U and I Group PLC Post Close Trading Update (6391J)

TIDMUAI

RNS Number : 6391J

U and I Group PLC

15 April 2020

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

15 April 2020

U and I Group PLC

Post Close Trading Update

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

Key points

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

-- U+I expects to have achieved c. GBP16 million of gross development and trading gains against its target of GBP35-45 million for FY2020

-- Decisive, proactive action taken on expenditure - all non-essential development expenditure stopped or deferred improving cashflow by GBP30 million over the next twelve months; all discretionary spend eliminated and expected staff cost savings to be made totalling GBP1.2 million on an annualised basis

-- Strong balance sheet with good liquidity - in excess of GBP45 million free and GBP26 million restricted cash will be available, including GBP15 million cash to be drawn against previously uncharged assets

-- Dividend suspended - to further ensure financial flexibility, the Board is no longer recommending the final dividend, preserving c.GBP4.4 million of cash and, similarly, is not proposing any supplemental dividend for FY2020

-- Financial guidance withdrawn - until clarity returns to the market, U+I is suspending all financial guidance relating to expected future development and trading gains

Sound cash position and disciplined cost management

As outlined in its trading update on 20 March 2020, U+I has increased its focus on managing its cash resources and liquidity as the Covid-19 disruption continues. Delays in third party decision-making, coupled with restricted site working practices, will impact on the rate of development expenditure on our projects. Following a comprehensive review of these projects, the Group estimates a reduction in development expenditure of c.GBP30 million over the coming year. It will continue to monitor this on a monthly basis.

In addition to this necessary action, U+I has accelerated its efficiencies programme, announced at the October 2019 Capital Markets Day (CMD), which targeted c.GBP4 million of cost savings to FY2022 and which included a 20% overhead reduction in the period. This acceleration will result in GBP1.2 million of additional cost savings in FY2021, compared to the CMD target, and will achieve the full cost savings target twelve months earlier than previously planned. The business will still be able to execute on its substantial pipeline, through a more efficient approach.

The measures we have implemented are three-fold.

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

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

3. Given the increased economic uncertainty created by the spread of the Covid-19 pandemic and the impact of stopping or deferring development expenditure, the Group has taken immediate steps to make further cost savings through a redundancy programme. This is expected to deliver annualised savings of GBP1.4 million and reflects a more prudent approach to resourcing. In addition, seventeen members of the team have been furloughed.

Strong Balance Sheet

U+I is well capitalised and benefits from a good degree of financial flexibility. It will have over GBP70 million of free and restricted cash available imminently and an additional GBP11 million of undrawn facilities. As part of this liquidity, the Company will shortly draw GBP15 million against previously uncharged assets which it expects to repay on monetisation of these assets in FY2021. U+I's cash overhead, excluding depreciation, is now set to a recurring GBP15.5 million per annum.

The Group estimates that, post March, it could withstand a further fall in overall capital values of the assets in its investment portfolio of c.25%, subject to audit, before requiring renegotiation of LTV covenants with the relevant lenders. Following the sale of three investment portfolio assets, as announced on 27 March 2020, U+I has GBP26 million in restricted cash within its facility with Aviva as available to reinvest when conditions normalise. This facility has a maturity date of 2032.

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

The Board has decided to temporarily suspend any future dividend payments, preserving c.GBP4.4 million of cash in respect of the final dividend. The Board recognises the importance of the dividend for its shareholders and will revisit the position for future dividends once there is greater clarity on the impact of Covid-19 on the business.

Development and Trading

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

These factors, most of which were outside of our control, have meant that our FY2020 gross development and trading gains are c.GBP16 million, below the low end of our GBP35-45 million target.

As announced on 2 April 2020, we were pleased to complete the disposal of Harwell Campus, our joint venture internationally renowned innovation and science campus in Oxfordshire, to Brookfield Capital Partners, on behalf of Brookfield Strategic Real Estate Partners III, delivering to U+I an initial cash payment of GBP28 million, plus deferred cash payments of GBP13.74 million. Subject to formal audit, we expect accounting profit for the transaction to be approximately GBP11 million and realised in FY2020. We announced at our interims that we had brought this into our target guidance for this year, seeing the potential to recapitalise the asset at a time when the real estate market for science and research led facilities was strong and occupational demand for space high. This has partially mitigated the other projects that have been delayed.

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

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

 
 Project                 T arget         Actual FY      Progress and value trigger 
                          for FY          2020 gains 
                          2020 gains      (unaudited) 
 Arts Building,          GBP6-8m         GBP0m          Progress : completed refurbishment; 
  London                                                 engrossments issued to a food 
                                                         retailer for ground floor, 
                                                         subject to planning (planning 
                                                         outcome expected in December 
                                                         2020). Discussions with occupiers 
                                                         to let the first and second 
                                                         floors were targeted to conclude 
                                                         in April 2020, but are now 
                                                         subject to delay 
                                                         Value trigger : planning, 
                                                         letting and subsequent disposal 
                        --------------  -------------  ------------------------------------- 
 Newtown Works,          GBP5-7m         GBP0m          Progress : planning due to 
  Ashford                                                be achieved in March 2020 

                                                         but committee did not sit; 
                                                         now targeting April 2020. 
                                                         In negotiations for the sale 
                                                         of the residential component 
                                                         of the scheme and strong interest 
                                                         in the commercial element 
                                                         Value trigger : planning, 
                                                         sale of entire site 
                        --------------  -------------  ------------------------------------- 
 Kensington              GBP4-6m         GBP0m          Progress : Call In Inquiry 
  Church Street,                                         completed; awaiting result 
  London*                                                of Secretary of State's decision. 
                                                         Demand remains for the consented 
                                                         site; refinancing now expected 
                                                         to close in FY2021 
                                                         Value trigger : surplus from 
                                                         development of site or refinancing 
                                                         post planning decision 
                        --------------  -------------  ------------------------------------- 
 Hendy Wind              GBP4-6m         GBP0m          Progress : accreditation 
  Farm, Wales                                            process ongoing. Construction 
                                                         underway to match accreditation 
                                                         timescale, delaying gains 
                                                         to H1 2022 
                                                         Value trigger : accreditation 
                                                         and sale 
                        --------------  -------------  ------------------------------------- 
 Rhoscrowther            GBP1-3m         GBP0m          Progress : planning application 
  Wind Farm,                                             being progressed; due to be 
  Wales                                                  submitted in Q2 2020; gains 
                                                         delayed until H1 2021 to reflect 
                                                         worst case planning determination 
                                                         timescale. Sale, subject to 
                                                         consent, to be progressed 
                                                         in H2 2021 
                                                         Value trigger : planning 
                                                         and sale 
                        --------------  -------------  ------------------------------------- 
 Harwell, Oxfordshire*   Undisclosed     GBP11m         Progress : disposed in March 
                                                         2020 
                                                         Value trigger : complete 
                                                         recapitalisation 
                        --------------  -------------  ------------------------------------- 
 Other small             GBP12-14m       GBP5m          Progress : development and 
  projects                                               trading gains delivered from 
                                                         4 projects 
                                                         Value trigger : various smaller 
                                                         projects individually contributing 
                                                         <GBP3.0 million 
                        --------------  -------------  ------------------------------------- 
 Industrial              GBP0m           GBP0m          Progress : land rezoned for 
  Estate, Dublin                                         residential uses in March 
                                                         2020. Vacant possession discussions 
                                                         underway. Terms agreed pre 
                                                         Covid-19 to recapitalise the 
                                                         project but currently on hold 
                                                         Value trigger : rezoning 
                                                         and recapitalisation 
                        --------------  -------------  ------------------------------------- 
 Beeston Park,           GBP1.5m         GBP0m          Progress : under offer to 
  Norwich                 (as part                       housebuilder but delayed by 
                          of 'other'                     Covid-19 impacts. Remains 
                          projects                       in a legal process 
                          in original                    Value trigger : sale of site 
                          gains table) 
                        --------------  -------------  ------------------------------------- 
 Curzon Park,            GBP0m           GBP0m          Progress : continued negotiations 
  Birmingham                                             with HS2 on compensation settlement 
                                                         but progress delayed with 
                                                         the public sector distracted 
                                                         due to recent events. Offer 
                                                         to settle withdrawn on 31 
                                                         March 2020 and now proceeding 
                                                         to Lands Tribunal hearing 
                        --------------  -------------  ------------------------------------- 
 8 Albert Embankment,    GBP0m           GBP0m          Progress : resolution to 
  London*                                                grant planning achieved on 
                                                         4 December 2019. GLA Stage 
                                                         2 review completed. S.106 
                                                         progressing, with permission 
                                                         anticipated in May 2020. Hotel 
                                                         bids received February 2020. 
                                                         Terms agreed for a joint venture 
                                                         of Phase 1 of the project 
                                                         but unable to proceed due 
                                                         to Covid-19 impacts 
                                                         Value Trigger : challenge 
                                                         free planning permission; 
                                                         selection of hotel operator 
                        --------------  -------------  ------------------------------------- 
 

*Held in joint venture

Investment Portfolio

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

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

 
 Sector        Collected   Deferments           Remains outstanding*   Lost / Waived   Dec QTR collected 
                            under negotiation 
 Retail        38%         45%                  17%                    0%               99% 
              ----------  -------------------  ---------------------  --------------  ------------------ 
 Shopping 
  Centres      49%         26%                  25%                    0%               98% 
              ----------  -------------------  ---------------------  --------------  ------------------ 
 Commercial    89%         10%                  1%                     0%               100% 
              ----------  -------------------  ---------------------  --------------  ------------------ 
 Leisure       19%         73%                  8%                     0%               95% 
              ----------  -------------------  ---------------------  --------------  ------------------ 
 Total         51%         33%                  16%                    0%               98% 
              ----------  -------------------  ---------------------  --------------  ------------------ 
 

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

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

In conjunction with the Harwell transaction, the Group sold its interest in The Gemini Building, adjacent to Harwell Campus, for GBP7.5 million, marginally above book value, repaying GBP4.9 million of debt and adding GBP2.6 million to the Group's cash balances.

Safety and Wellbeing

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

Preliminary Results

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

Matthew Weiner, Chief Executive, said:

"2020 started with a strong sense of confidence, which has been disappointingly short lived as we now experience the impact of Covid-19. U+I's business model benefits from close relationships with Government, both central and local, due to the significant socio-economic growth delivered by our GBP11.5 billion portfolio of complex, mixed-use, community-focused regeneration projects. As such our projects secure substantial grants and loans from government bodies and we expect will continue to attract such support in the medium to long term.

In the short term, we have taken decisive action to preserve cash and mitigate the impact of Covid-19, on both our people and our projects. We have also made the decision to bring forward the efficiencies programme we announced in October 2019, which will result in GBP1.4 million of savings this year. Over the coming months these cost reductions will strengthen the fundamentals of the business and enable U+I to deliver on its pipeline through a more efficient approach.

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

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

ENDS

For further information, please contact:

U+I

Nicola Krafft

[phone]

[e-mail]

Camarco (Financial PR Adviser)

Geoffrey Pelham-Lane / Tom Huddart

[phone] / 4991

[e-mail]

About U+I

U+I is a specialist regeneration developer and investor.

With a >GBP11.5 billion portfolio of complex, mixed-use, community-focused regeneration projects including a GBP147.1 million investment portfolio, we are unlocking urban sites bristling with potential in the London City Region (within one hour's commute from Central London), Manchester and Dublin. We exist to create long-term socio-economic benefit for the communities in which we work, delivering sustainable returns to our shareholders.

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

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April 15, 2020 02:00 ET (06:00 GMT)