200% -
------------- ------ ----------- ------------ --------- ---------- ------------- ------------- -----------
Term loan 4 GBP10,580 10,580 Variable 10-Jan-20 73% 160% -
------------- ------ ----------- ------------ --------- ---------- ------------- ------------- -----------
Term loan GBP2,795 2,312 Variable 22-May-20 - - -
------------- ------ ----------- ------------ --------- ---------- ------------- ------------- -----------
Loan notes 2 EUR47,000 40,133 Cap 24-Apr-21 - - -
------------- ------ ----------- ------------ --------- ---------- ------------- ------------- -----------
Term loan GBP57,565 49,135 Fixed 12-Mar-25 80% 110% -
------------- ------ ----------- ------------ --------- ---------- ------------- ------------- -----------
Term loan GBP22,470 19,284 Fixed 12-Mar-25 80% 110% -
------------- ------ ----------- ------------ --------- ---------- ------------- ------------- -----------
Loans financing development and trading assets
----------------------------------------------------------------------------------------------------------------------
Revolving
credit 3 EUR20,000 2,562 Variable 20-Apr-17 - - -
------------- ------ ----------- ------------ --------- ---------- ------------- ------------- -----------
Term loan 4 GBP26,000 26,000 Cap 30-Sep-17 60% 125% 100,000
------------- ------ ----------- ------------ --------- ---------- ------------- ------------- -----------
Term loan 4 GBP4,900 4,900 Fixed 17-Nov-17 - - -
------------- ------ ----------- ------------ --------- ---------- ------------- ------------- -----------
Term loan 5 GBP9,500 12,276 Variable 31-Mar-18 - - -
------------- ------ ----------- ------------ --------- ---------- ------------- ------------- -----------
Term loan GBP4,539 1,310 Variable 14-Jun-18 - - -
------------- ------ ----------- ------------ --------- ---------- ------------- ------------- -----------
Term loan GBP2,751 153 Variable 19-Jul-18 - - -
------------- ------ ----------- ------------ --------- ---------- ------------- ------------- -----------
Term loan EUR24,307 3,075 Variable 01-Aug-18 73% 110% -
------------- ------ ----------- ------------ --------- ---------- ------------- ------------- -----------
Term loan GBP30,750 4,053 Fixed 25-Nov-18 70% - -
------------- ------ ----------- ------------ --------- ---------- ------------- ------------- -----------
Term loan GBP24,500 - Fixed 31-Jan-19 - - -
------------- ------ ----------- ------------ --------- ---------- ------------- ------------- -----------
Term loan 4 GBP44,100 37,419 Fixed 24-Feb-19 - - -
------------- ------ ----------- ------------ --------- ---------- ------------- ------------- -----------
Term loan 4 EUR22,045 6,593 Fixed 18-Nov-19 - - -
------------- ------ ----------- ------------ --------- ---------- ------------- ------------- -----------
Term loan 4 EUR20,125 10,153 Fixed 06-Jan-20 - - -
------------- ------ ----------- ------------ --------- ---------- ------------- ------------- -----------
Term loan 4 GBP11,300 11,300 Variable 28-Oct-20 55% 150% -
------------- ------ ----------- ------------ --------- ---------- ------------- ------------- -----------
Term loan 4 GBP5,610 5,553 Cap 31-Mar-21 60% 175% -
------------- ------ ----------- ------------ --------- ---------- ------------- ------------- -----------
Term loan 4 GBP12,725 12,725 SWAP 01-Sep-21 50% 120% -
------------- ------ ----------- ------------ --------- ---------- ------------- ------------- -----------
1 Interest cover ratios are specific to the loan and the relevant property. Minimum net worth refers to the net asset value of the Group per its latest Balance Sheet (28 February or 31 August).
2 These unsecured, variable rate loan notes are denominated in Euros, with a nominal value of EUR47 million. An interest rate cap is in place to limit the Group's exposure to movements in the EURIBOR rate however, the Group's option to acquire EUR25,000,000 expired in April 2017.
3 This facility has been extended to 20 August 2017 since the year end. 4 Loans relating to joint ventures represent the total loan facility and not the Group's share. 5 This facility has the provision to allow interest to be rolled into the loan.
Represents the amount of the Group's liability in Sterling as at the balance sheet date.
Debt maturity profile
Our debt policy can be summarised as follows:
- Longer-term fixed rate facilities are used to fund longer-term income-producing assets. Target loan to value (LTV): 60-65%.
- Shorter-term asset-specific debt aligned to the business plan for shorter-term trading assets. Target LTV: 50-55%.
- Long-term Euro-denominated corporate debt to support our investment into Euro-denominated assets in Dublin. No LTV target as this is corporate level debt.
- The Group has no specific debt on non-income producing assets or investments into PPP schemes.
- Joint venture arrangements are designed to leverage both our operational expertise and our Balance Sheet. When acting with third party capital we deploy asset specific debt, which is often at a higher LTV (65-75%), reflecting the risk appetite and cost of capital of our partners.
- A summary of the Group's gearing is shown below:
Target 28 Feb 26 Apr 29 Feb
2017 2017 2016
------------------------------ ------- ------- ------- -------
Gearing (excl. share of JVs) 40-50% 34.8% 37.6% 44.4%
------------------------------ ------- ------- ------- -------
Gearing (incl. share of JVs) 50-60% 46.8% 50.2% 56.4%
------------------------------ ------- ------- ------- -------
The greatest fluctuation in gearing occurs where we utilise debt to fund the build-out of pre-sold residential developments on our own Balance Sheet. This peaked at 59.2% during FY2017.
Our overall gearing targets therefore act as a limit on the amount of development that we can undertake on our own Balance Sheet.
The Group maintains a mix of variable and fixed rate facilities to provide a degree of certainty whilst also benefiting from historically low interest rates. Longer-term facilities tend to be structured with fixed rates. A summary of the Group's interest rate exposure is shown below:
2017 2016
------------------------------------- ------- -------- --------
Group net debt and gearing
------------------------------------- ------- -------- --------
Gross debt GBPm (172.1) (213.3)
------------------------------------- ------- -------- --------
Cash and cash equivalents GBPm 51.3 51.8
------------------------------------- ------- -------- --------
Net debt GBPm (120.8) (161.5)
------------------------------------- ------- -------- --------
Net assets GBPm 347.6 363.3
------------------------------------- ------- -------- --------
Gearing % 34.8 44.4
------------------------------------- ------- -------- --------
Weighted average debt maturity years 4.8 4.5
Weighted average interest rate % 4.6 4.9
------------------------------------- ------- -------- --------
Including joint ventures:
Share of net debt in joint ventures GBPm (44.0) (43.6)
------------------------------------- ------- -------- --------
Gearing % 47.4 56.4
------------------------------------- ------- -------- --------
Weighted average debt maturity years 4.2 4.2
------------------------------------- ------- -------- --------
Weighted average interest rate % 4.9 5.0
------------------------------------- ------- -------- --------
Joint venture arrangements
The Group has a policy of working in joint venture arrangements as a way of:
- Leveraging our equity so we can participate in projects that would otherwise would be of too large for our Balance Sheet.
- Accessing deals with specialist partners who have secured positions on projects but require further equity and the planning and structuring skills, which are a key part of our business.
During the year, the Group entered into two new large-scale joint ventures (specialist platforms):
- A joint venture with Colony NorthStar, targeting EUR300 million of office refurbishment and repositioning opportunities in London, Manchester and Dublin. The Group has a 50.0% holding in the joint venture, Luxembourg Investment Company 112 Sarl, and gearing was 18.5% as at 28 February 2017. Gearing is below the target range as both joint venture partners have deposited large cash balances in the entity to cover future development spend.
- A joint venture with Proprium Capital Partners targeting up to GBP200 million of income-producing assets with development potential in the London City Region. The Group has a 20.0% holding in the joint venture, UAIP (Drum) BV, and gearing was 85.6% as at 28 February 2017, in accordance with the capital structure agreed with our joint venture partner.
The Group's joint ventures and associates are analysed in more detail in note 7.
Taxation
Our tax strategy is aligned with our overall business strategy and is principled, transparent and sustainable for the long term. The key components of this strategy are:
- A commitment to ensure full compliance with all statutory obligations including full disclosure to all relevant tax authorities;
- Any tax planning strategy entered into is only implemented after full consideration of the risks. Those findings are recorded in any relevant structuring document;
- The maintenance of good relationships with tax authorities and a clear interaction between tax planning and the Group's wider corporate reputation and responsibility; and
- Management of tax affairs in a manner that seeks to maximise shareholder value whilst operating within the parameters of existing tax legislation.
The Group has operations in certain jurisdictions that have been dictated to us by our majority capital partners. Under most circumstances the Group does not enjoy any fiscal advantage by being in those jurisdictions. The Group undertakes an annual Transfer Pricing Review to ensure that all cross-border services provided are conducted at the appropriate arm's length market rate.
The suitability of our tax strategy is kept under constant review to ensure compliance with both the fiscal needs of the Group and the constant evolution of tax legislation.
Dividends
Our dividend policy consists of two elements as follows:
- An Ordinary dividend, comprising interim and final at 2.4 pence and 3.5 pence per share respectively; and
- A supplemental dividend related to the net free level of cash flow generated during the financial year.
A final dividend of 3.5 pence per share will be recommended to shareholders at the Annual General Meeting (AGM) on 11 July 2017, to be paid on 17 August 2017 to shareholders on the register on 21 July 2017 (2016: 3.5 pence per share).
On 25 April 2017, the Board approved the payment of a supplemental dividend of 2.8 pence per share, to be paid on 16 June 2017 to shareholders on the register on 12 May 2017.
Foreign currency movements
The Group's operations are conducted primarily in the UK. However, as one of its three core regions is Dublin, the Group is exposed to movements in foreign exchange rates between Sterling and Euros.
The Group's principal exposure to foreign currency movements is in respect of its EUR47.0 million Euro-denominated loan notes, Euro-denominated bank loans and property assets.
At 28 February 2017, the Group had net Euro-denominated liabilities of EUR16.6 million (2016: EUR9.7 million).
During the year, the value of Sterling against the Euro fell significantly, following the EU referendum in June 2016. The impact on our NAV during the period was a reduction of GBP0.4 million, which is the net result of a loss of GBP3.4 million recorded in finance costs in the profit and loss account and a gain through reserves of GBP3.0 million.
EPRA
This year we have committed to provide more detailed disclosure in respect of our EPRA NAV, by adjusting to fair value both our trading properties and the property interests where we have obtained planning consent - planning being the main driver of value in the portfolio.
Unlike a real estate investment business, a significant part of our regeneration business model seeks to optimise the use of our Balance Sheet by entering into either conditional purchase agreements, land option agreements or development management agreements where we incur the design costs and fees associated with obtaining a planning consent, without purchasing the land up front. These types of structures mean that for a significant part (70%) of our development portfolio, we are not able to produce a reliable fair value in accordance with EPRA guidelines until such time as planning consent is obtained and land becomes unconditionally owned.
The table below provides a summary of the assets valued in our directly owned and joint venture development and trading portfolio.
% of assets Change in valuation
valued after tax
GBP'm
-------------------------------- ------------ --------------------
Directly owned portfolio 42.9 15.5
Assets held in joint venture 20.0 (2.4)
-------------------------------- ------------ --------------------
Total development and trading
portfolio 30.1 13.1
-------------------------------- ------------ --------------------
We understand that EPRA NAV is the accepted valuation metric for real estate investment companies. However, U+I's business model and our preference for developing assets using third-party capital rather than our own, mean that EPRA NAV does not deliver a complete picture of the potential value within both our portfolio of assets and various contractual arrangements. We will continue to give guidance as to expected development and trading gains over the next three years as a more complete picture of the potential value within the Group's projects.
Five-year summary
2017 2016 2015 2014 2013
------------------------------- ------- ------ ------ ------ ------ ------
Revenue GBPm 123.9 242.3 203.7 79.3 99.7
(Loss)/profit before taxation GBPm (1.7) 25.8 34.8 19.5 0.8
Net assets GBPm 347.6 363.3 346.4 320.3 306.7
(Loss)/earnings per share Pence (2.4) 17.5 26.8 14.9 2.0
Net assets per share Pence 278 291 276 262 251
Marcus Shepherd
Finance Director
26 April 2017
Consolidated Statement of Comprehensive Income
For the year ended 28 February 2017
Notes 2017 2016
Total Total
GBP'000 GBP'000
---------------------------------------------------------------- ------ --------- ----------
Revenue 2 123,931 242,282
Direct costs 2 (86,863) (192,430)
---------------------------------------------------------------- ------ --------- ----------
Gross profit 2 37,068 49,852
Operating costs 2 (22,061) (21,752)
(Loss)/gain on disposal of investment properties 2 (2,273) 440
(Loss)/gain on revaluation of property portfolio 6 (9,506) 229
---------------------------------------------------------------- ------ --------- ----------
Operating profit before exceptional item 3,228 28,769
Exceptional impairment of operating segment 2(b) (2,150) -
Operating profit after exceptional item 1,078 28,769
Other income 1,320 673
Share of post-tax profits of joint ventures and associates 7 6,134 7,127
Profit from sale of investment 567 2,174
Loss on sale of other plant and equipment (25) (87)
---------------------------------------------------------------- ------ --------- ----------
Profit before interest and income tax 9,074 38,656
Finance income 3(a) 711 2,483
Finance costs 3(b) (11,495) (15,351)
---------------------------------------------------------------- ------ --------- ----------
(Loss)/ before income tax (1,710) 25,788
Income tax (1,293) (2,453)
---------------------------------------------------------------- ------ --------- ----------
(Loss)/profit for the year (3,003) 23,335
---------------------------------------------------------------- ------ --------- ----------
(Loss)/profit attributable to:
Owners of the Parent (3,003) 21,828
Non-controlling interest - 1,507
---------------------------------------------------------------- ------ --------- ----------
(3,003) 23,335
OTHER COMPREHENSIVE INCOME
(Loss)/profit for the year (3,003) 23,335
Items that may be subsequently reclassified to profit or loss:
Currency translation differences 2,958 2,438
Revaluation of operating property - 129
Fair value adjustment of available-for-sale asset realised - (142)
Deferred income tax credit 127 28
---------------------------------------------------------------- ------ --------- ----------
Total comprehensive income for the year 82 25,788
---------------------------------------------------------------- ------ --------- ----------
Attributable to:
Owners of the Parent 82 24,281
Non-controlling interest - 1,507
---------------------------------------------------------------- ------ --------- ----------
82 25,788
---------------------------------------------------------------- ------ --------- ----------
Basic (loss)/earnings per share attributable to the Parent* 5 (2.4)p 17.5p
---------------------------------------------------------------- ------ --------- ----------
Diluted (loss)/earnings per share attributable to the Parent* 5 (2.4)p 17.5p
---------------------------------------------------------------- ------ --------- ----------
* Adjusted earnings per share from continuing activities is given in note 5.
All amounts in the Consolidated Statement of Comprehensive Income relate to continuing operations.
Consolidated Balance Sheet
As at 28 February 2017
2017 2016
Notes GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------------------------- ------ ---------- ---------- ---------- ----------
NON-CURRENT ASSETS
Direct real estate interests
Investment properties 6 179,199 203,318
Operating property 800 860
Trade and other receivables 9(a) 2,858 3,403
-------------------------------------------------------------- ------ ---------- ---------- ---------- ----------
182,857 207,581
Indirect real estate interests
Investments in associates 7 8,372 4,309
Investments in joint ventures 7 46,089 46,782
Intangible assets - goodwill 2,328 2,328
Loans to joint operations and other real estate businesses 11(a) 19,859 37,357
-------------------------------------------------------------- ------ ---------- ---------- ---------- ----------
76,648 90,776
Other non-current assets
Other plant and equipment 5,770 7,017
Derivative financial instruments 11(c) 257 315
Deferred income tax assets 1,359 1,230
-------------------------------------------------------------- ------ ---------- ---------- ---------- ----------
7,386 8,562
-------------------------------------------------------------- ------ ---------- ---------- ---------- ----------
Total non-current assets 266,891 306,919
-------------------------------------------------------------- ------ ---------- ---------- ---------- ----------
CURRENT ASSETS
Inventory - development and trading properties 8 208,342 199,779
Other financial assets 11(a) 18,524 1,700
Trade and other receivables 9(b) 48,720 86,420
Current income tax asset 16 -
Monies held in restricted accounts and deposits 27,486 8,096
Cash and cash equivalents 23,785 43,752
-------------------------------------------------------------- ------ ---------- ---------- ---------- ----------
326,873 339,747
-------------------------------------------------------------- ------ ---------- ---------- ---------- ----------
Total assets 593,764 646,666
-------------------------------------------------------------- ------ ---------- ---------- ---------- ----------
CURRENT LIABILITIES
Trade and other payables 10(b) (53,369) (55,110)
Current income tax liabilities - (2,508)
Borrowings 11(b) (4,508) (65,471)
Provisions 10(c) (1,394) (14)
-------------------------------------------------------------- ------ ---------- ---------- ---------- ----------
(59,271) (123,103)
NON-CURRENT LIABILITIES
Trade and other payables 10(a) (14,395) (7,134)
Borrowings 11(b) (167,617) (147,818)
Deferred income tax liabilities (3,568) (3,555)
Provisions 10(c) (1,288) (1,731)
-------------------------------------------------------------- ------ ---------- ---------- ---------- ----------
(186,868) (160,238)
Total liabilities (246,139) (283,341)
-------------------------------------------------------------- ------ ---------- ---------- ---------- ----------
Net assets 347,625 363,325
-------------------------------------------------------------- ------ ---------- ---------- ---------- ----------
EQUITY
Share capital 62,613 62,537
Share premium 104,325 104,113
Other reserves 54,551 51,861
Retained earnings 126,136 144,814
-------------------------------------------------------------- ------ ---------- ---------- ---------- ----------
Total equity 347,625 363,325
-------------------------------------------------------------- ------ ---------- ---------- ---------- ----------
Basic/diluted net assets per share attributable to the owners
of the Parent 5 278p/277p 291p/290p
-------------------------------------------------------------- ------ ---------- ---------- ---------- ----------
Approved and authorised for issue by the Board of Directors on 26 April 2017 and signed on its behalf by:
M S Weiner
Director
Consolidated Statement of Changes in Equity
For the year ended 28 February 2017
Share Share Other Retained Non-controlling Total
capital premium reserves earnings Total interest equity
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------- ------ ---------- ----------- ---------- ---------- ----------- ---------------- -----------
At 1 March
2015 62,529 104,094 48,677 130,358 345,658 722 346,380
----------------- ------ ---------- ----------- ---------- ---------- ----------- ---------------- -----------
Profit for
the year ended
29 February
2016 - - - 21,828 21,828 1,507 23,335
Other
comprehensive
income:
- Revaluation
of operating
property - - 129 - 129 - 129
- Fair value
adjustment
realised - - (142) - (142) - (142)
- Currency
translation
differences - - 2,438 - 2,438 - 2,438
- Deferred
income tax
credited
directly
to equity - - 28 - 28 - 28
----------------- ------ ---------- ----------- ---------- ---------- ----------- ---------------- -----------
Total
comprehensive
income for
the year ended
29 February
2016 - - 2,453 21,828 24,281 1,507 25,788
----------------- ------ ---------- ----------- ---------- ---------- ----------- ---------------- -----------
Issue of
Ordinary
shares 8 19 - - 27 - 27
Share-based
payments - - 731 - 731 - 731
Final dividend
2015 4 - - - (4,373) (4,373) - (4,373)
Interim dividend
2016 4 - - - (2,999) (2,999) - (2,999)
----------------- ------ ---------- ----------- ---------- ---------- ----------- ---------------- -----------
Total
contributions
by and
distributions
to owners
of the Company 8 19 731 (7,372) (6,614) - (6,614)
Transactions
with
non-controlling
interest - - - - - (2,229) (2,229)
----------------- ------ ---------- ----------- ---------- ---------- ----------- ---------------- -----------
Balance at
29 February
2016 62,537 104,113 51,861 144,814 363,325 - 363,325
----------------- ------ ---------- ----------- ---------- ---------- ----------- ---------------- -----------
Loss for the
year ended
28 February
2017 - - - (3,003) (3,003) - (3,003)
Other
comprehensive
income:
- Revaluation
of operating
property
realised
on sale - - (1,073) 1,073 - - -
- Fair value
adjustment
realised - - (630) 630 - - -
- Currency
translation
differences - - 2,958 - 2,958 - 2,958
- Deferred
income tax
credited
directly
to equity - - 127 - 127 - 127
----------------- ------ ---------- ----------- ---------- ---------- ----------- ---------------- -----------
Total
comprehensive
income for
the year ended
28 February
2017 - - 1,382 (1,300) 82 - 82
----------------- ------ ---------- ----------- ---------- ---------- ----------- ---------------- -----------
Issue of
Ordinary
shares 76 212 - - 288 - 288
Share-based
payments - - 1,308 - 1,308 - 1,308
Final dividend
2016 4 - - - (4,378) (4,378) - (4,378)
Supplemental
dividend 2016 4 - - - (9,997) (9,997) - (9,997)
Interim dividend
2017 4 - - - (3,003) (3,003) - (3,003)
----------------- ------ ---------- ----------- ---------- ---------- ----------- ---------------- -----------
Total
contributions
by and
distributions
to owners
of the Company 76 212 1,308 (17,378) (15,782) - (15,782)
----------------- ------ ---------- ----------- ---------- ---------- ----------- ---------------- -----------
Balance at
28 February
2017 62,613 104,325 54,551 126,136 347,625 - 347,625
----------------- ------ ---------- ----------- ---------- ---------- ----------- ---------------- -----------
Consolidated Cash Flow Statement
For the year ended 28 February 2017
Notes 2017 2016
GBP'000 GBP'000
-------------------------------------------------------------------------- ------ ---------- ----------
CASH GENERATED FROM OPERATIONS
Cash flows generated from operating activities 12 56,859 7,995
Interest paid (7,774) (11,445)
Income tax paid (3,806) (2,791)
-------------------------------------------------------------------------- ------ ---------- ----------
Net cash generated from/(used in) operating activities 45,279 (6,241)
-------------------------------------------------------------------------- ------ ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received 443 2,822
Proceeds on disposal of other plant and equipment 11 38
Proceeds on disposal of investment properties 16,250 11,106
Purchase of other plant and equipment (601) (5,459)
Purchase of investment properties (3,051) (7,094)
Acquisition of subsidiaries, net of cash and including acquisition costs - (4,222)
Cash outflow to joint ventures and associates (19,197) (9,001)
Cash inflow from joint ventures and associates 24,245 9,603 Investment in financial assets (518) (3,605) Cash inflow from financial assets 1,816 3,152 Dividends received - 40 -------------------------------------------------------------------------- ------ ---------- ---------- Net cash generated from/(used in) investing activities 19,398 (2,620) -------------------------------------------------------------------------- ------ ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid (17,378) (17,367) Issue of new shares 288 27 Repayments of borrowings (81,677) (59,788) New bank loans raised (net of transaction costs) 32,855 60,404 Equity repayment to non-controlling interest - (2,229) (Increase)/decrease in monies held in restricted accounts and deposits (19,390) 11,284 -------------------------------------------------------------------------- ------ ---------- ---------- Net cash used in financing activities (85,302) (7,669) -------------------------------------------------------------------------- ------ ---------- ---------- Net decrease in cash and cash equivalents (20,625) (16,530) Cash and cash equivalents at the beginning of the year 43,752 59,949 Exchange gains on cash and cash equivalents 658 333 -------------------------------------------------------------------------- ------ ---------- ---------- Cash and cash equivalents at the end of the year 23,785 43,752 -------------------------------------------------------------------------- ------ ---------- ---------- CASH AND CASH EQUIVALENTS COMPRISE: Cash at bank and in hand 23,785 43,752 Bank overdrafts 11(b) - - -------------------------------------------------------------------------- ------ ---------- ---------- Cash and cash equivalents at the end of the year 23,785 43,752 -------------------------------------------------------------------------- ------ ---------- ---------- NET DEBT COMPRISES: Monies held in restricted accounts and deposits 27,486 8,096 Cash and cash equivalents 23,785 43,752 Financial liabilities: - Current borrowings 11(b) (4,508) (65,471) - Non-current borrowings 11(b) (167,617) (147,818) -------------------------------------------------------------------------- ------ ---------- ---------- Net debt (120,854) (161,441) -------------------------------------------------------------------------- ------ ---------- ----------
Notes to the Consolidated financial statements
For the year ended 28 February 2017
1 Basis of preparation and accounting policies
a)
(i) General information
The Consolidated financial statements of the Group for the year ended 28 February 2017 comprise the results of U and I Group PLC and its subsidiaries and were authorised by the Board for issue on 25 April 2017.
The Company is a public limited company which is listed on the London Stock Exchange and is incorporated and domiciled in the UK. The address of its registered office is 7A Howick Place, London SW1P 1DZ.
(ii) Going concern
The Group adopts the going concern basis in preparing its Consolidated financial statements as discussed in the Financial Review.
b) Basis of preparation
The Group's financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), interpretations issued by the IFRS Interpretations Committee (IFRIC) and the Companies Act 2006. The accounting policies which follow set out those policies which were applied consistently in preparing the financial statements for the year ended 28 February 2017 and 29 February 2016.
The Consolidated financial statements have been prepared on a going concern basis and under the historical cost convention, as modified by the revaluation of investment property, operating property, available-for-sale financial assets and derivative instruments at fair value through profit and loss.
The financial information included in the preliminary announcement does not constitute statutory Consolidated financial statements of the Group for the years ended 28 February 2017 and 29 February 2016 but is derived from those Consolidated financial statements. Statutory Consolidated financial statements for 2016 have been delivered to the registrar of companies and those for 2017 will be delivered in due course. The auditors have reported on those financial statements; their reports were (i) unmodified, (ii) did not include a reference to any matters which the auditors drew attention by way of emphasis without modifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.
c) Critical accounting judgements and estimates
When preparing the Group financial statements, management are required to make judgements, assumptions and estimates concerning the future. These judgements and assumptions are made at the time the financial statements are prepared and adopted based on the best information available. Actual outcomes may be different from initial estimates and are reflected in the financial statements as soon as they become apparent. Management believe that the underlying assumptions are appropriate. Areas requiring judgements or estimates are discussed in the following section.
Judgements other than estimates
1.1 Classification of directly owned property assets
The Group earns revenue from property development, trading and investment, and operating serviced offices.
Property development includes the entire development process from identification of an opportunity through to construction, letting and sale of a completed scheme. This activity is undertaken both on the Group's own Balance Sheet and in partnership with institutional investors, usually via a pre-sale of the completed development.
Property trading refers to participation in the development process, where the Group acquires an interest in land and enhances the potential development, for instance by procuring or changing planning permission, before selling on to a third party to complete the development.
Property investment represents the acquisition of income-generating real estate which is held for the purposes of income and capital gain, through active asset management.
In most cases the property interest is held directly by the Group and is classified either as investment property (refer note 6) or as inventory for development and trading properties (refer note 8).
The varied nature of the Group's properties is such that a number exhibit characteristics consistent with more than one classification; also, the Directors' strategy for an asset may change during its ownership. The Directors determine the status of each asset according to their intention on acquisition. A change in classification is made only in exceptional circumstances, where the strategy has demonstrably changed for a period of over one year.
1.2 Classification of projects in partnership
In addition to its directly owned and managed activities, the Group participates in similar activities in partnership with others, typically to access expertise in different locations or market sectors. The Group's financial participation may be by way of equity investment or loan. In each case a judgement is required as to the status of the Group's interest, as an associate, a joint venture, a joint operation or a financial asset, typically focusing on the extent of control exercised by the Group.
The Group's share of control is governed and achieved by a mixture of rights set out in agreements and participation in the management of each business. The exercise of control in practice does not always follow the legal structure. The Directors have considered the position in respect of each venture, taking account of the operation in practice, and have determined the status of each accordingly.
These investments are reported under the relevant balance sheet headings, with a summary in note 14.
1.3 Acquisition of subsidiaries
The Group sometimes acquires properties through the purchase of entities which own real estate. At the time of acquisition, the Group considers whether the transaction represents the acquisition of a business. In cases where the entity is capable of being operated as a business, or an integrated set of activities is acquired in addition to the property, the Group accounts for the acquisition as a business combination. When the acquisition does not represent a business, it is accounted for as the purchase of a group of assets and liabilities. In making this distinction, the Group considers the number of items of land and buildings owned by the entity, the extent of ancillary services provided by the entity, and whether the entity has its own staff to manage the property (over and above the maintenance and security of the premises).
1.4 Accounting for pre-sold development assets
Where development is undertaken on the Group's Balance Sheet under a contract for a pre-sale, a judgement is required as to whether this represents a sale of property or a contract for construction. As at 28 February 2017 and 29 February 2016 the Group does not have any construction contracts (under IAS 11).
Estimates
1.5 Valuation of property assets
The key source of estimation uncertainty rests in the values of property assets, which affects several categories of asset in the Balance Sheet.
The investment property portfolio (and the operating property) are stated at fair value, which requires a number of judgements and estimates in assessing the qualities of the Group's assets relative to market transactions. Details of the judgements and assumptions made are set out in note 6.
The same uncertainties affect the determination of fair value of certain available-for-sale financial instruments, described in note 11, with the further complexity that the value of these assets requires estimates of future construction costs, tenant demand and market yields.
The Group's development and trading properties are carried at the lower of cost and net realisable value. The determination of net realisable value relies upon similar estimates, with the added challenge, in some cases, of judgements about uncertain planning outcomes. These amounts are disclosed in note 8.
1.6 Impairment reviews
The Group's Curzon Park Limited joint venture owns a development site in Birmingham known as Curzon Street. The current proposal for the high-speed train link between London and Birmingham (HS2) indicates that the planned route of HS2 passes through the site, including provision for part of the prospective station. In view of this, the ultimate value of the site is uncertain. It is not clear what impact HS2 will have on the development of the 10.5-acre site. The Directors believe that the site will recover at least its carrying value in the books of the joint venture, although the interim and ultimate uses of the site and timing of its development remain unclear. The site is discussed in note 11(a).
Following a review of investment strategy and in view of operating losses at Executive Communication Centres (ECC), the Group's serviced office subsidiary, the Group has conducted a review of its investment in the business. During the year, the Group has decided to exit two centres and carried out a full impairment review on this basis. The review required significant judgements and estimates concerning customer demand, competitor behaviour and discount rates for the sites that will continue to operate. The review determined that a net impairment of GBP2,150,000 was required against the closure of certain centres and future losses across the business. This impairment has been shown as an exceptional item (refer note 2b).
1.7 Derivative financial instruments
The Group is party to a number of interest rate swap and foreign currency agreements which are accounted for as derivatives and measured at fair value. The estimation of this figure is based upon market assumptions about future movements in interest and exchange rates. The estimated fair values and the movements in the year are set out in note 11(c).
1.8 Group Long-Term Incentive Plan (LTIP)
During the year, the Group made awards to staff under the Group's LTIP. The awards vest according to a number of performance criteria, the primary measure being net asset value growth over a three-year period. In calculating the provision to accrue, management are required to estimate net asset growth over the vesting period. The estimate is reassessed at each reporting date.
2 Segmental analysis
a) The segmental information presented consistently follows the information provided to the Chief Operating Decision-Maker (CODM) and reflects the three sectors in which the Group operates. The CODM, which is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Executive Committee. The three operating divisions are:
- Investment - management of the Group's investment property portfolio, generating rental income and valuation movements from property management;
- Development and trading - managing the Group's development and trading projects. Revenue is received from project management fees, development profits and the disposal of inventory; and
- Operating - serviced office operations. Revenue is principally received from short-term licence fee income.
Unallocated assets and liabilities comprise amounts that cannot be specifically allocated to operating segments; an analysis is provided below.
These divisions are the basis on which the Group reports its primary segmental information. All operations occur and all assets are located in the United Kingdom, except assets of GBP30,193,000 (2016: GBP38,871,000) which are located in the Republic of Ireland. All revenue arises from continuing operations.
Development
Investment and trading Operating Total
2017 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------------------------ ----------- ------------- ---------- ----------
Segment revenue 12,934 106,939 4,058 123,931
Direct costs (3,449) (78,467) (4,947) (86,863)
------------------------------------------------------------ ----------- ------------- ---------- ----------
Segment result 9,485 28,472 (889) 37,068
Operating costs (5,031) (17,030) - (22,061)
Loss on disposal of investment properties (2,273) - - (2,273)
Loss on revaluation of property portfolio (9,506) - - (9,506)
------------------------------------------------------------ ----------- ------------- ---------- ----------
Operating (loss)/profit before exceptional item (7,325) 11,442 (889) 3,228
Exceptional impairment of operating segment - - (2,150) (2,150)
------------------------------------------------------------ ----------- ------------- ---------- ----------
Operating (loss)/profit after exceptional item (7,325) 11,442 (3,039) 1,078
Other income 666 654 - 1,320
Share of post-tax profits of joint ventures and associates 3,144 2,990 - 6,134
Profit on sale of investment - 567 - 567
Unallocated loss on sale of other plant and equipment (25)
------------------------------------------------------------ ----------- ------------- ---------- ----------
Profit before interest and income tax 9,074
Finance income 532 179 - 711
Finance costs (6,714) (4,781) - (11,495)
------------------------------------------------------------ ----------- ------------- ---------- ----------
Loss before income tax (1,710)
Income tax (1,293)
------------------------------------------------------------ ----------- ------------- ---------- ----------
Loss for the year (3,003)
------------------------------------------------------------ ----------- ------------- ---------- ----------
ASSETS AND LIABILITIES
Segment assets 226,016 334,609 2,361 562,986
Unallocated assets 30,778
------------------------------------------------------------ ----------- ------------- ---------- ----------
Total assets 593,764
------------------------------------------------------------ ----------- ------------- ---------- ----------
Segment liabilities (104,059) (132,358) (3,796) (240,213)
Unallocated liabilities (5,926)
------------------------------------------------------------ ----------- ------------- ---------- ----------
Total liabilities (246,139)
------------------------------------------------------------ ----------- ------------- ---------- ----------
Development
Investment and trading Operating Total
2017 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------------- ----------- ------------- ---------- ---------
OTHER SEGMENT INFORMATION
Capital expenditure 3,746 119 83 3,948
Unallocated capital expenditure 380
Exceptional impairment of operating segment assets - - (1,173) (1,173)
Impairment of assets - (155) - (155)
Depreciation (6) - (347) (353)
Unallocated depreciation (663)
---------------------------------------------------- ----------- ------------- ---------- ---------
REVENUE
Rental income 12,736 3,361 - 16,097
Serviced office income - - 4,058 4,058
Project management fees - 1,052 - 1,052
Trading property sales - 34,917 - 34,917
Other trading property income - 2,834 - 2,834
Development proceeds - 64,775 - 64,775
Other 198 - - 198
---------------------------------------------------- ----------- ------------- ---------- ---------
12,934 106,939 4,058 123,931
---------------------------------------------------- ----------- ------------- ---------- ---------
In the year ended 28 February 2017, two projects with turnover totalling GBP28,765,000 generated in excess of 10.0% of total revenue and fell within the development and trading segment.
Development
Investment and trading Operating Total
2016 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ ----------- ------------- ---------- ----------
Segment revenue 14,397 223,652 4,233 242,282
Direct costs (2,365) (184,701) (5,364) (192,430)
------------------------------------ ----------- ------------- ---------- ----------
Segment result 12,032 38,951 (1,131) 49,852
Operating costs (3,617) (18,135) - (21,752)
Gain on disposal of investment
properties 440 - - 440
Gain on revaluation of property
portfolio 229 - - 229
------------------------------------ ----------- ------------- ---------- ----------
Operating profit/(loss) 9,084 20,816 (1,131) 28,769
Other income 483 190 - 673
Share of post-tax profits/(losses)
of joint ventures and associates 7,445 (318) - 7,127
Profit on sale of investment - 2,174 - 2,174
Unallocated loss on sale of
other plant and equipment (87)
------------------------------------ ----------- ------------- ---------- ----------
Profit before interest and
income tax 38,656
Finance income 813 1,670 - 2,483
Finance costs (6,280) (9,071) - (15,351)
------------------------------------ ----------- ------------- ---------- ----------
Profit before income tax 25,788
Income tax (2,453)
------------------------------------ ----------- ------------- ---------- ----------
Profit for the year 23,335
------------------------------------ ----------- ------------- ---------- ----------
ASSETS AND LIABILITIES
Segment assets 243,191 356,196 4,394 603,781
Unallocated assets 42,885
------------------------------------ ----------- ------------- ---------- ----------
Total assets 646,666
------------------------------------ ----------- ------------- ---------- ----------
Segment liabilities (105,500) (160,108) (3,353) (268,961)
Unallocated liabilities (14,380)
------------------------------------ ----------- ------------- ---------- ----------
Total liabilities (283,341)
------------------------------------ ----------- ------------- ---------- ----------
Development
Investment and trading Operating Total
2016 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- ----------- ------------- ---------- ---------
OTHER SEGMENT INFORMATION
Capital expenditure 6,819 532 160 7,511
Unallocated capital expenditure 5,032
Impairment of assets - (1,837) - (1,837)
Depreciation - (337) (465) (802)
Unallocated depreciation (242)
--------------------------------- ----------- ------------- ---------- ---------
REVENUE
Rental income 14,242 4,649 - 18,891
Serviced office income - - 4,233 4,233
Project management fees - 915 - 915
Trading property sales - 87,818 - 87,818
Other trading property income - 2,681 - 2,681
Development proceeds - 127,589 - 127,589
Other 155 - - 155
--------------------------------- ----------- ------------- ---------- ---------
14,397 223,652 4,233 242,282
--------------------------------- ----------- ------------- ---------- ---------
In the year ended 29 February 2016, four projects with turnover totalling GBP134,797,000 generated in excess of 10.0% of total revenue and fell within the development and trading segment.
2017 2016
GBP'000 GBP'000
----------------------------------------------------- --------- ---------
UNALLOCATED ASSETS CAN BE ANALYSED AS FOLLOWS:
Other plant and equipment 4,616 4,924
Deferred income tax asset 1,359 1,230
Derivative financial instruments 257 315
Trade and other receivables 5,014 4,169
Cash and cash equivalents 19,532 32,247
----------------------------------------------------- --------- ---------
30,778 42,885
----------------------------------------------------- --------- ---------
UNALLOCATED LIABILITIES CAN BE ANALYSED AS FOLLOWS:
Current borrowings (17) (17)
Trade and other payables (2,341) (10,808)
Deferred income tax liability (3,568) (3,555)
----------------------------------------------------- --------- ---------
(5,926) (14,380)
----------------------------------------------------- --------- ---------
b) Exceptional item
In view of the operating losses at the Group's serviced office subsidiary, the Group conducted a review of the business. The review concluded that as this business sector was not core to Group strategy, it should be exited by way of either trade sale or phased closure of individual centres. The business operates across six separate centres. A provision of GBP2,150,000 has been made in this respect.
3 Finance income and costs
a) Finance income 2017 2016
GBP'000 GBP'000
------------------------------------------- --------- ---------
Interest receivable on loans and deposits 711 2,147
Fair value gains on financial instruments
- interest rate swaps, caps and collars - 336
------------------------------------------- --------- ---------
Total finance income 711 2,483
------------------------------------------- --------- ---------
b) Finance costs 2017 2016
GBP'000 GBP'000
------------------------------------------------ --------- ---------
Interest on bank loans and other borrowings (9,091) (11,923)
Interest on debenture - (1,833)
Amortisation of transaction costs (1,114) (1,109)
Provision: unwinding of discount (14) (243)
Fair value loss on financial instruments (58) -
- interest rate swaps, caps and collars
Net foreign currency differences arising
on retranslation of cash and cash equivalents (3,398) (3,180)
------------------------------------------------ --------- ---------
(13,675) (18,288)
Capitalised interest on development and
trading properties 2,180 2,937
------------------------------------------------ --------- ---------
Total finance costs (11,495) (15,351)
------------------------------------------------ --------- ---------
Net finance costs (10,784) (12,868)
------------------------------------------------ --------- ---------
Net finance costs before foreign currency
differences (7,386) (9,688)
------------------------------------------------ --------- ---------
Interest was capitalised at an average rate of 6.51%. Capitalised interest of GBP1,195,000 (2016: GBP2,858,000) was written off in the year. The tax treatment of capitalised interest follows the accounting treatment.
4 Dividends
2017 2016
GBP'000 GBP'000
----------------------------------------------------------------------------------- --------- ---------
DECLARED AND PAID DURING THE YEAR
Equity dividends on Ordinary shares:
Final dividend for 2016: 3.50 pence per share (2015: 3.50 pence per share) 4,378 4,373
Interim dividend for 2017: 2.40 pence per share (2016: 2.40 pence per share) 3,003 2,999
Supplemental dividend for 2016: 8.00 pence per share 9,997 -
----------------------------------------------------------------------------------- --------- ---------
17,378 7,372
DIVID DECLARED BUT NOT PAID SINCE 28 FEBRUARY 2017
----------------------------------------------------------------------------------- --------- ---------
Supplemental dividend for 2017: 2.80 pence per share (2016: 8.00 pence per share) 3,506 10,006
----------------------------------------------------------------------------------- --------- ---------
PROPOSED FOR APPROVAL BY SHAREHOLDERS AT THE ANNUAL GENERAL MEETING
Final dividend for 2017: 3.50 pence per share (2016: 3.50 pence per share) 4,379 4,373
----------------------------------------------------------------------------------- --------- ---------
On 25 April 2017, the Board approved the payment of a supplemental dividend of 2.80 pence per share, which will be paid on 16 June 2017 to Ordinary shareholders on the register at the close of business on 12 May 2017 and will be recognised in the year ending 28 February 2018.
Subject to approval by shareholders, the final dividend was approved by the Board on 25 April 2017 and has not been included as a liability or deducted from retained earnings as at 28 February 2017. The final dividend is payable on 17 August 2017 to Ordinary shareholders on the register at the close of business on 21 July 2017 and will be recognised in the year ending 28 February 2018.
5 Earnings per share and net assets per share
The calculation of basic and diluted earnings per share and EPRA profit per share is based on the following data:
2017 2016
GBP'000 GBP'000
--------------------------------------------------------------------------------------- --------- ---------
PROFIT
(Loss)/profit for the purpose of basic and diluted earnings per share (3,003) 21,828
Revaluation deficit/(surplus) (including share of joint venture revaluation surplus) 6,812 (1,697)
Loss/(gain) on disposal of investment properties 2,273 (440)
Impairment of development and trading properties 155 1,837
Exceptional impairment of operating segment 2,150 -
Mark-to-market adjustment on interest rate swaps (including share of joint venture
mark-to-market adjustment) (23) (216)
--------------------------------------------------------------------------------------- --------- ---------
EPRA adjusted profit from continuing activities attributable to owners of the Company 8,364 21,312
--------------------------------------------------------------------------------------- --------- ---------
2017 2016
'000 '000
------------------------------------------------------------------------------------------ -------- --------
NUMBER OF SHARES
Weighted average number of Ordinary shares for the purpose of earnings per share 125,072 124,953
Effect of dilutive potential Ordinary shares:
Share options 1 84
------------------------------------------------------------------------------------------ -------- --------
Weighted average number of Ordinary shares for the purpose of diluted earnings per share 125,073 125,037
------------------------------------------------------------------------------------------ -------- --------
Basic (loss)/earnings per share (pence) (2.4)p 17.5p
------------------------------------------------------------------------------------------ -------- --------
Diluted (loss)/earnings per share (pence) (2.4)p 17.5p
------------------------------------------------------------------------------------------ -------- --------
EPRA adjusted earnings per share (pence) 6.7p 17.1p
------------------------------------------------------------------------------------------ -------- --------
EPRA adjusted diluted earnings per share (pence) 6.7p 17.1p
------------------------------------------------------------------------------------------ -------- --------
The Directors consider the acquisition and disposal of trading assets to be part of the core business of the Group and therefore have not adjusted profit for the gain on disposal when calculating EPRA adjusted earnings per share.
Net assets per share and diluted net assets per share have been calculated as follows:
2017 2016
No. of Net assets No. of Net assets
Net assets shares per share Net assets shares per share
GBP'000 '000 Pence GBP'000 '000 Pence
-------------------------------------------- ----------- -------- ------------ ----------- -------- ------------
Basic net assets per share attributable to
the owners 347,625 125,227 278 363,325 125,074 291
Fair value of development and trading -
assets* 15,486
Fair value of joint venture assets (2,416) -
Cumulative mark-to-market adjustment on
interest rate swaps 126 148
-------------------------------------------- ----------- -------- ------------ ----------- -------- ------------
EPRA adjusted net assets per share 360,821 125,227 288 363,473 125,074 291 Cumulative mark-to-market adjustment on interest rate swaps (126) (148) Fair value of debt (14,344) (14,713) -------------------------------------------- ----------- -------- ------------ ----------- -------- ------------ EPRA adjusted triple net assets per share 346,351 125,227 277 348,612 125,074 279 Effect of dilutive potential Ordinary shares 475 228 563 303 -------------------------------------------- ----------- -------- ------------ ----------- -------- ------------ Diluted net assets per share 348,100 125,455 277 363,888 125,377 290 -------------------------------------------- ----------- -------- ------------ ----------- -------- ------------ EPRA diluted net assets per share 361,296 125,455 288 364,036 125,377 290 -------------------------------------------- ----------- -------- ------------ ----------- -------- ------------ EPRA diluted triple net assets per share* 346,826 125,455 276 349,175 125,377 279 -------------------------------------------- ----------- -------- ------------ ----------- -------- ------------
* Refer note 8.
6 Investment properties
Freehold Long Total
GBP'000 leasehold GBP'000
GBP'000
------------------------------- --------- ----------- ---------
At valuation 1 March 2015 163,147 40,189 203,336
Additions:
- acquisitions - 4,473 4,473
- capital expenditure 2,206 140 2,346
Disposals (9,886) (780) (10,666)
Transfer from inventory 3,600 - 3,600
Surplus on revaluation 218 11 229
------------------------------- --------- ----------- ---------
At valuation 29 February 2016 159,285 44,033 203,318
------------------------------- --------- ----------- ---------
Additions:
- capital expenditure 2,607 803 3,410
Disposals (18,023) - (18,023)
Deficit on revaluation (6,996) (2,510) (9,506)
------------------------------- --------- ----------- ---------
At valuation 28 February 2017 136,873 42,326 179,199
------------------------------- --------- ----------- ---------
Direct costs of GBP3,449,000 (2016: GBP2,365,000) arose as a result of ownership of investment properties.
Reconciliation of market value of investment properties to the net book amount
The following table reconciles the market value of investment properties to their net book amount. The components of the reconciliation are included within their relevant balance bheet heading.
2017 2016
GBP'000 GBP'000
---------------------------------------------------------------------------------- --------- ---------
Market value as assessed by the independent valuers or Directors 182,359 207,111
Amount included in prepayments and accrued income in respect of lease incentives (3,160) (3,793)
---------------------------------------------------------------------------------- --------- ---------
Net book amount of Investment properties - non-current assets 179,199 203,318
---------------------------------------------------------------------------------- --------- ---------
At 28 February and 31 August each year, the Group engages professionally qualified valuers who hold a recognised professional qualification and who have recent experience in the locations and sectors of the investment portfolio. As at 28 February 2017, completed investment properties have been valued by CBRE Ltd at a value of GBP164,106,000 (2016: GBP180,888,000). The current value equates to the highest and best use of the asset.
The valuers have consented to the use of their name in the financial statements.
Included within Investment properties are freehold land and buildings representing investment properties under development, amounting to GBP15,093,000 (2016: GBP18,830,000), which have been valued by the Directors. These properties comprise buildings and landholdings for current or future development as investment properties. This approach has been taken because the value of these properties is dependent on a detailed knowledge of the planning status, the competitive position of these assets and a range of complex project development appraisals.
Investment properties under development include GBP8,075,000 (2016: GBP8,065,000) of landholdings adjacent to retail properties within the Group's portfolio, acquired for the purpose of extending the existing shopping centres. The fair value of these properties rests in the planned extensions, and is difficult to estimate pending confirmation of designs and planning permission, and hence has been estimated by the Directors at cost as an approximation to fair value.
GBP167,205,000 (2016: GBP192,613,000) of total investment properties are charged as security against the Group's borrowings.
7 Investments
Investments Investments
in associates in joint
GBP'000 ventures
GBP'000
--------------------------------------- --------------- ------------
At 1 March 2015 8,253 40,544
Additions 846 8,306
--------------------------------------- --------------- ------------
Share of profit - 5,779
Share of revaluation surplus - 1,468
Share of mark-to-market adjustment on
interest rate swaps - (120)
--------------------------------------- --------------- ------------
Share of results - 7,127
Foreign currency differences (478) 138
Disposal of joint venture - (4,523)
Capital distributions (4,312) (4,810)
--------------------------------------- --------------- ------------
At 29 February 2016 4,309 46,782
Additions 114 19,267
--------------------------------------- --------------- ------------
Share of profit/(loss) 4,340 (935)
Share of revaluation surplus - 2,694
Share of mark-to-market adjustment on
interest rate swaps - 35
--------------------------------------- --------------- ------------
Share of results 4,340 1,794
Disposal of joint venture - (48)
Capital distributions (391) (21,706)
--------------------------------------- --------------- ------------
At 28 February 2017 8,372 46,089
--------------------------------------- --------------- ------------
A summary of the Group's projects in partnership and the balance sheet classification of its interests are set out in note 14.
a) Investment in associates
The Group has the following interest in associates:
Country of Principal
% of holding incorporation activity Reporting segment Acquisition date Note
------------------ ------------- ----------------- ------------------ ------------------ ----------------- -----
Barwood 40 United Property Development January
Development Kingdom development and trading 2012
Securities
Limited
------------------ ------------- ----------------- ------------------ ------------------ ----------------- -----
Barwood Land and 25 United Property Development November
Estates Limited Kingdom development and trading 2009
------------------ ------------- ----------------- ------------------ ------------------ ----------------- -----
CDSR Burlington 20 Ireland Property Development July
House development and trading 2014
Developments
Limited
------------------ ------------- ----------------- ------------------ ------------------ ----------------- -----
Northpoint
Developments United Property Development November
Limited 42 Kingdom development and trading 2007 1
------------------ ------------- ----------------- ------------------ ------------------ ----------------- -----
Wessex Property Investment September
Fund 47 Jersey property Investment 2007 1 ------------------ ------------- ----------------- ------------------ ------------------ ----------------- ----- 1. The investment in the associate has been fully provided against.
The Group disposed of its interest in Atlantic Park (Bideford) Limited in January 2017.
b) Investment in joint ventures
As at 28 February 2017, the Group has the following interests in joint ventures:
Country of Principal Reporting Acquisition Accounting
% of holding incorporation activity segment date reference date
------------------ ------------- --------------- --------------- --------------- --------------- ---------------
Accrue Student 50 United Kingdom Property Development September 2011 31 August
Housing GP development and trading
Limited
------------------ ------------- --------------- --------------- --------------- --------------- ---------------
Becket House Unit 15 Jersey Investment Investment March 2014 31 December
Trust property
------------------ ------------- --------------- --------------- --------------- --------------- ---------------
Curzon Park 50 United Kingdom Property Development November 2006 28 February
Limited development and trading
------------------ ------------- --------------- --------------- --------------- --------------- ---------------
Development 50 Jersey Property Development December 2011 28 February
Equity Partners development and trading
Limited
------------------ ------------- --------------- --------------- --------------- --------------- ---------------
DSP Piano 34 Netherlands Investment Investment July 2015 31 December
Investments BV property
------------------ ------------- --------------- --------------- --------------- --------------- ---------------
DSP Tirol Limited 50 United Kingdom Investment Investment January 2015 28 February
property
------------------ ------------- --------------- --------------- --------------- --------------- ---------------
DS Renewables LLP 50 United Kingdom Property Development May 2012 28 February
development and trading
------------------ ------------- --------------- --------------- --------------- --------------- ---------------
Harwell Oxford 50 United Kingdom Property Development December 2013 28 February
Developments development and trading
Limited
------------------ ------------- --------------- --------------- --------------- --------------- ---------------
Kensington & 50 United Kingdom Property Development July 2013 28 February
Edinburgh Estates development and trading
(South Woodham
Ferrers) Limited
------------------ ------------- --------------- --------------- --------------- --------------- ---------------
Luxembourg 50 Luxembourg Property Development November 2016 31 December
Investment development and trading
Company 112 Sarl
------------------ ------------- --------------- --------------- --------------- --------------- ---------------
Manchester Arena 30 United Kingdom Investment Investment June 2010 28 February
Complex LP property
------------------ ------------- --------------- --------------- --------------- --------------- ---------------
Notting Hill 24 Guernsey Investment Development June 2011 31 December
(Guernsey Holdco) property and trading
Limited
------------------ ------------- --------------- --------------- --------------- --------------- ---------------
Opportunities for 50 United Kingdom Property Development January 2015 28 February
Sittingbourne development and trading
Limited
------------------ ------------- --------------- --------------- --------------- --------------- ---------------
OSB (Holdco 1) 50 United Kingdom Property Development February 2014 28 February
Limited development and trading
------------------ ------------- --------------- --------------- --------------- --------------- ---------------
UAI(G) Limited 50 United Kingdom Property Development June 2016 28 February
development and trading
------------------ ------------- --------------- --------------- --------------- --------------- ---------------
UAIP (Drum) BV 20 Netherlands Investment Investment August 2016 28 February
property
------------------ ------------- --------------- --------------- --------------- --------------- ---------------
UAIH Yorkshire 50 United Kingdom Property Development April 2016 28 February
Limited development and trading
------------------ ------------- --------------- --------------- --------------- --------------- ---------------
Winnebago 35 Luxembourg Investment Investment April 2012 31 December
Holdings Sarl property
------------------ ------------- --------------- --------------- --------------- --------------- ---------------
In April 2016, the Group acquired 50% of the share capital in UAIH Yorkshire Limited with its partner, R Horton, holding the remaining 50%. The Company is registered and incorporated in the United Kingdom.
In June 2016, the Group acquired a 50% share of the share capital in UAI(G) Limited with its partner Galliard Homes Limited. The Company is registered and incorporated in the United Kingdom.
In August 2016, the Group acquired a 20% share of the share capital in UAIP (Drum) BV with its partner PSSF Drum BV. The Company is registered and incorporated in the Netherlands.
In November 2016, the Group acquired a 50% share of the share capital in Luxembourg Investment Company 112 Sarl with its partner ColVinyl Holdings Sarl. The Company is registered and incorporated in Luxembourg.
In October 2016, the Group disposed of its interest in DSCP Property Holdings Limited.
Investments under joint arrangements are not always represented by an equal percentage holding by each partner. In a number of joint ventures, the Group holds a minority shareholding but has joint control and therefore the arrangement is accounted for as a joint venture.
Any contingent liabilities in relation to our joint ventures are disclosed in note 13.
8 Inventory
Development Trading Total
properties properties GBP'000
GBP'000 GBP'000
--------------------------------------------------------------------- ------------ ------------ ----------
DEVELOPMENT AND TRADING PROPERTIES
At 1 March 2015 139,188 78,286 217,474
Additions:
- acquisitions 27,277 4,725 32,002
- development expenditure 92,677 30,896 123,573
- transfer from joint ventures to development properties 4,523 - 4,523
- transfer from development to investment properties (3,600) - (3,600)
Disposals (112,947) (63,950) (176,897)
Foreign currency differences 1,056 1,895 2,951
Write back of previous adjustment to net realisable value 1,041 - 1,041
Fair value uplift on transfer of inventory to investment properties 549 - 549
Net write down of development properties to net realisable value (1,837) - (1,837)
--------------------------------------------------------------------- ------------ ------------ ----------
At 29 February 2016 147,927 51,852 199,779
Additions:
- acquisitions 6,448 11,316 17,764
- development expenditure 65,346 1,318 66,664
Disposals (54,884) (23,619) (78,503)
Foreign currency differences 906 1,887 2,793
Net write down of development properties to net realisable value (155) - (155) --------------------------------------------------------------------- ------------ ------------ ---------- At 28 February 2017 165,588 42,754 208,342 --------------------------------------------------------------------- ------------ ------------ ----------
Included in the above amounts are projects stated at net realisable value of GBP5,486,000 (2016: GBP7,583,000).
Net realisable value has been estimated by the Directors, taking account of the plans for each project, the planning status and competitive position of each asset, and the anticipated market for the scheme. For material developments, the Directors have consulted with third party chartered surveyors in setting their market assumptions.
Interest of GBP2,180,000 (2016: GBP2,937,000) was capitalised on development and trading properties during the year. Capitalised interest included within the carrying value of such properties on the Balance Sheet is GBP3,614,000 (2016: GBP2,629,000).
This year, the Group engaged CBRE limited to provide valuations in respect of its development and trading assets. A large proportion of the Group's development and trading portfolio falls outside of the criteria for a reliable fair value exercise. For example, the Group often has conditional land options in place to purchase land at a future date rather than ownership whilst planning is progressed at the Group's expense.
Under the EPRA guidelines only a percentage of assets qualify as shown below:
% of portfolio Book value EPRA value Uplift*
GBP'000 GBP'000 GBP'000
-------------------- --------------- ----------- ----------- --------
Trading assets 42.3 18,098 20,569 1,977
Development assets 43.0 71,202 87,195 12,794
-------------------- --------------- ----------- ----------- --------
42.9 89,300 107,764 14,771
-------------------- --------------- ----------- ----------- --------
*Uplift shown net of tax
Further information in respect of EPRA can be found in the Finance Review.
9 Trade and other receivables
2017 2016
a) Non-current GBP'000 GBP'000
-------------------------------- --------- ---------
Prepayments and accrued income 2,858 3,403
-------------------------------- --------- ---------
b) Current 2017 2016
GBP'000 GBP'000
-------------------------------- --------- ---------
Trade receivables 7,278 4,784
Other receivables 34,996 76,172
Other tax and social security 1,738 1,748
Prepayments and accrued income 4,708 3,716
-------------------------------- --------- ---------
48,720 86,420
-------------------------------- --------- ---------
The Group has provided GBP1,318,000 (2016: GBP46,000) for outstanding balances where recovery is considered doubtful. Apart from the receivables that have been provided for at the year end, there are no other material receivables, past due but not impaired. The maximum exposure to credit risk at the reporting date is the carrying value of the receivable.
10 Trade and other payables
2017 2016
a) Non-current GBP'000 GBP'000
---------------- --------- ---------
Trade payables 14,395 7,134
---------------- --------- ---------
b) Current 2017 2016
GBP'000 GBP'000
------------------------------- --------- ---------
Trade payables 7,088 4,075
Other payables 10,889 11,539
Other tax and social security 3,604 1,691
Accruals and deferred income 31,788 37,805
------------------------------- --------- ---------
53,369 55,110
------------------------------- --------- ---------
c) Provisions Onerous Other Total
leases provisions GBP'000
GBP'000 GBP'000
---------------------------------- --------- ------------ ---------
At 1 March 2016 1,731 14 1,745
Credited to the income statement - (5) (5)
Charged to the income statement - 2,247 2,247
Utilised during the year (49) - (49)
Provisions released (1,270) - (1,270)
Unwind of discount 14 - 14
---------------------------------- --------- ------------ ---------
At 28 February 2017 426 2,256 2,682
---------------------------------- --------- ------------ ---------
Analysis of total provisions 2017 2016
GBP'000 GBP'000
------------------------------ --------- ---------
Non-current 1,288 1,731
Current 1,394 14
------------------------------ --------- ---------
2,682 1,745
------------------------------ --------- ---------
A total provision of GBP2,247,000 has been made in respect of the Group's serviced office business. GBP1,692,000 has been provided for the closure of two centres and a further provision of GBP555,000 for the obligations at the remaining centres. In 2016, GBP1,270,000 was provided to cover the onerous liability associated with leases at three of our serviced office centres. This provision has now been released following a review of the remaining centres.
Two provisions of GBP183,000 (2016: GBP204,000) and GBP243,000 (2016: GBP257,000) relate to onerous lease obligations entered into in 2009 and 1974 respectively.
11 Financial assets and financial liabilities
The following table is a summary of the financial assets and financial liabilities included in the Consolidated Balance Sheet:
2017 2016
GBP'000 GBP'000
-------------------------------------------------------------------------------------------- ---------- ----------
NON-CURRENT ASSETS
Available-for-sale financial assets 19,859 28,544
Loan notes at amortised cost less impairment - 8,813
Derivative financial instruments not used for hedging at fair value through profit or loss 257 315
-------------------------------------------------------------------------------------------- ---------- ----------
20,116 37,672
-------------------------------------------------------------------------------------------- ---------- ----------
CURRENT ASSETS
Loan notes at amortised cost less impairment 8,813 -
Loans and receivables 9,711 1,700
Trade and other receivables at amortised cost less impairment 44,850 82,481
Monies held in restricted accounts and deposits 27,486 8,096
Cash and cash equivalents 23,785 43,752
-------------------------------------------------------------------------------------------- ---------- ----------
114,645 136,029
-------------------------------------------------------------------------------------------- ---------- ----------
Total financial assets 134,761 173,701
-------------------------------------------------------------------------------------------- ---------- ----------
CURRENT LIABILITIES
Trade and other payables at amortised cost (46,693) (50,059)
Borrowings at amortised cost (4,508) (65,471)
-------------------------------------------------------------------------------------------- ---------- ----------
(51,201) (115,530)
-------------------------------------------------------------------------------------------- ---------- ----------
NON-CURRENT LIABILITIES
Trade and other payables at amortised cost (14,395) (7,134)
Borrowings at amortised cost (167,617) (147,818)
-------------------------------------------------------------------------------------------- ---------- ----------
(182,012) (154,952)
-------------------------------------------------------------------------------------------- ---------- ----------
Total financial liabilities (233,213) (270,482)
-------------------------------------------------------------------------------------------- ---------- ----------
a) Other financial assets 2017 2016
GBP'000 GBP'000
--------------------------------------------------------- --------- ---------
NON-CURRENT
Available-for-sale financial assets - development loans 19,859 28,544
Loan notes at amortised cost less impairment - 8,813
--------------------------------------------------------- --------- ---------
19,859 37,357
--------------------------------------------------------- --------- ---------
The Group provided a loan of GBP10,505,000 (2016: GBP10,505,000) to the Curzon Park Limited joint venture in order to repay a share of its bank debt. The joint venture partner provided the equivalent amount. The bank loan, originally secured against the 10.5-acre site in Birmingham, has since been fully repaid.
The Group has two funding agreements totalling GBP8,727,000 (2016: GBP9,214,000), in respect of projects in partnership. The loans attract fixed coupon rates of 6.0% and 8.5%. Funding of GBP627,000 (2016: GBP553,000) has been provided to Henry Davidson Developments Limited in respect of two projects. Interest of 12.5% is charged in respect of this funding.
2017 2016
GBP'000 GBP'000
--------------------------------------------------------- --------- ---------
CURRENT
Loan notes at amortised cost less impairment 8,813 -
Loans and receivables - Northpoint Developments Limited 8,211 200
Loans and receivables - Property Alliance Group 1,500 1,500
--------------------------------------------------------- --------- ---------
18,524 1,700
--------------------------------------------------------- --------- ---------
The Group holds loan notes with a carrying value of GBP8,813,000 (2016: GBP8,813,000), issued by Northpoint Developments Limited, with a fixed term of ten years and a fixed coupon rate of 4.25%. These loan notes are repayable in November 2017 and have therefore been reclassified as current financial assets. The loan notes are currently being restructured. As at 28 February 2017, the Group has made a provision of GBP973,000 (2016: GBP582,000) against interest receivable in respect of these loan notes.
Development loans include a number of working capital and project-specific loans of GBP8,211,000 (2016: GBP200,000) to Northpoint Developments Limited. The loans attract fixed coupon rates of between 5.0% and 13.0%. Included in the above amount are two interest-free loans of GBP408,000 (2016: GBP200,000). Loans totalling GBP8,011,000 are repayable in November 2017 and have therefore been reclassified as due within one year. As at 28 February 2017, the Group has made a provision of GBP1,223,000 (2016: GBP820,000) against interest receivable in respect of these loans.
The Group has provided a short-term, non-interest-bearing loan of GBP1,500,000 to Property Alliance Group as a contribution to a prospective future project, this amount is repayable on demand.
b) Borrowings 2017 2016
GBP'000 GBP'000
--------------------------------------- --------- ---------
CURRENT
Bank overdrafts - -
Current instalments due on bank loans 2,631 5,544
Current loans maturing 2,578 60,939
Unamortised transaction costs (701) (1,012)
--------------------------------------- --------- ---------
4,508 65,471
--------------------------------------- --------- ---------
2017 2016
GBP'000 GBP'000
------------------------------- --------- ---------
NON-CURRENT
Bank loans and loan notes 168,940 149,583
Unamortised transaction costs (1,323) (1,765)
------------------------------- --------- ---------
167,617 147,818
------------------------------- --------- ---------
Bank loans are secured by way of mortgages and legal charges on certain properties and cash deposits held by the Group.
c) Derivative financial instruments
Assets 2017 2016
GBP'000 GBP'000
------------------------------------------------------------------------ --------- ---------
Derivative financial instruments at fair value through profit or loss:
Interest rate swaps, caps and collars 36 57
Foreign exchange contracts 221 525
------------------------------------------------------------------------ --------- ---------
Derivative financial assets 257 582
------------------------------------------------------------------------ --------- ---------
Liabilities 2017 2016
GBP'000 GBP'000
------------------------------------------------------------------------ --------- ---------
Derivative financial instruments at fair value through profit or loss:
Interest rate swaps, caps and collars - (267)
------------------------------------------------------------------------ --------- ---------
Derivative financial liabilities - (267)
------------------------------------------------------------------------ --------- ---------
Net derivative financial assets 257 315
------------------------------------------------------------------------ --------- ---------
At 28 February 2017, the Group held interest rate swaps, caps and collars designated as economic hedges and not qualifying as effective hedges under IAS 39. The derivatives are used to mitigate the Group's interest rate exposure to variable rate loans of GBP51,972,000 (2016: GBP64,951,000). The fair value of the derivatives amounting to GBP36,000 are recorded as financial assets at 28 February 2017 (2016: GBP57,000 asset and GBP267,000 liability) with the fair value loss taken to finance costs.
12 Note to the cash flow statement
Reconciliation of profit before income tax to net cash outflow from operating activities:
2017 2016
GBP'000 GBP'000
------------------------------------------------------------ --------- ---------
(Loss)/profit before income tax (1,710) 25,788
Adjustments for:
Loss/(gain) on disposal of investment properties 2,273 (440)
Loss/(gain) on revaluation of property portfolio 9,506 (229)
Other income (1,320) (673)
Share of post-tax profits of joint ventures and associates (6,134) (7,127)
Profit from sale of investment (567) (2,174)
Loss on sale of other plant and equipment 25 87
Exceptional impairment of operating segment 2,150 -
Finance income (711) (2,483)
Finance cost 11,495 15,351
Depreciation of property, plant and equipment 1,016 1,044
------------------------------------------------------------ --------- ---------
Operating cash flows before movements in working capital 16,023 29,144
(Increase)/decrease in development and trading properties (3,590) 32,096
Decrease/(increase) in receivables 36,990 (41,061)
Increase/(decrease) in payables 7,490 (11,021)
Decrease in provisions (54) (1,163)
------------------------------------------------------------ --------- ---------
Cash flows generated from operating activities 56,859 7,995
------------------------------------------------------------ --------- ---------
13 Contingent liabilities
In the normal course of its development activity, the Group is required to guarantee performance bonds provided by banks in respect of certain obligations of Group companies. At 28 February 2017, such guarantees amounted to GBP6,917,000 (2016: GBP6,917,000).
The Group has provided guarantees for rent liabilities in respect of properties previously occupied by Group companies. In the event that the current tenants ceased to pay rent, the Group would be liable to cover any shortfall until the building could be re-let. The Group has made provision against crystallised liabilities in this regard. In respect of potential liabilities where no provision has been made, the annual rent-roll of the buildings benefiting from such guarantees is GBP7,000 (2016: GBP165,000) with an average unexpired lease period of 70 years (2016: 3.7 years).
The Group has guaranteed its share of interest up to a maximum of GBP575,000 in respect of the GBP26,000,000 loan in Notting Hill (Guernsey Holdco) Limited.
14 Projects in partnership
The following is a summary of the Group's projects in partnership and the balance sheet classification of its financial interests:
Project/partner Project activity Accounting classification 2017 2016
GBP'000 GBP'000
----------------------------------- --------------------------- ------------------------------ --------- ---------
Atlantic Park (Bideford) Limited Strategic land investment Investment in associates - 276
Barwood Development Securities
Limited Strategic land investment Investment in associates 2,500 2,500
Barwood Land and Estates Limited Strategic land investment Investment in associates 1,500 1,500
CDSR Burlington House
Developments Limited Property development Investment in associates 4,372 33
Wessex Property Fund Property investment Investment in associates - -
Wessex Investors Property development Development properties - -
Cathedral (Movement, Greenwich)
LLP Property development Financial assets 127 441
Northpoint Developments Limited Property development Financial assets 17,024 17,285
Curzon Park Limited Property development Investment in joint ventures - -
Curzon Park Limited Property development Financial assets 10,505 10,505
Deeley Freed Limited Property development Financial assets 8,600 8,773
Henry Davidson Developments
Limited Property development Financial assets 627 553
Property Alliance Group Property development Financial assets 1,500 1,500
Accrue Student Housing GP Limited Student accommodation Investment in joint ventures - 2,603
Becket House Unit Trust Investment property Investment in joint ventures - 9,093
Development Equity Partners
Limited Property development Investment in joint ventures 269 276
DSCP Property Holdings Limited Property development Investment in joint ventures - 2,091
DSP Piano Investments BV Investment property Investment in joint ventures 6,772 3,779
DSP Tirol Limited Investment property Investment in joint ventures 4,535 5,121
DS Renewables LLP Property development Investment in joint ventures - -
Harwell Oxford Developments
Limited Property development Investment in joint ventures 12,881 7,915
Kensington & Edinburgh Estates
(South Woodham Ferrers) Limited Property development Investment in joint ventures 929 503
Luxembourg Investment Company 112 Property development Investment in joint ventures 11,520 -
Sarl
Manchester Arena Complex LP Investment property Investment in joint ventures 169 175
Notting Hill (Guernsey Holdco)
Limited Property development Investment in joint ventures 7,486 7,197
Opportunities for Sittingbourne
Limited Property development Investment in joint ventures 128 178
Orion Land & Leisure Limited Property development Investment in joint ventures - 1,399
UAI(G) Limited Property development Investment in joint ventures 141 -
UAIH Yorkshire Property development Investment in joint ventures 15 -
UAIP (Drum) BV Property development Investment in joint ventures 1,201 -
Winnebago Holdings Sarl Investment property Investment in joint ventures 43 6,452
----------------------------------- --------------------------- ------------------------------ --------- ---------
92,844 90,148
---------------------------------------------------------------------------------------------- --------- ---------
The aggregate amounts included within each relevant Balance Sheet account are as follows:
2017 2016
GBP'000 GBP'000
-------------------------------- --------- ---------
Investment in associates 8,372 4,309
Investment in joint ventures 46,089 46,782
Financial assets - current 18,524 1,700
Financial assets - non-current 19,859 37,357
92,844 90,148
-------------------------------- --------- ---------
15 Post balance sheet events
As at 28 February 2017, the Group had exchanged contracts on the sale of a number of assets held directly and in joint venture. These sales have since successfully completed.
16 Definitions
Operating profit is stated after gain on disposal of investment properties, the revaluation of the Investment property portfolio and exceptional items and before the results of associates, jointly controlled entities and finance income and costs.
IPD Index and Total Portfolio Return is the total return from the completed investment property portfolio, comprising net rental income or expenditure, capital gains or losses from disposals and revaluation surpluses or deficits, divided by the average capital employed during the financial year, as defined and measured by Investment Property Databank Limited (IPD), a company that produces independent benchmarks of property returns.
Total Shareholder Return is the movement in share price over the year plus dividends paid as a percentage of the opening share price.
Gearing is expressed as a percentage, is measured as net debt divided by total shareholders' funds.
Net debt is total debt less cash and short-term deposits, including cash held in restricted accounts.
Basic earnings per share amounts are calculated by dividing profit for the year attributable to owners of the Parent by the weighted average number of Ordinary shares outstanding during the year, excluding shares purchased by the Parent and held as treasury shares.
Diluted earnings per share amounts are calculated by dividing the profit attributable to owners of the Parent by the weighted average number of Ordinary shares outstanding during the year plus the weighted average number of Ordinary shares that would be issued on the conversion of all the dilutive potential Ordinary shares into Ordinary shares.
Basic net assets per share amounts are calculated by dividing net assets by the number of Ordinary shares in issue at the balance sheet date excluding shares purchased by the Parent and held as treasury shares.
Diluted net assets per share amounts are calculated by dividing net assets by the number of Ordinary shares in issue at the balance sheet date plus the number of Ordinary shares that would be issued on the conversion of all the dilutive potential Ordinary shares into Ordinary shares.
Management has chosen to disclose the European Public Real Estate (EPRA) adjusted net assets per share and earnings per share from continuing activities in order to provide an indication of the Group's underlying business performance and to assist comparison between European property companies.
EPRA earnings is the profit after taxation excluding investment property revaluations (including valuations of joint venture investment properties), impairment of development and trading properties, exceptional items and mark-to-market movements of derivative financial instruments (including those of joint ventures) and intangible asset movements and their related taxation.
EPRA net assets (EPRA NAV) are the Balance Sheet net assets adjusted to reflect the fair value of development and trading assets excluding mark-to-market adjustment on effective cash flow hedges and related debt adjustments and deferred taxation on revaluations and diluting for the effect of those shares potentially issuable under employee share schemes.
EPRA NAV per share is EPRA NAV divided by the number of Ordinary shares in issue at the balance sheet date.
EPRA triple net assets (EPRA NNNAV) is EPRA NAV adjusted to reflect the fair value debt and derivatives and to include deferred taxation on revaluations.
EPRA NNNAV per share is EPRA NNNAV divided by the number of Ordinary shares in issue at the balance sheet date.
This information is provided by RNS
The company news service from the London Stock Exchange
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April 26, 2017 02:01 ET (06:01 GMT)
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