Grainger PLC GRI Final Results
Grainger PLC (GRI) - Final Results
RNS Number : 7452R
Grainger PLC
22 November 2012
22 November 2012
Grainger plc
("Grainger"/"Group"/"Company")
Preliminary Results for the year ended 30 September 2012
NET ASSET VALUE INCREASED
OPERATING PERFORMANCE MAINTAINED AND DEBT REDUCED
Financial Highlights
· Gross net asset value per share up 3.2% to 223p (2011: 216p)
· Net debt of £1.19bn, a reduction in the year of £260m (£376m since March
2011) with a plan to reduce net debt to £1bn by end of 2013, a further
reduction of £190m
· Group loan to value reduced to 55% (2011: 61%)
· Operating profit (before valuation movements and non-recurring items) of
£126.4m (2011: £126.2m). Recurring profit before tax of £34.6m (2011:
£48.3m). Loss before tax of £1.7m, after derivative movements of £31.2m (30
September 2011: profit £26.1m)
· Final dividend increased to 1.37p per ordinary share (2011: 1.30p) to
give a total dividend for the year of 1.92p per ordinary share (2011: 1.83p),
an increase of 4.9%
Operational highlights
· Continued outperformance - UK Residential and Retirement Solutions
valuations up 3.9% from September 2011
· Margins on normal trading sales maintained at 44%
· Gross fee income increased by 45% to £10.0m
· German joint venture formed with global asset manager, Heitman which
will lead to increased fee income and reduced investment. Grainger will hold a
25% equity stake
Robin Broadhurst, Chairman of Grainger plc, commented:
"The value of our UK reversionary assets continues to outperform the market
indices and our overall net asset values have again increased due to our
active asset management and our long-term strategy to have greater weight in
economically stronger areas. We have also made good progress on debt reduction
and have set ourselves a target to reduce debt to below £1bn by the end of
2013 which will further demonstrate our evolution into a more lowly geared
business. The headroom generated will give us the flexibility to take
advantage of attractive opportunities that may arise. We will also continue to
strive to improve efficiency in the business and have set ourselves the goal
of reducing our cost run rate by at least 5% by the end of 2013.
"Grainger remains uniquely placed to take a leading role in, and to benefit
from, opportunities currently arising in all parts of the residential property
market, many of which have clear Government support. Over a period of time, we
will increase our exposure to rental property through our build to rent and
affordable housing initiatives. We will also take advantage of our strong
operating platform to continue to expand our management activities on behalf
of third parties and our strategic alliances with excellent partners, the
latest being our joint venture with Heitman in Germany, announced following
our year-end."
Analyst presentation
Grainger plc will be holding a presentation for analyst and investors today,
Thursday, 22 November 2012 at FTI Consulting, 26 Southampton Buildings,
London, WC2A 1PB at 9.15am (GMT).
The meeting can be accessed through the following dial-in facility and a copy
of the presentation slides will be available on Grainger's website,
www.graingerplc.co.uk.
Conference call details:
Toll Number 0208 817 9301
Toll-Free Number 0800 634 5205
Participant PIN 9319637
Webcast details: To view a webcast of the presentation, please register by
visiting the following website:
http://www1.axisto.co.uk/webcasting/investis/grainger/full-year-2012/
For further information, please
contact:
Grainger plc FTI Consulting
Andrew Cunningham / Mark Greenwood / Stephanie Highett / Dido Laurimore / Will
Kurt Mueller Henderson
Telephone: +44 (0) 207 795 4700 Telephone: +44 (0) 207 831 3113
Chairman's Statement
Grainger remains uniquely placed to take a leading role in, and to benefit
from, opportunities arising in all parts of the residential property market
using our core skills in property and asset management. The recently published
Montague Review, the Government commissioned "Review of the barriers to
institutional investment in private rented homes" reiterates the requirement
for more homes and a diverse range of tenure types in the UK. This has been
reinforced by recent Government announcements and, while the report's
recommendations will take time to translate into reality, it demonstrates the
major opportunities that are available to us.
Grainger is at the forefront of these changes and we are reshaping the
business to reflect long term changes in the market. We have rebalanced the
portfolio to have greater weight in economically strong areas and this,
together with our active management, has enabled us to build a track record of
out-performance against the market. Over a period of time we will increase our
exposure to rental property through our build to rent and affordable housing
initiatives. We are also taking advantage of our strong operating platform to
build strategic alliances with excellent partners, the latest being our joint
venture with Heitman in Germany in which we will hold a 25% equity stake.
Results
Operating profit before valuation movements and non-recurring items to 30
September 2012 has marginally improved to £126.4m (2011: £126.2m). Recurring
profit before tax was £34.6m (2011: £48.3m). We incurred a loss before tax of
£1.7m (2011: £26.1m profit) which is after a charge of £31.2m (2011: £28.0m)
relating to mark to market movements on our interest rate derivatives. Gross
net asset value (NAV) increased by over 3% to 223p per share (2011: 216p per
share).
Dividends
The Directors have recommended a final dividend of 1.37p per ordinary share
(2011: 1.30p). The total dividend for the year will therefore be 1.92p per
ordinary share (2011: 1.83p), an increase of 4.9%, following the interim
dividend of 0.55p per ordinary share (2011: 0.53p equivalent by way of a
tender offer). Before the effect of charges for the change in the mark to
market of derivatives (which is a non-cash item) the dividend is covered 3.2
times.
Board changes
Robert Hiscox retired from the board at the annual general meeting on 8
February 2012 and I would like to take this opportunity to thank him for his
significant contribution over the years. Tony Wray, Chief Executive of Severn
Trent plc was appointed to the board on 24 October 2011 and we have already
benefitted from his considerable operational and corporate knowledge and
experience during the course of the year. Henry Pitman will retire from the
board at the next annual general meeting on 6 February 2013. Henry has been a
director since May 2007 and we thank him for his invaluable advice and
contribution to the business over that period.
I am pleased to announce the appointment of Simon Davies as a Non-Executive
Director (subject to normal FSA confirmations) Simon retired from the role of
Executive Chairman at Threadneedle earlier this year after five years in the
position, having previously been Chief Executive (1999-2007) and Chief
Investment Officer (1995-1998). His long and wide experience in the financial
sector and within wider industry will be a valuable supplement to our board.
Outlook
The major housing market indices show that UK national house prices have
declined slightly over the last twelve months and liquidity and transaction
volumes remain low. The UK economy is likely to remain fragile in the short to
medium term, exacerbated by the continuing lack of resolution of the issues
around the Euro. We anticipate that these subdued market conditions will
persist through 2013.
Against this background however, through strategic acquisitions and disposals,
we have successfully repositioned Grainger to be more focused on geographic
locations where economic activity is more robust and on activities less
reliant on trading Grainger assets which has continued to show benefits. At 30
September 2012, 62% of the UK portfolio was located in London and the South
East (September 2009: 54%). In Germany, 82% (September 2011: 81%) of our
properties lie in four of the more affluent areas of the country:
Baden-Württemberg, Hesse, Northrhine-Westphalia and Bavaria.
As a result of the specialist nature of our UK properties (predominantly
second hand, low average value and un-refurbished) along with our active
value-added management, we continue to outperform general UK house price
indices. We are maintaining both sales velocity and prices, achieving good
rental growth and growing our fee income.
Strategy and Financial Position
As we have stated previously, our two key strategic objectives for 2012 have
been firstly to increase the proportion of profit generated from rents and
fees and secondly to reduce our overall net debt within the business. We have
made good progress in both regards. In the twelve months ended 30 September
2012 the proportion of operating profit composed of rents and fees was 48.4%
(2011: 46.1%). Our fee income has increased from £6.9m to £10.0m, up 45% in
the year.
This focus on the composition of profit will be maintained in 2013 as we
continue to build sustainable sources of income and further strengthen and
diversify the Company's platform.
Group net debt fell by £260m to £1.19bn from the September 2011 position of
£1.45bn. This includes the effect of the transfer of a proportion of our
German assets into the joint venture with Heitman announced recently. On this
basis, since March 2011, we have reduced net debt by £376m whilst increasing
gross net asset value by £54m. This degearing has therefore been performed
without any overall loss of value as our gross net asset value has improved by
6.2% over that eighteen month period.
We have now set ourselves the target of reducing Group debt to below £1bn by
the end of 2013. Assuming no changes to valuation this would result in a
consolidated loan to value approaching 50% from its September 2012 level of
55% (September 2011: 61%).
In conjunction with this financial degearing we have also set ourselves the
goal of reducing our cost run rate by at least 5% by the end of 2013.
The actions we have taken in 2012 and those we anticipate taking in 2013 has
given us the confidence to increase our dividend by 5% until we reach a target
net debt of £1bn, at which point we will reappraise the policy.
By changing the profiles of our asset base and income streams and by reducing
gearing, we have been repositioning our business for the future. We will
retain this focus which will enable the Group to take advantage of
opportunities as they arise.
As we close our centenary year we continue to evolve our brand and maintain
our reputation as a professional and caring landlord. To have reached 100
years as a company is a tremendous achievement and this is thanks to the
enthusiasm, skill and commitment of all our staff over the years. I would like
to extend my continuing thanks to them all.
Robin Broadhurst
Chairman
22 November 2012
Chief Executive's Review
Market Overview
The residential market in 2012 continued to show marked regional variations in
valuation movements. In London, where 50% of our assets by market value are
located, we saw year on year growth of 7.4% with Central London showing the
highest growth at 12.0% and Inner and Outer London showing increases of 6.4%
and 3.0% respectively. Our assets in some Northern regions of the country saw
further falls in value (Scotland -1.7% and North East -1.7%) compared to the
smaller falls/marginal increases in other regions (South West -0.3% and East
Anglia 1.0%). More recently, however, there are some signs of stability in the
regions as confidence improves at the lower end of the market where much of
Grainger's stock is priced.
One significant area of growth in the housing market is the private rented
sector (PRS). The sector comprises 3.65m households, a rise of over a million
in the last 10 years and in London the PRS is estimated to now exceed 25% of
households or 800,000 homes, with the sector expected to continue to grow.
The Montague Review, set up by the Housing Minister in December 2011,
highlighted the need to build more homes for rent and to increase the level of
institutional investment in the sector. The Review made a number of
recommendations including better use of public land, the creation of an
enabling fund to bridge the gap between conception and completion of purpose
built rental stock and a reduction in the requirement for the provision of
affordable housing on build to rent schemes. The Government embraced the
report and shortly afterwards announced a £200m enabling fund for the PRS
specifically and a £10bn loan guarantee for the acquisition of new homes built
for rent (private or affordable). Local Planning Authorities already have the
power to determine the amount of affordable housing each development proposal
should build and there are already signs that some Local Authorities are
considering the opportunities the recommendations provide on land in their
ownership.
These changes in tenure mix, development focus and attitudes to renting
provide a huge opportunity for multi-disciplined residential investors and
developers such as Grainger. Indeed we are already creating opportunities as
evidenced by our innovative agreement with the Royal Borough of Kensington and
Chelsea, announced recently, and our ongoing development of activities in the
build to rent sector.
The final area of the residential market that is growing with central and
local government support is the affordable housing or Social Housing Sector
which is owned by Local Authorities 47% and Registered Providers
(RP's formerly called Housing Associations) 53%. The Government's Welfare
Reform Act, in its desire to see the delivery of more new affordable housing,
includes an ability for RP's to charge 'Affordable Rents' of up to 80% of open
market rents (subject to caps that impact some London Boroughs) making
affordable housing much more viable than previously. The Act also allows
private sector companies to become 'For Profit Registered Providers' (FPRP) of
social housing in the hope that the private sector can assist in the building
of new stock. This blurring of the dividing lines between the private and
public sector provides opportunities for organisations such as Grainger to
build on its existing infrastructure and expertise to operate in this
arena. Consequently, as announced on 9 November, we have formed our own FPRP
by re-incarnating the name Grainger Trust as a subsidiary of Grainger plc
which was formally registered by the Homes and Community Agency in November
2012. Its first properties will be the 77 affordable units in the first phase
of Berewood, our 2,500 unit development site in Hampshire, currently being
built by Bloor Homes.
Business Overview
Grainger operates as owner, manager and trader of residential properties and
has three main sources of income:-
- Receipts from the sale of assets (profit from sales: £78m; 2011: £81m)
- Rents (net rents: £63m; 2011: £62m)
- Fees from co-invested and/or managed vehicles (total fees: £10m; 2011:
£6.9m)
We have repositioned the business over the last two years to reduce gearing
and to increase the proportion of our income from rents and fees.
We have continued to outperform the general residential market. In the year
ended 30 September 2012 the average of the two major housing indices (as
provided by Halifax and the Nationwide) showed a fall of 1.3%. By contrast,
Grainger's UK portfolio increased in value by 3.9%. The valuations are
supported by sales results in the year. Sales of property with vacant
possession were made 6.1% above last year's valuation.
On a vacant possession basis, since 2004 our residential portfolio in the UK
has shown cumulative valuation increases of 14.5% compared to the average
index increase of 2.5%.
This outperformance has come from active management of the portfolio:
· Geographic weighting to areas of stronger economic activity
- At 30 September 2012 62% of our UK portfolio was situated in London and
the South-East of England. In Germany, 82% of our properties were in four of
the more affluent areas of the country before the Heitman transaction and 90%
after it
· Strategic sales
- During the year lower performing assets or assets in areas of lower
expected economic activity were disposed of, generating £83m in sales and £11m
in profit, which further assists the geographic re-weighting of the Company's
portfolio
· Refurbishment, development and other added value projects
- During the year we sold refurbished, high value and development assets
totalling £54m, generating £19.6m profit
· Leveraging people and processes as well as our assets
- We manage assets largely or entirely owned by third parties to the value
of £706m which generated £10.0m of fees during the year
The three income streams in our business have the following characteristics:
· The trading element comprises sales of largely reversionary assets
(including home reversion assets), a long-term strategic land bank and low
risk development schemes. The UK residential portfolio has a reversionary
surplus of £500m. This represents a 'pipeline' of future added value which
does not carry any planning, development or construction risk. The total value
of these assets, including the reversionary surplus, amounts to £1,917m. In
addition to this, there is a development pipeline of gross development value
with current planning permission of £243m. This increases to £496m to include
schemes progressing to planning permission
· The rental element comprises a market rented portfolio of £743m of assets
(UK and Germany), producing an overall gross yield of 6.6%. This part of the
business incorporates market-focused but multiple tenure types. (This value is
before a reversionary surplus of £44m)
· Fees primarily arise from co-investment vehicles or where our returns are
based upon portfolio performance which enhance recurring profits and increase
our overall return on capital. The joint venture with Heitman announced after
the year end which will be managed by our German platform is our most recent
example
On 9 November 2012, we announced that we had signed an agreement with global
real estate investment firm Heitman to create a joint venture, to invest in
c.3,000 German rented residential units which are currently wholly owned by
Grainger. The JV will be 75:25 owned by Heitman, on behalf of a global
institutional investor, and Grainger, respectively. The JV's long-term
strategy is aimed at maximising returns through income growth and active asset
management. The deal is subject to a set of Conditions Precedent and is
expected to complete soon.
Our accounts for the year ended 30 September 2012 recognise this transaction
with the assets of £182m and liabilities of £130m classified as held-for-sale
and we have written down the investment property assets to be transferred by
£6.9m (£5.2m net of tax).
Strategy and Future Outlook
Historically Grainger's business was in the trading of reversionary
residential assets, primarily those subject to regulated tenancies. The scale
and quality of this portfolio will continue to provide healthy cash flows and
opportunities to produce added value for many years to come. We are
constantly seeking ways to maintain and maximise returns from this portfolio.
The expertise and infrastructure that Grainger has built up in accumulating
and managing this portfolio also has ensured that we have the platform in
place that positions the business strongly in terms of long term
sustainability and the potential for accretive growth. The Grainger of the
future will have a greater proportion of its activities in the rented sector
and will supplement these by leveraging its asset and property management
capabilities to manage and expand its co-investment vehicles and fee income
business.
This reflects the changing nature of the housing market. The continued
imbalance between supply and demand has led to pressure points. For example,
in value terms, areas of strong economic performance such as London, the South
East and parts of Germany show resilience and growth, with demand for good
quality, well priced rental property continuing to climb. In these areas we
see particular opportunities in the build to rent sector including affordable
housing.
These business activities together with the prevailing economic conditions
dictate that we will operate at lower levels of gearing. In the last 18 months
we have reduced debt by £376m in a controlled and managed way, whilst
increasing the net asset value of the business by £54m. We intend to continue
this policy of debt reduction so that by the end of 2013 our overall Group
debt will fall below £1bn. At equivalent levels of value our group
loan-to-value (LTV) at that point will approach 50%.
Once we reach these targeted levels we will consider further our dividend
policy. In the meantime we intend to continue our recent policy of increasing
dividends by 5% per annum.
Alongside this debt reduction programme we plan to remove 5% of costs, on a
run rate basis, from across the business by the end of 2013.
Sales
Full Year 2012 Full Year 2011
Sales Profit Sales Profit
Units sold £m £m Units sold £m £m
Trading Stock - Sales on 605 113.9 49.6 561 106.5 46.8
vacancy
Development - 18.9 3.4 - 22.1 15.1
Sales of tenanted and other 395 68.8 21.0 607 63.2 17.2
Investment Property/CHARM 504 56.8 3.6 517 31.5 1.9
sales
Overall total 1,504 258.4 77.6 1,685 223.3 81.0
Profit from sales of property, was £77.6m, compared to £81.0m in 2011,
generated from gross sales proceeds of £258.4m compared to £223.3m in 2011.
Margins on our normal sales of vacant trading properties in 2012 of 43.6% were
in line with the 44.0% achieved in 2011.
During the year the first sales were generated within our development business
from our Berewood scheme in Hampshire. This is a scheme where we own 460 acres
of land near West Waterlooville representing a pipeline of 2,550 houses to be
built out by housebuilders. The scheme is expected to generate sales over the
next fifteen years and will be a source of both profit and cash.
Sales of tenanted trading stock and other sales rose from £63.2m in 2011 to
£68.8m in 2012. Sales included £38.7m of tenanted sales, £18.5m from the sale
of high value elements from our central London stock and £7.1m of agricultural
sales.
Sales of investment properties and CHARM were £56.8m (2011: £31.5m) generating
profits of £3.6m (2011: £1.9m).
As at 16 November our total Group sales pipeline (completed sales, contracts
exchanged and properties in solicitors' hands) amounted to £61.5m with UK
normal sales values 4.1% above September 2012 valuations. (£58.7m as at 18
November 2011). In addition to this pipeline, and further sales of property as
it becomes vacant, we have identified potential additional tenanted sales of
c.£68m as at 30 September 2012.
Rents
Total net rents in the year amounted to £63m (2011: £62m).
UK Residential net rental income in the year increased to £42.5m from last
year's figure of £38.4m, assisted by the strategic portfolio acquisitions
during the previous year of HI Tricomm and the Grainger Invest LLPs. This
represents an annual gross yield of 4.1% (net yield of 3.0%).
The German business delivered net rents, before property management expenses,
of €22.8m (2011: €25.3m) at an annual gross yield of 7.0% (net yield of
4.23%). The decrease is due to strategic sales made at the end of 2011 and
during 2012 including the sale of our portfolio in Berlin in 2011 for €16m and
sales of Frankfurt property in 2012 for €21m.
Certain assets in the Retirement Solutions portfolio also produce a net rental
income and this amounted to £3.7m in the year (2011: £3.8m).
Fees and Other Income
Gross fee income increased by 45% to £10.0m (2011: £6.9m) derived from asset
and property management fees from our co-investment vehicles and management
contracts. In addition, the Group earned other income of £1.0m (2011: £1.1m).
The progress seen in the fee earning element of this business in the year to
September 2011, with the agreement with Lloyds Banking Group to establish
G:RAMP, has continued and the numbers of properties under management have
risen, with no requirement for Grainger to invest in this particular
arrangement. By 30 September 2012, G:RAMP had 1,595 units under management
and, even more importantly, had sold 1,110 units on behalf of Lloyds since the
start of the agreement.
The UK Residential division generated £0.2m in service charge management fees
and £0.8m in sundry other income.
In Retirement Solutions, management fees of £1.1m were earned. These fees
relate to the management both of the assets owned by our Sovereign joint
venture and the third party assets managed under external management contracts
with Sovereign.
During 2011 the Development business was appointed as development partner for
the Aldershot Urban Extension working with the Defence Infrastructure
Organisation. Although this scheme is at an early stage it generated
management fee income of £0.3m in 2012.
The recently announced joint venture in Germany will further increase fee
generation for the group as Grainger will provide asset management services to
the joint venture.
Asset Performance
Valuations in our UK Residential portfolio were up 4.8% at the year end from
the previous September compared to decreases in the Nationwide and Halifax
House Price indices of 1.4% and 1.2% respectively. This clearly illustrates
the specific characteristics of our property assets and the value we add to
them through expert asset and property management. One of the features of our
business, given its trading nature, is that carrying values are tested
throughout the year by sales. Vacant (normal) sales were at values, on
average, 4.5% above September 2011 vacant possession valuations. Selective
refurbishment works prior to sale can improve returns and when these are taken
into account we have sold at 8.9% above September 2011 vacant possession. The
liquidity of the properties was again demonstrated by the time taken for sale,
measured from the date of vacancy to receipt of cash, being a slight
improvement at 98 days (99 days in 2011).
We have been extremely selective as regards buying property in the UK
residential business in 2012 acquiring 86 units for £13.0m (2011: 1,950 units
for £402m including assets acquired in the Grainger Invest and HI Tricomm
transactions).
The assets in the Retirement Solutions portfolio are more geographically
widespread than the UK Residential portfolio and do not benefit from the bias
they have towards London and the South East. This geographic difference is
reflected in the valuation results for the year, which showed a small increase
of 1.0% in market value, although this is still above the average decrease of
1.3% in the Nationwide and Halifax House Price indices. Retirement Solutions
sales were at values, on average, 0.6% above September 2011 vacant possession
values.
Overall, combining UK Residential and Retirement Solutions, valuations were up
3.9% from September 2011, and sales were at values, on average, 6.1% above
September 2011 vacant possession values.
We bought £8.8m of home reversion assets in the year (2011: £14.0m).
In the year ended 30 September 2012 the market value of the UK Development
portfolio increased by £7.8m after allowing for the disposal of the first
tranche of land at Berewood. This increase primarily relates to Berewood
given the greater certainty over values at this scheme after the signing this
year of the Section 106 Agreement and the first sales of land with associated
infrastructure.
Grainger's equity investment of £41.2m in its fund and Third Party Management
division comprises our 21.96% stake in G:res, which is a market rented fund of
1,677 units. G:res is subject to a full external valuation in December and
June of each year and for the twelve months ended 30 June 2012 showed an
increase in market values of 5.8%, producing an increase in net asset value in
the fund of 18.9% in the year ended 30 September 2012. Operational results at
G:res provide a continuing insight into the current UK residential rental
market. Rental increases on renewals amounted to 4.6% for the year ended 30
September 2012 and increases on new lets for the same period were 8.1%. Both
results indicate a continued strengthening of the rental market. The investors
in this fund voted to extend its duration by two years to 2013 and its
controlled liquidation is under way as planned. In 2013 the German joint
venture referred to above will form part of this element of the Group.
In summary, our UK assets continue to outperform the market indices; the
proportion of profit derived from rents and fees has increased; our sales
margins on normal sales has been maintained; our net asset values have
increased and our gearing has reduced.
Andrew R. Cunningham
Chief Executive
22 November 2012
Financial Review
Total shareholder returns in the year amounted to 26.5%. This comprises 1.85
pence in dividends received and a movement from 86.6p to 107.7p in the share
price from 30 September 2011 to 30 September 2012.
Our key performance indicators are:
2012 2011
Operating profit before valuation movements and non-recurring £126.4m £126.2m
items (OPBVM)
Recurring Profit £34.6m £48.3m
(Loss) / Profit before tax £(1.7m) £26.1m
Gross net asset value per share (pence) 223p 216p
Triple net asset value per share (pence) 157p 153p
Excess on sale of normal sales to previous valuation 6.1% 6.7%
Return on capital employed * 5.9% 6.5%
Return on shareholder equity ** 3.8% 11.1%
*Operating profit after net valuation movements on investment properties plus
share of results from joint venture/associates plus the movement on the uplift
of trading stock to market value as a percentage of opening gross capital
defined as investment property, financial interest in property assets (CHARM),
investment in joint venture/associates and trading stock at market value.
**Growth in net net net asset value ('NNNAV') in the year plus the dividend
per share relating to each year as a percentage of opening NNNAV.
Income Performance
The table below summarises our Operating Profit before valuation movements
(OPBVM), recurring profit and loss before tax.
2012 2011
£m £m
£m
Profit on sale of assets 77.6 81.0
Net Rents 63.5 62.4
Fees/ other income 11.0 8.0
CHARM 7.1 7.1
Overheads /other expenses (32.8) (32.3)
OPBVM 126.4 126.2
Finance costs, net (90.7) (76.3)
JV's and associates (1.1) (1.6)
Recurring Profit before tax 34.6 48.3
Valuation movements including derivatives (24.6) (14.0)
Non-recurring items (11.7) (8.2)
(Loss)/profit before tax (1.7) 26.1
We have three income streams within operating profit before valuation
movements and non-recurring items (OPBVM). These are sales of residential
properties, rental income and fees or other income, net of property expenses
and overheads and before valuation and non-recurring items. The rebalancing of
the three sources of income has continued and operating profit has been
maintained.
In the year, net rents rose by 1.8% from £62.4m to £63.5m primarily due to
contributions from our acquisitions in the previous year of Grainger Invest
and HI Tricomm which are both performing in line with expectations.
Profit from sales of property was £77.6m, compared to £81.0m 2011. This was
generated from gross sales proceeds of £258.4m compared to £223.3m in 2011.
This movement in volume was driven mainly by an increase of £11.1m in
Retirement Solutions sales and also in value added and agricultural sales
which totalled £25.6m in 2012 (2011: £1.8m). Margins on normal vacant sales
were maintained.
Fees have risen to £10.0m from £6.9m assisted by increased income from G:RAMP.
Other income at £1.0m was similar to last year's figure of £1.1m.
Divisional Analysis of Operating Profit before valuation movements
Profit Management
on sale Fees/other
Net income Overheads/ Total Total
of Rents Other 2012 2011
assets
£m £m £m £m £m £m
UK Residential 59.8 42.5 1.0 (8.6) 94.7 86.0
Portfolio
Retirement 13.3 3.7 1.1 4.2 22.3 18.7
Solutions
Portfolio
Fund and third - - 8.3 (6.4) 1.9 1.8
party management
Development 3.4 0.2 0.5 (1.3) 2.8 14.4
Assets
German 1.1 17.1 0.1 (2.6) 15.7 18.3
Residential
Portfolio
Group and other - - - (11.0) (11.0) (13.0)
OPBVM 2012 77.6 63.5 11.0 (25.7) 126.4
OPBVM 2011 81.0 62.4 8.0 (25.2) 126.2
Main movements within OPBVM £m
2011 OPBVM 126.2
Increase in gross rents 3.5
Increase in residential trading profit 6.5
Increase in gross management fees and other income 3.0
Decrease in interest income from CHARM (0.2)
Decrease in development trading profit (11.7)
Increase in property expenses/ overheads/ other (0.9)
2012 OPBVM 126.4
The major movements within OPBVM are:
· An increase of £3.5m in gross rents. A full year's gross rent from our
2011 acquisition of HI Tricomm and Grainger Invest has added £9.1m. Rent
increases in the year, including an average increase in regulated rents of
12.6%, added £2.0m. These increases were negated by net sales of assets which
resulted in a reduction of £6.0m, and a reduction of £1.6m due to exchange
movements on rent in Germany.
· An increase of £6.5m in residential trading profits. This arose from
value added sales in UK Residential and additional margin from higher sales of
£11m in Retirement Solutions.
· An increase in gross management fees and other income of £3.0m arising
primarily from G:RAMP which commenced during the second half of 2011.
· A reduction of £11.7m in development profits.
Interest expense
Net recurring interest charge has increased by £14.4m from £76.3m in 2011 to
£90.7m at 30 September 2012. The interest charge increased following debt
either assumed or raised in connection with the acquisitions of HI Tricomm and
Grainger Invest. These acquisitions were made at the end of the first half of
2011. There is also an increase in the average cost of debt following the
refinancing activities of 2011 and our increasing proportion of hedged debt.
Joint ventures and associates
Joint ventures and associates contributed a loss of £1.1m to recurring profit
in the year (2011: loss of £1.6m). Included within valuation movements is a
profit of £4.6m derived from our share of the G:res revaluation surplus. In
2011 our share of revaluation surplus was £8.1m which derived from G:res and
Grainger Invest (Grainger Invest was wholly owned by Grainger throughout
2012).
Valuation and non-recurring
The movement in valuation and non-recurring items is analysed as follows:
30 September 2012 30 September 2011
£m £m Movement
Gain on acquisition of - 16.1 (16.1)
subsidiaries
Goodwill impairment - (2.2) 2.2
Write down of inventories to net (0.1) (1.8) 1.7
realisable value
Impairment provisions against - (4.2) 4.2
loans
Valuation gain/(deficit) on 2.1 (2.0) 4.1
investment property
Write down of investment property (6.9) - (6.9)
in disposal group
Change in fair value of (31.2) (28.0) (3.2)
derivatives
Valuation gains on investment
property in joint venture and 4.6 8.1 (3.5)
associates
Other non-recurring costs (4.8) (8.2) 3.4
(36.3) (22.2) (14.1)
In 2011 the gain on acquisition arose from our acquisition of HI Tricomm which
provided a gain of £14.9m, and in the case of Grainger Invest, £1.2m.
Other than movements on derivatives the major items in 2012 are a £2.1m
valuation gain on our investment property compared to a £2m deficit in 2011
and a £6.9m write down applied to the net assets in Germany being sold as part
of the Heitman transaction to their agreed value (see note 22 to the
accounts).
Fair value movements on derivatives is a charge of £31.2m. This comprises a
£24.6m adverse movement on the yield curve in the year and £6.6m in relation
to the settlement of swap contracts in both the current and prior years.
Including an amount of £21.7m relating to an agreed swap settlement value and
£4.8m included in liabilities related to assets held-for-sale, the fair value
of swaps at 30 September 2012 is a liability of £171.9m compared to £154.3m at
30 September 2011.
Loss before tax
Having taken account of interest and derivative movements and our share of
profits from joint ventures and associates of £3.5m, loss before tax was £1.7m
compared to a profit of £26.1m in 2011.
Tax
The Group has an overall tax credit of £2.1m. In achieving this credit, the
Group has released certain overseas tax provisions following a reorganisation
within the Group. In addition, there is a £1.7m reduction in deferred tax
liabilities relating to the assets in Germany being sold as part of the
Heitman transaction.
Earnings per share
Basic earnings per share is a profit of 0.1p (2011: a profit of 9.5p). A year
on year comparison is shown below:
£m Pence per share
2011 Profit/earnings per share 39.1 9.5
Movements in:
OPBVM 0.2 -
Contribution from joint ventures and associates (2.8) (0.7)
Fair value of derivatives (3.2) (0.8)
Revaluation of investment properties 4.1 1.0
Provisions against trading stock values and loans 5.9 1.5
Gain on acquisition of subsidiaries (13.9) (3.4)
Net interest payable (13.3) (3.2)
Write down of investment property in disposal group (6.9) (1.7)
Taxation and other (8.8) (2.1)
2012 Profit/ earnings per share 0.4 0.1
Dividend for the year
After considering the investment and working capital needs of the business,
the Directors have recommended a final dividend of 1.37p per ordinary share
(2011: 1.30p). This is in addition to the dividend at the half year of 0.55p
per ordinary share (2011: 0.53p) equivalent by way of a tender offer). The
total dividend for the year will therefore be 1.92p per ordinary share (2011:
1.83p), an increase of 4.9%.
Asset Performance
Net asset value
We set out two measurements to enable shareholders to compare our performance
year on year.
30 September 2012 30 September 2011
Movement
Gross net assets per share (NAV) 223p 216p 3.2%
- Market value of net assets
per share before deduction for
deferred tax on property
revaluations and before
adjustments for the fair value
of derivatives
Triple net asset value per share 157p 153p 2.5%
(NNNAV)
- Gross NAV per share
adjusted for deferred and
contingent tax on revaluation
gains and for the fair value of
derivatives
The European Public Real Estate Association ('EPRA') Best Practices Committee
has recommended the calculation and use of an EPRA NAV and an EPRA NNNAV. The
definitions of these measures are consistent with Gross NAV and Triple NAV as
described and shown in this document.
A reconciliation between the statutory balance sheet and the market value
balance sheets for both Gross NAV and NNNAV is set out below.
Reconciliation of Gross NAV to NNNAV
£m Pence per share
Gross NAV 929 223
Deferred and contingent tax (120) (29)
Fair value of derivatives adjustments net of tax (155) (37)
NNNAV 654 157
The major movements in Gross NAV in the year are:-
£m Pence per share
Gross NAV at 30 September 2011 900 216
Profit after tax - -
Revaluation gains 67 16
Elimination of previously recognised surplus on sales (47) (11)
Dividends paid (8) (2)
Derivatives movement net of tax 25 6
Others (8) (2)
Gross NAV at 30 September 2012 929 223
The major movements in NNNAV in the year are:
£m Pence per share
NNNAV at 30 September 2011 638 153
Profit after tax - -
Revaluation gains 67 16
Elimination of previously recognised surplus on sales (47) (11)
Dividends paid (8) (2)
Cashflow hedge reserve net of tax 10 2
Contingent tax 2 1
Others (8) (2)
NNNAV at 30 September 2012 654 157
Market value analysis of property assets
Shown as Investment
stock at Market property/financial interest
cost value in property assets Total
Market value
£m adjustment £m £m £m £m
Residential 953 364 1,317 843 2,160
Development 70 - 70 - 70
Total at 30 1,023 364 1,387 843 2,230
September 2012
Total at 30 1,105 344 1,449 922 2,371
September 2011
Financial resources
We have reduced net debt by a further £260m in the year from £1,454m to
£1,194m and maintained headroom at appropriate levels. Included in the
reduction is net debt to be transferred to the new joint venture with Heitman
of £118m.
The Group significantly refreshed and diversified its sources of finance
during 2011. A total of £1.2bn of new debt was secured for the purposes of
refinancing existing debt and in connection with acquisitions.
Our core group syndicated facility - with RBS, Lloyds, Barclays, Nationwide,
HSBC and Allied Irish - agreed in September 2011 and drawn during the year
provides £840m of committed facilities. Of this, £606m matures in July
2016. The balance of the facilities mature in three stages, with £166.5m
maturing in December 2014, £7.5m maturing in July 2018 and £60m maturing in
July 2020. Given the cash generative capabilities of the business we will
consider whether to repay, rather than refinance, the December 2014
maturity.
Subsequent to the year-end we also refinanced the element of our German
operations that were transferred to the new joint venture with Heitman. The
financing of €164.9m was achieved at attractive interest rates with a new
lender. In the UK we attracted development finance of £23m for our Macaulay
Road development scheme in Clapham again at competitive rates. Both these
examples evidence our continued ability to raise finance for our activities
and lenders' confidence in our business model.
As at 30 September 2012, the average maturity of the Group's committed
facilities was 5.1 years (September 2011: 5.5 years) and the average maturity
of the Group's drawn debt was 5.5 years (September 2011: 5.9 years).
The Group has free cash balances of £26m plus available overdraft of £5m along
with undrawn committed facilities of £117m. Thus headroom totals £148m as at
30 September 2012 (2011: £214m).
The Group's average interest rate excluding costs as at 30 September 2012
(based on current Libor/Euribor rates and on current debt hedging was 6.0%
(September 2011: 5.3%).
The Group's average cost of debt, including costs, through the year to 30
September was 6.1% (September 2011: 5.4%).
The business has produced £267m of cash from its operating activities derived
from net rents and other income, property sales and other working capital
movements net of overheads. The largest outflow of cash is £77m of net
interest.
At 30 September 2012 and taking into account the reduction in net debt of
£118m arising from the Heitman transaction, net debt levels had fallen from
£1,454m at September 2011 to £1,194m which is a decrease of £260m. Net debt
is now £376m lower than eighteen months ago at 31 March 2011 when net debt was
£1,570m.
At 30 September 2012 gross debt was 85% hedged (September 2011: 73%) of which
4% was subject to caps. This reduces to 84% following the Heitman
transaction.
At the year-end LTV on the core facility was 48% (September 2011: 52%). This
compares to a minimum required LTV covenant of 75%. Taking into account the
reduction in net debt of £118m arising from the Heitman transaction Group
consolidated LTV was 55% (September 2011: 61%) and upon receipt of proceeds on
completion the LTV will fall to 54%.
At 30 September 2012 the interest cover ratio on the core facility stood at
3.0 times (September 2011: 3.1 times). This compares to an interest cover
covenant of 1.35 times.
Given the progress already made and our objective of materially reducing debt
and gearing we have set ourselves the specific target of attaining a Group net
debt figure of less than £1bn by the end of 2013.
On the basis of the Group's current trading, cash flow generation and debt
reduction the Directors have concluded that it is appropriate to prepare the
Group financial statements on a going concern basis.
Mark Greenwood
Finance Director
22 November 2012
Consolidated income statement (unaudited)
2012 2011
restated
For the year ended 30 September 2012 Notes £m £m
Group revenue 3,4 311.4 296.2
5
Net rental income 5 62.8 62.4
Profit on disposal of trading property 6 74.0 79.1
Administrative expenses 8 (31.0) (33.1)
Other income 9 11.0 8.0
Other expenses 10 (3.4) (3.8)
Net gain on acquisition of subsidiary - 16.1
Goodwill impairment - (2.2)
Profit on disposal of investment property 7 3.0 1.1
Finance income from financial interest in property
assets 16 7.7 7.9
Write down of inventories to net realisable value (0.1) (1.8)
Provision for impairment of loans receivable net of
write backs - (4.2)
Operating profit before net valuation gains/(deficits)
on investment property 124.0 129.5
Net valuation gains/(deficits) on investment property 13 2.1 (2.0)
Write down of investment property in disposal group 22 (6.9) -
Operating profit after net valuation gains/(deficits) on
investment property 119.2 127.5
Change in fair value of derivatives 20 (31.2) (28.0)
Finance costs (95.3) (82.6)
Finance income 2.1 2.7
Share of profit of associates after tax 14 4.5 4.4
Share of (loss)/profit of joint ventures after tax 15 (1.0) 2.1
(Loss)/profit before tax (1.7) 26.1
Tax credit before exceptional item 2.1 2.8
Exceptional tax credit - 10.2
Tax credit for the year 19 2.1 13.0
Profit for the year attributable to the owners of the
company 0.4 39.1
Consolidated statement of comprehensive income (unaudited)
2012 2011
For the year ended 30 September 2012 Notes £m £m
Profit for the year 0.4 39.1
Actuarial (loss)/gain on BPT Limited defined benefit pension
scheme (2.0) 1.2
Fair value movement on financial interest in property assets 16 (0.4) (0.3)
Exchange adjustments offset in reserves (0.6) (0.9)
Changes in fair value of cash flow hedges 14.1 13.2
Other comprehensive income and expense for the year before
tax 11.1 13.2
Tax relating to components of other comprehensive income 19 (2.4) (4.5)
Other comprehensive income and expense for the year 8.7 8.7
Total comprehensive income and expense for the year
attributable to the owners of the company 9.1 47.8
Basic earnings per share 11 0.1p 9.5p
Diluted earnings per share 11 0.1p 9.4p
Included within comprehensive income is £5.0m (2011: £8.8m) relating to
associates and joint ventures accounted for under the equity method.
Consolidated statement of financial position (unaudited)
2012 2011
As at 30 September 2012 Notes £m £m
ASSETS
Non-current assets
Investment property 13 525.9 819.9
Property, plant and equipment 0.8 1.2
Investment in associates 14 41.2 34.6
Investment in joint ventures 15 19.2 23.9
Financial interest in property assets 16 99.0 102.3
Deferred tax assets 19 44.5 42.7
Goodwill 5.3 5.3
735.9 1,029.9
Current assets
Inventories - trading property 1,023.4 1,105.1
Trade and other receivables 17 35.6 18.3
Derivative financial instruments - 0.2
Cash and cash equivalents 73.3 90.9
Assets classified as held-for-sale 22 222.1 -
1,354.4 1,214.5
Total assets 2,090.3 2,244.4
LIABILITIES
Non-current liabilities
Interest-bearing loans and borrowings 18 1,240.1 1,428.0
Trade and other payables - 4.0
Retirement benefits 5.8 4.5
Provisions for other liabilities and charges 0.5 0.6
Deferred tax liabilities 19 37.8 47.7
1,284.2 1,484.8
Current liabilities
Interest-bearing loans and borrowings 18 27.3 116.7
Trade and other payables 21 88.4 76.4
Current tax liabilities 19 24.4 24.6
Derivative financial instruments 20 145.4 154.5
Liabilities associated with assets classified as
held-for-sale 22 129.7 -
415.2 372.2
Total liabilities 1,699.4 1,857.0
Net assets 390.9 387.4
EQUITY
Capital and reserves attributable to the owners of the
company
Issued share capital 20.8 20.8
Share premium 109.8 109.8
Merger reserve 20.1 20.1
Capital redemption reserve 0.3 0.3
Cash flow hedge reserve (24.5) (34.4)
Equity component of convertible bond 5.0 5.0
Available-for-sale reserve 3.9 4.1
Retained earnings 255.4 261.6
Equity attributable to the owners of the company 390.8 387.3
Non-controlling interests 0.1 0.1
Total equity 390.9 387.4
Consolidated Statement of changes in equity (unaudited)
Equity
Cash component
Issued Capital flow of Available-
share Share Merger redemption hedge convertible for-sale Retained Total
capital premium reserve reserve reserve bond reserve earnings Non-controlling equity
£m £m £m £m £m £m £m £m interests £m £m
Balance as at
1 October 2010 20.8 109.8 20.1 0.3 (43.0) 5.0 4.2 228.0 0.1 345.3
Profit for the
year - - - - - - - 39.1 - 39.1
Actuarial gain on
BPT Limited
defined benefit
pension scheme - - - - - - - 1.2 - 1.2
Fair value
movement on
financial
interest in
property assets - - - - - - (0.3) - - (0.3)
Exchange
adjustments
offset in
reserves - - - - - - - (0.9) - (0.9)
Changes in fair
value
of cash flow
hedges - - - - 13.2 - - - - 13.2
Tax relating to
components of
other
comprehensive
income - - - - (4.6) - 0.2 (0.1) - (4.5)
Total
comprehensive
income and
expense for
the year - - - - 8.6 - (0.1) 39.3 - 47.8
Purchase of own
shares - - - - - - - (2.8) - (2.8)
Share-based
payments charge - - - - - - - 2.0 - 2.0
Dividends paid - - - - - - - (4.9) - (4.9)
Balance as at
30 September 2011 20.8 109.8 20.1 0.3 (34.4) 5.0 4.1 261.6 0.1 387.4
Profit for the
year - - - - - - - 0.4 - 0.4
Actuarial loss on
BPT Limited
defined benefit
pension scheme - - - - - - - (2.0) - (2.0)
Fair value
movement on
financial
interest in
property assets - - - - - - (0.4) - - (0.4)
Exchange
adjustments
offset in
reserves - - - - - - - (0.6) - (0.6)
Changes in fair
value of
cash flow hedges - - - - 14.1 - - - - 14.1
Tax relating to
components of
other
comprehensive
income - - - - (4.2) - 0.2 1.6 - (2.4)
Total
comprehensive
income and
expense for the
year - - - - 9.9 - (0.2) (0.6) - 9.1
Purchase of own
shares - - - - - - - (0.5) - (0.5)
Proceeds from
SAYE shares - - - - - - - 0.4 - 0.4
Share-based
payments charge - - - - - - - 2.1 - 2.1
Dividends paid - - - - - - - (7.6) - (7.6)
Balance as at
30 September 2012 20.8 109.8 20.1 0.3 (24.5) 5.0 3.9 255.4 0.1 390.9
Consolidated statement of cash flows (unaudited)
2012 2011
For the year ended 30 September 2012 Notes £m £m
Cash flow from operating activities
Profit for the year 0.4 39.1
Depreciation 0.4 0.6
Net gain on acquisition of subsidiary - (16.1)
Goodwill impairment - 2.2
Write down of investment property in disposal group 22 6.9 -
Net valuation (gains)/ deficits on investment property 13 (2.1) 2.0
Net finance costs 93.2 79.9
Share of profit of associates and joint ventures 14,15 (3.5) (6.5)
Profit on disposal of investment property 7 (3.0) (1.1)
Provision for impairment of loans receivable net of
write-backs - 4.2
Share-based payment charge 2.1 2.0
Change in fair value of derivatives 31.2 28.0
Interest income from financial interest in property
assets 16 (7.7) (7.9)
Taxation 19 (2.1) (13.0)
Operating profit before changes in working capital 115.8 113.4
Increase in trade and other receivables (13.5) (0.8)
Decrease in trade and other payables (3.8) (4.8)
Decrease in provisions for liabilities and charges (0.1) (0.2)
Decrease in trading property 78.3 71.7
Cash generated from operations 176.7 179.3
Interest paid (78.1) (73.1)
Taxation paid 19 (12.0) (4.4)
Net cash inflow from operating activities 86.6 101.8
Cash flow from investing activities
Proceeds from sale of investment property 7 48.3 24.6
Proceeds from financial interest in property assets 16 10.6 9.2
Proceeds from redemption of equity units in associate 14 - 0.1
Dividend and loan repayment from joint venture 15 3.5 -
Interest received 0.7 1.9
Proceeds from disposal of interest in subsidiary - 17.5
Acquisition of subsidiaries, net of cash acquired - (23.1)
Investment in associates and joint ventures 15 (0.5) (2.4)
Acquisition of investment property and property, plant
and equipment 13 (5.5) (5.9)
Net cash inflow from investing activities 57.1 21.9
Cash flows from financing activities
Proceeds from SAYE options 0.4 -
Purchase of own shares (0.5) (2.8)
Proceeds from new borrowings 79.0 220.0
Payment of loan costs (10.5) -
Settlement of derivative contracts (1.2) -
Repayment of borrowings (215.5) (335.1)
Dividends paid 12 (7.6) (4.9)
Payments to defined benefit pension scheme (1.0) (0.6)
Net cash outflow from financing activities (156.9) (123.4)
Net (decrease)/increase in cash and cash equivalents (13.2) 0.3
Cash and cash equivalents at the beginning of the year 90.9 91.5
Net exchange movements on cash and cash equivalents (1.8) (0.9)
Total cash and cash equivalents at the end of the year 75.9 90.9
Cash held in assets classified as held-for-sale 22 (2.6) -
Cash and cash equivalents at the end of the year 73.3 90.9
Notes to the Preliminary Announcement of unaudited results
1a. Basis of Preparation
The Board approved this preliminary announcement on 22 November 2012.
The financial information included in this preliminary announcement is
unaudited and does not constitute the Group's statutory accounts for the years
ended 30 September 2011 or 30 September 2012. Statutory accounts for the year
ended 30 September 2011 have been delivered to the Registrar of Companies. The
statutory accounts for the year ended 30 September 2012 will be delivered to
the Registrar of Companies following the company's annual general meeting.
The auditors have reported on the 2011 accounts; their report was unqualified,
did not include any references to any matters by way of emphasis and did not
contain statements under section 498 (2) or (3) of the Companies Act 2006.
These financial statements for the year ended 30 September 2012 have been
prepared under the historical cost convention except for the following assets
and liabilities which are stated at their fair value; investment property,
derivative financial instruments and financial interest in property assets.
The accounting policies used are consistent with those contained in the
Group's last annual report and accounts for the year ended 30 September 2011.
The financial information included in this preliminary announcement has been
prepared in accordance with EU endorsed International Financial Reporting
Standards ('IFRS'), IFRIC interpretations and those parts of the Companies Act
2006 applicable to companies reporting under IFRS.
1b. Adoption of new and revised international Financial Reporting
Standards
New standards and interpretations in the year
At the date of approval of these financial statements, the following
interpretations and amendments were issued, endorsed by the EU and are
mandatory for the group for the first time for the financial year beginning
1 October 2011.
Amendments to existing standards
· Amendment to IFRS 1 'First time adoption' was updated to clarify that a
first-time adopter that changes its accounting policies or its use of IFRS 1
exemptions after publishing a set of IAS 34 interim financial information
should explain those changes and include the effects of such changes in its
opening reconciliations within the first annual IFRS reporting.
· Amendments to IFRS 1 'First time adoption' was updated to extend the
exemption to use a 'deemed cost' arising from a revaluation triggered by an
event such as a privatisation that occurred at or before the date of
transition to IFRS, to revaluations that occur during the period covered by
the first IFRS financial statements.
· Amendments to IFRS 1 'First time Adoption' amends fixed dates and
includes guidance on implementations affected by hyperinflation.
· Amendments to IFRS 1 'First time adoption' was updated to clarify that
entities subject to rate regulation are allowed to use previous GAAP carrying
amounts of property, plant and
· equipment or intangible assets as deemed cost on an item-by-item basis.
· Amendments to IFRS 3 'Business combinations' was updated to extend the
application guidance to all share-based payment transactions that are part of
a business combination, including un-replaced and voluntarily replaced
share-based payment awards.
· Amendments to IFRS 3 'Business combinations' was updated to clarify that
the choice of measuring non-controlling interests at fair value or at the
proportionate share of the acquiree's net assets applies only to instruments
that represent present ownership interests and entitle their holders to a
proportionate share of the net assets in the event of liquidation. All other
components of non-controlling interest are measured at fair value unless
another measurement basis is required by IFRS.
· Amendments to IFRS 7 'Financial Instruments: Disclosures' includes
changes to promote transparency in the reporting of transfer transactions and
improve users' understanding of the risk exposures of transfers of financial
assets.
· Amendments to IFRS 7 'Financial Instruments: Disclosures' was updated to
include multiple clarifications related to the disclosure of financial
instruments.
· Amendments to IAS 24 (revised) 'Related party disclosures' was updated
to remove the requirement for government related entities to disclose details
of all transactions with government-related entities and it clarifies and
simplifies the definition of a related party.
· Amendment to IAS 27 'Consolidated and Separate Financial Statements' was
updated to clarify that the consequential amendments to IAS 21, IAS 28 and IAS
31 following the 2008 revisions to IAS 27 are to be applied prospectively.
· Amendment to IAS 34 'Interim Financial Reporting' was updated to place
greater emphasis on the disclosure principles involving significant events and
transactions, including changes to fair value measurements, and the need to
update relevant information from the most recent annual report.
International Financial Reporting Interpretations Committee
('IFRIC') interpretations
· IFRIC 15 'Arrangement for construction of real estates' clarifies when
IAS 18 'Revenue Recognition' and IAS 11 'Construction contracts' should be
applied to particular transactions.
· IFRIC 18 'Transfer of assets from customers' clarifies the accounting
for arrangements where an item of property, plant and equipment that is
provided by the customer is used to provide an ongoing service.
· IFRIC 19 'Extinguishing financial liabilities with equity instruments'
clarifies the accounting when an entity renegotiates the terms of its debt
with the result that the liability is extinguished through the creditor
issuing its own equity instruments to the debtor.
Amendments to existing interpretations
· Amendment to IFRIC 13 'Customer loyalty programmes' to clarify the term
'fair value' in the context of measuring award credits under customer loyalty
programmes.
· Amendment to IFRIC 14 'Prepayments of a minimum funding requirement'
applies only to entities that are required to make minimum funding
contributions to a defined benefit pension plan.
These standards and amendments to these standards and interpretations have had
no material financial impact on these financial statements.
1c. Group risk factors
As with all businesses, the Group is affected by certain risks, not wholly
within our control, which could have a material impact on the Group and could
cause actual results to differ materially from forecast and historical
results. The most significant of these, all of which are macro-economic, are
as follows:-
· A negative impact on Germany and the UK from a deterioration of the
Eurozone
· Long term flat or negative growth in value of group assets
· Availability of sufficient funds at the right price
· A rapid, cataclysmic decline in house prices.
The principal risks facing the Group will be set out in more detail in the
2012 Annual Report and Accounts.
2 Analysis of profit after tax
The results for the years ended 30 September 2011 and 2012, respectively, have
been affected by valuation movements and non-recurring items. The table below
provides further analysis of the consolidated income statement showing the
results of trading activities separately from these other items.
2012 2011 (restated)
Trading Valuation Non-recurring Total Trading Valuation Non-recurring Total
£m £m £m £m £m £m £m £m
Group revenue 311.4 - - 311.4 296.2 - - 296.2
Net rental income 63.5 - (0.7) 62.8 62.4 - - 62.4
Profit on
disposal of
trading property 74.0 - - 74.0 79.1 - - 79.1
Administrative
expenses (31.0) - - (31.0) (32.3) - (0.8) (33.1)
Other income 11.0 - - 11.0 8.0 - - 8.0
Other expenses (1.8) - (1.6) (3.4) - - (3.8) (3.8)
Net gain on
acquisition of
subsidiary - - - - - 16.1 - 16.1
Goodwill
impairment - - - - - (2.2) - (2.2)
Profit on
disposal of
investment
property 3.0 - - 3.0 1.1 - - 1.1
Finance income
from financial
interest
in property
assets 7.7 - - 7.7 7.9 - - 7.9
Write down of
inventories
to net realisable
value - (0.1) - (0.1) - (1.8) - (1.8)
Provision for
impairment of
loans receivable
net of
write-backs - - - - - (4.2) - (4.2)
Operating profit
before net
valuation
gains/(deficits)
on investment
property 126.4 (0.1) (2.3) 124.0 126.2 7.9 (4.6) 129.5
Net valuation
gains/(deficits)
on investment
property - 2.1 - 2.1 - (2.0) - (2.0)
Write down of
investment
property in
disposal group - - (6.9) (6.9) - - - -
Operating profit
after net
valuation
gains/(deficits)
on investment
property 126.4 2.0 (9.2) 119.2 126.2 5.9 (4.6) 127.5
Change in fair
value of
derivatives - (31.2) - (31.2) - (28.0) - (28.0)
Finance costs (92.8) - (2.5) (95.3) (79.0) - (3.6) (82.6)
Finance income 2.1 - - 2.1 2.7 - - 2.7
Share of profit
of associates
after tax (0.1) 4.6 - 4.5 0.2 4.2 - 4.4
Share of
(loss)/profit of
joint ventures
after tax (1.0) - - (1.0) (1.8) 3.9 - 2.1
(Loss)/profit
before tax 34.6 (24.6) (11.7) (1.7) 48.3 (14.0) (8.2) 26.1
Tax (6.3) 6.7 1.7 2.1 (7.9) 10.7 10.2 13.0
Profit after tax 28.3 (17.9) (10.0) 0.4 40.4 (3.3) 2.0 39.1
3. Segmental information
IFRS 8 'Operating Segments' (IFRS 8) requires operating segments to be
identified based upon the Group's internal reporting to the Chief Operating
Decision Maker ("CODM") so that the CODM can make decisions about resources to
be allocated to segments and assess their performance. The Group's CODM is
the Chief Executive Officer.
The Group has identified five segments and is treating all of these as
reportable segments. The segments are: UK Residential; Retirement Solutions;
Fund and third party management; UK and European development and German
Residential. The Group has a segment director responsible for the performance
of each of these five segments and the Group reports key financial information
to the CODM on the basis of these five segments. Each of these five segments
operates within the different part of the overall residential market.
The title "All other segments" has been included in the tables below to
reconcile the segments to the figures reviewed by the CODM.
The key operating performance measure of profit or loss used by the CODM is
the trading profit or loss before valuation gains or deficits on investment
property and excluding all revaluation and non-recurring items (OPBVM) as set
out in Note 2. The CODM reviews by segment two key balance sheet measures of
net asset value. These are Gross Net Value and Triple Net Asset Value.
2012 Income statement
Fund and
third UK and All
UK Retirement party European German other
(£m) residential solutions management development residential segments Total
Group revenue
Segment
revenue-external 211.4 35.5 8.3 19.6 36.6 - 311.4
Net rental
income 42.5 3.7 - 0.2 17.1 - 63.5
Profit on
disposal of
trading property 57.6 12.7 - 3.4 0.3 - 74.0
Administrative
expenses (8.6) (2.9) (4.6) (1.3) (2.6) (11.0) (31.0)
Other income and
expenses 1.0 1.1 6.5 0.5 0.1 - 9.2
Profit on
disposal of
investment
property 2.2 - - - 0.8 - 3.0
Finance income
from financial
interest in
property assets - 7.7 - - - - 7.7
Operating profit
before net
valuation
deficits
on investment
property 94.7 22.3 1.9 2.8 15.7 (11.0) 126.4
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