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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Urban&civic Plc | LSE:UANC | London | Ordinary Share | GB00BKT04W07 | ORD 20P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 344.50 | 344.50 | 345.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMUANC
RNS Number : 6027P
Urban&Civic plc
11 June 2020
Urban&Civic plc
("Urban&Civic", the "Company" or the "Group")
RESULTS FOR THE SIX MONTHS TO 31 MARCH 2020
MASTER DEVELOPER WORKING THROUGH THE PANDEMIC
Urban&Civic plc (LSE: UANC) announces its unaudited results for the six months to 31 March 2020.
Hot Features
Premium
Six months to Year ended Six months
to
31 March 30 September 31 March
2020 2019 2019
--------------------------------------------------- ------------- -------------------
EPRA NAV (GBPm) 487.8 527.5 497.3
EPRA NAV per share (p) 335.1 360.3 340.6
EPRA NNNAV per share (p) 318.3 339.5 322.4
Large site discount per share (p) 145 135 139
EPRA NAV + large site discount per share
(p) 480.1 495.3 479.6
Profit before tax (GBPm) 0.2 16.3 5.1
Residential plot completions 382 665 365
Total shareholder return (per cent) (35.0) 7.8 (8.5)
Dividend per share (p) - 3.9 1.4
------------------------------------------ ------- ------------- -------------------
In reaction to market conditions arising from pandemic -
-- Opportunistic acquisitions and maintained infrastructure investment
prioritised; discretionary spend curtailed; dividend decision postponed.
Financial highlights -
-- EPRA net assets per share + large site discount (335.1p + 145p) =
480.1p at 31 March 2020:
3.1 per cent down on September 2019 year end but marginally up over
12 months.
-- Group share of current contracted forward revenues increased to GBP107.7
million (30 September 2019: GBP101.7 million).
-- Headline EPRA net asset value per share down 1.6 per cent over the
year at 335.1p (31 March 2019: 340.6p; 30 September 2019: 360.3p),
reflecting valuation uncertainties in light of Covid-19 crisis.
-- EPRA triple net asset value per share 318.3p down 1.3 per cent from
31 March 2019 ( 30 September 2019: 339.5p).
-- Large site discount highest ever at GBP212 million (43 per cent of
-- EPRA NAV); or 145p per share.
Profit before tax for the six months to 31 March 2020 GBP0.2 million
(six months to 31 March 2019: GBP5.1 million); fall predominantly
due to property revaluations.
-- Decision to pay an interim dividend postponed, having regard to the
deferral of cash receipts associated with residential sales.
Operational highlights -
-- Platform advantage as preeminent Master Developer providing unusually
attractive project opportunities consequent upon Covid-19 disruptions
in the land market.
-- 2 new strategic sites, prospectively adding a minimum of 10,000 new
homes to pipeline.
-- Terms settled on 6 new land promotions by Catesby for a further prospective
1,000 units.
-- 3 new licences + a land sale totalling 594 plots signed since March;
3 medium/ large private housebuilders and 1 public;
1 existing and 3 new customers.
-- Delivery spend supported by GBP96 million of new Government and Homes
England facilities.
-- Continued to work through lockdown.
-- GBP18.6 million post balance sheet sale of accommodation at Waterbeach
converted to housing for medical staff from Papworth Hospital Trust
exceeded valuation. GBP18.2 million of proceeds received by Urban&Civic
to clear all amounts previously advanced at Waterbeach.
Commenting on the results, Nigel Hugill, Chief Executive, said:
" Actions speak louder than words. This is the first time that the Urban&Civic Master Developer Model has been tested under stress. Prevailing uncertainties are providing exceptional opportunities to enlarge our strategic portfolio, with minimal acquisition risk. We have secured land holdings for two potential new settlements in the last fortnight. Government backing on projects in delivery has been terrific in enabling us prudently to maintain and accelerate spend. As the housebuilders rebuild output, the reasonable presumption is that capital lite, serviced plots will be at the top of their want list. Whatever the behavioural changes from this awful pandemic, it is hard to see well-planned housing with gardens, good connections, great schools, decent broadband and guaranteed access to green spaces being disadvantaged. Witness four new licences and land sales signed since March."
For further information, please contact:
Urban&Civic plc +44 (0)20 7509 5555 Nigel Hugill/David Wood FTI Consulting +44 (0)20 3727 1000 Giles Barrie/Dido Laurimore/Ellie urban&civic@fticonsulting.com Sweeney
A presentation for analysts and investors will be held as a live webcast at 9.30am today and the presentation will be available at www.urbanandcivic.com or via the following link: https://webcasting.brrmedia.co.uk/broadcast/5ed7692de9f4830247c9a151 and presentation slides will also be available to download.
Alternatively, details for the live dial-in facility are as follows:
Participants: Tel: +44 (0)330 336 9125 Passcode: 7236035
Chief executive's statement
Summary
Urban&Civic was established in the teeth of the last recession. Our Master Developer model was designed to sustain through economic cycles. The immensely challenging coronavirus environment is reflected in our first ever fall in net asset value. Up to the end of February, the Group was on track to meet or exceed guidance on plot realisations for the current year. That has obviously been superseded but mostly as a deferral, rather than actual loss, of revenues. Our valuers, CBRE, also made a precautionary move on discount rates with a corresponding reduction in current valuations and increase in the large site discount. Adding that back, EPRA NAV + large site discount was almost unchanged on March 2019. That feels about right. Having regard for the delay in cash receipts, a decision in relation to the payment of the interim dividend is being postponed until the current financial year end.
On the other hand, disruptions in the land market combined with our platform advantage as preeminent Master Developer are providing singular opportunities. Discretionary spend has been curtailed with absolute priority afforded to maintained infrastructure investment and new project acquisitions. Two new strategic projects with the potential for 10,000 new homes have been contracted in the last fortnight. In addition, Catesby has settled terms on 6 further land promotions prospectively totalling 1000 units. There is continuing housebuilder demand for our serviced parcels. Four new licences or land sales across three different strategic sites, together aggregating 594 plots, split between new and existing customers, have been contracted since March, with two signed in the past three weeks. There are clear indications that our model is particularly attractive to housebuilders in the current climate enabling them to accelerate build-out, whilst limiting their capital commitments.
Assets and receipts
The headline EPRA net asset value as at 31 March 2020 was GBP487.8 million, or 335.1p per share. EPRA triple net assets were also down at GBP463.3 million, or 318.3p per share. Depending upon the measure, the reductions were in the range 6.2 - 7.5 per cent against those at 30 September 2019, or 1.3 - 1.9 per cent as against 31 March 2019. In contrast, the large site discount rose relative to the year end figure to the equivalent of 145p per share. EPRA NAV + large site discount at 31 March 2020 amounted to 480.1p per share, compared with 495.3p per share six months previous.
Revenues, including the Group share of joint ventures and associates were up slightly at GBP47.6 million, compared with GBP47.3 million for the first half of last year. Profit before tax was down at GBP0.2 million (2018/19 interim: GBP5.1 million) with the entirety of the difference accounted for by the reduction in value of investment assets. In providing guidance as to plot realisations and proceeds last November, the expectation was for cash receipts in FY 2019/20, including joint ventures pro rata, of the order of GBP60 million. The revised full year figure is GBP35 million, of which approximately GBP20 million was received in the first half.
Timing differences consequent upon Covid-19
The shortfall against second half receipts mostly represents delayed timings. The eventual quantum is unlikely to be much altered. GBP10 million of the difference relates to delayed housing completions, including first occupations at Wintringham, a good proportion of which are on house sales that are either reserved or exchanged. In any event, receipts are underpinned by minimum commitments from the housebuilders averaging approximately 85 per cent of estimated sales value, with the remainder payable once houses are sold. Half of the remaining anticipated receipts were conditional on detailed planning approvals that will now go past September 2020 due to the delays in local planning departments moving online. An anticipated land sale of 360 plots at Houlton, Rugby has been restructured and split into two parcels, at least one of which is expected to complete in the second half.
All housebuilders have now returned to site and have stated universally that the priority will be to complete the existing sales pipeline. The level of reported cancellations remains low. Moreover, unlike our housebuilding partners, the contracted receipts to Urban&Civic require no further material capital investment.
The value of minimum receipts at times of stress
Minimum payments to which the housebuilders commit as a condition of our licences afford considerable land value protection under the Master Developer model. Our percentage participation in the realised value of individual house sales varies between contracts but is typically around one-third of the net purchase price. We share an element of downside price risk with our customers but this is collared by the minimum receivable on each plot. The position is correspondingly defensive. As at 31 March 2020, the minimum contracted share of future land receipts continued to exceed GBP100 million, representing 3.1x future annual minimum sales.
The proportion of percentage participations accounted for by minimums has been bid up progressively. The early 2016/17 contracts contained minimums which proved to be between 60 - 70 per cent of actual proceeds received from our participations. In more recent years, this has risen to 85 - 100 per cent. Most of the contracts are Retail Price Index linked. As illustration, minimum payments underpin approaching 90 per cent of the proceeds from estimated sales over the next two years, based on our revised pricing expectations and including existing exchanges. The obligations over the next two years are spread across ten housebuilders, with a very heavy weighting towards those commanding 4- and 5-star ratings. The security position under our licence arrangements is also much stronger than a conventional land creditor. Urban&Civic retain our charge over plots being built out to the point of sale to the homeowner, when housebuilder WIP is at its highest. As of April 2020, housebuilders on our strategic sites had almost 1,000 homes in the course of construction.
Around half of contracted minimum receipts are due from listed housebuilders, with a further 20 per cent from substantial private housebuilders who have made payments already, most recently in February 2020, arising from late starts. The model is not untested.
Strategic site plot carrying values and large site discount
31 March 2020 carrying values of housing plots net of servicing costs plots were GBP28,600 at Alconbury; GBP18,900 at Houlton; GBP27,300 at Wintringham; GBP13,400 at Priors Hall; GBP16,000 at Waterbeach and GBP6,600 at Newark. Those valuations are after the large site discount for scale or wholesale disposal and were appraised on house prices of market units at GBP300psf at Alconbury, GBP280psf at Rugby, GBP300psf at Wintringham, GBP235psf at Priors Hall, GBP380psf at Waterbeach and GBP220psf at Newark respectively.
The large site discount affords a further level of defensiveness against the actual quantum of future receipts. The calculation is made only on consented sites, once infrastructure spend has commenced, and represents the difference between the current open market of a typical retail parcel of 150 housing plots as appraised (often on the basis of our own sales evidence) and the estimated discount for bulk or wholesale disposal to establish the carrying value in the Group statutory accounts. On average, we would expect to receive around twice book via a licence sale. The contracted minimum receipts represent 1.7x weighted average March 2020 carrying values.
The average net of inflation discount rate used by CBRE in the 31 March 2020 valuation was increased by 0.25 per cent to 6.5 per cent. The consequences of that move are significant. Three quarters of the reported reduction in gross assets compared with last September came from the higher discount rates applied to the strategic land portfolio, which accounts for approximately 85 per cent of total property assets. The comparison between the current open market retail valuation of standard parcels and the wholesale figure included in our reported EPRA NAV amounted to a highest ever large site discount of GBP212 million, or 43 per cent of EPRA NAV at 31 March 2020.
The reasonable assumption is for the discount rate to narrow in more normal market conditions.
Homes England
The objectives and priorities of Urban&Civic as Master Developer run parallel with those of Homes England. The business was founded on the simple demographic proposition that it was not possible to meet housing need in South East England without a significantly greater contribution from large sites. This certainty was underpinned by conviction that strategic projects can make a contribution to the environment and sense of community that infill sites never can. This has been amply demonstrated by our residents pulling together over the past three months.
The interrelationship with national policy is reflected in continued Government backing to accelerate delivery. Two new project loans were signed at the onset of lockdown in March. The first was a GBP60.7 million infrastructure facility at Waterbeach from Homes England; near 11 years on our normal terms with interest accrued and payable only out of realised sales proceeds. The second was a GBP35.6 million repayable grant from the Department for Education to fund the early construction of a new secondary school at Houlton. The advance is to our joint venture company and will be returned in line with existing section 106 obligations, with final repayment date projected to be beyond 20 years.
Total facilities (including undrawn amounts) from Homes England, Local Authorities and the Department for Education across the five strategic sites in delivery aggregate GBP351 million, of which our pro rata share amounts to GBP258 million. There are no Group covenants attaching to those loans.
Urban&Civic currently has available GBP136.4 million of undrawn facilities on a look-through basis. 74 per cent of total facilities (drawn and undrawn) are without recourse to the Group.
Trading developments including two new strategic acquisitions
Demand for serviced land parcels on our strategic sites continues: two new licences were signed in March 2020 at Wintringham and Houlton, another in June at Houlton, coupled with a recent land sale at Corby. Together the transactions aggregate 594 new plots: one existing and three new customers. The terms were in line with pre-Covid-19 expectations.
We are intent on using the interlude to enlarge holdings within our core target areas and have entered into legal agreements on two new projects of potentially regional significance in the past fortnight. The more advanced is at Tempsford in Central Bedfordshire. Options have been taken over more than 2,100 acres in a highly strategic location midway between Cambridge and Milton Keynes identified as a prospective development node within the Oxford to Cambridge arc. The land is accessible directly from the A428, which is being upgraded to provide a dual carriage way link between the adjoining A1 and the upgraded A14 with a committed budget of GBP1 billion. The now identified East West Rail preferred route corridor intersects with the East Coast Main Line across the site. The entire land is included within an area cited recently as a development corporation candidate by MHCLG.
Separately, we have entered into option arrangements on a substantial landholding within commuting distance to Cambridge. Our preliminary assessments are that the two combined could accommodate in excess of 10,000 new homes. The underlying interests remain subject to planning and the entry costs are modest, allowing us to build future positions for low initial capital outlay and managed acquisition risk.
Catesby
Catesby pre-tax profits for the first half amounted to GBP4.4 million after overheads. EPRA uplifts on new consents added GBP2.5 million. Netting out EPRA reversals on disposals and tax meant that there was no material change in net assets. The current moratorium on land acquisitions announced by several listed housebuilders and the procedural chaos in many planning authorities caused by the inability to conduct public meetings is likely to restrict immediate performance. The base case is for no further disposals until 2021, although the signs already are that may prove overly pessimistic. Several competitors, notably those carrying bank debt, are having to retrench. In contrast, Catesby is continuing to build pipeline with terms settled on 6 new land promotions prospectively totalling 1000 new homes. Again, entry premiums are low and the percentage participations somewhat better than we have seen for some time. The number of residences being promoted by Catesby will soon exceed 15,000.
Post balance sheet realisations
The sale has been completed of the key worker housing for Papworth Hospital at Waterbeach for GBP18.625 million, which is above business plan. The cost of conversion of two modern barracks blocks was funded by Urban&Civic. Proceeds from realisation were returned to the Group under the waterfall arrangements and cleared all advanced amounts relating to the consented 6,500 new homes, including planning costs and accrued project management charges. Initial Phase 1 marketing is proceeding well to both housebuilders and build to rent investors, notwithstanding the current logistical complications in undertaking viewings.
Build to rent
Residential construction is programmed to commence at Waterbeach in 2021. Given the location, three miles from Cambridge Science Park with direct cycle routes, the development is planned to include build to rent from the outset. The priority on our other sites had been to establish brand identification and location through owner occupation. Those foundations having now been established, discussions are taking place with build to rent operators and investors across all Urban&Civic strategic sites in delivery. This may also incorporate modular construction. After extensive research and due diligence, we have agreed in principle to run a pilot construction programme with Top Hat as our modular provider at Houlton. Build to rent affords considerable potential to increase absorption rates without cutting across core private sales. Modular construction is better suited to the demands of that particular market. We are also exploring cost effective methods of delivering build to rent using more traditional means. We see the two delivery routes as providing more design flexibility and being complementary. Should purchases prove slow to recover post Covid-19, institutional rentals could compensate for any weakened demand for owner occupation.
Dividend
Have regard for cash receipts being pushed back, the Board has elected to postpone a decision in relation to the payment of dividends. All discretionary expenditure has also been curtailed. The absolute priorities are to take advantage of current market conditions to add prudently to our portfolio of strategic assets and Catesby promotions, whilst maintaining infrastructure investment for future delivery.
The Board is acutely conscious of the balance in making dividend payments to shareholders and will reappraise the position at the current financial year end. No application has been made under the Government's Coronavirus Large Business Interruption Loan scheme.
Outlook
The consensus expectation amongst analysts and valuers appears to be for the UK housing market to suffer a 12 month period of hibernation. The real imponderable is what all this means for housing demand, in our case in areas of good historic affordability. Recent monthly price statistics cannot be taken as fully reliable but almost certainly point to a low level of overall housing transactions for the rest of the year. Hibernation supports our approach of strong backbone backed by continued Homes England investment. If anything, enforced saving through and coming out of lockdown helps housing deposit accumulation. Working from home determines the merits of having more space in which to live. Structurally low interest rates and the drop in petrol prices will go straight to net disposable income in Middle England for those that remain in work. The sheer impracticalities of viewing occupied properties may favour new builds, particularly where no onward chain is involved. There is the spectre of job insecurity and higher unemployment but our strategic projects provide immediate build to rent options. Plus, we can expect enormous political pushback if the additional debt burden from the pandemic were to be shouldered by young new house buying households.
As lockdown preoccupations abate, we will see new Government policies to promote a green economic recovery. The Real Estate sector has a big role to play. ESG considerations are baked into our Master Developer model without the need for material incremental spend. Clear demonstration of the resulting positive environmental and social impacts will remain one of our absolute priorities.
Conclusion
Urban&Civic is well set to perform in an economic downturn. The Group has contracted minimums representing 3.1x future annual sales without further material capital outlay. We would only lose real ground if housing demand fails to recover over the next three years, not in the second half of the current reporting year. That absence in demand recovery would also have to include new housing to rent. Accordingly, we have kept up school construction and civils preparation ready for the next set of licences. The listed majors have mostly suspended land acquisitions but as they look to start rebuilding output, we can expect that capital-lite, serviced plots will be at the top of their want list. Four new agreements since March with predominantly private housebuilders provide good support to that conclusion.
Whatever the behavioural changes and eventual outcomes to this pandemic, it is hard to see them as being bad for well-planned, countryside facing developments with good transport connections, great schools, decent broadband and guaranteed access to green spaces. ESG attributes may have taken something of a back seat while investors try to figure out what is going on in the world but look set to return stronger when attention switches to building a greener and more resilient future. The result for us would be a powerful alignment of government, investor and house-buyer interests. The current land market dislocations work in our favour. The housebuilders will seek to preserve immediate margin, whereas we will look to acquire for the future. Additional pipeline developments beyond the two further strategic projects contracted in the past fortnight are anticipated.
Nigel Hugill
Chief Executive
10(th) June 2020
Financial review
Introduction
I would like to start by highlighting the immediate and principal impacts that Coronavirus has had on the Group.
During the two weeks or so preceding the Government's lockdown on 23 March, sales completions and reservations at our sites understandably fell as visitor numbers slowed. Housebuilders ultimately closed their sales offices making reservations and completions more challenging.
These events principally affected the Group in two ways. Firstly, the Group's independent valuers (CBRE) reduced their valuations at the half year due to market uncertainties, and secondly receipts under our licence agreements slowed.
Although this slowdown of receipts did not significantly impact the period under review it will make achievement of our previous guidance for the full financial year unlikely.
Residential sales equivalent to 382 plots were made in the interim period generating GBP20.1 million of cash for the Group. This total is up 9.8 per cent over the comparable period and, although it represents only 33.5 per cent of the GBP60 million annual cash generation target, this was in line with our expectations as these targets were skewed towards increased second half performance - reflecting the progress of pipeline transactions at the forecast date and the expectation that Wintringham would start generating income from the third quarter this year.
Although a fully functioning market is of course preferable for all, the Group's cashflows are protected to an extent through its GBP107.7 million of forward contracted sales (up from GBP101.7 million at 30 September 2019). These forward contracts specify minimum annual sums which the housebuilders are required to pay whether houses are built or not. Although each contract is assessed on a 12-month look-back basis, meaning that the minimum sums will be receivable at different times, in the aggregate they are worth the equivalent of GBP34.9 million per annum to the Group (30 September 2019: GBP30.7 million) over 3.1 years.
In addition to reducing completions, the increased market uncertainty and consequently lower CBRE valuations have caused EPRA metrics to fall around 7 per cent across all measures at the half year. If, however, the large site discount (which represents the aggregated difference between the bulk land values ascribed by CBRE's strategic site valuations and the current retail prices being achieved on smaller parcel sales) is added to the EPRA NAV per share measure, this fall reduces to 3.1 per cent (see the Key Performance Indicator Table below).
Key Performance Indicators
The Group's Key Performance Indicators for the six months to 31 March 2020 remain consistent with those detailed in the Strategic Report section of the 2019 Annual Report and Accounts:
Six months Six months Year ended Annual Six monthly
to 31 March to 31 March 30 September (decrease)/increase (decrease)/
2020 2019 2019 increase
---------------------------------- ------------- ------------- -------------- --------------------- -------------
EPRA NAV (EPRA net assets) GBP487.8m GBP497.3m GBP527.5m (1.9)% (7.5)%
EPRA NAV per share 335.1p 340.6p 360.3p (1.6)% (7.0)%
---------------------------------- ------------- ------------- -------------- --------------------- -------------
EPRA NNNAV (EPRA triple net
assets) GBP463.3m GBP470.8m GBP497.0m (1.6)% (6.8)%
EPRA NNNAV per share 318.3p 322.4p 339.5p (1.3)% (6.2)%
---------------------------------- ------------- ------------- -------------- --------------------- -------------
Total shareholder return (35.0)% (8.5)% 7.8%
---------------------------------- ------------- ------------- -------------- --------------------- -------------
Total NAV return (5.5)% 2.8% 8.6%
Gearing - EPRA NAV basis 25.0% 18.2% 19.9%
Strategic site plot 382 plots 365 plots 665 plots 4.7% n/a
completions(1,2)
Europa Way plots completions 133 plots - 401 plots
Cash flow generation from GBP20.1m GBP18.3m GBP34.3m 9.8% n/a
plot completions(3)
Large site discount per share(5) 145p 139p 135p 4.3% 7.4% ---------------------------------- ------------- ------------- -------------- --------------------- ------------- EPRA NAV per share + large site discount per share (gross of tax)(4) 480.1p 479.6p 495.3p 0.0% (3.1)% ---------------------------------- ------------- ------------- -------------- --------------------- -------------
1. Includes 239 of actual plot completions and land sales equivalent to 143 plots (Alconbury: 4; Rugby: 65; Newark: 64; Wintringham: 10).
2. Actual plot completions include 55 plots at Alconbury (six months ended 31 March 2019: 60; year ended 30 September 2019: 144); 93 at Rugby (six months ended 31 March 2019: 62; year ended 30 September 2019: 155); 35 at Newark (six months ended 31 March 2019: 63; year ended 30 September 2019: 87); 18 plots from new contracts at Priors Hall and 38 plots from pre-acquisition contracts at Priors Hall (six months ended 31 March 2019: 180; year ended 30 September 2019: 279).
3. Represents Urban&Civic's (U&C's) share of cash generated by strategic site plot completions.
4. EPRA NNNAV per share + large site discount per share (net of tax) equates to 435.8p (31 March 2019: 435.0p; 30 September 2019: 448.9p). The tax allowance was calculated by applying a tax rate of 19 per cent to the gross large site discount.
5. Large site discount represents the difference between the unserviced land values ascribed by CBRE strategic site valuations (which consider site scale and build-out duration among other matters) and the current retail prices being achieved on smaller parcel sales.
Although currently in an exceptional period of disruption, we maintain that EPRA NAV metrics and TSR remain the most reliable and therefore most appropriate principal measures by which to assess business performance, particularly when considering value growth.
In order to underpin the EPRA metrics, we engage CBRE Limited (independent valuers) to provide Red Book valuations for all our consented strategic land sites (as well as other assets). Having highlighted the reliability of EPRA metrics, at this half year, in common with the vast majority of 31 March valuations, CBRE's valuation report carries material uncertainty wording that states they are attaching less weight to previous market evidence for comparison purposes when forming opinions of value and that a higher degree of caution should be exercised when considering these valuations.
The basis for selecting our other KPI's is set out in the 2019 Annual Report.
Net Asset Value - EPRA and IFRS
Presented below is a non-statutory analysis explaining the movements in EPRA NAV in the last six months and comparable periods.
Six months to Six months Year ended
31 March 2020 to 30 September
31 March 2019 2019
----------------------------------------- ----------------- ----------------
Joint Pence Pence
Group ventures Total Pence Total per Total per
GBPm GBPm GBPm per share GBPm share GBPm share
--------------------------- ------- ---------- ------- ----------- ------- -------- ------- -------
Rental, hotel and
other property profits 0.7 (0.1) 0.6 0.4 1.1 0.7 2.3 1.6
Revaluation of investment
properties and write
downs of trading
properties(1,2) (6.1) (0.7) (6.8) (4.7) 1.0 0.6 5.1 3.5
Profit on trading
property sales(3,4) 10.7 2.6 13.3 9.1 10.0 6.9 27.4 18.7
Project management
and other fees 1.1 - 1.1 0.8 2.0 1.4 2.9 2.0
Administrative expenses (7.6) (0.1) (7.7) (5.3) (8.8) (6.0) (20.0) (13.7)
Tax and other income
statement and retained
earnings movements (1.5) 0.1 (1.4) (0.9) (1.5) (1.0) (5.1) (3.5)
--------------------------- ------- ---------- ------- ----------- ------- -------- ------- -------
Total comprehensive
income movement (2.7) 1.8 (0.9) (0.6) 3.8 2.6 12.6 8.6
Dividends paid (3.6) - (3.6) (2.5) (3.2) (2.2) (5.2) (3.5)
Other equity movements 0.1 - 0.1 0.1 2.3 1.5 3.3 2.3
Effect of IFRS 15
adoption(4) - - - - 3.2 2.2 3.2 2.2
--------------------------- ------- ---------- ------- ----------- ------- -------- ------- -------
IFRS movement (6.2) 1.8 (4.4) (3.0) 6.1 4.1 13.9 9.6
Revaluation of retained
trading properties(2) (22.2) (7.3) (29.5) (20.3) 14.6 10.0 39.3 26.8
Release of trading
property revaluations
on disposals(4) (6.6) - (6.6) (4.5) (2.7) (1.8) (4.7) (3.2)
Deferred taxation(2) 0.8 - 0.8 0.5 1.3 0.9 1.0 0.7
Effect of IFRS 15
adoption(2) - - - - (3.2) (2.2) (3.2) (2.2)
Effect of shares
and dilutive options - - - 2.1 - (2.2) - (3.2)
--------------------------- ------- ---------- ------- ----------- ------- -------- ------- -------
EPRA NAV movement (34.2) (5.5) (39.7) (25.2) 16.1 8.8 46.3 28.5
--------------------------- ------- ---------- ------- ----------- ------- -------- ------- -------
Deferred taxation 6.0 - 6.0 4.0 (3.4) (2.3) (7.4) (4.9)
--------------------------- ------- ---------- ------- ----------- ------- -------- ------- -------
EPRA NNNAV movement (28.2) (5.5) (33.7) (21.2) 12.7 6.5 38.9 23.6
--------------------------- ------- ---------- ------- ----------- ------- -------- ------- -------
EPRA NAV at start
of period 527.5 360.3 481.2 331.8 481.2 331.8
EPRA NAV at end
of period 487.8 335.1 497.3 340.6 527.5 360.3
--------------------------- ------- ---------- ------- ----------- ------- -------- ------- -------
EPRA NNNAV at start
of period 497.0 339.5 458.1 315.9 458.1 315.9
EPRA NNNAV at end
of period 463.3 318.3 470.8 322.4 497.0 339.5
--------------------------- ------- ---------- ------- ----------- ------- -------- ------- -------
1. Comprises deficits on the revaluation of investment properties (GBP4.8 million) and trading property write downs (GBP2.0 million; GBP0.7 million of which relate to joint ventures). 31 March 2019 comparable comprises GBP1.0 million of investment property revaluation surpluses. 30 September 2019 comparable comprises GBP5.8 million of investment property revaluation surpluses and trading property write downs of GBP0.7 million.
2. Total classified as property revaluations for the purposes of the below EPRA NNNAV growth commentary.
3. Comprises profits from trading and residential property sales (GBP9.4 million) and construction contracts (GBP1.1 million), whether earned by subsidiaries or joint ventures, as well as unwinding discounts applied to long-term residential property sales debtors (GBP2.7 million) and surpluses on revaluation of overage elements that were acquired with the Priors Hall asset (GBP0.1 million).
4. Total classified as profit on property sales for the purposes of the below EPRA NNNAV growth commentary.
From the table above it can be noted that property revaluations (identified by a superscript 2.) accounted for (24.5)p of the Group's (25.2)p EPRA NAV contraction, while overheads, dividends and the dilutive effect of share options have netted a further (5.7)p from EPRA NAV. Profits on property sales contributed a positive 4.6p (identified by a superscript 4.).
A more detailed reconciliation between IFRS, EPRA NAV and EPRA NNNAV is provided in note 18.
Total shareholder return
Having hit an all-time high share price of 375p per share on 19 February, the price fell back to 208p per share by 31 March - meaning U&C shares have fallen 116p per share or 35.8 per cent since 30 September 2019. Combined with the payment of a 2.5p final dividend, this has resulted in total shareholder return being minus 35.0 per cent.
Total NAV return, which substitutes movements in EPRA NNNAV for movements in share prices when compared to shareholder return calculations, is minus 5.5 per cent over the six months to 31 March 2020.
Consolidated statement of comprehensive income
Gross profit and loss/profit after tax (including the Group's share of joint ventures) have fallen GBP2.3 million and GBP4.7 million respectively. These decreases are predominantly due to downward property revaluations (as set out in the table below).
Six months to Six months to Year ended
31 March 2020 31 March 2019 30 September 2019
-------------------------- -------------------------------- ----------------------------------
Joint Joint
Joint venture venture
Group ventures Total Group and associates Total Group and associates Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- ------ ---------- ------ ------ ---------------- ------ ------- ---------------- -------
Revenue 33.0 14.6 47.6 30.9 16.4 47.3 102.1 29.4 131.5
-------------------- ------ ---------- ------ ------ ---------------- ------ ------- ---------------- -------
Rental, hotel and
other property
profits 0.7 (0.1) 0.6 1.1 - 1.1 2.3 - 2.3
Profit on trading
property
sales(1,2) 8.8 1.7 10.5 4.3 5.1 9.4 16.7 7.2 23.9
Project management
and other fees(3) 1.1 - 1.1 2.0 - 2.0 2.9 - 2.9
Write down of
trading
properties(4) (1.3) (0.7) (2.0) - - - (0.7) - (0.7)
-------------------- ------ ---------- ------ ------ ---------------- ------ ------- ---------------- -------
Gross profit 9.3 0.9 10.2 7.4 5.1 12.5 21.2 7.2 28.4
Administrative
expenses (7.6) (0.1) (7.7) (8.8) - (8.8) (19.9) (0.1) (20.0)
(Deficit)/surplus
on revaluation of
investment
properties
and receivables(4) (4.8) - (4.8) 1.1 - 1.1 5.8 - 5.8
Surplus on
revaluation
of receivables(2) 0.1 - 0.1 0.5 - 0.5 0.9 - 0.9
Impairment of loans
to joint ventures
and share of
post-tax
profit from joint
ventures 1.8 (1.8) - 5.2 (5.2) - 8.0 (8.0) -
Unwinding of
discount
applied to
long-term
debtors(2) 1.8 0.9 2.7 0.3 0.2 0.5 1.7 0.9 2.6
Tax and other
income
statement
movements (1.5) 0.1 (1.4) (1.9) (0.1) (2.0) (5.1) - (5.1)
-------------------- ------ ---------- ------ ------ ---------------- ------ ------- ---------------- -------
(Loss)/profit after
tax (0.9) - (0.9) 3.8 - 3.8 12.6 - 12.6
-------------------- ------ ---------- ------ ------ ---------------- ------ ------- ---------------- -------
1. Comprises profits from trading and residential property sales (GBP9.4 million; GBP1.7 million of which relate to join ventures) and construction contracts (GBP1.1 million).
2. Total classified as profit on trading and investment property sales in the EPRA movement table above.
3. Recurring project management fees comprise GBP0.9 million of the total (31 March 2019: GBP1.0 million; 30 September 2019: GBP2.1 million) and are earned through recharging administrative expenses to joint venture partners where Group employees are engaged in joint venture activities.
4. Total classified as revaluation of investment properties and write downs of trading properties in the EPRA movement table above.
Gross profit
Gross profit is down GBP2.3 million on last year (to GBP10.2 million including GBP0.9 million generated by joint ventures) reflecting
increased trading profits (up GBP1.1 million to GBP10.5 million), greater trading property write downs (up GBP2.0 million), reduced non-recurring fees (down GBP0.9 million) and lower profits from hotel operations (down GBP0.5 million).
Of the GBP10.5 million of profits from trading property sales, residential profits at Alconbury, Newark and Priors Hall accounted for GBP2.2 million, GBP1.7 million was earned in respect of Urban&Civic's share of residential profits at Rugby and Wintringham, GBP5.2 million was generated by Catesby land promotion sales, GBP1.1 million came from Europa Way residential parcel sales and GBP0.3 million was accounted for by non-core property disposals.
Consistent with prior periods, residential profits include profits from the Group's strategic site licence arrangements.
Due to the complexity of these licence arrangements from an accounting perspective, it is worth noting that profit under licences are predominantly recognised in two places in the income statement, although often at different points in time. In the first instance, we will typically recognise the full cost of sale together with the total minimum amounts due under a licence arrangement when the land has been transferred to the housebuilder (usually on contract completion). This minimum sum is discounted and recorded through the gross profit line together with an estimate of the overages that the Group expects to collect from the housebuilder when the homes are ultimately sold. This overage sum is also discounted, due to the length of time it takes to earn that overage, and it is only recognised if we do not believe there is a high probability that it will reverse due to market conditions prior to collection.
At each subsequent reporting period our estimates will be compared with what has taken place and adjustments made.
The second place where you might consider that 'residential profits' are recorded is through the finance income line. This is where the discount applied to the long-term minimums and overage debtors unwind; through either the passage of time or upon receipt of the licence proceeds, minimum sum and/or overage.
In the six months to 31 March 2020, GBP2.2 million of residential profits (associated with overages at Alconbury Weald, Newark and Priors Hall) were recognised through gross profit with a further GBP1.8 million of discount unwinding (in respect of minimum and overage receivables) being recognised in finance income.
Of the GBP1.7 million of joint venture residential profits (U&C's share), GBP0.6 million was attributable to the contractual minimums and discounted overages following the sale of a 235-plot parcel to Morris Homes at Wintringham, with a further GBP1.1 million of overages and other profits from Davidsons Homes, Morris Homes and Crest Nicholson agreements at Rugby. Joint ventures booked a further GBP0.9 million of discount unwinding (U&C's share), in respect of the overage receivables, through finance income, which has been consolidated into the Group's share of profits from joint ventures.
A breakdown of sales completions by site, with comparatives, has been included as a footnote to the KPI table above. These footnotes also set out how many of these sales completions relate to land sales as opposed to actual plot completions.
The terms minimums, overages and licences have been defined within the glossary on the last page of this interim statement.
Administrative expenses
Gross administrative costs have fallen GBP0.7 million to GBP10.2 million in the six months to 31 March 2020, largely as a result of decreased share based payment charges (following reduced EPRA and TSR performance over the last six months) and not having to incur the one off costs associated with the Group's move to the Premium Listing segment of the London Stock Exchange (which was completed last year).
We continue to capitalise overheads associated with development activity by reference to the amount of time spent by our employees on those activities. In the six months to 31 March 2020 this capitalised proportion increased to around 25 per cent compared to 20 per cent last year thereby reducing net overheads by GBP2.5 million.
No material benefit has been received under the Covid-19 job retention scheme, reflecting the Group's high activity levels during lockdown. A maximum of 10 employees, associated with administrative duties at the Group's offices or estate management at the strategic land sites, were furloughed at any one time. No employees remain furloughed.
Surplus on revaluation of investment properties
Investment properties now only comprise commercial buildings and commercial development land at Alconbury and a proportion of the Group's interest in Waterbeach, which could deliver both commercial buildings and residential rental properties in the future. Consequently, there are very few property revaluation movements accounted for through the income statement under IFRS.
In order to help the reader understand the value of the Group's total property portfolio, as well as reconcile the movements at both IFRS and EPRA levels, the below table has been produced.
Trade
Trade and other
Properties and Trading receivables Total
Investment Trading within other properties (share (including
properties properties PPE receivables Subtotal (share of share
Property portfolio (wholly (wholly (wholly (wholly (wholly of joint joint of joint
GBPm owned) owned) owned) owned) owned) ventures) ventures) ventures)
----------------------------- ----------- ----------- ----------- ------------ --------- ----------- ------------ -----------
Valuation at
1 October 2019 52.9 402.4 3.2 52.6 511.1 163.7 27.7 702.5
----------------------------- ----------- ----------- ----------- ------------ --------- ----------- ------------ -----------
Less: EPRA adjustment
(trading properties) - 95.4 - - 95.4 20.6 - 116.0
----------------------------- ----------- ----------- ----------- ------------ --------- ----------- ------------ -----------
IFRS carrying value
at
1 October 2019 52.9 307.0 3.2 52.6 415.7 143.1 27.7 586.5
----------------------------- ----------- ----------- ----------- ------------ --------- ----------- ------------ -----------
Capital expenditure
(including capitalised
overheads) 1.8 22.9 - - 24.7 17.0 - 41.7
Disposals/depreciation/write
downs (1.5) (20.6) (0.1) 1.1 (21.1) (8.2) 3.6 (25.7)
Revaluation movements
(investment properties) (4.8) - - - (4.8) - - (4.8)
----------------------------- ----------- ----------- ----------- ------------ --------- ----------- ------------ -----------
IFRS carrying value
at
31 March 2020 48.4 309.3 3.1 53.7 414.5 151.9 31.3 597.7
----------------------------- ----------- ----------- ----------- ------------ --------- ----------- ------------ -----------
Add: EPRA adjustment
(trading properties) - 68.4 - - 68.4 -11.5 - 79.9
----------------------------- ----------- ----------- ----------- ------------ --------- ----------- ------------ -----------
Valuation at 31 March
2020 48.4 377.7 3.1 53.7 482.9 163.4 31.3 677.6
----------------------------- ----------- ----------- ----------- ------------ --------- ----------- ------------ -----------
Memo: movement in
EPRA adjustment (trading
properties) - (27.0) - - (27.0) (9.1) - (36.1)
----------------------------- ----------- ----------- ----------- ------------ --------- ----------- ------------ -----------
Comprising:
----------------------------- ----------- ----------- ----------- ------------ --------- ----------- ------------ -----------
EPRA adjustment on
sites sold - (6.6) - - (6.6) - - (6.6)
EPRA adjustment on
retained properties - (20.4) - - (20.4) (9.1) - (29.5)
----------------------------- ----------- ----------- ----------- ------------ --------- ----------- ------------ -----------
Investment properties fell in value by GBP4.8 million in the period with a further GBP29.5 million reduction in value coming from the revaluation of retained trading properties at the EPRA level.
In addition to these movements, GBP6.6 million of EPRA adjustments have been reversed as properties have been disposed of or profits recognised.
Out of the total GBP34.3 million revaluation deficit in respect of retained properties, GBP12.2 million was attributable to a 4.3 per cent fall in the value of Alconbury.
Other reductions in value across our property portfolio included Rugby (U&C's share: GBP5.6 million), Newark (GBP3.9 million), Priors Hall (GBP3.8 million) and the Manchester commercial assets (U&C's share: GBP5.7 million). Catesby planning consents yielded the Group's only valuation surpluses in the period with GBP2.2 million being generated from achieving planning consents on three sites.
The revaluation deficits reflect the current market uncertainties and in arriving at their valuations, CBRE have increased discount rates, reduced sales rates and lowered both house price and serviced land value inflation assumptions within their discounted cashflow models. Servicing works continue across all of the Group's consented strategic sites.
As previously mentioned in the KPI section above, and in common with substantially all valuation reports at this date, the independent valuer's opinion for this half year carries a material uncertainty qualification due to the lack of market evidence at this time.
Alconbury remains the Group's most significant property asset comprising 40.5 per cent of the total property portfolio value.
Taxation expense
The tax charge as a proportion of profits has increased over recent reporting periods as historic tax losses have been utilised and changes in legislation have restricted how much of these historic tax losses can be accessed in any one period.
In the six months to 31 March 2020 the Group's tax charge totalled GBP1.1 million compared to a profit before taxation of GBP182,000. This is the result of additional deferred tax being provided for at an increased rate of 19 per cent this period, rather than the 17 per cent applied at the year end following the Government's decision not to enact the intended reduction in tax rates to 17 per cent (GBP561,000), and deficits on revaluation of investment properties not being a recognised deduction for tax purposes (GBP868,000) among other matters.
Dividend
Despite the Group's development progress at its strategic land sites the Board has elected to postpone a decision in relation to the payment of dividends due to the current market volatility, which has affected both our property portfolio values and growth in plot completions and cash generation.
The Board intends to reappraise the position at the year end.
The Group paid its 2019 final dividend of 2.5p per share (GBP3.6 million) in February 2020.
Consolidated balance sheet
Overview
At 31 March At 31 March At 30 September
2020 2019 2019
------------------------------ --------------------------------- ----------------------------------
Joint Joint
venture venture
Joint and and
Group ventures Total Group associates Total Group associates Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- -------- ---------- -------- -------- ------------- -------- -------- -------------- --------
Investment
properties 48.4 - 48.4 46.5 - 46.5 52.9 - 52.9
Trading
properties 309.3 151.9 461.2 320.8 129.3 450.1 307.0 143.1 450.1
Properties
within
PPE 3.1 - 3.1 3.4 - 3.4 3.2 - 3.2
--------------- -------- ---------- -------- -------- ------------- -------- -------- -------------- --------
Properties(1) 360.8 151.9 512.7 370.7 129.3 500.0 363.1 143.1 506.2
Investment in
joint
ventures and
associates 123.6 (123.6) - 113.6 (113.6) - 121.3 (121.3) -
Trade and
other
receivables
-------- ---------- -------- -------- ------------- -------- -------- -------------- --------
Non-current
property(1) 37.1 26.5 63.6 20.0 18.9 38.9 45.9 22.1 68.0
Current
property(1) 16.7 4.7 21.4 9.3 2.5 11.8 6.7 5.6 12.3
Current -
other 14.6 7.5 22.1 14.3 12.6 26.9 11.8 12.6 24.4
-------- ---------- -------- -------- ------------- -------- -------- -------------- --------
68.4 38.7 107.1 43.6 34.0 77.6 64.4 40.3 104.7
Cash 12.7 6.2 18.9 28.2 3.5 31.7 24.4 3.0 27.4 Borrowings (134.8) (58.7) (193.5) (118.6) (35.5) (154.1) (129.3) (47.6) (176.9) Deferred tax liability (net) (6.2) - (6.2) (4.9) - (4.9) (5.9) - (5.9) Other net liabilities (25.9) (14.5) (40.4) (37.5) (17.7) (55.2) (35.0) (17.5) (52.5) --------------- -------- ---------- -------- -------- ------------- -------- -------- -------------- -------- Net assets 398.6 - 398.6 395.1 - 395.1 403.0 - 403.0 EPRA adjustments - property(1) 68.4 11.5 79.9 76.2 17.3 93.5 95.5 20.5 116.0 EPRA adjustments - deferred tax 9.3 - 9.3 8.7 - 8.7 8.5 - 8.5 --------------- -------- ---------- -------- -------- ------------- -------- -------- -------------- -------- EPRA NAV 476.3 11.5 487.8 480.0 17.3 497.3 507.0 20.5 527.5 --------------- -------- ---------- -------- -------- ------------- -------- -------- -------------- -------- EPRA NNNAV adjustments (24.5) - (24.5) (26.5) - (26.5) (30.5) - (30.5) --------------- -------- ---------- -------- -------- ------------- -------- -------- -------------- -------- EPRA NNNAV 451.8 11.5 463.3 453.5 17.3 470.8 476.5 20.5 497.0 --------------- -------- ---------- -------- -------- ------------- -------- -------- -------------- -------- EPRA NNNAV per share 318.3p 322.4p 339.5p --------------- -------- ---------- -------- -------- ------------- -------- -------- -------------- --------
1. Total property related interests: GBP677.6 million (31 March 2019: GBP644.2 million; 30 September 2020: GBP702.5 million).
Investment properties
Investment properties at 31 March 2020 amounted to GBP48.4 million and comprised the commercial development area at Alconbury (GBP39.4 million) and the proportion of the Waterbeach site that could deliver both commercial buildings and residential properties for rent (GBP9.0 million).
The Group's total period-end property portfolio, irrespective of balance sheet classification, was valued at GBP677.6 million, 95 per cent by independent valuers CBRE and 5 per cent by Directors.
Trading properties
The carrying value of trading properties increased by GBP2.3 million in the period to GBP309.3 million.
This increase was the result of capital expenditure of GBP14.4 million (including GBP10.0 million in respect of Alconbury and Priors Hall development works), capitalised overheads amounting to GBP2.3 million, capitalised finance costs of GBP1.9 million - all net of GBP15.0 million of disposals (including residential disposals at Alconbury and Newark of GBP12.3 million and GBP2.5 million in respect of the sale of Catesby sites) and GBP1.3 million of write downs (in respect of non-core properties).
Investment in joint ventures and associates
The Group's joint venture in Rugby has been included in the balance sheet at GBP88.7 million, which along with a half interest in the 351 apartment scheme known as Manchester New Square (GBP15.2 million), a one-third interest in a 400 acre (162.3 hectares) site at Wintringham Park, St. Neots (GBP17.9 million) and GBP1.8 million of other residual interests combine to form an overall Group investment in joint ventures and associates of GBP123.6 million.
Trade and other receivables
At the half year, non-current and current trade and other receivables (totalling GBP68.4 million) included acquired Priors Hall receivables (GBP1.2 million), discounted contractual minimum receivables (GBP45.4 million) and pre-completion discounted overages (GBP2.1 million) with Morris Homes, Redrow, Crest Nicholson and Hopkins Homes at Alconbury, Kier at Corby and Avant and Bellway at Newark. Also included is GBP5.1 million in respect of deferred consideration on the sale of a parcel at Newark to Countryside in the period.
Equivalent receivables (U&C's share) are owed to the Rugby joint venture by Crest Nicholson (GBP1.6 million) and again Morris Homes (GBP4.3 million) and Redrow (GBP12.6 million) and to the Wintringham joint venture by Cala (GBP6.4 million) and Morris Homes (GBP6.3 million).
These property receivables will be received as and when the houses to which they relate are sold, or if earlier, when the housebuilders are contractually obliged to pay minimum sums. The discounts applied to these balances will unwind through finance income over time.
Cash
Group cash balances at the period end totalled GBP12.7 million, down GBP11.7 million since last year end; largely due to property additions (GBP18.0 million), admin expenses (GBP13.9 million), loan repayments (GBP3.7 million) and payment of dividend (GBP3.6 million) exceeding sales receipts (GBP21.6 million) and loan drawdowns (GBP10.1 million).
Sales receipts comprised GBP8.5 million of Catesby promotion proceeds (including cost reimbursement) and GBP13.1 million of residential sales receipts.
Subsequent to 31 March, Urban&Civic received GBP18.2 million under the Development Management Agreement arrangement at Waterbeach (see post balance sheet matters note below).
Current and non-current borrowings - financial resources and capital management
In the six months to 31 March 2020 the Group has put in place GBP96.2 million of additional financial resources in the form of a loan from Homes England and an amortising grant from the Department for Education (DfE); which has been recorded as an 'other creditor' within joint ventures in the financial statements.
The GBP60.6 million loan is a ten year and nine-month Homes England infrastructure facility at Waterbeach and the interest free amortising grant from the DfE is for GBP35.6 million, which will be used to fund the early construction of a new secondary school at Houlton, Rugby. The DfE grant will be repaid in line with the Houlton's existing Section 106 obligations (attaching to the provision of secondary school), meaning that the final repayment date is anticipated to be mid-2042.
This additional financial resource means that the Group now benefits from GBP136.4 million of undrawn facilities on a look-through basis (U&C's share GBP111.6 million), 86.0 per cent of which is with Homes England, Local Authorities, DfE and other government bodies.
In response to Covid-19 related construction and sales delays, the Group has sought and received credit approval to extend facility durations and milestones in respect of two loans funding our Manchester New Square joint venture development. The 10 month extension (to October 2021) of the GBP51.0 million senior facility and 17 month extension (to May 2022) of the GBP24.6 million mezzanine facility will provide additional time in which to complete the construction and sale of the residential apartments; 44 per cent of which have already been reserved or exchanged).
In addition to these measures the Group has also applied for a number of facility expansions with existing lenders and these are being reviewed by respective credit departments at this time. None of these extensions are being relied upon to form our view on going concern, which has no material uncertainties attaching to it and which has been described in more detail in note 1.
The Group has not taken advantage of the Coronavirus Large Business Interruption Loan scheme. HSBC (the Group's corporate lender) has indicated that the Group would qualify, subject to usual approvals and processes.
The Group's net debt position at 31 March 2020 totalled GBP122.1 million (30 September 2019: GBP104.9 million), producing a net gearing ratio of 30.6 per cent (30 September 2019: 26.0 per cent) on an IFRS NAV basis and 25.0 per cent (30 September 2019: 19.9 per cent) on an EPRA NAV basis. Look-through gearing levels are higher as shown below due to the shorter-term borrowings used to fund development expenditure in respect of the Manchester New Square and Homes England borrowings within the Rugby and Wintringham joint ventures.
Homes England now account for 75.1 per cent of all Group borrowings with Local Authorities and other government bodies accounting for a further 1.4 per cent (as shown in the table below).
At 31 March 2020
---------------------------------------------------------------------
Proportion Proportion
of of
Group Group Joint ventures Look-through look-through
GBPm borrowings GBPm GBPm borrowings
----------------------------------- ------- ------------ --------------- ------------- --------------
Homes England 102.7 75.1% 26.8 129.5 66.1%
Corporate RCF 20.9 15.3% - 20.9 10.7%
Manchester New square - 0.0% 32.2 32.2 16.4%
Deansgate Hotel 11.2 8.2% - 11.2 5.8%
Huntington District Council 2.0 1.4% - 2.0 1.0%
----------------------------------- ------- ------------ --------------- ------------- -------------- Borrowings before loan arrangement costs 136.8 100.0% 59.0 195.8 100.0% Loan arrangement costs (2.0) (0.3) (2.3) ----------------------------------- ------- ------------ --------------- ------------- -------------- Borrowings after loan arrangement costs 134.8 58.7 193.5 Cash (12.7) (6.2) (18.9) ----------------------------------- ------- ------------ --------------- ------------- -------------- Net debt 122.1 52.5 174.6 ----------------------------------- ------- ------------ --------------- ------------- -------------- EPRA NAV 487.8 487.8 EPRA NAV gearing 25.0% 35.8% ----------------------------------- ------- ------------ --------------- ------------- --------------
The Group's only gearing covenant, which attaches to the GBP40 million Revolving Credit Facility with HSBC, has a limit of 40 per cent and is based on borrowings (on a non-look-through basis) and EPRA NAV.
Other principal loan covenants (which are predominantly associated with Homes England loans) are based on loan to value ratios attaching to specific property assets. These ratios typically range between 40 per cent and 75 per cent.
The Group was covenant compliant in the six months to 31 March and is forecast to remain compliant throughout the going concern review period, as described in note 1. Compliance has been stress tested as part of that exercise and the Group has identified further mitigations that could be used to cure any potential covenant breaches, including pledging more asset value as security. On large sites we typically seek to give lenders charges over smaller areas of land, rather than a charge over the whole site, which provides additional charging capacity if required. By way of example, out of a total value of GBP272.4 million for Alconbury at 31 March, GBP133.6 million is subject to a fixed charge, leaving GBP138.8 million of additional charging capacity.
The Group's weighted average loan maturity at 31 March 2020 was 6.3 years (30 September 2019: 6.7 years) and weighted average cost of borrowing on drawn debt was 3.7 per cent (30 September 2019: 3.8 per cent).
The Group has no loans maturing over the next three years, except for the Newark Homes England facility (GBP6.1 million currently drawn), the GBP11.2 million Deansgate Hotel facility (which is currently being marketed as a development site with planning) and the joint venture development loans at Manchester New Square. The Newark facility will be repaid out of residential plot sales and the Manchester New Square and Deansgate borrowings will also be repaid from sale proceeds.
The Group continues to assess its long-term viability using the procedures set out on page 33 of the 2019 Annual Report and Accounts, however in this period of uncertainty, particular attention has been paid to the Group's assumptions around non-contractual receipts and non-committed expenditure as well as the additional mitigations that might be used to counter adverse events (as described in note 1).
Having completed this review, the Directors can confirm that they have a reasonable expectation that the Group has adequate resources to continue in operation and meet its liabilities as they fall due over the 18 months to 30 September 2021.
Post balance sheet matters
Subsequent to 31 March 2020, the Waterbeach joint arrangement sold the converted medical accommodation (let to Papworth Hospital Trust) for GBP18.6 million. The Development Management Agreement arrangements were such that Urban&Civic received GBP18.2 million of these proceeds to clear all amounts previously advanced.
Principal risks and uncertainties
The principal risks of the business are set out on pages 38 to 43 of the 2019 Annual Report and Accounts, which include a commentary on their potential impacts, links to the Group's strategic priorities and identification of relevant mitigation factors.
Since the publication of the 2019 Annual Report and Accounts, the Board, with the support of the Executive Management Committee, has undertaken further reviews and believes that although there have been no material changes to the composition of the Group's principal risks, the risk scores and ratings across a number of these risks have increased as a result of Coronavirus. The movements in risk ratings and a description of the movement are set out below.
Change
Risk in risk
rating rating
(after Risk rating (after
mitigation) (after mitigation)
at 31 mitigation) since
March at 30 September September
Risk description Movement description 2020 2019 2019
---------------- ------------------------------------------------- ------------- ----------------- -------------
Market Covid-19 and the associated lockdown Red Red ^
risk(1) has had, and is likely to continue to
have, an impact on the Group's customers,
suppliers and contractors, thereby increasing
the risk of operating in the residential
market.
---------------- ------------------------------------------------- ------------- ----------------- -------------
Strategic Covid-19 has caused market disruption Green Green ^
risk(1) that will mean the Group's contractual
minimums are likely be tested for the
first time in a market downturn. First
charges over land that secure unpaid
sums, lack of force majeure clauses
in our contracts and underlying financial
stability of our housebuilder customers
(78 per cent have been assessed as five
star or four star builders by the HBF)
provides the Group with good mitigation
prospects.
---------------- ------------------------------------------------- ------------- ----------------- -------------
People The longer term effects of a significant Green Green ^
risk(1) lockdown period on U&C's workforce is
not fully understood, however active
work programmes, training and increased
levels of communication throughout lockdownhave
helped to mitigate unfavourable effects.
---------------- ------------------------------------------------- ------------- ----------------- -------------
Cyber risk(1) Home working and remote operations caused Green Green ^
by the lockdown has increased the risk
of cyber-attack. Additional IT security
(such as multi-factor authentification)
and a continuing focus on maintaining
existing protocols have helped to counter
this increased threat.
---------------- ------------------------------------------------- ------------- ----------------- -------------
Planning Achieving a planning consent (or successful Amber Green ^
risk appeal) in a period where physical meetings
are not being scheduled could cause
delays. Although virtual planning committee
meetings are now starting to be scheduled,
there remains an increased risk of delay.
---------------- ------------------------------------------------- ------------- ----------------- -------------
Health Social distancing and restrictions on Amber Green ^
and safety physical movements increase health and
risk safety risks when operating development
sites and head office operations (post
lockdown). Although the Group has implemented
enhanced working practices, there remains
an increased risk.
---------------- ------------------------------------------------- ------------- ----------------- -------------
Delivery Coronavirus disruption has affected Amber Green ^
risk the Group's ability to maintain delivery
of its projects in an efficient manner
and increased the financial vulnerability
of its contractors. Additional credit
checks, bonds where appropriate and
requests for additional management information
from our suppliers, contractors and
customers are being sought or undertaken,
however there remains an increased risk
---------------- ------------------------------------------------- ------------- ----------------- -------------
Finance Reduced values and income generation Amber Amber ^
risk(1) have increased the Group's finance risk.
Additional funding capacity, revised
milestones and covenants together with
undertaking covenant sensitivity analysis
provides the Group with confidence that
current mitigations are effective.
---------------- ------------------------------------------------- ------------- ----------------- -------------
1. Although the risk rating has not changed classification in the period, the risk score has increased.
The Board believes the previously reported mitigation actions, together with the increased controls noted above, appropriately manage these increased risks.
Responsibility statement
We confirm that to the best of our knowledge:
(a) the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';
(b) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and a description of where to find the principal risks and uncertainties for the remaining six months of the year); and
(c) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).
Signed on behalf of the Board on 10 June 2020
David Wood
Group Finance Director
Consolidated statement of comprehensive income
For the six month period-ended 31 March 2020
Six months to Six months Year ended
to
31 March 31 March 30 September
2020 2019 2019
Unaudited Unaudited Audited
Notes GBP'000 GBP'000 GBP'000
----------------------------------------------- --------- ----------- -------------
Revenue 2 33,044 30,894 102,114
Direct costs 2 (23,707) (23,587) (80,890)
------------------------------------------ --- --------- ----------- -------------
Gross profit 2 9,337 7,307 21,224
Administrative expenses (7,607) (8,779) (19,875)
(Deficit)/surplus on revaluation
of investment properties 9 (4,845) 1,046 5,791
Surplus on revaluation of receivables 14 98 528 850
Impairment of loans to joint ventures 11 (718) - -
Share of post-tax profit from joint
ventures 11 2,488 5,240 8,039
Profit on disposal of investment properties 6 - -
Operating (loss)/profit 3 (1,241) 5,342 16,029
Finance income 5 2,350 531 1,777
Finance costs 5 (927) (774) (1,470)
------------------------------------------ --- --------- ----------- -------------
Profit before taxation 182 5,099 16,336
Taxation expense 6 (1,129) (1,250) (3,707)
------------------------------------------ --- --------- ----------- -------------
Total comprehensive (loss)/income (947) 3,849 12,629
----------------------------------------------- --------- ----------- -------------
Basic (loss)/earnings per share 7 (0.7)p 2.7p 8.8p
------------------------------------------ --- --------- ----------- -------------
Diluted (loss)/earnings per share 7 (0.7)p 2.6p 8.6p
------------------------------------------ --- --------- ----------- -------------
The Group had no amounts of other comprehensive income for the current or prior periods and the (loss)/profit for the respective periods is wholly attributable to equity shareholders.
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
Consolidated balance sheet
As at 31 March 2020
31 March 31 March 30
September
2020 2019 2019
Unaudited Unaudited Audited
Notes GBP'000 GBP'000 GBP'000
------------------------------------------------------------------------------------------------ ---------------------------------------------- -------------- -----------
Non-current assets
Investment properties 9 48,371 46,553 52,937
Property, plant and equipment 10 8,024 4,223 3,958
Investments in joint ventures 11 123,631 113,624 121,262
Deferred tax assets 12 3,137 3,808 2,565
Trade and other receivables 14 37,088 19,953 45,898
------------------------------------------------------------------- --------------------------- ---------------------------------------------- -------------- -----------
220,251 188,161 226,620
------------------------------------------------------------------------------------------------------------------------------------------------ -------------- -----------
Current assets
Trading properties 13 309,342 320,750 306,998
Trade and other receivables 14 31,321 22,875 18,463
Cash and cash equivalents 12,673 28,165 24,441
------------------------------------------------------------------------------------------------ ---------------------------------------------- -------------- -----------
353,336 371,790 349,902
------------------------------------------------------------------------------------------------------------------------------------------------ -------------- -----------
Total assets 573,587 559,951 576,522
------------------------------------------------------------------------------------------------ ---------------------------------------------- -------------- -----------
Non-current liabilities
Borrowings 16 (128,651) (117,560) (128,265)
Deferred tax liabilities 12 (9,308) (8,713) (8,509)
------------------------------------------------------------------- --------------------------- ---------------------------------------------- -------------- -----------
(137,959) (126,273) (136,774)
------------------------------------------------------------------------------------------------------------------------------------------------ -------------- -----------
Current liabilities
Borrowings 16 (6,134) (1,000) (1,000)
Trade and other payables 15 (30,850) (37,555) (35,715)
(36,984) (38,555) (36,715)
Total liabilities (174,943) (164,828) (173,489)
------------------------------------------------------------------------------------------------ ---------------------------------------------- -------------- -----------
Net assets 398,644 395,123 403,033
------------------------------------------------------------------------------------------------ ---------------------------------------------- -------------- -----------
Equity
Share capital 17 29,036 29,023 29,030
Share premium account 169,268 169,065 169,163
Capital redemption reserve 849 849 849
Own shares (3,590) (4,261) (4,086)
Other reserve 113,785 113,785 113,785
Retained earnings 89,296 86,662 94,292
------------------------------------------------------------------------------------------------ ---------------------------------------------- -------------- -----------
Total equity 398,644 395,123 403,033
------------------------------------------------------------------------------------------------ ---------------------------------------------- -------------- -----------
NAV per share 18 273.9p 270.6p 275.3p
------------------------------------------------------------------- --------------------------- ---------------------------------------------- -------------- -----------
EPRA NAV per share 18 335.1p 340.6p 360.3p
------------------------------------------------------------------- --------------------------- ---------------------------------------------- -------------- -----------
EPRA NNNAV per share 18 318.3p 322.4p 339.5p
------------------------------------------------------------------- --------------------------- ---------------------------------------------- -------------- -----------
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
Consolidated statement of changes in equity
For the six month period-ended 31 March 2020
Share Capital
Share premium redemption Own Other Retained
capital account reserve Shares reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- -------- ----------- -------- -------- --------- --------
Balance at 1 October
2019 29,030 169,163 849 (4,086) 113,785 94,292 403,033
Shares issued under
scrip dividend
scheme 6 105 - - - - 111
Deferred bonus
award and share
option exercise
satisfied out
of own shares - - - 2,220 - (2,210) 10
Purchase of own
shares - - - (1,724) - - (1,724)
Share-based
payment expense - - - - - 1,752 1,752
Total comprehensive
loss for the period - - - - - (947) (947)
Dividends paid - - - - - (3,591) (3,591)
Balance at 31
March 2020
(unaudited) 29,036 169,268 849 (3,590) 113,785 89,296 398,644
----------------------- ------- -------- ----------- -------- -------- --------- --------
Balance at 1 October
2018 29,009 168,881 849 (4,748) 113,785 81,247 389,023
Effect of adoption
of IFRS 15 - - - - - 3,203 3,203
----------------------- ------- -------- ----------- -------- -------- --------- --------
Balance at 1 October
2018 restated 29,009 168,881 849 (4,748) 113,785 84,450 392,226
Shares issued under
scrip dividend
scheme 14 184 - - - - 198
Deferred bonus award and share
option exercise
satisfied out
of own shares - - - 762 - (504) 258
Purchase of own
shares - - - (275) - - (275)
Share-based
payment expense - - - - - 2,023 2,023
Total comprehensive
income for the
period - - - - - 3,849 3,849
Dividends paid - - - - - (3,156) (3,156)
Balance at 31
March 2019
(unaudited) 29,023 169,065 849 (4,261) 113,785 86,662 395,123
----------------------- ------- -------- ----------- -------- -------- --------- --------
Balance at 1
October 2018 restated 29,009 168,881 849 (4,748) 113,785 84,450 392,226
Shares issued under
scrip dividend
scheme 21 282 - - - - 303
Deferred bonus
award and
share option exercise
satisfied out
of own shares - - - 1,417 - (1,577) (160)
Purchase of own
shares - - - (755) - - (755)
Share-based
payment expense - - - - - 3,955 3,955
Total comprehensive
income for the
year - - - - - 12,629 12,629
Dividends paid - - - - - (5,165) (5,165)
----------------------- ------- -------- ----------- -------- -------- --------- --------
Balance at 30
September 2019
(audited) 29,030 169,163 849 (4,086) 113,785 94,292 403,033
----------------------- ------- -------- ----------- -------- -------- --------- --------
Consolidated cash flow statement
For the six month period-ended 31 March 2020
Six months to Six months Year ended
to
31 March 31 March 30 September
2020 2019 2019
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
----------------------------------------------------------- ----------- -------------
Cash flows from operating activities
Profit before taxation 182 5,099 16,336
Adjustments for:
Deficit/(surplus) on revaluation of investment
properties 4,845 (1,046) (5,791)
Surplus on revaluation of receivables (98) (528) (850)
Impairment of loans to joint ventures 718 - -
Share of post-tax profit from joint venture (2,488) (5,240) (8,039)
Finance income (2,350) (531) (1,777)
Finance costs 927 774 1,470
Depreciation charge 422 502 918
Write down of trading properties 1,285 - 730
Profit on disposal of investment properties (6) - -
Loss on disposal of property, plant and
equipment 1 9 13
Share-based payment expense 1,752 2,023 3,955
------------------------------------------------ --------- ----------- -------------
Cash flows from operating activities before change
in working capital 5,190 1,062 6,965 (Increase)/decrease in trading properties (1,449) (3,770) 11,034 (Increase)/decrease in trade and other receivables (1,910) 10,761 (9,243) Decrease in trade and other payables (8,970) (9,703) (12,368) ------------------------------------------------ --------- ----------- ------------- Cash absorbed by operations (7,139) (1,650) (3,612) Finance costs paid (633) (549) (1,126) Finance income received 41 36 72 Tax paid (2,545) (806) (1,498) ------------------------------------------------ --------- ----------- ------------- Net cash flows from operating activities (10,276) (2,969) (6,164) ------------------------------------------------ --------- ----------- ------------- Investing activities Additions to investment properties (1,621) (503) (2,144) Additions to property, plant and equipment (162) (225) (381) Loans advanced to joint ventures (599) (4,185) (9,203) Loans repaid by joint ventures and associates - - 179 Proceeds from disposal of investment 1,496 - - properties Net cash flows from investing activities (886) (4,913) (11,549) ------------------------------------------------ --------- ----------- ------------- Financing activities New loans 7,893 24,340 37,335 Issue costs of new loans (61) (43) (580) Repayment of loans (3,234) (1,656) (5,622) Purchase of own shares (1,724) (275) (755) Dividends paid (3,480) (2,957) (4,862) ------------------------------------------------ --------- ----------- ------------- Net cash flows from financing activities (606) 19,409 25,516 ------------------------------------------------ --------- ----------- ------------- Net (decrease)/increase in cash and cash equivalents (11,768) 11,527 7,803 Cash and cash equivalents at start of period 24,441 16,638 16,638 ------------------------------------------------ --------- ----------- ------------- Cash and cash equivalents at end of period 12,673 28,165 24,441 ------------------------------------------------ --------- ----------- -------------
Notes to the condensed consolidated interim financial statements
For the six month period-ended 31 March 2020
1. Accounting policies
Basis of preparation
These condensed consolidated financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting', as adopted by the European Union. They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 2019 Annual Report and Accounts. The financial information for the six months ended 31 March 2020 and 31 March 2019 does not constitute statutory accounts within the meaning of section 434(3) of the Companies Act 2006 and is unaudited.
The statutory annual accounts of Urban&Civic plc for the year ended 30 September 2019 have been reported on by the Company's auditor and have been delivered to the Registrar of Companies. The independent auditor's report on the annual accounts for 2019 was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under sections 498(2) or 498(3) of the Companies Act 2006.
Going concern
These condensed consolidated interim financial statements have been prepared on a going concern basis, which assumes that the Group will continue to meet its liabilities as they fall due.
The Directors continue to assess going concern through reviewing five year business plans, which are presented periodically at Board meetings, however in this period of uncertainty a more detailed review, focussing on monthly cash positions over the next 18 months to 30 September 2021, has been undertaken.
The assumptions attaching to these forecasts provide for maintained construction programmes (as these are largely fully funded through existing development facilities) and reduced residential sales (which assumed that sales rates do not recover markedly until April 2021) .
Forecast house price, land price and cost price inflation assumptions are in line with those used by CBRE in arriving at their strategic site valuations at 31 March and broadly reflect no house price or land price inflation until Q2 2021 (2.5 per cent to 4 per cent thereafter) and cost price inflation at 2 per cent throughout the forecast period.
Any forecast disposals in the base case prior to Spring 2021 relate to transactions that are in documentation at the time of the review (such as the Papworth sale which is noted in the financial review as completing subsequent to 31 March and realised GBP18.2 million of cash for the Group ).
In addition, the base case model includes further downside sensitivities:
-- Removal of non-contracted residential sales income (leaving GBP34.1 million of contractual minimums due over the period to 30 September 2021; equivalent to 2.1 times the annual cash overhead sum of GBP16 million; which comprises GBP25 million of gross overheads less depreciation, non-cash share based payment charges and discretionary bonuses).
-- A further six -month deferral (to Autumn 2021) of 50 per cent of non-contracted land promotion receipts, together with an assumption that 10 per cent of forecast base case promotion receipts are fully abortive.
These downside sensitivities combine to form an extreme downside scenario which reduces the forecast cash flows by a maximum of GBP84 .5 million over the 18-month period to 30 September 2021.
Mitigating actions that could be taken to address this extreme downside scenario include :
-- Cessation of uncommitted strategic land development works, which are not associated with contracted residential sales income.
-- Cessation of non-committed capital investment in respect of a number of identified early stage projects.
-- Further drawdown under the Group's Revolving Credit Facility. -- Cessation of dividends beyond this interim period.
These combined mitigations would increase the Group's cash flows by a maximum of GBP91.2 million over the 18 month period to 30 September 2021.
A further GBP66.5 million of other potential mitigations (including the facility expansions referred to in the financial review, the expected disposal of Deansgate development site and drawings under the Coronavirus Large Business Interruption Loan scheme) would provide additional headroom.
The Board is satisfied that these mitigating actions would protect the Group from the extreme downside scenario set out above and would mean that the Group would still have sufficient cash resources to meet its obligations.
No key loan covenants are projected to be breached during the period under review , having analysed prior period recessionary falls in land values (in the Group's geographic locations), calculated consequential covenant headroom and identified additional uncharged land which could be used to enhance loan security for lenders (as noted in the financial review). Strategic site land values would need to fall between 17 per cent and 72 per cent before any covenants were breached. In such an event the Group has the option of pledging further land as additional security.
Three loan facilities currently expire in the 18 months to 30 September 2021. The first is the Newark Homes England facility (GBP6.1 million currently drawn), the second is the GBP11.2 million Deansgate Hotel facility (which is currently being marketed as a development site with planning) and the last is the joint venture development loans at Manchester New Square.
Post 31 March 2020 credit approvals were received for extensions to expiry dates for the Manchester New Square loans and the Deansgate loan. These extensions push terms beyond 30 September 2021 and provide additional time for development completion (in the case of Manchester New Square) and sale; thereby triggering loan repayments.
The Newark facility is capable of being repaid out of existing contracted residential receipts and plot reservations.
The Directors have concluded that it is appropriate to prepare the consolidated interim financial statements on a going concern basis.
Significant accounting policies
In the current period, the Group has adopted IFRS 16 'Leases' which has resulted in the Group recognising a right-of-use asset and liability on the balance sheet initially at the present value of all future lease payments for any leases for which it is the lessee. The treatment of leases where the Group is acting as a lessor is substantially unchanged from that currently applied under IAS 17. The Group has elected to adopt IFRS 16 using the Cumulative Effect Method meaning that full retrospective adjustment of comparative periods is not required. The impact on the Group's balance sheet at 1 October 2019 was to increase both property, plant and equipment and other payables by GBP4,327,000.
Other than as described above, the same accounting policies, presentation and method of computation are followed in these condensed interim financial statements as were applied in the Group's latest audited financial statements and the accounting policies used in preparing these condensed interim financial statements are those which are expected to be applied for the financial year ending 30 September 2020.
Use of estimates and judgements
Revenue recognition
Judgement is involved when determining how much revenue to recognise at a point in time in respect of residential property sales where there is variable consideration which is only determined at the point of the future onward sale of constructed homes by the Group's housebuilder customers. In determining the amount of revenue recognised, the Directors consider factors that may give rise to significant reversals and for this period have assessed that a 20 per cent reduction in house prices, being the approximate peak to trough fall in house prices in the last two recessions, and a one year delay in receipt of overage payments, to take into account a significant fall in sales rates in a downturn, are appropriate reductions to cover the risk of significant reversal.
Fair value measurement of properties
The Group's investment properties, as presented within the results, and the majority of the Group's trading properties for the purpose of EPRA valuations, are valued on a semi-annual basis by CBRE Limited (CBRE), an independent firm of chartered surveyors, and to a lesser extent by the Directors, on the basis of fair value. Where property assets are bifurcated between investment and trading properties, the Directors have allocated CBRE's valuation with reference to the nature of the properties in each classification. The valuation at each period end is carried out in accordance with guidance issued by the Royal Institution of Chartered Surveyors. Fair value represents the estimated amount that should be received for selling an investment property in an orderly transaction between market participants at the valuation date. EPRA valuations are discussed in further detail within note 18.
Due to the outbreak of Covid-19, the following wording was included in CBRE's valuation report at 31 March 2020 in relation to the assets subjected to their valuation:
"The outbreak of the Novel Coronavirus (Covid-19), declared by the World Health Organisation as a 'Global Pandemic' on 11 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 as being subject to 'material valuation uncertainty' as set out in VPS 3 and VPGA 10 of the RICS Valuation - Global Standards. 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 Valuation of these Properties 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 declaration has been included to ensure transparency of the fact 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 to serve as a precaution and does not invalidate the Valuation".
Director valuations are deemed to have the same level of uncertainty at 31 March 2020.
Property value assumptions
The key inputs to the strategic property valuations, for both investment properties and trading properties valued for EPRA purposes including properties wholly owned, within joint ventures vehicles, or subject to joint arrangements included:
31 March 31 March 30 September
2020 2019 2019
GBP'000 GBP'000 GBP'000
-------------------------------------------------------- ------------ -------------
House price - private (GBPpsf) 220 - 300 215 - 300 215 - 300
House price - affordable (GBPpsf) 125 - 200 125 - 200 125 - 200
House price inflation (per cent) 2.5 3.0 2.5
Cost price inflation (per cent) 2.0 2.0 2.0
Residential land prices (GBP'000 per
NDA) 700 - 1,600 694 - 1,450 694 - 1,622
Commercial land value (GBP'000 per acre) 150 - 400 150 - 400 150 - 400
Risk-adjusted discount rate (per cent) 6.25 - 10.0 6.0 - 10.25 6.0 - 10.0
------------------------------------------ ------------ ------------ -------------
The inter-relationship between the unobservable inputs set out above and the fair value measurement is unchanged from that reported in the 2019 Annual Report and Accounts. Please refer to note 1 for the impact of the Coronavirus on the property valuations at 31 March 2020.
Other than as described above, there have been no new or material revisions to the nature and amount of estimates reported in the 2019 accounts.
2. Revenue and gross profit
Six months to Six months Year ended
to
31 March 31 March 30 September
2020 2019 2019
GBP'000 GBP'000 GBP'000
----------------------------------------------------- ----------- -------------
Trading property sales 7,989 8,863 30,279
Residential property sales 14,460 10,964 49,307
Revenue on construction contracts 4,315 3,243 7,972
Rental and other property income 1,439 1,357 2,884
Recoverable property expenses 396 735 1,116
Hotel income 3,300 3,761 7,621
Project management fees and other income 1,145 1,971 2,935
------------------------------------------ --------- ----------- -------------
Revenue 33,044 30,894 102,114
------------------------------------------ --------- ----------- -------------
Cost of trading property sales (2,529) (6,402) (17,665)
Cost of residential property sales (12,278) (9,498) (46,529)
Costs of construction contracts (3,181) (2,917) (6,641)
Direct property expenses (1,190) (1,114) (2,251)
Recoverable property expenses (396) (735) (1,116)
Cost of hotel trading (2,848) (2,921) (5,957)
Write down of trading properties (1,285) - (731)
------------------------------------------ --------- ----------- -------------
Direct costs (23,707) (23,587) (80,890)
------------------------------------------ --------- ----------- -------------
Gross profit 9,337 7,307 21,224
------------------------------------------ --------- ----------- -------------
3. Operating (loss)/profit
Operating (loss)/profit is arrived at after allocating GBP2,482,000 of directly attributable administrative expenses to the cost of investment and trading properties (six months to 31 March 2019: GBP2,142,000; year ended 30 September 2019: GBP5,461,000).
4. Segmental information
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker and within the 2019 Annual Report and Accounts. The chief operating decision maker has been identified as the Board of Directors.
The segmental results that are monitored by the Board include all the separate lines making up the segmental IFRS operating profit. This excludes central overheads and taxation which are not allocated to operating segments.
Consolidated statement of comprehensive income
For the six month period-ended 31 March 2020
Strategic sites & Catesby Commercial Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------------- ----------- ------------ ---------
Revenue 29,292 3,752 - 33,044
Direct costs (19,615) (4,092) - (23,707)
--------------------------------------- --------- ----------- ------------ ---------
Gross profit 9,677 (340) - 9,337
--------------------------------------- --------- ----------- ------------ ---------
Share-based payment expense - - (1,752) (1,752)
Other administrative expenses - - (5,855) (5,855)
--------------------------------------- --------- ----------- ------------ ---------
Administrative expenses - - (7,607) (7,607)
Deficit on revaluation of investment
properties (4,845) - - (4,845) Surplus on revaluation of receivables 98 - - 98 Impairment of loans to joint ventures - (718) - (718) Share of post-tax profit from joint ventures 2,488 - - 2,488 Profit on disposal of investment properties 6 - - 6 Operating profit/(loss) 7,424 (1,058) (7,607) (1,241) Net finance income/(cost) 1,889 (466) - 1,423 --------------------------------------- --------- ----------- ------------ --------- Profit/(loss) before tax 9,313 (1,524) (7,607) 182 --------------------------------------- --------- ----------- ------------ ---------
Consolidated balance sheet
As at 31 March 2020
Strategic sites & Catesby Commercial Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------- ----------- ------------ ----------
Investment properties 48,371 - - 48,371
Property, plant and equipment 3,292 288 4,444 8,024
Investments in joint
ventures 106,648 16,983 - 123,631
Deferred tax assets - - 3,137 3,137
Trade and other receivables 37,088 - - 37,088
------------------------------- ---------- ----------- ------------ ----------
Non-current assets 195,399 17,271 7,581 220,251
------------------------------- ---------- ----------- ------------ ----------
Trading properties 281,539 27,803 - 309,342
Trade and other receivables 27,195 4,126 - 31,321
Cash and cash equivalents - - 12,673 12,673
------------------------------- ---------- ----------- ------------ ----------
Current assets 308,734 31,929 12,673 353,336
------------------------------- ---------- ----------- ------------ ----------
Borrowings (103,311) (11,093) (20,381) (134,785)
Trade and other payables (15,948) (14,902) - (30,850)
Deferred tax liabilities (8,545) - (763) (9,308)
------------------------------- ---------- ----------- ------------ ----------
Total liabilities (127,804) (25,995) (21,144) (174,943)
------------------------------- ---------- ----------- ------------ ----------
Net assets 376,329 23,205 (890) 398,644
------------------------------- ---------- ----------- ------------ ----------
Consolidated statement of comprehensive income
For the six month period-ended 31 March 2019
Strategic sites & Catesby Commercial Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------------- ----------- ------------ ---------
Revenue 24,419 6,475 - 30,894
Direct costs (20,030) (3,557) - (23,587)
--------------------------------------- --------- ----------- ------------ ---------
Gross profit 4,389 2,918 - 7,307
--------------------------------------- --------- ----------- ------------ ---------
Share-based payment expense - - (2,023) (2,023)
Other administrative expenses - - (6,756) (6,756)
--------------------------------------- --------- ----------- ------------ ---------
Administrative expenses - - (8,779) (8,779)
Surplus on revaluation of investment
properties 1,046 - - 1,046
Surplus on revaluation of receivables 528 - - 528
Share of post-tax profit from joint
ventures 5,231 9 - 5,240
--------------------------------------- --------- ----------- ------------ ---------
Operating profit/(loss) 11,194 2,927 (8,779) 5,342
--------------------------------------- --------- ----------- ------------ ---------
Net finance income/(cost) 362 (605) - (243)
--------------------------------------- --------- ----------- ------------ ---------
Profit/(loss) before tax 11,556 2,322 (8,779) 5,099
--------------------------------------- --------- ----------- ------------ ---------
Consolidated balance sheet
As at 31 March 2019
Strategic sites & Catesby Commercial Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------- ----------- ------------ ----------
Investment properties 46,553 - - 46,553
Property, plant and equipment 3,359 485 379 4,223
Investments in joint ventures 95,859 17,765 - 113,624
Deferred tax assets - - 3,808 3,808
Trade and other receivables 19,953 - - 19,953
------------------------------- ---------- ----------- ------------ ----------
Non-current assets 165,724 18,250 4,187 188,161
------------------------------- ---------- ----------- ------------ ----------
Trading properties 291,893 28,857 - 320,750
Trade and other receivables 16,996 5,879 - 22,875
Cash and cash equivalents - - 28,165 28,165
------------------------------- ---------- ----------- ------------ ----------
Current assets 308,889 34,736 28,165 371,790
------------------------------- ---------- ----------- ------------ ----------
Borrowings (91,275) - (27,285) (118,560)
Trade and other payables (25,729) (11,826) - (37,555)
Deferred tax liabilities (8,071) - (642) (8,713)
------------------------------- ---------- ----------- ------------ ----------
Total liabilities (125,075) (11,826) (27,927) (164,828)
------------------------------- ---------- ----------- ------------ ----------
Net assets 349,538 41,160 4,425 395,123
------------------------------- ---------- ----------- ------------ ----------
Consolidated statement of comprehensive income
for the year ended 30 September 2019
Strategic sites & Catesby Commercial Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------------- ----------- ------------ ---------
Revenue 87,322 14,792 - 102,114
--------------------------------------- --------- ----------- ------------ ---------
Other direct costs (71,689) (8,471) - (80,160)
Write down of trading properties (730) - - (730)
--------------------------------------- --------- ----------- ------------ ---------
Total direct costs (72,419) (8,471) - (80,890)
--------------------------------------- --------- ----------- ------------ ---------
Gross profit 14,903 6,321 - 21,224
--------------------------------------- --------- ----------- ------------ ---------
Share-based payment expense - - (3,955) (3,955)
Other administrative expenses - - (15,920) (15,920)
--------------------------------------- --------- ----------- ------------ ---------
Total administrative expenses - - (19,875) (19,875)
Surplus on revaluation of investment
properties 5,791 - - 5,791
Surplus on revaluation of receivables 850 - - 850
--------------------------------------- --------- ----------- ------------ ---------
Share of post-tax profit from
joint ventures 8,027 12 - 8,039
--------------------------------------- --------- ----------- ------------ ---------
Operating profit/(loss) 29,571 6,333 (19,875) 16,029
--------------------------------------- --------- ----------- ------------ ---------
Net finance income/(cost) 1,478 (1,171) - 307
--------------------------------------- --------- ----------- ------------ ---------
Profit/(loss) before tax 31,049 5,162 (19,875) 16,336
--------------------------------------- --------- ----------- ------------ ---------
Consolidated balance sheet
as at 30 September 2019
Strategic sites & Catesby Commercial Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------- ----------- ------------ ----------
Investment properties 52,937 - - 52,937
Property, plant and equipment 3,348 299 311 3,958
Investments in joint ventures 103,563 17,699 - 121,262
Deferred tax assets - - 2,565 2,565
Trade and other receivables 45,898 - - 45,898
------------------------------- ---------- ----------- ------------ ----------
Non-current assets 205,746 17,998 2,876 226,620
------------------------------- ---------- ----------- ------------ ----------
Trading properties 279,307 27,691 - 306,998
Trade and other receivables 13,782 4,681 - 18,463
Cash and cash equivalents - - 24,441 24,441
------------------------------- ---------- ----------- ------------ ----------
Current assets 293,089 32,372 24,441 349,902
------------------------------- ---------- ----------- ------------ ----------
Borrowings (101,899) (11,045) (16,321) (129,265)
Trade and other payables (24,351) (11,364) - (35,715)
Deferred tax liabilities (7,806) - (703) (8,509)
------------------------------- ---------- ----------- ------------ ----------
Total liabilities (134,056) (22,409) (17,024) (173,489)
------------------------------- ---------- ----------- ------------ ----------
Net assets 364,779 27,961 10,293 403,033
------------------------------- ---------- ----------- ------------ ----------
5. Finance income and finance costs
Six months to Six months Year ended
to
31 March 31 March 30 September
2020 2019 2019
GBP'000 GBP'000 GBP'000
------------------------------------------------------- ----------- -------------
Interest receivable from cash deposits 41 33 81
Unwinding of discounts applied to long-term
receivables 2,008 497 1,663
Other interest receivable 301 1 33
--------------------------------------------- -------- ----------- -------------
Finance income 2,350 531 1,777
--------------------------------------------- -------- ----------- -------------
Interest payable on borrowings (2,496) (1,813) (4,044)
Amortisation of loan arrangement costs (338) (258) (503)
--------------------------------------------- -------- ----------- -------------
Finance costs pre-capitalisation (2,834) (2,071) (4,547)
Finance costs capitalised to trading
properties 1,907 1,297 3,077
Finance costs (927) (774) (1,470)
--------------------------------------------- -------- ----------- -------------
Net finance income/(costs) 1,423 (243) 307
--------------------------------------------- -------- ----------- -------------
Finance costs are capitalised at the same rate as the Group is charged on respective borrowings.
6. Tax on profit on ordinary activities
(a) Analysis of tax charge in the period
Six months to Six months Year ended
to
31 March 31 March 30 September
2020 2019 2019
GBP'000 GBP'000 GBP'000
-------------------------------------------------------- ----------- -------------
Current tax:
UK corporation tax on profits for the
year 902 1,070 2,482
Adjustments in respect of previous periods - (6) -
Total current tax charge 902 1,064 2,482
------------------------------------------------ ------ ----------- -------------
Deferred tax:
Origination and reversal of timing differences 227 186 1,225
Total deferred tax charge 227 186 1,225
------------------------------------------------ ------ ----------- -------------
Total tax charge 1,129 1,250 3,707
------------------------------------------------ ------ ----------- -------------
(b) Factors affecting the tax charge for the period
Six months to Six months Year ended
to
31 March 31 March 30 September
2020 2019 2019
GBP'000 GBP'000 GBP'000
------------------------------------------------- ----------- -------------
Profit attributable to the Group before
tax 182 5,099 16,336
----------------------------------------- ------ ----------- -------------
Profit multiplied by the average rate of UK corporation tax of 19
per cent (31 March 2019 and 30 September
2019: 19 per cent) 35 969 3,104
Expenses not deductible for tax purposes 386 379 937
Differences arising from taxation of chargeable gains and property
revaluations 868 1,037 190
Changes in tax rates 561 - -
Tax losses and other items (721) (1,135) (524)
1,129 1,250 3,707
Adjustments to tax charge in respect - - -
of previous periods
----------------------------------------- ------ ----------- -------------
Total tax charge 1,129 1,250 3,707
----------------------------------------- ------ ----------- -------------
7. (Loss)/earnings per share
Basic (loss)/earnings per share
The calculation of basic (loss)/earnings per share is based on a loss of GBP947,000 (six months to 31 March 2019: profit of GBP3,849,000; year ended 30 September 2019: profit of GBP12,629,000) and on 143,782,177 (six months to 31 March 2019: 143,397,834; year ended 30 September 2019: 143,442,735) shares, being the weighted average number of shares in issue during the period less own shares held.
Diluted (loss)/earnings per share
The calculation of diluted (loss)/earnings per share is based on a loss of GBP947,000 (six months to 31 March 2019: profit of GBP3,849,000; year ended 30 September 2019: profit of GBP12,629,000) and on 145,328,565 (six months to 31 March 2019: 145,875,912; year ended 30 September 2019: 146,176,846) shares, being the weighted average number of shares in issue, less own shares held and the dilutive impact of share options granted.
Six months to Six months Year ended
to
31 March 31 March 30 September
2020 2019 2019
Weighted average number of shares Number Number Number
------------------------------------- ------------ ------------ -------------
In issue at start of period 145,148,088 145,044,582 145,044,582
Effect of shares issued under scrip
dividend scheme 6,712 12,664 49,325
Effect of own shares purchased and
transferred (1,372,623) (1,659,412) (1,651,172)
------------------------------------- ------------ ------------ -------------
Weighted average number of shares
during the period - basic 143,782,177 143,397,834 143,442,735
Dilutive effect of share options 1,546,388 2,478,078 2,734,111
------------------------------------- ------------ ------------ -------------
Weighted average number of shares
during the period - diluted 145,328,565 145,875,912 146,176,846
------------------------------------- ------------ ------------ -------------
8. Dividends
Six months to Six months Year ended
to
31 March 31 March 30 September
2020 2019 2019
GBP'000 GBP'000 GBP'000
--------------------------------------------------- ----------- -------------
Final dividend of 2.5p per share proposed 3,480 - -
and paid February 2020
Final dividend of 2.5p per share granted 111 - -
via scrip dividend
Interim dividend of 1.4p per share paid
July 2019 - - 1,907
Interim dividend of 1.4p per share granted
via scrip dividend - - 102
Final dividend of 2.2p per share proposed
and paid February 2019 - 2,957 2,957
Final dividend of 2.2p per share granted
via scrip dividend - 199 199
3,591 3,156 5,165
--------------------------------------------------- ----------- -------------
9. Investment properties
GBP'000
-------------------------------------------
Valuation
At 1 October 2018 86,918
Additions at cost 504
Transfer to trading properties (41,915)
Surplus on revaluation 1,046
-------------------------------- ---------
At 31 March 2019 46,553
Additions at cost 1,639
Surplus on revaluation 4,745
-------------------------------- ---------
At 30 September 2019 52,937
Additions at cost 1,769
Disposals (1,490)
Deficit on revaluation (4,845)
-------------------------------- ---------
At 31 March 2020 48,371
-------------------------------- ---------
The Group's investment properties are all carried at fair value and classified as level 3 within the fair value hierarchy as some of the inputs used in determining the fair value are based on unobservable market data. The process of fair valuing the Group's investment properties, including the significant unobservable inputs applied in the valuations, is explained in note 1. The following summarises the valuation technique used in measuring the fair value of the Group's investment properties.
Valuation technique
Discounted cash flows: the valuation model for the Group's investment properties considers the present value of net cash flows to be generated from the properties (reflecting the current approach of constructing the infrastructure and discharging the Section 106 cost obligations), taking into account expected land value growth rates, build cost inflation, absorption rates and general economic conditions. The expected net cash flows are discounted using risk-adjusted discount rates and the resultant value is benchmarked against transaction evidence.
Transfer of properties
On 1 October 2018, based on the site intention set out in the submitted development plan and the commencement of development works, the Group agreed that the strategy for Grange Farm at Alconbury Weald previously held within investment properties was to develop it for sale. Accordingly, on 1 October 2018 this element of the property was reclassified as a trading property. No further transfers have taken place.
10. Property, plant and equipment
Furniture Right
Freehold Leasehold and of use
property property equipment asset Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ---------- ---------- -------- --------
Cost
At 1 October 2018 5,425 740 1,596 - 7,761
Additions - 17 209 - 226
Disposals - - (197) - (197)
---------------------- ------ ---------- ---------- -------- --------
At 31 March 2019 5,425 757 1,608 - 7,790
Additions - - 155 - 155
Disposals - - (6) - (6)
---------------------- ------ ---------- ---------- -------- --------
At 30 September
2019 5,425 757 1,757 - 7,939
Effect of adoption
of IFRS 16 - - - 4,327 4,327
---------------------- ------ ---------- ---------- -------- --------
As at 30 September
2019 as restated 5,425 757 1,757 4,327 12,266
Additions - - 162 - 162
Disposals - - (19) - (19)
---------------------- ------ ---------- ---------- -------- --------
At 31 March 2020 5,425 757 1,900 4,327 12,409
---------------------- ------ ---------- ---------- -------- --------
Depreciation
At 1 October 2018 1,772 437 1,044 - 3,253
Charge for the
period 213 65 224 - 502
Release on disposals - - (188) - (188)
---------------------- ------ ---------- ---------- -------- --------
At 31 March 2019 1,985 502 1,080 - 3,567
Charge for the
period 212 67 137 - 416
Release on disposals - - (2) - (2)
---------------------- ------ ---------- ---------- -------- --------
At 30 September
2019 2,197 569 1,215 - 3,981
Charge for the
period 94 68 85 175 422
Release on disposals - - (18) - (18)
---------------------- ------ ---------- ---------- -------- --------
At 31 March 2020 2,291 637 1,282 175 4,385
---------------------- ------ ---------- ---------- -------- --------
Net book value
31 March 2020 3,134 120 618 4,152 8,024
---------------------- ------ ---------- ---------- -------- --------
31 March 2019 3,440 255 528 - 4,223
30 September 2019 3,228 188 542 - 3,958
---------------------- ------ ---------- ---------- -------- --------
11. Investments
Investments in joint ventures
Total
GBP'000
-------------------------------------------------
Cost or valuation
At 1 October 2018 103,418
Effect of adoption of IFRS 15 781
--------------------------------------- --------
As at 1 October 2018 as restated 104,199
Loans advanced 4,185
Share of post-tax profit 5,240
--------------------------------------- --------
At 31 March 2019 113,624
--------------------------------------- --------
Loans advanced 5,017
Share of post-tax profit 2,799
Profits distributed (178)
At 30 September 2019 121,262
--------------------------------------- --------
Loans advanced 599
Impairment of loans to joint ventures (718)
Share of post-tax profit 2,488
At 31 March 2020 123,631
--------------------------------------- --------
At 31 March 2020 the Group's interests in its joint arrangements were as follows:
Joint ventures SUE Developments LP 50% Property development Wintringham Partners 33% Property development LLP Manchester New Square 50% Property development LP Achadonn Limited 50% Property development Altira Park JV LLP 50% Property development ---------------------- ---- Joint operations Waterbeach Property development ----------------
Waterbeach is a joint arrangement with a landowner that is structured through a contractual arrangement, rather than a separate entity. Decisions about relevant activities in relation to the Waterbeach development require unanimous consent by the Group and the landowner. When the development assets are sold to a third party, the Group will have a right to a proportion of the sales proceeds under a waterfall agreement which will include recovery of costs incurred and a 9 per cent share of residual proceeds. At 31 March 2020, the Group had incurred GBP23,522,000 (31 March 2019: GBP20,064,000; 30 September 2019: GBP21,404,000) of costs in relation to the project, which have been capitalised into investment and trading properties.
SUE Wintringham Manchester Achadonn Altira
Park
Developments LP Partners New Square Limited JV LLP Total
LLP LP
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------ -----------
The carrying value consists of:
Group's share of
net assets 34,874 1,710 - - 426 37,010
Loans 53,788 16,276 15,165 1,392 - 86,621
Total investment in
joint ventures 88,662 17,986 15,165 1,392 426 123,631
------- ------------ -----------
12. Deferred tax
The net movement on the deferred tax account is as follows:
Six months to Six months Year ended
to
31 March 31 March 30 September
2020 2019 2019
GBP'000 GBP'000 GBP'000
------------------------------------------ ----------- -------------
At start of period (5,944) (4,063) (4,063)
Effect of adoption of IFRS 15 - (656) (656)
At start of period as restated (5,944) (4,719) (4,719)
Movement in the period (see note
6) (227) (186) (1,225)
At end of period (6,171) (4,905) (5,944)
The deferred tax balances are made up as follows:
At At At
31 March 31 March 30 September
2020 2019 2019
GBP'000 GBP'000 GBP'000
--------------------------------------- --------- -------------
Deferred tax assets
Tax losses 3,137 3,808 2,565
--------- -------------
3,137 3,808 2,565
--------- -------------
Deferred tax liabilities
Revaluation surpluses 8,839 8,125 8,035
Revenue recognised under IFRS 15 469 588 474
9,308 8,713 8,509
At 31 March 2020, the Group had unused tax losses of GBP20,239,000 (31 March 2019: GBP22,477,000; 30 September 2019: GBP 20,513,000 ), of which GBP16,510,000 (31 March 2019: GBP21,956,000; 30 September 2019: GBP 15,089,000 ) has been recognised as a deferred tax asset. A further GBP3,410,000 (31 March 2019: GBP96,000; 30 September 2019: GBP 5,104,000 ) has been applied to reduce the Group's deferred tax liability recognised at the balance sheet date as required by IAS 12 'Income Taxes' in respect of tax potentially payable on the realisation of investment properties at fair value at the balance sheet date. No deferred tax asset is recognised in respect of realised or unrealised capital losses if there is uncertainty over future recoverability.
Tax losses of GBP320,000 (31 March 2019: GBP424,000; 30 September 2019: GBP320,000) have not been recognised as it is not considered sufficiently certain that there will be appropriate taxable profits available in the foreseeable future against which these losses can be utilised.
The Group's deferred tax balances have been measured at 19 per cent (2019: 17 and 19 per cent), being the enacted rates of corporation tax in the UK at the balance sheet date against which the temporary differences giving rise to the deferred tax are expected to reverse.
13. Trading properties
Six months to Six months Year ended
to
31 March 31 March 30 September
2020 2019 2019
GBP'000 GBP'000 GBP'000
-----------
At start of period 306,998 273,770 273,770
Additions at cost 18,616 20,166 46,583
Costs written down (1,285) - (730)
Disposals (14,987) (15,101) (54,540)
Transfer from investment properties - 41,915 41,915
At end of period 309,342 320,750 306,998
----------- -------------
Capitalised interest of GBP7,715,000 is included within the carrying value of trading properties as at 31 March 2020 (31 March 2019: GBP4,706,000; 30 September 2019: GBP5,933,000).
14. Trade and other receivables
At At At
31 March 31 March 30 September
2020 2019 2019
Non-current GBP'000 GBP'000 GBP'000
--------- -------------
Trade receivables 36,478 17,802 44,365
Other receivables 610 2,151 1,533
37,088 19,953 45,898
---------------------------------------------- --------- -------------
At At At
31 March 31 March 30 September
2020 2019 2019
Current GBP'000 GBP'000 GBP'000
--------- -------------
Trade receivables 22,494 15,382 11,588
Less: provision for impairment of
trade receivables (91) (80) (83)
Trade receivables (net) 22,403 15,302 11,505
Other receivables 1,639 3,526 1,563
Contract assets - amounts recoverable
under contracts 119 1,346 3,203
Prepayments and accrued income 7,160 2,701 2,192
--------- -------------
31,321 22,875 18,463
--------- -------------
Trade receivables include minimum and overage amounts due from housebuilders on strategic land parcel sales which are payable on the completion of the onward sale of completed units by the respective housebuilders, subject to certain minimum amounts that are payable annually over a three to five-year period post sale.
Other receivables include an amount of GBP1,240,000 (31 March 2019: GBP3,609,000; 30 September 2019: GBP2,163,000) relating to overage entitlements that were acquired with the Priors Hall asset in a prior period and attributed a purchase price allocation of GBP9,366,000. The asset is measured at fair value through profit and loss using a discounted cash flow model and is categorised as level 3 in the fair value hierarchy.
The key assumptions applied in the valuation are current expectations over future house price values, the timing of housebuilder delivery and a discount rate of 8.0 per cent (31 March 2019: 8.8 per cent; 30 September 2019: 8.0 per cent). The fair value movement in the period is GBP98,000 (31 March 2019: GBP528,000; 30 September 2019: GBP850,000) which has been credited to the income statement for the period.
Amounts totalling GBP9,377,000 have been collected by 31 March 2020 (31 March 2019: GBP7,375,000; 30 September 2019: GBP8,357,000).
15. Trade and other payables
At At At
31 March 31 March 30 September
2020 2019 2019
GBP'000 GBP'000 GBP'000
---------------------------------------- --------- -------------
Trade payables 9,523 7,771 10,751
Taxes and social security costs 1,179 1,467 4,896
Other payables 12,026 8,379 7,104
Accruals 6,586 18,118 11,350
Deferred income 1,536 1,820 1,614
--------- -------------
30,850 37,555 35,715
--------- -------------
Other payables include a GBP1,000,000 grant that is conditional on certain milestones of construction being achieved before 2020. The grant is only repayable if these are not reached.
16. Borrowings
At At At
31 March 31 March 30 September
2020 2019 2019
GBP'000 GBP'000 GBP'000
---------------------------------- --------- -------------
Bank loans and overdrafts 31,474 27,285 27,366
Other loans 103,311 91,275 101,899
--------- -------------
134,785 118,560 129,265
--------- -------------
At At At
31 March 31 March 30 September
2020 2019 2019
Maturity profile GBP'000 GBP'000 GBP'000
--------- -------------
Less than one year 6,134 1,000 1,000
Between one and five years 39,546 37,228 45,218
More than five years 89,105 80,332 83,047
--------- -------------
134,785 118,560 129,265
--------- -------------
Other loans comprise borrowings from Homes England and Huntington District Council. Interest on borrowings from Homes England is charged between 2.2 and 4.0 per cent above the EC Reference Rate and the facilities are secured against specific land holdings.
There are two bank loans (the Revolving Credit Facility and Deansgate Investment Facility), which are secured against specific property holdings.
17. Share capital
At At At
31 March 31 March 30 September
2020 2019 2019
Urban&Civic plc GBP'000 GBP'000 GBP'000
--------- -------------
Issued and fully paid
Shares of 20p each 29,036 29,023 29,030
--------- -------------
Movements in share capital in issue
Issued and fully paid
Ordinary shares GBP'000 Number
------------
At 1 October 2018 29,009 145,044,582
Shares issued under scrip dividend
scheme 14 72,024
------------
At 31 March 2019 29,023 145,116,606
Shares issued under scrip dividend
scheme 7 31,482
------------
At 30 September 2019 29,030 145,148,088
Shares issued under scrip dividend
scheme 6 31,494
------------
At 31 March 2020 29,036 145,179,582
------------
Transactions in own shares
At the end of the period the Employee Benefit Trust held 1,182,033 20p shares in Urban&Civic plc (31 March 2019: 1,589,015; 30 September 2019: 1,491,248). The market value of those shares at 31 March 2020 was GBP2,458,629 (31 March 2019: GBP4,449,000; 30 September 2019: GBP4,832,000). The movement is as follows:
Cost
Employee Benefit Trust Number of shares GBP'000
--------
At 1 October 2018 1,769,935 4,748
Share purchase 103,215 275
Transferred to employees under deferred
bonus scheme arrangements and on share
option exercise (284,135) (762)
At 31 March 2019 1,589,015 4,261
Share purchase 148,889 480
Transferred to employees on share
option exercise (246,656) (655)
At 30 September 2019 1,491,248 4,086
Share purchase 500,844 1,724
Transferred to employees under deferred
bonus scheme arrangements and on share
option exercise (810,059) (2,220)
At 31 March 2020 1,182,033 3,590
--------
Share options
During the six month period to 31 March 2020 the Company granted 1,723,250 share options (including 109,499 in place of a dividend) to employees (six months to 31 March 2019: 1,981,452; year ended 30 September 2019: 1,981,452), 732,756 share options were exercised (six months to 31 March 2019: 163,084; year ended 30 September 2019: 466,510) and 242,365 options lapsed (six months to 31 March 2019: 450,284; year ended 30 September 2019: 528,644). The number of share options outstanding at 31 March 2020 was 6,430,119 (31 March 2019: 6,544,122; 30 September 2019:, 6,162,336).
18. Net asset value and EPRA net asset value per share
Net asset value and EPRA net asset value per share are calculated as the net assets or EPRA net assets of the Group attributable to shareholders at each balance sheet date, divided by the number of shares in issue and to be issued at that date, adjusted for own shares held and the dilutive effect of outstanding share options.
EPRA NAV metrics are one of the Group's principal performance measures, particularly when assessing value growth. EPRA balance sheet measures record the net asset value attributable to equity shareholders, adjusted for the revaluation of trading properties without tax (EPRA net asset value) or with tax (EPRA triple net asset value).
At At At
31 March 31 March 30 September
2020 2019 2019
Unaudited Unaudited Audited
Number of shares in issue 145,179,582 145,116,606 145,148,088
Own shares held (1,182,033) (1,589,015) (1,491,248)
Dilutive effect of share options 1,546,388 2,478,078 2,734,111
145,543,937 146,005,669 146,390,951
NAV per share 273.9p 270.6p 275.3p
Net asset value (GBP'000) 398,644 395,123 403,033
Revaluation of trading property held as current assets (GBP'000)
- Alconbury Weald 33,246 42,107 42,302
- Rugby 3,221 8,240 8,763
- Priors Hall 10,202 12,466 13,952
- Waterbeach 17,868 - 19,492
- Newark (3,750) (1,560) 154
- Wintringham St Neots 10,551 10,052 12,297
- Manchester sites (125) 5,224 5,600
- Land promotion sites 8,775 15,461 12,963
- Other (190) 1,425 424
---
79,798 93,415 115,947
Deferred tax liability (GBP'000) 9,308 8,713 8,509
EPRA NAV (GBP'000) 487,750 497,251 527,489
EPRA NAV per share 335.1p 340.6p 360.3p
Deferred tax (GBP'000) (24,470) (26,461) (30,539)
EPRA NNNAV (GBP'000) 463,280 470,790 496,950
EPRA NNNAV per share 318.3p 322.4p 339.5p
Of the GBP79,798,000 EPRA valuation uplift, GBP71,023,000 has been valued by CBRE and GBP8,775,000 has been valued by Directors based on the stage in the planning process at which each individual site is and the expected profit that the site will realise.
The process of fair valuing the Group's trading properties for the purpose of EPRA valuations is explained in note 1.
19. Contingent liabilities, capital commitments and guarantees
Capital commitments relating to the Group's development sites are as follows:
At At At
31 March 31 March 30 September
2020 2019 2019
GBP'000 GBP'000 GBP'000
---------
Contracted but not provided
for 39,155 51,359 50,059
---------
Total commitments include the construction of a secondary school at Houlton, Rugby through a joint venture and earthworks at Priors Hall. Of the total, GBP34,984,000 is due to be paid for by existing funding arrangements.
20. Related party transactions
There have been no material changes to the nature of the related party transactions described in the 2019 Annual Report and Accounts.
Details of transactions with and amounts owed from joint ventures are given in note 11.
21. Post balance sheet events
Post balance sheet events are disclosed within operational highlights at the beginning of this announcement.
Independent review report to Urban&Civic plc
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2020 which comprises the Consolidated Group Statement of Comprehensive Income, the Consolidated Group Statement of Financial Position, the Consolidated Group Cash Flow Statement, the Consolidated Group Statement of Changes in Equity and related notes.
We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of and has been approved by the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity", issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2020 is not prepared, in all material respects, in accordance with International Accounting Standard 34, as adopted by the European Union, and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Emphasis of Matter: Property valuations
We draw attention to note 1, which explains that as a result of the impact of the outbreak of the Novel Coronavirus (COVID-19) on the market, the Company's property valuer has advised that less certainty, and a higher degree of caution, should be attached to their valuation than would normally be the case. Our opinion is not modified in respect of this matter.
Use of our report
Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting its responsibilities in respect of half-yearly financial reporting in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.
BDO LLP
Chartered Accountants
London
10 June 2020
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
Glossary of terms
Company Urban&Civic plc
Earnings per share (EPS) Profit after tax divided by the weighted average
number of shares in issue during the period
EBT Urban&Civic Employment Benefit Trust
EC Reference Rate European Commission Reference Rate
EPRA European Public Real Estate Association
EPRA net asset value (EPRA Net assets attributable to equity shareholders
NAV) of the Company, adjusted for the revaluation
surpluses on trading properties and eliminating
any deferred taxation liability for revaluation
surpluses
EPRA net gearing Total debt less cash and cash equivalents divided
by EPRA net assets
EPRA triple net asset value EPRA net asset value adjusted to include deferred
(EPRA NNNAV) tax on property valuations and capital allowances
Fair value The price that would be required to sell an asset
or paid to transfer a liability in an orderly
transaction between market participants at a
measurable date (i.e. an exit price)
Gearing Group bank borrowings as a proportion of net
asset value
Group Urban&Civic plc and subsidiaries, joint ventures
and associates
HBF Home Builders Federation
Homes England Homes England, formerly Homes and Communities
Agency
IAS International Accounting Standards
IASB International Accounting Standards Board
IFRS International Financial Reporting Standards
Key performance indicators Significant areas of Group operations that have
(KPIs) been identified by the Board capable of measurement
and are used to evaluate Group performance
Large site discount Represents the difference between the unserviced
land values ascribed by CBRE strategic site valuations
(which take into account site scale and build-out
duration among other matters) and the current
retail prices being achieved on smaller parcel
sales.
Licences Agreements entered into with housebuilders, which
typically comprise a fixed element (the Minimums)
due to the Group upon reaching unconditional
exchange and a variable element (the Overage)
which is dependent on the final selling price
of the house.
Look-through gearing Gearing including the Group's balance sheet attributable
to the owners of the Company
Minimums Contractual right to receive a minimum plot value
in respect of a minimum number of plots each
year, These minimums are payable on a look back
basis if minimum sales are not achieved.
Net asset value (NAV) Value of the Group's balance sheet attributable
to the owners of the Company
Net gearing Total debt less cash and cash equivalents divided
by net assets
Overage Variable consideration which applies an agreed
percentage to the house sales price and then
nets off any Minimum already paid. No overage
is payable where Minimums are not achieved.
Private rented sector (PRS) A sector of the real estate market where residential
accommodation is privately owned and rented out
as housing, usually by an individual landlord,
but potentially by housing organisations
Resolution to Grant (planning Where a Local Authority planning committee resolves
consent) to grant planning permission subject to the completion
of a planning agreement (such as a Section 106
agreement)
Return on Capital Employed A financial ratio that measures how well a company
(ROCE) is generating profits from its capital
Section 106 agreement Planning obligations under Section 106 of the
Town and Country Planning Act. These obligations
focus on mitigating site specific impacts of
development and include, by way of example, developer
contributions to schools and/or highways.
Total NAV return The growth in EPRA NAV per share plus dividends
paid, expressed as a percentage of EPRA NAV per
share at the beginning of the period.
Total return Movement in the value of net assets, adjusted
for dividends paid, as a proportion of opening
net asset value
Total shareholder return Growth in the value of a shareholding, assuming
(TSR) reinvestment of any dividends into shares, over
a period
Urban&Civic plc Parent company of the Group
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IR GPUQUQUPUPGU
(END) Dow Jones Newswires
June 11, 2020 02:00 ET (06:00 GMT)
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