URBAN&CIV 2 December 2015
Urban&Civic plc
('Urban&Civic', the 'Company' or the 'Group')
Annual results for the year to 30 September 2015
Urban&Civic plc (LSE: UANC) announces its results for the 12 months to 30 September 2015.
30 September 2015 | 30 September 2014 | |
Profit before tax (£m) | 7.04 | 19.16 |
EPRA NAV (£m) | 389.9 | 350.8 |
EPRA NAV per share (p) | 272.1 | 249.7 |
Total shareholder return | 15.8% | - |
Dividend per share (p) | 2.65 | 1.5 |
Valuation gains supported by upward movement in strategic sites and investment in new development
· EPRA net assets up 11.1% to £389.9m
· EPRA NAV per share up 9.0% to 272.1p
Key milestones achieved on strategic sites
· New housebuilder, Davidsons Homes, signed at RadioStation Rugby for the delivery of the site's first 250 homes, commencing spring 2016; second housebuilder in solicitors' hands
· Hopkins Homes in preliminary construction at Alconbury; two further housebuilders expected to commence on site in the first half of 2016
· On course to submit outline planning application at Waterbeach in autumn 2016
· Group currently owns or controls more than 24,000 residential plots of which two-thirds are already consented
Catesby Property Group acquisition strengthened group revenues and is delivering strong pipeline
· Delivering an additional 2,600 unit strategic site in Newark, Nottinghamshire
· Planning consents at four sites obtained during current calendar year
· Robust pipeline - 15 projects under contract; eight in solicitors' hands; 10 at detailed heads of terms stage representing pipeline of 5,000 homes
Dividend increase in line with increase in EPRA NAV
· Total shareholder return for the year of 15.8%
· Final dividend of 1.65p (+10% on 2014 final) takes total dividend to 2.65p per share
· Acceleration from the guidance given at the time of Listing
Commenting on these results, Nigel Hugill, the Executive Chairman of Urban&Civic, said:
'I am pleased to be able to report continued advancement across the Group. The next 18 months are pivotal, in terms of immediate Company prospects and the sustained cash monetisations from the larger projects. The signs are all encouraging at present.
'The UK population is projected to rise by 4.4 million to 69 million by 2024, a near seven per cent increase over ten years, but also mostly concentrated in the east and south east of England. Urban&Civic is perfectly positioned to capitalise on those changes. Alconbury, Rugby and Waterbeach promise to be three of the most substantial additions to UK housing stock over the next 15 years. The current aggregated project gross development value of over £7 billion underpins stable predictable long-dated income for the Group.'
For further information, please contact:
Urban&Civic plc +44 (0)20 7509 5555
Nigel Hugill/Jon Austen
JP Morgan Cazenove +44 (0)20 7742 4000
Bronson Albery
Stifel +44 (0)20 7557 6030
Mark Young/David Arch
FTI Consulting +44 (0)20 3727 1000
Giles Barrie/Dido Laurimore/Ellie Sweeney
Chairman's statement
Introduction
Consistent with my update at the half year, I am pleased to be able to report continued advancement across the Group in the 12 months to 30 September 2015. EPRA net assets per share are up 9 per cent for the year, reflecting growing, if still restrained, appraised upward movement in our strategic sites and considerable investment in new development. The latter will help provide income and balance but will take some time to convert into balance sheet growth. The next 18 months are pivotal, in terms of immediate Company prospects and the sustained cash monetisations from the larger projects. The signs are all encouraging at present, of which more below.
Highlights of 2015
The acquisition of Catesby was a 2015 highlight, introducing another significant housing site at Newark, on the east coast mainline in Nottinghamshire, as well as strengthening Group operating revenues. Also of particular note is our waterside office to residential conversion in Bristol Bridge Quay, scheduled for delivery next April, where 53 of the 59 apartments are now under contract with the remainder already reserved. A broader satisfaction is derived from the demonstrable power of the delivery machine that we envisaged on coming to market last year and the extent to which we have been able to build prospective asset growth across all Group business lines.
The strength of that delivery capability is being supplemented by the range of well established, predominantly medium-sized, housebuilders who will be building new homes on our strategic sites. Alongside Hopkins Homes (www.hopkinshomes.co.uk) already in preliminary construction at Alconbury, we have reached detailed heads of terms with two further housebuilders, both of whom are expected to commence on site in the first half of the next calendar year. All three are essentially building under licence, although the structure of the arrangements with Hopkins provides for a joint participation over construction costs and minimum plot values. Similarly, Davidsons Homes (www.davidsonsgroup.co.uk) is now contracted at Rugby, with a second housebuilder in solicitors' hands. The structure will be the same and in accordance with the Urban&Civic business model of realising value from serviced plot parcels, having invested in physical infrastructure and high-quality public realm. As at Alconbury, the initial housebuilders at Rugby will build under licence on fully infrastructured plots. Taken together, the five agreements represent a total of more than 800 units. Furthermore at Alconbury, we expect to be in advanced legal agreement on £8.25 million for 30 acres, or approximately 700,000 developable square feet, of large scale commercial space by the end of 2015. We are also planning a second Incubator at Alconbury on our own account with the first now fully let.
The reported September 2015 EPRA net asset value of £389.9 million, or 272.1p per share, compares with a September 2014 figure of £350.8 million, or 249.7p per share. The 11.1 per cent EPRA increase (9.0 per cent per share) is entirely satisfactory, given the level of new property acquisitions made in the year and the corresponding cash drawdown (from £162.8 million at 30 September 2014 to £43.6 million 12 months later). Taking account of the two dividends paid in the year, the total shareholder return was 15.8 per cent. Pre-tax profit for the year was disproportionately impacted by approaching £5 million of write downs, almost all of which relate to historic holdings of Scottish land. Underlying earnings in the second half of the year were directly equivalent to those reported in the 2015 interims.
The pace of cash investment continues to underline the prevailing level of Group activity. Completion of the £8.0 million site acquisition of a 250-year peppercorn lease for the on-terminal hotel at Stansted Airport took place in November, due to a requirement after exchange in January 2015 to agree transitional arrangements with the airport owners, Manchester Airports Group. In conjunction with local authority partners, Stansted published a Sustainable Development Plan in March 2015, outlining how the airport has the capacity to more than double existing throughput to 45 million passengers per annum within current boundaries and approved environmental limits. One of the early steps towards that expansion will most likely have the effect of bringing the enlarged terminal check-in facilities closer again to our intended hotel but caused us to lose a couple of months after exchange.
A business defined by our projects
I said it in the introduction to the first results for Urban&Civic as a listed company and I will say it again this year: the defining characteristics of our business are squarely project based. We are unusual for our size insofar as we can be competitive across schemes from neighbourhood town to nationally significant. Relative to most of our quoted property company peers, we lack material London exposure but nor are we reliant on historically low yields. Conversely, strategic land is beginning to feature more heavily in the sales mix of the quoted housebuilders. This has been a trend across the sector generally, most particularly for traditional strategic land specialists Persimmon and Taylor Wimpey. The implied value of their strategic land holdings stand at a considerable premium to the equivalent carrying value at September 2015 in the accounts of Urban&Civic, even after discounting a housebuilder margin.
The movement in net disposable income is the best long-term proxy for house price change, outside very central London. We have been unequivocal in relation to our expectations for recovering net disposable income in southern UK regions and to real wage growth of three per cent plus in 2015. Reflecting the impact of maintained job creation and lowering unemployment rates (now on the way to a headline five per cent), wage growth has picked up over the 18 months since Listing. With headline consumer price inflation falling towards zero over the same period, real wage growth is moving into strengthened consumer confidence and activity, most notably in relation to increased discretionary spending and house price inflation. Income recovery has not only been reflected in house price increases but is being amplified by strong population growth in areas where unemployment is lowest. Recently the Office for National Statistics updated population projections for the period to mid-2024. The UK population is projected to rise by 4.4 million to 69 million by 2024, a near seven per cent increase over ten years and 294,000 higher than the previous outturn (based upon 2012 figures).
The Group is perfectly positioned to capitalise on those changes. Urban&Civic currently owns or controls more than 24,000 residential plots of which two-thirds are already consented and the brownfield site at Waterbeach comprises four-fifths of the remainder. Most of the population and job growth is concentrated in the east and south east of England and we can expect high demand from entry level purchasers; the Conservative government has reinforced the presumptions in relation to brownfield development. The Queen's Speech in May 2015 contained an undertaking to include a statutory register for brownfield land to help achieve housing targets. The Autumn Statement sought to further accelerate the supply of housing for ownership via discounted starter homes in lieu of affordable rent and the opening up of shared ownership. The backing for small to medium sized housebuilders was reinforced, along with renewed financial support for the implementation of large scale sites. Alconbury, Rugby and Waterbeach promise to be three of the most substantial additions to UK housing stock over the next 15 years. The current aggregated project gross development value of over £7 billion underpins stable predictable long-dated income for the Group.
Politics and economics: the acquisition of Catesby
Catesby brought another significant, if not quite strategic, new project into the Group in February 2015 with an 82.2 per cent share of a consented southern extension to Newark in Nottinghamshire. Of the £34 million consideration, aggregate cash payments totalling £22 million were paid or are due to Catesby shareholders. This leaves £12 million of newly issued Urban&Civic stock ascribed to our share of the 2,600 plots at Newark.
The accounting was more complicated, as explained in my interim report in May 2015, with a £4.7 million credit to the income statement having been taken in the first half to March 2015. The credit reflected a discount on purchase based upon a £19.3 million valuation for Newark, which had been the subject of a third party offer during discussions, with all unconsented Catesby interests being taken into the Urban&Civic Group accounts at cost, representing fair value.
The courtship was quite extended. Having set up the business 19 years previously, it was understandably important to the vendors that the business would be taken forward properly by the new owners. Similarly, as a first acquisition for the publicly quoted Group it was just as important that genuine value was seen to be added through the purchase. I am pleased to be able to report that expectations have proved vindicated on all sides. The absolute emphasis on technical analysis and working with planning officers rhymes with the approach taken by Urban&Civic. It is also thoroughly consistent with existing political mores; witness again the Autumn Statement references to bringing forward further reforms to the planning system. The proposals include establishing a new delivery test on local authorities to ensure delivery against the number of homes set out in local plans and supporting the regeneration of previously developed brownfield sites in the green belt for starter homes. By allowing such sites to be developed in the same way as other brownfield land, the potential arises for planning approvals without the need for extended local plan processes.
The Catesby business is focused on land trading promotion agreements, whereby the landowner pays a percentage of sales proceeds plus recovered costs, once consented land is sold to housebuilders. The competitive advantage enjoyed by Catesby over the housebuilders is that there is no argument as to the value of controlled land. The landowners also get the benefit of maximised proceeds in a strong market. Prevailing presumptions are supportive to the Catesby model and the maintaining number of planning officer recommendations to approve is testament to their approach. The conversion rate on applications has been consistently high, reflected in annual pre-tax profits of £6.2 million and £7.0 million in the 12 months to December 2013 and 2014 respectively. I have made the observation previously that fair valuing on acquisition and moving to a September year end militates against actual 2015 comparisons. Nevertheless, I remain confident that the underlying pre-tax profits for the 12 months to December 2015 will at least match those of last year. It is also still my expectation that, including monies within the business on acquisition, the cash consideration for Catesby of £22 million will have been fully returned to Urban&Civic by the end of the calendar year or, perhaps more pertinently, well within 12 months of acquisition.
Certainly Catesby has benefited from favourable land market dynamics in terms of the planning cycle. Whether the more direct relationship between Conservative local and central government has an ultimate impact on high success rates in favour of applicants at appeal remains to be seen. The trend has tended to be down in recent months. Reflecting the increased Conservative representation at all political levels, the reasonable expectation is for higher regard to local sensitivities with brownfield forming the acceptable middle ground. Equally, maintained population growth brings pressure not only on housing but also on schools, roads and local services. Catesby lost an appeal relating to a site in Bromsgrove in August 2015 rather against our expectations, when the planning inspector upheld Bromsgrove District Council's refusal of a 490 new home development ruling that negative highways impacts outweighed recognisably pressing housing supply issues. Counterintuitively Worcestershire County Council, as highways authority, had supported the application.
Catesby is already working with Worcestershire County Council, as well as the local authority, to establish revised proposals for the council allocated site in Bromsgrove. Moreover, unsuccessful outcomes even if not concluded, remain rare for Catesby, which has been successful in obtaining planning consents for nine sites since January 2014. Five were accounted for prior to acquisition in February 2015 and four more have been consented in the current calendar year. Two of the four successes under the ownership of Urban&Civic have been granted at appeal.
The sales of two consented sites were completed by Catesby in the six months to 30 September 2015 (Balsall Common, near to Solihull, and Haywards Heath in West Sussex). Trading profits on Catesby's participations totalling £4.4 million were booked accordingly. Our accounting policy on unsold interests will be to include an EPRA adjustment on land owned or under option only where resolutions to grant or outline consents were secured prior to the accounting date but proceeds have not yet been received. Aggregate EPRA adjustments of £4.7 million were made with respect to Shefford, Bedfordshire and Sherborne, Dorset, both of which were consented at 30 September 2015 and with sales contracts exchanged at Sherborne.
I should note in passing that all four projects will have achieved prices above budget on acquisition. Housebuilders remain margin sensitive but there is a continuing strong requirement in good areas with short commissioning periods. Similarly the Catesby pipeline appears robust, not least because of the advantages to landowners of being seen to be represented by a publicly listed, planning-led group. Currently the business has 15 projects under contract, eight projects where offers have been accepted by the landowner and have moved into solicitors' hands and 10 at the stage of detailed heads of terms. The majority of projects are in areas without a five year residential land supply or without an up‑to‑date local plan.
Delivering on our strategic sites
Alconbury Weald
Good progress continues to be made on all strategic sites. The agreements with Hopkins and the two additional housebuilders, with whom detailed heads of terms have now been reached at Alconbury, are key to maintaining operating momentum and net asset growth for the Group. We are probably six months behind where I had wanted to be this time last year on residential starts at Alconbury but we are already catching up. Hopkins is a highly reputed, privately owned, medium-sized housebuilder operating principally in Cambridgeshire, Norfolk and Suffolk which is committed to helping us establish price and quality thresholds from the outset. They are now on site and the walls are all up on the Church of England operated primary school, which will admit its first pupils in September 2016 so that children in newly occupied houses will be able to go straight into what promises to be a wondrous new facility. This is the third school that architects Allford Hall Monaghan Morris have designed for us since the introduction of academies and, I am pleased to say, another of their schools won the 2015 Stirling Prize.
An element of uplift is starting to come through in valuations. The CBRE analysis places a value on Alconbury of £18,500 per unserviced plot at September 2015, or £92.5 million for the consented residential holdings, based on assumed average sales prices of £230 per sq.ft. The per plot figure represents an increase of approaching 15 per cent from a figure of £16,170 appraised at 31 March 2015 and 20 per cent on the £15,400 reported at 30 September 2014. Whilst we have lost a little time, the values have moved correspondingly upwards. I said at May that the arrangements with Hopkins were expected to realise more than twice the March interim carrying value. We shall now be disappointed if arrangements with all three housebuilders at Alconbury do not realise respectively more than twice the September 2015 valuations.
Topping out of the new Club building has taken place at Alconbury, to include a gym, bar, restaurant and community accommodation for both incoming residents and Enterprise Zone tenants. The new facility will open in March 2016. Urban&Civic will also move its operations to the Club to make available space in the existing Incubator, which is fully let. I referred above to the first proposed commercial land sales at Alconbury, both to large space users and at prices which again equate to approximately twice existing book value. The nature and scale of the operations is such that buying is much the incomers preferred alternative. The two proposed parcels will collectively aggregate 30 acres to the back and in the northwest corner of the site. Huntingdon Regional College is looking to substantially increase its presence at Alconbury, where it currently has a training centre, with a new 25,000 sq.ft. campus building which will form part of what we are terming a new mid-tech cluster. Preliminary funding has been granted and the College has appointed architects to work up designs. As part of the same arrangements, planning applications will be made for a second Incubator building and an extension of the cluster behind the small, listed aircraft control building that dates back to the Second World War. Several further enquiries are fairly well advanced. There have been a number of false dawns in relation to substantial commercial construction at Alconbury, so I am reluctant to overcommit; notwithstanding, it could well be that by the time of the interim update in May 2016, we are on site with around 800,000 sq.ft. of new commercial space.
RadioStation Rugby
In Rugby, the advance landscaping and new ponds we crafted last year, and for which we have received numerous plaudits, are now home to 153 resettled great crested newts. This leaves the rest of the first phase clear to get on with the delivery of equally high quality homes for people. To this end, the deal with Davidsons for the first 250 homes follows the licence format of Alconbury. Davidsons is another highly reputed medium-sized housebuilder of exceptional pedigree and we will have completed the serviced platform ready for them to start delivering housing, following the grant of reserved matters, by spring of 2016.
The CBRE analysis places a value of £12,900 per unserviced plot at September 2015 which represents an increase of approaching 6.5 per cent from the 31 March 2015 comparable figure of £12,125. As with Alconbury, CBRE has based its valuations on assumed average achieved sales prices of £230 per sq.ft. The Rugby housing market is strong and Davidsons is already targeting higher. Terms are also agreed with a second housebuilder.
We always seek to bring forward strategic infrastructure wherever we can. Building on our long-standing relationship with the HCA at Rugby, which categorises the RadioStation as one of a select few priority sites in England, we have been in discussions to accelerate the 3.5km link road which anchors the site back into the West Coast mainline station and the heart of Rugby. The HCA has now agreed to provide £35 million, of what it terms 'recoverable investment' given the long-dated terms and repayment only out of proceeds. The funding will allow us to complete the link road seven years early and open up an entirely new front of the site for development. Taken together with the comparable loan already drawn at Newark, the Government is providing Urban&Civic with approaching £50 million of supportive large site infrastructure funding.
Given our love of schools we have also been busy at Rugby and jointly submitted an Academy proposal to run the first primary school with the Diocese of Coventry. We are pressing on with design of the school with Warwickshire County Council which will form a key landmark within the first phase and is set to open from September 2017.
Waterbeach
Last month, South Cambridgeshire District and Cambridge City Council published the committee reports and supporting evidence documents relating to their Local Plans. Core conclusions were to lift the South Cambridgeshire housing target to 19,500 new homes and to reiterate a preferred development strategy of identified new developments with commensurate infrastructure spend, such as Waterbeach, over large green belt releases. Previous phasing restrictions have also been removed to allow for flexibility in early delivery. The Inspector will reconvene her joint Examination in Public of the Local Plans in the new year. We are working with the District and adjoining landowners at Waterbeach to ensure that the various related work streams now in progress (including the Neighbourhood Plan for Waterbeach Village and the emerging Development Framework for the broader area) all align and support Local Plan policy. Work has commenced on behalf of Cambridgeshire County Council on a comprehensive transport strategy for the A10 corridor, to which Urban&Civic will be contributing. This study will help determine infrastructure investment priorities, not least in the context of proposed expenditure under last year's City Deal.
An initial set of public open days have also been held to enable local residents to comment on the key issues relating to the future development of the Waterbeach area. The issues discussed were derived from those identified by Waterbeach Parish Council for consideration through the development of the Waterbeach Neighbourhood Plan. Other exhibition material was provided to outline the history of the Waterbeach Barracks and Airfield site, the process being undertaken by Urban&Civic in re-opening facilities and the next steps in the process. More than 400 local people attended across two sessions, including local residents, elected representatives and planning officers from South Cambridgeshire District Council and members of Waterbeach Parish Council.
Urban&Civic is under contract, effectively with the Ministry of Defence, to deliver at Waterbeach as soon as possible, consistent with providing value to the taxpayer. We remain on course to submit an outline planning application at Waterbeach in autumn 2016.
Newark
The planning consent at Newark is for 3,150 new houses, with associated commercial development nearby. This appears overly dense, hence our working off 2,600 units and a September 2015 valuation equivalent to £8,800 per plot. The consent relied upon a greenfield release but represents a considered piece of semi-urban strategic planning, establishing a southern extension to Newark with a new town boundary, flood protections and conveyed open spaces. An important new road is being constructed in phases, ultimately joining the A1 with the A46 to Leicester and Nottingham. As already referenced, the vast majority of the first phase roadworks are being funded via a loan from the HCA for £11.2 million, again repayable out of realised sales proceeds. There are also good prospects for £9.5 million of grant funding from a combination of the local authority and the LEP to accelerate the middle phase but we have been clear as to the importance of revised and additional loan funding, if we are to construct the entire road at this stage.
Creating strategic value
I would just draw attention to two other aspects which can be expected to impact positively on the value of our strategic sites going forward. The first relates to an increasing weight of external evidence for wholesale sales of large sites in their entirety. It had been the case that the valuation examples on which CBRE could draw above, say 2,500 units, were sparse but sound evidence is now building. As examples, the brownfield sale has now completed by BAE Systems for what is reported as close to £70 million to the Malaysian YTL Corporation at Filton Airfield, near Bristol. The 350 acre site has outline planning consent for 2,675 residential units and specialist adjoining employment uses. The residential market is well supported in Bristol but the extent of consented housebuilder ownership in the immediate vicinity may act to limit absorption. In September Telereal Trillium announced the purchase of Land Improvement Holdings for £120 million.
Second, serviced plot purchases are highly capital efficient to incoming housebuilders and broaden the range of those able to compete. The recession had a marked impact on small and medium-sized operations, such that the established position of the UK, as the most concentrated configuration of housebuilders in the world, was only consolidated. The participation of competing privately owned housebuilders, particularly those up to 500 units, is materially lower than in previous cycles. We are now able to offer to housebuilders a comprehensive and essentially commoditised product in relation to the housing plots across our strategic sites. Our customers know what to expect and the uncertainties conventionally attached to unserviced land purchases are being almost entirely eliminated. This level of detailing has been reflected in the speed and level of pricing with which offers have been made by our housebuilder customers, both at Rugby and Alconbury. We intend the same at Newark, once the current enabling roadworks are completed, scheduled for the summer of 2016.
With Newark akin in size to half a strategic site, Urban&Civic is accumulating one of the most important sets of residentially based major extensions in the country. We are not done yet, although it is to be recognised that the same characteristics that are helping valorise our large holdings also act to make the market more competitive for future additions. The percentage increases since Listing go to the particular combination of defensiveness and optionality afforded by consented strategic sites in areas of good affordability with underlying employment and population growth. Waterbeach is likely to show slightly different characteristics with a higher proportion of rental demand due, most especially, to the proximity of highly employment confident renters in the Cambridge Science Park. Here we have the same manifestation of push and pull that we see in London. Hence our undertaking that Urban&Civic will build apartments with balconies but not gardens to rent at Waterbeach as part of an overall mix, just as soon as we are consented.
The figures are now starting to speak for themselves; the EPRA value at Alconbury as appraised by CBRE at September 2015 is £18,500 per unserviced consented plot, as compared with £13,610 as at the May 2014 Listing. The increase of 36 per cent is based upon improved sales assumptions up 9.5 per cent from £210 to £230 per sq.ft. Similarly, the increase at Rugby is now 20 per cent from Listing on the same sales price assumptions as Alconbury. Newark was brought into the balance sheet on acquisition in February at the equivalent of £7,700 per unserviced plot; the CBRE valuation of £8,800 per unserviced plot in September 2015 represented a 14 per cent increase in seven months.
Keep in mind also that this has been a time of unusual growth in construction costs which, in the normal course, can be expected to flow directly through into land prices. Precise estimates differ but most commentators have put underlying build cost inflation on conventional residential construction at around five per cent per annum, certainly materially above prevailing increases to the Retail Prices Index. Labour price inflation, driven by skilled labour shortages into upscaling demand, has been a much larger component than materials over the past two years. Past experience is that the recovery in Sterling will continue to attract tradesman into the UK, such that alongside domestic training programmes abnormal labour wage pressures will abate relatively quickly. The best long-term reference for construction inflation remains the general movement in the Retail Prices Index.
Commercial and City Centre
Stansted
The solution to a high quality problem at Stansted, where the contracted construction of a covered walkway to the airport terminal risked delaying the potential move of check-in facilities closer to our proposed hotel, has been entirely amicable. The agreement is that the airport owners can run buses for up to 30 months from the scheduled opening of the hotel in summer 2017. The result is to provide Urban&Civic with suitable temporary replacement services, as well as escalating compensation through the period. The hotel is being built as 357 bedrooms in the first instance and will be operated as a Hampton by Hilton, which is considered most appropriate for the target market at Stansted. Total outturn costs, including land, are £38 million and the expectation is for stabilised annual EBITDA of £3.5 million to be reached within three years of opening. The existing design provides for ready expansion up to 520 rooms. Enlargement will require the construction of two new wings. Manchester Airports Group has consented in principle to the future expansion, without further payment.
Bristol
I also mentioned Bristol Bridge Quay in my introduction where contracts have been exchanged or reservations made on all of the 59 apartments. The team has done a first-rate job in taking advantage of an undoubtedly strong market. The quality of the emerging finishes is excellent and, objectively, materially ahead of the competition. The invested care was rewarded by escalating offers. The realistic expectation is now for a gross development value of around £18 million. We ought to realise at least twice the initially budgeted surplus of £2.7 million, against an attributed acquisition cost of £3.25 million. Completion is on schedule for April 2016, with the progressive handover of apartments thereafter. EPRA adjustments for Bridge Quay, totalling £3.0 million, were included in the year to 30 September 2015.
Middlesbrough
The Gateway project in Middlesbrough, substantially pre-let to Sainsbury's and forward funded by Osprey Equity Partners, was handed over on time and on budget in July 2015. Various conditions subsequent were to be satisfied so that the lease to Sainsbury's was not completed until September. The final consideration under the terms of the financing agreement with Osprey of £7.3 million has been received post year end.
Darlington
Staying in north east England, topping out has taken place at Feethams, Darlington, where we remain on schedule for a spring 2016 opening. The prominent town centre scheme is anchored by Vue Cinemas and a Premier Inn and also includes eight bars and restaurants. The local authority is highly supportive and are constructing an adjoining 650 space car park. Gross development value is anticipated at around £24.4 million on a rent of £1.4 million with over 100,000 sq.ft. of new construction. The average contracted lease length exceeds 15 years.
Bradford
Good progress is also being made at the Gallagher Retail Park, between Bradford and Leeds, acquired during the year for £11.2 million on an initial yield of 8.6 per cent, rising on fixed reversions to 9.3 per cent in September 2016. The property is occupied by Odeon Cinemas and Pure Gym (on a sub-let from Virgin Active). Both would like to downsize, which would allow for the introduction of new restaurants. There is ample car parking and terms agreed for two drive-thru units. Planning discussions are in train. Post rearrangement and construction, the ambition is for a yield on cost of better than 10 per cent and average lease lengths back out to 15 years.
Herne Bay
Off-site works and store construction are well underway on a second major foodstore pre-let to Sainsbury's on the outskirts of Herne Bay, near Canterbury in Kent. The rent in this instance is almost £2.2 million per year. The contracted terms with Sainsbury's are for a 25 year fixed term, with RPI uplifts, subject to a cap of 4 per cent and a collar of 2 per cent. The lease is expected to commence in April 2016. An EPRA uplift of £7.5 million was recognised in the year to 30 September 2014, given the obtaining of detailed planning consent. No further uplift has been included beyond the costs of construction, so that (including costs to completion) the value in the balance equates to a better than indexed yield of 5.25 per cent. The initial yield on a broadly comparable indexed gilt, issued by the UK government but without the guaranteed collar uplifts is negative 0.7 per cent, so that the implied premium of the Sainsbury's covenant over the gilt is 5.95 per cent. There are no more like this coming forward.
Manchester
I am very pleased to be able to report that good progress has been made on our two large sites in Manchester. Notwithstanding a fairly chequered past, positive public engagement took place on our revised proposals for the Princess Street/ Whitworth Street site. The designs are somewhat quieter than those envisaged by previous owners but care has been taken to utilise the construction work that went into four storeys of underground car parking with a retaining canal wall. The majority of attendees at the public consultation were close neighbours and most found favour with our proposals, which comprise two separate residential buildings totalling 238 units and a 148 bedroom hotel. A planning application has now been submitted and we are hopeful of positive determination in February 2016 to allow a start on the two residential buildings in the middle of next year. That would be ahead of our original self-imposed timetable.
The Renaissance hotel on Deansgate is trading slightly ahead of budget. The hotel is covered by an operating agreement with Marriott that expires in November 2017. The freehold of the site is owned by Manchester City Council, subject to a long lease in favour of Urban&Civic. Such is the importance and prominence of the site, overlooking Manchester Cathedral at the start of Deansgate, an international architectural competition will be held in due course. A design brief will be agreed with the council prior to implementation.
Scottish land
We did ask CBRE to take a close look at the Company's residual holdings in Scottish land as at 30 September 2015. The holdings are not strategic and comprise a total of over 1,000 consented plots on six sites (some of which are owned with local partners). The plots were acquired originally by Terrace Hill to develop out on its own account but CBRE was instructed to value on the basis of sales to third parties rather than own development. The resulting revised carrying value of £11.9 million involved a write down of £4.4 million against the September 2014 equivalent. Disposals will take place on a phased basis.
Looking ahead
We are very encouraged by the current level of housebuilder interest, whether bidding on projects promoted by Catesby or building under licence on the larger Urban&Civic schemes. Regional differentiation is market driven, in part, by a combination of population growth and job concentration. The realistic expectation is for further good performance across our chosen markets with all indicators suggesting a positive outlook for demand and pricing within those markets in the coming year. The government is playing an important part through the reinforcement of the presumptions relating to brownfield development, the emphasis on affordability to first-time buyers, a maintained commitment for Help to Buy and the HCA making loans available to accelerate housing delivery, as at Newark and Rugby.
Within that overall positive context for our sites, Catesby is also proving a strong acquisition for us. The business has an established pedigree, a secure market position, a focused team and a rising pipeline, despite a plethora of aspiring entrants. The activities will remain operationally separate but philosophically the outcomes are all planning led. The number of Catesby projects is growing and it would appear that there is seen to be a benefit amongst landowning customers from being part of a group that places planning front and centre of what we do. Housebuilders are intent on maintaining margin but the level of liquidity is such that consented schemes are continuing to attract above-budget pricing.
Finally, we elected to invest a material proportion of the placing proceeds in development projects capable of showing good growth, particularly in locations such as Manchester and Cambridge with strong local economies where the judgement is that there is still some way to go.
Dividend
The proposed final dividend of 1.65p per share, which represents a 10 per cent increase over the 2014 final dividend, establishes a dividend for the year to 30 September 2015 of 2.65p, as well as an acceleration from the guidance given at the time of Listing. The Board feels able to maintain that return on the basis of continued advancement. The final dividend is also in line with the growth in EPRA NAV over the year.
Personal thanks
Deep personal thanks to Board and staff colleagues; much has been achieved since Listing in May last year but our collective determination is that we have only just started. The objective of stepped asset growth underpins everything that we do. It is incumbent upon us to maintain expanding delivery.
Nigel Hugill
Executive Chairman
Financial review
Introduction
The Group's EPRA NAV has risen to £389.9 million at 30 September 2015 compared to £350.8 million at 30 September 2014.
KPIs
The Group considers the following to be its key performance indicators:
EPRA NAV- the Group considers EPRA NAV per share and changes in such value to be the most important indicator of the Group's performance. The EPRA NAV includes the fair value of all the Group's assets and liabilities. Under IFRS, the Group cannot reflect in its financial information the fair value of its trading properties, which are carried at the lower of cost and net realisable value. Most analysts and shareholders compare the performance of property companies using EPRA NAV and this indicator is therefore of considerable importance to us.
The EPRA NAV at 30 September 2015 and 30 September 2014 was £389.9 million (272.1p per share) and £350.8 million (249.7p per share) respectively, reflecting an annual increase of 11.1 per cent (9.0 per cent per share).
Total shareholder return - The share price at 30 September 2015 was 268.0p, reflecting a 14.8 per cent increase on the price of 233.5p at 30 September 2014. When the two dividends paid during the year are taken into account, the total shareholder return in the year was 15.8 per cent.
Corporate transaction during the year
As reported in the interim statement issued on 27 May 2015, the Group announced the acquisition of Catesby on 27 February 2015 for an aggregate consideration of £34.0 million, payable as £22.0 million in cash and £12.0 million satisfied through the issue of 4,248,553 new, fully paid-up shares and 178,669 performance share awards. In accordance with IFRS, the consideration shares were fair valued at 263.5p per share equal to £11.2 million and the value of the performance share awards issued as part of the transaction is being accounted for as a post-acquisition expense. Of the £12.0 million satisfied through the issue of new shares, 3,509,446 shares were issued and admitted to trading during March and the balance of 739,107 is expected to be issued on the first anniversary of the transaction. These outstanding shares have been included in equity as at 30 September 2015.
The Group has accounted for the transaction in accordance with IFRS 3 'Business Combinations' (revised) with both the consideration and assets and liabilities of Catesby having been fair valued as at the date of acquisition. A note explaining the determination of the fair values is included in note 2 to this preliminary financial information. As predicted in the announcement of the transaction, negative goodwill (described in the consolidated statement of comprehensive income as discount on acquisition) of £4.7 million has arisen as a consequence of the fair value exercise and this has been credited to the consolidated statement of comprehensive income. The negative goodwill has been calculated as follows:
£m | |
Fair value of the consideration given | 33.2 |
Fair value of the net assets acquired | 37.9 |
Negative goodwill arising | 4.7 |
Consolidated statement of comprehensive income
The consolidated statement of comprehensive income includes the results of the Urban&Civic Group for the 12 months from 1 October 2014 and of Catesby for the period from the date of acquisition of 27 February 2015 to 30 September 2015. The comparative figures reflect the results of the Urban&Civic group for the period from 1 January 2014 to 30 September including the Terrace Hill group from 22 May 2014 to 30 September 2014 and therefore comparison with the current period results is not considered particularly meaningful.
A commentary on all significant line items is set out below.
Revenue
The significant items within revenue of £55.5 million are trading property sales of £12.7 million, revenue on construction contracts of £30.8 million, rental income of £5.1 million and £6.6 million of other property income. The trading property sales of £12.7 million reflect proceeds received in respect of the sale of two land promotion sites at Haywards Heath and Balsall Common. The Group also received £0.3 million as a surrender premium from a tenant who left an office building in Teesside. Revenue on construction projects wholly reflects the remaining activity in respect of the Sainsbury's foodstore development at Middlesbrough. Rental income for the period includes £2.5 million in respect of tenants based at our Alconbury site and £2.6 million in relation to the Group's office and leisure assets. Other property income reflects £5.1 million income receivable from the Manchester Deansgate hotel, recoverable property expenses of £0.8 million and project management and other fees of £0.7 million, which includes £0.3 million each relating to the development management agreements at Rugby and Waterbeach.
Direct costs
Direct costs include cost of construction contracts of £30.1 million which relate entirely to the Sainsbury's foodstore development mentioned above, the cost of trading property sales of £9.6 million which includes the associated costs of the sales of the two land promotion sites noted above. Direct property expenses of £7.1 million include £4.4 million relating to the costs of operating the hotel in Manchester. Development site write-downs of £4.4 million principally relate to a number of housing sites in Scotland where the Group has written the sites' carrying values down to values determined by CBRE.
Administrative expenses
Administrative costs of £10.4 million were expensed in the year, of which £0.9 million relates directly to the acquisition of Catesby Property Group and £1.8 million relates to the non-cash share-based payment expense. Further costs were capitalised into properties as required by accounting standards, details of which are set out in the relevant property notes.
Surplus on revaluation of investment properties
The Group has recognised a £1.9 million increase in revaluation of its investment properties, predominantly represented by Alconbury.
CBRE has valued the whole Alconbury site at £147.5 million. In the financial information we treat part of the site as investment property and part as trading property and under accounting standards we reflect upward movements in the investment element of the site through the financial information and any upward movements in the trading element through our EPRA adjustments. In total, the site has increased in value by £28.5 million since 30 September 2014. The principal reasons for the increase in value of the site were:
· | additions of £13.9 million (including capitalised overheads); and |
· | other market movements of £14.6 million. |
The Group has recognised £2.5 million of the £14.6 million valuation uplift through the income statement and the remaining £12.1 million through our EPRA adjustments.
Share of post-tax profit of joint ventures
The Group has recognised £3.8 million representing its share of the post-tax profits of joint ventures. This represents our share of the results of the Rugby joint venture where the whole site increased in value from £60.0 million at 30 September 2014 to £75.3 million at 30 September 2015. The Group settled its liability to purchase its 50 per cent share in this asset during the year.
Impairment of loans to joint ventures
The Group has reduced its likely recovery in respect of a loan to a joint venture which owns a housing site in Scotland by making a provision of £0.8 million. The amount recoverable is now included in the Group balance sheet at £2.5 million.
Net finance income
The amount of £0.6 million of net finance income largely reflects interest income on the Group's cash deposits.
Taxation expense
The tax charge for the year of £14,000 has been significantly reduced due to income not assessable to tax, being the discount on acquisition of Catesby of £4.7 million and the release of other liabilities of £1.9 million.
Dividend
The Group paid its maiden dividend in February 2015 and an interim dividend in July 2015 at rates of 1.5p and 1.0p per share respectively. The Group proposes to pay a final dividend in respect of the year to 30 September 2015 of 1.65p per share, representing a 10 per cent increase on the maiden dividend. Subject to shareholder approval at the AGM this dividend will be paid on 19 February 2016 to shareholders on the register on 5 February 2016.
Consolidated balance sheet
Non-current assets
Investment properties
The Group's investment properties at 30 September 2015 included the element of the Alconbury site that we classify as investment, the leisure asset at Bradford and the leisure scheme under construction at Darlington.
The entire Alconbury site has been valued by CBRE at 30 September 2015 at £147.5 million. The £73.0 million element that the Group intends to retain as a long-term investment comprises commercial land and 25 per cent of the residential land (representing the affordable and potential PRS land). The leisure assets at Bradford and Darlington have been included at fair value determined by the Directors.
Property, plant and equipment
Additions of £3.2 million were recognised during the year. Of this, £2.0 million reflects the value attributed to the hotel that operates from the Deansgate, Manchester development site which was acquired during the year. Under accounting standards, we attributed a fair value to the income stream that we enjoy from that hotel and depreciate that value over the 35 months that the hotel operation can continue until its licence expires. The depreciation during the period was £0.5 million. The remaining additions to property, plant and equipment principally relate to the fit-out works at the Group's new London headquarters.
Investment in equity accounted joint ventures and associates
The Group's investment in its 50 per cent share of the Rugby site has been included in the balance sheet at £38.1 million, which is largely represented by its share of the external valuation of the site of £37.6 million. The Group also includes here its investment in joint ventures that own strategic land sites in Scotland and an industrial site adjacent to our foodstore site at Herne Bay, Kent.
Other investment
During the year, the Group sold its investment in the property known as Howick Place, London which was included in the balance sheet at 30 September 2014 at a fair value of £5.4 million.
Deferred tax assets
The Group has recognised an asset of £8.7 million in respect of the Group's tax losses which are expected to be utilised against future profits of the Group. The balance has increased by £0.4 million since 30 September 2014, reflecting a net increase in the recognition of tax losses over amounts generated and utilised during the year.
Current assets
Trading properties
Additions to trading properties during the year amounted to £62.5 million. The principal elements of the additions are expenditure at the strategic land sites at Alconbury, Waterbeach and Newark of £11.8 million, the purchase of the Herne Bay site and subsequent development expenditure of £17.5 million, the purchase of the two Manchester sites and subsequent expenditure of £23.7 million (excluding the £2.0 million attributed to the hotel and included in property, plant and equipment) and £5.8 million at Bridge Quay.
Included within the figures mentioned is £5.3 million of capitalised overheads. £34.1 million of additions have arisen as a result of the acquisition of Catesby. As noted elsewhere, this reflects the fair value of the assets acquired through the Catesby acquisition and includes the Newark strategic site as well as interests in a number of land promotion sites. Two such sites, included at fair value at £6.5 million, were disposed of during the period and are included in disposals. Amounts written off the value of trading properties in the year of £4.4 million mostly relate to a number of Scottish housebuilding sites. All trading properties are carried in the balance sheet at the lower of cost (or acquisition date fair value) and net realisable value.
Trading and other receivables
Trading and other receivables include £25.2 million in respect of property sales of which £12.3 million has been received since the year end, £12.9 million is due in stages up to 2019, £1.6 million of other receivables and £3.1 million of prepayments and accrued income.
Cash
Cash balances of £43.6 million were held at the year end, down from £162.8 million at 30 September 2014. The reduction reflects the intensive period of investment in our various projects during the year, in particular £36.4 million at our strategic land sites at Alconbury, Rugby and Newark, £12.1 million in respect of the acquisition of Catesby (net of cash acquired), £25.7 million at Manchester and £49.8 million at other commercial sites.
Non-current liabilities
Borrowings
The loan of £11.4 million at 30 September 2015 is a loan from the HCA to fund infrastructure at our strategic land site at Newark. The interest rate is 2.2 per cent above the EC Reference Rate and is rolled up into the principal. Repayment is dependent on land sales with a final repayment date of 21 March 2021.
Deferred tax liabilities
The deferred tax liability at 30 September 2015 largely reflects deferred tax on the balance of valuation uplifts not covered by available losses on the Group's interests in the sites at Alconbury and Rugby.
Current liabilities
Trade and other payables of £28.8 million include £4.5 million of trade payables, £9.6 million of other payables, £12.6 million of accruals and £0.6 million of deferred income. Trade payables include £2.1 million in respect of active developments and will be settled in the ordinary course of business. Other payables principally include £1.0 million relating to amounts received in respect of exchanged or reserved flats at Bridge Quay and £3.3 million of deferred consideration in respect of the Catesby acquisition. The amounts included within accruals principally relate to uninvoiced amounts relating to a number of construction projects.
Equity attributable to equity holders of the parent
The movements in equity attributable to equity holders of the parent are set out in detail in the consolidated statement of changes in equity.
EPRA
We have set out below our calculation of the EPRA performance measures relevant to our current activities. As a Group that carries out both trading and investment activities, and with a significant proportion of our investment portfolio under construction we have only included those EPRA performance measures that bear meaningful comparison to our peer group.
EPRA net asset value (NAV) and EPRA triple net asset value (NNNAV)
The EPRA NAV and NNNAV of the Group have been determined as follows:
Pence per | |||
Number of | |||
£'000 | shares | share | |
Net asset value (NAV) | 347,828 | 143,260,359 | 242.8 |
Revaluation of trading property held as current assets | 38,083 | ||
Deferred tax liability | 3,967 | ||
EPRA NAV | 389,878 | 143,260,359 | 272.1 |
Deferred tax | (11,583) | ||
EPRA NNNAV | 378,295 | 143,260,359 | 264.1 |
The main adjustment for the Group relates to the fair value of property assets that are held on the balance sheet as trading properties and therefore under IFRS are carried at the lower of cost and net realisable value. We fair value these assets with the majority externally valued by CBRE.
Financial resources and capital management
The Group had £11.4 million of external borrowings at 30 September 2015 and £43.6 million of cash. The Group expects to utilise the cash balances to execute its strategy of continuing to develop its strategic land and commercial development properties over the coming years. Since the year end the Group has put in place or has agreed terms in respect of the following loan facilities:
· | a £7.0 million non-recourse investment property bank loan with a margin of 2.2 per cent and a term of five years; |
· | a £19.3 million development and investment bank loan to fund the construction of the Herne Bay foodstore with a margin during the development phase of 2.45 per cent falling to 1.90 per cent when the occupier enters into the lease. This five year facility is guaranteed by the Group for the first three years after which the guarantee falls away; |
· | an £18.0 million development and investment bank loan to fund the construction of the hotel at Stansted airport. This five year loan has a margin of 2.6 per cent during the development phase which drops to 1.5 per cent when the hotel opens. This loan is guaranteed by the Group for its full duration; and |
· | a £35.5 million loan from the HCA to fund infrastructure costs at Rugby. The loan has an interest rate of 2.5 per cent above the EC Reference Rate and repayment is dependent on land sales with a final repayment date of 2025. |
The Group's policy is to secure bank facilities on its commercial development projects at market rates and levels but does not intend to borrow from commercial banks in respect of its infrastructure spend at its strategic land sites. The Group will, however, seek to borrow from Government sources (such as the HCA) to fund infrastructure spend at its strategic sites where such borrowing will enhance the speed with which such sites can be brought forward and where the terms will enhance our expected returns. As the strategic land sites form the majority of the Group's net assets, this policy will result in a low overall level of gearing at any one time.
In order to give the Group further financial flexibility, we have also negotiated an unsecured revolving credit facility of £25.0 million which we expect to use to augment our own working capital from time to time. The Group maintains a comprehensive business plan model which predicts the cash usage and generation on a project by project and amalgamated basis in detail for five years but for longer on a less detailed basis. This model is regularly updated and informs the Group as to its cash needs, allowing us to plan ahead. It is this model that allows the Group to be confident as to its viability.
Jon Austen
Group Finance Director
Consolidated statement of comprehensive income
for the year ended 30 September 2015
Year ended | Period ended | ||
30 September | 30 September | ||
2015 | 2014 | ||
Notes | £'000 | £'000 | |
Revenue | 3 | 55,478 | 23,227 |
Direct costs | 3 | (51,924) | (17,292) |
Gross profit | 3 | 3,554 | 5,935 |
Acquisition and Listing costs | (857) | (2,775) | |
Impairment of goodwill | - | (455) | |
Other administrative expenses | (9,493) | (4,739) | |
Administrative expenses | (10,350) | (7,969) | |
Other operating income | 347 | - | |
Discount on acquisition | 2 | 4,731 | - |
Surplus on revaluation of investment properties | 10 | 1,930 | 5,925 |
Share of post-tax profit from joint ventures | 12 | 3,760 | 11,297 |
Impairment of loans to joint ventures | 12 | (826) | - |
Surplus on revaluation of other investment | 12 | - | 1,114 |
Profit on disposal of other investment | 1,326 | - | |
Release of other liabilities | 18 | 1,922 | - |
Operating profit | 4 | 6,394 | 16,302 |
Finance income | 6 | 665 | 3,534 |
Finance costs | 6 | (20) | (672) |
Profit before taxation | 7,039 | 19,164 | |
Taxation expense | 7 | (14) | (4,158) |
Total comprehensive income | 7,025 | 15,006 | |
Basic earnings per share | 8 | 5.0p | 20.8p |
Diluted earnings per share | 8 | 5.0p | 20.8p |
The Group had no amounts of other comprehensive income for the current year or prior period and the profit for the respective periods is wholly attributable to equity shareholders.
The accompanying notes form part of this preliminary financial information.
Consolidated balance sheet
As at 30 September 2015
30 September | 30 September | ||
2015 | 2014 | ||
Notes | £'000 | £'000 | |
Non-current assets | |||
Investment properties | 10 | 98,615 | 66,291 |
Property, plant and equipment | 11 | 2,708 | 124 |
Investments in joint ventures and associates | 12 | 41,718 | 17,018 |
Other investment | 12 | - | 5,394 |
Deferred tax assets | 13 | 8,657 | 8,285 |
151,698 | 97,112 | ||
Current assets | |||
Trading properties | 14 | 163,459 | 78,115 |
Trade and other receivables | 15 | 33,268 | 12,004 |
Cash and cash equivalents | 43,574 | 162,762 | |
240,301 | 252,881 | ||
Total assets | 391,999 | 349,993 | |
Non-current liabilities | |||
Borrowings | 17 | (11,408) | - |
Deferred tax liabilities | 13 | (3,967) | (1,296) |
(15,375) | (1,296) | ||
Current liabilities | |||
Trade and other payables | 16 | (28,796) | (11,713) |
Other liabilities | 18 | - | (1,922) |
(28,796) | (13,635) | ||
Total liabilities | (44,171) | (14,931) | |
Net assets | 347,828 | 335,062 | |
Equity | |||
Share capital | 19 | 28,801 | 28,099 |
Share premium account | 168,186 | 168,186 | |
Shares to be issued | 19 | 1,948 | - |
Capital redemption reserve | 849 | 849 | |
Own shares | (3,951) | (254) | |
Other reserve | 111,985 | 103,442 | |
Retained earnings | 40,010 | 34,740 | |
Total equity | 347,828 | 335,062 | |
NAV per share | 20 | 242.8p | 238.5p |
The accompanying notes form part of this preliminary financial information.
Consolidated statement of changes in equity
for the year ended 30 September 2015
Share | Capital | Own | Other | Retained | Total | |||
Share | premium | Shares to | redemption | |||||
capital | account | be issued | reserve | shares | reserve | earnings | ||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Balance at 1 January 2014 | 1,500 | - | - | - | - | - | 19,180 | 20,680 |
Shares in Urban&Civic Holdings S.à.r.l. acquired | (1,500) | - | - | - | - | 1,500 | - | - |
Fair value of consideration on acquisition | 4,239 | 18,208 | - | 849 | (254) | 34,037 | - | 57,079 |
Shares issued in consideration | ||||||||
for the acquisition of Urban&Civic Holdings S.à.r.l. | 8,617 | - | - | - | - | 67,905 | - | 76,522 |
Proceeds from shares issued | 15,243 | 156,242 | - | - | - | - | - | 171,485 |
Fees and expenses associated with share issues | - | (6,264) | - | - | - | - | - | (6,264) |
Share-based payment expense | - | - | - | - | - | - | 554 | 554 |
Total comprehensive income for the period | - | - | - | - | - | - | 15,006 | 15,006 |
Balance at 30 September 2014 | 28,099 | 168,186 | - | 849 | (254) | 103,442 | 34,740 | 335,062 |
Shares issued in part consideration for the acquisition of Catesby Property Group plc | 702 | - | 1,948 | - | - | 8,543 | - | 11,193 |
Purchase of own shares | - | - | - | - | (3,697) | - | - | (3,697) |
Share-based payment expense | - | - | - | - | - | - | 1,777 | 1,777 |
Total comprehensive income for the year | - | - | - | - | - | - | 7,025 | 7,025 |
Dividends paid | - | - | - | - | - | - | (3,532) | (3,532) |
Balance at 30 September 2015 | 28,801 | 168,186 | 1,948 | 849 | (3,951) | 111,985 | 40,010 | 347,828 |
Consolidated cash flow statement
for the year ended 30 September 2015
Year ended | Period ended | |
30 September | 30 September | |
2015 | 2014 | |
£'000 | £'000 | |
Cash flows from operating activities | ||
Profit before taxation | 7,039 | 19,164 |
Adjustments for: | ||
Surplus on revaluation of investment properties | (1,930) | (5,925) |
Share of post-tax profit from joint ventures | (3,760) | (11,297) |
Surplus on revaluation of other investment | - | (1,114) |
Finance income | (665) | (3,534) |
Finance costs | 20 | 672 |
Depreciation charge | 694 | 29 |
Impairment of loans to joint ventures | 826 | - |
Release of other liabilities | (1,922) | - |
Goodwill written off | - | 455 |
Discount on acquisition | (4,731) | - |
Share-based payment expense | 1,777 | 554 |
Cash flows from operating activities before change in working capital | (2,652) | (996) |
(Increase)/decrease in trading properties | (50,094) | 12,306 |
(Increase)/decrease in trade and other receivables | (12,495) | 4,299 |
Increase/(decrease) in trade and other payables | 5,071 | (2,301) |
Cash (absorbed by)/generated from operations | (60,170) | 13,308 |
Finance costs paid | (20) | (533) |
Finance income received | 663 | 254 |
Tax paid | (1,836) | (108) |
Net cash flows from operating activities | (61,363) | 12,921 |
Investing activities | ||
Acquisition of subsidiaries net of cash acquired | (12,134) | 1,518 |
Additions to investment properties | (31,959) | (2,895) |
Additions to property, plant and equipment | (3,211) | (70) |
Investment in joint ventures | (21,922) | (2,104) |
Receipts from associates | - | 2,000 |
Proceeds from disposal of investment | 5,394 | - |
Net cash flows from investing activities | (63,832) | (1,551) |
Financing activities | ||
Proceeds from issuance of shares | - | 171,485 |
Costs of issuance of shares | - | (5,025) |
New loans | 11,221 | 4,985 |
Issue costs of new loans | - | (56) |
Grant income received | 2,015 | 1,000 |
Repayment of loans | - | (22,185) |
Purchase of own shares | (3,697) | - |
Dividends paid | (3,532) | - |
Net cash flows from financing activities | 6,007 | 150,204 |
Net (decrease)/increase in cash and cash equivalents | (119,188) | 161,574 |
Cash and cash equivalents at 1 October (2014: 1 January) | 162,762 | 1,188 |
Cash and cash equivalents at 30 September | 43,574 | 162,762 |
Notes to the consolidated preliminary financial information
for the year ended 30 September 2015
1. Accounting policies
Basis of preparation
The financial information contained in this announcement has been prepared on the basis of the accounting policies set out in the statutory accounts for the year ended 30 September 2015. Whilst the financial information included in this announcement has been computed in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union, this announcement does not itself contain sufficient information to comply with IFRS. The financial information does not constitute the Company's statutory accounts for the periods ended 30 September 2015 or 2014, but is derived from those accounts. Those accounts give a true and fair view of the assets, liabilities, financial position and profit and loss of the Company and the undertakings included in the consolidation taken as a whole. Statutory accounts for 2014 have been delivered to the Registrar of Companies and those for 2015 will be delivered following the Company's Annual General Meeting. The auditor's reports on both the 2015 and 2014 accounts were unqualified; did not draw attention to any matters by way of emphasis; and did not contain statements under s498(2) or (3) of the Companies Act 2006.
Critical accounting estimates and judgements
In the process of applying the Group's accounting policies, the Directors are required to make judgements, estimates and assumptions that may affect the financial information. The Directors believe that the judgements made in the preparation of the financial information are reasonable. However, actual outcomes may differ from those anticipated. Critical accounting judgements include the adoption of the external portfolio valuations without adjustment, the Director's assessment of fair value of properties not externally valued and the distinction between investment and trading properties.
The preliminary financial information has been prepared under the historical cost convention as modified for the revaluation of investment properties and other non-current investments.
The principal accounting policies adopted in the preparation of this financial information are set out below. The policies have been consistently applied to both periods, unless otherwise stated.
Functional and presentation currency
All financial information is presented in British Pounds Sterling (£), the Group's functional currency, and has been rounded to the nearest thousand (£'000) unless indicated to the contrary.
Going concern
The financial information has been prepared on a going concern basis, which assumes that the Group will continue to meet its liabilities as they fall due. At 30 September 2015 the Group has prepared cash flow projections that show that it is expected to have adequate resources to continue in operational existence for the foreseeable future.
Adoption of new and revised standards
During the year ended 30 September 2015 the following new or revised accounting standards were adopted by the Group:
IAS 16 'Property, Plant and Equipment' (amendment)
IAS 24 'Related Party Disclosures' (amendment)
IAS 38 'Intangible Assets' (amendment)
IAS 40 'Investment Property' (amendment)
IFRS 2 'Share-based Payment' (amendment)
IFRS 3 'Business Combinations' (amendment)
IFRS 8 'Operating Segments' (amendment)
IFRS 13 'Fair Value Measurement' (amendment)
The adoption of revised standards either had no impact on the financial information or resulted in changes to presentation and disclosure only.
New standards and interpretations not yet applied
The IASB has issued or amended the following standards that are mandatory for later accounting years and that are relevant to the Group and have not been adopted early. These are:
IFRS 9 'Financial Instruments' (effective date: 1 January 2018 subject to EU endorsement)
IFRS 15 'Revenue from Contracts with Customers' (effective date: 1 January 2018 subject to EU endorsement)
The Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group's financial information in the period of initial application, other than on presentation and disclosure.
Basis of consolidation
Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.
The consolidated financial information presents the results of the Group as if it formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full.
Business combinations
This preliminary financial information incorporates the results of business combinations using the purchase method. In the consolidated balance sheet, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained.
Goodwill
Goodwill represents the excess of the cost of a business combination over the Group's interest in the fair value of the identifiable assets, liabilities and contingent liabilities acquired. Cost comprises the fair value of assets given, liabilities assumed and equity instruments issued. Direct costs of acquisition are charged to the consolidated statement of comprehensive income.
Goodwill is capitalised as an intangible asset, with any impairment in carrying value being charged to the consolidated statement of comprehensive income. Goodwill is reviewed for impairment at each reporting date. Where the fair value of identifiable assets, liabilities and contingent liabilities exceeds the fair value of consideration paid, the excess is credited in full to the consolidated statement of comprehensive income.
Joint arrangements
The Group is party to joint arrangements where there are contractual arrangements that confer joint control over the relevant activities of the arrangements to the Group and at least one other party. Joint control is assessed under the same principles as control over subsidiaries.
All of the Group's interests in joint arrangements constitute joint ventures, where the Group has rights to only the net assets of the joint arrangements.
In the preliminary financial information interests in joint ventures are accounted for using the equity method of accounting whereby the consolidated balance sheet incorporates the Group's share of the net assets of the joint ventures. The consolidated statement of comprehensive income incorporates the Group's share of the joint ventures' profits after tax.
Where there is objective evidence that the investment in a joint venture has been impaired, the carrying amount of the investment is tested for impairment in the same way as other non-financial assets.
Associates
Where the Group has significant influence but not control or joint control over the financial and operating policy decisions of another entity, it is classified as an associate. Associates are initially recorded in the consolidated balance sheet at cost. The Group's share of post-acquisition profits and losses is recognised in the consolidated statement of comprehensive income, except that losses in excess of the Group's investment in the associate are not recognised unless there is an obligation to make good those losses.
Where the Group has a legal obligation to a third party in relation to the losses of an associate, the Group fully provides for its share and the charge is recognised in the consolidated statement of comprehensive income.
Investment properties
Investment properties are properties held for long-term rental income and/or for capital appreciation and are measured initially at cost, including related transaction costs, and subsequently at fair value. Changes in fair value of an investment property at the balance sheet date and its carrying amount prior to remeasurement are recorded in the consolidated statement of comprehensive income.
Investment property is recognised as an asset when:
· | it is probable that future economic benefits that are associated with the investment property will flow to the Group; |
· | there are no material conditions present that could prevent completion; and |
· | the cost of the investment property can be measured reliably. |
Additions to investment properties in the course of development or refurbishment include the cost of finance and directly attributable internal and external costs incurred during the period of development until the properties are ready for their intended use.
An investment property undergoing redevelopment or refurbishment for continued use as an investment property will remain as an investment property measured at fair value and is not reclassified. A transfer of a property from investment properties to trading properties will be made where there is a change in use and the land is to be developed with a view to sale.
Trading properties
Trading properties are inventory and are included in the consolidated balance sheet at the lower of cost and net realisable value. Net realisable value is the expected net sales proceeds of the developed property in the ordinary course of business less the estimated costs to completion and associated selling costs. A provision is made to the extent that projected costs exceed projected revenues.
All external and internal costs, including borrowing costs, directly associated with the purchase, promotion and construction of a trading property are capitalised up to the date that the property is ready for its intended use. Property acquisitions are recognised when legally binding contracts that are irrevocable and effectively unconditional are exchanged.
Properties reclassified to trading properties from investment properties are transferred at deemed cost, being the fair value at the date of reclassification.
Leases
Where the Group is the lessor, the Directors have considered the potential transfer of risks and rewards of ownership in accordance with IAS 17 'Leases' for all properties leased to tenants and in their judgement have determined that all such leases are operating leases. Rental income from operating leases is recognised in the consolidated statement of comprehensive income on a straight line basis over the term of the relevant lease.
Where the Group is the lessee, leases in which substantially all risks and rewards of ownership are retained by another party are classified as operating leases. Rentals paid under operating leases are charged to the consolidated statement of comprehensive income on a straight line basis over the term of the lease.
Lease incentives
Lease incentives, including rent free periods and payments to tenants, are allocated to the consolidated statement of comprehensive income on a straight line basis over the lease term as a deduction from rental income.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses. This includes costs directly attributable to making the asset capable of operating as intended.
Depreciation is provided on all plant and equipment at rates calculated to write off the cost less estimated residual value, based on prices prevailing at the reporting date, of each asset over its expected useful life as follows:
Freehold property | - shorter of term of the lease granted and 10 per cent straight line |
Leasehold improvements | - shorter of term of the lease and 10 per cent straight line |
Furniture and equipment | - 20-33 per cent straight line |
Revenue recognition
Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be readily measured. Revenue is measured at the fair value of the consideration receivable, excluding VAT. The following criteria must be met before revenue is recognised:
Sale of property
Revenue from the sale of trading and investment properties is recognised when the significant risks and rewards of ownership of the Group's interest in the properties have passed to the buyer, usually when legally binding contracts that are irrevocable and effectively unconditional are exchanged.
Trading revenue
Trading revenue and profits are recognised in accordance with IAS 11 'Construction Contracts' or IAS 18 'Revenue' depending on whether all development risks, apart from the construction risk, have passed to the purchaser under the terms of the development agreement. Where only the construction risk remains, the revenue and profit on the development is recognised under IAS 11, so as to match the proportion of the development work completed on a percentage completion basis. The percentage completion basis is determined by using the total costs incurred at the reporting date as a proportion of the total forecast costs at completion. Profits are only recognised where the outcome can be determined with reasonable certainty. Full provision is made for losses as soon as such losses are foreseen. Where revenue is recognised under IAS 18 disposals are recognised where the risks and rewards of ownership are considered to have been transferred to the purchaser.
Rental income
Rental income arising from property is accounted for on a straight line basis over the term of the lease.
Fees and other income
Fees from development management service arrangements and other agreements are determined by reference to the relevant agreement and recognised as the services are provided.
Taxation
Current tax
The charge for current taxation is based on the results for the year as adjusted for items that are non-taxable or disallowed. It is calculated using rates and laws that have been enacted or substantively enacted by the balance sheet date. Tax payable upon realisation of revaluation gains on investment property disposals that were recognised in prior periods is recorded as a current tax charge with a release of the associated deferred taxation.
Deferred tax
Deferred tax is provided using the balance sheet liability method in respect of temporary differences between the carrying amount of assets and liabilities in the consolidated balance sheet and the corresponding tax base cost used in computing taxable profit.
Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. It is recognised in the consolidated statement of comprehensive income except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same tax authority.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.
Under IAS 12 'Income Taxes', deferred tax is recognised for tax potentially payable on the realisation of investment properties at fair values at the balance sheet date.
Share-based payments
The fair value of granting share awards under the Group's performance share plan, and the other share-based remuneration of the Directors and other employees, is recognised through the consolidated statement of comprehensive income. The fair value of shares awarded is calculated by using an option pricing model. The resulting fair value is amortised through the consolidated statement of comprehensive income on a straight line basis over the vesting period. The charge is reversed if it is likely that any non-market based vesting criteria will not be met.
Employee Benefit Trust
The Group is deemed to have control of its Employee Benefit Trust (EBT) and it is therefore treated as a subsidiary and consolidated for the purposes of the consolidated accounts. The EBT's investment in the parent company's shares is deducted from equity in the consolidated balance sheet as if they were treasury shares. Other assets and liabilities of the EBT are recognised as assets and liabilities of the Group. Any shares held by the EBT are excluded for the purposes of calculating earnings per share and net assets per share.
Retirement benefits
Contributions to defined contribution pension schemes are charged to the consolidated statement of comprehensive income in the period to which they relate.
Government grants
Government grants received in relation to property asset capital expenditure is generally deducted in arriving at the cost of the relevant asset. Where retention of a government grant is dependent on the Group satisfying certain criteria, it is initially recognised as deferred income. When the criteria for retention have been satisfied, the deferred income balance is netted against the cost of the asset.
Dividends
Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when the dividends are approved by the directors or paid. In the case of final dividends, this is when approved by the shareholders at the AGM.
Impairment of non-financial assets (excluding trading properties, investment properties and deferred tax)
Impairment tests on the Group's goodwill are undertaken at each reporting date to determine whether there is any indication of impairment. If such indication becomes evident, the asset's recoverable amount is estimated and an impairment loss is recognised in the consolidated statement of comprehensive income whenever the carrying amount of the asset exceeds its recoverable amount.
The recoverable amount of an asset is the greater of its fair value less costs to sell and its value in use. The value in use is determined as the net present value of the future cash flows expected to be derived from the asset.
Financial instruments
Financial assets and financial liabilities are recognised in the consolidated balance sheet when the Group becomes a party to the contractual provisions of the instrument.
Cash and cash equivalents
Cash and cash equivalents consists of cash in hand, deposits with banks and other short-term highly liquid investments with original maturities of three months or less from inception. For the purposes of the cash flow statement, cash and cash equivalents comprises cash in hand and deposits with banks net of bank overdrafts.
Trade and other receivables
Trade and other receivables are initially recognised at fair value and subsequently at amortised cost or their recoverable amount. Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms receivable. The amount of such a provision is the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, which are reported net, such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.
Trade and other payables
Trade and other payables are initially recorded at fair value and subsequently at amortised cost.
Borrowings
Interest-bearing loans are initially recorded at fair value, net of any directly attributable issue costs, and subsequently recognised at amortised cost.
Borrowing costs
Finance and other costs incurred in respect of obtaining borrowings are accounted for on an accruals basis using the effective interest method and amortised to the consolidated statement of comprehensive income over the term of the associated borrowings.
Borrowing costs directly attributable to the acquisition and construction of investment and trading properties are added to the costs of such properties until the properties are ready for their intended use.
All other borrowing costs are recognised in the consolidated statement of comprehensive income in the period in which they are incurred.
Other investments
Other investments comprise investments that have been designated at fair value through profit or loss on the basis that from acquisition they are monitored on a fair value basis so designation results in more relevant financial information.
2. Business combinations
Current year
On 27 February 2015 the Group acquired the entire issued share capital of Catesby Property Group plc, the parent company of a well established, planning-led, strategic land group. The acquisition increased the Group's interest in land holdings in areas of high housebuilder demand and land promotion capability. The purchase consideration was satisfied through a combination of £21,999,000 of cash and 4,248,553 new shares of 20p each in the Company.
Details of the fair value of the identifiable assets and liabilities acquired, the purchase consideration and the discount arising on the purchase are as follows:
Fair value | |
£'000 | |
Non-current assets | |
Property, plant and equipment | 67 |
Investments in joint venture | 17 |
Deferred tax assets | 23 |
107 | |
Current assets | |
Trading properties | 34,077 |
Trade and other receivables | 9,549 |
Cash and cash equivalents | 6,582 |
50,208 | |
Total assets | 50,315 |
Non-current liabilities | |
Deferred tax liabilities | (2,295) |
Corporation tax | (2,003) |
(4,298) | |
Current liabilities | |
Trade and other payables | (8,094) |
(8,094) | |
Total liabilities | (12,392) |
Net assets acquired | 37,923 |
Fair value of consideration given | |
Fair value of the cash consideration at 27 February 2015 | 21,999 |
Fair value of consideration shares at 27 February 2015 | 11,193 |
Total consideration | 33,192 |
Discount on acquisition | 4,731 |
The fair value of the share consideration given has been calculated by reference to the Company's share price at the time of the acquisition. Of the amounts disclosed above, payment of £3,281,000 of the cash consideration and £1,948,000 of the share consideration (representing 739,107 shares of 20p each) is deferred until 27 February 2016. These amounts are therefore included within other payables and shares to be issued, respectively.
Fair value adjustments to the net assets acquired relate to property revaluations and deferred tax thereon.
The Directors have considered the resultant discount arising on the purchase and have revisited the fair value of the net assets acquired and the consideration paid. They have concluded that they are a fair assessment. The discount on acquisition, which arises principally from the fair value of Newark, has been taken to the consolidated statement of comprehensive income. The discount on acquisition is not subject to corporation tax.
The Group has completed its fair value assessment and therefore the fair values disclosed are considered to be final.
Acquisition costs of £857,000 have been recognised in administrative expenses in the consolidated statement of comprehensive income.
Since 27 February 2015 the acquiree group has contributed £13,029,000 to the revenues of the Group and accounted for £2,519,000 profit before taxation. If the acquisition had occurred on 1 October 2014, the revenue of the Group would have been increased by a further £14,662,000 and the Group's profit before taxation for the period would have been increased by a further £10,769,000.
Prior period
On 22 May 2014 the Company acquired the entire issued share capital and the issued PECs of Urban&Civic Holdings S.à.r.l., the parent company of a group focused on the delivery of strategic residential land developments in key growth areas of the UK. The principal reason for the acquisition was to create the opportunity to grow a new 'best in class' UK real estate business. The acquisition was satisfied by the issue of 43,084,456 new shares of 20p each in the Company, representing 67 per cent of the total shares in issue prior to the placing and employee offer. Consequently the business combination was accounted for as a reverse acquisition in accordance with IFRS 3 'Business Combinations' (revised), and accordingly the assets and liabilities of the Company and its subsidiary undertakings, being the acquiree group, were fair valued.
Details of the fair value of the identifiable assets and liabilities acquired, the purchase consideration and the goodwill arising were as follows:
Fair value | |
£'000 | |
Non-current assets | |
Property, plant and equipment | 60 |
Investments in joint ventures and associates | 5,445 |
Other investment | 4,280 |
Deferred tax assets | 11,101 |
20,886 | |
Current assets | |
Trading properties | 45,948 |
Trade and other receivables | 15,017 |
Cash and cash equivalents | 1,518 |
62,483 | |
Total assets | 83,369 |
Non-current liabilities | |
Borrowings | (10,857) |
(10,857) | |
Current liabilities | |
Borrowings | (4,953) |
Trade and other payables | (9,013) |
Other liabilities | (1,922) |
(15,888) | |
Total liabilities | (26,745) |
Net assets acquired | 56,624 |
Fair value of consideration given | |
Fair value of the Company's issued share capital at 22 May 2014 (net of own shares held) | 56,588 |
Fair value of share options outstanding at 22 May 2014 | 491 |
Total consideration | 57,079 |
Goodwill arising on acquisition | 455 |
The fair value of the consideration given was calculated by reference to the closing share price of the Company on 21 May 2014.
Fair value adjustments to the net assets acquired predominantly related to property revaluations, deferred tax thereon and additional deferred tax assets recognised in respect of estimated tax losses that were expected to be utilised as a consequence of the business combination.
Included within acquired receivables were amounts due from joint ventures and associates totalling £5,228,000, which were fair valued at £Nil based on the expected amounts receivable. Other liabilities represented an acquired contingent liability.
The Directors considered the incidental amount of resultant goodwill arising on acquisition and concluded that it be immediately written off in the consolidated statement of comprehensive income in the post-acquisition period. The goodwill was not deductible for tax purposes.
Acquisition costs of £1,860,000 were recognised in administrative expenses in the consolidated statement of comprehensive income.
From 22 May 2014 to 30 September 2014, the acquiree group contributed £21,373,000 to the revenues of the Group and £6,058,000 to the Group's profit for the period before taxation. If the acquisition had occurred on 1 January 2014, the contribution to the revenue of the Group to 30 September 2014 would have been £33,855,000 and the contribution to the Group's profit before taxation for the period would have been £1,815,000.
3. Revenue and gross profit
Year ended | Period ended | |
30 September | 30 September | |
2015 | 2014 | |
£'000 | £'000 | |
Revenue on construction contracts | 30,772 | 1,714 |
Trading property sales | 12,732 | 18,305 |
Rental and other property income | 10,424 | 2,240 |
Recoverable property expenses | 844 | 227 |
Project management fees and other income | 706 | 741 |
Revenue | 55,478 | 23,227 |
Cost of construction contracts | (30,059) | (987) |
Cost of trading property sales | (9,552) | (15,038) |
Direct property expenses | (7,067) | (1,040) |
Recoverable property expenses | (844) | (227) |
Write-down of trading properties | (4,402) | - |
Direct costs | (51,924) | (17,292) |
Gross profit | 3,554 | 5,935 |
Year ended | Period ended | |
30 September | 30 September | |
2015 | 2014 | |
£'000 | £'000 | |
Number of construction contracts | 1 | 2 |
Year ended | Period ended | |
30 September | 30 September | |
2015 | 2014 | |
£'000 | £'000 | |
Revenue on construction contracts | 30,772 | 1,714 |
Costs of construction contracts | (30,059) | (987) |
Profit on construction contracts | 713 | 727 |
Construction contract revenue is recognised in the consolidated statement of comprehensive income in line with the contract stage of completion on the relevant contract, determined using the proportion of total estimated development costs incurred at the reporting date. No advances or retentions have been received for construction contracts.
4. Operating profit
Year ended | Period ended | |
30 September | 30 September | |
2015 | 2014 | |
Is arrived at after charging/(crediting): | £'000 | £'000 |
Depreciation of property, plant and equipment - included in administrative expenses | 180 | 29 |
Depreciation of property, plant and equipment - included in direct costs | 514 | - |
Impairment of trade receivables | 5 | - |
Operating lease charges - rent of properties | 482 | 255 |
Share-based payment expense | 1,777 | 554 |
Acquisition and Listing costs | 857 | 2,775 |
Impairment of goodwill | - | 455 |
Discount on acquisition | (4,731) | - |
Capitalisation of administrative expenses to investment and trading properties | (6,969) | (3,165) |
Administrative expenses taken to direct costs | (109) | - |
Fees paid to BDO LLP in respect of: | ||
- audit of the Company | 260 | 150 |
Other services: | ||
- audit of subsidiaries and associates | 100 | 50 |
- audit related assurance services | 35 | - |
- corporate finance services | - | 163 |
- other fees payable1 | 93 | - |
1 Other fees payable to the Company's auditor are principally for tax related work provided to certain subsidiary undertakings.
In 2014, in addition to the amounts disclosed above, BDO LLP charged the Company £362,000 in relation to corporate finance services which were charged to the share premium account.
5. Segmental information
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker has been identified as the Board of Directors.
The two principal segments are strategic land and commercial property development. The strategic land segment includes serviced and unserviced land, consented and unconsented land and mixed-use development. The commercial segment includes Central London office developments, commercial regional developments and Scottish land. The business combination in February 2015 is being reported to the chief operating decision-maker under the strategic land segment.
Segmental information is reported in the table that follows in respect of the current year in accordance with the requirements of IFRS 8 'Operating Segments'.
Consolidated statement of comprehensive income
for the year ended 30 September 2015
Strategic land | Commercial | Unallocated | Total | |
£'000 | £'000 | £'000 | £'000 | |
Revenue | 16,186 | 39,292 | - | 55,478 |
Cost of trading property sales | (10,511) | (37,011) | - | (47,522) |
Write-down of trading properties | - | (4,402) | - | (4,402) |
Total direct costs | (10,511) | (41,413) | - | (51,924) |
Gross profit/(loss) | 5,675 | (2,121) | - | 3,554 |
Acquisition costs | - | - | (857) | (857) |
Non-recurring administrative expenses | - | - | (190) | (190) |
Share-based payment expense | - | - | (1,777) | (1,777) |
Other administrative expenses | - | - | (7,526) | (7,526) |
Total administrative expenses | - | - | (10,350) | (10,350) |
Other operating income | 217 | 130 | - | 347 |
Discount on acquisition | - | - | 4,731 | 4,731 |
Surplus on revaluation of investment properties | 2,538 | (608) | - | 1,930 |
Share of post-tax profit from joint ventures | 3,760 | - | - | 3,760 |
Impairment of loans to joint ventures | - | (826) | - | (826) |
Profit on disposal of other investment | - | 1,326 | - | 1,326 |
Release of other liabilities | - | - | 1,922 | 1,922 |
Operating profit/(loss) | 12,190 | (2,099) | (3,697) | 6,394 |
Net finance income | - | - | 645 | 645 |
Profit/(loss) before tax | 12,190 | (2,099) | (3,052) | 7,039 |
The segmental results that are monitored by the Board include all the separate lines making up the segmental IFRS operating profit. This excludes central overheads and taxation which are not allocated to operating segments.
In the year ended 30 September 2015, there were three major customers that generated £30,772,000, £6,460,000 and £5,867,000 of revenue. Each of these represented 10 per cent or more of the total revenue.
Consolidated balance sheet
as at 30 September 2015
Strategic land | Commercial | Unallocated | Total | |
£'000 | £'000 | £'000 | £'000 | |
Investment properties | 72,965 | 25,650 | - | 98,615 |
Property, plant and equipment | - | 1,486 | 1,222 | 2,708 |
Investments in joint ventures and associates | 38,097 | 3,621 | - | 41,718 |
Deferred tax assets | - | - | 8,657 | 8,657 |
Non-current assets | 111,062 | 30,757 | 9,879 | 151,698 |
Trading properties | 88,766 | 74,693 | - | 163,459 |
Trade and other receivables | 18,563 | 14,705 | - | 33,268 |
Cash and cash equivalents | - | - | 43,574 | 43,574 |
Current assets | 107,329 | 89,398 | 43,574 | 240,301 |
Borrowings | (11,408) | - | - | (11,408) |
Trade and other payables | (10,442) | (18,354) | - | (28,796) |
Deferred tax liabilities | (3,967) | - | - | (3,967) |
Total liabilities | (25,817) | (18,354) | - | (44,171) |
Net assets | 192,574 | 101,801 | 53,453 | 347,828 |
Consolidated statement of comprehensive income
for the period ended 30 September 2014
Strategic land | Commercial | Unallocated | Total | |
£'000 | £'000 | £'000 | £'000 | |
Revenue | 1,854 | 21,373 | - | 23,227 |
Direct costs | (1,267) | (16,025) | - | (17,292) |
Gross profit | 587 | 5,348 | - | 5,935 |
Acquisition and Listing costs | - | - | (2,775) | (2,775) |
Impairment of goodwill | - | - | (455) | (455) |
Other administrative expenses | - | - | (4,739) | (4,739) |
Total administrative expenses | - | - | (7,969) | (7,969) |
Surplus on revaluation of investment properties | 5,925 | - | - | 5,925 |
Share of post-tax profit from joint ventures | 11,297 | - | - | 11,297 |
Surplus on revaluation of other investment | - | 1,114 | - | 1,114 |
Operating profit/(loss) | 17,809 | 6,462 | (7,969) | 16,302 |
Net finance (costs)/income | (429) | 56 | 3,235 | 2,862 |
Profit/(loss) before tax | 17,380 | 6,518 | (4,734) | 19,164 |
During the period to 30 September 2014 one commercial customer generated £19,026,000 of revenue representing greater than 80 per cent of the total revenue.
Consolidated balance sheet
as at 30 September 2014
Strategic land | Commercial | Unallocated | Total | |
£'000 | £'000 | £'000 | £'000 | |
Investment properties | 62,896 | 3,395 | - | 66,291 |
Property, plant and equipment | - | - | 124 | 124 |
Investments in joint ventures and associates | 13,573 | 3,445 | - | 17,018 |
Other investment | - | 5,394 | - | 5,394 |
Deferred tax assets | - | - | 8,285 | 8,285 |
Non-current assets | 76,469 | 12,234 | 8,409 | 97,112 |
Trading properties | 49,164 | 28,951 | - | 78,115 |
Trade and other receivables | 1,362 | 10,642 | - | 12,004 |
Cash and cash equivalents | - | - | 162,762 | 162,762 |
Current assets | 50,526 | 39,593 | 162,762 | 252,881 |
Trade and other payables | (3,631) | (8,082) | - | (11,713) |
Other liabilities | - | - | (1,922) | (1,922) |
Deferred tax liabilities | (1,296) | - | - | (1,296) |
Total liabilities | (4,927) | (8,082) | (1,922) | (14,931) |
Net assets | 122,068 | 43,745 | 169,249 | 335,062 |
6. Finance income and finance costs
Year ended | Period ended | |
30 September | 30 September | |
2015 | 2014 | |
£'000 | £'000 | |
Interest receivable from cash deposits | 665 | 294 |
Discount received on early repayment of loans | - | 3,235 |
Fair value gain on non-hedging derivative financial instruments | - | 5 |
Finance income | 665 | 3,534 |
Interest payable on borrowings | (207) | (529) |
Interest capitalised | 187 | 202 |
Charges relating to early repayment of loans | - | (345) |
Finance costs | (20) | (672) |
Net finance income | 645 | 2,862 |
Interest is capitalised at the same rate as the Group is charged on respective borrowings.
7. Tax on profit on ordinary activities
(a) Analysis of charge in the year
Year ended | Period ended | |
30 September | 30 September | |
2015 | 2014 | |
£'000 | £'000 | |
Current tax: | ||
UK corporation tax on profits for the year | - | 48 |
Adjustments in respect of previous periods | 10 | - |
Total current tax | 10 | 48 |
Deferred tax: | ||
Origination and reversal of timing differences | 4 | 4,110 |
Total deferred tax charge | 4 | 4,110 |
Total tax charge | 14 | 4,158 |
(b) Factors affecting the tax charge for the year
The effective rate of tax for the year varies from the standard rate of tax in the UK. The differences can be explained below.
Year ended | Period ended | |
30 September | 30 September | |
2015 | 2014 | |
£'000 | £'000 | |
Profit attributable to the Group before tax | 7,039 | 19,164 |
Profit multiplied by the average rate of UK corporation tax of 20.42 per cent | ||
(period ended 30 September 2014: 21.49 per cent) | 1,437 | 4,118 |
Expenses not deductible for tax purposes | 288 | 726 |
Income not assessable for tax purposes | (1,359) | - |
Differences arising from taxation of chargeable gains and property revaluations | - | (60) |
Profits from joint ventures and associates | - | (321) |
Tax losses and other items | (362) | - |
Changes in tax rates | - | (305) |
4 | 4,158 | |
Adjustments to tax charge in respect of previous periods | 10 | - |
Total tax charge | 14 | 4,158 |
(c) Associates and joint ventures
The Group's share of tax on the joint ventures and associates is £Nil (period ended 30 September 2014: £Nil).
8. Earnings per share
Basic earnings per share
The calculation of basic earnings per share is based on a profit of £7,025,000 (period ended 30 September 2014: £15,006,000) and on 141,705,236 (period ended 30 September 2014: 72,138,247) shares, being the weighted average number of shares in issue during the year.
Diluted earnings per share
The effect of shares to be issued on the acquisition of Catesby has been factored into the Group's diluted earnings per share calculation. Awards under the Group's long-term incentive plan have not been included as these are anti-dilutive.
2015 | 2014 | |
Weighted average number of shares | Number | Number |
In issue at 1 October (2014: 1 January) | 140,497,109 | 9,074,791 |
Effect of shares issued on acquisition of Catesby Property Group plc | 2,076,823 | - |
Effect of own shares purchased | (868,696) | - |
Effect of shares in issue at the date of the reverse acquisition | - | 10,171,516 |
Effect of capitalisation of PECs in May 2014 | - | 16,319,656 |
Effect of placing and employee share offer in May 2014 | - | 36,572,284 |
Weighted average number of shares at 30 September - basic | 141,705,236 | 72,138,247 |
Effect of shares to be issued on acquisition of Catesby Property Group plc | 437,389 | - |
Weighted average number of shares at 30 September - diluted | 142,142,625 | 72,138,247 |
9. Dividends
Year ended | Period ended | |
30 September | 30 September | |
2015 | 2014 | |
£'000 | £'000 | |
Final dividend of 1.5p (period ended 30 September 2014: 0.0p) per share proposed | ||
and paid during the year relating to the previous period's results | 2,107 | - |
Interim dividend of 1.0p (period ended 30 September 2014: 0.0p) per share paid during the year | 1,425 | - |
3,532 | - | |
The Directors are proposing a final dividend of 1.65p (period ended 30 September 2014: 1.50p) per share totalling £2,376,000 (period ended 30 September 2014: £2,107,000). The dividend has not been accrued in the consolidated balance sheet at 30 September 2015.
10. Investment properties
(i) Carrying amount reconciliation
£'000 | |
Valuation | |
At 1 January 2014 | 55,455 |
Additions at cost | 3,411 |
Surplus on revaluation | 5,925 |
Transfers to trading properties | 1,500 |
At 1 October 2014 | 66,291 |
Additions at cost | 30,394 |
Surplus on revaluation | 1,930 |
At 30 September 2015 | 98,615 |
(ii) Operating lease arrangements
Refer to note 22 for details of the operating leases related to investment properties.
(iii) Items of income and expense
During the year ended 30 September 2015, £3,410,000 (period ended 30 September 2014: £1,854,000) was recognised in the consolidated statement of comprehensive income in relation to rental and ancillary income from investment properties. Direct operating expenses, including repairs and maintenance, arising from investment property that generated rental income amounted to £1,903,000 (period ended 30 September 2014: £1,267,000). The Group did not incur any direct operating expenses arising from investment properties that did not generate rental income (period ended 30 September 2014: £Nil).
(iv) Restrictions and obligations
At 30 September 2015 there were no restrictions on the realisability of investment property or the remittance of income and proceeds of disposal (2014: none).
There are no obligations to construct or develop the Group's principal investment property. The Group has an obligation to complete the construction of another investment property that has commenced at the balance sheet date.
At 30 September 2015 contractual obligations to develop investment property amounted to £5,269,000 (2014: £509,000).
(v) Historical cost and capitalisation
The historical cost of investment properties as at 30 September 2015 was £75,439,000 (2014: £45,045,000), which included capitalised interest of £10,705,000 (2014: £10,705,000). There was no interest capitalised during the year. The average cost of interest capitalised during the period ended 30 September 2014 was 2.3 per cent. During the year staff and administrative costs of £1,658,000 (period ended 30 September 2014: £255,000) have been capitalised and are included within additions.
(vi) Fair value measurement
Of the Group's investment properties Alconbury Weald which represents 74 per cent of the year-end carrying value (2014: 98 per cent), is valued on a semi-annual basis by CBRE Limited, an independent firm of Chartered Surveyors, on the basis of fair value. The valuation at each period end is carried out in accordance with guidance issued by the Royal Institution of Chartered Surveyors. The other investment properties are valued by the Directors on the basis of fair value. Where an investment property has been purchased in proximity to the year end, the valuation is performed by the Directors on the basis of fair value, which in 2015 the Directors have assessed as equal to cost.
Fair value represents the estimated amount that should be received for selling an investment property in an orderly transaction between market participants at the valuation date.
As noted above, the Group's investment properties are all carried at fair value and are classified as level 3 within the fair value hierarchy as some of the inputs used in determining the fair value are based on unobservable market data. The following table summarises the valuation technique used in measuring the fair value of the Group's investment properties, as well as the significant unobservable inputs and their inter-relationship with the fair value measurement.
Valuation technique
Discounted cash flows: the valuation model for the Group's strategic land considers the present value of net cash flows to be generated from a property (reflecting the current approach of constructing the infrastructure, discharging the section 106 costs obligations and then selling fully serviced parcels of land to housebuilders for development), taking into account expected house price/land value growth rates, build cost inflation, absorption rates and general economic conditions. The expected net cash flows are discounted using risk adjusted discount rates and the resultant value is benchmarked against transaction evidence.
Significant unobservable inputs
The key inputs to the valuation included:
· | expected annual house price inflation (3.7 per cent); |
· | expected annual cost price inflation (2.0 per cent); |
· | profit on gross development value (20.0 per cent); |
· | private residential gross development value (£230-£240 per sq.ft.); |
· | infrastructure, section 106 and community infrastructure levy (£561,000 per net developable acre); and |
· | risk adjusted discount rate (8.5 - 10.0 per cent). |
Inter-relationship between significant unobservable inputs and fair value measurement
The estimated fair value would increase (decrease) if:
· | expected annual house price inflation was higher (lower); |
· | expected annual cost price inflation was lower (higher); |
· | profit on gross development value was lower (higher); |
· | private residential gross development value was higher (lower); |
· | infrastructure, section 106 and community infrastructure levy rate per net developable acre was lower (higher); and |
· | risk adjusted discount rate was lower (higher). |
11. Property, plant and equipment
Freehold | Leasehold | Furniture | Total | |
property | improvements | and equipment | ||
£'000 | £'000 | £'000 | £'000 | |
Cost | ||||
At 1 January 2014 | - | - | 138 | 138 |
Acquired through business combination (see note 2) | - | 23 | 37 | 60 |
Additions | - | - | 70 | 70 |
At 1 October 2014 | - | 23 | 245 | 268 |
Acquired through business combination (see note 2) | - | 30 | 37 | 67 |
Additions | 2,000 | 627 | 584 | 3,211 |
At 30 September 2015 | 2,000 | 680 | 866 | 3,546 |
Depreciation | ||||
At 1 January 2014 | - | - | 115 | 115 |
Charge for the period | - | 3 | 26 | 29 |
At 1 October 2014 | - | 3 | 141 | 144 |
Charge for the year | 514 | 44 | 136 | 694 |
At 30 September 2015 | 514 | 47 | 277 | 838 |
Net book value | ||||
At 30 September 2015 | 1,486 | 633 | 589 | 2,708 |
At 30 September 2014 | - | 20 | 104 | 124 |
No assets were held under finance leases in either the current year or the prior period.
12. Investments
(i) Investments in joint ventures and associates
Joint | Associates | Total | |
ventures | |||
£'000 | £'000 | £'000 | |
Cost or valuation | |||
At 1 January 2014 | - | - | - |
Acquired through business combinations (see note 2) | 2,945 | 2,500 | 5,445 |
Additions | 476 | - | 476 |
Loans advanced | 1,800 | - | 1,800 |
Share of revaluation uplift on investment property | 11,297 | - | 11,297 |
Loans repaid | - | (2,000) | (2,000) |
At 1 October 2014 | 16,518 | 500 | 17,018 |
Acquired through business combination (see note 2) | 17 | - | 17 |
Additions | 285 | - | 285 |
Loans advanced | 21,619 | - | 21,619 |
Share of post-tax loss excluding investment property revaluation | (110) | - | (110) |
Share of revaluation uplift on investment property | 3,870 | - | 3,870 |
Loans repaid | (155) | - | (155) |
Impairment of loans to joint ventures | (826) | - | (826) |
At 30 September 2015 | 41,218 | 500 | 41,718 |
At 30 September 2015 the Group's interests in its joint ventures were as follows:
SUE Developments LP | 50% | Property investment |
Achadonn Limited | 50% | Property development |
Altira Park JV LLP | 50% | Property development |
Summarised information on joint ventures 2015
SUE | Achadonn | Altira Park JV | Total | |
Developments LP | Limited | LLP | 2015 | |
£'000 | £'000 | £'000 | £'000 | |
Revenue | - | - | - | - |
Profit/(loss) after tax | 7,520 | (7) | - | 7,513 |
Total assets | 76,770 | 6,556 | 1,265 | 84,591 |
Other liabilities | (45,416) | (6,596) | (983) | (52,995) |
Total liabilities | (45,416) | (6,596) | (983) | (52,995) |
Net assets | 31,354 | (40) | 282 | 31,596 |
The carrying value consists of: | ||||
Group's share of net assets | 15,677 | - | 141 | 15,818 |
Loans | 22,420 | 2,490 | 490 | 25,400 |
Total investment in joint ventures | 38,097 | 2,490 | 631 | 41,218 |
SUE Developments LP's principal asset is an investment property carried at fair value and classified as level 3 within the fair value hierarchy as some of the inputs used in determining the fair value are based on unobservable market data. The investment property is valued on a semi-annual basis by CBRE Limited, an independent firm of chartered surveyors using the same valuation technique as adopted for the valuation of the Group's principal investment property, Alconbury Weald (see note 10). The values for the significant unobservable inputs are listed below, whilst their relationship with the fair value measurement is described in note 10.
Significant unobservable inputs
· | expected annual house price inflation (3.25 per cent); |
· | expected annual cost price inflation (2.0 per cent); |
· | profit on gross development value (20 per cent); |
· | private residential gross development value (£230-£235 per sq.ft.); |
· | infrastructure and section 106 costs (£539,000 per net developable acre); and |
· | risk adjusted discount rate (8.75-10.25 per cent). |
Summarised information on joint ventures 2014
SUE | Achadonn | Total | |
Developments LP | Limited | 2014 | |
£'000 | £'000 | £'000 | |
Revenue | - | 1,659 | 1,659 |
Profit/(loss) after tax | 22,594 | (150) | 22,444 |
Total assets | 27,146 | 12,428 | 39,574 |
Other liabilities | (3,600) | (6,367) | (9,967) |
Total liabilities | (3,600) | (6,367) | (9,967) |
Net assets | 23,546 | 6,061 | 29,607 |
The carrying value consists of: | |||
Group's share of net assets | 11,773 | - | 11,773 |
Loans | 1,800 | 2,945 | 4,745 |
Total investment in joint ventures | 13,573 | 2,945 | 16,518 |
At 30 September 2015 the Group's interests in its principal associates are as follows:
Terrace Hill Development Partnership | 20% | Property development |
Summarised information on principal associates
2015 | 2014 | |
Terrace Hill | Terrace Hill | |
Development | Development | |
Partnership | Partnership | |
£'000 | £'000 | |
Revenue | 2,242 | 628 |
Profit after tax | 1,613 | 226 |
Total assets | 7,465 | 8,042 |
Other liabilities | (8,152) | (10,342) |
Total liabilities | (8,152) | (10,342) |
Net liabilities | (687) | (2,300) |
Non-recourse net liabilities | 687 | 2,300 |
Adjust for: | ||
Group's share of net liabilities | - | - |
The carrying value consists of: | ||
Group's share of net liabilities | - | - |
Loans | 500 | 500 |
Total investment in associates at 30 September 2015 | 500 | 500 |
Share of unrecognised profit | ||
At 1 October 2014 | 45 | - |
Share of unrecognised profit for the period | 323 | 45 |
At 30 September 2015 | 368 | 45 |
The Group has no legal or constructive obligations to fund the losses of this associate.
Terrace Hill Development Partnership has not been equity accounted for as the entity has preferential investors that will receive their return before the Group. When the entity can satisfy the obligations to those investors, equity accounting will resume. Terrace Hill Development Partnership is classified as an associate due to the significant influence being exercised by the Group over its operating activities. The investment in Terrace Hill Development Partnership is carried at cost and subject to regular impairment reviews. The carrying value of this associate is £500,000 (2014: £500,000).
(ii) Other investment
£'000 | |
At 1 January 2014 | - |
Acquired through business combination (see note 2) | 4,280 |
Surplus on revaluation | 1,114 |
At 1 October 2014 | 5,394 |
Disposals | (5,394) |
At 30 September 2015 | - |
The other investment at 30 September 2014 represented the fair value pf the Group's minority share of the net assets attributable to the equity members of Howick Place JV S.à.r.l.
13. Deferred tax
The net movement on the deferred tax account is as follows:
Year ended | Period ended | |
30 September | 30 September | |
2015 | 2014 | |
£'000 | £'000 | |
At 1 October (2014: 1 January) | 6,989 | (2) |
Arising on business combination (see note 2) | (2,295) | 11,101 |
Movement in the year (see note 7) | (4) | (4,110) |
At 30 September | 4,690 | 6,989 |
The deferred tax balances are made up as follows:
At | At | |
30 September | 30 September | |
2015 | 2014 | |
£'000 | £'000 | |
Deferred tax assets | ||
Tax losses | 8,657 | 8,285 |
8,657 | 8,285 | |
Deferred tax liabilities | ||
Revaluation surpluses | 3,967 | 1,296 |
3,967 | 1,296 | |
At 30 September 2015, the Group has unused tax losses of £44,146,000 (2014: £45,308,000), of which £43,285,000 (2014: £41,425,000) has been recognised as a deferred tax asset. A deferred tax asset in respect of tax losses of £861,000 (2014: £3,883,000) has not been recognised as it is not considered sufficiently certain that there will be appropriate taxable profits available in the foreseeable future against which these losses can be utilised.
Under IAS 12 'Income Taxes' deferred tax is recognised for tax potentially payable on the realisation of investment properties at fair value at the balance sheet date. No deferred tax asset is recognised in respect of losses if there is uncertainty over future recoverability.
The Group's deferred tax balances have been measured at a rate of 20 per cent (2014: 20 per cent), being the enacted rate of corporation tax in the UK at the balance sheet date against which the temporary differences giving rise to the deferred tax are expected to reverse. After the balance sheet date, the Finance (No.2) Act 2015 was substantively enacted, which will see the UK corporation tax rate reduced to 19 per cent from 1 April 2017 and 18 per cent from 1 April 2020. This will reduce the amount of UK corporation tax that the Group will have to pay in the future.
14. Trading properties
Year ended | Period ended | |
30 September | 30 September | |
2015 | 2014 | |
£'000 | £'000 | |
At 1 October 2014 (2014: 1 January) | 78,115 | 45,545 |
Additions at cost | 62,546 | 4,362 |
Acquired through business combination (see note 2) | 34,077 | 45,948 |
Transfers to investment properties | - | (1,500) |
Amounts written off value of trading properties | (4,402) | - |
Disposals | (6,877) | (16,240) |
At 30 September | 163,459 | 78,115 |
During the period to 30 September 2014 a trading property with a book value of £1,500,000 was transferred to investment properties following a decision to hold the property for income generation.
During the year staff and administrative costs of £5,311,000 (2014: £2,910,000) have been capitalised and are included within additions.
Capitalised interest of £494,000 is included within the carrying value of trading properties as at 30 September 2015 (2014: £307,000).
15. Trade and other receivables
At | At | |
30 September | 30 September | |
2015 | 2014 | |
£'000 | £'000 | |
Trade receivables | 28,105 | 492 |
Less: provision for impairment of trade receivables | (7) | (2) |
Trade receivables (net) | 28,098 | 490 |
Other receivables | 1,592 | 2,703 |
Amounts recoverable under contracts | 449 | 6,453 |
Prepayments and accrued income | 3,129 | 2,358 |
33,268 | 12,004 | |
16. Trade and other payables
At | At | |
30 September | 30 September | |
2015 | 2014 | |
£'000 | £'000 | |
Trade payables | 4,501 | 2,237 |
Taxes and social security costs | 1,417 | 498 |
Other payables | 9,622 | 880 |
Accruals | 12,619 | 6,780 |
Deferred income | 637 | 1,318 |
28,796 | 11,713 | |
17. Borrowings
At | At | |
30 September | 30 September | |
2015 | 2014 | |
Non-current | £'000 | £'000 |
Other loans | 11,408 | - |
11,408 | - | |
At | At | |
30 September | 30 September | |
2015 | 2014 | |
Maturity profile | £'000 | £'000 |
Between one and five years | - | - |
More than five years | 11,408 | - |
11,408 | - | |
Other loans comprise borrowings from the HCA. The loan of £11.2 million was drawn on 27 March 2015 and has a final repayment date of 21 March 2021. Interest is charged at 2.2 per cent above the EC Reference Rate and the facility is secured against specific land holdings with a carrying value at 30 September 2015 of £23,145,000. At 30 September 2015, £0.2 million of interest has been accrued.
18. Other liabilities
Acquired contingent liabilities | £'000 |
At 1 January 2014 | - |
Acquired through business combination | 1,922 |
At 1 October 2014 | 1,922 |
Release to profit and loss during the year | (1,922) |
At 30 September 2015 | - |
A potential tax liability that was acquired as part of the business combination in the period to 30 September 2014 has been released in the current year following a tribunal ruling in favour of Urban&Civic plc.
19. Share capital
At | At | |
30 September | 30 September | |
2015 | 2014 | |
Urban&Civic plc (formerly Terrace Hill Group plc) | £'000 | £'000 |
Issued and fully paid | ||
144,006,555 (2014: 140,497,109) shares of 20p each (2014: 20p each) | 28,801 | 28,099 |
At | |
30 September | |
2014 | |
Urban&Civic Holdings S.à.r.l. | £'000 |
Issued and fully paid | |
1,500,000 shares of £1 each | 1,500 |
Movements in share capital in issue
Issued and | Number | |
fully paid | ||
Ordinary shares | £'000 | |
At January 2014 | 1,500 | 1,500,000 |
Shares eliminated on acquisition of Urban&Civic Holdings S.à.r.l. | (1,500) | (1,500,000) |
- | - | |
Shares in issue at date of acquisition | 4,239 | 21,197,129 |
Shares issued in consideration for Urban&Civic Holdings S.à.r.l. shares | 1,815 | 9,074,791 |
Shares issued in consideration for Urban&Civic Holdings S.à.r.l. PECs | 6,802 | 34,009,665 |
Shares issued in respect of placing | 15,111 | 75,555,556 |
Shares issued in respect of employee offer | 132 | 659,968 |
At 30 September 2014 | 28,099 | 140,497,109 |
Shares issued in consideration for Catesby Property Group plc | 702 | 3,509,446 |
At 30 September 2015 | 28,801 | 144,006,555 |
At 30 September 2015 the Company was committed to issuing 739,107 (2014: Nil) shares that are to be issued one year from the acquisition date of Catesby Property Group plc. The fair value of £1,948,000 has been calculated by reference to the Company's share price at the date of the Catesby acquisition (see note 2).
20. Net asset value per share
Net asset value per share is calculated as the net assets of the Group attributable to shareholders at each balance sheet date, divided by the number of shares in issue at that date.
At | At | |
30 September | 30 September | |
2015 | 2014 | |
Net asset value (£'000) | 347,828 | 335,062 |
Number of shares in issue | 144,006,555 | 140,497,109 |
Shares to be issued | 739,107 | - |
Own shares held | (1,485,303) | - |
143,260,359 | 140,497,109 | |
NAV per share | 242.8p | 238.5p |
21. Contingent liabilities, capital commitments and guarantees
The Group has given a guarantee of £600,000 (at 30 September 2014: £600,000) as part of its development obligations.
Capital commitments relating to the Group's development sites are as follows:
At | At | |
30 September | 30 September | |
2015 | 2014 | |
Contracted but not provided for | 18,958 | 13,810 |
22. Leases
Operating lease commitments where the Group is the lessee
The future aggregate minimum lease rentals payable under non-cancellable operating leases are as follows:
At | At | |
30 September | 30 September | |
2015 | 2014 | |
Land and buildings | £'000 | £'000 |
In one year or less | 1,836 | 1,508 |
Between one and five years | 4,928 | 4,949 |
In five years or more | 268 | 178 |
7,032 | 6,635 | |
Operating lease commitments where the Group is the lessor
The future aggregate minimum rentals receivable under non-cancellable operating leases are as follows:
At | At | |
30 September | 30 September | |
2015 | 2014 | |
Land and buildings (including investment property) | £'000 | £'000 |
In one year or less | 5,462 | 1,897 |
Between one and five years | 8,427 | 4,582 |
In five years or more | 5,825 | 1,951 |
19,714 | 8,430 | |
23. Related party transactions
Key management personnel
The Directors of the Company are considered to be key management personnel.
Compensation payments
During the year the Group made a £200,000 payment to Robert Adair, the former Chairman of the Company, as part of his settlement agreement. This became payable on the Group receiving an implementable planning consent for its site in Herne Bay and was included in accruals at 30 September 2014. Robert Adair also received a fee of £20,000 for services which were outside the normal duties of a Non-Executive Director, in accordance with his letter of appointment.
Shareholder transactions
GIP U&C S.à.r.l. was the immediate holding and controlling company of Urban&Civic Holdings S.à.r.l. up to 21 May 2014 and received the following payments in respect of monitoring services:
Year ended | Period ended | |
30 September | 30 September | |
2015 | 2014 | |
£'000 | £'000 | |
GIP U&C S.à.r.l. | - | 5 |
Fees, other income and amounts due from joint ventures and associates
The following amounts are due from the Group's joint ventures and associates. These sums relate to loans provided to those entities and form part of the net investment in that company apart from Terrace Hill Residential PLC, which is included in receivables.
At | At | |
30 September | 30 September | |
2015 | 2014 | |
£'000 | £'000 | |
SUE Developments LP | 22,420 | 1,800 |
Terrace Hill Residential PLC | 4,220 | 4,220 |
Achadonn Limited | 3,316 | 2,945 |
Altira Park JV LLP | 490 | - |
30,446 | 8,965 | |
Amounts due from Terrace Hill Residential PLC have been fully provided against at 30 September 2015 and 30 September 2014. On 13 October 2015 Terrace Hill Residential PLC went into liquidation. During the year an amount of £826,000 (period ended 30 September 2014: £Nil) has been provided against the loans advanced to Achadonn Limited.
Fees charged by the Group to SUE Developments LP during the year and included in prepayments and accrued income at 30 September 2015 were £282,000 (period ended 30 September 2014: £Nil).
Glossary of terms
AGM | Annual General Meeting |
Catesby and Catesby Property Group | Catesby Property Group plc and subsidiaries, joint ventures and associates |
Company | Urban&Civic plc (formerly known as Terrace Hill Group plc) |
Earnings per share (EPS) | Profit after tax divided by the weighted average number of shares in issue |
EBT/the Trust | Urban&Civic plc Employment Benefit Trust |
EC Reference Rate | European Commission Reference Rate |
Employment land/plots | Land and parcels of land upon which a variety of commercial uses will be delivered in accordance with a planning consent |
EPRA | European Public Real Estate Association |
EPRA net asset value (EPRA NAV) | Net assets attributable to equity shareholders of the Company, adjusted for the revaluation surpluses on trading properties and eliminating any deferred taxation liability for revaluation surpluses |
EPRA triple net asset value (EPRA NNNAV) | EPRA net asset value, including fair value adjustments in respect of all material balance sheet items which are not reported at their fair value as part of EPRA NAV |
Estimated rental value | Open market rental value that could reasonably be expected to be obtained for a new letting or rent review at a particular point in time |
Fair value | The price that would be required to sell an asset or paid to transfer a liability in an orderly transaction between market participants at a measureable date (i.e. an exit price) |
Group and Urban&Civic Group | Urban&Civic plc and subsidiaries, joint ventures and associates |
Gross development value (GDV) | Sales value once construction is complete |
Gearing | Group bank borrowings as a proportion of net asset value |
Gross development value (GDV) | Sales value once construction is complete |
Gearing | Group bank borrowings as a proportion of net asset value |
HCA | Homes and Communities Agency |
Initial yield | Annualised net rent as a proportion of property value |
Key performance indicators (KPIs) | Significant areas of Group operations that have been identified by the Board capable of measurement and are used to evaluate Group performance |
LADs | Liquidated Ascertained Damages |
LEP | Local Enterprise Partnership |
Listing | The 22 May 2014 transfer of Urban&Civic plc from the Alternative Investment Market (AIM) to the standard listing segment of the Capital Official List and admission to trading on the London Stock Exchange |
Net asset value (NAV) | Value of the Group's balance sheet attributable to the owners of the Company |
Official List | A definitive record, maintained by the Financial Conduct Authority, confirming that a company's shares are listed on the London Stock Exchange |
Preferred Equity Certificates (PECs) | Non-cancellable, fixed interest rate, subordinated loans |
Private rented sector (PRS) | A sector of the real estate market where residential accommodation is privately owned and rented out as housing, usually by an individual landlord, but potentially by housing organisations |
PSP | Performance Share Plan |
Terrace Hill group | Terrace Hill Group plc and subsidiaries at 21 May 2014 |
Total return | Movement in the value of net assets, adjusted for dividends paid, as a proportion of opening net asset value |
Total shareholder return (TSR) | Growth in the value of a shareholding, assuming reinvestment of any dividends into shares, over a period |
Urban&Civic group | Urban&Civic Holdings S.à.r.l. and subsidiaries |
Urban&Civic plc | Parent company of the Group |
Voids | Period of non-occupancy of a lease |
Risk review
The Board has ultimate responsibility for risk management across the Group but, as permitted by the UK Corporate Governance Code and taking into account the size and structure of the Group, the Board has agreed that the Audit Committee, rather than a separate Risk Committee, should take responsibility for the review of risk.
During the year under review, the Audit Committee has undertaken a review of the process of risk management within the Urban&Civic Group and established a procedure for the ongoing review and management of the key risks facing the Group. Individual Executive Directors will review the management of risk, including at the specific projects for which they have overall responsibility. This will be done by regular site visits and by ongoing contact with, and management of, the staff involved with each of these projects. The Managing Director will ensure that appropriate risk management systems and reporting are in place. A review of risk will take place at regular meetings of the executives with an update provided at each Board meeting of any new risks or issues of concern (if any) which have arisen as a result of these discussions.
A key component in the Group's risk management process is the maintenance of a risk register with a summary of key risks being reviewed at each Board meeting. The risk register is used to design, communicate and monitor internal controls that result in an operational environment that the Board believes produces shareholder returns at an acceptable level of risk. The most significant risks identified in the risk register are shown on the following pages.
Movement since | |||
30 September 2014 | Risk description | Impact of risk | Controls and mitigation/action |
Strategic risk | |||
No change | The business model of the Company is affected by external factors, such as economic conditions, the property market, the quoted property sector and political factors. Adverse changes in market conditions and the economic environment increase the risk of a decline in development returns and property valuations. Changes in legislation, regulation, taxation or best practice. | If external influences are not considered fully, adverse financial implications could result from incorrect business decisions being made. | Consideration, when making decisions, is given to external markets, dynamics and influences. Strategy is considered at each Board meeting and specifically at an annual strategy meeting. Press, industry forums and adviser updates are used to keep executives up to date in respect of external markets. Regional focus and local knowledge in areas with strong underlying economics (such as job creation) mitigate the impact of market and economic shocks. Prior to investment, detailed due diligence and financial appraisals are rigorously carried out using historic, current and forecast market data. The appraisals are also flexed to establish the financial outcome on a downside-case basis. Business plan and rolling long-term cash flow forecasts with detailed sensitivity analysis. Effective monitoring with the assistance, when required, of appropriate professional advisers (tax, accounting, regulatory, company law). |
Decrease | Implementing a strategy and/or development programme which is inconsistent with the market environment, skillset and experience of the business. | An inconsistent approach could devalue the Group's property portfolio and consequently reduce total shareholder return. Inappropriate strategy could result in over-exposure to a single scheme which could have an adverse impact on Group cash flows. | Board meetings are held at two-monthly intervals to review and, where necessary, update strategy and to review progress against objectives. The Group annually approves a business plan and produces rolling long-term cash flow forecasts with detailed sensitivity analysis. These are reviewed against the Group's KPIs and revised where necessary. For property assets under development, detailed budgets are prepared and approved by the Board, costs are monitored and remedial actions are identified and approved where necessary. Material capital commitments, which have not been approved in the Group business plan, require additional Board approval. |
Decrease | Property valuations are inherently subjective due to the individual nature of each property and there is no assurance that the property valuations will be reflected in actual transaction prices or that the estimated yields, sales prices or annual rental income will prove attainable. | Volatility or inaccurate estimates in property valuations may result in unexpected movements in the statement of comprehensive income or EPRA measures. Net rental income not maximised. Sale proceeds not maximised. | Independent external valuers are used to value all significant investment property assets bi-annually. With respect to significant development assets, Director valuations are sense checked by market metrics sourced internally and/or from independent valuations Net rental income is monitored continually by the project director. Sales process typically involves third party agent and full exposure to the market. |
No change | The Group operates in a complex and changing planning environment. | Non-compliant or contested applications or changes to the planning system that are non-favourable to the Group's operations could limit or delay the Group's ability to secure viable permissions, which could adversely impact shareholder returns. The cost of preparing for planning will be lost. In addition, the reputation of the Company may be damaged. Time delay may increase costs or create other issues with property cycle. Lost value from expiry of planning permission. | The Group employs highly qualified and experienced staff who are dedicated to gaining planning consents. The Group engages in rigorous public consultation. High quality professional advisers are used throughout the planning process. The Group's local office network ensures it has direct knowledge of local planning authorities and consultants to invest in projects matching local needs. |
No change | The Group's reputation could be damaged through adverse publicity, inappropriate actions by Directors or employees, unclear communications or inaccurate media coverage. | Total shareholder return is the most likely metric that could be affected should the Group's reputation be tarnished. Dissatisfaction from stakeholders and other factors which may affect the Group's reputation. The market perception of the Company may be confused, with possible consequences on its share price/ability to perform a market transaction. | The Board processes are designed to ensure strategies and projects are carried out with a view to maintaining and enhancing the Group's reputation. The Group takes advice on regulatory compliance. The Group employs investor and public relations specialists and retains the services of an external public relations agency. Care is taken in interaction with the public and stakeholders such that the likelihood of dissatisfaction arising out of unplanned events or operations is low. Programme of regular meetings with analysts and institutional shareholders. A dialogue is maintained with investors where possible and appropriate. High standards of corporate governance. Press announcements and other significant external communications are reviewed before being issued. External announcements are ultimately approved by the Chairman. |
Operational risk | |||
No change | Lack of availability of investment and development opportunities and availability to develop real estate projects. | Failure to identify sufficient or appropriate pipeline opportunities could materially impact the Group's performance and consequently shareholder return. Income diminishes and market view of the Company declines. | The Group is geographically diverse and employs or engages advisers with strong local connections, which leads to a diverse range of business opportunities being reviewed. Long-dated projects ensure continuity of returns over the medium term (assuming a functioning market). Collaboration with joint venture partners is embraced by the Group. |
Increase | Competition with other participants in the real estate industry. | Assets acquired at excessive prices. Developments commence at wrong point in the cycle. Potential assets not acquired because pricing too high. | Use of experience and expertise in determining suitable offer prices and optimal project timings to maximise returns. Assessment of the threats of competition before acquiring assets. |
No change | Inaccurate or inadequate assessment of development and/or investment opportunities or schemes. | Financial outcomes of developments or investments can be impacted where inadequate or erroneous due diligence or appraisals have been relied upon. This, for example, could be the result of poor estimation of costs, cost inflation or overestimation of sales values. | Projects from acquisition to completion are closely monitored by the Board. Significant assumptions are market tested. Close relationships with trusted suppliers and professionals is/has been established. Fixed price contracts are used where appropriate. |
No change | Properties acquired/sold without due consideration to other opportunities available, price paid/received and/or timing of the transaction. | Acquisitions and/or disposals are entered into which adversely affect the financial performance of the Group. | All significant acquisitions/disposals are considered and formally agreed by the Board via review of investment reports. Impact of acquisitions/disposals reviewed in cash flow analysis and highlighted to Board. Market risk assessed by the Board. |
No change | Ineffective delivery and procurement processes leading to delays, reduced build quality and cost pressures. | Delays in procurement and delivery increase the Group's exposure to variations in cost, build quality, penalties and the uncertainties in the wider economy, all of which could adversely impact on total shareholder returns. | The Group has internal development and project management teams. Well defined and rigorous tender processes are employed. Project delivery is closely monitored through the supervision of the development's professional teams and strong, regular cost reporting. |
No change | Adverse/unforeseen environmental and archaeological issues and other hazards and risks associated with development. Statutory authorities change their requirements. | Development may become potentially unviable. Value of development may be adversely impacted. Profit and/or cash flow impact from delay. Potential loss of pre-let to occupier. Funding of development may be adversely affected. | Desktop/full assessment at appropriate times. Physical investigations and environmental studies carried out where necessary. Appropriate insurance, where available. Adequate health and safety procedures. Provide adequate contingency for such matters in development appraisal and programme. Appointment of appropriate consultants and appropriate representations are made. Legal, regulatory and commercial updates from law firms and other professional advisers, including political advisers. Designs are based on statutory regulations at time of submission for building approval. |
No change | Failure to comply with legislation, to identify environmental issues in respect of owned or to be acquired sites, or to meet stakeholder requirements or expectations. | Failure to manage environmental issues on the Group's strategic land sites or commercial property holdings could result in financial penalties or reputational damage. | Appropriate environmental surveys and due diligence have been/will be undertaken for the Group's current or proposed property holdings. The Group uses specialist environmental consultants where applicable. Warranties are sought from consultants and contractors. The Group's employees are up to date with both legislation and customer requirements. |
No change | Non-performance of key joint venture partners. | The collapse or non-performance of a joint venture partner could result in financial loss for the Group. | The Group undertakes detailed counterparty due diligence prior to entering into any joint venture arrangements. External high quality legal teams are used to put in place secure, yet workable, legal arrangements. Regular monitoring of financial reports is undertaken. |
No change | Investments in joint ventures are not effectively monitored and controlled in respect of additional loans or investments, operations, tax and/or legal liabilities. Joint venture partner in financial difficulties. Internal disputes within joint venture partner. | Income and capital growth from associates and joint ventures not realised. Completion of joint venture developments to specification. | Decisions relating to new investments, including investment in joint ventures, made by the Board in the form of a board approved investment paper. Suitable protections/controls provided for in joint venture agreements on acquisitions. Follow-up visits are undertaken to ensure such controls are in place. Suitable and appropriate staff allocated to the projects. Monthly/quarterly reports produced by the joint ventures, reviewed by senior management and significant issues highlighted to the Board. Annual budgets and cash flows reviewed and significant variances reported to the Board. |
Financial risk | |||
No change | Lack of funding required to develop the business and take advantage of new opportunities. | Unable to take advantage of opportunities as they arise. | Detailed business plan informs funding needs. Continuous monitoring of capital and debt markets. Maintenance of relationships with lenders. Exploration of methods, with advisers, of raising equity. |
Increase | Financials may not be in accordance with budgets and forecasts. Cost overruns on development projects. | Business decisions may be made on incorrect basis. Market builds inaccurate expectations based on company information. Reduced profits. | Detailed annual business plan prepared and approved by Board. Detailed cash flow analysis and projections inform the process and refine or challenge business plan assumptions. Fixed price contracts with LADs where possible. |
Increase | Failure to adhere to loan covenants. | A breach of loan covenants could result in loans being withdrawn, facilities cancelled or penalties levied. Effect on ability to raise new finance. Damage to reputation. | The requirements/covenants of each loan facility are monitored regularly for compliance. Approval procedures operated for all changes to tenancies and lease terms in accordance with loan agreements, where appropriate. Principal terms of all prospective loans are reviewed to ensure that they do not conflict with property or commercial objectives. Covenants or tests are monitored and modelled through cash flow analysis. |
Resource risk | |||
Decrease | Over-reliance on key people or inability to attract and retain people with appropriate qualities and skills. | Over-reliance on key people makes the Group vulnerable should those key employees leave. Replacement of key personnel could be costly and/or time consuming if the Group's working environment is not attractive. | The Group offers a competitive remuneration package which includes both short and long-term incentives. Employees generally work on a number of projects across the Group and are not dedicated to one particular site. Short reporting lines and delegated authority ensure staff feel they are contributing to the success of the Group. The Nomination Committee reviews succession planning. Appropriate notice periods minimise disruption. |
Decrease | Inadequate focus on potential corruption in the Group. | Breach of anti-corruption legislation, e.g. Bribery Act. Financial loss arising from fraud, bribery or other corrupt practices. Censure, bad publicity resulting in adverse impact on reputation. | Segregation of duties of the following processes: · appointment and tendering process controls; · finance and invoicing; · close management and review of costs and diligent benchmarking of development costs reduce risk of 'over pricing'; and · budget and cost control. Anti-corruption policies and procedures in compliance with the 2010 Bribery Act will be reviewed by the Board annually. All expenses approved in line with Group policy. All corporate hospitality offered/received is monitored by monthly reporting under the Group's Gifts and Hospitality policy. |
Increase | Health and safety issues. | Serious injury and loss of life. Development may be adversely impacted by site closure, delays and cost overrun. Damage to reputation. Directors' liability. | Health and safety procedures reviewed, including appointment of principal contractor as defined by the current Construction (Design and Management) Regulations, or as amended. Due diligence carried out (including appropriate references) on principal contractor and design consultants. Appointment of planning coordinator to ensure compliance with CDM regulations. Appropriate insurance cover is carried by either the Group or its contractors. |
|
distributed by
|
