Interim Results
Grainger Trust PLC
20 June 2002
FOR IMMEDIATE RELEASE 20th June 2002
GRAINGER TRUST plc:
INTERIM RESULTS FOR THE
SIX MONTHS ENDED 31ST MARCH 2002
Grainger Trust plc, the tenanted residential property specialist, today
announces Interim Results for the six months ended 31st March 2002. Highlights
are as follows:-
• Pre-tax profit up 23% to £16.8 million (2001: pre exceptional £13.7
million).
• Tenanted residential division producing excellent results; driven by
strong housing market.
• Foundations being laid for the future through very active purchasing, £56m
of tenanted residential stock acquired.
• Continued success in rationalisation of Bromley JV portfolio; disposals of
£151m completed since acquisition.
• Interim dividend up 15% to 3.05p per share (2001: 2.65p).
• Management restructuring
Commenting on the results, Stephen Dickinson, Managing Director, said:-
'Another positive set of results, even though no land development sales
occurred. Sales are expected in the second half.
The Group's material exposure to the buoyant tenanted residential market has now
effectively doubled over the last year, given successful purchasing and our 50%
interest in the Bromley JV.'
Enquiries
Stephen Dickinson Managing Director Grainger Trust plc 020 7795 4700
Andrew Cunningham Finance Director Grainger Trust plc 020 7795 4700
Baron Phillips Baron Phillips Associates 020 7397 8932
GRAINGER TRUST plc:
UNAUDITED INTERIM RESULTS FOR SIX MONTHS ENDED 31ST MARCH 2002
CHAIRMAN'S STATEMENT
Results
Our results for the period reflect the impact of a buoyant residential market
leading to a strong performance in the tenanted residential division where there
was a healthy improvement in trading profits during the six months under review.
There was also a positive impact from a reduction in net interest charges
following the interest received on our Bromley Joint Venture (JV) loan stock.
These positive features have more than compensated for the decline in operating
profits from our Development and Trading division where no sites at Kennel Farm
were sold during the period.
Net taxable profits for the six months rose by 23% to £16.8m against
pre-exceptional net profits before tax of £13.7m in the comparable period last
year. This result includes our share of the loss on the JV amounting to £0.8m
and also a receipt of £4.0m of interest on our loan stock investment therein.
Thus, even though there have been no land sales profits in the first half year
(2001: £7.3m) our like for like profits before tax (prior to exceptional item
and any impact of the joint venture) have fallen only marginally from £13.7m to
£13.6m.
Grainger's pre exceptional earnings per share, ignoring the result of the joint
venture, have increased from 36.1p to 45.3p. Our share of the JV results shows
an overall post tax loss of £3.8m, the tax charge relating in great part to
Financial Reporting Standard 19 (FRS 19) referred to below. This reduces our
statutory earnings per share to 29.8p (2001:26.2p). The Board is declaring an
interim dividend of 3.05p per share, a rise of 15%. It will be paid on 26th
July 2002 to shareholders on the register at close of business on 5th July 2002.
FRS 19 affects this period's results for the first time. 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 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. In our case 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 the accounts.
One of the major effects of FRS 19 is on our Net Asset Value per share ('NAV').
The opening figure at 30th September 2001 has been restated from £12.22 per
share to £13.56 because of the elimination of deferred tax provisions, mostly on
our joint venture investment. During the period NAV fell to £13.12 because the
write off of valuation surpluses on sales outweighed retained earnings. We have
not, following our normal practice, revalued our properties at the interim date.
NNNAV, which adjusts NAV for contingent tax and the mark to market value of our
debt, has remained virtually constant at £9.03 (30th September 2001: £9.00).
BPT - Bromley Joint Venture
Bromley have continued to make good progress with the rationalisation of the BPT
portfolio. In the period from the acquisition of BPT by the joint venture on
25th May 2001 until 31st March 2002 £151m of properties have been sold. In
addition there are two further major transactions at an advanced stage.
The first is the sale of a £70m portfolio of assured tenancies to an
institutional fund in which Grainger will invest £7m. The group, along with the
JV, will receive an ongoing asset and management fee income stream. Secondly, we
are refinancing a significant proportion of the life tenancy portfolio amounting
to some £45m on a non-recourse long term basis.
Both these transactions have been structured so that BPT retains a meaningful or
controlling interest in these elements of its property portfolio. If they
proceed we estimate that the JV debt will have been reduced from a peak of £638m
to approximately £400m by the financial year end.
We again express our thanks to Rupert Dickinson, our Deputy Managing Director,
for his determined effort in progressing these transactions. Both Grainger and
BPT have benefited from working together since acquisition and great efforts are
being made to ensure that further gains from improved working practices and
synergies are realised in the near future.
Grainger - Tenanted Residential
This division has benefited from the strong residential market and our own
internal data confirms the broad market view that house prices across the UK
have risen by some 10% plus since the start of the financial year. While we
concur with the view from the recent Centre for Economics & Business Research
Housing Futures report that the overall rate of price increases will probably
decline over the 2003-4 period the pressure on demand for suitable housing
within the South-East, where two-thirds of our stock is located, should continue
to result in growth above that of average earnings over the medium to longer
term.
We devote considerable attention to the quality of management and condition of
our properties. Over the long term the effect of the restriction of regulated
rents, which was eased by the 1988 Housing Act, but has now been subjected to
capping, continues to put pressure on the proper repair of properties generally
held throughout this sector. A considerable number of properties belong to
landlords owning a few properties, and they find it difficult, with rents below
market levels, to keep accommodation up to a proper standard. These standards
are used as arguments by Rent officers to keep rents down on review, so there is
a circle of disincentive. Release from the capping regime with some carefully
thought out protection for tenants in the high value boroughs in Central London
would ease this unsatisfactory position.
Over the period we continued our strategy of selling lower valued tenanted
properties, typically ex-industrial owned stock, on favourable terms and we are
now coming to the end of this programme. Meanwhile we have been active buyers
and have spent £56m on properties, with the £30m purchase of the 351 unit Ideal
Benefit portfolio in Birmingham a notable highlight. At 31st March 2002 our
residential investment stock rose 3.7% on a unit basis, from 4,946 at the
beginning of the period to 5,128.
Overall operating profits for the division increased by more than two-thirds
from £9.9m to £16.7m with net rentals rising 31% to £4.7m from £3.6m, and
trading profits 74% to £13.2m from £7.6m.
Grainger - Development and Trading
A lack of sales of development sites at Kennel Farm and income from investment
properties sold during last year resulted in a substantial decline in operating
profits from this division. Operating profits were £5.0m for the period against
£11.5m last time.
Development, major projects in hand:-
Three of the four warehouses at our 157,000 sq ft Thurrock scheme have now been
sold for a total of £11m and a satisfactory profit is expected to arise once
current interest in the remaining unit is crystallised.
In Slough construction is well underway on our 190,000 sq ft £35m Landmark Place
development which will be completed mid way through next year. We have already
sold and pre-let the hotel and leisure elements respectively and there is strong
interest in the ground floor restaurant/food unit. We are confident that the
quality of the 67,000 sq ft offices element, with its favourable car parking
allowance and excellent location, will result in a letting on favourable terms
once the space becomes available.
Following the Inspector's rejection of our 80,000 sq ft Townsend House,
Victoria, mixed use scheme we are adopting a more traditional architectural
approach to the development which we believe will receive a better reception.
The existing buildings are reversionary and worth more than cost.
Also in Victoria construction has commenced on the Pimlico bus station mixed-use
development which should be completed in approximately two years time.
Grainger's interest relates to the 79 private flats being developed on the site
and we have substantial interest from potential purchasers.
The Local Centre at Kennel Farm, Basingstoke is still subject to detailed
negotiations with the local council. The scheme is now considerably larger than
originally planned following the addition of 24 flats and a 5,000 sq ft creche.
Construction of the 100,000 sq ft B1 office park continues to be deferred
because of current market conditions.
During the period we secured planning consent for a residential development in
Ladbroke Grove which we sold on for £5.4m, reflecting a significant profit.
Land Development
Completion of the spine road at Kennel Farm is now getting underway and land
sales will resume once final infrastructure works are undertaken. We hope to
complete the sale of a 7 acre site prior to the year end leaving a further 27
acres available, of which 17 acres are conditionally sold.
Masterplanning of the West Waterlooville site continues. Local Plans for the
Winchester and Havant districts, which incorporate the site, should be published
this year, and we expect the Enquiry in Public to start in 2003.
Construction of the first 27 houses at Widdrington Station on the North Eastern
Coastal Plain is now in hand and a satisfactory level of forward sales and
reservations is being achieved. Following the successful outcome of last
November's Enquiry in Public we are able to increase the number of houses on the
site from 60 to 138.
Personnel
Stephen Dickinson, who has been Managing Director of our company since 1974, has
decided to retire from that position in October of this year. I am pleased to
say that on his retirement as Managing Director he will be appointed Deputy
Chairman and will continue executive duties on a part time basis, particularly
in relation to the Group's Land Development activities.
When Stephen was first appointed the Company's shares traded at a price adjusted
for later scrip issues of 7.6p per share and market capitalisation was £832,000.
The company became quoted in 1983. At the time of writing the share price is
£10.75 and the market capitalisation of the company is £266m. Much of the
credit for this remarkable record is Stephen's.
Stephen will be succeeded as Managing Director by Rupert Dickinson who has been
the Director in charge of our London office since 1994 and has also had the
principal role in the investment and subsequent management of the BPT JV. Your
Board has every confidence that Rupert Dickinson and Andrew Cunningham, our
Finance Director, will make an excellent team to take the Group's affairs
forward.
Sean Slade, who has been in charge of the London office during Rupert
Dickinson's secondment to BPT, will be appointed to the Group Board as an
Executive Director with immediate effect. Sean joined Grainger six years ago
from Hill Samuel Asset Management and has been responsible for the Group's
residential and commercial trading and development activities. He will become
the main Board Director responsible for these areas of Grainger's business and
will strengthen the executive management team.
We are very grateful to all our staff for the positive and entrepreneurial way
in which they have performed during this busy period.
Prospects
We are pleased with the progress made in the JV in reducing acquisition debt.
It materially increases our exposure to the Tenanted Residential market,
particularly regulated stock. Our Tenanted Residential division is a strong and
mature core business which is producing sharply higher returns. We believe we
are achieving a balance between its long term strength and the entrepreneurial
drive of our development and trading division. In our opinion this creates a
sound business environment from which we can deliver sustainable future
shareholder returns. Your Directors retain every confidence in the Group's
future.
Registered Office:-
Robert Dickinson
Times Square CHAIRMAN
Newcastle upon Tyne
NE1 4EP 20th June 2002
GRAINGER TRUST plc
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE HALF YEAR ENDED 31ST MARCH 2002
Half year Half year Year
Ended Ended Ended
31.03.2002 31.03.2001 30.09.2001
Restated Restated
£'000 £'000 £'000
Turnover (including share of joint venture) 104,924 54,443 124,718
Less: Share of turnover of joint venture (51,150) - (25,415)
Group Turnover 53,774 54,443 99,303
Gross rentals 10,802 12,277 23,177
Trading profits 17,060 14,967 26,451
Other income 121 142 330
27,983 27,386 49,958
Less:
Property expenses (4,527) (4,889) (10,009)
Administration expenses (1,943) (2,148) (3,976)
Group operating Profit 21,513 20,349 35,973
Share of operating profit in joint venture
(after £10,000 (31st March 2001 : £nil, 30th September 2001 : £18,000) 13,862 - 7,863
amortisation of goodwill)
Total operating profit : group and share of joint venture 35,375 20,349 43,836
Net profit on disposal of & provisions against fixed assets
- Group 198 994 1,726
- Joint venture 1,105 - 359
1,303 994 2,085
Profit on ordinary activities before interest 36,678 21,343 45,921
Net interest payable and similar charges
- Group normal (4,128) (7,658) (15,137)
- Group exceptional - (3,487) (3,487)
- Joint venture (15,724) - (9,715)
(19,852) (11,145) (28,339)
Profit on ordinary activities before taxation 16,826 10,198 17,582
Tax on profit on ordinary activities (9,476) (3,734) (7,079)
Profit on ordinary activities after taxation 7,350 6,464 10,503
Dividends (752) (653) (3,042)
Retained profit for the period 6,598 5,811 7,461
Earnings per share 29.8 26.2 42.6
Diluted earnings per share 29.6 26.1 42.4
All operations are continuing.
STATEMENT OF GROUP TOTAL RECOGNISED GAINS AND LOSSES
FOR THE SIX MONTHS ENDED 31st MARCH 2002
Six Months Six Months Year
Ended Ended Ended
31.03.02 31.03.01 30.09.2001
Restated Restated
£'000 £'000 £'000
Profit for the period 7,350 6,464 10,503
Taxation on realisation of property revaluation gains of previous years (475) (1,143) (2,020)
Unrealised surplus on revaluation of properties - - 107
Diminution transferred from revaluation reserve to profit and loss - 400 400
account
Total gains and losses recognised - group 6,875 5,721 8,990
Share of joint venture tax on realisation of revaluation reserves - - (179)
Unrealised surplus on revaluation of joint venture properties 114 - 3,045
Total gains and losses recognised - group and joint venture 6,989 5,721 11,856
Prior year adjustment
- Group (1,932)
- Joint Venture (850)
Total gains and losses recognised since the last annual report. 4,207
GRAINGER TRUST plc
CONSOLIDATED BALANCE SHEET
AT 31ST MARCH 2002
31.03.02 31.03.01 30.09.01
Restated Restated
£'000 £'000 £'000
Fixed assets
Intangible assets (868) (1,152) (1,001)
Tangible assets 20,954 29,789 27,567
Investments :
Investment in joint venture:
Share of gross assets 371,996 - 418,161
Share of gross liabilities (360,344) - (404,373)
11,652 - 13,788
Goodwill 413 - 423
12,065 - 14,211
Loan to Joint Venture 33,718 - 40,000
45,783 - 54,211
Other investments 1,888 863 834
47,671 863 55,045
67,757 29,500 81,611
Current assets
Stocks 288,086 226,792 234,359
Debtors 14,934 22,944 5,197
Cash at bank and in hand 23,980 25,119 23,090
327,000 274,855 262,646
Creditors: amounts falling due within one year
Short term borrowings 34,009 23,429 31,312
Other creditors 30,525 24,615 19,618
Net current assets 262,466 226,811 211,716
Total assets less current liabilities 330,223 256,311 293,327
Creditors: amounts falling due after more than one year 223,452 158,825 192,652
Provision for liabilities and charges
Deferred taxation 4,838 5,604 4,979
Net assets 101,933 91,882 95,696
Capital and reserves
Called-up share capital 6,170 6,164 6,170
Share premium account 20,800 20,738 20,800
Revaluation reserve 4,664 7,558 10,112
Capital redemption reserve 185 185 185
Profit and loss account 70,110 57,233 58,425
Equity shareholders' funds 101,929 91,878 95,692
Minority interests 4 4 4
Total capital employed 101,933 91,882 95,696
GRAINGER TRUST GROUP
CASHFLOW STATEMENT
FOR THE HALF YEAR ENDED 31ST MARCH 2002
31.03.02 31.03.01 30.09.01
Restated Restated
£'000 £'000 £'000
Net cash (outflow) / inflow from operating activities (33,395) 19,113 25,174
Returns on investments and servicing of finance
Interest received 4,221 249 380
Interest paid (7,185) (12,944) (22,463)
Dividends received 19 18 23
(2,945) (12,677) (22,060)
Taxation
UK corporation tax paid (2,748) (2,074) (8,509)
Capital expenditure and financial investment
Purchase of fixed asset investments (1,118) - -
Purchase of tangible fixed assets (437) (326) (639)
Sale of fixed asset investments 64 - 32
Sale of tangible fixed assets 7,135 18,909 39,994
5,644 18,583 39,387
Acquisitions and disposals
Purchase of subsidiaries (374) - -
Costs on purchase of subsidiaries (56) - -
Investment in Joint Venture (1,560) - (54,201)
Repayment of loan stock from Joint Venture 6,282 - -
4,292 - (54,201)
Equity dividends paid (2,389) (2,076) (2,729)
Cash (outflow) / inflow before financing (31,541) 20,869 (22,938)
Financing
New loans raised 36,600 21,523 85,923
Repayment of loans (4,169) (24,822) (47,512)
Issue of shares - - 68
Net cash inflow/ (outflow) from financing 32,431 (3,299) 38,479
Increase in cash in the period 890 17,570 15,541
Reconciliation of operating profit to net cash (outflow)/inflow from
operating activities
31.03.02 31.03.01 30.09.01
Restated Restated
£'000 £'000 £'000
Operating profit 21,513 20,349 35,973
Depreciation 113 91 197
Amortisation of goodwill (435) (158) (309)
(Increase) / decrease in debtors (9,203) 2,332 3,454
Increase in creditors 6,541 3,134 61
Increase in stocks (51,924) (6,635) (14,202)
Net cash (outflow) / inflow from operating activities (33,395) 19,113 25,174
NOTES TO THE RESULTS ANNOUNCEMENT
1. Property Valuations
For NAV purposes, all properties are shown at valuation.
Investment properties are shown in the balance sheet at valuation, while
trading stock is shown at the lower of cost and net realisable value.
Property valuations at 31st March 2002 are based upon those relevant at
30th September 2001, or otherwise at cost to Group.
The comparison of cost, net of provisions, against valuation, on the
above basis, is as follows:
31st March 2002 30th September 2001
Cost Valuation Cost Valuation
£m £m £m £m
Tenanted residential properties 207.3 324.2 163.1 287.7
Development and trading 101.2 142.3 93.7 140.1
308.5 466.5 256.8 427.8
2. FRS19
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. Our 50% share of the release in the first half of the year
in the JV amounted to £6.5m. 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 £6.1m.
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.
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 31st March 2002 before the adjustments referred to below was £13.12.
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 £3.91 per share (30th September
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 18p (30th September 2001: 29p).
This results in a net net net asset per share (NNNAV) of £9.03
(30th September 2001: £9.00).
4. Earnings Per Share
The calculation of earnings per share is based on the following number of shares:
31.03.02 31.03.01 30.09.01
No. of No. of No. of
Shares Shares Shares
000's 000's 000's
Number of shares for basic earnings per share (September 2001: weighted
average) 24,680 24,655 24,660
Weighted average number of shares for diluted earnings per share 24,800 24,772 24,779
5. Taxation
Tax on profit on ordinary activities:-
31.03.02 31.03.01 30.09.01
Restated Restated
£'000 £'000 £'000
Group:
Normal 6,413 4,780 6,762
Exceptional - (1,046) (1,046)
6,413 3,734 5,716
Share of joint venture 3,063 - 1,363
9,476 3,734 7,079
6. Dividends
Dividends on ordinary shares:-
31.03.02 31.03.01 30.09.01
£'000 £'000 £'000
Interim proposed of 3.05p per share (2001:2.65p) 752 653 653
Final dividend 2001 9.68p per share - - 2,389
752 653 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 are being sent to all shareholders. Copies can be
obtained from the Company's registered office, Times Square, Newcastle upon
Tyne. NE1 4EP. Further details of this announcement can be found on our website,
www.graingertrust.co.uk.
9. The Board of Directors approved the Interim Report on 20 June 2002. This
interim report has neither been audited nor reviewed by the auditors.
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