U and I Group PLC

("U+I" or "the Company" or "the Group")

Results for the year ended 28 February 2017

 

 

U+I reports full year development and trading gains in line with guidance with a strong outlook for the year ahead

 

Financial highlights - strong performance in second half and third consecutive supplemental dividend declared

 

·    £35.0m of development and trading gains realised in line with guidance

·    8.7 pence per share of total dividends (2016: 13.9p) including declared supplemental dividend of 2.8 pence per share, to be paid on 16 June 2017

·    Basic net asset value ("NAV") of 278 pence per share (2016: 291 pence per share)

 

Operational highlights - delivering against strategy with portfolio strengthened to drive future growth

 

·    Four new large-scale PPP projects won, adding £90m to pipeline of gains from 2020 and £1.5bn of gross development value to portfolio

·    Investment portfolio values stabilised in H2 - overall decline of £6.8m during the year (2016: £1.7m valuation increase). £18.0m of non-core investment asset disposals in line with strategy to reposition investment portfolio and drive higher returns.

·    Two specialist platforms established - joint ventures with Proprium Capital Partners and Colony NorthStar to leverage our equity and intellectual capital and generate fees

 

Outlook - visibility on strong pipeline of gains from regeneration activity

·    £65m - £70m of development and trading gains set to be delivered in FY2018 and visibility on more than £150m of development and trading gains in the next three years from existing projects alone

·    Investment portfolio total return of 10% targeted for FY2018 through non-core asset disposals (FY2018 target: £50m), reinvestment (FY2018 target: £50m) and asset management (FY2018 target: £5m). Since year end terms agreed on £10m acquisition and £8m of further disposals

·    Targeting a £2m reduction in net recurring overheads in FY2018 through cost savings and management fees from specialist platforms

·    Business on track to deliver a 12% post tax total return per annum in the next three years

 

Matthew Weiner, Chief Executive said:

 

"I am encouraged by our performance. We delivered £35 million of development and trading gains from our planning-led regeneration activities, notwithstanding the substantial hit to transaction activity following the EU referendum. This result, which was within our guidance range, has enabled us to declare a third consecutive supplemental dividend in addition to our ordinary dividend. In the year ahead, we are set to deliver our highest level of development and trading gains to date - £65-70 million - from a mix of large-scale public private partnership (PPP) projects and shorter-term trading opportunities, delivering our target 12% post-tax return to shareholders.

 

We have made good progress on our strategy. During the year, we secured four significant PPP projects totalling £1.5 billion of gross development value and adding £90 million of development and trading gains in FY2020 and beyond. This reflects our stated focus on large-scale PPP regeneration opportunities and underlines our leading reputation in this market. We were pleased to establish two specialist platforms during the year with Proprium Capital Partners and Colony NorthStar. These platforms allow us to acquire and deliver projects off-balance sheet, in line with our equity efficient approach, leveraging our equity and intellectual capital whilst generating fees to the business to offset overhead.

 

Improving the performance of our investment portfolio remains a key priority. We are focused on delivering a 10% total return from our investment activities in the year ahead as we transition our portfolio to better align to our core regeneration expertise. We are targeting £100 million of transactional activity this year with £18 million already in hand, and are set to deliver £5 million of value gain as a result of our proactive asset management.

 

The potential in the UK for mixed-use regeneration is significant and the number of opportunities is growing. Based on our extensive expertise in planning and development, we are confident that we can deliver sustainable returns to shareholders as we create long lasting social and economic change for the communities in which we work." 

 

Financial summary:

 

	28 Feb 2017	29 Feb 2016
Development and trading gains	£35.0m	£51.1m
Profit before tax	£0.4m*	£25.8m
Basic NAV	£347.6m	£363.3m
Basic NAV per share	278p	291p
Basic (loss)/earnings per share	(2.4)p	17.5p
Total declared dividends per share including supplemental dividend	8.7p	13.9p
Net debt	£120.9m	£161.4m
Gearing ratio	34.8%	44.4%

*Before exceptional items of £2.1m relating to impairment of serviced office business

 

Conference call for analysts and investors

 

A presentation will be held for equity analysts and investors today at 10.00 a.m. at U+I's offices at 7A Howick Place, London SW1P 1DZ.   The live audio webcast and presentation slides can be accessed via the following link:

 

http://www.investis-live.com/uandi/58eb4ebf8178d01500d23d99/f5t2d with conference call details as below.  A recording of the conference call and archive version will be made available later in the day.

 

Conference Call details:

United Kingdom	020 3059 8125
All other locations	+ 44 20 3059 8125
Joining your call:
Participant Password:	U and I

 

Replay information:
United Kingdom	0121 260 4861
United States	+ 1 844 2308 058
All other locations	+ 44 121 260  4861
Joining the replay:
Replay password:	5843664 followed by #

 

 

Forthcoming announcement dates

 

The Group intends to hold its Annual General Meeting on 11 July 2017 and announce its Interim Results for the six months ended 31 August 2017 on 18 October 2017.

 

For further information, please contact: 

 

U and I Group PLC
Lucy Grimble, Head of Investor Relations	Tel:	+44 20 7828 4777
	E-mail:	lucygrimble@uandiplc.com
Camarco (Financial PR adviser)
Geoffrey Pelham-Lane / Rebecca Nelson	Tel:	+44 20 3757 4996
	E-mail:	uandi@camarco.co.uk

 

 

This announcement contains inside information as defined in Article 7 of the Market Abuse Regulation No. 596/2014 and is disclosed in accordance with the Company's obligations under Article 17 of those Regulations.

 

 

 

 

Chief Executive's Statement

 

Confident in our ambitious targets

As I look back over the past year, I am proud of what we have achieved and even more excited about what is yet to come. We are making measurable progress in our ambition to build a sustainable business, centred on mixed-use regeneration. These projects respond to real needs within our society and are recognised as a priority by central and local government. There are growing opportunities in the regeneration market within which we play a leading role, with a strengthening competitive advantage in our chosen regions. 

 

In the year to February 2017, we delivered development and trading profits of £35.0 million (2016: £51.5 million) and a profit before tax and exceptional items of £0.4 million (2016: £25.8 million). The reduction in profit before tax was principally caused by a lower level of development and trading gains, a negative valuation performance of our investment portfolio in H1 and lower rental income as we disposed of non-core assets from our investment portfolio. After paying £17.4 million of dividends (13.9 pence per share), our net asset value (NAV) decreased to £347.6 million/278 pence (2016: £363.3 million/291 pence). 

 

The Board has recommended the payment of a final dividend of 3.5 pence per share payable on 17 August 2017 to all shareholders on the register on 21 July 2017 bringing the total dividend for the financial year to 5.9 pence per share. In addition, we will pay a supplemental dividend of 2.8 pence per share on 16 June 2017 to all shareholders on the register on 12 May 2017. This will be the third supplemental dividend paid to shareholders in the past three years and underlines our confidence in continuing to generate strong cash flows from our development and trading activities. 

 

Navigating the market

I am particularly pleased with our performance, given the unusual and unpredictable economic and political backdrop. The decision, last June, to leave the European Union temporarily stalled the UK property market, creating headwinds throughout the summer and beyond. Although we have seen little evidence of a permanent impact on prices, we have experienced delays on the realisation of a number of projects as businesses paused to assess the revised environment. 

 

Looking ahead, even as market conditions remain uncertain, we are confident that we can make significant progress. The need for creative, well-executed regeneration projects is clear. The UK faces a growing structural housing deficit, while consumers increasingly favour mixed-use real estate, where they can live, work, play and forge real communities. These are the schemes that U+I is focused on and where we are developing an increasingly competitive edge. 

 

Strengthening our portfolio 

During the year, we were highly focused, concentrating on: growing our portfolio of larger projects; improving our investment portfolio; and building efficient, capital-light specialist platforms. Our ambition remains unchanged: to generate robust, long-term, sustainable growth, quantified by our target to achieve annual post-tax total returns of 12%. 

 

This ambition is centred on delivering a balance of PPP and trading projects, with a focus on mixed-use regeneration schemes in our chosen regions: the London City Region, Manchester and Dublin. Winning large, complex projects is a crucial element of our strategy and they are the foundations around which our business is based. 

 

Against that backdrop, winning four large-scale Public Private Partnership (PPP) projects during the year was particularly pleasing, namely 8 Albert Embankment, Cockpit Yard and the Westminster Industrial Estate in London, and Mayfield in Manchester. These projects were won in competitive situations, underscoring our growing reputation in the mixed-use regeneration space. They add more than £1.5 billion of Gross Development Value (GDV) to our portfolio and an additional £90 million of development and trading gains to our pipeline in 2020 and beyond. 

 

These projects also indicate the extent to which U+I is functioning as a single, unified Group, capable of winning business that we would not have been able to secure in the past. Mayfield alone is valued at £850 million, testament to our ability to take on even the most sizeable regeneration projects. Notably too, these partnerships are built on trust and quality of execution, developed over the long-term by forming genuine partnerships with public bodies and local communities. This blend of skill and reputation creates high barriers to entry, only overcome through genuine commitment and proven results. 

 

The £35.0 million of development and trading gains that we delivered this year were achieved through consistent effort and hard work on a number of projects. In each case, we have delivered tangible gains by buying well and then adding value through the planning and development processes. The full breakdown of projects that underpin this year's gains is provided in the portfolio review. I am particularly proud of these results, which reflect genuine value uplift, evidenced by cash profits. 

 

I have every confidence that we will produce a record result in the current year, targeting £65-£70 million of development and trading gains. Over the next three years, we are targeting more than £150 million of gains. 

 

I am optimistic too about our investment portfolio, which is being steadily realigned to reflect the Group's strategic focus on regeneration. Having assessed each of the assets within this portfolio, we are progressing the disposal of non-core assets, optimising the value of those we are retaining and reinvesting in new assets that make best use of our regeneration expertise.

 

During the year, we formed two specialist platforms - strategic joint ventures with majority capital partners. In August 2016, we signed a £200 million joint venture agreement with Proprium Capital Partners to secure income-generating assets in the London City Region. In November, we formed a €300m partnership with Colony NorthStar, focused on adding value to underperforming office buildings in London, Manchester and Dublin. These platforms give us the ability to acquire and deliver projects off-balance sheet, leveraging our equity and intellectual capital, whilst generating fees to the business which offset overhead. In effect, they enable us to do more than we could on our own.

 

A market-leading team

None of this would be possible without our people. This year, we formed our Executive Committee (ExCo), a step that should tangibly improve the way we do business and the results we achieve. Created to support the Company's development, the ExCo is responsible for implementing our strategy on a day to day basis. As such, this committee plays a central role in helping the business to deliver results today and to ensure it is positioned for growth tomorrow. 

 

We have selectively strengthened this team with the appointment of Mark Richardson as Head of Delivery and Brenda Bates as Head of Communications and Business Services. Mark, previously pre-construction director at Laing O'Rourke, has worked on some of the most prestigious projects in London whilst Brenda, who joined U+I from the World Gold Council, brings significant strategic expertise. We have also strengthened our team in Manchester with the appointment of experienced development professionals to oversee our Mayfield regeneration site, deepening our roots in this city. 

 

While our senior people provide direction within our Company, they are supported by an experienced team bringing talent, enthusiasm and energy to the projects we undertake. Our work is not easy - if it were, we would not be in the unique position we are in - combining long-term regeneration, short-term trading and investment. But our work is exciting, audacious and rewarding. It demands intelligence and imagination. It delivers tangible change. 

 

As a result, we attract people at every level who share our vision, our desire for progress and our commitment to delivering returns both to our investors and the communities in which we work.

 

Well-positioned for the future

Our team's energy and combination of skills will help us achieve our targets this year and beyond: growing our pipeline, driving value, delivering returns and maintaining capital efficiency. 

 

Having built a substantial regeneration platform, we are in a position where we can remain selective about the future projects we take on. We have a range of specific criteria that need to be satisfied before we consider new projects and we will only undertake those where we can deliver meaningful social change and significant shareholder value.

 

Looking ahead, I am optimistic that we can succeed in our ambitions. We operate in markets that will continue to grow, where we have built a genuine competitive advantage that will only intensify over time. We operate an equity-efficient model, designed to minimise balance sheet risk and maximise shareholder returns. As our business expands and develops, the combination of our operational leverage and our financial model should deliver consistent, long-term value, driven by a dynamic blend of development, trading and investment activity. 

 

We are highly ambitious, not for ambition's sake, but because we are clear about the need for these projects; we are proud of our ability to deliver them and we understand the value, both financial and social, that can be generated from them. Our targets are stretching but, based on the work we have done so far, the team that we have created, the relationships we have built and the pipeline of opportunities ahead, I am confident of success.

 

Matthew Weiner

Chief Executive

26 April 2017

 

 

 

 

 

 

 

Our strategy at a glance

 

Priority		Overview		Case study		FY2017 highlights		Outlook		Key risks
1. GROW PIPELINE Build a pipeline of regeneration projects that deliver superior returns		Our core skills as a business lie in smart land acquisition and adding value through the planning process. Our focus is to build a pipeline of PPP and trading projects that generate excellent shareholder returns through the property cycle as we realise profits from asset disposals. Our large scale developments are structured to limit our upfront equity investment and we de-risk the development process through forward sales and forward funding. This allows us to build a pipeline of projects that are through-cycle with an appropriate balance of risk and return.		This year we won 4 major PPP regeneration projects including 8 Albert Embankment and Mayfield in Manchester		£6bn gross development value of our whole portfolio including joint ventures   £1.5bn of GDV added from 4 new PPP wins		-   We will continue to grow our pipeline of trading and PPP assets, with a strict focus on projects within our core markets that match our returns profile and suit our regeneration focus.  -   Within the investment portfolio, our target for the year ahead is to reinvest to build a portfolio of regeneration-focused investment assets.		-   Scarcity of viable investment and development opportunities
2. DRIVE VALUE Optimise the value within our portfolio through an integrated business model		We are experts in generating value by transforming overlooked sites into distinctive, vibrant new places that deliver substantial socio-economic value. The combination of skills within the business enables us to maximise the value across our portfolio and offer different but connected routes to market.		Having completed The Deptford Project, we retained Deptford Market Yard within our investment portfolio and will be proactively managing this asset to drive value		>90% success rate in planning		-   Planning remains the key value driver across all of our activity. Our focus for the year ahead is to secure planning consent on a number of projects including Blackhorse Road, Preston Barracks and Kensington Church Street -   We will also continue to focus on optimising the value of our investment portfolio through proactive asset management and enhancement, with a medium-term target of driving 10% return per annum.		-   Market risk -   Planning risk -   Construction risk -   Counterparty risk
3. DELIVER RETURNS Deliver excellent returns on a through-cycle basis		The business has the capacity to generate consistent returns through the property cycle from a balance of longer-term PPP projects, shorter-term trading activity and improving the value of our investment portfolio.		Birmingham International Park was a non-income producing legacy asset. We realised £8.4 million of gains upon disposal having added value through planning change of use.		£35m of development trading gains		-   The Board has established a medium-term target to deliver over £50 million of development and trading gains per annum and a minimum of £150 million over the next three years  -   For FY 2018, our target for development and trading gains is £65-£70 million. The Board is also targeting a post-tax total returns target of 12%.		-   Scarcity of viable investment and development opportunities -   Planning risk -   Construction risk -   Counterparty risk -   Bank funding risk
4. MAINTAIN CAPITAL EFFICIENCY Maintain capital discipline and a strong balance sheet with a rigorous approach to risk		We do not hoard capital on our Balance Sheet but use our strong cash flows to reinvest, pay down debt or return capital to shareholders. We maintain an efficient Balance Sheet with appropriate gearing levels and a sizeable cash buffer to keep us stable throughout the property cycle.   The creation of specialist platforms allows us to deliver projects in a capital efficient manner through joint ventures with majority capital partners. These generate management fees which enable us to offset overhead costs and to monetise the land within our portfolio.		In November 2016 we formed a JV with Colony Northstar Inc to target office repositioning opportunities in London, Manchester and Dublin.    We also formed a JV with Proprium Capital Partners to target income-producing long-term development sites within the London City Region.		34.8% gearing   4.6% average cost of debt   8.7p dividend per share declared		-   We will continue to maintain our gearing within our target range of 40%-50% and redistribute surplus capital in accordance with our dividends policy		-   Counterparty risk -   Bank funding risk

 

 

 

 

Risk review

 

Our business model is shaped by the risks that the Directors consider significant to our strategy, size and capabilities

 

Risk management structure

The Group's risk profile is maintained under continual review by its Audit and Risk Committee and by the Board. In addition, the Group has a Risk Management Committee, which oversees the Group's risk register and risk control processes on behalf of the Audit and Risk Committee. The Risk Management Committee comprises senior employees from across the Group, covering all areas of the Group's operations.

 

Mapping our risks

The Group categorises risks according to the likelihood of occurrence and the potential impact on the Group. The Directors consider the following to be the principal risks and uncertainties facing the Group.

 

These risks have been grouped as either:

 

-   External risks - whose occurrence is beyond the control of the Group; or

-   Business risks - which the Directors choose to manage as part of the Group's operations.

 

EXTERNAL RISKS:
Risk		Impact		Mitigation		Risk exposure change year on year
a. Market risk The real estate market is directly linked to the health of the local, national and increasingly international economies. Lack of economic growth, recessionary conditions or economic uncertainty can translate into negative sentiment towards theperformance of real estate.		-   Lack of liquidity available to prospective purchasers of completed projects may delay ability to realise planned disposals or reduce prices, leading to significantly reduced cash inflows.  -   Higher occupier risk leading to significantly reduced values. -   Lack of occupier demand resulting in inability to realise gains.	-	-   Risk-averse property development strategy whereby projects are pre-funded, pre-let, or pre-sold where appropriate.  -   Long maturities of debt finance facilities. -   Moderate level of gearing. -   Regular meetings with economic forecasters to gauge economic trends.		The UK economy remains supportive to our activities however, continuing political uncertainty following the result of the EU referendum and the triggering of Article 50 by the UK Government, together with escalating geopolitical risks continue to overshadow the market.
b. Scarcity of viable investment and development opportunities The Group's business is predominantly transactional and requires a flow of PPP, trading and investment opportunities to generate consistent returns. The risk is that the flow of suitably priced opportunities either reduces or stops.		-   Inability to source new deals leads to decline in development and trading profits in future years. -   Higher pricing of acquisition opportunities leads to reduced ability to add value.	-	-   Flexible approach to market opportunities, seeking out sectors where value can be generated and seeking funding partners with different return requirements. -   Stringent deal underwriting procedures with minimum return hurdles. -   Maintaining broad industry contacts for acquisitions rather than being dependent on a single source of opportunity.  -   Use of PPP model to secure regeneration opportunities in an innovative way.		Opportunities continue to be sourced for development, trading and investment which satisfy Group underwriting criteria. The Group is now focusing on increasing the number of short-term trading opportunities following the successful PPP wins during the year. Due to its deep relationships and acquisition expertise, the Group is able to source a steady stream of opportunities despite lower cost overseas capital making the market more 'expensive'.
c. Counterparty risk Transaction counterparties, be they joint venture partners, purchasers under sale contracts or banks in respect of cash deposits or derivative arrangements, may suffer or fail financially.		-   Failure of sales transaction counterparties may lead to an inability to produce trading profits. -   Failure of financial counterparties may impact on effectiveness of hedging or recoverability of deposits.	-	-   Proof of funding required prior to agreeing sales contracts.  -   The Board regularly assesses the credit worthiness of financial counterparties prior to placing deposits and hedging transactions. -   Substantial deposits are required for pre-sold residential developments.		The Group continues to have exposure to the private residential market through the development of pre-sold residential units both on and off balance sheet. The risk of purchasers failing to complete has not changed to any material extent during the year.
d. Bank funding risk The pressure on a large number of traditional real estate lending banks to reduce their exposure to real estate reduces the capacity and liquidity within the lending market and can impact upon the availability of debt to deliver business plans.		-   Inability to secure funding for new opportunities. -   Inability to refinance existing facilities leading to disposals at the wrong time in business plans and failing to maximise profits. -   Unpredictability of cash flows. -   Inability for buyers to complete	-	-   The Group maintains relationships with a wide range of both bank and non-bank lenders, reducing over reliance on any one partner. -   The Group is constantly seeking to widen its range of funding sources and liaises with new entrants into the real estate lending market.		The lending market continues to see new entrants. Competitive pressures have led to a reduction in margins and an increase in maturities available. Through the year there has been a gradual reduction in lenders' appetite for development risk particularly on a speculative basis post the EU Referendum result.

 

BUSINESS RISKS:
Risk		Impact		Mitigation		Risk exposure change year on year
e. Construction risk There is a risk of being unable to secure a viable construction contract post receipt of planning permission.   Real estate construction is subject to the risk of cost overruns, delay and the financial failure of an appointed contractor.		-   Reduced profitability or potential loss on individual projects and/or guarantees being called.  -   Projects becoming unviable leading to loss of WIP. -   Construction work ceasing whilst a suitable replacement contractor is found leading to delays in project completion and a reduction in profit.	-	-   The Group retains in-house experienced project managers throughout the life of individual projects to ensure that costs are appropriately budgeted, timetables are adhered to and hence the impact of these risks is minimised. -   The Group performs appropriate pre-contract due diligence on the capabilities and financial security of its material contractors and key sub-contractors. -   The Group continually monitors the financial position of key contractors to anticipate financial difficulties. -   If issues arise with contractors, the Group uses its professional teams and in-house expertise to mitigate the impact. -   The Group requires detailed design and specification throughout the tender process to enable it to maximise the risk transfer to contractors. -   The Group requires that all construction contracts include provisions for Liquidated Ascertained Damages in the case of performance failures by contractors and that contractors provide performance bonds, typically to a level of 100% of the contract sum.		Since the result of the EU referendum in June 2016, there has been a fall in the value of sterling against the Euro which has resulted in an increase in construction material prices. At the same time, construction workforce shortages and increasing labour costs are anticipated, reflecting uncertainty about the long-term status of EU nationals working in the UK. These are both impacting upon pricing and making the placement of construction contracts more difficult in terms of cost certainty with a resulting impact on margin.   Tender periods are also under pressure, as more detailed designs are required before a viable construction contract can be agreed.   The time and cost of the provision of supporting off site infrastructure is often outside our direct control
f. Planning risk Procuring an appropriate and valuable planning consent is often a key element of the creation of value through property development.   Securing planning permission in a changing political and regulatory environment is a complex and uncertain process, with applications subject to objection from a wide range of potential stakeholders, and hence, consent is prone to delay, modification and rejection.   Even when consent has been granted, the time and cost taken to agree local infrastructure issues is impacted by a lack of capacity which can lead to considerable delays in implementing consent.		-   Failure to secure planning consent can either cause delay or render a project unviable/unprofitable and lead to the write off of considerable costs or reduced profit potential. -   Delay in the period between consent and start on site can reduce profitability	-	-   The Group retains a team with extensive experience of achieving planning consents and local knowledge, supplemented by advisors and sector specialist partners, to maximise the chance of success and reduce the risks and costs of failure. -   An alternative exit strategy is always considered in case of planning failure.  -   The Group's PPP model seeks to build partnerships with local statutory and planning authorities as a way of mitigating risk.		The ability to obtain clear planning decisions is increasingly compromised by key political events such as the constant cycle of regional and national elections. It is also hampered by under- resourced planning departments. As projects and planning regulations become ever more complex, particularly where more dense mixed-use schemes are concerned, there is an urgent need to professionalise planning departments and decision making committees. This was ignored by the recent White Paper.

 

 

 

Portfolio review

 

Developing a leading edge

Regeneration can be hard work, particularly in the unloved, overlooked and neglected suburban areas in which we often work. It requires a blend of creativity, experience, understanding and integrity. 

 

But it is rewarding work - changing the lives of those who live and work in these revitalised places; inspiring public landowners who act as enablers for change and delivering value for shareholders, who benefit as we realise gains through planning and development. 

 

This is where U+I is building a leading edge. Projects that are all too often dismissed as dull and distant by Central London developers or considered too large and complicated for local or regional developers. Projects which require imagination, innovation and connection to unlock value.

 

For the Government, these projects are a priority and local authorities are under pressure to deliver them - in partnership with private sector developers. Given that these local authorities own £370 billion of developable land - 40% of the total - the scale of the opportunity is immense, particularly in our chosen areas, the London City Region, Manchester and Dublin.

 

These cities are peppered with industrial and retail wastelands, overlooked spaces that can become thriving places, where people genuinely want to live and work. In essence, the sites are there and the need is clear - the need for affordable homes, the need to improve productivity, the need to stimulate local economies and drive value. Successful, mixed-use regeneration projects can address all these issues, while generating returns for our shareholders too. 

 

Not everyone can do this work and many have chosen not to - so how do we unlock potential and deliver value where others cannot? 

 

As seasoned property entrepreneurs, we hunt better than many, looking in places that have been ignored by others. As creative, imaginative thinkers, we see value in places that may not always be obvious to others. As responsible partners, we recognise that the best way to unlock potential is by engaging with communities and public bodies in a way that builds trust and understanding. 

 

PPP projects rely on trust and the more we prove our ability to deliver places of lasting value, the more we become a partner of choice for the public sector with whom we work, and the more we create barriers to entry for our competitors. And the more we foster that virtuous circle, the more opportunities come our way and the more we can deliver great places and long-lasting shareholder value.  

 

Our portfolio, with a GDV of £6 billion, comprises a mix of major PPP projects, our trading schemes and investment assets, all centred on value creation through regeneration. This pipeline is well balanced, combining large-scale, longer-term PPP projects, which provide sustainable growth with shorter-term trading projects, which deliver consistent, strong cash flows. We have won four major projects in the past year. These give us a pipeline of growth stretching out to 2020 and beyond. 

 

Our portfolio also carries significant latent value, given that value enhancement within regeneration projects is not reflected in our NAV until profit is realised. 

 

The moving parts are many - buying well, having the imagination to see how the grey can be transformed to the great, and digging deep into the provenance of the places where we build to deliver schemes that are truly relevant to those who live and work there. We are not afraid to challenge convention in pursuit of the best results. We are not afraid to engage with local authorities and local people to build a true partnership. And we are not afraid to admit that we care about the outcome.

 

We made real progress this year and we intend to do even better as we move forward - unlocking potential to create value for our shareholders and the communities in which we work. 

 

Richard Upton

Deputy Chief Executive

26 April 2017

 

 

How we manage our portfolio

The mixed-use nature of our portfolio is one of our biggest advantages. It gives us several routes to market and different options for driving value from our projects. As outlined in the following diagram, we deliver growth as we realise gains from development and trading activity, and drive income and capital growth through our investment activities. Importantly, these portfolios are not run in isolation. By thinking about our portfolio as one, we apply our skills in land buying, planning, asset management and development across all of our projects, driving maximum value and creating more routes to market. 

 

For example, we hold income-producing assets with longer-term regeneration potential within our investment portfolio that can ultimately feed our development pipeline (warehouse assets). We also retain elements of our completed developments within our investment portfolio where we see opportunities for medium to long-term asset management potential (retained assets). In this way, our investment activities feed our development activities and vice versa, capitalising on the mix of skills within the business. 

	Capital value*	% of gross assets	Delivers	Key value drivers
Development and trading portfolio	PPP: £116m Trading: £206m	PPP: 22% Trading: 39%	-   Longer-term development profit -   Shorter-term trading profit -   High quality development assets for our investment portfolio (retained assets)	-   Planning gain -   Arbitrage/mispricing -   Development margin
Investment portfolio	£211m	39%	-   Income return/growth -   Capital growth -   Future development opportunities (warehouse assets)	-   Asset management -   Planning gain

 

*Capital value includes all property interests held both directly and indirectly
 

Development and trading portfolio

Our development and trading portfolio comprises long-term, large scale PPP projects and shorter-term trading opportunities. The combination of these different projects allows us to balance the 'lumpier' profits generated from PPP development with shorter-term profit realisations, allowing us to deliver a consistent level of aggregate returns. 

 

The balance of this activity has enabled us to deliver another strong year of gains as outlined below, building on our strong track record over the past years. Going forwards, in line with our overall returns target of 12%, we are focused on driving £50 million plus of profits from our development and trading activities per annum, with a minimum of £150 million to be delivered over the next three years. 

 

 

Anticipated gains to FY2020

				3-5 year target: -   £50m development and trading gains -   Minimum of £150m in next 3 years -   12% annual post-tax total return
	Realised			Guidance range
	FY2015	FY2016	FY2017*	FY2018	FY2019	FY2020
Development and trading gains	£46m	£51m	£35m	£65m-£70m	£45m-55m	£50m-60m

*A reconciliation of the development and trading gains for the year is included in the finance review

 

The following table shows the main projects driving our development and trading gains for the year. The majority of these profits are driven by the value gain captured from planning improvements.  

 

	Anticipated  FY17 gains*	Gains  realised  in FY17	Profit trigger
Dublin projects:
The Vertium Building	£4-5m	£4m	Entire building let to a global brand triggering profit share
Other	£5-6m	£5m	Sale of Percy Place and commercial and residential units across two projects
Birmingham International Park	£8m	£8m	Planning secured and sale of site completed
Maidstone	£2-4m	£2m	Sale completed on phase 1 of project; planning secured on phase 2
Ashford (Powergen site)	£4m	£4m	Site disposal completed
Woking	£2-6m	£5m	Sale of site completed
Other (8 projects)	£8m	£7m
Total	£35-40m	£35m

* As at 19 October 2016

 

PPP development

The PPP model reflects our core strengths as a business and is responding to a real need within the UK regeneration market. We are experts in this field in which there are significant barriers to entry. One of the keys to this form of development is that the public sector is not completely price sensitive. It is driven by its definition of 'best value' which differs from project to project. This plays to our strengths and focus on delivering places that put people at their heart and which embrace good design at their foundation. The mixed-use nature of these sites is also best suited to development partners such as ourselves with a 25-year track record of delivering complex urban regeneration projects. 

 

One of the benefits of the PPP model to U+I lies in the equity-light nature of these partnerships. Typically the public sector partner seeds the partnership with land and U+I applies its planning and development expertise to deliver a completed, regenerated place. Importantly, risk and equity is spread across the development phases. U+I commits a maximum of £20 million of equity in any one project spread across the planning, viability and development phases and manages the associated risks. Ultimately, the public and private sector partners share in the profit delivered by the development. This allows us to control risk, limit our equity exposure in any one project and deliver large scale projects in a capital efficient manner.

 

This has been a highly successful year for the business, winning four PPP projects: 8 Albert Embankment, Mayfield, Cockpit Yard and Westminster Industrial Estate. These projects taken together have added more than £1.5 billion of GDV to our pipeline and further cemented our reputation as a leading regeneration developer and the public sector's partner of choice. 

 

Trading

We also apply our core skills to a pipeline of trading activity, whereby we source undervalued land and buildings with potential for value creation through improved planning consents. Typically these projects allow us to acquire assets and realise gains over the short-term. We focus on opportunities where terms of trade are in our favour and where we can efficiently unlock value via planning and/or asset management. We have a strong track record in being able to source well-priced land, drive value through planning and monetise this value through disposals. 

 

Birmingham International Park exemplifies this approach, generating £8.4 million of gains to the Company this year, with the profitable realisation demonstrating the importance of planning as the value trigger, enabling us to capture gain from the land and assets within our portfolio.

 

 

Investment portfolio

Our investment portfolio size reduced from £203.3 million to £179.2 million, largely as a result of disposing of £18.0 million of non-core assets. On a like for like basis, our portfolio valuation declined by 5.1%. Though values stabilised in the second half of the year, our portfolio suffered a 4.6% decline in H1 as a result of weakness in the regional retail markets in which we operate, partly impacted by the slowdown after the EU referendum. We expect values to remain stable across the market in the next 12 months. Disposing of non-core assets was a focus for us during the year and a key part of our strategy to transition the portfolio.

On a like for like basis, our rental income increased to £12.7 million and we maintained low void rates of 4.7% across the portfolio through our proactive asset management activities. To support our strategy of transitioning our investment portfolio our focus for the year ahead is as follows:

 

-   Acquisitions: Target a minimum of £50m of new assets that align to our regeneration focus and retention of assets from our development portfolio

-   Drive value: Continue to create value through selective planning change of use and proactive asset management - £5.0m of management-driven value uplift to be delivered in FY2018 

-   Disposals: Where we have reached the end of our asset business plan, we will dispose of mature assets, targeting a further £50m of sales in the year ahead

 

Number of assets

18

Feb 2016: 20

 

Valuation change (inc JVs)

(£6.8m)

Feb 2016: £1.7m

 

Size of portfolio

£179.2m

Feb 2016: £203.3m

 

Initial yield*

6.6%

Feb 2016: 6.8%

 

Contracted rental income

£12.7m

Feb 2016: £13.6m

 

Estimated rental value*

£13.7m

Feb 2016: £13.5

 

Void rate

4.7%

Feb 2016: 4.5%

 

Equivalent yield*

7.5%

Feb 2016: 7.1%

 

* on a like-for-like basis and core portfolio only

 

 

Investment portfolio strategy

We are repositioning our investment portfolio over the next four years, with the following objectives: 

 

-   Drive growth from our investment portfolio with a target of 10% return per annum to support our overall 12% total returns target 

-   Use our collective intellectual capital and regeneration expertise to drive value from overlooked and undervalued investment assets 

-   Provide the business with a stable rental income stream 

-   Provide greater optionality within our portfolio:

-       Store income-producing assets with longer-term potential for regeneration (warehouse assets)

-       Retain elements of our completed developments or acquire assets close to development projects that will benefit from the halo effect of our regeneration

 

Rationalisation: This year, within our current portfolio, we have made continued progress to dispose of mature assets. During the year we sold £18.0 million of investment assets, disposing of a number of properties and elements of schemes that no longer fit our strategic objectives for the overall business plan for the asset. Since the year end, we have agreed terms on a further £8.0 million of non-core asset disposals and a new acquisition of £10.0 million.

 

Optimisation: We have also made good progress to optimise the value of specific assets for example at our retail scheme in Killingworth. Matalan currently occupy a large unit within the scheme that no longer fits their space requirements. Terms have now been agreed with Matalan to split this unit, downsize their store, and to re-let the remaining space to a national retailer, with an anticipated resultant yield shift from 7.75% to 6.75% on this element. There are also two drive-through restaurants within the site which were valued at a 7.5% yield in line with the whole scheme. However, these well-let, self-contained assets can be separated from the scheme, allowing us to sell into the strong private investor market. By carving out these units from the overall scheme, we will realise disposals at a yield of circa 5.8%.

 

Reinvestment: Going forward, our investment strategy is aligned with our core strengths as a regeneration specialist.

We will continue to invest in our core markets, focusing on assets where performance can be driven through a specific regeneration process. We will look to reposition assets through active asset management, refurbishment and development whilst also focusing on investment assets where there is redevelopment upside that can be unlocked in the future via the planning process (warehouse assets). We will also retain elements of our completed regeneration projects where we believe there is more value to be created, allowing us to benefit from the positive impact we have created in that location (retained assets). 

 

 

Top five occupiers as at 28 February 2017

	Annual rent £'m	% of contracted rent
1. Waitrose	1.59	12.48
2. Matalan	0.72	5.61
3. J Sainsbury	0.49	3.85
4. Ricardo-Aea Limited	0.39	3.06
5. Wilkinson	0.28	2.23

 

 

 

Income generating properties - Like-for-like rental income received

 

Year ended 28 February 2017	Property owned throughout the year £'000	Acquisitions £'000	Disposals £'000	Total rental income £'000
Investment	12,035	390	311	12,736
Development and trading	2,494	552	315	3,361
Joint ventures	2,050	431	403	2,884
	16,579	1,373	1,029	18,981

 

Year ended 29 February 2016
Investment	12,313	297	1,632	14,242
Development and trading	2,679	452	1,518	4,649
Joint ventures	1,984	93	1,462	3,539
	16,976	842	4,612	22,430

 

Core investment portfolio - 28 February 2017

 

Gross rental income- tenant profile

1. PLC/nationals - (63.1%)

2. Local traders - (26.9%)

3. Regional multiples - (4.3%)

4. Government - (1.8%)

5. FTSE 100 - (3.9%)

 

Gross rental income- lease term profile

1. 0 - <5 years - (48.3%)

2. 5 - <10 years - (29.5%)

3. 10 - <15 years - (11.0%)

4. 15 - <20 years - (1.6%)

5. 20 years+ - (9.6%)

 

Capital value- location profile

1. South East - (37.8%)

2. South West - (25.1%)

3. North - (19.2%)

4. London - (6.3%)

5. Wales - (4.7%)

6. Northern Ireland - (4.4%)

7. Midlands - (2.5%)

 

Specialist platforms

As set out in our strategic objectives, specialist platforms are a way for us to deliver a greater number of projects in a capital-efficient manner. 

 

By creating off balance sheet funding with large-scale capital partners, we focus on building a portfolio of opportunities within a specific asset class where we have a competitive advantage. We invest a minority equity stake in the joint venture (JV) and take responsibility for development, planning, letting and asset management in order to complete the business plan for each asset within the JV. In return, we receive a promoted position and annual management fees. The management fees help to offset central overhead costs, effectively allowing us to leverage our existing overhead more productively. 

 

 

Financial Review

Results for the year

 

During the year, the Group focused on delivering on its strategic initiatives of fewer, larger projects, improving the performance of the investment portfolio and launching specialist platforms. At the same time, it continued to deliver gains from its development and trading portfolio albeit within the context of greater economic and political uncertainty resulting from the EU referendum.

 

Below is a summary of the Group's results for the year ended 28 February 2017:

	2017	2016
Development and trading gains	£35.0m	£51.1m
Basic net asset value (NAV)	£347.6m	£363.3m
Basic NAV per share	278p	291p
Total declared dividends per share	8.7p	13.9p
(Loss)/profit before tax	£(1.7)m*	£25.8m
Total return	0.2%	7.2%
Balance sheet gearing	34.8%	44.4%

* After an exceptional item of £2.1m.

 

The loss before tax for the year to 28 February 2017 is £1.7 million (2016: £25.8 million profit), a reduction of £27.5 million from the previous year, after an exceptional charge of £2.1 million in respect of the Group's serviced office business (refer note 2b).

 

The total development and trading gains for the year were £35.0 million (2016: £51.1million), at the lower end of our guidance, but once again demonstrating the benefit of a diversified portfolio of projects in a challenging market.

 

As reported in the first half of the year, we suffered a valuation decline of £8.6 million in our investment portfolio. Capital values have stabilised over the second half of the year to deliver a full-year valuation decline of £9.5 million (2016: £0.2 million gain). The challenge now for our investment portfolio is to reinvest proceeds from the strategic disposals during the year into assets more closely aligned with our regeneration model. During the year, delays in the ability to reinvest approximately £24.4 million of restricted cash reserves has meant that rental income has been approximately £1.5 million less than in 2016. This should be addressed during the first half of our 2018 financial year.

 

The movement in net assets for the year are shown below:

 

 

	Pence per share
Net assets per share at 29 February 2016	291
-      Supplemental dividend declared in 2016	(8)
Restated net assets per share at 29 February 2016	283
-      Contribution from investment segment	8
-      Loss on disposal of investment assets	(2)
-      Revaluation deficit	(5)
-      Development and trading gains	28
-      Operating costs	(18)
-      Exceptional item	(2)
-      Net interest costs	(7)
-      Taxation	(1)
-      Dividends (final 2016 and interim 2017)	(6)
Net assets per share at 28 February 2017	278

 

 

Development and trading gains

During the year, we have realised a total of £35.0 million of trading and development gains. The key components of these gains are:

 

-   £8.4 million - Birmingham International Park: disposal of a land holding post receipt of planning permission for £9.6million

-   £5.3 million - Elizabeth House, Woking: surrender premium from the existing tenant and subsequent disposal of the office building with residential consent.

-   £4.3 million - The Vertium Building, Dublin: pre-letting of the building in course of construction.

-   £3.8 million - Ashford Powergen site: disposal of land post receipt of residential planning consent.

-   £2.3 million - Maidstone: disposal of land post receipt of residential planning consent.

-   £3.0 million - Percy Place, Dublin: disposal of mixed-use scheme post construction and letting.

 

These results were achieved against a backdrop of both political and economic uncertainty following the EU referendum vote in June 2016. This led to a slowdown in investment markets as sources of capital waited to consider the impact of the referendum. Businesses were also reluctant to commit new funds to investment in either real estate or their businesses.

 

 

 

 

 

 

 

Development and trading gains can be analysed as follows:

	2017 £m	2016 £m
Included in segmental analysis:
Development and trading segment result	28.5	39.0
Share of results of joint ventures	3.0	(0.3)
Sale of investment	0.6	2.2
Other income	0.7	0.2
Included in net finance costs:
Interest from financial asset	1.1	1.7
Other asset realisations	1.1	8.3
	35.0	51.1

 

Overheads

We have announced that, during 2018 we intend to produce savings of £2.0 million in our net recurring overheads from a combination of cost efficiencies and the generation of management fees from specialist platforms.

 

During the year, the launch of specialist platforms with Colony NorthStar and Proprium Capital Partners has set us well on the way to delivering the fee target and we continue to look at ways to drive efficiencies across the business, focusing particularly on simplifying our corporate structure, reducing the number of corporate entities and leveraging our intellectual capital.

 

 

The overheads during 2017 comprised: 

	2017 £m
Core recurring overheads	20.3
Non-recurring staff costs	0.5
LTIP charge (net)	0.9
Closedown of historical tax structuring	0.4
	22.1

 

Net finance costs

Net finance costs for the year of £10.8 million (2016: £12.9 million) include foreign exchange deficit of £3.4 million (2016: £3.2 million deficit) in respect of the retranslation of Euro-denominated loans and deposits.

 

For entities where the reporting currency is in Euros, retranslation differences are charged to reserves. The movement for 2017 was a gain of £3.0 million (2016: £2.4 million gain). The net impact of these movements on NAV during the year was £0.4 million loss (2016: £0.8 million loss).

 

Debt

We use debt finance to leverage the use of our equity in property transactions. We continue to borrow from a wide range of financial institutions, including UK clearing banks, insurance company-backed lenders, debt funds and financial institutions. The availability of debt finance has not impacted our ability to transact new property deals. We are currently seeking to negotiate greater flexibility into our investment property facility with Aviva so as to facilitate the restructure of our investment portfolio in line with Group strategy.

 

During the year, the following facilities were re-negotiated or drawn down:

 

On balance sheet

-         Refinance of the £28.0 million Lloyds facility, secured on investment assets in Ringwood and Thatcham. This is a two-year investment facility with substitution rights and a cost of 2.5%.

-         New development funding from Quadrant for the build-out of Valentine House, Ilford: a facility of £30.7 million at a fixed rate of 7.5%. This facility is for the build-out of the pre-sold residential units.

 

In joint venture

-         In our Office Repositioning Platform with Colony NorthStar, we have signed a €42.2 million facility with Quadrant to fund the acquisition and refurbishment of the first three properties.

-         In our Income Producing Development Assets Platform with Proprium Capital Partners, we have signed a £11.3 million loan facility with RBS.

 

 

 

Details of our debt facilities are shown in the table below:

 

Group's bank facilities

Principal financial highlights
Facility type	Notes	Total facility	Utilised as at 28 Feb 2017 £'000		Interest rate	Maturity	Loan to value ratio	Interest1 cover ratio	Minimum1 net worth £'000
Loans financing longer-term assets
Revolving credit		£28,000	28,000		Variable	16-Dec-18	65%	200%	-
Term loan		£12,000	11,839		Cap	05-Jan-19	50%	200%	-
Term loan	4	£10,580	10,580		Variable	10-Jan-20	73%	160%	-
Term loan		£2,795	2,312		Variable	22-May-20	-	-	-
Loan notes	2	€47,000	40,133	~	Cap	24-Apr-21	-	-	-
Term loan		£57,565	49,135		Fixed	12-Mar-25	80%	110%	-
Term loan		£22,470	19,284		Fixed	12-Mar-25	80%	110%	-
Loans financing development and trading assets
Revolving credit	3	€20,000	2,562	~	Variable	20-Apr-17	-	-	-
Term loan	4	£26,000	26,000		Cap	30-Sep-17	60%	125%	100,000
Term loan	4	£4,900	4,900		Fixed	17-Nov-17	-	-	-
Term loan	5	£9,500	12,276		Variable	31-Mar-18	-	-	-
Term loan		£4,539	1,310		Variable	14-Jun-18	-	-	-
Term loan		£2,751	153		Variable	19-Jul-18	-	-	-
Term loan		€24,307	3,075	~	Variable	01-Aug-18	73%	110%	-
Term loan		£30,750	4,053		Fixed	25-Nov-18	70%	-	-
Term loan		£24,500	-		Fixed	31-Jan-19	-	-	-
Term loan	4	£44,100	37,419		Fixed	24-Feb-19	-	-	-
Term loan	4	€22,045	6,593	~	Fixed	18-Nov-19	-	-	-
Term loan	4	€20,125	10,153	~	Fixed	06-Jan-20	-	-	-
Term loan	4	£11,300	11,300		Variable	28-Oct-20	55%	150%	-
Term loan	4	£5,610	5,553		Cap	31-Mar-21	60%	175%	-
Term loan	4	£12,725	12,725		SWAP	01-Sep-21	50%	120%	-

 

 

1    Interest cover ratios are specific to the loan and the relevant property. Minimum net worth refers to the net asset value of the Group per its latest Balance Sheet (28 February or 31 August).

2    These unsecured, variable rate loan notes are denominated in Euros, with a nominal value of €47 million. An interest rate cap is in place to limit the Group's exposure to movements in the EURIBOR rate however, the Group's option to acquire €25,000,000 expired in April 2017.

3    This facility has been extended to 20 August 2017 since the year end.

4    Loans relating to joint ventures represent the total loan facility and not the Group's share.

5    This facility has the provision to allow interest to be rolled into the loan.

~    Represents the amount of the Group's liability in Sterling as at the balance sheet date.

 

Debt maturity profile

Our debt policy can be summarised as follows:

 

-         Longer-term fixed rate facilities are used to fund longer-term income-producing assets. Target loan to value (LTV): 60-65%.

-         Shorter-term asset-specific debt aligned to the business plan for shorter-term trading assets. Target LTV: 50-55%.

-         Long-term Euro-denominated corporate debt to support our investment into Euro-denominated assets in Dublin. No LTV target as this is corporate level debt.

-         The Group has no specific debt on non-income producing assets or investments into PPP schemes.

-         Joint venture arrangements are designed to leverage both our operational expertise and our Balance Sheet. When acting with third party capital we deploy asset specific debt, which is often at a higher LTV (65-75%), reflecting the risk appetite and cost of capital of our partners.

-         A summary of the Group's gearing is shown below:

	Target	28 Feb 2017	26 Apr 2017	29 Feb 2016
Gearing (excl. share of JVs)	40-50%	34.8%	37.6%	44.4%
Gearing (incl. share of JVs)	50-60%	46.8%	50.2%	56.4%

 

The greatest fluctuation in gearing occurs where we utilise debt to fund the build-out of pre-sold residential developments on our own Balance Sheet. This peaked at 59.2% during FY2017.

 

Our overall gearing targets therefore act as a limit on the amount of development that we can undertake on our own Balance Sheet.

 

 

 

 

 

 

The Group maintains a mix of variable and fixed rate facilities to provide a degree of certainty whilst also benefiting from historically low interest rates. Longer-term facilities tend to be structured with fixed rates. A summary of the Group's interest rate exposure is shown below:

		2017	2016
Group net debt and gearing
Gross debt	£m	(172.1)	(213.3)
Cash and cash equivalents	£m	51.3	51.8
Net debt	£m	(120.8)	(161.5)
Net assets	£m	347.6	363.3
Gearing	%	34.8	44.4
Weighted average debt maturity	years	4.8	4.5
Weighted average interest rate	%	4.6	4.9
Including joint ventures:
Share of net debt in joint ventures	£m	(44.0)	(43.6)
Gearing	%	47.4	56.4
Weighted average debt maturity	years	4.2	4.2
Weighted average interest rate	%	4.9	5.0

 

Joint venture arrangements

The Group has a policy of working in joint venture arrangements as a way of:

-         Leveraging our equity so we can participate in projects that would otherwise would be of too large for our Balance Sheet.

-         Accessing deals with specialist partners who have secured positions on projects but require further equity and the planning and structuring skills, which are a key part of our business.

 

During the year, the Group entered into two new large-scale joint ventures (specialist platforms): 

-         A joint venture with Colony NorthStar, targeting €300 million of office refurbishment and repositioning opportunities in London, Manchester and Dublin. The Group has a 50.0% holding in the joint venture, Luxembourg Investment Company 112 Sarl, and gearing was 18.5% as at 28 February 2017. Gearing is below the target range as both joint venture partners have deposited large cash balances in the entity to cover future development spend.

-         A joint venture with Proprium Capital Partners targeting up to £200 million of income-producing assets with development potential in the London City Region. The Group has a 20.0% holding in the joint venture, UAIP (Drum) BV, and gearing was 85.6% as at 28 February 2017, in accordance with the capital structure agreed with our joint venture partner. 

 

The Group's joint ventures and associates are analysed in more detail in note 7.

 

Taxation 

Our tax strategy is aligned with our overall business strategy and is principled, transparent and sustainable for the long term. The key components of this strategy are:

 

-   A commitment to ensure full compliance with all statutory obligations including full disclosure to all relevant tax authorities;

-   Any tax planning strategy entered into is only implemented after full consideration of the risks. Those findings are recorded in any relevant structuring document;

-   The maintenance of good relationships with tax authorities and a clear interaction between tax planning and the Group's wider corporate reputation and responsibility; and

-   Management of tax affairs in a manner that seeks to maximise shareholder value whilst operating within the parameters of existing tax legislation.

 

The Group has operations in certain jurisdictions that have been dictated to us by our majority capital partners. Under most circumstances the Group does not enjoy any fiscal advantage by being in those jurisdictions. The Group undertakes an annual Transfer Pricing Review to ensure that all cross-border services provided are conducted at the appropriate arm's length market rate.

 

The suitability of our tax strategy is kept under constant review to ensure compliance with both the fiscal needs of the Group and the constant evolution of tax legislation.

 

Dividends

Our dividend policy consists of two elements as follows:

 

-         An Ordinary dividend, comprising interim and final at 2.4 pence and 3.5 pence per share respectively; and

-         A supplemental dividend related to the net free level of cash flow generated during the financial year.

 

A final dividend of 3.5 pence per share will be recommended to shareholders at the Annual General Meeting (AGM) on 11 July 2017, to be paid on 17 August 2017 to shareholders on the register on 21 July 2017 (2016: 3.5 pence per share).

 

On 25 April 2017, the Board approved the payment of a supplemental dividend of 2.8 pence per share, to be paid on 16 June 2017 to shareholders on the register on 12 May 2017.

 

Foreign currency movements

The Group's operations are conducted primarily in the UK. However, as one of its three core regions is Dublin, the Group is exposed to movements in foreign exchange rates between Sterling and Euros.

 

The Group's principal exposure to foreign currency movements is in respect of its €47.0 million Euro-denominated loan notes, Euro-denominated bank loans and property assets.

 

At 28 February 2017, the Group had net Euro-denominated liabilities of €16.6 million (2016: €9.7 million).

 

During the year, the value of Sterling against the Euro fell significantly, following the EU referendum in June 2016. The impact on our NAV during the period was a reduction of £0.4 million, which is the net result of a loss of £3.4 million recorded in finance costs in the profit and loss account and a gain through reserves of £3.0 million.

 

EPRA

This year we have committed to provide more detailed disclosure in respect of our EPRA NAV, by adjusting to fair value both our trading properties and the property interests where we have obtained planning consent - planning being the main driver of value in the portfolio.

 

Unlike a real estate investment business, a significant part of our regeneration business model seeks to optimise the use of our Balance Sheet by entering into either conditional purchase agreements, land option agreements or development management agreements where we incur the design costs and fees associated with obtaining a planning consent, without purchasing the land up front. These types of structures mean that for a significant part (70%) of our development portfolio, we are not able to produce a reliable fair value in accordance with EPRA guidelines until such time as planning consent is obtained and land becomes unconditionally owned. 

 

The table below provides a summary of the assets valued in our directly owned and joint venture development and trading portfolio.

 

	% of assets valued	Change in valuation after tax £'m
Directly owned portfolio	42.9	15.5
Assets held in joint venture	20.0	(2.4)
Total development and trading portfolio	30.1	13.1

 

 

We understand that EPRA NAV is the accepted valuation metric for real estate investment companies. However, U+I's business model and our preference for developing assets using third-party capital rather than our own, mean that EPRA NAV does not deliver a complete picture of the potential value within both our portfolio of assets and various contractual arrangements. We will continue to give guidance as to expected development and trading gains over the next three years as a more complete picture of the potential value within the Group's projects.

 

Five-year summary

		2017	2016	2015	2014	2013
Revenue	£m	123.9	242.3	203.7	79.3	99.7
(Loss)/profit before taxation	£m	(1.7)	25.8	34.8	19.5	0.8
Net assets	£m	347.6	363.3	346.4	320.3	306.7
(Loss)/earnings per share	Pence	(2.4)	17.5	26.8	14.9	2.0
Net assets per share	Pence	278	291	276	262	251

 

Marcus Shepherd

Finance Director

26 April 2017

 

 

Consolidated Statement of Comprehensive Income

For the year ended 28 February 2017

	Notes	2017 Total £'000	2016 Total £'000
Revenue	2	123,931	242,282
Direct costs	2	(86,863)	(192,430)
Gross profit	2	37,068	49,852
Operating costs	2	(22,061)	(21,752)
(Loss)/gain on disposal of investment properties	2	(2,273)	440
(Loss)/gain on revaluation of property portfolio	6	(9,506)	229
Operating profit before exceptional item		3,228	28,769
Exceptional impairment of operating segment	2(b)	(2,150)	-
Operating profit after exceptional item		1,078	28,769
Other income		1,320	673
Share of post-tax profits of joint ventures and associates	7	6,134	7,127
Profit from sale of investment		567	2,174
Loss on sale of other plant and equipment		(25)	(87)
Profit before interest and income tax		9,074	38,656
Finance income	3(a)	711	2,483
Finance costs	3(b)	(11,495)	(15,351)
(Loss)/ before income tax		(1,710)	25,788
Income tax		(1,293)	(2,453)
(Loss)/profit for the year		(3,003)	23,335
(Loss)/profit attributable to:
Owners of the Parent		(3,003)	21,828
Non-controlling interest		-	1,507
		(3,003)	23,335
OTHER COMPREHENSIVE INCOME
(Loss)/profit for the year		(3,003)	23,335
Items that may be subsequently reclassified to profit or loss:
Currency translation differences		2,958	2,438
Revaluation of operating property		-	129
Fair value adjustment of available-for-sale asset realised		-	(142)
Deferred income tax credit		127	28
Total comprehensive income for the year		82	25,788
Attributable to:
Owners of the Parent		82	24,281
Non-controlling interest		-	1,507
		82	25,788
Basic (loss)/earnings per share attributable to the Parent*	5	(2.4)p	17.5p
Diluted (loss)/earnings per share attributable to the Parent*	5	(2.4)p	17.5p

* Adjusted earnings per share from continuing activities is given in note 5.

 

All amounts in the Consolidated Statement of Comprehensive Income relate to continuing operations.

 

 

Consolidated Balance Sheet

As at 28 February 2017

	Notes	£'000	2017 £'000	£'000	2016 £'000
NON-CURRENT ASSETS
Direct real estate interests
Investment properties	6	179,199		203,318
Operating property		800		860
Trade and other receivables	9(a)	2,858		3,403
			182,857		207,581
Indirect real estate interests
Investments in associates	7	8,372		4,309
Investments in joint ventures	7	46,089		46,782
Intangible assets - goodwill		2,328		2,328
Loans to joint operations and other real estate businesses	11(a)	19,859		37,357
			76,648		90,776
Other non-current assets
Other plant and equipment		5,770		7,017
Derivative financial instruments	11(c)	257		315
Deferred income tax assets		1,359		1,230
			7,386		8,562
Total non-current assets			266,891		306,919
CURRENT ASSETS
Inventory - development and trading properties	8	208,342		199,779
Other financial assets	11(a)	18,524		1,700
Trade and other receivables	9(b)	48,720		86,420
Current income tax asset		16		-
Monies held in restricted accounts and deposits		27,486		8,096
Cash and cash equivalents		23,785		43,752
			326,873		339,747
Total assets			593,764		646,666
CURRENT LIABILITIES
Trade and other payables	10(b)	(53,369)		(55,110)
Current income tax liabilities		-		(2,508)
Borrowings	11(b)	(4,508)		(65,471)
Provisions	10(c)	(1,394)		(14)
			(59,271)		(123,103)
NON-CURRENT LIABILITIES
Trade and other payables	10(a)	(14,395)		(7,134)
Borrowings	11(b)	(167,617)		(147,818)
Deferred income tax liabilities		(3,568)		(3,555)
Provisions	10(c)	(1,288)		(1,731)
			(186,868)		(160,238)
Total liabilities			(246,139)		(283,341)
Net assets			347,625		363,325
EQUITY
Share capital		62,613		62,537
Share premium		104,325		104,113
Other reserves		54,551		51,861
Retained earnings		126,136		144,814
Total equity			347,625		363,325
Basic/diluted net assets per share attributable to the owners of the Parent	5		278p/277p		291p/290p

 

Approved and authorised for issue by the Board of Directors on 26 April 2017 and signed on its behalf by:

 

M S Weiner

Director

 

 

Consolidated Statement of Changes in Equity

For the year ended 28 February 2017

	Notes	Share capital £'000	Share premium £'000	Other reserves £'000	Retained earnings £'000	Total £'000	Non-controlling interest £'000	Total equity £'000
At 1 March 2015		62,529	104,094	48,677	130,358	345,658	722	346,380
Profit for the year ended 29 February 2016		-	-	-	21,828	21,828	1,507	23,335
Other comprehensive income:
- Revaluation of operating property		-	-	129	-	129	-	129
- Fair value adjustment realised		-	-	(142)	-	(142)	-	(142)
- Currency translation differences		-	-	2,438	-	2,438	-	2,438
- Deferred income tax credited directly to equity		-	-	28	-	28	-	28
Total comprehensive income for the year ended 29 February 2016		-	-	2,453	21,828	24,281	1,507	25,788
Issue of Ordinary shares		8	19	-	-	27	-	27
Share-based payments		-	-	731	-	731	-	731
Final dividend 2015	4	-	-	-	(4,373)	(4,373)	-	(4,373)
Interim dividend 2016	4	-	-	-	(2,999)	(2,999)	-	(2,999)
Total contributions by and distributions to owners of the Company		8	19	731	(7,372)	(6,614)	-	(6,614)
Transactions with non-controlling interest		-	-	-	-	-	(2,229)	(2,229)
Balance at 29 February 2016		62,537	104,113	51,861	144,814	363,325	-	363,325
Loss for the year ended 28 February 2017		-	-	-	(3,003)	(3,003)	-	(3,003)
Other comprehensive income:
- Revaluation of operating property realised on sale		-	-	(1,073)	1,073	-	-	-
- Fair value adjustment realised		-	-	(630)	630	-	-	-
- Currency translation differences		-	-	2,958	-	2,958	-	2,958
- Deferred income tax credited directly to equity		-	-	127	-	127	-	127
Total comprehensive income for the year ended 28 February 2017		-	-	1,382	(1,300)	82	-	82
Issue of Ordinary shares		76	212	-	-	288	-	288
Share-based payments		-	-	1,308	-	1,308	-	1,308
Final dividend 2016	4	-	-	-	(4,378)	(4,378)	-	(4,378)
Supplemental dividend 2016	4	-	-	-	(9,997)	(9,997)	-	(9,997)
Interim dividend 2017	4	-	-	-	(3,003)	(3,003)	-	(3,003)
Total contributions by and distributions to owners of the Company		76	212	1,308	(17,378)	(15,782)	-	(15,782)
Balance at 28 February 2017		62,613	104,325	54,551	126,136	347,625	-	347,625

 

Consolidated Cash Flow Statement

For the year ended 28 February 2017

	Notes	2017 £'000	2016 £'000
CASH GENERATED FROM OPERATIONS
Cash flows generated from operating activities	12	56,859	7,995
Interest paid		(7,774)	(11,445)
Income tax paid		(3,806)	(2,791)
Net cash generated from/(used in) operating activities		45,279	(6,241)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received		443	2,822
Proceeds on disposal of other plant and equipment		11	38
Proceeds on disposal of investment properties		16,250	11,106
Purchase of other plant and equipment		(601)	(5,459)
Purchase of investment properties		(3,051)	(7,094)
Acquisition of subsidiaries, net of cash and including acquisition costs		-	(4,222)
Cash outflow to joint ventures and associates		(19,197)	(9,001)
Cash inflow from joint ventures and associates		24,245	9,603
Investment in financial assets		(518)	(3,605)
Cash inflow from financial assets		1,816	3,152
Dividends received		-	40
Net cash generated from/(used in) investing activities		19,398	(2,620)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid		(17,378)	(17,367)
Issue of new shares		288	27
Repayments of borrowings		(81,677)	(59,788)
New bank loans raised (net of transaction costs)		32,855	60,404
Equity repayment to non-controlling interest		-	(2,229)
(Increase)/decrease in monies held in restricted accounts and deposits		(19,390)	11,284
Net cash used in financing activities		(85,302)	(7,669)
Net decrease in cash and cash equivalents		(20,625)	(16,530)
Cash and cash equivalents at the beginning of the year		43,752	59,949
Exchange gains on cash and cash equivalents		658	333
Cash and cash equivalents at the end of the year		23,785	43,752
CASH AND CASH EQUIVALENTS COMPRISE:
Cash at bank and in hand		23,785	43,752
Bank overdrafts	11(b)	-	-
Cash and cash equivalents at the end of the year		23,785	43,752
NET DEBT COMPRISES:
Monies held in restricted accounts and deposits		27,486	8,096
Cash and cash equivalents		23,785	43,752
Financial liabilities:
- Current borrowings	11(b)	(4,508)	(65,471)
- Non-current borrowings	11(b)	(167,617)	(147,818)
Net debt		(120,854)	(161,441)

 

 

 

Notes to the Consolidated financial statements

For the year ended 28 February 2017

 

1           Basis of preparation and accounting policies

a)

(i)          General information

The Consolidated financial statements of the Group for the year ended 28 February 2017 comprise the results of U and I Group PLC and its subsidiaries and were authorised by the Board for issue on 25 April 2017.

 

The Company is a public limited company which is listed on the London Stock Exchange and is incorporated and domiciled in the UK. The address of its registered office is 7A Howick Place, London SW1P 1DZ.

 

(ii)         Going concern

The Group adopts the going concern basis in preparing its Consolidated financial statements as discussed in the Financial Review.

 

b)          Basis of preparation

The Group's financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), interpretations issued by the IFRS Interpretations Committee (IFRIC) and the Companies Act 2006. The accounting policies which follow set out those policies which were applied consistently in preparing the financial statements for the year ended 28 February 2017 and 29 February 2016.

 

The Consolidated financial statements have been prepared on a going concern basis and under the historical cost convention, as modified by the revaluation of investment property, operating property, available-for-sale financial assets and derivative instruments at fair value through profit and loss.

 

The financial information included in the preliminary announcement does not constitute statutory Consolidated financial statements of the Group for the years ended 28 February 2017 and 29 February 2016 but is derived from those Consolidated financial statements. Statutory Consolidated financial statements for 2016 have been delivered to the registrar of companies and those for 2017 will be delivered in due course. The auditors have reported on those financial statements; their reports were (i) unmodified, (ii) did not include a reference to any matters which the auditors drew attention by way of emphasis without modifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006. 

 

c)          Critical accounting judgements and estimates

When preparing the Group financial statements, management are required to make judgements, assumptions and estimates concerning the future. These judgements and assumptions are made at the time the financial statements are prepared and adopted based on the best information available. Actual outcomes may be different from initial estimates and are reflected in the financial statements as soon as they become apparent. Management believe that the underlying assumptions are appropriate. Areas requiring judgements or estimates are discussed in the following section.

 

Judgements other than estimates

1.1        Classification of directly owned property assets

The Group earns revenue from property development, trading and investment, and operating serviced offices.

 

Property development includes the entire development process from identification of an opportunity through to construction, letting and sale of a completed scheme. This activity is undertaken both on the Group's own Balance Sheet and in partnership with institutional investors, usually via a pre-sale of the completed development.

 

Property trading refers to participation in the development process, where the Group acquires an interest in land and enhances the potential development, for instance by procuring or changing planning permission, before selling on to a third party to complete the development.

 

Property investment represents the acquisition of income-generating real estate which is held for the purposes of income and capital gain, through active asset management.

 

In most cases the property interest is held directly by the Group and is classified either as investment property (refer note 6) or as inventory for development and trading properties (refer note 8).

 

The varied nature of the Group's properties is such that a number exhibit characteristics consistent with more than one classification; also, the Directors' strategy for an asset may change during its ownership. The Directors determine the status of each asset according to their intention on acquisition. A change in classification is made only in exceptional circumstances, where the strategy has demonstrably changed for a period of over one year. 

 

1.2        Classification of projects in partnership

In addition to its directly owned and managed activities, the Group participates in similar activities in partnership with others, typically to access expertise in different locations or market sectors. The Group's financial participation may be by way of equity investment or loan. In each case a judgement is required as to the status of the Group's interest, as an associate, a joint venture, a joint operation or a financial asset, typically focusing on the extent of control exercised by the Group.

 

The Group's share of control is governed and achieved by a mixture of rights set out in agreements and participation in the management of each business. The exercise of control in practice does not always follow the legal structure. The Directors have considered the position in respect of each venture, taking account of the operation in practice, and have determined the status of each accordingly.

 

These investments are reported under the relevant balance sheet headings, with a summary in note 14.

 

1.3        Acquisition of subsidiaries

The Group sometimes acquires properties through the purchase of entities which own real estate. At the time of acquisition, the Group considers whether the transaction represents the acquisition of a business. In cases where the entity is capable of being operated as a business, or an integrated set of activities is acquired in addition to the property, the Group accounts for the acquisition as a business combination. When the acquisition does not represent a business, it is accounted for as the purchase of a group of assets and liabilities. In making this distinction, the Group considers the number of items of land and buildings owned by the entity, the extent of ancillary services provided by the entity, and whether the entity has its own staff to manage the property (over and above the maintenance and security of the premises).

 

1.4        Accounting for pre-sold development assets

Where development is undertaken on the Group's Balance Sheet under a contract for a pre-sale, a judgement is required as to whether this represents a sale of property or a contract for construction. As at 28 February 2017 and 29 February 2016 the Group does not have any construction contracts (under IAS 11).

 

Estimates

1.5        Valuation of property assets

The key source of estimation uncertainty rests in the values of property assets, which affects several categories of asset in the Balance Sheet.

 

The investment property portfolio (and the operating property) are stated at fair value, which requires a number of judgements and estimates in assessing the qualities of the Group's assets relative to market transactions. Details of the judgements and assumptions made are set out in note 6.

 

The same uncertainties affect the determination of fair value of certain available-for-sale financial instruments, described in note 11, with the further complexity that the value of these assets requires estimates of future construction costs, tenant demand and market yields.

 

The Group's development and trading properties are carried at the lower of cost and net realisable value. The determination of net realisable value relies upon similar estimates, with the added challenge, in some cases, of judgements about uncertain planning outcomes. These amounts are disclosed in note 8.

 

1.6        Impairment reviews

The Group's Curzon Park Limited joint venture owns a development site in Birmingham known as Curzon Street. The current proposal for the high-speed train link between London and Birmingham (HS2) indicates that the planned route of HS2 passes through the site, including provision for part of the prospective station. In view of this, the ultimate value of the site is uncertain. It is not clear what impact HS2 will have on the development of the 10.5-acre site. The Directors believe that the site will recover at least its carrying value in the books of the joint venture, although the interim and ultimate uses of the site and timing of its development remain unclear. The site is discussed in note 11(a).

 

Following a review of investment strategy and in view of operating losses at Executive Communication Centres (ECC), the Group's serviced office subsidiary, the Group has conducted a review of its investment in the business. During the year, the Group has decided to exit two centres and carried out a full impairment review on this basis. The review required significant judgements and estimates concerning customer demand, competitor behaviour and discount rates for the sites that will continue to operate. The review determined that a net impairment of £2,150,000 was required against the closure of certain centres and future losses across the business. This impairment has been shown as an exceptional item (refer note 2b).

 

1.7        Derivative financial instruments

The Group is party to a number of interest rate swap and foreign currency agreements which are accounted for as derivatives and measured at fair value. The estimation of this figure is based upon market assumptions about future movements in interest and exchange rates. The estimated fair values and the movements in the year are set out in note 11(c).

 

1.8        Group Long-Term Incentive Plan (LTIP)

During the year, the Group made awards to staff under the Group's LTIP. The awards vest according to a number of performance criteria, the primary measure being net asset value growth over a three-year period. In calculating the provision to accrue, management are required to estimate net asset growth over the vesting period. The estimate is reassessed at each reporting date.

 

2           Segmental analysis

a) The segmental information presented consistently follows the information provided to the Chief Operating Decision-Maker (CODM) and reflects the three sectors in which the Group operates. The CODM, which is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Executive Committee. The three operating divisions are:

 

-   Investment - management of the Group's investment property portfolio, generating rental income and valuation movements from property management;

-   Development and trading - managing the Group's development and trading projects. Revenue is received from project management fees, development profits and the disposal of inventory; and

-   Operating - serviced office operations. Revenue is principally received from short-term licence fee income.

 

Unallocated assets and liabilities comprise amounts that cannot be specifically allocated to operating segments; an analysis is provided below.

 

These divisions are the basis on which the Group reports its primary segmental information. All operations occur and all assets are located in the United Kingdom, except assets of £30,193,000 (2016: £38,871,000) which are located in the Republic of Ireland. All revenue arises from continuing operations. 

 

 

2017	Investment £'000	Development and trading £'000	Operating £'000	Total £'000
Segment revenue	12,934	106,939	4,058	123,931
Direct costs	(3,449)	(78,467)	(4,947)	(86,863)
Segment result	9,485	28,472	(889)	37,068
Operating costs	(5,031)	(17,030)	-	(22,061)
Loss on disposal of investment properties	(2,273)	-	-	(2,273)
Loss on revaluation of property portfolio	(9,506)	-	-	(9,506)
Operating (loss)/profit before exceptional item	(7,325)	11,442	(889)	3,228
Exceptional impairment of operating segment	-	-	(2,150)	(2,150)
Operating (loss)/profit after exceptional item	(7,325)	11,442	(3,039)	1,078
Other income	666	654	-	1,320
Share of post-tax profits of joint ventures and associates	3,144	2,990	-	6,134
Profit on sale of investment	-	567	-	567
Unallocated loss on sale of other plant and equipment				(25)
Profit before interest and income tax				9,074
Finance income	532	179	-	711
Finance costs	(6,714)	(4,781)	-	(11,495)
Loss before income tax				(1,710)
Income tax				(1,293)
Loss for the year				(3,003)
ASSETS AND LIABILITIES
Segment assets	226,016	334,609	2,361	562,986
Unallocated assets				30,778
Total assets				593,764
Segment liabilities	(104,059)	(132,358)	(3,796)	(240,213)
Unallocated liabilities				(5,926)
Total liabilities				(246,139)

 

 

2017	Investment £'000	Development and trading £'000	Operating £'000	Total £'000
OTHER SEGMENT INFORMATION
Capital expenditure	3,746	119	83	3,948
Unallocated capital expenditure				380
Exceptional impairment of operating segment assets	-	-	(1,173)	(1,173)
Impairment of assets	-	(155)	-	(155)
Depreciation	(6)	-	(347)	(353)
Unallocated depreciation				(663)
REVENUE
Rental income	12,736	3,361	-	16,097
Serviced office income	-	-	4,058	4,058
Project management fees	-	1,052	-	1,052
Trading property sales	-	34,917	-	34,917
Other trading property income	-	2,834	-	2,834
Development proceeds	-	64,775	-	64,775
Other	198	-	-	198
	12,934	106,939	4,058	123,931

 

In the year ended 28 February 2017, two projects with turnover totalling £28,765,000 generated in excess of 10.0% of total revenue and fell within the development and trading segment.

 

 

2016	Investment £'000	Development and trading £'000	Operating £'000	Total £'000
Segment revenue	14,397	223,652	4,233	242,282
Direct costs	(2,365)	(184,701)	(5,364)	(192,430)
Segment result	12,032	38,951	(1,131)	49,852
Operating costs	(3,617)	(18,135)	-	(21,752)
Gain on disposal of investment properties	440	-	-	440
Gain on revaluation of property portfolio	229	-	-	229
Operating profit/(loss)	9,084	20,816	(1,131)	28,769
Other income	483	190	-	673
Share of post-tax profits/(losses) of joint ventures and associates	7,445	(318)	-	7,127
Profit on sale of investment	-	2,174	-	2,174
Unallocated loss on sale of other plant and equipment				(87)
Profit before interest and income tax				38,656
Finance income	813	1,670	-	2,483
Finance costs	(6,280)	(9,071)	-	(15,351)
Profit before income tax				25,788
Income tax				(2,453)
Profit for the year				23,335
ASSETS AND LIABILITIES
Segment assets	243,191	356,196	4,394	603,781
Unallocated assets				42,885
Total assets				646,666
Segment liabilities	(105,500)	(160,108)	(3,353)	(268,961)
Unallocated liabilities				(14,380)
Total liabilities				(283,341)

 

 

2016	Investment £'000	Development and trading £'000	Operating £'000	Total £'000
OTHER SEGMENT INFORMATION
Capital expenditure	6,819	532	160	7,511
Unallocated capital expenditure				5,032
Impairment of assets	-	(1,837)	-	(1,837)
Depreciation	-	(337)	(465)	(802)
Unallocated depreciation				(242)
REVENUE
Rental income	14,242	4,649	-	18,891
Serviced office income	-	-	4,233	4,233
Project management fees	-	915	-	915
Trading property sales	-	87,818	-	87,818
Other trading property income	-	2,681	-	2,681
Development proceeds	-	127,589	-	127,589
Other	155	-	-	155
	14,397	223,652	4,233	242,282

 

In the year ended 29 February 2016, four projects with turnover totalling £134,797,000 generated in excess of 10.0% of total revenue and fell within the development and trading segment.

 

	2017 £'000	2016 £'000
UNALLOCATED ASSETS CAN BE ANALYSED AS FOLLOWS:
Other plant and equipment	4,616	4,924
Deferred income tax asset	1,359	1,230
Derivative financial instruments	257	315
Trade and other receivables	5,014	4,169
Cash and cash equivalents	19,532	32,247
	30,778	42,885
UNALLOCATED LIABILITIES CAN BE ANALYSED AS FOLLOWS:
Current borrowings	(17)	(17)
Trade and other payables	(2,341)	(10,808)
Deferred income tax liability	(3,568)	(3,555)
	(5,926)	(14,380)

 

b)          Exceptional item

In view of the operating losses at the Group's serviced office subsidiary, the Group conducted a review of the business. The review concluded that as this business sector was not core to Group strategy, it should be exited by way of either trade sale or phased closure of individual centres. The business operates across six separate centres. A provision of £2,150,000 has been made in this respect.

 

3           Finance income and costs

 

a)          Finance income	2017 £'000	2016 £'000
Interest receivable on loans and deposits	711	2,147
Fair value gains on financial instruments - interest rate swaps, caps and collars	-	336
Total finance income	711	2,483

 

b) Finance costs	2017 £'000	2016 £'000
Interest on bank loans and other borrowings	(9,091)	(11,923)
Interest on debenture	-	(1,833)
Amortisation of transaction costs	(1,114)	(1,109)
Provision: unwinding of discount	(14)	(243)
Fair value loss on financial instruments - interest rate swaps, caps and collars	(58)	-
Net foreign currency differences arising on retranslation of cash and cash equivalents	(3,398)	(3,180)
	(13,675)	(18,288)
Capitalised interest on development and trading properties	2,180	2,937
Total finance costs	(11,495)	(15,351)
Net finance costs	(10,784)	(12,868)
Net finance costs before foreign currency differences	(7,386)	(9,688)

 

Interest was capitalised at an average rate of 6.51%. Capitalised interest of £1,195,000 (2016: £2,858,000) was written off in the year. The tax treatment of capitalised interest follows the accounting treatment.

 

 

4           Dividends

	2017 £'000	2016 £'000
DECLARED AND PAID DURING THE YEAR
Equity dividends on Ordinary shares:
Final dividend for 2016: 3.50 pence per share (2015: 3.50 pence per share)	4,378	4,373
Interim dividend for 2017: 2.40 pence per share (2016: 2.40 pence per share)	3,003	2,999
Supplemental dividend for 2016: 8.00 pence per share	9,997	-
	17,378	7,372
DIVIDEND DECLARED BUT NOT PAID SINCE 28 FEBRUARY 2017
Supplemental dividend for 2017: 2.80 pence per share (2016: 8.00 pence per share)	3,506	10,006
PROPOSED FOR APPROVAL BY SHAREHOLDERS AT THE ANNUAL GENERAL MEETING
Final dividend for 2017: 3.50 pence per share (2016: 3.50 pence per share)	4,379	4,373

 

 

On 25 April 2017, the Board approved the payment of a supplemental dividend of 2.80 pence per share, which will be paid on 16 June 2017 to Ordinary shareholders on the register at the close of business on 12 May 2017 and will be recognised in the year ending 28 February 2018.

 

Subject to approval by shareholders, the final dividend was approved by the Board on 25 April 2017 and has not been included as a liability or deducted from retained earnings as at 28 February 2017. The final dividend is payable on 17 August 2017 to Ordinary shareholders on the register at the close of business on 21 July 2017 and will be recognised in the year ending 28 February 2018.

 

 

 

5           Earnings per share and net assets per share

 

The calculation of basic and diluted earnings per share and EPRA profit per share is based on the following data:

 

	2017 £'000	2016 £'000
PROFIT
(Loss)/profit for the purpose of basic and diluted earnings per share	(3,003)	21,828
Revaluation deficit/(surplus) (including share of joint venture revaluation surplus)	6,812	(1,697)
Loss/(gain) on disposal of investment properties	2,273	(440)
Impairment of development and trading properties	155	1,837
Exceptional impairment of operating segment	2,150	-
Mark-to-market adjustment on interest rate swaps (including share of joint venture mark-to-market adjustment)	(23)	(216)
EPRA adjusted profit from continuing activities attributable to owners of the Company	8,364	21,312

 

	2017 '000	2016 '000
NUMBER OF SHARES
Weighted average number of Ordinary shares for the purpose of earnings per share	125,072	124,953
Effect of dilutive potential Ordinary shares:
Share options	1	84
Weighted average number of Ordinary shares for the purpose of diluted earnings per share	125,073	125,037
Basic (loss)/earnings per share (pence)	(2.4)p	17.5p
Diluted (loss)/earnings per share (pence)	(2.4)p	17.5p
EPRA adjusted earnings per share (pence)	6.7p	17.1p
EPRA adjusted diluted earnings per share (pence)	6.7p	17.1p

 

The Directors consider the acquisition and disposal of trading assets to be part of the core business of the Group and therefore have not adjusted profit for the gain on disposal when calculating EPRA adjusted earnings per share.

 

Net assets per share and diluted net assets per share have been calculated as follows: 

 

	Net assets £'000	No. of shares '000	2017 Net assets per share Pence	Net assets £'000	No. of shares '000	2016 Net assets per share Pence
Basic net assets per share attributable to the owners	347,625	125,227	278	363,325	125,074	291
Fair value of development and trading assets*	15,486			-
Fair value of joint venture assets	(2,416)			-
Cumulative mark-to-market adjustment on interest rate swaps	126			148
EPRA adjusted net assets per share	360,821	125,227	288	363,473	125,074	291
Cumulative mark-to-market adjustment on interest rate swaps	(126)			(148)
Fair value of debt	(14,344)			(14,713)
EPRA adjusted triple net assets per share	346,351	125,227	277	348,612	125,074	279
Effect of dilutive potential Ordinary shares	475	228		563	303
Diluted net assets per share	348,100	125,455	277	363,888	125,377	290
EPRA diluted net assets per share	361,296	125,455	288	364,036	125,377	290
EPRA diluted triple net assets per share*	346,826	125,455	276	349,175	125,377	279

* Refer note 8.

 

 

 

6           Investment properties

	Freehold £'000	Long leasehold £'000	Total £'000
At valuation 1 March 2015	163,147	40,189	203,336
Additions:
- acquisitions	-	4,473	4,473
- capital expenditure	2,206	140	2,346
Disposals	(9,886)	(780)	(10,666)
Transfer from inventory	3,600	-	3,600
Surplus on revaluation	218	11	229
At valuation 29 February 2016	159,285	44,033	203,318
Additions:
- capital expenditure	2,607	803	3,410
Disposals	(18,023)	-	(18,023)
Deficit on revaluation	(6,996)	(2,510)	(9,506)
At valuation 28 February 2017	136,873	42,326	179,199

 

Direct costs of £3,449,000 (2016: £2,365,000) arose as a result of ownership of investment properties.

 

Reconciliation of market value of investment properties to the net book amount

The following table reconciles the market value of investment properties to their net book amount. The components of the reconciliation are included within their relevant balance bheet heading.

 

	2017 £'000	2016 £'000
Market value as assessed by the independent valuers or Directors	182,359	207,111
Amount included in prepayments and accrued income in respect of lease incentives	(3,160)	(3,793)
Net book amount of Investment properties - non-current assets	179,199	203,318

 

At 28 February and 31 August each year, the Group engages professionally qualified valuers who hold a recognised professional qualification and who have recent experience in the locations and sectors of the investment portfolio. As at 28 February 2017, completed investment properties have been valued by CBRE Ltd at a value of £164,106,000 (2016: £180,888,000). The current value equates to the highest and best use of the asset.

 

The valuers have consented to the use of their name in the financial statements.

 

Included within Investment properties are freehold land and buildings representing investment properties under development, amounting to £15,093,000 (2016: £18,830,000), which have been valued by the Directors. These properties comprise buildings and landholdings for current or future development as investment properties. This approach has been taken because the value of these properties is dependent on a detailed knowledge of the planning status, the competitive position of these assets and a range of complex project development appraisals.

 

Investment properties under development include £8,075,000 (2016: £8,065,000) of landholdings adjacent to retail properties within the Group's portfolio, acquired for the purpose of extending the existing shopping centres. The fair value of these properties rests in the planned extensions, and is difficult to estimate pending confirmation of designs and planning permission, and hence has been estimated by the Directors at cost as an approximation to fair value.

 

£167,205,000 (2016: £192,613,000) of total investment properties are charged as security against the Group's borrowings.

 

 

 

7           Investments

	Investments in associates £'000	Investments in joint ventures £'000
At 1 March 2015	8,253	40,544
Additions	846	8,306
Share of profit	-	5,779
Share of revaluation surplus	-	1,468
Share of mark-to-market adjustment on interest rate swaps	-	(120)
Share of results	-	7,127
Foreign currency differences	(478)	138
Disposal of joint venture	-	(4,523)
Capital distributions	(4,312)	(4,810)
At 29 February 2016	4,309	46,782
Additions	114	19,267
Share of profit/(loss)	4,340	(935)
Share of revaluation surplus	-	2,694
Share of mark-to-market adjustment on interest rate swaps	-	35
Share of results	4,340	1,794
Disposal of joint venture	-	(48)
Capital distributions	(391)	(21,706)
At 28 February 2017	8,372	46,089

 

A summary of the Group's projects in partnership and the balance sheet classification of its interests are set out in note 14.

 

a)          Investment in associates

The Group has the following interest in associates:

 

	% of holding	Country of incorporation	Principal activity	Reporting segment	Acquisition date	Note
Barwood Development Securities Limited	40	United Kingdom	Property development	Development and trading	January 2012
Barwood Land and Estates Limited	25	United Kingdom	Property development	Development and trading	November 2009
CDSR Burlington House Developments Limited	20	Ireland	Property development	Development and trading	July 2014
Northpoint Developments Limited	42	United Kingdom	Property development	Development and trading	November 2007	1
Wessex Property Fund	47	Jersey	Investment property	Investment	September 2007	1

 

1.          The investment in the associate has been fully provided against.

 

The Group disposed of its interest in Atlantic Park (Bideford) Limited in January 2017.

 

 

 

b)          Investment in joint ventures

As at 28 February 2017, the Group has the following interests in joint ventures:

 

	% of holding	Country of incorporation	Principal activity	Reporting segment	Acquisition date	Accounting reference date
Accrue Student Housing GP Limited	50	United Kingdom	Property development	Development and trading	September 2011	31 August
Becket House Unit Trust	15	Jersey	Investment property	Investment	March 2014	31 December
Curzon Park Limited	50	United Kingdom	Property development	Development and trading	November 2006	28 February
Development Equity Partners Limited	50	Jersey	Property development	Development and trading	December 2011	28 February
DSP Piano Investments BV	34	Netherlands	Investment property	Investment	July 2015	31 December
DSP Tirol Limited	50	United Kingdom	Investment property	Investment	January 2015	28 February
DS Renewables LLP	50	United Kingdom	Property development	Development and trading	May 2012	28 February
Harwell Oxford Developments Limited	50	United Kingdom	Property development	Development and trading	December 2013	28 February
Kensington & Edinburgh Estates (South Woodham Ferrers) Limited	50	United Kingdom	Property development	Development and trading	July 2013	28 February
Luxembourg Investment Company 112 Sarl	50	Luxembourg	Property development	Development and trading	November 2016	31 December
Manchester Arena Complex LP	30	United Kingdom	Investment property	Investment	June 2010	28 February
Notting Hill (Guernsey Holdco) Limited	24	Guernsey	Investment property	Development and trading	June 2011	31 December
Opportunities for Sittingbourne Limited	50	United Kingdom	Property development	Development and trading	January 2015	28 February
OSB (Holdco 1) Limited	50	United Kingdom	Property development	Development and trading	February 2014	28 February
UAI(G) Limited	50	United Kingdom	Property development	Development and trading	June 2016	28 February
UAIP (Drum) BV	20	Netherlands	Investment property	Investment	August 2016	28 February
UAIH Yorkshire Limited	50	United Kingdom	Property development	Development and trading	April 2016	28 February
Winnebago Holdings Sarl	35	Luxembourg	Investment property	Investment	April 2012	31 December

 

 

In April 2016, the Group acquired 50% of the share capital in UAIH Yorkshire Limited with its partner, R Horton, holding the remaining 50%. The Company is registered and incorporated in the United Kingdom. 

 

In June 2016, the Group acquired a 50% share of the share capital in UAI(G) Limited with its partner Galliard Homes Limited. The Company is registered and incorporated in the United Kingdom. 

 

In August 2016, the Group acquired a 20% share of the share capital in UAIP (Drum) BV with its partner PSSF Drum BV. The Company is registered and incorporated in the Netherlands. 

 

In November 2016, the Group acquired a 50% share of the share capital in Luxembourg Investment Company 112 Sarl with its partner ColVinyl Holdings Sarl. The Company is registered and incorporated in Luxembourg.

 

In October 2016, the Group disposed of its interest in DSCP Property Holdings Limited.

 

Investments under joint arrangements are not always represented by an equal percentage holding by each partner. In a number of joint ventures, the Group holds a minority shareholding but has joint control and therefore the arrangement is accounted for as a joint venture.

 

Any contingent liabilities in relation to our joint ventures are disclosed in note 13.

 

 

 

8           Inventory

	Development properties £'000	Trading properties £'000	Total £'000
DEVELOPMENT AND TRADING PROPERTIES
At 1 March 2015	139,188	78,286	217,474
Additions:
- acquisitions	27,277	4,725	32,002
- development expenditure	92,677	30,896	123,573
- transfer from joint ventures to development properties	4,523	-	4,523
- transfer from development to investment properties	(3,600)	-	(3,600)
Disposals	(112,947)	(63,950)	(176,897)
Foreign currency differences	1,056	1,895	2,951
Write back of previous adjustment to net realisable value	1,041	-	1,041
Fair value uplift on transfer of inventory to investment properties	549	-	549
Net write down of development properties to net realisable value	(1,837)	-	(1,837)
At 29 February 2016	147,927	51,852	199,779
Additions:
- acquisitions	6,448	11,316	17,764
- development expenditure	65,346	1,318	66,664
Disposals	(54,884)	(23,619)	(78,503)
Foreign currency differences	906	1,887	2,793
Net write down of development properties to net realisable value	(155)	-	(155)
At 28 February 2017	165,588	42,754	208,342

 

Included in the above amounts are projects stated at net realisable value of £5,486,000 (2016: £7,583,000).

 

Net realisable value has been estimated by the Directors, taking account of the plans for each project, the planning status and competitive position of each asset, and the anticipated market for the scheme. For material developments, the Directors have consulted with third party chartered surveyors in setting their market assumptions.

 

Interest of £2,180,000 (2016: £2,937,000) was capitalised on development and trading properties during the year. Capitalised interest included within the carrying value of such properties on the Balance Sheet is £3,614,000 (2016: £2,629,000). 

 

This year, the Group engaged CBRE limited to provide valuations in respect of its development and trading assets. A large proportion of the Group's development and trading portfolio falls outside of the criteria for a reliable fair value exercise. For example, the Group often has conditional land options in place to purchase land at a future date rather than ownership whilst planning is progressed at the Group's expense.

Under the EPRA guidelines only a percentage of assets qualify as shown below:

 

	% of portfolio	Book value	EPRA value	Uplift*
		£'000	£'000	£'000
Trading assets	42.3	18,098	20,569	1,977
Development assets	43.0	71,202	87,195	12,794
	42.9	89,300	107,764	14,771

*Uplift shown net of tax

 

Further information in respect of EPRA can be found in the Finance Review.

 

 

9           Trade and other receivables

a)          Non-current	2017 £'000	2016 £'000
Prepayments and accrued income	2,858	3,403

 

 

b)          Current	2017 £'000	2016 £'000
Trade receivables	7,278	4,784
Other receivables	34,996	76,172
Other tax and social security	1,738	1,748
Prepayments and accrued income	4,708	3,716
	48,720	86,420

 

The Group has provided £1,318,000 (2016: £46,000) for outstanding balances where recovery is considered doubtful. Apart from the receivables that have been provided for at the year end, there are no other material receivables, past due but not impaired. The maximum exposure to credit risk at the reporting date is the carrying value of the receivable.

 

 

 

 

10         Trade and other payables

 

a)          Non-current	2017 £'000	2016 £'000
Trade payables	14,395	7,134

 

b)          Current	2017 £'000	2016 £'000
Trade payables	7,088	4,075
Other payables	10,889	11,539
Other tax and social security	3,604	1,691
Accruals and deferred income	31,788	37,805
	53,369	55,110

 

 

 

c)          Provisions	Onerous leases £'000	Other provisions £'000	Total £'000
At 1 March 2016	1,731	14	1,745
Credited to the income statement	-	(5)	(5)
Charged to the income statement	-	2,247	2,247
Utilised during the year	(49)	-	(49)
Provisions released	(1,270)	-	(1,270)
Unwind of discount	14	-	14
At 28 February 2017	426	2,256	2,682

 

 

Analysis of total provisions	2017 £'000	2016 £'000
Non-current	1,288	1,731
Current	1,394	14
	2,682	1,745

 

A total provision of £2,247,000 has been made in respect of the Group's serviced office business. £1,692,000 has been provided for the closure of two centres and a further provision of £555,000 for the obligations at the remaining centres. In 2016, £1,270,000 was provided to cover the onerous liability associated with leases at three of our serviced office centres. This provision has now been released following a review of the remaining centres.

 

Two provisions of £183,000 (2016: £204,000) and £243,000 (2016: £257,000) relate to onerous lease obligations entered into in 2009 and 1974 respectively.

 

 

11         Financial assets and financial liabilities

 

The following table is a summary of the financial assets and financial liabilities included in the Consolidated Balance Sheet:

 

	2017 £'000	2016 £'000
NON-CURRENT ASSETS
Available-for-sale financial assets	19,859	28,544
Loan notes at amortised cost less impairment	-	8,813
Derivative financial instruments not used for hedging at fair value through profit or loss	257	315
	20,116	37,672
CURRENT ASSETS
Loan notes at amortised cost less impairment	8,813	-
Loans and receivables	9,711	1,700
Trade and other receivables at amortised cost less impairment	44,850	82,481
Monies held in restricted accounts and deposits	27,486	8,096
Cash and cash equivalents	23,785	43,752
	114,645	136,029
Total financial assets	134,761	173,701
CURRENT LIABILITIES
Trade and other payables at amortised cost	(46,693)	(50,059)
Borrowings at amortised cost	(4,508)	(65,471)
	(51,201)	(115,530)
NON-CURRENT LIABILITIES
Trade and other payables at amortised cost	(14,395)	(7,134)
Borrowings at amortised cost	(167,617)	(147,818)
	(182,012)	(154,952)
Total financial liabilities	(233,213)	(270,482)

 

a)          Other financial assets	2017 £'000	2016 £'000
NON-CURRENT
Available-for-sale financial assets - development loans	19,859	28,544
Loan notes at amortised cost less impairment	-	8,813
	19,859	37,357

 

The Group provided a loan of £10,505,000 (2016: £10,505,000) to the Curzon Park Limited joint venture in order to repay a share of its bank debt. The joint venture partner provided the equivalent amount. The bank loan, originally secured against the 10.5-acre site in Birmingham, has since been fully repaid.

 

The Group has two funding agreements totalling £8,727,000 (2016: £9,214,000), in respect of projects in partnership. The loans attract fixed coupon rates of 6.0% and 8.5%. Funding of £627,000 (2016: £553,000) has been provided to Henry Davidson Developments Limited in respect of two projects. Interest of 12.5% is charged in respect of this funding.

 

	2017 £'000	2016 £'000
CURRENT
Loan notes at amortised cost less impairment	8,813	-
Loans and receivables - Northpoint Developments Limited	8,211	200
Loans and receivables - Property Alliance Group	1,500	1,500
	18,524	1,700

 

The Group holds loan notes with a carrying value of £8,813,000 (2016: £8,813,000), issued by Northpoint Developments Limited, with a fixed term of ten years and a fixed coupon rate of 4.25%. These loan notes are repayable in November 2017 and have therefore been reclassified as current financial assets. The loan notes are currently being restructured. As at 28 February 2017, the Group has made a provision of £973,000 (2016: £582,000) against interest receivable in respect of these loan notes.

 

Development loans include a number of working capital and project-specific loans of £8,211,000 (2016: £200,000) to Northpoint Developments Limited. The loans attract fixed coupon rates of between 5.0% and 13.0%. Included in the above amount are two interest-free loans of £408,000 (2016: £200,000). Loans totalling £8,011,000 are repayable in November 2017 and have therefore been reclassified as due within one year. As at 28 February 2017, the Group has made a provision of £1,223,000 (2016: £820,000) against interest receivable in respect of these loans.

 

The Group has provided a short-term, non-interest-bearing loan of £1,500,000 to Property Alliance Group as a contribution to a prospective future project, this amount is repayable on demand. 

 

 

 

b)          Borrowings	2017 £'000	2016 £'000
CURRENT
Bank overdrafts	-	-
Current instalments due on bank loans	2,631	5,544
Current loans maturing	2,578	60,939
Unamortised transaction costs	(701)	(1,012)
	4,508	65,471

 

	2017 £'000	2016 £'000
NON-CURRENT
Bank loans and loan notes	168,940	149,583
Unamortised transaction costs	(1,323)	(1,765)
	167,617	147,818

 

Bank loans are secured by way of mortgages and legal charges on certain properties and cash deposits held by the Group.

 

 

c)          Derivative financial instruments

 

Assets	2017 £'000	2016 £'000
Derivative financial instruments at fair value through profit or loss:
Interest rate swaps, caps and collars	36	57
Foreign exchange contracts	221	525
Derivative financial assets	257	582

 

Liabilities	2017 £'000	2016 £'000
Derivative financial instruments at fair value through profit or loss:
Interest rate swaps, caps and collars	-	(267)
Derivative financial liabilities	-	(267)
Net derivative financial assets	257	315

 

At 28 February 2017, the Group held interest rate swaps, caps and collars designated as economic hedges and not qualifying as effective hedges under IAS 39. The derivatives are used to mitigate the Group's interest rate exposure to variable rate loans of £51,972,000 (2016: £64,951,000). The fair value of the derivatives amounting to £36,000 are recorded as financial assets at 28 February 2017 (2016: £57,000 asset and £267,000 liability) with the fair value loss taken to finance costs.

 

 

 

12         Note to the cash flow statement

Reconciliation of profit before income tax to net cash outflow from operating activities:

	2017 £'000	2016 £'000
(Loss)/profit before income tax	(1,710)	25,788
Adjustments for:
Loss/(gain) on disposal of investment properties	2,273	(440)
Loss/(gain) on revaluation of property portfolio	9,506	(229)
Other income	(1,320)	(673)
Share of post-tax profits of joint ventures and associates	(6,134)	(7,127)
Profit from sale of investment	(567)	(2,174)
Loss on sale of other plant and equipment	25	87
Exceptional impairment of operating segment	2,150	-
Finance income	(711)	(2,483)
Finance cost	11,495	15,351
Depreciation of property, plant and equipment	1,016	1,044
Operating cash flows before movements in working capital	16,023	29,144
(Increase)/decrease in development and trading properties	(3,590)	32,096
Decrease/(increase) in receivables	36,990	(41,061)
Increase/(decrease) in payables	7,490	(11,021)
Decrease in provisions	(54)	(1,163)
Cash flows generated from operating activities	56,859	7,995

 

13         Contingent liabilities

In the normal course of its development activity, the Group is required to guarantee performance bonds provided by banks in respect of certain obligations of Group companies. At 28 February 2017, such guarantees amounted to £6,917,000 (2016: £6,917,000).

 

The Group has provided guarantees for rent liabilities in respect of properties previously occupied by Group companies. In the event that the current tenants ceased to pay rent, the Group would be liable to cover any shortfall until the building could be re-let. The Group has made provision against crystallised liabilities in this regard. In respect of potential liabilities where no provision has been made, the annual rent-roll of the buildings benefiting from such guarantees is £7,000 (2016: £165,000) with an average unexpired lease period of 70 years (2016: 3.7 years).

 

The Group has guaranteed its share of interest up to a maximum of £575,000 in respect of the £26,000,000 loan in Notting Hill (Guernsey Holdco) Limited. 

 

 

 

14         Projects in partnership

The following is a summary of the Group's projects in partnership and the balance sheet classification of its financial interests:

 

Project/partner	Project activity	Accounting classification	2017 £'000	2016 £'000
Atlantic Park (Bideford) Limited	Strategic land investment	Investment in associates	-	276
Barwood Development Securities Limited	Strategic land investment	Investment in associates	2,500	2,500
Barwood Land and Estates Limited	Strategic land investment	Investment in associates	1,500	1,500
CDSR Burlington House Developments Limited	Property development	Investment in associates	4,372	33
Wessex Property Fund	Property investment	Investment in associates	-	-
Wessex Investors	Property development	Development properties	-	-
Cathedral (Movement, Greenwich) LLP	Property development	Financial assets	127	441
Northpoint Developments Limited	Property development	Financial assets	17,024	17,285
Curzon Park Limited	Property development	Investment in joint ventures	-	-
Curzon Park Limited	Property development	Financial assets	10,505	10,505
Deeley Freed Limited	Property development	Financial assets	8,600	8,773
Henry Davidson Developments Limited	Property development	Financial assets	627	553
Property Alliance Group	Property development	Financial assets	1,500	1,500
Accrue Student Housing GP Limited	Student accommodation	Investment in joint ventures	-	2,603
Becket House Unit Trust	Investment property	Investment in joint ventures	-	9,093
Development Equity Partners Limited	Property development	Investment in joint ventures	269	276
DSCP Property Holdings Limited	Property development	Investment in joint ventures	-	2,091
DSP Piano Investments BV	Investment property	Investment in joint ventures	6,772	3,779
DSP Tirol Limited	Investment property	Investment in joint ventures	4,535	5,121
DS Renewables LLP	Property development	Investment in joint ventures	-	-
Harwell Oxford Developments Limited	Property development	Investment in joint ventures	12,881	7,915
Kensington & Edinburgh Estates (South Woodham Ferrers) Limited	Property development	Investment in joint ventures	929	503
Luxembourg Investment Company 112  Sarl	Property development	Investment in joint ventures	11,520	-
Manchester Arena Complex LP	Investment property	Investment in joint ventures	169	175
Notting Hill (Guernsey Holdco) Limited	Property development	Investment in joint ventures	7,486	7,197
Opportunities for Sittingbourne Limited	Property development	Investment in joint ventures	128	178
Orion Land & Leisure Limited	Property development	Investment in joint ventures	-	1,399
UAI(G) Limited	Property development	Investment in joint ventures	141	-
UAIH Yorkshire	Property development	Investment in joint ventures	15	-
UAIP (Drum) BV	Property development	Investment in joint ventures	1,201	-
Winnebago Holdings Sarl	Investment property	Investment in joint ventures	43	6,452
			92,844	90,148

 

The aggregate amounts included within each relevant Balance Sheet account are as follows:

	2017 £'000	2016 £'000
Investment in associates	8,372	4,309
Investment in joint ventures	46,089	46,782
Financial assets - current	18,524	1,700
Financial assets - non-current	19,859	37,357
	92,844	90,148

 

15         Post balance sheet events

As at 28 February 2017, the Group had exchanged contracts on the sale of a number of assets held directly and in joint venture. These sales have since successfully completed. 

 

 

16         Definitions

Operating profit is stated after gain on disposal of investment properties, the revaluation of the Investment property portfolio and exceptional items and before the results of associates, jointly controlled entities and finance income and costs.

 

IPD Index and Total Portfolio Return is the total return from the completed investment property portfolio, comprising net rental income or expenditure, capital gains or losses from disposals and revaluation surpluses or deficits, divided by the average capital employed during the financial year, as defined and measured by Investment Property Databank Limited (IPD), a company that produces independent benchmarks of property returns.

 

Total Shareholder Return is the movement in share price over the year plus dividends paid as a percentage of the opening share price.

 

Gearing is expressed as a percentage, is measured as net debt divided by total shareholders' funds.

 

Net debt is total debt less cash and short-term deposits, including cash held in restricted accounts.

 

Basic earnings per share amounts are calculated by dividing profit for the year attributable to owners of the Parent by the weighted average number of Ordinary shares outstanding during the year, excluding shares purchased by the Parent and held as treasury shares.

 

Diluted earnings per share amounts are calculated by dividing the profit attributable to owners of the Parent by the weighted average number of Ordinary shares outstanding during the year plus the weighted average number of Ordinary shares that would be issued on the conversion of all the dilutive potential Ordinary shares into Ordinary shares.

 

Basic net assets per share amounts are calculated by dividing net assets by the number of Ordinary shares in issue at the balance sheet date excluding shares purchased by the Parent and held as treasury shares.

 

Diluted net assets per share amounts are calculated by dividing net assets by the number of Ordinary shares in issue at the balance sheet date plus the number of Ordinary shares that would be issued on the conversion of all the dilutive potential Ordinary shares into Ordinary shares.

 

Management has chosen to disclose the European Public Real Estate (EPRA) adjusted net assets per share and earnings per share from continuing activities in order to provide an indication of the Group's underlying business performance and to assist comparison between European property companies.

 

EPRA earnings is the profit after taxation excluding investment property revaluations (including valuations of joint venture investment properties), impairment of development and trading properties, exceptional items and mark-to-market movements of derivative financial instruments (including those of joint ventures) and intangible asset movements and their related taxation.

 

EPRA net assets (EPRA NAV) are the Balance Sheet net assets adjusted to reflect the fair value of development and trading assets excluding mark-to-market adjustment on effective cash flow hedges and related debt adjustments and deferred taxation on revaluations and diluting for the effect of those shares potentially issuable under employee share schemes.

 

EPRA NAV per share is EPRA NAV divided by the number of Ordinary shares in issue at the balance sheet date.

 

EPRA triple net assets (EPRA NNNAV) is EPRA NAV adjusted to reflect the fair value debt and derivatives and to include deferred taxation on revaluations. 

 

EPRA NNNAV per share is EPRA NNNAV divided by the number of Ordinary shares in issue at the balance sheet date.