Final Results
Grainger Trust PLC
05 December 2002
GRAINGER TRUST plc
PRELIMINARY RESULTS FOR THE YEAR ENDED 30th SEPTEMBER 2002
HIGHLIGHTS
• Profit before tax and exceptional items up from £21.1.m to £44.9m.
• Earnings per share up from 42.6p to 84.6p.
• NAV up 27% to £17.24, NNNAV up 34% to £12.03.
• Total dividend for year 14.18p per share - an increase of 15% for the
fourth successive year.
• Strong one-off contribution from our Bromley Joint Venture.
Commenting on the results, Robert Dickinson, Chairman, said:-
'This is an excellent performance by the Group with our core tenanted
residential business producing a very strong result and profits have been
significantly enhanced by the contribution from our joint venture. Our
development and trading activities are progressing well.
The Group's gearing and financial position provides us with the platform to
continue to expand our activities. However, while we are confident of
generating future cashflow and profits we are currently cautious in our outlook
to the market and to the opportunities that are being presented to us'
Enquiries
Grainger Trust plc
Rupert Dickinson Chief Executive 020 7795 4700
Andrew Cunningham Deputy Chief Executive and Finance Director 020 7795 4700/
0191 261 1819
Baron Phillips Baron Phillips Associates 020 7397 8932
GRAINGER TRUST plc:
PRELIMINARY RESULTS FOR THE YEAR ENDED 30th SEPTEMBER 2002
CHAIRMAN'S STATEMENT
Results
Our results for the year reflect the impact of the recent buoyant housing
market. Strong sales prices have produced a significant increase in trading
profits in our tenanted residential division and at Bromley, our joint venture
company. At the same time we are making good progress in our development and
trading division.
Profit before tax and exceptional item has more than doubled to £44.9m from
£21.1m (restated) last year, the £23.8m increase coming from a rise in
Grainger's own profits of £8.9m and an improvement in the contribution from
Bromley of £14.9m. The Grainger increase relates primarily to trading profits
in the tenanted residential division. The Bromley improvement arises because of
the inclusion of a full year's results for the first time and also the profits
on the high level of sales that have been achieved as part of the one-off
rationalisation programme of the Bromley portfolio.
The exceptional item of £3.8m, being costs relating to the partial redemption of
our Quoted Debenture, reduces pre tax profits to £41.1m (2001, post exceptional
pre tax profits: £17.6m). Earnings per share increased by 99% from 42.6p to
84.6p.
Your directors are recommending a final dividend of 11.13p per share (2001:
9.68p), payable on 28th February 2003 to shareholders on the register at close
of business on 7th February 2003. This, together with the interim dividend of
3.05p per share, will amount to 14.18p per share, (2001: 12.33p), an increase of
15% for the fourth successive year.
Net asset value per share ('NAV') has increased by 27% from £13.56 (restated) to
£17.24. When adjusted to take account of contingent taxation and the market
value of our debt ('NNNAV') this falls to £12.03 per share, an increase of 34%
over the September 2001 figure of £9.00 per share.
FRS 19, 'Deferred Taxation', affects this year's results for the first time. We
have restated figures for the year ended 30th September 2001 accordingly. In our
case the standard requires the removal of deferred tax provisions made in
respect of corporate acquisitions. It is particularly relevant to the accounting
treatment of our Bromley joint venture investment as deferred tax provisions
amounting to some £34.9m on acquisition have to be reversed, thereby producing a
considerable amount of negative goodwill i.e. an excess of net asset value over
the purchase price. Negative goodwill is released when properties are sold and
so there will be increases in profit before tax in the medium term. There will
be equivalent and almost identical increases in the tax charge. Full details
of the effect of the standard are explained in the notes to this statement.
Bromley Joint Venture
Excellent progress has been made with the rationalisation of the BPT portfolio.
Since acquisition, total sales of £373.8m have been achieved, of which £332.9m
have been completed in the 12 months to 30th September 2002. By the year end
we had sold almost 3,700 residential units, equivalent to approximately 30% of
the 11,204 units at the time of acquisition. As a result Grainger Trust has
received cash receipts of £32.6m from loan stock interest and repayments in the
year. Two major transactions referred to in the interim announcement were
completed in the second half. The first was the sale of a £70m portfolio of
assured tenancies to Schroders Residential Property Unit Trust ('ResPUT'). The
second was the refinancing of a significant proportion of the life tenancy
portfolio.
These transactions have been structured so that BPT receives a fee for the
ongoing property management and, in the case of the life tenancy portfolio,
retains the long term reversionary interest, subject to a 20% carried interest
held by our advisers to the transaction. Grainger also receives an asset
management fee from the Schroders ResPUT. As part of these arrangements we
invested £7m in fund units. The Bromley portfolio now includes a lesser number
of non-core assets (ie non regulated tenancies). For 2003, therefore, we are not
budgeting that the level of sales achieved this year will be repeated.
As a result of the successful sales programme year end net debt in the joint
venture fell from a peak of £602m to £438m at 30th September 2002, of which £43m
relates to the life tenancy refinancing and £395m to the original funding. This
debt was raised on acquisition finance terms and was due for repayment in May
2003. We are in the process of renegotiating the loan on terms more appropriate
to long term financing. This should allow a further cash distribution to us and
our joint venture partner.
Grainger - Tenanted Residential
This division has benefited from the strong residential market during the year
to 30th September 2002. We have noted some recent slowing in the market,
particularly in London and the South East but prices in other regions of the UK
continue to rise. We are, however, conscious that the rate of increases seen
recently cannot be sustained in the long term and we are, therefore, being
increasingly cautious in our response to market conditions and to opportunities
that are presented to us.
During the year we sold 785 properties for a gross consideration of £51.0m
(2001: 735 properties for £36.3m). While these figures are distorted by a small
number of very high value sales, we have seen a 20% increase in average house
sales price achieved. Trading profits rose by 41.2% from £16.5m to £23.3m and
net rents by 23.7% from £7.6m to £9.4m. Total operating profits for the
division amounted to £30.0m (2001: £22.2m)
We are particularly pleased with the volume and quality of tenanted residential
stock that we have been able to purchase this year as this lays the foundation
for future profit generation. Our total spend amounts to £85.8m (2001: £28.0m)
and the open market value of our stock at the year end amounted to £393.6m
(2001: £287.7m). However, stock units have reduced marginally from 4,946 to
4,928 because of the large volume of sales of ex industrial low value housing to
investors, at prices in excess of vacant possession value. This sales programme
is now largely complete.
Grainger - Development and Trading
The division continues to make good progress. We have sold all four warehouses
at our award-winning Thurrock scheme for a satisfactory profit. We also sold 7
acres of housing land at Kennel Farm, Basingstoke in the second half of the year
(2001: 15 acres) and a further 7 acres since the year end. We are now left with
a total of 23 acres at Kennel Farm of which 11 acres are sold on conditional
contracts over the next two financial years.
Construction of our two main developments, Landmark Place, our mixed use scheme
in Slough, and an apartment block at the former Pimlico bus station, is
proceeding well. We are aware of the current poor state of the office market in
the Thames Valley area but are confident that the quality of the Landmark Place
project allied to its excellent location and favourable car parking provision
will enable us to achieve a satisfactory outcome. Forward sales on the Pimlico
development are extremely encouraging. We do not currently anticipate a
significant contribution from any of our commercial development sites next year.
We are pleased at the progress that Grainger Homes, our new housebuilding
division, has made in the year. On its first two sites a total of 34 units have
been sold or reserved and there are several other sites in the development
pipeline.
Operating profits for this division have decreased from £13.8m to £12.0m,
largely as a result of the reduced sales programme at Kennel Farm.
Financing and Taxation
At the year end net debt stood at £223.3m (2001: £200.9m) and gearing on a
revalued balance sheet basis fell to 52.3% from 60.0%. Net assets have grown
to £426.7m, an increase of £92.1m of which £17.4m relates to retained earnings
and £74.7m to increases in the value of our assets.
Favourable interest rates and the repayment of some of our expensive fixed rate
debt has reduced the interest rate on our year end debt to 6.3% from 7.2%. As
part of this repayment programme we redeemed £6.9m of our Quoted Debenture,
leaving £2.8m still in issue. Net interest payable in the year has decreased
from £15.1m to £10.7m. This is attributable to an increase in loan stock
interest receivable from Bromley to £6.0m from £1.1m.
The current low level of short and medium term interest rates has increased our
FRS 13 (mark to market value debt adjustment) adjustment to 48p from 29p. Of
this, 14p (2001: 7p) relates to our share of Bromley.
Our effective tax rate is 49.2% (2001: 40.3%) and this high figure is the result
of the implementation of accounting standard FRS 19. The effect is to increase
both pre tax profits (from the release of negative goodwill arising) and the tax
charge and it is particularly pronounced in this year because of the very high
level of sales at Bromley. The effective tax rate for Grainger, excluding the
effect of the joint venture, is 34.2% (2001: 30.0%).
People
The executive team has been reshaped following Stephen Dickinson's appointment
as part time non-executive Deputy Chairman with executive responsibility for
land development. Rupert Dickinson is Chief Executive and Sean Slade has been
appointed to the board as Director of Development. We are pleased to announce
that Andrew Cunningham is to be promoted to a joint role of Deputy Chief
Executive and Finance Director with immediate effect.
It is opportune to pay credit to and to thank Stephen for his very significant
contribution to Grainger Trust since his appointment as Managing Director in
1974. Not only has the group produced an enviable record of growth and
profitability but he has left a solid platform for continued success in the
future.
Your board is confident that the executives, supported by a highly competent and
entrepreneurial management team, will not only meet the challenges of the
changes in the scale and complexity of the Group's affairs, but can capitalise
on them. We are very grateful to all our staff for their excellent performance
in the year.
Prospects
Due to the one off nature of the Bromley sales programme we do not anticipate
the level of pre tax profitability achieved this year to be repeated in 2003.
However, the Group has an excellent portfolio of good quality assets and the
core business, represented by our tenanted residential stock and our exposure to
similar assets in Bromley, is highly cash generative and produces robust
returns. This is counterbalanced by the entrepreneurial nature of our
development and trading activities. Our relatively low level of gearing will
enable us to take advantage of attractive opportunities as they present
themselves, provided they meet our investment criteria based upon high levels of
return allied with rigorous risk control. We believe we are well placed to
deliver attractive returns to shareholders in the future.
Registered Office:-
Robert Dickinson
Citygate CHAIRMAN
St James Boulevard
NE1 4JE 5 December 2002
GRAINGER TRUST plc
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 30th SEPTEMBER 2002
Year
Year Ended
Ended 30.09.2001
30.09.2002 Restated
£'000 £'000
Turnover (including share of joint venture) 213,847 124,718
Less: Share of turnover of joint venture (110,339) (25,415)
Group turnover 103,508 99,303
Gross rentals 21,954 23,177
Trading profits 33,679 26,451
Other income 425 330
56,058 49,958
Less:
Property expenses (9,673) (10,009)
Administration expenses (4,369) (3,976)
Group operating profit 42,016 35,973
Share of operating profit in joint venture
(after £97,000 amortisation of goodwill (2001 : £18,000) ) 32,951 7,863
Total operating profit : group and share of joint venture 74,967 43,836
Net profit on disposal of & provisions against fixed assets
- Group 131 1,726
- Joint venture 7,392 359
7,523 2,085
Profit on ordinary activities before interest and taxation 82,490 45,921
Net interest payable and similar charges
- Group normal (10,668) (15,137)
- Group exceptional (3,767) (3,487)
- Joint venture (26,945) (9,715)
(41,380) (28,339)
Profit on ordinary activities before taxation 41,110 17,582
Tax on profit on ordinary activities (20,225) (7,079)
Profit on ordinary activities after taxation 20,885 10,503
Dividends (3,507) (3,042)
Retained profit for the year 17,378 7,461
Earnings per share 84.6 p 42.6 p
Diluted earnings per share 84.2 p 42.4 p
All results relate to continuing operations.
GRAINGER TRUST plc
STATEMENT OF GROUP TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEAR ENDED 30th SEPTEMBER 2002
Year
Year Ended
Ended 30.09.2001
30.09.2002 Restated
£'000 £'000
Profit for the financial year 20,885 10,503
Taxation on realisation of property revaluation gains of previous years (398) (2,020)
Unrealised surplus on revaluation of properties 464 107
Diminution transferred from revaluation reserve to profit and loss account 64 400
Total gains and losses recognised - group 21,015 8,990
Share of joint venture tax on realisation of revaluation reserves - (179)
Unrealised surplus on revaluation of joint venture properties 7,762 3,045
Total gains and losses recognised - group and joint venture 28,777 11,856
Prior year adjustment
- Group (1,932)
- Joint venture (850)
Total gains and losses recognised since the last annual report 25,995
GRAINGER TRUST plc
CONSOLIDATED BALANCE SHEET
AT 30th SEPTEMBER 2002
30.09.01
30.09.02 Restated
£'000 £'000
Fixed assets
Intangible assets (858) (1,001)
Tangible assets 21,718 27,567
Investments :
Investment in joint venture:
Share of gross assets 306,951 418,161
Share of gross liabilities (281,092) (404,373)
25,859 13,788
Goodwill 326 423
26,185 14,211
Loan to Joint Venture 13,735 40,000
39,920 54,211
Other investments 8,882 834
48,802 55,045
69,662 81,611
Current assets
Stocks 305,059 234,359
Debtors: amounts falling due within one year 3,541 5,197
Cash at bank and in hand 10,477 23,090
319,077 262,646
Creditors: amounts falling due within one year
Short term borrowings 22,257 31,312
Other creditors 30,145 19,618
Net current assets 266,675 211,716
Total assets less current liabilities 336,337 293,327
Creditors: amounts falling due after more than one year 211,481 192,652
Provision for liabilities and charges
Deferred taxation 3,747 4,979
Net assets 121,109 95,696
Capital and reserves
Called-up share capital 6,186 6,170
Share premium account 21,364 20,800
Revaluation reserve 11,620 10,112
Capital redemption reserve 185 185
Profit and loss account 81,754 58,425
Equity shareholders' funds 121,109 95,692
Minority interests - 4
Total capital employed 121,109 95,696
GRAINGER TRUST plc
CASHFLOW STATEMENT
FOR THE YEAR ENDED 30th SEPTEMBER 2002
Year
Year Ended
Ended 30.09.2001
30.09.2002 Restated
£'000 £'000
Net cash (outflow) / inflow from operating activities (18,293) 25,174
Returns on investments and servicing of finance
Interest received 7,618 380
Interest paid - normal (18,570) (18,976)
- exceptional (3,767) (3,487)
Dividends received 29 23
(14,690) (22,060)
Taxation
UK corporation tax paid (8,149) (8,509)
Capital expenditure and financial investment
Purchase of fixed asset investments (8,119) -
Purchase of tangible fixed assets (845) (639)
Sale of fixed asset investments 66 32
Sale of tangible fixed assets 7,138 39,994
Repayment of loanstock 26,265 -
24,505 39,387
Acquisitions and disposals
Purchase of subsidiaries (222) -
Sale of subsidiaries 180 -
Costs on purchase of subsidiaries (56) -
Cash disposed of on sale of subsidiaries (42) -
Investment in Joint Venture (1,560) (54,201)
(1,700) (54,201)
Equity dividends paid (3,141) (2,729)
Cash outflow before financing (21,468) (22,938)
Financing
New loans raised 47,100 85,923
Repayment of loans (38,392) (47,512)
Issue of shares 147 68
Net cash inflow from financing 8,855 38,479
(Decrease)/increase in cash in the year (12,613) 15,541
Reconciliation of operating profit to net cash (outflow) / inflow from operating activities
30.09.02 30.09.01
£000 £000
Operating profit 42,016 35,973
Depreciation 220 197
Amortisation of goodwill (445) (309)
Decrease in debtors 1,047 3,454
Increase in creditors 7,892 61
Increase in stocks (69,023) (14,202)
Net cash (outflow) / inflow from operating activities (18,293) 25,174
NOTES TO THE RESULTS ANNOUNCEMENT
1. FRS19 'Deferred taxation'
This standard prohibits the making of provisions for contingent tax
liabilities on revaluation surpluses on the acquisition of companies. It
had previously been our and industry practice to make partial provision
for such liabilities as part of the fair value exercise on acquisition.
We have therefore recalculated the fair value of assets and liabilities on
acquisitions made in recent years by removing these provisions, thereby
creating negative goodwill on most of these transactions. This negative
goodwill is released to the profit and loss account as the properties
within the companies are sold. There is also a greater tax charge on such
sales as there is no brought forward contingent tax provision available to
be utilised in its reduction. The Group is particularly affected by the
restatement of the Bromley JV acquisition. The impact on the key
indicators of the Group's results are set out below:-
The negative goodwill provision as at 30th September 2001 was £28m. This
has been increased by the transfer of the contingent tax provisions of £35m
to make a total as at the start of the year of £63m. Virtually all of this
relates to the JV. As mentioned above this restates and increases the NAV
brought forward as at 30th September 2001 to £13.56 from £12.22 per share.
This negative goodwill is released to profit before tax as the relevant
properties are sold. During the year, our 50% share of the release in the
JV amounted to £14.7m. NAV is reduced by that amount in the current
period, and will be similarly reduced in future periods. The great
majority of the negative goodwill provision relates to JV regulated stock.
The group tax charge as a percentage of reported profits increases because
there is no provision on acquisition to be used. Our 50% share of the
'excess' tax charge so arising in the period amounts to £14.2m.
The effect on NNNAV is relatively immaterial as this measure is calculated
by deducting the full amount of contingent tax both before and after FRS19.
In the medium term we will continue to see the impact of the standard
through increased reported pre tax profits and unusually high levels
of tax charged as a percentage of profits, until the relevant properties
are sold out of the Group and the negative goodwill provision is fully
released.
2. Net Asset Value Per Share (NAV)
This consists of balance sheet equity plus the excess of market value over
book cost of trading stock, together with the excess of market value over
book cost of the Group's share of the joint venture in Bromley Property
Holdings Limited.
NAV at 30th September 2002 before the adjustments referred to below was
£17.24 (2001 restated: £13.56).
Two proforma adjustments are commonly made to NAV:
i) Contingent tax
This is the tax that would be payable if all Group and Joint Venture
properties were disposed of at valuation, and amounts to £4.73 per
share (2001: £4.27 restated).
ii) FRS13
This records the difference between the current market value of fixed
rate debt and derivatives and their book values. After allowing for
tax, this adjustment is 48p (2001: 29p).
This results in a net net net asset per share (NNNAV) of £12.03 (2001:
£9.00).
3. Pro Forma Net Asset Statement
30.09.01
30.09.02 Restated
£'000 £'000
Properties at market value:
Tenanted Residential 393,602 287,683
Development and trading 132,169 140,107
Total properties 525,771 427,790
Investments 153,838 126,436
Other assets 673 612
Cash 10,477 23,090
Total assets 690,759 577,928
Debt (233,738) (223,964)
Net current liabilities (26,604) (14,421)
Deferred tax (3,747) (4,979)
Minority interest - (4)
(264,089) (243,368)
Market Value Net Assets 426,670 334,560
NAV per share £17.24 £13.56
The above statement is for information only. It will not form part of the
statutory accounts and is unaudited.
4. Earnings Per Share
The calculation of earnings per share is based on the following number of shares:
30.09.02 30.09.01
No. of No. of
Shares Shares
000's 000's
Weighted average number of shares for basic earnings per share 24,682 24,660
Weighted average number of shares for diluted earnings per share 24,808 24,779
5. Taxation
Tax on profit on ordinary activities:-
30.09.01
30.09.02 Restated
£'000 £'000
Group:
Normal 10,609 6,762
On exceptional interest and similar charges (1,130) (1,046)
9,479 5,716
Share of joint venture 10,746 1,363
20,225 7,079
6. Dividends
Dividends on ordinary shares:-
30.09.02 30.09.01
£'000 £'000
Interim paid of 3.05p per share (2001:2.65p) 752 653
Final proposed of 11.13p (2001: 9.68p per share) 2,755 2,389
3,507 3,042
7. This announcement does not constitute statutory accounts within the meaning
of Section 240 of the Companies Act 1985. Statutory accounts for the year
ended 30th September 2001 have been filed with the Registrar of Companies.
The auditors have reported on those accounts; their report was unqualified
and did not contain any statement under Section 237(2) or (3) of the
Companies Act 1985.
8. Copies of this statement can be obtained from the Company's registered
office, Citygate, St. James' Boulevard, Newcastle upon Tyne. NE1 4JE.
Further details of this announcement can be found on our website,
www.graingertrust.co.uk.
9. The Board of Directors approved this preliminary announcement on 5th
December 2002.
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