Final Results

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

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