Grainger plc Regulatory News (GRI)

16 May 2013

Grainger plc

("Grainger", the "Group" or the "Company")

HALF YEAR RESULTS FOR THE SIX MONTHS TO 31 MARCH 2013

STRONG FINANCIAL PERFORMANCE AND OPERATIONAL SUCCESSES AS GRAINGER DELIVERS ON STRATEGIC TARGETS

Positive momentum across the management platform

·; New strategic alliances with key partners created, positioning Grainger for future growth, while reducing requirement for capital investment

·; Proportion of profit generated from rent and fees increased

·; Gross fee income from the group's management contracts with JV and other partnerships increased by 35.4% to £6.8m (March 2012: £5.0m), demonstrating potential of the management platform to deliver significant and sustainable recurring revenue streams

·; Group well positioned to take advantage of changes in the UK housing market and private rented sector, against a background of growing Government and institutional interest and support.

Strong financial performance

·; Triple net asset value per share up 6.6% to 167p (September 2012: 157p), outperforming the broader UK housing market

·; Gross net asset value per share up 0.6% to 224p (September 2012: 223p)

·; Net debt of £1.15bn at 31 March 2013, reduced further to £1.08bn by 13 May (September 2012: £1.19bn). Commitment to reduce net debt to £1bn target by end of 2013 remains

·; Group loan to value reduced to 54% at 31 March 2013 (September 2012: 55%), further reduced to an estimated 52% by 13 May 2013

·; Pre-tax profit of £11.0m (March 2012: £15.1m)

·; Reversionary surplus of £524m, 126 pence per share (September 2012: £544m, 131 pence per share)

·; Interim dividend increased by 5.5% to 0.58p per ordinary share (March 2012: 0.55p)

Good progress on valuation and sales

·; Continued valuation outperformance, with a 3.0% increase in our UK residential portfolios compared to an average 1.6% increase in Nationwide and Halifax measures, reflecting the strength of our asset management platform and geographical bias of our portfolio to London and the South East

·; Valuation supported by sales results - vacant sales achieved, on average, 5% above September 2012 vacant possession values

·; Margins on normal trading sales increased to 44.7% (March 2012: 42.4%).

Robin Broadhurst, Chairman of Grainger plc, commented:

"The market value of our properties, supported by the evidence of NAV enhancing sales, has once again outperformed the general market indices. We continue to make progress in reducing group debt to our target of £1bn by the end of 2013.

"Since the year end we have created three new strategic alliances with APG, Heitman and Dorrington, comprising a combined total of £661m of assets and reinforcing our position as a partner of choice in the residential market. Furthermore, these transactions underpin our objective to improve shareholders' return on capital, through successfully growing our business, whilst at the same time reducing net debt, thereby positioning Grainger for long term, sustainable growth."

Andrew Cunningham, Chief Executive, said:

"We have made good progress against our strategic objectives in this period. Alongside reducing our debt, our reversionary assets, whose liquidity and value are continuously validated by sales, continue to generate cash and profit. This allows targeted investment in new activities as well as allowing us to move to an appropriately lower level of gearing. At the same time we are increasing the proportion of our profits derived from fees and rental income. We will also continue to focus on increasing our net asset values and outperforming the general residential market.

"We have implemented a number of key initiatives during the half year, demonstrating that, as a result of our scale, skills and flexibility, we are well-positioned to take advantage of the opportunities arising in the changing UK housing market and particularly the private rented sector. Furthermore, we believe we can continue to build on our strong track record of partnerships, offering our expertise and robust operational platform to third parties, thereby further enhancing our fee income. These opportunities align with our overall strategic direction and we are confident in our ability to take further advantage of such opportunities as they arise."

Analyst presentation

Grainger plc will be holding a presentation for analysts and investors today at 9.00a.m., Thursday 16 May 2013 at Numis, London Stock Exchange, 10 Paternoster Square, London, EC4M 7LT.

The meeting can also be accessed through the following dial-in facility and a copy of the presentation slides will be available on Grainger's website, www.graingerplc.co.uk.

Webcast details: To listen to a webcast of the presentation, please register by visiting the following website: http://www1.axisto.co.uk/webcasting/investis/grainger/half-year-2013/

Conference call details:

A replay of the call will be available after the event until 23 May, 12pm. Dial-in details for the archive call are:

Telephone +44 (0)20 7769 6425

Passcode 1071 2826#

Chairman's Statement 

The importance of the residential property sector to the wider UK economy has been increasingly apparent over the last six months. The Chancellor's budget in March included a number of measures which will further stimulate a market which already shows some signs of revival. This has gone hand in hand with an increasing profile, specifically, of the private rented sector (PRS) and Build to Rent sector.

As the UK's largest listed residential owner and manager, Grainger has played an important role in working with the Government to help support the emergence of an institutionally-backed professional private rented sector and a Build to Rent sector, as well as taking advantage of new opportunities in this area as the market develops and new Government initiatives take effect. Our joint investments with APG to form GRIP (Grainger Residential Investment Platform), a PRS fund, as announced in January 2013, followed by other recent investments into the sector, are evidence of this, and we expect this momentum to continue.

We have also put forward several schemes for funding through the UK Government's Build to Rent Equity fund (which totals £1bn). These have now been put through to the second round of due diligence. In addition, one of our specialist asset managers has been seconded to the UK Government's PRS Taskforce, which will oversee the growth and development of the sector, demonstrating our strong pool of expertise.

As well as the creation of GRIP, since the last year end we have entered into co-ownership arrangements with Heitman in Germany and with Dorrington for the Walworth Estate in South London. These build upon our existing co-investment and fee-based arrangements and bring the total of assets managed for joint ventures and third parties to £927m, underpinning our drive to become the partner of choice for residential investment.

Progress towards strategic objectives

We are continuing to make strong progress against our key strategic objectives. As well as maintaining and building on our leading position within residential property as outlined above, we are moving towards our year end debt target of £1bn with debt having fallen to £1.08bn as at 13 May 2013 from £1.19bn at 30 September 2012.

The values of our UK properties have again outperformed the UK residential market achieving growth of 3.0% compared to the average 1.6% increase shown by the Nationwide and Halifax indices. This has been assisted by 63% of our properties, by market value, being situated in London and the South East along with our granular management approach. We have again increased the proportion of operating profits derived from net rents and fees to 49.7% in the six months to 31 March 2013 compared to 48.4% in the year to 30 September 2012.

Results

We delivered a profit before tax of £11.0m (31 March 2012: £15.1m profit) the reduction due in large part to higher transaction related charges in 2013. Triple net asset value (NNNAV) increased by 6.6% to 167p per share (30 September 2012: 157p per share) and gross NAV by 0.6% to 224p (30 September 2012: 223p).

Dividends

The Board is declaring an interim dividend of 0.58p per share (31 March 2012: 0.55p per share) to be paid on 5 July 2013 to shareholders on the register at close of business on 7 June 2013.

 Outlook

As we have stated previously, Grainger's business model will evolve to reflect the changing nature of residential occupation in the UK. In particular, we expect to see income from the private rented sector and from fees to become an increasingly significant part of our business. We believe that the actions we have taken in this period, together with the changing market dynamics and underlying movements in the political landscape, place us in a good position to capitalise on this in the future for the benefit of our shareholders.

Robin Broadhurst

Chairman

16 May 2013

Chief Executive's Review

Overview

We are pleased with the progress made in the period: we have continued to reduce debt whilst increasing net asset value; we have maintained our track record of outperforming the general UK residential market and we have created further fee income and co-investment opportunities through strategic alliances with excellent partners. Our geographic focus on economically strong areas has supported growth in capital values and we remain committed to, and are at the forefront of, the build to rent and private rented sector.

Outperformance

Our portfolios consistently outperform the market. Asset values within our UK residential property portfolios have outperformed the average Nationwide and Halifax indices by 7.2% since 2009. We also continue to sell at above valuation - vacant sales in the period were, on average, 5% above September 2012 values. This gives strong support to the property valuations underpinning our NAV measures.

Outperformance vs Nationwide & Halifax

http://www.rns-pdf.londonstockexchange.com/rns/8345E_-2013-5-15.pdf 

Debt

By 31 March 2013 our net debt stood at £1.15bn - a reduction of £40m since 30 September 2012. In the last two years our balance sheet net debt has fallen by £416m from £1.57bn. At 13 May 2013 our group debt had fallen further to £1.08bn following the creation of the Walworth joint venture partnership with Dorrington.

Net debt (£m)

http://www.rns-pdf.londonstockexchange.com/rns/8345E_1-2013-5-15.pdf

This combination of debt reduction and valuation outperformance has been accompanied by an increase in net asset values. Since 31 March 2009, NNNAV has risen 18.8% and gross NAV has risen 15.6%.

NNNAV (p)

http://www.rns-pdf.londonstockexchange.com/rns/8345E_2-2013-5-15.pdf

Gross NAV (p)

http://www.rns-pdf.londonstockexchange.com/rns/8345E_3-2013-5-15.pdf 

Net debt and net asset values also benefited in the six month period to 31 March 2013 from the purchase at a discount of the debt within our Tricomm portfolio. This added 3.7p to both NAV measures.

Strategic alliances

We have entered into three key alliances since September 2012.

·; Grainger and APG, Europe's largest pension fund asset manager, co-invested in a new unit trust, GRIP, to acquire the assets of the G:res fund which Grainger had created in 2006. APG's investment of £158m into GRIP, their first in the UK residential sector, represented a significant step forward for large scale institutional investment in the PRS.

·; As reported at the full year we completed the sale of a proportion of our German property to a structure owned 75% by a global institutional investor, and managed on their behalf by Heitman, a global real estate investment firm, with Grainger retaining the balance.

·; As announced on 13 May 2013, we have entered into a 50:50 JV with Dorrington plc to hold the Walworth Estate comprising £111m of assets at a single site in south London. This disposal crystallises a return of 36% on our equity investment since acquisition in March 2011 and the co-investment positions us to continue to maximise opportunities at the estate.

Combined with the existing work we do with the Defence Infrastructure Organisation, Moorfield and Lloyds Banking Group, we expect these alliances will support further growth in our fee income.

Geographical focus

Residential house prices and returns are driven by imbalances between supply and demand and by underlying economic performance. Consequently, values in areas such as London, the south east of England and western parts of Germany have proved to be more robust than other regions. Some 62.7% of our UK assets are in London and the south east. This geographic focus and the value created by our underlying asset management have resulted in a track record of consistent outperformance.

Private rented sector

There has been much comment on the private rented sector and its prospects for growth. These are largely driven by the demand for a range of good quality rental property from occupiers who either choose not to own their own property or who are unable to find an appropriate combination of deposit and mortgage finance to enable them to buy. An example of this is that over 50 per cent of residential occupiers in London are now renters (social or private). This has also been reflected in political sentiment and actions. Many of the recommendations from last year's Montague Review into the private rented sector have been acted on, in particular the establishment of a Task Force to oversee the development of the sector and the introduction of funding schemes for build to rent, to which Grainger has seconded an employee, underlining our commitment to the initiative.

As well as supporting and taking a lead commentary position on these initiatives, Grainger has also taken direct action to promote the sector. We have previously mentioned our work with APG to create GRIP which provides an investment opportunity into a large established rental portfolio, giving the benefits of scale and a track record of performance.

On the build to rent front, we have entered into a purchase agreement to acquire 100 purpose built rental units from Bouygues Development at London Road, Barking. The design layout, location and pricing of these units are specifically for the rental market rather than the owner-occupied market. This scheme potentially acts as a forerunner for this market sector - a residential product driven by, and valued on the basis of, a rental income stream rather than underlying capital value in the owner-occupied market.

Valuation update

Our residential portfolios in the UK, assisted by the strong London and south east weighting, produced a market valuation uplift of 3.0% in the six months to March 2013. This comprised an increase in UK Residential of 3.1% and Retirement Solutions of 2.7%. The values in our directly owned German portfolio increased by 0.5% before adjusting for an increase in Real Estate Transfer Tax (RETT) (reduced by 0.1% after adjusting for RETT changes).

The reversionary surplus (the difference between vacant possession value and market value) is £524m (September 2012: £544m). This reversionary surplus, which equates to a very low risk pipeline of value which will crystallise in future years, is not recognised in our reported net asset values. We do, however, incorporate it into an alternative net asset value measure ("Grainger NAV") which is available in the appendices to our Half Year presentation to analysts on our website.

Trading update: Sales, Rents and Fees

Sales

Total profit of £34.5m was generated from gross sales proceeds of £117.0m compared to £39.9m on £112.3m gross sales to 31 March 2012. This movement in volume was driven mainly by an increase in tenanted and other sales which generated proceeds of £53.9m compared to £35.1m to 31 March 2012, offset by a reduction in sales within Germany which reduced to £6.3m compared to £17.7m to 31 March 2012.

Margins on our normal sales of vacant trading properties of 44.7% have improved compared to the 42.4% achieved to 31 March 2012.

On average in the UK vacant properties have been sold at 5.0% in excess of September 2012 vacant possession value.

At 13 May 2013 our total sales pipeline amounted to £171m (14 May 2012: £188m). This includes completed sales, transactions with contracts exchanged or where solicitors have been instructed.

Rent

Total net rents to March 2013 amounted to £27.3m (March 2012: £31.8m). The reduction in gross rents is primarily due to the transfer of assets into our Heitman co-investment vehicle which generated £4.0m gross rents in the equivalent prior year period from 10 December 2011 to 31 March 2012. In addition sales across the Group have had a £3.2m impact on gross rents, offset by £0.9m of rental increases.

Fees

Gross fee income increased by 35.4% to £6.8m (31 March 2012: £5.0m) derived from asset and property management fees from our co-investment vehicles and management contracts.

Gross fees have increased as a result of additional management agreements, with £0.3m additional fees deriving from our German co-investment vehicle since December 2012 and as a result of an increase in sales fees from the RAMP contract.

Cost reduction

Significant work has been carried out in the period to put in place new agreements that we believe will deliver annual cost savings of £2.5m. The benefits will be reflected from our 2013/ 14 financial year onwards. We have incurred some additional costs in the year thus far to secure these future cost reductions.

Summary and business prospects

We have made good progress in our strategic objectives in this period. At the same time as increasing our fee income and reducing our debt, our key portfolios have again shown growth in asset value and margins on normal sales have increased. We believe this demonstrates the strength of our portfolios.

We have implemented a number of key initiatives such as GRIP and our build to rent scheme in London Road, Barking. These demonstrate that we are well positioned to take advantage of the opportunities arising in the housing market in the UK at the moment, particularly within the private rented sector. These opportunities align with our overall strategic direction and we are confident in our ability to take further advantage of such opportunities as they arise.

Furthermore, we believe we can continue to build on our strong track record of partnerships, offering our expertise and robust operational platform to third parties, thereby further enhancing our fee income.

Andrew R. Cunningham

Chief Executive

16 May 2013

Financial Review

Our key performance indicators at the half year are: 

Income Performance

The table below summarises our operating profit before valuation movements (OPBVM), recurring profit and profit before tax.

We have three income streams within operating profit before valuation movements and non-recurring items (OPBVM). These are sales of residential properties, rental income and fees or other income, net of property expenses and overheads and before valuation and non-recurring items.

The major movements within OPBVM are:

·; A decrease of £6.3m in gross rents. This arose primarily as a result of the transfer of assets into the co-investment vehicle in Germany on 10 December 2012 which had a £4.0m impact on gross rents. Sales across the group have resulted in a reduction in gross rents of £3.2m, offset by £0.9m of rental increases.

·; A reduction of £4.7m in relation to residential property sales.

·; An increase in gross management fees of £1.8m arising primarily from RAMP, which generated an additional £1.6m of fee income, and the addition of fee income from our German co-investment vehicle which contributed £0.3m.

Divisional Analysis of OPBVM

Tricomm debt settlement

On 27 March 2013 we purchased debt specifically associated with our Tricomm Portfolio using our core group facilities. This was at a discount of 25% to the principal amount of £67m resulting in a non-recurring profit and a reduction in group net debt of £15.4m along with an increase in NAV and NNNAV of 3.7p. The associated interest rate swap did not require breaking but we have transferred the movement on its mark to market since acquisition through our income statement in the period.

This transaction follows our purchase of the portfolio in 2011 when we acquired net assets of £33.4m (which were reduced in full for the swap mark to market liability at the time of £8.6m) for a consideration of £18.5m leading to a profit on acquisition of £14.9m.

Interest income and expense

The net recurring interest charge has decreased by £9.0m from £46.9m in the first half of 2013 to £37.9m at 31 March 2013. This follows from the reduction in debt which was (on a daily average) £1,353m in the first half of 2013 (2012: £1,561m), and a lower average interest rate of 5.6% (March 2012: 6.0%). 

Finance income of £16.1m has benefitted from the purchase of Tricomm debt at a discount of £15.4m as noted above. Therefore, after taking account of the lower interest charge and the Tricomm gain, the net interest expense is £22.5m to 31 March 2013 (2012: £46.9m).

Joint ventures and associates

Joint ventures and associates contributed a loss of £0.6m to recurring profit in the year (31 March 2012: loss of £0.8m). Included within valuation movements is a gain of £2.1m derived from our share of the GRIP revaluation surplus (2012: £2.0m from G:Res).

Valuation of investment property

In addition to the GRIP valuation gain, there was a further valuation uplift in 2013 of £3.4m relating to the Group's wholly owned investment property. This compares to an uplift of £6.9m to 31 March 2012.

Derivative movements

Fair value movements on derivatives is a charge of £18.6m. This includes the transfer from reserves noted above in relation to the Tricomm swap of £13.7m, a positive valuation gain of £2.4m and a further transfer from reserves to income statement of £7.3m relating to swaps settled during the period.

The fair value of swaps at 31 March 2013 is a liability of £124.7m compared to £171.9m at 30 September 2012. The September balance included £21.7m relating to an agreed swap settlement and £4.8m included in assets held-for-sale.

Non-recurring 

The movement in non-recurring items is analysed as follows:

The major items in 2013 are a net gain of £1.7m relating to the purchase at a discount of bank debt from Bank of America and recycling of the associated swap, costs, charges and gains, including the recycling of swaps, of £2.8m in relation to the transfer of assets from G:Res to GRIP and an additional £2.1m loss on sale on our German co-investment vehicle with Heitman.

Profit before tax

Having taken account of all of the above movements, profit before tax was £11.0m compared to a profit before tax of £15.1m in 2012. (See note 2 to the accounts for further analysis).

Tax

The Group has an overall tax charge of £0.2m for the period, comprising a £1.2m UK tax charge and a £1.0m overseas tax credit. 

The net reduction of £2.4m, from the expected charge of £2.6m, results from a prior period credit of £3.6m relating to agreements reached with the UK and German tax authorities, and non- deductible expenditure totalling £1.2m.

The Group works in an open and transparent manner with the tax authorities. HM Revenue & Customs has again graded the Group as a 'low risk' taxpayer. The Group is committed to maintaining this status.

The Group has made net corporation tax payments totalling £7.2m in the period. 

Earnings per share

Basic earnings per share is a profit of 2.6p (31 March 2012: a profit of 3.0p). A half year on half year comparison is shown below:

Dividend for the year

After considering the investment and working capital needs of the business, the Directors have recommended an interim dividend of 0.58p per ordinary share (2012: 0.55p) which equates to £2.4m (2012: £2.3m). Earnings cover dividends by 4.6 times.

Asset Performance

Net asset value

We set out below the two measurements to enable shareholders to compare our performance year on year.

The European Public Real Estate Association ('EPRA') Best Practices Committee has recommended the calculation and use of an EPRA NAV and an EPRA NNNAV. The definitions of these measures are consistent with Gross NAV and Triple NAV as described and shown in this document.

A reconciliation between the statutory balance sheet and the market value balance sheets for both Gross NAV and NNNAV is set out in Note 3 to the accounts.

Reconciliation of Gross NAV to NNNAV

The major movements in Gross NAV in the year are:- 

The major movements in NNNAV in the year are:

Market value analysis of property assets

Financial resources, interest cost and derivative movements

As at 31 March 2013, debt had reduced from £1.19bn at 30 September 2012 to £1.15bn. This was after taking into account: £39m of breakage of interest rate derivatives; £12m of increase due to movement in our Euro denominated debt arising from exchange rate movements; and investment of £21m into the GRIP fund alongside our partners APG.

As at 13 May 2013, group net debt is estimated to be £1.08bn. This further reduction follows the joint venture (JV), entered into since 31 March and announced on 13 May, with Dorrington. This relates to the sale to the JV of a South London portfolio of residential property for £111m. The portfolio was previously wholly-owned by Grainger plc. The joint venture has arranged non-recourse debt of £60m. The assets have been sold into the JV at Grainger's carrying value of £111m. Taking into account the debt finance and allowing for working capital requirements, and Grainger investment of £28m in the JV, the immediate impact on Grainger's net debt was a reduction of c.£83m.

We have reiterated our commitment to a reduction of group net debt to £1bn by the end of 2013. 

As at 31 March 2013, the average maturity of the Group's committed facilities was 4.7 years (September 2012: 5.1 years) and the average maturity of the Group's drawn debt was 4.7 years (September 2012: 5.5 years). 

The Group has free cash balances of £27m plus available overdraft of £5m along with undrawn committed facilities of £61m. Thus headroom totals £93m as at 31 March 2013 (September 2012: £148m). 

The Group's average interest rate excluding costs as at 31 March 2013 (based on current Libor/Euribor rates and on current debt hedging) was 4.8% (September 2012: 6.0%).

The Group's average cost of debt, including costs, through the half year to 31 March was 5.6% (12 months to September 2012: 6.1%). 

An analysis of our gross interest expense is shown below:-

The business has produced £123m of cash from its operating activities derived from net rents and other income, property sales and other working capital movements net of overheads. The largest outflows of cash are £39m to settle swaps and £34m of net interest.

At 31 March 2013, gross debt was 52% hedged (September 2012: 85%) of which 3% was subject to caps (September 2012: 4%). 

In the period we broke a number of interest rate swaps expending £39m. This has had the effect during the period of reducing our interest charge by £4.5m, our cost of debt by 66bps and our average interest rate by 108bps.

At 31 March 2013, loan to value ("LTV") on the core facility was 49% (September 2012: 48%). This compares to a maximum allowable LTV covenant under that facility of 75%. Consolidated LTV was 54% (September 2012: 55%) As at 13 May 2013, consolidated LTV is estimated to be 52%.

At 31 March 2013, the interest cover ratio on the core facility stood at 3.3 times (September 2012: 3.0 times). This compares to an interest cover covenant of 1.35 times.

On the basis of the Group's current trading, cash flow generation and debt reduction, the Directors have concluded that it is appropriate to prepare the Group financial statements on a going concern basis.

Mark Greenwood

Finance Director

16 May 2013

Included within other comprehensive income is £1.6m (2012: £2.0m) relating to associates and joint ventures accounted for under the equity method.

Notes to the unaudited interim financial statements

1 Accounting policies

1a Basis of preparation

These condensed interim financial statements are unaudited and do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. This condensed consolidated interim financial information has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and International Accounting Standard 34 (IAS 34) 'Interim Financial Reporting' as adopted by the European Union. The interim condensed financial statements should be read in conjunction with the annual financial statements for the year ended 30 September 2012 which have been prepared in accordance with International Financial Reporting Standards (IFRSs') as adopted by the European Union.

These condensed interim financial statements have been prepared in accordance with the accounting policies set out on pages 84 to 92 of the 2012 Annual Report and Accounts which is available on the Group's website (www.graingerplc.co.uk). 

Historically, the residential housing market is more active in the second half of our financial year. Therefore, we would normally expect that property sales and trading profit would be higher in the second half compared to the first half of the year. However, given current market conditions, the second half year may be similar to the first half in respect of sales of vacant properties. We have identified a significant number of properties for potential sale as tenanted sales for the second half year. Our expectation, therefore, is that tenanted sales in the second half year will exceed the £54m achieved in the first half year. Net rental income is not impacted by seasonality but has been impacted, in the results to 31 March 2013, by the sale of 75% of our Stuttgart portfolios in December 2012. Trading in the development division is subject to cyclicality with results dependent on the timing of development sales.

All our assets are subject to a Directors' valuation at the half year end, supported by independent verification.

The Group's financial derivatives were valued as at 31 March 2013 by external consultants, using a discounted cash flow model and quoted market information.

Taxation is calculated based upon the best estimate of the weighted average corporation tax rate expected for the full year.

Presentation of Administrative expenses and Other Income and Expenses

In prior periods some of the Group's expenses have been allocated against net rental income and profit on disposal of trading property with the balance shown as administrative expenses. The Directors have reviewed this presentation and have concluded that it provides a clearer picture of the Group's results by showing all of the Group's expenses as administrative expenses. The comparatives in the consolidated income statement and in notes 5, 6 and 8, have been restated to reflect the change which is presentational only with no impact on profit.

Other Income and Expenses were presented as a single line item in the March 2012 consolidated income statement and notes to the accounts. In 2013 other income and other expenses have been presented separately and the comparatives restated.

1b Adoption of new and revised International Financial Reporting Standards

In the current financial year, the Group has adopted Amendment to IAS 12 "Deferred Tax: Recovery of Underlying Assets‟ and Amendment to IAS 1 "Financial Statement Presentation‟.

New standards, amendments and interpretations that have been published and are therefore mandatory for the Group's accounting periods beginning on or after 1 October 2012 and later periods are disclosed on pages 90 to 92 of the Annual Report and Accounts for the year ended 30 September 2012.

There is no material impact from the adoption of these IFRS's, IFRIC interpretations and amendments in this condensed consolidated interim financial information.

1c Group risk factors

As with all businesses, the Group is affected by certain risks, not wholly within our control, which could have a material impact on the Group and could cause actual results to differ materially from forecast and historical results. The most significant of these, all of which are macro-economic, are as follows:-

·; Long term flat or negative growth in value of group assets

·; Lack of readily available funding to either the Group or third parties

·; Unfavourable legislation and increased burden from regulatory environment

The principal risks and uncertainties facing the Group have not changed from those as set out in the Risk Management report on pages 48 and 49 of the 2012 Annual Report and Accounts.

1d Forward-looking statements

Certain statements in these condensed interim financial statements are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct.

Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. We undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

2. Analysis of profit before tax

The results for the periods to 31 March 2012 and 2013 respectively have been affected by valuation movements and non-recurring items. The table below provides further analysis of the income statement showing the results of trading activities separately from these other items.

3. Segmental information

IFRS 8 'Operating Segments' (IFRS 8) requires operating segments to be identified based upon the Group's internal reporting to the Chief Operating Decision Maker (CODM) so that the CODM can make decisions about resources to be allocated to segments and assess their performance. The Group's CODM is the Chief Executive Officer.

The Group has identified five segments and is treating all of these as reportable segments. The segments are: UK Residential; Retirement Solutions; Fund and third party management; UK and European development and German Residential. The Group has a segment director responsible for the performance of each of these five segments and the Group reports key financial information to the CODM on the basis of these five segments. Each of these five segments operate within a different part of the overall residential market.

The key operating performance measure of profit or loss used by the CODM is the trading profit or loss before valuation gains or deficits on investment property and excluding all revaluation and non-recurring items (OPBVM) as set out in Note 2. The CODM reviews by segment two key balance sheet measures of net asset value. These are Gross Net Asset Value and Triple Net Asset Value.

Information relating to the Group's operating profit or loss by segments is set out below.

The title "Other" has been included in the tables below to reconcile the segments to the figures reviewed by the CODM.

The majority of the Group's property assets are classified as trading stock and are therefore shown in the statutory balance sheet at the lower of cost and net realisable value. This does not reflect the market value of the assets and so the Group's key balance sheet measures of net asset value include trading stock at market value. The two principal net asset value measures reviewed by the CODM are Gross Net Asset Value (NAV) and Triple Net Asset Value (NNNAV).

NAV is the statutory net assets plus the adjustment required to increase the value of trading stock from its statutory accounts value of the lower of cost and net realisable value, to its market value. In addition, the statutory balance sheet amounts for both deferred tax on property revaluations and derivative financial instruments net of deferred tax, including those in joint ventures and associates, are added back to statutory net assets. Finally, the market value of Grainger plc shares owned by the Group is added back to statutory net assets.

NNNAV reverses some of the adjustments made between statutory net assets and NAV. All of the adjustments for the value of derivative financial instruments net of deferred tax, including those in joint ventures and associates, are reversed. The adjustment for the deferred tax on property revaluations is also reversed. In addition, adjustments are made to net assets to reflect the fair value, net of deferred tax, of the Group's fixed rate debt and to deduct from net assets the contingent tax calculated by applying the expected rate of tax to the adjustment to increase the value of trading stock from its statutory accounts value of the lower of cost and net realisable value, to its market value.

These measures are set out below by segment along with a reconciliation to the summarised statutory statement of financial position.