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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Grainger Plc | LSE:GRI | London | Ordinary Share | GB00B04V1276 | ORD 5P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 2.00 | 0.93% | 218.00 | 218.00 | 219.00 | 219.50 | 215.50 | 216.00 | 561,459 | 14:06:20 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Real Estate Investment Trust | 118.2M | 31.2M | 0.0421 | 51.78 | 1.6B |
From Feb 2020 to Feb 2025
TIDMGRI
RNS Number : 8310M
Grainger PLC
14 May 2020
14 May 2020
Grainger plc
Half year results for the six months ended 31 March 2020
Strong H1 performance; positive lead indicators for H2
-- Net rental income up +27% -- Like-for-like rental growth up +3.4% -- LTV at six year low at 32.9% -- No staff furloughed -- Dividend policy maintained, +6% on a per share basis
Helen Gordon, Chief Executive of Grainger, the UK's largest listed residential landlord, said:
"Grainger is in a strong position financially and our portfolio is performing as expected, showing a high degree of resilience during these uncertain times. We have achieved high rent collection, strong rental growth and maintained occupancy levels over 97%. We have continued to grow our business, serve our customers and deliver new rental homes.
"Our business has been focused on three key areas since the coronavirus lockdown: Innovate, Communicate and Improve. We have implemented new ways of serving our customers remotely and enabling safe interactions and property transactions using technology and virtual viewings. We have increased our contact with and support for our customers, suppliers and partners. And we have been investing in training for our employees so that we can emerge from this global crisis stronger.
"Due to the strength of the business and the resilience of our sector, our dividend policy will be maintained, with a +6% increase in our interim dividend.
"Our focus for the rest of the year will remain on the continuity of service to our customers and the delivery of new rental homes, whilst ensuring the health and safety of all our employees, customers and suppliers remains our highest priority."
Key financial headlines
-- Resilient rental demand
o 60% of Grainger's income is now derived from PRS assets
o Net rental income(1) up +27% to GBP37.0m in H1 (HY19: GBP29.1m)
o +3.4% like-for-like rental growth(2) in H1 across our entire portfolio (HY19: 3.7%)
o Rent collection for March 2020 of 95% and April 2020 of 94%
o Rental growth in April of +3.3% (PRS: 3.0%; Regulated tenancies: 4.0%)
-- Robust sales in H1, continuing in H2
o H1 sales generated GBP22.8m of profits (HY19: GBP31.3m) with last year having a higher level of asset recycling from our GRIP portfolio
o In line with Government guidelines we took swift action to ensure sales momentum continue into early H2 with new offers received and contracts exchanged. Government guidelines were further relaxed on 13 May 2020.
-- Pipeline delivery continues and construction sites active
o Our PRS pipeline remains in progress, totalling GBP2bn of investment and c.9,000 new rental homes
o The majority of our schemes under construction in our secured pipeline are open and active, with a few having temporarily closed in order to implement social distancing and new safety guidelines
-- Strong balance sheet and liquidity
o GBP527m of cash and committed undrawn facilities available, a six year high
o LTV at six-year low at 32.9%
o No debt maturities until March 2022
o Cost of debt reduced to 3.0%
-- Robust H1 performance
o Adjusted earnings(3) were in line with expectations at GBP33.7m (HY19: GBP38.3m) due to higher levels of asset recycling last year
o Profit before tax(3) was GBP49.6m (HY19: GBP54.3m)
o Adjusted EPRA earnings (4) were up +9% to GBP16.0m (HY19: GBP14.7m)
o Valuation of our total portfolio increased +1.6%
o EPRA Net Tangible Assets (NTA) (4) per share rose to 281p (FY19: 278p)
o Dividend policy maintained with interim dividend per share increased +6% to 1.83p per share(5) (HY19: 1.73p), driven by rental growth and investment activity
Financial Highlights
Hot Features
Premium
Income return HY19 HY20 Change
---------------------------------------------------- -------- -------- --------
Rental growth (like-for-like) (2) 3.7% 3.4% (33) bps
PRS rental growth (like-for-like) 3.4% 3.0% (41) bps
Regulated tenancy rental growth (like-for-like) 4.4% 4.5% +7 bps
Net rental income(1) GBP29.1m GBP37.0m +27%
Adjusted earnings(3) GBP38.3m GBP33.7m (12)%
Adjusted EPRA Earnings(4) GBP14.7m GBP16.0m +9%
Profit before tax GBP54.3m GBP49.6m (9)%
Earnings per share (diluted, after
tax) 9.0p 6.4p (29)%
Dividend per share(5) 1.73p 1.83p +6%
Capital return FY19 HY20 Change
------------------------ --------- --------- ---------
EPRA NTA per share(4) 278p 281p +1%
EPRA NNNAV per share(4) 272p 280p +3%
Net debt(6) GBP1,097m GBP1,000m (9)%
Group LTV(6) 37.1% 32.9% (420) bps
Cost of debt (average) 3.2% 3.0% (20) bps
Reversionary surplus GBP302m GBP306m +1%
Net rental income - strong H1, resilient performance in early H2 trading
-- Overall net rental income increased +27% to GBP37m (HY19: GBP29.1m).
-- We achieved strong like-for-like rental growth across our total portfolio of +3.4% (HY19: 3.7%), with +3.0% growth on our PRS homes (HY19: 3.4%) and +4.5% annualised growth on regulated tenancy rent reviews (HY19: 4.4%).
-- Our gross to net (property operating costs ratio) remained stable at 26.0% and we achieved further efficiencies on our stabilised portfolio with gross to net now at 24.9% (HY19: 26.2% / 25.2%).
-- Occupancy within our PRS portfolio remains high at 97.2% (HY19: 97.5%).
-- Rental performance proving resilient in early H2 trading. For the month of April, post-half year close, we have seen similar levels of rent collection (94%) and rental growth (+3.3%) albeit with a higher proportion of renewals compared to new lets in our PRS portfolio, as customers choose to cancel or postpone their home moves.
-- The lettings market remains active, albeit at lower levels. We have seen a pick-up in enquiries in recent weeks, returning to normal pre-Covid levels. Leveraging our digital platform and virtual viewings capability, we have safely continued to secure new customers.
Sales - strong H1, transactions continuing in early H2 trading with strong visibility on pipeline for remainder of year
Profit from sales was GBP22.8m (HY19: GBP31.3m) with last year's performance reflecting a higher level of asset recycling from the GRIP portfolio.
-- In H1, we have been selling vacant residential properties 1.0% ahead of previous valuations (FY19 vacant possession value).
-- Sales velocity (our 'keys to cash' metric) during H1 remained strong, measuring 113 days (HY19: 112 days).
-- We have taken actions that enable us to safely conduct sales transactions within current government guidelines, and we are seeing the benefits of this come through.
-- As we enter the second half of our financial year, sales activity continues:
o We have transacted on six vacant properties in the month of April, ahead of valuations, compared with seven vacant properties this time last year.
o As at 30 April 2020, we have GBP23.9m of properties in our sales pipeline (committed or in solicitors' hands) compared to GBP21.5m this time last year, providing us with a high degree of visibility on future sales in H2.
Valuations
-- The market value of our total portfolio rose by +1.6% (HY19: 0.6%).
o The market value of our PRS portfolio rose by +1.5% (HY19: 0.9%).
o The market value of our regulated tenancy portfolio rose by +1.8% (HY19: 0.3%).
o Our PRS development pipeline remained flat reflecting current market uncertainty.
Operational highlights: supporting all stakeholders amidst uncertainty
-- Our primary focus has been on the health and safety of our customers, staff, partners and suppliers.
-- We have successfully implemented our business continuity plans with little to no disruption in business operations.
-- We have retained all of our staff across the whole business, with no employee furloughed and no one laid off as a result of Covid-19.
-- We have continued to serve our customers throughout the current crisis, including all critical repairs and maintenance work across our portfolio of c.9,300 homes.
-- Our strategic focus on providing mid-market homes continues to serve us well, and our homes remain in high demand.
-- We have increased support for our customers, including enhanced outreach and communications, particularly with our older customers. We have also included initiatives to support mental health and wellbeing.
-- To date, we have been contacted by less than 2% of our customers regarding affordability concerns due to Covid-19. With support from our specialist inhouse team many customers have subsequently successfully accessed government support measures. For those that have required further assistance, we have agreed rent deferral repayment plans. This totals less than 1% of our customer base.
-- Overheads remained stable at GBP13.8m for the half year (HY19: GBP13.8m) despite our growth, demonstrating our operational leverage.
Investment activity & pipeline update
-- Grainger's PRS growth strategy remains as relevant as ever and we continue to see opportunities in the market and are pursuing those that meet with our strict investment criteria. We are, however, remaining prudent and highly disciplined in our investment decision making during these times of increased economic uncertainty.
-- During the first half, we secured five new schemes totalling GBP376m and 1,377 new PRS homes, including:
o Exchange Square, Birmingham - GBP77m investment and 375 units
o Canning Town 3, London - GBP56m investment and 132 units
o Capital Quarter, Cardiff - GBP57m investment and 307 units
o Queens Road, Nottingham - GBP56m investment and 348 units
o Waterloo, London - GBP130m additional investment and 215 units
-- We have GBP1,048m of investment in our secured PRS pipeline, comprising 4,213 new homes. In addition, we have a further GBP349m in the planning and legal process and GBP600m for the TfL partnership. Further details on our secured pipeline below.
-- Development activity is ongoing on all nine sites under construction in our pipeline. A number of our projects under construction paused due to social distancing measures. We are pleased to report that all sites are now open and active.
Secured pipeline -------------------------------------------- ---------- Total investment value GBP1,048m Total units 4,213 Total number of schemes 18 Total number of schemes under construction 9 Targeted net rental income GBP51m Targeted gross yield on cost (weighted average) 6.5% -------------------------------------------- ----------
Strong cash position and robust capital structure
-- We are well capitalised and in a strong financial position to weather any near-term economic uncertainty.
-- Following the successful equity raise in February to support our strategic growth plans, we have GBP527m of available headroom in cash and committed undrawn facilities, compared to an expected capital expenditure of GBP165m for the next twelve months.
-- Loan to value(6) stands at a six-year low of 32.9% (FY19: 37.1%).
-- Average cost of debt at 3.0% for the first half of the year (FY19: 3.2%), with our incremental cost of debt at 1.7%.
-- Net debt(6) was GBP1,000m (FY19: GBP1,097m).
-- We have no debt maturities until March 2022, and we have significant headroom to our debt covenants.
Dividend
-- Dividend policy maintained: to distribute the equivalent of 50% of net rental income (with a one-third, two-third split between interim and full dividend).
-- +6% growth in our interim dividend to 1.83p per share (HY19: 1.73p).
Positive lead indicators for H2
-- Rent collection stable at 95% and 94% in March and April respectively.
-- Rental growth in April stable with the first half at +3.3%.
-- Occupancy remains high at 97.2%.
-- Continued to secure new customers, and a similar level of vacant sales completed in April as at the same time last year, with resilient pricing in line with valuations.
(1) Refer to Note 5 for net rental income calculation.
(2) Rental growth is the average increase in rent charged across our portfolio on a like-for-like basis.
(3) Refer to Note 2 for profit before tax and adjusted earnings reconciliation.
(4) Refer to Note 3 for reconciliation of EPRA measures and EPRA performance measures section at the end of this document.
(5) Dividend - The dividend of 1.83p per share (gross) amounting to GBP12.3m will be paid on 3 July 2020 to shareholders on the register at the close of business on 29 May 2020. Shareholders will again be offered the option to participate in a dividend re-investment plan and the last day for election is 12 June 2020 - refer also to Note 10.
(6) Refer to Note 19 for net debt and LTV calculations.
Future reporting dates
-- Capital Markets Day & Trading update - 29 September 2020
-- Full year results - 19 November 2020
Half year results presentation
Grainger plc will be holding a virtual presentation of the results at 8:30am (UK time) today, 14 May 2020 via webcast and a telephone dial-in facility (details below), which will be followed by a Q&A session.
Webcast details:
To view the webcast, please go to the following URL link. Registration is required.
https://webcasting.brrmedia.co.uk/broadcast/5df9ecd91727256b168b6cd6
The webcast will be available for six months from the date of the presentation.
Conference call details:
Call: +44 (0)330 336 9105
Confirmation Code: 1072758
A copy of the presentation slides will also be available to download on Grainger's website ( http://corporate.graingerplc.co.uk/ ) from 8:00am (UK time).
For further information, please contact:
Investor relations
Kurt Mueller, Grainger plc: +44 (0) 20 7940 9500
Media
Ginny Pulbrook / Geoffrey Pelham-Lane, Camarco: +44 (0) 20 3757 4992 / 4985
Forward-looking statements disclaimer
This publication contains certain forward-looking statements. Any statement in this publication that is not a statement of historical fact including, without limitation, those regarding Grainger plc's future financial condition, business, operations, financial performance and other future events or developments involving Grainger, is a forward-looking statement. Such statements may, but not always, be identified by words such as 'expect', 'estimate', 'project', 'anticipate', 'believe', 'should', 'intend', 'plan', 'could', 'probability', 'risk', 'target', 'goal', 'objective', 'may', 'endeavour', 'outlook', 'optimistic', 'prospects' and similar expressions or variations on these expressions. By their nature, forward-looking statements involve inherent risks, assumptions and uncertainties as they relate to events which occur in the future and depend on circumstances which may or may not occur and go beyond Grainger's ability to control. Actual outcomes or results may differ materially from the outcomes or results expressed or implied by these forward-looking statements. Factors which may give rise to such differences include (but are not limited to) changing economic, financial, business, regulatory, legal, political, industry and market trends, house prices, competition, natural disasters, terrorism or other social, political or market conditions.
Grainger's principal risks are described in more detail in its Annual Report and Accounts, set out in the Risk Management report on pages 41-43 of the 2019 Annual Report and Accounts.
A number of risks faced by the Group are not directly within our control such as the wider economic and political environment.
In line with our risk management approach detailed on pages 39-40 of the 2019 Annual Report and Accounts, the key risks to the business are under regular review by the Board and management, applying Grainger's risk management framework. The Covid-19 pandemic has had a substantial impact on many aspects of society, including business, with the duration and depth of the impact being uncertain. Specifically in relation to Grainger, it is currently considered that the principal risks previously reported remain our principal risks. However, it is recognised that a pandemic, and consequently Government restrictions and societal behavioural changes flowing therefrom increase the likelihood of such risks being accelerated or becoming more acute. This would include, but is not limited to market, regulatory and supplier risks. The risks to Grainger will continue to be monitored closely as well as the potential controls and mitigants that may be applied during this unprecedented period.
These risks and other factors could adversely affect the outcome and financial effects of the events specified in this publication. The forward-looking statements reflect knowledge and information available at the date they are made and Grainger plc does not intend to update on the forward-looking statements contained in this publication.
This publication is for information purposes only and no reliance may be placed upon it. No representative or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained in this publication. Past performance of securities in Grainger plc cannot be relied upon as a guide to the future performance of such securities.
This publication does not constitute an offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities of Grainger plc.
Chief Executive's review
Overview
Our strategy is to continue to transition Grainger into a business focused on the private rented sector (PRS), which we believe has long-term structural growth and compelling returns. Today with over 60% of our portfolio and income derive from our PRS assets, the strength of our business, our strategy and our sector are being reaffirmed during the current uncertain economic climate.
The first half of our financial year, the majority of which predates social distancing in the UK, was a period of strong performance and significant achievements. We delivered an increase in net rental income of +27% from our investment activity and secured +3.4% like-for-like rental growth across our 9,300-home portfolio. To accelerate our growth strategy and to bring forward four further PRS, build-to-rent schemes in our pipeline, we successfully raised GBP183m of net proceeds from an equity raise in February at a premium to net asset value, receiving significant backing from our shareholders.
Coronavirus (Covid-19)
As the first half came to a close, the business was in its strongest financial position in recent years. With a robust balance sheet, low leverage and significant liquidity, Grainger is well positioned to weather the current economic uncertainty caused by coronavirus, while continuing to serve our customers, retaining full employment and delivering on our growth plans.
Our focus during the pandemic and lockdown has had three themes: (1) innovate, (2) communicate, and (3) improve.
Ahead of the UK Government's lockdown measures, Grainger had successfully tested our business continuity plans and swiftly implemented full remote working across all our offices. With instructions for everyone to work from home, we found our assets being used more intensely than ever before. We adapted swiftly, ensuring no disruption to customer service and critical repairs, while we have successfully carried on with lettings and sales safely through the use of virtual viewings and other innovative measures.
We have increased our contact with our customers, introducing a buddy-system across our portfolio so that customers have a single point of contact at Grainger on a first name basis. We have been in regular active dialogue with the UK Government and their officials, providing insight and perspective to inform their rapidly evolving policy response. In addition, we have been supporting our suppliers to ensure that they can continue to operate and enable us to efficiently serve our customers.
Lastly, we have been increasing our focus on training and professional development for our employees, with the launch of our internally-developed, bespoke training programme, the Grainger Academy; and the roll out of the second phase of our best-in-class health & safety programme, Live.Safe 2.0. We have also been working to further improve our customer service, standardising and refining every aspect of operating a PRS asset, which covers 320 separate tasks and responsibilities. This exercise will enhance the rental experience for our customers, ensuring that there is a Grainger standard that is met across each and every one of our 9,300 properties today, and c.9,000 more from our pipeline.
Our ambition is to emerge from the coronavirus lockdown even stronger.
Strong H1 performance
Financial performance over the past six months has been strong. We have increased net rental income by +27% and like-for-like rental growth of +3.4%. We delivered strong adjusted earnings for the period at GBP33.7m, reflecting a high level of asset recycling this time last year, and EPRA earnings rose +9%. Our EPRA net tangible asset value (EPRA NTA) rose to 281p.
Our portfolio grew to 9,300 homes over the period, with new scheme openings, including Brook Place in Sheffield and Solstice Apartments in Milton Keynes. Our PRS portfolio now represents over 60% of our asset base and income.
Our pipeline continues to progress well. Our secured pipeline now totals GBP1,048m and 4,213 new PRS homes. Our pipeline of schemes in planning or legals totals GBP949m and 4,323 new PRS homes, which includes our joint venture with Transport for London. Once completed, we expect that the projected income from these new investments will more than double our net rental income and provide us with sustainable dividend growth of a similar scale.
During the first half we successfully raised GBP183m of net proceeds in an equity placing to bring forward four new schemes into our secured pipeline. Our prudence in the way we manage the business meant that we sought commitment for the funding ahead of the commitment to start on site. This has enabled us to increase the pace of our pipeline delivery whilst maintaining a strong balance sheet.
Key highlights
During the first half of the financial year, we had a number of key achievements.
TfL Partnership update
We have made good progress on all seven sites in the TfL partnership, with planning applications for three schemes having been submitted, with a further one to be submitted imminently.
We are assured that TfL remain committed to the partnership, which will deliver homes on public land and generate income to support TfL.
Waterloo planning consent
We achieved planning consent on our Waterloo site, an existing asset within our regulated tenancy portfolio, which will see us redevelop the site and deliver 215 new homes for our PRS portfolio. This is a great example of the opportunities that exist within our portfolio, aligned to our PRS growth strategy.
New acquisitions
During the period, we successfully acquired four new schemes for our secured pipeline, including:
-- Capital Quarter, Cardiff (on site with construction underway)
-- Exchange Square, Birmingham (start on site expected in the Summer)
-- Queens Road, Nottingham (start on site expected in the Autumn)
-- Canning Town 3 (start on site follows the completion of Canning Town 2)
New scheme completions & launches
In the first half, we completed two new PRS schemes:
-- Solstice Apartments in Milton Keynes: 139 homes, GBP32m investment, c.6% gross yield targeted, which was launched just before lockdown but continues to lease through the period at rents ahead of underwriting.
-- Millet Place, Pontoon Dock, London: 236 homes, GBP26m investment (our share), c.6% gross yield targeted, which is due to launch at the end of May and we are experiencing good levels of interest.
New lettings continued over the past month during lockdown, leveraging our digital leasing platform, which forms part of our CONNECT technology platform.
Strong operational performance
In addition to strong like-for-like rental growth over the period, we have further improved our gross to net efficiency which now stands at 24.9% on our stabilised portfolio and occupancy remains high at 97.2%.
Political update
The Government recognises the benefits that a professionalised private rental housing sector can bring to the UK. We have an open and constructive positive dialogue with Ministers and officials across Whitehall.
In March, in a letter to the Mayor of London, the Secretary of State for Housing confirmed this Government's strong opposition to rent controls, demonstrating support for a strong professional rental sector.
We have increased our engagement with the Government during the coronavirus pandemic, providing support and insight to help inform their rapidly evolving policy decisions.
Positive lead indicators in early H2
We have carefully monitored our performance indicators in the early weeks of our second half due to the economic uncertainties. Rent collection, a key performance metric particularly during this period, remains stable at 95% and 94% in March and April respectively. Rental growth in April remained stable with the first half at +3.3%. Occupancy remains high at 97.2%. We have continued to secure new customers, and we have completed a similar level of vacant sales in April as we did this time last year, with resilient pricing in line with valuations.
Dividend maintained
Reflecting the strength of the business, our sector and the positive trading we are seeing early in the second half, the Board has confirmed that we remain committed to our dividend policy to distribute 50% of annual net rental income as a dividend, with a one-third payment at the interim stage. Our interim dividend has increased by +6% to 1.83p on a per share basis (HY19: 1.73p).
Outlook - a strong business in a resilient sector
Our PRS strategy has transitioned Grainger into a stronger business in a resilient sector. We enter our second half of this financial year well positioned and well capitalised. We aim to emerge from this global crisis stronger, having invested in innovation, communication and improvement during the lockdown. Lead indicators in April show that both the lettings and sales market are active, and that Grainger successfully and safely carrying on performing in line with our strategy.
We are prepared to adapt to a new way of life, as the lockdown is lifted, ensuring that we can continue to serve our customers and deliver our pipeline of new homes. As market leader in PRS, with a business model that can deliver income and growth through the cycle, we believe Grainger is well positioned to maintain momentum in the second half as well as in the years to come.
Helen Gordon
Chief Executive
14 May 2020
Financial review
The past six months have seen the business continue to transition into a majority PRS business with earnings now predominantly driven by rental income and over 60% of our portfolio now in PRS assets.
We continued to deliver strong rental growth with +3.4% across our portfolio and our rent collection through the current lockdown has remained high at 94% in April. It is our confidence in the resilience of our income that enables us to maintain our dividend policy with an interim dividend of 1.83p per share, an increase of +6%.
We have taken steps to ensure that our growth is delivered from a position of financial strength. Following our successful equity raise of GBP187m in February, we end this half year with an LTV at a six year low of 32.9% and cash and committed facilities headroom at a six year high of GBP527m. We also refinanced our near-term debt maturities, with our next maturity now in March 2022.
Whilst there is a heightened level of uncertainty surrounding the current economic outlook, we believe our business has both the flexibility and firepower to navigate its way through these challenges and capitalise on any opportunities that may arise.
Highlights
Income returns HY19 HY20 Change ------------------------------------ --------- --------- --------- Rental growth (like-for-like) 3.7% 3.4% (33) bps - PRS 3.4% 3.0% (41) bps - Regulated tenancies (annualised) 4.4% 4.5% +7 bps Net rental income (Note 5) GBP29.1m GBP37.0m +27% Adjusted earnings (Note 2) GBP38.3m GBP33.7m (12)% Adjusted EPRA earnings (Note 3) GBP14.7m GBP16.0m +9% Profit before tax (Note 2) GBP54.3m GBP49.6m (9)% Earnings per share (diluted, after tax) (Note 9) 9.0p 6.4p (29)% Dividend per share (Note 10) 1.73p 1.83p +6% ------------------------------------ --------- --------- --------- Capital returns FY19 HY20 Change ------------------------------- ---------- ---------- ---------- EPRA NTA per share (Note 3) 278p 281p +1% EPRA NNNAV per share (Note 3) 272p 280p +3% Net debt (Note 19) GBP1,097m GBP1,000m (9)% Group LTV (Note 19) 37.1% 32.9% (420) bps Cost of debt (average) 3.2% 3.0% (20) bps Reversionary surplus GBP302m GBP306m +1% ------------------------------- ---------- ---------- ----------
Income statement
The transition in the composition of earnings has continued with a significant increase in net rental income (+27%). Recurring net rental income delivered over 60% of income and this proportion will continue to grow as our PRS pipeline delivers. The resilience of this net rental income provides a solid foundation for both earnings and cashflow.
Adjusted earnings decreased by 12% to GBP33.7m (HY19: GBP38.3m) as a result of higher levels of asset recycling in the same period last year. Overheads remained flat demonstrating our inherent operational leverage as we continue to invest in our best in class operating platform.
Income statement (GBPm) HY19 HY20 Change
------------------------------- ------- ------- -------
Net rental income 29.1 37.0 +27%
Profit from sales 31.3 22.8 (27)%
Mortgage income (CHARM) (Note
15) 2.8 2.6 (7)%
Management fees 2.2 1.6 (27)%
Overheads (13.8) (13.8) +0%
Pre-contract costs (0.6) (0.2) (67)%
Joint ventures and associates 1.8 0.1 (94)%
Net finance costs (14.5) (16.4) +13%
------- ------- -------
Adjusted earnings 38.3 33.7 (12)%
Valuation movements 31.7 14.6
Other adjustments (15.7) 1.3
------- ------- -------
Profit before tax 54.3 49.6 (9)%
------------------------------- ------- ------- -------
Rental income
Net rental income increased by +27% to GBP37.0m (HY19: GBP29.1m) as a result of investment activity and strong operating performance.
Like-for-like rental growth remained strong in the six months to March demonstrating the resilience of our net rental income stream. Like-for-like rental growth across the portfolio was +3.4%. In our PRS portfolio we delivered +3.0% like-for-like rental growth with +2.7% on renewals and +3.5% on new lets. The regulated tenancy portfolio also continued to deliver strong growth of +4.5% on an annualised basis.
Our occupancy rate has remained high at 97.2% and the gross to net (property operating cost ratio) remained relatively flat at 26.0% (HY19: 26.2%). Our stabilised portfolio improved further to 24.9% (FY19: 25.2%). Passing net rental income at the half year is now GBP74m, up +10% from GBP67m at HY19.
GBPm
------------------------ ------
HY19 Net rental income 29.1
Disposals (1.7)
PRS investment 8.7
Rental growth 0.9
HY20 Net rental income 37.0
------
YoY growth +27%
------------------------ ------
Sales
Sales activity during the period was in line with expectations delivering GBP22.8m of profits (HY19: GBP31.3m). Vacant sales profit from our regulated tenancy portfolio remains robust and in line with the prior year and we continue to recycle our legacy assets.
Residential sales
Vacant property sales delivered GBP13.5m of profit (HY19: GBP13.5m) from GBP21.6m of revenue (FY19: GBP28.2m) in the period, with a regulated tenancy vacancy rate of 6.6% over the six month period . Sales values achieved were strong with pricing 1.0% ahead of previous vacant possession value. Our sales transaction velocity (keys to cash) remained flat at 113 days (HY19: 112 days).
Going into the second half of the year we have a good sales pipeline in place with of GBP26.2m committed or in solicitors' hands (HY19: GBP19.6m) and, despite the current disruption in the market, we have taken actions to ensure that we are able to continue to sell our vacant properties in line with government guidelines. Our properties are unique and have historically proven to be resilient in challenging markets.
Sales of tenanted and other properties delivered GBP16.0m of revenue (HY19: GBP52.3m) and GBP5.2m of profit (HY19: GBP13.0m). This reduction is a result of a higher level of asset recycling from the GRIP portfolio this time last year.
Development activity
Development activity continues to wind down in the business with the GBP4.1m profit relating to the sale of a strategic land asset in the period. Our legacy development for sale activity completed last year.
Sales
HY19 HY20
------------------------- -------------------------
Revenue Profit Revenue Profit
------ ------
Units Units
sold GBPm GBPm sold GBPm GBPm
---------------------- ------ -------- ------- ------ -------- -------
Residential sales
on vacancy 80 28.2 13.5 54 21.6 13.5
Tenanted and other
sales 277 52.3 13.0 42 16.0 5.2
------ -------- ------- ------ -------- -------
Residential sales
total 357 80.5 26.5 96 37.6 18.7
Development activity - 11.9 4.8 - 5.3 4.1
---------------------- ------ -------- ------- ------ -------- -------
Overall sales 357 92.4 31.3 96 42.9 22.8
---------------------- ------ -------- ------- ------ -------- -------
Cost Control
Cost control remains a key focus for the business as we continue with our targeted investment in technology to drive further efficiency and scalability of our platform.
Overheads
Overheads remained flat in the period at GBP13.8m (HY19: GBP13.8m) as the size of our PRS portfolio continues to grow.
Financing costs
Finance cost increased on the prior year at GBP16.4m (HY19: GBP14.5m) as we have a full six-month cost from our GRIP acquisition and we made further investments into our PRS portfolio. Our average cost of debt decreased by 20bps to 3.0% (HY19 3.2%) with our marginal cost of debt at 1.7%.
Balance sheet
Our ambitions for growth have always been aligned with a continued focus on balance sheet discipline, and of increasing importance given the current levels of uncertainty. Our conservative LTV and strong liquidity position ensure we can make the right decisions for the business from a position of financial strength.
Our successful equity placing in February provided net proceeds of GBP183m to fund our pipeline commitments and puts our balance sheet in great shape with an LTV at 32.9%, a six year low with GBP527m of available cash and undrawn facilities.
Market value balance sheet (GBPm) FY19 HY20
---------------------------------------------- ------- -------
Residential - PRS 1,526 1,615
Residential - regulated tenancies 1,017 1,017
Residential - mortgages (CHARM) 76 73
Forward Funded - PRS work in progress 160 162
Development work in progress 120 124
Investment in JVs/associates 33 41
------- -------
Total investments 2,932 3,032
Net debt (1,097) (1,000)
Other assets/liabilities (14) (2)
------- -------
EPRA NAV/EPRA NRV* 1,821 2,030
Deferred and contingent tax - trading assets (102) (114)
Exclude: intangible assets (11) (17)
------- -------
EPRA NTA* 1,708 1,899
Add back: intangible assets 11 17
Deferred and contingent tax - investment
assets (19) (21)
Fair value of fixed rate debt and derivatives (34) (3)
-------
EPRA NNNAV/EPRA NDV* 1,666 1,892
---------------------------------------------- ------- -------
EPRA net asset values (pence per share)
EPRA NAV 297 301
EPRA NNNAV 272 280 EPRA NTA 278 281 Reversionary surplus (excluded from NAV - GBPm) 302 306 Reversionary surplus (pence per share) 49 45 ---------------------------------------------- ------- -------
* EPRA Net Reinstatement Value (NRV), Net Tangible Assets (NTA) and Net Disposal Value (NDV) were introduced in October 2019. Definitions are included in Note 3 to the financial statements.
EPRA NTA increased by +1% from the year end to 281p per share (FY19: 278p per share) with the other NAV measures showing similar uplifts. EPRA NAV increased by +1% during the period to 301p per share (FY19: 297p per share) whilst EPRA NNNAV increased by +3% during the year to 280p per share (FY19: 272p per share), as the mark to market valuation of debt instruments moved in our favour.
Excluded from all these EPRA NAV measures is a reversionary surplus of GBP306m or 45p per share (FY19: GBP302m). This embedded value in our portfolio is the difference between the market value of our assets whilst they are tenanted and the value we could realise if they became vacant and were sold.
The following table shows the movement in EPRA NTA in the period with the largest contributors being adjusted earnings and the movement in property valuations.
EPRA NTA movement
----------------------------------------------------------------------
GBPm Pence per share
------ ----------------
EPRA NTA at 30 September 2019 1,708 278
Adjusted earnings 34 5
Valuations (trading & investment property) 37 6
Disposals (trading assets) (17) (3)
Tax (current, deferred & contingent) (19) (3)
Dividends (21) (3)
Intangible assets (6) (1)
Equity Placing 183 2
EPRA NTA at 31 March 2020 1,899 281
-------------------------------------------- ------ ----------------
Property portfolio valuations
The market value of our property portfolio increased by +1.6% over the six-month period (HY19: 0.6%). The PRS portfolio saw an uplift of +1.5% (HY19: 0.9%), with the regulated portfolio also delivering a strong performance at +1.8% (HY19: 0.3%). The valuation of our development pipeline remained flat over the period, due to the level of uncertainty around on-site progress and stabilisation within the current environment. This will be reviewed further at the financial year end.
Financing and capital structure
We are a well capitalised business with the lowest LTV and highest liquidity headroom of recent times. With GBP198m of cash available and GBP329m of available committed undrawn facilities we have enough liquidity to cover all future costs and liabilities comfortably for an extended period.
Following the repayment of two near-term debt maturities in the period, we now have an average debt maturity of 5.7 years, with the next maturity due in March 2022. At the same time, we have reduced our average cost of debt further to 3.0%, with significant headroom in our debt covenants.
FY19 HY20
--------------------------- ---------- ----------
Net debt GBP1,097m GBP1,000m
Loan to value 37.1% 32.9%
Cost of debt (average) 3.2% 3.0%
Incremental cost of debt 1.7% 1.7%
Fully drawn cost of debt 2.9% 2.8%
Interest cover 3.6x 3.3x
Headroom GBP430m GBP527m
Weighted average facility
maturity^ 5.8 5.7
Hedging 98% 88%
--------------------------- ---------- ----------
^ Including extension options; excluding these options it is 5.8 years (FY19) and 5.6 years (HY20).
Cashflow and investment
Net debt decreased to GBP1,000m (FY19: GBP1,097m). Our equity placing provided net proceeds of GBP183m for PRS investment. We generated GBP56m of cash from operations in the six months ended 31 March 2020, which reflects the timing of our sales, and invested GBP103m into our property portfolio in the period.
Dividend
We remain committed to our policy to distribute 50% of annual net rental income as a dividend, with a one-third payment at the interim stage. Our interim dividend has increased by +6% to 1.83p on a per share basis (HY19: 1.73p).
Summary and outlook
We have delivered a good performance over the first half of the financial year and have continued to enhance our income profile and balance sheet with over 60% of our portfolio invested into PRS assets and over 60% of our income from net rents. The resilience of our business model combined with the strength of our balance sheet places us in a strong financial position in the current economic uncertainty.
We have continued to deliver good results during the lockdown period. The diversity of our customer base, alongside the strength of operations and the quality of our space has enabled us to maintain high occupancy across our portfolio at 97.2% and strong rental growth at +3.3% since the half year close.
Our property sales have continued throughout the current uncertainty, having exchanged and closed on numerous transactions and we enter the second half with a strong pipeline of sales, ahead of our position this time last year.
Our balance sheet and liquidity are in a strong position with the lowest LTV and highest level of liquidity for six years. This position of strength combined with the resilience of our portfolio positions us well to navigate through the challenges in the economy and capitalise on any opportunities that may arise.
Vanessa Simms
Chief Financial Officer
14 May 2020
Responsibility statement of the directors in respect of the half-yearly financial report
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;
-- the interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.
Helen Gordon Vanessa Simms
Chief Executive Officer Chief Financial Officer
14 May 2020 14 May 2020
Independent Review Report to Grainger plc
Conclusion
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2020 which comprises the Condensed Consolidated Income Statement, the Condensed Consolidated Statement of Other Comprehensive Income, the Condensed Consolidated Statement of Financial Position, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Statement of Cash Flows and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2020 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Emphasis of matter - property valuations
We draw attention to note 1a to the condensed financial statements which states that all property assets are subject to a Directors' valuation at the period end, supported by independent external valuations on a sample basis. As described in note 1e these external valuations are reported on the basis of 'material valuation uncertainty' as per VPS 3 and VPGA 10 of the RICS Red Book Global. Consequently, less certainty should be attached to the valuation than would normally be the case. Our conclusion is not modified in respect of this matter.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 1a, the annual financial statements of the group are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.
Richard Kelly
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
Canary Wharf
London
E14 5GL
14 May 2020
Consolidated income statement
Unaudited
2020 2019
For the 6 months ended 31 March Notes GBPm GBPm
---------------------------------------------------------------------------- ------ --------- --------
Group revenue 4 86.9 107.0
---------------------------------------------------------------------------- ------ --------- --------
Net rental income 5 37.0 29.1
Profit on disposal of trading property 6 22.1 29.5
Profit on disposal of investment property 7 0.7 1.8
Income from financial interest in property assets 15 2.0 2.7
Fees and other income 8 3.2 2.2
Administrative expenses (13.8) (13.8)
Other expenses (0.2) (3.6)
Impairment of goodwill 25 - (12.7)
Reversal of impairment/(impairment) of inventories to net realisable value 12 0.1 (0.1)
Reversal of impairment of joint venture 14 - 9.8
---------------------------------------------------------------------------- ------ --------- --------
Operating profit 51.1 44.9
Net valuation gains on investment property 11 15.6 22.1
Finance costs (16.8) (15.0)
Finance income 0.1 0.5
Share of (loss)/profit of associates after tax 13 (0.5) 0.5
Share of profit of joint ventures after tax 14 0.1 1.3
---------------------------------------------------------------------------- ------ --------- --------
Profit before tax 2 49.6 54.3
Tax charge for the period 20 (9.5) (5.0)
---------------------------------------------------------------------------- ------ --------- --------
Profit for the period attributable to the owners of the Company 40.1 49.3
---------------------------------------------------------------------------- ------ --------- --------
Basic earnings per share 9 6.4p 9.0p
Diluted earnings per share 9 6.4p 9.0p
---------------------------------------------------------------------------- ------ --------- --------
Consolidated statement of comprehensive income
Unaudited
2020 2019
For the 6 months ended 31 March Notes GBPm GBPm
---------------------------------------------------------------------------------------- ------ --------- ---------
Profit for the period 2 40.1 49.3
---------------------------------------------------------------------------------------- ------ --------- ---------
Items that will not be transferred to the consolidated income statement:
Actuarial gain/(loss) on BPT Limited defined benefit pension scheme 21 0.1 (1.5)
Items that may be or are reclassified to the consolidated income statement:
Changes in fair value of cash flow hedges (0.1) (9.2)
---------------------------------------------------------------------------------------- ------ --------- ---------
Other comprehensive income and expense for the period before tax - (10.7)
---------------------------------------------------------------------------------------- ------ --------- ---------
Tax relating to components of other comprehensive income:
Tax relating to items that will not be transferred to the consolidated income statement 20 0.1 0.3
Tax relating to items that may be or are reclassified to the consolidated income
statement 20 0.3 1.7
Total tax relating to components of other comprehensive income 0.4 2.0
---------------------------------------------------------------------------------------- ------ --------- ---------
Other comprehensive income and expense for the period after tax 0.4 (8.7)
---------------------------------------------------------------------------------------- ------ --------- ---------
Total comprehensive income and expense for the period attributable to the owners of the
Company 40.5 40.6
---------------------------------------------------------------------------------------- ------ --------- ---------
Consolidated statement of financial position
Audited
Unaudited 31 March 2020 30 Sept 2019
As at Notes GBPm GBPm
---------------------------------------------- ------ ------------------------ --------------
ASSETS
Non-current assets
Investment property 11 1,661.6 1,574.6
Property, plant and equipment 2.2 0.3
Investment in associates 13 13.0 11.7
Investment in joint ventures 14 28.0 21.6
Financial interest in property assets 15 73.5 76.4
Deferred tax assets 20 9.5 5.6
Intangible assets 16 17.0 11.2
----------------------------------------------- ------ ------------------------ --------------
1,804.8 1,701.4
---------------------------------------------- ------ ------------------------ --------------
Current assets
Inventories - trading property 12 702.1 700.0
Trade and other receivables 17 26.6 40.5
Current tax assets 7.1 -
Cash and cash equivalents 257.0 189.3
992.8 929.8
---------------------------------------------- ------ ------------------------ --------------
Total assets 2,797.6 2,631.2
----------------------------------------------- ------ ------------------------ --------------
LIABILITIES
Non-current liabilities
Interest-bearing loans and borrowings 19 1,247.8 1,176.8
Retirement benefits 21 1.3 1.7
Provisions for other liabilities and charges 1.2 1.2
Deferred tax liabilities 20 36.3 32.7
----------------------------------------------- ------ ------------------------ --------------
1,286.6 1,212.4
---------------------------------------------- ------ ------------------------ --------------
Current liabilities
Interest-bearing loans and borrowings 19 - 100.0
Trade and other payables 18 67.6 73.6
Provisions for other liabilities and charges 0.2 0.4
Current tax liabilities - 4.0
Derivative financial instruments 19 17.4 17.3
----------------------------------------------- ------ ------------------------ --------------
85.2 195.3
---------------------------------------------- ------ ------------------------ --------------
Total liabilities 1,371.8 1,407.7
----------------------------------------------- ------ ------------------------ --------------
NET ASSETS 1,425.8 1,223.5
----------------------------------------------- ------ ------------------------ --------------
EQUITY
Issued share capital 33.8 30.7
Share premium account 616.1 436.5
Merger reserve 20.1 20.1
Capital redemption reserve 0.3 0.3
Cash flow hedge reserve (14.1) (14.3)
Retained earnings 769.6 750.2
----------------------------------------------- ------ ------------------------ --------------
TOTAL EQUITY 1,425.8 1,223.5
----------------------------------------------- ------ ------------------------ --------------
Consolidated statement of changes in equity
------------------------------------------------------------------------------------------------------------------------ --------
Cash
Issued Share Capital flow Available- Non-
share premium Merger redemption hedge for-sale Retained controlling Total
capital account reserve reserve reserve reserve earnings interests equity
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- ------ -------- -------- -------- ----------- -------- ----------- --------- ------------- --------
Balance as at
1 October 2018 20.9 111.4 20.1 0.3 0.5 6.0 656.4 - 815.6
-------------------- ------ -------- -------- -------- ----------- -------- ----------- --------- ------------- --------
Profit for the
period 2 - - - - - - 49.3 - 49.3
Other comprehensive
loss for the
period - - - - (7.5) - (1.2) - (8.7)
-------------------- ------ -------- -------- -------- ----------- -------- ----------- --------- ------------- --------
Total comprehensive
income - - - - (7.5) - 48.1 - 40.6
-------------------- ------ -------- -------- -------- ----------- -------- ----------- --------- ------------- --------
Issue of share
capital 24 9.7 324.8 - - - - - - 334.5
Purchase of own
shares - - - - - - (0.9) - (0.9)
Share-based
payments
charge 22 - - - - - - 0.9 - 0.9
Dividends paid - - - - - - (14.7) - (14.7)
Fair value of
non-controlling
interest acquired
through business
combination 25 - - - - - - - 3.1 3.1
Transfer of
available-for-sale
reserve - - - - - (6.0) 6.0 - -
Total transactions
with owners
recorded
directly in equity 9.7 324.8 - - - (6.0) (8.7) 3.1 322.9
-------------------- ------ -------- -------- -------- ----------- -------- ----------- --------- ------------- --------
Balance as at
31 March 2019 30.6 436.2 20.1 0.3 (7.0) - 695.8 3.1 1,179.1
-------------------- ------ -------- -------- -------- ----------- -------- ----------- --------- ------------- --------
Profit for the
period - - - - - - 65.6 - 65.6
Other comprehensive
loss for the
period - - - - (7.3) - (1.4) - (8.7)
-------------------- ------ -------- -------- -------- ----------- -------- ----------- --------- ------------- --------
Total comprehensive
income - - - - (7.3) - 64.2 - 56.9
-------------------- ------ -------- -------- -------- ----------- -------- ----------- --------- ------------- --------
Issue of share
capital 0.1 - - - - - - - 0.1
Award of SAYE
shares - 0.3 - - - - - - 0.3
Purchase of own
shares - - - - - - (0.1) - (0.1)
Share-based
payments
charge - - - - - - 0.8 - 0.8
Dividends paid - - - - - - (10.5) - (10.5)
Acquisition of
non-controlling
interest 25 - - - - - - - (3.1) (3.1)
Total transactions
with owners
recorded
directly in equity 0.1 0.3 - - - - (9.8) (3.1) (12.5)
-------------------- ------ -------- -------- -------- ----------- -------- ----------- --------- ------------- --------
Balance as at
30 September
2019 30.7 436.5 20.1 0.3 (14.3) - 750.2 - 1,223.5
-------------------- ------ -------- -------- -------- ----------- -------- ----------- --------- ------------- --------
Profit for the
period 2 - - - - - - 40.1 - 40.1
Other comprehensive
income for the
period - - - - 0.2 - 0.2 - 0.4
-------------------- ------ -------- -------- -------- ----------- -------- ----------- --------- ------------- --------
Total comprehensive
income - - - - 0.2 - 40.3 - 40.5
-------------------- ------ -------- -------- -------- ----------- -------- ----------- --------- ------------- --------
Issue of share
capital 24 3.1 179.4 - - - - - - 182.5
Award of SAYE
shares - 0.2 - - - - - - 0.2
Purchase of own
shares - - - - - - (0.2) - (0.2)
Share-based
payments
charge 22 - - - - - - 1.0 - 1.0 Dividends paid 10 - - - - - - (21.2) - (21.2) IFRS 16 transition adjustment - - - - - - (0.5) - (0.5) Total transactions with owners recorded directly in equity 3.1 179.6 - - - - (20.9) - 161.8 -------------------- ------ -------- -------- -------- ----------- -------- ----------- --------- ------------- -------- Balance as at 31 March 2020 33.8 616.1 20.1 0.3 (14.1) - 769.6 - 1,425.8 -------------------- ------ -------- -------- -------- ----------- -------- ----------- --------- ------------- --------
Consolidated statement of cash flows
Unaudited
2020 2019
For the 6 months ended 31 March Notes GBPm GBPm
---------------------------------------------------- ------ -------- --------
Cash flow from operating activities
Profit for the period 2 40.1 49.3
Depreciation and amortisation 0.8 0.4
Impairment of goodwill 25 - 12.7
Net valuation gains on investment property 11 (15.6) (22.1)
Net finance costs 16.7 14.5
Share of loss/(profit) of associates and joint
ventures 13,14 0.4 (1.8)
Profit on disposal of investment property 7 (0.7) (1.8)
Share-based payment charge 22 1.0 0.9
Reversal of impairment of joint venture 14 - (9.8)
Income from financial interest in property assets 15 (2.0) (2.7)
Tax 20 9.5 5.0
Cash generated from operating activities before
changes in working capital 50.2 44.6
Decrease in trade and other receivables 14.1 73.9
Decrease in trade and other payables (5.8) (10.5)
Decrease in provisions for liabilities and charges (0.2) (0.1)
(Increase)/decrease in inventories (2.1) 15.5
---------------------------------------------------- ------ -------- --------
Cash generated from operating activities 56.2 123.4
Interest paid (17.6) (16.9)
Tax paid (20.5) (8.4)
Payments to defined benefit pension scheme 21 (0.3) (0.3)
---------------------------------------------------- ------ -------- --------
Net cash inflow from operating activities 17.8 97.8
---------------------------------------------------- ------ -------- --------
Cash flow from investing activities
Acquisition of subsidiary net of cash acquired 25 - (350.9)
Proceeds from sale of investment property 7 8.9 26.4
Proceeds from financial interest in property
assets 15 4.9 4.8
Investment in associates and joint ventures 13,14 (4.7) -
Loans advanced to associates and joint ventures 13,14 (3.4) (1.4)
Loans repaid by associates and joint ventures 13,14 - 5.7
Acquisition of investment property 11 (79.6) (96.9)
Acquisition of property, plant and equipment
and intangible assets (6.3) (4.1)
---------------------------------------------------- ------ -------- --------
Net cash outflow from investing activities (80.2) (416.4)
---------------------------------------------------- ------ -------- --------
Cash flow from financing activities
Net proceeds from issue of share capital 24 182.5 334.5
Awards of SAYE options 0.2 -
Purchase of own shares (0.2) (0.9)
Proceeds from new borrowings 299.4 84.7
Payment of loan costs (0.6) (0.5)
Repayment of borrowings (330.0) (52.8)
Dividends paid 10 (21.2) (14.7)
---------------------------------------------------- ------ -------- --------
Net cash inflow from financing activities 130.1 350.3
---------------------------------------------------- ------ -------- --------
Net increase in cash and cash equivalents 67.7 31.7
Cash and cash equivalents at the beginning of
the period 189.3 109.3
Cash and cash equivalents at the end of the
period 257.0 141.0
---------------------------------------------------- ------ -------- --------
Notes to the unaudited interim financial results
1. Accounting policies 1a Basis of preparation
These condensed interim financial statements are unaudited and do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. This condensed consolidated interim financial information has been prepared in accordance with the Disclosure and Transparency Rules of the Finance Conduct Authority and International Accounting Standard 34 (IAS 34) 'Interim Financial Reporting' as adopted by the European Union. The interim condensed financial statements should be read in conjunction with the annual financial statements for the year ended 30 September 2019 which have been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union.
With the exception of the changes detailed in Note 1b, the accounting policies used are consistent with those contained in the Group's last annual report and accounts for the year ended 30 September 2019 which is available on the Group's website ( www.graingerplc.co.uk ). The Grainger business is not judged to be highly seasonal, therefore comparatives used for the six month period ended 31 March 2020 Consolidated Income Statement are the six month period ended 31 March 2019 Consolidated Income Statement. It is therefore not necessary to disclose the Consolidated Income Statement for the full year ended 30 September 2019 (available in the last annual report).
The comparative figures for the financial year ended 30 September 2019 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the registrar of companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.
The financial information included in this announcement has been prepared in accordance with EU endorsed IFRS, IFRS IC interpretations and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
All property assets are subject to a Directors' valuation at the half year end, supported by an independent external valuation. External valuations at the half year are conducted by the Group's valuers, Allsop LLP and CBRE Limited, in line with the approach set out on pages 111-112 of the 2019 Annual Report and Accounts, with the exception being the Group's Residential and Ginvest portfolio's. At the half year, Allsop inspected 10.9% of the residential portfolio and 12.3% of the Ginvest portfolio, with the movement extrapolated over the non-sampled assets to form 50% of the valuation movement for these portfolio's. The remaining 50% is based on a blended rate arrived at by taking Halifax, Nationwide and Acadata indices (16.6% weighting each), indexed on a regional IPD basis.
The Group's financial derivatives were valued as at 31 March 2020 in-house by a specialised treasury management system, using a discounted cash flow model and market information. The fair value is derived from the present value of future cash flows discounted at rates obtained by means of the current yield curve appropriate for those instruments.
Notes to the unaudited interim financial results continued
1b Adoption of new and revised International Financial Reporting Standards
New standards and interpretations in the year
New standards, amendments and interpretations that have been published and are therefore mandatory for the Group's accounting periods beginning on or after 1 October 2018 and later periods are disclosed on page 109-110 of the Annual Report and Accounts for the year ended 30 September 2019.
IFRS 16 Leases - IFRS 16 replaced IAS 17 Leases and was effective for the Group from 1 October 2019. As a lessor, the Group's position was substantially unchanged. As a lessee of office space, the asset and corresponding lease liability are now presented in the statement of financial position and in the notes to the financial statements.
On 1 October 2019, the Group recognised property, plant and equipment of GBP2.2m and a corresponding lease liability of GBP3.2m, with an adjustment to retained earnings on transition.
1c Group risk factors
The principal risks and uncertainties facing the Group are set out in the Risk Management report on pages 41-43 of the 2019 Annual Report and Accounts.
A number of risks faced by the Group are not directly within our control such as the wider economic and political environment.
In line with our risk management approach detailed on pages 39-40 of the 2019 Annual Report and Accounts, the key risks to the business are under regular review by the Board and management, applying Grainger's risk management framework. The Covid-19 pandemic has had a substantial impact on many aspects of society, including business, with the duration and depth of the impact being uncertain. Specifically in relation to Grainger, it is currently considered that the principal risks previously reported remain our principal risks. However, it is recognised that a pandemic, and consequently Government restrictions and societal behavioural changes flowing therefrom increase the likelihood of such risks being accelerated or becoming more acute. This would include, but is not limited to market, regulatory and supplier risks. The risks to Grainger will continue to be monitored closely as well as the potential controls and mitigants that may be applied during this unprecedented period.
There have been no failures of control within the reporting period.
1d Forward-looking statements
Certain statements in this interim announcement are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct.
Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. We undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.
Notes to the unaudited interim financial results continued
1e Significant judgements and estimates
Full details of critical accounting estimates are given on pages 110-114 of the 2019 Annual Report and Accounts. This includes detail of the Groups approach to valuation of property assets and the use of external valuers in the process. In respect of valuations undertaken for the interim financial statement, all valuers are including an industry standard market uncertainty clause in their reports.
"MARKET UNCERTAINTY CLAUSE
The outbreak of the Novel Coronavirus (COVID-19), declared by the World Health Organisation as a "Global Pandemic" on the 11th March 2020, has impacted global financial markets. Travel restrictions have been implemented by many countries.
Market activity is being impacted in many sectors. As at the valuation date, we consider that we can attach less weight to previous market evidence for comparison purposes, to inform opinions of value. Indeed, the current response to COVID-19 means that we are faced with an unprecedented set of circumstances on which to base a judgement.
Our valuations are therefore reported on the basis of 'material valuation uncertainty' as per VPS 3 and VPGA 10 of the RICS Red Book Global. Consequently, less certainty - and a higher degree of caution - should be attached to our valuation than would normally be the case. Given the unknown future impact that COVID-19 might have on the real estate market, we recommend that you keep the valuations under frequent review.
For the avoidance of doubt, the inclusion of the 'material valuation uncertainty' declaration above does not mean that the valuation cannot be relied upon. Rather, the phrase is used in order to be clear and transparent with all parties, in a professional manner that - in the current extraordinary circumstances - less certainty can be attached to the valuation than would otherwise be the case. The material uncertainty clause is a disclosure, not a disclaimer."
The valuations exercise is an extensive process which includes the use of historical experience, estimates and judgements. The Directors are satisfied that the valuations agreed with our external valuers are a reasonable representation of property values in the circumstances known and evidence available at the reporting date. Actual results may differ from these estimates. Estimates and assumptions are reviewed on an on-going basis with revisions recognised in the period in which the estimates are revised and in any future periods affected.
1f Going concern assessment
The Directors are required to make an assessment of the Group's ability to continue to trade as a going concern for the foreseeable future. The financial position of the Group, including details of its financing and capital structure, is set out in the Financial review section of this announcement. The Directors have assessed the future funding commitments of the Group and compared these to the level of committed loan facilities and cash resources over the medium term. In making this assessment, consideration has been given to compliance with borrowing covenants along with the uncertainty inherent in future financial forecasts and, where applicable, reasonable severe sensitivities, including the potential impact of Covid-19, have been applied to the key factors affecting financial performance for the Group. This included the potential impact on performance due to possible changes in the level of cash collection, rental growth, letting activity, sales performance and development activity. The Directors have a reasonable expectation that the Group has adequate resources to continue operating for the foreseeable future period, and not less than 12 months from the date of this interim financial report. For this reason, it continues to adopt the Going Concern basis of accounting in preparing its condensed interim financial statements.
Notes to the unaudited interim financial results continued
2. Analysis of profit before tax
The table below provides adjusted earnings, which is one of Grainger's key performance indicators. The metric is utilised as a key measure to aid understanding of the performance of the continuing business and excludes valuation movements and other adjustments that are one-off in nature, which do not form part of the normal ongoing revenue or costs of the business and, either individually or in aggregate, are material to the reported Group results.
For the 6
months ended
31 March
(Unaudited) 2020 2019
------------------------------------------------- -------------------------------------------------
Other Adjusted Other Adjusted
GBPm Statutory Valuation adjustments earnings Statutory Valuation adjustments earnings
---------------- ---------- ---------- ------------- ---------- ---------- ---------- ------------- ----------
Group revenue 86.9 - (1.6) 85.3 107.0 - - 107.0
---------------- ---------- ---------- ------------- ---------- ---------- ---------- ------------- ----------
Net rental
income 37.0 - - 37.0 29.1 - - 29.1
Profit on
disposal
of trading
property 22.1 - - 22.1 29.5 - - 29.5
Profit on
disposal
of investment
property 0.7 - - 0.7 1.8 - - 1.8
Income from
financial
interest in
property
assets 2.0 0.6 - 2.6 2.7 0.1 - 2.8
Fees and other
income 3.2 - (1.6) 1.6 2.2 - - 2.2
Administrative
expenses (13.8) - - (13.8) (13.8) - - (13.8)
Other expenses (0.2) - - (0.2) (3.6) - 3.0 (0.6)
Impairment of
goodwill - - - - (12.7) - 12.7 -
Reversal of
impairment/
(impairment)
of inventories
to net
realisable
value 0.1 (0.1) - - (0.1) 0.1 - -
Reversal of
impairment
of joint
venture - - - - 9.8 (9.8) - -
---------------- ---------- ---------- ------------- ---------- ---------- ---------- ------------- ----------
Operating
profit 51.1 0.5 (1.6) 50.0 44.9 (9.6) 15.7 51.0
Net valuation
gains
on investment
property 15.6 (15.6) - - 22.1 (22.1) - -
Finance costs (16.8) - 0.3 (16.5) (15.0) - - (15.0)
Finance income 0.1 - - 0.1 0.5 - - 0.5
Share of
(loss)/profit
of associates
after
tax (0.5) 0.5 - - 0.5 - - 0.5
Share of profit
of
joint ventures
after
tax 0.1 - - 0.1 1.3 - - 1.3
---------------- ---------- ---------- ------------- ---------- ---------- ---------- ------------- ---------- Profit before tax 49.6 (14.6) (1.3) 33.7 54.3 (31.7) 15.7 38.3 Tax charge for the period (9.5) (5.0) ---------------- ---------- ---------- ------------- ---------- ---------- ---------- ------------- ---------- Profit for the period attributable to the owners of the Company 40.1 49.3 ---------------- ---------- ---------- ------------- ---------- ---------- ---------- ------------- ---------- Diluted earnings per share - adjusted 4.3p 5.7p ---------------- ---------- ---------- ------------- ---------- ---------- ---------- ------------- ----------
Notes to the unaudited interim financial results continued
Adjusted earnings is one of Grainger's key performance indicators. The metric is utilised as a key measure to aid understanding of the performance of the continuing business and excludes valuation movements and other adjustments that are one-off in nature, which do not form part of the normal ongoing revenue or costs of the business and, either individually or in aggregate, are material to the reported Group results. The classification of amounts as other adjustments is a significant judgement made by management and is a matter referred to the Audit Committee for approval.
Profit before tax in the adjusted columns above of GBP33.7m (2019: GBP38.3m) is the adjusted earnings of the Group. Adjusted earnings per share assumes tax of GBP6.4m (2019: GBP7.3m) in line with the current standard UK corporation tax rate of 19.0% (2019: 19.0%), divided by the weighted average number of diluted shares as shown in Note 9.
Other adjustments in 2020 of GBP1.3m is comprised of GBP1.6m relating to the write-back of provisions relating to historic non-core businesses, offset by GBP0.3m refinancing costs. In 2019, other adjustments related to the acquisition of GRIP, comprising GBP12.7m goodwill written off and GBP3.0m acquisition, restructuring and refinancing costs.
3. Segmental Information
IFRS 8, Operating Segments requires operating segments to be identified based upon the Group's internal reporting to the Chief Operating Decision Maker ('CODM') so that the CODM can make decisions about resources to be allocated to segments and assess their performance. The Group's CODM is the Chief Executive Officer. The two significant segments for continuing operations are PRS and Reversionary.
The title 'Other' has been included in the tables below to reconcile the segments to the figures reviewed by the CODM and includes certain central costs that cannot be allocated to the operating segments. The key operating performance measure of profit or loss used by the CODM is adjusted earnings before tax, valuation and non-recurring items.
The key operating performance measure of profit or loss used by the CODM is adjusted earnings before tax, valuation and other adjustments. Historically, the CODM reviewed by segment two key statement of financial position measures of net asset value, being EPRA Net Asset Value ('EPRA NAV') and EPRA Triple Net Asset Value ('EPRA NNNAV'). In October 2019, EPRA issued new guidelines on its definitions of NAV measures. The revision includes the introduction of EPRA Net Tangible Assets (NTA), which is considered to become the most relevant NAV measure for the Group and we expect this to be our primary NAV measure going forward. EPRA NTA reflects the tax that will crystallise in relation to the trading portfolio, whilst excluding the volatility of mark to market movements on fixed rate debt and derivatives which are unlikely to be realised. The new EPRA guidelines do not become effective for the Group until 1 October 2020, therefore during this period both the existing and new EPRA measures are monitored and reported.
Information relating to the Group's operating segments is set out in the tables below. The tables distinguish between adjusted earnings, valuation movements and other adjustments and should be read in conjunction with Note 2.
Notes to the unaudited interim financial results continued
March 2020 Income statement (unaudited)
For the 6 months ended 31 March 2020 GBPm PRS Reversionary Other Total ---------------------------------------- ------- ------------- ------- ------- Group revenue 37.4 42.0 5.9 85.3 Segment revenue - external ---------------------------------------- ------- ------------- ------- ------- Net rental income 27.1 9.8 0.1 37.0 Profit on disposal of trading property - 18.0 4.1 22.1 Profit on disposal of investment property 0.7 - - 0.7 Income from financial interest in property assets - 2.6 - 2.6 Fees and other income 0.9 - 0.7 1.6 Administrative expenses - - (13.8) (13.8) Other expenses (0.2) - - (0.2) Net finance costs (10.2) (5.9) (0.3) (16.4) Share of trading (loss)/profit of joint ventures and associates after tax (0.1) - 0.2 0.1 ---------------------------------------- ------- ------------- ------- ------- Adjusted earnings 18.2 24.5 (9.0) 33.7 Valuation movements 14.6 Other adjustments 1.3 ---------------------------------------- ------- ------------- ------- ------- Profit before tax 49.6 ---------------------------------------- ------- ------------- ------- -------
A reconciliation from adjusted earnings to adjusted EPRA earnings is detailed in the table below, with further details shown in the EPRA performance measures section at the end of this document:
For the 6 months ended 31 March 2020 GBPm PRS Reversionary Other Total -------------------------------------- ------ ------------- ------- ------- Adjusted earnings 18.2 24.5 (9.0) 33.7 Profit on disposal of investment property (0.7) - - (0.7) Previously recognised profit through EPRA market value measures - (15.5) (1.5) (17.0) -------------------------------------- ------ ------------- ------- ------- Adjusted EPRA earnings 17.5 9.0 (10.5) 16.0 -------------------------------------- ------ ------------- ------- -------
March 2019 Income statement (unaudited)
For the 6 months ended 31 March 2019 GBPm PRS Reversionary Other Total ---------------------------------------- ------ ------------- ------- ------- Group revenue Segment revenue - external 33.6 60.7 12.7 107.0 ---------------------------------------- ------ ------------- ------- ------- Net rental income 18.8 10.3 - 29.1 Profit on disposal of trading property 1.6 23.1 4.8 29.5 Profit on disposal of investment property 1.8 - - 1.8 Income from financial interest in property assets - 2.8 - 2.8 Fees and other income 1.4 0.1 0.7 2.2 Administrative expenses - - (13.8) (13.8) Other expenses (0.6) - - (0.6) Net finance costs (8.2) (5.8) (0.5) (14.5) Share of trading profit of joint ventures and associates after tax 0.5 - 1.3 1.8 ---------------------------------------- ------ ------------- ------- ------- Adjusted earnings 15.3 30.5 (7.5) 38.3 Valuation movements 31.7 Other adjustments (15.7) ---------------------------------------- ------ ------------- ------- ------- Profit before tax 54.3 ---------------------------------------- ------ ------------- ------- -------
Notes to the unaudited interim financial results continued
A reconciliation from adjusted earnings to adjusted EPRA earnings is detailed in the table below:
For the 6 months ended 31 March 2019 GBPm PRS Reversionary Other Total -------------------------------------- ------ ------------- ------ ------- Adjusted earnings 15.3 30.5 (7.5) 38.3 Profit on disposal of investment property (1.8) - - (1.8) Previously recognised profit through EPRA market value measures - (21.8) - (21.8) -------------------------------------- ------ ------------- ------ ------- Adjusted EPRA earnings 13.5 8.7 (7.5) 14.7 -------------------------------------- ------ ------------- ------ -------
Segmental assets
The principal net asset value measures reviewed by the CODM are EPRA NAV, EPRA NNNAV and, following the new guidelines issued in October 2019, EPRA NTA. These measures reflect the current market value of trading property owned by the Group rather than the lower of historical cost and net realisable value. These measures are considered to be a more relevant reflection of the value of the assets owned by the Group.
EPRA NAV is the Group's statutory net assets plus the adjustment required to increase the value of trading stock from its statutory accounts value of the lower of cost and net realisable value to its market value. In addition, the statutory statement of financial position amounts for both deferred tax on property revaluations and derivative financial instruments net of deferred tax, including those in joint ventures and associates, are added back to statutory net assets. Finally, the market value of Grainger plc shares owned by the Group are added back to statutory net assets. For the Group, EPRA NAV is aligned with EPRA Net Reinstatement Value (NRV), which was introduced in EPRA's October 2019 guidelines.
EPRA NTA assumes that entities buy and sell assets, thereby crystallising certain levels of deferred tax liabilities. For the Group, deferred tax in relation to revaluations of its trading portfolio is taken into account by applying the expected rate of tax to the adjustment that increases the value of trading stock from its statutory accounts value of the lower of cost and net realisable value, to its market value. The measure also excludes all intangible assets on the statutory balance sheet, including goodwill.
EPRA NNNAV reverses some of the adjustments made between statutory net assets, EPRA NAV and EPRA NTA. All of the adjustments for the value of derivative financial instruments net of deferred tax, including those in joint ventures and associates, are reversed. The adjustment for the deferred tax on investment property revaluations excluded from EPRA NAV and EPRA NTA are also reversed, as is the intangible adjustment in respect of EPRA NTA, except for goodwill which remains excluded. In addition, adjustments are made to net assets to reflect the fair value, net of deferred tax, of the Group's fixed rate debt. For the Group, EPRA NNNAV is broadly aligned with EPRA Net Disposal Value (NDV), which was introduced in EPRA's October 2019 guidelines, with the only difference
being the exclusion of goodwill from EPRA NDV which, at the reporting date, is GBP0.5m.
These measures are set out below by segment along with a reconciliation to the summarised statutory statement of financial position:
Notes to the unaudited interim financial results continued
March 2020 Segment net assets (unaudited)
PRS Reversionary Other Total Pence
per
GBPm share
-------------------------- -------- ------------- ------ -------- -------
Total segment net assets
(statutory) 1,123.1 265.2 37.5 1,425.8 211
-------------------------- -------- ------------- ------ -------- -------
Total segment net assets
(EPRA NAV) 1,239.1 732.9 58.1 2,030.1 301
-------------------------- -------- ------------- ------ -------- -------
Total segment net assets
(EPRA NTA) 1,213.6 644.1 41.1 1,898.8 281
-------------------------- -------- ------------- ------ -------- -------
Total segment net assets
(EPRA NNNAV) 1,193.0 643.7 55.9 1,892.6 280
-------------------------- -------- ------------- ------ -------- -------
March 2020 Reconciliation of EPRA NAV measures (unaudited)
Adjustments Adjustments
to deferred to
Adjustments and contingent derivatives,
to market tax and fixed
value, EPRA intangibles rate EPRA
Statutory deferred NAV EPRA debt NNNAV
balance tax and balance NTA balance and balance
GBPm sheet derivatives sheet sheet intangibles sheet
------------------ ---------- ------------- ---------- --------------- ------------- --------------- ----------
Investment
property 1,661.6 - 1,661.6 - 1,661.6 - 1,661.6
Investment in
joint ventures
and associates 41.0 - 41.0 - 41.0 - 41.0
Financial
interest
in property
assets 73.5 - 73.5 - 73.5 - 73.5
Inventories -
trading property 702.1 553.6 1,255.7 - 1,255.7 - 1,255.7
Cash and cash
equivalents 257.0 - 257.0 - 257.0 - 257.0
Other assets 62.4 3.2 65.6 (17.0) 48.6 17.5 66.1
------------------ ---------- ------------- ---------- --------------- ------------- --------------- ----------
Total assets 2,797.6 556.8 3,354.4 (17.0) 3,337.4 17.5 3,354.9
------------------ ---------- ------------- ---------- --------------- ------------- --------------- ----------
Interest-bearing
loans and
borrowings (1,247.8) - (1,247.8) - (1,247.8) 14.7 (1,233.1)
Deferred and
contingent tax
liabilities (36.3) 30.1 (6.2) (114.3) (120.5) (21.0) (141.5)
Other liabilities (87.7) 17.4 (70.3) - (70.3) (17.4) (87.7)
------------------ ---------- ------------- ---------- --------------- ------------- --------------- ----------
Total liabilities (1,371.8) 47.5 (1,324.3) (114.3) (1,438.6) (23.7) (1,462.3)
------------------ ---------- ------------- ---------- --------------- ------------- --------------- ----------
Net assets 1,425.8 604.3 2,030.1 (131.3) 1,898.8 (6.2) 1,892.6
------------------ ---------- ------------- ---------- --------------- ------------- --------------- ----------
Notes to the unaudited interim financial results continued
September 2019 Segment net assets (audited)
PRS Reversionary Other Total Pence
per
GBPm share
-------------------------- -------- ------------- ------ -------- -------
Total segment net assets
(statutory) 979.3 224.5 19.7 1,223.5 199
-------------------------- -------- ------------- ------ -------- -------
Total segment net assets
(EPRA NAV) 1,090.4 689.9 40.6 1,820.9 297
-------------------------- -------- ------------- ------ -------- -------
Total segment net assets
(EPRA NTA) 1,068.2 610.5 29.4 1,708.1 278
-------------------------- -------- ------------- ------ -------- -------
Total segment net assets
(EPRA NNNAV) 1,048.8 610.5 6.9 1,666.2 272
-------------------------- -------- ------------- ------ -------- -------
September 2019 Reconciliation of EPRA NAV measures (audited)
Adjustments Adjustments
to market to deferred Adjustments
value, EPRA and contingent EPRA to derivatives, EPRA
Statutory deferred NAV tax and NTA fixed NNNAV
balance tax and balance intangibles balance rate debt balance
GBPm sheet derivatives sheet sheet and intangibles sheet
------------------ ---------- ------------- ---------- ---------------- ---------- ----------------- ----------
Investment
property 1,574.6 - 1,574.6 - 1,574.6 - 1,574.6
Investment in
joint ventures
and associates 33.3 - 33.3 - 33.3 - 33.3
Financial
interest
in property
assets 76.4 - 76.4 - 76.4 - 76.4
Inventories -
trading property 700.0 548.8 1,248.8 - 1,248.8 - 1,248.8
Cash and cash
equivalents 189.3 - 189.3 - 189.3 - 189.3
Other assets 57.6 3.6 61.2 (11.2) 50.0 18.2 68.2
------------------ ---------- ------------- ---------- ---------------- ---------- ----------------- ----------
Total assets 2,631.2 552.4 3,183.6 (11.2) 3,172.4 18.2 3,190.6 ------------------ ---------- ------------- ---------- ---------------- ---------- ----------------- ---------- Interest-bearing loans and borrowings (1,276.8) - (1,276.8) - (1,276.8) (23.4) (1,300.2) Deferred and contingent tax liabilities (32.7) 27.7 (5.0) (101.6) (106.6) (19.4) (126.0) Other liabilities (98.2) 17.3 (80.9) - (80.9) (17.3) (98.2) ------------------ ---------- ------------- ---------- ---------------- ---------- ----------------- ---------- Total liabilities (1,407.7) 45.0 (1,362.7) (101.6) (1,464.3) (60.1) (1,524.4) ------------------ ---------- ------------- ---------- ---------------- ---------- ----------------- ---------- Net assets 1,223.5 597.4 1,820.9 (112.8) 1,708.1 (41.9) 1,666.2 ------------------ ---------- ------------- ---------- ---------------- ---------- ----------------- ----------
Notes to the unaudited interim financial results continued
4. Group revenue
Unaudited
2020 2019
GBPm GBPm
----------------------------------------------------------- --------- --------
Gross rental income (Note 5) 50.0 39.4
Gross proceeds from disposal of trading property (Note 6) 33.7 65.4
Fees and other income (Note 8) 3.2 2.2
----------------------------------------------------------- --------- --------
86.9 107.0
----------------------------------------------------------- --------- --------
5. Net rental income
Unaudited
2020 2019
GBPm GBPm
----------------------------- -------- --------
Gross rental income 50.0 39.4
Property operating expenses (13.0) (10.3)
----------------------------- -------- --------
37.0 29.1
----------------------------- -------- --------
6. Profit on disposal of trading property
Unaudited
2020 2019
GBPm GBPm
-------------------------------------------------- -------- --------
Proceeds from disposal of trading property 33.7 61.1
Contract revenue - 4.3
-------------------------------------------------- -------- --------
Gross proceeds from disposal of trading property 33.7 65.4
Selling costs (0.6) (1.2)
-------------------------------------------------- -------- --------
Net proceeds from disposal of trading property 33.1 64.2
Carrying value of trading property sold (11.0) (31.2)
Carrying value of contract expenses - (3.5)
-------------------------------------------------- -------- --------
22.1 29.5
-------------------------------------------------- -------- --------
Amounts relating to the contract revenue and expenses in the prior period relate to the Group's development of properties in the arrangement with the Royal Borough of Kensington and Chelsea. The Group managed and funded the construction of a number of sites and received a developer's priority return at a fixed rate margin recoverable from the sale of completed residential units to third-parties.
7. Profit on disposal of investment property
Unaudited
2020 2019
GBPm GBPm
----------------------------------------------------- -------- --------
Gross proceeds from disposal of investment property 9.2 27.0
Selling costs (0.3) (0.6)
----------------------------------------------------- -------- --------
Net proceeds from disposal of investment property 8.9 26.4
Carrying value of investment property sold (8.2) (24.6)
----------------------------------------------------- -------- --------
0.7 1.8
----------------------------------------------------- -------- --------
Notes to the unaudited interim financial results continued
8. Fees and other income
Unaudited
2020 2019
GBPm GBPm
------------------------------------------ --------- --------
Property and asset management fee income 1.3 2.1
Other sundry income 1.9 0.1
------------------------------------------ --------- --------
3.2 2.2
------------------------------------------ --------- --------
9. Earnings per share
Basic
Basic earnings per share is calculated by dividing the profit or loss attributable to the owners of the Company by the weighted average number of ordinary shares in issue during the period, excluding ordinary shares purchased by the Group and held both in Trust and as treasury shares to meet its obligations under the Long-Term Incentive Plan ('LTIP'), Deferred Bonus Plan ('DBP') and Save As You Earn ('SAYE') schemes, on which the dividends are being waived.
Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of shares in issue by the dilutive effect of ordinary shares that the Company may potentially issue relating to its share option schemes and contingent share awards under the LTIP and DBP, based upon the number of shares that would be issued if 31 March 2020 was the end of the contingency period. Where the effect of the above adjustments is antidilutive, they are excluded from the calculation of diluted earnings per share.
Unaudited
31 March 2020 31 March 2019
------------------------------ --------------------------------- ---------------------------------
Profit Weighted Profit Weighted
for average Earnings for average Earnings
the number per the number per
period of shares share period of shares share
GBPm (millions) (pence) GBPm (millions) (pence)
------------------------------ -------- ------------ --------- -------- ------------ ---------
Basic earnings per share
Profit attributable to
equity holders 40.1 625.6 6.4 49.3 545.8 9.0
Effect of potentially
dilutive securities
Share options and contingent
shares - 2.4 - - 2.7 -
------------------------------ -------- ------------ --------- -------- ------------ ---------
Diluted earnings per share
Profit attributable to
equity holders 40.1 628.0 6.4 49.3 548.5 9.0
------------------------------ -------- ------------ --------- -------- ------------ ---------
10. Dividends
The Company has announced an interim dividend of 1.83p (March 2019: 1.73p) per share which will return GBP12.3m (March 2019: GBP10.5m) of cash to shareholders. In the six months ended 31 March 2020, the final dividend for the year ended 30 September 2019 which amounted to GBP21.2m has been paid.
Notes to the unaudited interim financial results continued
11. Investment property
Audited
Unaudited 31 March 30 Sept
2020 2019
GBPm GBPm
------------------------------------------------- ------------------- ---------
Opening balance 1,574.6 589.7
Additions 79.6 212.6
Acquired through business combination (Note 25) - 700.8
Transfer from inventories - 71.5
Disposals (8.2) (57.5)
Net valuation gains 15.6 57.5
Closing balance 1,661.6 1,574.6
------------------------------------------------- ------------------- ---------
12. Inventories
Unaudited 31 March Audited 30 Sept
2020 2019
GBPm GBPm
---------------------------------------------------------------------------- ------------------- ----------------
Opening balance 700.0 799.3
Additions 13.0 36.3
Transfer to investment property - (71.5)
Disposals (11.0) (63.7)
Reversal of impairment/(impairment) of inventories to net realisable value 0.1 (0.4)
---------------------------------------------------------------------------- ------------------- ----------------
Closing balance 702.1 700.0
---------------------------------------------------------------------------- ------------------- ----------------
13. Investment in associates
Audited
Unaudited 31 March 30 Sept
2020 2019
GBPm GBPm
-------------------------------------------------------------------------------------- ------------------- ---------
Opening balance 11.7 134.0
Share of (loss)/profit for the period (0.5) 0.4
Investment eliminated on consolidation following acquisition - (109.7)
Loan eliminated on consolidation following acquisition - (18.2)
Loans advanced to associates 1.8 5.1
Share of change in fair value of cash flow hedges taken through other comprehensive
income - 0.1
Closing balance 13.0 11.7
-------------------------------------------------------------------------------------- ------------------- ---------
The closing balance comprises share of net liabilities of GBP0.5m (September 2019: GBPnil) and net loans due from associates of GBP13.5m (September 2019: GBP11.7m). At the balance date, there is no expectation of credit losses on loans due.
In the prior year, the investment and loan eliminated on consolidation following acquisition of GBP109.7m and GBP18.2m respectively represents the Group's share of net assets in GRIP which became a subsidiary of Grainger on 20 December 2018 (see Note 25).
As at 31 March 2020, the Group's interest in associates was as follows:
% of ordinary Country of Accounting
share capital incorporation period end
held
--------- --------------- --------------- -------------
Vesta LP 20.0 United Kingdom 30 September
--------- --------------- --------------- -------------
Notes to the unaudited interim financial results continued
14. Investment in joint ventures
Unaudited 31 March Audited 30 Sept
2020 2019
GBPm GBPm
---------------------------------- ------------------- ----------------
Opening balance 21.6 11.6
Share of profit for the period 0.1 1.4
Reversal of impairment - 9.8
Further investment(1) 4.7 2.9
Loans advanced to joint ventures 1.6 1.6
Loans repaid by joint ventures - (5.7)
Closing balance 28.0 21.6
---------------------------------- ------------------- ----------------
(1) Grainger invested GBP4.7m into Connected Living London (BTR) Limited in the period (September 2019: GBP2.9m).
The closing balance comprises share of net assets of GBP8.9m (September 2019: GBP4.1m) and net loans due from joint ventures of GBP19.1m (September 2019: GBP17.5m).
In the prior year, the impairment against loans made to the Curzon Park Limited joint venture totalling GBP9.8m was reversed in full. There are currently no impairments held against loans to joint ventures at the reporting date.
At 31 March 2020, the Group's interest in joint ventures was as follows:
% of ordinary
share capital Country of Accounting
held incorporation period end
---------------------------- --------------- --------------- -------------
Connected Living London 30 September
(BTR) Limited 51 United Kingdom
Curzon Park Limited 50 United Kingdom 31 March
Helical Grainger (Holdings) 31 March
Limited 50 United Kingdom
Lewisham Grainger Holdings 30 September
LLP 50 United Kingdom
CCZ a.s. 50 Czech Republic 30 September
---------------------------- --------------- --------------- -------------
15. Financial interest in property assets ('CHARM' portfolio)
Unaudited
31 March Audited 30 Sept
2020 2019
GBPm GBPm
----------------------------------- ---------- ----------------
Opening balance 76.4 82.2
Cash received from the instrument (4.9) (10.0)
Amounts taken to income statement 2.0 4.2
Closing balance 73.5 76.4
----------------------------------- ---------- ----------------
The CHARM portfolio is a financial interest in equity mortgages held by the Church of England Pensions Board as mortgagee. It is accounted for under IFRS 9 and is measured at fair value through profit and loss.
It is considered to be a Level 3 financial asset as defined by IFRS 13. The financial asset is included in the fair value hierarchy within Note 19.
Notes to the unaudited interim financial results continued
16. Intangible assets
Unaudited Audited
31 March 30 Sept
2020 2019
GBPm GBPm
----------------- ---------- ---------
Opening balance 11.2 4.7
Additions 6.2 7.7
Amortisation (0.4) (1.2)
Closing balance 17.0 11.2
----------------- ---------- ---------
17. Trade and other receivables
Unaudited
31 March Audited 30 Sept
2020 2019
GBPm GBPm
----------------------------------------- ---------- ----------------
Rent and other tenant receivables 2.6 2.5
Deduct: Provision for impairment (1.1) (0.7)
----------------------------------------- ---------- ----------------
Rent and other tenant receivables - net 1.5 1.8
Contract assets - 18.5
Other receivables 22.8 18.0
Prepayments 2.3 2.2
----------------------------------------- ---------- ----------------
Closing balance 26.6 40.5
----------------------------------------- ---------- ----------------
Contract assets in the prior period primarily related to revenue receivable on the arrangement with the Royal Borough of Kensington and Chelsea (Note 6).
Other receivables include GBP11.6m (September 2019: GBP4.0m) due from land and property sales, receivable by no later than March 2022.
The fair values of trade and other receivables are considered to be equal to their carrying amounts.
18. Trade and other payables
Unaudited 31 March Audited 30 Sept
2020 2019
GBPm GBPm
------------------------------- ------------------- ----------------
Deposits received 7.4 7.5
Trade payables 21.7 17.5
Tax and social security costs 1.5 1.0
Accruals 32.7 42.8
Deferred income 4.3 4.8
------------------------------- ------------------- ----------------
Closing balance 67.6 73.6
------------------------------- ------------------- ----------------
Notes to the unaudited interim financial results continued
19. Interest-bearing loans and borrowings and financial risk management
Unaudited Audited
31 March 30 Sept
2020 2019
GBPm GBPm
--------------------------------------------- ---------- ---------
Current liabilities
Non-bank financial institution - 100.0
- 100.0
--------------------------------------------- ---------- ---------
Non-current liabilities
Bank loans - Pounds Sterling 554.4 483.8
Bank loans - Euro 0.9 0.9
Non-bank financial institution 345.9 345.7
Corporate bond 346.6 346.4
1,247.8 1,176.8
--------------------------------------------- ---------- ---------
Total interest-bearing loans and borrowings 1,247.8 1,276.8
--------------------------------------------- ---------- ---------
The above analyses of loans and borrowings are net of unamortised costs and the discount on issuance of the corporate bond. As at 31 March 2020, unamortised cost totalled GBP11.9m (September 2019: GBP12.9m) and the outstanding discount was GBP1.2m (September 2019: GBP1.2m).
Categories of financial instrument
The Group holds financial instruments such as financial interest in property assets, trade and other receivables (excluding prepayments), derivatives, cash and cash equivalents. For all assets and liabilities excluding interest-bearing loans the book value was the same as the fair value as at 31 March 2020 and as at 30 September 2019.
As at 31 March 2020, the fair value of interest-bearing loans is less than the book value by GBP14.7m (September 2019: greater than by GBP23.4m ), but there is no requirement under IFRS 9 to adjust the carrying value of loans, all of which are stated at amortised cost in the consolidated statement of financial position.
Net debt
The table below sets out the calculation of net debt and LTV:
Unaudited 31 March Audited 30 Sept
2020 2019
GBPm GBPm
-------------------------------------------------------------- ------------------- ----------------
Gross debt 1,247.8 1,276.8
Cash (excluding restricted client cash) (248.1) (179.3)
-------------------------------------------------------------- ------------------- ----------------
Net debt 999.7 1,097.5
-------------------------------------------------------------- ------------------- ----------------
Market value of properties 2,917.3 2,823.4
Other property related assets 117.5 138.0
-------------------------------------------------------------- ------------------- ----------------
Total market value of properties and property related assets 3,034.8 2,961.4
-------------------------------------------------------------- ------------------- ----------------
LTV 32.9% 37.1%
-------------------------------------------------------------- ------------------- ----------------
Market risk
The Group is exposed to market risk through interest rates, the availability of credit and house price movements relating to the Tricomm Housing portfolio and the CHARM portfolio. The Group is not significantly exposed to equity price risk or to commodity price risk.
Notes to the unaudited interim financial results continued
Fair values
IFRS 13 sets out a three-tier hierarchy for financial assets and liabilities valued at fair value. These are as follows:
Level 1 - quoted prices (unadjusted) in active markets for identical assets and liabilities;
Level 2 - inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; and
Level 3 - unobservable inputs for the asset or liability.
The following table presents the Group's assets and liabilities that are measured at fair value:
Unaudited Audited
31 March 2020 30 September 2019
---------------------- ----------------------
Assets Liabilities Assets Liabilities
GBPm GBPm GBPm GBPm
------------------------------------------------------------------- -------- ------------ -------- ------------
Level 3
------------------------------------------------------------------- -------- ------------ -------- ------------
CHARM 73.5 - 76.4 -
Investment property 1,661.6 - 1,574.6 -
------------------------------------------------------------------- -------- ------------ -------- ------------
1,735.1 - 1,651.0 -
------------------------------------------------------------------- -------- ------------ -------- ------------
Level 2
------------------------------------------------------------------- -------- ------------ -------- ------------
Interest rate swaps - in cash flow hedge accounting relationships - 17.4 - 17.3
- 17.4 - 17.3
------------------------------------------------------------------- -------- ------------ -------- ------------
The significant unobservable inputs affecting the carrying value of the CHARM portfolio are house price inflation and the effective interest rate. A reconciliation of movements and amounts recognised in the consolidated income statement are detailed in Note 15.
The investment valuations provided by Allsop LLP and CBRE Limited are based on RIC's Professional Valuation Standards, but include a number of unobservable inputs and other valuation assumptions.
The fair value of swaps and caps were valued in-house by a specialised treasury management system, using first a discounted cash flow model and market information. The fair value is derived from the present value of future cash flows discounted at rates obtained by means of the current yield curve appropriate for those instruments. As all significant inputs required to value the swaps and caps are observable, they fall within Level 2.
The reconciliation between opening and closing balances for Level 3 is detailed in the table below:
Audited
Unaudited 31 March 2020 30 Sept 2019
Assets - Level 3 GBPm GBPm
----------------------------------- ------------------------ --------------
Opening balance 1,651.0 671.9
Amounts taken to income statement 17.6 61.7
Other movements 66.5 917.4
----------------------------------- ------------------------ --------------
Closing balance 1,735.1 1,651.0
----------------------------------- ------------------------ --------------
Notes to the unaudited interim financial results continued
20. Tax
The tax charge for the period of GBP9.5m (2019: GBP5.0m) recognised in the consolidated income statement comprises:
Unaudited
2020 2019
GBPm GBPm
---------------------------------------------------------------------- -------- --------
Current tax
Corporation tax on profit 9.4 11.5
Adjustments relating to prior periods - (0.2)
---------------------------------------------------------------------- -------- --------
9.4 11.3
---------------------------------------------------------------------- -------- --------
Deferred tax
Origination and reversal of temporary differences 0.1 (6.3)
0.1 (6.3)
---------------------------------------------------------------------- -------- --------
Total tax charge for the period in the consolidated income statement 9.5 5.0
---------------------------------------------------------------------- -------- --------
The Group works in an open and transparent manner and maintains a regular dialogue with HM Revenue & Customs. This approach is consistent with the 'low risk' rating we have been awarded by HM Revenue & Customs, and to which the Group is committed.
In addition to the above, a deferred tax credit of GBP0.4m (2019: GBP2.0m) was recognised within other comprehensive income comprising:
Unaudited
2020 2019
GBPm GBPm
------------------------------------------------------------------ -------- --------
Deferred tax
Actuarial gain/(loss) on BPT Limited pension scheme (0.1) (0.3)
Fair value movement in cash flow hedges and exchange adjustments (0.3) (1.7)
------------------------------------------------------------------ -------- --------
Amounts recognised in other comprehensive income (0.4) (2.0)
------------------------------------------------------------------ -------- --------
Deferred tax balances comprise temporary differences attributable to:
Unaudited 31 March 2020 Audited 30 Sept 2019
GBPm GBPm
--------------------------------------------------------------------- ------------------------ ---------------------
Deferred tax assets
Short-term temporary differences 1.3 1.4
Losses carried forward 3.9 0.3
Actuarial deficit on BPT Limited pension scheme 1.0 0.9
Fair value movement in derivative financial instruments and
cumulative exchange adjustments 3.3 3.0
--------------------------------------------------------------------- ------------------------ ---------------------
9.5 5.6
--------------------------------------------------------------------- ------------------------ ---------------------
Deferred tax liabilities
Trading property uplift to fair value on business combinations (9.1) (8.3)
Investment property revaluation (24.9) (19.7)
Short-term temporary differences (1.1) (3.6)
Fair value movement on financial interest in property assets (1.2) (1.1)
(36.3) (32.7)
--------------------------------------------------------------------- ------------------------ ---------------------
Total deferred tax (26.8) (27.1)
--------------------------------------------------------------------- ------------------------ ---------------------
Deferred tax has been predominantly calculated at a rate of 19% (September 2019: 17%) in line with the substantially enacted main rate of corporation tax at 1 April 2020.
Notes to the unaudited interim financial results continued
In addition to the tax amounts shown above, contingent tax based on EPRA market value measures, being tax on the difference between the carrying value of trading properties in the statement of financial position and their market value has not been recognised by the Group. This contingent tax amounts to GBP105.2m, calculated at 19% (September 2019: GBP93.3m, calculated at 17% ).
21. Retirement benefits
The Group retirement benefit liability decreased by GBP0.4m to GBP1.3m in the six months ended 31 March 2020. The Group obtained an updated valuation of the assets and liabilities of the pension scheme for the purposes of the annual financial statements. The movement has arisen from a GBP3.1m loss on plan assets, offset by changes in assumptions of GBP3.2m (primarily market observable discount rates) and GBP0.3m company contributions. The principal actuarial assumptions used to reflect market conditions as at 31 March 2020 are as follows:
Unaudited Audited
31 March 2020 30 Sept 2019
% %
------------------------------------------ --------------- --------------
Discount rate 2.20 1.70
Retail Price Index (RPI) inflation 2.60 3.30
Consumer Price Index (CPI) inflation 1.80 2.30
Salary increases 3.10 3.80
Rate of increase of pensions in payment 5.00 5.00
Rate of increase for deferred pensioners 1.80 2.30
------------------------------------------ --------------- --------------
22. Share-based payments
The Group operates a number of equity-settled, share-based compensation plan comprising awards under a Long-Term Incentive Plan ('LTIP'), a Deferred Bonus Plan ('DBP'), a Share Incentive Plan ('SIP') and a Save As You Earn Scheme ('SAYE'). The share-based payments charge recognised in the income statement for the period is GBP1.0m (2019: GBP0.9m ).
23. Related party transactions
During the period ended 31 March 2020, the Group transacted with its associates and joint ventures (details of which are set out in Notes 13 and 14). The Group provides a number of services to its associates and joint ventures. These include property and asset management services for which the Group receives fee income. The related party transactions recognised in the income statement and statement of financial position are as follows:
Unaudited
31 March 2020 31 March 2019
----------------------- -----------------------
Period Period
Fees end Fees end
recognised balance recognised balance
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ------------ --------- ------------ ---------
GRIP REIT PLC(1) - - 840 -
Vesta Limited Partnership 67 21 528 528
Connected Living London
(BTR) Limited 384 384 - -
Lewisham Grainger Holdings
LLP 186 341 155 155
637 746 1,523 683
---------------------------- ------------ --------- ------------ ---------
Notes to the unaudited interim financial results continued
Unaudited Audited
------------------------------------------------- -----------------------------------------------
31 March 2020 31 March 2020 31 March 2020 31 March 2019 30 Sept 2019 30 Sept 2019
Interest Period end loan Interest Interest Period end loan Interest
recognised balance rate recognised balance rate
GBP'000 GBPm % GBP'000 GBPm %
------------------ --------------- ---------------- -------------- -------------- ---------------- -------------
GRIP REIT PLC(1) - - 125 - -
Vesta Limited
Partnership - 13.5 Nil - 11.7 Nil
Lewisham Grainger
Holdings LLP - 2.2 Nil - 1.7 Nil
Curzon Park
Limited - 16.9 Nil - 16.2 Nil
CCZ a.s. - - 4.00 (6) (0.4) 4.00
- 32.6 119 29.2
---------------------------------- ---------------- -------------- -------------- ---------------- -------------
(1) Amounts recognised from GRIP REIT PLC relate to pre-acquisition fees and interest where the Group's interest was classified as an associate. Following the acquisition, the results of GRIP REIT PLC are consolidated in full into the results of the Group.
24. Issue of share capital
In February 2020, the Group issued 61,200,000 new shares at an issue price of 305.0p raising a total amount of GBP182.5m net of costs. The shares were issued with a nominal value of GBP0.05p per share. This increased share capital by GBP3.1m and the share premium account by GBP179.4m.
In December 2018, the Group completed a 7 for 15 rights issue at an issue price of 178.0p raising a total amount of GBP334.5m net of costs. The rights issue increased the number of shares in issue by 194,758,491 shares, with shares being issued with a nominal value of GBP0.05 per share. This increased issued share capital by GBP9.7m and the share premium account by GBP324.8m.
25. Business combination in prior year
On 20 December 2018, the Group completed the acquisition of the remaining 75.1% interest in GRIP from joint venture partner APG for cash consideration of GBP396.6m. This comprised cash paid for the remaining shares of GBP341.3m and the repayment of loans and accrued interest owing to APG totalling GBP55.3m.
The acquisition of GRIP was accounted for as a business combination due to the integrated set of activities acquired in addition to the properties. Accordingly, transaction and subsequent structuring costs incurred in relation to the acquisition of GBP3.0m have been expensed in the consolidated income statement.
Notes to the unaudited interim financial results continued
The valuation techniques used for measuring the fair value of material assets acquired were as follows:
Material assets acquired Valuation technique
-------------------------------------- ----------------------------------------------------------------------------
Investment property GRIP's property portfolio was valued externally by CBRE Limited and Allsop
LLP. The valuations
took into account whether the block is managed as a whole or a group of
individual units and
valued accordingly. Valuation on the basis of how the properties are
managed is deemed to
be the highest and best use of the property. The valuation of properties
under construction
assesses the market value of the property upon completion less estimated
cost of work to complete
and where appropriate an adjustment to take into account the remaining
construction and stabilisation
risks.
Interest-bearing loans and borrowings Nominal amounts owed to lenders plus interest payable that has been
adjusted for the difference
between the contractual interest rate on the loans and borrowings and the
market interest
rate. The Directors' do not consider the difference between the contractual
interest rate
and the market interest rate to result in a material adjustment.
-------------------------------------- ----------------------------------------------------------------------------
Goodwill arising from the acquisition has been recognised as follows:
GBPm
------------------------------------------------------ --------
Consideration transferred 341.3
Fair value of non-controlling interest acquired 3.1
Fair value of pre-existing equity interests 109.7
Recognition of deferred tax liability on acquisition 2.4
Fair value of identifiable net assets recognised (443.8)
Goodwill 12.7
------------------------------------------------------- --------
Goodwill recognised on acquisition of GBP12.7m represents the premium paid over the fair value of the net assets acquired. Goodwill has been subsequently assessed for impairment. As no definitive and measurable portfolio premium can be ascribed to the combined value of the properties, an impairment charge for the full amount of goodwill recognised on acquisition has been taken to the Group's consolidated income statement.
As part of the acquisition, the Group acquired the non-controlling interest held by APG in GRIP for GBP3.1m. This cost forms part of the acquisition of GRIP.
Following the acquisition, there remained a 10% non-controlling interest in GRIP Unit Trust 6, a wholly-owned subsidiary of the Group, held by BY Development Limited. On 13 May 2019, the 10% non-controlling interest was acquired by the Group for GBP3.1m.
EPRA Performance Measures - Unaudited
EPRA Earnings
The EPRA Best Practices Recommendations ('EPRA BPR') previously used by the Group were issued by EPRA's Reporting and Accounting Committee in November 2016. In October 2019, EPRA released updated guidelines that revised the approach to the calculation of NAV. The new guidelines introduce EPRA Net Reinstatement Value (NRV), EPRA Net Tangible Assets (NTA) and EPRA Net Disposal Value (NDV) and will replace EPRA NAV and EPRA NNNAV, historically reported by the Group. Other EPRA performance measures contained in the latest EPRA BPR guide remain substantially unchanged.
EPRA NTA is considered to become the most relevant NAV measure for the Group and we expect this to be the primary NAV measure going forward. EPRA NTA reflects the tax that will crystallise in relation to the trading portfolio, whilst excluding the volatility of mark to market movements on fixed rate debt and derivatives which are unlikely to be realised.
On transition, all EPRA NAV metrics have been disclosed in the report to highlight differences that arise following the adoption of the new guidelines, which become effective for the Group from 1 October 2020.
31 March 2020 31 March 2019
---------------------------- ---------------------------
Pence Pence
Earnings Shares per Earnings Shares per
GBPm millions share GBPm millions share
--------------------------------------- --------- --------- ------ -------- --------- ------
Earnings per IFRS income statement 49.6 628.0 7.9 54.3 548.5 9.9
Adjustments to calculate adjusted
EPRA Earnings, exclude:
i) Changes in value of investment
properties, development properties
held for investment and other
interests (15.0) - (2.4) (22.0) - (4.0)
ii) Profits or losses on disposal
of investment properties, development
properties held for investment
and other interests (0.7) - (0.1) (1.8) - (0.3)
iii) Profits or losses on sales
of trading properties including
impairment charges in respect
of trading properties (17.1) - (2.7) (21.7) - (3.9)
iv) Tax on profits or losses on
disposals - - - - - -
v) Negative goodwill/goodwill
impairment - - - 12.7 - 2.3
vi) Changes in fair value of financial
instruments and associated close-out
costs 0.3 - - - - -
vii) Acquisition costs on share
deals and non-controlling joint
venture interests - - - 3.0 - 0.6
viii) Deferred tax in respect
of EPRA adjustments - - - - - -
ix) Adjustments i) to viii) in
respect of joint ventures (1.1) - (0.2) (9.8) - (1.8)
x) Minority interests in respect
of the above - - - - - -
--------------------------------------- --------- --------- ------ -------- --------- ------
Adjusted EPRA Earnings/Earnings
per share 16.0 628.0 2.5 14.7 548.5 2.8
--------------------------------------- --------- --------- ------ -------- --------- ------
EPRA Performance Measures - Unaudited (continued)
EPRA NAV
31 March 2020 30 Sept 2019
-------------------------- --------------------------
NAV NAV
Net pence Net pence
assets Shares per assets Shares per
GBPm millions share GBPm millions share
---------------------------------------- ------- --------- ------ ------- --------- ------
NAV from the financial statements 1,425.8 675.2 211 1,223.5 613.8 199
Include:
i.a) Revaluation of investment
property - - - - - -
i.b) Revaluation of investment
property under construction - - - - - -
i.c) Revaluation of other non-current
investments 6.5 - 1 6.5 - 1
ii) Revaluation of tenant leases
held as finance leases - - - - - -
iii) Revaluation of trading properties 553.6 - 82 548.8 - 90
Exclude:
iv) Fair value of financial instruments 14.1 - 2 14.4 - 2
v.a) Deferred tax 30.1 - 5 27.7 - 5
v.b) Goodwill as a result of deferred
tax - - - - - -
Include/exclude:
Adjustments i) to v) above in respect
of joint venture interests - - - - - -
---------------------------------------- ------- --------- ------ ------- --------- ------
EPRA NAV/EPRA NAV per share 2,030.1 675.2 301 1,820.9 613.8 297
---------------------------------------- ------- --------- ------ ------- --------- ------
EPRA NNNAV
31 March 2020 30 Sept 2019
-------------------------- ----------------------------
NNNAV NNNAV
Net pence Net pence
assets Shares per assets Shares per
GBPm millions share GBPm millions share
--------------------------------------- ------- --------- ------ ------- --------- ------
EPRA NAV 2,030.1 675.2 301 1,820.9 613.8 297
Include:
i) Fair value of financial instruments (14.1) - (2) (14.3) - (2)
ii) Fair value of debt 11.9 - 2 (19.4) - (3)
iii) Deferred tax (135.3) - (21) (121.0) - (20)
--------------------------------------- ------- --------- ------ ------- --------- --------
EPRA NNNAV/EPRA NNNAV per share 1,892.6 675.2 280 1,666.2 613.8 272
--------------------------------------- ------- --------- ------ ------- --------- --------
EPRA Performance Measures - Unaudited (continued)
EPRA NRV, EPRA NTA and EPRA NDV
31 March 2020 30 Sept 2019
------------------------- -------------------------
EPRA EPRA EPRA EPRA EPRA EPRA
NRV NTA NDV NRV NTA NDV
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------- ------- ------- ------- ------- ------- -------
IFRS Equity attributable to shareholders 1,425.8 1,425.8 1,425.8 1,223.5 1,223.5 1,223.5
Include/Exclude:
i) Hybrid Instruments - - - - - -
----------------------------------------- ------- ------- ------- ------- ------- -------
Diluted NAV 1,425.8 1,425.8 1,425.8 1,223.5 1,223.5 1,223.5
Include:
ii.a) Revaluation of IP (if IAS
40 cost option is used) - - - - - -
ii.b) Revaluation of IPUC (if IAS
40 cost option is used) - - - - - -
ii.c) Revaluation of other non-current
investments 6.5 6.5 6.5 6.5 6.5 6.5
iii) Revaluation of tenant leases
held as finance leases - - - - - -
iv) Revaluation of trading properties 562.7 448.4 448.4 557.1 455.5 455.5
----------------------------------------- ------- ------- ------- ------- ------- -------
Diluted NAV at Fair Value 1,995.0 1,880.7 1,880.7 1,787.1 1,685.5 1,685.5
Exclude:
v) Deferred tax in relation to
fair value gains of IP 21.0 21.0 - 19.4 19.4 -
vi) Fair value of financial instruments 14.1 14.1 - 14.4 14.4 -
vii) Goodwill as a result of deferred
tax - - - - - -
viii.a) Goodwill as per the IFRS
balance sheet - (0.5) (0.5) - (0.5) (0.5)
viii.b) Intangible as per the IFRS
balance sheet - (16.5) - - (10.7) -
Include:
ix) Fair value of fixed interest
rate debt - - 11.9 - - (19.3)
x) Revalue of intangibles to fair
value - - - - - -
xi) Real estate transfer tax - - - - - -
----------------------------------------- ------- ------- ------- ------- ------- -------
NAV 2,030.1 1,898.8 1,892.1 1,820.9 1,708.1 1,665.7
----------------------------------------- ------- ------- ------- ------- ------- -------
Fully diluted number of shares
NAV 675.2 675.2 675.2 613.8 613.8 613.8
NAV pence per share 301 281 280 297 278 272
----------------------------------------- ------- ------- ------- ------- ------- -------
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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