Grainger plc · LSE:GRI
Grainger — H1 2009 Earnings Presentation
46 slides from Grainger's earnings presentation, May 20, 2009
Slide 1: Interim Results for the six months ended 31 March 2009
Interim Results For the six months ended 31 March 2009 20 May 2009 Page 1
Slide 2: Agenda
Agenda • Introduction • Summary • Operational Highlights • Financial Results • Market • Portfolio Overview • Strategy • Outlook • Conclusion • Appendices Page 2
Slide 3: Summary
Summary • Focus on cash conservation continues • Portfolio liquidity demonstrated by level of pipeline sales • Significantly reduced acquisition activity • Covenant compliant and undrawn committed facilities of £272m • Dividend to be decided after the year end • Slight improvement in market conditio
Slide 4: Operational Highlights
Operational Highlights • Operating profit £41.3m (2008: £48.2m) • Sales pipeline £86m (2008: £98m); current position £108m (15 May 2009) • Normal sales being made at 7.4% below September vacant possession values • Development division sales proceeds of £23m; sales pipeline £13m • Successful launch o
Slide 5: Financial Results - Financial Summary
Financial Results - Financial Summary 31 March 2009 30 September 2008 Movement Property and related assets (£m) 2,370 2,399 (1.2%) Gross NAV per share (p) 472 535 (11.8%) Grainger NAV per share (p) (basic) 416 520 (20.0%) LTV% (on core facility) 65% 66% 1% Interest cover 2.1 x 2.2 x - Operating prof
Slide 6: Financial Results - Market Value Balance Sheet
Financial Results - Market Value Balance Sheet 31 March 30 September 2009 2008 Before any deferred and contingent tax £m £m Property related assets - wholly owned 2,270 2,260 - JV/associates 110 139 Total property related assets 2,380 2,399 Other assets and cash 53 57 Gross assets 2,433 2,456 Debt (
Slide 7: Financial Results - Analysis of wholly owned assets
Financial Results - Analysis of wholly owned assets 31 March 30 September 2009 2008 Residential Development Total Total £m UK 1,659 116 1,775 1,843 Germany 495 - 495 417 2,154 116 2,270 2,260 Note: increase in value of German assets because of weakening sterling/euro rate Page 7
Slide 8: Financial Results - Movement in Gross NAV
Financial Results - Movement in Gross NAV 750.00 £42m £(57)m 725.00 Gross NAV (£'m) 700.00 £688m £(12)m 675.00 £(5)m £(1)m £655m 650.00 Gross NAV Conversion Loss after Elimination of Dividend Other Gross NAV Sept 08 of tax net of previously March 09 convertible Gross NAV recognised debt adjustments
Slide 9: Financial Results - Net Asset Value Per Share
Financial Results - Net Asset Value Per Share Pence per Share 31 March 30 September 2009 2008 Gross net asset value 472 535 Deduct: Mark to market adjustments (70) (6) Deferred tax on revaluation surpluses (undiscounted) (122) (144) NNNAV 280 385 Grainger NAV (base case) 416 520 Page 9
Slide 10: Valuation
Valuation • Full valuation only undertaken at 30 September because of size of portfolio • Investment assets subject to directors’ valuation at 31 March (UK investment property, German residential portfolio, CHARM, investments in Grainger GenInvest, G:res, Schroders. Total value £880m) • Indicative m
Slide 11: Financial Results - Property Income
Financial Results – Property Income 6 months ended 31 March 2009 2008 £m Trading Valuation Non-recurring Total Trading Valuation Total Net rents 27.5 - - 27.5 23.2 - 23.2 Trading profit 24.2 (10.2) - 14.0 35.4 - 35.4 (Loss)/profit on investment properties (0.2) - - (0.2) 0.2 - 0.2 Other income/inter
Slide 12: Financial Results - Pre-Tax Earnings
Financial Results – Pre-Tax Earnings 6 months ended 31 March 2009 2008 £m Trading Valuation Non-recurring Total Trading Valuation Non-recurring Total Property income 41.3 (43.6) (1.1) (3.4) 48.2 0.1 - 48.3 JV/associates (2.1) (20.4) - (22.5) (3.7) - - (3.7) Goodwill impairment - (0.9) - (0.9) - - -
Slide 13: Financial Results - Impact of non-cash and one-off items
Financial Results – Impact of non-cash and one-off items £m Loss before taxation (143) Adjust for non-cash items - revaluation/impairment 65 - mark to market 38 Other - cost of sales and other movements 58 - one-off 37 Cashflow from operating activities 55 Page 13
Slide 14: Financial Results - Cashflow
Financial Results - Cashflow 6 months ended £m March 2009 March 2008 Income Rents and other income net of overheads 16 9 Property sales 78 80 Working capital movements (7) (1) 87 88 Interest, tax and dividends (64) (48) Net operating income 23 40 Loan movements 34 126 Inducement cost on convertible
Slide 15: Financial Results - Debt Analysis
Financial Results - Debt Analysis £m 31 March 2009 30 September 2008 Gross debt 1,702 1,664 Cash (41) (43) Net debt (before deducting costs) 1,661 1,621 Undrawn commited facilities 272 343 Average maturity (years) 4.0 4.5 Hedging level 89% 85% Blended interest rate 4.7% 5.2% LTV (Group basis) 70% 68
Slide 16: Financial Results - Debt position
Financial Results – Debt position • Overall group debt increased by £76m due to weakening of sterling/euro rate • First major repayment due June 2010 (c.£400m although could be reduced to £160m by using committed facilities) • Discussions already being held with lending group re refinancing • Intere
Slide 17: UK Core Banking Facility - Covenant Compliance
Financial Results - UK Core Banking Facility – Covenant Compliance • Interest cover – Net cashflow (sales, net rents, other income less costs, tax and dividends) to be 1.25 x interest cost – Position at March 2009 is 2.1 x – Tested semi annually based on previous 12 months results – Confident of mee
Slide 18: The Market - UK Residential Market
The Market - UK Residential Market • Nationwide and Halifax show falls of 6.5% and 8.5% between September 2008 and March 2009 • Mortgage approvals March 2009 were 34% lower than March 2008, but were highest since May 2008 • Transaction volumes and values lower because of lack of finance • Oversupply
Slide 19: The Market - UK Residential
The Market - UK Residential • Some evidence of market conditions easing mid 2009 • Average house prices now at April 2004 levels and affordability levels 10% below long run average • Rate of house price falls slowing (Grainger sales to end of March 8% below VP, since March are 5% below) • Medium and
Slide 20: The Market - Grainger's response
The Market - UK Residential – Grainger’s response • Robust and liquid portfolio • Relatively low average value, generally un-modernised • Properties bought at discount to vacant possession and held for the long term; which mitigates against price volatility • Focus on sales to maintain cash generati
Slide 21: Portfolio Analysis - Wholly Owned
Portfolio Overview - Portfolio Analysis - Wholly Owned Gross Vacant No of Market Possession Reversionary units Value £m Value £m Surplus £m VP% Regulated 6,963 961 1,343 382 72% Retirement Solutions 6,216 510 737 227 69% Assured 486 77 88 11 88% Vacant 309 53 53 - 100% Other 50 58 71 13 82% UK - res
Slide 22: Core portfolio - Characteristics
Portfolio Overview - Core portfolio - Characteristics - Gross Asset Value £1,149m • Portfolio acquired at discount to vacant possession value, reversionary surplus £406m • Primarily regulated properties (85% by value) or vacant ex-regulateds • Diverse portfolio assembled over a number of years; acti
Slide 23: Home Reversions - Characteristics
Portfolio Overview - Home Reversions - Characteristics - Gross Asset Value £510m • Grainger is market leader with a 34% market share (Source: quarter to March 2009 figures from SHIP) through our various marketing initiatives • Winner of Home Reversions Provider of the Year for the third consecutive
Slide 24: Fund Management and JV's/associates
Portfolio Overview - Fund Management and JV’s/associates - Gross Asset Value £729m • Major co-investment vehicle is G:res1; Grainger has £20m equity (21.63%) • Property and asset advisor to Schroders ResPUT: Grainger equity £13m (21.8%); liquidation strategy in progress • Grainger GenInvest: 50/50 J
Slide 25: Property and Asset Management Services
Portfolio Overview - Property and Asset Management Services • Provides unique perspective of owner/manager • Combines long term asset management, day to day property management and specialist sales and acquisitions teams on nationwide basis • Provides services to JV’s/associates as well as owned por
Slide 26: Development - Summary
Portfolio Overview - Development - Summary • Balance sheet value at end March £116m • Expected end development value: – with planning consent £526m – without planning consent £198m £724m • Committed spend up to 2013 of £15m (of which £10m in remainder of 2009) • Focus on larger long term residential
Slide 27: Development - Hornsey Road Baths
Portfolio Overview – Development –Hornsey Road Baths • 212 unit residential development • 62 affordable units to Guinness Developments Limited • 35 reservations out of first release of 42 units (launched end March) • 58 units available for rent of which 13 have leases signed • Second release in May
Slide 28: Portfolio Overview - Development
Portfolio Overview - Development Evening Standard 23rd April 2009 Page 28
Slide 29: Strategy for Germany
Portfolio Overview - Strategy for Germany Grainger strategy • Focus on population growth • Portfolio has been built on property characteristics through smaller lot sizes • Potential for long term capital growth • Medium term aim remains to attract third party equity to apply co-investing fund manage
Slide 30: Portfolio Overview - Germany
Portfolio Overview - Germany Portfolio Overview Sylt Oldenburg Ratekau Portfolio Overview Emden • 6,865 residential units Hamm Rotenburg/Wümme • 361 commercial units Bremen Oyten Recklinghausen Hannover • 1 nursing home in Northern Braunschweig Berlin Herten Potsdam Germany Hern
Slide 31: Strategy
Strategy • Short to medium term focus on cash conservation and covenant compliance • Maximise efficiency of capital structure through introduction of third party equity and debt • Strong operational platform and access to deals in order to diversify income streams • Unique brand as long term holder,
Slide 32: Outlook
Outlook • Highly experienced management team which has operated through many cycles • Long term HPI expectations – although cautious in the immediate term • Unique portfolio and diversification of income streams • Market leading infrastructure • Strong stakeholder and market reputation • Proven abil
Slide 33: Conclusion
Conclusion • Management focus remains on maximising cashflow • Active management of sales, operating costs, bank covenant compliance • Core portfolio is demonstrating strong defensive characteristics • Market leadership and structure offers good opportunities that we expect to be able to exploit in
Slide 34: Appendices
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Slide 35: Detailed Profit and Loss Account
Appendices - Detailed Profit and Loss Account 31 March 2009 31 March 2008 UK Residential UK Development Europe Total UK Residential UK Development Europe Total £m £m £m £m £m £m £m £m Gross rents/other income 26.5 0.7 15.4 42.6 27.4 0.6 8.0 36.0 Property expenses (5.9) - (5.4) (11.3) (5.9) (0.1) (2.
Slide 36: Detailed UK Residential Income Account
Appendices - Detailed UK Residential Income Account £m Fund Managem ent/ Core Retirem ent Solutions Residential Investm ents Total Gross rents/other income 21.0 2.7 2.8 26.5 Property expenses (5.0) (0.7) (0.2) (5.9) 16.0 2.0 2.6 20.6 Trading Profits 15.4 3.2 - 18.6 NRV provision against trading stoc
Slide 37: UK Portfolio Location
Appendices - Portfolio Overview - UK Portfolio Location Number Investment Value Vacant Possession Value of units £m % £m % 01 Central London 573 179 11% 250 11% 12 01 Inner London 1,126 231 14% 312 14% 01 Outer London 1,269 179 11% 251 11% 02 South East 2,462 277 17% 385 17% 03 South West 1,465 141
Slide 38: UK Residential - Sales and Acquisitions Summary
Appendices - UK Residential - Sales and Acquisitions Summary Sales Acquisitions Number Proceeds £m Profit £m Number Cost £m 302 39 14 Regulated 5 1 18 3 - Assured - - 104 11 3 Retirement Solutions 93 8 - 2 1 Other 2 - 424 55 18 100 9 * Retirement solutions acquisitions included circa £1m of expendit
Slide 39: Portfolio Analysis - JV's and associates
Appendices - Portfolio Overview - Portfolio Analysis - JV’s and associates Gross Gross Vacant Grainger Market Possession Share of No of Value Value Grainger Grainger Reversionary units £m £m Share % Equity £m Surplus £m G:res1 2,113 355 401 21.6% 20 10 Schroders 460 60 73 21.8% 13 3 GenInvest 1,544
Slide 40: Analysis of JV's and associates
Appendices - Portfolio Overview - Analysis of JV’s and associates Total Gross Liabilities/ Net Grainger Grainger Grainger 2008 Assets Debt Assets Share Share Goodwill Loan Investment Designation £m £m £m % £m £m £m £m UK - Residential G:res1 Associate 355 (263) 92 21.6% 20 - - 20 Schroder Associate
Slide 41: Convertible bond
Appendices - Convertible bond • 78% converted at £35,000 per £100,000 plus 11,574 shares • Effective buy-in price 45.4p per £* • Increase in NAV of £42m with marginal dilution of (1.6%) in NAV per share through issue of 10.08m new shares • Effectively a rights issue at £4.16 • Taxation implications
Slide 42: Committed Facilities - Post Bond
Appendices - Committed Facilities - Post Bond Syndicate Bantam Total German Bond 2200 2150 2100 2050 2000 1950 Revolving Facility B 1900 £400 due 30June 2010 1850 1800 1750 £475 Revolving Facility A due 30 1700 Jun 2011 1650 1600 £28.6 £28.6 £28.6 £28.6 £28.6 £28.6 £28.6 Term facility B 1550 Instalm
Slide 43: Development - Status of Major Projects
Appendices - Portfolio Overview - Development - Status of Major Projects With planning Without planning permission permission Project Description Status £m £m Hornsey Road Islington 212 residential units, community space, council offices Construction almost complete. Council office 33 building has b
Slide 44: Grainger NAV - Sensitivity Analysis
Appendices - Grainger NAV – Sensitivity Analysis Without discounting tax Discount rate 7.39% 7.0% 4.39% Note • Grainger NAV brings in the present 0% 416p 423p 473p taxed value of reversionary surpluses in our long term portfolio 2% 454p 462p 527p HPI 4% 501p 511p 594p • Grainger WACC:4.39% 5% 529p 5
Slide 45: Glossary of Terms
Appendices - Glossary of Terms Property Assured periodic tenancy (“APT”) Market rented tenancy arising from succession from regulated. Tenant has security of tenure. Assured shorthold tenancy (“AST”) Market rented tenancy where landlord may obtain possession if appropriate notice served. Assured ten
Slide 46: Glossary of Terms (Financial)
Appendices - Glossary of Terms Financial (continued) Gearing The ratio of borrowings, net of cash, to market net asset value. Hedging The use of financial instruments to protect against interest rate movements. IFRS International Financial Reporting Standards Interest cover Profit on ordinary activi