Interim Results
Grainger Trust PLC
13 June 2006
FOR IMMEDIATE RELEASE
13th June 2006
GRAINGER TRUST plc:
INTERIM RESULTS FOR SIX MONTHS TO 31 MARCH 2006
Grainger Trust plc is the UK's largest quoted residential property owner. The
market value of its assets and investments total £1.76bn. The Company is
reporting its figures under IFRS for the first time.
HIGHLIGHTS
• Earnings before interest and tax on a like for like basis up to £41.8m
from £41.0m
• Interim dividend increased by 10% to 1.87p per share (2005: 1.70p)
• Grainger Net Asset Value per share of 491p from 496p at 30 September
2005 - NB no half-year revaluation.
• Tenanted residential sales 2.3% higher than September '05 valuations -
implying a Grainger NAV of 513p per share
• Tenanted residential division traded strongly with 13% increase in sales
to £68m
• Total UK and European residential acquisitions over period amount to
£227m
• £200m of market rented property transferred into a Jersey Property Unit
Trust
• Refocusing of Development + Trading Division on to larger mixed-use schemes
- Collaborative agreement with Development Securities to undertake JV
developments
• Bridgewater Equity Release division trading strongly - home reversion market
share now stands at 28%
• Robert Dickinson to stand down as Chairman - replaced by Robin
Broadhurst
Robert Dickinson, Chairman, states:
'We remain confident of the residential housing market prospects over the long
term. We believe several factors will underpin house price growth, including
restricted supply due to planning constraints and low new build volumes, as well
as demand from an increase in the number of households.
'The core of our business remains the regulated tenancy portfolio and annual
cash flows in excess of £100m should arise from sales from this portfolio for
the next seven years. This prudent estimate assumes no uplift in house price
inflation and no new purchases.
'The strength of this cash flow naturally provides the financial support for our
other business activities and we are confident that, over time, these will
become very significant contributors to earnings and net asset value growth.'
Contacts:
Rupert Dickinson, Chief Executive, Grainger. Tel: 020 7795 4700
Andrew Cunningham, Deputy Chief Executive and Finance Director Tel: 020 7795 4700
Baron Phillips, Baron Phillips Associates. Tel: 020 7920 3161
GRAINGER TRUST plc
INTERIM ANNOUNCEMENT OF RESULTS
FOR THE HALF YEAR ENDED 31 MARCH 2006
I am pleased to report on an extremely active period for the Group which has
seen the investment in £227m of residential property both here and
abroad, direct sales of £68m and the transfer of some £200m of market rented
property into a Jersey Property Unit Trust ('JPUT').
At the same time our Development and Trading Division has generated £6m of
operating profits and a management restructuring of this division is enabling us
to focus on larger, more complex mixed-use schemes. Since the end of the period
we have entered into a collaborative agreement with Development Securities plc
to undertake joint venture developments.
Elsewhere, I can report that our Bridgewater equity release division is trading
strongly and we are increasing market share in this area of our operations, in a
market which is itself expanding.
Despite mixed signals from the media over the past six months or so regarding
house prices, sales of our tenanted residential properties have been, on
average, 2.3% higher than our September 2005 valuations. This division has
traded strongly over the period with total sales proceeds of £68m almost 13%
higher than the same period a year ago.
Our move into Europe has been successful with acquisitions of German residential
property during the six months to 31 March 2006 totalling just over £100m as we
completed, or exchanged, on 2,322 units. Whilst we recognise the competitiveness
in this area we are continuing to pursue exciting opportunities.
At home our major acquisition over the period was the £167m purchase of our
second Church Commissioners portfolio of residential properties in joint venture
with Genesis Housing Group. Once more this has enabled us to access a high
quality London-based portfolio of residential stock in attractive locations.
Results
-------
These results have been prepared, for the first time, under International
Financial Reporting Standards (IFRS). The change of accounting basis has not led
to any changes in business strategy or operation.
Profit before tax has risen to £36.9m from £18.8m. The profit is enhanced by
revaluation gains on the transfer of market rented residential assets to our
Jersey Property Unit Trust. Basic earnings per share have increased from 10.6p
per share to 20.0p per share.
On a like for like basis (i.e. removing the effect of revaluation movements, the
goodwill relating to City North Group plc and mark to market adjustments on
derivatives) earnings before interest and tax ('EBIT') are largely unchanged -
£41.8m compared to £41.0m last half year. Increased borrowing costs incurred in
funding our investment programme have reduced profit before tax on the same
basis from £18.7m to £14.2m.
Dividends
---------
We have increased our interim dividend by 10% to 1.87p per share (2005: 1.70p)
which will be payable on 28 July 2006 to shareholders on the register at the
close of business on 23 June 2006.
A Dividend Reinvestment Plan (DRIP) is being introduced. Full details and an
application form will be sent to shareholders with the interim statement and
will also be available on the Group's website. Those shareholders wishing to
participate in the DRIP for the 2006 interim dividend will need to ensure that
the application form is returned to our registrars by 29 June 2006.
Net assets
----------
The key indicator of our net asset value, Grainger NAV, has moved from 496p at
30 September 2005 to 491p. We do not revalue our assets at the interim stage due
to the number of properties involved but if the portfolio had increased in value
by 2.3% (the increase above September 2005 values which our sales to the of end
March achieved) then the Grainger NAV would be 513p. A full explanation and
commentary on our net asset values are given in the operational review.
REIT legislation
----------------
Draft REIT legislation was published shortly after the Budget in March 2006 and
is currently going through the Parliamentary process. Although several property
companies have already announced their intention to convert the decision is far
less clear cut for Grainger. Current indications are that trading properties
will be excluded from the ring fenced activities that are allowable for REIT
status. As most of Grainger's properties are held as trading stock this would
produce severe limitations on our ability to become a REIT vehicle.
Whilst at this stage it is unlikely that we will convert to a REIT we are
hopeful that the final legislation will reflect the need for encouragement to
enlarge and professionalise the private rented sector. On a number of levels the
residential sector is fundamentally different from its commercial counterpart,
more specifically, net rental yields are comparatively lower. Asset pricing
tends to be set by the owner occupier and not by the application of an
investment yield. Property costs are usually higher as lot sizes are smaller,
re-letting costs are higher as tenant turnover is more frequent and there is no
ability to pass on repair and maintenance obligations to the occupier through a
full repairing and insuring ('FRI') lease. If the legislation is able to reflect
some of these critical nuances then there will be significant opportunities to
positively impact the residential sector and for Grainger to create and
professionally manage such residential vehicles in the future. We therefore
remain committed to the belief that a residential friendly REIT structure could
significantly enhance not only the private rented sector but also the key
worker, shared equity and retirement sub markets.
We continue to make representations both on our own account and through
professional bodies to the Government. Once the legislation is finalised we will
complete our review of the potential effects on our business activities and
assess the best opportunities available to Grainger going forward.
Prospects
---------
Our business is founded on long term exposure to the residential housing market
which has shown modest but steady levels of growth over the last few months. We
remain confident of its prospects over the long term. We believe several factors
will underpin house price growth, including restricted supply due to planning
constraints and low new build volumes, as well as demand from an increase in the
number of households.
The core of our business remains the regulated tenancy portfolio and annual cash
flows in excess of £100m should arise from sales from this portfolio for the
next seven years. This prudent estimate assumes no uplift in house price
inflation and no new purchases.
The strength of this cash flow naturally provides the financial support for our
other business activities and we are confident that, over time, these will
become very significant contributors to earnings and net asset value growth.
People
------
After forty five years as a director, the last fourteen of which as Chairman, I
will step down from the Board at the conclusion of our AGM in February 2007. My
place as Chairman will be taken by Robin Broadhurst. Bill Tudor John will be
appointed Senior Independent Director. I am confident that I leave the Board in
very capable hands.
Finally, as ever, I would like to take this opportunity to thank all of our
staff for the commitment and ever-growing expertise they have demonstrated
during this period.
Robert Dickinson
13 June 2006
Operational Review
Tenanted residential
--------------------
Six months ended
----------------
31 March 2006 31 March 2005
No. £m No. £m
-----------------------------------
Properties sold on vacancy 355 51 354 53
Properties sold with tenants in occupation 157 17 70 7
-----------------------------------
Total sales 512 68 424 60
-----------------------------------
Profits on sale* 31 28
Net rental income and other income 18 14
Direct overhead costs (7) (4)
------------------------
Operating contribution 42 38
------------------------
* including profit on sale of investment property
The division has traded well in the period selling a total of 512 properties for
£68m, producing trading profits of £30.2m and profits on sale of investment
properties of £0.3m. Sales prices achieved were, on average, 2.3% in excess of
our September 2005 values.
Rents and other income, net of overhead costs, have increased by 9.8% from
£10.3m to £11.3m.
During the period we acquired 311 properties for total consideration of £43m. In
addition to these, the most significant acquisition related to the purchase of
the second portfolio of properties from the Church Commissioners. The
acquisition of 979 properties was completed in March 2006, including 327
regulated tenancies, for a total consideration of £167m. Once again this was
done in the form of a 50:50 joint venture with Genesis Housing Group whose
subsidiary, Pathmeads Housing Association, will undertake the day to day
management. The portfolio is London based, located in Waterloo, Winchester Park,
Vauxhall, Walworth and Pimlico. It represents a rare opportunity for us to
acquire an interest in a high quality, large volume regulated portfolio in very
attractive locations. We are currently going through the legal process of
acquiring the balance of 185 units (102 regulated) of this portfolio for further
consideration of £29m.
Analysis of UK residential sales
--------------------------------
Sales Proceeds Profits
No. £m £m
-------------------------------
Regulated 325 44 23
Assured 108 12 3
Vacant on purchase 15 1 -
Equity release 62 7 3
Other 2 4 2
-------------------------------
512 68 31
-------------------------------
Analysis of UK residential acquisitions
---------------------------------------
Vacant possession
Cost Value
No. £m £m
--------------------------------------
Regulated 122 21 29
Assured 25 6 7
Vacant 6 1 2
Equity release 158 12 23
Other - 3 5
--------------------------------------
311 43 66
Share of joint venture - 84 101
--------------------------------------
Total 311 127 167
--------------------------------------
Analysis of UK residential portfolio
No. of Vacant possession Investment
properties value* £m value* £m
Regulated 7,784 1,303 949
Assured 274 55 47
Vacant 307 49 44
Equity release 2,758 372 204
Other 33 42 42
JPUT 1,025 212 187
------------------------------------------------
12,181 2,033 1,473
Share of joint ventures - 144 119
------------------------------------------------
31 March 2006 12,181 2,177 1,592
------------------------------------------------
30 September 2005 12,382 2,067 1,507
------------------------------------------------
* no revaluation undertaken at 31 March 2006
Our published results for the period also reflect the transfer of market rented
residential assets into our JPUT. Grainger currently owns all of the units in
the fund but we are expecting to sell up to 80% and marketing for this is under
way. A change of intended use has led to a reclassification from trading
properties to investment properties. They have therefore been uplifted to their
30 September 2005 market value, producing a revaluation surplus of £23.5m which
has been accounted for in the income statement. As a very large proportion of
City North assets were either included in this transfer or have otherwise been
sold we have also written off goodwill relating to the acquisition; the total
write off taken through the income statement amounted to £5.8m.
Although acquisitions of equity release assets through our arrangement with
Norwich Union have been slower than anticipated, we are particularly pleased
with the volumes of purchases being achieved by our Bridgewater subsidiary,
which also has a good pipeline of acquisitions ready for completion in the
second half. This is partly due to the favourable market place reaction to our
Bridgewater Flexible Reversion Plan, introduced in September 2005. Our market
share of home reversion contracts written (as per Safe Home Income Plans or
'SHIP', the regulatory body of the industry) has increased to 28% in the 12
month period to 31 March 2006 from 10% previously. At the same time SHIP reports
that the overall reversion market has increased by 42% and now represents 5.5%
of the total equity release market (2005: 3.5%).
The vacant possession value of the tenanted residential portfolio at 31 March
2006 was £2,033m and the investment or market value was £1,473m (30 September
2005: £2,024m and £1,473m). If we include our share of joint ventures these
figures increase to £2,177m and £1,592m. The reversionary surplus in our
portfolio (the excess of vacant possession value over investment value) now
stands at £585m (30 September 2005: £560m).
Development and trading
-----------------------
Six months ended
31 March
2006 2005
-------------------
£m £m
Trading profits 5 7
Profits on sale of investment property 3 -
Net rental income less overheads (2) -
Other net income - 1
------------------
Operating contribution 6 8
------------------
This division has produced £6.0m operating contribution (including profits on
sale of investment property of £2.7m) (2005: £7.5m) and a further £0.2m arising
from the transfer of assets to the JPUT as referred to above. Major
contributions have come from the sales of three properties in Slough for a
profit of £2.5m, City Road (a former City North development) for a profit of
£2.0m and from Grainger Homes, a profit of £1.5m.
At 31 March 2006, the investment value of our development and trading portfolio
stood at £92.7m (30 September 2005: £123.8m).
As noted in our September 2005 accounts, we appointed Richard Exley to head up
this division at the beginning of the year and it is now moving forward with
clearer goals and objectives.
In particular, we have refined our approach to Grainger Homes, our housebuilding
subsidiary. In the future it will focus on larger scale development projects and
not relatively small pure housebuilding activities. To this end we have
outsourced the management of these smaller projects to a new company formed by
the existing Grainger Homes management. We will retain ownership of the assets
through to completion and sale over the next few years and the outsource team
will receive management and performance based fees.
We have significantly strengthened the management team in Grainger Developments
in the last few months and believe we now have the opportunities and resources
in place to produce good long term returns. Much of the work in this division is
performed through joint ventures or partnership agreements, which enable us to
combine our skills and resources with those of other parties to good effect. We
hope to develop this further, for example in our recently announced
collaborative relationship with Development Securities plc, which will enable us
to participate in larger, more complex mixed use schemes.
Joint venture activities
------------------------
In total we have a net amount of £57.5m invested in joint venture activities,
much of it (£53.4m) relating to the two Church Commissioners portfolios. Total
losses after our share of interest payable and tax relating to all of our joint
venture activities amounts to £0.7m (2005: Nil).
Grainger Europe
---------------
We completed or exchanged on 2,332 residential units in the first six months of
the year for a total cost of £100.6m. This now represents 16% of our residential
portfolio by number of units and 6% by value. The net yield on the portfolio is
approximately 5% and after all expenses it contributed £0.5m to Group profits
before interest and tax in the first six months. The portfolio is spread across
three geographic areas: Metro-Ruhr, Baden-Wuerttemberg and Berlin. To date we
have in place a total of €56.2m (£38.6m) non-recourse debt at a blended interest
rate of 2.3%. We anticipate increasing this debt by approximately £38m when the
exchanged properties complete later in the year.
We remain enthusiastic about the German residential market. Competition for
portfolios is intense but we believe we can still make acquisitions at
attractive prices to produce good long term returns. Our existing portfolio,
with a good geographic spread and an investment value of some three quarters of
estimated vacant possession value should provide a sound base from which to
expand.
Administrative expenses
-----------------------
These have increased in the period from £4.2m to £6.1m. The increase comes from
the build up of several of our operating divisions (Grainger Europe, Asset and
Property Management, Grainger Developments) and from a series of one-off costs
(reorganisation costs relating to City North and Grainger Homes and costs
written off in respect of various transactions).
Financing
---------
Net interest costs (before share of joint venture interest) totalled £27.6m,
compared to £22.3m last year; our debt levels have on average been higher by
some £176m over the period. At the period end our net debt amounted to £973m (30
September 2005: £861m) and the ratio of our net debt to property and investment
assets (loan to value ratio) was 55.1% (30 September 2005: 52.6%).
During the period long term interest rates have moved in our favour so we have a
mark to market gain of £5.1m. Under IFRS this appears in the income statement.
At 31 March 2006, 71% of our net debt was economically hedged or fixed and the
average interest rate was 5.7% (30 September 2005: 76% and 5.9% respectively).
We have hedges of approximately £700m in place until March 2009.
Net assets
----------
At 31 March 2006 our net asset value per share ('NAV') stood at 459p. We do not
revalue our assets at the half year but if our portfolio had increased in value
by 2.3% (the excess achieved on sales above September 2005 values) then the NAV
would have been 489p.
Reflected Not reflected
in the in the
accounts accounts Total
£m £m £m per share p
--------------------------------------------------------
Net assets at 1 October 2005* 205.0 409.2 614.2 475
Profit after tax 25.8 6.1 31.9 25
Movements on revaluation - (44.9) (44.9) (36)
Sundry other (2.4) (3.4) (5.8) (5)
--------------------------------------------------------
Net assets at 31 March
2006 excluded minority
interests 228.4 367.0 595.4 459
--------------------------------------------------------
* restated to include IAS adjustments on 1 October 2005
Adjusting the NAV figure for contingent tax of 80p per share and for the mark to
market cost of fixed debt of 2p (30 September 2005: 84p and 2p) produces a
triple net asset value ('NNNAV') of 377p per share. (30 September 2005: 389p)
As in previous years we also present 'Grainger NAV' which adjusts NNNAV by the
discounted, taxed effect of the reversionary surplus (the difference between
vacant possession and investment value) of our core UK residential portfolio.
The base case Grainger NAV (i.e assuming no future house price inflation ('HPI')
and a discount rate of
8.6%) is 491p (30 September 2005, including the IAS 39 adjustment on 1 October
2005: 496p).
The table below shows the Grainger NAV at 31 March 2006 flexed for a variety of
HPI growth rates and discount rates (Grainger weighted average cost of capital
is 5.6%).
Discount Rate
-------------
HPI% 5.6% 8.6%
------------------------------------------
0 533p 491p
1 552p 505p
4 621p 555p
Consolidated income statement (un-audited)
For the half year ended 31 March 2006
Six months to Year to
31 March 2006 31 March 2005 30 September 2005
Note £m £m £m
--------------------------------------------------------------
Group revenue 104.9 99.9 227.6
Gross rental income 25.2 21.1 45.5
Property operating expenses (14.6) (11.3) (24.1)
Ground rents paid (0.1) (0.1) (0.2)
Service charge income on principal basis 0.5 0.9 1.2
Service charge expenses on principal basis (0.7) (1.0) (1.3)
--------------------------------------------------------------
Net rental income 10.3 9.6 21.1
--------------------------------------------------------------
Proceeds from sale of trading property 78.5 77.2 177.8
Carrying value of trading properties sold (44.7) (43.6) (108.2)
--------------------------------------------------------------
Profit on disposal of trading properties 33.8 33.6 69.6
--------------------------------------------------------------
Administrative expenses (6.1) (4.2) (9.8)
--------------------------------------------------------------
Other income 1.1 1.6 2.9
Goodwill impairment loss (6.1) - -
--------------------------------------------------------------
Net other (expenses)/income (5.0) 1.6 2.9
--------------------------------------------------------------
Investment property disposal proceeds 27.3 4.6 13.6
Carrying value of investment property
disposal (24.3) (4.2) (12.1)
--------------------------------------------------------------
Profit on disposal of investment property 3.0 0.4 1.5
--------------------------------------------------------------
Operating profit before valuation
gains/(losses) on investment properties
and changes in fair values 36.0 41.0 85.3
--------------------------------------------------------------
Net valuation gains on investment properties 24.0 0.1 5.4
Change in fair value of derivatives 5.1 - -
Change in fair value through
profit or loss financial assets 0.1 - -
--------------------------------------------------------------
Operating profit 65.2 41.1 90.7
--------------------------------------------------------------
Interest payable (29.3) (23.5) (51.4)
Interest receivable 1.7 1.2 2.2
Share of loss of associates after tax - - (0.2)
Share of loss of joint ventures after tax (0.7) - (0.3)
--------------------------------------------------------------
Profit before tax 36.9 18.8 41.0
--------------------------------------------------------------
Taxation - current (25.7) (8.9) (17.9)
Taxation - deferred 14.6 3.2 8.0
--------------------------------------------------------------
Tax charge for the period (11.1) (5.7) (9.9)
--------------------------------------------------------------
Profit for the period
attributable to equity holders
of the company 5 25.8 13.1 31.1
--------------------------------------------------------------
Basic earnings per share 6 20.0p 10.6p 24.9p
--------------------------------------------------------------
Diluted earnings per share 6 19.8p 10.6p 24.5p
--------------------------------------------------------------
Dividend per share 7 1.87p 1.70p 5.11p
--------------------------------------------------------------
Consolidated Statement of Recognised Income and Expense (un-audited)
For the half year ended 31 March 2006
Six months to Year to
31 March 31 March 30 September
2006 2005 2005
£m £m £m
--------------------------------------
Profit for the period 25.8 13.1 31.1
Actuarial loss on BPT Limited defined benefit scheme - - (0.7)
Taxation on actuarial loss - - 0.2
Taxation on realisation of property revaluation gains
of previous years - 0.2 -
--------------------------------------
Total recognised income and expense for the period 25.8 13.3 30.6
======================================
The impact of the adoption of IAS 32 and IAS 39 from 1 October 2005 has resulted
in a reduction in equity of £5.4m.
Consolidated balance sheet (un-audited)
as at 31 March 2006
31 March 2006 31 March 2005 30 September 2005
Note £m £m £m
--------------------------------------------------------------------
ASSETS
Non-current assets
Investment property 224.8 101.9 222.4
Property, plant and equipment 1.9 2.0 2.0
Investments in associates 2.1 - 0.1
Investments in joint ventures 57.5 3.1 17.9
Other investments 18.8 13.7 15.4
Goodwill - 0.3 6.1
Deferred tax assets 4.4 4.0 -
-------------------------------------------------------------
309.5 125.0 263.9
-------------------------------------------------------------
Current assets
Trading properties 931.1 950.8 961.5
Trade and other receivables 8 14.4 5.5 10.5
Derivative financial instruments 1.4 - -
Cash and cash equivalents 64.1 51.2 53.3
Assets held for sale 10 160.9 - -
-------------------------------------------------------------
1,171.9 1,007.5 1,025.3
-------------------------------------------------------------
Total assets 1,481.4 1,132.5 1,289.2
-------------------------------------------------------------
LIABILITIES
Non-current liabilities
Interest bearing loans and borrowings 1,019.6 769.7 887.9
Trade and other payables 8.0 - 8.0
Retirement benefits 5.3 4.6 5.3
Provisions for other liabilities
and charges 1.0 4.8 3.9
Deferred tax liabilities 90.3 102.1 102.8
-------------------------------------------------------------
1,124.2 881.2 1,007.9
-------------------------------------------------------------
Current liabilities
Interest bearing loans and borrowings 21.4 30.6 26.4
Trade and other payables 58.5 25.4 22.5
Current tax liabilities 41.0 20.7 22.0
Derivative financial instruments 7.7 - -
-------------------------------------------------------------
9 128.6 76.7 70.9
-------------------------------------------------------------
Total liabilities 1,252.8 957.9 1,078.8
-------------------------------------------------------------
Net assets 228.6 174.6 210.4
-------------------------------------------------------------
EQUITY
Capital and reserves attributable
to the company's equity holders
Issued share capital 6.5 6.2 6.5
Share premium 22.4 21.6 21.6
Merger reserve 20.1 - 20.1
Other reserves 1.5 0.9 1.2
Retained earnings 177.9 145.9 161.0
-------------------------------------------------------------
Total shareholders' equity 4&5&11 228.4 174.6 210.4
Equity minority interests 0.2 - -
-------------------------------------------------------------
Total Equity 228.6 174.6 210.4
-------------------------------------------------------------
Statement of consolidated cash flows (un-audited)
For the half year ended 31 March 2006
Six months to Year to
31 March 2006 3 1 March 2005 30 September 2005
£m £m £m
Cash flow from operating activities
Profit for the period 25.8 13.1 31.1
Depreciation 0.3 0.2 0.4
Impairment of goodwill 6.1 - -
Change in value of investment property (24.0) (0.1) (5.4)
Net interest payable 27.6 22.3 49.2
Share of loss of associates and joint ventures 0.7 - 0.5
Gain on disposal of investment properties
and other investments (3.0) (0.4) (1.5)
Equity settled share based payment expenses 0.3 0.2 0.5
Change in fair value of derivatives and
fair value through income statement
financial assets (5.2) - -
Taxation 11.1 5.7 9.9
--------------------------------------------------
Operating profit before changes in working
capital and provisions 39.7 41.0 84.7
(Increase)/decrease in trade and other debtors (9.7) 3.9 0.9
Increase/(decrease) in trade and other creditors 3.3 (26.2) (24.3)
Increase in trading properties (7.1) (31.9) (42.6)
Increase in provisions for liabilities and charges - - 0.6
--------------------------------------------------
Cash generated from operations 26.2 (13.2) 19.3
Interest paid (27.3) (22.2) (49.9)
Taxation paid (6.6) (8.8) (16.6)
--------------------------------------------------
Net cash from operating activities (7.7) (44.2) (47.2)
--------------------------------------------------
Cash flow from investing activities
Proceeds from sale of investment property,
property, plant and equipment 21.9 4.4 13.3
Proceeds from sale of joint venture 5.4 - -
Interest received 1.0 1.0 2.2
Dividends received 0.1 0.1 0.1
Acquisition of subsidiaries, net of cash acquired (1.0) (0.3) (41.6)
Investment in associates and joint ventures (46.7) - (11.1)
Acquisition of investment property,
property, plant and equipment (60.8) (1.1) (18.8)
Acquisition of investments (0.4) (6.5) (8.4)
--------------------------------------------------
Net cash outflow from investing activities (80.5) (2.4) (64.3)
--------------------------------------------------
Cash flows from financing activities
Proceeds from the issue of share capital 0.8 - 0.1
Proceeds from the issue of loans 111.4 50.0 170.0
Repayment of borrowings (5.0) (1.3) (52.2)
Dividends paid (4.4) (4.7) (6.9)
--------------------------------------------------
Net cash inflow from financing activities 102.8 44.0 111.0
--------------------------------------------------
Net increase/(decrease) in cash and cash
equivalents 14.6 (2.6) (0.5)
Cash and cash equivalents at beginning of period 53.3 53.8 53.8
--------------------------------------------------
Cash and cash equivalents at end of period 67.9 51.2 53.3
--------------------------------------------------
Notes to the interim statement
------------------------------
1. Basis of preparation
This interim statement is un-audited and does not constitute statutory accounts
within the meaning of section 240 of the Companies Act 1985. Statutory accounts
for the year ended 30 September 2005, which were prepared under UK Generally
Accepted Accounting Principles ('UK GAAP') have been filed with the Registrar of
Companies. The auditors have made a report on those statutory accounts under
Section 235 of the Companies Act 1985. The auditors report was unqualified and
did not contain a statement under section 237 (2) or (3) of the Companies Act
1985.
The financial information contained in this interim statement has been prepared
in accordance with the Listing Rules of the Financial Services Authority and all
International Financial Reporting Standards ('IFRS') in force and expected to
apply to the Group's full results for the year ending 30 September 2006 and on
interpretations of those standards released to date. It is possible that further
accounting standards and interpretations may be issued that could be applicable
to accounting periods beginning on or after 1 October 2005 or that are
applicable to later periods but with the option for companies to adopt them for
earlier periods. In addition, IFRS is being implemented widely across EU and,
therefore, practice and interpretation in applying standards is continually
evolving. Accordingly, at this point in time, before the Group's first annual
financial statements prepared under IFRS are completed, it should be noted that
the financial information presented in this interim statement could be subject
to change. As permitted, IAS 34 'Interim Financial Reporting' has not been
adopted for this interim statement.
The term IFRS includes all International Accounting Standards ('IAS') as adopted
by the EU and International Financial Reporting Standards ('IFRS') issued by the
International Accounting Standards Board ('IASB') and the International
Financial Reporting Committee ('IFRIC') and interpretations issued by IFRIC.
2. Transition to IFRS
In June 2002 the European Parliament approved a Regulation requiring all listed
companies in the European Union to prepare consolidated financial statements
under IFRS for financial periods beginning on or after 1 January 2005. Grainger
will report its results under IFRS for the year ending 30 September 2006. The
first results to be reported under IFRS are these interim results for the six
months ended 31 March 2006.
Grainger has applied IFRS 1 ('First-time adoption of International Financial
Reporting Standards') to provide a starting point for reporting under IFRS.
Grainger's date of transition to IFRS, stated in accordance with IFRS 1, was 1
October 2004. The results and financial position for the six months ended 31
March 2005 and year ended 30 September 2005 respectively have been re-stated to
reflect the adoption of IFRS.
In accordance with IFRS 1, Grainger has applied the mandatory exceptions, and
certain of the optional exemptions, from full retrospective application of IFRS.
In particular, Grainger has made use of the exemptions allowing it to recognise
any adjustments arising from the adoption of IAS 32 and IAS 39 in its opening
balance sheet as at 1 October 2005. Accordingly, the comparative information for
the six months ended 31 March 2005 and the year ended 30 September 2005 does not
apply the provisions of either IAS 32 or IAS 39.
The reconciliations of equity as at 1 October 2004 (the date of transition to
IFRS) and at 30 September 2005 (the date of the last financial statements
prepared under UK GAAP) and the reconciliation of profit for the year ended 30
September 2005 are included, along with an explanation of the adjustments and
detailed accounting policy notes in an IFRS Transition Report which was released
to the Stock Exchange and published on the Grainger website on 3 May 2006.
In accordance with IFRS 1 these reconciliations are repeated in this interim
statement
They can be found in note 5 along with reconciliations of equity as at 31 March
2006 and of profit for the six months ended 31 March 2006.
3. Accounting policies
----------------------
This interim statement has been prepared in accordance with the Group's IFRS
accounting policies. These policies were set out in the Group's IFRS Transition
Report which was published on the Grainger website (www.graingertrust.co.uk) on
3 May 2006.
4. Net Asset Value (NAV) and NNNAV as at 31 March 2006
------------------------------------------------------
£m
Market IAS 39
Statutory Market value Fixed Contin- NNNAV
balance value balance rate gent balance
sheet adjustments sheet loan tax sheet
------------------------------------------------------------------------
Properties 1,314.4 369.6 1,684.0 - - 1,684.0
Investments/other assets 78.7 2.9 81.6 - - 81.6
Goodwill 1.6 (1.6) - - - -
Cash 67.9 - 67.9 - - 67.9
------------------------------------------------------------------------
Total assets 1,462.6 370.9 1,833.5 - - 1,833.5
------------------------------------------------------------------------
Borrowings/creditors/
derivative financial
instruments (1,055.3) - (1,055.3) (4.4) - (1,059.7)
Net current liabilities (91.8) - (91.8) - - (91.8)
Provisions/deferred and
contingent tax (86.9) (0.8) (87.7) 1.3 (103.8) (190.2)
Minority interest (0.2) (3.1) (3.3) - - (3.3)
Total liabilities/minority
interest (1,234.2) (3.9) (1,238.1) (3.1) (103.8) (1,345.0)
------------------------------------------------------------------------
Net assets attributable to
shareholders 228.4 367.0 595.4 (3.1) (103.8) 488.5
------------------------------------------------------------------------
Net assets pence per share
at 31 March 2006 176 283 459 (2) (80) 377
------------------------------------------------------------------------
Net assets pence per share
at 30 September 2005 (including
IAS 39 adjustments
on 1 October 2005) 159 316 475 (2) (84) 389
------------------------------------------------------------------------
There is no revaluation exercise carried out at the half year due to the number
of properties in the portfolio. The market value balance sheets include
properties at 30 September 2005 values, adjusted for sales and purchases.
5. Reconciliation of equity reported under UK GAAP to equity under IFRS
1 October 30 September 31 March 31 March
2004 2005 2006 2005
£m £m Notes £m £m
-----------------------------------------------------------------------------------
177.9 223.6 Equity shareholders funds 248.0 188.8
under UK GAAP
IFRS adjustments
1.0 0.9 Share based payments - 1.0
85.0 81.6 Negative goodwill reversed a 79.2 82.0
Goodwill/deferred tax
adjustment relating City
- (2.5) North Group plc a - -
4.7 4.4 Dividend exclusion b - 2.2
(102.6) (96.8) Deferred taxation c (97.1) (99.2)
(0.2) (0.8) Pension deficit d - (0.2)
- - Fair value of financial e (1.7) -
instruments
----------------------------- -----------------------------
165.8 210.4 Equity shareholders funds 228.4 174.6
under IFRS
----------------------------- -----------------------------
Notes:-
a) Under IFRS negative goodwill is taken to retained earnings. A provision is
required under IFRS in the 30 September 2005 figures for deferred tax in
connection with the Group's acquisition of City North Group plc on 15 April
2005. The provision required of £8.3m resulted in goodwill of £5.8m.
b) Proposed dividends are excluded from liabilities under IFRS. There is no
adjustment at 31 March 2006 as proposed dividends are no longer provided for
under UK GAAP.
c) Under IFRS deferred tax is provided for the tax that may be payable on the
uplift from tax base cost to fair value on acquired trading properties. In
addition, provision is required for the tax that may be payable arising from the
revaluation of the Group's investment properties. Under UK GAAP these provisions
were not allowed.
d) The pension deficit on the BPT Limited defined benefit scheme is reflected in
the balance sheet under IFRS. Existing provisions made under UK GAAP have been
reversed. There is no adjustment at 31 March 2006 as pension deficits are now
recognised under UK GAAP in accordance with FRS 17.
e) IAS 32 and IAS 39 are effective from 1 October 2005. The adjustment
represents the net of tax amount required to record the Group's investment in
the Schroder Residential Property Unit Trust and the Group's financial
derivatives at their fair values.
Reconciliation of profit reported under UK GAAP to profit under IFRS
Year to Six months to Six months to
30 September 31 March 31 March
2005 2006 2005
£m Notes £m £m
-----------------------------------------------------------------------------------
26.5 Profit for the period under 7.5 12.9
UK GAAP
IFRS adjustments
(0.5) Share based payments a (0.3) (0.2)
(5.9) Negative goodwill b (2.4) (3.0)
- Impairment of goodwill c (5.8) -
7.3 Taxation d 6.3 3.3
3.7 Investment property e 16.8 0.1
revaluations
Fair value movement on
financial instruments
- f 3.7 -
----------------- -----------------------------
31.1 25.8 13.1
----------------- -----------------------------
Notes:-
a) Under IFRS 2 the fair value of share options and other share based payments
is recognised as an expense through the income statement over the vesting
period.
b) As negative goodwill is transferred to opening retained earnings under IFRS,
annual releases of negative goodwill to profit and loss under UK GAAP have to be
reversed.
c) A deferred tax provision of £8.3m provided under IFRS on the acquisition of
City North Group plc resulted in the creation of goodwill of £5.8m. As a very
large proportion of City North assets have either been sold or transferred to
the Jersey Property Unit Trust the whole of the goodwill has been impaired and
has been written off through the income statement. This goodwill was not present
in the UK GAAP balance sheet.
d) Under IFRS deferred taxation is provided for the tax that may be payable on
the uplift from tax base cost to fair value on acquired trading properties.
Provision is also made for the tax that may be payable arising from the
revaluation of the Group's investment properties. Accordingly, when properties
are sold the majority of the tax payable has already been provided under IFRS
whereas under UK GAAP the full tax payable was charged to the profit and loss
account at the time of sale.
e) Under IFRS revaluations of investment property are taken through the income
statement. Under UK GAAP these were taken directly to the revaluation reserve.
In the period to 31 March 2006, the Group has transferred trading properties
into its Jersey Property Unit Trust. As the intention is now to hold these
assets for rental yield and capital appreciation they have been classified as
investment property and have been valued in the IFRS balance sheet at their 30
September 2005 market values. This has contributed to an uplift of £24.0m or
£16.8m net of tax.
f) In the period to 31 March 2006 our interest swaps were classed as
ineffective under the strict criteria of IAS 39. However, long term interest
rates increased in the period and moved nearer to our swap rates resulting in a
fair value credit to the income statement of £5.1m, or £3.7m net of tax.
Notes to the interim statement - continued
6. Earnings per share
31 March 31 March 30 September
2006 2005 2005
No. of No. of No. of
shares shares shares
'000 '000 '000
------------------------------------------------------------------------------
Weighted average number of shares for
basic earnings per share 128,723 122,896 125,077
------------------------------------------------------------------------------
Weighted average number of shares for
diluted earnings per share 130,119 123,520 126,847
------------------------------------------------------------------------------
7. Dividends
An interim dividend of 1.87p per share has been proposed by the directors for
payment on 28 July 2006 (31 March 2005: 1.70p per share). This dividend,
totalling £2.4m, has not been provided for in the accounts to 31 March 2006. In
the six months to 31 March 2006 the final proposed dividend for the year ended
30 September 2005 of £4.4m has been paid.
8. Trade and other receivables
31 March 31 March 30 September
2006 2005 2005
£m £m £m
---------------------------------------------------------------------------
Trade debtors 2.9 1.9 1.9
Other debtors 10.3 0.6 4.8
Prepayments and accrued income 1.2 3.0 3.8
------------------------------------------------------------------------------
14.4 5.5 10.5
==============================================================================
9. Current liabilities
31 March 31 March 30 September
2006 2005 2005
£m £m £m
------------------------------------------------------------------------------
Interest bearing bank loans and 21.4 30.6 26.4
borrowings
Deposits received 0.5 0.7 1.1
Trade creditors 3.6 9.8 6.7
Corporation tax payable 41.0 20.7 22.0
Other taxation and social security 3.6 1.3 1.5
Accruals and deferred income 50.8 13.6 13.2
Derivative financial instruments 7.7 - -
------------------------------------------------------------------------------
128.6 76.7 70.9
==============================================================================
10. Assets held for sale
Marketing for the sale of 80% of the units in the Jersey Property Unit Trust is
under way and our current expectation is that the units will be sold by 30
September 2006. Accordingly, 80% of the net assets of the Trust have been
reclassified within current assets as assets held for sale at 31 March 2006. The
balance is comprised as follows:-
31 March
2006
£m
----------------------------------------------------
Investment property 158.5
Trade debtors 0.7
Cash and cash equivalents 3.8
Trade and other payables (2.1)
----------------------------------------------------
160.9
----------------------------------------------------
11. Consolidated Statement of Changes in Equity
31 March 31 March 30 September
2006 2005 2005
£m £m £m
-----------------------------------------
Opening shareholders funds 223.6 177.9 177.9
Effect of adopting IFRS (13.2) (12.1) (12.1)
-----------------------------------------
Opening shareholders funds restated 210.4 165.8 165.8
Opening adjustment relating to the adoption
of IAS 39 (5.4) - -
-----------------------------------------
Adjusted opening equity shareholders funds 205.0 165.8 165.8
Movement in own shares 0.9 - (0.1)
Proceeds from ordinary shares issued for cash 0.8 - 0.1
Nominal value of ordinary shares issued
to acquire City North group plc - - 0.3
Premium on ordinary shares issued to acquire
City North Group plc - - 20.1
Share based payments charge 0.3 0.2 0.5
-----------------------------------------
207.0 166.0 186.7
Total recognised income and expense 25.8 13.3 30.6
-----------------------------------------
232.8 179.3 217.3
Dividends (4.4) (4.7) (6.9)
-----------------------------------------
Closing equity shareholders funds 228.4 174.6 210.4
=========================================
12. Copies of this statement are being sent to all shareholders. Copies may 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.
13. The Board of Directors approved this interim statement on 13 June 2006. This
interim statement has neither been audited nor reviewed by the auditors.
This information is provided by RNS
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