Grainger Plc · LSE:GRI
Grainger — FY2008 Earnings Presentation
40 slides from Grainger's earnings presentation, Nov 27, 2008
Slide 1: Preliminary Announcement of Results for the year ended 30 September 2008
Preliminary Announcement of Results for the year ended 30 September 2008 27 November 2008 Page 1
Slide 2: Agenda
Agenda • Introduction • Operational Highlights • Financial Results • Market • Portfolio Overview • Update on Strategy • Update on Outlook • Key Conclusions • Appendices Page 2
Slide 3: Operational Highlights
Operational Highlights • Sales from core and retirement solutions portfolios increased by 15% to £168m, from £146m • Overheads reduced by 10% to £30.1m from £33.6m • New debt facility of £228m raised during the year • Cash of £122m generated by operating activities • Property acquisitions and develo
Slide 4: Financial Results - Financial Summary
Financial Results - Financial Summary 2008 2007 Change Property and related assets (£m) 2,399 2,505 (4.2%) Gross NAV per share (p) 535 828 (35.4%) Grainger NAV per share (p) (base case) 520 732 (29%) Earnings before interest and tax* (£m) 106.0 89.0 +19.1% Dividends per share (p) 6.18p 6.18p - LTV (
Slide 5: Financial Results - Market Value Balance Sheet
Financial Results - Market Value Balance Sheet 2008 2007 Before any deferred and contingent tax £m £m Property related assets - wholly owned 2,260 2,322 - jv/associates 139 183 Total property related assets 2,399 2,505 (4.2%) Other assets and cash 57 105 Gross assets 2,456 2,610 (5.9%) Debt (1,661)
Slide 6: Financial Results - Analysis of wholly owned assets
Financial Results - Analysis of wholly owned assets 2008 2007 Residential Development T otal T otal £m UK 1,711 132 1,843 2,069 (10.9%) Germany/Europe 417 - 417 253 64.8% 2,128 132 2,260 2,322 (2.7%) Page 6
Slide 7: Financial Results - Movement in Gross NAV
Financial Results - Movement in Gross NAV Gross NAV movements £1,065m £(77)m 1100 1050 £(119)m 1000 950 900 £(94)m £m 850 £(56)m 800 750 £(23)m £(8)m £688m 700 650 Gross NAV Loss after Revaluation Revaluation Elimination Other Dividends Gross NAV Sept 07 tax deficit VP deficit IV of Sept 08 fall per
Slide 8: Financial Results - Net Asset Value Per Share
Financial Results - Net Asset Value Per Share Pence per Share 2008 2007 Gross net asset value 535 828 Add/(Deduct): Mark to market adjustments (6) 6 Deferred tax on revaluation surpluses (undiscounted) (144) (221) NNNAV 385 613 Grainger NAV (base case) 520 732 Page 8
Slide 9: Financial Results - Property Income
Financial Results – Property Income 2008 2007 £m Trading Valuation Total Trading Valuation Total Net rents 50.8 - 50.8 36.9 - 36.9 Trading profit 73.4 (12.3) 61.1 73.2 - 73.2 Profit on investment properties/subsidiaries 4.1 - 4.1 4.5 - 4.5 Other income/interest income from property assets 7.8 0.5 8.
Slide 10: Financial Results - Pre Tax Earnings
Financial Results - Pre Tax Earnings 2008 2007 £m Trading Valuation Total Trading Valuation Total Property income 106.0 (54.9) 51.1 89.0 9.9 98.9 Joint ventures/associates (4.8) (48.3) (53.1) 1.2 39.4 40.6 Goodwill impairment - (9.6) (9.6) - - - Derivatives - (11.5) (11.5) - 3.0 3.0 Profit before in
Slide 11: Financial Results - Cashflow
Financial Results - Cashflow £m 2008 2007 Income Rents and other income net of overheads 31 27 Property sales 176 180 Net proceeds from sale of equity in subsidiary 4 251 Working capital movements 2 39 213 497 Interest, tax and dividends (91) (69) Net operating income 122 428 Loan movements 120 336
Slide 12: Financial Results - Debt Analysis
Financial Results - Debt Analysis £m Post Convertible 2008 2007 Gross debt 1,664 1,422 Cash 43 80 Net debt (before deducting costs) 1,621 1,342 Available headroom 370 226 Average maturity (years) 4.5 5.4 Hedging level 85% 74% Blended interest rate 6.2% 6.1% LTV (Group basis) 66% 68% 53% LTV based up
Slide 13: UK Core Banking Facility - Covenant Compliance
Financial Results - UK Core Banking Facility – Covenant Compliance • Interest cover – Net cashflow (sales, net rents, other income less costs, tax and dividends) to be 1.25 x interest cost – Position at 30 September 2008 is 2.2 x – Tested semi annually based on previous 12 months results – Confident
Slide 14: Post Balance Sheet Event - Convertible bond
Post Balance Sheet Event - Convertible bond • 78% converted at £35,000 per £100,000 plus 11,574 shares • Effective buy in price 45.4p per £* • Increase in NAV of £42m with marginal dilution of (1.6%) in NAV per share through issue of 10.08m new shares • Effectively a rights issue at £4.16 • Taxation
Slide 15: The Market - UK Residential Market
The Market - UK Residential Market • Land Registry indicates year on year fall to end September of 8% (Nationwide and Halifax show 12.4%) • Historic long term annual growth rates: 5 year 5.5% 10 year 9% 20 year 5% • Transaction volumes and values lowered because of lack of finance • Investment marke
Slide 16: The Market - UK Residential - Market Commentary
The Market - UK Residential - Market Commentary • Oversupply in certain speculative markets where we have virtually no exposure (e.g. newly built city centre flats) • Medium and long term prices supported by imbalance between supply and demand – Historic shortfall (166,000 average annual completion
Slide 17: Portfolio Analysis - Wholly Owned
Portfolio Overview - Portfolio Analysis - Wholly Owned Gross Vacant No of Market Possession Reversionary units Value £m Value £m Surplus £m VP% Regulated 7,316 1,000 1,399 399 72% Home reversion 6,227 521 754 233 69% Assured 531 88 101 13 87% Vacant 222 36 36 - 100% Other 50 66 79 13 84% UK - reside
Slide 18: Core portfolio - Characteristics
Portfolio Overview - Core portfolio - Characteristics - Gross Asset Value £1,190m • Portfolio acquired at discount to vacant possession value, reversionary surplus £425m • Primarily (90% by value) regulated properties or vacant ex-regulateds • Diverse portfolio assembled over a number of years; acti
Slide 19: Home Reversions - Characteristics
Portfolio Overview - Home Reversions - Characteristics - Gross Asset Value £521m • Grainger is market leader with 35% market share (September 2008 figures from SHIP) through our various marketing initiatives • Winner of Home Reversions Provider of the Year for the third consecutive year • Core skill
Slide 20: Fund Management and JV's/associates
Portfolio Overview - Fund Management and JV’s/associates - Gross Asset Value £139m • Major co-investment vehicle is G:res1, Grainger has £34m equity (21.6%) • Property and asset advisor to Schroders ResPUT: Grainger equity £17m (23.6%) • Grainger GenInvest: 50/50 JV with Genesis, Grainger equity £65
Slide 21: Property and Asset Management Services
Portfolio Overview - Property and Asset Management Services • Provides unique perspective of owner/manager • Combines long term asset management, day to day property management and specialist sales and acquisitions teams on nationwide basis • Provides services to JVs/associates as well as owned port
Slide 22: Development - Summary
Portfolio Overview - Development - Summary • Balance sheet value at year end £132m (cost £133m) • Expected end development value: – with planning consent £484m – without planning consent £366m £850m • Committed spend up to 2013 of £30m (of which £18m in 2009) including £11m on Hornsey Road and £8m b
Slide 23: Development - Current Developments: Wards Corner
Portfolio Overview - Development - Current Developments Wards Corner Project Name Wards Corner Acquisition Date 2004 Development Partners Haringey Borough Council Transport for London The Bridge NDC Est. Development Value £80m Residential 197 units Commercial/Retail 40,000 sq ft Other benefits New p
Slide 24: Development - Current Developments: Hornsey Road
Portfolio Overview - Development - Current Developments Hornsey Road Project Name Hornsey Road Acquisition Date 2004 Development Partners London Borough of Islington Est. Development Value £45m Private Residential 150 units Commercial/Retail 30,000 sq ft Other benefits Community space, nursery, Coun
Slide 25: Strategy for Germany
Portfolio Overview - Strategy for Germany Grainger Model • Areas of population growth • Portfolio has been built on property characteristics through smaller lot sizes • Potential for long term capital growth • Long term aim remains to attract third party equity to apply co-investing fund management
Slide 26: Germany Portfolio Overview
Portfolio Overview - Germany Portfolio Overview Sylt Oldenburg Ratekau Portfolio Overview Emden • 6,894 residential units Hamm Rotenburg/Wümme • 395 commercial units Bremen Oyten Recklinghausen Hannover • 1 nursing home in Northern Braunschweig Berlin Herten Potsdam Germany Hern
Slide 27: Update on Strategy
Update on Strategy • Short to medium term focus on cash conservation and covenant compliance • Maximise efficiency of capital structure through introduction of third party equity and debt • Strong operational platform and access to deals in order to diversify income streams • Unique brand as long te
Slide 28: Update on Outlook
Update on Outlook • Highly experienced management team which has operated through many cycles • Long term HPI expectations – although extremely cautious in the immediate term • Unique portfolio and diversification of income streams • Market leading infrastructure • Strong stakeholder and market repu
Slide 29: Key Conclusions
Key Conclusions • Management focus remains on maximising cashflow • Active management of sales, operating costs, bank covenant compliance • Core portfolio has strong defensive characteristics • Market leadership and structure offers strong opportunities that we expect to be able to exploit in the me
Slide 30: Appendices - Detailed Profit and Loss Account
Appendices - Detailed Profit and Loss Account 2008 2007 UK Residential UK Development Europe Total UK Residential UK Development Europe Total £m £m £m £m £m £m £m £m Gross rents/other income 56.4 1.2 21.8 79.4 47.1 1.9 9.9 58.9 Property expenses (13.3) (0.2) (6.4) (19.9) (13.2) (0.5) (2.2) (15.9) 43
Slide 31: Appendices - Detailed UK Residential Income Account
Appendices - Detailed UK Residential Income Account £m Fund Managem ent/ Core Hom e Reversion Residential Investm ents Total Gross rents/other income 44.2 5.9 6.3 56.4 Property expenses (12.0) (1.3) - (13.3) 32.2 4.6 6.3 43.1 Trading Profits 62.9 10.0 - 72.9 NRV provision against trading stock (3.1)
Slide 32: Appendices - UK Portfolio Location
Appendices - Portfolio Overview - UK Portfolio Location Value Number Investment Value Vacant Possession Value reduction in year of units £m % £m % % 01 Central London 584 181 10.6% 255 10.8% (3.4%) 12 01 Inner London 1,145 236 13.8% 319 13.5% (10.6%) 01 Outer London 1,296 184 10.8% 261 11.0% (7.8%)
Slide 33: Appendices - Analysis of JV's associates
Appendices - Portfolio Overview - Analysis of JV’s associates Total Gross Liabilities/ Net Grainger Grainger Grainger 2008 Assets Debt Assets Share Share Loan Investment Designation £m £m £m % £m £m £m UK - Residential G:res1 Associate 401 (242) 159 21.6% 34 - 34 Schroder Associate 73 - 73 23.6% 17
Slide 34: Appendices - UK Residential - Sales and Acquisitions Summary
Appendices - UK Residential - Sales and Acquisitions Summary Sales Acquisitions Number Proceeds £m Profit £m Number Cost £m 696 111 52 Regulated 277 36 121 20 6 Assured 126 24 185 27 11 Home reversion 460 43 - 10 5 Other - 20 1,002 168 74 863 123 Page 34
Slide 35: Appendices - Portfolio Analysis - JV's and associates
Appendices - Portfolio Overview - Portfolio Analysis - JV’s and associates Gross Gross Vacant Grainger Market Possession Share of No of Value Value Grainger Grainger Reversionary units £m £m Share % Equity £m Surplus £m G:res1 2,149 378 445 21.6 34 14 Schroders 519 72 87 23.6 17 4 GenInvest 1,566 28
Slide 36: Appendices - Committed Facilities - Post Bond
Appendices - Committed Facilities - Post Bond 2050 2000 1950 1900 1850 1800 Revolving Facility B 1750 £400 due 30June 2010 1700 1650 Revolving Facility A due 1600 £475 1550 30 Jun 2011 1500 1450 £28.57 £28.5 £28.5 £28.5 £28.5 £28.57 £28.57 Term facility B 1400 Instalments due 30 1350 June 2011 1300
Slide 37: Appendices - Development - Status of Major Projects
Appendices - Portfolio Overview - Development - Status of Major Projects Expected Gross Development Project Description Status Value Hornsey Road, Islington 200 residential units, community building Construction almost complete 45 New lands 100,000 sq. m commercial, 1,550 new homes & 1,000 reserve P
Slide 38: Appendices - Grainger NAV - Sensitivity Analysis
Appendices - Grainger NAV – Sensitivity Analysis Without discounting tax Discount rate 8.43% 7.0% 5.43% Note • Grainger NAV brings in the present 0% 520p 544p 576p taxed value of reversionary surpluses in our long term portfolio 2% 557p 588p 628p HPI 4% 604p 643p 695p • Grainger WACC: 5.43% 5% 631p
Slide 39: Appendices - Glossary of Terms
Appendices - Glossary of Terms Property Assured periodic tenancy (“APT”) Market rented tenancy arising from succession from regulated. Tenant has security of tenure. Assured shorthold tenancy (“AST”) Market rented tenancy where landlord may obtain possession if appropriate notice served. Assured ten
Slide 40: Appendices - Glossary of Terms
Appendices - Glossary of Terms Financial (continued) Gearing The ratio of borrowings, net of cash, to market net asset value. Hedging The use of financial instruments to protect against interest rate movements. IFRS International Financial Reporting Standards Interest cover Profit on ordinary activi