Interim Results
Grainger PLC
29 November 2007
29 November 2007
GRAINGER plc ("Grainger" / "Group" / "Company")
Unaudited Preliminary Results for the year ended 30 September 2007
GRAINGER REPORTS 22.3% INCREASE IN GROSS NAV
Grainger plc, the UK's largest quoted residential property owner, today
announces its (unaudited) results for the year ended 30 September 2007.
Financial highlights
• Profit before tax up 62% to £77.5m (2006: £47.7m (restated))
• Gross Net Asset Value per share up 22.3% to 828p (2006: 677p); Grainger
NAV up 23.0% to 732p (2006: 595p)
• Market value of property assets up 25% to £2.5bn (2006: £2.0bn)
• Earnings per share up 82% to 47.3p (2006: 26p (restated))
• Final dividend up 10% to 4.12p per share, making a total dividend for the
year of 6.18p per share (2006: 5.62p) - 13th consecutive year of
increased dividends
• Strong liquidity position - headroom of £226m
• Return on shareholders' equity increased to 27.1% from 26.5%.
Operational highlights
Strong growth across all operating divisions, including:
• G:res1 fund successfully completed fundraising with £159m of new equity
raised - market value of assets now £457m, retained share 21%
• Market value of retirement solutions portfolio has more than doubled in
value to £542m (2006: £241m) - retains market leadership with 40%
market share
• Continued strong progress in Europe, with the German portfolio now
comprising 4,520 units with a market value of £242m
• Development portfolio continues to progress - estimated end development
value of projects up 20% to £809m, of which £324m has planning consent.
Robin Broadhurst, Chairman of Grainger plc, said:
"In my first year as Chairman of Grainger, I am pleased to report another year
of strong progress and significant achievement in our three emerging business
lines that complement our core residential regulated tenancy business.
"We continue to see good opportunities to apply our own variety and blend of
skills to different residential asset classes, whilst continuing our long
standing prudent approach towards acquisitions and liquidity. We believe that
our spread of activities will give us resilience and increase our long term
growth prospects to create shareholder value."
For further information:
Grainger plc Financial Dynamics
Rupert Dickinson/Andrew Cunningham Stephanie Highett/Dido Laurimore/Jamie Robertson
Tel: +44 (0) 20 7795 4700 Tel: +44 (0) 20 7831 3113
Chairman's Statement
In my first year as Chairman of Grainger, I am pleased to report another year of
strong progress and significant achievement in our three emerging business lines
that complement our core residential regulated tenancy business.
Overview
Conditions over the financial year have generally been favourable and we have
increased our gross property asset base to £2.5bn from £2.0bn in 2006. The
increase has come from both revaluation uplifts (our UK portfolio has shown an
uplift of 9.8%) and from acquisitions. In total we spent £614m on property
assets in the year, including the major corporate and portfolio acquisitions of
CHARM, The Capital Appreciation Trust and The Tilt Estate. The year end value
of our retirement solutions business has grown to £542m and we are pleased with
our progress in Germany where we now own over 4,500 units worth £242m. Capital
recycling through the successful launch of our G:res1 fund and prudent debt
raising in the early part of the year have meant that this growth has been
achieved at sensible loan to value ratios (53% at 30 September 2007) whilst
maintaining a valuable liquidity position - our headroom on our lending
facilities at the year end amounted to £226m.
Results
In the light of evolving practice of accounts presentation under IFRS, we have
conducted a review of the classification of our property assets. This has
involved reclassifying a small proportion of those assets (4%) from trading
stock to investment property or vice versa. The main impact has been that the
revaluation surplus of £23.5m taken through the 2006 income statement on the
transfer of assets to the Jersey Property Unit Trust ("JPUT") (that forms part
of G:res1) has instead been taken through retained earnings at the beginning of
that year net of tax of £7.0m. There is no change to market value net asset
value measures or to business cash flows. Our 2006 figures have been restated
accordingly and further details are given in the financial review section of
this report.
Profit before tax has increased by 62% to £77.5m from £47.7m (restated), the
principal driver of this being an improved contribution from our associates and
joint ventures (up to £40.6m from £0.4m).
Operating profit (before fair value movements and goodwill impairment) has
increased to £89.0m from £81.5m, largely due to improvements in trading profits
from our core business.
Gross net asset value per share ("Gross NAV") has increased by 22.3% to 828p
from 677p and there are similar improvements in our other NAV measures: Triple
net asset value ("NNNAV") up 25.8% to 613p from 487p and base case Grainger NAV
up 23.0% to 732p from 595p. Details of the calculations of these are given in
the financial review.
Return on shareholders' equity has increased to 27.1% from 26.5%.
We are again increasing our dividend by 10% (our 13th consecutive year of
increased dividends) with the result that the board are recommending a final
dividend of 4.12p per share. Together with the interim dividend of 2.06p per
share paid on 16 July 2007, this will produce a total dividend for the year of
6.18p per share (2006: 5.62p). At this level the dividend is covered 7.7 times
(2006: 4.6 times). If approved the final dividend will be paid on 18 February
2008, to shareholders on the register on 18 January 2008.
Strategy
The Group's goal is to maintain and consolidate its position as the UK's leading
quoted residential property company. It is proud of its core property
management services model which is at the heart of the business and seeks to
deliver a personal and caring service to its many tenants. Expanding and
continuing the successful delivery of this service model will allow the Group to
expand and diversify its offerings, particularly in the fields of fund
management and development, but operating within the residential arena utilising
the experience gained over its long history.
We believe this goal will continue to deliver consistent long term growth in
results and in dividends to our shareholders. We are developing a mix of
residential businesses away from our previous heavy reliance on regulated
tenancies Following the Housing Act 1988, the number of these tenancies will
reduce over the next ten years as this type of structure gradually disappears.
Historically the business has been largely centred on the ownership and trading
of these large-scale residential portfolios of regulated tenancies. Returns
have been generated through rental income and, more significantly, from
capturing reversionary surpluses on sales when the properties fall vacant.
These returns have been enhanced by a cautious approach to acquisition, the
application of rigorous management, growth in house prices and by appropriate
levels of financial gearing. In recent years we have used our cash generation
and property management platform in the residential sector to enable us to
capture a wider range of assets.
This expansion and diversification has enabled us to become market leaders in
three residential sectors; the ownership of properties subject to regulated
tenancies, providers of home reversions and residential fund management. This
latter activity, in particular, produces an income stream not reliant on the
direct ownership of property and at low incremental cost. We have also widened
our risk and return exposure by increasing our involvement in residential
development and by entering the German residential market.
Board changes
At the beginning of May, we welcomed Henry Pitman as a non-executive director.
He was previously Chief Executive of Tribal Group Plc and his experience, which
includes both property and government related housing business, will be of great
assistance to the Board.
My personal thanks go to Robert Dickinson from whom I took over as Chairman at
the conclusion of the AGM in February. His long service and contribution to the
growth of the Group has been previously recorded, but his help and guidance in
the handover of the Chairmanship was hugely appreciated.
Outlook
Whilst residential house prices continued to rise through this financial year,
the listed property sector (including real estate investment trusts) fell by
more than 20%, largely fuelled by the sentiment that the rapid rises of recent
years are unsustainable. This has now proved to be the case and there is little
doubt that the next year will be a challenging one both for the sector and for
Grainger. Notwithstanding this, recent evidence suggests that properties in our
portfolio are continuing to sell at or slightly above current valuation levels.
Grainger's average house price in its core portfolio is £205,000 and the
portfolio is geographically diverse. In light of this and our limited exposure
to new build flats in City centres (the area we expect to be the most difficult
in the coming months), we believe that we are relatively well protected from the
slowdown in the current market.
Going forward, we see good opportunities in continuing to apply our own variety
and blend of skills to different residential asset classes. Where appropriate,
we will introduce third party capital to enhance our returns and reduce our
direct balance sheet exposure. This may be in the form of joint ventures (for
example along the lines of Grainger GenInvest and Curzon Park) or in
co-investing funds (G:res1).
This will not be the first period of more challenging market conditions that the
Company has weathered in its long history. Our experience, combined with the
more diversified business model we now have in place, gives us confidence in our
positioning and prospects. We plan to continue our long standing prudent
approach towards acquisitions and liquidity and believe that our spread of
activities will give us resilience and increase our long term growth prospects
to create shareholder value.
I would like to take this opportunity to thank everyone at Grainger for the
welcome and help that they have given me in my first nine months as Chairman.
Their commitment and enthusiasm will serve the company and its shareholders well
in the future.
Robin Broadhurst
Chairman
29 November 2007
Chief Executive's Review
Market Review
There has been much recent debate over the state of the UK housing market and
the impact that recent events in the world credit markets, triggered by events
in the US sub prime sectors, will have in the future. Many indicators point to
a slowdown in the rate of house price growth - in particular, falling levels of
mortgage approvals, falls in certain house price indices and slowing sales
volumes from house builders. Commentators vary between predictions of a severe
fall in actual house prices (as was the case in the early 1990's) and a soft
landing where price growth slows and possibly stagnates for a period.
Our view is that rates of house price growth are fundamentally determined by two
factors: the balance between supply and demand and levels of affordability.
The UK is currently suffering from long term imbalance between the supply of
housing stock and the amount required to support the increasing number of
households. In the first seven years of this century UK housing completions
averaged 166,000 per annum. Government initiatives have been announced to
increase this level of supply to 240,000 (recently increased from 200,000) per
annum by 2016. Set against this are population forecasts indicating that the UK
population will rise from 60.6m in 2006 to 65m in 2016. More importantly, the
trends of immigration, an ageing population and an increasing number of single
person households will lead to an additional requirement of 209,000 households
per year to 2026. This is a continuation of the trend that has seen the numbers
of households increase by 30% in the last three decades of the 20th Century -
matched by a fall in the level of new housing built over the same period of 50%.
It remains to be seen whether, given the current planning environment,
increased availability will be able to absorb both existing and future demand.
As well as the imbalance at a total stock level, of equal importance is the
limited supply for the right type of dwelling at the right price in the right
location. For example, London and the South East has limited availability and
great levels of wealth generation. This has produced some of the largest price
increases we have seen over the last few years which, we believe, will help to
sustain the market in this area for some time to come. We have some 55% by
value of our portfolio in this region.
Conversely, there appears to be oversupply in certain provincial cities of, in
particular, recently built one or two bedroom city centre apartments primarily
built for the buy to let market. We have kept out of these more speculative
markets and therefore have virtually no exposure to this sector.
The second key factor is the level of affordability, with many commentators
pointing to the impact this had on the housing market in the early 1990's. There
are two main differences between that period and now. Firstly, base rates
between mid 1988 and mid 1992 did not drop below 10% and, at their peak,
mortgage rates were approaching 17%. Current base rates are at 5.75% and most
commentators expect that the next interest rate move will be downwards.
Secondly the economic situation is far more robust - GDP at 3.3% in Q3 2007
(above the average long term rate of 2.5%) and employment levels are at a record
high (in 1992 unemployment approached 3 million).
One of the key measures of affordability is the ability of households to meet
their normal expenditure once they have paid all their housing costs. Research
indicates that, whilst income net of housing costs still exceeds household
spend, the surplus is narrowing as a result of increased mortgage costs arising
from rate rises. The unwinding of relatively cheap fixed rate loans may well
reduce it further in the coming months but not to levels that would be likely to
precipitate a severe correction in house prices.
Consequently, whilst we are planning for a period of slower house price growth
and are therefore being more cautious in our acquisitions, we do not expect a
wholesale and significant fall in prices in the short term. However, our long
term model can withstand short term price fluctuations and we believe that the
wide geographic spread, low average price and reversionary potential in our
portfolio will enable it to continue to deliver enhanced returns.
Although the volume of transactions is relatively small, since the year end
sales values achieved on vacancy have exceeded our September vacant possession
values by 4.0%.
Risk Review
The key risks to the Grainger business are:-
- a severe long term downturn in the UK housing market
- significant increases in interest rates
- a lack of availability of finance
Dealing with each of these in turn:-
Housing market We have assembled our unique residential portfolio over a significant period of
time and its current market value is substantially greater than cost.
Moreover, much of the portfolio is reversionary and the value that we will
obtain by selling on vacancy currently exceeds market value by over £600m (the
"reversionary surplus").
The nature of our portfolio is inherently defensive in times of house price
slowdown. It is geographically diverse and, whilst one of its long term
strengths is a significant exposure to the high demand areas of London and the
South East, we are not overly exposed to cluster risk. In other areas house
price growth tends to follow the South East but, coming from a lower base, can
show dramatic levels of increase.
The majority of our properties are unrefurbished and of relatively low value.
This level of affordability is a key element of continued and sustained demand
for our properties when they become available for sale. Our average vacant
possession value is £205,000 (the UK average is £198,000) and 60% of the
portfolio is below £250,000. Our exposure to the higher end of the market ( >
£500,000) which traditionally shows greater volatility is restricted to some
279 properties out of our total UK owned portfolio of over 14,000 units. We
have found that demand for our typical properties (affordable and offering
potential for value appreciation through refurbishment) is resilient even in
times of market slowdown.
Operationally we manage our exposure to house price inflation by constant
reviews of the portfolio to ensure that we crystallise gains to maximise
returns at the right time. We are also diversifying our income streams (for
example fund management income) and our geographic spread (investment in
Germany) to spread risk.
Interest rates Our exposure to adverse interest rate movements is limited by adopting a
prudent hedging policy. At 30 September 2007 over 70% of group debt was hedged
by being either fixed or subject to caps or swaps. The hedging instruments used
and the fixed rate debt have a variety of maturity dates giving protection over
the medium term.
Availability of finance At 30 September the Group's headroom amounted to £226m and the average maturity
of our debt was six years. The first significant maturity (a revolving facility
of £400m) is not until March 2010.
We guard against lack of liquidity by constantly recycling capital; for example
we raised £282m of third party funding through equity and debt raising in the
G:res1 fund during the course of the year.
The core business in particular is very cash generative - gross rents and
property sales amounted to £165m in the year. Whilst we spent £151m on new
acquisitions, the vast majority of this can be stopped in adverse market
conditions. Consequently we are able to reduce gearing levels and improve
liquidity quickly by cutting back on purchases if necessary.
As explained above, the low value, unrefurbished nature of our portfolio means
that it is very liquid and easily realisable.
Operating Review
General
Despite the repercussions of the credit crunch in the banking markets in late
summer, the UK residential market showed strong levels of growth to the end of
September - the Nationwide and Halifax House Price indices recording gains of
9.0% and 10.7% respectively. Several regions showed growth of over 15%, in
particular Greater London at 18.6%.
Our own portfolio, with some 55% by value in London and the South East, showed
an average increase of 9.8%.
Our main operating divisions and the market value of each as a percentage of our
total property and investment assets are:-
Core portfolio 57% - Primarily our portfolio of properties subject to regulated tenancies.
Retirement solutions 22% - Our interests of home reversion and retirement related assets.
Fund management and 7% - These are investments in managed funds (G:res1 and Schroders) and in
investments in residential GenInvest (our JV with Genesis Housing Group).
joint ventures
Development 4% - Focussed on relatively large scale residential or residential led mixed use
developments.
Continental Europe 10% - Principally investment in German residential portfolios.
These operating divisions are supported by our property and asset management
divisions of over 100 staff based in our seven UK and one German offices.
Core portfolio
2007 2006
Regulated units owned 7,655 7,715
Market value £1,221m £1,090m
Value possession value £1,571m £1,403m
Other assets (vacants, assured etc) 882 652
Market value £196m £141m
Vacant possession value £220m £160m
Trading performance in this division has been strong. Although the number of
units sold has declined from 787 to 661, as explained below, sales proceeds have
increased marginally from £126m to £128m, reflecting higher average value
achieved (£193,000 compared to £160,000). Margins on normal sales (i.e. when a
property is sold on vacancy) have also improved from 48.6% to 50.7%.
The number of sales has declined because we have made fewer investment sales
(when a property is sold with a tenant in situ), down to 86 at a gross sales
value of £17.2m and profit of £9.7m, from 224 at a value of £31.3m and a profit
of £13.0m in 2006.
This is ultimately a trading portfolio and, as such, we make a number of these
sales as a result of active portfolio management where we feel that returns
would not be significantly enhanced by waiting for vacancy in the usual way.
The level of investment sales has been relatively high in recent years as we
have worked through assets acquired in major portfolios. We would expect the
volumes to continue to decline in the future as this process is completed.
We have been pleased with the levels of acquisitions in the year, enhanced by
two major corporate transactions. Firstly, The Tilt Estate Company, bought for
£48.0m and comprising a mixed tenure estate of over 300 units in East Dulwich,
London SE22 and secondly Portland House Holdings comprising 135 properties
located across England and Scotland for £12.2m. In total we have acquired 863
units for £151m (2006:462 for £70m).
Operating contribution for this division (comprising profits on sale of trading
and investment assets together with net rents and other income, after deducting
divisional overheads) amounted to £81m (2006: £76m).
Retirement Solutions
2007 2006
Interest in residential units (no.) 5,952 3,003
Market value £542m £241m
Vacant possession value £779m £421m
We have retained our market leadership in the writing of home reversion plans,
with a 40% market share at 30 September 2007. Of particular note has been our
achievement in obtaining regulated status from the Financial Services Authority
in April of this year. This puts home reversion plans on a level footing with
other equity release products which were regulated by virtue of being mortgages.
Although there was some market disruption during the period approaching the
regulation deadline, leading to a slowdown in acquisitions, we believe that, in
the long term, regulation will be a key factor in the continuing success of not
only our business, but the home reversion market in general.
In the period we sold interests in 139 home reversion assets for £14.9m and
recorded a profit of £7.4m (2006: 110 assets for £12.5m and a profit of £5.7m).
We have made significant progress in building this business in the year,
investing a total of £252m on 2,899 assets (2006: £29m on 432 assets). These
included the major acquisitions of the CHARM portfolio (a financial interest in
some 1,287 equity mortgages from the Church Commissioners for £134m) and The
Capital Appreciation Trust (Isle of Man) plc ("CAT") which comprise 911
sheltered housing units for £72m. This latter acquisition is significant in
that it enhances our product offering in this sector, giving us the opportunity
to provide more flexible tenure alternatives from rental and lifetime lease
through to shared equity.
Operating contribution from this division amounted to £8m (2006: £3m).
Fund Management and Residential Investments
Gross asset Net asset Grainger
Holding value £m value £m Share £m
Grainger GenInvest 50.0% 364 80 40
G:res1 21.6% 457 219 47
Schroders 22.4% 90 90 20
Total 2007 911 389 107
Total 2006 312 27 14
This division has made significant progress in the year, the highlight being the
close of G:res1, our market rented fund. Total third party investment in the
fund stands at £159m, representing 78.4% and investors include Mitsubishi
Corporation, Achmea, APP, British Airways Pensions Fund, FF&P, LGPI, Nomura,
Norsk Hydro, Storebrand, Swiss Re and the Universities Superannuation Scheme.
The fund itself grew considerably in the year with the acquisition of the
Ability Portfolio (700 units in East London for £205m) and NAV grew by 14% in
the period from launch in November 2006 to the end of June 2007.
Grainger GenInvest, our joint venture with Genesis Housing Group, has also shown
strong growth on the back of the London house price market - average increases
in the value of the portfolio amount to 24.7% and the value of our total
investment has increased from £10m to £40m. Including amounts lent by Grainger
to the joint venture of £68m (2006: £58m) our total investment is £108m (2006:
£68m).
Annualised fee income from our fund and property management activities now
stands at £7m.
The contribution from this division (being share of profits, dividends received,
fee income and share of revaluation surpluses in the year) amounted to £40m
(2006: £5m).
We hope that current market conditions alongside political and social
imperatives will mean that the government and Local Authorities have to look
more favourably towards the professional private rented sector as a potential
partner in providing some of the new housing supply to 2016. We are engaged in
this debate and are confident that the model we are creating will be well placed
to respond to any initiatives that are introduced.
Property Services
This division carries out the asset and day to day property management of our
core portfolios and those of our co-invested funds. The division also now
includes our lettings team and regional sales and acquisitions. In this way we
can provide a consistent level of service to each of the portfolios we manage.
2007 2006
Residential Units Managed 19,312 15,221
Gross Rent Roll £69m £51m
Gross Property Expenditure £18m £12m
Development
2007 2006
Market value of development portfolios £110m £97m
(including share of joint ventures)
Estimate of completed development value £809m £675m
Of this, with planning consent £324m £178m
We have been building our team and refining our strategy for development so that
it is more aligned to the long term ownership model of the group. We intend to
continue to sell assets to the open market to assist in generating cash flows
for the group, whilst also retaining some stock. Good progress has been
achieved on all major development sites during 2007.
In particular, at Newlands (West Waterlooville) we obtained a resolution to
grant planning for the development of 100,000 sq m of commercial space and 1,550
new homes. In addition the adopted Hampshire County Structure plan includes a
reserve allocation for a further 1,000 units. We are currently in the process of
agreeing the Section 106 agreement and hope to start on infrastructure work in
the latter part of 2008. This is an exemplar scheme where we will be directly
involved in some of the construction and in the long term management of the
estate. We expect the first house sales to commence in the financial year
ending 2009.
The current status of our other major projects is set out below:-
Expected
Gross
Development Value Income from
Project Description Status
Wholly owned
Hornsey Road
Islington 212 residential units, Under construction £44m 2008
community buildings
Macaulay Road 97 residential units Consent granted and demolition £56m 2009
commenced
Clapham 30,000 sq.ft retail
Barnsbury Complex 141 residential units Detailed planning consent £49m 2010
Islington obtained
Wards Corner 198 residential units Conditional development £76m 2012
agreement signed
Newbury 330 residential units Preferred developer status, £82m 2011
conditional development
50,000 sq.ft retail agreement early 2008
Gateshead College 263 residential units Detailed planning application £72m 2009
late 2007
Joint venture
Curzon Park Mixed use joint venture with Outline application submitted £196m 2009
Development Securities including
400,000 (Grainger share)
sq. ft. residential
800,000 sq.ft. office, 20,000
sq.ft retail and 118 bed hotel
The above analysis demonstrates that revenues from this division will become
more significant from 2009 onwards.
Operating contribution from this business in the year (including trading
profits, profits on sale of fixed assets and joint venture interests, net of
divisional overheads) amounted to £4m (2006: £7m).
Continental Europe
2007 2006
Residential units owned 4,520 2,739
Market value £241.7m £116.9m
Gross annual rent £9.8m £4.5m
Gross annual running rent £15.0m £7.5m
We have made significant advances in our European operation, in particular the
opening of our Mannheim asset and property management business, which now
employs seven members of staff. Whilst increasing interest costs have narrowed
the spread between yields and funding costs we remain optimistic for the
prospects of our German residential business. This is based on our long term
strategy which includes buying good quality assets with favourable tenant
structures in areas where residential demand is likely to remain high. The
results of this have been reflected in the valuation of our portfolio which
shows an uplift of 4.0%. We focus on smaller value portfolios (below 20m
Euros) and do not rely on overly aggressive privatisation rates to deliver the
required level of returns.
We continue to investigate alternative funding structures for our German
business and, in particular, the possibility of introducing third party equity.
The operating contribution from our German portfolio in the year was £5m,
primarily from net rental yield on the properties which is running at 4.5%
(2006: 5.0%). We have two further European interests, one of which was sold in
the year, delivering profit of £1.2m on an original investment of £2m. The
other, a subsidiary company in which we own an 81.6% stake, holds a development
site in Zizkov, Prague and is going through the planning process. Our
investment amounts to £3.5m and the gross development value may amount to as
much as £170m on phase I with a second phase of similar size to follow.
Prospects
We have been building each of our businesses in a prudent way, without assuming
the relatively high levels of house price growth that we have benefited from in
recent years. However, we believe that we now have in place a market leading
platform that can acquire, develop, fund, manage and sell a diverse range of
residential products on a national basis.
We are also confident that we can still produce good long term returns from our
specialist portfolios which rely on active management, development and trading
of reversionary surpluses and will continue to concentrate our resources in
these areas.
Rupert Dickinson
Chief Executive
29 November 2007
Financial Review
Evolution of the application of IFRS and a review of our accounts by the
Financial Reporting Review Panel has caused us to reconsider the suitability of
certain of our accounting policies, in particular the classification of market
rented residential assets which were transferred to G:res1 during the year ended
30 September 2006. In full agreement with our auditors, these assets have been
reclassified as investment assets rather than trading assets with effect from 1
October 2005 and a prior year adjustment has been made accordingly. The effect
has been to remove a revaluation surplus of £23.5m taken through the income
statement in 2006 and instead take it through retained earnings at 1 October
2005 net of tax of £7.0m. This adjustment has no effect on the key indicator of
market value, namely net asset value, and has no implications for the economics
or cash generation of the business. An added benefit is that by removing the
one-off revaluation surplus taken to profit in 2006 the disclosed income
statements for 2006 and 2007 are far more directly comparable. We have also
taken this opportunity to reclassify an immaterial balance of equity release
home reversion assets to ensure consistent presentation. Full details of the
adjustment are given in note 2.
Performance Overview
Our key performance indicators are:-
2007 2006 Change
Gross net asset value per share (pence) 828p 677p 22.3%
Return on shareholder equity (1) 27.1% 26.5% 0.6%
Return on capital employed (2) 12.1% 14.0% (1.9)%
Operating profit before fair value and goodwill
adjustments £89.0m £81.5m 9.2%
(1) Growth in NNNAV plus dividends paid per share as a percentage of opening NNNAV
(2) Profit before financing costs plus all revaluation surpluses as percentage of opening gross capital
General
Most of our properties are held as trading stock and are therefore shown in the
statutory balance sheet at cost. This does not reflect the true worth of the
assets and so we set out below a summary of our net assets with the properties
restated to market value.
Adjustments to
Statutory market value, Gross NAV Triple NAV
Balance deferred tax and balance Contingent Balance
Sheet derivatives sheet Tax Derivatives Sheet
£m £m £m £m £m £m
Properties 1,679 643 2,322 - - 2,322
Investments/other assets 186 5 191 - 2 193
Goodwill 17 - 17 - - 17
Cash 80 - 80 - - 80
Total assets 1,962 648 2,610 - 2 2,612
Borrowings etc (1,408) (12) (1,420) - 9 (1,411)
Other net liabilities (117) (6) (123) - - (123)
Provisions/deferred tax (114) 112 (2) (285) (3) (290)
Total liabilities (1,639) 94 (1,545) (285) 6 (1,824)
Net assets 323 742 1,065 (285) 8 788
2007 Net assets per share (pence) 251 577 828 (221) 6 613
2006 Net assets per share
(pence) 193 484 677 (187) (3) 487
The European Public Real Estate Association ("EPRA") Best Practices Committee
has recommended the calculation and use of a diluted EPRA NAV and a diluted EPRA
Net Net Assets Value (NNNAV). The definitions of these measures are consistent
with Gross NAV and Triple NAV as described and shown in the table above.
This definition of Gross NAV requires us to take out any adjustments for
deferred tax and changes in the fair value of derivatives as calculated under
IFRS. NNNAV requires certain of these adjustments to be reinstated and in
addition a deduction is made for contingent tax which is calculated by applying
the expected rate of tax to the full inherent gains at the balance sheet date.
Market value analysis of property assets
Fixed assets/
Shown Financial
as stock Interest in
at cost Market value Market value property
£m adjustment £m £m at value £m Total £m
Residential 964 627 1,591 610 2,201
Development 105 16 121 - 121
Total September 2007 1,069 643 1,712 610 2,322
Total September 2006 (restated) 986 527 1,513 388 1,901
Net asset value
Measurements of net asset value are key performance indicators for the Group.
We set out three measurements to better enable shareholders to compare our
performance year on year and with our peers, whilst reflecting the unique nature
of our business:-
Gross net assets per share Up 22.3% to 828p from 677p
(market value of net assets per share before
deduction for deferred tax on property assets and
before adjustments for fair value of derivatives)
Triple net assets per share NNNAV Up 25.8% to 613p from 487p
(gross NAV per share adjusted for deferred
tax on revaluation gains and for mark to
market adjustments)
Grainger NAV Up 23.0% to 732p from 595p
(NNNAV adjusted for the discounted and taxed
reversionary surplus in our long term regulated
and home reversion portfolios)
Gross net assets per share
£m pence per share
Gross NAV as at 30 September 2006 879 677
Revaluation surpluses 158 122
Profit after tax 61 47
Elimination of previously recognised surpluses (55) (43)
Other 22 25
Gross NAV as at 30 September 2007 1,065 828
Grainger net assets per share
Reconciliation of Grainger NAV to NNNAV
£m pence per share
NNNAV as at 30 September 2007 788 613
Discounted reversionary surplus 216 168
Discounted tax thereon (62) (49)
Grainger NAV as at 30 September 2007 942 732
As in previous years, we set out below the major assumptions we have used in
calculating the base case Grainger NAV and how it might change by amending those
assumptions:-
- house price inflation is taken as zero over the entire reversionary period
- a discount rate of 9.38% has been used (weighted average cost of
capital plus 3%)
- no discounting of contingent tax on the revaluation surpluses
- reversionary periods taken as 13 years for regulated properties and
11 years for home reversions
Sensitivity analysis (refer to the financial model on our website
(www.graingerplc.co.uk).
No discount of deferred tax Discounting deferred tax
House price inflation Discount rate Discount rate
per annum WACC + 3% WACC WACC +3% WACC
0% 732p 780p 878p 896p
4% 805p 882p 951p 998p
6% 855p 952p 1,001p 1,069p
Financial Performance in the Year
Operating profit before fair value movements and goodwill impairment increased
to £89.0m from £81.5m as shown below.
£m
2006 operating profit before fair value movements 75.1
Add back goodwill impairment 6.4
2006 operating profit before fair value movements and goodwill impairment 81.5
Increase in gross rents and other income 4.1
Increase in property expenses and overheads (4.3)
Increase in residential trading profits 10.5
Decrease in development trading profits (3.5)
Other 0.7
2007 Operating profit before fair value movements and goodwill impairment 89.0
The major movement in operating profit derives from an increase in trading
profits from our core residential and home reversion portfolios. As expected,
development profits have decreased in line with the fall in the number of
projects coming through for completion in the year.
Earnings per share
Basic earnings per share have increased by 71.5% to 47.3p from 26.0p (re-stated)
as shown below:-
Pence
£m per share
2006 EPS (restated) 33.5 26.0
Change in goodwill impairment 6.4 4.9
Increase in operating profit before fair value movements 7.5 5.8
Decrease in gain on revaluation of investment properties (9.0) (6.9)
Decrease in fair value of derivatives and financial assets (7.4) (5.7)
Increased contribution from JV/associates 40.2 31.2
Increase in interest payable (7.9) (6.1)
Increase in taxation and other (2.4) (1.9)
2007 EPS 60.9 47.3
As well as an improvement in operating profit, this year's result has been
enhanced by the significant contribution from our joint ventures and associates.
In particular, Grainger GenInvest which is an exclusively London based
portfolio, has shown large revaluation gains, our share of which amounts to some
£35m.
Interest and Tax
Our net interest charge has increased by £7.9m to £65.0m with interest payable
increasing by £11.5m. The increase has arisen from a combination of higher debt
levels used to finance the growth in our asset base (particularly home
reversions and Germany) and higher underlying interest rate costs. On average
monthly debt levels have exceeded 2006 figures by £208m and we have seen three
month LIBOR and Euribor rates rise by 123 basis points and 137 basis points
respectively in the year.
Our annual tax charge is at an effective rate of 21. 4%, the major items
affecting it being:-
£m
Group profit before tax 77.5
Tax at 30% 23.2
Adjustments:-
Impact of tax rate change on deferred tax (6.0)
Utilisation of capital losses (3.0)
Other including prior period adjustments 2.4
Actual tax charge 16.6
Financial Resources
The business continues to be highly cash generative producing £497m (2006:
£208m) from operating activities and sales of investment property.
Major cash outflows relate to interest (£66.1m), tax £8.5m and dividends £7.6m.
Furthermore we spent a total of £723m on acquiring new properties, funding
development and investing in joint ventures. To assist in funding this we
raised additional net debt of £336m.
During the year we revised the terms of our core borrowing facility, extending
the average maturity by two years and reducing the overall borrowing margin by
13 basis points. The first major repayment of £400m under this facility is not
due until March 2010. We also issued a seven year convertible bond producing net
proceeds of £110m. The bond has a coupon of 3.625%, a post tax cash cost of
approximately 1.5% and a conversion share price of 864p. Subsequent to this
issue we bought 1,525,000 shares back in the market for cancellation at an
average price per share of £5.12. The average maturity of our debt is 5.9 years
(2006: 4.1 years). At 30 September 2007 we had total headroom of £226m and the
loan to value ratio stood at 53% (2006: 52%).
Our all-in cost of debt in the year was 6.1% (2006: 5.8%) and our weighted
average cost of capital has moved out to 6.38% from 5.67%. Net borrowings of
£1,332m were 74% hedged (2006: £1,051m and 66%). We put in place a significant
level of new hedging early in the year including a 15 year £100m swap, at 4.98%.
In total our financial instruments were 'in the money' by £12.2m at 30 September
2007 (2006: out of the money (£2.1m)) and we have hedges/fixed rates of at least
£711m in place until March 2009.
Andrew Cunningham
Deputy Chief Executive and Finance Director
29 November 2007
Consolidated income statement (unaudited)
For the year ended 30 September 2007
Restated
2007 2006
Note £m £m
Group revenue 229.3 205.7
Net rental income 3 23.2 28.3
Profit on disposal of trading properties 4 62.8 55.9
Administrative expenses 5 (9.5) (10.4)
Other income 6.2 2.1
Goodwill impairment loss - (6.4)
Net other income/(expense) 6.2 (4.3)
Profit on disposal of investment property 6 2.5 5.2
Profit on disposal of shares in subsidiary 2.0 -
Profit on disposal of joint venture interest - 0.4
Interest income from financial assets 1.8 -
Operating profit before net valuation gains on investment
properties and changes in fair value
89.0 75.1
Net valuation gains on investment properties 9.9 18.5
Change in fair value through profit or loss
financial assets - 0.4
Operating profit 98.9 94.0
Change in fair value of derivatives 1 3.0 10.4
Interest expense (74.4) (62.9)
Interest income 9.4 5.8
Share of profit/(loss) of associates after tax 7.7 (0.1)
Share of profit of joint ventures after tax 32.9 0.5
Profit before tax 77.5 47.7
Taxation - current (16.6) (30.6)
Taxation - deferred - 16.4
Tax charge for the year 15 (16.6) (14.2)
Profit for the year attributable to equity holders of the 60.9 33.5
company
Basic earnings per share 7 47.3p 26.0p
Diluted earnings per share 7 46.6p 25.8p
Dividend per share 8 6.18p 5.62p
Included within profit for the financial year is a loss of £91,000 (2006:
£29,000) attributable to minority interests.
Consolidated Statement of Recognised Income and Expense (unaudited)
For the year ended 30 September 2007
Restated
2007 2006
£m £m
Profit for the year 60.9 33.5
Actuarial profit on BPT Limited defined benefit pension scheme net of tax 1.5 0.4
Net exchange adjustments offset in reserves net of tax 0.3 0.1
Changes in fair value of cash flow hedges net of tax 9.0 (0.8)
Net income/(expense) recognised directly in equity 10.8 (0.3)
Total recognised income and expense for the year 71.7 33.2
Effect of adoption of IAS 32 and IAS 39 on 1 October 2005 net of tax - (5.4)
Prior year adjustment - reclassification of equity release assets (0.5) -
Total recognised income and expense since last report 71.2 27.8
The total recognised income and expense in the year is attributable to:
Equity shareholders of the parent 71.2 33.2
Minority interest - -
71.2 33.2
Consolidated balance sheet (unaudited)
as at 30 September 2007
Restated
2007 2006
Note £m £m
ASSETS
Non-current assets
Investment property 9 478.6 219.4
Property, plant and equipment 2.3 2.1
Investment in associates 10 68.5 2.0
Investment in joint ventures 11 114.8 71.5
Financial interest in property assets 12 131.7 -
At fair value through profit or loss financial assets - 19.0
Goodwill 17.4 -
813.3 314.0
Current assets
Inventories - trading properties 1,069.1 985.5
Trade and other receivables 13 16.4 5.3
Derivative financial instruments 13.1 2.3
Cash and cash equivalents 80.1 34.5
Assets held for sale - 168.3
1,178.7 1,195.9
Total assets 1,992.0 1,509.9
LIABILITIES
Non-current liabilities
Interest bearing loans and borrowings 14 1,393.8 1,070.5
Trade and other payables 8.0 8.0
Retirement benefits 2.7 4.6
Provisions for other liabilities and charges 1.2 1.3
Deferred tax liabilities 15 113.5 91.1
1,519.2 1,175.5
Current liabilities
Interest bearing loans and borrowings 14 18.2 19.4
Trade and other payables 16 84.9 23.3
Current tax liabilities 15 45.8 37.2
Derivative financial instruments 0.8 4.4
149.7 84.3
Total liabilities 1,668.9 1,259.8
Net assets 323.1 250.1
EQUITY
Capital and reserves attributable to the company's equity holders
Issued share capital 17 6.4 6.5
Share premium 17 23.0 22.6
Merger reserve 17 20.1 20.1
Capital redemption reserve 17 0.3 0.2
Cash flow hedge reserve 17 8.2 (0.8)
Equity component of convertible bond 17 22.4 -
Retained earnings 17 242.6 201.3
Total shareholders' equity 323.0 249.9
Equity minority interests 0.1 0.2
Total Equity 18 323.1 250.1
Statement of consolidated cash flows (unaudited)
For the year ended 30 September 2007
Restated
2007 2006
Note £m £m
Cash flow from operating activities
Profit for the year 60.9 33.5
Depreciation 0.6 0.6
Impairment of goodwill - 6.4
Net valuation gains on investment properties (9.9) (18.5)
Net finance costs 65.0 57.1
Share of profit of associates and joint ventures (40.6) (0.4)
Gain on disposal of investment properties and other (2.5) (5.6)
Gain on disposal of shares in subsidiary (2.0) -
Share based payment charge 1.0 0.9
Change in fair value of derivatives and fair value through profit or loss
financial assets
(3.0) (10.8)
Interest income from financial assets (1.8) -
Taxation 16.6 14.2
Operating profit before changes in working capital and provisions 84.3 77.4
(Increase)/decrease in trade and other receivables (12.1) 3.2
(Decrease)/Increase in trade and other payables (1.9) 4.0
Increase in trading properties (65.1) (64.3)
Cash generated from operations 5.2 20.3
Interest paid (66.1) (55.0)
Taxation paid (8.5) (15.4)
Net cash outflow from operating activities (69.4) (50.1)
Cash flow from investing activities
Proceeds from sale of investment property and property, plant and equipment 14.8 41.1
Proceeds from sale of joint venture - 5.4
Proceeds from financial interest in property assets 4.9 -
Disposal of subsidiary net of cash disposed of 251.0 -
Interest received 4.7 2.6
Dividends/distributions received 8.0 0.4
Acquisition of subsidiaries, net of cash acquired (146.5) (3.4)
Investment in associates and joint ventures (93.3) (57.8)
Acquisition of investment property and property, plant and equipment (100.9) (98.9)
Acquisition of financial interest in property assets (134.7) -
Acquisition of at fair value through profit or loss financial assets - (0.4)
Net cash outflow from investing activities (192.0) (111.0)
Cash flows from financing activities
Proceeds from the issue of share capital 0.5 1.0
Purchase of own shares (14.8) (0.5)
Proceeds from new borrowings 227.2 165.2
Issue of convertible bond 109.6 -
Repayment of borrowings (12.1) (12.0)
Dividends paid (7.6) (6.9)
Purchase of financial derivative (0.3) -
Net cash inflow from financing activities 302.5 146.8
Net increase/(decrease) in cash and cash equivalents 41.1 (14.3)
Cash and cash equivalents at beginning of year 39.0 53.3
Cash and cash equivalents at end of year 80.1 39.0
Notes to the Preliminary Announcement of Unaudited Results
1. Basis of preparation
These 2007 preliminary results are unaudited and do not constitute statutory
accounts as defined in section 240 of the Companies Act 1985. They have been
prepared in accordance with International Financial Reporting Standards as
endorsed by the European Union (IFRS).
The financial information contained in these preliminary results has
been prepared in accordance with the Listing rules of the Financial Services
Authority and, other than a) the new accounting policy for financial interest in
property assets set out in note 12 and b) changes described in note 2 below, in
accordance with, 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 addition changes in fair value of derivatives is
now presented below operating profit in the income statement as the instruments
are not held for trading purposes.
2. Prior Year Adjustment
Evolution of the application of IFRS and a review of our accounts by the
Financial Reporting Review Panel has caused us to reconsider the treatment of
certain items in our accounts. We have reviewed the treatment and
classification in the balance sheet of our residential assets and, in
particular, the transfer of assets to the JPUT in 2006.
Classification of property assets
After a considered and detailed review we have concluded that all of our
property assets are correctly classified with the exception of some of our
equity release home reversion assets and assets transferred to JPUT (see below).
The equity release home reversion assets had been shown in the balance sheet
as investment property but as the most likely outcome will be the sale of these
assets on vacancy the more appropriate classification is as trading stock. This
has been corrected retrospectively through a prior year adjustment. There is no
impact on the accounts for the year ended 30 September 2005 or prior but the
accounts for the year ended 30 September 2006 have been restated. The assets
have been reduced from market value to historical cost by deducting £0.5m both
from the 2006revaluation gain in the 2006 income statement and from the value of
investment property.
The assets have then been correctly shown as stock rather than investment
property with the result that trading stock in the 30 September 2006 balance
sheet has increased by £32.8m and investment property decreased by the same
amount. Sales of assets of £0.5m and the related cost of sales of £0.2m have
been moved from profit on disposal of investment property and added to profit on
disposal of trading property; the additional profit arising is insignificant.
Transfer of assets to the JPUT
Included within the assets transferred to the JPUT on 1 December 2005 was £67m
of properties that had been classified as trading stock. On transfer, these were
reclassified as investment properties and a revaluation gain of £23.5m was
recognised in the 2006 income statement. A tax charge of £7.0m arose in respect
of this transfer. However, this reclassification did not comply with the
requirements of IAS 40 paragraph 57 which explains the circumstances which
provide evidence of a change in use of a property asset allowing a transfer
between categories to be made. These assets were originally acquired for the
purpose of long term capital appreciation and rental growth and, consequently,
should always have been shown as investment property rather than trading stock.
Indeed one of the main reasons why these assets were chosen to be transferred to
the JPUT was that they had always been held for that purpose. Properties
similar to these and retained by Grainger are shown in the accounts as
investment properties.
This error has been corrected by a prior year adjustment restating the opening
2006 balance sheet (i.e. at 1 October 2005) and the income statement for the
year ended 30 September 2006.
Retained earnings at 1 October 2005 have been increased by the revaluation gain
of £23.5m and a provision for deferred tax of £7.0m has been made (see note 18).
The gain of £23.5m has been eliminated from the income statement for the year
ended 30 September 2006. The tax charge for the year is reduced by £7.0m as the
deferred tax provision is released against the current tax charge arising.
Costs of £2.5m relating to the cost of raising equity investment in the JPUT
offset against this revaluation gain in 2006 have been transferred to interest
expense. This transfer has no impact on 2006 profit before tax.
The above changes have no effect on the market value NAV of the business or on
its cash flows. Basic earnings per share for the year ended 30 September 2006
are reduced from 39.1 pence as previously stated to 26.0 pence and diluted
earnings per share from 38.9 pence to 25.8 pence.
In addition we are showing separately a profit on disposal of joint ventures
interest of £0.4m in the 2006 income statement. Previously this was included
within profit on disposal of investment property.
3. Net rental income
2007 2006
£m £m
Gross rental income 52.7 52.6
Property repair and maintenance costs (15.8) (12.7)
Property operating expenses (see note 5) (13.7) (11.6)
23.2 28.3
4. Profit on disposal of trading properties
2007 2006
£m £m
Proceeds from sale of trading properties 166.0 151.0
Carrying value of trading properties sold (92.8) (85.1)
Other sales costs (see note 5) (10.4) (10.0)
62.8 55.9
5. Administrative expenses
2007 2006
£m £m
Total Group expenses 33.6 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:-
2007 2006
£m £m
Deducted within net rental income (see note 3) 13.7 11.6
Costs attributable to the disposal of trading properties (see note 4) 10.4 10.0
Administrative expenses 9.5 10.4
33.6 32.0
6. Profit on disposal of investment property
2007 2006
£m £m
Proceeds from sale of investment property 14.8 41.1
Carrying value of investment property sold (12.3) (35.9)
2.5 5.2
7. Earnings per share
2007 2006
No. of No. of
Shares Shares
'000 '000
Weighted average number of shares for basic earnings per share 128,849 129,001
Weighted average number of shares for diluted earnings per share 134,467 129,804
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 year, excluding ordinary shares purchased by the group and
held both in Trust and as treasury shares 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 convertible bond and its share
option schemes and contingent share awards under the LTIS, based upon the number
of shares that would be issued if 30 September 2007 was the end of the
contingency period. The profit for the year is adjusted to add back the after
tax interest cost on the debt component of the convertible bond.
8. Dividends
A final dividend of 4.12p per share has been proposed by the directors for
payment on 18 February 2008 (30 September 2006: 3.75p per share). This
dividend, totalling £5.3m, has not been provided for in the accounts to 30
September 2007. In the year to 30 September 2007, the final proposed dividend
of £4.9m for the year ended 30 September 2006 and the interim dividend for 2007
of £2.7m have been paid.
9. Investment property
Restated
2007 2006
£m £m
Opening balance (2006 as previously reported) 219.4 222.4
Prior year adjustment - transfer of assets to the JPUT (see note 2) - 67.0
219.4 289.4
Additions 295.8 115.7
Disposals (12.3) (35.9)
Disposal as part of disposal of subsidiary (209.8) -
Revaluation gain 9.9 18.5
Exchange adjustments 7.3 -
Transfer from/(to) a disposal group 168.3 (168.3)
Closing balance 478.6 219.4
10. Investment in associates
2007 2006
£m £m
Opening balance 2.0 0.1
Loans advanced - 2.0
Loans repaid (2.1) -
Share of profits/(losses) 7.7 (0.1)
Distributions received (0.6) -
Share of change in fair value of cash flow hedges taken through equity 0.4 -
At fair value through profit or loss financial assets transferred to 19.0 -
investment in associates
Net assets of subsidiary transferred to investment in associates 88.3 -
Additional equity invested in G:res1 Limited 84.4 -
Sale of equity in G:res1 Limited (130.6) -
Closing balance 68.5 2.0
As at 30 September 2007, the Group's interest in associates was as follows:-
% of share capital/ units Country of
held Incorporation
G:res1 Limited 21.6 Jersey
Schroders Residential Property Unit Trust 22.4 Jersey
Ou Robbins 43.2 Estonia
11. Investment in joint ventures
2007 2006
£m £m
Opening balance 71.5 17.9
Additions - 6.6
Loans advanced 17.1 51.7
Share of profits 32.9 0.5
Share of change in fair value of cash flow hedges taken through equity 0.7 (0.2)
Distribution received (7.4) -
Disposals - (5.0)
Closing balance 114.8 71.5
As at 30 September 2007, the Group's interest in joint ventures was
as follows:-
% of share capital/ units Country of
held Incorporation
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
2007 2006
£m £m
Financial interest in property assets 131.7 -
Financial interest in property assets relates to the CHARM
portfolio, which is a financial interest in equity mortgages, acquired in the
year. It is accounted for under IAS 39 in accordance with the designation
available-for-sale financial assets. The interest is initially recognised at
fair value plus transaction costs and is subsequently carried at fair value.
Subsequent to initial recognition, changes in the values of our interest in the
mortgages are recorded through the income statement based on updated estimated
cash flows using the effective interest rate applicable at acquisition.
Differences relating to updated, estimated cash flows, using the effective
interest rate applicable at acquisition compared with the effective interest
rate at the year end, assessed as the rate available in the market for an
instrument with a similar maturity and credit risk, 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 the
mortgages is recognised in the income statement on an accruals basis. All
movements in the income statement are shown on the line "interest income from
financial assets".
13. Trade and other receivables
2007 2006
£m £m
Trade receivables 5.7 2.9
Other receivables 9.0 2.2
Prepayments and accrued income 1.7 0.2
16.4 5.3
14. Interest bearing loans and borrowings
As at 30 September 2007 the maturity profile of the Group's debt,
net of finance costs, was as follows:-
2007 2006
£m £m
Within one year 18.2 19.4
Between one and two years 5.0 0.4
Between two and five years 783.6 822.3
Over five years 605.2 247.8
1,412.0 1,089.9
15. Tax
As at Payments Acquired in Movements Movements As at
30 September in the recognised recognised 30 September
2006 the year year in income in equity 2007
£m £m £m £m £m £m
Current tax 37.2 (8.5) 0.5 16.6 - 45.8
Deferred tax
Trading property uplift to
fair value on acquisition 73.7 - 3.3 (9.5) - 67.5
Investment property
revaluation 16.5 - 15.6 8.5 - 40.6
Accelerated capital allowances
Short term timing
differences (0.5) - - 0.3 - (0.2)
Actuarial surplus on BPT
pension scheme 0.2 - - - 0.6 0.8
Fair value movement in cash
flow hedges (0.2) - - - 2.9 2.7
91.1 - 18.9 - 3.5 113.5
Total tax 128.3 (8.5) 19.4 16.6 3.5 159.3
The tax charge for the period of £15.3m comprises:-
2007
£m
UK taxation 9.2
Overseas taxation 7.4
16.6
16. Trade and other payables
2007 2006
£m £m
Deposits received 0.6 0.8
Trade payables 29.7 8.4
Other taxation and social security 0.3 1.5
Accruals and deferred income 54.3 12.6
84.9 23.3
Trade payables in 2007 includes £23.6m relating to acquisitions of property
where contracts have either been unconditionally exchanged or notarised.
Accruals and deferred income in 2007 includes £31.2m of rent received in advance
on the granting of lifetime leases.
17. Capital and reserves attributable to the Company's equity holders
Equity
Issued Capital Cash flow component of
share Share Merger redemption hedge convertible Retained
capital premium reserve reserve reserve bond earnings
£m £m £m £m £m £m £m
Balance as at 1 October 2006 as
previously reported 6.5 22.6 20.1 0.2 (0.8) - 201.8
Prior year adjustment -
reclassification of equity
release assets (see note 2) - - - - - - (0.5)
Balance as at 1 October 2006
restated 6.5 22.6 20.1 0.2 (0.8) - 201.3
Retained profit for the year - - - - - - 60.9
Actuarial gain on BPT pension
scheme net of tax - - - - - - 1.5
Issue of shares - 0.4 - - - - -
Changes in fair value of cash
flow hedges net of tax - - - - 9.0 - -
Net exchange adjustments offset
in reserves net of tax - - - - - - 0.3
Purchase of own shares - - - - - - (7.0)
Cancellation of treasury shares (0.1) - - 0.1 - - (7.8)
Share-based payments charge - - - - - - 1.0
Issue of convertible bond - - - - - 22.4 -
Dividends paid - - - - - - (7.6)
Balance as at 30 September 2007 6.4 23.0 20.1 0.3 8.2 22.4 242.6
18. Consolidated statement of changes in equity
Restated
2007 2006
£m £m
Opening equity shareholders funds (2006 as previously reported) 250.1 211.1
Prior year adjustment - transfer of assets to the JPUT (see note 2) - 16.5
250.1 227.6
Effect of adoption of IAS 32 and IAS 39 on 1 October 2006 - (5.4)
250.1 222.2
Retained profit for the year (2006 restated) 60.9 33.5
Actuarial gain on BPT Limited defined benefit pension scheme net of tax 1.5 0.4
Changes in fair value of cash flow hedges net of tax 9.0 (0.8)
Net exchange adjustment offset in reserves net of tax 0.3 0.1
Purchase of own shares (7.0) (0.5)
Cancellation of treasury shares (7.8) -
Issue of shares 0.4 1.0
Share based payments charge 1.0 0.9
Dividends paid (7.6) (6.9)
Issue of convertible bond 22.4 -
Minority interest on business combination (0.1) 0.2
Closing equity shareholders funds 323.1 250.1
19. 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.
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