Interim Results
Grainger PLC
07 June 2007
7 June 2007
Grainger plc ("Grainger"/"Group")
Results for the six months ended 31 March 2007
Grainger reports strong progress
Grainger plc, the UK's largest quoted residential property owner, announces its
results for the six months ended 31 March 2007.
• Market value of property and property related assets up 10% to £2.2
billion (30 September 2006: £2.0 billion)
• Profit before tax £12.1m (30 September 2006: £36.9m); decline due to
distortion of valuation gains as a result of disposal of assets to G:res 1 in
the six months to 31 March 2006 and the volatile nature of development profits
• Dividend up 10% to 2.06p per share in the light of the Board's ongoing
confidence in the Company's prospects
• £411m invested in the period growing all key business divisions
• Major progress across the business:
+ Capital Appreciation Trust (£72m) and CHARM portfolio (£134m) acquired
for the equity release division
+ G:res1 market rented fund successfully launched; it now owns £420m of
property assets and has 7 UK and overseas investors
+ Significant joint venture agreed with Development Securities for major
mixed-use scheme at Curzon Park, Birmingham
+ Growing portfolio and pipeline in Germany with dedicated team now
based in Mannheim.
Robin Broadhurst, Chairman of Grainger plc, said:
"In my first interim statement as Grainger's Chairman I am pleased to be able to
report on a period of significant progress across all of our business divisions.
This progress demonstrates the ability of our management to identify and act on
opportunities to further strengthen our portfolio and our position as the UK's
largest listed residential property owner.
"Whilst our strategy is founded on a geared long term exposure to the housing
market we are seeking to diversify our income stream and to improve our returns
on capital by leveraging our residential property expertise.
"We are confident that we will be able to continue to deliver attractive returns
to shareholders and enhance these by our diversification into a broadly based
business with expertise and involvement across the whole range of the
residential market."
For further information:
Grainger plc Financial Dynamics
Rupert Dickinson/Andrew Cunningham Stephanie Highett/Dido Laurimore
Tel: +44 (0) 20 7795 4700 Tel: +44 (0) 20 7831 3113
Chairman's Statement
In my first interim statement as Grainger's Chairman, I am pleased to report
considerable progress in the Group's business model and ongoing investment both
in assets and our people.
In total we have invested some £411m on property or related property assets in
the period and we have strengthened our position as the UK's leading listed
residential company with broad exposure through direct ownership, joint ventures
and co-invested funds.
The progress has been substantial across all areas of our business
• Trading in our core regulated portfolio has produced strong
results with average sales values some 7% higher than our September valuation.
• Our residential fund, G: res1, was successfully launched in
November and it now owns some £420m of property assets. The fund has now raised
or received commitments totalling £111m from leading UK and overseas
institutional investors.
• Two major acquisitions of retirement solutions portfolios (Capital
Appreciation Trust ("CAT") and the CHARM portfolio) have almost doubled the
asset base in the Equity Release and Retirement Solutions division to £467m.
• Grainger Developments has entered into their first joint venture
scheme with Development Securities and the end value of its development pipeline
now stands at £865m;
• We have also furthered our drive into Europe with the opening of a
management office in Mannheim, Germany to help accelerate the growth of our
operations there. As at 31 March 2007 we had invested some £151m (€222m) into
this market.
Grainger now owns £2.2 billion of property assets (30 September 2006: £2.0
billion) and the reversionary surplus (the difference between the disclosed
market value of those assets and what we will sell them at, at today's prices)
is £632m (30 September 2006: £566m). We now have a financial interest (through
direct ownership and joint venture or management arrangements) in approximately
22,000 properties.
The Market
UK residential property has continued to show good levels of return for
investors - the IPD residential index indicates that total returns for 2006
amounted to 16.8%. The Halifax House Price Index showed year on year annual
growth of 11.1% to the end of March and although some weakening in the volume of
mortgage lending of late suggests that the market may be cooling as a result of
recent interest rate rises, certain areas of the UK illustrate the on-going
imbalance between supply and demand. In particular, Greater London, where we
have 34% of our UK portfolio, has shown growth of 14.9% in the year to end March
2007. In Germany the IPD index for 2006 indicated that residential was the best
performing real estate sector with total annual returns of 6.5%.
Although we do not revalue our portfolio at the half year because of the number
of properties involved, the values we have achieved on selling on vacancy gives
us confidence in the strength of the market. We are also delighted that the
investment of UK and overseas institutions in G:res1 indicates the growing
interest in, and appetite for, access to professionally managed residential
property.
Results
The results to 31 March 2006 were distorted by valuation gains of £24m on the
establishment of G: res1 and as a result earnings before interest and tax
("EBIT") have fallen from £65.2m to £38.7m. On a like for like basis, adjusting
for these gains and for IFRS adjustments relating to goodwill write-offs and
marking to market our financial instruments, EBIT has fallen by approximately 9%
from £42.1m to £38.3m. This decrease is due primarily to the foreseen lower
contribution from our development activities, reflecting the natural volatility
of the profit stream in any development business.
For the same reason profit before tax has similarly moved from £36.9m to £12.1m.
Again on a like for like basis, the movement is considerably smaller, from
£13.8m to £11.7m with increased borrowing and overhead costs incurred in funding
and supporting our significant investment programme being the major factors in
the decrease.
Net Assets
Assessments of our net asset value are a key indicator of our performance. As
explained further in the operational review we disclose the following measures
of net asset value:
Gross net asset value (before any adjustments for deferred and contingent tax or
marking financial instruments to market): 659p (30 September 2006: 677p).
Triple net asset value ("NNNAV") (after full deduction for deferred and
contingent tax and marking to market): 479p (30 September 2006: 487p).
Grainger NAV (which adjusts the NNNAV to take into account the present value of
the taxed reversionary surplus on our long term UK residential portfolios): 597p
(30 September 2006: 595p).
Dividends
In light of our confidence in the Group's prospects, we have increased our
interim dividend by 10% to 2.06p per share (2006: 1.87p). This will be paid on
16 July 2007 to shareholders on the register at the close of business on 15 June
2007.
People
I would like to take this opportunity to thank all of the Grainger staff for
their support during my first few months as Chairman. I have very much enjoyed
getting closer to the business and the knowledge, skills and commitment of our
staff have proved invaluable.
Prospects and Strategy
Whilst we have again enjoyed a relatively strong period of house price growth it
seems inevitable that recent interest rate rises will serve to soften the market
although this may be more drawn out than in the past because of the greater use
of fixed rate mortgages. However, several factors underpin long term house price
growth, in particular the shortage of supply in comparison to demand due to
planning constraints, low new build volumes and higher household numbers. It is
worth noting that 70% of Grainger's regulated portfolio has a vacant possession
value below £250,000 - and it is properties in this price range that tend to
have a high demand from those increasing numbers of households.
The large and geographically diverse nature of our portfolio together with its
steady yield profile and large reversionary surplus provides us with a long term
resilience rare amongst most property companies.
The Grainger business is founded on long term exposure to the residential
housing market. Historically we have enhanced returns from this business by
exploiting advantageous levels of financial gearing. We are now seeking to
improve returns on capital and build the diversification of the business further
by leveraging our property management infrastructure and the expertise of our
people. We commenced this process by the launch and subsequent expansion of G:
res1 and will continue to examine whether the efficient use of third party
capital can be introduced to other parts of the business, in particular Grainger
Europe.
We are confident that our evolving business model will continue to deliver
attractive returns to shareholders; and that these returns will be further
enhanced by our diversification into a broadly based business with expertise and
involvement across the whole range of the residential market.
Robin Broadhurst
Chairman, 7 June 2007
Operating and Financial Review
Analysis of Grainger portfolio
Vacant Reversionary
Market possession surplus
No of units value £m value £m value £m
Regulated 7,698 1,093 1,407 314
Equity release 5,519 467 715 248
Assured 320 46 52 6
*Share of joint ventures/ - 451 500 49
associates
Vacant 246 41 45 4
Other 50 45 56 11
--- --- --- ---
UK residential 13,833 2,143 2,775 632
UK development (incl. JV) - 113 113 -
--- --- --- ---
Total UK portfolio 13,833 2,256 2,888 632
--- --- --- ---
German portfolio 3,398 151
European development - 11
--- ---
Total Europe portfolio 3,398 162
--- ---
Total Group portfolio 17,231 2,418
--- ---
--- --- --- ---
* Note: Share of joint venture and associates represents our share of the market
value of the properties held in those entities. The investment value of our
equity stakes in these businesses amounts to £227m. In addition we manage a
further 347 properties for third parties,but without an ownership interest.
Analysis of UK residential sales
£m
Trading profit/
No Sales proceeds profit on disposal
of fixed assets
Regulated (including APT) 267 43 24
Assured 34 8 2
Vacant 36 8 3
Equity release 51 8 4
Other - 1 -
--- --- ---
388 68 33
--- --- ---
Analysis of UK residential acquisitions
£m
Vacant
No Cost possession
value
Regulated (including APT) 225 29 39
Assured 79 9 11
Vacant 17 2 2
Equity release 2,532 226 294
Other - 1 1
--- --- ---
2,853 267 347
--- --- ---
Core portfolio
The majority of our core portfolio comprises residential properties let on
regulated tenancies. As at 31 March 2007 these properties accounted for 49% of
total group property and related assets by value and comprised 7,698 units at a
market value of £1,093m (based on 30 September 2006 values) (30 September 2006
7,715 units at £1,090m). The vacant possession value of the regulated portfolio
(i.e the price which we aim to achieve on sale when vacancy arises, shown at
today's prices) amounts to £1,407m (30 September 2006: £1,403m). We also have
interests in joint ventures which own significant values of regulated tenancies
and, when we include our share of these joint ventures the total vacant
possession value in which we have an interest amounts to £1,477m (30 September
2006: £1,474m).
In addition to the regulated assets we also own a further 616 units comprising
vacant properties, assured tenancies, short term lets and other interests with a
market value of £132m (30 September 2006: £141m) and a vacant possession value
of £153m (30 September 2006: £160m).
Trading summary - core portfolio
6 months to 6 months to
31 March 2007 31 March 2006
£m £m
Value Profit Value Profit
Sales on vacancy 53 26 45 20
Investment sales 7 3 17 8
--- --- --- ---
60 29 62 28
Net rental income and other income 16 15
Divisional overhead costs (8) (6)
---- ---
37 37
---- ---
Total sales from the core portfolio amounted to £59.9m (2006: £61.8m), the
slight decline arising from the fact that we have made fewer investment sales
this year. In the six months to 31 March 2006, we sold 157 properties as
investment sales which produced a profit of £8m; this year we sold 47 such
properties for a profit of £3m. Investment sales are sales of properties with
tenants in place and are generally made as a result of active portfolio
management where we feel that the returns would not be significantly enhanced by
waiting for vacancy in the usual way.
Investment sales have been relatively high over the last few years as we have
carefully worked through assets acquired in major portfolios. As we are nearing
the end of that process we would expect to see a continued reduction in the
level of those sales going forward.
Acquisitions in the period totalled £40m (31 March 2006: £31m) and included the
Portland portfolio which consisted of 110 regulated properties at a cost of £15m
and 25 other properties at a cost of £3m.
Overall trading performance in this division has been good; the vacancy rate on
our regulated portfolio is only circa 9% and although total sales volumes
(excluding investment sales) have fallen from 296 units in the first half of
last year to 290 units this year, increased margins (up from 44.0% to 48.7%) and
higher average prices achieved (2007: £183,000 compared to 2006:£168,000 on
properties sold on vacancy) have resulted in trading profits increasing from
£27.7m to £29.3m despite the reduction in investment sales referred to above.
Net rental income and other income, net of divisional overhead costs amounted to
£8m (2006: £9m).
Equity Release
We have stated previously that our strategy to grow this division is through
three principal routes: our own Bridgewater brand, the distribution arrangement
with Norwich Union and by opportunistic portfolio acquisition. Whilst all three
have proved successful, in this six month period it is this latter route which
has been most plentiful with the acquisitions of the CHARM portfolio for £134.5m
and The Capital Appreciation Trust ("CAT") for £71.6m.
The CHARM portfolio represents a financial interest in a portfolio of some 1,300
mortgages granted to retired clergy by the Church of England Pensions Board.
Grainger receives annual RPI-linked interest payments (currently representing a
yield of approximately 2.3%) and a further payment when the property is sold and
the equity mortgage redeemed. These payments are a proportion of the value of
the property on sale. Although we have only owned the portfolio for four months
early indications are that realisation rates and sales values achieved are in
line with our original expectations.
The second major acquisition, CAT, provided us with a portfolio of some 912
retirement properties, the majority of which are in McCarthy and Stone
developments. On vacancy we have the opportunity either to sell a further
lifetime lease, to let the property on an assured shorthold tenancy or to sell
the property. This acquisition has therefore enabled us to expand our activities
into the retirement home sector recognising that a wider offering will
undoubtedly increase the market to which we appeal. Once again we have had
ownership for only a few months but the signs for the rental side in particular
are favourable.
Acquisitions through other routes have also progressed well and we have invested
a total of £22.4m in the division with a majority through Bridgewater and
Norwich Union and the balance through the various distribution arrangements we
have worked hard to create throughout the period.
As at 31 March 2007 we owned 5,519 residential units in this division with an
investment value of £467m and a vacant possession value of £715m (30 September
2006: 3,003 units with investment value of £241m, and a vacant possession value
of £421m).
Our average vacancy rate is running at about 4.5% and we have sold 51 units for
£7.5m to give a trading profit of £3.4m (2006: 62 units for £6.5m, with profit
of £3.2m). After adding other income, including interest receipts, and deducting
overheads this division has made an overall contribution to profits of £3m
(2006: £2m).
Fund Management
In November 2006 we launched G: res1, our market rented residential fund, with
gross assets of £210m and debt of £125m. Since that date the fund, advised by
Grainger, has acquired the Ability Portfolio, a 700 unit market let portfolio
for £213m and raised an additional £105m of debt. In the half year we sold
equity stakes totalling £66m leaving Grainger with a holding of 67% at the end
of March. We have completed a second closing on 6 June totalling £45m which
reduces Grainger's equity stake to 44%. This additional equity came from a
combination of our existing investors and UK and Overseas institutions. We are
in advanced negotiations with other similar investors which potentially will
reduce our stake further.
At 31 March 2007 the fund owned a total of 2,150 residential units in 56 blocks
and the portfolio had an investment value of £420m with a potential annualised
rental income of £21.2m. The fund will be revalued at the end of June.
In the four and a half month period since external equity acquired stakes in the
fund Grainger has received £1.1m in asset and property management fees.
Management activities for other third parties (for example Schroders ResPUT)
produced additional fee income of £0.9m in that period.
We anticipate that annualised fee income from all of our current management
activities will be in the region of £6m.
It is our intention to grow assets under management in this fund and to continue
to seek additional third party investment.
Grainger Developments
At 31 March 2007 the market value of the assets in this division stood at £96.2m
(cost: £89.2m) and the development pipeline had a gross end value of £865m, of
which £173m has planning permission.
Work on our major site at Hornsey Road Baths, Islington continues and gradual
progress is being made on the planning front at our other projects. In
particular, we have submitted an outline planning application for 1,550
residential units, 12 hectares of employment use and 14 hectares of mixed-use at
our site at West Waterlooville. We are aiming to obtain a planning consent later
this year.
As announced in November 2006 we entered into a 50:50 joint venture agreement to
develop the 10 acre Curzon Park site in Birmingham with Development Securities
plc. With an end value of £350m to £400m and a significant residential element,
this is the type of large scale mixed-use scheme, often in conjunction with
partners, on which we will be seeking to focus in the future.
Gross contribution from this division including share of profit from joint
ventures, has amounted to £2.5m (2006: £6.0m). This also included profits on
sales of fixed assets of £0.2m. A major contributor was our £3.7m share of the
profit realised on the sale of assets in Regen, a joint venture of Grainger,
with a development site in North Shields.
Grainger Europe
We have continued to invest in our German residential portfolio and by 31 March
2007 this had grown to 3,398 units with an investment value of £151m (€222m).
Acquisitions in the period totalled some £34m and the portfolio now represents
c. 7% of total group assets by value. Since 31 March 2007 we have completed on
further properties worth £14m and notarised on further properties worth £25m.
The portfolio is principally funded by non-recourse euro loans of €170.2m,
representing a loan to value ratio of approximately 77%.
We are constantly reviewing our options for this portfolio, one of which would
be to increase it to a size were we can replicate the G: res1 fund structure by
selling equity stakes to third parties. We will continue to consider options as
our new management in Mannheim increases the size of the portfolio and the
pipeline.
We have two further smaller European assets, one a subsidiary and the other an
interest in a joint venture, and we will continue to consider new opportunities
in these entities as they arise.
The net yield on the portfolio is 5.1% and after property and operating
expenses, it contributed £2.3m to group profits (2006: £0.5m). Although income
from sales is not yet a significant element of the returns from this division,
where we have been selling units generally we have been realising sales prices
significantly above our acquisition cost.
Financial Review
Net assets
Our gross net asset value per share ("NAV") stood at 659p per share at 31 March
compared to 677p at 30 September 2006 and the major movements since that date
are as follows:-
Reflected in the Not reflected in
accounts £m the accounts £m
Total £m p per share
Net assets at 1 October 250 629 879 677
2006
Profit after tax 9 - 9 7
Revaluation movements - (24) (24) (18)
Mark to market 9 (9) - -
adjustments
Purchase of own shares (3) - (3) (3)
Dividends paid (5) - (5) (4)
Sundry other 1 (1) - -
--- --- --- ---
Net assets at 31 March 2007 261 595 856 659
--- --- --- ---
Triple net asset value ("NNNAV") after deducting contingent tax of 185p per
share and adding mark to market adjustments for fixed rate debt of 5p (30
September 2006: deductions of 187p and 3p respectively) stood at 479p per share
(2006: 487p). Contingent tax has been calculated at a rate of 30% but, at the
year-end, the rate will fall to 28% provided the 2007 Finance Act (which is
expected to reduce the rate of corporation tax) is given Royal Assent in the
summer. This rate adjustment will increase NNNAV by 12p per share.
As in previous years we present the Grainger NAV which brings in the taxed,
discounted reversionary surplus on our core regulated and retirement solutions
portfolios. We show below the Grainger NAV under various assumptions:-
No discount of deferred tax Discount deferred tax
Discount rate Discount rate
House price inflation per WACC + 3% WACC WACC + 3% WACC
annum
0% 597p 641p 709p 727p
4% 664p 733p 776p 819p
6% 708p 795p 821p 881p
WACC at 31 March 2007: 5.75%.
A financial model which calculates other permutations and a detailed explanation
of Grainger NAV can be found on our website www.graingerplc.co.uk.
Financial Performance
Operating profit before movements in fair value has increased from £36.0m to
£38.3m, major movements being:-
£m
31 March 2006 result 36.0
Contribution from German residential business
(net rents, trading profits, sale of fixed assets) 1.9
Contribution from development business (7.2)
Administrative expenses 1.6
Goodwill impairment loss 6.1
Other (0.1)
---
31 March 2007 result 38.3
---
Basic earnings per share have decreased from 20.0p to 6.7p, largely as a result
of last year's one-off revaluation surplus on the transfer of properties to G:
res1. The main movements have been:-
Pence per share Gross £m
31 March 2006 EPS 20.0 25.8
Increase in operating profit before fair value 1.8 2.3
movements
Fair value and valuation movements (22.4) (28.8)
Net interest payable (1.0) (1.3)
JV's and associates 2.3 3.0
Taxation 6.0 7.7
--- ---
31 March 2007 EPS 6.7 8.7
--- ---
Financing
Our net interest cost was £28.9m, compared to £27.6m in 2006 reflecting higher
debt levels and increased costs of borrowing - base rates have, on average, been
50 bps higher in the first six months of this year compared with 2006. At 31
March 2007 our all in cost of debt was 6.0% (30 September 2006: 5.8%) and our
net borrowings were £1,269m (30 September 2006: £1,051m). Our net debt was 69%
hedged or fixed including a £100m 15 year swap at 4.98% taken out in January
2007. We have hedges of approximately £840m in place until March 2009.
During the first six months of the year we have continued to invest
significantly to a total of £411m including £134m on CHARM, £72m on CAT and net
additional investment in G: res1 (after equity sales) of £45m.
This has been funded by a combination of operating cashflow, further drawings on
our core facility and a draw down of €147m from the €179m facility established
for our German acquisitions.
We believe that having sizeable headroom available gives us a substantial
competitive advantage and ability to be able to bid for and complete on
significant transactions with funding certainty already in place. At 31 March
2007 we had headroom available of £172m on our core facility and €32m on our
European facility and since the period end we have supplemented this with the
very successful launch of a seven year convertible bond. This is unsecured, has
a coupon of 3.625%, a post tax cash cost of approximately 1.5% and a conversion
premium of 35%. Net of costs, the proceeds of the issue were £110m and, at
today's date, available committed funding to the Group stands at over £300m. At
31 March 2007 the loan to value ratio was 58% (30 September 2006: 52%).
Consolidated income statement
For the half year ended 31 March 2007
Unaudited Audited
Six months to Year to
31 March 31 March 30 September
2007 2006 2006
Note £m £m £m
Group revenue 93.0 104.9 205.7
Net rental income 3 11.4 10.3 28.3
Profit on disposal of trading properties 4 26.9 33.8 55.9
Administrative expenses 5 (4.5) (6.1) (10.4)
Other income 2.7 1.1 2.1
Goodwill impairment loss - (6.1) (6.4)
Net other income/(expense) 2.7 (5.0) (4.3)
Profit on disposal of investment 6 1.8 3.0 5.6
property
Operating profit before net valuation
gains on investment properties and
changes in fair value 38.3 36.0 75.1
Net valuation gains on investment 9 0.6 24.0 39.9
properties
Change in fair value of derivatives (0.2) 5.1 10.4
Change in fair value through profit or
loss financial assets - 0.1 0.4
Operating profit 38.7 65.2 125.8
Interest expense (33.1) (29.3) (60.3)
Interest income 4.2 1.7 5.8
Share of profit/(loss) of associates 10 0.7 - (0.1)
after tax
Share of profit/(loss) of joint ventures 11 1.6 (0.7) 0.5
after tax
Profit before tax 12.1 36.9 71.7
Taxation - current 16 (5.7) (25.7) (30.6)
Taxation - deferred 16 2.3 14.6 9.4
Tax charge for the period (3.4) (11.1) (21.2)
Profit for the period attributable to
equity holders of the company 8.7 25.8 50.5
Basic earnings per share 7 6.70p 20.0p 39.1p
Diluted earnings per share 7 6.67p 19.8p 38.9p
Dividend per share 8 2.06p 1.87p 5.62p
Consolidated Statement of Recognised Income and Expense
For the half year ended 31 March 2007
Unaudited Audited
Six months to Year to
31 March 31 March 30 September
2007 2006 2006
£m £m £m
Profit for the period/year 8.7 25.8 50.5
Actuarial profit on BPT Limited defined
benefit pension scheme net of tax - - 0.4
Net exchange adjustments offset in reserves 0.1 - 0.1
net of tax
Changes in fair value of cash flow hedges net 9.0 - (0.8)
of tax
---- ---- ----
Total recognised income and expense for the 17.8 25.8 50.2
period/year ---- ---- ----
Effect of adoption of IAS 32 and IAS 39 on 1
October 2005 net of tax - (5.4) (5.4)
---- ---- ----
17.8 20.4 44.8
---- ---- ----
The total recognised income and expense in
the period/year is attributable to:
Equity shareholders of the parent 17.8 25.8 50.2
Minority interest - - -
--- --- ---
17.8 25.8 50.2
--- --- ---
Consolidated balance sheet
as at 31 March 2007
Unaudited Unaudited Audited
31 March 31 March 30 September
2007 2006 2006
Note £m £m £m
ASSETS
Non-current assets
Investment property 9 329.2 224.8 252.7
Property, plant and equipment 2.0 1.9 2.1
Investment in associates 10 61.9 2.1 2.0
Investment in joint ventures 11 81.7 57.5 71.5
Financial interest in property 12 134.1 - -
assets
At fair value through profit or
loss financial assets - 18.8 19.0
Goodwill 4.4 - -
Deferred tax assets - 4.4 -
613.3 309.5 347.3
Current assets
Inventories - trading properties 978.5 931.1 952.7
Trade and other receivables 13 6.8 14.4 5.3
Derivative financial instruments 10.2 1.4 2.3
Cash and cash equivalents 31.5 64.1 34.5
Assets held for sale 14 95.0 160.9 168.3
1,122.0 1,171.9 1,163.1
Total assets 1,735.3 1,481.4 1,510.4
LIABILITIES
Non-current liabilities
Interest bearing loans and 15 1,281.7 1,019.6 1,070.5
borrowings
Trade and other payables 8.0 8.0 8.0
Retirement benefits 4.6 5.3 4.6
Provisions for other liabilities 1.2 1.0 1.3
and charges
Deferred tax liabilities 16 94.6 90.3 91.1
1,390.1 1,124.2 1,175.5
Current liabilities
Interest bearing loans and 15 19.2 21.4 19.4
borrowings
Trade and other payables 17 27.1 58.5 23.3
Current tax liabilities 16 35.2 41.0 37.2
Derivative financial instruments 2.3 7.7 4.4
83.8 128.6 84.3
Total liabilities 1,473.9 1,252.8 1,259.8
Net assets 261.4 228.6 250.6
EQUITY
Capital and reserves attributable
to the company's equity holders
Issued share capital 18 6.5 6.5 6.5
Share premium 18 22.8 22.4 22.6
Merger reserve 18 20.1 20.1 20.1
Capital redemption reserve 18 0.2 0.2 0.2
Cash flow hedge reserve 18 8.2 - (0.8)
Retained earnings 18 203.4 179.2 201.8
Total shareholders' equity 261.2 228.4 250.4
Equity minority interests 0.2 0.2 0.2
Total Equity 19 261.4 228.6 250.6
Statement of consolidated cash flows
For the half year ended 31 March 2007
Unaudited Unaudited Audited
31 March 31 March 30 September
2007 2006 2006
Note £m £m £m
Cash flow from operating activities
Profit for the period/year 8.7 25.8 50.5
Depreciation 0.3 0.3 0.6
Impairment of goodwill - 6.1 6.4
Net valuation gains on investment properties 9 (0.6) (24.0) (39.9)
Net finance costs 28.9 27.6 54.5
Share of (profit)/loss of associates and joint 10&11 (2.3) 0.7 (0.4)
ventures
Gain on disposal of investment properties and 6 (1.8) (3.0) (5.6)
other investments
Share based payment charge 19 0.5 0.5 0.9
Change in fair value of derivatives and fair
value through profit or loss financial assets 0.2 (5.2) (10.8)
Taxation 16 3.4 11.1 21.2
Operating profit before changes in working 37.3 39.9 77.4
capital and provisions
(Increase)/decrease in trade and other (1.2) (9.7) 3.2
receivables
(Decrease)/Increase in trade and other payables (4.7) 3.1 2.7
Increase in trading properties (7.4) (7.1) (31.4)
Cash generated from operations 24.0 26.2 51.9
Interest paid (29.3) (27.3) (55.0)
Taxation paid 16 (7.8) (6.6) (15.4)
Net cash outflow from operating activities (13.1) (7.7) (18.5)
Cash flow from investing activities
Proceeds from sale of investment property and
property, plant and equipment 9.5 21.9 42.4
Proceeds from sale of joint venture - 5.4 5.4
Disposal of subsidiary net of cash disposed of 158.8 - -
Interest received 1.1 1.0 2.6
Dividends/distributions received 7.6 0.1 0.4
Acquisition of subsidiaries, net of cash acquired (87.1) (1.0) (3.4)
Investment in associates and joint ventures 10&11 (96.2) (46.7) (57.8)
Acquisition of investment property and property, (55.3) (60.8) (131.8)
plant and equipment
Acquisition of financial interest in property (134.1) - -
assets
Acquisition of at fair value through profit or - (0.4) (0.4)
loss financial assets
Net cash outflow from investing activities (195.7) (80.5) (142.6)
Cash flows from financing activities
Proceeds from the issue of share capital 19 0.2 0.8 1.0
Purchase of own shares 19 (3.4) - (0.5)
Proceeds from new borrowings 212.9 111.4 165.2
Repayment of borrowings (3.2) (5.0) (12.0)
Dividends paid 19 (4.9) (4.4) (6.9)
Purchase of financial derivative (0.3) - -
Net cash inflow from financing activities 201.3 102.8 146.8
Net (decrease)/increase in cash and cash (7.5) 14.6 (14.3)
equivalents
Cash and cash equivalents at beginning of period/ 39.0 53.3 53.3
year
Cash and cash equivalents at end of period/year 31.5 67.9 39.0
Notes to the interim statement
1. Basis of preparation
These interim results are unaudited and do not constitute statutory accounts as
defined in section 240 of the Companies Act 1985. The statutory accounts for
2006, which were prepared in accordance with International Financial Reporting
Standards as endorsed by the European Union (IFRS) and with those parts of the
Companies Act 1985 applicable to companies reporting under IFRS, have been
delivered to the Registrar of Companies. The Auditors' Report on those accounts
was unqualified and did not contain a statement under section 237 (2) or 237 (3)
of the Companies Act 1985.
The financial information contained in these interim results has been prepared
in accordance with the Listing rules of the Financial Services Authority and,
other than the new accounting policy for financial interest in property assets
set out in note 12, the accounting policies set out on pages 69 to 78 of the
2006 Annual Report and Accounts which is available on the Group's website (
www.graingerplc.co.uk). The accounting policies have been consistently applied
to all periods presented in the interim results. The Group has chosen not to
adopt IAS 34 'Interim Financial Reporting' in preparing this Interim Statement.
2. Gross net asset value (NAV) and NNNAV as at 31 March 2007
£m
Market value,
deferred tax Gross
Statutory and NAV Contingent Triple NAV
balance derivatives Balance Tax Balance
sheet adjustment sheet Derivatives Sheet
Properties 1,308 507 1,815 - - 1,815
Investments/other assets 374 12 386 - 3 389
Goodwill 4 (4) - - - -
Cash 32 - 32 - - 32
Total assets 1,718 515 2,233 - 3 2,236
Borrowings/creditors/ (1,301) (8) (1,309) - 6 (1,303)
derivative financial
instruments
Other net liabilities (60) (5) (65) - - (65)
Provisions/deferred tax (96) 93 (3) (240) (2) (245)
Total liabilities (1,457) 80 (1,377) (240) 4 (1,613)
Net assets 261 595 856 (240) 7 623
2007 Net assets per share 201p 458p 659p (185)p 5p 479p
(pence)
2006 Net assets per share 193p 484p 677p (187)p (3)p 487p
(pence)
There is no revaluation exercise carried out at the half year due to the number
of properties inthe portfolio. The market value balance sheets include
properties at 30 September 2006 values, adjusted for acquisitions and capital
expenditure at cost, and disposals. In addition,properties that have become
vacant in the period to 31 March are ascribed a higher percentage of the
previous year end vacant possession valuation in recognition that they are more
likely to be sold. This uplift is reflected in the income statement as a
revaluation gain.
3. Net rental income
Unaudited Unaudited Audited
31 March 31 March 30 September
2007 2006 2006
£m £m £m
Gross rental income 24.3 25.2 52.6
Property repair and maintenance costs (5.9) (7.4) (12.7)
Property operating expenses (see note 5) (7.0) (7.5) (11.6)
11.4 10.3 28.3
4. Profit on disposal of trading properties
Unaudited Unaudited Audited
31 March 31 March 30 September
2007 2006 2006
£m £m £m
Proceeds from sale of trading properties 66.0 78.5 151.0
Carrying value of trading properties (33.6) (43.4) (85.1)
sold
Operating expenses (see note 5) (5.5) (1.3) (10.0)
26.9 33.8 55.9
5. Administrative expenses
Unaudited Unaudited Audited
31 March 31 March 30 September
2007 2006 2006
£m £m £m
Total Group expenses 17.0 14.9 32.0
Many of the Group's expenses relate directly to either property management
activities or to staff involved directly with the sale and acquisition of
property. Accordingly, total Group expenses shown above have been allocated as
follows:-
Unaudited Unaudited Audited
31 March 31 March 30 September
2007 2006 2006
£m £m £m
Deducted within net rental income (see 7.0 7.5 11.6
note 3)
Deducted within profit on disposal of 5.5 1.3 10.0
trading properties (see note 4)
Administrative expenses 4.5 6.1 10.4
17.0 14.9 32.0
6. Profit on disposal of investment property
Unaudited Unaudited Audited
31 March 31 March 30 September
2007 2006 2006
£m £m £m
Proceeds from sale of investment 9.5 27.3 47.8
property
Carrying value of investment property (7.7) (24.3) (42.2)
sold
1.8 3.0 5.6
7. Earnings per share
Unaudited Unaudited Audited
31 March 31 March 30 September
2007 2006 2006
No. of No. of No. of
Shares shares shares
'000 '000 '000
Weighted average number of shares for 129,388 128,723 129,001
basic earnings per share
Weighted average number of shares for 129,922 130,119 129,804
diluted earnings per share
Basic
Basic earnings per share is calculated by dividing the profit attributable to
equity holders of the company by the weighted average number of ordinary shares
in issue during the period, excluding ordinary shares purchased by the group to
meet its obligations under the Long Term Incentive Scheme (LTIS).
Diluted
Diluted earnings per share is calculated by adjusting the weighted average
number of shares outstanding by the dilutive effect of ordinary shares that the
company may potentially issue relating to its share option schemes and
contingent share awards under the LTIS, based upon the number of shares that
would be issued if 31 March 2007 was the end of the contingency period.
8. Dividends
An interim dividend of 2.06p per share has been proposed by the directors for
payment on 16 July 2007 (31 March 2006: 1.87p per share). This dividend,
totalling £2.7m, has not been provided for in the accounts to 31 March 2007. In
the six months to 31 March 2007, the final proposed dividend for the year ended
30 September 2006 of £4.9m has been paid.
9. Investment property
Investment property is valued annually at the end of each financial year. It is
shown in the balance sheet as at 31 March at the previous year-end valuation
adjusted for acquisitions and capital expenditure at cost, and disposals. In
addition, properties that have become vacant in the period to 31 March are
ascribed a higher percentage of the previous year-end vacant possession
valuation in recognition that they are more likely to be sold. This uplift is
shown through the income statement as a revaluation gain.
Unaudited Unaudited Audited
31 March 31 March 30 September
2007 £m 2006 £m 2006 £m
Opening balance 252.7 222.4 222.4
Additions 125.1 114.8 148.1
Disposals (7.7) (19.3) (33.3)
Disposal as part of disposal of (209.8) - -
subsidiary
Revaluation gain 0.6 24.0 42.4
Transferred from trading properties - 41.4 41.4
Transfer from/(to) a disposal group 168.3 (158.5) (168.3)
(see note 14)
Closing balance 329.2 224.8 252.7
10. Investment in associates
Unaudited Unaudited Audited
31 March 31 March 30 September
2007 £m 2006 £m 2006 £m
Opening balance 2.0 0.1 0.1
Loans advanced - 2.0 2.0
Share of profits/(losses) 0.7 - (0.1)
Distributions received (0.2) - -
Share of change in fair value of cash 1.6 - -
flow hedges taken through equity
At fair value through profit or loss 19.0 - -
financial assets transferred to
investment in associates
Net assets of subsidiary transferred to 49.4 - -
investment in associates
Additional equity invested 84.4 - -
Transfer to disposal group (see note 14) (95.0) - -
Closing balance 61.9 2.1 2.0
As at 31 March 2007, the Group's interest in associates was as follows:-
% of share Country of
capital/ units Incorporation
held
G:res1 Limited 67.0 Jersey
Schroders Residential Property Unit Trust 22.3 Jersey
Ou Robbins 43.2 Estonia
11. Investment in joint ventures
Unaudited Unaudited Audited
31 March 31 March 30 September
2007 2006 2006
£m £m £m
Opening balance 71.5 17.9 17.9
Additions - 6.6 6.6
Loans advanced 14.7 38.7 51.7
Share of profits/(losses) 1.6 (0.7) 0.5
Share of change in fair value of cash 1.3 - (0.2)
flow hedges taken through equity
Distribution received (7.4) - -
Disposals - (5.0) (5.0)
Closing balance 81.7 57.5 71.5
As at 31 March 2007, the Group's interest in joint ventures was as follows:-
% of share Country of
capital/ Incorporation
units held
Grainger GenInvest LLP 50 United
Kingdom
Grainger GenInvest No. 2 (2006) LLP 50 United
Kingdom
Regen (NT) LLP 33 1/3 United
Kingdom
12. Financial interest in property assets
Unaudited Unaudited Audited
31 March 31 March 30 September
2007 2006 2006
£m £m £m
Financial interest in property assets 134.1 - -
Financial interest in property assets are accounted for under IAS 39 in
accordance,with the designation available-for-sale financial assets. They are
initially recognised at fair value plus transaction costs and are subsequently
carried at fair value. Changes in the fair value are taken through equity. When
gains or losses in the assets are realised the accumulated fair value
adjustments recognised in equity are included in the income statement as gains
and losses from financial interest in property assets. Income received from
financial interest in property assets is recognised in the income statement as
part of other income.
13. Trade and other receivables
Unaudited Unaudited Audited
31 March 31 March 30 September
2007 2006 2006
£m £m £m
Trade receivables 3.9 2.9 2.9
Other receivables 2.8 10.3 2.2
Prepayments and accrued income 0.1 1.2 0.2
6.8 14.4 5.3
14 Assets held for sale
In the six months to 31 March 2007, Grainger disposed of 33% of its equity
interest in G: res1 Limited. Marketing of the equity is continuing and it
remains the group's intention to reduce its equity stake to 20% as soon as is
practicable and within 12 months of the balance sheet date.
G:res1 is independently managed with the voting rights, and therefore control
over the key operational, financial and strategic decisions, being such that the
fund is an associate of the Group at 31 March 2007.
The Group's total investment in G:res1 at 31 March 2007 was £135.4m and, as it
is intended to reduce the Group's equity stake from the current 67%, to 20%,
these statements show a 20% interest as an investment in associates with the
balance shown as a disposal group under assets held for sale within current
assets. As at 31 March 2006 and 30 September 2006, the Group owned 100% of the
equity of the fund and, therefore, consolidated the results and net assets of
the fund. The comparatives show the composition of 80% of the assets and
liabilities of the fund which, collectively, have been shown as a disposal
group.
Unaudited Unaudited Audited
31 March 31 March 2006 30 September
2007 2006
£m £m £m
Investment in associates 95.0 - -
Investment property - 158.5 168.3
Trade and other receivables - 0.7 0.2
Cash and cash equivalents - 3.8 4.5
Trade and other payables - (2.1) (4.7)
95.0 160.9 168.3
15. Interest bearing loans and borrowings
As at 31 March 2007 the maturity profile of the Group's debt, net of finance
costs, was as follows:-
Unaudited Unaudited Audited
31 March 31 March 30 September
2007 2006 2006
£m £m £m
Within one year 19.2 21.4 19.4
Between one and two years 1.0 - 0.4
Between two and five years 759.9 756.8 822.3
Over five years 520.8 262.8 247.8
1,300.9 1,041.0 1,089.9
16. Tax
Audited Payments Acquired Movements Movememts Unaudited
As at 30 in the in the recognised recognised As at 31
September period period in income in equity March 2007
2006
£m £m £m £m £m £m
Current tax 37.2 (7.8) 0.1 5.7 - 35.2
Deferred tax
Trading property 73.7 - 2.6 (2.4) - 73.9
uplift to fair value
on acquisition
Investment property 16.5 - - (0.4) - 16.1
revaluation
Accelerated capital 1.4 - - 0.6 - 2.0
allowances
Short term timing (0.5) - - (0.1) - (0.6)
differences
Actuarial surplus on 0.2 - - - - 0.2
BPT pension scheme
Share-based payments - - - - (0.6) (0.6)
Fair value movement in (0.2) - - - 3.8 3.6
cash flow hedges
91.1 - 2.6 (2.3) 3.2 94.6
Total tax 128.3 (7.8) 2.7 3.4 3.2 129.8
The tax charge for the period of £3.4m comprises:-
Unaudited
31 March
2007
£m
UK taxation 2.7
Overseas taxation 0.7
3.4
17. Trade and other payables
Unaudited Unaudited Audited
31 March 31 March 30 September
2007 2006 2006
£m £m £m
Deposits received 0.3 0.5 0.8
Trade payables 4.9 3.6 8.4
Other taxation and social security 0.3 3.6 1.5
Accruals and deferred income 21.6 50.8 12.6
27.1 58.5 23.3
18. Capital and reserves attributable to the Company's equity holders
Issued Capital Cash flow
share Share Merger redemption hedge Retained
capital premium reserve reserve reserve earnings
£m £m £m £m £m £m
Balance as at 1 October 2006 6.5 22.6 20.1 0.2 (0.8) 201.8
(Audited)
Retained profit for the - - - - - 8.7
period
Issue of shares - 0.2 - - - -
Changes in fair value of cash - - - - 9.0 -
flow hedges net of tax
Net exchange adjustments - - - - - 0.1
offset in reserves net of tax
Purchase of own shares - - - - - (3.4)
Share-based payments charge - - - - - 0.5
Tax on share-based payments - - - - - 0.6
Dividends paid - - - - - (4.9)
Balance as at 31 March 2007 6.5 22.8 20.1 0.2 8.2 203.4
(unaudited)
19. Consolidated statement of changes in equity
Unaudited Unaudited Audited
31 March 31 March 30 September
2007 2006 2006
£m £m £m
Opening equity shareholders funds 250.6 211.1 211.1
Effect of adoption of IAS 32 and IAS 39 on - (5.4) (5.4)
1 October 2005
250.6 205.7 205.7
Retained profit for the period/year 8.7 25.8 50.5
Actuarial gain on BPT Limited defined - - 0.4
benefit pension scheme net of tax
Changes in fair value of cash flow hedges 9.0 - (0.8)
net of tax
Net exchange adjustment offset in reserves 0.1 - 0.1
net of tax
Purchase of own shares (3.4) - (0.5)
Issue of shares 0.2 0.8 1.0
Share based payments charge 0.5 0.5 0.9
Tax on share-based payments 0.6 - -
Dividends paid (4.9) (4.4) (6.9)
Minority interest on business combination - 0.2 0.2
Closing equity shareholders funds 261.4 228.6 250.6
20. Copies of this statement are being sent to all shareholders. Copies may be
obtained from the Group's registered office, Citygate, St. James' Boulevard,
Newcastle upon Tyne, NE1 4JE. Further details of this announcement can be found
on our website, www.graingerplc.co.uk.
21. The Board of Directors approved this interim statement on 7 June 2007. This
interim statement has neither been audited nor reviewed by the auditors.
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