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Grainger Plc LSE:GRI London Ordinary Share GB00B04V1276 ORD 5P
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Grainger PLC Half Year Results

14/05/2020 7:03am

UK Regulatory (RNS & others)


Grainger (LSE:GRI)
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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

 
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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