TIDMGRI
RNS Number : 1875L
Grainger PLC
12 May 2022
12 May 2022
Grainger plc
Half year financial results
for the six months ended 31 March 2022
Net Rental Income up 23%,
accelerating growth and total returns
-- Adjusted Earnings up +23%
-- Like-for-like rental growth of +3.5%
-- Occupancy 98% (PRS)
-- Dividend per share up 14%
-- Four acquisitions in H1
Grainger plc, the UK's largest listed residential landlord with
a GBP3.1bn operational portfolio and GBP2.4bn pipeline, today
announces strong earnings growth in the first half of its financial
year.
Helen Gordon, Chief Executive said:
"We have delivered a particularly strong performance for the
first half of the year with Adjusted Earnings up +23%, largely
driven by our acceleration of growth in Net Rental Income of +23%.
This is a result of an exceptional lettings performance by the
team, which also drove occupancy in our PRS portfolio to 98%
combined with like-for-like rental growth of 3.5% and a record rate
of lease up of our recent launches. The market has strengthened
swiftly over the past six months and we have successfully
capitalised on this opportunity.
"We are delivering on our growth plans which will see us double
in size in the coming years, providing exceptional earnings growth
and attractive high single digit total returns to shareholders. The
UK rental market continues to have a hugely attractive outlook with
significant demand, rental growth, yield compression, and
structural drivers that favour the professional, large-scale
landlord. At the same time, Grainger is in a strong position as
market leader with a scalable national operating platform,
fully-funded secured pipeline and fully integrated business
model.
"We are well prepared for the economic challenges facing the UK
today of inflation and cost of living rises. With a resilient
customer base, high quality energy efficient homes, fixed debt
costs, fixed delivery costs across the majority of our secured
pipeline and limited direct exposure to other inflationary
pressures, we are confident in the outlook for our business."
Key highlights
-- +23% growth in Adjusted Earnings(1) to GBP46.3m (HY21:
GBP37.5m)
-- +23% growth delivered in Net Rental Income(2) to GBP42.8m
(HY21: GBP34.7m)
-- +3.5% like-for-like rental growth(3) in H1 across our total
portfolio (HY21: 1.7%)
o +3.5% like-for-like rental growth in our PRS portfolio (HY21:
1.0%)
o +3.7% like-for-like rental growth in our regulated tenancy
portfolio (HY21: 4.0%), which contributes 18% of our total net
rental income
-- 98% occupancy in our PRS portfolio at the end of March, ahead
of pre-pandemic levels, reflecting the strength of our operating
platform and attractiveness of our portfolio
-- Residential sales profit up +7% to GBP31.6m (HY21:
GBP29.4m)
o Sales prices achieved were strong at an average of 3.6% ahead
of valuations
-- Total Property Return for the half year of 3.8% due to strong
valuation gains of +GBP79m with the market value of our total
property portfolio up +2.3% in the first half and EPRA Net Tangible
Assets up +3% to 305p since FY21 and up +7% year-on-year,
reflecting the completion and leasing performance of new assets and
yield compression
Financial Highlights
Income returns HY21 HY22 Change
------------------------------------ --------- --------- ---------
Rental growth (like-for-like) 1.7% 3.5% +183 bps
- PRS 1.0% 3.5% +248 bps
- Regulated tenancies (annualised) 4.0% 3.7% (28) bps
Net rental income (Note 5) GBP34.7m GBP42.8m +23%
Adjusted earnings (Note 2) GBP37.5m GBP46.3m +23%
Profit before tax (Note 2) (4) GBP44.5m GBP98.8m +122%
Earnings per share (diluted, after
tax) (Note 9) (4) 5.0p 10.2p +104%
Dividend per share (Note 10) (5) 1.83p 2.08p +14%
------------------------------------ --------- --------- ---------
Capital returns HY21 HY22 Change
------------------------------- ---------- ---------- ---------
Total Property Return(6) 2.4% 3.8% +137 bps
Total Accounting Return (Note
3) 1.0% 3.2% +221 bps
------------------------------- ---------- ---------- ---------
FY21 HY22
------------------------------- ---------- ---------- ---------
EPRA NTA per share (Note 3) 297p 305p +3%
Net debt GBP1,042m GBP1,131m +9%
Group LTV 30.4% 31.4% +106 bps
Cost of debt (average) 3.1% 3.1% -
Reversionary surplus GBP265m GBP242m (9)%
------------------------------- ---------- ---------- ---------
Secured pipeline
------------------------ ----------
Total investment value GBP1,022m
Total homes 4,001
------------------------ ----------
(1) Refer to Note 2 for profit before tax and adjusted earnings
reconciliation.
(2) Refer to Note 5 for net rental income calculation.
(3) Rental growth is the average increase in rent charged across
our portfolio on a like-for-like basis.
(4) HY21 restated following change in accounting policy as a
result of the IFRIC interpretation of IAS38 relating to
development costs on Software as a Service. See Note 24 for an
explanation of prior year restatements.
(5) Dividend - The dividend of 2.08p per share (gross) amounting
to GBP15.4m will be paid on 1 July 2022 to shareholders on the
register at the close of business on 27 May 2022. Shareholders will
again be offered the option to participate in a dividend
re-investment plan and the last day for election is 10 June 2022 -
refer also to Note 10.
(6) Total Property Return (TPR) represents the change in gross
asset value, net of capital expenditure incurred, plus net income,
expressed as a percentage of gross asset value.
Future reporting dates
-- Capital Markets Day - 22 June 2022
-- Trading Update - September 2022
-- Full year results - 17 November 2022
Half year results presentation
Grainger plc will be holding a presentation of the results at
9:00am (UK time) today, 12 May 2022, which can be accessed via
webcast and a telephone dial-in facility (details below), which
will be followed by a live Q&A session for sell side analysts
and shareholders.
Webcast details:
To view the webcast, please go to the following URL link.
Registration is required.
https://webcasting.brrmedia.co.uk/broadcast/6230643961bd9a4d1029096d
The webcast will be available for six months from the date of
the presentation.
Conference call details:
Call: +44 (0)330 165 4012
Confirmation Code: 1829192
A copy of the presentation slides will also be available to
download on Grainger's website (
http://corporate.graingerplc.co.uk/ ) from 08:30am (UK time).
For further information, please contact:
Investor relations
Kurt Mueller, Grainger plc: +44 (0) 20 7940 9500
Media
Ginny Pulbrook / Geoffrey Pelham-Lane, Camarco: +44 (0) 20 3757 4992 / 4985
Forward-looking statements disclaimer
This publication contains certain forward-looking statements.
Any statement in this publication that is not a statement of
historical fact including, without limitation, those regarding
Grainger plc's future financial condition, business, operations,
financial performance and other future events or developments
involving Grainger, is a forward-looking statement. Such statements
may, but not always, be identified by words such as 'expect',
'estimate', 'project', 'anticipate', 'believe', 'should', 'intend',
'plan', 'could', 'probability', 'risk', 'target', 'goal',
'objective', 'may', 'endeavour', 'outlook', 'optimistic',
'prospects' and similar expressions or variations on these
expressions. By their nature, forward-looking statements involve
inherent risks, assumptions and uncertainties as they relate to
events which occur in the future and depend on circumstances which
may or may not occur and go beyond Grainger's ability to control.
Actual outcomes or results may differ materially from the outcomes
or results expressed or implied by these forward-looking
statements. Factors which may give rise to such differences include
(but are not limited to) changing economic, financial, business,
regulatory, legal, political, industry and market trends, house
prices, competition, natural disasters, terrorism or other social,
political or market conditions.
Grainger's principal risks are described in more detail in its
Annual Report and Accounts, set out in the Risk Management report
on pages 48-51 of the 2021 Annual Report and Accounts.
A number of risks faced by the Group are not directly within our
control such as the wider economic and political environment.
In line with our risk management approach detailed on pages
46-48 of the 2021 Annual Report and Accounts, the key risks to the
business are under regular review by the Board and management,
applying Grainger's risk management framework. The war in Ukraine,
as well as the devasting human impact, has substantially increased
the geopolitical uncertainty in Europe and beyond. This has led to
wider economic ramifications for society and business, with the
duration and depth of the impact of the conflict being unclear.
This lack of clarity is in the pre-existing context of inflationary
pressures and, more recently, rising interest rates. Specifically
in relation to Grainger, it is currently considered that the
principal risks previously reported remain our principal risks.
However, it is recognised that the Ukrainian war, the prevailing
economic context and future uncertainty in that regard have
arguably increased the likelihood of such risks being accelerated
or becoming more acute. This would include, but is not limited to,
market, development, regulatory and supplier risks. The risks to
Grainger will continue to be monitored closely as well as the
potential controls and mitigants that may be applied during this
volatile and uncertain period.
These risks and other factors could adversely affect the outcome
and financial effects of the events specified in this publication.
The forward-looking statements reflect knowledge and information
available at the date they are made and Grainger plc does not
intend to update on the forward-looking statements contained in
this publication.
This publication is for information purposes only and no
reliance may be placed upon it. No representative or warranty,
either expressed or implied, is provided in relation to the
accuracy, completeness or reliability of the information contained
in this publication. Past performance of securities in Grainger plc
cannot be relied upon as a guide to the future performance of such
securities.
This publication does not constitute an offer for sale or
subscription of, or solicitation of any offer to buy or subscribe
for, any securities of Grainger pl c.
Chief Executive's review
Overview - accelerating growth and total returns
Our growth strategy and focus on the mid-market build-to-rent
sector is delivering strong results and is set to deliver
significant earnings growth at pace and high single digit total
returns over the coming years. Our market leading position,
scalable national operating platform and fully-funded GBP1bn
secured pipeline positions us strongly to capitalise on the market
opportunity in this growth sector.
In the first half of the year, we delivered growth in Adjusted
Earnings of 23%, driven primarily by a 23% increase in Net Rental
Income, with occupancy in our PRS portfolio now at 98% and total
like-for-like rental growth of 3.5% for the period.
Our fully funded secured pipeline is expected to double net
rental income when those assets are fully operational and our
longer term, outer pipeline could see net rental income nearly
treble from FY21's level. The scalable nature of our operating
platform means this will drive an acceleration in earnings, as we
leverage our CONNECT platform and central capabilities.
With 5m renters in the UK and only 1.4% of these build-to-rent
properties, the continuing exit of small landlords from the market
presents a significant opportunity for us to grow our market share,
further supported by rental growth and yield compression prospects
and a landlord-friendly investment landscape when compared to other
major international rental markets.
Our GBP2.2bn operational PRS portfolio is now 71% of our
portfolio by value, and we are quickly nearing an important
milestone of 10,000 operational rental homes, which is expected in
the second half of this year. Our total GBP2.4bn pipeline will see
our portfolio more than double in our target cities over the coming
years, with significant delivery happening year on year, driving
earnings growth.
Building on last year's delivery of 1,304 new rental homes, this
year we expect to deliver another 1,174 and c.1,741 next year.
PRS market opportunity - a growth sector
The market opportunity in the UK private rented sector and
build-to-rent subsector remains very compelling.
The market is large with 5m households in the UK renting
privately, representing 25% of all households, with a further 3. 6m
young people aged 20-34 living at home with their parents,
representing potential additional demand. Only 1.4% of these 5m
households are purpose built, build-to-rent properties owned by
professional landlords such as ourselves. The vast majority of the
rental market is made up of small landlords who are selling their
properties and exiting the sector at an increasingly faster pace,
driven by fiscal changes and increased regulation. This presents a
significant opportunity for us to increase our market share.
This structural shift in the private rented sector is
underpinned by an ongoing and severe housing shortage in the UK
which is systemic and not expected to change in the medium to long
term.
Coupled with strong prospects for rental growth and yield
compression, and a landlord friendly investment landscape when
compared to other European markets, the investment case for our
market is strong.
Our leadership in a growth sector
As market leader, we will continue to invest in this growth
sector and retain our leading position.
Our leading operating platform, which includes our operations
team, but also our investment and development teams and digital
capabilities, provides us a unique competitive advantage unrivalled
in the UK.
This platform is both scalable and national. We will grow
significantly while leveraging our existing central cost base,
delivering significant earnings growth. Our national footprint, the
largest in the sector, enables us to capitalise on a wider pool of
opportunities, developing clusters and increasing operational
efficiencies as we grow further.
Our GBP1bn secured pipeline is locked in. Funding is in place.
Planning permissions have been secured and 12 out of the 16 schemes
have fixed price build contracts in place. This secured pipeline
represents a doubling in net rental income when delivered and
leased up over the next few years.
Highlights
Leasing performance
In our existing operational portfolio, we have successfully
delivered record occupancy in our PRS portfolio of 98% and
like-for-like rental growth of 3.5%, ahead of pre-pandemic levels,
reflecting the attractiveness of our properties and strength of our
operating platform.
In the past twelve months, we have stabilised six new assets (
1,304 homes) to our portfolio and have exceeded leasing
expectations across all, delivering GBP16m of additional net rental
income and GBP23m of valuation gains.
Pipeline delivery
So far in this financial year we have launched two schemes
comprising 448 new homes, representing GBP 5m potential net rental
income.
The Pin Yard in Leeds, comprising 216 homes, launched in March
2022 and is already 65% let at rents above underwriting, exceeding
our expectations and currently outperforming our record lease up at
The Headline in Leeds last year. Just a few weeks ago in April, we
launched the first phase at Weavers Yard in Newbury, comprising a
total of 232 homes, with final phases completing in 2023.
Three assets with potential net rental income (NRI) of GBP8m are
to be delivered in the remainder of 2022, with Gilders Yard in
Birmingham (158 homes, GBP2m NRI) launching imminently, Enigma
Square in Milton Keynes (261 homes, GBP3m NRI) and the Copper Works
in Cardiff (307 homes, GBP3m NRI) completing toward the end of the
year.
Pipeline progress (TFL)
Since partnering with Transport for London in July 2019, we have
successfully secured full planning consent on four schemes in
London, totalling 1,204 new homes, with construction expected to
commence next financial year. Planning committee has resolved to
approve consent on a fifth TFL JV scheme, Cockfosters, subject to
agreeing the Section 106 agreement and TFL gaining clearance from
the Department for Transport for the release of the land.
Acquisitions
Over the first half we made four acquisitions, adding
potentially c.1,131 homes to our build-to-rent, PRS pipeline and
GBP 14m of annual net rental income. Three of the four are land
acquisitions, leveraging our in-house development capabilities, and
the fourth is a forward funding project. Two of the four are
secured projects and sit within our secured pipeline, with the
other two in the planning process and therefore in our planning
& legals pipeline.
-- Merrick Place, Southall, London - 401 homes, potential GBP6m
net rental income, forward funding, secured, building on our West
London cluster of 959 homes
-- Exmouth Junction, Exeter - 230 homes, potential GBP3m net
rental income, direct development, secured, first scheme in
Exeter
-- Berewood, Hampshire - acquired the remaining interest in the
land, enabling Grainger to add a further c.250 PRS homes, potential
GBP3m net rental income, direct development, planning & legal
pipeline
-- 'Brook Place 2', Sheffield - c.250 homes, potential GBP2m net
rental income, direct development, planning & legal pipeline,
building on our Sheffield cluster of c.750 homes
Operational highlights
Our Customer Insight Programme continues to provide us with
valuable understanding of our customers, driving decision making
across the business. Our aim is to provide an even better service
to our customers, enabling us to optimise rental income.
Our technology platform, CONNECT, continues to deliver value,
through faster lettings, improved supply chain management, greater
data and business insight, while also enabling us to deliver a
better service to our customers, digitising the rental experience
such as service requests and contacting the Grainger team through
the MyGrainger App, part of the CONNECT platform.
Fire safety
With much of our portfolio having been built recently
(post-Grenfell), and our preference often for brick facades, we
have limited exposure to cladding or other fire safety remediation
costs within our portfolio.
Following an extensive review of legacy development projects, we
have taken a provision of GBP9.2m for potential fire safety
remediation costs as a one-off item, excluded from adjusted
earnings, which relates to a small number of legacy properties that
Grainger historically had an involvement in developing and may
require fire-safety related remediation works. Where appropriate,
we are seeking recoveries from contractors and insurers which may
reduce the overall liability over time.
The UK Government has confirmed that, as a build-to-rent, PRS
landlord, we are not subject to the forthcoming 'cladding tax'
known as the Residential Property Developers Tax, nor were we
within the scope of the recent Building Safety Repairs Pledge which
saw a number of the country's largest housebuilders pledge up to a
reported GBP2bn.
Inflation and resilience
We are well prepared for a higher inflationary environment.
Rental growth tends to track wage inflation which follows general
inflation. [1] As a result, we expect our top line growth to offset
the impact of any cost inflation we face.
12 of our 16 secured pipeline schemes are with fixed price
contracts. 96% of our debt is hedged and our secured pipeline is
fully funded. [2]
We are alert to the challenges our customers may face with the
rises in cost of living, however we believe our customer base is
better off than average, with 73% of renters in employment,
compared to only 59% of home
owners. [3] Data shows that rent as a proportion of household income remains stable. [4]
Our value-for-money, mid-market, energy-efficient properties
support our customers financially, with our new, build-to-rent
properties offering free super-fast broadband, gyms, and co-working
spaces.
ESG
Improving our existing PRS portfolio
We continue to improve the energy efficiency of our PRS
portfolio. We are well ahead of the national average and well
prepared for future regulations. Our higher than average energy
efficient properties mean our customers have lower than average
energy bills, helping mitigate the current rise in energy
prices.
87% of our operational PRS portfolio is EPC ratings A-C,
compared to the wider PRS sector which is only 42%. Of this, 53% of
our operational PRS portfolio is EPC ratings A and B, compared to
the wider sector which is just 2%. Current regulations require
minimum EPC rating of E for new lets. It is anticipated that this
will be updated with the new regulations to require a minimum EPC C
rating by either 2025 or 2026, although this has not yet been
confirmed. We are confident we will be there well ahead of these
new regulations.
Our regulated tenancy portfolio is not affected by the current
EPC minimum standards because they are not typically re-let but
instead are sold when vacated, however we continue to invest in
this portfolio where appropriate and are putting plans in place to
bring these properties up to EPC ratings of A-C where we can.
Switching to green and renewable energy (Scope 1 and 2
emissions)
100% of our contracts for landlord energy supplies are now
renewable or green energy.
Supporting our customer to reduce their emissions (Scope 3)
Our customers are responsible for their own energy supplies and
we are therefore ensuring that our properties are well insulated
and energy efficient, with efficient heating, hot water and
electrical systems and energy efficient appliances to help them
both keep their bills down and reduce their carbon emissions.
We have launched our customer campaign, 'Living a Greener Life',
which is a multi-year programme of communications to educate and
encourage our customers toward greener living.
We are trialling a series of potential solutions to capturing
customer energy data usage, ensuring GDPR compliance.
Homes for Ukraine
We have committed to offering support for Ukrainian refugees
through providing free accommodation through the Homes for Ukraine
scheme, and through charitable donations to the DEC Ukrainian
Appeal, to an approximate total value of GBP150,000.
Dividend
In line with our policy to distribute the equivalent of 50% of
net rental income with a one third, two third split between the
interim and final dividend payments, respectively, our interim
dividend is 2.08 pence per share, up 14%.
Outlook
As we embark on our 110(th) year since Grainger was established
in Newcastle, England and as we near 10,000 operational rental
homes, we are in a strong position to continue to grow and
capitalise on the market opportunity in the UK private rented
sector and build-to-rent sector and remain UK market leader.
Our operating platform enables earnings accretive growth. Our
fully-funded secured pipeline, strong balance sheet and robust debt
capital structure underpins our future growth. The business has
proven its resilience and market leadership over the past six years
and will continue to do so as we deliver on our strategic growth
strategy.
Helen Gordon
Chief Executive
12 May 2022
Financial review
The past six months have seen a strong recovery in occupational
markets reflected in both record occupancy levels at 98% and strong
like-for-like rental growth at 3.5%. These strong market conditions
combined with the delivery of our pipeline schemes have driven
significant growth in net rental income at 23%, with this top line
growth also driving a similar magnitude of growth in adjusted
earnings. With a strong pipeline of schemes to deliver over the
coming years we expect to see this strong growth continue as we
continue to execute on our strategy.
Valuation growth during the period was 2.3% reflecting the
continuation of rental growth and yield compression. Our
residential sales also had a strong half, with profits up 7% and
sales prices 3.6% ahead of previous vacant possession
valuations.
Our balance sheet remains in great shape with a low LTV and
strong liquidity. Our secured pipeline is already fully funded and
almost fully hedged in line with our policy giving us minimal
exposure to interest rate rises. Following a strong half, we are
increasing our interim dividend by 14% to 2.08p on a per share
basis (HY21: 1.83p) in line with our dividend policy to distribute
50% of annual net rental income as a dividend, with a one-third
payment at the interim stage.
While there are some challenges for consumers on the horizon
most notable with the cost-of-living squeeze, our mid-market
offering and customer demographic should ensure our resilience.
Having weathered the pandemic period without rental growth turning
negative, the current supply and demand imbalance should continue
to deliver strong growth in the second half.
Highlights
Income returns HY21 HY22 Change
------------------------------------ --------- --------- ---------
Rental growth (like-for-like) 1.7% 3.5% +183 bps
- PRS 1.0% 3.5% +248 bps
- Regulated tenancies (annualised) 4.0% 3.7% (28) bps
Net rental income (Note 5) GBP34.7m GBP42.8m +23%
Adjusted earnings (Note 2) GBP37.5m GBP46.3m +23%
Adjusted EPRA earnings (Note 3) GBP9.4m GBP16.8m +79%
Profit before tax (Note 2) (1) GBP44.5m GBP98.8m +122%
Earnings per share (diluted, after
tax) (Note 9) (1) 5.0p 10.2p +104%
Dividend per share (Note 10) 1.83p 2.08p +14%
------------------------------------ --------- --------- ---------
(1) HY21 restated following change in accounting policy as a
result of the IFRIC interpretation of IAS38 relating to
development costs on Software as a Service. See Note 24 for an
explanation of prior year restatements.
Capital returns HY21 HY22 Change
------------------------------- ---------- ---------- ---------
Total Property Return 2.4% 3.8% +137 bps
Total Accounting Return (Note
3) 1.0% 3.2% +221 bps
FY21 HY22 Change
------------------------------- ---------- ---------- ---------
EPRA NTA per share (Note 3) 297p 305p +3%
Net debt GBP1,042m GBP1,131m +9%
Group LTV 30.4% 31.4% +106 bps
Cost of debt (average) 3.1% 3.1% -
Reversionary surplus GBP265m GBP242m (9)%
------------------------------- ---------- ---------- ---------
Income statement
Adjusted earnings increased by 23% to GBP46.3m (HY21: GBP37.5m)
with the strong GBP8.1m increase in net rental income the primary
driver, illustrating the inherent operating leverage in our
business resulting from the benefits of our in-house platform and
technology. As our pipeline continues to deliver over the coming
years, we will continue to see significant growth in net rents with
a good proportion of this dropping straight through to
earnings.
Income statement (GBPm) HY21 HY22 Change
------------------------------- ------- ------- -------
Net rental income 34.7 42.8 +23%
Profit from residential sales 29.4 31.6 +7%
Profit from development sales 0.2 - -
Mortgage income (CHARM) (Note
15) 2.4 2.4 -
Management fees 2.3 2.8 +22%
Overheads (13.9) (14.6) +5%
Pre-contract costs (0.3) (0.3) -
Net finance costs (17.1) (17.0) (1)%
Joint ventures and associates (0.2) (1.4) n/a
Adjusted earnings 37.5 46.3 +23%
Valuation movements 12.8 61.7 +382%
Other adjustments(1) (5.8) (9.2) +59%
------- ------- -------
Profit before tax (1) 44.5 98.8 +122%
------------------------------- ------- ------- -------
(1) HY21 restated following change in accounting policy as a
result of the IFRIC interpretation of IAS38 relating to
development costs on Software as a Service. See Note 24 for an
explanation of prior year restatements. HY22 other adjustments
comprise fire safety remedial works provisions in respect of legacy
assets. See commentary below in 'Overheads and other expenses'.
Net rental income
Net rental income increased by 23% to GBP42.8m (HY21: 34.7m)
with our occupancy now at 98%, with strong demand and lettings of
new launches adding GBP6.6m of net rent.
Like-for-like rental growth across the portfolio was +3.5%, with
rental growth in our PRS portfolio accelerating to +3.5% (HY21:
+1.7%). Rental growth and occupancy was similar in both London and
the regions, with rental growth on new lets of +4.4% and +2.7% on
renewals and the regulated tenancy portfolio delivering 3.7% rental
growth. Gross to net for the period on our stabilised portfolio is
25.5% which is lower than the previous period (HY21: 27.0%) due to
lower levels of void and cost efficiencies.
GBPm
------------------------ ------
HY21 Net rental income 34.7
Disposals (1.5)
PRS investment 6.6
Rental growth 1.0
Occupancy 2.0
HY22 Net rental income 42.8
------
YoY growth +23%
------------------------ ------
Sales
Our residential sales performance continued to be strong
throughout the period with profits up by 7% to GBP31.6m (HY21:
GBP29.4m) as we took advantage of ongoing strength in the
residential sales market.
Vacant property sales profits in the period were up 8%,
delivering GBP16.0m of profit (HY21: GBP14.8m) from GBP37.2m of
revenue (HY21: GBP26.7m). The lower profit margin is a result of
the sales mix with some large London sales with lower margins
pulling down the average. Vacancy rates were down slightly to 6.5%
(HY21: 7.3%), however pricing achieved remained very strong with
sales values 3.6% ahead of previous vacant possession values. The
speed of executing sales improved slightly with our keys to cash
metric at 118 days (HY21: 120 days).
Sales of tenanted and other properties delivered GBP15.6m of
profit (HY21: GBP14.6m) from GBP36.3m of revenue (HY21:
GBP55.0m).
We have good visibility on our sales pipeline for the second
half with GBP28.5m of sales currently in solicitors hands and we
expect total sales and profit for the year to be at a similar level
to FY21.
Sales
HY21 HY22
------------------------- -------------------------
Revenue Profit Revenue Profit
------ ------
Units Units
sold GBPm GBPm sold GBPm GBPm
---------------------- ------ -------- ------- ------ -------- -------
Residential sales
on vacancy 73 26.7 14.8 64 37.2 16.0
Tenanted and other
sales 360 55.0 14.6 123 36.3 15.6
------ -------- ------- ------ -------- -------
Residential sales
total 433 81.7 29.4 187 73.5 31.6
Development activity 0.2 0.2 1.8 0.0
---------------------- ------ -------- ------- ------ -------- -------
Overall sales 433 81.9 29.6 187 75.3 31.6
---------------------- ------ -------- ------- ------ -------- -------
Overheads and other expenses
Overheads increased by 5% in the period to GBP14.6m (HY21:
GBP13.9m) reflecting some modest investment in our platform
infrastructure slightly ahead of inflation to support the delivery
of the 23% growth in our rents.
Following an extensive review of legacy development projects
over the past 30 years, we have taken a full provision of GBP9.2m
for potential fire-safety remediation costs as a one-off item,
excluded from adjusted earnings. Where appropriate, we are seeking
recoveries from contractors and insurers which may reduce the
overall liability over time.
Balance sheet
Our strong business performance continues to be underpinned by
strength in our balance sheet. With our LTV at 31.4% (FY21: 30.4%)
and cash and available facilities of GBP725m we are well placed to
enable the continuation of our growth strategy. With our secured
pipeline already fully funded and our entire debt book near fully
hedged at 96% we have minimal exposure to potential interest rate
rises.
Market value balance sheet (GBPm) FY21 HY22
---------------------------------------------- ------- -------
Residential - PRS 2,024 2,115
Residential - regulated tenancies 896 863
Residential - mortgages (CHARM) 72 71
Forward Funded - PRS work in progress 244 294
Development work in progress 146 202
Investment in JVs/associates 45 47
------- -------
Total investments 3,427 3,592
Net debt (1,042) (1,131)
Other liabilities (35) (58)
------- -------
EPRA NRV 2,350 2,403
Deferred and contingent tax - trading assets (142) (139)
EPRA NTA 2,208 2,264
Deferred and contingent tax - investment
assets (59) (72)
Fair value of fixed rate debt and derivatives (38) 38
-------
EPRA NDV 2,111 2,230
---------------------------------------------- ------- -------
EPRA net asset values (pence per share)
EPRA NRV pence per share 316 324
EPRA NTA pence per share 297 305
EPRA NDV pence per share 284 300
EPRA NTA increased by 3% from the year end to 305p per share
(FY21: 297p per share) with an 11p uplift coming from valuation
increases being the main driver alongside a 6p contribution from
adjusted earnings, this was offset by the payment of our final
dividend (3)p. EPRA NTA excludes the value of our reversionary
surplus of GBP242m or 33p per share (FY21: GBP265m).
EPRA NTA movement
----------------------------------------------------------------------
GBPm Pence per share
------ ----------------
EPRA NTA at 30 September 2021 2,208 297
Adjusted earnings 46 6
Valuations (trading & investment property) 79 11
Disposals (trading assets) (29) (4)
Tax (current, deferred & contingent) (6) (1)
Legacy asset fire-safety remediation
provision (9) (1)
Dividends (25) (3)
EPRA NTA at 31 March 2022 2,264 305
-------------------------------------------- ------ ----------------
Property portfolio valuations
The market value of our overall property portfolio increased by
+2.3% (HY21: +1.3%) over the six-month period. Our PRS portfolio
saw valuation growth of 2.1% with two thirds of the uplift driven
by rental growth and the remainder yield shift. Our regional PRS
portfolio outperformed London marginally with 10bps yield
compression on newly developed schemes in both portfolios. The
regulated tenancy portfolio delivered 3.2% valuation growth, with
the regions again outperforming with a 5.4% increase compared to a
2.5% increase in London.
Portfolio Region Capital Rental Growth Yield & Total Valuation
Value Other movement
GBPm GBPm % GBPm % GBPm %
----------- ------------ -------- ------- ------ ---- ---- -------- -------
PRS London & SE 1,255 14 1.1% 5 0.4% 19 1.5%
Regions 860 13 1.6% 11 1.3% 24 2.9%
------------------------ -------- ------- ------ ---- ---- -------- -------
PRS Total 2,115 27 1.3% 16 0.8% 43 2.1%
Regulated
tenancies
('Regs') London & SE 706 18 2.5% 0 0.0% 18 2.5%
Regions 157 8 5.4% 0 0.0% 8 5.4%
------------------------ -------- ------- ------ ---- ---- -------- -------
Regs Total 863 26 3.2% 0 0.0% 26 3.2%
------------------------ -------- ------- ------ ---- ---- -------- -------
Operational Portfolio 2,978 53 1.8% 16 0.5% 69 2.3%
------------------------- -------- ------- ------ ---- ---- -------- -------
Development 496 7 1.4% 3 0.5% 10 1.9%
------------------------ -------- ------- ------ ---- ---- -------- -------
Total Portfolio 3,474 60 1.7% 19 0.6% 79 2.3%
------------------------- -------- ------- ------ ---- ---- -------- -------
Financing and capital structure
We are a very well capitalised business, with a low risk,
flexible capital structure. Our policy of having a fully funded
secured pipeline ensures that our headroom of GBP725m covers our
committed pipeline capex of GBP529m. Including this committed capex
in our LTV calculation would see our LTV rise to 40%, comfortably
within our LTV range of 40-45%.
Net debt increased to GBP1,131m (FY21: GBP1,042m) as we invested
GBP151m into our pipeline during the period and paid our final
dividend of GBP25m. This was partly offset by positive operating
cashflow of GBP54m and asset recycling of GBP35m.
We secured GBP150m of new bank facilities from a combination of
existing and new lenders during the period on the same terms as our
existing facilities, lowering our average cost of debt when drawn.
We have also extended GBP150m of facility maturities with an
average overall debt maturity of 6.2 years including extension
options and no significant maturities until August 2024.
Our average cost of debt remained flat compared to the full year
at 3.1% (HY21 3.1%) with our fully drawn cost of debt at 2.9%.
Finance costs were marginally down at GBP17.0m (HY21: GBP17.1m) as
we ran a slightly lower average net debt over the period following
our September equity raise.
FY21 HY22
-------------------------------- ---------- ----------
Net debt GBP1,042m GBP1,131m
Loan to value 30.4% 31.4%
Cost of debt (average) 3.1% 3.1%
Headroom* GBP641m GBP725m
Weighted average debt maturity
(years)** 6.2 6.2
Hedging 100% 96%
-------------------------------- ---------- ----------
(*) Including GBP150m of new facilities.
(**) Including extension options
Summary and outlook
With a strong first half performance we see this momentum
continuing throughout the second half. We see the potential for
delivering high single digit total returns with an increasing
component from income following the delivery of our secured
pipeline and REIT conversion, particularly attractive when
considered on a risk-adjusted basis, as we deliver our secured
pipeline and benefit from the significant growth in net rental
income, capital growth as we deliver new assets, operating
efficiencies and REIT conversion.
With a strong market backdrop we continue to further
differentiate ourselves with our quality homes at mid-market prices
and excellent customer service. With a business model and balance
sheet designed for growth, we are confident that we will further
extend our leadership in the build to rent market, enhancing
returns and delivering for all stakeholders.
Rob Hudson
Chief Financial Officer
12 May 2022
Responsibility statement of the directors in respect of the
half-yearly financial report
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted
for use in the UK ;
-- the interim management report includes a fair review of the
information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency
Rules, being an indication of important events that have occurred
during the first six months of the financial year and their impact
on the condensed set of financial statements; and a description of
the principal risks and uncertainties for the remaining six months
of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency
Rules, being related party transactions that have taken place in
the first six months of the current financial year and that have
materially affected the financial position or performance of the
entity during that period; and any changes in the related party
transactions described in the last annual report that could do
so.
Helen Gordon Rob Hudson
Chief Executive Officer Chief Financial Officer
12 May 2022 12 May 2022
Independent Review Report to Grainger plc
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 31 March 2022 which comprises the Condensed
Consolidated Income Statement, the Condensed Consolidated Statement
of Other Comprehensive Income, the Condensed Consolidated Statement
of Financial Position, the Condensed Consolidated Statement of
Changes in Equity, the Condensed Consolidated Statement of Cash
Flows and the related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 31
March 2022 is not prepared, in all material respects, in accordance
with IAS 34 Interim Financial Reporting as adopted for use in the
UK and the Disclosure Guidance and Transparency Rules ("the DTR")
of the UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 1, the latest annual financial statements
of the group were prepared in accordance with International
Financial Reporting Standards adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union and in accordance
with international accounting standards in conformity with the
requirements of the Companies Act 2006 and the next annual
financial statements will be prepared in accordance with UK-adopted
international accounting standards. The directors are responsible
for preparing the condensed set of financial statements included in
the half-yearly financial report in accordance with IAS 34 as
adopted for use in the UK.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
Richard Kelly
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
Canary Wharf
London
E145GL
12 May 2022
Consolidated income statement
Unaudited
2021
2022 (restated)(1)
For the 6 months ended 31 March Notes GBPm GBPm
-------------------------------------------- ------ ------- ---------------
Group revenue 4 126.6 101.3
-------------------------------------------- ------ ------- ---------------
Net rental income 5 42.8 34.7
Profit on disposal of trading property 6 31.0 29.8
Profit/(loss) on disposal of investment
property 7 0.6 (0.1)
Income from financial interest in property
assets 15 3.4 4.7
Fees and other income 8 2.8 2.3
Administrative expenses 2 (14.6) (19.7)
Other expenses 2 (9.5) (0.3)
Reversal of impairment of inventories to
net realisable value 12 1.2 0.1
Operating profit 57.7 51.5
Net valuation gains on investment property 11 59.3 10.3
Finance costs (17.0) (17.2)
Finance income - 0.1
Share of profit of associates after tax 13 0.4 -
Share of loss of joint ventures after tax 14 (1.6) (0.2)
-------------------------------------------- ------ ------- ---------------
Profit before tax 2 98.8 44.5
Tax charge for the period 19 (23.2) (10.2)
-------------------------------------------- ------ ------- ---------------
Profit for the period attributable to
the owners of the Company 75.6 34.3
-------------------------------------------- ------ ------- ---------------
Basic earnings per share 9 10.2p 5.1p
Diluted earnings per share 9 10.2p 5.0p
-------------------------------------------- ------ ------- ---------------
(1) See Note 24 for an explanation of the prior period
restatement
Consolidated statement of comprehensive income
Unaudited
2021
2022 (restated)(1)
For the 6 months ended 31 March Notes GBPm GBPm
-------------------------------------------------------------------------------------- ------ ------ --------------
Profit for the period 2 75.6 34.3
-------------------------------------------------------------------------------------- ------ ------ --------------
Items that will not be transferred to the consolidated income statement:
Actuarial gain on BPT Limited defined benefit pension scheme 20 1.6 3.7
Items that may be or are reclassified to the consolidated income statement:
Changes in fair value of cash flow hedges 9.9 7.4
-------------------------------------------------------------------------------------- ------ ------ --------------
Other comprehensive income and expense for the period before tax 11.5 11.1
-------------------------------------------------------------------------------------- ------ ------ --------------
Tax relating to components of other comprehensive income:
Tax relating to items that will not be transferred to the consolidated income
statement 19 (0.4) (0.7)
Tax relating to items that may be or are reclassified to the consolidated income
statement 19 (2.5) (1.4)
-------------------------------------------------------------------------------------- ------ ------
Total tax relating to components of other comprehensive income (2.9) (2.1)
-------------------------------------------------------------------------------------- ------ ------ --------------
Other comprehensive income and expense for the period after tax 8.6 9.0
-------------------------------------------------------------------------------------- ------ ------ --------------
Total comprehensive income and expense for the period attributable to the owners of
the Company 84.2 43.3
-------------------------------------------------------------------------------------- ------ ------ --------------
(1) See Note 24 for an explanation of the prior period
restatement
Consolidated statement of financial position
Unaudited Audited
30 Sept
31 March 2022 2021
As at Notes GBPm GBPm
---------------------------------------------- ------ -------------- --------
ASSETS
Non-current assets
Investment property 11 2,334.7 2,179.2
Property, plant and equipment 3.8 1.4
Investment in associates 13 15.9 15.5
Investment in joint ventures 14 30.9 29.4
Financial interest in property assets 15 71.1 71.7
Retirement benefits 20 5.3 3.5
Deferred tax assets 19 1.9 3.7
Intangible assets 0.5 0.5
---------------------------------------------- ------ -------------- --------
2,464.1 2,304.9
---------------------------------------------- ------ -------------- --------
Current assets
Inventories - trading property 12 614.0 595.2
Trade and other receivables 16 29.6 38.5
Derivative financial assets 18 5.4 -
Current tax assets 8.6 16.0
Cash and cash equivalents 232.3 317.6
889.9 967.3
---------------------------------------------- ------ -------------- --------
Total assets 3,354.0 3,272.2
---------------------------------------------- ------ -------------- --------
LIABILITIES
Non-current liabilities
Interest-bearing loans and borrowings 18 1,298.8 1,347.5
Trade and other payables 17 2.6 0.6
Provisions for other liabilities and charges 1.1 1.1
Deferred tax liabilities 19 83.7 69.5
---------------------------------------------- ------ -------------- --------
1,386.2 1,418.7
---------------------------------------------- ------ -------------- --------
Current liabilities
Interest-bearing loans and borrowings 18 50.0 -
Trade and other payables 17 113.2 109.8
Provisions for other liabilities and charges 8.4 0.2
Derivative financial instruments 18 - 4.5
---------------------------------------------- ------ -------------- --------
171.6 114.5
---------------------------------------------- ------ -------------- --------
Total liabilities 1,557.8 1,533.2
---------------------------------------------- ------ -------------- --------
NET ASSETS 1,796.2 1,739.0
---------------------------------------------- ------ -------------- --------
EQUITY
Issued share capital 37.1 37.1
Share premium account 817.3 817.3
Merger reserve 20.1 20.1
Capital redemption reserve 0.3 0.3
Cash flow hedge reserve 4.1 (3.3)
Retained earnings 917.3 867.5
---------------------------------------------- ------ -------------- --------
TOTAL EQUITY 1,796.2 1,739.0
---------------------------------------------- ------ -------------- --------
Consolidated statement of changes in equity
Issued Capital Cash flow
share Share Merger redemption hedge Retained Total
capital premium account reserve reserve reserve earnings equity
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ------ --------- ----------------- --------- ------------ ---------- ---------- --------
Balance as at 1
October 2020 as
restated (1) 33.8 616.3 20.1 0.3 (16.6) 789.1 1,443.0
--------------------- ------ --------- ----------------- --------- ------------ ---------- ---------- --------
Profit for the
period as restated 2, 24 - - - - - 34.3 34.3
Other comprehensive
income for the
period - - - - 6.0 3.0 9.0
--------------------- ------ --------- ----------------- --------- ------------ ---------- ---------- --------
Total comprehensive
income - - - - 6.0 37.3 43.3
--------------------- ------ --------- ----------------- --------- ------------ ---------- ---------- --------
Purchase of own
shares - - - - - (0.2) (0.2)
Share-based payments
charge 21 - - - - - 0.9 0.9
Dividends paid - - - - - (24.5) (24.5)
Total transactions
with owners
recorded directly
in equity - - - - - (23.8) (23.8)
--------------------- ------ --------- ----------------- --------- ------------ ---------- ---------- --------
Balance as at 31
March 2021 as
restated(1) 33.8 616.3 20.1 0.3 (10.6) 802.6 1,462.5
--------------------- ------ --------- ----------------- --------- ------------ ---------- ----------
Profit for the
period - - - - - 75.2 75.2
Other comprehensive
income for the
period - - - - 7.3 1.3 8.6
--------------------- ------ --------- ----------------- --------- ------------ ---------- ---------- --------
Total comprehensive
income - - - - 7.3 76.5 83.8
--------------------- ------ --------- ----------------- --------- ------------ ---------- ---------- --------
Issue of share
capital 23 3.3 200.8 - - - - 204.1
Award of SAYE shares - 0.2 - - - - 0.2
Purchase of own
shares - - - - - (0.1) (0.1)
Share-based payments
charge - - - - - 0.8 0.8
Dividends paid - - - - - (12.3) (12.3)
Total transactions
with owners
recorded directly
in equity 3.3 201.0 - - - (11.6) 192.7
--------------------- ------ --------- ----------------- --------- ------------ ---------- ---------- --------
Balance as at 30
September 2021 37.1 817.3 20.1 0.3 (3.3) 867.5 1,739.0
--------------------- ------ --------- ----------------- --------- ------------ ---------- ---------- --------
Profit for the
period 2 - - - - - 75.6 75.6
Other comprehensive
income for the
period - - - - 7.4 1.2 8.6
--------------------- ------ --------- ----------------- --------- ------------ ---------- ---------- --------
Total comprehensive
income - - - - 7.4 76.8 84.2
--------------------- ------ --------- ----------------- --------- ------------ ---------- ---------- --------
Purchase of own
shares - - - - - (3.2) (3.2)
Share-based payments
charge 21 - - - - - 0.8 0.8
Dividends paid 10 - - - - - (24.6) (24.6)
--------------------- ------ --------- ----------------- --------- ------------ ---------- ---------- --------
Total transactions
with owners
recorded directly
in equity - - - - - (27.0) (27.0)
--------------------- ------ --------- ----------------- --------- ------------ ---------- ---------- --------
Balance as at 31
March 2022 37.1 817.3 20.1 0.3 4.1 917.3 1,796.2
--------------------- ------ --------- ----------------- --------- ------------ ---------- ---------- --------
(1) See Note 24 for an explanation of the prior period
restatement
Consolidated statement of cash flows
Unaudited
2021
2022 (restated)(1)
For the 6 months ended 31 March Notes GBPm GBPm
--------------------------------------------------- ------ -------- --------------
Cash flow from operating activities
Profit for the period 2 75.6 34.3
Depreciation and amortisation 0.4 0.4
Net valuation gains on investment property 11 (59.3) (10.3)
Net finance costs 17.0 17.1
13,
Share of loss of associates and joint ventures 14 1.2 0.2
(Profit)/loss on disposal of investment property 7 (0.6) 0.1
Share-based payment charge 21 0.8 0.9
Income from financial interest in property
assets 15 (3.4) (4.7)
Tax 19 23.2 10.2
Cash generated from operating activities before
changes in working capital 54.9 48.2
Decrease in trade and other receivables 8.9 5.8
Increase in trade and other payables 12.0 20.3
Increase/(decrease) in provisions for liabilities
and charges 8.2 (0.3)
(Increase)/decrease in inventories (18.8) 15.3
--------------------------------------------------- ------ -------- --------------
Cash generated from operating activities 65.2 89.3
Interest paid (22.5) (21.2)
Tax paid (2.5) (8.1)
Payments to defined benefit pension scheme 20 (0.2) (0.2)
--------------------------------------------------- ------ -------- --------------
Net cash inflow from operating activities 40.0 59.8
--------------------------------------------------- ------ -------- --------------
Cash flow from investing activities
Proceeds from sale of investment property 7 10.3 30.3
Proceeds from financial interest in property
assets 15 4.0 4.3
Investment in joint ventures 14 (2.9) (0.9)
Loans advanced to joint ventures 14 (0.2) (0.3)
Acquisition of investment property 11 (105.9) (132.5)
Acquisition of property, plant and equipment
and intangible assets (2.8) (0.5)
--------------------------------------------------- ------ -------- --------------
Net cash outflow from investing activities (97.5) (99.6)
--------------------------------------------------- ------ -------- --------------
Cash flow from financing activities
Purchase of own shares (3.2) (0.2)
Repayment of borrowings - (47.0)
Dividends paid 10 (24.6) (24.5)
--------------------------------------------------- ------ -------- --------------
Net cash outflow from financing activities (27.8) (71.7)
--------------------------------------------------- ------ -------- --------------
Net decrease in cash and cash equivalents (85.3) (111.5)
Cash and cash equivalents at the beginning
of the period 317.6 369.1
Cash and cash equivalents at the end of the
period 232.3 257.6
--------------------------------------------------- ------ -------- --------------
(1) See Note 24 for an explanation of the prior period
restatement
Notes to the unaudited interim financial results
1. Accounting policies
1a Basis of preparation
These condensed interim financial statements are unaudited and
do not comprise statutory accounts within the meaning of Section
434 of the Companies Act 2006.
On 31 December 2020, EU-adopted IFRS was brought into UK law and
became UK-adopted international accounting standards, with future
changes to IFRS being subject to endorsement by the UK Endorsement
Board.
The Group transitioned to UK-adopted international accounting
standards for the financial period beginning 1 October 2021. This
change constitutes a change in accounting framework however, there
is no impact or changes in accounting policies from the
transition.
This condensed set of financial statements has been prepared
using accounting policies consistent with UK-adopted international
accounting standards, in accordance with IAS 34 Interim Financial
Reporting, and in accordance with the Disclosure Guidance and
Transparent Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
The current period financial information presented in this
document has been reviewed, not audited.
The accounting policies used are consistent with those contained
in the Group's last annual report and accounts for the year ended
30 September 2021 which is available on the Group's website (
www.graingerplc.co.uk ). The Grainger business is not judged to be
highly seasonal, therefore comparatives used for the six month
period ended 31 March 2022 Consolidated Income Statement are the
six month period ended 31 March 2021 Consolidated Income Statement.
It is therefore not necessary to disclose the Consolidated Income
Statement for the full year ended 30 September 2021 (available in
the last annual report).
The comparative figures for the financial year ended 30
September 2021 are not the Company's statutory accounts for that
financial year. Those accounts have been reported on by the
Company's auditor and delivered to the registrar of companies. The
report of the auditor was (i) unqualified, (ii) did not include a
reference to any matters to which the auditor drew attention by way
of emphasis without qualifying their report, and (iii) did not
contain a statement under section 498(2) or (3) of the Companies
Act 2006.
All property assets are subject to a Directors' valuation at the
half year end, supported by an independent external valuation.
External valuations at the half year are conducted by the Group's
valuers, Allsop LLP and CBRE Limited, as well as Avison Young (UK)
Limited in respect of property held by Vesta LP. The valuation
process is consistent with the approach set out on pages 118-119 of
the 2021 Annual Report and Accounts, with the exception being the
Group's Residential portfolio valued by Allsop LLP. At the half
year, Allsop LLP inspected 10.9% of the Residential portfolio, with
the movement extrapolated over the non-sampled assets to form 50%
of the valuation movement for these portfolios. The remaining 50%
is based on a blended rate arrived at by taking Halifax and
Nationwide indices (25.0% weighting each), applied on a regional
IPD basis.
The Group's financial derivatives were valued as at 31 March
2022 in-house by a specialised treasury management system, using a
discounted cash flow model and market information. The fair value
is derived from the present value of future cash flows discounted
at rates obtained by means of the current yield curve appropriate
for those instruments.
1b Adoption of new and revised International Financial Reporting Standards and interpretations
New standards, amendments and interpretations in the period
The following new standards, amendments to standards and
interpretations were effective for the Group in the period and have
no material impact on the financial statements:
-- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 -
Interest Rate Benchmark Reform (Phase 2)
A number of new standards and amendments to standards have been
issued but are not yet effective for the Group and have not been
early adopted. The application of these new standards and
amendments are not expected to have a material impact on the
Group's financial statements.
1c Significant judgements and estimates
Full details of critical accounting estimates are given on pages
117-120 of the 2021 Annual Report and Accounts. This includes
detail of the Groups approach to valuation of property assets and
the use of external valuers in the process.
The valuations exercise is an extensive process which includes
the use of historical experience, estimates and judgements. The
Directors are satisfied that the valuations agreed with our
external valuers are a reasonable representation of property values
in the circumstances known and evidence available at the reporting
date. Actual results may differ from these estimates. Estimates and
assumptions are reviewed on an on-going basis with revisions
recognised in the period in which the estimates are revised and in
any future periods affected.
1d Group risk factors
The principal risks and uncertainties facing the Group are set
out in the Risk Management report on pages 48 - 51 of the 2021
Annual Report and Accounts.
A number of risks faced by the Group are not directly within our
control such as the wider economic and political environment.
In line with our risk management approach detailed on pages
46-47 of the 2021 Annual Report and Accounts, the key risks to the
business are under regular review by the Board and management,
applying Grainger's risk management framework. The war in Ukraine,
as well as the devasting human impact, has substantially increased
the geopolitical uncertainty in Europe and beyond. This has led to
wider economic ramifications for society and business, with the
duration and depth of the impact of the conflict being unclear.
This lack of clarity is in the pre-existing context of inflationary
pressures and, more recently, rising interest rates. Specifically
in relation to Grainger, it is currently considered that the
principal risks previously reported remain our principal risks.
However, it is recognised that the Ukrainian war, the prevailing
economic context and future uncertainty in that regard have
arguably increased the likelihood of such risks being accelerated
or becoming more acute. This would include, but is not limited to,
market, development, regulatory and supplier risks. The risks to
Grainger will continue to be monitored closely as well as the
potential controls and mitigants that may be applied during this
volatile and uncertain period.
1e Going concern assessment
The Directors are required to make an assessment of the Group's
ability to continue to trade as a going concern for the foreseeable
future.
The going concern assessment is based on the first 18 months of
the Group's viability model, covering the period from 1 April 2022
to 30 September 2023, and is based on a severe downside scenario,
reflecting the following key assumptions:
-- Reducing property valuations by 3% at both September 2022 and September 2023
-- Reducing PRS occupancy to 80% by 30 September 2022, to 75% by
31 March 2023 and to 70% by 30 September 2023
-- 10% development cost inflation
-- Operating cost inflation of 10% per annum
-- Credit rating downgrade to increase coupon rates on corporate
bonds by 1.25% from 1 April 2022
The Directors consider these assumptions appropriate given the
majority of costs are incurred under fixed price contracts,
development agreements, or are under the company's control.
Financing activity that has occurred between 1 April and the
date of authorisation of the interim financial statements is
disclosed in Note 25. In addition to this, within the next 18
months, one bi-lateral loan facility of GBP40m is due to mature and
this is the only refinancing assumed in the assessment period. All
other existing facilities are assumed to remain available. Even in
this severe downside scenario, the Group has sufficient cash
reserves, with the loan-to-value covenant remaining no higher than
45% (facility maximum covenant ranges between 70% - 75%) and
interest cover above 2.6x (facility minimum covenant ranges between
1.35x - 1.75x) for the 18 months to September 2023, which covers
the required period of at least 12 months from the date of
authorisation of the interim financial statements.
Based on these considerations, together with available market
information and the Directors experience of the Group's property
portfolio and markets, the Directors continue to adopt the going
concern basis in preparing the interim financial statements for the
period ended 31 March 2022.
1f Forward-looking statement
Certain statements in this interim announcement are
forward-looking. Although the Group believes that the expectations
reflected in these forward-looking statements are reasonable, we
can give no assurance that these expectations will prove to have
been correct.
Because these statements involve risks and uncertainties, actual
results may differ materially from those expressed or implied by
these forward-looking statements. We undertake no obligation to
update any forward-looking statements whether as a result of new
information, future events or otherwise.
2. Analysis of profit before tax
The table below details adjusted earnings, which is one of
Grainger's key performance indicators. The metric is utilised as a
key measure to aid understanding of the performance of the
continuing business and excludes valuation movements and other
adjustments that are one-off in nature, which do not form part of
the normal ongoing revenue or costs of the business and, either
individually or in aggregate, are material to the reported Group
results.
For the 6 months
ended 2021
31 March (unaudited) 2022 (restated)(1)
Other Adjusted Other Adjusted
GBPm Statutory Valuation adjustments earnings Statutory Valuation adjustments earnings
------------------------ ---------- ---------- ------------ --------- ---------- ---------- ------------ ---------
Group revenue 126.6 - - 126.6 101.3 - 101.3
------------------------ ---------- ---------- ------------ --------- ---------- ---------- ------------ ---------
Net rental income 42.8 - - 42.8 34.7 - - 34.7
Profit on disposal
of trading property 31.0 - - 31.0 29.8 (0.1) - 29.7
Profit/(loss) on
disposal of investment
property 0.6 - - 0.6 (0.1) - - (0.1)
Income from financial
interest in property
assets 3.4 (1.0) - 2.4 4.7 (2.3) - 2.4
Fees and other income 2.8 - - 2.8 2.3 - - 2.3
Administrative expenses (14.6) - - (14.6) (19.7) - 5.8 (13.9)
Other expenses (9.5) - 9.2 (0.3) (0.3) - - (0.3)
Reversal of impairment
of inventories to
net realisable value 1.2 (1.2) - - 0.1 (0.1) - -
Operating profit 57.7 (2.2) 9.2 64.7 51.5 (2.5) 5.8 54.8
Net valuation gains
on investment property 59.3 (59.3) - - 10.3 (10.3) - -
Finance costs (17.0) - - (17.0) (17.2) - - (17.2)
Finance income - - - - 0.1 - - 0.1
Share of profit
of associates after
tax 0.4 (0.2) - 0.2 - - - -
Share of loss of
joint ventures after
tax (1.6) - - (1.6) (0.2) - - (0.2)
------------------------ ---------- ---------- ------------ --------- ---------- ---------- ------------ ---------
Profit before tax 98.8 (61.7) 9.2 46.3 44.5 (12.8) 5.8 37.5
Tax charge for the
period (23.2) (10.2)
------------------------ ---------- ---------- ------------ --------- ---------- ---------- ------------ ---------
Profit for the
period attributable
to the owners of
the Company 75.6 34.3
------------------------ ---------- ---------- ------------ --------- ---------- ---------- ------------ ---------
Diluted adjusted
earnings per share 5.0p 4.5p
------------------------ ---------- ---------- ------------ --------- ---------- ---------- ------------ ---------
(1) See Note 24 for an explanation of the prior period
restatement
Profit before tax in the adjusted columns above of GBP46.3m
(2021: GBP37.5m) is the adjusted earnings of the Group. Adjusted
earnings per share assumes tax of GBP8.8m (2021: GBP7.1m) in line
with the standard rate of UK Corporation Tax of 19.0% (2021:
19.0%), divided by the weighted average number of shares as shown
in Note 9. The Group's IFRS statutory earnings per share is also
detailed in Note 9.
The classification of amounts as other adjustments is a
judgement made by management and is a matter referred to the Audit
Committee for approval prior to issuing the financial statements.
The GBP9.2m cost in other adjustments in 2022 comprises fire safety
remedial works provisions in respect of legacy assets. The GBP5.8m
cost within other adjustments in 2021 comprises software
development costs following the change in accounting policy in the
prior year, with further detailed contained in note 24. Any
transaction classified as other adjustments do not form part of the
Group's ongoing activities and, as such, have been classified as
other adjustments.
3. Segmental Information
IFRS 8, Operating Segments 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 are the Executive
Directors.
The two significant segments for the Group are PRS and
Reversionary. The PRS segment includes stabilised PRS assets as
well as PRS under construction due to direct development and
forward funding arrangements, both for wholly-owned assets and the
Group's interest in joint ventures and associates as relevant. The
Reversionary segment includes regulated tenancies, as well as
CHARM. The Other segment includes legacy strategic land and
development arrangements, along with administrative expenses.
The key operating performance measure of profit or loss used by
the CODM is adjusted earnings before tax, valuation and other
adjustments.
The principal net asset value (NAV) measure reviewed by the CODM
is EPRA NTA which is considered to become the most relevant, and
therefore the primary NAV measure for the Group. EPRA NTA reflects
the tax that will crystallise in relation to the trading portfolio,
whilst excluding the volatility of mark to market movements on
fixed rate debt and derivatives which are unlikely to be realised.
Other NAV measures include EPRA NRV and EPRA NDV which we report
alongside EPRA NTA.
Information relating to the Group's operating segments is set
out in the tables below. The tables distinguish between adjusted
earnings, valuation movements and other adjustments and should be
read in conjunction with Note 2.
March 2022 Income statement (unaudited)
For the 6 months ended 31 March 2022
GBPm PRS Reversionary Other Total
------------------------------------------- ------- ------------- ------- -------
Group revenue 50.1 76.0 0.5 126.6
Segment revenue - external
------------------------------------------- ------- ------------- ------- -------
Net rental income 34.9 7.7 0.2 42.8
Profit on disposal of trading property - 31.0 - 31.0
Profit on disposal of investment property 0.6 - - 0.6
Income from financial interest in
property assets - 2.4 - 2.4
Fees and other income 2.5 - 0.3 2.8
Administrative expenses - - (14.6) (14.6)
Other expenses (0.3) - - (0.3)
Net finance costs (12.2) (4.4) (0.4) (17.0)
Share of trading loss of joint ventures
and associates after tax (1.4) - - (1.4)
------------------------------------------- ------- ------------- ------- -------
Adjusted earnings 24.1 36.7 (14.5) 46.3
Valuation movements 61.7
Other adjustments (9.2)
------------------------------------------- ------- ------------- ------- -------
Profit before tax 98.8
------------------------------------------- ------- ------------- ------- -------
A reconciliation from adjusted earnings to adjusted EPRA
earnings is detailed in the table below, with further details shown
in the EPRA performance measures section at the end of this
document:
For the 6 months ended 31 March
2022
GBPm PRS Reversionary Other Total
-------------------------------------- ------ ------------- ------- -------
Adjusted earnings 24.1 36.7 (14.5) 46.3
Profit on disposal of investment
property (0.6) - - (0.6)
Previously recognised profit through
EPRA market value measures - (28.9) - (28.9)
-------------------------------------- ------ ------------- ------- -------
Adjusted EPRA earnings 23.5 7.8 (14.5) 16.8
-------------------------------------- ------ ------------- ------- -------
March 2021 Income statement (unaudited) (restated)(1)
For the 6 months ended 31 March 2021
GBPm PRS Reversionary Other Total
----------------------------------------- ------- ------------- ------- -------
Group revenue 37.8 62.8 0.7 101.3
Segment revenue - external
----------------------------------------- ------- ------------- ------- -------
Net rental income 25.3 9.3 0.1 34.7
Profit on disposal of trading property (0.1) 29.6 0.2 29.7
Loss on disposal of investment property (0.1) - - (0.1)
Income from financial interest in
property assets - 2.4 - 2.4
Fees and other income 1.7 - 0.6 2.3
Administrative expenses - - (13.9) (13.9)
Other expenses (0.3) - - (0.3)
Net finance costs (11.2) (5.5) (0.4) (17.1)
Share of trading loss of joint ventures
and associates after tax (0.2) - - (0.2)
----------------------------------------- ------- ------------- ------- -------
Adjusted earnings 15.1 35.8 (13.4) 37.5
Valuation movements 12.8
Other adjustments (5.8)
----------------------------------------- ------- ------------- ------- -------
Profit before tax 44.5
----------------------------------------- ------- ------------- ------- -------
(1) See Note 24 for an explanation of the prior period
restatement
A reconciliation from adjusted earnings to adjusted EPRA
earnings is detailed in the table below:
For the 6 months ended 31 March 2021
GBPm PRS Reversionary Other Total
----------------------------------------- ----- ------------- ------- -------
Adjusted earnings 15.1 35.8 (13.4) 37.5
Loss on disposal of investment property 0.1 - - 0.1
Previously recognised profit through
EPRA market value measures - (28.2) - (28.2)
----------------------------------------- ----- ------------- ------- -------
Adjusted EPRA earnings 15.2 7.6 (13.4) 9.4
----------------------------------------- ----- ------------- ------- -------
Segmental assets
The net asset value measures reviewed by the CODM are EPRA NRV,
EPRA NTA and EPRA NDV. These measures reflect the current market
value of trading property owned by the Group rather than the lower
of historical cost and net realisable value. These measures are
considered to be a more relevant reflection of the value of the
assets owned by the Group.
EPRA NRV is the Group's statutory net assets plus the adjustment
required to increase the value of trading stock from its statutory
accounts value of the lower of cost and net realisable value to its
market value. In addition, the statutory statement of financial
position amounts for both deferred tax on property revaluations and
derivative financial instruments net of deferred tax, including
those in joint ventures and associates, are added back to statutory
net assets. Finally, the market value of Grainger plc shares owned
by the Group are added back to statutory net assets.
EPRA NTA assumes that entities buy and sell assets, thereby
crystallising certain levels of deferred tax liabilities. For the
Group, deferred tax in relation to revaluations of its trading
portfolio is taken into account by applying the expected rate of
tax to the adjustment that increases the value of trading stock
from its statutory accounts value of the lower of cost and net
realisable value, to its market value. The measure also excludes
all intangible assets on the statutory balance sheet, including
goodwill.
EPRA NDV reverses some of the adjustments made between statutory
net assets, EPRA NRV and EPRA NTA. All of the adjustments for the
value of derivative financial instruments net of deferred tax,
including those in joint ventures and associates, are reversed. The
adjustment for the deferred tax on investment property revaluations
excluded from EPRA NRV and EPRA NTA are also reversed, as is the
intangible adjustment in respect of EPRA NTA, except for goodwill
which remains excluded. In addition, adjustments are made to net
assets to reflect the fair value, net of deferred tax, of the
Group's fixed rate debt.
Total Accounting Return of 3.2% is calculated from the closing
EPRA NTA of 304.7p per share plus the dividend of 2.08p per share
for the year, divided by the opening EPRA NTA of 297.2p per
share.
These measures are set out below by segment along with a
reconciliation to the summarised statutory statement of financial
position:
March 2022 Segment net assets (unaudited)
PRS Reversionary Other Total Pence
GBPm per share
-------------------------- -------- ------------- ------ -------- -----------
Total segment net assets
(statutory) 1,522.2 224.9 49.1 1,796.2 242p
-------------------------- -------- ------------- ------ -------- -----------
Total segment net assets
(EPRA NRV) 1,709.3 642.2 51.6 2,403.1 324p
-------------------------- -------- ------------- ------ -------- -----------
Total segment net assets
(EPRA NTA) 1,675.3 537.3 51.1 2,263.7 305p
-------------------------- -------- ------------- ------ -------- -----------
Total segment net assets
(EPRA NDV) 1,603.8 537.3 88.8 2,229.9 300p
-------------------------- -------- ------------- ------ -------- -----------
March 2022 Reconciliation of EPRA NAV measures (unaudited)
Adjustments Adjustments
Adjustments to deferred to
to market and contingent derivatives,
value, EPRA tax and fixed EPRA
Statutory deferred NRV intangibles EPRA rate debt NDV
balance tax and balance NTA balance and balance
GBPm sheet derivatives sheet sheet intangibles sheet
------------------ ---------- ------------- ---------- --------------- ------------- --------------- ----------
Investment
property 2,334.7 - 2,334.7 - 2,334.7 - 2,334.7
Investment
in joint
ventures
and associates 46.8 - 46.8 - 46.8 - 46.8
Financial
interest
in property
assets 71.1 - 71.1 - 71.1 - 71.1
Inventories
- trading
property 614.0 525.3 1,139.3 - 1,139.3 - 1,139.3
Cash and cash
equivalents 232.3 - 232.3 - 232.3 - 232.3
Other assets 55.1 2.5 57.6 (0.5) 57.1 5.4 62.5
------------------ ---------- ------------- ---------- --------------- ------------- --------------- ----------
Total assets 3,354.0 527.8 3,881.8 (0.5) 3,881.3 5.4 3,886.7
------------------ ---------- ------------- ---------- --------------- ------------- --------------- ----------
Interest-bearing
loans and
borrowings (1,348.8) - (1,348.8) - (1,348.8) 44.9 (1,303.9)
Deferred and
contingent
tax liabilities (83.7) 79.1 (4.6) (138.9) (143.5) (84.1) (227.6)
Other liabilities (125.3) - (125.3) - (125.3) - (125.3)
------------------ ---------- ------------- ---------- --------------- ------------- --------------- ----------
Total liabilities (1,557.8) 79.1 (1,478.7) (138.9) (1,617.6) (39.2) (1,656.8)
------------------ ---------- ------------- ---------- --------------- ------------- --------------- ----------
Net assets 1,796.2 606.9 2,403.1 (139.4) 2,263.7 (33.8) 2,229.9
------------------ ---------- ------------- ---------- --------------- ------------- --------------- ----------
September 2021 Segment net assets (audited)
PRS Reversionary Other Total Pence
GBPm per share
-------------------------------------- -------- ------------- ------- -------- -----------
Total segment net assets (statutory) 1,484.7 256.1 (1.8) 1,739.0 234p
-------------------------------------- -------- ------------- ------- -------- -----------
Total segment net assets (EPRA
NRV) 1,637.4 677.8 34.8 2,350.0 316p
-------------------------------------- -------- ------------- ------- -------- -----------
Total segment net assets (EPRA
NTA) 1,608.5 571.8 27.5 2,207.8 297p
-------------------------------------- -------- ------------- ------- -------- -----------
Total segment net assets (EPRA
NDV) 1,550.2 571.8 (10.9) 2,111.1 284p
-------------------------------------- -------- ------------- ------- -------- -----------
September 2021 Reconciliation of EPRA NAV measures (audited)
Adjustments
Adjustments to
to market Adjustments derivatives,
value, to deferred fixed
Statutory deferred EPRA NRV and contingent EPRA rate debt EPRA NDV
balance tax and balance tax and NTA balance and balance
GBPm sheet derivatives sheet intangibles sheet intangibles sheet
------------------ ---------- ------------- ---------- --------------- ------------- --------------- ----------
Investment
property 2,179.2 - 2,179.2 - 2,179.2 - 2,179.2
Investment
in joint
ventures
and associates 44.9 - 44.9 - 44.9 - 44.9
Financial
interest
in property
assets 71.7 - 71.7 - 71.7 - 71.7
Inventories
- trading
property 595.2 535.5 1,130.7 - 1,130.7 - 1,130.7
Cash and
cash equivalents 317.6 - 317.6 - 317.6 - 317.6
Other assets 63.6 4.9 68.5 (0.5) 68.0 12.8 80.8
------------------ ---------- ------------- ---------- --------------- ------------- --------------- ----------
Total assets 3,272.2 540.4 3,812.6 (0.5) 3,812.1 12.8 3,824.9
------------------ ---------- ------------- ---------- --------------- ------------- --------------- ----------
Interest-bearing
loans and
borrowings (1,347.5) - (1,347.5) - (1,347.5) (46.7) (1,394.2)
Deferred
and contingent
tax liabilities (69.5) 66.1 (3.4) (141.7) (145.1) (58.3) (203.4)
Other liabilities (116.2) 4.5 (111.7) - (111.7) (4.5) (116.2)
------------------ ---------- ------------- ---------- --------------- ------------- --------------- ----------
Total liabilities (1,533.2) 70.6 (1,462.6) (141.7) (1,604.3) (109.5) (1,713.8)
------------------ ---------- ------------- ---------- --------------- ------------- --------------- ----------
Net assets 1,739.0 611.0 2,350.0 (142.2) 2,207.8 (96.7) 2,111.1
------------------ ---------- ------------- ---------- --------------- ------------- --------------- ----------
4. Group revenue
Unaudited
2022 2021
GBPm GBPm
-------------------------------------------------- --------- --------
Gross rental income (Note 5) 59.1 48.3
Gross proceeds from disposal of trading property
(Note 6) 64.7 50.7
Fees and other income (Note 8) 2.8 2.3
-------------------------------------------------- --------- --------
126.6 101.3
-------------------------------------------------- --------- --------
5. Net rental income
Unaudited
2022 2021
GBPm GBPm
----------------------------- --------- --------
Gross rental income 59.1 48.3
Property operating expenses (16.3) (13.6)
----------------------------- --------- --------
42.8 34.7
----------------------------- --------- --------
6. Profit on disposal of trading property
Unaudited
2022 2021
GBPm GBPm
--------------------------------------------------- --------- --------
Gross proceeds from disposal of trading property 64.7 50.7
(1. 0
Selling costs (1.8) )
--------------------------------------------------- --------- --------
Net proceeds from disposal of trading property 62.9 49.7
Carrying value of trading property sold (Note 12) (31.9) (19.9)
31.0 29.8
--------------------------------------------------- --------- --------
7. Profit/(loss) on disposal of investment property
Unaudited
2022 2021
GBPm GBPm
------------------------------------------------------ -------- ---------
Gross proceeds from disposal of investment property 10.6 31.2
Selling costs (0.3) (0.9)
------------------------------------------------------ -------- ---------
Net proceeds from disposal of investment property 10.3 30.3
Carrying value of investment property sold (Note 11) (9.7) (30.4)
------------------------------------------------------ -------- ---------
0.6 (0.1)
------------------------------------------------------ -------- ---------
8. Fees and other income
Unaudited
2022 2021
GBPm GBPm
------------------------------------------ --------- --------
Property and asset management fee income 1.7 0.8
Other sundry income 1.1 1.5
------------------------------------------ --------- --------
2.8 2.3
------------------------------------------ --------- --------
Included within other sundry income in the current period is
GBP1.1m (2021: GBP0.8m) liquidated and ascertained damages (LADs)
recorded to compensate the Group for lost rental income resulting
from the delayed completion of construction contracts.
9. Earnings per share
Basic
Basic earnings per share is calculated by dividing the profit or
loss attributable to the owners of the Company by the weighted
average number of ordinary shares in issue during the period,
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 Plan ('LTIP') and Deferred Bonus Plan ('DBP'),
on which the dividends are being waived.
Diluted
Diluted earnings per share is calculated by adjusting the
weighted average number of shares in issue by the dilutive effect
of ordinary shares that the Company may potentially issue relating
to its share option schemes and contingent share awards under the
LTIP and DBP, based upon the number of shares that would be issued
if 31 March 2022 was the end of the contingency period. Where the
effect of the above adjustments is antidilutive, they are excluded
from the calculation of diluted earnings per share.
Unaudited
31 March 2021
31 March 2022 (restated)(1)
--------------------------------- ---------------------------------
Profit Weighted Profit Weighted
for average Earnings for average Earnings
the number per the number per
period of shares share period of shares share
GBPm (millions) (pence) GBPm (millions) (pence)
-------------------------------- -------- ------------ --------- -------- ------------ ---------
Basic earnings per share
Profit attributable to equity
holders 75.6 740.3 10.2 34.3 673.1 5.1
Effect of potentially dilutive
securities
Share options and contingent
shares 2.8 - - 2.6 (0.1)
-------------------------------- -------- ------------ --------- -------- ------------ ---------
Diluted earnings per share
Profit attributable to equity
holders 743.1 10.2 34.3 675.7 5.0
-------------------------------- -------- ------------ --------- -------- ------------ ---------
(1) See Note 24 for an explanation of the prior period
restatement
10. Dividends
The Company has announced an interim dividend of 2.08p (March
2021: 1.83p) per share which will return GBP15.4m (March 2021:
GBP12.3m) of cash to shareholders. In the six months ended 31 March
2022, the final dividend for the year ended 30 September 2021 which
amounted to GBP24.6m has been paid.
11. Investment property
Unaudited Audited
31 March 30 Sept
2022 2021
GBPm GBPm
------------------------------------------------- ---------- ---------
Opening balance 2,179.2 1,778.9
------------------------------------------------- ---------- ---------
Acquisitions 7.7 78.0
Capital expenditure - completed assets 0.9 22.8
Capital expenditure - assets under construction 97.3 261.5
------------------------------------------------- ---------- ---------
Total additions 105.9 362.3
Disposals (Note 7) (9.7) (38.8)
Net valuation gains 59.3 76.8
------------------------------------------------- ---------- ---------
Closing balance 2,334.7 2,179.2
------------------------------------------------- ---------- ---------
12. Inventories - trading property
Unaudited Audited
31 March 30 Sept
2022 2021
GBPm GBPm
---------------------------------------------------- ---------- ---------
Opening balance 595.2 657.4
Additions 49.5 12.6
Disposals (Note 6) (31.9) (74.7)
Reversal of impairment/(impairment) of inventories
to net realisable value 1.2 (0.1)
---------------------------------------------------- ---------- ---------
Closing balance 614.0 595.2
---------------------------------------------------- ---------- ---------
13. Investment in associates
Unaudited Audited
31 March 30 Sept
2022 2021
GBPm GBPm
-------------------------------- ---------- ---------
Opening balance 15.5 14.7
Share of profit for the period 0.4 0.8
Closing balance 15.9 15.5
-------------------------------- ---------- ---------
The closing balance comprises share of net assets of GBP1.3m
(September 2021: GBP0.9m) and net loans due from associates of
GBP14.6m (September 2021: GBP14.6m). At the balance sheet date,
there is no expectation of any material credit losses on loans
due.
As at 31 March 2022, the Group's interest in active associates
was as follows:
% of ordinary Country of Accounting
share capital incorporation period end
held
--------- --------------- --------------- -------------
Vesta LP 20.0 UK 30 September
--------- --------------- --------------- -------------
14. Investment in joint ventures
Unaudited Audited
31 March 30 Sept
2022 2021
GBPm GBPm
---------------------------------- ---------- ---------
Opening balance 29.4 27.3
Share of loss for the period (1.6) (0.3)
Further investment(1) 2.9 0.8
Loans advanced to joint ventures 0.2 1.6
Closing balance 30.9 29.4
---------------------------------- ---------- ---------
(1) Grainger invested GBP2.9m into Connected Living London (BTR)
Limited in the period (September 2021: GBP0.8m).
The closing balance comprises share of net assets of GBP9.8m
(September 2021: GBP8.5m) and net loans due from joint ventures of
GBP21.1m (September 2021: GBP20.9m). At the balance date, there is
no expectation of any material credit losses on loans due.
At 31 March 2022, the Group's interest in active joint ventures
was as follows:
% of ordinary
share capital Country of Accounting
held incorporation period end
--------------------------- --------------- --------------- -------------
Connected Living London 30 September
(BTR) Limited 51 UK
Curzon Park Limited 50 UK 31 March
Lewisham Grainger Holdings 30 September
LLP 50 UK
--------------------------- --------------- --------------- -------------
15. Financial interest in property assets ('CHARM'
portfolio)
Unaudited Audited
31 March 30 Sept
2022 2021
GBPm GBPm
----------------------------------- ---------- ---------
Opening balance 71.7 73.3
Cash received from the instrument (4.0) (8.8)
Amounts taken to income statement 3.4 7.2
Closing balance 71.1 71.7
----------------------------------- ---------- ---------
The CHARM portfolio is a financial interest in equity mortgages
held by the Church of England Pensions Board as mortgagee. It is
accounted for under IFRS 9 and is measured at fair value through
profit and loss.
It is considered to be a Level 3 financial asset as defined by
IFRS 13. The financial asset is included in the fair value
hierarchy within Note 18.
16. Trade and other receivables
Unaudited Audited
31 March 30 Sept
2022 2021
GBPm GBPm
----------------------------------------- ---------- ---------
Rent and other tenant receivables 6.2 5.7
Deduct: Provision for impairment (2.3) (2.3)
----------------------------------------- ---------- ---------
Rent and other tenant receivables - net 3.9 3.4
Contract assets - 2.6
Other receivables 21.5 29.8
Prepayments 4.2 2.7
----------------------------------------- ---------- ---------
Closing balance 29.6 38.5
----------------------------------------- ---------- ---------
The Group's assessment of expected credit losses involves
estimation given its forward-looking nature. This is not considered
to be an area of significant judgement or estimation due to the
balance of gross rent and other tenant receivables of GBP6.2m
(2021: GBP5.7m). Assumptions used in the forward-looking assessment
are continually reviewed to take into account likely rent
deferrals.
At the balance date, there is no expectation of any material
credit losses on contract assets.
Other receivables include GBP5.9m (2021: GBP10.4m) due from land
sales, which is receivable no later than September 2022.
The fair values of trade and other receivables are considered to
be equal to their carrying amounts.
17. Trade and other payables
Unaudited
31 March Audited 30 Sept
2022 2021
GBPm GBPm
-------------------------------- ---------- ----------------
Current liabilities
Deposits received 9.4 9.1
Trade payables 27.5 16.3
Lease liabilities 0.8 0.7
Tax and social security costs 0.6 4.9
Accruals 67.8 72.6
Deferred income 7.1 6.2
-------------------------------- ---------- ----------------
113.2 109.8
-------------------------------- ---------- ----------------
Non-current liabilities
Lease liabilities 2.6 0.6
-------------------------------- ---------- ----------------
2.6 0.6
-------------------------------- ---------- ----------------
Total trade and other payables 115.8 110.4
-------------------------------- ---------- ----------------
Within accruals, GBP47.8m comprises accrued expenditure in
respect of ongoing construction activities September 2021:
GBP43.7m).
18. Interest-bearing loans and borrowings and financial risk
management
Unaudited
31 March Audited 30 Sept
2022 2021
GBPm GBPm
-------------------------------- ---------- ----------------
Current liabilities
Bank loans - Pounds sterling 50.0 -
-------------------------------- ---------- ----------------
50.0 -
Non-current liabilities
Bank loans - Pounds sterling 257.2 306.5
Bank loans - Euro 0.8 0.9
Non-bank financial institution 346.9 346.6
Corporate bond 693.9 693.5
-------------------------------- ---------- ----------------
1,298.8 1,347.5
-------------------------------- ---------- ----------------
Closing balance 1,348.8 1,347.5
-------------------------------- ---------- ----------------
The above analyses of loans and borrowings are net of
unamortised loan issue costs and the discount on issuance of the
corporate bond. As at 31 March 2022, unamortised costs totalled
GBP9.6m (September 2021: GBP10.7m) and the outstanding discount was
GBP2.4m (September 2021: GBP2.6m).
Categories of financial instrument
The Group holds financial instruments such as financial interest
in property assets, trade and other receivables (excluding
prepayments), derivatives, cash and cash equivalents. For all
assets and liabilities excluding interest-bearing loans the book
value was the same as the fair value as at 31 March 2022 and as at
30 September 2021.
As at 31 March 2022, the fair value of interest-bearing loans is
greater than the book value by GBP44.9m (September 2021: GBP46.7m),
but there is no requirement under IFRS 9 to adjust the carrying
value of loans, all of which are stated at unamortised cost in the
consolidated statement of financial position.
Market risk
The Group is exposed to market risk through interest rates, the
availability of credit and house price movements relating to the
Tricomm Housing portfolio and the CHARM portfolio. The Group is not
significantly exposed to equity price risk or to commodity price
risk.
Fair values
IFRS 13 sets out a three-tier hierarchy for financial assets and
liabilities valued at fair value. These are as follows:
Level 1 - quoted prices (unadjusted) in active markets for
identical assets and liabilities;
Level 2 - inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly or
indirectly; and
Level 3 - unobservable inputs for the asset or liability.
The following table presents the Group's assets and liabilities
that are measured at fair value:
Unaudited Audited
31 March 2022 30 September 2021
---------------------- ----------------------
Assets Liabilities Assets Liabilities
GBPm GBPm GBPm GBPm
------------------------------------------------------------------- -------- ------------ -------- ------------
Level 3
------------------------------------------------------------------- -------- ------------ -------- ------------
CHARM 71.1 - 71.7 -
Investment property 2,334.7 - 2,179.2 -
------------------------------------------------------------------- -------- ------------ -------- ------------
2,405.8 - 2,250.9 -
------------------------------------------------------------------- -------- ------------ -------- ------------
Level 2
------------------------------------------------------------------- -------- ------------ -------- ------------
Interest rate swaps - in cash flow hedge accounting relationships 5.4 - - 4.5
5.4 - - 4.5
------------------------------------------------------------------- -------- ------------ -------- ------------
The significant unobservable inputs affecting the carrying value
of the CHARM portfolio are house price inflation and discount
rates. A reconciliation of movements and amounts recognised in the
consolidated income statement are detailed in Note 15.
The investment valuations provided by Allsop LLP and CBRE
Limited are based on RIC's Professional Valuation Standards, but
include a number of unobservable inputs and other valuation
assumptions.
The fair value of swaps and caps were valued in-house by a
specialised treasury management system, using first a discounted
cash flow model and market information. The fair value is derived
from the present value of future cash flows discounted at rates
obtained by means of the current yield curve appropriate for those
instruments. As all significant inputs required to value the swaps
and caps are observable, they fall within Level 2.
The reconciliation between opening and closing balances for
Level 3 is detailed in the table below:
Unaudited Audited
31 March 2022 30 Sept 2021
Assets - Level 3 GBPm GBPm
----------------------------------- --------------- --------------
Opening balance 2,250.9 1,852.2
Amounts taken to income statement 62.7 84.0
Other movements 92.2 314.7
----------------------------------- --------------- --------------
Closing balance 2,405.8 2,250.9
----------------------------------- --------------- --------------
19. Tax
The tax charge for the period of GBP23.2m (2021 GBP10.2m)
recognised in the consolidated income statement comprises:
Unaudited
2022 2021
GBPm GBPm
--------------------------------------------------- ------- ------
Current tax
Corporation tax on profit 10.1 9.9
Deferred tax
Origination and reversal of temporary differences 12.3 0.3
Adjustments relating to prior periods 0.8 -
--------------------------------------------------- ------- ------
13.1 0.3
Total tax charge for the period 23.2 10.2
--------------------------------------------------- ------- ------
The Group works in an open and transparent manner and maintains
a regular dialogue with HM Revenue & Customs. This approach is
consistent with the 'low risk' rating we have been awarded by HM
Revenue & Customs and to which the Group is committed.
The Group's results for this period are taxed at an effective
rate of 19.0% (September 2021: 19.0%).
In addition to the above, a deferred tax charge of GBP2.9m
(2021: GBP2.1m) was recognised within other comprehensive income
comprising:
Unaudited
2022 2021
GBPm GBPm
-------------------------------------------------- -------- -------
Actuarial gain on BPT Limited pension scheme 0.4 0.7
Fair value movement in cash flow hedges 2.5 1.4
-------------------------------------------------- -------- -------
Amounts recognised in other comprehensive income 2.9 2.1
-------------------------------------------------- -------- -------
Deferred tax balances comprise temporary differences
attributable to:
Audited
30 Sept
Unaudited 31 March 2022 2021
GBPm GBPm
---------------------------------------------------------------- ------------------------ ---------
Deferred tax assets
Short-term temporary differences 1.9 2.1
Losses carried forward - 0.2
Actuarial deficit on BPT Limited pension scheme - 0.2
Fair value movement in derivative financial instruments - 1.2
---------------------------------------------------------------- ------------------------ ---------
1.9 3.7
---------------------------------------------------------------- ------------------------ ---------
Deferred tax liabilities
Trading property uplift to fair value on business combinations (7.6) (7.8)
Investment property revaluation (68.4) (55.7)
Actuarial surplus on BPT Limited pension scheme (0.2) -
Short-term temporary differences (4.8) (4.6)
Fair value movement in financial interest in property assets (1.4) (1.4)
Fair value movement in derivative financial instruments (1.3) -
---------------------------------------------------------------- ------------------------ ---------
(83.7) (69.5)
---------------------------------------------------------------- ------------------------ ---------
Total deferred tax (81.8) (65.8)
---------------------------------------------------------------- ------------------------ ---------
Deferred tax has been calculated at a rate of 25.0% (September
2021: 25.0%) in line with the enacted main rate of corporation tax
applicable from 1 April 2023.
In addition to the tax amounts shown above, contingent tax based
on EPRA market value measures, being tax on the difference between
the carrying value of trading properties in the consolidated
statement of financial position and their market value has not been
recognised by the Group. This contingent tax amounts to GBP131.3m,
calculated at 25.0% (September 2021: GBP133.9m) and will be
realised as the properties are sold.
20. Retirement benefits
The Group retirement benefit asset increased by GBP1.8m to
GBP5.3m in the six months ended 31 March 2022. This movement has
arisen from changes in assumptions of GBP2.4m (primarily market
observable discount rates), and GBP0.2m company contributions,
offset by losses on plan assets of GBP0.8m. The principal actuarial
assumptions used to reflect market conditions as at 31 March 2022
are as follows:
Unaudited Audited
31 March 2022 30 Sept 2021
% %
------------------------------------------ ---------------- --------------
Discount rate 2.75 2.10
Retail Price Index (RPI) inflation 4.25 3.70
Consumer Price Index (CPI) inflation 3.45 2.90
Salary increases 4.75 4.20
Rate of increase of pensions in payment 5.00 5.00
Rate of increase for deferred pensioners 3.45 2.90
------------------------------------------ ---------------- --------------
21. Share-based payments
The Group operates a number of equity-settled, share-based
compensation plan comprising awards under a Long-Term Incentive
Plan ('LTIP'), a Deferred Bonus Plan ('DBP'), a Share Incentive
Plan ('SIP') and a Save As You Earn Scheme ('SAYE'). The
share-based payments charge recognised in the consolidated income
statement for the period is GBP0.8m (2021: GBP0.9m).
22. Related party transactions
During the period ended 31 March 2022, the Group transacted with
its associates and joint ventures (details of which are set out in
Notes 13 and 14). The Group provides a number of services to its
associates and joint ventures. These include property and asset
management services for which the Group receives fee income. The
related party transactions recognised in the consolidated income
statement and consolidated statement of financial position are as
follows:
Unaudited
31 March 2022 31 March 2021
Period Period
Fees end Fees end
recognised balance recognised balance
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- ----------------- ------------ ---------------- ------------
Connected Living London (BTR)
Limited 432 497 335 835
Lewisham Grainger Holdings
LLP 159 1,089 159 770
Vesta Limited Partnership 349 304 213 219
------------------------------- ----------------- ------------ ---------------- ------------
940 1,890 707 1,824
------------------------------- ----------------- ------------ ---------------- ------------
Unaudited Audited
31 March 2022 30 September 2021
Interest Period end loan Interest Interest Year end loan Interest
recognised balance rate recognised balance rate
GBP'000 GBPm % GBP'000 GBPm %
-------------------------------- ------------- ---------------- --------- ------------ -------------- ---------
Curzon Park Limited - 18.1 Nil - 18.1 Nil
Lewisham Grainger Holdings LLP - 3.0 Nil - 2.8 Nil
Vesta LP - 14.6 Nil - 14.6 Nil
-------------------------------- ------------- ---------------- --------- ------------ -------------- ---------
- 35.7 - 35.5
---------------------------------------------- ---------------- --------- ------------ -------------- ---------
23. Issue of share capital
In September 2021, the Group issued 67,379,369 new shares at an
issue price of 310.0p raising a total amount of GBP204.1m net of
costs. The shares were issued with a nominal value of GBP0.05p per
share. This increased share capital by GBP3.3m and the share
premium account by GBP200.8m.
24. Prior period restatement
In the prior year, the IFRS Interpretations Committee published
accounting guidance for configuration and customisation expenditure
relating to cloud computing arrangements, including Software as a
Service (SaaS). The guidance recognises differences in accounting
treatment for SaaS expenditure between functionality that is
broadly available to the software supplier's general customer base
and functionality that is restricted to a specific user. The
Committee had clarified the position that expenditure can only be
capitalised to the extent a SaaS customer has the power to obtain
the future economic benefits by restricting others access to those
benefits, otherwise expenditure in relation to developing SaaS for
use should be expensed.
Following the interpretation being published, the Group has
reviewed and revised its accounting policy in relation to
intangible assets which includes accounting for computer software.
This has resulted in reclassifying relevant expenditure that was
previously capitalised as an intangible asset and expensing this to
the income statement as administrative expenses.
The impact of this change is outlined in the following
table:
31 March 2021 (previously reported) 31 March 2021 restated
GBPm Restatement GBPm GBPm
------------------------------------ ------------------------------------ ----------------- -----------------------
Consolidated income statement
impact
Administration expenses (13.9) (5.8) (19.7)
Profit before tax 50.3 (5.8) 44.5
Tax charge (10.2) - (10.2)
Profit for the period attributable
to the owners of the Company 40.1 (5.8) 34.3
Basic earnings per share 6.0p (0.9)p 5.1p
Diluted earnings per share 5.9p (0.9)p 5.0p
Consolidated statement of financial
position impact
Intangible assets 28.3 (27.5) 0.8
Deferred tax assets 5.4 1.1 6.5
Total non-current assets 2,043.8 (26.7) 2,017.1
Deferred tax liabilities 36.7 (0.6) 36.1
Total non-current liabilities 1,385.1 (0.6) 1,384.5
Net assets 1,488.3 (25.8) 1,462.5
Retained earnings 828.4 (25.8) 802.6
Total equity 1,488.3 (25.8) 1,462.5
------------------------------------ ------------------------------------ ----------------- -----------------------
25. Post balance sheet events
The following financing activity has taken place between 1 April
2022 and the date of authorisation of the interim financial
statements:
On 14 April 2022, an existing GBP50m sterling bank loan facility
was increased to GBP125m (an additional GBP75m), and the maturity
date was extended by a further five years and remains undrawn.
On 26 April 2022, the maturity date on a GBP50m sterling bank
loan was extended by a further five years.
On 29 April 2022, an additional GBP75m, three year sterling bank
loan facility was agreed and remains undrawn.
On 10 May 2022, the maturity date on an additional GBP50m
sterling bank loan was extended by a further five years.
Each facility above has 2 x 1 year extension options. Following
the financing activity and taking into account the relevant
extension options, our weighted average debt maturity has increased
to 6.2 years.
EPRA Performance Measures - Unaudited
The European Public Real Estate Association (EPRA) is the body
that represents Europe's listed property companies. The association
sets out guidelines and recommendations to facilitate consistency
in listed real estate reporting, in turn allowing stakeholders to
compare companies on a like-for-like basis. As a member of EPRA,
the Group is supportive of EPRA's initiatives and discloses
measures in relation to the EPRA Best Practices Recommendations
('EPRA BPR') guidelines. The most recent guidelines, updated in
October 2019, have been adopted by the Group.
EPRA Earnings
31 March 2022 31 March 2021
(restated)(1)
Pence Pence
Earnings Shares per Earnings Shares per
GBPm millions share GBPm millions share
--------------------------------------- --------- --------- ------ -------- --------- ------
Earnings per IFRS income statement 98.8 743.1 13.3 44.5 675.7 6.6
Adjustments to calculate adjusted
EPRA Earnings, exclude:
i) Changes in value of investment
properties, development properties
held for investment and other
interests (60.3) - (8.1) (12.6) - (1.8)
ii) Profits or losses on disposal
of investment properties, development
properties held for investment
and other interests (0.6) - (0.1) 0.1 - -
iii) Profits or losses on sales
of trading properties including
impairment charges in respect
of trading properties (30.1) - (4.0) (28.4) - (4.2)
iv) Tax on profits or losses on
disposals - - - - - -
v) Negative goodwill/goodwill
impairment - - - - - -
vi) Changes in fair value of financial
instruments and associated close-out
costs - - - - - -
vii) Acquisition costs on share
deals and non-controlling joint
venture interests - - - - - -
viii) Deferred tax in respect
of EPRA adjustments - - - - - -
ix) Adjustments i) to viii) in
respect of joint ventures (0.2) - - - - -
x) Non-controlling interests in
respect of the above - - - - - -
xi) Other adjustments in respect
of adjusted earnings 9.2 - 1.2 5.8 - 0.8
--------------------------------------- --------- --------- ------ -------- --------- ------
Adjusted EPRA Earnings/Earnings
per share 16.8 743.1 2.3 9.4 675.7 1.4
--------------------------------------- --------- --------- ------ -------- --------- ------
Adjusted EPRA Earnings per share
after tax 1.9 1.1
--------------------------------------- --------- --------- ------ -------- --------- ------
(1) See Note 24 for an explanation of the prior period
restatement
Adjusted EPRA Earnings have been divided by the average number
of shares shown in Note 9 to these financial statements to
calculate earnings per share. Adjusted EPRA Earnings per share
after tax is calculated using the standard rate of UK Corporation
Tax of 19.0% (2021: 19.0%).
EPRA NRV, EPRA NTA and EPRA NDV
31 March 2022 30 Sept 2021
------------------------- -------------------------
EPRA EPRA EPRA EPRA EPRA EPRA
NRV NTA NDV NRV NTA NDV
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------- ------- ------- ------- ------- ------- -------
IFRS Equity attributable to shareholders 1,796.2 1,796.2 1,796.2 1,739.0 1,739.0 1,739.0
Include/Exclude:
i) Hybrid Instruments - - - - - -
----------------------------------------- ------- ------- ------- ------- ------- -------
Diluted NAV 1,796.2 1,796.2 1,796.2 1,739.0 1,739.0 1,739.0
Include:
ii.a) Revaluation of IP (if IAS - - - - - -
40 cost option is used)
ii.b) Revaluation of IPUC (if IAS - - - - - -
40 cost option is used)
ii.c) Revaluation of other non-current
investments 6.5 6.5 6.5 6.0 6.0 6.0
iii) Revaluation of tenant leases - - - - - -
held as finance leases
iv) Revaluation of trading properties 532.9 394.0 394.0 543.3 401.6 401.6
----------------------------------------- ------- ------- ------- ------- ------- -------
Diluted NAV at Fair Value 2,335.6 2,196.7 2,196.7 2,288.3 2,146.6 2,146.6
Exclude:
v) Deferred tax in relation to
fair value gains of IP 71.5 71.5 - 58.3 58.3 -
vi) Fair value of financial instruments (4.0) (4.0) - 3.4 3.4 -
vii) Goodwill as a result of deferred - - - - - -
tax
viii.a) Goodwill as per the IFRS
balance sheet - (0.5) (0.5) - (0.5) (0.5)
viii.b) Intangible as per the IFRS - - - - - -
balance sheet
Include:
ix) Fair value of fixed interest
rate debt - - 33.7 - - (35.0)
x) Revalue of intangibles to fair - - - - - -
value
xi) Real estate transfer tax - - - - - -
NAV 2,403.1 2,263.7 2,229.9 2,350.0 2,207.8 2,111.1
Fully diluted number of shares
NAV 742.8 742.8 742.8 742.8 742.8 742.8
NAV pence per share 323.5 304.7 300.2 316.4 297.2 284.2
([1]) ONS
([2]) Secured and committed schemes, not including the Waterloo
project which is secured but not yet committed.
[3] English Housing Survey 2020/21, published January 2022
[4] ONS, Private rental affordability
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